TIDMBH29
RNS Number : 3244W
Canadian Imperial Bank of Commerce
27 January 2012
CIBC RELEASES 2011 FINANCIAL RESULTS UNDER IFRS
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Toronto, ON - January 27, 2012 - CIBC (TSX: CM) (NYSE: CM) today
released its supplementary financial information containing its
unaudited quarterly and annual consolidated financial results for
the year ended October 31, 2011, prepared in accordance with
International Financial Reporting Standards (IFRS).
CIBC adopted IFRS on November 1, 2011, which replaced previous
Canadian generally accepted accounting principles (Canadian GAAP).
Our first interim consolidated financial statements prepared in
accordance with IFRS will be for the quarter ending January 31,
2012, and our first annual consolidated financial statements
prepared in accordance with IFRS will be for the year ending
October 31, 2012. Commencing with our reporting under IFRS in the
first quarter of 2012, we will provide 2011 IFRS comparative
financial information, including an opening IFRS consolidated
balance sheet as at November 1, 2010 (the Transition Date).
The release of our 2011 IFRS supplementary financial
information, along with the following information, is provided to
help users of the consolidated financial statements better
understand the impact of the transition to IFRS on our comparative
2011 consolidated financial statements. This release should be read
in conjunction with note 32 to our 2011 annual consolidated
financial statements, which discloses our opening IFRS consolidated
balance sheet and includes a description of the transitional
elections and exceptions that were applied in the preparation of
our opening IFRS consolidated balance sheet, as well as a
description of the differences between our previous Canadian GAAP
and IFRS accounting policies that gave rise to IFRS adjustments as
at the Transition Date.
Overview of impact of adoption of IFRS
The key financial results and metrics for the year ended October
31, 2011 are as follows:
-- Net income attributable to equity shareholders was $2,867
million under IFRS compared to $3,079 million under Canadian
GAAP.
-- Basic and diluted earnings per share under IFRS were $6.79
and $6.71, respectively, compared to $7.32 and $7.31 under Canadian
GAAP. Adjusted diluted earnings per share under IFRS was $7.57(1)
.
-- Our reported and adjusted efficiency ratio under IFRS were
60.2% and 56.4%(1) , respectively.
(1) Non-GAAP measure. See the Non-GAAP measures section for further discussion.
Impact of IFRS on 2011 consolidated financial results
The impact on consolidated net income attributable to equity
shareholders is as follows:
(1) Represents net income after income taxes and non-controlling
interests (NCI) but before preferred share dividends and premiums.
This is referred to hereafter as net income attributable to equity
shareholders.
The impact on the condensed consolidated statement of income for
the year ended October 31, 2011 is as follows:
An explanation of the more significant adjustments to net income
attributable to equity shareholders for the year ended October 31,
2011 is provided below.
Securitized residential mortgages
Under IFRS, the transfer of mortgage-backed securities (MBS)
created from pools of our residential mortgages to a
government-sponsored trust is accounted for as a secured borrowing
transaction rather than as a sale under Canadian GAAP.
Additionally, under IFRS the creation of MBS is not an accounting
event and therefore MBS held in inventory that were previously
designated at fair value (fair value option - FVO) under Canadian
GAAP are recognized as residential mortgages and are measured at
amortized cost under IFRS.
As a result of the on-balance sheet accounting for residential
mortgage pools underlying transferred MBS, we recognize interest
income from residential mortgages and interest expense relating to
the funding liabilities (secured borrowings), with a resulting net
increase in net interest income for 2011 of $140 million. In
addition, interest on the residential mortgages underlying the MBS
inventory is classified in mortgage interest revenue instead of
security interest revenue. The recognition of net interest income
on the residential mortgages and funding liabilities are net of the
amortization of the related origination costs and other amortized
cost adjustments in accordance with the effective interest rate
method.
Furthermore, the accounting for the following items previously
recognized under Canadian GAAP is eliminated:
-- Securitization income within non-interest income that arose
from: (i) the gain on sale from new transfers; and (ii) interest
accretion and service revenue.
-- Mark-to-market (MTM) of seller swaps relating to sold MBS and
the MTM of the MBS inventory recognized in FVO income within
non-interest income.
The recognition of the residential mortgages and the associated
funding liabilities measured at amortized cost under IFRS in place
of MTM seller swaps and MBS under Canadian GAAP resulted in a
decrease in other non-interest income of $90 million in the first
quarter of 2011 before we could fully implement our IFRS hedge
accounting program in respect of the amortized cost instruments.
The after-tax decrease of $65 million does not represent an
economic loss, but rather is a timing difference that will result
in an increase in net income attributable to equity shareholders in
the future (see Items of note below).
The elimination of the MTM accounting for securitized
residential mortgages and the above noted decrease of $90 million
resulted in an aggregate net decrease in non-interest income for
2011 of $185 million.
The aggregate decrease in net income attributable to equity
shareholders in respect of the accounting for securitized
residential mortgages was $45 million for 2011 (after-tax decrease
of $33 million).
Consolidation
We consolidated certain special purpose entities (SPEs) under
IFRS that were not consolidated under Canadian GAAP, including
CARDS II Trust and Broadway Trust, which purchase interests in
credit card receivables, and Crisp Trust, which purchases interests
in residential mortgages (collectively, the Trusts). We also
deconsolidated certain other SPEs on transition.
Under IFRS, we recognize interest income on credit card
receivables and residential mortgages held in the Trusts and
interest expense on the funding liabilities issued by the Trusts.
We also recognize fees on the credit card accounts held in the
Trusts as part of non-interest income, and we recognize the
write-off of delinquent accounts as part of the provision for
credit losses. This presentation differs from Canadian GAAP, under
which we recognized these items in aggregate in securitization
income within non-interest income. The impact on net income
attributable to equity shareholders in 2011 is primarily due to
changes in the collective allowance under IFRS (previously referred
to as general allowance under Canadian GAAP) on credit card
receivables, which are included in the provision for credit
losses.
For 2011, the impact of the differences in presentation was an
increase in net interest income of $559 million, a decrease in
non-interest income of $296 million, an increase in the provision
for credit losses of $253 million and an increase in non-interest
expenses of $22 million, resulting in a decrease in net income
attributable to equity shareholders of $12 million (after-tax
decrease of $8 million).
Employee benefits
As a result of the Transition Date fresh-start election to
recognize the net unamortized actuarial losses from our
post-employment benefit plans into retained earnings as at the
Transition Date, the amortization of net actuarial losses that was
recognized in net income attributable to equity shareholders in
2011 under Canadian GAAP was reversed under IFRS. In addition,
actuarial losses arising in 2011 for our long-term disability plan
and related benefits were immediately recognized in net income
attributable to equity shareholders under IFRS, as compared to the
deferral and amortization of these actuarial losses under Canadian
GAAP.
Other adjustments for employee benefits resulted from a
difference in the period of recognition for post-retirement health
and dental benefits, lower amortization of past service gains, a
difference in the determination of the expected return on plan
assets and higher expenses from pension plan amendments.
The cumulative impact of the adjustments for employee benefits
for 2011 was a decrease of $104 million in non-interest expenses,
resulting in a corresponding increase in net income attributable to
equity shareholders (after-tax increase of $74 million).
Goodwill impairment
In the third quarter of 2011, we recognized a goodwill
impairment charge under IFRS of $203 million relating to CIBC
FirstCaribbean within non-interest expenses, whereas no such
goodwill impairment charge was recognized under Canadian GAAP.
Goodwill impairment testing under IFRS is different than under
Canadian GAAP in that Canadian GAAP uses a two-step impairment
test, whereas IFRS is based on a single test that is similar to the
step one test in Canadian GAAP. This is capital neutral as goodwill
is already deducted from Tier 1 capital.
Financial instruments - FVO securities
On transition, we reclassified certain financial instruments
held in our structured credit run-off business, which were
classified as loans and receivables at amortized cost under
Canadian GAAP, to FVO securities under IFRS. The MTM adjustments on
the financial instruments reclassified to FVO securities resulted
in a decrease in net income attributable to equity shareholders of
$5 million (after-tax decrease of $3 million).
Other adjustments
Other IFRS adjustments that affected net income attributable to
equity shareholders in 2011 included the following:
-- Net interest income adjustments for accretion to par value on
certain leveraged loans that were measured at amortized cost under
Canadian GAAP but were initially classified as trading under IFRS
and subsequently were reclassified to loans and receivables. This
resulted in an increase in revenue of $21 million.
-- Higher compensation expenses of $37 million attributable to:
(i) the recognition of share-based award costs over the performance
year and the vesting period under IFRS rather than over the
performance year under Canadian GAAP; and (ii) the recognition of
forfeitures of share-based awards on an estimated basis rather than
on an as incurred basis under Canadian GAAP.
-- Adjustments relating to differences in accounting for both
leveraged leases and certain finance lease arrangements which
resulted in a reduction in net interest income of $8 million and an
increase in non-interest expenses of $8 million.
-- Adjustments relating to capital repatriation activities
decreased pre-tax income by $17 million and decreased income tax
expense by $20 million, resulting in an increase in after-tax net
income attributable to equity shareholders of $3 million.
-- Adjustments relating to litigation matters increased
non-interest expenses by $11 million.
-- The accounting for self-managed customer loyalty programs
resulted in an increase of $54 million in both non-interest income
and non-interest expenses.
Other IFRS adjustments that did not affect net income
attributable to equity shareholders but which affected the
classification on the consolidated statement of income
included:
-- The recognition of interest on impaired loans (unwinding of
discounting) under IFRS as interest income rather than as a
reduction in the provision for credit losses under Canadian GAAP
resulted in an increase in net interest income of $48 million with
a corresponding increase in the provision for credit losses.
-- The presentation of our income from joint ventures as a
single line item within non-interest income under the equity method
of accounting under IFRS rather than in various line items on a
proportionate consolidation basis under Canadian GAAP. This
adjustment decreased each of pre-tax income and income tax expense
by $27 million.
Key performance metrics under IFRS
The impact of IFRS on earnings per share (EPS) is as
follows:
(1) Our Series 26, 27 and 29 Class A Preferred Shares (the
Convertible Preferred Shares) provided us with the right to convert
the shares into CIBC common shares in circumstances that would
represent a "Trigger Event" as described in the August 2011
Non-Viability Contingent Capital Advisory issued by OSFI. Under
IFRS, the Convertible Preferred Shares are included in the
calculation of diluted EPS for the period through to August 17,
2011, at which time we renounced our rights to convert the
Convertible Preferred Shares into CIBC common shares except when
required to do so by OSFI pursuant to a Trigger Event. Under
Canadian GAAP, the Convertible Preferred Shares were not included
in the calculation of diluted EPS during this period as we had no
past practice or expectation of conversion to common shares.
(2) Non-GAAP measure. See the Non-GAAP measures section for further discussion.
Other key performance metrics
Other key performance metrics, measured on an IFRS basis, are as
follows:
(1) Non-GAAP measure. See the Non-GAAP measures section for further discussion.
(2) Metric was not affected by IFRS.
(3) The metric is calculated as the ratio of the provision for
credit losses (excluding the amount relating to the collective
allowance on credit cards, personal and scored small business loans
that are less than 30 days delinquent; mortgages that are less than
90 days delinquent; and all unimpaired business and government
loans) to total loans and acceptances, net of allowance for credit
losses.
(4) For the purposes of calculating this ratio, retail includes
Retail and Business Banking, Wealth Management and International
Banking operations (reported as part of Corporate and Other). The
ratio represents the amount of economic capital attributed to these
businesses as at the end of the period.
Items of note
Our quarterly results for 2011 in accordance with IFRS were
affected by the items of note presented in the table below. The
footnotes below the table explain the difference between the items
of note under IFRS as presented in the table and the items of note
previously reported under Canadian GAAP.
For the three months ended, in $ millions except per share amounts
-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Oct. 31, 2011 July 31, 2011 Apr. 30, 2011 Jan. 31, 2011
Five items netting Three items totalling Three items netting Four items netting
to a positive impact a negative impact to a negative impact to a negative impact
of $34 million (after-tax of $225 million of $5 million (after-tax of $132 million
of $6 million, or (after-tax of $221 of $4 million, or (after-tax of $85
$0.01 impact on million, or $0.56 $0.01 impact on million, or $0.22
adjusted diluted impact on adjusted adjusted diluted impact on adjusted
earnings per share), diluted earnings earnings per share), diluted earnings
comprising: per share), comprising: comprising: per share), comprising:
* $48 million ($34 million after-tax, or $0.09 per * $14 million ($11 million after-tax, or $0.03 pe * $46 million ($33 million after-tax, or $0.08 p * $70 million ($50 million after-tax, or $0.12 per
share) loss from the structured credit run-off r er share) loss from the structured credit run-off
business (1) share) loss from the structured credit run-off share) loss from the structured credit run-off business (1)
business (1) business (1)
* $9 million ($7 million after-tax, or $0.02 per share) * $9 million ($7 million after-tax, or $0.02 per sh
of amortization of intangible assets * $8 million ($7 million after-tax, or $0.02 per * $9 million ($7 million after-tax, or $0.02 per are)
share) share) of amortization of intangible assets
of amortization of intangible assets of amortization of intangible assets
* $90 million ($46 million after-tax, or $0.12 per
share) gain on sale of a merchant banking investment, * $37 million after-tax, or $0.09 per share, gain o
net of associated expenses * CIBC FirstCaribbean goodwill impairment of $203 * $50 million ($36 million after-tax, or $0.09 p n
million, or $0.51 per share (3) er the sale of CIBC Mellon Trust Company's issuer
share) reduction in the collective allowance service business
* $26 million ($19 million after-tax, or $0.05 per recognized in Corporate and Other (2)
share) reduction in the collective allowance
recognized in Corporate and Other (2) * $90 million ($65 million after-tax or $0.17 per
share) loss from MTM volatility prior to the
establishment of accounting hedges on securitized
* $25 million ($18 million after-tax, or $0.05 per mortgages and funding liabilities (4)
share) loan loss in our exited European leveraged
finance business
------------------------------------------------------------ ------------------------------------------------------ ----------------------------------------------------- --------------------------------------------------------
(1) The transition to IFRS resulted in an adjustment to the loss
from the structured credit run-off business from the amounts
previously disclosed under Canadian GAAP as follows: increase for
the three months ended October 31, 2011 of $34 million (after-tax
increase of $24 million); decrease for the three months ended July
31, 2011 of $4 million (after-tax decrease of $2 million); decrease
for the three months ended April 30, 2011 of $24 million (after-tax
decrease of $17 million); and increase for the three months ended
January 31, 2011 of $2 million (after-tax increase of $1 million).
The adjustments to the structured credit run-off business mainly
relate to the reclassification of certain structured credit
positions from loans and receivables to FVO securities under
IFRS.
(2) The collective allowance recognized in Corporate and Other
consists of the collective allowance on credit cards, personal and
scored small business loans delinquent less than 30 days; mortgages
less than 90 days; and all unimpaired business and government
loans. The change in the collective allowance under IFRS that is
disclosed as an item of note is calculated on a basis consistent
with the change in the general allowance previously disclosed as an
item of note under Canadian GAAP. Under Canadian GAAP, the
reduction in the provision for credit losses for the three months
ended October 31, 2011 was $14 million (after-tax reduction of $10
million), and for the three months ended April 30, 2011 the
reduction was $16 million (after-tax reduction of $12 million). The
transition to IFRS resulted in an incremental reduction in the
collective allowance recognized in Corporate and Other of $12
million (after-tax reduction of $9 million) for the three months
ended October 31, 2011, and an incremental reduction in the
collective allowance recognized in Corporate and Other of $34
million (after-tax reduction of $24 million) for the three months
ended April 30, 2011. The adjustment to the change in the general
allowance disclosed as an item of note under Canadian GAAP resulted
from the change in the collective allowance for credit card
receivables that are on balance sheet under IFRS.
(3) No impairment of the goodwill relating to CIBC
FirstCaribbean was recognized under Canadian GAAP.
(4) No loss from MTM volatility prior to the establishment of
hedges was recognized under Canadian GAAP.
Impact on financial results of reporting segments
A detailed breakdown of the results under IFRS by reporting
segments, for each quarter and for the year ended October 31, 2011,
is included in our supplementary financial information. A summary
of the cumulative impact of the adoption of IFRS on the results of
our strategic business units and Corporate and Other, for the year
ended October 31, 2011, is as follows:
The impact of IFRS on the financial results of our reporting
segments included the following:
-- The increase in net income attributable to equity
shareholders in Retail and Business Banking was mainly due to
adjustments for employee benefits and share-based payment awards of
$96 million ($65 million after-tax), net of securitization related
adjustments.
-- Adjustments relating to employee benefits and share-based
payment awards largely offset in Wealth Management.
-- The decrease in net income attributable to equity
shareholders in Wholesale Banking included lower revenue in the
structured credit run-off business of $8 million ($6 million
after-tax), reduced leverage lease revenues of $12 million ($7
million after-tax), increased litigation reserves of $11 million
($6 million after-tax), the elimination of a positive credit
valuation adjustment of $13 million ($9 million after-tax) relating
to seller swaps not recognized under IFRS, net of increased revenue
of $21 million ($11 million after-tax) on leveraged loans.
-- The decrease in net income attributable to equity
shareholders in Corporate and Other includes the $203 million CIBC
FirstCaribbean goodwill impairment charge and securitization and
consolidation related adjustments of $25 million ($18 million
after-tax).
Impact on equity
(1) Under Canadian GAAP, NCI are classified outside of equity
but are presented within total equity under IFRS. This
reclassification adjustment did not impact consolidated net
assets.
The adjustments to retained earnings for the first through
fourth quarters of 2011 were due to differences in retained
earnings in the opening IFRS consolidated balance sheet and
quarterly differences in net income, as described above.
The adjustments to AOCI mainly related to the transition
accounting election to recognize the $575 million cumulative
foreign currency translation adjustments account included in AOCI
as at November 1, 2010 under Canadian GAAP into retained earnings
under IFRS and the measurement of private available-for-sale equity
instruments to fair value through OCI under IFRS.
Impact on regulatory capital and other ratios
Under OSFI's Capital Adequacy Guidelines, financial institutions
can elect to phase-in the impact of transitioning to IFRS on their
regulatory capital. We have chosen to use this election and we will
phase in the impact of our IFRS transition on Tier 1 capital on a
straight line basis over a five-quarter period starting with our
first quarter in 2012. Before the impact of OSFI's transitional
relief guideline, the transition to IFRS reduced our Tier 1 capital
and our Tier 1 capital ratio as at November 1, 2011 by $1.4 billion
and 119 basis points, respectively. Pursuant to the guideline, we
will phase in $1.37 billion of the negative Tier 1 impact on a
straight-line basis such that we will obtain relief for 80% of the
amount as at January 31, 2012, 60% of the amount as at April 30,
2012, 40% of the amount as at July 31, 2012 and 20% of the amount
as at October 31, 2012.
The transition to IFRS increased our assets-to-capital multiple
(ACM) of 16.0x as at October 31, 2011 under Canadian GAAP to 18.5x
under IFRS as at November 1, 2011, before the impact of OSFI's
transitional relief. The application of OSFI's transitional
guideline, that excludes the mortgages that are recognized back on
the consolidated balance sheet with respect to securitizations
completed prior to March 31, 2010 under the Canada Mortgage Bond
(CMB) program, decreased the pro-forma IFRS ACM as at November 1,
2011 to 17.3x, while the impact of 100% of the $1.37 billion of
Tier 1 relief as at November 1, 2011 further reduced the November
1, 2011 IFRS ACM to 16.2x.
Non-GAAP measures
We use a number of financial measures to assess our performance.
Some measures are calculated in accordance with GAAP (IFRS), while
other measures do not have a standardized meaning under GAAP, and
accordingly, these measures may not be comparable to similar
measures used by other companies. The following is a description of
the non-GAAP measures used in this news release:
Net interest income, taxable equivalent basis
We evaluate net interest income on an equivalent pre-tax basis.
In order to arrive at the taxable equivalent basis (TEB) amount, we
gross up tax-exempt income on certain securities to the equivalent
level that would have incurred tax at the statutory rate. Meanwhile
the corresponding entry is made in income tax expense. This measure
enables comparability of net interest income arising from both
taxable and tax-exempt sources. Net interest income (TEB) is used
to calculate the adjusted efficiency ratio and trading income
(TEB). We believe that these measures permit uniform measurement,
which may enable users of our financial information to make
comparisons more readily.
Adjusted measures
We use the following adjusted measures to assess our business
performance. We believe that these measures provide greater
consistency and comparability between our results and those of some
of our Canadian peer banks who make similar adjustments in their
public disclosure. In addition, these measures are used by some
analysts to develop their earnings forecasts. Presenting these
performance measures may assist them in their analysis.
Adjusted diluted EPS ratio
We adjust our reported diluted EPS to remove the impact of items
of note and certain other items noted in the table below.
Adjusted efficiency ratio
We adjust our reported revenue and non-interest expenses to
remove the impact of items of note. We also adjust net interest
income to be on an equivalent TEB basis (see above for further
details).
The following table provides a reconciliation of non-GAAP to
GAAP measures related to CIBC on a consolidated basis:
(1) Non-GAAP measure.
(2) Refer to the Items of note section.
_____________________________________________
Investor and analyst inquiries should be directed to Geoff
Weiss, Vice-President, Investor Relations, at 416-980-5093. Media
inquiries should be directed to Kevin Dove, Senior Director,
External Communications & Media Relations, at 416-980-8835, or
to Mary Lou Frazer, Senior Director, Investor & Financial
Communications, at 416-980-4111. The information below forms a part
of this press release.
Nothing in CIBC's corporate website (www.cibc.com) should be
considered incorporated herein by reference.
A NOTE ABOUT FORWARD LOOKING STATEMENTS
From time to time, we make written or oral forward-looking
statements within the meaning of certain securities laws, including
in this press release, in other filings with Canadian securities
regulators or the U.S. Securities and Exchange Commission and in
other communications. These statements include, but are not limited
to, statements we make about our operations, business lines,
financial condition, risk management, priorities, targets, ongoing
objectives, strategies and outlook for 2012 and subsequent periods.
Forward-looking statements are typically identified by the words
"believe", "expect", "anticipate", "intend", "estimate" and other
similar expressions or future or conditional verbs such as "will",
"should", "would" and "could". By their nature, these statements
require us to make assumptions and are subject to inherent risks
and uncertainties that may be general or specific. A variety of
factors, many of which are beyond our control, affect our
operations, performance and results and could cause actual results
to differ materially from the expectations expressed in any of our
forward-looking statements. These factors include: credit, market,
liquidity, strategic, operational, reputation and legal, regulatory
and environmental risk; legislative or regulatory developments in
the jurisdictions where we operate; amendments to, and
interpretations of, risk-based capital guidelines and reporting
instructions; the resolution of legal proceedings and related
matters; the effect of changes to accounting standards, rules and
interpretations; changes in our estimates of reserves and
allowances; changes in tax laws; political conditions and
developments; the possible effect on our business of international
conflicts and the war on terror; natural disasters, public health
emergencies, disruptions to public infrastructure and other
catastrophic events; reliance on third parties to provide
components of our business infrastructure; the accuracy and
completeness of information provided to us by clients and
counterparties; the failure of third parties to comply with their
obligations to us and our affiliates; intensifying competition from
established competitors and new entrants in the financial services
industry; technological change; global capital market activity;
changes in monetary and economic policy; currency value
fluctuations; general economic conditions worldwide, as well as in
Canada, the U.S. and other countries where we have operations;
changes in market rates and prices which may adversely affect the
value of financial products; our success in developing and
introducing new products and services, expanding existing
distribution channels, developing new distribution channels and
realizing increased revenue from these channels; changes in client
spending and saving habits; our ability to attract and retain key
employees and executives; our ability to successfully execute our
strategies and complete and integrate acquisitions and joint
ventures; and our ability to anticipate and manage the risks
associated with these factors. This list is not exhaustive of the
factors that may affect any of our forward-looking statements.
These and other factors should be considered carefully and readers
should not place undue reliance on our forward-looking statements.
We do not undertake to update any forward-looking statement that is
contained in this press release or in other communications except
as required by law.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR LLFLSLSIDFIF
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