# Management’s discussion and analysis Management’s discussion and analysis (MD&A) is provided to enable readers to assess CIBC’s financial condition and results of operations as at and for the year ended October 31, 2022, compared with prior years. The MD&A should be read in conjunction with the audited consolidated financial statements. Unless otherwise indicated, all financial information in this MD&A has been prepared in accordance with International Financial Reporting Standards (IFRS or GAAP) and all amounts are expressed in Canadian dollars. Certain disclosures in the MD&A have been shaded as they form an integral part of the consolidated financial statements. The MD&A is current as of November 30, 2022. Additional information relating to CIBC, including the Annual Information Form, is available on SEDAR at www.sedar.com and on the United States (U.S.) Securities and Exchange Commission’s (SEC) website at www.sec.gov. No information on CIBC’s website (www.cibc.com) should be considered incorporated herein by reference. A glossary of terms used in the MD&A and the audited consolidated financial statements is provided on pages 101 to 107 of this Annual Report. | | | | | | | :--- | :--- | :--- | :--- | :--- | | **2 Overview** | 7 Financial performance overview | 21 Strategic business units overview | 47 Management of risk | | 2 Our strategy | 7 2022 Financial results review | 22 Canadian Personal and Business Banking | 87 Accounting and control matters | | 2 Performance against objectives | 7 Net interest income and margin | 24 Canadian Commercial Banking and Wealth Management | 87 Critical accounting policies and estimates | | 4 Financial highlights | 8 Non-interest income | 27 U.S. Commercial Banking and Wealth Management | 91 Accounting developments | | 5 Economic and market environment | 8 Trading revenue (TEB) | 30 Capital Markets | 92 Other regulatory developments | | 5 Year in review – 2022 | 9 Provision for credit losses | 33 Corporate and Other | 93 Related-party transactions | | 5 Outlook for calendar year 2023 | 9 Non-interest expenses | 34 Financial condition | 94 Policy on the Scope of Services of the Shareholders’ Auditor | | 6 Significant events | 10 Taxes | 34 Review of condensed consolidated balance sheet | 94 Controls and procedures | | | 10 Foreign exchange | 35 Capital management | 95 Supplementary annual financial information | | | 11 Fourth quarter review | 45 Off-balance sheet arrangements | 101 Glossary | | | 11 Quarterly trend analysis | | | | | 12 Review of 2021 financial performance | | | | | 14 Non-GAAP measures | | | **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 SEC and in other communications. All such statements are made pursuant to the “safe harbour” provisions of, and are intended to be forward-looking statements under applicable Canadian and U.S. securities legislation, including the U.S. Private Securities Litigation Reform Act of 1995. These statements include, but are not limited to, statements made in the “Message from the President and Chief Executive Officer”, “Overview – Performance against objectives”, “Economic and market environment – Outlook for calendar year 2023”, “Significant events”, “Financial performance overview – Taxes”, “Strategic business units overview – Canadian Personal and Business Banking”, “Strategic business units overview – Canadian Commercial Banking and Wealth Management”, “Strategic business units overview – U.S. Commercial Banking and Wealth Management”, “Strategic business units overview – Capital Markets”, “Financial condition – Capital management”, “Financial condition – Off-balance sheet arrangements”, “Management of risk – Risk overview”, “Management of risk – Top and emerging risks”, “Management of risk – Credit risk”, “Management of risk – Market risk”, “Management of risk – Liquidity risk”, “Accounting and control matters – Critical accounting policies and estimates”, “Accounting and control matters – Accounting developments”, “Accounting and control matters – Other regulatory developments” and “Accounting and control matters – Controls and procedures” sections of this report and other statements about our operations, business lines, financial condition, risk management, priorities, targets and commitments (including with respect to net-zero emissions), ongoing objectives, strategies, the regulatory environment in which we operate and outlook for calendar year 2023 and subsequent periods. Forward-looking statements are typically identified by the words “believe”, “expect”, “anticipate”, “intend”, “estimate”, “forecast”, “target”, “objective” and other similar expressions or future or conditional verbs such as “will”, “should”, “would” and “could”. By their nature, these statements require us to make assumptions, including the economic assumptions set out in the “Economic and market environment – Outlook for calendar year 2023” section of this report, and are subject to inherent risks and uncertainties that may be general or specific. Given the continuing impact of high inflation, rising interest rates and the war in Ukraine on the global economy, financial markets, and our business, results of operations, reputation and financial condition, there is inherently more uncertainty associated with our assumptions as compared to prior periods. 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: inflationary pressures; global supply-chain disruptions; geopolitical risk, including from the war in Ukraine, the occurrence, continuance or intensification of public health emergencies, such as the COVID-19 pandemic, and any related government policies and actions; credit, market, liquidity, strategic, insurance, operational, reputation, conduct and legal, regulatory and environmental risk; currency value and interest rate fluctuations, including as a result of market and oil price volatility; the effectiveness and adequacy of our risk management and valuation models and processes; legislative or regulatory developments in the jurisdictions where we operate, including the Organisation for Economic Co-operation and Development Common Reporting Standard, and regulatory reforms in the United Kingdom and Europe, the Basel Committee on Banking Supervision’s global standards for capital and liquidity reform, and those relating to bank recapitalization legislation and the payments system in Canada; amendments to, and interpretations of, risk-based capital guidelines and reporting instructions, and interest rate and liquidity regulatory guidance; the resolution of legal and regulatory proceedings and related matters; the effect of changes to accounting standards, rules and interpretations; changes in our estimates of reserves and allowances; changes in tax laws; changes to our credit ratings; political conditions and developments, including changes relating to economic or trade matters; the possible effect on our business of international conflicts, such as the war in Ukraine, and terrorism; natural disasters, disruptions to public infrastructure and other catastrophic events; reliance on third parties to provide components of our business infrastructure; potential disruptions to our information technology systems and services; increasing cyber security risks which may include theft or disclosure of assets, unauthorized access to sensitive information, or operational disruption; social media risk; losses incurred as a result of internal or external fraud; anti-money laundering; the accuracy and completeness of information provided to us concerning clients and counterparties; the failure of third parties to comply with their obligations to us and our affiliates or associates; intensifying competition from established competitors and new entrants in the financial services industry including through internet and mobile banking; technological change; global capital market activity; changes in monetary and economic policy; general business and economic conditions worldwide, as well as in Canada, the U.S. and other countries where we have operations, including increasing Canadian household debt levels and global credit risks; climate change and other environmental and social risks; our success in developing and introducing new products and services, expanding existing distribution channels, developing new distribution channels and realizing increased revenue from these channels; changes in client spending and saving habits; our ability to attract and retain key employees and executives; our ability to successfully execute our strategies and complete and integrate acquisitions and joint ventures; the risk that expected benefits of an acquisition, merger or divestiture will not be realized within the expected time frame or at all; 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. Any forward-looking statements contained in this report represent the views of management only as of the date hereof and are presented for the purpose of assisting our shareholders and financial analysts in understanding our financial position, objectives and priorities and anticipated financial performance as at and for the periods ended on the dates presented, and may not be appropriate for other purposes. 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. CIBC 2022 ANNUAL REPORT 1 # Management’s discussion and analysis ## Overview CIBC is a leading and well-diversified North American financial institution committed to creating enduring value for all our stakeholders – our clients, team, communities and shareholders. We are guided by our purpose – to help make your ambition a reality, and we are activating our resources to create positive change and contribute to a more secure, equitable and sustainable future. Across our bank and our businesses – Personal and Business Banking, Commercial Banking and Wealth Management, and Capital Markets – our 50,000 employees bring our purpose to life every day for our 13 million personal banking, business, public sector and institutional clients in Canada, the U.S. and around the world. ## Our strategy In 2022, our modern, relationship-oriented bank continued to focus on delivering superior client experience and top-tier shareholder returns while maintaining our financial strength, risk discipline and advancing our purpose-driven culture. Going forward, the execution of our client-focused strategy will enable us to continue driving long-term growth, and to build on our momentum as we focus on three strategic priorities: * Further growing our market share of high-growth, high-touch client segments; * Elevating the CIBC banking experience for all our clients through investments in digitization and technology, and further increasing connectivity across our businesses; and * Investing in our future differentiator businesses that are positioned to win in faster growing markets. ## Performance against objectives CIBC reports a scorecard of financial measures that we use to evaluate and report on our progress to external stakeholders. These measures can be categorized into four key areas – earnings growth, operating leverage, profitability, and balance sheet strength. We have set through the cycle targets for each of these measures, which we currently define as three to five years, assuming a normal business environment and credit cycle. Our ability to achieve these objectives may be adversely affected by extraordinary developments and disruptions. Throughout 2022, economic challenges driven by geopolitical and persistent supply-chain issues had an impact on our ability to achieve certain performance objectives. ### Earnings growth To assess our earnings growth, we monitor our earnings per share (EPS$^{(1)}$). Our target of 5% to 10% growth reflects a simple average of annual adjusted$^{(2)}$ diluted EPS$^{(1)}$. In 2022, against a backdrop of a challenging economic environment, our year-over-year reported and adjusted$^{(2)}$ diluted EPS$^{(1)}$ decreased by 4% and 2%, respectively. Our 3-year compound annual growth rates (CAGR$^{(3)}$) for reported and adjusted$^{(2)}$ diluted EPS$^{(1)}$ were 6.1% and 5.8%, respectively, and our 5-year CAGR$^{(3)}$ for reported and adjusted$^{(2)}$ diluted EPS$^{(1)}$ were 3.5% and 4.9%, respectively. Going forward, we have increased our target to deliver adjusted$^{(2)}$ diluted EPS$^{(1)}$ CAGR of 7% to 10% through the cycle. ```mermaid graph TD subgraph Reported diluted EPS$^{(1)}$ ($) A18(18) -->|5.82| A19(19) A19 -->|5.60| A20(20) A20 -->|6.96| A21(21) A21 -->|6.68| A22(22) end subgraph Reported diluted EPS$^{(1)}$ ($) A18_2(18) -->|4.11| A22_2(22) end subgraph Adjusted diluted EPS$^{(1)(2)}$ ($) B18(18) -->|6.11| B19(19) B19 -->|5.96| B20(20) B20 -->|7.23| B21(21) B21 -->|7.05| B22(22) end subgraph Adjusted diluted EPS$^{(1)(2)}$ ($) B18_2(18) -->|4.85| B22_2(22) end ``` ### Operating leverage Operating leverage, defined as the difference between the year-over-year percentage change in revenue and year-over-year percentage change in non-interest expenses, is a measure of the relative growth rates of revenue and expenses. In 2022, both our reported and adjusted$^{(2)}$ operating leverage was (1.9)%, compared with 5.3% and 0.7%, respectively in 2021. Our 3-year simple average reported and adjusted$^{(2)}$ operating leverage was (0.2)% and (0.6)%, respectively, and our 5-year simple average reported and adjusted$^{(2)}$ operating leverage was 0.1% and 0.5%, respectively. Going forward, we will continue to target positive adjusted$^{(2)}$ operating leverage through the cycle. ```mermaid graph TD subgraph Reported operating leverage (%) C18(18) -->|2.4| C19(19) C19 -->|(1.5)| C20(20) C20 -->|5.3| C21(21) C21 -->|(4.0)| C22(22) end subgraph Reported operating leverage (%) C22_2(22) -->|(1.9)| C22_3(22) end subgraph Adjusted operating leverage$^{(2)}$ (%) D18(18) -->|3.2| D19(19) D19 -->|0.2| D20(20) D20 -->|(0.6)| D21(21) D21 -->|(1.9)| D22(22) end subgraph Adjusted operating leverage$^{(2)}$ (%) D21_2(21) -->|0.7| D21_3(21) end ``` $^{(1)}$ On April 7, 2022, CIBC shareholders approved a two-for-one share split (Share Split) of CIBC’s issued and outstanding common shares. Each shareholder of record at the close of business on May 6, 2022 (Record Date) received one additional share on May 13, 2022 (Payment Date) for every one share held on the Record Date. All common share numbers and per common share amounts have been adjusted to reflect the Share Split as if it was retroactively applied to all periods presented. $^{(2)}$ Adjusted measures are non-GAAP measures. For additional information, see the “Non-GAAP measures” section. $^{(3)}$ The 3-year compound annual growth rate (CAGR) is calculated from 2019 to 2022 and the 5-year CAGR is calculated from 2017 to 2022. 2 CIBC 2022 ANNUAL REPORT ## Profitability We have three metrics to measure profitability, including two shareholder value targets: ### 1. Return on common shareholders’ equity (ROE) ROE, defined as the ratio of net income to average$^{(2)}$ common shareholders’ equity, is a key measure of profitability. In 2022, our reported and adjusted$^{(1)}$ ROE were at 14.0% and 14.7%, respectively, compared with 16.1% and 16.7%, respectively, in 2021 and below our 2022 target of at least 15%. On a 3-year average basis, our reported and adjusted$^{(1)}$ ROE were 13.4% and 14.4%, respectively. On a 5-year average basis, our reported and adjusted$^{(1)}$ ROE were 14.2% and 15.2%, respectively. Going forward, we have increased our adjusted$^{(1)}$ ROE target from at least 15% to at least 16% through the cycle by 2025. ```mermaid graph TD subgraph Reported return on common shareholders’ equity (%) A18(18) -->|16.6| A19(19) A19 -->|14.5| A20(20) A20 -->|16.1| A21(21) A21 -->|14.0| A22(22) end subgraph Reported return on common shareholders’ equity (%) A20_2(20) -->|10.0| A20_3(20) end subgraph Adjusted return on common shareholders’ equity$^{(1)}$ (%) B18(18) -->|17.4| B19(19) B19 -->|15.4| B20(20) B20 -->|16.7| B21(21) B21 -->|14.7| B22(22) end subgraph Adjusted return on common shareholders’ equity$^{(1)}$ (%) B18_2(18) -->|11.7| B18_3(18) end ``` ### 2. Dividend payout ratio Dividend payout ratio is defined as the ratio of common share dividends paid as a percentage of net income after preferred share dividends, premium on preferred share redemptions, and distributions on other equity instruments. Key criteria for considering dividend increases are our current level of payout relative to our target and our view on the sustainability of our current earnings level. In 2022, our reported and adjusted$^{(1)}$ dividend payout ratios were 48.8% and 46.3%, respectively, compared with 41.8% and 40.3%, respectively, in 2021. On a 3-year average basis, our reported and adjusted$^{(1)}$ dividend payout ratios were 53.8% and 48.9%, respectively. On a 5-year average basis, our reported and adjusted$^{(1)}$ dividend payout ratios were 51.3% and 47.4%, respectively. Going forward, we will continue to target an adjusted$^{(1)}$ dividend payout ratio of 40% to 50% through the cycle. ```mermaid graph TD subgraph Reported dividend payout ratio$^{(3)}$ (%) C18(18) -->|45.5| C19(19) C19 -->|49.9| C20(20) C20 -->|41.8| C21(21) C21 -->|48.8| C22(22) end subgraph Reported dividend payout ratio$^{(3)}$ (%) C18_2(18) -->|70.7| C18_3(18) end subgraph Adjusted dividend payout ratio$^{(1)(3)}$ (%) D18(18) -->|43.4| D19(19) D19 -->|46.9| D20(20) D20 -->|40.3| D21(21) D21 -->|46.3| D22(22) end subgraph Adjusted dividend payout ratio$^{(1)(3)}$ (%) D18_2(18) -->|60.0| D18_3(18) end ``` ### 3. Total shareholder return (TSR) TSR is the ultimate measure of shareholder value, and the output of delivering against the financial targets within our control. We have an objective to deliver a TSR that exceeds the industry average, which we have defined as the Standard & Poor’s (S&P)/Toronto Stock Exchange (TSX) Composite Banks Index, over a rolling five-year period. For the three years ended October 31, 2022, our TSR was 28.5%, in line with the S&P/TSX Composite Banks Index of 29.0%. For the five years ended October 31, 2022, our TSR was 40.2% (2021: 91.9%), which was in line with the S&P/TSX Composite Banks Index return over the same period of 40.6%. ```mermaid graph TD subgraph Rolling three-year TSR (%) A1(Jan-22) -->|CIBC 28.5%| A2(Apr-22) A2 -->|S&P/TSX Composite Index 28.9%| A3(Jul-22) A3 -->|S&P/TSX Composite Banks Index 28.0%| A4(Oct-22) end ``` ```mermaid graph TD subgraph Rolling five-year TSR (%) B1(Jan-22) -->|CIBC 40.2%| B2(Apr-22) B2 -->|S&P/TSX Composite Index 41.1%| B3(Jul-22) B3 -->|S&P/TSX Composite Banks Index 40.6%| B4(Oct-22) end ``` ## Balance sheet strength Maintaining a strong balance sheet is foundational to our long-term success. Our goal is to maintain strong capital and liquidity positions. We look to constantly balance our objectives of holding a prudent amount of excess capital for unexpected events and environmental uncertainties, investing in our core businesses, growing through acquisitions and returning capital to our shareholders. ### 1. Common Equity Tier 1 (CET1) ratio We actively manage our capital to maintain a strong and efficient capital base while supporting our business growth and returning capital to our shareholders. For the year ended October 31, 2022, our CET1$^{(4)}$ ratio was 11.7%, compared with 12.4% in 2021, well above the current regulatory requirement set by OSFI. Going forward, we will continue to maintain a strong buffer to regulatory requirements. ```mermaid graph TD subgraph CET1 ratio$^{(3)}$ (%) C18(18) -->|11.6| C19(19) C19 -->|12.1| C20(20) C20 -->|12.4| C21(21) C21 -->|11.7| C22(22) end ``` ### 2. Liquidity coverage ratio (LCR) Our ability to meet our financial obligations is measured through the LCR ratio. It measures unencumbered high-quality liquid assets (HQLA) that can be converted into cash to meet liquidity needs in a 30-calendar day liquidity stress scenario. The LCR standard requires that, absent a situation of financial stress, the value of the ratio be no lower than 100%. For the quarter ended October 31, 2022, our three-month daily average LCR$^{(4)}$ was 129% compared to 127% for the same period last year. ```mermaid graph TD subgraph Liquidity coverage ratio (%) D18(18) -->|128| D19(19) D19 -->|125| D20(20) D20 -->|145| D21(21) D21 -->|127| D22(22) end subgraph Liquidity coverage ratio (%) D22_2(22) -->|129| D22_3(22) end ``` $^{(1)}$ Adjusted measures are non-GAAP measures. For additional information, see the “Non-GAAP measures” section. $^{(2)}$ Average balances are calculated as a weighted average of daily closing balances. $^{(3)}$ In response to the COVID-19 pandemic, effective March 2020, the Office of the Superintendent of Financial Institutions (OSFI) directed that all federally regulated financial institutions (FRFIs) halt share buybacks and dividend increases until further notice. The temporary measure was lifted effective November 4, 2021. $^{(4)}$ CET1 is calculated pursuant to OSFI’s Capital Adequacy Requirements (CAR) Guideline and LCR is calculated pursuant to OSFI’s Liquidity Adequacy Requirements (LAR) Guideline, which are both based on Basel Committee on Banking Supervision (BCBS) standards. CIBC 2022 ANNUAL REPORT 3 # Financial highlights As at or for the year ended October 31 | 2022 | 2021 | 2020 | 2019 | 2018 | :--- | :--- | :--- | :--- | :--- | :--- | | **Financial results ($ millions)** | | | | | | | Net interest income | \$ 12,641 | \$ 11,459 | \$ 11,044 | \$ 10,551 | \$ 10,065 | | Non-interest income | 9,192 | 8,556 | 7,697 | 8,060 | 7,769 | | Total revenue | 21,833 | 20,015 | 18,741 | 18,611 | 17,834 | | Provision for credit losses | 1,057 | 158 | 2,489 | 1,286 | 870 | | Non-interest expenses | 12,803 | 11,535 | 11,362 | 10,856 | 10,258 | | Income before income taxes | 7,973 | 8,322 | 4,890 | 6,469 | 6,706 | | Income taxes | 1,730 | 1,876 | 1,098 | 1,348 | 1,422 | | Net income | \$ 6,243 | \$ 6,446 | \$ 3,792 | \$ 5,121 | \$ 5,284 | | Net income attributable to non-controlling interests | 23 | 17 | 2 | 25 | 17 | | Preferred shareholders and other equity instrument holders | 171 | 158 | 122 | 111 | 89 | | Common shareholders | 6,049 | 6,271 | 3,668 | 4,985 | 5,178 | | Net income attributable to equity shareholders | \$ 6,220 | \$ 6,429 | \$ 3,790 | \$ 5,096 | \$ 5,267 | | **Financial measures** | | | | | | | Reported efficiency ratio$^{(1)}$ | 58.6 % | 57.6 % | 60.6 % | 58.3 % | 57.5 % | | Reported operating leverage$^{(1)}$ | (1.9)% | 5.3 % | (4.0)% | (1.5)% | 2.4 % | | Loan loss ratio$^{(2)}$ | 0.14 % | 0.16 % | 0.26 % | 0.29 % | 0.26 % | | Reported return on common shareholders’ equity$^{(1)}$ | 14.0 % | 16.1 % | 10.0 % | 14.5 % | 16.6 % | | Net interest margin$^{(1)}$ | 1.40 % | 1.42 % | 1.50 % | 1.65 % | 1.68 % | | Net interest margin on average interest-earning assets$^{(1)(3)}$ | 1.58 % | 1.59 % | 1.69 % | 1.84 % | 1.88 % | | Return on average assets$^{(1)(3)}$ | 0.69 % | 0.80 % | 0.52 % | 0.80 % | 0.88 % | | Return on average interest-earning assets$^{(1)(3)}$ | 0.78 % | 0.89 % | 0.58 % | 0.89 % | 0.99 % | | Reported effective tax rate | 21.7 % | 22.5 % | 22.5 % | 20.8 % | 21.2 % | | **Common share information** | | | | | | | Per share ($) $^{(4)}$ – basic earnings | \$ 6.70 | \$ 6.98 | \$ 4.12 | \$ 5.61 | \$ 5.84 | | – reported diluted earning | 6.68 | 6.96 | 4.11 | 5.60 | 5.82 | | – dividends | 3.270 | 2.920 | 2.910 | 2.800 | 2.660 | | – book value $^{(5)}$ | 49.95 | 45.83 | 42.03 | 39.94 | 36.92 | | Closing share price ($) $^{(4)}$ | 61.87 | 75.09 | 49.69 | 56.16 | 56.84 | | Shares outstanding (thousands) $^{(4)}$ – weighted-average basic | 903,312 | 897,906 | 890,870 | 888,648 | 886,163 | | – weighted-average dilute | 905,684 | 900,365 | 892,042 | 890,915 | 889,254 | | – end of period | 906,040 | 901,656 | 894,171 | 890,683 | 885,653 | | Market capitalization ($ millions) | \$ 56,057 | \$ 67,701 | \$ 44,431 | \$ 50,016 | \$ 50,341 | | **Value measures** | | | | | | | Total shareholder return | (13.56)% | 58.03 % | (5.90)% | 4.19 % | 4.70 % | | Dividend yield (based on closing share price) | 5.3 % | 3.9 % | 5.9 % | 5.0 % | 4.7 % | | Reported dividend payout ratio$^{(1)}$ | 48.8 % | 41.8 % | 70.7 % | 49.9 % | 45.5 % | | Market value to book value ratio | 1.24 | 1.64 | 1.18 | 1.41 | 1.54 | | **Selected financial measures – adjusted $^{(6)}$** | | | | | | | Adjusted efficiency ratio$^{(7)}$ | 56.4 % | 55.4 % | 55.8 % | 55.5 % | 55.6 % | | Adjusted operating leverage$^{(7)}$ | (1.9)% | 0.7 % | (0.6)% | 0.2 % | 3.2 % | | Adjusted return on common shareholders’ equity | 14.7 % | 16.7 % | 11.7 % | 15.4 % | 17.4 % | | Adjusted effective tax rate | 21.9 % | 22.7 % | 21.8 % | 20.6 % | 20.0 % | | Adjusted diluted earnings per share ($) $^{(4)}$ | \$ 7.05 | \$ 7.23 | \$ 4.85 | \$ 5.96 | \$ 6.11 | | Adjusted dividend payout ratio | 46.3 % | 40.3 % | 60.0 % | 46.9 % | 43.4 % | | **On- and off-balance sheet information ($ millions)** | | | | | | | Cash, deposits with banks and securities | \$ 239,740 | \$ 218,398 | \$ 211,564 | \$ 138,669 | \$ 119,355 | | Loans and acceptances, net of allowance for credit losses | 528,657 | 462,879 | 416,388 | 398,108 | 381,661 | | Total assets | 943,597 | 837,683 | 769,551 | 651,604 | 597,099 | | Deposits | 697,572 | 621,158 | 570,740 | 485,712 | 461,015 | | Common shareholders’ equity$^{(1)}$ | 45,258 | 41,323 | 37,579 | 35,569 | 32,693 | | Average assets$^{(3)}$ | 900,213 | 809,621 | 735,492 | 639,716 | 598,441 | | Average interest-earning assets$^{(1)(3)}$ | 799,224 | 721,686 | 654,142 | 572,677 | 536,059 | | Average common shareholders’ equity$^{(1)(3)}$ | 43,354 | 38,881 | 36,792 | 34,467 | 31,184 | | Assets under administration (AUA) $^{(1)(8)(9)}$ | 2,854,828 | 2,364,005$^{(8)}$ | 2,423,240$^{(8)}$ | 2,303,962 | | Assets under management (AUM) $^{(1)(9)}$ | 291,513 | 316,834 | 261,037 | 249,596$^{(8)}$ | 225,379 | | **Balance sheet quality (All-in basis) and liquidity measures $^{(10)}$** | | | | | | | Risk-weighted assets (RWA) ($ millions) | | | | | | | Total RWA | \$ 315,634 | \$ 272,814 | \$ 254,871 | \$ 239,863 | n/a | | CET1 capital RWA | n/a | n/a | n/a | n/a | \$ 216,144 | | Tier 1 capital RWA | n/a | n/a | n/a | n/a | 216,303 | | Total capital RWA | n/a | n/a | n/a | n/a | 216,462 | | **Capital ratios** | | | | | | | CET1 ratio$^{(11)}$ | 11.7 % | 12.4 % | 12.1 % | 11.6 % | 11.4 % | | Tier 1 capital ratio$^{(11)}$ | 13.3 % | 14.1 % | 13.6 % | 12.9 % | 12.9 % | | Total capital ratio$^{(11)}$ | 15.3 % | 16.2 % | 16.1 % | 15.0 % | 14.9 % | | Leverage ratio | 4.4 % | 4.7 % | 4.7 % | 4.3 % | 4.3 % | | LCR$^{(12)}$ | 129 % | 127 % | 145 % | 125 % | 128 % | | Net stable funding ratio (NSFR) | 118 % | 118 % | n/a | n/a | n/a | | **Other information** | | | | | | | Full-time equivalent employees | 50,427 | 45,282 | 43,853 | 45,157 | 44,220 | $^{(1)}$ For additional information on the composition, see the “Glossary” section. $^{(2)}$ The ratio is calculated as the provision for credit losses on impaired loans to average loans and acceptances, net of allowance for credit losses. $^{(3)}$ Average balances are calculated as a weighted average of daily closing balances. $^{(4)}$ On April 7, 2022, CIBC shareholders approved a two-for-one share split (Share Split) of CIBC’s issued and outstanding common shares. Each shareholder of record at the close of business on May 6, 2022 (Record Date) received one additional share on May 13, 2022 (Payment Date) for every one share held on the Record Date. All common share numbers and per common share amounts have been adjusted to reflect the Share Split as if it was retroactively applied to all periods presented. $^{(5)}$ Common shareholders’ equity divided by the number of common shares issued and outstanding at end of period. $^{(6)}$ Adjusted measures are non-GAAP measures. Adjusted measures are calculated in the same manner as reported measures, except that financial information included in the calculation of adjusted measures is adjusted to exclude the impact of items of note. For additional information and a reconciliation of reported results to adjusted results, see the “Non-GAAP measures” section. $^{(7)}$ Calculated on a taxable equivalent basis (TEB). $^{(8)}$ Includes the full contract amount of AUA or custody under a 50/50 joint venture between CIBC and The Bank of New York Mellon of \$2,258.1 billion as at October 31, 2022 (2021: \$2,341.1 billion). $^{(9)}$ AUM amounts are included in the amounts reported under AUA. $^{(10)}$ RWA and our capital ratios are calculated pursuant to OSFI’s CAR Guideline, the leverage ratio is calculated pursuant to OSFI’s Leverage Requirements Guideline, and LCR and NSFR are calculated pursuant to OSFI’s LAR Guideline, all of which are based on BCBS standards. For additional information, see the “Capital management” and “Liquidity risk” sections. $^{(11)}$ Ratios reflect the expected credit loss (ECL) transitional arrangement announced by OSFI on March 27, 2020 in response to the onset of the COVID-19 pandemic. $^{(12)}$ Average for the three months ended October 31 for each respective year. n/a Not applicable. 4 CIBC 2022 ANNUAL REPORT # Management’s discussion and analysis ## Economic and market environment ### Year in review – 2022 Canada’s economy registered healthy growth through the first half of 2022, but then joined the U.S. in showing signs of a deceleration in the second half of 2022 in the face of higher interest rates aimed at reducing inflation. Canada’s growth benefitted from strength in consumer spending as public health constraints were further eased, funded by income gains from a strong jobs market and prior savings, while nominal exports increased as commodity prices peaked in the first half of the year. Rising interest rates in the latter half of the year caused mortgage demand to decelerate from the very high growth rates in place early in the year as higher interest rates slowed transactions volumes and eased house prices, while wider corporate bond spreads negatively impacted margins. Non-mortgage household credit demand picked up with greater discretionary services spending. Business loan demand remained healthy in both Canada and the U.S., reflecting inflation’s impact on nominal measures of economic activity and wider spreads in the corporate bond market. Financial markets saw healthy merger and acquisition (M&A) volumes but a softer backdrop for CIBC wealth businesses and equity issuance, particularly in the latter half of the year, as market conditions weakened in the face of the economic shocks from the war in Ukraine, monetary tightening, and prospects for slower growth ahead. Deposit growth in Canada decelerated close to historical norms after being elevated earlier in the pandemic, with a shift towards term deposits as interest rates climbed. ### Outlook for calendar year 2023 Global economic growth looks to be weak in 2023 in response to monetary policy tightening, as central banks attempt to ease demand and thereby bring inflation back to target levels. The eurozone and the United Kingdom (U.K.) are likely to see recessions as higher interest rates hit a region already vulnerable due to the spillover impacts from the war in Ukraine. China’s economy could see some improvement after a year beset with lockdowns, but weakness in its property sector and softer export markets will see another year of below-average growth. The global slowdown will result in most commodity prices at lower average levels in 2023 than in 2022, although geopolitical risks to supply remain a risk for renewed upward pressure. Supply chains could see some improvements from the easing in demand pressures and a further lessening in COVID-19 severity as vaccinations and prior infections reduce the severity of new cases. In Canada, the Bank of Canada is expected to increase overnight rates to 4.25% and maintain them at elevated levels through calendar 2023, thereby slowing demand to allow inflation to end next year near its 2% target. Weaker economic growth, improvements in supply chains, and softer average prices for food and energy will be key to getting inflation back to that target. Real gross domestic product (GDP) growth is expected to decelerate to 0.6% from an expected growth rate of roughly 3.5% in 2022, with a softening in housing and consumer spending in response to higher interest rates and a gradual climb in the unemployment rate to nearly 6% by the end of calendar 2023, up from an average of 5.3% in 2022. Long term interest rates in both the U.S. and Canada could end 2023 at lower levels as the market starts to price-in a modest easing in central bank policy rates in 2024, and gains confidence that inflation will be under control. In the U.S., the effort to contain inflation is likely to see the Federal Reserve take overnight rates just under 5% by early 2023, leaving them at that level through the remainder of the year. The resulting drag on housing and interest sensitive consumption is expected to hold real GDP growth to 0.7% in 2023, down from roughly 2% in 2022. That should see the unemployment rate climb from an average of 3.7% in 2022 to 4.2% by the end of 2023, allowing wage inflation to decelerate. A softer pace for economic growth is likely to have broad implications across many of our strategic business units (SBUs). Rising unemployment and higher interest rates are likely to see a moderate decrease in business and household credit quality from very strong levels achieved in 2022. Deposit growth will be contained, as quantitative tightening will require bonds currently held by the central bank to be financed in the public markets, with higher rates resulting in greater growth in term deposits relative to short-term deposits. While the rising interest rate environment is starting to level off, we expect a modestly positive impact on the net interest margins for all our SBUs, but the high interest rates may have implications for credit quality in 2023 as economic growth slows in response to monetary tightening. For Canadian Personal and Business Banking, mortgage growth is expected to further decelerate on softer home sales volumes and average house prices tied to the increase in interest rates. Although year-over-year non-mortgage consumer credit demand will be supported by additional volume gains in spending on services, lower inflation will feed into slower growth in dollar terms. Business lending is expected to register healthy growth, but is also likely to decelerate from the strong pace seen in 2022. Volatility in asset markets has prompted investors to seek greater diversification in their portfolios, which could dampen the growth prospects of our Canadian and U.S. wealth management businesses in the near term. Our Capital Markets business is expected to benefit from continued strength in merger and acquisition activity as corporate consolidations continue, while corporate bond issuance could pick up as longer term rates ease over the course of 2023. Loan demand growth in our Canadian and U.S. commercial banking businesses is expected to decelerate with softer economic growth and a slowing in multi-unit residential construction. The economic outlook described above reflects numerous assumptions regarding the economic impact of recent and expected increases in interest rates, the easing of supply chain and inflationary pressures, the COVID-19 pandemic as well as the global economic risks emanating from the war in Ukraine. The measures taken by central banks to combat inflation could have a larger than expected impact on economic growth. Expectations for the pandemic reflect currently available information and are subject to change as new information on epidemiology and government health measures becomes available. The war in Ukraine could escalate into a broader conflict or result in a deeper cut in food and energy output that would add to pressures on inflation and global growth. As a result, actual experience may differ materially from expectations. Our financial condition and our regulatory capital and liquidity positions continue to be strong, however, the downside risk to the economic outlook described above may result in us taking a more conservative approach to capital management. See the “Capital management” and “Liquidity risk” sections for further details. The impact of the increase in interest rates, the pandemic and the war in Ukraine on our risk environment are discussed in the “Top and emerging risks” section. Changes in the level of economic uncertainty continue to impact key accounting estimates and assumptions, particularly the estimation of ECLs. See “Accounting and control matters” and Note 5 to our consolidated financial statements for further details. CIBC 2022 ANNUAL REPORT 5 # Significant events ## Acquisition of Canadian Costco credit card portfolio On March 4, 2022, we completed the acquisition of the Canadian Costco credit card portfolio, which had an outstanding balance of \$2.9 billion, for cash consideration of \$3.1 billion. We have also entered into a long-term agreement under which we have become the exclusive issuer of Costco branded Mastercard credit cards in Canada. The combined transaction was accounted for as an asset acquisition and included in our Canadian Personal and Business Banking SBU. For additional information, see Note 3 to our consolidated financial statements. ## Sale of certain banking assets in the Caribbean On October 12, 2021, FirstCaribbean International Bank Limited (CIBC FirstCaribbean) announced that it had entered into agreements to sell its banking assets in St. Vincent, Grenada, Dominica, St. Kitts and Aruba. The sale of banking assets in Aruba was completed on February 25, 2022 upon the satisfaction of the closing conditions. The proposed sales of banking assets in St. Vincent and St. Kitts received regulatory approval in the third quarter of 2022 and are expected to close by the third quarter of 2023, subject to the satisfaction of closing conditions. The parties continue to pursue the regulatory approvals required to complete the transaction in Grenada, which may require amendments to the proposed transaction. The proposed transaction in Dominica will not be proceeding and operations in Dominica will cease on January 31, 2023. The impacts upon the closing of these transactions and closures are not expected to be material. 6 CIBC 2022 ANNUAL REPORT # Financial performance overview This section provides a review of our consolidated financial results for 2022. A review of our SBU results follows on pages 21 to 32. Refer to page 12 for a review of our financial performance for 2021. ## 2022 Financial results review Reported net income for the year was \$6,243 million, compared with \$6,446 million in 2021. Adjusted net income$^{(1)}$ for the year was \$6,578 million, compared with \$6,687 million in 2021. Reported diluted EPS$^{(2)}$ for the year was \$6.68, compared with \$6.96 in 2021. Adjusted diluted EPS$^{(1)(2)}$ for the year was \$7.05, compared with \$7.23 in 2021. **2022** Net income was affected by the following items of note: * \$181 million (\$133 million after-tax) in acquisition and integration-related costs as well as purchase accounting adjustments and provision for credit losses for performing loans$^{(3)}$ associated with the acquisition of the Canadian Costco credit card portfolio (Canadian Personal and Business Banking); * \$136 million (\$100 million after-tax) increase in legal provisions (Corporate and Other); * \$98 million (\$75 million after-tax) amortization of acquisition-related intangible assets (\$14 million after-tax in Canadian Personal and Business Banking, \$50 million after-tax in U.S. Commercial Banking and Wealth Management and \$11 million after-tax in Corporate and Other); and * \$37 million (\$27 million after-tax) charge related to the consolidation of our real estate portfolio (Corporate and Other). The above items of note increased revenue by \$16 million, increased provision for credit losses by \$94 million, increased non-interest expenses by \$374 million and decreased income taxes by \$117 million. In aggregate, these items of note decreased net income by \$335 million. **2021** Net income was affected by the following items of note: * \$125 million (\$92 million after-tax) increase in legal provisions (Corporate and Other); * \$109 million (\$80 million after-tax) charge related to the consolidation of our real estate portfolio (Corporate and Other); * \$79 million (\$60 million after-tax) amortization of acquisition-related intangible assets (\$50 million after-tax in U.S. Commercial Banking and Wealth Management and \$10 million after-tax in Corporate and Other); and * \$12 million (\$9 million after-tax) in acquisition and integration-related costs$^{(3)}$ associated with the acquisition of the Canadian Costco credit card portfolio (Canadian Personal and Business Banking). The above items of note increased non-interest expenses by \$325 million and decreased income taxes by \$84 million. In aggregate, these items of note decreased net income by \$241 million. $^{(1)}$ Adjusted measures are non-GAAP measures. For additional information, see the “Non-GAAP measures” section. $^{(2)}$ On April 7, 2022, CIBC shareholders approved a two-for-one share split (Share Split) of CIBC’s issued and outstanding common shares. Each shareholder of record at the close of business on May 6, 2022 (Record Date) received one additional share on May 13, 2022 (Payment Date) for every one share held on the Record Date. All common share numbers and per common share amounts have been adjusted to reflect the Share Split as if it was retroactively applied to all periods presented. $^{(3)}$ Acquisition and integration costs are comprised of incremental costs incurred as part of planning for and executing the integration of the Canadian Costco credit card portfolio, including enabling franchising opportunities, the upgrade and conversion of systems and processes, project delivery, communication costs and client welcome bonuses. Purchase accounting adjustments include the accretion of the acquisition date fair value discount on the acquired Canadian Costco credit card receivables. Provision for credit losses for performing loans associated with the acquisition of the Canadian Costco credit card portfolio, included the stage 1 ECL allowance established immediately after the acquisition date and the impact of the migration of stage 1 accounts to stage 2 during the second quarter of 2022. ## Net interest income and margin | \$ millions, for the year ended October 31 | 2022 | 2021 | | :--- | :--- | :--- | | Average interest-earning assets | \$ 799,224 | \$ 721,686 | | Net interest income$^{(1)}$ | 12,641 | 11,459 | | Net interest margin on average interest-earning assets | 1.58 % | 1.59 % | $^{(1)}$ Trading activities is based on the risk definition of trading for regulatory capital and trading market risk management purposes. Positions in a trading book are considered trading provided the book and positions continue to meet OSFI-defined trading book criteria set out in OSFI’s CAR Guideline. Trading activities and related risk management strategies can periodically shift trading income between net interest income and non-interest income. Therefore, we view total trading income as the most appropriate measure of trading performance. Net interest income was up \$1,182 million or 10% from 2021, primarily due to volume growth across our businesses, partially offset by lower trading income. Net interest margin on average interest-earning assets was comparable with 2021, primarily due to lower asset margins offset by higher deposit margins. Additional information on net interest income and margin is provided in the “Supplementary annual financial information” section and in the “Strategic business units overview” section. CIBC 2022 ANNUAL REPORT 7 # Management’s discussion and analysis ## Non-interest income$^{(1)}$ | \$ millions, for the year ended October 31 | 2022 | 2021 | | :--- | :--- | :--- | | Underwriting and advisory fees | \$ 557 | \$ 713 | | Deposit and payment fees | 880 | 797 | | Credit fees | 1,286 | 1,152 | | Card fees | 437 | 460 | | Investment management and custodial fees$^{(2)(3)}$ | 1,760 | 1,621 | | Mutual fund fees$^{(3)}$ | 1,776 | 1,772 | | Insurance fees, net of claims | 351 | 358 | | Commissions on securities transactions | 378 | 426 | | Gains (losses) from financial instruments measured/designated at fair value through profit or loss (FVTPL), net$^{(4)}$ | 1,172 | 607 | | Gains (losses) from debt securities measured at fair value through other comprehensive income (FVOCI) and amortized cost, net | 35 | 90 | | Foreign exchange other than trading | 242 | 276 | | Income from equity-accounted associates and joint ventures$^{(2)}$ | 47 | 55 | | Other | 271 | 229 | | | \$ 9,192 | \$ 8,556 | $^{(1)}$ Trading activities is based on the risk definition of trading for regulatory capital and trading market risk management purposes. Positions in a trading book are considered trading provided the book and positions continue to meet OSFI-defined trading book criteria set out in OSFI’s CAR Guideline. Trading activities and related risk management strategies can periodically shift trading income between net interest income and non-interest income. Therefore, we view total trading income as the most appropriate measure of trading performance. $^{(2)}$ Custodial fees directly recognized by CIBC are included in Investment management and custodial fees. Our proportionate share of the custodial fees from the joint ventures which CIBC has with The Bank of New York Mellon are included within Income from equity-accounted associates and joint ventures. $^{(3)}$ Investment management fees and mutual fund fees are driven by various factors, including the amount of AUM. Investment management fees in our asset management and private wealth management businesses are generally driven by the amount of AUM, while investment management fees in our retail brokerage business are driven by a combination of the amount of AUA and, to a lesser extent, other factors not directly related to the amount of AUA (e.g., flat fees on a per account basis). $^{(4)}$ Includes \$44 million of gains (2021: \$87 million of losses) relating to non-trading financial instruments measured/designated at FVTPL. Non-interest income was up \$636 million or 7% from 2021. Underwriting and advisory fees were down \$156 million or 22%, primarily due to lower equity and debt issuance revenue. Deposit and payment fees were up \$83 million or 10%, primarily due to higher fees in Canadian Personal and Business Banking. Credit fees were up \$134 million or 12%, primarily due to growth in commercial borrowing. Investment management and custodial fees were up \$139 million or 9%, primarily due to higher average AUA and AUM in our wealth management businesses. Gains (losses) from financial instruments measured/designated at FVTPL, net were up \$565 million or 93%, primarily due to higher trading revenue. Gains (losses) from debt securities measured at FVOCI and amortized cost, net were down \$55 million or 61%, primarily due to lower net realized gains from dispositions of FVOCI debt securities. ## Trading revenue (TEB)$^{(1)(2)}$ | \$ millions, for the year ended October 31 | 2022 | 2021 | | :--- | :--- | :--- | | Trading revenue consists of: | | | | Net interest income$^{(1)}$ | \$ 875 | \$ 1,020 | | Non-interest income$^{(3)}$ | 1,128 | 694 | | | \$ 2,003 | \$ 1,714 | | Trading revenue by product line: | | | | Interest rates | \$ 335 | \$ 328 | | Foreign exchange | 899 | 651 | | Equities$^{(1)}$ | 611 | 548 | | Commodities | 144 | 158 | | Other | 14 | 29 | | | \$ 2,003 | \$ 1,714 | $^{(1)}$ Includes a TEB adjustment of \$211 million (2021: \$204 million) reported within Capital Markets. See “Strategic business units overview” section and Note 30 to our consolidated financial statements for further details. $^{(2)}$ Trading activities is based on the risk definition of trading for regulatory capital and trading market risk management purposes. Positions in a trading book are considered trading provided the book and positions continue to meet OSFI-defined trading book criteria set out in OSFI’s CAR Guideline. $^{(3)}$ Reported as part of the Gains (losses) from financial instruments measured/designated at FVTPL in the consolidated statement of income, which consist of a gain of \$1,128 million (2021: \$694 million) related to trading financial instruments measured/designated at FVTPL and a gain of \$44 million (2021: loss of \$87 million) relating to non-trading financial instruments measured/designated at FVTPL. Trading revenue was up \$289 million or 17% from 2021, primarily due to higher foreign exchange and equity trading revenue. Trading revenue comprises net interest income and non-interest income. Net interest income arises from interest and dividends relating to financial assets and liabilities associated with trading activities, other than derivatives, net of interest expense and interest income associated with funding these assets and liabilities. Non-interest income includes realized and unrealized gains and losses on securities mandatorily measured at FVTPL and income relating to changes in fair value of derivative financial instruments. Trading revenue excludes underwriting fees and commissions on securities transactions, which are shown separately in the consolidated statement of income. Trading activities and related risk management strategies can periodically shift income between net interest income and non-interest income. Therefore, we view total trading revenue as the most appropriate measure of trading performance. 8 CIBC 2022 ANNUAL REPORT # Management’s discussion and analysis ## Provision for credit losses | \$ millions, for the year ended October 31 | 2022 | 2021 | | :--- | :--- | :--- | | **Provision for (reversal of) credit losses – impaired** | | | | Canadian Personal and Business Banking | \$ 534 | \$ 484 | | Canadian Commercial Banking and Wealth Management | 22 | 6 | | U.S. Commercial Banking and Wealth Management | 113 | 104 | | Capital Markets | (31) | 32 | | Corporate and Other | 59 | 76 | | | 697 | 702 | | **Provision for (reversal of) credit losses – performing** | | | | Canadian Personal and Business Banking | 342 | (134) | | Canadian Commercial Banking and Wealth Management | 1 | (45) | | U.S. Commercial Banking and Wealth Management | 105 | (179) | | Capital Markets | (31) | (132) | | Corporate and Other | (57) | (54) | | | 360 | (544) | | | \$ 1,057 | \$ 158 | Provision for credit losses was up \$899 million or 569% from 2021, as provisions for performing loans in the current year reflected an unfavourable change in our economic outlook, while the prior year benefitted from a favourable change in our economic outlook driven by the recovery from the COVID-19 pandemic. For further details regarding provision for credit losses in our SBUs, refer to the “Strategic business units overview” section. ## Non-interest expenses | \$ millions, for the year ended October 31 | 2022 | 2021 | | :--- | :--- | :--- | | Employee compensation and benefits | | | | Salaries$^{(1)}$ | \$ 3,770 | \$ 3,213 | | Performance-based compensation | 2,460 | 2,329 | | Benefits | 927 | 908 | | | 7,157 | 6,450 | | Occupancy costs$^{(2)}$ | 853 | 916 | | Computer, software and office equipment | 2,297 | 2,030 | | Communications | 352 | 318 | | Advertising and business development | 334 | 237 | | Professional fees | 313 | 277 | | Business and capital taxes | 123 | 111 | | Other | 1,374 | 1,196 | | | \$ 12,803 | \$ 11,535 | $^{(1)}$ Includes termination benefits. $^{(2)}$ Includes charges of \$37 million (2021: \$109 million), related to the consolidation of our real estate portfolio, shown as items of note. Non-interest expenses were up \$1,268 million or 11% from 2021. Employee compensation and benefits were up \$707 million or 11%, primarily due to higher employee-related and performance-based compensation. Computer, software and office equipment were up \$267 million or 13%, primarily due to higher spending on strategic initiatives. Advertising and business development were up \$97 million or 41%, primarily due to higher spending on strategic initiatives and higher travel and business development spending driven by the easing of COVID-19 travel restrictions. Other expenses were up \$178 million or 15%, as the current year included costs associated with the acquisition of the Canadian Costco credit card portfolio and an increase in legal provisions, both shown as items of note. CIBC 2022 ANNUAL REPORT 9 # Management’s discussion and analysis ## Taxes | \$ millions, for the year ended October 31 | 2022 | 2021 | | :--- | :--- | :--- | | Income taxes | \$ 1,730 | \$ 1,876 | | Indirect taxes$^{(1)}$ | | | | Goods and Services Tax (GST), Harmonized Sales Tax (HST) and sales taxes | 471 | 403 | | Payroll taxes | 368 | 306 | | Capital taxes | 84 | 77 | | Property and business taxes | 73 | 70 | | Total indirect taxes | 996 | 856 | | Total taxes | \$ 2,726 | \$ 2,732 | | Reported effective tax rate | 21.7 % | 22.5 % | | Total taxes as a percentage of net income before deduction of total taxes | 30.4 % | 29.8 % | $^{(1)}$ Certain amounts are based on a paid or payable basis and do not factor in capitalization and subsequent amortization. Total income and indirect taxes were down \$6 million from 2021. Income tax expense was \$1,730 million, down \$146 million from 2021. This was due to both lower income and also an increase in the relative proportion of income subject to lower rates of income tax. Indirect taxes were up \$140 million from 2021, due to increases in both sales taxes and payroll taxes. Sales taxes increased by \$68 million from 2021, primarily due to increased non-employee related non-interest expenses. Payroll taxes increased by \$62 million from 2021 primarily due to increases in statutory pension, health care and unemployment insurance contributions driven by higher employee-related compensation. Indirect taxes are included in non-interest expenses. In prior years, the Canada Revenue Agency (CRA) issued reassessments disallowing the deduction of Enron settlement payments and related legal expenses (the Enron expenses). In January 2019, CIBC entered into a settlement agreement with the CRA with respect to the portion of the Enron expenses deductible in Canada. The portion of the Enron expenses deductible in the U.S. has not yet been agreed to by the Internal Revenue Service. It is possible that adjustments may be required to the amount of tax benefits recognized in the U.S. The CRA has reassessed CIBC approximately \$1,602 million of additional income tax related to the denial of the tax deductibility of certain 2011 to 2017 Canadian corporate dividends, on the basis that certain dividends received were part of a “dividend rental arrangement”, and similar matters. This includes approximately \$182 million of additional income tax for the 2017 taxation year that was reassessed by the CRA in May 2022. The dividends that were subject to the reassessments are similar to those prospectively addressed by the rules in the 2015 and 2018 Canadian federal budgets. It is possible that subsequent years may be reassessed for similar matters. In August 2021, CIBC filed a Notice of Appeal with the Tax Court of Canada and the matter is now in litigation. CIBC is confident that its tax filing positions were appropriate and intends to defend itself vigorously. Accordingly, no amounts have been accrued in the consolidated financial statements. In November 2021, the Tax Court of Canada ruled against CIBC on its 2007 foreign exchange capital loss reassessment (Decision). CIBC disagrees with the Decision and filed its Appeal in November 2021. The Appeal is scheduled to be heard in December 2022. CIBC remains confident that its tax filing position was appropriate. Accordingly, no amounts have been accrued in the consolidated financial statements. The exposure of additional tax and interest related to this and similar matters is approximately \$300 million in addition to the potential inability to utilize approximately \$600 million in unrecognized capital tax loss carryforwards. Following the announcement of budget proposals in April 2022, the Canadian Federal government released draft legislation in August 2022, and subsequently introduced other draft legislation which went through first and second readings in Parliament in November 2022. These proposals included the introduction of a one-time 15% Canada Recovery Dividend tax (CRD) on banks and life insurer groups, based on the average of 2020 and 2021 taxable income in excess of \$1.0 billion. Once substantively enacted, the CRD would become payable over a five-year period in equal increments. The draft legislation also includes a prospective 1.5% increase in the tax rate applied to taxable income in excess of \$100 million earned by banks and life insurers. We will account for these measures in future periods once they become substantively enacted, which is generally interpreted to occur at the point of a third reading in a Canadian Parliament held by a minority government. Based on the draft legislation, a charge to income tax expense of approximately \$550 million would be recognized for the full amount of the CRD obligation upon its substantive enactment. ## Foreign exchange The estimated impact of U.S. dollar translation on key lines of our consolidated statement of income, as a result of changes in average exchange rates, is as follows: | \$ millions, for the year ended October 31 | 2022 vs. 2021 | 2021 vs. 2020 | | :--- | :--- | :--- | | Estimated increase (decrease) in: | | | | Total revenue | \$ 143 | \$ (307) | | Provision for credit losses | 6 | 13 | | Non-interest expenses | 65 | (141) | | Income taxes | 10 | (26) | | Net income | 62 | (153) | | Impact on EPS$^{(1)}$: | | | | Basic | \$ 0.07 | \$ (0.17) | | Diluted | 0.07 | (0.17) | | Average USD appreciation (depreciation) relative to CAD | 2.9 % | (6.6)% | $^{(1)}$ On April 7, 2022, CIBC shareholders approved a two-for-one share split (Share Split) of CIBC’s issued and outstanding common shares. Each shareholder of record at the close of business on May 6, 2022 (Record Date) received one additional share on May 13, 2022 (Payment Date) for every one share held on the Record Date. All common share numbers and per common share amounts have been adjusted to reflect the Share Split as if it was retroactively applied to all periods presented. 10 CIBC 2022 ANNUAL REPORT # Management’s discussion and analysis ## Fourth quarter review | \$ millions, except per share amounts, for the three months ended | 2022 | | | | 2021 | | | | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | | **Oct. 31** | **Jul. 31** | **Apr. 30** | **Jan. 31** | **Oct. 31** | **Jul. 31** | **Apr. 30** | **Jan. 31** | | **Revenue** | | | | | | | | | | Canadian Personal and Business Banking | \$ 2,262 | \$ 2,321 | \$ 2,143 | \$ 2,183 | \$ 2,128 | \$ 2,056 | \$ 1,941 | \$ 2,025 | | Canadian Commercial Banking and Wealth Management | 1,316 | 1,338 | 1,303 | 1,297 | 1,240 | 1,207 | 1,135 | 1,088 | | U.S. Commercial Banking and Wealth Management | 653 | 604 | 591 | 609 | 562 | 539 | 532 | 561 | | Capital Markets$^{(1)}$ | 1,182 | 1,199 | 1,316 | 1,304 | 1,012 | 1,140 | 1,194 | 1,174 | | Corporate and Other$^{(1)}$ | (25) | 109 | 23 | 105 | 122 | 114 | 130 | 115 | | **Total revenue** | **\$ 5,388** | **\$ 5,571** | **\$ 5,376** | **\$ 5,498** | **\$ 5,064** | **\$ 5,056** | **\$ 4,932** | **\$ 4,963** | | **Net interest income** | \$ 3,185 | \$ 3,236 | \$ 3,088 | \$ 3,132 | \$ 2,980 | \$ 2,893 | \$ 2,747 | \$ 2,839 | | **Non-interest income** | 2,203 | 2,335 | 2,288 | 2,366 | 2,084 | 2,163 | 2,185 | 2,124 | | **Total revenue** | 5,388 | 5,571 | 5,376 | 5,498 | 5,064 | 5,056 | 4,932 | 4,963 | | **Provision for (reversal of) credit losses** | 436 | 243 | 303 | 75 | 78 | (99) | 32 | 147 | | **Non-interest expenses** | 3,483 | 3,183 | 3,114 | 3,023 | 3,135 | 2,918 | 2,756 | 2,726 | | **Income before income taxes** | 1,469 | 2,145 | 1,959 | 2,400 | 1,851 | 2,237 | 2,144 | 2,090 | | **Income taxes** | 284 | 479 | 436 | 531 | 411 | 507 | 493 | 465 | | **Net income** | **\$ 1,185** | **\$ 1,666** | **\$ 1,523** | **\$ 1,869** | **\$ 1,440** | **\$ 1,730** | **\$ 1,651** | **\$ 1,625** | | **Net income attributable to:** | | | | | | | | | | Non-controlling interests | \$ 7 | \$ 6 | \$ 5 | \$ 5 | \$ 4 | \$ 5 | \$ 4 | \$ 4 | | **Equity shareholders** | 1,178 | 1,660 | 1,518 | 1,864 | 1,436 | 1,725 | 1,647 | 1,621 | | **EPS – basic $^{(2)}$** | **\$ 1.26** | **\$ 1.79** | **\$ 1.63** | **\$ 2.02** | **\$ 1.54** | **\$ 1.88** | **\$ 1.78** | **\$ 1.78** | | **– diluted $^{(2)}$** | 1.26 | 1.78 | 1.62 | 2.01 | 1.54 | 1.88 | 1.78 | 1.78 | $^{(1)}$ Capital Markets revenue and income taxes are reported on a TEB with an equivalent offset in the revenue and income taxes of Corporate and Other. $^{(2)}$ On April 7, 2022, CIBC shareholders approved a two-for-one share split (Share Split) of CIBC’s issued and outstanding common shares. Each shareholder of record at the close of business on May 6, 2022 (Record Date) received one additional share on May 13, 2022 (Payment Date) for every one share held on the Record Date. All common share numbers and per common share amounts have been adjusted to reflect the Share Split as if it was retroactively applied to all periods presented. ### Compared with Q4/21 Net income for the quarter was \$1,185 million, down \$255 million or 18% from the fourth quarter of 2021. Net interest income was up \$205 million, primarily due to volume growth across our businesses, partially offset by lower trading income. Non-interest income was up \$119 million or 6%, primarily due to higher trading income, partially offset by lower treasury and market-related fee revenue. Provision for credit losses was up \$358 million or 459% from the same quarter last year. The current quarter included a provision for credit losses on performing loans of \$217 million, while the same quarter last year included a provision reversal of \$34 million. Provision for credit losses on impaired loans was up \$107 million, mainly attributable to Canadian Personal and Business Banking, and U.S. Commercial Banking and Wealth Management. Non-interest expenses were up \$348 million or 11%, primarily due to higher employee-related compensation, higher spending on strategic initiatives, including the Canadian Costco credit card portfolio, and an increase in legal provisions, shown as an item of note. Income tax expense was down \$127 million or 31%, primarily due to lower income. ### Compared with Q3/22 Net income for the quarter was down \$481 million or 29% from the prior quarter. Net interest income was down \$51 million or 2%, primarily due to lower product spreads and lower trading income, partially offset by volume growth across our businesses. Non-interest income was down \$132 million or 6%, primarily due to lower treasury and market-related fee revenue. Provision for credit losses was up \$193 million or 79% from the prior quarter. Provision for credit losses on performing loans was up \$130 million, primarily due to an unfavourable change in our economic outlook. Provision for credit losses on impaired loans was up \$63 million, as a result of increases across all of our SBUs. Non-interest expenses were up \$300 million or 9%, primarily due to employee-related and performance-based compensation, an increase in legal provisions and the charge related to the consolidation of our real estate portfolio, both shown as items of note. Income tax expense was down \$195 million or 41%, primarily due to lower income. ## Quarterly trend analysis Our quarterly results are modestly affected by seasonal factors. The second quarter has fewer days as compared with the other quarters, generally leading to lower earnings. The summer months (July – third quarter and August – fourth quarter) typically experience lower levels of market activity, which affects our brokerage, investment management, and Capital Markets activities. ### Revenue Revenue in our lending and deposit-taking businesses is generally driven by volume growth, fees related to client transaction activity and the interest rate environment. Our wealth management businesses are driven by net sales activity impacting AUA and AUM, the level of client investment activity and market conditions. Capital Markets revenue is also influenced, to a large extent, by market conditions affecting client trading and underwriting activity. Canadian Personal and Business Banking has benefitted from loan and deposit growth throughout the period, as well as increased client transaction activity as the economy recovered from the early stages of the COVID-19 pandemic. Earlier periods were negatively impacted by the low interest rate environment, which has started to improve with interest rate increases in recent quarters. Canadian Commercial Banking and Wealth Management revenue has benefitted from commercial banking volume growth as well as from strong markets. In Commercial Banking, loan and deposit revenue growth was driven by strong client demand and more recently from an increase in interest rates. In Wealth Management, AUA and AUM growth has been challenged over the past few quarters as a result of volatile markets caused by global concerns surrounding inflation, supply chain issues and geopolitical uncertainty. U.S. Commercial Banking and Wealth Management has benefitted from organic client acquisitions that are driving increased loans, deposits, AUM and fee income. Loan growth has also accelerated due to the economic recovery in 2021 and into the first half of 2022, although recently CIBC 2022 ANNUAL REPORT 11 ## Management’s discussion and analysis decelerated due to softer economic growth, rising interest rates and inflation. Wealth Management AUA and AUM growth has been hindered over the past few quarters by market depreciation, partially offset by strong sales momentum. Capital Markets had increased revenue from underwriting and advisory activities in the second and third quarters of 2021, and lower trading revenue in the fourth quarter of 2021. The first and second quarters of 2022 had higher trading revenue. Corporate and Other included the impact of an increase in funding costs in the first and second quarters of 2021 from the excess liquidity that built up during the early stages of the pandemic, as well as an increase in funding costs starting in the second quarter of 2022 from an increase in credit spreads. In 2021, the interest rate environment and narrower margins negatively impacted revenue, while the gradual increase in interest rates in 2022 have resulted in higher margins in International banking. ### Provision for credit losses Provision for credit losses is dependent upon the credit cycle in general, on the credit performance of the loan portfolios, and changes in our economic outlook. While the uncertainty relating to the COVID-19 pandemic has reduced significantly, we still operate in an uncertain macroeconomic environment due to concerns related to rising interest rates, high levels of inflation and supply chain disruptions related to geopolitical events, slower economic growth and the continued measures imposed in some countries to combat the spread of COVID-19. There is considerable judgment involved in the estimation of credit losses in the current environment. All four quarters of 2021 and the first quarter of 2022 reflect a moderate improvement in economic conditions as well as our economic outlook. With a faster than expected pace of interest rate increases, along with rising inflation, continued supply chain disruption and the increase in global geopolitical concerns, our provision for credit losses on performing loans increased in the second, third and fourth quarters of 2022. In Canadian Personal and Business Banking, lower insolvencies and write-offs in credit cards relative to pre-pandemic levels impacted the first, third and fourth quarters of 2021, and the first and second quarters of 2022. The decrease in insolvencies was in line with the national Canadian trend. The low level of write-offs in the first quarter of 2021 were a result of the assistance offered to clients from our payment deferral programs and government support, as well as lower client spending. In contrast, the second quarter of 2021 included higher write-offs in credit cards, mainly attributable to a relatively small segment of client balances that were previously in the payment deferral programs that continued to underperform and eventually were written off after exiting the programs. Lower write-offs in the third and fourth quarters of 2021 and the first and second quarters of 2022 benefitted from the household savings that built up during the pandemic. Commencing in the second quarter of 2022, our loan losses included write-offs from the seasoning of the acquired Canadian Costco credit card portfolio. In Canadian Commercial Banking and Wealth Management, impaired loan losses continue to remain at a relatively low level. In U.S. Commercial Banking and Wealth Management, the first quarter of 2021, and the first, second and fourth quarters of 2022 included higher provisions on impaired loans. In Capital Markets, the first quarter of 2021 included higher provisions on impaired loans in the utilities sector. In Corporate and Other, the third quarter of 2021 included higher provisions on impaired loans in CIBC FirstCaribbean. ### Non-interest expenses Non-interest expenses have fluctuated over the period largely due to changes in employee compensation expenses, investments in strategic initiatives and movement in foreign exchange rates. The third and fourth quarters of 2021, and the second and fourth quarters of 2022 included increases in legal provisions in Corporate and Other, all shown as items of note. The fourth quarter of 2021 and the fourth quarter of 2022 included charges related to the consolidation of our real estate portfolio as a result of our move to our new global headquarters. ### Income taxes Income taxes vary with changes in income subject to tax, and the jurisdictions in which the income is earned. Taxes can also be affected by the impact of significant items and the level of tax-exempt income. ## Review of 2021 financial performance | \$ millions, for the year ended October 31 | Canadian Personal and Business Banking | Canadian Commercial Banking and Wealth Management | U.S. Commercial Banking and Wealth Management | Capital Markets$^{(1)}$ | Corporate and Other$^{(1)}$ | CIBC Total | U.S. Commercial Banking and Wealth Management (US\$ millions) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | 2021 Net interest income | \$ 5,954 | \$ 1,291 | \$ 1,449 | \$ 2,701 | \$ 64 | \$ 11,459 | \$ 1,295 | | Non-interest income | 2,196 | 3,379 | 745 | 1,819 | 417 | 8,556 | 453 | | Total revenue | 8,150 | 4,670 | 2,194 | 4,520 | 481 | 20,015 | 1,748 | | Provision for (reversal of) credit losses | 350 | (39) | (75) | (100) | 22 | 158 | (61) | | Non-interest expenses | 4,414 | 2,443 | 1,121 | 2,117 | 1,440 | 11,535 | 893 | | Income (loss) before income taxes | 3,386 | 2,266 | 1,148 | 2,503 | (981) | 8,322 | 916 | | Income taxes | 892 | 601 | 222 | 646 | (485) | 1,876 | 177 | | Net income (loss) | \$ 2,494 | \$ 1,665 | \$ 926 | \$ 1,857 | \$ (496) | \$ 6,446 | \$ 739 | | Net income (loss) attributable to: | | | | | | | | | Non-controlling interests | \$ – | \$ – | \$ – | \$ – | \$ 17 | \$ 17 | – | | Equity shareholders | 2,494 | 1,665 | 926 | 1,857 | (513) | 6,429 | 739 | | 2020 Net interest income | \$ 5,849 | \$ 1,248 | \$ 1,422 | \$ 2,354 | \$ 171 | \$ 11,044 | \$ 1,520 | | Non-interest income | 2,073 | 2,873 | 621 | 1,699 | 431 | 7,697 | 308 | | Total revenue | 7,922 | 4,121 | 2,043 | 4,053 | 602 | 18,741 | 1,828 | | Provision for credit losses | 1,189 | 303 | 487 | 311 | 199 | 2,489 | 358 | | Non-interest expenses | 4,308 | 2,179 | 1,126 | 1,929 | 1,820 | 11,362 | 838 | | Income (loss) before income taxes | 2,425 | 1,639 | 430 | 1,813 | (1,417) | 4,890 | 324 | | Income taxes | 640 | 437 | 55 | 505 | (539) | 1,098 | 42 | | Net income (loss) | \$ 1,785 | \$ 1,202 | \$ 375 | \$ 1,308 | \$ (878) | \$ 3,792 | \$ 282 | | Net income (loss) attributable to: | | | | | | | | | Non-controlling interests | \$ – | \$ – | \$ – | \$ – | \$ 2 | \$ 2 | – | | Equity shareholders | 1,785 | 1,202 | 375 | 1,308 | (880) | 3,790 | 282 | $^{(1)}$ Capital Markets revenue and income taxes are reported on a TEB with an equivalent offset in the revenue and income taxes of Corporate and Other. The following discussion provides a comparison of our results of operations for the years ended October 31, 2021 and 2020. ## Overview Net income for 2021 was \$6,446 million, compared with \$3,792 million in 2020. The increase in net income of \$2,654 million was due to lower provision for credit losses and higher revenue, partially offset by higher non-interest expenses. ### Consolidated CIBC #### Net interest income Net interest income was up \$415 million or 4% from 2020, primarily due to volume growth across our businesses and higher trading revenue, partially offset by lower product spreads as a result of changes in the interest rate environment and the impact of foreign exchange translation. #### Non-interest income Non-interest income was up \$859 million or 11% from 2020, primarily due to higher equity and debt issuance revenue and advisory activity, higher fee-based revenue driven by higher average AUA and AUM reflecting market appreciation and net sales in our wealth management businesses, and growth in fees related to commercial borrowing. #### Provision for credit losses Provision for credit losses was down \$2,331 million or 94% from 2020, as 2021 reflected an improvement in economic conditions as well as our economic outlook, while 2020 was adversely impacted by the onset of the COVID-19 pandemic. #### Non-interest expenses Non-interest expenses were up \$173 million or 2% from 2020, primarily due to higher performance-based compensation. #### Income taxes Income tax expense was up \$778 million or 71% from 2020, primarily due to higher income. ### Revenue by segment #### Canadian Personal and Business Banking Revenue was up \$228 million or 3% from 2020, primarily due to volume growth and higher fee income, partially offset by lower product spreads largely as a result of changes in the interest rate environment. #### Canadian Commercial Banking and Wealth Management Revenue was up \$549 million or 13% from 2020. Commercial banking revenue was up \$164 million or 10%, primarily due to higher fees and volume growth, partially offset by lower product spreads. Wealth management revenue was up \$385 million or 16%, primarily due to higher fee-based revenue driven by higher average AUA and AUM reflecting market appreciation and net sales, and higher commission revenue from increased client activity. #### U.S. Commercial Banking and Wealth Management Revenue was up \$151 million or 7% from 2020. Commercial banking revenue was up \$23 million or 2%, primarily due to volume growth and higher fees, partially offset by lower product spreads. Wealth management revenue was up \$128 million or 28%, primarily due to higher fee-based revenue driven by higher average AUA and AUM reflecting market appreciation and net sales, higher product spreads, partially driven by loans made under the U.S. Paycheck Protection Program (PPP), and volume growth. #### Capital Markets Revenue was up \$467 million or 12% from 2020. Global markets revenue was up \$77 million or 4%, primarily due to higher revenue from our equity derivatives trading business, partially offset by lower fixed income and foreign exchange trading revenue. Corporate and investment banking revenue was up \$272 million or 20%, primarily due to higher equity and debt underwriting activity, higher advisory revenue and higher corporate banking revenue. Direct financial services revenue was up \$118 million or 17%, primarily due to higher volumes and growth in our direct brokerage trading, and innovative foreign exchange and payments business. #### Corporate and Other Revenue was down \$121 million or 20% from 2020. International banking revenue was down \$47 million, primarily due to the impact of foreign exchange translation, and lower U.S. dollar revenue in CIBC FirstCaribbean driven by lower product spreads, partially offset by higher ECL charges on debt securities in 2020, volume growth and higher fees. Other revenue was down \$74 million, primarily due to lower revenue from our strategic investments, interest income in 2020 related to the settlement of certain income tax matters, a higher TEB adjustment and lower treasury revenue. CIBC 2022 ANNUAL REPORT 13 # Non-GAAP measures We use a number of financial measures to assess the performance of our business lines as described below. Some measures are calculated in accordance with GAAP (IFRS), while other measures do not have a standardized meaning under GAAP, and accordingly, these measures may not be comparable to similar measures used by other companies. Investors may find these non-GAAP measures, which include non-GAAP financial measures and non-GAAP ratios as defined in National Instrument 52-112 “Non-GAAP and Other Financial Measures Disclosure”, useful in understanding how management views underlying business performance. ## Adjusted measures Management assesses results on a reported and adjusted basis and considers both as useful measures of performance. Adjusted measures, which include adjusted total revenue, adjusted provision for credit losses, adjusted non-interest expenses, adjusted income before income taxes, adjusted income taxes and adjusted net income, in addition to the adjusted measures noted below, remove items of note from reported results to calculate our adjusted results. Items of note include the amortization of intangible assets, and certain items of significance that arise from time to time which management believes are not reflective of underlying business performance. We believe that adjusted measures provide the reader with a better understanding of how management assesses underlying business performance and facilitates a more informed analysis of trends. While we believe that adjusted measures may facilitate comparisons between our results and those of some of our Canadian peer banks, which make similar adjustments in their public disclosure, it should be noted that there is no standardized meaning for adjusted measures under GAAP. We also adjust our results to gross up tax-exempt revenue on certain securities to a TEB, being the amount of fully taxable revenue, which, were it to have incurred tax at the statutory income tax rate, would yield the same after-tax revenue. See the “Strategic business units overview” section and Note 30 to our consolidated financial statements for further details. ## Adjusted diluted EPS We adjust our reported diluted EPS to remove the impact of items of note, net of income taxes, to calculate the adjusted EPS. ## Adjusted efficiency ratio We adjust our reported revenue and non-interest expenses to remove the impact of items of note and gross up tax-exempt revenue to bring it to a TEB, to calculate the adjusted efficiency ratio. ## Adjusted operating leverage We adjust our reported revenue and non-interest expenses to remove the impact of items of note and gross up tax-exempt revenue to bring it to a TEB, to calculate the adjusted operating leverage. ## Adjusted dividend payout ratio We adjust our reported net income attributable to common shareholders to remove the impact of items of note, net of income taxes, to calculate the adjusted dividend payout ratio. ## Adjusted return on common shareholders’ equity We adjust our reported net income attributable to common shareholders to remove the impact of items of note, net of income taxes, to calculate the adjusted return on common shareholders’ equity. ## Adjusted effective tax rate We adjust our reported income before income taxes and reported income taxes to remove the impact of items of note, to calculate the adjusted effective tax rate. ## Pre-provision, pre-tax earnings Pre-provision, pre-tax earnings is calculated as revenue net of non-interest expenses, and provides the reader with an assessment of our ability to generate earnings to cover credit losses through the credit cycle, as well as an additional basis for comparing underlying business performance between periods by excluding the impact of provision for credit losses, which involves the application of judgments and estimates related to matters that are uncertain and can vary significantly between periods. We adjust our pre-provision, pre-tax earnings to remove the impact of items of note to calculate the adjusted pre-provision, pre-tax earnings. As discussed above, we believe that adjusted measures provide the reader with a better understanding of how management assesses underlying business performance and facilitates a more informed analysis of trends. ## Allocated common equity Common equity is allocated to the SBUs based on the estimated amount of regulatory capital required to support their businesses (as determined for the consolidated bank pursuant to OSFI’s regulatory capital requirements and internal targets). Unallocated common equity is reported in Corporate and Other. Allocating capital on this basis provides a consistent framework to evaluate the returns of each SBU commensurate with the risk assumed. In 2022, we increased the common equity allocated to our SBUs to 11% of CET1 capital requirements for each SBU, reflecting an increase from 10% in 2021. For additional information, see the “Risks arising from business activities” section. ## Segmented return on equity We use return on equity on a segmented basis as one of the measures for performance evaluation and resource allocation decisions. While return on equity for total CIBC provides a measure of return on common equity, return on equity on a segmented basis provides a similar metric based on allocated common equity to our SBUs. As a result, segmented return on equity is a non-GAAP ratio. Segmented return on equity is calculated as net income attributable to common shareholders for each SBU expressed as a percentage of average allocated common equity, which is the average of monthly allocated common equity during the period. In 2022, we increased the common equity allocated to our SBUs, as noted above. 14 CIBC 2022 ANNUAL REPORT # Management’s discussion and analysis The following table provides a reconciliation of GAAP (reported) results to non-GAAP (adjusted) results on a segmented basis. | \$ millions, for the year ended October 31, 2022 | Canadian Personal and Business Banking | Canadian Commercial Banking and Wealth Management | U.S. Commercial Banking and Wealth Management | Capital Markets | Corporate and Other | CIBC Total | U.S. Commercial Banking and Wealth Management (US\$ millions) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | **Operating results – reported** | | | | | | | | | Total revenue | \$ 8,909 | \$ 5,254 | \$ 2,457 | \$ 5,001 | \$ 212 | \$ 21,833 | \$ 1,902 | | Provision for (reversal of) credit losses | 876 | 23 | 218 | (62) | 2 | 1,057 | 169 | | Non-interest expenses | 4,975 | 2,656 | 1,328 | 2,437 | 1,407 | 12,803 | 1,028 | | Income (loss) before income taxes | 3,058 | 2,575 | 911 | 2,626 | (1,197) | 7,973 | 705 | | Income taxes | 809 | 680 | 151 | 718 | (628) | 1,730 | 117 | | Net income (loss) | 2,249 | 1,895 | 760 | 1,908 | (569) | 6,243 | 588 | | Net income attributable to non-controlling interests | – | – | – | – | 23 | 23 | – | | Net income (loss) attributable to equity shareholders | 2,249 | 1,895 | 760 | 1,908 | (592) | 6,220 | 588 | | **Diluted EPS ($) $^{(1)}$** | **\$ 6.68** | | | | | | | | **Impact of items of note$^{(2)}$** | | | | | | | | | Revenue | | | | | | | | | Acquisition and integration-related costs as well as purchase accounting adjustments and provision for credit losses for performing loans$^{(3)}$ | \$ (16) | \$ – | \$ – | \$ – | \$ – | \$ (16) | \$ – | | Impact of items of note on revenue | (16) | – | – | – | – | (16) | – | | Provision for (reversal of) credit losses | | | | | | | | | Acquisition and integration-related costs as well as purchase accounting adjustments and provision for credit losses for performing loans$^{(3)}$ | (94) | – | – | – | – | (94) | – | | Impact of items of note on provision for (reversal of) credit losses | (94) | – | – | – | – | (94) | – | | Non-interest expenses | | | | | | | | | Amortization of acquisition-related intangible assets | (18) | – | (68) | – | (12) | (98) | (53) | | Acquisition and integration-related costs as well as purchase accounting adjustments and provision for credit losses for performing loans$^{(3)}$ | (103) | – | – | – | – | (103) | – | | Charge related to the consolidation of our real estate portfolio | – | – | – | – | (37) | (37) | – | | Increase in legal provisions | – | – | – | – | (136) | (136) | – | | Impact of items of note on non-interest expenses | (121) | – | (68) | – | (185) | (374) | (53) | | **Total pre-tax impact of items of note on net income** | **199** | **–** | **68** | **–** | **185** | **452** | **53** | | **Income taxes** | | | | | | | | | Amortization of acquisition-related intangible assets | 4 | – | 18 | – | 1 | 23 | 14 | | Acquisition and integration-related costs as well as purchase accounting adjustments and provision for credit losses for performing loans$^{(3)}$ | 48 | – | – | – | – | 48 | – | | Charge related to the consolidation of our real estate portfolio | – | – | – | – | 10 | 10 | – | | Increase in legal provisions | – | – | – | – | 36 | 36 | – | | Impact of items of note on income taxes | 52 | – | 18 | – | 47 | 117 | 14 | | **Total after-tax impact of items of note on net income** | **\$ 147** | **\$ –** | **\$ 50** | **\$ –** | **\$ 138** | **\$ 335** | **\$ 39** | | **Impact of items of note on diluted EPS ($) $^{(1)}$** | **\$ 0.37** | | | | | | | | **Operating results – adjusted$^{(4)}$** | | | | | | | | | Total revenue – adjusted$^{(5)}$ | \$ 8,893 | \$ 5,254 | \$ 2,457 | \$ 5,001 | \$ 212 | \$ 21,817 | \$ 1,902 | | Provision for (reversal of) credit losses – adjusted | 782 | 23 | 218 | (62) | 2 | 963 | 169 | | Non-interest expenses – adjusted | 4,854 | 2,656 | 1,260 | 2,437 | 1,222 | 12,429 | 975 | | Income (loss) before income taxes – adjusted | 3,257 | 2,575 | 979 | 2,626 | (1,012) | 8,425 | 758 | | Income taxes – adjusted | 861 | 680 | 169 | 718 | (581) | 1,847 | 131 | | Net income (loss) – adjusted | 2,396 | 1,895 | 810 | 1,908 | (431) | 6,578 | 627 | | Net income attributable to non-controlling interests – adjusted | – | – | – | – | 23 | 23 | – | | Net income (loss) attributable to equity shareholders – adjusted | 2,396 | 1,895 | 810 | 1,908 | (454) | 6,555 | 627 | | **Adjusted diluted EPS ($) $^{(1)}$** | **\$ 7.05** | | | | | | | $^{(1)}$ On April 7, 2022, CIBC shareholders approved a two-for-one share split (Share Split) of CIBC’s issued and outstanding common shares. Each shareholder of record at the close of business on May 6, 2022 (Record Date) received one additional share on May 13, 2022 (Payment Date) for every one share held on the Record Date. All common share numbers and per common share amounts have been adjusted to reflect the Share Split as if it was retroactively applied to all periods presented. $^{(2)}$ Items of note are removed from reported results to calculate adjusted results. $^{(3)}$ Acquisition and integration costs, shown as an item of note starting in the fourth quarter of 2021, are comprised of incremental costs incurred as part of planning for and executing the integration of the Canadian Costco credit card portfolio, including enabling franchising opportunities, the upgrade and conversion of systems and processes, project delivery, communication costs and client welcome bonuses. Purchase accounting adjustments shown as an item of note starting in the second quarter of 2022, include the accretion of the acquisition date fair value discount on the acquired Canadian Costco credit card receivables. Provision for credit losses for performing loans associated with the acquisition of the Canadian Costco credit card portfolio, included the stage 1 ECL allowance established immediately after the acquisition date and the impact of the migration of stage 1 accounts to stage 2 during the second quarter of 2022. Integration costs, shown as an item of note from the second quarter of 2017 to the fourth quarter of 2019, are comprised of direct and incremental costs incurred as part of planning for and executing the integration of the businesses of The PrivateBank (subsequently rebranded as CIBC Bank USA) and Geneva Advisors with CIBC, including enabling cross-sell opportunities and expansion of services in the U.S. market, the upgrade and conversion of systems and processes, project management, integration-related travel, severance, consulting fees and marketing costs related to rebranding activities. Transaction costs, shown as an item of note from the second quarter of 2017 to the fourth quarter of 2019, included legal and other advisory fees, as well as interest adjustments relating to the obligation payable to dissenting shareholders. Purchase accounting adjustments, shown as an item of note from the fourth quarter of 2017 to the fourth quarter of 2019, include the accretion of the acquisition date fair value discount on the acquired loans of The PrivateBank, and changes in the fair value of contingent consideration relating to the Geneva Advisors and Wellington Financial acquisitions. $^{(4)}$ Adjusted to exclude the impact of items of note. Adjusted measures are non-GAAP measures. $^{(5)}$ CIBC total results excludes a taxable equivalent basis (TEB) adjustment of \$211 million (2021: \$204 million). Our adjusted efficiency ratio and adjusted operating leverage are calculated on a TEB. CIBC 2022 ANNUAL REPORT 15 The following table provides a reconciliation of GAAP (reported) results to non-GAAP (adjusted) results on a segmented basis. | \$ millions, for the year ended October 31, 2021 | Canadian Personal and Business Banking | Canadian Commercial Banking and Wealth Management | U.S. Commercial Banking and Wealth Management | Capital Markets | Corporate and Other | CIBC Total | U.S. Commercial Banking and Wealth Management (US\$ millions) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | **Operating results – reported** | | | | | | | | | Total revenue | \$ 8,150 | \$ 4,670 | \$ 2,194 | \$ 4,520 | \$ 481 | \$ 20,015 | \$ 1,748 | | Provision for (reversal of) credit losses | 350 | (39) | (75) | (100) | 22 | 158 | (61) | | Non-interest expenses | 4,414 | 2,443 | 1,121 | 2,117 | 1,440 | 11,535 | 893 | | Income (loss) before income taxes | 3,386 | 2,266 | 1,148 | 2,503 | (981) | 8,322 | 916 | | Income taxes | 892 | 601 | 222 | 646 | (485) | 1,876 | 177 | | Net income (loss) | 2,494 | 1,665 | 926 | 1,857 | (496) | 6,446 | 739 | | Net income attributable to non-controlling interests | – | – | – | – | 17 | 17 | – | | Net income (loss) attributable to equity shareholders | 2,494 | 1,665 | 926 | 1,857 | (513) | 6,429 | 739 | | **Diluted EPS ($) $^{(1)}$** | **\$ 6.96** | | | | | | | | **Impact of items of note$^{(2)}$** | | | | | | | | | **Non-interest expenses** | | | | | | | | | Amortization of acquisition-related intangible assets | \$ – | \$ – | \$ (68) | \$ – | \$ (11) | \$ (79) | \$ (54) | | Acquisition and integration-related costs$^{(3)}$ | (12) | – | – | – | – | (12) | – | | Charge related to the consolidation of our real estate portfolio | – | – | – | – | (109) | (109) | – | | Increase in legal provisions | – | – | – | – | (125) | (125) | – | | Impact of items of note on non-interest expenses | (12) | – | (68) | – | (245) | (325) | (54) | | **Total pre-tax impact of items of note on net income** | **12** | **–** | **68** | **–** | **245** | **325** | **54** | | **Income taxes** | | | | | | | | | Amortization of acquisition-related intangible assets | – | – | 18 | – | 1 | 19 | 14 | | Acquisition and integration-related costs$^{(3)}$ | 3 | – | – | – | – | 3 | – | | Charge related to the consolidation of our real estate portfolio | – | – | – | – | 29 | 29 | – | | Increase in legal provisions | – | – | – | – | 33 | 33 | – | | Impact of items of note on income taxes | 3 | – | 18 | – | 63 | 84 | 14 | | **Total after-tax impact of items of note on net income** | **\$ 9** | **\$ –** | **\$ 50** | **\$ –** | **\$ 182** | **\$ 241** | **\$ 40** | | **Impact of items of note on diluted EPS ($) $^{(1)}$** | **\$ 0.27** | | | | | | | | **Operating results – adjusted$^{(4)}$** | | | | | | | | | Total revenue – adjusted$^{(5)}$ | \$ 8,150 | \$ 4,670 | \$ 2,194 | \$ 4,520 | \$ 481 | \$ 20,015 | \$ 1,748 | | Provision for (reversal of) credit losses – adjusted | 350 | (39) | (75) | (100) | 22 | 158 | (61) | | Non-interest expenses – adjusted | 4,402 | 2,443 | 1,053 | 2,117 | 1,195 | 11,210 | 839 | | Income (loss) before income taxes – adjusted | 3,398 | 2,266 | 1,216 | 2,503 | (736) | 8,647 | 970 | | Income taxes – adjusted | 895 | 601 | 240 | 646 | (422) | 1,960 | 191 | | Net income (loss) – adjusted | 2,503 | 1,665 | 976 | 1,857 | (314) | 6,687 | 779 | | Net income attributable to non-controlling interests – adjusted | – | – | – | – | 17 | 17 | – | | Net income (loss) attributable to equity shareholders – adjusted | 2,503 | 1,665 | 976 | 1,857 | (331) | 6,670 | 779 | | **Adjusted diluted EPS ($) $^{(1)}$** | **\$ 7.23** | | | | | | | See previous page for footnote references. 16 CIBC 2022 ANNUAL REPORT The following table provides a reconciliation of GAAP (reported) results to non-GAAP (adjusted) results on a segmented basis. | \$ millions, for the year ended October 31, 2020 | Canadian Personal and Business Banking | Canadian Commercial Banking and Wealth Management | U.S. Commercial Banking and Wealth Management | Capital Markets | Corporate and Other | CIBC Total | U.S. Commercial Banking and Wealth Management (US\$ millions) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | **Operating results – reported** | | | | | | | | | Total revenue | \$ 7,922 | \$ 4,121 | \$ 2,043 | \$ 4,053 | \$ 602 | \$ 18,741 | \$ 1,520 | | Provision for (reversal of) credit losses | 1,189 | 303 | 487 | 311 | 199 | 2,489 | 358 | | Non-interest expenses | 4,308 | 2,179 | 1,126 | 1,929 | 1,820 | 11,362 | 838 | | Income (loss) before income taxes | 2,425 | 1,639 | 430 | 1,813 | (1,417) | 4,890 | 324 | | Income taxes | 640 | 437 | 55 | 505 | (539) | 1,098 | 42 | | Net income (loss) | 1,785 | 1,202 | 375 | 1,308 | (878) | 3,792 | 282 | | Net income attributable to non-controlling interests | – | – | – | – | 2 | 2 | – | | Net income (loss) attributable to equity shareholders | 1,785 | 1,202 | 375 | 1,308 | (880) | 3,790 | 282 | | **Diluted EPS ($) $^{(1)}$** | **\$ 4.11** | | | | | | | | **Impact of items of note$^{(2)}$** | | | | | | | | | **Non-interest expenses** | | | | | | | | | Amortization of acquisition-related intangible assets | \$ (8) | \$ (1) | \$ (83) | \$ – | \$ (13) | \$ (105) | \$ (62) | | Charge related to the consolidation of our real estate portfolio | – | – | – | – | (114) | (114) | – | | Increase in legal provisions | – | – | – | – | (70) | (70) | – | | Gain as a result of plan amendments related to pension and other post-employment plans | – | – | – | – | 79 | 79 | – | | Restructuring charges, primarily relating to employee severance and related costs | – | – | – | – | (339) | (339) | – | | Goodwill impairment charge related to our controlling interest in CIBC FirstCaribbean | – | – | – | – | (248) | (248) | – | | Impact of items of note on non-interest expenses | (8) | (1) | (83) | – | (705) | (797) | (62) | | **Total pre-tax impact of items of note on net income** | **8** | **1** | **83** | **–** | **705** | **797** | **62** | | **Income taxes** | | | | | | | | | Amortization of acquisition-related intangible assets | 2 | – | 22 | – | 1 | 25 | 17 | | Charge related to the consolidation of our real estate portfolio | – | – | – | – | 30 | 30 | – | | Increase in legal provisions | – | – | – | – | 19 | 19 | – | | Gain as a result of plan amendments related to pension and other post-employment plans | – | – | – | – | (21) | (21) | – | | Restructuring charges, primarily relating to employee severance and related costs | – | – | – | – | 89 | 89 | – | | Impact of items of note on income taxes | 2 | – | 22 | – | 118 | 142 | 17 | | **Total after-tax impact of items of note on net income** | **\$ 6** | **\$ 1** | **\$ 61** | **\$ –** | **\$ 587** | **\$ 655** | **\$ 45** | | **Impact of items of note on diluted EPS ($) $^{(1)}$** | **\$ 0.74** | | | | | | | | **Operating results – adjusted$^{(4)}$** | | | | | | | | | Total revenue – adjusted$^{(5)}$ | \$ 7,922 | \$ 4,121 | \$ 2,043 | \$ 4,053 | \$ 602 | \$ 18,741 | \$ 1,520 | | Provision for (reversal of) credit losses – adjusted | 1,189 | 303 | 487 | 311 | 199 | 2,489 | 358 | | Non-interest expenses – adjusted | 4,300 | 2,178 | 1,043 | 1,929 | 1,115 | 10,565 | 776 | | Income (loss) before income taxes – adjusted | 2,433 | 1,640 | 513 | 1,813 | (712) | 5,687 | 386 | | Income taxes – adjusted | 642 | 437 | 77 | 505 | (421) | 1,240 | 59 | | Net income (loss) – adjusted | 1,791 | 1,203 | 436 | 1,308 | (291) | 4,447 | 327 | | Net income attributable to non-controlling interests – adjusted | – | – | – | – | 2 | 2 | – | | Net income (loss) attributable to equity shareholders – adjusted | 1,791 | 1,203 | 436 | 1,308 | (293) | 4,445 | 327 | | **Adjusted diluted EPS ($) $^{(1)}$** | **\$ 4.85** | | | | | | | See previous pages for footnote references. 17 CIBC 2022 ANNUAL REPORT The following table provides a reconciliation of GAAP (reported) results to non-GAAP (adjusted) results on a segmented basis. | \$ millions, for the year ended October 31, 2019 | Canadian Personal and Business Banking | Canadian Commercial Banking and Wealth Management | U.S. Commercial Banking and Wealth Management | Capital Markets | Corporate and Other | CIBC Total | U.S. Commercial Banking and Wealth Management (US\$ millions) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | **Operating results – reported** | | | | | | | | | Total revenue | \$ 8,240 | \$ 4,027 | \$ 1,911 | \$ 3,475 | \$ 958 | \$ 18,611 | \$ 1,438 | | Provision for (reversal of) credit losses | 889 | 163 | 73 | 160 | 1 | 1,286 | 55 | | Non-interest expenses | 4,459 | 2,106 | 1,114 | 1,802 | 1,375 | 10,856 | 838 | | Income (loss) before income taxes | 2,892 | 1,758 | 724 | 1,513 | (418) | 6,469 | 545 | | Income taxes | 766 | 471 | 76 | 396 | (361) | 1,348 | 58 | | Net income (loss) | 2,126 | 1,287 | 648 | 1,117 | (57) | 5,121 | 487 | | Net income attributable to non-controlling interests | – | – | – | – | 25 | 25 | – | | Net income (loss) attributable to equity shareholders | 2,126 | 1,287 | 648 | 1,117 | (82) | 5,096 | 487 | | **Diluted EPS ($) $^{(1)}$** | **\$ 5.60** | | | | | | | | **Impact of items of note$^{(2)}$** | | | | | | | | | Revenue | | | | | | | | | Settlement of certain income tax matters | \$ – | \$ – | \$ – | \$ – | \$ (67) | \$ (67) | \$ – | | Purchase accounting adjustments$^{(3)}$ | – | – | (34) | – | – | (34) | (26) | | Impact of items of note on revenue | – | – | (34) | – | (67) | (101) | (26) | | **Non-interest expenses** | | | | | | | | | Amortization of acquisition-related intangible assets | (9) | (1) | (88) | – | (11) | (109) | (66) | | Transaction and integration-related costs as well as purchase accounting adjustments$^{(3)}$ | – | – | – | – | 11 | 11 | – | | Increase in legal provisions | – | – | – | – | (28) | (28) | – | | Goodwill impairment charge related to our controlling interest in CIBC FirstCaribbean | – | – | – | – | (135) | (135) | – | | Charge for payment made to Air Canada, including related sales tax and transaction costs | (227) | – | – | – | – | (227) | – | | Impact of items of note on non-interest expenses | (236) | (1) | (88) | – | (163) | (488) | (66) | | **Total pre-tax impact of items of note on net income** | **236** | **1** | **54** | **–** | **96** | **387** | **40** | | **Income taxes** | | | | | | | | | Amortization of acquisition-related intangible assets | 2 | – | 23 | – | 2 | 27 | 17 | | Transaction and integration-related costs as well as purchase accounting adjustments$^{(3)}$ | – | – | – | – | (3) | (12) | (7) | | Increase in legal provisions | – | – | – | – | 7 | 7 | – | | Settlement of certain income tax matters | – | – | – | – | (18) | (18) | – | | Charge for payment made to Air Canada, including related sales tax and transaction costs | 60 | – | – | – | – | 60 | – | | Impact of items of note on income taxes | 62 | – | 14 | – | (12) | 64 | 10 | | **Total after-tax impact of items of note on net income** | **\$ 174** | **\$ 1** | **\$ 40** | **\$ –** | **\$ 108** | **\$ 323** | **\$ 30** | | **Impact of items of note on diluted EPS ($) $^{(1)}$** | **\$ 0.36** | | | | | | | | **Operating results – adjusted$^{(4)}$** | | | | | | | | | Total revenue – adjusted$^{(5)}$ | \$ 8,240 | \$ 4,027 | \$ 1,877 | \$ 3,475 | \$ 891 | \$ 18,510 | \$ 1,412 | | Provision for (reversal of) credit losses – adjusted | 889 | 163 | 73 | 160 | 1 | 1,286 | 55 | | Non-interest expenses – adjusted | 4,223 | 2,105 | 1,026 | 1,802 | 1,212 | 10,368 | 772 | | Income (loss) before income taxes – adjusted | 3,128 | 1,759 | 778 | 1,513 | (322) | 6,856 | 585 | | Income taxes – adjusted | 828 | 471 | 90 | 396 | (373) | 1,412 | 68 | | Net income – adjusted | 2,300 | 1,288 | 688 | 1,117 | 51 | 5,444 | 517 | | Net income attributable to non-controlling interests – adjusted | – | – | – | – | 25 | 25 | – | | Net income attributable to equity shareholders – adjusted | 2,300 | 1,288 | 688 | 1,117 | (26) | 5,419 | 517 | | **Adjusted diluted EPS ($) $^{(1)}$** | **\$ 5.96** | | | | | | | See previous pages for footnote references. 18 CIBC 2022 ANNUAL REPORT The following table provides a reconciliation of GAAP (reported) results to non-GAAP (adjusted) results on a segmented basis. | \$ millions, for the year ended October 31, 2018 | Canadian Personal and Business Banking | Canadian Commercial Banking and Wealth Management | U.S. Commercial Banking and Wealth Management | Capital Markets | Corporate and Other | CIBC Total | U.S. Commercial Banking and Wealth Management (US\$ millions) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | **Operating results – reported** | | | | | | | | | Total revenue | \$ 8,595 | \$ 3,836 | \$ 1,760 | \$ 2,935 | \$ 708 | \$ 17,834 | \$ 1,366 | | Provision for (reversal of) credit losses | 741 | 5 | 79 | (30) | 75 | 870 | 61 | | Non-interest expenses | 4,395 | 2,067 | 1,023 | 1,492 | 1,281 | 10,258 | 794 | | Income (loss) before income taxes | 3,459 | 1,764 | 658 | 1,473 | (648) | 6,706 | 511 | | Income taxes | 919 | 478 | 97 | 387 | (459) | 1,422 | 75 | | Net income (loss) | 2,540 | 1,286 | 561 | 1,086 | (189) | 5,284 | 436 | | Net income attributable to non-controlling interests | – | – | – | – | 17 | 17 | – | | Net income (loss) attributable to equity shareholders | 2,540 | 1,286 | 561 | 1,086 | (206) | 5,267 | 436 | | **Diluted EPS ($) $^{(1)}$** | **\$ 5.82** | | | | | | | | **Impact of items of note$^{(2)}$** | | | | | | | | | Revenue | | | | | | | | | Purchase accounting adjustments$^{(3)}$ | \$ – | \$ – | \$ (55) | \$ – | \$ (8) | \$ (63) | \$ (43) | | Incremental losses on debt securities and loans in CIBC FirstCaribbean resulting from the Barbados government debt restructuring | – | – | – | – | 61 | 61 | – | | Impact of items of note on revenue | – | – | (55) | – | 53 | (2) | (43) | | Provision for (reversal of) credit losses | | | | | | | | | Incremental losses on debt securities and loans in CIBC FirstCaribbean resulting from the Barbados government debt restructuring | – | – | – | – | (28) | (28) | – | | Impact of items of note on provision for (reversal of) credit losses | – | – | – | – | (28) | (28) | – | | **Non-interest expenses** | | | | | | | | | Amortization of acquisition-related intangible assets | (12) | (1) | (91) | – | (11) | (115) | (71) | | Transaction and integration-related costs as well as purchase accounting adjustments$^{(3)}$ | – | – | – | – | (79) | (79) | – | | Impact of items of note on non-interest expenses | (12) | (1) | (91) | – | (90) | (194) | (71) | | **Total pre-tax impact of items of note on net income** | **12** | **1** | **36** | **–** | **171** | **220** | **28** | | **Income taxes** | | | | | | | | | Amortization of acquisition-related intangible assets | 3 | – | 26 | – | 1 | 30 | 21 | | Transaction and integration-related costs as well as purchase accounting adjustments$^{(3)}$ | – | – | (17) | – | 2 | (15) | (13) | | Increase in legal provisions | – | – | – | – | – | – | – | | Incremental losses on debt securities and loans in CIBC FirstCaribbean resulting from the Barbados government debt restructuring | – | – | – | – | 19 | 19 | – | | Charge from net tax adjustments resulting from U.S. tax reforms | – | – | – | – | (88) | (88) | – | | Impact of items of note on income taxes | 3 | – | 9 | – | (66) | (54) | 8 | | **Total after-tax impact of items of note on net income** | **\$ 9** | **\$ 1** | **\$ 27** | **\$ –** | **\$ 237** | **\$ 274** | **\$ 20** | | **After-tax impact of items of note on non-controlling interests** | **–** | **–** | **–** | **–** | **5** | **5** | **–** | | **After-tax impact of items of note on net income attributable to equity shareholders** | **\$ 9** | **\$ 1** | **\$ 27** | **\$ –** | **\$ 232** | **\$ 269** | **\$ 20** | | **Impact of items of note on diluted EPS ($) $^{(1)}$** | **\$ 0.29** | | | | | | | | **Operating results – adjusted$^{(4)}$** | | | | | | | | | Total revenue – adjusted$^{(5)}$ | \$ 8,240 | \$ 4,027 | \$ 1,877 | \$ 3,475 | \$ 891 | \$ 18,510 | \$ 1,412 | | Provision for (reversal of) credit losses – adjusted | 889 | 163 | 73 | 160 | 1 | 1,286 | 55 | | Non-interest expenses – adjusted | 4,223 | 2,105 | 1,026 | 1,802 | 1,212 | 10,368 | 772 | | Income (loss) before income taxes – adjusted | 3,128 | 1,759 | 778 | 1,513 | (322) | 6,856 | 585 | | Income taxes – adjusted | 828 | 471 | 90 | 396 | (373) | 1,412 | 68 | | Net income – adjusted | 2,300 | 1,288 | 688 | 1,117 | 51 | 5,444 | 517 | | Net income attributable to non-controlling interests – adjusted | – | – | – | – | 22 | 22 | – | | Net income attributable to equity shareholders – adjusted | 2,300 | 1,288 | 688 | 1,117 | 26 | 5,419 | 517 | | **Adjusted diluted EPS ($) $^{(1)}$** | **\$ 5.96** | | | | | | | See previous pages for footnote references. 19 CIBC 2022 ANNUAL REPORT The following table provides a reconciliation of GAAP (reported) net income to non-GAAP (adjusted) pre-provision, pre-tax earnings on a segmented basis. | \$ millions, for the year ended October 31 | Canadian Personal and Business Banking | Canadian Commercial Banking and Wealth Management | U.S. Commercial Banking and Wealth Management | Capital Markets | Corporate and Other | CIBC Total | U.S. Commercial Banking and Wealth Management (US\$ millions) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | **2022 Net income (loss)** | **\$ 2,249** | **\$ 1,895** | **\$ 760** | **\$ 1,908** | **\$ (569)** | **\$ 6,243** | **\$ 588** | | **Add: provision for (reversal of) credit losses** | 876 | 23 | 218 | (62) | 2 | 1,057 | 169 | | **Add: income taxes** | 809 | 680 | 151 | 718 | (628) | 1,730 | 117 | | **Pre-provision (reversal), pre-tax earnings (losses)$^{(1)}$** | **3,934** | **2,598** | **1,129** | **2,564** | **(1,195)** | **9,030** | **874** | | **Pre-tax impact of items of note$^{(2)(3)}$** | 105 | – | 68 | – | 185 | 358 | 53 | | **Adjusted pre-provision (reversal), pre-tax earnings (losses)$^{(4)}$** | **\$ 4,039** | **\$ 2,598** | **\$ 1,197** | **\$ 2,564** | **\$ (1,010)** | **\$ 9,388** | **\$ 927** | | **2021 Net income (loss)** | **\$ 2,494** | **\$ 1,665** | **\$ 926** | **\$ 1,857** | **\$ (496)** | **\$ 6,446** | **\$ 739** | | **Add: provision for (reversal of) credit losses** | 350 | (39) | (75) | (100) | 22 | 158 | (61) | | **Add: income taxes** | 892 | 601 | 222 | 646 | (485) | 1,876 | 177 | | **Pre-provision (reversal), pre-tax earnings (losses)$^{(1)}$** | **3,736** | **2,227** | **1,073** | **2,403** | **(959)** | **8,480** | **855** | | **Pre-tax impact of items of note$^{(2)}$** | 12 | – | 68 | – | 245 | 325 | 54 | | **Adjusted pre-provision (reversal), pre-tax earnings (losses)$^{(4)}$** | **\$ 3,748** | **\$ 2,227** | **\$ 1,141** | **\$ 2,403** | **\$ (714)** | **\$ 8,805** | **\$ 909** | | **2020 Net income (loss)** | **\$ 1,785** | **\$ 1,202** | **\$ 375** | **\$ 1,308** | **\$ (878)** | **\$ 3,792** | **\$ 282** | | **Add: provision for (reversal of) credit losses** | 1,189 | 303 | 487 | 311 | 199 | 2,489 | 358 | | **Add: income taxes** | 640 | 437 | 55 | 505 | (539) | 1,098 | 42 | | **Pre-provision (reversal), pre-tax earnings (losses)$^{(1)}$** | **3,614** | **1,942** | **917** | **2,124** | **(1,218)** | **7,379** | **682** | | **Pre-tax impact of items of note$^{(2)}$** | 8 | 1 | 83 | – | 705 | 797 | 62 | | **Adjusted pre-provision (reversal), pre-tax earnings (losses)$^{(4)}$** | **\$ 3,622** | **\$ 1,943** | **\$ 1,000** | **\$ 2,124** | **\$ (513)** | **\$ 8,176** | **\$ 744** | | **2019 Net income (loss)** | **\$ 2,126** | **\$ 1,287** | **\$ 648** | **\$ 1,117** | **\$ (57)** | **\$ 5,121** | **\$ 487** | | **Add: provision for (reversal of) credit losses** | 889 | 163 | 73 | 160 | 1 | 1,286 | 55 | | **Add: income taxes** | 766 | 471 | 76 | 396 | (361) | 1,348 | 58 | | **Pre-provision (reversal), pre-tax earnings (losses)$^{(1)}$** | **3,781** | **1,921** | **797** | **1,673** | **(417)** | **7,755** | **600** | | **Pre-tax impact of items of note$^{(2)}$** | 236 | 1 | 54 | – | 96 | 387 | 40 | | **Adjusted pre-provision (reversal), pre-tax earnings (losses)$^{(4)}$** | **\$ 4,017** | **\$ 1,922** | **\$ 851** | **\$ 1,673** | **\$ (321)** | **\$ 8,142** | **\$ 640** | | **2018 Net income (loss)** | **\$ 2,540** | **\$ 1,286** | **\$ 561** | **\$ 1,086** | **\$ (189)** | **\$ 5,284** | **\$ 436** | | **Add: provision for (reversal of) credit losses** | 741 | 5 | 79 | (30) | 75 | 870 | 61 | | **Add: income taxes** | 919 | 478 | 97 | 387 | (459) | 1,422 | 75 | | **Pre-provision (reversal), pre-tax earnings (losses)$^{(1)}$** | **4,200** | **1,769** | **737** | **1,443** | **(573)** | **7,576** | **572** | | **Pre-tax impact of items of note$^{(2)}$** | 12 | 1 | 36 | – | 171 | 220 | 28 | | **Adjusted pre-provision (reversal), pre-tax earnings (losses)$^{(4)}$** | **\$ 4,212** | **\$ 1,770** | **\$ 773** | **\$ 1,443** | **\$ (402)** | **\$ 7,796** | **\$ 600** | $^{(1)}$ Non-GAAP measure. $^{(2)}$ Items of note are removed from reported results to calculate adjusted results. $^{(3)}$ Excludes the impact of the provision for credit losses for performing loans from the acquisition of the Canadian Costco credit card portfolio, as the amount is included in the add back of provision for (reversal of) credit losses. $^{(4)}$ Adjusted to exclude the impact of items of note. Adjusted measures are non-GAAP measures. 20 CIBC 2022 ANNUAL REPORT # Management’s discussion and analysis ## Strategic business units overview CIBC has four SBUs – Canadian Personal and Business Banking, Canadian Commercial Banking and Wealth Management, U.S. Commercial Banking and Wealth Management, and Capital Markets. These SBUs are supported by the following functional groups – Technology, Infrastructure and Innovation, Risk Management, People, Culture and Brand, Finance and Enterprise Strategy, as well as other support groups, which all are included within Corporate and Other. The expenses of these functional and support groups are generally allocated to the business lines within the SBUs. The majority of the functional and support costs of CIBC Bank USA are recognized directly in the U.S. Commercial Banking and Wealth Management SBU. Corporate and Other also includes the results of CIBC FirstCaribbean and other strategic investments, as well as other income statement and balance sheet items not directly attributable to the business lines. ## Business unit allocations Revenue, expenses, and other balance sheet resources related to certain activities are generally allocated to the lines of business within the SBUs. Treasury activities impact the financial results of the SBUs. Each line of business within our SBUs is charged or credited with a market-based cost of funds on assets and liabilities, respectively, which impacts the revenue performance of the SBUs. This market-based cost of funds takes into account the cost of maintaining sufficient regulatory capital to support business requirements, including the cost of preferred shares. Once the interest and liquidity risks inherent in our client-driven assets and liabilities are transfer priced into Treasury, they are managed within CIBC’s risk framework and limits. Capital is attributed to the SBUs based on the estimated amount of regulatory capital required to support their businesses, which is intended to consistently measure and align the costs with the underlying benefits and risks associated with SBU activities. Earnings on unattributed capital remain in Corporate and Other. We review our transfer pricing methodologies on an ongoing basis to ensure they reflect changing market environments and industry practices. We use a Product Owner/Customer Segment/Distributor Channel allocation management model to measure and report the results of operations of various lines of business within our SBUs. The model uses certain estimates and methodologies to process internal transfers between the impacted lines of business for sales, renewals and trailer commissions as well as certain attributable costs. Periodically, the sales, renewals and trailer commission rates paid to customer segments for certain products/services are revised and applied prospectively. The non-interest expenses of the functional and support groups are generally allocated to the business lines within the SBUs based on appropriate criteria and methodologies. The basis of allocation is reviewed periodically to reflect changes in support to business lines. Other costs not directly attributable to business lines remain in Corporate and Other. We recognize provision for credit losses on both impaired (stage 3) and performing (stages 1 and 2) loans in the respective SBUs. ## Revenue, taxable equivalent basis Certain SBUs evaluate revenue on a TEB. In order to arrive at the TEB amount, the SBUs gross up tax-exempt revenue on certain securities to a TEB, being the amount of fully taxable revenue, which, were it to have incurred tax at the statutory income tax rate, would yield the same after-tax revenue. Simultaneously, an equivalent amount is booked as an income tax expense resulting in no impact on the net income of the SBUs. This measure enables comparability of revenue arising from both taxable and tax-exempt sources. The total TEB adjustments of the SBUs are offset in revenue and income tax expense in Corporate and Other. CIBC 2022 ANNUAL REPORT 21 # Management’s discussion and analysis ## Canadian Personal and Business Banking Canadian Personal and Business Banking provides personal and business clients across Canada with financial advice, services and solutions through banking centres, as well as mobile and online channels to help make their ambitions a reality. ### Our business strategy We are focused on helping our clients achieve their ambitions, and delivering sustainable, market-leading performance. To achieve this, our strategy continues to comprise three key priorities: * Introducing more opportunities for our clients to deal with us digitally by investing in digital and real-time remote capabilities; * Providing our team with the tools to deliver an excellent experience for our clients consistent with a one-team approach; and * Delivering personalized advice to our clients in a way that is meaningful and relevant to each of them. ### 2022 progress In 2022, we demonstrated positive momentum, with our strongest net client growth since 2017, as we welcomed new clients to our bank. Looking at our client experience, we improved to 2nd place in the J.D. Power Client Satisfaction survey, up from 5th last year. In addition, we continued to narrow our primary clients’ net promoter score gap to the leader in the Ipsos Customer Satisfaction Index study. With excellent revenue diversification, we remained focused on generating high-value growth despite headwinds. We drove unprecedented growth in our everyday bank account openings and leading market share growth in lending. We also continued to support our clients’ homeownership ambitions by enhancing the mortgage origination and renewal process, and helping them navigate rising interest rates. We will maintain focus on our three strategic priorities and build on our 2022 momentum and success. #### Introducing more opportunities for our clients to deal with us digitally * Ranked \#1 in Online Banking Satisfaction by J.D. Power and recognized by Digital Banker for Outstanding Digital Client Experience in Mobile Banking as well as for using in-house research and client feedback to improve digital journeys. * Introduced CIBC Smart Start, our enhanced youth and student banking offer which provides market-leading value. Clients can open a new account digitally and enjoy no-fee banking, including free direct investing through CIBC Investor’s Edge, until the age of 25. * Announced a strategic investment to bring a new merchant services platform called Tyl by CIBC to Canada. * Delivered a market-leading Interac e-Transfer feature, enabling clients to set recurring or future-dated e-Transfer payments. * Announced a new collaboration with Willful, a digital solution for estate planning, making financial planning easier and affordable for clients. * Introduced more digital options for clients to renew their mortgage online, including an enhanced online pre-qualification tool. * Improved the digital onboarding experience allowing clients to start banking within minutes by adding a digital debit card to their mobile wallet and automatically linking new cards to their profiles. #### Providing our team with the tools to deliver an excellent experience for our clients * Ranked \#1 on Investment Executive 2022 Report Card on Banks, for the seventh consecutive year. * Announced an agreement with nCino, to digitize the end-to-end account open and lending experience for both business clients and team members. * Introduced accessible credit, debit and Smart prepaid card sleeves for clients who are blind, have low vision or specific conditions such as glaucoma, including the card name, number and expiry date in braille or larger print. * Launched Smart Interest on the CIBC eAdvantage Savings Account for clients who save \$200 or more each month. * Welcomed more than two million Costco Mastercard clients and focused on ensuring they were successfully transitioned to their new card. * Demonstrated our commitment to inclusion by hosting our first virtual Global Accessibility Awareness Day, sponsoring the MaRS CIBC Inclusive Design Challenge, and removing barriers to services and products for underserved clients including seniors and persons with disabilities. #### Delivering personalized advice to our clients in a way that is meaningful and relevant to each of them * Named in The Globe and Mail’s 2022 Best B2B Brands for our client engagement throughout the pandemic. * Launched the CIBC Black Entrepreneur Program, which includes a \$15 million commitment for business loans of up to \$250,000 to accelerate the start-up and growth of their businesses. * Improved the mortgage experience by engaging clients ahead of prime rate increases to help them manage rising interest rates. * Supported displaced Ukrainians with our newcomer banking offer, helped them find Ukrainian-speaking advisors, and provided welcome kits. * Helped clients learn how to integrate climate action into their everyday lives through our new CIBC Climate Centre on cibc.com, which provides a number of insights on saving energy and how to have a positive impact on the environment. ### 2022 financial review ```mermaid graph TD subgraph Revenue ($ billions) A21(21) -->|8.2| A22(22) end subgraph Revenue ($ billions) A21_2(21) -->|8.9| A22_2(22) end subgraph Net income ($ millions) B21(21) -->|2,494| B22(22) end subgraph Net income ($ millions) B21_2(21) -->|2,249| B22_2(22) end subgraph Operating leverage (%) C21(21) -->|0.4| C22(22) end subgraph Operating leverage (%) C21_2(21) -->|(3.4)| C22_2(22) end subgraph Average loans and acceptances$^{(1)(2)}$ ($ billions) D21(21) -->|270.3| D22(22) end subgraph Average loans and acceptances$^{(1)(2)}$ ($ billions) D21_2(21) -->|302.1| D22_2(22) end subgraph Average deposits$^{(2)}$ ($ billions) E21(21) -->|187.9| E22(22) end subgraph Average deposits$^{(2)}$ ($ billions) E21_2(21) -->|204.0| E22_2(22) end ``` $^{(1)}$ Loan amounts are stated before any related allowances. $^{(2)}$ Average balances are calculated as a weighted average of daily closing balances. ### Our focus for 2023 In Canadian Personal and Business Banking our objective is to deliver sustainable, market-leading performance with a focus on helping our clients achieve their ambitions. Our strategy remains centred on three strategic priorities: * Deliver personalized advice to our clients in a way that is meaningful to them; * Introduce more opportunities for our clients to deal with us digitally; and * Provide our team with the tools to deliver an excellent experience for our clients. ### Results$^{(1)}$ | \$ millions, for the year ended October 31 | 2022 | 2021 | | :--- | :--- | :--- | | Revenue | \$ 8,909 | \$ 8,150 | | Provision for (reversal of) credit losses | | | | Impaired | 534 | 484 | | Performing | 342 | (134) | | Provision for credit losses | 876 | 350 | | Non-interest expenses | 4,975 | 4,414 | | Income before income taxes | 3,058 | 3,386 | | Income taxes | 809 | 892 | | **Net income** | **\$ 2,249** | **\$ 2,494** | | Net income attributable to: | | | | Equity shareholders | \$ 2,249 | \$ 2,494 | | **Total revenue** | | | | Net interest income | \$ 6,657 | \$ 5,954 | | Non-interest income$^{(2)}$ | 2,252 | 2,196 | | | \$ 8,909 | \$ 8,150 | | Net interest margin on average interest-earning assets$^{(3)(4)}$ | 2.21 % | 2.21 % | | Efficiency ratio | 55.8 % | 54.2 % | | Operating leverage$^{(3)}$ | (3.4)% | 0.4 % | | Return on equity$^{(5)}$ | 28.2 % | 38.1 % | | Average allocated common equity$^{(5)}$ | \$ 7,987 | \$ 6,554 | | Average assets ($ billions)$^{(3)}$ | \$ 305.1 | \$ 272.6 | | Average loans and acceptances ($ billions)$^{(3)}$ | \$ 302.1 | \$ 270.3 | | Average deposits ($ billions)$^{(3)}$ | \$ 204.0 | \$ 187.9 | | Full-time equivalent employees | 13,840 | 12,629 | $^{(1)}$ For additional segmented information, see Note 30 to the consolidated financial statements. $^{(2)}$ Includes intersegment revenue, which represents internal sales commissions and revenue allocations under the Product Owner/Customer Segment/Distributor Channel allocation management model. $^{(3)}$ Average balances are calculated as a weighted average of daily closing balances. $^{(4)}$ For additional information on the composition, see the “Glossary” section. $^{(5)}$ For additional information, see the “Non-GAAP measures” section. ### Financial overview Net income was down \$245 million or 10% from 2021, primarily due to higher non-interest expenses and a higher provision for credit losses, partially offset by higher revenue. #### Revenue Revenue was up \$759 million or 9% from 2021, primarily due to volume growth and higher fee income. Net interest income was up \$703 million or 12% from 2021, primarily due to deposit and loan growth, including from the acquisition of the Canadian Costco credit card portfolio. Non-interest income was up \$56 million or 3% from 2021, primarily due to higher fee income. Net interest margin on average interest-earning assets was comparable with 2021, mainly due to higher deposit margins and the impact of the Canadian Costco credit card portfolio, partially offset by lower loan margins. #### Provision for credit losses Provision for credit losses was up \$526 million or 150% from 2021. The current year included a provision for credit losses on performing loans mainly due to an unfavourable change in our economic outlook and the acquisition of the Canadian Costco credit card portfolio, while the prior year included a provision reversal due to a favourable change in our economic outlook driven by the recovery from the COVID-19 pandemic. Provision for credit losses on impaired loans was up due to higher provisions reflective of higher impaired balances, with write-offs being comparable to the prior year. #### Non-interest expenses Non-interest expenses were up \$561 million or 13% from 2021, primarily due to higher spending on strategic initiatives, including the Canadian Costco credit card portfolio, and higher employee-related compensation. #### Income taxes Income taxes were down \$83 million or 9% from 2021, primarily due to lower income. #### Average assets Average assets were up \$32.5 billion or 12% from 2021, primarily due to growth in residential mortgages, as well as the acquisition of the Canadian Costco credit card portfolio. #### Assets under administration AUA on a spot basis were down \$32.1 billion or 9% from 2021, primarily due to market depreciation. AUM amounts are included in the amounts reported under AUA. CIBC 2022 ANNUAL REPORT 23 # Management’s discussion and analysis ## Canadian Commercial Banking and Wealth Management Canadian Commercial Banking and Wealth Management provides high-touch, relationship-oriented banking and wealth management services to middle-market companies, entrepreneurs, high-net-worth individuals and families across Canada, as well as asset management services to institutional investors. ### Our business strategy We are focused on building and enhancing client relationships, being Canada’s leader in financial advice and generating long-term consistent growth. To deliver on this, our three key strategic priorities continue to be: * Delivering risk-controlled growth in our Commercial Bank; * Accelerating the growth of Private Wealth; and * Evolving our Asset Management business. ### 2022 progress In 2022, we had positive momentum on our client-focused journey and delivered strong growth across our SBU. As the economic environment continued to evolve, our purpose-driven culture, combined with the bank’s solid capital position and disciplined risk and expense management approach, helped us to deliver consistent financial performance. In Commercial Banking, we had strong demand for both loans and deposits, and we continue to streamline and simplify the digital experience for our clients. In Private Wealth, we made progress on our growth trajectory with a key focus on advisor support programs and new technology. In Asset Management, we further incorporated a comprehensive ESG framework into all actively managed investment strategies. And finally, we had strong referral momentum across our internal teams resulting in deeper client relationships and reinforcing our commitment to helping our clients achieve their ambitions. #### Delivering risk-controlled growth in our Commercial Bank * Improved client and employee experience by modernizing our systems and streamlining processes. * Continued to enhance programs tailored to high-growth industries through our National Industries Program team including centralized marketing and tools to support enriched client conversations. * Further expanded CIBC Innovation Banking across North America, providing strategic advice, cash management and funding to technology and life science companies at each stage of their business cycle. * Launched dedicated Commercial Banking Inclusion and Diversity and ESG committees, including training modules on addressing gender bias and the importance of an inclusive workplace and inclusive client interactions. #### Accelerating the growth of Private Wealth * Investment Executive Brokerage Report Card ranked CIBC second overall among the Big 6 banks in 2022. * Launched exclusive private banking offers for entrepreneurs, executives, and their children to onboard new relationships, and deepen existing ones. * Deepened client relationships through increased financial planning and the onboarding of new Wealth Planning Professionals to further support our integrated wealth offer and help clients achieve their ambitions, resulting in a 40% increase versus last year with over 4,500 plans delivered, contributing an additional \$4 billion in AUA. * Created a new program to increase partner referrals across the bank to help clients fulfill their broader wealth needs. * Achieved 57% higher net flows versus last year in CIBC Wood Gundy related to an ongoing client-focused approach and commitments to financial planning. * Launched refreshed competitive recruiting programs to build capacity and gain market share, including an Associate Development Program to enhance career and succession planning. * Created frontline capacity through streamlined credit processes and centralizing administrative functions. * Launched digital signature with our CIBC Wood Gundy and CIBC Private Investment Counsel for account openings and maintenance activities. * The Globe and Mail named 30 CIBC Wood Gundy advisors to Canada’s Top Wealth Advisors list with three advisors ranked in the top 10. #### Evolving our Asset Management business * Ranked \#3 among Big 6 banks in long-term mutual fund sales as a percent of AUM. * Launched CIBC Asset Management (CAM) Chartered Financial Analyst (CFA) Indigenous Scholarship for individuals in our communities that identify as Indigenous who are working towards completing their CFA designation. * Announced a three-year partnership with the new Ivey School of Business Women in Asset Management Program designed to overcome the under representation of individuals who self-identify as women in asset management, including an introduction to career opportunities, and CIBC Asset Management internships. * Incorporated a climate policy in CAM’s Responsible Investing Policy. * Launched inaugural CAM Annual ESG & Stewardship Report which includes tracking climate-specific company engagements. * Continued to create new efficiencies and enhance the client experience, including launching the first phase of our investment platform simplification to further streamline account structures, improve onboarding and client reporting and provide enhanced portfolio management capabilities for advisors. * Launched several alternative investment products for Private Wealth clients and launched two PIMCO bond funds for Private Wealth and Personal and Business Banking clients. 24 CIBC 2022 ANNUAL REPORT ### 2022 financial review ```mermaid graph TD subgraph Revenue ($ billions) A21(21) -->|4.7| A22(22) end subgraph Revenue ($ billions) A21_2(21) -->|5.3| A22_2(22) end subgraph Net income ($ millions) B21(21) -->|1,665| B22(22) end subgraph Net income ($ millions) B21_2(21) -->|1,895| B22_2(22) end subgraph Operating leverage (%) C21(21) -->|3.8| C22(22) end subgraph Operating leverage (%) C21_2(21) -->|1.2| C22_2(22) end subgraph Average loans$^{(1)(2)}$ ($ billions) D21(21) -->|72.8| D22(22) end subgraph Average loans$^{(1)(2)}$ ($ billions) D21_2(21) -->|87.6| D22_2(22) end subgraph Average deposits$^{(2)}$ ($ billions) E21(21) -->|83.6| E22(22) end subgraph Average deposits$^{(2)}$ ($ billions) E21_2(21) -->|94.0| E22_2(22) end subgraph Average commercial banking loans$^{(1)(2)(3)}$ ($ billions) F21(21) -->|70.7| F22(22) end subgraph Average commercial banking loans$^{(1)(2)(3)}$ ($ billions) F21_2(21) -->|85.0| F22_2(22) end subgraph Average commercial banking deposits$^{(2)}$ ($ billions) G21(21) -->|75.3| G22(22) end subgraph Average commercial banking deposits$^{(2)}$ ($ billions) G21_2(21) -->|85.0| G22_2(22) end subgraph Assets under administration and management$^{(4)}$ ($ billions) H21_1(21) -->|324.5| H22_1(22) H21_2(21) -->|356.6| H22_2(22) end subgraph Assets under administration and management$^{(4)}$ ($ billions) H21_3(21) -->|208.8| H22_3(22) H21_4(21) -->|230.3| H22_4(22) end subgraph Assets under administration and management$^{(4)}$ ($ billions) H21_5(21) -->|AUM| H22_5(22) end subgraph Canadian retail mutual funds and exchange traded funds ($ billions) I21(21) -->|119.9| I22(22) end subgraph Canadian retail mutual funds and exchange traded funds ($ billions) I21_2(21) -->|135.0| I22_2(22) end ``` $^{(1)}$ Loan amounts are stated before any related allowances. $^{(2)}$ Average balances are calculated as a weighted average of daily closing balances. $^{(3)}$ Comprises loans and acceptances and notional amount of letters of credit. $^{(4)}$ AUM amounts are included in the amounts reported under AUA. ### Our focus for 2023 In Commercial Banking and Wealth Management, our ambition is to become the leader in financial advice to both personal and business clients. We remain focused on three strategic priorities: * Delivering risk-controlled growth in our Commercial Bank, while fostering strong referrals across CIBC; * Accelerating the growth of Private Wealth to deepen client relationships; and * Evolving our Asset Management business to increase connectivity within our own bank channels and to launch new technologies to support clients and advisors. CIBC 2022 ANNUAL REPORT 25 # Management’s discussion and analysis ## Results$^{(1)}$ | \$ millions, for the year ended October 31 | 2022 | 2021 | | :--- | :--- | :--- | | **Revenue** | | | | Commercial banking | \$ 2,278 | \$ 1,827 | | Wealth management$^{(2)}$ | 2,976 | 2,843 | | **Total revenue** | **5,254** | **4,670** | | **Provision for (reversal of) credit losses** | | | | Impaired | 22 | 6 | | Performing | 1 | (45) | | **Provision for (reversal of) credit losses** | **23** | **(39)** | | **Non-interest expenses** | **2,656** | **2,443** | | **Income before income taxes** | **2,575** | **2,266** | | **Income taxes** | **680** | **601** | | **Net income** | **\$ 1,895** | **\$ 1,665** | | **Net income attributable to:** | | | | Equity shareholders | \$ 1,895 | \$ 1,665 | | **Total revenue** | | | | Net interest income | \$ 1,672 | \$ 1,291 | | Non-interest income$^{(2)}$ | 3,582 | 3,379 | | | \$ 5,254 | \$ 4,670 | | **Net interest margin on average interest-earning assets$^{(3)(4)}$** | **3.37 %** | **3.25 %** | | **Efficiency ratio** | **50.5 %** | **52.3 %** | | **Operating leverage$^{(3)}$** | **3.8 %** | **1.2 %** | | **Return on equity$^{(5)}$** | **22.9 %** | **24.5 %** | | **Average allocated common equity$^{(5)}$** | **\$ 8,275** | **\$ 6,794** | | **Average assets ($ billions)$^{(3)}$** | **\$ 84.7** | **\$ 70.1** | | **Average loans ($ billions)$^{(3)}$** | **\$ 87.6** | **\$ 72.8** | | **Average deposits ($ billions)$^{(3)}$** | **\$ 94.0** | **\$ 83.6** | | **AUA ($ billions)** | **\$ 324.5** | **\$ 356.6** | | **AUM ($ billions)** | **\$ 208.8** | **\$ 230.3** | | **Full-time equivalent employees** | **5,711** | **5,241** | $^{(1)}$ For additional segmented information, see Note 30 to the consolidated financial statements. $^{(2)}$ Includes intersegment revenue, which represents internal sales commissions and revenue allocations under the Product Owner/Customer Segment/Distributor Channel allocation management model. $^{(3)}$ Average balances are calculated as a weighted average of daily closing balances. $^{(4)}$ For additional information on the composition, see the “Glossary” section. $^{(5)}$ For additional information, see the “Non-GAAP measures” section. ### Financial overview Net income was up \$230 million or 14% from 2021, primarily due to higher revenue, partially offset by higher non-interest expenses and a provision for credit losses in the current year compared with a provision reversal in the prior year. #### Revenue Revenue was up \$584 million or 13% from 2021. Commercial banking revenue was up \$451 million or 25%, primarily due to higher net interest income from loan and deposit growth, higher deposit spreads that benefitted from the rising interest rate environment, and higher fees. Wealth management revenue was up \$133 million or 5%, primarily due to higher fee-based revenue driven by higher average AUA and AUM reflecting market appreciation and the impact of net sales, and higher net interest income, mainly from deposits, partially offset by lower commission revenue from decreased client activity. Net interest margin on average interest-earning assets was up 12 basis points primarily due to higher deposit margins, partially offset by lower loan margins. #### Provision for (reversal of) credit losses Provision for credit losses was up \$62 million or 159% from 2021. The current year included a small provision for credit losses on performing loans, while the prior year included a provision reversal due to a favourable change in our economic outlook driven by the recovery from the COVID-19 pandemic. Provision for credit losses on impaired loans was up mainly attributable to the education, health and social services sector. #### Non-interest expenses Non-interest expenses were up \$213 million or 9% from 2021, primarily due to higher spending on strategic initiatives, and higher performance based and employee-related compensation. #### Income taxes Income taxes were up \$79 million or 13% from 2021, primarily due to higher income. #### Average assets Average assets were up \$14.6 billion or 21% from 2021, primarily due to growth in commercial loans. #### Assets under administration AUA on a spot basis were down \$32.1 billion or 9% from 2021, primarily due to market depreciation. AUM amounts are included in the amounts reported under AUA. 26 CIBC 2022 ANNUAL REPORT # Management’s discussion and analysis ## U.S. Commercial Banking and Wealth Management U.S. Commercial Banking and Wealth Management provides high-touch, relationship-oriented banking and wealth management services across the U.S., focused on middle-market and mid-corporate companies, entrepreneurs, high-net-worth individuals and families, as well as personal and small business banking services in four U.S. Midwestern markets. ### Our business strategy Our goal is to grow our purpose-built U.S. commercial and wealth management franchise focused on the private economy and high-growth client segments through a focus on organic growth and seamless connectivity to our Capital Markets and Canadian Commercial Banking and Wealth Management franchises. Our key strategic priorities continue to be: * Building and deepening client relationships; * Strengthening and diversifying our deposit base; * Improving efficiency through data and technology; and * Advancing the growth and transformation of our business. ### 2022 progress In 2022, our continued focus on deep-rooted relationship banking continues to attract new clients and at the same time provides us with opportunities to do more with existing clients. As a result, we drove strong loan, deposit and AUM/AUA net flows. Investments in our business to support growth allow us to continue to expand the products and services we offer, improve processes and technology and meet client needs. #### Building and deepening client relationships * Drove solid loan and deposit growth, including continued expansion of our private banking business with existing commercial and wealth clients. * Generated strong growth in AUM and AUA net flows, which helped to offset the impact of volatile investment markets during the year. * Leveraged our strong partnership with our Capital Markets franchise to provide a wider range of products and services to U.S. commercial and wealth clients. * Ranked as a Top Ten Registered Investment Advisor by Barron’s for the third consecutive year. #### Strengthening and diversifying our deposit base * Maintained a diversified funding strategy through our commercial, private banking and retail clients. * Continued growth in private banking. * Expanded deposit gathering, including leveraging the rising rate environment to attract new clients to our CIBC Agility online savings platform. #### Improving efficiency through data and technology * Advanced the implementation of customer relationship management and data strategy initiatives to further the connectivity between teams, provide a consolidated view of our businesses and support a strong risk management infrastructure. * Continued to refine client-facing processes making it easier for clients to bank with us, including launching the Zelle$^{\text{\textregistered}}$ person-to-person payment platform. * Began implementation of a consolidated wealth management system to improve client service. #### Advancing the growth and transformation of our business * Expanded Commercial Banking industry specialties with the launch of Equipment Financing, and added Junior Debt lending and advisory services. * Further enhanced our risk and change management infrastructure to support our growth. ### 2022 financial review ```mermaid graph TD subgraph Revenue (US$ billions) A21(21) -->|1.7| A22(22) end subgraph Revenue (US$ billions) A21_2(21) -->|1.9| A22_2(22) end subgraph Net income ($ millions) B21(21) -->|926| B22(22) end subgraph Net income ($ millions) B21_2(21) -->|760| B22_2(22) end subgraph Net income (US$ millions) C21(21) -->|739| C22(22) end subgraph Net income (US$ millions) C21_2(21) -->|588| C22_2(22) end subgraph Operating leverage (% in U.S. dollars) D21(21) -->|8.5| D22(22) end subgraph Operating leverage (% in U.S. dollars) D21_2(21) -->|(6.3)| D22_2(22) end ``` ### Our focus for 2023 To build on our momentum across U.S. Commercial Banking and Wealth Management, we will continue to focus on helping our clients achieve their ambitions by: * Growing Commercial Banking by delivering expertise and unique solutions leveraging the strength of our franchise to provide lending and deposit services; * Expanding Private Wealth and Private Banking with the high-net-worth and ultra-high-net-worth segments, and in fast-growing markets; and * Investing in people, technology and infrastructure to scale our platform, strengthen our risk management capabilities, enhance data-driven decision making and create greater efficiencies. ### Results in Canadian dollars$^{(1)}$ | \$ millions, for the year ended October 31 | 2022 | 2021 | | :--- | :--- | :--- | | **Revenue** | | | | Commercial banking | \$ 1,613 | \$ 1,444 | | Wealth management$^{(2)}$ | 844 | 750 | | **Total revenue$^{(3)}$** | **2,457** | **2,194** | | **Provision for (reversal of) credit losses** | | | | Impaired | 113 | 104 | | Performing | 105 | (179) | | **Provision for (reversal of) credit losses** | **218** | **(75)** | | **Non-interest expenses** | **1,328** | **1,121** | | **Income before income taxes** | **911** | **1,148** | | **Income taxes** | **151** | **222** | | **Net income** | **\$ 760** | **\$ 926** | | **Net income attributable to:** | | | | Equity shareholders | \$ 760 | \$ 926 | | **Total revenue$^{(3)}$** | | | | Net interest income | \$ 1,655 | \$ 1,449 | | Non-interest income | 802 | 745 | | | \$ 2,457 | \$ 2,194 | | **Average allocated common equity$^{(5)}$** | **\$ 10,422** | **\$ 8,975** | | **Average assets ($ billions)$^{(4)}$** | **\$ 54.0** | **\$ 46.7** | | **Average loans ($ billions)$^{(4)}$** | **\$ 48.3** | **\$ 41.4** | | **Average deposits ($ billions)$^{(4)}$** | **\$ 45.6** | **\$ 41.4** | | **AUA ($ billions)$^{(6)}$** | **\$ 121.0** | **\$ 124.5** | | **AUM ($ billions)$^{(6)}$** | **\$ 93.2** | **\$ 96.4** | | **Full-time equivalent employees** | **2,472** | **2,170** | $^{(1)}$ For additional segmented information, see Note 30 to the consolidated financial statements. $^{(2)}$ Includes revenue related to the U.S. Paycheck Protection Program. $^{(3)}$ Included \$8 million of income relating to the accretion of the acquisition date fair value discount on the acquired loans of The PrivateBank (2021: \$15 million). $^{(4)}$ Average balances are calculated as a weighted average of daily closing balances. $^{(5)}$ For additional information, see the “Non-GAAP measures” section. $^{(6)}$ Includes certain Canadian Commercial Banking and Wealth Management assets that U.S. Commercial Banking and Wealth Management provides sub-advisory services for. ## Results in U.S. dollars$^{(1)}$ | US\$ millions, for the year ended October 31 | 2022 | 2021 | | :--- | :--- | :--- | | **Revenue** | | | | Commercial banking | \$ 1,249 | \$ 1,151 | | Wealth management$^{(2)}$ | 653 | 597 | | **Total revenue$^{(3)}$** | **1,902** | **1,748** | | **Provision for (reversal of) credit losses** | | | | Impaired | 87 | 82 | | Performing | 82 | (143) | | **Provision for (reversal of) credit losses** | **169** | **(61)** | | **Non-interest expenses** | **1,028** | **893** | | **Income before income taxes** | **705** | **916** | | **Income taxes** | **117** | **177** | | **Net income** | **\$ 588** | **\$ 739** | | **Net income attributable to:** | | | | Equity shareholders | \$ 588 | \$ 739 | | **Total revenue$^{(3)}$** | | | | Net interest income | \$ 1,281 | \$ 1,154 | | Non-interest income | 621 | 594 | | | \$ 1,902 | \$ 1,748 | | **Net interest margin on average interest-earning assets$^{(4)(5)}$** | **3.42 %** | **3.50 %** | | **Efficiency ratio** | **54.0 %** | **51.1 %** | | **Operating leverage$^{(6)}$** | **(6.3)%** | **8.5 %** | | **Return on equity$^{(4)}$** | **7.3 %** | **10.3 %** | | **Average allocated common equity$^{(6)}$** | **\$ 8,066** | **\$ 7,149** | | **Average assets ($ billions)$^{(4)}$** | **\$ 41.7** | **\$ 37.2** | | **Average loans ($ billions)$^{(4)}$** | **\$ 37.4** | **\$ 33.0** | | **Average deposits ($ billions)$^{(4)}$** | **\$ 35.3** | **\$ 33.0** | | **AUA ($ billions)$^{(7)}$** | **\$ 88.8** | **\$ 100.6** | | **AUM ($ billions)$^{(7)}$** | **\$ 68.4** | **\$ 77.9** | $^{(1)}$ For additional segmented information, see Note 30 to the consolidated financial statements. $^{(2)}$ Includes revenue related to the U.S. Paycheck Protection Program. $^{(3)}$ Included US\$6 million of income relating to the accretion of the acquisition date fair value discount on the acquired loans of The PrivateBank (2021: US\$12 million). $^{(4)}$ Average balances are calculated as a weighted average of daily closing balances. $^{(5)}$ For additional information on the composition, see the “Glossary” section. $^{(6)}$ For additional information, see the “Non-GAAP measures” section. $^{(7)}$ Includes certain Canadian Commercial Banking and Wealth Management assets that U.S. Commercial Banking and Wealth Management provides sub-advisory services for. ### Financial overview Net income was down \$166 million or 18% (US\$151 million or 20%) from 2021, primarily due to a provision for credit losses in the current year compared with a provision reversal in the prior year and higher non-interest expenses, partially offset by higher revenue. #### Revenue Revenue was up US\$154 million or 9% from 2021. Commercial banking revenue was up US\$98 million or 9%, primarily due to higher net interest income from loan growth and higher fees from loan syndication, partially offset by lower loan margins. Wealth management revenue was up US\$56 million or 9%, primarily due to higher net interest income from deposit growth, higher deposit margins, and higher fee-based revenue driven by higher average AUA and AUM balances and net sales. Net interest margin on average interest-earning assets was down 8 basis points, primarily due to lower loan margins, and lower loan repayment fees due to the PPP, partially offset by higher deposit margins. #### Provision for (reversal of) credit losses The current year included a provision for credit losses of US\$169 million, while the prior year included a provision reversal of US\$61 million. The current year included a provision for credit losses on performing loans due to unfavourable portfolio migration and model parameter updates, while the prior year included a provision reversal due to a favourable change in our economic outlook driven by the recovery from the COVID-19 pandemic. Provision for credit losses on impaired loans was up due to higher provisions in the capital goods manufacturing sector, partially offset by lower provisions in the real estate and construction sector. #### Non-interest expenses Non-interest expenses were up US\$135 million or 15% from 2021, primarily due to higher employee-related and performance-based compensation, and higher spending of US\$94 million on strategic initiatives in support of growth in our commercial banking platform and infrastructure build in our U.S. franchise. #### Income taxes Income taxes were down US\$60 million or 34% from 2021, primarily due to lower income. #### Average assets Average assets were up US\$4.5 billion or 12% from 2021, primarily due to growth in loans. #### Assets under administration AUA were down US\$11.8 billion or 12% from 2021, primarily due to market depreciation, partially offset by net sales. AUM amounts are included in the amounts reported under AUA. CIBC 2022 ANNUAL REPORT 29 # Management’s discussion and analysis ## Capital Markets Capital Markets provides integrated global markets products and services, investment banking advisory and execution, corporate banking solutions and top-ranked research to our clients around the world. It includes Direct Financial Services which focuses on expanding CIBC’s digital capabilities to provide a cohesive set of direct banking, direct investing and innovative multi-currency payment solutions for CIBC’s clients. ### Our business strategy Our goal is to deliver leading capital markets solutions to our North American and international clients by providing best-in-class insight, advice and execution. To enable CIBC’s strategy and priorities, we collaborate with our partners across our bank to deepen and enhance client relationships. Our three key strategic priorities continue to be: * Delivering the leading capital markets platform in Canada to our core clients; * Building a North American client platform with global capabilities; and * Focusing on connectivity to accelerate the growth of Direct Financial Services and deepen relationships across our bank. ### 2022 progress In 2022, we continued to make progress on our strategic priorities with an emphasis on deepening client relationships, growing in the U.S. and enhancing connectivity across the bank. Collectively, these efforts have built a well-diversified Capital Markets business that delivers consistent performance and growth. Our growth in 2022 was enabled by our strong focus on our clients and favourable market conditions in Global Markets. In addition, we further expanded our Direct Financial Services business to generate more recurring revenue and attract new clients seeking a convenient, digitally-enabled banking and investing model. #### Delivering the leading capital markets platform in Canada to our core clients * Continued delivering industry-leading advice and capital markets solutions by expanding our Energy, Infrastructure and Transition group to complement our existing platform and enable the transition to a lower carbon future. * Strengthened our platform by continuing to invest in talent and technology, including investments in our talent and simplifying processes to support our client-focused culture. * Committed \$100 million in limited partnership investments dedicated to investing in key climate tech and energy transition funds, driving the development of new climate innovations. * Announced multi-year partnerships with the University of Calgary, the Schulich School of Business, and McGill University, to help foster the energy transition ecosystem and enable new ideas and develop a new generation of leaders. #### Building a North American client platform with global capabilities * Made a strategic investment in New York and London co-headquartered specialized private markets firm Sera Global, which is aligned with our strategy to accelerate our momentum in the U.S. * Achieved top 10 ranking in financing for the renewable industry across North America for transactions that closed from January 1, 2022 to September 30, 2022 (North American Renewables League Tables by Inframation). * Expanded Carbonplace (formally known as Project Carbon) with three new members, providing settlements infrastructure and systems for marketplaces and exchanges in the voluntary carbon market, helping to enable the sustainability ambitions of our clients. * Recipient of Global Finance’s North American Regional Awards for Outstanding Leadership in Transition & Sustainability Linked Bonds and for Outstanding Leadership in Green Bonds. * CIBC Cleary Gull was the recipient of M\&A Atlas Americas Awards for Americas Industries Manufacturing Deal of the Year (Middle Market) and USA Deal of the Year (Small Markets). #### Focusing on connectivity to accelerate the growth of Direct Financial Services and deepen relationships across our bank * Expanded our industry-first Canadian Depositary Receipts lineup as part of our ongoing commitment to developing innovative, market-based solutions that meet investor needs. * Broadened the banking services available to clients through Simplii Financial, becoming the first Canadian digital banking brand to offer recurring and future-dated Interac e-Transfer transactions and establish a digital gift card marketplace, in addition to launching a U.S. dollar savings account, partnerships with Visa Direct and MoneyGram, and winning Best Bank in Canada for Value for Money by Ipsos. * Continued to enhance our offerings to clients within our Global Money Transfer platform, with services such as Cash Pickup and Digital Identity Verification. As a leading capital markets franchise in Canada and banking partner to our clients around the world, Capital Markets acted as: * Financial advisor to Blackstone Infrastructure Partners on its US\$3 billion equity investment in Invenergy Renewable Holdings LLC to accelerate renewable development activities. * Financial advisor to Innergex Renewable Energy Inc. on its acquisition of Aela Generación S.A. and Aela Energía SpA, one of Chile’s largest independent power producers of renewable energy, for a transaction value of US\$686 million; lead on a \$173 million issue of common shares and provision of acquisition credit facilities in support of the transaction; also, joint lead placement agent on a US\$710 million dual tranche private placement of senior notes for Aela Generación S.A. and assisted in the implementation of a financial risk management strategy. * Financial advisor to Cameco Corporation on the acquisition of Westinghouse Electric Company, through a strategic partnership with Brookfield Renewable Partners, for a transaction value of US\$7.9 billion (closing expected in the second half of 2023); lead on a US\$748 million issue of common shares and joint bookrunner, joint lead arranger and administrative agent on a US\$600 million senior term loan facility and joint bookrunner, joint lead arranger and syndication agent on a US\$1 billion senior 364-day bridge facility in support of the acquisition. 30 CIBC 2022 ANNUAL REPORT * Exclusive financial advisor to TELUS Corporation on its acquisition of LifeWorks Inc. for a transaction value of \$2.9 billion. * Exclusive financial advisor to Resolute Forest Products Inc. on its sale to Paper Excellence Group for a transaction value of US\$2.7 billion (expected to close in the first half of 2023). * Joint bookrunner on a number of corporate green/sustainable bonds including TELUS Corporation’s \$1.1 billion sustainability-linked notes, iA Financial Corporation’s \$300 million sustainable debentures and Ontario Power Generation’s \$300 million green notes offerings as well as joint bookrunner for the Government of Canada’s \$5 billion green bonds, Province of Ontario’s \$1.75 billion green bond, Province of Quebec’s \$1 billion green notes and European Investment Bank’s \$1.4 billion climate awareness bond offerings. * Led the structuring and execution of a number of Sustainability-Linked Loans (SLLs) in Canada, including acting as joint bookrunner, co-lead arranger and sustainability structuring agent on a SLL overlay to the \$750 million Revolver for Cogeco Communications Inc. and acting as co-sustainability structuring agent for Hydro One’s amendments to incorporate the SLL structure to the existing \$2.3 billion Hydro One Inc. and \$250 million Hydro One Limited syndicated credit facilities. Hydro One is the first organization in Canada to incorporate increasing Indigenous procurement spend as a key sustainability performance measure in the loan. ### 2022 financial review ```mermaid graph TD subgraph Revenue ($ billions) A21(21) -->|4.5| A22(22) end subgraph Revenue ($ billions) A21_2(21) -->|5.0| A22_2(22) end subgraph Net income ($ millions) B21(21) -->|1,857| B22(22) end subgraph Net income ($ millions) B21_2(21) -->|1,908| B22_2(22) end subgraph Operating leverage (%) C21(21) -->|(4.4)| C22(22) end subgraph Operating leverage (%) C21_2(21) -->|1.7| C22_2(22) end subgraph Average loans and acceptances ($ billions) D21(21) -->|47.8| D22(22) end subgraph Average loans and acceptances ($ billions) D21_2(21) -->|62.5| D22_2(22) end subgraph Average deposits ($ billions) E21(21) -->|86.0| E22(22) end subgraph Average deposits ($ billions) E21_2(21) -->|100.5| E22_2(22) end subgraph Average value-at-risk (VaR) ($ millions) F21(21) -->|7.6| F22(22) end subgraph Average value-at-risk (VaR) ($ millions) F21_2(21) -->|8.7| F22_2(22) end subgraph Revenue – Direct financial services ($ millions) G21(21) -->|828| G22(22) end subgraph Revenue – Direct financial services ($ millions) G21_2(21) -->|979| G22_2(22) end ``` ### Our focus for 2023 To support our bank’s long-term objectives, Capital Markets remains focused on delivering profitable growth by deepening client relationships and collaborating with our partners across our bank to help make our clients’ ambitions a reality. We will continue to do this by: * Maintaining our focused approach to client coverage in Canada; * Growing our North American platform by further expanding our U.S. reach and broadening the services offered to clients; and * Strengthening our connectivity, technology and innovation efforts to bring more of our bank’s offerings to our clients. CIBC 2022 ANNUAL REPORT 31 # Management’s discussion and analysis ## Results$^{(1)}$ | \$ millions, for the year ended October 31 | 2022 | 2021 | | :--- | :--- | :--- | | **Revenue** | | | | Global markets | \$ 2,322 | \$ 2,076 | | Corporate and investment banking | 1,700 | 1,616 | | Direct financial services | 979 | 828 | | **Total revenue$^{(2)}$** | **5,001** | **4,520** | | **Provision for (reversal of) credit losses** | | | | Impaired | (31) | 32 | | Performing | (31) | (132) | | **Reversal of credit losses** | **(62)** | **(100)** | | **Non-interest expenses** | **2,437** | **2,117** | | **Income before income taxes** | **2,626** | **2,503** | | **Income taxes$^{(2)}$** | **718** | **646** | | **Net income** | **\$ 1,908** | **\$ 1,857** | | **Net income attributable to:** | | | | Equity shareholders | \$ 1,908 | \$ 1,857 | | **Efficiency ratio** | **48.7 %** | **46.8 %** | | **Operating leverage$^{(4)}$** | **(4.4)%** | **1.7 %** | | **Return on equity$^{(3)}$** | **21.3 %** | **25.6 %** | | **Average allocated common equity$^{(3)}$** | **\$ 8,978** | **\$ 7,241** | | **Average assets ($ billions)$^{(4)}$** | **\$ 284.3** | **\$ 255.1** | | **Average loans and acceptances ($ billions)$^{(4)}$** | **\$ 62.5** | **\$ 47.8** | | **Average deposits ($ billions)$^{(4)}$** | **\$ 100.5** | **\$ 86.0** | | **Full-time equivalent employees$^{(5)}$** | **2,384** | **2,225** | $^{(1)}$ For additional segmented information, see Note 30 to the consolidated financial statements. $^{(2)}$ Revenue and income taxes are reported on a TEB. Accordingly, revenue and income taxes include a TEB adjustment of \$211 million (2021: \$204 million). The equivalent amounts are offset in the revenue and income taxes of Corporate and Other. $^{(3)}$ For additional information, see the “Non-GAAP measures” section. $^{(4)}$ Average balances are calculated as a weighted average of daily closing balances. $^{(5)}$ In 2021, 79 full-time equivalent employees related to Simplii Financial’s call centre operations were transferred to Capital Markets from Corporate and Other, with no financial impact as the costs were previously allocated to Direct financial services. ### Financial overview Net income was up \$51 million or 3% from 2021, primarily due to higher revenue, partially offset by higher non-interest expenses and a lower provision reversal in the current year. #### Revenue Revenue was up \$481 million or 11% from 2021. Global markets revenue was up \$246 million or 12%, primarily due to higher foreign exchange, global collateral finance and equity derivatives trading revenue, partially offset by lower commodities trading revenue. Corporate and investment banking revenue was up \$84 million or 5%, primarily due to higher corporate banking and advisory revenue, and higher gains from our investment portfolios, partially offset by lower equity and debt underwriting activity. Direct financial services revenue was up \$151 million or 18%, primarily due to higher revenue from Simplii Financial, and higher volumes and growth in our foreign exchange and payments business, partially offset by lower trading volumes in direct investing. #### Provision for (reversal of) credit losses Provision reversal of credit losses was down \$38 million or 38% from 2021. The provision reversal of credit losses on performing loans was down as the prior year included a favourable change in our economic outlook driven by the recovery from the COVID-19 pandemic, and favourable portfolio migration. The current year included a provision reversal of credit losses on impaired loans attributable to the oil and gas, and utilities sectors, while the prior year included a provision for credit losses mainly in the utilities sector. #### Non-interest expenses Non-interest expenses were up \$320 million or 15% from 2021, primarily due to higher spending on strategic initiatives, and higher employee-related and performance-based compensation. #### Income taxes Income taxes were up \$72 million or 11% from 2021, primarily due to higher income. #### Average assets Average assets were up \$29.2 billion or 11% from 2021, primarily due to higher loan balances, trading securities and higher derivative valuation. 32 CIBC 2022 ANNUAL REPORT # Management’s discussion and analysis ## Corporate and Other Corporate and Other includes the following functional groups – Technology, Infrastructure and Innovation, Risk Management, People, Culture and Brand, Finance and Enterprise Strategy, as well as other support groups. The expenses of these functional and support groups are generally allocated to the business lines within the SBUs. The majority of the functional and support costs of CIBC Bank USA are recognized directly in the U.S. Commercial Banking and Wealth Management SBU. Corporate and Other also includes the results of CIBC FirstCaribbean and other strategic investments, as well as other income statement and balance sheet items not directly attributable to the business lines. ## Results$^{(1)}$ | \$ millions, for the year ended October 31 | 2022 | 2021 | | :--- | :--- | :--- | | **Revenue** | | | | International banking | \$ 778 | \$ 687 | | Other | (566) | (206) | | **Total revenue$^{(2)}$** | **212** | **481** | | **Provision for (reversal of) credit losses** | | | | Impaired | 59 | 76 | | Performing | (57) | (54) | | **Provision for credit losses** | **2** | **22** | | **Non-interest expenses** | **1,407** | **1,440** | | **Loss before income taxes** | **(1,197)** | **(981)** | | **Income taxes$^{(2)}$** | **(628)** | **(485)** | | **Net income (loss)** | **\$ (569)** | **\$ (496)** | | **Net income (loss) attributable to:** | | | | Non-controlling interests | \$ 23 | \$ 17 | | **Equity shareholders** | **\$ (592)** | **\$ (513)** | | **Full-time equivalent employees** | **26,020** | **23,017** | $^{(1)}$ For additional segmented information, see Note 30 to the consolidated financial statements. $^{(2)}$ Revenue and income taxes of Capital Markets are reported on a TEB. The equivalent amounts are offset in the revenue and income taxes of Corporate and Other. Accordingly, revenue and income taxes include a TEB adjustment of \$211 million (2021: \$204 million). ## Financial overview Net loss was up \$73 million from 2021, due to lower revenue, partially offset by lower non-interest expenses and lower provision for credit losses. ### Revenue Revenue was down \$269 million from 2021. International banking revenue was up \$91 million, primarily due to the impact of foreign exchange translation, higher net product spreads that benefitted from the rising interest rate environment, and higher fee-based revenue in CIBC FirstCaribbean. Other revenue was down \$360 million, primarily due to lower treasury revenue related to an increase in funding costs from higher credit and liquidity spreads. ### Provision for (reversal of) credit losses Provision for credit losses was down \$20 million from 2021. The provision reversal of credit losses on performing loans was comparable to the prior year. The provision for credit losses on impaired loans was down due to lower provisions in CIBC FirstCaribbean. ### Non-interest expenses Non-interest expenses were down \$33 million from 2021, mainly due to a lower charge related to the consolidation of our real estate portfolio, shown as an item of note, and lower unallocated corporate support costs, partially offset by higher employee termination costs and higher expenses in CIBC FirstCaribbean. ### Income taxes Income tax benefit was up \$143 million from 2021, primarily due to a higher loss. CIBC 2022 ANNUAL REPORT 33 # Financial condition ## Review of condensed consolidated balance sheet | \$ millions, as at October 31 | 2022 | 2021 | | :--- | :--- | :--- | | **Assets** | | | | Cash and deposits with banks | \$ 63,861 | \$ 56,997 | | Securities | 175,879 | 161,401 | | Securities borrowed and purchased under resale agreements | 84,539 | 79,940 | | Loans and acceptances | 528,657 | 462,879 | | Derivative instruments | 43,035 | 35,912 | | Other assets | 47,626 | 40,554 | | | \$ 943,597 | \$ 837,683 | | **Liabilities and equity** | | | | Deposits | \$ 697,572 | \$ 621,158 | | Obligations related to securities lent, sold short and under repurchase agreements | 97,308 | 97,133 | | Derivative instruments | 52,340 | 32,101 | | Acceptances | 11,586 | 10,961 | | Other liabilities | 28,117 | 24,961 | | Subordinated indebtedness | 6,292 | 5,539 | | Equity | 50,382 | 45,830 | | | \$ 943,597 | \$ 837,683 | ### Assets Total assets as at October 31, 2022 were up \$105.9 billion or 13% from 2021, of which approximately \$27 billion was due to the appreciation of the U.S. dollar. Cash and deposits with banks increased by \$6.9 billion or 12%, primarily due to higher short-term placements in Treasury. Securities increased by \$14.5 billion or 9%, primarily due to increases in U.S. Treasury and Canadian government debt securities, partially offset by decreases in corporate equity. Further details on the composition of securities is provided in Note 4 to the consolidated financial statements. Securities borrowed and purchased under resale agreements increased by \$4.6 billion or 6%, primarily due to client-driven activities. Net loans and acceptances increased by \$65.8 billion or 14%, primarily due to increases in business and government loans, which included the impact of foreign exchange translation, Canadian residential mortgages, and the credit card portfolio, which included the addition of the Canadian Costco credit card portfolio acquired in the second quarter. Further details on the composition of loans and acceptances are provided in the “Supplementary annual financial information” section and Note 5 to the consolidated financial statements. Derivative instruments increased by \$7.1 billion or 20%, largely driven by increases in foreign exchange derivatives valuation, partially offset by a decrease in equity derivatives valuation. Other assets increased by \$7.1 billion or 17%, primarily due to increases in collateral pledged for derivatives, software and other intangibles, and tax receivables, partially offset by a decrease in broker receivables. ### Liabilities Total liabilities as at October 31, 2022 were up \$101.4 billion or 13% from 2021, of which approximately \$27 billion was due to the appreciation of the U.S. dollar. Deposits increased by \$76.4 billion or 12%, primarily due to increased wholesale funding and business and government deposits, both of which included the impact of foreign exchange translation, and domestic retail volume growth. Further details on the composition of deposits are provided in the “Supplementary annual financial information” section and Note 10 to the consolidated financial statements. Obligations related to securities lent, sold short and under repurchase agreements was comparable with the prior year. Derivative instruments increased by \$20.2 billion or 63%, largely driven by increases in foreign exchange and interest rate derivatives valuation, partially offset by a decrease in equity derivatives valuation. Acceptances increased by \$0.6 billion or 6%, driven by client activities. Other liabilities increased by \$3.2 billion or 13%, primarily due to increases in accrued interest payable and broker payables. Subordinated indebtedness increased by \$0.8 billion or 14%, primarily due to the issuance of subordinated indebtedness in the second quarter. For further details see the “Capital management” section. ### Equity Equity as at October 31, 2022 increased \$4.6 billion or 10% from 2021, primarily due to a net increase in retained earnings, accumulated other comprehensive income resulting from a net foreign currency translation gain related to our net investment in foreign operations, the issuance of a limited recourse capital note in the third quarter and the issuance of preferred shares in the fourth quarter, partially offset by net losses recognized in other comprehensive income related to debt securities measured at FVOCI and net losses on cash flow hedges, and the redemption of preferred shares in the third quarter. For further details see the “Capital management” section. 34 CIBC 2022 ANNUAL REPORT # Management’s discussion and analysis ## Capital management Our capital strength protects our depositors and creditors from risks inherent in our businesses. Our overall capital management objective is to maintain a strong and efficient capital base that: * Acts as a buffer to absorb unexpected losses while providing sustainable returns to our shareholders; * Enables our businesses to grow and execute on our strategy; * Demonstrates balance sheet strength and our commitment to prudent balance sheet management; and * Supports us in maintaining a favourable credit standing and raising additional capital or other funding on attractive terms. We actively manage our capital to meet these objectives in support of our overall enterprise strategy. We also consider the economic outlook, and the overall operating environment when deploying our capital and may choose to operate with greater levels of capital based on our view of potential downside risks. ### Capital management and planning framework We maintain a capital management policy that establishes our capital management principles in the context of our risk appetite to support our capital management objectives. Our capital management policy is reviewed and approved by the Board of Directors (the Board) in support of our Internal Capital Adequacy Assessment Process (ICAAP). The policy includes guidelines that relate to capital strength, capital mix, dividends and return of capital, and unconsolidated capital adequacy of regulated entities, based on regulatory requirements and our risk appetite. The level of capital and capital ratios are continually monitored relative to our regulatory minimums and internal targets and the amount of capital required may change in relation to our business growth, risk appetite, and the business and regulatory environment. Capital planning is a crucial element of our overall financial planning process and establishment of strategic objectives and is developed in accordance with the capital management policy. Each year, a capital plan and three-year outlook are developed as part of the financial plan, which establishes targets for the coming year and business plans to achieve those targets. The capital plan is also stress-tested as a part of our enterprise-wide stress testing process to ensure CIBC is adequately capitalized through severe but plausible stress scenarios (see the “Enterprise-wide stress testing” section for further details). Our capital position and forecasts are monitored throughout the year and assessed against the capital plan. The Board, with endorsement from the Risk Management Committee (RMC), provides oversight of CIBC’s capital management through the approval of our risk appetite, capital policy and plan. The RMC is provided with regular updates on our capital position including performance to date, updated forecasts, and any material regulatory developments that may impact our future capital position. Treasury is responsible for the overall management of capital including planning, forecasting, and execution of the plan, with senior management oversight provided by the Global Asset Liability Committee (GALCO). ### Enterprise-wide stress testing We perform enterprise-wide stress testing on at least an annual basis. The results are an integral part of our ICAAP, as defined by Pillar 2 of the Basel III Accord, wherein we identify and measure our risks on an ongoing basis in order to ensure that the capital available is sufficient to cover all risks across CIBC, including the impacts of stress testing. We maintain a process that determines plausible but stressed economic scenarios such as global recessions and housing price shocks, and then apply these stress scenarios to our bank-wide exposures to determine the impact on the consolidated statement of income, RWA requirements, and consequently, key capital ratios. This helps us analyze the potential risks within our portfolios and establish prudent capital levels in excess of the regulatory minimum requirements. All of the elements of capital are monitored throughout the year and the capital plan is adjusted as appropriate. Management determines the range of scenarios to be tested. Macroeconomic stress test scenarios are designed to be both severe and plausible and designed to be consistent with OSFI’s stress testing framework to ensure that they are comprehensive. CIBC 2022 ANNUAL REPORT 35 # Management’s discussion and analysis The following diagram summarizes the enterprise-wide stress testing process including the development of scenarios, identification of risk drivers and linkages to our other bank-wide ICAAP processes. The process includes syndication with our economists and lines of business to ensure scenarios are relevant to our businesses and there is a consistent interpretation of the scenarios across CIBC. ```mermaid graph TD A[Enterprise-wide Stress Testing] --> B{Scenario Development} A --> C{Risk Identification/Modelling} B --> D[Develop macroeconomic scenarios relevant to the current and projected business cycle including emerging risks] C --> E[Identification of relevant risk drivers Development and validation of stress models and parameters] D --> F[Translation of financial and macroeconomic factors (e.g., GDP, unemployment, yield curve, etc.)] E --> F F --> G{Quantify impacts} G --> H[Credit] G --> I[Market] G --> J[Operational] G --> K[Liquidity] G --> L[Earnings] G --> M[Other] H & I & J & K & L & M --> N{Aggregate results} N --> O[Earnings] N --> P[Capital] N --> Q[Funding and Liquidity] O & P & Q --> R{Evaluate and review bank-wide impacts} R --> S{Linkages} S --> T[Internal Capital Adequacy Assessment Process (ICAAP)] T --> U[Risk Appetite] T --> V[Capital Management and Planning] T --> W[Financial Management and Planning] T --> X[Liquidity Management] T --> Y[Recovery and Resolution Planning] T --> Z[Risk Management] ``` Stress test scenarios are designed to capture a wide range of macroeconomic and financial variables that are relevant to assess the impact on our specific portfolios. This includes, for example, GDP, unemployment, house prices, interest rates and equity prices. The stress testing process is comprehensive, using a bottoms-up analysis of each of our bank-wide portfolios, and the results are analyzed on a product, location and sector basis. Our stress testing approach combines the use of statistical models and expert judgment to ensure the results are reasonable in estimating the impacts of the stress scenarios. Stress testing methodologies and results are subject to a detailed review and challenge from both our lines of business and Risk Management. Stress testing results are presented for review to the RMC and are also shared with the Board and OSFI. The results of our enterprise-wide stress testing are used to highlight any vulnerabilities and ensure we remain well capitalized against regulatory and management expectations. A key objective of the enterprise-wide stress tests is to identify key areas of exposure and foster discussion of management actions that would be taken to mitigate the impact of stress scenarios. Contingency planning and strategies for extreme stress scenarios are included in the development and maintenance of CIBC’s recovery and resolution plans. These plans include credible remedial actions that may be considered to counteract and recover from stress, or promote CIBC’s orderly resolution with limited systemic impacts. Additional information on stress testing is provided in the “Management of risk” section. ## Recovery plan FRFIs must maintain robust and credible recovery plans that identify options to restore financial strength and viability when under severe stress. CIBC continues to maintain and update its recovery plan in line with OSFI requirements and industry best practices. ## Resolution plan The Canada Deposit Insurance Corporation (CDIC) Resolution Planning By-law establishes a statutory framework pursuant to which domestic systemically important banks (D-SIBs) submit and maintain resolution plans that are critical to support resolvability and financial sector stability. CDIC, Canada’s resolution authority for its member institutions, including D-SIBs, has issued guidance for the development, maintenance and testing of comprehensive resolution plans and related strategies to demonstrate their operational capability, thus ensuring resolvability can be achieved in an orderly fashion. CIBC’s resolution plan has been developed and maintained in alignment with guidance and is in compliance with CDIC’s Resolution Planning By-law. ## Regulatory capital requirements Our regulatory capital requirements are determined in accordance with guidelines issued by OSFI, which are based upon the capital standards developed by the BCBS. 36 CIBC 2022 ANNUAL REPORT # Management’s discussion and analysis Regulatory capital consists of CET1, Tier 1 and Tier 2 capital. The tiers of regulatory capital indicate increasing quality/permanence and the ability to absorb losses. The major components of our regulatory capital are summarized as follows: | | Higher quality | Tier 1 capital | Total capital | | :--- | :--- | :--- | :--- | | **CET1 capital** | Common equity (retained earnings, common shares and stock surplus) Accumulated other comprehensive income (AOCI)$^{(1)}$ Qualifying instruments issued by a consolidated banking subsidiary to third parties Certain eligible general allowance resulting from expected credit loss provisioning$^{(2)}$ Less regulatory deductions for items such as: Goodwill and other intangible assets Deferred tax assets Net assets related to defined benefit pension plans Certain investments | | | | **Additional Tier 1 (AT1) capital** | Non-viability contingent capital (NVCC) preferred shares Limited recourse capital notes Qualifying instruments issued by a consolidated subsidiary to third parties | | | | | Lower quality | | | | **Tier 2 capital** | NVCC subordinated indebtedness Eligible general allowance under the standardized approach$^{(2)}$ Qualifying instruments issued by a consolidated subsidiary to third parties | | | $^{(1)}$ Excluding AOCI relating to cash flow hedges and changes to fair value option (FVO) liabilities attributable to changes in own credit risk. $^{(2)}$ In response to the COVID 19 pandemic, OSFI has provided regulatory flexibility by implementing transitional arrangements for the treatment of expected loss provisioning, such that part of the allowances that would otherwise be included in Tier 2 capital will instead qualify for inclusion in CET1 capital subject to certain scalars and limitations until the end of fiscal 2022. The transitional arrangement will no longer apply in Q1 2023. See the “Continuous enhancement to regulatory capital requirements” section for additional details. Qualifying regulatory capital instruments must be capable of absorbing loss at the point of non-viability of the financial institution. OSFI requires all institutions to achieve target capital ratios which include buffers. Targets may be higher for certain institutions at OSFI’s discretion. CIBC has been designated by OSFI as a domestic systemically important bank (D-SIB) in Canada. D-SIBs are subject to a CET1 surcharge equal to 1.0% of RWA. In addition, OSFI expects D-SIBs to hold a Domestic Stability Buffer (DSB) requirement intended to address Pillar 2 risks that are not adequately captured in the Pillar 1 capital requirements. The DSB is currently set at 2.5% but can range from 0% to 2.5% of RWA. Additionally, banks need to hold an incremental countercyclical capital buffer equal to their weighted-average buffer requirement in Canada and across certain other jurisdictions where they have private sector credit exposures. OSFI’s current targets are summarized below: | As at October 31, 2022 | Minimum | Capital conservation buffer | D-SIB buffer | Pillar 1 targets$^{(1)}$ | Domestic Stability Buffer$^{(2)}$ | Target including all buffer requirements | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | CET1 ratio | 4.5 % | 2.5 % | 1.0 % | 8.0 % | 2.5 % | 10.5 % | | Tier 1 capital ratio | 6.0 % | 2.5 % | 1.0 % | 9.5 % | 2.5 % | 12.0 % | | Total capital ratio | 8.0 % | 2.5 % | 1.0 % | 11.5 % | 2.5 % | 14.0 % | $^{(1)}$ The countercyclical capital buffer applicable to CIBC is insignificant as at October 31, 2022. $^{(2)}$ On June 22, 2022, OSFI announced the DSB will remain at 2.5% of total RWA. This level remains unchanged from October 31, 2021. In the first quarter of 2022, we increased the common equity allocated to our SBUs based on a target CET1 ratio of 11%, from 10% in 2021, for the purpose of capital management. Further increases are possible as a result of the downside risks inherent in the economic outlook. Capital adequacy requirements are applied on a consolidated basis consistent with our financial statements, except for our insurance subsidiaries (CIBC Cayman Reinsurance Limited and CIBC Life Insurance Company Limited), which are excluded from the regulatory scope of consolidation. The basis of consolidation applied to our financial statements is described in Note 1 to the consolidated financial statements. CIBC Life Insurance Company Limited is subject to OSFI’s Life Insurance Capital Adequacy Test. CIBC 2022 ANNUAL REPORT 37 # Management’s discussion and analysis ## Risk-weighted assets The following table provides a summary of permissible regulatory capital approaches and those adopted by CIBC: | Risk category | Permissible regulatory capital approaches | Approach adopted by CIBC | | :--- | :--- | :--- | | Credit risk$^{(1)}$ | Basel provides three approaches for calculating credit risk capital requirements: Standardized Foundation Advanced internal ratings-based (AIRB) OSFI expects financial institutions in Canada with Total capital in excess of \$5 billion to use the AIRB approach for all material portfolios and credit businesses. OSFI provides two approaches for calculating counterparty credit risk (CCR) for derivatives transactions: Standardized Approach (SA-CCR) Internal Model Method (IMM) OSFI provides four approaches for calculating CCR for repo style transactions: Comprehensive approach, with supervisory haircuts Comprehensive approach, with own estimate haircuts Repo VaR approach IMM Permitted approaches for equity positions in the banking book (which includes equity investments in funds) include: Standardized Market-based Look-through Mandate-based Fall-back Basel provides the following approaches for calculating capital requirements for securitization positions: Internal Ratings-Based Approach (SEC-IRBA) Internal Assessment Approach (SEC-IAA) External Ratings-Based Approach (SEC-ERBA) Standardized Approach (SEC-SA) | We have adopted the AIRB approach for the majority of our credit portfolios. Under this methodology, we utilize our own internal estimates to determine probability of default (PD), loss given default (LGD), maturity, and exposure at default (EAD) for lending products and securities. We utilize the standardized approach for credit portfolios within CIBC Bank USA and CIBC FirstCaribbean. We periodically review portfolios under the standardized approach for consideration of adoption of the AIRB approach. Effective April 30, 2020, CIBC has adopted the IMM approach for calculating CCR exposure for qualifying derivative transactions. Certain transactions remain under the SA-CCR approach. The comprehensive approach, with supervisory haircuts, is used for credit risk mitigation for repo-style transactions. We use the standardized approach for equity positions in the banking book and both the look-through and mandate-based approaches for equity investments in funds. We use SEC-IRBA, SEC-IAA, SEC-ERBA and SEC-SA for securitization exposures in the banking book. | | Market risk | Market risk capital requirements can be determined under the following approaches: Standardized Internal models Internal models involve the use of internal VaR models to measure market risk and determine the appropriate capital requirement. The stressed VaR and incremental risk charge (IRC) also form part of the internal models approach. | We use the internal models approach to calculate market risk capital. Our internal market risk models comprise VaR, stressed VaR, IRC and a capital charge for risk not captured in VaR. We also use SEC-ERBA for trading book securitization positions. | | Operational risk | Operational risk capital requirements can be determined under the following approaches: Basic indicator approach Standardized approach | We use the standardized approach based on OSFI rules to calculate operational risk capital. | $^{(1)}$ Includes CCR. We also calculate a capital floor based on the standardized approaches. If our capital requirement is lower than that calculated by reference to the standardized approaches with a floor adjustment factor applied, currently at 70%, an adjustment to our RWA would be required. The increase in credit risk RWA was primarily due to increased book size from organic growth, the impact of foreign exchange translation, the acquisition of the Canadian Costco credit card portfolio, and capital model updates. The increase in market risk RWA was primarily driven by movement in risk levels, which includes changes in open positions and the market rates affecting these positions. The increase in operational risk RWA was driven by changes in gross income, as defined by OSFI. 38 CIBC 2022 ANNUAL REPORT # Management’s discussion and analysis ## Continuous enhancement to regulatory capital requirements The BCBS and OSFI have published a number of proposals for changes to the existing regulatory capital requirements to strengthen the regulation, supervision, and practices of banks, as well as to respond to changes in market conditions as a result of the COVID-19 pandemic, with the overall objective of enhancing financial stability. The discussion below provides a summary of BCBS and OSFI publications that have been issued since our 2021 Annual Report and transitional arrangements in response to the COVID-19 pandemic. ### Basel III reforms and revised Pillar 3 disclosure requirements On January 31, 2022, OSFI released final capital, leverage, liquidity and disclosure guidelines that incorporate the final Basel III reforms, as well as certain updates to the treatment of credit valuation adjustments (CVA), market risk hedges of other valuation adjustments of over-the-counter (OTC) derivatives and management of operational risk. The implementation date for these changes is the second quarter of 2023, with the exceptions of revisions to the CVA and market risk frameworks, which is the first quarter of 2024. The revisions to the LAR Guideline will be implemented as of April 1, 2023. Primary changes include: * Revisions to both the internal ratings-based (IRB) approach and standardized approach to credit risk; * Revised operational, market risk and CVA frameworks; * Updated CET1 capital deductions for certain assets; * An updated capital output floor based on the revised standardized approach noted above, with the phase-in of the floor factor over three years commencing in the second quarter of 2023; * Modification to the Leverage Ratio framework, including a buffer requirement for D-SIBs; and * Enhancements to the LAR Guideline, including changes to net cumulative cash flow (NCCF) requirements. OSFI also announced revisions to existing Pillar 3 disclosure to be implemented in the second quarter of 2023 and new Pillar 3 disclosure to be implemented in the fourth quarter of 2023 for D-SIBs. On November 11, 2021, the BCBS published “Revisions to market risk disclosure requirements”, which included a number of adjustments to reflect the revised market risk framework introduced in January 2019. OSFI has not adopted the related changes and currently requires implementation of the 2019 market risk framework in the first quarter of 2024. ### Transitional arrangements for the capital treatment of expected loss provisioning In response to the COVID-19 pandemic, OSFI introduced transitional arrangements for ECL provisioning that are available under the Basel Framework. These transitional arrangements were effective immediately upon being announced by OSFI on March 27, 2020 and result in a portion of allowances that would otherwise be included in Tier 2 capital qualifying for inclusion in CET1 capital. The amount of ECL allowances eligible for inclusion in CET1 capital is determined based on the increase in stage 1 and stage 2 allowances relative to balances as at January 31, 2020 as a baseline. This amount is then adjusted for tax effects and is subject to a scaling factor that decreases over time. The scaling factor has been set at 70% for fiscal 2020, 50% for fiscal 2021, and 25% for fiscal 2022. For exposures under the IRB approach, the lower of this amount and excess allowances otherwise eligible for inclusion in Tier 2 capital is included as CET1 capital under the transitional arrangements. The temporary transitional arrangements for ECL provisioning will no longer apply after October 31, 2022. ### Leverage ratio On April 9, 2020, OSFI announced temporary exclusion of central bank reserves and qualifying sovereign-issued securities from the leverage ratio exposure measure in response to the onset of the COVID-19 pandemic. Starting January 1, 2022, the temporary exclusion of qualifying sovereign issued securities from the leverage ratio exposure measure was no longer applicable. On September 13, 2022, OSFI announced that the temporary exclusion of central bank reserves from the leverage exposure measure will be no longer applicable effective April 1, 2023. As noted above, effective February 1, 2023, D-SIBs will be expected to have leverage ratios that meet or exceed 3.5%, including a leverage ratio buffer introduced under the modified Leverage Ratio framework as part of Basel III reforms. We continue to monitor and prepare for developments impacting regulatory capital requirements and disclosures. CIBC 2022 ANNUAL REPORT 39 # Management’s discussion and analysis ## Regulatory capital and ratios The components of our regulatory capital and ratios under Basel III are presented in the table below: | \$ millions, as at October 31 | 2022 | 2021 | | :--- | :--- | :--- | | **Common Equity Tier 1 (CET1) capital: instruments and reserves** | | | | Directly issued qualifying common share capital plus related stock surplus | \$ 14,841 | \$ 14,461 | | Retained earnings | 28,823 | 25,793 | | AOCI (and other reserves) | 1,594 | 1,069 | | Common share capital issued by subsidiaries and held by third parties (amount allowed in group CET1) | 107 | 116 | | **CET1 capital before regulatory adjustments** | **45,365** | **41,439** | | **CET1 capital: regulatory adjustments** | | | | Prudential valuation adjustments | 23 | 18 | | Goodwill (net of related tax liabilities) | 5,268 | 4,877 | | Other intangibles other than mortgage-servicing rights (net of related tax liabilities) | 2,289 | 1,737 | | Deferred tax assets excluding those arising from temporary differences (net of related tax liabilities) | 15 | 7 | | Defined benefit pension fund net assets (net of related tax liabilities) | 1,071 | 1,051 | | Other deductions or regulatory adjustments to CET1 as determined by OSFI$^{(1)}$ | (170) | (209) | | Other | (136) | 207 | | **Total regulatory adjustments to CET1 capital** | **8,360** | **7,688** | | **CET1 capital** | **37,005** | **33,751** | | **Additional Tier 1 (AT1) capital: instruments** | | | | Directly issued qualifying AT1 instruments plus related stock surplus$^{(2)}$ | 4,923 | 4,325 | | Directly issued capital instruments subject to phase out from AT1$^{(3)}$ | – | 251 | | AT1 instruments issued by subsidiaries and held by third parties (amount allowed in AT1) | 18 | 17 | | **AT1 capital** | **4,941** | **4,593** | | **Tier 1 capital (T1 = CET1 + AT1)** | **41,946** | **38,344** | | **Tier 2 capital: instruments and provisions** | | | | Directly issued qualifying Tier 2 instruments plus related stock surplus$^{(4)}$ | 5,716 | 4,945 | | Directly issued capital instruments subject to phase out from Tier 2 | – | 451 | | Tier 2 instruments issued by subsidiaries and held by third parties (amount allowed in Tier 2) | 25 | 22 | | General allowances | 576 | 440 | | **Tier 2 capital (T2)** | **6,317** | **5,858** | | **Total capital (TC = T1 + T2)** | **\$ 48,263** | **\$ 44,202** | | **Total RWA** | **\$ 315,634** | **\$ 272,814** | | **Capital ratios** | | | | CET1 ratio | 11.7 % | 12.4 % | | Tier 1 capital ratio | 13.3 % | 14.1 % | | Total capital ratio | 15.3 % | 16.2 % | $^{(1)}$ Includes the impact of the ECL transitional arrangement announced by OSFI on March 27, 2020 in response to the onset of the COVID-19 pandemic. The transitional arrangement results in a portion of ECL allowances that would otherwise be included in Tier 2 capital qualifying for inclusion in CET1 capital. The amount is subject to certain adjustments and limitations until the end of 2022. $^{(2)}$ Comprised of non-viability contingent capital (NVCC) preferred shares and Limited Recourse Capital Notes (LRCN). $^{(3)}$ Comprised of CIBC Tier 1 Notes – Series B due June 30, 2108. On November 1, 2021, CIBC Capital Trust redeemed all \$300 million of its Tier 1 Notes – Series B. $^{(4)}$ Comprised of certain debentures which qualify as NVCC. ### CET1 ratio The CET1 ratio at October 31, 2022 decreased 0.7% from October 31, 2021, driven by the impact of an increase in RWA, partially offset by the increase in CET1 capital. The increase in RWA was primarily due to increased book size from organic growth, the impact of foreign exchange translation, the acquisition of the Canadian Costco credit card portfolio, increased operational risk levels and capital model updates. The increase in CET1 capital was primarily the result of internal capital generation (net income less dividends and distributions) and the impact of foreign currency translation, partially offset by a decrease in AOCI related to debt securities measured at FVOCI and higher intangible assets including the impact from the acquisition of the Canadian Costco credit card portfolio. ### Tier 1 capital ratio The Tier 1 capital ratio at October 31, 2022 decreased 0.8% from October 31, 2021, primarily due to the factors affecting the CET1 ratio noted above, the redemption of Non-cumulative Class A Preferred Shares Series 45 (NVCC) (Series 45 shares) and the redemption of CIBC Tier 1 notes which were subject to phase-out rules for capital instruments. These factors are partially offset by the issuance of Limited Recourse Capital Notes Series 3 (LRCN Series 3 Notes) and Non-cumulative Class A Preferred Shares Series 56 (NVCC) (Series 56 shares). See the “Capital initiatives” section below for further details. ### Total capital ratio The Total capital ratio at October 31, 2022 decreased 0.9% from October 31, 2021, primarily due to the factors affecting the Tier 1 capital ratio noted above and the phase-out of non-qualifying subordinated indebtedness, partially offset by a \$1.0 billion issuance of Tier 2 capital instrument in the current year. See the “Capital initiatives” section below for further details. 40 CIBC 2022 ANNUAL REPORT ## Movement in total regulatory capital Changes in regulatory capital under Basel III are presented in the table below: | \$ millions, for the year ended October 31 | 2022 | 2021 | | :--- | :--- | :--- | | **CET1 capital** | | | | Balance at beginning of year | \$ 33,751 | \$ 30,876 | | Shares issued in lieu of cash dividends (add back) | 153 | 132 | | Other issue of common shares | 248 | 326 | | Purchase of common shares for cancellation | (29) | – | | Premium on purchase of common shares for cancellation | (105) | – | | Net income attributable to equity shareholders | 6,220 | 6,429 | | Dividends and distributions | (3,125) | (2,780) | | Change in AOCI balances | | | | Currency translation differences | 1,753 | (1,115) | | Securities measured at FVOCI | (889) | (43) | | Cash flow hedges$^{(1)}$ | (799) | (137) | | Fair value change of FVO liabilities attributable to changes in credit risk | 262 | 12 | | Post-employment defined benefit plans | 198 | 917 | | Removal of own credit spread (net of tax) | (468) | (9) | | Shortfall of allowance to expected losses | – | – | | Goodwill and other intangible assets (deduction, net of related tax liabilities) | (943) | 225 | | Other, including regulatory adjustments and transitional arrangements$^{(1)(2)}$ | 778 | (1,082) | | **CET1 capital balance at end of year** | **\$ 37,005** | **\$ 33,751** | | **AT1 capital** | | | | Balance at beginning of year | \$ 4,593 | \$ 3,899 | | AT1 eligible capital issues | 1,400 | 750 | | Impact of the cap on inclusion for instruments subject to phase out$^{(3)}$ | (251) | (51) | | Redeemed capital | (800) | – | | Other, including regulatory adjustments$^{(1)}$ | – | (5) | | **AT1 capital balance at end of year** | **\$ 4,941** | **\$ 4,593** | | **Tier 2 capital** | | | | Balance at beginning of year | \$ 5,858 | \$ 6,194 | | New Tier 2 eligible capital issues | 1,000 | 1,000 | | Redeemed capital | – | (1,000) | | Impact of the cap on inclusion for instruments subject to phase out | (451) | (150) | | Other, including change in regulatory adjustments$^{(2)}$ | (90) | (186) | | **Tier 2 capital balance at end of year** | **\$ 6,317** | **\$ 5,858** | | **Total capital balance at end of year** | **\$ 48,263** | **\$ 44,202** | $^{(1)}$ Net change in cash flow hedges is included in “Change in AOCI balances” then derecognized in “Other, including regulatory adjustments and transitional arrangements”. $^{(2)}$ Includes the impact of the ECL transitional arrangement announced by OSFI on March 27, 2020 in response to the onset of the COVID-19 pandemic. The transitional arrangement results in a portion of ECL allowances that would otherwise be included in Tier 2 capital qualifying for inclusion in CET1 capital. The amount is subject to certain adjustments and limitations until the end of fiscal 2022. $^{(3)}$ On November 1, 2021, CIBC Capital Trust, a trust wholly owned by CIBC, redeemed all \$300 million of its Tier 1 Notes – Series B, of which \$251 million was recognized as AT1 capital as at October 31, 2021. CIBC 2022 ANNUAL REPORT 41 # Management’s discussion and analysis ## Components of risk-weighted assets The components of our RWA and corresponding minimum total capital requirements are presented in the table below: | \$ millions, as at October 31 | 2022 | | 2021 | | | :--- | :--- | :--- | :--- | :--- | | **RWA** | **Minimum total capital required$^{(1)}$** | **RWA** | **Minimum total capital required$^{(1)}$** | | **Credit risk$^{(2)}$** | | | | | | Standardized approach | | | | | | Corporate | \$ 56,160 | \$ 4,493 | \$ 43,768 | \$ 3,501 | | Sovereign | 1,446 | 116 | 1,418 | 113 | | Banks | 446 | 36 | 382 | 31 | | Real estate secured personal lending | 2,467 | 197 | 2,153 | 172 | | Other retail | 3,824 | 306 | 976 | 78 | | Trading book | 101 | 8 | 416 | 33 | | Equity | 810 | 65 | 654 | 52 | | Securitization | 557 | 44 | 768 | 61 | | | 65,811 | 5,265 | 50,535 | 4,041 | | AIRB approach$^{(3)}$ | | | | | | Corporate | 108,472 | 8,678 | 92,808 | 7,425 | | Sovereign$^{(4)}$ | 3,478 | 278 | 3,125 | 250 | | Banks | 3,663 | 293 | 3,711 | 297 | | Real estate secured personal lending | 27,396 | 2,192 | 22,508 | 1,801 | | Qualifying revolving retail | 14,591 | 1,167 | 13,636 | 1,091 | | Other retail | 11,358 | 909 | 9,525 | 762 | | Equity | 686 | 55 | 564 | 45 | | Trading book | 5,354 | 428 | 5,484 | 439 | | Securitization | 1,810 | 145 | 1,246 | 100 | | Adjustment for scaling factor | 10,500 | 840 | 9,082 | 727 | | | 187,308 | 14,985 | 161,689 | 12,937 | | Other credit RWA$^{(5)}$ | 13,261 | 1,061 | 12,913 | 1,033 | | **Total credit risk (before adjustment for CVA phase-in)** | **266,380** | **21,311** | **225,137** | **18,011** | | **Market risk (Internal Models and IRB Approach)** | | | | | | VaR | 921 | 74 | 1,575 | 126 | | Stressed VaR | 4,002 | 320 | 3,887 | 311 | | Incremental risk charge | 1,426 | 114 | 2,583 | 206 | | Securitization and other | 2,881 | 230 | 1,061 | 85 | | **Total market risk** | **9,230** | **738** | **9,106** | **728** | | **Operational risk** | **33,328** | **2,666** | **31,397** | **2,512** | | **Total RWA before adjustments for CVA phase-in** | **\$ 308,938** | **\$ 24,715** | **\$ 265,640** | **\$ 21,251** | | **CVA capital charge** | | | | | | Total RWA | \$ 6,696 | \$ 536 | \$ 7,174 | \$ 574 | | **Total RWA after adjustments for CVA phase-in** | | | | | | **Total RWA** | **\$ 315,634** | | **\$ 272,814** | | $^{(1)}$ Refers to the minimum standard established by the BCBS before the application of the capital conservation buffer and any other capital buffers that may be established by regulators from time to time. It is calculated by multiplying RWA by 8%. $^{(2)}$ Credit risk includes CCR, which comprises derivative and repo-style transactions. Credit risk for CIBC Bank USA and CIBC FirstCaribbean are calculated under the standardized approach. $^{(3)}$ Includes RWA relating to equity investments in funds and certain commercial loans which are determined using the supervisory slotting approach. $^{(4)}$ Includes residential mortgages insured by Canada Mortgage and Housing Corporation (CMHC), an agency of the Government of Canada, and government-guaranteed student loans. $^{(5)}$ Comprises RWA relating to derivative and repo-style transactions cleared through qualified central counterparties (QCCPs), settlement risk, and other assets that are subject to the credit risk framework but are not included in the standardized or IRB frameworks, including other balance sheet assets that are risk-weighted at 100%, significant investments in the capital of non-financial institutions that are risk-weighted at 1,250%, and amounts below the thresholds for deduction that are risk-weighted at 250%. 42 CIBC 2022 ANNUAL REPORT ## Leverage ratio The Basel III capital standards include a non-risk-based capital metric, the leverage ratio, to supplement risk-based capital requirements. The leverage ratio is defined as Tier 1 capital divided by the leverage ratio exposure. The leverage ratio exposure is defined under the standards as the sum of: (i) On-balance sheet assets less Tier 1 capital regulatory adjustments; (ii) Derivative exposures; (iii) Securities financing transaction exposures; and (iv) Off-balance sheet exposures (such as commitments, direct credit substitutes, letters of credit, and securitization exposures). OSFI expects federally regulated deposit-taking institutions to have leverage ratios that meet or exceed 3.0%. This minimum may be higher for certain institutions at OSFI’s discretion. See the “Continuous enhancement to regulatory capital requirements” section for recently announced capital measures impacting the leverage ratio. | \$ millions, as at October 31 | 2022 | 2021 | | :--- | :--- | :--- | | Tier 1 capital | \$ 41,946 | \$ 38,344 | | Leverage ratio exposure | 961,791 | 823,343 | | Leverage ratio | 4.4 % | 4.7 % | The leverage ratio at October 31, 2022, decreased by 0.3% from October 31, 2021, as the impact of an increase in Tier 1 capital was more than offset by the impact of an increase in leverage ratio exposure. The increase in leverage ratio exposure was primarily driven by an increase in on-balance sheet exposures and the reversal of the temporary exclusion of qualifying sovereign-issued securities from the exposure measure. ## Total loss absorbing capacity requirements OSFI also requires D-SIBs to maintain a supervisory target total loss absorbing capacity (TLAC) ratio (which builds on the risk-based capital ratios) and a minimum TLAC leverage ratio (which builds on the leverage ratio). TLAC is required to ensure that a non-viable D-SIB has sufficient loss absorbing capacity to support its recapitalization. This would, in turn, facilitate an orderly resolution of the D-SIB while minimizing adverse impacts on the financial sector stability and taxpayers. TLAC is defined as the aggregate of total capital and other TLAC instruments primarily comprised of bail-in eligible instruments with residual maturity greater than 365 days. OSFI expects D-SIBs to have a minimum risk-based TLAC ratio of 21.5% plus the then applicable DSB requirement (2.5% as noted above), and a minimum TLAC leverage ratio of 6.75%, beginning in the first quarter of fiscal 2022. | \$ millions, as at October 31 | 2022 | 2021 | | :--- | :--- | :--- | | TLAC available | \$ 95,136 | \$ 76,701 | | Total RWA | 315,634 | 272,814 | | Leverage ratio exposure$^{(1)}$ | 961,791 | 823,343 | | TLAC ratio | 30.1 % | 28.1 % | | TLAC leverage ratio | 9.9 % | 9.3 % | $^{(1)}$ The temporary exclusion of qualifying sovereign-issued securities from the leverage ratio exposure measure in response to the onset of the COVID-19 pandemic was no longer applicable beginning in the first quarter of 2022. Central bank reserves continue to be excluded from the measure. On September 13, 2022, OSFI announced that the temporary exclusion of central bank reserves from the leverage exposure measure will be no longer applicable effective April 1, 2023. The TLAC ratio at October 31, 2022 increased 2.0% from October 31, 2021, driven by the increase in TLAC, partially offset by the impact of an increase in RWA. The increase in TLAC was primarily due to issuances of bail-in eligible liabilities. The TLAC leverage ratio at October 31, 2022 increased 0.6% from October 31, 2021, primarily due to an increase in TLAC, partially offset by an increase in the leverage ratio exposure as noted above. ## Share split In February 2022, CIBC’s Board of Directors approved a two-for-one share split (Share Split) of CIBC’s issued and outstanding common shares to be effected through an amendment to CIBC’s by-laws. On April 7, 2022, CIBC shareholders approved the Share Split. Each shareholder of record at the close of business on May 6, 2022 (Record Date) received one additional share on May 13, 2022 (Payment Date) for every one share held on the Record Date. All common share numbers and per common share amounts have been adjusted to reflect the Share Split as if it was retroactively applied to all periods presented. ## Capital initiatives On March 13, 2020, following the onset of the COVID-19 pandemic, OSFI imposed temporary measures on FRFIs to cease dividend increases and share buybacks in order to ensure that the additional capital available is used to support Canadian lending activities. The temporary measures were lifted by OSFI effective November 4, 2021. The following were the main capital initiatives undertaken since our 2021 Annual Report: ### Normal Course Issuer Bid (NCIB) On December 9, 2021, we announced that the TSX had accepted the notice of our intention to commence a NCIB. Purchases under this bid will be completed upon the earlier of: (i) CIBC purchasing 20 million common shares (on a post share split basis); (ii) CIBC providing a notice of termination; or (iii) December 12, 2022. For the year ended October 31, 2022, we purchased and cancelled 1,800,000 common shares (on a post share split basis) at an average price of \$74.43 for a total amount of \$134 million, all of which occurred during the first quarter. ### Employee share purchase plan Pursuant to the employee share purchase plan, we issued 2,302,876 common shares (on a post share split basis) for consideration of \$163 million for the year ended October 31, 2022. ### Shareholder investment plan Pursuant to the shareholder investment plan, we issued 2,272,831 common shares (on a post share split basis) for consideration of \$153 million for the year ended October 31, 2022. CIBC 2022 ANNUAL REPORT 43 # Management’s discussion and analysis ## Dividends Our quarterly common share dividend was increased from \$0.805 per share to \$0.830 per share for the quarter ending July 31, 2022. On November 30, 2022, the CIBC Board of Directors approved an increase in our quarterly common share dividend from \$0.830 per share to \$0.850 per share for the quarter ending January 31, 2023. Common and preferred share dividends are declared quarterly at the discretion of the Board. The declaration and payment of dividends is governed by Section 79 of the Bank Act (Canada), the terms of the preferred shares, as explained in Note 15 to the consolidated financial statements. ## Subordinated indebtedness On April 7, 2022, we issued \$1.0 billion principal amount of 4.20% Debentures due April 7, 2032 (subordinated indebtedness). The Debentures bear interest at a fixed rate of 4.20% per annum (paid semi-annually) until April 7, 2027, and at Daily Compounded Canadian Overnight Repo Rate Average (CORRA) plus 1.69% per annum (paid quarterly) thereafter until maturity on April 7, 2032. The debenture qualifies as Tier 2 capital. ## Limited Recourse Capital Notes Series 3 (LRCN Series 3 Notes) On June 15, 2022, we issued \$800 million principal amount of 7.150% LRCN Series 3 Notes (NVCC) (subordinated indebtedness). The LRCN Series 3 Notes mature on July 28, 2082, and bear interest at a fixed rate of 7.150% per annum (paid semi-annually) until July 28, 2027. Starting on July 28, 2027, and every five years thereafter until July 28, 2077, the interest rate will be reset to the then current five-year Government of Canada bond yield plus 4.000% per annum. Concurrently with the issuance of the LRCN Series 3 Notes, we issued Non-Cumulative 5-Year Fixed Rate Reset Class A Preferred Shares Series 55 (NVCC) (Series 55 shares), which are held in a CIBC LRCN Limited Recourse Trust (the Limited Recourse Trust) that is consolidated by CIBC and, as a result, the Series 55 shares are eliminated in CIBC’s consolidated financial statements. In the event of non-payment by CIBC of the principal amount of, interest on, or redemption price for, the LRCN Series 3 Notes when due, the sole remedy of each LRCN Series 3 Note holder is limited to that holder’s proportionate share of the Series 55 shares held in the Limited Recourse Trust. Subject to regulatory approval, we may redeem the LRCN Series 3 Notes, in whole or in part, every five years during the period from June 28 to and including July 28, commencing on June 28, 2027, at par. The LRCN Series 3 Notes and the Series 55 shares carry standard NVCC provisions necessary for them to qualify as additional Tier 1 regulatory capital under Basel III. Upon the occurrence of a Trigger Event, each Series 55 share held in the Limited Recourse Trust will automatically and immediately be converted, without the consent of LRCN Series 3 Note holders, into a variable number of common shares that will be delivered to LRCN Series 3 Note holders in satisfaction of the principal amount of, and accrued and unpaid interest on, all of the LRCN Series 3 Notes. All claims of LRCN Series 3 Note holders against CIBC under the LRCN Series 3 Notes will be extinguished upon receipt of such common shares. The LRCN Series 3 Notes are compound instruments with both equity and liability features as payments of interest and principal in cash are made at our discretion, as the sole recourse of each LRCN Series 3 Note holder in the event of non-payment will be limited to that holder’s proportionate share of the Series 55 shares held in the Limited Recourse Trust. The liability component of the LRCN Series 3 Notes has a nominal value and, as a result, the full proceeds received upon the issuance of the LRCN Series 3 Notes have been presented as equity on the consolidated balance sheet and any interest payments paid thereon are accounted for as equity distributions. ## Preferred shares On July 29, 2022, we redeemed all 32 million Non-cumulative Class A Preferred Shares Series 45 (NVCC) (Series 45 shares), at a redemption price of \$25.00 per Series 45 share, for a total redemption cost of \$800 million. ## Non-cumulative Rate Reset Class A Preferred Shares Series 56 (NVCC) (Series 56 shares) On September 16, 2022, we issued 600,000 Non-cumulative Rate Reset Class A Preferred Shares Series 56 (NVCC) (Series 56 shares) with a par value of \$1,000.00 per share, for gross proceeds of \$600 million. For the initial five-year period to October 28, 2027, the Series 56 shares pay semi-annual cash dividends on the 28th day of April and October in each year, as declared, at a rate of 7.361%. The first dividend, if declared, will be payable on April 28, 2023. On October 28, 2027, and on October 28 every five years thereafter, the dividend rate will reset to be equal to the then current five-year Government of Canada bond yield plus 4.20%. Subject to regulatory approval and certain provisions of the shares, we may redeem all or any part of the then outstanding Series 56 shares at par during the period from September 28, 2027 to and including October 28, 2027 and during the period from September 28 to and including October 28 every five years thereafter. 44 CIBC 2022 ANNUAL REPORT # Management’s discussion and analysis ## Outstanding share data The table below provides a summary of our outstanding shares, NVCC capital instruments, and the maximum number of common shares issuable on conversion/exercise: | \$ millions, except number of shares and per share amounts, as at November 25, 2022 | Shares outstanding | Minimum conversion price per common share$^{(1)}$ | Maximum number of common shares issuable on conversion/exercise | | :--- | :--- | :--- | :--- | | **Number of shares** | **Amount** | | | | **Common shares** | 906,218,463 | \$ 14,735 | | | | **Treasury shares – common shares** | (68,633) | \$ (3) | | | | **Preferred shares$^{(2)(3)}$** | | | **\$ 2.50** | | | Series 39 (NVCC) | 16,000,000 | \$ 400 | 2.50 | 160,000,000 | | Series 41 (NVCC) | 12,000,000 | 300 | 2.50 | 120,000,000 | | Series 43 (NVCC) | 12,000,000 | 300 | 2.50 | 120,000,000 | | Series 47 (NVCC) | 18,000,000 | 450 | 2.50 | 180,000,000 | | Series 49 (NVCC) | 13,000,000 | 325 | 2.50 | 130,000,000 | | Series 51 (NVCC) | 10,000,000 | 250 | 2.50 | 100,000,000 | | Series 56 (NVCC) | 600,000 | 600 | 2.50 | 240,000,000 | | **Treasury shares – preferred shares$^{(2)(3)}$** | **(1,995)** | **\$ (2)** | | | | **Limited recourse capital notes$^{(3)(4)}$** | | | | | | 4.375% Limited recourse capital notes Series 1 (NVCC) | n/a | 750 | 2.50 | 300,000,000 | | 4.000% Limited recourse capital notes Series 2 (NVCC) | n/a | 750 | 2.50 | 300,000,000 | | 7.150% Limited recourse capital notes Series 3 (NVCC) | n/a | 800 | 2.50 | 320,000,000 | | **Subordinated indebtedness$^{(3)(5)}$** | | | | | | 3.45% Debentures due April 4, 2028 (NVCC) | n/a | 1,500 | 2.50 | 900,000,000 | | 2.95% Debentures due June 19, 2029 (NVCC) | n/a | 1,500 | 2.50 | 900,000,000 | | 2.01% Debentures due July 21, 2030 (NVCC) | n/a | 1,000 | 2.50 | 600,000,000 | | 1.96% Debentures due April 21, 2031 (NVCC) | n/a | 1,000 | 2.50 | 600,000,000 | | 4.20% Debentures due April 7, 2032 (NVCC) | n/a | 1,000 | 2.50 | 600,000,000 | | **Stock options outstanding** | | | **11,412,239** | | $^{(1)}$ The minimum conversion price per common share for CIBC’s outstanding NVCC instruments, including NVCC preferred shares, NVCC subordinated debentures and NVCC LRCN have been adjusted from \$5.00 to \$2.50 to account for the Share Split in accordance with the terms and conditions of the NVCC instruments. $^{(2)}$ Upon the occurrence of a Trigger Event, each share is convertible into a number of common shares, determined by dividing the par value of \$25.00 (\$1,000 in the case of Series 56 shares) plus declared and unpaid dividends by the average common share price (as defined in the relevant prospectus supplement) subject to a minimum price per share (subject to adjustment in certain events as defined in the relevant prospectus supplement, including a share split). Preferred shareholders do not have the right to convert their shares into common shares. $^{(3)}$ The maximum number of common shares issuable on conversion excludes the impact of declared but unpaid dividends and accrued interest. $^{(4)}$ Upon the occurrence of a Trigger Event, the Series 53, 54 and 55 Preferred Shares held in the Limited Recourse Trust in support of the LRCN are convertible into a number of common shares, determined by dividing the par value of \$1,000 by the average common share price (as defined in the relevant prospectus supplement) subject to a minimum price per common share (subject to adjustment in certain events as defined in the relevant prospectus supplement, including a share split). $^{(5)}$ Upon the occurrence of a Trigger Event, the Debentures are convertible into a number of common shares, determined by dividing 150% of the par value plus accrued and unpaid interest by the average common share price (as defined in the relevant prospectus supplement) subject to a minimum price per common share (subject to adjustment in certain events as defined in the relevant prospectus supplement, including a share split). n/a Not applicable. The occurrence of a “Trigger Event” would result in conversion of all of the outstanding NVCC instruments described above, which would represent a dilution impact of 86% based on the number of CIBC common shares outstanding as at October 31, 2022. As described in the CAR Guideline, a Trigger Event occurs when OSFI determines the bank is or is about to become non-viable and, if after conversion of all contingent instruments and consideration of any other relevant factors or circumstances, it is reasonably likely that its viability will be restored or maintained; or if the bank has accepted or agreed to accept a capital injection or equivalent support from a federal or provincial government, without which OSFI would have determined the bank to be non-viable. In addition to the potential dilution impacts related to the NVCC instruments discussed above, as at October 31, 2022, \$55,111 million (2021: \$32,643 million) of our outstanding liabilities were subject to conversion to common shares under the bail-in regime. Under the bail-in regime, there is no fixed and pre-determined contractual conversion ratio for the conversion of the specified eligible shares and liabilities of CIBC that are subject to a bail-in conversion into common shares, nor are there specific requirements regarding whether liabilities subject to a bail-in conversion are converted into common shares of CIBC or any of its affiliates. CDIC determines the timing of the bail-in conversion, the portion of the specified eligible shares and liabilities to be converted and the terms and conditions of the conversion, subject to parameters set out in the bail-in regime. See the “Total loss absorbing capacity requirements” section for further details. ## Preferred share and other equity instruments rights and privileges See Note 15 to the consolidated financial statements for details on our preferred share and other equity instruments rights and privileges. ## Off-balance sheet arrangements We enter into off-balance sheet arrangements in the normal course of our business. We consolidate all of our sponsored trusts that securitize our own assets. ### Non-consolidated structured entities (SEs) We manage and administer a single-seller conduit and several CIBC-sponsored multi-seller conduits in Canada. The multi-seller conduits acquire direct or indirect ownership or security interests in pools of financial assets from our clients and finance the acquisitions by issuing asset-backed commercial paper (ABCP) to investors. The single-seller conduit acquires financial assets and finances these acquisitions through a credit facility provided by a syndicate of financial institutions. The sellers to the conduits may continue to service the assets and may be exposed to credit losses realized on these assets, typically through the provision of over-collateralization or another form of credit enhancement. The conduits may obtain credit enhancement from third-party providers. We provide the multi-seller conduits with commercial paper backstop liquidity facilities, securities distribution, and provide both the single and multi-seller conduits with accounting, cash management, and operations services. The liquidity facilities for the managed and administered multi-seller CIBC 2022 ANNUAL REPORT 45 ## Management’s discussion and analysis conduits require us to provide funding, subject to the satisfaction of certain conditions with respect to the conduits, for ABCP not placed with external investors. We may also purchase ABCP issued by the multi-seller conduits for market-making purposes. We are required to maintain certain short-term and/or long-term debt ratings with respect to the liquidity facilities that we provide to the sponsored multi-seller conduits. If we are downgraded below the level specified under the terms of those facilities, we must provide alternative satisfactory liquidity arrangements, such as procuring an alternative liquidity provider that meets the minimum rating requirements. We may also act as the counterparty to derivative contracts entered into by a multi-seller conduit in order to convert the yield of the underlying assets to match the needs of the multi-seller conduit’s investors or to mitigate the interest rate, basis, and currency risk within the conduit. We earn fees for providing services related to the non-consolidated single-seller and multi-seller conduits, such as backstop liquidity facilities, distribution, transaction structuring, and conduit administration. These fees totalled \$70 million in 2022 (2021: \$71 million). All fees earned in respect of activities with the conduits are on a market basis. As at October 31, 2022, the amount funded for the various asset types in the multi-seller conduits amounted to \$9.3 billion (2021: \$7.5 billion). The estimated weighted-average life of these assets was 1.8 years (2021: 2.0 years). Our holdings of commercial paper issued by the non-consolidated sponsored multi-seller conduits that offer commercial paper to external investors were \$642 million (2021: \$35 million). Our committed backstop liquidity facilities to these conduits were \$11.7 billion (2021: \$10.6 billion). We also provided credit facilities of \$50 million (2021: \$50 million) to these conduits. We participated in a syndicated facility of \$700 million to the single-seller conduit that provides funding to franchisees of a major Canadian retailer, which will mature in April 2025. Our portion of the commitment was \$130 million (2021: \$130 million), of which \$98 million (2021: \$106 million) was funded as at October 31, 2022. We engage one or more of the four major rating agencies, DBRS Limited (DBRS), Fitch Ratings Inc. (Fitch), Moody’s Investors Service, Inc. (Moody’s), and S&P, to opine on the credit ratings of asset-backed securities (ABS) issued by our sponsored multi-seller conduits. In the event that ratings differ between rating agencies, we use the lower rating. We also have investments in and provide loans, liquidity and credit facilities to certain other third-party and CIBC-managed SEs. The on-balance sheet exposure related to these SEs is included in the consolidated financial statements. We provide interim and term senior financing to third-party SEs for the purpose of purchasing loans during the warehousing phase for future securitization. As senior lenders we are repaid by proceeds from the issuance of debt securities to external investors when the securitization closes or by the cash flows from the repayment of the underlying assets held by the SE or alternative financing obtained by the SE from third-party lenders. Our on- and off-balance sheet amounts related to the SEs that are not consolidated are set out in the table below. For additional details on our SEs, see Note 6 to the consolidated financial statements. | \$ millions, as at October 31 | 2022 | | | 2021 | | | :--- | :--- | :--- | :--- | :--- | :--- | | | **Investments and loans $^{(1)}$** | **Liquidity, credit facilities and commitments** | **Written credit derivatives$^{(2)}$** | **Investments and loans $^{(1)}$** | **Liquidity, credit facilities and commitments** | **Written credit derivatives$^{(2)}$** | | Single-seller and multi-seller conduits | \$ 740 | \$ 8,682$^{(3)}$ | \$ – | \$ 141 | \$ 7,539$^{(3)}$ | \$ – | | Third-party structured vehicles | 5,005 | 2,638 | – | 3,838 | 2,016 | – | | Loan warehouse financing | 8,898 | 2,700 | – | 3,245 | 921 | – | | Other | 601 | 308 | 80 | 394 | 129 | 87 | | $^{(1)}$ Excludes securities issued by, retained interest in, and derivatives with entities established by CMHC, Federal National Mortgage Association, Federal Home Loan Mortgage Corporation, Government National Mortgage Association, Federal Home Loan Banks, Federal Farm Credit Bank, and Student Loan Marketing Association. \$3 million (2021: \$3 million) of the exposures related to structured vehicles run-off were hedged. $^{(2)}$ Disclosed amounts reflect the outstanding notional of written credit derivatives. The negative fair value recorded on the consolidated balance sheet was \$45 million (2021: \$54 million). Notional of \$75 million (2021: \$82 million) was hedged with credit derivatives protection from third parties. The fair value of these hedges net of CVA was \$40 million (2021: \$49 million). An additional notional of \$5 million (2021: \$5 million) was hedged through a limited recourse note. $^{(3)}$ Excludes an additional \$2.4 billion (2021: \$3.0 billion) relating to our backstop liquidity facilities provided to the multi-seller conduits as part of their commitment to fund purchases of additional assets. Also excludes \$642 million (2021: \$35 million) of our direct investments in the multi-seller conduits which we consider investment exposure. ## Other financial transactions We are the sponsor of several mutual and pooled funds, in the form of trusts. We are the administrator of these funds. In addition, we may act in other capacities, including custodian, trustee and broker. We earn fees at market rates from these trusts. We do not guarantee either principal or returns to investors in these funds. We act as a trustee of a number of personal trusts and have a fiduciary responsibility to act in the best interests of the beneficiaries of the trusts. We earn a fee for acting as a trustee. We also participate in transactions to modify the cash flows of trusts managed by third-party asset managers to create investments with specific risk profiles, or to assist clients in the efficient management of other risks. Typically, these involve the use of derivative products, which transfer the risks and returns to or from a trust. ## Derivatives We participate in derivatives transactions, as a market maker facilitating the needs of our clients or as a principal to manage the risks associated with our funding, investing and trading strategies. All derivatives are recorded at fair value on our consolidated balance sheet. See Notes 12 and 23 to the consolidated financial statements for details on derivative contracts and the risks associated with them. ## 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. For additional details of these arrangements, see the “Liquidity risk” section and Note 21 to the consolidated financial statements. ## Guarantees A guarantee is a contract that requires the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor failed to make payment when due in accordance with the original or modified terms of a debt instrument. Guarantees include credit derivatives protection sold and standby and performance