CIBC Announces Second Quarter 2014 Results

CIBC Announces Second Quarter 2014 Results

TORONTO, May 29, 2014 /CNW/ – CIBC (TSX: CM) (NYSE: CM) today announced its financial results for the second quarter ended April 30, 2014.

Second quarter highlights:

• Reported net income was $306 million, compared with $862 million for the second quarter a year ago, and $1,177 million for the prior quarter.
• Adjusted net income(1) was $887 million, compared with $862 million for the second quarter a year ago, and $951 million for the prior quarter.
• Reported diluted earnings per share (EPS) was $0.73, compared with $2.09 for the second quarter a year ago, and$2.88 for the prior quarter.
• Adjusted diluted EPS(1) was $2.17, compared with $2.09 for the second quarter a year ago, and $2.31 for the prior quarter.
• Reported return on common shareholders’ equity (ROE) was 7.0% and adjusted ROE(1) was 20.6%.

Results for the second quarter of 2014 were affected by the following items of note aggregating to a negative impact of$1.44 per share:

• $543 million ($543 million after-tax, or $1.34 per share) of charges relating to FirstCaribbean International Bank Limited (CIBC FirstCaribbean), comprising a non-cash goodwill impairment charge of $420 million ($420 millionafter-tax) and loan losses of $123 million ($123 million after-tax), reflecting revised expectations on the extent and timing of the anticipated economic recovery in the Caribbean region;
• $22 million ($16 million after-tax, or $0.04 per share) expenses relating to the development of our enhanced travel rewards program and in respect of the Aeroplan transactions with Aimia Canada Inc. (Aimia) and The Toronto-Dominion Bank (TD);
• $22 million ($12 million after-tax, or $0.03 per share) loan losses in our exited U.S. leveraged finance portfolio;
• $9 million ($7 million after-tax, or $0.02 per share) amortization of intangible assets; and
• $4 million ($3 million after-tax, or $0.01 per share) loss from the structured credit run-off business.

CIBC’s Basel III Common Equity Tier 1 ratio at April 30, 2014 was 10.0%, and our Tier 1 and Total capital ratios were 12.1% and 14.9%, respectively, on an all-in basis compared with Basel III Common Equity Tier 1 ratio of 9.5%, Tier 1 capital ratio of 11.5% and Total capital ratio of 14.2% in the prior quarter.

CIBC announced a quarterly dividend increase of 2 cents per common share to $1.00 per share.

“In the quarter, CIBC’s core businesses delivered solid results, reflecting our strong focus on clients,” says Gerald T. McCaughey, CIBC President and Chief Executive Officer. “The strength of our underlying fundamentals allows us to generate strong and consistent returns for our shareholders.”

Core business performance

Retail and Business Banking reported net income of $546 million for the second quarter, down $26 million or 5% from the second quarter a year ago. Adjusting for the items of note shown above, adjusted net income⁽¹⁾ was $563 million, down$10 million or 2% from the second quarter a year ago as a result of lower cards revenue due to the Aeroplan transactions with Aimia and TD, partially offset by volume growth across most products and lower loan losses.

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

• We were the first bank in Canada to launch eDeposit™ for business banking clients, enabling them to quickly scan, securely upload and deposit a large number of cheques in a single transaction using a desktop cheque scanner;
• We opened our first CIBC location at Pearson Airport – part of an innovative new partnership with the Greater Toronto Airports Authority as the exclusive Financial Institution sponsor at Canada’s largest airport; and
• Sales of CIBC’s Aventura® Travel rewards credit cards remained strong and have already exceeded expectations for the full year.

Wealth Management reported net income of $117 million for the second quarter, up $26 million or 29% from the second quarter a year ago.

Revenue of $548 million was up $105 million or 24% compared with the second quarter of 2013. This was primarily due to higher client assets under management driven by market appreciation and net sales of long-term mutual funds, higher fee-based and commission revenue, the acquisition of Atlantic Trust and higher contribution from our stake in American Century Investments.

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

• We achieved our 21^st consecutive quarter of positive net retail sales of long-term mutual funds;
• CIBC Wood Gundy client satisfaction continued to strengthen with an overall rating of 91%, which is among the industry leaders; and
• The Atlantic Trust integration has progressed well and overall net flows continue to be solid.

Wholesale Banking reported net income of $213 million for the second quarter, down $51 million or 19% from the prior quarter. Excluding items of note, adjusted net income⁽¹⁾ was $228 million, up $13 million or 6% from the prior quarter.

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

• Joint bookrunner for Enbridge Inc.’s $1.4 billion three-tranche offering of Medium Term Notes;
• Lead manager for a $300 million 10-year offering by the Province of Manitoba;
• Joint bookrunner on PIMCO Global Income Opportunities Fund’s $690 million unit offering;
• Joint bookrunner and co-lead arranger on US$2.5 billion in credit facilities related to the acquisition of any or all of the outstanding shares of Brookfield Office Properties Inc. by Brookfield Property Partners L.P. and its indirect subsidiaries; and
• Financial advisor to the Special Committee of Atrium Innovations on its sale to Permira Holdings for US$966 million.

“In summary, our businesses performed well this quarter,” says Mr. McCaughey. “We continued to execute our growth strategy and remain focused on deepening client relationships to deliver consistent and sustainable earnings growth.”

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

• Committed $2 million to support the next generation of leaders through scholarships and diversity education at Rotman School of Management, Richard Ivey School of Business and HEC Montréal;
• Announced donations of $1.65 million to support those affected by cancer, including $1 million towards pediatric oncology at CHU Sainte-Justine Hospital in Montréal; and
• Hosted Welcome Home events in our branches for our Sochi 2014 Paralympians, as Premier Partner of the Canadian Paralympic Team.

During the quarter CIBC was named:

• One of the 50 Most Engaged Workplaces in Canada by Achievers;
• One of Canada’s Best Diversity Employers 2014 by Mediacorp; and
• A Top Employer for Canadians over 40 by Mediacorp.

In addition:

• CIBC was recognized for the best mobile banking offer among the big 5 Canadian banks by Forrester Research;and
• CIBC won multiple awards for Project Finance from Project Finance Magazine and Project Finance International Magazine.

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

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

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

Management’s discussion and analysis

Management’s discussion and analysis (MD&A) is provided to enable readers to assess CIBC’s financial condition and results of operations as at and for the quarter and six months ended April 30, 2014, compared with corresponding periods. The MD&A should be read in conjunction with our 2013 Annual Report and the unaudited interim consolidated financial statements included in this report. Unless otherwise indicated, all financial information in this MD&A has been prepared in accordance with International Financial Reporting Standards (IFRS or GAAP) and all amounts are expressed in Canadian dollars. This MD&A is current as of May 28, 2014. Additional information relating to CIBC is available on SEDAR at www.sedar.com and on the U.S. Securities and Exchange Commission’s (SEC) website at www.sec.gov. No information on CIBC’s website (www.cibc.com) should be considered incorporated herein by reference. A glossary of terms used throughout this quarterly report can be found on pages 164 to 168 of our 2013 Annual Report.

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

External reporting changes

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

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

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

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

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

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

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