SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 6-K
Report of Foreign Issuer
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
For the quarter July 31, 2002
CANADIAN IMPERIAL BANK OF COMMERCE
(Translation of registrant's name into English)
Commerce Court
Toronto, Ontario
Canada M5L 1A2
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual
reports under cover of Form 20-F or Form 40-F:
Form 20-F __ Form 40-F X
Indicate by check mark if the registrant is submitting the Form 6-K in
paper as permitted by Regulation S-T Rule 101(b)(1): ______
Indicate by check mark if the registrant is submitting the Form 6-K in
paper as permitted by Regulation S-T Rule 101(b)(7): ______
Indicate by check mark whether by furnishing the information contained
in this form, the registrant is also hereby furnishing the information to the
Commission pursuant to Rule 12g 3-2(b) under the Securities Exchange Act of
1934:
Yes [] No [X]
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereto duly authorized.
CANADIAN IMPERIAL BANK OF COMMERCE
Date: September 5, 2002 By: /s/ Valerie K. Pettipas
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Name: Valerie K. Pettipas
Title: Assistant Corporate Secretary
By: /s/ Allen J. Logue
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Name: Allen J. Logue
Title: Vice President
CERTIFICATIONS
I, John S. Hunkin, certify that:
1. I have reviewed this Form 6-K of Canadian Imperial Bank of Commerce;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by the quarterly
report filed under cover of this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in the quarterly report filed under cover of
this report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which the quarterly report
filed under cover of this report is being prepared; and
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this report (the "Evaluation Date");
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability
to record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrant's internal controls.
Date: September 5, 2002 /s/ John S. Hunkin
-----------------------------
JOHN S. HUNKIN,
Chairman and Chief Executive Officer
I, Tom D. Woods, certify that:
1. I have reviewed this Form 6-K of Canadian Imperial Bank of Commerce;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by the quarterly
report filed under cover of this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in the quarterly report filed under cover of
this report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which the quarterly report
filed under cover of this report is being prepared; and
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this report (the "Evaluation Date"); and
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability
to record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrant's internal controls.
Date: September 5, 2002 /s/ Tom D. Woods
-----------------------------
TOM D. WOODS,
Executive Vice President and
Chief Financial Officer
[LOGO] CIBC
REPORT TO SHAREHOLDERS FOR THE THIRD QUARTER, 2002
www.cibc.com
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Chairman's Message
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September 5, 2002
Dear Shareholder:
Third Quarter Results
CIBC announced Reported Earnings of $193 million, or $0.41 per share,
diluted, during the third quarter, compared with $227 million, or $0.51 per
share, diluted, the previous quarter and $460 million, or $1.13 per share,
diluted, for the same period a year ago.
The third quarter results reflect the weak capital markets environment,
particularly for merchant banking asset sales. On the positive side, our retail
banking operations remained strong and our overall costs were down significantly
from the second quarter.
During the quarter, CIBC adopted the accounting standard for stock-based
compensation. This decision resulted in an earnings increase of $24 million, or
$0.07 per share, diluted. (See page 5 for more details).
o Adjusted Earnings, which exclude unusual items, were $222 million, or
$0.49 per share, diluted, compared with $268 million, or $0.62 per share,
diluted, the previous quarter, and $470 million, or $1.16 per share,
diluted, for the same period a year ago.
o Operating Earnings, which exclude unusual items and the net impact of
Amicus, were $276 million, or $0.64 per share, diluted, compared with $332
million, or $0.79 per share, diluted, in the second quarter of 2002, and
$534 million, or $1.33 per share, diluted, for the same period a year ago.
o Return on Equity was 6.2% (Reported); 7.4% (Adjusted); and 9.6%
(Operating).
o Loan Loss Provisions were $290 million in the third quarter, down from
$390 million in the prior quarter. The full year estimated loan loss
provision remains unchanged from the previous quarter at $1.45 billion to
$1.50 billion, as announced on May 2, 2002.
o Total Allowance for Credit Losses remained strong, exceeding gross
impaired loans by $260 million.
o Tier 1 capital ratio was 8.8% and the total capital ratio was 11.9%.
Our retail operations again contributed high returns on equity this
quarter, with cards, mortgages and deposits continuing their year-over-year
growth pace. The integration of the businesses we acquired as part of our Wealth
Management build strategy progressed on schedule.
Within Amicus, we are pleased with the development of our Canadian
operations. We also continued discussions during the quarter with potential
strategic partners that would assist in mitigating expenses related to our U.S.
expansion.
Overall, our performance in the third quarter continued to be affected by
the challenging economic environment in North America. A further weakening in
capital markets, diminished new origination activity, primarily in the U.S.,
merchant banking write-downs, and fewer opportunities for merchant banking asset
sales, led to reduced earnings in our wholesale business. We also experienced a
higher tax rate during the quarter as a result of lower loan losses and higher
net income in our Canadian operations.
Within CIBC World Markets, we took further action during the quarter to
address these ongoing market challenges, including:
o Lowering overall operating expenses;
o Continuing to effectively manage balance sheet resources; and,
o Continuing to be vigilant in managing market risk.
Operating highlights from the third quarter include:
Retail Products
o Continuing to build market share in mortgages: Market share of residential
mortgages increased to 13.8%, up from 13.6% the previous quarter.
o Strong contribution by cards: Market share of card purchase volumes
remained strong at 31.8%, while market share of card balances outstanding
was 21.7%, both a strong #1 position in Canada.
o Product Innovation: A new fixed rate mortgage, the Better than Posted
Mortgage, was launched during the quarter. It features a low introductory
interest rate for the first nine months, followed by a competitive rate
for the remainder of a 3,4,5,7, or 10 year term.
o Building Retail Asset Balances: Outstanding retail loan balances
(including personal/business loans, mortgages and cards) showed a positive
trend, growing to more than $101 billion at quarter end.
CIBC Third Quarter 2002
Retail Markets
o This quarter, Retail Markets introduced a number of new tools geared to
increasing customer satisfaction and improving management and planning.
The majority of these tools are technology based, enabling faster and more
detailed performance measurement, identification of sales opportunities
and faster access to information by our front line staff.
o A major technology rollout was substantially completed this quarter. All
but a small number of CIBC branches are now equipped with new technology
platforms and upgraded PCs to improve customer service and communications.
o New products introduced during this period include Email Money Transfer,
where CIBC retail customers can transfer funds to other individuals in
Canada through online banking.
Wealth Management
o The operations and technology functions of the private client business
acquired from Merrill Lynch Canada Inc. were integrated into CIBC Wood
Gundy as planned.
o Assets in Investment Consulting Service (ICS), CIBC Wood Gundy's
separately-managed wrap program, grew by 11% fiscal year-to-date. ICS is
the new program resulting from the July 1st integration of the existing
CIBC Wood Gundy and Merrill Lynch Canada programs.
o CIBC Imperial Service continued to grow its branch-based financial
advisory business; by the end of the third quarter, more than 700
financial advisors were registered with the Investment Dealers Association
of Canada to advise on and sell both third party and CIBC investment
products.
o Wealth Products continued to have success with its professionally managed
portfolio services. The new CIBC Managed Portfolios recorded total net
sales of $378 million since its launch last quarter.
CIBC World Markets
o CIBC World Markets maintained its year-to-date industry ranking of #1 with
respect to equity financings completed in Canada. This ranking was driven
by our continued leadership position with income trust products.
o Following quarter end, the Ontario government's Superbuild agency selected
CIBC World Markets as one of two investment banks to act as advisors in
helping to find a strategic partner(s) to purchase a minority interest in
Hydro One.
o CIBC World Markets also continued to focus on cost control during the
quarter. This included the termination of 57 positions, primarily in the
U.S. These staff reductions were in addition to the 107 positions that
were eliminated at the end of the second quarter.
Amicus
o Customer acquisition: The number of registered customers increased 9.2%
during the quarter, bringing the total number of customers to 1,172,000.
o Number of Pavilions: The number of pavilions increased to 552, up from 507
at the end of the second quarter.
o Funds under management: Loans and deposits under management grew 19.7%
quarter over quarter.
o Deposit growth: Deposits in Canada through President's Choice Financial
grew to $3.2 billion, up from $2.9 billion the previous quarter.
Performance Against Objectives
After 2 1/2 years of progress against the performance objectives we set
at the start of fiscal 2000, the results for the first three quarters of 2002
clearly fall short of our expectations. However, we continue to believe our
year-to-date results do not reflect the full potential of our franchise. We
remain committed to our strategy for growth and are focused on improving our
performance.
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Financial Targets Measurement Performance
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Share Price Best total return to shareholders, among the major 54.5%, as at July 31, 2002,
Canadian banks, beginning November 1, 1999 3rd among the major Canadian banks
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ROE (1) 18%(1) by 2002 12.8%(2)
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Earnings Growth(1) Diluted EPS growth rate of 15%(1) per year $2.53(2), down 38% from $4.11(3)
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Efficiency(1) Non-interest expenses to revenue ratio of 60%(1) by 2002 69.0%(2)
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Capital Strength 8.5% - 9.5% (Tier 1) 8.8%
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11.0% - 12.5% (Total Capital) 11.9%
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(1) Operating Earnings: For Reconciliation of Operating Earnings to Reported
Earnings - Refer to table on page 4
(2) For the nine months ended July 31, 2002
(3) For the nine months ended July 31, 2001
2 CIBC Third Quarter 2002
Outlook
After showing signs of recovery earlier in the year, the outlook for the
North American economy is again uncertain. News of corporate misconduct from a
number of companies, combined with geo-political unrest in the Middle East and
parts of Asia, have hurt investor confidence.
Given these factors, our outlook for the rest of the year remains
cautious. We will continue to take action across our businesses to further
protect our earnings in the short-term and enhance our growth prospects in the
mid- to long-term.
These actions include:
o Focusing on growth opportunities in our core retail
businesses;
o Continuing to be disciplined in our capital allocation process
by directing a greater proportion of capital to our
high-growth retail operations;
o Making progress on the plan we announced last quarter to
reduce the amount of capital allocated to merchant banking and
the corporate loan portfolio by one-third over the next three
years;
o Taking additional steps to keep our cost structure under
control while continuing to invest in technology and other
programs critical to our success.
Our strategy remains clear and we continue to believe our prospects for
growth are excellent. Our wholesale business remains well-positioned for further
market penetration as the economy strengthens. We also continue to make good
progress in our retail and wealth management businesses as evidenced by the
market share gains in many of our product areas and the successful integration
of the businesses we acquired.
John S. Hunkin
Chairman and Chief Executive Officer, CIBC
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A NOTE ABOUT PERFORMANCE MEASURES
Operating Earnings and Adjusted Earnings exclude items that management believes
are unusual or relate to substantial strategic investments, thereby allowing
analysis of business trends and the performance of CIBC's business lines. These
measures do not have a standardized meaning under GAAP and may not be comparable
to similar measures used by other companies. See the table on page 4 for further
explanation.
A NOTE ABOUT FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements about the operations,
priorities, targets, plans, objectives and strategies of CIBC for 2002 and
subsequent years, including the forward-looking statements of CIBC's business
lines (Retail Products, formerly Electronic Commerce, Technology and Operations;
Retail Markets, formerly Retail and Small Business Banking; Wealth Management;
CIBC World Markets and Amicus, formerly part of Electronic Commerce).
Forward-looking statements are typically identified by the words "believe",
"expect", "anticipate", "intend", "estimate" and other similar expressions or
future or conditional verbs such as "will", "should", "would" and "could". A
forward-looking statement is subject to risks and uncertainties that may be
general or specific. A variety of factors, many of which are beyond CIBC's
control, affect the operations, performance and results of CIBC, and could cause
actual results to differ materially from the expectations expressed in any of
CIBC's forward-looking statements. These factors include current, pending and
proposed legislative or regulatory developments; intensifying competition from
established competitors and new entrants in the financial services industry;
technological change; global capital market activity, including interest rate
fluctuation, currency value fluctuation and general economic conditions
worldwide, as well as in Canada, the United States and other countries where
CIBC has business operations; the impact of the events of September 11, 2001;
changes in market rates and prices which may adversely affect the value of
financial products; and CIBC's success in managing the costs associated with the
expansion of existing distribution channels, developing new ones and realizing
increased revenue from these channels, including electronic commerce-based
efforts. This list is not exhaustive of the factors that may affect any of
CIBC's forward-looking statements. These and other factors should be considered
carefully and readers should not place undue reliance on CIBC's forward-looking
statements. CIBC does not undertake to update any forward-looking statement that
is contained in this report.
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CIBC Third Quarter 2002 3
MANAGEMENT'S DISCUSSION AND ANALYSIS - CONSOLIDATED OVERVIEW
Earnings
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CIBC's reported earnings were $193 million for the quarter, down $267
million from the third quarter of 2001 and down $34 million from the prior
quarter. The decrease from the same quarter in 2001 was primarily due to lower
revenue from trading activities and lower merchant banking revenue, partially
offset by lower non-interest expenses. Non-interest expenses were down mainly as
a result of significantly lower revenue-related compensation. The decrease in
reported earnings from the prior quarter was mainly due to lower revenue as a
result of lower merchant banking revenue, offset in part by a lower provision
for credit losses and lower revenue-related compensation. CIBC's reported
earnings for the nine months ended July 31, 2002 were $753 million, down $691
million from the same period in 2001 primarily due to lower revenue from trading
activities, lower net merchant banking asset gains and a higher provision for
credit losses, offset in part by lower revenue-related compensation.
During the quarter, CIBC early adopted the requirements of the Canadian
Institute of Chartered Accountants' (CICA) Handbook section 3870, "Stock-Based
Compensation and Other Stock-Based Payments". The standard affects CIBC in two
ways. First, the standard requires the ongoing measurement of stock appreciation
rights (SARs) through the income statement. Second, as encouraged by the
accounting standard, CIBC has expensed stock options.
The consolidated financial statements for the first and second quarters
have been restated to reflect the early adoption of this accounting standard.
The effect of the change in accounting policy on reported earnings for 2002 is
included in footnote (1) to the table below.
Reported earnings per share (EPS), diluted, and reported return on equity
(ROE) were $0.41 and 6.2%, respectively, for the quarter, compared with $1.13
and 17.4% in the third quarter of 2001 and $0.51 and 8.0% in the prior quarter.
Reported EPS, diluted, and reported ROE for the nine months ended July 31, 2002
were $1.75 and 8.9%, respectively, compared with $3.55 and 18.6% for the same
period in 2001.
CIBC's operating earnings for the quarter were $276 million, as noted in
the table below, down $258 million from the third quarter of 2001. Operating
earnings were down $56 million from the prior quarter. CIBC's operating earnings
for the nine months ended July 31, 2002 were $1,039 million, down $617 million
from the same period in 2001. The decreases in operating earnings were primarily
due to the reasons noted above.
Operating EPS, diluted, and operating ROE were $0.64 and 9.6%,
respectively, for the quarter, compared with $1.33 and 20.4% in the third
quarter of 2001 and $0.79 and 12.4% in the prior quarter. Operating EPS,
diluted, and operating ROE for the nine months ended July 31, 2002 were $2.53
and 12.8%, respectively, compared with $4.11 and 21.5% for the same period in
2001.
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For the three months ended For the nine months ended
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2002 2002 2001 2002 2001
Unaudited, $ millions Jul. 31 Apr. 30 (1) Jul. 31 Jul. 31 Jul. 31
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Reported earnings(1) $ 193 $ 227 $ 460 $ 753 $ 1,444
Less:
Gain on sale of corporate assets(2) 10 -- 22 10 65
Adjustment for tax rate changes(3) -- -- (21) -- (66)
Merrill Lynch acquisition-related costs(4) (27) (41) -- (99) --
Events of September 11, 2001(5) (12) -- -- (12) --
Goodwill amortization(6) -- -- (11) -- (34)
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Adjusted earnings(7) 222 268 470 854 1,479
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Less:
Net impact of Amicus(8) (54) (64) (64) (185) (177)
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Operating earnings(7) $ 276 $ 332 $ 534 $ 1,039 $ 1,656
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EPS(9) - diluted, reported $ 0.41 $ 0.51 $ 1.13 $ 1.75 $ 3.55
- diluted, adjusted $ 0.49 $ 0.62 $ 1.16 $ 2.02 $ 3.64
- diluted, operating $ 0.64 $ 0.79 $ 1.33 $ 2.53 $ 4.11
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ROE - reported 6.2% 8.0% 17.4% 8.9% 18.6%
- adjusted 7.4% 9.7% 17.8% 10.3% 19.1%
- operating 9.6% 12.4% 20.4% 12.8% 21.5%
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Please refer to the accompanying footnotes.
4 CIBC Third Quarter 2002
Footnotes
(1) Reported earnings include the impact of CIBC's early adoption in the third
quarter of 2002 of the requirements of the CICA Handbook section 3870,
"Stock-Based Compensation and Other Stock-Based Payments". Certain
comparative figures have been restated. The effect of this change on
reported earnings for 2002 is provided below.
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For the three months ended For the nine months ended
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2002 2002 2002 2002
Unaudited, $ millions Jul. 31 Apr. 30 Jan. 31 Jul. 31
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Increase (decrease) in reported earnings for change in accounting policy
Stock appreciation rights $ 30 $ 1 $ (16) $ 15
Stock options (6) (9) (6) (21)
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$ 24 $ (8) $ (22) $ (6)
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Impact on EPS
Basic $ 0.07 $ (0.02) $ (0.06) $ (0.02)
Diluted $ 0.07 $ (0.02) $ (0.05) $ (0.02)
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Opening retained earnings at November 1, 2001 were charged $42 million
after-tax to recognize the cumulative amount relating to all vested SARs
outstanding at the beginning of the fiscal year of adoption.
(2) During the third quarter of 2002, a $10 million after-tax gain was
recognized relating to the sale of CIBC's investment in Life of Barbados
Limited. During the third quarter of 2001, a $22 million after-tax gain
was recognized on the sale of two of CIBC's off-shore banking
subsidiaries, CIBC Fund Managers (Guernsey) Limited and CIBC Bank and
Trust Company (Channel Islands) Limited (collectively Guernsey private
banking business). During the second quarter of 2001, a $43 million
after-tax gain was recognized relating to the sale of the Merchant Card
Services business.
(3) During the third quarter of 2001, it was determined that the provincial
income tax rate decreases proposed in the May 9, 2001 Ontario Budget and
the July 30, 2001 British Columbia Budget Update were substantially
enacted. As a result, CIBC recognized a $21 million charge to income tax
expense in that quarter, thereby reducing its future income tax assets, in
recognition of the fact that temporary differences will reverse when the
rates are lower. An adjustment of $45 million was recognized in the first
quarter of 2001, resulting from the federal income tax rate decreases
proposed in the October 18, 2000 federal government Economic Statement and
Budget Update.
(4) Costs incurred relate to the acquisition of Merrill Lynch Canada Inc.'s
Private Client & Securities Services businesses. These costs also include
additional compensation to certain investment advisors within CIBC Wood
Gundy.
(5) During the third quarter of 2002, an after-tax expense of $12 million was
recognized relating to losses and incremental expenses incurred for
certain of CIBC's New York operations located at One World Financial
Center, in close proximity to the World Trade Center.
(6) On November 1, 2001, CIBC adopted the requirements of the CICA Handbook
section 3062, "Goodwill and Other Intangible Assets", which require that
amortization of goodwill, including that relating to equity accounted
investments, cease after October 31, 2001. Accordingly, adjusted earnings
for 2001 include adding back amortization of goodwill to present 2001
results on a basis comparable to the current period.
(7) Operating earnings exclude items that, in management's opinion, are either
unusual in nature, or that relate to substantial strategic investments
(e.g. Amicus), thereby allowing for the analysis of business trends and
the performance of CIBC's business lines. Adjusted earnings exclude only
unusual items. The words "operating earnings" and "adjusted earnings" do
not have a standardized meaning under generally accepted accounting
principles and consequently, may not be comparable to similar measures
presented by other companies. Please refer to the "Operating performance
measurements" section in this report for further details.
(8) During the first quarter of 2002, certain business activities were moved
from Retail Products to Amicus. Please refer to the "Management's
Discussion and Analysis - Segmented" section in this report for further
details. Comparative information has been restated.
(9) During the first quarter of 2002, CIBC retroactively adopted the CICA
Handbook section 3500, "Earnings Per Share". Prior period EPS figures have
been restated.
CIBC Third Quarter 2002 5
Revenue
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CIBC's reported revenue for the quarter was $2,562 million on a taxable
equivalent basis (TEB), down $338 million from the third quarter of 2001 and
down $428 million from the prior quarter. Reported revenue for the nine months
ended July 31, 2002 was $8,630 million, up $23 million from the same period in
2001.
Operating revenue (TEB) for the quarter was $2,487 million, down $350
million from the third quarter of 2001 and down $452 million from the prior
quarter. Operating revenue for the nine months ended July 31, 2002 was $8,458
million, up $24 million from the same period in 2001.
Revenue in the current quarter was down compared with the third quarter of
2001 due to lower revenue from trading activities and lower merchant banking
revenue as a result of weak market conditions, partially offset by higher net
interest income from improved spreads and continuing growth in mortgages and
cards balances and revenue from acquired businesses. CIBC's revenue decreased
from the prior quarter primarily due to lower merchant banking revenue. Revenue
for the nine months ended July 31, 2002 increased slightly over the same period
in 2001 primarily due to the reasons noted above. However, lower revenue from
trading activities and merchant banking were more than offset by higher net
interest income and revenue from acquired businesses.
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For the three months ended For the nine months ended
----------------------------------- ---------------------------
2002 2002 2001 2002 2001
Unaudited, $ millions Jul. 31 Apr. 30 Jul. 31 Jul. 31 Jul. 31
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Reported revenue (TEB) $ 2,562 $ 2,990 $ 2,900 $ 8,630 $ 8,607
Less:
Gain on sale of
corporate assets 13 -- 22 13 80
Amicus(1) 62 51 48 159 109
Goodwill amortization -
equity accounted
investments -- -- (7) -- (16)
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Operating revenue (TEB) $ 2,487 $ 2,939 $ 2,837 $ 8,458 $ 8,434
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(1) Comparative figures have been restated to conform with the presentation
used in the first quarter of 2002.
Non-interest expenses
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CIBC's reported non-interest expenses for the quarter were $1,982 million,
down $90 million from the third quarter of 2001 and down $331 million from the
prior quarter. Reported non-interest expenses for the nine months ended July 31,
2002 were $6,456 million, up $513 million from the same period in 2001.
Operating non-interest expenses for the quarter were $1,771 million, down
$149 million from the third quarter of 2001 and down $330 million from the prior
quarter. Operating non-interest expenses for the nine months ended July 31, 2002
were $5,839 million, up $306 million from the same period in 2001.
The decrease in non-interest expenses from the third quarter of 2001 and
the prior quarter was primarily due to a significant reduction in
revenue-related compensation. In addition, the early adoption of the accounting
standard for stock-based compensation resulted in a net positive impact of $43
million over the third quarter of 2001 and $51 million over the prior quarter.
The reduction in SARs expense in the third quarter of 2002, which was the result
of a lower CIBC common share price, more than offset the cost of expensing stock
options. The decrease in non-interest expenses from the third quarter of 2001
was partially offset by the inclusion of ongoing expenses related to acquired
businesses.
Non-interest expenses for the nine months ended July 31, 2002 were up from
the same period in 2001 mainly due to ongoing expenses related to acquired
businesses, partially offset by the reduction in revenue-related compensation.
On a year-to-date basis, the net impact of the early adoption of accounting for
stock-based compensation is minimal.
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For the three months ended For the nine months ended
----------------------------------- ---------------------------
2002 2002 2001 2002 2001
Unaudited, $ millions Jul. 31 Apr. 30 (1) Jul. 31 Jul. 31 Jul. 31
--------------------------------------------------------------------- ---------------------------
Reported non-interest
expenses $ 1,982 $ 2,313 $ 2,072 $ 6,456 $ 5,943
Less:
Merrill Lynch acquisition-
related costs 44 68 -- 162 --
Events of September 11, 2001 20 -- -- 20 --
Amicus(2) 147 144 148 435 392
Goodwill amortization -- -- 4 -- 18
--------------------------------------------------------------------- ---------------------------
Operating non-interest
expenses $ 1,771 $ 2,101 $ 1,920 $ 5,839 $ 5,533
--------------------------------------------------------------------- ---------------------------
(1) Certain comparative figures have been restated resulting from the adoption
of the CICA Handbook section 3870.
(2) Comparative figures have been restated to conform with the presentation
used in the first quarter of 2002.
Events of September 11, 2001
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Management is nearing completion of the process of evaluating the extent
of damage and related insurance recoveries for property damage, additional
expenses and business interruption arising from the events of September 11,
2001. During the quarter, expenses of $20 million were recorded as other
non-interest expenses.
Management has decided to locate a number of employee groups in the
downtown Manhattan area but has not made a final decision whether to return to
One World Financial Center once it becomes fully tenantable. Management has
surrendered a portion of the space previously occupied in One World Financial
Center to the landlord pursuant to the terms of the existing lease. The full
financial impact of these decisions was not determinable at the time of
preparation of the interim consolidated financial statements.
6 CIBC Third Quarter 2002
Taxes
--------------------------------------------------------------------------------
CIBC's reported income tax expense for the quarter was $54 million, down
$22 million from the third quarter of 2001. This was primarily due to lower
earnings. The effective tax rate for CIBC in the third quarter of 2002 was
higher than in the third quarter of 2001 as a result of a greater proportion of
higher taxed income primarily from Canadian operations. The tax expense in the
quarter was up $22 million from the prior quarter largely because of lower
provision for credit losses in the U.S.
Income tax expense for the nine months ended July 31, 2002 was $99
million, down $300 million from the same period in 2001 due to lower earnings
and a reduced proportion of higher taxed income from North American operations.
This was largely a result of higher provision for credit losses in North America
in 2002. This also resulted in a lower effective tax rate.
Significant accounting policies
--------------------------------------------------------------------------------
The accounting policies of CIBC are fundamental to understanding the
results of operations and financial condition of CIBC. A summary of significant
accounting policies is presented on pages 67 to 70 of the 2001 Annual Report and
a summary of changes to these policies is included in the notes to CIBC's
interim consolidated financial statements.
Certain accounting policies require management to make judgements and best
estimates. Any change in these judgements and estimates could have a material
impact on the financial results and understanding of CIBC's financial condition.
Management has established policies and control procedures that are intended to
ensure the application of accounting policies and that the processes for
changing methodologies are well controlled, applied consistently and occur in an
appropriate and systematic manner.
Accounting policies which involve management's judgements include those
relating to loans, specifically in determining the allowance for credit losses
and retained interests from securitizations, assessing other than temporary
impairment of securities held for investment, the mark to market of trading
instruments at fair value, valuation of goodwill and other intangible assets,
valuation of post-employment and post-retirement obligations, taxes and
restructuring.
Stock option plans
--------------------------------------------------------------------------------
CIBC has stock option plans that are designed to attract and retain
talented employees, and align shareholders, directors and employee interests.
The two stock option plans are the Employee Stock Option Plan (ESOP) and the
Non-officer Director Stock Option Plan, as detailed in Note 13 to the
consolidated financial statements in the 2001 Annual Report.
All stock option grants under ESOP are approved by the Management
Resources and Compensation Committee of the CIBC Board of Directors (the
Committee). None of the members of the Committee is a present or former officer
of CIBC or any of its subsidiaries.
During the quarter, CIBC adopted the fair-value based method to account
for stock options. This is further explained in the notes to the interim
consolidated financial statements.
The dilution impact of the stock option plans is summarized in the table
below. The dilution impact is calculated as the new option grants for the year,
net of options forfeited by employees leaving the company, divided by the
average number of shares outstanding during the year.
-----------------------------------------------------------------------------------------------------------------
Unaudited 2002 YTD 2001 2000 1999 1998 1997 1996
-------------------------------------------------------------- -----------------------------------------------
Net options granted (millions) 2.8 2.4 5.1 4.5 3.4 3.4 3.0
Average number of shares outstanding (millions) 361.1 372.3 388.9 409.8 415.0 413.5 415.0
Net grants during period as % of average
number of shares outstanding 0.8% 0.6% 1.3% 1.1% 0.8% 0.8% 0.7%
-------------------------------------------------------------- -----------------------------------------------
CIBC Third Quarter 2002 7
MANAGEMENT'S DISCUSSION AND ANALYSIS - SEGMENTED
During the first quarter of 2002, CIBC expanded and realigned its businesses as
part of its strategy to focus more on retail-related operations. CIBC's
reporting structure was expanded to five business lines, with Amicus reflected
as a separate business line. Two of the other business lines were renamed to
reflect the nature of the businesses. CIBC's five business lines are Retail
Products (formerly Electronic Commerce, Technology and Operations); Retail
Markets (formerly Retail and Small Business Banking); Wealth Management; CIBC
World Markets; and Amicus (formerly part of Electronic Commerce, Technology and
Operations). These business lines are supported by three functional groups -
Treasury, Balance Sheet and Risk Management; Administration; and Corporate
Development.
More specifically, during the first quarter of 2002, CIBC realigned the
following businesses:
o the payments business (chequing, savings and current accounts) and
electronic banking services, specifically, telephone banking, Internet
banking and branch ABMs, moved from Retail Products to Retail Markets;
o non-branch ABMs and President's Choice Financial mortgages moved from
Retail Products to Amicus;
o lending products moved from Retail Markets to Retail Products; and
o asset management moved from private client investment (formerly private
client investment and asset management) to wealth products, both within
Wealth Management.
Prior period segmented financial information has been restated.
During the first quarter of 2002, CIBC acquired Merrill Lynch Canada
Inc.'s Private Client & Securities Services businesses and CM Investment
Management Inc. (formerly Merrill Lynch Investment Managers Canada Inc.). These
businesses are in Wealth Management as part of private client investment and
wealth products, respectively.
During the second quarter, CIBC acquired control of Juniper Financial
Corp., a U.S. credit card company. This investment is included in merchant
banking in CIBC World Markets.
During the third quarter, it was announced that management responsibility
for various lines of business within Retail Products would be redistributed. The
segmented financial information is expected to be aligned to reflect the new
structure in the fourth quarter of 2002.
As described in the 2001 Annual Report, CIBC measures and reports the
results of operations of its business lines using the Manufacturer / Customer
Segment / Distributor Management Model.
Operating performance measurements
--------------------------------------------------------------------------------
The principal measurements used by CIBC to assess business line
performance include: operating earnings, ROE, which is based on risk-adjusted
(economic) capital, and economic profit. These measures assist CIBC in achieving
its objectives of controlled growth and returns commensurate with the risk
taken. For a detailed discussion on how CIBC reports, please refer to page 25 of
the 2001 Annual Report.
Management uses operating earnings and adjusted earnings to review and
analyze the performance of its business lines. Operating earnings exclude items
that, in management's opinion, are either unusual in nature, or that relate to
substantial strategic investments (e.g. Amicus), thereby allowing for the
analysis of business trends. Adjusted earnings exclude only unusual items. The
words "operating earnings" and "adjusted earnings" do not have a standardized
meaning under generally accepted accounting principles and consequently, may not
be comparable to similar measures presented by other companies.
Retail Products
--------------------------------------------------------------------------------
Retail Products comprises card products, lending products, mortgages and
insurance. The business also manages CIBC's technology and operations function.
--------------------------------------------------------------------------------
Ongoing Objectives Q3 Performance
--------------------------------------------------------------------------------
Achieve 25% - 30% operating Operating ROE of 38% for the
ROE. quarter and 42% year-to-date.
--------------------------------------------------------------------------------
Bring to market two new No new ventures have been
cibc.com ventures annually. announced year-to-date.
--------------------------------------------------------------------------------
Earnings
--------------------------------------------------------------------- ---------------------------
For the three months ended For the nine months ended
--------------------------------------- ---------------------------
2002 2002 2001 2002 2001
Unaudited, $ millions Jul. 31 Apr. 30 Jul. 31 (1) Jul. 31 Jul. 31 (1)
--------------------------------------------------------------------- ---------------------------
Total revenue (TEB) $ 625 $ 647 $ 608 $ 2,010 $ 1,820
Non-interest expenses 270 257 252 796 729
Provision for credit losses 106 99 108 336 306
--------------------------------------------------------------------- ---------------------------
Income before taxes and
non-controlling interests 249 291 248 878 785
Income taxes and
non-controlling interests 83 95 88 296 271
--------------------------------------------------------------------- ---------------------------
Reported earnings 166 196 160 582 514
--------------------------------------------------------------------- ---------------------------
--------------------------------------------------------------------- ---------------------------
Less:
Gain on sale of
corporate assets -- -- -- -- 43
Goodwill amortization -- -- (4) -- (9)
--------------------------------------------------------------------- ---------------------------
Operating earnings $ 166 $ 196 $ 164 $ 582 $ 480
--------------------------------------------------------------------- ---------------------------
--------------------------------------------------------------------- ---------------------------
Reported efficiency ratio 43.2% 39.7% 41.3% 39.6% 40.0%
Reported ROE 38.4% 42.0% 30.6% 42.4% 33.8%
Reported economic profit $ 114 $ 143 $ 98 $ 426 $ 330
--------------------------------------------------------------------- ---------------------------
Operating efficiency ratio 43.2% 39.7% 40.8% 39.6% 40.9%
Operating ROE 38.4% 42.0% 31.4% 42.4% 31.4%
Operating economic profit $ 114 $ 143 $ 102 $ 426 $ 296
--------------------------------------------------------------------- ---------------------------
(1) Comparative figures have been restated to exclude Amicus.
8 CIBC Third Quarter 2002
Operating earnings for the quarter were $166 million, up $2 million from
the third quarter of 2001. Operating earnings were down $30 million from the
prior quarter due to higher internal commissions paid to the customer segments
by lending products, increased non-interest expenses and increases in the
provision for credit losses.
Operating earnings for the nine months ended July 31, 2002 were $582
million, up $102 million from the same period in 2001 due to growing volumes and
wider spreads in both cards and mortgages. Reported earnings can be found in the
table above.
Revenue
-------------------------------------------------------------- -----------------------------
For the three months ended For the nine months ended
----------------------------------- -----------------------------
2002 2002 2001 2002 2001
Unaudited, $ millions Jul. 31 Apr. 30 Jul. 31 (1) Jul. 31 Jul. 31 (1)
-------------------------------------------------------------- -----------------------------
Reported revenue (TEB)
Cards $ 308 $ 302 $ 266 $ 917 $ 838
Lending products 124 149 155 445 472
Mortgages 134 134 128 432 340
Insurance 19 19 13 53 38
Other 40 43 46 163 132
-------------------------------------------------------------- -----------------------------
625 647 608 2,010 1,820
-------------------------------------------------------------- -----------------------------
-------------------------------------------------------------- -----------------------------
Less:
Gain on sale of
corporate assets -- -- -- -- 58
Goodwill amortization -
equity accounted
investments -- -- (3) -- (4)
-------------------------------------------------------------- -----------------------------
-------------------------------------------------------------- -----------------------------
Operating revenue (TEB)
Cards 308 302 269 917 784
Lending products 124 149 155 445 472
Mortgages 134 134 128 432 340
Insurance 19 19 13 53 38
Other 40 43 46 163 132
-------------------------------------------------------------- -----------------------------
$ 625 $ 647 $ 611 $ 2,010 $ 1,766
-------------------------------------------------------------- -----------------------------
(1) Comparative figures have been restated to exclude Amicus.
Operating revenue for the quarter was $625 million, up $14 million from
the third quarter of 2001 due to increased volumes in mortgages and increased
spreads in cards, partially offset by increased internal commissions paid to the
customer segments by lending products. Operating revenue was down $22 million
from the prior quarter mainly due to increased internal commissions paid by
lending products and a decrease in the percentage of customers paying interest
on outstanding card balances, which more than offset the impact of volume
increases in mortgages and cards, and the benefit of three additional days in
the quarter.
Operating revenue for the nine months ended July 31, 2002 was $2,010
million, up $244 million from the same period in 2001 due to improved spreads
and volumes in cards and mortgages, and increased levels of prepayment fees
earned in mortgages. Higher internal commissions, especially in lending
products, have partially offset these increases. Reported revenue can be found
in the table above.
Non-interest expenses
-------------------------------------------------------------- ---------------------------
For the three months ended For the nine months ended
----------------------------------- ---------------------------
2002 2002 2001 2002 2001
Unaudited, $ millions Jul. 31 Apr. 30 Jul. 31 (1) Jul. 31 Jul. 31 (1)
-------------------------------------------------------------- ---------------------------
Reported non-interest
expenses $ 270 $ 257 $ 252 $ 796 $ 729
Less:
Goodwill amortization -- -- 1 -- 5
-------------------------------------------------------------- ---------------------------
Operating non-interest
expenses $ 270 $ 257 $ 251 $ 796 $ 724
-------------------------------------------------------------- ---------------------------
(1) Comparative figures have been restated to exclude Amicus.
Operating non-interest expenses for the quarter were $270 million, up $19
million from the third quarter in 2001 due to higher employee compensation and
communications costs. Operating non-interest expenses were up $13 million from
the prior quarter for the same reasons.
Operating non-interest expenses for the nine months ended July 31, 2002
were $796 million, up $72 million from the same period in 2001 due to higher
employee compensation, communications costs, depreciation and advertising.
Reported non-interest expenses can be found in the table above.
The regular workforce headcount totaled 13,214 at the end of the quarter,
up 889 from the third quarter of 2001 and up 170 from the prior quarter to
support the increased growth in mortgages and other areas.
Provision for credit losses
Provision for credit losses was $106 million for the quarter, down $2
million from the third quarter of 2001. Provision for credit losses was up $7
million from the prior quarter due to an increase in lending products and
recoveries realized in the prior quarter.
Provision for credit losses for the nine months ended July 31, 2002 was
$336 million, up $30 million from the same period in 2001 due to a softening in
the economy and volume growth in cards.
Retail Markets
--------------------------------------------------------------------------------
Retail Markets provides financial services to retail and small business
customers in Canada, as well as retail and commercial customers in the
Caribbean. These services are offered through CIBC's extensive branch network
and through CIBC's rapidly expanding electronic channels, such as telephone
banking, Internet banking, ABMs and debit cards. The business line also manages
the payments business (chequing, savings and current accounts) for which revenue
and expenses are allocated to all the customer segments.
CIBC Third Quarter 2002 9
--------------------------------------------------------------------------------
Ongoing Objectives Q3 Performance
--------------------------------------------------------------------------------
Achieve operating ROE of 17% Operating ROE of 55% for the
- 20%. quarter and 42% year-to-date.
Operating ROE is significantly
above plan largely because the
amount of capital required is
well below the amount in the
original plan.
--------------------------------------------------------------------------------
Improve customer loyalty. Internal customer loyalty survey
for July 2002 shows the 12
month rolling average
unchanged at 65%.
--------------------------------------------------------------------------------
Become the leading bank for Small business revenue growth
small business customers. was 7% during the first nine
months compared with the same
period last year.
Small business banking loan
portfolio grew 0.6% from the
prior quarter and 6.8% year-to-
date.
--------------------------------------------------------------------------------
Earnings
----------------------------------------------------------------- ---------------------------
For the three months ended For the nine months ended
----------------------------------- ---------------------------
2002 2002 2001 2002 2001
Unaudited, $ millions Jul. 31 Apr. 30 Jul. 31 Jul. 31 Jul. 31
----------------------------------------------------------------- ---------------------------
Total revenue (TEB) $ 577 $ 513 $ 500 $ 1,594 $ 1,471
Non-interest expenses 465 442 439 1,341 1,247
Provision for credit losses -- 3 5 14 17
----------------------------------------------------------------- ---------------------------
Income before taxes and
non-controlling interests 112 68 56 239 207
Income taxes and
non-controlling interests 35 18 9 68 35
----------------------------------------------------------------- ---------------------------
Reported earnings 77 50 47 171 172
----------------------------------------------------------------- ---------------------------
----------------------------------------------------------------- ---------------------------
Less:
Gain on sale of
corporate assets 10 -- -- 10 --
----------------------------------------------------------------- ---------------------------
Operating earnings $ 67 $ 50 $ 47 $ 161 $ 172
----------------------------------------------------------------- ---------------------------
----------------------------------------------------------------- ---------------------------
Reported efficiency ratio 80.6% 86.4% 87.9% 84.1% 84.8%
Reported ROE 64.1% 38.4% 34.7% 44.7% 43.2%
Reported economic profit $ 62 $ 35 $ 32 $ 127 $ 124
----------------------------------------------------------------- ---------------------------
Operating efficiency ratio 82.4% 86.4% 87.9% 84.8% 84.8%
Operating ROE 55.2% 38.4% 34.7% 41.9% 43.2%
Operating economic profit $ 52 $ 35 $ 32 $ 117 $ 124
----------------------------------------------------------------- ---------------------------
Operating earnings for the quarter were $67 million, up $20 million from
the third quarter of 2001 due to higher revenue and a lower provision for credit
losses, partially offset by increased non-interest expenses. Operating earnings
for the quarter were up $17 million from the prior quarter due to revenue
growth, partially offset by higher non-interest expenses.
Operating earnings for the nine months ended July 31, 2002 were $161
million, down $11 million from the same period in 2001, as 8% revenue growth was
more than offset by higher non-interest expenses and a higher effective tax
rate. Reported earnings can be found in the table above.
Revenue
--------------------------------------------------------- ---------------------------
For the three months ended For the nine months ended
------------------------------- ---------------------------
2002 2002 2001 2002 2001
Unaudited, $ millions Jul. 31 Apr. 30 Jul. 31 Jul. 31 Jul. 31
--------------------------------------------------------- ---------------------------
Reported revenue (TEB)
Retail banking $ 302 $ 266 $ 249 $ 814 $ 738
Small business banking 188 171 167 530 496
West Indies 81 69 70 225 208
Other 6 7 14 25 29
--------------------------------------------------------- ---------------------------
577 513 500 1,594 1,471
--------------------------------------------------------- ---------------------------
--------------------------------------------------------- ---------------------------
Less:
Gain on sale of
corporate assets 13 -- -- 13 --
--------------------------------------------------------- ---------------------------
--------------------------------------------------------- ---------------------------
Operating revenue (TEB)
Retail banking 302 266 249 814 738
Small business banking 188 171 167 530 496
West Indies 68 69 70 212 208
Other 6 7 14 25 29
--------------------------------------------------------- ---------------------------
$ 564 $ 513 $ 500 $ 1,581 $ 1,471
--------------------------------------------------------- ---------------------------
Operating revenue for the quarter was $564 million, up $64 million from
the third quarter of 2001 due to strong volume growth and increased internal
commissions from product manufacturers, which more than offset the effect of
lower deposit spreads. Operating revenue was up $51 million from the prior
quarter mainly due to higher commissions from the product manufacturers, three
more days in the quarter, improved deposit spreads and volume growth.
Operating revenue for the nine months ended July 31, 2002 was $1,581
million, up $110 million from the same period in 2001 primarily due to increased
fee and commission revenue from product manufacturers and 13% domestic deposit
volume growth, which more than offset the revenue decrease due to lower deposit
spreads. Reported revenue can be found in the table above.
Non-interest expenses
------------------------------------------------------- ---------------------------
For the three months ended For the nine months ended
------------------------------- ---------------------------
2002 2002 2001 2002 2001
Unaudited, $ millions Jul. 31 Apr. 30 Jul. 31 Jul. 31 Jul. 31
------------------------------------------------------- ---------------------------
Reported and operating
non-interest
expenses $ 465 $ 442 $ 439 $ 1,341 $ 1,247
------------------------------------------------------- ---------------------------
Non-interest expenses for the quarter were $465 million, up $26 million
from the third quarter of 2001 and up $23 million from the prior quarter,
primarily due to higher marketing, technology and operations costs, and other
support expenses.
Non-interest expenses for the nine months ended July 31, 2002 were $1,341
million, up $94 million from the same period in 2001, mainly due to increased
compensation and higher infrastructure spending on technology and other
initiatives.
The regular workforce headcount totaled 14,175, down 388 from the third
quarter of 2001 and down 394 from the prior quarter, as a result of the cost
reduction program announced in the fourth quarter of 2001.
10 CIBC Third Quarter 2002
Provision for credit losses
Provision for credit losses for the quarter was down $5 million from the
third quarter of 2001 and down $3 million from the prior quarter.
Provision for credit losses for the nine months ended July 31, 2002 was
$14 million compared with $17 million in 2001.
Wealth Management
--------------------------------------------------------------------------------
Wealth Management is focused on providing relationship-based advisory sales,
service and product solutions to the full spectrum of wealth building clients.
The business delivers a wide selection of investment products and services -
full-service brokerage in Canada and the U.S., discount brokerage, asset
management, global private banking and trust, and a broad selection of
investment and credit services through our branch-based sales force.
--------------------------------------------------------------------------------
Ongoing Objectives Q3 Performance
--------------------------------------------------------------------------------
Achieve more than 50% Operating ROE of 64% for the
operating ROE. quarter and 60% year-to-date.
--------------------------------------------------------------------------------
Increase mutual fund assets by Mutual fund assets increased
9% for the year. 16% year-to-date which
includes acquired assets of CM
Investment Management Inc.
Excluding acquired assets,
growth was 1% year-to-date.
--------------------------------------------------------------------------------
Increase total Wealth Non-institutional assets under
Management non-institutional administration increased 27%
assets under administration by year-to-date which includes
4% for the year. acquired assets of Merrill
Lynch Canada Inc. and CM
Investment Management Inc.
Excluding acquired assets,
growth was negative 1% year-
to-date.
--------------------------------------------------------------------------------
Earnings
---------------------------------------------------------------------- ---------------------------
For the three months ended For the nine months ended
------------------------------------- ---------------------------
2002 2002 2001 2002 2001
Unaudited, $ millions Jul. 31 Apr. 30 Jul. 31 Jul. 31 Jul. 31
---------------------------------------------------------------------- ---------------------------
Total revenue (TEB) $ 707 $ 751 $ 598 $ 2,133 $ 1,772
Non-interest expenses 626 710 488 1,936 1,413
---------------------------------------------------------------------- ---------------------------
Income before taxes 81 41 110 197 359
Income taxes 24 8 20 54 84
---------------------------------------------------------------------- ---------------------------
Reported earnings 57 33 90 143 275
---------------------------------------------------------------------- ---------------------------
---------------------------------------------------------------------- ---------------------------
Less:
Gain on sale of
corporate assets -- -- 22 -- 22
Merrill Lynch acquisition-
related costs (27) (41) -- (99) --
---------------------------------------------------------------------- ---------------------------
Operating earnings $ 84 $ 74 $ 68 $ 242 $ 253
---------------------------------------------------------------------- ---------------------------
---------------------------------------------------------------------- ---------------------------
Reported efficiency ratio 88.6% 94.5% 81.5% 90.8% 79.7%
Reported ROE 42.6% 22.4% 81.5% 34.8% 85.8%
Reported economic profit $ 41 $ 17 $ 77 $ 97 $ 236
---------------------------------------------------------------------- ---------------------------
Operating efficiency ratio 82.4% 85.5% 84.6% 83.2% 80.7%
Operating ROE 63.7% 52.7% 61.1% 60.0% 78.8%
Operating economic profit $ 68 $ 58 $ 55 $ 196 $ 214
---------------------------------------------------------------------- ---------------------------
Operating earnings for the quarter were $84 million, up $16 million from
the third quarter of 2001. This is primarily due to operating earnings generated
from the acquisitions of the private client business of Merrill Lynch Canada
Inc., CM Investment Management Inc. and the remaining shares of TAL Global Asset
Management Inc., as well as increased Imperial Service earnings. Operating
earnings were up $10 million from the prior quarter primarily due to lower
expenses resulting from cost management activities including integration
synergies from the acquired businesses, partially offset by reduced revenue.
Operating earnings for the nine months ended July 31, 2002 were $242
million, down $11 million from the same period in 2001 primarily due to lower
revenue earned on GICs as a result of narrower spreads and lower volumes as well
as lower treasury earnings. This was partially offset by increased Imperial
Service commission revenue due to increased loan and mortgage volumes, as well
as earnings from the acquisitions noted above. Reported earnings can be found in
the table above.
Revenue
-------------------------------------------------------------- ---------------------------
For the three months ended For the nine months ended
-------------------------------- ---------------------------
2002 2002 2001 2002 2001
Unaudited, $ millions Jul. 31 Apr. 30 Jul. 31 Jul. 31 Jul. 31
-------------------------------------------------------------- ---------------------------
Reported revenue (TEB)
Imperial Service $ 176 $ 164 $ 168 $ 498 $ 471
Private client investment 336 378 238 1,015 752
Global private banking
and trust 31 30 53 95 117
Wealth products 166 162 116 476 380
Other (2) 17 23 49 52
-------------------------------------------------------------- ---------------------------
707 751 598 2,133 1,772
-------------------------------------------------------------- ---------------------------
-------------------------------------------------------------- ---------------------------
Less:
Gain on sale of
corporate assets -- -- 22 -- 22
-------------------------------------------------------------- ---------------------------
-------------------------------------------------------------- ---------------------------
Operating revenue (TEB)
Imperial Service 176 164 168 498 471
Private client investment 336 378 238 1,015 752
Global private banking
and trust 31 30 31 95 95
Wealth products 166 162 116 476 380
Other (2) 17 23 49 52
-------------------------------------------------------------- ---------------------------
$ 707 $ 751 $ 576 $ 2,133 $ 1,750
-------------------------------------------------------------- ---------------------------
Operating revenue for the quarter was $707 million, up $131 million from
the third quarter of 2001. This was primarily due to an overall increase in the
revenue base for private client investment and wealth products resulting from
the acquisitions of:
o the remaining shares in TAL Global Asset Management Inc. in October 2001;
o the retail brokerage business of Merrill Lynch Canada Inc. in December
2001; and
o CM Investment Management Inc. in January 2002.
Revenue increases were partially offset by a reduction in treasury revenue
and GIC revenue due to narrower spreads and lower volumes. Operating revenue was
down $44 million from the prior quarter due to weaker market
CIBC Third Quarter 2002 11
conditions affecting retail trading volumes and lower treasury revenue.
Operating revenue for the nine months ended July 31, 2002 was $2,133
million, up $383 million from the same period in 2001 primarily due to the
acquisitions and higher Imperial Service revenue, partially offset by lower GIC
revenue. Reported revenue can be found in the table above.
Non-interest expenses
------------------------------------------------------------- ---------------------------
For the three months ended For the nine months ended
------------------------------- ---------------------------
2002 2002 2001 2002 2001
Unaudited, $ millions Jul. 31 Apr. 30 Jul. 31 Jul. 31 Jul. 31
------------------------------------------------------------- ---------------------------
Reported non-interest
expenses $ 626 $ 710 $ 488 $ 1,936 $ 1,413
Less:
Merrill Lynch acquisition-
related costs 44 68 -- 162 --
------------------------------------------------------------- ---------------------------
Operating non-interest
expenses $ 582 $ 642 $ 488 $ 1,774 $ 1,413
------------------------------------------------------------- ---------------------------
Operating non-interest expenses for the quarter were $582 million, up $94
million from the third quarter of 2001. Excluding the ongoing expenses of the
acquired businesses, operating non-interest expenses were down $41 million from
the third quarter of 2001 due to cost management activities. Operating
non-interest expenses were down $60 million from the prior quarter primarily due
to lower revenue-related compensation, integration synergies from acquired
businesses and cost management activities.
Operating non-interest expenses for the nine months ended July 31, 2002
were $1,774 million, up $361 million from the same period in 2001. Excluding the
ongoing expenses of the acquired businesses, operating non-interest expenses
were down $44 million due to cost management activities. Reported non-interest
expenses can be found in the table above.
The regular workforce headcount totaled 9,297, up 2,575 from the third
quarter of 2001 due to the acquisitions noted above. The regular workforce
headcount was down 114 from the prior quarter primarily resulting from the cost
reduction program announced in the fourth quarter of 2001 and integration
synergies from the acquired businesses.
CIBC World Markets
--------------------------------------------------------------------------------
CIBC World Markets is a full-service investment bank, active throughout North
America and with growing capabilities in Europe and niche capabilities in Asia.
--------------------------------------------------------------------------------
Ongoing Objectives Q3 Performance
--------------------------------------------------------------------------------
Generate $1 billion in annual Operating loss for the quarter
net operating income after-tax. was $76 million, bringing year-
to-date operating earnings to
$122 million.
--------------------------------------------------------------------------------
Achieve a 15% - 20% Operating ROE of (10)% for
operating ROE. the quarter and 3% year-to-
date.
--------------------------------------------------------------------------------
Generate $600 million - $800 Revenue of $(116) million in
million in annual merchant the quarter and $407 million
banking revenue. year-to-date.
--------------------------------------------------------------------------------
Earnings
--------------------------------------------------------------------- ---------------------------
For the three months ended For the nine months ended
----------------------------------- ---------------------------
2002 2002 2001 2002 2001
Unaudited, $ millions Jul. 31 Apr. 30 Jul. 31 Jul. 31 Jul. 31
--------------------------------------------------------------------- ---------------------------
Total revenue (TEB) $ 553 $ 982 $ 1,066 $ 2,710 $ 3,241
Non-interest expenses 487 699 685 1,846 2,025
Provision for credit losses 179 283 138 855 367
--------------------------------------------------------------------- ---------------------------
(Loss) income before taxes and
non-controlling interests (113) -- 243 9 849
Income taxes and
non-controlling interests (37) (57) 14 (113) 154
--------------------------------------------------------------------- ---------------------------
Reported (loss) earnings (76) 57 229 122 695
--------------------------------------------------------------------- ---------------------------
--------------------------------------------------------------------- ---------------------------
Less:
Goodwill amortization -- -- (3) -- (10)
--------------------------------------------------------------------- ---------------------------
Operating (loss) earnings $ (76) $ 57 $ 232 $ 122 $ 705
--------------------------------------------------------------------- ---------------------------
--------------------------------------------------------------------- ---------------------------
Reported efficiency ratio 88.1% 71.2% 64.3% 68.1% 62.5%
Reported ROE (10.0)% 4.4% 23.4% 2.7% 21.2%
Reported economic
(loss) profit $ (192) $ (51) $ 116 $ (211) $ 308
--------------------------------------------------------------------- ---------------------------
Operating efficiency ratio 88.1% 71.2% 63.9% 68.1% 62.2%
Operating ROE (10.0)% 4.4% 23.8% 2.7% 21.5%
Operating economic
(loss) profit $ (192) $ (51) $ 119 $ (211) $ 317
--------------------------------------------------------------------- ---------------------------
Operating loss for the quarter was $76 million, a decrease in operating
earnings of $308 million from the third quarter of 2001 primarily due to
significantly lower revenue and higher loan losses, partially offset by lower
non-interest expenses. Operating earnings were down $133 million from the prior
quarter as a result of lower revenue, partially offset by a decrease in the
provision for credit losses and lower non-interest expenses.
Operating earnings for the nine months ended July 31, 2002 were $122
million, down $583 million from the same period in 2001 due to the reasons noted
above related to the prior year. Reported earnings can be found in the table
above.
12 CIBC Third Quarter 2002
Revenue
------------------------------------------------------------- ---------------------------
For the three months ended For the nine months ended
----------------------------------- ---------------------------
2002 2002 2001 2002 2001
Unaudited, $ millions Jul. 31 Apr. 30 Jul. 31 Jul. 31 Jul. 31
------------------------------------------------------------- ---------------------------
Reported and operating
revenue (TEB)
Capital markets $ 279 $ 307 $ 365 $ 1,024 $ 1,214
Investment banking
and credit products 278 354 480 965 1,307
Merchant banking (116) 220 103 407 389
Commercial banking 113 109 125 334 367
Other (1) (8) (7) (20) (36)
------------------------------------------------------------- ---------------------------
$ 553 $ 982 $ 1,066 $ 2,710 $ 3,241
------------------------------------------------------------- ---------------------------
Revenue for the quarter was $553 million, down $513 million from the third
quarter of 2001 due to lower trading and origination activities, along with the
impact of net merchant banking asset write-downs. Revenue was down $429 million
from the prior quarter. This decrease mainly related to merchant banking as the
previous period included significant gains from closing out the remaining hedge
contracts in respect of Global Crossing Ltd. shares, partially offset by asset
write-downs. Trading and origination revenues were also lower than the prior
period, reflecting the impact of continuing difficult financial markets in the
U.S.
Revenue for the nine months ended July 31, 2002 was $2,710 million, down
$531 million from the same period in 2001 due to reduced trading and origination
activity in the U.S. associated with continuing weak economic conditions.
Non-interest expenses
-------------------------------------------------------- ---------------------------
For the three months ended For the nine months ended
------------------------------- ---------------------------
2002 2002 2001 2002 2001
Unaudited, $ millions Jul. 31 Apr. 30 Jul. 31 Jul. 31 Jul. 31
-------------------------------------------------------- ---------------------------
Reported non-interest
expenses $ 487 $ 699 $ 685 $ 1,846 $ 2,025
Less:
Goodwill amortization -- -- 3 -- 10
-------------------------------------------------------- ---------------------------
Operating non-interest
expenses $ 487 $ 699 $ 682 $ 1,846 $ 2,015
-------------------------------------------------------- ---------------------------
Operating non-interest expenses for the quarter were $487 million, down
$195 million from the third quarter of 2001 mainly due to lower variable
compensation. Operating non-interest expenses were down $212 million from the
prior quarter mostly due to the reason noted above. The prior quarter also
included higher severance costs associated with the reduction of staff.
Operating non-interest expenses for the nine months ended July 31, 2002
were $1,846 million, down $169 million from the same period in 2001 mainly due
to the reason noted above. Reported non-interest expenses can be found in the
table above.
The regular workforce headcount totaled 2,824, down 165 from the third
quarter of 2001 reflecting the impact of the cost reduction program announced at
year end and implementation of a more recent program to reduce staff levels. The
regular workforce headcount was down 26 from the prior quarter.
Provision for credit losses
Provision for credit losses for the quarter was $179 million, up $41
million from the third quarter of 2001 as the weak economic conditions
experienced during the previous three quarters continued in the current quarter.
The provision for credit losses was down $104 million from the prior quarter
which included a significant loss in connection with the facilities to Teleglobe
Inc.
Provision for credit losses for the nine months ended July 31, 2002 was
$855 million, up $488 million from the same period in 2001 due to a combination
of deteriorating market conditions and specific provisions relating to Enron
Corporation, Global Crossing Ltd. and Teleglobe Inc.
Amicus
--------------------------------------------------------------------------------
Amicus comprises the co-branded retail electronic banking businesses, including
President's Choice Financial (Loblaw Companies Limited), Marketplace Bank
(Winn-Dixie Stores, Inc.), Safeway SELECT Bank (Safeway Inc.) and the non-branch
ABM business.
--------------------------------------------------------------------------------
Ongoing Objectives Q3 Performance
--------------------------------------------------------------------------------
Add at least one million new 99,000 customers were added
Amicus customers in the two- in the quarter, bringing the total
year period ending October 31, added since October 31, 2000
2002. to 715,000 customers.
--------------------------------------------------------------------------------
Earnings
--------------------------------------------------------------- ---------------------------
For the three months ended For the nine months ended
---------------------------------- ---------------------------
2002 2002 2001 2002 2001
Unaudited, $ millions Jul. 31 Apr. 30 Jul. 31 Jul. 31 Jul. 31
--------------------------------------------------------------- ---------------------------
Total revenue (TEB) $ 62 $ 51 $ 48 $ 159 $ 109
Non-interest expenses 147 144 148 435 395
Provision for credit losses 5 5 3 15 7
--------------------------------------------------------------- ---------------------------
Loss before taxes (90) (98) (103) (291) (293)
Income taxes (36) (34) (39) (106) (113)
--------------------------------------------------------------- ---------------------------
Reported loss (54) (64) (64) (185) (180)
--------------------------------------------------------------- ---------------------------
--------------------------------------------------------------- ---------------------------
Less:
Goodwill amortization -- -- -- -- (3)
--------------------------------------------------------------- ---------------------------
Adjusted loss $ (54) $ (64) $ (64) $ (185) $ (177)
--------------------------------------------------------------- ---------------------------
Adjusted loss for the quarter was $54 million, down $10 million from the
third quarter of 2001 and the prior quarter due to increased revenue. Adjusted
loss for the nine months ended July 31, 2002 was $185 million, up $8 million
from the same period in 2001 due to expense growth partially offset by increased
revenue. Reported loss can be found in the table above.
Revenue for the quarter was $62 million, up $14 million from the third
quarter of 2001 and up $11 million from the prior quarter due to volume growth
and spread improvements. Revenue for the nine months ended July 31, 2002 was
$159 million, up $50 million from the same period in 2001 for the reasons noted
above.
CIBC Third Quarter 2002 13
Non-interest expenses for the quarter were $147 million, comparable to the
third quarter of 2001 and the prior quarter. Non-interest expenses for the nine
months ended July 31, 2002 were $435 million, up $40 million from the same
period in 2001 due to business growth in Canada and the U.S.
The regular workforce headcount totaled 2,518 at the end of the quarter,
down 108 from the third quarter of 2001 due to the cost reduction program. The
regular workforce headcount was up 72 from the prior quarter primarily due to
pavilion growth in the U.S.
Provision for credit losses was $5 million for the quarter, up $2 million
from the third quarter of 2001 due to business growth and unchanged from the
prior quarter. Provision for credit losses for the nine months ended July 31,
2002 was $15 million, up $8 million from the same period in 2001 due to business
growth.
Corporate and Other
--------------------------------------------------------------------------------
Corporate and Other comprises the three functional groups - Treasury, Balance
Sheet and Risk Management; Administration; and Corporate Development - as well
as CIBC Mellon's custody business and other revenue and expense items not
directly attributable to the business lines. Activities of the functional groups
on behalf of CIBC as a whole are captured in Corporate and Other.
Earnings
------------------------------------------------------------------- ---------------------------
For the three months ended For the nine months ended
----------------------------------- ---------------------------
2002 2002 2001 2002 2001
Unaudited, $ millions Jul. 31 Apr. 30 (1) Jul. 31 Jul. 31 Jul. 31
------------------------------------------------------------------- ---------------------------
Reported earnings (loss) $ 23 $ (45) $ (2) $ (80) $ (32)
Less:
Adjustment for tax rate
changes -- -- (21) -- (66)
Events of September 11, 2001 (12) -- -- (12) --
Goodwill amortization -
equity accounted
investments -- -- (4) -- (12)
------------------------------------------------------------------- ---------------------------
Operating earnings (loss) $ 35 $ (45) $ 23 $ (68) $ 46
------------------------------------------------------------------- ---------------------------
(1) Certain comparative figures have been restated resulting from the adoption
of the CICA Handbook section 3870.
Operating earnings for the quarter were $35 million, up $12 million from
the third quarter of 2001 mainly due to the net positive impact of $24 million
related to the early adoption of accounting for stock-based compensation,
partially offset by lower treasury revenue. Operating earnings were up $80
million from the prior quarter mainly due to the reason stated above as well as
lower revenue-related compensation.
Operating loss for the nine months ended July 31, 2002 was $68 million,
compared with operating earnings of $46 million for the same period in 2001,
primarily due to lower treasury revenue and the write-down of a preferred share
investment in the first quarter of 2002. On a year-to-date basis, the net impact
of the early adoption of accounting for stock-based compensation was minimal.
Management of risk and balance sheet
--------------------------------------------------------------------------------
CIBC's approach to management of risk and balance sheet (including
capital) has not changed significantly from that described on pages 46 to 58 of
the 2001 Annual Report. During the quarter, Treasury, Balance Sheet and Risk
Management (TBRM) continued the implementation and execution of its plan to
integrate into a single functional group. The new structure is designed to
enhance service throughout CIBC while maintaining an independent and disciplined
approach to the measurement, monitoring and control of CIBC's risk and balance
sheet resources.
Management of credit risk
Gross impaired loans were $2.29 billion at quarter end, up from $1.70
billion as at October 31, 2001. The largest increase in gross impaired loans was
within the telecommunications, media and technology industry sector, primarily
in the U.S. and Europe. Gross impaired loans increased $263 million in the U.S.,
$59 million in Canada and $268 million in other geographical regions for the
nine months ended July 31, 2002.
Provision for credit losses for the quarter was $290 million, down from
$390 million in the second quarter and up from $254 million for the third
quarter of 2001. Year-to-date provision for credit losses of $1,220 million was
up from $697 million for the same period in 2001. Losses from credit card loans,
resource-based industries and telecommunications, media and technology industry
sectors accounted for 81% of the quarter's losses and 83% of the losses
year-to-date.
CIBC's total allowance for credit losses, which includes specific and
general allowances, was $2.55 billion as at the end of the quarter, up $85
million from the end of the prior quarter, up $258 million from October 31,
2001, and up $269 million from the end of the third quarter of 2001. The
increase in the total allowance is attributable to changes in the specific
allowance.
Total allowance for credit losses continued to exceed gross impaired loans
by $260 million at July 31, 2002, compared with $592 million as at October 31,
2001.
Management of market risk
The table below shows the period end and average RMU (value-at-risk) in
aggregate and by risk-type for CIBC's combined trading activities for the
quarter ended July 31, 2002, and average RMU for fiscal 2002 year-to-date, and
for fiscal 2001. Levels of total risk were below levels of the prior year,
although risk levels increased late in the quarter as more volatile market
conditions were reflected in risk parameters.
CIBC employs a daily backtesting process that compares daily trading
revenue with RMU. Daily trading revenue was positive for 73% of the days in the
quarter, and on no occasion did trading losses exceed RMU.
14 CIBC Third Quarter 2002
--------------------------------------------------------------------------------
RMU BY RISK TYPE - TRADING PORTFOLIO
2002 2002 2002 2001
Unaudited, $ millions Q3 End Q3 Average YTD Average Average
--------------------------------------------------------------------------------
Interest rate risk 3.31 6.59 9.53 7.05
Credit spread risk 7.34 5.54 5.58 8.50
Equity risk 7.90 7.79 8.19 9.81
Foreign exchange risk 0.44 0.53 0.85 0.81
Commodity risk 1.13 0.96 0.88 1.16
Diversification effect (7.97) (10.80) (12.46) (13.13)
--------------------------------------------------------------------------------
Total risk 12.15 10.61 12.57 14.20
--------------------------------------------------------------------------------
Management of liquidity risk
CIBC's liquidity management process includes the maintenance of a pool of
highly liquid assets with sources of funds diversified by customer, currency,
type and geographical location. Total securities as at July 31, 2002 included
liquid assets of $64.1 billion, or 21% of total assets, compared with $57.6
billion, or 20% of total assets, as at October 31, 2001. CIBC also had $23.8
billion of securities borrowed or purchased under resale agreements as at July
31, 2002. In the course of CIBC's regular business activities, certain assets
were pledged as part of collateral or funding management. The amount of pledged
assets as at July 31, 2002 was $44.7 billion.
In July 2002, Moody's Investors Service, one of the agencies that monitors
CIBC's credit ratings, announced that it is placing CIBC's Aa3 long-term credit
rating under review for possible downgrade. This does not impact CIBC's
short-term P-1 credit rating. If CIBC's long-term credit rating were downgraded,
collateral requirements for derivatives transactions could increase (estimated
at $253 million as at July 31, 2002) and CIBC could also face an increase in the
cost of funds.
Management of operational risk
In December 2001, the Risk Management Group of the Basel Committee on
Banking Supervision issued a paper on Sound Practices for the Management and
Supervision of Operational Risk. TBRM's Operational Risk Measurement, Monitoring
and Control (ORMC) Department continues to identify, measure, monitor and
control operational risk in line with emerging industry practices. During the
quarter, ORMC formalized and CIBC's Operations & Administration and Capital &
Risk Committees approved the operational risk measurement, monitoring and
control policies, procedures and standards.
Management of balance sheet
During the nine months ended July 31, 2002, CIBC continued to reallocate
balance sheet resources (including capital) to businesses with strong earnings,
high strategic importance and long-term growth potential. Residential mortgages
continued to exhibit strong growth resulting in an increase of its balance sheet
usage by 11% from October 31, 2001. Similarly, continued strength in credit
cards and personal lending increased the retail-lending component of the balance
sheet by over 9% during the nine months ended July 31, 2002.
CIBC continued to liberate resources from lower return businesses.
Resources allocated to the non-core wholesale loan portfolio were reduced by
approximately 42% since October 31, 2001 through a combination of loan sales,
credit derivatives and maturities.
Overall, CIBC's balance sheet grew by $17.2 billion, to $304.7 billion,
from October 31, 2001. Increases were mainly driven by growth in retail assets
such as residential mortgages ($6.5 billion), personal and credit card loans
($2.6 billion), as well as lower risk assets such as securities ($10.0 billion),
and interest bearing deposits with banks ($1.3 billion). These increases were
partially offset by continued reductions in business and government loans ($2.7
billion), customers' liability under acceptances ($1.4 billion), and by
derivative instruments market valuation ($1.8 billion). CIBC continued to
maintain strong capital ratios through continuous balance sheet resource
management.
The net unrealized excess of market value over book value of CIBC's
investment portfolio totaled $622 million. The unrealized gains in corporate
equity related mainly to investments held in the merchant banking portfolio.
Management of regulatory capital and capital ratios
As at July 31, 2002, CIBC's Tier 1 and total regulatory capital were $11.6
billion and $15.7 billion, respectively, compared with $11.7 billion and $15.6
billion at October 31, 2001. The Tier 1 and the total regulatory capital ratios
stood at 8.8% and 11.9%, respectively, compared with 9.0% and 12.0% at October
31, 2001.
In April 2002, CIBC issued $400 million of non-cumulative Class A
preferred shares Series 25. A portion of the proceeds of these preferred shares,
while structurally qualifying as Tier 1 capital, continues to be temporarily
reported as Tier 2 capital because CIBC's total Tier 1 qualifying preferred
shares exceed the limit of 25% of net Tier 1 capital prescribed by the
regulator.
On January 9, 2002, CIBC began a normal course issuer bid to purchase up
to 18 million common shares. The bid ends January 8, 2003. During the quarter,
no common shares were repurchased. For the nine months ended July 31, 2002,
5,686,000 common shares were repurchased at an average price of $55.05.
CIBC Third Quarter 2002 15
CIBC INTERIM CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
For the three months ended For the nine months ended
-------------------------------------- ---------------------------
2002 2002 2001 2002 2001
Unaudited, $ millions Jul. 31 Apr. 30 (1) Jul. 31 Jul. 31 Jul. 31
--------------------------------------------------------------------------------------------------- ---------------------------
Interest income
Loans $ 2,120 $ 1,976 $ 2,594 $ 6,291 $ 8,341
Securities 677 644 895 2,056 2,808
Deposits with banks 57 53 102 175 344
--------------------------------------------------------------------------------------------------- ---------------------------
2,854 2,673 3,591 8,522 11,493
--------------------------------------------------------------------------------------------------- ---------------------------
Interest expense
Deposits and other liabilities 1,476 1,304 2,341 4,272 8,022
Subordinated indebtedness 53 54 74 166 235
--------------------------------------------------------------------------------------------------- ---------------------------
1,529 1,358 2,415 4,438 8,257
--------------------------------------------------------------------------------------------------- ---------------------------
Net interest income 1,325 1,315 1,176 4,084 3,236
Provision for credit losses 290 390 254 1,220 697
--------------------------------------------------------------------------------------------------- ---------------------------
1,035 925 922 2,864 2,539
--------------------------------------------------------------------------------------------------- ---------------------------
Non-interest income
Fees for services
Underwriting 186 213 168 597 486
Deposit 156 144 135 443 387
Credit 107 104 160 314 373
Card 89 72 86 244 278
Trust and custodial 122 122 75 364 245
Mutual funds 148 159 92 420 262
Insurance 39 40 24 109 75
--------------------------------------------------------------------------------------------------- ---------------------------
847 854 740 2,491 2,106
Commissions on securities transactions 311 332 260 932 858
Trading activities 36 25 302 248 1,139
Investment securities (losses) gains, net (156) 212 105 166 422
Income from securitized assets 41 44 52 130 158
Other 130 187 235 499 602
--------------------------------------------------------------------------------------------------- ---------------------------
1,209 1,654 1,694 4,466 5,285
--------------------------------------------------------------------------------------------------- ---------------------------
2,244 2,579 2,616 7,330 7,824
--------------------------------------------------------------------------------------------------- ---------------------------
Non-interest expenses
Employee compensation and benefits 1,052 1,401 1,240 3,808 3,584
Occupancy costs 179 178 169 523 477
Computer and office equipment 249 243 209 707 599
Communications 110 110 105 318 306
Advertising and business development 65 82 67 206 195
Professional fees 73 74 82 210 197
Business and capital taxes 27 29 27 86 80
Events of September 11, 2001 20 -- -- 20 --
Other 207 196 173 578 505
--------------------------------------------------------------------------------------------------- ---------------------------
1,982 2,313 2,072 6,456 5,943
--------------------------------------------------------------------------------------------------- ---------------------------
Income before income taxes and non-controlling interests 262 266 544 874 1,881
Income taxes 54 32 76 99 399
--------------------------------------------------------------------------------------------------- ---------------------------
208 234 468 775 1,482
Non-controlling interests in net income of subsidiaries 15 7 8 22 38
--------------------------------------------------------------------------------------------------- ---------------------------
Net income $ 193 $ 227 $ 460 $ 753 $ 1,444
--------------------------------------------------------------------------------------------------- ---------------------------
Net income per common share(2) (in dollars) - Basic $ 0.41 $ 0.51 $ 1.15 $ 1.76 $ 3.61
- Diluted $ 0.41 $ 0.51 $ 1.13 $ 1.75 $ 3.55
Dividends per common share (in dollars) $ 0.41 $ 0.41 $ 0.37 $ 1.19 $ 1.07
--------------------------------------------------------------------------------------------------- ---------------------------
(1) In the third quarter of 2002, CIBC early adopted, effective November 1,
2001, the requirements of the Canadian Institute of Chartered Accountants'
(CICA) Handbook section 3870, "Stock-Based Compensation and Other
Stock-Based Payments". Certain comparative figures have been restated. See
note 5 to the interim consolidated financial statements.
(2) On November 1, 2001, CIBC retroactively adopted the requirements of the
CICA Handbook section 3500 in respect of earnings per share. Prior period
information has been restated. See note 3 to the interim consolidated
financial statements.
The accompanying notes are an integral part of the interim consolidated
financial statements.
16 CIBC Third Quarter 2002
CIBC INTERIM CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
2002 2001
Unaudited, $ millions, as at Jul. 31 Oct. 31
------------------------------------------------------------------------------------------ -----------
ASSETS
------------------------------------------------------------------------------------------ -----------
Cash resources
Cash and non-interest bearing deposits with banks $ 1,738 $ 1,528
Interest-bearing deposits with banks 11,107 9,822
------------------------------------------------------------------------------------------ -----------
12,845 11,350
------------------------------------------------------------------------------------------ -----------
Securities
Securities held for investment 26,814 22,849
Securities held for trading 57,880 51,798
Loan substitute securities 88 147
------------------------------------------------------------------------------------------ -----------
84,782 74,794
------------------------------------------------------------------------------------------ -----------
Loans
Residential mortgages 65,205 58,728
Personal and credit card loans 30,517 27,909
Business and government loans 43,468 46,174
Securities borrowed or purchased under resale agreements 23,845 24,079
General allowance for credit losses (1,250) (1,250)
------------------------------------------------------------------------------------------ -----------
161,785 155,640
------------------------------------------------------------------------------------------ -----------
Other
Derivative instruments market valuation 23,890 25,723
Customers' liability under acceptances 6,739 8,100
Land, buildings and equipment 2,339 1,769
Goodwill(1) 1,085 400
Other intangible assets(1) 308 228
Other assets(1) 10,887 9,470
------------------------------------------------------------------------------------------ -----------
45,248 45,690
------------------------------------------------------------------------------------------ -----------
$ 304,660 $ 287,474
------------------------------------------------------------------------------------------ -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------------------------------------------------------------ -----------
Deposits
Individuals $ 70,515 $ 66,826
Businesses and governments 127,208 114,270
Banks 16,847 13,256
------------------------------------------------------------------------------------------ -----------
214,570 194,352
------------------------------------------------------------------------------------------ -----------
Other
Derivative instruments market valuation 23,584 26,395
Acceptances 6,739 8,100
Obligations related to securities sold short 11,342 11,213
Obligations related to securities lent or sold under repurchase agreements 20,111 21,403
Other liabilities 11,863 10,112
------------------------------------------------------------------------------------------ -----------
73,639 77,223
------------------------------------------------------------------------------------------ -----------
Subordinated indebtedness 3,863 3,999
------------------------------------------------------------------------------------------ -----------
Shareholders' equity
Preferred shares 3,097 2,299
Common shares 2,830 2,827
Contributed surplus (Note 5) 21 --
Retained earnings 6,640 6,774
------------------------------------------------------------------------------------------ -----------
12,588 11,900
------------------------------------------------------------------------------------------ -----------
$ 304,660 $ 287,474
------------------------------------------------------------------------------------------ -----------
(1) Goodwill and other intangible assets were reclassified from other assets
in the second quarter of 2002. Comparative figures have been restated to
conform to the presentation used in 2002.
The accompanying notes are an integral part of the interim consolidated
financial statements.
CIBC Third Quarter 2002 17
CIBC INTERIM CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
As at or for the three months ended
---------------------------------------
2002 2002 2001
Unaudited, $ millions Jul. 31 Apr. 30 (1) Jul. 31
-----------------------------------------------------------------------------------------------------------
Preferred shares
Balance at beginning of period $ 3,092 $ 2,698 $ 2,281
Issue of preferred shares -- 400 --
Translation adjustment on foreign currency preferred shares 5 (6) (1)
-----------------------------------------------------------------------------------------------------------
Balance at end of period $ 3,097 $ 3,092 $ 2,280
-----------------------------------------------------------------------------------------------------------
Common shares
Balance at beginning of period $ 2,823 $ 2,836 $ 2,891
Issue of common shares 7 24 12
Purchase of common shares for cancellation -- (37) (40)
-----------------------------------------------------------------------------------------------------------
Balance at end of period $ 2,830 $ 2,823 $ 2,863
-----------------------------------------------------------------------------------------------------------
Contributed surplus (Note 5)
Balance at beginning of period $ 15 $ 6 $ --
Stock option expense 6 9 --
-----------------------------------------------------------------------------------------------------------
Balance at end of period $ 21 $ 15 $ --
-----------------------------------------------------------------------------------------------------------
Retained earnings
Balance at beginning of period $ 6,653 $ 6,911 $ 6,886
Adjustment for change in accounting policy (Note 5) -- (60) --
-----------------------------------------------------------------------------------------------------------
Balance at beginning of period, as restated $ 6,653 $ 6,851 $ 6,886
Net income 193 227 460
Dividends
Preferred (45) (40) (32)
Common (147) (148) (137)
Premium on purchase of common shares -- (223) (229)
Foreign currency translation adjustment, net of income taxes(2) (13) (11) 4
Other (1) (3) (1)
-----------------------------------------------------------------------------------------------------------
Balance at end of period $ 6,640 $ 6,653 $ 6,951
-----------------------------------------------------------------------------------------------------------
As at or for the nine months ended
------------------------------------
2002 2001
Unaudited, $ millions Jul. 31 Jul. 31
--------------------------------------------------------------------------------------------------------
Preferred shares
Balance at beginning of period $ 2,299 $ 1,876
Issue of preferred shares 800 400
Translation adjustment on foreign currency preferred shares (2) 4
--------------------------------------------------------------------------------------------------------
Balance at end of period $ 3,097 $ 2,280
--------------------------------------------------------------------------------------------------------
Common shares
Balance at beginning of period $ 2,827 $ 2,868
Issue of common shares 47 83
Purchase of common shares for cancellation (44) (88)
--------------------------------------------------------------------------------------------------------
Balance at end of period $ 2,830 $ 2,863
--------------------------------------------------------------------------------------------------------
Contributed surplus (Note 5)
Balance at beginning of period $ -- $ --
Stock option expense 21 --
--------------------------------------------------------------------------------------------------------
Balance at end of period $ 21 $ --
--------------------------------------------------------------------------------------------------------
Retained earnings
Balance at beginning of period $ 6,774 $ 6,485
Adjustment for change in accounting policy (Note 5) (42) --
--------------------------------------------------------------------------------------------------------
Balance at beginning of period, as restated $ 6,732 $ 6,485
Net income 753 1,444
Dividends
Preferred (117) (90)
Common (430) (400)
Premium on purchase of common shares (269) (490)
Foreign currency translation adjustment, net of income taxes(2) (16) 15
Other (13) (13)
--------------------------------------------------------------------------------------------------------
Balance at end of period $ 6,640 $ 6,951
--------------------------------------------------------------------------------------------------------
(1) Certain comparative figures have been restated resulting from the adoption
of the CICA Handbook section 3870.
(2) The cumulative balance in the foreign currency translation account is a
gain of $24 million (April 30, 2002: $37 million; July 31, 2001: $17
million).
The accompanying notes are an integral part of the interim consolidated
financial statements.
18 CIBC Third Quarter 2002
CIBC INTERIM CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended
-------------------------------------------
2002 2002 2001
Unaudited, $ millions Jul. 31 Apr. 30 (1) Jul. 31
------------------------------------------------------------------------------------------------------------------------------
Cash flows provided by (used in) operating activities
Net income $ 193 $ 227 $ 460
Adjustments to determine net cash flows:
Provision for credit losses 290 390 254
Amortization of buildings, equipment and leasehold improvements 84 85 80
Amortization of goodwill -- -- 4
Amortization of intangible assets 7 8 8
Future income taxes (18) (111) 40
Investment securities losses (gains), net 156 (212) (105)
Accrued interest receivable 84 (152) 128
Accrued interest payable (562) (64) (407)
Net change in securities held for trading (4,184) 1,407 7,592
Gains on disposal of subsidiaries -- -- (22)
Loss (gain) on disposal of land, buildings and equipment -- 1 (1)
Current income taxes 77 130 (68)
Other, net (719) 621 (186)
------------------------------------------------------------------------------------------------------------------------------
(4,592) 2,330 7,777
------------------------------------------------------------------------------------------------------------------------------
Cash flows provided by (used in) financing activities
Deposits, net of withdrawals 10,660 1,439 (3,063)
Obligations related to securities sold short (3,693) 1,809 (1,524)
Net obligations related to securities lent or sold under repurchase agreements 3,366 (888) 2,644
Redemption of subordinated indebtedness -- (132) --
Issue of preferred shares -- 400 --
Issue of common shares 7 24 12
Purchase of common shares for cancellation -- (260) (269)
Dividends (192) (188) (169)
Other, net (445) (230) 167
------------------------------------------------------------------------------------------------------------------------------
9,703 1,974 (2,202)
------------------------------------------------------------------------------------------------------------------------------
Cash flows provided by (used in) investing activities
Interest-bearing deposits with banks 1,170 (2,913) 980
Loans, net of repayments (4,056) (3,201) (3,308)
Proceeds from securitizations 714 642 400
Purchase of securities held for investment (9,545) (11,193) (8,413)
Proceeds on sale of securities held for investment 8,723 6,959 3,507
Net securities borrowed or purchased under resale agreements (1,602) 5,622 1,249
Net cash related to acquisitions -- 29 --
Proceeds from disposal of subsidiaries -- -- 54
Purchase of land, buildings and equipment (156) (112) (100)
Proceeds from disposal of land, buildings and equipment 2 -- 2
------------------------------------------------------------------------------------------------------------------------------
(4,750) (4,167) (5,629)
------------------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash and cash equivalents 4 (6) --
------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents during period 365 131 (54)
Cash and cash equivalents at beginning of period 1,344 1,213 1,376
------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 1,709 $ 1,344 $ 1,322
------------------------------------------------------------------------------------------------------------------------------
Represented by:
Cash and non-interest-bearing deposits with banks $ 1,738 $ 1,612 $ 1,463
Cheques and other items in transit, net (29) (268) (141)
------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 1,709 $ 1,344 $ 1,322
------------------------------------------------------------------------------------------------------------------------------
Cash interest paid $ 2,091 $ 1,421 $ 2,821
Cash income taxes (recovered) paid $ (88) $ 94 $ 125
------------------------------------------------------------------------------------------------------------------------------
For the nine months ended
---------------------------
2002 2001
Unaudited, $ millions Jul. 31 Jul. 31
---------------------------------------------------------------------------------------------------------------
Cash flows provided by (used in) operating activities
Net income $ 753 $ 1,444
Adjustments to determine net cash flows:
Provision for credit losses 1,220 697
Amortization of buildings, equipment and leasehold improvements 249 232
Amortization of goodwill -- 18
Amortization of intangible assets 24 18
Future income taxes (376) (194)
Investment securities losses (gains), net (166) (422)
Accrued interest receivable 195 151
Accrued interest payable (559) (523)
Net change in securities held for trading (6,082) (1,746)
Gains on disposal of subsidiaries -- (22)
Loss (gain) on disposal of land, buildings and equipment (7) (11)
Current income taxes 308 (549)
Other, net (817) (950)
---------------------------------------------------------------------------------------------------------------
(5,258) (1,857)
---------------------------------------------------------------------------------------------------------------
Cash flows provided by (used in) financing activities
Deposits, net of withdrawals 20,218 5,036
Obligations related to securities sold short 129 (1,811)
Net obligations related to securities lent or sold under repurchase agreements (1,292) 13,461
Redemption of subordinated indebtedness (132) (12)
Issue of preferred shares 800 400
Issue of common shares 47 83
Purchase of common shares for cancellation (313) (578)
Dividends (547) (490)
Other, net (15) (342)
---------------------------------------------------------------------------------------------------------------
18,895 15,747
---------------------------------------------------------------------------------------------------------------
Cash flows provided by (used in) investing activities
Interest-bearing deposits with banks (1,285) (663)
Loans, net of repayments (8,955) (5,578)
Proceeds from securitizations 1,356 400
Purchase of securities held for investment (28,664) (17,673)
Proceeds on sale of securities held for investment 24,924 11,146
Net securities borrowed or purchased under resale agreements 234 (1,505)
Net cash related to acquisitions (626) --
Proceeds from disposal of subsidiaries -- 54
Purchase of land, buildings and equipment (398) (291)
Proceeds from disposal of land, buildings and equipment 2 14
---------------------------------------------------------------------------------------------------------------
(13,412) (14,096)
---------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash and cash equivalents (3) 4
---------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents during period 222 (202)
Cash and cash equivalents at beginning of period 1,487 1,524
---------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 1,709 $ 1,322
---------------------------------------------------------------------------------------------------------------
Represented by:
Cash and non-interest-bearing deposits with banks $ 1,738 $ 1,463
Cheques and other items in transit, net (29) (141)
---------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 1,709 $ 1,322
---------------------------------------------------------------------------------------------------------------
Cash interest paid $ 4,997 $ 8,780
Cash income taxes (recovered) paid $ 184 $ 1,096
---------------------------------------------------------------------------------------------------------------
(1) Certain comparative figures have been restated resulting from the adoption
of the CICA Handbook section 3870.
The accompanying notes are an integral part of the interim consolidated
financial statements.
CIBC Third Quarter 2002 19
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
1. Accounting Policies
The interim consolidated financial statements of Canadian Imperial Bank of
Commerce and its subsidiaries (CIBC) have been prepared in accordance with
Canadian generally accepted accounting principles, including the accounting
requirements of the Superintendent of Financial Institutions, Canada (OSFI).
CIBC's interim consolidated financial statements follow the same
accounting policies and methods of their application as CIBC's consolidated
financial statements for the year ended October 31, 2001, except for the change
in accounting for earnings per share as described in note 3, the change in
accounting for business combinations, goodwill and other intangible assets as
described in note 4 and the change in accounting for stock-based compensation as
described in note 5. CIBC's interim consolidated financial statements should be
read in conjunction with the consolidated financial statements for the year
ended October 31, 2001, as set out on pages 62 to 100 of CIBC's 2001 Annual
Report.
2. Interim Financial Statements
During the first quarter of 2002, CIBC adopted the Canadian Institute of
Chartered Accountants' (CICA) Handbook section 1751, "Interim Financial
Statements", which changed the requirements for the presentation and disclosure
of interim financial statements and their accompanying notes.
3. Earnings Per Share (EPS)
During the first quarter of 2002, CIBC adopted the CICA Handbook section
3500, "Earnings Per Share". The requirements of section 3500 were adopted
retroactively, and basic and diluted EPS figures for prior periods were
restated. As a result, CIBC's basic EPS were unchanged for the three and nine
months ended July 31, 2001, and CIBC's diluted EPS were increased by $0.01 and
$0.04 for the three and nine months ended July 31, 2001, respectively.
---------------------------------------------------------------------------------------------------------------------------------
For the three months ended For the nine months ended
--------------------------------------- ----------------------------
2002 2002 2001 2002 2001
Unaudited, $ millions (except per share amounts) Jul. 31 Apr. 30 (1) Jul. 31 Jul. 31 Jul. 31
------------------------------------------------------------------------------------------------ ----------------------------
Basic EPS
Net income $ 193 $ 227 $ 460 $ 753 $ 1,444
Preferred share dividends and premiums (45) (42) (33) (121) (94)
------------------------------------------------------------------------------------------------ ----------------------------
Net income applicable to common shares $ 148 $ 185 $ 427 $ 632 $ 1,350
------------------------------------------------------------------------------------------------ ----------------------------
Average common shares outstanding (thousands) 358,961 360,817 371,042 361,057 374,445
------------------------------------------------------------------------------------------------ ----------------------------
Per share $ 0.41 $ 0.51 $ 1.15 $ 1.76 $ 3.61
------------------------------------------------------------------------------------------------ ----------------------------
Diluted EPS
Net income applicable to common shares $ 148 $ 185 $ 427 $ 632 $ 1,350
------------------------------------------------------------------------------------------------ ----------------------------
Average common shares outstanding (thousands) 358,961 360,817 371,042 361,057 374,445
------------------------------------------------------------------------------------------------ ----------------------------
Stock options potentially exercisable(2) 10,237 12,304 17,788
Shares potentially repurchased (7,824) (8,801) (12,257)
------------------------------------------------------------------------------------------------ ----------------------------
Number of incremental shares 2,413 3,503 5,531 3,186(3) 5,497(3)
------------------------------------------------------------------------------------------------ ----------------------------
Average diluted common shares outstanding (thousands) 361,374 364,320 376,573 364,243 379,942
------------------------------------------------------------------------------------------------ ----------------------------
Per share $ 0.41 $ 0.51 $ 1.13 $ 1.75 $ 3.55
------------------------------------------------------------------------------------------------ ----------------------------
(1) Certain comparative figures have been restated resulting from the adoption
of the CICA Handbook section 3870.
(2) The computation of diluted EPS excludes average options outstanding of
4,347,938 with a weighted-average exercise price of $53.94; average
options outstanding of 2,621,259 with a weighted-average exercise price of
$55.10; and average options outstanding of 1,355,667 with a
weighted-average exercise price of $52.57 for the three months ended July
31, 2002, April 30, 2002 and July 31, 2001, respectively, as the options'
exercise prices were greater than the average market price of CIBC's
common shares. Also excluded from the computation are average options
outstanding of 578,889 with a weighted-average exercise price of $37.60;
average options outstanding of 597,111 with a weighted-average exercise
price of $37.60; and average options outstanding of 611,333 with a
weighted-average exercise price of $37.60 for the three months ended July
31, 2002, April 30, 2002 and July 31, 2001, respectively, as these options
are performance based and the vesting criteria for these options had not
been achieved.
(3) The number of incremental shares is determined by computing a year-to-date
weighted-average of the number of incremental shares included in each
interim period.
20 CIBC Third Quarter 2002
4. Business Combinations, Goodwill and Other Intangible Assets
On November 1, 2001, CIBC adopted the requirements of the CICA Handbook
section 3062, "Goodwill and Other Intangible Assets", which addresses the
accounting and disclosure requirements for goodwill and other intangible assets.
CIBC adopted the requirements of the CICA Handbook section 1581, "Business
Combinations", in fiscal 2001. Under section 1581, if certain criteria are met
upon the initial adoption of section 3062, reclassifications between goodwill
and other intangible assets are required for any business combinations completed
before July 1, 2001. The implementation of section 3062 did not have a
significant impact on CIBC and no reclassifications were required.
During the second quarter of 2002, CIBC completed its impairment testing
on the balance of goodwill and other intangible assets with an indefinite life
as at the adoption date. There were no impairment losses as at the adoption
date.
Transitional provisions of section 3062 require that amortization of
goodwill (including that relating to equity accounted investments) and
intangible assets with an indefinite life cease after October 31, 2001. The
transitional provisions of section 3062 require the following disclosures:
-------------------------------------------------------------------------------------------------------------------------------
For the three months ended For the nine months ended
----------------------------------- ---------------------------
2002 2002 2001 2002 2001
Unaudited, $ millions (except per share amounts) Jul. 31 Apr. 30 (1) Jul. 31 Jul. 31 Jul. 31
------------------------------------------------------------------------------------------------ ---------------------------
Reported net income $ 193 $ 227 $ 460 $ 753 $ 1,444
Add back:
Goodwill amortization(2) -- -- 4 -- 18
Goodwill amortization - equity accounted investments(3) -- -- 7 -- 16
------------------------------------------------------------------------------------------------ ---------------------------
-- -- 11 -- 34
------------------------------------------------------------------------------------------------ ---------------------------
Net income adjusted for goodwill amortization $ 193 $ 227 $ 471 $ 753 $ 1,478
------------------------------------------------------------------------------------------------ ---------------------------
Basic EPS - Reported $ 0.41 $ 0.51 $ 1.15 $ 1.76 $ 3.61
- Adjusted for goodwill $ 0.41 $ 0.51 $ 1.18 $ 1.76 $ 3.70
Diluted EPS - Reported $ 0.41 $ 0.51 $ 1.13 $ 1.75 $ 3.55
- Adjusted for goodwill $ 0.41 $ 0.51 $ 1.16 $ 1.75 $ 3.64
------------------------------------------------------------------------------------------------ ---------------------------
(1) Certain comparative figures have been restated resulting from the adoption
of the CICA Handbook section 3870.
(2) Recorded in non-interest expenses in the interim consolidated statements
of income.
(3) Recorded in interest income in the interim consolidated statements of
income.
5. Stock-based compensation
During the third quarter of 2002, CIBC early adopted, effective November
1, 2001, the requirements of the CICA Handbook section 3870, "Stock-Based
Compensation and Other Stock-Based Payments". The impact of this change in
accounting policy is detailed below:
Stock Option Plans
As encouraged by section 3870, CIBC has adopted the fair-value based
method to account for stock-based transactions with employees and non-officer
members of CIBC's Board of Directors. Consequently, options granted on or after
November 1, 2001 have been valued using the Black-Scholes option-pricing model.
The value is being recognized over the applicable vesting period as an increase
to compensation expense and contributed surplus. The non-officer Directors
options vest immediately upon grant and the employee stock options vest over
four years. As a result, compensation expense increased by $6 million for the
quarter and $21 million for the nine months ended July 31, 2002. When the
options are exercised, the proceeds received by CIBC, together with the amount
in contributed surplus, will be credited to share capital. None of the options
granted since November 1, 2001 have been exercised.
For options granted prior to November 1, 2001, CIBC continues to follow
the accounting policy under which no expense is recognized for these stock
options. When these options are exercised, the proceeds received by CIBC are
recorded as share capital. During the nine months ended July 31, 2002, proceeds
of $47 million were credited to share capital for these options.
The weighted-average grant-date fair value of options granted in the first
nine months of 2002 has been estimated at $16.27 using the Black-Scholes
option-pricing model. The pricing model assumes weighted-average risk-free
interest rates of 5.42%, weighted-average expected dividend yields of 3.00%
annually, weighted-average expected common stock price volatility of 25.86% and
a weighted-average expected life of 10 years.
Assuming CIBC were to continue activity in its stock option plans at
comparable levels for the next four years and assuming all fair value and
vesting assumptions remain unchanged, then in 2005 and thereafter the impact on
net income would be approximately $49 million and estimated diluted EPS impact
would be $0.13 per annum.
A maximum of 42,834,500 common shares may be issued under CIBC's Stock
Option Plans.
CIBC Third Quarter 2002 21
Stock Appreciation Rights (SARs)
Up to 50% of options relating to the Employee Stock Option Plan granted
prior to 2000 can be exercised as SARs. SARs can be exchanged for a cash amount
equal to the difference between the option strike price and the weighted-average
price of the common shares on the Toronto Stock Exchange the day immediately
preceding the day the SARs are exercised.
Under section 3870, the cost of these SARs must be measured on an ongoing
basis. The amount by which the quoted market price exceeds the option strike
price for vested SARs must be recognized as compensation (expense) credit in the
period in which the change in the market price occurs. An increase in CIBC's
share price will result in an increase in compensation expense, whereas a
decline in share price will result in a decrease to compensation expense. The
section requires that the cumulative amount relating to all vested SARs
outstanding at the beginning of the fiscal year of adoption be charged to
opening retained earnings for that fiscal year. This resulted in a $42 million
after-tax charge to opening retained earnings at November 1, 2001, a $72 million
pre-tax increase in liabilities and a reduction in future income taxes of $30
million. Compensation expense decreased by $49 million for the quarter and by
$24 million for the nine months ended July 31, 2002.
The consolidated financial statements for first and second quarters of
2002 have been restated. The accounting for other stock-based compensation plans
is not affected by this change. Details of the stock-based compensation plans
are included in Note 13 to the consolidated financial statements in the 2001
Annual Report.
The effect of the new accounting policy on prior quarters is detailed
below:
-------------------------------------------------------------------------------------------------------------------------
NET INCOME
Unaudited, $ millions (except per share amounts), for the three months ended April 30, 2002 January 31, 2002
------------------------------------------------------------------------------------------------- ------------------
As previously reported $ 235 $ 355
Adjustment for change in accounting policy
- Stock appreciation rights 1 (26)
- Stock options (9) (6)
- Tax impact relating to stock appreciation rights -- 10
------------------------------------------------------------------------------------------------- ------------------
As restated $ 227 $ 333
------------------------------------------------------------------------------------------------- ------------------
Basic EPS - Reported $ 0.53 $ 0.88
- Adjusted for change in accounting policy $ 0.51 $ 0.82
Diluted EPS - Reported $ 0.53 $ 0.87
- Adjusted for change in accounting policy $ 0.51 $ 0.82
------------------------------------------------------------------------------------------------- ------------------
The following table summarizes the activity in the stock option plans during the
nine months ended at:
----------------------------------------------------------------------------------------------------------------------------------
STOCK OPTION PLANS
July 31, 2002 July 31, 2001
-------------------------------------- --------------------------------------
Number of Weighted average Number of Weighted average
Unaudited, as at or for the nine months ended stock options exercise price stock options exercise price
--------------------------------------------------------------------------------------- --------------------------------------
Outstanding at end of period 19,070,952 $36.55 20,247,187 $33.28
Granted 3,018,116 $54.60 3,003,226 $48.60
Exercised (1,548,238) $30.76 (2,754,881) $30.31
Forfeited/Cancelled (226,782) $41.22 (515,070) $37.92
Exercised as SARs (301,525) $30.03 (422,540) $26.53
--------------------------------------------------------------------------------------- --------------------------------------
Outstanding at end of period 20,012,523 $39.77 19,557,922 $36.44
--------------------------------------------------------------------------------------- --------------------------------------
Exercisable at end of period 11,513,476 $34.84 10,392,511 $31.86
--------------------------------------------------------------------------------------- --------------------------------------
The following table provides information relating to options outstanding and
options vested as at July 31, 2002:
--------------------------------------------------------------------------------------------------------------------------------
OPTIONS OUTSTANDING
Stock options outstanding Stock options vested
---------------------------------------------------- ------------------------------------------------
Weighted-average
Unaudited Number contractual life Weighted-average Number Weighted-average Exercisable
Range of exercise prices outstanding remaining exercise price vested exercise price as SARs
------------------------------------------------------------------------------ ------------------------------------------------
$15.375 - $21.125 2,183,669 2.58 $18.64 2,183,669 $18.64 1,135,990
$31.700 - $39.150 9,325,985 6.65 $36.86 6,018,468 $36.42 2,554,726
$40.350 - $49.940 4,212,737 6.71 $42.67 2,941,664 $41.44 1,246,292
$50.910 - $57.190 4,290,132 9.13 $53.99 369,675 $52.56 --
------------------------------------------------------------------------------ ------------------------------------------------
Total 20,012,523 6.75 $39.77 11,513,476 $34.84 4,937,008
------------------------------------------------------------------------------ ------------------------------------------------
22 CIBC Third Quarter 2002
6. Acquisitions
In March 2002, CIBC acquired control of Juniper Financial Corp. (Juniper).
During the third quarter of 2002, CIBC invested an additional $79 million into
Juniper in the form of Class D Preferred Shares. CIBC reviewed the purchase
price equation to reflect the additional $79 million investment and reduced the
values attributed to goodwill and non-controlling interests by $54 million. As
at July 31, 2002, CIBC owned 92% of voting equity in Juniper.
During the first quarter of 2002, CIBC acquired Merrill Lynch Canada
Inc.'s Private Client & Securities Services businesses and Merrill Lynch
Investment Managers Canada Inc. (MLIM), Merrill Lynch's asset management
business in Canada, for cash. MLIM was subsequently renamed CM Investment
Management Inc. CIBC is in the process of integrating the acquired businesses'
operations with its existing operations. As part of the integration plan, CIBC
expected staff reductions, branch closures and exiting of certain activities of
the acquired businesses; these costs were accrued as liabilities in the purchase
equation. CIBC expects the integration to be substantially completed by the end
of this year.
The results of operations of these businesses have been included in CIBC's
interim consolidated financial statements since their respective closing dates.
Details of these transactions are as follows:
------------------------------------------------------------------------------------------------------------------------------------
Merrill Lynch Canada Inc.'s
Private Client & Merrill Lynch
Securities Services Investment Managers
Unaudited Juniper Financial Corp. Businesses Canada Inc.
------------------------------------------------------------------------------------------------------------------------------------
Date of closing March 29, 2002(1)/July 30, 2002 December 28, 2001 January 31, 2002
Percentage of voting shares acquired 92% Asset Purchase 100%
Goodwill ($ millions) $ 108 $ 561 $ 7
- Business line assigned to CIBC World Markets Wealth Management Wealth Management
- Deductible for tax purposes -- $ 376 --
Other intangible assets ($ millions) -- -- $ 75
- Assigned to -- -- Mutual Fund Management Contracts
- Subject to amortization -- -- Indefinite Life
------------------------------------------------------------------------------------------------------------------------------------
(1) The Juniper Financial Corp. closing date reflects the date on which CIBC
obtained control.
Details of the aggregate consideration given and the fair values of net assets
acquired are as follows:
--------------------------------------------------------------------------------------------------------------------------------
Merrill Lynch Canada Inc.'s
Private Client & Merrill Lynch
Securities Services Investment Managers
Unaudited, $ millions Juniper Financial Corp. (1) Businesses Canada Inc.
--------------------------------------------------------------------------------------------------------------------------------
Aggregate consideration
Acquisition cost (paid in cash) $ 310 $ 555 (2) $ 71 (2)
Direct acquisition expenses -- 4 --
--------------------------------------------------------------------------------------------------------------------------------
$ 310 $ 559 $ 71
--------------------------------------------------------------------------------------------------------------------------------
Fair values of net assets acquired (3)
Cash resources $ 117 $ -- $ 28
Loans 356 -- --
Land, buildings and equipment 27 28 2
Goodwill 108 561 7
Other intangible assets -- -- 75
Future tax asset -- 26 --
Other assets 50 5 24
--------------------------------------------------------------------------------------------------------------------------------
Total assets acquired $ 658 $ 620 $ 136
--------------------------------------------------------------------------------------------------------------------------------
Deposits 334 -- --
Future tax liability -- -- 26
Integration liabilities -- 51 (4) 7 (5)
Other liabilities 14 10 32
--------------------------------------------------------------------------------------------------------------------------------
Total liabilities assumed $ 348 $ 61 $ 65
--------------------------------------------------------------------------------------------------------------------------------
Net assets acquired $ 310 $ 559 $ 71
--------------------------------------------------------------------------------------------------------------------------------
(1) The purchase price equation has been adjusted and restated to reflect the
additional $79 million investment made during the third quarter of 2002.
(2) The acquisition cost was adjusted in the second quarter from the amount
reported in the first quarter of 2002, reflecting the updated number of
investment advisors joining CIBC.
(3) The allocation of the purchase price is subject to revision as CIBC is in
the process of completing the valuation of the assets acquired and
liabilities assumed.
(4) Includes severance of $26 million, exit costs of $19 million and other
costs of $6 million.
(5) Includes severance of $5 million, exit costs of $1 million and other costs
of $1 million.
CIBC Third Quarter 2002 23
During the second quarter of 2002, CIBC completed the review and
determination of the fair values of the assets acquired and liabilities assumed
from the acquisition of the remaining shares in TAL Global Asset Management Inc.
in October 2001. As a result, goodwill increased by $14 million, other assets
decreased by $24 million and future tax liability decreased by $10 million.
During the second quarter, CIBC also completed assessing useful lives of the
identified intangible assets acquired, of which $41 million relating to mutual
fund management contracts have been determined to have an indefinite life. The
remaining identified intangible assets are amortized over periods ranging from 5
to 10 years.
7. Securitization
During the third quarter of 2002, CIBC securitized $670 million of
government guaranteed residential mortgage loans through the creation of
mortgage-backed securities, and subsequently sold $726 million from those
securities and the unsold mortgage-backed securities created in the second
quarter of 2002. CIBC received net cash proceeds of $714 million and retained
the rights to future excess interest on the residential mortgages valued at $26
million. A pre-tax loss on sale, net of transaction costs, of $2 million was
recognized as other non-interest income in the interim consolidated statements
of income. CIBC retained responsibility for servicing the mortgages and
recognizes revenue for servicing as these services are provided. The key
assumptions used to value the sold and retained interests include a pre-payment
rate of 12% and a discount rate of 5.1%. There are no expected credit losses as
the mortgages are government guaranteed.
During the second quarter of 2002, CIBC securitized $703 million of
government guaranteed residential mortgage loans through the creation of
mortgage-backed securities, and subsequently sold $645 million of those
securities. CIBC received net cash proceeds of $642 million and retained the
rights to future excess interest on the residential mortgages valued at $30
million. A pre-tax gain on sale, net of transaction costs, of $10 million was
recognized as other non-interest income in the interim consolidated statements
of income. CIBC retained responsibility for servicing the mortgages and
recognizes revenue for servicing as these services are provided. The key
assumptions used to value the sold and retained interests include a pre-payment
rate of 12% and discount rates of 4.9% - 5.5%. There are no expected credit
losses as the mortgages are government guaranteed.
Future accounting development
CIBC uses special purpose entities (SPE's) to securitize its own assets,
to provide clients access to liquidity in the commercial paper market through
CIBC administered conduits and as an intermediary, to structure SPE transactions
for clients.
In August 2002, CICA issued a draft guideline "Consolidation of
Special-Purpose Entities". As well, in June 2002, the Financial Accounting
Standards Board in the U.S. issued an exposure draft addressing the accounting
for SPE's. The impact of these drafts on CIBC's consolidated financial
statements is not yet determinable.
8. Segmented Information
During the first quarter of 2002, CIBC expanded and realigned its business
lines as part of its strategy to focus more on retail-related operations. CIBC's
reporting structure was expanded from four to five business lines, with Amicus
reflected separately. In addition, two of the business lines were renamed to
reflect the nature of their businesses. CIBC's five business lines are: Retail
Products (formerly Electronic Commerce, Technology and Operations); Retail
Markets (formerly Retail and Small Business Banking); Wealth Management; CIBC
World Markets; and Amicus (formerly part of Electronic Commerce, Technology and
Operations). These business lines are supported by three functional groups -
Treasury, Balance Sheet and Risk Management; Administration; and Corporate
Development.
More specifically, during the first quarter of 2002, CIBC realigned the
following businesses:
o the payments business (chequing, savings and current accounts) and
electronic banking services, specifically, telephone banking, Internet
banking and branch ABMs, moved from Retail Products to Retail Markets;
o non-branch ABMs andPresident's Choice Financial mortgages moved from
Retail Products to Amicus;
o lending products moved from Retail Markets to Retail Products; and
o asset management moved from private client investment (formerly private
client investment and asset management) to wealth products, both within
Wealth Management.
As a result, prior period segmented information for 2001 has been restated
to conform with the presentation adopted in the first quarter of 2002.
During the third quarter of 2002, it was announced that management
responsibility for various lines of business within Retail Products would be
redistributed. The segmented financial information is expected to be aligned to
reflect the new structure in the fourth quarter of 2002.
24 CIBC Third Quarter 2002
------------------------------------------------------------------------------------------------------------------
SEGMENTED INCOME STATEMENTS
CIBC
Retail Retail Wealth World
Unaudited, $ millions, for the three months ended Products Markets Management Markets
------------------------------------------------------------------------------------------------------------------
Jul. 31, 2002 Net interest income (TEB)(4) $ 595 $ 369 $ 139 $ 205
Non-interest income 208 184 467 294
Intersegment revenue(5) (178) 24 101 54
------------------------------------------------------------------------------------------------------------------
Total revenue (TEB)(4) 625 577 707 553
Non-interest expenses 270 465 626 487
Provision for credit losses 106 -- -- 179
------------------------------------------------------------------------------------------------------------------
Income (loss) before taxes and
non-controlling interests 249 112 81 (113)
Income taxes 80 26 24 (40)
Non-controlling interests 3 9 -- 3
------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 166 $ 77 $ 57 $ (76)
------------------------------------------------------------------------------------------------------------------
Average assets (6) $ 129,908 $ 16,048 $ 28,156 $ 115,211
------------------------------------------------------------------------------------------------------------------
Apr. 30, 2002(1) Net interest income (TEB)(4) $ 595 $ 345 $ 155 $ 186
Non-interest income 203 154 510 743
Intersegment revenue(5) (151) 14 86 53
------------------------------------------------------------------------------------------------------------------
Total revenue (TEB)(4) 647 513 751 982
Non-interest expenses 257 442 710 699
Provision for credit losses 99 3 -- 283
------------------------------------------------------------------------------------------------------------------
Income (loss) before taxes and
non-controlling interests 291 68 41 --
Income taxes 92 11 8 (54)
Non-controlling interests 3 7 -- (3)
------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 196 $ 50 $ 33 $ 57
------------------------------------------------------------------------------------------------------------------
Average assets (6) $ 126,173 $ 15,507 $ 27,693 $ 114,935
------------------------------------------------------------------------------------------------------------------
Jul. 31, 2001(2) Net interest income (TEB)(4) $ 530 $ 371 $ 139 $ 87
Non-interest income 195 161 364 923
Intersegment revenue(5) (117) (32) 95 56
------------------------------------------------------------------------------------------------------------------
Total revenue (TEB)(4) 608 500 598 1,066
Non-interest expenses 252 439 488 685
Provision for credit losses 108 5 -- 138
------------------------------------------------------------------------------------------------------------------
Income (loss) before taxes and
non-controlling interests 248 56 110 243
Income taxes 85 3 20 14
Non-controlling interests 3 6 -- --
------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 160 $ 47 $ 90 $ 229
------------------------------------------------------------------------------------------------------------------
Average assets (6) $ 117,417 $ 14,335 $ 23,971 $ 121,138
------------------------------------------------------------------------------------------------------------------
Unaudited, $ millions, for the nine months ended
------------------------------------------------------------------------------------------------------------------
Jul. 31, 2002 Net interest income (TEB)(4) $ 1,871 $ 1,066 $ 455 $ 605
Non-interest income 604 490 1,405 1,948
Intersegment revenue(5) (465) 38 273 157
------------------------------------------------------------------------------------------------------------------
Total revenue (TEB)(4) 2,010 1,594 2,133 2,710
Non-interest expenses 796 1,341 1,936 1,846
Provision for credit losses 336 14 -- 855
------------------------------------------------------------------------------------------------------------------
Income (loss) before taxes and
non-controlling interests 878 239 197 9
Income taxes 287 47 54 (105)
Non-controlling interests 9 21 -- (8)
------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 582 $ 171 $ 143 $ 122
------------------------------------------------------------------------------------------------------------------
Average assets (6) $ 126,993 $ 15,547 $ 26,837 $ 116,231
------------------------------------------------------------------------------------------------------------------
Jul. 31, 2001(2) Net interest income (TEB)(4) $ 1,486 $ 1,124 $ 427 $ 93
Non-interest income 645 465 1,079 2,979
Intersegment revenue(5) (311) (118) 266 169
------------------------------------------------------------------------------------------------------------------
Total revenue (TEB)(4) 1,820 1,471 1,772 3,241
Non-interest expenses 729 1,247 1,413 2,025
Provision for credit losses 306 17 -- 367
------------------------------------------------------------------------------------------------------------------
Income (loss) before taxes and
non-controlling interests 785 207 359 849
Income taxes 263 16 84 143
Non-controlling interests 8 19 -- 11
------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 514 $ 172 $ 275 $ 695
------------------------------------------------------------------------------------------------------------------
Average assets (6) $ 115,545 $ 14,212 $ 22,751 $ 123,121
------------------------------------------------------------------------------------------------------------------
Corporate CIBC
Unaudited, $ millions, for the three months ended Amicus and Other (3) Total
----------------------------------------------------------------------------------------------
Jul. 31, 2002 Net interest income (TEB)(4) $ 33 $ 12 $ 1,353
Non-interest income 29 27 1,209
Intersegment revenue(5) -- (1) --
----------------------------------------------------------------------------------------------
Total revenue (TEB)(4) 62 38 2,562
Non-interest expenses 147 (13) 1,982
Provision for credit losses 5 -- 290
----------------------------------------------------------------------------------------------
Income (loss) before taxes and
non-controlling interests (90) 51 290
Income taxes (36) 28 82
Non-controlling interests -- -- 15
----------------------------------------------------------------------------------------------
Net income (loss) $ (54) $ 23 $ 193
----------------------------------------------------------------------------------------------
Average assets (6) $ 5,652 $ -- $ 294,975
----------------------------------------------------------------------------------------------
Apr. 30, 2002(1) Net interest income (TEB)(4) $ 23 $ 32 $ 1,336
Non-interest income 28 16 1,654
Intersegment revenue(5) -- (2) --
----------------------------------------------------------------------------------------------
Total revenue (TEB)(4) 51 46 2,990
Non-interest expenses 144 61 2,313
Provision for credit losses 5 -- 390
----------------------------------------------------------------------------------------------
Income (loss) before taxes and
non-controlling interests (98) (15) 287
Income taxes (34) 30 53
Non-controlling interests -- -- 7
----------------------------------------------------------------------------------------------
Net income (loss) $ (64) $ (45) $ 227
----------------------------------------------------------------------------------------------
Average assets (6) $ 5,225 $ -- $ 289,533
----------------------------------------------------------------------------------------------
Jul. 31, 2001(2) Net interest income (TEB)(4) $ 22 $ 57 $ 1,206
Non-interest income 28 23 1,694
Intersegment revenue(5) (2) -- --
----------------------------------------------------------------------------------------------
Total revenue (TEB)(4) 48 80 2,900
Non-interest expenses 148 60 2,072
Provision for credit losses 3 -- 254
----------------------------------------------------------------------------------------------
Income (loss) before taxes and
non-controlling interests (103) 20 574
Income taxes (39) 23 106
Non-controlling interests -- (1) 8
----------------------------------------------------------------------------------------------
Net income (loss) $ (64) $ (2) $ 460
----------------------------------------------------------------------------------------------
Average assets (6) $ 3,940 $ -- $ 280,801
----------------------------------------------------------------------------------------------
Unaudited, $ millions, for the nine months ended
----------------------------------------------------------------------------------------------
Jul. 31, 2002 Net interest income (TEB)(4) $ 73 $ 94 $ 4,164
Non-interest income 86 (67) 4,466
Intersegment revenue(5) -- (3) --
----------------------------------------------------------------------------------------------
Total revenue (TEB)(4) 159 24 8,630
Non-interest expenses 435 102 6,456
Provision for credit losses 15 -- 1,220
----------------------------------------------------------------------------------------------
Income (loss) before taxes and
non-controlling interests (291) (78) 954
Income taxes (106) 2 179
Non-controlling interests -- -- 22
----------------------------------------------------------------------------------------------
Net income (loss) $ (185) $ (80) $ 753
----------------------------------------------------------------------------------------------
Average assets (6) $ 4,994 $ -- $ 290,602
----------------------------------------------------------------------------------------------
Jul. 31, 2001(2) Net interest income (TEB)(4) $ 44 $ 148 $ 3,322
Non-interest income 71 46 5,285
Intersegment revenue(5) (6) -- --
----------------------------------------------------------------------------------------------
Total revenue (TEB)(4) 109 194 8,607
Non-interest expenses 395 134 5,943
Provision for credit losses 7 -- 697
----------------------------------------------------------------------------------------------
Income (loss) before taxes and
non-controlling interests (293) 60 1,967
Income taxes (113) 92 485
Non-controlling interests -- -- 38
----------------------------------------------------------------------------------------------
Net income (loss) $ (180) $ (32) $ 1,444
----------------------------------------------------------------------------------------------
Average assets (6) $ 2,324 $ -- $ 277,953
----------------------------------------------------------------------------------------------
Refer to the accompanying footnotes.
CIBC Third Quarter 2002 25
Footnotes
(1) Certain comparative figures have been restated resulting from the adoption
of the CICA Handbook section 3870.
(2) Certain comparative figures have been restated to conform with the
presentation used in the first quarter of 2002.
(3) Corporate and Other comprises the three functional groups - Treasury,
Balance Sheet and Risk Management (TBRM); Administration; and Corporate
Development - that support CIBC's business lines, as well as CIBC Mellon's
custody business, and other revenue and expense items not directly
attributable to the five business lines. TBRM revenue, expenses and
balance sheet (including capital) items are allocated to the five business
lines through a combination of funds transfer pricing and revenue, expense
and balance sheet (including capital) allocation models. TBRM is
responsible for CIBC's overall balance sheet (including capital) and risk
measurement, monitoring and control. As well, TBRM's integrated Treasury
Division provides bank-wide asset-liability, funding, liquidity, cash and
collateral management. Activities of the Administration group on behalf of
CIBC as a whole are reported in Corporate and Other. Expenses of the
Administration group relating to activities conducted on behalf of
specific business lines are allocated to those business lines. Remaining
expenses of the Administration group are also generally allocated to the
business lines.
(4) Taxable equivalent basis (TEB). Net interest income includes tax-exempt
income on certain securities. Since this income is not taxable to CIBC,
the rate of interest or dividend received by CIBC is significantly lower
than would apply to a loan of the same amount. As the impact of tax-exempt
income varies from year to year, such income has been adjusted to a
taxable equivalent basis to permit uniform measurement and comparison of
net interest income. An equal and offsetting adjustment is made to
increase the provision for income taxes. This is the measure reviewed by
CIBC's management.
(5) Intersegment revenue represents internal sales commissions and revenue
allocations under the Manufacturer / Customer Segment / Distributor
Management Model.
(6) Assets are disclosed on an average basis as this measure is most relevant
to a financial institution and is the measure reviewed by CIBC's
management.
9. Share Capital
--------------------------------------------------------------------------------
OUTSTANDING SHARES
Unaudited, as at July 31, 2002 October 31, 2001
----------------------------------------------------------- ------------------
Class A Preferred Shares(1)
Fixed rate shares entitled
to non-cumulative dividends
Series 14 8,000,000 8,000,000
Series 15 12,000,000 12,000,000
Series 16 5,500,000 5,500,000
Series 17 6,500,000 6,500,000
Series 18 12,000,000 12,000,000
Series 19 8,000,000 8,000,000
Series 20 4,000,000 4,000,000
Series 21 8,000,000 8,000,000
Series 22 4,000,000 4,000,000
Series 23 16,000,000 16,000,000
Series 24 16,000,000 --
Series 25 16,000,000 --
----------------------------------------------------------- ------------------
Common shares 359,048,669 363,187,931
----------------------------------------------------------- ------------------
(1) The rights and privileges of Class A Preferred Shares Series 14-23 are
described in Note 12 of CIBC's October 31, 2001 consolidated financial
statements. Series 24 and 25 have the same rights and privileges,
including the right to convert the shares to CIBC common shares on or
after a specified conversion date.
10. Significant Capital Transactions
On January 9, 2002, CIBC began a normal course issuer bid to purchase up
to 18 million common shares. The bid ends on January 8, 2003. During the third
quarter of 2002, no common shares were repurchased. For the nine months ended
July 31, 2002, 5,686,000 common shares were repurchased at an average price of
$55.05.
CIBC issued non-cumulative Class A Preferred Shares Series 24 and 25 of
$400 million each, during the first and second quarter of 2002 respectively.
11. Events of September 11, 2001
CIBC's New York operations located at One World Financial Center, in close
proximity to the World Trade Center, were directly affected by the events of
September 11, 2001. During the third quarter of 2002, losses and incremental
expenses related specifically to these events amounted to $20 million.
Management is nearing completion of the process of evaluating the extent
of damage and related insurance recoveries for property damage, additional
expenses and business interruption arising from the events of September 11,
2001.
Management has decided to locate a number of employee groups in the
downtown Manhattan area but has not made a final decision whether to return to
One World Financial Center once it becomes fully tenantable. Management has
surrendered a portion of the space previously occupied in One World Financial
Center to the landlord pursuant to the terms of the existing lease. The
26 CIBC Third Quarter 2002
full financial impact of these decisions was not determinable at the time of
preparation of the interim consolidated financial statements.
12. Restructuring
In the fourth quarter of 2001, a restructuring charge of $207 million was
included in non-interest expenses in the consolidated statements of income, as
CIBC initiated a bank-wide cost reduction program in response to changing
economic conditions.
Significant actions taken under the restructuring program in the first
three quarters of 2002 include the following:
o Retail Products continued staff rationalization within Technology and
Operations to align with changes elsewhere within CIBC.
o Retail Markets continued with the consolidation of branches and
rationalization of business support functions.
o Wealth Management has substantially realigned its work force and continues
to progress as planned.
o CIBC World Markets continued to implement cost reduction programs
including the reorganization of certain operations in Australia, and staff
reductions in the capital markets, investment banking and commercial
banking businesses. At the end of the quarter, planned staff reductions
were close to being completed.
o Amicus continued reorganization of several areas including reducing
premises commitments.
o Corporate and Other have been actively engaged in streamlining their
operations in several Administration functions.
Approximately 370 positions were eliminated in the third quarter and
approximately 1,100 positions have been eliminated year-to-date. At program
inception, planned employee reductions through restructuring were approximately
2,300 positions.
The actions under this restructuring program will be substantially
completed by the fourth quarter of 2002.
The status of the restructuring provision is as follows:
--------------------------------------------------------------------------------------------------------------------
RESTRUCTURING PROVISION
As at or for the three months As at or for the nine months
Unaudited, $ millions ended July 31, 2002 ended July 31, 2002
------------------------------------------------------------------------ ---------------------------------------
Termination Termination
Benefits Other Total Benefits Other Total
------------------------------------------------------------------------ ---------------------------------------
Balance at beginning of period $ 110 $ 22 $ 132 $ 186 $ 26 $ 212
Drawdown during the period (29) -- (29) (105) (4) (109)
------------------------------------------------------------------------ ---------------------------------------
Balance at end of period $ 81 $ 22 $ 103 $ 81 $ 22 $ 103
------------------------------------------------------------------------ ---------------------------------------
CIBC Third Quarter 2002 27
-----------------------------------------------------------------------------------------------------------------------------------
THIRD QUARTER FINANCIAL HIGHLIGHTS
As at or for the three months ended
------------------------------------------------------------
2002 2002 2001 2002
Unaudited Jul. 31 Apr. 30 (1) Jul. 31 (2) Jul. 31
-----------------------------------------------------------------------------------------------------------------------------------
COMMON SHARE INFORMATION (US$) (3)
Per share - basic earnings - reported $ 0.41 $ 0.51 $ 1.15 $ 0.27
- operating $ 0.64 $ 0.80 $ 1.35 $ 0.42
- diluted earnings - reported $ 0.41 $ 0.51 $ 1.13 $ 0.27
- operating $ 0.64 $ 0.79 $ 1.33 $ 0.42
- dividends $ 0.41 $ 0.41 $ 0.37 $ 0.27
- book value $ 26.44 $ 26.45 $ 26.64 $ 16.70
Share price - high $ 54.50 $ 57.70 $ 54.70 $ 34.43
- low $ 38.75 $ 49.45 $ 48.60 $ 24.48
- closing $ 45.10 $ 54.70 $ 50.95 $ 28.49
Shares outstanding (thousands)
- average basic 358,961 360,817 371,042 358,961
- average diluted 361,374 364,320 376,573 361,374
- end of period 359,049 358,843 368,462 359,049
Market capitalization ($ millions) $ 16,193 $ 19,629 $ 18,773 $ 10,231
-----------------------------------------------------------------------------------------------------------------------------------
VALUE MEASURES
Price to earnings multiple (12 month trailing) - reported 19.5 17.9 11.6 19.5
- operating 12.5 12.6 9.6 12.5
Dividend yield (based on closing share price) 3.6% 3.0% 2.9% 3.6%
Dividend payout ratio - reported 99.1% 79.2% 32.0% 99.1%
- operating 63.9% 50.7% 27.3% 63.9%
Market value to book value ratio 1.71 2.07 1.91 1.71
-----------------------------------------------------------------------------------------------------------------------------------
INCOME STATEMENT INFORMATION ($ millions)
Total revenue on a taxable equivalent basis (TEB)(4) - reported $ 2,562 $ 2,990 $ 2,900 $ 1,664
- operating $ 2,487 $ 2,939 $ 2,837 $ 1,615
Provision for credit losses - specific $ 290 $ 390 $ 254 $ 188
- general -- -- -- --
-----------------------------------------------------------------------------------------------------------------------------------
- total $ 290 $ 390 $ 254 $ 188
-----------------------------------------------------------------------------------------------------------------------------------
Non-interest expenses - reported $ 1,982 $ 2,313 $ 2,072 $ 1,287
- operating $ 1,771 $ 2,101 $ 1,920 $ 1,150
Earnings - reported $ 193 $ 227 $ 460 $ 125
- operating $ 276 $ 332 $ 534 $ 179
-----------------------------------------------------------------------------------------------------------------------------------
FINANCIAL MEASURES
Efficiency ratio - reported 77.4% 77.3% 71.4% 77.4%
- operating 71.2% 71.5% 67.6% 71.2%
Return on equity - reported 6.2% 8.0% 17.4% 6.2%
- operating 9.6% 12.4% 20.4% 9.6%
Ratio of retail / wholesale operating earnings(5) 144%/(44)% 93% / 7% 62% / 38% 144%/(44)%
Net interest margin (TEB)(4) 1.82% 1.89% 1.70% 1.82%
Net interest margin on average interest earning assets (TEB)(4) 2.11% 2.20% 1.96% 2.11%
Return on average assets 0.26% 0.32% 0.65% 0.26%
Return on average interest earning assets 0.30% 0.37% 0.75% 0.30%
Regular workforce headcount 44,213 44,519 41,378 44,213
-----------------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET AND OFF-BALANCE SHEET INFORMATION ($ millions)
Cash resources and securities $ 97,627 $ 93,821 $ 89,454 $ 61,681
Loans and acceptances $ 168,524 $ 164,228 $ 159,688 $ 106,473
Total assets $ 304,660 $ 291,187 $ 277,964 $ 192,484
Deposits $ 214,570 $ 203,910 $ 184,737 $ 135,565
Common shareholders' equity $ 9,491 $ 9,491 $ 9,814 $ 5,996
Average assets $ 294,975 $ 289,533 $ 280,801 $ 191,586
Average interest earning assets $ 254,306 $ 249,287 $ 244,323 $ 165,172
Average common shareholders' equity $ 9,525 $ 9,601 $ 9,768 $ 6,186
Assets under administration $ 750,900 $ 730,300 $ 636,100 $ 474,419
-----------------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET QUALITY MEASURES
Common equity to risk-weighted assets 7.2% 7.3% 7.5% 7.2%
Risk-weighted assets ($ billions) $ 131.9 $ 130.3 $ 131.7 $ 83.3
Tier 1 capital ratio 8.8% 8.9% 9.3% 8.8%
Total capital ratio 11.9% 12.0% 12.5% 11.9%
Net impaired loans after general allowance ($ millions) $ (260) $ (322) $ (215) $ (164)
Net impaired loans to net loans and acceptances (0.15)% (0.20)% (0.13)% (0.15)%
-----------------------------------------------------------------------------------------------------------------------------------
As at or for the nine months ended
-------------------------------------------------
2002 2001 2002
Unaudited Jul. 31 Jul. 31 (2) Jul. 31
------------------------------------------------------------------------------------------------------------------------
COMMON SHARE INFORMATION (US$) (3)
Per share - basic earnings - reported $ 1.76 $ 3.61 $ 1.12
- operating $ 2.55 $ 4.17 $ 1.62
- diluted earnings - reported $ 1.75 $ 3.55 $ 1.11
- operating $ 2.53 $ 4.11 $ 1.61
- dividends $ 1.19 $ 1.07 $ 0.76
- book value $ 26.44 $ 26.64 $ 16.70
Share price - high $ 57.70 $ 54.70 $ 36.45
- low $ 38.75 $ 43.20 $ 24.48
- closing $ 45.10 $ 50.95 $ 28.49
Shares outstanding (thousands)
- average basic 361,057 374,445 361,057
- average diluted 364,243 379,942 364,243
- end of period 359,049 368,462 359,049
Market capitalization ($ millions) $ 16,193 $ 18,773 $ 10,231
------------------------------------------------------------------------------------------------------------------------
VALUE MEASURES
Price to earnings multiple (12 month trailing) - reported 19.5 11.6 19.5
- operating 12.5 9.6 12.5
Dividend yield (based on closing share price) 3.5% 2.8% 3.5%
Dividend payout ratio - reported 67.5% 29.5% 67.5%
- operating 46.6% 25.5% 46.6%
Market value to book value ratio 1.71 1.91 1.71
------------------------------------------------------------------------------------------------------------------------
INCOME STATEMENT INFORMATION ($ millions)
Total revenue on a taxable equivalent basis (TEB)(4) - reported $ 8,630 $ 8,607 $ 5,492
- operating $ 8,458 $ 8,434 $ 5,383
Provision for credit losses - specific $ 1,220 $ 697 $ 776
- general -- -- --
------------------------------------------------------------------------------------------------------------------------
- total $ 1,220 $ 697 $ 776
------------------------------------------------------------------------------------------------------------------------
Non-interest expenses - reported $ 6,456 $ 5,943 $ 4,109
- operating $ 5,839 $ 5,533 $ 3,716
Earnings - reported $ 753 $ 1,444 $ 479
- operating $ 1,039 $ 1,656 $ 661
------------------------------------------------------------------------------------------------------------------------
FINANCIAL MEASURES
Efficiency ratio - reported 74.8% 69.0% 74.8%
- operating 69.0% 65.6% 69.0%
Return on equity - reported 8.9% 18.6% 8.9%
- operating 12.8% 21.5% 12.8%
Ratio of retail / wholesale operating earnings(5) 94%/6% 62%/38% 94%/6%
Net interest margin (TEB)(4) 1.92% 1.60% 1.92%
Net interest margin on average interest earning assets (TEB)(4) 2.23% 1.87% 2.23%
Return on average assets 0.35% 0.69% 0.35%
Return on average interest earning assets 0.40% 0.81% 0.40%
Regular workforce headcount 44,213 41,378 44,213
------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET AND OFF-BALANCE SHEET INFORMATION ($ millions)
Cash resources and securities $ 97,627 $ 89,454 $ 61,681
Loans and acceptances $ 168,524 $ 159,688 $ 106,473
Total assets $ 304,660 $ 277,964 $ 192,484
Deposits $ 214,570 $ 184,737 $ 135,565
Common shareholders' equity $ 9,491 $ 9,814 $ 5,996
Average assets $ 290,602 $ 277,953 $ 184,939
Average interest earning assets $ 249,517 $ 237,747 $ 158,793
Average common shareholders' equity $ 9,593 $ 9,730 $ 6,105
Assets under administration $ 750,900 $ 636,100 $ 474,419
------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET QUALITY MEASURES
Common equity to risk-weighted assets 7.2% 7.5% 7.2%
Risk-weighted assets ($ billions) $ 131.9 $ 131.7 $ 83.3
Tier 1 capital ratio 8.8% 9.3% 8.8%
Total capital ratio 11.9% 12.5% 11.9%
Net impaired loans after general allowance ($ millions) $ (260) $ (215) $ (164)
Net impaired loans to net loans and acceptances (0.15)% (0.13)% (0.15)%
------------------------------------------------------------------------------------------------------------------------
(1) Certain comparative figures have been restated resulting from the adoption
of the CICA Handbook section 3870.
(2) Certain comparative figures have been restated to conform with the
presentation adopted in the first quarter of 2002 .
(3) Represents the translation of Canadian GAAP financial information into US$
using the quarter end rate of $0.6318 for balance sheet figures and the
average rate of $0.6495 for the quarter and $0.6364 for year-to-date
operating results.
(4) Taxable equivalent basis (TEB). Net interest income includes tax-exempt
income on certain securities. Since this income is not taxable to CIBC,
the rate of interest or dividend received by CIBC is lower than would
apply to a loan of the same amount. As the impact of tax-exempt income
varies from year to year, such income has been adjusted to a taxable
equivalent basis to permit uniform measurement and comparison of net
interest income. An equal and offsetting adjustment is made to increase
the provision for income taxes.
(5) Retail includes Retail Products, Retail Markets, Wealth Management and
commercial banking (reported as part of CIBC World Markets). Wholesale
reflects CIBC World Markets, excluding commercial banking.
28 CIBC Third Quarter 2002
TO REACH US:
Corporate Secretary: Shareholders may call (416) 980-3096, fax (416) 980-7012,
or e-mail: paul.fisher @cibc.com.
Investor Relations: Financial analysts, portfolio managers and other investors
requiring financial information may call (416) 980-8306, fax (416) 980-5028, or
e-mail: alison.rampersad@cibc.com.
Corporate Communications: Financial, business and trade media may call (416)
980-4523, fax (416) 363-5347, or e-mail: stephen.forbes@cibc.com.
CIBC Telephone Banking: As part of our commitment to our customers, information
about CIBC products and services is available by calling 1-800-465-2422 toll
free across Canada.
Online Investor Presentations: Supplementary financial information and a
presentation to investors and analysts are available at the Investor Relations
area of the CIBC website at www.cibc.com.
Earnings Conference Call: CIBC's third quarter results conference call with
analysts and investors was held on Wednesday, August 21, 2002 at 2:00 p.m.
(EDT).
Webcast: An archived version of the webcast hosted on Wednesday, August 21, 2002
is available on www.cibc.com, Investor Relations section.
--------------------------------------------------------------------------------
DIRECT DIVIDEND DEPOSIT SERVICE
Canadian-resident holders of common shares may have their dividends deposited
directly into their account at any financial institution which is a member of
the Canadian Payments Association. To arrange, please write to CIBC Mellon Trust
Company, P.O. Box 7010, Adelaide Street Postal Station, Toronto, Ontario M5C
2W9, or e-mail: inquiries@cibcmellon.ca.
SHAREHOLDERS INVESTMENT PLAN
Registered holders of CIBC common shares wishing to acquire additional common
shares may participate in the shareholder investment plan and pay no brokerage
commissions or service charges.
For a copy of the offering circular, contact the Corporate Secretary at (416)
980-3096, or fax (416) 980-7012.
PRICE OF COMMON SHARES PURCHASED UNDER THE
SHAREHOLDER INVESTMENT PLAN
Dates Share purchase Dividend reinvestment &
purchased option stock dividend options
--------------------------------------------------------------------------------
May 1/02 $53.50
June 3/02 $51.00
July 2/02 $47.38
July 29/02 $43.70
--------------------------------------------------------------------------------
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Head Office: Commerce Court, Toronto, Ontario, Canada M5L 1A2 (416) 980-2211
www.cibc.com