# 2018 ANNUAL REPORT

# Table of Contents

| Section | Page |
| :--- | :--- |
| 2018 Performance at a Glance | ii |
| Message from the President and Chief Executive Officer | ii |
| Executive Team | iv |
| Message from the Chair of the Board | vii |
| Enhanced Disclosure Task Force | viii |
| Management’s Discussion and Analysis | 1 |
| Consolidated Financial Statements | 94 |
| Notes to the Financial Statements | 103 |
| Quarterly Review | 181 |
| Ten-Year Statistical Review | 183 |
| Glossary | 186 |
| Shareholder Information | 192 |

# Who We Are

CIBC is a leading North American financial institution with a market capitalization of \$50 billion and a Basel III Common Equity Tier 1 capital ratio of 11.4%.

Across Personal and Small Business Banking, Commercial Banking and Wealth Management, and Capital Markets businesses – our 44,000 employees provide a full range of financial products and services to 10 million clients in Canada, the United States and around the world.

# Our Strategy

At CIBC, we’re building a relationship-oriented bank for a modern world that delivers superior client experience and total shareholder return by focusing on four key areas:

1. Building a strong client-focused franchise
2. Diversifying our earnings growth
3. Optimizing our operational efficiency
4. Maintaining capital and balance sheet discipline

# Creating Value for Our Shareholders

At CIBC, we are committed to delivering sustainable earnings growth to our shareholders and creating a relationship-oriented bank for our clients. We continue to identify initiatives to free up resources and allow us to reinvest in our business to accelerate revenue growth and reduce our structural cost base. We will do so with a keen focus on industry-leading fundamentals in capital, expenses and risk management.

```mermaid
pie title Key Statistics
    "Market Capitalization ($50 Billion)" : 50
    "Return on Equity (16.6%)" : 16.6
    "Clients (10 Million)" : 10
```

# Message from the President and Chief Executive Officer

**2018 marked a year of significant progress as we continued to build a strong client-focused bank that creates enduring value for our shareholders and communities.**

At CIBC, we have been transforming our bank for several years, and this past year we continued to focus collectively on building a relationship-oriented bank for a modern world. In 2018, we continued to further embed a client-focused culture and invest in our cross-border platform, helping to strengthen our relationships with our clients and deliver consistently high-quality earnings and value for shareholders.

As always, we remained focused on meeting our responsibility to support the long-term strength and prosperity of the people and communities we serve. This is true at the corporate level, with our commitment to sustainability and our support for social and economic development, and at the individual level, where our generous team members give back day in and day out.

I’m proud of what our team achieved on every level in 2018 and pleased to have the opportunity to share with you some of our accomplishments.

## Delivering on our plan

Early in the fiscal year we held an Investor Day to provide an update on our progress and lay out four areas of focus that are driving the execution of our strategy:

**1. Building a strong client-focused franchise.** Whether our relationships are high-touch and based around advice and ideas, or more high-tech in nature, our aim is to get the balance right for each of our clients. Our client-focused culture will define our bank as we strive to bring the best of CIBC to our clients with each interaction and every decision we make.

**2. Diversifying our earnings growth.** We are diversifying our earnings and business by investing in our Canadian and U.S. Commercial Banking and Wealth Management platforms to grow these businesses and expand our client relationships. In addition, we will leverage our Capital Markets strength to deliver advice and solutions across our bank.

**3. Optimizing our operational efficiency.** Building on our ongoing simplification efforts, we are targeting a 52% efficiency ratio in 2022 and will achieve it by driving growth, by maintaining a strong focus on continuous improvement, and by keeping a careful eye on costs.

**4. Maintaining capital and balance sheet discipline.** We will also continue to take a sound approach to deploying our capital, ensuring that we are smart about how we invest our resources aligned to our strategy.

Looking back at the year, our strong and consistent financial results demonstrate that we are executing well. Put simply, we laid out our plan and we are delivering. We have a strong foundation and client base, a talented and energized team, and the ability to deliver growth. Across our four strategic business units, our financial results reflect the solid momentum that we have established.

CIBC reported record net income of \$5.3 billion or \$11.65 per share. Adjusted net income was \$5.5 billion or \$12.21 per share, compared with \$4.7 billion or \$11.11 per share a year ago. Our adjusted return on common shareholders’ equity was strong at 17.4%. Our adjusted efficiency ratio ended the year at 55.6%, as a result of our efforts to reduce costs, as well as to deliver revenue growth.

Our reported and adjusted diluted EPS growth were 4% and 10%, respectively, reflecting solid earnings from our strategic business units. We ended the year with a strong Basel III Common Equity Tier 1 ratio of 11.4%.

**Deepening client relationships on both sides of the border**

Over the year, our team continued to deepen relationships with our clients, as we worked to leverage our expanded U.S. capabilities with CIBC Bank USA. Having passed the one-year anniversary of the acquisition of The PrivateBank, we’ve established a strong cross-border platform from which to serve our clients and deliver growth to our shareholders. We’ve seen strong results from our U.S. business by working together as a unified team across commercial banking, wealth management and capital markets.

As part of our North American growth strategy, we also introduced CIBC Innovation Banking, a full-service business that delivers strategic advice and funding to technology and innovation clients at each stage of their business development. This exciting new venture was formed with the addition of Wellington Financial, and the team is focused on deploying capital and expertise to enable clients in this dynamic and fast-growing segment. On the consumer front, we launched our new CIBC Agility™ High Interest Savings Account, a U.S. online banking offer, aimed at attracting U.S. clients from new markets to our bank.

**Transforming to meet our clients’ evolving needs**

At CIBC, we are innovating sensibly in ways that offer our clients real value, whether that be better financial advice, an easier way to bank, or a way to manage their company’s cash flow online, anytime. We’re listening to our clients, understanding their needs and delivering innovation that makes a difference to them.

In the last year, we’ve successfully transitioned nearly two million clients to our new direct banking brand, Simplii Financial. With straightforward, no-fee daily banking and great rates, we’ll continue to grow this business by enhancing functionalities and introducing new products for these clients who prefer to bank through online, mobile or telephone banking.

With an ever-increasing number of day-to-day transactions conducted outside of our banking centres, we’re continuing to transform our banking centres to make financial advice the focus. Over the past three years, we transformed more than 150 locations and, as a result, our teams are having more conversations and laying the foundation for life-long client relationships. One indication of this is the increased number of financial plans we’ve put in place for our clients, helping ensure our clients achieve their goals – whether that be buying a home, saving for retirement, or building a business.

In addition, our commitment to enhancing existing technologies and building new digital solutions that provide our clients with greater convenience to manage their banking has earned us industry recognition from Forrester. For the fifth straight year, CIBC received the top overall ranking in mobile banking functionality and user experience.

**Building stronger communities for a better future**

At CIBC, we are committed to making a significant and lasting contribution to the well-being of the people and communities we serve. We recognize the importance of socially responsible investments and are seeing a growing demand among our clients for investment solutions that contribute to a better future. We’ve become a signatory of the United Nations-supported Principles for Responsible Investment and stated our commitment to integrate environmental, social and corporate-governance (ESG) factors into our investment practices.

We were the only Canadian bank to make the Corporate Knights Global 100 Most Sustainable Corporations in 2018, placing in the top 2% of companies globally on our ESG performance.

Beyond our corporate support for the social and economic development of our communities, our team members are our most passionate ambassadors, and care deeply about the places we call home. For team CIBC, giving back is personal and it comes from the heart and our desire to make our communities better. Our team’s personal generosity – both through their donations and volunteerism – is something we’re very proud of at our bank.

**United as one team for our clients**

Our team members are the face of our bank to our clients and our greatest resource. We are harnessing the strength and capability of our approximately 44,000 team members to unlock the power of our franchise and drive us forward.

We know that delivering the best of our bank to our clients starts with delivering the best experience to our teams. That’s why we continue to focus on harnessing the strength and passion of our people. Through our CIBC Leadership Institute and broader development focus, we will ensure we are instilling an inclusive client-focused culture that delivers results for our stakeholders. The strength of our team and approach is evident in our recognition as a top employer. Last year, we were named one of Canada’s Top 100 Employers, a Best Diversity Employer, and amongst the Top Employers for Young People. As we look to the future, we know that we need to continue to pioneer new approaches, evolve our culture and attract and retain the best and the brightest. Our investment in our new global headquarters, CIBC Square, is one visible sign of how we’re shaping our bank and culture to innovate, collaborate and work as one team to help our clients prosper.

To the CIBC team, I’m incredibly proud of all the work our team is doing together to focus on our clients, deliver value to our shareholders, and strengthen our communities. Thank you for your contributions.

To our clients, we are committed to continuing to earn your business each and every day, and we appreciate the trust you place in us. And finally, to our shareholders, I would like to thank you for your support and for motivating us to continually evolve. I’m excited about the opportunity for us to continue to transform our bank, as we build a relationship-oriented bank for a modern world.

Victor G. Dodig
President and Chief Executive Officer

# Message from the Chair of the Board

## Advancing our North American growth strategy

CIBC’s results in 2018 demonstrate the solid progress being made to advance our client-focused North American growth strategy, including establishing our U.S. Commercial Banking and Wealth Management businesses.

Your Board provided oversight of this strategy and advice to management throughout the year, as CIBC’s business plans continue to deliver sustainable results and value to shareholders.

Aligning executive compensation with shareholder interests continued to be one of your Board’s principal responsibilities this year. Our approach is to link executive compensation to the successful achievement of our strategy, including earnings sustainability, progress on client experience goals, performance relative to our peers, adherence to our risk tolerance and individual performance against objectives.

Corporate Responsibility is another focus area for your Board. At CIBC, we believe we have a responsibility to the communities we serve beyond the economic growth that our bank helps create. CIBC is active across the spectrum of environmental, social and governance areas in our commitment to Corporate Responsibility, including climate change, community investment and diversity.

Looking at the environment, this year we announced the bank’s support for the global Task Force on Climate-related Financial Disclosures because we recognize that climate is an important issue. We also introduced our new global community investment initiative, One for Change, inspired by the CIBC team’s shared passion for giving back, helping people when they need it most, and making our communities a place everyone can call home. And as part of our continuing focus on increasing gender diversity, women currently represent 44% of the directors on your Board, exceeding our minimum target.

In closing, I would like to thank your CEO, Victor Dodig, as well as your senior management team, for their leadership in 2018 in building a relationship-oriented bank for a modern world. And to the 44,000 members of the CIBC team, thank you for all you do every day in service to our clients and communities.

The Honourable John P. Manley
Chair of the Board

# Enhanced Disclosure Task Force

The Enhanced Disclosure Task Force (EDTF), established by the Financial Stability Board, released its report “Enhancing the Risk Disclosures of Banks” in 2012, which included thirty-two disclosure recommendations. The index below provides the listing of these disclosures, along with their locations. EDTF disclosures are located in our management’s discussion and analysis, consolidated financial statements, and supplementary packages, which may be found on our website (www.cibc.com). No information on CIBC’s website, including the supplementary packages, 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 186 to 191 of this Annual Report.

| Topics | Recommendations | Disclosures | Management’s discussion and analysis Page references | Consolidated financial statements | Supplementary regulatory capital disclosure and Pillar 3 report |
| :--- | :--- | :--- | :--- | :--- | :--- |
| General | 1 | Index of risk information – current page | | | |
| | 2 | Risk terminology and measures $^{(1)}$ | 32 | | 2, 6 |
| | 3 | Top and emerging risks | 47 | | |
| | 4 | Key future regulatory ratio requirements | 32, 34, 72, 74 | 153 | 2, 6 |
| Risk governance, risk management and business model | 5 | Risk management structure | 42, 43 | | |
| | 6 | Risk culture and appetite | 41, 44, 45 | | |
| | 7 | Risks arising from business activities | 45, 50 | | |
| | 8 | Bank-wide stress testing | 37, 47, 54, 60, 67, 70, 77 | | |
| Capital adequacy and risk weighted assets | 9 | Minimum capital requirements | 30 | 153 | 1 – 4 |
| | 10 | Components of capital and reconciliation to the consolidated regulatory balance sheet | 32 | | 5 |
| | 11 | Regulatory capital flow statement | 34 | 153 | 5 |
| | 12 | Capital management and planning | 36 | 153 | |
| | 13 | Business activities and risk-weighted assets | 33, 50 | | 14 |
| | 14 | Risk-weighted assets and capital requirements | 31, 33 | | 14 |
| | 15 | Credit risk by major portfolios | 52 – 58 | | 21, 22 |
| | 16 | Risk-weighted assets flow statement | 33 | | 14, 15 |
| | 17 | Back-testing of models | 46, 54, 66, 77 | | 11, 12 |
| Liquidity | 18 | Liquid assets | 71 | | |
| Funding | 19 | Encumbered assets | 71 | | |
| | 20 | Contractual maturity of assets, liabilities and off-balance sheet instruments | 75 | | |
| | 21 | Funding strategy and sources | 73 | | |
| Market risk | 22 | Reconciliation of trading and non-trading portfolios to the consolidated balance sheet | 65 | | |
| | 23 | Significant trading and non-trading market risk factors | 65 – 69 | | |
| | 24 | Model assumptions, limitations and validation procedures | 65 – 69 | | |
| | 25 | Stress testing and scenario analysis | 37, 67 | | |
| Credit risk | 26 | Analysis of credit risk exposures | 55 – 63 | 129 – 135, 174 | 7 – 10 |
| | 27 | Impaired loan and forbearance policies | 52, 60, 80 | 106, 107 | |
| | 28 | Reconciliation of impaired loans and the allowance for credit losses | 60 | 130 | |
| | 29 | Counterparty credit risk arising from derivatives | 52, 56 | 145 – 146 | 10, 34 $^{(2)}$ |
| | 30 | Credit risk mitigation | 52, 57 | 145 – 146 | 10, 19, 28 |
| Other risks | 31 | Other risks | 76 – 78 | | |
| | 32 | Discussion of publicly known risk events | 76 | 167 | |

$^{(1)}$ A detailed glossary of our risk and capital terminology is included on page 188.
$^{(2)}$ Included in supplementary financial information package.

# Management’s discussion and analysis

## External reporting change

The following external reporting change was made in 2018.

### IFRS 9 “Financial Instruments”

We adopted IFRS 9 “Financial Instruments” (IFRS 9) effective November 1, 2017. As permitted, prior period amounts were not restated.

As part of the adoption of IFRS 9, we now recognize provision for credit losses on both impaired (stage 3) and performing (stages 1 and 2) loans in the respective strategic business units (SBUs). In prior periods, provision for credit losses on performing loans was recognized in Corporate and Other, with the exception of provision for credit losses related to CIBC Bank USA, which was recognized in U.S. Commercial Banking and Wealth Management, and provision for credit losses on: (i) performing residential mortgages greater than 90 days delinquent; and (ii) performing personal loans and scored small business loans greater than 30 days delinquent, which was recognized in Canadian Personal and Small Business Banking. Provision for credit losses related to CIBC FirstCaribbean continues to be recognized in Corporate and Other.

## Overview

CIBC is a leading North American financial institution with a market capitalization of \$50 billion and a Basel III Common Equity Tier 1 (CET1) ratio of 11.4%. Through our four strategic business units – Canadian Personal and Small Business Banking, Canadian Commercial Banking and Wealth Management, U.S. Commercial Banking and Wealth Management, and Capital Markets – CIBC provides a full range of financial products and services to 10 million clients in Canada, the U.S. and around the world. We have approximately 44,000 employees dedicated to providing our clients with banking for a modern world, delivering consistent and sustainable earnings growth for our shareholders, and giving back to our communities.

### CIBC’s strategy

We are building a relationship-oriented bank for a modern world. To achieve our strategic objectives of delivering superior client experience and shareholder returns, we are focused on four key areas:

* Building a strong client-focused franchise;
* Diversifying our earnings growth;
* Optimizing our operational efficiency; and
* Maintaining capital and balance sheet discipline.

### Performance against objectives

For many years, CIBC has reported a scorecard of financial measures that we use to evaluate and report on our progress to external stakeholders. These measures can be categorized into five key areas of shareholder value – earnings growth, efficiency ratio, return on common shareholders’ equity (ROE), total shareholder return (TSR) and balance sheet strength. We have set targets for each of these measures over the medium term, which we define as three to five years.

#### Earnings growth$^{(2)}$

To assess our earnings growth, we monitor our earnings per share (EPS). Our target beginning in 2018 is average annual EPS growth of 5% to 10%. In 2018, we delivered reported and adjusted$^{(2)}$ diluted EPS growth of 4% and 10%, respectively.

Going forward, we are maintaining our target to deliver average annual EPS growth of 5% to 10%.

```mermaid
bar chart
    title Reported diluted EPS ($)
    x-axis "Year"
    y-axis "EPS ($)"
    bar 14 : 7.86
    bar 15 : 8.87
    bar 16 : 10.70
    bar 17 : 11.24
    bar 18 : 11.65
```

```mermaid
bar chart
    title Adjusted diluted EPS$^{(2)}$ ($)
    x-axis "Year"
    y-axis "EPS ($)"
    bar 14 : 8.94
    bar 15 : 9.45
    bar 16 : 10.22
    bar 17 : 11.11
    bar 18 : 12.21
```

#### Efficiency ratio$^{(2)}$

To assess how well we use our assets to generate net income, we measure and monitor our efficiency ratio, defined as the ratio of non-interest expenses to total revenue. In 2018, CIBC’s reported and adjusted$^{(2)}$ efficiency ratios improved to 57.5% and 55.6%, respectively, from 58.8% and 57.2% in 2017.

CIBC has set a near-term target of achieving a run rate efficiency ratio of 55% by 2019, and a medium-term target of 52% by 2022.

```mermaid
bar chart
    title Reported efficiency ratio (%)
    x-axis "Year"
    y-axis "Ratio (%)"
    bar 14 : 63.7
    bar 15 : 63.9
    bar 16 : 59.7
    bar 17 : 58.8
    bar 18 : 57.5
```

```mermaid
bar chart
    title Adjusted efficiency ratio$^{(2)}$ (%)
    x-axis "Year"
    y-axis "Ratio (%)"
    bar 14 : 59.0
    bar 15 : 59.6
    bar 16 : 58.0
    bar 17 : 57.2
    bar 18 : 55.6
```

#### Return on common shareholders’ equity$^{(2)}$

ROE is another key measure of shareholder value. In 2018, CIBC’s reported and adjusted$^{(2)}$ ROE were strong, at 16.6% and 17.4%, respectively, above our target of at least 15%.

Going forward, we will continue to target a strong ROE of at least 15% through the cycle.

```mermaid
bar chart
    title Reported return on common shareholders’ equity (%)
    x-axis "Year"
    y-axis "ROE (%)"
    bar 14 : 18.3
    bar 15 : 18.7
    bar 16 : 19.9
    bar 17 : 18.3
    bar 18 : 16.6
```

```mermaid
bar chart
    title Adjusted return on common shareholders’ equity$^{(2)}$ (%)
    x-axis "Year"
    y-axis "ROE (%)"
    bar 14 : 20.9
    bar 15 : 19.9
    bar 16 : 19.0
    bar 17 : 18.1
    bar 18 : 17.4
```

## Total shareholder return

TSR is the ultimate measure of shareholder value, and the output of delivering against the financial targets within our control.

We have two shareholder return targets:

1. For many years, we have consistently delivered adjusted dividend payout ratios in the range of 40% to 50% of earnings to common shareholders. Our 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 through the cycle. In 2018, our reported and adjusted$^{(1)}$ dividend payout ratios were 45.5% and 43.4%, respectively.

Going forward, we will continue to target a dividend payout ratio of 40% to 50%.

```mermaid
bar chart
    title Reported dividend payout ratio (%)
    x-axis "Year"
    y-axis "Ratio (%)"
    bar 14 : 50.0
    bar 15 : 48.4
    bar 16 : 44.3
    bar 17 : 45.6
    bar 18 : 45.5
```

```mermaid
bar chart
    title Adjusted dividend payout ratio$^{(1)}$ (%)
    x-axis "Year"
    y-axis "Ratio (%)"
    bar 14 : 44.0
    bar 15 : 45.4
    bar 16 : 46.4
    bar 17 : 46.2
    bar 18 : 43.4
```

2. We also have an objective to deliver a TSR that exceeds the industry average, which we have defined as the Standard & Poor’s Ratings Services (S&P)/Toronto Stock Exchange (TSX) Composite Banks Index, over a rolling five-year period. For the five years ended October 31, 2018, CIBC delivered a TSR of 60.6%, which was below the Banks Index return over the same period of 62.0%.

```mermaid
xychart-beta
    title Rolling five-year TSR (%)
    x-axis "Date" {
      type time
      timeUnit year
      values ["Oct-17", "Jan-18", "Apr-18", "Jul-18", "Oct-18"]
    }
    y-axis "Return (%)" {
      min 0
      max 125
    }
    line "CIBC 60.6%" : [0, 15, 30, 45, 60.6]
    line "S&P/TSX Composite Index 30.3%" : [0, 7.5, 15, 22.5, 30.3]
    line "S&P/TSX Composite Banks Index 62.0%" : [0, 15.5, 31, 46.5, 62.0]
```

## Balance sheet strength

Maintaining a strong balance sheet is foundational to our long-term success. Our goal is to maintain strong capital ratios that comfortably exceed regulatory targets.

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. At the end of 2018, our Basel III CET1 ratio on an all-in basis was 11.4%, well above the current all-in regulatory target set by the Office of the Superintendent of Financial Institutions (OSFI).

In addition to our capital objectives, we remain focused on asset quality and a strong funding profile as key underpinnings of a strong and stable balance sheet.

```mermaid
bar chart
    title CET1 ratio (%)
    x-axis "Year"
    y-axis "Ratio (%)"
    bar 14 : 10.3
    bar 15 : 10.8
    bar 16 : 11.3
    bar 17 : 10.6
    bar 18 : 11.4
```

## Client experience

We continue to have a strong and ongoing focus on the client experience. Our Client Experience Index, which is a range of relevant measures from each of our businesses, is aligned to CIBC’s client-focused strategy and is a composite of:

* External and internal Net Promoter Score studies;
* Relationship surveys, which measure the client’s overall experience with our bank;
* Transactional surveys, which measure a client’s experience with a particular interaction; and
* Specific business and operational metrics which tightly correlate with the client experience.

## Economic and market environment

CIBC operated in an environment of moderate economic growth in Canada, and of accelerating growth in the U.S. in 2018. Canada enjoyed low unemployment rates that supported household credit quality, but both consumer and mortgage credit growth decelerated due to higher interest rates, softer housing inflation, and regulatory policy decisions. Corporate credit quality remained strong despite a slowing in profit growth, while business investment spending and loan demand accelerated. A slower increase in non-financial corporate bond issuance activity was more than offset by the accelerating issuance of financial sector bonds, while equity issuance activity was light. Government debt continued to grow but at a slightly slower pace than 2017. The U.S. economy showed strong growth and robust employment gains as fiscal stimulus more than offset rising interest rates, helping to drive a pick-up in business lending after a slow 2017. U.S. equity markets had a strong start to the year but gave up that ground in the fall on concerns over global growth and rising interest rates.

# Financial Scorecard

| Target | 2018 Reported Results | 2018 Adjusted Results$^{(1)}$ |
| :--- | :--- | :--- |
| Earnings per share (EPS) growth | 5%–10% on average, annually | \$11.65, up 4% from 2017 | \$12.21, up 10% from 2017 |
| Return on equity (ROE) | 15%+ | 16.6% | 17.4% |
| Efficiency ratio | 52% run rate in 2022 | 57.5%, an improvement of 130 basis points from 2017 | 55.6%, an improvement of 160 basis points from 2017 |
| Basel III CET1 ratio | Strong buffer to regulatory minimum | 11.4% | |
| Dividend payout ratio | 40%–50% | 45.5% | 43.4% |
| Total shareholder return | Outperform the S&P/TSX Composite Banks Index over a rolling five-year period | CIBC – 60.6% Banks Index – 62.0% | |

$^{(1)}$ For additional information, see the “Non-GAAP measures” section of the MD&A.

# Environmental, Social and Governance (ESG) Scorecard

## 2018 Performance

| Area | Achievements |
| :--- | :--- |
| Client Focus | • Our client experience performance has improved throughout the year • Added approximately \$750 million in new debt authorizations to small businesses in Canada |
| Responsible Banking | • Conducted 1,193 environmental and social risk assessments of our financial transactions as an integral part of our due diligence process • Signatory to United Nations-supported Principles for Responsible Investment (UNPRI), supporter of the Task Force on Climate-related Financial Disclosures (TCFD), and member of United Nations Environment Programme-Finance Initiative (UNEP-FI) |
| Culture | • 31% women in boarded executive roles, within our goal range of 30%–35% • Issued Canada’s first social bond framework focused on corporations with a demonstrated commitment to women in leadership roles • Invested more than \$63 million in the development of our people with a focus on our clients • Exceeded our goal of hiring more than 500 persons with disabilities • CIBC’s Engagement score of 88 is 7 percentage points above the global financial services norm |
| Building Community | • Invested more than \$80 million in community organizations across Canada and the U.S., including \$60 million in corporate contributions and \$20 million in employee-led fundraising and giving |
| Governance | • 44% women on the CIBC Board of Directors, above our minimum target of 30% • 100% of non-executive directors on the Board are independent • 100% of employees completed CIBC ethical training on our Code of Conduct |

# Management’s discussion and analysis

## Financial performance overview

### Financial highlights

For the year ended October 31 (Canadian \$ in billions, except as noted)

| Financial results | 2018 | 2017 |
| :--- | :--- | :--- |
| Revenue | 17.8 | 16.3 |
| Provision for credit losses | 0.9 | 0.8 |
| Expenses | 10.3 | 9.6 |
| Net income | 5.3 | 4.7 |
| **Financial measures (%)** | | |
| Reported/Adjusted efficiency ratio$^{(1)}$ | 57.5/55.6 | 58.8/57.2 |
| Return on common shareholders’ equity (ROE) | 16.6 | 18.3 |
| Net interest margin | 1.68 | 1.66 |
| Total shareholder return | 4.7 | 18.3 |
| **Common share information** | | |
| Market capitalization | 50.3 | 49.9 |
| **Dividends (%)** | | |
| Dividend yield | 4.7 | 4.5 |
| Reported/Adjusted dividend payout ratio$^{(1)}$ | 45.5/43.4 | 45.6/46.2 |

### Net income by Strategic Business Unit

| SBU | 2018 | 2017 |
| :--- | :--- | :--- |
| Canadian Personal and Small Business Banking | 2.5 | 2.4 |
| Canadian Commercial Banking and Wealth Management | 1.3 | 1.1 |
| U.S. Commercial Banking and Wealth Management | 0.6 | 0.2 |
| Capital Markets | 1.1 | 1.1 |

```mermaid
pie title Business mix % adjusted net income$^{(1)}$
    "Canadian Personal and Small Business Banking" : 46
    "Canadian Commercial Banking and Wealth Management" : 24
    "Capital Markets" : 19
    "U.S. Commercial Banking and Wealth Management" : 11
    "Corporate and Other" : 0
```

$^{(1)}$ For additional information, see the “Non-GAAP measures” section of the MD&A.

### Financial results

| Financial results | 2018 | 2017 |
| :--- | :--- | :--- |
| Revenue (\$ billions) | 17.8 | 16.3 |
| Reported net income (\$ billions) | 5.3 | 4.7 |
| Dividend (\$ / share) | 5.32 | 5.08 |
| Adjusted earnings per share$^{(1)}$ (\$) | 12.21 | 11.11 |
| Adjusted return on common shareholders’ equity$^{(1)}$ (%) | 17.4 | 17.4 |
| Reported efficiency ratio (%) | 57.5 | 58.8 |

```mermaid
bar chart title Financial highlights 2016-2018 ($ billions)
    x-axis "Year"
    y-axis "Value"
    bar 16 : 15.0
    bar 17 : 16.3
    bar 18 : 17.8
    bar 16 : 4.3
    bar 17 : 4.7
    bar 18 : 5.3
    bar 16 : 10.22
    bar 17 : 11.11
    bar 18 : 12.21
    bar 16 : 19.0
    bar 17 : 18.1
    bar 18 : 17.4
    bar 16 : 4.75
    bar 17 : 5.08
    bar 18 : 5.32
```

## Management of risk

We have provided certain disclosures required under IFRS 7 “Financial Instruments – Disclosures” related to the nature and extent of risks arising from financial instruments in the MD&A, as permitted by that IFRS standard. These disclosures are included in the “Risk overview”, “Credit risk”, “Market risk”, “Liquidity risk”, “Operational risk”, “Reputation and legal risk”, and “Regulatory compliance risk” sections.

### Risk overview

CIBC faces a wide variety of risks across all of its areas of business. Identifying and understanding risks and their impact allows CIBC to frame its risk appetite and risk management practices. Defining acceptable levels of risk, and establishing sound principles, policies and practices for managing risks, is fundamental to achieving consistent and sustainable long-term performance, while remaining within our risk appetite.

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

Our risk management framework includes:

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

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

(i) CIBC’s lines of business and functional groups own the risk and are responsible for managing all risks associated with their activities, including identifying, assessing, mitigating and controlling them – this is the first line of defence;
(ii) As the second line of defence, CIBC’s Risk Management, and other functional groups are responsible for providing guidance and effective independent oversight and challenge of the enterprise-wide risks inherent in CIBC’s business activities; and
(iii) As the third line of defence, CIBC’s internal audit function provides an independent assessment of the design and operating effectiveness of risk management controls, processes and systems.

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

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

### Risk governance structure

Our risk governance structure is illustrated below:

```mermaid
graph TD
    A[Board of Directors] -->|oversight| B(Audit Committee);
    A -->|oversight| C(Risk Management Committee);
    A -->|oversight| D(Management Resources and Compensation Committee);
    A -->|oversight| E(Corporate Governance Committee);
    A -->|culture| D;
    A -->|framework| E;
    B --> F(Executive Committee);
    C --> F;
    D --> F;
    E --> A;
    F -->|escalation| B;
    F -->|escalation| C;
    F -->|escalation| D;
    F -->|escalation| E;
    F --> G(Global Asset Liability Committee);
    F --> H(Global Risk Committee);
    G --> F;
    H --> F;
```

**Board of Directors (the Board):** The Board oversees the enterprise-wide risk management program through approval of our risk appetite and supporting risk management policies and limits. The Board accomplishes its mandate through its Audit, Risk Management, Management Resources and Compensation, and Corporate Governance committees, described below.

**Audit Committee (AC):** The Audit Committee reviews the overall design and operating effectiveness of internal controls and the control environment, including controls over the risk management process.

**Risk Management Committee (RMC):** This committee assists the Board in fulfilling its responsibilities for defining CIBC’s risk appetite and overseeing CIBC’s risk profile and performance against the defined risk appetite. This includes oversight of policies, procedures and limits related to the identification, measurement, monitoring and controlling of CIBC’s principal business risks.

**Management Resources and Compensation Committee (MRCC):** This committee is responsible for assisting the Board in their global oversight of CIBC’s human capital strategy, including talent strategy, succession planning and total rewards and their alignment with CIBC’s strategy, risk appetite and controls.

**Corporate Governance Committee (CGC):** This committee is responsible for assisting the Board in fulfilling its corporate governance oversight responsibilities.

**Executive Committee (ExCo):** The ExCo, led by the CEO and including the executives reporting directly to the CEO, is responsible for setting business strategy and for monitoring, evaluating and managing risks across CIBC. The ExCo is supported by the following committees:

* **Global Asset Liability Committee (GALCO):** This committee, which comprises members from the ExCo and senior Treasury and Risk Management executives, provides oversight regarding capital management, funding and liquidity management, and asset liability management. It also provides strategic direction regarding structural interest rate risk and structural foreign exchange risk postures, approval of funds transfer pricing policies/parameters and approval of wholesale funding plans.
* **Global Risk Committee (GRC):** This committee, which comprises the ExCo and senior leaders from the lines of business, Risk Management and other functional groups, provides a forum for discussion and oversight of risk appetite, risk profile and risk-mitigation strategies. Key activities include reviewing, and providing input regarding CIBC’s risk appetite statements; monitoring risk profile against risk appetite, reviewing, and evaluating business activities in the context of risk appetite; and identifying, reviewing, and advising on current and emerging risk issues and associated mitigation plans.

### Risk management structure

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

The current structure is illustrated below:

```mermaid
graph TD
    A[Chief Risk Officer] --> B(Risk Appetite and Management Control Metrics)
    B --> C(Risk Policies and Limits)
    C --> D(Risk Management Structure)
    D --> E(Risk Identification, Measurement and Reporting)
    E --> F(Stress Testing)
    F --> G(Effective Challenge as Second Line of Defence)
    G --> H[Capital Markets Risk Management]
    G --> I[Global Credit Risk Management (including non-U.S. Risk Officers)]
    G --> J[Global Operational Risk Management]
    G --> K[Risk Analytics, Reporting and Credit Decisioning]
    G --> L[Conduct Risk Management]
    G --> M[Compliance]
    G --> N[Enterprise Anti-Money Laundering Group]
    G --> O[U.S. Risk Management]
```

The Risk Management group performs several important activities including:

* Developing CIBC’s risk appetite and associated management control metrics;
* Setting risk strategy to manage risks in alignment with our risk appetite and business strategy;
* Establishing and communicating risk policies, procedures and limits to control risks in alignment with risk strategy;
* Measuring, monitoring and reporting on risk levels;
* Identifying and assessing emerging and potential strategic risks;
* Deciding on transactions that fall outside of risk limits delegated to business lines; and
* Ensuring compliance with applicable regulatory and anti-money laundering requirements.

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

* **Capital Markets Risk Management** – This group provides independent oversight of the measurement, monitoring and control of market risks (both trading and non-trading), and trading credit risk (also called counterparty credit risk) across CIBC’s portfolios, and effective challenge and sound risk management oversight to the treasury/liquidity management function within CIBC.
* **Global Credit Risk Management** – This group is responsible for the adjudication and oversight of credit risks (including transaction specific environmental and social risk$^{(1)}$) associated with our commercial, wholesale and wealth management activities, management of the risks in our investment portfolios, as well as management of special loan portfolios.
* **Global Operational Risk Management** – This group develops the systems and tools to facilitate the identification of operational risks, and has global accountability for the measurement and monitoring of all operational risk types.
* **Risk Analytics, Reporting and Credit Decisioning** – This group is responsible for enterprise-wide analysis, including enterprise-wide stress testing and reporting, loan loss reporting, risk policy and governance, risk systems and models, recovery and resolution planning, as well as economic and regulatory capital methodologies. In addition, this group manages credit risk in personal and small business products offered through the various distribution channels (residential mortgages, credit cards, personal loans/lines of credit, small business loans) and performs analytics to optimize retail credit performance, along with collections, fraud, and anti-money laundering outcomes.
* **Conduct Risk Management** – This group is responsible for enterprise conduct risk, including sales practice and compensation plan oversight and non-transactional reputation risk.
* **Compliance** – This group provides timely and proactive advice and independent oversight of CIBC’s compliance with applicable regulatory requirements.
* **Enterprise Anti-Money Laundering** – This group is responsible for all aspects of compliance with and oversight of requirements relating to anti-money laundering, anti-terrorist financing, and sanctions measures.
* **U.S. Risk Management** – This group carries out the mandate of CIBC Risk Management at a regional level under the leadership of the U.S. CRO, with oversight from the U.S. Risk Management Committee and reporting to the Senior Executive Vice-President, U.S. Region. The group provides independent oversight for the identification, management, measurement, monitoring and control of risks in CIBC’s U.S. Commercial Banking and Wealth Management SBU. In addition, the CRO also oversees, through a joint oversight structure, the U.S. CRO, to ensure the relevant aspects of the U.S. Risk Management group are consistent with the above-noted practices.

$^{(1)}$ See the “Environmental and social risk” section for further details, including oversight of non-transaction specific environmental and social risk, which reports directly into the CRO.

### Risk management process

Our risk management process is illustrated below:

```mermaid
graph TD
    A[Risk Appetite Statement] --> B[Risk Policies and Limits]
    B --> C[Risk Identification and Measurement]
    C --> D[Stress Testing]
    D --> E[Risk Treatment / Mitigation]
    E --> B
    A --> F(Reporting)
    E --> F
    F --> G(Monitor and Review)
    G --> A
```

### Risk appetite statement

CIBC’s risk appetite statement defines the amount of risk we are willing to assume in pursuit of our strategic and financial objectives. Our guiding principle is to practice sound risk management, supported by strong capital and funding positions, as we pursue our client-focused strategy. In defining our risk appetite, we take into consideration our vision, values, and strategy, along with our risk capacity (defined by regulatory constraints). It defines how we conduct business, which is to be consistent with the following objectives:

* Doing the right thing for our clients/stakeholders;
* Safeguarding our reputation and brand;
* Engaging in client-oriented businesses that we understand;
* Maintaining a balance between risk and returns;
* Retaining a prudent attitude towards tail and event risk;
* Meeting regulatory expectations and/or identifying and having plans in place to address any issues in a timely manner; and
* Achieving/maintaining an AA rating.

Our CIBC risk appetite statement contains metrics with limits that define our risk tolerance levels. In addition, we have SBU risk appetite statements that are integrated with the overall CIBC risk appetite statement that further articulate our business level risk tolerances.

Our CIBC risk appetite statement is reviewed annually in conjunction with our strategic, financial and capital planning cycle to ensure alignment and is approved annually by the Board. To help ensure CIBC stays within its risk appetite, the Board, RMC, and senior management regularly receive and review reporting on our risk profile against the risk appetite limits.

All strategic business decisions, as well as day-to-day business decisions, are governed by our risk appetite framework. Strategic decisions are evaluated to ensure that the risk exposure is within our risk appetite. Day-to-day activities and decisions are governed by our framework of risk tolerance limits, policies, standards and procedures that support our risk appetite statement.

### Risk culture

Risk culture refers to desired attitudes and behaviours relative to risk taking. At CIBC, we strive to achieve a consistent and effective risk culture by:

* Promoting, through both formal and informal channels, a shared accountability of risk identification, management and mitigation;
* Cultivating an environment of transparency, open communication and robust discussion of risk;
* Setting the appropriate “tone at the top” through clear communication and reinforcement; and
* Identifying behaviours that are and are not aligned with risk appetite, and reinforce appropriate behaviours.

Every year, all employees are required to complete formal training on risk appetite, reputation risk, operational risk, code of conduct, anti-money laundering and other key risk topics. By taking this mandatory training, all employees develop a basic knowledge of risk management in support of our risk culture. This training is supplemented by our risk appetite statement, risk management priorities, documents on our internal website and internal news releases. In addition, we have policies, procedures and limits in place that govern our day-to-day business activity, with escalation procedures for limit breaches outlined accordingly.

### Risk input into performance and compensation

At each year-end, Risk Management provides an assessment of adherence to risk appetite and material risk matters across CIBC. Risk Management also considers a number of risk inputs to identify matters which may directly impact individual compensation awards and/or performance ratings.

The MRCC oversees the performance management and compensation process. The MRCC is responsible for assisting the Board in their global oversight of CIBC’s human capital strategy, including talent strategy, succession planning and total rewards. The MRCC’s key compensation-related responsibilities include:

* Approving CIBC’s compensation philosophy and any material changes to CIBC’s compensation principles or practices;
* Approving new material compensation policies and changes to existing material compensation policies;
* Reviewing and recommending for Board approval new material compensation plans or changes to existing material compensation plans;
* Assessing the appropriateness and alignment of compensation relative to actual business performance and risks;
* Reviewing and recommending for Board approval incentive compensation funding and allocations, based on an assessment of business performance and risk;
* Reviewing and recommending for Board approval individual compensation target and compensation for the ExCo, including the CEO and other key officers; and
* Approving individual compensation for employees with total direct compensation above a certain materiality threshold.

### Risk policies and limits

Our risk policies and limits framework is intended to ensure that risks are appropriately identified, measured, monitored and controlled in accordance with our risk appetite. For most risks, we have developed an overarching framework document that sets out the key principles for managing the associated risks and our key risk policies and limits. This framework is supported by standards, guidelines, processes, procedures and controls that govern day-to-day activities in our businesses. Oversight is provided by management committees, as well as the Board/Board Committees.

Key risk policies and limits are illustrated below:

```mermaid
graph TD
    subgraph Risk Appetite Statement and Risk Appetite Framework
        A[Risk Management Framework]
        A --> B(Overarching Framework / Policy)
        A --> C(Risk Limits)
        A --> D(Management Oversight)
    end

    subgraph Risk
        Credit --> B1["Credit Risk Management Policy"]
        Credit --> C1["Credit Concentration Limits", "Delegated Credit Approval Authorities"]
        Credit --> D1["Credit Committee", "Personal and Small Business Credit Risk Committee", "Global Risk Committee"]

        Market --> B2["Trading Credit Risk and Market Risk Management Policies", "Structural Risk Management Policies"]
        Market --> C2["Market Risk Limits", "Delegated Risk Authorities"]
        Market --> D2["Global Risk Committee", "Global Asset Liability Committee"]

        Operational --> B3["Operational Risk Management Policy", "Control Framework"]
        Operational --> C3["Key Risk Indicators"]
        Operational --> D3["Operational Risk and Control Committee", "Global Risk Committee"]

        Reputation --> B4["Reputation Risk Management Framework and Policy"]
        Reputation --> C4["Key Risk Indicators"]
        Reputation --> D4["Global Risk Committee", "Reputation and Legal Risks Committee"]

        Liquidity --> B5["Liquidity Risk Management Policy", "Pledging Policy"]
        Liquidity --> C5["Liquidity and Funding Limits", "Pledging Limits"]
        Liquidity --> D5["Global Asset Liability Committee", "Global Risk Committee"]

        Strategic --> B6["Strategic Planning Policy"]
        Strategic --> C6["Risk Appetite Statement"]
        Strategic --> D6["Executive Committee"]

        Regulatory --> B7["Regulatory Compliance Policy"]
        Regulatory --> C7["Key Risk Indicators"]
        Regulatory --> D7["Global Risk Committee"]
    end
```

### Risk identification and measurement

Risk identification and measurement are important elements of our risk management framework. Risk identification is a continuous process, generally achieved through:

* Regular assessment of risks associated with lending and trading credit exposures;
* Ongoing monitoring of trading and non-trading portfolios;
* Assessment of risks in new business activities and processes;
* Assessment of risks in complex and unusual business transactions; and
* Regular monitoring of the overall risk profile considering market developments and trends, and external and internal events.

Risk Management has developed a “Risk Register” to list all material risks facing CIBC. The inventory is based on the risks inherent in CIBC’s businesses and updated through various processes, illustrated in the following chart, to reflect changes in the nature of the risks we are facing. The Risk Register is used as an input for our ICAAP, either explicitly in the economic and regulatory capital calculations, or implicitly through the buffer of actual capital over economic capital and regulatory capital.

```mermaid
graph TD
    A[Strategic and Emerging Risk Themes] --> B[Risk Register]
    C[External and Peer Benchmarking] --> B
    D[Regulatory Reviews] --> B
    B --> E[Internal Capital Adequacy Assessment Process (ICAAP)]
    F[Macro and External Risks] --> G[Assessment of Risk Level (probability / severity considerations)]
    G --> B
    H[Risks Inherent in CIBC’s Businesses] --> B
    I[Strategic Business Reviews] --> J[Change Initiative Risk Assessment Process]
    J --> B
    K[Risk and Control Self Assessments] --> B
    E --> B
```

The decision to register a new risk is based on a risk assessment through our risk identification processes and includes criteria such as materiality, measurability and probability. Furthermore, the decision to hold capital for a new risk is also based on whether the risk is being mitigated, and whether capital is deemed to be a suitable mitigant.

We have enterprise-wide methodologies, models and techniques in place to measure both the quantitative and qualitative aspects of risks, appropriate for the various types of risks we face. These methodologies, models and techniques are subject to independent assessment and review to ensure that the underlying logic remains sound, that model risks have been identified and managed, that use of the models continues to be appropriate and outputs are valid. Risk is usually measured in terms of expected loss, unexpected loss, and economic capital.

### Expected loss

Expected loss represents the loss that is statistically expected to occur in the normal course of business, with adjustments for conservatism, in a given period of time.

In respect of credit risk, the parameters used to measure expected loss are PD, LGD and EAD. These parameters are updated regularly and are based on our historical experience through the cycle and benchmarking of credit exposures. The PD, LGD and EAD parameters used for regulatory capital purposes are not adjusted for forward-looking information.

For trading market risks, VaR is a statistical technique used to measure risk. VaR is an estimate of the loss in market value for a given level of confidence that we would expect to incur in our trading portfolio due to an adverse one-day movement in market rates and prices. We also use stressed VaR to replicate our VaR over a period when relevant market factors are in distress.

For trading credit risks associated with market value based products, we use models to estimate exposure relative to the value of the portfolio of trades with each counterparty, giving consideration to market rates and prices.

### Unexpected loss and economic capital

Unexpected loss is the statistical estimate of the amount by which actual losses might exceed expected losses over a specified time horizon, computed at a given confidence level. We use economic capital to estimate the level of capital needed to protect us against unexpected losses. Economic capital allows us to assess performance on a risk-adjusted basis.

We also use techniques such as sensitivity analysis and stress testing to help ensure that the risks remain within our risk appetite and that our capital is adequate to cover those risks. Our stress testing program includes evaluation of the potential effects of various economic and market scenarios on our risk profile, earnings and capital. Refer to the “Capital resources” section for additional details.

### Model risk management

Model risk management encompasses sound development, independent validation, and ongoing monitoring and review of the models as well as governance and controls that are proportionate to the risks. Our model inventory includes, but is not limited to, models that relate to risk measurement (including VaR, economic and regulatory capital), pricing, credit risk rating and scoring models, credit models for the calculation of loss severity and stress testing, and models for the calculation of expected credit losses under IFRS 9. CIBC’s approach to provide effective governance and oversight for model risk management is comprised of the following key elements:

* Governance and oversight by management committees, including the Model and Parameter Risk Committee (MPRC), senior management and the Board;
* Policies, procedures and standards to outline applicable roles and responsibilities of the various oversight groups and to provide guidance to identify, measure, control and monitor model risk throughout the model’s life cycle; and
* Controls for key operational aspects of model risk management including maintaining a model inventory, model risk ranking, model risk attestation and ongoing monitoring and reporting.

The MPRC is a sub-committee of the Global Risk Committee and is responsible for reviewing and approving proposals for new and/or modified regulatory and economic capital models and provides oversight of CIBC’s regulatory and economic capital models and parameters for credit, market and operational risks. The MPRC has accountability and responsibility for model and parameter approvals, parameter performance monitoring, validation oversight, and policy oversight.

### Model risk mitigation policies

We have policies, procedures, standards and controls to ensure effective model risk management for CIBC. A model review and validation is the independent effective challenge that documents the model risk and ensures models are sound and CIBC can rely on their output. The model review and validation process includes:

* Review of model documentation;
* Comprehensive, systematic testing of key model parameters on implementation to ensure results are as expected;
* Replication of the risk quantification process to determine whether the model implementation is faithful to the model specifications;
* Review of whether the model/parameter concepts and assumptions are appropriate and robust;
* Accuracy testing to assess the calibration and accuracy of the risk components including, for example, the discriminative power of rating systems and the reasonableness of capital parameters;
* Sensitivity testing to analyze the sensitivity of model/parameter outputs to model/parameter assumptions and key inputs;
* Scenario and stress testing of the model outputs to key inputs;
* Back-testing by comparing actual results with model-generated risk measures;
* Benchmarking to other models and comparable internal and external data;
* Review of the internal usage of the model/parameter applications to ensure consistency of application;
* Reporting of model status to the MPRC, supported through an up-to-date inventory of regulatory models and parameters;
* A quarterly attestation process for model owners in order to ensure compliance with the Model Risk and Validation Policy; and
* A comprehensive validation report is prepared that identifies the conditions for valid application of the model and summarizes these findings to the model owners, developers and users.

Once a model has been approved for use, ongoing monitoring becomes a joint responsibility of model users, owners and validators.

### Stress testing

Stress testing supplements our other risk management tools by providing an estimate of tail risk (i.e., low probability, high severity events). Results of stress testing are interpreted in the context of our risk appetite, including metrics for capital adequacy. Enterprise-wide stress testing, capital planning and financial planning processes are integrated for a comprehensive information system. See the “Financial condition” section for detailed discussion on our enterprise-wide stress testing.

### Risk treatment and mitigation

Risk treatment and mitigation is the implementation of options for modifying risk levels. CIBC pursues risk mitigation options in order to control its risk profile in the context of its risk appetite. CIBC’s objective is to proactively consider risk mitigation options in order to optimize results.

Discussions regarding potential risk mitigation strategies are held between Risk Management and the lines of business, and at the GRC or GALCO and at the RMC for governance and oversight, as appropriate. In evaluating possible strategies, considerations include costs and benefits, residual risks (i.e., risks that are retained), secondary risks (i.e., those caused by the risk mitigation actions), and appropriate monitoring and review to track results.

### Risk controls

Our risk management framework also includes a comprehensive set of risk controls, designed to ensure that risks are being appropriately identified and managed. Our risk controls are part of CIBC’s overall Control Framework, developed based on the Committee of Sponsoring Organizations of the Treadway Commission’s (COSO) widely accepted “Internal Control – Integrated Framework”. The Control Framework also draws on elements of the OSFI Supervisory Framework and Corporate Governance Guidelines.

The Board, primarily through the RMC, approves certain credit risk limits and delegates specific transactional approval authorities to the CEO or jointly to the CEO and CRO. The RMC must approve transactions that exceed delegated authorities. Delegation of authority to business units is controlled to ensure decision-making authorities are restricted to those individuals with the necessary experience levels. In addition, CIBC has rigorous processes to identify, evaluate and remediate risk control deficiencies in a timely manner. Regular reporting is provided to the RMC to evidence compliance with risk limits. Risk limits and the delegation of authority to the CEO or jointly to the CEO and CRO are reviewed annually by the RMC.

### Risk monitoring and reporting

To monitor CIBC’s risk profile and facilitate evaluation against the risk appetite statement, a number of measurement metrics have been established, with regular reporting against these metrics provided to the GRC and the RMC. This reporting enables decisions on growth and risk mitigation strategies. Exposures are also regularly monitored against limits, with escalation protocols for limit excesses, should they occur. Escalation protocols ensure awareness at appropriate levels and facilitate management of excesses that is consistent with our risk appetite.

Regular management reports on each risk type are also prepared to facilitate monitoring and control of risk at a more granular level.

### Top and emerging risks

We monitor and review top and emerging risks that may affect our future results, and take action to mitigate potential risks if required. We perform in-depth analyses, which can include stress testing our exposures relative to the risks, and provide updates and related developments to the Board on a regular basis. This section describes the top and emerging risks that we consider to have potential negative implications, as well as regulatory and accounting developments that are material for CIBC.

#### Technology, information and cyber security risk

Financial institutions like CIBC are evolving their business processes to leverage innovative technologies and the internet to improve client experience and streamline operations. At the same time, cyber threats and the associated financial, reputation and business interruption risks have also increased.

These risks continue to be actively managed by us through strategic risk reviews, enterprise-wide technology and information security programs, with the goal of maintaining overall cyber-resilience that prevents, detects, and responds to threats such as data breaches, malware, unauthorized access, and denial-of-service attacks, which can result in damage to CIBC systems and information, theft or disclosure of confidential information, unauthorized or fraudulent activity, and service disruption.

Given the importance of electronic financial systems, including secure online and mobile banking provided by CIBC to its clients, CIBC monitors the changing environment globally, including cyber threats, mitigation strategies and evolving regulatory requirements, in order to improve our controls and processes to protect our systems and client information. In addition, we continually perform cyber security preparedness, testing, and recovery exercises to validate our defences, benchmark against best practices and provide regular updates to the Board. CIBC has well-defined cyber incident response protocols and playbooks in the event that a security incident or breach occurs. CIBC also has cyber insurance coverage to help mitigate against certain potential losses associated with cyber incidents. CIBC’s insurance coverage is subject to various terms and provisions, including limits on the types and amounts of coverage relating to losses arising from cyber incidents. We periodically assess our insurance coverage based on our risk tolerance and limits.

Despite our commitment to information and cyber security, CIBC and its related third parties may not be able to fully mitigate all risks associated with the increased complexity and high rate of change in the threat landscape. CIBC continuously monitors its risk profile for changes and continues to refine approaches to security protection and service resilience to minimize the impact of any incidents that may occur.

#### Disintermediation risk

Canadian banking clients are increasingly shifting their service transactions from branches to digital platforms. As such, competitive pressure from digital disruptors, both global technology leaders and smaller financial technology entrants, is increasing and the risk of disintermediation is growing due to the level of sophistication of these non-traditional competitors. Cryptocurrencies, such as Bitcoin, are increasingly being recognized by financial institutions as risk factors facing their business operations. One of the major appeals of cryptocurrencies is the anonymity they offer, as participants can transfer assets across the internet without the need for centralized third-party intermediaries such as banks. In view of several shortcomings including their high volatility, the widespread adoption of cryptocurrencies as a substitute for government-issued currencies does not appear to be a near-term prospect. However, the underlying blockchain technology is seen to have vast potential which could contribute to increased disintermediation.

Blockchain is a decentralized ledger technology which keeps records that are linked and secured with cryptography. It enables the use of cryptocurrencies, such as Bitcoin. The percentage of global GDP stored on this technology is expected to continue to increase, creating the potential for blockchain to transform business models across multiple industries that focus on transaction and record verification.

CIBC manages disintermediation risk through strategic risk reviews as well as investment in emerging channels, in data and analytics capabilities, and in technology and innovation in general, to meet our clients’ changing expectations, while working to reduce our cost structure and simplify operations.

#### Geo-political risk

The level of geo-political risk escalates at certain points in time. While the specific impact on the global economy and on global credit and capital markets would depend on the nature of the event, in general, any major event could result in instability and volatility, leading to widening spreads, declining equity valuations, flight to safe-haven currencies and increased purchases of gold. In the short run, market shocks could hurt the net income of our trading and non-trading market risk positions. Although Canada is unlikely to be directly subject to geo-political risk, the indirect impact of reduced economic growth, as well as potential impacts on commodity prices and the recent rise of protectionism, could have serious negative implications for general economic and banking activities.

Currently, there are several areas of concern which have raised the level of uncertainty in global financial markets. These include: heightened tensions in the Middle East in the aftermath of the decision by the U.S. to exit the Joint Comprehensive Plan of Action relating to Iran’s nuclear program and recent diplomatic turmoil regarding Saudi Arabia; the U.S. decision to withdraw from the Intermediate-Range Nuclear Forces Treaty with Russia; Brexit negotiations; and continued uncertainty surrounding global trade tensions, especially between the U.S. and China. Moreover, ratification of the renegotiated U.S.-Mexico Canada (USMCA) deal to replace the North American Free Trade Agreement (NAFTA) may be delayed or prevented in the U.S. House of Representatives following the U.S. mid-term elections. In addition, there remains the potential for U.S. tax reforms to have a negative impact on the competitiveness of the Canadian economy. While it is impossible to predict where new geo-political disruption will occur, we do pay particular attention to markets and regions with existing or recent historical instability to assess the impact of these environments on the markets and businesses in which we operate.

#### Canadian consumer debt and the housing market

As a consequence of historically low interest rates, Canadians had increased debt levels at a pace that exceeded the growth in their income. Most of the increase in household debt levels was driven by higher levels of mortgage debt, which was tied to the Canadian housing market. The Bank of Canada’s recent and potential further increases in interest rates, combined with regulatory measures introduced by OSFI, the Department of Finance, and provincial governments, including taxes on foreign ownership and revised mortgage underwriting guidelines (B-20 guidelines), are having their intended effect.

Household credit is currently growing at the slowest pace experienced in any non-recessionary period during the post-war era.

OSFI revised its B-20 guidelines on mortgage lending, which came into effect January 1, 2018. See the “Credit risk” section for further details. While we believe that the probability of a severe housing crash that generates significant losses for mortgage portfolios remains low, increases in interest rates and the new regulatory measures put in place elevate the risk associated with an inflated housing market, along with high levels of consumer debt that would be a concern should the economy falter and unemployment rates begin to increase.

Currently, we qualify variable rate mortgage borrowers using the Bank of Canada five-year fixed benchmark rate, which is typically higher than the variable rate by approximately two percentage points, which is required as part of the B-20 guidelines. Therefore, our variable rate borrowers should be able to withstand some increase in interest rates. In addition, we run our enterprise-wide statistical stress tests at lower home prices to determine potential direct losses, and have also conducted stress tests to assess the impact of rising unemployment rates on borrowers’ ability to repay loan obligations.

#### Acquisition risk

CIBC seeks out acquisition opportunities that align with its strategy, risk appetite and financial goals. The ability to successfully execute on our strategy to integrate acquisitions, and the ability to anticipate and manage risks associated with acquisitions, are subject to certain factors. These include receiving regulatory and shareholder approval on a timely basis and on favourable terms, retaining clients and key personnel, realizing synergies and efficiencies, controlling integration and acquisition costs, among others, and changes in general business and economic conditions.

Although many of the factors are beyond CIBC’s control, their impact is partially mitigated by conducting due diligence before completing the transaction, developing and executing appropriate integration plans, and monitoring performance following the acquisition. However, acquisitions involve inherent uncertainty and we cannot determine all potential events, facts and circumstances and there could be an adverse impact on CIBC’s operations and financial performance.

#### U.S. banking regulation

In conjunction with our acquisition of The PrivateBank (subsequently rebranded as CIBC Bank USA), completed on June 23, 2017, our wholly-owned subsidiary, CIBC Bancorp USA Inc. (CIBC Bancorp), became a bank holding company registered under the U.S. Bank Holding Company Act of 1956, as amended, and is subject to regulation as a bank holding company by the U.S. Board of Governors of the Federal Reserve System (Federal Reserve). CIBC Bank USA, as a state-chartered bank with greater than \$10 billion of total assets, is subject to regulation by the U.S. Federal Deposit Insurance Corporation (FDIC), the U.S. Bureau of Consumer Financial Protection Board (BCFP), and the Illinois Department of Financial and Professional Regulation.

The scope of these regulations could impact our business in a number of ways. For example, both CIBC Bancorp and CIBC Bank USA are required to maintain minimum capital ratios in accordance with Basel III rules adopted by the U.S. bank regulatory agencies, which differ in some respects from Canada’s Basel III rules. Under the U.S. bank regulatory framework, both CIBC and CIBC Bancorp are expected to provide a source of strength to the subsidiary bank and may be required to commit additional capital and other resources to CIBC Bank USA in the event that its financial condition were to deteriorate, whether due to overall challenging economic conditions in the U.S., or because of business-specific issues. The Federal Reserve (in the case of CIBC Bancorp) and the FDIC (in the case of CIBC Bank USA) also have the ability to restrict dividends paid by CIBC Bancorp or CIBC Bank USA, which could limit our ability to receive distributions on our capital investment in our U.S. banking operations.

Furthermore, the Federal Reserve and the FDIC could also restrict our ability to grow our U.S. banking operation, whether through acquisitions or organically, if, among other things, they have supervisory concerns about risk management, anti-money laundering or compliance programs and practices, governance and controls, and/or capital and liquidity adequacy at CIBC Bancorp or CIBC Bank USA.

In October 2018, the Federal Reserve issued a notice of proposed rulemaking that, consistent with the U.S. regulatory relief legislation enacted in May 2018, would establish a revised framework for applying enhanced prudential standards to large U.S. banking organizations based on their risk profile and asset size. The proposed rules generally would exempt U.S. banking organizations with less than \$100 billion of consolidated assets from most enhanced prudential standards, and those with between \$100 billion and \$250 billion of consolidated assets would be exempt from the more stringent standards. The proposed rules, however, expressly do not apply to U.S. banks controlled by foreign banking organizations, although the Federal Reserve has indicated that it intends to issue separate guidance on the applicability of enhanced prudential standards to foreign banking organizations, which may impact CIBC Bancorp given that it has consolidated assets less than \$100 billion. Until such further regulations are proposed, however, there is uncertainty as to whether the revised asset thresholds will be applied to foreign banking organizations in a manner similar to U.S. banking organizations. If they are not, CIBC Bancorp could be subject to more significant regulatory compliance burdens, particularly as we seek to grow the size of our U.S. operations, as compared to other similarly-sized U.S. banking organizations that are not owned by a foreign parent.

#### Anti-money laundering

Recognizing the threat of money laundering, terrorist financing activities and other related crimes to the stability and integrity of a country’s financial sector and its broader economy, the international community has made the fight against these illegal activities a priority. Several laws and regulations have been enacted by governments and regulatory bodies globally. As a potential conduit for illegal operations, financial institutions bear a significant responsibility in mitigating the risks associated with these activities.

CIBC is committed to adhering to all regulatory requirements pertaining to Anti-Money Laundering (AML) and Anti-Terrorist Financing (ATF) and implementing best practices to minimize the impact of such activities. As such, CIBC has implemented procedures to ensure that relevant regulatory obligations with respect to the reporting of large cash transactions, electronic funds transfers, and cross-border movements of cash and monetary instruments, are met in each jurisdiction. In addition, all employees are required to complete CIBC’s AML/ATF training annually.

#### Commodity prices

Global economic growth is projected to remain relatively healthy in 2019, providing continued support to industrial demand for commodities. While oil prices have been declining recently, with West Texas Intermediate prices dropping below US\$60/barrel, of greater concern to the Canadian industry is the significant drop in Canada’s heavy oil benchmark, Western Canada Select, which at under \$17/barrel, is near the lows set in 2016. However, should OPEC reverse some of the production increases introduced to offset declines in Iranian and Venezuelan output, global crude prices could recover some of the current weakness.

CIBC’s overall commodity exposure continues to perform within our risk appetite, with losses in our oil and gas portfolio down significantly from peak levels. Clients in our oil and gas portfolio are currently being assessed on the basis of our enhanced risk metrics, and our portfolio is being monitored in a prudent manner.

#### Environmental and social governance

See the “Environmental and social risk” section for additional information.

#### Regulatory developments

See the “Taxes”, “Capital resources”, “Credit risk”, “Liquidity risk” and “Accounting and control matters” sections for additional information on regulatory developments.

#### Accounting developments

See the “Accounting and control matters” section and Note 31 to the consolidated financial statements for additional information on accounting developments.

## Risks arising from business activities

The chart below shows our business activities and related risk measures based upon regulatory RWAs and economic capital as at October 31, 2018:

```mermaid
graph TD
    subgraph SBUs
        A[Canadian Personal and Small Business Banking]
        B[Canadian Commercial Banking and Wealth Management]
        C[U.S. Commercial Banking and Wealth Management]
        D[Capital Markets]
        E[Corporate and Other]
    end

    subgraph Business activities
        A --> A1(Deposits, Residential mortgages, Personal loans, Small business lending, Insurance, Credit cards)
        B --> B1(Commercial banking, Full service brokerage, Asset management, Private wealth management)
        C --> C1(Commercial banking, Asset management, Private wealth management, Personal and small business banking)
        D --> D1(Credit products, Investment banking, Investment portfolios)
        E --> E1(International banking, Investment portfolios, Joint ventures, Functional and support groups (see page 28))
    end

    subgraph Balance sheet ($ millions)
        A --> A2(Average assets: 259,130, Average deposits: 166,703)
        B --> B2(Average assets: 55,713, Average deposits: 53,209)
        C --> C2(Average assets: 42,028, Average deposits: 22,309)
        D --> D2(Average assets: 166,231, Average deposits: 31,387)
        E --> E2(Average assets: 75,339, Average deposits: 181,827)
    end

    subgraph CET1 RWA (All-in basis) ($ millions)
        A --> A3(Credit risk: 47,217, Market risk: –, Operational risk: 11,398)
        B --> B3(Credit risk: 40,596, Market risk: –, Operational risk: 5,742)
        C --> C3(Credit risk: 35,835, Market risk: 29, Operational risk: 2,660)
        D --> D3(Credit risk: 41,467, Market risk: 6,035, Operational risk: 6,051)
        E --> E3(Credit risk: 18,020, Market risk: 319, Operational risk: 775)
    end

    subgraph Economic capital (%)
        A --> A4(Proportion of total CIBC: 19%)
        A4 --> A5(Comprising: Credit risk (5): 56, Market risk: 34, Operational/Strategic risks: 10)
        B --> B4(Proportion of total CIBC: 16%)
        B4 --> B5(Comprising: Credit risk (5): 62, Market risk: 3, Operational/Strategic risks: 35)
        C --> C4(Proportion of total CIBC: 9%)
        C4 --> C5(Comprising: Credit risk (5): 35, Market risk: 2, Operational/Strategic risks: 63)
        D --> D4(Proportion of total CIBC: 13%)
        D4 --> D5(Comprising: Credit risk (5): 73, Market risk: 13, Operational/Strategic risks: 14)
        E --> E4(Proportion of total CIBC: 19%)
        E4 --> E5(Comprising: Credit risk (5): 22, Market risk: 17, Operational/Strategic risks: 61)
    end

    subgraph Risk profile
        A --> A6{We are exposed to credit, market, liquidity, operational, and other risks, which primarily include strategic, insurance, technology, information and cyber security, reputation and legal, regulatory compliance and environmental risks.}
        B --> A6
        C --> A6
        D --> A6
        E --> A6
    end
```

$^{(1)}$ Includes counterparty credit risk of \$83 million, which comprises derivatives and repo-style transactions.
$^{(2)}$ Includes counterparty credit risk of \$10,956 million, which comprises derivatives and repo-style transactions.
$^{(3)}$ Includes counterparty credit risk of \$545 million, which comprises derivatives and repo-style transactions.
$^{(4)}$ For additional information, see the “Non-GAAP measures” section.
$^{(5)}$ Includes investment risk.

## Credit risk

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

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

### Governance and management

Credit risk is managed through the three lines of defence model. Frontline businesses own the risks and are responsible for identifying and assessing risks inherent in line of business activities, establishing controls to mitigate those risks, and ensuring the ongoing design and operating effectiveness of controls – this is the first line of defence.

The second line of defence is Risk Management and other functional groups, which provide guidance and effective independent challenge of the adjudication and oversight of credit risks associated with CIBC’s commercial, wholesale and wealth management activities, as well as risk assessments and decisions for the first line of defence.

Internal Audit provides the third line of defence, by providing reasonable assurance on the effectiveness of governance practices, risk management processes and internal controls.

Senior management reports to the GRC and RMC at least quarterly on material credit risk matters, including material credit transactions, compliance with limits, portfolio trends, impaired loans and credit loss provisioning levels. Provision for credit losses is reviewed by the RMC and the Audit Committee quarterly.

Specific to the management of credit risk, Risk Management is mandated to provide enterprise-wide oversight of the management of credit risk in CIBC’s credit portfolios, including the measurement, monitoring and control of credit risk and the management of credit risk models. Key groups in Risk Management with credit risk responsibility include:

* **Capital Markets Risk Management:** This group is responsible for independent oversight of trading credit risk, including adjudication of trading credit facilities for non-bank financial entities, prime brokerage clients and central clearing counterparties where the client has no other credit relationship with CIBC. In addition, Capital Markets Risk Management is responsible for managing the country risk rating and the country exposure limits processes.
* **Global Credit Risk Management:** This group is responsible for the adjudication and oversight of credit risks (including transaction specific environmental and social risk$^{(1)}$) associated with our commercial, wholesale and wealth management activities, management of the risks in our investment portfolios, as well as management of special loan portfolios.
* **Model Validation, Global Operational Risk Management:** This group is responsible for the oversight of model validation practices. Model validation constitutes the independent set of processes, activities and ongoing documentary evidence that models and parameters are sound and CIBC can rely on their output.
* **Risk Analytics, Reporting and Credit Decisioning:** This group is responsible for enterprise-wide analysis, including enterprise-wide stress testing and reporting, risk policy and governance, risk systems and models, recovery and resolution planning, as well as economic and regulatory capital methodologies. In addition, this group manages credit risk in personal and small business products offered through the various distribution channels (residential mortgages, credit cards, personal loans/lines of credit, small business loans) and performs analytics to optimize retail credit performance, along with collections, fraud, and anti-money laundering outcomes.
* **U.S. Risk Management:** This group carries out the mandate of CIBC Risk Management at a regional level and provides independent oversight of the identification, management, measurement, monitoring and control of credit risks in the U.S. Commercial Banking and Wealth Management SBU.

Adjudication and oversight above delegated levels is provided by the CRO, GRC and RMC.

### Policies

To control credit risk, prudent credit risk management principles are used as a base to establish policies, standards and guidelines that govern credit activities as outlined by the credit risk management policy.

The credit risk management policy supplements CIBC’s risk management framework and risk appetite framework, and together with CIBC’s portfolio concentration limits for credit exposures, CIBC’s common risk/concentration risk limits for credit exposures, and other supporting credit risk policies, standards and procedures, assists CIBC in achieving its desired risk profile by providing an effective foundation for the management of credit risk.

### Credit risk limits

The RMC approves Board limits, and exposures above Board limits require reporting to, or approval of, the RMC. Management limits are approved by the CRO. Usage is monitored to ensure risks are within allocated management and Board limits. Exposures above management limits require the approval of the CRO. Business lines may also impose lower limits to reflect the nature of their exposures and target markets. This tiering of limits provides for an appropriate hierarchy of decision making and reporting between management and the RMC. Credit approval authority flows from the Board and is further cascaded to officers in writing. The Board’s Investment and Lending Authority Resolution sets thresholds above which credits require reporting to, or approval of, the RMC, ensuring an increasing level of oversight for credits of higher risk. CIBC maintains country limits to control exposures within countries outside of Canada and the United States.

### Credit concentration limits

At a bank-wide level, credit exposures are managed to promote alignment to our risk appetite statement, to maintain the target business mix and to ensure that there is no undue concentration of risk. We set limits to control borrower concentrations by risk-rating band for large exposures (i.e., risk rated credits). Direct loan sales, credit derivative hedges, or structured transactions may also be used to reduce concentrations. We also have a set of portfolio concentration limits in place to control exposures by country, industry, product and activity. Further, our policies require limits to be established as appropriate for new initiatives and implementation of strategies involving material levels of credit risk. Concentration limits represent the maximum exposure levels we wish to hold on our books. In the normal course, it is expected that exposures will be held at levels below the maximums. The credit concentration limits are reviewed and approved by the RMC at least annually.

Credit concentration limits are also applied to our retail lending portfolios to mitigate concentration risk. We not only have concentration limits to individual borrowers and geographic regions, but also to different types of credit facilities, such as unsecured credits, rental occupancy purpose credits, condominium secured credits and mortgages with a second or third charge where we are behind another lender. In addition, we limit the maximum insured mortgage exposure to private insurers in order to reduce counterparty risk.

### Credit risk mitigation

We may mitigate credit risk by obtaining a pledge of collateral, which improves recoveries in the event of a default. Our credit risk management policies include verification of the collateral and its value and ensuring that we have legal certainty with respect to the assets pledged. Valuations are updated periodically depending on the nature of the collateral, legal environment, and the creditworthiness of the counterparty. The main types of collateral include: (i) cash or marketable securities for securities lending and repurchase transactions; (ii) cash or marketable securities taken as collateral in support of our OTC derivatives activity; (iii) charges over operating assets such as inventory, receivables and real estate properties for lending to small business and commercial borrowers; and (iv) mortgages over residential properties for retail lending.

In certain circumstances we may use third-party guarantees to mitigate risk. We also obtain insurance to reduce the risk in our real estate secured lending portfolios, the most material of which relates to the portion of our residential mortgage portfolio that is insured by CMHC, an agency of the Government of Canada.

We mitigate the trading credit risk of OTC derivatives, securities lending and repurchase transactions with counterparties by employing the International Swaps and Derivatives Association (ISDA) Master Agreement, as well as Credit Support Annexes (CSAs) or similar master and collateral agreements. See Note 12 to the consolidated financial statements for additional details on the risks related to the use of derivatives and how we manage these risks.

ISDA Master Agreements and similar master and collateral agreements, (such as the global master repurchase agreement and global master securities lending agreement,) facilitate cross transaction payments, prescribe close-out netting processes, and define the counterparties’ contractual trading relationship. In addition, the agreements formalize non-transaction specific terms. Master agreements serve to mitigate our credit risk by outlining default and termination events, which enable parties to close out of all outstanding transactions in the case of a negative credit event on either party’s side. The mechanism for calculating termination costs in the event of a close out are outlined in the master agreement; this allows for the efficient calculation of a single net obligation of one party to another.

CSAs and other collateral agreements are often included in ISDA Master Agreements or similar master agreements governing securities lending and repurchase transactions. They mitigate counterparty credit risk by providing for the exchange of collateral between parties when a party’s exposure to the other exceeds agreed upon thresholds, subject to a minimum transfer amount. CSAs and other collateral agreements which operate with master agreements also designate acceptable collateral types, and set out rules for re-hypothecation and interest calculation on collateral. Collateral types permitted under CSAs and other master agreements are set through our trading credit risk management documentation procedures. These procedures include requirements around collateral type concentrations.

Consistent with global initiatives to improve resilience in the financial system, we will clear derivatives through CCPs where feasible. Credit derivatives may be used to reduce industry sector concentrations and single-name exposure.

### Forbearance policy

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

In retail lending, forbearance techniques include interest capitalization, amortization amendments and debt consolidations. We have a set of eligibility criteria which allow our Client Account Management team to determine suitable remediation strategies and propose products based on each borrower’s situation. While these solutions often provide more favourable conditions than those originally provided and are intended to increase the ability of borrowers to service their obligation to CIBC overall, we consider these solutions to be at market and comparable to terms and conditions we would have offered to new clients with comparable credit ratings.

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

### Process and control

The credit approval process is centrally controlled, with all significant credit requests submitted to a credit adjudication group within Risk Management that is independent of the originating businesses. Approval authorities are a function of the risk and amount of credit requested. In certain cases, credit requests must be referred to the Credit Committee, a subcommittee of the GRC, or to the RMC for approval.

After initial approval, individual credit exposures continue to be monitored, with a formal risk assessment, including review of assigned ratings, documented at least annually. Higher risk-rated accounts are subject to closer monitoring and are reviewed at least quarterly. Collections and specialized loan workout groups handle the day-to-day management of high risk loans to maximize recoveries.

### Risk measurement

**Exposures subject to AIRB approach**

Under the AIRB approach we are required to categorize exposures to credit risk into broad classes of assets with different underlying risk characteristics. This asset categorization may differ from the presentation in our consolidated financial statements. Under the AIRB approach, credit risk is measured using the following three key risk parameters$^{(1)}$:

* PD – the probability that the obligor will default within the next 12 months.
* EAD – the estimate of the amount which will be drawn at the time of default.
* LGD – the expected severity of loss as the result of the default, expressed as a percentage of the EAD.

Our credit risk exposures are divided into business and government and retail portfolios. Regulatory models used to measure credit risk exposure under the AIRB approach are subject to CIBC’s model risk management process.

$^{(1)}$ These parameters differ from those used in the calculation of expected credit losses under IFRS 9. See the “Accounting and control matters” section for further details.

**Business and government portfolios (excluding scored small business) – risk-rating method**

The portfolios comprise exposures to corporate, sovereign, and bank obligors. Our adjudication process and criteria includes assigning an obligor default rating that reflects our estimate of the financial strength of the borrower, and a facility rating or loss given default rating that reflects the collateral amount and quality applicable to secured exposures, the seniority position of the claim, and the capital structure of the borrower for unsecured exposures.

The obligor rating takes into consideration our financial assessment of the obligor, the industry, and the economic environment of the region in which the obligor operates. Where a guarantee from a third party exists, both the obligor and the guarantor will be assessed. While our obligor rating is determined independently of external ratings for the obligor, our risk-rating methodology includes a review of those external ratings.

CIBC employs a 20-point master internal obligor default rating scale that broadly maps to external agencies ratings as presented in the table below.

| Grade | CIBC rating | S&P equivalent | Moody’s equivalent |
| :--- | :--- | :--- | :--- |
| Investment grade | 00 – 47 | AAA to BBB- | Aaa to Baa3 |
| Non-investment grade | 51 – 67 | BB+ to B- | Ba1 to B3 |
| Watch list | 70 – 80 | CCC+ to C | Caa1 to Ca |
| Default | 90 | D | C |

We use quantitative modelling techniques to assist in the development of internal risk-rating systems. The risk-rating systems have been developed through analysis of internal and external credit risk data, supplemented with expert judgment. The risk ratings are used for portfolio management, risk limit setting, product pricing, and in the determination of regulatory and economic capital.

Our credit process is designed to ensure that we approve applications and extend credit only where we believe that our client has the ability to repay according to the agreed terms and conditions.

Our credit framework of policies and limits defines our appetite for exposure to any single name or group of related borrowers, which is a function of the internal risk rating. We generally extend new credit only to borrowers in the investment and non-investment grade categories noted above. Our credit policies are also defined to manage our exposure to concentration in borrowers in any particular industry or region.

In accordance with our process, each obligor is assigned an obligor default rating and the assigned rating is mapped to a PD estimate that represents a long-run average one-year default likelihood. For corporate obligors, PD estimates are calculated using joint maximum likelihood techniques based on our internal default rate history by rating category and longer dated external default rates as a proxy for the credit cycle to arrive at long-run average PD estimates. Estimates drawn from third party statistical default prediction models are used to supplement the internal default data for some rating bands where internal data is sparse. For small and medium corporate enterprises, PD estimates are developed using only internal default history. For bank and sovereign obligors, PD estimates are derived from an analysis based on external default data sets and supplemented with internal data where possible. We examine several different estimation methodologies and compare results across the different techniques. In addition, we apply the same techniques and estimation methodologies to analogous corporate default data and compare the results for banks and sovereigns to the corporate estimates for each technique. A regulatory floor is applied to PD estimates for corporate and bank obligors.

Each facility is assigned a loss given default rating and each assigned rating is mapped to an LGD estimate that considers economic downturn conditions. For corporate obligors, LGD estimates are primarily derived from internal historical recovery data. Time to resolution is typically 1 to 2 years for most corporate obligors, and 1 to 4 years in the real estate sector. LGD values are based on discounted post-default cash flows for resolved accounts and include material direct and indirect costs associated with collections. External data is used in some cases to supplement our analysis. Economic downturn periods are identified for each portfolio by examining the history of actual losses, default rates and LGD. For bank and sovereign exposures, LGD estimates are primarily driven by expert judgment supplemented with external data and benchmarks where available. Appropriate adjustments are made to LGD estimates to account for various uncertainties associated with estimation techniques and data limitations, including adjustments for unresolved accounts.

EAD is estimated based on the current exposure to the obligor together with possible future changes in that exposure driven by factors such as the available undrawn credit commitment amount and the obligor default rating. EAD estimates are primarily based on internal historical loss data supplemented with comparable external data. Economic downturn periods are identified for each portfolio by examining the historical default rates and actual EAD factors.

Appropriate adjustments are made to PD, LGD and EAD estimates to account for various uncertainties associated with estimation techniques and data limitations, including adjustments for unresolved accounts (for LGD).

A simplified risk-rating process (slotting approach) is used for part of our uninsured Canadian commercial mortgage portfolio, which comprises non-residential mortgages and multi-family residential mortgages. These exposures are individually rated on our rating scale using a risk-rating methodology that considers the property’s key attributes, which include its loan-to-value (LTV) and debt service ratios, the quality of the property, and the financial strength of the owner/sponsor. All exposures are secured by a lien over the property. In addition, we have insured multi-family residential mortgages, which are not treated under the slotting approach, but are instead treated as sovereign exposures.

**Retail portfolios**

Retail portfolios are characterized by a large number of relatively small exposures. They comprise of: real estate secured personal lending (residential mortgages and personal loans and lines secured by residential property); qualifying revolving retail exposures (credit cards, overdrafts and unsecured lines of credit); and other retail exposures (loans secured by non-residential assets, unsecured loans including student loans, and scored small business loans).

We use scoring models in the adjudication of new retail credit exposures, which are based on statistical methods of analyzing the unique characteristics of the borrower, to estimate future behaviour. In developing our models, we use internal historical information from previous borrowers, as well as information from external sources, such as credit bureaus. The use of credit scoring models allows for consistent assessment across borrowers. There are specific guidelines in place for each product, and our adjudication decision will take into account the characteristics of the borrower, any guarantors, and the quality and sufficiency of the collateral pledged (if any). The lending process will include documentation of, where appropriate, satisfactory identification, proof of income, independent appraisal of the collateral and registration of security.

Retail portfolios are managed as pools of homogeneous risk exposures, using external credit bureau scores and/or other behavioural assessments to group exposures according to similar credit risk profiles. These pools are established through statistical techniques. Characteristics used to group individual exposures vary by asset category; as a result, the number of pools, their size, and the statistical techniques applied to their management differ accordingly.

The following table maps the PD bands to various risk levels:

| Risk level | PD bands |
| :--- | :--- |
| Exceptionally low | 0.01% – 0.20% |
| Very low | 0.21% – 0.50% |
| Low | 0.51% – 2.00% |
| Medium | 2.01% – 10.00% |
| High | 10.01% – 99.99% |
| Default | 100% |

For the purposes of the AIRB approach for retail portfolios, additional PD, LGD and EAD segmentation into homogenous risk exposures is established through statistical techniques. The principal statistical estimation technique is decision trees benchmarked against alternative techniques such as regression and random forests.

Within real estate secured lending, we have two key parameter estimation models: mortgages and real estate secured personal lines of credit. Within qualifying revolving retail, we have three key parameter estimation models: credit cards, overdraft, and unsecured personal lines. A small percentage of credit cards, overdraft, and unsecured line accounts that do not satisfy the requirements for qualifying revolving retail are grouped into other retail parameter models. Within other retail, we have three key parameter models: margin lending, personal loans, and scored small business loans. Each parameter model pools accounts according to characteristics such as: delinquency, current credit bureau score, internal behaviour score, estimated current LTV ratio, account type, account age, utilization, outstanding balance, or authorized limit.

PD is estimated as the average default rate over an extended period based on internal historical data, generally for a 5 to 10 year period, which is adjusted using internal historical data on default rates over a longer period or comparable external data that includes a period of stress. A regulatory floor is applied to our PD estimate for all retail exposures with the exception of insured mortgages and government-guaranteed loans.

LGD is estimated based on observed recovery rates over an extended period using internal historical data. In determining our LGD estimate, we exclude any accounts that have not had enough time since default for the substantial majority of expected recovery to occur. This recovery period is product-specific and is typically in the range of 1 to 3 years. Accounts that cure from default and return to good standing are considered to have zero loss. We simulate the loss rate in a significant downturn based on the relationship(s) between LGD and one or more of the following: PD; housing prices, cure rate, and recovery time; or observed LGD in periods with above-average loss rates. We apply appropriate adjustments to address various types of estimation uncertainty including sampling error and trending. A regulatory floor is applied to all real estate secured exposures with the exception of insured mortgages.

EAD for revolving products is estimated as a percentage of the authorized credit limit based on the observed EAD rates over an extended period using historical data. We simulate the EAD rate in a significant downturn based on the relationship(s) between the EAD rate and PD and/or the observed EAD rate in periods with above-average EAD rates. For term loan products, EAD is set equal to the outstanding balance.

We apply appropriate adjustments to PD, LGD and EAD to address various types of estimation uncertainty including sampling error and trending.

### Back-testing

We monitor the three key risk parameters – PD, EAD and LGD – on a quarterly basis for our business and government portfolios and on a monthly basis for our retail portfolios. Every quarter, the back-testing results are reported to OSFI and are presented to the business and Risk Management senior management for review and challenge. For each parameter, we identify any portfolios whose realized values are significantly above or significantly below expectations and then test to see if this deviation is explainable by changes in the economy. If the results indicate that a parameter model may be losing its predictive power, we prioritize that model for review and update.

### Stress testing

As part of our regular credit portfolio management process, we conduct stress testing and scenario analyses on our portfolio to quantitatively assess the impact of various historical, as well as hypothetical, stressed conditions, versus limits determined in accordance with our risk appetite. Scenarios are selected to test our exposures to specific industries (e.g., oil and gas and real estate), products (e.g., mortgages and cards), or geographic regions (e.g., Europe and Caribbean). Results from stress testing are a key input into management decision making, including the determination of limits and strategies for managing our credit exposure. See the “Real estate secured personal lending” section for further discussion on our residential mortgage portfolio stress testing.

## Credit risk

### Exposure subject to AIRB approach

Under the AIRB approach we are required to categorize exposures to credit risk into broad classes of assets with different underlying risk characteristics. This asset categorization may differ from the presentation in our consolidated financial statements. Under the AIRB approach, credit risk is measured using the following three key risk parameters$^{(1)}$:

* PD – the probability that the obligor will default within the next 12 months.
* EAD – the estimate of the amount which will be drawn at the time of default.
* LGD – the expected severity of loss as the result of the default, expressed as a percentage of the EAD.

Our credit risk exposures are divided into business and government and retail portfolios. Regulatory models used to measure credit risk exposure under the AIRB approach are subject to CIBC’s model risk management process.

$^{(1)}$ These parameters differ from those used in the calculation of expected credit losses under IFRS 9. See the “Accounting and control matters” section for further details.

### Rating profile of OTC derivative mark-to-market (MTM) receivables

| | 2018 Exposure | | 2017 Exposure | |
| :--- | :--- | :--- | :--- | :--- |
| Investment grade | 6.78 | 87.3 % | 7.19 | 84.1 % |
| Non-investment grade | 0.97 | 12.5 | 1.33 | 15.6 |
| Watch list | 0.01 | 0.1 | 0.02 | 0.2 |
| Default | 0.01 | 0.1 | 0.01 | 0.1 |
| **Total** | **7.77** | **100.0 %** | **8.55** | **100.0 %** |

### Concentration of exposures

Concentration of credit risk exists when a number of obligors are engaged in similar activities, or operate in the same geographic areas or industry sectors, and have similar economic characteristics so that their ability to meet contractual obligations is similarly affected by changes in economic, political, or other conditions.

### Geographic distribution

The following table provides a geographic distribution of our business and government exposures under the AIRB approach, net of collateral held for repo-style transactions.

| | **2018** | | | | | **2017** | | | | |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| **\$ millions, as at October 31** | **Canada** | **U.S.** | **Europe** | **Other** | **Total** | **Canada** | **U.S.** | **Europe** | **Other** | **Total** |
| Drawn | 100,788 | 35,190 | 6,278 | 9,043 | 151,299 | 78,312 | 23,390 | 6,449 | 9,047 | 117,198 |
| Undrawn commitments | 37,989 | 8,992 | 2,272 | 1,544 | 50,797 | 39,078 | 4,085 | 1,193 | 1,647 | 45,998 |
| Repo-style transactions | 7,364 | 2,961 | 1,014 | 1,052 | 12,391 | 76,899 | 39 | 1,373 | 121 | 78,432 |
| Other off-balance sheet | 57,217 | 14,570 | 8,175 | 540 | 80,502 | 64,924 | 2,743 | 8,534 | 1,421 | 77,622 |
| OTC derivatives | 10,484 | 6,198 | 3,516 | 1,423 | 21,621 | 8,990 | 64 | 1,385 | 1,817 | 12,256 |
| **Total** | **213,842** | **67,911** | **21,255** | **13,602** | **316,610** | **197,299** | **30,321** | **18,934** | **13,053** | **269,607** |

| | **2018** | | | | | **2017** | | | | |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| **\$ millions, as at October 31** | **Canada** | **U.S.** | **Europe** | **Other** | **Total** | **Canada** | **U.S.** | **Europe** | **Other** | **Total** |
| Drawn | 100,788 | 35,190 | 6,278 | 9,043 | 151,299 | 78,312 | 23,390 | 6,449 | 9,047 | 117,198 |
| Undrawn commitments | 37,989 | 8,992 | 2,272 | 1,544 | 50,797 | 39,078 | 4,085 | 1,193 | 1,647 | 45,998 |
| Repo-style transactions | 7,364 | 2,961 | 1,014 | 1,052 | 12,391 | 76,899 | 39 | 1,373 | 121 | 78,432 |
| Other off-balance sheet | 57,217 | 14,570 | 8,175 | 540 | 80,502 | 64,924 | 2,743 | 8,534 | 1,421 | 77,622 |
| OTC derivatives | 10,484 | 6,198 | 3,516 | 1,423 | 21,621 | 8,990 | 64 | 1,385 | 1,817 | 12,256 |
| **Total** | **213,842** | **67,911** | **21,255** | **13,602** | **316,610** | **197,299** | **30,321** | **18,934** | **13,053** | **269,607** |

| | **2018** | | | | | **2017** | | | | |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| **\$ millions, as at October 31** | **Canada** | **U.S.** | **Europe** | **Other** | **Total** | **Canada** | **U.S.** | **Europe** | **Other** | **Total** |
| Drawn | 100,788 | 35,190 | 6,278 | 9,043 | 151,299 | 78,312 | 23,390 | 6,449 | 9,047 | 117,198 |
| Undrawn commitments | 37,989 | 8,992 | 2,272 | 1,544 | 50,797 | 39,078 | 4,085 | 1,193 | 1,647 | 45,998 |
| Repo-style transactions | 7,364 | 2,961 | 1,014 | 1,052 | 12,391 | 76,899 | 39 | 1,373 | 121 | 78,432 |
| Other off-balance sheet | 57,217 | 14,570 | 8,175 | 540 | 80,502 | 64,924 | 2,743 | 8,534 | 1,421 | 77,622 |
| OTC derivatives | 10,484 | 6,198 | 3,516 | 1,423 | 21,621 | 8,990 | 64 | 1,385 | 1,817 | 12,256 |
| **Total** | **213,842** | **67,911** | **21,255** | **13,602** | **316,610** | **197,299** | **30,321** | **18,934** | **13,053** | **269,607** |

## Market risk

Market risk is the risk of economic financial loss in our trading and non-trading portfolios from adverse changes in underlying market factors, including interest rates, foreign exchange rates, equity market prices, commodity prices, credit spreads, and customer behaviour for retail products. Market risk arises in CIBC’s trading and treasury activities, and encompasses all market-related positioning and market making activity.

The trading book consists of positions in financial instruments and commodities held to meet the near-term needs of our clients. The non-trading book consists of positions in various currencies that are related to asset/liability management (ALM) and investment activities.

### Governance and management

Market risk is managed through the three lines of defence model. Frontline businesses are responsible for managing the market risk associated with their activities – this is the first line of defence.

The second line of defence is Risk Management, which has a dedicated market risk manager for each trading business, supplemented by regional risk managers located in all of our major trading centres, facilitating comprehensive risk coverage, including the measurement, monitoring and control of market risk.

Internal Audit provides the third line of defence, with independent assessment of the design and operating effectiveness of risk management controls, processes and systems.

Senior management reports material risk matters to the GRC and RMC at least quarterly, including material transactions, limit compliance, and portfolio trends.

### Policies

We have comprehensive policies for the management of market risk. These policies are related to the identification and measurement of various types of market risk, their inclusion in the trading book, and to the establishment of limits within which we monitor, manage and report our overall exposures. Our policies also outline the requirements for the construction of valuation models, model review and validation, independent checking of the valuation of positions, the establishment of valuation adjustments, and alignment with accounting policies including MTM and mark-to-model methodologies.

### Market risk limits

We have risk tolerance levels, expressed in terms of statistically based VaR measures, potential stress losses, and notional or other limits as appropriate. We use a multi-tiered approach to set limits on the amounts of risk that we can assume in our trading and non-trading activities, as follows:

* Board limits control consolidated market risk;
* Management limits control market risk for CIBC overall and are lower than the Board limits to allow for a buffer in the event of extreme market moves and/or extraordinary client needs;
* Tier 2 limits control market risk at the business unit level; and
* Tier 3 limits control market risk at the sub-business unit or desk level. Tier 3 limits are set on VaR and a variety of metrics including stress.

Management limits are established by the CRO, consistent with the risk appetite statement approved by the Board. Tier 2 and Tier 3 limits are approved at levels of management commensurate with risk assumed.

### Process and control

Market risk exposures are monitored daily against approved risk limits, and control processes are in place to monitor that only authorized activities are undertaken. We generate daily risk and limit-monitoring reports, based on the previous day’s positions. Summary market risk and limit compliance reports are produced and reviewed periodically with the GRC and RMC.

### Risk measurement

We use the following measures for market risk:

* VaR enables the meaningful comparison of the risks in different businesses and asset classes. VaR is determined by the combined modelling of VaR for each of interest rate, credit spread, equity, foreign exchange, commodity, and debt specific risks, along with the portfolio effect arising from the interrelationship of the different risks (diversification effect):
    * Interest rate risk measures the impact of changes in interest rates and volatilities on cash instruments and derivatives.
    * Credit spread risk measures the impact of changes in credit spreads of provincial, municipal and agency bonds, sovereign bonds, corporate bonds, securitized products, and credit derivatives such as credit default swaps.
    * Equity risk measures the impact of changes in equity prices and volatilities, including implied market corrections.
    * Foreign exchange risk measures the impact of changes in foreign exchange rates and volatilities.
    * Commodity risk measures the impact of changes in commodity prices and volatilities, including the basis between related commodities.
    * Debt specific risk measures the impact of changes in the volatility of the yield of a debt instrument as compared with the volatility of the yield of a representative bond index.
    * Diversification effect reflects the risk reduction achieved across various financial instrument types, counterparties, currencies and regions. The extent of diversification benefit depends on the correlation between the assets and risk factors in the portfolio at a particular time.
* Price sensitivity measures the change in value of a portfolio to a small change in a given underlying parameter, so that component risks may be examined in isolation, and the portfolio rebalanced accordingly to achieve a desired exposure.
* Stressed VaR enables the meaningful comparison of the risks in different businesses and asset classes under stressful conditions. Changes to rates, prices, volatilities, and spreads over a 10-day horizon from a stressful historical period are applied to current positions and determine stressed VaR.
* IRC measures the required capital due to credit migration and default risk for debt securities held in the trading portfolios.
* Back-testing validates the effectiveness of risk measurement through analysis of observed and theoretical profit and loss outcomes.
* Stress testing and scenario analysis provide insight into portfolio behaviour under extreme circumstances.

### Trading revenue

Trading revenue (TEB) comprises both trading net interest income and non-interest income and excludes underwriting fees and commissions. Trading revenue (TEB) in the charts below excludes certain exited portfolios.

During the year, trading revenue (TEB) was positive for 99.6% of the days. The largest gain of \$26.5 million occurred on May 31, 2018. It was attributable to the normal course of business within our global markets line of business, notably in equity derivatives. The largest loss of \$0.3 million occurred on March 22, 2018, driven by fixed income inventory. Average daily trading revenue (TEB) was \$5.5 million during the year, and the average daily TEB was \$1.1 million.

### Stress testing and scenario analysis

Stress testing and scenario analysis is designed to add insight to possible outcomes of abnormal market conditions, and to highlight possible risk concentrations.

We measure the effect on portfolio values under a wide range of extreme moves in market risk factors. Our approach simulates the impact on earnings of extreme market events over a one-month time horizon, assuming that no risk-mitigating actions are taken during this period to reflect the reduced market liquidity that typically accompanies such events.

Scenarios are developed using historical market data during periods of market disruption, or are based on hypothetical impacts of economic events, political events, and natural disasters as predicted by economists, business leaders, and risk managers.

Among the historical scenarios are the 1994 period of U.S. Federal Reserve tightening, and the market events following the 2008 market crisis. The hypothetical scenarios include potential market crises originating in North America, Europe and Asia. In February 2018, a quantitative easing (QE) tapering and asset price correction scenario was introduced, which considers a potential economic slowdown as a result of combined rate hikes and QE tapering by the U.S. Federal Reserve, Bank of Canada, Bank of England, and the European Central Bank. In June 2018, an oil shock and equity correction scenario was introduced based on a constriction of supply with a rising “political premium”, which includes the reinstatement of oil sanctions against Iran by the U.S., the proxy conflict between Saudi Arabia and Iran over Yemen, and the collapse of Venezuela’s oil industry.

Below are examples of the core stress test scenarios which are currently run on a daily basis to add insight into potential exposures under stress:

* Subprime crisis and Lehman collapse – 2008
* U.S. Federal Reserve tightening – 1994
* U.S. sovereign debt default and downgrade
* Chinese hard landing
* Canada market crisis
* U.S. protectionism
* Eurozone bank crisis
* Korean War – base
* QE tapering and asset price correction
* Oil shock and equity correction

Stress testing scenarios are periodically reviewed and amended as necessary to ensure they remain relevant. Under stress limit monitoring, limits are placed on the maximum acceptable loss based on risk appetite in aggregate, at the detailed portfolio level, and for specific asset classes.

### Non-exchange traded commodity derivatives

In the normal course of business, we trade non-exchange traded commodity derivative contracts. We control and manage our non-exchange traded commodity derivatives risk through the VaR and stress testing methodologies described above. We use modelling techniques or other valuation methodologies to determine the fair value of these contracts.

The following table provides the fair value, based upon maturity of non-exchange traded commodity contracts:

| \$ millions, as at October 31, 2018 | Positive | Negative | Net |
| :--- | :--- | :--- | :--- |
| Maturity less than 1 year | 1,174 | 327 | 847 |
| Maturity 1 – 3 years | 856 | 428 | 428 |
| Maturity 4 – 5 years | 151 | 93 | 58 |
| Maturity in excess of 5 years | 409 | 19 | 390 |
| **Total** | **2,590** | **867** | **1,723** |

### Non-trading activities

#### Structural interest rate risk

Structural interest rate risk primarily consists of the risk arising due to mismatches in assets and liabilities, which do not arise from trading and trading related businesses. Interest rate risk results from differences in the maturities or repricing dates of assets and liabilities, both on- and off-balance sheet, as well as from embedded optionality in retail products. This optionality arises predominantly from the commitment and prepayment exposures of mortgage products, non-maturity deposits and some guaranteed investment certificates products with early redemption features. A variety of cash instruments and derivatives, primarily interest rate swaps, are used to manage these risks.

The Board has oversight of the management of non-trading market risk, sets the market risk appetite and annually approves the market risk limits. GALCO and its subcommittee, the Asset and Liability Management Committee, regularly review structural market risk positions and provide senior management oversight.

In addition to Board-approved limits on earnings and economic value exposure, more granular management limits are in place to guide day-to day management of this risk. The ALM group within Treasury is responsible for the ongoing management of structural market risk across the enterprise, with independent oversight and compliance with non-trading market risk policy provided by Capital Markets Risk Management.

ALM activities are designed to manage the effects of potential interest rate movements while balancing the cost of any hedging activities on the current net revenue. The net interest income sensitivity is a measure of the impact of potential changes in interest rates on the projected 12-month pre-tax net interest income of a portfolio of assets, liabilities and off-balance sheet positions in response to prescribed parallel interest rate movements with interest rates floored at zero.

The following table shows the potential impact over the next 12 months, adjusted for structural assumptions (excluding shareholders’ equity in the calculation of the present value of shareholders’ equity), estimated prepayments and potential early withdrawals, of an immediate and sustained 100 basis point increase or decrease in all interest rates.

| Structural interest rate sensitivity – measures (\$ millions (pre-tax), as at October 31) | 2018 CAD$ $^{(2)}$ | 2018 USD | 2017 CAD$ $^{(2)}$ | 2017 USD $^{(1)}$ |
| :--- | :--- | :--- | :--- | :--- |
| **100 basis point increase in interest rates** | | | | |
| Increase (decrease) in net interest income | 170 | 32 | 225 | 58 |
| Increase (decrease) in present value of shareholders’ equity | (396) | (230) | (354) | (84) |
| **100 basis point decrease in interest rates** | | | | |
| Increase (decrease) in net interest income | (246) | (58) | (289) | (118) |
| Increase (decrease) in present value of shareholders’ equity | 316 | 269 | 276 | (6) |

$^{(1)}$ Certain information has been restated to conform to the presentation adopted in the current year.
$^{(2)}$ Includes CAD and other currency exposures.

Beginning in 2018, CIBC has made modelling improvements which enhance the measurement of structural interest rate risk.

#### Foreign exchange risk

Non-trading foreign exchange risk, also referred to as structural foreign exchange risk, primarily consists of the risk inherent in: (a) net investments in foreign operations due to changes in foreign exchange rates; and (b) foreign currency denominated risk-weighted assets and foreign currency denominated capital deductions. This risk, predominantly in U.S. dollars, is managed using derivative hedges and by funding the investments in matching currencies. We actively manage this position to ensure that the potential impact on our capital ratios is in accordance with the policy approved by the RMC, while giving consideration to the impact on earnings and shareholders’ equity.

Structural foreign exchange risk is managed by Treasury under the guidance of GALCO. Compliance with trading and non-trading market risk policy, as well as market risk limits, is monitored daily by Capital Markets Risk Management.

A 1% appreciation of the Canadian dollar would reduce our shareholders’ equity as at October 31, 2018 by approximately \$130 million (2017: \$120 million) on an after-tax basis.

Our non-functional currency denominated earnings are converted into the functional currencies through spot or forward foreign exchange transactions. Thus, there is no significant impact of exchange rate fluctuations on our consolidated statement of income.

We hedge certain foreign currency contractual expenses using derivatives which are accounted for as cash flow hedges. The net change in fair value of these hedging derivatives included in AOCI amounted to a gain of \$8 million (2017: \$12 million) on an after-tax basis. This amount will be released from AOCI to offset the hedged currency fluctuations as the expenses are incurred.

#### Derivatives held for ALM purposes

Where derivatives are held for ALM purposes, and when transactions meet the criteria specified under IFRS, we apply hedge accounting for the risks being hedged, as discussed in Notes 12 and 13 to the consolidated financial statements. Derivative hedges that do not qualify for hedge accounting treatment are referred to as economic hedges and are recorded at fair value on the consolidated balance sheet with changes in fair value recognized in the consolidated statement of income.

Economic hedges for other than FVO financial instruments may lead to income volatility because the hedged items are recorded either on a cost or amortized cost basis or recorded at fair value on the consolidated balance sheet with changes in fair value recognized in the consolidated statement of comprehensive income. This income volatility may not be representative of the overall risk.

#### Equity risk

Non-trading equity risk arises primarily in our strategy and corporate development activities and our merchant banking activities. The investments comprise public and private equities, investments in limited partnerships, and equity-accounted investments.

The following table provides the amortized cost and fair values of our non-trading equities:

| \$ millions, as at October 31 | Amortized cost | Fair value |
| :--- | :--- | :--- |
| 2018 Equity securities designated at FVOCI | 468 | 562 |
| Equity-accounted investments in associates $^{(1)}$ | 63 | 101 |
| **Total** | **531** | **663** |
| 2017 AFS securities | 364 | 469 |
| Equity-accounted investments in associates$^{(1)}$ | 313 | 356 |
| **Total** | **677** | **825** |

$^{(1)}$ Excludes our equity-accounted joint ventures. See Note 25 to the consolidated financial statements for further details.

#### Pension risk

A number of defined benefit pension plans are operated globally. As at October 31, 2018, our consolidated defined benefit pension plans were in a net asset position of \$311 million, compared with \$134 million as at October 31, 2017. The change in the net asset position of our pension plans is disclosed in Note 18 to the consolidated financial statements.

Our Canadian pension plans represent approximately 90% of our pension plans, the most significant of which is our principal Canadian pension plan (the CIBC Pension Plan). The estimated impact on our Canadian defined benefit obligations of a 100 basis point change in the discount rate is disclosed in Note 18 to the consolidated financial statements.

The MRCC is responsible for sound governance and oversight, and delegates management authority to the Pension Benefits Management Committee (PBMC). An appropriate investment strategy for the CIBC Pension Plan is set through a statement of investment objectives, policies and procedures. Within Treasury, the Pension Investment Management department is responsible for the management of investment strategies for our pension plans utilizing a holistic framework which ensures that the plans are sustainably maintained within manageable risk tolerances and shareholder impact. Key risks include actuarial risks (such as longevity risk), interest rate risk, currency risk, market (investment) risk, and health-care cost inflation risks.

The CIBC Pension Plan principally manages these risk exposures through its liability-driven investment strategy which includes the use of derivatives for risk management and rebalancing purposes, as well as the ability to enhance returns. The use of derivatives within the CIBC Pension Plan is governed by the plan’s derivatives policy that was approved by the PBMC. The fair value of derivatives held in the CIBC Pension Plan is disclosed in Note 18 to the consolidated financial statements.

A principal risk for the CIBC Pension Plan is interest rate risk which it mitigates through a combination of physical bonds and a bond overlay program funded through the use of repurchase agreements. The plan also operates a currency overlay strategy, which may use forwards or similar instruments, to manage and mitigate its currency risk. Investment risk is mitigated through a multi-asset portfolio construction process that diversifies across a variety of market risk drivers.

## Liquidity risk

Liquidity risk is the risk of having insufficient cash or its equivalent in a timely and cost-effective manner to meet financial obligations as they come due. Common sources of liquidity risk inherent in banking services include unanticipated withdrawals of deposits, the inability to replace maturing debt, credit and liquidity commitments, and additional pledging or other collateral requirements.

CIBC’s approach to liquidity risk management supports our business strategy, aligns with our risk appetite and adheres to regulatory expectations. Our management strategies, objectives and practices are regularly reviewed to align with changes to the liquidity environment, including regulatory, business and/or market developments. Liquidity risk remains within CIBC’s risk appetite.

### Governance and management

We manage liquidity risk in a manner that enables us to withstand a liquidity stress event without an adverse impact on the viability of our operations. Actual and anticipated cash flows generated from on- and off-balance sheet exposures are routinely measured and monitored to ensure compliance with established limits. CIBC incorporates stress testing into its management and measurement of liquidity risk. Stress test results assist with the development of our liquidity assumptions, identification of potential constraints to funding planning, and contribute to the design of CIBC’s contingency funding plan (CFP). Liquidity risk is managed using the three lines of defence model, and the ongoing management of liquidity risk is the responsibility of the Treasurer, supported by guidance from GALCO.

The Treasurer is responsible for managing the activities and processes required for measurement, reporting and monitoring of CIBC’s liquidity risk position – this is the first line of defence.

The Liquidity and Non-Trading Market Risk group within Capital Markets Risk Management provides independent oversight, including the measurement, monitoring and control of liquidity risk, as the second line of defence.

Internal Audit provides the third line of defence, with independent assessment of the design and operating effectiveness of liquidity risk management controls, processes and systems.

The GALCO governs CIBC’s liquidity risk management, ensuring the liquidity risk management methodologies, assumptions, and key metrics such as the Liquidity Horizon, are regularly reviewed and aligned with our operating regulatory requirements. The Liquidity Risk Management Committee, a subcommittee of GALCO, is responsible for supporting GALCO to ensure that CIBC’s liquidity risk profile is comprehensively measured and managed in alignment with CIBC’s strategic direction, risk appetite and regulatory requirements.

The RMC approves CIBC’s liquidity risk management policy, and recommends liquidity risk tolerance to the Board through the risk appetite statement.

### Policies

Our liquidity risk management policy requires a sufficient amount of available unencumbered liquid assets and diversified funding sources to meet anticipated liquidity needs in both normal and stressed conditions for a minimum time period as measured by CIBC’s Liquidity Horizon. CIBC subsidiaries possessing unique liquidity characteristics, due to distinct business or jurisdictional requirements, maintain local liquidity policies in alignment with CIBC’s liquidity risk management policy.

CIBC’s pledging policy sets out consolidated limits for the pledging of CIBC’s assets across a broad range of financial activities. Pledged asset limits ensure unencumbered liquid assets are available for liquidity purposes.

We maintain a detailed global CFP that sets out the strategies for addressing liquidity shortfalls in emergency and unexpected situations, and delineates the requirements necessary to manage a range of stress conditions, establishes lines of responsibility and invocation, articulates implementation and escalation procedures, and is aligned to CIBC’s risk appetite. In order to reflect CIBC’s organizational complexity, regional and subsidiary CFPs are maintained to respond to liquidity stresses unique to the jurisdictions within which CIBC operates, and support CIBC as an enterprise.

### Risk measurement

Our liquidity risk tolerance is defined by our risk appetite statement, which is approved annually by the Board, and forms the basis for the delegation of liquidity risk authority to senior management. We use both regulatory-driven and internally developed liquidity risk metrics to measure our liquidity risk exposure. Internally, our liquidity position is measured using the Liquidity Horizon, which measures the future point in time when projected cumulative cash outflows exceed cash inflows under a combined CIBC-specific and market-wide stress scenario. Expected and potential anticipated inflows and outflows of funds generated from on- and off-balance sheet exposures are measured and monitored on a daily basis to ensure compliance with established limits. Contractual and behavioural on- and off-balance sheet cash flows under normal and stressed conditions are modelled and used to determine liquidity levels against the prescribed management target.

Our liquidity measurement system provides liquidity risk exposure reports that include the calculation of the Liquidity Horizon and regulatory reporting such as the LCR and Net Cumulative Cash Flow (NCCF). Our liquidity management also incorporates the monitoring of our unsecured wholesale funding position and funding capacity.

### Risk appetite

CIBC’s risk appetite statement ensures prudent management of liquidity risk by outlining qualitative considerations and quantitative metrics including the LCR and Liquidity Horizon. Quantitative metrics are measured and managed to a set of GALCO-approved management limits, which are more stringent than the limits established by the RMC.

### Stress testing

A key component of our liquidity risk management, and complementing our assessments of liquidity risk exposure, is liquidity risk stress testing. Liquidity stress testing involves the application of name-specific and market-wide stress scenarios at varying levels of severity to assess the amount of available liquidity required to satisfy anticipated obligations as they come due. The scenarios model potential liquidity and funding requirements in the event of unsecured wholesale funding and deposit run-off, and expected contingent liquidity utilization, as well as liquid asset marketability. Results from stress testing are also incorporated as input into the CFP review process.

## Liquid assets

Available liquid assets include unencumbered cash and marketable securities from on- and off-balance sheet sources, that can be used to access funding in a timely fashion. Encumbered liquid assets, composed of assets pledged as collateral and those assets that are deemed restricted due to legal, operational, or other purposes, are not considered as sources of available liquidity when measuring liquidity risk.

Encumbered and unencumbered liquid assets from on- and off-balance sheet sources are summarized as follows:

| \$ millions, as at October 31 | Bank owned liquid assets | Securities received as collateral | Total liquid assets | Encumbered liquid assets | Unencumbered liquid assets$^{(1)}$ |
| :--- | :--- | :--- | :--- | :--- | :--- |
| **2018** | | | | | |
| Cash and deposits with banks | 17,691 | – | 17,691 | 686 | 17,005 |
| Securities issued or guaranteed by sovereigns, central banks, and multilateral development banks | 67,478 | 74,933 | 142,411 | 75,431 | 66,980 |
| Other debt securities | 6,684 | 2,092 | 8,776 | 1,240 | 7,536 |
| Equities | 25,018 | 20,641 | 45,659 | 27,859 | 17,800 |
| Canadian government guaranteed National Housing Act mortgage-backed securities | 39,465 | 834 | 40,299 | 10,182 | 30,117 |
| Other liquid assets$^{(2)}$ | 6,500 | 1,598 | 8,098 | 6,621 | 1,477 |
| **Total** | **162,836** | **100,098** | **262,934** | **122,019** | **140,915** |
| **2017**$^{(3)}$ | | | | | |
| Cash and deposits with banks | 14,152 | – | 14,152 | 555 | 13,597 |
| Securities issued or guaranteed by sovereigns, central banks, and multilateral development banks | 51,196 | 65,923 | 117,119 | 67,806 | 49,313 |
| Other debt securities | 8,227 | 1,549 | 9,776 | 1,461 | 8,315 |
| Equities | 31,798 | 16,786 | 48,584 | 24,951 | 23,633 |
| Canadian government guaranteed National Housing Act mortgage-backed securities | 35,009 | 1,023 | 36,032 | 8,278 | 27,754 |
| Other liquid assets$^{(2)}$ | 5,796 | 2,258 | 8,054 | 5,346 | 2,708 |
| **Total** | **146,178** | **87,539** | **233,717** | **108,397** | **125,320** |

The following table summarizes unencumbered liquid assets held by CIBC (parent) and its domestic and foreign subsidiaries:

| \$ millions, as at October 31 | 2018 | 2017$^{(1)}$ |
| :--- | :--- | :--- |
| CIBC (parent) | 99,486 | 84,183 |
| Domestic subsidiaries | 15,988 | 11,454 |
| Foreign subsidiaries | 25,441 | 29,683 |
| **Total** | **140,915** | **125,320** |

## Asset encumbrance

The following table provides a summary of our total on- and off-balance sheet encumbered and unencumbered assets:

| \$ millions, as at October 31 | **Encumbered** | | **Unencumbered** | | **Total assets** |
| :--- | :--- | :--- | :--- | :--- | :--- |
| | Pledged as collateral | Other$^{(1)}$ | Available as collateral | Other$^{(2)}$ | |
| **2018** | | | | | |
| Cash and deposits with banks | – | 686 | 17,005 | – | 17,691 |
| Securities | 104,039 | 130 | 96,021 | – | 200,190 |
| Loans, net of allowance $^{(3)}$ | 1,600 | 44,553 | 33,499 | 292,507 | 372,159 |
| Other assets | 5,071 | – | 251 | 52,088 | 57,410 |
| **Total** | **110,710** | **45,369** | **146,776** | **344,595** | **647,450** |
| **2017**$^{(4)}$ | | | | | |
| Cash and deposits with banks | – | 555 | 13,597 | – | 14,152 |
| Securities | 95,321 | 971 | 86,882 | – | 183,174 |
| Loans, net of allowance $^{(3)}$ | 1,450 | 42,202 | 31,550 | 281,582 | 356,784 |
| Other assets | 4,419 | – | 186 | 50,936 | 55,541 |
| **Total** | **101,190** | **43,728** | **132,215** | **332,518** | **609,651** |

## Other contractual obligations

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

| \$ millions, as at October 31, 2018 | Less than 1 month | 1–3 months | 3–6 months | 6–9 months | 9–12 months | 1–2 years | 2–5 years | Over 5 years | Total |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| Operating leases | 41 | 83 | 124 | 124 | 122 | 472 | 1,289 | 3,505 | 5,760 |
| Purchase obligations$^{(1)}$ | 97 | 185 | 198 | 174 | 167 | 496 | 672 | 66 | 2,055 |
| Pension contributions$^{(2)}$ | 16 | 32 | 48 | 49 | 49 | – | – | – | 194 |
| Underwriting commitments | 176 | – | – | – | – | – | – | – | 176 |
| Investment commitments | 1 | 4 | – | – | 4 | 2 | 3 | 180 | 194 |
| **Total** | **331** | **304** | **370** | **347** | **342** | **970** | **1,964** | **3,751** | **8,379** |
| October 31, 2017 | 625 | 405 | 386 | 324 | 330 | 973 | 1,805 | 3,477 | 8,325 |

$^{(1)}$ Obligations that are legally binding agreements whereby we agree to purchase products or services with specific minimum or baseline quantities defined at fixed, minimum or variable prices over a specified period of time are defined as purchase obligations. Purchase obligations are included through to the termination date specified in the respective agreements, even if the contract is renewable. Many of the purchase agreements for goods and services include clauses that would allow us to cancel the agreement prior to expiration of the contract within a specific notice period. However, the amount above includes our obligations without regard to such termination clauses (unless actual notice of our intention to terminate the agreement has been communicated to the counterparty). The table excludes purchases of debt and equity instruments that settle within standard market time frames.
$^{(2)}$ Includes estimated minimum funding contributions for our funded defined benefit pension plans in Canada, the U.S., the U.K., and the Caribbean. Estimated minimum funding contributions are included only for the next annual period as the minimum contributions are affected by various factors, such as market performance and regulatory requirements, and therefore are subject to significant variability.

## Other risks

### Strategic risk

Strategic risk is the risk of ineffective or improper implementation of business strategies, including mergers and acquisitions. It includes the potential financial loss due to the failure of organic growth initiatives or failure to respond appropriately to changes in the business environment. For additional details on acquisition risk, see the “Top and emerging risks” section.

Oversight of strategic risk is the responsibility of the ExCo and the Board. At least annually, the CEO outlines the process and presents the strategic business plan to the Board for review and approval. The Board reviews the plan in light of management’s assessment of emerging market trends, the competitive environment, potential risks and other key issues.

One of the tools for measuring, monitoring and controlling strategic risk is attribution of economic capital against this risk. Our economic capital models include a strategic risk component for those businesses utilizing capital to fund an acquisition or a significant organic growth strategy.

### Insurance risk

Insurance risk is the risk of losses arising from the uncertainty of the timing and size of insurance claims. Unfavourable actual experience could emerge due to adverse fluctuations in timing, size and frequency of actual claims (e.g., mortality, morbidity), policyholder behaviour (e.g., cancellation of coverage), or associated expenses.

Insurance contracts provide financial compensation to the beneficiary in the event of an insured risk occurring in exchange for premiums. We are exposed to insurance risk in our life insurance business and in our reinsurance business within the respective subsidiaries.

Senior management of the insurance and reinsurance subsidiaries have primary responsibility for managing insurance risk with oversight by Risk Management. The insurance and reinsurance subsidiaries also have their own boards of directors, as well as each having an independent Appointed Actuary who provide additional input to risk management oversight. Processes and oversight are in place to manage the risk to our insurance business.

Underwriting risk on business assumed is managed through risk policies that limit exposure to an individual life, to certain types of business and to regions. Our risk governance practices ensure strong independent oversight and control of risk within the insurance businesses. The subsidiaries’ boards outline the internal risk and control structure to manage insurance risk, which includes risk, capital and control policies, processes as well as limits and governance. Senior management of the insurance and reinsurance subsidiaries and Risk Management attend the subsidiaries’ board meetings.

### Operational risk

Operational risk is the risk of loss resulting from people, inadequate or failed internal processes and systems, or from external events. As part of the normal course of business, CIBC is exposed to operational risks in its business activities and external environment. Our comprehensive Operational Risk Management Policy, supported by policies, tools, systems and governance structure, is used to mitigate operational risks. We continuously monitor our operational risk profile to ensure we are operating within CIBC’s approved risk appetite.

#### Governance and management

Operational risk is managed through the three lines of defence model. Frontline businesses form our first line of defence. Their primary responsibility is the day-to-day management of operational risk inherent in their products and activities.

The second line of defence includes Risk Management and other oversight functions, which are responsible for monitoring and providing independent oversight of operational risk matters in their respective risk types and for providing effective challenges to business lines’ operational risk assessments and mitigation activities.

Internal Audit, our third line of defence, assesses and provides an independent opinion on the design and operating effectiveness of CIBC’s management of operational risk and the strength of the internal control environment.

Global Operational Risk Management (GORM) oversees CIBC’s operational risk exposures. The Head of GORM chairs the Operational Risk and Control Committee (ORCC), a subcommittee of the GRC, with representation from SBUs and functional groups. The ORCC is a management forum providing oversight of CIBC’s operational risk and internal control environment. Its Chair reports significant operational risk matters to the GRC and RMC.

#### Operational risk management approach

Information transparency, timely escalation, clear accountability and a robust internal control environment are the principles forming the basis of the Operational Risk Management Policy, which supports and governs the processes of identifying, measuring, mitigating, monitoring, and reporting operational risks. We mitigate operational losses by consistently applying risk-based approaches and employing risk-specific assessment tools. Regular review of our risk governance structure ensures clarity of, and ownership in, key risk areas.

#### Risk measurement

CIBC’s business lines regularly conduct reviews of operational risks inherent in their products, services or processes and assess ways to mitigate and manage them in alignment with CIBC’s risk appetite. These reviews include using business process maps, risk and control self-assessments, audit findings, operational risk scenarios, past internal and external loss events, key risk indicators trends, change initiative risk assessments and in-depth risk reviews to form a holistic operational risk profile for the business lines. Under the three lines of defence model, GORM and relevant oversight functions and experts independently challenge business lines’ risk assessments and mitigation actions.

Operational loss is one of the key operational risk metrics informing us of areas of heightened risk. We collect and analyze internal operational loss event data for themes and trends. The occurrence of a material or potential material loss triggers an investigation to determine the root causes of the incident and the effectiveness of existing mitigating controls, as well as the identification of any additional mitigating actions. Additionally, we monitor the external environment for emerging or potential risks to CIBC. The analysis of material operational risk events is performed by the first line of defence and the outputs of the analysis are subject to formal independent challenge by our second line of defence. The analysis of material operational risk events forms one component of our ongoing operational risk reporting to senior management and the Board.

Business lines conduct change initiative risk assessment on risks inherent to the initiatives (for example, new product launches or major system changes). Identified risks and related mitigation actions are independently challenged by GORM and other oversight functions as the second line of defence to ensure residual risks remain within the approved risk appetite.

We use both the AMA, a risk-sensitive method prescribed by the BCBS, and the Standardized Method to quantify our operational risk exposure in the form of operational risk regulatory capital. Our AMA model determines operational risk capital using historical loss data, projected loss data from our loss scenario analysis and the assessment of internal control risks impacting our business environment. The standardized method is also used as agreed with local regulators. Our current AMA model, along with the standardized method, was approved for capital reporting commencing in fiscal 2016.

Under AMA, operational risk capital represents the “worst-case loss” within a 99.9% confidence level. The aggregate risk to CIBC is less than the sum of the individual parts, as the likelihood that all business groups across all regions experience a worst-case loss in every loss category in the same year is extremely low. To adjust for the fact that all risks are not 100% correlated, we incorporate a portfolio effect to ensure that the aggregated risk is representative of the total bank-wide risk. The process for determining correlations considers both internal and external historical correlations and takes into account the uncertainty surrounding correlation estimates.

Under Basel AMA, the recognition of insurance as a risk mitigant may be considered in the measure of operational risk used for regulatory minimum capital requirements. Although our current insurance policies are tailored to provide earnings protection from potential high-severity losses, we do not reflect mitigation through insurance or any other risk transfer mechanism in our AMA model.

### Back-testing

To ensure the AMA model is performing effectively and maintaining predictability, we back-test capital calculation results each quarter. The back testing exercise assesses the model’s performance against internal loss data. The overall AMA methodology is also independently validated by the Model Validation group to ensure that the applied assumptions are reasonable. The validation exercise includes modelling the relevant internal loss data using alternative methods and comparing the results to the model. The model will be updated to address identified gaps, as appropriate.

### Risk mitigation

Our primary tool for mitigating operational risk exposure is a robust internal control environment. Our internal control framework outlines key principles, structure and processes underpinning CIBC’s approach to managing risks through effective controls. Under our framework, all key controls are subject to ongoing testing and review to ensure they effectively mitigate our operational risk exposures. In addition, our corporate insurance program affords extra protection from loss while our global business continuity management program ensures that under conditions of interruption or crisis, CIBC’s critical business functions could continue to operate and normal operations are restored in a highly effective and efficient manner.

### Risk monitoring and reporting

Both forward-looking key risk indicators (KRIs) as well as backward-looking key performance indicators provide insight into CIBC’s risk exposure and are used to monitor the main drivers of exposure associated with key operational risks and their adherence to the operational risk appetite. KRIs assist in early detection of potential operational risk events by identifying unfavourable trends and highlighting controls that may not be functioning effectively. Business lines are required to identify and implement KRIs for material risk exposures on an ongoing basis. Escalation triggers are used to highlight risk exposures requiring additional attention from senior management and/or the Board. The second line of defence challenges the selection of KRIs and the appropriateness of thresholds.

Our risk monitoring processes support a transparent risk-reporting program, informing both senior management and the Board on our control environment, operational risk exposures, and mitigation strategies.

### Technology, information and cyber security risk

We are also exposed to cyber threats and the associated financial, reputation and business interruption risks. For additional information on these risks and our mitigation strategies, see the “Top and emerging risks” section.

### Reputation and legal risk

Our reputation and financial soundness are of fundamental importance to us and to our clients, shareholders and employees.

Reputation risk is the risk of negative publicity regarding CIBC’s business conduct or practices which, whether true or not, could significantly harm CIBC’s reputation as a leading financial institution, or could materially and adversely affect our business, operations or financial condition.

Legal risk is risk of financial loss arising from one or more of the following factors: (a) civil, criminal or regulatory enforcement proceedings against us; (b) our failure to correctly document, enforce or comply with contractual obligations; (c) failure to comply with our legal obligations to customers, investors, employees, counterparties or other stakeholders; (d) failure to take appropriate legal measures to protect our assets or security interests; or (e) misconduct by our employees or agents.

The RMC, together with the Reputation and Legal Risks Committee and GRC, provides oversight of the management of reputation and legal risks. The identification, consideration and prudent, proactive management of potential reputation and legal risks is a key responsibility of CIBC and all of our employees.

Our Global Reputation and Legal Risks Policy sets standards for safeguarding our reputation through pro-active identification, measurement and management of potential reputation and legal risks. The policy is supplemented by business procedures for identifying and escalating transactions to the Reputation and Legal Risks Committee that could pose material reputation risk and/or legal risk.

## Regulatory compliance risk

Our regulatory compliance philosophy is to manage and mitigate regulatory compliance risk through the promotion of a strong risk and compliance culture within the parameters established by CIBC’s Risk Appetite Statement. The foundation of this approach is a comprehensive Regulatory Compliance Management (RCM) framework. The RCM framework, owned by the Chief Compliance Officer and approved by the RMC, maps regulatory requirements to internal policies, procedures and controls that govern regulatory compliance.

Our Compliance department is responsible for the development and maintenance of a comprehensive regulatory compliance program, including oversight of the RCM framework. This department is independent of business management and reports regularly to the RMC.

Primary responsibility for compliance with all applicable regulatory requirements rests with senior management of the business and functional groups, and extends to all employees. The Compliance department’s activities support those groups, with particular emphasis on regulatory requirements that govern the relationship between CIBC and its clients, or that help protect the integrity of the capital markets.

See the “Regulatory developments” section for further details.

## Environmental and social risk

Environmental and social risk is the risk of financial loss or damage to reputation associated with environmental issues including related social issues, whether arising from our credit and investment activities or related to our own operations. Our corporate environmental policy, originally approved by the Board in 1993, with the most recent biennial update and approval by our CRO in 2018, commits CIBC to responsible conduct in all activities to protect and conserve the environment; safeguard the interests of all stakeholders from unacceptable levels of environmental risk; and support the principles of sustainable development.

Given the growing importance of environmental risk to our bank, on November 1, 2018, we aligned responsibility of our environmental policy and governance into our Senior Vice-President, Enterprise and Conduct Risk who reports into our CRO on environmental governance. Our environmental risk management team is responsible for developing environmental strategy, setting environmental performance standards and targets, and reporting on performance. There is also an enterprise-wide Environmental Management Committee, comprised of senior executives from our SBUs and functional groups, that meets quarterly and provides input into our environmental strategy and provides oversight of CIBC’s environmental initiatives.

The corporate environmental policy is addressed by an integrated corporate environmental management program that is under the overall management of the environmental risk management team. Environmental and related social evaluations are integrated into our credit and investment risk assessment processes, with environmental and social risk management standards and procedures in place for all sectors. In addition, environmental and social risk assessments in project finance, project-related corporate and bridge loans are required, in accordance with our commitment to the Equator Principles, which are a voluntary set of guidelines for financial institutions based on the screening criteria of the International Finance Corporation. We adopted the Equator Principles in 2003. An escalation process is in place for transactions with the potential to have significant environmental and related social risk, with escalation up to the Reputation and Legal Risks Committee for senior executive review, if required. Two proposed transactions were escalated to the Reputation and Legal Risks Committee in 2018 through this process.

We also conduct ongoing research and benchmarking on environmental issues such as climate change as they may pertain to responsible lending practices. We are a participant in the CDP (formerly Carbon Disclosure Project) climate change program, which promotes corporate disclosure to the investment community on greenhouse gas emissions and climate change management.

We are also a supporter of the TCFD, which aims to develop voluntary, consistent climate-related risk disclosures. We continue to evaluate the potential for further climate-related disclosures that align with the TCFD recommendations and to engage with peers in a variety of industries in an effort to ensure that any methodology developed to support such disclosures is reasonable and appropriate and can be applied on a consistent basis. In addition, we are a member of the United Nations Environment Programme-Finance Initiative (UNEP-FI), which has a mission to promote sustainable finance.

In 2018, CIBC Asset Management Inc. became a signatory to the United Nations-supported Principles for Responsible Investment, which commit signatories to incorporate environmental and social issues into investment analysis and decision-making across all investment classes.

The environmental risk management team works closely with our main business units and functional groups to ensure that high standards of environmental responsibility are applied to the banking services that we provide to our clients, the relationships we have with our stakeholders, and to the way we manage our facilities.

More information on our environmental governance, policy, management and performance can be found in our Corporate Responsibility Report, which is available at https://www.cibc.com/content/cibcpublic/en/about-cibc/corporate-responsibility.html. The information on our website does not form a part of this document.

# Consolidated financial statements

## Consolidated balance sheet

| \$ millions, as at October 31 | 2018 | 2017 |
| :--- | :--- | :--- |
| **Assets** | | |
| Cash and deposits with banks | 17,691 | 14,152 |
| Interest-bearing deposits with banks | 13,311 | 10,712 |
| Securities (Note 4) | 101,664 | 93,419 |
| Cash collateral on securities borrowed | 5,488 | 5,035 |
| Securities purchased under resale agreements | 43,450 | 40,383 |
| Loans (Note 5) | 371,396 | 356,734 |
| **Other** | | |
| Derivative instruments (Note 12) | 21,431 | 24,342 |
| Customers’ liability under acceptances | 10,265 | 8,824 |
| Land, buildings and equipment (Note 7) | 1,795 | 1,783 |
| Goodwill (Note 8) | 5,564 | 5,367 |
| Software and other intangible assets (Note 8) | 1,945 | 1,978 |
| Investments in equity-accounted associates and joint ventures (Note 25) | 526 | 715 |
| Deferred tax assets (Note 19) | 601 | 727 |
| Other assets (Note 9) | 15,283 | 11,805 |
| **Total assets** | **597,099** | **565,264** |
| **Liabilities and equity** | | |
| Deposits (Note 10) | 461,015 | 439,706 |
| Obligations related to securities sold short | 13,782 | 13,713 |
| Cash collateral on securities lent | 2,731 | 2,024 |
| Obligations related to securities sold under repurchase agreements | 30,840 | 27,971 |
| **Other** | | |
| Derivative instruments (Note 12) | 20,973 | 23,271 |
| Acceptances | 10,296 | 8,828 |
| Deferred tax liabilities (Note 19) | 43 | 30 |
| Other liabilities (Note 11) | 18,223 | 15,275 |
| **Subordinated indebtedness (Note 14)** | **4,080** | **3,209** |
| **Equity** | | |
| Preferred shares (Note 15) | 2,250 | 1,797 |
| Common shares (Note 15) | 13,243 | 12,548 |
| Contributed surplus | 136 | 137 |
| Retained earnings | 18,537 | 16,101 |
| Accumulated other comprehensive income (AOCI) | 777 | 452 |
| **Total shareholders’ equity** | **34,943** | **31,035** |
| Non-controlling interests | 173 | 202 |
| **Total equity** | **35,116** | **31,237** |
| **Total liabilities and equity** | **597,099** | **565,264** |

The accompanying notes and shaded sections in “MD&A – Management of risk” are an integral part of these consolidated financial statements.

Victor G. Dodig
President and Chief Executive Officer

Jane L. Peverett
Director

## Consolidated statement of income

| Millions of Canadian dollars, except as noted, for the year ended October 31 | 2018 | 2017 | 2016 |
| :--- | :--- | :--- | :--- |
| **Interest income** | **17,505** | **13,593** | **12,092** |
| **Interest expense** | **7,440** | **4,616** | **3,726** |
| **Net interest income** | **10,065** | **8,977** | **8,366** |
| **Non-interest income** | **7,769** | **7,303** | **6,669** |
| **Total revenue** | **17,834** | **16,280** | **15,035** |
| **Provision for credit losses (Note 5)** | **870** | **829** | **1,051** |
| **Non-interest expenses** | **10,258** | **9,571** | **8,971** |
| **Income before income taxes** | **6,706** | **5,880** | **5,013** |
| **Income taxes (Note 19)** | **1,422** | **1,162** | **718** |
| **Net income** | **5,284** | **4,718** | **4,295** |
| **Net income attributable to non-controlling interests** | **17** | **19** | **20** |
| **Preferred shareholders** | **89** | **52** | **38** |
| **Common shareholders** | **5,178** | **4,647** | **4,237** |
| **Net income attributable to equity shareholders** | **5,267** | **4,699** | **4,275** |
| **Earnings per share (EPS) (in dollars) (Note 20)** | | | |
| Basic | 11.69 | 11.26 | 10.72 |
| Diluted | 11.65 | 11.24 | 10.70 |
| **Dividends per common share (in dollars) (Note 15)** | **5.32** | **5.08** | **4.75** |

The accompanying notes and shaded sections in “MD&A – Management of risk” are an integral part of these consolidated financial statements.

## Consolidated statement of comprehensive income

| Millions of Canadian dollars, for the year ended October 31 | 2018 | 2017 | 2016 |
| :--- | :--- | :--- | :--- |
| **Net income** | **5,284** | **4,718** | **4,295** |
| **Other comprehensive income (OCI), net of income tax, that is subject to subsequent reclassification to net income** | | | |
| Net foreign currency translation adjustments | 286 | (376) | 79 |
| Net change in debt securities measured at FVOCI (2017 and 2016: AFS debt and equity securities) | (171) | (101) | 67 |
| Net change in cash flow hedges | (51) | 10 | 1 |
| **OCI, net of income tax, that is not subject to subsequent reclassification to net income** | | | |
| Net gains (losses) on post-employment defined benefit plans | 226 | 139 | (390) |
| **Total OCI**$^{(1)}$ | **317** | **(338)** | **(248)** |
| **Comprehensive income** | **5,601** | **4,380** | **4,047** |
| **Comprehensive income attributable to non-controlling interests** | **17** | **19** | **20** |
| **Preferred shareholders** | **89** | **52** | **38** |
| **Common shareholders** | **5,495** | **4,309** | **3,989** |
| **Comprehensive income attributable to equity shareholders** | **5,584** | **4,361** | **4,027** |

$^{(1)}$ Includes \$19 million of losses for 2018 (\$24 million for 2017; \$6 million of gains) relating to our investments in equity-accounted associates and joint ventures.

## Consolidated statement of changes in equity

| Millions of Canadian dollars, for the year ended October 31 | 2018 | 2017 | 2016 |
| :--- | :--- | :--- | :--- |
| **Preferred shares (Note 15)** | | | |
| Balance at beginning of year | 1,797 | 1,000 | 1,000 |
| Issue of preferred shares | 450 | 800 | – |
| Treasury shares | 3 | (3) | – |
| **Balance at end of year** | **2,250** | **1,797** | **1,000** |
| **Common shares (Note 15)** | | | |
| Balance at beginning of year | 12,548 | 8,026 | 7,813 |
| Issued pursuant to the acquisition of The PrivateBank | 194 | 3,443 | – |
| Issued pursuant to the acquisition of Geneva Advisors | – | 126 | – |
| Issued pursuant to the acquisition of Wellington Financial | 47 | – | – |
| Other issue of common shares | 555 | 957 | 273 |
| Purchase of common shares for cancellation | (104) | – | (61) |
| Treasury shares | 3 | (4) | 1 |
| **Balance at end of year** | **13,243** | **12,548** | **8,026** |
| **Contributed surplus** | | | |
| Balance at beginning of year | 137 | 72 | 76 |
| Issue of replacement equity-settled awards pursuant to the acquisition of The PrivateBank | – | 72 | – |
| Compensation expense arising from equity-settled share-based awards | 31 | 7 | 5 |
| Exercise of stock options and settlement of other equity-settled share-based awards | (32) | (15) | (9) |
| Other | – | 1 | – |
| **Balance at end of year** | **136** | **137** | **72** |
| **Retained earnings** | | | |
| Balance at beginning of year under IAS 39 | 16,101 | 13,584 | 11,433 |
| Impact of adopting IFRS 9 at November 1, 2017 | (144) | n/a | n/a |
| **Balance at beginning of year under IFRS 9** | **15,957** | **n/a** | **n/a** |
| Net income attributable to equity shareholders | 5,267 | 4,699 | 4,275 |
| Dividends (Note 15) | | | |
| Preferred | (89) | (52) | (38) |
| Common | (2,356) | (2,121) | (1,879) |
| Premium on purchase of common shares for cancellation | (313) | – | (209) |
| Realized gains (losses) on equity securities designated at FVOCI reclassified from AOCI | 49 | n/a | n/a |
| Other | 22 | (1) | 2 |
| **Balance at end of year** | **18,537** | **16,101** | **13,584** |
| **AOCI, net of income tax** | | | |
| **AOCI, net of income tax, that is subject to subsequent reclassification to net income** | | | |
| Net foreign currency translation adjustments | 1,024 | 738 | 1,114 |
| Net gains (losses) on debt securities measured at FVOCI (2017 and 2016: AFS debt and equity securities) | (139) | 60 | 161 |
| Net gains (losses) on cash flow hedges | (18) | 33 | 23 |
| **AOCI, net of income tax, that is not subject to subsequent reclassification to net income** | | | |
| Net gains (losses) on post-employment defined benefit plans | (143) | (369) | (508) |
| Net gains (losses) due to fair value change of FVO liabilities attributable to changes in credit risk | (12) | (10) | – |
| **Net gains (losses) on equity securities designated at FVOCI** | **65** | **n/a** | **n/a** |
| **Total AOCI, net of income tax** | **777** | **452** | **790** |
| **Non-controlling interests** | **173** | **202** | **201** |
| **Equity at end of year** | **35,116** | **31,237** | **23,673** |

## Consolidated statement of cash flows

| Millions of Canadian dollars, for the year ended October 31 | 2018 | 2017 | 2016 |
| :--- | :--- | :--- | :--- |
| **Cash flows provided by (used in) operating activities** | | | |
| Net income | 5,284 | 4,718 | 4,295 |
| Adjustments to reconcile net income to cash flows provided by (used in) operating activities: | | | |
| Provision for credit losses | 870 | 829 | 1,051 |
| Amortization and impairment $^{(1)}$ | 657 | 542 | 462 |
| ... (other adjustments omitted for brevity) ... | | | |
| **Cash flows provided by (used in) operating activities** | **9,867** | **2,457** | **10,211** |
| **Cash flows provided by (used in) financing activities** | **(993)** | **(501)** | **(2,436)** |
| **Cash flows provided by (used in) investing activities** | **(7,987)** | **(1,965)** | **(7,383)** |
| Effect of exchange rate changes on cash and non-interest-bearing deposits with banks | 53 | (51) | 55 |
| Net increase (decrease) in cash and non-interest-bearing deposits with banks during year | 940 | (60) | 447 |
| Cash and non-interest-bearing deposits with banks at beginning of year | 3,440 | 3,500 | 3,053 |
| **Cash and non-interest-bearing deposits with banks at end of year**$^{(2)}$ | **4,380** | **3,440** | **3,500** |

$^{(1)}$ Comprises amortization and impairment of buildings, furniture, equipment, leasehold improvements, and software and other intangible assets.
$^{(2)}$ Includes restricted balance of \$438 million (2017: \$436 million; 2016: \$422 million).

The accompanying notes and shaded sections in “MD&A – Management of risk” are an integral part of these consolidated financial statements.

# Notes to the consolidated financial statements

## Note 1 Basis of preparation and summary of significant accounting policies

### Basis of preparation

The consolidated financial statements of CIBC have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). These consolidated financial statements also comply with Section 308(4) of the Bank Act (Canada) and the requirements of the Office of the Superintendent of Financial Institutions (OSFI).

CIBC has consistently applied the same accounting policies throughout all periods presented, except for the adoption of IFRS 9 “Financial Instruments” effective November 1, 2017 without restatement of comparative periods as discussed below under the section titled “Accounting for Financial Instruments”.

These consolidated financial statements are presented in millions of Canadian dollars, unless otherwise indicated.

These consolidated financial statements were authorized for issue by the Board of Directors (the Board) on November 28, 2018.

### Summary of significant accounting policies

The following paragraphs describe our significant accounting policies.

#### Use of estimates and assumptions

The preparation of the consolidated financial statements in accordance with IFRS requires management to make estimates and assumptions that affect the recognized and measured amounts of assets, liabilities, net income, comprehensive income and related disclosures. Significant estimates and assumptions are made in the areas of the valuation of financial instruments, impairment of AFS securities, allowance for credit losses, the evaluation of whether to consolidate structured entities (SEs), asset impairment, income taxes, provisions and contingent liabilities and post-employment and other long-term benefit plan assumptions. Actual results could differ from these estimates and assumptions.

#### Basis of consolidation

We consolidate entities over which we have control. We have control over another entity when we have: (i) power to direct relevant activities of the entity; (ii) exposure, or rights, to variable returns from our involvement with the entity; and (iii) the ability to affect those returns through our power over the entity.

##### Subsidiaries

Subsidiaries are entities over which CIBC has control. Generally, CIBC has control of its subsidiaries through a shareholding of more than 50% of the voting rights in its subsidiaries, and has significant exposure to the subsidiaries based on its ownership interests of more than 50%. The effects of potential voting rights that CIBC has the practical ability to exercise are considered when assessing whether control exists. Subsidiaries are consolidated from the date control is obtained by CIBC, and are deconsolidated from the date control is lost. Consistent accounting policies are applied for all consolidated subsidiaries. Details of our significant subsidiaries are provided in Note 26.

##### Structured entities

An SE is an entity that has been designed so that voting or similar rights are not the dominant factor in deciding who controls the entity, such as when any voting rights relate to administrative tasks only and the significant relevant activities are directed by contractual arrangements. SEs often have some or all of the following features or attributes: (i) restricted activities; (ii) a narrow and well-defined objective, such as to securitize our own financial assets or third party financial assets to provide sources of funding or to provide investment opportunities for investors by passing on risks and rewards associated with the assets of the SE to investors; (iii) insufficient equity to permit the SE to finance its activities without subordinated financial support; or (iv) financing in the form of multiple contractually linked instruments to investors that create concentrations of credit or other risks. Examples of SEs include securitization vehicles, asset-backed financings, and investment funds.

When voting rights are not relevant in deciding whether CIBC has power over an entity, particularly for complex SEs, the assessment of control considers all facts and circumstances, including the purpose and design of the investee, its relationship with other parties and each party’s ability to make decisions over significant activities, and whether CIBC is acting as a principal or as an agent.

Consolidation conclusions are reassessed whenever there is a change in the specific facts and circumstances relevant to one or more of the three elements of control. Factors that trigger the reassessment include, but are not limited to, significant changes in ownership structure of the entities, changes in contractual or governance arrangements, provision of a liquidity facility beyond the original terms, transactions with the entities that were not contemplated originally and changes in the financing structure of the entities.

#### Transactions eliminated on consolidation

All intercompany transactions, balances and unrealized gains and losses on transactions are eliminated on consolidation.

#### Non-controlling interests

Non-controlling interests are presented on the consolidated balance sheet as a separate component of equity that is distinct from CIBC’s shareholders’ equity. The net income attributable to non-controlling interests is presented separately in the consolidated statement of income.

## Associates and joint ventures

We classify investments in entities over which we have significant influence, and that are neither subsidiaries nor joint ventures, as associates. Significant influence is presumed to exist where we hold, either directly or indirectly, between 20% and 50% of the voting rights of an entity, or, in the case of a limited partnership, where CIBC is a co-general partner. Significant influence also may exist where we hold less than 20% of the voting rights of an entity, for example if we have influence over the policy-making processes through representation on the entity’s Board of Directors, or by other means. Where we are a party to a contractual arrangement whereby together with one or more parties, we undertake an economic activity that is subject to joint control, we classify our interest in the venture as a joint venture.

Investments in associates and interests in joint ventures are accounted for using the equity method. Under the equity method, such investments are initially measured at cost, including attributable goodwill and intangible assets, and are adjusted thereafter for the post-acquisition change in our share of the net assets of the investment.

In applying the equity method for an investment that has a different reporting period from that of CIBC, adjustments are made for the effects of any significant events or transactions that occur between the reporting date of the investment and CIBC’s reporting date.

### Foreign currency translation

Monetary assets and liabilities and non-monetary assets and liabilities measured at fair value that are denominated in foreign currencies are translated into the functional currencies of operations at prevailing exchange rates at the date of the consolidated balance sheet. Revenue and expenses are translated using average monthly exchange rates. Realized and unrealized gains and losses arising from translation into functional currencies are included in the consolidated statement of income, with the exception of unrealized foreign exchange gains and losses on AFS equity securities, which are included in AOCI.

Assets and liabilities of foreign operations with a functional currency other than the Canadian dollar, including goodwill and fair value adjustments arising on acquisition, are translated into Canadian dollars at the exchange rates prevailing as at the consolidated balance sheet date, while revenue and expenses of these foreign operations are translated into Canadian dollars at the average monthly exchange rates. Exchange gains and losses arising from the translation of these foreign operations and from the results of hedging the net investment in these foreign operations, net of applicable taxes, are included in Net foreign currency translation adjustments, in AOCI.

Any accumulated exchange gains and losses, including the impact of hedging, and any applicable taxes in AOCI are reclassified into the consolidated statement of income when there is a disposal of a foreign operation. On partial disposal of a foreign operation, the proportionate share of the accumulated exchange gains and losses, including the impact of hedging, and any applicable taxes previously recognized in AOCI are reclassified into the consolidated statement of income.

### Accounting for Financial Instruments

CIBC adopted IFRS 9 “Financial Instruments” (IFRS 9) in place of IAS 39 “Financial Instruments: Recognition and Measurement” (IAS 39) as of November 1, 2017 to comply with OSFI’s advisory that requires that domestic systemically important banks (D-SIBs) adopt IFRS 9 for their annual periods beginning on November 1, 2017, one year earlier than required by the IASB. We applied IFRS 9 on a retrospective basis. As permitted, we did not restate our prior period comparative consolidated financial statements, which are reported under IAS 39 and are therefore not comparable to the information presented for 2018.

The adoption of IFRS 9 in the first quarter of 2018 resulted in changes in accounting policy in two principal areas, classification and measurement and impairment as described in more detail below. We had previously early adopted the “own credit” provisions of IFRS 9 as of November 1, 2014 and we have elected, as a policy choice permitted under IFRS 9, to continue to apply the hedge accounting requirements of IAS 39.

#### Classification and measurement of financial instruments under IAS 39

CIBC recognizes financial instruments on its consolidated balance sheet when it becomes a party to the contractual provisions of the instrument. Under IAS 39, all financial assets were classified at initial recognition as trading, AFS, fair value option (FVO), held-to-maturity (HTM), or loans and receivables, based on the purpose for which the instrument was acquired and its characteristics. All financial assets and derivatives were required to be measured at fair value with the exception of loans and receivables, debt securities classified as HTM, and AFS equity instruments whose fair value could not be reliably measured. Reclassification of non-derivative financial assets out of trading to loans and receivables was allowed when they were no longer held for trading, and if they met the definition of loans and receivables and we had the intention and ability to hold the financial assets for the foreseeable future or until maturity. Reclassification of non-derivative financial assets out of trading to AFS was also allowed under rare circumstances. Non-derivative financial assets could be reclassified out of AFS to loans and receivables if they met the definition of loans and receivables and we had the intention and ability to hold the financial assets for the foreseeable future or until maturity, or reclassified out of AFS to HTM if we had the intention to hold the financial assets until maturity.

Financial liabilities, other than derivatives, obligations related to securities sold short and FVO liabilities, were measured at amortized cost. Derivatives, obligations related to securities sold short and FVO liabilities were measured at fair value. Interest expense was recognized on an accrual basis using the effective interest rate method.

##### Loans and receivables

Under IAS 39, loans and receivables were defined as non-derivative financial assets with fixed or determinable payments that did not have a quoted market price in an active market and for which we did not intend to sell immediately or in the near term at the time of inception. Loans and receivables were recognized initially at fair value, which represents the cash advanced to the borrower plus direct and incremental transaction costs. Subsequently, they were measured at amortized cost, using the effective interest rate method, net of an allowance for credit losses. Interest income was recognized on an accrual basis using the effective interest rate method. Certain loans and receivables could be designated at fair value (see below).

##### Trading financial instruments

Under IAS 39, trading financial instruments were defined as assets and liabilities that were held for trading activities or that were part of a managed portfolio with a pattern of short-term profit taking. These were measured initially at fair value. Loans and receivables that we intended to sell immediately or in the near term were classified as trading financial instruments.

Trading financial instruments were remeasured at fair value as at the consolidated balance sheet date. Gains and losses realized on disposition and unrealized gains and losses from changes in fair value were included in Non-interest income as Trading income (loss), except to the extent they were economically hedging an FVO asset or liability, in which case the gains and losses were included in FVO gains (losses), net. Dividends and interest income earned on trading securities and dividends and interest expense incurred on securities sold short were included in Interest income and Interest expense, respectively.

#### Classification and measurement of financial instruments under IFRS 9

Under IFRS 9, all financial assets must be classified at initial recognition as financial instruments mandatorily measured at FVTPL (trading and non-trading), financial instruments measured at amortized cost, debt financial instruments measured at FVOCI, equity financial instruments designated at FVOCI, or financial instruments designated at FVTPL, based on the contractual cash flow characteristics of the financial assets and the business model under which the financial assets are managed. All financial assets and derivatives are required to be measured at fair value with the exception of financial assets measured at amortized cost. Financial assets are required to be reclassified when and only when the business model under which they are managed has changed. All reclassifications are to be applied prospectively from the reclassification date.

The IFRS 9 classification and measurement model requires that all debt instrument financial assets that do not meet a “solely payment of principal and interest” (SPPI) test, including those that contain embedded derivatives, be classified at initial recognition as FVTPL. The SPPI test is conducted to identify whether the contractual cash flows of a financial instrument are “solely payments of principal and interest” such that any variability in the contractual cash flows is consistent with a “basic lending arrangement”. “Principal” for the purpose of this test is defined as the fair value of the financial asset at initial recognition and may change over the life of the financial asset, for example, due to repayments of principal or amortization of the premium/discount. “Interest” for the purpose of this test is defined as the consideration for the time value of money and credit risk, which are the most significant elements of interest within a lending arrangement. Contractual terms that introduce a more than de minimis exposure to risks or volatility in the contractual cash flows that are unrelated to a basic lending arrangement do not give rise to contractual cash flows that are solely payments of principal and interest on the amount outstanding. The intent of the SPPI test is to ensure that debt instruments that contain non-basic lending features, such as conversion options and equity-linked payouts, are measured at FVTPL.

For debt instrument financial assets that meet the SPPI test, classification at initial recognition is determined based on the business model under which these instruments are managed. Debt instruments that are managed on a “held for trading” or “fair value” basis are classified as FVTPL. Debt instruments that are managed on a “hold to collect and for sale” basis are classified as FVOCI for debt. Debt instruments that are managed on a “hold to collect” basis are classified as amortized cost. We consider the following in our determination of the applicable business model for financial assets:

I) The business purpose of the portfolio;
II) The risks that are being managed and the type of business activities that are being carried out on a day-to-day basis to manage the risks;
III) The basis on which performance of the portfolio is being evaluated; and
IV) The frequency and significance of sales activity.

All equity instrument financial assets are classified at initial recognition as FVTPL unless they are not held with the intent for short-term profit taking and an irrevocable designation is made to classify the instrument as FVOCI for equities.

The classification and measurement of financial liabilities remain essentially unchanged from the IAS 39 requirements, except that changes in the fair value of liabilities designated at FVTPL using the FVO which are attributable to changes in own credit risk are presented in OCI, rather than profit or loss.

We early adopted the “own credit” provisions of IFRS 9 as of November 1, 2014.

Derivatives continue to be measured at FVTPL under IFRS 9, except to the extent that they are designated in a hedging relationship, in which case the IAS 39 hedge accounting requirements continue to apply.

#### Financial instruments mandatorily measured at FVTPL (trading and non-trading)

Under IFRS 9, trading financial instruments are mandatorily measured at FVTPL as they are held for trading purposes or are part of a managed portfolio with a pattern of short-term profit taking. Non-trading financial assets are also mandatorily measured at fair value if their contractual cash flow characteristics do not meet the SPPI test or if they are managed together with other financial instruments on a fair value basis.

Trading and non-trading financial instruments mandatorily measured at FVTPL are remeasured at fair value as at the consolidated balance sheet date. Gains and losses realized on disposition and unrealized gains and losses from changes in fair value are included in Non-interest income as Gains (losses) from financial instruments measured/designated at FVTPL, net. Interest income and dividends earned on trading securities and dividends and interest expense incurred on securities sold short are included in Interest income and Interest expense, respectively.

#### Financial instruments designated at FVTPL (fair value option)

Under IFRS 9, financial instruments designated at FVTPL are those that we voluntarily designate at initial recognition as instruments that we will measure at fair value through the consolidated statement of income that would otherwise fall into a different accounting category. As was the case under IAS 39, the FVO designation, once made, is irrevocable and can only be applied if reliable fair values are available, when doing so eliminates or significantly reduces the measurement inconsistency that would otherwise arise from measuring assets or liabilities on a different basis and if certain OSFI requirements are met. Financial liabilities may also be designated at FVTPL when they are part of a portfolio which is managed on a fair value basis, in accordance with our investment strategy, and are reported internally on that basis. Designation at FVTPL may also be applied to financial liabilities that have one or more embedded derivatives that would otherwise require bifurcation. Unlike IAS 39, however, there is no need to apply FVO to equity instruments as the default accounting is financial instruments mandatorily measured at FVTPL. As was the case under IAS 39, we apply the FVO to certain mortgage commitments. Gains and losses realized on dispositions and unrealized gains and losses from changes in the fair value of FVO financial instruments, and gains and losses arising from changes in fair value of derivatives, trading securities and obligations related to securities sold short that were managed as economic hedges of the FVO financial instruments, were included in FVO gains (losses), net. Dividends and interest earned and interest expense incurred on FVO assets and liabilities are included in Interest income and Interest expense, respectively. Changes in the fair value of FVO liabilities that are attributable to changes in own credit risk are recognized in OCI.

## Financial assets measured at amortized cost

Under IFRS 9, financial assets measured at amortized cost are debt financial instruments with contractual cash flows that meet the SPPI test and are managed on a “hold to collect” basis. These financial assets are recognized initially at fair value plus or minus direct and incremental transaction costs, and are subsequently measured at amortized cost, using the effective interest rate method, net of an allowance for expected credit losses (ECL).

Consistent with IAS 39, loans measured at amortized cost under IFRS 9 include residential mortgages, personal loans, credit cards and most business and government loans. Most securities classified as HTM under IAS 39 and certain portfolios of treasury securities that were classified as AFS under IAS 39 (but which are managed on a “hold to collect” basis) are also classified as amortized cost under IFRS 9. Also consistent with IAS 39, most deposits with banks, securities purchased under resale agreements, cash collateral on securities borrowed and most customers’ liability under acceptances are accounted for at amortized cost under IFRS 9.

## Debt financial assets measured at FVOCI

Under IFRS 9, debt financial instruments measured at FVOCI are non-derivative financial assets with contractual cash flows that meet the SPPI test and are managed on a “hold to collect and for sale” basis.

Subsequent measurement of debt instruments classified at FVOCI under IFRS 9 operates in a similar manner to AFS debt securities under IAS 39, except that the expected credit losses (ECL) impairment model must be applied to these instruments under IFRS 9. As a result, FVOCI debt instruments are measured initially at fair value, plus direct and incremental transaction costs. Subsequent to initial recognition, FVOCI debt instruments are remeasured at FVOCI, with the exception that changes in ECL allowances in addition to related foreign exchange gains or losses are recognized in the consolidated statement of income. Cumulative gains and losses previously recognized in OCI are transferred from AOCI to the consolidated statement of income when the debt instrument is sold. Realized gains and losses on sale, determined on an average cost basis, and changes in ECL allowances, are included in Gains (losses) from debt securities measured at FVOCI and amortized cost, net in the consolidated statement of income. Interest income from FVOCI debt instruments is included in Interest income. FVOCI debt instruments include our treasury securities which are managed on a “hold to collect and for sale” basis.

A debt financial instrument is classified as impaired (stage 3) when one or more events that have a detrimental impact on the estimated future cash flows of that financial instrument have occurred after its initial recognition. Evidence of impairment includes indications that the borrower is experiencing significant financial difficulties, or a default or delinquency has occurred.

## Equity financial instruments designated at FVOCI

Under IFRS 9, equity financial instruments are measured at FVTPL unless an irrevocable designation is made to measure them at FVOCI. Gains or losses from changes in the fair value of equity instruments designated at FVOCI, including any related foreign exchange gains or losses, are recognized in OCI. In contrast to AFS equity securities under IAS 39, amounts recognized in OCI will not be subsequently recycled to profit or loss, with the exception of dividends. Instead, cumulative gains or losses upon derecognition of the equity instrument will be transferred within equity from AOCI to retained earnings and presented in Realized gains (losses) on equity securities designated at FVOCI reclassified to retained earnings in the consolidated statement of changes in equity. Financial assets designated as FVOCI include non-trading equity securities, primarily related to our investment in private companies and limited partnerships.

## Impairment of financial assets under IAS 39

We classified a loan as impaired when, in our opinion, there was objective evidence of impairment as a result of one or more loss events that occurred after initial recognition of the loans with a negative impact on the estimated future cash flows of a loan or a portfolio of loans.

Objective evidence of impairment included indications that the borrower was experiencing significant financial difficulties, or a default or delinquency had occurred. Generally, loans on which repayment of principal or payment of interest was contractually 90 days in arrears were automatically considered impaired unless they were fully secured and in the process of collection. Notwithstanding management’s assessment of collectability, such loans were considered impaired if payments were 180 days in arrears. Exceptions were as follows:

* Credit card loans were not classified as impaired and were fully written off at the earlier of the notice of bankruptcy, settlement proposal, enlistment of credit counselling services, or when payments were contractually 180 days in arrears.
* Loans guaranteed or insured by a Canadian government (federal or provincial) or a Canadian government agency were classified as impaired only when payments were contractually 365 days in arrears.

In certain circumstances, we could modify a loan for economic or legal reasons related to a borrower’s financial difficulties. Once a loan was modified, if management still did not expect full collection of payments under the modified loan terms, the loan was classified as impaired. An impaired loan was measured at its estimated realizable value determined by discounting the expected future cash flows at the loan’s original effective interest rate. When a loan or a group of loans had been classified as impaired, interest income was recognized thereafter using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss and applied to the net carrying value of the financial instrument, which is similar to the methodology under IAS 39 applied to impaired loans.

Loans were written off, either partially or in full, against the related allowance for credit losses when we judged that there was no realistic prospect of future recovery in respect of amounts written off. When loans were secured, this was generally after all collateral had been realized or transferred to CIBC, or in certain circumstances, when the net realizable value of any collateral and other available information suggested that there was no reasonable expectation of further recovery. In subsequent periods, any recoveries of amounts previously written off were credited to the provision for credit losses.

### Purchased loans

Both purchased performing and purchased credit-impaired loans are initially measured at their acquisition date fair values. As a result of recording these loans at fair value, no allowance for credit losses is recognized in the purchase equation at the acquisition date under either IAS 39 or IFRS 9. Fair value is determined by estimating the principal and interest cash flows expected to be collected and discounting those cash flows at a market rate of interest. At the acquisition date, we classify a loan as performing where we expect timely collection of all amounts in accordance with the original contractual terms of the loan and as credit-impaired where it is probable that we will not collect all contractually required payments.

For purchased performing loans, the acquisition date fair value adjustment on each loan is amortized to interest income over the expected remaining life of the loan using the effective interest rate method under both IAS 39 and IFRS 9. The remaining unamortized amounts relating to those loans are recorded in income in the period that the loan is repaid. Under IFRS 9, ECL allowances are established in Provision for credit losses in the consolidated statement of income immediately after the acquisition date based on classifying each loan in stage 1, since the acquisition date is established as the initial recognition date of purchased performing loans for the purpose of assessing whether a significant increase in credit risk has occurred. This is comparable to the requirements under IAS 39 where collective allowances were established after the acquisition date as the purchased loan portfolio turned over and to the extent that the credit quality of the acquired portfolio deteriorated. Subsequent to the acquisition date, ECL allowances are estimated in a manner consistent with our significant increase in credit risk and impairment policies that we apply to loans that we originate. Under IAS 39, actual individual allowances for credit losses were recorded as they arose subsequent to the acquisition date in a manner that was consistent with our IAS 39 impairment policy for loans that we originated.

For purchased credit-impaired loans under both IAS 39 and IFRS 9, the acquisition date fair value adjustment on each loan consists of management’s estimate of the shortfall of principal and interest cash flows expected to be collected and the time value of money. The time value of money component of the fair value adjustment is amortized to interest income over the expected remaining life of the loan using the effective interest rate method. Subsequent to the acquisition date, we regularly re-estimate the expected cash flows for purchased credit-impaired loans. Decreases in the expected cash flows will result in an increase in our ECL allowances under IFRS 9, which is consistent with the previous IAS 39 requirements. Increases in the expected cash flows will result in a recovery of the ECL allowance under IFRS 9. Under IAS 39, increases in the expected cash flows resulted in a recovery of provision for credit losses and a reduction in our allowance for credit losses, or if no allowance existed, an increase in interest income. ECL allowances for purchased credit-impaired loans are reported in stage 3.

### Originated credit impaired financial assets

The accounting for originated credit impaired financial assets operates in a similar manner to the accounting for purchased credit-impaired loans in that originated credit impaired assets are initially recognized at fair value with no initial expected credit loss allowance as concerns about the collection of future cash flows is instead reflected in the origination date discount. The time value of money component of the discount is amortized to interest income over the expected remaining life of the financial asset using the effective interest rate method. Changes in expectation regarding the contractual cash flows for loans are recognized immediately in provision for credit losses and for securities are recognized in Gains (losses) from debt securities measured at FVOCI and amortized cost, net in the consolidated statement of income.

This accounting generally applies to financial assets that result from debt restructuring arrangements in which a previously impaired financial asset is exchanged for a new financial asset that is either recognized at a fair value that represents a deep discount to par or for which there are significant concerns over the ability to collect the contractual cash flows.

### Other significant accounting policies related to the accounting for financial instruments following the application of IFRS 9 are as follows:

#### Determination of fair value

The transition to IFRS 9 did not impact the definition of fair value, which continues to be defined as the price that would be received to sell an asset or paid to transfer a liability between market participants in an orderly transaction in the principal market at the measurement date under current market conditions (i.e., the exit price). Fair value measurements are categorized into three levels within a fair value hierarchy (Level 1, 2 or 3) based upon the market observability of the valuation inputs used in measuring the fair value. See Note 2 for more details about fair value measurement subsequent to initial recognition by type of financial instrument.

#### Transaction costs

Transaction costs relating to financial instruments mandatorily measured or designated at FVTPL are expensed as incurred under IFRS 9, consistent with the accounting for transaction costs related to trading and FVO instruments under IAS 39. Transaction costs are amortized over the expected life of the instrument using the effective interest rate method for instruments measured at amortized cost under both IFRS 9 and IAS 39, and debt instruments measured at FVOCI under IFRS 9 and as AFS under IAS 39. For equity instruments designated at FVOCI under IFRS 9 and for equity instruments accounted for at AFS under IAS 39, transaction costs are included in the instrument’s carrying value.

#### Date of recognition of securities

Under IFRS 9, we continue to account for all securities on our consolidated balance sheet using settlement date accounting, consistent with our accounting under IAS 39.

#### Effective interest rate

Under IFRS 9, interest income and expense for all financial instruments measured at amortized cost and for debt securities measured at FVOCI is recognized in Interest income and Interest expense using the effective interest rate method, which is similar to the requirements under IAS 39 for loans and receivables and AFS debt securities. The effective interest rate is the rate that exactly discounts estimated future cash receipts or payments through the expected life of the financial instrument to the net carrying value of the financial asset or liability upon initial recognition. When calculating the effective interest rate, we estimate future cash flows considering all contractual terms of the financial instrument, but not future credit losses.

Fees relating to loan origination, including commitment, restructuring and renegotiation fees, are considered an integral part of the yield earned on the loan and are accounted for using the effective interest rate method. Fees received for commitments that are not expected to result in a loan are included in Non-interest income over the commitment period. Loan syndication fees are included in Non-interest income on completion of the syndication arrangement, provided that the yield on the portion of the loan we retain is at least equal to the average yield earned by the other lenders involved in the financing; otherwise, an appropriate portion of the fee is deferred as unearned income and amortized to interest income using the effective interest rate method.

Under IFRS 9, interest income is recognized on stage 1 and stage 2 financial assets measured at amortized cost by applying the effective interest rate to the gross carrying amount of the financial instrument. For stage 3 financial instruments, interest income is recognized using the rate of interest used to discount the estimated future cash flows for the purpose of measuring the impairment loss and applied to the net carrying value of the financial instrument, which is similar to the methodology under IAS 39 applied to impaired loans.

#### Securitizations and derecognition of financial assets

Securitization of our own assets provides us with an additional source of liquidity. As we generally retain substantially all of the risks and rewards of the transferred assets, assets remain on the consolidated balance sheet and funding from these transactions is accounted for as Deposits – secured borrowing transactions.

Under both IAS 39 and IFRS 9, securitizations to non-consolidated structured entities (SEs) are accounted for as sales, with the related assets being derecognized, only where:

* Our contractual right to receive cash flows from the assets has expired;
* We transfer our contractual rights to receive the cash flows of the financial asset, and have: (i) transferred substantially all the risks and rewards of ownership, or (ii) neither retained nor transferred substantially all the risks and rewards, but have not retained control; or
* The transfer meets the criteria of a qualifying pass-through arrangement.

#### Derecognition of financial liabilities

Under both IFRS 9 and IAS 39, a financial liability is derecognized when the obligation under the liability is discharged, cancelled or expires. If an existing financial liability is replaced by another liability from the same lender on substantially different terms, or the terms of the existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying values is recognized in the consolidated statement of income. The repurchase of a debt instrument is considered an extinguishment of that debt instrument even if we intend to resell the instrument in the near term.

#### Financial guarantees

Financial guarantees are financial contracts that require the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due in accordance with the original or modified terms of a debt instrument. Guarantees include standby and performance letters of credit as discussed above, and credit derivatives protection sold, as discussed in Note 12.

#### Mortgage commitments

Mortgage interest rate commitments are extended to our retail clients in contemplation of borrowing to finance the purchase of homes under mortgages to be funded by CIBC in the future. These commitments are usually for periods of up to 120 days and generally entitle the borrower to receive funding at the lower of the interest rate at the time of the commitment and the rate applicable at the funding date. We use financial instruments, such as interest rate derivatives, to economically hedge our exposure to an increase in interest rates. Based on our estimate of the commitments expected to be exercised, a financial liability would be recognized on our consolidated balance sheet, to which we apply the FVO. We also carry the associated economic hedges at fair value on the consolidated balance sheet. Changes in the fair value of the FVO commitment liability and the associated economic hedges are included in gains (losses) from financial instruments measured/designated at FVTPL, net under IFRS 9 and FVO gains (losses), net under IAS 39. In addition, since the fair value of the commitments is priced into the mortgage, the difference between the mortgage amount and its fair value at funding is recognized in the consolidated statement of income to offset the carrying value of the mortgage commitment that is released upon its expiry.

#### Offsetting of financial assets and financial liabilities

Financial assets and financial liabilities are offset, and the amount presented net, when we have a legally enforceable right to set off the recognized amounts and intend to settle on a net basis or to realize the asset and settle the liability simultaneously.

#### Acceptances and customers’ liability under acceptances

Acceptances constitute a liability of CIBC on negotiable instruments issued to third parties by our customers. We earn a fee for guaranteeing and then making the payment to the third parties. The amounts owed to us by our customers in respect of these guaranteed amounts are reflected in assets as Customers’ liability under acceptances.

#### Securities purchased under resale agreements and obligations related to securities sold under repurchase agreements

Securities purchased under resale agreements are treated as collateralized lending transactions as they represent the purchase of securities affected with a simultaneous agreement to sell them back at a future date at a fixed price, which is generally near term. These transactions are classified and measured at amortized cost under IFRS 9, as they meet the SPPI criteria and are managed under a hold to collect business model. Under IAS 39, they were also generally accounted for at amortized cost unless they were designated under the FVO. Under IFRS 9, an ECL is applied to these instruments, while under IAS 39 an allowance was only provided to the extent there was an impairment. Under both IFRS 9 and IAS 39 interest income is accrued using the effective interest rate method and is included in Interest income – Securities borrowed or purchased under resale agreements in the consolidated statement of income.

Similarly, securities sold under agreements to repurchase are treated as collateralized borrowing transactions with interest expense accrued using the effective interest rate method and are included in Interest expense – Securities lent or sold under repurchase agreements in the consolidated statement of income.

#### Cash collateral on securities borrowed and securities lent

The right to receive back cash collateral paid and the obligation to return cash collateral received on borrowing and lending of securities, which is generally near term, is recognized as cash collateral on securities borrowed and securities lent, respectively. These transactions are classified and measured at amortized cost as they meet the SPPI criteria and are managed under a hold to collect business model. Under IFRS 9, an ECL is applied to these instruments, while under IAS 39 an allowance was only provided to the extent there was an impairment. Interest income on cash collateral paid and interest expense on cash collateral received together with the security borrowing fees and security lending income are included in Interest income – Securities borrowed or purchased under resale agreements and Interest expense – Securities lent or sold under repurchase agreements, respectively. For securities borrowing and lending transactions where securities are pledged or received as collateral, securities pledged by CIBC remain on the consolidated balance sheet and securities received by CIBC are not recognized on the consolidated balance sheet.

#### Derivatives

We use derivative instruments for both asset/liability management (ALM) and trading purposes. The derivatives used for ALM purposes allow us to manage financial risks, such as movements in interest and foreign exchange rates, while our derivative trading activities are primarily driven by client trading activities. We may also take proprietary trading positions with the objective of earning income.

Under both IAS 39 and IFRS 9, all derivative instruments are recognized initially, and are measured subsequently, at fair value and are reported as assets where they have a positive fair value and as liabilities where they have a negative fair value, in both cases as derivative instruments. Any realized and unrealized gains or losses on derivatives used for trading purposes were recognized immediately in Trading income (loss) under IAS 39 and are recognized in Gains (losses) from financial instruments measured/designated at FVTPL, net under IFRS 9. The accounting for derivatives used for ALM purposes depends on whether they qualify for hedge accounting as discussed below.

Fair values of exchange-traded derivatives are based on quoted market prices. Fair values of over-the-counter (OTC) derivatives, including OTC derivatives that are centrally cleared, are obtained using valuation techniques, including discounted cash flow models and option pricing models. See Note 12 for further information on the valuation of derivatives.

## Consolidated financial statements

### Derivatives used for ALM purposes that qualify for hedge accounting

As permitted under IFRS 9, we have elected to continue to apply the hedge accounting requirements of IAS 39. However, we have adopted the new hedge accounting disclosure requirements under the amendments to IFRS 7 “Financial Instruments: Disclosures”. Details of the additional disclosures are provided in Note 13.

We apply hedge accounting for derivatives held for ALM purposes that meet specified criteria. There are three types of hedges: fair value, cash flow and hedges of net investments in foreign operations (NIFOs). When hedge accounting is not applied, the change in the fair value of the derivative is recognized in the consolidated statement of income (see “Derivatives used for ALM purposes that are not designated for hedge accounting” below).

In order for derivatives to qualify for hedge accounting, the hedge relationship must be designated and formally documented at its inception in accordance with IAS 39. The particular risk management objective and strategy, the specific asset, liability or cash flow being hedged, as well as how hedge effectiveness is assessed, are documented. Hedge effectiveness requires a high correlation of changes in fair values or cash flows between the hedged and hedging items.

We assess the effectiveness of derivatives in hedging relationships, both at inception and on an ongoing basis. Ineffectiveness results to the extent that the change in the fair value of the hedging derivative differs from the change in the fair value of the hedged risk in the hedged item; or the cumulative change in the fair value of the hedging derivative exceeds the cumulative change in the fair value of expected future cash flows of the hedged item. The amount of ineffectiveness of hedging instruments is recognized immediately in the consolidated statement of income.

#### Fair value hedges

We designate fair value hedges primarily as part of interest rate risk management strategies that use derivatives to hedge changes in the fair value of financial instruments with fixed interest rates. Changes in fair value attributed to the hedged interest rate risk are accounted for as basis adjustments to the hedged financial instruments and are included in Net interest income. Changes in fair value from the hedging derivatives are also included in Net interest income. Any differences between the two represent hedge ineffectiveness that is included in Net interest income.

Similarly, for hedges of foreign exchange risk, changes in the fair value from the hedging derivatives and non-derivatives are included in FXOTT. Changes in the fair value of the hedged item from the hedged foreign exchange risk are accounted for as basis adjustments and are also included in FXOTT. Any difference between the two represents hedge ineffectiveness.

If the hedging instrument expires or is sold, terminated or exercised, or where the hedge no longer meets the criteria for hedge accounting, the hedge relationship is terminated and the basis adjustment applied to the hedged item is amortized over the remaining term of the hedged item. If the hedged item is derecognized, the unamortized basis adjustment is recognized immediately in the consolidated statement of income.

#### Cash flow hedges

We designate cash flow hedges as part of interest rate risk management strategies that use derivatives to mitigate our risk from variable cash flows by effectively converting certain variable-rate financial instruments to fixed-rate financial instruments, and as part of foreign exchange rate risk management strategies to hedge forecasted foreign currency denominated cash flows. We also designate cash flow hedges to hedge changes in CIBC’s share price in respect of certain cash-settled share-based payment awards.

The effective portion of the change in fair value of the derivative instrument is recognized in OCI until the variability in cash flows being hedged is recognized in the consolidated statement of income in future accounting periods, at which time an appropriate portion of the amount that was in AOCI is reclassified into the consolidated statement of income. The ineffective portion of the change in fair value of the hedging derivative is included in Net interest income, FXOTT, or Non-interest expenses immediately as it arises.

If the hedging instrument expires or is sold, terminated or exercised, or where the hedge no longer meets the criteria for hedge accounting, the hedge relationship is terminated. Upon termination of the hedge relationship, any remaining amount in AOCI remains therein until it is recognized in the consolidated statement of income when the variability in cash flows hedged or the hedged forecast transaction is ultimately recognized in the consolidated statement of income. When the forecasted transaction is no longer expected to occur, the related cumulative gain or loss in AOCI is recognized immediately in the consolidated statement of income.

#### Hedges of NIFOs with a functional currency other than the Canadian dollar

We may designate NIFO hedges to mitigate the foreign exchange risk on our NIFOs with a functional currency other than the Canadian dollar. These hedges are accounted for in a similar manner to cash flow hedges. The change in fair value of the hedging instrument relating to the effective portion is recognized in OCI. The change in fair value of the hedging instrument attributable to the forward points and relating to the ineffective portion are recognized immediately in FXOTT. Gains and losses in AOCI are reclassified to the consolidated statement of income upon the disposal or partial disposal of the investment in the foreign operation, as explained in the “Foreign currency translation” policy above.

#### Derivatives used for ALM purposes that are not designated for hedge accounting

The change in fair value of the derivatives not designated as accounting hedges but used to economically hedge FVO assets or liabilities was included in FVO gains (losses), net under IAS 39 and Gains (losses) from financial instruments measured/designated at FVTPL, net under IFRS 9. The change in fair value of other derivatives not designated as accounting hedges but used for other economic hedging purposes is included in FXOTT, Non-interest income, or in the case of economic hedges of cash-settled share-based payment obligations, in compensation expense, as appropriate.

#### Embedded derivatives

Under both IAS 39 and IFRS 9, derivatives embedded in financial liabilities are accounted for as separate derivatives when their economic characteristics and risks are not closely related to those of the host instrument and the terms of the embedded derivative represent those of a freestanding derivative in situations where the combined instrument is not classified as FVTPL or designated as FVTPL using the FVO. These embedded derivatives, which are classified together with the host instrument on the consolidated balance sheet, are measured at fair value, with changes therein included in the consolidated statement of income. The residual amount of the host liability is accreted to its maturity value through Interest income and Interest expense, respectively, using the effective interest rate method.

Gains at inception on derivatives embedded in financial instruments bifurcated for accounting purposes are not recognized at inception; instead they are recognized over the life of the residual host instrument. Where an embedded derivative is separable from the host instrument but the fair value, as at the acquisition or reporting date, cannot be reliably measured separately or is otherwise not bifurcated, the entire combined contract is measured at FVTPL.

Under IFRS 9, embedded derivatives are no longer bifurcated from financial assets as was the case under IAS 39. Instead the financial asset is classified in its entirety into the appropriate classification at initial recognition through an assessment of the contractual cash flow characteristics of the asset and the business model under which it is managed.

## Consolidated financial statements

### Accumulated other comprehensive income

AOCI is included on the consolidated balance sheet as a separate component of total equity, net of income tax. It includes net unrealized gains and losses on FVOCI debt and equity securities under IFRS 9 (AFS under IAS 39), the effective portion of gains and losses on derivative instruments designated within effective cash flow hedges, unrealized foreign currency translation gains and losses on foreign operations with a functional currency other than the Canadian dollar net of gains or losses on related hedges, net gains (losses) related to fair value changes of FVO liabilities attributable to changes in own credit risk, and net gains (losses) on post-employment defined benefit plans.

### Treasury shares

Where we repurchase our own equity instruments, these instruments are treated as treasury shares and are deducted from equity at their cost with any gain or loss recognized in Contributed surplus or Retained earnings as appropriate. No gain or loss is recognized in the consolidated statement of income on the purchase, sale, issue or cancellation of our own equity instruments. Any difference between the carrying value and the consideration, if reissued, is also included in Contributed surplus.

### Liabilities and equity

We classify financial instruments as a liability or equity based on the substance of the contractual arrangement. An instrument is classified as a liability if it is a contractual obligation to deliver cash or another financial asset, or to exchange financial assets or financial liabilities at potentially unfavourable terms. A contract is also classified as a liability if it is a non-derivative and could obligate us to deliver a variable number of our own shares or it is a derivative other than one that can be settled by the delivery of a fixed amount of cash or another financial asset for a fixed number of our own equity instruments. An instrument is classified as equity if it evidences a residual interest in our assets after deducting all liabilities. The components of a compound financial instrument are classified and accounted for separately as assets, liabilities, or equity as appropriate. Incremental costs directly attributable to the issuance of equity instruments are shown in equity, net of income tax.

### Land, buildings and equipment

Land is recognized initially at cost and is subsequently measured at cost less any accumulated impairment losses. Buildings, furniture, equipment and leasehold improvements are recognized initially at cost and are subsequently measured at cost less accumulated amortization and any accumulated impairment losses.

Depreciation commences when the assets are available for use and is recognized on a straight-line basis to depreciate the cost of these assets to their estimated residual value over their estimated useful lives. The estimated useful lives are as follows:

* Buildings – 40 years
* Computer equipment – 3 to 7 years
* Office furniture and other equipment – 4 to 15 years
* Leasehold improvements – over the estimated useful life

Depreciation methods, useful lives and residual values are reviewed at each annual reporting date and are adjusted if appropriate.

Gains and losses on disposal are included in Non-interest income – Other.

We consider a portion of land and a building underlying a finance lease arrangement as investment property since we sub-lease this portion to third parties. Our investment property is recognized initially at cost and is subsequently measured at cost less accumulated amortization and any accumulated impairment losses. Our investment property is depreciated on a straight-line basis over its estimated useful life, being the term of the lease. Rental income is included in Non-interest income – Other.

### Goodwill, software and other intangible assets

Goodwill represents the excess of the purchase price over the fair value of the net identifiable assets, liabilities and contingent liabilities acquired in business combinations. Identifiable intangible assets are recognized separately from goodwill when they are separable or arise from contractual or other legal rights, and have fair values that can be reliably measured.

Goodwill is not amortized, but is subject to impairment review at least annually or more frequently if there are indicators that the goodwill may be impaired. Refer to the “Impairment of non-financial assets” policy below.

Intangible assets represent software and customer relationships, core deposit intangibles, investment management contracts, and brand names recognized as part of past acquisitions. Intangible assets with definite useful lives are measured at cost less accumulated amortization and accumulated impairment losses. Each intangible asset is assessed for legal, regulatory, contractual, competitive or other factors to determine if the useful life is definite. Intangible assets with definite useful lives are amortized over their estimated useful lives, which are as follows:

* Software – 5 to 10 years
* Contract-based intangibles – 8 to 15 years
* Core deposit and customer relationship intangibles – 3 to 16 years

Intangible assets with indefinite useful lives are measured at cost less any accumulated impairment losses. Indefinite life intangible assets are tested for impairment at least annually and whenever there is an indication that the asset may be impaired. Refer to the “Impairment of non-financial assets” policy below.

### Impairment of non-financial assets

The carrying values of non-financial assets with definite useful lives, including buildings and equipment, investment property, and intangible assets with definite useful lives are reviewed to determine whether there is any indication of impairment. Goodwill and intangible assets with indefinite useful lives are tested for impairment at least annually, and whenever there is an indication that the asset may be impaired. If any such indication of impairment exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss, if any.

For the purpose of reviewing non-financial assets with definite useful lives for impairment, asset groups are reviewed at their lowest level for which identifiable cash inflows are largely independent of cash inflows of other assets or groups of assets. This grouping is referred to as a cash-generating unit (CGU).

Corporate assets do not generate separate cash inflows. Corporate assets are tested for impairment at the minimum collection of CGUs to which the corporate asset can be allocated reasonably and consistently.

The recoverable amount is the greater of fair value less costs to sell and value in use. Value in use is the present value of the future cash flows expected to be derived from the asset or CGU. When the carrying value exceeds its recoverable amount, an impairment loss equal to the difference between the two amounts is recognized in the consolidated statement of income. If an impairment subsequently reverses, the carrying value of the asset is increased to the extent that the carrying value of the underlying assets does not exceed the carrying value that would have been determined, net of depreciation or amortization, if no impairment had been recognized. Any impairment reversal is recognized in the consolidated statement of income in the period in which it occurs.

Goodwill is assessed for impairment based on the group of CGUs expected to benefit from the synergies of the business combination, and the lowest level at which management monitors the goodwill. Any potential goodwill impairment is identified by comparing the recoverable amount of the CGU grouping to which the goodwill is allocated to its carrying value including the allocated goodwill. If the recoverable amount is less than its carrying value, an impairment loss is recognized in the consolidated statement of income in the period in which it occurs. Impairment losses on goodwill are not subsequently reversed if conditions change.

### Income taxes

Income tax comprises current tax and deferred tax. Income tax is recognized in the consolidated statement of income, except to the extent that it relates to items recognized in OCI or directly in equity, in which case it is recognized accordingly.

Current tax is the tax expected to be payable on the taxable profit for the year, calculated using tax rates enacted or substantively enacted as at the reporting date, and any adjustment to tax payable in respect of previous years. Current tax assets and liabilities are offset when CIBC intends to settle on a net basis and the legal right to offset exists.

Deferred tax is recognized on temporary differences between the carrying value of assets and liabilities on the consolidated balance sheet and the corresponding amounts attributed to such assets and liabilities for tax purposes. Deferred tax liabilities are generally recognized for all taxable temporary differences unless the temporary differences relate to our NIFOs and will not reverse in the foreseeable future. Deferred tax assets, other than those arising from our NIFOs, are recognized to the extent that it is probable that future taxable profits will be available against which deductible temporary differences can be utilized. Deferred tax assets arising from our NIFOs are recognized for deductible temporary differences which are expected to reverse in the foreseeable future to the extent that it is probable that future taxable profits will be available against which these deductible temporary differences can be utilized. Deferred tax is not recognized for temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable income, or for taxable temporary differences arising on the initial recognition of goodwill.

Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted as at the reporting date.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities and they relate to income taxes levied by the same tax authority on the same taxable entity or tax reporting group.

Income tax accounting impacts all of our reporting segments. For further details on our income taxes, see Note 19 to the consolidated financial statements.

### Contingent liabilities and provision

#### Legal proceedings and other contingencies

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

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

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

CIBC believes the estimate of the aggregate range of reasonably possible losses, in excess of the amounts accrued, for its significant legal proceedings, where it is possible to make such an estimate, is from nil to approximately \$1.2 billion as at October 31, 2018. This estimated aggregate range of reasonably possible losses is based upon currently available information for those significant proceedings in which CIBC is involved, taking into account CIBC’s best estimate of such losses for those cases for which an estimate can be made. CIBC’s estimate involves significant judgment, given the varying stages of the proceedings and the existence of multiple defendants in many of such proceedings whose share of the liability has yet to be determined. The range does not include potential punitive damages and interest. The matters underlying the estimated range as at October 31, 2018, consist of the significant legal matters disclosed in Note 22 to the consolidated financial statements. The matters underlying the estimated range will change from time to time, and actual losses may vary significantly from the current estimate. For certain matters, CIBC does not believe that an estimate can currently be made as many of them are in preliminary stages and certain matters have no specific amount claimed. Consequently, these matters are not included in the range.

The following is a description of CIBC’s significant legal proceedings, which we intend to vigorously defend.

#### Green v. Canadian Imperial Bank of Commerce, et al.

In July 2008, a shareholder plaintiff commenced this proposed class action in the Ontario Superior Court of Justice against CIBC and several former and current CIBC officers and directors. It alleges that CIBC and the individual officers and directors violated the Ontario Securities Act through material misrepresentations and non-disclosures relating to CIBC’s exposure to the U.S. sub-prime mortgage market. The plaintiffs instituted this action on behalf of all CIBC shareholders in Canada who purchased shares between May 31, 2007 and February 28, 2008. The action seeks damages of \$10 billion. In July 2012, the plaintiffs’ motions for leave to file the statement of claim and for class certification were dismissed by the Ontario Superior Court of Justice. In February 2014, the Ontario Court of Appeal released its decision overturning the lower court and allowing the matter to proceed as a certified class action. In August 2014, CIBC and the individual defendants were granted leave to appeal to the Supreme Court of Canada. The defendants’ appeal to the Supreme Court of Canada was heard on February 9, 2015. In December 2015, the Supreme Court of Canada upheld the Ontario Court of Appeal’s decision allowing the matter to proceed as a certified class action. No date has been set for a motion for summary judgment.

#### Fresco v. Canadian Imperial Bank of Commerce
Gaudet v. Canadian Imperial Bank of Commerce

In June 2007, two proposed class actions were filed against CIBC in the Ontario Superior Court of Justice (Fresco v. CIBC) and in the Quebec Superior Court (Gaudet v. CIBC). Each makes identical claims for unpaid overtime for full-time, part-time, and retail frontline non-management employees. The Ontario action seeks \$500 million in damages plus \$100 million in punitive damages for all employees in Canada, while the Quebec action is limited to employees in Quebec and has been stayed pending the outcome of the Ontario action. In June 2009, in the Ontario action, the motion judge denied certification of the matter as a class action. In September 2010, the Ontario Divisional Court upheld the motion judge’s denial of the plaintiff’s certification motion and the award of costs to CIBC by a two-to-one majority. In January 2011, the Ontario Court of Appeal granted the plaintiff leave to appeal the decision denying certification. In June 2012, the Ontario Court of Appeal overturned the lower court and granted certification of the matter as a class action. The Supreme Court of Canada released its decision in March 2013 denying CIBC leave to appeal certification of the matter as a class action, and denying the plaintiff’s cross appeal on aggregate damages. The plaintiff’s motion for summary judgment is scheduled for September 2019.

#### Credit card class actions – Quebec Consumer Protection Act:
Marcotte v. Bank of Montreal, et al.
Corriveau v. Amex Bank of Canada, et al.
Lamoureux v. Bank of Montreal, et al.
St. Pierre v. Bank of Montreal, et al.
Marcotte v. Bank of Montreal, et al. (II)
Giroux v. Royal Bank of Canada, et al.
Pilon v. Amex Bank of Canada, et al.

Since 2004, a number of proposed class actions have been filed in the Quebec Superior Court against CIBC and numerous other financial institutions. The actions, brought on behalf of cardholders, allege that the financial institutions are in breach of certain provisions of the Quebec Consumer Protection Act (CPA). The alleged violations include charging fees on foreign currency transactions, charging fees on cash advances, increasing credit limits without the cardholder’s express consent, and failing to allow a 21-day grace period before posting charges to balances upon which interest is calculated. CIBC and the other defendant banks are jointly raising a constitutional challenge to the Quebec CPA on the basis that banks are not required to comply with provincial legislation because banking and cost of borrowing disclosure is a matter of exclusive federal jurisdiction.

The first of these class actions (Marcotte v. Bank of Montreal, et al.), which alleges that charging cardholders fees on foreign currency transactions violates the Quebec CPA, went to trial in 2008. In a decision released in June 2009, the trial judge found in favour of the plaintiffs concluding that the Quebec CPA is constitutionally applicable to federally regulated financial institutions and awarding damages against all the defendants. The court awarded compensatory damages against CIBC in the amount of \$38 million plus an additional sum to be determined at a future date. The court awarded punitive damages against a number of the other defendants, but not against CIBC. CIBC and the other financial institutions appealed this decision. The appeal was heard by the Quebec Court of Appeal in September 2011. In August 2012, the Quebec Court of Appeal allowed the defendant banks’ appeals in part and overturned the trial judgment against CIBC. The plaintiffs and some of the defendant banks appealed to the Supreme Court of Canada, and that appeal was heard in February 2014. On September 19, 2014, the Supreme Court of Canada found that the relevant provisions of the Quebec CPA were constitutionally applicable to the banks, but that CIBC is not liable for damages because it fully complied with the Quebec CPA.

The Giroux and Marcotte II proposed class actions were discontinued in January 2015.

The Lamoureux, St. Pierre and Corriveau actions were settled in 2016 subject to court approval. Pursuant to the proposed settlement, CIBC will pay \$4.25 million to settle these three actions. The court approval hearing was held in December 2016. In January 2017, the court did not approve CIBC’s proposed settlement as it found the fees for plaintiffs’ counsel were excessive and the end date for one of the actions was later than required. The plaintiffs’ appeal was heard in September 2017 and the appeal was dismissed in March 2018.

The Pilon proposed class action was commenced in January 2018 in Quebec against CIBC and several other financial institutions. The plaintiffs allege that the defendants breached the Quebec Consumer Protection Act and the Bank Act when they unilaterally increased the credit limit on the plaintiffs’ credit cards. The claim seeks the return of all over limit fees charged to Quebec customers beginning in January 2015 as well as punitive damages of \$500 per class member.

#### Credit card class actions – Interchange fees litigation:
Bancroft-Snell v. Visa Canada Corporation, et al.
9085-4886 Quebec Inc. v. Visa Canada Corporation, et al.
Watson v. Bank of America Corporation, et al.
Fuze Salon v. BofA Canada Bank, et al.
1023926 Alberta Ltd. v. Bank of America Corporation, et al.
The Crown & Hand Pub Ltd. v. Bank of America Corporation, et al.
Hello Baby Equipment Inc. v. BofA Canada Bank, et al.

Since 2011 seven proposed class actions have been commenced against VISA Canada Corporation (Visa), MasterCard International Incorporated (MasterCard), CIBC and numerous other financial institutions. The actions, brought on behalf of all merchants who accepted payment by Visa or MasterCard from March 23, 2001 to the present, allege two “separate, but interrelated” conspiracies: one in respect of Visa and one in respect of MasterCard. The claims allege that Visa and MasterCard conspired with their issuing banks to set default interchange rate and merchant discount fees and that certain rules (Honour All Cards and No Surcharge) have the effect of increasing the merchant discount fees. The claims allege civil conspiracy, violation of the Competition Act, interference with economic interests and unjust enrichment. The claims seek unspecified general and punitive damages. The motion for class certification in Watson was granted in March 2014. The appeal of the decision granting class certification was heard in December 2014. In August 2015, the British Columbia Court of Appeal allowed the appeals in part, resulting in certain causes of action being struck and others being reinstated. The matter remains certified as a class action. The trial in Watson, which was scheduled to commence in September 2018, will be adjourned to October 2019. The motion for class certification in 9085-4886 Quebec Inc. (formerly Bakopanos) was heard in November 2017. In February 2018, the Court certified 9085-4886 Quebec Inc. as a class action. The plaintiffs are appealing the decision.

#### Mortgage prepayment class actions:
Jordan v. CIBC Mortgages Inc.
Lamarre v. CIBC Mortgages Inc.
Sherry v. CIBC Mortgages Inc.
Haroch v. Toronto Dominion Bank, et al.

In 2011, three proposed class actions were filed in the Superior Courts of Ontario, Quebec and British Columbia against CIBC Mortgages Inc. The representative plaintiffs allege that since 2005, CIBC Mortgages Inc. wrongfully charged or overcharged mortgage prepayment penalties and that the calculation clauses in the mortgage contract that provide for discretion in applying the prepayment penalties are void and unenforceable at law. The motion for class certification in Sherry was granted in June 2014 conditional on the plaintiffs framing a workable class definition. In July 2014, CIBC filed a Notice of Appeal. CIBC’s appeal of the certification decision in Sherry was heard in April 2016. The court reserved its decision. In June 2016, the British Columbia Court of Appeal allowed the appeal in Sherry in part, resulting in certain causes of action being struck. Sherry remains certified as a class action, and continuation of the certification motion on the amended pleading was heard November 2017. In August 2018, the court certified certain of the plaintiffs’ causes of action in Sherry. CIBC is appealing the decision. The certification motion in Jordan was heard in August 2018. The court reserved its decision.

In May 2018, a new proposed class action, Haroch, was filed in the Superior Court of Quebec. The action is brought on behalf of Quebec residents who during the class period allegedly paid a mortgage prepayment charge in excess of three months’ interest. The plaintiffs allege that the defendants created complex prepayment formulas that are contrary to the Quebec Civil Code, the Quebec Consumer Protection Act and the Interest Act and seek damages back to 2015.

#### Oppenheimer Holdings Inc., Oppenheimer & Co. Inc. and OPY Credit Corp v. Canadian Imperial Bank of Commerce and CIBC World Markets Corp.

In March 2013, a claim was filed in New York State Supreme Court against CIBC by Oppenheimer Holdings Inc., Oppenheimer & Co. Inc. and OPY Credit Corp. seeking damages of US\$176 million relating to an alleged breach of a credit facility that Canadian Imperial Bank of Commerce entered into with OPY Credit Corp. in January 2008 (Oppenheimer Holdings Inc. v. Canadian Imperial Bank of Commerce). In November 2013, the court dismissed all claims brought by Oppenheimer Holdings Inc. and Oppenheimer & Co. Inc. and reduced the claim to one cause of action, a claim by OPY Credit Corp. alleging that Canadian Imperial Bank of Commerce breached the credit facility. In January 2014, plaintiffs filed an amended complaint again asserting claims relating to alleged breaches of the credit facility, as well as claims relating to an asset purchase agreement between Oppenheimer Holdings Inc. and Oppenheimer & Co. Inc., and Canadian Imperial Bank of Commerce and CIBC World Markets Corp. In October 2014, the court granted CIBC’s motion to dismiss in part, narrowing the claims against CIBC. In July 2018, the court granted CIBC’s motion for summary judgment dismissing the action. As the plaintiffs did not appeal the decision, this matter is now closed.

#### Cerberus Capital Management L.P. v. CIBC

In October 2015, Securitized Asset Funding 2011-2, LTD., a special purpose investment vehicle affiliated with Cerberus Capital Management L.P. (collectively, “Cerberus”), commenced a Federal Court action in New York against CIBC seeking unspecified damages of “at least hundreds of millions of dollars”. The action relates to two transactions in 2008 and 2011 in which CIBC issued a limited recourse note and certificate to Cerberus which significantly reduced CIBC’s exposure to the U.S. residential real estate market. The complaint alleges that CIBC breached its contract with Cerberus by failing to appropriately calculate and pay with respect to two of the payment streams due under the 2008 note and 2011 certificate.

In November 2015, Cerberus voluntarily dismissed the Federal Court action and filed a new action asserting the same claims in New York State Court. In January 2016, CIBC served its Answer and Counterclaims. In March 2016, Cerberus filed a motion for summary judgment and sought to stay discovery. In April 2016, the court directed the parties to start discovery. In April 2018, the court denied the plaintiffs’ motion for summary judgment. The plaintiffs appealed the decision, which was heard in November 2018. The court reserved its decision.

#### Fire & Police Pension Association of Colorado v. Bank of Montreal, et al.

In January 2018, a proposed class action was filed in the U.S. District Court for the Southern District of New York against CIBC, CIBC World Markets Corp., CIBC World Markets Inc. and several other financial institutions. The complaint alleges that the defendant financial institutions conspired to depress a benchmark interest rate called the Canadian Dealer Offered Rate (CDOR) by making coordinated, artificially low submissions to the survey used to calculate the CDOR. The plaintiffs allege that a depressed CDOR benefitted defendants as parties to derivatives transactions that settled by reference to that rate. The complaint asserts claims under the antitrust laws and the Commodity Exchange Act, among others. The representative plaintiff, seeks to represent a putative class of entities that engaged in U.S.-based transactions in financial instruments that were priced, benchmarked, and/or settled based on CDOR between August 9, 2007 and June 30, 2014. In March 2018, the plaintiff delivered an amended claim extending the class period to December 2014. The defendants have brought motions to dismiss, which are pending.

#### Valeant class actions:
Catucci v. Valeant Pharmaceuticals International Inc., et al.
Potter v. Valeant Pharmaceuticals International Inc., et al.

In March 2016, a proposed class action was filed in the Quebec Superior Court on behalf of purchasers of shares in Valeant Pharmaceuticals International Inc. against the issuer, its directors and officers, its auditors and the underwriting syndicates for six public offerings from 2013 to 2015. CIBC World Markets Corp. was part of the underwriting syndicate for three of the offerings (underwriting 1.5% of a US\$1.6 billion offering in June 2013, 1.5% of a US\$900 million offering in December 2013 and 0.625% of an offering comprising US\$5.25 billion and €1.5 billion in March 2015). The proposed class action alleges various misrepresentations on the part of Valeant and the other defendants, including representations made in the prospectus of the public offerings, relating to Valeant’s relationships with various “specialty pharmacies” who were allegedly acting improperly in the distribution of Valeant’s products resulting in Valeant’s operational results, revenues, and share price during the relevant period being artificially inflated. In July 2016, a similar proposed class action (Potter v. Valeant Pharmaceuticals International Inc., et al.) was commenced in New Jersey Federal Court.

The motion for class certification in Catucci and motion to dismiss in Potter were heard in April 2017. In September 2017, the court certified Catucci as a class action. The defendants sought leave to appeal the certification decision, which was dismissed in December 2017. In Potter the court dismissed the action against the underwriters, without prejudice to the plaintiff to re-plead its allegations.

#### PrivateBancorp Appraisal Rights Matters

In August 2017, two appraisal petitions were filed against PrivateBancorp by former PrivateBancorp shareholders who exercised their dissent and appraisal rights under Delaware law. In October 2017, PrivateBancorp was named in a third petition. These matters have been consolidated. The petitioners were seeking a judicial determination of the fair value of PrivateBancorp’s common stock at the time the acquisition by CIBC closed on June 23, 2017. In November 2017, CIBC and the petitioners entered into an agreement to settle the dispute, subject to the court’s entry of an order dismissing the consolidated petition. In November 2017, the court entered an order dismissing the consolidated petition. This matter is now closed. See Note 3 for additional details on our acquisition of PrivateBancorp.

#### Simplii Privacy Class Actions
Bannister v. CIBC (formerly John Doe v. CIBC)
Steinman v. CIBC

In June 2018, two proposed class actions were filed against CIBC on behalf of Simplii Financial clients who allege their personal information was disclosed as a result of a security incident in May 2018. The actions allege that Simplii Financial failed to protect its clients’ personal information. The Bannister proposed class action seeks aggregated damages of approximately \$550 million, while the Steinman proposed class action, which has been stayed, sought damages per class member plus punitive damages of \$20 million. The motion for certification in Bannister is scheduled for October 2019.

#### Pozgaj v. CIBC and CIBC Trust

In September 2018, a proposed class action was filed in the Ontario Superior Court against CIBC and CIBC Trust. It alleges that the defendants should not have paid mutual fund trailing commissions to order execution only dealers. The action is brought on behalf of all persons who held units of CIBC mutual funds through order execution only dealers and seeks \$200 million in damages.

#### Legal provisions$^{(1)}$

| \$ millions, for the year ended October 31 | 2018 | 2017 |
| :--- | :--- | :--- |
| Balance at beginning of year | 97 | 118 |
| Additional new provisions recognized | 23 | 67 |
| Less: Amounts incurred and charged against existing provisions | (78) | (70) |
| Unused amounts reversed | (2) | (18) |
| **Balance at end of year** | **40** | **97** |

$^{(1)}$ Excludes amounts recognized in respect of the PrivateBancorp Appraisal Rights Matters. See Note 3 for additional details.

## Restructuring

The following table presents changes in the restructuring provision:

| \$ millions, for the year ended October 31 | 2018 | 2017 |
| :--- | :--- | :--- |
| Balance at beginning of year | 149 | 256 |
| Additional new provisions recognized | 28 | 21 |
| Less: Amounts incurred and charged against existing provisions | (70) | (104) |
| Unused amounts reversed | (36) | (24) |
| **Balance at end of year** | **71** | **149** |

While the amount of \$71 million recognized represents our best estimate as at October 31, 2018 of the amount required to settle the obligation, uncertainty exists with respect to when the obligation will be settled and the amounts that will ultimately be paid, as this will largely depend upon individual facts and circumstances.

## Note 23 Concentration of credit risk

Concentration of credit exposure may arise with a group of counterparties that have similar economic characteristics or are located in the same geographic region. The ability of such counterparties to meet contractual obligations would be similarly affected by changing economic, political or other conditions.

The amounts of credit exposure associated with our on- and off-balance sheet financial instruments are summarized in the following table:

| Credit exposure by country of ultimate risk | **2018** | | | | **Total** | **2017** | | | | **Total** |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| **\$ millions, as at October 31** | **Canada** | **U.S.** | **Other countries** | | | **Canada** | **U.S.** | **Other countries** | | |
| **On-balance sheet** | | | | | | | | | | |
| Major assets$^{(1)(2)(3)}$ | 431,917 | 99,063 | 40,405 | | 571,385 | 407,878 | 96,542 | 38,469 | | 542,889 |
| **Off-balance sheet** | | | | | | | | | | |
| Credit-related arrangements | | | | | | | | | | |
| Financial institutions | 45,295 | 16,358 | 12,258 | | 73,911 | 46,069 | 13,155 | 7,660 | | 66,884 |
| Governments | 9,880 | 10 | 50 | | 9,940 | 8,377 | 11 | 73 | | 8,461 |
| Retail | 124,625 | 386 | 390 | | 125,401 | 120,451 | 341 | 381 | | 121,173 |
| Corporate | 58,397 | 25,158 | 7,450 | | 91,005 | 55,847 | 21,502 | 6,492 | | 83,841 |
| | 238,197 | 41,912 | 20,148 | | 300,257 | 230,744 | 35,009 | 14,606 | | 280,359 |
| **Derivative instruments**$^{(4)(5)}$ | | | | | | | | | | |
| By counterparty type | | | | | | | | | | |
| Financial institutions | 4,856 | 4,341 | 3,950 | | 13,147 | 5,846 | 4,696 | 5,359 | | 15,901 |
| Governments | 3,361 | – | 9 | | 3,370 | 3,670 | – | 2 | | 3,672 |
| Corporate | 1,268 | 993 | 783 | | 3,044 | 1,305 | 731 | 922 | | 2,958 |
| | 9,485 | 5,334 | 4,742 | | 19,561 | 10,821 | 5,427 | 6,283 | | 22,531 |
| Less: effect of netting | (5,673) | (3,252) | (2,864) | | (11,789) | (6,739) | (3,972) | (3,266) | | (13,977) |
| **Total derivative instruments** | **3,812** | **2,082** | **1,878** | | **7,772** | **4,082** | **1,455** | **3,017** | | **8,554** |

$^{(1)}$ Major assets consist of cash and deposits with banks, loans and acceptances net of allowance for credit losses, securities, securities borrowed or purchased under resale agreements, and derivative instruments.
$^{(2)}$ Includes Canadian currency of \$410.5 billion (2017: \$397.8 billion) and foreign currencies of \$160.9 billion (2017: \$145.1 billion).
$^{(3)}$ No industry or foreign jurisdiction accounted for more than 10% of loans and acceptances net of allowance for credit losses, with the exception of the U.S., which accounted for 10.5% as at October 31, 2018 (2017: 9.7%).
$^{(4)}$ Derivative instruments are presented at fair value.
$^{(5)}$ Does not include exchange-traded derivatives of \$1,870 million (2017: \$1,811 million).

Also see shaded sections in “MD&A – Management of risk” for a detailed discussion on our credit risk.

## Contractual obligations

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

### Assets and liabilities

The following table provides the contractual maturity profile of our on-balance sheet assets, liabilities and equity at their carrying values. Contractual analysis is not representative of CIBC’s liquidity risk exposure, however this information serves to inform CIBC’s management of liquidity risk, and provide input when modelling a behavioural balance sheet.

| \$ millions, as at October 31, 2018 | Less than 1 month | 1–3 months | 3–6 months | 6–9 months | 9 – 12 months | 1–2 years | 2–5 years | Over 5 years | No specified maturity | Total |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| **Assets** | | | | | | | | | | |
| Cash and non-interest-bearing deposits with banks | 4,380 | – | – | – | – | – | – | – | – | 4,380 |
| Interest-bearing deposits with banks | 13,311 | – | – | – | – | – | – | – | – | 13,311 |
| Securities | 2,286 | 2,755 | 2,104 | 3,046 | 1,971 | 6,265 | 32,386 | 24,935 | 25,916 | 101,664 |
| Cash collateral on securities borrowed | 5,488 | – | – | – | – | – | – | – | – | 5,488 |
| Securities purchased under resale agreements | 20,820 | 11,774 | 2,432 | 6,180 | 242 | 2,002 | – | – | – | 43,450 |
| Loans | | | | | | | | | | |
| Residential mortgages | 2,540 | 4,774 | 9,269 | 11,657 | 11,165 | 53,597 | 106,293 | 7,807 | 647 | 207,749 |
| Personal | 556 | 643 | 1,159 | 1,106 | 975 | 226 | 1,560 | 2,263 | 34,570 | 43,058 |
| Credit card | 266 | 532 | 798 | 798 | 798 | 3,194 | 6,287 | – | – | 12,673 |
| Business and government | 11,177 | 3,474 | 4,894 | 4,625 | 3,507 | 15,658 | 36,545 | 12,802 | 16,873 | 109,555 |
| Allowance for credit losses | – | – | – | – | – | – | – | – | (1,639) | (1,639) |
| Derivative instruments | 1,926 | 3,128 | 1,550 | 1,070 | 1,173 | 2,463 | 4,107 | 6,014 | – | 21,431 |
| Customers’ liability under acceptances | 9,169 | 1,014 | 67 | 13 | 2 | – | – | – | – | 10,265 |
| Other assets | – | – | – | – | – | – | – | – | 25,714 | 25,714 |
| **Total** | **71,919** | **28,094** | **22,273** | **28,495** | **19,833** | **83,405** | **187,178** | **53,821** | **102,081** | **597,099** |
| **October 31, 2017** | **68,633** | **19,284** | **19,148** | **24,660** | **19,187** | **77,767** | **185,148** | **50,473** | **100,964** | **565,264** |
| **Liabilities** | | | | | | | | | | |
| Deposits$^{(1)}$ | 21,817 | 29,161 | 34,584 | 31,806 | 26,432 | 27,414 | 52,888 | 8,467 | 228,446 | 461,015 |
| Obligations related to securities sold short | 13,782 | – | – | – | – | – | – | – | – | 13,782 |
| Cash collateral on securities lent | 2,731 | – | – | – | – | – | – | – | – | 2,731 |
| Obligations related to securities sold under repurchase agreements | 29,227 | 1,483 | 130 | – | – | – | – | – | – | 30,840 |
| Derivative instruments | 1,501 | 2,275 | 1,618 | 957 | 1,292 | 2,365 | 3,905 | 7,060 | – | 20,973 |
| Acceptances | 9,200 | 1,014 | 67 | 13 | 2 | – | – | – | – | 10,296 |
| Other liabilities | 18,266 | – | – | – | – | – | – | – | 18,266 | 18,266 |
| Subordinated indebtedness | 4,080 | – | – | – | – | – | – | – | – | 4,080 |
| Equity | – | – | – | – | – | – | – | – | 35,116 | 35,116 |
| **Total** | **78,258** | **33,933** | **36,399** | **32,776** | **27,726** | **29,779** | **56,793** | **19,607** | **281,828** | **597,099** |
| **October 31, 2017** | **71,445** | **34,910** | **40,912** | **23,237** | **23,940** | **36,809** | **49,836** | **17,197** | **266,978** | **565,264** |

### Credit-related commitments

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

| \$ millions, as at October 31, 2018 | Less than 1 month | 1–3 months | 3–6 months | 6–9 months | 9 – 12 months | 1–2 years | 2–5 years | Over 5 years | No specified maturity$^{(1)}$ | Total |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| Securities lending$^{(2)}$ | – | 39,931 | 5,883 | 5,736 | – | – | – | – | – | 51,550 |
| Unutilized credit commitments$^{(3)}$ | 1,147 | 5,278 | 2,844 | 2,718 | 3,122 | 10,886 | 46,306 | 2,306 | 150,139 | 224,746 |
| Backstop liquidity facilities | – | 8,750 | 630 | 726 | 92 | 309 | – | 13 | – | 10,520 |
| Standby and performance letters of credit | 1,940 | 2,586 | 2,108 | 3,261 | 1,651 | 427 | 1,139 | 130 | – | 13,242 |
| Documentary and commercial letters of credit | 35 | 90 | 49 | 11 | 14 | – | – | – | – | 199 |
| **Total** | **43,053** | **22,587** | **11,367** | **6,716** | **4,879** | **11,622** | **47,445** | **2,449** | **150,139** | **300,257** |
| **October 31, 2017** | **39,287** | **21,865** | **10,724** | **7,042** | **4,083** | **14,976** | **37,280** | **1,920** | **143,182** | **280,359** |

$^{(1)}$ Includes \$116.5 billion (2017: \$111.7 billion) of personal, home equity and credit card lines, which are unconditionally cancellable at our discretion.
$^{(2)}$ Excludes securities lending of \$2.7 billion (2017: \$2.0 billion) for cash because it is reported on the consolidated balance sheet.

## Finance lease commitments$^{(1)}$

Future minimum lease payments for finance lease commitments for each of the five succeeding years and thereafter are as follows:

| \$ millions, as at October 31, 2018 | Payments | Receipts$^{(2)}$ |
| :--- | :--- | :--- |
| 2019 | 494 | 127 |
| 2020 | 472 | 127 |
| 2021 | 484 | 132 |
| 2022 | 435 | 133 |
| 2023 | 370 | 134 |
| 2024 and thereafter | 3,505 | 1,239 |

$^{(1)}$ Total rental expense (excluding servicing agreements) in respect of buildings and equipment was \$494 million (2017: \$476 million; 2016: \$445 million).
$^{(2)}$ Includes sub-lease income from a finance lease property, a portion of which is rented out and considered an investment property.

## Other commitments

As an investor in merchant banking activities, we enter into commitments to fund external private equity funds. In connection with these activities, we had commitments to invest up to \$194 million (2017: \$143 million).

In addition, we act as underwriter for certain new issuances under which we alone or together with a syndicate of financial institutions purchase these new issuances for resale to investors. As at October 31, 2018, the related underwriting commitments were \$176 million (2017: \$424 million).

## 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 standby and performance letters of credit as discussed above, and credit derivatives protection sold, as discussed in Note 12.

## Other indemnification agreements

In the ordinary course of operations, we enter into contractual arrangements under which we may agree to indemnify the counterparty to such arrangement from any losses relating to a breach of representations and warranties, a failure to perform certain covenants, or for claims or losses arising from certain external events as outlined within the particular contract. This may include, for example, losses arising from changes in tax legislation, litigation, or claims relating to past performance. In addition, we have entered into indemnification agreements with each of our directors and officers to indemnify those individuals, to the extent permitted by law, against any and all claims or losses (including any amounts paid in settlement of any such claims) incurred as a result of their service to CIBC. In most indemnities, maximum loss clauses are generally not provided for, and as a result, no defined limit of the maximum potential liability exists. Amounts are accrued when we have a present legal or constructive obligation as a result of a past event, when it is both probable that an outflow of economic benefits will be required to resolve the matter, and when a reliable estimate can be made of the amount of the obligation. We believe that the likelihood of the conditions arising to trigger obligations under these contract arrangements is remote. Historically, any payments made in respect of these contracts have not been significant. Amounts related to these indemnifications, representations, and warranties reflected within the consolidated financial statements as at October 31, 2018 and 2017 are not significant.

## Pledged assets

In the normal course of business, on- and off-balance sheet assets are pledged as collateral against liabilities. The following table summarizes asset pledging amounts and the activities to which they relate:

| \$ millions, as at October 31 | 2018 | 2017$^{(1)}$ |
| :--- | :--- | :--- |
| Assets pledged in relation to: | | |
| Securities borrowing and lending | 47,894 | 46,086 |
| Obligations related to securities sold under repurchase agreements | 31,058 | 27,568 |
| Obligations related to securities sold short | 13,782 | 13,707 |
| Securitizations | 22,893 | 23,292 |
| Covered bonds | 21,544 | 18,805 |
| Derivatives | 11,680 | 9,084 |
| Foreign governments and central banks$^{(2)}$ | 686 | 555 |
| Clearing systems, payment systems, and depositories$^{(2)}$ | 5,867 | 4,333 |
| Other | 675 | 1,488 |
| **Total** | **156,079** | **144,918** |

$^{(1)}$ Certain information has been restated to conform to the presentation adopted in the current year.
$^{(2)}$ Includes assets pledged in order to participate in clearing and payment systems and depositories, or to have access to central bank facilities in foreign jurisdictions.

## Note 22 Contingent liabilities and provision

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

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

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

CIBC believes the estimate of the aggregate range of reasonably possible losses, in excess of the amounts accrued, for its significant legal proceedings, where it is possible to make such an estimate, is from nil to approximately \$1.2 billion as at October 31, 2018. This estimated aggregate range of reasonably possible losses is based upon currently available information for those significant proceedings in which CIBC is involved, taking into account CIBC’s best estimate of such losses for those cases for which an estimate can be made. CIBC’s estimate involves significant judgment, given the varying stages of the proceedings and the existence of multiple defendants in many of such proceedings whose share of the liability has yet to be determined. The range does not include potential punitive damages and interest. The matters underlying the estimated range as at October 31, 2018, consist of the significant legal matters disclosed below. The matters underlying the estimated range will change from time to time, and actual losses may vary significantly from the current estimate. For certain matters, CIBC does not believe that an estimate can currently be made as many of them are in preliminary stages and certain matters have no specific amount claimed. Consequently, these matters are not included in the range.

The following is a description of CIBC’s significant legal proceedings, which we intend to vigorously defend.

#### Green v. Canadian Imperial Bank of Commerce, et al.

In July 2008, a shareholder plaintiff commenced this proposed class action in the Ontario Superior Court of Justice against CIBC and several former and current CIBC officers and directors. It alleges that CIBC and the individual officers and directors violated the Ontario Securities Act through material misrepresentations and non-disclosures relating to CIBC’s exposure to the U.S. sub-prime mortgage market. The plaintiffs instituted this action on behalf of all CIBC shareholders in Canada who purchased shares between May 31, 2007 and February 28, 2008. The action seeks damages of \$10 billion. In July 2012, the plaintiffs’ motions for leave to file the statement of claim and for class certification were dismissed by the Ontario Superior Court of Justice. In February 2014, the Ontario Court of Appeal released its decision overturning the lower court and allowing the matter to proceed as a certified class action. In August 2014, CIBC and the individual defendants were granted leave to appeal to the Supreme Court of Canada. The defendants’ appeal to the Supreme Court of Canada was heard on February 9, 2015. In December 2015, the Supreme Court of Canada upheld the Ontario Court of Appeal’s decision allowing the matter to proceed as a certified class action. No date has been set for a motion for summary judgment.

#### Fresco v. Canadian Imperial Bank of Commerce
Gaudet v. Canadian Imperial Bank of Commerce

In June 2007, two proposed class actions were filed against CIBC in the Ontario Superior Court of Justice (Fresco v. CIBC) and in the Quebec Superior Court (Gaudet v. CIBC). Each makes identical claims for unpaid overtime for full-time, part-time, and retail frontline non-management employees. The Ontario action seeks \$500 million in damages plus \$100 million in punitive damages for all employees in Canada, while the Quebec action is limited to employees in Quebec and has been stayed pending the outcome of the Ontario action. In June 2009, in the Ontario action, the motion judge denied certification of the matter as a class action. In September 2010, the Ontario Divisional Court upheld the motion judge’s denial of the plaintiff’s certification motion and the award of costs to CIBC by a two-to-one majority. In January 2011, the Ontario Court of Appeal granted the plaintiff leave to appeal the decision denying certification. In June 2012, the Ontario Court of Appeal overturned the lower court and granted certification of the matter as a class action. The Supreme Court of Canada released its decision in March 2013 denying CIBC leave to appeal certification of the matter as a class action, and denying the plaintiff’s cross appeal on aggregate damages. The plaintiff’s motion for summary judgment is scheduled for September 2019.

#### Credit card class actions – Quebec Consumer Protection Act:
Marcotte v. Bank of Montreal, et al.
Corriveau v. Amex Bank of Canada, et al.
Lamoureux v. Bank of Montreal, et al.
St. Pierre v. Bank of Montreal, et al.
Marcotte v. Bank of Montreal, et al. (II)
Giroux v. Royal Bank of Canada, et al.
Pilon v. Amex Bank of Canada, et al.

Since 2004, a number of proposed class actions have been filed in the Quebec Superior Court against CIBC and numerous other financial institutions. The actions, brought on behalf of cardholders, allege that the financial institutions are in breach of certain provisions of the Quebec Consumer Protection Act (CPA). The alleged violations include charging fees on foreign currency transactions, charging fees on cash advances, increasing credit limits without the cardholder’s express consent, and failing to allow a 21-day grace period before posting charges to balances upon which interest is calculated. CIBC and the other defendant banks are jointly raising a constitutional challenge to the Quebec CPA on the basis that banks are not required to comply with provincial legislation because banking and cost of borrowing disclosure is a matter of exclusive federal jurisdiction.

The first of these class actions (Marcotte v. Bank of Montreal, et al.), which alleges that charging cardholders fees on foreign currency transactions violates the Quebec CPA, went to trial in 2008. In a decision released in June 2009, the trial judge found in favour of the plaintiffs concluding that the Quebec CPA is constitutionally applicable to federally regulated financial institutions and awarding damages against all the defendants. The court awarded compensatory damages against CIBC in the amount of \$38 million plus an additional sum to be determined at a future date. The court awarded punitive damages against a number of the other defendants, but not against CIBC. CIBC and the other financial institutions appealed this decision. The appeal was heard by the Quebec Court of Appeal in September 2011. In August 2012, the Quebec Court of Appeal allowed the defendant banks’ appeals in part and overturned the trial judgment against CIBC. The plaintiffs and some of the defendant banks appealed to the Supreme Court of Canada, and that appeal was heard in February 2014. On September 19, 2014, the Supreme Court of Canada found that the relevant provisions of the Quebec CPA were constitutionally applicable to the banks, but that CIBC is not liable for damages because it fully complied with the Quebec CPA.

The Giroux and Marcotte II proposed class actions were discontinued in January 2015.

The Lamoureux, St. Pierre and Corriveau actions were settled in 2016 subject to court approval. Pursuant to the proposed settlement, CIBC will pay \$4.25 million to settle these three actions. The court approval hearing was held in December 2016. In January 2017, the court did not approve CIBC’s proposed settlement as it found the fees for plaintiffs’ counsel were excessive and the end date for one of the actions was later than required. The plaintiffs’ appeal was heard in September 2017 and the appeal was dismissed in March 2018.

The Pilon proposed class action was commenced in January 2018 in Quebec against CIBC and several other financial institutions. The plaintiffs allege that the defendants breached the Quebec Consumer Protection Act and the Bank Act when they unilaterally increased the credit limit on the plaintiffs’ credit cards. The claim seeks the return of all over limit fees charged to Quebec customers beginning in January 2015 as well as punitive damages of \$500 per class member.

#### Credit card class actions – Interchange fees litigation:
Bancroft-Snell v. Visa Canada Corporation, et al.
9085-4886 Quebec Inc. v. Visa Canada Corporation, et al.
Watson v. Bank of America Corporation, et al.
Fuze Salon v. BofA Canada Bank, et al.
1023926 Alberta Ltd. v. Bank of America Corporation, et al.
The Crown & Hand Pub Ltd. v. Bank of America Corporation, et al.
Hello Baby Equipment Inc. v. BofA Canada Bank, et al.

Since 2011 seven proposed class actions have been commenced against VISA Canada Corporation (Visa), MasterCard International Incorporated (MasterCard), CIBC and numerous other financial institutions. The actions, brought on behalf of all merchants who accepted payment by Visa or MasterCard from March 23, 2001 to the present, allege two “separate, but interrelated” conspiracies: one in respect of Visa and one in respect of MasterCard. The claims allege that Visa and MasterCard conspired with their issuing banks to set default interchange rate and merchant discount fees and that certain rules (Honour All Cards and No Surcharge) have the effect of increasing the merchant discount fees. The claims allege civil conspiracy, violation of the Competition Act, interference with economic interests and unjust enrichment. The claims seek unspecified general and punitive damages. The motion for class certification in Watson was granted in March 2014. The appeal of the decision granting class certification was heard in December 2014. In August 2015, the British Columbia Court of Appeal allowed the appeals in part, resulting in certain causes of action being struck and others being reinstated. The matter remains certified as a class action. The trial in Watson, which was scheduled to commence in September 2018, will be adjourned to October 2019. The motion for class certification in 9085-4886 Quebec Inc. (formerly Bakopanos) was heard in November 2017. In February 2018, the Court certified 9085-4886 Quebec Inc. as a class action. The plaintiffs are appealing the decision.

#### Mortgage prepayment class actions:
Jordan v. CIBC Mortgages Inc.
Lamarre v. CIBC Mortgages Inc.
Sherry v. CIBC Mortgages Inc.
Haroch v. Toronto Dominion Bank, et al.

In 2011, three proposed class actions were filed in the Superior Courts of Ontario, Quebec and British Columbia against CIBC Mortgages Inc. The representative plaintiffs allege that since 2005, CIBC Mortgages Inc. wrongfully charged or overcharged mortgage prepayment penalties and that the calculation clauses in the mortgage contract that provide for discretion in applying the prepayment penalties are void and unenforceable at law. The motion for class certification in Sherry was granted in June 2014 conditional on the plaintiffs framing a workable class definition. In July 2014, CIBC filed a Notice of Appeal. CIBC’s appeal of the certification decision in Sherry was heard in April 2016. The court reserved its decision. In June 2016, the British Columbia Court of Appeal allowed the appeal in Sherry in part, resulting in certain causes of action being struck. Sherry remains certified as a class action, and continuation of the certification motion on the amended pleading was heard November 2017. In August 2018, the court certified certain of the plaintiffs’ causes of action in Sherry. CIBC is appealing the decision. The certification motion in Jordan was heard in August 2018. The court reserved its decision.

In May 2018, a new proposed class action, Haroch, was filed in the Superior Court of Quebec. The action is brought on behalf of Quebec residents who during the class period allegedly paid a mortgage prepayment charge in excess of three months’ interest. The plaintiffs allege that the defendants created complex prepayment formulas that are contrary to the Quebec Civil Code, the Quebec Consumer Protection Act and the Interest Act and seek damages back to 2015.

#### Oppenheimer Holdings Inc., Oppenheimer & Co. Inc. and OPY Credit Corp v. Canadian Imperial Bank of Commerce and CIBC World Markets Corp.

In March 2013, a claim was filed in New York State Supreme Court against CIBC by Oppenheimer Holdings Inc., Oppenheimer & Co. Inc. and OPY Credit Corp. seeking damages of US\$176 million relating to an alleged breach of a credit facility that Canadian Imperial Bank of Commerce entered into with OPY Credit Corp. in January 2008 (Oppenheimer Holdings Inc. v. Canadian Imperial Bank of Commerce). In November 2013, the court dismissed all claims brought by Oppenheimer Holdings Inc. and Oppenheimer & Co. Inc. and reduced the claim to one cause of action, a claim by OPY Credit Corp. alleging that Canadian Imperial Bank of Commerce breached the credit facility. In January 2014, plaintiffs filed an amended complaint again asserting claims relating to alleged breaches of the credit facility, as well as claims relating to an asset purchase agreement between Oppenheimer Holdings Inc. and Oppenheimer & Co. Inc., and Canadian Imperial Bank of Commerce and CIBC World Markets Corp. In October 2014, the court granted CIBC’s motion to dismiss in part, narrowing the claims against CIBC. In July 2018, the court granted CIBC’s motion for summary judgment dismissing the action. As the plaintiffs did not appeal the decision, this matter is now closed.

#### Cerberus Capital Management L.P. v. CIBC

In October 2015, Securitized Asset Funding 2011-2, LTD., a special purpose investment vehicle affiliated with Cerberus Capital Management L.P. (collectively, “Cerberus”), commenced a Federal Court action in New York against CIBC seeking unspecified damages of “at least hundreds of millions of dollars”. The action relates to two transactions in 2008 and 2011 in which CIBC issued a limited recourse note and certificate to Cerberus which significantly reduced CIBC’s exposure to the U.S. residential real estate market. The complaint alleges that CIBC breached its contract with Cerberus by failing to appropriately calculate and pay with respect to two of the payment streams due under the 2008 note and 2011 certificate.

In November 2015, Cerberus voluntarily dismissed the Federal Court action and filed a new action asserting the same claims in New York State Court. In January 2016, CIBC served its Answer and Counterclaims. In March 2016, Cerberus filed a motion for summary judgment and sought to stay discovery. In April 2016, the court directed the parties to start discovery. In April 2018, the court denied the plaintiffs’ motion for summary judgment. The plaintiffs appealed the decision, which was heard in November 2018. The court reserved its decision.

#### Fire & Police Pension Association of Colorado v. Bank of Montreal, et al.

In January 2018, a proposed class action was filed in the U.S. District Court for the Southern District of New York against CIBC, CIBC World Markets Corp., CIBC World Markets Inc. and several other financial institutions. The complaint alleges that the defendant financial institutions conspired to depress a benchmark interest rate called the Canadian Dealer Offered Rate (CDOR) by making coordinated, artificially low submissions to the survey used to calculate the CDOR. The plaintiffs allege that a depressed CDOR benefitted defendants as parties to derivatives transactions that settled by reference to that rate. The complaint asserts claims under the antitrust laws and the Commodity Exchange Act, among others.