CIBC Announces Third Quarter 2014 Results

TORONTO, Aug. 28, 2014 /CNW/ - CIBC (TSX: CM) (NYSE: CM) today announced its financial results for the third quarter ended July 31, 2014.

Third quarter highlights

  • Reported net income was $921 million, compared with $878 million for the third quarter a year ago, and $306 million for the prior quarter.
  • Adjusted net income(1) was $908 million, compared with $931 million for the third quarter a year ago, and $887 million for the prior quarter.
  • Reported diluted earnings per share (EPS) was $2.26, compared with $2.13 for the third quarter a year ago, and $0.73 for the prior quarter.
  • Adjusted diluted EPS(1) was $2.23, compared with $2.26 for the third quarter a year ago, and $2.17 for the prior quarter.
  • Reported return on common shareholders' equity (ROE) was 21.0% and adjusted ROE(1) was 20.7%.

Results for the third quarter of 2014 were affected by the following items of note aggregating to a positive impact of $0.03 per share:

  • $52 million ($30 million after-tax, or $0.08 per share) gain within an equity-accounted investment in our merchant banking portfolio;
  • $9 million ($7 million after-tax, or $0.02 per share) expenses relating to the development of our enhanced travel rewards program and in respect of the Aeroplan transactions with Aimia Canada Inc. (Aimia) and The Toronto-Dominion Bank (TD);
  • $9 million ($8 million after-tax, or $0.02 per share) amortization of intangible assets; and
  • $2 million ($2 million after-tax, or $0.01 per share) loss from the structured credit run-off business.

CIBC's Basel III Common Equity Tier 1 ratio at July 31, 2014 was 10.1%, and our Tier 1 and Total capital ratios were 12.2% and 14.8%, respectively, on an all-in basis compared with Basel III Common Equity Tier 1 ratio of 10.0%, Tier 1 capital ratio of 12.1% and Total capital ratio of 14.9% in the prior quarter.

CIBC announced today the intention to seek Toronto Stock Exchange approval for a normal course issuer bid that would permit us to purchase for cancellation up to a maximum of 8 million, or approximately 2% of our outstanding common shares, over the next 12 months.

"CIBC's solid results this quarter reflect the strength of our retail and wholesale banking franchises and strong wealth management platform," says Gerald T. McCaughey, CIBC President and Chief Executive Officer.  "As we strive to be the leading bank for our clients, our clear focus on client service coupled with our strategic growth initiatives underpins our ability to deliver consistent and sustainable earnings."

Core business performance

Retail and Business Banking reported net income of $589 million for the third quarter, down $23 million or 4% from the third quarter a year ago. Adjusting for the items of note shown above, adjusted net income(1) was $597 million, down $31 million or 5% from the third quarter a year ago. Core operating results were strong including solid volume growth across key products and lower loan losses, which were offset by lower cards revenue due to the sale of the Aeroplan portfolio. Ongoing investment in innovations and strategic initiatives continue to support deeper client relationships.

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

  • We launched the new CIBC Tim Hortons Double Double Visa Card in partnership with Tim Hortons, leveraging a first-of-its-kind two-button technology that combines a CIBC Visa credit card with a Tim Hortons rewards card;
  • More than one million cheques were deposited using our eDeposit™ feature available on our mobile banking app since it was launched, giving clients the flexibility to deposit cheques to their CIBC accounts by taking a picture of the cheque with their mobile device - a first among the major Canadian banks; and
  • We were awarded "Best Consumer Internet Bank - Canada" and "Best Integrated Consumer Bank Site - North America" by Global Finance Magazine.

Wealth Management reported net income of $121 million for the third quarter, up $19 million or 19% from the third quarter a year ago.

Revenue of $568 million was up $110 million or 24% compared with the third quarter of 2013. This was primarily due to higher client assets under management driven by market appreciation and net sales of long-term mutual funds, higher fee-based and commission revenue, and the acquisition of Atlantic Trust.

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

  • CIBC Asset Management achieved $100 billion in assets under management - a significant milestone along with its 22nd consecutive quarter of positive net sales of long-term mutual funds which hit $4.5 billion year to date;
  • Client satisfaction, a key focus and a foundation of our growth strategy, continues to strengthen at CIBC Wood Gundy and is among the industry's leaders with an 11% increase over the past six years; and
  • Atlantic Trust was recently ranked the second-highest luxury brand among wealth management firms in the U.S. in the 2014 Luxury Brand Status Index™ (LBSI) wealth management survey.

Wholesale Banking reported net income of $282 million for the third quarter, up $69 million or 32% from the prior quarter. Excluding items of note, adjusted net income(1) was $254 million, up $26 million or 11% from the prior quarter.

As a leading wholesale bank in Canada and active in core Canadian industries in the rest of the world, Wholesale Banking acted as:

  • Joint bookrunner in a new $3.5 billion revolving credit facility and joint lead agent and joint bookrunner for $1 billion of senior secured bonds for North West Redwater Partnership;
  • Joint bookrunner on PrairieSky Royalty's $1.7 billion initial public offering of common shares; and
  • Financial advisor to Merit Energy Company on the sale of its oil producing properties in Wyoming to Memorial Production Partners for $915 million and  the sale of its properties in Colorado to Atlas Resource Partners for $420 million.

"In summary, CIBC delivered strong performance during the third quarter," says Mr. McCaughey. "We are on track in executing our growth strategy to be the leading bank for our clients and we are well positioned for future growth."

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

  • Helped raise $3.2 million in support of children with cancer and their families through our sponsorship of the Tour CIBC Charles Bruneau and the CIBC 401 Bike Challenge;
  • Committed $1 million to KidSport, a national program that helps give kids greater access to organized sport, to mark the one year countdown to the TORONTO 2015 Pan Am Games; and
  • As the Official Canadian Bank and CBC broadcast sponsor of the FIFA World Cup™, celebrated Canadians' passion for the beautiful game with a 12-stop cross country CIBC Soccer Nation tour.

(1) For additional information, see the "Non-GAAP measures" section.

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

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

Management's discussion and analysis

Management's discussion and analysis (MD&A) is provided to enable readers to assess CIBC's financial condition and results of operations as at and for the quarter and nine months ended July 31, 2014 compared with corresponding periods. The MD&A should be read in conjunction with our 2013 Annual Report and the unaudited interim consolidated financial statements included in this report. Unless otherwise indicated, all financial information in this MD&A has been prepared in accordance with International Financial Reporting Standards (IFRS or GAAP) and all amounts are expressed in Canadian dollars. This MD&A is current as of August 27, 2014. Additional information relating to CIBC is available on SEDAR at www.sedar.com and on the U.S. Securities and Exchange Commission's (SEC) website at www.sec.gov. No information on CIBC's website (www.cibc.com) should be considered incorporated herein by reference. A glossary of terms used throughout this quarterly report can be found on pages 164 to 168 of our 2013 Annual Report.

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

External reporting changes

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

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

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

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

Allocation of Treasury activities
Treasury-related transfer pricing continues to be charged or credited to each line of business within our strategic business units (SBUs). We changed our approach to allocating the residual financial impact of Treasury activities. Certain fees are charged directly to the lines of business, and the residual net revenue is retained in Corporate and Other.

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

Third quarter financial highlights

          As at or for the three       As at or for the nine  
          months ended       months ended  
    2014   2014   2013     2014   2013  
Unaudited   Jul. 31   Apr. 30   Jul. 31     Jul. 31   Jul. 31  
Financial results ($ millions)                                  
Net interest income   $ 1,875   $ 1,798   $ 1,883     $ 5,578   $ 5,560  
Non-interest income     1,483     1,369     1,366       4,581     3,978  
Total revenue     3,358     3,167     3,249       10,159     9,538  
Provision for credit losses     195     330     320       743     850  
Non-interest expenses     2,047     2,412     1,878       6,438     5,691  
Income before taxes     1,116     425     1,051       2,978     2,997  
Income taxes     195     119     173       574     472  
Net income   $ 921   $ 306   $ 878     $ 2,404   $ 2,525  
Net income (loss) attributable to non-controlling interests   $ 3   $ (11)   $ 1     $ (5)   $ 5  
   Preferred shareholders     19     25     25       69     75  
   Common shareholders     899     292     852       2,340     2,445  
Net income attributable to equity shareholders   $ 918   $ 317   $ 877     $ 2,409   $ 2,520  
Financial measures                                  
Reported efficiency ratio     61.0 %   76.2 %   57.8 %     63.4 %   59.7 %
Adjusted efficiency ratio (1)     59.5 %   59.6 %   56.0 %     58.6 %   56.4 %
Loan loss ratio     0.33 %   0.51 %   0.45 %     0.40 %   0.45 %
Reported return on common shareholders' equity     21.0 %   7.0 %   22.3 %     18.5 %   21.9 %
Adjusted return on common shareholders' equity (1)     20.7 %   20.6 %   23.7 %     21.1 %   23.3 %
Net interest margin     1.81 %   1.81 %   1.86 %     1.82 %   1.84 %
Net interest margin on average interest-earning assets     2.05 %   2.07 %   2.12 %     2.07 %   2.13 %
Return on average assets     0.89 %   0.31 %   0.86 %     0.79 %   0.84 %
Return on average interest-earning assets     1.01 %   0.35 %   0.99 %     0.89 %   0.97 %
Total shareholder return     4.65 %   14.05 %   (2.04) %     17.74 %   2.83 %
Reported effective tax rate     17.5 %   28.1 %   16.5 %     19.3 %   15.7 %
Adjusted effective tax rate (1)     16.2 %   13.5 %   17.0 %     15.5 %   16.5 %
Common share information                                  
Per share ($) - basic earnings   $ 2.26   $ 0.73   $ 2.13     $ 5.88   $ 6.09  
  - reported diluted earnings     2.26     0.73     2.13       5.87     6.09  
  - adjusted diluted earnings (1)     2.23     2.17     2.26       6.70     6.46  
  - dividends     1.00     0.98     0.96       2.94     2.84  
  - book value     43.02     42.04     38.93       43.02     38.93  
Share price ($) - high     102.06     97.72     80.64       102.06     84.70  
  - low     95.66     85.49     74.10       85.49     74.10  
  - closing     101.21     97.72     77.93       101.21     77.93  
Shares outstanding (thousands) - weighted-average basic     397,179     397,758     399,952       397,826     401,237  
  - weighted-average diluted     398,022     398,519     400,258       398,584     401,621  
  - end of period     396,974     397,375     399,992       396,974     399,992  
Market capitalization ($ millions)   $ 40,178   $ 38,832   $ 31,171     $ 40,178   $ 31,171  
Value measures                                  
Dividend yield (based on closing share price)     3.9 %   4.1 %   4.9 %     3.9 %   4.9 %
Reported dividend payout ratio     44.2 %   133.5 %   45.1 %     50.0 %   46.6 %
Adjusted dividend payout ratio (1)     44.8 %   45.2 %   42.5 %     43.8 %   43.9 %
Market value to book value ratio     2.35     2.32     2.00       2.35     2.00  
On- and off-balance sheet information ($ millions)                                  
Cash, deposits with banks and securities   $ 80,653   $ 77,892   $ 76,452     $ 80,653   $ 76,452  
Loans and acceptances, net of allowance     262,489     258,680     254,227       262,489     254,227  
Total assets     405,422     397,102     397,153       405,422     397,153  
Deposits     322,314     314,023     313,114       322,314     313,114  
Common shareholders' equity     17,076     16,707     15,573       17,076     15,573  
Average assets     411,036     406,285     402,608       409,144     402,976  
Average interest-earning assets     363,422     356,492     351,761       360,631     349,642  
Average common shareholders' equity     16,989     17,173     15,162       16,911     14,925  
Assets under administration (2)     1,713,076     1,663,858     1,460,311       1,713,076     1,460,311  
Balance sheet quality measures                                  
All-in basis                                  
   Common Equity Tier 1 (CET1) capital risk-weighted assets                                  
     (RWA) ($ billions)     $ 139.9   $ 135.9   $ 134.0     $ 139.9   $ 134.0  
   Tier 1 capital RWA     140.2     135.9     134.0       140.2     134.0  
   Total capital RWA     140.6     135.9     134.0       140.6     134.0  
   CET1 ratio     10.1 %   10.0 %   9.3 %     10.1 %   9.3 %
   Tier 1 capital ratio     12.2 %   12.1 %   11.6 %     12.2 %   11.6 %
   Total capital ratio     14.8 %   14.9 %   14.7 %     14.8 %   14.7 %
Other information                                  
Full-time equivalent employees     45,161     43,907     43,516       45,161     43,516  
(1) For additional information, see the "Non-GAAP measures" section.
(2) Includes the full contract amount of assets under administration or custody under a 50/50 joint venture between CIBC and The Bank of New York Mellon.

Overview

Financial results
Reported net income for the quarter was $921 million, compared with $878 million for the same quarter last year, and $306 million for the prior quarter. Reported net income for the nine months ended July 31, 2014 was $2,404 million, compared with $2,525 million for the same period in 2013.

Adjusted net income(1) for the quarter was $908 million, compared with $931 million for the same quarter last year, and $887 million for the prior quarter. Adjusted net income(1) for the nine months ended July 31, 2014 was $2,746 million, compared with $2,675 million for the same period in 2013.

Reported diluted earnings per share (EPS) for the quarter was $2.26, compared with $2.13 for the same quarter last year, and $0.73 for the prior quarter. Reported diluted EPS for the nine months ended July 31, 2014 was $5.87, compared with $6.09 for the same period in 2013.

Adjusted diluted EPS(1) for the quarter was $2.23, compared with $2.26 for the same quarter last year, and $2.17 for the prior quarter. Adjusted diluted EPS(1) for the nine months ended July 31, 2014 was $6.70, compared with $6.46 for the same period in 2013.

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

  • $52 million ($30 million after-tax) gain within an equity-accounted investment in our merchant banking portfolio (Wholesale Banking);
  • $9 million ($7 million after-tax) expenses relating to the development of our enhanced travel rewards program and in respect of the Aeroplan transactions with Aimia Canada Inc. (Aimia) and TD (Retail and Business Banking);
  • $9 million ($8 million after-tax) amortization of intangible assets(2) ($1 million after-tax in Retail and Business Banking, $3 million after-tax in Wealth Management, and $4 million after-tax in Corporate and Other); and
  • $2 million ($2 million after-tax) loss from the structured credit run-off business (Wholesale Banking).

The above items of note increased revenue by $49 million, non-interest expenses by $17 million and income tax expenses by $19 million. In aggregate, these items of note increased net income by $13 million.

Net interest income(3)
Net interest income was down $8 million from the same quarter last year, primarily due to lower card revenue as a result of the Aeroplan transactions with Aimia and TD in the first quarter of 2014 and lower treasury revenue, partially offset by volume growth across retail products and higher trading income.

Net interest income was up $77 million or 4% from the prior quarter, primarily due to additional days in the quarter and volume growth across retail products.

Net interest income for the nine months ended July 31, 2014 was up $18 million from the same period in 2013, primarily due to volume growth across most retail products and higher revenue from corporate banking. These factors were mostly offset by lower card revenue as a result of the Aeroplan transactions noted above, and lower treasury revenue.

Non-interest income(3)
Non-interest income was up $117 million or 9% from the same quarter last year, primarily due to higher investment management and custodial, mutual fund, and underwriting and advisory fees, partially offset by trading losses in the current quarter compared with trading income in the same quarter last year, and lower card fees as a result of the Aeroplan transactions noted above. The current quarter included a gain within an equity-accounted investment in our merchant banking portfolio, shown as an item of note.

Non-interest income was up $114 million or 8% from the prior quarter, primarily due to higher fee-based revenue, partially offset by lower net gains on available-for-sale (AFS) securities. The current quarter included the gain within an equity-accounted investment noted above.

Non-interest income for the nine months ended July 31, 2014 was up $603 million or 15% from the same period in 2013, primarily due to gains relating to the Aeroplan transactions, the sale of an equity investment in our exited European leveraged finance portfolio, and the gain within an equity-accounted investment, all shown as items of note. Higher mutual fund and investment management and custodial fees were partially offset by lower card fees as noted above, and trading losses in the current year period compared with trading income in the same period last year.

(1)  For additional information, see the "Non-GAAP measures" section.
(2)  Beginning in the fourth quarter of 2013, also includes amortization of intangible assets for equity-accounted associates.
(3)  Trading activities and related risk management strategies can periodically shift trading income between net interest income and non-interest income. Therefore, we view total trading income as the most appropriate measure of trading performance.

Provision for credit losses
Provision for credit losses was down $125 million or 39% from the same quarter last year. In Retail and Business Banking, the provision was down mainly due to lower write-offs and bankruptcies in the card portfolio which reflect credit improvements, as well as the impact of an initiative to enhance account management practices, and the sold Aeroplan portfolio. The same quarter last year included a charge resulting from a revision of estimated loss parameters on our unsecured lending portfolios, shown as an item of note. In Wholesale Banking, the provision was down as the same quarter last year included losses in our exited European leveraged finance portfolio. In Corporate and Other, the provision was down as the same quarter last year included estimated credit losses related to the Alberta floods, shown as an item of note, a portion of which was estimated to not be required and therefore reversed in the current quarter.

Provision for credit losses was down $135 million or 41% from the prior quarter. In Retail and Business Banking, the provision was comparable with the prior quarter. In Wholesale Banking, the provision was down as the prior quarter included losses in our exited U.S. leveraged finance portfolio, shown as an item of note. In Corporate and Other, the provision was down as the prior quarter included loan losses relating to FirstCaribbean International Bank Limited (CIBC FirstCaribbean), shown as an item of note.

Provision for credit losses for the nine months ended July 31, 2014 was down $107 million or 13% from the same period in 2013. In Retail and Business Banking, the provision was down mainly due to lower write-offs and bankruptcies in the card portfolio which reflect credit improvements, as well as the impact of an initiative to enhance account management practices, and the sold Aeroplan portfolio, and lower losses in the business lending portfolio. The same period last year included a charge resulting from a revision of estimated loss parameters on our unsecured lending portfolios, and the current year period included a charge resulting from operational changes in the processing of write-offs, both shown as items of note. In Wholesale Banking, the provision was down primarily due to losses in our exited European leveraged finance portfolio in the same period last year, partially offset by higher losses in our exited U.S. leveraged finance portfolio. In Corporate and Other, the provision was up primarily due to the loan losses relating to CIBC FirstCaribbean noted above, partially offset by a decrease in the collective allowance.

Non-interest expenses
Non-interest expenses were up $169 million or 9% from the same quarter last year, primarily due to higher employee-related compensation and computer, software and office equipment expenses.

Non-interest expenses were down $365 million or 15% from the prior quarter, as the prior quarter included the goodwill impairment charge relating to CIBC FirstCaribbean, shown as an item of note, partially offset by higher employee-related compensation in the current quarter.

Non-interest expenses for the nine months ended July 31, 2014 were up $747 million or 13% from the same period in 2013, primarily due to the goodwill impairment charge relating to CIBC FirstCaribbean, and costs relating to the development of our enhanced travel rewards program and to the Aeroplan transactions, both shown as items of note, as well as higher employee-related compensation and computer, software and office equipment expenses. The same period last year had higher expenses in the structured credit run-off business, which included the Lehman-related settlement charge, shown as an item of note.

Income taxes
Income tax expense was up $22 million or 13% from the same quarter last year primarily due to higher income. Income tax expense was up $76 million or 64% from the prior quarter, primarily due to significantly higher income and taking into consideration that no tax recovery was booked in the prior quarter in respect of the CIBC FirstCaribbean goodwill impairment charge and loan losses.

Income tax expense for the nine months ended July 31, 2014 was up $102 million or 22% from the same period in 2013, notwithstanding comparable income levels, primarily due to no tax recovery being booked in the current year period in respect of the CIBC FirstCaribbean goodwill impairment charge and loan losses, partially offset by higher tax-exempt income.

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

Should we successfully defend our tax filing position in its entirety, we would recognize an additional accounting tax benefit of $214 million and taxable refund interest of approximately $204 million. Should we fail to defend our position in its entirety, we would incur an additional tax expense of approximately $866 million and non-deductible interest of approximately $124 million.

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

                For the three     For the nine  
                months ended     months ended  
              Jul. 31, 2014   Jul. 31, 2014     Jul. 31, 2014  
                vs.     vs.       vs.  
$ millions           Jul. 31, 2013   Apr. 30, 2014     Jul. 31, 2013  
Estimated increase (decrease) in:                              
  Total revenue           $ 21   $ (11)     $ 100  
  Provision for credit losses             1     (1)       15  
  Non-interest expense             9     (4)       68  
  Income taxes             2     (1)       5  
  Net income             9     (5)       12  
Average US$ appreciation (depreciation) relative to C$             4.0 %   (2.0) %     6.9 %

Impact of items of note in prior periods

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

Q2, 2014

  • $543 million ($543 million after-tax) of charges relating to CIBC FirstCaribbean, comprising a goodwill impairment charge of $420 million ($420 million after-tax) and loan losses of $123 million ($123 million after-tax), reflecting revised expectations on the extent and timing of the anticipated economic recovery in the Caribbean region (Corporate and Other);
  • $22 million ($16 million after-tax) expenses relating to the development of our enhanced travel rewards program and in respect of the Aeroplan transactions with Aimia and TD (Retail and Business Banking);
  • $22 million ($12 million after-tax) loan losses in our exited U.S. leveraged finance portfolio (Wholesale Banking);
  • $9 million ($7 million after-tax) amortization of intangible assets ($1 million after-tax in Retail and Business Banking, $4 million after-tax in Wealth Management, and $2 million after-tax in Corporate and Other); and
  • $4 million ($3 million after-tax) loss from the structured credit run-off business (Wholesale Banking).

The above items of note decreased revenue by $8 million, increased provision for credit losses by $145 million, non-interest expense by $447 million, and decreased income tax expenses by $19 million. In aggregate, these items of note decreased net income by $581 million.

Q1, 2014

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

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

Q3, 2013

  • $38 million ($28 million after-tax) increase in the portion of the collective allowance recognized in Corporate and Other(1), which includes $56 million of estimated credit losses relating to the Alberta floods;
  • $20 million ($15 million after-tax) charge resulting from a revision of estimated loss parameters on our unsecured lending portfolios (Retail and Business Banking);
  • $8 million ($6 million after-tax) loss from the structured credit run-off business (Wholesale Banking); and
  • $5 million ($4 million after-tax) amortization of intangible assets ($1 million after-tax in Retail and Business Banking, $1 million after-tax in Wealth Management, and $2 million after-tax in Corporate and Other).

The above items of note decreased revenue by $7 million, increased provision for credit losses by $58 million, non-interest expenses by $6 million, and decreased income tax expenses by $18 million. In aggregate, these items of note decreased net income by $53 million.

Q2, 2013

  • $27 million ($20 million after-tax) income from the structured credit run-off business (Wholesale Banking);
  • $21 million ($15 million after-tax) loan losses in our exited European leveraged finance portfolio (Wholesale Banking); and
  • $6 million ($5 million after-tax) amortization of intangible assets ($1 million after-tax in Retail and Business Banking, $1 million after-tax in Wealth Management, and $3 million after-tax in Corporate and Other).

The above items of note increased revenue by $29 million, provision for credit losses by $21 million and non-interest expenses by $8 million. In aggregate, the impact of these items of note on net income was nil.

Q1, 2013

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

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

(1) Relates to collective allowance, except for (i) residential mortgages greater than 90 days delinquent; (ii) personal loans and scored small business loans greater than 30 days delinquent, and (iii) net write-offs for the card portfolio, which are all reported in the respective SBUs.

Significant events

Goodwill impairment
During the quarter ended April 30, 2014, we recognized a goodwill impairment charge of $420 million relating to CIBC FirstCaribbean. This impairment reflects revised expectations on the extent and timing of the anticipated economic recovery in the Caribbean region. For additional information, see the Accounting and control matters section and Note 6 to our interim consolidated financial statements.

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

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

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

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

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

Under the terms of the agreements:

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

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

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

For the quarter ended July 31, 2014, CIBC incurred incremental costs of $9 million ($7 million after-tax) relating to the development of our enhanced travel rewards programs and in respect of supporting the tri-party agreements ($22 million ($16 million after-tax) in the quarter ended April 30, 2014 and $39 million ($28 million after-tax) in the quarter ended January 31, 2014). Amounts recognized in respect of Migration Payments in the quarter and nine months ended July 31, 2014 were not significant.

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

Sale of equity investment
On November 29, 2013, CIBC sold an equity investment that was previously acquired through a loan restructuring in CIBC's exited European leveraged finance business. The transaction resulted in an after-tax gain, net of associated expenses, of $57 million in the quarter ended January 31, 2014.

Review of quarterly financial information

$ millions, except per share amounts,                                                              
for the three months ended                     2014                               2013       2012
      Jul. 31       Apr. 30       Jan. 31       Oct. 31       Jul. 31       Apr. 30       Jan. 31       Oct. 31
Revenue                                                              
   Retail and Business Banking   $ 2,032     $ 1,939     $ 2,255     $ 2,087     $ 2,067     $ 1,985     $ 2,010     $ 2,012
   Wealth Management     568       548       502       470       458       443       432       420
   Wholesale Banking (1)     670       606       680       520       589       574       557       567
   Corporate and Other (1)     88       74       197       103       135       122       166       140
Total revenue   $ 3,358     $ 3,167     $ 3,634     $ 3,180     $ 3,249     $ 3,124     $ 3,165     $ 3,139
Net interest income   $ 1,875     $ 1,798     $ 1,905     $ 1,893     $ 1,883     $ 1,822     $ 1,855     $ 1,848
Non-interest income     1,483       1,369       1,729       1,287       1,366       1,302       1,310       1,291
Total revenue     3,358       3,167       3,634       3,180       3,249       3,124       3,165       3,139
Provision for credit losses     195       330       218       271       320       265       265       328
Non-interest expenses     2,047       2,412       1,979       1,930       1,878       1,825       1,988       1,823
Income before income taxes     1,116       425       1,437       979       1,051       1,034       912       988
Income taxes     195       119       260       154       173       172       127       145
Net income   $ 921     $ 306     $ 1,177     $ 825     $ 878     $ 862     $ 785     $ 843
Net income (loss) attributable to:                                                              
  Non-controlling interests   $ 3     $ (11)     $ 3     $ (7)     $ 1     $ 2     $ 2     $ 3
  Equity shareholders     918       317       1,174       832       877       860       783       840
EPS - basic   $ 2.26     $ 0.73     $ 2.88     $ 2.02     $ 2.13     $ 2.09     $ 1.88     $ 2.00
  - diluted     2.26       0.73       2.88       2.02       2.13       2.09       1.88       2.00
(1) Wholesale Banking revenue and income taxes are reported on a taxable equivalent basis (TEB) with an equivalent offset in the
revenue and income taxes of Corporate and Other.

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

Revenue
Retail and Business Banking revenue has benefitted from volume growth across most retail products, largely offset by the impact of the sold Aeroplan portfolio from the first quarter of 2014, the continued low interest rate environment, and attrition in our exited FirstLine mortgage broker business. The first quarter of 2014 also included the gain relating to the Aeroplan transactions with Aimia and TD.

Wealth Management revenue has benefitted from higher average assets under management (AUM), the impact of the acquisition of Atlantic Trust from the first quarter of 2014, higher contribution from our equity-accounted investment in American Century Investments (ACI) and strong net sales of long-term mutual funds.

Wholesale Banking revenue is influenced, to a large extent, by capital markets conditions and growth in the equity derivatives business which has resulted in higher tax-exempt income. Revenue has also been impacted by the volatility in the structured credit run-off business. The current quarter and the first quarter of 2014 included gains within an equity-accounted investment in our merchant banking portfolio and on the sale of an equity investment in our exited European leveraged finance portfolio, respectively, while the fourth quarter of 2013 included the impairment of an equity position in our exited U.S. leveraged finance portfolio. The fourth quarter of 2012 included a gain on sale of interests in entities in relation to the acquisition of TMX Group Inc. and the loss relating to the change in valuation of collateralized derivatives to an overnight index swap (OIS) basis.

Corporate and Other includes the offset related to tax-exempt income noted above. The first quarter of 2014 included the gain relating to the Aeroplan transactions noted above and the first quarter of 2013 included the gain on sale of the private wealth management (Asia) business.

Provision for credit losses
Provision for credit losses is dependent upon the credit cycle in general and on the credit performance of the loan portfolios. In Retail and Business Banking, losses in the card portfolio have been trending lower since 2012 and have declined further in 2014 due to credit improvements, as well as the impact of an initiative to enhance account management practices, and the sold Aeroplan portfolio. A charge resulting from operational changes in the processing of write-offs was included in the first quarter of 2014, and a charge resulting from a revision of estimated loss parameters on our unsecured lending portfolios was included in the third quarter of 2013. In Wholesale Banking, the second quarter of 2014 and the fourth quarter of 2012 included losses in the exited U.S. leveraged finance portfolio. The second and third quarters of 2013 had higher losses in the exited European leveraged finance portfolio. In Corporate and Other, the second quarter of 2014 had loan losses relating to CIBC FirstCaribbean. The third quarter of 2013 had an increase in the collective allowance, which included estimated credit losses relating to the Alberta floods, while the first and third quarters of 2014 included a decrease in collective allowance, including partial reversal of the credit losses relating to the Alberta floods.

Non-interest expenses
Non-interest expenses have fluctuated over the period largely due to changes in employee-related compensation and benefits, including pension expense. The second quarter of 2014 had a goodwill impairment charge and the fourth quarter of 2013 had a restructuring charge relating to CIBC FirstCaribbean. The first half of 2014 and the fourth quarter of 2013 had expenses relating to the development of our enhanced travel rewards program, and to the Aeroplan transactions with Aimia and TD. The first quarter of 2013 also had higher expenses in the structured credit run-off business.

Income taxes
Income taxes vary with changes in income subject to tax, and the jurisdictions in which the income is earned. Taxes can also be affected by the impact of significant items. Tax-exempt income has generally been trending higher for the periods presented in the table above. No tax recovery was booked in the second quarter of 2014 in respect of the CIBC FirstCaribbean goodwill impairment charge and loan losses.

Outlook for calendar year 2014
Global growth is on a stronger track after a poor start to the year, helped by a diminished burden from fiscal tightening in both the U.S. and Europe, and a continuation of stimulative monetary policy. After a sharp rebound from adverse weather in the second quarter, U.S. real gross domestic product (GDP) is expected to advance at a more than 3% annualized pace in the final two quarters. U.S. real GDP will benefit from a pick-up in capital spending, and the lift to household incomes and credit quality from ongoing job creation. European growth has stalled, and there are renewed recession risks associated with geopolitical tensions, while emerging markets, after a slow start to the year, should benefit from improved global trade volumes. Canada's growth rate should average in the 2.0% to 2.5% range over the final two quarters, as firmer global conditions support exports, offsetting slower growth in housing construction and continued restraint in government program spending. Consumer demand will be sustained at moderate growth rates by job creation. Both the U.S. Federal Reserve and the Bank of Canada are likely to wait until 2015 before raising short term interest rates, although longer term rates could increase later in the year in anticipation of that future policy turn.

Retail banking is likely to see little change from the recent modest growth rates in demand for household and mortgage credit given existing levels of debt and the past few years' policy changes in mortgages. Demand for business credit should continue to grow at a healthy pace. A further drop in the unemployment rate should support household credit quality, but there is little room for business and household insolvency rates to drop from what are already very low levels. Wealth management should see an improvement in demand for equities and other higher risk assets as global growth improves. Wholesale banking should benefit from rising capital spending and greater M&A activity that increases the demand for corporate lending and debt financing, and provincial governments will still have elevated borrowing needs, including those related to infrastructure projects. A sturdier global climate has reduced uncertainties that held back equity issuance in the prior year.

Non-GAAP measures

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

                        As at or for the three       As at or for the nine  
                        months ended       months ended  
                  2014     2014     2013       2014     2013  
$ millions                 Jul. 31     Apr. 30     Jul. 31       Jul. 31     Jul. 31  
Reported and adjusted diluted EPS                                              
Reported net income attributable to diluted common shareholders       A       $ 899   $ 292   $ 852     $ 2,340   $ 2,445  
After-tax impact of items of note (1)                 (13)     581     53       342     150  
After-tax impact of items of note on non-controlling interests                 -     (10)     -       (10)     -  
Adjusted net income attributable to diluted common shareholders (2)       B       $ 886   $ 863   $ 905     $ 2,672   $ 2,595  
Diluted weighted-average common shares outstanding (thousands)       C         398,022     398,519     400,258       398,584     401,621  
Reported diluted EPS ($)       A/C       $ 2.26   $ 0.73   $ 2.13     $ 5.87   $ 6.09  
Adjusted diluted EPS ($) (2)       B/C         2.23     2.17     2.26       6.70     6.46  
Reported and adjusted efficiency ratio                                              
Reported total revenue       D       $ 3,358   $ 3,167   $ 3,249     $ 10,159   $ 9,538  
Pre-tax impact of items of note (1)                 (49)     8     7       (394)     (50)  
TEB                 102     124     90       336     279  
Adjusted total revenue (2)       E       $ 3,411   $ 3,299   $ 3,346     $ 10,101   $ 9,767  
Reported non-interest expenses       F       $ 2,047   $ 2,412   $ 1,878     $ 6,438   $ 5,691  
Pre-tax impact of items of note (1)                 (17)     (447)     (6)       (519)     (179)  
Adjusted non-interest expenses (2)       G       $ 2,030   $ 1,965   $ 1,872     $ 5,919   $ 5,512  
Reported efficiency ratio       F/D         61.0 %   76.2 %   57.8 %     63.4 %   59.7 %
Adjusted efficiency ratio (2)       G/E         59.5 %   59.6 %   56.0 %     58.6 %   56.4 %
Reported and adjusted dividend payout ratio                                              
Reported net income attributable to common shareholders       H       $ 899   $ 292   $ 852     $ 2,340   $ 2,445  
After-tax impact of items of note attributable to common shareholders (1)                 (13)     571     53       332     150  
Adjusted net income attributable to common shareholders (2)       I       $ 886   $ 863   $ 905     $ 2,672   $ 2,595  
Dividends paid to common shareholders       J       $ 397   $ 390   $ 384     $ 1,169   $ 1,139  
Reported dividend payout ratio       J/H         44.2 %   133.5 %   45.1 %     50.0 %   46.6 %
Adjusted dividend payout ratio (2)       J/I         44.8 %   45.2 %   42.5 %     43.8 %   43.9 %
Reported and adjusted return on common shareholders' equity                                              
Average common shareholders' equity       K       $ 16,989   $ 17,173   $ 15,162     $ 16,911   $ 14,925  
Reported return on common shareholders' equity       H/K         21.0 %   7.0 %   22.3 %     18.5 %   21.9 %
Adjusted return on common shareholders' equity (2)       I/K         20.7 %   20.6 %   23.7 %     21.1 %   23.3 %
Reported and adjusted effective tax rate                                              
Reported income before income taxes       L       $ 1,116   $ 425   $ 1,051     $ 2,978   $ 2,997  
Pre-tax impact of items of note (1)                 (32)     600     71       270     208  
Adjusted income before income taxes (2)       M       $ 1,084   $ 1,025   $ 1,122     $ 3,248   $ 3,205  
Reported income taxes       N       $ 195   $ 119   $ 173     $ 574   $ 472  
Tax impact of items of note (1)                 (19)     19     18       (72)     58  
Adjusted income taxes (2)       O       $ 176   $ 138   $ 191     $ 502   $ 530  
Reported effective tax rate       N/L         17.5 %   28.1 %   16.5 %     19.3 %   15.7 %
Adjusted effective tax rate (2)       O/M         16.2 %   13.5 %   17.0 %     15.5 %   16.5 %
                                               

          Retail and                            
          Business     Wealth     Wholesale     Corporate         CIBC
$ millions, for the three months ended         Banking   Management     Banking     and Other         Total
2014 Reported net income (loss)       $ 589   $ 121   $ 282   $ (71)   $     921
Jul. 31  After-tax impact of items of note (1)         8     3     (28)     4         (13)
  Adjusted net income (loss) (2)       $ 597   $ 124   $ 254   $ (67)   $     908
2014 Reported net income (loss)       $ 546   $ 117   $ 213   $ (570)   $     306
Apr. 30 After-tax impact of items of note (1)         17     4     15     545         581
  Adjusted net income (loss) (2)       $ 563   $ 121   $ 228   $ (25)   $     887
2013 Reported net income (loss)       $ 612   $ 102   $ 212   $ (48)   $     878
Jul. 31 After-tax impact of items of note (1)         16     1     6     30         53
  Adjusted net income (loss) (2)       $ 628   $ 103   $ 218   $ (18)   $     931
                                       
$ millions, for the nine months ended                                      
2014 Reported net income (loss)       $ 1,881   $ 352   $ 759   $ (588)   $     2,404
Jul. 31 After-tax impact of items of note (1)         (78)     10     (62)     472         342
  Adjusted net income (loss) (2)       $ 1,803   $ 362   $ 697   $ (116)   $     2,746
2013 Reported net income (loss)       $ 1,764   $ 282   $ 490   $ (11)   $     2,525
Jul. 31 After-tax impact of items of note (1)         19     2     110     19         150
  Adjusted net income (2)       $ 1,783   $ 284   $ 600   $ 8   $     2,675
(1) Reflects impact of items of note under "Financial results" section.
(2) Non-GAAP measure.

Strategic business units overview

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

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

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

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

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

Retail and Business Banking

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

Results(1)

                For the three       For the nine  
                months ended       months ended  
                2014     2014     2013       2014     2013  
$ millions             Jul. 31     Apr. 30     Jul. 31       Jul. 31     Jul. 31  
Revenue                                          
  Personal banking           $ 1,614   $ 1,539   $ 1,534     $ 4,729   $ 4,479  
  Business banking             389     368     386       1,137     1,143  
  Other (2)             29     32     147       360     440  
Total revenue             2,032     1,939     2,067       6,226     6,062  
Provision for credit losses             177     173     241       560     715  
Non-interest expenses             1,067     1,040     1,011       3,162     2,996  
Income before taxes             788     726     815       2,504     2,351  
Income taxes             199     180     203       623     587  
Net income           $ 589   $ 546   $ 612     $ 1,881   $ 1,764  
Net income attributable to:                                          
  Equity shareholders (a)           $ 589   $ 546   $ 612     $ 1,881   $ 1,764  
Efficiency ratio             52.5 %   53.6 %   48.9 %     50.8 %   49.4 %
Return on equity (3)             60.3 %   58.1 %   63.8 %     65.5 %   62.8 %
Charge for economic capital (3) (b)           $ (121)   $ (117)   $ (120)     $ (357)   $ (353)  
Economic profit (3) (a+b)           $ 468   $ 429   $ 492     $ 1,524   $ 1,411  
Full-time equivalent employees             22,397     22,306     22,186       22,397     22,186  
(1) For additional segmented information, see the notes to the interim consolidated financial statements.
(2) Includes run-off portfolios relating to FirstLine mortgage broker business, student loans and cards.
(3) For additional information, see the "Non-GAAP measures" section.

Financial overview
Net income for the quarter was $589 million, down $23 million from the same quarter last year, primarily due to higher non-interest expenses and lower revenue, partially offset by a lower provision for credit losses.

Net income was up $43 million from the prior quarter, mainly due to higher revenue, partially offset by higher non-interest expenses.

Net income for the nine months ended July 31, 2014 was $1,881 million, up $117 million from the same period in 2013, primarily due to higher revenue and a lower provision for credit losses, partially offset by higher non-interest expenses.

Revenue
Revenue was down $35 million or 2% from the same quarter last year.

Personal banking revenue was up $80 million, primarily due to volume growth.

Business banking revenue was comparable with the same quarter last year as volume growth was largely offset by narrower spreads.

Other revenue was down $118 million, mainly due to lower cards revenue as a result of the Aeroplan transactions with Aimia and TD.

Revenue was up $93 million or 5% from the prior quarter.

Personal banking revenue was up $75 million, primarily due to additional days in the quarter, volume growth and higher fees.

Business banking revenue was up $21 million, primarily due to additional days in the quarter and volume growth.

Other revenue was comparable with the prior quarter.

Revenue for the nine months ended July 31, 2014 was up $164 million or 3% from the same period in 2013.

Personal banking revenue was up $250 million, due to volume growth across most products, higher fees and wider spreads.

Business banking revenue was down $6 million, mainly due to narrower spreads, partially offset by volume growth.

Other revenue was down $80 million, mainly due to lower cards revenue as a result of the Aeroplan transactions and lower revenue from our exited FirstLine mortgage broker business, partially offset by the gain relating to the Aeroplan transactions in the current year period, shown as an item of note.

Provision for credit losses
Provision for credit losses was down $64 million from the same quarter last year, mainly due to lower write-offs and bankruptcies in the card portfolio which reflect credit improvements, as well as the impact of an initiative to enhance account management practices, and the sold Aeroplan portfolio. The same quarter last year included a charge resulting from a revision of estimated loss parameters on our unsecured lending portfolios, shown as an item of note.

Provision for credit losses was comparable with the prior quarter.

Provision for credit losses for the nine months ended July 31, 2014 was down $155 million from the same period in 2013, mainly due to lower write-offs and bankruptcies in the card portfolio which reflect credit improvements, as well as the impact of an initiative to enhance account management practices, and the sold Aeroplan portfolio, and lower losses in the business lending portfolio. The same period last year included a charge resulting from a revision of estimated loss parameters on our unsecured lending portfolios, and the current year period included a charge resulting from operational changes in the processing of write-offs, both shown as items of note.

Non-interest expenses
Non-interest expenses were up $56 million or 6% from the same quarter last year, primarily due to higher spending on strategic initiatives and costs relating to the development of our enhanced travel rewards program, shown as an item of note.

Non-interest expenses were up $27 million or 3% from the prior quarter, mainly due to higher employee-related compensation, including the impact of additional days in the quarter.

Non-interest expenses for the nine months ended July 31, 2014 were up $166 million or 6% from the same period in 2013, primarily due to costs relating to development of our enhanced travel rewards program and to the Aeroplan transactions, shown as items of note, and higher spending on strategic initiatives.

Income taxes
Income taxes were down $4 million from the same quarter last year, primarily due to lower income.

Income taxes were up $19 million from the prior quarter, primarily due to higher income.

Income taxes for the nine months ended July 31, 2014 were up $36 million from the same period in 2013, primarily due to higher income.

Wealth Management

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

Results(1)

                For the three       For the nine  
                months ended       months ended  
                2014     2014     2013       2014     2013  
$ millions             Jul. 31     Apr. 30     Jul. 31       Jul. 31     Jul. 31  
Revenue                                          
  Retail brokerage           $ 307   $ 292   $ 267     $ 883   $ 788  
  Asset management             186     181     159       539     456  
  Private wealth management             75     75     32       196     89  
Total revenue             568     548     458       1,618     1,333  
Provision for credit losses             -     1     -       -     -  
Non-interest expenses             408     395     326       1,154     966  
Income before taxes             160     152     132       464     367  
Income taxes             39     35     30       112     85  
Net income           $ 121   $ 117   $ 102     $ 352   $ 282  
Net income attributable to:                                          
  Non-controlling interests           $ -   $ 1   $ -     $ 2   $ -  
  Equity shareholders (a)             121     116     102       350     282  
Efficiency ratio             71.9 %   72.2 %   71.2 %     71.4 %   72.4 %
Return on equity (2)             22.7 %   22.4 %   21.3 %     22.5 %   20.1 %
Charge for economic capital (2) (b)           $ (65)   $ (63)   $ (58)     $ (190)   $ (172)  
Economic profit (2) (a+b)           $ 56   $ 53   $ 44     $ 160   $ 110  
Full-time equivalent employees             4,176     4,108     3,837       4,176     3,837  
(1) For additional segmented information, see the notes to the interim consolidated financial statements.
(2) For additional information, see the "Non-GAAP measures" section.

Financial overview
Net income for the quarter was $121 million, up $19 million from the same quarter last year, and up $4 million from the prior quarter, primarily due to higher revenue, partially offset by higher non-interest expenses.

Net income for the nine months ended July 31, 2014 was $352 million, up $70 million from the same period in 2013, primarily due to higher revenue, partially offset by higher non-interest expenses.

Revenue
Revenue was up $110 million or 24% from the same quarter last year, and up $20 million or 4% from the prior quarter.

Retail brokerage revenue was up $40 million from the same quarter last year, primarily due to higher fee-based and commission revenue, and up $15 million from the prior quarter, primarily due to higher fee-based revenue.

Asset management revenue was up $27 million from the same quarter last year, and up $5 million from the prior quarter, primarily due to higher client AUM driven by market appreciation and net sales of long-term mutual funds.

Private wealth management revenue was up $43 million from the same quarter last year, mainly due to the acquisition of Atlantic Trust on December 31, 2013, and higher AUM driven by client balance growth. Private wealth management revenue was comparable with the prior quarter.

Revenue for the nine months ended July 31, 2014 was up $285 million or 21% from the same period in 2013.

Retail brokerage revenue was up $95 million, mainly due to higher fee-based and commission revenue.

Asset management revenue was up $83 million, primarily due to higher client AUM driven by market appreciation and net sales of long-term mutual funds, and higher contribution from our equity-accounted investment in ACI.

Private wealth management revenue was up $107 million, mainly due to the acquisition noted above and higher AUM driven by client balance growth.

Non-interest expenses
Non-interest expenses were up $82 million or 25% from the same quarter last year, primarily due to the impact of the acquisition noted above and higher performance-based compensation.

Non-interest expenses were up $13 million or 3% from the prior quarter, primarily due to higher performance-based compensation.

Non-interest expenses for the nine months ended July 31, 2014 were up $188 million or 19% from the same period in 2013, primarily due to the impact of the acquisition noted above and higher performance-based compensation.

Income taxes
Income taxes were up $9 million from the same quarter last year, and up $4 million from the prior quarter, primarily due to higher income.

Income taxes for the nine months ended July 31, 2014 were up $27 million from the same period in 2013, primarily due to higher income.

Wholesale Banking

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

Results(1)

                For the three       For the nine  
                months ended       months ended  
                2014     2014     2013       2014     2013  
$ millions             Jul. 31     Apr. 30     Jul. 31       Jul. 31     Jul. 31  
Revenue                                          
  Capital markets           $ 336   $ 331   $ 348     $ 997   $ 986  
  Corporate and investment banking             330     275     240       855     673  
  Other             4     -     1       104     61  
Total revenue (2)             670     606     589       1,956     1,720  
Provision for credit losses             6     21     14       29     45  
Non-interest expenses             279     318     303       926     1,046  
Income before taxes             385     267     272       1,001     629  
Income taxes (2)             103     54     60       242     139  
Net income           $ 282   $ 213   $ 212     $ 759   $ 490  
Net income attributable to:                                          
  Equity shareholders  (a)           $ 282   $ 213   $ 212     $ 759   $ 490  
Efficiency ratio (2)             41.5 %   52.6 %   51.3 %     47.3 %   60.8 %
Return on equity (3)             47.5 %   36.0 %   38.6 %     42.8 %   31.0 %
Charge for economic capital (3) (b)           $ (73)   $ (73)   $ (69)     $ (219)   $ (197)  
Economic profit (3) (a+b)           $ 209   $ 140   $ 143     $ 540   $ 293  
Full-time equivalent employees             1,327     1,248     1,302       1,327     1,302  
(1) For additional segmented information, see the notes to the interim consolidated financial statements.  
(2) Revenue and income taxes are reported on a TEB basis. Accordingly, revenue and income taxes
include a TEB adjustment of $102 million for the quarter ended July 31, 2014 (April 30, 2014:
$124 million; July 31, 2013: $90 million) and $336 million for the nine months ended July 31, 2014
(July 31, 2013: $279 million). The equivalent amounts are offset in the revenue and income taxes
of Corporate and Other.
 
(3) For additional information, see the "Non-GAAP measures" section.

Financial overview
Net income for the quarter was $282 million, up $70 million from the same quarter last year and up $69 million from the prior quarter, mainly due to higher revenue and lower non-interest expenses.

Net income for the nine months ended July 31, 2014 was $759 million, up $269 million from the same period in 2013, mainly due to higher revenue and lower non-interest expenses.

Revenue
Revenue was up $81 million or 14% from the same quarter last year.

Capital markets revenue was down $12 million, primarily due to lower revenue from foreign exchange trading and a lower reversal of credit valuation adjustments (CVA) against credit exposures to derivative counterparties (other than financial guarantors), partially offset by higher equity issuance revenue.

Corporate and investment banking revenue was up $90 million, mainly due to a gain within an equity-accounted investment in our merchant banking portfolio, shown as an item of note, higher equity issuance revenue and higher revenue from corporate banking and U.S. real estate finance.

Other revenue was comparable with the same quarter last year.

Revenue was up $64 million or 11% from the prior quarter.

Capital markets revenue was up $5 million, primarily due to higher equity and debt issuance revenue, partially offset by lower revenue from equity derivatives and fixed income trading.

Corporate and investment banking revenue was up $55 million, primarily due to the gain noted above and higher equity issuance revenue and advisory fees, partially offset by lower revenue from U.S. real estate finance.

Other revenue was comparable with the prior quarter.

Revenue for the nine months ended July 31, 2014 was up $236 million or 14% from the same period in 2013.

Capital markets revenue was up $11 million, primarily due to higher revenue from equity derivatives, fixed income and foreign exchange trading, and equity issuances, partially offset by a lower reversal of CVA as noted above.

Corporate and investment banking revenue was up $182 million, mainly due to higher investment portfolio gains, including the gain noted above, higher revenue from corporate banking and U.S. real estate finance, and higher revenue from equity issuances, partially offset by lower advisory revenue.

Other revenue was up $43 million, primarily due to a gain on the sale of an equity investment in our exited European leveraged finance portfolio in the current year period, shown as an item of note, partially offset by losses in the structured credit run-off business compared with gains in the prior year period.

Provision for credit losses
Provision for credit losses was down $8 million from the same quarter last year, primarily due to losses in our exited European leveraged finance portfolio in the same quarter last year.

Provision for credit losses was down $15 million from the prior quarter, as the prior quarter included losses in our exited U.S. leveraged finance portfolio, shown as an item of note.

Provision for credit losses for the nine months ended July 31, 2014 was down $16 million from the same period in 2013, primarily due to losses in our exited European leveraged finance portfolio in the same period last year, partially offset by higher losses in our exited U.S. leveraged finance portfolio.

Non-interest expenses
Non-interest expenses were down $24 million or 8% from the same quarter last year, and down $39 million or 12% from the prior quarter, mainly due to lower performance-based compensation.

Non-interest expenses for the nine months ended July 31, 2014 were down $120 million or 11% from the same period in 2013, as the prior year period included expenses in the structured credit run-off business related to the charge in respect of a settlement of the U.S. Bankruptcy Court adversary proceeding brought by the Estate of Lehman Brothers Holdings, Inc., shown as an item of note, and lower performance-based compensation, partially offset by higher spending on strategic initiatives.

Income taxes
Income taxes for the quarter were up $43 million from the same quarter last year, and up $49 million from the prior quarter, primarily due to higher income.

Income taxes for the nine months ended July 31, 2014 were up $103 million from the same period in 2013, primarily due to higher income.

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

Results

              For the three     For the nine
              months ended     months ended
              2014     2014     2013     2014     2013
$ millions             Jul. 31     Apr. 30     Jul. 31     Jul. 31     Jul. 31
Net interest income (expense)           $ (3)   $ (10)   $ (15)   $ (26)   $ (38)
Trading income (loss)             (3)     24     12     26     65
Designated at fair value (FVO) gains (losses), net             4     (17)     (3)     (15)     (9)
Other income (loss)             1     -     (1)     1     10
Total revenue             (1)     (3)     (7)     (14)     28
Non-interest expenses             1     1     1     3     157
Loss before taxes             (2)     (4)     (8)     (17)     (129)
Income taxes             -     (1)     (2)     (4)     (34)
Net loss           $ (2)   $ (3)   $ (6)   $ (13)   $ (95)

Net loss for the quarter was $2 million (US$2 million), compared with $6 million (US$6 million) for the same quarter last year and $3 million (US$3 million) for the prior quarter. The net loss for the nine months ended July 31, 2014 was $13 million (US$12 million), down $82 million (US$81 million) from the same period in 2013.

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

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

                            Written credit                    
                          derivatives, liquidity     Credit protection purchased from
US$ millions, as at July 31, 2014  Investments and loans (1) and credit facilities     Financial guarantors     Other counterparties
            Fair   Carrying                              
        Fair value of   value of   value of       Fair                    
        trading, AFS   securities   securities       value of       Fair value       Fair value
        and FVO   classified   classified       written credit       net of       net of
    Notional securities   as loans   as loans Notional derivatives   Notional CVA   Notional CVA
USRMM - CDO $ - $ -   $ -   $ -   $ 216 $ 154   $ - $ -   $ 216 $ 154
CLO   1,669   1     1,623     1,627     1,535   19     2,880   32     78   2
Corporate debt   -   -     -     -     4,085   2     -   -     4,085   4
Other   592   402     28     26     407   33     18   2     12   1
Unmatched   -   -     -     -     -   -     -   -     459   -
  $ 2,261 $ 403   $ 1,651   $ 1,653   $ 6,243 $ 208   $ 2,898 $ 34   $ 4,850 $ 161
October 31, 2013 $ 3,269 $ 494   $ 2,497   $ 2,507   $ 7,543 $ 269   $ 4,718 $ 87   $ 5,145 $ 188
(1) Excluded from the table above are equity AFS securities that we obtained in consideration for commutation of our U.S. residential mortgage
market (USRMM) contracts with financial guarantors with a carrying value of US$15 million (October 31, 2013: US$10 million).

USRMM - collateralized debt obligation (CDO)
Our net USRMM position, consisting of a written credit derivative, amounted to US$62 million. This position was hedged through protection purchased from a large U.S.-based diversified multinational insurance and financial services company with which we have market-standard collateral arrangements.

Collateralized loan obligation (CLO)
CLO positions consist of senior tranches of CLOs backed by diversified pools of primarily U.S. (65%) and European-based (33%) senior secured leveraged loans. As at July 31, 2014, approximately 68% of the total notional amount of the CLO tranches was rated equivalent to AAA, 29% was rated between the equivalent of AA+ and AA-, and the remainder was the equivalent of A or lower. As at July 31, 2014, approximately 19% of the underlying collateral was rated equivalent to BB- or higher, 58% was rated between the equivalent of B+ and B-, 4% was rated equivalent to CCC+ or lower, with the remainder unrated. The CLO positions have a weighted-average life of 2.1 years and average subordination of 31%.

Corporate debt
Corporate debt exposure consists of a large matched super senior derivative, where CIBC has purchased and sold credit protection on the same reference portfolio. The reference portfolio consists of highly diversified, predominantly investment grade corporate credit. Claims on these contracts do not occur until cumulative credit default losses from the reference portfolio exceed 30% during the remaining 29-month term of the contract. On this reference portfolio, we have sold protection to an investment dealer.

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

  • Variable rate Class A-1/A-2 notes classified as trading securities with a notional value of US$265 million and a fair value of US$242 million, tracking notes classified as AFS with a notional value of US$5 million and a fair value of US$2 million, and loans with a notional value of US$56 million and fair value and carrying value of nil. These notes were originally received in exchange for our non-bank sponsored asset-backed commercial paper (ABCP) in January 2009, upon the ratification of the Montreal Accord restructuring;
  • US$126 million notional value of CDOs consisting of trust preferred securities (TruPs) collateral, which are Tier I Innovative Capital Instruments issued by U.S. regional banks and insurers. These securities are classified as FVO securities and had a fair value of US$104 million;
  • US$49 million notional value of CDO trading securities with collateral consisting of high-yield corporate debt portfolios with a fair value of US$48 million; and
  • US$29 million notional value of an asset-backed security (ABS) classified as a loan, with fair value of US$28 million and carrying value of US$26 million.

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

  • US$266 million notional value of written credit derivatives with a fair value of US$32 million, on inflation-linked notes, and CDO tranches with collateral consisting of non-U.S. residential mortgage-backed securities and TruPs; and
  • US$87 million of undrawn Margin Funding Facility related to the Montreal Accord restructuring.

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

Credit protection purchased from financial guarantors and other counterparties
The following table presents the notional amounts and fair values of credit protection purchased from financial guarantors and other counterparties by counterparty credit quality, based on external credit ratings (Standard & Poor's (S&P) and/or Moody's Investors Service (Moody's)), and the underlying referenced assets. Excluded from the table below are certain performing loans and tranched securities positions in our continuing businesses, with a total notional amount of approximately US$3 million, which are partly secured by direct guarantees from financial guarantors or by bonds guaranteed by financial guarantors.

                      Credit protection purchased
                                                from financial guarantors
          Notional amounts of referenced assets   and other counterparties
              Corporate   CDO -               Total   Fair value         Fair value
US$ millions, as at July 31, 2014         CLO   debt   USRMM     Other   Unmatched   notional   before CVA     CVA   net of CVA
Financial guarantors (1)                                                            
  Investment grade     $   1,794   $ -   $ -   $ 18   $ -   $   1,812   $ 31 $   (5)   $ 26
  Unrated         1,086     -     -     -     -       1,086     12     (4)     8
            2,880     -     -     18     -       2,898     43     (9)     34
Other counterparties (1)                                                            
  Investment grade         78     10     216     12     -       316     156     1     157
  Unrated         -     4,075     -     -     459       4,534     4     -     4
            78     4,085     216     12     459       4,850     160     1     161
      $   2,958   $ 4,085   $ 216   $ 30   $ 459   $   7,748   $ 203 $   (8)   $ 195
October 31, 2013     $   4,642   $ 4,271   $ 241   $ 229   $ 480   $   9,863   $ 312 $   (37)   $ 275
(1)  In cases where more than one credit rating agency provides ratings and those ratings differ, we use the lowest rating.

The unrated other counterparty is a Canadian conduit. The conduit is in compliance with collateral posting arrangements and has posted collateral exceeding current market exposure. The fair value of the collateral as at July 31, 2014 was US$275 million relative to US$4 million of net exposure.

Lehman Brothers bankruptcy proceedings
During the quarter ended January 31, 2013, we recognized a US$150 million charge (US$110 million after-tax) in respect of the full settlement of the U.S. Bankruptcy Court adversary proceeding brought by the Estate of Lehman Brothers Holdings, Inc. challenging the reduction to zero of our unfunded commitment on a variable funding note. In 2008, we recognized a US$841 million gain on the variable funding note.

Corporate and Other

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

Results(1)

                For the three     For the nine
                months ended     months ended
              2014     2014     2013     2014     2013
$ millions             Jul. 31     Apr. 30     Jul. 31     Jul. 31     Jul. 31
Revenue                                      
  International banking           $ 151   $ 146   $ 142   $ 451   $ 445
  Other             (63)     (72)     (7)     (92)     (22)
Total revenue (2)             88     74     135     359     423
Provision for credit losses             12     135     65     154     90
Non-interest expenses             293     659     238     1,196     683
Loss before taxes             (217)     (720)     (168)     (991)     (350)
Income taxes (2)             (146)     (150)     (120)     (403)     (339)
Net loss           $ (71)   $ (570)   $ (48)   $ (588)   $ (11)
Net income (loss) attributable to:                                      
  Non-controlling interests           $ 3   $ (12)   $ 1   $ (7)   $ 5
  Equity shareholders             (74)     (558)     (49)     (581)     (16)
Full-time equivalent employees             17,261     16,245     16,191     17,261     16,191
(1)  For additional segmented information, see the notes to the interim consolidated financial statements.
(2)  TEB adjusted. See footnote 2 in "Wholesale Banking" section for additional details.

Financial overview
Net loss for the quarter was $71 million, up $23 million from the same quarter last year, primarily due to higher non-interest expenses and lower revenue, partially offset by a lower provision for credit losses.

Net loss was down $499 million from the prior quarter, primarily due to lower non-interest expenses and provision for credit losses.

Net loss for the nine months ended July 31, 2014 was $588 million, up $577 million from the same period last year, primarily due to higher non-interest expenses, provision for credit losses and lower revenue.

Revenue
Revenue was down $47 million or 35% from the same quarter last year.

International banking revenue was up $9 million, due to higher revenue from CIBC FirstCaribbean, including the impact of favourable foreign exchange rates.

Other revenue was down $56 million, primarily due to lower treasury revenue.

Revenue was up $14 million or 19% from the prior quarter.

International banking revenue was up $5 million, primarily due to higher revenue from CIBC FirstCaribbean.

Other revenue was up $9 million, primarily due to a lower TEB adjustment, partially offset by lower treasury revenue.

Revenue for the nine months ended July 31, 2014 was down $64 million or 15% from the same period last year.

International banking revenue was up $6 million, due to favourable foreign exchange rates. The same period last year included a gain on the sale of our private wealth management (Asia) business, shown as an item of note.

Other revenue was down $70 million, primarily due to lower treasury revenue and a higher TEB adjustment, partially offset by the gain relating to the Aeroplan transactions with Aimia and TD, shown as an item of note in the current year period.

Provision for credit losses
Provision for credit losses was down $53 million from the same quarter last year, as the same quarter last year included estimated credit losses related to the Alberta floods, shown as an item of note, a portion of which was estimated to not be required and therefore reversed in the current quarter.

Provision for credit losses was down $123 million from the prior quarter, as the prior quarter included loan losses relating to CIBC FirstCaribbean, shown as an item of note.

Provision for credit losses for the nine months ended July 31, 2014 was up $64 million from the same period last year, primarily due to the loan losses relating to CIBC FirstCaribbean noted above, partially offset by a decrease in the collective allowance.

Non-interest expenses
Non-interest expenses were up $55 million or 23% from the same quarter last year, mainly due to higher unallocated corporate support costs.

Non-interest expenses were down $366 million or 56% from the prior quarter, primarily due to the goodwill impairment charge relating to CIBC FirstCaribbean, shown as an item of note in the prior quarter, partially offset by higher unallocated corporate support costs.

Non-interest expenses for the nine months ended July 31, 2014 were up $513 million or 75% from the same period last year, primarily due to the charge noted above and higher unallocated corporate support costs.

Income taxes
Income tax benefit was up $26 million from the same quarter last year, primarily due to a higher loss, including a higher TEB adjustment.

Income tax benefit was comparable with the prior quarter. No tax recovery was booked in the prior quarter in respect of the CIBC FirstCaribbean goodwill impairment charge and loan losses.

Income tax benefit for the nine months ended July 31, 2014 was up $64 million from the same period in 2013, primarily due to a higher TEB adjustment. No tax recovery was booked in the current year period in respect of the CIBC FirstCaribbean goodwill impairment charge and loan losses.

Financial condition

Review of condensed consolidated balance sheet

                  2014         2013
$ millions, as at                 Jul. 31         Oct. 31
Assets                          
Cash and deposits with banks           $   11,192     $   6,379
Securities               69,461         71,984
Securities borrowed or purchased under resale agreements               28,343         28,728
Loans and acceptances, net of allowance               262,489         256,380
Derivative instruments               18,227         19,947
Other assets               15,710         14,588
              $   405,422     $   398,006
Liabilities and equity                          
Deposits           $   322,314     $   315,164
Obligations related to securities lent or sold short or under repurchase agreements               23,599         20,313
Derivative instruments               17,957         19,724
Other liabilities               18,853         20,583
Subordinated indebtedness               4,187         4,228
Equity               18,512         17,994
              $   405,422     $   398,006

Assets
As at July 31, 2014, total assets were up by $7.4 billion or 2% from October 31, 2013.

Cash and deposits with banks increased by $4.8 billion or 75%, mostly due to higher treasury deposit placements.

Securities decreased by $2.5 billion or 4%, primarily due to a decrease in AFS securities, partially offset by an increase in trading securities. AFS securities decreased primarily due to lower Canadian government securities and public corporate debt, partially offset by an increase in U.S. Treasury and agencies securities. Trading securities increased primarily due to an increase in corporate equities.

Securities borrowed or purchased under resale agreements decreased by $385 million or 1%, primarily due to treasury investment management activities.

Net loans and acceptances increased by $6.1 billion or 2%. Business and government loans and acceptances were up by $4.5 billion, largely due to an increase in our domestic lending portfolio. Residential mortgages were up by $4.0 billion, primarily due to growth in CIBC-branded mortgages, partially offset by attrition in the exited FirstLine mortgage broker business. Personal loans were up $642 million, due to volume growth. These increases were partially offset by credit card loans, which were down $3.1 billion, primarily due to the Aeroplan transactions with Aimia and TD.

Derivative instruments decreased by $1.7 billion or 9%, largely driven by the decrease in interest rate derivatives valuation, partially offset by an increase in foreign exchange derivatives valuation.

Other assets increased by $1.1 billion or 8%, primarily due to an increase in collateral pledged for derivatives and assets acquired as a result of the acquisition of Atlantic Trust, partially offset by the goodwill impairment relating to CIBC FirstCaribbean.

Liabilities
As at July 31, 2014, total liabilities were up by $6.9 billion or 2% from October 31, 2013.

Deposits increased by $7.2 billion or 2%, primarily due to retail volume growth, partially offset by lower outstanding secured borrowings. Further details on the composition of deposits are provided in Note 8 to the interim consolidated financial statements.

Obligations related to securities lent or sold short or under repurchase agreements increased by $3.3 billion or 16%, primarily due to client-driven activities.

Derivative instruments decreased by $1.8 billion or 9%, largely driven by a decrease in interest rate derivatives valuation, partially offset by an increase in foreign exchange derivatives valuation.

Other liabilities decreased by $1.7 billion or 8%, mainly due to lower acceptances.

Subordinated indebtedness decreased by $41 million or 1%, primarily due to redemptions during the year. See the "Significant capital management activity" section below.

Equity
As at July 31, 2014, equity increased by $518 million or 3% from October 31, 2013, primarily due to a net increase in retained earnings and issuance of preferred shares. These were partially offset by the redemption of our preferred shares and the repurchase and cancellation of common shares under the normal course issuer bid, as explained in the "Significant capital management activity" section below.

Capital resources

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

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

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

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

To view "Transitional basis (BCBS)" and "All-in basis (OSFI)" chart, please click http://files.newswire.ca/256/CIBC1.pdf

CET1 capital includes common shares, retained earnings, accumulated other comprehensive income (AOCI) (excluding AOCI relating to cash flow hedges), and qualifying instruments issued by a consolidated subsidiary to third parties, less regulatory adjustments for items such as goodwill and other intangible assets, deferred tax assets, assets related to defined benefit pension plans as reported on our consolidated balance sheet, and certain investments. Additional Tier 1 capital primarily includes non-viability contingent capital (NVCC) preferred shares, qualifying instruments issued by a consolidated subsidiary to third parties, and non-qualifying preferred shares and innovative Tier 1 notes, which are subject to phase-out rules for capital instruments. Tier 2 capital includes non-qualifying subordinated indebtedness subject to phase-out rules for capital instruments, eligible collective allowance under the standardized approach, and qualifying instruments issued by a consolidated subsidiary to third parties.

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

Basel leverage ratio requirement
The Basel III capital reforms included a non-risk-based capital metric, the leverage ratio, to supplement risk-based capital requirements. On January 12, 2014, the BCBS issued the full text of its leverage ratio framework.

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

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

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

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

On July 30, 2014, OSFI issued a draft "Leverage Requirements Guideline" outlining the implementation of the Basel III Leverage Ratio framework in Canada effective January 1, 2015. The Basel III Leverage Ratio will replace the current assets-to-capital multiple (ACM) test. Federally regulated deposit-taking institutions will be expected to have Basel III leverage ratios in excess of 3%. Public disclosure of the Leverage Ratio is effective from the first quarter of 2015. The reporting requirements are outlined in the draft "Public Capital Disclosure Requirements related to Basel III Leverage Ratio" issued by OSFI on June 27, 2014. CIBC expects to be in compliance with the new requirements.

Continuous enhancement to risk-based capital requirements
Last year the BCBS published a number of proposals for changes to the existing risk-based capital requirements (see page 30 of the 2013 Annual Report), and continues to do so with the objective of clarifying and increasing the capital requirements for certain business activities. In addition to the leverage ratio document discussed above, since the start of the fiscal year, the BCBS has published an updated proposal: "Revisions to the securitisation framework - consultative document", and finalized three standards for implementation in 2017 as discussed below.

"Capital requirements for banks' equity investments in funds - final standard" was published in December 2013. The final revised framework applies to banks' investments in the equity of funds that are held in the banking book. The implementation date is January 1, 2017. Banks should look through to the underlying assets of the fund in order to more properly reflect the risk of those investments.

In addition to the above, the BCBS has also recently finalized two other standards which will be implemented on January 1, 2017. "The standardized approach for measuring counterparty credit risk exposures" provides a non-modelled approach to the treatment of derivatives-related transactions, which will replace both the existing Current Exposure and Standardized Methods.

"Capital requirements for bank exposures to central counterparties" sets out the rules for calculating regulatory capital for bank exposures to central counterparties, and will replace interim requirements published in July 2012.

Proposed revisions to Pillar 3 disclosure requirements
On June 24, 2014, the BCBS issued a consultative document titled "Review of the Pillar 3 disclosure requirements". The document sets out the first-phase review findings, of a two-phase project, by the BCBS and outlines proposed revisions to the existing Pillar 3 disclosure requirements for credit (including counterparty credit), market, equity and securitization risks.

These disclosure requirements are proposed to be implemented in 2016. CIBC will continue to monitor and prepare for developments in this area.

Taxpayer Protection and Bank Recapitalization Regime
The Department of Finance published a consultation paper on August 1, 2014 on the Taxpayer Protection and Bank Recapitalization (bail-in) regime. The overarching policy objective is to preserve financial stability while protecting taxpayers in the event of a large bank (D-SIB) failure. The bail-in regime is designed to enable the expedient conversion of certain bank liabilities (bail-in debt) into common equity, thus ensuring that the D-SIB emerges from conversion as well-capitalized. Prior to conversion of the bail-in debt, all capital instruments that meet the Basel III requirements for absorption of loss at the point of non-viability must have been converted into common equity.

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

                          2014       2014       2013  
$ millions, as at                       Jul. 31       Apr. 30       Oct. 31  
Transitional basis                                          
CET1 capital                     $ 16,983     $ 16,532     $ 16,698  
Tier 1 capital                       18,491       18,076       17,830  
Total capital                       22,081       21,581       21,601  
RWA                       155,644       152,044       151,338  
CET1 ratio                       10.9 %     10.9 %     11.0 %
Tier 1 capital ratio                       11.9 %     11.9 %     11.8 %
Total capital ratio                       14.2 %     14.2 %     14.3 %
ACM                       18.2 x     18.1 x     18.0 x
All-in basis (1)                                          
CET1 capital                     $ 14,153     $ 13,641     $ 12,793  
Tier 1 capital                       17,093       16,488       15,888  
Total capital                       20,784       20,206       19,961  
CET1 capital RWA                       139,920       135,883       136,747  
Tier 1 capital RWA                       140,174       135,883       136,747  
Total capital RWA                       140,556       135,883       136,747  
CET1 ratio                       10.1 %     10.0 %     9.4 %
Tier 1 capital ratio                       12.2 %     12.1 %     11.6 %
Total capital ratio                       14.8 %     14.9 %     14.6 %
(1) Commencing the third quarter of 2014, there are different levels of RWAs
for the calculation of the CET1, Tier 1 and total capital ratios arising from
the option CIBC has chosen for the phase-in of the CVA capital charge.

CET1 ratio (All-in basis)
CET1 ratio increased 0.1% from April 30, 2014. During the quarter, CET1 capital after regulatory adjustments increased, largely due to internal capital generation (net income less dividends and shares repurchased for cancellation), while regulatory deductions declined. CET1 capital RWAs increased by $4.0 billion from April 30, 2014, primarily due to capital model parameter updates for our wholesale lending portfolios and business and other asset growth.

CET1 ratio increased 0.7% from October 31, 2013. CET1 capital increased due to internal capital generation. While the earnings were impacted by the write-down of CIBC FirstCaribbean goodwill, its impact on capital was neutral. CET1 capital RWAs increased $3.2 billion due to commencement of the phase-in of the CVA capital charge in the first quarter of 2014, capital model parameter updates, business growth and foreign exchange. These factors were partially offset by the sale of the Aeroplan portfolio, portfolio quality improvements, refinements to the treatment of our OTC derivatives and reductions in our AFS portfolios.

ACM
The ACM increased 0.1 times from April 30, 2014. Capital for ACM purposes increased during the quarter due to the positive impact of internal capital generation and the net impact of the issuance of qualifying preferred shares and the redemption of non-qualifying preferred shares. The impact of higher capital was offset by the impact of an increase in assets for ACM purposes.

The ACM increased 0.2 times from October 31, 2013. Total capital for ACM purposes increased mainly due to internal capital generation and the issuance of preferred shares, partially offset by the redemption of preferred shares and an additional 10% phase-out of non-qualifying Tier 1 and Tier 2 capital in 2014. Assets for ACM purposes also increased during the period.

Significant capital management activity

Subordinated debt
On July 25, 2014, we purchased and cancelled $11 million (US$10 million) of our floating rate Debentures (subordinated indebtedness) due July 31, 2084, and $9 million (US$8 million) of our floating rate Debentures (subordinated indebtedness) due August 31, 2085.

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

We intend to seek Toronto Stock Exchange approval for a new normal course issuer bid that would permit us to purchase for cancellation up to a maximum of 8 million, or approximately 2% of our outstanding common shares, over the next 12 months.

During the quarter ended July 31, 2014, we purchased and cancelled an additional 759,500 common shares under this bid at an average price of $97.58 for a total amount of $74 million. For the nine months ended July 31, 2014, we purchased and cancelled 3,089,200 common shares under this bid at an average price of $92.66 for a total amount of $286 million. Since the inception of this bid, we have purchased and cancelled 4,013,100 common shares at an average price of $90.52 for a total amount of $363 million.

Dividends
Our quarterly common share dividend was increased from $0.98 per share to $1.00 per share from the quarter ended July 31, 2014 and from $0.96 per share to $0.98 per share from the quarter ended April 30, 2014.

Preferred shares
On June 11, 2014, we issued 16 million Non-cumulative Rate Reset Class A Preferred Shares Series 39 (Series 39 shares) with a par value of $25.00 per share, for gross proceeds of $400 million. For the initial five year period to the earliest redemption date of July 31, 2019, the Series 39 shares pay quarterly cash dividends, if declared, at a rate of 3.90%. On July 31, 2019, and on July 31 every five years thereafter, the dividend rate will reset to be equal to the then current five-year Government of Canada bond yield plus 2.32%.

Holders of the Series 39 shares will have the right to convert their shares on a one-for-one basis into non-cumulative Floating Rate Class A Preferred Shares Series 40 (Series 40 shares), subject to certain conditions, on July 31, 2019 and on July 31 every five years thereafter. Holders of the Series 40 shares will be entitled to receive a quarterly floating rate dividend, if declared, equal to the three-month Government of Canada Treasury Bill yield plus 2.32%. Holders of the Series 40 shares may convert their shares on a one-for-one basis into Series 39 shares, subject to certain conditions, on July 31, 2024 and on July 31 every five years thereafter.

Subject to regulatory approval and certain provisions of the shares, we may redeem all or any part of the then outstanding Series 39 shares at par on July 31, 2019, and on July 31 every five years thereafter; we may redeem all or any part of the then outstanding Series 40 shares at par on July 31, 2024, and on July 31 every five years thereafter.

The shares include an NVCC provision, necessary for the shares to qualify as regulatory capital under Basel III. As such, the shares are convertible into common shares if OSFI determines that the bank is or is about to become non-viable or if the bank accepts a capital injection or equivalent support from the government to avoid non-viability. In such an event, each share is convertible into a number of common shares, determined by dividing the par value of $ 25.00 plus declared and unpaid dividends by the average common share price (as defined in the relevant prospectus supplement) subject to a minimum price of $ 5.00 per share (subject to adjustment in certain events as defined in the relevant prospectus supplement). Absent any outstanding declared but unpaid dividends, the maximum number of shares issuable on conversion of the Series 39 and Series 40 shares would be 80 million common shares.

Our existing Class A Preferred Shares Series 26, 27, and 29 are also subject to an NVCC provision through a separate undertaking to OSFI.  Similar to the Series 39 and Series 40 shares, each such share is convertible into a number of common shares, determined by dividing the then applicable cash redemption price by 95% of the average common share price (as defined in the relevant short form prospectus or prospectus supplement), subject to a minimum price of $2.00 per share.  For these shares, absent any outstanding declared but unpaid dividends, the maximum number of common shares issuable on conversion would be 440,404,275 shares.

On July 31, 2014, we redeemed all of our 12 million Non-cumulative Rate Reset Class A Preferred Shares Series 33 with a par value and redemption price of $25.00 per share for cash, and we redeemed all of our 8 million Non-cumulative Rate Reset Class A Preferred Shares Series 37 with a par value and redemption price of $25.00 per share for cash.

On April 30, 2014, we redeemed all of our 13 million Non-cumulative Rate Reset Class A Preferred Shares Series 35 with a par value and redemption price of $25.00 per share for cash.

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

We utilize a single-seller conduit and several CIBC-sponsored multi-seller conduits to fund assets for clients (collectively, the conduits) in Canada.

As at July 31, 2014, the underlying collateral for various asset types in our non-consolidated sponsored multi-seller conduits amounted to $2.8 billion (October 31, 2013: $2.1 billion). The estimated weighted-average life of these assets was 1.1 years (October 31, 2013: 1.1 years). Our holding of commercial paper issued by our non-consolidated sponsored multi-seller conduits that offer commercial paper to external investors was $15 million (October 31, 2013: $9 million). Our committed backstop liquidity facilities to these conduits were $4.0 billion (October 31, 2013: $3.2 billion). We also provided credit facilities of $30 million (October 31, 2013: $30 million) to these conduits as at July 31, 2014.

We participated in a syndicated facility for a 3-year commitment of $575 million to the single-seller conduit that provides funding to franchisees of a major Canadian retailer. Our portion of the commitment was $105 million (October 31, 2013: $110 million). As at July 31, 2014, we funded $80 million (October 31, 2013: $81 million) through the issuance of bankers' acceptances.

                  2014                 2013  
$ millions, as at               Jul. 31                 Oct. 31  
        Undrawn           Undrawn      
        liquidity   Written       liquidity   Written  
    Investment   and credit   credit   Investment   and credit   credit  
    and loans (1) facilities   derivatives (2) and loans (1) facilities   derivatives (2)
Single-seller and multi-seller conduits $ 95   $ 2,798 (3) $ -   $ 90   $ 2,151 (3) $ -  
CIBC-structured CDO vehicles   61     45     123     135     43     134  
Third-party structured vehicles                                    
  Structured credit run-off   2,643     95     1,922     3,456     236     2,966  
  Continuing   1,394     690     -     756     534     -  
Pass-through investment structures   2,440     -     -     3,090     -     -  
Commercial mortgage securitization trust   9     -     -     5     -     -  
(1) Excludes securities issued by, retained interest in, and derivatives with entities established by Canada Mortgage and Housing Corporation (CMHC), Federal National Mortgage Association (Fannie Mae), Federal Home Loan Mortgage Corporation (Freddie Mac), Government National Mortgage Association (Ginnie Mae), Federal Home Loan Banks, Federal Farm Credit Bank, and Student Loan Marketing Association (Sallie Mae). $2.1 billion (October 31, 2013: $3.0 billion) of the exposures related to CIBC-structured vehicles and third-party structured vehicles - structured credit run-off were hedged.
(2) The negative fair value recorded on the interim consolidated balance sheet was $248 million (October 31, 2013: $368 million). Notional of $1.8 billion (October 31, 2013: $2.7 billion) was hedged with credit derivatives protection from third parties. The fair value of these hedges net of CVA was $185 million (October 31, 2013: $213 million). An additional notional of $51 million (October 31, 2013: $161 million) was hedged through a limited recourse note. Accumulated fair value losses were $7 million (October 31, 2013: $15 million) on unhedged written credit derivatives.
(3) Excludes an additional $1.3 billion (October 31, 2013: $1.1 billion) relating to our backstop liquidity facilities provided to the multi-seller conduits as part of their commitment to fund purchases of additional assets.

 

Additional details of our structured entities are provided in Note 7 to the interim consolidated financial statements. Details of our other off-balance sheet arrangements are provided on pages 36 and 37 of the 2013 Annual Report.

Management of risk

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

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

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

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

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

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

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

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

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

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

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

To view the "Risk Management Structure" chart, please click http://files.newswire.ca/256/CIBC2.pdf

The Risk Management group performs several important activities including:

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

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

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

Top and emerging risks
We monitor and review top and emerging risks that may affect our future results, and take action to mitigate potential risks if required. We perform an in-depth analysis, which can include stress testing our exposures relative to the risks, and provide updates and related developments to the Board on a regular basis.

This section describes the main top and emerging risks that we consider with potential negative implications, as well as regulatory and accounting developments that are material for CIBC.

Canadian consumer debt and the housing market
Canadians have been increasing debt levels over the past half decade at a pace that has exceeded growth in their income. Most of the increase in household debt levels is driven by higher levels of mortgage debt, which is tied to the Canadian housing market. Concerns have been raised by both the International Monetary Fund and the Bank of Canada regarding growth of the debt burden of Canadian households. Due to the recession and the global financial crisis experienced in 2008, interest rates have declined to a very low level. Based on historical observations, the level of interest rates is not sustainable in the long run and rates are expected to rise sometime in the future. When interest rates start to rise, the ability of Canadians to repay their loans may be adversely affected, which may trigger a correction in the housing market, which in turn could result in credit losses to banks. Currently, we qualify all variable rate mortgage borrowers using the Bank of Canada 5-year fixed benchmark rate, which is typically higher than the variable rate by approximately 2 percentage points. If there were an interest rate increase, our variable rate borrowers should be able to withstand some increase in the interest rate. We believe the risk of a severe housing crash that generates significant losses for mortgage portfolios is unlikely, but the risk associated with high levels of consumer debt will continue to be an ongoing concern. For additional details on our credit risk mitigation strategies and the latest status of our real estate secured lending, see the "Real estate secured personal lending" section in Credit risk.

U.S. fiscal deficit risk
There is tacit agreement in U.S. Congress that another costly government shutdown must be avoided, especially during an election year. Moreover, Moody's revised the U.S. credit rating outlook to Aaa-stable from Aaa-negative based on the latest status of the U.S. economy. However, given the high debt levels, an unexpected shock to the U.S. economy could lead to a Canadian economic slowdown or recession, which affects credit demand in Canada and typically increases credit losses.

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 "Other risks" section on pages 70 to 72 of the 2013 Annual Report.

Geo-political risk
The level of geo-political risk escalates at certain points in time, with the focus changing from one region to another and within a region from country to country. While the specific impact on the global economy would depend on the nature of the event (e.g., a Middle Eastern conflict could lead to disruption in global oil supplies resulting in high prices), 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 affected, the indirect impact of reduced economic growth has serious negative implications for general economic and banking activities.

China economic policy risk
Even though fears of a hard landing have receded substantially, the issues of easy credit and deteriorating credit quality have not been addressed, causing stress in the banking sector as well as in the shadow banking system. Economic growth is expected to be modest by historical standards, with a medium-term growth rate trend at 7.5%, notably lower than the double-digit growth of the recent past. We have little direct exposure to China, but any negative impact from the Chinese economic slowdown may affect our clients that export to China, commodities in particular, and may raise the credit risk associated with our exposure to trading counterparties.

European sovereign debt crisis
While the European Central Bank's new outright monetary transactions programme has eased pressure on peripheral bond yields and has led to a normalization of financial conditions, thus ensuring the safety of the euro, risks to the global financial markets from Europe's sovereign debt crisis have not completely dissipated. Unfavourable economic or political events could bring the debt crisis into sharper focus again, denting financial market confidence and keeping any recovery in Eurozone growth in low gear or even returning to recession. We have no peripheral sovereign exposure and very little peripheral non-sovereign direct exposure. For additional details on our European exposure, see the "Exposure to certain countries and regions" section in Credit risk.

Regulatory developments
See the "Capital resources", "Liquidity risk" and "Accounting and control matters" sections for additional information on regulatory developments.

Accounting developments
See Note 1 to the interim 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 July 31, 2014:

To view the chart, please click http://files.newswire.ca/256/CIBC3.pdf

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

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

               
Exposure to credit risk              
          2014   2013
$ millions, as at         Jul. 31   Oct. 31
Business and government portfolios-advanced internal ratings-based (AIRB) approach              
Drawn       $ 87,566 $ 84,016
Undrawn commitments         38,799   35,720
Repo-style transactions         62,802   57,975
Other off-balance sheet         67,438   51,885
OTC derivatives         12,320   13,255
Gross exposure at default (EAD) on business and government portfolios         268,925   242,851
Less: repo collateral         55,884   51,613
Net EAD on business and government portfolios         213,041   191,238 
Retail portfolios-AIRB approach              
Drawn         197,350   195,796
Undrawn commitments         64,658   65,424
Other off-balance sheet         299   417
Gross EAD on retail portfolios         262,307   261,637
Standardized portfolios         11,843   10,798
Securitization exposures         15,084   16,799
Gross EAD       $ 558,159 $ 532,085
Net EAD       $ 502,275 $ 480,472

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

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

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

During the quarter and nine months ended July 31, 2014, $27 million and $95 million, respectively ($8 million and $27 million for the quarter and nine months ended July 31, 2013, respectively) of loans have undergone TDR.

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

The following table provides details on our Canadian and international residential mortgage and HELOC portfolios. Our international portfolio comprises CIBC FirstCaribbean.

    Residential mortgages       HELOC (1)     Total  
$ billions, as at July 31, 2014   Insured     Uninsured       Uninsured       Insured     Uninsured  
Ontario $ 47.9   69 % $ 21.7 31 %   $ 9.5   100 %   $ 47.9   61 % $ 31.2 39 %
British Columbia   18.9   63     11.0 37       3.9   100       18.9   56     14.9 44  
Alberta   17.3   75     5.9 25       2.7   100       17.3   67     8.6 33  
Quebec   7.8   71     3.1 29       1.4   100       7.8   63     4.5 37  
Other   11.9   77     3.6 23       1.8   100       11.9   69     5.4 31  
Canadian portfolio (2)(3)   103.8   70     45.3 30       19.3   100       103.8   62     64.6 38  
International portfolio (2)   -   -     2.0 100       -   -       -   -     2.0 100  
Total portfolio $ 103.8   69 % $ 47.3 31 %   $ 19.3   100 %   $ 103.8   61 % $ 66.6 39 %
October 31, 2013 (4) $ 102.6   71 % $ 42.9 29 %   $ 19.3   100 %   $ 102.6   62 % $ 62.2 38 %
(1) We did not have any insured HELOCs as at July 31, 2014 and October 31, 2013.
(2) Geographical allocation is based on the address of the property managed.
(3) 90% (October 31, 2013: 94%) of insurance on Canadian residential mortgages is provided by CMHC and the remaining by two private Canadian insurers, both rated at least AA (low) by DBRS.
(4) Excludes international portfolio.
   

 

The average loan-to-value (LTV) ratios(1) for our uninsured Canadian residential mortgages and HELOCs originated during the quarter and period to-date are provided in the following table. The average LTV ratio(1) of our uninsured international residential mortgages originated during the quarter was 78%. We did not originate HELOCs for our international portfolio during the quarter ended July 31, 2014. We did not acquire uninsured residential mortgages and HELOCs from a third party for the periods presented in the table below.

                  For the three
months ended
            For the nine
months ended
 
      2014
Jul. 31
      2014
Apr. 30
      2013
Jul. 31
        2014
Jul. 31
      2013
Jul. 31
 
  Residential
mortgages
  HELOC   Residential
mortgages
  HELOC   Residential
mortgages
  HELOC     Residential
mortgages
  HELOC   Residential
mortgages
  HELOC  
Ontario 71  % 71  % 71  % 70  % 71  % 70  %   71  % 70  % 71  % 70  %
British Columbia 67    66    67    66    67    66      67    66    67    66   
Alberta 74    72    73    72    72    71      73    72    72    70   
Quebec 74    72    73    72    73    72      73    72    72    71   
Other 74    73    74    73    74    73      74    73    74    72   
Total Canadian portfolio (2) 71  % 70  % 71  % 70  % 71  % 70  %   71  % 70  % 71  % 69  %
(1)   LTV ratios for newly originated residential mortgages and HELOCs are calculated based on weighted average.
(2)   Geographical allocation is based on the address of the property managed.      
           

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

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

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

Contractual payment basis                                                  
                                                   
      Less than     5-10     10-15     15-20     20-25     25-30     30-35     35 years
      5 years     years     years     years     years     years     years     and above
Canadian portfolio                                                                
  July 31, 2014     %     %     %     10  %     21  %     46  %     19  %     %
  October 31, 2013     %     %     %     12  %     19  %     39  %     25  %     %
International portfolio                                                                
  July 31, 2014     %     16  %     25  %     26  %     16  %     %     %     %
                                                                 
Current customer payment basis                                                  
                                                   
      Less than     5-10     10-15     15-20     20-25     25-30     30-35     35 years
      5 years     years     years     years     years     years     years     and above
Canadian portfolio                                                                
  July 31, 2014     %     %     10  %     14  %     27  %     31  %     %     %
  October 31, 2013     %     %     11  %     15  %     24  %     28  %     12  %     %
International portfolio                                                                
  July 31, 2014     %     16  %     24  %     25  %     16  %     %     %     %

We have two types of condominium exposures in Canada: mortgages and developer loans. Both are primarily concentrated in the Toronto and Vancouver areas. As at July 31, 2014, our Canadian condominium mortgages were $16.9 billion (October 31, 2013: $16.6 billion) of which 72% (October 31, 2013: 74%) were insured. Our drawn developer loans were $1,012 million (October 31, 2013: $920 million) or 2% of our business and government portfolio and our related undrawn exposure was $1.8 billion (October 31, 2013: $2.1 billion). The condominium developer exposure is diversified across 80 projects.

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

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

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

              2014             2013  
$ billions, as at             Jul. 31             Oct. 31  
          Exposure (1)  
Investment grade       $ 4.50      84.2  %     $ 4.59      85.0  %
Non-investment grade         0.77      14.4          0.78      14.5   
Watchlist         0.06      1.1          0.03      0.5   
Unrated         0.01      0.3               
        $ 5.34      100.0  %     $ 5.40      100.0  %
(1)   MTM of the OTC derivative contracts is after the impact of master netting agreements, but before any collateral.
     

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

                                          As at or for the three
months ended
                      As at or for the nine
months ended
$ millions             2014
Jul. 31
            2014
Apr. 30
            2013
Jul. 31
            2014
Jul. 31
            2013
Jul. 31
    Business and
government
loans
  Consumer
loans
  Total   Business and
government
loans
  Consumer
loans
  Total   Business and
government
loans
  Consumer
loans
  Total   Business and
government
loans
  Consumer
loans
  Total   Business and
government
loans
  Consumer
loans
  Total
Gross impaired loans                                                                                          
Balance at beginning of period   $ 790   $ 731   $ 1,521   $ 841   $ 746   $ 1,587   $ 931   $ 761   $ 1,692   $ 843   $ 704   $ 1,547   $ 1,128   $ 739   $ 1,867
  Classified as impaired during the period     53     308     361     46     291     337     114     374     488     164     951     1,115     291     1,119     1,410
  Transferred to not impaired during the period     (2)     (33)     (35)     (2)     (31)     (33)         (30)     (30)     (7)     (84)     (91)     (4)     (61)     (65)
  Net repayments     (23)     (60)     (83)     (50)     (54)     (104)     (68)     (119)     (187)     (158)     (174)     (332)     (256)     (298)     (554)
  Amounts written-off     (38)     (210)     (248)     (34)     (214)     (248)     (38)     (324)     (362)     (94)     (679)     (773)     (226)     (840)     (1,066)
  Recoveries of loans and advances previously written-off                                                            
  Disposals of loans     (18)         (18)                             (18)         (18)            
  Foreign exchange and other     (4)     (2)     (6)     (11)     (7)     (18)     16     6     22      28     16     44     22     9     31
Balance at end of period   $ 758    $ 734    $ 1,492    $ 790    $ 731    $ 1,521    $ 955    $ 668   $ 1,623    $ 758   $ 734   $ 1,492    $ 955   $ 668   $ 1,623
Allowance for impairment (1)                                                                                          
Balance at beginning of period   $ 368   $ 305   $ 673   $ 348   $ 227   $ 575   $ 403   $ 247   $ 650   $ 323   $ 224   $ 547   $ 492   $ 229   $ 721
  Amounts written-off     (38)     (210)     (248)     (34)     (214)     (248)     (38)     (324)     (362)     (94)     (679)     (773)     (226)     (840)     (1,066)
  Recoveries of amounts written-off in previous periods     2     44     46     3     47     50     2     47     49     10     136     146     8     131     139
  Charge to income statement     37     177     214     59     263     322     39     248     287     132     647     779     142     701     843
  Interest accrued on impaired loans     (3)     (4)     (7)     (2)     (6)     (8)     (5)     (5)     (10)       (11)     (13)     (24)     (16)     (12)     (28)
  Disposals of loans                                                              
  Foreign exchange and other     (5)         (5)     (6)     (12)     (18)     4     4     8     1     (3)     (2)     5     8     13
Balance at end of period   $ 361    $ 312    $ 673   $ 368    $ 305    $ 673    $ 405    $ 217   $ 622    $ 361   $ 312   $ 673   $ 405   $ 217   $ 622
Net impaired loans                                                                                          
Balance at beginning of period   $ 422   $ 426   $ 848   $ 493   $ 519   $ 1,012   $ 528   $ 514   $ 1,042   $ 520   $ 480   $ 1,000   $ 636    $ 510    $ 1,146 
  Net change in gross impaired     (32)     3     (29)     (51)     (15)     (66)     24     (93)     (69)     (85)     30     (55)     (173)     (71)     (244)
  Net change in allowance         (7)         (20)     (78)     (98)     (2)     30     28     (38)     (88)     (126)     87      12      99 
Balance at end of period   $ 397    $ 422   $ 819   $ 422    $ 426   $ 848    $ 550    $ 451   $ 1,001   $ 397   $ 422   $ 819    $ 550    $ 451    $ 1,001 
Net impaired loans as a percentage of net loans and acceptances                 0.31%                 0.33%                 0.39%                 0.31%                 0.39%
(1)   Includes collective allowance relating to personal, scored small business and mortgage impaired loans that are greater than 90 days delinquent, and individual allowance.
     

Gross impaired loans
As at July 31, 2014, gross impaired loans were $1,492 million, down $131 million from the same quarter last year, primarily due to decreases in the real estate and construction, the publishing, printing and broadcasting, and the transportation sectors in the business and government loans, partially offset by an increase in residential mortgages relating to CIBC FirstCaribbean.

The gross impaired loans were down $29 million from the prior quarter, primarily due to decreases in the transportation and the real estate and construction sectors, partially offset by an increase in the utilities sector in the business and government loans. Consumer gross impaired loans were comparable with the prior quarter.

After experiencing an increase during the 2009 recession, gross impaired loans stabilized in 2011 and showed some improvements since 2012. Almost half of the consumer gross impaired loans at the end of this quarter were from Canada, in which insured mortgages accounted for the majority, and where losses are expected to be minimal. The remaining consumer gross impaired loans were in CIBC FirstCaribbean. Gross impaired loans in business and government loans were down from both the prior quarter and the same quarter last year due to improvements in the credit quality of the overall business and government portfolio, as well as write-offs of U.S. real estate finance accounts originated before 2009 and write-offs of impaired accounts across other various sectors.

Allowance for Impairment
The allowance for impairment was $673 million, up $51 million or 8% from the same quarter last year.

The individually assessed allowance for business and government loans decreased by $48 million or 12%, mainly due to decreases in the publishing, printing and broadcasting, and the real estate and construction sectors, partially offset by an increase in the non-residential mortgages portfolio relating to CIBC FirstCaribbean. The decrease in the publishing, printing and broadcasting sector was attributable to the write-off of an account in the fourth quarter of 2013. The decrease in the real estate and construction sector was primarily in the U.S. The individually assessed allowance for consumer loans was comparable with the same quarter last year.

The collectively assessed allowance for consumer loans was up $95 million or 46%, due to an increase in the residential mortgage portfolio relating to CIBC FirstCaribbean, reflecting revised expectations on the extent and timing of the anticipated economic recovery in the Caribbean region. The collectively assessed allowance for business and government loans was comparable with the same quarter last year.

The allowance for impairment was comparable with the prior quarter.

The individually assessed allowance for business and government loans decreased by $9 million or 3% from the prior quarter, largely due to the sale of an account in the transportation sector in the exited U.S. leveraged finance portfolio, partially offset by small increases across various other sectors. The individually assessed allowance for consumer loans was comparable with the prior quarter.

The collectively assessed allowance for consumer loans was up $7 million or 2%, mainly due to an increase in the personal lending portfolio relating to CIBC FirstCaribbean. The collectively assessed allowance for business and government loans was comparable with the prior quarter.

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

We do not have material exposure to the countries in the Middle East and North Africa that have either experienced or may be at risk of unrest.

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

Of our total direct exposures to Europe, approximately 93% (2013: 96%) is to entities in countries with Aaa/AAA ratings from at least one of Moody's or S&P.

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

    Direct exposures
    Funded   Unfunded
$ millions, as at July 31, 2014   Corporate   Sovereign     Bank     Total
funded
(A)
  Corporate       Bank     Total
unfunded
(B)
Austria   $   $   $   $   $     $   $
Belgium             25      31            15      15 
Finland     195              198      62            62 
France     77              80      220            227 
Germany     76          173      255      13        21      34 
Greece                              
Ireland                              
Italy                              
Luxembourg     20          187      207               
Malta                              
Netherlands     11      145      55      211      166            167 
Portugal                              
Spain                              
Total Eurozone   $ 386    $ 152    $ 451    $ 989    $ 469      $ 51    $ 520 
Czech Republic   $   $   $   $   $     $   $
Denmark                              
Norway         85      132      217               
Russia                              
Sweden     178      98      347      623               
Switzerland     221          162      383      26            26 
Turkey             161      161               
United Kingdom     576      368      460      1,404      2,213  (1)     384      2,597 
Total non-Eurozone   $ 975    $ 551    $ 1,263    $ 2,789    $ 2,246      $ 398    $ 2,644 
Total Europe   $ 1,361    $ 703    $ 1,714    $ 3,778    $ 2,715      $ 449    $ 3,164 
October 31, 2013   $ 1,610    $ 815    $ 1,548    $ 3,973    $ 1,910      $ 220    $ 2,130 
(1)   Includes $191 million of exposure (notional value of $219 million and fair value of $28 million) on a CDS sold on a bond issue of a U.K. corporate entity, which is guaranteed by a financial guarantor. We currently hold the CDS sold as part of our structured credit run-off business. A payout on the CDS sold would be triggered by the bankruptcy of the reference entity, or a failure of the entity to make a principal or interest payment as it is due; as well as failure of the financial guarantor to meet its obligation under the guarantee.
     

 

    Direct exposures (continued)
    Derivative MTM receivables and repo-style transactions      
$ millions, as at July 31, 2014   Corporate   Sovereign     Bank   Gross
exposure
(1)   Collateral
held
(2)     Net
exposure
(C)
  Total
direct
exposure
(A)+(B)+(C)
Austria   $   $   $ 26    $ 26      $ 26      $   $
Belgium             33      34        33            47 
Finland                                 266 
France         242      786      1,032        1,024            315 
Germany             1,966      1,967        1,804        163      452 
Greece                                
Ireland             322      322        316            19 
Italy                                
Luxembourg             25      25              25      240 
Malta                                
Netherlands             117      125        99        26      404 
Portugal                                
Spain             12      12        12           
Total Eurozone   $ 16    $ 245    $ 3,298    $ 3,559      $ 3,314      $ 245    $ 1,754 
Czech Republic   $   $   $   $     $     $   $
Denmark                                 10 
Norway                                 217 
Russia                                
Sweden             41      42        41            631 
Switzerland             806      806        768        38      447 
Turkey                                 166 
United Kingdom     243          3,182      3,433        3,160        273      4,274 
Total non-Eurozone   $ 244    $   $ 4,029    $ 4,281      $ 3,969      $ 312    $ 5,745 
Total Europe   $ 260    $ 253    $ 7,327    $ 7,840      $ 7,283      $ 557    $ 7,499 
October 31, 2013   $ 177    $ 317    $ 5,336    $ 5,830      $ 5,346      $ 484    $ 6,587 
(1)   The amounts are shown net of CVA.
(2)   Collateral on derivative MTM receivables was $1.3 billion (October 31, 2013: $1.4 billion), collateral on repo-style transactions was $6.0 billion (October 31, 2013: $4.0 billion), and both are comprised of cash and investment-grade debt securities.
     

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

                    Total
                    indirect
$ millions, as at July 31, 2014                   exposure
Austria                 $
Belgium                   22 
Finland                   16 
France                   253 
Germany                   160 
Greece                   11 
Ireland                   27 
Italy                   47 
Luxembourg                   79 
Malta                  
Netherlands                   197 
Portugal                  
Spain                   104 
Total Eurozone                 $ 916 
Denmark                 $ 11 
Norway                  
Sweden                   24 
Switzerland                  
United Kingdom                   254 
Total non-Eurozone                 $ 293 
Total exposure                 $ 1,209 
October 31, 2013                 $ 1,888 


In addition to the indirect exposures above, we have indirect exposures to European counterparties when we have taken debt or equity securities issued by European entities as collateral for our securities lending and borrowing activity, from entities that are not in Europe. Our indirect exposure was $461 million (October 31, 2013: $211 million).

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

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

$ millions, as at July 31, 2014             Drawn       Undrawn
Construction program         $   110      $ 40 
Interim program             6,158        369 
Permanent program             282       
Exposure, net of allowance         $   6,550      $ 409 
Of the above:                      
  Net impaired         $   95      $
  On credit watch list             132       
Exposure, net of allowance, as at October 31, 2013         $   5,938      $ 467 

As at July 31, 2014, the allowance for credit losses for this portfolio was $37 million (October 31, 2013: $55 million). During the quarter and nine months ended July 31, 2014, the provision for credit losses was $2 million and $4 million, respectively ($1 million and $14 million provision for credit losses for the quarter and nine months ended July 31, 2013, respectively).

The business also maintains commercial mortgage-backed securities (CMBS) trading and distribution capabilities. As at July 31, 2014, we have no CMBS inventory (October 31, 2013: notional of $9 million and fair value of less than $1 million).

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

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

$ millions, as at July 31, 2014               Drawn         Undrawn
Manufacturing - capital goods           $   197        $
Publishing, printing and broadcasting                      
Utilities               10         
Transportation                      
Exposure, net of allowance           $   216        $ 11 
Of the above:                          
  Net impaired           $         $
  On credit watch list               174         
Exposure, net of allowance, as at October 31, 2013 (1)           $   359        $ 28 
(1)   Excludes $21 million of carrying value relating to equity received pursuant to a reorganization. We sold this equity investment during the quarter ended January 31, 2014.

 

As at July 31, 2014, the allowance for credit losses for this portfolio was $36 million (October 31, 2013: $35 million). During the quarter and nine months ended, July 31, 2014, the net reversal of credit losses was nil and $1 million, respectively (provision for credit losses was $14 million and $35 million for the quarter and nine months ended July 31, 2013, respectively).

U.S. leveraged finance
Our drawn exposure, net of allowance, as at July 31, 2014 was $7 million (October 31, 2013: $44 million) and our undrawn exposure was nil (October 31, 2013: $4 million). Our outstanding exposure has declined over the year primarily due to loan sales in the current quarter as well as write-downs in the prior quarter. The remaining outstanding exposure is related to the publishing, printing and broadcasting sector and is on our credit watch list.

As at July 31, 2014, the allowance for credit losses for this portfolio was less than $1 million (October 31, 2013: $2 million). During the quarter ended July 31, 2014, net reversal of credit losses was $4 million and during the nine months ended July 31, 2014, the provision for credit losses was $19 million (net reversal of $1 million and $7 million for the quarter and nine months ended July 31, 2013, respectively).

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

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

$ millions, as at                   2014
Jul. 31
                  2013
Oct. 31
   
            Subject to market risk                 Subject to market risk          
    Consolidated
balance
sheet
    Trading       Non-
trading
  Not
subject to
market risk
  Consolidated
balance
sheet
    Trading       Non-
trading
  Not
subject to
market risk
  Non-traded risk
primary risk
sensitivity
Cash and non-interest-bearing deposits with banks   $ 2,975    $     $ 1,545    $ 1,430    $ 2,211    $     $ 1,165    $ 1,046    Foreign exchange
Interest-bearing deposits with banks     8,217      39        8,178          4,168      111        4,057        Interest rate
Securities     69,461      47,107  (1)     22,354          71,984      43,160  (1)     28,824        Equity, interest rate
Cash collateral on securities borrowed     3,238            3,238          3,417            3,417        Interest rate
Securities purchased under resale agreements     25,105            25,105          25,311            25,311        Interest rate
Loans                                                        
  Residential mortgages     155,013            155,013          150,938            150,938        Interest rate
  Personal     35,096            35,096          34,441            34,441        Interest rate
  Credit card     11,577            11,577          14,772            14,772        Interest rate
  Business and government     54,232      4,680  (2)     49,552          48,207      2,148  (2)     46,059        Interest rate
  Allowance for credit losses     (1,703)           (1,703)         (1,698)           (1,698)       Interest rate
Derivative instruments     18,227      15,659  (3)     2,568          19,947      17,626  (3)     2,321        Interest rate,
                                                          foreign exchange
Customers' liability under acceptances     8,274            8,274          9,720            9,720        Interest rate
Other assets     15,710      1,648        7,116      6,946      14,588      1,226        6,537      6,825    Interest rate, equity,
                                                          foreign exchange
      $ 405,422    $ 69,133      $ 327,913    $ 8,376    $ 398,006    $ 64,271      $ 325,864    $ 7,871     
Deposits   $ 322,314    $ 498  (4)   $ 287,169    $ 34,647    $ 315,164    $ 388  (4)   $ 281,027    $ 33,749    Interest rate
Obligations related to securities sold short     12,803      12,372        431          13,327      13,144        183        Interest rate
Cash collateral on securities lent     1,359            1,359          2,099            2,099        Interest rate
Obligations related to securities sold under repurchase agreements     9,437            9,437          4,887            4,887        Interest rate
Derivative instruments     17,957      16,267  (3)     1,690          19,724      18,220  (3)     1,504        Interest rate,
                                                        foreign exchange
Acceptances     8,274            8,274          9,721            9,721        Interest rate
Other liabilities     10,579      902        4,114      5,563      10,862      872        4,143      5,847    Interest rate
Subordinated indebtedness     4,187            4,187          4,228            4,228        Interest rate
      $ 386,910    $ 30,039      $ 316,661    $ 40,210    $ 380,012    $ 32,624      $ 307,792    $ 39,596     
(1)   Excludes structured credit run-off business of $786 million (October 31, 2013: $837 million). These are considered non-trading for market risk purposes.
(2)   Excludes $282 million (October 31, 2013: $63 million) of loans that are warehoused for future securitization purposes. These are considered non-trading for market risk purposes.
(3)   Excludes derivatives relating to the structured credit and other run-off businesses which are considered non-trading for market risk purposes.
(4)   Comprises FVO deposits which are considered trading for market risk purposes.
     

Trading activities
During the quarter ended April 30, 2014, we implemented a full revaluation method to compute value at risk (VaR), stressed VaR and the Incremental Risk Charge (IRC) using the historical simulation approach, replacing the parametric approach. In aggregate, this model change resulted in a slight increase in the risk measures. At an individual component level, VaR remained at the same level, stressed VaR decreased slightly and IRC increased.

The following three tables show VaR, stressed VaR and IRC for our trading activities based on risk type under an internal models approach.

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

Average total VaR for the three months ended July 31, 2014 was down 9% from the prior quarter, primarily due to decreases in our interest rate, credit spread, equity and commodity risks.

Average total stressed VaR for the three months ended July 31, 2014 was down 14% from the prior quarter. During the current stressed VaR period from September 8, 2008 to September 4, 2009, the market exhibited not only increased volatility in interest rates but also increased volatility in equity prices combined with a reduction in the level of interest rates, and an increase in credit spreads.

Average IRC for the three months ended July 31, 2014 was up 1% from the prior quarter, mainly due to an increase in the investment grade trading inventory.

VaR by risk type - trading portfolio

                                                As at or for the three
months ended
  As at or for the nine
months ended
$ millions                 2014
Jul. 31
(1)     2014
Apr. 30
(1)     2013
Jul. 31
  2014
Jul. 31
(1)   2013
Jul. 31
      High     Low     As at   Average       As at   Average       As at   Average   Average     Average
Interest rate risk   $ 3.4    $ 1.2    $ 1.2    $ 2.0      $ 3.8    $ 2.7      $ 1.7    $ 2.2    $ 2.0      $ 3.0 
Credit spread risk     1.9      1.3      1.4      1.6        1.7      1.9        1.2      1.2      1.5        1.5 
Equity risk     2.4      1.3      2.4      1.7        1.6      1.8        1.9      2.2      2.0        2.1 
Foreign exchange risk     1.7      0.4      0.8      0.9        0.8      0.9        0.8      0.6      0.8        0.7 
Commodity risk     1.4      0.6      0.9      1.0        1.1      1.3        1.0      1.5      1.1        1.2 
Debt specific risk     3.0      1.9      2.4      2.4        2.3      2.4        1.7      2.0      2.4        2.3 
Diversification effect (2)     n/m     n/m     (6.0)     (6.5)       (7.3)     (7.6)       (4.6)     (5.4)     (6.2)       (6.0)
Total VaR (one-day measure)   $ 4.2    $ 2.2    $ 3.1    $ 3.1      $ 4.0    $ 3.4      $ 3.7    $ 4.3    $ 3.6      $ 4.8 
(1)   Beginning in the quarter ended April 30, 2014, we implemented the full revaluation method of computing VaR using the historical simulation approach in place of the parametric VaR approach.
(2)   Total VaR is less than the sum of the VaR of the different market risk types due to risk offsets resulting from portfolio diversification effect.
n/m   Not meaningful. It is not meaningful to compute a diversification effect because the high and low may occur on different days for different risk types.
     

Stressed VaR by risk type - trading portfolio

                                                As at or for the three
months ended
  As at or for the nine
months ended
$ millions                 2014
Jul. 31
(1)     2014
Apr. 30
(1)     2013
Jul. 31
  2014
Jul. 31
(1)   2013
Jul. 31
        High     Low     As at   Average       As at   Average       As at   Average   Average     Average
Interest rate risk   $ 9.2    $ 3.5    $ 5.2    $ 6.1      $ 7.3    $ 6.7      $ 4.8    $ 7.4    $ 6.6      $ 8.6 
Credit spread risk     12.2      6.4      12.2      8.2        6.8      7.6        4.4      5.1      7.5        5.0 
Equity risk     7.2      1.3      2.0      2.2        1.3      1.9        4.3      3.0      3.0        2.9 
Foreign exchange risk     9.1      0.2      3.5      3.0        1.0      2.6        0.8      0.9      2.2        1.2 
Commodity risk     13.6      3.2      10.8      6.2        14.1      6.6        0.4      1.6      5.3        1.3 
Debt specific risk     4.9      3.2      4.4      4.1        3.2      3.2        0.9      1.1      3.2        1.3 
Diversification effect (2)     n/m     n/m     (23.9)     (19.1)       (22.6)     (16.2)       (11.0)     (10.3)     (16.8)       (10.3)
Total stressed VaR (one-day measure)   $ 21.5    $ 6.1    $ 14.2    $ 10.7      $ 11.1    $ 12.4      $ 4.6    $ 8.8    $ 11.0      $ 10.0 
(1)   Beginning in the quarter ended April 30, 2014, we implemented the full revaluation method of computing VaR using the historical simulation approach in place of the parametric VaR approach.
(2)   Total stressed VaR is less than the sum of the VaR of the different market risk types due to risk offsets resulting from portfolio diversification effect.
n/m   Not meaningful. It is not meaningful to compute a diversification effect because the high and low may occur on different days for different risk types.
     

Incremental risk charge - trading portfolio

                                  As at or for the three
months ended
  As at or for the nine
months ended
$ millions                 2014
Jul. 31
(1)     2014
Apr. 30
(1)     2013
Jul. 31
  2014
Jul. 31
(1)   2013
Jul. 31
        High     Low     As at   Average       As at     Average       As at     Average   Average       Average
Default risk   $ 98.7    $ 66.6    $ 81.1    $ 81.6      $ 68.0    $ 77.6      $ 58.0    $ 60.1    $ 81.9      $ 53.1 
Migration risk     55.6      27.8      46.5      39.7        43.1      42.7        48.1      32.6      42.1        37.3 
Incremental risk charge (one-year measure)   $ 145.7    $ 94.7    $ 127.6    $ 121.3      $ 111.1    $ 120.3      $ 106.1    $ 92.7    $ 124.0      $ 90.4 
(1)   Beginning in the quarter ended April 30, 2014, we implemented the full revaluation method of computing VaR using the historical simulation approach in place of the parametric VaR approach.
     

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

During the quarter, trading revenue (TEB) was positive for 100% of the days. During the quarter, the largest gain of $16.1 million occurred on July 22, 2014. It was attributable to the normal course of business within our capital markets group, notably in the equity derivatives business. Average daily trading revenue (TEB) was $3.4 million during the quarter and the average daily TEB was $1.6 million.

Trading revenue (TEB)(1) versus VaR

To view the "Trading revenue (TEB)(1) versus VaR" graph, please click http://files.newswire.ca/256/CIBC4.pdf

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

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

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

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

$ millions, as at             2014
Jul. 31
            2014
Apr. 30
            2013
Jul. 31
        C$     US$     Other     C$     US$     Other     C$     US$     Other
100 basis points increase in interest rates                                                      
Increase (decrease) in net income attributable to equity shareholders   $ 176    $ (12)   $ (5)   $ 153    $ (9)   $   $ 152    $ (4)   $
Increase (decrease) in present value of shareholders' equity     23      (114)     (46)     22      (116)     (39)     47      (182)     (42)
100 basis points decrease in interest rates                                                      
Increase (decrease) in net income attributable to equity shareholders     (229)     15          (206)     11      (4)     (228)         (4)
Increase (decrease) in present value of shareholders' equity     (60)     96      47      (29)     94      41      (188)     162      43 
200 basis points increase in interest rates                                                      
Increase (decrease) in net income attributable to equity shareholders   $ 334    $ (23)   $ (10)   $ 294    $ (17)   $ 10    $ 284    $ (9)   $ 11 
Increase (decrease) in present value of shareholders' equity     40      (228)     (92)     31      (231)     (79)     48      (363)     (85)
200 basis points decrease in interest rates                                                      
Increase (decrease) in net income attributable to equity shareholders     (453)     25      11      (424)     12      (7)     (452)     12      (9)
Increase (decrease) in present value of shareholders' equity     (152)     145      80      (167)     128      64      (572)     261      70 

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

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

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

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

$ millions, as at                                     2014
Jul. 31
    2013
Oct. 31
      Gross liquid assets     Encumbered liquid assets (1)     Unencumbered liquid assets
      CIBC owned assets     Third-party assets     CIBC owned assets   Third-party assets                
Cash and deposits with banks     $ 11,148  (2)   $     $ 303    $     $ 10,845      $ 5,527 
Securities       68,082  (3)     57,564  (4)     18,446      34,597        72,603        77,368 
NHA mortgage-backed securities       57,676  (5)           26,038            31,638        22,671 
Mortgages       13,299  (6)           13,299                 
Credit cards       4,320  (7)           4,320                 
Other assets       3,766  (8)           3,293            473        334 
        $ 158,291      $ 57,564      $ 65,699    $ 34,597      $ 115,559      $ 105,900 
(1)   Excludes intraday pledges to the Bank of Canada related to the Large Value Transfer System as these are normally released at the end of the settlement cycle each day.
(2)   Comprises cash, non-interest bearing deposits and interest-bearing deposits with contractual maturities of less than 30 days.
(3)   Comprises trading, AFS and FVO securities. Excludes securities in our structured credit run-off business, private debt and private equity securities of $1,379 million (October 31, 2013: $1,621 million).
(4)   Comprises $3,238 million (October 31, 2013: $3,417 million) of cash collateral on securities borrowed, $25,105 million (October 31, 2013: $25,311 million) of securities purchased under resale agreements, $27,261 million (October 31, 2013: $24,157 million) of securities borrowed against securities lent, and $1,960 million (October 31, 2013: $759 million) of securities received for derivative collateral.
(5)   Includes securitized and transferred residential mortgages under the Canada Mortgage Bond and the Government of Canada's Insured Mortgage Purchase programs, and securitized mortgages that were not transferred to external parties. These are reported in Loans on our interim consolidated balance sheet.
(6)   Comprises mortgages included in the Covered Bond Programme.
(7)   Comprises assets held in consolidated trusts supporting funding liabilities.
(8)   Comprises $3,293 million (October 31, 2013: $2,727 million) of cash pledged for derivatives collateral and $473 million (October 31, 2013: $334 million) of gold and silver certificates.
                                         

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

Our unencumbered liquid assets increased by $9.7 billion or 9% from October 31, 2013, primarily due to a decrease in encumbrances related to NHA mortgage-backed securities, and higher interest-bearing deposits with banks, partially offset by a decrease in unencumbered securities.

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

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

                2014         2013
$ millions, as at             Jul. 31         Oct. 31
CIBC parent bank           $ 87,018        $ 78,761 
Broker/dealer (1)             15,472          15,049 
Other significant subsidiaries             13,069          12,090 
            $ 115,559        $ 105,900 
(1) Relates to CIBC World Markets Inc. and CIBC World Markets Corp.
   
   

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

                          Encumbered   Unencumbered
$ millions, as at   CIBC owned
assets
  Third-party
assets
  Total assets   Pledged as
collateral
    Other   Available as
collateral
      Other
2014      Cash and deposits with banks   $ 11,192    $   $ 11,192    $ 12    $ 291    $ 10,889  (1)   $
Jul. 31   Securities     69,461          69,461      18,446          49,636        1,379 
        Securities borrowed or purchased under resale agreements         28,343      28,343      14,920          13,423       
      Loans, net of allowance     254,215          254,215      43,657      241      31,638        178,679 
      Other                                            
          Derivative instruments     18,227          18,227                    18,227 
          Customers' liability under acceptances     8,274          8,274                    8,274 
          Land, buildings and equipment     1,728          1,728                    1,728 
          Goodwill     1,435          1,435                    1,435 
          Software and other intangible assets     918          918                    918 
        Investments in equity-accounted associates and joint ventures     1,842          1,842                    1,842 
      Other assets     9,787          9,787      3,293          473        6,021 
            $ 377,079    $ 28,343    $ 405,422    $ 80,328    $ 532    $ 106,059      $ 218,503 
2013    Cash and deposits with banks   $ 6,379    $ -   $ 6,379    $ 11    $ 771    $ 5,597  (1)   $ -
Oct. 31   Securities     71,984      -     71,984      14,103      -     56,260        1,621 
        Securities borrowed or purchased under resale agreements     -     28,728      28,728      17,166      -     11,562        -
      Loans, net of allowance     246,660      -     246,660      50,107      422      22,671        173,460 
      Other                                            
          Derivative instruments     19,947      -     19,947      -     -     -       19,947 
          Customers' liability under acceptances     9,720      -     9,720      -     -     -       9,720 
          Land, buildings and equipment     1,719      -     1,719      -     -     -       1,719 
          Goodwill     1,733      -     1,733      -     -     -       1,733 
      Software and other intangible assets     756      -     756      -     -     -       756 
      Investments in equity-accounted associates and joint ventures     1,695      -     1,695      -     -     -       1,695 
      Other assets     8,685      -     8,685      2,727      -     334        5,624 
            $ 369,278    $ 28,728    $ 398,006    $ 84,114    $ 1,193    $ 96,424      $ 216,275 
(1)   Includes $44 million (October 31, 2013: $70 million) of interest-bearing deposits with contractual maturities greater than 30 days.
     

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

Our funding strategy includes access to funding through retail deposits and wholesale funding and deposits. Personal deposits are a significant source of funding and totalled $129.2 billion as at July 31, 2014 (October 31, 2013: $125.0 billion).

Moody's and S&P changed the outlook on our senior debt ratings to negative from stable on June 11, 2014 and August 8, 2014, respectively, citing regulations that seek to limit government support in the event of a bank failure. For additional information on these regulations, see "Taxpayer Protection and Bank Recapitalization Regime" in the Capital resources section. We do not expect a material impact on our funding costs or ability to access funding as a result of these rating changes.

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

$ millions, as at July 31, 2014     Less than
1 month
    1 - 3
months
    3 - 6
months
    6 - 12
months
    Less than
1 year total
    1 - 2
years
    Over
2 years
    Total
Deposits from banks   $ 4,412    $ 1,499    $ 210    $   $ 6,121    $   $   $ 6,121 
Certificates of deposit and commercial paper     3,072      3,367      2,200      4,218      12,857      2,372      10,830      26,059 
Bearer deposit notes and bankers acceptances     832      875      1,180      467      3,354              3,354 
Asset-backed commercial paper                                
Senior unsecured medium-term notes     309      4,183      2,278      6,693      13,463      15,443      3,418      32,324 
Senior unsecured structured notes     27      80      132      235      474              482 
Covered bonds/Asset-backed securities                                                
  Mortgage securitization         3,370      371      1,781      5,522      3,386      16,644      25,552 
  Covered bonds         2,268      2,268      3,206      7,742      3,062      2,495      13,299 
  Cards securitization         1,090              1,090      2,143      1,087      4,320 
Subordinated liabilities         255              255          3,932      4,187 
Other                                
    $ 8,652    $ 16,987    $ 8,639    $ 16,600    $ 50,878    $ 26,414    $ 38,406    $ 115,698 
Of which:                                                
  Secured   $   $ 6,728    $ 2,639    $ 4,987    $ 14,354    $ 8,591    $ 20,226    $ 43,171 
  Unsecured     8,652      10,259      6,000      11,613      36,524      17,823      18,180      72,527 
    $ 8,652    $ 16,987    $ 8,639    $ 16,600    $ 50,878    $ 26,414    $ 38,406    $ 115,698 
October 31, 2013   $ 11,705    $ 9,081    $ 9,316    $ 15,126    $ 45,228    $ 20,419    $ 55,271    $ 120,918 

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

        2014         2013  
$ billions, as at       Jul. 31         Oct. 31  
Canadian dollar     $ 61.4      53  %     $ 69.2      57  %
US dollar       47.9      41          44.2      37   
Euro       1.2              1.3       
Other       5.2              6.2       
      $ 115.7      100  %     $ 120.9      100  %

Our funding and liquidity levels remained stable and sound over the nine months ended July 31, 2014 and we do not anticipate any events, commitments or demands that will materially impact our liquidity risk position.

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

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

Regulatory liquidity standards
In January 2014, the BCBS published the "Liquidity Coverage Ratio Disclosure Standards". The document outlines the minimum standards applicable for public disclosure of the Liquidity Coverage Ratio (LCR) by all internationally active banks. Banks will be required to disclose quantitative information about the LCR using a common template, supplemented by qualitative discussion, as appropriate, on key elements of the liquidity metric. These standards are effective for the first reporting period after January 1, 2015. In July 2014, OSFI published the "Public Disclosure Requirements for Domestic Systemically Important Banks on Liquidity Coverage Ratio" which provides additional implementation guidance, applicable to Canadian banks.

In May 2014, OSFI published the final Liquidity Adequacy Requirements (LAR) guideline. The document provides jurisdictional guidance on Basel III liquidity metrics, as well as guidelines on the OSFI Net Cumulative Cash Flow (NCCF) metric. These standards are effective for the first reporting period after January 1, 2015.

We are currently updating processes and systems to meet the stipulated timelines and requirements.

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

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

                                                        No      
      Less than     1 - 3     3 - 6     6 - 9     9 - 12     1 - 2     2 - 5     Over   specified      
$ millions, as at July 31, 2014     1 month     months     months     months     months     years     years     5 years   maturity     Total
Assets                                                              
Cash and non-interest bearing deposits with banks     $ 2,975   $ -   $ -   $ -   $ -   $ -   $ -   $ -   $ -   $ 2,975
Interest bearing deposits with banks       8,173     -     44     -     -     -     -     -     -     8,217
Securities       2,682     3,275     2,106     1,651     943     3,757     9,118     10,120     35,809     69,461
Cash collateral on securities borrowed       3,238     -     -     -     -     -     -     -     -     3,238
Securities purchased under resale agreements       14,746     8,330     1,239     754     36     -     -     -     -     25,105
Loans                                                              
  Residential mortgages       143     2,084     3,986     5,356     9,496     42,110     82,811     9,027     -     155,013
  Personal       1,446     520     815     1,096     1,142     68     187     673     29,149     35,096
  Credit card       232     463     695     695     695     2,779     6,018     -     -     11,577
  Business and government       5,626     1,717     2,036     2,310     3,109     6,083     16,941     16,410     -     54,232
  Allowance for credit losses       -     -     -     -     -     -     -     -     (1,703)     (1,703)
Derivative instruments       645     907     1,112     569     724     2,116     4,527     7,627     -     18,227
Customers' liability under acceptances       6,620     1,654     -     -     -     -     -     -     -     8,274
Other assets       -     -     -     -     -     -     -     -     15,710     15,710
        $ 46,526   $ 18,950   $ 12,033   $ 12,431   $ 16,145   $ 56,913   $ 119,602   $ 43,857   $ 78,965   $ 405,422
October 31, 2013     $ 43,037   $ 16,420   $ 10,578   $ 14,461   $ 11,500   $ 44,524   $ 140,137   $ 44,355   $ 72,994   $ 398,006
Liabilities                                                              
Deposits (1)     $ 17,946   $ 20,747   $ 17,800   $ 16,058   $ 18,429   $ 34,776   $ 39,279   $ 11,461   $ 145,818   $ 322,314
Obligations related to securities sold short       12,803     -     -     -     -     -     -     -     -     12,803
Cash collateral on securities lent       1,359     -     -     -     -     -     -     -     -     1,359
Obligations related to securities sold                                                              
  under repurchase agreements       8,711     726     -     -     -     -     -     -     -     9,437
Derivative instruments       430     808     831     703     920     2,159     4,700     7,406     -     17,957
Acceptances       6,620     1,654     -     -     -     -     -     -     -     8,274
Other liabilities       -     -     -     -     -     -     -     -     10,579     10,579
Subordinated indebtedness       -     255     -     -     -     -     34     3,898     -     4,187
      $ 47,869   $ 24,190   $ 18,631   $ 16,761   $ 19,349   $ 36,935   $ 44,013   $ 22,765   $ 156,397   $ 386,910
October 31, 2013     $ 50,494   $ 15,659   $ 19,347   $ 13,414   $ 18,836   $ 31,600   $ 55,290   $ 28,371   $ 147,001   $ 380,012
(1) Comprises $129.2 billion (October 31, 2013: $125.0 billion) of personal deposits of which $124.2 billion (October 31, 2013: $120.4 billion) are in Canada and
$5.0 billion (October 31, 2013: $4.6 billion) in other countries; $185.4 billion (October 31, 2013: $182.9 billion) of business and government deposits and secured
borrowings of which $147.5 billion (October 31, 2013: $149.0 billion) are in Canada and $37.9 billion (October 31, 2013: $33.9 billion) in other countries; and
$7.7 billion (October 31, 2013: $5.6 billion) of bank deposits of which $3.3 billion (October 31, 2013: $2.0 billion) are in Canada and $4.4 billion (October 31, 2013:
$3.6 billion) in other countries.

The changes in the contractual maturity profile from October 31, 2013 were primarily due to the natural migration of maturities and also reflect the impact of our regular business activities.

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

                                                          No      
        Less than     1 - 3     3 - 6     6 - 9     9 - 12       1 - 2     2 - 5     Over   specified      
$ millions, as at July 31, 2014       1 month     months     months     months     months       years     years     5 years   maturity (1)   Total
Securities lending(2)       $ 27,261   $ -   $ -   $ -   $ -   $   -   $ -   $ -   $ -   $ 27,261
Unutilized credit commitments         505     5,079     895     1,261     1,645       6,165     27,169     2,021     113,696     158,436
Backstop liquidity facilities         -     106     4,034     -     -       -     -     -     -     4,140
Standby and performance letters of credit         640     775     2,443     1,862     2,023       412     861     331     -     9,347
Documentary and commercial letters of credit         57     122     15     -     22       -     16     -     -     232
Underwriting commitments         263     -     -     -     -       -     -     -     -     263
Other         268     -     -     -     -       -     -     -     -     268
        $ 28,994   $ 6,082   $ 7,387   $ 3,123   $ 3,690   $   6,577   $ 28,046   $ 2,352   $ 113,696   $ 199,947
October 31, 2013       $ 26,147   $ 9,615   $ 3,343   $ 3,035   $ 2,528   $   5,435   $ 25,942   $ 2,051   $ 116,487   $ 194,583
(1) Includes $90.8 billion (October 31, 2013: $94.7 billion) of personal, home equity and credit card lines which are unconditionally cancellable at our discretion. 
(2) Excludes securities lending of $1.4 billion (October 31, 2013: $2.1 billion) for cash because it is reported on the interim consolidated balance sheet.

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

          Less than     1 - 3     3 - 6     6 - 9     9 - 12       1 - 2       2 - 5     Over        
$ millions, as at July 31, 2014         1 month     months     months     months     months       years       years     5 years       Total
Operating leases         $ 33   $ 67   $ 100   $ 100   $ 100   $   379   $   931   $ 1,185   $   2,895
Purchase obligations (1)           15     116     198     161     165       511       982     420       2,568
Pension contributions (2)           5     10     -     -     -       -       -     -       15
          $ 53   $ 193   $ 298   $ 261   $ 265   $   890   $   1,913   $ 1,605   $   5,478
October 31, 2013         $ 68   $ 221   $ 341   $ 357   $ 274   $   809   $   1,716   $ 1,599   $   5,385
(1) Obligations that are legally binding agreements whereby we agree to purchase products or services with specific minimum or
baseline quantities defined at fixed, minimum or variable prices over a specified period of time are defined as purchase obligations.
Purchase obligations are included through to the termination date specified in the respective agreements, even if the contract is
renewable. Many of the purchase agreements for goods and services include clauses that would allow us to cancel the agreement
prior to expiration of the contract within a specific notice period. However, the amount above includes our obligations without regard
to such termination clauses (unless actual notice of our intention to terminate the agreement has been communicated to the
counterparty). The table excludes purchases of debt and equity instruments that settle within standard market timeframes.
(2) Includes estimated minimum pension contributions, and expected benefit payments for post-retirement medical and dental plans,
the long-term disability plan, and related medical and dental benefits for disabled employees. Subject to change as contribution
decisions are affected by various factors, such as market performance, regulatory requirements, and management's ability to
change funding policy. Also, funding requirements after 2014 are excluded due to the significant variability in the assumptions
required to project the timing of cash flows.

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

Accounting and control matters

Critical accounting policies and estimates
A summary of significant accounting policies is presented in Note 1 to the consolidated financial statements of the 2013 Annual Report. The interim consolidated financial statements have been prepared using the same accounting policies as CIBC's consolidated financial statements for the year ended October 31, 2013, except as described in Note 1 to the interim consolidated financial statements. Certain accounting policies require us to make judgments and estimates, some of which may relate to matters that are uncertain.

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

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

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

                              2014                             2013  
$ millions, as at                             Jul. 31                             Oct. 31  
          Structured credit           Total       Total       Structured credit           Total       Total  
        run-off business           CIBC       CIBC (1)     run-off business           CIBC       CIBC (1)
Financial assets                                                              
Trading securities and loans       $ 786     $     786       1.5 %     $ 837     $     837       1.8 %
AFS securities         19           735       3.5         13           913       3.3  
FVO securities         113           113       43.3         147           147       51.2  
Derivative instruments         213           233       1.3         295           341       1.7  
        $ 1,131     $     1,867       2.0 %     $ 1,292     $     2,238       2.4 %
Financial liabilities                                                              
Deposits and other liabilities (2)       $ 464     $     746       27.2 %     $ 510     $     737       29.9 %
Derivative instruments         279           315       1.8         413           474       2.4  
        $ 743     $     1,061       3.2 %     $ 923     $     1,211       3.4 %
(1) Represents percentage of Level 3 assets and liabilities in each reported category that are carried at fair value on the interim
consolidated financial statements.
(2) Includes FVO deposits and bifurcated embedded derivatives.

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

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

The following table summarizes our valuation adjustments:

                                    2014           2013
$ millions, as at                                   Jul. 31           Oct. 31
Securities                                                
Market risk                               $   2       $   5
Derivatives                                                
Market risk                                   49           57
Credit risk                                   7           42
Administration costs                                   5           5
Total valuation adjustments                               $   63       $   109

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

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

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

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

Collective allowances

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

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

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

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

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

Securitizations and structured entities

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

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

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

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

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

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

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

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

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

For additional information on the securitizations of our own assets and third-party assets, see the "Off-balance sheet arrangements" section and Note 7 to the interim consolidated financial statements.

Asset impairment

Goodwill, other intangible assets and long-lived assets
As at July 31, 2014, we had goodwill of $1,435 million (October 31, 2013: $1,733 million) and other intangible assets with an indefinite life of $137 million (October 31, 2013: $136 million). Goodwill is not amortized, but is tested, at least annually, for impairment by comparing the recoverable amount of the cash-generating unit (CGU) to which goodwill has been allocated, with the carrying amount of the CGU including goodwill. Any deficiency is recognized as impairment of goodwill. The recoverable amount of a CGU is defined as the higher of its estimated fair value less cost to sell or value in use. Goodwill is also required to be tested for impairment whenever there are indicators that it may be impaired.

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

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

We performed our annual impairment testing of goodwill and indefinite life intangible assets in the fourth quarter of 2013 and did not record any impairment at that time. During the second quarter of 2014, we identified indicators that goodwill relating to the CIBC FirstCaribbean CGU may be impaired.  We performed an impairment test and determined that the carrying amount of the CIBC FirstCaribbean CGU exceeded its recoverable amount.  As a result, we recognized a goodwill impairment charge of $420 million during the three months ended April 30, 2014, which reduced the carrying amount of the goodwill relating to CIBC FirstCaribbean to $344 million as at April 30, 2014.

The recoverable amount of our CIBC FirstCaribbean CGU determined as at April 30, 2014 was based on a value in use calculation that was estimated using a five year cash flow projection and an estimate of the capital required to be maintained in the region to support ongoing operations. The five year cash flow projection was consistent with CIBC FirstCaribbean's three year internal plan that was previously reviewed by its Board of Directors, adjusted to reflect management's belief that the economic recovery expected in the Caribbean region would occur over a longer period of time than originally forecasted and that estimated realizable values of underlying collateral for non-performing loans would be lower than previously expected. A terminal growth rate of 2.5% (2.5% as at August 1, 2013) was applied to the years after the five year forecast. All of the forecast cash flows were discounted at an after-tax rate of 13% (13.62% pre-tax) which we believe to be a risk-adjusted interest rate appropriate to CIBC FirstCaribbean (we used an identical after-tax rate of 13% as at August 1, 2013). The determination of a discount rate and a terminal growth rate require the exercise of judgment. The discount rate was determined based on the following primary factors: i) the risk-free rate, ii) an equity risk premium, iii) beta adjustment to the equity risk premium based on a review of betas of comparable publicly traded financial institutions in the region, and iv) a country risk premium. The terminal growth rate was based on the forecast inflation rates and management's expectations of real growth.

Estimation of the recoverable amount is an area of significant judgment. Reductions in the estimated recoverable amount could arise from various factors, such as, reductions in forecasted cash flows, an increase in the assumed level of required capital, and any adverse changes to the discount rate or the terminal growth rate either in isolation or in any combination thereof. We estimated that a 10% decrease in each of the terminal year's and subsequent years' forecasted cash flows would result in a reduction in the estimated recoverable amount of the CIBC FirstCaribbean CGU by approximately $115 million as at April 30, 2014. We also estimated that a 50 basis point increase in the after-tax discount rate would result in a reduction in the estimated recoverable amount of the CIBC FirstCaribbean CGU by approximately $65 million as at April 30, 2014. These sensitivities are indicative only and should be considered with caution, as the effect of the variation in each assumption on the estimated recoverable amount is calculated in isolation without changing any other assumptions. In practice, changes in one factor may result in changes in another, which may magnify or counteract the disclosed sensitivities. For additional details, see Note 6 to our interim consolidated financial statements.

Economic conditions in the Caribbean region remain challenging and we continue to monitor our investment. Reductions in the estimated recoverable amount of our CIBC FirstCaribbean CGU could result in additional goodwill impairment charges in future periods. We will complete our annual impairment testing in the fourth quarter of 2014.

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

We are required to assess whether it is probable that our deferred income tax asset will be realized prior to its expiration and, based on all the available evidence, determine if any portion of our deferred income tax asset should not be recognized. The factors used to assess the probability of realization are our past experience of income and capital gains, forecast of future net income before taxes, available tax planning strategies that could be implemented to realize the deferred income tax asset, and the remaining expiration period of tax loss carryforwards.  Although realization is not assured, we believe, based on all the available evidence, it is probable that the remaining deferred income tax asset will be realized.

Income tax accounting impacts all our reporting segments. For further details of our income taxes, see Note 12 to the interim consolidated financial statements.

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.

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

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

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

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

  • Marcotte Visa Class Action: The appeal was heard by the Supreme Court of Canada in February 2014. The court reserved its decision.
  • Green Secondary Market Class Action: In February 2014 the Ontario Court of Appeal released its decision overturning the lower court and allowing the matter to proceed as a certified class action. CIBC and the individual defendants sought leave to appeal to the Supreme Court of Canada. On August 7, 2014, CIBC and the individual defendants were granted leave to appeal to the Supreme Court of Canada.
  • Brown Overtime Class Action: The plaintiffs' appeal to the Ontario Court of Appeal was heard in May 2014. The court reserved its decision.
  • Watson Credit Card Class Action: On March 27, 2014, the court released its decision granting class certification. The plaintiffs and defendants have filed Notices of Appeal.
  • Mortgage Prepayment Class Actions: On June 30, 2014, the court granted class certification in Sherry conditional on the plaintiffs framing a workable class definition. CIBC has filed a Notice of Appeal.
  • Sino-Forest Class Actions: The motion for class certification in the Labourers' action has been adjourned to January 2015.

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

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

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

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

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

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

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

Regulatory developments

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

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

On February 18, 2014, the Federal Reserve Board released final enhanced prudential standards for large U.S. bank holding companies and foreign banking organizations (FBOs) with total consolidated assets of $50 billion or more. The new enhanced prudential standards include six primary requirements: risk-based capital and leverage requirements; liquidity requirements; single counterparty exposure limits; internal risk management standards; debt-to-equity limits; and annual stress testing. The new rules also require FBOs to maintain liquidity buffers in their U.S. branches and agencies and, if certain asset thresholds are met, to create a U.S. intermediate holding company which will also be subject to enhanced prudential standards. CIBC believes the new rules will not have a material impact on our operations.

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

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

Under the FATCA regulations, non-U.S. financial institutions will be required to identify and report accounts owned or controlled by U.S. taxpayers, including citizens of the U.S. worldwide (U.S. Accounts). In addition, identification and reporting will also be required on accounts of financial institutions that do not comply with FATCA regulations. The Government of Canada has signed an Intergovernmental Agreement (IGA) with the U.S., to facilitate FATCA information reporting by Canadian financial institutions. Under the provisions of the Canada-United States Enhanced Tax Information Exchange Agreement Implementation Act, Canadian financial institutions must report information on certain U.S. Accounts directly to the Canada Revenue Agency. The provisions of FATCA and the related Canadian legislation came into effect on July 1, 2014. Other countries in which CIBC operates have signed, or are in the process of negotiating and signing, IGAs with the U.S. CIBC will meet all FATCA obligations, in accordance with local law.

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

Global systemically important banks - public disclosure requirements
The BCBS paper "Global systemically important banks: updated assessment methodology and the higher loss absorbency requirement" dated July 3, 2013 describes the annual assessment methodology and the 12 indicators used to identify global systemically important banks (G-SIBs). The document also provides annual public disclosure requirements applicable to large globally-active banks.

In March 2014, OSFI published an Advisory on the implementation of the G-SIB public disclosure requirements in Canada. Federally-regulated banks which have not been identified as G-SIBs, and which have Basel III leverage ratio exposure measures greater than the equivalent of €200 billion at year-end, are required to publicly disclose at a minimum the 12 indicators (in Canadian equivalent values) annually. Such banks must publicly disclose both year-end 2014 and comparative 2013 data by the time the first quarterly financial report of 2015 is released.

Controls and procedures

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

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

Interim consolidated financial statements
(Unaudited)

Consolidated balance sheet                          
                             
                  2014         2013
Unaudited, $ millions, as at               Jul. 31         Oct. 31
ASSETS                          
Cash and non-interest-bearing deposits with banks           $   2,975     $   2,211
Interest-bearing deposits with banks               8,217         4,168
Securities                          
Trading               48,095         44,070
Available-for-sale (AFS) (Note 4)               21,105         27,627
Designated at fair value (FVO)               261         287
                  69,461         71,984
Cash collateral on securities borrowed               3,238         3,417
Securities purchased under resale agreements               25,105         25,311
Loans                          
Residential mortgages               155,013         150,938
Personal               35,096         34,441
Credit card               11,577         14,772
Business and government               54,232         48,207
Allowance for credit losses (Note 5)               (1,703)         (1,698)
                  254,215         246,660
Other                          
Derivative instruments               18,227         19,947
Customers' liability under acceptances               8,274         9,720
Land, buildings and equipment               1,728         1,719
Goodwill (Note 6)               1,435         1,733
Software and other intangible assets               918         756
Investments in equity-accounted associates and joint ventures               1,842         1,695
Deferred tax asset               505         526
Other assets               9,282         8,159
                  42,211         44,255
              $   405,422     $   398,006
LIABILITIES AND EQUITY                          
Deposits (Note 8)                          
Personal           $   129,198     $   125,034
Business and government               142,245         134,736
Bank               7,700         5,592
Secured borrowings               43,171         49,802
                  322,314         315,164
Obligations related to securities sold short               12,803         13,327
Cash collateral on securities lent               1,359         2,099
Obligations related to securities sold under repurchase agreements               9,437         4,887
Other                          
Derivative instruments               17,957         19,724
Acceptances               8,274         9,721
Deferred tax liability               29         33
Other liabilities               10,550         10,829
                  36,810         40,307
Subordinated indebtedness               4,187         4,228
Equity                          
Preferred shares               1,281         1,706
Common shares (Note 10)               7,758         7,753
Contributed surplus               78         82
Retained earnings               9,258         8,318
Accumulated other comprehensive income (AOCI)               (18)         (40)
Total shareholders' equity               18,357         17,819
Non-controlling interests               155         175
Total equity               18,512         17,994
              $   405,422     $   398,006

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

                                             
Consolidated statement of income                                            
                                               
                For the three     For the nine
                months ended     months ended
                2014       2014       2013     2014       2013
Unaudited, $ millions, except as noted             Jul. 31       Apr. 30       Jul. 31     Jul. 31       Jul. 31
Interest income                                            
Loans           $ 2,389     $ 2,282     $ 2,479   $ 7,094     $ 7,342
Securities             397       399       412     1,225       1,224
Securities borrowed or purchased under resale agreements             82       74       82     238       256
Deposits with banks             5       8       9     21       30
                2,873       2,763       2,982     8,578       8,852
Interest expense                                            
Deposits             821       801       935     2,495       2,776
Securities sold short             81       78       85     241       250
Securities lent or sold under repurchase agreements             36       28       20     92       77
Subordinated indebtedness             44       45       46     133       148
Other             16       13       13     39       41
                998       965       1,099     3,000       3,292
Net interest income             1,875       1,798       1,883     5,578       5,560
Non-interest income                                            
Underwriting and advisory fees             150       88       98     316       301
Deposit and payment fees             221       205       223     638       609
Credit fees             124       114       118     355       345
Card fees             108       87       137     308       402
Investment management and custodial fees             181       168       119     491       348
Mutual fund fees             317       300       258     899       747
Insurance fees, net of claims             85       95       94     277       265
Commissions on securities transactions             99       108       106     310       314
Trading income (loss)             (42)       (12)       21     (53)       36
AFS securities gains, net             24       76       48     157       203
FVO gains (losses), net             2       (21)       2     (14)       (1)
Foreign exchange other than trading             10       12       18     43       39
Income from equity-accounted associates and joint ventures             98       52       40     191       95
Other             106       97       84     663       275
                1,483       1,369       1,366     4,581       3,978
Total revenue             3,358       3,167       3,249     10,159       9,538
Provision for credit losses (Note 5)             195       330       320     743       850
Non-interest expenses                                            
Employee compensation and benefits             1,176       1,133       1,098     3,469       3,254
Occupancy costs             187       190       171     556       519
Computer, software and office equipment             304       294       269     881       767
Communications             78       79       75     232       232
Advertising and business development             70       72       59     207       157
Professional fees             43       52       45     140       120
Business and capital taxes             17       12       15     44       46
Other (1)             172       580       146     909       596
                2,047       2,412       1,878     6,438       5,691
Income before income taxes             1,116       425       1,051     2,978       2,997
Income taxes             195       119       173     574       472
Net income           $ 921     $ 306     $ 878   $ 2,404     $ 2,525
Net income (loss) attributable to non-controlling interests           $ 3     $ (11)     $ 1   $ (5)     $ 5
  Preferred shareholders           $ 19     $ 25     $ 25   $ 69     $ 75
  Common shareholders             899       292       852     2,340       2,445
Net income attributable to equity shareholders           $ 918     $ 317     $ 877   $ 2,409     $ 2,520
Earnings per share (in dollars) (Note 13)                                            
  Basic           $ 2.26     $ 0.73     $ 2.13   $ 5.88     $ 6.09
  Diluted             2.26       0.73       2.13     5.87       6.09
Dividends per common share (in dollars)             1.00       0.98       0.96     2.94       2.84
(1) Includes the goodwill impairment charge recognized during the quarter ended April 30, 2014. See Note 6 for additional information.

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

                                         
Consolidated statement of comprehensive income                                        
                                         
          For the three     For the nine
          months ended     months ended
              2014       2014       2013     2014       2013
Unaudited, $ millions         Jul. 31       Apr. 30       Jul. 31     Jul. 31       Jul. 31
Net income       $ 921     $ 306     $ 878   $ 2,404     $ 2,525
Other comprehensive income (OCI), net of tax, that is subject to subsequent reclassification                                        
  to net income