CIBC Announces First Quarter 2014 Results

PR Newswire

TORONTO, Feb. 27, 2014 /CNW/ - CIBC (CM.TO) (CM) today announced its financial results for the first quarter ended January 31, 2014.

First quarter highlights:

  • Reported net income was $1,177 million, compared with $785 million for the first quarter a year ago, and $825 million for the prior quarter.
  • Adjusted net income(1) was $951 million, compared with $882 million for the first quarter a year ago, and $894 million for the prior quarter.
  • Reported diluted earnings per share was $2.88, compared with $1.88 for the prior year quarter, and $2.02 for the prior quarter.
  • Adjusted diluted earnings(1) per share was $2.31, compared with $2.12 for the prior year quarter, and $2.19 for the prior quarter.
  • Reported return on common shareholders' equity (ROE) was 27.5% and adjusted ROE(1) was 22.1%.

Results for the first quarter of 2014 were affected by the following items of note aggregating to a positive impact of $0.57 per share:

  • $239 million ($183 million after-tax, or $0.46 per share) gain in respect of the completed Aeroplan transactions with Aimia Canada Inc. (Aimia) and The Toronto-Dominion Bank (TD), net of costs relating to the development of our enhanced travel rewards program;
  • $78 million ($57 million after-tax, or $0.14 per share) gain, net of associated expenses, on the sale of an equity investment in our exited European leveraged finance portfolio;
  • $26 million ($19 million after-tax, or $0.05 per share) reduction in the portion of the collective allowance recognized in Corporate and Other, including lower estimated credit losses relating to the Alberta floods;
  • $26 million ($19 million after-tax, or $0.05 per share) charge resulting from operational changes in the processing of write-offs in Retail and Business Banking;
  • $11 million ($8 million after-tax, or $0.02 per share) loss from the structured credit run-off business; and
  • $8 million ($6 million after-tax, or $0.01 per share) amortization of intangible assets.

CIBC's Basel III Common Equity Tier 1 ratio at January 31, 2014 was 9.5%, and our Tier 1 capital ratio and Total capital ratio were 11.5% and 14.2%, respectively, on an all-in basis compared to Basel III Common Equity Tier 1 ratio of 9.4%, Tier 1 capital ratio of 11.6% and Total capital ratio of 14.6% in the prior quarter.

CIBC announced a quarterly dividend increase of 2 cents per common share to 98 cents per share.

"Our record results this quarter reflect the progress we continue to make in executing our client-focused strategy," says Gerald T. McCaughey, CIBC President and Chief Executive Officer. "Each of our core businesses delivered strong results. The strength of our underlying fundamentals allows us to generate high returns for our shareholders."

Core business performance
Retail and Business Banking reported net income of $746 million for the first quarter, up $166 million or 29% from the same quarter last year. Adjusting for the items of note shown above, adjusted net income(1) was $643 million, up $61 million or 11% from the same quarter last year as a result of higher revenue due to volume growth across most products and higher fees, and also due to lower loan losses as a result of lower write-offs and bankruptcies.

During the first quarter of 2014, Retail and Business Banking continued to make progress against our objectives of accelerating profitable revenue growth and enhancing the client experience:

  • We launched a significant expansion of our industry-leading mobile payments offer with TELUS, giving more Canadians the opportunity to pay with their phone and furthering CIBC's leadership position in this growing market;
  • We began implementing a new partnership with the Greater Toronto Airports Authority as its exclusive financial institution sponsor at Toronto Pearson International, providing CIBC clients and other travellers innovative access to financial services at Canada's largest airport;
  • First of the major banks in Canada to offer remote deposit capture, CIBC eDepositTM, allowing CIBC clients to deposit cheques by simply taking a picture using their smartphone and CIBC's Mobile Banking App; and
  • First among the big 5 Canadian banks to launch a pilot program for business banking clients to capture cheque images, enabling them to quickly scan, securely upload and deposit a high volume of cheques in a single transaction using a desktop cheque scanner.

Subsequent to the end of the quarter, we announced an agreement with Tim Hortons to launch a co-branded loyalty rewards Visa credit card.

Wealth Management reported net income of $114 million for the first quarter, up $25 million or 28% from the same quarter last year.

Revenue of $502 million was up $70 million or 16% compared with the first quarter of 2013, primarily due to higher client assets under management driven by market appreciation and net sales of long-term mutual funds, higher fee-based and commission revenue, the acquisition of Atlantic Trust on December 31, 2013, and higher contribution from our investment in American Century Investments..

During the first quarter of 2014, Wealth Management continued its progress in support of our strategic priority to build our wealth management platform:

  • We completed our acquisition of Atlantic Trust, a U.S. private wealth management firm with US$24 billion in assets under management; and
  • We achieved our 20th consecutive quarter of positive net retail sales of long-term mutual funds with $1.2 billion of net sales.

Wholesale Banking reported net income of $264 million for the first quarter, up $55 million or 26% from the prior quarter. Excluding items of note, adjusted net income(1) was $215 million, comparable with the prior quarter.

In support of its objective to be a leading wholesale bank in Canada and in core Canadian industries in the rest of the world, Wholesale Banking acted as:

  • Co-lead arranger and joint bookrunner on Progressive Waste Solutions' US$1.9 billion revolving credit facility;
  • Joint bookrunner on Cardinal Energy's $248 million initial public offering;
  • Financial advisor to Penn-West Petroleum on the sale of certain assets with a value of approximately $500 million in three separate transactions; and
  • Joint bookrunner on TELUS' $800 million bond offering.

"In summary, CIBC delivered record performance during the quarter," says Mr. McCaughey. "The strategic focus that each of our businesses place on deepening client relationships and driving profitable revenue growth continues to contribute to our financial performance and our ongoing ability to deliver quality, consistent returns."

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

  • CIBC employees donated a record $4.6 million on CIBC Miracle Day to support kids in-need through over 450 children's charities across Canada, the U.S and in the U.K.;
  • Through the generosity of 21,000 employees and retirees as well as a corporate donation, CIBC raised $12.4 million for the 2013 United Way campaign, an 11% increase over last year;
  • CIBC announced the 67 members of CIBC Team Next, a $2 million investment in amateur athletes from across the country; and
  • Thousands joined CIBC to celebrate the Lunar New Year at CIBC Lunarfest in Vancouver and the inaugural CIBC Lion Dance Chinese New Year Celebration in Markham, Ontario.
(1) For additional information, see the "Non-GAAP measures" section.

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

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

Management's discussion and analysis

Management's discussion and analysis (MD&A) is provided to enable readers to assess CIBC's financial condition and results of operations as at and for the quarter ended January 31, 2014, compared with corresponding periods. The MD&A should be read in conjunction with our 2013 Annual Report and the unaudited interim consolidated financial statements included in this report. Unless otherwise indicated, all financial information in this MD&A has been prepared in accordance with International Financial Reporting Standards (IFRS or GAAP) and all amounts are expressed in Canadian dollars. This MD&A is current as of February 26, 2014. Additional information relating to CIBC is available on SEDAR at www.sedar.com and on the U.S. Securities and Exchange Commission's (SEC) website at www.sec.gov. No information on CIBC's website (www.cibc.com) should be considered incorporated herein by reference. A glossary of terms used throughout this quarterly report can be found on pages 164 to 168 of our 2013 Annual Report.

A NOTE ABOUT FORWARD-LOOKING STATEMENTS: From time to time, we make written or oral forward-looking statements within the meaning of certain securities laws, including in this report, in other filings with Canadian securities regulators or the U.S. Securities and Exchange Commission and in other communications. All such statements are made pursuant to the "safe harbour" provisions of, and are intended to be forward-looking statements under, applicable Canadian and U.S. securities legislation, including the U.S. Private Securities Litigation Reform Act of 1995. These statements include, but are not limited to, statements made in the "Message from the President and Chief Executive Officer", "External reporting changes", "Overview - Financial results, "Overview - Significant events", "Overview - Outlook for calendar year 2014", "Strategic business units overview - Business unit allocations", "Financial condition - Capital resources", "Management of risk - Risk overview", "Management of risk - Credit risk", "Management of risk - Market risk", "Management of risk - Liquidity risk", "Accounting and control matters - Critical accounting policies and estimates", "Accounting and control matters - Regulatory developments" and "Accounting and control matters - Controls and procedures" sections of this report and other statements about our operations, business lines, financial condition, risk management, priorities, targets, ongoing objectives, strategies and outlook for calendar year 2014 and subsequent periods. Forward-looking statements are typically identified by the words "believe", "expect", "anticipate", "intend", "estimate", "forecast", "target", "objective" and other similar expressions or future or conditional verbs such as "will", "should", "would" and "could". By their nature, these statements require us to make assumptions, including the economic assumptions set out in the "Overview - Outlook for calendar year 2014" section of this report, and are subject to inherent risks and uncertainties that may be general or specific. A variety of factors, many of which are beyond our control, affect our operations, performance and results, and could cause actual results to differ materially from the expectations expressed in any of our forward-looking statements. These factors include: credit, market, liquidity, strategic, insurance, operational, reputation and legal, regulatory and environmental risk; the effectiveness and adequacy of our risk management and valuation models and processes; legislative or regulatory developments in the jurisdictions where we operate, including the Dodd-Frank Wall Street Reform and Consumer Protection Act and the regulations issued and to be issued thereunder, the Basel Committee on Banking Supervision's global standards for capital and liquidity reform, and those relating to the payments system in Canada; amendments to, and interpretations of, risk-based capital guidelines and reporting instructions, and interest rate and liquidity regulatory guidance; the resolution of legal and regulatory proceedings and related matters; the effect of changes to accounting standards, rules and interpretations; changes in our estimates of reserves and allowances; changes in tax laws; changes to our credit ratings; political conditions and developments; the possible effect on our business of international conflicts and the war on terror; natural disasters, public health emergencies, disruptions to public infrastructure and other catastrophic events; reliance on third parties to provide components of our business infrastructure; potential disruptions to our information technology systems and services, including the evolving risk of cyber attack; losses incurred as a result of internal or external fraud; the accuracy and completeness of information provided to us concerning clients and counterparties; the failure of third parties to comply with their obligations to us and our affiliates; intensifying competition from established competitors and new entrants in the financial services industry; technological change; global capital market activity; changes in monetary and economic policy; currency value and interest rate fluctuations; general business and economic conditions worldwide, as well as in Canada, the U.S. and other countries where we have operations, including increasing Canadian household debt levels, the high U.S. fiscal deficit and Europe's sovereign debt crisis; our success in developing and introducing new products and services, expanding existing distribution channels, developing new distribution channels and realizing increased revenue from these channels; changes in client spending and saving habits; our ability to attract and retain key employees and executives; our ability to successfully execute our strategies and complete and integrate acquisitions and joint ventures; and our ability to anticipate and manage the risks associated with these factors. This list is not exhaustive of the factors that may affect any of our forward-looking statements. These and other factors should be considered carefully and readers should not place undue reliance on our forward-looking statements. We do not undertake to update any forward-looking statement that is contained in this report or in other communications except as required by law.

External reporting changes

The following external reporting changes were made in the first quarter of 2014. Prior period amounts were restated accordingly.

Amendments to IAS 19 "Employee Benefits"
We adopted amendments to IAS 19 "Employee Benefits" commencing November 1, 2011, which require us to recognize: (i) actuarial gains and losses in Other comprehensive income (OCI) in the period in which they arise; (ii) interest income on plan assets in net income using the same rate as that used to discount the defined benefit obligation; and (iii) all past service costs (gains) in net income in the period in which they arise.

Adoption of IFRS 10 "Consolidated Financial Statements"
We adopted IFRS 10 "Consolidated Financial Statements" commencing November 1, 2012, which replaces IAS 27 "Consolidated and Separate Financial Statements" and Standards Interpretation Committee (SIC) - 12 "Consolidated - Special Purpose Entities". The adoption of IFRS 10 required us to deconsolidate CIBC Capital Trust from the consolidated financial statements, which resulted in a replacement of Capital Trust securities issued by CIBC Capital Trust with Business and government deposits for the senior deposit notes issued by us to CIBC Capital Trust.

Sale of Aeroplan portfolio
On December 27, 2013, we sold approximately 50 percent of our Aerogold VISA portfolio, consisting primarily of credit card only customers, to the Toronto- Dominion Bank (TD). Accordingly, the revenue related to the sold credit card portfolio was moved from Personal Banking to the Other line of business within Retail and Business Banking.

Allocation of Treasury activities
Treasury-related transfer pricing will continue to be charged or credited to each line of business within our Strategic Business Units (SBUs). We changed our approach to allocating the residual financial impact of Treasury activities. Certain fees will be charged directly to the lines of business, and the residual net revenue will now be retained in Corporate and Other.

Income statement presentation
We reclassified certain amounts associated with our self-managed credit card portfolio from Non-interest expenses to Non-interest income. There was no impact on consolidated net income due to this reclassification.

First quarter financial highlights

       2014    2013      2013  
Unaudited, as at or for the three months ended      Jan. 31    Oct. 31 (1)    Jan. 31 (1)
Financial results ($ millions)                        
Net interest income     $ 1,905    $  1,893      $  1,855  
Non-interest income       1,729     1,287       1,310  
Total revenue       3,634     3,180       3,165  
Provision for credit losses       218     271       265  
Non-interest expenses       1,979     1,930       1,988  
Income before taxes       1,437     979       912  
Income taxes       260     154       127  
Net income     $ 1,177    $  825      $  785  
Net income (loss) attributable to non-controlling interests     $ 3    $  (7)      $  2  
  Preferred shareholders       25     24       25  
  Common shareholders       1,149     808       758  
Net income attributable to equity shareholders     $ 1,174    $  832      $  783  
Financial measures                        
Reported efficiency ratio       54.5 %   60.7 %     62.8 %
Adjusted efficiency ratio (2)       56.7 %   56.7 %     56.5 %
Loan loss ratio        0.38 %   0.41 %     0.42 %
Reported return on common shareholders' equity       27.5 %   20.2 %     20.5 %
Adjusted return on common shareholders' equity (2)       22.1 %   21.9 %     23.1 %
Net interest margin       1.84 %   1.85 %     1.83 %
Net interest margin on average interest-earning assets        2.09 %   2.10 %     2.12 %
Return on average assets        1.14 %   0.81 %     0.77 %
Return on average interest-earning assets        1.29 %   0.91 %     0.90 %
Total shareholder return       (1.36) %   15.15 %     7.13 %
Reported effective tax rate       18.1 %   15.9 %     13.9 %
Adjusted effective tax rate (2)       16.5 %   16.5 %     15.9 %
Common share information                        
Per share ($) - basic earnings     $ 2.88    $  2.02      $  1.88  
    - reported diluted earnings       2.88     2.02       1.88  
    - adjusted diluted earnings (2)       2.31     2.19       2.12  
  - dividends       0.96     0.96       0.94  
    - book value       42.59     40.36       36.49  
Share price ($) - high       91.58     88.70       84.10  
    - low       86.57     76.91       76.70  
    - closing       86.57     88.70       83.20  
Shares outstanding (thousands) - weighted-average basic         398,539     399,819       403,332  
    - weighted-average diluted       399,217     400,255       403,770  
    - end of period       398,136     399,250       401,960  
Market capitalization ($ millions)       $ 34,467    $  35,413      $  33,443  
Value measures                        
Dividend yield (based on closing share price)       4.4 %   4.3 %     4.5 %
Reported dividend payout ratio        33.3 %   47.6 %     50.0 %
Adjusted dividend payout ratio (2)       41.4 %   43.8 %     44.3 %
Market value to book value ratio       2.03     2.20       2.28  
On- and off-balance sheet information ($ millions)                        
Cash, deposits with banks and securities     $ 77,290    $  78,363      $  72,657  
Loans and acceptances, net of allowance       256,819     256,380       251,145  
Total assets         400,955     398,006       392,508  
Deposits       314,336     315,164       307,967  
Common shareholders' equity       16,955     16,113       14,668  
Average assets       410,019     405,239       402,059  
Average interest-earning assets        361,844     357,757       347,038  
Average common shareholders' equity       16,581     15,885       14,698  
Assets under administration (3)     1,603,022   1,513,126     1,429,049  
Balance sheet quality measures                         
Transitional basis                          
  Risk-weighted assets (RWA) ($ billions)      $ 153.2    $  151.3      $  134.8  
  Common Equity Tier 1 (CET1) ratio       10.9 %   11.0 %     11.5 %
  Tier 1 capital ratio        11.6 %   11.8 %     12.4 %
  Total capital ratio        13.9 %   14.3 %     15.3 %
All-in basis                        
  RWA ($ billions)      $ 140.5    $  136.7      $  126.4  
  CET1 ratio       9.5 %   9.4 %     9.6 %
  Tier 1 capital ratio        11.5 %   11.6 %     12.0 %
  Total capital ratio        14.2 %   14.6 %     15.3 %
Other information                          
Full-time equivalent employees       43,573     43,039       42,793  
(1) Certain information has been restated to reflect the changes in accounting policies stated in Note 1 to the
interim consolidated financial statements and to conform to the presentation adopted in the current period. 
(2) For additional information, see the "Non-GAAP measures" section.
(3) Includes the full contract amount of assets under administration or custody under a 50/50 joint venture
between CIBC and The Bank of New York Mellon.

Overview

Financial results
Reported net income for the quarter was $1,177 million, compared with $785 million for the same quarter last year and $825 million for the prior quarter.

Adjusted net income(1) for the quarter was $951 million, compared with $882 million for the same quarter last year and $894 million for the prior quarter.

Reported diluted earnings per share (EPS) for the quarter was $2.88, compared with $1.88 for the same quarter last year and $2.02 for the prior quarter.

Adjusted diluted EPS(1) for the quarter was $2.31, compared with $2.12 for the same quarter last year and $2.19 for the prior quarter.

Net income for the current quarter was affected by the following items of note:

  • $239 million ($183 million after-tax) gain in respect of the Aeroplan transactions with Aimia Canada Inc. (Aimia) and TD, net of costs relating to the development of our enhanced travel rewards program ($123 million after-tax in Retail and Business Banking, and $60 million after-tax in Corporate and Other). See the "Significant events" section for further details;
  • $78 million ($57 million after-tax) gain, net of associated expenses, on the sale of an equity investment in our exited European leveraged finance portfolio (Wholesale Banking);
  • $26 million ($19 million after-tax) reduction in the portion of the collective allowance recognized in Corporate and Other(2), including lower estimated credit losses relating to the Alberta floods (Corporate and Other);
  • $26 million ($19 million after-tax) charge resulting from operational changes in the processing of write-offs in Retail and Business Banking;
  • $11 million ($8 million after-tax) loss from the structured credit run-off business (Wholesale Banking); and
  • $8 million ($6 million after-tax) amortization of intangible assets(3) ($1 million after-tax in Retail and Business Banking, $3 million after-tax in Wealth Management, and $2 million after-tax in Corporate and Other).

The above items of note increased revenue by $353 million, non-interest expenses by $55 million, and income tax expenses by $72 million. In aggregate, these items of note increased net income by $226 million.

Net interest income(4)
Net interest income was up $50 million or 3% from the same quarter last year, primarily due to volume growth across most retail products and higher revenue from corporate banking. These factors were partially offset by lower cards revenue as a result of the Aeroplan transactions noted above, and lower revenue from our exited FirstLine mortgage broker business.

Net interest income was up $12 million or 1% from the prior quarter, primarily due to volume growth and wider spreads across most retail products, and higher interest income from Wholesale Banking, largely offset by lower cards revenue as a result of the Aeroplan transactions noted above.

Non-interest income(4)
Non-interest income was up $419 million or 32% from the same quarter last year, primarily due to the gains relating to the Aeroplan transactions with Aimia and TD and the sale of an equity investment in our exited European leveraged finance portfolio, both shown as items of note, and higher mutual fund fees. The same quarter last year included a gain on the sale of our private wealth management business (Asia), also shown as an item of note.

Non-interest income was up $442 million or 34% from the prior quarter, primarily due to the gains relating to the Aeroplan transactions and the sale of an equity investment noted above. The prior quarter included the impairment of an equity position associated with our exited U.S. leveraged finance portfolio, also shown as an item of note.

Provision for credit losses
Provision for credit losses was down $47 million or 18% from the same quarter last year. In Retail and Business Banking, the provision was down mainly due to lower write-offs and bankruptcies in the cards portfolio, partially offset by a charge resulting from operational changes in the processing of write-offs, shown as an item of note. In Wholesale Banking, the provision was down due to lower losses in the U.S. real estate finance portfolio. In Corporate and Other, the provision was down primarily due to a reduction in the collective allowance, including lower estimated credit losses relating to the Alberta floods, shown as an item of note. The current quarter also had higher losses in FirstCaribbean International Bank Limited (CIBC FirstCaribbean).

Provision for credit losses was down $53 million or 20% from the prior quarter. In Retail and Business Banking, the provision was down primarily due to lower losses in the commercial lending portfolio, partially offset by the charge relating to write-offs noted above. In Wholesale Banking, the provision was comparable with the prior quarter. In Corporate and Other, the provision was down primarily due to the reduction in the collective allowance noted above. The current quarter also had lower losses in CIBC FirstCaribbean.

Non-interest expenses
Non-interest expenses were down $9 million compared with the same quarter last year, primarily due to lower expenses in the structured credit run-off business, which included the Lehman-related settlement charge shown as an item of note in the same quarter last year, largely offset by the costs relating to the development of our enhanced travel rewards program, and to the Aeroplan transactions noted above, as well as higher employee-related compensation and computer, software and office equipment expenses in the current quarter.

Non-interest expenses were up $49 million or 3% from the prior quarter, primarily due to higher employee-related compensation, partially offset by a restructuring charge relating to CIBC FirstCaribbean, which was included as an item of note in the prior quarter.

(1)  For additional information, see the "Non-GAAP measures" section.
(2)  Relates to collective allowance, except for (i) residential mortgages greater than 90 days delinquent; (ii) personal loans and scored small business loans greater than 30 days delinquent, and (iii) net write-offs for the cards portfolio, which are all reported in the respective SBUs.
(3)  Beginning in the fourth quarter of 2013, also includes amortization of intangible assets for equity-accounted associates.
(4)  Trading activities and related risk management strategies can periodically shift trading income between net interest income and non-interest income. Therefore, we view total trading income as the most appropriate measure of trading performance.

Income taxes
Income tax expense was up $133 million or 105% from the same quarter last year, and up $106 million or 69% from the prior quarter, primarily due to higher income.

In prior years, the Canada Revenue Agency issued reassessments disallowing the deduction of approximately $3 billion of the 2005 Enron settlement payments and related legal expenses. The matter is currently in litigation. The Tax Court of Canada trial on the deductibility of the Enron payments is scheduled to commence in October 2015.

Should we successfully defend our tax filing position in its entirety, we would recognize an additional accounting tax benefit of $214 million and taxable refund interest of approximately $199 million. Should we fail to defend our position in its entirety, we would incur an additional tax expense of approximately $866 million and non-deductible interest of approximately $124 million.

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

               Jan. 31, 2014    Jan. 31, 2014  
                 vs.      vs.  
$ millions, for the three months ended            Jan. 31, 2013    Oct. 31, 2013  
Estimated increase in:                      
  Total revenue           $ 37    $  17  
  Provision for credit losses             3     1  
  Non-interest expense             15     7  
  Income taxes             1     1  
  Net income              18     8  
Average US$ appreciation relative to C$               8.5 %     3.6 %

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

Q4, 2013

  • $39 million ($37 million after-tax) restructuring charge relating to CIBC FirstCaribbean (Corporate and Other);
  • $35 million ($19 million after-tax) impairment of an equity position associated with our exited U.S. leveraged finance portfolio (Wholesale Banking);
  • $24 million ($18 million after-tax) expenses relating to the development of our enhanced travel rewards program and to the Aeroplan transactions with Aimia and TD (Retail and Business Banking);
  • $15 million ($11 million after-tax) gain from the structured credit run-off business (Wholesale Banking); and
  • $7 million ($6 million after-tax) amortization of intangible assets ($1 million after-tax in Retail and Business Banking, $2 million after-tax in Wealth Management, and $3 million after-tax in Corporate and Other).

The above items of note decreased revenue by $20 million, increased non-interest expenses by $70 million, and decreased income tax expenses by $21 million. These items of note decreased net income by $69 million.

Q1, 2013

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

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

Significant events

Aeroplan Agreements and enhancements to CIBC travel rewards program
On December 27, 2013, CIBC completed the transactions contemplated by the tri-party agreements with Aimia and TD that were announced on September 16, 2013.

CIBC sold to TD approximately 50% of its existing Aerogold VISA credit card portfolio, consisting primarily of credit card only customers. Consistent with its strategy to invest in and deepen client relationships, CIBC retained the Aerogold VISA credit card accounts held by clients with broader banking relationships at CIBC.

The portfolio divested by CIBC consisted of $3.3 billion of credit card receivables. Upon closing, CIBC received a cash payment from TD equal to the credit card receivables outstanding being acquired by TD.

CIBC also received upon closing, in aggregate, $200 million in upfront payments from TD and Aimia.

In addition to these amounts, CIBC released $81 million of allowance for credit losses related to the sold portfolio, and incurred $3 million in direct costs related to the transaction in the three months ended January 31, 2014. The net gain on sale of the sold portfolio recognized in the three months ended January 31, 2014, which includes the upfront payments, release of allowance for credit losses and costs related to the transaction, is $278 million ($211 million after-tax).

Under the terms of the agreements:

  • CIBC continues to have rights to market the Aeroplan program and originate new Aerogold cardholders through its CIBC branded channels.
  • The parties have agreed to certain provisions to compensate for the risk of cardholder migration from one party to another. There is potential for payments of up to $400 million by TD/Aimia or CIBC for net cardholder migration over a period of 5 years.
  • CIBC expects to receive annual commercial subsidy payments from TD of approximately $38 million per year in each of the three years after closing.
  • The CIBC and Aimia agreement includes an option for either party to terminate the agreement after the third year and provides for penalty payments due from CIBC to Aimia if holders of Aeroplan credit cards from CIBC's retained portfolio switch to other CIBC credit cards above certain thresholds.
  • CIBC is working with TD under an interim servicing agreement to effect a smooth transition of the cardholders moving to TD.

In conjunction with the completion of the Aeroplan transaction, CIBC has fully released Aimia and TD from any potential claims in connection with TD becoming Aeroplan's primary financial credit card partner.

Separate from the tri-party agreements, CIBC continues with its plan to provide enhancements to our proprietary travel rewards program, delivering on our commitment to give our clients access to a market leading travel rewards program. The enhanced program is built on extensive research and feedback from our clients and from Canadians about what they want from their travel rewards card.

CIBC incurred incremental costs of $39 million ($28 million after-tax) in respect of supporting the tri-party agreements and in respect of the development of our enhanced travel rewards program in the three months ended January 31, 2014.

The aggregate increase in pre-tax income of $239 million ($183 million after-tax) in respect of the above has been treated as an item of note.

Atlantic Trust Private Wealth Management
On December 31, 2013, CIBC completed the acquisition of Atlantic Trust Private Wealth Management (Atlantic Trust) from its parent company, Invesco Ltd., for $224 million (US$210 million) plus working capital and other adjustments. Atlantic Trust, which has approximately US$24 billion in assets under management (AUM), provides integrated wealth management solutions for high-net-worth individuals, families, foundations and endowments in the United States. The results of the acquired business have been consolidated from the date of close and are included in the Wealth Management SBU. For additional information, see Note 3 to our interim consolidated financial statements.

Sale of equity investment
On November 29, 2013, CIBC sold an equity investment that was previously acquired through a loan restructuring in CIBC's exited European leveraged finance business. The transaction resulted in an after-tax gain, net of associated expenses, of $57 million.

Review of quarterly financial information

$ millions, except per share amounts,                                                    
for the three months ended      2014                        2013 (1)                 2012 (1)
           Jan. 31      Oct. 31      Jul. 31      Apr. 30      Jan. 31        Oct. 31      Jul. 31      Apr. 30  
Revenue                                                    
  Retail and Business Banking    $ 2,255   $ 2,087   $ 2,067   $ 1,985   $ 2,010     $ 2,012   $ 2,014   $ 1,935  
  Wealth Management      502     470     458     443     432       420     401     418  
  Wholesale Banking (2)     680     520     589     574     557       567     519     455  
  Corporate and Other (2)     197     103     135     122     166       140     201     262  
Total revenue   $ 3,634   $ 3,180   $ 3,249   $ 3,124   $ 3,165     $ 3,139   $ 3,135   $ 3,070  
Net interest income   $ 1,905   $ 1,893   $ 1,883   $ 1,822   $ 1,855     $ 1,848   $ 1,883   $ 1,753  
Non-interest income     1,729     1,287     1,366     1,302     1,310       1,291     1,252     1,317  
Total revenue     3,634     3,180     3,249     3,124     3,165       3,139     3,135     3,070  
Provision for credit losses     218     271     320     265     265       328     317     308  
Non-interest expenses     1,979     1,930     1,878     1,825     1,988       1,823     1,830     1,762  
Income before income taxes     1,437     979     1,051     1,034     912       988     988     1,000  
Income taxes     260     154     173     172     127       145     156     198  
Net income    $ 1,177   $ 825   $ 878   $ 862   $ 785     $ 843   $ 832   $ 802  
Net income (loss) attributable to:                                                    
  Non-controlling interests   $ 3   $ (7)   $ 1   $ 2   $ 2     $ 3   $ 2   $ 1  
  Equity shareholders     1,174     832     877     860     783       840     830     801  
EPS - basic   $ 2.88   $ 2.02   $ 2.13   $ 2.09   $ 1.88     $ 2.00   $ 1.98   $ 1.88  
    - diluted      2.88     2.02     2.13     2.09     1.88       2.00     1.98     1.87  
(1) Certain information has been restated to reflect the changes in accounting policies stated in Note 1 to the interim consolidated financial
statements and to conform to the presentation adopted in the current period.
   
(2) Wholesale Banking revenue and income taxes are reported on a taxable equivalent basis (TEB) with an equivalent offset in the revenue
and income taxes of Corporate and Other. 

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

Revenue
Retail and Business Banking revenue has benefitted from volume growth across most retail products, offset to some extent by the continued low interest rate environment and attrition in our exited FirstLine mortgage broker business. The current quarter included the gain relating to the Aeroplan transactions with Aimia and TD, partially offset by lower cards revenue as a result of these transactions.

Wealth Management revenue has benefitted from higher average AUM and strong net sales of long-term mutual funds. The current quarter also included the impact of the acquisition of Atlantic Trust on December 31, 2013.

Wholesale Banking revenue is influenced to a large extent by capital markets conditions, and growth in the equity derivatives business which has resulted in higher tax-exempt income. Revenue has also been impacted by the volatility in the structured credit run-off business. The current quarter included a gain on the sale of an equity investment in our exited European leveraged finance portfolio. The fourth quarter of 2012 included a gain on sale of interests in entities in relation to the acquisition of TMX Group Inc. and the loss relating to the change in valuation of collateralized derivatives to an overnight index swap (OIS) basis. The second quarter of 2012 included a hedge accounting loss on leveraged leases.

Corporate and Other includes the offset related to tax-exempt income noted above. The current quarter included the gain relating to the Aeroplan transactions noted above and the first quarter of 2013 included the gain on sale of the private wealth management business (Asia).

Provision for credit losses
Provision for credit losses is dependent upon the credit cycle in general and on the credit performance of the loan portfolios. In Retail and Business Banking, losses in the cards portfolio declined throughout 2012 and 2013. The current quarter had a charge resulting from operational changes in the processing of write-offs and the third quarter of 2013 had a charge resulting from a revision of estimated loss parameters on our unsecured lending portfolios. In Wholesale Banking, the second and third quarter of 2013 had higher losses in the exited European leveraged finance portfolio, and the fourth quarter of 2012 included losses in the exited U.S. leveraged finance portfolio. 2012 also included higher losses in the U.S. real estate finance portfolio. In Corporate and Other, the third quarter of 2013 had an increase in the collective allowance, which included estimated credit losses relating to the Alberta floods, while the current quarter included a decrease in collective allowance, including partial reversal of the credit losses relating to the Alberta floods.

Non-interest expenses
Non-interest expenses have fluctuated over the period largely due to changes in employee-related compensation and benefits, including pension expense. The current quarter and the prior quarter had expenses relating to the development of our enhanced travel rewards program, and to the Aeroplan transactions with Aimia and TD. The prior quarter also had a restructuring charge relating to CIBC FirstCaribbean. The first quarter of 2013 had higher expenses in the structured credit run-off business.

Income taxes
Income taxes vary with changes in income subject to tax, and the jurisdictions in which the income is earned. Taxes can also be affected by the impact of significant items. Tax-exempt income has generally been trending higher for the periods presented in the table above.

Outlook for calendar year 2014
Global growth is expected to improve in 2014, helped by a diminished burden from fiscal tightening in both the U.S. and Europe, and a continuation of stimulative monetary policy. U.S. real gross domestic product (GDP) is expected to accelerate to approximately 3% as we move past the drag from tax hikes that affected 2013. A further climb in home building, and the lift to household incomes and credit quality from ongoing job creation should also help U.S. real GDP. Europe looks to have emerged from recession. Although some emerging markets are facing domestic policy challenges, they will benefit from improved global trade volumes. Canada's growth rate should improve to the 2.0% to 2.5% range, as firmer global conditions support exports and capital spending, offsetting a slower pace of housing construction and continued restraint in government program spending. Consumer demand will be sustained at moderate growth rates by job creation. Both the U.S. Federal Reserve and the Bank of Canada are likely to wait until 2015 before raising short-term interest rates, although longer term rates could increase through the year in anticipation of that future policy turn.

In Retail banking, household credit demand, which has picked up due to faster mortgage growth, could decelerate later in the year if mortgage rates begin to climb and housing sales slow. Demand for business credit should pick up later in the year as more optimism emerges on capital spending. A further drop in the unemployment rate should support household credit quality, but there is little room for business and household insolvency rates to drop from what are already very low levels. Wealth management should see an improvement in demand for equities and other higher risk assets as global growth improves. Wholesale banking should benefit from rising capital spending that increases the demand for corporate lending and debt financing, and provincial governments will still have elevated borrowing needs, including those related to infrastructure projects. A sturdier global climate could reduce uncertainties that held back equity issuance in the prior year.

Non-GAAP measures

We use a number of financial measures to assess the performance of our business lines. Some measures are calculated in accordance with GAAP (IFRS), while other measures do not have a standardized meaning under GAAP, and accordingly, these measures may not be comparable to similar measures used by other companies. Investors may find these non-GAAP measures useful in analyzing financial performance. For a more detailed discussion on our non-GAAP measures, see page 12 of the 2013 Annual Report. The following table provides a reconciliation of non-GAAP to GAAP measures related to CIBC on a consolidated basis.

              2014       2013  (1)     2013  (1)
$ millions, as at or for the three months ended             Jan. 31       Oct. 31       Jan. 31  
Reported and adjusted diluted EPS                                 
Reported net income attributable to diluted common shareholders     A     $ 1,149     $ 808     $ 758  
After-tax impact of items of note (2)             (226)       69       97  
Adjusted net income attributable to diluted common shareholders (3)     B     $ 923     $ 877     $ 855  
Diluted weighted-average common shares outstanding (thousands)     C       399,217         400,255         403,770  
Reported diluted EPS ($)     A/C     $ 2.88     $ 2.02     $ 1.88  
Adjusted diluted EPS ($) (3)     B/C       2.31       2.19       2.12  
Reported and adjusted efficiency ratio                                
Reported total revenue     D     $ 3,634     $ 3,180     $ 3,165  
Pre-tax impact of items of note (2)             (353)       20       (28)  
TEB             110       78       92  
Adjusted total revenue (3)     E     $ 3,391     $ 3,278     $ 3,229  
Reported non-interest expenses     F     $ 1,979     $ 1,930     $ 1,988  
Pre-tax impact of items of note (2)             (55)       (70)       (165)  
Adjusted non-interest expenses (3)     G     $ 1,924     $ 1,860     $ 1,823  
Reported efficiency ratio     F/D       54.5 %     60.7 %     62.8 %
Adjusted efficiency ratio (3)     G/E       56.7 %     56.7 %     56.5 %
Reported and adjusted dividend payout ratio                                
Reported net income attributable to common shareholders     H     $ 1,149     $ 808     $ 758  
After-tax impact of items of note (2)             (226)       69       97  
Adjusted net income attributable to common shareholders (3)     I     $ 923     $ 877     $ 855  
Dividends paid to common shareholders     J     $ 382     $ 384     $ 379  
Reported dividend payout ratio     J/H       33.3 %     47.6 %     50.0 %
Adjusted dividend payout ratio (3)     J/I       41.4 %     43.8 %     44.3 %
Reported and adjusted return on common shareholders' equity                                
Average common shareholders' equity     K     $   16,581     $ 15,885     $ 14,698  
Reported return on common shareholders' equity     H/K       27.5 %     20.2 %     20.5 %
Adjusted return on common shareholders' equity (3)     I/K       22.1 %     21.9 %     23.1 %
Reported and adjusted effective tax rate                                
Reported income before income taxes     L     $ 1,437     $ 979     $ 912  
Pre-tax impact of items of note (2)             (298)       90       137  
Adjusted income before income taxes (3)     M     $ 1,139     $ 1,069     $ 1,049  
Reported income taxes     N     $ 260     $ 154     $ 127  
Tax impact of items of note (2)             (72)       21       40  
Adjusted income taxes (3)     O     $ 188     $ 175     $ 167  
Reported effective tax rate     N/L       18.1 %     15.9 %     13.9 %
Adjusted effective tax rate (3)     O/M       16.5 %     16.5 %     15.9 %
                                       
            Retail and                          
            Business      Wealth    Wholesale    Corporate        CIBC
$ millions, for the three months ended       Banking   Management    Banking    and Other        Total
Jan. 31   Reported net income       $ 746    $ 114    $  264    $  53    $    1,177
2014   After-tax impact of items of note (2)         (103)     3     (49)     (77)       (226)
    Adjusted net income (loss) (3)       $ 643    $ 117   $ 215    $  (24)    $    951
Oct. 31   Reported net income (loss)       $ 613    $ 103    $  209    $  (100)    $    825
2013 (1)   After-tax impact of items of note (2)         19     2     8     40       69
    Adjusted net income (loss) (3)       $ 632    $ 105   $ 217    $  (60)    $    894
Jan. 31   Reported net income       $ 580    $ 89    $  86    $  30    $    785
2013 (1)   After-tax impact of items of note (2)         2     -     109     (14)       97
    Adjusted net income (3)       $ 582    $ 89   $ 195    $  16    $    882
(1) Certain information has been restated to reflect the changes in accounting policies stated in Note 1 to the interim
consolidated financial statements and to conform to the presentation adopted in the current period.
(2) Reflects impact of items of note under "Financial results" section.
(3) Non-GAAP measure.

Strategic business units overview

CIBC has three SBUs - Retail and Business Banking, Wealth Management and Wholesale Banking. These SBUs are supported by six functional groups - Technology and Operations, Corporate Development, Finance, Treasury, Administration, and Risk Management, which form part of Corporate and Other. The expenses of these functional groups are generally allocated to the business lines within the SBUs. Corporate and Other also includes our International banking operations comprising mainly CIBC FirstCaribbean, strategic investments in the CIBC Mellon joint ventures and The Bank of N.T. Butterfield & Son Limited, and other income statement and balance sheet items not directly attributable to the business lines.

Business unit allocations
Treasury activities impact the reported financial results of the SBUs. Each line of business within our SBUs is charged or credited with a market-based cost of funds on assets and liabilities, respectively, which impacts the revenue performance of the SBUs. Once the interest and liquidity risk inherent in our client-driven assets and liabilities is transfer priced into Treasury, it is managed within CIBC's risk framework and limits. The residual financial results associated with Treasury activities are reported in Corporate and Other. Capital is attributed to the SBUs in a manner that is intended to consistently measure and align economic costs with the underlying benefits and risks associated with SBU activities. Earnings on unattributed capital remain in Corporate and Other. We review our transfer pricing methodologies on an ongoing basis to ensure they reflect changing market environments and industry practices.

To measure and report the results of operations of the lines of business within our Retail and Business Banking and Wealth Management SBUs, we use a Manufacturer/Customer Segment/Distributor Management Model. The model uses certain estimates and allocation methodologies in the preparation of segmented financial information. Under this model, internal payments for sales and trailer commissions and distribution service fees are made among the lines of business and SBUs. Periodically, the sales and trailer commission rates paid to customer segments for certain products are revised and applied prospectively.

Non-interest expenses are attributed to the SBUs to which they relate based on appropriate criteria. Revenue, expenses, and other balance sheet resources related to certain activities are fully allocated to the lines of business within the SBUs.

The individual allowances and related provisions are reported in the respective SBUs. The collective allowances and related provisions are reported in Corporate and Other except for: (i) residential mortgages greater than 90 days delinquent; (ii) personal loans and scored small business loans greater than 30 days delinquent; and (iii) net write-offs for the cards portfolio, which are all reported in the respective SBUs. All allowances and related provisions for CIBC FirstCaribbean are reported in Corporate and Other.

Retail and Business Banking

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

Results(1)

                 2014        2013 (2)      2013 (2)
$ millions, for the three months ended              Jan. 31        Oct. 31        Jan. 31  
Revenue                                
  Personal banking           $ 1,576     $ 1,555     $ 1,482  
  Business banking             380       386       383  
  Other (3)             299       146       145  
Total revenue             2,255       2,087       2,010  
Provision for credit losses              210       215       241  
Non-interest expenses             1,055       1,055       997  
Income before taxes              990       817       772  
Income taxes             244       204       192  
Net income           $ 746     $ 613     $ 580  
Net income attributable to:                                
  Equity shareholders (a)           $ 746     $ 613     $ 580  
Efficiency ratio             46.8 %     50.5 %     49.6 %
Return on equity (4)             77.9 %     61.5 %     63.8 %
Charge for economic capital (4) (b)           $ (119)     $ (125)     $ (115)  
Economic profit (4) (a+b)           $ 627     $ 488     $ 465  
Full-time equivalent employees             22,243       21,781       22,063  
(1) For additional segmented information, see the notes to the interim consolidated financial
statements.
(2) Certain information has been restated to reflect the changes in accounting policies stated
in Note 1 to the interim consolidated financial statements and to conform to the
presentation adopted in the current period.
(3) Includes run-off portfolios relating to FirstLine mortgage broker business, student loans
and cards. 
(4) For additional information, see the "Non-GAAP measures" section.

Financial overview
Net income for the quarter was $746 million, up $166 million from the same quarter last year, primarily due to higher revenue, partially offset by higher non-interest expenses.

Net income was up $133 million from the prior quarter, mainly due to higher revenue.

Revenue
Revenue was up $245 million or 12% from the same quarter last year.

Personal banking revenue was up $94 million, due to volume growth across most products, higher fees and wider spreads.

Business banking revenue was comparable with the same quarter last year, as narrower spreads were offset by volume growth and higher fees.

Other revenue was up $154 million, mainly due to the gain relating to the Aeroplan transactions with Aimia and TD shown as an item of note, partially offset by lower cards revenue as a result of these transactions, and lower revenue from our exited FirstLine mortgage broker business.

Revenue was up $168 million or 8% from the prior quarter.

Personal banking revenue was up $21 million, primarily due to volume growth and wider spreads.

Business banking revenue was down $6 million, primarily due to narrower spreads.

Other revenue was up $153 million, mainly due to the gain relating to the Aeroplan transactions noted above, partially offset by lower cards revenue as a result of these transactions.

Provision for credit losses
Provision for credit losses was down $31 million from the same quarter last year, mainly due to lower write-offs and bankruptcies in the cards portfolio, partially offset by a charge resulting from operational changes in the processing of write-offs, shown as an item of note.

Provision for credit losses was down $5 million from the prior quarter, primarily due to lower losses in the commercial lending portfolio, partially offset by the charge relating to write-offs noted above.

Non-interest expenses
Non-interest expenses were up $58 million or 6% from the same quarter last year, primarily due to the costs relating to the development of our enhanced travel rewards program, and to the Aeroplan transactions noted above.

Non-interest expenses were comparable with the prior quarter.

Income taxes
Income taxes were up $52 million and $40 million from the same quarter last year and the prior quarter, respectively, primarily due to higher income.

Wealth Management

Wealth Management provides relationship-based advisory services and an extensive suite of leading investment solutions to meet the needs of institutional, retail and high net worth clients. Our asset management, retail brokerage and private wealth management businesses combine to create an integrated offer, delivered through more than 1,500 advisors across Canada and the U.S.

Results(1)

           2014      2013 (2)      2013 (2)   
$ millions, for the three months ended        Jan. 31      Oct. 31        Jan. 31    
Revenue                          
  Retail brokerage     $ 284   $ 272     $ 259    
  Asset management       172     165       144    
  Private wealth management       46     33       29    
Total revenue       502     470       432    
Provision for (reversal of) credit losses       (1)     1       -    
Non-interest expenses       351     335       316    
Income before taxes        152     134       116    
Income taxes       38     31       27    
Net income     $ 114   $ 103     $ 89    
Net income attributable to:                          
  Non-controlling interests     $ 1   $ -     $ -    
  Equity shareholders  (a)       113     103       89    
Efficiency ratio       69.9 %   71.4 %     73.2 %  
Return on equity (3)       22.5 %   21.5 %     19.0 %  
Charge for economic capital (3) (b)     $ (62)   $ (59)     $ (58)    
Economic profit (3) (a+b)     $ 51   $ 44     $ 31    
Full-time equivalent employees       4,056     3,840       3,765    
(1) For additional segmented information, see the notes to the interim consolidated
financial statements.
(2) Certain information has been restated to reflect the changes in accounting policies
stated in Note 1 to the interim consolidated financial statements and to conform to the
presentation adopted in the current period.
(3) For additional information, see the "Non-GAAP measures" section.
 

Financial overview
Net income for the quarter was $114 million, up $25 million from the same quarter last year, and up $11 million from the prior quarter, primarily due to higher revenue, partially offset by higher non-interest expenses.

Revenue
Revenue was up $70 million or 16% from the same quarter last year.

Retail brokerage revenue was up $25 million, mainly due to higher fee-based and commission revenue.

Asset management revenue was up $28 million, primarily due to higher client AUM driven by market appreciation and net sales of long-term mutual funds, and higher contribution from our equity-accounted investment in American Century Investments.

Private wealth management revenue was up $17 million, mainly due to the acquisition of Atlantic Trust on December 31, 2013, and higher AUM driven by client growth.

Revenue was up $32 million or 7% from the prior quarter.

Retail brokerage revenue was up $12 million, primarily due to higher fee-based revenue.

Asset management revenue was up $7 million, primarily due to higher client AUM driven by market appreciation and net sales of long-term mutual funds.

Private wealth management revenue was up $13 million, mainly due to higher AUM, including the impact of the acquisition noted above.

Non-interest expenses
Non-interest expenses were up $35 million or 11% from the same quarter last year, and up $16 million or 5% from the prior quarter, primarily due to higher employee-related compensation.

Income taxes
Income taxes were up $11 million from the same quarter last year and up $7 million from the prior quarter mainly due to higher income.

Wholesale Banking

Wholesale Banking provides a wide range of credit, capital markets, investment banking and research products and services to government, institutional, corporate and retail clients in Canada and in key markets around the world.

Results(1)

                     2014        2013 (2)      2013 (2)
$ millions, for the three months ended                  Jan. 31        Oct. 31        Jan. 31  
Revenue                                     
  Capital markets               $ 330     $ 279     $ 327  
  Corporate and investment banking                 250       246       211  
  Other                 100       (5)       19  
Total revenue (3)                 680       520       557  
Provision for (reversal of) credit losses                 2       (1)       10  
Non-interest expenses                 329       271       445  
Income before taxes                 349       250       102  
Income taxes (3)                 85       41       16  
Net income               $ 264     $ 209     $ 86  
Net income attributable to:                                    
  Equity shareholders (a)               $ 264     $ 209     $ 86  
Efficiency ratio (3)                 48.3 %     52.3 %     79.9 %
Return on equity (4)                 44.9 %     36.5 %     15.8 %
Charge for economic capital (4) (b)               $ (73)     $ (72)     $ (67)  
Economic profit (4) (a+b)               $ 191     $ 137     $ 19  
Full-time equivalent employees                 1,244       1,273       1,261  
(1) For additional segmented information, see the notes to the interim consolidated financial
statements.
(2) Certain information has been restated to reflect the changes in accounting policies stated
in Note 1 to the interim consolidated financial statements and to conform to the presentation
adopted in the current period.
(3) Revenue and income taxes are reported on a TEB basis. Accordingly, revenue and income
taxes include a TEB adjustment of $110 million for the quarter ended January 31, 2014
(October 31, 2013: $78 million; January 31, 2013: $92 million). The equivalent amounts
are offset in the revenue and income taxes of Corporate and Other.
(4) For additional information, see the "Non-GAAP measures" section.

Financial overview
Net income for the quarter was $264 million, up $178 million from the same quarter last year, mainly due to higher revenue and lower non-interest expenses.  Net income was up $55 million from the prior quarter, mainly due to higher revenue, partially offset by higher non-interest expenses.

Revenue
Revenue was up $123 million or 22% from the same quarter last year.

Capital markets revenue was up $3 million, primarily due to higher revenue from foreign exchange and equity derivatives trading, partially offset by a lower reversal of credit valuation adjustments (CVA) against credit exposures to derivative counterparties (other than financial guarantors) and lower debt and equity issuance revenue.

Corporate and investment banking revenue was up $39 million, mainly due to higher revenue from corporate banking and U.S. real estate finance and higher investment portfolio gains, partially offset by lower advisory and equity new issuance revenue.

Other revenue was up $81 million, primarily due to the gain on the sale of an equity investment in our exited European leveraged finance portfolio, shown as an item of note, partially offset by losses in the structured credit run-off business compared with gains in the prior year quarter.

Revenue was up $160 million or 31% from the prior quarter.

Capital markets revenue was up $51 million, mainly due to higher revenue from foreign exchange and equity derivatives trading, partially offset by lower debt issuance revenue.

Corporate and investment banking revenue was up $4 million, primarily due to higher corporate banking and advisory revenue, partially offset by lower revenue in U.S. real estate finance.

Other revenue was up $105 million from the prior quarter, primarily due to the gain on the sale of an equity investment noted above, partially offset by losses in the structured credit run-off business compared with gains in the prior quarter. The prior quarter included the impairment of an equity position associated with our exited U.S. leveraged finance portfolio, shown as an item of note.

Provision for credit losses
Provision for credit losses was down $8 million from the same quarter last year, due to lower losses in the U.S. real estate finance portfolio.

Provision for credit losses was comparable with the prior quarter.

Non-interest expenses
Non-interest expenses were down $116 million or 26% from the same quarter last year, mainly due to higher expenses in the structured credit run-off business related to the charge in respect of a settlement of the U.S. Bankruptcy Court adversary proceeding brought by the Estate of Lehman Brothers Holdings, Inc. in the prior year quarter, partially offset by higher performance-based compensation.

Non-interest expenses were up $58 million or 21% from the prior quarter, mainly due to higher performance-based compensation.

Income taxes
Income taxes for the quarter were up $69 million from the same quarter last year, primarily due to higher income.

Income taxes for the quarter were up $44 million from the prior quarter, primarily due to higher income and the impact of changes in the proportion of income subject to varying rates of tax in different jurisdictions.

Structured credit run-off business

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

Results

                     2014        2013        2013
$ millions, for the three months ended                   Jan. 31       Oct. 31       Jan. 31
Net interest income (expense)                 $ (13)     $ (12)     $ (14)
Trading income                    5       15       18
Designated at fair value (FVO) losses                    (2)       (2)       (3)
Other income                    -       16       5
Total revenue                   (10)       17       6
Non-interest expenses                   1       2       154
Income (loss) before taxes                    (11)       15        (148)
Income taxes                   (3)       4       (39)
Net income (loss)                 $ (8)     $ 11     $  (109)

Net loss for the quarter was $8 million (US$7 million), compared with $109 million (US$110 million) for the same quarter last year and net income of $11 million (US$10 million) for the prior quarter.

Net loss for the quarter was mainly due to net interest expense and a decrease in the value of receivables related to protection purchased from financial guarantors (on loan assets that are carried at amortized cost), resulting from an increase in the mark-to-market (MTM) of the underlying positions, partially offset by gains on unhedged positions and a reduction in CVA relating to financial guarantors.

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

                        Written credit                
                      derivatives, liquidity   Credit protection purchased from
US$ millions, as at January 31, 2014   Investments and loans (1)   and credit facilities   Financial guarantors   Other counterparties
          Fair  Carrying                          
        Fair value of value of  value of       Fair                
        trading, AFS securities  securities       value of     Fair value     Fair value
        and FVO classified  classified       written credit      net of     net of
    Notional securities as loans  as loans   Notional derivatives Notional  CVA Notional CVA
USRMM - CDO $ - $ -  $  -  $  -   $ 229 $ 160 $ - $ -  $ 229 $ 160
CLO   2,335   1   2,264   2,272     2,257   37   4,175   58   126   3
Corporate debt   -   -   -   -     4,000   11   -   -   4,000   14
Other   676   450   37   36     500   40   185   10   12   2
Unmatched   -   -   -   -     -   -   -   -   449   2
  $ 3,011 $ 451  $    2,301  $    2,308   $   6,986 $ 248  $   4,360 $ 68  $   4,816 $ 181
October 31, 2013 $ 3,269 $ 494  $  2,497  $  2,507   $ 7,543 $ 269  $ 4,718 $ 87  $ 5,145 $ 188
(1) Excluded from the table above are equity available-for-sale (AFS) securities that we obtained in consideration for commutation of our U.S.
residential mortgage market (USRMM) contracts with financial guarantors with a carrying value of US$14 million (October 31, 2013:
US$10 million).

USRMM - collateralized debt obligation (CDO)
Our net USRMM position, consisting of a written credit derivative, amounted to US$69 million. This position was hedged through protection purchased from a large U.S.-based diversified multinational insurance and financial services company with which we have market-standard collateral arrangements.

Collateralized loan obligation (CLO)
CLO positions consist of senior tranches of CLOs backed by diversified pools of primarily U.S. (63%) and European-based (35%) senior secured leveraged loans. As at January 31, 2014, approximately 32% of the total notional amount of the CLO tranches was rated equivalent to AAA, 64% was rated between the equivalent of AA+ and AA-, and the remainder was the equivalent of A+ or lower. As at January 31, 2014, approximately 17% of the underlying collateral was rated equivalent to BB- or higher, 56% was rated between the equivalent of B+ and B-, 6% was rated equivalent to CCC+ or lower, with the remainder unrated. The CLO positions have a weighted-average life of 2.0 years and average subordination of 30%.

Corporate debt
Corporate debt exposure consists of a large matched super senior derivative, where CIBC has purchased and sold credit protection on the same reference portfolio. The reference portfolio consists of highly diversified, predominantly investment grade corporate credit. Claims on these contracts do not occur until cumulative credit default losses from the reference portfolio exceed 30% during the remaining 35-month term of the contract. On this reference portfolio, we have sold protection to an investment dealer.

Other
Our significant positions in the Investments and loans section within Other, as at January 31, 2014, include:

  • Variable rate Class A-1/A-2 notes classified as trading securities with a notional value of US$260 million and a fair value of US$231 million, tracking notes classified as AFS with a notional value of US$6 million and a fair value of US$2 million, and loans with a notional value of US$57 million and fair value and carrying value of nil. These notes were originally received in exchange for our non-bank sponsored asset-backed commercial paper (ABCP) in January 2009, upon the ratification of the Montreal Accord restructuring;
  • US$156 million notional value of CDOs consisting of trust preferred securities (TruPs) collateral, which are Tier I Innovative Capital Instruments issued by U.S. regional banks and insurers. These securities are classified as FVO securities and had a fair value of US$130 million;
  • US$95 million notional value of CDO trading securities with collateral consisting of high-yield corporate debt portfolios with a fair value of US$81 million; and
  • US$40 million notional value of an asset-backed security (ABS) classified as a loan, with fair value of US$37 million and carrying value of US$36 million.

Our significant positions in the Written credit derivatives, liquidity and credit facilities section within Other, as at January 31, 2014, include:

  • US$269 million notional value of written credit derivatives with a fair value of US$39 million, on inflation-linked notes, and CDO tranches with collateral consisting of non-U.S. residential mortgage-backed securities and TruPs; and
  • US$177 million of undrawn Margin Funding Facility related to the Montreal Accord restructuring.

Unmatched
The underlying in our unmatched position is a reference portfolio of corporate debt.

Credit protection purchased from financial guarantors and other counterparties
The following table presents the notional amounts and fair values of credit protection purchased from financial guarantors and other counterparties by counterparty credit quality, based on external credit ratings (Standard & Poor's (S&P) and/or Moody's Investors Service (Moody's)), and the underlying referenced assets. Excluded from the table below are certain performing loans and tranched securities positions in our continuing businesses, with a total notional amount of approximately US$45 million, which are partly secured by direct guarantees from financial guarantors or by bonds guaranteed by financial guarantors.

                Credit protection purchased
                                  from financial guarantors
        Notional amounts of referenced assets   and other counterparties
        Corporate    CDO -           Total   Fair value      Fair value
US$ millions, as at January 31, 2014   CLO debt  USRMM   Other   Unmatched notional   before CVA  CVA  net of CVA
Financial guarantors (1)                                          
  Investment grade   $ 2,513  $ -  $ -  $  28    $  -  $  2,541    $  53  $ (9)  $  44
  Non-investment grade     44   -   -   129     -   173     16   (9)   7
  Unrated     1,618   -   -   28     -   1,646     29   (12)   17
        4,175   -   -   185     -   4,360     98   (30)   68
Other counterparties (1)                                          
  Investment grade     126   10   229   12     -   377     164   1   165
  Unrated     -   3,990   -   -     449    4,439     16   -   16
        126   4,000   229   12     449   4,816     180   1   181
    $ 4,301  $ 4,000  $ 229  $  197    $  449  $  9,176    $  278  $ (29)  $  249
October 31, 2013   $ 4,642  $ 4,271  $ 241  $  229    $  480  $  9,863    $  312  $ (37)  $  275
(1) In cases where more than one credit rating agency provides ratings and those ratings differ, we use the lowest rating.

The unrated other counterparties is primarily one Canadian conduit. The conduit is in compliance with collateral posting arrangements and has posted collateral exceeding current market exposure. The fair value of the collateral as at January 31, 2014 was US$271 million relative to US$16 million of net exposure.

Lehman Brothers bankruptcy proceedings
During 2013, we recognized a US$150 million charge (US$110 million after-tax) in respect of the full settlement of the U.S. Bankruptcy Court adversary proceeding brought by the Estate of Lehman Brothers Holdings, Inc. challenging the reduction to zero of our unfunded commitment on a variable funding note. In 2008, we recognized a US$841 million gain on the variable funding note.

Corporate and Other

Corporate and Other includes the six functional groups - Technology and Operations, Corporate Development, Finance, Treasury, Administration, and Risk Management - that support CIBC's SBUs. The expenses of these functional groups are generally allocated to the business lines within the SBUs. Corporate and Other also includes our International banking operations comprising mainly CIBC FirstCaribbean, strategic investments in the CIBC Mellon joint ventures and The Bank of N.T. Butterfield & Son Limited, and other income statement and balance sheet items not directly attributable to the business lines.

Results(1)

                    2014     2013 (2)     2013 (2)
$ millions, for the three months ended                   Jan. 31     Oct. 31       Jan. 31  
Revenue                                    
  International banking                 $ 154   $ 148     $ 163  
  Other                   43     (45)       3  
Total revenue (3)                   197     103       166  
Provision for credit losses                   7     56       14  
Non-interest expenses                   244     269       230  
Loss before taxes                    (54)     (222)       (78)  
Income taxes (3)                   (107)     (122)       (108)  
Net income (loss)                 $ 53   $ (100)     $ 30  
Net income (loss) attributable to:                                    
  Non-controlling interests                 $ 2   $ (7)     $ 2  
  Equity shareholders                   51     (93)       28  
Full-time equivalent employees                   16,030     16,145       15,704  
(1)  For additional segmented information, see the notes to the interim consolidated
financial statements.
(2)  Certain information has been restated to reflect the changes in accounting policies
stated in Note 1 to the interim consolidated financial statements and to conform to
the presentation adopted in the current period.
(3)  TEB adjusted. See footnote 3 in "Wholesale Banking" section for additional details.

Financial overview
Net Income for the quarter was $53 million, up $23 million from the same quarter last year, mainly due to higher revenue, partially offset by higher non-interest expenses.

Net Income for the quarter was $53 million, compared to net loss of $100 million in the prior quarter, mainly due to higher revenue, lower provision for credit losses and non-interest expenses.

Revenue
Revenue was up $31 million or 19% from the same quarter last year.

International banking revenue was down $9 million, primarily due to the gain on the sale of our private wealth management (Asia) business included as an item of note in the same quarter last year, partially offset by higher revenue from CIBC FirstCaribbean.

Other revenue was up $40 million, mainly due to the gain relating to the Aeroplan transactions with Aimia and TD, shown as an item of note. This was partially offset by lower treasury revenue and a higher TEB adjustment.

Revenue was up $94 million or 91% from the prior quarter.

International banking revenue was up $6 million, due to higher revenue from CIBC FirstCaribbean.

Other revenue was up $88 million, primarily due to the gain relating to the Aeroplan transactions noted above.

Provision for credit losses
Provision for credit losses was down $7 million from the same quarter last year, primarily due to a reduction in the collective allowance, including lower estimated credit losses relating to the Alberta floods, shown as an item of note. The current quarter also had higher losses in CIBC FirstCaribbean.

Provision for credit losses was down $49 million from the prior quarter, primarily due to the reduction in the collective allowance noted above. The current quarter also had lower losses in CIBC FirstCaribbean.

Non-interest expenses
Non-interest expenses were up $14 million or 6% compared with the same quarter last year, primarily due to higher expenses relating to CIBC FirstCaribbean and higher unallocated corporate support costs.

Non-interest expenses were down $25 million or 9% from the prior quarter, mainly due to a restructuring charge relating to CIBC FirstCaribbean shown as an item of note in the prior quarter, partially offset by higher unallocated corporate support costs.

Income taxes
Income tax benefit was comparable with the same quarter last year.

Income tax benefit was down $15 million from the prior quarter, primarily due to a lower loss, partially offset by a higher TEB adjustment.

Financial condition

Review of condensed consolidated balance sheet

               2014       2013 (1)
$ millions, as at             Jan. 31       Oct. 31  
Assets                        
Cash and deposits with banks           $ 6,273     $ 6,379  
Securities             71,017       71,984  
Securities borrowed or purchased under resale agreements             27,195       28,728  
Loans and acceptances, net of allowance             256,819        256,380  
Derivative instruments             24,489       19,947  
Other assets             15,162       14,588  
            $ 400,955     $  398,006  
Liabilities and equity                        
Deposits           $ 314,336     $  315,164  
Obligations related to securities lent or sold short or under repurchase agreements             20,786       20,313  
Derivative instruments             22,244       19,724  
Other liabilities             20,469       20,583  
Subordinated indebtedness             4,233       4,228  
Equity             18,887       17,994  
            $ 400,955     $  398,006  
(1) Certain information has been restated to reflect the changes in accounting policies stated in Note 1 to the interim
consolidated financial statements and to conform to the presentation adopted in the current period.

Assets
As at January 31, 2014, total assets were up $2.9 billion or 1% from October 31, 2013.

Cash and deposits with banks decreased by $106 million or 2%, mostly due to lower treasury deposit placements.

Securities decreased by $967 million or 1%, primarily due to a decrease in AFS securities, partially offset by an increase in trading securities. AFS securities decreased primarily due to lower Canadian government securities, partially offset by an increase in corporate debt securities. Trading securities increased primarily due to an increase in foreign government securities.

Securities borrowed or purchased under resale agreements decreased $1.5 billion or 5%, primarily due to treasury investment management activities.

Net loans and acceptances increased by $439 million. Residential mortgages were up $1.0 billion, primarily due to growth in CIBC-branded mortgages, partially offset by attrition in the exited FirstLine mortgage broker business. Credit card loans were down $3.3 billion, primarily due to the sale to TD. Business and government loans and acceptances were up $2.8 billion, largely due to an increase in our foreign lending portfolio.

Derivative instruments increased by $4.5 billion or 23%, largely driven by foreign exchange derivatives valuation.

Other assets increased $574 million or 4%, primarily due to the assets acquired as a result of the acquisition of Atlantic Trust.

Liabilities
As at January 31, 2014, total liabilities were up $2.1 billion or 1% from October 31, 2013.

Deposits decreased by $828 million, primarily due to lower outstanding secured borrowings, partially offset by retail volume growth. Further details on the composition of deposits are provided in Note 7 to the interim consolidated financial statements.

Obligations related to securities lent or sold short or under repurchase agreements increased $473 million or 2%, primarily due to client-driven activities.

Derivative instruments increased by $2.5 billion or 13%, largely driven by foreign exchange derivatives valuation.

Equity
As at January 31, 2014, equity increased by $893 million or 5% from October 31, 2013, primarily due to a net increase in retained earnings and accumulated other comprehensive income (AOCI).

Capital resources
We actively manage our capital to maintain a strong and efficient capital base, to maximize risk-adjusted returns to shareholders, and to meet regulatory requirements. For additional details on capital resources, see pages 29 to 36 of the 2013 Annual Report.

Regulatory capital requirements under Basel III
Our regulatory capital requirements are determined in accordance with guidelines issued by the Office of the Superintendent of Financial Institutions (OSFI) which are based upon the risk-based capital standards developed by the Basel Committee on Banking Supervision (BCBS).

OSFI mandated all institutions to have established a target CET1 ratio of 7%, comprised of the 2019 all-in minimum ratio plus a conservation buffer effective the first quarter of 2013. For the Tier 1 and Total capital ratios, the all-in capital targets are 8.5% and 10.5%, respectively, effective the first quarter of 2014. "All-in" is defined by OSFI as capital calculated to include all of the regulatory adjustments that will be required by 2019, but retaining the phase-out rules for non-qualifying capital instruments. Certain deductions from CET1 capital are phased in at 20% per year from 2014. Amounts not yet deducted from capital under OSFI's transitional rules are risk weighted, creating a difference between RWAs on a transitional and all-in basis.

A comparison of the BCBS transitional capital ratio requirements and the OSFI all-in target capital ratio requirements is as follows.

To view graph of "Transitional basis (BCBS)" and " All-in basis (OSFI)", please click http://files.newswire.ca/256/CIBCgraph1.pdf

CET1 capital includes common shares, retained earnings and AOCI (excluding AOCI relating to cash flow hedges), less regulatory adjustments for items such as goodwill and other intangible assets, deferred tax assets, assets related to defined benefit pension plans as reported on our consolidated balance sheet, and certain investments. Additional Tier 1 capital primarily includes preferred shares and innovative Tier 1 notes, and Tier 2 capital consists primarily of subordinated debentures, subject to phase-out rules for capital instruments that are non-qualifying.

OSFI has released its guidance on domestic systemically important banks (DSIBs) and the associated capital surcharge. CIBC is considered to be a DSIB in Canada along with the Bank of Montreal, the Bank of Nova Scotia, the National Bank of Canada, the Royal Bank of Canada, and TD. DSIBs will be subject to a 1% CET1 surcharge commencing January 1, 2016.

Basel leverage ratio requirement
The Basel III capital reforms included a non-risk-based capital metric, the leverage ratio, to supplement risk-based capital requirements. On January 12, 2014, the BCBS issued the full text of its leverage ratio framework which contained some modifications to its consultative document dated June 2013.

The leverage ratio is defined as the Capital Measure (Tier 1 capital) divided by the Exposure Measure. The Exposure Measure includes the sum of:

(i)    On-balance sheet assets;
(ii)    Adjustments for securities financing transaction exposures with a limited form of netting available if certain conditions are met;
(iii)    Derivative exposures as specified under the rules; and
(iv)    Other off-balance sheet exposures, such as credit commitments and direct credit substitutes, converted into credit exposure equivalents using Basel Standardized Approach credit conversion factors.

Items deducted from Tier 1 capital will be excluded from the Exposure Measure.

The BCBS requires banks to disclose their leverage ratio beginning in 2015. The document states that the BCBS will continue to test whether a minimum requirement of 3% for the leverage ratio is appropriate. Any final adjustments to the rule will be made by 2017, for implementation on January 1, 2018.

OSFI has indicated that it will issue a new leverage guideline later this year. The guideline will be effective in January 2015 and will replace the current assets-to-capital multiple (ACM) test with the Basel III leverage ratio test. Federally regulated deposit-taking institutions will be expected to have Basel III leverage ratios in excess of 3%.

Continuous enhancement to risk-based capital requirements
Last year the BCBS published a number of proposals for changes to the existing risk-based capital requirements (see page 30 of the 2013 Annual Report), and continues to do so with the objective of clarifying and increasing the capital requirements for certain business activities. In addition to the leverage ratio document discussed above, since the start of the fiscal year, the BCBS has published the following updated proposal: "Revisions to the securitisation framework - consultative document".

"Capital requirements for banks' equity investments in funds - final standard" was published in December 2013. The final revised framework applies to banks' investments in the equity of funds that are held in the banking book. The implementation date is January 1, 2017. Banks should look-through to the underlying assets of the fund in order to more properly reflect the risk of those investments. A fund's use of leverage should also be considered when determining risk-based capital requirements associated with investments in the fund. The BCBS recognizes that a full look-through approach may not always be feasible to apply, and that alternative approaches are warranted under certain circumstances.

Regulatory capital
Our capital ratios and ACM are presented in the table below:

                            2014       2013  
$ millions, as at                          Jan. 31       Oct. 31  
Transitional basis                                    
CET1 capital                       $ 16,705     $ 16,698  
Tier 1 capital                         17,851       17,830  
Total capital                         21,295       21,601  
RWA                         153,245        151,338  
CET1 ratio                         10.9 %     11.0 %
Tier 1 capital ratio                         11.6 %     11.8 %
Total capital ratio                         13.9 %     14.3 %
ACM                         18.4 x     18.0 x
All-in basis                                    
CET1 capital                       $ 13,347     $ 12,793  
Tier 1 capital                         16,189       15,888  
Total capital                         19,890       19,961  
RWA                         140,505       136,747  
CET1 ratio                         9.5 %     9.4 %
Tier 1 capital ratio                         11.5 %     11.6 %
Total capital ratio                         14.2 %     14.6 %

Capital ratios (All-in basis)
CET1 ratio increased 0.1% from October 31, 2013. CET1 capital increased due to internal capital generation (net income less dividends and shares repurchased for cancellation). This helped to offset an increase in RWAs during the quarter.

RWAs increased by $3.8 billion over the quarter, primarily driven by the impact of foreign exchange movements, commencement of the phase-in of the credit valuation capital charge and normal business growth, partially offset by the sale of the Aeroplan portfolio.

ACM
The ACM increased 0.4 times from October 31, 2013. This was due to a combination of a decrease in capital for ACM purposes along with an increase in gross assets for ACM purposes this quarter.

Significant capital management activity
Normal course issuer bid
On September 5, 2013, we announced that the Toronto Stock Exchange had accepted the notice of CIBC's intention to commence a new normal course issuer bid. Purchases under this bid commenced on September 18, 2013 and will terminate upon the earlier of (i) CIBC purchasing up to a maximum of 8 million common shares, (ii) CIBC providing a notice of termination, or (iii) September 8, 2014.

During the quarter ended January 31, 2014, we purchased and cancelled an additional 1,415,100 common shares under this bid at an average price of $89.87 for a total amount of $127 million.

Dividends
On February 26, 2014, the Board of Directors approved an increase in our quarterly common share dividend from $0.96 per share to $0.98 per share for the quarter ending April 30, 2014.

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

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

As at January 31, 2014, the underlying collateral for various asset types in our non-consolidated sponsored multi-seller conduits amounted to $2.0 billion (October 31, 2013: $2.1 billion). The estimated weighted-average life of these assets was 1.0 years (October 31, 2013: 1.1 years). Our holdings of commercial paper issued by our non-consolidated sponsored multi-seller conduits that offer commercial paper to external investors were $15 million (October 31, 2013: $9 million). Our committed backstop liquidity facilities to these conduits were $3.1 billion (October 31, 2013: $3.2 billion). We also provided credit facilities of $30 million (October 31, 2013: $30 million) to these conduits as at January 31, 2014.

We participated in a syndicated facility for a 3-year commitment of $575 million to our single-seller conduit that provides funding to franchisees of a major Canadian retailer. Our portion of the commitment was $110 million (October 31, 2013: $110 million). As at January 31, 2014, we funded $84 million (October 31, 2013: $81 million) through the issuance of bankers' acceptances.

                    2014                     2013  
$ millions, as at                 Jan. 31                     Oct. 31  
          Undrawn               Undrawn      
          liquidity   Written           liquidity   Written  
    Investment     and credit   credit     Investment     and credit   credit  
    and loans (1)   facilities   derivatives (2)   and loans (1)   facilities   derivatives (2)
CIBC-sponsored conduits $ 99     2,049    $  -      $  90      $  2,151    $  -  
CIBC-structured CDO vehicles   129       46     131       135       43     134  
Third-party structured vehicles                                          
  Structured credit run-off   3,450       202      2,892       3,456       236     2,966  
  Continuing   619       23     -       540       -     -  
Pass-through investment structures   3,087       -     -       3,090       -     -  
Commercial mortgage securitization trust   12       -     -       5       -     -  
(1) Excludes securities issued by, retained interest in, and derivatives with entities established by Canada Mortgage and Housing
Corporation (CMHC), Federal National Mortgage Association (Fannie Mae), Federal Home Loan Mortgage Corporation
(Freddie Mac), Government National Mortgage Association (Ginnie Mae), Federal Home Loan Banks, Federal Farm Credit
Bank, and Student Loan Marketing Association (Sallie Mae). $3.0 billion (October 31, 2013: $3.0 billion) of the exposures
related to CIBC-structured vehicles and third-party structured vehicles - structured credit run-off were hedged.
(2) The negative fair value recorded on the interim consolidated balance sheet was $348 million (October 31, 2013: $368 million).
Notional of $2.6 billion (October 31, 2013: $2.7 billion) was hedged with credit derivatives protection from third parties. The fair
value of these hedges net of CVA was $212 million (October 31, 2013: $213 million). An additional notional of $156 million
(October 31, 2013: $161 million) was hedged through a limited recourse note. Accumulated fair value losses were $14 million
(October 31, 2013: $15 million) on unhedged written credit derivatives. 

Additional details of our structured entities are provided in Note 6 to the interim consolidated financial statements. Details of our other off-balance sheet arrangements are provided on pages 36 and 37 of the 2013 Annual Report.

Management of risk

Our approach to management of risk, and our governance structure, have not changed significantly from that described on pages 38 to 72 of the 2013 Annual Report. Certain disclosures in this section have been shaded as they are required under IFRS 7 "Financial Instruments - Disclosures" and form an integral part of the interim consolidated financial statements.

Risk overview
Most of CIBC's business activities involve, to a varying degree, a variety of risks, and effective management of risks is fundamental to CIBC's success. Our objective is to balance the level of risk with our business objectives for growth and profitability in order to achieve consistent and sustainable performance while remaining within our risk appetite.

Our risk appetite defines tolerance levels for various risks. This is the foundation for our risk management culture, and our risk management framework. Our risk management framework includes:

  • The Board-approved risk appetite statement;
  • Risk policies, procedures and limits to align activities with our risk appetite;
  • Regular risk reports to identify and communicate risk levels;
  • An independent control framework to identify and test compliance with key controls;
  • Stress testing to consider potential impacts of changes in the business environment on capital, liquidity and earnings;
  • Proactive consideration of risk mitigation options in order to optimize results; and
  • Oversight through our risk-focused committees and governance structure.

Managing risk is a shared responsibility at CIBC. Business units and risk management professionals work in collaboration to ensure that business strategies and activities are consistent with our risk appetite. CIBC's approach to enterprise-wide risk management aligns with the three lines of defence model:

(1)    CIBC's lines of business are responsible for all risks associated with their activities - this is the first line of defence;
(2)    As the second line of defence, CIBC's risk management, compliance and other control functions are responsible for independent oversight of the enterprise-wide risks inherent in CIBC's business activities; and
(3)    As the third line of defence, CIBC's Internal Audit function provides an independent assessment of the design and operating effectiveness of risk management controls, processes and systems.

We continuously monitor our risk profile against our defined risk appetite and related limits, taking actions as needed to maintain an appropriate balance of risk and return. Monitoring our risk profile includes forward-looking analysis of sensitivity to local and global market factors, economic conditions, and political and regulatory environments that influence our overall risk profile.

Regular and transparent risk reporting and discussion at senior management committees facilitate communication of risks and discussion of risk management strategies across the organization.

Additional information on our risk governance, risk management process and risk culture are provided on pages 39 to 43 of the 2013 Annual Report.

Risk management structure
The Risk Management group, led by our Chief Risk Officer, is responsible for setting risk strategies and for providing independent oversight of the businesses. Risk Management works to identify, assess, mitigate, monitor and control the risks associated with business activities and strategies, and is responsible for providing an effective challenge to the lines of businesses.

There were changes made during the quarter to the Risk Management structure. The current structure is illustrated below.

To view the Risk Management structure please click http://files.newswire.ca/256/Risk_Management_Structure.pdf

The Risk Management group performs several important activities including:

  • Developing CIBC's risk appetite and associated management control metrics;
  • Setting risk strategy to manage risks in alignment with our risk appetite and business strategy;
  • Establishing and communicating risk policies, procedures and limits to control risks in alignment with risk strategy;
  • Measuring, monitoring and reporting on risk levels;
  • Identifying and assessing emerging and potential strategic risks; and
  • Deciding on transactions that fall outside of risk limits delegated to business lines.

The ten key groups within Risk Management, independent of the originating businesses, contribute to our management of risk:

  • Global Regulatory Affairs and Risk Control - This team provides expertise in risk, controls and regulatory reporting, and oversees regulatory interactions across CIBC to ensure coordinated communication and the effective development of and adherence to action plans.
  • Capital Markets Risk Management - This unit provides independent oversight of the measurement, monitoring and control of market risks (both trading and non-trading), and trading credit risk across CIBC's portfolios.
  • Balance Sheet, Liquidity and Pension Risk Management - This unit has primary global accountability for providing an effective challenge and sound risk oversight to the treasury/liquidity management function within CIBC.
  • Global Credit Risk Management - This unit is responsible for the adjudication and oversight of credit risks associated with our commercial and wholesale lending activities globally, management of the risks in our investment portfolios, as well as management of special loan portfolios.
  • Wealth Risk Management - This unit is responsible for the independent governance and oversight of the wealth management business/activities in CIBC globally.
  • Retail Lending Risk Management - This unit primarily oversees the management of credit and fraud risk in the retail lines of credit and loans, residential mortgage, and small business loan portfolios, including the optimization of credit portfolio quality.
  • Card Products Risk Management - This unit oversees the management of credit risk in the card products portfolio, including the optimization of credit portfolio quality.
  • Global Operational Risk Management - This team has global accountability for the identification, measurement and monitoring of all operational risks, including locations, people, insurance, technology, subsidiaries/affiliates and vendors.
  • Enterprise Risk Management - This unit is responsible for enterprise-wide analysis, including enterprise-wide stress testing and reporting, risk systems and models, as well as economic capital methodologies.
  • Special Initiatives - This unit is responsible for assisting in the design, delivery and implementation of new initiatives aligned with Risk Management's strategic plan, while enhancing internal client partnerships and efficiency.

Top and emerging risks
We monitor and review top and emerging risks that may affect our future results, and take action to mitigate potential risks if required. We perform an in-depth analysis, which can include stress testing our exposures relative to the risks, and provide updates and related developments to the Board on a regular basis. The main top and emerging risks that we consider with potential negative implications, that are material for CIBC, have not changed significantly from those described on pages 43 to 44 of the 2013 Annual Report.

Risks arising from business activities
The chart below shows our business activities and related risk measures based upon regulatory RWAs and economic capital as at January 31, 2014:

To view the chart please click http://files.newswire.ca/256/CIBC_chart_3.pdf

Credit risk
Credit risk is defined as the risk of financial loss due to a borrower or counterparty failing to meet its obligations in accordance with contractual terms.

Credit risk arises mainly from our Retail and Business Banking and our Wholesale lending businesses. Other sources of credit include our trading activities, including our over-the-counter (OTC) derivatives, debt securities, and our repo-style transaction activity. In addition to losses on the default of a borrower or counterparty, unrealized gains or losses may occur due to changes in the credit spread of the counterparty, which could impact the carrying or fair value of our asset.

Exposure to credit risk

             2014   2013
$ millions, as at           Jan. 31   Oct. 31
Business and government portfolios-advanced internal ratings-based (AIRB) approach                
Drawn         $ 83,710 $ 84,016
Undrawn commitments           38,304   35,720
Repo-style transactions           58,861   57,975
Other off-balance sheet           63,880   51,885
OTC derivatives           16,753   13,255
Gross exposure at default (EAD) on business and government portfolios            261,508    242,851
Less: repo collateral           50,544   51,613
Net EAD on business and government portfolios            210,964    191,238
Retail portfolios-AIRB approach                 
Drawn            193,067    195,796
Undrawn commitments           62,319   65,424
Other off-balance sheet           279   417
Gross EAD on retail portfolios            255,665    261,637
Standardized portfolios           11,592   10,798
Securitization exposures           16,303   16,799
Gross EAD         $  545,068 $  532,085
Net EAD         $  494,524 $  480,472

Forbearance policy
We employ forbearance techniques to manage customer relationships and to minimize credit losses due to default, foreclosure or repossession. In certain circumstances, it may be necessary to modify a loan for economic or legal reasons related to a borrower's financial difficulties and we may grant a concession in the form of below-market rates or terms that would not otherwise be considered, for the purpose of maximizing recovery of our exposure to the loan. In circumstances where the concession is considered below market, the modification is reported as a troubled debt restructuring (TDR). TDRs are subject to our normal quarterly impairment review which considers, amongst other factors, covenants and/or payment delinquencies. An appropriate level of loan loss provision by portfolio segment is then established.

In retail lending, forbearance techniques include interest capitalization, amortization amendments and debt consolidations. We have a set of eligibility criteria which allow our Client Account Management team to determine suitable remediation strategies and propose products based on each borrower's situation. These solutions are intended to increase the ability of borrowers to service their obligation by providing often more favourable conditions than those originally provided.

The solutions available to corporate and commercial clients vary based on the individual nature of the client's situation and are undertaken selectively where it has been determined that the client has or is likely to have repayment difficulties servicing its obligations. Covenants often reveal changes in the client's financial situation before there is a change in payment behaviour and typically allow for a right to reprice or accelerate payments. Solutions may be temporary in nature or may involve other special management options.

During the current quarter, $20 million ($3 million for the quarter ended January 31, 2013) of loans have undergone TDR.

Real estate secured personal lending
Real estate secured personal lending comprises residential mortgages and personal loans and lines secured by residential property (HELOC). This portfolio is low risk as we have a first charge on the majority of the properties, and second lien on only a small portion of the portfolio. We use the same lending criteria in the adjudication of both first lien and second lien loans.

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

        Residential mortgages   HELOC (1)   Total
$ billions, as at January 31, 2014     Insured (2)   Uninsured   Uninsured   Insured (2)   Uninsured
Ontario     $ 46.0       68 %   $ 21.8       32 %   $ 9.3       100 %   $   46.0       60 %   $ 31.1       40 %
British Columbia         18.8       64       10.5       36       3.9       100         18.8       57       14.4       43  
Alberta         17.0       74       6.0       26       2.8       100         17.0       66       8.8       34  
Quebec       7.7       72       3.0       28       1.4       100       7.7       63       4.4       37  
Other         11.8       76       3.7       24       1.8       100         11.8       68       5.5       32  
Total Canadian portfolio (3)     $ 101.3       69 %   $   45.0       31 %   $   19.2       100 %   $ 101.3       61 %   $   64.2       39 %
October 31, 2013     $ 102.6       71 %   $  42.9       29 %   $ 19.3       100 %   $ 102.6       62 %   $ 62.2       38 %
(1) We did not have any insured HELOCs as at January 31, 2014 and October 31, 2013.
(2) 94% (October 31, 2013: 94%) is insured by CMHC and the remaining by two private Canadian insurers, both rated at least AA (low) by DBRS.
(3) Geographical allocation is based on the address of the property managed. 

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

            2014     2013     2013  
            Jan. 31     Oct. 31     Jan. 31  
            Residential             Residential             Residential          
For the three months ended           mortgages       HELOC     mortgages       HELOC     mortgages       HELOC  
Ontario           71 %     70 %   71 %     70 %   71 %     69 %
British Columbia           66       65     67       66     67       65  
Alberta           72       71     72       70     72       69  
Quebec           72       72     72       71     72       70  
Other           74       73     73       72     73       71  
Total Canadian portfolio (2)           70 %     70 %   70 %     69 %   71 %     69 %
(1) LTV ratios for newly originated residential mortgages and HELOCs are calculated based on weighted average. 
(2) Geographical allocation is based on the address of the property managed. 

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

                            Insured   Uninsured    
January 31, 2014 (1)                           60 %   60 %
October 31, 2013 (1)                           59 %   60 %
(1) LTV ratios for residential mortgages are calculated based on weighted average. The house price
estimates for October 31, 2013 and January 31, 2014 are based on Teranet - National Bank
National Composite House Price Index (Teranet) as of September 30, 2013 and December 31,
2013, respectively. Teranet is an independent estimate of the rate of change of Canadian home
prices. The sale prices are based on the property records of public land registries. The monthly
indices cover eleven Canadian metropolitan areas which are combined to form a national
composite index.

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

Contractual payment basis
      Less than       5-10       10-15       15-20       20-25       25-30       30-35   35 years  
      5 years       years       years       years       years       years       years   and above  
As at January 31, 2014     - %     1 %     3 %     11 %     20 %     42 %     23 % - %
As at October 31, 2013     1 %     1 %     3 %     12 %     19 %     39 %     25 % - %
                                                             
Current customer payment basis
      Less than       5-10       10-15       15-20       20-25       25-30       30-35   35 years  
      5 years       years       years       years       years       years       years   and above  
As at January 31, 2014     3 %     6 %     11 %     15 %     25 %     29 %     11 % - %
As at October 31, 2013      3 %     6 %     11 %     15 %     24 %     28 %     12 % 1 %

We have two types of condominium exposures in Canada: mortgages and developer loans. Both are primarily concentrated in the Toronto and Vancouver areas. As at January 31, 2014, our Canadian condominium mortgages were $16.6 billion (October 31, 2013: $16.6 billion) of which 73% (October 31, 2013: 74%) were insured. Our drawn developer loans were $798 million (October 31, 2013: $920 million) or 1% of our business and government portfolio and our related undrawn exposure was $1.9 billion (October 31, 2013: $2.1 billion). The condominium developer exposure is diversified across 70 projects.

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

Counterparty credit exposure
We have counterparty credit exposure that arises from our interest rate, foreign exchange, equity, commodity, and credit derivatives trading, hedging, and portfolio management activities, as explained in Note 12 of the 2013 annual consolidated financial statements.

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

                            2014                 2013    
$ billions, as at                           Jan. 31                 Oct. 31    
                  Exposure (1)
Investment grade                 $     6.94   84.8 %     $     4.59   85.0 %
Non-investment grade                       1.07   13.0             0.78   14.5    
Watchlist                       0.16   1.9             0.03   0.5    
Unrated                       0.02   0.3             -      
                  $     8.19   100.0 %     $     5.40   100.0 %
(1) MTM of the OTC derivative contracts is after the impact of master netting
agreements, but before any collateral.

The following table provides details of our impaired loans, allowances and provisions for credit losses.

$ millions, as at or for the three months ended                   2014
Jan. 31
                2013
Oct. 31
                2013
Jan. 31
      Business and              Business and                Business and                
      government    Consumer          government    Consumer          government    Consumer          
    loans    loans        Total  loans      loans        Total  loans      loans         Total 
Gross impaired loans (GIL)                                                        
Balance at beginning of period   $ 843   $ 704     $ 1,547 $ 955   $ 668     $ 1,623 $ 1,128   $ 739     $ 1,867
  Classified as impaired during the period     65     352         417   62     362       424   65     376       441
  Transferred to not impaired during the period     (3)     (20)         (23)   (13)     (22)       (35)   (2)     (15)       (17)
  Net repayments     (85)     (60)       (145)   (16)     (83)       (99)   (132)     (73)         (205)
  Amounts written-off     (22)      (255)       (277)   (156)     (226)         (382)   (67)     (269)         (336)
  Recoveries of loans and advances previously written off     -     -       -   -     -       -   -     -       -
  Disposals of loans     -     -       -   -     -       -   -     -       -
  Foreign exchange and other      43     25       68   11     5       16   -     (1)       (1)
Balance at end of period   $ 841   $ 746     $ 1,587 $ 843   $ 704     $  1,547 $ 992   $ 757     $  1,749
Allowance for impairment (1)                                                        
Balance at beginning of period   $ 323   $ 224     $  547 $ 405   $ 217     $ 622 $ 492   $ 229     $ 721
  Amounts written-off     (22)      (255)       (277)   (156)     (226)         (382)   (67)     (269)         (336)
  Recoveries of amounts written-off in previous periods     5     45       50   1     44       45   3     41       44
  Charge to income statement     36     207        243   62     199       261   35     234       269
  Interest accrued on impaired loans     (6)     (3)       (9)   (4)     (5)       (9)   (6)     (3)       (9)
  Disposals of loans     -     -       -   -     -       -   -     -       -
  Foreign exchange and other      12     9       21   15     (5)       10   1     1       2
Balance at end of period   $ 348   $ 227     $  575 $ 323   $ 224     $ 547 $ 458   $ 233     $ 691
Net impaired loans                                                        
Balance at beginning of period   $ 520   $ 480     $ 1,000 $ 550   $ 451     $   1,001 $ 636   $ 510     $   1,146
  Net change in gross impaired     (2)     42       40   (112)     36       (76)   (136)     18       (118)
  Net change in allowance     (25)     (3)         (28)   82     (7)       75   34     (4)       30
Balance at end of period   $ 493   $ 519     $ 1,012 $ 520   $ 480     $  1,000 $ 534   $ 524     $  1,058
GIL less allowance for impairment as a percentage of  related assets (2)                   0.36%                 0.35%                 0.38%
(1)  Includes collective allowance relating to personal, scored small business and mortgage impaired loans that are greater than 90 days delinquent, and individual allowance.
(2)  The related assets include loans, securities borrowed or purchased under resale agreements, and acceptances. 

Impaired loans
During the quarter, $417 million of loans were newly classified as impaired. New classification as impaired was down $24 million from the same quarter last year, mainly attributable to consumer loans. New classification was down $7 million from the prior quarter, due to decrease in consumer loans, partially offset by an increase in the business and government loans.

Reductions in GIL due to transfer out of impaired loans and net repayments were $168 million. These reductions were down $54 million from the same quarter last year, due to a decrease in reduction in both business and government loans and consumer loans. They were up $34 million from the prior quarter, mainly driven by an increase in reduction in business and government loans, partially offset by a decrease in consumer loans.

The write-offs for the quarter totalled $277 million. The write-offs were down from the same quarter last year due to a decrease in both business and government loans and consumer loans. The write-offs were down $105 million from the prior quarter, primarily due to a decrease in business and government loan write-offs, partially offset by an increase in consumer loans resulting from operational changes in the processing of write-offs.

After experiencing an increase during the 2009 recession, GIL stabilized in 2011 and showed some improvements in 2012 and 2013. About half of the consumer GIL in this quarter were from Canada, in which insured mortgages accounted for the majority, and where losses are expected to be minimal. Consumer GIL in CIBC FirstCaribbean increased this quarter mainly due to continued economic pressure in the Caribbean region. GIL in business and government loans were comparable to the prior quarter, but lower than the same quarter last year due to write-offs of impaired accounts in the sectors of business services, publishing and transportation sectors, as well as U.S. real estate finance accounts originated before 2009.

Allowance for Impairment
The allowance for impairment was down $116 million or 17% from the same quarter last year. The individually assessed allowance for business and government loans decreased by $100 million or 23%, mainly driven by decreases in the real estate, construction, and transportation sectors. The decrease in the real estate and construction sectors was primarily in the U.S., and was consistent with the decrease in GIL. The decrease in the transportation sector was attributable to the write-off of an account in the U.S. in the second quarter of 2013. The individually assessed allowance for consumer loans was comparable to the same quarter last year. The collectively assessed allowance for consumer impairment was down $7 million or 3% due to a revision of estimated loss parameters on unsecured lending portfolios implemented in the third quarter of 2013, partially offset by an increase in the mortgage portfolio of CIBC FirstCaribbean. The collectively assessed allowance for business and government impairment was down $10 million, with small decreases spread across various sectors.

The allowance for impairment was $575 million, up $28 million or 5% from the prior quarter. The individually assessed allowance for business and government loans increased by $27 million or 9%, largely driven by an increase in the business services and real estate and construction sectors. Both of these movements were primarily in the Caribbean region and they were consistent with the changes in GIL. Business and government GIL decreased $40 million in the U.S., where individually assessed allowances decreased $8 million. The decrease in both GIL and the individually assessed allowance was largely driven by the U.S. real estate finance accounts originated before 2009. Both of the individually assessed allowance for consumer loans and the collectively assessed allowance for impairment were comparable to the prior quarter.

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

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

Direct exposures to certain countries and regions
Our direct exposures presented in the tables below comprise (A) funded - on-balance sheet loans (stated at amortized cost net of allowances, if any), deposits with banks (stated at amortized cost net of allowances, if any) and securities (stated at fair value); (B) unfunded - unutilized credit commitments, letters of credit, and guarantees (stated at notional amount net of allowances, if any) and sold credit default swap (CDS) contracts where we do not benefit from subordination (stated at notional amount less fair value); and (C) derivative MTM receivables (stated at fair value) and repo-style transactions (stated at fair value).

Of our total direct exposures to Europe, approximately 94% (2013: 96%) is to entities in countries with Aaa/AAA ratings from at least one of Moody's or S&P.

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

          Direct exposures
          Funded   Unfunded
                           Total                Total
                          funded              unfunded
$ millions, as at January 31, 2014        Corporate  Sovereign      Bank    (A)    Corporate      Bank    (B)
Austria       $ -  $  1    $  -  $  1    $  -    $  -  $  -
Belgium         5   -     99   104     -     -   -
Finland         1   1     2   4     313     -   313
France         49   -     1   50     177     8   185
Germany         392   92     5   489     14     -   14
Greece         -   -     -   -     -     -   -
Ireland         -   -     2   2     -     17   17
Italy         1   -     -   1     -     -   -
Luxembourg         16   -     177   193     13     -   13
Malta         -   -     -   -     -     -   -
Netherlands         10   249     109   368     -     2   2
Portugal         -   -     -   -     -     -   -
Spain         -   -     1   1     -     -   -
Total Eurozone       $ 474  $  343    $  396  $   1,213    $  517    $  27  $  544
Czech Republic         -   -     -   -     -     -   -
Denmark         -   -     28   28     -     9   9
Norway         1   142     140   283     -     -   -
Sweden         177   100     302   579     40     -   40
Switzerland         259   -     362   621     207     -   207
Turkey         -   -     96   96     -     12   12
United Kingdom         667   374     338   1,379     2,096 (1)   196   2,292
Total non-Eurozone       $  1,104  $  616    $  1,266  $  2,986    $  2,343    $  217  $  2,560
Total Europe       $ 1,578  $  959    $  1,662  $  4,199    $  2,860    $  244  $   3,104
October 31, 2013       $ 1,610  $  815    $  1,548  $  3,973    $  1,910    $  220  $  2,130
(1) Includes $188 million of exposure (notional value of $215 million and fair value of $27 million) on a CDS sold on a
bond issue of a U.K. corporate entity, which is guaranteed by a financial guarantor. We currently hold the CDS sold
as part of our structured credit run-off business. A payout on the CDS sold would be triggered by the bankruptcy
of the reference entity, or a failure of the entity to make a principal or interest payment as it is due; as well as
failure of the financial guarantor to meet its obligation under the guarantee.
      Direct exposures (continued)
      Derivative MTM receivables and repo-style transactions    Total
                                 Net    direct
                       Gross      Collateral      exposure  exposure
$ millions, as at January 31, 2014      Corporate  Sovereign      Bank    exposure (1)    held (2)      (C)  (A)+(B)+(C)
Austria     $ -  $  -    $  1    $  1      $  -      $  1  $  2
Belgium       -   1     1     2       -       2   106
Finland       -   -     5     5       -       5   322
France       3   -     11     14       -       14   249
Germany       -   12     230     242       1       241   744
Greece       -   -     -     -       -       -   -
Ireland       -   -     1     1       -       1   20
Italy       -   -     5     5       -       5   6
Luxembourg       -   -     3     3       -       3   209
Malta       -   2     -     2       -       2   2
Netherlands       -   -     12     12       -       12   382
Portugal       -   -     -     -       -       -   -
Spain       -   -     -     -       -       -   1
Total Eurozone     $ 3  $  15    $  269    $  287      $  1      $  286  $  2,043
Czech Republic       -   -     55     55       55       -   -
Denmark       -   -     3     3       3       -   37
Norway       -   109     -     109       109       -   283
Sweden       1   -     36     37       36       1   620
Switzerland       -   18     815     833       804       29   857
Turkey       -   -     -     -       -       -   108
United Kingdom       218   2      4,077      4,297        4,004       293   3,964
Total non-Eurozone     $ 219  $  129    $   4,986    $   5,334      $    5,011      $  323  $  5,869
Total Europe     $ 222  $  144    $   5,255    $    5,621      $    5,012      $  609  $  7,912
October 31, 2013     $ 177  $  317    $  5,336    $  5,830      $  5,346      $  484  $  6,587
(1) The amounts are shown net of CVA. 
(2) Collateral on derivative MTM receivables was $1.0 billion (October 31, 2013: $1.4 billion), collateral on repo-style transactions
was $4.0 billion (October 31, 2013: $4.0 billion), and both are comprised of cash and investment-grade debt securities. 

Indirect exposures to certain countries and regions
Our indirect exposures comprise securities (primarily CLOs classified as loans on our consolidated balance sheet), and written credit protection on securities in our structured credit run-off business where we benefit from subordination to our position. Our gross exposure before subordination is stated at carrying value for securities and notional, less fair value for derivatives where we have written protection. We have no indirect exposures to Portugal, Turkey, Guernsey, or Russia.

                         Total
                         indirect
$ millions, as at January 31, 2014                        exposure
Austria                     $ -
Belgium                       40
Finland                       21
France                       403
Germany                       279
Greece                       11
Ireland                       20
Italy                       70
Luxembourg                       80
Malta                       -
Netherlands                       252
Portugal                       -
Spain                       147
Total Eurozone                     $ 1,323
Denmark                     $ 25
Norway                       14
Sweden                       59
Switzerland                       8
United Kingdom                       390
Total non-Eurozone                     $ 496
Total exposure                     $ 1,819
October 31, 2013                     $ 1,888

In addition to the indirect exposures above, we have indirect exposures to European counterparties when we have taken debt or equity securities issued by European entities as collateral for our securities lending and borrowing activity, from entities that are not in Europe. Our indirect exposure was $156 million (October 31, 2013: $211 million).

Selected exposures in certain selected activities
In response to the recommendations of the Financial Stability Board, this section provides information on our other selected activities within our continuing and exited businesses that may be of particular interest to investors based on their risk characteristics and the current market environment. For additional information on these selected exposures, refer to pages 57 to 58 of the 2013 Annual Report.

U.S. real estate finance
The following table provides a summary of our positions in this business:

$ millions, as at January 31, 2014                   Drawn         Undrawn
Construction program                 $ 158       $ 58
Interim program                   5,983         408
Permanent program                   226         -
Exposure, net of allowance                 $ 6,367       $ 466
Of the above:                              
  Net impaired                 $ 103       $ -
  On credit watch list                   168         2
Exposure, net of allowance, as at October 31, 2013                 $ 5,938       $ 467

As at January 31, 2014, the allowance for credit losses for this portfolio was $48 million (October 31, 2013: $55 million). During the quarter ended January 31, 2014, we recorded provision for credit losses of $3 million ($9 million for the quarter ended January 31, 2013).

The business also maintains commercial mortgage-backed securities (CMBS) trading and distribution capabilities. As at January 31, 2014, we had CMBS inventory with a notional amount of $9 million and a fair value of less than $1 million (October 31, 2013: notional of $9 million and fair value of less than $1 million).

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

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

$ millions, as at January 31, 2014                 Drawn         Undrawn
Manufacturing - capital goods               $ 199       $ 8
Publishing, printing and broadcasting                 5         -
Utilities                 10         -
Transportation                 4         1
Exposure, net of allowance               $ 218       $ 9
Of the above:                            
  Net impaired               $ 5       $ -
  On credit watch list                 175         8
Exposure, net of allowance, as at October 31, 2013 (1)               $ 359       $ 28
(1) Excludes $21 million of carrying value relating to equity received pursuant to a
reorganization. We sold this equity investment during the quarter. See "Overview"
section for additional information.

Our exposure declined primarily due to loan repayments in the current quarter. These repayments occurred in conjunction with our sale of an equity investment in the borrower that we had previously received pursuant to an earlier reorganization. See "Overview" section for additional information.

As at January 31, 2014, the allowance for credit losses for this portfolio was $37 million (October 31, 2013: $35 million). During the quarter ended January 31, 2014, the provision for credit losses was nil (nil for the quarter ended January 31, 2013).

U.S. leveraged finance
The following table provides a summary of our positions in this business:

$ millions, as at January 31, 2014                   Drawn         Undrawn
Transportation                 $ 38       $ -
Publishing, printing and broadcasting                   8         -
Exposure, net of allowance                 $ 46       $ -
Of the above:                              
  Net impaired                 $ 38       $ -
  On credit watch list                   8         -
Exposure, net of allowance, as at October 31, 2013                 $ 44       $ 4

As at January 31, 2014, the allowance for credit losses for this portfolio was $2 million (October 31, 2013: $2 million). During the quarter ended January 31, 2014, the provision for credit losses was nil (net reversal of $1 million for the quarter ended January 31, 2013).

Market risk
Market risk arises from positions in currencies, securities and derivatives held in our trading portfolios, and from our retail banking business, investment portfolios, and other non-trading activities. Market risk is defined as the potential for financial loss from adverse changes in underlying market factors, including interest and foreign exchange rates, credit spreads, and equity and commodity prices.

Risk measurement
The following table provides balances on the consolidated balance sheet which are subject to market risk. Certain differences between accounting and risk classifications are detailed in the footnotes below:

                          2014                         2013    
$ millions, as at                        Jan. 31                           Oct. 31 (1)  
          Subject to market risk               Subject to market risk          
    Consolidated                 Not   Consolidated                   Not   Non-traded risk
    balance           Non-   subject to   balance             Non-   subject to   primary risk
  sheet     Trading       trading   market risk   sheet     Trading       trading   market risk   sensitivity
Cash and non-interest-bearing deposits with banks $ 2,239   $ -   $ 1,279   $ 960   $ 2,211   $ -     $ 1,165   $ 1,046   Foreign exchange
Interest-bearing deposits with banks   4,034     51       3,983     -     4,168     111       4,057     -   Interest rate
Securities     71,017     44,386 (2)    26,631     -     71,984      43,160 (2)     28,824     -   Equity, interest rate
Cash collateral on securities borrowed   3,050     -       3,050     -     3,417     -       3,417     -   Interest rate
Securities purchased under resale                                                    
  agreements    24,145     -      24,145     -     25,311     -       25,311     -   Interest rate
Loans                                                          
  Residential mortgages   151,934     -     151,934     -     150,938     -      150,938       -   Interest rate
  Personal     34,363     -     34,363     -     34,441     -       34,441       -   Interest rate
  Credit card     11,434     -      11,434     -     14,772     -       14,772       -   Interest rate
  Business and government    50,256     1,830 (3)   48,426     -     48,207     2,148 (3)     46,059       -   Interest rate
  Allowance for credit losses     (1,620)     -      (1,620)     -     (1,698)     -       (1,698)       -   Interest rate
Derivative instruments    24,489      21,377 (4)   3,112     -     19,947      17,626 (4)   2,321       -   Interest rate,
                                                          foreign exchange
Customers' liability under acceptances    10,452     -      10,452     -     9,720     -       9,720     -   Interest rate
Other assets     15,162     1,116       6,963       7,083     14,588     1,226       6,537       6,825   Interest rate, equity,
                                                      foreign exchange
    $ 400,955   $ 68,760     $ 324,152   $   8,043   $ 398,006   $  64,271     $ 325,864   $ 7,871    
Deposits $ 314,336   $ 397 (5) $ 279,839   $  34,100   $ 315,164   $ 388 (5) $  281,027   $ 33,749   Interest rate
Obligations related to securities                                                     
  sold short     13,214      12,870     344     -     13,327       13,144       183     -   Interest rate
Cash collateral on securities lent   1,176     -     1,176     -     2,099     -       2,099     -   Interest rate
Obligations related to securities sold                                                    Interest rate
  under repurchase agreements   6,396     -       6,396     -     4,887     -       4,887     -   Interest rate
Derivative instruments    22,244      20,196 (4)     2,048     -     19,724      18,220 (4)   1,504     -   Interest rate,
                                                    foreign exchange
Acceptances    10,452     -      10,452     -     9,721     -       9,721     -   Interest rate
Other liabilities     10,017     593     4,190       5,234     10,862     872       4,143     5,847   Interest rate
Subordinated indebtedness   4,233     -       4,233     -     4,228     -       4,228     -   Interest rate
    $ 382,068   $ 34,056     $ 308,678   $ 39,334   $ 380,012   $ 32,624     $ 307,792   $ 39,596    
(1) Certain information has been restated to reflect the changes in accounting policies stated in Note 1 to the interim consolidated financial statements and to conform to the
presentation adopted in the current period.
(2) Excludes structured credit run-off business of $861 million (October 31, 2013: $837 million). These are considered non-trading for market risk purposes.
(3) Excludes $228 million (October 31, 2013: $63 million) of loans that are warehoused for future securitization purposes. These are considered non-trading for market risk
purposes.
(4) Excludes derivatives relating to the structured credit and other run-off businesses which are considered non-trading for market risk purposes.
(5) Comprises FVO deposits which are considered trading for market risk purposes.

Trading activities
The following three tables show value at risk (VaR), stressed VaR and incremental risk charge for our trading activities based on risk type under an internal models-based approach.

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

Average total VaR for the three months ended January 31, 2014 was up 2% from the last quarter, driven mainly by an increase in our equity and debt specific risks, partially offset by a decrease in interest rate and credit spread risks.

Average total stressed VaR for the three months ended January 31, 2014 was up 115% from the last quarter. During the current stressed VaR period from January 7, 2008 to January 6, 2009, the market exhibited not only increased volatility in interest rate but also increased volatility in equity price combined with a reduction in the level of interest rates, and an increase in credit spreads.

Average incremental risk charge for the three months ended January 31, 2014 was up 4% from the last quarter, mainly due to an increase in the investment grade trading inventory.

VaR by risk type - trading portfolio

                                 2014              2013              2013
$ millions, as at or for the three months ended                                Jan. 31              Oct. 31              Jan. 31
           High        Low        As at     Average        As at      Average        As at      Average
Interest rate risk     $   2.8   $   0.7   $   1.6   $ 1.2   $   1.2   $ 2.0   $   3.7   $ 3.0
Credit spread risk         1.4       0.9       1.2     1.1       1.2     1.3       1.8     1.7
Equity risk         9.1       1.8       1.9     2.6       1.9     2.0       2.2     2.2
Foreign exchange risk         0.8       0.4       0.6     0.6       0.5     0.6       1.3     0.5
Commodity risk         1.7       0.6       0.9     0.9       0.6     0.9       0.8     1.0
Debt specific risk         3.5       1.9       3.0     2.5       2.5     2.3       2.4     2.6
Diversification effect (1)          n/m        n/m       (4.9)     (4.5)       (4.3)     (4.8)       (7.3)     (6.0)
Total VaR (one-day measure)     $   9.7   $   3.3   $   4.3   $ 4.4   $   3.6   $ 4.3   $   4.9   $ 5.0
(1) Total VaR is less than the sum of the VaR of the different market risk types due to risk offsets resulting from portfolio diversification effect.
n/m Not meaningful. It is not meaningful to compute a diversification effect because the high and low may occur on different days for different risk types.

Stressed VaR by risk type - trading portfolio

                                 2014              2013              2013
$ millions, as at or for the three months ended                                Jan. 31              Oct. 31              Jan. 31
          High        Low       As at     Average        As at     Average        As at     Average
Interest rate risk     $   18.0   $   0.5   $   18.0   $ 7.1   $   3.9   $ 5.1   $   8.9   $ 9.5
Credit spread risk         9.0       1.3       7.1     6.8       4.9     4.7       6.0     5.1
Equity risk         21.3       0.9       1.1     4.8       1.9     2.5       1.3     3.1
Foreign exchange risk         3.8       0.4       0.7     1.0       0.7     0.6       1.9     1.7
Commodity risk         14.7       0.3       1.2     3.0       0.8     1.2       0.4     1.3
Debt specific risk         4.0       0.7       3.0     2.2       1.7     1.3       1.4     1.5
Diversification effect (1)          n/m        n/m       (15.3)       (14.8)       (10.5)     (10.7)       (9.4)     (10.4)
Total stressed VaR (one-day measure)     $   18.1   $   3.1   $   15.8   $ 10.1   $   3.4   $ 4.7   $   10.5   $ 11.8
(1) Total stressed VaR is less than the sum of the VaR of the different market risk types due to risk offsets resulting from portfolio diversification effect.
n/m  Not meaningful. It is not meaningful to compute a diversification effect because the high and low may occur on different days for different risk types.

Incremental risk charge - trading portfolio

                                   2014              2013              2013
$ millions, as at or for the three months ended                                  Jan. 31              Oct. 31              Jan. 31
             High        Low        As at     Average        As at      Average        As at      Average
Default risk       $    117.0   $   71.1   $    86.6   $ 86.5   $   102.9   $ 81.0   $   36.0   $ 51.7
Migration risk            58.5         30.1         51.3     43.9       45.4     44.4       40.4     41.9
Incremental risk charge (one-year measure)       $   170.2   $   105.0   $   137.9   $   130.4   $   148.3   $ 125.4   $   76.4   $ 93.6

Trading revenue
The trading revenue (TEB) and VaR graph below shows the current quarter and the three previous quarters' actual daily trading revenue (TEB) against the previous day close of business VaR measures. Trading revenue distribution on which VaR is calculated is not on a TEB basis.

During the quarter, trading revenue (TEB) was positive for 98% of the days. Trading loss did not exceed VaR during the quarter. During the quarter, the largest loss totalling $1.7 million occurred on January 24, 2014. The loss was driven by a sharp increase in commodity prices. The largest gain of $15.7 million occurred on January 23, 2014. It was attributable to the normal course of business within our capital markets group, notably in the equity derivatives business. Average daily trading revenue (TEB) was $4.2 million during the quarter and the average daily TEB was $1.7 million.

Trading revenue (TEB)(1) versus VaR

To view the "Trading revenue (TEB)(1) versus VaR" graph, please click http://files.newswire.ca/256/TradngRevenueTEB.pdf

(1) Certain fair value adjustments such as OIS are recorded only at month end but allocated throughout the month for the table above.

Non-trading activities
Interest rate risk
Non-trading interest rate risk consists primarily of risk inherent in asset/liability management activities and the activities of domestic and foreign subsidiaries. Interest rate risk results from differences in the maturities or repricing dates of assets and liabilities, both on- and off-balance sheet, as well as from embedded optionality in retail products. This optionality arises predominantly from the prepayment exposures of mortgage products, mortgage commitments and some GIC products with early redemption features; this optionality is measured consistent with our actual experience. A variety of cash instruments and derivatives, principally interest rate swaps, futures and options, are used to manage and control these risks.

The following table shows the potential impact over the next 12 months, adjusted for structural assumptions (excluding shareholders' equity), estimated prepayments and early withdrawals, of an immediate 100 and 200 basis point increase or decrease in interest rates. In addition, we have a floor in place in the downward shock to accommodate for the current low interest rate environment (i.e. the analysis uses the floor to stop interest rates from going into a negative position in the lower rate scenarios).

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

                       2014                  2013                  2013
$ millions, as at                    Jan. 31                  Oct. 31                  Jan. 31
           C$      US$      Other      C$      US$      Other      C$      US$      Other
100 basis points increase in interest rates                                                        
Increase (decrease) in net income                                                         
  attributable to equity shareholders     $  150   $ (1)   $ 5   $ 167   $ 1   $ 4   $ 109   $ (14)   $ 3
Increase (decrease) in present value of                                                        
  shareholders' equity        (4)     (141)       (41)     28     (155)     (38)     (35)     (145)     (42)
100 basis points decrease in interest rates                                                        
Increase (decrease) in net income                                                        
  attributable to equity shareholders       (216)     -     (4)       (235)     -     (3)     (169)     7     (2)
Increase (decrease) in present value of                                                        
  shareholders' equity          (16)       114     42     (191)     126     40     (58)     110     43
200 basis points increase in interest rates                                                        
Increase (decrease) in net income                                                        
  attributable to equity shareholders     $  279   $ (1)   $ 10   $ 314   $ 2   $ 8   $ 202   $ (28)   $ 7
Increase (decrease) in present value of                                                        
  shareholders' equity         (37)     (282)       (81)     10     (310)     (77)     (122)       (290)     (84)
200 basis points decrease in interest rates                                                        
Increase (decrease) in net income                                                        
  attributable to equity shareholders       (424)     (8)     (7)       (460)     (5)     (6)       (330)     1     (5)
Increase (decrease) in present value of                                                        
  shareholders' equity       (140)      155     64     (513)     184     62       (268)     137     68

Liquidity risk
Liquidity risk is the risk of having insufficient cash resources to meet financial obligations as they fall due, in their full amount and stipulated currencies, without raising funds at adverse rates or selling assets on a forced basis.

Our liquidity risk management strategies seek to maintain sufficient liquid financial resources and diversified funding sources to continually fund our balance sheet and contingent obligations under both normal and stressed market environments.

Liquid and encumbered assets
Our policy is to hold a pool of high quality unencumbered liquid assets that will be immediately available to meet outflows determined under the stress scenario. Liquid assets are cash, short-term bank deposits, high quality marketable securities and other assets that can be readily pledged at central banks and in repo markets or converted into cash in a timely fashion. Encumbered assets comprise assets pledged as collateral and other assets that we consider restricted for legal or other reasons. Unencumbered assets comprise assets that are readily available in the normal course of business to secure funding or meet collateral needs and other assets that are not subject to any restrictions on their use to secure funding or as collateral.

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

                                    2014     2013  
$ millions, as at                            Jan. 31     Oct. 31 (1)
      Gross liquid assets     Encumbered liquid assets (2)     Unencumbered liquid assets
      CIBC owned assets     Third-party assets     CIBC owned assets   Third-party assets                  
Cash and deposits with banks     $ 6,272 (3)   $ -     $ 379   $ -     $ 5,893     $ 5,527  
Securities       69,354 (4)     54,106 (5)     16,035     32,915        74,510       77,368  
NHA mortgage-backed securities       57,861 (6)     -       30,541     -       27,320       22,671  
Mortgages       11,433 (7)     -       11,433     -       -       -  
Credit cards       4,713 (8)     -       4,713     -       -       -  
Other assets       2,928 (9)     -       2,546     -       382       334  
      $ 152,561       $ 54,106     $ 65,647   $ 32,915     $ 108,105     $ 105,900  
(1) Certain information has been restated to reflect the changes in accounting policies stated in Note 1 to the interim consolidated financial statements and to
conform to the presentation adopted in the current period.
(2) Excludes intraday pledges to the Bank of Canada related to the Large Value Transfer System as these are normally released at the end of the settlement
cycle each day. 
(3) Comprises cash, non-interest bearing deposits and interest-bearing deposits with contractual maturities of less than 30 days.
(4) Comprises trading, AFS and FVO securities. Excludes securities in our structured credit run-off business, private debt and private equity securities of
$1,663 million (October 31, 2013: $1,621 million). 
(5) Comprises $3,050 million (October 31, 2013: $3,417 million) of cash collateral on securities borrowed, $24,145 million (October 31, 2013: $25,311 million)
of securities purchased under resale agreements, $25,200 million (October 31, 2013: $24,157 million) of securities borrowed against securities lent, and
$1,711 million (October 31, 2013: $759 million) of securities received for derivative collateral.
(6) Includes securitized and transferred residential mortgages under the Canada Mortgage Bond and the Government of Canada's Insured Mortgage Purchase
programs, and securitized mortgages that were not transferred to external parties including those in the Covered Bond Programme. These are reported
in Loans on our interim consolidated balance sheet.
(7) Comprises mortgages, excluding NHA mortgage-backed securities, included in the Covered Bond Programme.
(8) Comprises assets held in consolidated trusts supporting funding liabilities. 
(9) Comprises $2,546 million (October 31, 2013: $2,727 million) of cash pledged for derivatives collateral and $382 million (October 31, 2013: $334 million)
of gold and silver certificates.

In the course of our regular business activities, a portion of our total assets are pledged for collateral management purposes, including those necessary for day-to-day clearing and settlement of payments and securities. For additional details, see Note 22 to the 2013 annual consolidated financial statements.

Our unencumbered liquid assets increased by $2.2 billion or 2% from October 31, 2013, primarily due to a decrease in the encumbrances related to NHA mortgage-backed securities, partially offset by an increase in the encumbrances related to securities.

In addition to the above, we have access to the Bank of Canada Emergency Lending Assistance (ELA) program through the pledging of non-mortgage assets. We do not include ELA borrowing capacity as a source of available liquidity when evaluating surplus liquidity.

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

                                 
                       2014        2013  
$ millions, as at                      Jan. 31        Oct. 31 (1)
CIBC parent bank                   $ 80,264     $ 78,761  
Broker/dealer (2)                     15,074       15,049  
Other significant subsidiaries                     12,767       12,090  
                    $ 108,105     $ 105,900  
(1) Certain information has been restated to reflect the changes in
accounting policies stated in Note 1 to the interim consolidated
financial statements and to conform to the presentation adopted
in the current period.
(2) Relates to CIBC World Markets Inc. and CIBC World Markets Corp.

Asset encumbrance
The following table provides a summary of our total encumbered and unencumbered assets:

                                  Encumbered   Unencumbered
                CIBC owned    Third-party          Pledged as            Available as        
$ millions, as at  assets    assets    Total assets    collateral       Other    collateral       Other
Jan. 31     Cash and deposits with banks $   6,273   $ -   $   6,273   $ 12   $   367   $ 5,894 (1)   $ -
2014     Securities     71,017     -       71,017       16,035       -       53,319       1,663
          Securities borrowed or purchased under                                            
            resale agreements   -      27,195      27,195       13,940       -       13,255       -
          Loans   246,367     -     246,367      46,687       350       27,320       172,010
          Other                                             
            Derivative instruments   24,489     -     24,489     -       -     -         24,489
            Customers' liability under acceptances    10,452     -      10,452     -       -     -         10,452
            Land, building and equipment   1,795     -     1,795     -       -     -       1,795
            Goodwill   1,870     -     1,870     -       -     -       1,870
            Software and other intangible assets   881     -     881     -       -     -       881
            Investments in equity-accounted                                             
              associates and joint ventures   1,715     -     1,715     -       -     -       1,715
            Other assets   8,901     -     8,901     2,546       -     382       5,973
                $ 373,760   $  27,195   $ 400,955   $  79,220   $   717   $  100,170     $ 220,848
Oct. 31       Cash and deposits with banks $ 6,379   $  -   $ 6,379   $ 11   $   771   $ 5,597 (1)   $  -
2013 (2)   Securities   71,984      -     71,984     14,103        -     56,260       1,621
          Securities borrowed or purchased under                                            
            resale agreements    -     28,728     28,728     17,166        -     11,562        -
          Loans   246,660      -     246,660     50,107       422     22,671       173,460
          Other                                             
            Derivative instruments   19,947      -     19,947      -        -      -       19,947
            Customers' liability under acceptances   9,720      -     9,720      -        -      -       9,720
            Land, building and equipment   1,719      -     1,719      -        -      -       1,719
            Goodwill   1,733      -     1,733      -        -      -       1,733
            Software and other intangible assets   756      -     756      -        -      -       756
            Investments in equity-accounted associates                                             
              and joint ventures   1,695      -     1,695      -        -      -       1,695
            Other assets   8,685      -     8,685     2,727        -     334       5,624
                $ 369,278   $ 28,728   $ 398,006   $ 84,114   $   1,193   $ 96,424     $ 216,275
(1) Includes $1 million (October 31, 2013: $70 million) of interest-bearing deposits with contractual maturities greater than 30 days.
(2) Certain information has been restated to reflect the changes in accounting policies stated in Note 1 to the interim consolidated financial statements and to conform to the presentation adopted in the current period.

Funding
We manage liquidity to meet both short- and long-term cash requirements. Reliance on wholesale funding is maintained at prudent levels and within approved limits, consistent with our desired liquidity profile.

Our funding strategy includes access to funding through retail deposits and wholesale funding and deposits.  Personal deposits are a significant source of funding and totalled $127.3 billion as at January 31, 2014 (October 31, 2013: $125.0 billion).

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

      Less than     1 - 3     3 - 6     6 - 12   Less than     1 - 2     Over      
$ millions, as at January 31, 2014     1 month     months     months     months   1 year total     years     2 years     Total
Deposits from banks   $ 3,069   $ 1,637   $ 116   $ -   $ 4,822   $ -   $ -   $ 4,822
Certificates of deposit and commercial paper     2,540     2,682     2,108     2,584     9,914     5,935     5,962     21,811
Bearer deposit notes and bankers acceptances     3,832     428     837     558     5,655     -     -     5,655
Asset-backed commercial paper     -     -     -     -     -     -     -     -
Senior unsecured medium-term notes     10     432     2,240     2,912     5,594     10,123     13,281       28,998
Senior unsecured structured notes     -     287     23     289     599     14     -     613
Covered bonds/Asset-backed securities                                                
  Mortgage securitization     -     1,818     -     3,716     5,534     3,045     19,554     28,133
  Covered bonds     -     -     -     5,743     5,743     4,444     3,348     13,535
  Cards securitization     -     351     -     1,114     1,465     1,541     1,707     4,713
Subordinated liabilities     -     -     -     258     258     -     3,975     4,233
Other     -     -     -     -     -     -     -     -
    $ 9,451   $ 7,635   $ 5,324   $   17,174   $   39,584   $ 25,102   $   47,827   $ 112,513
Of which:                                                
  Secured   $ -   $ 2,169   $ -   $  10,573   $ 12,742   $ 9,030   $   24,609   $ 46,381
  Unsecured     9,451     5,466     5,324     6,601       26,842     16,072     23,218     66,132
    $ 9,451   $ 7,635   $ 5,324   $   17,174   $   39,584   $ 25,102   $   47,827   $ 112,513
October 31, 2013   $ 11,705   $ 9,081   $ 9,316   $ 15,126   $ 45,228   $ 20,419   $ 55,271   $ 120,918

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

                         2014            2013  
$ billions, as at                         Jan. 31            Oct. 31  
CAD                     $   63.1       56 %       $   69.2       57 %
USD                         42.3       38             44.2       37  
EUR                         1.3       1             1.3       1  
Other                          5.8       5             6.2       5  
                      $   112.5       100 %       $   120.9       100 %

Our funding and liquidity levels remained stable and sound over the year and we do not anticipate any events, commitments or demands that will materially impact our liquidity risk position.

Impact on collateral if there is a downgrade of CIBC's credit rating
We are required to deliver collateral to certain derivative counterparties in the event of a downgrade to our current credit risk rating. The collateral requirement is based on MTM exposure, collateral valuations, and collateral arrangement thresholds as applicable. The following table presents the additional collateral requirements (cumulative) for rating downgrades:

                       2014          2013 
$ billions, as at                       Jan. 31          Oct. 31 
One-notch downgrade                   $ 0.1       $ 0.1
Two-notch downgrade                     0.3         0.3
Three-notch downgrade                     0.7         0.9

Liquidity Coverage Ratio Disclosure Standards
In January 2014, the BCBS published the Liquidity Coverage Ratio (LCR) Disclosure Standards. The document outlines the minimum standards applicable for public disclosure of the LCR by all internationally active banks. Banks will be required to disclose quantitative information about the LCR using a common template, supplemented by qualitative discussion, as appropriate, on key elements of the liquidity metric. These standards are effective for the first reporting period after January 1, 2015. OSFI has indicated that additional implementation guidance, applicable to Canadian banks, will be provided in due course. We are currently updating processes and systems to meet the stipulated timeline and requirements.

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

Assets and liabilities

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

                                                         No      
        Less than     1 - 3     3 - 6     6 - 9     9 - 12     1 - 2     2 - 5     Over     specified      
$ millions, as at January 31, 2014     1 month     months     months     months     months     years     years     5 years     maturity     Total
Assets                                                            
Cash and non-interest bearing deposits with banks   $  2,239   $ -   $ -   $ -   $ -   $ -   $ -   $ -   $ -   $ 2,239
Interest bearing deposits with banks      4,033     -     1     -     -     -     -     -     -     4,034
Securities      2,052      3,294       1,557     707     779      4,396     14,219     12,165     31,848     71,017
Cash collateral on securities borrowed      3,050     -     -     -     -     -     -     -     -     3,050
Securities purchased under resale agreements     14,413      6,680       2,010     628     414     -     -     -     -     24,145
Loans                                                            
  Residential mortgages     199      3,424      6,684      4,836       4,819     34,759     90,954      6,259     -     151,934
  Personal       1,533     618     861     938     984     80     183     669     28,497       34,363
  Credit card     229     457     686     686     686      2,744      5,946     -     -     11,434
  Business and government      4,928       1,359       2,601       2,441       2,192      4,666     15,270     16,799     -       50,256
  Allowance for credit losses     -     -     -     -     -     -     -     -      (1,620)     (1,620)
Derivative instruments       6,611       1,331     944     645     855       3,173      5,362      5,568     -       24,489
Customers' liability under acceptances        8,518       1,934     -     -     -     -     -     -     -     10,452
Other assets     -     -     -     -     -     -     -     -      15,162     15,162
      $ 47,805   $ 19,097   $ 15,344   $ 10,881   $ 10,729   $ 49,818   $ 131,934   $ 41,460   $ 73,887   $ 400,955
October 31, 2013 (1)   $ 43,037   $ 16,420   $ 10,578   $ 14,461   $ 11,500   $ 44,524   $   140,137   $ 44,355   $ 72,994   $ 398,006
Liabilities                                                            
Deposits (2)   $ 20,067   $ 12,296   $ 14,665   $  17,181   $ 15,788   $ 33,788   $ 46,982   $ 13,571   $ 139,998   $  314,336
Obligations related to securities sold short     13,214     -     -     -     -     -     -     -     -     13,214
Cash collateral on securities lent       1,176     -     -     -     -     -     -     -     -     1,176
Obligations related to securities sold                                                            
  under repurchase agreements       5,941     455     -     -     -     -     -     -     -     6,396
Derivative instruments      6,369       1,129     748     453     589      2,879       5,158       4,919     -       22,244
Acceptances       8,518       1,934     -     -     -     -     -     -     -     10,452
Other liabilities     -     -     -     -     -     -     -     -      10,017     10,017
Subordinated indebtedness     -     -     -     258     -     -     32      3,943     -     4,233
    $ 55,285   $ 15,814   $ 15,413   $ 17,892   $ 16,377   $ 36,667   $ 52,172   $ 22,433   $ 150,015   $ 382,068
October 31, 2013 (1)   $ 50,494   $ 15,659   $ 19,347   $ 13,414   $ 18,836   $ 31,600   $ 55,290   $ 28,371   $ 147,001   $ 380,012
(1) Certain information has been restated to reflect the changes in accounting policies stated in Note 1 to the interim consolidated financial statements and to conform to the
presentation adopted in the current period.
(2) Comprises $127.3 billion (October 31, 2013: $125.0 billion) of personal deposits of which $122.9 billion (October 31, 2013: $120.4 billion) are in Canada and $4.4 billion
(October 31, 2013: $4.6 billion) in other countries; $181.3 billion (October 31, 2013: $182.9 billion) of business and government deposits of which $144.6 billion
(October 31, 2013: $149.0 billion) are in Canada and $36.7 billion (October 31, 2013: $33.9 billion) in other countries; and $5.7 billion (October 31, 2013: $5.6 billion)
of bank deposits of which $1.9 billion (October 31, 2013: $2.0 billion) are in Canada and $3.8 billion (October 31, 2013: $3.6 billion) in other countries.

Our net asset position remained unchanged relative to October 31, 2013. The changes in the contractual maturity profile were primarily due to the natural migration of maturities and also reflect the impact of our regular business activities.

Credit-related commitments
The following table provides the contractual maturity of notional amounts of credit-related commitments. Since a significant portion of commitments are expected to expire without being drawn upon, the total of the contractual amounts is not representative of future liquidity requirements.

                                         No          
       Less than  1 - 3   3 - 6   6 - 9   9 - 12   1 - 2   2 - 5   Over     specified           
$ millions, as at January 31, 2014    1 month   months   months   months   months   years   years   5 years     maturity  (1)    Total   
Securities lending (2)    $    25,200 $ - $ - $ - $ - $ - $ - $ - $ -     $ 25,200  
Unutilized credit commitments      1,158     3,503   1,142   1,199   978     4,853     28,653   1,510     109,854         152,850  
Backstop liquidity facilities     -   396   -   303     3,059   -   -   -   -       3,758  
Standby and performance                                                 
  letters of credit     928   1,279     1,874   1,380     2,339   455   977   335   -       9,567  
Documentary and commercial                                                 
  letters of credit     84   201   26   -   -   -   -   -   -       311  
Underwriting commitments (3)      371   275   110   -   -   -   -   -   -       756  
Other     248   -   -   -   -   -   -   -   -       248  
      $   27,989 $   5,654 $   3,152 $   2,882 $   6,376 $   5,308 $   29,630 $   1,845 $   109,854     $   192,690  
October 31, 2013 (4)    $ 26,147 $ 9,615 $ 3,343 $ 3,035 $ 2,528 $ 5,435 $ 25,942 $ 2,051 $ 116,487     $ 194,583  

(1) Includes $88.3 billion (October 31, 2013: $94.7 billion) of personal, home equity and credit card lines which are unconditionally cancellable at our discretion.  
(2) Excludes securities lending of $1.2 billion (October 31, 2013: $2.1 billion) for cash because it is reported on the interim consolidated balance sheet.  
(3) Includes $6 million (October 31, 2013: nil) pertaining to our portion of joint and several underwriting agreements with other syndicates.  
(4) Certain information has been restated to reflect the changes in accounting policies stated in Note 1 to the interim consolidated financial statements and to conform to the presentation adopted in the current period.  

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

         Less than  1 - 3   3 - 6   6 - 9   9 - 12   1 - 2   2 - 5   Over   
$ millions, as at January 31, 2014     1 month   months   months   months   months   years   years   5 years   Total 
Operating leases   $   33 $ 67 $ 101 $ 100 $ 100 $   379 $ 949 $   1,289 $   3,018
Purchase obligations(1)     15   146     227   153   156     475   957   302     2,431
Pension contributions(2)     18   37   55   56   -   -   -   -   166
        $   66 $   250 $   383 $   309 $   256 $   854 $   1,906 $ 1,591 $   5,615
October 31, 2013   $ 68 $ 221 $ 341 $ 357 $ 274 $ 809 $ 1,716 $ 1,599 $ 5,385

(1) Obligations that are legally binding agreements whereby we agree to purchase products or services with specific minimum or baseline quantities defined at fixed, minimum or variable prices over a specified period of time are defined as purchase obligations. Purchase obligations are included through to the termination date specified in the respective agreements, even if the contract is renewable. Many of the purchase agreements for goods and services include clauses that would allow us to cancel the agreement prior to expiration of the contract within a specific notice period. However, the amount above includes our obligations without regard to such termination clauses (unless actual notice of our intention to terminate the agreement has been communicated to the counterparty). The table excludes purchases of debt and equity instruments that settle within standard market timeframes.
(2) Includes estimated minimum pension contributions, and expected benefit payments for post-retirement medical and dental plans, the long-term disability plan, and related medical and dental benefits for disabled employees. Subject to change as contribution decisions are affected by various factors, such as market performance, regulatory requirements, and management's ability to change funding policy. Also, funding requirements after 2014 are excluded due to the significant variability in the assumptions required to project the timing of cash flows.

 

Other risks
We also have policies and processes to measure, monitor and control other risks, including strategic, insurance, operational, technology, reputation and legal, regulatory, and environmental risks. These risks and related policies and processes have not changed significantly from those described on pages 70 to 72 of the 2013 Annual Report.

Accounting and control matters

Critical accounting policies and estimates
A summary of significant accounting policies is presented in Note 1 to the consolidated financial statements of the 2013 Annual Report. The interim consolidated financial statements have been prepared using the same accounting policies as CIBC's consolidated financial statements for the year ended October 31, 2013, except as described in Note 1 to the interim consolidated financial statements. Certain accounting policies require us to make judgments and estimates, some of which may relate to matters that are uncertain. The key management judgments and estimates remain substantially unchanged from those described on pages 73 to 77 of the 2013 Annual Report, except for the valuation of financial instruments, securitizations and structured entities and post-employment and other long-term benefit plan assumptions, which have been impacted by the adoption of new and amended accounting standards as described below.

Valuation of financial instruments
Debt and equity trading securities, trading business and government loans, obligations related to securities sold short, derivative contracts, AFS securities and FVO financial instruments are carried at fair value. FVO financial instruments include certain debt securities, structured retail deposits and business and government deposits. Retail mortgage interest rate commitments are also designated as FVO financial instruments.

Effective November 1, 2013, CIBC adopted IFRS 13 "Fair Value Measurement". Adoption of this standard did not result in changes to how we measure fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability at the measurement date in an orderly arm's length transaction between market participants in an orderly transaction in the principal market at the measurement date under current market conditions (i.e. the exit price). Fair value measurements are categorized into levels within a fair value hierarchy based on the nature of the valuation inputs (Level 1, 2 or 3). We have an established and well-documented process for determining fair value. Fair value is based on unadjusted quoted prices in an active market for the same instrument, where available (Level 1). If active market prices or quotes are not available for an instrument, fair value is then based on valuation models using all significant observable inputs (Level 2) or one of more significant non-observable inputs (Level 3). Estimating fair value requires the application of judgment. The type and level of judgment required is largely dependent on the amount of observable market information available. For instruments valued using internally developed models that use significant non-observable market inputs and are therefore classified within Level 3 of the hierarchy, the judgment used to estimate fair value is more significant than when estimating the fair value of instruments classified within Levels 1 and 2. To ensure that valuations are appropriate, a number of policies and controls are put in place. Independent validation of fair value is performed at least on a monthly basis. Valuation inputs are verified to external sources such as exchange quotes, broker quotes or other management-approved independent pricing sources.

The following table presents amounts, in each category of financial instruments, which are fair valued using valuation techniques based on one or more significant non-observable market inputs (Level 3), for the structured credit run-off business and total consolidated CIBC. For further details of the valuation of and sensitivity associated with Level 3 financial assets and liabilities, see Note 2 to the interim consolidated financial statements.

                 2014                       2013 (1)     
$ millions, as at              Jan. 31                       Oct. 31      
       Structured credit     Total     Total         Structured credit         Total     Total      
      run-off business     CIBC     CIBC  (2)        run-off business         CIBC     CIBC (2)     
Financial assets                                          
Trading securities and loans   $ 861 $ 889   1.9 % $ 837      $  837   1.8 %
AFS securities     16   889   3.5         13       913   3.3      
FVO securities      144   144   49.0         147       147   51.2      
Derivative instruments     285   332   1.4         295       341   1.7      
      $   1,306 $   2,254   2.3 % $   1,292      $    2,238   2.4 %
Financial liabilities                                          
Deposits and other liabilities (3)   $ 551 $ 788   28.7 % $ 510      $  737   29.9 %
Derivative instruments     397   460   2.1         413       474   2.4      
      $ 948 $   1,248   3.3 % $ 923      $    1,211   3.4 %

(1) Certain information has been restated to reflect the changes in accounting policies stated in Note 1 to the interim consolidated financial statements and to conform to the presentation adopted in the current period.
(2) Represents percentage of Level 3 assets and liabilities in each reported category that are carried at fair value on the interim consolidated financial statements.
(3) Includes FVO deposits and bifurcated embedded derivatives.

 

Fair value adjustments
We apply judgment in establishing valuation adjustments that take into account various factors that may have an impact on the valuation of financial instruments that are carried at fair value on the consolidated balance sheet.  Such factors include, but are not limited to, the bid-offer spread, illiquidity due to lack of market depth and other market risks, parameter uncertainty, model risk, credit risk, and future administration costs.

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

The following table summarizes our valuation adjustments:

     2014   2013 
$ millions, as at   Jan. 31   Oct. 31 
Securities        
Market risk $ 2  $  5
Derivatives        
Market risk   64   57
Credit risk   39   42
Administration costs   5   5
Total valuation adjustments $   110  $    109

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

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

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

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

Collective allowances
Consumer and certain small business allowances
Residential mortgages, credit card loans, personal loans, and certain small business loan portfolios consist of large numbers of homogeneous balances of relatively small amounts, for which we take a portfolio approach to establish the collective allowance. As it is not practical to review each individual loan, we utilize a formula basis, by reference to historical ratios of write-offs to current accounts and balances in arrears. For residential mortgages, personal loans and certain small business loans, this historical loss experience enables CIBC to determine appropriate PD and LGD parameters, which are used in the calculation of the portion of the collective allowance for current accounts. The PDs determined by this process that correspond to the risk levels in our retail portfolios are disclosed on page 48 of the 2013 Annual Report. For credit card loans, non-current residential mortgages, personal loans and certain small business loans, the historical loss experience enables CIBC to calculate flows to write-off in our roll-rate models that determine the collective allowance that pertain to these loans.

We also consider estimates of the time periods over which losses that are present would be identified and a provision taken, our view of current economic and portfolio trends, evidence of credit quality improvements or deterioration, and events such as the 2013 Alberta floods. On a regular basis, the parameters that affect the allowance calculation are updated, based on our experience and the economic environment.

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

The methodology for determining the appropriate level of the collective allowance incorporates a number of factors, including the size of the portfolios, expected loss rates, and relative risk profiles. We also consider estimates of the time periods over which losses that are present would be identified and a provision taken, our view of current economic and portfolio trends, and evidence of credit quality improvements or deterioration. On a regular basis, the parameters that affect the collective allowance calculation are updated, based on our experience and the economic environment. Expected loss rates for business loan portfolios are based on the risk rating of each credit facility and on the PD factors associated with each risk rating, as well as estimates of LGD. The PD factors reflect our historical loss experience and are supplemented by data derived from defaults in the public debt markets. Our risk-rating method and categories are disclosed on page 47 of the 2013 Annual Report. Historical loss experience is adjusted based on observable data to reflect the effects of current conditions. LGD estimates are based on our experience over past years.

For further details on the allowance for credit losses, see Note 5 to the interim consolidated financial statements.

Securitizations and structured entities
Securitization of our own assets
Effective November 1, 2013, with retrospective application to November 1, 2012, CIBC adopted IFRS 10 "Consolidated Financial Statements" which replaced IAS 27 "Consolidated and Separate Financial Statements" and Standards Interpretation Committee ("SIC") -12 "Consolidation - Special Purpose Entities". Under IFRS 10, judgment is exercised in determining whether an investor controls an investee including assessing whether the investor has: (i) power over the investee; (ii) exposure, or rights, to variable returns from its involvement with the investee; and (iii) the ability to affect those returns through its power over the investee.

We sponsor several structured entities that purchase and securitize our own assets including the Cards II Trust, Broadway Trust and Crisp Trust, which we continue to consolidate under IFRS 10.

We also securitize our own mortgage assets through a government-sponsored securitization program. We sell these securitized assets to a government-sponsored securitization vehicle that we do not consolidate, as well as to other third parties. IAS 39 "Financial Instrument Recognition and Measurement" provides guidance on when to derecognize financial assets. A financial asset is derecognized when the contractual rights to receive cash flows from the asset have expired, or when we have transferred the rights to receive cash flows from the asset such that:

  • We have transferred substantially all the risks and rewards of the asset; or
  • We have neither transferred nor retained substantially all the risks and rewards of the asset, but have transferred control of the asset.

We have determined that our securitization activities related to residential mortgages and cards receivables are accounted for as secured borrowing transactions because we have not met the aforementioned criteria.

In addition, we sell and derecognize commercial mortgages through a pass-through arrangement with a trust that securitizes these mortgages into ownership certificates held by various external investors. We continue to perform special servicing of the mortgages in exchange for a market-based fee and do not consolidate the trust. We also sell certain U.S. commercial mortgages to third-parties which qualify for derecognition because we have transferred substantially all the risks and rewards of the mortgages and have no continuous involvement after the transfer.

Securitization of third-party assets
We also sponsor several structured entities that purchase pools of third-party assets. We monitor the extent to which we support these structured entities through direct investment in the debt issued by the structured entities and through the provision of liquidity protection to the other debtholders, to assess whether we should consolidate these entities.

Where we consider that CIBC should consolidate a structured entity, IFRS 10 requires that we reconsider this assessment if facts and circumstances indicate that there are changes to one or more of the three elements of control described above, for example, when any of the parties gains or loses power, or when there is a change in the parties' exposure or rights to variable returns from its involvement with the investee. Specifically, in relation to our multi-seller conduits, we reconsider our consolidation assessment whenever our level of interest in the ABCP issued by the conduits changes significantly, or in the rare event that the liquidity facility we provide to the conduits is drawn or amended.

A significant increase in our holdings of the outstanding commercial paper by the conduits would become more likely in a scenario in which the market for bank-sponsored ABCP suffered a significant deterioration such that the conduits were unable to roll their ABCP.

For additional information on the securitizations of our own assets and third-party assets, see the "Off-balance sheet arrangements" section and Note 6 to the interim consolidated financial statements.

Asset impairment
Goodwill, other intangible assets and long-lived assets
As at January 31, 2014, we had goodwill of $1,870 million (October 31, 2013: $1,733 million) and other intangible assets with an indefinite life of $138 million (October 31, 2013: $136 million). Goodwill is not amortized, but is tested, at least annually, for impairment by comparing the recoverable amount of the cash-generating unit (CGU) to which goodwill has been allocated, with the carrying amount of the CGU including goodwill. Any deficiency is recognized as impairment of goodwill. The recoverable amount of a CGU is defined as the higher of its estimated fair value less cost to sell or value in use.

Acquired intangible assets are separately recognized if the benefits of the intangible assets are obtained through contractual or other legal rights, or if the intangible assets can be sold, transferred, licensed, rented, or exchanged. Determining the useful lives of intangible assets requires judgment and fact-based analysis. Intangibles with an indefinite life are not amortized but are assessed for impairment by comparing the recoverable amount to the carrying amount.

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

We performed our annual impairment testing of goodwill and indefinite lived intangible assets in the fourth quarter of 2013 and did not record any impairment at that time. At that time we determined that our estimate of the recoverable amount of the CIBC FirstCaribbean CGU approximated its carrying amount as at August 1, 2013. As a result, no impairment charge was recognized.

The recoverable amount of CIBC FirstCaribbean estimated in the fourth quarter of 2013 was based on a value in use calculation that was estimated using a five-year cash flow projection approved by CIBC FirstCaribbean's management and an estimate of the capital required to be maintained in the region to support ongoing operations. The five-year cash flow projection was consistent with CIBC FirstCaribbean's three-year internal plan that was reviewed by its Board of Directors. The forecast reflected the currently challenging economic conditions and an expected recovery in those conditions within the Caribbean region. A terminal growth rate of 2.5% (2.5% as at August 1, 2012) was applied to the years after the five-year forecast. All of the forecast cash flows were discounted at an after-tax rate of 13% (14.25% pre-tax) which we believe to be a risk-adjusted interest rate appropriate to CIBC FirstCaribbean (we used an identical after-tax rate of 13% as at August 1, 2012). The determination of a discount rate and a terminal growth rate both require the exercise of judgment. The discount rate was determined based on the following primary factors: (i) the risk-free rate; (ii) an equity risk premium; (iii) beta adjustment to the equity risk premium based on a review of betas of comparable publicly traded financial institutions in the region; and (iv) a country risk premium. The terminal growth rate was based on the forecast inflation rates and management's expectations of real growth.

Reductions in the estimated recoverable amount could arise from various factors, such as reductions in forecasted cash flows, an increase in the assumed level of required capital, and any adverse changes to the discount rate or the terminal growth rate either in isolation or in any combination thereof.  In the fourth quarter of 2013 we estimated that a 10% decrease in each of the terminal year's and subsequent years' forecasted cash flows would result in a reduction in the estimated recoverable amount of CIBC FirstCaribbean by approximately $150 million. We also estimated that a 50 basis point increase in the after-tax discount rate would result in a reduction in the estimated recoverable amount of CIBC FirstCaribbean by approximately $90 million. These sensitivities are indicative only and should be considered with caution, as the effect of the variation in each assumption on the estimated recoverable amount was calculated in isolation without changing any other assumptions. In practice, changes in one factor may result in changes in another, which may magnify or counteract the disclosed sensitivities.  For additional details, see Note 8 to the 2013 annual consolidated financial statements.

Economic conditions in the Caribbean region remain challenging and we continue to monitor our investment. Reductions in the estimated recoverable amount of our CIBC FirstCaribbean CGU could result in goodwill impairment charges in future periods.

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

As at January 31, 2014, we had a deferred income tax asset of $548 million (October 31, 2013: $526(1) million) and a deferred income tax liability of $31 million (October 31, 2013: $33(1) million). We are required to assess whether it is probable that our deferred income tax asset will be realized prior to its expiration and, based on all the available evidence, determine if any portion of our deferred income tax asset should not be recognized. The factors used to assess the probability of realization are our past experience of income and capital gains, forecast of future net income before taxes, available tax planning strategies that could be implemented to realize the deferred income tax asset, and the remaining expiration period of tax loss carryforwards.  Although realization is not assured, we believe, based on all the available evidence, it is probable that the remaining deferred income tax asset will be realized.

Income tax accounting impacts all our reporting segments. For further details of our income taxes, see Note 10 to the interim consolidated financial statements.

(1) Restated to reflect the changes in accounting policies stated in Note 1 to the interim consolidated financial statements and to conform to the presentation adopted in the current period.

Provisions and contingent liabilities
In the ordinary course of its business, CIBC is a party to a number of legal proceedings, including regulatory investigations, in which claims for substantial monetary damages are asserted against CIBC and its subsidiaries. Legal provisions are established if, in the opinion of management, it is both probable that an outflow of economic benefits will be required to resolve the matter, and a reliable estimate can be made of the amount of the obligation. If the reliable estimate of probable loss involves a range of potential outcomes within which a specific amount within the range appears to be a better estimate, that amount is accrued. If no specific amount within the range of potential outcomes appears to be a better estimate than any other amount, the mid-point in the range is accrued. In some instances, however, it is not possible either to determine whether an obligation is probable or to reliably estimate the amount of loss, in which case no accrual can be made.

While there is inherent difficulty in predicting the outcome of legal proceedings, based on current knowledge and in consultation with legal counsel, we do not expect the outcome of these matters, individually or in aggregate, to have a material adverse effect on our consolidated financial statements. However, the outcome of these matters, individually or in aggregate, may be material to our operating results for a particular reporting period.  We regularly assess the adequacy of CIBC's litigation accruals and make the necessary adjustments to incorporate new information as it becomes available.

The provisions disclosed in Note 23 to the 2013 annual consolidated financial statements include all of CIBC's accruals for legal matters as at that date, including amounts related to the significant legal proceedings described in that note and to other legal matters.

CIBC considers losses to be reasonably possible when they are neither probable nor remote. It is reasonably possible that CIBC may incur losses in addition to the amounts recorded when the loss accrued is the mid-point of a range of reasonably possible losses, or the potential loss pertains to a matter in which an unfavourable outcome is reasonably possible but not probable.

CIBC believes the estimate of the aggregate range of reasonably possible losses in excess of the amounts accrued for its significant legal proceedings, where it is possible to make such an estimate, is from nil to approximately $240 million as at January 31, 2014. This estimated aggregate range of reasonably possible losses is based upon currently available information for those significant proceedings in which CIBC is involved, taking into account CIBC's best estimate of such losses for those cases for which an estimate can be made. CIBC's estimate involves significant judgment, given the varying stages of the proceedings and the existence of multiple defendants in many of such proceedings whose share of the liability has yet to be determined. The range does not include potential punitive damages and interest. The matters underlying the estimated range as at January 31, 2014 consist of the significant legal matters disclosed in Note 23 to the 2013 annual consolidated financial statements as updated below. The matters underlying the estimated range will change from time to time, and actual losses may vary significantly from the current estimate. For certain matters, CIBC does not believe that an estimate can currently be made as many of them are in preliminary stages and certain matters have no specific amount claimed. Consequently, these matters are not included in the range.

The following developments related to our significant legal matters occurred since the issuance of our 2013 annual consolidated financial statements:

  • Marcotte Visa Class Action: The appeal was heard by the Supreme Court of Canada in February 2014. The court reserved its decision.
  • Green Secondary Market Class Action: In February 2014 the Ontario Court of Appeal released its decision overturning the lower court and allowing the matter to proceed as a certified class action.
  • Brown Overtime Class Action: The plaintiffs' appeal to the Ontario Court of Appeal is scheduled for May 2014.

Other than the items described above, there are no significant developments in the matters identified in Note 23 to our 2013 annual consolidated financial statements, and no significant new matters have arisen since the issuance of our 2013 annual consolidated financial statements.

Post-employment and other long-term benefit plan assumptions
We sponsor a number of benefit plans to eligible employees, including registered and supplemental pension plans, and post-retirement medical and dental plans (other post-employment benefit plans). We also continue to sponsor a long-term disability (LTD) income replacement plan and associated medical and dental benefits (collectively, other long-term benefit plans). The LTD plan was closed to new claims effective June 1, 2004.

Effective November 1, 2013, with retrospective application to November 1, 2011, CIBC adopted amendments to IAS 19 "Employee Benefits". The amendments require the following: (i) recognition of actuarial gains and losses in OCI in the period in which they arise; (ii) recognition of interest income on plan assets in net income using the same rate as that used to discount the defined benefit obligation; and (iii) recognition of all past service costs (gains) in net income in the period in which they arise. See Note 1 to the interim consolidated financial statements for further details on the impact of the adoption of the amendments to IAS 19 on prior periods.

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

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

As a result of adopting the amendments to IAS 19, commencing in the first quarter of 2014, with retrospective application for fiscal 2013 and 2012, we remeasure our Canadian post-employment benefit plans on a quarterly basis for changes in the discount rate and for actual assets returns, with the actuarial gains and losses recognized in OCI (see Note 1 to the interim consolidated financial statements for further details).

For further details of our annual pension and other post-employment expense and obligations, see Note 19 to the 2013 annual consolidated financial statements and Note 1 to the interim consolidated financial statements.

Regulatory developments
Dodd-Frank Wall Street Reform and Consumer Protection Act
The Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act") was enacted in the U.S. in July 2010. The Dodd-Frank Act contains many broad reforms impacting the financial services industry, including, among other things, increased consumer protection, regulation of the OTC derivative markets, heightened capital, liquidity and prudential standards, and restrictions on proprietary trading by banks. The Dodd-Frank Act will affect every financial institution in the U.S. and many financial institutions that operate outside the U.S. As many aspects of the Dodd-Frank Act are subject to rulemaking that U.S. regulators have not finalized, the full impact on CIBC is difficult to anticipate until all the regulations are finalized and released. CIBC continually monitors developments to prepare for rulemakings that have the potential to impact our operations in the U.S. and elsewhere.

In December 2012, CIBC registered as a swap dealer with the U.S. Commodity Futures Trading Commission (CFTC) and adopted processes and procedures necessary to comply with newly-promulgated U.S. regulations in trading swaps with U.S. persons. The CFTC has issued final rules on most areas relating to swaps, including cross-border guidance that impacts CIBC's swap trading with non-U.S. counterparties. The CFTC has not yet issued final rules on clearing, capital and margin, and the CFTC has not issued a determination of the extent to which it will rely on substituted compliance with Canadian swap trading regulations. CIBC will continue to monitor and prepare for developments by the CFTC in this area. Additionally, the U.S. Securities and Exchange Commission is expected to implement parallel reforms applying to the securities-based swaps markets. While these far-reaching reforms have increased our cost of regulatory compliance and may restrict our ability to continue to engage in certain types of trading activity, we do not expect them to have a significant impact on our results.

On February 18, 2014, the Federal Reserve Board released final enhanced prudential standards for large U.S. bank holding companies and foreign banking organizations (FBOs) with total consolidated assets of $50 billion or more. The new enhanced prudential standards include six primary requirements: risk-based capital and leverage requirements; liquidity requirements; single counterparty exposure limits; internal risk management standards; debt-to-equity limits; and annual stress testing. The new rules also require FBOs to maintain liquidity buffers in their U.S. branches and agencies and, if certain asset thresholds are met, to create a U.S. intermediate holding company which will also be subject to enhanced prudential standards. FBOs are subject to the final rules' new requirements beginning on July 1, 2016. CIBC is evaluating the impact of the final rules on our operations.

The Dodd-Frank Act also mandates the so-called Volcker Rule, which restricts certain proprietary trading and private equity fund activities of banking entities operating in the U.S.  In December 2013, five U.S. regulatory agencies jointly published final regulations implementing the Volcker rule.  The final regulations and the accompanying materials are complex and will require CIBC to implement new controls and to develop new systems to ensure compliance with the rule's reporting obligations and restrictions.  The regulations are effective on April 1, 2014, and banking entities must engage in good faith efforts that will result in conformance with the rule by July 21, 2015.  CIBC is actively assessing the impact of the Volcker rule on our operations and developing a conformance plan for full implementation.  The new regulations also contain various provisions that enable banks to seek extensions in certain circumstances and CIBC may seek such extensions where necessary or appropriate.

The Foreign Account Tax Compliance Act

The Foreign Account Tax Compliance Act (FATCA) is U.S. legislation, the intent of which is to discourage tax evasion by U.S. taxpayers who have placed assets in financial accounts outside of the U.S. - either directly or indirectly through foreign entities such as trusts and corporations.

Under the final FATCA regulations, non-U.S. financial institutions will be required to identify and report accounts owned or controlled by U.S. taxpayers, including citizens of the U.S. worldwide (U.S. Accounts). In addition, identification and reporting will also be required on accounts of financial institutions that do not comply with FATCA regulations. On February 5, 2014, the Government of Canada announced the signing of an Intergovernmental Agreement (IGA) with the United States, to facilitate FATCA information reporting by Canadian financial institutions. Under proposed legislation to implement the provisions of the IGA, Canadian financial institutions must report information on certain U.S. Accounts directly to the Canada Revenue Agency. Other countries in which CIBC operates have signed, or are in the process of negotiating and signing, IGAs with the United States. CIBC will meet all FATCA obligations, in accordance with local law.

The provisions of FATCA and the related Canadian legislation come into effect on July 1, 2014.

Principles for Effective Risk Data Aggregation and Risk Reporting
In January 2013, the BCBS published "Principles for Effective Risk Data Aggregation and Risk Reporting". The Principles outline BCBS's expectations to enhance risk data governance oversight and to improve risk data aggregation and reporting practices, thereby facilitating timely, consistent, and accurate decision making. It is expected that we will be subject to greater reporting scrutiny and may incur increased operating costs as a result of the Principles. We have begun an enterprise wide Risk Data Aggregation initiative to be compliant with the Principles.

Controls and procedures
Disclosure controls and procedures
CIBC's management, with the participation of the President and Chief Executive Officer and the Chief Financial Officer, has evaluated the effectiveness of CIBC's disclosure controls and procedures as at January 31, 2014 (as defined in the rules of the SEC and the Canadian Securities Administrators) and has concluded that such disclosure controls and procedures were effective.

Changes in internal control over financial reporting
There have been no changes in CIBC's internal control over financial reporting during the quarter ended January 31, 2014, that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.


Interim consolidated financial statements
(Unaudited)

Consolidated balance sheet

         2014       2013  (1)
Unaudited, $ millions, as at      Jan. 31       Oct. 31   
ASSETS              
Cash and non-interest-bearing deposits with banks   $ 2,239   $ 2,211  
Interest-bearing deposits with banks     4,034     4,168  
Securities              
Trading     45,317     44,070  
Available-for-sale (AFS) (Note 4)   25,406     27,627  
Designated at fair value (FVO)     294     287  
        71,017     71,984  
Cash collateral on securities borrowed     3,050     3,417  
Securities purchased under resale agreements     24,145     25,311  
Loans              
Residential mortgages       151,934       150,938  
Personal      34,363     34,441  
Credit card     11,434     14,772  
Business and government     50,256     48,207  
Allowance for credit losses (Note 5)   (1,620)     (1,698)  
          246,367       246,660  
Other              
Derivative instruments     24,489     19,947  
Customers' liability under acceptances     10,452     9,720  
Land, buildings and equipment     1,795     1,719  
Goodwill     1,870     1,733  
Software and other intangible assets     881     756  
Investments in equity-accounted associates and joint ventures     1,715     1,695  
Other assets      8,901     8,685  
        50,103     44,255  
      $   400,955   $   398,006  
LIABILITIES AND EQUITY              
Deposits (Note 7)            
Personal   $   127,344   $   125,034  
Business and government       134,894       134,736  
Bank     5,717     5,592  
Secured borrowings     46,381     49,802  
          314,336       315,164  
Obligations related to securities sold short     13,214     13,327  
Cash collateral on securities lent     1,176     2,099  
Obligations related to securities sold under repurchase agreements     6,396     4,887  
Other              
Derivative instruments     22,244     19,724  
Acceptances     10,452     9,721  
Other liabilities     10,017     10,862  
        42,713     40,307  
Subordinated indebtedness     4,233     4,228  
Equity              
Preferred shares     1,706     1,706  
Common shares (Note 8)   7,750     7,753  
Contributed surplus     82     82  
Retained earnings     8,985     8,318  
Accumulated other comprehensive income (AOCI)     138     (40)  
Total shareholders' equity     18,661     17,819  
Non-controlling interests     226     175  
Total equity     18,887     17,994  
      $   400,955   $   398,006  
(1) Certain information has been restated to reflect the changes in accounting policies stated in Note 1 and to conform to the presentation adopted in the current period.

 

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



Consolidated statement of income

           2014     2013  (1)       2013  (1)
Unaudited, $ millions, except as noted, for the three months ended        Jan. 31     Oct. 31         Jan. 31   
Interest income                      
Loans     $ 2,423  $  2,453      $  2,474  
Securities       429   407       403  
Securities borrowed or purchased under resale agreements       82   91       88  
Deposits with banks       8   8       11  
          2,942   2,959       2,976  
Interest expense                      
Deposits       873   903       938  
Securities sold short       82   84       83  
Securities lent or sold under repurchase agreements       28   25       30  
Subordinated indebtedness       44   45       52  
Other       10   9       18  
          1,037   1,066       1,121  
Net interest income       1,905   1,893       1,855  
Non-interest income                      
Underwriting and advisory fees       78   88       106  
Deposit and payment fees       212   215       191  
Credit fees       117   117       118  
Card fees       113   133       138  
Investment management and custodial fees       142   126       112  
Mutual fund fees       282   267       240  
Insurance fees, net of claims       97   93       85  
Commissions on securities transactions       103   98       101  
Trading income (loss)       1   (9)       14  
AFS securities gains, net       57   9       72  
FVO gains (losses), net        5   6       (3)  
Foreign exchange other than trading       21   5       4  
Income from equity-accounted associates and joint ventures       41   45       26  
Other       460   94       106  
          1,729   1,287       1,310  
Total revenue       3,634   3,180       3,165  
Provision for credit losses (Note 5)     218   271       265  
Non-interest expenses                      
Employee compensation and benefits        1,160   1,070       1,100  
Occupancy costs       179   181       168  
Computer, software and office equipment       283   285       247  
Communications       75   75       77  
Advertising and business development       65   79       47  
Professional fees       45   59       36  
Business and capital taxes       15   16       17  
Other       157   165       296  
          1,979   1,930       1,988  
Income before income taxes       1,437   979       912  
Income taxes       260   154       127  
Net income     $ 1,177  $  825      $  785  
Net income (loss) attributable to non-controlling interests     $ 3  $  (7)      $  2  
  Preferred shareholders     $ 25  $  24      $  25  
  Common shareholders       1,149   808       758  
Net income attributable to equity shareholders     $ 1,174  $  832      $  783  
Earnings per share (in dollars)  (Note 11)                    
  Basic     $ 2.88  $  2.02      $  1.88  
  Diluted       2.88   2.02       1.88  
Dividends per common share (in dollars)       0.96   0.96       0.94  
(1) Certain information has been restated to reflect the changes in accounting policies stated in Note 1 and to conform to the presentation adopted in the current period.

 

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


Consolidated statement of comprehensive income

           2014     2013  (1)        2013  (1)
Unaudited, $ millions, for the three months ended      Jan. 31     Oct. 31         Jan. 31   
Net income   $ 1,177  $  825      $  785  
Other comprehensive income (OCI), net of tax, that is subject to subsequent reclassification to net income                    
   Net foreign currency translation adjustments                    
   Net gains (losses) on investments in foreign operations     599   143       (21)  
   Net gains (losses) on hedges of investments in foreign operations     (368)   (93)       11  
          231   50       (10)  
   Net change in AFS securities                    
   Net gains (losses) on AFS securities     45   74       20  
   Net (gains) losses on AFS securities reclassified to net income     (38)   (7)       (52)  
          7   67       (32)  
   Net change in cash flow hedges                    
   Net gains (losses) on derivatives designated as cash flow hedges     (5)   60       28  
   Net (gains) losses on derivatives designated as cash flow hedges reclassified to net income     3   (47)       (20)  
          (2)   13       8  
OCI, net of tax, that is not subject to subsequent reclassification to net income                    
   Net gains (losses) on post-employment defined benefit plans     (58)   50       40  
Total OCI (2)     178   180       6  
Comprehensive income   $ 1,355  $  1,005      $  791  
Comprehensive income (loss) attributable to non-controlling interests   $ 3  $  (7)      $  2  
   Preferred shareholders   $ 25  $  24      $  25  
   Common shareholders     1,327   988       764  
Comprehensive income attributable to equity shareholders   $ 1,352  $  1,012      $  789  
(1) Certain information has been restated to reflect the changes in accounting policies stated in Note 1 and to conform to the presentation adopted in the current period.
(2) Includes $9 million of gains for the quarter ended January 31, 2014 (October 31, 2013: $7 million of gains; January 31, 2013: $1 million of gains) relating to our investments in equity-accounted associates and joint ventures
       2014   2013  (1)      2013  (1)
Unaudited, $ millions, for the three months ended  Jan. 31   Oct. 31       Jan. 31   
Income tax (expense) benefit                  
Subject to subsequent reclassification to net income                  
   Net foreign currency translation adjustments                  
   Net gains (losses) on investments in foreign operations $ (43) $ (9)     $ 1  
   Net gains (losses) on hedges of investments in foreign operations   55   19       (2)  
        12   10       (1)  
   Net change in AFS securities                  
   Net gains (losses) on AFS securities   (30)   (14)       (12)  
   Net (gains) losses on AFS securities reclassified to net income   21   2       20  
        (9)   (12)       8  
   Net change in cash flow hedges                  
   Net gains (losses) on derivatives designated as cash flow hedges   2   (22)       (10)  
   Net (gains) losses on derivatives designated as cash flow hedges reclassified to net income   (1)   17       7  
        1   (5)       (3)  
Not subject to subsequent reclassification to net income                  
   Net gains (losses) on post-employment defined benefit plans   20   (19)       (14)  
      $ 24 $ (26)     $ (10)  
(1) Certain information has been restated to reflect the changes in accounting policies stated in Note 1 and to conform to the presentation adopted in the current period.

 

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


Consolidated statement of changes in equity

       2014         2013  (1)        2013  (1)
Unaudited, $ millions, for the three months ended    Jan. 31         Oct. 31         Jan. 31   
Preferred shares                      
Balance at beginning and end of period $ 1,706      $  1,706      $  1,706  
Common shares                      
Balance at beginning of period $ 7,753      $  7,757      $  7,769  
Issue of common shares   24       14       59  
Purchase of common shares for cancellation   (27)       (18)       (64)  
Treasury shares   -       -       1  
Balance at end of period $ 7,750      $  7,753      $  7,765  
Contributed surplus                      
Balance at beginning of period $ 82      $  82      $  85  
Stock option expense   3       1       1  
Stock options exercised   (3)       (2)       (6)  
Other   -       1       (1)  
Balance at end of period $ 82      $  82      $  79  
Retained earnings                      
Balance at beginning of period $ 8,318      $  7,954      $  7,009  
Net income attributable to equity shareholders   1,174       832       783  
Dividends                      
  Preferred   (25)       (24)       (25)  
  Common    (382)       (384)       (379)  
Premium on purchase of common shares for cancellation   (100)       (59)       (205)  
Other   -       (1)       -  
Balance at end of period $ 8,985      $  8,318      $  7,183  
AOCI, net of tax                      
AOCI, net of tax, that is subject to subsequent reclassification to net income                      
  Net foreign currency translation adjustments                      
  Balance at beginning of period $ 44      $  (6)      $  (88)  
  Net change in foreign currency translation adjustments   231       50       (10)  
  Balance at end of period $ 275      $  44      $  (98)  
  Net gains (losses) on AFS securities                      
  Balance at beginning of period $ 252      $  185      $  350  
  Net change in AFS securities   7       67       (32)  
  Balance at end of period $ 259      $  252      $  318  
  Net gains (losses) on cash flow hedges                      
  Balance at beginning of period $ 13      $  -      $  2  
  Net change in cash flow hedges   (2)       13       8  
  Balance at end of period $ 11      $  13      $  10  
AOCI, net of tax, that is not subject to subsequent reclassification to net income                      
  Net gains (losses) on post-employment defined benefit plans                      
  Balance at beginning of period $ (349)      $  (399)      $  (629)  
  Net change in post-employment defined benefit plans   (58)       50       40  
  Balance at end of period $ (407)      $  (349)      $  (589)  
Total AOCI, net of tax $ 138      $  (40)      $  (359)  
Non-controlling interests                      
Balance at beginning of period $ 175      $  166      $  170  
Net income (loss) attributable to non-controlling interests   3       (7)       2  
Dividends   (2)       -       (2)  
Other   50 (2)      16       (6)  
Balance at end of period $ 226      $  175      $  164  
Equity at end of period $ 18,887      $  17,994      $  16,538  
(1) Certain information has been restated to reflect the changes in accounting policies stated in Note 1 and to conform to the presentation adopted in the current period.
(2) Includes $40 million of non-controlling interests relating to certain mutual funds that we launched and consolidated commencing this quarter as a result of the level of our ownership interest.

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


Consolidated statement of cash flow

           2014     2013  (1)        2013  (1)
Unaudited, $ millions, for the three months ended      Jan. 31     Oct. 31         Jan. 31   
Cash flows provided by (used in) operating activities                    
Net income   $ 1,177  $  825      $  785  
Adjustments to reconcile net income to cash flows provided by (used in) operating activities:                    
   Provision for credit losses     218   271       265  
   Amortization and impairment (2)     95   95       82  
   Stock option expense     3   1       1  
   Deferred income taxes     (9)   (21)       (18)  
   AFS securities gains, net     (57)   (9)       (72)  
   Net losses (gains) on disposal of land, buildings and equipment     -   1       (2)  
   Other non-cash items, net     (468)   (128)       (73)  
   Net changes in operating assets and liabilities                    
     Interest-bearing deposits with banks     134   1,734        (1,220)  
     Loans, net of repayments      (2,984)    (3,394)       449  
     Deposits, net of withdrawals      (1,228)   1,888       6,188  
     Obligations related to securities sold short     (113)   72       (720)  
     Accrued interest receivable     107   (51)       67  
     Accrued interest payable     (280)   260       (296)  
     Derivative assets      (4,535)   644       1,927  
     Derivative liabilities     2,515   (636)        (2,536)  
     Trading securities      (1,247)    (1,183)       (500)  
     FVO securities     (7)   (1)       1  
     Other FVO assets and liabilities     251   69       54  
     Current income taxes     28   29       (415)  
     Cash collateral on securities lent     (923)   399       (133)  
     Obligations related to securities sold under repurchase agreements     1,509    (1,461)        (2,115)  
     Cash collateral on securities borrowed     367   1,001       (166)  
     Securities purchased under resale agreements     1,166   1,768       (418)  
     Other, net     (915)   770       320  
             (5,196)   2,943       1,455  
Cash flows provided by (used in) financing activities                    
Issue of common shares for cash     21   12       53  
Purchase of common shares for cancellation     (127)   (77)       (269)  
Net proceeds from treasury shares     -   -       1  
Dividends paid     (407)   (408)       (404)  
            (513)   (473)       (619)  
Cash flows provided by (used in) investing activities                    
Purchase of AFS securities      (8,964)    (7,821)        (6,642)  
Proceeds from sale of AFS securities     9,122   2,674       2,702  
Proceeds from maturity of AFS securities     2,142   2,516       2,793  
Net cash used in acquisitions     (147)   -       -  
Net cash provided by dispositions     3,587   3       41  
Net purchase of land, buildings and equipment     (85)   (110)       (39)  
            5,655    (2,738)        (1,145)  
Effect of exchange rate changes on cash and non-interest-bearing deposits with banks     82   17       (2)  
Net increase (decrease) in cash and non-interest-bearing deposits with banks during the period     28   (251)       (311)  
Cash and non-interest-bearing deposits with banks at beginning of period     2,211   2,462       2,613  
Cash and non-interest-bearing deposits with banks at end of period (3)   $ 2,239  $  2,211      $  2,302  
Cash interest paid   $ 1,317  $  806      $  1,417  
Cash income taxes paid     241   146       560  
Cash interest and dividends received     3,049   2,909       3,043  
(1) Certain information has been restated to reflect the changes in accounting policies stated in Note 1 and to conform to the presentation adopted in the current period.
(2) Comprises amortization and impairment of buildings, furniture, equipment, leasehold improvements, and software and other intangible assets.
(3) Includes restricted balance of $286 million (October 31, 2013: $264 million; January 31, 2013: $269 million).

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

Notes to the interim consolidated financial statements
(Unaudited)

The interim consolidated financial statements of CIBC are prepared in accordance with Section 308(4) of the Bank Act, which states that, except as otherwise specified by the Office of the Superintendent of Financial Institutions (OSFI), the financial statements are to be prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board. There are no accounting requirements of OSFI that are exceptions to IFRS.

These interim consolidated financial statements have been prepared in accordance with International Accounting Standard (IAS) 34 "Interim Financial Reporting" and do not include all of the information required for full annual consolidated financial statements. These interim consolidated financial statements follow the same accounting policies and their methods of application as CIBC's consolidated financial statements for the year ended October 31, 2013, except as noted.

All amounts in these interim consolidated financial statements are presented in Canadian dollars, unless otherwise indicated. These interim consolidated financial statements were authorized for issue by the Board of Directors on February 26, 2014.

1. Changes in accounting policies

Effective November 1, 2013, CIBC adopted several new and amended accounting pronouncements as described below.

(a)     Retrospective application of new and amended standards
The amendments to IAS 19 "Employee Benefits" and IFRS 10 "Consolidated Financial Statements" were adopted retrospectively as described below.

IAS 19 "Employee Benefits" - In June 2011, the IASB published an amended version of IAS 19. The amendments require the following: (i) recognition of actuarial gains and losses in OCI in the period in which they arise; (ii) recognition of interest income on plan assets in net income using the same rate as that used to discount the defined benefit obligation; and (iii) recognition of all past service costs (gains) in net income in the period in which they arise. We adopted the amendments to IAS 19 on a retrospective basis effective November 1, 2011.

Consistent accounting policies are applied for the purposes of applying the equity-method for our investments in equity-associates and joint ventures, and therefore the retrospective application of the amendments also impacted the accounting for certain of our equity-accounted investments in associates.

IFRS 10 "Consolidated Financial Statements", issued in May 2011, replaces the consolidation guidance in IAS 27 "Consolidated and Separate Financial Statements" and Standards Interpretation Committee (SIC) 12 - "Consolidation - Special Purpose Entities". IFRS 10 introduces a single consolidation model for all entities based on control, irrespective of the nature of the investee. Under IFRS 10, an investor controls an investee when an investor has: (i) power over the investee; (ii) exposure, or rights, to variable returns from its involvement with the investee; and (iii) the ability to use its power over the investee to affect the amount of the investor's returns. We adopted IFRS 10 on a retrospective basis effective November 1, 2012.

The adoption of IFRS 10 required us to deconsolidate CIBC Capital Trust from our consolidated financial statements. Although we have the ability to direct the relevant activities of CIBC Capital Trust, we do not have exposure to variable returns from our involvement in CIBC Capital Trust as we pass our credit risk into the Trust by issuing senior deposit notes to CIBC Capital Trust.

The deconsolidation of CIBC Capital Trust resulted in us removing Capital Trust securities issued by CIBC Capital Trust from our consolidated balance sheet effective November 1, 2012, and instead recognizing the senior deposit notes issued by CIBC to CIBC Capital Trust in Business and government deposits. We recognized an increase in shareholders' equity as at November 1, 2012 and October 31, 2013 due to the reversal of losses previously recognized on Capital Trust securities repurchased by CIBC.

The impact on the consolidated balance sheets as a result of the retrospective application of the amendments to IAS 19 and IFRS 10 was as follows:

       Reported as at   Post-employment   Restated as at opening 
$ millions    October 31, 2011   benefits   November 1, 2011 
ASSETS              
Other assets   $ 8,879  $    (183)  $  8,696
Asset line items not impacted by accounting changes       374,879   -     374,879
    $   383,758  $    (183)  $    383,575
LIABILITIES AND EQUITY              
Other liabilities   $ 11,704  $  (3)  $  11,701
Liability line items not impacted by accounting changes       355,963   -     355,963
Equity              
Preferred shares, common shares and contributed surplus     10,225   -   10,225
Retained earnings     5,457   (3)   5,454
AOCI     245     (175)   70
Total shareholders' equity     15,927     (178)   15,749
Non-controlling interests     164   (2)   162
Total equity     16,091     (180)   15,911
    $   383,758  $    (183)  $    383,575

 


       Reported as at   Post-employment   Restated as at   CIBC   Restated as at opening 
$ millions    October 31, 2012   benefits   October 31, 2012   Capital Trust   November 1, 2012 
ASSETS                      
Securities - Trading   $ 40,330  $  -  $  40,330  $  10  $  40,340
Loans - Business and government     43,624   -   43,624   9   43,633
Investments in equity-accounted associates and joint ventures     1,635   (17)   1,618   (1)   1,617
Other assets     9,404   (249)   9,155   (3)   9,152
Asset line items not impacted by accounting changes       298,392   -     298,392   -     298,392
    $   393,385  $  (266)  $    393,119  $  15  $    393,134
LIABILITIES AND EQUITY                      
Deposits - Business and government   $   125,055  $  -  $    125,055  $  1,685  $    126,740
Capital Trust securities     1,678   -   1,678   (1,678)   -
Other liabilities     10,671   405   11,076   1   11,077
Liability line items not impacted by accounting changes       238,943   -     238,943   -     238,943
Equity                      
Preferred shares, common shares and contributed surplus     9,560   -   9,560   -   9,560
Retained earnings     7,042   (40)   7,002   7   7,009
AOCI     264   (629)   (365)   -   (365)
Total shareholders' equity     16,866   (669)   16,197   7   16,204
Non-controlling interests     172   (2)   170   -   170
Total equity     17,038   (671)   16,367   7   16,374
    $   393,385  $  (266)  $    393,119  $  15  $    393,134

 

       Reported as at   Post-employment   CIBC   Restated as at 
$ millions    October 31, 2013   benefits   Capital Trust   October 31, 2013 
ASSETS                  
Securities - Trading   $ 44,068  $  -  $  2  $  44,070
Loans - Business and government     48,201   -   6   48,207
Investments in equity-accounted associates and joint ventures     1,713   (19)   1   1,695
Other assets     9,058   (370)   (3)   8,685
Asset line items not impacted by accounting changes       295,349   -   -     295,349
    $   398,389  $  (389)  $  6  $    398,006
LIABILITIES AND EQUITY                  
Deposits - Business and government   $   133,100  $  -  $  1,636  $    134,736
Capital Trust securities     1,638   -   (1,638)   -
Other liabilities     10,808   53   1   10,862
Liability line items not impacted by accounting changes       234,414   -   -     234,414
Equity                  
Preferred shares, common shares and contributed surplus     9,541   -   -   9,541
Retained earnings     8,402   (91)   7   8,318
AOCI     309   (349)   -   (40)
Total shareholders' equity     18,252   (440)   7   17,819
Non-controlling interests     177   (2)   -   175
Total equity     18,429   (442)   7   17,994
    $   398,389  $  (389)  $  6  $    398,006

 

The increase (decrease) on the consolidated statements of income and consolidated statements of comprehensive income as a result of the retrospective application of the amendments to IAS 19 and IFRS 10 was as follows:

For the three months ended January 31, 2013                            
       Previously   Post-employment       CIBC         
$ millions    as reported   benefits  (1)      Capital Trust   Reclassification   (2)      Restated 
Interest income   $  2,976  $  -      $  -  $  -      $   2,976
Interest expense      1,121   -       -   -        1,121
Net interest income      1,855   -       -   -        1,855
Non-interest income      1,326   -       1   (17)        1,310
Provision for credit losses     265   -       -   -       265
Non-interest expenses      1,987   18       -   (17)        1,988
Income before taxes     929   (18)       1   -       912
Income taxes     131   (4)       -   -       127
Net income     798   (14)       1   -       785
Net income attributable to non-controlling interests     2   -       -   -       2
Net income attributable to equity shareholders     796   (14)       1   -       783
Net income     798   (14)       1   -       785
OCI, net of tax, that is subject to subsequent reclassification to net income     (34)   -       -   -       (34)
OCI, net of tax, that is not subject to subsequent reclassification to net income -   40       -   -       40
Comprehensive income   $ 764  $  26      $  1  $  -      $  791
(1) Represents an increase in Non-interest expenses - Employee compensation and benefits of $18 million.
(2) Certain amounts associated with our self-managed credit card portfolio have been reclassified from Non-interest expenses - Other to Non-interest income - Card fees.

 

For the three months ended October 31, 2013                            
       Previously   Post-employment       CIBC         
$ millions    as reported   benefits  (1)      Capital Trust   Reclassification  (2)      Restated 
Interest income   $  2,959  $  -      $  -  $  -      $   2,959
Interest expense      1,065   -       1   -        1,066
Net interest income      1,894   -       (1)   -        1,893
Non-interest income      1,306   (1)       (1)   (17)        1,287
Provision for credit losses     271   -       -   -       271
Non-interest expenses      1,932   15       -   (17)        1,930
Income before taxes     997   (16)       (2)   -       979
Income taxes     161   (7)       -   -       154
Net income     836   (9)       (2)   -       825
Net loss attributable to non-controlling interests     (7)   -       -   -       (7)
Net income attributable to equity shareholders     843   (9)       (2)   -       832
Net income     836   (9)       (2)   -       825
OCI, net of tax, that is subject to subsequent reclassification to net income     130   -       -   -       130
OCI, net of tax, that is not subject to subsequent reclassification to net income -   50       -   -       50
Comprehensive income   $ 966  $  41      $  (2)  $  -      $   1,005
(1) Represents a decrease in Non-interest income - Income from equity-accounted associates and joint ventures of $1 million and an increase in Non-interest expenses - Employee compensation and benefits of $15 million.
(2) Certain amounts associated with our self-managed credit card portfolio have been reclassified from Non-interest expenses - Other to Non-interest income - Card fees.

 

For the year ended October 31, 2012                        
       Previously   Post-employment             
$ millions    as reported   benefits   (1)     Reclassification   (2)     Restated 
Interest income   $ 11,907  $  -      $  -      $  11,907
Interest expense     4,581   -       -       4,581
Net interest income     7,326   -       -       7,326
Non-interest income     5,223   (5)       (59)       5,159
Provision for credit losses     1,291   -       -       1,291
Non-interest expenses     7,215   46       (59)       7,202
Income before taxes     4,043   (51)       -       3,992
Income taxes     704   (15)       -       689
Net income     3,339   (36)       -       3,303
Net income attributable to non-controlling interests     8   1       -       9
Net income attributable to equity shareholders     3,331   (37)       -       3,294
Net income     3,339   (36)       -       3,303
OCI, net of tax, that is subject to subsequent reclassification to net income     19   -       -       19
OCI, net of tax, that is not subject to subsequent reclassification to net income     -   (454)       -       (454)
Comprehensive income   $ 3,358  $  (490)      $  -      $  2,868
(1) Represents a decrease in Non-interest income - Income from equity-accounted associates and joint ventures of $5 million and an increase in Non-interest expenses - Employee compensation and benefits of $46 million.
(2) Certain amounts associated with our self-managed credit card portfolio have been reclassified from Non-interest expenses - Other to Non-interest income - Card fees.

 

For the year ended October 31, 2013                            
       Previously   Post-employment       CIBC         
$ millions    as reported   benefits  (1)      Capital Trust   Reclassification  (2)      Restated 
Interest income   $   11,811  $  -      $  -  $  -      $    11,811
Interest expense      4,356   -       2   -        4,358
Net interest income      7,455   -       (2)   -        7,453
Non-interest income      5,328   (1)       2   (64)        5,265
Provision for credit losses      1,121   -       -   -        1,121
Non-interest expenses      7,614   71       -   (64)        7,621
Income before taxes      4,048   (72)       -   -        3,976
Income taxes     648   (22)       -   -       626
Net income      3,400   (50)       -   -        3,350
Net loss attributable to non-controlling interests     (3)   1       -   -       (2)
Net income attributable to equity shareholders      3,403   (51)       -   -        3,352
Net income      3,400   (50)       -   -        3,350
OCI, net of tax, that is subject to subsequent reclassification to net income     45   -       -   -       45
OCI, net of tax, that is not subject to subsequent reclassification to net income -   280       -   -       280
Comprehensive income   $  3,445  $  230      $  -  $  -      $   3,675
(1) Represents a decrease in Non-interest income - Income from equity-accounted associates and joint ventures of $1 million and an increase in Non-interest expenses - Employee compensation and benefits of $71 million.
(2) Certain amounts associated with our self-managed credit card portfolio have been reclassified from Non-interest expenses - Other to Non-interest income - Card fees.

 


(b)     Other changes in accounting standards
The following standards and amendments to standards were also adopted effective November 1, 2013.

IFRS 11 "Joint Arrangements", issued in May 2011, requires entities which had previously accounted for joint ventures using proportionate consolidation to collapse the proportionately consolidated net asset value (including any allocation of goodwill) into a single investment balance at the beginning of the earliest period presented using the equity method. As we presently apply the equity method for our joint arrangements under IFRS, the adoption of IFRS 11 did not impact our consolidated financial statements.

IFRS 12 "Disclosure of Interests in Other Entities", issued in May 2011, requires enhanced disclosures about both consolidated entities and unconsolidated entities in which an entity has involvement. The objective of IFRS 12 is to provide information to enable users to evaluate the nature of, and risks associated with, its interest in other entities, including subsidiaries, joint arrangements, associates and unconsolidated structured entities, and the effects of those interests on our consolidated financial statements. IFRS 12 did not impact our consolidated financial statements; however, additional disclosures will be provided in our annual consolidated financial statements.

As a result of the issuance of IFRS 10, IFRS 11 and IFRS 12, the IASB issued amended and renamed IAS 27 "Separate Financial Statements" and IAS 28 "Investments in Associates and Joint Ventures". The amended IAS 27 removes its existing consolidation model and requirements related to consolidated financial statements as they are now addressed in IFRS 10. The amended IAS 27 prescribes the accounting for investments in subsidiaries, jointly controlled entities and associates in separate financial statements. Amended IAS 28 outlines how to apply the equity method to investments in associates and joint ventures. The adoption of amended IAS 27 and IAS 28 did not impact our consolidated financial statements.

IFRS 13 "Fair Value Measurement", issued in May 2011, replaces the fair value measurement guidance contained in individual IFRSs with a single standard for measuring fair value. IFRS 13 provides expanded disclosure about fair value measurements for both financial and non-financial assets and liabilities measured at fair value on a recurring or non-recurring basis and for items not measured at fair value but for which fair value is disclosed. Adoption of this standard did not result in changes to how we measure fair value. However, additional disclosures related to the type and range of inputs used in the estimation of the fair value of financial instruments measured at fair value on the balance sheet that are considered to be in Level 3 of the fair value hierarchy have been included in Note 2 of our interim consolidated financial statements. In addition, we will be required to provide additional disclosures related to the fair value of financial instruments measured at amortized cost on our balance sheet, such as loans and deposits, including how the disclosed fair values fit into the fair value hierarchy in our annual consolidated financial statements.

IFRS 7 "Disclosures - Offsetting Financial Assets and Financial Liabilities", issued in December 2011, contains amendments to IFRS 7 and requires new disclosure for financial assets and liabilities that are offset in the balance sheet or are subject to master netting arrangements or similar arrangements. The amendments did not impact our consolidated financial statements; however, additional disclosures will be provided in our annual consolidated financial statements.

2. Fair value measurements

Fair value is defined as the price that would be received to sell an asset, or paid to transfer a liability, between market participants in an orderly transaction in the principal market at the measurement date under current market conditions (i.e. the exit price). The determination of fair value requires judgment and is based on market information, where available and appropriate. Fair value measurements are categorized into three levels within a fair value hierarchy (Level 1, 2 or 3) based on the valuation inputs used in measuring the fair value, as outlined below.

  • Level 1 - Unadjusted quoted market prices in active markets for identical assets or liabilities we can access at the measurement date. Bid prices, ask prices or prices within the bid and ask, which are the most representative of the fair value, are used as appropriate to measure fair value. Fair value is best evidenced by an independent quoted market price for the same instrument in an active market. An active market is one where transactions are occurring with sufficient frequency and volume to provide quoted prices on an ongoing basis.
  • Level 2 - Quoted prices for identical assets or liabilities in markets that are inactive or observable market quotes for similar instruments, or use of valuation technique where all significant inputs are observable. Inactive markets may be characterized by a significant decline in the volume and level of observed trading activity or through large or erratic bid/offer spreads. In instances where traded markets do not exist or are not considered sufficiently active, we measure fair value using valuation models.
  • Level 3 - Non-observable or indicative prices or use of valuation technique where one or more significant inputs are non-observable.

For a significant portion of our financial instruments, quoted market prices are not available because of the lack of traded markets, and even where such markets do exist, they may not be considered sufficiently active to be used as a final determinant of fair value.  When quoted market prices in active markets are not available, we would consider using valuation models. The valuation model and technique we select maximizes the use of observable market inputs to the extent possible and appropriate in order to estimate the price at which an orderly transaction would take place at the measurement date. In an inactive market, we consider all reasonably available information including any available pricing for similar instruments, recent arm's length market transactions, any relevant observable market inputs, indicative dealer or broker quotations, and our own internal model-based estimates.

Valuation adjustments are an integral component of our fair valuation process. We apply judgment in establishing valuation adjustments that take into account various factors that may have an impact on the valuation. Such factors include, but are not limited to, the bid-offer spread, illiquidity due to lack of market depth, parameter uncertainty and other market risk, model risk and credit risk. For derivatives, we have credit valuation adjustments (CVA) that factor in counterparty, as well as our own credit risk, and a valuation adjustment for administration costs.

Generally, the unit of account for a financial instrument is the individual instrument, and valuation adjustments are applied at an individual instrument level, consistent with that unit of account. In cases where we manage a group of financial assets and liabilities that consist of substantially similar and offsetting risk exposures, the valuation adjustments for financial assets and liabilities are measured on the basis of the net open risks.

We apply judgment in determining the most appropriate inputs and the weighting we ascribe to each such input as well as in our selection of valuation methodologies. Regardless of the valuation technique we use, we incorporate assumptions that we believe market participants would make for credit, funding, and liquidity considerations. When the fair value of a financial instrument at inception is determined using a valuation technique that incorporates significant non-observable market inputs, no inception profit or loss (the difference between the determined fair value and the transaction price) is recognized at the time the asset or liability is first recorded. Any gains or losses at inception are deferred and recognized only in future periods over the term of the instruments or when market quotes or data become observable.

We have an ongoing process for evaluating and enhancing our valuation techniques and models. Where enhancements are made, they are applied prospectively, so that fair values reported in prior periods are not recalculated on the new basis. Valuation models used, including analytics for the construction of yield curves and volatility surfaces, are vetted and approved, consistent with our model risk policy.

To ensure that valuations are appropriate, we have established internal guidance on fair value measurement, which is reviewed periodically in recognition of the dynamic nature of markets and the constantly evolving pricing practices in the market. A number of policies and controls are put in place to ensure the internal guidance on fair value measurement is being applied consistently and appropriately. Fair value of publicly issued securities and derivatives is independently validated at least once a month. Valuations are verified to external sources such as exchange quotes, broker quotes or other management-approved independent pricing sources. Key model inputs, such as yield curves and volatilities, are independently verified. The results from the independent price validation and any valuation adjustments are reviewed by the Independent Price Verification Committee on a monthly basis. This includes, but is not limited to, reviewing fair value adjustments and methodologies, independent price verification results, limits and valuation uncertainty. Fair value of privately issued securities is reviewed on a quarterly basis.

Due to the judgment used in applying a wide variety of acceptable valuation techniques and models, as well as the use of estimates inherent in this process, estimates of fair value for the same or similar assets may differ among financial institutions. The calculation of fair value is based on market conditions as at each balance sheet date, and may not be reflective of ultimate realizable value.

Details on fair value methods and assumptions used for determining fair value of our financial instruments are disclosed in pages 105 to 107 of the 2013 Annual Report.

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

         Level 1     Level 2         Level 3         
         Valuation technique -      Valuation technique -        
       Quoted market price  observable market inputs      non-observable market inputs  Total  Total
         2014    2013    2014    2013(1)        2014    2013    2014    2013(1) 
$ millions, as at      Jan. 31    Oct. 31    Jan. 31    Oct. 31        Jan. 31   Oct. 31    Jan. 31    Oct. 31
Financial assets                                      
Deposits with banks   $ -  $ -  $ 51  $ 111      $ -  $ -  $ 51  $ 111
Trading securities                                       
  Government issued or guaranteed   $ 911  $ 2,053  $ 8,999  $ 7,378      $ -  $ -  $ 9,910  $ 9,431
  Corporate equity     27,635   27,169   3,503   3,707       -   -   31,138   30,876
  Corporate debt     -   -   2,581   2,362       -   -   2,581   2,362
  Mortgage- and asset-backed     -   -   827   564       861   837   1,688   1,401
      $ 28,546  $ 29,222  $ 15,910  $ 14,011      $ 861  $ 837  $ 45,317  $ 44,070
Trading loans                                      
  Business and government   $ -  $ -  $ 2,031  $ 2,211      $ 28  $ -  $ 2,059  $ 2,211
AFS securities                                      
  Government issued or guaranteed   $ 947  $ 1,162  $ 11,894  $ 14,625      $ -  $ -  $ 12,841  $ 15,787
  Corporate equity     67   29   -   9       643   618   710   656
  Corporate debt      -   -   8,997   7,967       14   9   9,011   7,976
  Mortgage- and asset-backed     -   -   2,612   2,922       232   286   2,844   3,208
      $ 1,014  $ 1,191  $ 23,503  $ 25,523      $ 889  $ 913  $ 25,406  $ 27,627
FVO securities                                      
  Government issued or guaranteed   $ -  $ -  $ 48  $ 44      $ -  $ -  $ 48  $ 44
  Corporate debt     -   -   102   96       -   -   102   96
  Asset-backed     -   -   -   -       144   147   144   147
    $ -  $ -  $ 150  $ 140      $ 144  $ 147  $ 294  $ 287
FVO securities purchased under resale                                      
  agreements   $ -  $ -  $ -  $ -      $ -  $ -  $ -  $ -
Derivative instruments                                      
  Interest rate   $ 1  $ -  $ 14,175  $ 13,718      $ 45  $ 46  $ 14,221  $ 13,764
  Foreign exchange     -   -   8,171   4,812       -   -   8,171   4,812
  Credit     -   -   -   -       286   294   286   294
  Equity     168   129   661   342       1   1   830   472
  Precious metal     72   -   15   28       -   -   87   28
  Other commodity     131   117   763   460       -   -   894   577
      $ 372  $ 246  $ 23,785  $ 19,360      $ 332  $ 341  $ 24,489  $ 19,947
Total financial assets   $ 29,932  $ 30,659 $ 65,430  $ 61,356     $ 2,254  $ 2,238 $ 97,616  $ 94,253
Financial liabilities                                      
Deposits and other liabilities(2)   $ -  $ -  $ (1,958)  $ (1,729)      $ (788)  $ (737)  $ (2,746)  $ (2,466)
Obligations related to securities sold short     (7,556)   (9,099)   (5,658)   (4,228)       -   -   (13,214)   (13,327)
      $ (7,556)  $ (9,099)  $ (7,616)  $ (5,957)      $ (788)  $ (737)  $ (15,960)  $ (15,793)
Derivative instruments                                      
  Interest rate   $ (1)  $ -  $ (13,339)  $ (12,820)      $ (49)  $ (48)  $ (13,389)  $ (12,868)
  Foreign exchange     -   -   (6,994)   (4,166)       -   -   (6,994)   (4,166)
  Credit     -   -   (3)   -       (397)   (413)   (400)   (413)
  Equity     (146)   (120)   (748)   (1,650)       (14)   (13)   (908)   (1,783)
  Precious metal     (96)   (8)   (13)   (22)       -   -   (109)   (30)
  Other commodity     (143)   (126)   (301)   (338)       -   -   (444)   (464)
      $ (386)  $ (254)  $ (21,398)  $ (18,996)      $ (460)  $ (474)  $ (22,244)  $ (19,724)
Total financial liabilities   $ (7,942)  $ (9,353)  $ (29,014)  $ (24,953)      $ (1,248)  $ (1,211)  $ (38,204)  $ (35,517)
(1) Certain information has been restated to reflect the changes in accounting policies stated in Note 1 and to conform to the presentation adopted in the current period.
(2) Comprises FVO deposits of $2,018 million (October 31, 2013: $1,764 million), FVO secured borrowings of $351 million (October 31, 2013: $352 million), bifurcated embedded derivatives of $375 million (October 31, 2013: $348 million), and FVO other liabilities of $2 million (October 31, 2013: $2 million). Changes in our own credit risk had an insignificant impact on the determination of the fair value of our FVO deposits.

 

Transfers into or out of Level 3 can occur as a result of additional or new information regarding valuation inputs and changes in their observability. Transfers between levels in the fair value hierarchy are deemed to have occurred at the beginning of the reporting period. During the quarter, we transferred $470 million of trading securities and $404 million of securities sold short from Level 1 to Level 2, and $13 million of corporate equity securities from Level 3 to Level 1.

The net gain recognized in the interim consolidated statement of income on the financial instruments, for which fair value was estimated using valuation techniques requiring non-observable inputs, for the quarter ended January 31, 2014 was $53 million (October 31, 2013: net gain of $23 million; January 31, 2013: net gain of $47 million).

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

             Net gains (losses)                                    
             included in income                                    
                           Net unrealized  Transfer  Transfer                    
     Opening                  gains (losses)  in to  out of                  Closing
$ millions, for the three months ended    balance  Realized(1)      Unrealized(1)(2)      included in OCI  Level 3  Level 3  Purchases  Issuances  Sales  Settlements  balance
Jan. 31, 2014                                                      
Trading securities                                                      
  Mortgage- and asset-backed   $ 837  $ 15      $ 67      $ -  $ -  $ -  $ -  $ -  $  -  $ (58)  $ 861
Trading loans                                                      
  Business and government     -   -       -       -   -   -   28   -   -   -   28
AFS securities                                                      
  Corporate equity     618   21       -       34   -    (13)   21   -   (38)   -   643
  Corporate debt     9   -       1       (1)   -   -   5   -   -   -   14
  Mortgage- and asset-backed     286   -       -       -   -   -   -   -   -   (54)   232
FVO securities                                                      
  Asset-backed     147   3       12       -   -   -   -   -   -   (18)   144
Derivative instruments                                                      
  Interest rate     46   4       -       -   -   -   -   -   -   (5)   45
  Credit     294   (4)       6       -   -   -   -   -   -   (10)   286
  Equity     1   -       -       -   -   -   -   -   -   -   1
Total assets   $   2,238  $   39      $ 86      $ 33  $ -  $  (13)  $ 54  $ -  $ (38)  $  (145)  $ 2,254
Deposits and other liabilities(3)   $ (737)  $ (5)      $ (51)      $ -  $ -  $ -  $ -  $  (27)  $ (1)  $ 33  $ (788)
Derivative instruments                                                      
  Interest rate     (48)   (4)       (1)       -   -   -   -   -   -   4   (49)
  Credit     (413)   -       (10)       -   -   -   -   -   -   26   (397)
  Equity     (13)   -       (1)       -   -   -   -   -   -   -   (14)
Total liabilities   $ (1,211)  $ (9)      $ (63)      $ -  $ -  $ -  $ -  $  (27)  $ (1)  $ 63  $ (1,248)
Oct. 31, 2013                                                      
Trading securities                                                      
  Mortgage- and asset-backed   $ 839  $ 46      $ 21      $ -  $ -  $ -  $ -  $ -  $ -  $ (69)  $ 837
Trading loans                                                      
  Business and government     8   8       -       -   -   -   -   -   (16)   -   -
AFS securities                                                      
  Corporate equity     639   27       (36)       21   -   -   8   -   (41)   -   618
  Corporate debt     23   15       1       (7)   -   -   -   -   (23)   -   9
  Mortgage- and asset-backed     347   -       -       -   -   -   -   -   -   (61)   286
FVO securities                                                      
  Asset-backed     150   4       (2)       -   -   -   -   -   -   (5)   147
Derivative instruments                                                      
  Interest rate     43   2       2       -   -   -   -   -   -   (1)   46
  Credit     342   (16)       (23)       -   -   -   -   -   -   (9)   294
  Equity     1   -       -       -   -   -   -   -   -   -   1
Total assets   $ 2,392  $ 86      $ (37)      $ 14  $ -  $ -  $ 8  $ -  $ (80)  $ (145)  $  2,238
Deposits and other liabilities(3)   $ (692)  $ (20)      $ (40)      $ -  $ (6)  $ -  $ 3  $ 5  $ (5)  $ 18  $  (737)
Derivative instruments                                                      
  Interest rate     (49)   (4)       2       -   -   -   -   -   -   3   (48)
  Credit     (473)   15       21       -   -   -   -   -   -   24   (413)
  Equity     (4)   -       -       -   (1)   -   -   (8)   -   -   (13)
Total liabilities   $ (1,218)  $ (9)      $ (17)      $ -  $ (7)  $ -  $ 3  $ (3)  $ (5)  $ 45  $  (1,211)
(1) Includes foreign currency gains and losses.
(2) Comprises unrealized gains and losses relating to these assets and liabilities held at the end of the reporting period.
(3) Includes FVO deposits of $602 million (October 31, 2013: $557 million) and bifurcated embedded derivatives of $186 million (October 31, 2013: $180 million).

 

Quantitative information about significant non-observable inputs

Valuation techniques using one or more non-observable inputs are used for a number of financial instruments. The following table discloses the valuation techniques and quantitative information about the significant non-observable inputs used in Level 3 financial instruments:

                                   
           2014      Valuation            Range of inputs 
$ millions, as at      Jan. 31      techniques      Key non-observable inputs      Low     High   
Trading securities                              
  Mortgage- and asset-backed   $ 861      Market proxy or direct broker quote      Market proxy or direct broker quote     -  %  96.5  % 
Trading loans                              
  Business and government     28      Discounted cash flow      Discount rate     2.2  %  2.2  % 
AFS securities                              
  Corporate equity                              
    Limited partnerships     424      Adjusted net asset value (1)      Net asset value      n/a     n/a   
    Private companies     219      Valuation multiple      Earnings multiple     6.9   14.5  
                       Revenue multiple     3.4   3.6  
                 Discounted cash flow      Discount rate     9.3  %  20.0  % 
  Corporate debt     14      Discounted cash flow      Discount rate     16.0  %  30.0  % 
  Mortgage- and asset-backed     232      Discounted cash flow      Credit spread     0.8  %  0.8  % 
                     Prepayment rate     13.1  %  33.8  % 
FVO securities                              
  Asset-backed     144      Market proxy or direct broker quote      Market proxy or direct broker quote     81.0  %  95.0  % 
Derivative instruments                              
  Interest rate     45      Proprietary model (2)      n/a      n/a     n/a   
  Credit     286 (3)     Market proxy or direct broker quote      Market proxy or direct broker quote     30.4  %  99.7  % 
                 Discounted cash flow      Default rate     4.0  %  4.0  % 
                       Recovery rate     50.0  %  70.0  % 
                       Prepayment rate     20.0  %  20.0  % 
                       Credit spread (4)   0.1  %  1.1  % 
  Equity     1      Option model       Market volatility     13.4  %  13.4  % 
Total assets   $ 2,254                        
                               
Deposits and other liabilities   $ (788)      Market proxy or direct broker quote      Market proxy or direct broker quote     -  %  96.5  % 
                 Option model      Market volatility     7.9  %  17.6  % 
                       Market correlation     (53.8)  %  100.0  % 
Derivative instruments                              
  Interest rate     (49)      Proprietary model (2)     n/a       n/a     n/a   
  Credit     (397)      Market proxy or direct broker quote      Market proxy or direct broker quote      -  %  99.3  % 
                 Discounted cash flow      Default rate      4.0  %  4.0  % 
                       Recovery rate      50.0  %  70.0  % 
                       Prepayment rate      20.0  %  20.0  % 
                       Credit spread      0.1  % 1.1  % 
  Equity     (14)      Option model      Market volatility      27.4  % 40.8  % 
Total liabilities   $ (1,248)                        
(1) Adjusted net asset value is determined using reported net asset values obtained from the fund manager or general partner of the limited partnership and may be adjusted for current market levels where appropriate.
(2) Using valuation techniques which we consider to be non-observable. 
(3) Net of CVA reserves related to financial guarantors calculated based on reserve rates (as a percentage of fair value) ranging from 16% to 79%.
(4) Excludes financial guarantors.
n/a Not applicable.

Sensitivity of Level 3 financial assets and liabilities

The following section describes the significant non-observable inputs identified in the table above, the inter-relationships between those inputs and the sensitivity of fair value to changes in those inputs. We performed our Level 3 sensitivity analysis on an individual instrument basis, except for instruments managed within our structured credit run-off business for which we performed the sensitivity analysis on a portfolio basis to reflect the manner in which those financial instruments are managed.

Within our structured credit run-off business our primary sources of exposure, which are derived either through direct holdings or derivatives, are U.S. residential mortgage market contracts, collateralized loan obligations (CLOs), corporate debt and other securities and loans. Structured credit positions classified as loans and receivables are carried at amortized cost and are excluded from this sensitivity analysis. The structured credit positions carried on the consolidated balance sheet at fair value are within trading securities, FVO securities, FVO structured note liability within deposits and derivatives. These fair values are generally derived from and are sensitive to non-observable inputs, including indicative broker quotes and internal models that utilize default rates, recovery rates, prepayment rates and credit spreads. Indicative broker quotes are derived from proxy pricing in an inactive market or from the brokers' internal valuation models. These quotes are used to value our trading and FVO securities, our FVO structured note liability and derivative positions. A significant increase in the indicative broker prices or quotes would result in an increase in the fair value of our Level 3 securities and note liability but a decrease in the fair value of our credit derivatives. The fair value of our credit derivatives referencing CLO assets are also impacted by other key non-observable inputs, including:

  • Prepayment rates - which are a measure of the future expected repayment of a loan by a borrower in advance of the scheduled due date. Prepayment rates are driven by consumer behaviour, economic conditions and other factors. A significant increase in prepayment rates of the underlying loan collateral of the referenced CLO assets would result in an increase in the fair value of the referenced CLO assets and a decrease in our Level 3 credit derivatives.
  • Recovery rates - which are an estimate of the amount that will be recovered following a default by a borrower. Recovery rates are expressed as one minus a loss given default rate. Hence, a significant increase in the recovery rate of the underlying defaulted loan collateral of the referenced CLO assets would result in an increase in the fair value of the referenced CLO assets and a decrease in the fair value of our Level 3 credit derivatives.
  • Credit spreads - which are the premium over a benchmark interest rate in the market to reflect a lower credit quality of a financial instrument and forms part of the discount rate used in a discounted cash flow model. A significant increase in the cr