SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
FORM 6-K
Report of Foreign Issuer
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
Annual Report for the year ended October 31, 2002
CANADIAN IMPERIAL BANK OF COMMERCE
(Translation of registrant's name into English)
Commerce Court
Toronto, Ontario
Canada M5L 1A2
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual
reports under cover of Form 20-F or Form 40-F:
Form 20-F / / Form 40-F /X/
Indicate by check mark if the registrant is submitting the Form 6-K in
paper as permitted by Regulation S-T Rule 101(b)(1): ______
Indicate by check mark if the registrant is submitting the Form 6-K in
paper as permitted by Regulation S-T Rule 101(b)(7): ______
Indicate by check mark whether by furnishing the information contained
in this form, the registrant is also hereby furnishing the information to the
Commission pursuant to Rule 12g 3-2(b) under the Securities Exchange Act of
1934:
Yes [ ] No [X]
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereto duly authorized.
CANADIAN IMPERIAL BANK OF COMMERCE
Date: January 14, 2003 By: /s/ Paul T. Fisher
--------------------------------------------
Name: Paul T. Fisher
Title: Vice President and
Corporate Secretary
By: /s/ C. Allen Logue
--------------------------------------------
Name: C. Allen Logue
Title: Vice President
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2002 Financial Highlights
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As at or for the years ended October 31 2002 2001 2000 1999 1998 US$ 2002(1)
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Common Share Information
Per share(2)
- basic earnings - reported $ 1.37 $ 4.19 $ 4.95 $ 2.23 $ 2.24 $ 0.87
- operating(3) $ 2.58 $ 5.27 $ 5.52 $ 3.40 $ 2.97 $ 1.64
- diluted earnings - reported $ 1.35 $ 4.13 $ 4.90 $ 2.21 $ 2.22 $ 0.86
- operating(3) $ 2.56 $ 5.19 $ 5.46 $ 3.38 $ 2.94 $ 1.63
- dividends $ 1.60 $ 1.44 $ 1.29 $ 1.20 $ 1.20 $ 1.02
- book value $ 25.75 $ 26.44 $ 25.17 $ 22.68 $ 22.08 $ 16.53
Share price - high $ 57.70 $ 57.00 $ 50.50 $ 42.60 $ 59.80 $ 37.05
- low $ 34.26 $ 43.20 $ 30.50 $ 28.00 $ 24.40 $ 22.00
- closing $ 38.75 $ 48.82 $ 48.40 $ 31.70 $ 30.65 $ 24.88
Shares outstanding
(thousands)
- average basic 360,553 372,305 388,951 409,789 415,030 360,553
- average diluted(2) 363,227 377,807 392,921 412,769 419,187 363,227
- end of period 359,064 363,188 377,140 402,279 415,515 359,064
Market capitalization ($ millions) $ 13,914 $ 17,731 $ 18,254 $ 12,752 $ 12,736 $ 8,934
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Value Measures
Price to earnings multiple
(12 month trailing) - reported 28.9 11.7 9.8 14.2 13.7 28.9
- operating(3) 15.2 9.3 8.8 9.3 10.3 15.2
Dividend yield (based on closing share price) 4.1 % 2.9 % 2.7 % 3.8 % 3.9 % 4.1 %
Dividend payout ratio - reported >100 % 34.2 % 25.9 % 53.6 % 53.0 % >100 %
- operating(3) 62.0 % 27.2 % 23.3 % 35.2 % 40.1 % 62.0 %
Market value to book value ratio 1.50 1.85 1.92 1.40 1.39 1.50
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Financial Results ($ millions)
Total revenue on a taxable equivalent basis (TEB)(4)
- reported $ 11,152 $ 11,306 $ 12,210 $ 10,265 $ 9,242 $ 7,096
- operating(3) 10,719 11,262 11,824 10,268 9,137 6,820
Provision for credit losses- specific 1,500 1,100 970 600 280 954
- general - - 250 150 200 -
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- total 1,500 1,100 1,220 750 480 954
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Non-interest expenses - reported 9,129 8,226 8,096 7,998 7,125 5,809
- operating(3) 7,815 7,445 7,744 7,340 6,735 4,973
Earnings - reported 653 1,686 2,060 1,029 1,056 416
- operating(3) 1,091 2,089 2,279 1,510 1,358 694
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Financial Measures
Efficiency ratio - reported 81.9 % 72.8 % 66.3 % 77.9 % 77.1 % 81.9 %
- operating(3) 72.9 % 66.1 % 65.5 % 71.5 % 73.7 % 72.9 %
Return on common equity - reported 5.1 % 16.1 % 20.5 % 9.8 % 10.3 % 5.1 %
- operating(3) 9.7 % 20.2 % 22.8 % 15.0 % 13.7 % 9.7 %
Ratio of retail/wholesale
operating earnings/(loss)(3)(5) 122%/(22)% 64%/36 % 55%/45 % 62%/38 % n/a % 122%/(22)%
Net interest margin (TEB)(4) 1.92 % 1.68 % 1.68 % 1.67 % 1.59 % 1.92 %
Net interest margin on average
interest earning assets (TEB)(4) 2.24 % 1.97 % 1.99 % 2.03 % 1.91 % 2.24 %
Return on average assets 0.22 % 0.60 % 0.78 % 0.38 % 0.38 % 0.22 %
Return on interest earning assets 0.26 % 0.71 % 0.93 % 0.46 % 0.45 % 0.26 %
Regular workforce headcount(6) 42,552 42,315 44,215 45,998 47,171 42,552
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Balance Sheet and Off-Balance
Sheet Information ($ millions)
Cash resources and securities $ 74,804 $ 86,144 $ 79,921 $ 72,019 $ 71,765 $ 48,032
Loans and acceptances 159,937 163,740 154,740 145,646 163,252 102,696
Total assets 273,293 287,474 267,702 250,331 281,430 175,481
Deposits 196,630 194,352 179,632 160,041 159,875 126,256
Common shareholders` equity 9,245 9,601 9,493 9,125 9,175 5,936
Average assets 292,510 278,798 263,119 271,844 278,823 186,124
Average interest earning assets 250,427 238,655 221,331 223,774 232,114 159,347
Average common shareholders` equity 9,566 9,739 9,420 9,323 9,100 6,087
Assets under administration 729,400 657,400 696,800 614,800 404,200 468,348
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Balance Sheet Quality Measures(7)
Common equity to risk-weighted assets 7.3 % 7.4 % 7.1 % 6.8 % 6.3 % 7.3 %
Risk-weighted assets ($ billions) $ 126.5 $ 129.9 $ 132.9 $ 134.5 $ 145.5 $ 81.2
Tier 1 capital ratio 8.7 % 9.0 % 8.7 % 8.3 % 7.7 % 8.7 %
Total capital ratio 11.3 % 12.0 % 12.1 % 11.5 % 10.8 % 11.3 %
Net impaired loans after general allowance $ (13) $ (592 ) $ (575) $ (266) $ (123) $ (8)
($ millions)
Net impaired loans to net loans and (0.01)% (0.36)% (0.37)% (0.18)% (0.08)% (0.01)%
acceptances
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(1) Represents the translation of Canadian dollar financial information into
US$ using the year-end rate of $0.6421 for balance sheet figures and the
average rate of $0.6363 for average balances and income statement items.
(2) On November 1, 2001, CIBC retroactively adopted the requirements of the
CICA handbook section 3500 in respect of earnings per share. Prior period
information has been restated.
(3) Operating excludes unusual items and the net impact of Amicus. For a
discussion of these items in 2002 to 2000, see pages 23 and 24. During
2002, certain items were reallocated from electronic bankIng services and
mortgages to Amicus. Prior period information has been reclassified. The
words "operating earnings" do not have standardized meanings under GAAP
and, consequently, may not be comparable to similar measures presented by
other companies. Please refer to the How CIBC Reports section in this
report for further details.
(4) For the definition of taxable equivalent basis (TEB), see footnote 1 of
Note 26 on page 110 of the consolidated financial statements.
(5) Retail includes CIBC Retail Markets, CIBC Wealth Management and commercial
banking (reported as part of CIBC World Markets). Wholesale reflects CIBC
World Markets, excluding commercial banking.
(6) In 2001, CIBC introduced a new measure - regular workforce headcount - to
replace full-time equivalent employees (FTE) reported previously. Regular
workforce headcount comprises regular full-time and part-time employees,
base plus commissioned employees and 100% commissioned employees. Full-time
employees are counted as one and part-time employees as one-half. The FTE
measure used previously included the regular workforce headcount plus
casual and contract employees, consultants, and employees on paid leave,
and was calculated based on standard hours worked during the month.
Consequently, the regular workforce headcount is lower than the previously
used FTE measure. CIBC implemented the regular workforce headcount measure
prospectively in 2001.
(7) Debt ratings - S & P - Senior Long Term: A+; Moody's - Senior Long Term:
Aa3.
2002 FINANCIAL HIGHLIGHTS
> In 1999, the management team of CIBC set aggressive financial targets as part
of a strategy to transform CIBC into an organization that operates with a
strong investor mindset. While we have made progress against our targets, we
still have work to do to achieve the full potential of our franchise. With
that in mind, we have set new go-forward medium-term objectives to allow our
shareholders to measure and monitor our performance.
====================================================================================================================================
Measuring Performance
(versus three-year objectives established November 1999)
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RESULTS
FINANCIAL TARGETS MEASUREMENT 2002 RESULTS / COMMENTS (year ended Oct. 31, 2002)
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Best total return to While CIBC met this objective for the first two years
Share Price shareholders among the of its target timeframe, events of the past year have
major Canadian banks, resulted in a disappointing comparative result.
beginning November 1, 1999 In spite of an overall return to shareholders of 34.1%
34.1% our relative position fell from first to fourth from November 1, 1999
among the major Canadian banks. Generating the
best total shareholder return continues to be our #1
priority.
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We exceeded this objective in each of the first two
years of our target period. In 2002, we did not
Return on Equity 18% operating ROE (1) meet this objective. We are maintaining 18% 9.7%(1)
(ROE) as the high end of our medium-term objective range.
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EPS Growth Diluted operating Although our earnings per share growth rate was 53.6% (50.7)%(1)
EPS growth of 15% per for the first two years, we did not meet this
year (1) objective in 2002.
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We set an aggressive target for our efficiency ratio.
While we have made progress in moderating the growth in
our operating cost base, reduced revenue in 2002 made
Efficiency Non-interest expenses to the achievement of our target ratio more difficult.
revenue of 60% (1) We have more work to do. We have specific plans to 72.9%(1)
improve operational efficiency and increase revenues.
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Capital 8.5% - 9.5% Tier 1 Our capital position has continued to be strong and we 8.7%
11.0% - 12.5% total have raised our target range for total capital. 11.3%
capital
====================================================================================================================================
(1) Based on operating results. Operating earnings exclude items that
management believes are unusual or relate to substantial strategic
investments, thereby allowing analysis of business trends and the
performance of CIBC's business lines. These measures do not have
standardized meanings under GAAP and may not be comparable to similar
measures used by other companies. Refer to Management's Discussion and
Analysis, Overview section, for reconciliation of operating earnings to
reported earnings.
--------------------------------------------------------------------------------
Setting the Course
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FINANCIAL TARGETS MEDIUM-TERM OBJECTIVES (3 - 5 years)
--------------------------------------------------------------------------------
Share Price - among the
major Canadian banks Best total return to shareholders
--------------------------------------------------------------------------------
Return on Equity 14 - 18% return on average common equity
--------------------------------------------------------------------------------
Earnings Growth
Retail & Wealth 10% per year
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Operating Efficiency Revenue growth to exceed expense growth
--------------------------------------------------------------------------------
Capital Management Tier 1 capital ratio equal to 8.5 - 9.5%
Total capital ratio of 11.5 - 12.5%
--------------------------------------------------------------------------------
Business Mix 70% retail/30% wholesale
Reduce wholesale loan and merchant
banking portfolios by 1/3
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2002 FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
Monitoring Progress
--------------------------------------------------------------------------------
To monitor our progress, we review over 190 performance metrics every month.
Based on these results, we direct capital and other resources to those
businesses where we have a long-term sustainable advantage. This process
provides the detailed analysis required to make key business decisions during
times of change and is fundamental to CIBC's accountability commitment to our
shareholders. The following are examples of some of the metrics we use to
continually assess our performance. (Some of our metrics are based on operating
results which are explained on pages 24 and 29.)
[THE FOLLOWING DATA WAS REPRESENTED AS A BAR CHART IN THE PRINTED MATERIAL]
Return on Equity
98 99 00 01 02
--------------------------------------
Reported ROE (%) 10.3 9.8 20.5 16.1 5.1
--------------------------------------
Operating ROE (%) 13.7 15.0 22.8 20.2 9.7
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RETURN ON EQUITY (ROE)
(Reported, operating, %)
Reported ROE was 5.1% in 2002 compared to 16.1% in 2001. Operating ROE was 9.7%
for the year, compared to 20.2% in 2001. ROE is a key measure of bank
profitability. It is calculated as net income divided by common shareholders'
equity.
[THE FOLLOWING DATA WAS REPRESENTED AS A BAR CHART IN THE PRINTED MATERIAL]
Earnings per Share and Dividends
98 99 00 01 02
--------------------------------------
Reported EPS ($) 2.22 2.21 4.90 4.13 1.35
--------------------------------------
Operating EPS ($) 2.94 3.38 5.46 5.19 2.56
--------------------------------------
Dividends ($) 1.20 1.20 1.29 1.44 1.60
--------------------------------------
EARNINGS PER SHARE (EPS) AND DIVIDENDS
(Reported, operating, $)
Reported EPS, diluted, were $1.35 in 2002, compared to $4.13 in 2001.
Operating EPS, diluted were $2.56 in 2002, compared to $5.19 a year earlier.
EPS is a measure of net income after tax and preferred share dividends, divided
by average common shares outstanding. CIBC's dividends per common share for 2002
were $1.60, as compared to $1.44 in 2001.
[THE FOLLOWING DATA WAS REPRESENTED AS A BAR CHART IN THE PRINTED MATERIAL]
Total Revenue
98 99 00 01 02
--------------------------------------
Reported revenue (TEB) ($ billions) 9.2 10.3 12.2 11.3 11.2
--------------------------------------
Operating revenue (TEB) ($ billions) 9.1 10.3 11.8 11.3 10.7
--------------------------------------
TOTAL REVENUE
(Reported, operating, $ billions)
Total reported revenue on a taxable equivalent basis (TEB) was $11.2 billion in
2002, compared to $11.3 billion in 2001. Operating revenue for the year was
$10.7 billion, compared to $11.3 billion in the previous year. Total revenue is
comprised of: interest and dividends earned on assets, net of interest paid on
liabilities; plus non-interest income, which includes income earned from fees
for services, such as wealth management services and underwriting.
[THE FOLLOWING DATA WAS REPRESENTED AS A BAR CHART IN THE PRINTED MATERIAL]
NIX Ratio
98 99 00 01 02
--------------------------------------
Reported NIX ratio (%) 77.1 77.9 66.3 72.8 81.9
--------------------------------------
Operating NIX ratio (%) 73.7 71.5 65.5 66.1 72.9
--------------------------------------
NIX RATIO
(Reported, operating, %)
The NIX ratio, which is a measure of non-interest expenses divided by total
revenue, was 81.9% on a reported basis in 2002, compared to 72.8% in 2001. On an
operating basis, the NIX ratio was 72.9% in 2002, compared to 66.1% in 2001.
[THE FOLLOWING DATA WAS REPRESENTED AS A BAR CHART IN THE PRINTED MATERIAL]
Risk-Weighted Assets
98 99 00 01 02
--------------------------------------
Risk-weighted assets ($ billions) 145.5 134.5 132.9 130.0 126.5
--------------------------------------
RISK-WEIGHTED ASSETS
($ billions)
Risk-weighted assets were $126.5 billion in 2002, compared to $129.9 billion in
2001. Risk-weighted assets are calculated by applying weighting factors as
specified by the industry regulator to all of our balance sheet assets and
off-balance sheet exposures.
[THE FOLLOWING DATA WAS REPRESENTED AS A BAR CHART IN THE PRINTED MATERIAL]
Capital Ratios
98 99 00 01 02
--------------------------------------
Tier 1 capital ratio (%) 7.7 8.3 8.7 9.0 8.7
--------------------------------------
Total capital ratio (%) 10.8 11.5 12.1 12.0 11.3
--------------------------------------
CAPITAL RATIOS
(%)
CIBC continues to be a strongly capitalized bank. At year-end, our Tier 1
capital ratio was 8.7% and our total capital ratio was 11.3%.
--------------------------------------------------------------------------------
[THE FOLLOWING DATA WAS REPRESENTED AS A BAR CHART IN THE PRINTED MATERIAL]
Total Investor Return (Cumulative from November 1, 1999, %)
Month Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct
Total
Return (%) 80.8 85.0 83.6 76.4 91.8 85.8 73.7 66.5 54.5 47.8 40.0 34.1
TOTAL INVESTOR RETURN
(Cumulative from November 1, 1999, %)
CIBC generated a total investor return of 34% for the three-year period ended
October 31, 2002.
[THE FOLLOWING DATA WAS REPRESENTED AS A BAR CHART IN THE PRINTED MATERIAL]
Creditor Insurance Sales Penetration (%)
Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct
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Personal lines of credit (%) 47 46 47 48 49 50 51 52 52 53 53 54
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Residential mortgages (%) 50 52 52 53 54 55 56 58 59 60 60 61
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CREDITOR INSURANCE SALES PENETRATION
(%)
CIBC continued to realize success in its efforts to improve penetration in key
creditor insurance products.
[THE FOLLOWING DATA WAS REPRESENTED AS A BAR CHART IN THE PRINTED MATERIAL]
Electronic Banking Transactions (millions)
Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct
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Electronic banking
transactions (millions) 81.9 87 82 76.4 87.3 87.9 91.4 88.6 92.9 93.7 91.9 94.8
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ELECTRONIC BANKING TRANSACTIONS
(millions)
The growth in emerging channels supports our customers' increasing preference to
conduct more of their transactions electronically. Electronic transactions
reached a high of 95 million in the month of October.
[THE FOLLOWING DATA WAS REPRESENTED AS A BAR CHART IN THE PRINTED MATERIAL]
President's Choice Financial Customers (thousands)
Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct
-------------------------------------------------------------------------------------------------
Customers (thousands) 784.7 807.9 835.9 857.9 878.7 901.8 924.8 945.6 972.8 1001.2 1029 1053.3
-------------------------------------------------------------------------------------------------
PRESIDENT'S CHOICE FINANCIAL(TM)
CUSTOMERS
(thousands)
President's Choice Financial had approximately 1.05 million registered customers
at year-end, up 40% year-over-year.
[THE FOLLOWING DATA WAS REPRESENTED AS A BAR CHART IN THE PRINTED MATERIAL]
President's Choice Financial Funds Under Management ($ billions)
Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct
-------------------------------------------------------------------------------------------------
Funds under management
($ billions) 4.8 5.1 5.3 5.5 5.8 5.9 6.1 6.3 6.5 6.7 6.9 7.0
-------------------------------------------------------------------------------------------------
PRESIDENT'S CHOICE FINANCIAL
FUNDS UNDER MANAGEMENT
($ billions)
President's Choice Financial funds under management grew by 58% to $7 billion.
[THE FOLLOWING DATA WAS REPRESENTED AS A BAR CHART IN THE PRINTED MATERIAL]
Card Balances Under Administration ($ billions)
Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct
-------------------------------------------------------------------------------------------
Card balances under administration
($ billions) 8.7 8.9 8.9 8.5 8.5 8.6 8.8 9 9 9.1 9.3 9.3
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CARD BALANCES UNDER ADMINISTRATION
($ billions)
Card loans measured by average balances under administration, including
securitization, grew to $9.3 billion in 2002. Market share of purchase volumes
remained at 32%.
[THE FOLLOWING DATA WAS REPRESENTED AS A BAR CHART IN THE PRINTED MATERIAL]
Personal Transaction Accounts (%)
Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep
--------------------------------------------------------------------------------
Personal transaction accounts (%) 18.72 18.94 19.09 19.26 19.4 19.34 19.29 19.24 19.27 19.32 19.39
--------------------------------------------------------------------------------
PERSONAL TRANSACTION ACCOUNTS
(Chequing and savings accounts)
(% market share of $, incl. President's Choice Financial)
CIBC increased its market share of consumer chequing and savings accounts during
the year. Among the major Canadian banks, CIBC's market share increased to 19.4%
as at the end of September 2002 compared to 18.6% in October 2001.
[THE FOLLOWING DATA WAS REPRESENTED AS A BAR CHART IN THE PRINTED MATERIAL]
Residential Mortgages ($ billions)
Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct
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Residential mortgages ($ billions) 60.1 60.7 61.3 61.8 62.4 63.2 64.2 65.2 66.1 67.4 68.2 69.1
Market Share (%) 13.3 13.5 13.5 13.7 13.7 13.8 13.8 14.0 14.0 14.1
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RESIDENTIAL MORTGAGES
($ billions, %)
The portfolio of residential mortgages under administration increased to $69.1
billion in 2002, up from $59.1 billion in 2001. New mortgage originations
reached a record high $26.7 billion and market share increased to a high of
14.1% in August 2002.
[THE FOLLOWING DATA WAS REPRESENTED AS A BAR CHART IN THE PRINTED MATERIAL]
Dually Employeed Financial Advisers
Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct
-------------------------------------------------------------------------------------------
Dually employed financial advisers 399 459 519 557 592 655 696 755 774 820 865 887
-------------------------------------------------------------------------------------------
DUALLY EMPLOYED FINANCIAL ADVISERS
CIBC now has more than 850 branch-based financial advisers who are licensed to
provide investment advice on a wide range of third-party investment choices, as
well as offering CIBC's complete range of investment, credit and day-to-day
banking solutions. CIBC was the first financial institution in Canada to launch
this service.
[THE FOLLOWING DATA WAS REPRESENTED AS A BAR CHART IN THE PRINTED MATERIAL]
Mutual Fund AUM Market Share (%)
Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct
--------------------------------------------------------------------------------------------
Mutual Fund AUM Market Share (%) 7.22 7.20 7.21 8.31 8.22 8.25 8.21 8.26 8.38 8.39 8.54 8.53
--------------------------------------------------------------------------------------------
ASSETS UNDER MANAGEMENT (AUM)
MARKET SHARE OF TOTAL INDUSTRY
(%)
CIBC's mutual fund AUM market share among all Canadian mutual fund companies,
including acquired assets, increased to 8.5% from 7.2% in November 2001. CIBC's
ranking improved to #4 in October 2002, up from #7 in November 2001.
[THE FOLLOWING DATA WAS REPRESENTED AS A BAR CHART IN THE PRINTED MATERIAL]
Large Corporate Assets Core Loan Portfolio
(Risk-weighted assets, $ billions)
NOV DEC JAN FEB MAR APR MAY JUN JUL AUG SEP OCT
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Large Corporate Assets Core
Loan Portfolio
(Risk-weighted assets, $ billions) 22.04 21.45 21.13 21.56 21.01 21.37 19.66 19.37 20.41 20.34 17.46 14.81
LARGE CORPORATE ASSETS CORE LOAN PORTFOLIO
(Risk-weighted assets, $ billions)
The large corporate core loan portfolio decreased reflecting our strategy to
actively manage our credit portfolio and focus only on core loans. At the end of
2002, the portfolio decreased to $14.8 billion from $22.0 billion in November
2001.
[THE FOLLOWING DATA WAS REPRESENTED AS A BAR CHART IN THE PRINTED MATERIAL]
Investment Banking Canada Equity New Issues Lead (cumulative)
MUTUAL FUNDS
(Cumulative net sales, $ millions)
Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct
------------------------------------------------------------------------------------------
Mutual Funds
(Cumulative net sales, $ millions) 516 782 1,133 1,527 1,630 1,540 1,447 1,269 1,231 1,349 1,310 1,264
------------------------------------------------------------------------------------------
MUTUAL FUNDS
(Cumulative net sales, $ millions)
CIBC is ranked first among major Canadian
banks in mutual fund net sales. During the year, cumulative net sales from
CIBC's entire suite of mutual funds grew to $1.26 billion.
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--------------------------------------------------------------------------------
CORPORATE PROFILE
--------------------------------------------------------------------------------
CIBC is a leading North American financial institution comprising four business
lines: CIBC Retail Markets; CIBC Wealth Management; CIBC World Markets; and
Amicus. CIBC provides financial services to retail and small business banking
customers as well as corporate and investment banking customers. At year-end,
total assets were $273 billion, market capitalization was $14 billion and Tier 1
capital ratio was 8.7%.
--------------------------------------------------------------------------------
A NOTE ABOUT FORWARD-LOOKING STATEMENTS
This annual report contains forward-looking statements which are made pursuant
to the "safe harbor" provisions of the United States Private Securities
Litigation Reform Act of 1995. These forward-looking statements include, but are
not limited to, statements about the operations, business lines, financial
condition, risk management, priorities, targets, ongoing objectives, strategies
and outlook of CIBC for 2003 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." A forward-looking statement
is subject to inherent risks and uncertainties that may be general or specific.
A variety of factors, many of which are beyond CIBC's control, affect the
operations, performance and results of CIBC and its business lines, and could
cause actual results to differ materially from the expectations expressed in any
of CIBC's forward-looking statements. For more information on forward-looking
statements, see page 20.
CONTENTS
4 2002 Financial Highlights
5 Measuring Performance
5 Setting the Course
6 Monitoring Progress
8 Chairman's Letter to Shareholders
12 Lead Director's Message
14 2002 Performance Highlights
16 Public Accountability Statement
19 Management's Discussion and Analysis
20 Overview
28 Business Line Review
29 How CIBC Reports
30 CIBC Retail & Wealth
32 CIBC Retail & Wealth -
CIBC Retail Markets
36 CIBC Retail & Wealth -
CIBC Wealth Management
40 CIBC World Markets
45 Amicus
46 Corporate and Other
47 Treasury, Balance Sheet
and Risk Management
48 Administration
49 Technology and Operations
50 Corporate Development
51 Consolidated Financial Review
55 Management of Risk and
Balance Sheet Resources
69 Business Environment
71 Consolidated Financial Results
119 Principal Subsidiaries
120 Supplementary Annual
Financial Information
127 Quarterly Review
128 Ten-Year Statistical Review
130 Directors of the Bank
131 Senior Officers
132 Corporate Governance
133 Board Committees
134 Investor Information
136 Corporate Information
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innovation
================================================================================
We are stepping up our drive to develop new ways of serving our customers, while
improving efficiency and creating an exceptional work environment for our
employees.
[PHOTO OMITTED]
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accountability
================================================================================
By focusing on our customers and supporting our people, we are committed to
building long-term value for all of our stakeholders.
[PHOTO OMITTED]
[PHOTO OMITTED]
================================================================================
Chairman's Letter to Shareholders
--------------------------------------------------------------------------------
JOHN HUNKIN (above right), Chairman and Chief Executive Officer with TOM
> WOODS (above left), Executive Vice-President and Chief Financial Officer at
CIBC's head office at Commerce Court in Toronto.
--------------------------------------------------------------------------------
[PHOTO OMITTED]
For CIBC, 2002 was a challenging and, ultimately, disappointing year.
Deteriorating capital markets and the rapid emergence of a new economic reality
in the wholesale sector, particularly in the United States, overshadowed a very
strong performance by our Canadian retail, wealth management, and wholesale
banking businesses.
CHAIRMAN'S LETTER TO SHAREHOLDERS
--------------------------------------------------------------------------------
Stepping Up
--------------------------------------------------------------------------------
For the first time in three years, CIBC did not deliver the best total return
among the major Canadian banks. And while our three-year total return to
shareholders was 34.1%, your management clearly viewed this year's financial
performance as unacceptable. We are determined to step up our efforts to create
the kind of high performance organization that can deliver sustainable,
superior returns.
--------------------------------------------------------------------------------
We have chosen the theme "Stepping Up" for this year's report. Stepping Up is a
fitting theme on two fronts: First, our employees did step up in a very
challenging environment; and second, we will need to further step up our efforts
if we are to produce better results.
OUR EMPLOYEES - STEPPING UP WHEN IT COUNTED MOST
This year, across CIBC, our employees delivered a tremendous performance in the
face of what was a truly difficult environment.
o In CIBC Retail & Wealth, our decision to make large investments in
training, technology, product development and brand awareness is paying
off. With the help of new technology and new sales tools, our people took
CIBC's retail franchise to new heights - a $7.9 billion business with
earnings of $1.4 billion. We made significant gains in revenue and funds
managed, and we gained market share in deposits and mortgages.
o In CIBC Wealth Management, our employees made the large and complex
integration of the acquired businesses of Merrill Lynch successful. In
1999, CIBC had a fully licensed adviser group of over 1,300; today, thanks
to acquisitions and the internal development of our Imperial Service
branch-based sales force, the number exceeds 3,000. Going forward, we are
committed to maintaining our leadership in advice-based distribution. A
decision to segment our customer base enabled us to focus resources on the
entire high net worth market. Today over 850 of our Imperial Service
advisers are licensed to sell both bank products and third-party investment
products. With the completion of the acquisition of TAL and Merrill Lynch
Investment Managers Canada Inc., CIBC's total mutual fund assets under
management is now the 4th highest in Canada among all Canadian mutual fund
companies. In 2002 we ranked 1st among the major Canadian banks in mutual
fund net sales.
--------------------------------------------------------------------------------
9
CIBC ANNUAL REPORT 2002
CHAIRMAN'S LETTER TO SHAREHOLDERS
--------------------------------------------------------------------------------
o CIBC World Markets was ranked Canada's #1 mergers and acquisition franchise
in 2002, both in terms of number and value of deals, by the National Post.
CIBC World Markets was also the Canadian leader in the emerging Income
Trust sector and maintained #1 industry ranking with respect to in-country
equity financing.
o Rates of customer acquisition continue to be strong at President's Choice
Financial services. At year-end, total number of customers was 1.05
million, up 40% from 2001. Total funds managed at year-end grew to $7.0
billion, up 58%. Customer satisfaction levels for President's Choice
Financial remained higher than those of competitors.
o In Treasury, Balance Sheet and Risk Management, we continue to expand our
ability to actively manage our loan portfolio. Since 1998, we have reduced
risk-weighted assets by $19 billion, through a combination of disciplined
loan underwriting and syndication practices, as well as several innovative
structures to distribute credit risk.
o Our Administration group provided expertise and leadership in the
all-important area of corporate governance, supporting the board's efforts
to keep CIBC at the forefront of best governance practices. Lead Director
Bill Etherington addresses this topic in his message, on page 12.
Clearly 2002 challenged us in profound and unexpected ways. We now see that the
tragedy of September 11, 2001, and its consequences continued to reverberate
into the year. A series of corporate failures and oversight lapses served to
further undermine the very trust that makes a market economy viable. Although we
had already begun to shift capital and other resources towards the retail
sectors of our business - as witnessed by our investments in the branch system
and the Merrill Lynch acquisition - with the benefit of hindsight we did not do
so quickly enough. We are committed to taking action to return CIBC's
performance to levels that you - and we - demand.
To get there, in 2002 we moved quickly to identify and tackle several issues
that affected our performance in 2002:
o In October, we decided to close our U.S. electronic banking operations.
o We further downsized our U.S. corporate and investment banking operations.
o We undertook a thorough review of our merchant banking portfolio and our
collateralized debt obligations and high yield debt portfolios, taking
appropriate write-downs.
o We implemented branch re-configuration and efficiency measures in our
retail banking businesses.
o We moved to reduce capital allocated to our large corporate loan book by
one-third over the next three years.
o We announced our intention to reduce the size of our merchant bank
portfolio by one-third over the next three years.
--------------------------------------------------------------------------------
10
CIBC ANNUAL REPORT 2002
CHAIRMAN'S LETTER TO SHAREHOLDERS
--------------------------------------------------------------------------------
STEPPING AHEAD
The late 1990s produced exaggerated market trends. Adjusting for inflation, the
Toronto Stock Exchange rose by 72% through the 1990s, four times the average of
the three previous decades. Future growth is expected to be solid but slower and
few expect the market to be as generous. So, what does that mean for CIBC?
In order to achieve best shareholder returns, CIBC's strategy will continue to
be grounded in its traditional priorities:
o Good corporate governance.
o Putting our customers at the centre of our strategy.
o Creating attractive career opportunities for our employees.
o Maintaining a strict focus on our financial goals:
o A significant shift in the business mix of the bank in favour of CIBC
Retail & Wealth.
o Strong targets for growth in earnings and market share in CIBC
Retail & Wealth.
o A substantial reduction in earnings volatility.
o A commitment to maintaining high levels of capital.
o Improved efficiency ratios.
Solid, steady growth with a heightened emphasis on the deliberate execution of
our objectives - that, in essence, is CIBC's objective.
We will continue to closely monitor changes in Canadian government policies
regarding consolidation in the financial services sector. In that context, the
government's initiative in late 2002 to invite comment on the subject of bank
mergers was a welcome development.
The core strengths of a strong and vibrant organization do not change during
periods of adversity; they simply stiffen with resolve. CIBC's core strengths -
innovation, accountability and teamwork - were all evident as our people stepped
up to meet unprecedented challenges. These are the same qualities that will move
CIBC forward and build value - long-term value - for our shareholders and for
all of our stakeholders.
/s/ J.S. Hunkin
J.S. Hunkin
Chairman and Chief Executive Officer
--------------------------------------------------------------------------------
11
CIBC ANNUAL REPORT 2002
LEAD DIRECTOR'S MESSAGE
--------------------------------------------------------------------------------
Lead Director's Message
--------------------------------------------------------------------------------
At CIBC, leadership in corporate governance has long been a key objective of the
Board of Directors and management. As part of our journey to this destination,
we have taken numerous steps to strengthen our corporate governance policies and
practices. 2002 was no exception.
--------------------------------------------------------------------------------
As Lead Director, I want to share with you, my fellow shareholders, just some of
the actions your Board of Directors has undertaken in the last 12 months to
enhance corporate governance. We have:
o Announced the separation of auditing and consulting work by our external
auditors;
o Mandated that all non-auditing work must be approved by the board's Audit
Committee;
o Instituted a CIBC-wide prohibition on the awarding of any information
technology or systems implementation projects to CIBC's auditing firms; and
o Expensed stock options to provide greater financial transparency to
investors.
During the year, the board also initiated an extensive review of the
shareholders' auditors, including the practice of using two auditing firms. The
Audit Committee of the board, independent of management but with management's
assistance, established a review process that included assessing submissions
from the four global accounting firms.
Following that review, the committee unanimously recommended to the Board of
Directors that one firm - Ernst & Young LLP - be retained to audit CIBC's 2003
consolidated financial statements. CIBC's complex needs for assurance services
can best be met by one firm. The three other firms that were not selected will
be eligible to compete for other consulting work. The recommendation was
approved by the board in October. The existing auditors will resign their office
in December 2002, and Ernst & Young LLP will act as CIBC's auditors until the
next annual meeting in February 2003, where the appointment of Ernst & Young LLP
will be put to the shareholders for a vote.
--------------------------------------------------------------------------------
[PHOTO OMITTED]
WILLIAM A. ETHERINGTON
Lead Director
Mandate of the
Lead Director
o Appointed annually by the
Board of Directors
o Role is to facilitate the
independence of the board
and to strive for the highest
standards of corporate
governance
--------------------------------------------------------------------------------
12
CIBC ANNUAL REPORT 2002
LEAD DIRECTOR'S MESSAGE
--------------------------------------------------------------------------------
The actions undertaken in 2002 with respect to corporate governance support the
board's and management's focus to provide CIBC's shareholders with enhanced
financial and operational transparency. They also reflect our ongoing commitment
to manage CIBC with a tough investor-focused mindset and to take the action
necessary to protect the long-term value of our shareholders' investments.
These beliefs are deep rooted at CIBC. A special board task force, commissioned
by John Hunkin upon becoming chairman and chief executive officer in 1999, put
forth several recommendations for enhancing our corporate governance framework,
forming the cornerstone of our current policies and practices. One of these
recommendations, implemented in March 2000, established the role of the Lead
Director to strengthen board independence. Another resulted in the formation
of formal and rigorous assessment procedures for the board, its committees and
individual directors, managed by the Corporate Governance Committee.
Our experiences over the past several years have shown that, while regulations
and guidelines are necessary to protect the interests of shareholders, strong
corporate governance derives from the mutual trust and open communication that
exists between the Board of Directors and management. The board is pleased with
the progress made during the year to further enhance our corporate governance
policies and practices, and for the continued constructive working relationship
we have with the chairman and chief executive officer and the senior management
team.
As John Hunkin describes in his letter, 2002 was clearly a difficult and
challenging year. Your board works closely with management and fully supports
decisive actions taken during the year to reallocate resources, realize cost
savings and lower risk. These actions are focused on improving performance in
2003 and further reflect our commitment to serve the long-term interests of
CIBC's shareholders.
--------------------------------------------------------------------------------
For more
information
on how CIBC
manages and
governs, see:
Management of Risk and
Balance Sheet Resources
page 55
Regulatory
page 70
Related-Party Procedures
page 70
Corporate Governance
page 132
--------------------------------------------------------------------------------
13
CIBC ANNUAL REPORT 2002
2002 PERFORMANCE HIGHLIGHTS
[GRAPHIC OMITTED]
[FIRST CARIBBEAN LOGO]
[PHOTO OMITTED]
>2002 Performance Highlights
--------------------------------------------------------------------------------
In 2002, CIBC continued to stress innovation and accountability across the
organization. Below are some of our significant operating achievements for the
year.
--------------------------------------------------------------------------------
Created the largest full-service brokerage in Canada through the continuing
integration of Merrill Lynch Canada Private Client Group, with assets under
administration of $83 billion and over 1,500 investment professionals providing
CIBC Wealth Management clients with objective financial advice.
--------------------------------------------------------------------------------
Continued to have the largest VISA(TM) market share in Canada in both average
outstanding card balances and purchase volumes. This year, we built up our
strength with an agreement with American Express Limited to issue American
Express-branded credit cards, becoming the first bank to offer both VISA and
American Express in Canada. The entourage(TM) line of American Express-branded
cards also includes the first smart-chip credit card available nationally.
--------------------------------------------------------------------------------
Established FirstCaribbean International Bank(TM) (FCIB) through the combination
of CIBC's Caribbean retail, corporate and international banking operations with
those of Barclays Bank PLC. FCIB has operations in 13 Caribbean countries with
over US$9.2 billion in assets and over 700,000 accounts.
--------------------------------------------------------------------------------
Increased market share in mortgages. CIBC's market share in residential
mortgages increased to 14%, up from 13% last year. Our multi-channel strategy,
coupled with product innovation, continues to perform well and we are on track
to become the leader in this market in 2003.
--------------------------------------------------------------------------------
Continued to record positive growth through President's Choice Financial
services. As a result of our alliance with Loblaw Companies Limited, our
customer base in Canada grew by 40% to 1.05 million. In the recent Gomez survey
of Internet sites of Canadian banks, President's Choice Financial received top
ranking in the overall cost category and was ranked #3 in customer confidence.
--------------------------------------------------------------------------------
CIBC World Markets participated in three of the five biggest M&A deals of the
year in Canada, including acting as lead adviser in the biggest deal of the
year, Alberta Energy Company Ltd.'s merger with PanCanadian Energy Corp. to form
EnCana.
--------------------------------------------------------------------------------
14
CIBC ANNUAL REPORT 2002
2002 PERFORMANCE HIGHLIGHTS
--------------------------------------------------------------------------------
CIBC World Markets was ranked the #1 M&A franchise in Canada in 2002 by the
National Post, both in terms of number and value of deals. CIBC World Markets
also achieved a year-to-date #1 industry ranking with respect to equity
financings completed in Canada.
--------------------------------------------------------------------------------
CIBC World Markets participated in the largest ever mezzanine financing provided
in a European leveraged buy-out. CIBC World Markets arranged and underwrote
senior and mezzanine facilities in respect of Paribas Affaires Industrielles'
acquisition of Holdelis SA.
--------------------------------------------------------------------------------
Achieved ongoing success in our strategy to grow our CIBC Wealth Management
business with non-institutional assets under administration growing to $207
billion, a 24% increase from last year.
--------------------------------------------------------------------------------
Completed the integration of Treasury and Balance Sheet Management with Risk
Management. This ensures that authority and accountability resides in one
functional group, creating greater efficiency and effectiveness in managing the
resources of CIBC.
--------------------------------------------------------------------------------
Continued our program of proactive credit portfolio management through
additional single-name and bulk loan sales and hedges. Such activities have been
instrumental in supporting CIBC's reduction of risk-weighted assets by $19
billion since 1998.
--------------------------------------------------------------------------------
Continued to meet the needs of those customers looking for alternative ways to
do their banking; the number of internet transactions in 2002 more than doubled
from 2001 to almost 25 million transactions.
--------------------------------------------------------------------------------
Offered the latest in payment innovation and convenience via an arrangement with
Certapay Inc. and other Canadian banks to launch the world's first real-time,
bank-to-bank, secure email transfers.
--------------------------------------------------------------------------------
Selected for 2002/2003 Dow Jones Sustainability World Index. CIBC was one of two
Canadian financial services companies to be listed on this index, which tracks
the financial performance of the leading sustainability-driven companies
worldwide.
--------------------------------------------------------------------------------
Implemented a new branch technology infrastructure that allows the introduction
of new performance and sales measurement tools, faster transaction processing
times for our customers, as well as e-learning for employees.
--------------------------------------------------------------------------------
Announced a new seven-year outsourcing agreement with Hewlett-Packard (Canada)
Co., along with the divestiture of CIBC's interest in INTRIA-HP. The agreement
enables CIBC to drive down costs by reducing technology diversification while
concentrating on its core business. The new outsourcing relationship also
establishes new service levels and governance standards that will ensure service
delivery and minimize operational risk.
--------------------------------------------------------------------------------
15
CIBC ANNUAL REPORT 2002
(right)
In August 2002, CIBC opened the CIBC Children's Centre, Canada's first employer-
sponsored centre dedicated to back-up childcare. Operated by ChildrenFirst Ltd.,
the centre is exclusively for CIBC employees
[PHOTO OMITTED]
(below)
In June 2002, CIBC celebrated National Aboriginal Day with ceremonies held at
Commerce Court.
[PHOTO OMITTED]
[PHOTO OMITTED]
(above)
The CIBC Run for the Cure(TM) is the bank's biggest employee fundraising
activity in Canada, raising over $13 million for the fight against breast
cancer.
================================================================================
Public Accountability Statement
--------------------------------------------------------------------------------
CIBC is stepping up efforts to create sustainable business excellence by
building employee satisfaction, delivering enhanced long-term value for
customers and shareholders, and promoting greater commitment to the communities
we serve.
--------------------------------------------------------------------------------
At CIBC, accountability means more than delivering solid financial results to
our shareholders. It is our commitment to make a difference to all stakeholders
- to win respect from our employees, to deliver quality and value to customers,
to foster strong, healthy communities, and to work diligently to exceed the
expectations of shareholders.
CIBC is one of Canada's leading corporations, with major business
operations around the world. In 2002, we employed more than 42,000 people
worldwide, the majority of them in Canada. Taxes paid to all levels of
government in Canada totalled $1,317 million. During the year, CIBC contributed
more than $46 million to hundreds of causes around the world, including almost
$24 million in Canada, and we supported our employees' volunteer initiatives
that raised millions of dollars for grassroots community organizations across
the country.
In 2002, CIBC made significant progress to step up our efforts to grow into
a performance-driven culture focused on innovation and business excellence to
better serve CIBC's stakeholders. As a public corporation and good corporate
citizen, our mission is clear: To have a positive impact on the lives of
Canadians by offering them superior financial solutions, and by playing a
leading role in the growth of our communities.
Responsible stewardship of the environment is an important priority. CIBC's
longstanding environmental policy reflects our commitment to responsible
conduct, both to protect and conserve the environment and to safeguard the
interests of stakeholders from environmental risk.
CIBC's retail customers want banking products and services that they can
afford, and easily access whenever they want them. Our small business customers
insist upon more choice of financial solutions, as well as greater access to
credit and financial advice, to help them manage their businesses efficiently.
And, national, regional and grassroots community groups across Canada look to us
for commitment and support, to help them accomplish their goals.
Here are some examples of the initiatives CIBC took in 2002 to respond to
our stakeholders' needs.
--------------------------------------------------------------------------------
16
CIBC ANNUAL REPORT 2002
PUBLIC ACCOUNTABILITY STATEMENT
--------------------------------------------------------------------------------
AFFORDABLE ACCESSIBLE BANKING
Banking in the 21st century is changing. Today, our customers want more choice,
more convenience and the freedom to pick the delivery channel that works best
for them - going to their branch, visiting an ABM, picking up the telephone or
clicking their mouse. CIBC is listening to what they are telling us. In 2002, we
provided faster, more convenient ways to access our services "24/7" by
strengthening our entire distribution network, which includes 1,139 branches and
more than 4,300 ABMs nationwide, and expanding our telephone and computer
banking capabilities.
Our customers also want a greater selection of affordable banking products
and services to meet their financial needs more effectively. We've responded by
providing a wider choice of Smart Simple Solutions(TM) to allow customers to
weigh the options and pick the solution that is right for them.
Some of the initiatives taken in 2002 include:
o Upgrading our ABM network infrastructure to add functionality to more than
4,300 machines, allowing customers to do more of their banking at the ABM.
o Introducing email money transfer, so personal account customers now have
the convenience of transferring money electronically, through the world's
first real-time, bank-to-bank secure email transfer.
o Offering more flexible mortgage options, giving customers the choice
between the variable-rate CIBC Better Than Prime Mortgage(TM) or the
fixed-rate CIBC Better Than Posted Mortgage(TM).
o Providing faster, more powerful telephone banking solutions. We introduced
speech-recognition technology and added more call centres to meet increased
customer demand.
o Expanding low-cost banking options by extending our co-branded electronic,
no fee daily banking offer to 212 President's Choice Financial services
pavilions in grocery stores through our strategic alliance with Loblaw
Companies Limited.
SUPPORTING SMALL BUSINESS
Small businesses across Canada make a vital contribution to this country's
economic growth. In today's economic environment, conditions for Canadian small
business growth have never been better. Entrepreneurs are taking the Canadian
economy forward and CIBC is behind them, supporting their growth in regional and
national markets, and helping them to establish themselves competitively on the
global stage.
At year-end, CIBC had more than 480,000 small business customers and more
than $25.8 billion in authorized loans (under $5 million in authorized credit)
supporting business across Canada, including over $4.5 billion in authorized
loans in agriculture.
During the last year, CIBC introduced a broad range of initiatives and
enhancements to better support our small business customers - versatile
solutions that will save them more time, so that they can accomplish their goals
more effectively. We updated our lending processes and procedures, launched new
products, enhanced delivery through upgraded alternative channels and provided
easier access to a wealth of CIBC resources to give small business customers
greater, more timely access to the products and services they need.
We enhanced our offer to small business customers by providing them with
faster, more convenient access to credit products to finance their businesses
and offering a range of new products and services to make their banking
experience more productive and meaningful. Our initiatives included:
o Expanding CIBC Small Business Credit Edge(TM) eligibility requirements to
allow more businesses to apply. The Small Business Credit Edge offers
customers up to $100,000 either as a loan or line of credit, with only
minimal information required, a two-page application and typically a
48-hour turnaround.
o Eliminating restrictive conditions for customers borrowing less than
$250,000, including the margining of accounts receivable and maintenance of
financial covenants, to enhance and simplify access to credit.
o Introducing CIBC entourage Business(TM) American Express(R) Card, a
no-annual fee, low interest rate card with a great combination of travel,
entertainment and savings features built in, offering value, convenience
and choice to small business owners.
Total employees
approximately 42,000
Taxes paid in Canada
$1,317 million
Global contributions
to community-based
organizations were
more than $46 million
--------------------------------------------------------------------------------
17
CIBC ANNUAL REPORT 2002
PUBLIC ACCOUNTABILITY STATEMENT
--------------------------------------------------------------------------------
o An expanded Online Banking and Telephone Banking offer that includes new
services and transaction capabilities, such as requests for:
o Loan balance information.
o Copies of transaction documents, including cheques, credit memos,
debit memos, deposits, and electronic funds transfer items and
withdrawals.
o A dedicated team of small business specialists within CIBC's
telephone banking channel to assist customers with day-to-day
banking transactions.
SUPPORTING COMMUNITY AND EMPLOYEE VOLUNTEER ACTIVITIES
Community giving is at the heart of CIBC. Through the volunteer efforts of our
employees and corporate donations, CIBC's contribution to Canadian communities
is significant.
In 2002, CIBC contributed more than $46 million worldwide, including almost
$24 million in Canada to hundreds of national, regional and grassroots
organizations in communities across the country. Supporting youth is the
strategic focus of our commitment. Through CIBC Youthvision(TM), we fund
research, education, mentoring and skills development programs aimed at helping
Canadian youth prepare for the future. The CIBC Youthvision Scholarship Program
- our flagship program - is a unique arrangement with Big Brothers Big Sisters
of Canada and YMCA Canada.
Each year, 30 scholarships valued up to $35,000 each are awarded to Grade
10 students enrolled in a mentoring program with these charitable partners.
Winning a CIBC Youthvision Scholarship gives young Canadians the
once-in-a-lifetime opportunity to stay in school and reap all the benefits of a
post-secondary education.
The volunteer activities of CIBC employees make up the lion's share of our
contribution to communities. Through the Employee as Ambassador Program, CIBC
encourages their community spirit by donating up to $1,000 per employee to each
community organization they support. In 2002, we donated over $289,000 to local
organizations on behalf of our employees. We're also proud to support their
significant volunteer efforts in raising millions of dollars for high-profile
events, such as the CIBC Run for the Cure, the CIBC World Markets Children's
Miracle Day(TM) and the United Way.
The CIBC Run for the Cure is the bank's biggest employee fundraising
activity in Canada, and the country's premier annual event dedicated to raising
money for the fight against breast cancer. This year's event was the largest
ever, even breaking last year's incredible record for the number of
participants. More than 135,000 people in 38 communities across Canada took part
in 2002, including over 14,000 CIBC employees, their families and friends
nationwide, raising over $13 million for breast cancer research, education,
diagnosis and treatment.
The CIBC World Markets Children's Miracle Day is held each year, on the
first Wednesday in December, when CIBC World Markets and CIBC Wood Gundy sales
and trading staff in Canada, the U.S., Europe and Asia donate their fees and
commissions to children's charities. On Miracle Day 2001, CIBC raised more than
$19 million globally, including more than $3 million in Canada. Since one
solitary broker, the late Timothy Miller, came up with the idea for the event
back in 1984, Children's Miracle Day has raised more than $85 million.
These funds are directed back to the communities where they were raised,
providing help for more than 350 local and national charitable organizations
dedicated to improving the education, health, and well-being of children.
CIBC provided more than $2.4 million in corporate donations to United Way
agencies across Canada, in addition to $250,000 in gifts-in-kind. CIBC's
employees contributed $3.7 million through their organizational and fundraising
efforts and payroll deductions.
PUBLIC ACCOUNTABILITY
CIBC publishes its public accountability statement annually, outlining its
contribution to the economic and social well-being of our communities and our
country. A full version of CIBC's 2002 Public Accountability Statement will be
available online on our corporate website at www.cibc.com in the first quarter
of 2003.
--------------------------------------------------------------------------------
18
CIBC ANNUAL REPORT 2002
Management's Discussion and Analysis for 2002 has been designed to provide
readers with a more meaningful presentation of our businesses and our risk
management approach. Strategic commentary and key messages from each business
line leader have been integrated into the business line review to supplement the
financial analysis.
--------------------------------------------------------------------------------
Management's Discussion and Analysis
================================================================================
================================================================================
Management's Discussion and Analysis of CIBC's 2002 results and operations is
organized into five sections
--------------------------------------------------------------------------------
OVERVIEW
To facilitate an understanding of CIBC's 2002 results, this section sets out
CIBC's significant business themes and critical accounting policies. An overview
of the consolidated financial results is also provided to set the framework for
the more detailed business line discussions that follow.
20 Business Themes
21 Critical Accounting Policies
23 Consolidated Financial Results
27 Outlook
BUSINESS LINE REVIEW
This section reviews CIBC's businesses and provides an explanation of CIBC's
reporting structure, which is consistent with how the business is managed. In
addition, each business line leader reviews financial results for the year.
Business line performance is measured against 2002 objectives. Ongoing
objectives and priorities, together with an outlook for 2003 are also provided.
Finally, an in-depth financial review is provided.
28 Business Line Review
29 How CIBC Reports
30 CIBC Retail & Wealth
32 CIBC Retail Markets
36 CIBC Wealth Management
40 CIBC World Markets
45 Amicus
FUNCTIONAL GROUPS
The functional groups provide infrastructure support services to the business
lines. In this section, the business leader for each functional group reviews
the year and establishes priorities going forward.
47 Treasury, Balance Sheet and Risk Management
48 Administration
49 Technology and Operations
50 Corporate Development
CONSOLIDATED FINANCIAL REVIEW
This section provides a discussion of CIBC's consolidated income statements and
consolidated balance sheets, as well as a detailed outline of how CIBC manages
risk and balance sheet resources.
51 Consolidated Income Statements
53 Consolidated Balance Sheets
54 Contractual Obligations and Off-Balance Sheet
Credit-Related Arrangements
55 Management of Risk and Balance Sheet Resources
BUSINESS ENVIRONMENT
This section provides an economic review of the year 2002 and the outlook for
2003, an overview of the regulatory environment in which CIBC operates and
related-party procedures. Accounting and reporting developments complete the
section.
69 Economic
70 Regulatory
70 Related-Party Procedures
70 Accounting and Reporting Developments
================================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS
Overview
--------------------------------------------------------------------------------
BUSINESS THEMES
Disciplined balance sheet management and capital strength continued to be
priorities for CIBC in 2002. The balance sheet management process is aimed at
reallocating economic capital and balance sheet resources to businesses with
strong, stable results and ensuring CIBC remains strongly capitalized. The
performance of every business across CIBC is assessed based on both quantity and
quality of earnings criteria. As a result, CIBC places each of its 37 businesses
into one of the four quadrants in the balance sheet resource allocation matrix
presented below.
BALANCE SHEET RESOURCE ALLOCATION MATRIX
[GRAPHIC OMITTED]
The quantity of earnings is measured on a performance management basis,
including risk-adjusted return on capital (RAROC) and economic profit. RAROC
and economic profit are measured using economic capital, which captures the
inherent risks associated with each business (see page 29). Quality of earnings
considers volatility, sustainability, strategic importance, and growth
potential. These are dynamic assessments based on financial performance and
management judgment, which support the allocation of balance sheet resources to
each business.
Businesses with strong earnings, high strategic importance and long-term
growth potential are considered "Growth" businesses. Examples of businesses in
this quadrant include both cards and the Canadian full-service brokerage, which
continued strong growth in 2002. Balance sheet resources in cards were up 7% in
2002, supporting 15% operating revenue growth. In 2002, CIBC acquired Merrill
Lynch Canada Inc.'s Private Client & Securities Services businesses and Merrill
Lynch Investment Managers Canada Inc., now CM Investment Management Inc. These
acquisitions have enabled CIBC to increase its Canadian full-service brokerage
platform under the CIBC Wood Gundy name. In aggregate, the CIBC Canadian
full-service brokerage business increased its balance sheet resource usage by
over 100% in 2002. The performance of these now integrated businesses
continues to exceed expectations.
Businesses with low current earnings but long-term profitability and growth
potential are considered "Investment" businesses. In 2002, CIBC continued to
invest in the electronic banking operations of Amicus in Canada (President's
Choice Financial) which continues to perform well and is expected to become
profitable in the fourth quarter of 2003. The total number of customers for
President's Choice Financial at the year-end was 1.05 million, up 40% from 2001.
It also experienced strong revenue growth in 2002 due to increasing volumes and
spreads.
"Managed growth" businesses are those that deliver strong financial
results, but have more moderate long-term growth prospects. In 2002, mortgages
grew by over 13%, with revenue up by 30%. CIBC also completed the combination
of its Caribbean retail, corporate and international banking operations with
those of Barclays Bank PLC to form FirstCaribbean International Bank(TM). The
combined operations will be both more efficient and better able to compete in
the region from a position of enhanced market share.
Businesses with low earnings and lower long-term growth potential fall into
the category of "Fix, reduce, exit." CIBC continued to liberate capital and
other balance sheet resources from these businesses and redeploy them to
"Investment" and "Growth" businesses. Examples of activities in 2002 included:
--------------------------------------------------------------------------------
A NOTE ABOUT FORWARD-LOOKING STATEMENTS
This annual report contains forward-looking statements which are made pursuant
to the "safe harbor" provisions of the United States Private Securities
Litigation Reform Act of 1995. These forward-looking statements include, but
are not limited to, statements about the operations, business lines, financial
condition, risk management, priorities, targets, ongoing objectives, strategies
and outlook of CIBC for 2003 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." A forward-looking statement
is subject to inherent risks and uncertainties that may be general or specific.
A variety of factors, many of which are beyond CIBC's control, affect the
operations, performance and results of CIBC and its business lines, and could
cause actual results to differ materially from the expectations expressed in any
of CIBC's forward-looking statements. These factors include: current, pending
and proposed legislative or regulatory developments in the jurisdictions where
CIBC operates, including pending developments in Canadian laws regulating
financial institutions and U.S. regulatory changes affecting foreign companies
listed on a U.S. exchange; political conditions and developments, including
conflict in the Middle East and the war on terrorism; weakened market
conditions; intensifying competition from established competitors and new
entrants in the financial services industry; technological change; global
capital market activity; interest rate fluctuation; currency value fluctuation;
general economic conditions worldwide, as well as in Canada, the United States
and other countries where CIBC has operations; the impact of the events of
September 11, 2001; changes in market rates and prices which may adversely
affect the value of financial products; CIBC's success in developing and
introducing new products and services to a receptive market, expanding existing
distribution channels, developing new ones and realizing increased revenue from
these channels, including electronic commerce-based efforts. This list is not
exhaustive of the factors that may affect any of CIBC's forward-looking
statements. These and other factors should be considered carefully and readers
should not place undue reliance on CIBC's forward-looking statements. CIBC does
not undertake to update any forward-looking statement that is contained in this
annual report.
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CIBC ANNUAL REPORT 2002
MANAGEMENT'S DISCUSSION AND ANALYSIS
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(i) The continued reduction of the non-core loan portfolio, through loan sales
credit derivatives and maturities, resulting in the release of more than
34% of balance sheet resources related to this portfolio.
(ii) The decision to close the U.S. electronic banking operations. Operating
losses from these activities will be substantially reduced in 2003.
(iii) The commitment to reduce capital allocated to the corporate loan and
merchant banking portfolios by one-third over the next three years.
CIBC continued to meet its targets for capital strength throughout 2002, with
strong growth in key retail businesses in spite of a difficult economic
environment. Share repurchases were curtailed earlier in the year to ensure
continued capital strength and flexibility.
CRITICAL ACCOUNTING POLICIES
A summary of significant accounting policies is presented in Note 1 to the
consolidated financial statements. Certain accounting policies of CIBC are
critical to understanding the results of operations and the 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.
Changes in these judgments and estimates could have a material impact on CIBC's
financial results and financial condition. Management has established control
procedures that are intended to ensure that accounting policies are applied
consistently and that the processes for changing methodologies are well
controlled, and occur in an appropriate and systematic manner. The following
details CIBC's critical accounting policies that require management's judgments
and estimates.
Valuation of financial instruments
CIBC's financial instruments include debt and equity securities, derivatives and
investments in merchant banking activities. Financial instruments that are
classified as held for trading purposes are carried at fair value, and financial
instruments that are classified as held for investment purposes, including those
held in the merchant banking portfolios, are carried at cost and amortized cost
adjusted for write-downs to reflect other-than-temporary impairments in value.
For debt and equity securities carried at fair value, the fair values are
based on quoted market prices, where available; otherwise, fair values are
estimated using quoted market prices for similar securities or other third-party
evidence as available. The fair values are adjusted for bid-offer
considerations, including consideration of concentration exposure, where
appropriate.
For derivative instruments carried at fair value, the fair values are based
on quoted market prices or dealer quotes, where available; otherwise, fair
values are estimated on the basis of pricing models that incorporate current
market measures for interest rates, currency exchange rates, equity prices and
indices, credit spreads, corresponding market volatility levels and other
market-based pricing factors. Where appropriate, fair value includes a
valuation adjustment to cover credit, model and market risks, as well as
administrative costs.
Realized and unrealized gains or losses on securities and derivatives held
for trading purposes are included in trading activities in the consolidated
statements of income.
For financial instruments carried at cost and amortized cost, CIBC
conducts regular reviews to assess whether other-than-temporary impairment has
occurred. Management's assessment is based upon a review of various factors,
including quoted market price of public securities; the investee's financial
results; future prospects and values derived from discounted cash flow models.
Impairment losses that are considered other-than-temporary are recognized in
earnings.
Management uses judgment in the estimation of fair values and impairments
as there is often limited market information. Management has control procedures
in place relating to valuation processes, the process for obtaining external
prices, periodic model review, and the consistent application of control
procedures from period to period. Imprecise estimates can affect the amount of
gain or loss recorded in trading activities and the impairment recorded for a
particular position or portfolio.
For additional details of fair value by type of on- and off-balance sheet
financial instruments, see Note 22 to the consolidated financial statements.
Allowance for credit losses
Management establishes and maintains an allowance for credit losses that it
considers the best estimate of probable credit-related losses existing in
CIBC's portfolio of on- and off-balance sheet financial instruments, giving due
regard to current conditions and credit protection purchased from third parties.
The allowance for credit losses consists of specific and general components. A
number of factors affect management judgment and estimates relating to CIBC's
allowance for credit losses, including probability of default, risk ratings,
expected loss and recovery rates, and the degree of risk inherent in the loan
portfolios. Changes in these estimates due to any number of circumstances can
have a direct impact on the provision for credit losses, and may result in a
change in the allowance.
Management establishes specific allowances against impaired loans for
larger non-homogeneous loan portfolios based on continuous monitoring of these
portfolios. Generally, a loan is classified as impaired when management is of
the opinion that there is no longer a reasonable assurance of the full and
timely collection of principal and interest. Impaired loans are carried at their
estimated realizable values determined by discounting the expected future cash
flows at the interest rate inherent in the loan. When the amount and timing of
future cash flows cannot be estimated reliably, the loan is carried at either
the fair value of the security underlying the loan or the market price of the
loan. Any changes in the estimated realizable amounts over time are reported as
a charge or credit to the allowance for credit losses.
The general allowance is established, based on expected loss rates
associated with different credit portfolios and estimated time period for losses
that are present but yet to be specifically identified, adjusting for
management's view of the current and ongoing economic and portfolio trends.
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CIBC ANNUAL REPORT 2002
MANAGEMENT'S DISCUSSION AND ANALYSIS
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CIBC's homogeneous loans include residential mortgages, and personal and
credit card loan portfolios. Management evaluates its homogeneous loan
portfolios for specific allowances by reference to historical write-offs of
balances outstanding. The general allowance for these consumer loan portfolios
is based on CIBC's historical flow and loss rates. Further analysis and
evaluation of the allowance is performed to account for the aging of the
portfolios, along with the impact of economic trends and conditions. For a
further discussion of the methodologies used in establishing CIBC's allowance
for credit losses, see "Management of credit risk" included in the "Management
of Risk and Balance Sheet Resources" section. For details of the allowance for
credit losses, see Note 4 to the consolidated financial statements.
Securitizations
CIBC periodically transfers groups of loans or receivables to special purpose
entities (SPEs) that issue securities to investors. These investors are entitled
to a return of cash flows, based on the principal and interest provided by the
group of loans or receivables transferred. This process is referred to as
securitization.
Securitizations are accounted for as sales when CIBC surrenders control of
the transferred assets and receives consideration other than beneficial
interests in the transferred assets.
Gains or losses on transfers accounted for as sales depend, in part, upon
the allocation of previous carrying amounts to assets sold and retained
interests. These carrying amounts are allocated in proportion to the relative
fair value of the assets sold and retained interests. As market prices are
generally not available for retained interests, CIBC estimates fair values based
on the present value of expected future cash flows. This requires management to
estimate expected credit losses, prepayment rates, discount rates, forward yield
curves, and other factors that influence the value of retained interests.
There are two key accounting determinations to be made relating to
securitizations. First, accounting rules require a determination to be made as
to whether a transfer of a group of loans or receivables should be considered
a sale for accounting purposes. Second, a decision is required whether a
securitization SPE should be considered a subsidiary of CIBC and be consolidated
into the financial statements. If the SPE is sufficiently restricted to meet
certain accounting requirements, the seller of the transferred assets need not
consolidate the SPE.
CIBC's securitizations that meet the accounting criteria are recorded as a
sale of assets and are not consolidated for financial reporting purposes. For
additional information on CIBC's securitizations, see Note 5 to the consolidated
financial statements.
As further discussed in the section "Off-balance sheet arrangements
involving SPEs," CIBC administers several SPEs that purchase pools of
third-party financial assets and may be involved in other financial transactions
involving SPEs. Under current accounting requirements, if the administrator does
not control the SPEs, the administrator need not consolidate the SPEs.
In August 2002, the Canadian Institute of Chartered Accountants (CICA) issued
a draft guideline "Consolidation of Special-Purpose Entities." As well, in June
2002, the Financial Accounting Standards Board in the U.S. issued an exposure
draft addressing the accounting for SPEs. The impact of these exposure drafts on
CIBC's consolidated financial statements is not yet determinable.
Valuation of goodwill and other intangible assets
Effective November 1, 2001, CIBC adopted the requirements of the CICA handbook
section 3062, "Goodwill and Other Intangible Assets." Under this section,
goodwill is no longer subject to amortization. Rather, goodwill is subject to
at least an annual assessment for impairment by applying a fair value-based
test at the reporting unit level. Impairment loss is recognized to the extent
that the carrying amount of goodwill exceeds the implied fair value. Under the
standard, an acquired intangible asset should be separately recognized if the
benefit of the intangible asset is obtained through contractual or other legal
rights, or if the intangible asset can be sold, transferred, licensed, rented,
or exchanged, regardless of the acquirer's intent to do so. Determining the
useful lives of intangible assets requires considerable judgment and
fact-based analysis. Intangible assets with an indefinite life are not amortized
but are tested at least annually for impairment.
The fair values of the reporting units and intangible assets with an
indefinite life are derived from internally and externally developed valuation
models, using a market or income approach. These models consider various
factors, including normalized earnings, projected forward earnings, price
earnings multiples and discount rates. Management uses judgment to estimate
the fair value of the reporting units and intangible assets with an indefinite
life. Imprecise estimates can affect the value reported for goodwill and other
intangible assets with an indefinite life. For details of goodwill and other
intangible assets, see Note 7 to the consolidated financial statements.
Pension and other post-retirement benefits
Pension and other post-retirement benefit costs and obligations are dependent on
assumptions used in calculating such amounts. These assumptions include discount
rates, projected salary increases, expected return on assets, health care cost
trend rates, turnover of employees, retirement age and mortality rates. In
accordance with Canadian generally accepted accounting principles, actual
results that differ from the assumptions are accumulated and amortized over
future periods and, therefore, generally affect recognized expense and the
recorded obligation in future periods.
CIBC's approach to managing its pension plans is based upon a comprehensive
framework to ensure that the pension plans are properly governed, managed, and
operated in each region. This framework is built upon an effective system that
holds its decision-makers accountable for results under changing conditions.
During the year, key assumptions were reviewed and adopted for the principal
CIBC Pension Plan. These assumptions, which affect the October 31, 2002
accrued benefit obligation and funded status of the plan and which will be used
to determine expense for 2003 are as follows:
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22
CIBC ANNUAL REPORT 2002
MANAGEMENT'S DISCUSSION AND ANALYSIS
--------------------------------------------------------------------------------
o The discount rate is based on the yield of high-quality debt instruments
with cash flows that match the timing and amount of expected benefit
payments. As at the measurement date of September 30, 2002, the rate was
6.75%, consistent with the prior year.
o The assumed rate of compensation increase was reduced from 4% to 3.5%. The
impact of this assumption change was to decrease the accrued benefit
obligation by $53 million.
o The expected long-term rate of return on plan assets remains at 7.5%. The
rate is based on the long-term market outlook and CIBC Pension Fund
investment policies.
Actual future experience different from that assumed or future changes in
assumptions may affect CIBC's pension and other post-retirement benefit
obligations and future expense.
For a further discussion of the key assumptions used in determining CIBC's
annual pension expense and accrued pension liability, see Note 15 to the
consolidated financial statements.
Income taxes
Management uses judgment in the estimation of income taxes, and future income
tax assets and liabilities. As part of the process of preparing CIBC's
consolidated financial statements, management is required to estimate income
taxes in each of the jurisdictions in which CIBC operates. This process involves
estimating actual current tax exposure, together with assessing temporary
differences that result from different treatment of items for tax and accounting
purposes and the tax loss carryforwards. These temporary differences and tax
loss carryforwards result in future income tax assets and liabilities, which are
included on CIBC's consolidated balance sheets. Substantially all of CIBC's
tax loss carryforwards originated from the U.S. operations in 2002 and expire
in 20 years. In addition, as other future income tax assets naturally reverse
into tax losses in the U.S., CIBC will have 20 years from the date such
temporary differences become tax losses to utilize them before they would begin
to expire under current tax law. Management is required to assess whether it is
more likely than not that future income tax assets will be realized prior to
their expiration and, based on all available evidence, determine if a
valuation allowance is required on all or a portion of its future income tax
assets. The factors used to assess the likelihood of realization are
management's forecast of future net income before taxes, available tax planning
strategies that could be implemented to realize the net future income tax
assets and the remaining expiration period of loss carryforwards. Although
realization is not assured, management believes, based on all available
evidence, that it is more likely than not that all of the future tax assets will
be realized prior to their expiration. In this regard, CIBC has initiated
various expense management initiatives, refocused its business activities and
committed to provide additional capital which will generate additional income.
The amount of the future income tax asset considered realizable, however, could
be reduced in the near term if forecasted income during the carryforward period
is not achieved. Factors that may affect CIBC's ability to achieve sufficient
forecasted income include, but are not limited to, the following: deterioration
of capital and credit markets, a decline in revenue or margins, loss of market
share or increased competition.
For details of CIBC's income taxes, see Note 18 to the consolidated
financial statements.
CONSOLIDATED FINANCIAL RESULTS
Highlights
o Total shareholder return of 34.1% for the three-year period ended October
31, 2002, versus the TSX Banks and Trust Index of 44.5%
o Strong Tier 1 and total capital ratios of 8.7% and 11.3%, respectively
o Reported ROE of 5.1%
Earnings
CIBC's reported earnings were $653 million for the year, down $1,033 million
from 2001. This was primarily due to a restructuring charge in the U.S.
electronic banking operations and other businesses, lower revenue from the CIBC
World Markets business line, and a higher provision for credit losses. This was
partially offset by lower revenue-related compensation and the gain resulting
from the combination of the Caribbean retail, corporate and international
banking operations of CIBC and Barclays Bank PLC, to form FirstCaribbean
International Bank(TM), now reflected as an equity investment. As well, CIBC
benefited from significant tax recoveries in 2002. Reported EPS, diluted, and
reported ROE were $1.35 and 5.1%, respectively, compared with $4.13 and 16.1% in
2001.
CIBC's reported earnings in 2001 were $1,686 million, down $374 million
from 2000. This resulted from a combination of lower revenue, reflecting weaker
markets that were further challenged by the events of September 11, 2001, and
higher expenses related to increased technology spending and a restructuring
charge. Concurrently, CIBC benefited from a relatively lower income tax expense.
Reported EPS, diluted, and reported ROE were $4.13 and 16.1%, respectively,
compared with $4.90 and 20.5% in 2000.
The accompanying table adjusts reported earnings for unusual items and
CIBC's investment in Amicus. Refer to page 29 for more information on operating
earnings.
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23
CIBC ANNUAL REPORT 2002
MANAGEMENT'S DISCUSSION AND ANALYSIS
--------------------------------------------------------------------------------
EARNINGS
$ millions, for the years ended October 31 2002 2001 2000
------------------------------------------------------------------------------------------------------------
Reported earnings $ 653 $ 1,686 $ 2,060
Less:
Gain on sales of corporate assets (1) 200 65 260
Restructuring charge(2) (323) (123) 18
Merrill Lynch acquisition-related costs (3) (112) - -
Events of September 11, 2001(4) (19) (4) -
Adjustment to future income tax assets (5) 52 (66) -
Bulk sale of U.S. corporate loans (6) - (94) -
Restructured ownership of certain U.S.-based loans and leases (7) - 142 -
Specific provision for credit losses (6) (8) - (28) (143)
General provision for credit losses (9) - - (146)
Goodwill amortization (10) - (46) (40)
Other items (11) - (4) (39)
------------------------------------------------------------------------------------------------------------
Adjusted earnings(12) 855 1,844 2,150
------------------------------------------------------------------------------------------------------------
Less:
Net impact of Amicus (13) (236) (245) (129)
------------------------------------------------------------------------------------------------------------
Operating earnings(12) $ 1,091 $ 2,089 $ 2,279
============================================================================================================
EPS(14) - diluted, reported $ 1.35 $ 4.13 $ 4.90
- diluted, adjusted $ 1.91 $ 4.54 $ 5.13
- diluted, operating $ 2.56 $ 5.19 $ 5.46
------------------------------------------------------------------------------------------------------------
ROE - reported 5.1% 16.1% 20.5%
- adjusted 7.3% 17.7% 21.5%
- operating 9.7% 20.2% 22.8%
============================================================================================================
(1) During the fourth quarter of 2002, CIBC and Barclays Bank PLC completed the
combination of their Caribbean retail, corporate and international banking
operations. As a result of this combination, CIBC recognized an after-tax
gain of $190 million (pre-tax $190 million). During the third quarter of
2002, a $10 million after-tax gain (pre-tax $13 million) was recognized
relating to the sale of CIBC's investment in Life of Barbados Limited.
Gains in 2001 included the sale of CIBC's two offshore banking
subsidiaries, CIBC Fund Managers (Guernsey) Limited and CIBC Bank and Trust
Company (Channel Islands) Limited, collectively the Guernsey private
banking business, for an after-tax gain of $22 million (pre-tax $22
million) and the sale of the Merchant Card Services business for an
after-tax gain of $43 million (pre-tax $58 million). The after-tax gains in
2000 included $143 million (pre-tax $203 million) from the sale of CIBC's
portfolio of various wholly-owned office properties; $97 million (pre-tax
$97 million) from the sale of CIBC's property and casualty insurance
companies; and $20 million (pre-tax $28 million) from the sale of CIBC
Suisse S.A.
(2) During the fourth quarter of 2002, CIBC recorded an after-tax restructuring
charge of $323 million (pre-tax $514 million). This amount included $232
million (pre-tax $366 million) relating to closing the U.S. electronic
banking operations. During the fourth quarter of 2001, CIBC recorded an
after-tax restructuring charge of $123 million (pre-tax $207 million). The
$18 million after-tax restructuring credit (pre-tax $31 million) in 2000
represented an adjustment of the 1999 after-tax restructuring charge of
$242 million (pre-tax $426 million).
(3) In 2002, CIBC incurred after-tax costs of $112 million (pre-tax $183
million) relating to the acquisition of Merrill Lynch Canada Inc.'s Private
Client & Securities Services businesses. These costs also include
additional compensation to certain investment advisers within CIBC Wood
Gundy.
(4) During 2002, net after-tax expenses of $19 million (pre-tax $32 million)
were recognized relating to losses and incremental expenses incurred for
certain of CIBC's New York operations located at One World Financial
Center, in close proximity to the World Trade Center. In the fourth quarter
of 2001, CIBC recognized an after-tax expense of $4 million (pre-tax $7
million) in respect of such losses and incremental expenses.
(5) During the fourth quarter of 2002, CIBC recorded $52 million in recognition
of certain United Kingdom tax losses related to prior years. In June 2002,
the Ontario Government proposed that the tax rate reductions previously
announced by it be delayed by one year. This measure was substantively
enacted in 2002. During the third quarter of 2001, it was determined that
the provincial income tax rate decreases proposed in the May 9, 2001
Ontario Budget and the July 30, 2001 British Columbia Budget Update were
substantively enacted. As a result, CIBC recognized a $21 million charge to
income tax expense in that quarter, thereby reducing its future income tax
assets, in recognition of the fact that temporary differences will reverse
when the rates are lower. An adjustment of $45 million was recognized in
the first quarter of 2001, resulting from the federal income tax rate
decreases proposed in the October 18, 2000 federal government Economic
Statement and Budget Update.
(6) In the fourth quarter of 2001, CIBC completed a sale of $848 million of
non-investment grade loans and $195 million of undrawn credit commitments.
CIBC recorded an after-tax specific provision for credit losses of $28
million (pre-tax $48 million) related to the loans and incurred an
after-tax loss on the sale of $94 million (pre-tax $162 million).
(7) During the fourth quarter of 2001, CIBC restructured ownership of certain
U.S.-based loans and leases, resulting in a net reduction of income tax
expense of $142 million.
(8) In 2000, CIBC recorded an after-tax additional specific provision of $143
million (pre-tax $250 million) for credit losses related to
government-sponsored student loans.
(9) In 2000, CIBC recorded an after-tax general provision for credit losses of
$146 million (pre-tax $250 million).
(10) On November 1, 2001, CIBC adopted the requirements of the CICA handbook
section 3062, "Goodwill and Other Intangible Assets," which require that
amortization of goodwill, including that relating to equity accounted
investments, cease after October 31, 2001. Accordingly, adjusted earnings
for 2001 and 2000 include adding back amortization of goodwill to present
2001 and 2000 results on a basis comparable to the current year.
(11) In the fourth quarter of 2001, CIBC incurred after-tax costs of $4 million
(pre-tax $8 million) related to the restructured ownership of certain
U.S.-based loans and leases. In 2000, CIBC recorded after-tax costs of $12
million (pre-tax $20 million) for Oppenheimer acquisition-related costs. In
2000, other after-tax costs of $27 million (pre-tax $50 million) related to
CIBC's New York premises consolidation.
(12) Operating earnings exclude items that, in management's opinion, are either
unusual in nature, or that relate to substantial strategic investments,
thereby allowing for the analysis of business trends and the performance of
CIBC's business lines. Adjusted earnings exclude only unusual items. The
words "operating earnings" and "adjusted earnings" do not have standardized
meanings under generally accepted accounting principles and, consequently,
may not be comparable to similar measures presented by other companies.
Refer to the "Operating performance measurements" section in this report
for further details.
(13) During the first quarter of 2002, certain business activities were moved
from CIBC Retail Markets (formerly Retail Products and Retail Markets) to
Amicus. Refer to the "Business line review" section in this report for
further details. Comparative information has been reclassified.
(14) During the first quarter of 2002, CIBC retroactively adopted the CICA
handbook section 3500, "Earnings Per Share." Prior period EPS figures have
been restated.
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CIBC ANNUAL REPORT 2002
MANAGEMENT'S DISCUSSION AND ANALYSIS
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Revenue
Reported revenue in 2002 was $11,152 million on a taxable equivalent basis
(TEB), down $154 million from the prior year. The decrease in revenue was
mainly due to lower trading and origination revenue, lower net merchant banking
revenue and write-downs related to collateralized debt obligation and high-yield
portfolios, all as a result of continued weak markets. This decrease was
partially offset by the gain resulting from the combination of the Caribbean
retail, corporate and international banking operations of CIBC and Barclays Bank
PLC. Revenue also benefited from increased net interest income related to
increased volumes in credit products (cards, lending products and mortgages)
and in customer deposits, as well as revenue related to acquired businesses.
--------------------------------------------------------------------------------
REVENUE
$ millions, for the years ended October 31 2002 2001 2000
--------------------------------------------------------------------------------
Reported revenue (TEB) $ 11,152 $ 11,306 $ 12,210
Less:
Gain on sales of corporate assets 203 80 328
Bulk sale of U.S. corporate loans -- (162) --
Amicus 230 148 75
Goodwill amortization -
equity accounted investments -- (22) (17)
--------------------------------------------------------------------------------
Operating revenue (TEB) $ 10,719 $ 11,262 $ 11,824
================================================================================
Reported revenue in 2001 was $11,306 million, down $904 million from the prior
year. Revenue for the year included gains from sales of CIBC's Merchant Card
Services business and the Guernsey private banking business. These gains were
more than offset by the loss associated with the bulk sale of the U.S. corporate
loans. In 2000, revenue included gains of $328 million related to the sales of
certain office properties, the property and casualty insurance companies and
CIBC Suisse S.A. Reported revenue in 2001 was also lower from 2000 as a result
of revenue declines in CIBC Wealth Management and CIBC World Markets businesses,
reflecting weaker market conditions and the events of September 11, 2001.
Non-interest expenses
CIBC's reported non-interest expenses for the year were $9,129 million, up $903
million from 2001. The increase in non-interest expenses was primarily due to
a higher restructuring charge and the ongoing expenses related to acquired
businesses, as well as acquisition-related costs, partially offset by lower
revenue-related compensation. Details of the restructuring charge are outlined
below.
The reported efficiency ratio was 81.9% in 2002, compared with 72.8% in the
prior year.
At October 31, 2002, CIBC had a regular workforce headcount of 42,552, up
237 from 2001 due to the impact of acquired businesses partly offset by staff
reductions as part of restructuring and the exclusion of the West Indies
workforce. The regular workforce headcount measure comprises regular full-time
and part-time employees, base salaried plus commissioned employees and 100%
commissioned employees.
--------------------------------------------------------------------------------
NON-INTEREST EXPENSES
$ millions, for the years ended October 31 2002 2001 2000
--------------------------------------------------------------------------------
Reported non-interest expenses $ 9,129 $ 8,226 $ 8,096
Less:
Restructuring charge 514 207 (31)
Merrill Lynch acquisition-
related costs 183 -- --
Events of September 11, 2001 32 7 --
Amicus 585 535 290
Goodwill amortization -- 24 23
Other items -- 8 70
--------------------------------------------------------------------------------
Operating non-interest expenses $ 7,815 $ 7,445 $ 7,744
================================================================================
Reported non-interest expenses were $8,226 million in 2001, up $130 million from
the prior year. This was primarily the result of increased Amicus spending and
the restructuring charge related to CIBC's cost-reduction program, partially
offset by lower revenue-related compensation.
Restructuring
In 2002, CIBC recorded a restructuring charge of $366 million relating to the
closing of its U.S. electronic banking operations and an additional $142 million
related to restructuring initiatives in other businesses. These initiatives in
total are expected to result in the elimination of approximately 2,700
positions.
The charge relating to closing the U.S. electronic banking operations,
subject to regulatory approval, consisted of contract termination costs,
termination benefits and other related charges, including the write-down of
assets. The initiative is expected to be substantially completed by the end of
the first quarter of 2003.
CIBC World Markets has reduced staff levels, primarily in the U.S., as a
result of the continued low level of business activity in capital markets and
investment banking. In addition, selective reductions will be made in Asian,
European and commercial banking businesses.
CIBC Retail Markets will reduce staff levels, reconfigure its branch
network and close bizSmart(TM), CIBC's direct banking offer which provided
internet and telephone based banking services to small businesses.
Operations and systems development support for CIBC World Markets, CIBC
Wealth Management and CIBC Retail Markets businesses will rationalize to align
their cost structures with current market conditions.
In 2001, a CIBC-wide cost-reduction program was initiated in response to
changing economic conditions. Significant actions taken in 2002 under the
program included consolidation of branches, rationalization of business support
functions, realignment of the workforce, reorganization of certain operations,
and termination of certain leases. This program was substantially completed in
2002 and the original estimate was revised by a net increase of $6 million.
Events of September 11, 2001
CIBC's New York operations located at One World Financial Center (WFC), in close
proximity to the World Trade Center, were directly affected by the events of
September 11, 2001. These events caused the temporary
--------------------------------------------------------------------------------
25
CIBC ANNUAL REPORT 2002
MANAGEMENT'S DISCUSSION AND ANALYSIS
--------------------------------------------------------------------------------
relocation of employees from WFC to CIBC's other major premises in mid-town
Manhattan, as well as to temporary locations in the vicinity.
For the year ended October 31, 2002, CIBC recorded expenses, net of
insurance recoveries, related to the events of September 11, 2001 of $32 million
(2001: $7 million). CIBC has received payments on account of insurance claims of
$90 million in 2002 (2001: $9 million). Although CIBC is still in discussions
with its insurance carrier as to the ultimate settlement amount, CIBC has
recorded insurance recoveries for amounts for which it considers recovery is
probable. In addition, no insurance recovery amounts are recorded under the
business interruption insurance claim as negotiations are still continuing.
Management is still in the process of evaluating various scenarios concerning
the premises in New York. The full financial impact of these decisions,
including related insurance recoveries, was not determinable at the time of
preparation of the consolidated financial statements.
For details relating to expenses related to the events of September 11,
2001, refer to Note 17 to the consolidated financial statements.
Taxes
CIBC's reported income tax recovery for the year was $279 million, compared with
an income tax expense of $92 million in 2001 primarily due to a higher provision
for credit losses in North America in 2002 and increased restructuring charge
and other losses in CIBC's U.S. operations. Also contributing to the reduced
income tax expense were the gain resulting from the combination of the Caribbean
retail, corporate and international banking operations of CIBC and Barclays Bank
PLC, upon which no tax expense was provided, and the recognition of a future tax
asset in respect of certain United Kingdom tax losses relating to prior years.
CIBC has not provided for a valuation allowance related to future income
tax assets. Included in the tax loss carryforwards amount is $447 million
relating to losses in the U.S. operations in 2002 which expire in 20 years. In
addition, as other future income tax assets naturally reverse into tax losses in
the U.S., CIBC will have 20 years from the date such temporary differences
become tax losses to utilize them before they would begin to expire under
current tax law. Although realization is not assured, CIBC believes that, based
on all available evidence, it is more likely than not that all of the future tax
assets will be realized prior to their expiration. In this regard, CIBC has
initiated various expense management initiatives, refocused its business
activities and committed to provide additional capital which will generate
additional income. See pages 52 and 53 for a more detailed discussion.
Assets
CIBC's balance sheet decreased by $14.2 billion, to $273.3 billion, from October
31, 2001. Decreases were largely driven by reductions in business and government
loans ($4.7 billion), securities borrowed or purchased under a resale agreement
($8.1 billion), trading securities ($7.2 billion), investment securities ($2.3
billion), customers' liability under acceptances ($1.3 billion), and
interest-bearing deposits with banks ($1.6 billion). These decreases were
partially offset by increases in retail assets, such as residential mortgages
($7.9 billion), and personal and credit card loans ($2.4 billion). Large
reductions in balances, specifically in the fourth quarter of 2002, were
partially the result of the combination of the Caribbean retail, corporate and
international banking operations of CIBC and Barclays Bank PLC, and also as a
result of continuing efforts to manage the balance sheet to appropriate levels.
The net unrealized excess of market value over book value of CIBC's
investment portfolio totalled $671 million at year-end. The unrealized gains in
corporate equity of $271 million related mainly to investments held in the
merchant banking portfolio.
Gross impaired loans were $2.28 billion at October 31, 2002, up from $1.70
billion from the prior year. CIBC's total allowance for credit losses, which
includes specific and general allowances, was $2.29 billion at year-end, and
exceeded gross impaired loans by $13 million, compared with $592 million at
October 31, 2001.
The specific provision for credit losses was $1,500 million for the year,
up from $1,100 million in 2001. As at October 31, 2002, the general allowance
remained at $1.25 billion, unchanged from the prior year. The increase in
specific provisions mainly related to the business and government loan portfolio
and reflects the continuing decline in credit conditions experienced in the
U.S. and Europe.
Capital management
CIB's total capital for regulatory purposes was $14.3 billion at October 31,
2002, down $1.3 billion from 2001 mainly as a result of increased deductions for
goodwill (from Tier 1 capital) and for equity accounted investments (from total
regulatory capital). Goodwill increased as a result of acquisitions during the
year. The increase in equity accounted investments resulted from the combination
of the Caribbean retail, corporate and international banking operations of CIBC
and Barclays Bank PLC. CIBC's Tier 1 and total regulatory capital ratios were
8.7% and 11.3%, respectively, at October 31, 2002, compared with 9.0% and 12.0%
a year ago.
Shareholder value
CIBC's common share price was $38.75 at October 31, 2002, compared with $48.82
at the end of 2001. Current dividends of 41 cents per quarter, implying an
annual dividend of $1.64, represent a dividend yield of 4.2% based on the
closing share price for the year. Book value was $25.75 per share, down from
$26.44 per share in 2001.
Under a normal course issuer bid that began on January 9, 2002, CIBC
purchased 5.7 million common shares for cancellation during the year for an
aggregate consideration of $313 million, representing an average price of $55.05
per share. The normal course issuer bid ends January 8, 2003.
Stock option plans
CIBC has two stock option plans: the Employee Stock Option Plan and the
Non-Officer Director Stock Option Plan, as detailed in Note 14 to the
consolidated financial statements.
--------------------------------------------------------------------------------
26
CIBC ANNUAL REPORT 2002
MANAGEMENT'S DISCUSSION AND ANALYSIS
--------------------------------------------------------------------------------
During the year, CIBC early adopted the fair value-based method to account for
stock options. This is further explained in Note 14 to the consolidated
financial statements.
The dilution impact of the stock option plans is summarized in the table below.
The dilution impact is calculated as the new option grants for the year, net of
options forfeited by employees leaving CIBC, divided by the average number of
shares outstanding during the year.
-------------------------------------------------------------------------------------------------------------
STOCK OPTIONS
As at or for the years ended October 31 2002 2001 2000 1999 1998 1997 1996
-------------------------------------------------------------------------------------------------------------
Net options granted (millions) 2.7 2.4 5.1 4.5 3.4 3.4 3.0
Average number of shares
outstanding (millions) 360.6 372.3 388.9 409.8 415.0 413.5 415.0
=============================================================================================================
Net grants during period as % of average
number of shares outstanding 0.8% 0.6% 1.3% 1.1% 0.8% 0.8% 0.7%
=============================================================================================================
OUTLOOK
The current North American economic environment remains uncertain. An
earlier recovery in the U.S. has faltered amid weak gains in employment and
little appetite for renewed capital spending by corporations. In Canada, the
picture is somewhat brighter with relatively strong consumer spending and a
healthy trade surplus, although it is unclear how long this divergence can
continue in light of the conditions south of the border. Ultimately, North
American economic growth is expected to slowly strengthen, particularly during
the latter part of 2003, as low interest rates support retail sales and
companies finally begin re-investing in their businesses. The key uncertainty
in this forecast remains the threat of war in the Middle East.
In light of these challenges, CIBC will continue to shift its business mix
away from the capital and credit markets to its core retail and wealth
management businesses. Loan loss provisions are expected to decline in 2003 and
management's efforts will be focused on improving operational efficiency and
maintaining strong capital ratios.
--------------------------------------------------------------------------------
27
CIBC ANNUAL REPORT 2002
We have four strategic business lines - CIBC Retail Markets, CIBC Wealth
Management, CIBC World Markets and Amicus. CIBC Retail Markets and CIBC Wealth
Management together comprise our CIBC Retail & Wealth operations. These business
lines are supported by four functional groups - Treasury, Balance Sheet and Risk
Management; Administration; Technology and Operations; and Corporate
Development.
--------------------------------------------------------------------------------
Business Line Review
================================================================================
========================================================================================================================
BUSINESS LINE REVIEW AVERAGE REPORTED
ASSETS EARNINGS
(% of total) ($ millions)
------------------------------------------------------------------------------------------------------------------------
CIBC RETAIL & WEALTH 58.7% $1,347
------------------------------------------------------------------------------------------------------------------------
CIBC RETAIL MARKETS
Provides financial services and lending, credit cards, mortgages, deposit,
insurance and investment products to retail and small business 49.4% $1,171
customers through CIBC branches, ABM network, internet and telephone banking.
------------------------------------------------------------------------------------------------------------------------
CIBC WEALTH MANAGEMENT
Provides relationship-based advisory sales, services and products through a sales force
of more than 3,000 investment professionals. Products and services include full-service 9.3% $ 176
brokerage in Canada and the U.S., discount brokerage, global private banking and trust
services, asset management, and a variety of other wealth products.
------------------------------------------------------------------------------------------------------------------------
CIBC WORLD MARKETS
Provides integrated investment and corporate banking solutions to clients throughout
North America, with niche capabilities in the U.K. and Asia. Areas of specialization 39.5% $ (144)
include mergers and acquisitions; research; sales and trading of securities and
derivatives; merchant banking; and commercial banking.
------------------------------------------------------------------------------------------------------------------------
AMICUS
Provides co-branded electronic retail banking services. Operating through pavilions in 1.8% $ (468)
retail locations, Amicus offers a variety of deposit and credit products.
========================================================================================================================
FUNCTIONAL GROUPS
CORPORATE AND OTHER includes the four functional groups that provide
infrastructure support services, with revenue and expenses generally allocated
to the business lines. These functional groups are:
o Treasury, Balance Sheet and Risk Management-manages CIBC's balance sheet
resource allocation process and also measures, monitors and controls CIBC's
exposure to credit, market, liquidity and operational risk.
o Administration - provides governance and support services to CIBC and its
strategic business lines.
o Technology and Operations - provides a wide range of shared technology and
operations services to CIBC's businesses.
o Corporate Development - reinforces an owner-manager mindset among CIBC's
leaders to develop and grow their businesses.
================================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS
--------------------------------------------------------------------------------
How CIBC Reports
--------------------------------------------------------------------------------
CIBC's four business lines are CIBC Retail Markets, CIBC Wealth Management, CIBC
World Markets and Amicus. CIBC Retail Markets and CIBC Wealth Management
together comprise CIBC Retail & Wealth operations, the focus of CIBC's overall
strategy of concentrating resources and increasing capital to the retail
operations.
--------------------------------------------------------------------------------
CIBC's business lines are supported by four functional groups: Treasury, Balance
Sheet and Risk Management; Administration; Technology and Operations; and
Corporate Development.
During 2002, CIBC merged most of the businesses within Electronic Commerce,
and Retail and Small Business Banking into a new business line, CIBC Retail
Markets. Amicus (previously part of Electronic Commerce) became a separate
business line, and Technology and Operations became a part of Corporate and
Other. Prior year segmented financial information has been reclassified to
reflect these changes.
CIBC's Manufacturer/Customer Segment/Distributor Management Model is used
to measure and report the results of operations of the four business lines.
Under this model, internal payments for sales commissions and distribution
service fees are made among the business lines. As well, revenue and expenses
relating to certain activities, such as the payments business included in CIBC
Retail Markets, are fully allocated to other business lines. In addition, the
revenue, expenses and balance sheet resources of the four functional groups are
generally allocated to the business lines. Corporate and Other comprises the
four functional groups, as well as CIBC Mellon's custody business and other
revenue and expense items not directly attributable to the business lines.
Management uses this model to better understand the economics of customer
segments, products and delivery channels.
The model employs certain estimates and allocation methodologies in the
preparation of segmented financial information. In 2002, the sales and service
fees paid to segments for certain products were renegotiated among the business
lines. Prior year financial information was not reclassified to reflect these
fee changes.
OPERATING PERFORMANCE MEASUREMENTS
The principal measurements used by CIBC to assess business line performance
include operating earnings; return on equity, which is based on risk-adjusted
(economic) capital; and economic profit. These measurements are outlined in
more detail in the following sections and are provided as part of the business
line performance reviews on pages 30 to 46.
Operating earnings
Management uses operating earnings and adjusted earnings to review and analyse
the performance of the business lines. Operating earnings exclude items that, in
management's opinion, are either unusual in nature or relate to substantial
strategic investments, thereby allowing for the analysis of business trends.
Adjusted earnings exclude only unusual items. Examples of excluded items are the
impact of gains (or losses) on sales of non-strategic assets, restructuring
costs within each business line and the costs related to the events of September
11, 2001. These items are explained in more detail in the footnotes to the table
under earnings on page 24. Business line results show both reported and
operating earnings. The discussions on pages 30 to 46 refer to operating
earnings. In addition, further details on the business lines are provided in
Note 26 to the consolidated financial statements.
Risk-adjusted return on capital (RAROC)
RAROC is a risk-adjusted profitability measurement and management framework for
measuring risk-adjusted financial performance and for providing a consistent
view of profitability across all businesses. RAROC is defined as the ratio of
risk-adjusted return to economic capital.
Economic capital is attributed on the basis of three risk factors:
credit, market and operational risk. The fundamental approaches to managing
these risk factors are described in the "Management of Risk and Balance Sheet
Resources" section. The use of risk-based capital strengthens the risk
management discipline within CIBC's business lines, as the methodologies
employed quantify the level of risk within each business line and attribute
capital accordingly. This process assists CIBC in achieving its objectives of
controlled growth and returns commensurate with the risk taken.
Economic capital methodologies can be applied across products, clients,
lines of business and other segmentations, as required, to measure certain
types of performance. The resulting capital attributed to each business line
provides the financial framework to understand and evaluate sustainable
performance, and to actively manage the composition of the business portfolio.
This enables CIBC to increase shareholder value by reallocating capital to those
businesses with high strategic value and sustainable returns, or with
long-term growth and profitability potential.
Business line return on equity is also measured using risk-adjusted
(economic) capital, which, in many instances, may be different from legal
capital. The difference between economic capital allocated to the business lines
and legal capital is held in Corporate and Other. Periodically, enhancements
are made to CIBC's economic capital allocation model as part of CIBC's risk
measurement process. These changes are made prospectively.
Economic profit
Economic profit elaborates on RAROC by incorporating the cost of equity capital,
which is based on the market required rate of return from holding CIBC's equity
instruments, to assess whether shareholder wealth is being created. Economic
profit measures the return generated by each business in excess of CIBC's cost
of equity capital. Shareholder wealth is increased if capital can be employed at
a return in excess of CIBC's cost of equity capital. Similarly, when returns do
not exceed the cost of equity capital, then shareholder wealth is diminished and
a more effective deployment of that capital is sought.
--------------------------------------------------------------------------------
29
CIBC ANNUAL REPORT 2002
2002 Results
o Reported earnings of $1,347 million;
including commercial banking, reported
earnings of $1,430 million
o Growth in transaction account balances of
22%
o Growth in personal loans administered of 14%
o Growth in non-institutional assets under
administration of 24%
Our Priorities
o Customer satisfaction
o Proactive sales and service
o Leadership in advice-based wealth management
products and services
o Operational efficiency
[GRAPHIC OMITTED]
================================================================================
[PHOTO OMITTED]
JILL DENHAM
Vice-Chair
CIBC Retail Markets
[PHOTO OMITTED]
GERRY McCAUGHEY
Vice-Chair
CIBC Wealth Management
CIBC Retail & Wealth
--------------------------------------------------------------------------------
PAT REILLY (above right), Executive Assistant, Corporate Communications and
> Public Affairs, long-time employee and CIBC customer for almost 50 years,
meets with fellow veteran employee Shirley McLellan (above left), CIBC's
Client Care Ambassador, at CIBC's main branch in Toronto.
--------------------------------------------------------------------------------
CIBC Retail & Wealth comprises CIBC Retail Markets and CIBC Wealth Management
business lines and represents CIBC's combined retail operations. The combination
of these two business lines reflects CIBC's strategy to focus resources in its
retail business. CIBC Retail & Wealth products and services are provided to
customers in Canada, the U.S. and the Caribbean through a variety of channels.
MANAGEMENT'S DISCUSSION AND ANALYSIS
--------------------------------------------------------------------------------
CIBC Retail & Wealth
--------------------------------------------------------------------------------
SCOPE AND SCALE
Personal transaction
account balances
$ billions
[THE FOLLOWING DATA WAS REPRESENTED AS A BAR CHART IN THE PRINTED MATERIAL]
00 01 02
16.86 17.83 21.78
Personal Loans
administered
$ billions
[THE FOLLOWING DATA WAS REPRESENTED AS A BAR CHART IN THE PRINTED MATERIAL]
00 01 02
Cards 7.69 8.71 15.24
Residential Mortgages 57.01 64.79 75.65
Other Consumer Loans 28.48 28.17 29.56
Non-institutional assets
under administration
$ billions
[THE FOLLOWING DATA WAS REPRESENTED AS A BAR CHART IN THE PRINTED MATERIAL]
00 01 02
163.4 166.4 207
The following tables set out the reported and operating earnings as well as
operating revenue for CIBC Retail & Wealth by business.
In addition, while CIBC manages its commercial banking operations within
CIBC World Markets, some financial institutions include commercial banking with
their retail operations. The accompanying tables also set out the effect of
including CIBC's commercial banking operations under CIBC Retail & Wealth.
Earnings
$ millions
[THE FOLLOWING DATA WAS REPRESENTED AS A BAR CHART IN THE PRINTED MATERIAL]
2000 2001 2002
Earnings
Reported
CIBC Retail & Wealth and 1251 1331 1430
commercial banking
CIBC Retail & Wealth 1121 1228 1347
Operating
CIBC Retail & Wealth 1150 1216 1292
Commercial banking 130 106 86
Revenue
$ millions
[THE FOLLOWING DATA WAS REPRESENTED AS A BAR CHART IN THE PRINTED MATERIAL]
2000 2001 2002
Operating Revenue
CIBC Retail & Wealth 6759 6632 7469
Commercial banking 491 481 446
--------------------------------------------------------------------------------
EARNINGS
$ millions for the years ended October 31 2002 2001 2000
--------------------------------------------------------------------------------
CIBC Retail Markets $ 1,171 $ 917 $ 687
CIBC Wealth Management 176 311 434
--------------------------------------------------------------------------------
1,347 1,228 1,121
Commercial banking 83 103 130
--------------------------------------------------------------------------------
Reported earnings 1,430 1,331 1,251
--------------------------------------------------------------------------------
Less:
Gain on sales of corporate assets 200 65 117
Restructuring charge (36) (42) 6
Merrill Lynch acquisition-related costs (112) -- --
Specific provision for credit losses -- -- (143)
Goodwill amortization -- (14) (9)
--------------------------------------------------------------------------------
Operating earnings $ 1,378 $ 1,322 $ 1,280
================================================================================
--------------------------------------------------------------------------------
REVENUE
$ millions for the years ended October 31 2002 2001 2000
--------------------------------------------------------------------------------
Operating revenue (TEB)(1)
CIBC Retail Markets
Personal banking $ 1,126 $ 993 $ 952
Small business banking 720 661 681
West Indies 245 281 268
Cards 1,241 1,077 936
Lending products 582 634 624
Mortgages(2) 623 479 332
Insurance 72 50 148
Other 67 163 105
--------------------------------------------------------------------------------
4,676 4,338 4,046
--------------------------------------------------------------------------------
Operating revenue (TEB)(1)
CIBC Wealth Management
Imperial Service 667 627 558
Private client investment 1,320 977 1,280
Global private banking and trust 127 123 163
Wealth products 643 486 663
Other 36 81 49
--------------------------------------------------------------------------------
2,793 2,294 2,713
--------------------------------------------------------------------------------
7,469 6,632 6,759
Commercial banking 446 481 491
--------------------------------------------------------------------------------
Operating revenue (TEB) $ 7,915 $ 7,113 $ 7,250
--------------------------------------------------------------------------------
(1) Operating revenue excludes gain on sales of corporate assets and adds back
goodwill amortization - equity accounted investments.
(2) Comparative figures have been reclassified to conform with the
presentation used in 2002.
--------------------------------------------------------------------------------
31
CIBC ANNUAL REPORT 2002
2002 Results
o Operating ROE of 44%
o Overall customer loyalty
remained unchanged
o Top rated of the big five
banks for Satisfaction with
Problem Resolution for 2002
o Small business customer
loyalty increased by 4%
Our Priorities
o Improve customer loyalty
o Drive profitable growth
o Continue market leadership in
cards
Our Ongoing Objectives
o Achieve operating earnings
growth of 10% for the year
o Improve customer loyalty
o Become the leading bank for
small business customers
[PHOTO OMITTED]
================================================================================
[PHOTOS OMITTED]
JILL DENHAM
Vice-Chair
CIBC Retail & Wealth -
CIBC Retail Markets
--------------------------------------------------------------------------------
CIBC'S SMALL BUSINESS BANKING customer Derek Gardner (above centre),
> President, CLO Glass Limited of Concord, Ontario pictured with sons Kevin
(above right) and Paul (above left) who serve as vice-presidents of the
company.
--------------------------------------------------------------------------------
CIBC Retail Markets serves both personal and small business customers across
Canada. We offer deposit products, personal and student loans, cards, mortgages
and insurance, and small business and agricultural loans through CIBC's Canadian
branch network, telephone banking, internet banking and ABMs. In addition to the
banking services offered in Canada, we have an approximate 44% equity investment
in FirstCaribbean International Bank(TM).
MANAGEMENT'S DISCUSSION AND ANALYSIS
--------------------------------------------------------------------------------
CIBC Retail & Wealth - CIBC Retail Markets
--------------------------------------------------------------------------------
2002 marked the first full year of new leadership in CIBC Retail Markets, and
performance was strong, with increased revenue, funds managed and profitability.
With a renewed focus on leveraging the strengths of our retail franchise, we
launched a wide range of initiatives to increase our value to customers,
increase performance and improve the efficiency of our operations.
--------------------------------------------------------------------------------
Our three-year goal is to become the best relationship retailer of financial
services in Canada. To achieve this goal, we are building on both our current
strengths and new opportunities for competitive advantage.
CURRENT STRENGTHS
Our cards business again experienced significant growth in 2002. Total purchase
volumes were up 13% and balances under administration increased 9% to $9.5
billion as at year end. We maintained our #1 position in market share of card
purchase volumes and average outstanding card balances and remained the leading
issuer of premium credit cards based on purchase volumes.
We are committed to continued growth in this core business through ongoing
product innovation and operating efficiencies. We launched several new card
products during 2002, including the entourage suite of cards as part of our
alliance with American Express Limited. CIBC also launched the CIBC Shoppers
Optimum(TM) VISA card, a co-branded, loyalty-based no-fee credit card with
Shoppers Drug Mart Inc.
Our mortgage business continues to perform exceptionally well. New
residential mortgage originations reached a record high of $26.7 billion this
year, increasing total residential mortgages under administration by 17% and our
market share by a full percentage point. Our multi-brand, multi-channel mortgage
strategy sells mortgages under the CIBC, FirstLine(TM) and President's Choice
Financial brands through CIBC retail channels, Home Loans Canada, independent
brokers and President's Choice Financial channels.
New automated sales management tools and processes introduced this year to
our branch-based sales force played an important role in increasing personal and
small business banking revenues, with a significant increase in revenues per
salesperson.
We continued to develop innovative products with significant customer
appeal. Our new CIBC Better Than Posted Mortgage, the introduction of CIBC Audio
Access(TM) ABM service for elderly customers and those with visual impairments,
and our new email money transfer service are examples of our continued success
at delivering valued products and services.
In small business banking, we introduced a new credit process to give
small business customers faster turnaround on credits up to $30,000 for
unsecured startup ventures. Small business customer loyalty is now at its
highest point in four years. We made the decision to close bizSmart, our direct
banking offer which provided internet and telephone-based banking services to
small businesses.
FirstCaribbean International Bank(TM) was formed on October 11, 2002 as a
result of the combination of our Caribbean retail, corporate and international
banking operations with those of Barclays Bank PLC. The new bank operates in 13
countries in the West Indies, and will leverage one of the largest capital bases
of any Caribbean bank to focus on growth and excellent customer service.
NEW OPPORTUNITIES FOR COMPETITIVE ADVANTAGE
While product excellence in areas such as mortgages and cards is important, our
objective is to be recognized by customers as the bank that can fulfill all of
their financial services needs, at each stage of their lives.
This year, we took a number of steps to achieve stronger relationships
with customers in order to better meet their financial needs. Our detailed
understanding of customer segments is driving our product development, marketing
activities, distribution decisions and our sales focus.
We implemented a sophisticated, new branch technology infrastructure that
has allowed us to introduce automated performance measurement and sales leads,
e-learning for employees, and faster transaction processing times. We continue
to invest in learning and sales management tools for branch staff so that we can
achieve our goals for deepening our customer relationships.
Also, we have begun to streamline our organization by overhauling
processes to improve the customer experience and reduce associated costs and
time.
OUTLOOK FOR 2003
CIBC Retail Markets will grow revenue from initiatives that deepen customer
relationships, increase the sales performance of employees and improve
operational efficiencies.
--------------------------------------------------------------------------------
33
CIBC ANNUAL REPORT 2002
MANAGEMENT'S DISCUSSION AND ANALYSIS
Earnings
$ millions
[THE FOLLOWING DATA WAS REPRESENTED AS A BAR CHART IN THE PRINTED MATERIAL]
2000 2001 2002
Earnings
Reported earnings 687 917 1,171
Operating earnings 742 907 1,007
Revenue
$ millions
[THE FOLLOWING DATA WAS REPRESENTED AS A BAR CHART IN THE PRINTED MATERIAL]
2000 2001 2002
Revenue
Reported revenue 4,143 4,389 4,879
Operating revenue 4,046 4,338 4,676
Expenses
$ millions
[THE FOLLOWING DATA WAS REPRESENTED AS A BAR CHART IN THE PRINTED MATERIAL]
2000 2001 2002
Expenses
Reported non-interest expenses 2,540 2,685 2,831
Operating non-interest expenses 2,530 2,646 2,773
--------------------------------------------------------------------------------
Financial Results: CIBC Retail & Wealth - CIBC Retail Markets
--------------------------------------------------------------------------------
EARNINGS
CIBC Retail Markets operating earnings in 2002, as set out in the table below,
were $1,007 million, up $100 million from the prior year due to growth in
operating revenue, partially offset by higher expenses.
In 2001, operating earnings were $907 million, up $165 million from 2000
as a result of strong revenue growth and a lower provision for credit losses,
partially offset by higher expenses.
Reported earnings are set out in the table below.
--------------------------------------------------------------------------------
EARNINGS - CIBC RETAIL MARKETS
$ millions, for the years ended October 31 2002 2001 2000
--------------------------------------------------------------------------------
Total revenue (TEB) $ 4,879 $ 4,389 $ 4,143
Provision for credit losses 418 396 679
Non-interest expenses 2,831 2,685 2,540
--------------------------------------------------------------------------------
Income before income taxes and
non-controlling interests 1,630 1,308 924
Income taxes and non-controlling interests 459 391 237
--------------------------------------------------------------------------------
Reported earnings 1,171 917 687
--------------------------------------------------------------------------------
Less:
Gain on sales of corporate assets 200 43 97
Restructuring charge (36) (19) --
Goodwill amortization -- (14) (9)
Additional student loan provision -- -- (143)
--------------------------------------------------------------------------------
Operating earnings $ 1,007 $ 907 $ 742
================================================================================
Reported efficiency ratio 58.1% 61.2% 61.3%
Reported ROE 51.4% 36.5% 21.5%
Reported economic profit $ 906 $ 616 $ 277
--------------------------------------------------------------------------------
Operating efficiency ratio 59.3% 61.0% 62.5%
Operating ROE 43.9% 36.0% 23.3%
Operating economic profit $ 742 $ 606 $ 333
================================================================================
REVENUE
Operating revenue for the year was $4,676 million, up $338 million from 2001 due
to volume growth experienced in all credit products (cards, lending products and
mortgages) and in customer deposits. Spreads improved in cards and mortgages but
declined elsewhere. Revenue also increased due to gains on sales of mortgages,
higher prepayment fees, higher hedging gains from managing prepayment risk, and
higher student loan servicing fees, partially offset by lower student loan
volumes. These increases were partially offset by lower revenue from lending
products as a result of higher internal commissions paid to the segments,
including personal banking and small business banking, the loss of ongoing
revenue from the sale of the Merchant Card Services business in 2001, lower
treasury revenue and lower West Indies revenue due to the change to equity
accounting.
In 2001, operating revenue was $4,338 million, up $292 million from 2000.
The increase was due to volume growth in deposits, cards and mortgages, improved
spreads in mortgages, cards and lending products, and higher treasury earnings,
partially offset by lower deposit spreads and the loss of ongoing revenue from
exiting property and casualty insurance and Merchant Card Services businesses.
Reported revenue is set out in the table below.
--------------------------------------------------------------------------------
REVENUE - CIBC RETAIL MARKETS
$ millions, for the years ended October 31 2002 2001 2000
--------------------------------------------------------------------------------
Reported revenue (TEB)
Personal banking $ 1,126 $ 993 $ 952
Small business banking 720 661 681
West Indies 448 281 268
Cards 1,241 1,128 936
Lending products 582 634 624
Mortgages(1) 623 479 332
Insurance 72 50 245
Other 67 163 105
--------------------------------------------------------------------------------
4,879 4,389 4,143
--------------------------------------------------------------------------------
Less:
Gain on sales of corporate assets 203 58 97
Goodwill amortization -- (7) --
--------------------------------------------------------------------------------
Operating revenue (TEB) $4,676 $ 4,338 $ 4,046
================================================================================
By business:
Personal banking $ 1,126 $ 993 $ 952
Small business banking 720 661 681
West Indies 245 281 268
Cards 1,241 1,077 936
Lending products 582 634 624
Mortgages(1) 623 479 332
Insurance 72 50 148
Other 67 163 105
--------------------------------------------------------------------------------
Operating revenue (TEB) $ 4,676 $ 4,338 $ 4,046
================================================================================
(1) Comparative figures have been reclassified to conform with the
presentation used in 2002.
Revenue details are as follows:
Personal banking is the individual customer segment (customers other than
those in Imperial Service and global private banking and trust). Revenue is
earned from commission and service fees paid by CIBC's product
--------------------------------------------------------------------------------
34
CIBC ANNUAL REPORT 2002
--------------------------------------------------------------------------------
groups, primarily the investments, deposits, mortgages and lending products
businesses. Operating revenue was $1,126 million, up $133 million from 2001 due
to increases in fee revenue and internal commission income, as well as volume
growth in customer deposits, partially offset by the effect of lower interest
rates.
Small business banking is the customer segment supporting small
owner-operated businesses, including owners' personal holdings. Revenue is
earned from commission and service fees paid by CIBC's product groups, primarily
the investments, deposits, mortgages and lending products businesses. Operating
revenue was $720 million, up $59 million from 2001 as a result of higher
internal commission revenue and volume growth in customer deposits, partially
offset by the effect of lower interest rates.
West Indies, prior to October 11, 2002 when FirstCaribbean International
Bank(TM) (FCIB) was formed, was a full-service banking operation in eight
countries, servicing all customer segments through a 42-branch network and
electronic delivery channels. Revenue was earned on net interest spreads, and
sales and service fees. FCIB was formed as a result of the combination of the
Caribbean retail, corporate and international banking operations of CIBC and
Barclays Bank PLC. After the formation of FCIB, revenue represents CIBC's
earnings from its approximate 44% equity investment in FCIB. Operating revenue
was $245 million, down $36 million from 2001 due to the change to equity
accounting.
Cards comprises a portfolio of credit cards. Revenue is earned through
spreads and fees. Operating revenue was $1,241 million, up $164 million from
2001 due to improved spreads and growth in average balances under
administration. These factors more than offset the loss of ongoing revenue from
the sale of the Merchant Card Services business in 2001.
Lending products comprises personal (including student loans), small
business and agricultural lending portfolios. Revenue is earned through net
interest spreads and service fees, less internal commissions paid to the
customer segments. Operating revenue was $582 million, down $52 million from
2001. Volume increases in all products, other than student loans, were more than
offset by higher internal commissions paid to the segments. Fees earned on
managing student loans more than offset the impact of reduced volumes within the
student loan portfolio.
Mortgages includes both residential and commercial mortgages. Revenue is
earned through spreads, fees, mortgage sales and hedging activities, less
internal commissions paid to the customer segments. Operating revenue was $623
million, up $144 million from 2001 due to improved volume and spreads, gains on
sales of mortgages, higher prepayment fees earned and higher hedging gains from
managing prepayment risk.
Insurance provides creditor insurance products. Revenue comprises earned
premiums less claims plus investment income. Operating revenue was $72 million,
up $22 million from 2001 due to increased penetration of creditor insurance
products.
Other includes electronic and self-service banking, and the allocation of
a portion of treasury revenue. Operating revenue was $67 million, down $96
million from 2001 primarily due to reduced treasury earnings.
PROVISION FOR CREDIT LOSSES
The provision for credit losses was $418 million in 2002, up $22 million from
the prior year due to higher volumes.
In 2001, the provision for credit losses was $396 million, down $283
million from 2000. In 2000, the provision included $365 million related to
government-sponsored student loans. Excluding the provision of $365 million from
2000, the provision for credit losses in 2001 was up $82 million from 2000
reflecting volume growth in the cards business and weakening economic
conditions.
NON-INTEREST EXPENSES
--------------------------------------------------------------------------------
NON-INTEREST EXPENSES - CIBC RETAIL MARKETS
$ millions, for the years ended October 31 2002 2001 2000
--------------------------------------------------------------------------------
Reported non-interest expenses $2,831 $2,685 $2,540
Less:
Restructuring charge 58 32 1
Goodwill amortization -- 7 9
--------------------------------------------------------------------------------
Operating non-interest expenses $2,773 $2,646 $2,530
================================================================================
Operating non-interest expenses were $2,773 million in 2002, up $127 million
from the prior year due to higher compensation costs and spending on marketing
and technology.
The operating efficiency ratio for 2002 improved to 59.3% from 61.0% in
2001.
In 2001, operating non-interest expenses were $2,646 million, up $116
million from 2000 as a result of spending to support growth in credit products'
volumes, higher compensation and occupancy costs and infrastructure spending,
partially offset by expense declines as a result of businesses exited.
Reported non-interest expenses are set out in the table above.
The regular workforce headcount was 16,978 at year-end, down 1,550 from
the prior year mainly due to the exclusion of the West Indies workforce.
AVERAGE ASSETS
Average assets in 2002 were $144.6 billion, up $13.2 billion from the prior
year, largely related to the growth in residential mortgages.
--------------------------------------------------------------------------------
35
CIBC ANNUAL REPORT 2002
2002 Results
o Operating ROE was 54%
o Non-institutional assets
under administration,
including acquired assets,
increased by 24%. Excluding
acquired assets, growth was
negative 4%
o Mutual fund assets increased
by 14% for the year,
including acquired assets.
Excluding acquired assets,
growth was negative 1%, vs.
overall mutual fund industry
decline of 3%
Our Priorities
o Capitalize on acquisitions to
support and accelerate our
growth objective
o Continue to increase the
investment advisory
capability of our branch-
based sales force
o Enhance products and services
through additional CIBC and
third-party offerings
Our Ongoing Objectives
o Achieve operating earnings
growth of 10% for the year
o Increase mutual fund assets
by 5%
o Increase non-institutional
assets under administration
by 4%
[PHOTO OMITTED]
================================================================================
[PHOTOS OMITTED]
GERRY McCAUGHEY
Vice-Chair
CIBC Retail & Wealth -
CIBC Wealth Management
--------------------------------------------------------------------------------
PETER E. MCCAWLEY (above), President of Aramark Canada Ltd. meets with
> CIBC Wealth Management Private Banker Lynne Maxwell in CIBC's Private
Banking Hall to discuss his integrated financial management needs.
--------------------------------------------------------------------------------
CIBC Wealth Management is focused on providing relationship-based advisory
sales, service and product solutions to the full spectrum of wealth-building
clients. A sales force of more than 3,000 investment professionals in our
Canadian and U.S. full-service brokerages, and our Imperial Service and private
banking branch-based network, deliver investment products and services to help
clients achieve their financial goals.
MANAGEMENT'S DISCUSSION AND ANALYSIS
--------------------------------------------------------------------------------
CIBC Retail & Wealth - CIBC Wealth Management
--------------------------------------------------------------------------------
Our products and services include asset management, a full range of CIBC and
third-party mutual funds, fixed-term investments, trust services, and a broad
selection of investment and credit products, as well as our online discount
brokerage services. TAL Global Asset Management Inc. (TAL) delivers global
investment services for institutional, private and mutual fund investors.
--------------------------------------------------------------------------------
Canadian household investible assets are expected to more than double this
decade, rising from $1.6 trillion in 2001 to almost $3.7 trillion in 2010.*
Through our team of investment professionals, we are well positioned to meet
the growing demand for advice and the desire for more sophisticated products.
IMPERIAL SERVICE
This branch-based advisory group provides affluent clients with objective and
comprehensive advice and planning on a broad range of investment, credit and
banking products. We have over 1,200 financial advisers and investment
specialists, of whom more than 850 are licensed to provide investment advice on
a wide range of third-party investment choices, as well as offering CIBC's
complete range of investment, credit and day-to-day banking solutions. In 2003,
our goal is to continue growing our team of fully licensed advisers to more than
1,000 in order to better meet the full financial needs of our clients.
PRIVATE CLIENT INVESTMENT
This group includes CIBC Wood Gundy and CIBC Oppenheimer, CIBC's Canadian and
U.S. full-service brokerages, and focuses on both affluent and high-net-worth
individuals. In 2002, we created the largest full-service brokerage in Canada
through the integration of the Merrill Lynch Canada retail brokerage business
with CIBC Wood Gundy. In 2003, our full-service brokerage operations will
continue to emphasize fee-based financial services and solutions.
GLOBAL PRIVATE BANKING AND TRUST
This group provides a comprehensive range of global solutions, including
investment management, trusts, private banking and global custody, to meet the
financial management needs of high-net-worth individuals, families and
corporations. In 2002, our goal was to further strengthen Private Banking client
relationships by continuing to enhance our services. We achieved this through a
greater focus on our personalized service and through a variety of additional
measures, including a new Internet presence and a new Private Banking
Convenience Card(TM) with ABM messaging. In 2003, our goal is to enhance our
product offer by focusing on managed products sold directly by Private Banking
as well as with the support of our TAL Private Management Ltd. and CIBC Wood
Gundy partners.
WEALTH PRODUCTS
This group includes mutual funds, investment management services, GICs and
discount brokerage services. The acquisition of Merrill Lynch Canada's retail
brokerage business also included CM Investment Management Inc. (formerly Merrill
Lynch Investment Managers Canada Inc.) and has added 39 additional mutual funds
to our proprietary product offering, including what is now the Renaissance
family of funds and Frontiers pools. This acquisition also included what is now
CIBC Wood Gundy Investment Consulting Service(TM), our separately managed
account program.
The above transaction, combined with CIBC Mutual Funds and the Talvest
family of funds, positions us as #2 among the Canadian banks (and #4 in the
industry), in terms of mutual fund assets under management. CIBC ranked #1 in
mutual fund net sales among banks in 2002.
CIBC ranks second in assets under management in the Canadian mutual fund
wrap market. Over the course of the year, CIBC Personal Portfolio Services(R),
our fee-based, discretionary investment management product, grew 10% from $5.9
billion to $6.5 billion. Managed Portfolio Services, CIBC All-In-One Fund
Solution, has recorded total net sales of $444 million since its launch in
February 2002. As well, CIBC Wood Gundy Investment Consulting Service, our
separately managed wrap product, maintained its leadership position in the
market with assets under management growing 2% in 2002.
OUTLOOK FOR 2003
In 2003, we expect to maintain our leadership in advice-based distribution. This
leadership position will allow us to reach our existing and new customers with a
broad range of investment management products and services. In these
unpredictable capital markets, we believe clients will be well served by our
comprehensive, advice-based approach. As well, we will continue to drive scale
efficiencies and to improve our revenue productivity.
*Source Investor Economics, Household Balance Sheet research
--------------------------------------------------------------------------------
37
CIBC ANNUAL REPORT 2002
MANAGEMENT'S DISCUSSION AND ANALYSIS
Earnings
$ millions
[THE FOLLOWING DATA WAS REPRESENTED AS A BAR CHART IN THE PRINTED MATERIAL]
2000 2001 2002
Earnings
Reported earnings 434 311 176
Operating earnings 408 309 285
Revenue
$ millions
[THE FOLLOWING DATA WAS REPRESENTED AS A BAR CHART IN THE PRINTED MATERIAL]
2000 2001 2002
Revenue
Reported revenue 2,741 2,316 2,793
Operating revenue 2,713 2,294 2,793
Expenses
$ millions
[THE FOLLOWING DATA WAS REPRESENTED AS A BAR CHART IN THE PRINTED MATERIAL]
2000 2001 2002
Expenses
Reported non-interest expenses 2,093 1,920 2,551
Operating non-interest expenses 2,104 1,887 2,374
--------------------------------------------------------------------------------
Financial Results: CIBC Retail & Wealth - CIBC Wealth Management
--------------------------------------------------------------------------------
EARNINGS
--------------------------------------------------------------------------------
EARNINGS - CIBC WEALTH MANAGEMENT
$ millions, for the years ended October 31 2002 2001 2000
--------------------------------------------------------------------------------
Total revenue (TEB) $ 2,793 $ 2,316 $ 2,741
Provision for credit losses -- -- 1
Non-interest expenses 2,551 1,920 2,093
--------------------------------------------------------------------------------
Income before income taxes 242 396 647
Income taxes 66 85 213
--------------------------------------------------------------------------------
Reported earnings 176 311 434
================================================================================
Less:
Gain on sales of corporate assets -- 22 20
Restructuring charge 3 (20) 6
Merrill Lynch acquisition-related costs (112) -- --
--------------------------------------------------------------------------------
Operating earnings $ 285 $ 309 $ 408
================================================================================
Reported efficiency ratio 91.3% 82.9% 76.4%
Reported ROE 32.6% 72.0% 74.1%
Reported economic profit $ 115 $ 258 $ 356
--------------------------------------------------------------------------------
Operating efficiency ratio 85.0% 82.3% 77.6%
Operating ROE 53.7% 71.4% 69.7%
Operating economic profit $ 224 $ 255 $ 331
================================================================================
CIBC Wealth Management operating earnings, as set out in the table above, were
$285 million in 2002, down $24 million from the prior year. This was primarily
due to lower retail trading volumes reflecting continued weakness in equity
markets, lower GIC revenue as a result of narrower spreads and lower volumes, as
well as lower treasury earnings. The decrease was partially offset by increased
Imperial Service commission revenue due to increased loan, mortgage and
investment product volumes, higher average asset values generating fee-based
revenue and earnings from the acquisitions noted below.
In 2001, operating earnings were $309 million, down $99 million from 2000
due to lower revenue on retail trading activities, resulting from weaker equity
market conditions that were further challenged by the events of September 11,
2001. The decrease was partially offset by improved Imperial Service revenue
that resulted from product volume increases, and revenue and expense allocations
renegotiated during the year.
Reported earnings are set out in the table above.
REVENUE
--------------------------------------------------------------------------------
REVENUE - CIBC WEALTH MANAGEMENT
$ millions, for the years ended October 31 2002 2001 2000
--------------------------------------------------------------------------------
Reported revenue (TEB)
Imperial Service $ 667 $ 627 $ 558
Private client investment(1) 1,320 977 1,280
Global private banking
and trust 127 145 191
Wealth products(1) 643 486 663
Other 36 81 49
--------------------------------------------------------------------------------
2,793 2,316 2,741
--------------------------------------------------------------------------------
Less:
Gain on sales of
corporate assets -- 22 28
--------------------------------------------------------------------------------
Operating revenue (TEB) $2,793 $2,294 $2,713
================================================================================
By business:
Imperial Service $ 667 $ 627 $ 558
Private client investment(1) 1,320 977 1,280
Global private banking
and trust 127 123 163
Wealth products(1) 643 486 663
Other 36 81 49
--------------------------------------------------------------------------------
Operating revenue (TEB) $2,793 $2,294 $2,713
================================================================================
(1) Comparative figures have been reclassified to conform with the presentation
used in 2002.
Operating revenue for the year was $2,793 million, up $499 million from 2001
primarily due to the acquisitions of:
o The remaining shares in TAL Global Asset Management Inc. in October 2001;
o The retail brokerage business of Merrill Lynch Canada Inc. in December
2001; and
o CM Investment Management Inc. (formerly Merrill Lynch Investment Managers
Canada Inc.) in January 2002.
In addition, revenue increased due to higher Imperial Service revenue, partially
offset by lower GIC and retail trading revenue.
In 2001, operating revenue was $2,294 million, down $419 million from 2000
as a result of lower annual incentive fees and retail trading volumes associated
with weaker equity markets. Also, the loss of ongoing revenue resulting from the
sales of the Guernsey private banking business in the third quarter of 2001 and
CIBC Suisse S.A. in the fourth quarter of 2000 contributed to the overall
decline in revenue.
Reported revenue is set out in the table above.
--------------------------------------------------------------------------------
38
CIBC ANNUAL REPORT 2002
MANAGEMENT'S DISCUSSION AND ANALYSIS
--------------------------------------------------------------------------------
Revenue details are as follows:
Imperial Service is the customer segment offering financial advice to
CIBC's affluent clients. Specially trained financial advisers support the
financial planning and product fulfillment needs of these clients. Revenue is
earned primarily from sales and service fees paid by CIBC's product groups.
Operating revenue was $667 million, up $40 million from 2001 as a result of
increased commissions earned on higher loan, mortgage and investment product
volumes, partially offset by narrower spreads on transaction deposits.
Private client investment generates fees and commissions from full-
service retail brokerage, providing equity and debt investments, mutual fund
products, asset management services and advisory and financial planning services
to individuals in Canada and the U.S. Operating revenue was $1,320 million, up
$343 million from 2001, resulting from the acquisition of the retail brokerage
business of Merrill Lynch Canada Inc. in December 2001. Excluding revenue earned
from the acquired business, revenue was down $43 million from 2001 due to lower
retail trading volumes, reflecting a continued weakness in the equity markets.
Global private banking and trust provides a comprehensive range of global
solutions, including investment management, trusts, private banking and global
custody, to meet the financial management needs of individuals, families and
corporations with significant financial resources. Revenue is earned from net
interest spreads, fees and commissions. Operating revenue was $127 million, up
$4 million from 2001. Excluding foregone revenue related to the exit of the
Guernsey private banking business in July 2001, operating revenue was up $18
million as a result of increased business growth, particularly in the Asian and
Cayman operations.
Wealth products includes mutual funds, investment management services,
GICs and discount brokerage services. These investment products are developed
and distributed to retail, institutional, small business and Imperial Service
customers. Revenue is earned from net interest spreads, fees and commissions.
Operating revenue was $643 million, up $157 million from 2001 due to the
acquisition of the remaining shares in TAL Global Asset Management Inc. in
October 2001, and CM Investment Management Inc. in January 2002. Excluding
revenue earned from the acquired businesses, operating revenue was down $27
million primarily due to lower GIC revenue as a result of narrower spreads and
lower volumes.
Other consists primarily of the allocation of a portion of treasury
revenue. Operating revenue was $36 million, down $45 million from 2001 due to
lower treasury revenue.
NON-INTEREST EXPENSES
--------------------------------------------------------------------------------
NON-INTEREST EXPENSES - CIBC WEALTH MANAGEMENT
$ millions, for the years ended October 31 2002 2001 2000
--------------------------------------------------------------------------------
Reported non-interest expenses $ 2,551 $ 1,920 $ 2,093
Less:
Restructuring charge (6) 33 (11)
Merrill Lynch acquisition-related costs 183 -- --
--------------------------------------------------------------------------------
Operating non-interest expenses $ 2,374 $ 1,887 $ 2,104
================================================================================
Operating non-interest expenses for the year were $2,374 million, up $487
million from 2001. Excluding the ongoing expenses of the acquired businesses,
operating non-interest expenses were down $40 million. This was primarily due to
cost-containment activities, including savings on staff-related costs as a
result of the cost-reduction program announced in the fourth quarter of 2001 and
lower revenue-related compensation.
The operating efficiency ratio for 2002 was 85.0%, up from 82.3% in 2001.
In 2001, operating non-interest expenses were $1,887 million, down $217
million from 2000 as a result of lower revenue-related and staff-related
expenses, combined with active cost-management activities. As well, expenses
were lower due to the reduction of ongoing costs related to the Guernsey private
banking business sold in the third quarter of 2001 and CIBC Suisse S.A. sold in
the fourth quarter of 2000.
Reported non-interest expenses are set out in the table above.
The regular workforce headcount totalled 9,062 at year-end, up 2,032 from
2001 due to the acquisitions noted above, partially offset by integration
synergies from the acquired businesses and the cost-reduction program announced
in the fourth quarter of 2001.
SELECTED INFORMATION
Average assets in 2002 were $27.3 billion, up $4.4 billion from the prior year
primarily due to acquired businesses.
CIBC Wealth Management assets under administration for individuals
totalled $207.0 billion at year-end, an increase of $40.6 billion, or 24.4%,
from 2001 primarily due to acquired businesses.
--------------------------------------------------------------------------------
CIBC WEALTH MANAGEMENT ASSETS UNDER ADMINISTRATION - FOR INDIVIDUALS
$ billions, as at October 31 2002 2001 2000
--------------------------------------------------------------------------------
Private client - Canada $ 83.4 $ 38.3 $ 42.5
Private client - U.S. 57.5 61.2 65.4
Global private banking and trust 17.4 18.4 17.1
Wealth products 70.7 63.6 52.6
Intersegment elimination(1) (22.0) (15.1) (14.2)
--------------------------------------------------------------------------------
$ 207.0 $ 166.4 $ 163.4
================================================================================
(1) Intersegment elimination represents assets under management of wealth
products administered by private client, and global private banking and
trust.
--------------------------------------------------------------------------------
39
CIBC ANNUAL REPORT 2002
2002 Results
o Operating loss of $160
million
o Operating ROE of (5.9)%
o Merchant banking revenue of
$198 million
Our Priority
o Reduce capital employed in
lending and merchant banking
Our Ongoing Objectives
o Operating earnings of $400
million to $600 million
o Operating ROE of 15% to 20%
[PHOTO OMITTED]
================================================================================
[PHOTO OMITTED]
DAVID KASSIE
Vice-Chair
CIBC World Markets
--------------------------------------------------------------------------------
GWYN MORGAN (above), President and CEO, of EnCana, one of the world's
> leading independent oil and gas companies. EnCana was formed in 2002
following the merger of Alberta Energy Company Ltd. with PanCanadian Energy
Corp. CIBC World Markets acted as a lead adviser on the deal.
--------------------------------------------------------------------------------
CIBC World Markets is a full-service investment bank, active throughout North
America, with niche capabilities in the U.K. and Asia. Our strategy is to
provide our full capabilities to targeted sectors and industry groups where we
excel and have strong potential for profitability.
MANAGEMENT'S DISCUSSION AND ANALYSIS
--------------------------------------------------------------------------------
CIBC World Markets
--------------------------------------------------------------------------------
Clearly, 2002 was a difficult year for North America's investment banks. Reports
of corporate malfeasance, coming closely on the heels of the events of September
11, led to a prolonged weakening and near unprecedented volatility in the
capital markets. Our earnings were further affected by higher-than-expected
corporate loan losses, higher write-downs in the collateralized debt obligation
and high-yield debt portfolios, and lower merchant banking net revenue resulting
from higher merchant banking write-downs.
--------------------------------------------------------------------------------
Given these factors, we did not achieve our operating earnings, operating ROE or
merchant banking revenue targets during 2002 - after averaging $900 million in
operating NIAT and a 20.5% operating ROE for the three years ended October 31,
2001.
Our top priority is to return CIBC World Markets to profitability and to
deliver the level of returns that we, and our shareholders, have come to expect
from our wholesale business.
REDUCING CAPITAL
To achieve this we are aggressively focused on one objective - reducing capital.
Reducing capital is key to addressing the underlying factors that affected our
performance in 2002.
By lowering our economic capital, particularly in the riskier businesses,
we will reduce future earnings volatility; decrease the level of absolute loan
losses; increase the liquidity of capital; and generate higher levels of ROE.
Our target is to bring capital usage down to under $4 billion over the next
three years from its current level of more than $5 billion and improve capital
efficiency and quality.
During the year we initiated several actions in support of this objective
including:
o Changing our philosophy for managing credit: While CIBC World Markets will
continue to be a major underwriter of credit for large corporate clients,
we will do so at less risk by holding less exposure. We have changed our
approach from one of "originating and holding credit," which places
pressure on our balance sheet, to one of "originating and selling credit,"
which will increase the velocity of capital and allow us to increase our
underwriting activities. We've also instituted lower hold levels, by risk
rating and region, which will significantly reduce our risk to future name
exposures.
o Reducing capital in the large corporate loan book: We will use credit
derivatives and hedging strategies to reduce concentrations of core loans
and manage down our remnant portfolio. This strategy has proved successful
in the past in freeing up capital and balance sheet resources.
o Reducing commitments in the merchant banking portfolio: We are reviewing
commitments within the portfolio on a fund-by-fund basis to determine what
additional assets can be sold into the secondary market, as well as
examining bulk portfolio sales or securitizations in order to further
maximize capital relief. Early success has been achieved in this more
recent initiative with the completion of three sales of our private equity
fund investments during 2002, resulting in a decrease in commitments of
approximately $395 million.
REFOCUSING THE U.S. OPERATIONS
During the year, we took steps to rightsize our U.S. operations through the
elimination of 299 positions. These reductions were necessary to align our cost
structure with the particularly weak market conditions. At the same time, we
continued to selectively upgrade talent in sectors or industry groups where we
have the strongest potential for growth and profitability, particularly our
growth and industrial teams. These additions, combined with the realignment of
our resources and the strength of our mid-market strategy, leave our U.S.
business poised for improved performance as markets strengthen.
ENHANCING OUR LEADERSHIP POSITION IN CANADA
In Canada, despite a year that was distinguished by very few deals, our M&A team
achieved the #1 position by advising on 30 transactions worth a total of $33.4
billion. Among our successes was our participation in three of the five biggest
deals of the year, including acting as a lead adviser on the biggest of them
all, the merger of Alberta Energy Company Ltd. with PanCanadian Energy Corp. to
form EnCana. CIBC World Markets also achieved the #1 industry ranking, with
respect to equity financings completed in Canada in 2002, and its research
capabilities were ranked #1 by Canadian fixed income clients for 2002. The
overall strength of our Canadian operations, including having the largest
salesforce, will ensure that we continue to be a dominant player in 2003.
--------------------------------------------------------------------------------
41
CIBC ANNUAL REPORT 2002
MANAGEMENT'S DISCUSSION AND ANALYSIS
--------------------------------------------------------------------------------
GROWING OUR NICHE CAPABILITIES IN THE U.K. AND ASIA
In the U.K., we are well on our way to transforming our business from being
solely focused on providing credit to corporate clients, to a leading leveraged
finance franchise with strong advisory capabilities. In Asia, we continue to
develop our alliance strategy which has demonstrated strong value to both our
Asian and North American client base.
EMPLOYEES - A CORE STRENGTH
While our overall performance fell below our expectations in 2002, our employees
stepped up their commitment in the face of extremely difficult markets. This was
particularly true in our U.S. franchise where the events of September 11 and the
challenge of resuming operations in the face of a weakening environment put our
employees under tremendous stress. Their efforts to continue to battle the
external conditions are an inherent strength of our organization - and will
continue to be a key factor in improving our performance in the months to come.
OUTLOOK FOR 2003
Given the economic outlook, we are expecting flat to modest revenue growth in
2003. Our focus will be on reducing capital usage and managing our business
mix, as a way to reduce earnings volatility and minimize risk. The key risk to
our 2003 outlook continues to be the extent of the current market downturn. The
rate of recovery will play a major role in trading room volumes, origination,
new issues, mergers and acquisitions activities, and loan losses.
--------------------------------------------------------------------------------
42
CIBC ANNUAL REPORT 2002
MANAGEMENT'S DISCUSSION AND ANALYSIS
--------------------------------------------------------------------------------
Financial Results: CIBC World Markets
--------------------------------------------------------------------------------
EARNINGS
CIBC World Markets operating loss, as set out in the table below, was $160
million in 2002, down from operating earnings of $843 million in 2001 due to
significantly lower revenue and a higher provision for credit losses, reflecting
difficult financial markets in the U.S., partially offset by lower non-interest
expenses and increased income tax recoveries.
In 2001, operating earnings were $843 million, down $333 million from 2000
primarily due to decreased revenue and an increase in the provision for credit
losses, reflecting deteriorating market conditions and the effects of the
September 11, 2001 events, partially offset by lower revenue-related expenses
and reduced income taxes.
Reported earnings are set out in the table below.
--------------------------------------------------------------------------------
EARNINGS - CIBC WORLD MARKETS
$ millions, for the years ended October 31 2002 2001 2000
--------------------------------------------------------------------------------
Total revenue (TEB) $ 3,013 $ 4,066 $ 4,781
Provision for credit losses 1,062 694 286
Non-interest expenses 2,518 2,730 2,938
--------------------------------------------------------------------------------
(Loss) income before income taxes and
non-controlling interests (567) 642 1,557
Income taxes and non-controlling
interests (423) (166) 434
--------------------------------------------------------------------------------
Reported (loss) earnings (144) 808 1,123
--------------------------------------------------------------------------------
Less:
Restructuring charge (36) (37) --
Adjustment to future income tax assets 52 -- --
Bulk sale of U.S. corporate loans -- (94) --
Restructured ownership of certain
U.S.-based loans and leases -- 138 --
Specific provisions for
credit losses associated with the
bulk loan sale -- (28) --
New York premises consolidation -- -- (27)
Oppenheimer acquisition-related costs -- -- (12)
Goodwill amortization -- (14) (14)
--------------------------------------------------------------------------------
Operating (loss) earnings $ (160) $ 843 $ 1,176
================================================================================
Reported efficiency ratio 83.6% 67.1% 61.4%
Reported ROE (5.5)% 18.8% 25.6%
Reported economic (loss) profit $ (598) $ 309 $ 556
--------------------------------------------------------------------------------
Operating efficiency ratio 81.6% 62.5% 59.7%
Operating ROE (5.9)% 19.7% 26.9%
Operating economic (loss) profit $ (614) $ 343 $ 610
================================================================================
REVENUE
In 2002, operating revenue was $3,013 million, down $1,215 million from the
prior year due to lower trading and origination activities. These results
reflect the impact of difficult financial markets in the U.S. associated with
weak economic conditions. Current year results also include increased net
merchant banking write-downs, and write-downs to CIBC's collateralized debt
obligation and high-yield portfolios (both reported within investment banking
and credit products).
Operating revenue in 2001 was $4,228 million, down $553 million from 2000
due to lower U.S. investment banking revenue, combined with a decrease in net
merchant banking gains. Reported revenue is set out in the table below.
--------------------------------------------------------------------------------
REVENUE - CIBC WORLD MARKETS
$ millions, for the years ended October 31 2002 2001 2000
--------------------------------------------------------------------------------
Reported revenue (TEB)
Capital markets $ 1,288 $ 1,534 $ 1,516
Investment banking
and credit products 1,115 1,474 1,723
Merchant banking 198 569 1,021
Commercial banking 446 481 491
Other (34) 8 30
--------------------------------------------------------------------------------
$ 3,013 $ 4,066 $ 4,781
--------------------------------------------------------------------------------
Less:
Bulk sale of U.S.
corporate loans -- (162) --
--------------------------------------------------------------------------------
Operating revenue (TEB) $ 3,013 $ 4,228 $ 4,781
================================================================================
By business:
Capital markets 1,288 1,534 1,516
Investment banking
and credit products 1,115 1,636 1,723
Merchant banking 198 569 1,021
Commercial banking 446 481 491
Other (34) 8 30
--------------------------------------------------------------------------------
Operating revenue (TEB) $ 3,013 $ 4,228 $ 4,781
================================================================================
Revenue details are as follows:
Capital markets operates trading, sales and research businesses serving
institutional, corporate and government clients across North America and around
the world. Revenue is generated from fees, commissions, spread-based income and
from taking proprietary positions within prescribed risk parameters. Operating
revenue was $1,288 million, down $246 million from 2001 due to weaker
performance from the equity structured products business and fixed income
activities resulting from the effects of unfavourable market conditions.
--------------------------------------------------------------------------------
Earnings
$ millions
[THE FOLLOWING DATA WAS REPRESENTED AS A BAR CHART IN THE PRINTED MATERIAL]
2000 2001 2002
Earnings
Reported (loss) earnings 1,123 808 (144)
Operating (loss) earnings 1,176 843 (160)
Revenue
$ millions
[THE FOLLOWING DATA WAS REPRESENTED AS A BAR CHART IN THE PRINTED MATERIAL]
2000 2001 2002
Revenue
Reported revenue 4,781 4,066 3,013
Operating revenue 4,781 4,228 3,013
Expenses
$ millions
[THE FOLLOWING DATA WAS REPRESENTED AS A BAR CHART IN THE PRINTED MATERIAL]
2000 2001 2002
Expenses
Reported non-interest expenses 2,938 2,730 2,518
Operating non-interest expenses 2,854 2,645 2,459
43
CIBC ANNUAL REPORT 2002
MANAGEMENT'S DISCUSSION AND ANALYSIS
--------------------------------------------------------------------------------
Investment banking and credit products provides advisory services and
underwriting of debt, credit and equity for corporate and government clients
across North America and around the world. Revenue is earned from fees relating
to merger and acquisition services, underwriting activities, advisory services,
and loan syndications. In addition, net interest is earned on spreads on
corporate loans. Operating revenue was $1,115 million, down $521 million from
2001 due to lower origination activities in the U.S. associated with weak
economic conditions. Current year results also include the impact of higher
write-downs to CIBC's collateralized debt obligation and high-yield portfolios.
Merchant banking makes investments to create, grow and recapitalize
companies across a variety of industries. Revenue is generated from fees,
interest and dividends earned on investments and from gains or losses associated
with these investments. Operating revenue was $198 million, down $371 million
from 2001 as a result of the combination of lower realized gains and higher
asset write-downs.
Commercial banking originates financial solutions centred around credit
products for medium-sized businesses in Canada. Revenue is generated from
interest, fees and service charges. Operating revenue was $446 million, down $35
million from 2001 due to decreased asset levels and narrower credit spreads.
Other includes the allocation of a portion of treasury revenue, net of
unallocated funding charges; CEF Capital Limited, an affiliated Asian merchant
bank holding company; and other revenue not directly attributed to the main
businesses listed above. Operating revenue was $(34) million, down $42 million
from 2001 primarily as a result of interest income on a tax reassessment
included in the prior year.
PROVISION FOR CREDIT LOSSES
The provision for credit losses was $1,062 million in 2002, up $416 million from
2001, after excluding the provision associated with the bulk loan sale in the
prior year, due to a combination of deteriorating market conditions and specific
provisions relating to Enron Corporation, Global Crossing Ltd. and Teleglobe
Inc.
In 2001, the provision for credit losses was $646 million, after excluding
the provision associated with the bulk loan sale, up $360 million from 2000 due
to general weakening of credit markets in the latter part of the year.
NON-INTEREST EXPENSES
--------------------------------------------------------------------------------
NON-INTEREST EXPENSES - CIBC WORLD MARKETS
$ millions, for the years ended October 31 2002 2001 2000
--------------------------------------------------------------------------------
Reported non-interest expenses $2,518 $2,730 $2,938
Less:
Restructuring charge 59 63 --
Restructured ownership of certain
U.S.-based loans and leases -- 8 --
New York premises consolidation -- -- 50
Oppenheimer acquisition-related costs -- -- 20
Goodwill amortization -- 14 14
--------------------------------------------------------------------------------
Operating non-interest expenses $2,459 $2,645 $2,854
================================================================================
Operating non-interest expenses were $2,459 million in 2002, down $186 million
from the prior year mainly due to lower variable compensation associated with
lower revenue and savings from the cost-reduction program initiated in 2001.
These reductions were partially offset by the impact of consolidation of Juniper
Financial Corporation, expenditures associated with the rising costs of
litigation in the U.S. and higher severance costs.
The operating efficiency ratio for 2002 was 81.6%, up from 62.5% in 2001,
primarily as a result of lower revenue.
In 2001, operating non-interest expenses were $2,645 million, down $209
million from 2000 as a result of lower variable compensation.
Reported non-interest expenses are set out in the table above.
The regular workforce headcount was 3,131 at year-end, up 135 from the end
of 2001. Excluding the impact of consolidation of Juniper Financial Corporation,
regular workforce headcount was down 203 from the end of 2001 as a result of the
cost-reduction program initiated at the end of 2001 and additional 2002 programs
to reduce staff levels.
AVERAGE ASSETS
Average assets in 2002 were $115.4 billion, down $6.6 billion from the prior
year as lower equity securities resulted from the bearish market outlook present
in the U.S. throughout the year. Lending assets were also reduced.
--------------------------------------------------------------------------------
44
CIBC ANNUAL REPORT 2002
MANAGEMENT'S DISCUSSION AND ANALYSIS
--------------------------------------------------------------------------------
Amicus
--------------------------------------------------------------------------------
Amicus comprises the co-branded retail electronic banking businesses, including
President's Choice Financial services (Loblaw Companies Limited), Marketplace
Bank (Winn-Dixie Stores, Inc.), Safeway SELECT Bank (Safeway Inc.) and the
non-branch ABM business. During the year, CIBC decided to close its U.S.
electronic banking operations and focus on operations in Canada where, during
the year, almost 300,000 new customers opened accounts at 212 pavilions across
the country.
--------------------------------------------------------------------------------
During 2002, CIBC made a commitment to its stakeholders that we would assess
the U.S. operations of Amicus and mitigate the financial impact of this business
by year-end. While we were encouraged by the early performance of Amicus in the
U.S., where there is tremendous opportunity for growth, we knew it was necessary
to weigh this carefully against the costs and risks associated with expansion.
During the year, we assessed the ability of the business to meet CIBC's value
commitment to its shareholders in the timeframe required. Various options were
considered, including potential strategic alliances to assist in this expansion.
In October 2002, it was determined that the closure of the U.S. operations was
necessary to meet CIBC's commitment to significantly reduce losses in 2003. This
will be conducted in a prudent and orderly fashion with regard to customers,
affected employees and the U.S. retailers.
The focus for President's Choice Financial was on expanding products and
services for over one million customers, capitalizing on their satisfaction with
our no fee daily banking offer and convenient in-store pavilions. President's
Choice Financial's customer base grew 40% during the year and funds managed
increased 58%. Funds managed per customer are growing steadily and customer
satisfaction ratings continue to exceed the industry norm. In a recent
independent survey, President's Choice Financial maintained a loyalty index at
17 points above the industry average.
In addition, in the recent Gomez survey of Internet sites of Canadian
banks, President's Choice Financial received top ranking in the Overall Cost
category, confirming the strong value proposition offered to our customers. The
website was ranked third in Customer Confidence, reflecting its reliability,
strong customer service and detailed privacy and security policies and
procedures.
OUTLOOK FOR 2003
For 2003, President's Choice Financial will continue to drive value, balancing
growth and customer acquisition with disciplined cost control. We expect to be
profitable in the fourth quarter of 2003.
--------------------------------------------------------------------------------
2002 Results
o Added 788,000 new Amicus
customers for the two-year
period ended October 31, 2002
o President's Choice Financial
continued to build a strong
franchise, with 1.05 million
customers and $7.0 billion in
funds managed at October
31, 2002
o The decision was made to
close the U.S. electronic
banking operations
Our Priorities
o Maintain industry leading
customer loyalty and
satisfaction levels
o Continue customer acquisition
Our Ongoing Objectives
o Achieve profitability in
Canada by the end of 2003
o Grow President's Choice
Financial to more than two
million customers
[PHOTO OMITTED]
45
CIBC ANNUAL REPORT 2002
MANAGEMENT'S DISCUSSION AND ANALYSIS
Earnings
$ millions
[THE FOLLOWING DATA WAS REPRESENTED AS A BAR CHART IN THE PRINTED MATERIAL]
2000 2001 2002
Earnings
Reported loss (129) (274) (468)
Adjusted loss (129) (245) (236)
Revenue
$ millions
[THE FOLLOWING DATA WAS REPRESENTED AS A BAR CHART IN THE PRINTED MATERIAL]
2000 2001 2002
Revenue
Reported revenue 75 148 230
Adjusted revenue 75 148 230
Expenses
$ millions
[THE FOLLOWING DATA WAS REPRESENTED AS A BAR CHART IN THE PRINTED MATERIAL]
2000 2001 2002
Expenses
Reported non-interest expenses 290 578 951
Adjusted non-interest expenses 290 535 585
--------------------------------------------------------------------------------
Financial Results: Amicus
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
EARNINGS - AMICUS
$ millions, for the years ended October 31 2002 2001 2000
--------------------------------------------------------------------------------
Total revenue (TEB) $ 230 $ 148 $ 75
Provision for credit losses 20 10 4
Non-interest expenses 951 578 290
--------------------------------------------------------------------------------
Loss before taxes (741) (440) (219)
Income taxes (273) (166) (90)
--------------------------------------------------------------------------------
Reported loss (468) (274) (129)
--------------------------------------------------------------------------------
Less:
Restructuring charge (232) (26) --
Goodwill amortization -- (3) --
--------------------------------------------------------------------------------
Adjusted loss $(236) $(245) $(129)
================================================================================
Adjusted loss for the year was $236 million, down $9 million from 2001 due to
revenue growth that more than offset increases in non-interest expenses and the
provision for credit losses. Adjusted loss for 2001 was $245 million, up $116
million from 2000 due to higher spending to support business growth. Adjusted
loss relating to the Canadian operations was $62 million (2001: $83 million;
2000: $63 million).
Reported loss is set out in the table above.
Reported and adjusted revenue for the year were $230 million, up $82
million from 2001 due to increasing volumes and spreads, primarily in Canada.
Revenue in 2001 was $148 million, up $73 million from 2000 due to business
growth.
Provision for credit losses was $20 million for the year, up $10 million
from 2001 due to volume growth. Provision for credit losses in 2001 was $10
million, up $6 million from 2000 for the reason noted above.
Adjusted non-interest expenses for the year, as set out in the table
below, were $585 million. This was up $50 million from 2001 to support business
growth, partially offset by cost-reduction initiatives in Canada and the U.S.
Reported non-interest expenses were up $373 million from the prior year
primarily as a result of the restructuring charge of $366 million to close the
U.S. electronic banking operations.
Non-interest expenses in 2001 were $578 million, up $288 million from 2000
to support volume growth.
--------------------------------------------------------------------------------
NON-INTEREST EXPENSES - AMICUS
$ millions, for the years ended October 31 2002 2001 2000
--------------------------------------------------------------------------------
Reported non-interest expenses $951 $578 $290
Less:
Restructuring charge 366 40 --
Goodwill amortization -- 3 --
--------------------------------------------------------------------------------
Adjusted non-interest expenses $585 $535 $290
================================================================================
The regular workforce headcount totalled 2,349 at year-end, down 371 from 2001
due to cost-reduction initiatives.
--------------------------------------------------------------------------------
Corporate and Other
--------------------------------------------------------------------------------
Corporate and Other comprises the four functional groups - Treasury, Balance
Sheet and Risk Management (TBRM); Administration; Technology and Operations; and
Corporate Development - that support CIBC's business lines, as well as CIBC
Mellon's custody business and other revenue and expense items not directly
attributable to the four business lines. The revenue and expenses of these
functional groups are generally allocated to the business lines.
Treasury revenue refers to revenue generated by TBRM from funding and
hedging activities, and is generally allocated to the four business lines. In
2002, market positioning for interest rate movements generated lower revenue
than 2001. This was partially offset by gains on specific risk portfolios
managed by TBRM.
The operating earnings in Corporate and Other reflect the results at the
corporate level after application of CIBC's Manufacturer / Customer Segment /
Distributor Management Model, which is used to measure and report the results of
operations of the four business lines.
Operating loss for the year was $41 million, compared with operating
earnings of $30 million for 2001, primarily due to lower treasury revenue and
write-down of a preferred share investment in 2002, offset by interest income on
a tax reassessment.
--------------------------------------------------------------------------------
EARNINGS - CORPORATE AND OTHER
$ millions, for the years ended October 31 2002 2001(1) 2000(1)
--------------------------------------------------------------------------------
Reported (loss) $ (82) $ (76) $ (55)
Less:
Gain on sale of corporate assets -- -- 143
Events of September 11, 2001 (19) (4) --
Restructuring charge (22) (21) 12
Adjustment to future
income tax assets -- (66) --
General allowance -- -- (146)
Goodwill amortization -- (15) (17)
--------------------------------------------------------------------------------
Operating (loss) earnings $ (41) $ 30 $ (47)
================================================================================
(1) Certain comparative figures have been reclassified to conform with the
presentation used in 2002.
--------------------------------------------------------------------------------
46
CIBC ANNUAL REPORT 2002
MANAGEMENT'S DISCUSSION AND ANALYSIS
--------------------------------------------------------------------------------
Treasury, Balance Sheet and Risk Management
--------------------------------------------------------------------------------
A key success factor behind CIBC's ongoing strategy is the rigorous management
of CIBC's balance sheet and risk resources. The Treasury, Balance Sheet and Risk
Management (TBRM) group facilitates the direction of risk and balance sheet
(including capital) resources to higher-return and/or strategic growth
activities. In 2002, this approach was enhanced through the combination of
Treasury and Balance Sheet Management, with Risk Management, ensuring that
authority and accountability reside in one functional group, and creating
greater efficiency and effectiveness in managing CIBC's balance sheet (including
capital) and risk resources.
TBRM comprises the following services, functions and activities:
o Treasury provides CIBC-wide asset-liability, funding, liquidity, cash and
collateral management. It also ensures that CIBC is strongly and
effectively capitalized and manages capital in CIBC's legal entities.
o Credit Asset and Merchant Banking Portfolio Management applies
market-based techniques and models to the management of capital attributed
to large corporate credit assets and merchant banking investments. By
using direct loan sales, derivative hedges or structured transactions,
risky or concentrated positions are reduced, and selected exposures are
added to the portfolio to increase diversification and returns.
o Balance Sheet Measurement, Monitoring and Control oversees the critically
important balance sheet resource allocation process and is responsible for
the calculation of economic capital, including risk-adjusted return on
capital (RAROC) methodologies.
o TBRM's risk management services and functions identify, measure, monitor
and control CIBC's global credit, market, liquidity and operational risk
exposures. In addition, they develop and recommend risk management
policies and standards, and develop and implement methodologies and
infrastructure necessary to measure, monitor and control risk, in
accordance with these policies and standards.
During 2002, significant highlights for TBRM included:
o The re-engineering of retail credit adjudication services to support
CIBC's future growth in domestic retail activities.
o Continued disciplined management of CIBC's balance sheet and risk
resources, including the mix and use of capital, to optimize shareholder
value through the reduction of lower-quality balance sheet and risk
resources.
o The rigorous balance sheet resource allocation process continued to be
part of a common, CIBC-wide approach and now includes liquidity as a
formally rationed resource. Since the end of 1998, wholesale risk-weighted
assets have declined by almost $30 billion, while retail risk-weighted
assets have increased by $11 billion.
o Continued active management of the large corporate non-core loan portfolio
by the Credit Asset and Merchant Banking Portfolio Management group,
increasing our ability to liquefy our credit assets. In addition, the
group's mandate was expanded to include the governance and oversight of
merchant banking investments.
o The total allowance for credit losses exceeded gross impaired loans by $13
million as at October 31, 2002, compared with $592 million at the end of
2001.
o Maintenance of low aggregate Risk Measurement Unit (RMU) levels during
2002, in spite of continued challenging market conditions. This is
reflected in low RMUs across CIBC's trading and non-trading portfolios.
o Implementation of an enhanced framework of policies and standards for the
identification, measurement, monitoring and control of operational risk
congruent with industry standards.
o Development of a model for strategic risk capital.
OUTLOOK FOR 2003
In 2003, TBRM will play a leading role in reducing CIBC's large corporate credit
and merchant banking exposures as part of its ongoing independent measurement,
monitoring, control and optimization of balance sheet and risk resources. The
group is directing the implementation of a technology program aimed at enhancing
the accuracy, completeness and timeliness of CIBC's credit risk information.
Also, TBRM will continue to enhance its support of the governance of CIBC
through its interaction with the Board of Directors, its Risk Management and
Audit committees, and management committees.
--------------------------------------------------------------------------------
2002 Results
o Integrated Treasury & Balance
Sheet Management and Risk
Management into an
independent functional group
o Achieved Tier 1 capital ratio
of 8.7%, and total capital
ratio of 11.3%, as at October
31, 2002
o Managed and reallocated
balance sheet and risk
resources to support CIBC's
growth based on economic
performance and other key
metrics
o Developed and enhanced models
for credit, market, liquidity
and operational risk and
introduced a model for
strategic risk
Our Priorities
o Target capital ratios of 8.5%
to 9.5% (Tier 1) and 11.5% to
12.5% (Total)
o Manage and reallocate balance
sheet and risk resources to
support achievement of CIBC's
targets
o Actively lead and participate
in a new technology program
aimed at enhancing the
accuracy, completeness and
timeliness of CIBC's credit
risk information
o Identify, measure, monitor
and control risk
[PHOTOS OMITTED]
WAYNE FOX
Vice-Chair and
Chief Risk Officer
47
CIBC ANNUAL REPORT 2002
MANAGEMENT'S DISCUSSION AND ANALYSIS
Our Priorities
o Target expense growth at less
than the rate of inflation
o Demonstrate excellence in all
corporate governance
practices
o Reinforce performance
measurement and
accountability at both
individual and business
levels
o Improve the frequency and
quality of communications to
our internal and external
audiences
o Extend e-learning strategies
across the enterprise
o Continue to set high
standards for the
Administration group's
customer service levels
o Create attractive career
opportunities for our
employees
[PHOTO OMITTED]
RON LALONDE
Senior Executive Vice-President and
Chief Administrative Officer
--------------------------------------------------------------------------------
Administration
--------------------------------------------------------------------------------
The Administration group provides governance and support services to CIBC and
its business lines, and comprises the following functions: finance, corporate
communications and public affairs, human resources, marketing, corporate real
estate, and governance, including legal, audit and compliance.
Our mandate is to establish CIBC-wide processes to ensure that CIBC, its
subsidiaries and businesses operate in an efficient, controlled and integrated
manner, emphasizing a performance measurement and accountability culture
throughout the organization.
An area of ongoing focus is the delivery of the best possible value in
Administration group services. In 2002, we exceeded our expense target by 3%.
For 2003, we are targeting to limit our growth in expenses to less than the rate
of inflation - and we will endeavour to better this target.
One strategy that we have used to achieve efficiency gains has been to
outsource non-core functions to best-in-class service providers. In 2002, our
group engineered a new alliance with IBM to provide electronic training across
the organization. The pilot for this program involved employees in our branch
network and leveraged updated technology installed over the past two years.
Training is a critical activity at CIBC, and we expect to be able to improve our
productivity and the reach of our training programs through this new
relationship.
We are also very proud of the arrangement CIBC made with ChildrenFirst
Ltd. to launch Canada's inaugural back-up childcare centre in August 2002. CIBC
employees now have access to a secure childcare facility in downtown Toronto
when their primary childcare arrangements fall through. One of our objectives
for 2003 will be to extend this innovative capability to other CIBC locations in
Canada.
The Administration group is also taking a leadership role to ingrain a
performance and accountability culture at CIBC, as we continue to work with
senior management to establish operating and financial performance targets, and
to review progress against these targets. These detailed metrics are also
reviewed quarterly with our Board of Directors. The commitment to a performance
culture also extends to individual performance measurement and management. It is
our objective that every employee in the organization will have a personal
performance plan against which performance is measured. These performance plans
are cascaded from the Board of Directors and the chief executive officer to all
levels of the organization to ensure that efforts of all employees are aligned
with our shareholders' objectives.
CIBC has always aspired to the highest levels of corporate governance, and
the Administration group provides expertise and leadership in this area. Our
group has kept abreast with developments in this area over the year, ensuring
that CIBC continues to comply with legal and regulatory requirements. For
example, CIBC's internal financial control accountability process was enhanced
and formalized by our group; this has allowed CIBC to more readily comply with
new standards regarding the certification of financial information.
OUTLOOK FOR 2003
In 2003, the Administration group will continue to focus on the efficient
delivery of a broad range of services within CIBC, including excellence in the
areas of control and corporate governance.
--------------------------------------------------------------------------------
48
CIBC ANNUAL REPORT 2002
MANAGEMENT'S DISCUSSION AND ANALYSIS
--------------------------------------------------------------------------------
Technology and Operations
--------------------------------------------------------------------------------
Technology and Operations (T&O) provides a wide range of shared technology and
operations services to CIBC's businesses, focusing on service quality as
measured from our customers' perspective.
The group is organized into four areas:
Operations:
o Global Operations provides back office processing, middle office and other
support for businesses in Canada, the U.S., Europe and Asia.
o INTRIA Items Inc., a joint venture with Fiserv Solutions of Canada Inc.,
offers a fully integrated suite of back office operations.
Technology Development:
o Technology Development is responsible for the delivery of technology in
support of all CIBC's businesses and customers, combining in-house systems
development and working with leading technology suppliers.
Enterprise Technology Services:
o Enterprise Technology Services is responsible for CIBC-wide technology
architecture and platforms in Canada and around the globe.
Global Sourcing and Payments:
o Creates value and saves time and money for CIBC's businesses by providing
procurement, vendor and supplier cost management disciplines for the CIBC
group of companies.
T&O made significant progress in providing technology and operations leadership
to enhance CIBC's market position. During the year, significant highlights
included:
o A new, seven-year outsourcing agreement with Hewlett-Packard (Canada) Co.
(HP), along with the divestiture of CIBC's interest in INTRIA-HP
Corporation (I-HP). The agreement enables CIBC to reduce technology costs
while concentrating on its core businesses. The new outsourcing
relationship covers technology previously managed by I-HP. A rigorous
structure to track operations performance has been put in place to monitor
service delivery against negotiated levels and to minimize operational
risk.
o Successfully integrated Merrill Lynch's technology and operations to create
a consolidated wealth management operating platform.
o Completed a two-year program to provide new technology to all retail
branches.
o Delivered several infrastructure improvements including the consolidation
to one enterprise-wide email system and launch of a new Corporate
Information Security program that will allow the bank to effectively
manage information security and risk.
o Completed a significant re-build in New York City concluding the 9/11
recovery effort and creating a resilient technology infrastructure.
OUTLOOK FOR 2003
For 2003, T&O's focus will be on providing innovative, cost-effective technology
and operations solutions, resulting in improved service at lower cost. In these
challenging times, the group will concentrate on managing operational risk to
protect the interests of CIBC and its customers. In addition, we will optimize
technology and operations investments through initiatives focused on
simplifying the environment, increasing resiliency and security of systems, and
re-engineering workflow and operations.
--------------------------------------------------------------------------------
Our Priorities
o Increase shareholder value
through CIBC-wide
efficiencies from Technology
and Operations
o Work with businesses to
expand CIBC's capabilities in
the marketplace
o Create new value through
innovation in CIBC's usage of
technology and operations
o Continue to enhance controls
to safeguard CIBC's
customers' assets and to
ensure integrity of CIBC's
balance sheet
[PHOTOS OMITTED]
MICHAEL WOELLER
Senior Executive Vice-President
and Chief Information Officer
49
CIBC ANNUAL REPORT 2002
MANAGEMENT'S DISCUSSION AND ANALYSIS
Our Priorities
o Reinforce an owner-manager
mindset among CIBC's leaders
to develop and grow their
businesses to increase value
to CIBC shareholders
o Seek, assess and act on
opportunities to maximize the
value of CIBC's portfolio of
businesses through
acquisition, divestiture or
joint venture
[PHOTO OMITTED]
Richard Venn
Senior Executive Vice-President
--------------------------------------------------------------------------------
Corporate Development
--------------------------------------------------------------------------------
Corporate Development continued to promote an owner-manager mindset among the
organization's business leaders to further align business decisions with the
interests of shareholders.
The group continuously examines CIBC's activities in light of market
conditions, to identify and capitalize on opportunities to maximize the value of
CIBC's portfolio of businesses.
Over the past few years, Corporate Development has worked with CIBC's
business lines to review ways to accelerate growth, especially in CIBC Wealth
Management and CIBC Retail Markets. In 2002, Corporate Development was integral
in CIBC's successful acquisition of Merrill Lynch Canada's retail brokerage and
asset management businesses. This, coupled with the acquisition of the remaining
shares of TAL Global Asset Management in 2001, has positioned CIBC to build an
exceptional wealth management business in Canada.
In the course of reviewing ways in which CIBC might accelerate growth in
CIBC Retail Markets, Corporate Development assessed the strategic future of our
West Indies operations. We helped initiate discussions with Barclays Bank PLC to
combine our retail, corporate and international banking operations in the
Caribbean to create a new entity with greater scale providing the opportunity to
be a dominant player in this market. During the year, Corporate Development
worked closely with other areas in CIBC to successfully launch this business
combination, FirstCaribbean International Bank(TM) (FCIB). CIBC owns an
approximate 44% equity investment in FCIB.
Corporate Development also seeks to maximize the value of CIBC's
businesses through optimizing and enhancing its relationships with third
parties. We played a key role in the analysis and negotiations of CIBC's new and
competitive outsourcing arrangement with HP. In addition, our group assisted in
the sale of CIBC's interest in the INTRIA-HP joint venture to HP. This allows us
to focus on our core businesses, enhancing alignment in the relationship while
continuing to provide excellent service to CIBC customers.
CIBC had previously established a joint venture, EDULINX Canada
Corporation, with USA Education, Inc. to provide student loans portfolio
administration and other related services to financial institutions and the
federal and provincial government-sponsored student loans industry. During the
year, we facilitated the process whereby CIBC became the sole shareholder of
EDULINX once it was determined that 100% ownership would better allow CIBC to
achieve its objectives.
Corporate Development also manages CIBC's relationship with CIBC Mellon,
the growing and successful joint venture between CIBC and Mellon Financial
Corporation, which provides domestic and global custody, securities lending,
multi-currency, accounting and other services. During the year, CIBC Mellon
acquired TD Bank Financial Group's third-party investment fund custody business
and became TD Bank's primary supplier of internal custodial services. This
transaction affirmed CIBC Mellon's position as an industry-leading provider of
custody services. CIBC Mellon was recognized as Canada's number one
sub-custodian by Global Custodian magazine.
OUTLOOK FOR 2003
In 2003, the group will continue to work with CIBC Retail & Wealth operations to
grow and enhance their businesses. We will maintain our ongoing focus on
operations and assets of CIBC that are under-leveraged and assess opportunities
to maximize their value. Finally, we will review CIBC's major joint venture
relationships to determine if they are appropriately structured and are
continuing to meet CIBC's needs.
--------------------------------------------------------------------------------
50
CIBC ANNUAL REPORT 2002
MANAGEMENT'S DISCUSSION AND ANALYSIS
--------------------------------------------------------------------------------
Consolidated Financial Review
--------------------------------------------------------------------------------
CONSOLIDATED INCOME STATEMENTS
Revenue
Total revenue consists of net interest and non-interest income.
Reported revenue in 2002 was $11,152 million on a taxable equivalent basis
(TEB), down $154 million, or 1.4%, from the prior year due to a decrease in
non-interest income of $1,082 million, offset in part by an increase of $928
million in net interest income.
In 2001, reported revenue was $11,306 million (TEB), down $904 million
from 2000 due to a decrease in non-interest income of $1,184 million, partially
offset by an increase of $280 million in net interest income.
Net interest income and margin
Net interest income includes interest and dividends earned on assets, net of
interest paid on liabilities. Net interest margin is net interest income
expressed as a percentage of average assets.
--------------------------------------------------------------------------------
NET INTEREST INCOME AND MARGIN
$ millions, for the years ended October 31 2002 2001 2000
--------------------------------------------------------------------------------
Average assets $ 292,510 $ 278,798 $ 263,119
Net interest income (TEB) $ 5,621 $ 4,693 $ 4,413
Net interest margin (TEB) 1.92% 1.68% 1.68%
================================================================================
In 2002, net interest income of $5,621 million benefited from the increase in
average assets, particularly in cards and mortgages, and an improvement in
spreads. The increase in net interest margin over 2001 also benefited from lower
funding costs on trading activities. Additional analysis of net interest income
and margin is provided in the supplementary annual financial information on
pages 120 and 121.
In 2001, net interest income was $4,693 million, up $280 million from 2000
as a result of higher average assets and improvement in spreads.
Non-interest income
Non-interest income includes all revenue not classified as net interest income.
Non-interest income of $5,531 million in 2002 was down $1,082 million, or 16.4%,
from the prior year. Non-interest income was adversely affected by lower
origination and trading activities, particularly in the U.S., and increased net
merchant banking write-downs and other write-downs in the collateralized debt
obligation and high-yield portfolios, all associated with weaker market
conditions. This was offset by revenue from acquired businesses and the $190
million gain resulting from the combination of the Caribbean retail, corporate
and international banking operations of CIBC and Barclays Bank PLC.
--------------------------------------------------------------------------------
NON-INTEREST INCOME
$ millions, for the years ended October 31 2002 2001 2000
--------------------------------------------------------------------------------
Fees for services
Underwriting $ 698 $ 614 $ 886
Deposit 605 521 503
Credit 410 493 508
Card 331 363 368
Investment management
and custodial 486 322 379
Mutual funds 561 351 358
Insurance 148 100 124
--------------------------------------------------------------------------------
3,239 2,764 3,126
Commissions on securities transactions 1,203 1,089 1,480
Trading activities 273 1,343 1,140
Investment securities (losses) gains, net (168) 575 970
Income from securitized assets 177 223 237
Other 807 619 844
--------------------------------------------------------------------------------
Total non-interest income $ 5,531 $ 6,613 $ 7,797
================================================================================
Fees for services were up $475 million, or 17.2%, from the prior year.
o Underwriting fees increased by 13.7% due to higher new equity issue
volumes and the impact of acquired businesses.
o Deposit fees increased by 16.1% as a result of higher fees earned in
Amicus and CIBC Retail Markets.
o Credit fees were down by 16.8% mainly in CIBC World Markets due to lower
origination activities.
o Investment management and custodial fees increased by 50.9% from 2001,
reflecting the impact of acquired businesses.
o Fees from mutual funds increased by 59.8% mainly due to the impact of the
acquired businesses.
Commissions on securities transactions were up $114 million, or 10.5%, resulting
from the impact of the acquired businesses.
Trading activities were down $1,070 million, or 79.7%, from 2001 mainly
due to weaker performance from equity structured products business and fixed
income activities business. For a detailed discussion of trading activities, see
"Management of market risk" included in the "Management of Risk and Balance
Sheet Resources" section.
Investment securities (losses) gains include realized gains and losses on
disposals, as well as write-downs, to reflect other-than-temporary impairments
in the value of securities held for investment purposes. Revenue was down $743
million, or 129.2%, from 2001 due to higher asset write-downs, as a result of
deteriorating economic conditions. The prior year also benefited from higher
gains on disposal of securities.
Income from securitized assets was down $46 million, or 20.6%, from 2001
primarily due to decreases in revenue from credit card loans securitization,
partially offset by increases in revenue from residential mortgages
securitization.
Other includes the gains and losses on the disposal of fixed assets and
sale of subsidiaries, foreign exchange commissions and fees. Other was up $188
million, or 30.4%, from 2001. Excluding the loss associated with the bulk sale
of U.S. corporate loans and gain on sales of corporate
--------------------------------------------------------------------------------
51
CIBC ANNUAL REPORT 2002
MANAGEMENT'S DISCUSSION AND ANALYSIS
--------------------------------------------------------------------------------
assets in 2001, other was up $106 million over 2001. This increase was mainly
due to the gain resulting from the combination of the Caribbean retail,
corporate and international banking operations of CIBC and Barclays Bank PLC,
and increase in non-trading foreign exchange revenue, partially offset by
write-downs related to investments in limited partnerships and lower revenue
from third-party securitization and advisory fees.
In 2001, non-interest income was $6,613 million, a decrease of $1,184
million from 2000. The decrease resulted from decreased U.S. investment banking
activity, reduced trading volumes, lower net merchant banking gains, all
associated with deteriorating market conditions, and the loss incurred on the
bulk sale of the U.S. corporate loans, and lower gain on sales of corporate
assets.
Non-interest expenses
Non-interest expenses include all of CIBC's costs except interest expenses,
provision for credit losses and income taxes.
In 2002, reported non-interest expenses were $9,129 million, up $903 million, or
11.0%, from 2001. A detailed analysis of non-interest expenses is provided
below.
--------------------------------------------------------------------------------
NON-INTEREST EXPENSES
$ millions, for the years ended October 31 2002 2001 2000
--------------------------------------------------------------------------------
Employee compensation and benefits
Salaries $2,620 $2,417 $2,235
Incentive bonuses 933 1,372 1,636
Commissions 767 474 633
Benefits 562 469 433
--------------------------------------------------------------------------------
4,882 4,732 4,937
Occupancy costs 715 631 634
Computer and office equipment 985 834 758
Communications 441 412 371
Advertising and business development 295 286 273
Professional fees 297 327 240
Business and capital taxes 114 109 108
Restructuring charge 514 207 (31)
Other 886 688 806
--------------------------------------------------------------------------------
Total non-interest expenses $9,129 $8,226 $8,096
================================================================================
Employee compensation and benefits was up $150 million, or 3.2%, from the prior
year due to higher salary expenses and commissions associated with the impact of
acquired businesses, increased severance costs, particularly in CIBC World
Markets, as well as higher pension and other benefit costs. These increases were
partially offset by lower revenue-related incentive compensation, reflecting the
effect of weaker markets.
Occupancy costs in 2002 were up $84 million, or 13.3%, over the prior year
mainly due to acquired businesses.
Computer and office equipment was up $151 million, or 18.1%, from 2001
primarily due to spending on technology initiatives and the impact of acquired
businesses.
Communications comprises telecommunications, postage, courier and
stationery. Expenses were up $29 million, or 7.0%, from 2001 mainly due to the
impact of acquired businesses.
Advertising and business development was up $9 million, or 3.1%, mainly
due to the impact of acquired businesses.
Professional fees were down $30 million, or 9.2%, mainly because the prior
year included fees relating to certain strategic initiatives.
Business and capital taxes were up $5 million, or 4.6%, over the prior
year.
Restructuring charge of $514 million in 2002 included $366 million
relating to closing of the U.S. electronic banking operations, $142 million
relating to restructuring initiatives in other businesses and a $6 million
revised estimate related to the 2001 cost-reduction program. This was up $307
million from the prior year, which included a charge for a CIBC-wide
cost-reduction program.
Other comprises outside services, unrecoverable losses, other personnel
costs and donations. Other was up $198 million, or 28.8%, from 2001 primarily as
a result of higher non-credit losses, the rising cost of litigation in the U.S.,
costs related to the events of September 11, 2001 and the impact of acquired
businesses.
In 2001, non-interest expenses totalled $8,226 million, up $130 million,
or 1.6%, over 2000. Excluding the restructuring charge of $207 million,
non-interest expenses were down 1% over 2000 mainly due to lower revenue-related
compensation and commissions, offset by increased salaries and costs of
strategic initiatives.
Taxes
--------------------------------------------------------------------------------
TAXES
$ millions, for the years ended October 31 2002 2001 2000
--------------------------------------------------------------------------------
Income taxes
Income taxes $ (279) $ 92 $ 641
Taxable equivalent adjustment 111 144 131
--------------------------------------------------------------------------------
Total income taxes (TEB) (168) 236 772
--------------------------------------------------------------------------------
Indirect taxes
Capital taxes 100 98 92
Property and business taxes 44 38 44
Payroll taxes (employer portion) 235 209 202
GST and sales taxes 204 198 182
--------------------------------------------------------------------------------
Total indirect taxes 583 543 520
--------------------------------------------------------------------------------
Total taxes (TEB) $ 415 $ 779 $1,292
================================================================================
Combined Canadian federal
and provincial tax rate 38.7% 41.6% 42.8%
Income taxes as a percentage of net
income before income taxes (TEB) (32.1)% 11.9% 26.7%
Total taxes as a percentage of net
income before deduction of total taxes (TEB) 38.6% 31.3% 38.1%
================================================================================
Total income and indirect taxes decreased $364 million, or 46.7%, in 2002.
Income taxes are comprised of income taxes imposed on CIBC non-consolidated (the
"parent"), as well as on CIBC's domestic and foreign subsidiaries.
Total income taxes (TEB) were a tax recovery of $168 million in 2002, down $404
million from an income tax expense of $236 million in 2001. This decrease was
primarily due to increased losses in CIBC's U.S. operations, partially offset by
increased income in the Canadian operations. Also, no taxes were provided for on
the gain resulting from the combination of the Caribbean retail, corporate and
international banking operations of CIBC and Barclays Bank PLC, to form
FirstCaribbean International Bank(TM), now reflected as an equity investment. In
addition, a future tax asset of $52 million was recognized in respect of certain
United Kingdom tax losses relating to prior years. In 2001, there was a tax
reduction arising from the restructured ownership of certain U.S.-based loans
and leases.
--------------------------------------------------------------------------------
52
CIBC ANNUAL REPORT 2002
MANAGEMENT'S DISCUSSION AND ANALYSIS
--------------------------------------------------------------------------------
The combined Canadian federal and provincial income tax rate of 38.7%
(2001: 41.6%) is the parent's statutory income tax rate. Variations in this rate
can result from legislative changes to corporate income tax rates enacted by the
federal and provincial governments and from changes in the proportions of income
earned in each of the provinces and in offshore branches of the parent. In 2002,
the rate declined primarily as a result of a reduction in the federal income tax
rate from 27% to 25%, effective January 1, 2002, and a reduction in the Ontario
corporate income tax rate from 14% to 12.5%, effective October 1, 2001. A
substantial proportion of the parent's business is carried on in Ontario.
Income taxes as a percentage of income before income taxes (TEB) declined
from 11.9% in 2001 to (32.1)% in 2002. The decline was attributable to reduced
income levels earned in subsidiaries operating in the U.S., a higher tax
jurisdiction, and a greater proportion of income earned in subsidiaries
operating in lower tax jurisdictions, including the gain resulting from the
combination of the Caribbean retail, corporate and international operations of
CIBC and Barclays Bank PLC. The reduced income levels were caused by various
factors, including increased credit losses, merchant banking losses, and
restructuring charges mainly associated with the decision to close the U.S.
electronic banking operations. In 2001, a permanent income tax reduction of $142
million resulted from the restructured ownership of certain U.S.-based loans and
leases.
CIBC pays tax in a number of jurisdictions. There are continuous
discussions with taxation authorities. These discussions could favourably or
adversely affect CIBC's financial results.
Indirect taxes are comprised of capital, property and business, payroll, and GST
and sales taxes.
Indirect taxes were $583 million, up $40 million, or 7.4%, from 2001, primarily
as a result of an increase in payroll taxes. These increased primarily due to
increases in Canadian government pension plan premiums, provincial medicare
charges and foreign payroll taxes.
Under Canadian generally accepted accounting principles, CIBC is required
to establish a future tax asset in respect of expenses recorded currently for
which a tax deduction will be available in a future period, such as the general
allowance for credit losses and loss carryforwards. The future tax asset is
established using tax rates that will apply in the future period. Federal and
Ontario government tax rate decreases proposed in 2000 continue to be phased in.
CIBC has not provided for a valuation allowance related to future income
tax assets. Included in the tax loss carryforwards amount is $447 million
relating to losses in the U.S. operations in 2002 which expire in 20 years. In
addition, as other future income tax assets naturally reverse into tax losses in
the U.S., CIBC will have 20 years from the date such temporary differences
become tax losses to utilize them before they would begin to expire under
current tax law. Although realization is not assured, CIBC believes that, based
on all available evidence, it is more likely than not that all of the future tax
assets will be realized prior to their expiration. In this regard, CIBC has
initiated various expense management initiatives, refocused its business
activities and committed to provide additional capital which will generate
additional income.
In 2001, total income and indirect taxes decreased to $779 million from
$1,292 million in 2000. This was attributable to decreased total income taxes of
$536 million, which occurred primarily because of decreased income levels in the
North American operations and the permanent income tax reduction of $142 million
discussed above.
--------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------
CONDENSED BALANCE SHEETS
$ millions, as at October 31 2002 2001(1)
--------------------------------------------------------------------------------
Assets
Cash resources $ 9,512 $ 11,350
--------------------------------------------------------------------------------
Securities
Securities held for investment and loan
substitutes 20,664 22,996
Securities held for trading 44,628 51,798
--------------------------------------------------------------------------------
65,292 74,794
--------------------------------------------------------------------------------
Loans
Residential mortgages 66,612 58,751
Personal and credit card loans 30,784 28,411
Business and government loans,
including acceptances 48,809 54,793
Allowance for credit losses (2,288) (2,294)
--------------------------------------------------------------------------------
143,917 139,661
--------------------------------------------------------------------------------
Securities borrowed or purchased under
resale agreements 16,020 24,079
Derivative instruments market valuation 24,717 25,723
Other assets 13,835 11,867
--------------------------------------------------------------------------------
$273,293 $287,474
================================================================================
Liabilities and shareholders' equity
Deposits $196,630 $194,352
Obligations related to securities sold short 8,436 11,213
Obligations related to securities lent or
sold under repurchase agreements 9,615 21,403
Derivative instruments market valuation 24,794 26,395
Other liabilities and acceptances 17,858 18,212
Subordinated indebtedness 3,627 3,999
Shareholders' equity 12,333 11,900
--------------------------------------------------------------------------------
$273,293 $287,474
================================================================================
(1) Certain comparative figures have been reclassified to conform with the
presentation used in 2002.
Assets
Total assets were $273.3 billion as at October 31, 2002, down $14.2 billion from
the prior year. Decreases were largely driven by reductions in business and
government loans ($4.7 billion), securities borrowed or purchased under a resale
agreement ($8.1 billion), trading securities ($7.2 billion), investment
securities ($2.3 billion), customers' liability under acceptances ($1.3
billion), and interest bearing deposits with banks ($1.6 billion). These
decreases were partially offset by increases in retail assets, such as
residential mortgages ($7.9 billion), and personal and credit card loans ($2.4
billion). Large reductions in balances, specifically in the fourth quarter of
2002, were partially a result of the combination of the Caribbean retail,
corporate and international banking operations of CIBC and Barclays Bank PLC, to
form FirstCaribbean International Bank(TM), now reflected as an equity
investment, and also as a result of continuing efforts to manage the balance
sheet to appropriate levels.
A detailed discussion of the loan portfolio is included in "Management of
credit risk" included in the "Management of Risk and Balance Sheet Resources"
section.
Liabilities and shareholders' equity
Deposits were $196.6 billion at October 31, 2002, up $2.3 billion from October
31, 2001. The increase related to growth in deposits from businesses and
governments, as well as higher retail deposits. Further details on the
composition of deposits are provided in Note 9 to the consolidated financial
statements and in the supplementary annual financial information on page 126.
--------------------------------------------------------------------------------
53
CIBC ANNUAL REPORT 2002
MANAGEMENT'S DISCUSSION AND ANALYSIS
Obligations related to securities lent or sold under repurchase agreements
were $9.6 billion, down $11.8 billion from 2001 consistent with the reduction in
securities borrowed or purchased under resale agreements.
Subordinated indebtedness was $3.6 billion at October 31, 2002, down $0.4
billion from 2001. Further details on subordinated indebtedness are provided in
Note 11 to the consolidated financial statements.
Shareholders' equity was $12.3 billion at October 31, 2002, up $0.4
billion from the prior year.
--------------------------------------------------------------------------------
CONTRACTUAL OBLIGATIONS
CIBC has contractual obligations to make future payments on subordinated
indebtedness and lease agreements. Subordinated indebtedness is reflected on the
consolidated balance sheets, while operating lease obligations are not recorded
on the consolidated balance sheets. For further details, see Notes 11 and 27 to
the consolidated financial statements, respectively.
The following table summarizes these obligations based on time periods.
-------------------------------------------------------------------------------------------
CONTRACTUAL OBLIGATIONS
Residual term to contract maturity
-------------------------------------------------------
2008 and
$ millions, as at October 31 2003 2004 2005 2006 2007 thereafter Total
----------------------------------------------------------------------------------------------------
Subordinated indebtedness $ 64 $ 68 $ 25 $ -- $ -- $3,470 $3,627
Operating leases 423 396 335 286 223 1,038 2,701
----------------------------------------------------------------------------------------------------
$ 487 $ 464 $ 360 $ 286 $ 223 $4,508 $6,328
====================================================================================================
CIBC enters into a number of long-term outsourcing contracts as part of normal
business operations. These outsourcing contracts, along with CIBC's other
outstanding contracts, allow the organization to focus on its core businesses
and enhance customer service.
--------------------------------------------------------------------------------
OFF-BALANCE SHEET CREDIT-RELATED ARRANGEMENTS
The table below summarizes CIBC's credit-related arrangements. For a detailed
description of these arrangements, see Note 24 to the consolidated financial
statements.
--------------------------------------------------------------------------------------------
CREDIT-RELATED ARRANGEMENTS
Contract amounts expiration per period
------------------------------------------
Less than 1 to 3 4 to 5 Over 2002
$ millions, as at October 31 1 year years years 5 years Total
--------------------------------------------------------------------------------------------
Lines of credit(1) $ 86,459 $ 5,035 $ 4,507 $ 1,991 $ 97,992
Direct credit substitutes
Financial guarantees 5,818 960 198 369 7,345
Securities lent 17,510 -- -- -- 17,510
Transaction-related contingencies 1,363 195 127 11 1,696
Documentary letters of credit 86 92 5 2 185
Other(2) 367 -- -- -- 367
--------------------------------------------------------------------------------------------
$111,603 $ 6,282 $ 4,837 $ 2,373 $125,095
============================================================================================
(1) Includes irrevocable lines of credit totalling $76,972 million of which
$63,805 million will expire in one year or less, and excludes lines of
credit for credit cards as the lines are short-term in nature and are
revocable at CIBC's discretion.
(2) Includes forward asset purchases.
--------------------------------------------------------------------------------
54
CIBC ANNUAL REPORT 2002
MANAGEMENT'S DISCUSSION AND ANALYSIS
--------------------------------------------------------------------------------
Management of Risk and Balance Sheet Resources
--------------------------------------------------------------------------------
CIBC exposes itself to risk, including credit, market, liquidity and
operational, in the normal course of its business. CIBC manages risk and related
balance sheet resources within tolerance levels established by its management
committees and approved by the Board of Directors and its committees, with the
objective of optimizing shareholder return. This is achieved through a
comprehensive framework of measurement, monitoring and control policies and
standards that supports active and effective management of CIBC's risk and
capital exposures, resources and levels. The board and management committees,
outlined below, establish risk and capital management, measurement, monitoring
and control policies and standards, approve risk and capital management
strategies, and monitor portfolio performances and trends. In 2002, enhancements
were made to both the board and management committees as a result of the
continuing integration of Treasury and Balance Sheet Management with Risk
Management. As a result, a closer linkage now exists between the board and
management committees (i.e. between the Risk Management Committee and the
Capital & Risk Committee and between the Audit Committee and the Operations &
Administration Committee). Further, the linkage of the Capital & Risk Committee
to the Credit Committee and the Investment Committee, its two most senior
sub-committees, was enhanced in order to optimize the use of risk and capital
resources relating to CIBC's credit assets and equity investments.
--------------------------------------------------------------------------------
BOARD OF DIRECTORS COMMITTEES
RISK MANAGEMENT COMMITTEE
o Approves policies and standards with respect to credit, market and
liquidity risks
o Monitors adherence to the above policies and standards
o Reviews and approves individual credits and investments
o Reviews wholesale and consumer credit portfolio trends
o Reviews merchant banking investment portfolio trends
o Reviews market and liquidity risk trends
o Reviews results of the Balance Sheet Resource Allocation Process
o Reviews Canada Deposit Insurance Corporation (CDIC) self-assessment
process
o Reports its activities to the full board
Chair: External Director
AUDIT COMMITTEE
o Approves policies and standards with respect to the management of capital
and internal controls
o Reviews operational risk and related policies and standards
o Monitors adherence to the above policies and standards
o Monitors and reviews procedures for dealing with related-party
transactions and conflict of interest issues
o Oversees the financial reporting process, including the review of
financial statements and provision for credit losses
o Liaises with internal and external auditors
o Reviews CDIC self-assessment process
o Reports its activities to the full board
Chair: External Director
--------------------------------------------------------------------------------
MANAGEMENT COMMITTEES
SENIOR EXECUTIVE TEAM (SET)
o Oversees CIBC-wide governance
o Establishes mandates and membership of management committees
o Establishes CIBC-wide strategic direction and performance targets
o Assesses strategy and monitors asset-liability management
o Approves delegated authorities and limits of the Capital & Risk Committee
o Approves material transactions and strategic investments
Chair: Chairman & CEO
CAPITAL & RISK COMMITTEE (CRC)
o Recommends policies and standards for credit, market and liquidity risks
to the Risk Management Committee for approval
o Approves balance sheet (including capital and funding) resource allocation
and economic capital measurement within parameters established by the SET
o Monitors portfolio performance
o Approves mandates and membership for the Credit Committee and the
Investment Committee, including delegation of limits and authorities
o Approves new material risk and strategic allocation of balance sheet
resources for the introduction of new initiatives
o Refers matters relating to operational risk to the Operations &
Administration Committee
Chair: Vice-Chair and Chief Risk Officer, Treasury, Balance Sheet and Risk
Management (TBRM)
OPERATIONS & ADMINISTRATION COMMITTEE (OAC)
o Approves policies and standards for CIBC-wide management of operational
risk and internal controls, and performs ongoing assessment of
effectiveness
o Reviews internal assessments of adherence to the internal control
framework
o Oversees corrective action concerning significant internal control
weaknesses or emerging control issues
o Monitors implementation and execution of significant initiatives and
intervenes as required
o Refers matters relating to credit, market or liquidity risk, as well as
those having balance sheet resource implications, to the CRC
o Reviews periodic reports from Internal Audit, Legal & Compliance and TBRM
on internal control-related matters
Chair: Vice-Chair, CIBC Wealth Management
CREDIT COMMITTEE*
o Approves credits above limits delegated to individual officers
o Recommends significant credits to the Risk Management Committee for
approval
o Responsible for the integrity, accuracy and timeliness of risk ratings
o Monitors the risk of portfolio concentrations
Chair: Executive Vice-President, Corporate & Commercial Credit Adjudication,
TBRM
INVESTMENT COMMITTEE*
o Advises deal teams during the investigation and negotiation of potential
investments
o Approves all investments for the merchant banking portfolio
o Monitors the performance of previously approved investments
o Ensures investments conform to CIBC corporate governance standards prior
to approval
Chair: Executive Vice-President, Credit Asset & Merchant Banking Portfolio
Management, TBRM
* Sub-committee of the Capital & Risk Committee
--------------------------------------------------------------------------------
55
CIBC ANNUAL REPORT 2002
MANAGEMENT'S DISCUSSION AND ANALYSIS
--------------------------------------------------------------------------------
MANAGEMENT OF CREDIT RISK
Credit risk is the potential for financial loss resulting from the failure of a
borrower or counterparty to fully honour its financial or contractual
obligations, such as repayment of loans or settlement of derivatives contracts.
CIBC's framework for the management of credit risk comprises
infrastructure, policies and standards, and measurement, monitoring and control
practices that are designed to instill a strong sense of accountability and
discipline throughout CIBC.
Infrastructure
The CRC is responsible for reviewing CIBC's credit risk management policies.
These policies are tabled before the board's Risk Management Committee for
review and approval on an annual basis. The CRC is also responsible for ensuring
that these policies are implemented and that procedures are in place to manage
and control credit risk, along with overseeing that the quality of the credit
portfolio is in accordance with these policies. Senior management reports
regularly to the Risk Management Committee on material credit risk matters,
including individual credit transactions, credit concentrations on a related
borrower, industry and geographic basis, impaired loans and credit loss
provisioning levels. In addition, senior management also reviews impaired loan
balances, allowances and credit loss provisioning levels with the Audit
Committee of the board.
The day-to-day responsibility for measuring and monitoring credit risk is
delegated to TBRM. TBRM is independent of the business lines and is responsible
for the initial credit approval and ongoing measurement and monitoring of the
credit portfolio to ensure that credit risk is actively controlled. This is
accomplished through the establishment of lending policies; the approval of all
models used for risk rating and credit scoring of individual loans; the
exercising of approval authority for all significant credit transactions; the
monitoring of exposures against policies and limits; and rigorous management of
past due and impaired loans by specialized groups.
Management of credit risks also takes place within TBRM, which uses
market-based techniques in the management of the credit risk component of
economic capital. It applies enhanced credit models to the analysis of CIBC's
large corporate credit portfolio. Higher risk or concentrated positions are
reduced through the use of direct loan sales, credit derivative hedges or
structured transactions. By the same means, selected credit exposures are added
to the portfolio to enhance diversification and increase returns. Given that the
credit risk component of economic capital is a scarce resource, CIBC endeavours
to allocate and liberate credit risk capital in the most cost-efficient manner.
High risk and impaired loans are managed by a specialized loan workout group.
Merchant banking investments are governed by the Investment Committee, which
reviews the structuring, negotiation and monitoring of new and existing merchant
banking investments.
Policies and standards
CIBC's credit risk management policies outline the credit risk appetite, as well
as the detailed parameters under which credit risk is to be controlled. Policies
and standards establish the basis for how credit is granted, measured,
aggregated, monitored and reported. In this regard, CIBC has policies and
standards for the control of credit risk within both the consumer loan portfolio
and the business and government loan portfolio.
Policies designed to prevent concentrations within CIBC's loan portfolios
are fundamental to the management of credit risk. There are two key policies:
o The common risk/concentration policy manages CIBC's exposure to any
individual borrower or group of related borrowers, based on risk rating.
o The industry concentration policy limit, which manages CIBC's exposure to
45 industry categories, ensures diversification of the loan and securities
portfolios.
Other credit risk policies ensure prudent lending practices address management
of geographic and product concentrations, syndicated bank and bridge credit
exposures, requirements for environmental reviews and real estate appraisals,
maintenance of portfolio lending standards, and conflicts of interest with
respect to mergers and acquisitions.
Measurement, monitoring and control
CIBC continues to develop and enhance its credit risk management measurement,
monitoring and control systems as it prepares for the proposed November 1, 2006
implementation of the Bank of International Settlements (BIS) Capital Accord
proposals.
For consumer loans, the large number of transactions of smaller dollar
size makes statistical techniques, such as credit scoring and computer-based
loan models, well suited to identification and management of risk. CIBC's
consumer loan portfolio is well diversified to ensure that concentrations by
customer and product type are within prudent and acceptable limits. Consumer
loans constitute 67% of CIBC's portfolio, excluding securities borrowed or
purchased under resale agreements. These loans are inherently diversified in
that they represent thousands of borrowers with relatively small individual loan
balances. Residential mortgages, which constitute 69% of the total consumer loan
portfolio, exhibit very low levels of credit risk. Consistent with CIBC's
managed growth strategy for this business, residential mortgages increased by
$7.8 billion from the prior year. CIBC's consumer loan growth strategy resulted
in an increase of 12% in the personal loan portfolio and 10% in the credit card
loan portfolio. The student loan portfolio continued to decrease in 2002 and is
lower by 17% compared with the prior year.
Consumer
loans
$ billions
[THE FOLLOWING DATA WAS REPRESENTED AS A BAR CHART IN THE PRINTED MATERIAL]
2002 2001
Residential mortgages 66.6 58.7
Personal (including students loans) 22.6 21.1
Credit card loans 7.5 6.8
--------------------------------------------------------------------------------
56
CIBC ANNUAL REPORT 2002
MANAGEMENT'S DISCUSSION AND ANALYSIS
--------------------------------------------------------------------------------
Within the business and government loan portfolio, specialized lenders assess
each credit transaction, assigning an internal risk rating to each, and for all
significant transactions, independent credit approval is required from TBRM. All
business and government loans are rated on a 13-category scale that is
calibrated to reflect the associated probability of loss. These internal risk
ratings assist in monitoring the portfolio, and are also key inputs used in
CIBC's economic models for the attribution of the credit risk component of
economic capital.
CIBC diversifies the business and government loan portfolio through the
establishment and continual monitoring of exposures against common risk, and
industry and geographic concentration limits. Related borrower risk is managed
through limits on concentrations by risk rating; industry concentrations are
measured against limits for 45 different industry sectors; and geographic
concentrations are measured against limits established for exposure to foreign
countries.
Business and government loans (including acceptances) constitute 33% of
CIBC's portfolio, excluding securities borrowed or purchased under resale
agreements, and are 11% lower than last year before deducting the general
allowance. This is consistent with CIBC's strategy to aggressively manage
balance sheet (including capital) resources. The portfolio is diversified from
an industry perspective with the largest industry group, business services,
constituting approximately 11% of total business and government loans (including
acceptances) before deducting the general allowance in 2002.
Management monitors industry concentrations on an ongoing basis, taking
into consideration the current economic outlook and recent world events.
Geographically, 87% of the business and government loan portfolio is in
North America, with the remaining balance predominantly in the United Kingdom
and Western Europe. Exposure to Asia continues to be managed down to lower
levels through significant repayment and/or recovery experience. Exposures in
Eastern Europe, Latin and South America and elsewhere are limited. The
increasing sophistication of decision-support tools used at origination have
significantly contributed to the maintenance of a well-diversified portfolio.
Country risk is the risk that assets may become frozen in a foreign
country because of imposed exchange controls or other political or economic
disturbances. CIBC actively manages country risk through limits on exposures to
individual countries outside of North America. These limits establish the
maximum amount of acceptable country risk and control its sub-components, such
as bank deposits and trade finance.
The majority of CIBC's credit risk exposure relates to the loan and
acceptances portfolio. However, CIBC also engages in activities that expose it
to off-balance sheet credit risk. These include credit-related arrangements and
derivative instruments as explained in Notes 23, 24 and 25 to the consolidated
financial statements. CIBC manages these exposures through the same credit risk
management framework as described above.
CIBC is active in the credit derivative markets both as a market maker
facilitating the credit hedging needs of its clients and as a principal as part
of managing its own credit portfolios. CIBC is an active user of single-name
credit derivatives in addition to synthetic collateralized loan obligations
(CLOs) to reduce credit risk as part of managing its overall credit portfolio.
Credit derivatives are used to mitigate sector concentrations and single-name
exposure, or as part of portfolio diversification techniques. The largest sector
concentrations hedged through these programs were telecommunications and cable
($724 million), utilities ($354 million) and financial institutions ($346
million). The notional amount outstanding relating to credit protection
(including synthetic CLOs) was $4 billion as at October 31, 2002.
CIBC has counterparty credit exposure that arises from its interest rate,
foreign exchange, equity, commodity and credit derivatives market making and
portfolio management activities. CIBC measures and manages the credit exposure
on its derivative contracts, taking into account both the current mark-to-market
value of each contract, as well as a prudent estimate of the potential future
exposure for each transaction. This is based upon statistically driven
simulation approaches and taking into account any legally enforceable
risk-mitigating techniques for each obligor, such as netting and collateral or
margin arrangements. Under a margin agreement, CIBC obtains collateral from
and/or pledges collateral to its counterparties, consisting primarily of cash or
marketable securities, which are revalued on a regular basis.
CIBC's derivative credit exposure represents a variety of product types.
Investment grade counterparts account for 91% of CIBC's derivative credit
exposure. CIBC actively measures, monitors and limits its credit exposure
arising from its derivative activities. Clear credit policies, processes and
procedures are in place to ensure effective credit exposure management.
Business and government loans (including acceptances) by industry groups -
summarized(1)
[THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
2002
Business service 11.4%
Resource-based industries 11.1%
Manufacturing, consumer and capital goods 10.6%
Real estate and construction 9.0%
Telecommunications, media and technology 8.8%
Agriculture 8.7%
Financial institutions 8.6%
Non-residential mortgages 8.0%
Utilities 5.4%
Retail 5.2%
Transportation 5.1%
Other 4.7%
Publishing, printing and broadcasting 2.6%
Hardware and software 0.8%
[THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
2001
Financial institutions 12.7%
Resource-based industries 11.5%
Manufacturing, consumer and capital goods 11.4%
Business service 11.0%
Telecommunications, media and technology 8.6%
Real estate and construction 7.4%
Agriculture 7.1%
Non-residential mortgages 6.0%
Retail 5.9%
Transportation 5.0%
Utilities 4.4%
Other 4.0%
Publishing, printing and broadcasting 3.3%
Hardware and software 1.7%
(1) Industry classifications provided have been summarized. Refer to the
supplementary annual financial information on pages 122 to 123 for further
details.
--------------------------------------------------------------------------------
57
CIBC ANNUAL REPORT 2002
MANAGEMENT'S DISCUSSION AND ANALYSIS
--------------------------------------------------------------------------------
Impaired loans
While CIBC imposes a disciplined approach to risk by continuously monitoring all
credit exposures, it also aggressively manages all impaired accounts. Generally,
a loan is classified as impaired when management is of the opinion that there is
no longer a reasonable assurance of the full and timely collection of principal
and interest. Certain exceptions to this policy are outlined in Note 1 to the
consolidated financial statements.
During the year, $3.36 billion of loans were newly classified as impaired,
up $1,137 million from 2001. The largest increase in gross impaired loans was
within the telecommunications, media and technology industry sector, primarily
in the U.S. and Europe. Overall, Canadian classifications increased by $50
million, while foreign classifications increased by $1,087 million, of which
$784 million were related to classifications in the U.S.
Reductions in gross impaired loans through remediation, repayment or sale
were $1,084 million, up $149 million from 2001. The increase included $95
million related to consumer loans and $54 million in business and government
loans. For the year, write-offs totalled $1,705 million, up $456 million from a
year ago. Business and government loan write-offs accounted for $346 million of
this increase, while consumer loan write-offs increased by $110 million.
-----------------------------------------------------------------------------------------------------------------------------------
CHANGES IN NET IMPAIRED LOANS(1)
Business Total
and before
$ millions, as at or for government Consumer general General 2002
the years ended October 31 loans loans(2) allowance allowance Total
-----------------------------------------------------------------------------------------------------------------------------------
Gross impaired loans
Balance at beginning of year $ 1,197 $ 505 $ 1,702 $ -- $ 1,702
New additions 2,354 1,008 3,362 -- 3,362
Returned to performing
status, repaid or sold (583) (501) (1,084) -- (1,084)
-----------------------------------------------------------------------------------------------------------------------------------
Gross impaired loans prior
to write-offs 2,968 1,012 3,980 -- 3,980
Write-offs (1,104) (601) (1,705) -- (1,705)
-----------------------------------------------------------------------------------------------------------------------------------
Balance at end of year $ 1,864 $ 411 $ 2,275 $ -- $ 2,275
===================================================================================================================================
Allowances
Balance at beginning of year $ 519 $ 525 $ 1,044 $ 1,250 $ 2,294
Write-offs (1,104) (601) (1,705) -- (1,705)
Provisions 1,097 403 1,500 -- 1,500
Recoveries 92 125 217 -- 217
Foreign exchange and other (9) (9) (18) -- (18)
-----------------------------------------------------------------------------------------------------------------------------------
Balance at end of year(3) $ 595 $ 443 $ 1,038 $ 1,250 $ 2,288
===================================================================================================================================
Net impaired loans
Balance at beginning of year $ 678 $ (20) $ 658 $(1,250) $ (592)
Net change in gross
impaired 667 (94) 573 -- 573
Net change in allowance (76) 82 6 -- 6
-----------------------------------------------------------------------------------------------------------------------------------
Balance at end of year(3) $ 1,269 $ (32) $ 1,237 $(1,250) $ (13)
===================================================================================================================================
Gross impaired loans less specific allowance as a
percentage of total net loans and acceptances 0.77%
Net impaired loans and acceptances after general allowance:
As a percentage of total net loans and acceptances (0.01)
As a percentage of shareholders' equity (0.11)
===================================================================================================================================
Business Total
and before
$ millions, as at or for government Consumer general General 2001
the years ended October 31 loans loans(2) allowance allowance Total
--------------------------------------------------------------------------------------------------------------------------------
Gross impaired loans
Balance at beginning of year $ 1,204 $ 457 $ 1,661 $ -- $ 1,661
New additions 1,280 945 2,225 -- 2,225
Returned to performing
status, repaid or sold (529) (406) (935) -- (935)
--------------------------------------------------------------------------------------------------------------------------------
Gross impaired loans prior
to write-offs 1,955 996 2,951 -- 2,951
Write-offs (758) (491) (1,249) -- (1,249)
--------------------------------------------------------------------------------------------------------------------------------
Balance at end of year $ 1,197 $ 505 $ 1,702 $ -- $ 1,702
================================================================================================================================
Allowances
Balance at beginning of year $ 476 $ 510 $ 986 $ 1,250 $ 2,236
Write-offs (758) (491) (1,249) -- (1,249)
Provisions 736 364 1,100 -- 1,100
Recoveries 44 141 185 -- 185
Foreign exchange and other 21 1 22 -- 22
--------------------------------------------------------------------------------------------------------------------------------
Balance at end of year(3) $ 519 $ 525 $ 1,044 $ 1,250 $ 2,294
================================================================================================================================
Net impaired loans
Balance at beginning of year $ 728 $ (53) $ 675 $(1,250) $ (575)
Net change in gross
impaired (7) 48 41 -- 41
Net change in allowance (43) (15) (58) -- (58)
--------------------------------------------------------------------------------------------------------------------------------
Balance at end of year(3) $ 678 $ (20) $ 658 $(1,250) $ (592)
================================================================================================================================
Gross impaired loans less specific allowance as a
percentage of total net loans and acceptances 0.40%
Net impaired loans and acceptances after general allowance:
As a percentage of total net loans and acceptances (0.36)%
As a percentage of shareholders' equity (4.97)%
================================================================================================================================
Business Total
and before
$ millions, as at or for government Consumer general General 2000
the years ended October 31 loans loans(2) allowance allowance Total
--------------------------------------------------------------------------------------------------------------------------------
Gross impaired loans
Balance at beginning of year $ 1,019 $ 463 $ 1,482 $ -- $ 1,482
New additions 1,008 776 1,784 -- 1,784
Returned to performing
status, repaid or sold (408) (348) (756) -- (756)
--------------------------------------------------------------------------------------------------------------------------------
Gross impaired loans prior
to write-offs 1,619 891 2,510 -- 2,510
Write-offs (415) (434) (849) -- (849)
--------------------------------------------------------------------------------------------------------------------------------
Balance at end of year $ 1,204 $ 457 $ 1,661 $ -- $ 1,661
================================================================================================================================
Allowances
Balance at beginning of year $ 505 $ 243 $ 748 $ 1,000 $ 1,748
Write-offs (415) (434) (849) -- (849)
Provisions 346 624 970 250 1,220
Recoveries 44 77 121 -- 121
Foreign exchange and other (4) -- (4) -- (4)
--------------------------------------------------------------------------------------------------------------------------------
Balance at end of year(3) $ 476 $ 510 $ 986 $ 1,250 $ 2,236
================================================================================================================================
Net impaired loans
Balance at beginning of year $ 514 $ 220 $ 734 $(1,000) $ (266)
Net change in gross
impaired 185 (6) 179 -- 179
Net change in allowance 29 (267) (238) (250) (488)
--------------------------------------------------------------------------------------------------------------------------------
Balance at end of year(3) $ 728 $ (53) $ 675 $(1,250) $ (575)
================================================================================================================================
Gross impaired loans less specific allowance as a
percentage of total net loans and acceptances 0.44%
Net impaired loans and acceptances after general allowance:
As a percentage of total net loans and acceptances (0.37)%
As a percentage of shareholders' equity (5.06)%
================================================================================================================================
(1) Impaired loans include loan substitute securities of $30 million (2001:
nil; 2000: $13 million) and allowances for credit losses of nil (2001:
nil; 2000: $2 million) relating to loan substitute securities.
(2) Specific allowances for large numbers of homogeneous balances of
relatively small amounts are established by reference to historical ratios
of write-offs to balances outstanding. This may result in negative net
impaired loans as individual loans are generally classified as impaired
when repayment of principal or payment of interest is contractually 90
days in arrears.
(3) Excludes allowances on letters of credit totalling $1 million (2001: $1
million; 2000: $2 million).
--------------------------------------------------------------------------------
58
CIBC ANNUAL REPORT 2002
MANAGEMENT'S DISCUSSION AND ANALYSIS
Provision for credit losses
----------------------------------------------------------------------------------
PROVISION FOR (RECOVERY OF) CREDIT LOSSES
$ millions, for the years ended October 31 2002 2001 2000
----------------------------------------------------------------------------------
Canada
Residential mortgages $ 3 $ 3 $ 5
Student loans -- (2) 365
Personal loans 108 84 94
Credit card loans 271 270 154
----------------------------------------------------------------------------------
Total consumer loans 382 355 618
----------------------------------------------------------------------------------
Non-residential mortgages 4 3 5
Financial institutions (3) (2) 2
Service and retail industries 37 49 15
Manufacturing, consumer
and capital goods 25 24 51
Real estate and construction (29) (8) (28)
Agriculture 13 8 5
Resource-based industries 1 7 14
Telecommunications, media
and technology 76 31 (2)
Transportation 3 1 66
Utilities 11 1 6
Other 1 4 1
----------------------------------------------------------------------------------
Total business and government loans 139 118 135
----------------------------------------------------------------------------------
521 473 753
----------------------------------------------------------------------------------
United States
Total consumer loans 18 -- (6)
Financial institutions (2) 2 45
Service and retail industries 12 163 61
Manufacturing, consumer
and capital goods 18 148 29
Real estate and construction 38 (1) (15)
Resource-based industries 292 50 13
Telecommunications, media
and technology 381 227 12
Transportation 27 (2) 13
Utilities 70 8 --
Other -- 28 46
----------------------------------------------------------------------------------
854 623 198
----------------------------------------------------------------------------------
Other countries
Total consumer loans 3 9 12
Financial institutions (2) (10) 1
Service and retail industries (1) 1 2
Manufacturing, consumer
and capital goods -- (3) 2
Real estate and construction (4) 3 (6)
Agriculture (1) -- 1
Resource-based industries 18 -- --
Telecommunications, media
and technology 108 8 (2)
Transportation -- 1 6
Utilities 4 (5) 4
Other -- -- (1)
----------------------------------------------------------------------------------
125 4 19
----------------------------------------------------------------------------------
Credit losses charged to income
Specific provision 1,500 1,100 970
General provision -- -- 250
----------------------------------------------------------------------------------
Total credit losses charged to the
consolidated statements of income $1,500 $1,100 $1,220
==================================================================================
As a percentage of total net loans
and acceptances 0.94% 0.67% 0.79%
==================================================================================
The provision for credit losses is the amount charged to income that increases
the total allowance for credit losses to a level that management considers
prudent to cover all probable credit-related losses in the portfolio, given due
regard to existing economic conditions and credit derivatives.
The provision for credit losses charged to income in 2002 was $1,500
million, compared with $1,100 million in 2001. The entire 2002 provision was
allocated to specific allowances, with the general allowance remaining unchanged
at $1.25 billion. During 2001, the total provision for credit losses charged to
income of $1,100 million was also allocated to specific allowances. Total
specific provisions for credit losses increased by $400 million in 2002. This
increase was mainly attributable to the business and government loan portfolio,
and reflects the continuing decline in credit conditions experienced in the U.S.
and Europe, primarily in the telecommunications, utilities and resource-based
industry groups.
The specific provision of $970 million in 2000 included a $250 million
additional provision for credit losses related to government-sponsored student
loans, resulting in a total student loan provision of $365 million for the year.
Allowances for credit losses
The total allowance for credit losses consists of specific and general allowance
components. Specific allowances are recorded when loans are identified as
impaired. For business and government loans, specific allowances are established
through ongoing assessments of the portfolio on an account-by-account basis when
impaired loans are identified. Specific allowances for consumer loans are
determined by reference to historical ratios of write-offs to balances
outstanding.
The general allowance provides for credit losses that are present in the
credit portfolios, but which have not yet been specifically identified.
The credit portfolios to which the general allowance applies include
business loans and acceptances, off-balance sheet credit instruments, such as
credit commitments and letters of credit, and consumer loans. The general
allowance does not apply to loans or credit facilities that are impaired, as
appropriate specific provisions are taken to provide for these.
The methodology for determining the appropriate level of general allowance
involves using expected loss rates associated with different credit portfolios,
and for different risk levels within portfolios, estimating a time period over
which losses that are present would be specifically identified and a specific
provision taken, and adjusting for management's view of the current and ongoing
economic and portfolio trends.
Expected loss rates for business loan portfolios are based on the risk
rating of each credit facility and on the probability of default factors
associated with each risk rating, as well as estimates of loss given default.
The probability of default factors reflects CIBC's historical experience over an
economic cycle, and is supplemented by data derived from defaults in the public
debt markets. Loss given default estimates are based on CIBC's experience over
many years. For consumer loan portfolios, expected losses are based on CIBC's
historical flow and loss rates.
The level of general allowance is determined by a number of factors,
including the portfolios' size, the relative risk profiles of the portfolios,
the economic trends and evidence of credit quality improvements or
deterioration.
--------------------------------------------------------------------------------
59
CIBC ANNUAL REPORT 2002
MANAGEMENT'S DISCUSSION AND ANALYSIS
--------------------------------------------------------------------------------
The general allowance requirement is assessed using these criteria. On a regular
basis, the parameters that drive the general allowance calculation are updated,
based on CIBC's market experience.
As at October 31, 2002, the specific allowance for credit losses was $1.04
billion, down $6 million from 2001. The change year-over-year was the result of
a decrease related to the consumer loan portfolio of $82 million, and an
increase in respect of the business and government loan portfolio of $76
million.
During 2002, CIBC's general allowance remained unchanged at $1.25 billion,
resulting in a total allowance for credit losses of $2.29 billion. This amount
was viewed as prudent in light of the composition of the credit portfolio, as
well as continued levels of uncertainty of economic performance in CIBC's major
lending markets.
The total allowance for credit losses is reviewed and approved on a
quarterly basis by the SET and the Audit Committee. The total allowance for
credit losses exceeded gross impaired loans by $13 million as at October 31,
2002 compared with $592 million at the end of the prior year. While management
believes that the allowance for credit losses is sufficient at October 31, 2002,
future additions to the allowance will be subject to continuing evaluation of
risks in the loan portfolio and changing economic conditions.
--------------------------------------------------------------------------------
MANAGEMENT OF MARKET RISK
Market risk is the risk of financial loss arising from changes in values of
financial instruments and includes interest rate, credit spread, foreign
exchange, equity, commodity and liquidity risks. CIBC is exposed to market risk
in its trading and investment portfolios, and through its asset-liability
management activities.
CIBC's framework for the management of market risk comprises
infrastructure, policies and standards, and measurement, monitoring and control
practices, which CIBC believes incorporate best practice risk management
standards. TBRM performs market risk management functions independently of
CIBC's business lines. The risk measurement, monitoring and control processes
ensure that overall market risk and its components are well understood within
CIBC.
Infrastructure
The activities of TBRM are reviewed and approved, as appropriate, by the CRC,
the SET and ultimately by the Risk Management Committee of the board. In
addition to understanding, measuring, monitoring and controlling risks, TBRM
ensures on a daily basis that the individual components and overall market risk
exposures of CIBC are within approved risk limits and that only authorized
activities are undertaken.
The quality and skills of risk managers are critical to achieving
effective risk management. Each business incurring significant market risk is
the focus of an experienced market risk manager, supplemented by regional risk
management professionals located in all major CIBC trading centres, facilitating
comprehensive risk coverage. Data from trading systems around the world are
consolidated in a central risk management database. Centralized risk measurement
and access to large amounts of risk management data support the global
management of market risk through integrated risk reporting and analysis, and
limit monitoring. CIBC generates a detailed risk report and limit-monitoring
summary each morning, based on the previous day's trading. This report provides
a CIBC-wide view of market risk in the trading portfolios and is integral to the
review of risk exposure at CIBC's trading room meeting each morning. A similar
report provides a CIBC-wide view of non-trading market risks. Each day, all risk
positions are monitored against authorized limits by an independent risk
manager, and positions that exceed authorized limits are promptly reported to
senior management. Reports on compliance with risk limits are made weekly to the
CRC and quarterly to the Risk Management Committee.
Policies and standards
CIBC has developed comprehensive policies and standards for market risk
management. These relate to identification and measurement of the various types
of market risk, and to the establishment of limits within which CIBC manages its
overall exposure. The policies explicitly state risk tolerance levels, expressed
in terms of both statistically based Value-at-Risk (VaR) measures and of
potential worst-case stress losses. The Risk Management Committee approves
overall levels of risk that CIBC may assume.
CIBC uses a three-tiered approach to set market risk limits on the amounts
of interest rate, credit spread, foreign exchange, commodity and equity risks
that the organization can assume in its trading and non-trading activities. The
first-tier limits are CIBC's overall market risk and worst-case scenario limits,
and are set by the SET, in keeping with the risk tolerance expressed by the Risk
Management Committee. The second-tier limits are designed to control the risk
profile of positioning activities in each business, and are established by
agreement of TBRM and the businesses, and are approved by the CRC. The
third-tier limits are delegated down to the desk level and are designed to
monitor risk concentration and the impact of book-specific stress events.
Policies also outline requirements for yield curve and valuation model
construction, and link to accounting policies with respect to mark-to-market
methodologies and the independent valuation of positions.
Measurement, monitoring and control
Since no single measure reflects all aspects of market risk, CIBC uses several
different risk measures:
o VaR - CIBC's Risk Measurement Unit (RMU) methodology, which enables the
like-for-like comparison of risk in different businesses and asset
classes.
o Stress testing and scenario analysis, which provide insight into portfolio
behaviour under extreme circumstances.
o Backtesting, which validates the effectiveness of risk quantification
through analysis of actual and theoretical profit and loss outcomes.
RMU methodology
CIBC has developed and adopted a comprehensive VaR market risk measurement
methodology that expresses risk in terms of RMUs. The VaR or RMU methodology is
a statistically defined, probability-based approach that uses volatilities and
correlations to quantify risk in dollar terms.
The RMU is CIBC's market risk measure of the potential loss from adverse
market movements that can occur under normal market conditions, based on
historical data and recent market experience. An RMU is defined as the overnight
loss with less than a 1% probability of occurring in normal markets. The RMU
methodology uses numerous risk factors as inputs, including, for example,
interest rate risk, exposure to multiple yield curve points, exposure to
multiple basis and spread relationships, and
--------------------------------------------------------------------------------
60
CIBC ANNUAL REPORT 2002
MANAGEMENT'S DISCUSSION AND ANALYSIS
--------------------------------------------------------------------------------
exposure to multiple implied volatility points. The RMU is computed through use
of the historical volatility of each risk factor and the associated historical
correlations among them, updated on a regular basis. A composite RMU measure is
determined by aggregating the RMU measures for each of interest rate, credit
spread, equity, foreign exchange and commodity market risks, and the reduction
due to the portfolio effect of combining the risks. The composite RMU is then
expressed as a potential worst-case loss that can occur over one day, no more
than 1% of the time, or equivalently, within a confidence interval of 2.33
standard deviations, in normal markets. The model covers all financial products
traded by CIBC, including foreign exchange products, derivatives, debt
securities, equities and commodities. The RMU methodology is based on a
variance-covariance model, supplemented by an historical simulation model.
Stress testing and scenario analysis
While the RMU methodology captures CIBC's exposure to unlikely events in normal
market conditions, stress testing and scenario analysis are designed to add
insight to the possible outcomes of abnormal market conditions.
CIBC's stress testing measures the effect on portfolio values of a wide
range of extreme moves in market prices, based on historical experience and/or
referenced to specific book concentrations. The stress test methodology assumes
that no actions are taken during the stress event to mitigate risk, reflecting
the decreased liquidity that frequently accompanies market shocks.
CIBC's scenario analysis approach simulates the impact on the portfolio of
extreme market events unfolding over an extended period of up to a full calendar
quarter. In this case, the changing portfolio characteristics and the market
movements are dynamic. This allows analysis of the impact of changes in market
liquidity and potential risk mitigation strategies over time.
Scenarios are developed using actual historical market data during periods
of market disruption, or are based on the hypothetical occurrence of economic
events, political events and natural disasters suggested and designed by
economists, business leaders and risk managers.
As of October 31, 2002, CIBC's scenario analysis program included various
historical and hypothetical scenarios. Among the historical scenarios used were
the 1987 equity market crash, the 1994 period of U.S. Federal Reserve
tightening, the 1998 Russian-led crisis, and the market events following
September 11, 2001. The hypothetical scenarios used include potential market
crises originating in North America and in Asia. Key to the effectiveness of the
scenario analysis program is the timely review of the applicability of the
scenarios.
CIBC's core stress tests and scenario analyses are run daily, with further
ad hoc analyses carried out on a regular basis. Limits are placed on the maximum
acceptable loss to the aggregate portfolio under any worst-case scenario and on
the impact of stress testing at the detailed portfolio level.
A variation of CIBC's scenario analysis model is employed to add insight
to risks in the merchant banking portfolio. In this case, the simulation
framework is extended to quantify potential losses over a full year.
The effectiveness of stress testing and scenario analysis is demonstrated
during actual periods of market disruption.
Backtesting
The process of backtesting is key to the sustained integrity of CIBC's risk
models. For each of CIBC's trading portfolios, and in aggregate, daily RMUs are
compared with trading revenue. The backtesting process serves to confirm that
actual profit and loss (P/L) outcomes are consistent with the statistical
assumptions of the RMU model. This process is further enhanced through the
calculation of a hypothetical or static P/L. This represents the theoretical
change in portfolio value due to each day's price movements, of the prior day's
closing portfolio, on the assumption that it remained unchanged. Comparison of
this daily static P/L with RMU is required by the Office of the Superintendent
of Financial Institutions (OSFI) and serves as a further validation of the
integrity of the RMU model.
Trading activities
CIBC holds positions in both liquid and less liquid traded financial instruments
as a fundamental component of providing integrated financial solutions to meet
client investment and risk management needs. Trading revenue is generated from
these transactions with clients and, to a lesser extent, from proprietary
trading. Traded instruments include debt and equity securities, as well as
foreign exchange, commodity and derivative products. Positions are recorded at
fair values, with realized or unrealized gains and losses from changes in fair
value recognized in trading activities as non-interest income, while net
interest earned on trading positions after funding is reflected as net interest
income in the consolidated statements of income. Trading and related risk
management strategies can periodically shift revenue between trading activities
and net interest income. Therefore, trading revenue includes net interest income
earned on trading portfolios in addition to net gains or losses from trading
activities.
--------------------------------------------------------------------------------
TRADING REVENUE
$ millions, for the years ended October 31 2002 2001 2000
--------------------------------------------------------------------------------
Net interest income (TEB) $ 382 $ (201) $ (260)
Trading activities 273 1,343 1,140
--------------------------------------------------------------------------------
Total trading revenue (TEB) $ 655 $1,142 $ 880
================================================================================
By type:
Interest rate $ 290 $ 505 $ 231
Foreign exchange(1) 152 179 199
Equities 136 391 394
Other(2) 77 67 56
--------------------------------------------------------------------------------
Total trading revenue (TEB) $ 655 $1,142 $ 880
================================================================================
(1) Revenue earned on foreign exchange for other than trading activities is
included in other non-interest income.
(2) Includes commodities, credit derivatives and secondary loan trading and
sales.
In 2002, total trading revenue (TEB) was $655 million, which decreased by $487
million over the prior year. The decrease was primarily due to difficult
financial conditions associated with weaker economic conditions in the U.S. Both
equity and fixed income activities faced weaker performance as a result of these
market conditions.
In 2001, trading revenue (TEB) was $1,142 million, which increased by $262
million over 2000. The increase was primarily due to a reduction in interest
funding costs on traded instruments as a result of interest rate reductions in
2001, partially offset by the effects of weaker markets in 2001 and the fourth
quarter market impact of September 11, 2001. In addition, trading revenue
benefited in 2001 from increased revenue in the fixed income businesses.
The RMU by risk type table on the next page shows the mix of market risks
through 2002 by type of risk and aggregate risk. These risks are interrelated
and, consequently, are only additive after taking into account the
diversification effect, which reflects the reduction of risk due to portfolio
effects among the trading positions. CIBC's trading risk exposures to interest
--------------------------------------------------------------------------------
61
CIBC ANNUAL REPORT 2002
MANAGEMENT'S DISCUSSION AND ANALYSIS
--------------------------------------------------------------------------------
rates arise from activities in the global debt and money markets, particularly
from transactions in Canadian, U.S., European and Japanese markets. The primary
instruments are government and corporate debt, and interest rate swaps. The bulk
of the trading exposure to foreign exchange risk arises from transactions
involving the U.S. dollar, the Euro, the British pound, and the Japanese yen,
whereas the primary risks of loss in equities are in the U.S., Canadian and
European equity markets. During 2002, aggregate risk levels were generally lower
than in 2001, with reductions concentrated primarily in credit spread risk.
Limitations on significant directional exposure and active securities inventory
management were major components in constraining risk, consistent with CIBC's
goal of low earnings volatility.
The histogram below presents the frequency distribution of daily trading
revenue for 2002. Trading revenue was positive for 74% of the days in 2002,
compared with 81% in 2001 and 74% in 2000. Average daily trading revenue was
$2.5 million in 2002, compared with $4.4 million in 2001 and $3.5 million in
2000.
The trading revenue and RMU backtesting graph below compares the 2002
actual daily trading revenue with the previous day's RMU measures. As indicated
previously, these VaR measures are derived from statistically defined
probability-based models that use CIBC's market positions and prior market
correlations and volatilities under normal market conditions.
--------------------------------------------------------------------------------
RMU BY RISK TYPE - TRADING PORTFOLIO
2002 2002 2001 2001
$ millions Year-end Average Year-end Average
--------------------------------------------------------------------------------
Interest rate risk $ 7.32 $ 8.47 $ 6.14 $ 7.05
Credit spread risk 5.65 5.79 6.72 8.50
Equity risk 9.29 8.34 8.33 9.81
Foreign exchange risk 0.53 0.76 0.87 0.81
Commodity risk 2.56 1.02 1.05 1.16
Diversification effect (10.00) (11.46) (11.95) (13.13)
--------------------------------------------------------------------------------
Total risk $ 15.35 $ 12.92 $ 11.16 $ 14.20
================================================================================
Frequency distribution of daily 2002 trading revenue
Frequency (days)
[THE FOLLOWING DATA WAS REPRESENTED AS A BAR CHART IN THE PRINTED MATERIAL]
--------------------------
Trading
revenue Frequency
($ millions) (days)
--------------------------
-22 0
-21 0
-20 0
-19 0
-18 0
-17 0
-16 0
-15 0
-14 0
-13 0
-12 1
-11 0
-10 2
-9 1
-8 1
-7 4
-6 6
-5 3
-4 7
-3 8
-2 6
-1 14
0 15
1 21
2 24
3 29
4 30
5 16
6 19
7 10
8 12
9 4
10 7
11 3
12 5
13 5
14 2
15 0
16 0
17 1
18 1
19 0
20 1
21 0
22 1
Backtesting of trading revenue vs. RMU
$ millions
[THE FOLLOWING DATA WAS REPRESENTED AS A BAR CHART IN THE PRINTED MATERIAL]
Date RMU Trading Revenue
----------- ------------ ---------------
1-Nov-01 (11.15) 4.71
2-Nov-01 (11.21) 4.33
5-Nov-01 (11.32) 5.49
6-Nov-01 (12.04) 2.65
7-Nov-01 (12.89) 12.93
8-Nov-01 (14.05) 3.08
9-Nov-01 (13.87) 3.47
12-Nov-01 (12.89) 1.86
13-Nov-01 (13.98) (0.43)
14-Nov-01 (13.31) (1.10)
15-Nov-01 (13.27) (1.43)
16-Nov-01 (12.29) 2.96
19-Nov-01 (12.56) 3.50
20-Nov-01 (13.01) 1.18
21-Nov-01 (13.23) 0.09
22-Nov-01 (12.67) 2.63
23-Nov-01 (12.56) (0.81)
26-Nov-01 (12.34) 7.07
27-Nov-01 (12.78) 5.71
28-Nov-01 (12.60) 4.22
29-Nov-01 (11.47) 4.63
30-Nov-01 (12.03) 21.41
3-Dec-01 (12.03) 12.99
4-Dec-01 (11.75) 3.88
5-Dec-01 (11.87) 6.25
6-Dec-01 (13.08) 0.24
7-Dec-01 (13.72) 3.07
10-Dec-01 (14.60) 11.22
11-Dec-01 (13.48) 4.29
12-Dec-01 (14.03) 3.45
13-Dec-01 (12.87) 2.38
14-Dec-01 (13.72) 12.82
17-Dec-01 (12.47) 0.22
18-Dec-01 (13.51) 9.34
19-Dec-01 (14.02) 5.62
20-Dec-01 (13.06) 9.45
21-Dec-01 (14.54) 11.10
24-Dec-01 (14.14) (1.10)
26-Dec-01 (14.29) 0.66
27-Dec-01 (15.10) (0.35)
28-Dec-01 (14.56) 13.45
31-Dec-01 (14.29) 5.89
2-Jan-02 (14.30) 5.86
3-Jan-02 (14.48) 5.16
4-Jan-02 (15.22) 4.35
7-Jan-02 (14.88) 4.25
8-Jan-02 (14.77) 6.55
9-Jan-02 (14.15) 2.51
10-Jan-02 (14.58) 8.67
11-Jan-02 (14.41) 11.22
14-Jan-02 (14.91) 8.18
15-Jan-02 (14.46) 17.14
16-Jan-02 (14.39) 3.26
17-Jan-02 (15.06) 3.88
18-Jan-02 (16.66) (3.06)
21-Jan-02 (15.23) 1.43
22-Jan-02 (14.92) 9.59
23-Jan-02 (13.90) 3.34
24-Jan-02 (14.62) 1.48
25-Jan-02 (15.48) (1.59)
28-Jan-02 (16.01) 2.70
29-Jan-02 (15.51) 7.08
30-Jan-02 (15.40) 2.73
31-Jan-02 (15.26) (2.11)
1-Feb-02 (15.14) 7.94
4-Feb-02 (14.93) 1.35
5-Feb-02 (15.39) 7.04
6-Feb-02 (15.32) (1.47)
7-Feb-02 (15.27) 7.13
8-Feb-02 (15.62) 5.71
11-Feb-02 (15.35) 5.92
12-Feb-02 (15.40) (0.21)
13-Feb-02 (15.20) 1.24
14-Feb-02 (12.38) (2.22)
15-Feb-02 (11.96) 0.99
18-Feb-02 (11.88) 6.37
19-Feb-02 (11.86) 2.91
20-Feb-02 (11.87) (1.94)
21-Feb-02 (11.97) 3.52
22-Feb-02 (12.14) 4.84
25-Feb-02 (12.53) 1.51
26-Feb-02 (12.39) 2.72
27-Feb-02 (12.81) (3.51)
28-Feb-02 (12.49) (10.50)
1-Mar-02 (13.70) 3.46
4-Mar-02 (13.35) (9.02)
5-Mar-02 (14.16) 5.04
6-Mar-02 (14.16) 2.80
7-Mar-02 (14.78) (4.03)
8-Mar-02 (15.90) (1.06)
11-Mar-02 (16.31) 1.06
12-Mar-02 (16.28) 2.80
13-Mar-02 (14.86) 7.65
14-Mar-02 (14.89) (6.09)
15-Mar-02 (15.20) 5.40
18-Mar-02 (14.22) 1.43
19-Mar-02 (15.34) 2.28
20-Mar-02 (15.27) 1.18
21-Mar-02 (15.19) (1.63)
22-Mar-02 (15.19) (1.51)
25-Mar-02 (15.66) 1.67
26-Mar-02 (14.24) 5.81
27-Mar-02 (13.91) 6.21
28-Mar-02 (14.00) 7.40
29-Mar-02 (14.42) (3.53)
1-Apr-02 (14.58) (0.02)
2-Apr-02 (15.25) 5.91
3-Apr-02 (14.55) 9.64
4-Apr-02 (14.37) 2.47
5-Apr-02 (12.59) 4.48
8-Apr-02 (11.73) (0.26)
9-Apr-02 (12.60) 0.32
10-Apr-02 (11.79) 0.70
11-Apr-02 (10.94) 1.82
12-Apr-02 (11.53) 9.38
15-Apr-02 (11.58) (1.60)
16-Apr-02 (11.59) (0.37)
17-Apr-02 (12.17) 9.86
18-Apr-02 (11.36) 2.49
19-Apr-02 (12.01) 10.12
22-Apr-02 (12.15) 2.41
23-Apr-02 (11.26) (0.62)
24-Apr-02 (12.00) 0.97
25-Apr-02 (10.88) 0.23
26-Apr-02 (10.63) 2.12
29-Apr-02 (10.82) 5.96
30-Apr-02 (10.46) (1.83)
1-May-02 (10.40) 0.16
2-May-02 (9.93) 4.13
3-May-02 (10.78) 5.85
6-May-02 (10.24) (3.51)
7-May-02 (10.94) 10.53
8-May-02 (11.03) 5.51
9-May-02 (11.00) 2.83
10-May-02 (10.77) 1.48
13-May-02 (11.45) 2.15
14-May-02 (12.15) (5.89)
15-May-02 (11.88) 6.84
16-May-02 (11.65) 0.62
17-May-02 (11.40) (7.39)
20-May-02 (12.08) 0.70
21-May-02 (12.99) 12.50
22-May-02 (12.25) 3.16
23-May-02 (12.66) 7.52
24-May-02 (13.17) 0.41
27-May-02 (12.38) 0.85
28-May-02 (12.56) 5.62
29-May-02 (11.73) 3.26
30-May-02 (11.56) 1.78
31-May-02 (11.31) 3.74
3-Jun-02 (10.77) 3.11
4-Jun-02 (11.13) 3.12
5-Jun-02 (10.84) 5.64
6-Jun-02 (10.44) 0.65
7-Jun-02 (10.65) (3.19)
10-Jun-02 (10.28) 3.35
11-Jun-02 (9.89) 1.51
12-Jun-02 (9.51) (4.09)
13-Jun-02 (9.01) 9.40
14-Jun-02 (9.46) (0.03)
17-Jun-02 (9.65) (3.63)
18-Jun-02 (9.03) 3.06
19-Jun-02 (8.67) 7.30
20-Jun-02 (9.76) (3.18)
21-Jun-02 (9.34) 3.02
24-Jun-02 (9.99) 1.02
25-Jun-02 (9.78) 4.67
26-Jun-02 (10.03) (6.85)
27-Jun-02 (10.25) 4.87
28-Jun-02 (9.75) 3.53
1-Jul-02 (9.53) (0.02)
2-Jul-02 (9.99) 1.79
3-Jul-02 (9.52) 3.04
4-Jul-02 (9.14) 7.58
5-Jul-02 (9.21) (6.29)
8-Jul-02 (8.50) 2.38
9-Jul-02 (8.36) 3.64
10-Jul-02 (8.62) (0.23)
11-Jul-02 (9.21) 2.66
12-Jul-02 (9.14) 6.37
15-Jul-02 (10.13) (7.25)
16-Jul-02 (10.98) 5.79
17-Jul-02 (10.75) 0.94
18-Jul-02 (9.62) 6.93
19-Jul-02 (8.36) (6.19)
22-Jul-02 (10.74) (7.45)
23-Jul-02 (11.41) (6.24)
24-Jul-02 (13.08) 8.62
25-Jul-02 (10.88) (1.00)
26-Jul-02 (12.55) (3.21)
29-Jul-02 (11.96) 3.06
30-Jul-02 (11.25) 3.26
31-Jul-02 (11.03) 4.85
1-Aug-02 (12.15) 19.09
2-Aug-02 (12.85) (2.71)
5-Aug-02 (12.95) (0.12)
6-Aug-02 (13.74) 3.60
7-Aug-02 (14.24) (10.14)
8-Aug-02 (14.44) 11.87
9-Aug-02 (13.93) 2.25
12-Aug-02 (13.27) 2.22
13-Aug-02 (13.31) (1.61)
14-Aug-02 (13.84) 1.93
15-Aug-02 (12.72) 3.86
16-Aug-02 (12.71) 3.52
19-Aug-02 (13.29) 3.36
20-Aug-02 (12.90) 0.65
21-Aug-02 (13.27) 4.52
22-Aug-02 (13.40) 2.84
23-Aug-02 (13.16) 10.96
26-Aug-02 (13.14) 3.44
27-Aug-02 (12.70) 0.29
28-Aug-02 (13.24) 6.68
29-Aug-02 (12.94) (0.75)
30-Aug-02 (12.81) 16.78
2-Sep-02 (12.41) (0.99)
3-Sep-02 (12.68) (4.02)
4-Sep-02 (13.14) 12.67
5-Sep-02 (14.04) (5.92)
6-Sep-02 (13.45) 8.56
9-Sep-02 (13.03) 2.13
10-Sep-02 (13.06) 2.88
11-Sep-02 (12.46) 7.01
12-Sep-02 (12.96) (4.95)
13-Sep-02 (13.74) 1.90
16-Sep-02 (14.19) 2.79
17-Sep-02 (13.49) 3.52
18-Sep-02 (15.25) 7.98
19-Sep-02 (15.86) (12.85)
20-Sep-02 (16.41) 4.95
23-Sep-02 (14.91) (4.71)
24-Sep-02 (15.38) (2.17)
25-Sep-02 (15.12) 13.38
26-Sep-02 (15.10) (8.08)
27-Sep-02 (15.07) 1.99
30-Sep-02 (15.08) 11.77
1-Oct-02 (15.24) 6.67
2-Oct-02 (14.63) 1.81
3-Oct-02 (15.34) (2.12)
4-Oct-02 (14.19) (0.13)
7-Oct-02 (14.19) 0.39
8-Oct-02 (14.35) (4.11)
9-Oct-02 (14.00) 0.62
10-Oct-02 (14.57) 1.01
11-Oct-02 (14.16) 2.06
14-Oct-02 (14.11) 0.00
15-Oct-02 (14.17) 7.00
16-Oct-02 (13.57) 4.96
17-Oct-02 (13.32) (4.93)
18-Oct-02 (12.55) 2.52
21-Oct-02 (13.24) 5.55
22-Oct-02 (13.17) (1.27)
23-Oct-02 (13.16) 2.20
24-Oct-02 (13.96) 1.58
25-Oct-02 (14.53) (5.09)
28-Oct-02 (14.78) (2.24)
29-Oct-02 (14.22) (6.69)
30-Oct-02 (15.94) 1.68
31-Oct-02 (16.07) (7.24)
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62
CIBC ANNUAL REPORT 2002
MANAGEMENT'S DISCUSSION AND ANALYSIS
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Non-trading activities
CIBC manages market risks, including interest rate, foreign exchange and equity
exposures arising from the retail customer banking business, merchant banking
portfolios and other non-trading activities. Foreign exchange exposures arising
from structural on-balance sheet assets and liabilities and from investments in
foreign operations are also included in non-trading activities.
The RMU by risk type table below shows the mix of non-trading risks by
type of risk and aggregate risk. These risks are interrelated and, consequently,
are only additive after taking into account the diversification effect that
reflects the increases of risk due to portfolio effects among the different
positions. During 2002, risk levels were higher than in 2001, with increases
concentrated primarily in interest rate risk. Despite reduced directional
positions in the asset-liability gap, volatile market conditions led to sharply
higher risk parameters, reflected in higher RMU.
Due to the illiquid nature of many of the merchant banking investments,
CIBC does not employ overnight RMU as a risk measure for these portfolios. In
addition to being measured and monitored in notional terms, CIBC subjects the
portfolio to scenario analysis which simulates potential losses over a one-year
timeframe.
Non-trading interest rate risk consists primarily of risk inherent in
asset-liability management activities and the activities of foreign and domestic
subsidiaries. Interest rate risk results from differences in the maturities or
repricing dates of assets and liabilities, both on- and off-balance sheet, as
well as from embedded optionality in retail products. This optionality arises
predominantly from the prepayment exposures of mortgage products, mortgage
commitments and some GIC products with early redemption features. A variety of
cash instruments and derivatives, principally interest rate swaps, futures and
options, are used to manage and control these risks. Derivatives are used to
modify the interest rate characteristics of related balance sheet instruments
and to hedge anticipated exposures.
--------------------------------------------------------------------------------
RMU BY RISK TYPE - NON-TRADING PORTFOLIO
2002 2002 2001 2001
$ millions Year-end Average Year-end Average
--------------------------------------------------------------------------------
Interest rate risk $57.76 $65.41 $50.91 $50.12
Credit spread risk 3.86 2.15 1.52 1.61
Equity risk 3.82 2.91 2.11 8.07
Foreign exchange risk 0.98 0.64 0.64 0.49
Diversification effect (9.03) (5.87) (4.52) (6.16)
--------------------------------------------------------------------------------
Total risk $57.39 $65.24 $50.66 $54.13
================================================================================
CIBC's total non-trading interest rate risk exposure, as at October 31, 2002, is
included in Note 12 to the consolidated financial statements. On- and
off-balance sheet assets and liabilities are reported in timeframes based on the
earlier of their contractual repricing date or maturity date. It should be noted
that this reported interest rate position presents CIBC's risk exposure only at
a point in time. Exposure can change depending on customer preference for
products and terms, including mortgage prepayment or other option exercise, and
the nature of CIBC's management of the various and diverse portfolios that
comprise the consolidated interest rate risk position. Given CIBC's consolidated
maturity and repricing portfolio profile at October 31, 2002, as adjusted for
estimated prepayments, an immediate 1% increase in interest rates across all
maturities would increase net income after taxes by approximately $48 million
over the next 12 months, and reduce common shareholders' equity as measured on a
present value basis by approximately $263 million.
Non-trading equity exposure arises primarily from merchant banking
activities, as well as from equity-linked retail products (equity-linked GICs),
including embedded optionality, and associated hedges. A variety of cash
instruments and derivatives, including equity swaps, futures and options, are
used to manage and control these risks.
Non-trading foreign exchange risk of the CIBC consolidated balance sheets
arises primarily from structural on-balance sheet assets and liabilities and
from investments in foreign operations. CIBC's approach to the structural
foreign exchange position is designed to ensure this exposure is minimized.
CIBC offers and originates a broad array of retail products with various
market risk characteristics. Changes in market conditions, customer behaviour
and competitive market pressures can have an impact on the market risk exposure
and retail margins earned from these products.
CIBC has $3.1 billion in the active as well as strategic merchant banking
investments. The active portfolio consists of $2.5 billion of debt, equity and
private equity fund investments. This portfolio was down 23% from the prior year
due to a combination of write-downs and efforts to reduce exposures to this type
of investment. The portfolio is diversified from an industry perspective with
over 13 industry groups.
Merchant banking portfolio industry diversification(1)
[THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
2002
Industrial growth and services 20.7%
Hardware and software 16.1%
Telecommunications and cable 11.1%
Services 9.6%
Healthcare 9.0%
Retail 7.8%
Financial services 5.2%
Other 4.9%
Media and publishing 4.8%
Resource-based industries 3.1%
Utilities 2.8%
Real estate 2.6%
Entertainment 2.3%
(1) The industry classifications represent those of the debt and equity
securities, including the underlying investees of the fund investments.
Non-exchange traded commodity derivatives
CIBC controls and manages its commodity derivatives risk through its RMU
methodology as described earlier. The following table indicates the fair value
based upon maturity of non-exchange traded commodity contracts as at October 31,
2002.
$ millions Positive Negative Net
--------------------------------------------------------------------------------
Maturity less than 1 year $ 254 $ (276) $ (22)
Maturity 1 - 3 years 277 (331) (54)
Maturity 4 - 5 years 41 (22) 19
Maturity in excess of 5 years 413 (435) (22)
--------------------------------------------------------------------------------
Gross fair value of contracts $ 985 $(1,064) $ (79)
================================================================================
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63
CIBC ANNUAL REPORT 2002
MANAGEMENT'S DISCUSSION AND ANALYSIS
--------------------------------------------------------------------------------
During the year, CIBC had exposure to energy and other commodity derivatives.
Wherever possible, CIBC independently verifies the fair value of the positions
using third-party pricing sources. In the event that these are not available,
independently approved modelling techniques or other valuation methodologies are
utilized. The table below summarizes the methodology for independently checking
the fair value of the commodity exposures at October 31, 2002.
---------------------------------------------------------------------------------------------------------------------------------
SOURCES OF FAIR VALUE
Gross fair value of contracts
------------------------------------------------------
Maturity Maturity in
less than Maturity Maturity excess of
$ millions, as at October 31, 2002 1 year 1 - 3 years 4 - 5 years 5 years Total
---------------------------------------------------------------------------------------------------------------------------------
Sources of fair value
Quoted prices from external sources $(22) $(54) $ 19 $ 31 $(26)
Prices based upon models or other valuation methodologies -- -- -- (53) (53)
---------------------------------------------------------------------------------------------------------------------------------
$(22) $(54) $ 19 $(22) $(79)
=================================================================================================================================
--------------------------------------------------------------------------------
MANAGEMENT OF LIQUIDITY RISK
CIBC's liquidity risk framework is designed to ensure the availability of
sufficient funds to honour financial commitments in the most cost-effective
manner possible.
CIBC's approach to managing liquidity exposure is based upon a
comprehensive framework, comprising infrastructure, policies and standards
supporting measurement, monitoring and control techniques. Liquidity risk is
actively managed with emphasis on exposure identification, containment and
mitigation.
Infrastructure
Global liquidity management is the responsibility of TBRM. Major regional
funding centres and operating subsidiaries in North America, Europe and Asia
provide regional liquidity management. Daily monitoring is undertaken to ensure
compliance with approved liquidity guidelines and limits. Measurement systems
and liquidity reports are independently monitored and reviewed.
Policies and standards
CIBC's liquidity policy framework is reviewed and approved annually by the
Risk Management Committee of the board. The policy establishes guidelines and
limits on minimum liquid asset inventories, funding diversification measures and
net cash outflows in both Canadian dollars and foreign currencies.
As CIBC operates in a variety of jurisdictions, the funding process is
designed to ensure compliance with all governing regulatory restrictions on the
inter-company transfer of funds within the CIBC group and to ensure appropriate
liquidity in each region.
Measurement, monitoring and control
CIBC has measurement systems to monitor both actual and anticipated inflows and
outflows of funds on a daily basis from on- and off-balance sheet exposures.
These measurement systems generate detailed liquidity reports that are integral
to the containment of liquidity risk exposure through the use of a prudent
distribution of liability maturities to ensure net cash outflows in any given
time horizon are manageable.
CIBC's liquidity management framework incorporates the use of scenario
analyses, designed to measure the potential impact of abnormal market conditions
on the liquidity risk profile. These scenarios are intended to enhance insight
into potential liquidity risk exposures under extreme market conditions.
Contingency plans for responding to liquidity stress events are reviewed, tested
and updated regularly.
CIBC further mitigates liquidity risk exposure through the maintenance of
segregated term funded pools of higher-quality liquid assets. These liquid
assets may be sold or pledged as secured borrowings to provide a ready source of
cash. Balance sheet liquid assets as at October 31, 2002 include cash of $0.8
billion, securities of $65.3 billion and deposits with banks of $8.7 billion.
CIBC also had $16.0 billion of securities borrowed or purchased under resale
agreements as at October 31, 2002.
In the course of CIBC's regular business activities, certain assets are
pledged as part of collateral management, including repurchase agreements and
security lending. Pledged asset requirements as at October 31, 2002 totalled
$26.8 billion, as outlined in Note 27 to the consolidated financial statements.
A broad base of retail and wholesale funding sources is used to meet
consolidated liquidity needs. CIBC's ability to generate core deposits provides
a stable and secure source of funding. As at October 31, 2002, Canadian dollar
deposits from individuals totalled $61.8 billion.
As at October 31, 2002, CIBC had outstanding $103.8 billion of unsecured
wholesale term debt sourced through various funding instruments and term
profiles as market conditions warranted.
CIBC's access to wholesale funding sources and the cost of that funding is
linked to its credit rating. During 2002, CIBC's credit rating was placed under
review by both Moody's Investors Service and Standard & Poor's credit rating
agencies. Moody's review reaffirmed both the short- and long-term credit ratings
as P-1 and Aa3, respectively. In September 2002, Standard & Poor's rating agency
downgraded CIBC's long-term credit rating by one notch from "AA minus" to "A
plus," revising the outlook to "stable" from "negative." It also lowered the
short-term rating from A-1+ to A-1. As a result of this rating change, the cost
of wholesale funding along with collateral requirements for derivative
transactions has increased marginally.
In addition to the issuance of unsecured wholesale debt, CIBC has
securitized various financial assets, including credit card receivables,
residential and commercial mortgages, and business loans through special purpose
entities.
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64
CIBC ANNUAL REPORT 2002
MANAGEMENT'S DISCUSSION AND ANALYSIS
OFF-BALANCE SHEET ARRANGEMENTS INVOLVING SPECIAL PURPOSE ENTITIES (SPEs)
SPEs are an important part of the financial markets, providing market liquidity
by facilitating investors' access to specific portfolios of assets and risks.
SPEs may be formed as a corporation, partnership, limited liability company or
trust. In a securitization, an entity transfers assets to an SPE in exchange for
cash. An SPE may also buy certain pre-defined assets for cash in the marketplace
(where the seller may at times be CIBC). The SPE will fund these purchases by
issuing ownership interests and debt securities in the form of commercial paper
and other evidence of indebtedness to third-party investors. SPEs can be
structured to be bankruptcy remote, thereby insulating investors from the impact
of the creditors of other entities, including the asset seller. Investors can
benefit from, and have recourse to, the SPE assets such as a cash collateral
account and over-collateralization in the form of excess assets or a liquidity
facility. Accordingly, the SPE may obtain a more favourable credit rating from
rating agencies than the transferor could obtain for its own debt issuance,
resulting in lower financing costs.
CIBC's activities with respect to SPEs are consistently undertaken within
a regulatory framework and are subject to standard regulatory review.
CIBC's involvement in SPEs takes one of three forms: securitization of
CIBC's own assets, securitization of third-party assets and other financial
transactions involving SPEs.
Securitization of CIBC's own assets
Securitizations are accounted for as asset sales only when CIBC surrenders
control of the transferred assets and receives consideration other than
beneficial interests in the transferred assets. Accounting regulations require a
determination to be made as to whether the SPE should be considered a subsidiary
of CIBC for the purpose of consolidation into CIBC's consolidated financial
statements. Where the criteria are met allowing recognition of the
securitization as a sale of assets permitting non-consolidation for financial
reporting purposes, CIBC records the sale. When such asset sales occur, CIBC may
retain interest-only strips, one or more senior or subordinated tranches of debt
and cash reserve accounts, all of which are considered "retained interests" in
the securitized assets. CIBC periodically reviews the carrying value of these
retained interests and when a decline in value is identified that is other than
temporary, the affected carrying amount is written down to its fair value. CIBC
continues to service all securitized assets after transfer, except for some
business loans, receiving servicing fees.
CIBC sells credit card receivables to SPEs on a non-recourse basis. CIBC
provides credit enhancement to the SPE using cash collateral accounts and
arranges for third parties to provide credit enhancements to the SPE through
letters of credit. CIBC retains some risk of loss with respect to the
receivables held by the SPE to the extent of its retained interests. CIBC's
credit card securitizations are revolving securitizations, with new credit card
receivables transferred to the SPE each period to replenish receivable amounts
as they are repaid. As at October 31, 2002, outstanding securitized credit card
receivables were $2.4 billion, while retained interests amounted to $43 million.
CIBC securitizes certain residential mortgage loans through the creation
of mortgage-backed securities and transfers to SPEs. CIBC continues to service
securitized residential mortgage loans and may be exposed to risks of the
transferred loans through retained interests. There are no expected credit
losses on the retained interests of securitized residential mortgages as they
are government guaranteed. As at October 31, 2002, outstanding securitized
residential mortgage loans were $3.2 billion and retained interests amounted to
$106 million.
CIBC securitizes commercial mortgages and other business loans, which in
addition to providing a source of liquidity and less expensive funding, may
reduce CIBC's credit exposure. As at October 31, 2002, outstanding securitized
commercial mortgage and business loans were $0.5 billion and retained interests
amounted to $21 million.
Securitization of third-party assets
CIBC administers several SPEs that purchase pools of third-party financial
assets, such as trade receivables, credit cards and mortgages. CIBC has no
ownership interest in these SPEs. Third parties that transfer assets to the SPEs
may continue to service the assets, and may be exposed to credit losses realized
on these assets through provision of collateral or other retained interests. The
SPEs may obtain credit enhancement, if any, from third-party providers. CIBC may
provide commercial paper back-stop liquidity facilities, securities
distribution, accounting, cash management and operations services. All fees
earned in respect of these activities are on a market basis.
Other financial transactions involving SPEs
CIBC provides a wide range of financial products, including mutual funds,
structured notes and other financial instruments for institutional and private
bank clients, including SPEs as counterparties, as well as retail customers.
These financial products are created, from time to time, using an SPE as issuer
or obligor of the financial products. CIBC may provide certain administrative
services and other financial facilities to the SPEs in exchange for market-rate
compensation. In all cases, CIBC would have nominal or no ownership interest in
such SPEs.
--------------------------------------------------------------------------------
MANAGEMENT OF OPERATIONAL RISK
Operational risk is inherent in all of CIBC's activities and is the potential
loss that could arise from failures in internal controls, which include people,
processes and systems. The resulting losses may be financial or non-financial.
Operational risk excludes potential losses that are directly attributable to
either credit or market risk.
CIBC's framework for the management of operational risk comprises
measurement, monitoring and control policies and standards that are designed to
promote a strong internal control structure within all levels of CIBC.
Infrastructure
Under CIBC's integrated internal control framework, businesses have
responsibility for the day-to-day management of operational risks. TBRM is
responsible for measuring, monitoring and controlling operational risk on a
CIBC-wide basis and also ensures that businesses are managing operational risk
in compliance with policies and standards that were approved by the OAC. CIBC's
infrastructure groups, such as the departments in TBRM, Legal and Compliance,
Technology and Operations, Finance, and Human
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65
CIBC ANNUAL REPORT 2002
MANAGEMENT'S DISCUSSION AND ANALYSIS
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Resources support the businesses in this regard. These groups establish other
internal control-related policies and standards, provide consultative and
advisory services, and perform governance activities. These include a
comprehensive self-assessment process encompassing monitoring of the
effectiveness of controls and reporting back to the board, the Audit Committee,
the SET and the OAC. CIBC's independent Internal Audit function plays an
important role in the governance process through regular reporting to the Audit
Committee, the SET and the OAC on the effectiveness of, and adherence to,
internal control policies and standards.
As previously discussed, the OAC directs the management of operational
risk and oversees the effectiveness of the CIBC internal control framework
within the parameters and strategic objectives established by the SET. The SET
is accountable to the board and the Audit Committee for maintaining a strong and
disciplined internal control environment that provides reasonable assurance of
prudent operational risk management and an effective internal control structure.
Policies and standards
CIBC has a comprehensive set of policies and standards that are designed to
measure, monitor and control operational risk associated with people, processes
and systems, and to promote a sound internal control structure across CIBC.
These policies and standards were formally approved by the OAC during 2002 and
form the basis for operational risk reporting by TBRM to the Audit Committee and
the OAC. Operational risks driven by people are mitigated through human resource
policies and practices, including employee training and development,
comprehensive recruiting and screening programs and selection criteria, as well
as formal compliance and ethical codes of conduct and corporate security
programs. Operational risks driven by processes are mitigated through procedural
controls, such as requirements for clear delegation of authority and
accountability, as well as segregation of incompatible duties, documentation of
policies and standards, safeguarding and record-keeping controls and the
provision of timely, accurate and complete management information for
measurement, monitoring and control purposes. Operational risks driven by
systems are managed through controls over systems development and change
management, as well as through information security programs and system access
controls. As a result, people, processes and systems are managed so that
operational risk is controlled at acceptable levels, given CIBC's strategy and
the environment in which it operates.
While operational risk can be minimized through a sound internal control
structure, it is inherent in CIBC's businesses and, therefore, can never be
fully eliminated. In the event that an operational risk materializes into a
loss, CIBC will seek to cover the loss through earnings, capital and, for
certain types of losses, insurance. Furthermore, the risks of catastrophic loss
are covered through risk avoidance or control programs that reduce the
probability or potential severity of such losses to within acceptable corporate
parameters. For example, CIBC maintains a comprehensive corporate insurance
program to protect its earnings from potential unexpected high-severity losses
arising from criminal activity, property loss or damage, and liability
exposures.
CIBC also has in place a global business continuity management program to
ensure that its key business functions will continue and normal operations will
be restored effectively and efficiently in the event of a major unexpected
disaster affecting CIBC's operations. The business continuity plan is regularly
updated and was thoroughly tested in each of Canada, the U.K. and the U.S. in
September, October and November 2002, respectively, during comprehensive
simulation exercises. CIBC's insurance, business continuity management and other
related programs are overseen by TBRM.
Measurement, monitoring and control
CIBC has developed and continues to enhance an operational risk measurement
methodology with a desire to receive regulatory approval to attribute
operational risk capital using the Advanced Measurement Approach, effective
November 1, 2006, in respect of the BIS Capital Accord proposals. This
measurement methodology uses historical loss information, where available,
supplemented by scenario analyses, to produce loss event frequencies and
severities. These loss event frequencies and severities (or combined expected
losses) are used to determine the operational risk component of economic
capital. In line with the BIS proposals, CIBC's operational risk measurement
methodology attributes operational risk capital to expected losses arising from
the following event types:
o Legal liability (in regard to third parties, clients and employees)
o Client restitution
o Regulatory, compliance and taxation violations
o Loss or damage to assets
o Transaction processing errors
o Theft, fraud and unauthorized activities
--------------------------------------------------------------------------------
MANAGEMENT OF REGULATORY CAPITAL
Capital strength
Capital strength is important to protect CIBC's depositors and creditors from
risks inherent in CIBC's various businesses, to enable CIBC to take advantage of
attractive business opportunities, and to maintain a favourable credit standing.
Infrastructure
TBRM is responsible for ensuring that CIBC remains strongly capitalized and for
managing capital in CIBC's legal entities, as well as the consolidated bank.
This includes managing the issuance and purchase of common shares, as well as
the issuance, purchase, redemption or conversion of preferred shares and
subordinated indebtedness, in order that CIBC's capital is structured in the
most effective manner.
Policies and standards
The Board of Directors approves CIBC's capital management policies and capital
plan on an annual basis. These policies set CIBC's capital levels to meet or
exceed regulatory requirements specified in guidelines issued by OSFI, market
expectations for capital strength and internal assessments of economic capital.
Internal assessments, which are determined using risk measurement techniques,
are outlined as part of the "Management of Risk and Balance Sheet Resources"
section.
Management of capital resources
CIBC manages its capital level and capital mix within its policy framework to
optimize shareholder value. Consistent with these policies, CIBC repurchases
common shares, redeems expensive preferred shares and issues new ones at lower
cost, and reduces its levels of less important debenture
--------------------------------------------------------------------------------
66
CIBC ANNUAL REPORT 2002
MANAGEMENT'S DISCUSSION AND ANALYSIS
--------------------------------------------------------------------------------
capital, while still maintaining regulatory capital ratios in excess of targets
stipulated by the OSFI.
In the past three years, CIBC has repurchased a total of 49.1 million
common shares for aggregate consideration of $2,252 million. Net new issues of
preferred shares totalled $1,200 million during the same period. Some of the new
preferred shares replaced expensive existing issues which were redeemed early,
while others replaced some of the repurchased common shares. The cumulative
effect of these activities has been to increase the proportion of less costly
preferred shares in CIBC's Tier 1 capital.
CIBC has reduced its debenture capital over the past three years through a
combination of maturities, early redemptions, exchanges for an equivalent amount
of senior debt, and market repurchases. Total debenture reductions during this
period amounted to approximately $1,250 million.
These capital management tools remain available to CIBC, and domestic and
international markets are regularly monitored for attractive opportunities to
implement capital initiatives. Moreover, CIBC's capital needs are continually
re-evaluated on the basis of changing business and market circumstances.
Measurement, monitoring and control
Regulatory capital requirements are determined in accordance with guidelines
issued by OSFI. These requirements are explained in Note 20 to the consolidated
financial statements.
The components of CIBC's regulatory capital are shown in the accompanying
table. Tier 1 capital decreased by $712 million during 2002, reflecting the
impact of common share repurchases, increased goodwill, restructuring charges
and credit losses, partly offset by the issue of $800 million in preferred
shares. Tier 2 capital decreased by $104 million from 2001, which in part
reflects the redemption of debenture issues. Deductions from total capital
increased by $488 million, primarily due to the restructuring of CIBC's
Caribbean retail, corporate and international banking operations.
In April 2002, CIBC issued $400 million of non-cumulative Class A
Preferred Shares Series 25. A portion of the proceeds of these preferred shares,
while structurally qualifying as Tier 1 capital, is temporarily reported as Tier
2 capital because CIBC's total Tier 1 qualifying preferred shares exceed the
limit of 25% of net Tier 1 capital prescribed by OSFI.
As at October 31, 2002, CIBC's Tier 1 ratio was 8.7% and the total capital
ratio was 11.3%. These ratios are in excess of OSFI's target Tier 1 and total
capital ratios of 7% and 10%, respectively. The capital ratio targets presented
on page 5 are established on the basis of a number of factors, including CIBC's
standing among its peers, and the expectations of rating agencies and investors.
Financial institutions must also meet a leverage ratio (or assets-to-capital
multiple) test. CIBC's leverage ratio was 18.3 times capital, within the bank's
permitted maximum of 23 times capital.
REGULATORY CAPITAL AND CAPITAL RATIOS
$ millions, as at October 31 2002 2001 2000
--------------------------------------------------------------------------------
Tier 1 capital
Common shares $ 2,842 $ 2,827 $ 2,868
Contributed surplus 26 -- --
Retained earnings 6,377 6,774 6,625
Non-cumulative preferred shares 2,759 2,299 1,876
Non-controlling interests in
subsidiaries 111 249 248
Goodwill (1,078) (400) (110)
--------------------------------------------------------------------------------
11,037 11,749 11,507
--------------------------------------------------------------------------------
Tier 2 capital
Perpetual debentures 594 638 614
Preferred shares - other 329 -- --
Other debentures (net
of amortization) 2,900 3,259 3,672
General allowance for credit losses(1) 1,107 1,137 997
--------------------------------------------------------------------------------
4,930 5,034 5,283
--------------------------------------------------------------------------------
Total Tier 1 and Tier 2 capital 15,967 16,783 16,790
Securitization-related deductions (174) (396) (308)
Investments in unconsolidated
subsidiaries and other
substantial investments (1,497) (787) (428)
--------------------------------------------------------------------------------
Total capital available for regulatory
purposes $ 14,296 $ 15,600 $ 16,054
================================================================================
Total risk-weighted assets $126,535 $129,938 $132,893
================================================================================
Regulatory capital ratios
Tier 1 capital 8.7% 9.0% 8.7%
Total capital 11.3% 12.0% 12.1%
================================================================================
Leverage ratio 18.3x 17.7x 16.3x
================================================================================
(1) The maximum amount of general allowances for credit losses eligible for
inclusion in Tier 2 capital was increased to 0.875% of risk-weighted
assets effective October 31, 2001.
--------------------------------------------------------------------------------
67
CIBC ANNUAL REPORT 2002
MANAGEMENT'S DISCUSSION AND ANALYSIS
--------------------------------------------------------------------------------
RISK-WEIGHTED ASSETS
Risk-weighted assets are calculated in accordance with guidelines issued by
OSFI, as explained in Note 20 to the consolidated financial statements.
As shown in the table below, CIBC's risk-weighted assets were $126.5
billion as at October 31, 2002.
Changes in regulatory capital requirements
In 1999, the BIS launched a major review of the capital requirements as a result
of many changes that have taken place in the financial marketplace. This review
will address more sophisticated techniques for measuring credit risk and will
introduce a capital charge for operational risk. For a description of CIBC's
initiatives regarding BIS requirements for operational risk, see the "Management
of operational risk" section. The expected implementation date for the new BIS
requirements is November 1, 2006.
-----------------------------------------------------------------------------------------------------------
RISK-WEIGHTED ASSETS
Risk-weighted amounts
2002 ------------------------------
$ millions, as at October 31 Amount 2002 2001 2000
-----------------------------------------------------------------------------------------------------------
On-balance sheet assets
Cash resources $ 9,512 $ 1,027 $ 1,685 $ 1,550
Securities issued or guaranteed by Canada, provinces,
municipalities, OECD banks and governments 38,994 426 810 313
Other securities 26,298 5,049 4,433 4,776
Loans to or guaranteed by Canada, provinces, territories,
municipalities, OECD banks and governments 5,709 504 327 416
Mortgage loans 70,407 22,570 19,501 16,699
Other loans 76,973 61,397 63,997 63,785
Acceptances 6,848 5,557 7,485 8,935
Other assets 38,552 7,832 7,463 6,217
-----------------------------------------------------------------------------------------------------------
Total on-balance sheet assets $ 273,293 $104,362 $105,701 $102,691
===========================================================================================================
Off-balance sheet instruments
Credit-related arrangements
Lines of credit $ 97,992 $ 7,601 $ 9,121 $ 11,640
Guarantees and letters of credit 9,226 4,758 4,620 5,664
Securities lent 17,510 133 242 354
Other 367 367 310 293
-----------------------------------------------------------------------------------------------------------
125,095 12,859 14,293 17,951
Derivatives 1,314,021 5,476 6,072 5,583
-----------------------------------------------------------------------------------------------------------
Total off-balance sheet instruments $1,439,116 $ 18,335 $ 20,365 $ 23,534
-----------------------------------------------------------------------------------------------------------
Total risk-weighted assets before adjustments for market risk $122,697 $126,066 $126,225
Add: Market risk for trading activity(1) 3,838 3,872 6,668
-----------------------------------------------------------------------------------------------------------
Total risk-weighted assets $126,535 $129,938 $132,893
===========================================================================================================
(1) Under the BIS 1998 Capital Accord, effective January 1998, trading assets
are subject to market risk calculations.
--------------------------------------------------------------------------------
68
CIBC ANNUAL REPORT 2002
MANAGEMENT'S DISCUSSION AND ANALYSIS
--------------------------------------------------------------------------------
Business Environment
--------------------------------------------------------------------------------
ECONOMIC
Over the past year, the North American economy experienced an uneven recovery
from the 2001 recession. Financial markets have continued to wrestle with the
prior year's lingering damage to investor confidence, corporate profits and
balance sheets, and significant uncertainties remain about the durability of the
emerging recovery.
In the U.S., spurred on by last year's aggressive combination of income
tax and interest rate cuts, consumer spending allowed GDP to return to positive
growth, beginning in the fourth quarter of 2001.
To date, however, the U.S. economy has failed to gather sufficient,
sustained momentum to see a return to health in corporate hiring. The missing
ingredient in the recovery has been business capital spending, which continued
to decline through the first half of 2002.
Canada's economy has fared better, enjoying vigorous job creation in 2002.
The gap with the U.S. was, in part, owing to a reduced weighting in technology
industries and a greater weight in energy and automotive products. Growth in
housing and consumer spending supported CIBC's retail businesses. As a result of
Canada's lighter 2001 downturn and superior 2002 recovery, the Bank of Canada
took steps to reduce monetary stimulus, raising overnight interest rates by 75
basis points over the period April to July 2002.
Longer-term Canadian interest rates, however, did not rise in step, as
through September, investors continued to shift out of stocks into government
bonds, responding to a series of earnings disappointments. The scale of the
equity correction also reflected the high valuations reached during the late
1990s boom, a reduction in longer-term growth expectations for technology, and
accounting scandals that undermined investor confidence. Global uncertainties,
including threats of terrorism or war in the Middle East, also hurt equity
performance. The equity downturn had an adverse impact on related businesses of
CIBC Wealth Management and CIBC World Markets, and led to write-downs in the
merchant banking portfolio.
Corporate debt markets experienced a rise in both downward ratings
adjustments and defaults, particularly in the highly leveraged
telecommunications sector. As a result, the interest rate spread between
corporate bonds and government issues widened markedly. The deterioration in
credit quality had an adverse impact on CIBC's provisions for credit losses.
Stock Price Index
TSX 300 & Dow Jones 30
[THE FOLLOWING DATA WAS REPRESENTED AS A LINE CHART IN THE PRINTED MATERIAL]
TSX 300 Dow Jones 30 S&P 500
Jan-00 8481.11 10940.53 1394.46
Feb-00 9128.99 10128.31 1366.42
Mar-00 9462.39 10921.92 1498.58
Apr-00 9347.61 10733.91 1452.43
May-00 9251.99 10522.33 1420.60
Jun-00 10195.45 10447.89 1454.60
Jul-00 10406.31 10521.98 1430.83
Aug-00 11247.91 11215.10 1517.68
Sep-00 10377.92 10650.92 1436.51
Oct-00 9639.57 10971.14 1429.40
Nov-00 8819.92 10414.49 1314.95
Dec-00 8933.68 10786.85 1320.28
Jan-01 9321.87 10887.36 1366.01
Feb-01 8078.72 10495.28 1239.94
Mar-01 7608.00 9878.78 1160.33
Apr-01 7946.63 10734.97 1249.46
May-01 8161.87 10911.94 1255.82
Jun-01 7736.35 10502.40 1224.42
Jul-01 7689.69 10522.81 1211.23
Aug-01 7399.22 9949.75 1133.58
Sep-01 6838.56 8847.56 1040.94
Oct-01 6885.70 9075.14 1059.78
Nov-01 7425.65 9851.56 1139.45
Dec-01 7688.41 10021.50 1148.08
Jan-02 7648.49 9920.00 1130.20
Feb-02 7637.50 10106.13 1106.73
Mar-02 7851.47 10403.94 1147.39
Apr-02 7663.39 9946.22 1076.92
May-02 7656.13 9925.25 1067.14
Jun-02 7145.61 9243.26 989.82
Jul-02 6605.42 8736.59 911.62
Aug-02 6611.95 8663.50 916.07
Sep-02 6180.42 7591.93 815.28
Oct-02 6248.79 8397.03 885.76
Mortgage Rates and existing home sales
[THE FOLLOWING DATA WAS REPRESENTED AS A LINE CHART IN THE PRINTED MATERIAL]
Mortgage
Canada rates
Existing Home Sales(1) (one year)
Units (%)
Nov-00 28925 7.90
Dec-00 26039 7.70
Jan-01 28572 7.40
Feb-01 29114 7.20
Mar-01 29094 6.70
Apr-01 29553 6.80
May-01 31587 6.70
Jun-01 31633 6.70
Jul-01 31267 6.45
Aug-01 32807 6.20
Sep-01 30837 5.45
Oct-01 32773 4.90
Nov-01 35460 4.60
Dec-01 37759 4.60
Jan-02 41732 4.55
Feb-02 38864 4.55
Mar-02 35508 5.30
Apr-02 36736 5.40
May-02 34097 5.55
Jun-02 32156 5.55
Jul-02 32431 5.35
Aug-02 33489 5.35
Sep-02 34949 5.30
Oct-02 36041 5.30
Outlook
Canadian economic growth is expected to ease to a more moderate pace in 2003. A
weaker U.S. export market, falling global commodity prices, and the completion
of a domestic inventory buildup will all contribute to a slowdown in GDP growth
next year. Economic growth is expected to slow down to below 3% over the first
half of 2003, with growth gradually accelerating over the latter half of next
year.
Consumer price index inflation has increased significantly due to the
distortions caused by the events of September 11 and falling oil prices last
year. However, inflation is expected to fall off markedly thereafter, and should
be running at no more than 2% by the end of next year.
U.S. economic prospects look somewhat less favourable, given the lack of
consumer spending support from job creation and excess capacity in manufacturing
and office space. While next year's U.S. GDP growth is expected to closely track
this year's estimated 2 1/2% advance, the U.S. jobless rate is expected to
increase further next year.
Due to continuing difficulties in North American equity markets and slow
growth in the U.S. economy, the Federal Reserve Board cut interest rates half a
point in early November 2002, with further cuts still possible in early 2003.
While the Treasury yield curve is likely to remain extraordinarily steep,
long-term interest rates are nevertheless expected to decline further.
Stronger economic growth in Canada, as well as somewhat different monetary
policy objectives at the Bank of Canada, stand in the way of Canadian short-term
interest rates following U.S. rates down.
The wider gap between Canadian and U.S. interest rates should be
supportive for a gradual appreciation of the Canadian dollar, particularly once
geopolitical uncertainties pass.
Index of consumer confidence(2)(3)
[THE FOLLOWING DATA WAS REPRESENTED AS A LINE CHART IN THE PRINTED MATERIAL]
(Calendar quarter)
Q1 2000 116.2832
Q2 2000 118.925
Q3 2000 119.2013
Q4 2000 109.4623
Q1 2001 109.3816
Q2 2001 113.1
Q3 2001 108
Q4 2001 111
Q1 2002 126.7
Q2 2002 128.4
Q3 2002 123.7
(1) Source: The Canadian Real Estate Association
(2) Based on data available at completion of annual report.
(3) Source: The Conference Board of Canada
--------------------------------------------------------------------------------
69
CIBC ANNUAL REPORT 2002
MANAGEMENT'S DISCUSSION AND ANALYSIS
--------------------------------------------------------------------------------
REGULATORY
CIBC is subject to complex and changing legal and regulatory environments in
Canada and other jurisdictions. The principal regulators include the federal,
provincial and territorial governments in Canada and the governments of the U.S.
and other countries where CIBC conducts business. Securities regulators such as
the Canadian Securities Administrators and the U.S. Securities and Exchange
Commission (SEC); stock exchanges such as the Toronto and the New York stock
exchanges; and other self-regulatory organizations also regulate CIBC's
activities.
During the last year, there have been many Canadian and U.S. developments
affecting corporate governance, corporate accountability and corporate
disclosure. Numerous reports, proposals, guidelines and new laws have been
announced by the Canadian and U.S. securities regulatory authorities,
self-regulatory organizations, accounting organizations and committees
comprising industry specialists.
One of the most significant developments affecting CIBC is the U.S.
Sarbanes-Oxley Act signed into law on July 30, 2002. The Act revises many U.S.
securities laws governing director and officer responsibilities and corporate
disclosure, and increases penalties for violations of securities laws. Many
provisions of the Act apply to CIBC as a non-U.S. public company with securities
listed on a U.S. exchange. The internal controls, processes and policies
established by CIBC's management and the Board of Directors facilitate CIBC's
compliance, and are assessed, reviewed and enhanced on an ongoing basis in light
of operating, risk management, and regulatory requirements.
In Canada, CIBC has long been subject to the bylaws of the Canada Deposit
Insurance Corporation (CDIC) that require adherence to standards of sound
business and financial practices intended to ensure that member institutions are
prudently managed. CIBC has a detailed management self-assessment process to
evaluate adherence to these standards. CIBC makes an annual attestation to CDIC
signed by the Chairman and Chief Executive Officer and by the Chief
Administrative Officer. A supporting resolution of the board is also provided to
CDIC. The frequency of reports to CDIC depends on the annual rating received by
CIBC under the CDIC Differential Premiums Bylaw.
The Government of Canada passed into law major amendments to the
legislation affecting federally regulated financial institutions in October
2001. These amendments also affected certain regulatory agencies, the payments
system and the deposit insurance system. Under the amended laws, the Financial
Consumer Agency of Canada was created to ensure compliance with consumer
provisions of federal financial legislation, as well as to monitor industry
self-regulatory codes, promote consumer awareness and respond to consumer
enquiries. Regulations have been written on many areas of this new law and it is
expected that additional regulations will be issued. On October 24, 2002, the
Deputy Prime Minister and Finance Minister, and the Secretary of State
(International Financial Institutions) requested that the chairs of the House of
Commons Standing Committee on Finance and the Standing Senate Committee on
Banking, Trade and Commerce provide the government with the committees' views on
the "major considerations that should apply in determining the public interest"
with respect to bank merger reviews.
Legislative changes in other countries, as well as their examination,
regulatory and supervisory practices and decisions, also exert considerable
influence over CIBC.
Comprehensive controls, policies and procedures are in place to facilitate
compliance with applicable laws and regulations by CIBC and its subsidiaries,
their directors, management and employees. Management is responsible for ongoing
compliance with such laws and regulations, and CIBC's Compliance and Internal
Audit functions each have a mandate to assess and report on the performance of
management in discharging its governance responsibilities.
--------------------------------------------------------------------------------
RELATED-PARTY PROCEDURES
The Bank Act contains related-party rules and other self-dealing provisions.
Generally, these rules are designed to prevent related parties from misusing
their position for personal benefit, potentially putting a bank at risk from
such transactions.
CIBC's senior management has established written procedures to identify
related parties and to maintain a list of related parties. CIBC's related
parties include directors, certain senior officers, their spouses, minor
children and entities controlled by any of these parties.
CIBC's related-party procedures were initially reviewed by CIBC's Risk
Management and Conduct Review Committee (renamed the Risk Management Committee
in June 2002) of the board. In June 2002, the Audit Committee assumed the
responsibility of reviewing related-party transactions. The procedures set out
how related-party transactions are approved and monitored, and where required,
reported to the Audit Committee for review.
--------------------------------------------------------------------------------
ACCOUNTING AND REPORTING DEVELOPMENTS
Compliance with U.S. generally accepted accounting principles
As a Canadian company, CIBC's consolidated financial statements are prepared in
accordance with Canadian generally accepted accounting principles (GAAP).
Effective November 13, 1997, CIBC was listed on the New York Stock
Exchange. Accordingly, CIBC's financial statements include additional note
disclosure in accordance with U.S. GAAP. To a large extent, Canadian and U.S.
GAAP are consistent. However, in those instances where Canadian and U.S. GAAP
are not consistent, Canadian GAAP prevails. Material differences are explained
and quantified in Note 28 to the consolidated financial statements.
Future accounting policy changes
The impact of recently issued Canadian accounting standards to be implemented in
the future is explained in Note 29 to the consolidated financial statements. The
impact of recently issued U.S. accounting standards to be implemented in the
future is explained in Note 28 to the consolidated financial statements.
--------------------------------------------------------------------------------
70
CIBC ANNUAL REPORT 2002
--------------------------------------------------------------------------------
Consolidated Financial Results
================================================================================
================================================================================
CONTENTS
------------------------------------------------------------------------
72 Financial Reporting Responsibility of Management
73 Auditors' Reports to Shareholders
74 Consolidated Balance Sheets
75 Consolidated Statements of Income
76 Consolidated Statements of Changes in Shareholders' Equity
77 Consolidated Statements of Cash Flows
78 Notes to the Consolidated Financial Statements
119 Principal Subsidiaries
120 Supplementary Annual Financial Information
127 Quarterly Review
128 Ten-Year Statistical Review
================================================================================
CONSOLIDATED FINANCIAL RESULTS
--------------------------------------------------------------------------------
Financial Reporting Responsibility of Management
--------------------------------------------------------------------------------
The management of Canadian Imperial Bank of Commerce (CIBC) is responsible for
the preparation of the Annual Report, which includes the consolidated financial
statements. The consolidated financial statements have been prepared in
accordance with Canadian generally accepted accounting principles, including the
accounting requirements of the Superintendent of Financial Institutions, Canada
(OSFI) and, of necessity, contain items that reflect the best estimates and
judgments of management. All financial information appearing throughout the
Annual Report is consistent with that in the consolidated financial statements.
In meeting its responsibility for the reliability and integrity of the
consolidated financial statements, management has developed, and maintains, a
comprehensive system of internal controls designed to ensure that transactions
are properly authorized, assets are safeguarded and financial records are
reliable. The system focuses on the need for the employment and training of
qualified and professional staff, effective communication between management and
staff, and management guidelines and policies. The system also includes policies
on corporate conduct and a management organization philosophy that reflects
accountability within delineated areas of responsibility. The system of internal
controls is reviewed by the Audit Committee of the Board of Directors of CIBC.
The Chief Auditor and his staff review and report on CIBC's internal
controls, including computerized information system controls and security, the
overall control environment, and accounting and financial controls. Systems and
procedures to ensure employee compliance with conflict of interest rules and
with securities legislation are monitored by the Compliance Officer. The Chief
Auditor and the Compliance Officer have full and independent access to the Audit
Committee.
The Audit Committee is composed of directors who are not officers or
employees of CIBC. CIBC's interim and annual consolidated financial statements
and management discussion and analysis are discussed and reviewed by the Audit
Committee with management and the shareholders' auditors before such financial
information is approved by the Board of Directors.
In addition, the Audit Committee has the duty to review investments and
transactions that could adversely affect the well-being of CIBC; to review
financial reports requiring board approval prior to submission to securities
commissions or other regulatory authorities; to review key management estimates
and judgments underlying financial statements; and to approve the shareholders'
auditors' fees.
Deloitte & Touche LLP and PricewaterhouseCoopers LLP, the shareholders'
auditors, obtain an understanding of CIBC's internal controls and procedures for
financial reporting to plan and conduct such tests and other audit procedures as
they consider necessary in the circumstances to express an opinion in their
report that follows. The shareholders' auditors have full and independent access
to the Audit Committee to discuss their audit and related matters. Arthur
Andersen LLP, one of the shareholders' auditors for 2001 and 2000, is no longer
able to provide assurance on the financial statements for those years.
PricewaterhouseCoopers LLP has reissued its opinion on the 2001 and 2000
consolidated financial statements.
J.S. HUNKIN T.D. WOODS
Chairman and Chief Financial Officer
Chief Executive Officer November 27, 2002
--------------------------------------------------------------------------------
72
CIBC ANNUAL REPORT 2002
CONSOLIDATED FINANCIAL RESULTS
--------------------------------------------------------------------------------
Auditors' Reports to Shareholders
--------------------------------------------------------------------------------
We have audited the consolidated balance sheet of Canadian Imperial Bank of
Commerce (CIBC) as at October 31, 2002 and the consolidated statements of
income, changes in shareholders' equity and cash flows for the year then ended.
These consolidated financial statements are the responsibility of CIBC's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with Canadian generally accepted
auditing standards. Those standards require that we plan and perform an audit to
obtain reasonable assurance whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation.
In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of CIBC as at October 31, 2002 and
the results of its operations and its cash flows for the year then ended in
accordance with Canadian generally accepted accounting principles, including the
accounting requirements of the Superintendent of Financial Institutions, Canada.
The consolidated financial statements of CIBC as at October 31, 2001 and
for the two-year period then ended were audited by PricewaterhouseCoopers LLP,
who expressed an opinion without reservation on those statements in their report
dated November 27, 2002.
DELOITTE & TOUCHE LLP
PRICEWATERHOUSECOOPERS LLP
Chartered Accountants
Toronto, Canada
November 27, 2002
We have audited the consolidated balance sheet of Canadian Imperial Bank of
Commerce (CIBC) as at October 31, 2001 and the consolidated statements of
income, changes in shareholders' equity and cash flows for each of the years in
the two-year period then ended. These consolidated financial statements are the
responsibility of CIBC's management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted
auditing standards. Those standards require that we plan and perform an audit to
obtain reasonable assurance whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation.
In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of CIBC as at October 31, 2001 and
the results of its operations and its cash flows for each of the years in the
two-year period then ended in accordance with Canadian generally accepted
accounting principles, including the accounting requirements of the
Superintendent of Financial Institutions, Canada.
PRICEWATERHOUSECOOPERS LLP
Chartered Accountants
Toronto, Canada
November 27, 2002
--------------------------------------------------------------------------------
73
CIBC ANNUAL REPORT 2002
CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
Consolidated Financial Statements
--------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
$ millions, as at October 31 2002 2001(1)
---------------------------------------------------------------------------------------------------
ASSETS
Cash resources
Cash and non-interest-bearing deposits with banks $ 1,300 $ 1,528
Interest-bearing deposits with banks 8,212 9,822
---------------------------------------------------------------------------------------------------
9,512 11,350
---------------------------------------------------------------------------------------------------
Securities (Note 3)
Securities held for investment 20,583 22,849
Securities held for trading 44,628 51,798
Loan substitute securities 81 147
---------------------------------------------------------------------------------------------------
65,292 74,794
---------------------------------------------------------------------------------------------------
Loans (Note 4)
Residential mortgages 66,612 58,751
Personal and credit card loans 30,784 28,411
Business and government loans 41,961 46,693
Securities borrowed or purchased under resale agreements 16,020 24,079
Allowance for credit losses (2,288) (2,294)
---------------------------------------------------------------------------------------------------
153,089 155,640
---------------------------------------------------------------------------------------------------
Other
Derivative instruments market valuation (Note 22) 24,717 25,723
Customers' liability under acceptances 6,848 8,100
Land, buildings and equipment (Note 6) 2,247 1,769
Goodwill (Note 7) 1,078 400
Other intangible assets (Note 7) 297 228
Other assets (Note 8) 10,213 9,470
---------------------------------------------------------------------------------------------------
45,400 45,690
---------------------------------------------------------------------------------------------------
$ 273,293 $ 287,474
===================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits (Note 9)
Individuals $ 67,975 $ 66,826
Businesses and governments 117,986 114,270
Banks 10,669 13,256
---------------------------------------------------------------------------------------------------
196,630 194,352
---------------------------------------------------------------------------------------------------
Other
Derivative instruments market valuation (Note 22) 24,794 26,395
Acceptances 6,878 8,100
Obligations related to securities sold short 8,436 11,213
Obligations related to securities lent or sold under repurchase agreements 9,615 21,403
Other liabilities (Note 10) 10,980 10,112
---------------------------------------------------------------------------------------------------
60,703 77,223
---------------------------------------------------------------------------------------------------
Subordinated indebtedness (Note 11) 3,627 3,999
---------------------------------------------------------------------------------------------------
Shareholders' equity
Preferred shares (Note 13) 3,088 2,299
Common shares (Note 13) 2,842 2,827
Contributed surplus 26 --
Retained earnings 6,377 6,774
---------------------------------------------------------------------------------------------------
12,333 11,900
---------------------------------------------------------------------------------------------------
$ 273,293 $ 287,474
===================================================================================================
(1) Certain comparative figures have been reclassified to conform with the
presentation used in 2002.
The accompanying notes are an integral part of the consolidated financial
statements.
J.S. HUNKIN I.E.H. DUVAR
Chairman and Chief Executive Officer Director
--------------------------------------------------------------------------------
74
CIBC ANNUAL REPORT 2002
CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
$ millions, for the years ended October 31 2002 2001 2000
------------------------------------------------------------------------------------------
Interest income
Loans $ 8,552 $ 10,818 $ 11,467
Securities 2,750 3,530 3,297
Deposits with banks 222 426 563
------------------------------------------------------------------------------------------
11,524 14,774 15,327
------------------------------------------------------------------------------------------
Interest expense
Deposits and other liabilities 5,794 9,925 10,728
Subordinated indebtedness 220 300 317
------------------------------------------------------------------------------------------
6,014 10,225 11,045
------------------------------------------------------------------------------------------
Net interest income (Note 3) 5,510 4,549 4,282
Provision for credit losses (Note 4) 1,500 1,100 1,220
------------------------------------------------------------------------------------------
4,010 3,449 3,062
------------------------------------------------------------------------------------------
Non-interest income
Fees for services Underwriting 698 614 886
Deposit 605 521 503
Credit 410 493 508
Card 331 363 368
Investment management and custodial 486 322 379
Mutual funds 561 351 358
Insurance 148 100 124
------------------------------------------------------------------------------------------
3,239 2,764 3,126
Commissions on securities transactions 1,203 1,089 1,480
Trading activities (Note 3) 273 1,343 1,140
Investment securities (losses) gains, net (168) 575 970
Income from securitized assets 177 223 237
Other 807 619 844
------------------------------------------------------------------------------------------
5,531 6,613 7,797
------------------------------------------------------------------------------------------
9,541 10,062 10,859
------------------------------------------------------------------------------------------
Non-interest expenses
Employee compensation and benefits 4,882 4,732 4,937
Occupancy costs 715 631 634
Computer and office equipment 985 834 758
Communications 441 412 371
Advertising and business development 295 286 273
Professional fees 297 327 240
Business and capital taxes 114 109 108
Restructuring charge (Note 16) 514 207 (31)
Events of September 11, 2001 (Note 17) 32 7 --
Other 854 681 806
------------------------------------------------------------------------------------------
9,129 8,226 8,096
------------------------------------------------------------------------------------------
Income before income taxes and non-controlling interests 412 1,836 2,763
Income taxes (Note 18) (279) 92 641
------------------------------------------------------------------------------------------
691 1,744 2,122
Non-controlling interests in net income of subsidiaries 38 58 62
------------------------------------------------------------------------------------------
Net income $ 653 $ 1,686 $ 2,060
==========================================================================================
Earnings per share(1) (in dollars) (Note 19) - Basic $ 1.37 $ 4.19 $ 4.95
- Diluted $ 1.35 $ 4.13 $ 4.90
Dividends per common share (in dollars) (Note 13) $ 1.60 $ 1.44 $ 1.29
==========================================================================================
(1) On November 1, 2001, CIBC retroactively adopted the requirements of the
Canadian Institute of Chartered Accountants handbook section 3500,
"Earnings Per Share." Comparative figures have been restated.
The accompanying notes are an integral part of the consolidated financial
statements.
--------------------------------------------------------------------------------
75
CIBC ANNUAL REPORT 2002
CONSOLIDATED FINANCIAL STATEMENTS
-----------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
$ millions, as at or for the years ended October 31 2002 2001 2000
-----------------------------------------------------------------------------------------------
Preferred shares (Note 13)
Balance at beginning of year $ 2,299 $ 1,876 $ 1,933
Issue of preferred shares 800 400 345
Redemption of preferred shares -- -- (425)
Translation adjustment on foreign currency preferred shares (11) 23 23
-----------------------------------------------------------------------------------------------
Balance at end of year $ 3,088 $ 2,299 $ 1,876
===============================================================================================
Common shares (Note 13)
Balance at beginning of year $ 2,827 $ 2,868 $ 3,035
Issue of common shares 59 90 34
Purchase of common shares for cancellation (44) (131) (201)
-----------------------------------------------------------------------------------------------
Balance at end of year $ 2,842 $ 2,827 $ 2,868
===============================================================================================
Contributed surplus
Balance at beginning of year $ -- $ -- $ --
Stock option expense (Note 14) 26 -- --
-----------------------------------------------------------------------------------------------
Balance at end of year $ 26 $ -- $ --
===============================================================================================
Retained earnings
Balance at beginning of year, as previously reported $ 6,774 $ 6,625 $ 6,090
Adjustment for change in accounting policies (Notes 14 & 15) (42) (140) --
-----------------------------------------------------------------------------------------------
Balance at beginning of year, as restated 6,732 6,485 6,090
Net income 653 1,686 2,060
Dividends (Note 13) (738) (657) (629)
Premium on redemption of preferred shares -- -- (17)
Premium on purchase of common shares (269) (736) (873)
Foreign currency translation adjustment, net of income taxes(1) 2 38 8
Other (3) (42) (14)
-----------------------------------------------------------------------------------------------
Balance at end of year $ 6,377 $ 6,774 $ 6,625
===============================================================================================
(1) The cumulative balance in the foreign currency translation account is $42
million (2001: $40 million; 2000: $2 million).
The accompanying notes are an integral part of the consolidated financial
statements.
--------------------------------------------------------------------------------
76
CIBC ANNUAL REPORT 2002
CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
$ millions, as at or for the years ended October 31 2002 2001(1) 2000
---------------------------------------------------------------------------------------------------------
Cash flows provided by (used in) operating activities
Net income $ 653 $ 1,686 $ 2,060
Adjustments to determine net cash flows:
Provision for credit losses 1,500 1,100 1,220
Amortization of buildings, furniture, equipment and leasehold
improvements 333 310 313
Amortization of goodwill -- 24 23
Amortization of intangible assets 32 25 24
Restructuring charge, net of cash payments 375 121 (31)
Future income taxes (1,141) (540) (267)
Investment securities losses (gains), net 168 (575) (970)
Accrued interest receivable 82 63 (332)
Accrued interest payable (627) (539) 250
Net change in securities held for trading 7,170 1,419 (7,163)
Gains on disposal of subsidiaries (190) (22) (125)
Gains on disposal of land, buildings and equipment (8) (12) (199)
Current income taxes 758 (723) 102
Insurance proceeds received 90 9 --
Other, net (294) (1,044) (1,163)
---------------------------------------------------------------------------------------------------------
8,901 1,302 (6,258)
---------------------------------------------------------------------------------------------------------
Cash flows provided by (used in) financing activities
Deposits, net of withdrawals 2,278 14,475 19,591
Obligations related to securities sold short (2,777) (2,779) (1,571)
Net obligations related to securities lent or sold under repurchase
agreements (11,788) 7,204 559
Redemption of subordinated indebtedness (342) (232) (175)
Issue of preferred shares 800 400 345
Redemption of preferred shares -- -- (442)
Issue of common shares 59 90 34
Purchase of common shares for cancellation (313) (867) (1,074)
Dividends (738) (657) (629)
Other, net (800) (131) 81
---------------------------------------------------------------------------------------------------------
(13,621) 17,503 16,719
---------------------------------------------------------------------------------------------------------
Cash flows provided by (used in) investing activities
Interest-bearing deposits with banks 1,610 (526) 1,329
Loans, net of repayments (8,930) (9,062) (10,381)
Proceeds from securitizations 1,952 1,306 1,162
Purchase of securities held for investment (33,284) (23,687) (15,141)
Proceeds on sale of securities held for investment 35,651 17,527 12,714
Net securities borrowed or purchased under resale agreements 8,059 (3,618) (1,303)
Net cash paid for acquisitions (626) (308) --
Proceeds from disposal of subsidiaries -- 54 486
Purchase of land, buildings and equipment (235) (588) (378)
Proceeds from disposal of land, buildings and equipment 7 29 862
---------------------------------------------------------------------------------------------------------
4,204 (18,873) (10,650)
---------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash and cash equivalents (13) 31 13
---------------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents during year (529) (37) (176)
Cash and cash equivalents at beginning of year 1,487 1,524 1,700
---------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 958 $ 1,487 $ 1,524
=========================================================================================================
Represented by:
Cash and non-interest-bearing deposits with banks $ 1,300 $ 1,528 $ 1,383
Cheques and other items in transit, net (Note 10) (342) (41) 141
---------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 958 $ 1,487 $ 1,524
=========================================================================================================
Cash interest paid $ 6,641 $ 10,764 $ 10,795
Cash income taxes paid $ 249 $ 1,007 $ 554
=========================================================================================================
(1) Certain comparative figures have been reclassified to conform with the
presentation used in 2002.
The accompanying notes are an integral part of the consolidated financial
statements.
--------------------------------------------------------------------------------
77
CIBC ANNUAL REPORT 2002
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
Notes to the Consolidated Financial Statements
--------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements of Canadian Imperial Bank of Commerce
(CIBC) and its subsidiaries have been prepared in accordance with Canadian
generally accepted accounting principles (GAAP), including the accounting
requirements of the Superintendent of Financial Institutions, Canada (OSFI).
A reconciliation of the impact on assets, liabilities, shareholders'
equity and net income arising from differences between Canadian and U.S. GAAP is
provided in Note 28. Disclosures reflected in these consolidated financial
statements substantially comply with those required under U.S. GAAP.
The preparation of financial statements in accordance with GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities, disclosure of contingent assets and liabilities at the
balance sheet date and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
The following paragraphs describe CIBC's significant accounting policies:
Basis of consolidation
The consolidated financial statements include the accounts of all subsidiaries
on a consolidated basis. Inter-company balances and transactions have been
eliminated.
Investments in companies over which CIBC has significant influence are
accounted for by the equity method, other than those held in the merchant
banking portfolio, and are included in securities held for investment on the
consolidated balance sheets. CIBC's share of earnings from these investments is
included in interest income.
Investments in which CIBC exercises joint control are accounted for using
the proportionate consolidation method whereby CIBC's share of the assets,
liabilities, revenue and expenses of these joint ventures are included in the
consolidated financial statements.
Goodwill and other intangible assets
Effective November 1, 2001, CIBC adopted the requirements of the Canadian
Institute of Chartered Accountants (CICA) handbook section 3062, "Goodwill and
Other Intangible Assets." Under this section, goodwill, representing the excess
of the purchase price over the fair value of the net assets acquired in business
combinations, and other intangible assets with an indefinite life are no longer
amortized after October 31, 2001, but are reviewed at least annually for
impairment and written down for any impairment losses. Intangible assets with a
finite life are amortized over their estimated useful lives, generally not
exceeding 20 years, on a straight-line basis.
In 2001, CIBC adopted the requirements of the CICA handbook section 1581,
"Business Combinations." Under this section, if certain criteria are met upon
the initial adoption of section 3062, reclassifications between goodwill and
other intangible assets are required for any business combinations completed
before July 1, 2001. The implementation of section 3062 did not have a
significant impact on CIBC and no reclassifications were required.
Foreign currency translation
Assets and liabilities arising from foreign currency transactions are translated
into Canadian dollars at month-end exchange rates at the dates of the
consolidated financial statements, while the associated revenue and expenses are
translated using average monthly exchange rates. Realized and unrealized gains
and losses arising on the translation are included in the current year
consolidated statements of income.
Assets and liabilities of CIBC's foreign operations are translated into
Canadian dollars using month-end exchange rates at balance sheet dates, while
the associated revenue and expenses are translated at the average monthly
exchange rates in effect. Exchange gains and losses arising from the translation
of net investment positions and from the results of hedging these positions net
of applicable taxes are reported in retained earnings.
Securities
Securities held for investment comprise debt and equity securities, including
investments held in the merchant banking portfolio, originally purchased with
the intention of holding to maturity or a pre-determined period of time, which
may be sold in response to changes in investment objectives arising from
changing market conditions. Equity securities are stated at cost and debt
securities at amortized cost, determined on the average cost basis. Realized
gains and losses on disposal and write-downs to reflect other than temporary
impairments in value are included in investment securities gains in the
consolidated statements of income. Realized and unrealized gains on securities
used in hedging activities are included in earnings in the same period as the
earnings from the items hedged.
Securities held for trading are purchased for resale within a short period
of time and are stated at fair value. Fair value is determined based on market
value, or where market prices are not readily available by using quoted market
prices for similar securities or other third-party evidence as available. Gains
and losses realized on disposal and unrealized gains and losses from market
fluctuations are included in trading activities in the consolidated statements
of income.
Loan substitute securities are accounted for in the same manner as loans.
They represent after-tax financing arrangements, which provide issuers with
tax-effective borrowings.
Obligations related to securities sold short are recorded as liabilities
and are carried at fair value. Realized and unrealized gains and losses on
securities sold short that are used in hedging activities are included in
earnings in the same period as the earnings from the items hedged. Realized and
unrealized gains and losses on securities sold short that are used in trading
are included in trading activities in the consolidated statements of income.
Dividend and interest income on all securities, including the amortization
of premiums and discounts on debt securities held for investment, are included
in interest income in the consolidated statements of income.
Loans
Loans are stated net of unearned income and allowance for credit losses.
--------------------------------------------------------------------------------
78
CIBC ANNUAL REPORT 2002
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
Impaired loans
A loan is classified as impaired when, in the opinion of management, there no
longer is reasonable assurance of the timely collection of the full amount of
principal and interest. Generally, loans on which repayment of principal or
payment of interest is contractually 90 days in arrears are automatically
considered impaired unless they are fully secured and in the process of
collection. Notwithstanding management's assessment of collectibility, such
loans are considered impaired if payments are 180 days in arrears. Exceptions
are as follows:
Credit card loans are not classified as impaired but are instead fully
written off when payments are contractually 180 days in arrears.
Loans guaranteed or insured by the Canadian government, the provinces or a
Canadian government agency are classified as impaired only when payments are
contractually 365 days in arrears.
When a loan is classified as impaired, accrual of interest ceases. All
uncollected interest is recorded as part of the loan's carrying value for the
purpose of determining the loan's estimated realizable value and establishing
allowances for credit losses. No portion of cash received on any impaired loan
is recorded as income until such time as any prior write-off has been recovered
or any specific allowance has been reversed and it is determined that the loan
principal is fully collectible in accordance with the original contractual terms
of the loan.
Loan fees and origination costs
Fees relating to loan origination, including commitment, restructuring and
renegotiation fees, are considered an integral part of the yield earned on the
loan and are deferred as unearned income and amortized to interest income over
the term of the loan. Incremental direct costs for originating or acquiring a
loan are netted against origination fees and deferred as unearned income. Fees
received for commitments which are not expected to result in a loan are included
in non-interest income over the commitment period. Loan syndication fees are
included in non-interest income on completion of the syndication arrangement,
provided that the yield on the portion of the loan retained by CIBC is at least
equal to the average yield earned by the other lenders involved in the
financing; otherwise, an appropriate portion of the fee is deferred as unearned
income and amortized to interest income to produce an equal average yield over
the term of the loan.
Securitizations
CIBC periodically sells groups of loans or receivables to special purpose
entities (SPEs) that issue securities to investors - a process referred to as
securitization. In 2001, CIBC adopted the CICA Accounting Guideline (AcG) 12,
"Transfers of Receivables," for securitizations occurring on or after April 1,
2001. This guideline redefined the criteria that must be met in order for a
securitization to be recognized as a sale. The impact of this change in
accounting policy was not significant to CIBC.
Under AcG 12, securitizations are accounted for as sales when CIBC
surrenders control of the transferred assets and receives consideration other
than beneficial interests in the transferred assets. When such sales occur, CIBC
may retain interest-only strips, one or more subordinated tranches, and in some
cases, a cash reserve account, all of which are considered retained interests in
the securitized assets. Securitizations taking place, or committed to, before
April 1, 2001, were accounted for as sales if, among other criteria, the
transactions transferred the significant risks and rewards of ownership from
CIBC to the SPEs.
Gains or losses on transfers accounted for as sales under AcG 12 depend,
in part, upon the allocation of previous carrying amounts to assets sold and
retained interests. These carrying amounts are allocated in proportion to the
relative fair value of the assets sold and retained interests. Quoted market
prices, if available, are used to obtain fair values. However, as market prices
are generally not available for retained interests, CIBC estimates fair value
based on the present value of expected future cash flows. This may require
management to estimate credit losses, the rate of prepayments, forward yield
curves, discount rates and other factors that influence the value of retained
interests.
The gains or losses on securitizations are calculated as the excess or
shortfall of consideration over the pro-rata share of the original carrying
amounts attributed to the assets sold. Gains and losses on these transactions
are included in other non-interest income in the consolidated statements of
income. Retained interests in securitized assets are classified as securities
held for investment on the consolidated balance sheets and stated at their
pro-rata share of the original carrying amounts. Retained interests are reviewed
each reporting period for impairment.
Securitization affects the components of income reported in the
consolidated statements of income. Non-interest income from securitized assets
comprises income from retained interests, losses under recourse arrangements and
servicing income.
Allowance for credit losses
Management establishes and maintains an allowance for credit losses that it
considers the best estimate of probable credit-related losses existing in CIBC's
portfolio of on- and off-balance sheet financial instruments, giving due regard
to current conditions and credit derivatives. Impaired loans are carried at
their estimated realizable values determined by discounting the expected future
cash flows at the interest rate inherent in the loan. When the amount and timing
of future cash flows cannot be estimated reliably, the loan is carried at either
the fair value of the security underlying the loan or the market price of the
loan. Any changes in the estimated realizable amounts over time are reported as
a charge or credit to the allowance for credit losses. The allowance for credit
losses consists of specific and general components.
Management conducts ongoing credit assessments of the business and
government loan portfolio on an account-by-account basis and establishes
specific allowances when impaired loans are identified. Residential mortgage and
personal and credit card loan portfolios consist of large numbers of homogeneous
balances of relatively small amounts, for which specific allowances are
established by reference to historical ratios of write-offs to balances
outstanding.
The general allowance is provided for losses which management estimates
are in the portfolio at the balance sheet date, and which relate to loans not
yet specifically identified as impaired and not yet captured in the
determination of specific allowances.
The credit portfolios to which the general allowance applies include
business loans and acceptances, off-balance sheet credit instruments, such as
credit commitments and letters of credit, and consumer loans. The general
allowance does not apply to loans or credit facilities that are impaired, as
appropriate specific provisions are taken to provide for these.
The general allowance is established based on expected loss rates
associated with different credit portfolios at different risk levels, and the
estimated time period for losses that are present but yet to be specifically
--------------------------------------------------------------------------------
79
CIBC ANNUAL REPORT 2002
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
identified, adjusting for management's view of the current and ongoing economic
and portfolio trends.
Expected loss rates for business loan portfolios are based on the risk
rating of each credit facility and on probability of default factors associated
with each risk rating, as well as estimates of loss given default. The
probability of default factors reflects CIBC's historical experience over an
economic cycle, and is supplemented by data derived from defaults in the public
debt markets. Loss given default estimates are based on CIBC's experience over
past years. For consumer loan portfolios, expected losses are based on CIBC's
historical flow and loss rates.
The level of the general allowance is determined by a number of factors,
including the portfolios' size, the relative risk profiles of the portfolios,
the economic trends, and evidence of credit quality improvements or
deterioration. The general allowance requirement is assessed using these
criteria. On a regular basis, the parameters that drive the general allowance
calculation are updated, based on CIBC's market experience.
Securities borrowed or purchased under resale agreements and obligations related
to securities lent or sold under repurchase agreements
Securities purchased under resale agreements are stated at cost plus accrued
interest and are secured loans insofar as they represent a purchase of
securities by CIBC effected with a simultaneous agreement to sell them back at a
future date, which is generally near term. Interest income is included in loan
interest income in the consolidated statements of income. Obligations related to
securities sold under repurchase agreements are stated at cost plus accrued
interest and represent the borrowing equivalent of securities purchased under
resale agreements. Interest is reflected in deposits and other liabilities
interest expense in the consolidated statements of income.
Securities borrowed and securities lent are recorded at the amount of cash
advanced or received. Securities borrowed consist primarily of government and
equity securities. CIBC monitors the market value of the securities borrowed and
lent on a daily basis and calls for additional collateral when appropriate. Fees
earned or incurred are recorded as interest income or interest expense in the
consolidated statements of income.
Derivative instruments
Derivative instruments are contracts that require or provide the opportunity to
exchange cash flows or payments determined by applying certain rates, indices or
changes therein to notional contract amounts.
CIBC utilizes derivatives in two broadly defined activities: trading and
asset-liability management.
Derivatives held for trading purposes
CIBC's derivative trading activities are primarily driven by client trading
activities. Clients transact with CIBC as part of their own risk management,
investing and trading activities. To facilitate these activities, CIBC acts as a
derivatives dealer or market maker, and is prepared to transact with clients by
quoting bid and offer prices, with the objective of providing a spread to CIBC.
CIBC also takes limited proprietary trading positions in the interest rate,
foreign exchange, debt, equity and commodity markets, with the objective of
earning income.
All financial and commodity derivative instruments entered into for
trading purposes, including derivatives used to hedge risks created by assets
and liabilities which are marked to market, are stated at fair values. Quoted
market prices, when available, are used to determine the fair values of
derivatives held for trading. Otherwise, fair values are estimated using pricing
models that are based on current market quotations wherever possible. Where
appropriate, the estimates include a valuation adjustment to cover market, model
and credit risks, as well as administrative costs. Realized and unrealized
trading gains and losses are included in trading activities in the consolidated
statements of income. Derivatives with a positive fair value are reported as
assets, while derivatives with a negative fair value are reported as liabilities
on the consolidated balance sheets, in both cases as derivative instruments
market valuation. Assets and liabilities with the same counterparty are netted
only where CIBC has the legal right, as well as the intent, to settle the
derivative assets and liabilities on a net basis.
Derivatives held for asset-liability management purposes
CIBC uses derivative financial instruments, primarily interest rate swaps and,
to a lesser degree, futures, forward rate agreements and options contracts, to
manage financial risks, such as movements in interest rates and foreign exchange
rates. These instruments are used for hedging activities or to modify interest
rate characteristics of specific non-trading on-balance sheet assets and
liabilities, or groups of non-trading on-balance sheet assets and liabilities,
and as hedges of firm commitments or anticipated transactions.
When derivative instruments, primarily interest rate swaps, modify the
interest rate characteristics of specific financial assets or liabilities or
groups of financial assets and liabilities, these derivative instruments are
accounted for using the accrual method. Under this method, interest income or
expense on these derivative instruments is accrued for and included in interest
income or expense in the consolidated statements of income and reported in other
assets or other liabilities on the consolidated balance sheets. This accounting
treatment results in interest income or expense on non-trading on-balance sheet
assets and liabilities being reflected in the consolidated statements of income
at their modified rates rather than their original contractual interest rates.
Derivative instruments may also be designated as specific hedges of
financial risk exposures of on-balance sheet assets or liabilities, firm
commitments and anticipated transactions, or of foreign currency exposures
arising from net investments in foreign operations. Designation as a hedge is
only allowed if, both at the inception of the hedge and throughout the hedge
period, the changes in the fair value or cash flows of the derivative instrument
are expected to substantially offset the changes in the fair values or cash
flows of the hedged items.
Gains and losses on derivative instruments used to hedge interest rate
risk exposures of on-balance sheet assets and liabilities, except for hedges of
foreign currency denominated assets and liabilities, are recognized as interest
income or expense at the same time as interest income or expense related to the
hedged on-balance sheet assets and liabilities.
Certain liabilities, whose values are determined based on an underlying
index or asset, are accounted for on a modified accrual basis. Under this
method, the carrying value of the liabilities is adjusted to reflect changes in
the value of the underlying index or asset, subject to a minimum guaranteed
redemption value, if any. These adjustments are recorded as interest expense in
the consolidated statements of income. Derivatives that are used to hedge these
liabilities are accounted for on an
--------------------------------------------------------------------------------
80
CIBC ANNUAL REPORT 2002
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
offsetting basis, with adjustments recorded as interest expense in the
consolidated statements of income.
Foreign currency derivative instruments that hedge foreign currency risk
exposures from foreign currency denominated assets and liabilities are revalued
each month, using the spot foreign exchange rate, and are included in other
assets or other liabilities on the consolidated balance sheets. Resulting gains
and losses are recognized as non-interest income in the consolidated statements
of income. The hedged items are also revalued using the spot foreign exchange
rate, with the resulting gains or losses recognized as non-interest income. Any
premium or discount resulting from differences between the contracted forward
and spot foreign exchange rates due to interest rate differentials at the date
of inception on the foreign currency derivative hedge is accrued in interest
income or expense in the consolidated statements of income.
Derivative instruments, primarily credit default swaps, are also used to
mitigate credit exposure in the non-trading portfolios. The existence of these
derivative instruments is considered in determining the provision for credit
losses. Amounts recoverable from credit default swaps are recorded as an
increase in the allowance for credit losses. Premiums paid are deferred and
amortized to interest income over the term of the instruments.
Realized and unrealized gains and losses on derivative instruments used to
hedge firm commitments or anticipated transactions are deferred and amortized
over the period that the committed or anticipated transactions occur and are
recognized in income. Anticipated transactions can be hedged only when
significant characteristics and expected terms of the anticipated transactions
are identified, and it is probable that the anticipated transactions will occur.
There is no recognition in the consolidated statements of income of unrealized
gains or losses on derivatives hedging anticipated transactions until the
anticipated transactions occur.
Premiums paid for options used for hedging purposes are amortized over the
life of the contract.
A hedging relationship is terminated if the hedge ceases to be effective;
if the underlying asset, liability or future transaction being hedged is
liquidated or terminated and the derivative instrument is still outstanding; or
if the derivative instrument is no longer designated as a hedging instrument.
If the relationship of hedging or modification of interest rate
characteristics is terminated, the difference between the fair value of the
derivative and its accrued value upon termination is deferred in other assets or
other liabilities and amortized into income or expense over the remaining term
to maturity of the derivative hedge or the remaining term of the hedged asset or
liability, as appropriate.
Offsetting of financial assets and financial liabilities
Financial assets and financial liabilities are presented on a net basis on the
balance sheet when this reflects CIBC's expected future cash flows from settling
two or more separate financial instruments. A financial asset and a financial
liability are offset when CIBC has a legally enforceable right to set off the
recognized amounts and intends to settle on a net basis, or to realize the asset
and settle the liability simultaneously.
Acceptances and customers' liability under acceptances
Acceptances constitute a liability of CIBC on negotiable instruments issued
third parties by customers of CIBC. CIBC earns a fee for guaranteeing and then
making the payment to the third parties. The amounts owed to CIBC its customers
in respect of these guaranteed amounts are reflected in assets as customers'
liability under acceptances on the consolidated balance sheets.
Land, buildings and equipment
Land is reported at cost. Buildings, furniture, equipment and leasehold
improvements are reported at cost less accumulated amortization. Amortization is
recorded on a straight-line basis as follows:
Buildings 40 years
Computer equipment 2 to 7 years
Office furniture and other equipment 4 to 15 years
Leasehold improvements Over estimated useful life
Gains and losses on disposal are reported in non-interest income in the
consolidated statements of income.
Future income taxes
CIBC uses the asset and liability method to provide for income taxes on all
transactions recorded in the consolidated financial statements. The asset and
liability method requires that income taxes reflect the expected future tax
consequences of temporary differences between the carrying amounts of assets or
liabilities and their tax bases. Future income tax assets and liabilities are
determined for each temporary difference and unused losses, as applicable, at
rates expected to be in effect when the asset is realized or the liability is
settled. A valuation allowance is established to reduce future income tax assets
to the amount that is more likely than not to be realized.
Post-employment and post-retirement plans
In 2001, CIBC adopted the requirements of the CICA handbook section 3461,
"Employee Future Benefits." Under section 3461, employee future benefits are
defined as pension and other benefits provided after retirement; post-employment
benefits provided to former active employees; compensated absences, such as
parental leave and sabbaticals; and termination benefits. This section outlines
new measurement and disclosure requirements for employee future benefits.
CIBC is the sponsor of pension plans under which all eligible employees
are entitled to benefits based on length of service and salary levels. CIBC also
provides certain health care, life insurance and other benefits to eligible
pensioners and inactive employees. CIBC has a long-term disability plan to
provide benefits to disabled employees.
Based on management's best estimate assumptions, actuarial valuations of
the obligations for pensions, post-retirement and post-employment benefits are
made periodically for accounting purposes by an independent actuary.
The annual expense includes the estimated present value of the cost of
future benefits payable in respect of services rendered in the current period;
interest on projected obligations net of earnings on plan assets; and the
amortization of experience gains and losses. Amortization is charged on a
straight-line basis over the expected average remaining service life of the
employee groups covered by the plan.
--------------------------------------------------------------------------------
81
CIBC ANNUAL REPORT 2002
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
Stock-based compensation
CIBC provides compensation to directors and certain employees in the form of
stock options and deferred share-based awards.
In 2002, CIBC early adopted, effective November 1, 2001, the requirements
of the CICA handbook section 3870, "Stock-Based Compensation and Other
Stock-Based Payments." As encouraged by section 3870, CIBC adopted the fair
value-based method to account for stock-based transactions with employees and
non-officer members of CIBC's Board of Directors. The value is recognized over
the applicable vesting period as an increase to compensation expense and
contributed surplus. When the options are exercised, the proceeds received by
CIBC, together with the amount in contributed surplus, will be credited to
common share capital. For options granted prior to November 1, 2001, CIBC
continues to follow the accounting policy under which no expense is recognized
for these stock options. When these options are exercised, the proceeds received
by CIBC are recorded as common share capital.
Up to 50% of options relating to the Employee Stock Option Plan granted
prior to 2000 can be exercised as stock appreciation rights (SARs). Under
section 3870, CIBC's obligations, which arise from changes in the market price
of CIBC's common shares, are recorded over the applicable vesting period in
compensation expense with a corresponding accrual in other liabilities. If SARs
are exercised as purchases of shares, the exercise price together with the
relevant amount in other liabilities, representing the value of shares at the
market price, is credited to common share capital. The impact of this change in
accounting policy is detailed in Note 14.
Compensation expense in respect of awards under the Restricted Share
Program is recognized in an amount equal to the sum to be transferred to the
trust in respect of the current year allocations. Amounts paid under the
directors' plans are charged to compensation expense. Obligations relating to
deferred share units under the directors' plans change with CIBC's common share
price and the change is recognized as a compensation (expense) credit in the
period in which the change occurs.
CIBC's contribution under its Employee Share Purchase Plan is expensed as
incurred.
Earnings per share
In 2002, CIBC retroactively adopted, effective November 1, 2001, the
requirements of the CICA handbook section 3500, "Earnings Per Share." Under this
section, basic earnings per share (EPS) is determined as net income minus
dividends and premiums on preferred shares, divided by the weighted-average
number of common shares outstanding for the period.
Diluted EPS is determined as net income minus dividends and premiums on
preferred shares, divided by the weighted-average number of diluted common
shares outstanding for the period. Diluted common shares reflect the potential
dilutive effect of exercising the stock options outstanding and other dilutive
conversions based on the treasury stock method, whereby incremental shares are
calculated as if stock options were exercised at the beginning of the period and
funds received were used to purchase CIBC`s own stock.
Assets under administration
Assets under administration comprise assets under management, assets securitized
and still administered by CIBC, and assets administered by CIBC in the capacity
of custodian. Mutual fund assets managed by CIBC on behalf of its clients are
considered assets under management. Assets under administration are not the
property of CIBC and are not included on the consolidated balance sheets.
Investment management and custodial, and mutual fund fees are included in
non-interest income as fees for services. Investment management and custodial
fees are primarily investment, estate and trust management fees and are recorded
on an accrual basis. Accordingly, prepaid fees are deferred and amortized over
the contract term. Mutual fund fees are recorded on an accrual basis.
Cash and cash equivalents
Cash and cash equivalents in the consolidated statements of cash flows comprise
cash, deposits with the Bank of Canada, current operating accounts, overnight
deposits with banks and, on a net basis, uncleared cheques and other items in
transit.
2001 and 2000 financial information
Certain 2001 and 2000 financial information has been reclassified, where
necessary, to conform with the presentation adopted in 2002.
Future accounting policy changes
A description of future Canadian accounting policy changes is provided in Note
29. A description of future U.S. accounting policy changes is provided in Note
28.
--------------------------------------------------------------------------------
2. SIGNIFICANT ACQUISITIONS AND DISPOSITIONS
Acquisitions
In March 2002, CIBC acquired control of Juniper Financial Corp. (Juniper), a
U.S. credit card company. In July 2002, CIBC invested an additional $79 million
in Juniper to acquire Class D Preferred Shares. As at October 31, 2002, CIBC
owned 90% of the voting equity in Juniper.
In December 2001 and January 2002, CIBC acquired Merrill Lynch Canada
Inc.'s Private Client & Securities Services businesses and Merrill Lynch
Investment Managers Canada Inc. (MLIM), Merrill Lynch's asset management
business in Canada, respectively, for cash. MLIM was subsequently renamed CM
Investment Management Inc. CIBC is in the process of integrating the acquired
businesses' operations with its existing operations. As part of the integration
plan, CIBC is carrying out staff reductions, branch closures and exiting of
certain activities of the acquired businesses. These costs were accrued as
liabilities in the purchase equation. CIBC expects the integration to be
substantially completed by the end of the first quarter of 2003.
--------------------------------------------------------------------------------
82
CIBC ANNUAL REPORT 2002
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
In October 2001, CIBC acquired control of TAL Global Asset Management Inc.
(TAL) through the acquisition of the remaining 34% of its outstanding common
shares. TAL is a Canadian investment management firm in which CIBC previously
held a 66% equity interest that was accounted for by the equity method. During
2002, CIBC completed the review and determination of the fair value of the
assets acquired and liabilities assumed from the acquisition of the remaining
shares in TAL. As a result, the allocation of the purchase price has been
adjusted and goodwill increased by $14 million. CIBC also completed assessing
useful lives of the identified intangible assets acquired, of which $41 million
were determined to have an indefinite life. The remaining identified intangible
assets are amortized over periods ranging from five to 10 years.
The results of operations of these businesses have been included in CIBC's
consolidated financial statements since the effective date of control. Details
of these transactions are as follows:
2002 2001
-------------------------------------------------------------------------------------------------------------------------------
Merrill Lynch
Canada Inc.'s Merrill Lynch
Private Client & Investment TAL
Juniper Financial Securities Services Managers Global Asset
$ millions Corp. Businesses Canada Inc. Management Inc.
-------------------------------------------------------------------------------------------------------------------------------
Effective date of control March 29, 2002 December 28, 2001 January 31, 2002 October 10, 2001
Percentage of voting
shares acquired 90% Asset purchase 100% 34%
Goodwill $108 $558 $5 $279
Business line assigned to CIBC World Markets CIBC Wealth Management CIBC Wealth Management CIBC Wealth Management
Deductible for tax
purposes -- $376 -- --
Other intangible assets -- -- $75 $65
Assigned to -- -- Contract-based Contract-based
intangibles intangibles
Subject to amortization -- -- -- $24
Not subject to
amortization
(indefinite life) -- -- $75 $41
===============================================================================================================================
Details of the aggregate consideration given and the fair value of net assets
acquired are as follows:
2002 2001
-----------------------------------------------------------------------------------------------------------------------------------
Merrill Lynch
Canada Inc.'s Merrill Lynch
Private Client & Investment TAL
Juniper Financial Securities Services Managers Global Asset
$ millions Corp. Businesses Canada Inc. Management Inc.(1)
-----------------------------------------------------------------------------------------------------------------------------------
Aggregate consideration
Acquisition cost (paid in cash) $310 $555 $71 $318
Direct acquisition expenses -- 4 -- 3
-----------------------------------------------------------------------------------------------------------------------------------
$310 $559 $71 $321
-----------------------------------------------------------------------------------------------------------------------------------
Fair value of net assets acquired
Cash resources $117 $-- $28 $13
Loans 356 -- -- --
Land, buildings and equipment 27 25 2 2
Goodwill 108 558 5 279
Other intangible assets -- -- 75 65
Future tax asset -- 26 -- --
Other assets 50 5 24 35
-----------------------------------------------------------------------------------------------------------------------------------
Total assets acquired 658 614 134 394
-----------------------------------------------------------------------------------------------------------------------------------
Deposits 334 -- -- --
Future tax liability -- -- 31 22
Integration liabilities -- 45(2) 3(3) --
Other liabilities 14 10 29 51
-----------------------------------------------------------------------------------------------------------------------------------
Total liabilities assumed 348 55 63 73
-----------------------------------------------------------------------------------------------------------------------------------
Net assets acquired $310 $559 $71 $321
===================================================================================================================================
(1) The allocation of the purchase price has been adjusted to reflect the fair
value of the assets acquired and liabilities assumed.
(2) Includes severance of $19 million, exit costs of $19 million and other
costs of $7 million. As at October 31, 2002, $18 million has been paid.
(3) Includes severance of $2 million and exit costs of $1 million. As at
October 31, 2002, $2 million has been paid.
--------------------------------------------------------------------------------
83
CIBC ANNUAL REPORT 2002
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
The following table reflects on an unaudited pro-forma basis, the combined
results of CIBC as if these acquisitions had occurred at the beginning of the
respective years presented.
--------------------------------------------------------------------------------
UNAUDITED PRO-FORMA COMBINED RESULTS OF OPERATIONS
$ millions, for the years ended October 31 2002 2001
--------------------------------------------------------------------------------
Net interest income $ 5,516 $ 4,527
Non-interest income 5,599 7,019
Provision for credit losses 1,508 1,113
Non-interest expenses 9,249 8,720
--------------------------------------------------------------------------------
Income before income taxes
and non-controlling interests 358 1,713
Income taxes and non-controlling interests (239) 164
--------------------------------------------------------------------------------
Net income $ 597 $ 1,549
================================================================================
Diluted EPS $ 1.20 $ 3.76
================================================================================
Dispositions
In October 2002, CIBC and Barclays Bank PLC completed the combination of their
Caribbean retail, corporate and international banking operations, which was
named FirstCaribbean International Bank Limited(TM) (FCIB). FCIB commenced
operations on October 14, 2002. This transaction resulted in CIBC divesting of
its 77% ownership in its Caribbean subsidiaries and taking back an equity
interest of approximately 44% in FCIB, which is accounted for by the equity
method. CIBC recognized a pre-tax dilution gain of $190 million ($190 million
after-tax), which was included in other non-interest income in the consolidated
statements of income. An additional dilution could result depending on the
outcome of certain future events, including the rights issue available to the
public shareholders of FCIB, which is scheduled to close in the first quarter of
2003.
On September 17, 2002, CIBC signed an agreement with Hewlett-Packard
(Canada) Co. (HP) to sell CIBC's 51% interest in INTRIA-HP Corporation, a
technology outsourcing company, and other related assets. The transaction closed
on November 1, 2002, and any impact from the transaction will be recorded in the
2003 consolidated financial statements and is not expected to be significant. In
addition, CIBC entered into a seven-year outsourcing agreement with HP to
provide CIBC with comprehensive information technology services valued at
approximately $2 billion, beginning on November 1, 2002.
In July 2001, CIBC sold two of its offshore banking subsidiaries located
in the Channel Islands. As a result, CIBC recognized a pre-tax gain of $22
million ($22 million after-tax), which was included in other non-interest income
in the consolidated statements of income.
--------------------------------------------------------------------------------
3. SECURITIES
Residual term to contractual maturity
--------------------------------------------------------------------------------------------
Within 1 year 1 to 5 years 5 to 10 years Over 10 years
---------------------------------------------------------------------------------------------------------------------------
Carrying Carrying Carrying Carrying
$ millions, as at October 31 value Yield(1) value Yield(1) value Yield(1) value Yield(1)
---------------------------------------------------------------------------------------------------------------------------
Securities held for
investment
Canadian federal government $ 3,013 3.0% $ 4,323 4.3% $ 648 5.6% $ 332 7.6%
Other Canadian governments 85 5.1 243 5.6 -- -- 298 6.5
U.S. Treasury 2 5.2 -- -- -- -- -- --
Other U.S. agencies 370 6.2 290 5.0 870 5.5 3,400 5.8
Other foreign governments 124 5.8 19 4.7 159 6.7 -- --
Corporate debt 1,205 6.7 1,193 6.4 464 7.5 692 6.8
Corporate equity 59 3.1 276 5.9 -- -- -- --
---------------------------------------------------------------------------------------------------------------------------
Total debt securities
Carrying value $ 4,799 $ 6,068 $ 2,141 $ 4,722
Fair value $ 4,598 $ 6,193 $ 2,332 $ 5,007
---------------------------------------------------------------------------------------------------------------------------
Total equity securities
Carrying value $ 59 $ 276 $ -- $ --
Fair value(2) $ 47 $ 272 $ -- $ --
---------------------------------------------------------------------------------------------------------------------------
Total investment securities
Carrying value $ 4,858 $ 6,344 $ 2,141 $ 4,722
Fair value(2) $ 4,645 $ 6,465 $ 2,332 $ 5,007
===========================================================================================================================
Securities held for trading(3)
Canadian federal government $ 1,775 $ 8,829 $ 161 $ 190
Other Canadian governments 220 864 383 409
U.S. Treasury and agencies 6,480 151 50 133
Other foreign governments 654 231 33 14
Corporate debt 6,104 1,434 641 867
Corporate equity 96 315 3 --
---------------------------------------------------------------------------------------------------------------------------
Total trading securities $ 15,329 $ 11,824 $ 1,271 $ 1,613
---------------------------------------------------------------------------------------------------------------------------
Loan substitute securities
Carrying value $ 30 2.9% $ 51 4.4% $ -- -- $ -- --
Fair value $ 30 $ 51 $ -- $ --
===========================================================================================================================
Total securities
Carrying value $ 20,217 $ 18,219 $ 3,412 $ 6,335
Fair value(2) $ 20,004 $ 18,340 $ 3,603 $ 6,620
===========================================================================================================================
Residual term to contractual maturity
--------------------------------------------------------------------------------------
No specific maturity 2002 Total 2001 Total 2000 Total
--------------------------------------------------------------------------------------------------------------------
Carrying Carrying Carrying Carrying
$ millions, as at October 31 value Yield(1) value Yield(1) value Yield(1) value Yield(1)
--------------------------------------------------------------------------------------------------------------------
Securities held for investment
Canadian federal government $ -- -- $ 8,316 4.1% $ 9,851 5.4% $ 4,629 5.9%
Other Canadian governments -- -- 626 6.0 801 6.3 1,311 6.1
U.S. Treasury -- -- 2 5.2 583 5.5 158 6.7
Other U.S. agencies -- -- 4,930 5.7 4,513 6.1 2,949 6.5
Other foreign governments -- -- 302 6.2 854 6.6 1,238 6.2
Corporate debt -- -- 3,554 6.7 3,162 6.5 2,368 7.1
Corporate equity 2,518 -- 2,853 -- 3,085 -- 3,211 --
--------------------------------------------------------------------------------------------------------------------
Total debt securities
Carrying value $ -- $ 17,730 $ 19,764 $ 12,653
Fair value $ -- $ 18,130 $ 20,363 $ 12,802
--------------------------------------------------------------------------------------------------------------------
Total equity securities
Carrying value $ 2,518 $ 2,853 $ 3,085 $ 3,211
Fair value(2) $ 2,805 $ 3,124 $ 3,199 $ 5,689
--------------------------------------------------------------------------------------------------------------------
Total investment securities
Carrying value $ 2,518 $ 20,583 $ 22,849 $ 15,864
Fair value(2) $ 2,805 $ 21,254 $ 23,562 $ 18,491
====================================================================================================================
Securities held for trading(3)
Canadian federal government $ -- $ 10,955 $ 12,293 $ 13,383
Other Canadian governments -- 1,876 1,711 1,926
U.S. Treasury and agencies -- 6,814 6,928 4,523
Other foreign governments -- 932 587 1,359
Corporate debt -- 9,046 8,232 9,334
Corporate equity 14,591 15,005 22,047 22,692
--------------------------------------------------------------------------------------------------------------------
Total trading securities $ 14,591 $ 44,628 $ 51,798 $ 53,217
--------------------------------------------------------------------------------------------------------------------
Loan substitute securities
Carrying value $ -- -- $ 81 3.8% $ 147 4.4% $ 161 4.3%
Fair value $ -- $ 81 $ 147 $ 161
====================================================================================================================
Total securities
Carrying value $ 17,109 $ 65,292 $ 74,794 $ 69,242
Fair value(2) $ 17,396 $ 65,963 $ 75,507 $ 71,869
====================================================================================================================
(1) Represents the weighted-average yield, which is determined by applying the
weighted average of the book yields of individual fixed income securities
and the stated dividend rates of corporate equity securities.
(2) The fair value of publicly traded equity securities held for investment
does not take into account any adjustments for resale restrictions that
expire within one year, adjustments for liquidity or future expenses.
(3) As securities held for trading are recorded at fair value, carrying value
equals fair value.
--------------------------------------------------------------------------------
84
CIBC ANNUAL REPORT 2002
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
FAIR VALUE OF SECURITIES HELD FOR INVESTMENT
2002 2001
--------------------------------------------------------------------------------------------------------------------------------
Carrying Unrealized Unrealized Fair Carrying Unrealized Unrealized Fair
$ millions, as at October 31 value gains losses value value gains losses value
--------------------------------------------------------------------------------------------------------------------------------
Securities issued or
guaranteed by:
Canadian federal government $ 8,316 $ 166 $ -- $ 8,482 $ 9,851 $ 318 $ -- $ 10,169
Other Canadian governments 626 56 -- 682 801 43 -- 844
U.S. Treasury 2 -- -- 2 583 51 -- 634
Other U.S. agencies 4,930 287 (19) 5,198 4,513 100 (10) 4,603
Other foreign governments 302 52 -- 354 854 54 (2) 906
Corporate securities
Debt 3,554 103 (245) 3,412 3,162 87 (42) 3,207
Equity(1) 2,853 405 (134) 3,124 3,085 496 (382) 3,199
--------------------------------------------------------------------------------------------------------------------------------
$ 20,583 $ 1,069 $ (398) $ 21,254 $ 22,849 $ 1,149 $ (436) $ 23,562
================================================================================================================================
(1) In 2001, equity securities held for investment included one security
partially hedged by forward sales contracts which were unwound in 2002.
The unrealized gain related to securities held for investment as at
October 31, 2001 would have increased by $815 million as a result of these
hedges.
Trading activities
Trading revenue is earned through the trading of securities and foreign exchange
and derivative products. Net interest income on trading assets is integral to
trading activities and is therefore included in total trading revenue.
Trading activities include dealing and other securities and derivatives
trading activities measured at fair value, with gains and losses recognized in
income. Trading activities exclude underwriting fees and commissions on
securities transactions, which are shown separately in the consolidated
statements of income.
--------------------------------------------------------------------------------
TRADING REVENUE
$ millions, for the years ended October 31 2002 2001 2000
--------------------------------------------------------------------------------
Net interest income consists of:
Non-trading related $ 5,220 $ 4,862 $ 4,632
Trading related 290 (313) (350)
--------------------------------------------------------------------------------
Net interest income $ 5,510 $ 4,549 $ 4,282
================================================================================
Trading revenue consists of:
Trading related net interest income $ 290 $ (313) $ (350)
Non-interest income - trading activities 273 1,343 1,140
--------------------------------------------------------------------------------
Trading revenue $ 563 $ 1,030 $ 790
================================================================================
Trading revenue by product line:
Interest rates $ 290 $ 505 $ 231
Foreign exchange(1) 152 179 199
Equities 44 279 304
Other(2) 77 67 56
--------------------------------------------------------------------------------
Trading revenue $ 563 $ 1,030 $ 790
================================================================================
(1) Revenue earned on foreign exchange for other than trading activities is
included in other non-interest income.
(2) Includes commodities, credit derivatives and secondary loan trading and
sales.
--------------------------------------------------------------------------------
4. LOANS
2002 2001
-----------------------------------------------------------------------------------------------------------------------------------
Gross Total Gross Total
$ millions, as at October 31 amount allowance Net total amount allowance Net total
-----------------------------------------------------------------------------------------------------------------------------------
Residential mortgages $ 66,612 $ 40 $ 66,572 $ 58,751 $ 23 $ 58,728
Personal and credit card loans(1) 30,784 701 30,083 28,411 502 27,909
Business and government loans 41,961 1,547 40,414 46,693 519 46,174
Securities borrowed or purchased under resale agreements 16,020 -- 16,020 24,079 -- 24,079
General allowance(2) -- -- -- -- 1,250 (1,250)
-----------------------------------------------------------------------------------------------------------------------------------
$155,377 $2,288 $153,089 $157,934 $2,294 $155,640
===================================================================================================================================
(1) Includes $303 million (2001: $233 million), non-recourse portion of
approximately $141 million (2001: $106 million), relating to loans to
certain employees of CIBC and its subsidiaries to finance a portion of
their participation in funds which make private equity investments on a
side by side basis with CIBC and its affiliates. These loans are secured
by the borrowers' interest in the fund. Of the total loans outstanding,
$61 million (2001: $22 million) relates to individuals who are no longer
employed by CIBC and its subsidiaries.
(2) Pursuant to an OSFI guideline issued in October 2001, the general
allowance has been allocated to related asset categories in 2002. Prior to
2002, the general allowance was not allocated.
--------------------------------------------------------------------------------
85
CIBC ANNUAL REPORT 2002
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
LOAN MATURITIES
Residual term to contractual maturity
----------------------------------------------------------------
Within 1 to 5 5 to 10 Over 2002
$ millions, as at October 31 1 year years years 10 years Total
---------------------------------------------------------------------------------------------------------------------------
Residential mortgages $ 13,842 $ 48,864 $ 3,562 $ 344 $ 66,612
Personal and credit card loans 23,836 6,925 20 3 30,784
Business and government loans 26,305 12,823 2,442 391 41,961
Securities borrowed or purchased under resale agreements 16,020 -- -- -- 16,020
---------------------------------------------------------------------------------------------------------------------------
$ 80,003 $ 68,612 $ 6,024 $ 738 $155,377
===========================================================================================================================
--------------------------------------------------------------------------------
ALLOWANCE FOR CREDIT LOSSES
Specific allowance General allowance(1) Total allowance
--------------------------------------------------------------------------------------------
$ millions, as at or for the years
ended October 31 2002 2001 2000 2002 2001 2000 2002 2001 2000
-----------------------------------------------------------------------------------------------------------------------------------
Balance at beginning of year $ 1,045 $ 988 $ 752 $ 1,250 $ 1,250 $ 1,000 $ 2,295 $ 2,238 $ 1,752
Provision for credit losses
charged to the consolidated
statements of income 1,500 1,100 970 -- -- 250 1,500 1,100 1,220
Write-offs (1,705) (1,249) (849) -- -- -- (1,705) (1,249) (849)
Recoveries(2) 217 185 121 -- -- -- 217 185 121
Foreign exchange and other
adjustments (18) 21 (6) -- -- -- (18) 21 (6)
-----------------------------------------------------------------------------------------------------------------------------------
Balance at end of year 1,039 1,045 988 1,250 1,250 1,250 2,289 2,295 2,238
Less: allowance on
letters of credit(3) (1) (1) (2) -- -- -- (1) (1) (2)
-----------------------------------------------------------------------------------------------------------------------------------
Allowance for credit losses $ 1,038 $ 1,044 $ 986 $ 1,250 $ 1,250 $ 1,250 $ 2,288 $ 2,294 $ 2,236
===================================================================================================================================
(1) Pursuant to an OSFI guideline issued in October 2001, the general
allowance has been allocated to related asset categories in 2002. Prior to
2002, the general allowance was not allocated.
(2) Includes credit protection purchased from third parties.
(3) Allowance on letters of credit is included in other liabilities.
--------------------------------------------------------------------------------
IMPAIRED LOANS
2002 2001
-------------------------------------------------------------------------------------------------------------------------------
Gross Specific Gross Specific
$ millions, as at October 31 amount allowance Net total amount allowance Net total
-------------------------------------------------------------------------------------------------------------------------------
Residential mortgages $ 172 $ 21 $ 151 $ 182 $ 23 $ 159
Personal and credit card loans(1) 239 422 (183) 323 502 (179)
Business and government loans 1,834 595 1,239 1,197 519 678
-------------------------------------------------------------------------------------------------------------------------------
Total impaired loans 2,245 1,038 1,207 1,702 1,044 658
Loan substitute securities 30 -- 30 -- -- --
-------------------------------------------------------------------------------------------------------------------------------
Total impaired loans and loan substitute securities $ 2,275 $ 1,038 $ 1,237 $ 1,702 $ 1,044 $ 658
===============================================================================================================================
(1) Specific allowances for large numbers of homogeneous balances of
relatively small amounts are established by reference to historical ratios
of write-offs to balances outstanding. This may result in negative net
impaired loans as individual loans are generally classified as impaired
when repayment of principal or payment of interest is contractually 90
days in arrears.
As at October 31, 2002, other past due loans totalled $38 million (2001: $68
million) of which $38 million (2001: $67 million) were in Canada and nil (2001:
$1 million) were outside Canada. Other past due loans, excluding credit card
loans and government guaranteed loans, are loans where repayment of principal or
payment of interest is contractually in arrears between 90 and 180 days. These
loans have not been classified as impaired loans because they are both fully
secured and in the process of collection. If the number of days in arrears
reaches 180, the loans become impaired notwithstanding the security held.
As at October 31, 2002, the interest entitlements on loans classified as
impaired totalled $114 million (2001: $95 million; 2000: $146 million) of which
$60 million (2001: $72 million; 2000: $101 million) were in Canada and $54
million (2001: $23 million; 2000: $45 million) were outside Canada. During the
year, interest recognized on loans before being classified as impaired totalled
$84 million (2001: $62 million; 2000: $77 million) of which $33 million (2001:
$36 million; 2000: $51 million) were in Canada and $51 million (2001: $26
million; 2000: $26 million) were outside Canada.
--------------------------------------------------------------------------------
86
CIBC ANNUAL REPORT 2002
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
5. SECURITIZATIONS
During the year, CIBC securitized $1,971 million (2001: $810 million) of
government-guaranteed residential mortgage loans through the creation of
mortgage-backed securities, and subsequently sold $1,969 million (2001: $809
million) of those securities. CIBC received net cash proceeds of $1,952 million
(2001: $809 million) and retained the rights to future excess interest on
residential mortgages valued at $82 million (2001: $37 million). A pre-tax gain
on the sale, net of transaction costs, of $21 million (2001: $17 million) was
recognized as other non-interest income in the consolidated statements of
income. CIBC retained responsibility for servicing the mortgages and recognizes
revenue for servicing as these services are provided. The key assumptions used
to value the sold and retained interests include a prepayment rate of 12% and
discount rates of 4.5% to 5.5%. There are no expected credit losses as the
mortgages are government guaranteed.
During 2001, CIBC also securitized $848 million of non-investment grade
loans. In addition, CIBC sold $195 million of undrawn credit commitments. In
consideration for the sale, CIBC received cash proceeds of $497 million and $141
million in an investment grade note issued by the securitization vehicle. CIBC
recognized a pre-tax loss of $162 million, which was included in other
non-interest income in the consolidated statements of income, and a specific
provision for credit losses of $48 million. CIBC did not retain responsibility
for servicing these loans. The key assumptions used to value the retained
interest include expected credit losses of 11.0%.
A servicing asset or liability is not generally recognized in these
securitizations because CIBC receives adequate compensation for the servicing
that it provides with respect to the transferred assets.
The following table summarizes certain cash flows received from or paid to
SPEs:
$ millions, for the years ended October 31 2002 2001
-------------------------------------------------------------------------------------------------
Proceeds from new securitizations $ 1,952 $ 1,306
Proceeds from collections reinvested in previous credit card securitizations $ 9,236 $ 8,246
Servicing fees received $ 12 $ 10
Purchase of impaired loans $ (63) $ (69)
Other cash flows received on retained interests $ 242 $ 282
=================================================================================================
Key economic assumptions used in measuring the fair value of retained interests
in securitizations and the sensitivity of the current fair value of residual
cash flows to changes in those assumptions are as follows:
Non-
Commercial Residential Credit Investment investment
$ millions, as at October 31 mortgages mortgages card loans grade loans(1) grade loans
---------------------------------------------------------------------------------------------------------------------------------
2002 Carrying amount of retained interests $ 21 $ 106 $ 43 -- $ 139
Fair value of retained interests $ 21 $ 109 $ 42 -- $ 139
Weighted-average remaining life (in years) 2 5 revolving -- 3
Prepayment rate NA(2) 12.0 - 21.5% 15.0 - 45.4%(3) -- NA(4)
Impact on fair value of a 10% adverse change -- $ (3) $ (3) -- --
Impact on fair value of a 20% adverse change -- $ (5) $ (5) -- --
Expected credit losses 0.3% NA(5) 2.7 - 5.0% -- 11.0%
Impact on fair value of a 10% adverse change -- -- $ (1) -- --
Impact on fair value of a 20% adverse change -- -- $ (2) -- --
Residual cash flows discount rate (annual rate) 6.5% 4.7% 17.1 - 18.0% -- NA(4)
Impact on fair value of a 10% adverse change -- $ (1) -- -- --
Impact on fair value of a 20% adverse change -- $ (2) -- -- --
=================================================================================================================================
2001 Carrying amount of retained interests $ 42 $ 45 $ 29 $ 1,789 $ 141
Fair value of retained interests $ 42 $ 48 $ 27 $ 1,789 $ 141
Weighted-average remaining life (in years) 3 5 revolving 1 3
Prepayment rate NA(2) 12.0% 38.7%(3) 5.0% NA(4)
Impact on fair value of a 10% adverse change -- $ (1) $ (2) -- --
Impact on fair value of a 20% adverse change -- $ (2) $ (4) -- --
Expected credit losses 0.3% NA(5) 4.0% 2.0% 11.0%
Impact on fair value of a 10% adverse change -- -- $ (1) $ (2) --
Impact on fair value of a 20% adverse change -- -- $ (3) $ (4) --
Residual cash flows discount rate (annual rate) 6.5% 4.6 - 5.6% 16.9% 3.0% NA(4)
Impact on fair value of a 10% adverse change -- -- -- $ (3) --
Impact on fair value of a 20% adverse change -- $ (1) -- $ (5) --
=================================================================================================================================
(1) During 2002, the SPE for investment grade loans was wound up.
(2) Not applicable as these retained interests are not subject to prepayment
risk.
(3) Monthly prepayment rate.
(4) Not applicable as the retained interest is rated as investment grade and
does not represent future excess interest on the loans.
(5) Not applicable as these mortgages are government guaranteed.
--------------------------------------------------------------------------------
87
CIBC ANNUAL REPORT 2002
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
The sensitivities are hypothetical and should be used with caution. As the
amounts indicate, changes in fair value based on variations in assumptions
generally cannot be extrapolated because the relationship of the change in
assumption to the change in fair value may not be linear. Also, the effect of a
variation in a particular assumption on the fair value of the retained interest
is calculated without changing any other assumption. Changes in one factor may
result in changes in another, which might magnify or counteract the
sensitivities.
The following table analyses CIBC's expected static pool credit losses:
Non-
Credit Investment investment
Commercial Residential card grade grade
% of outstanding loans, as at October 31 mortgages mortgages loans loans loans
---------------------------------------------------------------------------------------------------------------------------
2002 Actual and projected credit losses 0.3% NA(1) 2.7 - 5.0% -- 11.0%
===========================================================================================================================
2001 Actual and projected credit losses 0.3% NA(1) 4.0% 2.0% 11.0%
===========================================================================================================================
(1) Static pool losses are not applicable to residential mortgages as the
mortgages are government guaranteed.
Information about impaired and other past due loans and net credit losses for
components of reported and securitized financial assets is presented in the
following table:
$ millions, as at or for the years ended October 31
---------------------------------------------------------------------------------------------------------------------------
Total Impaired
principal and other Net
amount of past due credit
Type of loan loans(1) loans losses
---------------------------------------------------------------------------------------------------------------------------
2002 Residential mortgages $ 69,812 $ 411 $ 3
Personal and credit card loans 33,184 264 490
Business and government loans(2) 42,461 1,843 1,098
Securities borrowed or purchased under resale agreements 16,020 -- --
---------------------------------------------------------------------------------------------------------------------------
Total loans reported and securitized(3) 161,477 2,518 1,591
Less: loans securitized (6,100) (235) (91)
---------------------------------------------------------------------------------------------------------------------------
Loans reported before allowance for credit losses $155,377 $2,283 $1,500
===========================================================================================================================
2001 Residential mortgages $ 60,431 $ 231 $ 3
Personal and credit card loans 30,111 337 431
Business and government loans(2) 49,013 1,240 832
Securities borrowed or purchased under resale agreements 24,079 -- --
---------------------------------------------------------------------------------------------------------------------------
Total loans reported and securitized(3) 163,634 1,808 1,266
Less: loans securitized (5,700) (38) (166)
---------------------------------------------------------------------------------------------------------------------------
Loans reported before allowance for credit losses $157,934 $1,770 $1,100
===========================================================================================================================
(1) Certain comparative figures have been reclassified to conform with the
presentation used in 2002.
(2) Includes commercial mortgages and investment grade loans.
(3) Includes loans outstanding and loans that have been securitized, which
CIBC continues to service.
--------------------------------------------------------------------------------
6. LAND, BUILDINGS AND EQUIPMENT
2002 2001
----------------------------------------------------------------------------------------
Accumulated Net book Net book
$ millions, as at October 31 Cost amortization(1) value value
----------------------------------------------------------------------------------------
Land $ 81 $ -- $ 81 $ 106
Buildings(2) 1,122 217 905 351
Computer equipment 2,080 1,547 533 464
Office furniture and other equipment 1,080 540 540 585
Leasehold improvements 664 476 188 263
----------------------------------------------------------------------------------------
$5,027 $2,780 $2,247 $1,769
========================================================================================
(1) Amortization of buildings, furniture, equipment and leasehold improvements
for the year amounted to $333 million (2001: $310 million; 2000: $313
million).
(2) Includes $576 million not being amortized as it relates to a building
under construction.
--------------------------------------------------------------------------------
88
CIBC ANNUAL REPORT 2002
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
7. GOODWILL AND OTHER INTANGIBLE ASSETS
As explained in Note 1, CIBC adopted the requirements of the CICA handbook
section 3062, "Goodwill and Other Intangible Assets," in 2002 and the CICA
handbook section 1581, "Business Combinations," in 2001.
CIBC completed its annual impairment testing on goodwill and other
intangible assets with an indefinite life. There were no impairment write-downs.
During the year, CIBC decided to exit its U.S. electronic banking
operations. As a result, CIBC recognized a write-down of $34 million on
finite-lived other intangible assets related to these operations, and this
amount is recorded in the restructuring charge.
The components of other intangible assets are as follows:
2002 2001
------------------------------------------------------------------------------------------------------------------------------------
Gross Net Gross Net
carrying Accumulated carrying carrying Accumulated carrying
$ millions, as at October 31 amount amortization(1) amount amount amortization(1) amount
------------------------------------------------------------------------------------------------------------------------------------
Finite-lived other intangible assets
Customer relationships(2) $157 $ 26 $131 $101 $ 16 $ 85
Contract based(3) 57 16 41 80 6 74
Technology based 43 35 8 43 26 17
Other(3) 5 4 1 12 1 11
------------------------------------------------------------------------------------------------------------------------------------
262 81 181 236 49 187
Indefinite-lived other intangible assets
Contract based(4) 116 -- 116 41 -- 41
------------------------------------------------------------------------------------------------------------------------------------
Total other intangible assets $378 $ 81 $297 $277 $ 49 $228
====================================================================================================================================
(1) Amortization of other intangible assets for the year amounted to $32
million (2001: $25 million; 2000: $24 million).
(2) Changes in gross carrying amount include acquisitions of third-party
custody business and credit card relationships.
(3) Changes in gross carrying amount include the write-down relating to the
exit of U.S. electronic banking operations.
(4) Changes in gross carrying amount include $75 million of other intangible
assets acquired in the acquisition of MLIM.
The changes in the carrying amount of goodwill are as follows:
CIBC CIBC CIBC
Retail Wealth World Corporate CIBC
$ millions, as at or for the years ended October 31 Markets Management Markets Amicus and Other Total
----------------------------------------------------------------------------------------------------------------------------------
2002 Balance at beginning of year $ 7 $ 305 $ 67 $ 13 $ 8 $ 400
Goodwill acquired during the year 4 563 108 -- -- 675
Adjustments(1) -- 14 (4) (1) (6) 3
----------------------------------------------------------------------------------------------------------------------------------
Balance at end of year $ 11 $ 882 $ 171 $ 12 $ 2 $ 1,078
==================================================================================================================================
2001 Balance at beginning of year $ 14 $ -- $ 82 $ 6 $ 8 $ 110
Goodwill acquired during the year -- 279 4 12 -- 295
Amortization (7) -- (15) (2) -- (24)
Adjustments(1) -- 26(2) (4) (3) -- 19
----------------------------------------------------------------------------------------------------------------------------------
Balance at end of year $ 7 $ 305 $ 67 $ 13 $ 8 $ 400
==================================================================================================================================
(1) Includes foreign currency translation and other purchase price equation
adjustments.
(2) Represents goodwill previously included in the equity interest in TAL
accounted for by the equity method.
In accordance with the CICA handbook section 3062, the effect of this accounting
change is reflected prospectively. Supplemental comparative disclosure, as if
the change had been retroactively applied to fiscal years 2001 and 2000, is as
follows:
$ millions, except per share amounts, for the years ended October 31 2002 2001 2000
----------------------------------------------------------------------------------------------------------------------
Reported net income $ 653 $ 1,686 $ 2,060
Add back:
Goodwill amortization(1) -- 24 23
Goodwill amortization - equity accounted investments(2) -- 22 17
----------------------------------------------------------------------------------------------------------------------
-- 46 40
----------------------------------------------------------------------------------------------------------------------
Net income adjusted for goodwill amortization $ 653 $ 1,732 $ 2,100
======================================================================================================================
Basic EPS - Reported $ 1.37 $ 4.19 $ 4.95
- Adjusted for goodwill $ 1.37 $ 4.31 $ 5.06
Diluted EPS - Reported $ 1.35 $ 4.13 $ 4.90
- Adjusted for goodwill $ 1.35 $ 4.25 $ 5.01
======================================================================================================================
(1) Recorded in non-interest expenses in the consolidated statements of
income.
(2) Recorded in interest income in the consolidated statements of income.
--------------------------------------------------------------------------------
89
CIBC ANNUAL REPORT 2002
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
8. OTHER ASSETS
$ millions, as at October 31 2002 2001(1)
-----------------------------------------------------------------------------
Accrued interest receivable $ 1,423 $ 1,505
Brokers' client accounts 994 836
Prepaid pension costs (Note 15) 467 413
Future income taxes (Note 18) 1,782 581
Other prepayments and deferred items 1,037 1,656
Other, including accounts receivable 4,510 4,479
-----------------------------------------------------------------------------
$10,213 $ 9,470
=============================================================================
(1) Goodwill and other intangible assets have been reclassified from other
assets in 2002.
--------------------------------------------------------------------------------
9. DEPOSITS
Payable on a fixed date(3)
Payable Payable -----------------------------------------------
on after Within 1 to 5 to Over 2002 2001
$ millions, as at October 31 demand(1) notice(2) 1 year 5 years 10 years 10 years Total Total
----------------------------------------------------------------------------------------------------------------------------------
Individuals $ 6,620 $ 25,338 $ 23,335 $ 12,652 $ 30 $ -- $ 67,975 $ 66,826
Businesses and governments 17,059 6,072 85,182 5,408 2,617 1,648 117,986 114,270
Banks 568 101 8,525 1,427 9 39 10,669 13,256
----------------------------------------------------------------------------------------------------------------------------------
$ 24,247 $ 31,511 $117,042 $ 19,487 $ 2,656 $ 1,687 $196,630 $194,352
==================================================================================================================================
Total deposits include:
Non-interest-bearing
deposits
In domestic offices $ 8,690 $ 7,599
In foreign offices 445 846
Interest-bearing
deposits
In domestic offices 110,382 110,131
In foreign offices 75,431 74,437
U.S. federal funds
purchased 1,682 1,339
----------------------------------------------------------------------------------------------------------------------------------
$196,630 $194,352
==================================================================================================================================
(1) Deposits payable on demand include all deposits for which CIBC does not
have the right to require notice of withdrawal. These deposits are, in
general, chequing accounts.
(2) Deposits payable after notice include all deposits for which CIBC can
legally require notice of withdrawal. These deposits are, in general,
savings accounts.
(3) Deposits payable on a fixed date include all deposits which mature on a
specified date. These deposits are generally term deposits, guaranteed
investment certificates and similar instruments.
--------------------------------------------------------------------------------
10. OTHER LIABILITIES
$ millions, as at October 31 2002 2001
--------------------------------------------------------------------------------
Accrued interest payable $ 1,437 $ 2,064
Gold and silver certificates 161 263
Brokers' client accounts 2,139 1,777
Cheques and other items in transit, net 342 41
Deferred gain on sale of real estate properties(1) 110 126
Other deferred items 344 251
Restructuring provision (Note 16) 452 212
Employee benefit plans (Note 15) 525 467
Accrued expenses 874 1,010
Non-controlling interests in subsidiaries 111 249
Other, including accounts payable 4,485 3,652
--------------------------------------------------------------------------------
$10,980 $10,112
================================================================================
(1) Deferred gain is being recognized in income each year over the approximate
10-year average term of the leases relating to properties sold and leased
back by CIBC in 2000, which CIBC continues to occupy.
--------------------------------------------------------------------------------
90
CIBC ANNUAL REPORT 2002
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
11. SUBORDINATED INDEBTEDNESS
The following indebtedness is unsecured and subordinated to deposits and other
liabilities. Foreign-denominated indebtedness either funds foreign-denominated
assets (including net investments in foreign operations) or is combined with
cross-currency swaps to provide Canadian dollar equivalent funding.
--------------------------------------------------------------------------------
TERMS OF SUBORDINATED INDEBTEDNESS
$ millions, as at October 31
-----------------------------------------------------------------------------------------------------------------------------------
Earliest date redeemable by CIBC
-------------------------------------
At greater of
Canada Yield Denominated in
Interest rate % Maturity date Price(1) and par At par foreign currency 2002 2001
-----------------------------------------------------------------------------------------------------------------------------------
5.5 June 21, 2003(3) Yen 5 billion $ 64 $ 65
11.125 February 10, 2004(3) 1 1
7.1 March 10, 2004 March 10, 1999 67 67
8.55 May 12, 2005(13) May 12, 2000 1 1
8.65 August 22, 2005(14) August 22, 2000 24 24
Floating(4) March 7, 2007(10) March 7, 2002 -- 100
Floating(5) October 30, 2007(16) October 30, 2002 -- 210
Floating(5) March 4, 2008 March 4, 2003 50 50
Floating(6)(7) May 19, 2008 May 18, 2003 US$ 250 million 389 397
6.5(2) October 21, 2009 October 21, 1999 October 21, 2004 400 400
7.4(2) January 31, 2011 January 31, 2006 250 250
8.15(2) April 25, 2011 April 25, 2001 April 25, 2006 250 250
7.0(2) October 23, 2011 October 23, 2001 October 23, 2006 250 250
Floating(6)(8) August 14, 2012 August 14, 2007 US$ 300 million 467 477
5.89(2) February 26, 2013 February 26, 1998 February 26, 2008 120 120
9.65 October 31, 2014 November 1, 1999 250 250
8.7 May 25, 2029(3) 25 25
11.6 January 7, 2031 January 7, 1996 200 200
10.8 May 15, 2031 May 15, 2021 150 150
8.7 May 25, 2032(3) 25 25
8.7 May 25, 2033(3) 25 25
8.7 May 25, 2035(3) 25 25
Floating(9) July 31, 2084 July 27, 1990 US$ 255 million(12) 397 405
Floating(11) August 31, 2085 August 20, 1991 US$ 126 million(15) 197 232
-----------------------------------------------------------------------------------------------------------------------------------
$3,627 $3,999
===================================================================================================================================
(1) Canada Yield Price: a price calculated to provide a yield to maturity
equal to the yield of a Government of Canada bond of appropriate maturity
plus a predetermined spread.
(2) Interest rate is fixed at the indicated rate until the earliest date
redeemable at par by CIBC and thereafter, at the three-month bankers'
acceptance rate plus 1.00%.
(3) Not redeemable prior to maturity date.
(4) Interest rate is based on the three-month bankers' acceptance rate plus
0.20% until the earliest date redeemable by CIBC and thereafter, on the
three-month bankers' acceptance rate plus 1.00%.
(5) Interest rate is based on the three-month bankers' acceptance rate plus
0.21% until the earliest date redeemable by CIBC and thereafter, on the
three-month bankers' acceptance rate plus 1.00%.
(6) Issued by CIBC World Markets plc and guaranteed by CIBC on a subordinated
basis.
(7) Interest rate is based on the three-month London inter-bank offered rate
(LIBOR) plus 0.25% until the earliest date redeemable by CIBC World
Markets plc and thereafter, on the three-month LIBOR plus 0.75%.
(8) Interest rate is based on the three-month LIBOR plus 0.35% until the
earliest date redeemable by CIBC World Markets plc and thereafter, on the
three-month LIBOR plus 1.35%.
(9) Interest rate is based on the six-month LIBOR plus 0.25%.
(10) Redeemed for cash on March 7, 2002.
(11) Interest rate is based on the six-month LIBOR plus 0.125%.
(12) US$2 million of the indebtedness was repurchased for cash on February 16,
2001.
(13) On May 12, 2001, $69 million of the indebtedness was converted to 8.55%
Deposit Notes maturing May 12, 2005.
(14) On August 22, 2001, $176 million of the indebtedness was converted to
8.65% Deposit Notes maturing August 22, 2005.
(15) US$20 million of the indebtedness was repurchased for cash on April 26,
2002.
(16) Redeemed for cash on October 30, 2002.
The aggregate contractual maturities of CIBC's subordinated indebtedness are
outlined in the following table:
--------------------------------------------------------------------------------
REPAYMENT SCHEDULE
$ millions
--------------------------------------------------------------------------------
Within 1 year $ 64
1 to 2 years 68
2 to 3 years 25
3 to 4 years --
4 to 5 years --
Over 5 years 3,470
--------------------------------------------------------------------------------
$3,627
================================================================================
--------------------------------------------------------------------------------
91
CIBC ANNUAL REPORT 2002
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
12. INTEREST RATE SENSITIVITY
CIBC is exposed to interest rate risk as a consequence of the mismatch, or gap,
between the assets, liabilities and off-balance sheet instruments scheduled to
mature or reprice on particular dates. The gaps which existed at October 31 are
detailed below.
Based on earlier of maturity or repricing date of interest sensitive instruments
--------------------------------------------------------------------------------
Floating Within 3 to 12 1 to 5 Over 5 Not interest
$ millions, as at October 31 rate 3 months months years years rate sensitive Total
-----------------------------------------------------------------------------------------------------------------------------------
2002 Assets
-----------------------------------------------------------------------------------------------------------------------------------
Cash resources $ 14 $ 6,960 $ 1,238 $ -- $ -- $ 1,300 $ 9,512
Effective yield(1) 2.51% 1.91%
Securities held for
investment
and loan substitute
securities 2,582 673 4,174 6,597 4,120 2,518 20,664
Effective yield(1) 4.27% 4.32% 4.81% 6.60%
Securities held for trading -- 12,472 2,942 11,398 3,225 14,591 44,628
Effective yield(1) 1.93% 2.89% 3.90% 6.15%
Loans 68,968 35,660 11,838 28,563 5,797 2,263 153,089
Effective yield(1) 3.61% 5.72% 6.47% 6.73%
Other -- 24,717 -- -- -- 20,683 45,400
-----------------------------------------------------------------------------------------------------------------------------------
Total assets $ 71,564 $ 80,482 $ 20,192 $ 46,558 $ 13,142 $ 41,355 $ 273,293
===================================================================================================================================
Liabilities and
shareholders' equity
-----------------------------------------------------------------------------------------------------------------------------------
Deposits $ 51,903 $ 80,533 $ 26,472 $ 17,359 $ 2,176 $ 18,187 $ 196,630
Effective yield(1) 2.28% 2.63% 3.81% 4.10%
Obligations related to
securities sold short -- 491 1,380 1,606 1,611 3,348 8,436
Effective yield(1) 1.83% 3.25% 3.52% 4.73%
Obligations related to
securities lent or sold
under repurchase agreements -- 9,404 -- -- -- 211 9,615
Effective yield(1) 3.21%
Subordinated indebtedness -- 1,500 64 1,243 820 -- 3,627
Effective yield(1) 2.10% 5.50% 7.19% 9.67%
Other -- 24,794 -- -- -- 30,191 54,985
-----------------------------------------------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $ 51,903 $ 116,722 $ 27,916 $ 20,208 $ 4,607 $ 51,937 $ 273,293
===================================================================================================================================
On-balance sheet gap $ 19,661 $ (36,240) $ (7,724) $ 26,350 $ 8,535 $ (10,582) $ --
Off-balance sheet gap -- 27,844 (17,456) (8,567) (1,821) -- --
-----------------------------------------------------------------------------------------------------------------------------------
Total gap $ 19,661 $ (8,396) $ (25,180) $ 17,783 $ 6,714 $ (10,582) $ --
Total cumulative gap $ 19,661 $ 11,265 $ (13,915) $ 3,868 $ 10,582 $ -- $ --
===================================================================================================================================
Gap by currency
-----------------------------------------------------------------------------------------------------------------------------------
On-balance sheet gap
Canadian currency $ 38,063 $ (50,138) $ (4,494) $ 25,682 $ 4,878 $ (13,991) $ --
Foreign currencies (18,402) 13,898 (3,230) 668 3,657 3,409 --
-----------------------------------------------------------------------------------------------------------------------------------
Total on-balance sheet gap 19,661 (36,240) (7,724) 26,350 8,535 (10,582) --
-----------------------------------------------------------------------------------------------------------------------------------
Off-balance sheet gap
Canadian currency -- 6,036 (3,608) (1,236) (1,192) -- --
Foreign currencies -- 21,808 (13,848) (7,331) (629) -- --
-----------------------------------------------------------------------------------------------------------------------------------
Total off-balance sheet gap -- 27,844 (17,456) (8,567) (1,821) -- --
-----------------------------------------------------------------------------------------------------------------------------------
Total gap $ 19,661 $ (8,396) $ (25,180) $ 17,783 $ 6,714 $ (10,582) $ --
===================================================================================================================================
2001 Gap by currency
-----------------------------------------------------------------------------------------------------------------------------------
On-balance sheet gap
Canadian currency $ 23,521 $ (42,902) $ (1,891) $ 30,828 $ 4,701 $ (14,257) $ --
Foreign currencies (14,624) 20,444 (14,549) (2,761) 918 10,572 --
-----------------------------------------------------------------------------------------------------------------------------------
Total on-balance sheet gap 8,897 (22,458) (16,440) 28,067 5,619 (3,685) --
-----------------------------------------------------------------------------------------------------------------------------------
Off-balance sheet gap
Canadian currency -- (1,293) 3,743 (446) (2,004) -- --
Foreign currencies -- 10,132 (13,772) (1,084) 4,724 -- --
-----------------------------------------------------------------------------------------------------------------------------------
Total off-balance sheet gap -- 8,839 (10,029) (1,530) 2,720 -- --
===================================================================================================================================
Total gap $ 8,897 $ (13,619) $ (26,469) $ 26,537 $ 8,339 $ (3,685) $ --
Total cumulative gap $ 8,897 $ (4,722) $ (31,191) $ (4,654) $ 3,685 $ -- $ --
===================================================================================================================================
(1) Represents the weighted-average effective yield based on the earlier of
contractual repricing or maturity date.
--------------------------------------------------------------------------------
92
CIBC ANNUAL REPORT 2002
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
13. SHARE CAPITAL
Authorized
Preferred shares
An unlimited number of Class A Preferred Shares and Class B Preferred Shares
without nominal or par value issuable in series provided that for each class of
preferred shares, the maximum aggregate consideration for all outstanding shares
at any time does not exceed $10 billion.
Common shares
An unlimited number of common shares without nominal or par value provided that
the maximum aggregate consideration for all outstanding common shares at any
time does not exceed $15 billion.
Share rights and privileges
Class A Preferred Shares
Each series of Class A Preferred Shares bears quarterly non-cumulative dividends
and is redeemable for cash by CIBC on or after the specified redemption dates at
the cash redemption prices indicated below. Each series, except as noted below,
provides CIBC and the shareholders with the right to convert the shares to CIBC
common shares on or after a specified conversion date. Each share is convertible
into a number of common shares determined by dividing the then applicable cash
redemption price by 95% of the average common share price (as defined in the
short form prospectus or prospectus supplement), subject to a minimum price of
$2.00 per share. Where shareholders exercise their conversion right, CIBC has
the right, subject to OSFI's consent, to elect to redeem for cash any shares
tendered for conversion or to arrange for their cash sale to another purchaser.
--------------------------------------------------------------------------------
TERMS OF PREFERRED SHARES
Conversion for common
-------------------------------------
Quarterly Specified Cash redemption CIBC Shareholders'
dividends per share(1) redemption date price per share conversion date conversion date
-----------------------------------------------------------------------------------------------------------------------------------
Series 14 $0.371875 July 31, 2003 $26.00 July 31, 2003 July 31, 2006
July 31, 2004 $25.50
July 31, 2005 $25.00
-----------------------------------------------------------------------------------------------------------------------------------
Series 15 $0.353125 July 31, 2004 $26.00 July 31, 2004 July 31, 2007
July 31, 2005 $25.50
July 31, 2006 $25.00
-----------------------------------------------------------------------------------------------------------------------------------
Series 16 US $0.353125 October 29, 2004 US $25.50 October 29, 2004 October 29, 2007
October 29, 2005 US $25.25
October 29, 2006 US $25.00
-----------------------------------------------------------------------------------------------------------------------------------
Series 17 $0.340625 October 29, 2004 $25.50 October 29, 2004 October 29, 2007
October 29, 2005 $25.25
October 29, 2006 $25.00
-----------------------------------------------------------------------------------------------------------------------------------
Series 18 $0.343750 October 29, 2012 $25.00 not convertible not convertible
-----------------------------------------------------------------------------------------------------------------------------------
Series 19 $0.309375 April 30, 2008 $25.75 April 30, 2008 April 30, 2013
April 30, 2009 $25.60
April 30, 2010 $25.45
April 30, 2011 $25.30
April 30, 2012 $25.15
April 30, 2013 $25.00
-----------------------------------------------------------------------------------------------------------------------------------
Series 20 US $0.321875 October 31, 2005 US $25.50 October 31, 2005 April 30, 2008
October 31, 2006 US $25.25
October 31, 2007 US $25.00
-----------------------------------------------------------------------------------------------------------------------------------
Series 21 $0.375000 July 31, 2005 $26.00 July 31, 2005 July 31, 2010
July 31, 2006 $25.75
July 31, 2007 $25.50
July 31, 2008 $25.25
July 31, 2009 $25.00
-----------------------------------------------------------------------------------------------------------------------------------
Series 22 US $0.390625 July 31, 2005 US $26.00 July 31, 2005 July 31, 2010
July 31, 2006 US $25.75
July 31, 2007 US $25.50
July 31, 2008 US $25.25
July 31, 2009 US $25.00
-----------------------------------------------------------------------------------------------------------------------------------
Series 23 $0.331250 October 31, 2007 $25.75 October 31, 2007 July 31, 2011
October 31, 2008 $25.50
October 31, 2009 $25.25
October 31, 2010 $25.00
-----------------------------------------------------------------------------------------------------------------------------------
Series 24 $0.375000 January 31, 2007 $26.00 January 31, 2007 not convertible
January 31, 2008 $25.75
January 31, 2009 $25.50
January 31, 2010 $25.25
January 31, 2011 $25.00
-----------------------------------------------------------------------------------------------------------------------------------
Series 25 $0.375000 July 31, 2007 $26.00 July 31, 2007 not convertible
July 31, 2008 $25.75
July 31, 2009 $25.50
July 31, 2010 $25.25
July 31, 2011 $25.00
===================================================================================================================================
(1) The quarterly dividends are adjusted for the number of days during the
quarter that the share is outstanding at the time of issuance and
redemption.
--------------------------------------------------------------------------------
93
CIBC ANNUAL REPORT 2002
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
OUTSTANDING SHARES AND DIVIDENDS PAID
2002
--------------------------------------------------------------------------------------------------------------------------------
As at or for the years Shares outstanding Dividends paid Shares outstanding
ended October 31 No. of shares $ millions $ millions $ per share No. of shares $ millions
--------------------------------------------------------------------------------------------------------------------------------
Class A Preferred Shares
Fixed-rate shares
entitled to
non-cumulative dividends
Series 12 -- $ -- $ -- $ -- -- $ --
Series 13 -- -- -- $ -- -- --
Series 14 8,000,000 200 12 $1.49 8,000,000 200
Series 15 12,000,000 300 17 $1.41 12,000,000 300
Series 16 5,500,000 214 12 US$1.41 5,500,000 219
Series 17 6,500,000 162 9 $1.36 6,500,000 162
Series 18 12,000,000 300 16 $1.38 12,000,000 300
Series 19 8,000,000 200 10 $1.24 8,000,000 200
Series 20 4,000,000 156 8 US$1.29 4,000,000 159
Series 21 8,000,000 200 12 $1.50 8,000,000 200
Series 22 4,000,000 156 10 US$1.56 4,000,000 159
Series 23 16,000,000 400 21 $1.33 16,000,000 400
Series 24 16,000,000 400 21 $1.30 -- --
Series 25 16,000,000 400 13 $0.80 -- --
--------------------------------------------------------------------------------------------------------------------------------
Total preferred share
capital and dividends $3,088 $161 $2,299
--------------------------------------------------------------------------------------------------------------------------------
Common shares
Total common share capital
at beginning of year 363,187,931 $2,827 377,140,195 $2,868
Issued pursuant to
stock option plans 1,562,438 59 2,983,736 90
Purchase of common shares
for cancellation (5,686,000) (44) (16,936,000) (131)
--------------------------------------------------------------------------------------------------------------------------------
Total common share capital
and dividends 359,064,369 $2,842 $577 $1.60 363,187,931 $2,827
================================================================================================================================
Total dividends paid $738
================================================================================================================================
2001 2000
---------------------------------------------------------------------------------------
Dividends paid Dividends paid
$ millions $ per share $ millions $ per share
---------------------------------------------------------------------------------------
Class A Preferred Shares
Fixed-rate shares
entitled to
non-cumulative dividends
Series 12 $ -- $ -- $14 US $1.63
Series 13 -- $ -- 14 $1.75
Series 14 12 $1.49 12 $1.49
Series 15 17 $1.41 17 $1.41
Series 16 11 US$1.41 11 US$1.41
Series 17 9 $1.36 9 $1.36
Series 18 17 $1.38 17 $1.38
Series 19 10 $1.24 10 $1.24
Series 20 8 US$1.29 8 US$1.29
Series 21 12 $1.50 9 $1.14
Series 22 9 US$1.56 7 US$1.18
Series 23 16 $0.99 -- --
Series 24 -- -- -- --
Series 25 -- -- -- --
---------------------------------------------------------------------------------------
Total preferred share
capital and dividends $121 $128
---------------------------------------------------------------------------------------
Common shares
Total common share capital
at beginning of year
Issued pursuant to
stock option plans
Purchase of common shares
for cancellation
---------------------------------------------------------------------------------------
Total common share capital
and dividends $536 $1.44 $501 $1.29
=======================================================================================
Total dividends paid $657 $629
=======================================================================================
Restrictions on the payment of dividends
CIBC is prohibited by the Bank Act (Canada) from declaring or paying any
dividends on its preferred shares or common shares if there are reasonable
grounds for believing that CIBC is, or the payment would cause CIBC to be, in
contravention of any capital adequacy or liquidity regulation or any direction
to CIBC made by OSFI regarding CIBC's capital or liquidity.
In addition, Section 79(5) of the Bank Act, which was proclaimed into
force on October 24, 2001, prohibits CIBC from paying a dividend in any
financial year without the approval of OSFI if, on the day the dividend is
declared, the total of all dividends declared by CIBC in that year would exceed
the aggregate of CIBC's net income up to that day in that year and of its
retained net income for the preceding two financial years.
CIBC's ability to pay common share dividends is also restricted by the
terms of the outstanding preferred shares which provide that CIBC may not pay
dividends on its common shares at any time without the approval of holders of
the outstanding preferred shares unless all dividends which are then payable
have been declared and paid or set apart for payment.
Shareholder Investment Plan
Under the Shareholder Investment Plan, eligible shareholders have the right to
participate in one or more of the Dividend Reinvestment Option, the Share
Purchase Option and the Stock Dividend Option.
Shares reserved for issue
As at October 31, 2002, 30,735,308 common shares were reserved for future issue
pursuant to stock option plans.
Normal course issuer bid
CIBC commenced a normal course issuer bid, effective for one year, on January 9,
2002. Under this bid, CIBC may purchase up to 18 million common shares, just
under 5% of its outstanding common shares as at December 31, 2001. As at October
31, 2002, 5.7 million shares were repurchased under the program for an aggregate
consideration of $313 million.
On December 20, 2000, CIBC commenced a normal course issuer bid, effective
for one year, to purchase up to 18.8 million common shares, just under 5% of
CIBC's outstanding common shares as at November 30, 2000. As at October 31,
2001, 16.9 million shares were purchased under the program for an aggregate
consideration of $867 million. There were no purchases under this bid during
fiscal 2002.
--------------------------------------------------------------------------------
94
CIBC ANNUAL REPORT 2002
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
14. STOCK-BASED COMPENSATION
CIBC has the following significant stock-based compensation plans:
Stock option plans
CIBC has two stock option plans: Employee Stock Option Plan and Non-Officer
Director Stock Option Plan.
Under CIBC's Employee Stock Option Plan, stock options are periodically
granted to selected employees. Options provide the employee with the right to
purchase CIBC common shares from CIBC at a fixed price not less than the closing
price of the shares on the trading day immediately preceding the grant date. In
general, the options vest evenly over a four-year period and expire 10 years
from the grant date. Certain options expiring in February 2010 vest based upon
the attainment of specified share prices, and certain options vest based upon
the earlier of the attainment of these prices and seven years.
Up to 50% of options relating to the Employee Stock Option Plan granted
prior to 2000 can be exercised as SARs. SARs can be exchanged for a cash amount
equal to the excess of the weighted-average price of the common shares on the
Toronto Stock Exchange on the trading day immediately preceding the day the SARs
are exercised over the option strike price.
Under CIBC's Non-Officer Director Stock Option Plan, each director who is
not an officer or employee of CIBC or any of its subsidiaries is provided with
the right to purchase CIBC common shares from CIBC at a fixed price equal to the
five-day average of the closing price per share on the Toronto Stock Exchange
for the five trading days preceding the date of the grant. The options, which
are not eligible for SARs, vest immediately and expire 10 years from the grant
date.
A maximum of 42,834,500 common shares may be issued under CIBC's stock
option plans.
Adoption of CICA handbook section 3870
In 2002, CIBC early adopted, effective November 1, 2001, the requirements of the
CICA handbook section 3870, "Stock-Based Compensation and Other Stock-Based
Payments." The impact of this change in accounting policy is detailed below:
Stock option plans
As a result of adopting the fair value-based method encouraged by section 3870,
compensation expense increased by $26 million for the year. None of the options
granted since November 1, 2001 have been exercised.
The weighted-average grant-date fair value of options granted during 2002
has been estimated at $16.24 using the Black-Scholes option-pricing model. The
pricing model assumes weighted-average risk-free interest rates of 5.42%,
weighted-average expected dividend yields of 3.00% annually, weighted-average
expected common stock price volatility of 25.86% and a weighted-average expected
life of 10 years.
Because the fair value-based method of accounting has not been applied to
options granted prior to November 1, 2001, the compensation expense of $26
million may not be representative of that expected in future years.
SARs
Section 3870 requires that the cumulative amount relating to all vested SARs
outstanding at the beginning of the fiscal year of adoption be charged to
opening retained earnings for that fiscal year. This resulted in a $42 million
after-tax charge to opening retained earnings at November 1, 2001, a $72 million
pre-tax increase in liabilities and an increase in future income tax asset of
$30 million. Compensation expense decreased by $41 million pre-tax for the year.
The accounting for other stock-based compensation plans as outlined below
is not affected by this change in accounting policy.
Employee Share Purchase Plan
Under CIBC's Employee Share Purchase Plan, qualifying employees can choose each
year to have up to 10% of their annual base earnings withheld to purchase CIBC
common shares. CIBC matches 50% of the employee contribution amount up to a
maximum of 3%. All contributions are used by the plan trustee to purchase common
shares during each pay period in the open market. CIBC contributions vest after
two years of continuous participation in the plan, and all subsequent
contributions vest immediately. CIBC's contribution is expensed as incurred and
totalled $29 million for 2002 (2001: $30 million; 2000: $24 million).
Restricted Share Program
Under CIBC's Restricted Share Program (RSP), share equivalents are awarded under
the following compensation plans:
Restricted Share Awards
Under the CIBC Restricted Share Awards (RSA) Plan, which began in 2000, certain
key employees are granted awards to receive CIBC common shares as part of their
total compensation. Additionally, RSAs may be awarded as special grants. The
funding for awards under this plan is paid into a trust which purchases CIBC
common shares in the open market. RSAs vest one-third annually and the common
shares held in the trust are distributed generally within a three-year period,
beginning one year after the fiscal year of the grant. Compensation expense in
respect of RSAs totalled $38 million for 2002 (2001: $51 million; 2000: $22
million).
Stock Participation Plan
Under the CIBC Stock Participation Plan (SPP), which began in 2000, certain key
employees are granted awards to receive CIBC common shares as a portion of their
total compensation. The funding for awards under this program is paid into a
trust which purchases CIBC common shares in the open market. SPP awards vest
one-third annually and the common shares held in the trust are distributed
generally within a three-year period, beginning one year after the fiscal year
of the grant. Additionally, SPP awards may be issued as special grants, which
generally vest and the common shares held in the trust are distributed within
three years from the grant date. Compensation expense in respect of SPP awards
totalled $173 million for 2002 (2001: $98 million; 2000: $128 million).
--------------------------------------------------------------------------------
95
CIBC ANNUAL REPORT 2002
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
Long Term Incentive Plan and Special Incentive Program
Under CIBC's Long Term Incentive Plan (LTIP), certain key CIBC employees are
granted awards to receive CIBC common shares as a portion of their total
compensation. The funding for awards under this plan is paid into a trust which
purchases CIBC common shares in the open market. Generally, LTIP awards vest and
the common shares held in the trust are distributed within a three-year period,
beginning one year after the fiscal year of the grant.
Under CIBC's Special Incentive Program (SIP), certain key employees
receive common share-based awards. The funding for awards under the SIP is
comparable with those of the LTIP. The awards under the SIP vest and are
distributed when the plan expires on October 31, 2003.
Compensation expense for these two plans totalled $113 million for 2002
(2001: $150 million; 2000: $171 million).
Directors' plans
Members of CIBC's Board of Directors who are not officers or employees of CIBC
or any of its subsidiaries may elect to receive the annual amount payable by
CIBC under the Deferred Share Unit/Common Share Election Plan as deferred share
units (DSUs) or CIBC common shares.
The members may also elect, under the Director Share Plan, to receive all
or a portion of their compensation (annual retainer, committee member fee,
committee chair fee and meeting fees) in the form of cash, CIBC common shares or
DSUs.
Compensation expense in respect of these plans totalled $2 million for
2002 (2001: $2 million; 2000: $2 million). The value of DSUs credited to a
director is payable when he or she is no longer a director or employee of CIBC.
In addition, under the Deferred Share Unit/Common Share Election Plan the value
of DSUs is payable when the director is no longer related to or affiliated with
CIBC as "related" and "affiliated" are defined in the Income Tax Act (Canada).
--------------------------------------------------------------------------------
STOCK OPTION PLANS
2002 2001 2000
-----------------------------------------------------------------------------------------------------------------------------------
Weighted- Weighted- Weighted-
Number of average Number of average Number of average
stock exercise stock exercise stock exercise
As at or for the years ended October 31 options price options price options price
-----------------------------------------------------------------------------------------------------------------------------------
Outstanding at beginning of year 19,070,952 $36.55 20,247,187 $33.28 16,933,275 $31.36
Granted 3,042,992 $54.48 3,021,990(1) $48.60 5,196,956 $36.27
Exercised (1,562,438) $30.78 (2,983,736) $30.19 (1,405,416) $23.89
Forfeited/Cancelled (302,277) $42.78 (652,749) $27.43 (95,000) $41.64
Exercised as SARs (306,275) $30.12 (561,740) $38.72 (382,628) $21.47
-----------------------------------------------------------------------------------------------------------------------------------
Outstanding at end of year 19,942,954 $39.74 19,070,952 $36.55 20,247,187 $33.28
===================================================================================================================================
Exercisable at end of year 10,683,434 $34.48 13,202,090 $34.15 9,141,886 $28.33
===================================================================================================================================
(1) Includes 48,000 options granted to non-officer members of CIBC's Board of
Directors in 2000, that were approved by CIBC's shareholders at the annual
meeting on March 1, 2001.
--------------------------------------------------------------------------------
STOCK OPTIONS OUTSTANDING AND VESTED
Stock options outstanding Stock options vested
---------------------------------------- --------------------------------------------
Weighted-
average Weighted- Weighted-
contractual average average
Number life exercise Number exercise Exercisable
Range of exercise prices outstanding remaining price outstanding price as SARs
----------------------------------------------------------------------------------------------------------------------------
$15.375 - $21.125 2,180,869 2.33 $18.64 2,179,369 $18.64 1,132,940
$31.700 - $39.850 9,307,861 6.40 $36.86 5,282,322 $36.13 2,546,776
$40.350 - $49.940 4,200,684 6.46 $42.66 2,908,243 $41.39 1,245,292
$50.330 - $57.190 4,253,540 8.88 $53.99 313,500 $52.55 --
----------------------------------------------------------------------------------------------------------------------------
Total 19,942,954 6.50 $39.74 10,683,434 $34.48 4,925,008
============================================================================================================================
--------------------------------------------------------------------------------
96
CIBC ANNUAL REPORT 2002
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
15. POST-EMPLOYMENT AND POST-RETIREMENT PLANS
As explained in Note 1, CIBC adopted the requirements of the CICA handbook
section 3461, "Employee Future Benefits," in 2001. This section was adopted
retroactively without restatement, resulting in a $140 million after-tax charge
to opening retained earnings on November 1, 2000, and a $237 million pre-tax
increase in the accrued benefit liability, offset by a reduction in future
income taxes of $97 million.
Under CIBC's defined benefit pension plans, pension benefits are provided
to qualified employees. These benefits are, in general, based on years of
service and compensation near retirement. CIBC also provides post-retirement
benefits to retired employees, including life insurance, health and dental care
benefits. In addition, post-employment benefits are also provided to inactive
employees.
The funded status of the employee benefit plans and the amounts recognized
on CIBC's consolidated balance sheets are as follows:
Pension Other
benefit plans benefit plans
---------------------------------------------------
$ millions, as at or for the years ended October 31 2002 2001 2002 2001
-----------------------------------------------------------------------------------------------------------------------------------
Accrued benefit obligation(1)
Balance at beginning of year $ 2,226 $ 2,013 $ 609 $ 130
Adjustment for change in accounting policy -- 163 -- 403
Adjustment for inclusion of subsidiary plans 216(2) -- 19 --
Current service cost 80 66 53 37
Employees' contributions 10 11 -- --
Interest cost 167 148 39 36
Benefits paid (142) (134) (38) (36)
Foreign exchange rate changes 7 -- -- --
Actuarial (gains) losses (73) (48) 14 39
Plan amendments 45 12 -- --
Corporate restructuring giving rise to curtailments 1 (5) -- --
-----------------------------------------------------------------------------------------------------------------------------------
Balance at end of year $ 2,537 $ 2,226 $ 696 $ 609
===================================================================================================================================
Plan assets(1)
Fair value at beginning of year $ 2,121 $ 2,545 $ 103 $ 111
Adjustment for change in accounting policy -- 48 -- --
Adjustment for inclusion of subsidiary plans 211(2) -- -- --
Actual return on plan assets (106) (364) (4) (3)
Employer contributions 88 15 45 31
Employees' contributions 10 11 -- --
Benefits paid (142) (134) (38) (36)
Foreign exchange rate changes 6 -- -- --
-----------------------------------------------------------------------------------------------------------------------------------
Fair value at end of year $ 2,188 $ 2,121 $ 106 $ 103
===================================================================================================================================
Funded status - plan deficit $ (349) $ (105) $ (590) $ (506)
Employer contribution received after measurement date 15 -- -- --
Unamortized net actuarial losses 786 506 59 39
Unamortized past service costs 54 12 -- --
Unamortized transitional obligation (23) -- 6 --
-----------------------------------------------------------------------------------------------------------------------------------
Accrued benefit asset (liability) 483 413 (525) (467)
Valuation allowance(3) (16) -- -- --
-----------------------------------------------------------------------------------------------------------------------------------
Accrued benefit asset (liability), net of valuation allowance $ 467 $ 413 $ (525) $ (467)
===================================================================================================================================
(1) Measurement date is as at September 30, 2002
(2) Net of valuation allowance of $24 million.
(3) Represents excess of accrued benefit asset over the amount expected to be
realized in the future.
Included in the accrued benefit obligation and fair value of the plan assets at
year-end are the following amounts in respect of plans that are not fully
funded:
Pension Other
benefit plans benefit plans
---------------------------------------------
$ millions, as at October 31 2002 2001 2002 2001
-------------------------------------------------------------------------------
Accrued benefit obligation $ 2,499 $ 120 $ 696 $ 609
Fair value of plan assets 2,128 -- 106 103
-------------------------------------------------------------------------------
Funded status - plan deficit $ (371) $ (120) $ (590) $ (506)
===============================================================================
Plan assets include securities of CIBC having a fair value of $15 million at
October 31, 2002 (2001: $15 million). The significant actuarial assumptions
adopted in measuring CIBC's accrued benefit obligation are as follows:
Pension Other
benefit plans benefit plans
------------------------------------------------------------
For the years
ended October 31 2002(1) 2001 2000 2002(1) 2001
------------------------------------------------------------------------------------------------
Discount rate 6.7% 6.75% 7.5% 6.4% 6.75%
Expected long-term
rate of return on
plan assets 7.5% 7.5% 7.5% 7.0% 7.5%
Rate of compensation
increase 3.7% 4.0% 4.5% 3.4% 4.0%
================================================================================================
(1) Weighted-average assumptions of CIBC and subsidiary plans.
--------------------------------------------------------------------------------
97
CIBC ANNUAL REPORT 2002
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
A 9.2% annual rate of increase in the per capita cost of covered health care
benefits was assumed for 2002 (2001: 9%). The rate was assumed to decrease
gradually to 4.5% for 2009 and remain at that level thereafter. The effect of a
1% increase each year in the assumed health care cost trend rate would be to
increase the post-retirement benefit expense by $10 million (2001: $7 million;
2000: $7 million) and the accumulated post-retirement benefit obligation by $80
million (2001: $60 million; 2000: $46 million).
CIBC's net benefit plan expense is reported as employee compensation and
benefits in the consolidated statements of income as follows:
Pension Other
benefit plans benefit plans
-----------------------------------------------------------
$ millions, as at or for the years ended October 31 2002 2001 2000 2002 2001
-----------------------------------------------------------------------------------------------------------------------
Current service cost $ 80 $ 66 $ 54 $ 53 $ 37
Interest cost 167 148 145 39 36
Expected return on plan assets (199) (191) (168) (8) (8)
Amortization of past service costs 2 1 9 -- --
Amortization of net actuarial (gains) losses 2 -- (12) 5 --
Amortization of transitional asset (2) -- -- -- --
Curtailment (gains) losses 2 (5) 2 -- --
Change in valuation allowance (8) -- -- -- --
-----------------------------------------------------------------------------------------------------------------------
Net benefit plan expense $ 44 $ 19 $ 30 $ 89 $ 65
=======================================================================================================================
The expense for CIBC's defined contribution pension plans totalled $25 million
(2001: $26 million; 2000: $23 million). Additionally, the expense for government
pension plans (CPP/QPP/FICA) totalled $87 million (2001: $78 million; 2000: $66
million).
--------------------------------------------------------------------------------
16. RESTRUCTURING
During the year, CIBC recorded a restructuring charge of $508 million relating
to the closing of its U.S. electronic banking business and restructuring
initiatives in other businesses. These initiatives are expected to result in the
elimination of approximately 2,700 positions.
The pre-tax charge of $366 million relating to the closing of electronic
banking business in the U.S. consists of contract termination costs, termination
benefits and other related charges, including the write-down of assets. The
initiative, subject to regulatory approval, is expected to be substantially
complete by the end of the first quarter of 2003. Activities include transfer of
customer accounts to other financial institutions and discontinuation of product
offerings.
In addition, CIBC recorded other restructuring charges of $142 million
substantially relating to the elimination of approximately 1,400 positions.
CIBC World Markets has reduced staff levels, primarily in the U.S., as a
result of the continued low level of business activity in capital markets and
investment banking. In addition, selective reductions will be made in Asian,
European and commercial banking businesses.
CIBC Retail Markets will reduce staff levels, reconfigure its branch
network and close bizSmart.
Operations and systems development support for CIBC World Markets, CIBC
Wealth Management and CIBC Retail Markets businesses will be rationalized to
align their cost structures with current market conditions.
In 2001, a pre-tax restructuring charge of $207 million was taken as CIBC
initiated an organization-wide cost-reduction program in response to changing
economic conditions.
Significant actions taken under this restructuring program included
consolidation of branches, rationalization of business support functions,
realignment of the work force, reorganization of certain operations, and
termination of certain leases and were substantially completed in 2002.
Approximately 1,600 positions were eliminated in 2002.
Higher-than-expected termination costs were partially offset by unanticipated
levels of attrition and redeployment. As a result, CIBC revised its estimate for
restructuring with a net $6 million increase in the original provision.
The components of the charges and movements in the associated provision
are as follows:
--------------------------------------------------------------------------------
RESTRUCTURING PROVISION
2002 2001
-----------------------------------------------------------------------------------------------------------------------------------
Contract
Termination termination Termination
$ millions, as at or for the years ended October 31 benefits costs Other Total benefits Other Total
-----------------------------------------------------------------------------------------------------------------------------------
Balance at beginning of year $ 186 $ -- $ 26 $ 212 $ 86 $ 9 $ 95
Restructuring charge 140 185 183 508 181 26 207
Change in estimate 6 -- -- 6 -- -- --
Cash payments (138) -- (1) (139) (81) (5) (86)
Non-cash items -- -- (135) (135) -- (4) (4)
-----------------------------------------------------------------------------------------------------------------------------------
Balance at end of year $ 194 $ 185 $ 73 $ 452 $ 186 $ 26 $ 212
===================================================================================================================================
--------------------------------------------------------------------------------
98
CIBC ANNUAL REPORT 2002
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
17. EVENTS OF SEPTEMBER 11, 2001
CIBC's New York operations located at One World Financial Center (WFC), in close
proximity to the World Trade Center, were directly affected by the events of
September 11, 2001. These events caused the temporary relocation of employees
from WFC to CIBC's other major premises in midtown Manhattan, as well as to
temporary locations in the vicinity.
For the year ended October 31, 2002, CIBC recorded expenses related to the
events of September 11, 2001 of $32 million (2001: $7 million), net of insurance
recoveries. CIBC has received payments on account of insurance claims of $90
million in 2002 (2001: $9 million). Although CIBC is still in discussions with
its insurance carrier as to the ultimate settlement amount, CIBC has recorded
insurance recoveries for amounts for which it considers recovery is probable. In
addition, no insurance recovery amounts are recorded under the business
interruption insurance claim as negotiations are still continuing. Management is
still in the process of evaluating various scenarios concerning the premises in
New York. The full financial impact of these decisions, including related
insurance recoveries, was not determinable at the time of preparation of these
consolidated financial statements.
Expenses related to the events of September 11, 2001 include costs related
to the write-off of damaged assets; lease termination costs; and other direct
and incremental costs including employee relocation, which required
reconfiguring alternative office facilities, technology and telecommunications,
and providing transportation.
Details of the net loss relating to events of September 11, 2001 are as
follows:
$ millions, for the years ended October 31 2002 2001
-------------------------------------------------------------------------------
Non-interest income
Insurance proceeds on fixed assets $ 59 $ --
-------------------------------------------------------------------------------
Non-interest expenses
Assets written off 44 --
Lease termination costs at WFC 11 --
Other direct and incremental expenses 92 18
Less: insurance recoveries on expenditures (56) (11)
-------------------------------------------------------------------------------
91 7
-------------------------------------------------------------------------------
Net loss relating to events of September 11, 2001 $(32) $ (7)
===============================================================================
--------------------------------------------------------------------------------
18. INCOME TAXES
The components of income tax expense reported in the consolidated statements of
income consist of the following:
--------------------------------------------------------------------------------
COMPONENTS OF INCOME TAX EXPENSE
$ millions, for the years ended October 31 2002 2001 2000
--------------------------------------------------------------------------------
Current income taxes
Federal $ 631 $ 587 $ 510
Provincial 237 237 194
Foreign (6) (192) 204
-------------------------------------------------------------------------------
862 632 908
-------------------------------------------------------------------------------
Future income taxes
Federal (66) (86) (162)
Provincial (31) (26) (59)
Foreign(1) (1,044) (428) (46)
-------------------------------------------------------------------------------
(1,141) (540) (267)
-------------------------------------------------------------------------------
$ (279) $ 92 $ 641
===============================================================================
(1) 2002 includes the recognition of a previously unrecorded future tax asset
of $52 million in respect of certain U.K. tax losses.
Income taxes are reported in the consolidated financial statements as follows:
--------------------------------------------------------------------------------
TOTAL INCOME TAXES
$ millions, for the years ended October 31 2002 2001 2000
-------------------------------------------------------------------------------
Consolidated statements of income
Income taxes $(279) $ 92 $ 641
Consolidated statements of changes
in shareholders' equity
Foreign currency translation
adjustment 107 (323) (179)
Accounting policy changes(1) (30) (97) --
Other (4) -- --
-------------------------------------------------------------------------------
$(206) $(328) $ 462
===============================================================================
(1) Represents the effect of implementing the CICA handbook section 3870,
"Stock-Based Compensation and Other Stock-Based Payments" in 2002, and
section 3461, "Employee Future Benefits" in 2001.
Future income tax balances are included in other assets (Note 8) and result from
temporary differences between the tax basis of assets and liabilities and their
carrying amounts on the balance sheet.
--------------------------------------------------------------------------------
99
CIBC ANNUAL REPORT 2002
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
The combined Canadian federal and provincial income tax rate varies each
year according to changes in the statutory rates imposed by each of these
jurisdictions and according to changes in the proportion of CIBC's business
carried on in each province. CIBC is also subject to Canadian taxation on income
of foreign branches. Earnings of foreign subsidiaries would generally only be
subject to Canadian tax when distributed to Canada. Additional Canadian taxes
that would be payable if all foreign subsidiaries' retained earnings were
distributed to the Canadian parent are estimated at $92 million as at October
31, 2002 (2001: $84 million; 2000: $90 million).
The effective rates of income tax in the consolidated statements of income
are different from the combined Canadian federal and provincial income tax rate
of 38.7% (2001: 41.6%; 2000: 42.9%) as set out below:
--------------------------------------------------------------------------------
RECONCILIATION OF INCOME TAXES
$ millions, for the years ended October 31 2002 2001 2000
--------------------------------------------------------------------------------
Combined Canadian federal and
provincial income tax rate applied
to income before income taxes $ 160 $ 764 $ 1,184
Income taxes adjusted for the effect of:
Earnings of foreign subsidiaries (396) (654) (504)
Tax-exempt income and gains (68) (81) (122)
Federal large corporations tax 10 14 14
Temporary tax on capital -- -- 8
Earnings of domestic subsidiaries (1) 20 39
Future tax rate reductions 30 90 --
Other (14) (61) 22
--------------------------------------------------------------------------------
Income taxes in the consolidated
statements of income $ (279) $ 92 $ 641
===============================================================================
During 2001, various proposed federal and provincial income tax rate decreases
were passed into law, resulting in phased-in income tax reductions over a three-
to four-year period. In 2002, CIBC recognized a $30 million charge (2001: $90
million) to income tax expense, thereby reducing its future income tax asset in
recognition of the fact that temporary differences will reverse when the rates
are lower.
--------------------------------------------------------------------------------
SOURCES OF FUTURE INCOME TAX BALANCES
$ millions, as at October 31 2002 2001(1) 2000(1)
--------------------------------------------------------------------------------
Future income tax liability
Lease receivables $ 939 $ 789 $ 816
Buildings and equipment -- -- 43
Pension and employee benefits -- -- 88
Undistributed earnings of
foreign subsidiaries 91 73 320
Unrealized foreign currency
translation gains 122 166 115
Goodwill 33 32 5
Other 16 102 98
-----------------------------------------------------------------------------
1,201 1,162 1,485
-----------------------------------------------------------------------------
Future income tax asset
Allowance for credit losses 1,006 901 757
Buildings and equipment 56 20 --
Pension and employee benefits 35 12 --
Unearned income 144 113 104
Investment revaluations 532 260 262
Tax loss carryforwards 547 20 5
Provisions 499 261 228
Deferred charges 107 137 123
Other 57 19 4
-----------------------------------------------------------------------------
2,983 1,743 1,483
-----------------------------------------------------------------------------
Future income tax (asset) liability $(1,782) $ (581) $ 2
=============================================================================
(1) Certain comparative figures have been reclassified to conform with the
presentation used in 2002.
CIBC has not provided for a valuation allowance related to future income tax
assets. Included in the above tax loss carryforwards amount is $447 million
relating to losses in the U.S. operations in 2002 which expire in 20 years. In
addition, as other future income tax assets naturally reverse into tax losses in
the U.S., CIBC will have 20 years from the date such temporary differences
become tax losses, to utilize them before they would begin to expire under
current tax law. CIBC believes that, based on all available evidence, it is more
likely than not that all of the future tax assets will be realized prior to
their expiration. In this regard, CIBC has initiated various expense management
initiatives, refocused its business activities and committed to provide
additional capital which will generate additional income.
--------------------------------------------------------------------------------
100
CIBC ANNUAL REPORT 2002
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
19. EARNINGS PER SHARE
As explained in Note 1, CIBC adopted the requirements of the CICA handbook
section 3500, "Earnings Per Share," in 2002.
The requirements of section 3500 were adopted retroactively and basic and
diluted EPS for prior years were changed. As a result, CIBC's basic EPS was
decreased by $0.01 and $0.02 for the years ended October 31, 2001 and 2000,
respectively, and CIBC's diluted EPS was increased by $0.06 for the years ended
October 31, 2001 and 2000.
The following is a reconciliation of net income and share data used in the
basic and diluted EPS computations for the years ended October 31:
$ millions, except per share amounts, for the years ended October 31 2002 2001 2000
-----------------------------------------------------------------------------------------------------------------------------------
Basic EPS
Net income $ 653 $ 1,686 $ 2,060
Preferred share dividends and premiums (165) (127) (133)
-----------------------------------------------------------------------------------------------------------------------------------
Net income applicable to common shares $ 488 $ 1,559 $ 1,927
-----------------------------------------------------------------------------------------------------------------------------------
Weighted-average common shares outstanding (thousands) 360,553 372,305 388,951
-----------------------------------------------------------------------------------------------------------------------------------
Per share $ 1.37 $ 4.19 $ 4.95
===================================================================================================================================
Diluted EPS(1)
Net income applicable to common shares $ 488 $ 1,559 $ 1,927
-----------------------------------------------------------------------------------------------------------------------------------
Weighted-average common shares outstanding (thousands) 360,553 372,305 388,951
-----------------------------------------------------------------------------------------------------------------------------------
Add: number of incremental shares(2) 2,674 5,502 3,970
-----------------------------------------------------------------------------------------------------------------------------------
Weighted-average diluted common shares outstanding (thousands) 363,227 377,807 392,921
===================================================================================================================================
Per share $ 1.35 $ 4.13 $ 4.90
===================================================================================================================================
(1) The computation of diluted EPS excludes average options outstanding of
3,676,586 with a weighted-average exercise price of $53.32; average
options outstanding of 1,016,875 with a weighted- average exercise price
of $52.57; and average options outstanding of 3,952,396 with a
weighted-average exercise price of $39.66 for the years ended October 31,
2002, 2001 and 2000, respectively, as the options' exercise prices were
greater than the average market price of CIBC's common shares. Also
excluded from the computation are average options outstanding of 590,704
with a weighted-aver- age exercise price of $37.60; average options
outstanding of 764,167 with a weighted-average exercise price of $37.60;
and average options outstanding of 1,141,958 with a weighted-average
exercise price of $35.87 for the years ended October 31, 2002, 2001 and
2000, respectively, as these options are performance based and the vesting
criteria for these options had not been achieved.
(2) The number of incremental shares is determined by computing a weighted
average of the number of incremental shares included in each interim
period.
--------------------------------------------------------------------------------
20. CAPITAL REQUIREMENTS
CIBC's regulatory capital requirements are determined in accordance with
guidelines issued by OSFI. The OSFI guidelines evolve from the framework of
risk-based capital standards developed by the Bank for International Settlements
(BIS).
Total regulatory capital is the sum of Tier 1 and Tier 2 capital less
certain deductions. Tier 1 capital consists of common shares, contributed
surplus, retained earnings, non-cumulative preferred shares and non-controlling
interests in subsidiaries, less goodwill and identified other intangible assets
in excess of 5% of gross Tier 1 capital. Tier 2 capital consists of unamortized
subordinated indebtedness, general allowance for credit losses to a maximum of
0.875% of risk-weighted assets, and non-cumulative preferred shares in excess of
the regulatory maximum permitted for inclusion in Tier 1 capital. The concept of
Tier 3 capital was created under the BIS standards in conjunction with the
introduction of market risk capital requirements in January 1998. Specific
qualifying guidelines with respect to Tier 3 capital have not been issued by
OSFI. No Tier 3 capital has been issued by CIBC.
Risk-weighted assets arising from credit risk are calculated by applying
the weighting factors specified in OSFI guidelines to all balance sheet assets
and off-balance sheet exposures. Risk-weighted assets reflecting market risk in
the trading portfolio are calculated based on CIBC's value-at-risk simulation
models approved by OSFI. Regulatory capital ratios are then determined by
dividing Tier 1 and total regulatory capital by the calculated amount of
risk-weighted assets.
BIS standards require that banks maintain minimum Tier 1 and total capital
ratios of 4% and 8%, respectively. OSFI has established that Canadian
deposit-taking financial institutions should attain Tier 1 and total capital
ratios of at least 7% and 10%, respectively, and that banks not exceed a maximum
leverage ratio (or asset to capital multiple) of 20 times capital, unless
otherwise approved. OSFI has approved a maximum leverage ratio for CIBC of 23
times capital.
CIBC's capital ratios and leverage ratio are as follows:
--------------------------------------------------------------------------------
CAPITAL AND LEVERAGE RATIOS
$ millions, as at October 31 2002 2001
--------------------------------------------------------------------------------
Tier 1 capital $ 11,037 $ 11,749
Total regulatory capital $ 14,296 $ 15,600
Tier 1 capital ratio 8.7% 9.0%
Total capital ratio 11.3% 12.0%
Leverage ratio 18.3x 17.7x
===============================================================================
--------------------------------------------------------------------------------
21. RELATED-PARTY TRANSACTIONS
In the ordinary course of business, CIBC provides normal banking services to
affiliated companies on terms similar to those offered to non-related parties.
Loans, at varied rates and terms, are made to directors, officers and
employees.
--------------------------------------------------------------------------------
AMOUNTS OUTSTANDING FROM DIRECTORS, OFFICERS AND EMPLOYEES
$ millions, as at October 31 2002 2001
--------------------------------------------------------------------------------
Mortgage loans $1,144 $ 604
Personal loans 1,044 672
--------------------------------------------------------------------------------
$2,188 $1,276
================================================================================
--------------------------------------------------------------------------------
101
CIBC ANNUAL REPORT 2002
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
22. FAIR VALUE OF FINANCIAL INSTRUMENTS
The tables below present the fair value of both on- and off-balance sheet
financial instruments of CIBC, based on the valuation approach set out below.
Fair value represents management's estimate of the amount of cash value at
which a financial instrument could be exchanged in an arm's length transaction
between willing parties under no compulsion to act, carried out in the normal
course of business. Fair value is best evidenced by a quoted market price, if
one exists.
Quoted market prices are not available for a significant portion of CIBC's
balance sheet because of the lack of traded markets for certain instruments and
also, where such markets do exist, they are not currently considered
sufficiently liquid to be used as a basis for valuation. Where quoted markets
exist and are considered sufficiently liquid to be used as a basis for fair
value, these quoted prices are used to calculate fair value. Fair values for
CIBC's trading portfolios are adjusted for bid-offer considerations, including
consideration of concentration exposure where appropriate.
In those instances where traded markets do not exist or are not
sufficiently liquid, CIBC's measure of fair value is estimated, using a variety
of valuation techniques and models. The results of these valuation techniques
and models may vary from the ultimate net realizable value, even if market
conditions were to remain unchanged. CIBC has an ongoing process of enhancing
its valuation techniques and models. CIBC's techniques and models take into
account the effect of changes in market rates, including market interest rates
and credit quality, where CIBC is exposed to the credit risk of an issuer,
borrower or counterparty.
Both book and fair values of loans and loan commitments are affected by
credit quality. In this regard, CIBC relies on its allowance for credit
processes to simultaneously write down (but never up) both the book value and
fair value of loans and to account for reductions in credit quality in loan
commitments and other credit-related arrangements on which CIBC has credit
exposure. This applies to impaired assets and assets not yet specifically
identified as impaired through specific and general allowances, respectively.
The specific allowance for credit losses is designed to write down the book
value of impaired loans to the recoverable amounts and to account for any
impairment on loan commitments and other credit-related arrangements.
Recoverable amounts take into account the credit protection available to CIBC
under guarantees, including protection purchased through credit derivatives. The
general allowance for credit losses is similarly designed to write down the book
value of loans to reflect losses inherent in the portfolio of loans (and
commitments and other credit-related arrangements) that are not yet specifically
identified as impaired. The recoverable amounts thus calculated and used for
book value purposes already include the effect of credit quality in CIBC's
measure of fair value and therefore no further adjustments are made. Both the
book and fair values disclosed are net of all general and specific allowances
for credit losses. The policy followed in setting allowances for credit losses
is explained in Note 1.
For changes in fair value due to interest rate risk on financial
instruments where traded markets do not exist, the calculation of fair value for
interest rate products is based on the difference between the original and
current market interest rates for the same type of product using present value
techniques. The actual cash flows based on the original interest rate are
discounted using current market interest rates for the remaining term to the
repricing or maturity date, whichever is earlier. The remaining term used is
generally contractual. For this purpose, there is no adjustment to fair values
for variable rate instruments. CIBC does not make additional adjustments to fair
value for bid-offer considerations for its non-trading portfolios fair values.
Due to the judgment used in applying a wide variety of acceptable
valuation techniques and models, as well as the use of estimates that are
inherent in this process, estimates of fair values of the same or similar assets
may differ among financial institutions. The calculation of fair values is based
on market conditions at October 31, 2002 and may not be reflective of future
fair values.
The fair values disclosed below exclude the values of assets that are not
financial instruments. Excluded from this table are assets, such as land,
buildings and equipment, as well as goodwill and other intangible assets,
including customer relationships, which in management's opinion add significant
value to CIBC.
--------------------------------------------------------------------------------
FAIR VALUE OF FINANCIAL INSTRUMENTS
2002 2001
-----------------------------------------------------------------------------------------------------------------------------------
Fair value Fair value
over (under) over (under)
$ millions, as at October 31 Book value Fair value book value Book value Fair value book value
-----------------------------------------------------------------------------------------------------------------------------------
Assets
Cash resources $ 9,512 $ 9,512 $ -- $ 11,350 $ 11,350 $ --
Securities 65,292 65,963 671 74,794 75,507 713
Loans 153,089 154,252 1,163 155,640 156,963 1,323
Customers' liability under acceptances 6,848 6,848 -- 8,100 8,100 --
Other assets 5,819 5,819 -- 4,954 4,954 --
===================================================================================================================================
Liabilities
Deposits $ 196,630 $ 197,449 $ 819 $ 194,352 $ 196,051 $ 1,699
Acceptances 6,878 6,878 -- 8,100 8,100 --
Obligations related to securities sold short 8,436 8,436 -- 11,213 11,213 --
Obligations related to securities lent or sold
under repurchase agreements 9,615 9,615 -- 21,403 21,403 --
Other liabilities 7,483 7,483 -- 6,898 6,898 --
Subordinated indebtedness 3,627 3,904 277 3,999 4,354 355
===================================================================================================================================
Derivative financial instruments
Net assets
(liabilities) - held for trading $ (77) $ (77) $ -- $ (672) $ (672) $ --
- held for asset-liability
management $ (87) $ (540) $ (453) $ 478 $ 942 $ 464
===================================================================================================================================
--------------------------------------------------------------------------------
102
CIBC ANNUAL REPORT 2002
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
FAIR VALUE OF DERIVATIVE FINANCIAL INSTRUMENTS(1)
2002 Fair value 2001 Fair value
-----------------------------------------------------------------------------------------------------------------------------------
$ millions, as at October 31 Positive Negative Net Positive Negative Net
-----------------------------------------------------------------------------------------------------------------------------------
Held for trading purposes
Interest rate products
Forward rate agreements $ 38 $ 13 $ 25 $ 50 $ 43 $ 7
Swap contracts 16,662 15,186 1,476 15,794 14,206 1,588
Purchased options 1,028 -- 1,028 1,160 -- 1,160
Written options -- 1,289 (1,289) -- 1,357 (1,357)
----------------------------------------------------------------------------------------------------------------------------------
Total interest rate products 17,728 16,488 1,240 17,004 15,606 1,398
----------------------------------------------------------------------------------------------------------------------------------
Foreign exchange products
Forward contracts 1,080 878 202 1,674 1,474 200
Swap contracts 2,948 2,928 20 3,298 3,435 (137)
Purchased options 168 -- 168 369 -- 369
Written options -- 181 (181) -- 287 (287)
----------------------------------------------------------------------------------------------------------------------------------
Total foreign exchange products 4,196 3,987 209 5,341 5,196 145
----------------------------------------------------------------------------------------------------------------------------------
Credit derivatives(2)
Swap contracts 49 5 44 35 50 (15)
Purchased options 28 -- 28 79 -- 79
Written options -- 66 (66) -- 47 (47)
----------------------------------------------------------------------------------------------------------------------------------
Total credit derivatives 77 71 6 114 97 17
----------------------------------------------------------------------------------------------------------------------------------
Equities(2)(3) 1,737 3,268 (1,531) 1,625 3,328 (1,703)
----------------------------------------------------------------------------------------------------------------------------------
Other(2)(4) 979 980 (1) 1,639 2,168 (529)
----------------------------------------------------------------------------------------------------------------------------------
Total held for trading 24,717 24,794 (77) 25,723 26,395 (672)
----------------------------------------------------------------------------------------------------------------------------------
Held for asset-liability management purposes
Interest rate products
Swap contracts 1,869 2,363 (494) 2,122 2,105 17
Purchased options 9 -- 9 2 -- 2
Written options -- 1 (1) -- 65 (65)
----------------------------------------------------------------------------------------------------------------------------------
Total interest rate products 1,878 2,364 (486) 2,124 2,170 (46)
----------------------------------------------------------------------------------------------------------------------------------
Foreign exchange products
Forward contracts 152 228 (76) 49 236 (187)
Swap contracts 109 298 (189) 418 105 313
Purchased options 1 -- 1 -- -- --
----------------------------------------------------------------------------------------------------------------------------------
Total foreign exchange products 262 526 (264) 467 341 126
----------------------------------------------------------------------------------------------------------------------------------
Credit derivatives(2)
Swap contracts -- 1 (1) -- -- --
Purchased options 200 -- 200 -- -- --
Written options(5) -- 42 (42) -- -- --
----------------------------------------------------------------------------------------------------------------------------------
Total credit derivatives 200 43 157 -- -- --
----------------------------------------------------------------------------------------------------------------------------------
Equities(2)(3) 67 14 53 863 1 862
----------------------------------------------------------------------------------------------------------------------------------
Total held for asset-liability management
purposes 2,407 2,947 (540) 3,454 2,512 942
----------------------------------------------------------------------------------------------------------------------------------
Total fair value 27,124 27,741 (617) 29,177 28,907 270
Less: impact of master netting agreements (18,932) (18,932) -- (20,014) (20,014) --
----------------------------------------------------------------------------------------------------------------------------------
$ 8,192 $ 8,809 $ (617) $ 9,163 $ 8,893 $ 270
==================================================================================================================================
Average fair value of derivatives held for
trading purposes(6)
Interest rate products $ 14,173 $ 13,217 $ 956 $ 10,307 $ 9,469 $ 838
Foreign exchange products 4,876 4,506 370 6,980 7,269 (289)
Credit derivatives(2) 97 78 19 184 106 78
Equities(2) 1,994 3,076 (1,082) 2,190 2,686 (496)
Other(2) 953 1,518 (565) 2,136 2,572 (436)
----------------------------------------------------------------------------------------------------------------------------------
$ 22,093 $ 22,395 $ (302) $ 21,797 $ 22,102 $ (305)
==================================================================================================================================
(1) As at October 31, 2002, deferred losses associated with derivative
instruments used to hedge anticipated asset-liability management
transactions (including firm commitments) were $7 million (2001: $23
million).
(2) Reclassified from other in 2002.
(3) Includes swaps and options.
(4) Includes commodity forwards, swaps and options.
(5) Reported as financial guarantees in Note 24.
(6) Average fair values represent monthly averages.
Methods and assumptions: on-balance sheet financial instruments
Financial instruments with fair value equal to book value
Due to their short-term maturity, and where CIBC considers any difference
between fair value and book value to be insignificant, the fair values of
certain on-balance sheet financial instruments are assumed to equal their book
values. These categories include cash resources, customers' liability under
acceptances, other assets, acceptances, obligations related to securities sold
short, obligations related to securities sold under repurchase agreements and
other liabilities.
--------------------------------------------------------------------------------
103
CIBC ANNUAL REPORT 2002
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FAIR VALUE OF DERIVATIVE FINANCIAL INSTRUMENTS(1)
2002 Fair value 2001 Fair value
-------------------------------------------------------------------------------------------------------------------
$ millions, as at October 31 Positive Negative Net Positive Negative Net
-------------------------------------------------------------------------------------------------------------------
Held for trading purposes
Interest rate products
Forward rate agreements $ 38 $ 13 $ 25 $ 50 $ 43 $ 7
Swap contracts 16,662 15,186 1,476 15,794 14,206 1,588
Purchased options 1,028 -- 1,028 1,160 -- 1,160
Written options -- 1,289 (1,289) -- 1,357 (1,357)
-------------------------------------------------------------------------------------------------------------------
Total interest rate products 17,728 16,488 1,240 17,004 15,606 1,398
-------------------------------------------------------------------------------------------------------------------
Foreign exchange products
Forward contracts 1,080 878 202 1,674 1,474 200
Swap contracts 2,948 2,928 20 3,298 3,435 (137)
Purchased options 168 -- 168 369 -- 369
Written options -- 181 (181) -- 287 (287)
-------------------------------------------------------------------------------------------------------------------
Total foreign exchange products 4,196 3,987 209 5,341 5,196 145
-------------------------------------------------------------------------------------------------------------------
Credit derivatives(2)
Swap contracts 49 5 44 35 50 (15)
Purchased options 28 -- 28 79 -- 79
Written options -- 66 (66) -- 47 (47)
-------------------------------------------------------------------------------------------------------------------
Total credit derivatives 77 71 6 114 97 17
-------------------------------------------------------------------------------------------------------------------
Equities(2)(3) 1,737 3,268 (1,531) 1,625 3,328 (1,703)
-------------------------------------------------------------------------------------------------------------------
Other(2)(4) 979 980 (1) 1,639 2,168 (529)
-------------------------------------------------------------------------------------------------------------------
Total held for trading 24,717 24,794 (77) 25,723 26,395 (672)
-------------------------------------------------------------------------------------------------------------------
Held for asset-liability management purposes
Interest rate products
Swap contracts 1,869 2,363 (494) 2,122 2,105 17
Purchased options 9 -- 9 2 -- 2
Written options -- 1 (1) -- 65 (65)
-------------------------------------------------------------------------------------------------------------------
Total interest rate products 1,878 2,364 (486) 2,124 2,170 (46)
-------------------------------------------------------------------------------------------------------------------
Foreign exchange products
Forward contracts 152 228 (76) 49 236 (187)
Swap contracts 109 298 (189) 418 105 313
Purchased options 1 -- 1 -- -- --
-------------------------------------------------------------------------------------------------------------------
Total foreign exchange products 262 526 (264) 467 341 126
-------------------------------------------------------------------------------------------------------------------
Credit derivatives(2)
Swap contracts -- 1 (1) -- -- --
Purchased options 200 -- 200 -- -- --
Written options(5) -- 42 (42) -- -- --
-------------------------------------------------------------------------------------------------------------------
Total credit derivatives 200 43 157 -- -- --
-------------------------------------------------------------------------------------------------------------------
Equities(2)(3) 67 14 53 863 1 862
-------------------------------------------------------------------------------------------------------------------
Total held for asset-liability management 2,407 2,947 (540) 3,454 2,512 942
Total fair value 27,124 27,741 (617) 29,177 28,907 270
-------------------------------------------------------------------------------------------------------------------
Less: impact of master netting agreements (18,932) (18,932) -- (20,014) (20,014) --
-------------------------------------------------------------------------------------------------------------------
$ 8,192 $ 8,809 $ (617) $ 9,163 $ 8,893 $ 270
===================================================================================================================
Average fair value of derivatives held for
trading purposes(6)
Interest rate products $ 14,173 $ 13,217 $ 956 $ 10,307 $ 9,469 $ 838
Foreign exchange products 4,876 4,506 370 6,980 7,269 (289)
Credit derivatives(2) 97 78 19 184 106 78
Equities(2) 1,994 3,076 (1,082) 2,190 2,686 (496)
Other(2) 953 1,518 (565) 2,136 2,572 (436)
-------------------------------------------------------------------------------------------------------------------
$ 22,093 $ 22,395 $ (302) $ 21,797 $ 22,102 $ (305)
===================================================================================================================
(1) As at October 31, 2002, deferred losses associated with derivative
instruments used to hedge anticipated asset-liability management
transactions (including firm commitments) were $7 million (2001: $23
million).
(2) Reclassified from other in 2002.
(3) Includes swaps and options.
(4) Includes commodity forwards, swaps and options.
(5) Reported as financial guarantees in Note 24.
(6) Average fair values represent monthly averages.
Methods and assumptions: on-balance sheet financial instruments
Financial instruments with fair value equal to book value
Due to their short-term maturity, and where CIBC considers any difference
between fair value and book value to be insignificant, the fair values of
certain on-balance sheet financial instruments are assumed to equal their book
values. These categories include cash resources, customers' liability under
acceptances, other assets, acceptances, obligations related to securities sold
short, obligations related to securities sold under repurchase agreements and
other liabilities.
--------------------------------------------------------------------------------
103
CIBC ANNUAL REPORT 2002
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
Securities
The fair values of securities are detailed in Note 3 and are based on quoted
market prices where available; otherwise, fair values are estimated using quoted
market prices for similar securities or other third-party evidence as available.
The quoted market price used to value publicly traded equity securities,
held for investment purposes, generally does not take into account any
adjustments for resale restrictions that expire within one year, adjustments for
liquidity or future expenses.
For privately issued securities that have no reasonably liquid market,
CIBC considers the fair value to be equal to book value. The book value of
privately issued securities is adjusted to reflect other-than-temporary declines
in value, including private market transactions that provide evidence of
other-than-temporary impairment. Where private market transactions provide a new
valuation level not incorporated in book values, this new level is used to
determine fair value.
Loans
The fair values for variable-rate loans and those that reprice frequently are
assumed to be equal to their book value. The fair value for fixed-rate loans is
estimated, using a discounted cash flow calculation that uses market interest
rates currently charged for loans with similar terms and credit risks. As noted
above, the book value of loans is adjusted to take account of impaired assets
and assets not yet specifically identified as impaired through the specific and
general allowance categories, respectively. The fair value of loans is reduced
by the fair value of credit derivatives held as credit protection against these
loans. The fair value of these credit derivatives is disclosed separately.
Mortgages
The fair values of variable-rate mortgages are assumed to equal their book
value. The fair values of fixed-rate mortgages are estimated, using a discounted
cash flow calculation that uses market interest rates currently charged for
mortgages with similar remaining terms. The valuation model used for mortgages
takes into account prepayment optionality, as well as consumer behaviour, as
appropriate.
Deposit liabilities
The fair values of floating-rate deposits and demand deposits are assumed to be
equal to their book values. The fair values of fixed-rate deposits are
determined by discounting the contractual cash flows, using market interest
rates currently offered for deposits of similar terms. The fair values for
deposit liabilities with embedded optionality (cashable option) include the
value of those options.
Subordinated debt
The fair values are determined by reference to current market prices for the
same or similar debt instruments.
Methods and assumptions: off-balance sheet financial instruments
Derivative instruments
The fair values of derivatives are based on quoted market prices or dealer
quotes, where available. Otherwise, fair values are estimated on the basis of
pricing models that incorporate current market measures for interest rates,
currency exchange rates, equity prices and indices, credit spreads,
corresponding market volatility levels and other market-based pricing factors.
For trading derivatives, fair value reflects a valuation adjustment for
market, model and credit risks, as well as administrative costs, as appropriate.
Specifically, credit risk adjustments are based on current and potential credit
exposure and take into account both collateral and netting arrangements.
Administrative cost adjustments reflect the expected future costs of processing
by type of deal and term.
Mortgage commitments
The fair value of mortgage commitments is for fixed-rate mortgage commitments
and is based on increases, if any, in market interest rates between the
commitment and funding dates. The valuation model takes into account the
expected probability that the outstanding commitments will be exercised. The
fair value of these commitments is insignificant.
Credit commitments
Other commitments to extend credit are primarily variable rate and consequently,
do not expose CIBC to interest rate risk, although they do expose CIBC to credit
risk. These commitments generally contain provisions, whereby drawn credit
commitments are priced based on the credit quality of the obligor at the date
funds are drawn. As noted above, the credit exposure on loan commitments is
included in CIBC's assessment of its specific and general allowances and hence,
no further adjustments are made.
23. DERIVATIVE FINANCIAL INSTRUMENTS
As explained in Note 1, in the normal course of business, CIBC utilizes various
derivative instruments, which will limit or give rise to varying degrees and
types of risk.
Derivative products used by CIBC
The majority of CIBC's derivative contracts are over-the-counter transactions
that are privately negotiated between CIBC and a counterparty to the contract.
The remainder, are transacted through organized and regulated exchanges and
consist primarily of options and futures.
Interest rate derivatives
Forward rate agreements are over-the-counter contracts that effectively fix a
future interest rate for a period of time. The agreement provides that at a
predetermined future date, a cash settlement will be made between the
counterparties based upon the difference between the contracted rate and a
future market rate calculated on a specified notional principal amount. No
exchange of principal amount takes place.
Interest rate futures are standardized contracts transacted on an
exchange. They are based upon an agreement to buy or sell a specified quantity
of a financial instrument on a specified future date, at a contracted price.
These contracts differ from forward contracts in that they are in standard
amounts with standard settlement dates and are transacted on an exchange.
Interest rate swaps are over-the-counter contracts in which two
counter-parties agree to exchange interest cash flows over a period of time
based on rates applied to a specified notional principal amount. A typical
interest rate
--------------------------------------------------------------------------------
104
CIBC ANNUAL REPORT 2002
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
swap would require one counterparty to pay a fixed market interest rate in
exchange for a variable market interest rate determined from time to time with
both sets of cash flows calculated on the same notional principal. No exchange
of principal amount takes place.
Interest rate options are contracts in which one party (the purchaser of
an option) acquires from another party (the writer of an option) in exchange for
a premium, the right, but not the obligation, either to buy or sell, on a
specified future date or within a specified time, a specified financial
instrument at a contracted price. The underlying financial instrument will have
a market price that is sensitive to changes in interest rates. In managing its
interest rate exposure, CIBC acts both as a writer and purchaser of these
options. Options are transacted both over-the-counter and through exchanges.
Foreign exchange derivatives
Foreign exchange forwards are contracts in which one counterparty contracts with
another to exchange a specified amount of one currency for a specified amount of
a second currency, at a future date or range of dates.
Foreign exchange futures contracts are similar in mechanics to forward
contracts but differ in that they are in standard amounts with standard
settlement dates and are transacted on an exchange.
Swap contracts comprise foreign exchange swaps and cross currency interest
rate swaps. Foreign exchange swaps are transactions in which a foreign currency
is simultaneously purchased in the spot market and sold in the forward market,
or vice-versa. Cross currency interest rate swaps are transactions in which
counterparties exchange principal and interest flows in different currencies
over a period of time. These contracts are used to manage both currency and
interest rate exposures.
Credit derivatives
Credit derivatives are over-the-counter contracts designed to transfer the
credit risk in an underlying financial instrument (usually termed a reference
asset) from one counterparty to another. The most common credit derivatives are
credit default swaps (referred to as option contracts) and total return swaps
(referred to as swap contracts). In option contracts, an option purchaser
acquires credit protection on a reference asset or group of assets from an
option writer in exchange for a premium. The credit protection compensates the
option purchaser for any deterioration in value of the reference asset upon the
occurrence of certain credit events such as bankruptcy or failure to pay.
Settlement may be cash based or physical in requiring the delivery of the
reference asset to the option writer. In swap contracts, one counterparty agrees
to pay or receive from the other cash amounts based on changes in the value of a
reference asset or group of assets.
Equity derivatives
Equity index futures are standardized contracts transacted on an exchange. They
are based on an agreement to pay or receive a cash amount based on the
difference between the contracted price level of an underlying stock index and
its corresponding market price level at a specified future date. There is no
actual delivery of stocks that comprise the underlying index. These contracts
are in standard amounts with standard settlement dates.
Equity swaps are over-the-counter contracts in which one counterparty
agrees to pay or receive from the other cash amounts based on changes in the
value of a stock index, a basket of stocks or a single stock.
Equity options give the purchaser of the option, for a premium, the right
but not the obligation to buy from or sell to the writer of an option, an
underlying equity index, basket of stocks or single stock at a contracted price.
Other derivative products
CIBC also transacts in other derivative products including commodity derivatives
such as precious metal and energy-related products in both over-the-counter and
exchange markets.
Notional amounts
The table below presents the notional amounts of derivative instruments.
The notional amounts are not recorded as assets or liabilities on the
consolidated balance sheets as they represent the face amount of the contract to
which a rate or price is applied to determine the amount of cash flows to be
exchanged. Notional amounts represent the volume of outstanding transactions and
do not represent the potential gain or loss associated with market risk or
credit risk of such instruments. As at October 31, 2002, the notional amounts of
derivatives held for trading purposes were $1,141 billion (2001: $1,115
billion), or 87% of total notional amounts (2001: 88%). The notional amounts of
derivatives held for asset-liability management were $173 billion (2001: $154
billion), or 13% of total notional amounts (2001: 12%).
--------------------------------------------------------------------------------
105
CIBC ANNUAL REPORT 2002
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTIONAL AMOUNTS
Residual term to contractual maturity Analysed by use
-------------------------------------- ---------------------------------------------
2002 Total
Under 3 to 12 1 to Over notional 2002 2001
$ millions, as at October 31 3 months months 5 years 5 years amounts Trading ALM(1) Trading ALM(1)
----------------------------------------------------------------------------------------------------------------------------------
Interest rate products
Over-the-counter
Forward rate agreements $ 25,735 $ 12,137 $ 2,548 $ -- $ 40,420 $ 40,420 $ -- $ 36,528 $ --
Swap contracts 87,827 136,272 308,814 161,367 694,280 574,514 119,766 530,856 116,120
Purchased options 6,779 8,568 20,545 6,552 42,444 40,868 1,576 42,889 4,854
Written options 4,796 11,198 23,292 7,060 46,346 46,315 31 53,772 --
---------------------------------------------------------------------------------------------------------------------------------
125,137 168,175 355,199 174,979 823,490 702,117 121,373 664,045 120,974
---------------------------------------------------------------------------------------------------------------------------------
Exchange traded
Futures contracts 26,179 64,693 17,515 130 108,517 101,540 6,977 117,326 6,565
Purchased options 2,504 3,675 2,961 -- 9,140 9,140 -- 7,719 --
Written options 3,291 6,452 4,828 -- 14,571 14,571 -- 8,686 --
---------------------------------------------------------------------------------------------------------------------------------
31,974 74,820 25,304 130 132,228 125,251 6,977 133,731 6,565
---------------------------------------------------------------------------------------------------------------------------------
Total interest rate products 157,111 242,995 380,503 175,109 955,718 827,368 128,350 797,776 127,539
---------------------------------------------------------------------------------------------------------------------------------
Foreign exchange products
Over-the-counter
Forward contracts 92,084 34,946 6,789 45 133,864 105,184 28,680 111,050 9,693
Swap contracts 3,318 10,373 27,864 25,634 67,189 58,121 9,068 57,697 12,704
Purchased options 2,349 2,740 2,277 197 7,563 7,095 468 9,879 554
Written options 2,034 2,704 1,638 319 6,695 6,695 -- 10,115 --
---------------------------------------------------------------------------------------------------------------------------------
99,785 50,763 38,568 26,195 215,311 177,095 38,216 188,741 22,951
---------------------------------------------------------------------------------------------------------------------------------
Exchange traded
Futures contracts 76 -- -- -- 76 76 -- 251 --
---------------------------------------------------------------------------------------------------------------------------------
Total foreign exchange products 99,861 50,763 38,568 26,195 215,387 177,171 38,216 188,992 22,951
---------------------------------------------------------------------------------------------------------------------------------
Credit derivatives(2)
Over-the-counter
Swap contracts 94 131 1,439 127 1,791 1,791 -- 1,269 --
Purchased options 5,992 1,849 11,599 2,283 21,723 18,370 3,353 24,783 127
Written options(3) 15,191 1,577 16,751 639 34,158 33,961 197 25,485 32
---------------------------------------------------------------------------------------------------------------------------------
Total credit derivatives 21,277 3,557 29,789 3,049 57,672 54,122 3,550 51,537 159
---------------------------------------------------------------------------------------------------------------------------------
Equities(2)(4)
Over-the-counter 9,610 13,275 20,631 3,971 47,487 46,384 1,103 34,417 3,727
Exchange traded 13,599 3,952 1,488 -- 19,039 17,730 1,309 21,467 --
---------------------------------------------------------------------------------------------------------------------------------
Total equities 23,209 17,227 22,119 3,971 66,526 64,114 2,412 55,884 3,727
---------------------------------------------------------------------------------------------------------------------------------
Other(2)(5)
Over-the-counter 2,719 3,962 7,957 3,026 17,664 17,664 -- 19,956 --
Exchange traded 421 404 218 11 1,054 1,054 -- 728 --
---------------------------------------------------------------------------------------------------------------------------------
Total other 3,140 4,366 8,175 3,037 18,718 18,718 -- 20,684 --
---------------------------------------------------------------------------------------------------------------------------------
$304,598 $318,908 $479,154 $211,361 $1,314,021 $1,141,493 $172,528 $1,114,873 $154,376
=================================================================================================================================
(1) ALM: asset-liability management.
(2) Reclassified from other in 2002.
(3) ALM written options are reported as financial guarantees in Note 24.
(4) Includes futures, swaps and options.
(5) Includes commodity forwards, futures, swaps and options.
Risk
Market risk
Derivative instruments, in the absence of any compensating upfront cash
payments, generally have no market value at inception. They obtain value,
positive or negative, as relevant interest rates, exchange rates, equity,
commodity or credit prices or indices change, such that the previously
contracted derivative transactions have become more or less favourable than what
can be negotiated under current market conditions for contracts with the same
remaining period to expiry. The potential for derivatives to increase or
decrease in value as a result of the foregoing factors is generally referred to
as market risk.
The market risks arising through trading activities are managed in order
to mitigate risk, where appropriate, and with a view to maximize trading
revenue. To further manage risks, CIBC may enter into contracts with other
market makers or may undertake cash market hedges. There is no correlation
between the high notional values of contracts to which CIBC is a party and the
net market and credit risks to which CIBC is exposed.
Credit risk
Credit risk arises from the potential for a counterparty to default on its
contractual obligations and the risk that prevailing market conditions are such
that CIBC would incur a loss in replacing the defaulted transaction. CIBC limits
the credit risk of derivatives traded over-the-counter by dealing with
counterparties that are creditworthy and by actively pursuing risk mitigation
opportunities through the use of multi-product master netting agreements,
collateral and other credit mitigation techniques. Credit risk on exchange
traded futures and options is limited as these transactions are standardized
contracts executed on established exchanges that assume the obligations of
counterparties, and are subject to initial margins and daily settlement of
variation margins.
Written options generally have no credit risk if the counterparty has
already performed in accordance with the terms of the contract through an
upfront payment of the premium. Written options will however have some credit
risk to the extent of any unpaid premiums.
The table below summarizes the credit exposure of CIBC arising from
derivative instruments. The current replacement cost is the estimated
--------------------------------------------------------------------------------
106
CIBC ANNUAL REPORT 2002
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
cost of replacement of all contracts which have a positive market value,
representing an unrealized gain to CIBC. The replacement cost of an instrument
is dependent upon its terms relative to prevailing market prices, and will
fluctuate as market prices change and as the derivative approaches its scheduled
maturity.
The credit equivalent amount is the sum of the current replacement cost
and the potential credit exposure. The potential credit exposure is an estimate
of the amount that the current replacement cost could increase over the
remaining term of each transaction, based on a formula prescribed by OSFI. OSFI
prescribes a standard measure of counterparty credit risk to be applied to the
credit equivalent amount to arrive at the risk-weighted amount. This is
presently used in determining the regulatory capital requirements for
derivatives.
CIBC negotiates master netting agreements with counterparties with which
it has significant credit risk through derivatives activities. Such agreements
provide for the simultaneous close out and netting of all transactions with a
counterparty in an event of default. An increasing number of these agreements
also provide for the exchange of collateral between parties in the event that
the mark-to-market value of outstanding transactions between the parties exceeds
an agreed threshold. Such agreements are used both to accommodate business with
less creditworthy counterparties, as well as to help contain the build-up of
credit exposure resulting from multiple deals with more active counterparties.
-------------------------------------------------------------------------------------
CREDIT RISK
2002
-------------------------------------------------------------------------------------
Current replacement cost Credit Risk-
----------------------------- equivalent weighted
$ millions, as at October 31 Trading ALM Total amount amount
-------------------------------------------------------------------------------------
Interest rate products
Forward rate agreements $ 38 $ -- $ 38 $ 51 $ 13
Swap contracts 16,662 1,869 18,531 22,400 6,011
Purchased options 1,028 9 1,037 1,238 345
-------------------------------------------------------------------------------------
17,728 1,878 19,606 23,689 6,369
-------------------------------------------------------------------------------------
Foreign exchange products
Forward contracts 1,080 152 1,232 2,550 804
Swap contracts 2,948 109 3,057 6,510 1,691
Purchased options 168 1 169 348 124
-------------------------------------------------------------------------------------
4,196 262 4,458 9,408 2,619
-------------------------------------------------------------------------------------
Credit derivatives(1) (2)
Swap contracts 49 -- 49 191 92
Purchased options 28 -- 28 1,360 541
-------------------------------------------------------------------------------------
77 -- 77 1,551 633
-------------------------------------------------------------------------------------
Equities(1)(3) 1,737 67 1,804 4,033 1,342
-------------------------------------------------------------------------------------
Other(1)(4) 979 -- 979 2,737 1,246
-------------------------------------------------------------------------------------
24,717 2,207 26,924 41,418 12,209
Less: impact of master netting
agreements (18,932) -- (18,932) (24,402) (6,733)
-------------------------------------------------------------------------------------
$ 5,785 $2,207 $ 7,992 $ 17,016 $ 5,476
=====================================================================================
2001
-------------------------------------------------------------------------------------
Current replacement cost Credit Risk-
---------------------------- equivalent weighted
$ millions, as at October 31 Trading ALM Total amount amount
-------------------------------------------------------------------------------------
Interest rate products
Forward rate agreements $ 50 $ -- $ 50 $ 71 $ 22
Swap contracts 15,794 2,122 17,916 21,562 5,844
Purchased options 1,160 2 1,162 1,383 397
-------------------------------------------------------------------------------------
17,004 2,124 19,128 23,016 6,263
-------------------------------------------------------------------------------------
Foreign exchange products
Forward contracts 1,674 49 1,723 3,086 961
Swap contracts 3,298 418 3,716 7,012 1,867
Purchased options 369 -- 369 598 201
-------------------------------------------------------------------------------------
5,341 467 5,808 10,696 3,029
-------------------------------------------------------------------------------------
Credit derivatives(1) (2)
Swap contracts 35 -- 35 155 77
Purchased options 79 -- 79 1,907 705
-------------------------------------------------------------------------------------
114 -- 114 2,062 782
-------------------------------------------------------------------------------------
Equities(1)(3) 1,625 863 2,488 4,217 1,351
-------------------------------------------------------------------------------------
Other(1)(4) 1,639 -- 1,639 3,571 1,657
-------------------------------------------------------------------------------------
25,723 3,454 29,177 43,562 13,082
Less: impact of master netting
agreements (20,014) -- (20,014) (24,516) (7,010)
-------------------------------------------------------------------------------------
$ 5,709 $3,454 $ 9,163 $ 19,046 $ 6,072
=====================================================================================
(1) Reclassified from other in 2002.
(2) ALM credit derivative purchased options, with a replacement cost of $200
million, are given guarantee treatment for credit risk capital purposes,
and are excluded from the table above.
(3) Includes swaps and options.
(4) Includes commodity forwards, swaps and options.
107
CIBC ANNUAL REPORT 2002
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
24. CREDIT-RELATED ARRANGEMENTS
Credit-related arrangements are off-balance sheet instruments and are typically
entered into to meet the financing needs of customers or to facilitate
international trade. CIBC's policy of requiring collateral or other security to
support credit-related arrangements and the types of security held is generally
the same as for loans. The contract amounts shown below for credit-related
arrangements represent the maximum amount of additional credit that CIBC could
be obligated to extend. The contract amounts also represent the credit risk
amounts should the contracts be fully drawn down, the counterparties default and
any collateral held proves to be of no value. As many of these arrangements will
expire or terminate without being drawn upon, the contract amounts are not
necessarily indicative of future cash requirements or credit risk.
Contract amounts
------------------------
$ millions, as at October 31 2002 2001
--------------------------------------------------------------------------------
Lines of credit(1) $ 97,992 $103,569
Direct credit substitutes:
Financial guarantees(2) 7,345 7,570
Securities lent 17,510 16,283
Transaction-related contingencies 1,696 1,464
Documentary letters of credit 185 217
Other(3) 367 310
--------------------------------------------------------------------------------
$125,095 $129,413
================================================================================
(1) Includes irrevocable lines of credit totalling $76,972 million (2001:
$83,896 million) of which $63,805 million (2001: $64,383 million) will
expire in one year or less, and excludes lines of credit for credit cards
as the lines are short term in nature and are revocable at CIBC's
discretion.
(2) Includes credit derivatives - written options of $197 million (2001: $32
million), which have also been reported as derivatives in Note 23.
(3) Includes forward asset purchases.
Lines of credit are undrawn lending facilities that have been approved by CIBC
to meet the business requirements of customers. The majority of such commitments
are of a general nature with annual review provisions and/or various conditions
for drawdown. The credit risk associated with undrawn lending facilities arises
from the possibility that a commitment may be drawn down as a loan. Therefore, a
lending commitment is subject to the same credit review process as a loan. The
amount of collateral obtained, if deemed necessary by CIBC, is based on
management's credit evaluation of the borrower and may include a charge over
present and future assets of the borrower.
Direct credit substitutes include guarantees or equivalent instruments,
such as standby letters of credit which back financial obligations of the
customer. Also included as direct credit substitutes are securities lent against
collateral. The credit risk associated with direct credit substitutes is
essentially the same as that involved in extending loan commitments to
customers. The amount of collateral obtained, if deemed necessary by CIBC, is
based on management's credit evaluation of the borrower and may include a charge
over present and future assets of the borrower.
Transaction-related contingencies are guarantees, which back particular
performance obligations rather than customers' financial obligations. Examples
of transaction-related contingencies are performance bonds, warranties and
indemnities.
Documentary letters of credit are short-term instruments issued on behalf
of a customer, authorizing a third party, such as an exporter, to draw drafts on
CIBC up to a specified amount, subject to specific terms and conditions. CIBC is
at risk for any drafts drawn that are not ultimately settled by the customer,
however the amounts drawn are collateralized by the related goods.
25. CONCENTRATION OF CREDIT RISK
Concentrations of credit exposure may arise with a group of counterparties which
have similar economic characteristics or that are located in the same geographic
region. The ability of such counterparties to meet contractual obligations would
be similarly affected by changing economic, political or other conditions.
The amounts of foreign and domestic credit exposure associated with CIBC's
on-balance sheet financial instruments are summarized in the table "Geographic
Distribution of Major Assets" in Note 26.
The amounts of credit exposure associated with CIBC's off-balance sheet
financial instruments are summarized in the table below.
----------------------------------------------------------------------------------------------------------------------------------
CREDIT EXPOSURE
2002 2001
----------------------------------------------------------------------------------------------------------------------------------
United Other United Other
$ millions, as at October 31 Canada States countries Total Canada States countries Total
----------------------------------------------------------------------------------------------------------------------------------
Credit-related arrangements(1)
Lines of credit $51,950 $36,998 $ 9,044 $ 97,992 $40,994 $55,563 $ 7,012 $103,569
Other credit-related arrangements 19,937 4,214 2,952 27,103 16,853 6,036 2,955 25,844
----------------------------------------------------------------------------------------------------------------------------------
$71,887 $41,212 $11,996 $125,095 $57,847 $61,599 $ 9,967 $129,413
==================================================================================================================================
Derivative instruments(2)(3)
By counterparty type
Financial institutions $ 2,834 $ 9,435 $10,647 $ 22,916 $ 3,738 $ 9,830 $10,771 $ 24,339
Governments 962 10 3 975 1,060 8 5 1,073
Other 1,250 1,160 623 3,033 1,757 1,400 608 3,765
----------------------------------------------------------------------------------------------------------------------------------
5,046 10,605 11,273 26,924 6,555 11,238 11,384 29,177
Less: impact of master netting agreements (3,453) (8,090) (7,389) (18,932) (4,157) (8,567) (7,290) (20,014)
----------------------------------------------------------------------------------------------------------------------------------
Total derivative instruments $ 1,593 $ 2,515 $ 3,884 $ 7,992 $ 2,398 $ 2,671 $ 4,094 $ 9,163
==================================================================================================================================
(1) Credit-related arrangements are allocated based on the location in which
they are recorded.
(2) Derivative instruments are allocated based on the location of ultimate
risk.
(3) ALM credit derivative purchased options, with a replacement cost of $200
million, are given guarantee treatment for credit risk capital purposes,
and are excluded from the table above.
--------------------------------------------------------------------------------
108
CIBC ANNUAL REPORT 2002
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
26. SEGMENTED INFORMATION
During the year, CIBC merged most of the businesses within Electronic Commerce
and Retail and Small Business Banking into a new business line, CIBC Retail
Markets. Amicus (previously part of Electronic Commerce) became a separate
business line, and Technology and Operations became a part of Corporate and
Other. In addition, asset management moved from private client investment to
wealth products, both within CIBC Wealth Management.
As a result, CIBC is organized into four business lines that are segmented
on the basis of products and services provided or delivery channels used. The
four business lines are: CIBC Retail Markets, CIBC Wealth Management, CIBC World
Markets, and Amicus. These business lines are supported by four functional
groups which form Corporate and Other: Treasury, Balance Sheet and Risk
Management (TBRM); Administration; Technology and Operations; and Corporate
Development.
Comparative figures have been reclassified to reflect the new management
reporting structure.
CIBC Retail Markets provides financial services and products to personal
and small business customers in Canada. These services are offered through
CIBC's Canadian branch network and through electronic channels, such as
telephone banking, internet banking and ABMs. The business line's suite of
products comprises personal and small business loans, card products, mortgages
and insurance. The business line also manages the payments business (chequing,
savings and current accounts) for which revenue and expenses are allocated to
all the customer segments. It also has an approximate 44% equity investment in
FCIB. FCIB was formed on October 11, 2002 as a result of the combination of the
Caribbean retail, corporate and international banking operations of CIBC and
Barclays Bank PLC.
CIBC Wealth Management is focused on providing relationship-based advisory
sales, service and product solutions to the full spectrum of wealth building
clients. The business delivers a wide selection of investment products and
services - full-service brokerage in Canada and the U.S., discount brokerage,
asset management, global private banking and trust, and a broad selection of
investment and credit services through its branch-based sales force.
CIBC World Markets is a full-service investment bank, active throughout
North America, with niche capabilities in the U.K. and Asia.
Amicus comprises the co-branded retail electronic banking businesses,
including President's Choice Financial (Loblaw Companies Limited), Marketplace
Bank (Winn-Dixie Stores, Inc.), Safeway SELECT Bank (Safeway Inc.) and the
non-branch ABM business. As previously announced, CIBC decided to close its U.S.
electronic banking operations and focus on further developing its electronic
banking operations in Canada.
Corporate and Other comprises the four functional groups - TBRM;
Administration; Technology and Operations; and Corporate Development -as well as
CIBC Mellon's custody business and other revenue and expense items not directly
attributable to the business lines. TBRM revenue, expenses and balance sheet
(including capital) items are allocated to the business lines through a
combination of funds transfer pricing and revenue, expense and balance sheet
(including capital) allocation models. TBRM is responsible for CIBC's overall
balance sheet (including capital) and risk measurement, monitoring and control.
As well, TBRM's integrated Treasury Division provides CIBC-wide asset-liability,
funding, liquidity and cash collateral management. Activities of the functional
groups on behalf of CIBC as a whole are included in Corporate and Other.
Expenses of these groups are generally allocated to the business lines.
--------------------------------------------------------------------------------
109
CIBC ANNUAL REPORT 2002
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
RESULTS BY BUSINESS LINE
CIBC CIBC CIBC
Retail Wealth World Corporate CIBC
$ millions, for the years ended October 31 Markets Management Markets Amicus and Other Total
-----------------------------------------------------------------------------------------------------------------------------------
2002 Net interest income (TEB)(1) $ 3,855 $ 609 $ 850 $ 110 $ 197 $ 5,621
Non-interest income 1,600 1,816 1,951 120 44 5,531
Intersegment revenue(2) (576) 368 212 -- (4) --
Total revenue (TEB)(1) 4,879 2,793 3,013 230 237 11,152
-----------------------------------------------------------------------------------------------------------------------------------
Provision for credit losses 418 -- 1,062 20 -- 1,500
Non-interest expenses 2,773 2,557 2,459 585 241 8,615
Restructuring charge 58 (6) 59 366 37 514
-----------------------------------------------------------------------------------------------------------------------------------
Income (loss) before taxes and non-controlling interests 1,630 242 (567) (741) (41) 523
Income taxes 436 66 (415) (273) 18 (168)
Non-controlling interests 23 -- (8) -- 23 38
-----------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 1,171 $ 176 $ (144) $ (468) $ (82) $ 653
===================================================================================================================================
Average assets(3) $144,585 $ 27,315 $115,410 $ 5,200 $ -- $292,510
===================================================================================================================================
2001 Net interest income (TEB)(1) $ 3,510 $ 561 $ 323 $ 62 $ 237 $ 4,693
Non-interest income 1,441 1,404 3,525 93 150 6,613
Intersegment revenue(2) (562) 351 218 (7) -- --
Total revenue (TEB)(1) 4,389 2,316 4,066 148 387 11,306
-----------------------------------------------------------------------------------------------------------------------------------
Provision for credit losses 396 -- 694 10 -- 1,100
Non-interest expenses 2,653 1,887 2,667 538 274 8,019
Restructuring charge 32 33 63 40 39 207
-----------------------------------------------------------------------------------------------------------------------------------
Income (loss) before taxes and non-controlling interests 1,308 396 642 (440) 74 1,980
Income taxes 362 85 (177) (166) 132 236
Non-controlling interests 29 -- 11 -- 18 58
-----------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 917 $ 311 $ 808 $ (274) $ (76) $ 1,686
-----------------------------------------------------------------------------------------------------------------------------------
Average assets(3) $131,406 $ 22,918 $121,969 $ 2,505 $ -- $278,798
===================================================================================================================================
2000 Net interest income (TEB)(1) $ 3,259 $ 576 $ 407 $ 25 $ 146 $ 4,413
Non-interest income 1,443 1,837 4,138 55 324 7,797
Intersegment revenue(2) (559) 328 236 (5) -- --
-----------------------------------------------------------------------------------------------------------------------------------
Total revenue (TEB)(1) 4,143 2,741 4,781 75 470 12,210
Provision for credit losses 679 1 286 4 250(4) 1,220
Non-interest expenses 2,539 2,104 2,938 290 256 8,127
-----------------------------------------------------------------------------------------------------------------------------------
Restructuring charge 1 (11) -- -- (21) (31)
Income (loss) before taxes and non-controlling interests 924 647 1,557 (219) (15) 2,894
Income taxes 211 213 410 (90) 28 772
Non-controlling interests 26 -- 24 -- 12 62
-----------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 687 $ 434 $ 1,123 $ (129) $ (55) $ 2,060
===================================================================================================================================
Average assets(3) $124,969 $ 19,307 $117,900 $ 642 $ 301 $263,119
===================================================================================================================================
(1) Taxable equivalent basis (TEB). Net interest income includes tax-exempt
income on certain securities. Since this income is not taxable to CIBC,
the rate of interest or dividend received by CIBC is significantly lower
than would apply to a loan of the same amount. As the impact of tax-exempt
income varies from year to year, such income has been adjusted to a
taxable equivalent basis to permit uniform measurement and comparison of
net interest income. An equal and offsetting adjustment is made to
increase the provision for income taxes. This is the measure reviewed by
CIBC's management.
(2) Intersegment revenue represents internal sales commissions and revenue
allocations under the Manufacturer/Customer Segment/Distributor Management
Model.
(3) Assets are disclosed on an average basis as this measure is most relevant
to a financial institution and is the measure reviewed by CIBC's
management.
(4) Represents an increase in the general allowance for credit losses.
Results for CIBC's operating segments are based on CIBC's internal financial
reporting systems that are maintained on a taxable equivalent basis and adjusted
to be consistent with systems utilized in the preparation of CIBC's consolidated
financial statements. The assets and liabilities of the segments are transfer
priced, using a funding methodology that best reflects their nature and term, at
wholesale market rates. Non-interest expenses are matched against the revenue to
which they relate. Indirect expenses are allocated to the segments based on
appropriate criteria.
To measure and report the results of operations of the four business
lines, CIBC utilizes the Manufacturer/Customer Segment/Distributor Management
Model that was developed in 2000. Under this model, internal payments for sales
commissions and distribution service fees are made among the business lines. As
well, revenue and expenses relating to certain activities are fully allocated to
the other business lines. In addition, the revenue, expenses and balance sheet
items (including capital) of the four functional groups are generally allocated
to the four business lines. This model allows management to better understand
the economics of CIBC's customer segments, products and delivery channels.
The model utilizes certain estimates and allocation methodologies in the
preparation of segmented financial information. These estimates and
methodologies may be refined from time to time and restatement of various
periods may occur.
In 2001, CIBC refined certain estimates and allocation methodologies
underlying the model. Key changes included refinements to customer
--------------------------------------------------------------------------------
110
CIBC ANNUAL REPORT 2002
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
segmentation and cost recovery methodologies. These changes primarily affected
Imperial Service in the CIBC Wealth Management business line and both personal
banking and small business banking in the CIBC Retail Markets business line.
Prior year segmented financial information has been reclassified.
Each year, the sales and service fees paid to segments for certain
products are renegotiated among the business lines. Prior year financial
information has not been reclassified to reflect these fee changes.
Revenue
Revenue for each of the business lines is summarized as follows:
--------------------------------------------------------------------------------
REVENUE BY BUSINESS LINE(1) (TEB)
$ millions, for the years ended October 31 2002 2001 2000
--------------------------------------------------------------------------------
CIBC Retail Markets
Personal banking $ 1,126 $ 993 $ 952
Small business banking 720 661 681
West Indies 448 281 268
Cards 1,241 1,128 936
Lending products 582 634 624
Mortgages 623 479 332
Insurance 72 50 245
Other 67 163 105
--------------------------------------------------------------------------------
4,879 4,389 4,143
--------------------------------------------------------------------------------
CIBC Wealth Management
Imperial Service 667 627 558
Private client investment 1,320 977 1,280
Global private banking and trust 127 145 191
Wealth products 643 486 663
Other 36 81 49
--------------------------------------------------------------------------------
2,793 2,316 2,741
--------------------------------------------------------------------------------
CIBC World Markets
Capital markets 1,288 1,534 1,516
Investment banking and
credit products 1,115 1,474 1,723
Merchant banking 198 569 1,021
Commercial banking 446 481 491
Other (34) 8 30
--------------------------------------------------------------------------------
3,013 4,066 4,781
--------------------------------------------------------------------------------
Amicus 230 148 75
--------------------------------------------------------------------------------
Corporate and Other 237 387 470
--------------------------------------------------------------------------------
Total(2) $11,152 $11,306 $12,210
================================================================================
(1) Revenue includes the impact of internal sales commissions and revenue
allocations under the Manufacturer/Customer Segment/Distributor Management
Model.
(2) A TEB adjustment of $111 million (2001: $144 million; 2000: $131 million)
must be deducted from this table to reconcile combined segment revenue to
reported revenue of $11,041 million (2001: $11,162 million; 2000: $12,079
million) in the consolidated statements of income.
CIBC Retail Markets
Personal banking is the individual customer segment (customers other than those
in Imperial Service and global private banking and trust). Revenue is earned
from commission and service fees paid by CIBC's product groups, primarily the
investments, deposits, mortgages and lending products businesses.
Small business banking is the customer segment supporting small
owner-operated businesses, including owners' personal holdings. Revenue is
earned from commission and service fees paid by CIBC's product groups, primarily
the investments, deposits, mortgages and lending products businesses.
West Indies prior to October 11, 2002, when FCIB was formed, was a
full-service banking operation in eight countries, servicing all customer
segments through a 42-branch network and electronic delivery channels. Revenue
was earned on net interest spreads, and sales and service fees. FCIB was formed
as a result of the combination of the Caribbean retail, corporate and
international banking operations of CIBC and Barclays Bank PLC. After the
formation of FCIB, revenue represents CIBC's earnings from its approximate 44%
equity investment in FCIB.
Cards comprises a portfolio of credit cards. Revenue is earned through
spreads and fees.
Lending products comprises personal (including student loans), small
business and agricultural lending portfolios. Revenue is earned through net
interest spreads and service fees, less internal commissions paid to the
customer segments.
Mortgages includes both residential and commercial mortgages. Revenue is
earned through spreads, fees, mortgage sales and hedging activities, less
internal commissions paid to the customer segments.
Insurance provides creditor insurance products. Revenue comprises earned
premiums less claims plus investment income.
Other includes electronic and self-service banking, and the allocation of
a portion of treasury revenue.
CIBC Wealth Management
Imperial Service is the customer segment offering financial advice to CIBC's
affluent clients. Specially trained financial advisers support the financial
planning and product fulfillment needs of these clients. Revenue is earned
primarily from sales and service fees paid by CIBC's product groups.
Private client investment generates fees and commissions from full-service
retail brokerage, providing equity and debt investments, mutual fund products,
asset management services and advisory and financial planning services to
individuals in Canada and the U.S.
Global private banking and trust provides a comprehensive range of global
solutions, including investment management, trusts, private banking and global
custody, to meet the financial management needs of individuals, families and
corporations with significant financial resources. Revenue is earned from net
interest spreads, fees and commissions.
Wealth products includes mutual funds, investment management services,
GICs and discount brokerage services. These investment products are developed
and distributed to retail, institutional, small business and Imperial Service
customers. Revenue is earned from net interest spreads, fees and commissions.
Other consists primarily of the allocation of a portion of treasury
revenue.
CIBC World Markets
Capital markets operates trading, sales and research businesses serving
institutional, corporate and government clients across North America and around
the world. Revenue is generated from fees, commissions, spread-based income and
from taking proprietary positions within prescribed risk parameters.
Investment banking and credit products provides advisory services and
underwriting of debt, credit and equity for corporate and government clients
across North America and around the world. Revenue is earned from fees relating
to merger and acquisition services, underwriting activities, advisory services,
and loan syndications. In addition, net interest is earned on spreads on
corporate loans.
111
CIBC ANNUAL REPORT 2002
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Merchant banking makes investments to create, grow and recapital-ize
companies across a variety of industries. Revenue is generated from fees,
interest and dividends earned on investments and from gains or losses associated
with these investments.
Commercial banking originates financial solutions centred around credit
products for medium-sized businesses in Canada. Revenue is generated from
interest, fees and service charges.
Other includes the allocation of a portion of treasury revenue, net of
unallocated funding charges; CEF Capital, an affiliated Asian merchant bank
holding company; and other revenue not directly attributed to the main
businesses listed above.
Geographic distribution
CIBC earns revenue and incurs expenses from domestic and foreign activities, and
has domestic and foreign assets from which income is earned. Assets are
allocated based on the location of ultimate risk, while net income (loss) and
related income taxes are allocated based on the geographic location in which
income is recorded. The geographic distribution of net income (loss) and major
assets are set out in the following tables.
Included in the geographic distribution of major assets are loans and
acceptances, net of allowance for credit losses, totalling $160 billion, and no
industry or foreign jurisdiction accounts for more than 10% of this amount,
except for the U.S. which accounts for 13% of the total amount outstanding.
-------------------------------------------------------------------------------------------------------------------
GEOGRAPHIC DISTRIBUTION OF NET INCOME (LOSS)
United West Other
$ millions, for the years ended October 31 Canada States Indies countries Total
-------------------------------------------------------------------------------------------------------------------
2002 Net interest income $ 4,421 $ 347 $ 522 $ 220 $ 5,510
Non-interest income 3,388 655 1,210 278 5,531
-------------------------------------------------------------------------------------------------------------------
Total revenue 7,809 1,002 1,732 498 11,041
Provision for credit losses 540 827 -- 133 1,500
Non-interest expenses 5,732 2,787 210 400 9,129
-------------------------------------------------------------------------------------------------------------------
Income (loss) before taxes and non-controlling interests 1,537 (2,612) 1,522 (35) 412
Income taxes 590 (1,109) 269 (29) (279)
Non-controlling interests 23 (8) 23 -- 38
-------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 924 $(1,495) $ 1,230 $ (6) $ 653
===================================================================================================================
2001 Net interest income $ 3,468 $ (5) $ 770 $ 316 $ 4,549
Non-interest income 3,247 2,183 866 317 6,613
-------------------------------------------------------------------------------------------------------------------
Total revenue 6,715 2,178 1,636 633 11,162
Provision for credit losses 476 620 9 (5) 1,100
Non-interest expenses 5,093 2,591 191 351 8,226
-------------------------------------------------------------------------------------------------------------------
Income (loss) before taxes and non-controlling interests 1,146 (1,033) 1,436 287 1,836
Income taxes 536 (686) 195 47 92
Non-controlling interests 12 11 35 -- 58
-------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 598 $ (358) $ 1,206 $ 240 $ 1,686
===================================================================================================================
2000 Net interest income $ 2,957 $ 119 $ 772 $ 434 $ 4,282
Non-interest income 4,032 2,827 867 71 7,797
-------------------------------------------------------------------------------------------------------------------
Total revenue 6,989 2,946 1,639 505 12,079
Provision for credit losses 1,034 166 21 (1) 1,220
Non-interest expenses 4,918 2,632 185 361 8,096
-------------------------------------------------------------------------------------------------------------------
Income before taxes and non-controlling interests 1,037 148 1,433 145 2,763
Income taxes 428 22 220 (29) 641
Non-controlling interests 12 24 26 -- 62
-------------------------------------------------------------------------------------------------------------------
Net income $ 597 $ 102 $ 1,187 $ 174 $ 2,060
===================================================================================================================
--------------------------------------------------------------------------------
112
CIBC ANNUAL REPORT 2002
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
GEOGRAPHIC DISTRIBUTION OF MAJOR ASSETS(1)
$ millions, as at September 30 and October 31 2002 2001 2000
--------------------------------------------------------------------------------------------
Canada $ 171,083 $ 174,031 $ 157,493
United States 57,450 66,329 66,079
--------------------------------------------------------------------------------------------
Europe United Kingdom 5,811 6,432 6,862
France 3,049 3,637 3,731
Germany 6,367 6,626 6,469
Other European countries 9,684 10,413 9,173
--------------------------------------------------------------------------------------------
24,911 27,108 26,235
--------------------------------------------------------------------------------------------
Latin America 334 535 510
--------------------------------------------------------------------------------------------
West Indies 1,823 5,088 4,776
--------------------------------------------------------------------------------------------
Asia and Pacific Japan 1,878 1,889 2,072
Hong Kong 870 985 1,172
Australia 230 346 439
Other Asian and Pacific countries 636 770 1,348
--------------------------------------------------------------------------------------------
3,614 3,990 5,031
--------------------------------------------------------------------------------------------
Middle East and Africa 171 568 1,041
--------------------------------------------------------------------------------------------
General allowance for credit losses(2) -- (1,250) (1,250)
--------------------------------------------------------------------------------------------
Major assets(1) 259,386 276,399 259,915
Other assets 13,835 11,097 8,975
--------------------------------------------------------------------------------------------
Total assets as at September 30(3) 273,221 287,496 268,890
Net change in October(3) 72 (22) (1,188)
--------------------------------------------------------------------------------------------
Total assets as at October 31 $ 273,293 $ 287,474 $ 267,702
============================================================================================
Canadian currency(4) $ 172,979 $ 178,895 $ 161,393
Foreign currencies $ 100,314 $ 108,579 $ 106,309
============================================================================================
(1) Major assets consist of cash, loans, securities, deposits with banks,
customers' liability under acceptances, and derivative instruments market
valuation, after deduction of allowance for credit losses.
(2) Pursuant to an OSFI guideline issued in October 2001, the general
allowance has been allocated to geographic regions in 2002. Prior to 2002,
the general allowance was not allocated.
(3) The information presented here is compiled for regulatory purposes and
reported on a calendar quarter basis. Significant movement in October has
been assigned to the appropriate geographic regions.
(4) For purposes of presentation, the general allowance for credit losses has
been entirely applied to Canadian dollar-based-lending.
27. COMMITMENTS AND CONTINGENT LIABILITIES
Long-term commitments for leases
CIBC has obligations under non-cancellable leases for buildings and equipment.
Future minimum lease payments for all lease commitments for each of the
five succeeding years and thereafter are as follows:
--------------------------------------------------------------------------------
LEASE COMMITMENTS(1)(2)(3)
$ millions
--------------------------------------------------------------------------------
2003 $ 423
2004 396
2005 335
2006 286
2007 223
2008 and thereafter 1,038
================================================================================
(1) Total rental expense in respect of buildings and equipment charged to the
consolidated statements of income was $487 million (2001: $412 million;
2000: $428 million).
(2) Includes future minimum lease commitments under sale-leaseback amounting
to $54 million in 2003, $51 million in 2004, $51 million in 2005, $50
million in 2006, $49 million in 2007 and $171 million in 2008 and
thereafter.
(3) Includes $168 million relating to one of CIBC's premises in New York.
These premises were sublet, with the commencement date effective November
2002.
Other commitments and contingent liabilities
In the ordinary course of business, securities and other assets are pledged
against liabilities or used to facilitate certain activities. The table presents
the details of notional amounts pledged.
--------------------------------------------------------------------------------
PLEDGED ASSETS
$ millions, as at October 31 2002 2001
--------------------------------------------------------------------------------
Foreign governments and central banks(1) $ 2,757 $ 3,937
Clearing systems, payment systems and depositories(1) 728 680
Margins for exchange traded futures
and options, and collateralized
derivative transactions 1,977 3,033
Collateral related to securities borrowed,
securities sold short and securities lent
or sold under repurchase agreements 21,316 36,607
--------------------------------------------------------------------------------
$26,778 $44,257
================================================================================
(1) Includes assets pledged in order to participate in clearing and payment
systems and depositories or to have access to the facilities of central
banks in foreign jurisdictions.
CIBC and in some cases certain of its affiliates have been named as defendants
in five Enron related actions along with, among others, commercial and/or
investment banks, certain current and former Enron officers and directors,
lawyers and accountants. Three of those cases are putative class actions brought
on behalf of individuals who purchased Enron or NewPower securities. The
remaining two actions were brought by purchasers of Marlin
--------------------------------------------------------------------------------
113
CIBC ANNUAL REPORT 2002
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Water Trust notes issued by an Enron special purpose entity. CIBC believes that
each of these lawsuits filed against CIBC and its affiliates is without merit
and intends to defend each of these actions vigorously.
Additionally, CIBC and certain of its affiliates have received inquiries
and requests for information from various regulatory and governmental agencies
and a U.S. Senate committee regarding certain transactions and business
relationships with Enron and its affiliates. CIBC will continue to cooperate
fully with these authorities and with such other agencies and authorities as may
request information.
In addition to the matters described above, CIBC and its subsidiaries are
party to legal proceedings in the ordinary course of their businesses.
Management does not expect the outcome of any of these proceedings, individually
or in the aggregate, to have a material adverse effect on the consolidated
financial position or results of the bank's operations.
--------------------------------------------------------------------------------
28. RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES
CIBC's consolidated financial statements are prepared in accordance with
Canadian GAAP, including the accounting requirements of OSFI. Set out below are
more significant differences which would result if U.S. GAAP were applied in the
preparation of the consolidated financial statements.
----------------------------------------------------------------------------------------------------------------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
2002 2001(1)
----------------------------------------------------------------------------------------------------------------------------------
Canadian U.S. Canadian U.S.
$ millions, as at October 31 GAAP Adjustments GAAP GAAP(2) Adjustments GAAP(2)
----------------------------------------------------------------------------------------------------------------------------------
ASSETS
Cash resources $ 9,512 $ 308 $ 9,820 $ 11,350 $ -- $ 11,350
Securities
Securities held for investment 20,583 (20,583) -- 22,849 (22,849) --
Securities available for sale -- 19,666 19,666 -- 23,650 23,650
Securities held for trading 44,628 52 44,680 51,798 50 51,848
Loan substitute securities 81 (81) -- 147 (147) --
Loans 153,089 1,661 154,750 155,640 -- 155,640
Other
Derivative instruments market valuation 24,717 1,385 26,102 25,723 2,066 27,789
Customers' liability under acceptances 6,848 -- 6,848 8,100 -- 8,100
Land, buildings and equipment 2,247 -- 2,247 1,769 -- 1,769
Goodwill 1,078 (73) 1,005 400 -- 400
Other intangible assets 297 -- 297 228 -- 228
Other assets 10,213 2,631 12,844 9,470 165 9,635
----------------------------------------------------------------------------------------------------------------------------------
$ 273,293 $ 4,966 $ 278,259 $ 287,474 $ 2,935 $ 290,409
==================================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $ 196,630 $ 2,052 $ 198,682 $ 194,352 $ 273 $ 194,625
Other
Derivative instruments market valuation 24,794 1,818 26,612 26,395 588 26,983
Acceptances 6,878 -- 6,878 8,100 -- 8,100
Obligations related to securities sold short 8,436 779 9,215 11,213 -- 11,213
Obligations related to securities lent or
sold under repurchase agreements 9,615 -- 9,615 21,403 -- 21,403
Other liabilities 10,980 329 11,309 10,112 877 10,989
Subordinated indebtedness 3,627 (7) 3,620 3,999 150 4,149
Shareholders' equity
Preferred shares 3,088 -- 3,088 2,299 -- 2,299
Common shares 2,842 (11) 2,831 2,827 -- 2,827
Contributed surplus 26 -- 26 -- -- --
Retained earnings 6,377 (427) 5,950 6,774 4 6,778
Accumulated other comprehensive income -- 433 433 -- 1,043 1,043
----------------------------------------------------------------------------------------------------------------------------------
$ 273,293 $ 4,966 $ 278,259 $ 287,474 $ 2,935 $ 290,409
==================================================================================================================================
(1) Restated.
(2) Certain comparative figures have been reclassified to conform with the
presentation used in 2002.
--------------------------------------------------------------------------------
114
CIBC ANNUAL REPORT 2002
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
$ millions, except per share amounts,
for the years ended October 31 2002 2001(1)(2) 2000(2)
-------------------------------------------------------------------------------------
Net income as reported $ 653 $ 1,686 $ 2,060
-------------------------------------------------------------------------------------
Provision for credit losses (123) -- --
Non-interest income
Trading activities 2 (8) 35
Equity accounting adjustments (60) (56) (31)
Impairment measurements -- (18) --
Other 123 -- --
Derivative instruments and
hedging activities
Transitional provision -- 183 --
Current year adjustments (635) 87 --
Non-interest expenses
Employee future benefits (17) (98) (67)
Restructuring charge -- -- (216)
Stock-based compensation (39) (9) (28)
Lease termination costs -- (50) 50
Income taxes and net change in
income taxes due to the above items 275 (16) 110
-------------------------------------------------------------------------------------
(474) 15 (147)
-------------------------------------------------------------------------------------
Net income based on U.S. GAAP 179 1,701 1,913
Preferred share dividends and premiums (165) (121) (128)
-------------------------------------------------------------------------------------
Net income applicable to common
shares based on U.S. GAAP $ 14 $ 1,580 $ 1,785
=====================================================================================
Weighted-average common shares
outstanding (thousands) 360,553 372,305 388,951
Add: number of incremental shares(3) 3,654 3,477 1,279
-------------------------------------------------------------------------------------
Weighted-average diluted common
shares outstanding (thousands) 364,207 375,782 390,230
=====================================================================================
Basic EPS $ 0.05 $ 4.24 $ 4.59
Diluted EPS $ 0.05 $ 4.20 $ 4.57
=====================================================================================
(1) Restated.
(2) Adjusted for the retroactive application of equity accounting due to
additional interests acquired in the investments during 2002.
(3) It is assumed that 80% of average options outstanding will be exercised
for shares while the remaining 20% will be exercised as SARs.
Comprehensive income
Statement of Financial Accounting Standard (SFAS) 130, "Reporting Comprehensive
Income," requires that a statement of comprehensive income be displayed with the
same prominence as other financial statements. Comprehensive income, which
incorporates net income, includes all changes in equity during a period, except
those resulting from investments by, and distributions to, owners. There is no
requirement to disclose comprehensive income under Canadian GAAP.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
$ millions, for the years ended October 31 2002 2001(1) 2000
--------------------------------------------------------------------------------
Net income based on U.S. GAAP $ 179 $ 1,701 $ 1,913
--------------------------------------------------------------------------------
Other comprehensive income, net of tax
Change in foreign currency
translation adjustments(2) 2 38 8
Change in net unrealized losses
on securities available for sale(3)(4) (115) (1,119) (637)
Change in net unrealized (losses)
gains on hedges of securities
available for sale -- (51) 51
Derivative instruments and
hedging activities
Transitional provision(5) -- (17) --
Change in unrealized
(losses) gains(5) (485) 499 --
Change in additional
pension obligation(6) (12) -- --
--------------------------------------------------------------------------------
Total other comprehensive income (610) (650) (578)
================================================================================
Comprehensive income $(431) $ 1,051 $ 1,335
================================================================================
(1) Restated.
(2) Net of income tax (expense) benefit of $(107) million (2001: $323 million;
2000: $179 million).
(3) Net of income tax benefit of $1 million (2001: $690 million; 2000: $414
million).
(4) Net of reclassification adjustments for net realized gains included in net
income of $70 million (2001: $819 million; 2000: $1,063 million).
(5) Net of income tax benefit (expense) of $306 million (2001: $(303) million;
2000: nil).
(6) Net of income tax benefit of $6 million (2001: nil; 2000: nil).
--------------------------------------------------------------------------------
ACCUMULATED OTHER COMPREHENSIVE INCOME
$ millions, as at or for the years ended October 31 2002 2001(1) 2000
--------------------------------------------------------------------------------
Accumulated other comprehensive
income net of tax
Unrealized foreign currency
translation gains $ 42 $ 40 $ 2
Unrealized gains on securities
available for sale 406 521 1,640
Unrealized gains on hedges
of available-for-sale securities -- -- 51
Unrealized (losses) gains on
derivatives designated as hedges (3) 482 --
Additional pension obligation (12) -- --
--------------------------------------------------------------------------------
Balance at end of year $433 $1,043 $1,693
================================================================================
(1) Restated.
A. 2001 Restatement
In 2002, CIBC concluded that in 2001 it did not meet all of the hedge accounting
criteria in SFAS 133 for certain of our derivative instruments, notwithstanding
that all of these instruments were designated as hedges and highly effective in
achieving their intended purpose from an economic point of view. Consequently,
CIBC has revised the 2001 U.S. GAAP results. Net income has increased by $90
million (income before tax increased by $154 million); both basic and diluted
EPS increased by $0.24; other comprehensive income has decreased by $148
million; deposits has increased by $100 million; other liabilities has decreased
by $42 million; and shareholders' equity has decreased by $58 million.
--------------------------------------------------------------------------------
115
CIBC ANNUAL REPORT 2002
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
B. Securities available for sale
Under Canadian GAAP, securities held for investment are carried at cost or at
amortized cost. U.S. GAAP requires these securities to be classified as either
securities held to maturity or as securities available for sale. The accounting
for securities held to maturity is consistent with the accounting for securities
held for investment, while securities available for sale are reported at
estimated fair value with unrealized gains and losses recognized in other
comprehensive income.
U.S. GAAP also requires the following additional disclosures:
--------------------------------------------------------------------------------
SECURITIES AVAILABLE FOR SALE
$ millions, for the years ended October 31 2002 2001 2000
--------------------------------------------------------------------------------
Proceeds from sales $35,651 $17,527 $12,587
Gross realized gains $ 1,083 $ 1,058 $ 1,137
Gross realized losses $ 167 $ 36 $ 26
================================================================================
C. Provision and allowance for credit losses
Under Canadian GAAP, the existence of credit protection on loan balances from
the purchases of credit derivatives is considered when determining the provision
for credit losses. Amounts recoverable from credit default swaps are included in
allowance for credit losses. Under U.S. GAAP, credit derivatives are recognized
at fair value.
In addition, under Canadian GAAP, loss on sale of performing loans is
included in other non-interest income. Loss on sale of impaired loans is
included in allowance for credit losses. Under U.S. GAAP, loss on sale of loans
is included in allowance for credit losses, unless the decline is due to a
change in general market level of interest or foreign exchange rates.
As a result of these classification differences, provision for credit
losses increased by $123 million and other non-interest income increased by $123
million in 2002.
D. Trading activities
Under Canadian GAAP, CIBC records certain valuation adjustments to trading
securities to reflect resale restrictions that expire within one year or
adjustments for liquidity. Under U.S. GAAP, these valuation adjustments are not
permitted.
E. Equity accounting adjustments
Under Canadian GAAP, CIBC accounts for merchant banking investments on a cost
basis. U.S. GAAP requires the use of equity method to account for such
investments when the equity interest is between 20% and 50%. In addition, under
Canadian GAAP, investments accounted for by the cost method are not restated
retroactively to the equity method when the investor acquires an additional
interest in the business. U.S. GAAP requires retroactive application of the
equity method. As a result of the retroactive application, 2001 and 2000 net
income decreased by $21 million and $18 million, respectively (income before tax
decreased by $28 million and $31 million, respectively), and securities
decreased by $59 million and $31 million, respectively.
Under Canadian GAAP, certain of CIBC's investments in limited partnerships
are accounted for on a cost basis. CIBC records an impairment loss on these
investments when there is evidence of an other-than-temporary decline in their
value. U.S. GAAP requires the use of the equity method to account for such
investments when the equity interest is more than minor.
F. Impairment measurements
Under Canadian GAAP, CIBC records securities held for investment at cost, less
amounts for impairment of carrying values deemed to be other-than-temporary in
nature. When an other-than-temporary impairment has occurred on a publicly
traded available-for-sale security, CIBC records the security at expected
realizable value. Under U.S. GAAP, when an other-than-temporary impairment has
occurred on a publicly traded available-for-sale security, it requires the
establishment of a new cost basis for the security, equal to its quoted market
price at the time impairment is determined to be other-than-temporary.
G. Derivative instruments and hedging activities
Effective November 1, 2000, CIBC adopted the new U.S. standard on accounting for
derivative instruments and hedging activities. This standard requires that all
derivative instruments, including derivative instruments embedded in financial
instruments that are not clearly and closely related to the economic
characteristics of the underlying host financial instruments, be recognized at
fair value in the consolidated financial statements. Under Canadian GAAP,
derivatives used for trading purposes are already carried at fair value on the
consolidated balance sheets with changes in fair value reflected in current
earnings. However, as explained more fully in Note 1, under Canadian GAAP, gains
and losses on both securities and derivative instruments used for hedging
purposes, are recognized in the income statement on the same basis and in the
same period as the underlying hedged items. Thus, while there is no difference
in accounting between Canadian and U.S. GAAP in respect of derivatives held for
trading purposes, there are significant differences in accounting in respect of
derivatives held for hedging purposes.
The accounting under U.S. GAAP for changes in the fair value of
derivatives held for hedging purposes depends on their intended use. For fair
value hedges, the effective portion of changes in fair value of derivative
instruments is offset in income against the change in fair value, attributed to
the risk being hedged, of the underlying hedged asset, liability or firm
commitment. For cash flow hedges, the effective portion of changes in fair value
of derivative instruments is offset through other comprehensive income, until
the variability in cash flows being hedged is recognized in earnings in future
accounting periods. For both fair value and cash flow hedges, if a derivative
instrument is designated as a hedge and meets the criteria for hedge
effectiveness, earnings offset is available, but only to the extent that the
hedge is effective. The ineffective portion of the change in fair value of a
qualifying derivative instrument hedge is always recognized in current earnings
for both fair value and cash flow hedges. In addition, cash (on-balance sheet)
financial instruments do not, in most cases, qualify as hedging instruments
under U.S. GAAP.
In order to qualify for hedge accounting offsets, the U.S. accounting
standard requires that extensive documentation be maintained and that hedge
effectiveness tests prescribed by that standard be met at both the inception of
a hedge relationship and on a periodic, ongoing basis. In this regard, CIBC has
elected, for operational and cost considerations, not to designate certain
derivatives as hedges for U.S. GAAP accounting purposes, even though these
hedges are highly effective for economic purposes. In addition, the U.S.
accounting standard disallows the use of cash instrument hedges and certain
credit derivative hedges of loans and loan commitments are difficult to qualify
for hedge accounting, even though such hedges are also highly effective for
economic purposes. In consequence,
--------------------------------------------------------------------------------
116
CIBC ANNUAL REPORT 2002
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
in respect of accounting for hedging activities, the U.S. GAAP reported earnings
may exhibit significant volatility in any given period.
Upon adoption of this standard on November 1, 2000, CIBC recorded a
pre-tax income of $183 million as a transitional adjustment.
H. Employee future benefits
Under Canadian GAAP, prior to November 1, 2000, CIBC recognized the pension
costs when services were rendered by employees, with the corresponding
obligation valued using management's best estimate of the long-term rate of
return on assets, while the costs of other post-retirement benefits were
expensed when paid. Under U.S. GAAP, it requires both pension and other
post-retirement benefits be recognized in the period services are rendered by
employees and the related obligations be valued using current market rates.
As explained in Note 15, effective November 1, 2000, CIBC retroactively
adopted the requirements of the CICA handbook section 3461, "Employee Future
Benefits," which substantially harmonized Canadian and U.S. GAAP. CIBC continues
to recognize certain unamortized actuarial losses and transitional obligations
that resulted from the application of U.S. GAAP on a prospective basis. As a
result, there will continue to be an adjustment to income until amounts,
previously deferred under U.S. GAAP, have been fully amortized into income.
Under Canadian GAAP, an entity's accrued benefit asset is limited to the
amount it can realize in the future by applying any surplus to reduce an
entity's contributions. The valuation allowance is not included under U.S. GAAP
resulting in an adjustment to income which is all recognized in 2002. In
addition, for defined benefit plans, U.S. GAAP requires that the unfunded
accumulated benefit obligation be recorded as additional minimum liability and
the excess of the unfunded accumulated benefit obligation over the unrecognized
prior service cost be recorded in other comprehensive income.
I. Restructuring charge
Prior to November 1, 2000, when CIBC adopted "Employee Future Benefits," under
Canadian GAAP, a liability for special termination benefits pursuant to a
restructuring required that management approve a plan of termination. U.S. GAAP
differed from Canadian GAAP for years prior to November 1, 2000, as it also
required that, prior to the date of the financial statements, the termination
benefit arrangements be communicated to employees. This U.S. GAAP condition was
not met for $216 million of CIBC's 1999 restructuring charge until 2000,
resulting in a timing difference for the recognition of the restructuring charge
under Canadian and U.S. GAAP. The principles of Canadian and U.S. GAAP have
since been harmonized.
J. Stock-based compensation
CIBC adopted the expense recognition provisions of SFAS 123, "Accounting for
Stock-Based Compensation," effective November 1, 2001. The impact of this change
in accounting policy is the same as under Canadian GAAP (as detailed in Note 14)
except as it relates to SARs outstanding as of the date of adoption.
Under Canadian GAAP, the cost of SARs is measured assuming that all
options eligible for SARs are exercised as SARs. Under U.S. GAAP, for SARs
granted prior to the date of adoption of SFAS 123, the Financial Accounting
Standards Board (FASB) Interpretation No. 28, "Accounting for SARs and Other
Variable Stock Option or Award Plans," continues to apply under which the
accrual is determined as an estimate (based on past experience) of the
proportion of stock options expected to be exercised for cash.
Upon its acquisition by CIBC in 2001, TAL settled all its outstanding
employee stock options in cash. Under Canadian GAAP, the cash settlement of
these variable stock options was charged to retained earnings. Under U.S. GAAP,
Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued
to Employees," requires this settlement payment to be charged to income.
K. Lease termination costs
Prior to October 31, 2000, CIBC made the decision to consolidate its leased
premises in New York and move out of existing premises within three years. Under
Canadian GAAP, all future net costs related to pre-existing leases are
recognized as an expense in the period when the decision is made to stop using
the pre-existing leased property. Under U.S. GAAP, future net costs related to
pre-existing leased property that will no longer be used cannot be recognized as
an expense until a confirming event occurs, in this case, the signing of a
sub-lease, which occurred in 2001.
L. Income taxes
Under Canadian GAAP, tax rate changes are reflected in the measurement of the
future income tax balances when they are substantively enacted. Under U.S. GAAP,
only the enacted tax rates under current legislation are required to be used.
M. Pro-forma disclosures
SFAS 123 requires pro-forma disclosure of net income and EPS as if the fair
value-based method had been applied for awards granted subsequent to 1995. The
fair value-based method requires that the cost of SARs is measured assuming that
all options eligible for SARs are exercised as SARs.
Had the fair value-based method been used for awards granted subsequent to
1995 until October 31, 2001, U.S. GAAP net income in 2002 would have been
decreased by $21 million (2001: $37 million; 2000: $52 million) and basic and
diluted EPS reduced by $0.06 (2001: $0.10; 2000: $0.13).
N. Special purpose entities
Under Canadian GAAP, CIBC is required to consolidate certain SPEs when CIBC has
control and has the right and ability to obtain future economic benefits from
the SPE and is exposed to the related risks. U.S. GAAP requires consolidation of
SPEs when CIBC is the sponsor and there is insufficient third-party equity. As a
result, certain SPEs are consolidated under U.S. GAAP.
O. Non-cash collateral
Under Canadian GAAP, non-cash collateral received from securities lending is not
recognized in the financial statements. Under U.S. GAAP, certain non-cash
collateral received in securities lending transactions is recognized as an
asset, and a liability is recorded for obligations to return the collateral.
P. Netting of financial instruments
Under Canadian GAAP, two or more separate financial instruments can be presented
on a net basis if certain criteria are met. In addition to the same criteria,
under U.S. GAAP, only financial instruments with the same party can be presented
on a net basis.
--------------------------------------------------------------------------------
117
CIBC ANNUAL REPORT 2002
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
Q. Future U.S. accounting policy changes
CIBC will be required to adopt the following accounting standards for U.S. GAAP
purposes in future years.
In August 2001, the FASB issued SFAS 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets," which supercedes FASB No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of." Under SFAS 144, long-lived assets classified as held for sale should be
measured at the lower of their carrying amount or fair value less cost to sell.
SFAS 144 requires operating losses from discontinued operations to be reported
in future periods, as incurred. In addition, a component of an entity may
qualify to be reported as a discontinued operation. CIBC adopted the provisions
of SFAS 144 as of November 1, 2002. Adoption of SFAS 144 will primarily affect
CIBC if and when qualifying future business dispositions occur.
In June 2002, the FASB issued SFAS 146, "Accounting for Costs Associated
with Exit or Disposal Activities." The standard requires a liability to be
recognized for costs associated with exit or disposal activities when they are
incurred rather than the date upon which a company commits to an exit plan. This
standard is effective for exit or disposal activities that are initiated after
December 31, 2002.
In June 2002, the FASB issued an exposure draft "Consolidation of Certain
Special-Purpose Entities." The exposure draft addresses the application of
consolidation policies and disclosure requirements of SPEs. CIBC is monitoring
the status of this exposure draft and the potential impact on its consolidated
financial statements is not yet determinable.
In June 2002, the FASB issued an exposure draft "Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others." The exposure draft requires a guarantor to recognize a
liability for the fair value of the obligations it has undertaken in issuing the
guarantee, and elaborates on the disclosures to be made by a guarantor. CIBC is
monitoring the status, and its potential impact on the consolidated financial
statements is not yet determinable.
--------------------------------------------------------------------------------
29. FUTURE CANADIAN ACCOUNTING POLICY CHANGES
CIBC will be required to adopt the following accounting standards for Canadian
GAAP purposes in future years:
In November 2001, the CICA issued AcG 13, "Hedging Relationships," which
will be effective for CIBC beginning fiscal 2004.
AcG 13 addresses the identification, designation, documentation and
effectiveness of hedging relationships for the purposes of applying hedge
accounting. In addition, it establishes conditions for applying hedge accounting
and deals with the discontinuance of hedge accounting.
Under the new guideline, CIBC is required to document its hedging
relationships and explicitly demonstrate that the hedges are sufficiently
effective in order to continue accrual accounting for derivatives hedging
certain positions. Otherwise, the derivative instrument will need to be
marked-to-market through the current year's consolidated statements of income.
The impact of implementing this guideline in CIBC's consolidated financial
statements is not yet determinable.
In August 2002, the CICA issued a draft guideline "Consolidation of
Special-Purpose Entities." The guideline establishes principles for determining
when an entity includes the assets, liabilities and results of activities of an
SPE in its consolidated financial statements. CIBC uses SPEs to securitize its
own assets, provide clients access to liquidity in the commercial paper market
through CIBC administered conduits and as an intermediary, and to structure SPE
transactions for clients. CIBC is monitoring the status of this draft guideline,
and its potential impact on the consolidated financial statements is not yet
determinable.
--------------------------------------------------------------------------------
118
CIBC ANNUAL REPORT 2002
PRINCIPAL SUBSIDIARIES
Principal Subsidiaries
--------------------------------------------------------------------------------
As at October 31, 2002
Book value(2) of shares
Address of head owned by CIBC and other
Subsidiary Name(1) or principal office subsidiaries of CIBC
------------------------------------------------------------------------------------------------------------------------------
($ millions)
Amicus Bank Toronto, Canada 301
CIBC BA Limited Toronto, Canada (3)
CIBC Financial Planning Inc. Toronto, Canada (3)
CIBC Investor Services Inc. Toronto, Canada 25
CIBC Life Insurance Company Limited Toronto, Canada 23
CIBC Mortgages Inc. Toronto, Canada 130
3877337 Canada Inc. (Home Loans Canada) Toronto, Canada
CIBC Securities Inc. Toronto, Canada (3)
CIBC Trust Corporation Toronto, Canada 471
CIBC World Markets Inc. Toronto, Canada 306
CIBC World Markets (Japan) Inc. Tokyo, Japan
CIBC World Markets Asset Securitisation Pty Ltd. Sydney, Australia
CIBC World Markets Securities Australia Limited Sydney, Australia
CM Investment Management Inc. Toronto, Canada 62
EDULINX Canada Corporation Toronto, Canada 27
INTRIA Corporation(4) Toronto, Canada 107
INTRIA Items Inc. (90%) Mississauga, Canada
INTRIA-HP Corporation (90%)(4) Toronto, Canada
Services Hypothecaires CIBC Inc. Longueuil, Canada 130
TAL Global Asset Management Inc. Montreal, Canada 380
Talvest Fund Management Inc. Montreal, Canada
Talvest (LSVC) Inc. Montreal, Canada
TAL Private Management Ltd. Montreal, Canada
T.A.L. Asset Management (Cayman) Limited George Town, Cayman Islands
TAL CEF Global Holding Limited Tortola, British Virgin Islands
TAL CEF Asset Management Holding Limited Tortola, British Virgin Islands
TAL CEF Global Asset Management Limited Hong Kong, China
TAL CEF Global Asset Management (Bermuda) Limited Hamilton, Bermuda
TAL Global Asset Management (Cayman) Limited George Town, Cayman Islands
T.A.L. Asset Management (Guernsey) Limited St. Peter Port, Guernsey
CIBC Capital Funding L.P. New York, U.S.A. 87
CIBC Capital Funding II L.P. New York, U.S.A. 61
CIBC Delaware Holdings Inc. New York, U.S.A. 4,824
CIBC World Markets Corp. New York, U.S.A.
Juniper Financial Corp. (90%) Wilmington, U.S.A.
Canadian Imperial Holdings Inc. New York, U.S.A.
CIBC INC New York, U.S.A.
CIBC Trading (Delaware Corp.) New York, U.S.A.
Amicus Holdings Inc. Falls Church, U.S.A.
Amicus FSB Cicero, U.S.A.
CIBC National Bank Maitland, U.S.A.
CIBC Holdings (Cayman) Limited George Town, Cayman Islands 3,435
CIBC Bank and Trust Company (Cayman) Limited George Town, Cayman Islands
CIBC Investments (Cayman) Limited George Town, Cayman Islands
CIBC Trust Company (Bahamas) Limited Nassau, Bahamas
CIBC Offshore Services Inc. St. Michael, Barbados
CIBC Reinsurance Company Limited St. Michael, Barbados
CIBC World Markets (International) Arbitrage Corp. St. Michael, Barbados
CIBC Offshore Banking Services Corporation St. Michael, Barbados 255
CIBC Australia Holdings Limited Sydney, Australia 62
CIBC Australia Limited Sydney, Australia
CIBC Asia Ltd. Singapore 165
CIBC World Markets plc London, U.K. 1,517
CIBC Offshore Finance (Ireland) Limited Dublin, Ireland 296
CIBC World Markets Ireland Limited Dublin, Ireland
CIBC World Market Securities Ireland Limited Dublin, Ireland
==============================================================================================================================
(1) CIBC and other subsidiaries of CIBC own 100% of the voting shares of each
subsidiary, except as otherwise noted.
(2) Book value of shares of subsidiaries are shown at cost.
(3) The book value of shares owned by CIBC is less than one million dollars.
(4) On November 1, 2002, INTRIA Corporation was dissolved and CIBC sold its
interest in INTRIA-HP Corporation to Hewlett-Packard (Canada) Co.
--------------------------------------------------------------------------------
119
CIBC ANNUAL REPORT 2002
SUPPLEMENTARY ANNUAL FINANCIAL INFORMATION
Supplementary Annual Financial Information
--------------------------------------------------------------------------------
AVERAGE BALANCE SHEET, NET INTEREST INCOME AND MARGIN
Average balance Interest
-----------------------------------------------------------------
$ millions (TEB), as at or for the years ended October 31 2002 2001 2000 2002 2001 2000
-----------------------------------------------------------------------------------------------------------------------------
Domestic assets(1)
Cash resources $ 1,526 $ 1,695 $ 1,354 $ 15 $ 26 $ 16
Securities Held for investment 13,804 10,275 8,311 619 744 710
Held for trading 26,028 26,911 23,796 1,091 1,399 1,240
-----------------------------------------------------------------------------------------------------------------------------
Loans Residential mortgages 61,706 53,905 48,086 3,227 3,435 3,140
Personal and credit card loans 26,507 25,093 22,990 2,040 2,223 2,110
Business and government loans 22,769 22,400 23,170 1,319 1,853 2,079
Securities borrowed or purchased
under resale agreements 11,886 8,351 7,604 306 376 518
-----------------------------------------------------------------------------------------------------------------------------
Total loans 122,868 109,749 101,850 6,892 7,887 7,847
-----------------------------------------------------------------------------------------------------------------------------
Other interest-bearing assets 450 604 450 79 67 32
Derivative instruments market valuation 6,121 6,117 6,233
Customers' liability under acceptances 7,258 8,720 9,513
Other non-interest-bearing assets 7,265 3,943 3,802
-----------------------------------------------------------------------------------------------------------------------------
Total domestic assets 185,320 168,014 155,309 8,696 10,123 9,845
-----------------------------------------------------------------------------------------------------------------------------
Foreign assets(1)
Cash resources 10,173 9,854 11,115 207 400 547
Securities Held for investment 10,864 9,158 7,517 583 578 479
Held for trading 27,617 29,902 24,665 568 953 999
-----------------------------------------------------------------------------------------------------------------------------
Loans Residential mortgages 1,039 744 606 81 68 60
Personal and credit card loans 3,286 2,756 3,102 155 198 361
Business and government loans 19,720 23,197 23,551 943 1,557 1,776
Securities borrowed or purchased
under resale agreements 13,502 14,414 15,464 381 994 1,332
-----------------------------------------------------------------------------------------------------------------------------
Total loans 37,547 41,111 42,723 1,560 2,817 3,529
-----------------------------------------------------------------------------------------------------------------------------
Other interest-bearing assets 346 447 645 21 47 59
Derivative instruments market valuation 15,972 15,680 17,238
Customers' liability under acceptances 17 61 179
Other non-interest-bearing assets 4,654 4,571 3,728
-----------------------------------------------------------------------------------------------------------------------------
Total foreign assets 107,190 110,784 107,810 2,939 4,795 5,613
-----------------------------------------------------------------------------------------------------------------------------
Total assets $292,510 $278,798 $263,119 $ 11,635 $ 14,918 $ 15,458
=============================================================================================================================
Domestic liabilities(1)
Deposits Individuals $ 62,837 $ 59,360 $ 56,278 $ 1,388 $ 2,061 $ 2,024
Businesses and governments 52,944 53,385 45,999 1,067 2,191 2,158
Banks 664 675 355 13 32 18
-----------------------------------------------------------------------------------------------------------------------------
Total deposits 116,445 113,420 102,632 2,468 4,284 4,200
Derivative instruments market valuation 6,443 6,350 6,507
Acceptances 7,264 8,720 9,513
Obligations related to securities sold short 7,333 6,960 8,507 270 326 349
Obligations related to securities lent or
sold under repurchase agreements 11,178 10,780 5,219 299 524 473
Other liabilities 6,280 5,510 6,385 40 2 78
Subordinated indebtedness 2,359 2,792 2,946 179 215 230
-----------------------------------------------------------------------------------------------------------------------------
Total domestic liabilities 157,302 154,532 141,709 3,256 5,351 5,330
-----------------------------------------------------------------------------------------------------------------------------
Foreign liabilities(1)
Deposits Individuals 5,912 4,915 5,295 141 199 240
Businesses and governments 68,096 54,802 50,314 1,743 2,773 3,040
Banks 11,970 14,293 14,204 295 633 726
-----------------------------------------------------------------------------------------------------------------------------
Total deposits 85,978 74,010 69,813 2,179 3,605 4,006
Derivative instruments market valuation 15,952 15,753 17,689
Acceptances 17 61 179
Obligations related to securities sold short 5,421 6,553 8,763 145 398 623
Obligations related to securities lent or
sold under repurchase agreements 9,876 10,695 9,870 316 629 914
Other liabilities 3,871 3,731 2,005 77 157 85
Subordinated indebtedness 1,541 1,536 1,497 41 85 87
-----------------------------------------------------------------------------------------------------------------------------
Total foreign liabilities 122,656 112,339 109,816 2,758 4,874 5,715
-----------------------------------------------------------------------------------------------------------------------------
Total liabilities 279,958 266,871 251,525 6,014 10,225 11,045
Shareholders' equity 12,552 11,927 11,594
-----------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $292,510 $278,798 $263,119 $ 6,014 $ 10,225 $ 11,045
=============================================================================================================================
Net interest income and margin $ 5,621 $ 4,693 $ 4,413
=============================================================================================================================
Additional disclosures:
Non-interest-bearing demand deposits
Domestic $ 7,503 $ 6,821 $ 6,167
Foreign $ 1,025 $ 937 $ 1,000
==========================================================================================
Average rate
---------------------------
$ millions (TEB), as at or for the years ended October 31 2002 2001 2000
---------------------------------------------------------------------------------------
Domestic assets(1)
Cash resources 0.98% 1.53% 1.18%
Securities Held for investment 4.48 7.24 8.54
Held for trading 4.19 5.20 5.21
---------------------------------------------------------------------------------------
Loans Residential mortgages 5.23 6.37 6.53
Personal and credit card loans 7.70 8.86 9.18
Business and government loans 5.79 8.27 8.97
Securities borrowed or purchased
under resale agreements 2.57 4.50 6.81
---------------------------------------------------------------------------------------
Total loans 5.61 7.19 7.70
---------------------------------------------------------------------------------------
Other interest-bearing assets 17.56 11.09 7.11
Derivative instruments market valuation
Customers' liability under acceptances
Other non-interest-bearing assets
---------------------------------------------------------------------------------------
Total domestic assets 4.69 6.03 6.34
---------------------------------------------------------------------------------------
Foreign assets(1)
Cash resources 2.03 4.06 4.92
Securities Held for investment 5.37 6.31 6.37
Held for trading 2.06 3.19 4.05
---------------------------------------------------------------------------------------
Loans Residential mortgages 7.80 9.14 9.90
Personal and credit card loans 4.72 7.18 11.64
Business and government loans 4.78 6.71 7.54
Securities borrowed or purchased
under resale agreements 2.82 6.90 8.61
---------------------------------------------------------------------------------------
Total loans 4.15 6.85 8.26
---------------------------------------------------------------------------------------
Other interest-bearing assets 6.07 10.51 9.15
Derivative instruments market valuation
Customers' liability under acceptances
Other non-interest-bearing assets
---------------------------------------------------------------------------------------
Total foreign assets 2.74 4.33 5.21
---------------------------------------------------------------------------------------
Total assets 3.98% 5.35% 5.87%
=======================================================================================
Domestic liabilities(1)
Deposits Individuals 2.21% 3.47% 3.60%
Businesses and governments 2.02 4.10 4.69
Banks 1.96 4.74 5.07
---------------------------------------------------------------------------------------
Total deposits 2.12 3.78 4.09
Derivative instruments market valuation
Acceptances
Obligations related to securities sold short 3.68 4.68 4.10
Obligations related to securities lent or
sold under repurchase agreements 2.67 4.86 9.06
Other liabilities 0.64 0.04 1.22
Subordinated indebtedness 7.59 7.70 7.81
---------------------------------------------------------------------------------------
Total domestic liabilities 2.07 3.46 3.76
---------------------------------------------------------------------------------------
Foreign liabilities(1)
Deposits Individuals 2.38 4.05 4.53
Businesses and governments 2.56 5.06 6.04
Banks 2.46 4.43 5.11
---------------------------------------------------------------------------------------
Total deposits 2.53 4.87 5.74
Derivative instruments market valuation
Acceptances
Obligations related to securities sold short 2.67 6.07 7.11
Obligations related to securities lent or
sold under repurchase agreements 3.20 5.88 9.26
Other liabilities 1.99 4.21 4.24
Subordinated indebtedness 2.66 5.53 5.81
---------------------------------------------------------------------------------------
Total foreign liabilities 2.25 4.34 5.20
---------------------------------------------------------------------------------------
Total liabilities 2.15 3.83 4.39
Shareholders' equity
---------------------------------------------------------------------------------------
Total liabilities and shareholders' equity 2.06% 3.67% 4.20%
=======================================================================================
Net interest income and margin 1.92% 1.68% 1.68%
=======================================================================================
(1) Classification as domestic or foreign is based on domicile of debtor or
customer.
--------------------------------------------------------------------------------
120
CIBC ANNUAL REPORT 2002
SUPPLEMENTARY ANNUAL FINANCIAL INFORMATION
VOLUME/RATE ANALYSIS OF CHANGES IN NET INTEREST INCOME
2002/2001
Increase (decrease) due to change in:
----------------------------------------------------------------------------------------------------------
Average Average
$ millions (TEB) balance rate Total
----------------------------------------------------------------------------------------------------------
Domestic assets(1)
Cash resources $ (3) $ (8) $ (11)
Securities Held for investment 256 (381) (125)
Held for trading (46) (262) (308)
----------------------------------------------------------------------------------------------------------
Loans Residential mortgages 497 (705) (208)
Personal and credit card loans 125 (308) (183)
Business and government loans 31 (565) (534)
Securities borrowed or purchased under resale agreements 159 (229) (70)
----------------------------------------------------------------------------------------------------------
Total loans 812 (1,807) (995)
Other interest-bearing assets (17) 29 12
----------------------------------------------------------------------------------------------------------
Change in domestic interest income 1,002 (2,429) (1,427)
----------------------------------------------------------------------------------------------------------
Foreign assets (1)
Cash resources 13 (206) (193)
Securities Held for investment 108 (103) 5
Held for trading (73) (312) (385)
----------------------------------------------------------------------------------------------------------
Loans Residential mortgages 27 (14) 13
Personal and credit card loans 38 (81) (43)
Business and government loans (233) (381) (614)
Securities borrowed or purchased under resale agreements (63) (550) (613)
----------------------------------------------------------------------------------------------------------
Total loans (231) (1,026) (1,257)
Other interest-bearing assets (11) (15) (26)
----------------------------------------------------------------------------------------------------------
Change in foreign interest income (194) (1,662) (1,856)
----------------------------------------------------------------------------------------------------------
Total change in interest income $ 808 $(4,091) $(3,283)
==========================================================================================================
Domestic liabilities(1)
Deposits Individuals $ 121 $ (794) $ (673)
Businesses and governments (18) (1,106) (1,124)
Banks (1) (18) (19)
----------------------------------------------------------------------------------------------------------
Total deposits 102 (1,918) (1,816)
Obligations related to securities sold short 17 (73) (56)
Obligations related to securities lent or sold under repurchase agreements 19 (244) (225)
Other liabilities -- 38 38
Subordinated indebtedness (33) (3) (36)
----------------------------------------------------------------------------------------------------------
Change in domestic interest expense 105 (2,200) (2,095)
----------------------------------------------------------------------------------------------------------
Foreign liabilities(1)
Deposits Individuals 40 (98) (58)
Businesses and governments 673 (1,703) (1,030)
Banks (103) (235) (338)
----------------------------------------------------------------------------------------------------------
Total deposits 610 (2,036) (1,426)
Obligations related to securities sold short (69) (184) (253)
Obligations related to securities lent or sold under repurchase agreements (48) (265) (313)
Other liabilities 5 (85) (80)
Subordinated indebtedness -- (44) (44)
----------------------------------------------------------------------------------------------------------
Change in foreign interest expense 498 (2,614) (2,116)
----------------------------------------------------------------------------------------------------------
Total change in interest expense $ 603 $(4,814) $(4,211)
==========================================================================================================
Change in total net interest income $ 205 $ 723 $ 928
==========================================================================================================
2001/2000
Increase (decrease) due to change in:
----------------------------------------------------------------------------------------------------------
Average Average
$ millions (TEB) balance rate Total
----------------------------------------------------------------------------------------------------------
Domestic assets(1)
Cash resources $ 4 $ 6 $ 10
Securities Held for investment 168 (134) 34
Held for trading 162 (3) 159
----------------------------------------------------------------------------------------------------------
Loans Residential mortgages 380 (85) 295
Personal and credit card loans 193 (80) 113
Business and government loans (69) (157) (226)
Securities borrowed or purchased under resale agreements 51 (193) (142)
----------------------------------------------------------------------------------------------------------
Total loans 555 (515) 40
Other interest-bearing assets 11 24 35
----------------------------------------------------------------------------------------------------------
Change in domestic interest income 900 (622) 278
----------------------------------------------------------------------------------------------------------
Foreign assets
Cash resources (62) (85) (147)
Securities Held for investment 105 (6) 99
Held for trading 212 (258) (46)
----------------------------------------------------------------------------------------------------------
Loans Residential mortgages 14 (6) 8
Personal and credit card loans (40) (123) (163)
Business and government loans (27) (192) (219)
Securities borrowed or purchased under resale agreements (90) (248) (338)
----------------------------------------------------------------------------------------------------------
Total loans (143) (569) (712)
Other interest-bearing assets (18) 6 (12)
----------------------------------------------------------------------------------------------------------
Change in foreign interest income 94 (912) (818)
----------------------------------------------------------------------------------------------------------
Total change in interest income $ 994 $(1,534) $ (540)
==========================================================================================================
Domestic liabilities(1)
Deposits Individuals $ 111 $ (74) $ 37
Businesses and governments 347 (314) 33
Banks 16 (2) 14
----------------------------------------------------------------------------------------------------------
Total deposits 474 (390) 84
Obligations related to securities sold short (63) 40 (23)
Obligations related to securities lent or sold under repurchase agreements 504 (453) 51
Other liabilities (11) (65) (76)
Subordinated indebtedness (12) (3) (15)
----------------------------------------------------------------------------------------------------------
Change in domestic interest expense 892 (871) 21
----------------------------------------------------------------------------------------------------------
Foreign liabilities(1)
Deposits Individuals (17) (24) (41)
Businesses and governments 271 (538) (267)
Banks 5 (98) (93)
----------------------------------------------------------------------------------------------------------
Total deposits 259 (660) (401)
Obligations related to securities sold short (157) (68) (225)
Obligations related to securities lent or sold under repurchase agreements 76 (361) (285)
Other liabilities 78 (6) 72
Subordinated indebtedness 2 (4) (2)
----------------------------------------------------------------------------------------------------------
Change in foreign interest expense 258 (1,099) (841)
----------------------------------------------------------------------------------------------------------
Total change in interest expense $ 1,150 $(1,970) $ (820)
==========================================================================================================
Change in total net interest income $ (156) $ 436 $ 280
==========================================================================================================
(1) Classification as domestic or foreign is based on domicile of debtor or
customer.
--------------------------------------------------------------------------------
121
CIBC ANNUAL REPORT 2002
SUPPLEMENTARY ANNUAL FINANCIAL INFORMATION
ANALYSIS OF NET LOANS AND ACCEPTANCES
Canada(1)
--------------------------------------------------------
$ millions, as at October 31 2002 2001 2000 1999 1998
-------------------------------------------------------------------------------------------------
Residential mortgages $ 66,251 $ 57,777 $ 51,203 $ 46,043 $ 42,646
Student loans 2,960 3,568 4,263 4,380 3,991
Personal loans 17,656 15,324 14,569 13,462 14,657
Credit card loans 7,194 6,707 5,564 4,158 3,043
-------------------------------------------------------------------------------------------------
Total consumer loans 94,061 83,376 75,599 68,043 64,337
-------------------------------------------------------------------------------------------------
Non-residential mortgages 3,821 3,085 2,270 1,775 2,370
Financial institutions 2,143 2,706 2,349 2,217 3,059
Retail 2,165 2,563 3,485 3,292 3,597
Business services 3,574 3,635 3,906 3,694 3,462
Manufacturing, capital goods 1,595 1,876 1,873 1,982 2,442
Manufacturing, consumer goods 1,863 2,278 2,319 2,593 2,751
Real estate and construction 2,135 2,058 2,311 2,656 2,620
Agriculture 4,177 3,807 3,701 3,458 2,994
Oil and gas 2,784 3,230 4,038 3,801 4,345
Mining 507 420 322 633 706
Forest products 559 598 897 979 1,307
Hardware and software 187 290 394 330 357
Telecommunications and cable 872 942 844 531 450
Publishing, printing and broadcasting 613 1,275 499 663 926
Transportation 1,063 1,246 1,116 1,282 1,107
Utilities 490 453 358 242 199
Education, health and social services 1,280 1,185 1,212 1,125 1,148
Governments 836 706 878 825 665
General allowance allocated to
business and government loans(2) (414) -- -- -- --
-------------------------------------------------------------------------------------------------
Total business and government loans
including acceptances 30,250 32,353 32,772 32,078 34,505
-------------------------------------------------------------------------------------------------
Securities borrowed or purchased
under resale agreements 8,563 12,376 9,153 6,776 12,464
-------------------------------------------------------------------------------------------------
General allowance for credit losses(2)
-------------------------------------------------------------------------------------------------
Total net loans and acceptances $132,874 $128,105 $117,524 $106,897 $111,306
=================================================================================================
U.S.(1)
---------------------------------------------------
$ millions, as at October 31 2002 2001 2000 1999 1998
--------------------------------------------------------------------------------------------
Residential mortgages $ 321 $ 239 $ 79 $ 46 $ 49
Student loans -- -- -- -- --
Personal loans 1,803 1,657 2,409 1,762 1,907
Credit card loans 278 4 -- -- --
--------------------------------------------------------------------------------------------
Total consumer loans 2,402 1,900 2,488 1,808 1,956
--------------------------------------------------------------------------------------------
Non-residential mortgages -- -- -- -- --
Financial institutions 1,120 2,851 2,564 2,873 2,720
Retail 298 294 467 444 386
Business services 1,238 1,079 1,358 1,199 1,650
Manufacturing, capital goods 797 845 1,353 1,304 1,306
Manufacturing, consumer goods 559 533 367 624 644
Real estate and construction 2,121 1,599 1,465 1,579 1,614
Agriculture -- -- 6 6 33
Oil and gas 605 850 876 735 790
Mining 73 55 277 100 130
Forest products 356 297 158 240 271
Hardware and software 126 497 331 495 233
Telecommunications and cable 1,144 1,336 1,883 1,381 1,265
Publishing, printing and broadcasting 362 282 382 423 430
Transportation 667 612 813 798 842
Utilities 1,562 1,157 868 872 512
Education, health and social services 162 161 237 339 275
Governments 13 12 61 483 70
General allowance allocated to
business and government loans(2) (333) -- -- -- --
--------------------------------------------------------------------------------------------
Total business and government loans
including acceptances 10,870 12,460 13,466 13,895 13,171
--------------------------------------------------------------------------------------------
Securities borrowed or purchased
under resale agreements 6,611 10,576 10,420 10,862 21,225
--------------------------------------------------------------------------------------------
General allowance for credit losses(2)
--------------------------------------------------------------------------------------------
Total net loans and acceptances $19,883 $24,936 $26,374 $26,565 $36,352
============================================================================================
(1) Classification by country is based on domicile of debtor or customer.
(2) Pursuant to an OSFI guideline issued in October 2001, the general
allowance has been allocated to related asset categories in 2002. Prior to
2002, the general allowance was not allocated.
-------------------------------------------------------------------------------------------------------------
SUMMARY OF ALLOWANCES FOR CREDIT LOSSES
$ millions, as at or for the years ended October 31 2002 2001 2000 1999 1998
-------------------------------------------------------------------------------------------------------------
Balance at beginning of year $ 2,295 $ 2,238 $ 1,752 $ 1,626 $ 1,595
Provision for credit losses 1,500 1,100 1,220 750 480
Write-offs
Domestic
Residential mortgages 6 4 6 11 14
Student loans 145 131 129 102 75
Personal and credit card loans 430 349 283 224 249
Other business and government loans 183 90 214 273 132
Foreign
Personal and credit card loans 20 7 16 9 4
Other business and government loans 921 668 201 135 118
-------------------------------------------------------------------------------------------------------------
Total write-offs 1,705 1,249 849 754 592
-------------------------------------------------------------------------------------------------------------
Recoveries
Domestic
Personal and credit card loans 60 48 41 40 49
Student loans 63 89 35 35 30
Other business and government loans 30 25 16 39 28
Foreign
Personal and credit card loans 2 4 1 -- --
Other business and government loans 62 19 28 30 25
-------------------------------------------------------------------------------------------------------------
Total recoveries 217 185 121 144 132
-------------------------------------------------------------------------------------------------------------
Net write-offs 1,488 1,064 728 610 460
Foreign exchange and other adjustments (18) 21 (6) (14) 11
-------------------------------------------------------------------------------------------------------------
Balance at end of year 2,289 2,295 2,238 1,752 1,626
Less: allowance on letters of credit (1) (1) (2) (4) (17)
-------------------------------------------------------------------------------------------------------------
Allowance for credit losses $ 2,288 $ 2,294 $ 2,236 $ 1,748 $ 1,609
=============================================================================================================
Ratio of net write-offs during year to
average loans outstanding during year 0.93% 0.71% 0.50% 0.41% 0.28%
=============================================================================================================
--------------------------------------------------------------------------------
122
CIBC ANNUAL REPORT 2002
SUPPLEMENTARY ANNUAL FINANCIAL INFORMATION
ANALYSIS OF NET LOANS AND ACCEPTANCES (continued)
Other(1)
-----------------------------------------------------
$ millions, as at October 31 2002 2001 2000 1999 1998
----------------------------------------------------------------------------------------------
Residential mortgages $ -- $ 712 $ 616 $ 524 $ 477
Student loans -- -- -- -- --
Personal loans 192 589 589 713 733
Credit card loans -- 60 58 57 51
----------------------------------------------------------------------------------------------
Total consumer loans 192 1,361 1,263 1,294 1,261
----------------------------------------------------------------------------------------------
Non-residential mortgages 15 170 174 140 138
Financial institutions 866 1,315 2,954 3,774 4,048
Retail 64 329 357 651 507
Business services 692 1,273 866 668 2,500
Manufacturing, capital goods 167 291 348 442 602
Manufacturing, consumer goods 109 378 360 291 506
Real estate and construction 69 357 305 505 563
Agriculture -- 39 36 63 54
Oil and gas 96 263 203 591 425
Mining 264 370 434 353 171
Forest products 116 185 83 22 35
Hardware and software 59 139 106 156 189
Telecommunications and cable 2,247 2,384 2,143 808 896
Publishing, printing and broadcasting 278 222 183 156 230
Transportation 734 830 601 851 561
Utilities 553 753 665 548 549
Education, health and social services -- 26 28 99 147
Governments 18 137 95 252 458
General allowance allocated to
business and government loans(2) (205) -- -- -- --
----------------------------------------------------------------------------------------------
Total business and government loans
including acceptances 6,142 9,461 9,941 10,370 12,579
----------------------------------------------------------------------------------------------
Securities borrowed or purchased
under resale agreements 846 1,127 888 1,520 2,604
----------------------------------------------------------------------------------------------
General allowance for credit losses(2) -- -- -- -- --
----------------------------------------------------------------------------------------------
Total net loans and acceptances $7,180 $11,949 $12,092 $13,184 $16,444
==============================================================================================
Total
-----------------------------------------------------
$ millions, as at October 31 2002 2001 2000 1999 1998
----------------------------------------------------------------------------------------------
Residential mortgages $ 66,572 $ 58,728 $ 51,898 $ 46,613 $ 43,172
Student loans 2,960 3,568 4,263 4,380 3,991
Personal loans 19,651 17,570 17,567 15,937 17,297
Credit card loans 7,472 6,771 5,622 4,215 3,094
----------------------------------------------------------------------------------------------
Total consumer loans 96,655 86,637 79,350 71,145 67,554
----------------------------------------------------------------------------------------------
Non-residential mortgages 3,836 3,255 2,444 1,915 2,508
Financial institutions 4,129 6,872 7,867 8,864 9,827
Retail 2,527 3,186 4,309 4,387 4,490
Business services 5,504 5,987 6,130 5,561 7,612
Manufacturing, capital goods 2,559 3,012 3,574 3,728 4,350
Manufacturing, consumer goods 2,531 3,189 3,046 3,508 3,901
Real estate and construction 4,325 4,014 4,081 4,740 4,797
Agriculture 4,177 3,846 3,743 3,527 3,081
Oil and gas 3,485 4,343 5,117 5,127 5,560
Mining 844 845 1,033 1,086 1,007
Forest products 1,031 1,080 1,138 1,241 1,613
Hardware and software 372 926 831 981 779
Telecommunications and cable 4,263 4,662 4,870 2,720 2,611
Publishing, printing and broadcasting 1,253 1,779 1,064 1,242 1,586
Transportation 2,464 2,688 2,530 2,931 2,510
Utilities 2,605 2,363 1,891 1,662 1,260
Education, health and social services 1,442 1,372 1,477 1,563 1,570
Governments 867 855 1,034 1,560 1,193
General allowance allocated to
business and government loans(2) (952) -- -- -- --
----------------------------------------------------------------------------------------------
Total business and government loans
including acceptances 47,262 54,274 56,179 56,343 60,255
----------------------------------------------------------------------------------------------
Securities borrowed or purchased
under resale agreements 16,020 24,079 20,461 19,158 36,293
----------------------------------------------------------------------------------------------
General allowance for credit losses(2) -- (1,250) (1,250) (1,000) (850)
----------------------------------------------------------------------------------------------
Total net loans and acceptances $159,937 $163,740 $154,740 $145,646 $163,252
==============================================================================================
(1) Classification by country is based on domicile of debtor or customer.
(2) Pursuant to an OSFI guideline issued in October 2001, the general
allowance has been allocated to related asset categories in 2002. Prior to
2002, the general allowance was not allocated.
------------------------------------------------------------------------------------------------------------------------------------
ALLOWANCE FOR CREDIT LOSSES AS A PERCENTAGE OF EACH LOAN CATEGORY(1)(2)
Allowance for credit losses Allowance as a % of each loan category
-------------------------------------------------------------------------------------------
$ millions, as at October 31 2002 2001 2000 1999 1998 2002 2001 2000 1999 1998
------------------------------------------------------------------------------------------------------------------------------------
Domestic
Residential mortgages $ 40 $ 23 $ 23 $ 24 $ 27 0.06% 0.04% 0.04% 0.05% 0.06%
Personal and credit card loans 680 488 478 208 173 2.39 1.87 1.92 0.94 0.79
Other business and
government loans 795 396 340 391 397 3.29 1.61 1.41 1.68 1.64
------------------------------------------------------------------------------------------------------------------------------------
Total domestic 1,515 907 841 623 597 1.27 0.84 0.84 0.68 0.67
------------------------------------------------------------------------------------------------------------------------------------
Foreign
Personal and credit card loans 21 14 9 11 8 0.92 0.60 0.29 0.43 0.30
Other business and
government loans 752 123 136 114 154 4.23 0.56 0.58 0.47 0.60
====================================================================================================================================
Total foreign 773 137 145 125 162 3.79 0.54 0.53 0.46 0.56
------------------------------------------------------------------------------------------------------------------------------------
General allowance for credit losses(3) -- 1,250 1,250 1,000 850 -- -- -- -- --
------------------------------------------------------------------------------------------------------------------------------------
Total allowance $2,288 $2,294 $2,236 $1,748 $1,609 1.64% 1.71% 1.75% 1.47% 1.37%
====================================================================================================================================
(1) Percentage is calculated on loan portfolio excluding acceptances and
securities borrowed or purchased under resale agreements.
(2) Certain comparative figures have been reclassified to conform with the
presentation used in 2002.
(3) Pursuant to an OSFI guideline issued in October 2001, the general
allowance has been allocated to related asset categories in 2002. Prior to
2002, the general allowance was not allocated.
--------------------------------------------------------------------------------
123
CIBC ANNUAL REPORT 2002
SUPPLEMENTARY ANNUAL FINANCIAL INFORMATION
IMPAIRED LOANS BEFORE GENERAL ALLOWANCES
Canada(1) U.S.(1)
-------------------------------------------------------------------------------------
$ millions, as at October 31 2002 2001 2000 1999 1998 2002 2001 2000 1999 1998
---------------------------------------------------------------------------------------------------------------------------------
Gross impaired loans
Residential mortgages $ 172 $ 182 $ 148 $ 138 $ 135 $ -- $ -- $ -- $-- $ --
Student loans 123 177 167 136 113 -- -- -- -- --
Personal and credit card loans 114 101 99 143 158 2 1 1 2 2
---------------------------------------------------------------------------------------------------------------------------------
Total gross impaired consumer loans 409 460 414 417 406 2 1 1 2 2
---------------------------------------------------------------------------------------------------------------------------------
Non-residential mortgages 28 28 40 43 64 -- -- -- -- --
Financial institutions 7 9 12 19 9 45 50 107 -- --
Service and retail industries 253 197 152 164 122 30 15 102 28 59
Manufacturing, consumer and capital goods 54 128 112 217 69 55 37 41 40 5
Real estate and construction 51 84 110 140 259 24 -- -- -- 40
Agriculture 35 42 28 18 22 -- -- -- -- --
Resource-based industries 17 23 31 44 10 93 12 15 1 2
Telecommunications, media
and technology 87 62 11 20 42 372 77 13 -- --
Transportation 236 236 229 6 11 32 33 33 11 29
Utilities 8 9 15 77 75 80 -- -- -- --
Other 9 9 9 7 15 4 2 10 -- --
---------------------------------------------------------------------------------------------------------------------------------
Total gross impaired -
business and government loans 785 827 749 755 698 735 226 321 80 135
---------------------------------------------------------------------------------------------------------------------------------
Total gross impaired loans 1,194 1,287 1,163 1,172 1,104 737 227 322 82 137
Other past due loans(2) 38 67 58 44 26 -- -- 1 6 23
---------------------------------------------------------------------------------------------------------------------------------
Total gross impaired
and other past due loans $1,232 $1,354 $1,221 $1,216 $1,130 $737 $227 $323 $88 $160
=================================================================================================================================
Allowance for credit losses
Residential mortgages $ 21 $ 23 $ 23 $ 24 $ 27 $ -- $ -- $ -- $-- $ --
Student loans 237 320 363 93 55 -- -- -- -- --
Personal and credit card loans 179 168 115 115 118 6 -- -- -- --
---------------------------------------------------------------------------------------------------------------------------------
Total allowance - consumer loans(3) 437 511 501 232 200 6 -- -- -- --
---------------------------------------------------------------------------------------------------------------------------------
Non-residential mortgages 14 16 23 25 41 -- -- -- -- --
Financial institutions 5 8 12 11 7 26 29 25 -- --
Service and retail industries 117 93 63 78 70 2 3 20 8 17
Manufacturing, consumer and capital goods 45 72 60 98 34 8 7 10 1 --
Real estate and construction 30 65 71 102 163 1 -- -- -- 9
Agriculture 13 9 6 5 5 -- -- -- -- --
Resource-based industries 15 17 18 13 8 8 7 -- -- --
Telecommunications, media
and technology 52 33 5 15 27 33 29 -- -- --
Transportation 76 74 74 5 8 1 1 1 -- 1
Utilities 8 3 3 35 21 49 -- -- -- --
Other 6 6 5 4 13 -- -- -- -- --
---------------------------------------------------------------------------------------------------------------------------------
Total allowance -
business and government loans 381 396 340 391 397 128 76 56 9 27
---------------------------------------------------------------------------------------------------------------------------------
Total allowance $ 818 $ 907 $ 841 $ 623 $ 597 $134 $ 76 $ 56 $ 9 $ 27
=================================================================================================================================
Net impaired loans
Residential mortgages $ 151 $ 159 $ 125 $ 114 $ 108 $ -- $ -- $ -- $-- $ --
Student loans (114) (143) (196) 43 58 -- -- -- -- --
Personal and credit card loans (65) (67) (16) 28 40 (4) 1 1 2 2
---------------------------------------------------------------------------------------------------------------------------------
Total net impaired consumer loans(3) (28) (51) (87) 185 206 (4) 1 1 2 2
---------------------------------------------------------------------------------------------------------------------------------
Non-residential mortgages 14 12 17 18 23 -- -- -- -- --
Financial institutions 2 1 -- 8 2 19 21 82 -- --
Service and retail industries 136 104 89 86 52 28 12 82 20 42
Manufacturing, consumer and capital goods 9 56 52 119 35 47 30 31 39 5
Real estate and construction 21 19 39 38 96 23 -- -- -- 31
Agriculture 22 33 22 13 17 -- -- -- -- --
Resource-based industries 2 6 13 31 2 85 5 15 1 2
Telecommunications, media
and technology 35 29 6 5 15 339 48 13 -- --
Transportation 160 162 155 1 3 31 32 32 11 28
Utilities -- 6 12 42 54 31 -- -- -- --
Other 3 3 4 3 2 4 2 10 -- --
---------------------------------------------------------------------------------------------------------------------------------
Total net impaired -
business and government loans 404 431 409 364 301 607 150 265 71 108
---------------------------------------------------------------------------------------------------------------------------------
Total net impaired loans $ 376 $ 380 $ 322 $ 549 $ 507 $603 $151 $266 $73 $110
=================================================================================================================================
(1) Classification by country is based on domicile of debtor or customer.
(2) Other past due loans, which have not been classified as impaired, are
described in Note 4 to the consolidated financial statements.
(3) Specific allowances for large numbers of homogeneous balances of
relatively small amounts are established by reference to historical ratios
of write-offs to balances outstanding. This may result in negative net
impaired loans as individual loans are generally classified as impaired
when repayment of principal or interest is contractually 90 days in
arrears.
124
CIBC ANNUAL REPORT 2002
SUPPLEMENTARY ANNUAL FINANCIAL INFORMATION
IMPAIRED LOANS BEFORE GENERAL ALLOWANCES (continued)
Other(1) Total
------------------------------------------------------------------------------------
$ millions, as at October 31 2002 2001 2000 1999 1998 2002 2001 2000 1999 1998
--------------------------------------------------------------------------------------------------------------------------------
Gross impaired loans
Residential mortgages $ -- $ -- $ -- $ -- $ -- $ 172 $ 182 $ 148 $ 138 $ 135
Student loans -- -- -- -- -- 123 177 167 136 113
Personal and credit card loans -- 44 42 44 28 116 146 142 189 188
--------------------------------------------------------------------------------------------------------------------------------
Total gross impaired consumer loans -- 44 42 44 28 411 505 457 463 436
--------------------------------------------------------------------------------------------------------------------------------
Non-residential mortgages -- -- -- -- -- 28 28 40 43 64
Financial institutions 3 9 25 48 6 55 68 144 67 15
Service and retail industries -- 33 11 15 15 283 245 265 207 196
Manufacturing, consumer and capital goods -- 4 10 5 6 109 169 163 262 80
Real estate and construction 9 23 31 41 28 84 107 141 181 327
Agriculture 3 6 6 6 6 38 48 34 24 28
Resource-based industries 34 -- -- -- -- 144 35 46 45 12
Telecommunications, media
and technology 274 56 8 20 54 733 195 32 40 96
Transportation -- 1 25 34 77 268 270 287 51 117
Utilities 21 12 16 11 19 109 21 31 88 94
Other -- -- 2 4 6 13 11 21 11 21
--------------------------------------------------------------------------------------------------------------------------------
Total gross impaired -
business and government loans 344 144 134 184 217 1,864 1,197 1,204 1,019 1,050
--------------------------------------------------------------------------------------------------------------------------------
Total gross impaired loans 344 188 176 228 245 2,275 1,702 1,661 1,482 1,486
Other past due loans(2) -- 1 2 18 28 38 68 61 68 77
--------------------------------------------------------------------------------------------------------------------------------
Total gross impaired
and other past due loans $344 $189 $178 $246 $273 $2,313 $1,770 $1,722 $1,550 $1,563
================================================================================================================================
Allowance for credit losses
Residential mortgages $ -- $ -- $ -- $ -- $ -- $ 21 $ 23 $ 23 $ 24 $ 27
Student loans -- -- -- -- -- 237 320 363 93 55
Personal and credit card loans -- 14 9 11 8 185 182 124 126 126
--------------------------------------------------------------------------------------------------------------------------------
Total allowance - consumer loans(3) -- 14 9 11 8 443 525 510 243 208
--------------------------------------------------------------------------------------------------------------------------------
Non-residential mortgages -- -- -- -- -- 14 16 23 25 41
Financial institutions 2 4 13 27 3 33 41 50 38 10
Service and retail industries -- 5 2 5 7 119 101 85 91 94
Manufacturing, consumer and capital goods -- 2 5 3 3 53 81 75 102 37
Real estate and construction 9 13 22 29 13 40 78 93 131 185
Agriculture 3 4 4 4 4 16 13 10 9 9
Resource-based industries 18 -- -- -- -- 41 24 18 13 8
Telecommunications, media
and technology 38 7 8 18 40 123 69 13 33 67
Transportation -- -- 10 6 40 77 75 85 11 49
Utilities 16 12 16 11 15 73 15 19 46 36
Other -- -- -- 2 2 6 6 5 6 15
--------------------------------------------------------------------------------------------------------------------------------
Total allowance -
business and government loans 86 47 80 105 127 595 519 476 505 551
--------------------------------------------------------------------------------------------------------------------------------
Total allowance $ 86 $ 61 $ 89 $116 $135 $1,038 $1,044 $ 986 $ 748 $ 759
================================================================================================================================
Net impaired loans
Residential mortgages $ -- $ -- $ -- $ -- $ -- $ 151 $ 159 $ 125 $ 114 $ 108
Student loans -- -- -- -- -- (114) (143) (196) 43 58
Personal and credit card loans -- 30 33 33 20 (69) (36) 18 63 62
--------------------------------------------------------------------------------------------------------------------------------
Total net impaired consumer loans(3) -- 30 33 33 20 (32) (20) (53) 220 228
--------------------------------------------------------------------------------------------------------------------------------
Non-residential mortgages -- -- -- -- -- 14 12 17 18 23
Financial institutions 1 5 12 21 3 22 27 94 29 5
Service and retail industries -- 28 9 10 8 164 144 180 116 102
Manufacturing, consumer and capital goods -- 2 5 2 3 56 88 88 160 43
Real estate and construction -- 10 9 12 15 44 29 48 50 142
Agriculture -- 2 2 2 2 22 35 24 15 19
Resource-based industries 16 -- -- -- -- 103 11 28 32 4
Telecommunications, media
and technology 236 49 -- 2 14 610 126 19 7 29
Transportation -- 1 15 28 37 191 195 202 40 68
Utilities 5 -- -- -- 4 36 6 12 42 58
Other -- -- 2 2 4 7 5 16 5 6
--------------------------------------------------------------------------------------------------------------------------------
Total net impaired -
business and government loans 258 97 54 79 90 1,269 678 728 514 499
--------------------------------------------------------------------------------------------------------------------------------
Total net impaired loans $258 $127 $ 87 $112 $110 $1,237 $ 658 $ 675 $ 734 $ 727
================================================================================================================================
(1) Classification by country is based on domicile of debtor or customer.
(2) Other past due loans, which have not been classified as impaired, are
described in Note 4 to the consolidated financial statements.
(3) Specific allowances for large numbers of homogeneous balances of
relatively small amounts are established by reference to historical ratios
of write-offs to balances outstanding. This may result in negative net
impaired loans as individual loans are generally classified as impaired
when repayment of principal or interest is contractually 90 days in
arrears.
--------------------------------------------------------------------------------
125
CIBC ANNUAL REPORT 2002
SUPPLEMENTARY ANNUAL FINANCIAL INFORMATION
DEPOSITS
Average balance Interest Rate
--------------------------------------------------------------------------------
$ millions, as at October 31 2002 2001 2000 2002 2001 2000 2002 2001 2000
--------------------------------------------------------------------------------------------------------------------
Deposits in domestic bank offices
Payable on demand
Individuals $ 5,793 $ 4,040 $ 3,249 $ 53 $ 126 $ 116 0.91% 3.12% 3.57%
Businesses and governments 15,063 13,193 11,602 122 297 311 0.81 2.25 2.68
Banks 356 378 301 4 8 6 1.12 2.12 1.99
Payable after notice
Individuals 23,348 18,317 16,869 115 146 131 0.49 0.80 0.78
Businesses and governments 6,000 5,640 5,539 101 219 241 1.68 3.88 4.35
Banks 1 1 1 -- -- -- -- -- --
Payable on a fixed date
Individuals 35,463 38,401 37,910 1,249 1,847 1,857 3.52 4.81 4.90
Businesses and governments 32,934 33,269 30,276 860 1,603 1,673 2.61 4.82 5.53
Banks 735 926 920 16 45 54 2.18 4.86 5.87
--------------------------------------------------------------------------------------------------------------------
Total domestic 119,693 114,165 106,667 2,520 4,291 4,389 2.11 3.76 4.11
--------------------------------------------------------------------------------------------------------------------
Deposits in foreign bank offices
Payable on demand
Individuals 736 622 770 6 7 5 0.82 1.13 0.65
Businesses and governments 969 1,061 1,235 6 15 28 0.62 1.41 2.27
Banks 114 138 363 2 5 8 1.75 3.62 2.20
Payable after notice
Individuals 1,254 643 537 38 28 26 3.03 4.35 4.84
Businesses and governments 135 160 179 2 3 3 1.48 1.88 1.68
Banks 11 -- -- -- -- -- -- -- --
Payable on a fixed date
Individuals 2,155 2,252 2,238 68 106 129 3.16 4.71 5.76
Businesses and governments 65,939 54,864 47,482 1,719 2,827 2,942 2.61 5.15 6.20
Banks 11,417 13,525 12,974 286 607 676 2.51 4.49 5.21
--------------------------------------------------------------------------------------------------------------------
Total foreign deposits 82,730 73,265 65,778 2,127 3,598 3,817 2.57 4.91 5.80
--------------------------------------------------------------------------------------------------------------------
Total deposits $202,423 $187,430 $172,445 $4,647 $7,889 $8,206 2.30% 4.21% 4.76%
====================================================================================================================
----------------------------------------------------------------------------------------------------------
SHORT-TERM BORROWINGS
$ millions, as at or for the years ended October 31 2002 2001 2000
----------------------------------------------------------------------------------------------------------
Amounts outstanding at end of year
Obligations related to securities sold short $ 8,436 $11,213 $13,992
Obligations related to securities lent or sold under repurchase agreements 9,615 21,403 14,199
----------------------------------------------------------------------------------------------------------
Total short-term borrowings $18,051 $32,616 $28,191
==========================================================================================================
Obligations related to securities sold short
Average balance $12,754 $13,513 $17,270
Maximum month-end balance $16,413 $16,082 $18,309
Average interest rate 3.25% 5.36% 5.63%
Obligations related to securities lent or sold under repurchase agreements
Average balance $21,054 $21,475 $15,089
Maximum month-end balance $23,977 $27,660 $17,830
Average interest rate 2.92% 5.37% 9.19%
==========================================================================================================
--------------------------------------------------------------------------------
126
CIBC ANNUAL REPORT 2002
QUARTERLY REVIEW
Quarterly Review
--------------------------------------------------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
2002 2001
------------------------------------------------------------------------------------------------------------------------------------
Unaudited, $ millions, for the quarter Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1
------------------------------------------------------------------------------------------------------------------------------------
Net interest income (TEB)(1) $1,457 $1,353 $1,336 $1,475 $1,371 $1,206 $1,083 $1,033
Deduct taxable equivalent adjustment 31 28 21 31 58 30 18 38
------------------------------------------------------------------------------------------------------------------------------------
Net interest income (consolidated statement of income basis) 1,426 1,325 1,315 1,444 1,313 1,176 1,065 995
Non-interest income 1,065 1,209 1,654 1,603 1,328 1,694 1,672 1,919
------------------------------------------------------------------------------------------------------------------------------------
Total revenue 2,491 2,534 2,969 3,047 2,641 2,870 2,737 2,914
Provision for credit losses 280 290 390 540 403 254 253 190
Non-interest expenses 2,673 1,982 2,313 2,161 2,283 2,072 1,886 1,985
------------------------------------------------------------------------------------------------------------------------------------
(Loss) income before taxes and non-controlling interests (462) 262 266 346 (45) 544 598 739
Income taxes (378) 54 32 13 (307) 76 119 204
Non-controlling interests in net income of subsidiaries 16 15 7 -- 20 8 10 20
------------------------------------------------------------------------------------------------------------------------------------
Net (loss) income $ (100) $ 193 $ 227 $ 333 $ 242 $ 460 $ 469 $ 515
====================================================================================================================================
Dividends on preferred shares $ 44 $ 45 $ 40 $ 32 $ 31 $ 32 $ 32 $ 26
Net (loss) income applicable to common shares $ (144) $ 148 $ 187 $ 301 $ 211 $ 428 $ 437 $ 489
====================================================================================================================================
---------------------------------------------------------------------------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
2002
---------------------------------------------------------------------------------------------
Unaudited, $ millions, as at quarter end Q4 Q3 Q2 Q1
---------------------------------------------------------------------------------------------
Assets
Cash resources $ 9,512 $ 12,845 $ 13,889 $ 10,748
Securities 65,292 84,782 79,932 76,893
Loans(2) Residential mortgages 66,612 65,226 62,713 61,254
Personal and credit card loans 30,784 30,950 30,178 29,485
Business and government loans 41,961 44,316 44,464 44,334
Securities borrowed or purchased
under resale agreements 16,020 23,845 22,243 27,865
Allowance for credit losses (2,288) (2,552) (2,467) (2,354)
Derivative instruments market valuation 24,717 23,890 19,585 22,331
Customers' liability under acceptances 6,848 6,739 7,097 7,542
Other assets 13,835 14,619 13,553 13,196
---------------------------------------------------------------------------------------------
$273,293 $304,660 $291,187 $291,294
=============================================================================================
Liabilities and shareholders' equity
Deposits Individual $ 67,975 $ 70,515 $ 69,970 $ 69,457
Businesses and governments 117,986 127,208 123,494 120,286
Banks 10,669 16,847 10,446 12,728
Derivative instruments market valuation 24,794 23,584 19,985 23,004
Acceptances 6,878 6,739 7,097 7,542
Obligations related to securities lent or sold
short or under repurchase agreements 18,051 31,453 31,780 30,859
Other liabilities 10,980 11,863 11,987 11,035
Subordinated indebtedness 3,627 3,863 3,845 3,992
Shareholders' equity 12,333 12,588 12,583 12,391
---------------------------------------------------------------------------------------------
$273,293 $304,660 $291,187 $291,294
=============================================================================================
2001
---------------------------------------------------------------------------------------------
Unaudited, $ millions, as at quarter end Q4 Q3 Q2 Q1
---------------------------------------------------------------------------------------------
Assets
Cash resources $ 11,350 $ 11,422 $ 12,437 $ 10,781
Securities 74,794 78,032 80,518 76,940
Loans(2) Residential mortgages 58,751 56,381 54,450 52,987
Personal and credit card loans 28,411 28,619 28,270 28,049
Business and government loans 46,693 46,955 46,537 48,030
Securities borrowed or purchased
under resale agreements 24,079 21,966 23,215 20,772
Allowance for credit losses (2,294) (2,283) (2,239) (2,215)
Derivative instruments market valuation 25,723 19,014 19,463 20,015
Customers' liability under acceptances 8,100 8,050 8,805 9,072
Other assets 11,867 9,808 9,992 9,754
---------------------------------------------------------------------------------------------
$287,474 $277,964 $281,448 $274,185
=============================================================================================
Liabilities and shareholders' equity
Deposits Individual $ 66,826 $ 65,181 $ 65,941 $ 63,859
Businesses and governments 114,270 105,239 108,701 106,647
Banks 13,256 14,317 13,089 18,251
Derivative instruments market valuation 26,395 19,732 20,635 20,545
Acceptances 8,100 8,050 8,805 9,072
Obligations related to securities lent or sold
short or under repurchase agreements 32,616 39,841 38,721 30,367
Other liabilities 10,112 9,172 9,086 9,132
Subordinated indebtedness 3,999 4,338 4,412 4,381
Shareholders' equity 11,900 12,094 12,058 11,931
---------------------------------------------------------------------------------------------
$287,474 $277,964 $281,448 $274,185
=============================================================================================
------------------------------------------------------------------------------------------------
SELECT FINANCIAL MEASURES
2002
------------------------------------------------------------------------------------------------
Unaudited, as at or for the quarter Q4 Q3 Q2 Q1
------------------------------------------------------------------------------------------------
Return on common equity(3) (6.0)% 6.2% 8.0% 12.4%
Return on average assets (0.13)% 0.26% 0.32% 0.46%
Average common shareholders' equity ($ millions) $ 9,487 $ 9,525 $ 9,601 $ 9,653
Average assets ($ millions) $298,174 $294,975 $289,533 $287,262
Average assets to average common equity 31.4 31.0 30.2 29.8
Tier 1 capital ratio 8.7% 8.8% 8.9% 9.0%
Total capital ratio 11.3% 11.9% 12.0% 12.1%
Net interest margin (TEB) 1.94% 1.82% 1.89% 2.04%
Efficiency ratio(4) 106.0% 77.4% 77.3% 70.2%
================================================================================================
------------------------------------------------------------------------------------------------
2001
------------------------------------------------------------------------------------------------
Unaudited, as at or for the quarter Q4 Q3 Q2 Q1
------------------------------------------------------------------------------------------------
Return on common equity(3) 8.5% 17.4% 18.4% 20.1%
Return on average assets 0.34% 0.65% 0.69% 0.75%
Average common shareholders' equity ($ millions) $ 9,765 $ 9,768 $ 9,767 $ 9,658
Average assets ($ millions) $281,333 $280,801 $280,707 $272,350
Average assets to average common equity 28.8 28.7 28.7 28.2
Tier 1 capital ratio 9.0% 9.3% 9.1% 9.1%
Total capital ratio 12.0% 12.5% 12.4% 12.5%
Net interest margin (TEB) 1.93% 1.70% 1.58% 1.50%
Efficiency ratio(4) 84.6% 71.4% 68.5% 67.2%
================================================================================================
------------------------------------------------------------------------------------------------
COMMON SHARE INFORMATION
2002
------------------------------------------------------------------------------------------------
Unaudited, as at or for the quarter Q4 Q3 Q2 Q1
------------------------------------------------------------------------------------------------
Average shares outstanding (thousands) 359,057 358,961 360,817 363,386
Per share - basic (loss) earnings(5) $ (0.40) $ 0.41 $ 0.51 $ 0.82
- diluted (loss) earnings(5) $ (0.40) $ 0.41 $ 0.51 $ 0.82
- dividends $ 0.41 $ 0.41 $ 0.41 $ 0.37
- book value(6) $ 25.75 $ 26.44 $ 26.45 $ 26.71
Share price(7) - high $ 44.57 $ 54.50 $ 57.70 $ 56.60
- low $ 34.26 $ 38.75 $ 49.45 $ 50.45
- close $ 38.75 $ 45.10 $ 54.70 $ 54.45
Price to earnings multiple(8) (12-month trailing) 28.9 19.5 17.9 14.7
Dividend payout ratio >100% 99.1% 79.2% 44.7%
================================================================================================
2001
------------------------------------------------------------------------------------------------
Unaudited, as at or for the quarter Q4 Q3 Q2 Q1
------------------------------------------------------------------------------------------------
Average shares outstanding (thousands) 365,955 371,042 375,271 377,048
Per share - basic (loss) earnings(5) $ 0.57 $ 1.15 $ 1.16 $ 1.29
- diluted (loss) earnings(5) $ 0.56 $ 1.13 $ 1.15 $ 1.27
- dividends $ 0.37 $ 0.37 $ 0.37 $ 0.33
- book value(6) $ 26.44 $ 26.64 $ 26.19 $ 25.70
Share price(7) - high $ 57.00 $ 54.70 $ 51.30 $ 52.57
- low $ 47.20 $ 48.60 $ 49.70 $ 43.20
- close $ 48.82 $ 50.95 $ 49.85 $ 52.57
Price to earnings multiple(8) (12-month trailing) 11.7 11.6 10.6 10.1
Dividend payout ratio 64.5% 32.0% 31.6% 25.6%
================================================================================================
(1) Taxable equivalent basis (TEB). Net interest income includes tax-exempt
income on certain securities. Since this income is not taxable to CIBC,
the rate of interest or dividend received by CIBC is significantly lower
than would apply to a loan of the same amount. As the impact of tax-exempt
income varies from year to year, such income has been adjusted to a
taxable equivalent basis to permit uniform measurement and comparison of
net interest income. An equal and offsetting adjustment is made to
increase provision for income taxes.
(2) Comparative figures have been reclassified to conform with the
presentation used in 2002.
(3) Net income applicable to common shares divided by average common
shareholders' equity for the period, annualized.
(4) Efficiency ratio may also be referred to as non-interest expenses to
revenue ratio. Calculated as non-interest expenses divided by the sum of
net interest income (taxable equivalent basis) and non-interest income.
(5) On November 1, 2001, CIBC retroactively adopted the requirements of the
CICA handbook section 3500, "Earnings Per Share." Comparative figures have
been restated.
(6) Common shareholders' equity divided by the number of common shares issued
and outstanding at end of quarter.
(7) The high and low price during the period, and closing price on the last
trading day of the period, on the Toronto Stock Exchange.
(8) Closing common share price expressed as a multiple of net income per
common share.
127
CIBC ANNUAL REPORT 2002
Exhibit 6
TEN-YEAR STATISTICAL REVIEW
Ten-Year Statistical Review
--------------------------------------------------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
$ millions, for the years ended October 31 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993
--------------------------------------------------------------------------------------------------------------------------------
Net interest income (TEB)(1) $ 5,621 $ 4,693 $ 4,413 $ 4,537 $4,438 $4,641 $4,567 $4,169 $4,107 $3,835
Deduct taxable equivalent adjustment 111 144 131 129 101 124 104 95 105 90
--------------------------------------------------------------------------------------------------------------------------------
Net interest income
(consolidated statement of income basis) 5,510 4,549 4,282 4,408 4,337 4,517 4,463 4,074 4,002 3,745
Non-interest income 5,531 6,613 7,797 5,728 4,804 3,980 2,892 2,258 2,252 1,903
--------------------------------------------------------------------------------------------------------------------------------
Total revenue 11,041 11,162 12,079 10,136 9,141 8,497 7,355 6,332 6,254 5,648
Provision for credit losses 1,500 1,100 1,220 750 480 610 480 680 880 920
Non-interest expenses 9,129 8,226 8,096 7,998 7,125 5,372 4,584 3,991 3,907 3,544
--------------------------------------------------------------------------------------------------------------------------------
Income before taxes and
non-controlling interests 412 1,836 2,763 1,388 1,536 2,515 2,291 1,661 1,467 1,184
Income taxes (279) 92 641 320 460 937 911 635 550 435
Non-controlling interests
in net income of subsidiaries 38 58 62 39 20 27 14 11 27 19
--------------------------------------------------------------------------------------------------------------------------------
Net income $ 653 $ 1,686 $ 2,060 $ 1,029 $1,056 $1,551 $1,366 $1,015 $ 890 $ 730
================================================================================================================================
Dividends on preferred shares $ 161 $ 121 $ 128 $ 112 $ 116 $ 98 $ 112 $ 111 $ 141 $ 131
Net income applicable
to common shares $ 492 $ 1,565 $ 1,932 $ 917 $ 940 $1,453 $1,254 $ 904 $ 749 $ 599
================================================================================================================================
(1) Taxable equivalent basis, as described in footnote (1) in Quarterly Review
on page 127.
----------------------------------------------------------------------------------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
$ millions, as at October 31 2002 2001 2000 1999 1998
----------------------------------------------------------------------------------------------------
Assets
Cash resources $ 9,512 $ 11,350 $ 10,679 $ 12,527 $ 10,795
Securities 65,292 74,794 69,242 59,492 60,970
Loans(1)
Residential mortgages 66,612 58,751 51,921 46,637 43,199
Personal and credit card loans 30,784 28,411 27,939 24,751 24,563
Business and government loans 41,961 46,693 47,567 47,552 49,811
Securities borrowed or purchased
under resale agreements 16,020 24,079 20,461 19,158 36,293
Allowance for credit losses (2,288) (2,294) (2,236) (1,748) (1,609)
Customers' liability under acceptances 6,848 8,100 9,088 9,296 10,995
Derivative instruments market valuation 24,717 25,723 23,847 24,449 37,157
Land, buildings and equipment 2,247 1,769 1,508 2,213 2,201
Other assets 11,588 10,098 7,686 6,004 7,055
----------------------------------------------------------------------------------------------------
$273,293 $287,474 $267,702 $250,331 $281,430
====================================================================================================
Liabilities and shareholders' equity
Deposits
Individuals $ 67,975 $ 66,826 $ 63,109 $ 60,878 $ 59,993
Businesses and governments 117,986 114,270 103,141 85,940 84,862
Banks 10,669 13,256 13,382 13,223 15,020
Acceptances 6,878 8,100 9,088 9,296 10,995
Obligations related to securities lent or sold
short or under repurchase agreements 18,051 32,616 28,191 29,203 48,659
Derivative instruments market valuation 24,794 26,395 24,374 25,097 36,245
Other liabilities 10,980 10,112 10,630 11,092 9,806
Subordinated indebtedness 3,627 3,999 4,418 4,544 4,714
Shareholders' equity
Preferred shares 3,088 2,299 1,876 1,933 1,961
Common shares 2,842 2,827 2,868 3,035 3,128
Contributed surplus 26 -- -- -- --
Retained earnings 6,377 6,774 6,625 6,090 6,047
----------------------------------------------------------------------------------------------------
$273,293 $287,474 $267,702 $250,331 $281,430
====================================================================================================
$ millions, as at October 31 1997 1996 1995 1994 1993
----------------------------------------------------------------------------------------------------
Assets
Cash resources $ 7,931 $ 8,120 $ 15,419 $ 9,436 $ 7,880
Securities 45,252 39,817 38,255 28,753 24,167
Loans(1)
Residential mortgages 40,039 36,932 34,686 32,248 30,746
Personal and credit card loans 22,305 20,132 18,716 16,953 14,802
Business and government loans 47,107 45,642 44,013 45,715 48,529
Securities borrowed or purchased
under resale agreements 37,629 32,534 14,173 6,584 5,124
Allowance for credit losses (1,591) (1,422) (1,467) (1,562) (2,020)
Customers' liability under acceptances 10,375 8,733 8,315 7,259 7,069
Derivative instruments market valuation 21,977 13,314 9,207 7,100 7,600
Land, buildings and equipment 2,071 1,983 2,013 1,995 1,951
Other assets 4,894 4,447 3,178 2,894 2,268
----------------------------------------------------------------------------------------------------
$237,989 $210,232 $186,508 $157,375 $148,116
====================================================================================================
Liabilities and shareholders' equity
Deposits
Individuals $ 59,188 $ 61,484 $ 61,061 $ 59,040 $ 57,265
Businesses and governments 60,272 43,705 45,738 36,213 34,357
Banks 19,438 22,232 22,683 20,209 19,283
Acceptances 10,375 8,733 8,315 7,259 7,069
Obligations related to securities lent or sold
short or under repurchase agreements 43,932 41,907 22,211 10,569 7,523
Derivative instruments market valuation 21,376 12,500 8,135 6,373 6,860
Other liabilities 8,267 7,041 6,015 5,836 4,802
Subordinated indebtedness 4,894 3,892 3,671 3,441 3,003
Shareholders' equity
Preferred shares 1,518 1,068 1,355 1,691 1,878
Common shares 3,105 3,055 3,202 3,200 3,016
Contributed surplus -- -- -- -- --
Retained earnings 5,624 4,615 4,122 3,544 3,060
----------------------------------------------------------------------------------------------------
$237,989 $210,232 $186,508 $157,375 $148,116
====================================================================================================
(1) Comparative figures have been reclassified to conform with the
presentation used in 2002.
--------------------------------------------------------------------------------
128
CIBC ANNUAL REPORT 2002
TEN-YEAR STATISTICAL REVIEW
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
$ millions, as at or for the years ended October 31 2002 2001 2000 1999 1998
----------------------------------------------------------------------------------------------------------
Balance at beginning of year $11,900 $11,369 $11,058 $11,136 $10,247
Adjustment for change in accounting policy (42)(1) (140)(2) -- -- --
Premium on redemption/repurchase
of share capital Preferred -- -- (17) -- (10)
Common (269) (736) (873) (397) --
Changes in share capital Preferred 800 400 (80) -- 391
Common 15 (41) (167) (93) 23
Changes in contributed surplus 26 -- -- -- --
Net income 653 1,686 2,060 1,029 1,056
Dividends Preferred (161) (121) (128) (112) (116)
Common (577) (536) (501) (492) (498)
Other (12) 19 17 (13) 43
----------------------------------------------------------------------------------------------------------
Balance at end of year $12,333 $11,900 $11,369 $11,058 $11,136
==========================================================================================================
$ millions, as at or for the years ended October 31 1997 1996 1995 1994 1993
---------------------------------------------------------------------------------------------------
Balance at beginning of year $ 8,738 $8,679 $8,435 $7,954 $6,638
Adjustment for change in accounting policy -- (94)(3) -- -- --
Premium on redemption/repurchase
of share capital Preferred -- (34) -- -- --
Common -- (281) -- -- --
Changes in share capital Preferred 436 (290) (336) (187) 418
Common 50 (147) 2 184 583
Changes in contributed surplus -- -- -- -- --
Net income 1,551 1,366 1,015 890 730
Dividends Preferred (98) (112) (111) (141) (131)
Common (434) (352) (320) (281) (263)
Other 4 3 (6) 16 (21)
---------------------------------------------------------------------------------------------------
Balance at end of year $10,247 $8,738 $8,679 $8,435 $7,954
===================================================================================================
(1) Represents the effect of implementing the CICA handbook section 3870,
"Stock-Based Compensation and Other Stock-Based Payments," which
introduced the requirement to account for SARs based on quoted market
price on an ongoing basis. Additionally, CIBC adopted the fair value-based
method to account for stock transactions with employees and non-officer
Directors, as encouraged by section 3870.
(2) Represents the effect of implementing the CICA handbook section 3461,
"Employee Future Benefits," which introduced the requirement to accrue the
cost of post-retirement and post-employment benefits during the years
employees provide services to CIBC.
(3) Represents the effect of implementing the CICA handbook section 3025,
"Impaired Loans," which introduced the requirement to discount expected
cash flows on impaired loans when determining the allowance for credit
losses.
----------------------------------------------------------------------------------------------
SELECT FINANCIAL MEASURES
As at or for the years ended October 31 2002 2001 2000 1999 1998
----------------------------------------------------------------------------------------------
Return on common equity(1) 5.1% 16.1% 20.5% 9.8% 10.3%
Return on average assets 0.22% 0.60% 0.78% 0.38% 0.38%
Average common
shareholders' equity ($ millions) $ 9,566 $ 9,739 $ 9,420 $ 9,323 $ 9,100
Average assets ($ millions) $292,510 $278,798 $263,119 $271,844 $278,823
Average assets to average common equity 30.6 28.6 27.9 29.2 30.6
Tier 1 capital ratio 8.7% 9.0% 8.7% 8.3% 7.7%
Total capital ratio 11.3% 12.0% 12.1% 11.5% 10.8%
Net interest margin (TEB)(2) 1.92% 1.68% 1.68% 1.67% 1.59%
Efficiency ratio(3) 81.9% 72.8% 66.3% 77.9% 77.1%
==============================================================================================
As at or for the years ended October 31 1997 1996 1995 1994 1993
----------------------------------------------------------------------------------------------
Return on common equity(1) 17.7% 17.1% 12.9% 11.7% 10.6%
Return on average assets 0.66% 0.70% 0.61% 0.57% 0.51%
Average common
shareholders' equity ($ millions) $ 8,195 $ 7,332 $ 7,003 $ 6,393 $ 5,664
Average assets ($ millions) $236,025 $196,063 $165,846 $155,640 $144,041
Average assets to average common equity 28.8 26.7 23.7 24.3 25.4
Tier 1 capital ratio 7.0% 6.6% 7.0% 7.1% 6.9%
Total capital ratio 9.8% 9.0% 9.6% 9.9% 9.7%
Net interest margin (TEB)(2) 1.97% 2.33% 2.51% 2.64% 2.66%
Efficiency ratio(3) 62.3% 61.5% 62.1% 61.4% 61.8%
==============================================================================================
(1) Net income applicable to common shares divided by average common
shareholders' equity for the year.
(2) Taxable equivalent basis, as described in footnote (1) in Quarterly Review
on page 127.
(3) Efficiency ratio may also be referred to as non-interest expenses to
revenue ratio. Calculated as non-interest expenses divided by the sum of
net interest income (taxable equivalent basis) and non-interest income.
------------------------------------------------------------------------------------------------------
COMMON SHARE INFORMATION
As at or for the years ended October 31 2002 2001 2000 1999 1998
------------------------------------------------------------------------------------------------------
Average number outstanding (thousands) 360,553 372,305 388,951 409,789 415,030
Per share - basic earnings(1) $ 1.37 $ 4.19 $ 4.95 $ 2.23 $ 2.24
- diluted earnings(1) $ 1.35 $ 4.13 $ 4.90 $ 2.21 $ 2.22
- dividends $ 1.60 $ 1.44 $ 1.29 $ 1.20 $ 1.20
- book value(2) $ 25.75 $ 26.44 $ 25.17 $ 22.68 $ 22.08
Share price(3) - high $ 57.70 $ 57.00 $ 50.50 $ 42.60 $ 59.80
- low $ 34.26 $ 43.20 $ 30.50 $ 28.00 $ 24.40
- close $ 38.75 $ 48.82 $ 48.40 $ 31.70 $ 30.65
Price to earnings multiple(4) (12-month trailing) 28.9 11.7 9.8 14.2 13.7
Dividend payout ratio(5) >100% 34.2% 25.9% 53.6% 53.0%
======================================================================================================
As at or for the years ended October 31 1997 1996 1995 1994 1993
-------------------------------------------------------------------------------------------------------
Average number outstanding (thousands) 413,545 415,028 432,614 425,464 401,366
Per share - basic earnings(1) $ 3.51 $ 2.94 $ 2.09 $ 1.76 $ 1.50
- diluted earnings(1) $ 3.49 $ 2.93 $ 2.09 $ 1.76 $ 1.50
- dividends $ 1.05 $ 0.85 $ 0.74 $ 0.66 $ 0.66
- book value(2) $ 21.07 $ 18.62 $ 16.93 $ 15.59 $ 14.45
Share price(3) - high $ 41.75 $ 28.30 $ 18.57 $ 18.13 $ 16.82
- low $ 26.55 $ 18.00 $ 15.57 $ 14.00 $ 11.82
- close $ 41.20 $ 27.85 $ 18.19 $ 16.00 $ 15.82
Price to earnings multiple(4) (12-month trailing) 11.7 9.5 8.7 9.1 10.6
Dividend payout ratio(5) 29.9% 28.1% 35.4% 37.5% 43.9%
=======================================================================================================
(1) On November 1, 2001, CIBC retroactively adopted the requirements of the
CICA handbook section 3500, "Earnings Per Share." Comparative figures have
been restated.
(2) Common shareholders' equity divided by the number of common shares issued
and outstanding at end of year.
(3) The high and low price during the year, and closing price on the last
trading day of the year, on the Toronto Stock Exchange.
(4) Closing common share price expressed as a multiple of net income per
common share for the year. Comparative figures have been restated to
conform with the presentation used in 2002.
(5) Total common share dividends divided by net income applicable to common
shares for the year.
----------------------------------------------------------------------------------------------------------------------------
DIVIDENDS ON PREFERRED SHARES(1)
For the years ended October 31 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993
----------------------------------------------------------------------------------------------------------------------------
Class A Series 4 -- -- -- -- -- $3.4106 $4.7360 $6.0900 $4.5840 $4.5840
Series 5 -- -- -- -- -- $0.8240 $1.1600 $1.4728 $1.1057 $1.1273
Series 6 -- -- -- -- -- -- -- -- $2.4349 $2.2500
Series 7 -- -- -- -- -- -- -- $ 4,208 $ 3,507 $ 4,034
Series 8 -- -- -- -- -- -- -- $0.6706 $2.2200 $2.2200
Series 9 -- -- -- -- $1.1375 $2.2750 $2.2750 $2.2750 $2.2750 $2.2750
Series 10 -- -- -- -- -- -- $2.8175 $2.5555 $2.5786 $2.4423
Series 11 -- -- -- -- -- -- $2.4060 $2.2125 $2.2125 $2.2125
Series 12 -- -- $2.4100 $2.4267 $2.4097 $2.2462 $2.2188 $2.1856 $2.2054 $1.4983
Series 13 -- -- $1.7500 $1.7500 $1.7500 $1.7500 $1.7500 $1.7500 $1.7500 $1.2490
Series 14 $1.4875 $1.4875 $1.4875 $1.4875 $1.4875 $1.4870 $1.1197 -- -- --
Series 15 $1.4125 $1.4125 $1.4125 $1.4125 $1.4125 $1.4110 -- -- -- --
Series 16 $2.2244 $2.1724 $2.0948 $2.1093 $2.0946 $1.1367 -- -- -- --
Series 17 $1.3625 $1.3625 $1.3625 $1.3625 $1.3625 $0.7880 -- -- -- --
Series 18 $1.3750 $1.3750 $1.3750 $1.3750 $1.3628 -- -- -- -- --
Series 19 $1.2375 $1.2375 $1.2375 $1.2375 $0.7404 -- -- -- -- --
Series 20 $2.0276 $1.9801 $1.9095 $1.9227 $1.1703 -- -- -- -- --
Series 21 $1.5000 $1.5000 $1.1372 -- -- -- -- -- -- --
Series 22 $2.4606 $2.4031 $1.7713 -- -- -- -- -- -- --
Series 23 $1.3250 $0.9938 -- -- -- -- -- -- -- --
Series 24 $1.2962 -- -- -- -- -- -- -- -- --
Series 25 $0.8048 -- -- -- -- -- -- -- -- --
----------------------------------------------------------------------------------------------------------------------------
(1) The dividends are adjusted for the number of days during the year that the
share is outstanding at the time of issuance and redemption.
--------------------------------------------------------------------------------
129
CIBC ANNUAL REPORT 2002
DIRECTORS OF THE BANK
Directors of the Bank
--------------------------------------------------------------------------------
DOUGLAS G. BASSETT ('80)
O.C., O.Ont., LL.D., D.Litt.
Chairman
Windward Investments
(Toronto, Ontario, Canada)
JALYNN H. BENNETT ('94)
C.M.
President
Jalynn H. Bennett and Associates Ltd.
(Toronto, Ontario, Canada)
THE LORD BLACK OF
CROSSHARBOUR ('77)
P.C. (Can), O.C., KCSG
Chairman and
Chief Executive Officer
Argus Corporation Limited
(London, England)
PAT M. DELBRIDGE ('93)
President
PDA Partners Inc.
(Toronto, Ontario, Canada)
WILLIAM L. DUKE ('91)
Farmer
(Redvers, Saskatchewan, Canada)
IVAN E.H. DUVAR ('89)
B.E., DCL, P.Eng.
President and
Chief Executive Officer
MIJAC Inc.
(Amherst, Nova Scotia, Canada)
WILLIAM A. ETHERINGTON ('94)
Lead Director
CIBC
(Toronto, Ontario, Canada)
A.L. FLOOD ('89)
C.M.
Company Director
CIBC
(Thornhill, Ontario, Canada)
MARGOT A. FRANSSEN ('92)
O.C.
President and Partner
The Body Shop Canada
(Toronto, Ontario, Canada)
R.D. FULLERTON ('74)
Company Director
CIBC
(Toronto, Ontario, Canada)
HON. GORDON D. GIFFIN ('01)
Senior Partner
McKenna Long & Aldridge
(Atlanta, Georgia, U.S.A.)
HON. JAMES A. GRANT ('91)
P.C., Q.C.
Partner
Stikeman Elliott
(Montreal, Quebec, Canada)
ALBERT E.P. HICKMAN ('89)
Chairman and President
Hickman Motors Limited
(St. John's, Newfoundland,
and Labrador, Canada)
JOHN S. HUNKIN ('93)
Chairman and
Chief Executive Officer
CIBC
(Toronto, Ontario, Canada)
W. DARCY McKEOUGH ('78)
O.C., B.A., LL.D.
Chairman
McKeough Supply Inc.
(Chatham, Ontario, Canada)
ARNOLD NAIMARK ('87)
O.C., M.D., LL.D., F.R.C.P.(C), F.R.S. (Can.)
Past President
The University of Manitoba
Director
Centre for the Advancement
of Medicine
(Winnipeg, Manitoba, Canada)
MICHAEL E.J. PHELPS ('89)
O.C., B.A., LL.B., LL.M., LL.D.
Chairman
Dornoch Capital Inc.
(Vancouver, British Columbia, Canada)
CHARLES SIROIS ('97)
C.M., B.Fin., M.Fin., C.Q.
Chairman and
Chief Executive Officer
Telesystem Ltd.
(Montreal, Quebec, Canada)
STEPHEN G. SNYDER ('00)
B.Sc., M.B.A.
President and
Chief Executive Officer
TransAlta Corporation
(Calgary, Alberta, Canada)
W. GALEN WESTON ('78)
O.C.
Chairman
George Weston Limited
Loblaw Companies Limited
(Toronto, Ontario, Canada)
As at October 31, 2002, the directors and senior officers of CIBC as a group,
beneficially owned, directly or indirectly, or exercised control or direction of
less than 1% of the outstanding common shares of CIBC. To the knowledge of CIBC,
no director or senior officer of CIBC beneficially owned or controlled voting
securities of any subsidiaries of CIBC.
--------------------------------------------------------------------------------
130
CIBC ANNUAL REPORT 2002
SENIOR OFFICERS
Senior Officers
--------------------------------------------------------------------------------
SENIOR EXECUTIVE TEAM
HUNKIN, J.S. (JOHN)
Chairman and
Chief Executive Officer
DENHAM, G.H. (JILL)
Vice-Chair
CIBC Retail Markets
FOX, W.C. (WAYNE)
Vice-Chair and
Chief Risk Officer
Treasury, Balance Sheet and
Risk Management
KASSIE, D.J. (DAVID)
Vice-Chair
CIBC
Chairman and
Chief Executive Officer
CIBC World Markets
LALONDE, R.A. (RON)
Senior Executive Vice-President
and Chief Administrative Officer
Administration
McCAUGHEY, G.T. (GERALD)
Vice-Chair
CIBC Wealth Management
VENN, R.E. (RICHARD)
Senior Executive Vice-President
Corporate Development
WOELLER, M.D. (MIKE)
Senior Executive Vice-President
and Chief Information Officer
Technology and Operations
OFFICERS
ADOLPHE, K.J.E. (KEVIN)
Managing Director and
Chief Administrative
and Financial Officer
CIBC World Markets
BAXENDALE, S.A. (SONIA)
Executive Vice-President
Global Private Banking and
Investment Management Services
CIBC Wealth Management
CAPATIDES, M.G. (MICHAEL)
Executive Vice-President and
General Counsel
Legal and Compliance
Administration
CATHCART, R. (RON)
Executive Vice-President
Retail Credit Adjudication
Treasury, Balance Sheet and
Risk Management
CHORNOBOY, D. (DOUGLAS)
Senior Vice-President and
Controller
Administration
CROUCHER, C. (CHRISTINE)
Executive Vice-President
CIBC Card Products,
Collections, Retail and Small
Business Lending
ELLIOTT, M.A. (MARY ANNE)
Executive Vice-President
Retail Markets Projects
CIBC Retail Markets
FERGUSON, D.S. (DAN)
Executive Vice-President
Corporate and Commercial Adjudication
Treasury, Balance Sheet and
Risk Management
FISHER, P.T. (PAUL)
Vice-President and
Corporate Secretary
Administration
GETTINGS, W.E. (ED)
Executive Vice-President
CIBC Mortgages Inc. and Insurance
CIBC Retail Markets
GRAHAM, S.D. (STEPHEN)
Executive Vice-President and
Chief Marketing Officer
CIBC Retail Markets
GRAY, C.J. (CAROL)
Executive Vice-President
Small Business Banking
CIBC Retail Markets
HORROCKS, M.G. (MICHAEL)
Executive Vice-President and
Treasurer
Treasury, Balance Sheet and
Risk Management
HUMBER, K.A. (KATHRYN)
Senior Vice-President
Investor Relations
Administration
KILGOUR, P.K.M. (KEN)
Executive Vice-President
Credit Asset and Merchant Banking
Portfolio Management
Treasury, Balance Sheet
and Risk Management
LALONDE, K.W. (KENN)
Executive Vice-President
Personal Banking
CIBC Retail Markets
LAUZON, M. (MICHEL)
President and
Chief Operating Officer
TAL Global Asset Management
CIBC Wealth Management
LINDSAY, D.R. (DON)
Managing Director
Canadian Investment and
Corporate Banking and
Head of Asia Pacific Region
CIBC World Markets
MacDONALD, B.E. (BARBARA)
Senior Vice-President
and Chief Accountant
Administration
MacLACHLAN, L.W. (LACH)
Senior Vice-President
and Ombudsman
Office of the Chairman and
Chief Executive Officer
McGIRR, S.R. (STEVE)
Managing Director
Global Debt Capital Markets and
Foreign Exchange
CIBC World Markets
McNAIR, S.M. (STEVEN)
Executive Vice-President
Imperial Service
CIBC Wealth Management
McSHERRY, J.R. (JAMES)
Executive Vice-President
and Managing Director
Commercial Banking
CIBC World Markets
MONAHAN, T.S. (TOM)
Managing Director and
Head of CIBC Wood Gundy
and CIBC Investors Edge
CIBC Wealth Management
PHILLIPS, J.M. (JOYCE)
Executive Vice-President
Human Resources
Administration
PURI, P. (PANKAJ)
Executive Vice-President
and Chief Auditor
Internal Audit and Corporate Security
Administration
RAFTUS, S.T. (STUART)
Managing Director and
Head of CIBC Oppenheimer
Private Client Group
CIBC Wealth Management
ROGERS, P.D. (PAUL)
Managing Director
USA Region
CIBC World Markets
SCHMID, G. (GERRARD)
Executive Vice-President and
Chief Operating Officer
CIBC Retail Markets
SHAW, B.G. (BRIAN)
Managing Director
Institutional Equities and
Commodities Products
CIBC World Markets
WAITE, R.E. (BOB)
Senior Vice-President
Corporate Communications
and Public Affairs
Administration
WOODS, T.D. (TOM)
Executive Vice-President and
Chief Financial Officer
Administration
--------------------------------------------------------------------------------
131
CIBC ANNUAL REPORT 2002
CORPORATE GOVERNANCE
For more information on how CIBC manages and governs, see:
Lead Director's Message
page 12
Management of Risk and
Balance Sheet Resources
page 55
Regulatory
page 70
Related Party Procedures
page 70
--------------------------------------------------------------------------------
Corporate Governance
--------------------------------------------------------------------------------
CIBC's Board of Directors regularly reviews enhancements to its governance
practices. Certain events in the past year have reinforced the need for
adherence to the best corporate governance principles, as well as the need to do
so with integrity and accountability. CIBC Lead Director, William Etherington,
discusses some of the initiatives the board has taken to enhance CIBC's
governance policies and practices in 2002 in his Message on page 12 of this
report.
The board believes that good governance requires constant review and
adjustment; it requires both proper structure and principled execution. The
fundamental statutory duty of the Board of Directors is to supervise the
management of the business of CIBC. The board recognizes the importance of the
protection and enhancement of long-term shareholder value, particularly in this
current unsettled environment.
In 2001, the board initiated a formal assessment process for itself and
its members; this has now become an ongoing process. In 2002, the board used the
results of this assessment to assist it in enhancing its governance practices.
Through the board, CIBC has made substantial progress in strengthening its
governance practices and has responded quickly and effectively to external
events which have eroded investor confidence in the North American marketplace.
The quality, composition and effectiveness of the board, both collectively
and of its individual directors, are of fundamental importance. The Board of
Directors of CIBC has delegated some of the detailed work to monitor and enhance
these governance elements to the Corporate Governance Committee (although it
remains a significant responsibility of the full board). This committee
nominates directors for approval by the board and by the shareholders at the
annual meeting. Such appointments are made annually and reflect the committee's
evaluation of the individual's contributions. The board seeks the highest
quality individuals to serve on the board, while also considering diversity, the
geographical size of Canada, and the importance of CIBC's business interests in
jurisdictions outside of Canada.
The Corporate Governance Committee also makes recommendations to the board
concerning any proposed changes in the objectives or responsibilities of the
board and its committees. The terms of reference of all committees were amended
by the board in June 2002 with the re-allocation of a number of duties between
committees. In addition, the mandates of the chairman and chief executive
officer and of the lead director were revised to clarify their respective
duties.
All committees review the information required to perform committee work
effectively. In certain cases, this will include the retention of independent
consultants and advisers. For some years, the Management Resources and
Compensation and the Audit committees have retained consulting firms from both
Canada and the United States to advise them on various issues. In 2001 and early
2002, the Corporate Governance Committee also retained an external consultant to
provide services related to board, committee and director assessment.
The Canada Deposit Insurance Corporation (CDIC) issued new standards of
sound business and financial practices in 2002 to which all its member
institutions, including CIBC, are required to adhere. Under the management of
the lead director and the Corporate Governance Committee, the board undertook a
self-assessment of its practices against these standards. The board also
received a report from management on its systems of internal controls and the
control framework in place at CIBC for the management of risk, based on the
results of an extensive control self-assessment process undertaken throughout
the corporation. CIBC has submitted to CDIC its required attestations of
compliance to the standards for the current reporting year, which include a
formal resolution passed by the Board of Directors. The system of internal
controls is part of the corporate governance structures, policies and procedures
which have enabled the board to conclude that CIBC is in full compliance with
the Guidelines for Corporate Governance established by the Toronto Stock
Exchange, and will be outlined in the Management Proxy Circular.
--------------------------------------------------------------------------------
132
CIBC ANNUAL REPORT 2002
BOARD COMMITTEES
Board Committees
--------------------------------------------------------------------------------
The board believes that its proper governance and effectiveness in carrying out
its duties is greatly enhanced by the use of committees. The mandates of each of
the four board committees were reviewed by each committee at the beginning of
2002. Revisions to these mandates were recommended to the full board on June 6,
2002, and changes were agreed upon.
The Corporate Governance Committee reviews corporate governance matters
pertaining to the Shareholders and the Board of Directors. The committee:
o Has the specific and ongoing responsibility to review the state of
CIBC's corporate governance as to quality and effectiveness and to
recommend enhancements to the Board of Directors.
o Reviews the performance of the chief executive officer (CEO) and
succession planning for the CEO.
o Reviews the role and composition of the board and its committees and
the methods and processes by which the board fulfills its duties.
o Reviews the performance of the board, its committees and the
directors.
o Considers board and committee agendas and the quality of material
being presented.
o Establishes criteria for election and re-election as a director,
thereby managing the director nomination process.
o Reviews and monitors CIBC's compliance with the CDIC standards
relating to board responsibilities.
Members: J.H. Bennett, I.E.H. Duvar, W.A. Etherington (Chair)*, J.A. Grant,
M.E.J. Phelps
The Management Resources and Compensation Committee provides, on behalf of the
board, detailed review, oversight and approval of CIBC's policies, practices and
procedures relating to human resources to ensure ongoing, long-term development
and deployment of high-calibre senior management resources. The committee:
o Reviews compensation to ensure the relationship between senior
management performance and compensation is appropriate and set with
reference to competitive benchmarks.
o Reviews human resource matters with emphasis on overall strategy and
programs relating to the recruitment, development and retention of
personnel.
o Reviews overall compensation programs.
o Monitors succession planning for senior management other than the
CEO.
o Approves investment policies and oversees the administration of the
pension plan to ensure fiduciary obligations are met in accordance
with established rules, policies and guidelines.
Members: J.H. Bennett, M.A. Franssen, M.E.J. Phelps (Chair), C. Sirois, S.G.
Snyder
The Audit Committee oversees CIBC's financial reporting procedures to satisfy
itself that there are adequate internal controls over accounting and financial
reporting systems. The committee:
o Reviews the annual and quarterly statements prior to approval by the
board and other published or regulatory financial statements.
o Reviews and monitors CIBC's compliance with the CDIC standards
relating to strategic management/business planning, risk management
process, operational risk management, fiduciary risk management,
control environment, independent internal audit and business
conduct/ethical behaviour.
o Examines the mandate, nature and scope of CIBC's internal and
external audit work, including the independence of the external
auditors.
o Monitors procedures established by the board to provide disclosure
of information to customers.
o Reviews and monitors legislative amendments impacting the financial
services sector.
o Meets annually, together with the Risk Management Committee, with
the Superintendent of Financial Institutions Canada; and regularly
with CIBC's executive vice-president, legal and compliance, chief
accountant, chief auditor and the shareholders' auditors.
o Acts as the Audit Committee of certain CIBC subsidiaries and in so
doing carries out review and approval of their financial reporting
and control procedures.
o Acts as the Conduct Review Committee for CIBC and for certain
regulated subsidiaries of CIBC.
o Monitors procedures established by the Board of Directors to
identify and resolve conflicts of interest and restrict the use of
confidential information as required by the Bank Act.
o Reviews procedures and practices with respect to self-dealing and
establishes criteria to measure materiality of such transactions.
Members: D.G. Bassett, P.M. Delbridge, W.L. Duke, I.E.H. Duvar (Chair), R.D.
Fullerton, G.D. Giffin
The Risk Management Committee ensures policy guidelines and systems exist and
are being followed to maintain credit, market and liquidity risks at an
acceptable level. The committee:
o Reviews and approves delegated authorities for credit and market
risks.
o Reviews and monitors CIBC's compliance with CDIC standards relating
to credit, market (including structural) and liquidity risk
management.
o Reviews and approves credits above certain threshold amounts and
reviews impaired loans and anticipated loan losses regularly.
o Reviews and recommends to the Board of Directors investment and
lending policies, standards and procedures.
Members: A.L. Flood, J.A. Grant (Chair), A.E.P. Hickman, W.D. McKeough, A.
Naimark
Information on the number of board and committee meetings held and director
attendance will be included in the Management Proxy Circular.
All committees are composed entirely of outside directors.
* W.A. Etherington, Lead Director, is an ex-officio member of the Management
Resources and Compensation Committee, the Audit Committee and the Risk
Management Committee.
133
CIBC ANNUAL REPORT 2002
INVESTOR INFORMATION
Investor Information
--------------------------------------------------------------------------------
DIVIDENDS
--------------------------------------------------------------------------------
COMMON SHARES
Number of
Ex-dividend Record Payment Dividend common shares
date date date per share on record date
--------------------------------------------------------------------------------
Sep. 25/02 Sep. 27/02 Oct. 28/02 $ 0.41 363,745,578
Jun. 26/02 Jun. 28/02 Jul. 29/02 $ 0.41 360,234,109
Mar. 26/02 Mar. 28/02 Apr. 29/02 $ 0.41 359,016,744
Dec. 24/01 Dec. 28/01 Jan. 28/02 $ 0.37 359,058,869
================================================================================
PREFERRED SHARES
Ex-dividend Record Payment
date date date Series 14 Series 15 Series 16 Series 17 Series 18
-------------------------------------------------------------------------------------------------
Sep. 25/02 Sep. 27/02 Oct. 28/02 $ 0.371875 $ 0.353125 US$0.353125 $ 0.340625 $ 0.343750
Jun. 26/02 Jun. 28/02 Jul. 29/02 $ 0.371875 $ 0.353125 US$0.353125 $ 0.340625 $ 0.343750
Mar. 26/02 Mar. 28/02 Apr. 29/02 $ 0.371875 $ 0.353125 US$0.353125 $ 0.340625 $ 0.343750
Dec. 24/01 Dec. 28/01 Jan. 28/02 $ 0.371875 $ 0.353125 US$0.353125 $ 0.340625 $ 0.343750
=================================================================================================
Ex-dividend
date Series 19 Series 20 Series 21 Series 22 Series 23 Series 24 Series 25
-------------------------------------------------------------------------------------------------
Sep. 25/02 $ 0.309375 US$0.321875 $ 0.375 US$0.390625 $ 0.33125 $ 0.375 $ 0.375
Jun. 26/02 $ 0.309375 US$0.321875 $ 0.375 US$0.390625 $ 0.33125 $ 0.375 $ 0.429775**
Mar. 26/02 $ 0.309375 US$0.321875 $ 0.375 US$0.390625 $ 0.33125 $ 0.546196*
Dec. 24/01 $ 0.309375 US$0.321875 $ 0.375 US$0.390625 $ 0.33125
=================================================================================================
* Initial dividend amount. Dividend for period from December 21, 2001 to
April 30, 2002 inclusive.
** Initial dividend amount. Dividend for period from April 18, 2002 to July
31, 2002 inclusive.
Normal course issuer bid
CIBC commenced a normal course issuer bid, effective for one year, on January 9,
2002. Under this bid, CIBC may purchase up to 18 million common shares, just
under 5% of its outstanding common shares as at December 31, 2001. As at October
31, 2002, 5.7 million shares were repurchased under the program for an aggregate
consideration of $313 million. The bid was part of CIBC's overall program to
maintain an efficient capital structure and enhance long-term value for common
shareholders.
On December 20, 2000, CIBC commenced a normal course issuer bid, effective
for one year, to purchase up to 18.8 million common shares, just under 5% of
CIBC's outstanding common shares as at November 30, 2000. As at October 31,
2001, 16.9 million shares were purchased under the program for an aggregate
consideration of $867 million. There were no purchases under this bid during
fiscal 2002.
Exchange Listings
--------------------------------------------------------------------------------
COMMON SHARES
Stock symbol Stock exchange
--------------------------------------------------------------------------------
CM Toronto
BCM New York
--------------------------------------------------------------------------------
PREFERRED SHARES
Series 14 CM.PR.L
Series 15 CM.PR.M
Series 16 CM.PR.X
Series 17 CM.PR.N
Series 18 CM.PR.P
Series 19 CM.PR.R
Series 20 CM.PR.Y
Series 21 CM.PR.T
Series 22 CM.PR.U
Series 23 CM.PR.A
Series 24 CM.PR.B
Series 25 CM.PR.C
================================================================================
--------------------------------------------------------------------------------
CREDIT RATINGS
Senior debt Preferred shares
--------------------------------------------------------------------------------
DBRS AA(low) Pfd-1(low)n
FITCH AA(low)
Moody's Aa3
S&P A+ P-1(low)
================================================================================
Shareholder investment plan
Registered holders of CIBC common shares may participate in one or more of the
following options, and pay no brokerage commissions or service charges:
Dividend reinvestment option: Common dividends may be reinvested in additional
CIBC common shares. Residents of the United States and Japan are not eligible.
Share purchase option: Up to $50,000 of additional CIBC common shares may be
purchased during the fiscal year. Residents of the United States and Japan are
not eligible.
Stock dividend option: U.S. residents may elect to receive stock dividends on
CIBC common shares.
For further information and a copy of the offering circular, contact the
Corporate Secretary.
--------------------------------------------------------------------------------
PRICE OF COMMON SHARES PURCHASED UNDER THE SHAREHOLDER
INVESTMENT PLAN
Date Dividend reinvestment Share purchase
purchased & stock dividend options option
--------------------------------------------------------------------------------
Oct. 28/02 $ 42.27
Oct. 1/02 $ 39.85
Sep. 3/02 $ 42.70
Aug. 1/02 $ 44.25
Jul. 29/02 $ 43.70
Jul. 2/02 $ 47.38
Jun. 3/02 $ 51.00
May 1/02 $ 53.50
Apr. 29/02 $ 53.89
Apr. 1/02 $ 56.48
Mar. 1/02 $ 53.10
Feb. 1/02 $ 55.09
Jan. 28/02 $ 56.53
Jan. 2/02 $ 54.85
Dec. 3/01 $ 53.40
Nov. 1/01 $ 49.35
================================================================================
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CIBC ANNUAL REPORT 2002
INVESTOR INFORMATION
Direct dividend deposit service
Canadian-resident holders of common shares may have their dividends deposited by
electronic transfer directly into their account at any financial institution
which is a member of the Canadian Payments Association. To arrange, please write
to CIBC Mellon Trust Company (see Transfer Agent and Registrar).
Transfer agent and registrar
For information relating to shareholdings, dividends, dividend reinvestment
accounts, lost certificates or to eliminate duplicate mailings of shareholder
material, please contact CIBC Mellon Trust Company at
P.O. Box 7010, Adelaide Street Postal Station
Toronto, Ontario M5C 2W9
(416) 643-5500 or fax (416) 643-5501
1-800-387-0825 (toll-free in Canada and the U.S.)
Email: inquiries@cibcmellon.com
Common and preferred shares are transferable in Canada at the offices of our
agent, CIBC Mellon Trust Company, in Toronto, Montreal, Halifax, Winnipeg,
Regina, Calgary and Vancouver.
In the United States, common shares are transferable at:
Mellon Investor Services LLC
Overpeck Centre
85 Challenger Road
Ridgefield Park, NJ 07660
Outside of North America, common shares are transferable at:
CIBC Mellon Trust Company
Balfour House, 390 High Road
Ilford, Essex, England 1G1 1NQ
--------------------------------------------------------------------------------
THE FOLLOWING ARE TRADEMARKS OF CIBC OR ITS SUBSIDIARIES:
Imperial Service, Smart Simple Solutions, Small Business Credit Edge, bizSmart,
CIBC Better Than Prime Mortgage, CIBC Better Than Posted Mortgage, entourage,
entourage Business, FirstLine, CIBC Audio Access, Convenience Card, CIBC
Personal Portfolio Services, Wood Gundy Investment Consulting Service, CIBC
World Markets, Frontiers, Renaissance.
THE FOLLOWING ARE TRADEMARKS OF OTHER PARTIES:
VISA is a trademark of Visa International Service Association, CIBC licensed
user. President's Choice and President's Choice Financial are trademarks of
Loblaw Companies Limited; Amicus Bank licensee of marks. President's Choice
Financial services are provided by Amicus Bank, a member of the CIBC group of
companies. Shoppers Optimum is a trademark of Shoppers Drug Mart Limited, used
under license. American Express is a trademark of American Express Company; used
under license. Run for the Cure is a trademark of Canadian Breast Cancer
Foundation, used under license. FirstCaribbean International Bank is a trademark
of FirstCaribbean International Bank Limited.
135
CIBC ANNUAL REPORT 2002
CORPORATE INFORMATION
--------------------------------------------------------------------------------
Corporate Information
--------------------------------------------------------------------------------
CIBC head office
Commerce Court, Toronto, Ontario, Canada M5L 1A2
Telephone number: (416) 980-2211
Telex number: 065 24116
Cable address: CANBANKTOR
Website: www.cibc.com
Incorporation
Canadian Imperial Bank of Commerce (CIBC) is a diversified financial institution
governed by the Bank Act (Canada). CIBC was formed through the amalgamation of
The Canadian Bank of Commerce and Imperial Bank of Canada in 1961. The Canadian
Bank of Commerce was originally incorporated as Bank of Canada by special act of
the legislature of the Province of Canada in 1858. Subsequently, the name was
changed to The Canadian Bank of Commerce and it opened for business under that
name in 1867. Imperial Bank of Canada was incorporated in 1875 by special act of
the Parliament of Canada and commenced operations in that year.
Annual meeting
Shareholders are invited to attend the CIBC annual meeting on Thursday, February
27, 2003, at 10:00 a.m. at Roy Thomson Hall, 60 Simcoe Street, Toronto, Ontario.
CIBC annual report
Additional print copies of the annual report may be obtained by calling (416)
980-4523 or emailing financialreport@cibc.com
The annual report is also available online at www.cibc.com
La version francaise : Sur simple demande, nous nous ferons un plaisir de vous
faire parvenir la version francaise du present rapport. Veuillez composer le
(416) 980-4523 ou nous faire parvenir un courriel rapportfinancier@cibc.com
Le rapport annuel est aussi disponible en ligne www.cibc.com
Further information
Corporate secretary: Shareholders may call (416) 980-3096 or fax (416) 980-7012.
Investor relations: Financial analysts, portfolio managers and other investors
requiring financial information may call (416) 980-8306 or fax (416) 980-5028.
Corporate communications: Financial, business and trade media may call (416)
980-4523 or fax (416) 363-5347.
CIBC telephone banking: As part of our commitment to our customers, information
about CIBC products and services is available by calling 1-800-465-2422 toll
free across Canada.
Office of the CIBC ombudsman: CIBC Ombudsman Lachlan MacLachlan can be reached
by telephone at 1-800-308-6859 (Toronto (416) 861-3313), or by fax at
1-800-308-6861 (Toronto (416) 980-3754).
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CIBC ANNUAL REPORT 2002