# CIBC 2010 ANNUAL REPORT ## Letter from the Chair of the Board “At CIBC, our employees work every day to help our clients achieve what matters most to them. And for over 140 years, we have been there for Canadians, helping them buy their first homes, helping them grow their businesses, and providing them with retirement advice. Because what matters to our clients, matters to all of us at CIBC.” Gerry McCaughey, President and Chief Executive Officer, CIBC ## 2010 Performance ### Vision * To be the leader in client relationships ### Mission * Help our clients achieve what matters to them * Create an environment where all employees can excel * Make a real difference in our communities * Generate strong total returns for shareholders ### Values * Trust, Teamwork, Accountability ### Clients * Opened, relocated or expanded 35 branches * First major bank in Canada to launch a mobile banking App for iPhone * Canada’s largest dual issuer of credit cards * Launched first debit card in Canada to offer Visa Debit features * #1 on the TSX in terms of volume and value of trades executed * Led or co-led several notable investment banking deals * Added new clients and expanded existing relationships in our corporate lending group * Invested in our brand campaign, highlighting how CIBC has helped clients achieve what matters to them ### Employees * Employee Commitment Index increased for the fifth consecutive year * Recognized as *Best Employer for New Canadians* for the third consecutive year * Launched new leadership development program * Promoted the diversity and inclusion within our workforce through eight employee Affinity networks with more than 3,500 members * Introduced a new theme, *Think Differently*, to support CIBC’s 18th Annual Diversity Month ### Communities * Contributed close to $34 million to communities across Canada * The Canadian Breast Cancer Foundation CIBC Run for the Cure raised $33 million * Celebrated 25th anniversary of CIBC Miracle Day, raising $3.5 million * Proud broadcast sponsor of the 2010 FIFA World Cup * Contributed $7.2 million to the 2009 United Way campaign | Metric | 2009 | 2010 | |---|---|---| | Revenue (\$ billions) | 9.9 | 12.1 | | Net income (\$ billions) | 1.2 | 2.5 | | Diluted earnings per share (\$) | 2.65 | 5.87 | | Return on equity (%) | 9.4 | 19.4 | CIBC's financial performance in 2010 supported an industry-leading total shareholder return of **32.4%**. ## Chair of the Board’s Letter **Charles Sirois, Chair of the Board** ### Another dynamic year for financial services 2010 marked another dynamic year in the financial services sector as regulators balanced the need to support the economic recovery with efforts to mitigate global financial risk. In this changing environment, your Board has been resolute in its commitment to maintaining strong governance principles. Over the last year, the Board has focused on further strengthening CIBC’s governance systems, board renewal and board effectiveness, while enhancing risk management oversight. We also spent more time on our stakeholder engagement framework, talent management and executive compensation. In 2010, GovernanceMetrics International awarded CIBC a global rating of 10.0, which is the highest rating assigned by this organization, and placed CIBC in the top 1% of all companies ranked for best-in-class corporate governance standards. ### Stakeholder engagement – an integral part of our investor relations program Maintaining an ongoing dialogue with investors is a priority of your Board. Our framework for stakeholder engagement has kept the Board current on the views of our stakeholders while managing increased stakeholder requirements. Although we have always had direct discussions with shareholders, our formalized process and enhanced focus in this area have allowed us to be more proactive. Our emphasis on effective stakeholder engagement extends beyond the meetings we have with investors to our overall communication strategy. In 2010, we were honoured to have received a Governance Gavel Award from the Canadian Coalition for Good Governance in recognition of our proxy circular disclosure about CIBC’s approach to executive compensation. ### Strategy and risk – a Board enriched process Corporate strategy, and its successful execution, is a key determinant of shareholder value. Although strategy is management’s responsibility, your Board continues to be an active participant in CIBC’s evolving process for strategic planning, as well as CIBC’s process for measuring progress against the strategic priorities set by management and approved by the Board. The independent insights from our experienced directors bring a balanced and value-added perspective to this process. In addition, your Board has been actively engaged in educational sessions focused on understanding the impact of the changing environment on themes that are critical to CIBC’s strategy. As part of CIBC’s financial and strategic planning process, the Board’s Risk Management Committee has approved refinements to CIBC’s risk appetite to maintain a strong alignment between risk and business strategy. The changes recognize CIBC’s goal to be a lower-risk Canadian bank with a view to growing judiciously in select businesses where we have strong competitive capabilities and market opportunities. We continue to view our risk appetite statement as an important tool to support a risk culture across the organization that is aligned with CIBC’s strategic imperative of consistent and sustainable performance. ### Executive compensation and talent management With the support of the Management Resources and Compensation Committee, CIBC has further developed talent management and renewed its talent strategy. This strategy focuses on enhancing succession planning among employees at all levels, as well as organizational effectiveness and leadership development. Executive compensation continues to be a key area of focus with the objective of aligning CIBC’s executive compensation program with CIBC’s strategy and emerging best practices in the marketplace. Following the redesign of our senior executive team compensation program in 2009, we introduced changes in 2010 that covered our broader executive population. These changes, which include the greater use of performance vesting criteria and equity deferrals, will be described in CIBC’s 2011 Management Proxy Circular that will be available in March. ### Looking forward At our upcoming Annual Shareholder Meeting, Jalynn Bennett will be retiring from our Board. Jalynn has served as a CIBC director since 1994, bringing financial expertise and governance insights to her various roles on all of CIBC’s Board committees. As Chair of the Corporate Governance Committee from 2003 to 2010, Jalynn was instrumental in establishing our annual review of Board performance and director competencies as well as our Board renewal process. I wish to thank Jalynn for her contributions over many years of valuable service on our Board. In all, 2010 has been a productive year for your Board and one of progress for CIBC. I would like to recognize Gerry, his management team and all employees at CIBC for their continued efforts on behalf of CIBC’s clients and shareholders this past year. I would also like to thank my fellow directors for their continued support. Your Board has been resolute in its commitment to maintaining strong governance principles. ## Chief Executive Officer’s Letter **Gerry McCaughey, President and Chief Executive Officer** ### 2010 was a good year for CIBC and our stakeholders Faced with economic and industry conditions that improved from 2009 but remained challenging, CIBC reported solid financial results and progress against our strategic priorities. Driven by revenue growth and lower loan losses, net income grew to $2.5 billion and cash diluted earnings per share$^{(1)}$ increased to $5.95. Return on equity was strong at 19.4%. And while investing in our core businesses, we maintained industry competitive measures of productivity and industry leading capital ratios. Our financial performance in 2010 and strong position heading into 2011 reflect CIBC’s focus on achieving and maintaining market leadership in our core businesses, growing in select areas where we have proven capabilities and supporting our growth with strong fundamentals. ### Growth and progress in Retail Markets CIBC Retail Markets reported net income in 2010 of $2.2 billion, up from $1.9 billion in 2009. This result reflects an effective balance of growth and risk. Higher revenue in all three of our main business segments – personal banking, business banking and wealth management – and lower loan losses were the key contributors to the 16% growth in profitability. ### Our retail business made significant investments and delivered notable achievements in 2010 * As part of our overall focus on the client experience and making it easier for our clients to do their banking with us, we opened, relocated or expanded 35 branches, while continuing our targeted approach to extending evening, Saturday and Sunday hours in our branches; * We were the first Canadian bank to launch a mobile banking App for iPhone and followed with other smartphone innovations that have enabled our clients “on the go” to perform many of their day-to-day banking transactions anywhere, anytime at www.cibc.mobi; * Our acquisition of a MasterCard portfolio from Citi Cards Canada Inc. enhanced our market leadership in credit cards and makes CIBC the largest dual issuer of Visa and MasterCard in Canada; * Our acquisition of full ownership of CIT Business Credit Canada Inc. gives us a market leadership position in asset-based lending in Canada and, combined with other initiatives, positions CIBC for growth in business banking; * We launched several new products for our clients, including the CIBC eAdvantage Savings Account; the first Visa Debit card in Canada with the CIBC Advantage Card; and announced lower trading fees for our discount brokerage clients who have $100,000 in business with CIBC; * We invested in new technology and tools to help our network of more than 3,000 advisors across Canada better serve client needs; and * We continued to invest in our national television brand advertising campaign throughout 2010 that featured CIBC employees and their commitment to providing value to our clients every day. Heading into 2011, our retail franchise is well positioned for growth. We are among market leaders in Canada in key products such as mortgage lending, deposits and credit cards, and have expanded the second largest combined branch and ABM network in the country. ### Earnings stability and risk-controlled performance in Wholesale Banking Wholesale Banking reported net income of $342 million in 2010, compared to a loss of $472 million in 2009. These numbers include the results of our structured credit run-off business, which improved from a loss of $684 million in 2009 to a loss of $161 million in 2010. As a result of reduced levels of activity across the industry, earnings in our core Wholesale Banking business were down from 2009, but continued to exhibit the greater consistency and risk control that emerged in 2009 following the refocusing of our Wholesale Banking activities. Our Wholesale Banking business is well positioned for earnings growth as industry conditions improve: * We continue to hold market leading positions in Canada in key areas such as equity trading, equity underwriting, debt underwriting and M&A; * In corporate lending, we have added new clients and expanded existing relationships that have contributed to revenue growth. Our corporate lending group is partnering closely with our business banking group in CIBC Retail Markets to grow CIBC’s small business, commercial and corporate client relationships in support of our strategic objective of achieving a market leadership position in these segments over the next 3 to 5 years; and * Several significant technology investments have been completed or are at advanced stages, which will further our client service and risk management capabilities and support our growth plans across our sales, trading, advisory and lending businesses. While investing in our core Wholesale Banking strategy, we continued to actively manage and reduce our structured credit run-off business. In 2010, we reduced notional exposures by $17 billion through sales and terminations of underlyings, as well as settlements with financial guarantors. Our remaining portfolio of primarily collateralized loan obligations and corporate debt has experienced minimal defaults in the underlying collateral and continues to benefit from significant levels of subordination. ### Strong fundamentals While continuing to invest in our core businesses, we have strengthened the foundation of the bank: * CIBC’s balance sheet is strong and competitive with an industry leading Tier 1 capital ratio of 13.9%, a funding profile that is well diversified by term, product and market, significant improvements in credit quality during 2010, and Value-at-Risk levels at the low end of the industry; * While growing our revenue, we have managed our expenses to maintain our non-interest expense to revenue ratio at our strategic objective of industry median among the major banks in Canada; and * Our risk management group has provided strong independent oversight while working together with our businesses to support their growth objectives. In 2010, the Basel Committee on Banking Supervision announced new regulatory capital and liquidity standards for global banks. Canada’s regulator, the Office of the Superintendent of Financial Institutions (OSFI), will be confirming the specific application of these standards for Canadian banks. With our strong Tier 1 capital ratio, a Tangible common equity ratio$^{(1)}$ that we have strengthened from 7.6% to 9.9% over the course of 2010, and a strong liquidity profile, CIBC is well positioned to meet the emerging standards and proposed implementation timelines while continuing to invest in our future. CIBC is focused on achieving market leadership in our core businesses, growing in areas where we have proven capabilities and supporting growth with strong fundamentals. ### Strategic imperative Underpinning our activities at CIBC is the importance of our strategic imperative of consistent and sustainable performance over the long term. In my 2009 letter, I spoke about the need for CIBC to be strong through the full economic cycle by operating at full capacity where we are strongest. This is why our Canada first strategy is the right one for CIBC, and has strengthened CIBC over the past two years. Our Canada first strategy is the right one for CIBC, and has strengthened CIBC over the past two years. ### Summary 2010 was a good year for CIBC and our stakeholders: * For our investors, we delivered a total shareholder return of 32.4%, which led the major Canadian banks; * For our 11 million clients, we made significant investments and innovations so that we can continue to deliver what matters most; * For our employees, we enhanced our focus on leadership development and talent management and generated strong commitment from the success of our national television brand advertising campaign featuring CIBC employees and what they do on behalf of our clients every day; * For our communities, we continued to make a lasting impact with events such as the Canadian Breast Cancer Foundation CIBC Run for the Cure, CIBC Miracle Day, and the many other charitable activities that CIBC and our employees are committed to. In closing, I want to thank each of our more than 42,000 employees for their contribution over the past year. The leadership, professionalism and commitment you demonstrate in serving our clients, shareholders and communities is the key to our ongoing success. I also want to recognize Ron Lalonde, a member of my senior executive team, who is retiring in December 2010. Ron will be missed by everyone who has had the pleasure of working with him during his long and successful career at CIBC. $^{(1)}$ For additional information, see the “Non-GAAP measures” section of the MD&A. ## Performance against objectives | Medium-term objectives | 2010 results | |---|---| | Earnings per share (EPS) growth | Diluted EPS growth of 5% – 10% per annum, on average, over the next 3 – 5 years | 2010 EPS of \$5.87 compared with 2009 EPS of \$2.65 | | Return on equity (ROE) | Return on average common equity of 20% through the cycle (calculated as net income less preferred share dividends and premium on redemptions expressed as a percentage of average common shareholders’ equity) | ROE: 19.4% | | Capital strength | Tier 1 capital ratio target of 8.5% Total capital ratio target of 11.5% | Tier 1 capital ratio: 13.9% Total capital ratio: 17.8% | | Business mix | At least 75% retail (as measured by economic capital$^{(1)}$) | 74%/26% retail/wholesale (as measured by economic capital$^{(1)}$) | | Risk | Maintain provision for credit losses as a percentage of loans and bankers’ acceptances (loan loss ratio) on a managed basis$^{(1)}$ between 50 and 65 basis points through the business cycle | Loan loss ratio on a managed basis$^{(1)}$: 56 basis points | | Productivity | Achieve a median ranking within our industry group, in terms of our non-interest expense to total revenue (cash efficiency ratio, taxable equivalent basis (TEB)$^{(1)}$) | Cash efficiency ratio, TEB$^{(1)}$: 57.6% | | Dividend payout ratio | 40% – 50% (common share dividends paid as a percentage of net income after preferred share dividends and premium on redemptions) | Dividend payout ratio: 59.1% | | Total shareholder return | Outperform the S\&P/TSX Composite Banks index (dividends reinvested) on a rolling five-year basis | Five years ended October 31, 2010: CIBC – 36.6% Index – 50.2% | $^{(1)}$ For additional information, see the “Non-GAAP measures” section of the MD&A. A constituent of the Dow Jones Sustainability World Index for nine consecutive years, and a member of the Dow Jones Sustainability North American Index since its inception in 2005 Listed on the FTSE4Good Index since its inception in 2001 A member of the Jantzi Social Index since its inception in 2000 ## Senior Executive Team **Gerry McCaughey**, President and Chief Executive Officer, CIBC **Sonia Baxendale**, President, CIBC Retail Markets **Michael Capatides**, Chief Administrative Officer and General Counsel, Administration **Ron Lalonde**, Senior Executive Vice-President, CIBC **Richard Nesbitt**, Chairman and Chief Executive Officer, Wholesale Banking **Richard Venn**, Senior Executive Vice-President, CIBC **David Williamson**, Chief Financial Officer, Finance **Tom Woods**, Chief Risk Officer, Risk Management ### Senior Leaders **ADMINISTRATION** * **Michelle Caturay**, Vice-President, Corporate Secretary and Associate General Counsel * **Charles Gerber**, Executive Vice-President and Deputy General Counsel * **Anil Mathur**, Senior Vice-President and Chief Auditor * **Kimberley McVittie**, Vice-President, Ombudsman and Chief Privacy Officer * **Tim Moseley**, Senior Vice-President and Chief Compliance Officer * **Jacqueline Moss**, Executive Vice-President, Human Resources **FINANCE** * **David Arnold**, Executive Vice-President, Finance Business Support * **Dennis Dlugan**, Senior Vice-President, Taxation * **John Ferren**, Vice-President, Investor Relations **CIBC RETAIL MARKETS** * **Kevin Glass**, Executive Vice-President, Finance Shared Services * **Andrew Kriegler**, Senior Vice-President and Treasurer * **Shuaib Shariff**, Senior Vice-President and Chief Accountant * **Colette Delaney**, Senior Vice-President, Mortgages and Lending * **Victor Dodig**, Executive Vice-President, Retail Distribution and Wealth Management * **Stephen Forbes**, Executive Vice-President, Marketing, Strategy, Communications and President’s Choice Financial * **Jon Hountalas**, Executive Vice-President, Business Banking * **Christina Kramer**, Executive Vice-President, Distribution Services * **Todd Lawrence**, Senior Vice-President, Deposit Products * **Cheryl Longo**, Executive Vice-President, Card Products and National Collections **FIRSTCARIBBEAN INTERNATIONAL BANK** * **John Orr**, Chief Executive Officer, FirstCaribbean International Bank **RISK MANAGEMENT** * **Raza Hasan**, Senior Vice-President, Retail Lending and Wealth Risk Management * **Brian McDonough**, Executive Vice-President, Wholesale Credit and Investment Risk Management * **Brian O’Donnell**, Executive Vice-President, Risk Services * **Edward Penner**, Senior Vice-President, Card Products Risk Management * **Milo Rado**, Executive Vice-President, Capital Markets Risk Management **TECHNOLOGY AND OPERATIONS** * **Mike Boluch**, Executive Vice-President, Technology * **Art Mannarn**, Executive Vice-President, Global Operations and INTRIA * **Kevin Patterson**, Executive Vice-President, Technology and Operations **WHOLESALE BANKING** * **Geoff Belsher**, Managing Director, Global Investment Banking * **Gary Brown**, President and Chief Executive Officer, CIBC World Markets Corp. * **Robert Cormie**, Managing Director and Head, Asia-Pacific Region * **Harry Culham**, Managing Director, Fixed Income, Currencies and Distribution * **Laura Dottori-Attanasio**, Managing Director, Corporate Credit Products * **Warren Gilman**, Managing Director, Asia-Pacific Region * **Michael Higgins**, Managing Director, Real Estate Finance * **Ted Nash**, Managing Director, Corporate Development and Strategic Merchant Banking * **Rik Parkhill**, Managing Director, Capital Markets Sales and Cash Equities * **Scott Wilson**, Managing Director, Europe Region ## Non-financial performance | Objectives | Accomplishments | |---|---| | **Clients** | Help our clients achieve what matters to them | * Provided greater access and choice to clients with: - 35 branches opened or expanded across Canada - Launch of first mobile banking App for iPhone by a major Canadian bank * Introduced new product innovations, including: - CIBC Advantage Card – offering Visa Debit - CIBC EverydayPlus Chequing Account and CIBC eAdvantage Savings Account | | **Employees** | Create an environment where all employees can excel | * Increased our Employee Commitment Index for the fifth consecutive year * Selected as one of Canada’s Best Employers for New Canadians for the third consecutive year * Invested approximately $56 million in training and development | | **Community** | Make a real difference in our communities | * Invested close to $34 million to support communities across Canada * Helped raise more than $33 million for the Canadian Breast Cancer Foundation CIBC Run for the Cure * Raised $3.5 million on the 25th anniversary of CIBC Miracle Day in 2009 * Contributed $7.2 million to the 2009 United Way campaign | | **Environment** | Demonstrate environmental responsibility in all activities | * Increased the use of Forest Stewardship Council (FSC) certified paper stock to 84% * Converted more than 11,000 employee accounts through CIBC’s “Go Paperless” campaign | | **Governance** | Be a leader in governance practices | * Received a Governance Gavel Award from the Canadian Coalition for Good Governance in recognition of our proxy circular disclosure about CIBC’s approach to executive compensation * Ranked in the top 1% of all companies rated by GovernanceMetrics International for best-in-class corporate governance standards * Named one of the Best 50 Corporate Citizens for 2010 by Corporate Knights * Recognized as one of Canada’s 50 Most Socially Responsible Corporations by Jantzi-Sustainalytics and Maclean’s | **Richard Nesbitt**, Chairman and Chief Executive Officer, Wholesale Banking **Richard Venn**, Senior Executive Vice-President, CIBC **David Williamson**, Chief Financial Officer, Finance **Tom Woods**, Chief Risk Officer, Risk Management ## CIBC Retail Markets CIBC Retail Markets’ objective is to be the primary financial institution for our clients; consolidating their business with us by delivering what matters most – excellent service, strong financial advice and competitive products. ### Strong retail franchise CIBC Retail Markets comprises CIBC’s personal banking, business banking and wealth management businesses. We provide a range of financial products, services and advice to nearly 11 million clients in Canada and the Caribbean, as well as investment management services globally to retail and institutional clients in Hong Kong, Singapore and the Caribbean. Our objective is to be the primary financial institution for our clients, consolidating their business with us by delivering what matters most – excellent service, strong financial advice and competitive products. The strength of our retail franchise is evident in our market leadership in key areas where CIBC Retail Markets currently holds #1, #2 or #3 market positions in six of our eight product categories. #### Personal Banking 2010 Highlights * CIBC ranks #1 in credit cards outstandings, #2 in mortgages and #3 in deposits * Delivered 5% growth in funds managed * Acquired a $2.0 billion MasterCard portfolio to become largest dual credit card issuer in Canada * First bank in Canada to launch a mobile banking App for iPhone * Opened or expanded 35 branches across Canada * Introduced CIBC Advantage Card – the first Visa Debit card in Canada, as well as CIBC eAdvantage Savings Account and CIBC EverydayPlus Chequing Account #### Business Banking 2010 Highlights * CIBC ranks #3 in deposits and #4 in lending * Grew funds managed by 6% * New leadership and renewed focus on business banking * Acquired 100% of asset-based lending business * Only major bank in Canada to offer unlimited day-to-day transactions for small business through the CIBC Unlimited Business Operating Account #### Wealth Management 2010 Highlights * CIBC ranks #2 in managed solutions and full service brokerage * Record long-term net sales growth * Strong fund performance * Announced new low pricing for CIBC Investor’s Edge online brokerage clients * Strong investment fund offering providing clients with significant choice * Growth in high net worth client base | Operating highlights | 2009 | 2010 | |---|---|---| | Revenue (\$ billions) | 9.3 | 9.7 | | Net income (\$ billions) | 1.9 | 2.2 | | Funds managed (\$ billions) | 346.1 | 363.7 | | Wealth management assets under administration (\$ billions) | 178.8 | 197.8 | ### Executing our CIBC Retail Markets strategy #### Investing for growth CIBC had a strong year investing in the growth of our retail businesses in 2010. We acquired a $2.0 billion MasterCard portfolio from Citi Cards Canada Inc. to become the largest dual issuer of Visa and MasterCard products in Canada. Acquiring this portfolio complements our well-established leadership position in the premium cards market and further strengthens our market position in the broader mass credit card market. In addition, we acquired 100% of CIT Business Credit Canada Inc. to enhance our position in asset-based lending. This will contribute to our objective of growing our business banking activities in Canada and increasing our market position in this important business segment. #### Advice that’s right for our clients Providing strong advice is the foundation of CIBC’s retail strategy and a key differentiator for CIBC in the market. Our more than 3,000 advisors offer a broad range of advisory solutions to meet our clients’ diverse financial needs. We’ve helped more than 2.3 million clients prepare for their future since the launch of the CIBC Financial HealthCheck, which helps clients determine where they are today, what their financial goals are and how to achieve them. CIBC was the first bank in Canada to launch a mobile banking App for iPhone for clients on the go Announced new competitive pricing structure for CIBC Investor’s Edge online brokerage CIBC is the only major bank in Canada to offer unlimited day-to-day transactions for small business owners ### Enhancing access and choice for our clients We have also focused our investments in delivering greater access and choice to our clients in how, when and where they do their banking. This year, we opened or expanded 35 branches across Canada completing our five-year, strategic branch investment program to build, relocate or expand 70 branches more than a year ahead of schedule. CIBC clients have access to close to 1,100 branches in communities from coast-to-coast. CIBC has more than 3,000 advisors to provide our clients with our industry leading advice – at hours that are convenient to them. Over 40% of our branches are open Saturdays and we offer 7 days-a-week banking at almost 50 locations. CIBC was the first bank in Canada to launch a mobile banking App for iPhone, as well as offering mobile banking to BlackBerry and other smartphone users. There is a strong demand in Canada for these services, and CIBC is the clear leader in delivering innovative mobile banking solutions. No matter how our clients choose to bank with us, we are focused on ensuring they continue to have an excellent client experience, whether it is through: * Our online banking channel, which has been named *The Best Consumer Internet Bank in Canada* for three straight years * The second largest ABM network in Canada, which we continue to upgrade and replace with faster machines and enhanced security features * Our telephone banking channel, where we proactively make two million phone calls to clients annually to ensure we are meeting their financial needs Going forward, we will continue to invest in our capabilities to meet client needs by enabling new and more convenient ways to bank. ### Building the CIBC brand In addition, we have been investing in our brand. We launched a highly successful national brand campaign demonstrating how CIBC has helped clients achieve what matters to them in their business and personal lives for more than 140 years. We have featured more than 55 employees from across Canada in our brand campaign who represent the passion and commitment that more than 42,000 employees bring to our clients each day. The brand campaign is just one component of the significant investments we have made in our brand over the past year. Others include: * CIBC’s exclusive financial services broadcast sponsorship of the 2010 FIFA World Cup. CIBC’s sponsorship included a two-month national tour, branch events, street celebrations and extensive broadcast, print and online advertising. Following this success, CIBC has entered into a sponsorship agreement for the 2014 FIFA World Cup Brazil * We will sponsor the International Indian Film Academy Weekend and Awards Toronto 2011, the first time these celebrations are being held in North America * The introduction of a quarterly CIBC National Client Appreciation Day – a further example of our commitment to enhancing the experience for our clients by setting aside a special day each quarter to say “Thank You” for their loyalty and business * CIBC’s highly successful SWITCH campaign giving Canadians compelling reasons to switch more of their business to CIBC * Our title sponsorship since 1997 of one of Canada’s premier fundraising events – The Canadian Breast Cancer Foundation CIBC Run for the Cure – which raised $33 million this year to support breast cancer research Overall, each of these strategic investments is helping us demonstrate to our clients that we are committed to helping them achieve what matters. ### Product innovations A young couple came to me for advice on a mortgage for their first home. With so many different types of mortgages out there, my clients weren’t sure which one was right for them. I helped them choose the mortgage that fit their lifestyle, their budget and their goals. — Stacey Laughington, Financial Services Representative, CIBC In 2010, CIBC launched innovative new products like the **CIBC Advantage Card** – the first Visa Debit card in Canada to offer clients all the benefits of their current debit card along with vastly expanded acceptance for online purchases and international point of sale debit transactions. We announced an innovative new pricing structure for CIBC Investor’s Edge online investors. At $6.95 per trade for any client with more than $100,000 in business with CIBC, this new pricing offer gives online investors one of the most competitive trading prices available today in Canada. To further strengthen our savings account line-up, we offer the **CIBC eAdvantage Savings Account** and the **Renaissance High Interest Savings Account** which provide clients with the opportunity to earn high interest and maximize their savings. We remain leaders in the credit card marketplace in Canada. Our leading **CIBC Aerogold Visa** premium credit cards were recognized as the top airline travel card by rewardscanada.ca for the second year in a row. For our business clients, we provide an expanded suite of credit solutions with asset-based lending, and we are the only major bank in Canada to offer unlimited day-to-day transactions for small business owners through the **CIBC Unlimited Business Operating Account**. #### FirstCaribbean 2010 Highlights CIBC has an extensive banking presence in the Caribbean through FirstCaribbean International Bank. FirstCaribbean was the first financial services institution in the Caribbean to launch mobile banking regionally. Further competitive innovations include the introduction of the market leading Visa Debit card that can be used throughout the Caribbean and overseas. In addition, an enhanced, more user-friendly client website was launched, including online applications for products. FirstCaribbean introduced CIBC Axiom Portfolios mutual fund family to the region and also launched a new suite of products for small business owners, including deposit products, revolving business credit cards and lines of credit. ## Wholesale Banking Wholesale Banking’s objective is to be the premier client-focused wholesale bank based in Canada by bringing Canadian capital markets products to Canada and the rest of the world and also by bringing the world to Canada. Wholesale Banking provides a wide range of credit, capital markets, investment banking, merchant banking and research products and services to government, institutional, corporate and retail clients in Canada and in key markets around the world, through its two business segments – corporate and investment banking and capital markets. Our goal is to be **the premier client-focused wholesale bank based in Canada** by bringing Canadian capital markets products to Canada and the rest of the world, and bringing the world to Canada. We are committed to delivering excellent advice, service and value to our clients and consistent, sustainable returns to our shareholders. We work closely with all CIBC businesses to ensure our clients benefit from the scale of the CIBC franchise, the breadth of business and product offerings and the strength of our brand. Wholesale Banking’s strategy is aligned with CIBC’s strategic imperative of delivering consistent, sustainable performance. Our client-focused strategy positions us well to achieve a #1, #2 or #3 position in our key business categories. | Operating highlights (\$ millions) | 2009 | 2010 | |---|---|---| | Revenue | 512 | 1,714 | | Net income (loss) | (472) | 342 | | Economic capital$^{(1)}$ (\$ billions) | 2.8 | 2.3 | | Value at Risk (VaR) (\$ millions) | 6.3 | 4.2 | $^{(1)}$ For additional information, see the “Non-GAAP measures” section of the MD&A. ### Executing our Wholesale Banking strategy #### Corporate and investment banking In 2010, we focused on delivering continued earnings stability and excellent service and value to our clients through what remained a cautious business and economic environment. Throughout 2010, our Wholesale Banking business continued to demonstrate market leadership in serving our core Canadian clients by: * Maintaining our strong position in mergers and acquisitions and improving our market position in syndicated lending * Increasing authorized loan commitments by 14.6% * Continuing our leadership position in equity trading, underwriting, debt capital markets and structured products * Identifying lending, foreign exchange, securitization and electronic trading as other core areas of opportunity within Wholesale Banking where we have capacity, industry leading capabilities and supportive market conditions for growth * Strengthening our competitive position with large asset managers and expanding our equity trading client base The corporate credit products group made significant progress in strengthening and expanding our lending capability. We were sole lead arranger and sole bookrunner for a $1.0 billion corporate revolver for Enerplus and the co-lead and joint bookrunner for a $2.3 billion corporate revolver for Penn West Energy Trust. Investment banking had a strong year of involvement in many deals and served as joint bookrunner for a $287 million bought deal secondary offering for Dollarama Inc. and joint bookrunner for Cameco Corporation’s $908 million bought secondary offering of Centerra Gold Inc. common shares. In addition, we acted as financial advisors to the directors of Red Back Mining in regard to its combination with Kinross Gold and to the Encana board in regard to its division into two distinct independent energy companies. #### Capital markets In 2010, capital markets sales and cash equities continued to build upon its presence as a leader in providing clients with industry leading service and execution. We maintained a leadership position in both equity trading and underwriting, ranking #1 overall in equity trading volume and value across all markets for the second consecutive year. We continued to expand our equity research with a focus on the energy, mining and materials, and financial services sectors, and our equity trading professionals were recognized by clients as key contributors to their investment knowledge. Capital markets trading delivered another strong year within the corporate and government bond markets. CIBC was joint bookrunner for a 10-year, $1.0 billion bond offering for TELUS Corporation, a $700 million offering of senior notes for Husky Energy and a US$1.5 billion, five-year global bond offering from the Province of British Columbia, its largest ever US\$-denominated offering. CIBC also led a $6.0 billion bond offering for Canada Housing Trust No.1. Having built earnings stability over the last two years, we are now focused on strategic opportunities to generate risk controlled growth in a number of key areas by: * Building on our client-focused approach to broaden their business relationships with CIBC * Continuing to expand our corporate lending products and capabilities * Differentiating our product offering by enhancing our electronic delivery channels * Pursuing growth opportunities in our foreign exchange trading and sales | Capital markets (Revenue (\$ millions)) | 2008 | 2009 | 2010 | |---|---|---|---| | | 672 | 1,265 | 1,011 | **Priorities** * Client-focused strategy * Market leadership in core businesses * Grow with CIBC | Corporate and investment banking (Revenue (\$ millions)) | 2008 | 2009 | 2010 | |---|---|---|---| | | 563 | 775 | 626 | **Priorities** * Provide strong advisory solutions * Deliver an excellent client experience * Offer competitive products ## Governance At the heart of CIBC’s governance structure is an experienced, independent Board of Directors that is committed to upholding strong governance principles, creating a culture of engagement and transparency, and leading in governance best practices. ### Sustaining excellence in governance CIBC believes that embracing strong governance is the foundation to delivering against its strategic imperative of consistent and sustainable performance over the long term. The Board of Directors (the Board) employs a comprehensive, integrated governance framework as the basis for its oversight responsibilities of the management of the business and affairs of CIBC. #### CIBC’s integrated governance framework The framework guides the Board and management in fulfilling their obligations to CIBC and its stakeholders. The Board reviews the effectiveness of the governance structure annually and is committed to evolving its structure to ensure it serves as the keystone for sustaining excellence in governance in the future. This framework includes a capable and qualified Board with diverse backgrounds and skills; a collaborative and constructive relationship between the Board and senior management; and a robust set of governance and control policies and procedures. #### Continually evolving governance practices As part of its ongoing review, the Board regularly assesses and enhances its governance practices and principles to confirm that we continue to meet regulatory requirements and that we remain at the forefront of governance best practices. CIBC posts these practices and principles on our corporate website at www.cibc.com. The *Statement of Corporate Governance Practices* describes our comprehensive governance framework, states CIBC’s vision and details the Board’s responsibilities. This document describes the Board’s policy on board composition, director nomination and tenure, board independence and education, as well as director and executive compensation and management succession. The Board and management of CIBC recognize the importance of consistent and timely communication with CIBC’s stakeholders. The *CIBC Disclosure Policy* explains CIBC’s disclosure philosophy and practices for disclosing material information to the market, and outlines roles and responsibilities of various individuals and groups at CIBC relating to the release of material information. The Policy is intended to minimize the risk of unauthorized, inconsistent or selective disclosure. #### Fostering a culture of integrity and accountability In accordance with our commitment to nurture a governance culture of integrity and personal accountability, CIBC has policies on personal conduct for directors, employees and contractors intended to foster a strong ethical culture and to protect our clients, our employees and CIBC. The *CIBC Code of Ethics for Directors* applies to all members of CIBC’s Board of Directors. The principles in this Code require a consistent and high standard of ethical conduct for all directors. The principles are intended to protect the business interests of CIBC, maintain CIBC’s reputation for integrity and foster compliance with applicable legal and regulatory obligations. Directors are required to certify their compliance with the Code each year. The *CIBC Code of Conduct* promotes ethical decision-making for all employees and supports behaviour that is consistent with CIBC’s core values of Trust, Teamwork and Accountability. All employees are required to complete annual certification and testing on the CIBC Code of Conduct to ensure they understand its requirements. All CIBC employees are encouraged to come forward with any concerns. In keeping with our commitment to open and honest communications, employees are expected to report any irregular business activity or behaviour that could place CIBC’s integrity or reputation at risk. Concerns can be reported in confidence and anonymity to any CIBC executive, director or through the confidential CIBC Ethics Hotline. Employees who report suspected contraventions in good faith are protected from retaliation or adverse employment action. **Board of Directors structure:** ```mermaid graph TD A[Board of Directors] --> B(Shareholders) A --> C(Auditors) A --> D(Regulators) A --> E(Chief Executive Officer) A --> F(Chair of the Board) A --> G(Management) A --> H(Corporate Governance Committee) H --> I(Management Resources and Compensation Committee) H --> J(Risk Management Committee) H --> K(Audit Committee) E --> L(Asset Liability Committee) E --> M(Capital and Risk Committee) E --> N(Governance and Control Committee) E --> O(Reputation and Legal Risks Committee) ``` ### Meeting and exceeding compliance requirements As a Canadian public company with securities listed on the Toronto Stock Exchange (TSX) and the New York Stock Exchange (NYSE), CIBC has in place a system of corporate governance practices that meets or exceeds all applicable regulatory requirements. A summary of significant differences between the corporate governance practices of CIBC and those required of U.S. domestic companies under the NYSE listing standards is available at www.cibc.com. ### Supported by an effective committee structure The Board has worked hard to align its governance and risk management philosophies and structure to support our broader long-term strategic imperative of consistent and sustainable performance over the long term. To support the senior team on the governance and control activities of CIBC, four management committees have been established: * Capital & Risk Committee * Disclosure Committee * Reputation & Legal Risk Committee * Governance and Control Committee The Board committee mandates are outlined in greater detail in the *Management Proxy Circular* and are available at www.cibc.com. Directors’ committee membership is indicated following their name in the Board of Directors list below: ### Committed to ongoing Board renewal We recognize the importance of having a complement of board skills, experience and competencies. Using our competency matrix, we annually assess the individual skills across the Board to ensure we have the appropriate balance of qualifications and skills to effectively address CIBC’s evolving needs. The Board has four committees which, as part of its overall responsibilities, assist in carrying out its duties and enhance governance: * Audit Committee (AC) * Corporate Governance Committee (CGC) * Management Resources and Compensation Committee (MRCC) * Risk Management Committee (RMC) ### Board of Directors | Name | Year Joined | Committee Memberships | Title/Affiliation | Location | |---|---|---|---|---| | **Charles Sirois C.M., O.Q.** | (1997) | Chair of the Board | Chairman and Chief Executive Officer, Telesystem Ltd. | Montreal, Quebec, Canada | | **Brent S. Belzberg** | (2005) | CGC, MRCC | Senior Managing Partner, Torquest Partners | Toronto, Ontario, Canada | | **Jalynn H. Bennett C.M.** | (1994) | AC | Corporate Director | Toronto, Ontario, Canada | | **Gary F. Colter** | (2003) | CGC, MRCC | President, CRS Inc. | Mississauga, Ontario, Canada | | **Dominic D’Alessandro** | (2010) | RMC | Past President and Chief Executive Officer, Manulife Financial Corporation | Toronto, Ontario, Canada | | **Patrick D. Daniel** | (2009) | RMC | President and Chief Executive Officer, Enbridge Inc. | Calgary, Alberta, Canada | | **Luc Desjardins** | (2009) | MRCC | Equity Partner, The Sterling Group, LP | Montreal, Quebec, Canada | | **Hon. Gordon D. Giffin** | (2001) | MRCC | Senior Partner, McKenna Long & Aldridge LLP | Atlanta, Georgia, U.S.A. | | **Linda S. Hasenfratz** | (2004) | MRCC | Chief Executive Officer, Linamar Corporation | Guelph, Ontario, Canada | | **Nicholas D. Le Pan** | (2008) | CGC, RMC | Consultant | Ottawa, Ontario, Canada | | **Hon. John P. Manley P.C., O.C.** | (2005) | AC, CGC | President and Chief Executive Officer, Canadian Council of Chief Executives | Ottawa, Ontario, Canada | | **Gerald T. McCaughey** | (2005) | | President and Chief Executive Officer, CIBC | Toronto, Ontario, Canada | | **Jane L. Peverett** | (2009) | AC | Corporate Director | West Vancouver, British Columbia, Canada | | **Leslie Rahl** | (2007) | RMC | Founder and Managing Partner, Capital Market Risk Advisors, Inc. | New York, New York, U.S.A. | | **Robert J. Steacy** | (2008) | RMC | Corporate Director | Toronto, Ontario, Canada | | **Ronald W. Tysoe** | (2004) | AC, CGC | Corporate Director | Jupiter, Florida, U.S.A. | ## Senior Executive Team **Gerry McCaughey**, President and Chief Executive Officer, CIBC **Sonia Baxendale**, President, CIBC Retail Markets **Michael Capatides**, Chief Administrative Officer and General Counsel, Administration **Ron Lalonde**, Senior Executive Vice-President, CIBC **Richard Nesbitt**, Chairman and Chief Executive Officer, Wholesale Banking **Richard Venn**, Senior Executive Vice-President, CIBC **David Williamson**, Chief Financial Officer, Finance **Tom Woods**, Chief Risk Officer, Risk Management ### Senior Leaders **ADMINISTRATION** * **Michelle Caturay**, Vice-President, Corporate Secretary and Associate General Counsel * **Charles Gerber**, Executive Vice-President and Deputy General Counsel * **Anil Mathur**, Senior Vice-President and Chief Auditor * **Kimberley McVittie**, Vice-President, Ombudsman and Chief Privacy Officer * **Tim Moseley**, Senior Vice-President and Chief Compliance Officer * **Jacqueline Moss**, Executive Vice-President, Human Resources **FINANCE** * **David Arnold**, Executive Vice-President, Finance Business Support * **Dennis Dlugan**, Senior Vice-President, Taxation * **John Ferren**, Vice-President, Investor Relations **CIBC RETAIL MARKETS** * **Kevin Glass**, Executive Vice-President, Finance Shared Services * **Andrew Kriegler**, Senior Vice-President and Treasurer * **Shuaib Shariff**, Senior Vice-President and Chief Accountant * **Colette Delaney**, Senior Vice-President, Mortgages and Lending * **Victor Dodig**, Executive Vice-President, Retail Distribution and Wealth Management * **Stephen Forbes**, Executive Vice-President, Marketing, Strategy, Communications and President’s Choice Financial * **Jon Hountalas**, Executive Vice-President, Business Banking * **Christina Kramer**, Executive Vice-President, Distribution Services * **Todd Lawrence**, Senior Vice-President, Deposit Products * **Cheryl Longo**, Executive Vice-President, Card Products and National Collections **FIRSTCARIBBEAN INTERNATIONAL BANK** * **John Orr**, Chief Executive Officer, FirstCaribbean International Bank **RISK MANAGEMENT** * **Raza Hasan**, Senior Vice-President, Retail Lending and Wealth Risk Management * **Brian McDonough**, Executive Vice-President, Wholesale Credit and Investment Risk Management * **Brian O’Donnell**, Executive Vice-President, Risk Services * **Edward Penner**, Senior Vice-President, Card Products Risk Management * **Milo Rado**, Executive Vice-President, Capital Markets Risk Management **TECHNOLOGY AND OPERATIONS** * **Mike Boluch**, Executive Vice-President, Technology * **Art Mannarn**, Executive Vice-President, Global Operations and INTRIA * **Kevin Patterson**, Executive Vice-President, Technology and Operations **WHOLESALE BANKING** * **Geoff Belsher**, Managing Director, Global Investment Banking * **Gary Brown**, President and Chief Executive Officer, CIBC World Markets Corp. * **Robert Cormie**, Managing Director and Head, Asia-Pacific Region * **Harry Culham**, Managing Director, Fixed Income, Currencies and Distribution * **Laura Dottori-Attanasio**, Managing Director, Corporate Credit Products * **Warren Gilman**, Managing Director, Asia-Pacific Region * **Michael Higgins**, Managing Director, Real Estate Finance * **Ted Nash**, Managing Director, Corporate Development and Strategic Merchant Banking * **Rik Parkhill**, Managing Director, Capital Markets Sales and Cash Equities * **Scott Wilson**, Managing Director, Europe Region ## Corporate Responsibility At CIBC, our corporate responsibility efforts are centered on five areas – clients, employees, communities, the environment and corporate governance. These have been the mainstay of our longstanding commitment and where we can create the greatest impact. For more information on CIBC’s commitment to our community, please read our 2010 Corporate Responsibility report which will be published in February 2011 at www.cibc.com. ### Clients Providing financial solutions that matter to clients Providing our clients with financial solutions that matter to them is a priority at CIBC. From accessible, affordable banking to advice and services, CIBC helps our 11 million clients find solutions for their diverse needs. **Advice as diverse as our clients** – The CIBC Newcomers to Canada Plan offers special discounts on key products to help new Canadians. We also work closely with our First Nations, Métis and Inuit clients to help them achieve financial self-sufficiency and business success. **Investing in accessibility** – We are making banking easier and more readily accessible for visually and hearing impaired clients, the elderly and persons with restricted mobility, by offering client statements in Braille and large print formats, as well as advanced speech recognition and teletype (TTY) technology accessible through Telephone Banking. All new CIBC branches are fully accessible, from parking, to counters, to ABMs and vestibule access. **Protecting our clients and their assets** – We provide enhanced protection for our credit and debit cards with chip technology, while our CIBC CreditSmart feature offers increased protection through credit reports and fraud alerts. **Affordable banking for every step of life** – We offer our clients a wide range of products and advisory solutions from the CIBC Everyday Chequing Account, to our no-annual-fee credit cards, to competitive mortgage and lending rates. CIBC provides free day-to-day banking or discounts and special offers through our CIBC SmartStart for Kids program, CIBC Advantage for Students offer and CIBC 60 Plus Advantage account. **Helping Canadian businesses succeed** – CIBC offers a number of business options to meet the needs of Canadian business owners, including the convenience of an unlimited business operating account to enable them to manage their day-to day banking for one low monthly fee through our CIBC Unlimited Business Operating Account, as well as an expanded suite of credit solutions with asset-based lending. **Greater access and choice for clients** * More than 3,800 ABMs * Nearly 1,100 bank branches across Canada * 238 President’s Choice Financial pavilions * 24/7 Telephone Banking services offered in English, French, Cantonese or Mandarin * Approximately 50 languages offered across our branch network * CIBC was named the Best Consumer Internet Bank in Canada for the third year in a row by Global Finance magazine * Introduced CIBC Mobile Banking for iPhone, Blackberry and other smartphones * CIBC was the first bank in Canada to launch a mobile banking App for iPhone * 35 branches were opened or expanded this year * CIBC Advantage Card was the first debit card in Canada to offer the global reach of Visa Debit * We made significant investments in our ABM network through our Access for All ABMs program which provides clients with enhanced functionality * Our 100% ownership investment in CIT Business Credit Canada Inc. has allowed us to offer an expanded suite of credit solutions to our business clients with asset-based lending * We launched the CIBC AgriInvest Account, an interest-bearing business account for clients to easily manage their funds without monthly account or day-to-day transaction fees * We conducted 20 seminars in 2010 in communities across Canada to provide economic updates and business transition planning strategies for business clients #### 2010 Highlights * CIBC was the first bank in Canada to launch a mobile banking App for iPhone * 35 branches were opened or expanded this year * CIBC Advantage Card was the first debit card in Canada to offer the global reach of Visa Debit ### Employees #### Creating a positive employee experience CIBC focuses on the things that matter to our employees – career-growth opportunities, training and development, and work-life balance – so that employees are able to perform at their best, contribute to their communities and advance CIBC’s vision of being the leader in client relationships. Our employees make it possible for CIBC to deliver consistent, sustainable performance over the long term. We strive to create a positive experience and supportive work environment so that our employees can excel. #### Diversity – We are dedicated to building a workforce that reflects the clients and communities we serve. Diversity is key to the success of our business and is one of our greatest strengths as an organization. #### Training and development – Our focus on employee training and development is a critical element to our success. We continue to help our employees grow, develop and achieve their full potential through our corporate-wide training and development initiatives. #### Performance for what matters – Managing employee performance is key to building long-term, sustainable growth for shareholders. Through our Performance Management and Measurement (PMM) process, managers and employees meet throughout the year to ensure that employees’ goals and personal performance support CIBC’s strategic objectives. #### Health and well being – Creating a safe and healthy environment where individuals can balance their work and personal lives is important to CIBC and our employees. We provide a comprehensive range of benefits and programs that support the overall health, wellness and long-term financial security of employees. | Workforce representation rates and goals (as at Dec. 31, 2009) | | | Senior management representation rates and goals (as at Dec. 31, 2009) | | | |---|---|---|---|---|---| | % | Rate | Goal | % | Rate | Goal | | Women | 67.1 | 57.1 | | Women | 25.7 | 24.2 | | Visible minorities | 25.3 | 21.0 | | Visible minorities | 10.7 | 8.7 | | Persons with disabilities | 3.9 | 4.3 | | Persons with disabilities | 3.7 | NA\* | | Aboriginal peoples | 1.6 | 2.2 | | Aboriginal peoples | 1.1 | 0.6 | \*Statistics Canada data not available. #### 2010 Highlights * CIBC’s annual Employee Survey participation reached a new high of 93% in 2010 and our Employee Commitment Index increased for the fifth consecutive year * Our Anniversaries program celebrated more than 13,000 employee service milestones in 2010 while our Achievers program recognized the outstanding accomplishments of our top performers * CIBC’s eight employee Affinity networks supported more than 3,500 members to promote diversity and inclusion within the workforce * CIBC was recognized in 2010 as a *Best Employer for New Canadians* and two of our senior leaders were recognized in the 7th Annual *Top 100 Most Powerful Women in Canada* * We invested approximately $56 million in global training * In 2010, we paid almost $2.5 billion in base salaries and benefits to our Canadian workforce ### Community #### Making a difference where we live and work CIBC is committed to causes that matter to our clients, employees and communities. Our goal is to make a difference through corporate donations, sponsorships and the volunteer spirit of employees. With a focus on youth, education and health, CIBC invested close to **$34**$^{(1)}$ million in communities across Canada in 2010. **Youth** – Assisting Canada’s youth is an investment in our future. CIBC’s support for young people includes a range of initiatives, like breakfast programs that provide students with a healthy start to their school day and education programs that improve child safety. **Education** – CIBC is committed to providing access to education for Canadians. We invest millions of dollars in scholarship funding, skills training, mentoring and financial literacy programs that help to improve the lives of thousands of people across Canada. **Health** – A healthy community is important to all of our stakeholders. Investing in health as well as the economic and social vibrancy of our communities is one of the ways we make a difference for what matters. **Employees** – CIBC employees are passionate about the communities in which they live. They raise funds and volunteer for hundreds of community based organizations every year, serving in roles that take them from board rooms to soccer fields across the country. As a designated Imagine Caring Company, CIBC consistently exceeds the target of 1% of pre-tax profits – the benchmark for corporate giving established by Imagine Canada. $^{(1)}$ The F2010 community investment total has been updated to reflect eligible contributions, including charitable donations, sponsorships and in-kind contributions under Imagine Canada Caring Company 1% Commitment guidelines. CIBC is a proud supporter of Canada’s Aboriginal communities, having contributed $5 million to organizations and programs over the past five years. CIBC celebrated its 17th year as lead sponsor of the National Aboriginal Achievement Awards. #### 2010 Highlights * Over 13,000 members of Team CIBC helped raise more than $33 million for The Canadian Breast Cancer Foundation CIBC Run for the Cure * CIBC Miracle Day celebrated 25 years of making miracles – we raised $3.5 million in 2009 and more than $55 million since 1984 for children’s charities * $7.2 million was raised last year by more than 7,500 employees and retirees for United Way in Canada, including a corporate donation of $2.8 million * We awarded 30 CIBC Youthvision scholarships and internships, each valued at up to $36,000 * A group of Wholesale Banking employees was named the top fundraising team in Canada and second globally, for the 2009 Movember Campaign for Prostate Cancer Canada * Through the CIBC Employee as Ambassadors program, we gave $639,000 to support organizations that matter to our employees and retirees ### Environment #### Environment matters CIBC is committed to being an environmentally responsible organization. We demonstrate this through continued enhancements to our environmental risk management policies and procedures, initiatives to minimize CIBC’s impact on the environment, promotion of environmental stewardship practices, and support of strategically aligned environmental organizations. #### Reducing our environmental impact – We continue to invest in opportunities to reduce our environmental footprint, to assess our daily actions, and to strive to do more with less. #### Incorporating sustainable design – We continue to integrate sustainable design criteria into our branches and offices, focusing on reducing our environmental impact while improving the health and comfort of our employees and clients. #### Greening information technology (IT) – CIBC’s Green IT focus continues to enhance our IT infrastructure to provide environmental benefits across CIBC. We do this by managing our computers, monitors and printers to use less energy and to produce less waste. #### Buying responsibly – We recognize the importance of working with our suppliers to reduce our environmental footprint. CIBC has had an Environmentally Responsible Procurement Standard in place since 2007. #### Responsible lending and investing – Wholesale Banking has been providing capital to the renewable energy sector in North America, financing renewable energy projects including hydroelectric, wind, biomass, biogas and district energy systems. CIBC has raised or extended over $4.0 billion in capital for renewable energy developers since 2002. #### 2010 Highlights * We reduced our energy consumption across our Canadian operations by 5% * We designed, installed and commissioned energy efficient mechanical and electrical systems at new and renovated retail branches * CIBC’s “Go Paperless” campaign resulted in more than 11,000 employee account conversions over a four-month period * We deployed approximately 2,000 virtual servers in 2010, thus reducing energy use * CIBC rolled out more than 800 Thin Client workstations to date that use less energy than a traditional PC * CIBC created a team of specialists to focus on the renewable energy and clean technology sectors * We donated more than 8,000 computer components to Computers for Schools this year * We continued our support of the following environmental initiatives: UNEP FI, Adoptee of the Equator Principles, and signatory and respondent of the Carbon Disclosure Project We continue to move our company-wide paper sourcing to environmentally and socially responsible sourced paper, with a preference for Forest Stewardship Council (FSC) certified stock. ```mermaid pie title FSC-certified paper (% of total paper use) "2008" : 48 "2009" : 73 "2010" : 84 ``` ## Management’s Discussion and Analysis Management’s discussion and analysis (MD&A) is provided to enable readers to assess CIBC’s results of operations and financial condition for the year ended October 31, 2010, compared with prior years. The MD&A should be read in conjunction with the audited consolidated financial statements, which have been prepared in accordance with Canadian generally accepted accounting principles (GAAP). Unless otherwise indicated, all amounts in the MD&A are expressed in Canadian dollars. Certain comparative amounts have been reclassified to conform with the presentation adopted in the current year. This MD&A is current as of December 1, 2010. Additional information relating to CIBC is available on SEDAR at www.sedar.com and on the U.S. Securities and Exchange Commission’s (SEC) website at www.sec.gov. No information on our website (www.cibc.com) should be considered incorporated herein by reference. A glossary of terms used in the MD&A and the consolidated financial statements is provided on pages 184 to 187 of this Annual Report. ### External reporting changes The following is a summary of the external reporting changes adopted during the year: * The global repurchase agreement (repo) business that was previously part of Treasury in Corporate and Other was retroactively transferred to capital markets within Wholesale Banking. The results of the repo business were previously allocated substantially to other within CIBC Retail Markets. * Large corporate cash management revenue, previously reported in business banking within CIBC Retail Markets, was retroactively transferred to corporate and investment banking within Wholesale Banking. **A NOTE ABOUT FORWARD-LOOKING STATEMENTS:** From time to time, we make written or oral forward looking statements within the meaning of certain securities laws, including in this Annual Report, in other filings with Canadian securities regulators or the U.S. Securities and Exchange Commission and in other communications. These statements include, but are not limited to, statements made in the “Chief Executive Officer’s Letter”, “Performance Against Objectives”, “Overview”, “Financial Performance Overview – Taxes”, “Financial Performance Overview – Significant Events”, “Business Line Overview – CIBC Retail Markets”, “Business Line Overview – Wholesale Banking”, “Run-off Businesses and Other Selected Activities”, “Financial Condition – Capital Resources”, “Management of Risk – Liquidity Risk”, “Accounting and Control Matters – Risk Factors Related to Fair Value Adjustments” and “Accounting and Control Matters – Contingent Liabilities” sections of this report and other statements about our operations, business lines, financial condition, risk management, priorities, targets, ongoing objectives, strategies and outlook for 2011 and subsequent periods. Forward-looking statements are typically identified by the words “believe”, “expect”, “anticipate”, “intend”, “estimate” and other similar expressions or future or conditional verbs such as “will”, “should”, “would” and “could”. By their nature, these statements require us to make assumptions, including the economic assumptions set out in the “Financial Performance Overview – Outlook for 2011” section of this report, and are subject to inherent risks and uncertainties that may be general or specific. A variety of factors, many of which are beyond our control, affect our operations, performance and results, and could cause actual results to differ materially from the expectations expressed in any of our forward-looking statements. These factors include: credit, market, liquidity, strategic, operational, reputation and legal, regulatory and environmental risk discussed in the ”Management of Risk“ section of this report; legislative or regulatory developments in the jurisdictions where we operate, amendments to, and interpretations of, risk-based capital guidelines and reporting instructions; the resolution of legal proceedings and related matters; the effect of changes to accounting standards, rules and interpretations; changes in our estimates of reserves and allowances; changes in tax laws; political conditions and developments; the possible effect on our business of international conflicts and the war on terror; natural disasters, public health emergencies, disruptions to public infrastructure and other catastrophic events; reliance on third parties to provide components of our business infrastructure; the accuracy and completeness of information provided to us by clients and counterparties; the failure of third parties to comply with their obligations to us and our affiliates; intensifying competition from established competitors and new entrants in the financial services industry; technological change; global capital market activity; changes in monetary and economic policy; currency value fluctuations; general business and economic conditions worldwide, as well as in Canada, the U.S. and other countries where we have operations; changes in market rates and prices which may adversely affect the value of financial products; our success in developing and introducing new products and services, expanding existing distribution channels, developing new distribution channels and realizing increased revenue from these channels; changes in client spending and saving habits; our ability to attract and retain key employees and executives; and our ability to anticipate and manage the risks associated with these factors. This list is not exhaustive of the factors that may affect any of our forward-looking statements. These and other factors should be considered carefully and readers should not place undue reliance on our forward-looking statements. We do not undertake to update any forward-looking statement that is contained in this report or in other communications except as required by law. | Contents | Page | |---|---| | **Overview** | 32 | | Vision, Mission and Values | 32 | | Our Strategic Imperative and Priorities | 32 | | Performance Against Objectives | 34 | | Economic and Market Environment | 34 | | Financial Performance Overview | 35 | | Financial Highlights 2010 | 35 | | 2010 Financial Performance | 36 | | Net Interest Income and Margin | 36 | | Non-interest Income | 36 | | Trading Activities | 37 | | Provision for Credit Losses | 37 | | Non-interest Expenses | 37 | | Taxes | 38 | | Foreign Exchange | 38 | | Significant Events | 38 | | Outlook for 2011 | 39 | | Fourth Quarter Review | 40 | | Quarterly Trend Analysis | 41 | | Review of 2009 Financial Performance | 41 | | Non-GAAP Measures | 42 | | Business Unit Allocations | 43 | | Business Line Overview | 44 | | CIBC Retail Markets | 44 | | Personal banking | 45 | | Business banking | 45 | | Wealth management | 45 | | FirstCaribbean | 45 | | Financial Condition | 58 | | Review of Consolidated Balance Sheet | 58 | | Liabilities and shareholders’ equity | 60 | | Capital Resources | 61 | | Basel II Capital Accord and recent revisions to regulatory capital requirements | 61 | | Regulatory capital and ratios | 61 | | Capital management | 62 | | Subordinated debt | 62 | | Preferred shares | 63 | | Common shares | 63 | | Dividends | 63 | | Economic capital | 63 | | Risk-weighted assets | 64 | | Outstanding share data | 64 | | Management of Risk | 66 | | Risk Overview | 66 | | Risk governance and management structure | 67 | | Board of Directors | 67 | | Senior Executive Team | 67 | | Management's Discussion and Analysis | 67 | | Asset Liability Committee | 68 | | Capital and Risk Committee | 68 | | Governance and Control Committee | 68 | | Reputation and Legal Risks Committee | 68 | | Risk Management Committee | 68 | | Audit Committee | 68 | | Risk management | 68 | | Risk identification and measurement | 69 | | Process and control | 70 | | Risk measurement | 70 | | Expected loss | 70 | | Unexpected loss and economic capital | 70 | | Risk controls | 70 | | Credit Risk | 70 | | Process and control | 70 | | Credit concentration limits | 70 | | Credit risk mitigation | 71 | | Exposure to credit risk | 71 | | Credit quality of the risk-rated portfolios | 72 | | Business and government portfolios | 72 | | Retail portfolios | 74 | | Exposures subject to the standardized approach | 75 | | Securitization exposures | 75 | | Counterparty credit exposures | 75 | | Impaired loans, allowance and provision for credit losses | 77 | | Total loans and acceptances | 77 | | Allowance for credit losses | 78 | | Settlement risk | 78 | | Market Risk | 79 | | Process and control | 79 | | Risk measurement | 79 | | Value-at-Risk | 79 | | Stress testing and scenario analysis | 79 | | VaR by risk type – trading portfolio$^{(1)}$ | 80 | | Trading revenue | 80 | | Backtesting | 80 | | Non-exchange traded commodity derivatives | 82 | | Interest rate sensitivity – non-trading (after-tax) | 82 | | Foreign exchange risk | 83 | | Derivatives held for ALM purposes | 83 | | Fair value hedges | 83 | | Cash flow hedges | 83 | | Hedges of net investments in self-sustaining foreign operations (NIFO) | 83 | | Derivatives that do not qualify for hedge accounting | 83 | | Embedded derivatives | 83 | | Liquidity Risk | 83 | | Process and control | 84 | | Risk measurement | 84 | | Term funding sources and strategies | 84 | | Regulatory Risk | 85 | | Environmental Risk | 85 | | Reputation and Legal Risk | 85 | | Accounting and Control Matters | 86 | | Critical Accounting Policies and Estimates | 86 | | Valuation of financial instruments | 86 | | Sensitivity of Level 3 financial assets and liabilities | 87 | | Impairment of AFS securities | 88 | | Risk factors related to fair value adjustments | 88 | | Allowance for credit losses | 89 | | Specific allowance | 89 | | General allowance | 90 | | Securitizations and VIEs | 90 | | Employee future benefit assumptions | 91 | | Financial Instruments | 92 | | Accounting Developments | 93 | | Changes in accounting policies | 93 | | 2009 | 94 | | Financial instruments – recognition and measurement | 94 | | Intangible assets | 94 | | 2008 | 94 | | Leveraged leases | 94 | | Capital disclosures | 94 | | Financial instruments | 94 | | Future accounting policy changes | 95 | | Business combinations, consolidated financial statements and non-controlling interests | 95 | | Transition to International Financial Reporting Standards (IFRS) | 95 | | Financial impacts | 96 | | Process, financial reporting controls and technology | 96 | | Communications and training | 96 | | Controls and Procedures | 96 | | Disclosure controls and procedures | 97 | | Management’s annual report on internal control over financial reporting | 97 | | Changes in internal control over financial reporting | 97 | | Supplementary Annual Financial Information | 98 | | Average balance sheet, net interest income and margin | 98 | | Volume/rate analysis of changes in net interest income | 99 | | Analysis of net loans and acceptances | 100 | | Summary of allowance for credit losses | 101 | | Specific allowances for credit losses as a percentage of gross impaired loans | 101 | | General allowance as a percentage of total net loans | 102 | | Net loans and acceptances by geographic location$^{(1)}$ | 102 | | Impaired loans before general allowance | 103 | | Impaired loans (continued) | 104 | | Contractually past due loans but not impaired | 134 | | Net interest income after provision for credit losses | 134 | | Note 6 Securitizations and Variable Interest Entities | 135 | | Variable interest entities | 137 | | VIEs that are consolidated | 137 | | VIEs that are not consolidated | 137 | | CIBC-sponsored conduits | 137 | | CIBC structured CDO vehicles | 138 | | Third-party structured vehicles – run-off | 138 | | Third-party structured vehicles – continuing | 138 | | Note 7 Land, Buildings and Equipment | 139 | | Note 8 Goodwill, Software and Other Intangible Assets | 139 | | Note 9 Other Assets | 140 | | Note 10 Deposits$^{(1)(2)}$ | 140 | | Note 11 Other Liabilities | 141 | | Note 12 Trading Activities | 141 | | Note 13 Financial Instruments Designated at Fair Value (FVO) | 142 | | Note 14 Derivative Instruments | 143 | | Note 15 Designated Accounting Hedges | 145 | | Note 16 Subordinated Indebtedness | 148 | | Note 17 Common and Preferred Share Capital and Preferred Share Liabilities | 149 | | Note 18 Capital Trust Securities | 153 | | Note 19 Accumulated Other Comprehensive Income (AOCI) | 153 | | Note 20 Interest Rate Sensitivity | 154 | | Note 21 Stock-based Compensation | 155 | | Note 22 Employee Future Benefits | 157 | | Note 23 Income Taxes | 161 | | Note 24 Earnings per Share (EPS) | 163 | | Note 25 Commitments, Guarantees, Pledged Assets and Contingent Liabilities | 163 | | Note 26 Concentration of Credit Risk | 165 | | Note 27 Related-party Transactions | 166 | | Note 28 Segmented and Geographic Information | 168 | | Note 29 Financial Instruments – Disclosures | 170 | | Note 30 Reconciliation of Canadian and U.S. Generally Accepted Accounting Principles | 171 | | Note 31 Future Accounting Policy Changes | 180 | | Principal Subsidiaries | 182 | | Shareholder Information | 188 | | Glossary | 184 | --- # Consolidated Financial Statements ## Contents | Section | Page | |---|---| | Financial Reporting Responsibility | 105 | | Independent Auditors’ Reports to Shareholders | 106 | | Consolidated Balance Sheet | 108 | | Consolidated Statement of Operations | 109 | | Consolidated Statement of Comprehensive Income | 110 | | Consolidated Statement of Changes in Shareholders’ Equity | 111 | | Consolidated Statement of Cash Flows | 112 | | Notes to the Consolidated Financial Statements | 113 | | Note 1 – Summary of Significant Accounting Policies | 113 | | Note 2 – Fair Value of Financial Instruments | 120 | | Note 3 – Significant Acquisitions and Disposition | 127 | | Note 4 – Securities | 128 | | Note 5 – Loans | 131 | | Note 6 – Securitizations and Variable Interest Entities | 133 | | Note 7 – Land, Buildings and Equipment | 137 | | Note 8 – Goodwill, Software and Other Intangible Assets | 137 | | Note 9 – Other Assets | 138 | | Note 10 – Deposits | 139 | | Note 11 – Other Liabilities | 140 | | Note 12 – Trading Activities | 140 | | Note 13 – Financial Instruments Designated at Fair Value | 141 | | Note 14 – Derivative Instruments | 142 | | Note 15 – Designated Accounting Hedges | 145 | | Note 16 – Subordinated Indebtedness | 146 | | Note 17 – Common and Preferred Share Capital and Preferred Share Liabilities | 147 | | Note 18 – Capital Trust Securities | 151 | | Note 19 – Accumulated Other Comprehensive Income (AOCI) | 153 | | Note 20 – Interest Rate Sensitivity | 154 | | Note 21 – Stock-based Compensation | 155 | | Note 22 – Employee Future Benefits | 157 | | Note 23 – Income Taxes | 161 | | Note 24 – Earnings per Share | 163 | | Note 25 – Commitments, Guarantees, Pledged Assets and Contingent Liabilities | 163 | | Note 26 – Concentration of Credit Risk | 165 | | Note 27 – Related-party Transactions | 166 | | Note 28 – Segmented and Geographic Information | 168 | | Note 29 – Financial Instruments – Disclosures | 170 | | Note 30 – Reconciliation of Canadian and U.S. Generally Accepted Accounting Principles | 171 | | Note 31 – Future Accounting Policy Changes | 179 | ## Financial Reporting Responsibility The management of Canadian Imperial Bank of Commerce (CIBC) is responsible for the preparation of the Annual Report, which includes the consolidated financial statements and management’s discussion and analysis (MD&A), and for the timeliness and reliability of the information disclosed. The consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles as well as the requirements of the Bank Act (Canada). The MD&A has been prepared in accordance with the requirements of applicable securities laws. The consolidated financial statements and MD&A, of necessity, contain items that reflect the best estimates and judgments of the expected effects of current events and transactions with appropriate consideration to materiality. All financial information appearing throughout the Annual Report is consistent with the consolidated financial statements. Management has developed and maintains effective systems, controls and procedures to ensure that information used internally and disclosed externally is reliable and timely. During the past year, we have continued to improve, document and test the design and operating effectiveness of internal control over external financial reporting. The results of our work have been subjected to audit by the shareholders’ auditors. As at year-end, we have determined that internal control over financial reporting is effective and CIBC is in compliance with the requirements set by the U.S. Securities and Exchange Commission (SEC) under Section 404 of the U.S. Sarbanes-Oxley Act (SOX). In compliance with Section 302 of SOX, CIBC’s Chief Executive Officer and Chief Financial Officer provide to the SEC a certification related to CIBC’s annual disclosure document in the U.S. (Form 20-F). The same certification is provided to the Canadian Securities Administrators pursuant to Multilateral Instrument 52-109. The Chief Auditor and his staff review and report on CIBC’s internal controls, including computerized information system controls and security, the overall control environment, and accounting and financial controls. The Chief Auditor has full and independent access to the Audit Committee. The Board of Directors oversees management’s responsibilities for financial reporting through the Audit Committee, which is composed of directors who are not officers or employees of CIBC. The Audit Committee reviews CIBC’s interim and annual consolidated financial statements and MD&A and recommends them for approval by the Board of Directors. Other key responsibilities of the Audit Committee include monitoring CIBC’s system of internal control, monitoring its compliance with legal and regulatory requirements, and reviewing the qualifications, independence and performance of the shareholders’ auditors and internal auditors. Ernst & Young LLP, the shareholders’ auditors, obtain an understanding of CIBC’s internal controls and procedures for financial reporting to plan and conduct such tests and other audit procedures as they consider necessary in the circumstances to express their opinions in the reports that follow. The shareholders’ auditors have full and independent access to the Audit Committee to discuss their audit and related matters. The Office of the Superintendent of Financial Institutions (OSFI) Canada is mandated to protect the rights and interest of depositors and creditors of CIBC. Accordingly, OSFI examines and enquires into the business and affairs of CIBC, as deemed necessary, to ensure that the provisions of the Bank Act (Canada) are being complied with and that CIBC is in sound financial condition. Gerald T. McCaughey, President and Chief Executive Officer David Williamson, Chief Financial Officer, December 1, 2010 ## Independent Auditors’ Reports to Shareholders ### Report on Financial Statements We have audited the consolidated balance sheets of Canadian Imperial Bank of Commerce (CIBC) as at October 31, 2010 and 2009 and the consolidated statements of operations, comprehensive income, changes in shareholders’ equity and cash flows for each of the years in the three-year period ended October 31, 2010. These 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 and the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform an audit to obtain reasonable assurance whether the consolidated 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. We believe that our audits provide a reasonable basis for our opinion. In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of CIBC as at October 31, 2010 and the results of its operations and its cash flows for each of the years in the three-year period ended October 31, 2010, in accordance with Canadian generally accepted accounting principles. As explained in Note 1 to the consolidated financial statements, effective November 1, 2008, CIBC adopted amendments to Canadian Institute of Chartered Accountants (CICA) Handbook Sections 3855 “Financial Instruments – Recognition and Measurement”, and 3064 “Goodwill and Intangible Assets”. In 2008, CIBC adopted the requirements of the amended CICA Emerging Issues Committee Abstract (EIC) 46, “Leveraged Leases” and amendments to CICA Handbook Section 3855 relating to the reclassification of financial assets. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of CIBC’s internal control over financial reporting as of October 31, 2010, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated December 1, 2010 expressed an unqualified opinion thereon. Ernst & Young LLP, Chartered Accountants, Licensed Public Accountants, Toronto, Canada, December 1, 2010 ### Report on Internal Controls under Standards of the Public Company Accounting Oversight Board (United States) We have audited Canadian Imperial Bank of Commerce’s (CIBC) internal control over financial reporting as of October 31, 2010, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). CIBC’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of internal control over financial reporting. Our responsibility is to express an opinion on the effectiveness of CIBC’s internal control over financial reporting based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on assessed risk. Our audit included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. In our opinion, CIBC maintained, in all material respects, effective internal control over financial reporting as of October 31, 2010 based on the COSO criteria. We have also audited, in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of CIBC as at October 31, 2010 and 2009 and the consolidated statements of operations, comprehensive income, changes in shareholders’ equity and cash flows for each of the years in the three-year period ended October 31, 2010 of CIBC and our report dated December 1, 2010 expressed an unqualified opinion thereon. Ernst & Young LLP, Chartered Accountants, Licensed Public Accountants, Toronto, Canada, December 1, 2010 ## Consolidated Balance Sheet | ASSETS | Note | 2010 | 2009 | |---|---|---|---| | Cash and non-interest-bearing deposits with banks | | \$ 2,190 | \$ 1,812 | | Interest-bearing deposits with banks | | 9,862 | 5,195 | | **Securities** (Note 4) | | | | | Trading (Note 12) | | 28,557 | 15,110 | | Available-for-sale (AFS) | | 26,621 | 40,160 | | Designated at fair value (FVO) (Note 13) | | 22,430 | 22,306 | | | | 77,608 | 77,576 | | Securities borrowed or purchased under resale agreements | | 37,342 | 32,751 | | **Loans** (Note 5) | | | | | Residential mortgages | | 93,568 | 86,152 | | Personal | | 34,335 | 33,869 | | Credit card | | 12,127 | 11,808 | | Business and government (Note 13) | | 38,582 | 37,343 | | Allowance for credit losses | | (1,720) | (1,960) | | | | 176,892 | 167,212 | | **Other** | | | | | Derivative instruments (Note 14) | | 24,682 | 24,696 | | Customers' liability under acceptances | | 7,684 | 8,397 | | Land, buildings and equipment (Note 7) | | 1,660 | 1,858 | | Goodwill (Note 8) | | 1,913 | 1,997 | | Software and other intangible assets (Note 8) | | 609 | 609 | | Other assets (Note 9) | | 11,598 | 14,021 | | | | 48,146 | 50,578 | | **Total assets** | | **\$ 352,040** | **\$ 335,944** | | **LIABILITIES AND SHAREHOLDERS' EQUITY** | | | | | **Deposits** (Note 10) | | | | | Personal | | \$ 113,294 | \$ 108,324 | | Business and government (Notes 3 and 10) | | 127,759 | 107,209 | | Bank | | 5,618 | 7,584 | | | | 246,671 | 223,117 | | **Other** | | | | | Derivative instruments (Note 14) | | 26,489 | 27,162 | | Acceptances | | 7,684 | 8,397 | | Obligations related to securities sold short (Notes 2 and 13) | | 9,673 | 5,916 | | Obligations related to securities lent or sold under repurchase agreements | | 28,220 | 37,369 | | Other liabilities (Note 11) | | 12,572 | 13,943 | | | | 84,638 | 92,787 | | Subordinated indebtedness (Note 16) | | 4,773 | 5,157 | | Preferred share liabilities (Note 17) | | – | 600 | | Non-controlling interests | | 168 | 174 | | **Shareholders’ equity** | | | | | Preferred shares (Note 17) | | 3,156 | 3,156 | | Common shares (Note 17) | | 6,803 | 6,240 | | Treasury shares (Note 17) | | (1) | 1 | | Contributed surplus | | 96 | 92 | | Retained earnings | | 6,095 | 5,156 | | Accumulated other comprehensive income (AOCI) (Note 19) | | (361) | (370) | | | | 15,790 | 14,275 | | **Total liabilities and shareholders’ equity** | | **\$ 352,040** | **\$ 335,944** | The accompanying notes and shaded sections in “MD&A – Management of risk” are an integral part of these consolidated financial statements. Gerald T. McCaughey, President and Chief Executive Officer Ronald W. Tysoe, Director ## Consolidated Statement of Operations | \$ millions, except as noted, for the year ended October 31 | 2010 | 2009 | 2008 | |---|---|---|---| | **Interest income** | | | | | Loans | \$ 7,288 | \$ 7,183 | \$ 9,308 | | Securities borrowed or purchased under resale agreements | 193 | 324 | 1,535 | | Securities | 1,562 | 1,705 | 2,684 | | Deposits with banks | 52 | 86 | 38 | | | 9,095 | 9,297 | 13,565 | | **Interest expense** | | | | | Deposits | 2,192 | 2,879 | 6,853 | | Other liabilities | 476 | 785 | 1,801 | | Subordinated indebtedness (Note 16) | 188 | 238 | 274 | | Preferred share liabilities (Note 17) | 35 | 31 | 31 | | | 2,891 | 3,933 | 8,959 | | **Net interest income** | **6,204** | **5,364** | **4,606** | | **Non-interest income** | | | | | Underwriting and advisory fees | 426 | 478 | 411 | | Deposit and payment fees | 756 | 773 | 776 | | Credit fees | 341 | 304 | 237 | | Card fees | 304 | 328 | 306 | | Investment management and custodial fees | 459 | 419 | 525 | | Mutual fund fees | 751 | 658 | 814 | | Insurance fees, net of claims | 277 | 258 | 248 | | Commissions on securities transactions | 474 | 472 | 565 | | Trading income (loss) (Note 12) | 603 | (531) | (6,821) | | AFS securities gains (losses), net (Note 4) | 400 | 275 | (40) | | FVO income (loss) (Note 13) | (623) | (33) | (249) | | Income from securitized assets | 631 | 518 | 585 | | Foreign exchange other than trading | 683 | 496 | 437 | | Other | 399 | 119 | 713 | | | 5,881 | 4,534 | (1,493) | | **Total revenue** | **12,085** | **9,899** | **3,113** | | Provision for credit losses (Note 5) | 1,046 | 1,649 | 773 | | **Non-interest expenses** | | | | | Employee compensation and benefits | 3,871 | 3,610 | 3,917 | | Occupancy costs | 648 | 597 | 610 | | Computer, software and office equipment | 1,003 | 1,010 | 1,095 | | Communications | 290 | 288 | 284 | | Advertising and business development | 197 | 173 | 217 | | Professional fees | 210 | 189 | 230 | | Business and capital taxes | 88 | 117 | 118 | | Other | 720 | 676 | 730 | | | 7,027 | 6,660 | 7,201 | | **Income (loss) before income taxes and non-controlling interests** | **4,012** | **1,690** | **(4,858)** | | Income tax expense (benefit) (Note 23) | 1,533 | 424 | (2,218) | | | 2,479 | 1,266 | (2,640) | | Non-controlling interests | 27 | 21 | 18 | | **Net income (loss)** | **\$ 2,452** | **\$ 1,245** | **\$ (2,658)** | | Preferred share dividends and premiums (Note 17) | (169) | (193) | (150) | | **Net income (loss) applicable to common shares** | **\$ 2,283** | **\$ 1,052** | **\$ (2,808)** | | Weighted-average common shares outstanding (thousands) | 387,802 | 381,677 | 370,229 | | Weighted-average diluted common shares outstanding (thousands) | 388,807 | 382,442 | 371,763 | | **Earnings (loss) per share (in dollars)** (Note 24) – **Basic** | **\$ 5.89** | **\$ 2.75** | **\$ (7.05)** | | – **Diluted** | **\$ 5.87** | **\$ 2.65** | **\$ (6.89)** | | **Dividends per common share** (in dollars) (Note 17) | **\$ 3.48** | **\$ 3.48** | **\$ 3.48** | The accompanying notes and shaded sections in “MD&A – Management of risk” are an integral part of these consolidated financial statements. ## Consolidated Statement of Comprehensive Income | \$ millions, for the year ended October 31 | 2010 | 2009 | 2008 | |---|---|---|---| | **Net income (loss)** | **\$ 2,452** | **\$ 1,174** | **\$ (2,060)** | | **Other comprehensive income (OCI), net of tax** | | | | | **Net foreign currency translation adjustments** | | | | | Net gains (losses) on investment in self-sustaining foreign operations | 789 | (388) | 2,947 | | Net gains (losses) on hedges of investment in self-sustaining foreign operations | (80) | (38) | 736 | | | 709 | (426) | 3,683 | | **Net change in AFS securities** | | | | | Net unrealized gains (losses) on AFS securities | 303 | 462 | (41) | | Transfer of net (gains) losses to net income | (230) | (236) | (77) | | | 73 | 226 | (118) | | **Net change in cash flow hedges** | | | | | Net losses on derivatives designated as cash flow hedges | (9) | (26) | (12) | | Net losses (gains) on derivatives designated as cash flow hedges transferred to net income | 25 | 10 | (20) | | | 16 | (16) | (32) | | **Total OCI**$^{(1)}$ | **9** | **72** | **650** | | **Comprehensive income (loss)** | **\$ 2,461** | **\$ 1,246** | **\$ (1,410)** | $^{(1)}$ Includes non-controlling interest of \$1 million (2009: \$1 million; 2008: \$6 million). The income tax benefit (expense) allocated to each component of OCI is presented in the table below: | \$ millions, for the year ended October 31 | 2010 | 2009 | 2008 | |---|---|---|---| | **Net foreign currency translation adjustments** | | | | | Changes on investment in self-sustaining foreign operations | \$ (1) | \$ 34 | \$ (44) | | Changes on hedges of investment in self-sustaining foreign operations | 518 | (18) | 736 | | **Net change in AFS securities** | | | | | Net unrealized gains (losses) on AFS securities | (100) | (16) | (25) | | Transfer of net (gains) losses to net income | 68 | 111 | (37) | | **Net change in cash flow hedges** | | | | | Changes on derivatives designated as cash flow hedges | 3 | 1 | 7 | | Changes on derivatives designated as cash flow hedges transferred to net income | (3) | (9) | (6) | | **Total** | **\$ 485** | **\$ 18** | **\$ 930** | The accompanying notes and shaded sections in “MD&A – Management of risk” are an integral part of these consolidated financial statements. ## Consolidated Statement of Changes in Shareholders’ Equity | Shares | Amount | |---|---| | \$ millions, except number of shares, for the year ended October 31 | 2010 | 2009 | 2008 | 2010 | 2009 | 2008 | | **Preferred shares** (Note 17) | | | | | | | | Balance at beginning of year | | | | \$ 3,156 | \$ 2,631 | \$ 2,331 | | Issue of preferred shares | | | | – | 525 | 300 | | Balance at end of year | | | | \$ 3,156 | \$ 3,156 | \$ 2,631 | | **Common shares** (Note 17) | | | | | | | | Balance at beginning of year | 383,983,867 | 380,798,218 | 334,956,954 | \$ 6,240 | \$ 6,062 | \$ 3,133 | | Issue of common shares | 8,755,633 | 3,185,649 | 45,841,264 | 563 | 178 | 2,963 | | Issuance costs, net of related income taxes | | | | – | – | (34) | | Balance at end of year | 392,739,500 | 383,983,867 | 380,798,218 | \$ 6,803 | \$ 6,240 | \$ 6,062 | | **Treasury shares** (Note 17) | | | | | | | | Balance at beginning of year | (2,000) | 6,611 | 31,625 | \$ 1 | \$ 1 | \$ 4 | | Purchases | (51,048,586) | (156,495,078) | (136,208,844) | (3,594) | (7,274) | (9,076) | | Sales | 51,049,786 | 156,486,467 | 136,183,830 | 3,594 | 7,274 | 9,073 | | Balance at end of year | (800) | (2,800) | 6,611 | \$ 1 | \$ 1 | \$ 1 | | **Contributed surplus** | | | | | | | | Balance at beginning of year | | | | \$ 92 | \$ 96 | \$ 96 | | Stock option expense | | | | 11 | 29 | 8 | | Stock options exercised | | | | (4) | (15) | (8) | | Net (discount) premium on treasury shares and other | | | | (3) | (12) | (13) | | Balance at end of year | | | | \$ 96 | \$ 92 | \$ 96 | | **Retained earnings** | | | | | | | | Balance at beginning of year, as previously reported | | | | \$ 5,156 | \$ 5,483 | \$ 9,017 | | Adjustment for change in accounting policies | | | | – | (6) | (40) | | Balance at beginning of year, as restated | | | | 5,156 | 5,477 | 8,977 | | Net income (loss) (Note 17) | | | | 2,452 | 1,174 | (2,060) | | Dividends (Note 17) | | | | | | | | Common | | | | (1,350) | (1,328) | (1,285) | | Preferred | | | | (169) | (193) | (150) | | Other | | | | 6 | (5) | (4) | | Balance at end of year | | | | \$ 6,095 | \$ 5,156 | \$ 5,483 | | **AOCI, net of tax** (Note 19) | | | | | | | | Balance at beginning of year | | | | \$ (370) | \$ (442) | \$ (1,092) | | OCI | | | | 9 | 72 | 650 | | Balance at end of year | | | | \$ (361) | \$ (370) | \$ (442) | | **Retained earnings and AOCI** | | | | **\$ 5,734** | **\$ 4,786** | **\$ 5,041** | | **Shareholders’ equity at end of year** | | | | **\$ 15,790** | **\$ 14,275** | **\$ 13,872** | (1) Represents the impact of changing the measurement date for employee future benefits. See Note 22 for additional details. (2) Represents the impact of adopting the amended Canadian Institute of Chartered Accountants (CICA) Emerging Issues Committee Abstract EIC 46, “Leveraged Leases”. See Note 1 for additional details. The accompanying notes and shaded sections in “MD&A – Management of risk” are an integral part of these consolidated financial statements. ## Consolidated Statement of Cash Flows | \$ millions, for the year ended October 31 | 2010 | 2009 | 2008 | |---|---|---|---| | **Cash flows provided by (used in) operating activities** | | | | | Net income (loss) | \$ 2,452 | \$ 1,174 | \$ (2,060) | | Adjustments to reconcile net income (loss) to cash flows provided by (used in) operating activities: | | | | | Provision for credit losses | 1,046 | 1,649 | 773 | | Amortization$^{(1)}$ | 375 | 451 | 480 | | Stock option expense | 11 | 29 | (2) | | Future income taxes | 800 | 38 | (2,747) | | AFS securities (gains) losses, net | (400) | (275) | 40 | | Losses on disposal of land, buildings and equipment | 1 | 2 | – | | Other non-cash items, net | (520) | (297) | 250 | | Changes in operating assets and liabilities | | | | | Accrued interest receivable | (108) | (266) | 232 | | Accrued interest payable | 42 | (339) | (299) | | Amounts receivable on derivative contracts | (292) | (152) | (4,299) | | Amounts payable on derivative contracts | (574) | (459) | (6,063) | | Net change in trading securities$^{(2)}$ | (13,447) | 22,278 | (3,081) | | Net change in FVO securities | (124) | (440) | (448) | | Net change in other FVO assets and liabilities | 118 | 64 | 7,356 | | Current income taxes | 466 | 2,162 | (1,780) | | Other, net | 2,178 | 170 | (5,650) | | | (7,976) | 24,935 | 434 | | **Cash flows provided by (used in) financing activities** | | | | | Deposits, net of withdrawals | 24,588 | (7,568) | (4,555) | | Obligations related to securities sold short | 3,094 | (2,282) | 9,789 | | Net obligations related to securities lent or sold under repurchase agreements | (9,233) | (570) | 9,785 | | Issue of subordinated indebtedness | 1,100 | – | 3,150 | | Redemption/repurchase of subordinated indebtedness | (1,395) | (1,419) | (339) | | Issue of preferred shares | – | 525 | 300 | | Issue of common shares, net | 563 | 178 | 2,929 | | Net proceeds from treasury shares sold (purchased) | – | – | (3) | | Dividends | (1,519) | (1,490) | (1,404) | | Other, net | (2,051) | 596 | 707 | | | 15,147 | (11,831) | 2,104 | | **Cash flows provided by (used in) investing activities** | | | | | Interest-bearing deposits with banks | (4,667) | 2,201 | 4,889 | | Loans, net of repayments | (24,509) | (21,729) | (22,273) | | Proceeds from securitizations | 14,192 | 17,328 | 13,328 | | Purchase of AFS securities | (55,392) | (30,028) | (8,876) | | Proceeds from sale of AFS securities | 41,144 | 32,205 | 8,109 | | Proceeds from maturity of AFS securities | 27,585 | 35,628 | 10,304 | | Net securities borrowed or purchased under resale agreements | (4,591) | 2,850 | (1,790) | | Net cash used in acquisitions | (297) | – | (272) | (149) | | Purchase of land, buildings and equipment | (220) | (272) | (149) | | Proceeds from disposal of land, buildings and equipment | – | – | 2 | | | (6,755) | (12,803) | (2,507) | | Effect of exchange rate changes on cash and non-interest-bearing deposits with banks | (38) | (7) | 7 | | **Net increase in cash and non-interest-bearing deposits with banks during year** | **378** | **1,812** | **1,457** | | **Cash and non-interest-bearing deposits with banks at beginning of year** | **1,812** | **1,558** | **1,457** | | **Cash and non-interest-bearing deposits with banks at end of year**$^{(4)}$ | **\$ 2,190**$^{(5)}$ | **\$ 1,812** | **\$ 1,558** | | Cash interest paid (recovered) | \$ 2,849 | \$ 6,222 | \$ 9,235 | | Cash income taxes paid (recovered) | \$ 267 | \$ (1,775) | \$ 3,110 | $^{(1)}$ Includes amortization of buildings, furniture, equipment, leasehold improvements, software and other intangible assets. $^{(2)}$ Includes securities initially bought as trading securities and subsequently reclassified to loans and AFS securities as noted in Note 4. $^{(3)}$ Includes \$1.6 billion (2009: \$1.8 billion) of Notes purchased by CIBC Capital Trust (Note 18 for additional details). $^{(4)}$ Includes restricted cash balance of \$210 million (2009: \$228 million; 2008: \$299 million). $^{(5)}$ Includes cash reserved for payment on redemption of non-cumulative preferred shares (Note 17). The accompanying notes and shaded sections in “MD&A – Management of risk” are an integral part of these consolidated financial statements. ## Notes to the Consolidated Financial Statements ### Note 1 Summary of Significant Accounting Policies The consolidated financial statements of Canadian Imperial Bank of Commerce (CIBC) are prepared in accordance with Canadian generally accepted accounting principles (GAAP) and are expressed in Canadian dollars. A reconciliation of the impact on assets, liabilities, shareholders’ equity, net income, and comprehensive income arising from differences between Canadian and U.S. GAAP is provided in Note 30. The following paragraphs describe our significant accounting policies. New accounting policies which have been adopted are described in the “Accounting changes” section of this note. #### Basis of consolidation The consolidated financial statements include the assets, liabilities, results of operations and cash flows of CIBC, its controlled subsidiaries and certain variable interest entities (VIEs), for which we are considered to be the primary beneficiary, after the elimination of intercompany transactions and balances. A primary beneficiary is the enterprise that absorbs a majority of a VIE’s expected losses or receives a majority of a VIE’s expected residual returns, or both. Non-controlling interests in subsidiaries and consolidated VIEs are included as a separate line item on the consolidated balance sheet and the consolidated statement of operations. An entity is a VIE if it does not have sufficient equity at risk to permit it to finance its activities without additional subordinated financial support, or in which equity investors do not have the characteristics of a controlling financial interest. The VIE guidelines also exempt certain entities from their scope, including qualified special purpose entities (QSPE). Investments in companies over which we have significant influence are accounted for by the equity method, and are included in Other assets. Our share of income from these investments is included in Non-interest income – Other. Investments over which we exercise joint control are accounted for using the proportionate consolidation method, with only CIBC’s pro-rata share of assets, liabilities, income and expenses being consolidated. #### Use of estimates and assumptions The preparation of the consolidated financial statements in accordance with Canadian GAAP requires management to make estimates and assumptions that affect the recognized and measured amounts of assets, liabilities, net income, comprehensive income and related disclosures. Estimates and assumptions are made in the areas of determining the fair value of financial instruments, accounting for allowance for credit losses, securitizations and VIEs, asset impairment, income taxes, contingent liabilities, and employee future benefits. Actual results could differ from these estimates and assumptions. #### Foreign currency translation Monetary assets and liabilities denominated in foreign currencies are translated into the functional currencies of operations at prevailing exchange rates at the date of the consolidated balance sheet. Non-monetary assets and liabilities are translated into functional currencies at historical rates. Revenue and expenses are translated using average monthly exchange rates. Realized and unrealized gains and losses arising from translation into functional currencies are included in the consolidated statement of operations. Assets and liabilities of self-sustaining foreign operations with a functional currency other than the Canadian dollar are translated into Canadian dollars at the exchange rates prevailing at balance sheet dates, while revenue and expenses of these foreign operations are translated into Canadian dollars at the average monthly exchange rates. Exchange gains and losses arising from the translation of these foreign operations and from the results of hedging the net investment in these foreign operations, net of applicable taxes, are reported in *Net foreign currency translation adjustments*, which is included in OCI. A future income tax asset or liability is not recognized in respect of a translation gain or loss arising from an investment in a self-sustaining foreign subsidiary, when the gain or loss is not expected to be realized for tax purposes in the foreseeable future. An appropriate portion of the accumulated exchange gains and losses and any applicable taxes in AOCI are recognized in the consolidated statement of operations when there is a reduction in the net investment in a self-sustaining foreign operation. #### Classification and measurement of financial assets and liabilities All financial assets must be classified at initial recognition as trading, AFS, FVO, held-to-maturity (HTM), or loans and receivables based on the purpose for which the instrument was acquired and its characteristics. In addition, the standards require that all financial assets and all derivatives be measured at fair value with the exception of loans and receivables, debt securities classified as HTM and AFS equities that do not have quoted market values in an active market. Commencing August 1, 2008, reclassification of non-derivative financial assets from trading to AFS or HTM is allowed under rare circumstances. Such reclassifications are only permitted when there has been a change in management intent with respect to a particular non-derivative financial asset. Financial liabilities other than derivatives, obligations related to securities sold short and FVO liabilities are carried at amortized cost. Derivatives, obligations related to securities sold short and FVO liabilities are carried at fair value. Interest expense is recognized on an accrual basis using the effective interest rate method. ### Note 2 Fair Value of Financial Instruments This note presents the fair values of on- and off-balance sheet financial instruments and explains how we determine those values. Note 1, “Summary of Significant Accounting Policies” sets out the accounting treatment for each measurement category of financial instruments. Fair value is defined as the amount at which a financial instrument could be exchanged between knowledgeable and willing parties in an orderly arm’s length transaction motivated by normal business considerations. Fair value is best evidenced by an independent quoted market price for the same instrument in an active market. An active market is one where quoted prices are readily available, representing regularly occurring transactions. The determination of fair value requires judgment and is based on market information, where available and appropriate. Fair value measurements are categorized into levels within a fair value hierarchy based on the nature of valuation inputs (Level 1, 2 or 3), as outlined below. Where active markets exist, quoted market prices are used to calculate fair value (Level 1). Bid or ask prices, where available in an active market, are used to determine the fair value of security positions, as appropriate. Quoted market prices are not available for a significant portion of our on- and off-balance sheet financial instruments because of the lack of traded markets and even where such markets do exist, they may not be considered sufficiently active to be used as a final determinant of fair value. Markets are considered inactive when transactions are not occurring with sufficient regularity. Inactive markets may be characterized by a significant decline in the volume and level of observed trading activity or through large or erratic bid/offer spreads. In those instances where traded markets do not exist or are not considered sufficiently active, we measure fair value using valuation models. Valuation models may utilize predominantly observable market inputs (Level 2) or may utilize predominantly non-observable market inputs (Level 3). The valuation model and technique we select maximizes the use of observable market inputs to the extent possible and appropriate in order to estimate the price at which an orderly transaction would take place on our reporting date. In an inactive market, we consider all reasonably available information including any available pricing for similar instruments, recent arm’s length market transactions, any relevant observable market inputs, indicative dealer or broker quotations, and our own internal model-based estimates. We apply judgment in determining the most appropriate inputs and the weighting we ascribe to each such input as well as in our selection of valuation methodologies. Regardless of the valuation technique we use, we incorporate assumptions that we believe market participants would make for credit, funding, and liquidity considerations. When the fair value of a financial instrument is determined using a valuation technique that incorporates significant non-observable market inputs, no inception profit or loss (the difference between the determined fair value and the transaction price) is recognized at the time the asset or liability is first recorded. Any gains or losses at inception would be recognized only in future periods over the term of the instruments or when market quotes or data become observable. Valuation adjustments are an integral component of our fair valuation process. To the extent necessary, we make valuation adjustments for market and model risks for derivatives and non-derivatives. For derivatives, we also have credit valuation adjustments (CVA) that factor in counterparty as well as our own credit risk, and a valuation adjustment for administration costs. Due to the judgment used in applying a wide variety of acceptable valuation techniques and models, as well as the use of estimates inherent in this process, estimates of fair value for the same or similar assets may differ among financial institutions. The calculation of fair value is based on market conditions as at each balance sheet date, and may not be reflective of ultimate realizable value. We have an ongoing process for evaluating and enhancing our valuation techniques and models. Where enhancements are made, they are applied prospectively, so that fair values reported in prior periods are not recalculated on the new basis. #### Methods and assumptions **Financial instruments with fair value equal to book value** Where we consider any difference between fair and book values of on-balance sheet financial instruments to be insignificant, the fair values of these on-balance sheet financial instruments are assumed to equal their book values. These categories are: cash and non-interest bearing deposits with banks; short-term interest-bearing deposits with banks; securities borrowed or purchased under resale agreements; customers’ liability under acceptances; acceptances; obligations related to securities lent or sold under repurchase agreements; and other liabilities. **Securities** The fair value of securities and obligations related to securities sold short are based on quoted bid or ask market prices where available in an active market. Securities for which no active market exists are valued using all reasonably available market information as described below. Fair value of government issued or guaranteed securities that are not traded in an active market are calculated using implied yields derived from the prices of actively traded government securities and most recently observable spread differentials. Fair value of corporate debt securities is determined using the most recently executed transaction prices, and where appropriate, adjusted to the price of these securities obtained from independent dealers, brokers, and third-party multi-contributor consensus pricing sources. When observable price quotations are not available, fair value is determined based on discounted cash flow models using discounting curves and spread differentials observed through independent dealers, brokers, and third-party multi-contributor consensus pricing sources. **Asset-backed securities (ABS) and mortgage-backed securities (MBS)** not issued or guaranteed by government are valued using cash flow models making maximum use of market observable inputs, such as indicative broker quotes on identical or similar securities and other pricing information obtained from third-party pricing sources adjusted for the characteristics and the performance of the underlying collateral. Other key inputs used include prepayment and liquidation rates, credit spreads, and discount rates commensurate with the risks involved. These assumptions factor information derived from actual transactions, underlying reference asset performance, external market research, and market indices, where appropriate. **Privately issued debt and equity securities** are valued using recent market transactions, where available. Otherwise, fair values are derived from valuation models using a market or income approach. These models consider various factors including projected cash flows, earnings, revenue or other third-party evidence as available. Private equity securities for which there is no quoted market price are carried at cost. The fair value of limited partnership investments is based upon net asset values published by third-party fund managers and is adjusted for more recent information, where available and appropriate. **Loans** The fair value of variable-rate mortgages, which are largely prime rate based, is assumed to equal the book value. The fair value of fixed-rate mortgages is estimated, using a discounted cash flow calculation that uses market interest rates currently charged for mortgages with similar remaining terms. The valuation model used for mortgages takes into account prepayment optionality, including consumer behaviour. The fair value of variable-rate loans and those that reprice frequently are assumed to be equal to their book value. The fair value for fixed-rate loans is estimated using a discounted cash flow calculation that uses market interest rates currently charged for loans with similar terms and credit risks. The fair value of loans is reduced by specific and general allowances for impaired loans and loans not yet specifically identified as impaired. The fair value of loans is not adjusted for the value of any credit derivatives used to manage the credit risk associated with them. The fair value of these credit derivatives is disclosed separately. Fair value option loans are valued using observable market inputs, wherever possible. In the absence of such pricing, we consider indicative broker quotes and internal models utilizing observable market inputs to the extent possible. #### Other assets Other assets mainly comprise accrued interest receivable, brokers’ client accounts, equity-accounted investments, and accounts receivable. Except as noted, the fair value of all other assets is assumed to be cost or amortized cost because we consider any difference not to be significant. For equity-accounted investments, we estimate fair value using quoted market prices or other recent market transactions, where available. Otherwise, fair value is derived from valuation models, except for instances where the benefits of estimating fair value for unquoted equity-accounted investments do not outweigh the related costs, in which case fair value is assumed to equal book value. #### Deposits The fair value of floating-rate deposits and demand deposits are assumed to be equal to their amortized cost. The fair value of fixed rate deposits is determined by discounting the contractual cash flows using market interest rates currently offered for deposits of similar terms. The fair value of deposit liabilities with embedded optionality (cashable option) includes the fair value of those options. The fair value of equity- and commodity-linked notes includes the fair value of embedded equity and commodity options. Certain FVO deposits are structured notes that have coupons or repayment terms linked to the performance of debt or equity securities. Fair value of these structured notes is estimated using internally vetted valuation models for the debt and embedded derivative portions of the notes by incorporating market observable prices of the reference identical or comparable securities, and other inputs such as interest rate yield curves, option volatility, and foreign exchange rates, where appropriate. Where observable prices or inputs are not available, management judgment is required to determine fair values by assessing other relevant sources of information such as historical data, proxy information from similar transactions, and through extrapolation and interpolation techniques. Appropriate market risk valuation adjustments for such inputs are assessed in all such instances. #### Subordinated indebtedness The fair value is determined by reference to market prices for the same or similar debt instruments. #### Preferred share liabilities The fair value of these obligations is determined by reference to market prices for the same or similar financial instruments. #### Derivative instruments The fair value of exchange-traded derivatives such as options and futures is based on quoted market prices. Over-the-counter (OTC) derivatives primarily consist of interest rate swaps, foreign exchange forwards, equity and commodity derivatives, interest rate and currency options, and credit derivatives. For such instruments, where quoted market prices or third-party consensus pricing information are not available, valuation techniques are employed to estimate fair value on the basis of pricing models. Such vetted models incorporate current market measures for interest rates, currency exchange rates, equity and commodity prices and indices, credit spreads, corresponding market volatility levels, and other market-based pricing factors. In determining the fair value of complex and customized derivatives, such as equity, credit, and commodity derivatives written in reference to indices or baskets of reference, we consider all reasonably available information including indicative dealer and broker quotations, third-party consensus pricing inputs, any relevant observable market inputs, and our own internal model-based estimates, which are vetted and pre-approved in accordance with our model risk policy and regularly and periodically calibrated. The model calculates fair value based on inputs specific to the type of contract, which may include stock prices, correlation for multiple assets, interest rates, foreign exchange rates, yield curves, and volatility surfaces. Where observable prices or inputs are not available, management judgment is required to determine fair values by assessing other relevant sources of information such as historical data, proxy information from similar transactions, and through extrapolation and interpolation techniques. Appropriate market risk valuation adjustments for such inputs are assessed in all such instances. After arriving at these valuations, we consider whether CVA is required to recognize the risk that any given derivative counterparty may not ultimately be able to fulfill its obligations. The CVA is driven off market-observed credit spreads or proxy credit spreads or our assessment of recoverable values for each of the derivative counterparties. We also factor in our own credit risk and take into account credit mitigants such as collateral and netting arrangements. For credit derivatives purchased from financial guarantors, our CVA is generally driven off market-observed credit spreads, where available. For financial guarantors that do not have observable credit spreads or where observable credit spreads are available but do not reflect an orderly market (i.e. not representative of fair value), a proxy market spread is used. The proxy market credit spread is based on our internal credit rating for the particular financial guarantor. Credit spreads contain information on market (or proxy market) expectations of PD as well as LGD. The credit spreads are applied in relation to the weighted-average life of our exposure to the counterparties. For financial guarantor counterparties where a proxy market spread is used, we also make an adjustment to reflect additional financial guarantor risk over an equivalently rated non-financial guarantor counterparty. The amount of the adjustment is dependent on all available internal and external market information for financial guarantors. The final CVA takes into account the expected correlation between the future performance of the underlying reference assets and that of the counterparties, except for high quality reference assets where we expect no future credit degradation. Where appropriate on certain financial guarantors, we determine the CVA based on estimated recoverable amounts. #### Mortgage commitments The fair value of mortgage commitments, included in derivatives held for ALM, is for fixed-rate residential and commercial mortgage commitments and is based on changes in market interest rates between the commitment and the balance sheet dates. The valuation model takes into account the expected probability that outstanding commitments will be exercised. ## Note 3 Significant Acquisitions and Disposition ### Acquisition of Citi Cards Canada Inc.’s Canadian MasterCard portfolio On September 1, 2010, we completed the acquisition of Citi Cards Canada Inc.’s (Citi) rights and obligations in respect of their Canadian MasterCard (MasterCard) portfolio for cash consideration of approximately \$1.2 billion. The total portfolio consists of approximately \$2.3 billion of directly owned and securitized credit card receivables to Broadway Trust, as well as certain other related assets. We purchased \$811 million of directly owned credit card receivables. We also purchased \$201 million of retained interests in securitized assets in the form of subordinated notes, \$6 million of cash, and a customer relationship intangible asset of \$56 million. We incurred \$111 million of other liabilities as part of the purchase. Broadway Trust had \$1.2 billion of sold receivables and approximately \$100 million of cash. These assets were funded by \$1.1 billion of externally issued senior notes and \$201 million of subordinated notes, as mentioned above. We have retained Citi as the transitional servicer until we transfer these accounts onto our platforms. The allocation of the purchase price is subject to post closing adjustments and final valuations. ### Acquisition of CIT Business Credit Canada Inc. On April 30, 2010, CIBC acquired from CIT Financial Ltd. (CIT) the 50% interest in CIT Business Credit Canada Inc. (CITBCC) that we did not already own. Total cash consideration was $306 million. Additional cash consideration of up to $8 million may be payable to CIT depending on certain circumstances. The transaction has been accounted for using the purchase method and as a result, we fully consolidated CITBCC commencing April 30, 2010. Prior to that date, we accounted for our 50% interest using the proportionate consolidation method of accounting. CITBCC’s results continue to be reported within CIBC Retail Markets reporting segment. Subsequent to the acquisition, CITBCC was renamed CIBC Asset-Based Lending Inc. ### Investment in The Bank of N.T. Butterfield & Son Limited On March 2, 2010, we invested \$155 million (US\$150 million) for a direct 22.5% common equity interest in The Bank of N.T. Butterfield & Son Limited (Butterfield). Pursuant to a rights offering, which closed on May 11, 2010, our direct investment decreased to \$130 million (US\$125 million) or 18.8%. We also invested \$23 million (US\$22 million) or 3.3% on March 2, 2010 indirectly through a private equity fund, which was reduced to \$19 million (US\$18 million) or 2.7% as a result of the rights offering. Our total ownership in Butterfield may decrease in the future under certain circumstances. Our direct equity investment is accounted for using the equity method of accounting. In addition, we provided Butterfield with a senior secured credit facility for up to \$306 million (US\$300 million) that was reduced from the original \$510 million (US\$500 million), at Butterfield’s request. We also nominated two out of twelve directors on Butterfield’s Board of Directors. ### Sale of CIBC Mellon Trust Company’s Issuer Services business On July 28, 2010, CIBC Mellon Trust Company (CMT), a 50/50 joint venture between CIBC and The Bank of New York Mellon, announced it had signed an agreement to sell its Issuer Services business (stock transfer and employee share purchase plan). The transaction closed on November 1, 2010. CMT’s Issuer Services business results are reported in CIBC’s Corporate and Other reporting segment, and the results of its operations are not considered significant to CIBC’s consolidated results. The impact of a 10% increase in the MTM of unmatched credit derivatives, where we have purchased protection but do not have exposure to the underlying, would result in a net gain of approximately \$1 million, assuming current CVA ratios remain unchanged. The impact of a 10% reduction in receivables, net of CVA from financial guarantors, would result in a net loss of approximately \$75 million. A 10% increase in prepayment rates pertaining to our retained interests related to the interest-only strip, resulting from the sale of securitized assets, would result in a net loss of approximately \$24 million. A 20 basis point decrease in liquidity rates used to fair value our derivatives related to the sale of securitized assets would result in a loss of approximately \$94 million. A 10% reduction in the MTM of our on-balance sheet ABS that are valued using non-observable credit and liquidity spreads would result in a decrease in OCI of approximately \$177 million. A 10% reduction in the MTM of certain FVO deposits which are not managed as part of our structured credit run-off business and are valued using non-observable inputs, including correlation and extrapolated credit spreads, would result in a gain of approximately \$13 million. A 10% reduction in the MTM of certain bifurcated embedded derivatives, valued using internally vetted valuation techniques, would result in a gain of approximately \$24 million. The net loss recognized in the consolidated statement of operations, on the financial instruments, for which fair value was estimated using valuation techniques requiring non-observable market parameters, was \$732 million (2009: net loss of \$419 million). ## Note 4 Securities ### Fair value of AFS securities | \$ millions, as at October 31 | 2010 | 2009 | |---|---|---| | **Amortized cost** | | | | Securities issued or guaranteed by: | | | | Canadian federal government | \$ 5,385 | \$ 7,655 | | Other Canadian governments | 4,602 | 2,685 | | U.S. Treasury | 3,343 | 7,024 | | Other foreign governments | 3,251 | 4,381 | | Mortgage-backed securities$^{(2)}$ | 4,627 | 5,230 | | Asset-backed securities | 1,758 | 2,483 | | Corporate public debt | 2,659 | 3,084 | | Corporate public equity | 114 | 120 | | Corporate private debt | 52 | 100 | | Corporate private equity$^{(4)}$ | 582 | 1,096 | | **Total debt securities** | **26,373** | **33,858** | | Corporate public equity | – | 113 | | Corporate private equity | – | 582 | | **Total equity securities** | **–** | **695** | | **Total AFS securities** | **\$ 26,373** | **\$ 34,548** | | **Fair value** | 2010 | 2009 | |---|---|---| | Securities issued or guaranteed by: | | | | Canadian federal government | \$ 5,391 | \$ 7,650 | | Other Canadian governments | 4,688 | 2,839 | | U.S. Treasury | 3,348 | 7,034 | | Other foreign governments | 3,281 | 4,258 | | Mortgage-backed securities$^{(2)}$ | 4,727 | 5,083 | | Asset-backed securities | 1,755 | 2,486 | | Corporate public debt | 2,676 | 3,074 | | Corporate public equity | 113 | 120 | | Corporate private debt | 60 | 99 | | Corporate private equity | 910 | 1,096 | | **Total debt securities** | **26,949** | **33,739** | | Corporate public equity | – | – | | Corporate private equity | – | – | | **Total equity securities** | **–** | **–** | | **Total AFS securities** | **\$ 26,949** | **\$ 33,739** | | **Gross unrealized gains** | **Gross unrealized losses** | | **Gross unrealized gains** | **Gross unrealized losses** | |---|---|---|---|---| | 2010 | 2010 | 2009 | 2010 | 2009 | | \$ 655 | \$ (79) | \$ 822 | \$ (177) | | **Fair value** | 2010 | 2009 | |---|---|---| | Securities issued or guaranteed by: | | | | Canadian federal government | \$ 5,391 | \$ 7,650 | | Other Canadian governments | 4,688 | 2,839 | | U.S. Treasury | 3,348 | 7,034 | | Other foreign governments | 3,281 | 4,258 | | Mortgage-backed securities$^{(2)}$ | 4,727 | 5,083 | | Asset-backed securities | 1,755 | 2,486 | | Corporate public debt | 2,676 | 3,074 | | Corporate public equity | 113 | 120 | | Corporate private debt | 60 | 99 | | Corporate private equity$^{(4)}$ | 910 | 1,096 | | **Total debt securities** | **26,949** | **33,739** | | Corporate public equity | – | – | | Corporate private equity | – | – | | **Total equity securities** | **–** | **–** | | **Total AFS securities** | **\$ 26,949** | **\$ 33,739** | | **Gross unrealized gains** | **Gross unrealized losses** | | **Gross unrealized gains** | **Gross unrealized losses** | |---|---|---|---|---| | 2010 | 2010 | 2009 | 2010 | 2009 | | \$ 655 | \$ (79) | \$ 822 | \$ (177) | ### Reclassification of securities In October 2008, amendments made to the CICA handbook sections 3855 “Financial Instruments – Recognition and Measurement” and 3862 “Financial Instruments – Disclosures” permitted certain trading financial assets to be reclassified to HTM and AFS in rare circumstances. In July 2009, amendments made to section 3855 resulted in the reclassification of these HTM securities to loans effective November 1, 2008. In the current year, we have not reclassified any securities. The following tables show the carrying values, fair values, and income or loss impact of the assets reclassified to date: | \$ millions, as at October 31 | 2010 | 2009 | |---|---|---| | Reclassified in prior years (2009 and 2008) | Fair value | Carrying value | Fair value | Carrying value | | Trading assets previously reclassified to HTM (currently in loans) | \$ 5,525 | \$ 5,699 | – | – | | Trading assets previously reclassified to AFS | 55 | 55 | 84 | 84 | | **Total financial assets reclassified** | **\$ 5,580** | **\$ 5,754** | **\$ 84** | **\$ 84** | | \$ millions, for the year ended October 31 | 2010 | 2009 | 2008 | |---|---|---|---| | Net income (before taxes) recognized on securities reclassified | | | | | Gross income recognized in income statement | \$ 158 | \$ 28 | \$ 389 | | Impairment write-downs | – | (100) | (149) | | Funding related interest expense | (77) | (29) | (637) | | | \$ 81 | \$ (199) | \$ (457) | | Impact on net income if reclassification had not been made | | | | | On trading assets previously reclassified to HTM (currently in loans) | \$ (185) | \$ (269) | \$ 629 | | On trading assets previously reclassified to AFS | (8) | (29) | 8 | | **Increase (decrease) in income, before taxes** | **\$ (193)** | **\$ (298)** | **\$ 637** | $^{(1)}$ Income or loss impact is for the three months ended October 31, 2008 as certain securities were reclassified at the beginning of August 1, 2008. There was no reclassification of securities during the year. The effective interest rates on trading securities previously reclassified to AFS ranged from 1.8% to 12% in 2009 (2008: 3% to 13%) with expected recoverable cash flows of \$145 million (2008: \$1.2 billion) as of their reclassification date. ### Fair value of AFS securities | \$ millions, as at October 31 | 2010 | 2009 | |---|---|---| | **Amortized cost** | **Gross unrealized gains** | **Gross unrealized losses** | **Fair value** | **Amortized cost** | **Gross unrealized gains** | **Gross unrealized losses** | **Fair value** | | **AFS securities** | | | | | | | | | | Securities issued or guaranteed by: | | | | | | | | | | Canadian federal government | \$ 5,385 | \$ 8 | \$ (2) | \$ 5,391 | \$ 8,672 | \$ 7 | \$ (7) | \$ 8,672 | | Other Canadian governments | 4,602 | 86 | – | 4,688 | 2,458 | 12 | (4) | 2,466 | | U.S. Treasury | 3,343 | 5 | – | 3,348 | 7,024 | 36 | – | 7,060 | | Other foreign governments | 3,251 | 47 | (17) | 3,281 | 3,732 | 32 | (4) | 3,760 | | Mortgage-backed securities | 4,627 | 103 | (3) | 4,727 | 3,105 | 29 | (7) | 3,127 | | Asset-backed securities | 1,758 | 34 | (37) | 1,755 | 1,998 | 28 | (8) | 2,018 | | Corporate public debt | 2,659 | 18 | (1) | 2,676 | 2,497 | 29 | (3) | 2,523 | | Corporate public equity | 114 | 8 | (9) | 113 | 120 | 4 | (5) | 119 | | Corporate private debt | 52 | 9 | (1) | 60 | 100 | 2 | – | 102 | | Corporate private equity$^{(4)}$ | 582 | 337 | (9) | 910 | 823 | 312 | (39) | 1,096 | | **Total** | **\$ 26,373** | **\$ 655** | **\$ (79)** | **\$ 26,949** | **\$ 39,988** | **\$ 822** | **\$ (177)** | **\$ 40,633** | $^{(1)}$ Carried at cost on the consolidated balance sheet as these do not have quoted market values in an active market. | **AFS securities** | **2010** | **2009** | |---|---|---| | Realized gains | \$ 510 | \$ 1,224 | | Realized losses | (45) | (736) | | Impairment write-downs | | | | Debt securities | (22) | (122) | | Equity securities | (43) | (91) | | **Total** | **\$ 400** | **\$ 275** | Corporate private equity securities amounting to \$32 million (2009: \$32 million; 2008: \$99 million) carried at cost on the consolidated balance sheet were sold during the year, resulting in net realized gains of \$28 million (2009: \$28 million; 2008: \$8 million). As at October 31, 2010, the amortized cost of 279 AFS securities that are in a gross unrealized loss position (2009: 279 securities) exceeded their fair value by \$79 million (2009: \$77 million). The securities that have been in a gross unrealized loss position for more than a year include nine AFS securities (2009: five securities), with a gross unrealized loss of \$13 million (2009: \$2 million). We have determined that the unrealized losses on these AFS securities are temporary in nature. The table below presents realized gains, losses and impairment write-downs on AFS securities. There were no HTM securities as at October 31, 2010 and 2009. As at October 31, 2008, the amortized cost of 48 HTM securities that were in a gross unrealized loss position exceeded their fair value by \$29 million. | **AFS securities$^{(1)}$** | **2010** | **2009** | **2008** | |---|---|---|---| | Realized gains | \$ 510 | \$ 1,224 | \$ 416 | | Realized losses | (45) | (736) | (112) | | Impairment write-downs | | | | | Debt securities | (22) | (122) | (202) | | Equity securities | (43) | (91) | (104) | | **Total** | **\$ 400** | **\$ 275** | **\$ (40)** | $^{(1)}$ Corporate private equity securities amounting to \$32 million (2009: \$32 million; 2008: \$99 million) carried at cost on the consolidated balance sheet were sold during the year, resulting in net realized gains of \$28 million (2009: \$28 million; 2008: \$8 million). ## Note 5 Loans$^{(1)(2)}$ | Gross amount | Specific allowance | General allowance | Total allowance | Net total | |---|---|---|---|---| | **Amortized cost** | | | | | | Residential mortgages | \$ 93,568$^{(3)}$ | \$ 30 | \$ 9 | \$ 39 | \$ 93,529 | | Personal$^{(4)}$ | 34,335 | 224 | 293 | 517 | 33,818 | | Credit card | 12,127 | – | 478 | 478 | 11,649 | | Business and government$^{(3)}$ | 38,561$^{(3)}$ | 377 | 309 | 686 | 37,875 | | | 178,591 | 631 | 1,089 | 1,720 | 176,871 | | **Designated at fair value** | | | | | | Business and government (Note 13) | 21 | – | – | – | 21 | | | **\$ 178,612** | **\$ 631** | **\$ 1,089** | **\$ 1,720** | **\$176,892** | | **2009** | | | | | |---|---|---|---|---| | **Gross amount** | **Specific allowance** | **General allowance** | **Total allowance** | **Net total** | | \$ 86,152 | \$ 37 | \$ 37 | \$ 74 | \$ 86,078 | | 33,869 | 277 | 283 | 560 | 33,309 | | 11,808 | – | 9 | 9 | 11,799 | | 37,343 | 385 | 172 | 557 | 36,786 | | 167,172 | 699 | 495 | 1,194 | 165,978 | | 22 | – | – | – | 22 | | **\$ 167,212** | **\$ 699** | **\$ 495** | **\$ 1,194** | **\$ 165,978** | $^{(1)}$ Loans are net of unearned income of \$22 million (2009: \$22 million). $^{(2)}$ Includes gross loans of \$8.7 billion (2009: \$9.4 billion) denominated in U.S. dollars and of \$2.7 billion (2009: \$3.1 billion) denominated in other foreign currencies. $^{(3)}$ Includes \$56 million (2009: \$58 million) of residential mortgages in the Caribbean region and \$2 million (2009: \$2 million) of business loans pertaining to troubled-debt restructuring undertaken during 2010 and classified as performing as at October 31, 2010. $^{(4)}$ Includes \$24 million (2009: \$29 million), including a non-recourse portion of approximately \$14 million (2009: \$16 million), relating to loans to certain individuals while employed by CIBC to finance a portion of their participation in funds which make private equity investments on a side-by-side basis with CIBC and its affiliates. These loans are secured by the borrowers’ interest in the funds. Of the total amount outstanding, \$8 million (2009: \$9 million) relate to individuals who are no longer employed by CIBC. $^{(5)}$ Includes HTM securities reclassified to loans during 2009. Refer to Note 4 for additional details. | **Loan maturities** | **Residual term to contractual maturity** | | | | |---|---|---|---|---| | \$ millions, as at October 31 | Within 1 year | 1 to 5 years | 5 to 10 years | Over 10 years | Total | | Residential mortgages | \$ 9,787 | \$ 71,334 | \$ 11,501 | \$ 2,946 | \$ 93,568 | | Personal | 3,794 | 19,276 | 8,892 | 2,373 | 34,335 | | Credit card | 3,465 | 6,827 | – | – | 12,127 | | Business and government | 16,645 | 10,887 | 4,292 | 6,758 | 38,582 | | | **\$ 33,691** | **\$ 108,324** | **\$ 24,685** | **\$ 9,704** | **\$ 176,404** | | **Sensitivity of loans due after one year to changes in interest rates** | **2010** | **2009** | |---|---|---| | Fixed interest rates | \$ 58,978 | \$ 65,678 | | Floating interest rates | 75,944 | 74,522 | | **Allowance for credit losses** | **2010** | **2009** | |---|---|---| | Commencing the fourth quarter of 2009, interest income on credit card loans is only accrued where there is an expectation of receipt. Previously, interest income was accrued until the credit card loans were written off upon 180 days in arrears or when notified of customer bankruptcy. This change resulted in a decrease in interest income and a decrease in provision for credit losses of approximately \$33 million and \$8 million, respectively, in 2009. | | | | **Specific allowance** | **2010** | **2009** | **2008** | **2010** | **2009** | **2008** | |---|---|---|---|---|---|---| | **Residential mortgages** | \$ 35 | \$ 35 | \$ 36 | **7.3%** | **6.1%** | **6.3%** | | **Personal loans** | 193 | 226 | 169 | **88.9%** | **94.2%** | **79.0%** | | **Credit card** | – | – | – | **n/m** | **n/m** | **n/m** | | **Business and government** | 120 | 134 | 121 | **55.3%** | **51.9%** | **71.2%** | | **Total domestic** | **\$ 332** | **\$ 374** | **\$ 299** | **47.9%** | **51.4%** | **56.7%** | | **Foreign$^{(1)}$** | **2010** | **2009** | **2008** | **2010** | **2009** | **2008** | |---|---|---|---|---|---|---| | Residential mortgages | \$ 11 | \$ 21 | \$ 27 | **5.7%** | **12.2%** | **18.8%** | | Personal loans | 31 | 32 | 38 | **35.6%** | **37.6%** | **45.8%** | | Credit card | – | – | – | **–%** | **–%** | **–%** | | Business and government | 257 | 308 | 79 | **29.8%** | **33.3%** | **34.5%** | | **Total foreign** | **\$ 299** | **\$ 361** | **\$ 144** | **26.2%** | **30.5%** | **31.6%** | | **Total specific allowance** | **\$ 631** | **\$ 735** | **\$ 443** | **34.4%** | **38.5%** | **45.1%** | $^{(1)}$ Classification as domestic is based on domicile of debtor or customer. ## Note 6 Securitizations and Variable Interest Entities ### Securitization #### Residential mortgages We securitize insured fixed and variable-rate residential mortgages through the creation of MBS under the Canada Mortgage Bond program, sponsored by the CMHC, and the Government of Canada National Housing Act MBS Auction process. Under both programs, the MBS are sold to a trust that issues securities to investors. We act as counterparty in interest rate swap agreements where we pay the trust the interest due to investors and receive the interest on the MBS. We have determined that we are not the primary beneficiary of the trust and, therefore, do not consolidate the trust. We had \$93 million (2009: \$120 million) in interest-only strips relating to the securitized assets and another \$25 million (2009: \$38 million) in interest-only strips relating to other CMHC MBS programs. Credit losses are not expected as the mortgages are insured. We also securitize Canadian insured prime mortgages and uninsured Near-Prime/Alt-A mortgages to a QSPE. We provide a first-loss protection to the QSPE as we have a retained interest in the excess spread that is subordinate to the funding obligations applicable to the investors of the ABS. We had \$85 million (2009: \$91 million) of interest-only strips relating to the excess spread; we also held \$137 million (2009: \$172 million) in notes issued by the QSPE, of which \$39 million (2009: \$372 million) were R1 high notes and \$98 million (2009: \$36 million) were R1 mid notes. A liquidity facility of \$772 million (\$591 million net of our investments in the QSPE) (2009: \$443 million (\$297 million net of our investments in the QSPE)) was provided to the QSPE which was not drawn as at October 31, 2010 or 2009. In addition, we had \$27 million (2009: \$23 million) of first recourse protection. We are also the counterparty to interest rate swap agreements where we pay the QSPE the interest due to investors and receive a rate of interest derived off the coupon of the underlying mortgages. Total assets in the QSPE were \$1,272 million (2009: \$1,987 million), which includes \$531 million (2009: \$605 million) of Prime mortgages and \$741 million (2009: \$1,382 million) of Near-Prime/Alt-A mortgages. We held another \$59 million (2009: \$110 million) in inventory that is available for securitization. The Near-Prime/Alt-A mortgages have an average loss rate over the past five years of 37 basis points and an average loan-to-value ratio of 74%. Upon sale of these assets, a net gain or loss is recognized in Income from securitized assets. We retain responsibility for servicing the mortgages and recognize revenue as these services are provided. #### Commercial mortgages We securitize commercial mortgages through a pass-through QSPE structure that results in ownership certificates held by various investors. We held ownership certificates of \$5 million (2009: \$26 million). We continue to service the mortgages. There were no commercial mortgage securitizations during the year. #### Cards **Cards II Trust** We securitize credit card receivables to Cards II Trust (Cards II), a QSPE established to purchase a proportionate share of designated portfolios with the proceeds received from the securities issued by the QSPE. Our Cards II credit card securitizations are revolving securitizations, with new credit card receivables sold to Cards II each period in order to replenish receivable amounts as credit card clients repay their balances. We are one of several underwriters that distribute the securities issued by Cards II. We maintain the credit card client servicing responsibilities for the securitized receivables and recognize revenue as services are provided. We had interest-only strips of \$15 million (2009: \$11 million), subordinated and enhancement notes of Cards II of \$250 million (2009: \$268 million), and senior notes of \$99 million (2009: \$105 million). **Broadway Trust** In connection with the acquisition of the MasterCard portfolio (see Note 3), we also securitize credit card receivables to Broadway Trust. Broadway Trust is a QSPE established to purchase credit card receivables associated with explicitly identified individual accounts with the proceeds received from the securities issued by the QSPE. Our Broadway Trust credit card securitizations are revolving securitizations, with new credit card receivables sold to the QSPE each period in order to replenish receivable amounts as credit card clients repay their balances. While we have assumed Citi’s servicing responsibilities to Broadway Trust, we have retained Citi as the transitional servicer until such time that we can transfer these accounts onto our platforms. From the close of the acquisition on September 1, 2010 to the year end, we did not securitize any new credit card receivables to Broadway Trust. As at October 31, 2010, we held subordinated notes of Broadway Trust of \$22 million, and senior notes of \$25 million. | Activity | 2010 | 2009 | 2008 | |---|---|---|---| | **Residential mortgages** | | | | | Securitized$^{(2)}$ | \$ 17,529 | \$ 1,799 | \$ 22,344 | | Sold$^{(2)}$ | 12,453 | 1,799 | 20,780 | | Net cash proceeds | 12,532 | 1,660 | 14,642 | | Retained interest | 505 | 146 | 1,073 | | Gain (loss) on sale, net of transaction costs | 255 | 4 | 54 | | **Cards** | **2010** | **2009** | **2008** | |---|---|---|---| | **Residential mortgages** | | | | | Securitized$^{(2)}$ | \$ 1,799 | \$ 2,898 | \$ 19,324 | | Sold$^{(2)}$ | 1,660 | 2,834 | 17,829 | | Net cash proceeds | 1,646 | 2,797 | 17,821 | | Retained interest | 146 | 64 | 1,305 | | Gain (loss) on sale, net of transaction costs | 4 | (1) | 50 | | **Retained interest assumptions (%)** | **2010** | **2009** | |---|---|---| | Weighted-average remaining life (in years) | 3.1 | 3.6 | | Prepayment/payment rate | 15.0 – 25.0% | 37.4 – 37.6% | | Internal rate of return | 1.6 – 9.3% | 3.6 – 3.7% | | Expected credit losses | 0.0 – 0.4% | 5.2 – 5.9% | Key economic assumptions used in measuring the fair value of interest-only strips in securitizations and the sensitivity of the current fair value of residual cash flows to changes in those assumptions are set out in the table below. The sensitivities are hypothetical and should be viewed with caution, as changes in fair value based on variations in assumptions generally cannot be extrapolated because the relationship of the change in assumption to the change in fair value may not be linear. Also, the effect of a variation in a particular assumption on the fair value of the interest-only strips is calculated without changing any other assumptions. Changes in one factor may result in changes in another, which might magnify or counteract the sensitivities. | \$ millions, as at October 31 | **2010** | **2009** | |---|---|---| | **Residential mortgages** | | | | Amortized cost of interest-only strips | \$ 996 | \$ 1,088 | | Fair value of interest-only strips$^{(1)}$ | 1,046 | 1,133 | | Weighted-average remaining life (in years) | 2.3 | 2.7 | | Prepayment/payment rate | 7.0 – 25.0% | 37.3% | | Impact on fair value of a 10% adverse change | (23) | (32) | | Impact on fair value of a 20% adverse change | (46) | (62) | | Expected credit losses | 0.0 – 0.4% | 5.0% | | Impact on fair value of a 10% adverse change | (1) | (3) | | Impact on fair value of a 20% adverse change | (1) | (6) | | Residual cash flows discount rate (annual rate) | 1.2 – 3.6% | 3.7% | | Impact on fair value of a 10% adverse change | (2) | (2) | | Impact on fair value of a 20% adverse change | (4) | (5) | | **Cards** | **2010** | **2009** | |---|---|---| | Amortized cost of interest-only strips | \$ 15 | \$ 11 | | Fair value of interest-only strips$^{(1)}$ | 15 | 11 | | Weighted-average remaining life (in years) | 0.2 | 0.2 | | Prepayment/payment rate | 37.6% | 37.3% | | Impact on fair value of a 10% adverse change | (1) | (1) | | Impact on fair value of a 20% adverse change | (2) | (2) | | Expected credit losses | 5.2 – 5.9% | 5.5% | | Impact on fair value of a 10% adverse change | (3) | (3) | | Impact on fair value of a 20% adverse change | (5) | (7) | | Residual cash flows discount rate (annual rate) | 3.7% | 2.8% | | Impact on fair value of a 10% adverse change | – | – | | Impact on fair value of a 20% adverse change | – | – | $^{(1)}$ There were no write-downs of interest-only strips. ## Note 7 Land, Buildings and Equipment | \$ millions, as at October 31 | 2010 | 2009 | |---|---|---| | **Cost** | | | | Land$^{(2)}$ | \$ 238 | \$ 238 | | Buildings$^{(2)}$ | 965 | 972 | | Computer equipment | 1,067 | 1,094 | | Office furniture and other equipment$^{(3)}$ | 697 | 655 | | Leasehold improvements | 647 | 659 | | | **\$ 3,614** | **\$ 3,618** | | **Accumulated amortization$^{(1)}$** | | | | Land$^{(2)}$ | – | – | | Buildings$^{(2)}$ | 349 | 343 | | Computer equipment | 839 | 862 | | Office furniture and other equipment$^{(3)}$ | 357 | 316 | | Leasehold improvements | 409 | 433 | | | **\$ 1,954** | **\$ 1,954** | | **Net book value** | | | | Land$^{(2)}$ | \$ 238 | \$ 238 | | Buildings$^{(2)}$ | 616 | 629 | | Computer equipment | 228 | 232 | | Office furniture and other equipment$^{(3)}$ | 340 | 339 | | Leasehold improvements | 238 | 226 | | | **\$ 1,660** | **\$ 1,664** | $^{(1)}$ Amortization of buildings, furniture, equipment, and leasehold improvements for the year amounted to \$28 million (2009: \$28 million; 2008: \$23 million). $^{(2)}$ Land and buildings include amounts of \$127 million (2009: \$127 million) and \$354 million (2009: \$383 million), respectively, for which we are deemed to have ownership for accounting purposes. $^{(3)}$ Includes \$32 million (2009: \$9 million) of work-in-progress not subject to amortization. ## Note 8 Goodwill, Software and Other Intangible Assets We performed our annual impairment test on goodwill and other indefinite-lived intangible assets as at April 30, 2010. Based on our assessment, we determined that no impairment write-downs were required. The changes in the carrying amount of goodwill are as follows: | \$ millions, for the year ended October 31 | CIBC Retail Markets | Wholesale Banking | Corporate and Other | CIBC Total | |---|---|---|---|---| | **2010** | | | | | | Balance at beginning of year | \$ 1,881 | \$ 72 | \$ 44 | \$ 1,997 | | Acquisitions | 5 | – | – | 5 | | Dispositions$^{(1)}$ | – | (31) | (1) | (32) | | Adjustments$^{(2)}$ | (56) | (1) | – | (57) | | **Balance at end of year** | **\$ 1,830** | **\$ 40** | **\$ 43** | **\$ 1,913** | | **2009** | | | | | | Balance at beginning of year | \$ 1,993 | \$ 64 | \$ 43 | \$ 2,100 | | Acquisitions | – | 2 | – | 2 | | Adjustments$^{(2)}$ | (112) | (16) | – | (128) | | **Balance at end of year** | **\$ 1,881** | **\$ 50** | **\$ 44** | **\$ 1,975** | $^{(1)}$ Includes disposition of a consolidated U.S. investment. $^{(2)}$ Includes foreign currency translation adjustments. The components of software and other intangible assets are as follows: | \$ millions, as at October 31 | **2010** | **2009** | |---|---|---| | | **Gross carrying amount$^{(1)}$** | **Accumulated amortization$^{(2)}$** | **Net carrying amount** | **Gross carrying amount$^{(1)}$** | **Accumulated amortization$^{(2)}$** | **Net carrying amount** | | **Finite-lived software and other intangible assets** | | | | | | | | Customer relationships$^{(3)}$ | \$ 161 | \$ 90 | \$ 71 | \$ 139 | \$ 80 | \$ 59 | | Core deposit intangibles$^{(4)}$ | 249 | 110 | 139 | 264 | 94 | 170 | | Contract based$^{(5)}$ | 50 | 40 | 10 | 64 | 40 | 24 | | Software$^{(6)}$ | 1,537 | 1,284 | 253 | 1,494 | 1,268 | 226 | | | 1,997 | 1,524 | 473 | 1,984 | 1,482 | 502 | | **Indefinite-lived other intangible assets** | | | | | | | | Contract based$^{(5)}$ | 116 | – | 116 | 116 | – | 116 | | Brandname$^{(4)}$ | 20 | – | 20 | 21 | – | 21 | | | 136 | – | 136 | 137 | – | 137 | | **Total software and other intangible assets** | **\$ 2,133** | **\$ 1,524** | **\$ 609** | **\$ 2,121** | **\$ 1,482** | **\$ 639** | $^{(1)}$ Includes foreign currency translation adjustments. $^{(2)}$ Amortization of finite-lived software and other intangible assets for the year amounted to \$77 million (2009: \$98 million; 2008: \$27 million). $^{(3)}$ Represents customer relationships associated with the custody business and the intangible asset acquired as part of the MasterCard portfolio acquisition. $^{(4)}$ Acquired as part of the FirstCaribbean International Bank (FirstCaribbean) acquisition in 2007. $^{(5)}$ Represents a combination of management contracts purchased as part of past acquisitions. $^{(6)}$ Includes \$73 million (2009: \$63 million) of work-in-progress not subject to amortization. ## Note 9 Other Assets | \$ millions, as at October 31 | 2010 | 2009 | |---|---|---| | Accrued interest receivable | \$ 787 | \$ 1,079 | | Accrued benefit asset (Note 22) | 1,426 | 1,243 | | Brokers’ client accounts | 406 | 594 | | Current income tax receivable | 577 | 594 | | Future income tax asset (Note 23) | 767 | 1,635 | | Other prepayments and deferred items | 656 | 798 | | Equity-accounted investments | 298 | 190 | | Cheques and other items in transit, net | 674 | 1,834 | | Derivative collateral receivable | 4,912 | 6,545 | | Accounts receivable | 687 | 758 | | Other | 408 | 667 | | | **\$ 11,598** | **\$ 14,021** | ## Note 10 Deposits$^{(1)(2)}$ | \$ millions, as at October 31 | Payable on demand$^{(3)}$ | Payable after notice$^{(4)}$ | Payable on a fixed date$^{(5)}$ | 2010 Total | 2009 Total | |---|---|---|---|---|---| | Personal | \$ 7,935 | \$ 61,079 | \$ 44,280 | \$ 113,294 | \$ 108,324 | | Business and government | 29,490 | 13,050 | 85,219$^{(6)}$ | 127,759 | 107,209 | | Bank | 1,020 | 5 | 4,593 | 5,618 | 7,584 | | | **\$ 38,445** | **\$ 74,134** | **\$ 134,092** | **\$ 246,671** | **\$ 223,117** | | **Comprised of:** | | | | | |---|---|---|---|---| | Held at amortized cost | | | | \$ 242,141 | \$ 218,632 | | Designated at fair value (Note 13) | | | | 3,530 | 4,485 | | **Total deposits include:** | | | | | | | **Non-interest-bearing deposits** | | | | | | | In domestic offices | | | | \$ 27,675 | \$ 25,570 | | In foreign offices | | | | 2,070 | 2,295 | | **Interest-bearing deposits** | | | | | | | In domestic offices | | | | 177,368 | 155,801 | | In foreign offices | | | | 39,115 | 37,580 | | **U.S. federal funds purchased** | | | | 443 | 1,957 | $^{(1)}$ Includes deposits of \$4.1 billion (2009: \$4.7 billion) denominated in U.S. dollars and deposits of \$5.4 billion (2009: \$7.8 billion) denominated in other foreign currencies. $^{(2)}$ Net of own deposits purchased by CIBC of \$648 million (2009: \$698 million). $^{(3)}$ Includes all deposits for which we do not have the right to require notice of withdrawal. These deposits are generally chequing accounts. $^{(4)}$ Includes all deposits for which we can legally require notice of withdrawal. These deposits are generally savings accounts. $^{(5)}$ Includes all deposits that mature on a specified date. These deposits are generally term deposits, guaranteed investment certificates, and similar instruments. $^{(6)}$ Includes covered bond deposits totalling \$6.4 billion (2009: \$3.2 billion) and \$1.0 billion (2009: \$1.0 billion) of Notes purchased by CIBC Capital Trust (see Note 18 for additional details). ## Note 11 Other Liabilities | \$ millions, as at October 31 | 2010 | 2009 | |---|---|---| | Accrued interest payable | \$ 1,336 | \$ 1,293 | | Accrued benefit liability (Note 22) | 749 | 738 | | Gold and silver certificates | 415 | 327 | | Brokers’ client accounts | 898 | 3,387 | | Derivative collateral payable | 3,062 | 3,043 | | Other deferred items | 255 | 266 | | Negotiable instruments | 1,194 | 1,269 | | Current income tax liability | 29 | 130 | | Accounts payable and accrued expenses | 1,832 | 2,008 | | Other$^{(1)}$ | 2,802 | 1,767 | | | **\$ 12,572** | **\$ 13,693** | $^{(1)}$ Includes \$100 million payable in respect of non-cumulative preferred shares (Series 19 and 23) redeemed on October 31, 2010. See Note 17 for additional details. ## Note 12 Trading Activities Trading income comprises net interest income and non-interest income. Net interest income arises from interest and dividends related to trading assets and liabilities other than derivatives, and is reported net of interest expense and income associated with funding these assets and liabilities. Non-interest income includes unrealized gains and losses on security positions held, and gains and losses that are realized from the purchase and sale of securities. Non-interest income also includes realized and unrealized gains and losses on trading derivatives. Trading income excludes underwriting fees and commissions on securities transactions, which are shown separately in the consolidated statement of operations. The following tables present the assets and liabilities and income related to trading activities. | Trading assets and liabilities \$ millions, as at October 31 | 2010 | 2009 | |---|---|---| | **Assets** | | | | Debt securities$^{(1)}$ | \$ 15,649 | \$ 10,035 | | Equity securities | 12,908 | 5,075 | | Total securities (Note 4) | 28,557 | 15,110 | | Derivative instruments (Note 14) | 22,034 | 21,300 | | | **\$ 50,591** | **\$ 36,410** | | **Liabilities** | | | | Obligations related to securities sold short | \$ 7,304 | \$ 6,681 | | Derivative instruments (Note 14) | 22,809 | 21,175 | | | **\$ 30,113** | **\$ 27,856** | | **Income (loss) from trading activities** \$ millions, for the year ended October 31 | 2010 | 2009 | 2008 | |---|---|---|---| | Trading income (loss) consists of: | | | | | Interest income | \$ 495 | \$ 237 | \$ 1,826 | | Interest expense | 277 | 531 | (2,239) | | Net interest income (expense) | 218 | (294) | (413) | | Non-interest income | 603 | (531) | (7,239) | | **Trading income (loss)** | **\$ 821** | **\$ (825)** | **\$ (7,652)** | | **Trading income (loss) by product line:** | **2010** | **2009** | **2008** | |---|---|---|---| | Interest rates | \$ 162 | \$ 145 | \$ (168) | | Foreign exchange | 265 | 294 | (2,065) | | Equities | 94 | (2) | (258) | | Commodities | 33 | (47) | (10) | | Structured credit and other | 267 | (990) | (7,107) | | **Total** | **\$ 821** | **\$ (1,590)** | **\$ (9,508)** | $^{(1)}$ Includes USRMM-related securities of \$249 million (2009: \$33 million) and derivative liabilities with notional of \$1,445 million (2009: notional \$2,693 million and fair value of \$2,393 million), which are used to economically hedge a FVO liability with a fair value of \$306 million (2009: \$244 million) included in Note 13. ## Note 13 Financial Instruments Designated at Fair Value (FVO) FVO financial instruments include the following instruments: * Certain securities and deposit liabilities hedged by derivatives such as interest rate swaps and seller swaps; * Financial liabilities that have one or more embedded derivatives which significantly modify the cash flows of the host liability; and * Loans hedged by credit derivatives. The following tables present the FVO assets and liabilities and their hedges, and the related income from these financial instruments on a portfolio basis. Net interest income arises from interest and dividends related to the FVO assets and liabilities, and is reported net of interest expense and income associated with funding these assets and liabilities. Non-interest income includes unrealized gains and losses on the FVO assets and liabilities, related hedging derivatives and securities sold short. | FVO assets and liabilities \$ millions, as at October 31 | 2010 | 2009 | |---|---|---| | **FVO assets** | | | | Debt securities | \$ 22,430 | \$ 22,306 | | Business and government loans$^{(1)}$ (Note 5) | 21 | 226 | | | **\$ 22,451** | **\$ 22,532** | | **FVO liabilities** | | | | Business and government deposits$^{(2)(3)}$ | **\$ 3,530** | **\$ 4,485** | | | **\$ 3,530** | **\$ 4,485** | $^{(1)}$ The undrawn credit exposure related to FVO loans was nil as at October 31, 2010 and 2009. $^{(2)}$ Included in business and government deposits is a limited recourse note of \$326 million (2009: \$264 million), which is hedged by USRMM-related securities of \$250 million (2009: \$333 million) that are classified as trading, and by derivative liabilities of \$1,461 million (2009: \$2,385 million). See Note 2 for additional details. $^{(3)}$ The carrying amount of FVO deposits was \$3 million lower (2009: \$29 million lower) than the amount if the deposits were carried on a contractual settlement amount. | Economic hedging assets and liabilities of FVO financial instruments \$ millions, as at October 31 | 2010 | 2009 | |---|---|---| | **Assets** | | | | Derivative instruments (Note 14) | \$ 492 | \$ 773 | | **Liabilities** | | | | Derivative instruments (Note 14) | \$ 1,569 | \$ 1,667 | | Obligations related to securities sold short | 1,844 | 1,182 | | | **\$ 3,413** | **\$ 2,849** | | FVO and related hedges income (loss) \$ millions, for the year ended October 31 | 2010 | 2009 | 2008 | |---|---|---|---| | Interest income | \$ 335 | \$ 525 | \$ 846 | | Interest expense$^{(1)}$ | 69 | 296 | 720 | | **Net interest income** | **266** | **229** | **126** | | **Non-interest income** | | | | | FVO financial instruments | (291) | (201) | (488) | | Economic hedges$^{(2)}$ | (332) | (20) | 239 | | | (623) | (221) | (249) | | **Net (loss)** | **\$ (357)** | **\$ 8** | **\$ (123)** | $^{(1)}$ Includes \$15 million (2009: \$10 million; 2008: \$13 million) on obligations related to securities sold short hedging the FVO financial instruments. $^{(2)}$ Comprises derivative instruments held to economically hedge FVO financial instruments. The changes in the fair value of the FVO loans attributable to changes in credit risk are calculated by determining the credit spread implicit in the fair value of comparable bonds issued by the same entity or others with similar characteristics. The change in fair value attributable to changes in CIBC’s credit risk is calculated by reference to the change in the credit spread implicit in the fair value of CIBC’s deposits. The following table presents the income (loss) due to changes in the fair value of FVO financial instruments attributable to changes in the credit risk: | \$ millions | For the year ended October 31 | Cumulative for the period ended October 31$^{(1)}$ | |---|---|---| | | 2010 | 2009 | 2008 | 2010 | 2009 | 2008 | | FVO loans | \$ – | \$ (29) | \$ (28) | \$ (1) | \$ (27) | \$ (306) | | FVO loans, net of related hedges$^{(2)}$ | – | (8) | 28 | (1) | 2 | 10 | | FVO liabilities | (1) | (3) | (3) | (1) | (3) | (31) | $^{(1)}$ Change in the fair value of FVO financial instruments, held by CIBC at the end of the reporting period, since they were designated as FVO. $^{(2)}$ Notional amounts of the derivatives hedging the credit risk on FVO loans was nil (2009: \$22 million; 2008: \$1 billion). ## Note 14 Derivative Instruments As explained in Note 1, in the normal course of business, we use various derivative instruments for both trading and ALM purposes. These derivatives limit, modify or give rise to varying degrees and types of risk. | \$ millions, as at October 31 | **2010** | **2009** | |---|---|---| | | Assets | Liabilities | Assets | Liabilities | | Trading (Note 12) | \$ 22,034 | \$ 22,809 | \$ 23,175 | \$ 23,175 | | Designated accounting hedges (Note 15) | 1,278 | 714 | 1,424 | 991 | | Economic hedges$^{(1)}$ | | | | | | Economic hedges of FVO financial instruments (Note 13) | 492 | 1,569 | 773 | 1,667 | | Other economic hedges | 878 | 1,397 | 1,199 | 1,629 | | | **\$ 24,682** | **\$ 26,489** | **\$ 27,592** | **\$ 27,462** | $^{(1)}$ Comprises derivatives not part of qualifying hedging relationships for accounting purposes under the CICA handbook section 3865. ### Derivatives used by CIBC The majority of our derivative contracts are OTC transactions that are privately negotiated between CIBC and the counterparty to the contract. The remainder are exchange-traded contracts transacted through organized and regulated exchanges and consist primarily of options and futures. #### Interest rate derivatives Forward rate agreements are OTC contracts that effectively fix a future interest rate for a period of time. A typical forward rate agreement provides that at a pre-determined future date, a cash settlement will be made between the counterparties based upon the difference between a contracted rate and a market rate to be determined in the future, calculated on a specified notional principal amount. No exchange of principal amount takes place. Interest rate swaps are OTC contracts in which two counterparties agree to exchange cash flows over a period of time based on rates applied to a specified notional principal amount. A typical interest rate swap would require one counterparty to pay a fixed market interest rate in exchange for a variable market interest rate determined from time to time with both calculated on a specified notional principal amount. No exchange of principal amount takes place. Interest rate options are contracts in which one party (the purchaser of an option) acquires from another party (the writer of an option), in exchange for a premium, the right, but not the obligation, either to buy or sell, on a specified future date or within a specified time, a specified financial instrument at a contracted price. The underlying financial instrument will have a market price which varies in response to changes in interest rates. In managing our interest rate exposure, we act both as a writer and purchaser of these options. Options are transacted in both OTC and exchange markets. Interest rate futures are standardized contracts transacted on an exchange. They are based upon an agreement to buy or sell a specified quantity of a financial instrument on a specified future date, at a contracted price. These contracts differ from forward rate agreements in that they are in standard amounts with standard settlement dates and are transacted on an exchange. #### Foreign exchange derivatives Foreign exchange forwards are OTC contracts in which one counterparty contracts with another to exchange a specified amount of one currency for a specified amount of a second currency, at a future date or range of dates. Swap contracts comprise foreign exchange swaps and cross-currency interest rate swaps. Foreign exchange swaps are transactions in which a foreign currency is simultaneously purchased in the spot market and sold in the forward market, or vice versa. Cross-currency interest rate swaps are transactions in which counterparties exchange principal and interest flows in different currencies over a period of time. These contracts are used to manage both currency and interest rate exposures. Foreign exchange futures contracts are similar in mechanics to foreign exchange forward contracts, but differ in that they are in standard currency amounts with standard settlement dates and are transacted on an exchange. #### Credit derivatives Credit derivatives are OTC contracts designed to transfer the credit risk in an underlying financial instrument (usually termed as a reference asset) from one counterparty to another. The most common credit derivatives are credit default swaps (referred to as option contracts) and total return swaps (referred to as swap contracts). In option contracts, an option purchaser acquires credit protection on a reference asset or group of assets from an option writer in exchange for a premium. The option purchaser may pay the agreed premium at inception or over a period of time. The credit protection compensates the option purchaser for any deterioration in value of the reference asset upon the occurrence of certain credit events such as bankruptcy or failure to pay. Settlement may be cash-based or physical, requiring the delivery of the reference asset to the option writer. In swap contracts, one counterparty agrees to pay or receive from the other cash amounts based on changes in the value of a reference asset or group of assets, including any returns, such as interest earned on these assets, in exchange for amounts that are based on prevailing market funding rates. These cash settlements are made regardless of whether there is a credit event. Within our structured credit run-off portfolio, we hold purchased and sold protection on both single-name and index-reference obligations. These reference obligations include corporate debt, CDOs of residential mortgages, commercial mortgages, trust preferred securities, and collateralized loan obligations (CLOs). For both single-name and index credit default swap (CDS) contracts, upon the occurrence of a credit event, under the terms of a CDS contract neither party to the CDS contract has recourse to the protection seller for the difference between the face value of the CDS contract and the fair value of the reference obligation at the time of settling the credit derivative contract. In our structured credit run-off portfolio, we also have total return swaps (TRS) on single-name reference obligations that are primarily CLOs. There is a regular payment calendar for the transfer of net returns. Where the reference asset is a security with a risk of default, the TRS agreement normally sets forth various payments and valuation steps required upon default. The TRS agreement may simply terminate and the parties exchange cash payments according to the value of the defaulted assets. There may be an exchange of cash with physical delivery of the defaulted assets. The total return payer may substitute another security for the defaulted one and continue the TRS arrangement. Collateral treatment is typically “full recourse,” meaning the total return receiver must post additional collateral if the asset value drops, or may withdraw collateral if the asset value increases. #### Equity derivatives Equity swaps are OTC contracts in which one counterparty agrees to pay, or receive from the other, cash amounts based on changes in the value of a stock index, a basket of stocks or a single stock. These contracts sometimes include a payment in respect of dividends. Equity options give the purchaser of the option, for a premium, the right, but not the obligation, to buy from or sell to the writer of an option, an underlying stock index, basket of stocks, or single stock at a contracted price. Options are transacted in both OTC and exchange markets. Equity index futures are standardized contracts transacted on an exchange. They are based on an agreement to pay or receive a cash amount based on the difference between the contracted price level of an underlying stock index and its corresponding market price level at a specified future date. There is no actual delivery of stocks that comprise the underlying index. These contracts are in standard amounts with standard settlement dates. #### Precious metal and other commodity derivatives We also transact in other derivative products, including commodity forwards, futures, swaps and options, such as precious metal and energy-related products in both OTC and exchange markets. #### Notional amounts The notional amounts are not recorded as assets or liabilities, as they represent the face amount of the contract to which a rate or price is applied to determine the amount of cash flows to be exchanged. In most cases, notional amounts do not represent the potential gain or loss associated with market or credit risk of such instruments. The following table presents the notional amounts of derivative instruments. | \$ millions, as at October 31 | **2010** | **2009** | |---|---|---| | | **Total notional amounts** | **Trading** | **ALM** | **Trading** | **ALM** | | **Interest rate derivatives** | | | | | | | OTC | 71,825 | 68,354 | 3,471 | 67,430 | 3,750 | | Exchange traded | 89,254 | 88,218 | 1,036 | 70,145 | 723 | | **Total interest rate derivatives** | **161,079** | **156,572** | **4,507** | **137,575** | **4,473** | | **Foreign exchange derivatives** | | | | | | | OTC | 115,749 | 107,299 | 8,450 | 75,780 | 2,306 | | Exchange traded | 234,779 | 218,740 | 16,039 | 147,799 | 7,989 | | **Total foreign exchange derivatives** | **350,528** | **326,039** | **24,489** | **223,579** | **10,295** | | **Credit derivatives** | | | | | | | OTC | 38,417 | 37,211 | 1,206 | 35,923 | 2,114 | | **Total credit derivatives** | **38,417** | **37,211** | **1,206** | **35,923** | **2,114** | | **Equity derivatives$^{(2)}$** | | | | | | | OTC | 25,288 | 24,756 | 532 | 13,967 | – | | **Total equity derivatives** | **25,288** | **24,756** | **532** | **13,967** | **–** | | **Precious metal derivatives$^{(2)}$** | 513 | 513 | – | 1,107 | – | | **Other commodity derivatives$^{(2)}$** | 13,181 | 13,181 | – | 10,732 | 1,049 | | **Total** | **\$ 585,423** | **\$ 558,469** | **\$ 26,954** | **\$ 411,776** | **\$ 17,888** | | **\$ millions, as at October 31** | **Less than 1 year** | **1 to 5 years** | **Over 5 years** | **Total fair value** | |---|---|---|---|---| | **Derivative assets$^{(2)}$** | \$ 3,765 | \$ 10,141 | \$ 10,776 | \$ 24,682 | | **Derivative liabilities$^{(2)}$** | 3,999 | 11,633 | 10,857 | 26,489 | $^{(2)}$ Derivative assets and liabilities are stated before the effect of master netting agreements of \$16,967 million (2009: \$24,408 million). The amount of cash collateral receivable and payable on the contracts subject to master netting agreements were \$3,895 million and \$3,132 million, respectively (2009: \$3,931 million and \$3,058 million). In practice, a majority of the derivative cash flows settle within a year due to collateral requirements. ## Note 15 Designated Accounting Hedges The following tables provide the derivatives-related gains (losses), before taxes, recognized in the U.S. GAAP consolidated statement of operations and OCI. Net gains of \$44 million on items hedged under fair value hedges are included in net interest income for the year ended October 31, 2010 (2009: \$24 million). | Gains/(losses) recognized in consolidated statement of operations | **Net interest income** | **Non-interest income** | |---|---|---| | | **Directly recognized** | **Recognized on hedge ineffectiveness** | **Recognized on transfer from AOCI** | **Directly recognized** | **Recognized on hedge ineffectiveness** | **Recognized on transfer from AOCI** | **Gains/(losses) recognized in OCI** | | **2010 Derivatives held for ALM** | | | | | | | | | Interest rate derivatives | | | | | | | | | Cash flow hedges | \$ – | \$ – | \$ 18 | \$ – | \$ – | \$ – | \$ – | | Fair value hedges | (35) | 8 | n/a | – | – | n/a | n/a | | Economic hedges$^{(1)}$ | – | n/a | n/a | (854) | n/a | n/a | n/a | | Foreign exchange derivatives | | | | | | | | | Cash flow hedges | – | – | – | – | (11) | (27) | (5) | | NIFO hedges | n/a | n/a | n/a | 1 | – | 25 | 41 | | Credit and equity derivatives | | | | | | | | | Economic hedges | – | n/a | n/a | (25) | n/a | n/a | n/a | | **Total** | **\$ (35)** | **\$ 8** | **\$ 18** | **\$ (878)** | **\$ (11)** | **\$ (2)** | **\$ 36** | | **2009$^{(2)}$ Derivatives held for ALM** | | | | | | | | | Interest rate derivatives | | | | | | | | | Cash flow hedges | \$ – | \$ – | \$ 27 | \$ – | \$ – | \$ – | \$ – | | Fair value hedges | 28 | 8 | n/a | – | – | n/a | n/a | | Economic hedges$^{(1)}$ | – | n/a | n/a | (282) | n/a | n/a | n/a | | Foreign exchange derivatives | | | | | | | | | Cash flow hedges | – | – | – | – | (1) | (22) | (22) | | NIFO hedges | n/a | n/a | n/a | 6 | – | 304 | 304 | | Credit and equity derivatives | | | | | | | | | Economic hedges | – | n/a | n/a | (274) | n/a | n/a | n/a | | **Total** | **\$ 28** | **\$ 8** | **\$ 27** | **\$ (550)** | **\$ (5)** | **\$ 384** | **\$ 108** | $^{(1)}$ Includes derivative instruments held to economically hedge FVO financial instruments. $^{(2)}$ Certain prior year amounts have been restated. | Derivatives held for trading \$ millions, for the year ended October 31 | 2010 | 2009 | |---|---|---| | Interest rate | \$ 26 | \$ (357) | | Foreign exchange | 301 | (16) | | Equity | (90) | (33) | | Commodities | 85 | (3) | | Structured credit and others | 100 | 320 | | **Total** | **\$ 422** | **\$ 278** | ## Note 16 Subordinated Indebtedness The debt issues included in the table below are unsecured obligations of CIBC and its subsidiaries and are subordinated to the claims of depositors and other creditors as set out in their terms. Foreign currency denominated indebtedness either funds foreign currency denominated assets (including our net investment in foreign operations) or is combined with cross-currency swaps to provide funding on a cost-effective basis and to manage currency risk. All redemptions are subject to regulatory approval. | Terms of subordinated indebtedness \$ millions, as at October 31 | 2010 | 2009 | |---|---|---| | **Contractual Maturity Date** | | | | **At greater of Canada Yield Price$^{(1)}$ and par** | | | | **In foreign currency** | **Par Value** | **Carrying Value$^{(2)}$** | **Par Value** | **Carrying Value$^{(2)}$** | | 9.65% October 31, 2014 | November 1, 1999 | \$ 250 | \$ 250 | \$ 331 | \$ 331 | | Floating$^{(3)}$ March 10, 2015 | September 9, 2005 | September 9, 2005 | – | – | | 3.75% $^{(4)}$ March 28, 2016 | March 28, 2006 | March 28, 2011 | 1,080 | 1,093 | 1,315 | 1,315 | | Fixed$^{(5)}$ March 23, 2017 | September 23, 2012 | June 22, 2012 | 284 | 284 | 319 | 319 | | Floating$^{(7)}$ June 22, 2017 | June 22, 2013 | June 22, 2013 | 550 | 557 | 560 | 560 | | 5.15% $^{(6)}$ June 6, 2018 | April 30, 2013 | April 30, 2013 | 1,100 | 1,100 | 600 | 600 | | 6.00% $^{(8)}$ June 6, 2023 | June 6, 2018 | June 6, 2018 | 600 | 600 | – | – | | 8.70% May 29, 2027 | May 29, 2024 | | 25 | 42 | 30 | 30 | | 11.60% January 7, 2031 | January 7, 2026 | | 200 | 200 | 200 | 200 | | 10.70% January 7, 2031 | May 15, 2021 | May 15, 2021 | 150 | 150 | 150 | 150 | | 8.70% May 29, 2032$^{(9)}$ | | | 25 | 43 | 25 | 40 | | 8.70% May 29, 2032$^{(9)}$ | | | 25 | 43 | 25 | 40 | | 8.70% May 29, 2035$^{(9)}$ | | | 25 | 44 | 25 | 40 | | Floating$^{(10)}$ July 31, 2037 | August 27, 2020 | August 27, 2020 | 202 | 202 | 214 | 214 | | Floating$^{(11)}$ August 31, 2038 | August 20, 2021 | | 68 | 68 | 72 | 72 | | | 4,616 | 4,783 | | 5,055 | 5,157 | | Subordinated debt held for trading purposes | (10) | (10) | (14) | (14) | | | **\$ 4,606** | **\$ 4,773** | | **\$ 5,041** | **\$ 5,143** | $^{(1)}$ Canada Yield Price: a price calculated at the time of redemption to provide a yield to maturity equal to the yield of a Government of Canada bond of appropriate maturity plus a pre-determined spread. $^{(2)}$ Carrying values of fixed-rate subordinated indebtedness notes reflect the impact of interest rate hedges in an effective hedge relationship. $^{(3)}$ Issued by FirstCaribbean. Interest rate is based on the three-month US\$ LIBOR plus 0.75% until March 23, 2012, thereafter, at the three-month US\$ LIBOR plus 0.95%. From February 2, 2009 through to December 2, 2009, a portion of this issue was repurchased and cancelled. The remaining principal amount was redeemed in 2010. $^{(4)}$ Interest rate is fixed at the indicated rate until the earliest date redeemable at par by CIBC and, thereafter, at the three-month Canadian dollar banker’s acceptance rate plus a pre-determined spread. $^{(5)}$ During the year, we redeemed the outstanding principal amount plus interest accrued to the redemption date. $^{(6)}$ Guaranteed Subordinated Term Notes in Trinidad and Tobago dollars issued by FirstCaribbean International Bank (Trinidad & Tobago) Limited, a subsidiary of FirstCaribbean, and guaranteed on a subordinated basis by FirstCaribbean. FirstCaribbean International Bank (Trinidad & Tobago) Limited may redeem all or a portion of the notes on, but not after September 23, 2012 by repaying the principal amount plus a penalty of 0.5% of the principal amount of the notes being redeemed. Interest rate is based on the three-month Euribor plus 0.20% until the earliest date redeemable by CIBC World Markets plc and, thereafter, on the three-month Euribor plus 0.70%. $^{(7)}$ Issued by CIBC World Markets plc and guaranteed by CIBC on a subordinated basis. Interest rate is based on the three-month Euribor plus 0.20% until the earliest date redeemable by CIBC World Markets plc and, thereafter, on the three-month Euribor plus 0.70%. $^{(8)}$ CIBC’s ability to redeem prior to this date is subject to our receipt of notice or advice from OSFI that the Debentures no longer qualify as Tier 2 capital. $^{(9)}$ Not redeemable prior to maturity date. $^{(10)}$ Interest rate is based on the six-month US\$ LIBOR plus 0.25%. $^{(11)}$ Interest rate is based on the six-month US\$ LIBOR plus 0.25%. | Repayment schedule \$ millions, as at October 31 | 2010 | |---|---| | Within 1 year | \$ – | | 1 to 2 years | – | | 2 to 3 years | – | | 3 to 5 years | 250 | | 5 to 10 years | – | | Over 10 years | 4,366 | | | **\$ 4,616** | Subsequent to the year-end, on November 2, 2010, we issued \$1,500 million principal amount of 3.15% Debentures (subordinated indebtedness) due November 2, 2020. The Debentures qualify as Tier 2 capital. ## Note 17 Common and Preferred Share Capital and Preferred Share Liabilities ### Common shares CIBC is authorized to issue an unlimited number of common shares without nominal or par value, provided that the maximum aggregate consideration for all outstanding common shares at any time does not exceed \$15 billion. ### Preferred shares CIBC is authorized to issue an unlimited number of Class A Preferred Shares and Class B Preferred Shares without nominal or par value issuable in series, provided that, for each class of preferred shares, the maximum aggregate consideration for all outstanding shares, at any time does not exceed \$10 billion. There are no Class B Preferred Shares currently outstanding. | Outstanding shares and dividends and interest paid \$ millions, except per share amounts, as at or for the year ended October 31 | **2010** | **2009** | **2008** | |---|---|---|---| | **Common shares$^{(1)}$** | No. of shares | Amount | Dividends paid | No. of shares | Amount | Dividends paid | No. of shares | Amount | Dividends paid | | | 392,738,700 | \$6,804 | \$ 1,350 | 383,983,867 | \$ 6,240 | \$ 1,328 | 380,805,829 | \$ 6,062 | \$ 1,285 | | **Per share** | | | **\$ per share** | | | **\$ per share** | | | **\$ per share** | | | | | 3.48 | | | 3.38 | | | 3.38 | | **Class A Preferred Shares** | | | | | | | | | | | **Classified as equity** | | | | | | | | | | | Series 18 | 12,000,000 | \$ 300 | \$ 16 | \$ 1.38 | 12,000,000 | \$ 300 | \$ 16 | \$ 1.38 | 12,000,000 | \$ 300 | \$ 16 | \$ 1.38 | | Series 26 | 10,000,000 | 250 | 14 | 1.44 | 10,000,000 | 250 | 14 | 1.44 | – | – | – | – | | Series 27 | 12,000,000 | 300 | 17 | 1.40 | 12,000,000 | 300 | 17 | 1.40 | 12,000,000 | 300 | 17 | 1.40 | | Series 28$^{(2)}$ | 2,000 | –$^{(3)}$ | –$^{(3)}$ | 0.08 | 2,000 | –$^{(3)}$ | –$^{(3)}$ | 0.08 | 2,000 | – | – | 0.08 | | Series 29 | 13,232,342 | 331 | 18 | 1.35 | 13,232,342 | 331 | 18 | 1.35 | 13,232,342 | 331 | 18 | 1.35 | | Series 30 | 16,000,000 | 400 | 19 | 1.20 | 16,000,000 | 400 | 19 | 1.20 | 16,000,000 | 400 | 19 | 1.20 | | Series 31 | 18,000,000 | 450 | 21 | 1.18 | 18,000,000 | 450 | 21 | 1.18 | 18,000,000 | 450 | 21 | 1.18 | | Series 32 | 12,000,000 | 300 | 14 | 1.13 | 12,000,000 | 300 | 14 | 1.13 | 12,000,000 | 300 | 14 | 1.13 | | Series 33 | 12,000,000 | 300 | 16 | 1.34 | 12,000,000 | 300 | 16 | 1.53 | 12,000,000 | 300 | – | – | | Series 35 | 13,000,000 | 325 | 21 | 1.63 | 13,000,000 | 325 | 21 | 1.53 | – | – | – | – | | Series 37 | 8,000,000 | 200 | 13 | 1.63 | 8,000,000 | 200 | 13 | 1.63 | – | – | – | – | | | **\$ 3,156** | **\$ 169** | | **\$ 3,156** | **\$ 162** | | **\$ 2,631** | **\$ 153** | | | **Class A Preferred Shares** | | | | | | | | | | | **Classified as liabilities** | | | | | | | | | | | Series 19$^{(1)}$ | – | – | \$ 10 | \$ 1.24 | 8,000,000 | \$ 200 | \$ 10 | \$ 1.24 | 8,000,000 | \$ 200 | \$ 10 | \$ 1.24 | | Series 23$^{(1)}$ | – | – | 21 | 1.33 | 8,000,000 | 200 | 13 | 1.33 | 8,000,000 | 200 | 13 | 1.33 | | | **\$ –** | **\$ 31** | | **\$ 3,756** | **\$ 193** | | **\$ 3,231** | **\$ 150** | | | **Total preferred shares** | **\$ 3,156** | **\$ 200** | | **\$ 3,756** | **\$ 193** | | **\$ 3,231** | **\$ 150** | | $^{(1)}$ Includes treasury shares. $^{(2)}$ On June 7, 2009, CIBC’s offer to repurchase for cancellation all outstanding non-cumulative Class A Preferred Shares Series 28 at a price of \$10.00 per share expired. We did not repurchase any shares under this offer in 2009 (2008: zero shares repurchased). $^{(3)}$ Due to rounding. $^{(4)}$ On October 31, 2010, we redeemed and legally extinguished these non-cumulative preferred shares. Other liabilities (Note 11) include \$604 million in respect of principal and premium amounts payable to holders. The payment was made subsequent to the year end on November 1, 2010. ### Common shares issued During the year, we issued 1.9 million (2009: 1.0 million) new common shares for a total consideration of \$88 million (2009: \$41 million), pursuant to stock option plans. Effective July 1, 2009, participants in the Shareholder Investment Plan (Plan) receive a 3% discount from the average market price on the reinvested dividends in additional common shares. The discount applies to common shares received under the “Dividend Reinvestment Option” or “Stock Dividend Option” portions of the Plan. During the year, we issued 6.0 million (2009: 2.2 million) new common shares for a total consideration of \$419 million (2009: \$137 million), pursuant to the Plan. Effective February 2010, employee contributions to our Canadian ESPP have been used to purchase common shares issued from Treasury. We issued 0.8 million new common shares for a total consideration of \$56 million, pursuant to the ESPP. ### Common shares reserved for issue As at October 31, 2010, 5,484,153 common shares (2009: 3,877,708) were reserved for future issue pursuant to stock option plans. ### Restrictions on the payment of dividends Under Section 79 of the Bank Act (Canada), a bank, including CIBC, is prohibited from declaring or paying any dividends on its preferred or common shares if there are reasonable grounds for believing that the bank is, or the payment would cause it to be, in contravention of any capital adequacy or liquidity regulation or any direction to the bank made by OSFI. In addition, our ability to pay common share dividends is also restricted by the terms of the outstanding preferred shares. These terms provide that we may not pay dividends on our common shares at any time without the approval of holders of the outstanding preferred shares, unless all dividends to preferred shareholders that are then payable have been declared and paid or set apart for payment. We have agreed that if CIBC Capital Trust fails to pay any interest payments on its \$1.3 billion of CIBC Tier 1 Notes – Series A, due June 30, 2108 or its \$300 million of CIBC Tier 1 Notes – Series B, due June 30, 2108, we will not declare dividends of any kind on any of our preferred or common shares for a specified period of time. For additional details see Note 18. ## Note 18 Capital Trust Securities On March 13, 2009, CIBC Capital Trust (the Trust), a trust wholly owned by CIBC and established under the laws of the Province of Ontario, issued \$1,300 million of CIBC Tier 1 Notes – Series A, due June 30, 2108, and \$300 million of CIBC Tier 1 Notes – Series B, due June 30, 2108 (collectively, the Notes). The proceeds were used by the Trust to purchase senior deposit notes from CIBC. The Trust is a VIE not consolidated by CIBC; the Notes issued by the Trust are therefore not reported on the consolidated balance sheet. The senior deposit notes issued to the Trust are reported as Deposits – business and government on the consolidated balance sheet. The Notes are structured to achieve Tier 1 regulatory capital treatment and, as such, have features of equity capital, including the deferral of cash interest under certain circumstances (Deferral Events). In the case of a Deferral Event, holders of the Notes will be required to invest interest paid on the Notes in our perpetual preferred shares. Should the Trust fail to pay the semi-annual interest payments on the Notes in full, we will not declare dividends of any kind on any of our preferred or common shares for a specified period of time. In addition, the Notes will be automatically exchanged for our perpetual preferred shares upon the occurrence of any one of the following events: (i) proceedings are commenced for our winding up; (ii) OSFI takes control of us or our assets; (iii) we or OSFI are of the opinion that our Tier 1 capital ratio is less than 4% or our Total capital ratio is less than 8%; or (iv) OSFI directs us pursuant to the Bank Act to increase our capital or provide additional liquidity and we elect such automatic exchange or we fail to comply with such direction. Upon such automatic exchange, holders of the Notes will cease to have any claim or entitlement to interest or principal against the Trust. CIBC Tier 1 Notes – Series A will pay interest, at a rate of 9.97\%, semi-annually until June 30, 2108. On June 30, 2108, and on each five-year anniversary thereafter, the interest rate on the CIBC Tier 1 Notes – Series A will reset to the five-year Government of Canada bond yield at such time plus 3.47\%. CIBC Tier 1 Notes – Series B will pay interest, at a rate of 10.25\%, semi-annually until June 30, 2138. On June 30, 2138, and on each five-year anniversary thereafter, the interest rate on the CIBC Tier 1 Notes – Series B will reset to the five-year Government of Canada bond yield at such time plus 9.878\%. According to OSFI guidelines, innovative capital instruments can comprise up to 15% of net Tier 1 capital with an additional 15% eligible for Tier 2 capital. As at October 31, 2010, we held \$300 million (2009: \$300 million) of Tier 1 Notes – Series B for trading purposes. The table below presents the significant terms and conditions of the Notes: | \$ millions, as at October 31 | **Earliest redemption dates** | **Principal amount** | |---|---|---| | **Issue** | **Issue date** | **Interest payment dates** | **Yield** | **At greater of Canada Yield Price$^{(1)}$ and par** | **At par** | **2010** | **2009** | | CIBC Capital Trust – Tier 1 Notes | | | | | | | | | Series A | March 13, 2009 | June 30, December 31 | 9.97% | June 30, 2014 | June 30, 2039 | \$ 1,300 | \$ 1,300 | | Series B | March 13, 2009 | June 30, December 31 | 10.25% | June 30, 2038 | June 30, 2039 | 300 | 300 | $^{(1)}$ Canada Yield Price: a price calculated at the time of redemption (other than an interest rate reset date applicable to the series) to provide a yield to maturity equal to the yield on a Government of Canada bond of appropriate maturity plus (i) for the CIBC Tier 1 Notes – Series A, (a) 3.47% if the redemption date is any time prior to June 30, 2014, or (b) 3.47% if the redemption date is any time on or after June 30, 2014, and (ii) for the CIBC Tier 1 Notes – Series B, (a) 9.878% if the redemption date is any time prior to June 30, 2038, or (b) 9.878% if the redemption date is any time on or after June 30, 2038. Subject to the approval of OSFI, the Trust may, in whole or in part, on the redemption dates specified above, and on any date thereafter, redeem the CIBC Tier 1 Notes Series A or Series B without the consent of the holders. Also, subject to the approval of OSFI, the Trust may redeem all, but not part of, the CIBC Tier 1 Notes – Series A or Series B prior to the earliest redemption date specified above without the consent of the holders, upon the occurrence of certain specified tax or regulatory events. ## Note 19 Accumulated Other Comprehensive Income (AOCI) | \$ millions, as at October 31 | 2010 | 2009 | |---|---|---| | Net foreign currency translation adjustments | \$ (575) | \$ (495) | | Net unrealized gains on AFS securities$^{(1)}$ | 197 | 124 | | Net gains on cash flow hedges$^{(2)}$ | 17 | 1 | | | **\$ (361)** | **\$ (370)** | $^{(1)}$ Includes \$53 million (2009: \$101 million) of cumulative loss related to AFS securities measured at fair value. $^{(2)}$ A net gain of \$8 million (2009: \$3 million) deferred in AOCI is expected to be reclassified to net income during the next 12 months. Remaining amounts will be reclassified to net income over periods up to eight years (2009: four years) thereafter. ## Note 20 Interest Rate Sensitivity The table below details our exposure to interest rate risk resulting from the mismatch, or gap, between financial assets, liabilities, and off-balance sheet instruments. On- and off-balance sheet financial instruments have been reported on the earlier of their contractual repricing date or maturity date. Certain contractual repricing dates have been adjusted according to management’s estimates for prepayments and early redemptions. Weighted-average effective yields are based on the earlier of contractual repricing date or maturity date of the underlying instrument. We manage interest rate gap by imputing a duration to certain assets and liabilities based on historical and forecasted trends in core balances. The repricing profile of these assets and liabilities has been incorporated in the table below under structural assumptions. | Based on earlier of maturity or repricing date of interest rate sensitive instruments | | | | | | | |---|---|---|---|---|---|---| | \$ millions, as at October 31 | Immediately rate sensitive | Within 3 months | 3 to 12 months | 1 to 5 years | Over 5 years | Not interest rate sensitive | Total | | **2010 Assets** | | | | | | | | | Cash and deposits with banks | \$ 233 | \$ 9,887 | \$ 238 | \$ – | \$ – | \$ 1,694 | \$ 12,052 | | Trading securities | – | 2,908 | 3,832 | 19,778 | 2,039 | – | 28,557 | | AFS securities | – | 8,721 | 3,992 | 13,815 | 593 | – | 26,621 | | FVO securities | – | 9,598 | 2,778 | 9,773 | 38 | – | 22,430 | | Securities borrowed or purchased under resale agreements | – | 3,975 | 11,197 | 22,170 | – | – | 37,342 | | Loans | 9,737 | 40,225 | 22,728 | 79,128 | 24,392 | – | 176,892 | | Other | – | 29,739 | – | – | – | 18,407 | 48,146 | | Structural assumptions | (8,729) | 26,306 | 3,678 | 6,143 | – | (2,398) | – | | **Total assets** | **\$ 1,008** | **\$ 128,469** | **\$ 34,879** | **\$ 121,604** | **\$ 27,029** | **\$ 16,009** | **\$ 352,040** | | **Liabilities and shareholders’ equity** | | | | | | | | | Deposits | \$ 87,067 | \$ 58,908 | \$ 28,987 | \$ 38,530 | \$ 4,205 | \$ 28,936 | \$ 246,671 | | Obligations related to securities sold short | – | 100 | 1,364 | 3,930 | 2,886 | 1,393 | 9,673 | | Obligations related to securities lent or sold under repurchase agreements | – | 28,220 | – | – | 28,220 | – | 28,220 | | Subordinated indebtedness | – | 28,393 | 3,929 | 1,732 | 5,314 | – | 4,773 | | Other structural assumptions$^{(1)}$ | (7,085) | (17,112) | (17,212) | (17,996) | (6,006) | (29,845) | (62,703) | | **Total liabilities and shareholders’ equity** | **\$ 80,012** | **\$ 140,409** | **\$ 15,068** | **\$ 56,271** | **\$ 36,329** | **\$ 30,484** | **\$ 352,040** | | **On-balance sheet gap** | **\$ 1,008** | **\$ (11,940)** | **\$ 19,811** | **\$ 65,333** | **(9,300)** | **(14,475)** | **–** | | **Off-balance sheet gap$^{(2)}$** | – | (9,812) | (12,016) | (7,233) | (314) | (582) | – | | **Total gap** | **\$ 1,008** | **\$ (21,752)** | **\$ 7,795** | **\$ 58,100** | **(9,614)** | **(15,057)** | **–** | | **Total cumulative gap** | **\$ 1,008** | **\$ (20,744)** | **\$ (12,949)** | **\$ 45,151** | **(4,463)** | **(19,520)** | **–** | | **Gap by currency** | **2010** | **2009** | |---|---|---| | **On-balance sheet gap** | | | | Canadian currency | \$ 19,330 | \$ (15,413) | | Foreign currencies | (2,384) | (6,855) | | **Total on-balance sheet gap** | **\$ 16,946** | **\$ (22,268)** | | **Off-balance sheet gap$^{(2)}$** | | | | Canadian currency | – | (4,842) | | Foreign currencies | – | (5,055) | | **Total off-balance sheet gap** | **–** | **(9,897)** | | **Total gap** | **\$ 16,946** | **\$ (32,165)** | | **Total cumulative gap** | **\$ 16,946** | **\$ (15,217)** | $^{(1)}$ Commencing 2010, amounts reported exclude the impact of structural assumptions relating to shareholders’ equity. $^{(2)}$ Includes derivative instruments which are reported on the consolidated balance sheet at fair value. ## Note 21 Stock-based Compensation ### Restricted share award plan Under our RSA plan, which began in 2004, certain key employees are granted annual awards to receive either common shares or an equivalent cash value in accordance with the terms of the grant. Additionally, RSAs may be awarded as special grants. RSAs generally vest at the end of three years or one-third annually. All awards are generally distributed or settled within a three-year period, beginning one year after the year of the grant. Prior to December 2008, grants were made in the form of share-settled awards. The funding for these awards was paid into a trust which purchased common shares in the open market. Grant date fair value of each share-settled RSA was calculated based on the weighted-average purchase price of the corresponding common shares that were purchased by the trust. Beginning December 2008, RSA grants are made in the form of cash-settled awards which are funded at the time of payment. Dividend equivalent payments in respect of cash-settled awards are recognized in compensation expense as incurred. Grant date fair value of each cash-settled RSA is calculated based on the average closing price per common share on the TSX for the 10 trading days prior to a fixed date. Fair value for cash-settled RSAs is remeasured each period for subsequent changes in the market value of common shares. Compensation expense in respect of RSAs, before the impact of hedging, totalled \$290 million in 2010 (2009: \$217 million; 2008: \$135 million). Liabilities in respect of cash-settled RSAs totalled \$592 million (2009: \$298 million; 2008: \$67 million). ### Special incentive program Special Incentive Program (SIP) award units were granted only once in 2000. Certain key employees were granted awards to receive common shares. The funding for these awards was paid into a trust which purchased common shares in the open market. SIP awards relating to some of the key employees vested and were distributed as at October 31, 2003, the date the plan expired. For other key employees, the value of awards was converted into Retirement Special Incentive Program Deferred Share Units (RSIP DSUs). Each RSIP DSU represents the right to receive one common share and additional RSIP DSUs in respect of dividends earned by the common shares held by the trust. RSIP DSUs met time- and performance-based vesting conditions on October 31, 2003, and will be distributed in the form of common shares upon the participant’s retirement or termination of employment. ### Performance share unit plan Under the PSU plan, which was introduced in 2005, certain key executives are granted awards to receive common shares or an equivalent cash value. Beginning December 2008, PSU grants are made only in the form of cash-settled awards, which are funded at the time of payment. PSUs vest at the end of three years. The final number of PSUs that vest will range from 75% to 125% of the initial number awarded based on CIBC’s return on equity performance relative to the average of the other major Canadian banks. Recognition of compensation expense is based on management’s best estimate of the number of PSUs expected to vest. PSUs are remeasured for changes in management’s best estimate of the number of PSUs to vest and changes in the market value of common shares. Dividend equivalent amounts are recognized in compensation expense as incurred and in accordance with management’s best estimate of the number of PSUs expected to vest. Grant date fair value of PSUs is deemed to be the same as the grant date fair value of RSAs awarded at the same time. Compensation expense in respect of PSUs, before the impact of hedging, totalled \$9 million in 2010 (2009: expense of \$2 million; 2008: recovery of \$3 million). Liabilities in respect of PSUs totalled \$2 million (2009: \$8 million; 2008: \$1 million). ### Book value unit plan (BVU) Under the BVU plan, which was introduced in 2006, certain key executives are granted awards denominated in BVUs. Each unit represents the right to receive a cash payment equal to the vesting price per unit, the value of which is related to the book value of CIBC on a per common share basis. BVUs vest at the end of three years. The final number of BVUs that vest will be adjusted for new issues of, re-purchases of, or dividends paid on common shares. Grant date fair value of BVUs is calculated based on the book value per share of common shares on the last day of the previous fiscal quarter. Compensation expense in respect of BVUs totalled \$2 million in 2010. Liabilities in respect of BVUs totalled \$2 million. ### Directors’ plans Under the Director Deferred Share Unit/Common Share Election Plan, each director who is not an officer or employee of CIBC may elect to receive the annual amount payable by CIBC as either Deferred Share Units (DSUs) or common shares. For purposes of this plan, the annual amount payable is the non-cash component of the director retainer. Under the Non-Officer Director Share Plan, each non-officer director may elect to receive all or a portion of their cash-eligible remuneration in the form of cash, common shares, or DSUs. For purposes of this plan, cash-eligible remuneration includes the cash component of the director retainer and the Chair of the Board retainer, meeting attendance fees, non-resident attendance fees, committee chair retainers, and committee member retainers. The value of DSUs credited to a director is payable when he or she is no longer a director or employee of CIBC and, in addition, for directors subject to section 409A of the U.S. Internal Revenue Code of 1986, as amended, the director is not providing any services to CIBC or any member of its controlled group as an independent contractor. In addition, under the Director Deferred Share Unit/Common Share Election Plan, the value of DSUs is payable when the director is no longer related to, or affiliated with, CIBC as defined in the Income Tax Act (Canada). Compensation expense in respect of the DSU components of these plans, before the impact of hedging, totalled \$3 million (2009: \$2 million; 2008: nil). Liabilities in respect of DSUs totalled \$8 million (2009: \$6 million; 2008: \$5 million). ### Stock option plans We have two stock option plans: ESOP and Non-Officer Director Stock Option Plan (DSOP). A maximum of 22,837,500 common shares may be issued under these plans. Under the ESOP, stock options are periodically granted to selected employees. Options provide the employee with the right to purchase common shares from CIBC at a fixed price not less than the closing price of the shares on the trading day immediately preceding the grant date. In general, the options vest evenly over a four-year period and expire 10 years from the grant date. Certain options vest on the attainment of specified performance conditions. Under the DSOP, each director who was not an officer or employee of CIBC or any of our subsidiaries was provided with the right to purchase common shares from CIBC at a fixed price equal to the five-day average of the closing price per share on the TSX for the five trading days preceding the date of the grant. The options vested immediately and expire on the earlier of (i) 90 months after the date the director ceases to be a member of the Board of Directors, or (ii) 10 years from the grant date. In January 2003, the Board of Directors determined that no further options would be granted under the DSOP. Fair value of stock options is measured at the grant date using the Black-Scholes option pricing model. Model assumptions are based on observable market data for the risk-free interest rate and dividend yield; contractual terms for the exercise price and performance conditions; and historical experience for expected life. Volatility assumptions are best estimates of market implied volatility matching the exercise price and expected life of the options. The weighted-average grant date fair value of options granted during 2010 has been estimated at \$11.13 (2009: \$3.05; 2008: \$5.96). The following weighted-average assumptions were used to determine the fair value of options on the date of grant: | For the year ended October 31 | 2010 | 2009 | 2008 | |---|---|---|---| | **Weighted-average assumptions** | | | | | Risk-free interest rate | 2.88% | 2.85% | 4.33% | | Expected dividend yield | 6.57% | 7.00% | 6.23% | | Expected share price volatility | 32.20% | 36.18% | 32.31% | | Expected life | 6 years | 6 years | 6 years | | Share price/exercise price | \$ 70.71 | \$ 49.75 | \$ 75.60 | Up to 40% of options relating to the ESOP granted prior to 2004 were eligible to be exercised as SARs. During 2009, all remaining SARs either expired or were exercised. Compensation expense in respect of stock options and SARs, before the impact of hedging, totalled \$10 million in 2010 (2009: expense of \$9 million; 2008: recovery of \$21 million). Liabilities in respect of SARs totalled nil (2009: nil; 2008: \$1 million). | Stock option plans As at or for the year ended October 31 | **2010** | **2009** | **2008** | |---|---|---|---| | | Number of stock options | Weighted-average exercise price | Number of stock options | Weighted-average exercise price | Number of stock options | Weighted-average exercise price | | Outstanding at beginning of year | 7,023,502 | \$ 56.53 | 7,270,108 | \$ 55.38 | 7,230,833 | \$ 51.63 | | Granted | 708,434 | 70.71 | 1,077,208 | 49.75 | 87,328 | 71.33 | | Exercised$^{(1)}$ | (1,943,577) | 43.28 | (983,705) | 39.10 | (495,134) | 41.83 | | Forfeited | – | – | (414,529) | 72.42 | (2,500) | 78.96 | | Cancelled/Expired | (147,138) | 56.47 | (2,205,029) | 73.09 | (9,793) | 79.99 | | Exercised as SARs | – | – | (2,983,958) | 38.49 | (2,750,300) | 39.69 | | Outstanding at end of year | 5,641,221 | \$ 62.88 | 7,023,502 | \$ 56.53 | 7,270,108 | \$ 55.38 | | Exercisable at end of year | 3,560,238 | \$ 61.79 | 4,942,948 | \$ 53.47 | 5,654,145 | \$ 48.69 | | Available for grant | 6,292,910 | | 6,854,206 | | 7,712,150 | | $^{(1)}$ The weighted-average share price at the date of exercise was \$69.69 (2009: \$52.20; 2008: \$70.15). | Stock options outstanding and vested As at October 31, 2010 | **Stock options outstanding** | **Stock options vested** | |---|---|---| | | Number outstanding | Weighted-average contractual life remaining | Weighted-average exercise price | Number outstanding | Weighted-average exercise price | | **Range of exercise prices** | | | | | | | \$49.00 – \$65.00 | 800,111 | 1.67 | 43.63 | 800,111 | 43.63 | | \$65.01 – \$80.00 | 1,295,142 | 6.38 | 50.28 | 518,726 | 51.06 | | \$80.01 – \$95.00 | 762,586 | 1.57 | 55.65 | 730,818 | 55.34 | | \$95.01 – \$110.00 | 1,604,866 | 6.73 | 70.82 | 695,978 | 71.71 | | \$110.01 – \$125.00 | 836,508 | 6.32 | 78.50 | 558,024 | 77.98 | | \$125.01 – \$140.00 | 342,008 | 6.04 | 96.33 | 256,581 | 96.33 | | **Total** | **5,641,221** | **5.13** | **\$ 62.88** | **3,560,238** | **\$ 61.79** | ### Employee share purchase plan Under our Canadian ESPP, qualifying employees can choose each year to have up to 10% of their eligible earnings withheld to purchase common shares. We match 50% of the employee contribution amount, up to a maximum contribution of 3% of eligible earnings, depending upon length of service and job level, subject to a ceiling of \$2,400 annually. CIBC contributions vest after employees have two years of continuous participation in the plan, and all subsequent contributions vest immediately. Similar ESPPs exist in other regions globally, where each year qualifying employees can choose to have a portion of their eligible earnings withheld to purchase common shares and receive a matching employer ## Note 22 Employee Future Benefits We are the sponsor of defined benefit pension and other post-employment (including post-retirement) benefit plans for eligible employees. The pension and other post-employment benefit expense and obligations, which impact all of our reporting segments, are dependent upon assumptions used in calculating such amounts. These assumptions include discount rates, projected salary increases, expected returns on assets, health care cost trend rates, turnover of employees, retirement age, and mortality rates. These assumptions are reviewed annually in accordance with accepted actuarial practice and approved by management. The discount rate assumption used in determining pension and other post-employment benefit obligations and net benefit expense reflects the market yields, as of the measurement date, on high-quality debt instruments with cash flows that match expected benefit payments. The expected rate of return on plan assets assumption is based on expected returns for the various asset classes, weighted by portfolio allocation. Anticipated future long-term performance of individual asset categories is considered, reflecting expected future inflation and expected real yields on fixed-income securities and equities. Other assumptions are based on actual plan experience and our best estimates. Actual results that differ from the assumptions are accumulated and amortized over future periods and, therefore, generally affect recognized expense and the recorded obligation in future periods. As at October 31, 2010, the net amount of unamortized actuarial losses was \$1,423 million (2009: \$1,171 million) in respect of pension plans and \$151 million (2009: \$100 million) in respect of other post-employment benefit plans. Our benefit plans are funded to or above the amounts required by relevant legislation or plan term. During the year, we contributed \$369 million (2009: \$233 million) to the defined benefit pension plans, which included \$175 million (2009: \$84 million) above the minimum required. Our 2010 funding contributions to our principal Canadian pension plan was the maximum amount allowed by the Income Tax Act (Canada). Our principal post-employment benefit plans are unfunded. We fund benefit payments for these plans as incurred. During the year, these benefit payments totalled \$33 million (2009: \$32 million). We continue to administer a funded trust in respect of long-term disability benefits. This plan was closed to new claims effective June 1, 2004. During the year, we contributed \$15 million (2009: \$5 million) to the trust. For further details of our annual pension and other post-employment expense and liability, see Note 22 to the consolidated financial statements. For our Canadian plans, which represent more than 90% of our pension and other post-employment benefit plans, management has approved changes to the assumptions to be used for the 2011 expense calculation. Management has approved a weighted-average discount rate of approximately 5.5% for pension and other post-employment benefit plans, which is a decrease of 90 basis points over the similar rate for 2010. The approved weighted-average expected long-term rate of return on plan assets is 6.3% for the funded defined benefit plans, which are primarily pension plans. This is unchanged from 2010. The aggregate impact of these changes in assumptions together with the impact of changes in market value of the plan assets in the year is expected to be an increase of \$82 million in expense recognition for 2011. Actual experience different from that anticipated or future changes in assumptions may affect our pension and other post-employment benefit obligations, expense and funding contributions. The following table outlines the potential impact of changes in certain key assumptions used in measuring the accrued benefit obligations and related expenses: | Impact of a change of 100 basis points in key assumptions: \$ millions, as at October 31, 2010 | **Pension benefit plans** | **Other benefit plans** | |---|---|---| | | Obligation | Expense | Obligation | Expense | | Discount rate | | | | | | Decrease in assumption | \$ 617 | \$ 62 | \$ 94 | \$ 5 | | Increase in assumption | (520) | (69) | (77) | (2) | | Expected long-term rate of return on plan assets | | | | | | Decrease in assumption | n/a | 37 | n/a | – | | Increase in assumption | n/a | (37) | n/a | – | | Rate of compensation increase | | | | | | Decrease in assumption | (110) | (27) | (2) | – | | Increase in assumption | 119 | 29 | 2 | – | The sensitivity analysis contained in this table should be used with caution, as the changes are hypothetical and the impact of changes in each key assumption may not be linear. ### Financial Instruments As a financial institution, our assets and liabilities primarily comprise financial instruments, which include deposits, securities, loans, derivatives, acceptances, repurchase agreements, subordinated debt, and preferred shares. We use these financial instruments for both trading and non-trading activities. Trading activities include the purchase and sale of securities, transacting in foreign exchange and derivative instruments in the course of facilitating client trades, and taking proprietary trading positions with the objective of income generation. Non-trading activities generally include the business of lending, investing, funding, and ALM. The use of financial instruments may either introduce or mitigate exposures to market, credit and/or liquidity risks. See the “Management of risk” section for details on how these risks are managed. ## Accounting Developments ### Changes in accounting policies **2010** There were no changes to significant accounting policies during 2010. **2009** **Financial instruments – recognition and measurement** On July 29, 2009, the CICA issued amendments to section 3855 “Financial Instruments – Recognition and Measurement”, with effect from November 1, 2008. The revised standard defined loans and receivables as non-derivative financial assets with fixed or determinable payments that were not quoted in an active market. As a result of this change in definition, the following transitional provisions were applied effective November 1, 2008: * HTM debt instruments that met the revised definition of loans and receivables were required to be reclassified from HTM to loans and receivables; * Loans and receivables that an entity intended to sell immediately or in the near term were required to be classified as trading financial instruments; and * AFS debt instruments were eligible for reclassification to loans and receivables if they met the revised definition of loans and receivables. AFS debt instruments were eligible for reclassification to HTM if they had fixed and determinable payments and were quoted in an active market and the entity had the positive intention to hold to maturity. The reclassification from AFS to loans and receivables or to HTM was optional and could be made on an instrument-by-instrument basis. We did not elect to reclassify any AFS securities. Following adoption of the revised standard: * Debt securities that meet the definition of loans and receivables at initial recognition may be classified as loans and receivables or designated as AFS or held for trading, but are precluded from being classified as HTM; * Impairment charges through income for HTM financial instruments are to be recognized for credit losses only, rather than on the basis of a full write down to fair value; and * Previously recognized OTTI losses on AFS debt securities are to be reversed through income if the increase in their fair value is related to improvement in credit that occurred subsequent to the recognition of the OTTI. The adoption of the revised standard resulted in financial instruments previously classified as HTM being reclassified to loans and receivables with no impact to retained earnings or AOCI. Refer to Note 4 for additional details. **Financial instruments – disclosures** We adopted the amended CICA 3862 handbook section “Financial Instruments – Disclosures”, which expanded financial instrument fair value measurement and liquidity risk management disclosures. See Notes 2, 14 and 29 for further details. **Intangible assets** Effective November 1, 2008, we adopted the CICA handbook section 3064, “Goodwill and Intangible Assets”, which replaced CICA handbook sections 3062, “Goodwill and Other Intangible Assets”, and 3450, “Research and Development Costs”. The new section established standards for recognition, measurement, presentation, and disclosure of goodwill and intangible assets. The adoption of this guidance did not result in a change in the recognition of our goodwill and intangible assets. However, we retroactively reclassified intangible assets relating to application software with net book value of \$385 million as at October 31, 2008 from Land, buildings and equipment to Software and other intangible assets on our consolidated balance sheet. **2008** **Leveraged leases** Effective November 1, 2007, we adopted the amended CICA Emerging Issues Committee Abstract (EIC) 46, “Leveraged Leases”, which was based upon the Financial Accounting Standards Board Staff Position FAS 13-2, “Accounting for a Change or Projected Change in the Timing of Cash Flows Relating to Income Taxes Generated by a Leveraged Lease Transaction”. The EIC required that a change in the estimated timing of cash flows relating to income taxes results in a recalculation of the timing of income recognition from the leveraged lease. The adoption of this guidance resulted in a \$66 million charge to opening retained earnings as at November 1, 2007. An amount approximating this non-cash charge is being recognized into income over the remaining lease terms using the effective interest rate method. **Capital disclosures** Effective November 1, 2007, we adopted the CICA handbook section 1535, “Capital Disclosures”, which requires an entity to disclose its objective, policies and processes for managing capital. In addition, the section requires disclosure of summary quantitative information about capital components. See Note 17 for additional details. **Financial instruments** Effective November 1, 2007, we adopted the CICA handbook sections 3862 “Financial Instruments – Disclosures” and 3863 “Financial Instruments – Presentation”. These sections replace CICA handbook section 3861 “Financial Instruments – Disclosure and Presentation” and enhance disclosure requirements on the nature and extent of risks arising from financial instruments and how the entity manages those risks. See Note 29 for additional details. We adopted the amendments to the CICA handbook sections 3855 “Financial Instruments – Recognition and Measurement” and 3862 “Financial Instruments – Disclosures” and reclassified certain trading securities to HTM and AFS, from August 1, 2008. See Note 4 for additional details. ## Note 23 Income Taxes ### Reconciliation of income taxes The combined Canadian federal and provincial income tax rate varies each year according to changes in the statutory rates imposed by each of these jurisdictions, and according to changes in the proportion of our business carried out in each province. We are also subject to Canadian taxation on income of foreign branches. | Reconciliation of income taxes \$ millions, for the year ended October 31 | 2010 | 2009 | 2008 | |---|---|---|---| | Combined Canadian federal and provincial income tax rate applied to income (loss) before income taxes | 30.6% | 31.8% | 32.7% | | Income taxes adjusted for the effect of: | | | | | Earnings of foreign subsidiaries | (2.4)% | (7.3)% | 7.3% | | Tax-exempt income | (0.9)% | (0.8)% | 3.0% | | Tax-exempt gains | – | (0.2)% | – | | Enron-related increased tax benefit | – | – | (14.8)% | | Net realized foreign exchange gains on investments in foreign operations | 10.2% | 6.9% | (4.3)% | | Future tax rate decrease | 0.7% | – | – | | Other | 0.1% | (0.6)% | (1.5)% | | **Income taxes in the consolidated statement of operations** | **38.2%** | **22.2%** | **52.1%** | Earnings of foreign subsidiaries would generally only be subject to Canadian tax when distributed to Canada. Additional Canadian taxes that would be payable if all foreign subsidiaries’ retained earnings were distributed to the Canadian parent as dividends are estimated at \$239 million (2009: \$395 million; 2008: \$379 million). The effective rates of income tax in the consolidated statement of operations are different from the combined Canadian federal and provincial income tax rate of 30.6% (2009: 31.8%; 2008: 32.7%) as set out in the following table: | Components of income tax \$ millions, for the year ended October 31 | 2010 | 2009 | 2008 | |---|---|---|---| | **Current income taxes** | | | | | Federal | \$ 80 | \$ 133 | \$ (1,326) | | Provincial | 63 | 84 | (613) | | Foreign | 44 | 65 | (736) | | | 187 | 282 | (2,675) | | **Future income taxes** | | | | | Federal | 491 | 172 | (788) | | Provincial | 292 | 151 | (457) | | Foreign | 71 | (15) | (394) | | | 854 | 308 | (1,639) | | **Total income taxes** | **\$ 1,041** | **\$ 590** | **\$ (4,314)** | | **Consolidated statement of operations** | **2010** | **2009** | **2008** | |---|---|---|---| | Income tax expense (benefit) – current | \$ 733 | \$ 38 | \$ (7) | | – future | 800 | 38 | (2,218) | | | 1,533 | 76 | (2,225) | | Consolidated statement of changes in shareholders’ equity | | | | | OCI | (485) | 18 | (930) | | Accounting policy changes | – | (3) | (2) | | Other | (7) | (9) | (2) | | | (492) | (24) | (942) | | **Total** | **\$ 1,041** | **\$ 52** | **\$ (3,167)** | ### Future income tax asset At October 31, 2010, our future income tax asset was \$767 million, net of a \$66 million (US\$65 million) valuation allowance. Included in the future income tax asset were \$385 million related to Canadian non-capital loss carryforwards that expire in 18 years, \$54 million related to Canadian capital loss carryforwards that have no expiry date, and \$267 million related to our U.S. operations. Accounting standards require a valuation allowance when it is more likely than not that all or a portion of a future income tax asset will not be realized prior to its expiration. Although realization is not assured, we believe that, based on all available evidence, it is more likely than not that all of the future income tax asset, net of the valuation allowance, will be realized. The following table presents sources of the future income tax assets and liabilities, net of the valuation allowance: | Sources of future income tax balances \$ millions, as at October 31 | 2010 | 2009 | |---|---|---| | **Future income tax assets** | | | | Tax loss carryforwards | \$ 665 | \$ 1,249 | | Provisions | 37 | 76 | | Allowance for credit losses | 346 | 656 | | Unearned income | 88 | 70 | | Buildings and equipment | 62 | 90 | | Pension and employee benefits | 90 | 73 | | Securities revaluation | 108 | 105 | | Other | 133 | 176 | | | 1,429 | 2,214 | | Valuation allowance | (66) | (95) | | | **\$ 1,363** | **\$ 2,119** | | **Future income tax liabilities** | | | | Lease receivables | 87 | 64 | | Pension and employee benefits | 152 | 82 | | Buildings and equipment | 80 | 80 | | Goodwill | 69 | 72 | | Securities revaluation | 91 | 62 | | Foreign currency | 62 | 55 | | Other | 55 | 79 | | | **596** | **494** | | **Net future income tax asset, net of the valuation allowance (Note 9)** | **\$ 767** | **\$ 1,625** | ### Enron On October 2, 2009 and March 17, 2010, the Canada Revenue Agency (CRA) issued reassessments disallowing the deduction of approximately \$3.0 billion of the 2005 Enron settlement payments and related legal expenses. In May 2010, CRA also proposed to disallow legal expenses related to 2006. On April 30, May 19, and September 9, 2010, we filed Notices of Appeal with the Tax Court of Canada. On September 30 and November 12, 2010, we received Replies from the Department of Justice which confirmed CRA’s reassessments. The matter is now proceeding to litigation. We believe that we will be successful in sustaining at least the amount of the accounting tax benefit recognized to date. Should we successfully defend our tax filing position in its entirety, we would be able to recognize an additional accounting tax benefit of \$214 million and taxable refund interest of approximately \$167 million. Should we fail to defend our position in its entirety, additional tax expense of approximately \$865 million and non-deductible interest of approximately \$128 million would be incurred. ### Leveraged leases Final closing agreements for leveraged leases were executed with the Internal Revenue Service (IRS) in 2009. During the year, final taxable amounts and interest charges thereon were agreed with the IRS and payments applied to the various affected taxation years. ### Ontario tax rate reductions The Ontario Government will reduce Ontario corporate tax rates to 10% by 2013. These reductions were substantively enacted as at November 16, 2009. As a result, we wrote down our future tax assets by approximately \$25 million. The following table presents a reconciliation of the beginning and ending amount of unrecognized tax benefits. | Unrecognized tax benefits \$ millions, for the year ended October 31 | 2010 | 2009 | |---|---|---| | Balance at beginning of year | \$ 456 | \$ 460 | | Increases based on tax positions related to the current year | 39 | 42 | | Decreases based on tax positions related to prior years | (21) | (39) | | Decreases related to a lapse of applicable statute of limitations | – | (7) | | **Balance at the end of year** | **\$ 474** | **\$ 456** | The entire amount of remaining unrecognized tax benefits of \$474 million (2009: \$456 million), if recognized, would affect the effective tax rate. We do not expect any other significant changes in the total amount of unrecognized benefits to occur within the next 12 months. CIBC operates in Canada, the U.S., the U.K., and other tax jurisdictions. The earliest tax years subject to investigation (for federal purposes) are as follows: * Jurisdiction: Canada 2005, U.S. 2008, U.K. 2008 CIBC accounts for interest arrears and penalties in Income tax expense, except where the interest is deductible for income tax purposes, in which case it is recognized as Interest expense in the consolidated statement of operations. The total amount of interest and penalties payable on the consolidated balance sheet as at October 31, 2010 was nil (2009: \$9 million). Substantially all of the accrued interest and penalties in 2009 related to our U.S. leveraged leases transactions. ## Note 24 Earnings per Share (EPS) | \$ millions, except per share amounts, for the year ended October 31 | 2010 | 2009 | |---|---|---| | **Basic EPS** | | | | Net income (loss) | \$ 2,452 | \$ 1,174 | | Preferred share dividends and premiums | (169) | (193) | | Net income (loss) applicable to common shares | \$ 2,283 | \$ 981 | | Weighted-average common shares outstanding (thousands) | 387,802 | 381,677 | | **Basic EPS** | **\$ 5.89** | **\$ 2.57** | | **Diluted EPS** | | | | Net income (loss) applicable to common shares | \$ 2,283 | \$ 981 | | Weighted-average common shares outstanding (thousands) | 387,802 | 381,677 | | Add: stock options potentially exercisable$^{(1)}$ (thousands) | 1,005 | 777 | | Weighted-average diluted common shares outstanding$^{(2)}$ (thousands) | 388,807 | 382,454 | | **Diluted EPS$^{(3)}$** | **\$ 5.87** | **\$ 2.55** | $^{(1)}$ Excludes average options outstanding of 1,954,098 with a weighted-average exercise price of \$78.99; average options outstanding of 3,444,668 with a weighted-average exercise price of \$69.37; and average options outstanding of 1,607,796 with a weighted-average exercise price of \$79.33 for the years ended October 31, 2010, 2009, and 2008, respectively, as the options’ exercise prices were greater than the average market price of common shares. $^{(2)}$ Convertible preferred shares and preferred share liabilities have not been included in the calculation because either we have settled preferred shares for cash in the past or we have not exercised our conversion right in the past. $^{(3)}$ In case of a loss, the effect of stock options potentially exercisable on diluted EPS is anti-dilutive; therefore, basic and diluted EPS are the same. ## Note 25 Commitments, Guarantees, Pledged Assets and Contingent Liabilities ### Commitments #### Credit-related arrangements Credit-related arrangements are generally off-balance sheet instruments and are typically entered into to meet the financing needs of clients. In addition, there are certain exposures for which we could be obligated to extend credit that are not recorded on the consolidated balance sheet. Our policy of requiring collateral or other security to support credit-related arrangements and the types of security held is generally the same as for loans. The contract amounts shown below for credit-related arrangements represent the maximum amount of additional credit that we could be obligated to extend. The contract amounts also represent the credit risk amounts should the contracts be fully drawn, the counterparties default and any collateral held proves to be of no value. As many of these arrangements will expire or terminate without being drawn upon, the contract amounts are not necessarily indicative of future cash requirements or actual risk of loss. | Contract amounts \$ millions, as at October 31 | 2010 | 2009 | |---|---|---| | Securities lending$^{(1)(2)}$ | \$ 57,325 | \$ 43,907 | | Unutilized credit commitments$^{(3)}$ | 44,530 | 39,747 | | Backstop liquidity facilities | 4,403 | 4,869 | | Standby and performance letters of credit | 5,721 | 5,123 | | ALM credit derivatives written options | – | 27 | | Documentary and commercial letters of credit | 290 | 234 | | Other | 381 | 371 | | | **\$ 112,650** | **\$ 94,278** | $^{(1)}$ Includes the full contract amount of custodial client securities totalling \$45.0 billion (2009: \$33.3 billion) lent by CIBC Mellon Global Securities Services Company, which is a 50/50 joint venture between CIBC and The Bank of New York Mellon. $^{(2)}$ Excludes securities lending of \$5.3 billion (2009: \$5.3 billion) for cash because it is reported on the consolidated balance sheet as obligations related to securities lent or sold under repurchase agreements. $^{(3)}$ Includes irrevocable lines of credit totalling \$34.9 billion (2009: \$30.7 billion), of which \$14.3 billion (2009: \$18.7 billion) will expire in one year or less. Excludes personal lines of credit, home equity lines of credit, and credit card lines. #### Securities lending Securities lending represents our credit exposure when we lend our own or our clients’ securities to a borrower and the borrower defaults on the redelivery obligation. The borrower must fully collateralize the security lent at all times. #### Unutilized credit commitments Unutilized credit commitments are the undrawn portion of lending facilities that we have approved to meet the requirements of clients. These lines may include various conditions that must be satisfied prior to drawdown and include facilities extended in connection with contingent acquisition financing. The credit risk associated with these lines arises from the possibility that a commitment will be drawn down as a loan at some point in the future, prior to the expiry of the commitment. The amount of collateral obtained, if deemed necessary, is based on our credit evaluation of the borrower and may include a charge over the present and future assets of the borrower. #### Backstop liquidity facilities We provide irrevocable backstop liquidity facilities primarily to ABCP conduits. We are the financial services agent for some of these conduits, while other conduits are administered by third parties. The liquidity facilities for our sponsored ABCP programs for Crisp Trust, Macro Trust, Safe Trust, Smart Trust and Sound Trust require us to provide funding, subject to the satisfaction of certain limited conditions with respect to the conduits, to fund non-defaulted assets. #### Standby and performance letters of credit These represent an irrevocable obligation to make payments to third parties in the event that clients are unable to meet their contractual financial or performance obligations. The credit risk associated with these instruments is essentially the same as that involved in extending irrevocable loan commitments to clients. The amount of collateral obtained, if deemed necessary, is based on our credit evaluation of the borrower and may include a charge over present and future assets of the borrower. ## Note 26 Concentration of Credit Risk Concentrations of credit exposure may arise with a group of counterparties that have similar economic characteristics or are located in the same geographic region. The ability of such counterparties to meet contractual obligations would be similarly affected by changing economic, political, or other conditions. The amounts of credit exposure associated with our on- and off-balance sheet financial instruments are summarized in the following table: | Credit exposure by country of ultimate risk \$ millions, as at October 31 | **2010** | **2009** | |---|---|---| | | **Canada** | **U.S.** | **Other** | **Total** | **Canada** | **U.S.** | **Other** | **Total** | | **On-balance sheet** | | | | | | | | | | Major assets$^{(1)(2)(3)}$ | \$ 262,043 | \$ 29,283 | \$ 44,934 | \$ 336,260 | \$ 242,487 | \$ 32,225 | \$ 42,927 | \$ 317,639 | | **Off-balance sheet** | | | | | | | | | | Credit-related arrangements | | | | | | | | | | Lines of credit | | | | | | | | | | Financial institutions | 6,692 | 1,136 | 655 | 8,483 | 7,983 | 1,136 | 507 | 9,626 | | Governments | 4,281 | 3 | – | 4,284 | 3,899 | 3 | 9 | 3,911 | | Other | 30,101 | 3,026 | 3,038 | 36,165 | 28,730 | 2,948 | 973 | 32,651 | | | 41,074 | 4,165 | 3,693 | 48,932 | 36,612 | 4,087 | 1,489 | 42,188 | |