# CIBC 2000 Annual Report ## innovation + accountability *** ## Contents 1. Corporate statement 2. Our 2001 objectives 3. Selected performance metrics 4. Financial highlights 5. How we did in 2000 6. Getting things done 8. Chairman’s message 11. In your community 12. Management’s discussion and analysis 56. Financial results 93. Principal subsidiaries 104. Directors of the bank 105. Senior officers 106. Corporate governance 107. Board committees 108. Investor information 109. Corporate information *** **A NOTE ABOUT FORWARD-LOOKING STATEMENTS** This report contains forward-looking statements about the operations, priorities, targets, plans, objectives and strategies of CIBC for 2001 and subsequent years, including the forward-looking statements of CIBC’s business lines (Electronic Commerce and Technology; Retail and Small Business Banking; Wealth Management and CIBC World Markets), and functional groups (Treasury and Balance Sheet Management; Risk Management; Administration; and Corporate Development). Forward-looking statements are typically identified by the words “believe”, “expect”, “anticipate”, “intend”, “estimate” and other similar expressions or future or conditional verbs such as “will”, “should”, “would”, and “could”. In particular, we refer you to the forward-looking statements stated in the proposed objectives of each of CIBC’s business lines and functional groups on pages 18, 22, 25, 28 and 31. For more information about the nature of forward-looking statements, see page 12. CIBC is a full-service financial institution comprising four strategic business units: Electronic Commerce, Retail and Small Business Banking, Wealth Management and CIBC World Markets. CIBC has more than eight million retail banking customers and 8,000 corporate and investment banking customers. Total assets were $268 billion at year end, market capitalization was $18.3 billion and BIS Tier 1 capital ratio was 8.7%. *** [www.cibc.com](http://www.cibc.com) *** Last year we said that our objective was to provide our shareholders with the best total return of all the major Canadian banks over the next three years. In 2000, we did outperform the other Canadian banks with a total shareholder return of 57.5% ```mermaid xychart-beta title "Net Income" x-axis [1996, 1997, 1998, 1999, 2000] y-axis "$ billions" 0 --> 2.5 line [0.50, 1.0, 1.75, 1.0, 2.06] ``` **Net Income** ($ billions) Our total return was achieved in part due to our strong net income growth. Net income doubled from 1999. *** # Measuring performance CIBC has made a commitment to raising the bar on accountability. Our goals are to improve our capital allocation decisions among our business lines, as well as to help our shareholders better understand the measures by which we are driving value creation. In 2000, we introduced a more rigorous review process to measure and manage our 37 businesses. We have fully allocated expenses and capital to our business activities and have developed standardized internal reporting. To monitor progress, we measure 140 performance metrics every month. The result is that we are directing capital and other resources to those businesses where we have a long-term, sustainable competitive advantage. We also continue to work toward increased financial transparency for our shareholders. We continue to increase the level of disclosure and analysis in our annual report; as an example, we now disclose revenue for 19 business subsegments in the MD&A. In addition, key examples of the performance metrics discussed above are shown on the following pages. ## Creating value **innovation + accountability** ### Doing things differently The new economy demands new approaches. In each of our business lines we are innovating and growing. We have a ground-breaking new electronic banking strategy through which we expect to dramatically increase our retail customer base. We have reorganized our traditional retail businesses, to simplify our banking offers. Throughout all of our businesses, we are putting the customer at the centre. In Wealth Management, we know we have a distribution advantage which we are now using more productively. Last but not least, we have a successful integrated niche strategy in U.S. wholesale banking and a competitive strength in merchant banking. **OUR 2001 OBJECTIVES** * Best total return to shareholders * 18% ROE by 2002 * EPS growth of 15% per year * 60% NIX ratio by 2002 * Tier 1 capital ratio of 8%-9% and total capital ratio of 11%-12% **Ongoing objectives** * 17%-20% ROE in Electronic Commerce * 16%-18% ROE in Retail and Small Business Banking * Over 50% ROE in Wealth Management * 15%-20% ROE in CIBC World Markets *** ## Selected performance metrics CIBC’s senior executive team reviews 140 different financial and operating measures on a monthly basis as part of the bank’s performance measurement process. Here we provide some of these performance measures: ```mermaid xychart-beta title "Total investor return (%) (cumulative from October 31, 1999)" x-axis [Nov, Dec, Jan, Feb, Mar, Apr, May, Jun, Jul, Aug, Sep, Oct] y-axis "Percent" 0 --> 80 line [10, 20, 30, 30, 35, 35, 40, 40, 45, 50, 50, 57.5] ``` **Total investor return (%)** (cumulative from October 31, 1999) CIBC generated the highest investor return among the major Canadian banks during fiscal 2000. \$100 invested in CIBC shares at the end of October 1999 would have appreciated to \$157 by the end of October 2000, assuming reinvestment of dividends. ```mermaid xychart-beta title "Residential mortgages" x-axis [Nov, Dec, Jan, Feb, Mar, Apr, May, Jun, Jul, Aug, Sep, Oct] y-axis "Loans (\$ billions)" 30 --> 60 line [40, 42, 44, 46, 48, 49, 50, 50.5, 51, 51, 51.5, 51.9] ``` ```mermaid xychart-beta title "Residential mortgages" x-axis [Nov, Dec, Jan, Feb, Mar, Apr, May, Jun, Jul, Aug, Sep, Oct] y-axis "Percent" 90 --> 100 line [92, 92, 92, 92, 92, 91.5, 91.5, 91, 91, 91, 91, 91] ``` **Residential mortgages** The average dollar amount of CIBC's card loans, including amounts securitized, increased more than 20% during the year. Leadership in the card business brings with it added challenges with respect to fraud losses. A concerted effort to enhance the security of its customers resulted in a marked decrease in the level of losses during the year. ```mermaid xychart-beta title "Amicus customers (thousands) and pavilions" x-axis [98, 99, 00] y-axis "Customers (thousands)" 0 --> 600 bar [100, 230, 456] ``` ```mermaid xychart-beta title "Amicus customers (thousands) and pavilions" x-axis [98, 99, 00] y-axis "Pavilions" 0 --> 600 bar [10, 167, 200] ``` **Amicus customers (thousands) and pavilions** Amicus now services more than 200 pavilions and, through the year, acquired new customers at a rate of nearly 20,000 per month. In the fourth quarter, the acquisition rate increased to 25,000 per month. ```mermaid xychart-beta title "Number of branches in Canada" x-axis [Nov, Dec, Jan, Feb, Mar, Apr, May, Jun, Jul, Aug, Sep, Oct] y-axis "Branches" 900 --> 1500 bar [1500, 1450, 1400, 1350, 1300, 1250, 1200, 1150, 1100, 1050, 1000, 950] ``` **Number of branches in Canada** As customer channel preferences changed, CIBC responded by reducing its branch network and increasing its electronic banking points of access. CIBC closed 93 branches this year. ```mermaid xychart-beta title "VISA" x-axis [Nov, Dec, Jan, Feb, Mar, Apr, May, Jun, Jul, Aug, Sep, Oct] y-axis "Average Loans Including Securitizations (\$ billions)" 90 --> 110 line [95, 97, 99, 101, 103, 105, 105.5, 107, 108, 108.5, 109, 110] ``` ```mermaid xychart-beta title "VISA" x-axis [Nov, Dec, Jan, Feb, Mar, Apr, May, Jun, Jul, Aug, Sep, Oct] y-axis "Fraud Losses (\$ millions)" 0 --> 50 line [5, 10, 15, 20, 25, 30, 35, 40, 45, 50] ``` **VISA** The average dollar amount of CIBC's card loans, including amounts securitized, increased more than 20% during the year. Leadership in the card business brings with it added challenges with respect to fraud losses. A concerted effort to enhance the security of its customers resulted in a marked decrease in the level of losses during the year. ```mermaid xychart-beta title "Creditor insurance sales penetration" x-axis [Nov, Dec, Jan, Feb, Mar, Apr, May, Jun, Jul, Aug, Sep, Oct] y-axis "Personal Line of Credit (%)" 0 --> 60 line [10, 15, 20, 25, 30, 35, 40, 45, 50, 55, 60] ``` ```mermaid xychart-beta title "Creditor insurance sales penetration" x-axis [Nov, Dec, Jan, Feb, Mar, Apr, May, Jun, Jul, Aug, Sep, Oct] y-axis "Residential Mortgages (%)" 0 --> 60 line [10, 15, 20, 25, 30, 35, 40, 45, 50, 55, 60] ``` **Creditor insurance sales penetration** As part of the refocusing of its insurance efforts during the year, CIBC is looking to improve its penetration in creditor insurance sales. The efforts are still in their early stages, but penetration has lagged expectations somewhat to this point. ```mermaid xychart-beta title "Discount brokerage" x-axis [Nov, Dec, Jan, Feb, Mar, Apr, May, Jun, Jul, Aug, Sep, Oct] y-axis "Trades (thousands)" 0 --> 1500 bar [200, 400, 600, 800, 1000, 1200, 1400, 1600] ``` ```mermaid xychart-beta title "Discount brokerage" x-axis [Nov, Dec, Jan, Feb, Mar, Apr, May, Jun, Jul, Aug, Sep, Oct] y-axis "Calls Answered Within 20 Seconds (%)" 0 --> 100 line [50, 60, 70, 80, 90, 100] ``` **Discount brokerage** CIBC Investor Services Inc. responded effectively to the recent extraordinary growth in discount trading volumes. This is evident in the improvement in its call centre and interactive voice response capabilities, bringing the bank to industry standard call response times – 80% of calls answered within 20 seconds. ```mermaid xychart-beta title "Credit capital markets core portfolio" x-axis [Nov, Dec, Jan, Feb, Mar, Apr, May, Jun, Jul, Aug, Sep, Oct] y-axis "Risk-weighted Assets (\$ billions)" 0 --> 30 line [10, 15, 20, 25, 30] ``` **Credit capital markets core portfolio (Risk-weighted assets – \$ billions)** The credit capital markets portfolio (loans to large corporations) decreased over the year, reflecting our desire to migrate capital to higher yielding investments. ```mermaid xychart-beta title "Number of merchant banking investments" x-axis [Nov, Dec, Jan, Feb, Mar, Apr, May, Jun, Jul, Aug, Sep, Oct] y-axis "Investments" 0 --> 600 bar [100, 200, 300, 400, 500, 600] ``` **Number of merchant banking investments** CIBC has been growing its merchant banking business as part of its integrated financial services offer, with a view to harvesting securities gains over the coming years. ```mermaid xychart-beta title "Non-core wholesale loans" x-axis [Nov, Dec, Jan, Feb, Mar, Apr, May, Jun, Jul, Aug, Sep, Oct] y-axis "Risk-weighted Assets (\$ billions)" 0 --> 10 line [0, 2, 4, 6, 8, 10] ``` **Non-core wholesale loans (Risk-weighted assets – \$ billions)** In February, Treasury and Balance Sheet Management was given responsibility for managing down the non-core wholesale loan portfolio. So far, the portfolio has been reduced by more than \$2 billion in risk-weighted assets from the peak level in April. *** ## 2000 financial highlights As at or for the year ended October 31 | COMMON SHARE INFORMATION | 2000 | 1999 | 1998 | 1997 | 1996 | US\$ 2000(1) | |---|---|---|---|---|---|---| | Per share - basic earnings | \$ 4.97 | \$ 2.23 | \$ 2.26 | \$ 3.51 | \$ 3.02 | \$ 3.37 | | - fully diluted earnings | \$ 4.84 | \$ 2.22 | \$ 2.25 | \$ 3.50 | \$ 3.02 | \$ 3.29 | | - dividends | \$ 1.29 | \$ 1.20 | \$ 1.20 | \$ 1.05 | \$ 0.85 | \$ 0.88 | | - book value | \$ 25.17 | \$ 22.68 | \$ 22.08 | \$ 21.07 | \$ 18.62 | \$ 16.53 | | Share price - high | \$ 50.50 | \$ 42.60 | \$ 59.80 | \$ 41.75 | \$ 28.30 | \$ 33.17 | | - low | \$ 30.50 | \$ 28.00 | \$ 24.40 | \$ 26.55 | \$ 18.00 | \$ 20.03 | | - closing | \$ 48.40 | \$ 31.70 | \$ 30.65 | \$ 41.20 | \$ 27.85 | \$ 31.79 | | Shares outstanding - average basic (thousands) | 388,951 | 409,789 | 415,030 | 413,545 | 415,028 | 388,951 | | - average fully diluted (thousands) | 404,569 | 422,501 | 425,303 | 422,403 | 422,148 | 404,569 | | - end of period (thousands) | 377,140 | 402,279 | 415,515 | 414,294 | 411,914 | 377,140 | | Market capitalization (\$ millions) | \$ 18,254 | \$ 12,752 | \$ 12,736 | \$ 17,069 | \$ 11,472 | \$ 11,989 | | **VALUE MEASURES** | | | | | | | | Price to earnings multiple (12 months trailing) | 9.7 | 14.2 | 13.5 | 11.7 | 9.2 | 9.7 | | Dividend yield (based on closing share price) | 2.7% | 3.8% | 3.9% | 2.5% | 3.1% | 2.7% | | Dividend payout ratio | 25.9% | 53.6% | 53.0% | 29.9% | 28.1% | 25.9% | | Market value to book value ratio | 1.92 | 1.40 | 1.39 | 1.96 | 1.50 | 1.92 | | **OPERATING RESULTS (\$ millions)** | | | | | | | | Total revenue on a taxable equivalent basis (TEB)(2) | \$ 12,210 | \$ 10,265 | \$ 9,242 | \$ 8,621 | \$ 7,459 | \$ 8,289 | | Provision for credit losses - specific | 970 | 600 | 280 | 360 | 387 | 658 | | - general | 250 | 150 | 200 | 250 | 93 | 170 | | | \$ 1,220 | \$ 750 | \$ 480 | \$ 610 | \$ 480 | \$ 828 | | Non-interest expenses | \$ 8,096 | \$ 7,998 | \$ 7,125 | \$ 5,372 | \$ 4,584 | \$ 5,496 | | Net income | \$ 2,060 | \$ 1,029 | \$ 1,056 | \$ 1,551 | \$ 1,366 | \$ 1,399 | | **OPERATING MEASURES** | | | | | | | | Net interest margin (TEB)(2) | 1.68% | 1.67% | 1.59% | 1.97% | 2.33% | 1.68% | | Net interest margin on average interest earning assets (TEB)(2) | 1.99% | 2.03% | 1.91% | 2.27% | 2.67% | 1.99% | | Efficiency ratio(3) | 66.3% | 77.9% | 77.1% | 62.3% | 61.5% | 66.3% | | Return on average assets | 0.78% | 0.38% | 0.38% | 0.66% | 0.70% | 0.78% | | Return on equity | 20.5% | 9.8% | 10.3% | 17.7% | 17.1% | 20.5% | | Number of employees (FTE) | 44,215 | 45,998 | 47,171 | 42,446 | 41,606 | 44,215 | | **BALANCE SHEET AND OFF-BALANCE SHEET INFORMATION (\$ millions)** | | | | | | | | Cash and securities | \$ 79,921 | \$ 72,019 | \$ 71,765 | \$ 53,183 | \$ 47,937 | \$ 52,492 | | Loans and acceptances | \$ 154,740 | \$ 145,646 | \$ 163,252 | \$ 155,864 | \$ 142,551 | \$ 101,633 | | Total assets | \$ 267,702 | \$ 250,331 | \$ 281,430 | \$ 237,989 | \$ 210,232 | \$ 175,827 | | Deposits | \$ 179,632 | \$ 160,041 | \$ 159,875 | \$ 138,898 | \$ 127,421 | \$ 117,982 | | Common shareholders’ equity | \$ 9,493 | \$ 9,125 | \$ 9,175 | \$ 8,729 | \$ 7,670 | \$ 6,235 | | Average assets | \$ 263,119 | \$ 271,844 | \$ 278,823 | \$ 236,025 | \$ 196,063 | \$ 178,631 | | Average interest earning assets | \$ 221,331 | \$ 223,774 | \$ 232,114 | \$ 204,121 | \$ 171,365 | \$ 150,262 | | Average common shareholders’ equity | \$ 9,420 | \$ 9,323 | \$ 9,100 | \$ 8,195 | \$ 7,332 | \$ 6,395 | | Assets under administration | \$ 691,400 | \$ 609,500 | \$ 398,700 | \$ 245,100 | \$ 205,300 | \$ 454,112 | | **BALANCE SHEET QUALITY MEASURES** | | | | | | | | Common equity to risk-weighted assets | 7.1% | 6.8% | 6.3% | 5.9% | 6.0% | 7.1% | | Return on risk-weighted assets | 1.53% | 0.74% | 0.70% | 1.11% | 1.09% | 1.53% | | Tier 1 capital ratio | 8.7% | 8.3% | 7.7% | 7.0% | 6.6% | 8.7% | | Total capital ratio | 12.1% | 11.5% | 10.8% | 9.8% | 9.0% | 12.1% | | Net impaired loans after general allowance (\$ millions) | \$ (575) | \$ (266) | \$ (123) | \$ 28 | \$ 692 | \$ (378) | | Net impaired loans to net loans and acceptances | (0.37)% | (0.18)% | (0.08)% | 0.02% | 0.5% | (0.37)% | (1) Represents the translation of Canadian GAAP financial information into US\$ using the year-end rate of \$0.6568 for balance sheet figures and the average rate of \$0.6789 for operating results. (2) Taxable equivalent basis (TEB). Net interest income includes tax-exempt income on certain securities. Since this income is not taxable to CIBC, the rate of interest or dividend received by CIBC is significantly lower than would apply to a loan of the same amount. As the impact of tax-exempt income varies from year to year, such income has been adjusted to a taxable equivalent basis to permit uniform measurement and comparison of net interest income. An equal and offsetting adjustment is made to increase the provision for income taxes. (3) Efficiency ratio may also be referred to as non-interest expenses to revenue ratio. *** ## CIBC financial profile at a glance ### Measuring value **Earning per share/Dividends/ROE** (EPS - \$, Dividend - \$, ROE - %) EPS is a measure of our net income after tax and preferred share dividends divided by average common shares outstanding. Dividends per share represent the portion of EPS paid to common shareholders in cash or through the dividend reinvestment plan. Return on equity is a key measure of bank profitability, and is measured by net income divided by average common shareholders’ equity. All three grew in 2000. ```mermaid xychart-beta title "Earning per share/Dividends/ROE" x-axis [96, 97, 98, 99, 00] y-axis "Value" 0 --> 25 line [5, 15, 15, 10, 20] ``` ```mermaid xychart-beta title "Earning per share/Dividends/ROE" x-axis [96, 97, 98, 99, 00] y-axis "Value" 0 --> 15 line [1, 1.2, 1.2, 1.25, 1.3] ``` ```mermaid xychart-beta title "Earning per share/Dividends/ROE" x-axis [96, 97, 98, 99, 00] y-axis "Value" 0 --> 25 line [15, 17.7, 17.1, 9.8, 20.5] ``` **Total revenue (TEB) (\$ billions)** Total revenue is comprised of: net interest income, which is a measure of the interest and dividends earned on our assets, net of interest paid on liabilities; plus non-interest income, which is income earned from fees for services such as wealth management fees, and underwriting commissions. In 2000, we increased the ratio of non-interest income to total revenue to 63.9% from 55.8%. Revenue was affected by a number of items as detailed on page 34. ```mermaid xychart-beta title "Total revenue (TEB) (\$ billions)" x-axis [96, 97, 98, 99, 00] y-axis "Revenue (\$ billions)" 0 --> 15 bar [7.4, 8.6, 9.2, 10.2, 12.2] ``` **Non-interest expenses/NIX ratio** (Non-interest expenses - \$ billions, NIX Ratio - %) Non-interest expenses include all of our costs except interest expenses, provision for credit losses, and income taxes. The NIX ratio is a measure of non-interest expenses divided by total revenue. In 2000, non-interest expenses increased by 1% and our NIX ratio fell from 78% to 66%. A number of items affected these comparisons. Please refer to page 36. ```mermaid xychart-beta title "Non-interest expenses/NIX ratio" x-axis [96, 97, 98, 99, 00] y-axis "Non-interest expenses (\$ billions)" 0 --> 8 bar [4.5, 5.3, 7.1, 8.0, 8.1] ``` ```mermaid xychart-beta title "Non-interest expenses/NIX ratio" x-axis [96, 97, 98, 99, 00] y-axis "NIX ratio (%)*" 0 --> 120 line [61.5, 62.3, 77.1, 77.9, 66.3] ``` **Risk-weighted assets (\$ billions)** Risk-weighted assets are calculated by applying weighting factors specified by regulators to all our assets. The decline in our risk-weighted assets in 2000 reflects our strategy to improve our capital productivity by reallocating balance sheet resources to those businesses where we have a sustainable competitive advantage. Please see pages 31 and 44. ```mermaid xychart-beta title "Risk-weighted assets (\$ billions)" x-axis [96, 97, 98, 99, 00] y-axis "Assets (\$ billions)" 0 --> 150 bar [134, 145, 145, 134, 133] ``` **Capital ratios (%)** CIBC is one of the strongest capitalized banks in Canada. At year end, our Tier 1 capital ratio was 8.7% and our total capital ratio was 12.1%. For more detail please see page 43. ```mermaid xychart-beta title "Capital ratios (%)" x-axis [96, 97, 98, 99, 00] y-axis "Ratio (%)" 0 --> 20 line [9.0, 9.8, 10.8, 11.5, 12.1] ``` ```mermaid xychart-beta title "Capital ratios (%)" x-axis [96, 97, 98, 99, 00] y-axis "Ratio (%)" 0 --> 10 line [6.6, 7.0, 7.7, 8.3, 8.7] ``` **Allocation of assets** CIBC is well diversified with 30% of our balance sheet in lower risk cash and securities and 30% in loans and mortgages to individuals. ```mermaid pie title Allocation of assets "Securities" : 0.11 "Residential mortgages" : 0.19 "Cash" : 0.04 "Other assets" : 0.23 "Securities borrowed or purchased under resale agreements" : 0.08 "Business & government loans including acceptances" : 0.21 "Personal & credit card loans" : 0.10 ``` ### HOW WE DID IN 2000 | Financial targets | Measurement | 2000 performance | |---|---|---| | Share price | Best total return of Canadian banks over next 3 years | No. 1 in 2000, 57.5% versus bank index of 40.4% | | ROE | 18% by 2002 | 19.3% (1) | | Earnings growth | Fully diluted EPS growth rate of 15% per year | \$4.55,(1) up 105% from 1999 EPS of \$2.22 | | Efficiency | Non-interest expenses to revenue ratio of 60% by 2002 | 68.1% (1) | | Capital strength | 7.5%-8.5% (Tier 1) 10.5%-11.5% (total capital) | 8.7% 12.1% | (1) Normalized for the gains on sales of corporate assets and the additional specific provision for government-sponsored student loans. *** ## Getting things done **Electronic banking customer acquisition – a new approach** Over the course of the year, we acquired 225,000 new customers through Amicus. We are currently adding customers at a rate of 25,000 per month. Subsequent to year end, we signed a letter of intent with Investors Group Inc., Great-West Lifeco Inc. and London Life Insurance Co. to distribute banking and brokerage products and services under their brands. ```mermaid graph TD A[Amicus] --> B(President's Choice Financial) A --> C(Marketplace Bank) A --> D(Safeway SELECT Bank) A --> E(Yahoo! PayDirect) A --> F(Bank@work) G[Investors Group Inc.] --> A H[Great-West Lifeco Inc.] --> A I[London Life Insurance Co.] --> A J[Safeway Inc.] --> C K[Winn-Dixie Stores Inc.] --> C ``` Created Amicus to consolidate CIBC’s co-branded retail electronic banking businesses Hedged most of the remaining 47 million share investment in Global Crossing Ltd. Acquired St. Anthony Bank in Illinois, which gives operational and regulatory flexibility to expand electronic banking operations in the United States Formed strategic alliance with Safeway Inc. to deliver electronic banking services to U.S. customers under the banner Safeway SELECT Bank Chosen by Yahoo! Inc. to provide Yahoo! PayDirect U.S. consumers with a quick, easy way to request, send and make payments over the Internet, for a full online person-to-person payment solution Became first Canadian bank to advise on and sell securities including third-party investments nationally through branches Launched the CIBC AeroCorporate Card with Air Canada, enabling businesses to manage expenses while their employees earn Aeroplan miles Introduced VeriSign, a security service to protect e-commerce applications and communications over the Internet Unveiled bizSmart with The Business Depot Ltd., a new e-banking and e-commerce small business banking offer to provide Canadian small businesses access to no-fee online daily banking Launched the innovative “Better Than Prime” variable-rate mortgage, offering customers 101-basis points below prime for the first nine months and simple conversion to a fixed-term Streamlined and simplified GIC products offered from 42 to 13 No. 1 Canadian card issuer with 30+% market share Divested non-core businesses, including office properties in Canada, Swiss private banking operations, and property and casualty insurance subsidiaries CIBC World Markets led and co-managed equity offerings amounting to US\$34.5 billion, up from US\$25.9 billion last year Realized gain of \$697 million on the sale of 16.8 million shares of Global Crossing Ltd. Repurchased 26.5 million common shares for \$1.1 billion under a normal course issuer bid that began December 15, 1999 and ends December 14, 2000 **Small Business Growth** CIBC is committed to building upon our leadership position with our small business customers. Small business loan volumes grew 12% in 2000. To enhance our service to this segment, this year we launched bizSmart, a strategic alliance with Business Depot and other leading suppliers to Canadian small business to provide Canada’s first no-fee, online banking offer. ```mermaid xychart-beta title "SMALL BUSINESS CUSTOMER LOANS (\$ billions)" x-axis [1998, 1999, 2000] y-axis "Loans (\$ billions)" 0 --> 15 bar [9, 12, 13.5] ``` *** ```mermaid xychart-beta title "Amicus new customers (thousands)" x-axis [99, 00] y-axis "Customers (thousands)" 0 --> 500 bar [100, 456] ``` **Yahoo! PayDirect** These logos are trademarks of their respective owners. ## CIBC World Markets CIBC World Markets provides clients with a full range of investment services. Revenue grew 23% this year. We are proud to be the only Canadian bank with a comprehensive cross-border capability. ```mermaid graph TD subgraph North American outlook A[Canadian roots, US capability] B[Deals] C[Research] D[Corporate Banking] E[Investment Banking] end subgraph Cross-border F[Europe] G[Asia] end A --> B A --> C A --> D A --> E A --> F A --> G ``` **Wealth Management** Assets under administration grew to \$163 billion in 2000. We intend to continue to grow this business in 2001 by expanding our sales of third-party products. 2000 \$163 billion 1999 \$141 billion 1998 \$122 billion **ADMINISTERED ASSETS (\$ billions)** ```mermaid xychart-beta title "ADMINISTERED ASSETS (\$ billions)" x-axis [1998, 1999, 2000] y-axis "Assets (\$ billions)" 0 --> 60 bar [50, 141, 163] ``` **Card product strength** CIBC remains the No. 1 Canadian bank card issuer with more than 30% market share and 43% of the premium card market. ```mermaid xychart-beta title "LOAN BALANCES (\$ billions)" x-axis [1997, 1998, 1999, 2000] y-axis "Balances (\$ billions)" 0 --> 8 bar [4.8, 5.2, 6.3, 7.7] ``` ## Driving more growth Throughout all of our businesses, we are putting the customer at the centre *** # FELLOW SHAREHOLDER ## We are making it easier to be a CIBC customer A year ago, we laid out a fresh course for CIBC. We made a commitment to you to generate the best total shareholder return of any Canadian bank by 2002. I am pleased to report that, thanks to tremendous commitment and effort on the part of our employees, our shareholders have had a most successful year. In fiscal 2000, CIBC’s total return to shareholders was 57.5%, outpacing all of our Canadian competitors. This remarkable performance was accomplished during a period of rapid change, inside and outside your bank. Success in such an environment required creating a more flexible organizational structure and fostering a culture where our people put the customer at the centre of everything they do. That is because performance is more than financial results. Performance starts with customers. Creating value for customers is what ultimately creates value for shareholders. ### Strong financial performance CIBC’s earnings in 2000 were more than \$2 billion reflecting solid performance across our businesses and generally robust capital markets. We exceeded our key performance targets and reported return on equity of 20.5%. We also exceeded our \$500 million cost reduction target by a healthy margin. Our balance sheet is in excellent shape. CIBC’s regulatory capital ratios remain among the strongest in the industry, with Tier 1 of 8.7% and total of 12.1%. We are actively managing our balance sheet by focusing on businesses where we have a sustainable competitive advantage and by exiting non-core businesses. And this year we repurchased 26.5 million common shares at an average price of \$40.42. **JOHN HUNKIN** Chairman and Chief Executive Officer **Generating sustainable earnings growth through:** * Aggressive customer acquisition * Simplified product delivery in retail banking * Distribution strength in wealth management * Integrated niche strategy in corporate and investment banking *** # Growth We are excited about the key strategies in each of our business units: * We have a ground-breaking new electronic banking strategy through which we expect to significantly increase our retail customer base over the next several years. * We have reorganized our traditional retail businesses, to simplify our banking offers and put the customer at the centre. * We know we have a distribution advantage in wealth management that we are now using more productively. * We have a successful integrated niche strategy in U.S. wholesale banking and a competitive strength in merchant banking. ### Customer acquisition In electronic banking, our key strategy is aggressive customer acquisition utilizing strategic alliances with leading brands in North America. This year, we created Amicus to bring together all our co-branded retail electronic banking businesses and expand our national network in the United States. We have created an Internet bank with the right mix of customer interface and electronic delivery. Our strategy creates the proverbial “win-win” – customers get lower-cost banking at brand-name retail locations, and CIBC gains access to strong brands and millions of new customers. Our target is to add at least one million new customers by 2002. ### Putting the customer at the centre In the retail sector, our intent is to provide our customers with simpler, smarter banking solutions. This decision to provide a more straightforward offering will require investment in our people, through enhanced training, including our new “Retail University” program. We are also investing \$100 million in technology upgrades to place the right customer service tools in the hands of our employees. During 2000, CIBC closed 93 branches across Canada – primarily those that experienced a significant drop in volume. While some additional low-use branches will be closed in the year ahead, our primary emphasis in 2001 will be on technology and customer service enhancements to strengthen our core Canadian retail franchise. In addition, we have segmented our customer groups so that we can be more responsive to their needs. We have also assigned one senior executive in retail banking the primary accountability of improving customer loyalty and profitability. I am confident these activities will result in a significant improvement in customer satisfaction. This year, we improved customer loyalty, efficiency and profitability. ### Leveraging a distribution advantage In wealth management, our strategic focus is on distribution with less emphasis on product manufacturing. We are successfully leveraging our sales force in the branches to sell the full range of products, including third-party products. We are refining our product approach to focus on leadership areas including mutual funds, index funds and GICs. As well, we are re-engineering our discount brokerage platform to accommodate greater volumes and house third-party products. This business continues to generate superior results with unprecedented volumes in our private client and discount brokerage operations. Return on equity is more than 75% and assets under management are \$163 billion. ### Successful North American wholesale banking platform We have built an integrated North American wholesale banking capability that is proving to be a very successful model. By being very clear about our target markets and by offering a full range of financing capabilities with very focused customer service, we are winning an increasing amount of business. North American equity new issue activity increased 33% this year and M&A transactions were up 50%. Merchant banking is proving to be an enduring contributor to our bottom line and an integral part of our wholesale banking strategy. This year we were able to demonstrate the success of our wholesale banking strategy. We surpassed our earnings and ROE objectives, generating more than \$1 billion in earnings and 25.6% ROE. ### Managing our balance sheet During the year we took a number of steps to allocate capital to those businesses with the greatest potential for growth and superior returns. We exited businesses that do not have a sustainable competitive advantage. These included our property and casualty insurance companies, Swiss private banking operations, the international structured trade finance business, and the sale of seven office properties wholly owned by CIBC. We have invested in strategic growth areas such as Amicus, card products, merchant banking and repurchased 26.5 million common shares for \$1.1 billion. ### Looking ahead The environment ahead will be challenging. There are early indications that credit and capital markets are slowing and certainly competitive pressures in retail banking are likely to continue. We intend to continue to invest in our growth strategies and in improving customer satisfaction. These activities are critical for our long-term growth. We are confident that a continued balanced focus between investing in new and innovative strategies and maintaining a strong disciplined focus on measurement will lead to superior, sustainable returns for our shareholders. CIBC had an excellent year. We are firmly on track to meet our 2002 targets and our commitment to you as shareholders to provide a superior return. I want to take this opportunity to congratulate our people, for it has been their efforts that has made our success possible and it will be their continued creativity and enthusiasm that will enable CIBC to achieve its full potential. **J.S. Hunkin** Chairman and Chief Executive Officer *** # In your community At CIBC, community involvement is about people. It is the 8,100 employees in 29 cities – plus their neighbours, friends and family – who participated in the CIBC “Run For the Cure”. It is the 3,300 CIBC World Markets employees who took part in “Children’s Miracle Day”. It is the thousands of unsung activities of our people in communities across Canada, in the United States and around the world. At CIBC, our philosophy of giving reflects our commitment to the communities where our people live and work. And yes, it is also about financial support – more than \$33 million in 2000, making CIBC one of the most generous corporations in Canada. CIBC continues to be recognized as a Caring Company by the Canadian Centre for Philanthropy. This designation applies to corporations that donate more than 1% of pre-tax profits to charity. As one of Canada’s largest corporate donors, CIBC provides support to a broad range of worthwhile causes on a national, regional and local level, focusing on youth and education. Through **Youthvision**, CIBC funds hundreds of initiatives that combine education, research, mentoring and skills development, encouraging young people to stay in school and plan for their future. This year, the **CIBC Youthvision scholarship program**, a unique partnership with Big Brothers and Sisters of Canada and the YMCA, once again awarded 30 students with scholarships and internships, valued at up to \$35,000 each. Other community-based initiatives include the National Aboriginal Achievement Awards, recognizing outstanding achievement in the aboriginal community; **WORKink**, a virtual employment resource centre for employers and for job seekers with disabilities, and **CanadaHelps.org**, a new online vehicle for Canadian charities and donors. Through **Famous 5** activities in Calgary and Ottawa, CIBC recognized the roles of five remarkable women – Emily Murphy, Henrietta Muir Edwards, Louise McKinney, Nellie McClung and Irene Parlby – for their efforts in 1929 in changing the British North America Act, to have women recognized as “persons.” On the first Wednesday of every December, **CIBC World Markets** sales and trading staff around the world and CIBC Wood Gundy and CIBC Oppenheimer Financial Consultants donate their fees and commissions to children’s charities. Since 1984, more than \$46 million has been raised for children’s charities. In 1999, **Miracle Day** raised a record \$12.7 million worldwide. In the U.S., our community and corporate donations programs focus on the health, education and welfare of children. But, in the end, it is our employees who are vital to CIBC’s community presence. Through the **Employee as Ambassador Program**, CIBC proudly recognizes employee volunteerism by supporting a broad range of community programs with corporate contributions. *** # Management’s discussion and analysis ## Contents **Overview** 13 Business themes 14 Operating results **Business line review** 16 The CIBC organization – focused on creating shareholder value 17 How CIBC reports 18 Electronic Commerce, Technology and Operations 22 Retail and Small Business Banking 25 Wealth Management 28 CIBC World Markets **Functional groups** 31 Treasury and Balance Sheet Management 32 Risk Management 33 Administration 33 Corporate Development **Consolidated financial review** 34 Consolidated income statements 39 Consolidated balance sheets 46 Management of risk **Business environment** 54 Economic 54 Competitive 55 Regulatory 55 Accounting and reporting developments Management’s discussion and analysis for 2000 has been designed to provide stakeholders with a more meaningful presentation of our business lines. Accountability statements, strategic commentary and key messages from each business line leader have been integrated in the business line review to complement the financial commentary. Management’s discussion and analysis of CIBC’s 2000 results and operations is organized into five main sections: ### Overview To facilitate understanding of CIBC’s 2000 results, especially comparability with prior years, this section sets out CIBC’s significant business developments. A high-level discussion of consolidated financial results is also provided to set the framework for the more detailed business line discussion which follows. ### Business line review This section provides an overview of CIBC’s businesses and an explanation of CIBC’s reporting structure, which is consistent with how the business is managed. In addition, the business leader for each of our business lines reviews the year. Business line performance is measured against 2000 objectives and an in-depth financial review is provided. Finally, business line objectives are set going forward. ### Functional groups The functional groups provide infrastructure support services to the business lines, the costs of which are generally allocated to the business lines. In this section, the business leader for each functional group reviews the year and establishes priorities going forward. ### Consolidated financial review This section provides a discussion of CIBC’s consolidated income statements and balance sheets, including capital and how CIBC manages risk. ### Business environment This section outlines the environment in which CIBC conducts its business. An economic review of the year is included as well as an overview of the competitive and regulatory environments in which CIBC operates. Accounting and reporting developments complete the section. **A NOTE ABOUT FORWARD-LOOKING STATEMENTS** This annual report contains forward-looking statements about CIBC. A forward-looking statement is subject to risks and uncertainties that may be general or specific. A variety of factors, many of which are beyond CIBC’s control, affect the operations, performance and results of CIBC and could cause actual results to differ materially from the expectations expressed in any of CIBC’s forward-looking statements. These factors include current, pending and proposed legislative or regulatory developments; intensifying competition resulting from established competitors, new entrants and global consolidation of the financial services industry; technological change; global capital market activity including interest rate fluctuation, currency value fluctuation and general economic conditions world-wide as well as in Canada, the United States and other countries where CIBC has business operations; and CIBC’s success in managing the costs associated with the expansion of existing distribution channels, developing new ones and in realizing increased revenue from these channels, including electronic commerce-based efforts. This list is not exhaustive of the factors that may affect any of CIBC’s forward-looking statements. These and other factors should be considered carefully and readers should not place undue reliance on CIBC’s forward-looking statements. ## Overview ### Business themes **Balance sheet (including capital) management** CIBC introduced a more rigorous balance sheet resource allocation process during 2000. The process is based on a principal investor mindset, which means allocating balance sheet resources (economic capital, risk-weighted assets and total assets) to businesses of high strategic value and high, sustainable returns. The performance of every business across the bank is assessed based on both the quantity and quality of earnings. Quality considers volatility, sustainability, strategic imperative and growth potential of earnings. The businesses have been designated into one of four quadrants. * **Investment:** Businesses with a high strategic value and potential high earnings, but low current earnings. One example is Amicus, which was formed in 2000 to consolidate CIBC’s co-branded electronic retail banking businesses. In 2000, balance sheet resources supporting Amicus were increased by more than 75%. Alliances under the Amicus umbrella include President’s Choice Financial, Marketplace Bank, Safeway SELECT Bank, Yahoo! PayDirect and Bank@work. * **Growth:** Businesses with high sustainable earnings and strong growth prospects. Examples of businesses in this quadrant and their related increases in balance sheet resources in 2000 include: cards (up over 20%), small business (up over 10%) and merchant banking (up almost 25%). The merchant banking business generated \$1,021 million in revenue in 2000 and is an important part of CIBC’s strategy. At year end, CIBC had investments in more than 300 companies diversified by geography and industry. In addition to their ongoing contribution to CIBC’s net income, merchant banking investments are powerful tools for building new client relationships and cementing long-term and profitable relationships. Equity investments in client businesses are often made as part of a larger financing transaction. CIBC continued to benefit from this strategy in 2000 by harvesting significant gains during the year. * **Managed growth:** Businesses that continue to be strong financial performers, but with more limited growth prospects. Examples of businesses in this quadrant include commercial banking (balance sheet usage was reduced by about 5%) and mortgages (balance sheet usage increased by more than 5%). * **Fix, reduce, exit:** Businesses and operations that have low earnings and low strategic value. CIBC liberates capital from these businesses and redeploys it to investment and growth businesses. Examples of activities in 2000 include: * (i) Divestiture of office properties, which reduced risk-weighted assets by over \$700 million and resulted in an after-tax gain of \$143 million. * (ii) Divestiture of property and casualty insurance companies, which resulted in a \$97 million after-tax gain. * (iii) Divestiture of CIBC Suisse S.A., which resulted in a \$20 million after-tax gain and reduced risk-weighted assets by more than \$700 million. * (iv) Reduction of the non-core loan book, releasing more than 25% of the balance sheet resources utilized by this portfolio. **Balance sheet resource allocation matrix(1)** ```mermaid graph TD A[Qualitative assessment] --> B{Financial assessment} B -- HIGH --> C[Investment] B -- LOW --> D[Fix, reduce, exit] C -- HIGH --> E[Growth] C -- LOW --> F[Managed growth] D --> G[LOW] E --> H[HIGH] F --> H G --> I[LOW] H --> J[HIGH] subgraph Quadrants C E F D end style C fill:#FFC0CB,stroke:#333,stroke-width:2px style E fill:#90EE90,stroke:#333,stroke-width:2px style F fill:#ADD8E6,stroke:#333,stroke-width:2px style D fill:#FFA07A,stroke:#333,stroke-width:2px ``` (1) Businesses presented here are selected examples only ### Comprehensive cost reduction program CIBC achieved its target set in fiscal 1999, to reduce base operating expenses by \$500 million on an annualized basis by the fourth quarter of 2000. Progress was measured against a base using second quarter 1999 expense levels, excluding certain revenue related expenses (incentive compensation, commissions and other variable costs), new investment in strategic growth businesses and restructuring. Annualized savings were \$592 million. **COMPREHENSIVE COST REDUCTION PROGRAM** \$ millions | Q4/2000 | Q2/1999 ---|---|--- Total non-interest expenses | \$ 2,031 | \$ 1,826 Exclusions (as noted above) | | Incentive bonuses | 467 | 265 Commissions | 147 | 107 Other variable expenses | 34 | 34 Restructuring credit | (31) | - New York premises consolidation | 50 | - New investment in strategic growth businesses | 115 | 23 | **\$ 782** | **\$ 429** Base expenses | \$ 1,249 | \$ 1,397 Change from Q2/99 | \$ 148 | Annualized savings | \$ 592 | *** ## Operating results To support the cost reduction program, a \$426 million pre-tax restructuring charge was taken in 1999. Further details on major restructuring activities in 2000 are provided in Note 2 to the consolidated financial statements on page 65. ### 1999 Business themes * A new chairman and chief executive officer and a new senior executive team were appointed. * A new organizational structure was established (see pages 16–17). * A pre-tax restructuring charge of \$426 million (1998: \$79 million) was taken in support of the cost reduction program. * CIBC applied for a national bank licence in the U.S. and, effective October, 1999, CIBC National Bank was authorized to begin operations. This positioned CIBC for entry into the U.S. retail banking market, using electronic delivery channels. * CIBC World Markets’ unique cross-border capability to provide integrated financing solutions to North American corporate government and institutional clients was enhanced in 1999 with the completion of the Oppenheimer integration. | OPERATING RESULTS \$ millions, for the years ended October 31 | 2000 | 1999 | 1998 | |---|---|---|---| | Net income before the following, net of income taxes | \$ 1,794 | \$ 1,296 | \$ 1,179 | | Gains on sales of corporate assets | 260 | - | 64 | | Restructuring credit (charge) | (18) | (242) | (44) | | Oppenheimer acquisition-related costs | (12) | (25) | (143) | | Net income | \$ 2,060 | \$ 1,029 | \$ 1,056 | ### HIGHLIGHTS * Total shareholder return was 57.5% for the year, versus the bank index of 40.4% * Record net income of \$2,060 million * Return on equity of 20.5% * Revenue up 19%, boosted by divestiture gains * Efficiency ratio improved to 66.3%, showing progress toward our objective of 60% by 2002 * Strong Tier 1 and total capital ratios of 8.7% and 12.1%, respectively ### Net income CIBC reported net income of \$2,060 million in 2000, up \$1,031 million or 100% from 1999. Return on equity was 20.5% in 2000, up from 9.8% in 1999. Earnings per share were \$4.97, up from \$2.23 in 1999. As noted in the table, CIBC’s net income in 2000 includes non-recurring gains on the sale of certain office properties (\$143 million after tax), our property and casualty insurance companies (\$97 million after-tax) and CIBC Suisse S.A. (\$20 million after-tax). The restructuring credit in 2000 represents an adjustment of the 1999 restructuring provision, which was in support of the cost reduction program. The adjustment of the 1999 restructuring provision resulted primarily from lower severance costs than originally estimated (due to higher levels of attrition and redeployment within CIBC) as well as a reduction in the scope of certain initiatives. Costs related to the 1997 acquisition of Oppenheimer were \$12 million in 2000, down \$13 million from 1999. Net income before the items in the table was \$1,794 million in 2000, up \$498 million or 38% from 1999. The increase was due to strong revenue across all business lines. Non-interest income, in particular, was up 36%, including a \$397 million after-tax gain on the sale of part of our investment in Global Crossing Ltd. This gain was partially offset by a \$278 million after-tax increase in the provision for credit losses. The specific and general provision for credit losses increased by \$216 million and \$62 million, respectively, from 1999. CIBC’s 1999 net income of \$1,029 million was down \$27 million or 3% from \$1,056 million in 1998. Net income in 1998 benefited from the gain on disposal of Comcheq, a payroll-processing subsidiary, while both years were adversely affected by a restructuring charge and Oppenheimer acquisition-related costs. Excluding these items, 1999 net income was \$1,296 million, up \$117 million or 10% from \$1,179 million in 1998. ```mermaid xychart-beta title "Net income and return on equity" x-axis [98, 99, 00] y-axis "Net income (\$ millions)" 0 --> 2500 bar [1056, 1029, 2060] ``` ```mermaid xychart-beta title "Net income and return on equity" x-axis [98, 99, 00] y-axis "ROE (%)" 0 --> 25 line [10.3, 9.8, 20.5] ``` ### Revenue Total revenue in 2000 was \$12,210 million, on a taxable equivalent basis (TEB) (see definition on page 17), up \$1,945 million or 19% from 1999. Revenue for the year ended October 31, 2000 was boosted by gains on the sales of certain office properties (\$203 million), the property and casualty insurance companies (\$97 million) and CIBC Suisse S.A. (\$28 million). Excluding these items, revenue for the year was \$11,882 million, up \$1,617 million or 16% from 1999 due to strength across all business lines. CIBC World Markets revenue was up \$882 million, driven by merchant banking gains including a \$697 million (1999: \$583 million) gain on the sale of a portion of our investment in Global Crossing Ltd. and record levels of equity related activities. As well, 1999 included significant investment write-downs. Wealth Management revenue was up \$558 million primarily due to favourable market conditions and volumes as well as growth in our client base. Strong performance in cards drove a \$68 million increase in Electronic Commerce revenue, while both retail banking and small business banking posted solid revenue increases. ```mermaid xychart-beta title "Revenue (\$ millions)" x-axis [98, 99, 00] y-axis "Revenue (\$ millions)" 0 --> 9000 bar [9242, 10265, 12210] ``` ```mermaid xychart-beta title "Revenue (\$ millions)" x-axis [98, 99, 00] y-axis "Non-interest income (\$ millions)" 0 --> 8000 bar [4804, 5728, 7797] ``` ```mermaid xychart-beta title "Revenue (\$ millions)" x-axis [98, 99, 00] y-axis "Net-interest income (\$ millions)" 0 --> 5000 bar [4337, 4408, 4282] ``` ### Non-interest expenses Non-interest expenses were \$8,096 million, up \$98 million from 1999, while the efficiency ratio of 66.3% in 2000 improved from 77.9% in 1999, primarily as a result of higher revenue. Base expenses (explained in detail on page 36) were \$5,524 million, down \$289 million or 5% from 1999, reflecting the success of our cost reduction program. The overall increase in expenses resulted primarily from volume-related compensation (up \$666 million) and investment in Amicus and bizSmart (up \$182 million). At October 31, 2000, CIBC had 44,215 full-time equivalent employees, down 1,783 from the end of 1999. The net reduction resulted primarily from restructuring activities, partially offset by growth in support of strategic initiatives. ```mermaid xychart-beta title "Non-interest expenses/NIX ratio" x-axis [98, 99, 00] y-axis "Expenses (\$ millions)" 0 --> 8000 bar [7125, 7998, 8096] ``` ```mermaid xychart-beta title "Non-interest expenses/NIX ratio" x-axis [98, 99, 00] y-axis "NIX ratio (%)*" 0 --> 90 line [77.1, 77.9, 66.3] ``` ### Assets Assets totaled \$267.7 billion at October 31, 2000, up \$17.4 billion from 1999 primarily due to increases in securities held for trading (\$7.2 billion), residential mortgages (\$5.3 billion), and personal and credit card loans (\$2.9 billion). Within business and government loans, a significant decrease in large corporate loans was offset by an increase in small business loans. Fluctuations resulted primarily from the balance sheet resource allocation process directed by Treasury and Balance Sheet Management (TBM). ### Gross impaired loans Gross impaired loans were \$1,661 million at October 31, 2000, up from \$1,482 million one year ago. CIBC’s total allowance for credit losses, which includes specific and general allowances, was \$2.2 billion at October 31, 2000. During 2000, we sold our portfolio of seven wholly owned office properties located in Vancouver, Edmonton, Hamilton, Montreal, Oshawa and Toronto. A pre-tax gain of \$182 million (\$128 million after-tax) was recognized during the year, from a total pre-tax gain of \$333 million. The remaining gain relates to the portion of the premises that CIBC continues to occupy and will be recognized over the approximate 10-year average term of the related leases. An additional property was sold during the year for a net pre-tax gain of \$21 million (\$15 million after-tax). ```mermaid xychart-beta title "Net loans and acceptances" x-axis [98, 99, 00] y-axis "Net loans and acceptances (\$ billions)" 130 --> 160 bar [145.6, 154.7, 163.3] ``` ```mermaid xychart-beta title "Net loans and acceptances" x-axis [98, 99, 00] y-axis "Allowance as a % of net loans and acceptances" -0.5 --> 1.0 line [0.1, 0.2, 0.4] ``` ### Capital CIBC’s total capital for regulatory purposes was \$16.1 billion at October 31, 2000, up \$0.7 billion from 1999. Tier 1 and total capital ratios were 8.7% and 12.1%, respectively, at October 31, 2000, up from 8.3% and 11.5% at October 31, 1999. ```mermaid xychart-beta title "Regulatory capital ratios (%)" x-axis [98, 99, 00] y-axis "Ratio (%)" 5 --> 15 bar [10.8, 11.5, 12.1] ``` ```mermaid xychart-beta title "Regulatory capital ratios (%)" x-axis [98, 99, 00] y-axis "Ratio (%)" 5 --> 10 bar [7.7, 8.3, 8.7] ``` ### Shareholder value CIBC’s common share price was \$48.40 on October 31, 2000, up \$16.70 or 53% from \$31.70 at the end of 1999. Total shareholder return was 57.5%, well above the bank index of 40.4%. Dividends were \$1.29 per share, which represents a dividend yield of 2.7% based on the closing share price for the year. Book value was \$25.17 per share in 2000, up from \$22.68 per share in 1999. Under CIBC’s normal course issuer bid that began December 15, 1999, CIBC repurchased for cancellation 26.5 million common shares during the year for an aggregate consideration of \$1,074 million. The normal course issuer bid ends December 14, 2000. ```mermaid xychart-beta title "Book value and market price per share (\$)" x-axis [98, 99, 00] y-axis "Price (\$)" 0 --> 50 line [30.65, 31.70, 48.40] ``` ```mermaid xychart-beta title "Book value and market price per share (\$)" x-axis [98, 99, 00] y-axis "Book Value (\$)" 15 --> 30 line [22.08, 22.68, 25.17] ``` ### Outlook The year 2000 has been excellent. The environment ahead will be more challenging. Economic forecasts indicate slower growth in 2001 and a less favourable interest rate environment. Although our balance sheet continues to be in solid shape, early indications are that the credit and capital markets may be slower in the coming months. We intend to continue to invest in our strategic initiatives and to continue improving our customer satisfaction ratings. These investments are critical for our long-term growth. *** ## Business line review ### The CIBC organization – focused on creating shareholder value | Electronic Commerce, Technology and Operations | Retail and Small Business Banking | Wealth Management | CIBC World Markets | |---|---|---|---| | Is the technology engine for CIBC: | Provides financial services – lending, deposit and investment products – through CIBC branches, ABM network, PC Banking and telephone banking to: | Helps individual clients achieve their financial goals through a sales force of 2,900 financial professionals | Delivers integrated financial solutions to investment and corporate banking clients throughout North America, with capabilities in selected products in Europe and Asia. Areas of specialization are: | | * Comprising business services and operations and technology functions | * More than 5 million individual retail customers | * More than 1.5 million Wealth Management customers | * Investment and corporate banking, including mergers and acquisitions | | * Business activities, including cards, mortgages, insurance, payments and direct to consumer banking | * 350,000 small business customers in Canada | * Full-service and discount brokerage | * Research, sales and trading of securities and derivatives | | * New business opportunities, including Amicus (electronic and Internet banking) and cibc.com (new ventures) | * 350,000 retail and commercial customers in the Caribbean | * Mutual funds | * Merchant banking | | | | * GICs | * Commercial banking | | | | * Global private banking and trust | | | | | * Investment management services | | | | | * Banking and credit services | | **Functional groups** Four functional groups provide infrastructure support services, with costs generally allocated to the business lines. These groups are: * Treasury and Balance Sheet Management – manages CIBC’s balance sheet resource allocation process to ensure strong, effective capitalization across legal entities, and provides asset/liability funding, liquidity, cash and collateral management * Risk Management – centrally manages CIBC’s exposure to credit, market and operational risk * Administration – provides governance and support services to the business lines to ensure that CIBC, its businesses and subsidiaries operate in an efficient, controlled and integrated manner * Corporate Development – stimulates an owner-manager mindset among business leaders and seeks ways to create long-term value ```mermaid pie title Revenue by business line (for the year ended October 31, 2000) "CIBC World Markets" : 38.9 "Wealth Management" : 22.6 "Electronic Commerce, Technology and Operations" : 14.1 "Retail and Small Business Banking" : 21.2 "Corporate and Other" : 3.2 ``` ### How CIBC reports In 2000, CIBC realigned its financial reporting based on the organizational and management structure announced June 3, 1999. We have four business lines – Electronic Commerce, Technology and Operations (Electronic Commerce); Retail and Small Business Banking; Wealth Management; and CIBC World Markets. These business lines are supported by four functional groups – Treasury and Balance Sheet Management (TBM); Risk Management; Administration; and Corporate Development. Comparative figures, previously reported based on two strategic business units – Personal and Commercial Bank and CIBC World Markets – have been restated to reflect the new management reporting structure. CIBC has introduced a new model, the Manufacturer/Customer Segment/Distributor Management Model, to measure and report the results of operations of the four business lines. Under this model, internal payments for sales commissions and distribution service fees are made among business lines. As well, revenue and expenses relating to certain activities (such as the payments business described under Electronic Commerce) are fully allocated to the business lines. In addition, the revenue and expenses of the four functional groups are generally allocated to the four business lines. Management uses this model to better understand the economics of our customer segments, our products and our delivery channels. The model utilizes certain estimates and allocation methodologies in the preparation of segmented financial information. These estimates and methodologies may be refined from time to time and restatement of various periods may occur. **SEGMENTED INCOME STATEMENT** \$ millions, for the three years ended October 31 | | Electronic Commerce | Retail & Small Business Banking | Wealth Management | CIBC World Markets | Corporate and Other(1) | CIBC total | |---|---|---|---|---|---|---| | **2000** | | | | | | | | Net interest income (TEB)(2) | \$ 2,253 | \$ 1,053 | \$ 576 | \$ 407 | \$ 124 | \$ 4,413 | | Non-interest income | 1,312 | 243 | 1,837 | 4,138 | 267 | 7,797 | | Intersegment revenue(3) | (1,849) | 1,294 | 351 | 204 | - | - | | Total revenue (TEB)(2) | 1,716 | 2,590 | 2,764 | 4,749 | 391 | 12,210 | | Non-interest expenses | 1,155 | 1,809 | 2,080 | 2,906 | 177 | 8,127 | | Restructuring charge | (28) | 10 | (11) | - | (2) | (31) | | Provision for credit losses | 169 | 514 | 1 | 286 | 250(4) | 1,220 | | Income (loss) before taxes and non-controlling interests | 420 | 257 | 694 | 1,557 | (34) | 2,894 | | Income taxes | 97 | 52 | 233 | 434 | 18 | 834 | | Net income (loss) | \$ 323 | \$ 205 | \$ 461 | \$ 1,123 | \$ (52) | \$ 2,060 | | **1999** | | | | | | | | Net interest income (TEB)(2) | \$ 2,178 | \$ 975 | \$ 630 | \$ 811 | \$ (57) | \$ 4,537 | | Non-interest income | 1,365 | 173 | 1,245 | 2,843 | 102 | 5,728 | | Intersegment revenue(3) | (1,895) | 1,350 | 331 | 213 | 1 | - | | Total revenue (TEB)(2) | 1,648 | 2,498 | 2,206 | 3,867 | 46 | 10,265 | | Non-interest expenses | 1,149 | 1,753 | 1,925 | 2,608 | 137 | 7,572 | | Restructuring charge | 77 | 68 | 53 | 182 | 46 | 426 | | Provision for credit losses | 103 | 238 | 14 | 245 | 150(4) | 750 | | Income (loss) before taxes and non-controlling interests | 319 | 439 | 214 | 832 | (287) | 1,517 | | Income taxes | 120 | 148 | 38 | 292 | (110) | 488 | | Net income (loss) | \$ 199 | \$ 291 | \$ 176 | \$ 540 | \$ (177) | \$ 1,029 | | **1998** | | | | | | | | Net interest income (TEB)(2) | \$ 2,140 | \$ 997 | \$ 556 | \$ 740 | \$ 5 | \$ 4,438 | | Non-interest income | 1,096 | 224 | 1,257 | 2,100 | 127 | 4,804 | | Intersegment revenue(3) | (1,750) | 1,248 | 335 | 166 | 1 | - | | Total revenue (TEB)(2) | 1,486 | 2,469 | 2,148 | 3,006 | 133 | 9,242 | | Non-interest expenses | 832 | 1,660 | 1,760 | 2,700 | 94 | 7,046 | | Restructuring charge | - | - | - | 79 | - | 79 | | Provision for credit losses | 119 | 186 | - | (25) | 200(4) | 480 | | Income (loss) before taxes and non-controlling interests | 535 | 623 | 388 | 252 | (161) | 1,637 | | Income taxes | 202 | 225 | 125 | 63 | (54) | 561 | | Net income (loss) | \$ 333 | \$ 371 | \$ 263 | \$ 195 | \$ (106) | \$ 1,056 | (1) Corporate and Other comprises the four functional groups – Treasury and Balance Sheet Management (TBM); Risk Management; Administration; and Corporate Development – that support CIBC’s business lines, as well as CIBC Mellon’s custody business and other revenue and expense items not directly attributable to the four business lines. TBM revenue, expenses, capital and balance sheet items are allocated to the four business lines through a combination of funds transfer pricing and capital and expense allocation models. TBM is responsible for CIBC’s overall balance sheet including capital management. As well, TBM’s integrated treasury division provides all funding and financing, liquidity, cash and collateral management services across the business lines. The expenses of the Administration and Risk Management groups are also generally allocated to the business lines. (2) Taxable equivalent basis (TEB). Net interest income includes tax-exempt income on certain securities. Since this income is not taxable to CIBC, the rate of interest or dividend received by CIBC is significantly lower than would apply to a loan of the same amount. As the impact of tax-exempt income varies from year to year, such income has been adjusted to a taxable equivalent basis to permit uniform measurement and comparison of net interest income. An equal and offsetting adjustment is made to increase the provision for income taxes. (3) Intersegment revenue represents internal sales commissions, service fee and revenue allocations under the Manufacturer/Customer Segment/Distributor Management Model. (4) Represents an increase in the general provision for credit losses. ## Electronic Commerce, Technology and Operations **OUR PRIORITIES ARE:** * To significantly grow our retail customer base through aggressive customer acquisition * To support the ongoing business operations of CIBC through technology, process, product and business consulting * To deliver leading edge, business sensitive, cost effective electronic and technology based solutions to CIBC’s businesses * To identify new e-commerce business opportunities through direct investment or joint ventures **HOW WE DID** **DAVID MARSHALL** Vice-Chairman ### Our performance against 2000 objectives Target: Double the number of electronic banking customers within one year Result: * The number of total electronic banking customers grew 97% from 231,000 to 456,000, primarily through alliances with grocery retailers Target: Increase sales of banking products through electronic channels by 50% within one year Result: * Sales volumes through telephone and PC Banking were up 16%. Growth in the number of calls received reduced our ability to increase outbound marketing calls required to meet the sales growth target and stay within our expense target. Including Amicus, sales volumes were up 48% Target: Change business processes that are not serving customers well or are exceeding industry cost benchmarks Result: * To accommodate growth in telephone banking, we are opening a new call centre in Fredericton, N.B. in early 2001 **Ongoing objectives** * Achieve 17%-20% return on equity, excluding Amicus * Add at least one million total new Amicus customers by the end of 2002 * Bring to market two new cibc.com ventures annually ```mermaid xychart-beta title "Total customers (000's)" x-axis [98, 99, 00] y-axis "Customers (000's)" 0 --> 500 bar [231, 231, 456] ``` ### Amicus This year we created Amicus to bring together all our co-branded retail electronic banking businesses: President’s Choice Financial (Loblaw Companies Limited), Marketplace Bank (Winn-Dixie Stores Inc.), Safeway SELECT Bank (Safeway Inc.), Yahoo! PayDirect and Bank@work. Amicus is an electronic and Internet bank complemented by retail pavilions. The Amicus strategy is to aggressively acquire electronic banking customers by offering lower-cost banking services through brand-name retail locations. Under Amicus, customers get convenient access to lower-cost banking, CIBC gains access to millions of new customers and our co-branded retailers benefit from our banking services. Our current relationships give us access to about 45 million customers across Canada and the United States. We believe this strategy will significantly increase our retail customer base in the next few years. President’s Choice Financial, launched in 1998, was our first strategic alliance. We now have 167 pavilions in Loblaw stores, providing customers with no-fee electronic banking, including chequing and savings accounts, mortgages and RRSP products. In an internal survey, more than 74% of customers rate service as very good or excellent compared with industry results of 60%. Loans and deposits managed per pavilion are up 280% year-over-year, and funds managed per customer have increased 56%. Marketplace Bank opened in late 1999. It is an alliance between CIBC and Winn-Dixie Stores Inc., a major grocery retailer in the southeastern U.S. that serves 14 million customers. Marketplace Bank recently received a customer satisfaction rating of 75%, with 38 pavilions operating at year end. Our alliance with Safeway Inc. was announced in June and is modelled after President’s Choice Financial. Safeway is among the top 10% of Fortune 500 companies. It has more than 1,400 stores in the U.S., and is the third-largest food and drug retailer. We opened 25 pavilions in the fourth quarter. In addition to President’s Choice Financial, Marketplace Bank and Safeway SELECT Bank, Amicus includes our new relationship with Yahoo! and Bank@work. Yahoo! PayDirect gives consumers in the U.S. a quick and easy way to receive and send payments over the Internet. Bank@work is a no-fee-banking program offered to 10 major Canadian employers with 12 sites operational. Nortel Networks Corporation is our largest client, and we have signed up 80% of employees at the Toronto locations. We expect to continue to expand Bank@work as it is an inexpensive customer-acquisition model potentially applicable to hundreds of alliances in Canada and the U.S. Expenses related to Amicus were \$267 million in 2000. Next year, CIBC plans to increase this amount. As the business continues to grow, Amicus is expected to be the main driver of CIBC’s retail growth strategy. Subsequent to year end, CIBC announced its intention to form a long-term alliance with Investors Group Inc., Great-West Lifeco Inc. and London Life Insurance Co. to distribute a full range of financial products and services under their own brands. Amicus will provide the products, services, operating infrastructure and technology to support this arrangement. Subject to regulatory approval and final agreements, the new products are expected to be introduced in 2001, beginning with Investors Group Inc. This newest relationship further demonstrates the flexibility of our electronic banking platform. In 2001, we expect to more than double the number of banking pavilions with our co-branded retailers and launch two new Amicus bank cards. ### Direct to consumer CIBC customers process 90% of retail transactions through electronic channels. CIBC has one of the largest ABM networks in Canada. New technology offers are progressing, including wireless banking and speech recognition functionality at call centres. Our call centres, located in Regina, Toronto, Fredericton and Halifax, serve 2.4 million telephone banking customers. During the year, the Halifax call centre achieved ISO 9000 certification from the International Standards Organization. ```mermaid xychart-beta title "Multi-channel delivery" x-axis [96, 97, 98, 99, 00] y-axis "# of locations" 0 --> 5000 bar [4000, 3000, 2000, 1000, 0] ``` ```mermaid xychart-beta title "Multi-channel delivery" x-axis [96, 97, 98, 99, 00] y-axis "\$ millions" 0 --> 250 bar [0, 50, 100, 150, 200, 250] ``` ### cibc.com In 2000, we created cibc.com to seek out profitable new ventures in e-commerce. Its mandate is to make strategic investments in technology start-ups to turn ideas into businesses that will help CIBC deliver creative, web-enabled banking solutions to our customers and superior equity returns to our shareholders. The primary focus, working with CIBC’s merchant banking group, is on investing in and creating new e-businesses and e-commerce platforms, such as VeriSign’s Internet-based security solutions. With VeriSign, CIBC offers a fully managed security service for Canadian companies that uses best-practice technology to secure e-commerce applications and communications over the Internet. Another example is Procuron, a new business-to-business online procurement marketplace, of which CIBC is a founding member. ### Cards We remain the No. 1 Canadian bank card issuer with more than 30% market share and 43% of the premium card market. We have 3.9 million accounts and our card products have been the entry point to 30% of CIBC new retail customers, excluding Amicus. ### Financial results – Electronic Commerce Electronic Commerce generated net income of \$323 million in 2000, up \$124 million from 1999. Net income in 2000 included a \$97 million after-tax gain on the sale of our property and casualty insurance companies and also included a \$16 million after-tax credit to adjust the 1999 restructuring provision. Net income in 1999 included a restructuring charge of \$44 million after-tax. In 1999, net income was \$199 million, down \$134 million from 1998, due in part to the \$44 million after-tax restructuring charge in 1999 and a \$28 million after-tax charge for a revision in the estimated useful life of certain technology assets. The source of our success is proactive customer acquisition and a co-branding strategy that enables us to offer a suite of cards that helps customers build travel miles and reward points. Last year we strengthened our travel points program by extending our contract with Air Canada to December 2009. During the year, we introduced an Aerogold card for small business. In the past 12 months, we had 23% growth in cards based on average balances under administration of \$7.0 billion. ### Mortgages CIBC Mortgages Inc. (CMI) continues its strong Canadian presence in both the residential and commercial mortgage markets. This year, the “Better Than Prime Mortgage” – our most successful new mortgage product – gained momentum and now represents 17% of new volume in residential mortgages. CMI uses a multi-brand and multi-channel approach, selling mortgages in CIBC branches and through a national sales force. Mortgages are also marketed under President’s Choice Financial and other private brands. Residential volumes grew by 10% in 2000 and CIBC now has 12.2% market share. Mortgages under administration are up 9% from 1999, almost double the growth rate of the market. ```mermaid xychart-beta title "Cards balances under administration (\$ billions)" x-axis [98, 99, 00] y-axis "Balances (\$ billions)" 0 --> 8 bar [4, 6.3, 7.7] ``` ```mermaid xychart-beta title "Net income (\$ millions)" x-axis [98, 99, 00] y-axis "Net Income (\$ millions)" 0 --> 350 bar [333, 199, 323] ``` ```mermaid xychart-beta title "Revenue (\$ millions)" x-axis [98, 99, 00] y-axis "Revenue (\$ millions)" 0 --> 2000 bar [1486, 1648, 1716] ``` **ELECTRONIC COMMERCE** \$ millions, for the years ended October 31 | | 2000 | 1999 | 1998 | |---|---|---|---| | Total revenue before the following | \$ 1,619 | \$ 1,648 | \$ 1,486 | | Gain on disposal of corporate assets | 97 | - | - | | Total revenue | \$ 1,716 | \$ 1,648 | \$ 1,486 | | Non-interest expenses before the following | \$ 888 | \$ 999 | \$ 790 | | Amicus | 267 | 102 | 42 | | Revision in the estimated useful life of certain technology assets | - | 48 | - | | Non-interest expenses | \$ 1,155 | \$ 1,149 | \$ 832 | | Efficiency ratio | 65.7% | 74.4% | 56.0% | | Efficiency ratio – excluding restructuring charge and above-noted items | 56.2% | 60.6% | 53.2% | | Return on equity (ROE) | 22.8% | 12.5% | 23.5% | | ROE – excluding restructuring charge and above-noted items | 26.3% | 22.3% | 24.0% | Electronic Commerce total revenue in 2000 was \$1,716 million on a taxable equivalent basis (TEB). Excluding the gain on the sale of our property and casualty insurance companies, revenue was \$1,619 million, down \$29 million or 2% from 1999. The decrease was largely due to revenue forgone from discontinued insurance businesses and lower treasury revenue, partially mitigated by growth in cards. Electronic Commerce total revenue in 1999 was \$1,648 million, up \$162 million or 11% from 1998 due to growth, especially in cards. | **ELECTRONIC COMMERCE** \$ millions, for the years ended October 31 | 2000 | 1999 | 1998 | |---|---|---|---| | Net interest income (TEB) | \$ 2,253 | \$ 2,178 | \$ 2,140 | | Non-interest income | 1,312 | 1,365 | 1,096 | | Intersegment revenue | (1,849) | (1,895) | (1,750) | | Total revenue (TEB) | 1,716 | 1,648 | 1,486 | | Non-interest expenses | 1,155 | 1,149 | 832 | | Restructuring charge | (28) | 77 | - | | Provision for credit losses | 169 | 103 | 119 | | Net income before income taxes | 420 | 319 | 535 | | Income taxes and non-controlling interests | 97 | 120 | 202 | | Net income | \$ 323 | \$ 199 | \$ 333 | | Full-time equivalent employees | 15,264 | 15,346 | 14,930 | *** ## Retail and Small Business Banking **OUR PRIORITIES ARE:** * To improve customer loyalty * To drive profitability growth **Retail and Small Business Banking** provides financial services to more than five million retail and 350,000 small business customers in Canada, as well as 350,000 retail and commercial clients in the Caribbean. Lending, deposit and investment products, and other banking services are offered through an extensive network of CIBC branches, as well as through electronic channels. This business generates 21% of CIBC’s revenue and employs about 20,500 people. During the year, we segmented our customer base into two distinct groups (retail and small business), continued to define the economics of the business and developed performance metrics and enhanced accountabilities. ### Retail Banking Retail banking delivered solid financial results while undertaking significant restructuring activities, including branch network reconfiguration. About 90% of basic customer transactions are now done through electronic channels, but most financial product sales are still completed through branches. To support our focus on increasing sales volumes, we have adopted a staffing model for branches to share front-line staff and deploy the optimal number of sales and service professionals based on customer traffic patterns. We are focused on improving customer loyalty. During the year, we concentrated on streamlining our processes, simplifying our product line, and investing in technology and training to deliver the best possible service and significantly improve the customer experience. These efforts had a positive impact on customer loyalty, which increased 2%, as measured by an ongoing internal survey. CIBC has been investing \$100 million in technology upgrades and training for the front line. In the branch network, 5,000 new personal computers and servers were installed, and we are continuing to improve our infrastructure with efficient operating systems. To increase employee capability, we launched significant new training initiatives, including a “Retail University”. More than 5,000 employees will participate in this program over the next year. ### Small Business Banking During the year, we created a separate group of 2,000 professionals committed to improving how we serve the small business segment. This group is organized into teams to strengthen our integrated offer to better meet both the personal and business financial services needs of our clients, as well as to establish a basis for better account relationship continuity. Access to funding for new businesses was improved by simplifying overdraft and line of credit financing. We also increased market share of small business customers who borrow, and we made considerable progress against our objective of growing small business lending volumes. We launched **bizSmart**, a strategic alliance with Business Depot and other leading suppliers to Canadian small businesses. BizSmart provides Canada’s first no-fee, online banking offer for small businesses. It is a “clicks and bricks” offer aimed at the fast growing market of more than two million Canadian small office and home office clients. With bizSmart, they can access no-fee financial services, e-purchasing, and management services through kiosks in Business Depot stores, online at bizSmart.com, by phone, or through CIBC’s ABM network. ### West Indies CIBC West Indies continues to rank among the top three banks in its major markets. We operate in Antigua, Bahamas, Barbados, Cayman Islands, Jamaica, St. Lucia, St. Vincent and the Grenadines, and Turks and Caicos. We continue to enhance technology and distribution capabilities to 350,000 customers in this region. The West Indies group experienced considerable business volume growth in 2000, in both the loan and deposit portfolios. On an average basis, from October 1999 to October 2000, the loan business, which includes mortgages, personal and commercial loans, and credit cards, was up more than 15%, with deposits growing more than 14% during the same period. ### HOW WE DID **MIKE PEDERSEN** Senior Executive Vice-President ### Our performance against 2000 objectives Target: Improve customer loyalty 10% by 2002 Result: * Ratings for 2000 improved by 2% over 1999, based on internal customer loyalty measures for October 2000 Target: Become No. 1 bank for small business customers by 2002 Result: * In a recent external survey of small business customers, CIBC ranked first among Canadian banks with 77% of our small business customers also conducting their personal business with CIBC * The latest available provincial market share statistics record a 27 basis point improvement over 1999 in our share of business loans in the under \$1 million category * The launch of bizSmart provides Canada’s first no-fee, online banking offer for small business Target: Grow small business loans by 15% a year Result: * Small business loan volumes at year end were 12% higher than 1999 **Ongoing objectives** * Achieve 16%-18% return on equity by 2002 * Improve customer loyalty 10% by 2002 * Become No. 1 bank for small business customers by 2002 **RETAIL AND SMALL BUSINESS BANKING** \$ millions, for the years ended October 31 | | 2000 | 1999 | 1998 | |---|---|---|---| | Net interest income (TEB) | \$ 1,053 | \$ 975 | \$ 997 | | Non-interest income | 243 | 173 | 224 | | Intersegment revenue | 1,294 | 1,350 | 1,248 | | Total revenue (TEB) | 2,590 | 2,498 | 2,469 | | Non-interest expenses | 1,809 | 1,753 | 1,660 | | Restructuring charge | 10 | 68 | - | | Provision for credit losses | 514 | 238 | 186 | | Net income before income taxes | 257 | 439 | 623 | | Income taxes and non-controlling interests | 52 | 148 | 252 | | Net income | \$ 205 | \$ 291 | \$ 371 | | Full-time equivalent employees(FTE)(1) | 15,418 | 15,717 | 16,735 | | **RETAIL AND SMALL BUSINESS BANKING** \$ millions, for the years ended October 31 | 2000 | 1999 | 1998 | |---|---|---|---| | Total revenue before the following | \$ 2,590 | \$ 2,477 | \$ 2,469 | | Gain on disposal of corporate investment | - | 21 | - | | Total revenue | \$ 2,590 | \$ 2,498 | \$ 2,469 | | Non-interest expenses before the following | \$ 1,792 | \$ 1,753 | \$ 1,660 | | bizSmart | 17 | - | - | | Non-interest expenses | \$ 1,809 | \$ 1,753 | \$ 1,660 | | Provision for credit losses before the following | \$ 264 | \$ 238 | \$ 186 | | Additional student loan provision | 250 | - | - | | Provision for credit losses | \$ 514 | \$ 238 | \$ 186 | | Efficiency ratio | 70.2% | 72.9% | 67.2% | | Efficiency ratio – excluding restructuring charge and above noted-items | 69.2% | 70.8% | 67.2% | | Return on equity (ROE) | 10.2% | 13.8% | 19.4% | | ROE – excluding restructuring charge and above-noted items | 19.3% | 14.7% | 19.4% | **Revenue** Total revenue for the RSBB business line was \$2,590 million on a taxable equivalent basis (TEB). Excluding the \$21 million investment gain in 1999, revenue in 2000 was up \$113 million or 5% from 1999. In 1999, total business line revenue was \$2,498 million, up \$29 million from 1998, as increases from higher business volumes and the investment gain were partly offset by lower treasury revenue and lower interest margins. ```mermaid xychart-beta title "Net income (\$ millions)" x-axis [98, 99, 00] y-axis "Net Income (\$ millions)" 0 --> 400 bar [371, 291, 205] ``` ```mermaid xychart-beta title "Revenue (\$ millions)" x-axis [98, 99, 00] y-axis "Revenue (\$ millions)" 0 --> 3000 bar [2469, 2498, 2590] ``` | **REVENUE** \$ millions, for the years ended October 31 | 2000 | 1999 | 1998 | |---|---|---|---| | Total revenue (TEB) | | | | | Retail banking | \$ 886 | \$ 822 | \$ 834 | | Small business banking | 780 | 678 | 677 | | West Indies | 268 | 263 | 253 | | Lending products | 624 | 650 | 607 | | Other | 32 | 85 | 98 | | | \$ 2,590 | \$ 2,498 | \$ 2,469 | Retail banking is the individual customer segment (customers other than those in Imperial Service). Revenue is earned from sales and service fees paid by CIBC’s product groups, primarily the investments, deposits and lending products businesses. Revenue was \$886 million, up \$64 million or 8% from 1999 due to business growth in loans and investments, and higher retail deposit interest margins. Small business banking is the customer segment supporting small owner-operated businesses, including owners’ personal holdings. Revenue is earned from sales and service fees paid by CIBC’s product groups, primarily the investments, deposits and lending products businesses. Revenue was \$780 million, up \$102 million or 15% from 1999 primarily due to growth in deposits, investments, and loan portfolios. Total outstanding balances of loans and deposits increased 11% from the end of 1999. West Indies is a full-service banking operation servicing all customer segments through a branch network and electronic delivery channels. Revenue is earned on net interest spreads and sales and service fees. Revenue was \$268 million, up \$5 million or 2% from 1999. Excluding a \$21 million investment gain in 1999, revenue was up \$26 million or 11%, due to higher business volumes. Lending products comprise personal (including student loans), small business and agricultural lending portfolios. Revenue is earned through net interest spreads and service fees; part of this revenue is paid to the customer segments. Revenue was \$624 million, down \$26 million from 1999 due to lower interest margins, which offset the impact of \$1.4 billion in higher loan volumes. The reduction in margins is a result of a continuing shift of the product mix into lower spread products such as secured lines of credit. Other consists primarily of the allocation of a portion of treasury revenue. Revenue was \$32 million, down \$53 million from 1999 due to lower treasury revenue and a \$6 million asset write-down. ### Expenses Non-interest expenses were \$1,809 million in 2000, up \$56 million or 3% from 1999, after excluding the \$68 million restructuring charge in 1999 and a \$10 million charge in 2000 to adjust the 1999 restructuring provision. The majority of the increase is due to increased incentive compensation based on operating results, a rise in the level of non-credit losses and strategic spending. Strategic spending represents \$17 million or 0.9% of non-interest expenses. The major strategic initiative was the launch of bizSmart – our on-line banking offer for small business customers. Other investment programs included a major technology upgrade for the branch service platform, and Retail University – an in-branch and in-class learning program for retail banking employees. After excluding restructuring from both years, bizSmart spending of \$17 million from 2000, and the \$21 million gain from the disposal of a corporate investment from 1999, the efficiency ratio for 2000 was 69.2%, down from 70.8% in 1999. Full-time equivalent employees totaled 15,418, down 299 from 1999, due primarily to the restructuring program. Adjusting for new branches, technology initiatives, launch of bizSmart, creation of small business advisory teams and for employees completing service in restructured positions, full-time equivalent positions were down 855 or 5% from 1999. In 1999, non-interest expenses were \$1,753 million, excluding the restructuring charge of \$68 million. Expenses in 1999 were up \$93 million or 6% from 1998 due to general salary increases and branch reconfiguration costs. ```mermaid xychart-beta title "Expenses (\$ millions)" x-axis [98, 99, 00] y-axis "Expenses (\$ millions)" 0 --> 2000 bar [1660, 1753, 1809] ``` ### Provision for credit losses The \$514 million provision for credit losses in 2000 includes an additional \$250 million specific provision taken in the fourth quarter for credit losses relating to government-sponsored student loans. This increase reflected the results of management’s assessment of the portfolio, giving consideration to the expiry of the contract with the federal government on July 31, 2000, ongoing negotiations with various provinces and overall poor credit performance. Excluding the additional provision relating to student loans, the provision for credit losses totaled \$264 million, up \$26 million from \$238 million in 1999. ### Average assets Average assets in 2000 were \$48.2 billion, up \$4.2 billion or 10% from 1999, mainly due to the increase in loan volumes. Small business loans at October 31, 2000 were up 12% from 1999, and personal loans were up 5%. **Loans in Canada** ```mermaid xychart-beta title "Personal (\$ billions)" x-axis [98, 99, 00] y-axis "Loans (\$ billions)" 0 --> 15 bar [10, 12, 14] ``` ```mermaid xychart-beta title "Total (\$ billions)" x-axis [98, 99, 00] y-axis "Loans (\$ billions)" 0 --> 30 bar [25, 27, 29] ``` ```mermaid xychart-beta title "Small business (\$ billions)" x-axis [98, 99, 00] y-axis "Loans (\$ billions)" 0 --> 15 bar [7, 9, 12] ``` **SCALE** * More than five million retail clients * 350,000 small business clients * 350,000 West Indies clients **MARKET POSITION** * No. 2 and No. 3 market share in retail and small business * Top three market share in West Indies markets *** ## Wealth Management **Wealth Management** is a leader in helping individual clients achieve their financial goals through a sales force of more than 2,900 financial professionals. These professionals deliver an array of investment products and services including: full-service and discount brokerage, a full range of proprietary and non-proprietary mutual funds, GICs, global private banking and trust, investment management services and a wide array of banking and credit services. This business generates 23% of CIBC’s revenue and employs about 7,500 people. CIBC has a significant wealth management business with \$163 billion in assets under administration (excluding institutional assets). ### Imperial Service In fiscal 2000, CIBC became the first Canadian bank to receive regulatory approval for its branch-based financial advisors (Imperial Service) to advise on and sell securities including more than 1,200 third-party investments, as well as CIBC’s family of mutual funds. The ability to offer a full range of investment, banking and credit services, enables CIBC’s financial advisors to provide clients with a broad range of financial planning and investment management services. We continue to invest in professional development programs to ensure that CIBC’s wealth management sales force is better able to meet client needs. ```mermaid xychart-beta title "Asset growth %" x-axis [96, 97, 98, 99, 00] y-axis "Asset growth (%)" 0 --> 60 bar [10, 20, 30, 40, 50] ``` ```mermaid xychart-beta title "Asset growth %" x-axis [96, 97, 98, 99, 00] y-axis "Asset growth (%)" 0 --> 60 line [5, 15, 25, 35, 45] ``` Banks and Trusts excluding CIBC CIBC started to include Personal Portfolio Services as of October 31, 1998 ### Mutual funds CIBC Securities Inc. continues to be the Canadian leader in index funds with more than \$3.9 billion in assets, and has maintained its No. 1 ranking in mutual fund net sales among Canadian banks and trust companies. Mutual fund asset growth was 17% for the year, with 19.8% bank and trust companies mutual fund market share. **HOW WE DID** **GERRY MCCAUGHEY** Senior Executive Vice-President ### Our performance against 2000 objectives Target: Increase assets under administration by 10% within one year Result: * Achieved 16% increase Target: Maintain a leadership position in index mutual funds by growing assets by 25% for the year Result: * Achieved 72% increase **Ongoing objectives** * Achieve more than 50% return on equity * Increase GIC market share by 20 basis points * Maintain a leadership position in index mutual funds by growing assets by 15% for the year * Increase total wealth management assets under administration by 6% ### Global Private Banking and Trust In 2000, we refocused our domestic trust operations (CIBC Trust Corporation) on trust and custody activities. Our commitment for Global Private Banking and Trust is to service the onshore and offshore needs of clients through global operations that are aligned with CIBC’s domestic strategy. ### Discount brokerage service CIBC Investor Services Inc. experienced record trading volumes in 2000. We have made investments to increase capacity and accommodate greater customer demands. Investment in our discount brokerage business (Investor’s Edge) improved our product offer and customer service capabilities. Specifically we introduced: * a voice-activated telephone quote service * a comprehensive investment research service * stock screening and information tools ### Full-service brokerage and asset management Assets under administration in our full-service brokerages are \$109 billion, up 19% from October 31, 1999. CIBC Wood Gundy and CIBC Oppenheimer experienced record revenue resulting from favourable market conditions, as well as growth in our client base. Initiatives that have contributed to this include value-added asset management programs and insurance services for our clients. ### GICs Based on research indicating client preferences, we reduced our GIC offering from 42 to 13 widely available GIC investment products, which represented the highest portion of our GIC assets. The result provides clearer GIC choices that continue to meet clients’ investment needs. **Year 2001** Through continued investment in our business we are equipping our sales force to respond to the growing demand for wealth management investment services. **WEALTH MANAGEMENT** \$ millions, for the years ended October 31 | | 2000 | 1999 | 1998 | |---|---|---|---| | Net interest income(TEB) | \$ 576 | \$ 630 | \$ 556 | | Non-interest income | 1,837 | 1,245 | 1,257 | | Intersegment revenue | 351 | 331 | 335 | | Total revenue(TEB) | 2,764 | 2,206 | 2,148 | | Non-interest expenses | 2,080 | 1,925 | 1,760 | | Restructuring charge | (11) | 53 | - | | Provision for credit losses | 1 | 14 | - | | Net income before income taxes | 694 | 214 | 388 | | Income taxes and non-controlling interests | 233 | 38 | 125 | | Net income | \$ 461 | \$ 176 | \$ 263 | | Full-time equivalent employees | 7,540 | 8,249 | 8,110 | | **WEALTH MANAGEMENT** \$ millions, for the years ended October 31 | 2000 | 1999 | 1998 | |---|---|---|---| | Total revenue before the following | \$ 2,736 | \$ 2,206 | \$ 2,148 | | Gain on disposal of corporate assets | 28 | - | - | | Total revenue | \$ 2,764 | \$ 2,206 | \$ 2,148 | | Efficiency ratio | 74.9% | 89.7% | 81.9% | | Efficiency ratio – excluding restructuring charge and above noted-items | 76.0% | 87.3% | 81.9% | | Return on equity (ROE) | 78.8% | 26.5% | 45.0% | | ROE – excluding restructuring charge and above-noted items | 74.1% | 31.3% | 45.0% | **Revenue** Wealth Management total revenue in 2000 was \$2,764 million on a taxable equivalent basis (TEB), up \$558 million or 25% from 1999 due to growth across all business lines, in particular private client investment, asset management and wealth products. Wealth Management total revenue in 1999 was \$2,206 million, up \$58 million or 3% from 1998. Imperial Service is the customer segment offering financial advice to CIBC’s high-value clients. Specially trained financial advisers support the financial planning and product fulfillment needs of these clients. Revenue is earned from sales and service fees paid by CIBC’s product groups, primarily the investments, deposits and lending products businesses. Revenue was \$619 million, up \$31 million from 1999 mainly due to higher retail deposit interest margins. | **WEALTH MANAGEMENT ASSETS UNDER ADMINISTRATION(1)** \$ billions, as at October 31 | 2000 | 1999 | 1998 | Service | |---|---|---|---|---| | Mutual funds | \$ 23.7 | \$ 20.2 | \$ 16.4 | Mutual funds and professional investment management services. | | Investor’s Edge discount brokerage | 13.6 | 9.3 | 6.3 | Asset consolidation and brokerage trading services offered through PC Banking, telephone banking and CIBC branches. | | Global private banking and trust | 16.9 | 19.7 | 17.1 | Offshore banking, investment, trust and advisory services offered to a client base of affluent individuals. | | Private client | | | | | | Canada | 42.1 | 35.7 | 31.6 | Full-service retail brokerage businesses providing equity, debt and mutual fund products, as well as advisory and financial planning services to individuals. | | U.S. | 66.9 | 55.9 | 50.3 | | | | \$ 163.2 | \$ 140.8 | \$ 121.7 | | (1) Excludes international assets administered for institutional clients and TAL Global Asset Management Inc.’s other managed assets. Expenses Non-interest expenses were \$2,080 million in 2000, up \$155 million or 8% from 1999 after excluding the restructuring charge from 1999 and the adjustment in 2000. The increase was primarily due to revenue-related expenses, of which the most significant is variable compensation. Excluding the revenue-related expenses from both 1999 and 2000, non-interest expenses were \$1,263 million, down \$71 million from 1999. The decrease resulted from cost reduction initiatives. Full-time equivalent employees totaled 7,540, down 8% from 1999 due to restructuring initiatives. In 1999, non-interest expenses were \$1,925 million, excluding the restructuring charge of \$53 million. Excluding the revenue-related expenses and the restructuring expenses, non-interest expenses were up \$68 million or 5% from 1998 primarily due to employee related and infrastructure expenses. ```mermaid xychart-beta title "Expenses (\$ millions)" x-axis [98, 99, 00] y-axis "Expenses (\$ millions)" 0 --> 3000 bar [1760, 1925, 2080] ``` ### Selected information Average assets in 2000 were \$19.3 billion, up \$1.7 billion or 9% from 1999. Wealth Management assets under administration (excluding international assets administered for institutional clients) totaled \$163.2 billion at year end, an increase of \$22.4 billion or 16% from 1999. Growth in administered assets has been strong due to increased customer investment activity and strong market conditions. **SCALE** * \$163.2 billion in administered assets, excluding institutional assets * More than 2,900 accredited financial professionals **MARKET POSITION** * Leader in index mutual funds with more than \$3.9 billion in assets * Leader in fee-based pooled funds with \$5.5 billion in assets in Canada *** ## CIBC World Markets **CIBC World Markets** provides clients with a full range of investment banking products throughout North America, with strong capabilities in selected products in Europe and Asia. We are proud to be the only Canadian bank with a comprehensive cross-border capability. This business generates 39% of CIBC’s revenue and employs about 3,300 people. During fiscal 2000, we exceeded our objective of \$1 billion in net income and surpassed our 15% to 20% return on equity goal with an ROE of 25.6%. These results reflect the successful implementation of a strategy that was launched five years ago to broaden our capabilities, particularly in the U.S. market. For example, in the early nineties, our presence in the U.S. market was confined to corporate lending. Today, we have the same full-service capabilities there that we have in Canada, and revenue from our U.S. operations now exceeds those of our Canadian operations. CIBC World Markets’ four businesses – capital markets, investment banking and credit products, merchant banking and commercial banking – all performed well this year. This diversified revenue base provides additional stability to our earnings. We reorganized our debt capital markets business and now have a streamlined, integrated operation with reduced expenses and capital. The financial performance of our equity structured products group, which creates equity strategies to manage risk or generate attractive long-term returns, was excellent, and we plan to build on this skill base. In our investment banking and credit products business, 2000 was particularly active for our teams specializing in mergers and acquisitions (M\&A), health care, technology, power technology, media and telecommunications. Successes this year included advising on the largest ever technology M\&A transaction. Our structured finance group continues its leadership in asset securitization globally, and the cross-border leasing team completed a US\$1 billion financing for one of Europe’s largest telecommunications companies. With investments around the world, our merchant bank continues to perform exceptionally well. In addition to healthy returns, our merchant banking investments and private equity fund investments are introducing CIBC World Markets to potential new clients and transaction opportunities in the U.S. and Europe. In conjunction with Electronic Commerce, we created cibc.com, a merchant banking venture to invest in technology start-ups. We ended fiscal 2000 with more than \$2.7 billion in unrealized gains across our merchant banking portfolios. **OUR PRIORITIES ARE:** * To continue to build our U.S. client franchise * To continue to increase our share of cross border financings **Our performance against 2000 objectives** Target: Achieve \$1 billion in net income after tax and a 15% to 20% return on equity Result: * Achieved net income after tax of \$1.1 billion and return on equity of 25.6% **Ongoing objectives** * Sustain \$1 billion net income after tax * Achieve 15% to 20% return on equity * Sustain \$600 million to \$800 million in annual merchant banking revenue ```mermaid xychart-beta title "North American strategic growth (\$ billions)" x-axis [99, 00] y-axis "Equity new issues" 0 --> 80 bar [25.9, 34.5] ``` ```mermaid xychart-beta title "North American strategic growth (\$ billions)" x-axis [99, 00] y-axis "M&A" 0 --> 80 bar [51.4, 76.9] ``` **HOW WE DID** **DAVID KASSIE** Vice-Chairman Our commercial banking business, which serves companies with revenue of more than \$5 million, has improved its returns, processes and relationships with core clients and is implementing a number of new initiatives to further enhance future capabilities. ### North American operations With the 1999 completion of our full-service platform in the U.S., CIBC World Markets offers clients in both Canada and the U.S. full access to the North American capital markets and comprehensive cross-border financing solutions. In the U.S., we are targeting growth-oriented companies who want an investment bank with full-service capabilities and the quality of service typically associated with boutique firms. In Canada, where our market position is well established, we have maintained a leading position in virtually all aspects of investment banking and commercial banking. Together, these two operations are attracting new clients and increasing our share of lead-managed deals throughout North America. Our equity new issue activity experienced a surge in business this year, with North American volumes increasing to \$34.5 billion in fiscal 2000, up from \$25.9 billion in fiscal 1999. In M\&A, our transaction values in fiscal 2000 were \$76.9 billion, up from \$51.4 billion in fiscal 1999. Our expertise in bought deals and merchant banking has also helped us to secure new clients and lead transactions. ### Financial Results – CIBC World Markets Net income CIBC World Markets generated net income of \$1,123 million in 2000, up \$583 million from \$540 million in 1999. The increase was primarily due to continued growth in merchant banking and capital markets business, partially offset by lower investment banking and credit products revenue, which resulted from losses associated with exiting certain businesses and lower leveraged finance (i.e. corporate lending and high yield activities) revenue. In 1999, CIBC World Markets net income was \$540 million, up \$345 million from 1998. The 1999 results were driven by improved trading revenue and merchant banking gains, offset in part by investment securities write-downs and the restructuring charge. **CIBC WORLD MARKETS** \$ millions, for the years ended October 31 | | 2000 | 1999 | 1998 | |---|---|---|---| | Net interest income (TEB) | \$ 407 | \$ 811 | \$ 740 | | Non-interest income | 4,138 | 2,843 | 2,100 | | Intersegment revenue | 204 | 213 | 166 | | Total revenue (TEB) | 4,749 | 3,867 | 3,006 | | Non-interest expenses | 2,906 | 2,608 | 2,700 | | Restructuring charge | - | 182 | 79 | | Provision for credit losses | 286 | 245 | (25) | | Net income before income taxes | 1,557 | 832 | 252 | | Income taxes and non-controlling interests | 434 | 292 | 57 | | Net income | \$ 1,123 | \$ 540 | \$ 195 | | Full-time equivalent employees | 3,281 | 3,571 | 3,949 | | **CIBC WORLD MARKETS** \$ millions, for the years ended October 31 | 2000 | 1999 | 1998 | |---|---|---|---| | Non-interest expenses before the following | \$ 2,836 | \$ 2,563 | \$ 2,460 | | New York premises consolidation | 50 | - | - | | Oppenheimer acquisition-related costs | 20 | 45 | 240 | | Non-interest expenses | \$ 2,906 | \$ 2,608 | \$ 2,700 | | Efficiency ratio | 61.2% | 72.1% | 92.4% | | Efficiency ratio – excluding restructuring charge and above-noted items | 59.7% | 66.3% | 81.8% | | Return on equity (ROE) | 25.6% | 11.6% | 3.7% | | ROE – excluding restructuring charge and above-noted items | 26.5% | 14.7% | 6.3% | **Revenue** CIBC World Markets total revenue in 2000 was \$4,749 million on a taxable equivalent basis (TEB), up \$882 million or 23% from 1999. Revenue increased in part from the reallocation of capital to higher yielding businesses. Merchant banking revenue growth continued, up \$559 million from 1999. In addition, capital markets revenue was \$510 million higher than in 1999 as equity related activities were at record levels. In 1999, CIBC World Markets total revenue was \$3,867 million, up \$861 million or 29% from 1998. Merchant banking revenue was up \$428 million and included a gain on the sale of a portion of our investment in Global Crossing Ltd., partially offset by write-downs. The rest of the increase resulted from improved capital markets revenue and the successful implementation of the U.S. growth strategy. ```mermaid xychart-beta title "Net income (\$ millions)" x-axis [98, 99, 00] y-axis "Net Income (\$ millions)" 0 --> 1200 bar [195, 540, 1123] ``` ```mermaid xychart-beta title "Revenue (\$ millions)" x-axis [98, 99, 00] y-axis "Revenue (\$ millions)" 0 --> 5000 bar [3006, 3867, 4749] ``` | **REVENUE** \$ millions, for the years ended October 31 | 2000 | 1999 | 1998 | |---|---|---|---| | Total revenue (TEB) | | | | | Capital markets | \$ 1,516 | \$ 1,006 | \$ 816 | | Investment banking and credit products | 1,707 | 1,906 | 1,591 | | Merchant banking | 1,021 | 462 | 34 | | Commercial banking | 475 | 468 | 596 | | Other | 30 | 25 | (31) | | | \$ 4,749 | \$ 3,867 | \$ 3,006 | Capital markets operates trading, sales and research businesses serving institutional, corporate and government clients across North America and around the world. Revenue was \$1,516 million, up \$510 million from 1999 due to significant revenue growth in equity structured products and U.S. institutional equity activities, driven in part by strong market conditions during the year. Investment banking and credit products provides advisory services and underwriting of debt, credit and equity for corporate and government clients across North America and around the world. Revenue was \$1,707 million, down \$199 million from 1999 mainly due to reduced deal flow in leveraged finance markets. In the year, the business continued its strategy of exiting capital intensive businesses. As such, a \$46 million loss was recognized with respect to our ongoing program to dispose of non-core lending assets. Also, a \$20 million loss was recognized on the sale of the international structured trade finance business. Merchant banking makes investments to create, grow and recapitalize companies across a variety of industries. Revenue was \$1,021 million, up \$559 million from 1999. Current year revenue benefited from a number of significant gains including \$697 million (1999: \$583 million) on the disposal of a portion of our investment in Global Crossing Ltd. Revenue in 1999 was also affected by significant write-downs on the Loewen Group and Newcourt Credit Group Ltd. CIBC World Markets is near completion of a program to hedge most of its remaining 47 million share investment in Global Crossing Ltd. CIBC has entered into forward sale contracts with a range of maturities from 2001 to 2003. Floor prices have been set at between US\$20–\$28 per share and ceiling prices at US\$46–\$64 per share. Commercial banking originates financial solutions centred around credit products for medium-sized businesses in Canada. Revenue was \$475 million, up \$7 million from 1999. Other includes the allocation of a portion of treasury revenue; CEF Capital, an affiliated Asian merchant bank holding company; and other revenue not directly attributed to the main businesses listed above. Revenue was \$30 million, up \$5 million from 1999. ### Expenses Non-interest expenses were \$2,906 million in 2000, up \$298 million or 11% from 1999 after excluding the restructuring charge from 1999. The increase was primarily due to revenue based compensation which was up from 1999, in line with the 23% increase in revenue as well as a \$50 million charge for New York premises consolidation. The efficiency ratio, excluding restructuring, the New York premises consolidation and Oppenheimer acquisition-related costs, was 59.7%, down from 66.3% in 1999. The improved efficiency ratio is due to higher revenue and the benefits of the 2000 cost reduction initiative. Full-time equivalent employees totaled 3,281, down 8% from 1999 due to restructuring initiatives. In 1999, non-interest expenses were \$2,608 million, down \$92 million or 3% from 1998, excluding restructuring. This reduction reflects the impact of a successful cost reduction program initiated across CIBC World Markets. ```mermaid xychart-beta title "Expenses (\$ millions)" x-axis [98, 99, 00] y-axis "Expenses (\$ millions)" 0 --> 3000 bar [2700, 2608, 2906] ``` ### Average assets and return on equity Average assets in 2000 were \$117.9 billion, down \$23.7 billion or 16.8% from 1999 primarily due to a reduction in securities borrowed or purchased under resale agreements. Return on equity was 25.6%, up from 11.6% in 1999 due largely to the successful implementation of cost controls and capital allocation strategies that resulted in higher revenue. Strong market conditions during the year also contributed to the increase. **SCALE** * Extensive industry and advisory specialists focused on North America and selected international markets * Complete range of corporate and investment banking products throughout North America **MARKET POSITION** * A leader in investment and corporate banking in Canada * No. 1 investment bank to North American biotech industry * A leader in global asset securitization *** ## Functional groups ## Treasury and Balance Sheet Management While CIBC has a history of strong balance sheet management, the creation of Treasury and Balance Sheet Management (TBM) has taken our discipline and focus to the next level. During the year, TBM established a balance sheet resource allocation process that has resulted in shifting resources to higher-return and/or strategic growth activities (see matrix below). CIBC established TBM to optimize the linkage between balance sheet (including capital) and risk, and to maximize shareholder value. In conjunction with Finance, TBM has developed a performance measurement and management system based on economic and shareholder value-added principles. This system provides a framework used by TBM for setting balance sheet and risk resource tolerance limits and overall balance sheet resource management. CIBC’s capital mix and its use of capital are shifting. To generate more consistent revenue growth within CIBC, lower-yielding and more variable-return risk-weighted assets have been reduced. Continued strong capital ratios are supporting growth in 2000 in retail activities and enabled CIBC to repurchase 26.5 million common shares in 2000, compared with 13.7 million in 1999. At the same time, the global competitive environment continues to evolve, with major implications for banks and other financial institutions. Alternatives for transferring credit risk, such as secondary loan trading and credit derivatives continue to grow at a significant pace and underscore the fact that banks and other financial institutions are no longer best positioned to be owners of credit risk. The natural evolution away from the current practice of “originating and holding” credit to a practice of “originating and selling” credit continues to be a predominant industry trend. TBM will continue to capitalize on opportunities to improve CIBC’s use of balance sheet resources, through a variety of techniques such as securitizing credit to move assets off the balance sheet, or by freeing up capital from underperforming and/or low-return activities. During the year, TBM’s treasury division also significantly managed down its market risk exposures by reducing long, proprietary positions in its asset/liability gap portfolio. This action was taken in response to an interest rate environment characterized by a flattening yield curve. As a result of the reduction in market risk exposures and the flattening yield curve, treasury revenue was down in 2000 compared with 1999. **OUR PRIORITIES** **WAYNE FOX** Vice-Chairman **Target capital ratios of 8%-9% Tier 1 and 11%-12% total** **Manage balance sheet and risk resources to support achievement of 15% EPS growth and 18% ROE** **Reallocate balance sheet (including capital) and risk resources based on sustainable economic performance and other key metrics** **Balance sheet resource allocation matrix** ```mermaid graph TD A[Qualitative assessment] --> B{Financial assessment} B -- HIGH --> C[Growth] B -- LOW --> D[Fix, reduce, exit] C -- HIGH --> E[Investment] C -- LOW --> F[Managed growth] D --> G[LOW] E --> H[HIGH] F --> H G --> I[LOW] H --> J[HIGH] subgraph Quadrants C E F D end style C fill:#90EE90,stroke:#333,stroke-width:2px style E fill:#FFC0CB,stroke:#333,stroke-width:2px style F fill:#ADD8E6,stroke:#333,stroke-width:2px style D fill:#FFA07A,stroke:#333,stroke-width:2px ``` **SCALE** * Average assets \$263.1 billion * Risk-weighted assets \$132.9 billion * BIS Tier 1 capital \$11.5 billion * BIS total capital \$16.1 billion * Average RMU’s \$107.5 million (net of \$33.1 million diversification effect) ## Risk Management CIBC’s Risk Management Group oversees CIBC’s global credit, market and operational risk exposures. Specifically, Risk Management has responsibility to: * Develop and recommend risk management policy * Measure and monitor compliance with established policy * Develop and implement methodologies to measure and manage risk * Design and implement infrastructure necessary to identify, measure, manage and control risk * Approve credit risk * Manage CIBC’s high risk corporate and commercial loan portfolios The group functions as an independent unit, reporting directly to the Chairman and CEO and is represented in offices across Canada and in New York, London, Tokyo, Singapore and West Indies. Credit quality remains strong. Net impaired loans after the general allowance were negative \$575 million, compared to negative \$266 million at the end of 1999. The total allowance for credit losses at year end was \$2.2 billion, an increase of \$488 million from 1999. The general allowance increased by \$250 million during the year to \$1.25 billion or 0.94% of risk-weighted assets, reflecting a prudent approach to the current economic cycle, portfolio composition and continued refinement of CIBC’s allowance methodology. Specific provisions during the year were \$970 million compared to \$600 million in 1999. The increase in specific provisions primarily relates to the consumer loan portfolio, specifically government-sponsored student loans and losses associated with growth in the credit card portfolio, and corporate loans in the U.S. (see page 37). CIBC has implemented a comprehensive Value at Risk price risk methodology for the measurement of market risk (see page 49). Using this measure, trading risk exposure is under \$21 million at year end, down 17% from 1999. Daily net trading revenue remained within predicted limits throughout the year, averaging \$2.8 million compared to \$2.7 million in 1999 and \$0.5 million in 1998. Net trading revenue was positive 74% of the days compared to 72% in 1999 and 66% in 1998. **OUR PRIORITIES** **BOB MARK** Senior Executive Vice-President * Identify, measure, manage and control risk * Continue progress towards a fully integrated approach to risk management * Implementation of CreditVaR for large corporate and com mercial exposures * Completion of the implementation of operational risk measurement systems across the organization * Early preparedness for the Bank of International Settlements’ “BIS 2000+” regulatory capital requirements ### Risk adjusted return on capital (RAROC) RAROC is a risk-adjusted profitability measurement and management framework that supports strategic as well as tactical decision making. It links risk, reward and shareholder value and provides a consistent view of profitability across businesses. RAROC is used to facilitate pricing, performance management, portfolio management, balance sheet management and resource allocation. Risk Management develops and implements the risk measurement and capital models, and quantifies economic capital and expected losses. This information is provided to the business lines to assist in deal analysis. Economic capital is a balance sheet resource that is allocated by the Capital and Risk Committee. Businesses are also charged for their use of economic capital in their performance measurement reports, which complements the use of RAROC and provides an incentive to the business lines to maximize risk-adjusted profitability. Economic capital is attributed for each of credit, market and operational risks for a large part of CIBC businesses. As such, RAROC makes significant use of the risk measurement infrastructure developed within Risk Management. Businesses are attributed economic capital and expected losses as a function of risk, and are held accountable to generate appropriate returns on those risks. ## Administration The Administration group provides governance and support services to CIBC and its strategic business units. It comprises finance, purchasing, corporate communications, human resources, marketing, corporate real estate and governance, which includes legal, audit and compliance functions. These infrastructure units are charged with establishing bank-wide processes to ensure CIBC, its subsidiaries and businesses operate in an efficient, controlled and integrated manner in achieving corporate objectives. The Administration group works with the Chairman and the senior teams of the bank to establish operating and financial performance targets, to monitor progress against the targets and to report results in a clear and transparent way to both internal and external stakeholders. We also deliver an array of services to CIBC business units – everything from marketing support to payroll services. Our goal is to deliver these services, either directly or through third-party suppliers, as efficiently and effectively as possible. During fiscal 2000, the Administration group beat its own cost reduction targets by 4% and also successfully managed a review process to ensure that the bank achieved overall cost reduction targets. Our group also introduced new performance management processes for business and individuals to ensure continued improvements in corporate and individual accountability. In fiscal 2001, the Administration group will continue to focus on driving greater efficiencies in its own areas and throughout the bank. Other important objectives relate to support for the key strategic initiatives of building the Amicus electronic and Internet banking business and the revitalization of the CIBC brand. We will continue to take a leadership role in performance measurement and management systems to improve accountability and performance of all our business activities. The group will also lead an important initiative to seek out opportunities for strategic outsourcing. Our objective is to create opportunities to achieve long-term cost efficiencies, improve operational effectiveness, increase our management focus on our key business activities, and create attractive career opportunities for our people. **OUR PRIORITIES** **RON LALONDE** Senior Executive Vice-President and Chief Administrative Officer * Ongoing cost management performance * Improved financial measures to facilitate clear decision making * Attract and retain talented and motivated people * Provide clear communication to our internal and external audiences ## Corporate Development In keeping with its mandate to encourage an owner-manager mindset among the organization’s business leaders, Corporate Development works with CIBC’s core businesses to identify opportunities that will create additional value for CIBC shareholders. This year, we have been very active in a number of areas: determining ways we can accelerate the growth of high-return businesses; liberating capital by exiting non-strategic or low-return businesses; identifying new partners and joint venture opportunities that will create shareholder value; helping to prioritize strategies and capital requirements; identifying mechanisms for improving business unit performance; and expediting decisions related to e-business opportunities. Corporate Development has played an integral role in the sales of CIBC’s property and casualty insurance companies, our private client operation in Switzerland (CIBC Suisse S.A.), and several office properties. We were pivotal in the arrangement with Investors Group Inc., Great-West Lifeco Inc. and London Life Insurance Co., as well as in the alliance with National Data Corporation to form Global Payments Inc. for our credit card merchant acquiring business. We continue to assist in the development of potential alliances for our rapidly expanding Amicus strategy. We also played a key role in the development and formation of Procuron, an innovative development in the Canadian business-to-business e-commerce arena. We are working in close association with cibc.com, our new venture to identify significant e-commerce investment opportunities. **OUR PRIORITIES** **RICHARD VENN** Senior Executive Vice-President * Surface for shareholders unrecognized value in our businesses * Identify opportunities for investment divestiture and harvesting *** # Consolidated financial results ## Contents 57. Financial reporting responsibility of management 57. Auditors’ report to shareholders 58. Consolidated balance sheets 59. Consolidated statements of income 60. Consolidated statements of changes in shareholders’ equity 61. Consolidated statements of cash flows 62. Notes to the consolidated financial statements 93. Principal subsidiaries 94. Supplementary annual financial information 101. Quarterly review 102. Ten-year statistical review *** ## Financial reporting responsibility of management The management of Canadian Imperial Bank of Commerce (CIBC) is responsible for the preparation of the Annual Report, which includes the consolidated financial statements. The consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles, including the accounting requirements of the Superintendent of Financial Institutions, Canada (OSFI). In meeting its responsibility for the reliability and integrity of the consolidated financial statements, management has developed, and maintains, a system of accounting and reporting which provides for the necessary internal controls to ensure that transactions are properly authorized and recorded, assets are safeguarded and liabilities are recognized. The system focuses on the need for the employment and training of qualified and professional staff, effective written communication between management and staff and management guidelines and policies. The system also addresses the need for established policies on social responsibility and corporate conduct, and a management organization philosophy which reflects accountability within delineated areas of responsibility. Of necessity, the consolidated financial statements contain items that reflect the best estimates and judgments of management. The accounting, reporting and internal control systems are reviewed by the Chief Inspector and his staff who examine and review all aspects of CIBC’s operations. Systems and procedures to ensure employee compliance with conflict of interest rules and with securities legislation are monitored by the Compliance Officer. The Chief Inspector and the Compliance Officer have full access to the Audit Committee of the Board of Directors of CIBC. CIBC’s interim and annual consolidated financial statements are reviewed by the Audit Committee with management, the Chief Accountant and the shareholders’ auditors, in the presence of the Chief Inspector and the Executive Vice-President, Legal and Compliance, before the statements are reviewed by the Board of Directors. In addition, the Audit Committee has the duty to review the adoption of, and changes in, accounting principles and practices which have a material effect on the consolidated financial statements; to review investments and transactions that could adversely affect the well-being of CIBC which are brought to the attention of the Committee by the Chief Inspector and the shareholders’ auditors or any officer of CIBC; to review financial reports requiring Board approval prior to submission to securities commissions or other regulatory authorities; to help develop CIBC’s financial disclosure philosophy; to assess and review key management estimates and judgments material to reported financial information; and to review the shareholders’ auditors’ fees. The consolidated financial statements and management’s discussion and analysis, contained in the Annual Report, have been reviewed and approved by the Board of Directors upon the recommendation of the Audit Committee. **J.S. Hunkin** Chairman and Chief Executive Officer **T.D. Woods** Chief Financial Officer December 7, 2000 ## Auditors’ report to shareholders We have audited the consolidated balance sheets of Canadian Imperial Bank of Commerce (CIBC) as at October 31, 2000 and 1999 and the consolidated statements of income, changes in shareholders’ equity and cash flows for each of the years in the three-year period ended October 31, 2000. These consolidated financial statements are the responsibility of CIBC’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of CIBC as at October 31, 2000 and 1999 and the results of its operations and its cash flows for each of the years in the three-year period ended October 31, 2000 in accordance with Canadian generally accepted accounting principles, including the accounting requirements of the Superintendent of Financial Institutions, Canada. **Arthur Andersen LLP** **PricewaterhouseCoopers LLP** **Chartered Accountants** **Toronto, Canada** **December 7, 2000** *** ## Consolidated financial statements **CONDENSED BALANCE SHEETS** \$ millions, as at October 31 | ASSETS | 2000 | 1999(1) | |---|---|---| | Cash resources | | | | Cash and non-interest-bearing deposits with banks | \$ 1,383 | \$ 1,902 | | Interest-bearing deposits with banks | 9,296 | 10,625 | | | 10,679 | 12,527 | | Securities (Note 3) | | | | Securities held for investment | 15,864 | 13,277 | | Securities held for trading | 53,217 | 46,054 | | Loan substitute securities | 161 | 161 | | | 69,242 | 59,492 | | Loans (Note 4) | | | | Residential mortgages | 51,898 | 46,613 | | Personal and credit card loans | 27,452 | 24,532 | | Business and government loans | 47,091 | 47,047 | | Securities borrowed or purchased under resale agreements | 20,461 | 19,158 | | General allowance for credit losses | (1,250) | (1,000) | | | 145,652 | 136,350 | | Other | | | | Derivative instruments market valuation (Note 18) | 23,847 | 24,449 | | Customers’ liability under acceptances | 9,088 | 9,296 | | Land, buildings and equipment (Note 5) | 1,508 | 2,213 | | Other assets (Note 6) | 7,686 | 6,004 | | | 42,129 | 41,962 | | | **\$ 267,702** | **\$ 250,331** | | **LIABILITIES AND SHAREHOLDERS’ EQUITY** | | | | Deposits (Note 7) | | | | Individuals | \$ 63,109 | \$ 60,878 | | Businesses and governments | 103,141 | 85,940 | | Banks | 13,382 | 13,223 | | | 179,632 | 160,041 | | Other | | | | Derivative instruments market valuation (Note 18) | 24,374 | 25,097 | | Acceptances | 9,088 | 9,296 | | Obligations related to securities sold short | 13,992 | 15,563 | | Obligations related to securities lent or sold under repurchase agreements | 14,199 | 13,640 | | Other liabilities (Note 8) | 10,630 | 11,092 | | | 72,283 | 74,688 | | Subordinated indebtedness (Note 9) | 4,418 | 4,544 | | Shareholders’ equity | | | | Preferred shares (Note 11) | 1,876 | 1,933 | | Common shares (Note 11) | 2,868 | 3,035 | | Retained earnings | 6,625 | 6,090 | | | 11,369 | 11,058 | | | **\$ 267,702** | **\$ 250,331** | (1) Certain comparative figures have been restated to conform with the presentation used in 2000. The accompanying notes are an integral part of the consolidated financial statements. **J.S. Hunkin** Chairman and Chief Executive Officer **I.E.H. Duvar** Director **Consolidated statements of income** \$ millions, for the years ended October 31 | | 2000 | 1999 | 1998 | |---|---|---|---| | **Interest income** | | | | | Loans | \$ 11,467 | \$ 11,215 | \$ 11,731 | | Securities | 3,297 | 2,692 | 2,645 | | Deposits with banks | 563 | 498 | 624 | | | 15,327 | 14,405 | 15,000 | | **Interest expense** | | | | | Deposits and other liabilities | 10,728 | 9,691 | 10,271 | | Subordinated indebtedness | 317 | 306 | 392 | | | 11,045 | 9,997 | 10,663 | | **Net interest income (Note 3)** | 4,282 | 4,408 | 4,337 | | **Provision for credit losses (Note 4)** | 1,220 | 750 | 480 | | | 3,062 | 3,658 | 3,857 | | **Non-interest income** | | | | | Fees for services | | | | | Underwriting | 886 | 700 | 717 | | Deposit | 503 | 490 | 486 | | Credit | 508 | 495 | 415 | | Card | 368 | 314 | 315 | | Trust and custodial | 457 | 371 | 327 | | Mutual funds | 280 | 184 | 158 | | Insurance | 124 | 214 | 207 | | | 3,126 | 2,768 | 2,625 | | Commissions on securities transactions | 1,480 | 1,181 | 1,163 | | Trading activities (Note 3) | 977 | 584 | 66 | | Investment securities gains, net | 970 | 378 | 96 | | Income from securitized assets | 237 | 200 | 120 | | Other | 1,007 | 617 | 734 | | | 7,797 | 5,728 | 4,804 | | | 10,859 | 9,386 | 8,661 | | **Non-interest expenses** | | | | | Employee compensation and benefits | 4,937 | 4,388 | 4,059 | | Occupancy costs | 634 | 594 | 556 | | Computer and office equipment | 758 | 849 | 678 | | Communications | 371 | 380 | 389 | | Advertising and business development | 273 | 283 | 314 | | Professional fees | 240 | 211 | 228 | | Business and capital taxes | 108 | 127 | 130 | | Restructuring charge (Note 2) | (31) | 426 | 79 | | Other | 806 | 740 | 692 | | | 8,096 | 7,998 | 7,125 | | **Income before income taxes and non-controlling interests** | **2,763** | **1,388** | **1,536** | | **Income taxes (Note 14)** | **641** | **320** | **460** | | | **2,122** | **1,068** | **1,076** | | **Non-controlling interests in net income of subsidiaries** | **62** | **39** | **20** | | **Net income** | **\$ 2,060** | **\$ 1,029** | **\$ 1,056** | | **Dividends on preferred shares (Note 11)** | **\$ 128** | **\$ 112** | **\$ 116** | | **Net income applicable to common shares** | **1,932** | **917** | **940** | | | **\$ 2,060** | **\$ 1,029** | **\$ 1,056** | | **Average number of common shares outstanding (in thousands)** | | | | | - Basic | 388,951 | 409,789 | 415,030 | | - Fully diluted | 404,569 | 422,501 | 425,303 | | **Net income per common share (in dollars) (Note 15)** | | | | | - Basic | \$ 4.97 | \$ 2.23 | \$ 2.26 | | - Fully diluted | \$ 4.84 | \$ 2.22 | \$ 2.25 | | **Dividends per common share (in dollars) (Note 11)** | **\$ 1.29** | **\$ 1.20** | **\$ 1.20** | The accompanying notes are an integral part of the consolidated financial statements. **Consolidated statements of changes in shareholders’ equity** \$ millions, as at or for the years ended October 31 | | 2000 | 1999 | 1998 | |---|---|---|---| | **Preferred shares(Note 11)** | | | | | Balance at beginning of year | \$ 1,933 | \$ 1,961 | \$ 1,518 | | Issue of preferred shares | 345 | - | 641 | | Redemption of preferred shares | (425) | - | (250) | | Translation adjustment on foreign currency preferred shares | 23 | (28) | 52 | | Balance at end of year | **\$ 1,876** | **\$ 1,933** | **\$ 1,961** | | **Common shares (Note 11)** | | | | | Balance at beginning of year | \$ 3,035 | \$ 3,128 | \$ 3,105 | | Issue of common shares | 34 | 10 | 23 | | Repurchase of common shares for cancellation | (201) | (103) | - | | Balance at end of year | **\$ 2,868** | **\$ 3,035** | **\$ 3,128** | | **Retained earnings** | | | | | Balance at beginning of year | \$ 6,090 | \$ 6,047 | \$ 5,624 | | Net income | 2,060 | 1,029 | 1,056 | | Dividends | (629) | (604) | (614) | | Premium on redemption of preferred shares | (17) | - | (10) | | Premium on repurchase of common shares | (873) | (397) | - | | Foreign currency translation adjustment, net of income taxes(1) | 8 | (4) | 1 | | Other | (14) | 19 | (10) | | Balance at end of year | **\$ 6,625** | **\$ 6,090** | **\$ 6,047** | (1) The cumulative balance in the foreign currency translation account is a gain/(loss) of \$2 million (1999: \$(6) million; 1998: \$(2) million). The accompanying notes are an integral part of the consolidated financial statements. **Consolidated statements of cash flows** \$ millions, for the years ended October 31 | Cash flows provided by (used in) operating activities | 2000 | 1999 | 1998 | |---|---|---|---| | Net income | \$ 2,060 | \$ 1,029 | \$ 1,056 | | Adjustments to determine net cash flows: | | | | | Provision for credit losses | 1,220 | 750 | 480 | | Amortization | 360 | 368 | 294 | | Restructuring charge, net of cash payments | (31) | 325 | 72 | | Future income taxes | (267) | 3 | (97) | | Investment securities gains, net | (970) | (378) | (96) | | Accrued interest receivable | (332) | 743 | (772) | | Accrued interest payable | 250 | (632) | 1,045 | | Net change in securities held for trading | (7,163) | 2,009 | (17,278) | | Gains on disposal of subsidiaries | (125) | - | (116) | | (Gain)/loss on disposal of land, buildings and equipment | (199) | 27 | (24) | | Current income taxes payable | 102 | 391 | (641) | | Other, net | (1,163) | 2,069 | 1,584 | | | **(6,258)** | **6,704** | **(14,493)** | | **Cash flows provided by (used in) financing activities** | | | | | Deposits, net of withdrawals | 19,591 | (66) | 20,027 | | Obligations related to securities sold short | (1,571) | (486) | 485 | | Net obligations related to securities lent or sold under repurchase agreements | 559 | (18,970) | 892 | | Issue of subordinated indebtedness | - | 400 | 785 | | Redemption of subordinated indebtedness | (175) | (262) | (1,095) | | Issue of preferred shares | 345 | - | 641 | | Redemption of preferred shares | (442) | - | (260) | | Issue of common shares | 34 | 10 | 23 | | Repurchase of common shares for cancellation | (1,074) | (500) | - | | Dividends | (629) | (604) | (614) | | Other, net | 81 | 1,054 | (735) | | | **16,719** | **(19,424)** | **20,149** | | **Cash flows provided by (used in) investing activities** | | | | | Interest-bearing deposits with banks | 1,329 | (1,819) | (2,229) | | Loans, net of repayments | (10,381) | (4,983) | (16,542) | | Proceeds from securitizations | 1,162 | 3,005 | 7,958 | | Purchase of securities held for investment | (8,595) | (9,222) | (12,908) | | Proceeds from sales of securities held for investment | 6,168 | 9,069 | 14,839 | | Net securities borrowed or purchased under resale agreements | (1,303) | 17,135 | 4,562 | | Net cash paid for acquisition of subsidiary | - | - | (460) | | Proceeds from disposal of subsidiaries | 486 | - | 144 | | Purchase of land, buildings and equipment | (378) | (387) | (368) | | Proceeds from disposal of land, buildings and equipment | 862 | 12 | 55 | | | **(10,650)** | **12,810** | **(4,949)** | | Effect of exchange rate changes on cash and cash equivalents | 13 | (21) | 88 | | **Net increase (decrease) in cash and cash equivalents during year** | **(176)** | **69** | **795** | | Cash and cash equivalents at beginning of year | 1,700 | 1,631 | 836 | | **Cash and cash equivalents at end of year** | **\$ 1,524** | **\$ 1,700** | **\$ 1,631** | | **Represented by:** | | | | | Cash and non-interest-bearing deposits with banks | \$ 1,383 | \$ 1,902 | \$ 1,989 | | Cheques and other items in transit, net (Notes 6 & 8) | 141 | (202) | (358) | | **Cash and cash equivalents at end of year** | **\$ 1,524** | **\$ 1,700** | **\$ 1,631** | | **Cash interest paid** | **\$ 10,795** | **\$ 10,629** | **\$ 9,618** | | **Cash income taxes paid** | **\$ 554** | **\$ 140** | **\$ 860** | The accompanying notes are an integral part of the consolidated financial statements. *** ## Notes to the consolidated financial statements ### 1. Summary of significant accounting policies The consolidated financial statements of Canadian Imperial Bank of Commerce and its subsidiaries (CIBC) have been prepared in accordance with Canadian generally accepted accounting principles, including the accounting requirements of the Office of the Superintendent of Financial Institutions, Canada (OSFI). A reconciliation of the impact on assets, liabilities, net income and retained earnings arising from differences between Canadian and U.S. generally accepted accounting principles is provided in Note 24. Disclosures reflected in these consolidated financial statements comply in all material respects with those required under U.S. generally accepted accounting principles. A description of future Canadian accounting policy changes is provided in Note 26. The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the balance sheet date and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The following paragraphs describe CIBC’s significant accounting policies: **Basis of consolidation** The consolidated financial statements include the accounts of all subsidiaries on a consolidated basis. Intercompany accounts and transactions have been eliminated. Goodwill, representing the excess of the purchase price over the fair value of the net assets of the subsidiaries acquired, and intangible assets are amortized to income over their estimated useful lives, not exceeding 20 years, using the straight-line method, except where a write-down is required to reflect an impairment loss. Goodwill and intangible asset balances are reviewed periodically for impairment. When the expected future cash flows are less than the carrying value of the assets, goodwill and intangible assets are written-down to their net recoverable amount. Investments in companies over which CIBC has significant influence are accounted for by the equity method and are included in securities held for investment in the consolidated balance sheets. CIBC’s share of earnings from these investments is included in interest income. **Foreign currency translation** Assets and liabilities arising from foreign currency transactions are translated into Canadian dollars at month-end exchange rates at the dates of the consolidated financial statements while the associated revenues and expenses are translated using average monthly exchange rates. Realized and unrealized gains and losses arising on the translation are included in the current year consolidated statement of income. Assets and liabilities of CIBC’s foreign operations are translated into Canadian dollars using month-end exchange rates at balance sheet dates, while the associated revenues and expenses are translated at the average monthly exchange rates in effect. Exchange gains and losses arising from the translation of net investment positions and from the results of hedging these positions are reported in retained earnings. **Securities** Securities held for investment comprise all securities other than those which are held for trading. Equity securities are stated at cost and debt securities at amortized cost, determined on the average cost basis. Realized gains and losses on disposal and write-downs to reflect other than temporary impairments in value are included in investment securities gains in the consolidated statements of income. Securities held for trading are purchased for resale within a short period of time and are stated at estimated market value. Gains and losses realized on disposal and unrealized gains and losses from market value fluctuations are included in trading activities in the consolidated statements of income. Loan substitute securities are accounted for in the same manner as loans. They represent after-tax financing arrangements, which provide issuers with tax effective borrowings. Obligations related to securities sold short are recorded as liabilities and are carried at their fair values. Realized and unrealized gains and losses thereon are included in trading activities in the consolidated statements of income. Dividend and interest income on all securities, including the amortization of premiums and discounts on debt securities, are included in interest income. **Loans** Loans are stated net of unearned income and allowances for credit losses. **Loan fees** Fees relating to loan origination, including commitment, restructuring and renegotiation fees, are considered an integral part of the yield earned on the loan and are deferred as unearned income and amortized to interest income over the term of the loan. Fees received for commitments which are not expected to result in a loan are included in non-interest income over the commitment period. Loan syndication fees are included in non-interest income on completion of the syndication arrangement. **Securitizations** CIBC periodically sells groups of loans or receivables to special purpose vehicles (SPVs) which issue securities to investors. If these transactions transfer the risks and rewards of ownership from CIBC and meet accepted criteria for recognition as sales, the assets are removed from the consolidated balance sheets. Securitization affects the components of income reported in the consolidated statements of income, including net interest income, provision for credit losses and non-interest income. Non-interest income from securitized assets comprises gains on sale, losses under recourse arrangements and servicing income. All of these components are recognized only when earned, received in cash and the SPV has no recourse to the cash. **Impaired loans** A loan is classified as impaired when, in the opinion of management, there no longer is reasonable assurance of the timely collection of the full amount of principal and interest. Generally, loans on which repayment of principal or payment of interest is contractually 90 days in arrears are automatically considered impaired unless they are fully secured and in the process of collection. Notwithstanding management’s assessment of collectibility, such loans are considered impaired if payments are 180 days in arrears. Exceptions are as follows: * Credit card loans are not classified as impaired but are instead fully written-off when payments are contractually 180 days in arrears. * Loans guaranteed or insured by the Canadian government, the provinces or a Canadian government agency are classified as impaired only when payments are contractually 365 days in arrears. When a loan is classified as impaired, accrual of interest ceases. All uncollected interest is recorded as part of the loan’s carrying value for the purpose of determining the loan’s estimated realizable value and establishing necessary allowances for credit losses. No portion of cash received on any impaired loan is recorded as income until such time as any prior write-off has been recovered or any specific allowance has been reversed and it is determined that the loan principal is fully collectible in accordance with the original contractual terms of the loan. **Allowance for credit losses** Management establishes and maintains an allowance for credit losses which it considers the best estimate of probable credit-related losses existing in CIBC’s portfolio of on and off-balance sheet financial instruments, giving due regard to current conditions. Impaired loans are carried at their estimated realizable values determined by discounting the expected future cash flows at the interest rate inherent in the loan. When the amount and timing of future cash flows cannot be estimated reliably, the loan is carried at either the fair value of the security underlying the loan or the market price of the loan. Any changes in the estimated realizable amounts over time are reported wholly as a charge or credit to the allowance for credit losses. The allowance for credit losses consists of specific and general components, which are deducted from the related asset categories, and specific allowances relating to off-balance sheet items, which are included in other liabilities in the consolidated balance sheets. Management conducts ongoing credit assessments of the business and government loan portfolio on an account-by-account basis and establishes specific allowances when doubtful accounts are identified. Residential mortgage and personal and credit card loan portfolios consist of large numbers of homogeneous balances of relatively small amounts, for which specific allowances are established by reference to historical ratios of write-offs to balances outstanding. The general allowance is provided for losses which management estimates are inherent in the portfolio at the balance sheet date, and which relate to loans not yet specifically identified as impaired and not yet captured in the determination of specific allowances. The general allowance is established based on statistical estimates of probable losses inherent in the portfolio. The estimate takes into account historical loss experience, loan portfolio composition, current market trends and recovery rates. **Securities borrowed or purchased under resale agreements and obligations related to securities lent or sold under repurchase agreements** Securities purchased under resale agreements are stated at cost plus accrued interest and are secured loans insofar as they represent a purchase of securities by CIBC effected with a simultaneous agreement to sell them back at a future date, which is generally near term. Interest income thereon is included in loan interest income in the consolidated statements of income. Obligations related to securities sold under repurchase agreements are stated at cost plus accrued interest and represent the borrowing equivalent of securities purchased under resale agreements. Interest thereon is reflected in deposits and other liabilities interest expense in the consolidated statements of income. Securities borrowed and securities lent are recorded at the amount of cash advanced or received. Securities borrowed consist primarily of government and equity securities. CIBC monitors the market value of the securities borrowed and lent on a daily basis and calls for additional collateral when appropriate. Fees received or paid are recorded as interest income or interest expense in the consolidated statements of income. **Derivative instruments** Derivative instruments are contracts that require or provide the opportunity to exchange cash flows or payments determined by applying certain rates, indices or changes therein to notional contract amounts. CIBC utilizes derivatives in two broadly defined activities: trading operations and, to a lesser extent, in asset-liability management. **Derivatives held for trading purposes** CIBC’s derivative trading activities are primarily driven by client trading activities. Clients transact with CIBC as part of their own risk management, investing and trading activities. To facilitate these activities, CIBC acts as a derivatives dealer or market maker, and is prepared to transact with clients by quoting bid and offer prices, with the objective of providing a spread to CIBC. CIBC also takes limited proprietary trading positions in the interest rate, foreign exchange, debt, equity and commodity markets, with the objective of earning income. All financial and commodity derivative instruments entered into for trading purposes, including derivatives used to hedge risks created by assets and liabilities which are marked to market, are stated at fair values. Quoted market prices, when available, are used to determine the fair values of derivatives held for trading. Otherwise, fair values are estimated using pricing models. Where appropriate, a valuation adjustment is made to cover market, model and credit risks, as well as administrative costs. Realized and unrealized trading gains and losses are included in trading activities in the consolidated statements of income. Derivatives with a positive fair value are reported as assets while derivatives with a negative fair value are reported as liabilities in the consolidated balance sheets, in both cases as derivative instruments market valuation. Assets and liabilities with the same counterparty are netted only where CIBC has both the legal right as well as intent to settle the assets and liabilities on a net basis. **Derivatives held for asset-liability management purposes** CIBC uses derivative financial instruments, primarily interest rate swaps and, to a lesser degree, futures, forward rate agreements and options contracts, to manage financial risks such as movements in interest rates and foreign exchange rates. These instruments are used for hedging activities or to modify interest rate characteristics of specific non-trading on-balance sheet assets and liabilities, or groups of similar non-trading on-balance sheet assets and liabilities. When derivative instruments, primarily interest rate swaps, modify the interest rate characteristics of specific financial assets or liabilities or groups of similar financial assets or liabilities, these derivative instruments are accounted for using the accrual method. Under this method, interest income or expense on these derivative instruments is accrued for and included in interest income or expense in the consolidated statements of income and reported in other assets or other liabilities in the consolidated balance sheets. Derivative instruments may be designated as hedges of financial risk exposures of on-balance sheet assets or liabilities, firm commitments and anticipated transactions or of foreign currency exposures arising from net investments in foreign operations. Designation as a hedge is only allowed if both at the inception of the hedge and throughout the hedge period, the changes in the market value of the derivative instrument substantially offset the effects of price or interest rate changes on the exposed items. Gains and losses on derivative instruments used to hedge interest rate risk exposures of on-balance sheet assets and liabilities, except for hedges of foreign currency denominated assets and liabilities, are recognized as interest income or expense at the same time as interest income or expense related to the hedged on-balance sheet assets and liabilities. There is no recognition in the consolidated balance sheets or consolidated statements of income of unrealized gains or losses on derivatives used to hedge on-balance sheet assets and liabilities. Certain liabilities, whose values are determined based on an underlying index or asset, are accounted for on a modified accrual basis. Under this method, the carrying value of the liabilities is adjusted to reflect changes in the value of the underlying index or asset, subject to a minimum guaranteed redemption value, if any. These adjustments are recorded as interest expense in the consolidated statements of income. Derivatives which are used to hedge these liabilities are accounted for on a similar basis, with adjustments recorded as interest income in the consolidated statements of income. Foreign currency derivative instruments that hedge foreign currency risk exposures from foreign denominated assets and liabilities are revalued each month using the spot foreign exchange rate and are included in other assets or other liabilities in the consolidated balance sheets. Resulting gains and losses are recognized as non-interest income or expense in the consolidated statements of income. The hedged items are also revalued using the spot foreign exchange rate with the resulting gains or losses recognized as non-interest income or expense. Any difference between the contracted interest rates on the foreign currency derivative hedge is accrued in interest income or expense in the consolidated statements of income. Gains and losses on derivative instruments used to hedge firm commitments or anticipated transactions are deferred and recognized in income or as adjustments to the carrying amount of the assets and liabilities which they hedge in the period that the committed or anticipated transactions occur. Anticipated transactions can be hedged only when significant characteristics and expected terms of the anticipated transactions are identified and it is probable that the anticipated transactions will occur. There is no recognition in the consolidated statements of income of unrealized gains or losses on derivatives hedging anticipated transactions. Premiums paid for options used for hedging purposes are amortized over the life of the contract. A hedging relationship is terminated if the hedge ceases to be effective; the underlying asset, liability or future transaction being hedged is liquidated or terminated and the derivative instrument is still outstanding; or, if the derivative instrument is no longer designated as a hedging instrument. If the relationship of hedging or modification of interest rate characteristics is terminated, the difference between the fair value of the derivative and its accrued value upon termination is recorded in other assets or other liabilities or as an adjustment to the carrying amount of the hedged assets or liabilities. These amounts are amortized into income or expense over the lesser of the remaining term to maturity of the derivative hedge and the hedged asset or liability. **Acceptances and customers’ liability under acceptances** Acceptances constitute a liability of CIBC on negotiable instruments issued to third parties by customers of CIBC. CIBC earns a fee for guaranteeing and then making the payment to the third parties. The amounts owed to CIBC by its customers in respect of these guaranteed amounts are reflected in assets as customers’ liability under acceptances in the consolidated balance sheets. **Land, buildings and equipment** Land is reported at cost. Buildings, equipment and leasehold improvements are reported at cost less accumulated amortization. Amortization is recorded on a straight-line basis as follows: * Buildings: 40 years * Computer equipment: 2 to 10 years * Office furniture and other equipment: 4 to 15 years * Leasehold improvements: Over estimated useful life Gains and losses on disposal are reported in non-interest income in the consolidated statements of income. **Future income taxes** CIBC uses the asset and liability method to provide for income taxes on all transactions recorded in the consolidated financial statements. The asset and liability method requires that income taxes reflect the expected future tax consequences of temporary differences between the carrying amounts of assets or liabilities and their tax bases. Future income tax assets and liabilities are determined for each temporary difference based on the tax rates which are expected to be in effect when the underlying items of income and expense are expected to be realized. **Pension and other post-retirement benefits** CIBC is the sponsor of a pension plan under which all eligible employees are entitled to benefits based on length of service and rates of pay. Based on management’s best estimate assumptions, actuarial valuations of the pension obligations are made periodically for accounting purposes by an independent actuary using the projected benefit method prorated on service. Market-related values are used to value pension fund assets. The annual pension expense includes the estimated present value of the cost of future pension benefits payable in respect of services rendered in the current period, interest on projected pension obligations net of earnings on plan assets and the amortization of experience gains and losses. Amortization is charged on a straight-line basis over the expected average remaining service life of the employee groups covered by the plan. CIBC also provides certain health care and life insurance benefits to eligible pensioners. The costs of such benefits are expensed as incurred. **Stock-based compensation** CIBC provides compensation to certain employees in the form of stock options. CIBC follows the intrinsic value based method of accounting for such awards; consequently no expense is recognized for stock options as the strike price thereon is set at the market price on the issue date of the awards. When options are exercised, the proceeds received by CIBC are credited to common shares. Under CIBC’s stock option plan, participants may elect to exercise up to 50% of their vested options as Stock Appreciation Rights (SARs). During the year, CIBC changed its method of accounting for SARs. Prior periods have not been restated as the impact of this change is not significant. Payments in respect of SARs are charged to retained earnings when SARs are exercised. **Insurance revenues and expenses** Premiums less claims and changes in actuarial liabilities are reflected in non-interest income while administrative costs are included in non-interest expenses in the consolidated statements of income. Investment income is included in income from securities in the consolidated statements of income. **Assets under administration** Assets under administration are comprised of assets under management, assets securitized and still administered by CIBC and assets administered by CIBC in the capacity of custodian. Mutual fund assets managed by CIBC on behalf of its clients are considered assets under management. Assets under administration are not the property of CIBC and are not included in the consolidated balance sheets. Trust and custodial and mutual funds fees are included in non-interest income as fees for services. Trust and custodial fees are primarily investment, estate and trust management fees and are recorded on an accrual basis. Custodial service fees are recorded as earned, except for prepaid fees which are deferred and amortized over the contract term. Mutual funds fees are recorded on an accrual basis. **Cash and cash equivalents** Cash and cash equivalents in the consolidated statements of cash flows comprise cash, deposits with the Bank of Canada, current operating accounts, overnight deposits with banks and, on a net basis, uncleared cheques and other items in transit. **1999 and 1998 financial information** Certain 1999 and 1998 financial information has been reclassified, where necessary, to conform with the presentation adopted in 2000. ### 2. Restructuring In 1999, a pre-tax restructuring charge of \$426 million was included in non-interest expenses in the consolidated statement of income. The restructuring program was developed to achieve three objectives – reduce costs, reallocate capital to more profitable businesses and realign operations with the new business units. Significant actions taken under the restructuring program in fiscal 2000 include the following: * Electronic Commerce restructured mortgage operations, exited direct life insurance products and reorganized its technology infrastructure and payments business. * Retail and Small Business Banking reconfigured its Canadian branch network, with a net reduction of 93 branches. * Wealth Management restructured domestic trust operations, refocused internal sales support and changed the composition of its Imperial Service sales force. * CIBC World Markets closed its Taiwan office, sold its international structured trade finance business and restructured its commercial banking customer service platform. * Corporate and Other consolidated asset/liability, funding, liquidity, cash and collateral management as well as support functions including finance and human resource operations. Approximately 3,100 positions were reduced in fiscal 2000 (1999: 480 positions). At program inception, planned employee reductions through restructuring totaled 4,200 positions. During the year, CIBC changed its estimate for restructuring, resulting in a net \$31 million reduction in the original provision. The change in estimate resulted from facts and circumstances occurring subsequent to the original restructuring charge. In particular, severance costs were less than originally anticipated due to higher levels of attrition and redeployment within CIBC as well as a reduction in the scope of certain initiatives. **RESTRUCTURING PROVISION** \$ millions, as at or for the years ended October 31 | | **2000** | **1999** | |---|---|---| | | Termination benefits | Other | Total | Termination benefits | Other | Total | | Balance at beginning of year | \$ 346 | \$ 19 | \$ 365 | \$ 66 | \$ 1 | \$ 67 | | Restructuring charge | - | - | - | 377 | 49 | 426 | | Change in estimate | (31) | - | (31) | - | - | - | | Cash payments | (229) | (10) | (239) | (97) | (4) | (101) | | Non-cash items | - | - | - | (27) | - | (27) | | Balance at end of year | **\$ 86** | **\$ 9** | **\$ 95** | **\$ 346** | **\$ 19** | **\$ 365** | The \$95 million restructuring balance at October 31, 2000 includes \$17 million which was paid in November 2000 to certain former Oppenheimer employees terminated as a result of the restructuring. The remaining balance of \$78 million relates to restructuring programs across all business lines. These programs will be completed in 2001. ### 3. Securities **Residual term to contractual maturity** | | **Within 1 year** | **1 to 5 years** | **5 to 10 years** | **Over 10 years** | **No specific maturity** | **2000 Total** | **1999 Total** | **1998 Total** | |---|---|---|---|---|---|---|---|---| | **Carrying value** | **\$ millions, as at October 31** | **Value** | **Yield(1)** | **Value** | **Yield(1)** | **Value** | **Yield(1)** | **Value** | **Yield(1)** | **Value** | **Yield(1)** | **Value** | **Yield(1)** | **Value** | **Yield(1)** | **Value** | **Yield(1)** | | **Securities held for investment** | | | | | | | | | | | | | | | | | | | Canadian federal government | \$ 148 | 5.6% | \$ 3,965 | 5.8% | \$ 233 | 5.8% | \$ 283 | 6.0% | - | - | \$ 4,629 | 5.9% | \$ 2,374 | 5.4% | \$ 2,192 | 5.5% | | Other Canadian governments | 710 | 6.0 | 356 | 5.9 | 38 | 6.0 | 207 | 6.6 | - | - | 1,311 | 6.1 | 1,548 | 5.7 | 1,624 | 5.6 | | U.S. Treasury | 13 | 6.4 | - | - | 145 | 6.7 | - | - | - | - | 158 | 6.7 | 82 | 4.8 | 128 | 5.0 | | Other U.S. agencies | 478 | 6.4 | 1,475 | 6.4 | 304 | 6.3 | 692 | 7.1 | - | - | 2,949 | 6.5 | 1,844 | 5.4 | 3,049 | 5.3 | | Other foreign governments | 782 | 6.3 | 154 | 6.3 | 236 | 5.8 | 66 | 5.8 | - | - | 1,238 | 6.2 | 846 | 5.8 | 919 | 5.5 | | Corporate debt | 1,368 | 6.6 | 738 | 7.4 | 166 | 7.2 | 96 | 6.8 | - | - | 2,368 | 7.1 | 3,104 | 5.2 | 2,178 | 5.5 | | Corporate equity | 44 | 6.3 | 211 | 6.6 | 163 | 6.1 | 3 | 6.7 | 2,499 | - | 2,920 | - | 3,276 | - | 2,511 | - | | Equity accounted investments | - | - | - | - | - | - | - | - | 291 | - | 291 | - | 203 | - | 198 | - | | **Total debt securities** | | | | | | | | | | | | | | | | | | | Carrying value | \$ 3,499 | | \$ 6,688 | | \$ 1,122 | | \$ 1,344 | | - | | \$ 12,653 | | \$ 9,798 | | \$ 10,090 | | | Estimated fair value | \$ 3,520 | | \$ 6,718 | | \$ 1,166 | | \$ 1,398 | | - | | \$ 12,802 | | \$ 9,803 | | \$ 10,340 | | | **Total equity securities** | | | | | | | | | | | | | | | | | | | Carrying value | \$ 44 | | \$ 211 | | \$ 163 | | \$ 3 | | \$ 2,790 | | \$ 3,211 | | \$ 3,479 | | \$ 2,709 | | | Estimated fair value(2) | \$ 54 | | \$ 211 | | \$ 365 | | \$ 3 | | \$ 5,056 | | \$ 5,689 | | \$ 7,094 | | \$ 4,590 | | | **Total investment securities** | | | | | | | | | | | | | | | | | | | Carrying value | \$ 3,543 | | \$ 6,899 | | \$ 1,285 | | \$ 1,347 | | \$ 2,790 | | \$ 15,864 | | \$ 13,277 | | \$ 12,799 | | | Estimated fair value(2) | \$ 3,574 | | \$ 6,929 | | \$ 1,531 | | \$ 1,401 | | \$ 5,056 | | \$ 18,491 | | \$ 16,897 | | \$ 14,930 | | | **Securities held for trading(3)** | | | | | | | | | | | | | | | | | | | Canadian federal government | \$ 5,453 | | \$ 6,983 | | \$ 536 | | \$ 411 | | - | | \$ 13,383 | | \$ 11,977 | | \$ 13,519 | | | Other Canadian governments | 315 | | 496 | | 542 | | 573 | | - | | 1,926 | | 1,436 | | 1,434 | | | U.S. Treasury and agencies | 2,619 | | 1,425 | | 298 | | 181 | | - | | 4,523 | | 5,262 | | 5,849 | | | Other foreign governments | 1,108 | | 152 | | 86 | | 13 | | - | | 1,359 | | 595 | | 2,758 | | | Corporate debt | 4,960 | | 2,146 | | 1,436 | | 792 | | - | | 9,334 | | 9,967 | | 11,534 | | | Corporate equity | 13 | | 5 | | - | | - | | 22,674 | | 22,692 | | 16,817 | | 12,969 | | | **Total trading securities** | **\$ 14,468** | | **\$ 11,207** | | **\$ 2,898** | | **\$ 1,970** | | **\$22,674** | | **\$ 53,217** | | **\$ 46,054** | | **\$ 48,063** | | | **Loan substitute securities** | | | | | | | | | | | | | | | | | | | Carrying value | \$ 7 | 4.9% | \$ 133 | 4.9% | \$ - | - | \$ - | - | \$ 21 | - | \$ 161 | 4.3% | \$ 161 | 4.3% | \$ 108 | 4.2% | | Estimated fair value | \$ 7 | | \$ 133 | | \$ - | | \$ - | | \$ 21 | | \$ 161 | | \$ 161 | | \$ 108 | | | **Total securities** | | | | | | | | | | | | | | | | | | | Carrying value | **\$ 18,018** | | **\$ 18,239** | | **\$ 4,183** | | **\$ 3,317** | | **\$25,485** | | **\$ 69,242** | | **\$ 59,492** | | **\$ 60,970** | | | Estimated fair value(2) | \$ 18,049 | | \$ 18,269 | | \$ 4,429 | | \$ 3,371 | | \$27,751 | | \$ 71,869 | | \$ 63,112 | | \$ 63,101 | | (1) Represents the weighted average yield which is determined by applying the weighted average of the book yields of individual fixed income securities and the stated dividend rates of corporate equity securities. (2) The fair value of publicly traded equity securities held for investment does not take into account any adjustments for resale restrictions that expire within one year, adjustments for liquidity or future expenses. (3) As securities held for trading are recorded at fair value, carrying value equals fair value. **Loans and acceptances (NET OF ALLOWANCE FOR CREDIT LOSSES)(1)** \$ millions, as at October 31 | | 2000 | 1999 | |---|---|---| | Residential mortgages | \$ 51,898 | \$ 46,613 | | Student loans | 4,263 | 4,380 | | Personal loans | 17,567 | 15,937 | | Credit card loans | 5,622 | 4,215 | | Total consumer loans | 79,350 | 71,145 | | Business and government loans, including acceptances(2) | 56,179 | 56,343 | | Securities borrowed or purchased under resale agreements | 20,461 | 19,158 | | General allowance | (1,250) | (1,000) | | **Total net loans and acceptances** | **\$ 154,740** | **\$ 145,646** | (1) See detail in the Supplementary Annual Financial Information on page 96. (2) Government loans totaled \$902 million at October 31, 2000 (1999: \$1,395 million). **Portfolio diversification** CIBC’s loans and acceptances portfolio is well diversified to ensure that concentration by customer, industry, geography and currency are within prudent and acceptable limits. Consumer loans totaled \$79.4 billion in 2000, up \$8.2 billion or 12% from 1999 and represented 59% of total net loans and acceptances, excluding securities borrowed or purchased under resale agreements. The increase in 2000 was due to growth in residential mortgages of \$5.3 billion or 11% reflecting strong housing markets in Canada. In addition, credit card loan balances grew \$1.4 billion or 33% from 1999. These increases reflect our strategic emphasis on retail business. Business and government loans, including acceptances were \$56.2 billion in 2000, consistent with 1999. The portfolio increased \$0.7 billion or 2% in Canada and \$0.3 million or 19% in the West Indies. Portfolio growth in these regions was offset by reductions in Asia, Europe and the U.S. Decreases in the financial services, real estate and manufacturing segments were substantially offset by increases in the transportation and communications and trades and services sectors. CIBC’s exposure to Asia, Latin America and Eastern Europe continued to decline. Total securities, net derivatives, lending related and other asset exposures were down \$2.5 billion to \$4.7 billion in 2000. From an industry perspective, CIBC manages its concentrations through a series of industry groups, segment and sub-segments, with oil and gas, governments, financial institutions and communications and high-technology representing the largest segments. CIBC’s portfolio remains well diversified with none of its segments representing more than 14% of the total portfolio. *** ## Allowances – general and specific At October 31, 2000, the accumulated total allowance for credit losses was \$2,236 million, up \$488 million from 1999. Total allowances now represent 135% of the gross impaired loans and acceptances portfolio, up from 118% in 1999. ### Specific allowance Specific allowances were \$986 million as at October 31, 2000, an increase of \$238 million from the previous year. Specific allowances now represent 0.64% of total net loans and acceptances, up from 0.51% in 1999. Allowances specifically related to the consumer portfolios were \$510 million, up \$267 million or 110%. This increase was primarily due to government-sponsored student loans, where a \$365 million (including the additional \$250 million) provision was recorded in 2000, reflecting losses embedded in the portfolio. During 2000 we evaluated the status of the student loan portfolio, giving consideration to the expiry of the contract with the federal government on July 31, 2000, ongoing negotiations with various provinces, and overall poor credit performance. We have adjusted the specific provision to reflect the results of our evaluation. Business and government specific allowances were \$476 million, down \$29 million or 6% from 1999. Reductions were experienced in all geographic regions except the United States, where specific allowances grew by \$47 million from 1999. Net impaired loans, before the general provision, were down year over year, with the increases in business and government portfolios being offset by decreases in the consumer portfolios. ### General allowance The general allowance provides for credit losses which are present in the credit portfolio, but which have not yet been specifically identified. The level to which general allowances are accumulated is based on the expected losses associated with individual asset portfolios, adjusted by management for economic or portfolio risk trends and changes in lending policies and standards. These portfolios include business loans and acceptances, off-balance sheet credit instruments such as credit commitments and letters of credit, and consumer loan portfolios. Expected losses for business portfolios are based on the risk rating of each credit facility and loss factors associated with each risk rating which have been derived from historical experience. Expected losses for consumer portfolios are based on historical flow and loss rates. CIBC’s general allowance methodology utilizes a portfolio by portfolio approach. While the general allowances may be determined with respect to individual portfolios or business segments, the whole allowance remains available to absorb losses in the entire credit portfolio, which have not yet been specifically identified. During 2000, CIBC increased its general allowance level by \$250 million to \$1.25 billion, reflecting a prudent approach to the current economic cycle, portfolio composition and continued refinement of CIBC’s allowance methodology. This level, in the opinion of management, provides adequately for losses existing in the loan portfolio when considered together with specific allowances. ## Impaired loans Impaired loans are those for which, in the opinion of management, there no longer is reasonable assurance of the full and timely collection of principal and interest. Note 1 to the consolidated financial statements, commencing on page 62, outlines the criteria and processes for designating and accounting for impaired loans. During the year, \$1,784 million of loans were newly classified as impaired, up 2.7% from 1999. Business and government loan classifications grew by \$97 million or 11%, partially offset by a \$50 million or 6% reduction in consumer loan classifications. Reductions in gross impaired loans through remediation, repayment or sale were \$756 million, down \$231 from 1999, reflecting lower experience in both the consumer and business and government loan portfolios. **CHANGES IN NET IMPAIRED LOANS(1)** | | **Business and government loans** | **Consumer(2)** | **Total before general allowance** | **General allowance** | **Total** | **Business and government loans** | **Consumer(2)** | **Total before general allowance** | **General allowance** | **Total** | **Business and government loans** | **Consumer(2)** | **Total before general allowance** | **General allowance** | **Total** | |---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---| | **Gross impaired loans** | | | | | | | | | | | | | | | | | Balance at beginning of year | \$ 1,019 | \$ 463 | \$ 1,482 | \$ - | \$ 1,482 | \$ 1,050 | \$ 436 | \$ 1,486 | \$ - | \$ 1,486 | \$ 1,203 | \$ 416 | \$ 1,619 | \$ - | \$ 1,619 | | New additions | 1,008 | 776 | 1,784 | - | 1,784 | 911 | 826 | 1,737 | - | 1,737 | 485 | 742 | 1,227 | - | 1,227 | | Returned to performing status, repaid or sold | (408) | (348) | (756) | - | (756) | (534) | (453) | (987) | - | (987) | (388) | (380) | (768) | - | (768) | | Gross impaired loans prior to write-offs | 1,619 | 891 | 2,510 | - | 2,510 | 1,427 | 809 | 2,236 | - | 2,236 | 1,300 | 778 | 2,078 | - | 2,078 | | Write-offs | (415) | (434) | (849) | - | (849) | (408) | (346) | (754) | - | (754) | (250) | (342) | (592) | - | (592) | | Balance at end of year | **\$ 1,204** | **\$ 457** | **\$ 1,661** | **\$ -** | **\$ 1,661** | **\$ 1,019** | **\$ 463** | **\$ 1,482** | **\$ -** | **\$ 1,482** | **\$ 1,050** | **\$ 436** | **\$ 1,486** | **\$ -** | **\$ 1,486** | | **Allowances** | | | | | | | | | | | | | | | | | Balance at beginning of year | \$ 505 | \$ 243 | \$ 748 | \$ 1,000 | \$ 1,748 | \$ 551 | \$ 208 | \$ 759 | \$ 850 | \$ 1,609 | \$ 724 | \$ 217 | \$ 941 | \$ 650 | \$ 1,591 | | Write-offs | (415) | (434) | (849) | - | (849) | (408) | (346) | (754) | - | (754) | (250) | (342) | (592) | - | (592) | | Provisions | 346 | 624 | 970 | 250 | 1,220 | 292 | 308 | 600 | 150 | 750 | 18 | 262 | 280 | 200 | 480 | | Recoveries | 44 | 77 | 121 | - | 121 | 69 | 75 | 144 | - | 144 | 53 | 79 | 132 | - | 132 | | Foreign exchange and other | (4) | - | (4) | - | (4) | 1 | (2) | (1) | - | (1) | 6 | (8) | (2) | - | (2) | | Balance at end of year | **\$ 476** | **\$ 510** | **\$ 986** | **\$ 1,250** | **\$ 2,236** | **\$ 505** | **\$ 243** | **\$ 748** | **\$ 1,000** | **\$ 1,748** | **\$ 551** | **\$ 208** | **\$ 759** | **\$ 850** | **\$ 1,609** | | **Net impaired loans** | | | | | | | | | | | | | | | | | Balance at beginning of year | \$ 514 | \$ 220 | \$ 734 | \$ (1,000) | \$ (266) | \$ 499 | \$ 228 | \$ 727 | \$ (850) | \$ (123) | \$ 479 | \$ 199 | \$ 678 | \$ (650) | \$ 28 | | Net change in gross impaired | 185 | (6) | 179 | - | 179 | (31) | 27 | (4) | - | (4) | (153) | 20 | (133) | - | (133) | | Net change in allowance | 29 | (267) | (238) | (250) | (488) | 46 | (35) | 11 | (150) | (139) | 173 | 9 | 182 | (200) | (18) | | Balance at end of year(3) | **\$ 728** | **\$(53)** | **\$ 675** | **\$(1,250)** | **\$(575)** | **\$ 514** | **\$ 220** | **\$ 734** | **\$(1,000)** | **\$(266)** | **\$ 499** | **\$ 228** | **\$ 727** | **\$(850)** | **\$(123)** | | Gross impaired loans less specific allowance as a percentage of total net loans and acceptances | 0.44% | | | | | 0.50% | | | | | | | | | | | Net impaired loans and acceptances after general allowance: | | | | | | | | | | | | | | | | | As a percentage of total net loans and acceptances | (0.37)% | | | | | (0.18)% | | | | | | | | | | | As a percentage of shareholders’ equity | (5.06)% | | | | | (2.41)% | | | | | | | | | | (1) Impaired loans includes \$13 million (1999: nil; 1998: nil) of loan substitute securities and allowances for credit losses of \$2.0 million (1999: nil; 1998: nil) relating to loan substitute securities. (2) Specific allowances for large numbers of homogeneous balances of relatively small amounts are established by reference to historical ratios of write-offs to balances outstanding. This may result in negative net impaired loans as individual loans are generally classified as impaired when repayment of principal or interest is contractually 90 days in arrears. (3) Excludes allowances on letters of credit totaling \$2 million (1999: \$4 million; 1998: \$17 million). ### Deposits Deposits were \$179.6 billion at October 31, 2000, up \$19.6 billion from 1999 mainly due to the increase in deposits from businesses and governments. Deposits from businesses and governments include operating and investment accounts, as well as commercial paper and term certificates issued through domestic and international capital markets. These deposits were up \$17.2 billion at October 31, 2000 from October 31, 1999. Further details on the composition of deposits are provided in Note 7 to the consolidated financial statements on page 69 and in the supplementary annual financial information on page 100. **DEPOSITS** \$ millions, as at October 31 | | **Payable on demand(1)** | **Payable after notice(2)** | **Payable on a fixed date(3)** | **2000 Total** | **1999 Total** | |---|---|---|---|---|---| | Individuals | \$ 63,109 | \$ 18,064 | \$ 27,845 | \$ 63,109 | \$ 60,878 | | Businesses and governments | 13,814 | 6,163 | 75,164 | 103,141 | 85,940 | | Banks | 569 | 1 | 12,567 | 13,382 | 13,223 | | | \$ 18,623 | \$ 24,228 | \$ 115,576 | **\$ 179,632** | **\$ 160,041** | **Total deposits include:** | Non-interest-bearing deposits | | | |---|---|---| | In domestic offices | \$ 7,093 | \$ 6,569 | | In foreign offices | 619 | 619 | | Interest-bearing deposits | | | | In domestic offices | 109,342 | 94,172 | | In foreign offices | 60,822 | 57,870 | | U.S. federal funds purchased | 1,756 | 811 | | | \$ 179,632 | \$ 160,041 | ### Other liabilities **OTHER LIABILITIES** \$ millions, as at October 31 | | 2000 | 1999 | |---|---|---| | Accrued interest payable | \$ 2,603 | \$ 2,353 | | Gold and silver certificates | 287 | 240 | | Brokers’ client accounts | 1,931 | 2,462 | | Cheques and other items in transit, net | - | 202 | | Deferred items | 509 | 346 | | Future income taxes (Note 14) | 2 | 147 | | Restructuring provision (Note 2) | 95 | 365 | | Accrued expenses | 1,282 | 1,961 | | Non-controlling interests in subsidiaries | 248 | 204 | | Other, including accounts payable | 3,673 | 2,812 | | | **\$ 10,630** | **\$ 11,092** | *** ## Capital strength CIBC is one of the strongest capitalized banks in Canada. This capital strength is important to protect CIBC’s depositors and creditors from risks inherent in CIBC’s various businesses, to enable CIBC to take advantage of attractive business opportunities, and to maintain CIBC’s favourable credit standing. CIBC has approved internal policies to meet or exceed regulatory requirements specified in guidelines issued by the Office of the Superintendent of Financial Institutions (OSFI), market expectations for capital strength and internal assessments of economic capital. Internal assessments, which are determined using risk measurement techniques, are discussed under Management of Market Risk on pages 48–51. CIBC manages its capital level and capital mix within its policy framework to maximize shareholder value. ### Regulatory capital Regulatory capital is calculated in accordance with OSFI guidelines, which are based on standards issued by the Bank for International Settlements (BIS). These standards were first introduced in November 1988 to establish capital requirements for credit risk. Effective January 1, 1998, standards were amended to include capital for market risk in trading portfolios. Regulatory capital comprises three tiers. The tiers are distinguished based on three capital properties: permanence; freedom from mandatory fixed charges against earnings; and a subordinated legal position to the rights of depositors and other creditors. Tier 1 is the highest quality capital, possessing all three capital properties. Tier 2 does not have the same degree of permanence or freedom from fixed charges as Tier 1 capital and cannot normally exceed the amount of Tier 1 capital. The concept of Tier 3 capital was created under the BIS standards in conjunction with the introduction of market risk capital requirements in January 1998. Specific qualifying guidelines have not been issued by OSFI. No Canadian bank has issued Tier 3 capital to date. The components of CIBC’s Tier 1 and Tier 2 capital are shown in the table below. **REGULATORY CAPITAL AND CAPITAL RATIOS** \$ millions, as at October 31 | | 2000 | 1999 | 1998 | |---|---|---|---| | **Tier 1 capital** | | | | | Common shares | \$ 2,868 | \$ 3,035 | \$ 3,128 | | Retained earnings | 6,625 | 6,090 | 6,047 | | Non-cumulative preferred shares | 1,876 | 1,933 | 1,961 | | Shareholders’ equity | 11,369 | 11,058 | 11,136 | | Non-controlling interests in subsidiaries | 248 | 204 | 230 | | Goodwill (1) | (110) | (123) | (154) | | | **\$ 11,507** | **\$ 11,139** | **\$ 11,212** | | **Tier 2 capital** | | | | | Perpetual debentures | 614 | 686 | 788 | | Other debentures (net of amortization) | 3,672 | 3,768 | 3,767 | | General allowance for credit losses(1) | 997 | 1,000 | 850 | | | 5,283 | 5,454 | 5,405 | | Total Tier 1 and Tier 2 capital | 16,790 | 16,593 | 16,617 | | Securitization-related deductions | (308) | (288) | (320) | | Investments in unconsolidated subsidiaries and other substantial investments | (428) | (870) | (532) | | **Total capital available for regulatory purposes** | **\$ 16,054** | **\$ 15,435** | **\$ 15,765** | | **Total risk-weighted assets (see page 44)** | **\$ 132,893** | **\$ 134,567** | **\$ 145,475** | | **Regulatory capital ratios** | | | | | Tier 1 capital | 8.7% | 8.3% | 7.7% | | Total capital | 12.1% | 11.5% | 10.8% | | Leverage ratio | 16.3x | 16.3x | 17.5x | (1) General allowance for credit losses may be included in Tier 2 capital up to a limit of 0.75% of risk-weighted assets. ### Regulatory capital generation Total regulatory capital increased by \$619 million during the year, the details of which are outlined in the following table. Under CIBC’s normal course issuer bid that began December 15, 1999, CIBC repurchased for cancellation 26.5 million common shares during the year for an aggregate consideration of \$1,074 million. The normal course issuer bid ends December 14, 2000. **CAPITAL GENERATION** \$ millions, as at October 31 | | **2000** | **1999(1)** | **1998** | |---|---|---|---| | **Internally generated capital** | | | | | Net income | \$ 2,060 | \$ 1,029 | \$ 1,056 | | Other amounts credited (charged), to retained earnings | (6) | 15 | (9) | | Capital from operations | 2,054 | 1,044 | 1,047 | | Dividends | (629) | (604) | (614) | | General allowance for credit losses | (3) | 150 | 200 | | Other(2) | 479 | (301) | (125) | | | 1,901 | 289 | 508 | | **External financing** | | | | | Subordinated indebtedness | (168) | (101) | 332 | | Preferred shares | (57) | (28) | 443 | | Common shares | (167) | (93) | 23 | | Premium on repurchase of common shares and preferred shares | (890) | (397) | (10) | | | (1,282) | (619) | 788 | | **Total increase (decrease) in regulatory capital** | **\$ 619** | **\$ (330)** | **\$ 1,296** | (1) Certain comparative figures have been restated to conform with the presentation used in 2000. (2) Other includes non-controlling interests in subsidiaries and deductions from regulatory capital which include goodwill, securitization-related deductions, investments in unconsolidated subsidiaries and other substantial investments. ### Changes in regulatory capital requirements The BIS launched a major review of the capital requirements for credit risk to recognize the many changes that have taken place in the financial marketplace, including more sophisticated techniques for measuring and mitigating credit risk. A discussion paper was issued by the BIS in June 1999 inviting comment by national regulators and other interested parties. One of the proposals involves using banks’ internal risk rating systems as a basis for measuring regulatory credit risk. The Canadian banks, through the Canadian Bankers Association, submitted a response to the BIS proposals in March 2000. It is expected that revised proposals will be issued by the BIS early in calendar 2001 for a second round of consultation and comment. The same risk measures and models used to drive regulatory capital for the capital markets businesses are also used to drive economic capital. While CIBC uses a more refined set of parameters for economic capital, the use of the same suite of models leads to better alignment between economic and regulatory capital. We also use internal models for attribution of capital to our non-trading businesses. As regulatory bodies move to allow a broader use of models for regulatory capital for the banking businesses, CIBC will apply these internal models as appropriate. ## Risk-weighted assets Risk-weighted assets arising from credit risk are calculated by applying the weighting factors specified in OSFI guidelines to all balance sheet assets and off-balance sheet exposures. Risk-weighted assets reflecting market risk in the trading portfolio are calculated based on CIBC’s value-at-risk simulation models approved by OSFI. CIBC’s risk-weighted assets were \$132.9 billion as at October 31, 2000, a decrease of \$1.7 billion during the year and have, as a result of TBM’s balance sheet resource allocation process, been shifted towards higher-returning activities. **RISK-WEIGHTED ASSETS** \$ millions, as at October 31 | | **Amount** | **Risk-weighted amounts** | |---|---|---| | | **2000** | **1999** | **1998** | | **On-balance sheet assets (Balance sheet amounts)** | | | | | Cash resources | \$ 10,679 | \$ 1,550 | \$ 1,936 | \$ 1,729 | | Securities issued or guaranteed by Canada, provinces, municipalities, OECD banks and governments | 34,135 | 313 | 101 | 522 | | Other securities | 35,107 | 4,776 | 5,130 | 4,276 | | Loans to or guaranteed by Canada, provinces, territories, municipalities, OECD banks and governments | 7,055 | 416 | 306 | 287 | | Mortgage loans | 54,342 | 16,699 | 14,750 | 14,760 | | Other loans | 84,255 | 63,785 | 60,118 | 62,103 | | Acceptances | 9,088 | 8,935 | 9,012 | 10,379 | | Other assets | 33,041 | 6,217 | 5,758 | 5,886 | | **Total on-balance sheet assets** | **\$ 267,702** | **\$ 102,691** | **\$ 97,111** | **\$ 99,942** | | **Off-balance sheet instruments (Contract/Notional amounts)** | | | | | Credit Related Arrangements | | | | | Lines of credit | \$ 112,177 | \$ 11,640 | \$ 15,700 | \$ 17,879 | | Guarantees and letters of credit | 28,605 | 6,018 | 8,259 | 6,945 | | Other | 293 | 293 | 324 | 244 | | | 141,075 | 17,951 | 24,283 | 25,068 | | Derivatives | 1,351,920 | 5,583 | 6,249 | 8,896 | | **Total off-balance sheet instruments** | **\$ 1,492,995** | **\$ 23,534** | **\$ 30,532** | **\$ 33,964** | | **Total risk-weighted assets before adjustments for market risk** | | **\$ 126,225** | **\$ 127,643** | **\$ 133,906** | | **Add: Market risk for trading activity(1)** | | 6,668 | 6,924 | 11,569 | | **Total risk-weighted assets** | | **\$ 132,893** | **\$ 134,567** | **\$ 145,475** | (1) Under the BIS 1998 Capital Accord, effective January 1998, trading assets are subject to market risk calculations. ### Regulatory capital and leverage ratios Regulatory capital ratios are determined by dividing Tier 1 and total regulatory capital by the calculated amount of risk-weighted assets. OSFI has indicated that a well-capitalized deposit-taking financial institution’s Tier 1 regulatory capital ratio should be at least 7% of its risk-weighted assets and total regulatory capital at least 10%. CIBC’s Tier 1 and total capital ratios were 8.7% and 12.1%, respectively, as at October 31, 2000, well above this standard. Financial institutions must also meet a leverage ratio (or assets-to-capital multiple) test. CIBC’s leverage ratio was 16.3 times capital, well within the permitted maximum. CIBC’s capital ratios and leverage ratio improved over the year due to strong earnings coupled with moderate growth in assets. ## Management of risk CIBC manages risk through a comprehensive framework of infrastructure, policies and methods that supports activities and effective management. Two standing committees of CIBC’s Board of Directors oversee management’s activities that result in risk. The board reviews and approves all credit, investment and market risk policies annually. At the operational level, the senior executive team and four management committees comprised of senior management and business line representatives, oversee and direct CIBC’s risk exposures arising from business activities. The board and management committees establish risk management policies, limits and procedures, approve risk management strategies, and monitor portfolio performance and trends. These management committees work closely with the lines of business and the board to manage CIBC’s exposure to three basic types of risk – credit, market and operational. These risks are discussed on pages 47–53. **BOARD OF DIRECTORS** | RISK MANAGEMENT AND CONDUCT REVIEW COMMITTEE | AUDIT COMMITTEE | |---|---| | * Ensures policy guidelines and systems exist and are adhered to (credit, market and operational risk). | * Oversees CIBC’s financial reporting process on behalf of the Board of Directors. | | * Reviews and approves individual credits and investments. | * Reviews CIBC’s financial statements. | | * Monitors portfolio trends. | * Liaises with internal and external auditors. | | * Reviews and approves policies on loan concentrations. | * Reviews internal control procedures and loan loss provisions. | | * Reviews and approves procedures for dealing with related party transactions and conflict of interest issues. | * Reviews CDIC self assessment. | | * Reviews Canadian Deposit Insurance Corporation (CDIC) self assessment. | | | Chair: External Director | Chair: External Director | **MANAGEMENT COMMITTEES** | SENIOR EXECUTIVE TEAM | CAPITAL AND RISK COMMITTEE | |---|---| | * Enterprise-wide governance. | * Approves policy and limits at a business level for credit, market and liquidity risk management. | | * Establishes mandates and membership of Management Committees. | * Approves balance sheet (including capital) resource allocation and economic capital measurement within parameters established by senior executive team. | | * Establishes CIBC-wide Strategic Direction, Performance Targets and Risk Limits. | * Monitors portfolios, risk performance and intervention with material risk issues. | | * Assesses strategy and monitors Asset Liability and Capital Management. | * Approves mandates and membership for Investment Committee, including delegation of limits and authorities. | | * Approves delegated authorities and limits to Capital and Risk Committee. | * Approves new material risk and strategic allocation of balance sheet resources for the introduction of new products, new businesses and/or new channels. | | * Approves material transactions and strategic investments. | Chair: Vice-Chairman, Treasury and Balance Sheet Management | | Chair: Chairman & CEO, CIBC | | | CREDIT COMMITTEE | OPERATIONS AND ADMINISTRATION COMMITTEE | |---|---| | * Approves credit requests within delegated limits. | * Establishes policy and framework for CIBC-wide management of operational risk and internal control processes and performs ongoing assessment of effectiveness. | | * Presents new credit requests and certain renewals in excess of delegated limits to the Risk Management and Conduct Review Committee. | * Reviews internal assessments of adherence to internal control framework. | | Chair: Executive Vice-President, Risk Management | * Approves exceptions to policies or standards. | | | * Oversees corrective action concerning significant control weaknesses or emerging control issues. | | | * Monitors implementation of significant projects and intervention, as required. | | | * Refers compliance and control matters relating to credit, capital or market risk to the Capital and Risk Committee. | | | Chair: Senior Executive Vice-President, Wealth Management | | INVESTMENT COMMITTEE | | |---|---| | * Approves merchant banking investments within delegated limits. | | | Chair: Senior Executive Vice-President, Corporate Development | | Information on the number of board and committee meetings held and director attendance is included in the Management Proxy Circular. All committees are composed entirely of outside directors. W.A. Etherington, Lead Director, is an ex-officio member of the Management Resources and Compensation Committee, the Audit Committee and the Risk Management and Conduct Review Committee. ## Management of credit risk In the normal course of business, credit risk arises when CIBC relies on another party to honour or perform contractual obligations that have economic value to CIBC. **Direct credit risk** arises on the loan portfolio and represents the possibility that customers will be unable or unwilling to repay some of, or the entire principal amount they have borrowed, or to make interest payments when due. **Contingent credit risk** arises on derivative instruments. When CIBC’s entitlements under a derivative contract have developed value, CIBC is dependent on the counterparty honouring its obligations so that CIBC can realize that value. The contingent credit risk is represented by the market value of the contract plus an allowance for potential increases in market value in the future. Market value is the amount CIBC’s counterparty would be required to pay another party to assume obligations to CIBC under the contract. ### Infrastructure CIBC’s credit authority emanates from the Board of Directors and is delegated through the chairman and chief executive officer to the senior executive vice-president, risk management. This authority is ultimately delegated, in part, to senior officers of risk management and to the senior officers of each business segment. Risk Management Division directs the delegation of credit authority within CIBC’s line organization. TBM’s credit portfolio management division assists in the transformation of the loan business from the traditional model of “buy and hold” to “originate and sell” using a wide variety of new techniques and tools to manage credit exposures to optimize the risk-return trade-off. CIBC’s risk management structure controls the credit process and is designed to instill a strong sense of accountability and a disciplined approach throughout the organization. ### Policies Direct credit risk and contingent credit risk are aggregated and subjected to the same credit policies and processes. Policies designed to prevent concentrations within CIBC’s loan portfolio are fundamental to the management of direct credit risk. There are two key policies. * The single name/common risk concentration policy limits CIBC’s exposure to any individual borrower or group of related borrowers, based on risk rating. * The industry concentration policy limits the percentage of the business loans and securities portfolio, within 16 industry groups. Other credit risk policies address management of geographic and product concentrations, syndicated bank credit and bridge credit concentrations, requirements for environmental reviews and real estate appraisals, maintenance of portfolio lending standards, delegation of lending authority and conflicts of interest with respect to mergers and acquisitions. ### Methods CIBC imposes a disciplined approach to risk by continuously monitoring all credit exposures and aggressively managing past due and impaired accounts. Computer-based loan management models, formal risk rating guidelines for commercial and corporate clients, and credit scoring for small business and consumer clients are some of the tools used by credit officers and risk managers in identifying and managing risk. Specific industry profiles have been developed, outlining factors such as key credit risks, and appropriate products and terms to assist lending officers and risk managers in adhering to policies and standards. Currently, CIBC employs RAROC credit models (see page 53) for the attribution of economic capital and expected losses to all of its lines of business. During 1999, CIBC continued to advance its credit risk measurement and modeling capabilities with the development of its own internal credit value at risk model (“Credit VaR”) for assessing economic capital and expected losses. Credit VaR will be implemented for use within the corporate and commercial lending portfolios for 2001, and will be an integral part of RAROC and pricing models for those businesses. Country risk arises when CIBC is exposed to the possibility that its assets could become frozen in a foreign country because of imposed exchange controls or other economic or political disturbances. With the exception of Canada and the United States, the credit worthiness of all countries in which CIBC operates is assessed and rated at least annually. Formal restrictions are in place against transactions in higher risk countries to ensure exposures are subject to review and approval by Risk Management Division and appropriate management committees. Environmental risk associated with lending activities is proactively managed through a formal Environmental Risk Management program. Under the program, lenders and risk managers receive training and support to identify and evaluate potential environmental risk exposure and to help customers understand their environmental risks. Where appropriate, environmental assessments are conducted to evaluate and mitigate these risks. ## Management of market risk Market risk is the risk of loss arising from changes in values of financial instruments and includes interest rate, foreign exchange, equity, credit spread, commodity and liquidity risks. CIBC’s framework for management of risk comprises infrastructure, policies and methodology, which CIBC considers meet best practice risk management standards. Within CIBC, an independent market risk management group oversees all market risk associated with trading portfolios as well as structural market risk associated with CIBC’s balance sheet. Market risk management processes ensure that overall price risk, and its components, are well understood within the organization. In January 1998, CIBC received approval from OSFI to use proprietary risk measurement models for all aspects of the Bank for International Settlements (BIS) 98 Accord related to market risk capital requirements for trading portfolios. In September 1998, CIBC World Markets plc, CIBC’s U.K. subsidiary, received approval from the Bank of England to use CIBC’s proprietary risk models to calculate capital under its regulatory directives. Regulatory acceptance of CIBC’s proprietary risk measurement models permits CIBC to better deploy capital by using assets more effectively than would be possible under the alternative standardized market risk approach developed under the BIS 98 Accord. For purposes of BIS 98, CIBC measures the following general and specific market risks: * Interest rate risk is risk relating to the parallel and non-parallel shifts upward or downward in yield curves. * Credit spread risk is risk arising from changes in the market’s perception of generic and individual credit quality and liquidity. * Equity risk is risk arising from movements in share prices or share indices. * Foreign exchange risk is risk arising from exchange rate movements. * Commodity risk is risk arising from movements in commodity prices. Specific market risk relates to the issuer specific component of risk in, for instance, corporate bond or equity portfolios. Specific risk is the element of risk due solely to the individual debtor or equity, not modeled elsewhere in the market risk framework. ### Infrastructure The market risk management group is independent of the business units. Its activities are reviewed and approved, as appropriate, by the Capital and Risk Committee, the senior executive team and, ultimately, by the Risk Management and Conduct Review Committee of the board. In addition to understanding, measuring and monitoring risks, market risk management ensures that, on a daily basis, the individual components and overall market risk exposures of CIBC are within approved risk limits, and that only authorized activities are undertaken. The quality and skills of risk managers are critical to achieving best practice risk management. Each business incurring significant market risk is the focus of an experienced market risk manager, facilitating comprehensive risk coverage. Data from trading systems around the world is consolidated in a central risk management database. The centralized control of risk measurements and access to large amounts of risk management data support the global management of market risk through integrated risk reporting and analysis, and limit monitoring. CIBC generates a detailed risk report and limit monitoring summary each morning, based on the previous day’s trading. This report provides an enterprise-wide view of market risk and is integral to the review of risk exposure at CIBC’s trading room meeting each morning. Each day all risk positions are monitored against authorized limits by an independent risk manager, and positions that exceed authorized limits are promptly reported to senior management. Reports on compliance with risk limits are made at least monthly to the Capital and Risk Committee, and quarterly to the Risk Management and Conduct Review Committee of the Board. ### Policies CIBC has developed comprehensive policies and procedures for market risk management. These policies relate to identification and measurement of the various types of market and trading credit risk, and to the establishment of limits within which CIBC manages its overall price risk exposure. The policies explicitly state risk tolerance levels, expressed in terms both of statistically based value at risk measures, and of potential “worst case” stress losses. The Risk Management and Conduct Review Committee approves overall levels of risk CIBC may assume. CIBC uses a three-tiered approach to set price risk limits on the amounts of interest rate, credit spread, foreign exchange, commodity and equity risks that the organization can assume. The first-tier limits are CIBC’s overall price risk and worst case stress limits, and are set by the senior executive team, in keeping with the risk tolerance expressed by the Risk Management and Conduct Review Committee. The second-tier limits are designed to control the risk profile of positioning activities at the business unit level. They are established by agreement of market risk management and trading management and are approved by the CIBC Capital and Risk Committee. This committee is responsible for ensuring that the risk/reward and portfolio management principles, policies and processes are consistent with industry practice. The committee is also responsible for providing recommendations to the senior executive team for the approval of Tier 1 risk and stress limits and ensuring that audit findings are appropriately addressed. The third-tier limits are delegated down to the desk level and are designed to monitor risk concentration and the impact of book specific stress events. Policies also outline requirements for yield curve and valuation model construction, and link to finance policy with respect to mark-to-market methodologies, and the independent valuation of positions. ### Risk measurement methodology Overview Since no single measure reflects all aspects of market risk, CIBC utilizes several different risk measures: * Value-at-Risk - CIBC’s Risk Measurement Unit (RMU) methodology enables the like-for-like comparison of risk in different businesses and asset classes. * Stress testing and scenario analysis, which provide insight into portfolio behavior under extreme circumstances. * Backtesting, which validates the effectiveness of risk quantification through analysis of actual, and theoretical revenue. **RMU methodology** CIBC has developed and implemented a comprehensive Value at Risk (VaR) price risk measurement methodology that expresses risk in terms of risk measurement units (RMUs). The VaR or RMU methodology is a statistically defined, probability-based approach that uses volatilities and correlations to quantify price risks, in dollar terms. The RMU is CIBC’s price risk measure of the potential loss from adverse market movements that can occur under normal market conditions, based on historical data and recent market experience. An RMU is defined as the overnight loss with less than a 1% probability of occurring in normal markets. The RMU methodology uses numerous risk factors as inputs, including, for example, interest rate risk, exposure to multiple yield curve points, exposure to multiple basis and spread relationships, and exposure to multiple implied volatility points. RMU is computed through use of the historical volatility of each risk factor, and the associated historical correlations between them. A composite RMU measure is determined by aggregating the RMU measures for each of interest rate, credit spread, equity, foreign exchange and commodity market risks and the reduction due to the portfolio effect of combining the risks. The composite RMU is then expressed as a potential worst case loss that can occur over one day, no more than 1% of the time, or equivalently, within a confidence interval of 2.33 standard deviations, in normal markets. The model covers all financial products traded by CIBC, i.e. foreign exchange products, derivatives, debt securities, equities and commodities. The RMU-based methodology is based on the variance-covariance model, otherwise known as the Delta, Gamma, Vega, Rho, Theta model (or DGVRT model). The DGVRT model is supplemented by a hybrid “Monte Carlo” and historical simulation model for large options positions and when market risk factors exhibit “fat tails” in their distributions (i.e. a larger probability of occurrence of an extreme event than would be expected in a normal distribution). The measurement of the credit risks associated with many trading products also utilizes a VaR approach which quantifies the credit equivalent risk of a transaction as the actual mark-to-market of the transaction, at any time, plus a worst case probability-based potential exposure over the remaining life of the transaction. ### Stress testing and scenario analysis While the RMU methodology captures CIBC’s exposure to unlikely events in normal market conditions, stress testing and scenario analysis are designed to add insight to the possible outcomes of abnormal market conditions. CIBC’s stress testing measures the effect on portfolio values of a wide range of extreme moves in market prices, some based on historical experience, others defined with reference to specific book concentrations. The stress test methodology assumes that no actions are taken during the stress event to mitigate risk, reflecting the decreased liquidity that frequently accompanies market shocks. CIBC’s scenario analysis approach simulates the impact on the portfolio of extreme market events unfolding over an extended period of up to a full calendar quarter. In this case the changing portfolio characteristics, and the market movements, are dynamic. This allows analysis of the impact of changes in market liquidity, and potential risk mitigation strategies over time. Scenarios are developed using actual historical market data during periods of market disruption, or are based on the hypothetical occurrence of economic events, political events and natural disasters suggested and designed by economists, business leaders, and risk managers. As of October 31, 2000, CIBC’s scenario analysis program included various historical and hypothetical scenarios. Amongst the historical scenarios were the 1987 equity market crash, the 1994 period of U.S. Federal Reserve tightening, and the 1998 Russian-led crisis. The hypothetical scenarios include potential market crises originating in North America and in Asia, including, for example, an abrupt change in the credit cycle associated with a U.S. economic “hard landing”. **RMU BY RISK TYPE – TRADING PORTFOLIO** \$ millions | | **2000 year end** | **2000 average** | **1999 year end** | **1999 average** | |---|---|---|---|---| | Interest rate risk | \$ 6.37 | \$ 9.97 | \$ 12.24 | \$ 13.10 | | Credit spread risk | 13.25 | 14.59 | 14.40 | 13.80 | | Equity risk | 14.07 | 13.97 | 15.55 | 14.77 | | Foreign exchange risk | 0.86 | 1.51 | 0.97 | 1.79 | | Commodity risk | 0.96 | 1.39 | 2.11 | 2.02 | | Diversification effect | (15.02) | (18.48) | (20.59) | (20.52) | | **Total risk** | **\$ 20.49** | **\$ 22.95** | **\$ 24.68** | **\$ 24.96** | ### Backtesting Key to the sustained integrity of CIBC’s risk models, is the process of “backtesting”. For each of CIBC’s trading portfolios, and in aggregate, daily RMUs are compared with net trading related revenue (NTRR). NTRR is defined to include the net interest income and the daily change in value of mark-to-market trading portfolios, but excludes fee income and other non-risk related elements. The backtesting process serves to confirm that actual positive and negative NTRR outcomes are consistent with the statistical assumptions of the RMU model. This process is further enhanced through the calculation of a hypothetical or “static” profit and loss (P/L). (Static P/L is comparable with NTRR for an unchanged position). Static P/L represents the theoretical change in portfolio value due to each day’s price movements, of the prior day’s closing portfolio, on the assumption that it remained unchanged. Comparison of this daily static P/L with RMU is required by OSFI, and serves as a further validation of the integrity of the RMU model. ```mermaid xychart-beta title "FREQUENCY DISTRIBUTION OF 2000 DAILY NET TRADING-RELATED REVENUE" x-axis [-13, -12, -11, -10, -9, -8, -7, -6, -5, -4, -3, -2, -1, 0, 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17, 18, 19, 20] y-axis "Frequency (days)" 0 --> 30 bar [1, 1, 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 12, 15, 17, 18, 19, 20, 21, 22, 23, 24, 25, 26, 27, 28, 29, 30] ``` Net trading-related revenue ```mermaid xychart-beta title "BACKTESTING OF NET TRADING-RELATED REVENUE VS. RMU" x-axis [Nov. 99, Dec., Jan. 00, Feb., Mar., Apr., May, Jun., Jul., Aug., Sep., Oct.] y-axis "\$ thousands Cdn" -30 --> 30 line [10, 15, 20, 25, 30] ``` Daily net trading-related revenue Maximum potential revenue predicted by RMU Maximum potential loss predicted by RMU ### Trading activities CIBC trades a wide range of products globally, including foreign exchange, derivatives, debt and equity securities, and commodities. Trading activities relate primarily to customer flows and market making, and to a small extent, proprietary trading. Cash and derivative instruments are used to manage risks in the trading portfolio. The RMU by risk type chart shows the “mix” of price risks through fiscal 2000, expressed in terms of RMU, by type of risk and aggregate risk. The risks are inter-related and consequently, are only additive after taking into account the diversification effect, which reflects the reduction of risk due to portfolio effects among the trading positions. CIBC’s primary trading risk exposures to interest rates arise from activities in the global debt and money markets, particularly from transactions in Canadian, U.S., European and Japanese markets. The primary instruments are government and corporate debt and interest rate swaps. Credit sensitive securities also give rise to credit spread exposure. The bulk of the trading exposure to foreign exchange risk arises from transactions involving the U.S. dollar, the Euro, the British pound, and the Japanese yen, whereas the primary risks of loss in equities are in the Canadian, U.S. and European equity markets. The histogram presents the frequency distribution of daily NTRR for fiscal 2000. Net trading-related revenue was positive for 74% of the days in 2000 compared with 72% in 1999 and 66% in 1998. The average daily net trading-related revenue was \$2.8 million in 2000, compared with \$2.7 million in 1999 and \$0.5 million in 1998. The net trading-related revenue and RMU graph compares the 2000 actual daily NTRR with the previous day’s predicted RMU measures. As indicated previously, the potential positive and potential negative revenues are derived from statistically defined probability-based models that utilize CIBC’s market positions and prior market correlations and volatilities under normal market conditions. Statistically, the actual net trading-related losses would be expected to exceed the potential negative revenue predicted an equivalent of two to three times per year. As shown in the graph on page 51, there were no occasions on which actual daily net trading-related revenue fell outside the range predicted by the previous day’s RMU. ### Non-trading activities CIBC’s business includes managing market risk exposures arising from non-trading activities. These risks include interest rate, equity and foreign exchange exposures arising from our retail customer banking business, merchant banking portfolio and other non-trading activities. Foreign exchange exposure arising from structural on balance sheet assets and liabilities and investments in foreign operations are included in non-trading activities. The risks of the non-trading portfolios are monitored and measured in terms of RMUs as well as other measures. CIBC adopts a prudent approach to managing these exposures within senior executive team policies. These exposures are included in a weekly risk report to the senior executive team and are monitored against established limits. The non-trading portfolio risk consists primarily of risk inherent in asset/liability management activities and activities of foreign and domestic subsidiaries. The largest core asset/liability interest rate exposure is the Canadian dollar interest rate risk position on the CIBC consolidated balance sheets. Risk exposure arises mostly as a result of mismatches in the maturities of assets (e.g. residential mortgages) and deposits (e.g. guaranteed investment certificates). This “mismatch” gives rise to an exposure to changing interest rates. Other sources of interest rate risk include options embedded in retail products including retail commitments and associated hedges. The non-trading foreign exchange risk of the CIBC consolidated balance sheets arises primarily from structural on-balance sheet assets and liabilities and from investments in foreign operations. CIBC’s approach to the structural foreign exchange position is designed to ensure the exposure is managed in an appropriately conservative manner. Equity exposure within the non-trading activities arises from various areas including merchant banking activities, as well as from equity linked retail products (equity linked GICs ) and associated hedges. The RMU by risk type chart shows the mix of non-trading risks by type of risk and aggregate risk. The substantial reduction in interest rate risk reflects Treasury and Balance Sheet Management’s strategy of reducing long, proprietary positions in the asset/liability gap portfolio. The risks are inter-related and, consequently, are only additive after taking into account the diversification effect that reflects the reduction of risk due to portfolio effects among the different positions. In 2000, the model was enhanced to include the diversification effect. Merchant banking positions are currently measured and monitored in notional terms and are therefore not included in the non-trading portfolio table. **RMU BY RISK TYPE – NON-TRADING PORTFOLIO** \$ millions | | **2000 year end** | **2000 average** | **1999 year end** | **1999 average** | |---|---|---|---|---| | Interest rate risk | \$ 70.41 | \$ 107.05 | \$ 128.90 | \$ 97.68 | | Equity risk | 14.30 | 12.90 | 13.00 | 10.55 | | Foreign exchange risk | 0.31 | 0.36 | 0.60 | 0.39 | | Diversification effect(1) | (5.39) | (2.66) | - | - | | **Total risk** | **\$ 79.63** | **\$ 117.65** | **\$ 142.50** | **\$ 108.62** | (1) In 1999, the risk types in the non-trading portfolio are conservatively assumed to be one hundred percent correlated (i.e. diversification effect is assumed to be zero). ## Asset Liability Management Asset Liability Management (ALM) is conducted by Treasury and Balance Sheet Management under the supervision of the senior executive team. Compliance with established policies limiting interest rate risk is monitored daily by the Market Risk Management Group. Interest rate risk results primarily from differences in the maturities or repricing dates of assets and liabilities, both on and off the balance sheet as well as from embedded options in retail products. These outright interest rate risk exposures, and option exposures are reviewed weekly by the senior executive team using the RMU framework used to measure all market risks across the entire CIBC group of companies. A variety of cash instruments and derivatives, principally interest rate swaps, futures and options are used to manage and control interest rate risks. Derivatives are used to modify the interest rate characteristics of related balance sheet instruments and to hedge anticipated exposures when market conditions of price and liquidity are deemed beneficial. On and off-balance sheet assets and liabilities are reported in time frames based on the earlier of their contractual repricing date or maturity date. CIBC’s total interest rate risk exposure as at October 31, 2000 is outlined in Note 10 to the consolidated financial statements on page 71. It should be noted that this reported interest rate position presents CIBC’s risk exposure only at a point in time. Exposure can change depending on the customers preferences for product and terms, changes in CIBC’s expectations of interest rate movements, and the nature of CIBC’s active management of the various and diverse portfolios that comprise the consolidated interest rate risk position. Given CIBC’s consolidated maturity and repricing portfolio profile at October 31, 2000, as adjusted for estimated prepayments, an immediate 1% increase in interest rates across all maturities would reduce net income after taxes by approximately \$33 million over the next 12 months, and common shareholders’ equity as measured on a present value basis by approximately \$320 million. ### Liquidity risk CIBC’s liquidity policy is designed to ensure the availability of sufficient cost-effective funds to honour all financial commitments, including commitments to customers. The policy emphasizes a two-pronged approach involving containment and mitigation of liquidity exposure. Liquidity risk exposure is contained through the use of a prudent distribution of liability maturities to ensure net cash outflows in any given time horizon are manageable. Liquidity risk exposure is further mitigated through the maintenance of pools of higher quality liquid assets, which can be sold or pledged as secured borrowing, to provide a ready source of cash. CIBC’s liquidity policy is established by Treasury and Balance Sheet Management and the senior executive team and is approved by the Board of Directors. The policy includes guidelines and limits on net cash outflows, minimum liquid asset inventories and funding diversification measures. CIBC manages liquidity by monitoring actual and expected inflows and outflows of funds on a daily basis. CIBC’s funding strategy includes development of diverse sources of domestic and international funds. At October 31, 2000 Canadian dollar deposits by individuals stood at \$56.0 billion, providing a stable and secure source of funding. CIBC’s total securities portfolio of \$69.2 billion is summarized in Note 3 to the consolidated financial statements on page 66 and includes liquid assets of \$56.7 billion. ## Operational risk management Operational risk is defined as the potential for material dollar losses arising from events caused by failures in people, process and technology, as well as external dependencies. It excludes losses that are directly attributable to either market or credit risk. Operational risk losses can be categorized into the following loss types: * Legal liability includes third-party lawsuits. * Regulator and compliance penalties includes fines and the direct cost of other penalties, such as licence revocations. * Loss of or damage to assets includes the direct reduction in value of physical assets, including certificates, resulting from an accident. * Transaction errors includes restitution payments (principal and/or interest) or other compensation to clients as well as disbursements made to incorrect parties and not recovered. * Theft, fraud and unauthorized activities. Operational losses include the direct internal loss, net of recoveries, as well as any external direct costs or write-down involved in the resolution of the operational failure. ### Policies and methods The first line of defence is to manage people, processes and technology in a manner that avoids or reduces all potential operational losses to their lowest level given the business strategy. People risk is mitigated through human resource policies and practices including employee training and development, comprehensive recruiting and screening programs and selection criteria, as well as formal codes of conduct and corporate security programs. Process risk is mitigated through procedural controls such as requirements for clear delegation of authority and segregation of duties, documentation of policies and procedures, safeguarding and recordkeeping controls and the provision of timely and accurate management information for monitoring and decision-making purposes. Technology risk is managed through controls over systems development and change management, as well as through information security programs and system access controls. The second line of defence is to have sufficient cover if the risk materializes into a loss. Expected losses are covered by earnings. Unexpected losses are covered by economic capital, and for certain types of loss, by insurance. The risks of catastrophic loss are covered through risk avoidance or risk control programs (including Insurance and Business Continuity Management), which reduce the probability or potential severity of such losses to within acceptable corporate parameters. CIBC also has in place a comprehensive, integrated corporate insurance program to protect its earnings from the occurrence of unexpected, high severity loss occurring through criminal activity, property loss or damage and liability exposures. ### Operational risk measurement CIBC has developed an Operational Value at Risk (OPVaR) measure which uses historical loss information where available, supplemented by scenario analysis, to derive frequency and loss given event (severity) distributions. These frequency and severity distributions are used to derive the operational risk loss distribution, which forms the measurement basis for managing operational risk, and which is used to determine the operational risk component of economic capital. At present, the inputs to many of the loss distributions are derived through the application of scenario analysis and judgement, rather than historical loss information. CIBC is participating in a number of industry initiatives to improve the measurement methodology, create a comprehensive industry loss operational database and propose risk-based approaches to determine the operational risk component of regulatory capital. ### Infrastructure Senior management, business management, risk management, internal audit, and support functions such as legal, compliance, operations, technology, finance and human resources collaborate to manage operational risk, as well as business, strategic and reputational risk. The Operations and Administration Committee directs the management of operational risk and CIBC’s internal control structure within the parameters and strategic objectives established by the senior executive team. Furthermore, senior management is accountable to the Board of Directors for maintaining a strong and disciplined internal control environment to provide reasonable assurance to shareholders and other stakeholders that operational risk is prudently managed. ## Risk adjusted return on capital (RAROC) RAROC is a risk-adjusted profitability measurement and management framework that supports strategic as well as tactical decision making. It links risk, reward and shareholder value and provides a consistent view of profitability across businesses. RAROC is used to facilitate pricing, performance management, portfolio management, balance sheet management and resource allocation. Risk Management develops and implements the risk measurement and capital models, and quantifies economic capital and expected losses. This information is provided to the business lines to assist in deal analysis. Economic capital is a balance sheet resource that is allocated by the Capital and Risk Committee. Businesses are also charged for their use of economic capital in their performance measurement reports, which complements the use of RAROC and provides an incentive to the business lines to maximize risk-adjusted profitability. Economic capital is attributed for each of credit, market and operational risks for a large part of CIBC businesses. As such, RAROC makes significant use of the risk measurement infrastructure developed within Risk Management. Businesses are attributed economic capital and expected losses as a function of risk, and are held accountable to generate appropriate returns on those risks. *** ## Business environment ## Economic The Canadian economy entered 2000 on a very healthy note. U.S. demand for Canadian exports was strong and there was a surge in business investment (partly due to efforts made to prevent year 2000 computer problems). As well, strong employment growth late in calendar 1999 helped boost disposable incomes and consumer spending. This contributed to healthy year-over-year growth of credit and debit card revenue and strong growth of retail and small business banking. Although mortgage rates edged higher in the quarter, the increase was not sufficient to dampen housing demand which surged late in 1999 and contributed to an increase in mortgage lending. Demand for wealth management services accelerated early in the year due to the strong economic climate throughout North America, a sustained improvement in equity markets and the growing participation of households in financial markets. The high level of investor confidence through late 1999 and into early 2000 helped to fuel North American stock markets and contributed to the performance of Wealth Management and CIBC World Markets. Overall, the economic climate remained robust through the second and third quarters of the year. Buoyant consumer confidence, relatively stable interest rates and sustained growth of disposable incomes, which benefitted from cuts to federal and provincial income taxes, contributed to the growth of consumer spending and business investment. In general, this strong pattern of domestic demand contributed to increased revenue from Retail and Small Business Banking. Despite higher oil prices and volatile stock markets in the fourth quarter, solid growth of full-time employment supported strong income growth. This contributed to a rebound in consumer spending and housing demand and to an improvement in mortgage activity and consumer borrowing. As well, despite signs of softening demand in North America late in the fourth quarter, the generally positive economic fundamentals continued to sustain the growth of wealth management services. Looking ahead to 2001, the outlook is clouded by concerns about the direct effects of higher oil prices on discretionary spending and the possibility that energy prices will feed into the core inflation rate leading to a further tightening of monetary policy. These factors, together with the effects of the rise in interest rates over the past six quarters, are likely to constrain growth in 2001. Having said this, the effects of the recent drop in the capital gains inclusion rate from two-thirds to 50% should have a positive impact on the investment climate in Canada. Furthermore, the prospect of significant cuts to personal and corporate income taxes in 2001 will, in the short term, mitigate the effects of higher interest rates. In the longer term, lower tax rates should contribute to an increase in productivity that will ultimately make the Canadian economy less inflation prone. ```mermaid xychart-beta title "Disposable income y/y % change" x-axis [96, 97, 98, 99, 00] y-axis "% Change" 0 --> 7 line [2, 3, 1, 4, 6] ``` ## Competitive CIBC conducts business primarily in North America. In Canada, it operates as a full-service wholesale and retail bank. In the U.S., CIBC continues to operate as a wholesale bank with a mid-market focus. Following authorization in 1999 to commence retail banking operations in the U.S., CIBC has been developing its presence in the electronic retail banking arena. CIBC operates in an extremely competitive environment, particularly with respect to the range and pricing of products and services offered. In Canada, there is increasing foreign competition, particularly in electronic banking, investment banking and credit cards. In the U.S., commercial and investment banks and other financial service firms continue to face significant merger and acquisition activity and new competition and innovation in electronic commerce. ## Regulatory The CIBC group of companies is subject to complex and changing legal and regulatory environments in Canada and in other jurisdictions where CIBC operates. The principal regulators include the federal and provincial governments in Canada and the governments of the United States and other countries where CIBC carries out business. Securities regulators and self-regulatory bodies, such as stock exchanges, also regulate CIBC’s activities. CIBC is subject to the bylaws of the Canada Deposit Insurance Corporation. These bylaws require standards of sound business and financial practices intended to ensure that member institutions are prudently managed. Comprehensive policies and procedures are in place to promote compliance with applicable laws and regulations by CIBC and its subsidiaries, their directors, management and employees. Management is responsible for ongoing compliance with such laws and regulations, and CIBC’s compliance and internal audit functions each have a mandate to assess and report on the performance of management in discharging its governance responsibilities. During 2000, new financial services legislation (Bill C-38) was introduced into Parliament which, if passed, will change the Canadian banking industry. Due to the federal election called for November 27, 2000, the legislation will need to be re-introduced by the new Parliament. Both the governing and the official opposition parties have stated that Bill C-38 is a high priority and that they will reintroduce essentially the same legislation when Parliament resumes sitting. New Canadian privacy legislation (Bill C-6) will also impact the financial services sector in the way customer and employee information is handled. In November 1999, the United States Congress approved a financial services modernization bill allowing cross-industry mergers among banks, investment banks and insurance companies. This continues to have extensive implications for the supervision and regulation of U.S. financial markets, allowing broader powers for CIBC in the U.S. CIBC continues to assess these developments and is considering how best to take advantage of these new opportunities. ## Accounting and reporting developments ### Compliance with U.S. Generally Accepted Accounting Principles (U.S. GAAP) As a Canadian company, CIBC’s consolidated financial statements are prepared in accordance with Canadian Generally Accepted Accounting Principles (Canadian GAAP). Effective November 13, 1997, CIBC was listed on the New York Stock Exchange. In anticipation of the New York Stock Exchange listing, CIBC’s 1996 and subsequent financial statements include additional note disclosure in accordance with U.S. GAAP. To a large extent, Canadian and U.S. GAAP are consistent. However, in those instances where Canadian and U.S. GAAP are not consistent, Canadian GAAP prevails. Material differences are explained and quantified in Note 24 to the consolidated financial statements on pages 88–92. ### Future accounting policy changes The impact of recently issued Canadian accounting standards to be implemented in the future is explained in Note 26 to the consolidated financial statements on page 92. The impact of recently issued U.S. accounting standards to be implemented in the future is explained in Note 24 to the consolidated financial statements on page 91. This explanation includes the impact of implementing U.S. accounting standard SFAS 133, “Accounting for Derivative Instruments and Hedging Activities” (SFAS 133). In August 2000, CIBC sold its property and casualty insurance companies, The Personal Insurance Company of Canada and CIBC General Insurance Company Limited, for a pre-tax and after-tax gain of \$97 million which is included in other non-interest income in the consolidated statement of income. In September 2000, CIBC sold CIBC Suisse S.A., a global private banking and trust subsidiary providing portfolio management, credit and financial consultancy to private clients, for an after-tax gain of \$20 million. The pre-tax gain of \$28 million is included in other non-interest income in the consolidated statement of income. Changes in the derivative instrument’s fair value must be recognized in current earnings unless specific criteria for hedge accounting are met. If a derivative instrument is designated as a hedge and meets the criteria for hedge effectiveness, earnings offset is available to the extent that the hedge is effective. The ineffective portion of the change in fair value of all derivative hedges is recognized in current earnings. CIBC adopted SFAS 133 on November 1, 2000. In accordance with the transition provisions of the standard, a net after-tax cumulative-effect-type gain of \$96 million (\$183 million pre-tax) in earnings and a net after-tax cumulative-effect-type-reduction of \$17 million in OCI (\$45 million pre-tax) were recorded. In addition, the carrying values of assets and liabilities were increased by \$267 million and \$188 million respectively. Upon adoption of SFAS 133, CIBC reclassified \$4,709 million of securities held to maturity as securities available for sale so that those securities will be eligible for hedge accounting treatment in the future. This reclassification resulted in a pre-tax gain of \$53 million (\$30 million after-tax) in OCI. Over the next 12 months, CIBC expects to reclassify insignificant amounts from the transition adjustment recorded in accumulated OCI, to earnings. ### 25. Sale of subsidiaries In August 2000, CIBC sold its property and casualty insurance companies, The Personal Insurance Company of Canada and CIBC General Insurance Company Limited, for a pre-tax and after-tax gain of \$97 million which is included in other non-interest income in the consolidated statement of income. In September 2000, CIBC sold CIBC Suisse S.A., a global private banking and trust subsidiary providing portfolio management, credit and financial consultancy to private clients, for an after-tax gain of \$20 million. The pre-tax gain of \$28 million is included in other non-interest income in the consolidated statement of income. ### 26. Future Canadian accounting policy changes CIBC will be required to adopt the following recently issued accounting standard for Canadian reporting purposes in future years. CICA Handbook section 3461, “Employee Future Benefits”, will be effective for fiscal 2001. Adoption of this standard will substantially harmonize Canadian and U.S. GAAP in the area of employee future benefits. Under section 3461, employee future benefits are defined as: pension and other benefits provided after retirement; post-employment benefits provided to former inactive employees; compensated absences such as parental leave and sabbaticals; and termination benefits. The cost of these employee future benefits will be recognized as a liability and expensed over the periods that the employees earn the benefits. At present, certain of these benefits are accounted for on a cash basis. CIBC expects to implement CICA 3461 retroactively in 2001. Adoption is expected to result in a \$140 million after-tax charge to retained earnings and a \$237 million pre-tax increase in the accrued benefit obligation, offset by a reduction in future income taxes of \$97 million. As well, non-interest expenses are expected to increase by \$31 million (\$18 million after-tax) in 2001. *** # Principal subsidiaries | Subsidiary name(1) | Address of head or principal office | Book value(2) of shares owned by CIBC and other subsidiaries (\$ millions) | |---|---|---| | CIBC Mortgage Corporation | Toronto, Canada | 493 | | CIBC Mortgages Inc. | Toronto, Canada | 130 | | CIBC Trust Corporation | Toronto, Canada | 46 | | The Dominion Realty Company Limited | Toronto, Canada | 13 | | CIBC Finance Inc. | Toronto, Canada | 8 | | INTRIA Corporation | Toronto, Canada | 107 | | INTRIA Items Inc. (90%) | | | | INTRIA-HP Corporation (90%) | | | | CIBC World Markets Inc. | Toronto, Canada | 308 | | Services Hypothecaires CIBC Inc. | Longueuil, Canada | 130 | | CIBC Securities Inc. | Toronto, Canada | (3) | | CIBC Investor Services Inc. | Toronto, Canada | 25 | | CIBC Life Insurance Company Limited | Toronto, Canada | 20 | | CIBC Investments Limited | Toronto, Canada | 50 | | CIBC BA Limited | Toronto, Canada | (3) | | EDULINX Canada Corporation (90%) | Toronto, Canada | 27 | | CIBC Delaware Holdings Inc. | New York, U.S.A. | 1,671 | | CIBC World Markets Corp. | | | | Canadian Imperial Holdings Inc. | | | | CIBC INC. (95%) | | | | CIBC National Bank | Maitland, U.S.A. | | | Amicus Corp. | New York, U.S.A. | | | CIBC Australia Holdings Limited | Sydney, Australia | 57 | | CIBC Asia Ltd. | Singapore | 161 | | CIBC Holdings (Cayman) Limited | Grand Cayman, Cayman Islands | 1,650 | | CIBC Bank and Trust Company (Cayman) Limited (88%) | Grand Cayman, Cayman Islands | | | CIBC Trust Company (Bahamas) Limited | Nassau, Bahamas | | | CIBC Bank and Trust Company (Channel Islands) Limited | St. Peter Port, Guernsey | | | CIBC Offshore Services Inc. | Bridgetown, Barbados | | | CIBC Reinsurance Company Limited | | | | CIBC West Indies Holdings Limited (77%) | Bridgetown, Barbados | | | CIBC Bahamas Limited (70%) | Nassau, Bahamas | | | CIBC Jamaica Limited (63%) | Kingston, Jamaica | | | CIBC Caribbean Limited (77%) | Bridgetown, Barbados | | | CIBC Offshore Banking Services Corporation | Bridgetown, Barbados | 250 | | CIBC World Markets (International) Arbitrage Corp. | Bridgetown, Barbados | 457 | | CIBC World Markets plc | London, England | 1,515 | | CIBC Offshore Finance (Ireland) Limited | Dublin, Ireland | 18 | | CIBC World Markets Ireland Limited | | | (1) CIBC and other subsidiaries of CIBC own 100% of the voting shares of each subsidiary, except as otherwise noted. (2) Book value of shares of subsidiaries are shown at cost. (3) The book value of shares owned by CIBC is less than one million dollars. *** ## Supplementary annual financial information **Average balance sheet, net interest income and margin** \$ millions (TEB), as at or for the years ended October 31 | | **Average balance** | **Interest** | **Average rate** | |---|---|---|---| | | **2000** | **1999** | **1998** | **2000** | **1999** | **1998** | **2000** | **1999** | **1998** | | **Domestic assets(1)** | | | | | | | | | | | Cash resources | \$ 1,354 | \$ 1,802 | \$ 1,725 | \$ 16 | \$ 64 | \$ 45 | 1.18% | 3.55% | 2.61% | | Securities Held for investment | 8,311 | 5,141 | 5,822 | 710 | 432 | 352 | 8.54 | 8.40 | 6.05 | | Held for trading | 23,796 | 23,377 | 21