Canadian Imperial Bank of Commerce
Annual Report 2021

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Annual Report 2021 This year we introduced a new brand that symbolizes our purpose and refects our commitment to our clients and their ambitions. These changes include our bold and modern new logo that represents the transformative role we play in helping clients achieve their goals. It’s a fresh take on our frst logo, which was crafted in 1966 to celebrate Canada’s centennial anniversary. It embraces our rich history while moving us further into the future. CIBC’s purpose is to help make your ambition a reality Who we are CIBC is a leading North American fnancial institution committed to creating enduring value for all our stakeholders — our clients, team, communities and shareholders. We are guided by our purpose — to help make your ambition a reality, and our focus on creating a more secure, equitable and sustainable future through our environmental, social and governance (ESG) principles. Across Personal and Business Banking, Commercial Banking and Wealth Management, and Capital Markets businesses, our 45,000 employees provide a full range of fnancial products and services to 11 million personal banking, business, public sector and institutional clients in Canada, the U.S. and around the world. Our strategy In 2021, we continued to focus on building a modern, relationship-oriented bank. Through these eforts, we’re delivering superior client experience and top-tier shareholder returns while maintaining our fnancial strength, risk discipline and advancing our purpose-driven culture. Foundational to our progress is a consistent focus on three strategic priorities: 1. Further strengthening our Canadian consumer franchise 2. Maintaining and growing our resilient North American Commercial Banking, Wealth Management, and Capital Markets businesses 3. Accelerating ongoing investments in growth initiatives $6.4B $6.7B $68B Reported net income Adjusted net income(1) Market capitalization Table of contents 12.4% Basel III CET1 ratio(2) 11M Clients 62.6 Client experience 2021 CIBC Enterprise Net Promoter Score (1) Adjusted measures are non-GAAP measures. For additional information, see the “Non-GAAP measures” section of the management’s discussion and analysis (MD&A). (2) Calculated pursuant to Ofce of the Superintendent of Financial Institutions (OSFI) Capital Adequacy Requirements (CAR) Guideline, which is based on Basel Committee on Banking Supervision (BCBS) standards. i ii iii iv 2021 performance at a glance ESG strategy 2021 ESG performance highlights Client experience Message from the President and Chief Executive Ofcer Message from the Chair of the Board Enhanced Disclosure Task Force Management’s discussion 1 and analysis Consolidated fnancial statements 107 Notes to the consolidated fnancial statements Quarterly review Ten-year statistical review Shareholder information 122 198 200 203 ix x Business mix (% reported net income) 2021 business mix 39% Canadian Personal and Business Banking 26% Canadian Commercial Banking and Wealth Management 14% U.S. Commercial Banking and Wealth Management 29% Capital Markets -8% Corporate and Other 2021 performance at a glance Reported revenue  ($ billions) Reported earnings per share  ($) Adjusted earnings per share(1)   ($) Dividend  ($/share) 20.0 18.6 18.7 13.93 14.47 5.82 5.84 5.60 11.19 8.22 11.92 9.69 19 20 21 19 20 21 19 20 21 19 20 21 (1) Adjusted measures are non-GAAP measures. For additional information, see the “Non-GAAP measures” section of the MD&A. Financial highlights For the year ended October 31 (Canadian $ in billions, except as noted) Financial results Revenue Provision for credit losses Expenses Reported/Adjusted net income(1) Financial measures (%) Reported(2)/Adjusted efciency ratio(1) Reported(2)/Adjusted return on common shareholders’ equity (ROE)(1) Net interest margin(2) Total shareholder return Common share information Reported/Adjusted earnings per share(1) Market capitalization Dividends (%) Dividend yield Reported(2)/Adjusted dividend payout ratio(1) Net income by strategic business unit Canadian Personal and Business Banking(3) Canadian Commercial Banking and Wealth Management U.S. Commercial Banking and Wealth Management(3) Capital Markets(3) 2021 20.0 0.2 11.5 2020 18.7 2.5 11.4 6.4/6.7 3.8/4.4 57.6/55.4 16.1/16.7 60.6/55.8 10.0/11.7 1.42 58.3 1.50 (5.9) 13.93/14.47 8.22/9.69 67.7 3.9 44.4 5.9 41.8/40.3 70.7/60.0 2.5 1.7 0.9 1.9 1.8 1.2 0.4 1.3 (1) Adjusted measures are non-GAAP measures. For additional information, see the “Non-GAAP measures” section of the MD&A. (2) For additional information on the composition of these specifed fnancial measures, see the “Glossary” section of the MD&A. (3) Certain prior period information has been revised. For additional information, see the “External reporting changes” section of the MD&A. Financial scorecard Diluted earnings per share (EPS) growth 5%–10% annually $13.93, up 69% from 2020 $14.47, up 49% from 2020 Target(1) 2021 reported results 2021 adjusted results(2) Return on equity (ROE) Operating leverage(3) 15%+ Positive 16.1% 16.7% 5.3%, an increase of 930 basis points from 2020 0.7%, an increase of 130 basis points from 2020 Basel III CET1 ratio Strong bufer to regulatory minimum 12.4% Dividend payout ratio 40%–50% 41.8% 40.3% Total shareholder return Outperform the S&P/TSX Composite Banks Index over a rolling fve-year period CIBC – 91.9% Banks Index – 80.4% (1) Based on adjusted measures. Adjusted measures are non-GAAP measures. For additional information, see the “Non-GAAP measures” section of the MD&A. (2) Adjusted measures are non-GAAP measures. For additional information, see the “Non-GAAP measures” section of the MD&A. (3) For additional information on the composition of this specifed fnancial measure, see the “Glossary” section of the MD&A. Our commitment to ESG ESG strategy Ambitions in action We’re activating our resources to create positive change for our team, our clients, our communities and our planet, contributing to a more secure, equitable and sustainable future where everyone’s ambitions are made real. We are putting our ESG commitments into action by: Building integrity and trust We act with integrity and transparency to maintain the trust that clients have placed in us. Creating access to opportunities We partner to build equitable and resilient communities where ambitions are more attainable for all. Accelerating climate action We support solutions to address climate change, to help transition to a sustainable, lower carbon future. 2021 Highlights Building integrity and trust We continue to foster CIBC’s principles- based approach and align CIBC’s Code of Conduct (Code) to refect changing business conditions. We have enhanced our Code to reinforce the importance of information security practices, and health and safety protocols; 100% of our team members completed ethical training on our Code(1). We consistently add to the layers of security in place to protect our clients, including new technology such as digital identity verifcation and voice biometrics to prevent fraud. Our investment in market-leading public cloud technology will reinforce and expand critical foundations in data protection and security and enable us to support faster, real-time, data- driven decisions, to quickly launch and scale new innovations for enhanced client experience. Creating access to opportunities We remained focused on actively supporting the growth ambitions of business owners, with $4.8 billion in new loan authorizations provided to small and medium-sized enterprises(2) in 2021, including a new banking program designed for Black-owned businesses that provides solutions, advice and resources tailored to their unique banking needs and includes access to expert advice through our Black Entrepreneurship Specialists team. Over 200,000 clients participated in our fnancial education seminars ofered at no cost, over the past three years, helping them better understand options to secure their fnancial future with a focus on the unique needs of women, members of the LGBTQ+ community and Indigenous peoples. We are committed to engage 250,000 clients in fnancial education seminars and events over the next three years (2022–2024). Following the end of our fscal year we announced the CIBC Foundation which will serve our commitment to create a more equitable society and help make ambitions real for communities. CIBC has made donations totalling $70 million in 2021 to launch the Foundation, with plans to grow to $155 million over time. Accelerating climate action In 2021, we announced our ambition to achieve net-zero greenhouse gas (GHG) emissions from our operations and fnancing activities by 2050. As part of this goal and as a leader in fnancing renewable energy initiatives, we also doubled our commitment to mobilizing sustainable fnance to a target of $300 billion by 2030(3) as we play a role in accelerating the transition to a lower-carbon economy. In addition, we joined sustainability- focused industry partnerships, advisory bodies and research groups to contribute to market-led and public policy solutions to facilitate the transition to a low-carbon economy. In 2021, these included the Net-Zero Banking Alliance to collaborate on a global efort to combat climate change, the Partnership for Carbon Accounting Financials, an initiative developed by the fnancial industry to create a global standard to measure and disclose GHG emissions on loans and investments, as well as Canada’s Sustainable Finance Action Council, the Institute for Sustainable Finance, the Rocky Mountain Institute’s Center for Climate-Aligned Finance and Climate Engagement Canada. As strong believers in the value of commercially viable sustainability solutions, we joined with global banks to launch Project Carbon aimed at bringing liquidity and transparency to the carbon credit market, better enabling clients to achieve their net-zero targets. (1) Excludes the U.S. Commercial Banking and Wealth Management strategic business unit and FirstCaribbean International Bank Limited. (2) Small-sized enterprises are typically companies with revenue of less than $5 million and medium-sized enterprises are typically companies with revenue of more than $5 million but less than $20 million. (3) Sustainable fnancing largely relates to client activities that support, but are not limited to, renewable and emission-free energy, energy efciency, sustainable infrastructure, afordable housing, green buildings, sustainability-linked fnancings and green fnancial products. The products ofered by CIBC included in our mobilization commitment to support these client activities include loans and loan syndications, debt and equity underwritings, M&A advisory and hedging solutions, as well as principal investments. CIBC 2021 ANNUAL REPORT i Our commitment to ESG 2021 ESG performance highlights In 2021, we built on our long-standing commitment to ESG as a cornerstone of how we operate and create value for our stakeholders. Top 10 in fnancing for the renewable energy industry across North America(1) $4.8B in new loan authorizations to small and medium-sized enterprises (Canada)(2) 38% women in board-approved executive roles (Global) 89% Our employee engagement score exceeded the Willis Towers Watson Global Financial Services Norm(3) $132.7M 23% invested in community organizations across Canada and the U.S.(4) visible minorities in board-approved executive roles (Canada) Ranked A- 100% among the top-tier of global banks for climate actions by CDP of employees completed CIBC ethical training on our Code of Conduct(5) Underwriting bank and coordinating lead arranger for the Western Spirit Wind power projects, sponsored by Pattern Energy, the largest single- phase renewable power build out in U.S. history (1) North American Renewables League Tables by Inframation. (2) New loan authorizations in 2021 to small and medium-sized enterprises were comprised of $0.8 billion to small-sized enterprises and $4.0 billion to medium-sized enterprises. (3) Based on participation in our annual employee survey. Excludes FirstCaribbean International Bank Limited. (4) Includes corporate giving, including $70 million to CIBC Foundation, corporate sponsorships and employee giving and fundraising. (5) Excludes the U.S. Commercial Banking and Wealth Management strategic business unit and FirstCaribbean International Bank Limited. ii CIBC 2021 ANNUAL REPORT Our commitment to ESG Client experience Our clients are important stakeholders in our bank. Helping to make their ambitions a reality is our shared purpose, and requires an investment in our team to ensure they have the tools and technology to help our clients plan for the future and achieve their goals. In 2021, our clients felt our commitment more than ever, as we demonstrated genuine care through the ongoing pandemic. Our team acted with integrity, transparency and agility to ensure our clients felt confdent in trusting us with their banking during uncertain times. • Our bank delivered the best year-over-year performance among its peers in our Net Promoter Score measured by the Ipsos Customer Satisfaction Index study. Our internal CIBC Enterprise Net Promoter Score (CX NPS) is a balanced weighting of internal net promoter scores from across our businesses. As of October 31, 2021, the CX NPS was 62.6. This represents a marginal (0.2 point) decrease from 2020 due to the inclusion of survey programs that were added to better refect our clients’ experience across CIBC. • We delivered further digital enhancements to our clients, enabling clients to stay connected to their fnances and leverage insights into their spending to help keep their ambitions on track. Our clients now have access to innovative enhancements and value-added digital services like CIBC Insights, Virtual Assistant, and Digital Identity Verifcation for our Mobile Banking® App, which was ranked #1 in overall customer satisfaction by J.D. Power for the second year in a row. • Financial planning and advice remains a core focus. Increasingly, clients are looking to the future and refocusing on their long-term ambitions. Tools like CIBC GoalPlanner™, a digitally enabled goal-setting platform, allow our Imperial Service advisors to better understand our clients’ ambitions, which has led to signifcantly higher client satisfaction among those clients who used the platform with their fnancial advisor. • In an increasingly digital world, trust is essential. We continued to proactively invest in our cybersecurity defences and risk management practices to protect our clients’ data and ensure secure banking experiences. Our purpose-driven culture is refected in feedback from our clients Louis and Johnny from CIBC have been extremely attentive to my needs as I’ve pursued my goal of opening this practice. During challenging economic times, they were willing to listen to my story. They believe in what I’m doing for my community.” Dr. Jason Adinata 416 Dentistry Things happened that I didn’t see coming, and I got into debt. CIBC called me and ofered guidance and help. I started to dig myself out of this hole — and now I have savings. I turned my life around.” Maya Cabello It means a lot to help communities devastated by storms. We feel a sense of responsibility, knowing that our business supports livelihoods in our own community. As our business has grown and our fnancial needs have gotten more complex, it’s great knowing CIBC is on our team.” Tim Noble and Barrie Hall T&T Line Construction CIBC 2021 ANNUAL REPORT iii Message from the President and Chief Executive Ofcer Our CIBC Team will be the catalyst for accelerated growth as we carry our momentum into the years ahead. As we do, what will unite us every day is our purpose — to help make our clients’ ambitions a reality.“ Victor G. Dodig President and Chief Executive Ofcer In a year marked by the ongoing COVID-19 pandemic and resulting economic uncertainty, and vital conversations about inclusion and climate change, our CIBC team of 45,000-strong stepped up once again to provide leadership for our stakeholders. Our accomplishments this year and our ambitions for the future are made possible by our tremendous team across North America and around the world. Their professionalism and dedication are the foundation for everything we have accomplished. Our bank was there for our clients and for our communities in 2021. We invested in the tools available to our advisory team to help make our clients’ ambitions a reality. We joined the Net-Zero Banking Alliance, and furthered our commitment to sustainable fnancing for innovative solutions that enable clients to meet their own sustainability goals. And just after year end, we announced the launch of our new charitable foundation that will help build social and economic equality for underserved communities. We also delivered for shareholders, with strong growth driven by our execution against the priorities of our client-focused strategy, and fuelled by the investments we’ve made in our culture and our capabilities. Having established clear momentum in our business, we set out as a team to write the next chapter in the history of our bank, as we ofcially launched our new brand near the end of the year. Our new look connects our proud past to the present and the future, and is a symbol of our purpose. Our CIBC Team will be the catalyst for accelerated growth as we carry our momentum into the years ahead. As we do, what will unite us every day is our purpose — to help make our clients’ ambitions a reality. Business performance Our bank reported earnings in 2021 of $6.4 billion or $6.7 billion on an adjusted basis(1), up 70% and 50% from last year, respectively. These results were delivered through strong top-line performance driven by market share gains achieved by attracting new clients and deepening existing relationships across our bank. Our capital position remained very strong, with a CET1 ratio of 12.4%, underscoring the strength of our bank. In 2021, we established three clear priorities to grow our business. The frst was to rejuvenate our Canadian consumer franchise, the second was to maintain and grow our resilient North American Commercial Banking, Wealth Management, and Capital Markets businesses, and the third was to accelerate our ongoing investments in growth initiatives into the future. (1) Adjusted measures are non-GAAP measures. For additional information, see the “Non-GAAP measures” section of the MD&A. iv CIBC 2021 ANNUAL REPORT Rejuvenating our Canadian consumer franchise In Canadian Personal and Business Banking, we established clear growth momentum thanks to our eforts to revitalize and strengthen this business, and we are pleased with our market share gains on both sides of the balance sheet. In 2021, we launched CIBC GoalPlanner™, a digitally enabled goal-setting platform, allowing our Imperial Service advisors to better understand our clients’ ambitions. To date, over 224,000 clients have used the platform, generating positive feedback and resulting in deeper relationships as clients take advantage of the intuitive and interactive features of the platform to set goals and stay connected to their progress over time. Whether clients have experienced challenges resulting from the pandemic or are on strong footing and focused on growth, our team was there to help with personal advice enabled by digital tools. Our mortgage growth accelerated this year as we helped more Canadians achieve their ambition of home ownership through our national team of mortgage advisors and our banking centre teams. We delivered record net fows in our mutual fund business, refecting our ability to help clients make progress on their long-term ambitions despite near-term challenges presented by the pandemic. We made signifcant progress in delivering a modern experience for our clients, as refected in our client experience scores which are our best on record. And, we continued to lead the market in digital innovation for clients, winning the J.D. Power award for best mobile banking app among the major Canadian banks for a second consecutive year. We continue to look to the future as we invest in the growth of our Direct Financial Services business, which includes Simplii Financial and our Investor’s Edge self-directed brokerage. This business meets the needs of digital-savvy clients who prefer self-service options to deposit, move, and invest their money. We delivered double-digit revenue growth in this business through a continued focus on innovation and delivering fntech- like services to a growing client base. We made signifcant progress in delivering a modern experience for our clients, as refected in our client experience scores which are our best on record. Revenue by Business Segment $8.15B Canadian Personal and Business Banking $4.67B $2.19B Canadian Commercial Banking and Wealth Management U.S. Commercial Banking and Wealth Management $4.52B Capital Markets Victor Dodig with NatWest Group Chief Executive Ofcer, Alison Rose, at the 2021 CIBC Sustainability Conference. CIBC 2021 ANNUAL REPORT v Message from the President and Chief Executive Ofcer Our new brand is not a promise of something that we’re going to be — it’s a statement on the bank we’ve worked hard to become. The brand message of Ambitions made real is brought to life by the investments we’ve made across our bank. Maintaining and growing our resilient North American Commercial Banking, Wealth Management, and Capital Markets businesses The private economy recovered in 2021, on both sides of the border. While the pandemic continues to impact a number of industries, many commercial banking clients saw a much- improved year and have clear plans for growth over the medium and long term. Our bank continued to be there for clients experiencing challenges, but increasingly our conversations with clients were about the future — particularly in our growing Innovation Banking business. In Wealth Management, our business beneftted from strong collaboration with all areas of our bank, as referral momentum continued and we established more new client relationships for the long term. Our Capital Markets business continued to perform well by delivering for our clients, collaborating on growth opportunities across our bank, and furthering our growth in the U.S. market. Our continued focus on client relationships positioned us very well in a year with robust investment banking activity and strong trading volumes. Investing in growth initiatives for the future Right across our team, we believe strongly in the bank we’re building, and in one another. Despite the challenges and uncertainty in the economy as a result of the pandemic, we’ve remained steadfast in our commitment to investing for the future. As one example, we made a strategic investment in Loop Capital, a Chicago-headquartered fnancial services frm with deep relationships across the U.S. This investment furthers our ability to meet the needs of clients across strategic industries on both sides of the border, and is aligned with our approach to working with frms that share our client-focused culture and a commitment to inclusive economic growth. In Canada, we announced a new long-term agreement to become the exclusive issuer of Costco Mastercards, including the acquisition of the existing portfolio which serves millions of Canadians and has over $3 billion in outstanding balances. This will signifcantly grow and diversify our credit card portfolio in the everyday rewards category. Importantly, this agreement with Costco provides an opportunity to deepen relationships with new clients from across Costco’s large and growing member base, making this a strategically important investment for the coming years. We also established a strategic relationship with Microsoft, embracing a cloud-frst approach and enhancing our resilience, efciency and agility. We’ve made signifcant progress in modernizing our bank, and this agreement will accelerate those eforts. Writing a new chapter in our history with our new brand Through our investments in culture and our capabilities, we’ve become a diferent bank. In 2021, we set out on the next chapter in the growth story of CIBC as we unveiled our new brand. Our new brand is not a promise of something that we’re going to be — it’s a statement on the bank we’ve worked hard to become. The brand message of Ambitions made real is brought to life by the investments we’ve made across our bank. We are now a truly North American bank. The CIBC of today is one where our team collaborates across business lines and across borders for our clients, and one where we’re all guided by our purpose. Our new brand captures the signifcant growth and transformation of our bank in recent years, and signifes the next phase of growth in our long history. vi CIBC 2021 ANNUAL REPORT Furthering our commitment to an inclusive, sustainable future We are focused on the future and recognize climate change is one of the greatest threats facing society. We continue to take real action to enable a lower carbon future for our stakeholders, including announcing our ambition to achieve net-zero GHG emissions from our operations and our fnancing activities by 2050. We also doubled our commitment to sustainable fnance — increasing our target to $300 billion dollars by 2030(2), a signifcant contribution to making the sustainability ambitions of our clients a reality. And we joined the Net-Zero Banking Alliance, reinforcing the role our bank plays in fnancing the climate transition and giving us an opportunity to work alongside global peers to map out an inclusive path to combat climate change. Importantly, we are also taking action to deliver market-based solutions, enabling our clients to achieve their net-zero GHG ambitions. One example is Project Carbon, a new platform launched by CIBC in a joint efort with three other global banks, bringing clear and consistent pricing and standards to the voluntary carbon market. Simply put, it makes the carbon credit market more liquid and more accessible, which will make it easier for clients to make progress towards their net-zero commitments. We have also made progress against our commitment to make inclusion the cornerstone of our bank’s culture. We have established measurable goals that make our leaders accountable for helping to remove barriers experienced by members of the Black community, Indigenous peoples and other communities who continue to be underrepresented in fnancial services. I am also proud to serve for the second year as co-chair of the BlackNorth Initiative which catalyzes leaders across Corporate Canada to end anti-Black systemic racism. In 2021, CIBC has increased the representation of board-approved executives from the Black community from 2.6% to 2.9% and the representation of our Canadian workforce increased from 3.5% to 3.8%. We were named the leading company in Canada for gender equality and ranked 19th globally in Equileap’s fourth annual Gender Equality Global Report & Ranking, refecting our long- term commitment to creating a workplace where all our team members can achieve their ambitions. Our bank also celebrated our 10th year as one of Canada’s Top 100 Employers, and we were also named a Top Employer for Young People as a result of our ability to attract and retain top talent. Investing in our communities As 2021 drew to a close, we readied for the launch of the CIBC Foundation, an important step in our ongoing eforts to support our communities. Created to help advance social and economic equality for underserved communities, the CIBC Foundation came into being just after year end. It builds on our bank’s charitable eforts to drive lasting change so that everyone can realize their ambitions. (2) Sustainable fnancing largely relates to client activities that support, but are not limited to, renewable and emission-free energy, energy efciency, sustainable infrastructure, afordable housing, green buildings, sustainability-linked fnancings and green fnancial products. The products ofered by CIBC included in our mobilization commitment to support these client activities include loans and loan syndications, debt and equity underwritings, M&A advisory and hedging solutions, as well as principal investments. ESG by the numbers Women on the Board of Directors 50% Clients engaged in fnancial education seminars and events 72,000 Total corporate and employee giving in 2021 $132.7M (3) New loan authorizations to small and medium-sized enterprises in 2021 $4.8B (3) Includes corporate giving, including $70 million to CIBC Foundation, corporate sponsorships and employee giving and fundraising. CIBC 2021 ANNUAL REPORT vii Message from the President and Chief Executive Ofcer Our fagship fundraising events such as the CIBC Run for the Cure and CIBC Miracle Day will continue to be vital elements in how we give back and support our communities. We held these events virtually again this year and raised $7.6 million combined to go towards important causes in our communities related to cancer research and supporting a brighter future for children. Closing Our bank weathered the onset of the pandemic in 2020 thanks to an unrelenting focus on our clients. We advanced our growth strategy and worked to live our purpose in 2021 through our continued investments in initiatives that make a diference to our clients, team, communities and investors. We enter 2022 with a new brand, and a sense of anticipation. That commitment is refected in our fnancial results and underpins our investments for the future — in our bank’s growth potential as well as in our communities as we strive to foster a more inclusive, sustainable economy. In refecting on such an important year for our bank, I want to close by saying thank you to our incredible team. They are the face of our bank and they live our purpose every day. They have remained steadfast through a challenging time, and they are very much the driving force behind the bank we’ve become. The future is bright — for our stakeholders and for our bank. The next chapter in our bank’s history begins now, and we’re excited about what we can accomplish together. Victor G. Dodig President and Chief Executive Ofcer Executive Team 1 6 2 7 3 8 4 9 5 10 (from left to right, top to bottom): 1 – Victor G. Dodig President and Chief Executive Ofcer 2 – Shawn Beber Senior Executive Vice-President and Chief Risk Ofcer 3 – Michael G. Capatides Senior Executive Vice-President and Group Head, U.S. Region; President and CEO, CIBC Bank USA 4 – Harry Culham Senior Executive Vice-President and Group Head, Capital Markets and Direct Financial Services 5 – Laura Dottori-Attanasio 8 – Kikelomo Lawal Senior Executive Vice-President and Group Head, Personal and Business Banking, Canada Executive Vice-President and Chief Legal Ofcer 9 – Hratch Panossian 6 – Jon Hountalas Senior Executive Vice-President and Group Head, Commercial Banking and Wealth Management, Canada 7 – Christina Kramer Senior Executive Vice-President and Group Head, Technology, Infrastructure and Innovation Senior Executive Vice-President and Chief Financial Ofcer and Enterprise Strategy 10 – Sandy Sharman Senior Executive Vice-President and Group Head, People, Culture and Brand viii CIBC 2021 ANNUAL REPORT Message from the Chair of the Board Looking back on 2021, my frst year as Chair of the Board, I am proud of how CIBC has supported clients, communities and team members through the second year of the COVID-19 pandemic.” Katharine B. Stevenson Chair of the Board As we look ahead to 2022 we are optimistic. Despite the challenges of the last two years, CIBC has accelerated its investments in growth initiatives which support our client- focused strategy. This positions us well for future growth. Finally, I would like to recognize your CEO, Victor Dodig, and your management team for their leadership in guiding us through the second year of the pandemic while delivering strong fnancial performance. On behalf of your Board, I also would like to thank every member of CIBC’s team. We appreciate your dedication in living our purpose each and every day for our clients. Katharine B. Stevenson Chair of the Board Our top priorities are to ensure CIBC has the right strategy, the best talent and excellent risk management to pursue opportunities aligned with our purpose. CIBC’s growth agenda is on track as our clients across industries emerge from the pandemic, and as confdence in the future rises for individuals and businesses alike. During 2021, all our businesses performed well and we delivered strong shareholder returns while continuing to invest in both our U.S. and Canadian franchises. Your Board has a relentless focus on environmental, social and governance matters. We are committed to making inclusion a cornerstone of CIBC’s culture and I am pleased to report that 40% of CIBC’s Executive Committee are women, and the Board is at gender parity with 50% women. In addition, your Board includes one director who identifes as a member of the Black community and one who identifes as a member of the LGBTQ+ community. We believe climate change is one of the most important issues of our time. We are actively reducing our own carbon footprint; however, our biggest impact will be by proactively supporting our clients in their transition to a lower carbon economy. Towards this end, we have announced our ambition to achieve net-zero greenhouse gas emissions by 2050 and have doubled our target for sustainable fnancing, among other environmental commitments. CIBC 2021 ANNUAL REPORT ix Enhanced Disclosure Task Force The Enhanced Disclosure Task Force (EDTF), established by the Financial Stability Board, released its report “Enhancing the Risk Disclosures of Banks” in 2012, which included thirty-two disclosure recommendations. The index below provides the listing of these disclosures, along with their locations. EDTF disclosures are located in our management’s discussion and analysis, consolidated financial statements, and supplementary packages, which may be found on our website (www.cibc.com). No information on CIBC’s website, including the supplementary packages, should be considered incorporated herein by reference. Topics Recommendations Disclosures Management’s discussion and analysis Consolidated financial statements Page references Pillar 3 Report and Supplementary regulatory capital disclosure General Risk governance, risk management and business model Capital adequacy and risk- weighted assets Liquidity Funding Market risk Credit risk Other risks 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 Index of risk information – current page Risk terminology and measures (1) Top and emerging risks Key future regulatory ratio requirements Risk management structure Risk culture and appetite 50 36, 39, 74, 75 172 44, 45 43, 46, 47 Risks arising from business activities 48, 53 Bank-wide stress testing 32, 49, 57, 63, 70, 72 Minimum capital requirements Components of capital and reconciliation to the consolidated regulatory balance sheet Regulatory capital flow statement Capital management and planning Business activities and risk-weighted assets Risk-weighted assets and capital requirements Credit risk by major portfolios Risk-weighted assets flow statement 32 36 37 39 38, 53 34, 38 56–60 38 Back-testing of models 48, 57, 68 172 172 71–73 9, 16 8–11 12 4 4 27–36 4, 5 69, 70 Liquid assets Encumbered assets Contractual maturity of assets, liabilities and off-balance sheet instruments Funding strategy and sources Reconciliation of trading and non-trading portfolios to the consolidated balance sheet Significant trading and non-trading market risk factors Model assumptions, limitations and validation procedures Stress testing and scenario analysis Analysis of credit risk exposures Impaired loan and forbearance policies Reconciliation of impaired loans and the allowance for credit losses Counterparty credit risk arising from derivatives Credit risk mitigation Other risks Discussion of publicly known risk events 73 73 78 76 67 67–71 67–71 32, 70 58–65 55, 63, 85 63 145–152, 193 6–7, 65–68 124 146 55, 59 162–163 68, 35 (2) 55 79–82 79 162–163 20, 27–36, 39–40, 46–50, 53, 68 185 (1) A detailed glossary of our risk and capital terminology is included on page 103. (2) Included in supplementary financial information package. x CIBC 2021 ANNUAL REPORT Management’s discussion and analysis 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 year ended October 31, 2021, compared with prior years. The MD&A should be read in conjunction with the audited consolidated financial statements. 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. Certain disclosures in the MD&A have been shaded as they form an integral part of the consolidated financial statements. The MD&A is current as of December 1, 2021. Additional information relating to CIBC, including the Annual Information Form, is available on SEDAR at www.sedar.com and on the United States (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 in the MD&A and the audited consolidated financial statements is provided on pages 100 to 106 of this Annual Report. 2 External reporting changes 8 Financial performance 18 Strategic business units 2 Overview 2 Our strategy 2 Performance against objectives 5 Financial highlights 6 Economic and market environment 6 Year in review – 2021 6 Outlook for calendar year 2022 7 Significant events overview 8 2021 Financial results review 8 Net interest income and margin 9 Non-interest income 9 Trading revenue (TEB) 10 Provision for credit losses 10 Non-interest expenses 10 Taxes 11 Foreign exchange 11 Fourth quarter review 12 Quarterly trend analysis 13 Review of 2020 financial performance 15 Non-GAAP measures overview 19 Canadian Personal and Business Banking 21 Canadian Commercial Banking and Wealth Management 23 U.S. Commercial Banking and Wealth Management 27 Capital Markets 30 Corporate and Other 31 Financial condition 31 Review of condensed consolidated balance sheet 32 Capital management 41 Off-balance sheet arrangements 43 83 83 89 89 90 91 91 92 Management of risk Accounting and control matters Critical accounting policies and estimates Accounting developments Other regulatory developments Related-party transactions Policy on the Scope of Services of the Shareholders’ Auditor Controls and procedures Supplementary annual financial information 100 Glossary 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 Annual Report, in other filings with Canadian securities regulators or the SEC 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 “Message from the President and Chief Executive Officer”, “Overview – Performance against objectives”, “Economic and market environment – Outlook for calendar year 2022”, “Significant events”, “Financial performance overview – Taxes”, “Strategic business units overview – Canadian Personal and Business Banking”, “Strategic business units overview – Canadian Commercial Banking and Wealth Management”, “Strategic business units overview – U.S. Commercial Banking and Wealth Management”, “Strategic business units overview – Capital Markets”, “Financial condition – Capital management”, “Financial condition – Off-balance sheet arrangements”, “Management of risk – Risk overview”, “Management of risk – Top and emerging risks”, “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 – Accounting developments”, “Accounting and control matters – Other 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, the regulatory environment in which we operate and outlook for calendar year 2022 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 “Economic and market environment – Outlook for calendar year 2022” section of this report, and are subject to inherent risks and uncertainties that may be general or specific. Given the continuing impact of the coronavirus (COVID-19) pandemic on the global economy, financial markets, and our business, results of operations, reputation and financial condition, there is inherently more uncertainty associated with our assumptions as compared to prior periods. 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: the occurrence, continuance or intensification of public health emergencies, such as the COVID-19 pandemic, and any related government policies and actions; credit, market, liquidity, strategic, insurance, operational, reputation, conduct and legal, regulatory and environmental risk; currency value and interest rate fluctuations, including as a result of market and oil price volatility; 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 Organisation for Economic Co-operation and Development Common Reporting Standard, and regulatory reforms in the United Kingdom and Europe, the Basel Committee on Banking Supervision’s global standards for capital and liquidity reform, and those relating to bank recapitalization legislation and 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, including changes relating to economic or trade matters; the possible effect on our business of international conflicts and terrorism; natural disasters, 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; increasing cyber security risks which may include theft or disclosure of assets, unauthorized access to sensitive information, or operational disruption; social media risk; losses incurred as a result of internal or external fraud; anti-money laundering; 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 or associates; intensifying competition from established competitors and new entrants in the financial services industry including through internet and mobile banking; technological change; global capital market activity; changes in monetary and economic policy; general business and economic conditions worldwide, as well as in Canada, the U.S. and other countries where we have operations, including increasing Canadian household debt levels and global credit risks, climate change and other environmental and social risks, 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; the risk that expected benefits of an acquisition, merger or divestiture will not be realized within the expected time frame or at all; 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. Any forward-looking statements contained in this report represent the views of management only as of the date hereof and are presented for the purpose of assisting our shareholders and financial analysts in understanding our financial position, objectives and priorities and anticipated financial performance as at and for the periods ended on the dates presented, and may not be appropriate for other purposes. 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. CIBC 2021 ANNUAL REPORT 1 Management’s discussion and analysis External reporting changes The following external reporting changes were made in 2021. Changes made to our business segments   Simplii Financial and CIBC Investor’s Edge, previously reported in Canadian Personal and Business Banking, are now part of the newly-created Direct Financial Services line of business in Capital Markets, along with certain other direct payment services that were previously in Capital Markets. This change was made to align with the mandates of the relevant strategic business units (SBUs). The financial results associated with U.S. treasury activities in U.S. Commercial Banking and Wealth Management are now included within Treasury in Corporate and Other. In addition, the transfer pricing methodology between U.S. Commercial Banking and Wealth Management and Treasury in Corporate and Other has been enhanced. Both changes align the treatment of U.S. Commercial Banking and Wealth Management with our other SBUs, and allow for better management of interest rate and liquidity risks. Prior period amounts have been revised accordingly. The changes impacted the results of our SBUs and how we measure the performance of our SBUs. There was no impact on our consolidated financial results from these changes. Overview CIBC is a leading North American financial institution committed to creating enduring value for all our stakeholders – our clients, team, communities and shareholders. We are guided by our purpose – to help make your ambitions a reality, and our focus on creating a more secure, equitable and sustainable future through our environmental, social and governance (ESG) principles. Across Personal and Business Banking, Commercial Banking and Wealth Management, and Capital Markets businesses, our 45,000 employees provide a full range of financial products and services to 11 million personal banking, business, public sector and institutional clients in Canada, the U.S. and around the world. Our strategy In 2021, we continued to focus on building a modern, relationship-oriented bank. Through these efforts, we’re delivering superior client experience and top-tier shareholder returns while maintaining our financial strength, risk discipline and advancing our purpose-driven culture. Foundational to our progress is a consistent focus on three strategic priorities: Further strengthening our Canadian consumer franchise;  Maintaining and growing our resilient North American Commercial Banking, Wealth Management, and Capital Markets businesses; and  Accelerating ongoing investments in growth initiatives.  Performance against objectives CIBC reports a scorecard of financial measures that we use to evaluate and report on our progress to external stakeholders. These measures can be categorized into four key areas – earnings growth, operating leverage, profitability, and balance sheet strength. We have set targets for each of these measures over the medium term, which we define as three to five years, assuming a normal business environment and credit cycle. Our ability to achieve these objectives may be adversely affected by extraordinary developments and disruptions. Global economic activity accelerated this year, although the COVID-19 pandemic continues to pose a headwind to the pace of that recovery. Distribution of COVID-19 vaccines has allowed for the re-opening of much of the economy, but not all economic activities have returned to pre- pandemic levels and continue to have an impact on our ability to achieve certain performance objectives. Earnings growth To assess our earnings growth, we monitor our earnings per share (EPS). Our target of 5% to 10% growth reflects a simple average of annual adjusted(1) EPS growth. In 2021, against a backdrop of an improving economic environment, year-over-year reported and adjusted(1) diluted EPS increased by 69% and 49%, respectively. Reported diluted EPS ($) Adjusted diluted EPS(1) ($) 13.93 14.47 11.24 11.65 11.19 8.22 12.21 11.92 11.11 9.69 Going forward, we are maintaining our target to deliver average annual adjusted(1) EPS growth of 5% to 10%. (1) Adjusted measures are non-GAAP measures. For additional information, see the “Non-GAAP measures” section. 17 18 19 20 21 17 18 19 20 21 2 CIBC 2021 ANNUAL REPORT Management’s discussion and analysis Operating leverage Operating leverage, defined as the difference between the year-over- year percentage change in revenue and year-over-year percentage change in non-interest expenses, is a measure of the relative growth rates of revenue and expenses. In 2021, our reported and adjusted(1) operating leverage was 5.3% and 0.7%, respectively, compared with (4.0)% and (0.6)%, respectively in 2020. Going forward, our target is to deliver positive adjusted(1) operating leverage. Profitability We have three metrics to measure profitability, including two shareholder value targets: 1. Return on common shareholders’ equity (ROE) ROE, defined as the ratio of net income to average(2) common shareholders’ equity, is a key measure of profitability. In 2021, our reported and adjusted(1) ROE were at 16.1% and 16.7%, respectively, compared with 10.0% and 11.7%, respectively, in 2020. Going forward, we will continue to target a strong adjusted(1) ROE of at least 15%. 2. Dividend payout ratio Dividend payout ratio is defined as the ratio of common share dividends paid as a percentage of net income after preferred share dividends, premium on preferred share redemptions, and distributions on other equity instruments. Our key criteria for considering dividend increases are our current level of payout relative to our target and our view on the sustainability of our current earnings level. In 2021, our reported and adjusted(1) dividend payout ratios were 41.8% and 40.3%, respectively, compared with 70.7% and 60.0%, respectively, in 2020. In response to the COVID-19 pandemic, effective March 2020, the Office of the Superintendent of Financial Institutions (OSFI) directed that all federally regulated financial institutions halt share buybacks and dividend increases until further notice. The temporary measure was lifted effective November 4, 2021. Going forward, we will continue to target an adjusted(1) dividend payout ratio of 40% to 50%. Reported operating leverage (%) Adjusted operating leverage(1) (%) 5.3 3.2 2.4 1.6 (1.5) (4.0) 1.6 0.7 0.2 (0.6) 17 18 19 20 21 17 18 19 20 21 Reported return on common shareholders’ equity (%) 18.3 16.6 14.5 16.1 10.0 Adjusted return on common shareholders’ equity(1) (%) 18.1 17.4 15.4 16.7 11.7 17 18 19 20 21 17 18 19 20 21 Reported dividend payout ratio (%) 70.7 45.6 45.5 49.9 41.8 Adjusted dividend payout ratio(1) (%) 60.0 46.2 43.4 46.9 40.3 17 18 19 20 21 17 18 19 20 21 3. Total shareholder return (TSR) Rolling five-year TSR (%) TSR is the ultimate measure of shareholder value, and the output of delivering against the financial targets within our control. We have an objective to deliver a TSR that exceeds the industry average, which we have defined as the Standard & Poor’s (S&P)/Toronto Stock Exchange (TSX) Composite Banks Index, over a rolling five-year period. For the five years ended October 31, 2021, our TSR was 91.9% (2020: 27.7%), which was above the S&P/TSX Composite Banks Index return over the same period of 80.4%. 125 100 75 50 25 (1) Adjusted measures are non-GAAP measures. For additional information, see the “Non-GAAP measures” section. (2) Average balances are calculated as a weighted average of daily closing balances. 0 Oct-20 Jan-21 Apr-21 Jul-21 Oct-21 CIBC 91.9% S&P/TSX Composite Index 65.3% S&P/TSX Composite Banks Index 80.4% CIBC 2021 ANNUAL REPORT 3 Management’s discussion and analysis Balance sheet strength Maintaining a strong balance sheet is foundational to our long-term success. Our goal is to maintain strong capital and liquidity positions. We look to constantly balance our objectives of holding a prudent amount of excess capital for unexpected events and environmental uncertainties, investing in our core businesses, growing through acquisitions and returning capital to our shareholders. CET1 ratio (%) 11.4 11.6 10.6 12.1 12.4 1. Basel III Common Equity Tier 1 (CET1) ratio For the year ended October 31, 2021, our Basel III CET1(1) ratio was 12.4%, compared with 12.1% in 2020, well above the current regulatory target set by OSFI of 10.5%. In response to the COVID-19 pandemic, effective March 2020, OSFI directed that all federally regulated financial institutions halt share buybacks and dividend increases until further notice. The temporary measure was lifted effective November 4, 2021. 2. Liquidity coverage ratio (LCR) Our ability to meet our financial obligations is measured through the LCR ratio. It measures unencumbered high-quality liquid assets (HQLA) that can be converted into cash to meet liquidity needs for a 30-calendar- day liquidity stress scenario. The LCR standard requires that, absent a situation of financial stress, the value of the ratio be no lower than 100%. 17 18 19 20 21 Liquidity coverage ratio (%) 120 128 125 145 127 For the quarter ended October 31, 2021, our three-month daily average LCR(1) was 127% compared to 145% for the same period last year. The decrease returns our LCR to pre-pandemic levels. 17 18 19 20 21 (1) CET1 is calculated pursuant to OSFI’s Capital Adequacy Requirements (CAR) Guideline and LCR is calculated pursuant to OSFI’s Liquidity Adequacy Requirements (LAR) Guideline, which are both based on Basel Committee on Banking Supervision (BCBS) standards. 4 CIBC 2021 ANNUAL REPORT Management’s discussion and analysis Financial highlights As at or for the year ended October 31 Financial results ($ millions) Net interest income Non-interest income Total revenue Provision for credit losses Non-interest expenses Income before income taxes Income taxes Net income Net income attributable to non-controlling interests Preferred shareholders and other equity instrument holders Common shareholders Net income attributable to equity shareholders Financial measures Reported efficiency ratio (1) Reported operating leverage (1) Loan loss ratio (2) Reported return on common shareholders’ equity (1) Net interest margin (1) Net interest margin on average interest-earning assets (3)(4) Return on average assets (4)(5) Return on average interest-earning assets (3)(4)(5) Reported effective tax rate Common share information Per share ($) Closing share price ($) Shares outstanding (thousands) – basic earnings – reported diluted earnings – dividends – book value (6) – weighted-average basic – weighted-average diluted – end of period Market capitalization ($ millions) Value measures Total shareholder return Dividend yield (based on closing share price) Reported dividend payout ratio (1) Market value to book value ratio Selected financial measures – adjusted (7) Adjusted efficiency ratio (8) Adjusted operating leverage (8) Adjusted return on common shareholders’ equity Adjusted effective tax rate Adjusted diluted earnings per share ($) Adjusted dividend payout ratio On- and off-balance sheet information ($ millions) Cash, deposits with banks and securities Loans and acceptances, net of allowance for credit losses Total assets Deposits Common shareholders’ equity (1) Average assets (4) Average interest-earning assets (3)(4) Average common shareholders’ equity (1)(4) Assets under administration (AUA) (1)(9)(10)(11) Assets under management (AUM) (1)(10)(11) Balance sheet quality (All-in basis) and liquidity measures (12) Risk-weighted assets (RWA) ($ millions) Total RWA CET1 capital RWA Tier 1 capital RWA Total capital RWA Capital ratios CET1 ratio (13) Tier 1 capital ratio (13) Total capital ratio (13) Leverage ratio LCR (14) Other information Full-time equivalent employees 2021 11,459 8,556 20,015 158 11,535 8,322 1,876 6,446 17 158 6,271 6,429 $ $ $ 57.6 % 5.3 % 0.16 % 16.1 % 1.42 % 1.59 % 0.80 % 0.89 % 22.5 % $ $ 13.97 13.93 5.84 91.66 150.17 448,953 450,183 450,828 67,701 58.03 % 3.9 % 41.8 % 1.64 55.4 % 0.7 % 16.7 % 22.7 % 14.47 40.3 % $ $ 218,398 462,879 837,683 621,158 41,323 809,621 721,686 38,881 2,963,221 316,834 $ $ $ $ $ $ $ 2020 11,044 7,697 18,741 2,489 11,362 4,890 1,098 3,792 2 122 3,668 3,790 60.6 % (4.0)% 0.26 % 10.0 % 1.50 % 1.69 % 0.52 % 0.58 % 22.5 % 8.23 8.22 5.82 84.05 99.38 445,435 446,021 447,085 44,431 (5.90)% 5.9 % 70.7 % 1.18 55.8 % (0.6)% 11.7 % 21.8 % 9.69 60.0 % 211,564 416,388 769,551 570,740 37,579 735,492 654,142 36,792 2,364,005 (8) 261,037 (8) $ $ $ $ $ $ $ 2019 10,551 8,060 18,611 1,286 10,856 6,469 1,348 5,121 25 111 4,985 5,096 58.3 % (1.5)% 0.29 % 14.5 % 1.65 % 1.84 % 0.80 % 0.89 % 20.8 % 11.22 11.19 5.60 79.87 112.31 444,324 445,457 445,342 50,016 4.19 % 5.0 % 49.9 % 1.41 55.5 % 0.2 % 15.4 % 20.6 % 11.92 46.9 % 138,669 398,108 651,604 485,712 35,569 639,716 572,677 34,467 2,423,240 (8) 249,596 (8) $ $ $ $ $ $ $ 2018 10,065 7,769 17,834 870 10,258 6,706 1,422 5,284 17 89 5,178 5,267 57.5 % 2.4 % 0.26 % 16.6 % 1.68 % 1.88 % 0.88 % 0.99 % 21.2 % 11.69 11.65 5.32 73.83 113.68 443,082 444,627 442,826 50,341 4.70 % 4.7 % 45.5 % 1.54 55.6 % 3.2 % 17.4 % 20.0 % 12.21 43.4 % 119,355 381,661 597,099 461,015 32,693 598,441 536,059 31,184 2,303,962 225,379 $ $ $ $ $ $ $ 2017 8,977 7,303 16,280 829 9,571 5,880 1,162 4,718 19 52 4,647 4,699 58.8 % 1.6 % 0.25 % 18.3 % 1.66 % 1.85 % 0.87 % 0.97 % 19.8 % 11.26 11.24 5.08 66.55 113.56 412,636 413,563 439,313 49,888 18.30 % 4.5 % 45.6 % 1.71 57.2 % 1.6 % 18.1 % 20.3 % 11.11 46.2 % 107,571 365,558 565,264 439,706 29,238 542,365 485,837 25,393 2,192,947 221,571 $ 272,814 n/a n/a n/a $ 254,871 n/a n/a n/a $ 239,863 n/a n/a n/a $ n/a 216,144 216,303 216,462 $ n/a 203,321 203,321 203,321 12.4 % 14.1 % 16.2 % 4.7 % 127 % 12.1 % 13.6 % 16.1 % 4.7 % 145 % 11.6 % 12.9 % 15.0 % 4.3 % 125 % 11.4 % 12.9 % 14.9 % 4.3 % 128 % 10.6 % 12.1 % 13.8 % 4.0 % 120 % 45,282 43,853 45,157 44,220 44,928 For additional information on the composition, see the “Glossary” section. The ratio is calculated as the provision for credit losses on impaired loans to average loans and acceptances, net of allowance for credit losses. (1) (2) (3) Average interest-earning assets include interest-bearing deposits with banks, interest-bearing demand deposits with Bank of Canada, securities, cash collateral on securities borrowed, securities purchased under resale agreements, loans net of allowance for credit losses, and certain sublease-related assets. (4) Average balances are calculated as a weighted average of daily closing balances. (5) Net income expressed as a percentage of average assets or average interest-earning assets. (6) Common shareholders’ equity divided by the number of common shares issued and outstanding at end of period. (7) Adjusted measures are non-GAAP measures. Adjusted measures are calculated in the same manner as reported measures, except that financial information included in the calculation of adjusted measures is adjusted to exclude the impact of items of note. For additional information and a reconciliation of reported results to adjusted results, see the “Non-GAAP measures” section. (8) Calculated on a taxable equivalent basis (TEB). (9) Includes the full contract amount of AUA or custody under a 50/50 joint venture between CIBC and The Bank of New York Mellon of $2,341.1 billion as at October 31, 2021 (2020: $1,861.5 billion). AUM amounts are included in the amounts reported under AUA. (10) (11) Certain prior year information has been restated. (12) RWA and our capital ratios are calculated pursuant to OSFI’s CAR Guideline, the leverage ratio is calculated pursuant to OSFI’s Leverage Requirements Guideline, and LCR is calculated pursuant to OSFI’s LAR Guideline, all of which are based on BCBS standards. For additional information, see the “Capital management” and “Liquidity risk” sections. (13) Effective beginning in the second quarter of 2020, ratios reflect the expected credit loss (ECL) transitional arrangement announced by OSFI on March 27, 2020 in response to the onset of the COVID-19 pandemic. (14) Average for the three months ended October 31 for each respective year. n/a Not applicable. CIBC 2021 ANNUAL REPORT 5 Management’s discussion and analysis Economic and market environment Year in review – 2021 Progress towards containing outbreaks of the COVID-19 pandemic through vaccination campaigns and less restrictive public health measures provided an improving economic backdrop for CIBC. The move from broad economic closures to lighter control measures enabled a partial recovery in service sector activity, with spending supported by job growth, fiscal measures that had elevated savings in the prior year, and ongoing monetary stimulus that kept interest rates at low levels. Some goods sector industries remained disrupted by global supply chain bottlenecks caused by the pandemic. Job gains, growing business output and rising resource prices offset diminished usage of government support measures, resulting in an improvement in business and household credit quality, although continued low interest rates held down lending margins in Canada and the U.S. Improved consumer spending had a positive impact on retail transactions volumes relative to the lows of the pandemic in 2020, but spending has not returned to pre-pandemic levels partly as a result of supply chain issues and consumer credit usage remained sluggish as households drew on ample savings. Healthy growth in mortgage demand was driven by an active housing market and higher average prices. Business credit demand picked up as firms responded to improving opportunities, while capital markets activity was supported by strong corporate and government bond issuance, mergers tied to consolidations, and constructive equity markets in both the U.S. and Canada. Deposit growth continued to decelerate after outsized gains early in the pandemic. Outlook for calendar year 2022 Global economic activity accelerated this year, although the COVID-19 pandemic, fueled by the more contagious Delta and Omicron variants, continues to pose a headwind to the pace of that recovery, impacting services demand and the supply of goods. Restrictions imposed by governments around the world to limit the impact of the infection have eased significantly in most jurisdictions, but disruptions in production and shipping continue to impact global supply chains and consumer caution is holding back travel and demand for other services. Vaccination rates are climbing, and although the virus remains a threat, our outlook assumes that targeted health measures rather than broader economic closures will be used to contain future infections in most countries. We also assume that the increased global distribution of vaccines will help relieve supply chain disruptions, improving the availability and lowering price pressures on internationally traded goods. In Canada, after a gain of approximately 4.5% in 2021, real gross domestic product (GDP) is expected to grow by approximately 4% in calendar 2022, led by a further recovery in consumer services demand, as well as improvements in exports and capital spending as global supply chain pressures ease. We expect that the unemployment rate will average near 6% in calendar 2022, approaching full-employment levels in the latter half of the year. Improving economic activity will more than offset diminished government assistance for business and households, supporting business and household credit growth and credit quality. Government bond issuance will decrease in 2022 on reduced deficits. Although inflation is expected to ease during the year on improved goods supplies, we expect that the Bank of Canada will respond to a tightening labour market by raising the overnight interest rate by 50 basis points in the latter half of the year. Longer-term rates will drift higher over the year as the market builds in expectations for rate hikes beyond 2022, and global central banks pull back from bond purchases under quantitative easing. In the U.S., real GDP is expected to grow by 4.2% in calendar 2022, after growing by 5.5% in the prior calendar year. Unemployment is expected to average in the 4% range in calendar 2022, reaching full employment levels in the second half of the year. Strong employment gains and improving business revenues will support lower insolvencies. In response to achieving its employment objectives, after maintaining near-zero short- term interest rates in the first half of the year, the Federal Reserve is likely to increase rates by 50 basis points in the latter half of calendar 2022, after winding down its net purchases of bonds in the first half of the calendar year. The economic challenges from COVID-19 have impacted all our SBUs, and while they are likely to still be present in the coming year, lower case counts and fatalities, facilitated by higher vaccination rates and other potential treatments for COVID-19, will shape the environment ahead. From a credit perspective, lower and more targeted government support will be more than offset by improving employment and business volumes. Deposit growth will continue at moderate rates, having already adjusted to the deceleration in the flow of government support payments to households and businesses. The interest rate environment is expected to continue to have a modestly negative impact on the net interest margins for all our SBUs. For Canadian Personal and Business Banking, mortgage demand growth could decelerate slightly in the coming fiscal year on softer home sales volumes and higher interest rates. We expect to see a modest acceleration in growth in non-mortgage credit demand in the next fiscal year as a result of the continued easing of pandemic-related constraints on economic activity, which will support an increase in consumer spending. Further increases in consumer spending are expected to have a positive impact on retail transaction volumes. Continued demand for business lending products is anticipated as small businesses expand in response to the economic recovery. Our Canadian and U.S. wealth management businesses are expected to benefit in the coming fiscal year from a further economic recovery, with investors continuing to look for alternatives to what will still be low real interest rates. Our Capital Markets business is expected to benefit in the coming fiscal year from trading volumes driven by greater volatility as interest rates rise, from merger and acquisition activity as corporate consolidations continue, as well as from healthy equity issuance, but could be negatively impacted by lower corporate and provincial bond issuance. Loan demand in our Canadian and U.S. commercial banking businesses is expected to continue to grow at a moderate pace in the coming fiscal year in response to improving economic conditions. The economic outlook described above reflects numerous assumptions regarding the economic impact of the COVID-19 pandemic. Although its severity appears to be diminishing where vaccination rates are high, case counts are still escalating in some countries, and uncertainties remain regarding the pace of global vaccination efforts, the need for booster doses, and the degree to which they will contain existing and potential new variants, without measures that limit economic activity. Expectations reflect currently available information and are subject to change as new information on epidemiology and government health measures becomes available. As a result, actual experience may differ materially from expectations. Our financial condition and our regulatory capital and liquidity positions continue to be strong. See “Capital management” and “Liquidity risk” for further details. The impact of the pandemic on our risk environment is discussed in “Top and emerging risks”. Changes in the level of economic uncertainty arising from the pandemic continue to impact key accounting estimates and assumptions, particularly the estimation of ECLs. See “Accounting and control matters”, as well as Note 2 and Note 6 to our consolidated financial statements for further details. With the economic recovery well underway, and the significant easing of restrictive public health measures, the level of our client relief programs has reduced significantly relative to 2020. See “CIBC client relief programs in response to COVID-19” and “Government lending programs in response to COVID-19” for further details regarding the client relief and government support programs we are involved in. 6 CIBC 2021 ANNUAL REPORT Management’s discussion and analysis Significant events Sale of certain banking assets in the Caribbean On October 12, 2021, FirstCaribbean International Bank Limited (CIBC FirstCaribbean) announced that it had entered into agreements to sell its banking assets in St. Vincent, Grenada, Dominica, St. Kitts and Aruba. The transactions are subject to regulatory approvals and other closing conditions, which are expected to be finalized in the first half of fiscal 2022. The impacts upon closing are not expected to be material. Acquisition of Canadian Costco credit card portfolio On September 2, 2021, we announced that we entered into a long-term agreement to become the exclusive issuer of Costco-branded Mastercard credit cards in Canada. We will also acquire the existing Canadian Costco credit card portfolio, which has over $3 billion in outstanding balances. This transaction is expected to be completed in the first half of fiscal 2022, subject to customary closing conditions. Sale of CIBC FirstCaribbean On November 8, 2019, we announced that we had entered into a definitive agreement to sell 66.73% of the outstanding shares of CIBC FirstCaribbean to GNB Financial Group Limited (GNB), subject to regulatory approvals. As a result of the lengthy regulatory review process, the worsening impact of the COVID-19 pandemic on the Caribbean economy and our revised expectations concerning the likelihood and timing of a potential transaction, we discontinued the application of held for sale accounting of CIBC FirstCaribbean in the fourth quarter of 2020 and recorded a goodwill impairment charge of $220 million. On February 3, 2021, we announced that the proposed sale of CIBC FirstCaribbean to GNB did not receive approval from CIBC FirstCaribbean’s regulators and that the transaction will not proceed. For additional information, see Note 4 and Note 9 to our consolidated financial statements. CIBC 2021 ANNUAL REPORT 7 Management’s discussion and analysis Financial performance overview This section provides a review of our consolidated financial results for 2021. A review of our SBU results follows on pages 18 to 29. Refer to page 13 for a review of our financial performance for 2020. 2021 Financial results review Reported net income for the year was $6,446 million, compared with $3,792 million in 2020. Adjusted net income(1) for the year was $6,687 million, compared with $4,447 million in 2020. Reported diluted EPS for the year was $13.93, compared with $8.22 in 2020. Adjusted diluted EPS(1) for the year was $14.47, compared with $9.69 in 2020. 2021 Net income was affected by the following items of note:    $125 million ($92 million after-tax) increase in legal provisions (Corporate and Other); $109 million ($80 million after-tax) charge related to the consolidation of our real estate portfolio (Corporate and Other); $79 million ($60 million after-tax) amortization of acquisition-related intangible assets ($50 million after-tax in U.S. Commercial Banking and Wealth Management and $10 million after-tax in Corporate and Other); and $12 million ($9 million after-tax) in transaction and integration-related costs(2) associated with the acquisition of the Canadian Costco credit card portfolio (Canadian Personal and Business Banking). The above items of note increased non-interest expenses by $325 million and decreased income taxes by $84 million. In aggregate, these items of note decreased net income by $241 million. 2020 Net income was affected by the following items of note:   $339 million ($250 million after-tax) restructuring charge primarily related to employee severance (Corporate and Other); $248 million ($248 million after-tax) goodwill impairment charges related to our controlling interest in CIBC FirstCaribbean of which $28 million was recognized in the second quarter and $220 million was recognized in the fourth quarter (Corporate and Other); $114 million ($84 million after-tax) charge related to the consolidation of our real estate portfolio (Corporate and Other); $105 million ($80 million after-tax) amortization of acquisition-related intangible assets ($6 million after-tax in Canadian Personal and Business Banking, $1 million after-tax in Canadian Commercial Banking and Wealth Management, $61 million after-tax in U.S. Commercial Banking and Wealth Management, and $12 million after-tax in Corporate and Other); $79 million ($58 million after-tax) gain as a result of plan amendments related to pension and other post-employment plans (Corporate and Other); and $70 million ($51 million after-tax) increase in legal provisions (Corporate and Other).      The above items of note increased non-interest expenses by $797 million and decreased income taxes by $142 million. In aggregate, these items of note decreased net income by $655 million. (1) Adjusted measures are non-GAAP measures. For additional information, see the “Non-GAAP measures” section. (2) Transaction and integration costs are comprised of direct and incremental costs incurred as part of planning for and executing the integration of the Canadian Costco credit card portfolio, including enabling cross-sell opportunities, the upgrade and conversion of systems and processes, project management and communication costs. Net interest income and margin $ millions, for the year ended October 31 Average interest-earning assets Net interest income Net interest margin on average interest-earning assets 2021 2020 2019 $ 721,686 11,459 $ 654,142 11,044 $ 572,677 10,551 1.59 % 1.69 % 1.84 % Net interest income was up $415 million or 4% from 2020, primarily due to volume growth across our businesses and higher trading revenue, partially offset by lower product spreads as a result of changes in the interest rate environment and the impact of foreign exchange translation. Net interest margin on average interest-earning assets was down 10 basis points, primarily due to a shift in the mix of average interest-earning assets, and an increase in HQLA driven by deposit growth, as well as the current low interest environment. Additional information on net interest income and margin is provided in the “Supplementary annual financial information” section. 8 CIBC 2021 ANNUAL REPORT Management’s discussion and analysis Non-interest income $ millions, for the year ended October 31 Underwriting and advisory fees Deposit and payment fees Credit fees Card fees Investment management and custodial fees (1)(2) Mutual fund fees (2) Insurance fees, net of claims Commissions on securities transactions Gains (losses) from financial instruments measured/designated at fair value through profit or loss (FVTPL), net (3) Gains (losses) from debt securities measured at fair value through other comprehensive income (FVOCI) and amortized cost, net Foreign exchange other than trading Income from equity-accounted associates and joint ventures (1) Other $ 2021 713 797 1,152 460 1,621 1,772 358 426 607 90 276 55 229 $ 2020 468 781 1,020 410 1,382 1,586 386 362 694 9 234 79 286 $ 2019 475 908 958 458 1,305 1,595 430 313 761 34 304 92 427 $ 8,556 $ 7,697 $ 8,060 (1) Custodial fees directly recognized by CIBC are included in Investment management and custodial fees. Our proportionate share of the custodial fees from the joint ventures which CIBC has with The Bank of New York Mellon are included within Income from equity-accounted associates and joint ventures. (2) Investment management fees and mutual fund fees are driven by various factors, including the amount of AUM. Investment management fees in our asset management and private wealth management businesses are generally driven by the amount of AUM, while investment management fees in our retail brokerage business are driven by a combination of the amount of AUA and, to a lesser extent, other factors not directly related to the amount of AUA (e.g., flat fees on a per account basis). (3) Includes $87 million of loss (2020: $31 million of loss; 2019: $54 million of loss) relating to non-trading financial instruments measured/designated at FVTPL. Non-interest income was up $859 million or 11% from 2020. Underwriting and advisory fees were up $245 million or 52%, primarily due to higher equity and debt issuance revenue and advisory activity. Credit fees were up $132 million or 13%, primarily due to growth in commercial loans. Card fees were up $50 million or 12%, primarily due to higher client transaction activity in Canadian Personal and Business Banking. Investment management and custodial fees were up $239 million or 17%, primarily due to AUA and AUM growth in our wealth management businesses. Mutual fund fees were up $186 million or 12%, primarily due to market appreciation and net sales in our wealth management businesses. Commissions on securities transactions were up $64 million or 18%, primarily due to higher trading volume in our retail brokerage business. Gains (losses) from financial instruments measured/designated at FVTPL, net were down $87 million or 13%, primarily due to lower trading revenue, treasury activities and mark-to-market losses related to certain non-trading derivatives that were largely offset by net interest income recognized on FVTPL securities held as economic hedges. Trading revenue (TEB)(1)(2) $ millions, for the year ended October 31 Trading revenue consists of: Net interest income (1) Non-interest income (3) Trading revenue by product line: Interest rates Foreign exchange Equities (1) Commodities Other 2021 2020 2019 $ 1,020 694 $ 1,714 $ 904 725 $ 633 815 $ 1,629 $ 1,448 $ 328 651 548 158 29 $ 528 674 280 182 (35) $ 300 585 386 117 60 $ 1,714 $ 1,629 $ 1,448 (1) Includes a TEB adjustment of $204 million (2020: $183 million; 2019: $177 million) reported within Capital Markets. Excludes a TEB adjustment of nil (2020: nil; 2019: $2 million) on non-trading activities reported within U.S. Commercial Banking and Wealth Management. See “Strategic business units overview” section and Note 31 to our consolidated financial statements for further details. (2) Trading activities is based on the risk definition of trading for regulatory capital and trading market risk management purposes. Positions in a trading book are considered trading provided the book and positions continue to meet OSFI defined trading book criteria set out in OSFI’s Capital Adequacy Requirements. (3) Gains (losses) from financial instruments measured/designated at FVTPL of $607 million (2020: $694 million; 2019: $761 million) consists of a gain of $694 million (2020: $725 million; 2019: $815 million) related to trading financial instruments measured/designated at FVTPL and a loss of $87 million (2020: $31 million; 2019: $54 million) relating to non-trading financial instruments measured/designated at FVTPL. Trading revenue was up $85 million or 5% from 2020, primarily due to higher equities trading revenue, partially offset by lower interest rates trading revenue. Trading revenue comprises net interest income and non-interest income. Net interest income arises from interest and dividends relating to financial assets and liabilities associated with trading activities, other than derivatives, net of interest expense and interest income associated with funding these assets and liabilities. Non-interest income includes realized and unrealized gains and losses on securities mandatorily measured at FVTPL and income relating to changes in fair value of derivative financial instruments. Trading revenue excludes underwriting fees and commissions on securities transactions, which are shown separately in the consolidated statement of income. Trading activities and related risk management strategies can periodically shift income between net interest income and non-interest income. Therefore, we view total trading revenue as the most appropriate measure of trading performance. CIBC 2021 ANNUAL REPORT 9 Management’s discussion and analysis Provision for credit losses $ millions, for the year ended October 31 Provision for (reversal of) credit losses – impaired Canadian Personal and Business Banking Canadian Commercial Banking and Wealth Management U.S. Commercial Banking and Wealth Management Capital Markets Corporate and Other Provision for (reversal of) credit losses – performing Canadian Personal and Business Banking Canadian Commercial Banking and Wealth Management U.S. Commercial Banking and Wealth Management Capital Markets Corporate and Other 2021 2020 2019 $ 484 6 104 32 76 702 (134) (45) (179) (132) (54) (544) $ 625 162 133 121 24 $ 790 159 68 109 21 1,065 1,147 564 141 354 190 175 1,424 99 4 5 51 (20) 139 $ 158 $ 2,489 $ 1,286 Provision for credit losses was down $2,331 million or 94% from 2020, as the current year reflected an improvement in economic conditions as well as our economic outlook, while the prior year was adversely impacted by the onset of the COVID-19 pandemic. For further details regarding provision for credit losses in our SBUs, refer to the “Strategic business units overview” section. Non-interest expenses $ millions, for the year ended October 31 Employee compensation and benefits Salaries Performance-based compensation Benefits Occupancy costs (1) Computer, software and office equipment Communications Advertising and business development Professional fees Business and capital taxes Other $ 2021 3,213 2,329 908 6,450 916 2,030 318 237 277 111 1,196 $ 2020 3,529 1,948 782 6,259 944 1,939 308 271 203 117 1,321 $ 2019 3,081 1,873 772 5,726 892 1,874 303 359 226 110 1,366 $ 11,535 $ 11,362 $ 10,856 (1) In 2021 and 2020, occupancy costs include charges of $109 million and $114 million, respectively, related to the consolidation of our real estate portfolio, shown as items of note. Non-interest expenses were up $173 million or 2% from 2020. Employee compensation and benefits were up $191 million or 3%, primarily due to higher performance-based compensation. The prior year included a restructuring charge primarily related to employee severance, and a gain as a result of plan amendments related to pension and other post-employment benefit plans, both shown as an item of note. Computer, software and office equipment were up $91 million or 5%, primarily due to higher spending on strategic initiatives. Advertising and business development were down $34 million or 13%, primarily due to lower spending driven by the impact of the COVID-19 pandemic. Professional fees were up $74 million or 36%, primarily due to higher spending on strategic initiatives. Other expenses were down $125 million or 9%, as the prior year included a goodwill impairment charge, partially offset by an increase in legal provisions in the current year, both shown as an item of note. Taxes $ millions, for the year ended October 31 Income taxes Indirect taxes (1) Goods and Services Tax (GST), Harmonized Sales Tax (HST) and sales taxes Payroll taxes Capital taxes Property and business taxes Total indirect taxes Total taxes Reported effective tax rate Total taxes as a percentage of net income before deduction of total taxes 2021 2020 2019 $ 1,876 $ 1,098 $ 1,348 403 306 77 70 856 411 292 79 76 858 418 271 76 72 837 $ 2,732 $ 1,956 $ 2,185 22.5 % 29.8 % 22.5 % 34.0 % 20.8 % 29.9 % (1) Certain amounts are based on a paid or payable basis and do not factor in capitalization and subsequent amortization. 10 CIBC 2021 ANNUAL REPORT Management’s discussion and analysis Total income and indirect taxes were up $776 million from 2020. Income tax expense was $1,876 million, up $778 million from 2020. This was primarily due to higher income. Indirect taxes overall were consistent with the prior year, with an increase in payroll taxes offset by decreases in other indirect taxes. Indirect taxes are included in non-interest expenses. In prior years, the Canada Revenue Agency (CRA) issued reassessments disallowing the deduction of Enron settlement payments and related legal expenses (the Enron expenses). In January 2019, CIBC entered into a settlement agreement (the Agreement) with the CRA that provides certainty with respect to the portion of the Enron expenses deductible in Canada. The Agreement resulted in the recognition of a net $38 million tax recovery in the first quarter of 2019. This recovery was determined after taking into account taxable refund interest in Canada and also the portion of the Enron expenses that are expected to be deductible in the United States (the U.S. deduction). The U.S. deduction has not been agreed to by the Internal Revenue Service. It is possible that adjustments may be required to the amount of tax benefits recognized in the U.S. The CRA has reassessed CIBC for approximately $1,420 million of additional income tax by denying the tax deductibility of certain 2011 to 2016 Canadian corporate dividends on the basis that they were part of a “dividend rental arrangement”. The dividends that were subject to the reassessments are similar to those prospectively addressed by the rules in the 2015 and 2018 Canadian federal budgets. In August 2021, CIBC filed a Notice of Appeal with the Tax Court of Canada and the matter is now in litigation. It is possible that subsequent years may be reassessed for similar activities. CIBC is confident that its tax filing positions were appropriate and intends to defend itself vigorously. Accordingly, no amounts have been accrued in the consolidated financial statements. In November 2021, the Tax Court of Canada ruled against CIBC on its 2007 foreign exchange capital loss reassessment (Decision). CIBC disagrees with the Decision and filed its Appeal in November 2021. CIBC remains confident that its tax filing position was appropriate. Accordingly, no amounts have been accrued in the consolidated financial statements. The exposure of additional tax and interest related to this and similar matters is approximately $300 million in addition to the potential inability to utilize approximately $500 million in unrecognized capital tax loss carryforwards. Foreign exchange The estimated impact of U.S. dollar translation on key lines of our consolidated statement of income, as a result of changes in average exchange rates, is as follows: $ millions, for the year ended October 31 Estimated increase (decrease) in: Total revenue Provision for credit losses Non-interest expenses Income taxes Net income Impact on EPS: Basic Diluted Average USD appreciation relative to CAD Fourth quarter review $ millions, except per share amounts, for the three months ended Revenue Canadian Personal and Business Banking Canadian Commercial Banking and Wealth Management U.S. Commercial Banking and Wealth Management Capital Markets (2) Corporate and Other (2) Total revenue Net interest income Non-interest income Total revenue Provision for (reversal of) credit losses Non-interest expenses Income before income taxes Income taxes Net income Net income (loss) attributable to: Non-controlling interests Equity shareholders EPS – basic – diluted $ 2021 vs. 2020 (307) 13 (141) (26) (153) 2020 vs. 2019 50 9 26 3 12 $ 2019 vs. 2018 124 7 66 5 46 $ $ (0.34) (0.34) $ 0.03 0.03 $ 0.10 0.10 (6.6)% 1.1 % 3.2 % Oct. 31 Jul. 31 Apr. 30 Jan. 31 Oct. 31 Jul. 31 Apr. 30 Jan. 31 2021 2020 (1) $ 2,128 $ 2,056 $ 1,941 $ 2,025 1,088 561 1,174 115 1,240 562 1,012 122 1,207 539 1,140 114 1,135 532 1,194 130 $ 1,997 $ 1,910 $ 1,936 $ 2,079 1,055 501 1,006 214 1,025 511 967 139 1,028 519 934 122 1,013 512 1,146 127 $ 5,064 $ 5,056 $ 4,932 $ 4,963 $ 4,600 $ 4,708 $ 4,578 $ 4,855 $ 2,980 $ 2,893 $ 2,747 $ 2,839 2,124 2,163 2,185 2,084 $ 2,792 $ 2,729 $ 2,762 $ 2,761 2,094 1,808 1,816 1,979 5,064 78 3,135 1,851 411 5,056 (99) 2,918 2,237 507 4,932 32 2,756 2,144 493 4,963 147 2,726 2,090 465 4,600 291 2,891 1,418 402 4,708 525 2,702 1,481 309 4,578 1,412 2,704 462 70 4,855 261 3,065 1,529 317 $ 1,440 $ 1,730 $ 1,651 $ 1,625 $ 1,016 $ 1,172 $ 392 $ 1,212 $ $ 4 $ 5 $ 4 $ 1,436 1,725 1,647 4 1,621 3.08 $ 3.07 3.77 $ 3.76 3.56 $ 3.55 3.56 3.55 $ $ 1 $ 2 $ (8) $7 1,015 1,170 400 1,205 2.21 $ 2.20 2.56 $ 2.55 0.83 $ 0.83 2.64 2.63 (1) Certain prior period information has been revised. See the “External reporting changes” section for additional details. (2) Capital Markets revenue and income taxes are reported on a TEB with an equivalent offset in the revenue and income taxes of Corporate and Other. Compared with Q4/20 Net income for the quarter was $1,440 million, up $424 million or 42% from the fourth quarter of 2020. Net interest income was up $188 million, primarily due to volume growth across our businesses and higher treasury revenue, partially offset by lower product spreads. Non-interest income was up $276 million or 15%, primarily due to higher fee-based revenue and underwriting and advisory fees. Provision for credit losses was down $213 million or 73% from the same quarter last year. The current quarter included a provision reversal on performing loans of $34 million, while the same quarter last year included a provision for credit losses of $113 million. Provision for credit losses on impaired loans was down $66 million as the same quarter last year was adversely impacted by the COVID-19 pandemic. CIBC 2021 ANNUAL REPORT 11 Management’s discussion and analysis Non-interest expenses were up $244 million or 8%, primarily due to higher employee-related compensation, spending on strategic initiatives and an increase in legal provisions, shown as an item of note. The same quarter last year included a goodwill impairment charge, partially offset by a gain as a result of plan amendments related to pension and other post-employment plans. Income tax expense was up $9 million or 2%, primarily due to higher income. Compared with Q3/21 Net income for the quarter was down $290 million or 17% from the prior quarter. Net interest income was up $87 million or 3%, primarily due to volume growth across our businesses and higher trading revenue, partially offset by lower product spreads. Non-interest income was down $79 million or 4%, primarily due to lower trading revenue and lower underwriting and advisory fees, partially offset by higher fee-based revenue. The current quarter included a provision for credit losses of $78 million while the prior quarter included a provision reversal for credit losses of $99 million. The provision reversal on performing loans was down $173 million as the prior quarter included a higher reversal related to the favourable change in economic conditions as well as our economic outlook. Provision for credit losses on impaired loans was comparable with the prior quarter. Non-interest expenses were up $217 million or 7%, primarily due to the charge related to the consolidation of our real estate portfolio, shown as an item of note, higher corporate support costs and the timing of spending on strategic initiatives. Income tax expense was down $96 million or 19%, primarily due to lower income. Quarterly trend analysis Our quarterly results are modestly affected by seasonal factors. The second quarter has fewer days as compared with the other quarters, generally leading to lower earnings. The summer months (July – third quarter and August – fourth quarter) typically experience lower levels of market activity, which affects our brokerage, investment management, and Capital Markets activities. Revenue Revenue in our lending and deposit-taking businesses is generally driven by the interest rate environment, volume growth and fees related to client transaction activity. Our wealth management businesses are driven by market conditions and net sales activity impacting AUA and AUM, as well as the level of client investment activity. Capital Markets revenue is also influenced, to a large extent, by market conditions affecting client trading and underwriting activity. The COVID-19 pandemic beginning in the second quarter of 2020 and the lower interest rate environment continue to impact revenue for all our SBUs. Canadian Personal and Business Banking revenue has been negatively impacted by the lower interest rate environment and lower client transaction activity as a result of the COVID-19 pandemic, partially offset by volume growth. Canadian Commercial Banking and Wealth Management has benefitted from commercial banking loan and deposit growth as well as from strong markets. In Commercial Banking, loan growth has accelerated throughout fiscal 2021 as the economic recovery strengthened. The benefit from loan and deposit growth has been partially offset by the lower interest rate environment. In Wealth Management, AUA and AUM growth has been driven by continued strong market performance and record levels of investment sales subsequent to the market volatility noted in the second quarter of 2020. U.S. Commercial Banking and Wealth Management has benefitted from growth in strategic clients that is driving increased loans, deposits, AUM, and fee income. Loan growth has accelerated due to the new client additions and economic recovery. Wealth management AUA and AUM growth has been driven by a continued market recovery and strong sales momentum subsequent to the market volatility in the second quarter of 2020. Capital Markets had lower trading revenue in the second and fourth quarters of 2020, while the second and third quarters of 2021 included increased revenue from underwriting and advisory activities. Corporate and Other included the impact of the COVID-19 pandemic that led to excess liquidity costs from the second quarter of 2020 to the second quarter of 2021 that negatively impacted revenue. The interest rate environment and narrower margins have negatively impacted revenue in international banking. Provision for credit losses Provision for credit losses is dependent upon the credit cycle in general, on the credit performance of the loan portfolios, and changes in our economic outlook. As a result of the impact of the COVID-19 pandemic beginning in the second quarter of 2020, some portions of our loan portfolios were negatively impacted by the decline in economic activity associated with restrictive public health measures, mitigated to a large extent by large-scale government support and relief programs targeting both individuals and businesses. Although public health measures in most jurisdictions have eased in response to increasing vaccination rates, and economic recovery is well underway, uncertainty related to the economic environment persists. There is considerable judgment involved in the estimation of credit losses in the current environment. The significant increase in provision for credit losses on performing loans in the second quarter and, to a lesser extent, the third and fourth quarters of 2020 reflects the early stages of the COVID-19 pandemic, which impacted all our SBUs, as well as continued pressure on oil prices. All four quarters of 2021 reflect a moderate improvement in economic conditions as well as our economic outlook. In Canadian Personal and Business Banking, the third and fourth quarters of 2020 and the first, third and the fourth quarters of 2021 included lower insolvencies and write-offs in credit cards. The decrease in insolvencies was in line with the national Canadian trend. The low level of write-offs was impacted by the assistance offered to clients from our payment deferral programs, lower client spending as well as government support. The second quarter of 2021 included higher write-offs in credit cards, mainly attributable to a relatively small segment of client balances that were previously in the payment deferral programs, that continued to underperform and eventually were written off after exiting the programs. In Canadian Commercial Banking and Wealth Management, the first quarter and the second half of 2020 included provisions on one fraud- related impairment. In U.S. Commercial Banking and Wealth Management, the first quarter of 2021 and the second half of 2020 included higher provisions on impaired loans. In Capital Markets, the second and third quarters of 2020 included higher provisions on impaired loans in the oil and gas sector. In Corporate and Other, the third quarter of 2021 included higher provisions on impaired loans in CIBC FirstCaribbean. Non-interest expenses Non-interest expenses have fluctuated over the period largely due to changes in employee compensation expenses, investments in strategic initiatives and movement in foreign exchange rates. The fourth quarter of 2019 and the second and fourth quarters of 2020 included goodwill impairment charges related to our controlling interest in CIBC FirstCaribbean. The fourth quarter of 2019, the third quarter of 2020 and the third 12 CIBC 2021 ANNUAL REPORT Management’s discussion and analysis quarter and fourth quarter of 2021 included increases in legal provisions in Corporate and Other, all shown as items of note. The first quarter of 2020 included a restructuring charge associated with ongoing efforts to transform our cost structure and simplify our bank. The fourth quarter of 2020 and the fourth quarter of 2021 included charges related to the consolidation of our real estate portfolio as a result of our upcoming move to our new global headquarters. The fourth quarter of 2020 included a gain as a result of plan amendments related to pension and other post-employment plans. Income taxes Income taxes vary with changes in income subject to tax, and the jurisdictions in which the income is earned. Taxes can also be affected by the impact of significant items and the level of tax-exempt income. Review of 2020 financial performance $ millions, for the year ended October 31 2020 (2) Net interest income Non-interest income Total revenue Provision for credit losses Non-interest expenses Income (loss) before income taxes Income taxes Net income (loss) 2019 (2) Net income (loss) attributable to: Non-controlling interests Equity shareholders Net interest income Non-interest income Total revenue Provision for credit losses Non-interest expenses Income (loss) before income taxes Income taxes Net income (loss) Net income (loss) attributable to: Non-controlling interests Equity shareholders Canadian Personal and Business Banking $ 5,849 2,073 7,922 1,189 4,308 2,425 640 $ 1,785 Canadian Commercial Banking and Wealth Management $ 1,248 2,873 4,121 303 2,179 1,639 437 $ 1,202 U.S. Commercial Banking and Wealth Management (1) $ 1,422 621 2,043 487 1,126 430 55 375 $ $ – 1,785 $ 5,944 2,296 8,240 889 4,459 2,892 766 $ 2,126 $ – 2,126 $ – 1,202 $ 1,205 2,822 4,027 163 2,106 1,758 471 $ 1,287 $ – 1,287 $ – 375 $ 1,327 584 1,911 73 1,114 724 76 648 $ Capital Markets (1) $ 2,354 1,699 4,053 311 1,929 1,813 505 $ 1,308 $ – 1,308 $ 1,681 1,794 3,475 160 1,802 1,513 396 $ 1,117 CIBC Total $ 11,044 7,697 18,741 2,489 11,362 4,890 1,098 3,792 $ $ 2 3,790 $ 10,551 8,060 18,611 1,286 10,856 6,469 1,348 5,121 $ Corporate and Other (1) $ 171 431 602 199 1,820 (1,417) (539) (878) 2 (880) 394 564 958 1 1,375 (418) (361) (57) $ $ $ $ $ $ – 648 $ – 1,117 25 (82) $ 25 5,096 (1) Capital Markets revenue and income taxes are reported on a TEB, as were U.S. Commercial Banking and Wealth Management revenue and income taxes in 2019, with an equivalent offset in the revenue and income taxes of Corporate and Other. (2) Certain prior period information has been revised. See the “External reporting changes” section for additional details. The following discussion provides a comparison of our results of operations for the years ended October 31, 2020 and 2019. Overview Net income for 2020 was $3,792 million, compared with $5,121 million in 2019. The decrease in net income of $1,329 million was due to a higher provision for credit losses and higher non-interest expenses, partially offset by higher revenue. Consolidated CIBC Net interest income Net interest income was up $493 million or 5% from 2019, primarily due to volume growth across our businesses, higher trading revenue and higher revenue from Capital Markets financing activities, partially offset by narrower margins driven by changes in the interest rate environment and interest rate relief provided to our credit card clients as part of the CIBC client relief programs offered to support our clients during the COVID-19 pandemic. Non-interest income Non-interest income was down $363 million or 5% from 2019, primarily due to lower client transaction activity as a result of the pandemic, lower sublease revenue relating to our adoption of IFRS 16 “Leases” in 2020 that was largely offset in interest income and non-interest expenses, mark-to- market losses related to economic hedges of certain non-trading activities that were largely offset in net interest income and lower trading revenue. Provision for credit losses Provision for credit losses was up $1,203 million or 94% from 2019. Provision for credit losses on performing loans was up $1,285 million from 2019, mainly due to increased provisions related to the onset of the COVID-19 pandemic. Provision for credit losses on impaired loans was down $82 million, due to lower insolvencies and write-offs in credit cards and personal lending, reflecting the impact of the client relief and government support programs, partially offset by higher provisions in business and government loans. Non-interest expenses Non-interest expenses were up $506 million or 5% from 2019, mainly due to a restructuring charge primarily related to employee severance, shown as an item of note, and higher performance-based compensation and additional employee benefits provided to support our employees during the COVID-19 pandemic. Income taxes Income tax expense was down $250 million or 19% from 2019, primarily due to lower income. CIBC 2021 ANNUAL REPORT 13 Management’s discussion and analysis Revenue by segment Canadian Personal and Business Banking(1) Revenue was down $318 million or 4% from 2019, primarily due to narrower margins largely due to changes in the interest rate environment and interest rate relief provided to our credit card clients as part of the CIBC client relief programs offered to support our clients during the COVID-19 pandemic, and lower fees driven by lower client transaction activity, partially offset by volume growth. Canadian Commercial Banking and Wealth Management Revenue was up $94 million or 2% from 2019. Commercial banking revenue was up primarily due to volume growth and impact of an additional day in 2020, partially offset by narrower margins and lower fees. Wealth management revenue was up primarily due to higher investment management and custodial fees driven by higher average AUM and AUA and higher commission revenue, as well as higher foreign exchange revenue reflecting higher trading volume in our full service brokerage business, partially offset by lower mutual fund fees. U.S. Commercial Banking and Wealth Management(1) Revenue was up $132 million or 7% from 2019. Commercial banking revenue was up primarily due to volume growth, and the impact of foreign exchange translation, partially offset by narrower margins. Wealth management revenue was up primarily due to volume growth, higher investment management and custodial fees driven by higher AUM and the impact of foreign exchange translation, partially offset by narrower margins. Capital Markets(1) Revenue was up $578 million or 17% from 2019. Global markets revenue was up primarily due to higher revenue from our interest rate, foreign exchange and commodities trading businesses and higher revenue from financing activities, partially offset by lower revenue from our equity derivatives trading business. Corporate and investment banking revenue was up primarily due to higher debt and equity underwriting activity and higher corporate banking revenue, partially offset by lower advisory revenue. Direct financial services revenue was up primarily due to higher direct brokerage trading volumes. Corporate and Other(1) Revenue was down $356 million or 37% from 2019. International banking revenue was down primarily due to lower revenue in CIBC FirstCaribbean as a result of narrower margins largely due to changes in the interest rate environment related to COVID-19 and lower fees. Other revenue was down primarily due to lower treasury revenue largely as a result of excess liquidity costs, interest income related to the settlement of certain income tax matters in 2019, shown as an item of note, and due to lower sublease revenue relating to our adoption of IFRS 16 in 2020. (1) Certain prior period information has been revised. See the “External reporting changes” section for additional details. 14 CIBC 2021 ANNUAL REPORT Management’s discussion and analysis Non-GAAP measures We use a number of financial measures to assess the performance of our business lines as described below. Some measures are calculated in accordance with GAAP (IFRS), while other measures do not have a standardized meaning under GAAP, and accordingly, these measures may not be comparable to similar measures used by other companies. Investors may find these non-GAAP measures, which include non-GAAP financial measures and non-GAAP ratios as defined in National Instrument 52-112 “Non-GAAP and Other Financial Measures Disclosure”, useful in understanding how management views underlying business performance. Adjusted measures Management assesses results on a reported and adjusted basis and considers both as useful measures of performance. Adjusted measures, which include adjusted total revenue, adjusted provision for credit losses, adjusted non-interest expenses, adjusted income before income taxes, adjusted income taxes and adjusted net income, in addition to the adjusted measures noted below, remove items of note from reported results to calculate our adjusted results. Items of note include the amortization of intangible assets, and certain items of significance that arise from time to time which management believes are not reflective of underlying business performance. We believe that adjusted measures provide the reader with a better understanding of how management assesses underlying business performance and facilitates a more informed analysis of trends. While we believe that adjusted measures may facilitate comparisons between our results and those of some of our Canadian peer banks, which make similar adjustments in their public disclosure, it should be noted that there is no standardized meaning for adjusted measures under GAAP. We also adjust our results to gross up tax-exempt revenue on certain securities to a TEB, being the amount of fully taxable revenue, which, were it to have incurred tax at the statutory income tax rate, would yield the same after-tax revenue. See the “Strategic business units overview” section and Note 31 to our consolidated financial statements for further details. Adjusted diluted EPS We adjust our reported diluted EPS to remove the impact of items of note, net of income taxes, to calculate the adjusted EPS. Adjusted efficiency ratio We adjust our reported revenue and non-interest expenses to remove the impact of items of note and gross up tax-exempt revenue to bring it to a TEB, to calculate the adjusted efficiency ratio. Adjusted operating leverage We adjust our reported revenue and non-interest expenses to remove the impact of items of note and gross up tax-exempt revenue to bring it to a TEB, to calculate the adjusted operating leverage. Adjusted dividend payout ratio We adjust our reported net income attributable to common shareholders to remove the impact of items of note, net of income taxes, to calculate the adjusted dividend payout ratio. Adjusted return on common shareholders’ equity We adjust our reported net income attributable to common shareholders to remove the impact of items of note, net of income taxes, to calculate the adjusted ROE. Adjusted effective tax rate We adjust our reported income before income taxes and reported income taxes to remove the impact of items of note, to calculate the adjusted effective tax rate. Pre-provision, pre-tax earnings Pre-provision, pre-tax earnings is calculated as revenue net of non-interest expenses, and provides the reader with an assessment of our ability to generate earnings to cover credit losses through the credit cycle, as well as an additional basis for comparing underlying business performance between periods by excluding the impact of provision for credit losses, which involves the application of judgments and estimates related to matters that are uncertain and can vary significantly between periods. We adjust our pre-provision, pre-tax earnings to remove the impact of items of note to calculate the adjusted pre-provision, pre-tax earnings. As discussed above, we believe that adjusted measures provide the reader with a better understanding of how management assesses underlying business performance and facilitates a more informed analysis of trends. Allocated common equity Common equity is allocated to the SBUs based on the estimated amount of regulatory capital required to support their businesses (as determined for consolidated bank pursuant to OSFI’s regulatory capital requirements and internal targets). Unallocated common equity is reported in Corporate and Other. Allocating capital on this basis provides a consistent framework to evaluate the returns of each SBU commensurate with the risk assumed. For additional information, see the “Risks arising from business activities” section. Segmented return on equity We use return on equity on a segmented basis as one of the measures for performance evaluation and resource allocation decisions. While return on equity for total CIBC provides a measure of return on common equity, return on equity on a segmented basis provides a similar metric based on allocated common equity to our SBUs. As a result, segmented return on equity is a non-GAAP ratio. Segmented return on equity is calculated as net income attributable to common shareholders for each SBU expressed as a percentage of average allocated common equity, which is the average of monthly allocated common equity during the period. CIBC 2021 ANNUAL REPORT 15 Management’s discussion and analysis The following table provides a reconciliation of GAAP (reported) results to non-GAAP (adjusted) results on a consolidated basis. $ millions, for the year ended October 31 Operating results – reported Total revenue Provision for credit losses Non-interest expenses Income before income taxes Income taxes Net income Net income attributable to non-controlling interests Net income attributable to equity shareholders Diluted EPS ($) Impact of items of note (1) Revenue 2021 2020 2019 2018 2017 $ 20,015 158 11,535 8,322 1,876 6,446 17 6,429 $ 18,741 $ 18,611 $ 17,834 $ 16,280 829 9,571 870 10,258 2,489 11,362 1,286 10,856 4,890 1,098 3,792 2 3,790 6,469 1,348 5,121 25 5,096 6,706 1,422 5,284 17 5,267 5,880 1,162 4,718 19 4,699 $ 13.93 $ 8.22 $ 11.19 $ 11.65 $ 11.24 $ Settlement of certain income tax matters (2) Purchase accounting adjustments (3) Incremental losses on debt securities and loans in CIBC FirstCaribbean resulting from $ the Barbados government debt restructuring (2) Gain on the sale and lease back of certain retail properties Fees and charges related to the launch of Simplii Financial and the related wind-down of President’s Choice Financial Impact of items of note on revenue Provision for (reversal of) credit losses Incremental losses on debt securities and loans in CIBC FirstCaribbean resulting from the Barbados government debt restructuring (2) Transaction and integration-related costs as well as purchase accounting adjustments (3) Increase (decrease) in collective allowance (4) Impact of items of note on provision for (reversal of) credit losses Non-interest expenses Amortization of acquisition-related intangible assets (5) Transaction and integration-related costs as well as purchase accounting adjustments (3) Charge related to the consolidation of our real estate portfolio (2) Gain as a result of plan amendments related to pension and other post-employment plans (2) Restructuring charge (6) Goodwill impairment (7) Increase in legal provisions (2) Charge for payment made to Air Canada (8) Fees and charges related to the launch of Simplii Financial and the related wind-down of President’s Choice Financial Impact of items of note on non-interest expenses Total pre-tax impact of items of note on pre-provision, pre-tax earnings and net income Settlement of certain income tax matters (2) Amortization of acquisition-related intangible assets (5) Transaction and integration-related costs as well as purchase accounting adjustments (3) Charge related to the consolidation of our real estate portfolio Gain as a result of plan amendments related to pension and other post-employment plans Restructuring charge (6) Increase in legal provisions (2) Charge for payment made to Air Canada (8) Incremental losses on debt securities and loans in CIBC FirstCaribbean resulting from the Barbados government debt restructuring (2) Charge from net tax adjustments resulting from U.S. tax reforms (2) Gain on the sale and lease back of certain retail properties Fees and charges related to the launch of Simplii Financial and the related wind-down of President’s Choice Financial Increase (decrease) in collective allowance (4) Impact of items of note on income taxes Total after-tax impact of items of note on net income After-tax impact of items of note on non-controlling interests After-tax impact of items of note on net income attributable to equity shareholders – – – – – – – – – – (79) (12) (109) – – – (125) – – (325) 325 – 19 3 29 – – 33 – – – – – – 84 241 – 241 – – – – – – – – – – (105) – (114) 79 (339) (248) (70) – – (797) 797 – 25 – 30 (21) 89 19 – – – – – – 142 655 – 655 $ (67) $ (34) $ – (63) – (9) – – – (101) – – – – (109) 11 – – – (135) (28) (227) – (488) 387 (18) 27 (12) – – – 7 60 – – – – – 64 323 – 323 61 – – (2) (28) – – (28) (115) (79) – – – – – – – (194) 220 – 30 2 – – – – – 19 (88) – – – (37) 257 5 252 – (299) 3 (305) – (35) 18 (17) (41) (78) – – – – (45) – (95) (259) (29) – 13 31 – – – 12 – – – (54) 27 (5) 24 (53) – (53) Impact of items of note on diluted EPS ($) $ 0.54 $ 1.47 $ 0.73 $ 0.56 $ (0.13) For footnotes, see next page. 16 CIBC 2021 ANNUAL REPORT Management’s discussion and analysis $ millions, for the year ended October 31 Operating results – adjusted (9) Total revenue – adjusted (10) Provision for credit losses – adjusted Non-interest expenses – adjusted Income before income taxes – adjusted Income taxes – adjusted Net income – adjusted Net income attributable to non-controlling interests – adjusted Net income attributable to equity shareholders – adjusted 2021 2020 2019 2018 2017 $ 20,015 158 11,210 $ 18,741 2,489 10,565 $ 18,510 1,286 10,368 $ 17,832 842 10,064 $ 15,975 812 9,312 8,647 1,960 6,687 17 6,670 5,687 1,240 4,447 2 4,445 6,856 1,412 5,444 25 5,419 6,926 1,385 5,541 22 5,519 5,851 1,186 4,665 1 9 4,646 Adjusted diluted EPS ($) $ 14.47 $ 9.69 $ 11.92 $ 12.21 $ 11.11 (1) Items of note are removed from reported results to calculate adjusted results. (2) Recognized in Corporate and Other. (3) This item of note comprises integration costs, transaction costs and purchase accounting adjustments for various acquisitions. Transaction and integration costs, shown as an item of note starting in the fourth quarter of 2021, are comprised of direct and incremental costs incurred as part of planning for and executing the integration of the Canadian Costco credit card portfolio, including enabling cross-sell opportunities, the upgrade and conversion of systems and processes, project management and communication costs. Integration costs, shown as an item of note from second quarter of 2017 to fourth quarter of 2019, are comprised of direct and incremental costs incurred as part of planning for and executing the integration of the businesses of The PrivateBank (subsequently rebranded as CIBC Bank USA) and Geneva Advisors with CIBC, including enabling cross-sell opportunities and expansion of services in the U.S. market, the upgrade and conversion of systems and processes, project management, integration-related travel, severance, consulting fees and marketing costs related to rebranding activities. Transaction costs, shown as an item of note from second quarter of 2017 to fourth quarter of 2019, included legal and other advisory fees, as well as financing costs associated with pre-funding the cash component of the merger consideration, and interest adjustments relating to the obligation payable to dissenting shareholders. Purchase accounting adjustments, shown as an item of note from fourth quarter of 2017 to fourth quarter of 2019, include the accretion of the acquisition date fair value discount on the acquired loans of The PrivateBank, the collective allowance established for new loan originations and renewals of acquired loans (prior to the adoption of IFRS 9 in the first quarter of 2018), and changes in the fair value of contingent consideration relating to the Geneva Advisors and Wellington Financial acquisitions. (4) Relates to collective allowance (prior to the adoption of IFRS 9), except for: (i) residential mortgages greater than 90 days delinquent; (ii) personal loans and scored small business loans greater than 30 days delinquent; (iii) net write-offs for the card portfolio; and (iv) the collective allowance related to CIBC Bank USA, which were all reported in the respective SBUs. (5) Amortization of acquisition-related intangible assets is recognized in the SBU of the acquired business or Corporate and Other. A summary is provided in the table below. Canadian Personal and Business Banking (pre-tax) Canadian Personal and Business Banking (after-tax) $ Canadian Commercial Banking and Wealth Management (pre-tax) Canadian Commercial Banking and Wealth Management (after-tax) U.S. Commercial Banking and Wealth Management (pre-tax) U.S. Commercial Banking and Wealth Management (after-tax) Corporate and Other (pre-tax) Corporate and Other (after-tax) $ – – – – (68) (50) (11) (10) $ $ (8) (6) (1) (1) (83) (61) (13) (12) (9) (7) (1) (1) (88) (65) (11) (9) $ (12) (9) (1) (1) (91) (65) (11) (10) (5) (4) (1) (1) (27) (16) (8) (7) (6) Restructuring charge associated with ongoing efforts to transform our cost structure and simplify our bank. This charge consists primarily of employee severance and related costs and was recognized in Corporate and Other. (7) Goodwill impairment charge related to our controlling interest in CIBC FirstCaribbean recognized in Corporate and Other with $28 million recognized in the second quarter of 2020, $220 million recognized in the fourth quarter of 2020 and $135 million recognized in the fourth quarter of 2019. (8) Charge for a payment made to Air Canada, including related sales tax and transaction costs, to secure our participation in its new loyalty program recognized in Canadian Personal and Business Banking. (9) Adjusted to exclude the impact of items of note. (10) Excludes TEB adjustments of $204 million (2020: $183 million; 2019: $179 million). Our adjusted operating leverage and efficiency ratio are calculated on a TEB. The following table provides a reconciliation of GAAP (reported) net income to non-GAAP (adjusted) net income on a segmented basis. $ millions, for the year ended October 31 2021 Reported net income (loss) After-tax impact of items of note (1) Adjusted net income (loss) (2) 2020 (3) Reported net income (loss) After-tax impact of items of note (1) Adjusted net income (loss) (2) 2019 (3) Reported net income (loss) After-tax impact of items of note (1) Adjusted net income (loss) (2) 2018 Reported net income (loss) After-tax impact of items of note (1) Adjusted net income (loss) (2) 2017 Reported net income (loss) After-tax impact of items of note (1) Adjusted net income (loss) (2) Canadian Personal and Business Banking Canadian Commercial Banking and Wealth Management U.S. Commercial Banking and Wealth Management Capital Markets Corporate and Other CIBC Total $ 2,494 9 $ 2,503 $ 1,785 6 $ 1,791 $ 2,126 174 $ 2,300 $ 2,540 9 $ 2,549 $ 2,420 (170) $ 2,250 $ 1,665 – $ 1,665 $ 1,202 1 $ 1,203 $ 1,287 1 $ 1,288 $ 1,286 1 $ 1,287 $ 1,138 1 $ 1,139 $ 926 50 $ 1,857 – $ 976 $ 1,857 $ 375 61 $ 1,308 – $ 436 $ 1,308 $ 648 40 $ 1,117 – $ 688 $ 1,117 $ 561 27 $ 1,086 – $ 588 $ 1,086 $ 203 19 $ 1,090 – $ 222 $ 1,090 $ $ $ $ $ $ $ $ $ $ (496) $ 6,446 241 182 (314) $ 6,687 (878) $ 3,792 655 587 (291) $ 4,447 (57) $ 5,121 323 108 51 $ 5,444 (189) $ 5,284 257 220 31 $ 5,541 (133) $ 4,718 (53) 97 (36) $ 4,665 (1) Items of note are removed from reported results to calculate adjusted results. (2) Non-GAAP measure. (3) Certain prior period information has been revised. See the “External reporting changes” section for additional details. CIBC 2021 ANNUAL REPORT 17 Management’s discussion and analysis Strategic business units overview CIBC has four SBUs – Canadian Personal and Business Banking, Canadian Commercial Banking and Wealth Management, U.S. Commercial Banking and Wealth Management, and Capital Markets. These SBUs are supported by the following functional groups – Technology, Infrastructure and Innovation, Risk Management, People, Culture and Brand, Finance and Enterprise Strategy, as well as other support groups, which all are included within Corporate and Other. The expenses of these functional and support groups are generally allocated to the business lines within the SBUs. The majority of the functional and support costs of CIBC Bank USA are recognized directly in the U.S. Commercial Banking and Wealth Management SBU. Corporate and Other also includes the results of CIBC FirstCaribbean and other strategic investments, as well as other income statement and balance sheet items not directly attributable to the business lines. External reporting changes were made in the first quarter of 2021 which affected the results of our SBUs. See the “External reporting changes” section for additional details. Business unit allocations Revenue, expenses, and other balance sheet resources related to certain activities are generally allocated to the lines of business within the SBUs. Treasury activities impact the financial results of the SBUs. Each line of business within our SBUs is charged or credited with a market-based cost of funds on assets and liabilities, respectively, which impacts the revenue performance of the SBUs. This market-based cost of funds takes into account the cost of maintaining sufficient regulatory capital to support business requirements, including the cost of preferred shares. Once the interest and liquidity risks inherent in our client-driven assets and liabilities are transfer priced into Treasury, they are managed within CIBC’s risk framework and limits. Consistent with the external reporting changes made in the first quarter of 2021 (see the “External reporting changes” section for additional details), the residual financial results associated with Treasury activities are reported in Corporate and Other. Capital is attributed to the SBUs based on the estimated amount of regulatory capital required to support their businesses, which is intended to consistently measure and align the costs with the underlying benefits and risks associated with SBU activities. Earnings on unattributed capital remain in Corporate and Other. We review our transfer pricing methodologies on an ongoing basis to ensure they reflect changing market environments and industry practices. We use a Product Owner/Customer Segment/Distributor Channel allocation management model to measure and report the results of operations of various lines of business within our SBUs. The model uses certain estimates and methodologies to process internal transfers between the impacted lines of business for sales, renewals and trailer commissions as well as certain attributable costs. Periodically, the sales, renewals and trailer commission rates paid to customer segments for certain products/services are revised and applied prospectively. The non-interest expenses of the functional and support groups are generally allocated to the business lines within the SBUs based on appropriate criteria and methodologies. The basis of allocation is reviewed periodically to reflect changes in support to business lines. Other costs not directly attributable to business lines remain in Corporate and Other. We recognize provision for credit losses on both impaired (stage 3) and performing (stages 1 and 2) loans in the respective SBUs. Revenue, taxable equivalent basis Certain SBUs evaluate revenue on a TEB. In order to arrive at the TEB amount, the SBUs gross up tax-exempt revenue on certain securities to a TEB, being the amount of fully taxable revenue, which, were it to have incurred tax at the statutory income tax rate, would yield the same after-tax revenue. Simultaneously, an equivalent amount is booked as an income tax expense resulting in no impact on the net income of the SBUs. This measure enables comparability of revenue arising from both taxable and tax-exempt sources. The total TEB adjustments of the SBUs are offset in revenue and income tax expense in Corporate and Other. 18 CIBC 2021 ANNUAL REPORT Management’s discussion and analysis Canadian Personal and Business Banking Canadian Personal and Business Banking provides personal and business clients across Canada with financial advice, services and solutions through banking centres, digital and mobile channels to help make their ambitions a reality. Our business strategy We are focused on continuing to help our clients achieve their ambitions, and delivering sustainable, market-leading performance. To achieve this, our strategy comprises three key priorities:    Introducing more opportunities for our clients to deal with us digitally by investing in digital and real-time remote capabilities; Providing our team with the tools to deliver an excellent experience for our clients consistent with a one-team approach; and Delivering personalized advice and experiences to our clients in a way that is meaningful and relevant to each of them. 2021 progress In 2021, we demonstrated positive momentum, despite the economic challenges and lower client transaction activity due to the COVID-19 pandemic. While demand for certain lending products was down, we saw a significant increase in mortgage demand this year as we helped more clients achieve their ambition of owning a home. We also delivered above market growth in everyday banking and investments solutions. As a result of our strategy, we have seen record client growth driven by strong acquisition and client retention, and made important investments to elevate both the experience of our clients and our team members. We will continue to maintain focus on our three strategic priorities and build on the momentum and successes of 2021. Introducing more opportunities for our clients to deal with us digitally  Ranked #1 again in Digital Satisfaction for Mobile Banking by J.D. Power; #1 in mobile banking experience in Surviscor’s 2021 Mobile Banking Review; #1 ranking in Forrester’s Digital Experience Review: Canadian Mobile Banking App Review; and named Best Consumer Digital Bank in North America by Global Finance for the second consecutive year. Launched CIBC Virtual Assistant for online and mobile clients, helping them answer their everyday banking questions in real-time. Introduced CIBC Insights, a digital financial coach that provides recommendations to help clients keep a pulse on their day-to-day finances. Launched Digital Identity Verification and FastApp, streamlining how clients open chequing and savings accounts, a personal line of credit, or a credit card digitally. Introduced more digital options for clients to renew their mortgage online, including an enhanced online pre-qualification tool. Enabled digital card issuance, so clients can receive a new or replacement digital credit card within minutes in the event their card is lost or stolen. Providing our team with the tools to deliver an excellent experience for our clients  Continued the rollout of CIBC GoalPlanner, a digitally enabled goal setting platform, allowing our Imperial Service advisors to better understand our clients’ ambitions and to spend more time with them developing plans. Introduced a new client relationship management tool, enabling advisors to offer more personalized advice and deepen client relationships. Delivered a more integrated advice experience at our banking centres, including introducing a new Associate Financial Advisor role to support clients with complex financial needs. Extended our newcomer banking offer to include foreign workers and expanded our outreach, including a Newcomer Financial Guide in partnership with Canadian Immigrant magazine. Refreshed our Dividend Visa Cards with a new set of cashback categories, and introduced on-demand points redemption. Delivering personalized advice to our clients in a way that is meaningful to them  Announced an agreement to become the exclusive issuer of Costco-branded Mastercards in Canada, expected to close in the first half of fiscal 2022, and the acquisition of the existing Canadian Costco credit card portfolio, reflecting our focus on growing our Canadian consumer franchise. Expanded our business banking specialist team in support of our focus on entrepreneurs at all life stages, including the launch of Canada’s first banking platform for Black-owned businesses. Helped clients build financial knowledge and confidence by offering virtual seminars and education focused on a range of topics such as, women and wealth, home ownership, as well as tax and estate planning for the LGBTQ+ community. Grew our mobile mortgage advisor workforce while strengthening our market position through a strategic partnership with REMAX. Ranked #1 on Investment Executive 2021 Report Card on Banks, for the sixth consecutive year. Helped our clients meet their personal climate ambitions with solutions such as offering a carbon offset for their gas purchases through the Parkland Journie Rewards program.               CIBC 2021 ANNUAL REPORT 19 Management’s discussion and analysis 2021 financial review Revenue(1) ($ billions) 8.2 7.9 8.2 Net income(1) ($ millions) Operating leverage (%) 2,494 2,126 1,785 (5.9) (0.5) 0.4 Average loans and acceptances(1)(2)(3) ($ billions) 247.1 250.3 270.3 Average deposits(1)(3) ($ billions) 187.9 170.8 156.8 19 20 21 19 20 21 19 20 21 19 20 21 19 20 21 (1) Certain prior period information has been revised. See the “External reporting changes” section for additional details. (2) Loan amounts are stated before any related allowances. (3) Average balances are calculated as a weighted average of daily closing balances. Our focus for 2022 In Canadian Personal and Business Banking our objective is to deliver sustainable, market-leading performance with a focus on helping our clients achieve their ambitions. Our strategy remains centred on three key priorities: Introduce more opportunities for our clients to deal with us digitally;  Provide our team with the tools to deliver an excellent experience for our clients; and  Deliver personalized advice to our clients in a way that is meaningful to them.  Results(1) $ millions, for the year ended October 31 Revenue Provision for (reversal of) credit losses Impaired Performing Provision for credit losses Non-interest expenses Income before income taxes Income taxes Net income Net income attributable to: Equity shareholders Efficiency ratio Operating leverage Return on equity (3) Average allocated common equity (3) Average assets ($ billions) (4) Average loans and acceptances ($ billions) (4) Average deposits ($ billions) (4) Full-time equivalent employees 2021 2020 (2) 2019 (2) $ 8,150 $ 7,922 $ 8,240 484 (134) 350 4,414 3,386 892 625 564 1,189 4,308 2,425 640 790 99 889 4,459 2,892 766 $ 2,494 $ 1,785 $ 2,126 $ 2,494 $ 1,785 $ 2,126 54.2 % 0.4 % 38.1 % 54.4 % (0.5)% 27.1 % $ $ $ $ 6,554 272.6 270.3 187.9 12,629 $ $ $ $ 6,591 253.0 250.3 170.8 12,437 54.1 % (5.9)% 34.3 % $ $ $ $ 6,192 249.5 247.1 156.8 13,013 (1) For additional segmented information, see Note 31 to the consolidated financial statements. (2) Certain prior period information has been revised. See the “External reporting changes” section for additional details. (3) For additional information, see the “Non-GAAP measures” section. (4) Average balances are calculated as a weighted average of daily closing balances. Financial overview Net income was up $709 million or 40% from 2020, primarily due to lower provision for credit losses and higher revenue, partially offset by higher non-interest expenses. Revenue Revenue was up $228 million or 3% from 2020, primarily due to volume growth and higher fee income, partially offset by lower product spreads largely as a result of changes in the interest rate environment. Provision for credit losses Provision for credit losses was down $839 million or 71% from 2020. The current year included a provision reversal on performing loans mainly due to a favourable change in economic conditions as well as our economic outlook partially offset by model parameter updates, while the prior year included a provision for credit losses due to an unfavourable change in our economic outlook relating to the onset of the COVID-19 pandemic. Provision for credit losses on impaired loans was down as the current year continued to benefit from higher levels of consumer liquidity from lower relative levels of spending and from government support programs, while the prior year included a normal level of loan losses prior to the onset of the pandemic. Non-interest expenses Non-interest expenses were up $106 million or 2% from 2020, primarily due to higher spending on strategic initiatives and performance-related compensation, partially offset by a favourable commodity tax adjustment in the current year. Income taxes Income taxes were up $252 million or 39% from 2020, primarily due to higher income. Average assets Average assets were up $19.6 billion or 8% from 2020, primarily due to growth in residential mortgages. 20 CIBC 2021 ANNUAL REPORT Management’s discussion and analysis Canadian Commercial Banking and Wealth Management Canadian Commercial Banking and Wealth Management provides high-touch, relationship-oriented banking and wealth management services to middle-market companies, entrepreneurs, high-net-worth individuals and families across Canada, as well as asset management services to institutional investors. Our business strategy We are focused on building and enhancing client relationships, being Canada’s leader in financial advice and generating long-term consistent growth. To deliver on this, our three key strategic priorities are:    Accelerating the growth of Private Wealth Management; Evolving our Asset Management business in response to client needs; and Delivering focused, risk-controlled growth in our Commercial Bank. 2021 progress In 2021, as the economy began transitioning to a post-pandemic environment, we continued to stay close to our clients, helping them navigate through the ongoing economic recovery. Commercial Banking saw record loan growth among existing clients, driven by an improved economic outlook as well as strong new client activity. Private Wealth Management saw significant growth in asset balances driven by market appreciation, record mutual fund sales, strong referral activity across our internal teams and an increased level of activity by clients. Accelerating the growth of Private Wealth Management  Increased recruitment of top talent across Private Wealth Management to broaden and deepen client relationships and accelerate market share growth. Launched exclusive banking offers for clients in key market segments to deepen existing and onboard new relationships. Launched CIBC Family Office services to support ultra-high net worth clients through wealth transitions within the family and through privately- owned business sales. Increased partner referrals activity across the bank to help clients fulfill their broader wealth needs. The Globe and Mail named 35 CIBC Wood Gundy advisors to its inaugural ranking of Canada’s Top Wealth Advisors list.     Evolving our Asset Management business in response to client needs  Met the investment needs of our mass affluent, core banking and high net worth clients, resulting in record net flows in long-term mutual fund sales. Launched Sustainable Investment Solution mutual funds to align with our bank-wide ESG efforts, as well as client demand, where a percentage of our revenues are donated to organizations supporting climate transition activities. Founding signatory of Climate Engagement Canada and the Responsible Investment Association Canadian Investor Statement on Climate Change as part of our bank’s ongoing efforts to address global climate change and to support investor demand for ESG-focused products. Refinitiv Lipper Funds Awards recognized four CIBC Asset Management funds for industry-leading performance.    Delivering focused, risk-controlled growth in our Commercial Bank  Enhanced our offers to address the needs of the smaller end of the commercial banking market in high growth industries such as healthcare, technology, business services and franchising. Further expanded CIBC Innovation Banking across Canada, the U.S., and most recently in the U.K., to meet the needs of fast-growing and innovative industries such as technology, life sciences and venture capital funds. Global Finance Magazine named CIBC Canada’s Best Treasury and Cash Management Bank for the sixth time.   2021 financial review Revenue ($ billions) 4.7 4.0 4.1 Net income ($ millions) Operating leverage (%) Average loans(1)(2) ($ billions) Average deposits(2) ($ billions) 1,665 3.1 1,287 1,202 64.7 68.2 72.8 83.6 71.1 60.2 1.2 (1.1) 19 20 21 19 20 21 19 20 21 19 20 21 19 20 21 Average commercial banking loans(1)(2)(3) ($ billions) Average commercial banking deposits(2) ($ billions) 62.6 66.3 70.7 75.3 64.1 54.9 Assets under administration and management(4) ($ billions) Canadian retail mutual funds and exchange- traded funds ($ billions) 356.6 289.1 287.7 135.0 108.9 111.4 19 20 21 19 20 21 19 20 21 19 20 21 230.3 188.9 182.4 (1) Loan amounts are stated before any related allowances. (2) Average balances are calculated as a weighted average of daily closing balances. (3) Comprises loans and acceptances and notional amount of letters of credit. (4) AUM amounts are included in the amounts reported under AUA. AUM CIBC 2021 ANNUAL REPORT 21 Management’s discussion and analysis Our focus for 2022 In Commercial Banking and Wealth Management, our ambition is to become the leader in financial advice to both personal and business clients. We remain focused on three strategic priorities:   Accelerate the growth of Private Wealth Management to broaden and deepen client relationships; Evolve our Asset Management business to increase connectivity within our own bank channels and continue to extend our investment capabilities and fee structures to meet evolving client needs; and Delivering risk-controlled growth in our Commercial Bank, while fostering strong referrals across CIBC.  Results(1) $ millions, for the year ended October 31 Revenue Commercial banking Wealth management Total revenue Provision for (reversal of) credit losses Impaired Performing Provision for (reversal of) credit losses Non-interest expenses Income before income taxes Income taxes Net income Net income attributable to: Equity shareholders Efficiency ratio Operating leverage Return on equity (2) Average allocated common equity (2) Average assets ($ billions) (3) Average loans ($ billions) (3) Average deposits ($ billions) (3) AUA ($ billions) AUM ($ billions) Full-time equivalent employees 2021 2020 2019 $ 1,827 2,843 4,670 6 (45) (39) 2,443 2,266 601 $ 1,663 2,458 $ 1,633 2,394 4,121 162 141 303 2,179 1,639 437 4,027 159 4 163 2,106 1,758 471 $ 1,665 $ 1,202 $ 1,287 $ 1,665 $ 1,202 $ 1,287 52.3 % 1.2 % 24.5 % 52.9 % (1.1)% 18.6 % 52.3 % 3.1 % 21.7 % $ 6,794 70.1 $ 72.8 $ $ 83.6 $ 356.6 $ 230.3 5,241 $ 6,454 65.8 $ 68.2 $ $ 71.1 $ 287.7 $ 188.9 4,984 $ 5,929 62.6 $ 64.7 $ $ 60.2 $ 289.1 $ 182.4 5,048 (1) For additional segmented information, see Note 31 to the consolidated financial statements. (2) For additional information, see the “Non-GAAP measures” section. (3) Average balances are calculated as a weighted average of daily closing balances. Financial overview Net income was up $463 million or 39% from 2020, primarily due to higher revenue and a provision reversal in the current year compared with a provision for credit losses in the prior year, partially offset by higher non-interest expenses. Revenue Revenue was up $549 million or 13% from 2020. Commercial banking revenue was up $164 million or 10%, primarily due to higher fees and volume growth, partially offset by lower product spreads. Wealth management revenue was up $385 million or 16%, primarily due to higher fee-based revenue driven by higher average AUA and AUM reflecting market appreciation and net sales, and higher commission revenue from increased client activity. Provision for credit losses The current year included a reversal of credit losses of $39 million, while the prior year included a provision for credit losses of $303 million. The current year included a provision reversal on performing loans due to a favourable change in economic conditions as well as our economic outlook, while the prior year included a provision for credit losses due to an unfavourable change in our economic outlook relating to the onset of the COVID-19 pandemic. Provision for credit losses on impaired loans was down as the prior year was impacted by the onset of the COVID-19 pandemic and provisions related to one fraud-related impairment. Non-interest expenses Non-interest expenses were up $264 million or 12% from 2020, primarily due to higher performance-based compensation. Income taxes Income taxes were up $164 million or 38% from 2020, primarily due to higher income. Average assets Average assets were up $4.3 billion or 6% from 2020, primarily due to growth in commercial loans. Assets under administration AUA were up $68.9 billion or 24% from 2020, primarily due to market appreciation and net sales. AUM amounts are included in the amounts reported under AUA. 22 CIBC 2021 ANNUAL REPORT       Management’s discussion and analysis U.S. Commercial Banking and Wealth Management U.S. Commercial Banking and Wealth Management provides commercial banking and private wealth services across the U.S., as well as personal and small business banking services in four U.S. Midwestern markets and focuses on middle-market and mid-corporate companies and high-net-worth individuals and families. Our business strategy Our goal is to continue building a best-in-class commercial and wealth management financial institution in the U.S., with seamless connectivity to our Capital Markets and Canadian Commercial Banking and Wealth Management franchise. Our key strategic priorities, which have evolved over the year, are:     Building and deepening client relationships; Strengthening and diversifying our deposit base; Improving efficiency through data and technology; and Advancing the growth and transformation of our business. 2021 progress In 2021, our continued focus on deep-rooted relationship banking helped attract new clients and guide existing relationships through a challenging economic environment. This approach continues to generate strong loan, deposit and AUM/AUA growth, which coupled with prudent investments, helped mitigate revenue pressures associated with margin compression experienced throughout the industry. Our offering of products and services continues to expand as we leverage cross-border capabilities and maintain investment in improving processes, technology and meeting client needs. Building and deepening client relationships  Drove solid loan and deposit growth given market conditions, including continued expansion of our private banking business with existing commercial and wealth clients. Supported our clients who faced continued headwinds as a result of the pandemic with an additional $500 million of Paycheck Protection Program (PPP) financing in the first half of fiscal 2021. Generated strong growth in AUM and AUA, bolstered by the performance of our investment strategies and net inflows, driving asset management fees to nearly 50% of non-interest income for the year. Leveraged our strong partnership with our Capital Markets franchise to provide a wider range of products and services to U.S. commercial and wealth clients. Recognized as Retail Banking and Commercial Banking Client Experience leaders by Coalition Greenwich. Ranked as a Top Five Registered Investment Advisor by Barron’s for the second straight year. Strengthening and diversifying our deposit base    Maintained a diversified funding strategy through our commercial, private banking and retail clients. Continued growth in private banking, expanding the team and introducing online account opening for private banking clients. Expanded deposit gathering, including with our specialty commercial banking and institutional real estate clients. Improving efficiency through data and technology  Advanced the implementation of customer relationship management (CRM) and data strategy initiatives to further the connectivity between teams, provide a consolidated view of our businesses and support a strong risk management infrastructure. Continued to refine client-facing processes, making it easier for clients to bank with us, including adding online account opening capabilities for consumer clients, introducing card control features to consumer mobile banking and enhancing our servicing platform for our commercial banking clients. Advancing the growth and transformation of our business   Expanded Commercial Real Estate banking in the southeast U.S. region. Further enhanced our risk and change management infrastructure to support our growth. CIBC 2021 ANNUAL REPORT 23 Management’s discussion and analysis 2021 financial review Revenue(1) (US$ billions) 1.7 1.5 1.4 Net income(1) ($ millions) 926 648 375 Net income(1) (US$ millions) 739 487 282 Operating leverage (% in U.S. dollars) 8.5 5.6 (0.3) 19 20 21 19 20 21 19 20 21 19 20 21 Average loans(1)(2)(3) (US$ billions) Average deposits(1)(3) (US$ billions) 31.6 33.0 26.9 33.0 25.7 19.7 Average commercial banking loans(2)(3) (US$ billions) 27.6 27.9 24.4 19 20 21 19 20 21 19 20 21 (1) Certain prior period information has been revised. See the “External reporting changes” section for additional details. (2) Loan amounts are stated before any related allowances. (3) Average balances are calculated as a weighted average of daily closing balances. (4) AUM amounts are included in the amounts reported under AUA. Assets under administration and management(4) (US$ billions) 100.6 73.3 68.1 77.9 57.4 52.2 19 20 21 AUM Our focus for 2022 To build on our momentum across U.S. Commercial Banking and Wealth Management, we will continue to focus on helping our clients achieve their ambitions by:  Building and deepening client relationships through referral activity across all businesses, disciplined growth in Commercial Banking and greater scale in Private Wealth Management; Strengthen and diversify our deposit base by leveraging private banking services for commercial and wealth clients and continued growth in regional expansion markets such as Florida and Texas; Improve efficiency through data and technology to support growth, modernizing consumer and commercial digital platforms and enhancing data-driven decision making; and Advance the transformation of our business through continued investment in people, infrastructure and growth initiatives.    24 CIBC 2021 ANNUAL REPORT Management’s discussion and analysis Results in Canadian dollars(1) $ millions, for the year ended October 31 Revenue Commercial banking Wealth management (3) Total revenue (4)(5) Provision for (reversal of) credit losses Impaired Performing Provision for (reversal of) credit losses Non-interest expenses Income before income taxes Income taxes (5) Net income Net income attributable to: Equity shareholders Average allocated common equity (6) Average assets ($ billions) (7) Average loans ($ billions) (7) Average deposits ($ billions) (7) AUA ($ billions) (8) AUM ($ billions) (8) Full-time equivalent employees 2021 2020 (2) 2019 (2) $ 1,444 750 2,194 104 (179) (75) 1,121 1,148 222 926 926 $ $ $ 8,975 46.7 $ 41.4 $ $ 41.4 $ 124.5 96.4 $ 2,170 $ 1,421 622 2,043 133 354 487 1,126 430 55 375 375 $ $ $ 9,196 48.2 $ 42.5 $ 34.6 $ 97.6 $ 76.4 $ 2,085 $ 1,300 611 1,911 68 5 73 1,114 724 76 648 648 $ $ $ 8,533 41.2 $ 35.7 $ 26.1 $ 89.7 $ 68.8 $ 2,095 (1) For additional segmented information, see Note 31 to the consolidated financial statements. (2) Certain prior period information has been revised. See the “External reporting changes” section for additional details. (3) Includes revenue related to the U.S. Paycheck Protection Program. (4) Included $15 million of income relating to the accretion of the acquisition date fair value discount on the acquired loans of The PrivateBank (2020: $20 million; 2019: $35 million). (5) Revenue and income taxes are reported on a TEB. Accordingly, revenue and income taxes include a TEB adjustment of nil (2020: nil; 2019: $2 million). The equivalent amounts are offset in the revenue and income taxes of Corporate and Other. (6) For additional information, see the “Non-GAAP measures” section. (7) Average balances are calculated as a weighted average of daily closing balances. (8) Includes certain Canadian Commercial Banking and Wealth Management assets that U.S. Commercial Banking and Wealth Management provides sub-advisory services for. Results in U.S. dollars(1) US$ millions, for the year ended October 31 Revenue Commercial banking Wealth management (3) Total revenue (4)(5) Provision for (reversal of) credit losses Impaired Performing Provision for (reversal of) credit losses Non-interest expenses Income before income taxes Income taxes (5) Net income Net income attributable to: Equity shareholders Efficiency ratio Operating leverage Return on equity (6) Average allocated common equity (6) Average assets ($ billions) (7) Average loans ($ billions) (7) Average deposits ($ billions) (7) AUA ($ billions) (8) AUM ($ billions) (8) 2021 1,151 597 1,748 82 (143) (61) 893 916 177 739 739 $ $ $ 2020 (2) 2019 (2) $ 1,056 464 1,520 $ 978 460 1,438 99 259 358 838 324 42 282 282 $ $ 52 3 55 838 545 58 487 487 $ $ 51.1 % 8.5 % 10.3 % 55.1 % 5.6 % 4.1 % 58.3 % (0.3) % 7.6 % $ 7,149.0 37.2 $ 33.0 $ 33.0 $ 100.6 $ 77.9 $ $ 6,841.0 35.9 $ 31.6 $ 25.7 $ 73.3 $ 57.4 $ $ 6,419.0 31.0 $ 26.9 $ 19.7 $ 68.1 $ 52.2 $ (1) For additional segmented information, see Note 31 to the consolidated financial statements. (2) Certain prior period information has been revised. See the “External reporting changes” section for additional details. (3) Includes revenue related to the U.S. Paycheck Protection Program. (4) Included US$12 million of income relating to the accretion of the acquisition date fair value discount on the acquired loans of The PrivateBank (2020: US$15 million; 2019: US$25 million). (5) Revenue and income taxes are reported on a TEB. Accordingly, revenue and income taxes include a TEB adjustment of nil (2020: nil; 2019: US$2 million). The equivalent amounts are offset in the revenue and income taxes of Corporate and Other. (6) For additional information, see the “Non-GAAP measures” section. (7) Average balances are calculated as a weighted average of daily closing balances. (8) Includes certain Canadian Commercial Banking and Wealth Management assets that U.S. Commercial Banking and Wealth Management provides sub-advisory services for. CIBC 2021 ANNUAL REPORT 25 Management’s discussion and analysis Financial overview Net income was up $551 million (US$457 million) or 147% from 2020, primarily due to a provision reversal in the current year compared with a provision for credit losses in the prior year and higher revenue. Revenue Revenue was up US$228 million or 15% from 2020. Commercial banking revenue was up US$95 million or 9%, primarily due to volume growth and higher fees, partially offset by lower product spreads. Wealth management revenue was up US$133 million or 29%, primarily due to higher fee-based revenue driven by higher average AUA and AUM reflecting market appreciation and net sales, higher product spreads, partially driven by loans made under the U.S. Paycheck Protection Program, and volume growth. Provision for credit losses The current year included a reversal of credit losses of US$61 million while the prior year included a provision for credit losses of US$358 million. The current year included a provision reversal on performing loans due to a favourable change in economic conditions as well as our economic outlook, while the prior year included a provision for credit losses due to an unfavourable change in our economic outlook relating to the onset of the COVID-19 pandemic. Provision for credit losses on impaired loans was down as the prior year was impacted by the onset of the COVID-19 pandemic. Non-interest expenses Non-interest expenses were up US$55 million or 7% from 2020, primarily due to higher employee-related compensation, partially offset by lower business development costs and the timing of spending on strategic initiatives. Income taxes Income taxes were up US$135 million or 321% from 2020, primarily due to higher income. Average assets Average assets were up US$1.3 billion or 4% from 2020, primarily due to growth in loans. Assets under administration AUA were up US$27.3 billion or 37% from 2020, primarily due to market appreciation and net sales. AUM amounts are included in the amounts reported under AUA. 26 CIBC 2021 ANNUAL REPORT Management’s discussion and analysis Capital Markets Capital Markets provides integrated global markets products and services, investment banking advisory and execution, corporate banking solutions and top-ranked research to our clients around the world. It includes Direct Financial Services which focuses on expanding CIBC’s digitally enabled capabilities to provide a cohesive set of direct banking, direct investing and innovative multi-currency payment solutions for CIBC’s clients. Our business strategy Our goal is to deliver leading capital markets solutions to our North American and international clients by providing best-in-class insight, advice and execution. To enable CIBC’s strategy and priorities, we collaborate with our partners across our bank to deepen and enhance client relationships. Our three key strategic priorities are:    Being the leading capital markets platform in Canada for our core clients; Building a North American client platform with global capabilities; and Increasing connectivity across CIBC to deliver greater value and a better experience for our clients. 2021 progress In 2021, we continued to make progress on our strategic priorities with an emphasis on deepening client relationships, growing in the U.S. and enhancing connectivity across the bank. Collectively, these efforts have built a well-diversified Capital Markets business that delivers consistent performance and growth. Our growth in 2021 was enabled by our strong focus on our clients, favourable market conditions for investment banking and corporate banking activity, and continuing strong performance in Global Markets. In addition, we further expanded our Direct Financial Services business to generate more fee-based revenue and attract new clients seeking a self-serve, digitally enabled banking and investing model. Being the leading capital markets platform in Canada for our core clients  Established a new Energy, Infrastructure and Transition investment banking group with a global focus on delivering industry-leading advice and capital markets solutions to clients across the full infrastructure and energy spectrum, and enabling the transition to a lower carbon future.  Continued to support the growth ambitions of our clients emerging from the pandemic, managing their funding and liquidity needs with expert  advice for the long-term. Strengthened our platform by continuing to invest in talent and technology, including investments in simplifying processes and promoting talent to foster our client-focused culture.  Recognized as a leader in bond trading in 2021, ranked #1 or #2 in the Investment Industry Regulatory Organization of Canada (IIROC)’s Monthly Bond Trading Volumes. Building a North American client platform with global capabilities  Made a strategic investment in Chicago-headquartered financial services firm Loop Capital, which is aligned with our strategy to accelerate  our momentum in the U.S. Established a leadership position in sustainable finance, acting as a Sustainability Agent on eight sustainability-linked loans (“SLLs”) during the year and ranking first on the Bloomberg SLL league tables for Canadian issuances for 2021.  Achieved top 10 ranking in financing for the renewable industry across North America for transactions that closed from January 1, 2021 to  September 30, 2021 (North American Renewables League Tables by Inframation). Partnered with three global banks to launch Project Carbon, a platform that brings liquidity and transparency to the market for carbon credits, helping to enable the sustainability ambitions of our clients. Increasing connectivity across CIBC to deliver greater value and a better experience for our clients  Launched the industry-first Canadian Depositary Receipts (CDRs) as part of our ongoing commitment to developing innovative, market-based solutions that meet investor needs.  Broadened the banking services available to clients through Simplii Financial, including the introduction of a U.S. dollar account and the rollout of Visa Direct.  Continued to enhance our offerings to clients with services such as Global Money Transfer, and further expanded the capabilities of our International Student Pay program.  Recognized as a 2021 Canadian FX Service Quality Leader as measured by the Greenwich Quality Index by Canadian Corporations and Financial Institutional clients. As a leading capital markets franchise in Canada and banking partner to our clients around the world, Capital Markets acted as:  Financial advisor to Husky Energy on its combination with Cenovus Energy in an all-stock transaction valued at approximately $23.6 billion (including debt) to create a resilient integrated energy leader that is well positioned to provide superior returns for investors over the long term, as well as strong environmental, social and governance performance. Financial Advisor to Intact Financial Corporation (Company) on its acquisition, together with Tryg A/S, of international P&C insurer RSA Insurance Group Plc for a transaction value of approximately $12.3 billion; joint bookrunner on the underwritten financing package including £1.465 billion in bridge facilities and a £350 million term loan, sole bookrunner on an increase to the Company’s existing revolving credit facility from $750 million to $1.5 billion and lead left bookrunner on a $1.25 billion issue of subscription receipts and an aggregate $1.85 billion of notes. Joint bookrunner and joint lead arranger on a US$1.825 billion 7-year term loan B, US$700 million of 7-year senior secured notes, and US$1.035 billion of 8-year senior unsecured notes in connection with an acquisition financing and refinancing for Madison IAQ, a portfolio company of Madison Industries. Bookrunner on the two largest Canadian initial public offerings (IPOs) of the year: Joint bookrunner on a US$1.1 billion IPO of subordinate voting shares for TELUS International (Cda) Inc. consisting of a treasury offering and a secondary offering from TELUS Corporation and Barings Private Equity Asia Group Limited, the largest technology IPO, and lead on a $719 million IPO of subordinate voting shares for dentalcorp Holdings Ltd., the largest healthcare IPO in Canada. Joint bookrunner on a number of corporate green bonds including Allied Properties REIT’s $600 million and $500 million green debentures, Algonquin Power Co.’s $400 million green debentures and BCI Quadreal Realty’s $400 million green notes offerings as well as joint lead manager for the Province of Ontario’s $1.25 billion green bond and European Investment Bank’s $1 billion maple green bond offerings.     CIBC 2021 ANNUAL REPORT 27 Management’s discussion and analysis  Led the structuring and execution of a number of SLLs in Canada, including acting as the administrative agent, joint bookrunner, and co- sustainability structuring agent for Enbridge’s $1 billion SLL, the first SLL for a Canadian energy infrastructure client, and acting as administrative agent, sole bookrunner, and sole sustainability structuring agent for TransAlta Corporation’s $1.25 billion SLL and Enerplus Corporation’s US$900 million SLL. 2021 financial review Revenue(1) ($ billions) 4.5 4.1 3.5 Net income(1) ($ millions) Operating leverage (%) 1,857 9.6 1,308 1,117 1.7 (2.0) 19 20 21 19 20 21 19 20 21 Average loans and acceptances(1) ($ billions) 47.8 45.2 40.3 Average deposits(1) ($ billions) Average value-at-risk (VaR) ($ millions) 86.0 68.0 53.9 8.5 7.6 5.7 Revenue – Direct financial services ($ millions) 828 710 661 19 20 21 19 20 21 19 20 21 19 20 21 (1) Certain prior period information has been revised. See the “External reporting changes” section for additional details. Our focus for 2022 To support our bank’s long-term objectives, Capital Markets remains focused on delivering profitable growth by deepening client relationships and collaborating with our partners across our bank to help make our clients’ ambitions a reality. We will continue to do this by:  Maintaining our focused approach to client coverage in Canada;   Growing our North American platform by further expanding our U.S. reach and broadening the services offered to clients; and Strengthening our connectivity, technology and innovation efforts to bring more of our bank’s offerings to our clients. 28 CIBC 2021 ANNUAL REPORT Management’s discussion and analysis Results(1) $ millions, for the year ended October 31 Revenue Global markets Corporate and investment banking Direct financial services Total revenue (3) Provision for (reversal of) credit losses Impaired Performing Provision for (reversal of) credit losses Non-interest expenses Income before income taxes Income taxes (3) Net income Net income attributable to: Equity shareholders Efficiency ratio Operating leverage Return on equity (4) Average allocated common equity (4) Average assets ($ billions) (5) Average loans and acceptances ($ billions) (5) Average deposits ($ billions) (5) Full-time equivalent employees (6) 2021 2020 (2) 2019 (2) $ 2,076 1,616 828 4,520 32 (132) (100) 2,117 2,503 646 $ 1,999 1,344 710 $ 1,583 1,231 661 4,053 121 190 311 1,929 1,813 505 3,475 109 51 160 1,802 1,513 396 $ 1,857 $ 1,308 $ 1,117 $ 1,857 $ 1,308 $ 1,117 46.8 % 1.7 % 25.6 % $ 7,241 $ 255.1 47.8 $ 86.0 $ 2,225 47.6 % 9.6 % 18.8 % $ 6,948 $ 230.2 45.2 $ 68.0 $ 1,912 51.8 % (2.0)% 17.5 % $ 6,399 $ 194.1 40.3 $ 53.9 $ 1,867 (1) For additional segmented information, see Note 31 to the consolidated financial statements. (2) Certain prior period information has been revised. See the “External reporting changes” section for additional details. (3) Revenue and income taxes are reported on a TEB. Accordingly, revenue and income taxes include a TEB adjustment of $204 million (2020: $183 million; 2019: $177 million). The equivalent amounts are offset in the revenue and income taxes of Corporate and Other. (4) For additional information, see the “Non-GAAP measures” section. (5) Average balances are calculated as a weighted average of daily closing balances. (6) In 2021, 79 full-time equivalent employees related to Simplii Financial’s call centre operations were transferred to Capital Markets from Corporate and Other, with no financial impact as the costs were previously allocated to Direct financial services. Financial overview Net income was up $549 million or 42% from 2020, primarily due to higher revenue and a provision reversal in the current year compared to a provision for credit losses in the prior year, partially offset by higher non-interest expenses. Revenue Revenue was up $467 million or 12% from 2020. Global markets revenue was up $77 million or 4%, primarily due to higher revenue from our equity derivatives trading business, partially offset by lower fixed income and foreign exchange trading revenue. Corporate and investment banking revenue was up $272 million or 20%, primarily due to higher equity and debt underwriting activity, higher advisory revenue and higher corporate banking revenue. Direct financial services revenue was up $118 million or 17%, primarily due to higher volumes and growth in our direct trading brokerage, and innovative foreign exchange and payments business. Provision for (reversal of) credit losses The current year included a reversal of credit losses of $100 million while the prior year included a provision for credit losses of $311 million. The current year included a provision reversal on performing loans due to a favourable change in economic conditions as well as our economic outlook, while the prior year included a provision for credit losses due to an unfavourable change in our economic outlook relating to the onset of the COVID-19 pandemic. Provision for credit losses on impaired loans was down as the prior year included higher provisions in the oil and gas sector. Non-interest expenses Non-interest expenses were up $188 million or 10% from 2020, primarily due to higher employee-related compensation and the timing of spending on strategic initiatives. Income taxes Income taxes were up $141 million or 28% from 2020, primarily due to higher income. Average assets Average assets were up $24.9 billion or 11% from 2020, primarily due to higher securities purchased under resale agreements, higher trading securities and higher loan balances. CIBC 2021 ANNUAL REPORT 29 Management’s discussion and analysis Corporate and Other Corporate and Other includes the following functional groups – Technology, Infrastructure and Innovation, Risk Management, People, Culture and Brand, Finance and Enterprise Strategy, as well as other support groups. The expenses of these functional and support groups are generally allocated to the business lines within the SBUs. The majority of the functional and support costs of CIBC Bank USA are recognized directly in the U.S. Commercial Banking and Wealth Management SBU. Corporate and Other also includes the results of CIBC FirstCaribbean and other strategic investments, as well as other income statement and balance sheet items not directly attributable to the business lines. Results(1) $ millions, for the year ended October 31 Revenue International banking Other Total revenue (3) Provision for (reversal of) credit losses Impaired Performing Provision for credit losses Non-interest expenses Loss before income taxes Income taxes (3) Net income (loss) Net income (loss) attributable to: Non-controlling interests Equity shareholders Full-time equivalent employees 2021 2020 (2) 2019 (2) $ $ $ 687 (206) 481 76 (54) 22 1,440 (981) (485) (496) 17 (513) $ $ $ 734 (132) 602 24 175 199 1,820 (1,417) (539) (878) 2 (880) $ $ $ 798 160 958 21 (20) 1 1,375 (418) (361) (57) 2 5 (82) 23,017 22,435 23,134 (1) For additional segmented information, see Note 31 to the consolidated financial statements. (2) Certain prior period information has been revised. See the “External reporting changes” section for additional details. (3) Revenue and income taxes of Capital Markets and U.S. Commercial Banking and Wealth Management are reported on a TEB. The equivalent amounts are offset in the revenue and income taxes of Corporate and Other. Accordingly, revenue and income taxes include a TEB adjustment of $204 million (2020: $183 million; 2019: $179 million). Financial overview Net loss was down $382 million from 2020, due to lower non-interest expenses and lower provision for credit losses, partially offset by lower revenue. Revenue Revenue was down $121 million from 2020. International banking revenue was down $47 million, primarily due to the impact of foreign exchange translation, and lower U.S. dollar revenue in CIBC FirstCaribbean driven by lower product spreads, partially offset by higher ECL charges on debt securities in the prior year, volume growth and higher fees. Other revenue was down $74 million, primarily due to lower revenue from our strategic investments, interest income in the prior year related to the settlement of certain income tax matters, a higher TEB adjustment and lower treasury revenue. Provision for (reversal of) credit losses Provision for credit losses was down $177 million from 2020. The current year included a reversal of credit losses on performing loans due to a favourable change in our economic outlook for the Caribbean region, while the prior year included a provision for credit losses due to an unfavourable change in economic conditions as well as our economic outlook relating to the onset of the COVID-19 pandemic. Provision for credit losses on impaired loans was up due to higher provisions in CIBC FirstCaribbean. Non-interest expenses Non-interest expenses were down $380 million from 2020, as the prior year included a restructuring charge and a goodwill impairment charge, partially offset by a gain in the prior year as a result of plan amendments related to pension and other post-employment plans, all shown as items of note. The current year included higher unallocated corporate support costs, donations and legal provisions. Income taxes Income tax benefit was down $54 million from 2020, primarily due to a lower loss. 30 CIBC 2021 ANNUAL REPORT Management’s discussion and analysis Financial condition Review of condensed consolidated balance sheet $ millions, as at October 31 Assets Cash and deposits with banks Securities Securities borrowed and purchased under resale agreements Loans and acceptances Derivative instruments Other assets Liabilities and equity Deposits Obligations related to securities lent, sold short and under repurchase agreements Derivative instruments Acceptances Other liabilities Subordinated indebtedness Equity 2021 2020 $ 56,997 161,401 79,940 462,879 35,912 40,554 $ 62,518 149,046 74,142 416,388 32,730 34,727 $ 837,683 $ 769,551 $ 621,158 97,133 32,101 10,961 24,961 5,539 45,830 $ 570,740 89,440 30,508 9,649 22,167 5,712 41,335 $ 837,683 $ 769,551 Assets Total assets as at October 31, 2021 were up $68.1 billion or 9% from 2020, net of a decrease of approximately $17 billion due to the depreciation of the U.S. dollar. Cash and deposits with banks decreased by $5.5 billion or 9%, primarily due to lower short-term placements in Treasury. Securities increased by $12.4 billion or 8%, primarily due to increases in corporate equity and debt securities in foreign governments, partially offset by decreases in debt securities in Canadian governments. Further details on the composition of securities are provided in the “Supplementary annual financial information” section and Note 5 to the consolidated financial statements. Securities borrowed and purchased under resale agreements increased by $5.8 billion or 8%, primarily due to client-driven activities. Net loans and acceptances increased by $46.5 billion or 11%, primarily due to increases in Canadian residential mortgages, and Canadian and U.S. business and government loans. Further details on the composition of loans and acceptances are provided in the “Supplementary annual financial information” section and Note 6 to the consolidated financial statements. Derivative instruments increased by $3.2 billion or 10%, largely driven by increases in other commodity and equity derivatives valuation, partially offset by a decrease in interest rate derivatives valuation. Other assets increased by $5.8 billion or 17%, primarily due to increases in broker receivables and collateral pledged for derivatives. Liabilities Total liabilities as at October 31, 2021 were up $63.6 billion or 9% from 2020, net of a decrease of approximately $16 billion due to the depreciation of the U.S. dollar. Deposits increased by $50.4 billion or 9%, primarily due to increased wholesale funding, increased business and government deposits, and domestic retail volume growth. Further details on the composition of deposits are provided in the “Supplementary annual financial information” section and Note 11 to the consolidated financial statements. Obligations related to securities lent, sold short and under repurchase agreements increased by $7.7 billion or 9%, primarily due to client-driven activities. Derivative instruments increased by $1.6 billion or 5%, largely driven by increases in equity and other commodity derivatives valuation, partially offset by a decrease in interest rate derivatives valuation. Acceptances increased by $1.3 billion or 14%, driven by client activities. Other liabilities increased by $2.8 billion or 13%, primarily due to increases in collateral received for derivatives and broker payables. Subordinated indebtedness decreased by $0.2 billion or 3%. In the first quarter we redeemed subordinated indebtedness and in the second quarter we issued subordinated indebtedness. For further details see the “Capital management” section. Equity Equity as at October 31, 2021 increased $4.5 billion or 11% from 2020, primarily due to a net increase in retained earnings, the issuance of a limited recourse capital note, partially offset by a decrease in accumulated other comprehensive income resulting from a net loss from foreign currency translation adjustments, partially offset by a net remeasurement gain from post-employment defined benefit plans. For further details see the “Capital management” section. CIBC 2021 ANNUAL REPORT 31 Management’s discussion and analysis Capital management Our capital strength protects our depositors and creditors from risks inherent in our businesses. Our overall capital management objective is to maintain a strong and efficient capital base that:     Acts as a buffer to absorb unexpected losses while providing sustainable returns to our shareholders; Enables our businesses to grow and execute on our strategy; Demonstrates balance sheet strength and our commitment to prudent balance sheet management; and Supports us in maintaining a favourable credit standing and raising additional capital or other funding on attractive terms. We actively manage our capital to meet these objectives in support of our overall enterprise strategy. Capital management and planning framework We maintain a capital management policy that establishes our capital management principles in the context of our risk appetite to support our capital management objectives. Our capital management policy is reviewed and approved by the Board of Directors (the Board) in support of our Internal Capital Adequacy Assessment Process (ICAAP). The policy includes guidelines that relate to capital strength, capital mix, dividends and return of capital, and unconsolidated capital adequacy of regulated entities, based on regulatory requirements and our risk appetite. The level of capital and capital ratios are continually monitored relative to our regulatory minimums and internal targets and the amount of capital required may change in relation to our business growth, risk appetite, and the business and regulatory environment. Capital planning is a crucial element of our overall financial planning process and establishment of strategic objectives and is developed in accordance with the capital management policy. Each year, a capital plan and three-year outlook are developed as part of the financial plan, which establishes targets for the coming year and business plans to achieve those targets. The capital plan is also stress-tested as a part of our enterprise-wide stress testing process to ensure CIBC is adequately capitalized through severe but plausible stress scenarios (see the “Enterprise- wide stress testing” section for further details). Our capital position and forecasts are monitored throughout the year and assessed against the capital plan. The Board, with endorsement from the Risk Management Committee (RMC), provides oversight of CIBC’s capital management through the approval of our risk appetite, capital policy and plan. The RMC is provided with regular updates on our capital position including performance to date, updated forecasts, and any material regulatory developments that may impact our future capital position. Treasury is responsible for the overall management of capital including planning, forecasting, and execution of the plan, with senior management oversight provided by the Global Asset Liability Committee (GALCO). Enterprise-wide stress testing We perform enterprise-wide stress testing on at least an annual basis. The results are an integral part of our ICAAP, as defined by Pillar 2 of the Basel III Accord, wherein we identify and measure our risks on an ongoing basis in order to ensure that the capital available is sufficient to cover all risks across CIBC, including the impacts of stress testing. We maintain a process that determines plausible but stressed economic scenarios such as global recessions and housing price shocks, and then apply these stress scenarios to our bank-wide exposures to determine the impact on the consolidated statement of income, RWA requirements, and consequently, key capital ratios. This helps us analyze the potential risks within our portfolios and establish prudent capital levels in excess of the regulatory minimum requirements. All of the elements of capital are monitored throughout the year and the capital plan is adjusted as appropriate. Management determines the range of scenarios to be tested. Macroeconomic stress test scenarios are designed to be both severe and plausible and designed to be consistent with OSFI’s stress testing framework to ensure that they are comprehensive. The following diagram summarizes the enterprise-wide stress testing process including the development of scenarios, identification of risk drivers and linkages to our other bank-wide ICAAP processes. The process includes syndication with our economists and lines of business to ensure scenarios are relevant to our businesses and there is a consistent interpretation of the scenarios across CIBC. Enterprise-wide Stress Testing Scenario Development  Develop macroeconomic scenarios  relevant to the current and projected  business cycle including emerging risks Risk Identification/Modelling  Identification of relevant risk drivers  Development and validation of stress  models and parameters Translation of financial and macroeconomic factors (e.g., GDP, unemployment, yield curve, etc.) Quantify impacts Credit Market Operational Liquidity Earnings Other Aggregate results Earnings Evaluate and review bank-wide impacts Capital Impacts Funding and Liquidity Linkages Internal Capital Adequacy Assessment Process (ICAAP) Risk Appetite Capital Management and Planning Financial Management and Planning Liquidity Management Recovery and Resolution Planning Risk Management 32 CIBC 2021 A NNUAL REPORT Management’s discussion and analysis Stress test scenarios are designed to capture a wide range of macroeconomic and financial variables that are relevant to assess the impact on our specific portfolios. This includes, for example, GDP, unemployment, house prices, interest rates and equity prices. The stress testing process is comprehensive, using a bottoms-up analysis of each of our bank-wide portfolios, and the results are analyzed on a product, location and sector basis. Our stress testing approach combines the use of statistical models and expert judgment to ensure the results are reasonable in estimating the impacts of the stress scenarios. Stress testing methodologies and results are subject to a detailed review and challenge from both our lines of business and Risk Management. Stress testing results are presented for review to the RMC and are also shared with the Board and OSFI. The results of our enterprise-wide stress testing are used to highlight any vulnerabilities and ensure we remain well capitalized against regulatory and management expectations. A key objective of the enterprise-wide stress tests is to identify key areas of exposure and foster discussion of management actions that would be taken to mitigate the impact of stress scenarios. Contingency planning and strategies for extreme stress scenarios are included in the development and maintenance of CIBC’s recovery and resolution plans. These plans include credible remedial actions that may be considered to counteract and recover from stress, or promote CIBC’s orderly resolution with limited systemic impacts. Additional information on stress testing is provided in the “Management of risk” section. Recovery plan Federally regulated financial institutions must maintain robust and credible recovery plans that identify options to restore financial strength and viability when under severe stress. CIBC continues to maintain and update its recovery plan in line with OSFI requirements and industry best practices. Resolution plan In 2019, the Canada Deposit Insurance Corporation (CDIC), Canada’s resolution authority for its member institutions, including domestic systemically important banks (D-SIBs), issued guidance for the development of comprehensive resolution plans. CDIC considers it a priority to ensure that banks undertake the necessary work to create, maintain and test resolution plans, demonstrate their feasibility, and address any impediments to ensure resolvability can be achieved in an orderly fashion. CIBC has developed its resolution plan in line with the guidance, and provided its latest submission to CDIC in October 2021. Regulatory capital requirements under Basel III Our regulatory capital requirements are determined in accordance with guidelines issued by OSFI, which are based upon the capital standards developed by the BCBS. Regulatory capital consists of CET1, Tier 1 and Tier 2 capital. The tiers of regulatory capital indicate increasing quality/permanence and the ability to absorb losses. The major components of our regulatory capital are summarized as follows: Higher quality Common equity (retained earnings, common shares and stock surplus) CET1 capital   Accumulated other comprehensive income (AOCI)(1)  Qualifying instruments issued by a consolidated banking subsidiary to third parties  Certain eligible general allowance resulting from expected credit loss provisioning(2)  Less regulatory deductions for items such as: Goodwill and other intangible assets ➢ ➢ Deferred tax assets ➢ Net assets related to defined benefit pension plans ➢ Certain investments Non-viability contingent capital (NVCC) preferred shares Additional Tier 1 (AT1) capital   Limited recourse capital notes  Qualifying instruments issued by a consolidated subsidiary to third parties  Innovative Tier 1 notes subject to phase-out rules for capital instruments T i e r 1 c a p i t a l T o t a l c a p i t a l Lower quality NVCC subordinated indebtedness Tier 2 capital   Non-qualifying subordinated indebtedness subject to phase-out rules for capital instruments  Eligible general allowance under the standardized approach(2)  Qualifying instruments issued by a consolidated subsidiary to third parties Excluding AOCI relating to cash flow hedges and changes to fair value option (FVO) liabilities attributable to changes in own credit risk. (1) (2) OSFI has provided regulatory flexibility by implementing transitional arrangements for the treatment of expected loss provisioning, such that part of the allowances that would otherwise be included in Tier 2 capital will instead qualify for inclusion in CET1 capital subject to certain scalars and limitations until fiscal 2022. See the “Continuous enhancement to regulatory capital requirements” section for additional details. Qualifying regulatory capital instruments must be capable of absorbing loss at the point of non-viability of the financial institution. Non-qualifying Tier 1 and Tier 2 capital instruments are excluded from regulatory capital at a rate of 10% per annum until November 2021, at which point they will have no regulatory value. OSFI requires all institutions to achieve target capital ratios which include buffers. Targets may be higher for certain institutions at OSFI’s discretion. CIBC has been designated by OSFI as a D-SIB in Canada. D-SIBs are subject to a CET1 surcharge equal to 1.0% of RWA. In addition, OSFI expects D- SIBs to hold a Domestic Stability Buffer (DSB) requirement intended to address Pillar 2 risks that are not adequately captured in the Pillar 1 capital requirements. The DSB is currently set at 2.5%, but can range from 0% to 2.5% of RWA (see the “Continuous enhancement to regulatory capital requirements” section for details regarding a recent increase to the DSB requirement that became effective October 31, 2021). Additionally, banks need to hold an incremental countercyclical capital buffer equal to their weighted-average buffer requirement in Canada and across certain other jurisdictions where they have private sector credit exposures. OSFI’s current targets are summarized below: As at October 31, 2021 CET1 ratio Tier 1 capital ratio Total capital ratio Minimum 4.5 % 6.0 % 8.0 % Capital conservation buffer 2.5 % 2.5 % 2.5 % D-SIB buffer 1.0 % 1.0 % 1.0 % Pillar 1 targets (1) 8.0 % 9.5 % 11.5 % Domestic Stability Buffer (2) 2.5 % 2.5 % 2.5 % Target including all buffer requirements 10.5 % 12.0 % 14.0 % (1) The countercyclical capital buffer applicable to CIBC is insignificant as at October 31, 2021. (2) The DSB was increased to 2.5% effective October 31, 2021. See the “Continuous enhancement to regulatory capital requirements” section for additional details. CIBC 2021 ANNUAL REPORT 33 Management’s discussion and analysis Capital adequacy requirements are applied on a consolidated basis consistent with our financial statements, except for our insurance subsidiaries (CIBC Cayman Reinsurance Limited and CIBC Life Insurance Company Limited), which are excluded from the regulatory scope of consolidation. The basis of consolidation applied to our financial statements is described in Note 1 to the consolidated financial statements. CIBC Life Insurance Company Limited is subject to OSFI’s Life Insurance Capital Adequacy Test. Risk-weighted assets The following table provides a summary of permissible regulatory capital approaches and those adopted by CIBC: Risk category Permissible regulatory capital approaches Approach adopted by CIBC Credit risk(1) Market risk Operational risk (1) Includes CCR. Basel provides three approaches for calculating credit risk capital requirements:    Standardized Foundation Advanced internal ratings-based (AIRB) OSFI expects financial institutions in Canada with Total capital in excess of $5 billion to use the AIRB approach for all material portfolios and credit businesses. We have adopted the AIRB approach for the majority of our credit portfolios. Under this methodology, we utilize our own internal estimates to determine probability of default (PD), loss given default (LGD), maturity, and exposure at default (EAD) for lending products and securities. We utilize the Standardized Approach for credit portfolios within CIBC Bank USA and CIBC FirstCaribbean. We periodically review portfolios under the Standardized Approach for consideration of adoption of the AIRB approach. OSFI provides two approaches for calculating counterparty credit risk (CCR) for derivatives transactions: Standardized Approach (SA-CCR)  Internal Model Method (IMM)  Effective April 30, 2020, CIBC has adopted the IMM approach for calculating CCR exposure for qualifying derivative transactions. Certain transactions remain under the SA-CCR approach. OSFI provides four approaches for calculating CCR for repo-style transactions:     Comprehensive approach, with supervisory haircuts Comprehensive approach, with own estimate haircuts Repo VaR approach IMM Permitted approaches for equity positions in the banking book (which includes equity investments in funds) include:  Standardized  Market-based  Look-through  Mandate-based Fall-back  Basel provides the following approaches for calculating capital requirements for securitization positions:     Internal Ratings-Based Approach (SEC-IRBA) Internal Assessment Approach (SEC-IAA) External Ratings-Based Approach (SEC-ERBA) Standardized Approach (SEC-SA) Market risk capital requirements can be determined under the following approaches: Standardized  Internal models  Internal models involve the use of internal VaR models to measure market risk and determine the appropriate capital requirement. The stressed VaR and incremental risk charge (IRC) also form part of the internal models approach. Operational risk capital requirements can be determined under the following approaches:   Basic indicator approach Standardized approach The comprehensive approach, with supervisory haircuts, is used for credit risk mitigation for repo-style transactions. We use the standardized approach for equity positions in the banking book and both the look-through and mandate-based approaches for equity investments in funds. We use SEC-IRBA, SEC-IAA, SEC-ERBA and SEC-SA for securitization exposures in the banking book. We use the internal models approach to calculate market risk capital. Our internal market risk models comprise VaR, stressed VaR, IRC and a capital charge for risk not captured in VaR. We also use SEC-ERBA for trading book securitization positions. We use the standardized approach based on OSFI rules to calculate operational risk capital. We also calculate a capital floor based on the standardized approaches. If our capital requirement is lower than that calculated by reference to the standardized approaches with a floor adjustment factor applied, currently at 70%, an adjustment to our RWA would be required. 34 CIBC 2021 ANNUAL REPORT Management’s discussion and analysis Continuous enhancement to regulatory capital requirements The BCBS and OSFI have published a number of proposals for changes to the existing regulatory capital requirements to strengthen the regulation, supervision and practices of banks, as well as to respond to changes in market conditions as a result of the COVID-19 pandemic, with the overall objective of enhancing financial stability. The discussion below provides a summary of BCBS and OSFI publications that have been issued since our 2020 Annual Report. OSFI capital ruling On March 15, 2021, OSFI published an update to its July 18, 2020 capital ruling on Limited Recourse Capital Notes (LRCNs). The July 18, 2020 capital ruling assessed LRCNs relative to the eligibility criteria set out in the CAR Guideline, and provided that the LRCNs can qualify as Additional Tier 1 regulatory capital, subject to certain limitations and disclosure requirements. The 2021 revisions provide clarification on the ruling’s conditions and limitations on the permitted investor base, and a cap on the amount of LRCN issuances that may be included in regulatory capital. Refer to the “Capital initiatives” section and Note 16 to the consolidated financial statements for further details related to the LRCNs issued in the fourth quarter of 2021 and 2020. Transitional arrangements for the capital treatment of expected loss provisioning In response to the COVID-19 pandemic, OSFI introduced transitional arrangements for ECL provisioning that are available under the Basel Framework. These transitional arrangements were effective immediately upon being announced by OSFI on March 27, 2020 and resulted in a portion of allowances that would otherwise be included in Tier 2 capital qualifying for inclusion in CET1 capital. The amount of ECL allowances eligible for inclusion in CET1 capital is determined based on the increase in stage 1 and stage 2 allowances relative to balances as at January 31, 2020 as a baseline. This amount is then adjusted for tax effects and is subject to a scaling factor that decreases over time. The scaling factor has been set at 70% for fiscal 2020, 50% for fiscal 2021, and 25% for fiscal 2022. For exposures under the Internal Ratings-Based (IRB) approach, the lower of this amount and excess allowances otherwise eligible for inclusion in Tier 2 capital is included as CET1 capital under the transitional arrangements. Basel III reforms and revised Pillar 3 disclosure requirements On March 27, 2020, the Group of Central Bank Governors and Heads of Supervision (GHOS) announced the deferral of the implementation of the Basel III reforms in order to increase the operational ability of banks and supervisors to respond to the COVID-19 pandemic. On March 27, 2020, OSFI similarly announced that implementation of the Basel III reforms would be delayed consistent with the GHOS announcement. In March and June 2021, OSFI launched public consultations on the implementation of the final Basel III reforms into its capital, leverage and related disclosure guidelines, as well as certain updates to the treatment of credit valuation adjustments (CVA), market risk hedges of other valuation adjustments of over-the-counter derivatives and management of operational risk. OSFI’s proposals are in line with the BCBS standards, with considerations given to the Canadian market. OSFI’s proposed changes include:     Revisions to both the IRB and Standardized Approach to credit risk; Revised operational, market risk, and CVA frameworks; Updated CET1 capital deductions for certain assets; An updated capital output floor based on the revised Standardized Approach noted above, with the phase-in of the floor factor over three years beginning in 2023; and  Modification to the Leverage Ratio framework, including a buffer requirement for D-SIBs. Consistent with the GHOS announcement on March 27, 2020 that the implementation date of the revised Pillar 3 disclosure requirements finalized in December 2018 would be deferred by one year, on March 27, 2020, OSFI also announced that the implementation date for Canadian deposit-taking institutions would be no earlier than November 1, 2022. On November 29, 2021, OSFI announced that the implementation date for these changes is the second quarter of 2023, with the exceptions of revisions to the CVA and market risk frameworks, which will continue to be targeted for the first quarter of 2024. Domestic Stability Buffer In response to the COVID-19 pandemic and market conditions, OSFI had announced an immediate reduction in the DSB requirement from 2.0% to 1.0% for all D-SIBs effective March 13, 2020. After maintaining the DSB at 1.0% since that time, OSFI announced on June 17, 2021 that it will be increased to 2.5% effective October 31, 2021. The 2.5% reflects the highest DSB requirement under OSFI capital requirements. This increases OSFI’s target capital ratios, including all buffers, for CET1, Tier 1 and Total capital to 10.5%, 12.0% and 14.0% respectively. Capital treatment of federal program supporting highly affected sectors On January 27, 2021, OSFI provided direction on the capital treatment of the government-guaranteed loans made under the Business Development Bank of Canada (BDC) HASCAP loan guarantee program. Pursuant to this direction, the loans are considered sovereign risk based on the BDC guarantee, and the relevant risk weight under the CAR Guideline is applied accordingly. The entire amount of the loan is included in the exposure measure used for calculating the leverage ratio. See “Government lending programs in response to COVID-19” for further details. Global systemically important banks – public disclosure requirements On August 13, 2021, OSFI issued revisions to its Advisory: “Global systemically important banks – Public disclosure requirements”. These revisions address changes to the disclosure requirements included in BCBS’s updated global systemically important banks (G-SIB) assessment methodology, as well as providing further guidance on the availability of publicly disclosed G-SIB indicators, and the nature of qualitative information to accompany the disclosures. The updated assessment methodology will take effect for the 2022 G-SIB assessment exercise. Total loss absorbing capacity requirements Beginning in the first quarter of fiscal 2022, D-SIBs will be required to maintain a supervisory target total loss absorbing capacity requirements (TLAC) ratio (which comprises a minimum risk-based TLAC ratio of 21.5% plus the then applicable DSB) and a minimum TLAC leverage ratio of 6.75%. TLAC is required to ensure that a non-viable bank will have sufficient loss absorbing capacity, through its regulatory capital and bail-in eligible instruments, to support its recapitalization. In accordance with the Bank recapitalization (Bail-in) conversion regulations of the Department of Finance (Canada), senior debt issued by D-SIBs on or after September 23, 2018, with an original term to maturity of more than 400 days (including CIBC 2021 ANNUAL REPORT 35 Management’s discussion and analysis explicit or embedded options) that is unsecured or partially secured is subject to bail-in. Consumer deposits, certain derivatives, covered bonds, and certain structured notes are not eligible for bail-in. Other regulatory capital developments Market risk capital On March 16, 2021, OSFI announced that the temporary COVID-19 related reduction of stressed VaR multipliers used in the determination of market risk capital was to be unwound effective May 1, 2021. Leverage ratio exposure On August 12, 2021, OSFI advised that the temporary exclusion of qualifying sovereign-issued securities from the leverage ratio exposure measure that was announced on April 9, 2020, in response to the onset of the COVID-19 pandemic, will end after December 31, 2021. However, central bank reserves will continue to be excluded from the measure. We continue to monitor and prepare for developments impacting regulatory capital requirements and disclosures. Regulatory capital and ratios The components of our regulatory capital and ratios under Basel III are presented in the table below: $ millions, as at October 31 Common Equity Tier 1 (CET1) capital: instruments and reserves Directly issued qualifying common share capital plus related stock surplus Retained earnings AOCI (and other reserves) Common share capital issued by subsidiaries and held by third parties (amount allowed in group CET1) CET1 capital before regulatory adjustments CET1 capital: regulatory adjustments Prudential valuation adjustments Goodwill (net of related tax liabilities) Other intangibles other than mortgage-servicing rights (net of related tax liabilities) Deferred tax assets excluding those arising from temporary differences (net of related tax liabilities) Defined benefit pension fund net assets (net of related tax liabilities) Other deductions or regulatory adjustments to CET1 as determined by OSFI (1) Other Total regulatory adjustments to CET1 capital CET1 capital Additional Tier 1 (AT1) capital: instruments Directly issued qualifying AT1 instruments plus related stock surplus (2) Directly issued capital instruments subject to phase out from AT1 (3) AT1 instruments issued by subsidiaries and held by third parties (amount allowed in AT1) AT1 capital Tier 1 capital (T1 = CET1 + AT1) Tier 2 capital: instruments and provisions Directly issued qualifying Tier 2 instruments plus related stock surplus (4) Directly issued capital instruments subject to phase out from Tier 2 Tier 2 instruments issued by subsidiaries and held by third parties (amount allowed in Tier 2) General allowances Tier 2 capital (T2) Total capital (TC = T1 + T2) Total RWA Capital ratios CET1 ratio Tier 1 capital ratio Total capital ratio 2021 2020 $ 14,461 25,793 1,069 116 41,439 $ 14,025 22,119 1,435 128 37,707 18 4,877 1,737 7 1,051 (209) 207 7,688 24 5,177 1,662 24 206 (592) 330 6,831 33,751 30,876 4,325 251 17 4,593 3,575 302 22 3,899 38,344 34,775 4,945 451 22 440 5,858 5,035 628 29 502 6,194 $ 44,202 $ 40,969 $ 272,814 $ 254,871 12.4 % 14.1 % 16.2 % 12.1 % 13.6 % 16.1 % (1) Beginning in the second quarter of 2020, includes the impact of the ECL transitional arrangement announced by OSFI on March 27, 2020 in response to the onset of the COVID-19 pandemic. The transitional arrangement results in a portion of ECL allowances that would otherwise be included in Tier 2 capital qualifying for inclusion in CET1 capital. The amount is subject to certain adjustments and limitations until 2022. (2) Comprised of non-viability contingent capital (NVCC) preferred shares and LRCN. (3) Comprised of CIBC Tier 1 Notes – Series B due June 30, 2108. On November 1, 2021, CIBC Capital Trust redeemed all $300 million of its Tier 1 Notes – Series B. (4) Comprised of certain debentures which qualify as NVCC. CET1 ratio The CET1 ratio at October 31, 2021 increased 0.3% from October 31, 2020, driven by the increase in CET1 capital partially offset by the impact of an increase in RWA. The increase in CET1 capital was primarily the result of internal capital generation (net income less dividends and distributions). The increase in RWA was primarily due to increases in book size, increased market and operational risk levels, and methodology and parameter updates, partially offset by improved credit quality and the impact of foreign exchange translation. 36 CIBC 2021 ANNUAL REPORT Management’s discussion and analysis Tier 1 capital ratio The Tier 1 capital ratio at October 31, 2021 increased 0.5% from October 31, 2020, primarily due to the factors affecting the CET1 ratio noted above, as well as an issuance of Limited Recourse Capital Notes during the fourth quarter of 2021. See the “Capital initiatives” section below for further details. Total capital ratio The Total capital ratio at October 31, 2021 increased 0.1% from October 31, 2020. Total capital was favourably impacted by the factors affecting the Tier 1 capital ratio noted above, while being unfavourably impacted by a decrease in the applicable cap related to the inclusion of non-qualifying instruments. The unfavourable impact of a redemption of subordinated indebtedness during the first quarter was offset by the issuance of subordinated indebtedness during the second quarter. See the “Capital initiatives” section below for further details. Movement in total regulatory capital Changes in regulatory capital under Basel III are presented in the table below: $ millions, for the year ended October 31 CET1 capital Balance at beginning of year Shares issued in lieu of cash dividends (add back) Other issue of common shares Purchase of common shares for cancellation Premium on purchase of common shares for cancellation Net income attributable to equity shareholders Preferred and common share dividends and distributions Change in AOCI balances included in regulatory capital Net foreign currency translation adjustments Net change in securities measured at FVOCI Net change in cash flow hedges Net change in post-employment defined benefit plans Change in shortfall of allowance to expected losses Change in goodwill and other intangible assets Other, including change in regulatory adjustments (1)(2) CET 1 capital balance at end of year AT1 capital Balance at beginning of year AT1 eligible capital issues Phase-out of innovative Tier 1 notes Redeemed Other, including change in regulatory adjustments (2) AT1 capital balance at end of year Tier 2 capital Balance at beginning of year New Tier 2 eligible capital issues Redeemed Other, including change in regulatory adjustments (2) Tier 2 capital balance at end of year Total capital balance at end of year 2021 2020 $ 30,876 132 326 – – 6,429 (2,780) $ 27,707 144 227 (68) (166) 3,790 (2,714) (1,115) (43) (137) 917 – 225 (1,079) 180 189 161 80 575 194 577 $ 33,751 $ 30,876 $ $ 3,899 750 (51) – (5) 3,144 750 – – 5 $ 4,593 $ 3,899 $ $ 6,194 1,000 (1,000) (336) 5,003 1,000 (32) 223 $ 5,858 $ 6,194 $ 44,202 $ 40,969 (1) Includes the net impact on retained earnings as at November 1, 2019 from the adoption of IFRS 16. See Note 1 to the consolidated financial statements for additional details. (2) Beginning in the second quarter of 2020, includes the impact of the ECL transitional arrangement announced by OSFI on March 27, 2020 in response to the onset of the COVID-19 pandemic. The transitional arrangement results in a portion of ECL allowances that would otherwise be included in Tier 2 capital qualifying for inclusion in CET1 capital. The amount is subject to certain adjustments and limitations until 2022. CIBC 2021 ANNUAL REPORT 37 Management’s discussion and analysis Components of risk-weighted assets The components of our RWA and corresponding minimum total capital requirements are presented in the table below: $ millions, as at October 31 Credit risk (2) Standardized approach Corporate Sovereign Banks Real estate secured personal lending Other retail Trading book Equity Securitization AIRB approach (3) Corporate Sovereign (4) Banks Real estate secured personal lending Qualifying revolving retail Other retail Equity Trading book Securitization Adjustment for scaling factor Other credit RWA (5) Total credit risk (before adjustment for CVA phase-in) Market risk (Internal Models and IRB Approach) VaR Stressed VaR Incremental risk charge Securitization and other Total market risk Operational risk 2021 Minimum total capital 2020 Minimum total capital RWA required (1) RWA required (1) $ 43,768 1,418 382 2,153 976 416 654 768 50,535 92,808 3,125 3,711 22,508 13,636 9,525 564 5,484 1,246 9,082 161,689 12,913 225,137 1,575 3,887 2,583 1,061 9,106 31,397 $ 3,501 113 31 172 78 33 52 61 4,041 7,425 250 297 1,801 1,091 762 45 439 100 727 12,937 1,033 18,011 126 311 206 85 728 2,512 $ 41,836 2,460 326 2,859 939 787 494 1,031 50,732 83,326 2,911 2,995 20,228 14,484 9,022 423 5,200 1,704 8,315 148,608 12,152 211,492 1,309 1,626 2,192 731 5,858 30,319 $ 3,347 197 26 229 75 63 40 82 4,059 6,666 233 240 1,618 1,159 722 34 416 136 665 11,889 972 16,920 105 130 175 58 468 2,426 Total RWA before adjustments for CVA phase-in $ 265,640 $ 21,251 $ 247,669 $ 19,814 CVA capital charge Total RWA Total RWA after adjustments for CVA phase-in Total RWA $ 7,174 $ 574 $ 7,202 $ 576 $ 272,814 $ 21,825 $ 254,871 $ 20,390 (1) Refers to the minimum standard established by the BCBS before the application of the capital conservation buffer and any other capital buffers that may be established by regulators from time to time. It is calculated by multiplying RWA by 8%. (2) Credit risk includes CCR, which comprises derivative and repo-style transactions. Credit risk for CIBC Bank USA and CIBC FirstCaribbean are calculated under the standardized approach. (3) Includes RWA relating to equity investments in funds and certain commercial loans which are determined using the supervisory slotting approach. (4) Includes residential mortgages insured by Canada Mortgage and Housing Corporation (CMHC), an agency of the Government of Canada, and government-guaranteed student loans. (5) Comprises RWA relating to derivative and repo-style transactions cleared through qualified central counterparties (QCCPs), settlement risk, and other assets that are subject to the credit risk framework but are not included in the standardized or IRB frameworks, including other balance sheet assets that are risk-weighted at 100%, significant investments in the capital of non-financial institutions that are risk-weighted at 1250%, and amounts below the thresholds for deduction that are risk-weighted at 250%. The increase in credit risk RWA was primarily due to increases in book size, partially offset by improved credit quality, the impact of foreign exchange translations, and methodology and parameter updates. The increase in market risk RWA was primarily driven by methodology updates, with the COVID-19 relief measures granted in the second quarter of 2020 expiring in the third quarter of 2021 and to a lesser extent by changes and movement in risk levels, which includes changes in open positions and the market rates affecting these positions. The increase in operational risk RWA was driven by changes in the gross income, as defined by OSFI. 38 CIBC 2021 ANNUAL REPORT Management’s discussion and analysis Leverage ratio The Basel III capital standards include a non-risk-based capital metric, the leverage ratio, to supplement risk-based capital requirements. The leverage ratio is defined as Tier 1 capital divided by the leverage ratio exposure. The leverage ratio exposure is defined under the standards as the sum of: (i) On-balance sheet assets less Tier 1 capital regulatory adjustments; (ii) Derivative exposures; (iii) Securities financing transaction exposures; and (iv) Off-balance sheet exposures (such as commitments, direct credit substitutes, letters of credit, and securitization exposures). OSFI expects federally regulated deposit-taking institutions to have leverage ratios that meet or exceed 3.0%. This minimum may be higher for certain institutions at OSFI’s discretion. See the “Continuous enhancement to regulatory capital requirements” section for recently announced capital measures impacting the leverage ratio. $ millions, as at October 31 Tier 1 capital Leverage ratio exposure Leverage ratio 2021 $ 38,344 823,343 2020 $ 34,775 741,760 4.7 % 4.7 % The leverage ratio at October 31, 2021 was comparable with the prior year, as the impact of an increase in Tier 1 capital was offset by the impact of an increase in leverage ratio exposure. The increase in leverage ratio exposure was primarily driven by an increase in on-balance sheet exposures. Capital initiatives On March 13, 2020, following the onset of the COVID-19 pandemic, OSFI imposed temporary measures on federally regulated financial institutions to cease dividend increases and share buybacks in order to ensure that the additional capital available is used to support Canadian lending activities. The temporary measures were lifted by OSFI effective November 4, 2021. The following were the main capital initiatives undertaken since our 2020 Annual Report: Normal Course Issuer Bid (NCIB) We intend to purchase for cancellation up to 10 million common shares, or approximately 2.2% of our outstanding common shares, under a new NCIB, subject to the approval of the TSX. Our previous bid expired on June 3, 2020. Dividends On December 1, 2021, the CIBC Board of Directors approved an increase in our quarterly common share dividend from $1.46 per share to $1.61 per share for the quarter ending January 31, 2022. Common and preferred share dividends are declared quarterly at the discretion of the Board. The declaration and payment of dividends is governed by Section 79 of the Bank Act (Canada), the terms of the preferred shares, and the terms of the Tier 1 notes issued by CIBC Capital Trust, as explained in Notes 16 and 17 to the consolidated financial statements. Employee share purchase plan Pursuant to the employee share purchase plan, we issued 1,180,179 common shares for consideration of $150 million for the year ended October 31, 2021. Shareholder investment plan Pursuant to the shareholder investment plan, we issued 1,011,279 common shares for consideration of $132 million for the year ended October 31, 2021. Limited Recourse Capital Notes Series 2 (LRCN Series 2 Notes) On September 14, 2021, we issued $750 million principal amount of 4.000% Limited Recourse Capital Notes Series 2 (NVCC) (subordinated indebtedness). The LRCN Series 2 Notes mature on January 28, 2082, and bear interest at a fixed rate of 4.000% per annum (paid semi-annually) until January 28, 2027. Starting on January 28, 2027, and every five years thereafter until January 28, 2077, the interest rate will be reset to the then current five-year Government of Canada bond yield plus 3.102% per annum. Concurrently with the issuance of the LRCN Series 2 Notes, we issued Non-Cumulative 5-Year Fixed Rate Reset Class A Preferred Shares Series 54 (NVCC) (the Series 54 Preferred Shares), which are held in a CIBC LRCN Limited Recourse Trust (the Limited Recourse Trust) that is consolidated by CIBC and, as a result, the Series 54 Preferred Shares are eliminated in CIBC’s consolidated financial statements. In the event of non-payment by CIBC of the principal amount of, interest on, or redemption price for, the LRCN Series 2 Notes when due, the sole remedy of each LRCN Series 2 Note holder is limited to that holder’s proportionate share of the Series 54 Preferred Shares held in the Limited Recourse Trust. Subject to regulatory approval, we may redeem the LRCN Series 2 Notes, in whole or in part, every five years during the period from December 28 to and including January 28, commencing on December 28, 2026, at par. The LRCN Series 2 Notes and the Series 54 Preferred Shares carry standard NVCC provisions necessary for them to qualify as Tier 1 regulatory capital under Basel III. Upon the occurrence of a Trigger Event, each Series 54 Preferred Share held in the Limited Recourse Trust will automatically and immediately be converted, without the consent of LRCN Series 2 Note holders, into a variable number of common shares that will be delivered to LRCN Series 2 Note holders in satisfaction of the principal amount of, and accrued and unpaid interest on, all of the LRCN Series 2 Notes. All claims of LRCN Series 2 Note holders against CIBC under the LRCN Series 2 Notes will be extinguished upon receipt of such common shares. The LRCN Series 2 Notes are compound instruments with both equity and liability features as payments of interest and principal in cash are made at our discretion, as the sole recourse of each LRCN Series 2 Note holder in the event of non-payment will be limited to that holder’s proportionate share of the Series 54 Preferred Shares held in the Limited Recourse Trust. The liability component of the LRCN Series 2 Notes has a nominal value and, as a result, the full proceeds received upon the issuance of the LRCN Series 2 Notes have been presented as equity on the consolidated balance sheet and any interest payments paid thereon are accounted for as equity distributions. CIBC 2021 ANNUAL REPORT 39 Management’s discussion and analysis Subordinated indebtedness On January 26, 2021, we redeemed all $1.0 billion of our 3.42% Debentures due January 26, 2026. In accordance with their terms, the Debentures were redeemed at 100% of their principal amount, plus accrued and unpaid interest thereon. On April 21, 2021, we issued $1.0 billion principal amount of Debentures due April 21, 2031 (subordinated indebtedness). The Debentures bear interest at a fixed rate of 1.96% per annum (paid semi-annually) until April 21, 2026, and at the three-month Canadian dollar bankers’ acceptance rate plus 0.56% per annum (paid quarterly) thereafter until maturity on April 21, 2031. CIBC Tier 1 Notes On November 1, 2021, CIBC Capital Trust, a trust wholly owned by CIBC, redeemed all $300 million of its 10.25% CIBC Tier 1 Notes – Series B (the “Tier 1 Notes – Series B”) due June 30, 2108. In accordance with their terms, the Tier 1 Notes – Series B were redeemed at 100% of their principal amount, together with accrued and unpaid interest up to but excluding the redemption date. As a result of the redemption of the Notes by CIBC Capital Trust, CIBC redeemed the corresponding senior deposit notes issued by CIBC to CIBC Capital Trust on November 1, 2021. Outstanding share data The table below provides a summary of our outstanding shares, NVCC capital instruments, and the maximum number of common shares issuable on conversion/exercise: $ millions, except number of shares and per share amounts, as at November 26, 2021 Common shares Treasury shares – common shares Preferred shares (1)(2) Series 39 (NVCC) Series 41 (NVCC) Series 43 (NVCC) Series 45 (NVCC) Series 47 (NVCC) Series 49 (NVCC) Series 51 (NVCC) Treasury shares – preferred shares (1)(2) Limited recourse capital notes (2)(3) 4.375% Limited recourse capital notes Series 1 (NVCC) 4.000% Limited recourse capital notes Series 2 (NVCC) Subordinated indebtedness (2)(4) 3.45% Debentures due April 4, 2028 (NVCC) 2.95% Debentures due June 19, 2029 (NVCC) 2.01% Debentures due July 21, 2030 (NVCC) 1.96% Debentures due April 21, 2031 (NVCC) Stock options outstanding Shares outstanding Number of shares Amount 450,917,565 76,771 $ 14,363 12 $ 16,000,000 12,000,000 12,000,000 32,000,000 18,000,000 13,000,000 10,000,000 (20) n/a n/a n/a n/a n/a n/a 400 300 300 800 450 325 250 – 750 750 1,500 1,500 1,000 1,000 Minimum conversion price per common share Maximum number of common shares issuable on conversion/exercise $ 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 80,000,000 60,000,000 60,000,000 160,000,000 90,000,000 65,000,000 50,000,000 150,000,000 150,000,000 450,000,000 450,000,000 300,000,000 300,000,000 5,134,436 (1) Upon the occurrence of a Trigger Event, each share is convertible into a number of common shares, determined by dividing the par value of $25.00 plus declared and unpaid dividends by the average common share price (as defined in the relevant prospectus supplement) subject to a minimum price per share (subject to adjustment in certain events as defined in the relevant prospectus supplement). Preferred shareholders do not have the right to convert their shares into common shares. (2) The maximum number of common shares issuable on conversion excludes the impact of declared but unpaid dividends and accrued interest. (3) Upon the occurrence of a Trigger Event, the Series 53 and 54 Preferred Shares held in the Limited Recourse Trust in support of the corresponding LRCN Notes are convertible into a number of common shares, determined by dividing the par value of $1,000 by the average common share price (as defined in the relevant prospectus supplement) subject to a minimum price per common share (subject to adjustment in certain events as defined in the relevant prospectus supplement). See Note 16 to the consolidated financial statements for details on our preferred share and other equity instruments rights and privileges. (4) Upon the occurrence of a Trigger Event, the Debentures are convertible into a number of common shares, determined by dividing 150% of the par value plus accrued and unpaid interest by the average common share price (as defined in the relevant prospectus supplement) subject to a minimum price per common share (subject to adjustment in certain events as defined in the relevant prospectus supplement). n/a Not applicable. The occurrence of a “Trigger Event” would result in conversion of all of the outstanding NVCC instruments described above, which would represent a dilution impact of 84% based on the number of CIBC common shares outstanding as at October 31, 2021. As described in the CAR Guideline, a Trigger Event occurs when OSFI determines the bank is or is about to become non-viable and, if after conversion of all contingent instruments and consideration of any other relevant factors or circumstances, it is reasonably likely that its viability will be restored or maintained; or if the bank has accepted or agreed to accept a capital injection or equivalent support from a federal or provincial government, without which OSFI would have determined the bank to be non-viable. In addition to the potential dilution impacts related to the NVCC instruments discussed above, as at October 31, 2021, $32,643 million (2020: $19,925 million) of our outstanding liabilities were subject to conversion to common shares under the bail-in regime. Under the bail-in regime, there is no fixed and pre-determined contractual conversion ratio for the conversion of the specified eligible shares and liabilities of CIBC that are subject to a bail-in conversion into common shares, nor are there specific requirements regarding whether liabilities subject to a bail-in conversion are converted into common shares of CIBC or any of its affiliates. CDIC determines the timing of the bail-in conversion, the portion of the specified eligible shares and liabilities to be converted and the terms and conditions of the conversion, subject to parameters set out in the bail-in regime. See the “Total loss absorbing capacity requirements” section for further details. Preferred share and other equity instruments rights and privileges See Note 16 to the consolidated financial statements for details on our preferred share and other equity instruments rights and privileges. 40 CIBC 2021 ANNUAL REPORT Management’s discussion and analysis Off-balance sheet arrangements We enter into off-balance sheet arrangements in the normal course of our business. We consolidate all of our sponsored trusts that securitize our own assets. Non-consolidated structured entities (SEs) We manage and administer a single-seller conduit and several CIBC-sponsored multi-seller conduits in Canada. The multi-seller conduits acquire direct or indirect ownership or security interests in pools of financial assets from our clients and finance the acquisitions by issuing asset-backed commercial paper (ABCP) to investors. The single-seller conduit acquires financial assets and finances these acquisitions through a credit facility provided by a syndicate of financial institutions. The sellers to the conduits may continue to service the assets and may be exposed to credit losses realized on these assets, typically through the provision of over-collateralization or another form of credit enhancement. The conduits may obtain credit enhancement from third-party providers. We generally provide the multi-seller conduits with commercial paper backstop liquidity facilities, securities distribution, and provide both the single and multi-seller conduits with accounting, cash management, and operations services. The liquidity facilities for the managed and administered multi-seller conduits require us to provide funding, subject to the satisfaction of certain conditions with respect to the conduits, for ABCP not placed with external investors. We may also purchase ABCP issued by the multi-seller conduits for market-making purposes. We are required to maintain certain short-term and/or long-term debt ratings with respect to the liquidity facilities that we provide to the sponsored multi-seller conduits. If we are downgraded below the level specified under the terms of those facilities, we must provide alternative satisfactory liquidity arrangements, such as procuring an alternative liquidity provider that meets the minimum rating requirements. We may also act as the counterparty to derivative contracts entered into by a multi-seller conduit in order to convert the yield of the underlying assets to match the needs of the multi-seller conduit’s investors or to mitigate the interest rate, basis, and currency risk within the conduit. We earn fees for providing services related to the non-consolidated single-seller and multi-seller conduits, such as backstop liquidity facilities, distribution, transaction structuring, and conduit administration. These fees totalled $71 million in 2021 (2020: $65 million). All fees earned in respect of activities with the conduits are on a market basis. As at October 31, 2021, the amount funded for the various asset types in the multi-seller conduits amounted to $7.5 billion (2020: $8.4 billion). The estimated weighted-average life of these assets was 2.0 years (2020: 2.0 years). Our holdings of commercial paper issued by the non- consolidated sponsored multi-seller conduits that offer commercial paper to external investors were $35 million (2020: $12 million). Our committed backstop liquidity facilities to these conduits were $10.6 billion (2020: $10.5 billion). We also provided credit facilities of $50 million (2020: $50 million) to these conduits. We participated in a syndicated facility for a three-year commitment, with two years remaining, of $700 million to the single-seller conduit that provides funding to franchisees of a major Canadian retailer. Our portion of the commitment was $130 million (2020: $130 million), of which $106 million (2020: $95 million) was funded as at October 31, 2021. We engage one or more of the four major rating agencies, DBRS Limited (DBRS), Fitch Ratings Inc. (Fitch), Moody’s Investors Service, Inc. (Moody’s), and S&P, to opine on the credit ratings of asset-backed securities (ABS) issued by our sponsored securitization vehicles. In the event that ratings differ between rating agencies, we use the lower rating. We also have investments in and provide loans, liquidity and credit facilities to certain other third-party and CIBC-managed SEs. The on- balance sheet exposure related to these SEs is included in the consolidated financial statements. Our on- and off-balance sheet amounts related to the SEs that are not consolidated are set out in the table below. For additional details on our SEs, see Note 7 to the consolidated financial statements. $ millions, as at October 31 2021 Investments and loans (1) Liquidity, credit facilities and commitments Written credit Investments derivatives (2) and loans (1) Liquidity, credit facilities and commitments 2020 Written credit derivatives (2) Single-seller and multi-seller conduits Third-party structured vehicles Loan warehouse financing Other $ 141 3,838 3,245 394 $ 7,539 (3) 2,016 921 129 $ – – – 87 $ 107 3,165 395 343 $ 8,390 (3) 2,517 363 153 $ – – – 130 (1) Excludes securities issued by, retained interest in, and derivatives with entities established by CMHC, Federal National Mortgage Association, Federal Home Loan Mortgage Corporation, Government National Mortgage Association, Federal Home Loan Banks, Federal Farm Credit Bank, and Student Loan Marketing Association. $3 million (2020: $3 million) of the exposures related to structured vehicles run-off were hedged. (2) Disclosed amounts reflect the outstanding notional of written credit derivatives. The negative fair value recorded on the consolidated balance sheet was $54 million (2020: $107 million). Notional of $82 million (2020: $123 million) was hedged with credit derivatives protection from third parties. The fair value of these hedges net of CVA was $49 million (2020: $98 million). An additional notional of $5 million (2020: $7 million) was hedged through a limited recourse note. (3) Excludes an additional $3.0 billion (2020: $2.1 billion) relating to our backstop liquidity facilities provided to the multi-seller conduits as part of their commitment to fund purchases of additional assets. Also excludes $35 million (2020: $12 million) of our direct investments in the multi-seller conduits which we consider investment exposure. CIBC 2021 ANNUAL REPORT 41 Management’s discussion and analysis Other financial transactions We are the sponsor of several mutual and pooled funds, in the form of trusts. We are the administrator of these funds. In addition, we may act in other capacities, including custodian, trustee, and broker. We earn fees at market rates from these trusts. We do not guarantee either principal or returns to investors in these funds. We act as a trustee of a number of personal trusts and have a fiduciary responsibility to act in the best interests of the beneficiaries of the trusts. We earn a fee for acting as a trustee. We also participate in transactions to modify the cash flows of trusts managed by third-party asset managers to create investments with specific risk profiles, or to assist clients in the efficient management of other risks. Typically, these involve the use of derivative products, which transfer the risks and returns to or from a trust. Derivatives We participate in derivatives transactions, as a market maker facilitating the needs of our clients or as a principal to manage the risks associated with our funding, investing and trading strategies. All derivatives are recorded at fair value on our consolidated balance sheet. See Notes 13 and 24 to the consolidated financial statements for details on derivative contracts and the risks associated with them. Credit-related arrangements Credit-related arrangements are generally off-balance sheet instruments and are typically entered into to meet the financing needs of clients. In addition, there are certain exposures for which we could be obligated to extend credit that are not recorded on the consolidated balance sheet. For additional details of these arrangements, see the “Liquidity risk” section and Note 22 to the consolidated financial statements. Guarantees A guarantee is a contract that requires the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor failed to make payment when due in accordance with the original or modified terms of a debt instrument. Guarantees include credit derivatives protection sold and standby and performance letters of credit, as discussed in Notes 13 and 22 to the consolidated financial statements, respectively. 42 CIBC 2021 ANNUAL REPORT Management’s discussion and analysis Management of risk We have provided certain disclosures required under IFRS 7 “Financial Instruments – Disclosures” (IFRS 7) related to the nature and extent of risks arising from financial instruments in the MD&A, as permitted by that IFRS standard. These disclosures are included in the “Risk overview”, “Credit risk”, “Market risk”, “Liquidity risk”, “Operational risk”, “Reputation and legal risks”, “Conduct risk”, and “Regulatory compliance risk” sections. 43 Risk overview 44 Risk governance structure 45 Risk management structure 46 Risk management process 46 Risk appetite statement 47 Risk input into performance and compensation 47 Risk policies and limits 48 Risk identification and measurement 49 49 Risk treatment and mitigation 49 Risk monitoring and reporting Stress testing 50 Top and emerging risks 53 Risks arising from business activities 54 Credit risk 54 Governance and management 54 Policies Process and control Exposure to credit risk 55 56 Risk measurement 58 60 Credit quality of portfolios 63 Credit quality performance 64 Loans contractually past due but not impaired Exposure to certain countries and regions Settlement risk Securitization activities 64 65 65 Policies 66 Market risk 66 Governance and management 66 66 Market risk limits 66 66 Risk measurement 67 Process and control Trading activities 70 Non-trading activities 71 Pension risk Policies Liquidity risk 72 72 Governance and management 72 72 Risk measurement Liquid assets 73 76 Funding 78 Contractual obligations Environmental and related social risk Strategic risk 79 Other risks 79 79 Operational risk 81 81 Regulatory compliance risk 82 82 Reputation and legal risks 82 Conduct risk Insurance risk Risk overview CIBC faces a wide variety of risks across all of its areas of business. Identifying and understanding risks and their impact allows CIBC to frame its risk appetite and risk management practices. Defining acceptable levels of risk, and establishing sound principles, policies and practices for managing risks, is fundamental to achieving consistent and sustainable long-term performance, while remaining within our risk appetite. Our risk appetite defines tolerance levels for various risks. This is the foundation for our risk management culture and our risk management framework. Our risk management framework includes:        CIBC, SBU, functional group-level and regional risk appetite statements; Risk frameworks, policies, procedures and limits to align activities with our risk appetite; Regular risk reports to identify and communicate risk levels; An independent control framework to identify and test the design and operating effectiveness of our key controls; Stress testing to consider the potential impact of changes in the business environment on capital, liquidity and earnings; Proactive consideration of risk mitigation options in order to optimize results; and Oversight through our risk-focused committees and governance structure. Managing risk is a shared responsibility at CIBC. Business units and risk management professionals work in collaboration to ensure that business strategies and activities are consistent with our risk appetite. CIBC’s approach to enterprise-wide risk management aligns with the three lines of defence model: (i) As the first line of defence, CIBC’s SBUs and functional groups own the risks and are accountable and responsible for identifying and assessing risks inherent in their activities in accordance with the CIBC risk appetite. In addition, they establish and maintain controls to mitigate such risks. The first line of defence may include governance groups within the relevant area to facilitate the control framework and other risk-related processes. Control groups provide subject matter expertise to the business lines and/or implement and maintain enterprise-wide control programs and activities. While control groups collaborate with the lines of business in identifying and managing risk, they also challenge risk decisions and risk mitigation strategies. The second line of defence is independent from the first line of defence and provides an enterprise-wide view of specific risk types, guidance and effective challenge to risk and control activities. Risk Management is the primary second line of defence. Risk Management may leverage or rely on subject matter expertise of other groups (e.g., third parties or control groups) to better inform their independent assessments, as appropriate. (ii) (iii) As the third line of defence, CIBC’s internal audit function provides reasonable assurance to senior management and the Audit Committee of the Board on the effectiveness of CIBC’s governance practices, risk management processes, and internal controls as a part of its risk- based audit plan and in accordance with its mandate as described in the Internal Audit Charter. A strong risk culture and communication between the three lines of defence are important characteristics of effective risk management. We continuously monitor our risk profile against our defined risk appetite and related limits, taking action as needed to maintain an appropriate balance of risk and return. Monitoring our risk profile includes forward-looking analysis of sensitivity to local and global market factors, economic conditions, and geo-political and regulatory environments that influence our overall risk profile. Regular and transparent risk reporting and discussion at senior management committees facilitates communication of risks and discussion of risk management strategies across the organization. CIBC 2021 ANNUAL REPORT 43 Management’s discussion and analysis Risk governance structure Our risk governance structure is illustrated below: Risk Governance Structure Board of Directors h t e r sig v o n ala tio s c e Audit Committee Risk Management Committee Management Resources and Compensation Committee Corporate Governance Committee c ulture Executive Committee fra m e w ork Global Asset Liability Committee Global Risk Committee Board of Directors (the Board): The Board oversees the enterprise-wide risk management program through approval of our risk appetite, control framework and supporting risk management policies and limits. The Board accomplishes its mandate through its Audit, Risk Management, Management Resources and Compensation, and Corporate Governance committees, described below. Audit Committee (AC): The Audit Committee reviews the overall design and operating effectiveness of internal controls and the control environment, including controls over the risk management process. Risk Management Committee (RMC): This committee assists the Board in fulfilling its responsibilities for defining CIBC’s risk appetite and overseeing CIBC’s risk profile and performance against the defined risk appetite. This includes oversight of key frameworks, policies and risk limits related to the identification, measurement, monitoring and mitigation of CIBC’s principal business risks. Management Resources and Compensation Committee (MRCC): This committee is responsible for assisting the Board in its global oversight of CIBC’s human capital strategy, including talent and total rewards, and the alignment with CIBC’s strategy, risk appetite and controls. Corporate Governance Committee (CGC): This committee is responsible for assisting the Board in fulfilling its corporate governance oversight responsibilities. Executive Committee (ExCo): The ExCo, led by the Chief Executive Officer (CEO) and including selected executives reporting directly to the CEO, is responsible for setting business strategy and for monitoring, evaluating and managing risks across CIBC. The ExCo is supported by the following management governance committees:  Global Asset Liability Committee (GALCO): This committee, which comprises members from the ExCo and senior Treasury, Risk Management and lines of business executives, provides oversight regarding capital management, funding and liquidity management, and asset/liability management. It also provides strategic direction regarding structural interest rate risk and structural foreign exchange risk postures, approval of funds transfer pricing policies/parameters and approval of wholesale funding plans. Global Risk Committee (GRC): This committee, which comprises selected members of the ExCo and senior leaders from the lines of business, Risk Management and other functional groups, provides a forum for discussion and oversight of risk appetite, risk profile and risk-mitigation strategies. Key activities include reviewing and providing input regarding CIBC’s risk appetite statements; monitoring risk profile against risk appetite; reviewing and evaluating business activities in the context of risk appetite; and identifying, reviewing, and advising on current and emerging risk issues and associated mitigation plans.  44 CIBC 2021 ANNUAL REPORT Management’s discussion and analysis Risk management structure The Risk Management group, led by our Chief Risk Officer (CRO), is responsible for setting risk strategies and for providing independent oversight of the businesses. Risk Management works to identify, assess, mitigate, monitor and control risks associated with business activities and strategies, and is responsible for providing an effective challenge to the lines of business. The current structure is illustrated below: Risk Management Structure Chief Risk Officer Capital Markets Risk Management Global Credit Risk Management (including non-U.S. Risk Officers) Global Operational Risk Management Risk Analytics and Credit Decisioning Enterprise Risk Management Compliance and Global Regulatory Affairs Enterprise Anti-Money Laundering U.S. Risk Management Risk Appetite and Management Control Metrics Risk Policies and Limits Risk Identification, Measurement, Monitoring and Reporting Effective Challenge as Second Line of Defence Stress Testing Risk Treatment and Mitigation The Risk Management group performs several important activities including:        Developing our risk appetite and associated management control metrics; Setting risk strategy to manage risks in alignment with our risk appetite and business strategy; Establishing and communicating risk frameworks, policies, procedures and limits to mitigate risks in alignment with risk strategy; Measuring, monitoring and reporting on risk levels; Identifying and assessing emerging and potential strategic risks; Reviewing transactions that fall outside of risk limits delegated to business lines; and Ensuring compliance with applicable regulatory and anti-money laundering (AML) requirements. The following key groups within Risk Management, independent of the originating businesses, contribute to our management of risk:  Capital Markets Risk Management – This group provides independent oversight of the measurement, monitoring and control of market risks (both trading and non-trading), and trading credit risk (also called counterparty credit risk) across CIBC’s portfolios, and effective challenge and sound risk management oversight to Treasury, including with respect to liquidity and funding risk management and structural interest rate risk management. Global Credit Risk Management – This group is responsible for the adjudication and oversight of credit risks associated with our commercial, corporate and wealth management activities, management of the risks in our investment portfolios, as well as management of special loan portfolios. Global Operational Risk Management – This group is responsible for designing and implementing effective operational risk management and control programs, and providing effective challenge to and monitoring of all operational risks globally, including (but not limited to) technology risk, information security risk, fraud risk, model risk, and third-party risk. In addition, the team has global accountability for corporate risk insurance programs, reputation risks, risk policy and governance, and risk transformation programs. Risk Analytics and Credit Decisioning – This group manages credit risk in personal and business products (such as residential mortgages, credit cards, personal loans/lines of credit, small business loans) offered through various distribution channels and performs analytics to optimize retail credit performance, along with collections and AML outcomes. Enterprise Risk Management – This group is responsible for enterprise-wide analysis, including the measuring and monitoring of risk appetite, enterprise-wide stress testing and reporting, credit loss reporting, risk models and model quantification, economic and regulatory capital methodologies, as well as risk data management. In addition, this group identifies and manages environmental risk, including transaction- specific environmental and related social risk, and the physical and transition risks associated with climate change. Compliance and Global Regulatory Affairs – This group is responsible for designing and implementing an effective enterprise-wide framework to manage and mitigate regulatory compliance risk. In addition, it provides oversight of conduct and culture risk (including sales practice risk), performs effective challenge on compensation plan changes, and conducts examinations on business units/activities using a risk-based approach. This group also builds and maintains credible relationships with our prudential, market, conduct and securities regulators and acts as a liaison between the regulators and CIBC.      CIBC 2021 ANNUAL REPORT 45 Management’s discussion and analysis   Enterprise Anti-Money Laundering – This group is responsible for all aspects of compliance with and oversight of requirements relating to AML, anti-terrorist financing (ATF), and sanctions measures. Enterprise Anti-Money Laundering provides advice to all businesses and functional groups globally and is responsible for providing an enterprise-wide view of money laundering, terrorist financing and sanctions risks, as well as guidance and effective independent challenge to control activities. Furthermore, Enterprise Anti-Money Laundering executes a risk-based approach to deter, detect and report suspected money laundering, terrorist financing and sanctioned activities, in accordance with their policies and supporting standards. U.S. Risk Management – This group carries out the mandate of CIBC Risk Management at a regional level under the leadership of the U.S. CRO, with oversight from the Risk Management Committee of the Board and the Risk Committees of the Boards of CIBC Bank USA and CIBC Bancorp USA Inc. The group provides independent oversight for the identification, management, measurement, monitoring and mitigation of risks in the U.S. Commercial Banking and Wealth Management SBU. Risk management process Our risk management process is illustrated below: g n i t r o p e R Risk Management Process Risk Appetite Statement Risk Policies and Limits Risk Identification and Measurement Stress Testing Risk Treatment / Mitigation w e i v e R d n a r o t i n o M Risk appetite statement Our risk appetite statement defines the amount of risk we are willing to assume in pursuit of our strategic and financial objectives. Our guiding principle is to practice sound risk management, supported by strong capital and funding positions, as we pursue our client-focused strategy. In defining our risk appetite, we take into consideration our purpose, vision, values, strategy and objectives, along with our risk capacity (defined by regulatory constraints). It defines how we conduct business, which is to be consistent with the following objectives:          Safeguarding our reputation and brand; Doing the right thing for our clients/stakeholders; Engaging in client-oriented businesses that we understand; Make our client’s goals our own in a professional and radically simple manner; Maintaining a balance between risk and returns; Retaining a prudent attitude towards tail and event risk; Meeting regulatory expectations and/or identifying and having plans in place to address any issues in a timely manner; Achieving/maintaining an AA rating; and Meeting/exceeding stakeholders’ expectations with respect to the ESG criteria including achieving net zero greenhouse gas emissions. Our risk appetite statement contains metrics with limits that define our risk tolerance levels. In addition, we have SBU, functional group and regional risk appetite statements that are integrated with our overall risk appetite statement that further articulate our business level risk tolerances. Our risk appetite statement is reviewed annually in conjunction with our strategic, financial and capital planning cycle to ensure alignment and is approved annually by the Board. To help ensure CIBC stays within its risk appetite, the Board, RMC, and senior management regularly receive and review reporting on our risk profile against the risk appetite limits. All strategic business decisions, as well as day-to-day business decisions, are governed by our risk appetite framework. Strategic decisions are evaluated to ensure that the risk exposure is within our risk appetite. Day-to-day activities and decisions are governed by our framework of risk tolerance limits, policies, standards and procedures that support our risk appetite statement. Risk culture Risk culture refers to desired attitudes and behaviours relative to risk taking. At CIBC, we strive to achieve a consistent and effective risk culture by:     Promoting, through both formal and informal channels, a shared accountability of risk identification, management and mitigation; Cultivating an environment of transparency, open communication and robust discussion of risk; Setting the appropriate “tone at the top” through clear communication and reinforcement; and Identifying behaviours that are and are not aligned with risk appetite, and reinforcing appropriate behaviours. Every year, all employees are required to complete formal training on risk appetite, reputation risk, operational risk, code of conduct, AML and other key risk topics. By taking this mandatory training, all employees develop a basic knowledge of risk management in support of our risk culture. This training is supplemented by our risk appetite statement, risk management priorities and documents on our internal website. In addition, we have policies, procedures and limits in place that govern our day-to-day business activity, with escalation procedures for limit breaches outlined accordingly. 46 CIBC 2021 ANNUAL REPORT Management’s discussion and analysis Risk input into performance and compensation Throughout the year, the Risk Management team manages various compensation risk reviews. These reviews are part of the second line of defence responsibilities to review and challenge new compensation plans, changes to existing compensation plans, compensation plans that will be closed and periodic review of unchanged compensation plans. All compensation plans are rated as either high-risk or low-risk with high-risk compensation plans requiring approval from the CRO. At each year-end, Risk Management provides an assessment of adherence to risk appetite and material risk matters across CIBC. Risk Management also considers a number of risk inputs to identify matters that may directly impact individual compensation awards and/or performance ratings. Annually, Risk Management reviews the assessment with both the RMC and the MRCC. The MRCC oversees the performance management and compensation process and is responsible for assisting the Board in its global oversight of CIBC’s human capital strategy, including talent and total rewards, and the alignment with CIBC’s strategy, risk appetite and controls. The MRCC’s oversight of human capital strategy includes inclusion and diversity, employee health, safety and wellbeing and other ESG practices related to their mandate. The MRCC’s key compensation-related responsibilities include:      Approving CIBC’s compensation philosophy and any material changes to CIBC’s compensation principles or practices; Approving new material compensation policies and material changes to existing material compensation policies; Reviewing and recommending for Board approval new material compensation plans or changes to existing material compensation plans; Assessing the appropriateness and alignment of compensation relative to actual business performance and risks; Reviewing and recommending for Board approval incentive compensation funding and allocations, based on an assessment of business performance and risk; Reviewing and recommending for Board approval individual compensation target and compensation for the ExCo, including the CEO and other key officers; and Approving individual compensation for employees with total direct compensation above a certain materiality threshold.   Risk policies and limits Our risk policies and limits framework is intended to ensure that risks are appropriately identified, measured, monitored and controlled in accordance with our risk appetite. For most risks, we have developed an overarching framework document that sets out the key principles for managing the associated risks and our key risk policies and limits. This framework is supported by standards, guidelines, processes, procedures and controls that govern day-to-day activities in our businesses. Oversight is provided by management committees, as well as the Board/Board committees. Key risk policies and limits are illustrated below: Risk Management Framework Risk Appetite Statement and Risk Appetite Framework Risk Credit Market Operational Overarching Framework / Policy Credit Risk Management Policy Trading Credit Risk Management Policy Market Risk Management Policy Structural Risk Management Policies Operational Risk Management Policy Control Framework Conduct and Culture Risk Framework Risk Limits Management Oversight Credit Concentration Limits Delegated Credit Approval Authorities Trading Credit Risk Limits Market Risk Limits Delegated Risk Authorities Key Risk Indicators Credit Committee Personal and Business Banking Credit Risk Committee Global Risk Committee Traded Risk Committee Global Risk Committee Global Asset Liability Committee Traded Risk Committee Operational Risk and Control Committee Global Risk Committee Technology Operational Risk Committee Model and Parameter Risk Committee Corporate Governance Committee Traded Risk Committee Third Party Risk Council Executive Fraud Risk Council Reputation Liquidity Reputation Risk Management Framework and Policy Key Risk Indicators Reputation and Legal Risks Committee Liquidity Risk Management Policy Pledging Policy Liquidity and Funding Limits Pledging Limits Global Asset Liability Committee Global Risk Committee Strategic Strategic Planning Policy Risk Appetite Statement Executive Committee Regulatory Regulatory Compliance Management Policy Enterprise Anti-Money Laundering Framework and Enterprise Anti-Money Laundering and Anti-Terrorist Financing Policy Key Risk Indicators Global Risk Committee Risk Appetite Statement Key AML Metrics AML Executive Steering Committee CIBC 2021 ANNUAL REPORT 47 Management’s discussion and analysis Risk identification and measurement Risk identification and measurement are important elements of our risk management framework. Risk identification is a continuous process, generally achieved through:      Regular assessment of risks associated with lending and trading credit exposures; Ongoing monitoring of trading and non-trading portfolios; Assessment of risks in new business activities and processes; Assessment of risks in complex and unusual business transactions; and Regular monitoring of the overall risk profile considering market developments and trends, and external and internal events. Risk Management maintains a “Risk Register” to list all material risks facing CIBC. The inventory is based on the risks inherent in our businesses and updated through various processes, illustrated in the following chart, to reflect changes in the nature of the risks we are facing. The Risk Register is used to support our ICAAP, either explicitly in the economic and regulatory capital calculations, or implicitly through the buffer of actual capital over economic capital and regulatory capital. Risk Identification Processes Risks Inherent in CIBC s Businesses ’ ’ Strategic Business Reviews Change Initiative Risk Assessment Process Risk and Control Self Assessments Strategic and Emerging Risk Themes External and Peer Benchmarking Regulatory Reviews Macro and External Risks Assessment of Risk Level (probability / severity considerations) Risk Register Internal Capital Adequacy Assessment Process (ICAAP) The decision to register a new risk is based on a risk assessment through our risk identification processes and includes criteria such as severity, measurability and probability. Furthermore, the decision to hold capital for a new risk is also based on whether the risk is being mitigated, and whether capital is deemed to be a suitable mitigant. We have enterprise-wide methodologies, models and techniques in place to measure both the quantitative and qualitative aspects of risks, appropriate for the various types of risks we face. These methodologies, models and techniques are subject to independent assessment and review to ensure that the underlying logic remains sound, that model risks have been identified and managed, that use of the models continues to be appropriate and outputs are valid. Risk is usually measured in terms of expected loss, unexpected loss, and economic capital. Expected loss Expected loss represents the loss that is statistically expected to occur in the normal course of business, with adjustments for conservatism, in a given period of time. In respect of credit risk, the parameters used to measure expected loss are PD, LGD and EAD. These parameters are updated regularly and are based on our historical experience through the cycle and benchmarking of credit exposures. Unlike the PD, LGD and EAD parameters used for calculating ECL on our consolidated financial statements, the PD, LGD and EAD parameters used for regulatory capital purposes are not adjusted for forward-looking information. For trading market risks, VaR is a statistical technique used to measure risk. VaR is an estimate of the loss in market value for a given level of confidence that we would expect to incur in our trading portfolio due to an adverse one-day movement in market rates and prices. We also use stressed VaR to replicate our VaR over a period when relevant market factors are in distress. For trading credit risks associated with market value based products, we use models to estimate exposure relative to the value of the portfolio of trades with each counterparty, giving consideration to market rates and prices. Unexpected loss and economic capital Unexpected loss is the statistical estimate of the amount by which actual losses might exceed expected losses over a specified time horizon, computed at a given confidence level. We use economic capital to estimate the level of capital needed to protect us against unexpected losses. Economic capital allows us to assess performance on a risk-adjusted basis. We also use techniques such as sensitivity analysis and stress testing to help ensure that the risks remain within our risk appetite and that our capital is adequate to cover those risks. Our stress testing program includes evaluation of the potential effects of various economic and market scenarios on our risk profile, earnings and capital. Refer to the “Capital management” section for additional details. Model risk management Model risk management encompasses sound development, independent validation, and ongoing monitoring and review of the models as well as governance and controls that are proportionate to the risks. Our model inventory includes, but is not limited to, models that relate to risk measurement (including VaR, economic and regulatory capital), pricing, credit risk rating and scoring models, credit models for the calculation of loss severity and stress testing, and models for the calculation of ECL under IFRS 9. CIBC’s approach to provide effective governance and oversight for model risk management comprises the following key elements: 48 CIBC 2021 ANNUAL REPORT Management’s discussion and analysis    Governance and oversight by management committees, including the Model and Parameter Risk Committee (MPRC), senior management and the Board; Policies, procedures and standards to outline applicable roles and responsibilities of the various oversight groups and to provide guidance to identify, measure, control and monitor model risk throughout the model’s life cycle; and Controls for key operational aspects of model risk management including maintaining a model inventory, model risk ranking, model risk attestation and ongoing monitoring and reporting. The MPRC is a subcommittee of the GRC and is responsible for reviewing and approving proposals for new and/or modified regulatory, economic capital and financial reporting models and provides oversight of CIBC’s regulatory, economic capital and financial reporting models and parameters for credit, market and operational risks. The MPRC has accountability and responsibility for model and parameter approvals, parameter performance monitoring, validation oversight, and policy oversight. Model risk mitigation policies We have policies, procedures, standards and controls to ensure effective model risk management for CIBC. A model review and validation is the independent effective challenge that documents the model risk and ensures models are sound and we can rely on their output. The model review and validation process includes:      Review of model documentation; Comprehensive, systematic testing of key model parameters on implementation to ensure results are as expected; Replication of the risk quantification process to determine whether the model implementation is faithful to the model specifications; Review of whether the model/parameter concepts and assumptions are appropriate and robust; Accuracy testing to assess the calibration and accuracy of the risk components including, for example, the discriminative power of rating systems and the reasonableness of capital parameters; Sensitivity testing to analyze the sensitivity of model/parameter outputs to model/parameter assumptions and key inputs; Scenario and stress testing of the model outputs to key inputs; Back-testing by comparing actual results with model-generated risk measures; Benchmarking to other models and comparable internal and external data; Review of the internal usage of the model/parameter applications to ensure consistency of application; Reporting of model status to the MPRC, supported through an up-to-date inventory of regulatory models and parameters; A quarterly attestation process for model owners in order to ensure compliance with the Model Risk and Validation Policy; and A comprehensive validation report that identifies the conditions for valid application of the model and summarizes these findings to the model owners, developers and users.         Once a model has been approved for use, ongoing monitoring becomes a joint responsibility of model users, owners and validators. Stress testing Stress testing supplements our other risk management tools by providing an estimate of the potential impacts of plausible but stressed economic scenarios and risk factors. Results of stress testing are interpreted in the context of our risk appetite, including metrics for capital adequacy. Enterprise-wide stress testing, capital planning and financial planning processes are integrated for a comprehensive information system. See the “Capital management” section for detailed discussion on our enterprise-wide stress testing. Risk treatment and mitigation Risk treatment and mitigation is the implementation of options for modifying risk levels. We pursue risk mitigation options in order to control our risk profile in the context of our risk appetite. Our objective is to proactively consider risk mitigation options in order to optimize results. Discussions regarding potential risk mitigation strategies are held between Risk Management and the lines of business, and at the GRC or GALCO and at the RMC for governance and oversight, as appropriate. In evaluating possible strategies, considerations include costs and benefits, residual risks (i.e., risks that are retained), secondary risks (i.e., those caused by the risk mitigation actions), and appropriate monitoring and review to track results. Risk controls Our risk management framework also includes a comprehensive set of risk controls, designed to ensure that risks are being appropriately identified and managed. Our risk controls are part of CIBC’s overall Control Framework, developed based on the Committee of Sponsoring Organizations of the Treadway Commission’s (COSO) widely accepted “Internal Control – Integrated Framework”. The Control Framework also draws on elements of the OSFI Supervisory Framework and Corporate Governance Guidelines. The Board, primarily through the RMC, approves certain credit risk limits and delegates specific transactional approval authorities to the CEO or jointly to the CEO and CRO. The RMC must approve transactions that exceed delegated authorities. Delegation of authority to business units is controlled to ensure decision-making authorities are restricted to those individuals with the necessary experience levels. In addition, CIBC has rigorous processes to identify, evaluate and remediate risk control deficiencies in a timely manner. Regular reporting is provided to the RMC to evidence compliance with risk limits. Risk limits and the delegation of authority to the CEO or jointly to the CEO and CRO are reviewed annually by the RMC. Risk monitoring and reporting To monitor CIBC’s risk profile and facilitate evaluation against the risk appetite statement, a number of measurement metrics have been established, with regular reporting against these metrics provided to the GRC and the RMC. This reporting enables decisions on growth and risk mitigation strategies. Exposures are also regularly monitored against limits, with escalation protocols for limit excesses, should they occur. Escalation protocols ensure awareness at appropriate levels and facilitate management of excesses that is consistent with our risk appetite. Regular management reports on each risk type are also prepared to facilitate monitoring and control of risk at a more granular level. CIBC 2021 ANNUAL REPORT 49 Management’s discussion and analysis Top and emerging risks We monitor and review top and emerging risks that may affect our future results, and take action to mitigate potential risks. We perform in-depth analyses, which may include stress testing our exposures relative to the risks, and we provide updates and related developments to the Board on a regular basis. Top and emerging risks are those that we consider to have potential negative implications that are material for CIBC. This section describes those top and emerging risks, as well as regulatory and accounting developments that are material for CIBC. Pandemic outbreaks The COVID-19 pandemic continues to disrupt the global economy, financial markets, supply chains and business productivity in unprecedented and unpredictable ways. While restrictions imposed by governments around the world to limit the impact of the pandemic have eased significantly in most jurisdictions and vaccination rates have climbed sharply in the developed world, resulting in acceleration of the global economy, new and emerging variants of the virus as well as vaccine hesitancy remain a threat to the economic recovery. Our outlook assumes that targeted health measures rather than broader economic closures will be used to contain new waves of infection. Future developments, such as the severity and duration of the pandemic, the emergence and progression of new variants, and actions taken by governments, monetary authorities, regulators, financial institutions and other third parties in response to a resurgence of cases, continue to impact our outlook. A substantial amount of our business involves extending credit or otherwise providing financial resources to individuals, companies, industries or governments that may have been adversely impacted by the pandemic, hindering their ability to meet original loan terms and potentially impacting their ability to repay their loans. While our estimate of ECL on performing loans considers the likelihood and extent of future defaults and impairments, given the inherent uncertainty caused by COVID-19, actual experience may differ materially from our current estimates. To the extent that business activity or unemployment do not continue to improve in line with our expectations due to the impact of the new and emerging variants, or clients default on loans beyond our current expectations, we may recognize further credit losses beyond those reflected in the current year’s ECL allowances. The effectiveness of various government support programs in place for individuals and businesses as well as the efficacy of vaccines in controlling new and emerging variants also impact our expectations. Similarly, because of changing economic and market conditions, we may be required to recognize losses, impairments, or reductions in other comprehensive income (OCI) in future periods relating to other assets that we hold. Net interest income is significantly impacted by market interest rates. Interest rate cuts by the Bank of Canada and the Federal Reserve in response to COVID-19 have negatively impacted our net interest income. The overall direction of interest rates is difficult to predict and depends on future actions that the Bank of Canada and the Federal Reserve may take to increase or reduce targeted rates in response to COVID-19 or other factors (see the “Outlook for calendar year 2022” section for further discussion on interest rate expectations). Governments, monetary authorities, regulators and financial institutions have also taken actions to support the economy, increase liquidity, mitigate unemployment, provide temporary financial assistance and regulatory flexibility, and implement other measures intended to mitigate or counterbalance the adverse economic consequences of the pandemic. We continue to work with regulators and governments across the jurisdictions in which we operate to support and facilitate government programs assisting our clients (see the “CIBC client relief programs in response to COVID-19” section for further details). We continue to adapt our operating model with a focus on the ongoing safety of our team members, including those working on-site since the start of the pandemic. We have a thoughtful plan to return our team members who are currently working remotely to the office when the time is right, depending on the evolving pandemic and public health guidance. Relevant operational risk metrics continue to track at an acceptable level. Operational resilience and sustainability remain our key areas of focus. We will continue to monitor our risk posture and trends to ensure operational risks are managed appropriately and in a timely manner. If the COVID-19 pandemic is prolonged beyond our expectations, or if further variants emerge that give rise to similar effects that vaccines are not able to effectively mitigate in a timely manner and if broader economic closures are reinstated to address future waves of infection, the impact on the economy and financial markets could deepen and result in further volatility. Unexpected developments in financial markets, regulatory environments, or consumer behaviour and confidence may have additional adverse impacts on our business, results of operations, reputation and financial condition. Geo-political risk The level of geo-political risk escalates at certain points in time. While the specific impact on the global economy and on global credit and capital markets would depend on the nature of the event, in general, any major event could result in instability and volatility, leading to widening spreads, declining equity valuations, flight to safe-haven currencies and increased purchases of gold. In the short run, market disruption could hurt the net income of our trading and non-trading market risk positions. Geo-political risk could reduce economic growth, and in combination with the potential impacts on commodity prices and the recent rise of protectionism, could have serious negative implications for general economic and banking activities. Current areas of concern include:       Global uncertainty and market repercussions pertaining to the spread of COVID-19 as discussed above; Ongoing U.S., Canada and China relations and trade issues; Implications of the U.S. “Buy American” policy; Relations between the U.S. and Iran; Tensions in the Middle East; and Concerns following the agreed-upon Brexit deal. While it is impossible to predict where new geo-political disruption will occur, we pay particular attention to markets and regions with existing or recent historical instability to assess the impact of these environments on the markets and businesses in which we operate. Climate risk The physical effects of climate change along with regulations designed to mitigate its negative impacts will have a measurable impact on communities and the economy. The physical risks of climate change include severe weather events, forest fires, floods, heat stresses and rising sea levels, which have the ability to disrupt supply chains and critical infrastructure. Transition risks, which arise as society adjusts towards a low-carbon future, are impacting many sectors of the economy through changes in policy and technology aimed at limiting global warming. As the world transitions to a low-carbon economy, we are committed to understanding and responsibly managing the relevant impacts of climate change on our operations and our business activities. In support of this commitment, we announced our ambition to achieve net zero greenhouse gas emissions associated with operational and financing activities by 2050, including reducing the greenhouse gas emissions from our operations by 30% by 2028 (2018 baseline). In 2021, we launched our Climate Credit Risk Assessment tool to be used by our corporate and commercial businesses which scores companies based on their exposure, preparedness and resiliency to climate-related transition risks. Through this assessment, we will gain a deeper 50 CIBC 2021 ANNUAL REPORT Management’s discussion and analysis understanding of our clients’ plans to move to a low-carbon economy over the short, medium, and long term, and how this compares with peers in the same sector. This tool will help us manage climate change risks in our portfolio. There is an increasing demand for disclosure around climate-related risk identification and mitigation. We currently prepare our disclosures based on the disclosure framework developed by the Task Force on Climate-related Financial Disclosures (TCFD). The TCFD reporting framework provides stakeholders with consistent, material climate-related disclosures that are comparable across sectors, industries and countries. We are proactively collaborating with peer banks to ensure consistency and comparability as we continue to improve our TCFD reporting. We have also joined the Partnership for Carbon Accounting Financials (PCAF), a standardized measurement and reporting framework that can be used to calculate emissions related to a bank’s financing. Measuring financed emissions is central to activities that enables CIBC to embed climate action throughout our lending and investment activities. In the past year, a number of regulators and standard-setting organizations have announced intentions of preparing disclosure frameworks related to climate change risks. Key among them are IFRS Foundation’s establishment of the International Sustainability Standards Board (ISSB) to develop global sustainability disclosure standards for the financial markets and to increase connectivity with accounting standards. Its creation will consolidate select existing standard setters, including the Climate Disclosure Standards Board (an initiative of CDP, formerly the Carbon Disclosure Project) and the Value Reporting Foundation (which houses the Integrated Reporting Framework and the Sustainability Accounting Standards Board (SASB) Standards) by mid-2022. In addition, regulators such as the SEC, OSFI and the Canadian Securities Administrators (CSA) have announced a greater focus on climate risk disclosures. Potential divergence among the regulators in disclosure expectations, coupled with the pace at which the regulatory landscape changes pose an operational and non-conformance risk to us. We continue to monitor these developments. Despite our relatively low direct carbon emissions, compliance by many of our clients with new carbon emission standards could result in operational stress for those clients, which in turn may have a negative impact on our results of operations. See the “Environmental and related social risk” section for additional information. Canadian consumer debt and the housing market Regulatory measures that included revised mortgage underwriting guidelines (B-20 guidelines) and taxes on foreign ownership, combined with a previously low unemployment environment, had their intended effect as debt-to-income ratios flattened in 2018–2019. However, to counter the economic impact due to COVID-19, the government put in place several support programs, the Bank of Canada cut interest rates and CIBC and other Canadian banks assisted clients by offering temporary relief across all retail products, including mortgages. While there is still continued economic and employment uncertainty, the housing market has rebounded strongly and prices have surpassed pre-COVID-19 levels giving rise to the risk that our borrowers may be unable to repay loan obligations. As of June 1, 2021, we started to qualify uninsured and insured mortgages at the higher of the mortgage contract rate plus 2%, or 5.25% as part of the updated B-20 guidelines. In addition, we run our enterprise-wide statistical stress tests at lower home prices to determine potential direct losses and have also conducted stress tests to assess the impact of rising unemployment rates on borrowers’ ability to repay loan obligations. Technology, information and cyber security risk Financial institutions like CIBC are evolving their use of technology and business processes to improve the client experience and streamline operations. At the same time, cyber threats and the associated financial, reputation and business interruption risks have also increased. We continue to actively manage these risks through strategic risk reviews, enterprise-wide technology and information security programs, with the goal of maintaining overall cyber-resilience that prevents, detects, and responds to threats such as data breaches, malware, unauthorized access, and denial-of-service attacks, which can result in damage to CIBC systems and information, theft or disclosure of confidential information, unauthorized or fraudulent activity, and service disruption at CIBC or its service providers, including those that offer cloud services. Given the importance of electronic financial systems, including secure online and mobile banking provided by CIBC to its clients, CIBC monitors the changing environment globally, including cyber threats, mitigation strategies and evolving regulatory requirements, in order to improve our controls and processes to protect our systems and client information. In addition, we perform cyber security preparedness, testing, and recovery exercises to validate our defences, benchmark against best practices and provide regular updates to the Board. We have well-defined cyber incident response protocols and playbooks in the event that a security incident or breach occurs. We also have cyber insurance coverage to help mitigate against certain potential losses associated with cyber incidents. Our insurance coverage is subject to various terms and provisions, including limits on the types and amounts of coverage relating to losses arising from cyber incidents. We periodically assess our insurance coverage based on our risk tolerance and limits. Despite our commitment to information and cyber security, and given the rapidly evolving threat and regulatory landscape, coupled with a changing business environment, it is not possible for us to identify all cyber risks or implement measures to prevent or eliminate all potential cyber incidents from occurring. However, we monitor our risk profile for changes and continue to refine approaches to security protection and service resilience to minimize the impact of any cyber incidents that may occur. Commodity prices In the fourth quarter, we have observed high volatility and a continued rally in natural gas prices. The global recovery from the COVID-19 pandemic and higher-than-normal weather-driven demand last winter and this summer have combined with supply-side challenges resulting in below-average storage levels as we approach the winter heating season. In addition, supply and demand fundamentals that are traditionally elastic to prices have broken down, making it difficult for the market to balance any disruptions to supply or increases in demand. Looking forward, temperatures this winter are expected to be a key driver of natural gas prices: colder-than-normal temperatures could push prices higher while milder temperatures could lead to a pullback. Clients in our oil and gas portfolio continue to be assessed on the basis of our enhanced risk metrics that reflect the current environment. In addition, other commodities including raw materials (lumber, iron, ore, etc.) and metals (gold, silver, copper, etc.) continue to exhibit volatility, particularly in front month futures contracts, largely owing to increased demand coupled with ongoing supply chain bottlenecks as the global pandemic recovery continues. Disintermediation risk Canadian banking clients are increasingly shifting their service transactions from brick-and-mortar banking centres to digital platforms. Competitive pressure from digital disruptors, both global technology leaders and smaller financial technology entrants, is increasing and the risk of disintermediation continues to grow due to the level of sophistication of these non-traditional competitors, and increased adoption of emerging technologies. Blockchain is one such technology that enables parties to transact with one another without the need for centralized third-party intermediaries such as banks. Cryptocurrencies, such as Bitcoin, are a specific application of blockchain with the potential for disintermediation. However, widespread adoption as a substitute for government-issued currency does not appear to be a near-term prospect as Central Banks around the world explore Central Bank Digital Currencies. Adoption as an investment vehicle poses an opportunity for disintermediation as it enables parties to create investment products and services that financial institutions would normally provide. Advances in artificial intelligence (AI) and automation also have the potential to transform business models over time, including the delivery of financial services advice through automated processes. CIBC is maturing its AI capabilities with a focus on maintaining customer confidence and trust by building AI practices that apply principles such as fairness, ethics, transparency and security. CIBC 2021 ANNUAL REPORT 51 Management’s discussion and analysis We manage disintermediation risk through strategic reviews as well as investment in emerging channels, in data and analytics capabilities, and in technology and innovation in general, to meet our clients’ changing expectations, while working to reduce our cost structure and simplify operations. We maintain a central and coordinated approach to innovation to manage these risks. Third-party risk The Board and senior management recognize the establishment of third-party relationships as important to CIBC’s business model and therefore leverage them to achieve CIBC’s business objectives. With the introduction of new technologies, new foreign jurisdictions and increasing reliance on sub-contractors, the third-party landscape continues to evolve. While such relationships may benefit us through reduced costs, increased innovation, improved performance and increased business competitiveness, they can also introduce risks of failure or disruption to CIBC through breakdowns in people, processes or technology or through external events that impact these third parties. To mitigate third-party risks, prepare for future third-party risks and changing regulatory expectations, and to ensure existing processes and internal controls are operating effectively, we rely on our strong risk culture and established the Third Party Risk Management program, which includes policies, procedures, expertise and resources dedicated to third-party risk management. The program identifies and manages risks that arise from third-party relationships from the point of planning through the life cycle of the business arrangement and supports the maintenance of collaborative relationships that advance our strategic direction and operational needs within our risk appetite. Anti-money laundering Money laundering, terrorist financing activities and other related crimes pose a threat to the stability and integrity of a country’s financial sector and its broader economy. In recognition of this threat, the international community has made the fight against these illegal activities a priority. We are committed to adhering to all regulatory requirements pertaining to AML and ATF in the jurisdictions where we operate and implementing best practices to minimize the impact of such activities. In Canada, amendments to the regulations under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act were published in July 2019 (with provisions coming into force between 2020 and 2024) to improve the effectiveness of Canada’s AML/ATF regime. In accordance with these amendments, we have implemented procedures, processes and controls with respect to client due diligence, record keeping and reporting as well as mandatory annual AML/ATF training for all employees to ensure that relevant regulatory obligations are met in each jurisdiction where we operate. U.S. banking regulation Our U.S. operations are subject to supervision by the Board of Governors of the Federal Reserve System (Federal Reserve), and are also subject to a comprehensive federal and state regulatory framework. Our wholly owned subsidiary, CIBC Bancorp USA Inc. (CIBC Bancorp), is a financial holding company subject to regulation and supervision by the Federal Reserve under the Bank Holding Company Act of 1956, as amended. CIBC Bank USA, our Illinois-chartered bank, is subject to regulation by the U.S. Federal Deposit Insurance Corporation (FDIC), the Federal Reserve and the Illinois Department of Financial and Professional Regulation. CIBC’s New York branch is subject to regulation and supervision by the New York Department of Financial Services and the Federal Reserve. Certain market activities of our U.S. operations are subject to regulation by the SEC and the U.S. Commodity Futures Trading Commission, as well as other oversight bodies. The scope of these regulations impact our business in a number of ways. For example, both CIBC Bancorp and CIBC Bank USA are required to maintain minimum capital ratios in accordance with Basel III rules adopted by the U.S. bank regulatory agencies, which differ in some respects from Canada’s Basel III rules. Under the U.S. bank regulatory framework, both CIBC and CIBC Bancorp are expected to provide a source of strength to the subsidiary bank and may be required to commit additional capital and other resources to CIBC Bank USA in the event that its financial condition were to deteriorate, whether due to overall challenging economic conditions in the U.S., or because of business-specific issues. The Federal Reserve (in the case of CIBC Bancorp), and the FDIC and the Illinois Department of Financial and Professional Regulation (in the case of CIBC Bank USA) also have the ability to restrict dividends paid by CIBC Bancorp or CIBC Bank USA, which could limit our ability to receive distributions on our capital investment in our U.S. banking operations. As our combined U.S. operations grow, we will become subject to additional enhanced prudential standards under the Federal Reserve’s regulations applicable to foreign banking organizations. Furthermore, the Federal Reserve and the FDIC may also restrict our U.S. operations, organic or inorganic growth, if, among other things, they have supervisory concerns about risk management, AML or compliance programs and practices, governance and controls, and/or capital and liquidity adequacy at CIBC Bancorp, CIBC Bank USA or our New York branch, as applicable. In some instances, banking regulators may take supervisory actions that may not be publicly disclosed, which may restrict or limit our New York branch and our U.S. subsidiaries from engaging in certain categories of new activities or acquiring shares or control of other companies. Any restrictions imposed by banking regulators could negatively impact us by loss of revenue, limitations on the products or services we offer, and increased operational and compliance costs. The U.S. regulatory environment continues to evolve and future legislative and regulatory developments may impact CIBC. Interbank Offered Rate (IBOR) transition Interest rate benchmarks including the London Interbank Offered Rate (LIBOR) and other similar benchmarks, are being reformed and replaced by new risk-free rates that are largely based on traded markets. The U.K.’s Financial Conduct Authority (FCA) originally announced in July 2017 that it would not compel banks to submit LIBOR rates after December 2021. In March 2021, the FCA and the ICE Benchmark Administration (IBA) announced the dates for the cessation or loss of representativeness of various LIBOR rates including that certain non-USD LIBORs will cease on December 31, 2021 and that most USD LIBOR tenors will cease on June 30, 2023. As IBORs are widely referenced by large volumes of derivative, loan and cash products, the transition presents a number of risks to CIBC, and the industry as a whole. These transition risks include market risk (as new basis risks emerge), model risk, operational risk (as processes are changed or newly introduced), legal risk (as contracts are revised) and conduct risk (in ensuring clients are adequately informed/prepared). We have established a comprehensive enterprise-wide program to manage and coordinate all aspects of the transition, including the identification and mitigation of these risks. See the “Other regulatory developments” section for further details. Tax reform As many governments took on additional debt to support the economy during the pandemic and look to ensure a strong post-pandemic recovery, there are tax reform proposals that could increase taxes affecting CIBC. The 2021 Liberal Government Platform in Canada proposed tax measures that could be in effect in January 2022, including a 3% surtax on large banks and a temporary Canada Recovery Dividend that would commence in 2023. Additional proposals would modernize the general anti- avoidance rule (GAAR), increase resources to combat aggressive tax avoidance and implement the global minimum tax discussed below. In 2021, 130 countries, including Canada and the other G20 nations, agreed on a new framework for global tax reform. If enacted, these proposals would be effective beginning in 2023. The two-pillar framework’s stated purpose is to ensure that large Multinational Enterprises (MNEs) pay tax where they operate and earn profit. Pillar I primarily targets MNE technology companies by re-allocating taxing rights to where goods or 52 CIBC 2021 ANNUAL REPORT Management’s discussion and analysis services are consumed. Pillar II would introduce a new 15% global minimum corporate tax rate in each country where an MNE operates. Uncertainty persists with regard to the detail of these proposals, which remain subject to due process, and will require approval, ratification and legislation in multiple nations. In 2021, the U.S. Congress proposed legislation called the Build Back Better Act that includes changes to corporate income tax laws. Proposals include modifications to the Base Erosion Anti-abuse Tax (BEAT), global low-tax intangible income (GILTI) regime, and foreign-derived intangible income (FDII) regime as well as new corporate minimum taxes. If enacted, most of the proposals would be effective for 2022 or later. The proposed legislation remains subject to change and its impact on CIBC is uncertain. Corporate transactions CIBC seeks out acquisition and divestiture opportunities that align with its strategy, risk appetite and financial goals. The ability to successfully execute on our strategy to integrate acquisitions, and the ability to anticipate and manage risks associated with such corporate transactions are subject to various factors such as receiving regulatory and shareholder approval on a timely basis and on favourable terms, retaining clients and key personnel, realizing synergies and efficiencies, controlling integration and acquisition costs, and changes in general business and economic conditions, among others. Although many of the factors are beyond our control, their impact is partially mitigated by conducting due diligence before completing the transaction and developing and executing appropriate plans. However, given the inherent uncertainty involved in such corporate transactions, we cannot anticipate all potential events, facts and circumstances that may arise and there could be an adverse impact on our operations and financial performance as a result of such corporate transactions. Regulatory developments See the “Taxes”, “Capital management”, “Liquidity risk” and “Accounting and control matters” sections for additional information on regulatory developments. Accounting developments See the “Accounting and control matters” section and Note 32 to the consolidated financial statements for additional information on accounting developments. Risks arising from business activities The chart below shows our business activities and related risk measures based upon regulatory RWA and average allocated common equity as at October 31, 2021: CIBC Corporate and Other SBUs Business activities Balance sheet (1) RWA Average allocated common equity (5) Canadian Personal and Business Banking Canadian Commercial Banking and Wealth Management U.S. Commercial Banking and Wealth Management Capital Markets • Deposits  Residential mortgages  Personal loans  Credit cards  Business lending  Insurance  Commercial banking  Full-service brokerage  Asset management  Private wealth management  Commercial banking  Asset management  Private wealth management  Personal and small business banking  Corporate banking  Global markets  Investment banking  Direct financial services  International banking  Investment portfolios  Joint ventures  Functional and support groups (see page 30) ($ millions) ($ millions) ($ millions) ($ millions) ($ millions) Average assets Average deposits 272,645 187,850 Average assets Average deposits 70,070 83,556 Average assets Average deposits 46,733 41,370 Average assets Average deposits 255,063 85,994 Average assets Average deposits 165,110 199,484 ($ millions) ($ millions) Credit risk Market risk Operational risk 51,121 – 11,569 Credit risk Market risk Operational risk 54,845 – 6,905 Credit risk (2) Market risk Operational risk ($ millions) 47,489 16 3,695 Credit risk (3) Market risk Operational risk ($ millions) 58,291 8,800 8,325 Credit risk (4) Market risk Operational risk Proportion of total CIBC Comprising: Credit risk Market risk Operational risk Other (6) (%) 16 76 – 18 6 Proportion of total CIBC Comprising: Credit risk Market risk Operational risk Other (6) (%) 17 77 – 10 13 Proportion of total CIBC Comprising: Credit risk Market risk Operational risk Other (6) (%) 22 51 – 4 45 Proportion of total CIBC Comprising: Credit risk Market risk Operational risk Other (6) (%) 19 76 12 11 1 Proportion of total CIBC Comprising: Credit risk Market risk Operational risk Other (6) ($ millions) 20,565 290 903 (%) 26 70 3 8 19 Risk profile We are exposed to credit, market, liquidity, operational, and other risks, which primarily include strategic, insurance, technology, information and cyber security, reputation and legal, regulatory compliance, and environmental and social risks. (1) Average balances are calculated as a weighted average of daily closing balances. (2) Includes CCR of $79 million, which comprises derivatives and repo-style transactions. (3) Includes CCR of $17,733 million, which comprises derivatives and repo-style transactions. (4) Includes CCR of $237 million, which comprises derivatives and repo-style transactions. (5) Average allocated common equity is a non-GAAP measure. For additional information on the composition of this non-GAAP measure, see the “Non-GAAP measures” section. (6) Represents average allocated common equity relating to capital deductions, such as goodwill and intangible assets, in accordance with the rules in OSFI’s CAR Guideline. CIBC 2021 ANNUAL REPORT 53 Management’s discussion and analysis Credit risk Credit risk is the risk of financial loss due to a borrower or counterparty failing to meet its obligations in accordance with contractual terms. Credit risk arises out of the lending businesses in each of our SBUs and in International Banking, which is included in Corporate and Other. Other sources of credit risk consist of our trading activities, which include our over-the-counter (OTC) derivatives, debt securities, and our repo- style transaction activity. In addition to losses on the default of a borrower or counterparty, unrealized gains or losses may occur due to changes in the credit spread of the counterparty, which could impact the carrying or fair value of our assets. Governance and management Credit risk is managed through the three lines of defence model. The first line of defence consists of the frontline businesses and control groups that assess and manage the risks associated with their activities. They own the risks and the controls that mitigate the risks – this is the first line of defence. The second line of defence is Risk Management, which takes a broader, independent view and is responsible for the adjudication and oversight of credit risks associated with CIBC’s commercial, corporate and wealth management activities. Internal audit is the third line of defence, providing reasonable assurance to senior management and the Audit Committee of the Board on the effectiveness of CIBC’s governance practices, risk management processes, and internal control as part of its risk-based audit plan and in accordance with its mandate as described in the Internal Audit Charter. Senior management reports to the GRC and RMC at least quarterly on material credit risk matters, including material credit transactions, compliance with limits, portfolio trends, impaired loans and credit loss provisioning levels. Provision for (reversal of) credit losses is reviewed by the RMC and the Audit Committee quarterly. Specific to the management of credit risk, Risk Management is mandated to provide enterprise-wide oversight of the management of credit risk in CIBC’s credit portfolios, including the measurement, monitoring and control of credit risk and the management of credit risk models. Key groups in Risk Management with credit risk responsibility include: Capital Markets Risk Management: This group is responsible for independent oversight of the measurement, monitoring and control of traded and non-traded market risk, liquidity risk and trading credit risk, including adjudication of trading credit facilities for banks, non-bank financial entities, prime brokerage clients and central clearing counterparties. In addition, Capital Markets Risk Management is responsible for the risk management of sovereign and country risk, securitizations and the oversight of the Global Collateral Finance framework covering repos and securities lending. Global Credit Risk Management: This group is responsible for the adjudication and oversight of credit risks associated with our commercial, corporate and wealth management credit portfolios, management of the risks in our investment portfolios, as well as management of special loan portfolios. Model Validation, Global Operational Risk Management: This group is responsible for the oversight of model validation practices. Model validation constitutes the independent set of processes, activities and ongoing documentary evidence that models and parameters are sound and CIBC can rely on their output. Enterprise Risk Management: This group is responsible for enterprise-wide analysis, including enterprise-wide stress testing and reporting, risk data systems and models, economic and regulatory capital methodologies as well as transaction-specific environmental and related social risk. Risk Analytics and Credit Decisioning: This group manages credit risk in personal and small business products offered through the various distribution channels (e.g., residential mortgages, credit cards, personal loans/lines of credit, small business loans) and performs analytics to optimize retail credit performance, along with collections and AML outcomes. U.S. Risk Management: This group carries out the mandate of CIBC Risk Management at a regional level and provides independent oversight of the identification, management, measurement, monitoring and control of credit risks in the U.S. Commercial Banking and Wealth Management SBU. Adjudication and oversight above delegated levels is provided by the CRO, GRC and RMC. Policies To control credit risk, prudent credit risk management principles are used as a base to establish policies, standards and guidelines that govern credit activities as outlined by the credit risk management policy. The credit risk management policy supplements CIBC’s risk management framework and risk appetite framework, and together with CIBC’s portfolio concentration limits for credit exposures, CIBC’s common risk/concentration risk limits for credit exposures, and other supporting credit risk policies, standards and procedures, assists CIBC in achieving its desired risk profile by providing an effective foundation for the management of credit risk. Credit risk limits The RMC approves Board limits, and exposures above Board limits require reporting to, or approval of, the RMC. Management limits are approved by the CRO. Usage is monitored to ensure risks are within allocated management and Board limits. Exposures above management limits require the approval of the CRO. Business lines may also impose lower limits to reflect the nature of their exposures and target markets. This tiering of limits provides for an appropriate hierarchy of decision making and reporting between management and the RMC. Credit approval authority flows from the Board and is further cascaded to officers in writing. The Board’s Investment and Lending Authority Resolution sets thresholds above which credit exposures require reporting to, or approval of, the RMC, ensuring an increasing level of oversight for credit exposures of higher risk. CIBC maintains country limits to control exposures within countries outside of Canada and the U.S. Credit concentration limits At a bank-wide level, credit exposures are managed to promote alignment to our risk appetite statement, to maintain the target business mix and to ensure that there is no undue concentration of risk. We set limits to control borrower concentrations by risk-rating band for large exposures (i.e., risk-rated credits). Direct loan sales, credit derivative hedges, or structured transactions may also be used to reduce concentrations. We also have a set of portfolio concentration limits in place to control exposures by country, industry, product and activity. Further, our policies require limits to be established as appropriate for new initiatives and implementation of strategies involving material levels of credit risk. Concentration limits represent the maximum exposure levels we wish to hold on our books. In the normal course, it is expected that exposures will be held at levels below the maximums. The credit concentration limits are reviewed and approved by the RMC at least annually. 54 CIBC 2021 ANNUAL REPORT Management’s discussion and analysis Credit concentration limits are also applied to our retail lending portfolios to mitigate concentration risk. We not only have concentration limits applied to individual borrowers and geographic regions, but also to different types of credit facilities, such as unsecured credits. In addition, we limit the maximum insured mortgage exposure to private insurers in order to reduce counterparty risk. Credit risk mitigation We may mitigate credit risk by obtaining a pledge of collateral, which improves recoveries in the event of a default. Our credit risk management policies include verification of the collateral and its value and ensuring that we have legal certainty with respect to the assets pledged. Valuations are updated periodically depending on the nature of the collateral, legal environment, and the creditworthiness of the counterparty. The main types of collateral include: (i) cash or marketable securities for securities lending and repurchase transactions; (ii) cash or marketable securities taken as collateral in support of our OTC derivatives activity; (iii) charges over operating assets such as inventory, receivables and real estate properties for lending to small business and commercial borrowers; and (iv) mortgages over residential properties for retail lending. In certain circumstances we may use third-party guarantees to mitigate risk. We also obtain insurance to reduce the risk in our real estate secured lending portfolios, the most material of which relates to the portion of our residential mortgage portfolio that is insured by CMHC, an agency of the Government of Canada. We mitigate the trading credit risk of OTC derivatives, securities lending and repurchase transactions with counterparties by employing the International Swaps and Derivatives Association (ISDA) Master Agreement, as well as Credit Support Annexes (CSAs) or similar master and collateral agreements. See Note 13 to the consolidated financial statements for additional details on the risks related to the use of derivatives and how we manage these risks. ISDA Master Agreements and similar master and collateral agreements, such as the Global Master Repurchase Agreement and Global Master Securities Lending Agreement, facilitate cross transaction payments, prescribe close-out netting processes, and define the counterparties’ contractual trading relationship. In addition, the agreements formalize non-transaction-specific terms. Master agreements serve to mitigate our credit risk by outlining default and termination events, which enable parties to close out of all outstanding transactions in the case of a negative credit event on either party’s side. The mechanism for calculating termination costs in the event of a close-out are outlined in the master agreement; this allows for the efficient calculation of a single net obligation of one party to another. CSAs and other collateral agreements are often included in ISDA Master Agreements or similar master agreements governing securities lending and repurchase transactions. They mitigate CCR by providing for the exchange of collateral between parties when a party’s exposure to the other exceeds agreed upon thresholds, subject to a minimum transfer amount. CSAs and other collateral agreements that operate with master agreements also designate acceptable collateral types, and set out rules for re-hypothecation and interest calculation on collateral. Collateral types permitted under CSAs and other master agreements are set through our trading credit risk management documentation procedures. These procedures include requirements around collateral type concentrations. Consistent with global initiatives to improve resilience in the financial system, we clear derivatives through central counterparties (CCPs) where feasible. Credit derivatives may be used to reduce industry sector concentrations and single-name exposure. Forbearance policy We employ forbearance techniques to manage client relationships and to minimize credit losses due to default, foreclosure or repossession. In certain circumstances, it may be necessary to modify a loan for reasons related to a borrower’s financial difficulties, reducing the potential of default. Total debt restructurings are subject to our normal quarterly impairment review which considers, amongst other factors, covenants and/or payment delinquencies. Loan loss provisions are adjusted as appropriate. In retail lending, forbearance techniques include interest capitalization, amortization amendments and debt consolidations. We have a set of eligibility criteria that allow our Client Account Management team to determine suitable remediation strategies and propose products based on each borrower’s situation. The solutions available to corporate and commercial clients vary based on the individual nature of the client’s situation and are undertaken selectively where it has been determined that the client has or is likely to have repayment difficulties servicing its obligations. Covenants often reveal changes in the client’s financial situation before there is a change in payment behaviour and typically allow for a right to reprice or accelerate payments. Solutions may be temporary in nature or may involve other special management options. Process and control The credit approval process is centrally controlled, with all significant credit requests submitted to a credit adjudication group within Risk Management that is independent of the originating businesses. Approval authorities are a function of the risk and amount of credit requested. In certain cases, credit requests must be escalated to senior management, the CRO, or to the RMC for approval. After initial approval, individual credit exposures continue to be monitored. A formal risk assessment is completed at least annually for all risk-rated accounts, including review of assigned ratings. Higher risk-rated accounts are subject to closer monitoring and are reviewed at least quarterly. Collections and specialized loan workout groups handle the day-to-day management of high-risk loans to maximize recoveries. CIBC 2021 ANNUAL REPORT 55 Management’s discussion and analysis Risk measurement Exposures subject to AIRB approach Under the AIRB approach we are required to categorize exposures to credit risk into broad classes of assets with different underlying risk characteristics. This asset categorization may differ from the presentation in our consolidated financial statements. Under the AIRB approach, credit risk is measured using the following three key risk parameters(1):    PD – the probability that the obligor will default within the next 12 months. EAD – the estimate of the amount that will be drawn at the time of default. LGD – the expected severity of loss as the result of the default, expressed as a percentage of the EAD. Our credit risk exposures are divided into business and government and retail portfolios. Regulatory models used to measure credit risk exposure under the AIRB approach are subject to CIBC’s model risk management process. (1) These parameters differ from those used in the calculation of ECL under IFRS 9. See the “Accounting and control matters” section for further details. Business and government portfolios (excluding scored small business) – risk-rating method The portfolios comprise exposures to corporate, sovereign, and bank obligors. Our adjudication process and criteria includes assigning an obligor rating that reflects our estimate of the financial strength of the borrower, and a facility rating or LGD rating that reflects the collateral amount and quality applicable to secured exposures, the seniority position of the claim, and the capital structure of the borrower for unsecured exposures. The obligor rating takes into consideration our financial assessment of the obligor, the industry, and the economic environment of the region in which the obligor operates. Where a guarantee from a third-party exists, both the obligor and the guarantor will be assessed. While our obligor rating is determined independently of external ratings for the obligor, our risk-rating methodology includes a review of those external ratings. CIBC employs a 20-point master internal obligor default rating scale that broadly maps to external agencies’ ratings as presented in the table below. Grade Investment grade Non-investment grade Watch list Default CIBC rating 00–47 51–67 70–80 90 S&P equivalent AAA to BBB- BB+ to B- CCC+ to C D Moody’s equivalent Aaa to Baa3 Ba1 to B3 Caa1 to Ca C We use quantitative modelling techniques to assist in the development of internal risk-rating systems. The risk-rating systems have been developed through analysis of internal and external credit risk data, supplemented with expert judgment. The risk ratings are used for portfolio management, risk limit setting, product pricing, and in the determination of regulatory and economic capital. Our credit process is designed to ensure that we approve applications and extend credit only where we believe that our client has the ability to repay according to the agreed terms and conditions. Our credit framework of policies and limits defines our appetite for exposure to any single name or group of related borrowers, which is a function of the internal risk rating. We generally extend new credit only to borrowers in the investment and non-investment grade categories noted above. Our credit policies are also defined to manage our exposure to concentration in borrowers in any particular industry or region. In accordance with our process, each obligor is assigned an obligor default rating and the assigned rating is mapped to a PD estimate that represents a long-run average one-year default likelihood. For corporate obligors, PD estimates are calculated using joint maximum likelihood techniques based on our internal default rate history by rating category and longer dated external default rates as a proxy for the credit cycle to arrive at long-run average PD estimates. Estimates drawn from third-party statistical default prediction models are used to supplement the internal default data for some rating bands where internal data is sparse. For small and medium corporate enterprises, PD estimates are developed using only internal default history. For bank and sovereign obligors, PD estimates are derived from an analysis based on external default data sets and supplemented with internal data where possible. We examine several different estimation methodologies and compare results across the different techniques. In addition, we apply the same techniques and estimation methodologies to analogous corporate default data and compare the results for banks and sovereigns to the corporate estimates for each technique. A regulatory floor is applied to PD estimates for corporate and bank obligors. Each facility is assigned an LGD rating and each assigned rating is mapped to an LGD estimate that considers economic downturn conditions. For corporate obligors, LGD estimates are primarily derived from internal historical recovery data. Time to resolution is typically one to two years for most corporate obligors, and one to four years in the real estate sector. LGD values are based on discounted post-default cash flows for resolved accounts and include material direct and indirect costs associated with collections. External data is used in some cases to supplement our analysis. Economic downturn periods are identified for each portfolio by examining the history of actual losses, default rates and LGD. For bank and sovereign exposures, LGD estimates are primarily driven by expert judgment supplemented with external data and benchmarks where available. Appropriate adjustments are made to LGD estimates to account for various uncertainties associated with estimation techniques and data limitations, including adjustments for unresolved accounts. EAD is estimated based on the current exposure to the obligor together with possible future changes in that exposure driven by factors such as the available undrawn credit commitment amount and the obligor default rating. EAD estimates are primarily based on internal historical loss data supplemented with comparable external data. Economic downturn periods are identified for each portfolio by examining the historical default rates and actual EAD factors. Appropriate adjustments are made to PD, LGD and EAD estimates to account for various uncertainties associated with estimation techniques and data limitations, including adjustments for unresolved accounts (for LGD). A simplified risk-rating process (slotting approach) is used for part of our uninsured Canadian commercial mortgage portfolio, which comprises non-residential mortgages and multi-family residential mortgages. These exposures are individually rated on our rating scale using a risk-rating methodology that considers the property’s key attributes, which include its loan-to-value (LTV) and debt service ratios, the quality of the property, and the financial strength of the owner/sponsor. All exposures are secured by a lien over the property. In addition, we have insured multi-family residential mortgages, which are not treated under the slotting approach, but are instead treated as sovereign exposures. 56 CIBC 2021 ANNUAL REPORT Management’s discussion and analysis Retail portfolios Retail portfolios are characterized by a large number of relatively small exposures. They comprise: real estate secured personal lending (residential mortgages and personal loans and lines secured by residential property); qualifying revolving retail exposures (credit cards, overdrafts and unsecured lines of credit); and other retail exposures (loans secured by non-residential assets, unsecured loans including student loans, and scored small business loans). We use scoring models in the adjudication of new retail credit exposures, which are based on statistical methods of analyzing the unique characteristics of the borrower, to estimate future behaviour. In developing our models, we use internal historical information from previous borrowers, as well as information from external sources, such as credit bureaus. The use of credit scoring models allows for consistent assessment across borrowers. There are specific guidelines in place for each product, and our adjudication decision will take into account the characteristics of the borrower, any guarantors, and the quality and sufficiency of the collateral pledged (if any). The lending process will include documentation of, where appropriate, satisfactory identification, proof of income, independent appraisal of the collateral and registration of security. Retail portfolios are managed as pools of homogeneous risk exposures, using external credit bureau scores and/or other behavioural assessments to group exposures according to similar credit risk profiles. These pools are established through statistical techniques. Characteristics used to group individual exposures vary by asset category; as a result, the number of pools, their size, and the statistical techniques applied to their management differ accordingly. The following table maps the PD bands to various risk levels: Risk level Exceptionally low Very low Low Medium High Default PD bands 0.01%–0.20% 0.21%–0.50% 0.51%–2.00% 2.01%–10.00% 10.01%–99.99% 100% For the purposes of the AIRB approach for retail portfolios, additional PD, LGD and EAD segmentation into homogeneous risk exposures is established through statistical techniques. The principal statistical estimation technique is decision trees benchmarked against alternative techniques such as regression and random forests. Within real estate secured lending, we have two key parameter estimation models: mortgages and real estate secured personal lines of credit. Within qualifying revolving retail, we have three key parameter estimation models: credit cards, overdraft, and unsecured personal lines. A small percentage of credit cards, overdraft, and unsecured line accounts that do not satisfy the requirements for qualifying revolving retail are grouped into other retail parameter models. Within other retail, we have three key parameter models: margin lending, personal loans, and scored small business loans. Each parameter model pools accounts according to characteristics such as: delinquency, current credit bureau score, internal behaviour score, estimated current LTV ratio, account type, account age, utilization, outstanding balance, or authorized limit. PD is estimated as the average default rate over an extended period based on internal historical data, generally for a 5-to-10-year period, which is adjusted using internal historical data on default rates over a longer period or comparable external data that includes a period of stress. A regulatory floor is applied to our PD estimate for all retail exposures with the exception of insured mortgages and government-guaranteed loans. LGD is estimated based on observed recovery rates over an extended period using internal historical data. In determining our LGD estimate, we exclude any accounts that have not had enough time since default for the substantial majority of expected recovery to occur. This recovery period is product-specific and is typically in the range of 1 to 3 years. Accounts that cure from default and return to good standing are considered to have zero loss. We simulate the loss rate in a significant downturn based on the relationship(s) between LGD and one or more of the following: PD; housing prices, cure rate, and recovery time; or observed LGD in periods with above-average loss rates. We apply appropriate adjustments to address various types of estimation uncertainty including sampling error and trending. A regulatory floor is applied to all real estate secured exposures with the exception of insured mortgages. EAD for revolving products is estimated as a percentage of the authorized credit limit based on the observed EAD rates over an extended period using historical data. We simulate the EAD rate in a significant downturn based on the relationship(s) between the EAD rate and PD and/ or the observed EAD rate in periods with above-average EAD rates. For term loan products, EAD is set equal to the outstanding balance. We apply appropriate adjustments to PD, LGD and EAD to address various types of estimation uncertainty including sampling error and trending. Back-testing We monitor the three key risk parameters – PD, EAD and LGD – on a quarterly basis for our business and government portfolios and on a monthly basis for our retail portfolios. Every quarter, the back-testing results are reported to OSFI and are presented to the business and Risk Management senior management for review and challenge. For each parameter, we identify any portfolios whose realized values are significantly above or significantly below expectations and then test to see if this deviation is explainable by changes in the economy. If the results indicate that a parameter model may be losing its predictive power, we prioritize that model for review and update. Stress testing As part of our regular credit portfolio management process, we conduct stress testing and scenario analyses on our portfolio to quantitatively assess the impact of various historical, as well as hypothetical, stressed conditions, versus limits determined in accordance with our risk appetite. Scenarios are selected to test our exposures to specific industries (e.g., oil and gas and real estate), products (e.g., mortgages and cards), or geographic regions (e.g., Europe and the Caribbean). Results from stress testing are a key input into management decision making, including the determination of limits and strategies for managing our credit exposure. See the “Real estate secured personal lending” section for further discussion on our residential mortgage portfolio stress testing. CIBC 2021 ANNUAL REPORT 57 Management’s discussion and analysis Exposure to credit risk The portfolios are categorized based upon how we manage the business and the associated risks. Gross credit exposure amounts presented in the table below represent our estimate of EAD, which is net of derivative master netting agreements and CVA but is before allowance for credit losses or credit risk mitigation. Gross credit exposure amounts relating to our business and government portfolios are reduced for collateral held for repo-style transactions, which reflects the EAD value of such collateral. Non-trading equity exposures are not included in the table below as they have been deemed immaterial under the OSFI guidelines, and hence are subject to 100% risk-weighting. $ millions, as at October 31 2021 AIRB approach Standardized approach Total approach (1) AIRB Standardized approach Business and government portfolios Corporate Drawn Undrawn commitments Repo-style transactions Other off-balance sheet OTC derivatives $ Sovereign Drawn Undrawn commitments Repo-style transactions Other off-balance sheet OTC derivatives Banks Drawn Undrawn commitments Repo-style transactions Other off-balance sheet OTC derivatives Gross business and government portfolios Less: collateral held for repo-style transactions Net business and government portfolios Retail portfolios Real estate secured personal lending Drawn Undrawn commitments Qualifying revolving retail Drawn Undrawn commitments Other off-balance sheet Other retail Drawn Undrawn commitments Other off-balance sheet Total retail portfolios Securitization exposures Gross credit exposure Less: collateral held for repo-style transactions Net credit exposure (2) 120,417 61,417 172,827 13,644 12,914 381,219 125,001 8,525 26,746 1,613 2,011 163,896 12,291 1,554 42,529 64,728 5,765 126,867 671,982 225,399 446,583 261,531 36,631 298,162 18,181 54,509 327 73,017 15,578 2,937 40 18,555 389,734 10,823 $ $ 36,321 7,583 – 981 415 45,300 26,272 – – – 1 26,273 1,565 3 – – 12 1,580 73,153 – 73,153 4,835 – 4,835 – – – – 1,419 26 – 1,445 6,280 4,556 156,738 69,000 172,827 14,625 13,329 426,519 151,273 8,525 26,746 1,613 2,012 190,169 13,856 1,557 42,529 64,728 5,777 128,447 745,135 225,399 519,736 266,366 36,631 302,997 18,181 54,509 327 73,017 16,997 2,963 40 20,000 396,014 15,379 1,072,539 83,989 1,156,528 2020 Total 138,945 56,812 139,677 15,101 11,644 362,179 155,741 8,354 38,904 1,553 2,189 206,741 14,087 1,568 24,228 59,761 5,826 105,470 674,390 187,832 486,558 236,326 31,390 267,716 18,701 53,085 271 72,057 16,195 2,847 35 19,077 358,850 15,785 $ $ 102,342 49,473 139,677 14,085 10,858 $ 36,603 7,339 – 1,016 786 316,435 45,744 133,077 8,354 38,904 1,553 2,187 184,075 12,846 1,552 24,228 59,761 5,805 104,192 604,702 187,832 416,870 231,527 31,390 262,917 18,701 53,085 271 72,057 14,869 2,819 35 17,723 352,697 12,276 969,675 22,664 – – – 2 22,666 1,241 16 – – 21 1,278 69,688 – 69,688 4,799 – 4,799 – – – – 1,326 28 – 1,354 6,153 3,509 225,399 – 225,399 187,832 – 187,832 $ 847,140 $ 83,989 $ 931,129 $ 781,843 $ 79,350 $ 861,193 79,350 1,049,025 (1) Includes exposures subject to the supervisory slotting approach. (2) Excludes exposures arising from derivative and repo-style transactions that are cleared through QCCPs as well as credit risk exposures arising from other assets that are subject to the credit risk framework but are not included in the standardized or IRB frameworks, including other balance sheet assets that are risk-weighted at 100%, significant investments in the capital of non-financial institutions that are risk-weighted at 1,250%, settlement risk, and amounts below the thresholds for deduction that are risk-weighted at 250%. Net credit exposure increased by $69.9 billion in 2021, due to business growth in our North American lending portfolios. 58 CIBC 2021 ANNUAL REPORT Management’s discussion and analysis Exposures subject to the standardized approach(1) Exposures within CIBC Bank USA, CIBC FirstCaribbean and certain exposures to individuals for non-business purposes do not have sufficient historical data to support the AIRB approach for credit risk, and are subject to the standardized approach. The standardized approach utilizes a set of risk weightings defined by the regulators, as opposed to the more data intensive AIRB approach. A detailed breakdown of our standardized credit risk exposures by risk-weight category, before considering the effect of credit risk mitigation strategies and before allowance for credit losses, is provided below. $ millions, as at October 31 Corporate Sovereign Banks Real estate secured personal lending Other retail $ 0% – 22,497 – – – $ 22,497 $ 20% – 2,884 1,495 – – $ 4,379 $ $ Risk-weight category 50% – 103 – – – $ 103 75% – – – 1,064 1,372 $ 2,436 35% – – – 3,555 – $ 3,555 $ 100% $ 45,164 789 85 206 70 $ 46,314 2021 Total $ 45,300 26,273 1,580 4,835 1,445 $ 79,433 150% $ 136 – – 10 3 $ 149 2020 Total $ 45,744 22,666 1,278 4,799 1,354 $ 75,841 (1) See “Securitization exposures” section for securitization exposures that are subject to the standardized approach. We use credit ratings from S&P and Moody’s to calculate credit risk RWA for certain exposures under the standardized approach, including securities issued by sovereigns and their central banks (sovereigns), banks and corporates, and deposits with sovereigns and banks. This includes S&P and Moody’s issuer-specific credit ratings for securities issued by sovereigns and corporates, the S&P country credit rating for the country of incorporation for securities issued by banks, and deposits with banks, and the S&P country credit rating for deposits with central banks. The RWA calculated using credit ratings from these agencies represents 1.2% of credit risk RWA under the standardized approach. Trading credit exposures We have trading credit exposure (also called counterparty credit exposure) that arises from our OTC derivatives and our repo-style transactions. The nature of our derivatives exposure and how it is mitigated is further explained in Note 13 to the consolidated financial statements. Our repo- style transactions consist of our securities bought or sold under repurchase agreements, and our securities borrowing and lending activity. The PD of our counterparties is estimated using models consistent with the models used for our direct lending activity. Due to the fluctuations in the market values of interest rates, exchange rates, and equity and commodity prices, counterparty credit exposure cannot be quantified with certainty at the inception of the trade. Counterparty credit exposure is estimated using the current fair value of the exposure, plus an estimate of the maximum potential future exposure due to changes in the fair value. Credit risk associated with these counterparties is managed within the same process as our lending business, and for the purposes of credit adjudication, the exposure is aggregated with any exposure arising from our lending business. The majority of our counterparty credit exposure benefits from the credit risk mitigation techniques discussed above, including daily re-margining, and posting of collateral. We are also exposed to wrong-way risk. Specific wrong-way risk arises when CIBC receives financial collateral issued (or an underlying reference obligation of a transaction is issued) by the counterparty itself, or by a related entity that would be considered to be part of the same common risk group. General wrong-way risk arises when the exposure and/or collateral pledged to CIBC is highly correlated to that of the counterparty. Exposure to wrong-way risk with derivative counterparties is monitored by Capital Markets Risk Management. Where we may be exposed to wrong-way risk, our adjudication procedures subject those transactions to a more rigorous approval process. The exposure may be hedged with other derivatives to further mitigate the risk that can arise from these transactions. We establish a CVA for expected future credit losses from each of our derivative counterparties. The expected future credit loss is a function of our estimates of the PD, the estimated loss in the event of default, and other factors such as risk mitigants. Rating profile of OTC derivative mark-to-market (MTM) receivables $ billions, as at October 31 Investment grade Non-investment grade Watch list Default Unrated 2021 2020 Exposure (1) 68.9 % 30.6 0.5 – – 100.0 % $ 7.46 2.40 0.07 0.03 – $ 9.96 74.9 % 24.1 0.7 0.3 – 100.0 % $ 9.87 4.39 0.07 – – $ 14.33 (1) MTM of the OTC derivative contracts is after the impact of master netting agreements, but before any collateral. Concentration of exposures Concentration of credit risk exists when a number of obligors are engaged in similar activities, or operate in the same geographic areas or industry sectors, and have similar economic characteristics so that their ability to meet contractual obligations is similarly affected by changes in economic, political, or other conditions. CIBC 2021 ANNUAL REPORT 59 Management’s discussion and analysis Geographic distribution(1) The following table provides a geographic distribution of our business and government exposures under the AIRB approach, net of collateral held for repo-style transactions. $ millions, as at October 31, 2021 Drawn Undrawn commitments Repo-style transactions Other off-balance sheet OTC derivatives October 31, 2020 Canada $ 170,156 50,998 7,360 63,615 9,863 U.S. $ 61,388 14,133 5,506 8,098 6,436 Europe $ 13,678 2,888 1,485 7,815 2,638 Other $ 12,487 3,477 2,352 457 1,753 Total $ 257,709 71,496 16,703 79,985 20,690 $ 301,992 $ 95,561 $ 28,504 $ 20,526 $ 446,583 $ 295,784 $ 81,982 $ 21,456 $ 17,648 $ 416,870 (1) Classification by country is primarily based on domicile of debtor or customer. Business and government exposure by industry groups(1) The following table provides an industry-wide breakdown of our business and government exposures under the AIRB approach, net of collateral held for repo-style transactions. $ millions, as at October 31 Commercial mortgages Financial institutions Retail and wholesale Business services Manufacturing – capital goods Manufacturing – consumer goods Real estate and construction Agriculture Oil and gas Mining Forest products Hardware and software Telecommunications and cable Broadcasting, publishing and printing Transportation Utilities Education, health, and social services Governments $ Drawn 9,613 78,163 7,213 7,211 2,819 3,623 33,860 7,069 4,693 1,036 337 2,178 604 431 5,822 13,005 3,447 76,585 $ 257,709 $ Undrawn commitments 52 14,255 4,235 3,199 2,220 2,330 9,799 2,145 4,770 3,046 636 1,162 2,053 139 3,492 10,702 1,658 5,603 $ 71,496 $ Repo-style transactions – 15,571 – 29 – – 179 – – – – – – – – – 1 923 $ 16,703 $ Other off- balance sheet – 69,994 360 592 315 247 1,322 35 830 691 226 59 464 1 294 3,434 196 925 $ 79,985 OTC derivatives $ – $ 2021 Total 9,665 $ 2020 Total 8,420 180,045 10,523 10,656 5,397 5,816 40,652 8,760 13,834 5,131 1,239 2,672 2,195 665 9,913 26,590 4,742 79,620 $ 20,690 $ 446,583 $ 416,870 187,163 12,120 11,253 5,577 6,270 45,470 9,306 15,931 4,903 1,220 3,422 3,440 614 10,889 28,209 5,530 85,601 9,180 312 222 223 70 310 57 5,638 130 21 23 319 43 1,281 1,068 228 1,565 (1) In the third quarter of 2021, certain amounts by sector were revised from those previously presented to align with our revised sector definition, or to better match the borrowers’ risk profiles with the relevant sectors. As part of our risk mitigation strategy, we may use credit protection purchases as a hedge against customer or industry sector concentration. As at October 31, 2021, we had credit protection purchased totalling $124 million (2020: $185 million) related to our business and government loans. Credit quality of portfolios Credit quality of the retail portfolios The following table presents the credit quality of our retail portfolios under the AIRB approach. $ millions, as at October 31 Risk level Exceptionally low Very low Low Medium High Default Real estate secured personal lending $ 227,533 39,417 27,717 2,777 424 294 $ 298,162 EAD Qualifying revolving retail $ 51,801 4,599 9,797 6,138 649 33 $ 73,017 2021 2020 Total $ 282,648 48,481 44,718 11,551 1,953 383 $ 389,734 Total $ 254,621 40,731 42,353 12,122 2,322 548 $ 352,697 $ Other retail 3,314 4,465 7,204 2,636 880 56 $ 18,555 Securitization exposures The following table provides details on securitization exposures in our banking book, by credit rating. $ millions, as at October 31 Exposures under the AIRB approach S&P rating equivalent AAA to BBB- BB+ to BB- Below BB- Unrated Exposures under the standardized approach Total securitization exposures 60 CIBC 2021 ANNUAL REPORT 2021 2020 EAD $ 10,823 – – – 10,823 4,556 $ 15,379 $ 12,276 – – – 12,276 3,509 $ 15,785 Management’s discussion and analysis CIBC client relief programs in response to COVID-19 During the early stages of the pandemic, we had been actively engaged in lending activities to support our clients who were experiencing financial hardship caused by the COVID-19 pandemic. For our personal banking clients impacted by the COVID-19 pandemic, various client relief programs were offered at the onset of the pandemic, including lower interest rates of 10.99% on certain credit products, in addition to certain payment deferral options; deferral of regular payments on residential mortgages and certain secured personal loans for up to six months and on certain other loans and lines of credit for up to two months; and early withdrawal from eligible GICs on an exception basis. For our corporate, commercial and business banking clients in Canada, the U.S. and other regions, client relief programs have also been offered on a case-by-case basis depending on the product and client including new or increased credit facilities to provide additional liquidity; covenant and borrowing base relief to provide financial flexibility; principal and interest deferrals for loans, mortgages, lines of credit, authorized overdraft and credit cards; and early withdrawal of funds held in non-registered GICs. The number of clients under these payment deferral programs has continued to decline considerably relative to the second and third quarters of 2020. Following the expiry of their payment deferral terms, the majority of these clients have returned to making regular payments on their loans with a relatively small segment of client accounts written off. As at October 31, 2021, the gross outstanding balance of loans for which CIBC provided payment deferrals was not significant for retail loans and products in Canada and the Caribbean (2020: $3.3 billion); and was $0.2 billion for business and government loans (2020: $2.5 billion); including $0.1 billion in Canada and the U.S. (2020: $1.0 billion), and $0.1 billion in the Caribbean (2020: $1.5 billion). Government lending programs in response to COVID-19 Since the onset of the pandemic, CIBC has engaged in a number of lending programs introduced by the Government of Canada and the U.S. federal government. The Canada Emergency Business Account (CEBA) program was launched in the second quarter of 2020 by the Government of Canada, which was expanded later in 2020 to provide financial support to certain borrowers that would have not otherwise qualified and increased the loan limit for eligible borrowers from $40,000 to $60,000. The Export Development Canada (EDC) funds all loans advanced under the CEBA program, including any payment defaults and principal forgiveness. The application deadline for the CEBA program ended on June 30, 2021, however, we continue to facilitate this program as the final set of applications are reviewed and funded. In the second quarter of 2020, the Government of Canada introduced a number of lending programs for businesses, including: (i) the EDC loan guarantee program for small- and medium-sized enterprises and (ii) the BDC co-lending arrangement. Applications for both programs are available until December 31, 2021. In the first quarter of 2021, the Government of Canada launched the HASCAP, which is 100% guaranteed by the BDC and is available to small- and medium-sized businesses that have been hardest hit by the pandemic. Applications by eligible businesses commenced on February 1, 2021 and the program is available until December 31, 2021. The PPP, introduced by the U.S. Small Business Administration, was a forgivable loan program that ended on May 31, 2021. PPP loans are guaranteed by the U.S. Small Business Administration. As at October 31, 2021, loans of $4.5 billion (2020: $2.9 billion), net of repayments, have been provided to our clients under the CEBA, which are not recognized on our consolidated balance sheet. For further details, refer to Note 2 to our consolidated financial statements. In addition, funded loans outstanding on our consolidated balance sheet under the lending programs for businesses were $0.3 billion (2020: $0.2 billion), while loans outstanding under the PPP in the U.S. were US$0.5 billion (2020: US$1.9 billion). For further details regarding these programs, refer to Note 2 to our consolidated financial statements. CIBC 2021 ANNUAL REPORT 61 Management’s discussion and analysis Real estate secured personal lending Real estate secured personal lending comprises residential mortgages, and personal loans and lines secured by residential property (HELOC). This portfolio is low risk, as we have a first charge on the majority of the properties and a second lien on only a small portion of the portfolio. We use the same lending criteria in the adjudication of both first lien and second lien loans. Under the Bank Act (Canada), banks are limited to providing residential real estate loans of no more than 80% of the collateral value. An exception is made for mortgage loans with a higher LTV ratio if they are insured by either CMHC or a private mortgage insurer. Mortgage insurance protects banks from the risk of default by the borrower, over the term of the coverage. Mortgage insurers are subject to regulatory capital requirements, which aim to ensure that they are well capitalized. If a private mortgage insurer becomes insolvent, the Government of Canada has, provided certain conditions are met, obligations in respect of policies underwritten by certain insolvent private mortgage insurers as more fully described in the Protection of Residential Mortgage or Hypothecary Insurance Act (PRMHIA). There is a possibility that losses could be incurred in respect of insured mortgages if, among other things, CMHC or the applicable private mortgage insurer denies a claim, or further, if a private mortgage insurer becomes insolvent and either the conditions under the PRMHIA are not met or the Government of Canada denies the claim. The following disclosures are required by OSFI pursuant to the guideline B-20 “Residential Mortgage Underwriting Practices and Procedures” (guideline B-20). The following table provides details on our residential mortgage and HELOC portfolios: Residential mortgages (1) HELOC (2) Total Insured Uninsured Uninsured Insured Uninsured $ billions, as at October 31, 2021 Ontario (3) British Columbia and territories (4) Alberta Quebec Central prairie provinces Atlantic provinces Canadian portfolio (5)(6) U.S. portfolio (5) Other international portfolio (5) Total portfolio October 31, 2020 $ 25.2 8.7 12.9 5.6 3.5 3.7 59.6 – – $ 59.6 $ 67.0 19 % $ 106.7 40.6 18 13.6 49 13.2 30 4.1 46 5.1 42 81 % 82 51 70 54 58 $ 10.2 3.9 2.2 1.2 0.6 0.7 100 % 100 100 100 100 100 25 – – 183.3 2.1 2.5 75 100 100 24 % $ 187.9 31 % $ 149.0 76 % 69 % 18.8 – – 100 – – $ 25.2 8.7 12.9 5.6 3.5 3.7 59.6 – – 18 % $ 116.9 44.5 16 15.8 45 14.4 28 4.7 43 5.8 39 82 % 84 55 72 57 61 23 – – 202.1 2.1 2.5 77 100 100 $ 18.8 100 % $ 59.6 22 % $ 206.7 $ 19.6 100 % $ 67.0 28 % $ 168.6 78 % 72 % (1) Balances reflect principal values. (2) We did not have any insured HELOCs as at October 31, 2021 and 2020. (3) Includes $11.7 billion (2020: $13.8 billion) of insured residential mortgages, $67.7 billion (2020: $53.4 billion) of uninsured residential mortgages, and $6.0 billion (4) (2020: $6.1 billion) of HELOCs in the Greater Toronto Area (GTA). Includes $3.8 billion (2020: $4.5 billion) of insured residential mortgages, $27.9 billion (2020: $22.9 billion) of uninsured residential mortgages, and $2.4 billion (202 0: $2.5 billion) of HELOCs in the Greater Vancouver Area (GVA). (5) Geographic location is based on the address of the property. (6) 64% (2020: 71%) of insurance on Canadian residential mortgages is provided by CMHC and the remaining by two private Canadian insurers, both rated at least AA (low) by DBRS. The average LTV ratios(1) for our uninsured residential mortgages and HELOCs originated and acquired during the year are provided in the following table: For the year ended October 31 Ontario (2) British Columbia and territories (3) Alberta Quebec Central prairie provinces Atlantic provinces Canadian portfolio (4) U.S. portfolio (4) Other international portfolio (4) Residential mortgages 2021 HELOC Residential mortgages 2020 HELOC 64 % 61 69 68 69 69 64 63 75 % 68 % 65 73 73 74 73 68 65 n/m 63 % 60 68 68 68 71 63 65 72 % 68 % 65 73 73 74 74 68 63 n/m (1) LTV ratios for newly originated and acquired residential mortgages and HELOCs are calculated based on weighted average. (2) Average LTV ratios for our uninsured GTA residential mortgages originated during the year were 64% (2020: 62%). (3) Average LTV ratios for our uninsured GVA residential mortgages originated during the year were 61% (2020: 58%). (4) Geographic location is based on the address of the property. n/m Not meaningful. The following table provides the average LTV ratios on our total Canadian residential mortgage portfolio: October 31, 2021 (1)(2) October 31, 2020 (1)(2) Insured Uninsured 51 % 55 % 49 % 52 % (1) LTV ratios for residential mortgages are calculated based on weighted average. The house price estimates for October 31, 2021 and 2020 are based on the Forward Sortation Area (FSA) level indices from the Teranet – National Bank National Composite House Price Index (Teranet) as of September 30, 2021 and 2020, respectively. Teranet is an independent estimate of the rate of change in Canadian home prices. (2) Average LTV ratio on our uninsured GTA residential mortgage portfolio was 47% (2020: 48%). Average LTV ratio on our uninsured GVA residential mortgage portfolio was 45% (2020: 46%). 62 CIBC 2021 ANNUAL REPORT Management’s discussion and analysis The table below summarizes the remaining amortization profile of our total Canadian, U.S. and other international residential mortgages based upon current customer payment amounts: 0–5 years >5–10 years >10–15 years >15–20 years >20–25 years >25–30 years >30–35 years >35 years Canadian portfolio October 31, 2021 October 31, 2020 U.S. portfolio October 31, 2021 October 31, 2020 Other international portfolio October 31, 2021 October 31, 2020 1 % 2 % 1 % 2 % 7 % 7 % 3 % 4 % 3 % 3 % 12 % 13 % 7 % 7 % 6 % 7 % 21 % 22 % 17 % 18 % 9 % 10 % 24 % 23 % 45 % 44 % 10 % 10 % 19 % 19 % 27 % 25 % 71 % 68 % 15 % 14 % – % – % – % – % 1 % 2 % – % – % – % – % – % – % We have two types of condominium exposures in Canada: mortgages and developer loans. Both are primarily concentrated in the Toronto and Vancouver areas. As at October 31, 2021, our Canadian condominium mortgages were $34.7 billion (2020: $28.1 billion), of which 24% (2020: 31%) were insured. Our drawn developer loans were $1.1 billion (2020: $1.4 billion), or 0.7% (2020: 1.0%) of our business and government portfolio, and our related undrawn exposure was $4.9 billion (2020: $4.5 billion). The condominium developer exposure is diversified across 102 projects. We stress test our mortgage and HELOC portfolio to determine the potential impact of different economic events. Our stress tests may use variables such as unemployment rates, debt service ratios and housing price changes, to model potential outcomes for a given set of circumstances. The stress testing involves variables that could behave differently in certain situations. Our main tests use economic variables in a similar range or more conservative to historical events when Canada experienced economic downturns, and also incorporate the impact of the COVID-19 pandemic. Our results show that in an economic downturn, our strong capital position should be sufficient to absorb mortgage and HELOC losses. On May 20, 2021, OSFI and the Department of Finance (Canada) announced that effective June 1, 2021, the minimum qualifying rate for uninsured and insured mortgages is now the higher of the mortgage contract rate plus 2%, or 5.25%, as a minimum floor. The 5.25% replaced the Bank of Canada’s five-year benchmark posted mortgage rate that was then being applied. OSFI, as well as the Department of Finance (Canada) will revisit it at least annually to ensure it remains appropriate for risks in the environment. Credit quality performance As at October 31, 2021, total loans and acceptances after allowance for credit losses were $462.9 billion (2020: $416.4 billion). Consumer loans (comprising residential mortgages, credit cards, and personal loans, including student loans) constitute 65% (2020: 66%) of the portfolio, and business and government loans (including acceptances) constitute the remainder of the portfolio. Consumer loans were up $30.0 billion or 11% from the prior year, primarily due to an increase in residential mortgages, offset by a decrease in personal loans and credit cards. Business and government loans (including acceptances) were up $16.5 billion or 12% from the prior year, mainly attributable to financial institutions, real estate and construction, retail and wholesale, and utilities. Impaired loans The following table provides details of our impaired loans and allowance for credit losses: $ millions, as at or for the year ended October 31 Gross impaired loans Balance at beginning of year Classified as impaired during the year Transferred to performing during the year Net repayments Amounts written off Disposals of loans Foreign exchange and other Balance at end of year Allowance for credit losses – impaired loans Net impaired loans (1) Balance at beginning of year Net change in gross impaired Net change in allowance Balance at end of year Business and government loans Consumer loans 2021 Total Business and government loans Consumer loans 2020 Total $ 1,359 750 (235) (480) (279) (31) (51) $ 1,033 $ $ $ 508 709 (326) 142 525 $ $ $ $ $ 990 1,686 (574) (579) (707) – (16) 800 $ 2,349 2,436 (809) (1,059) (986) (31) (67) $ 1,833 264 $ 772 726 (190) – 536 $ 1,435 (516) 142 $ 1,061 $ 911 1,256 (109) (547) (157) – 5 $ 1,359 $ $ $ 650 535 448 (274) 709 $ $ $ $ $ 955 1,933 (580) (543) (778) – 3 990 $ 1,866 3,189 (689) (1,090) (935) – 8 $ 2,349 264 $ 914 687 35 4 726 $ 1,222 483 (270) $ 1,435 Net impaired loans as a percentage of net loans and acceptances (1) Net impaired loans are gross impaired loans net of stage 3 allowance for credit losses. 0.23 % 0.34 % Gross impaired loans As at October 31, 2021, gross impaired loans were $1,833 million, down $516 million from the prior year, primarily due to decreases in the Canadian residential mortgages portfolio and the oil and gas, retail and wholesale, and business services sectors, partially offset by increases in the education, health and social services and real estate and construction sectors. 55% of gross impaired loans related to Canada, of which the residential mortgages and personal lending portfolios, as well as the retail and wholesale and the utilities sectors accounted for the majority. 25% of gross impaired loans related to the U.S., of which the real estate and construction, financial institutions, business services and manufacturing sectors accounted for the majority. The remaining gross impaired loans related to CIBC FirstCaribbean, of which the residential mortgages and personal lending portfolios, as well as the business services and real estate and construction sectors accounted for the majority. CIBC 2021 ANNUAL REPORT 63 Management’s discussion and analysis See the “Supplementary annual financial information” section for additional details on the geographic distribution and industry classification of impaired loans. Allowance for credit losses – impaired loans Allowance for credit losses on impaired loans was $772 million, down $142 million from the prior year, primarily due to decreases in the oil and gas, business services, and retail and wholesale sectors, partially offset by an increase in the utilities sector. Loans contractually past due but not impaired The following table provides an aging analysis of the contractually past due loans that are not impaired. Most risk-rated business and government loans that were contractually past due at the time relief was provided pursuant to payment deferral programs were presented in the aging category that applied at the time deferrals were granted during the period of the deferral. Other business and government loans, credit cards, personal loans and residential mortgages that were subject to a payment deferral program were generally presented in the aging category that applied as at March 31, 2020 during the period of the deferral, which approximated the time when the majority of the deferrals were granted. Loans that have exited a deferral program generally continue to age based on the status that was applied at the beginning of the program to the extent a payment has not been made. $ millions, as at October 31 Residential mortgages Personal Credit card Business and government 31 to 90 days Over 90 days $ 703 146 137 162 $ – – 66 – $ 2021 Total 703 146 203 162 $ 1,148 $ 66 $ 1,214 2020 Total (1) $ 1,152 222 321 281 $ 1,976 (1) Excludes loans less than 30 days past due as such loans are not generally indicative of the borrowers’ ability to repay. During the year, gross interest income that would have been recorded if impaired loans were treated as current was $96 million (2020: $113 million), of which $55 million (2020: $69 million) was in Canada and $41 million (2020: $44 million) was outside Canada. During the year, interest recognized on impaired loans was $41 million (2020: $45 million), and interest recognized on loans before being classified as impaired was $30 million (2020: $67 million), of which $21 million (2020: $43 million) was in Canada and $9 million (2020: $24 million) was outside Canada. Exposure to certain countries and regions Europe The following table provides our exposure to European countries, both within and outside the Eurozone. Our direct exposures presented in the tables below comprise (A) funded – on-balance sheet loans (stated at amortized cost net of stage 3 allowance for credit losses, if any), deposits with banks (stated at amortized cost net of stage 3 allowance for credit losses, if any) and securities (stated at carrying value); (B) unfunded – unutilized credit commitments, letters of credit, and guarantees (stated at notional amount net of stage 3 allowance for credit losses, if any); and (C) derivative MTM receivables (stated at fair value) and repo-style transactions (stated at fair value). Of our total direct exposures to Europe, approximately 43% (2020: 47%) is to entities in countries with Aaa/AAA ratings from at least one of Moody’s or S&P. The following table provides a summary of our positions in this business: Direct exposures Funded Unfunded Derivative MTM receivables and repo-style transactions (1) $ millions, as at October 31, 2021 Corporate Sovereign Banks (A) Corporate Banks Total funded Total unfunded (B) Corporate Sovereign Banks Net exposure (C) Total direct exposure (A)+(B)+(C) Austria Finland France Germany Ireland Luxembourg Netherlands Norway Spain Sweden Switzerland United Kingdom Other European countries $ – $ 67 62 432 206 151 552 187 87 452 234 2,655 61 514 $ 328 161 917 – 1,812 730 186 – 900 – 2,494 311 135 $ 758 152 751 153 156 147 195 21 174 31 1,002 55 649 $ – $ 1,153 375 2,100 359 2,119 1,429 568 108 1,526 265 6,151 427 97 336 321 43 61 568 714 7 137 93 3,174 12 2 $ 5 103 130 – 108 275 – 25 – – 349 83 2 102 439 451 43 169 843 714 32 137 93 3,523 95 $ – – – 49 – – 28 – – 17 11 690 – $ – $ – – – – – – – – – – 17 127 – $ 7 34 51 226 124 12 – – – 84 423 9 – 7 34 100 226 124 40 – – 17 95 1,130 136 $ 651 1,262 848 2,651 628 2,412 2,312 1,282 140 1,680 453 10,804 658 Total Europe $ 5,146 $ 8,353 $ 3,730 $ 17,229 $ 5,563 $ 1,080 $ 6,643 $ 795 $ 144 $ 970 $ 1,909 $ 25,781 October 31, 2020 (2) $ 4,275 $ 5,211 $ 3,544 $ 13,030 $ 5,063 $ 968 $ 6,031 $ 788 $ 92 $ 835 $ 1,715 $ 20,776 (1) The amounts shown are net of CVA and collateral. Collateral on derivative MTM receivables was $1.9 billion (2020: $1.8 billion), collateral on repo-style transactions was $30.5 billion (2020: $30.3 billion), and both comprise cash and investment grade debt securities. (2) Certain prior period balances have been revised to conform to current year presentation. We have $2,632 million (2020: $639 million) of indirect exposure to European entities, as we hold debt or equity securities issued by European entities as collateral for derivative transactions and securities borrowing and lending activity from counterparties that are not in Europe. 64 CIBC 2021 ANNUAL REPORT Management’s discussion and analysis Settlement risk Settlement risk is the risk that during an agreed concurrent exchange of currency or principal payments, the counterparty will fail to make its payment to CIBC. This risk can arise in general trading activities and from payment and settlement system participation. Many global settlement systems offer significant risk reduction benefits through complex risk mitigation frameworks. Bilateral payment netting agreements may be put in place to mitigate risk by reducing the aggregate settlement amount between counterparties. Further, we participate in several North American payment and settlement systems, including a global foreign exchange multilateral netting system. We also use financial intermediaries to access some payment and settlement systems, and for certain trades, we may utilize an established clearing house to minimize settlement risk. Transactions settled outside of payment and settlement systems or clearing houses require approval of credit facilities for counterparties, either as pre-approved settlement risk limits or payment-versus-payment arrangements. Securitization activities We engage in three types of securitization activities: we securitize assets that we originate, we securitize assets originated by third parties and we engage in trading activities related to securitized products. We securitize assets that we originate principally as a funding mechanism. The credit risk on the underlying assets in these transactions is transferred to the SE, with CIBC retaining first loss exposure and other investors exposed to the remaining credit risk. Securitization activities relating to assets originated by third parties can include the securitization of those assets through ABCP conduits (or similar programs) that we sponsor (including both consolidated and non-consolidated SEs; see the “Off-balance sheet arrangements” section and Note 7 to our consolidated financial statements for additional details), or through direct exposure to a client-sponsored special purpose vehicle. Risks associated with securitization exposures to client-originated assets are mitigated through the transaction structure, which includes credit enhancements. For the transactions where we retain credit risk on the exposures that we hold, we earn interest income on these holdings. For the transactions in the ABCP conduits, we are also exposed to liquidity risk associated with the potential inability to roll over maturing ABCP in the market. We earn fee income for the services that we provide to these ABCP conduits. We are also involved in the trading of ABS and ABCP to earn income in our role as underwriter and market maker. We are exposed to credit and market risk on the securities that we hold in inventory on a temporary basis until such securities are sold to an investor. Capital requirements for exposures arising from securitization activities are determined using one of the following approaches: SEC-IRBA, SEC-ERBA, SEC-IAA, or SEC-SA. The SEC-IAA process relies on internal risk ratings and is utilized for securitization exposures relating to ABCP conduits when external ratings are not available for the securitization exposures but the ABCP itself is externally rated. The internal assessment process involves an evaluation of a number of factors, including, but not limited to, pool characteristics, including asset eligibility criteria and concentration limits, transaction triggers, the asset seller’s risk profile, servicing capabilities, and cash flow stress testing. Cash flows are stress-tested based on historical asset performance using our internal risk rating models by asset type. These models are subject to our model risk mitigation policies and are independently reviewed by the Model Validation team in Risk Management. The stress test factors used to determine the transaction risk profile and required credit enhancement levels are tailored for each asset type and transaction based on the assessment of the factors described above and are done in accordance with our internal risk rating methodologies and guidelines. Internal risk ratings are mapped to equivalent external ratings of external credit assessment institutions (DBRS, Fitch, Moody’s and S&P) and are used to determine the appropriate risk weights for capital purposes. Securitization exposures and underlying asset performance are monitored on an ongoing basis. Risk Management serves as a second line of defence providing independent oversight regarding risk rating assumptions and adjudicating on the assignment of the internal risk ratings. SEC-IAA applies to various asset types in our ABCP conduits including, but not limited to, auto loans and leases, consumer loans, credit cards, dealer floorplan receivables, equipment loans and leases, fleet lease receivables, franchise loans, residential mortgages, and trade receivables. Internal risk ratings determined for securitization exposures are also used in the estimation of ECL as required under IFRS 9, determining economic capital, and for setting risk limits. CIBC 2021 ANNUAL REPORT 65 Management’s discussion and analysis Market risk Market risk is the risk of economic and/or financial loss in our trading and non-trading portfolios from adverse changes in underlying market factors, including interest rates, foreign exchange rates, equity market prices, commodity prices, credit spreads, and customer behaviour for retail products. Market risk arises in CIBC’s trading and treasury activities, and encompasses all market-related positioning and market-making activity. The trading portfolio consists of positions in financial instruments and commodities held to meet the near-term needs of our clients. The non-trading portfolio consists of positions in various currencies that are related to asset/liability management and investment activities. Governance and management Market risk is managed through the three lines of defence model. The first line of defence comprises frontline businesses and governance groups that are responsible for managing the market risk associated with their activities. The second line of defence is Risk Management, which has a dedicated market risk manager for each trading business, supplemented by regional risk managers located in all of our major trading centres, facilitating comprehensive risk coverage, including the measurement, monitoring and control of market risk. Internal audit is the third line of defence providing reasonable assurance to senior management and the Audit Committee of the Board on the effectiveness of CIBC’s governance practices, risk management processes, and internal control as part of its risk-based audit plan and in accordance with its mandate as described in the Internal Audit Charter. Senior management reports material risk matters to the GRC and RMC at least quarterly, including material transactions, limit compliance, and portfolio trends. Policies We have comprehensive policies for the management of market risk. These policies are related to the identification and measurement of various types of market risk, their inclusion in the trading portfolio, and the establishment of limits within which we monitor, manage and report our overall exposures. Our policies also outline the requirements for the construction of valuation models, model review and validation, independent checking of the valuation of positions, the establishment of valuation adjustments, and alignment with accounting policies including MTM and mark-to-model methodologies. Market risk limits We have risk tolerance levels, expressed in terms of statistically based VaR measures, potential stress losses, and notional or other limits as appropriate. We use a multi-tiered approach to set limits on the amounts of risk that we can assume in our trading and non-trading activities, as follows:   Management limits control market risk for CIBC overall and are lower than the Board limits to allow for a buffer in the event of extreme market Board limits control consolidated market risk; moves and/or extraordinary client needs; Tier 2 limits control market risk at the business unit level; and Tier 3 limits control market risk at the sub-business unit or desk level.   Management limits are established by the CRO, consistent with the risk appetite statement approved by the Board. Tier 2 and Tier 3 limits are approved at levels of management commensurate with the risk assumed. Process and control Market risk exposures are monitored daily against approved risk limits, and processes are in place to monitor that only authorized activities are undertaken. We generate daily risk and limit-monitoring reports, based on the previous day’s positions. Summary market risk and limit compliance reports are produced and reviewed periodically with the GRC and RMC. Risk measurement We use the following measures for market risk:  VaR enables the meaningful comparison of the risks in different businesses and asset classes. VaR is determined by the combined modelling of VaR for each of interest rate, credit spread, equity, foreign exchange, commodity, and debt specific risks, along with the portfolio effect arising from the interrelationship of the different risks (diversification effect):   Interest rate risk measures the impact of changes in interest rates and volatilities on cash instruments and derivatives. Credit spread risk measures the impact of changes in credit spreads of provincial, municipal and agency bonds, sovereign bonds, corporate bonds, securitized products, and credit derivatives such as credit default swaps. Equity risk measures the impact of changes in equity prices and volatilities. Foreign exchange risk measures the impact of changes in foreign exchange rates and volatilities. Commodity risk measures the impact of changes in commodity prices and volatilities, including the basis between related commodities. Debt specific risk measures the impact of changes in the volatility of the yield of a debt instrument as compared with the volatility of the yield of a representative bond index. Diversification effect reflects the risk reduction achieved across various financial instrument types, counterparties, currencies and regions. The extent of the diversification benefit depends on the correlation between the assets and risk factors in the portfolio at a particular time.           Price sensitivity measures the change in value of a portfolio to a small change in a given underlying parameter, so that component risks may be examined in isolation, and the portfolio rebalanced accordingly to achieve a desired exposure. Stressed VaR enables the meaningful comparison of the risks in different businesses and asset classes under stressful conditions. Changes to rates, prices, volatilities, and spreads over a 10-day horizon from a stressful historical period are applied to current positions to determine stressed VaR. IRC measures the required capital due to credit migration and default risk for debt securities held in the trading portfolios. Back-testing validates the effectiveness of risk measurement through analysis of observed and theoretical profit and loss outcomes. Stress testing and scenario analysis provide insight into portfolio behaviour under extreme circumstances. 66 CIBC 2021 ANNUAL REPORT Management’s discussion and analysis The following table provides balances on the consolidated balance sheet that are subject to market risk. Certain differences between accounting and risk classifications are detailed in the footnotes below: $ millions, as at October 31 2021 2020 Subject to market risk (1) Subject to market risk (1) Consolidated balance sheet Trading Non- trading Not subject to market risk Consolidated balance sheet Trading Non- trading Not subject to market risk Non-traded risk primary risk sensitivity Cash and non-interest-bearing deposits with banks Interest-bearing deposits with banks Securities Cash collateral on securities borrowed Securities purchased under resale agreements Loans Residential mortgages Personal Credit card Business and government Allowance for credit losses Derivative instruments Customers’ liability under acceptances Other assets Deposits Obligations related to securities sold short Cash collateral on securities lent Obligations related to securities sold under repurchase agreements Derivative instruments Acceptances Other liabilities Subordinated indebtedness $ 34,573 $ 22,424 161,401 – 19 56,028 $ 2,661 22,405 105,373 $ 31,912 – – $ 43,531 $ 18,987 149,046 – 75 45,825 $ 2,445 18,912 103,221 $ 41,086 Foreign exchange Interest rate Interest rate, equity – – 12,368 67,572 251,526 41,897 11,134 150,213 (2,849) 35,912 – – – – – 24,780 (2) – 34,589 12,368 67,572 251,526 41,897 11,134 125,433 (2,849) 1,323 – – – – – – – – 8,547 65,595 221,165 42,222 11,389 135,546 (3,540) 32,730 – – – – – 22,643 (2) – 31,244 8,547 65,595 221,165 42,222 11,389 112,903 (3,540) 1,486 10,958 40,554 – 2,977 10,958 26,743 – 10,834 9,606 34,727 – 3,364 9,606 20,613 – – – – – – – – Interest rate Interest rate Interest rate Interest rate Interest rate Interest rate Interest rate Interest rate, foreign exchange – Interest rate 10,750 Interest rate, equity, foreign exchange $ 837,683 $ 118,393 $ 676,544 $ 42,746 $ 769,551 $ 103,151 $ 614,564 $ 51,836 $ 621,158 $ 609 (3) $ 548,419 $ 72,130 $ 570,740 $ 484 (3) $ 510,788 $ 59,468 Interest rate 22,790 2,463 71,880 32,101 10,961 24,961 5,539 19,472 – – 30,882 – 2,705 – 3,318 2,463 71,880 1,219 10,961 11,344 5,539 – – – – – 10,912 – 15,963 1,824 71,653 30,508 9,649 22,167 5,712 13,795 – – 29,436 – 2,386 – 2,168 1,824 71,653 1,072 9,649 10,926 5,712 – – – – – 8,855 – Interest rate Interest rate Interest rate Interest rate, foreign exchange Interest rate Interest rate Interest rate $ 791,853 $ 53,668 $ 655,143 $ 83,042 $ 728,216 $ 46,101 $ 613,792 $ 68,323 (1) Funding valuation adjustment (FVA) exposures are excluded from trading activities for regulatory capital purposes, with related derivative hedges to these FVA exposures also excluded beginning from the second quarter of 2020. (2) Excludes $48 million (2020: $291 million) of loans that are warehoused for future securitization purposes. These are considered non-trading for market risk purposes. (3) Comprises FVO deposits which are considered trading for market risk purposes. Trading activities We hold positions in traded financial contracts to meet client investment and risk management needs. Trading revenue (net interest income or non-interest income) is generated from these transactions. Trading instruments are recorded at fair value and include debt and equity securities, as well as interest rate, foreign exchange, equity, commodity, and credit derivative products. Value-at-risk Our VaR methodology is a statistical technique that measures the potential overnight loss at a 99% confidence level. We use a full revaluation historical simulation methodology to compute VaR, stressed VaR and other risk measures. Although a valuable guide to risk, VaR should always be viewed in the context of its limitations. For example:   The use of historical data for estimating future events will not encompass all potential events, particularly those that are extreme in nature. The use of a one-day holding period assumes that all positions can be liquidated, or the risks offset in one day. This may not fully reflect the market risk arising at times of severe illiquidity, when a one-day period may be insufficient to liquidate or hedge all positions fully. The use of a 99% confidence level does not take into account losses that might occur beyond this level of confidence. VaR is calculated on the basis of exposures outstanding at the close of business and assumes no management action to mitigate losses.   The VaR table below presents market risks by type of risk and in aggregate. The risks are interrelated and the diversification effect reflects the reduction of risk due to portfolio effects among the trading positions. Our trading risk exposures to interest rates and credit spreads arise from activities in the global debt and derivative markets, particularly from transactions in the Canadian, U.S., and European markets. The primary instruments are government and corporate debt, and interest rate derivatives. The majority of the trading exposure to foreign exchange risk arises from transactions involving the Canadian dollar, U.S. dollar, Euro, Pound sterling, Australian dollar, Chinese yuan, and Japanese yen, whereas the primary risks of losses in equities are in the U.S., Canadian, and European markets. Trading exposure to commodities arises primarily from transactions involving North American natural gas, crude oil products, and precious metals. Stressed VaR The stressed VaR measure is intended to replicate the VaR calculation that would be generated for our current portfolio if the values of the relevant market risk factors were sourced from a period of stressed market conditions. The model inputs are calibrated to historical data from a continuous 12-month period of significant financial stress relevant to our current portfolio since December 2006. In 2021, our stressed VaR window has been the 2008-2009 Global Financial Crisis period. However, for a four-month period spanning the third and fourth quarters of 2020, our stressed VaR window was the 2019-2020 Pandemic period. These historical periods both exhibited not only increased volatility in interest rates but also increased volatility in equity prices, combined with a reduction in the level of interest rates, and an increase in credit spreads. CIBC 2021 ANNUAL REPORT 67 Management’s discussion and analysis Incremental risk charge IRC is a measure of default and migration risk for debt securities held in the trading portfolios. Our IRC methodology is a statistical technique that measures the risk of issuer migration and default over a period of one year by simulating changes in issuer credit rating. Validation of the model included testing of the liquidity horizon, recovery rate, correlation, and PD and migration. $ millions, as at or for the year ended October 31 2021 Interest rate risk Credit spread risk Equity risk Foreign exchange risk Commodity risk Debt specific risk Diversification effect (1) High Low As at Average High $ 15.0 11.8 7.8 3.8 6.1 5.7 n/m $ 4.1 5.8 2.3 0.4 1.0 2.1 n/m $ 5.7 8.4 6.5 1.6 1.3 2.9 (18.5) $ 8.7 8.5 4.1 1.4 3.0 3.1 (21.2) $ 10.6 12.2 13.5 7.0 7.9 3.9 n/m $ Low 3.5 1.3 1.5 0.4 1.1 1.5 n/m 2020 As at Average $ 7.3 7.0 3.7 2.0 2.4 3.0 (12.1) $ 6.1 5.4 3.8 1.8 3.1 2.5 (14.2) Total VaR (one-day measure) $ 13.9 $ 4.6 $ 7.9 $ 7.6 $ 22.0 $ 3.8 $ 13.3 $ 8.5 Stressed total VaR (one-day measure) IRC (one-year measure) (2) $ 40.8 $ 266.4 $ 15.3 $ 144.6 $ 33.2 $ 182.3 $ 28.0 $ 203.5 $ 34.1 $ 279.5 $ 7.4 $ 141.8 $ 30.2 $ 175.3 $ 18.9 $ 197.9 (1) Total VaR is less than the sum of the VaR of the different market risk types due to risk offsets resulting from a portfolio diversification effect. (2) High and low IRC are not equal to the sum of the constituent parts, because the highs and lows of the constituent parts may occur on different days. n/m Not meaningful. It is not meaningful to compute a diversification effect because the high and low may occur on different days for different risk types. Average total VaR for the year ended October 31, 2021 was down $0.9 million from the prior year, driven primarily by an increase in the diversification benefit, partially offset by increases in credit spread and interest rate risks. Average stressed total VaR for the year ended October 31, 2021 was up $9.1 million from the prior year. The increase was primarily due to changes in exposure to interest rate and equity risk. Average IRC for the year ended October 31, 2021 was up $5.6 million from the prior year due to increases in trading book bond inventory within our fixed income portfolio. Back-testing To determine the reliability of the trading VaR model, outcomes are monitored regularly through a back-testing process to test the validity of the assumptions and the parameters used in the trading VaR calculation. The back-testing process includes calculating a hypothetical or static profit and loss and comparing that result with calculated VaR. Static profit and loss represents the change in value of the prior day’s closing portfolio due to each day’s price movements, on the assumption that the portfolio remained unchanged. The back-testing process is conducted on a daily basis at the consolidated CIBC level as well as business lines and individual portfolios. Static profit and loss in excess of the one-day VaR are investigated. The back-testing process, including the investigation of results, is performed by risk professionals who are independent of those responsible for development of the model. Based on our back-testing results, we are able to ensure that our VaR model continues to appropriately measure risk. During the year, there were three negative back-testing breaches of the total VaR measure at the consolidated CIBC level, driven by the volatility in CAD and, to a lesser extent, USD interest rates. 68 CIBC 2021 ANNUAL REPORT Management’s discussion and analysis Trading revenue Trading revenue (TEB) comprises both trading net interest income and non-interest income and excludes underwriting fees and commissions. See “Financial performance overview” for details. Trading revenue (TEB) in the charts below excludes certain exited portfolios. During the year, trading revenue (TEB) was positive for 98.8% of the days, with the largest loss of $10.9 million occurring on October 27, 2021. Average daily trading revenue (TEB) was $6.7 million during the year, compared to $6.4 million during the previous year. Average daily trading revenue (TEB) is calculated as the total trading revenue (TEB) divided by the number of business days in the year. Frequency distribution of daily 2021 trading revenue (TEB) (1) The histogram below presents the frequency distribution of daily trading revenue (TEB) for 2021. s y a D e u n e v e R g n d a r T i 45 40 35 30 25 20 15 10 5 0 (1) or 0 less 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 C $ millions 20 21 or more Trading revenue (TEB) (1) versus VaR (2) The trading revenue (TEB) versus VaR graph below shows the current year’s daily trading revenue (TEB) against the close of business day VaR measures. Trading Revenue (TEB) VaR $ millions 35 30 25 20 15 10 5 0 (5) (10) (15) (20) Nov-20 Dec-20 Jan-21 Feb-21 Mar-21 Apr-21 May-21 Jun-21 Jul-21 Aug-21 Sep-21 Oct-21 (1) Excludes certain month-end transfer pricing and other miscellaneous adjustments. (2) Fair value adjustments are excluded from trading activities for regulatory capital purposes, with related derivative hedges to these fair value adjustments also excluded, beginning from the second quarter of 2020. CIBC 2021 ANNUAL REPORT 69 Management’s discussion and analysis Stress testing and scenario analysis Stress testing and scenario analysis is designed to add insight into possible outcomes of abnormal market conditions, and to highlight possible concentration of risk. We measure the effect on portfolio valuations under a wide range of extreme moves in market risk factors. Our approach simulates the impact on earnings of extreme market events over a one-month time horizon, assuming that no risk-mitigating actions are taken during this period to reflect the reduced market liquidity that typically accompanies such events. Scenarios are developed using historical market data during periods of market disruption, or are based on hypothetical impacts of economic events, political events, and natural disasters as predicted by economists, business leaders, and risk managers. Among the historical scenarios are the 1994 period of U.S. Federal Reserve tightening, and the market events following the 2008 market crisis. The hypothetical scenarios include potential market crises originating in North America, Europe and Asia. In August 2020, a Pandemic first wave scenario was incorporated into a suite of our stress scenarios. This scenario was modelled off the largest stress impacts from the first wave of the COVID-19 pandemic that resulted in severe disruption in financial markets. Below are examples of the core stress test scenarios which are currently run on a daily basis to add insight into potential exposures under stress:  Subprime crisis traded  U.S. Federal Reserve tightening – 1994  U.S. sovereign debt default and downgrade  Chinese hard landing  Canadian market crisis  U.S. protectionism  Eurozone bank crisis  Pandemic first wave  Quantitative easing tapering and asset price correction  Oil crisis Stress testing scenarios are periodically reviewed and amended as necessary to ensure they remain relevant. Under stress limit monitoring, limits are placed on the maximum acceptable loss based on risk appetite in aggregate, at the detailed portfolio level, and for specific asset classes. Non-trading activities Structural interest rate risk (SIRR) SIRR primarily consists of the risk arising due to mismatches in assets and liabilities, which do not arise from trading and trading-related businesses. The objective of SIRR management is to lock in product spreads and deliver stable and predictable net interest income over time, while managing the risk to the economic value of our assets arising from changes in interest rates. SIRR results from differences in the maturities or repricing dates of assets and liabilities, both on- and off-balance sheet, as well as from embedded optionality in retail products, and other product features that could affect the expected timing of cash flows, such as options to pre-pay loans or redeem term deposits prior to contractual maturity. A number of assumptions affecting cash flows, product re-pricing and the administration of rates underlie the models used to measure SIRR. The key assumptions pertain to the expected funding profile of mortgage rate commitments, fixed rate loan prepayment behaviour, term deposit redemption behaviour, the treatment of non-maturity deposits and equity. All assumptions are derived empirically based on historical client behaviour, balance sheet composition and product pricing with the consideration of possible forward-looking changes. All models and assumptions used to measure SIRR are subject to independent oversight by Risk Management. A variety of cash instruments and derivatives, primarily interest rate swaps, are used to manage these risks. The Board has oversight of the management of SIRR, approves the risk appetite and the associated SIRR risk limits. GALCO and its subcommittee, the Asset Liability Management Committee, regularly review structural market risk positions and provide senior management oversight. In addition to Board-approved limits on earnings and economic value exposure, more granular management limits are in place to guide day-to-day management of this risk. The asset/liability management (ALM) group within Treasury is responsible for the ongoing management of structural market risk across the enterprise, with independent oversight and compliance with SIRR policy provided by Risk Management. ALM activities are designed to manage the effects of potential interest rate movements while balancing the cost of any hedging activities on the current net revenue. To monitor and control SIRR, two primary metrics, net interest income risk and economic value of equity (EVE) risk, are assessed, in addition to stress testing, gap analysis and other market risk metrics. The net interest income sensitivity is a measure of the impact of potential changes in interest rates on the projected 12-month pre-tax net interest income of the bank’s portfolio of assets, liabilities and off-balance sheet positions in response to prescribed parallel interest rate movements with interest rates floored at zero. The EVE sensitivity is a measure of the impact of potential changes in interest rates on the market value of the bank’s assets, liabilities and off-balance sheet positions in response to prescribed parallel interest rate movements with interest rates floored at zero. The following table shows the potential before-tax impact of an immediate and sustained 100 basis points increase and 25 basis points decrease in interest rates on projected 12-month net interest income and economic value of equity for our structural balance sheet, assuming no subsequent hedging. While an immediate and sustained shock of 100 basis points is typically applied, and notwithstanding the possibility of negative rates, due to the low interest rate environment in both Canada and the U.S. as at October 31, 2021, an immediate downward shock of 25 basis points was applied while maintaining a floor on market and client interest rates at zero. Structural interest rate sensitivity – measures $ millions (pre-tax), as at October 31 100 basis point increase in interest rates Increase (decrease) in net interest income Increase (decrease) in EVE 25 basis point decrease in interest rates Increase (decrease) in net interest income Increase (decrease) in EVE (1) Includes CAD and other currency exposures. 70 CIBC 2021 ANNUAL REPORT CAD (1) 2021 USD CAD (1) 2020 USD $ 270 (684) $ 134 (161) $ 317 (556) $ 92 (348) (117) 161 (70) 29 (119) 57 (42) 49 Management’s discussion and analysis Foreign exchange risk Structural foreign exchange risk primarily consists of the risk inherent in: (a) net investments in foreign operations due to changes in foreign exchange rates; and (b) foreign currency denominated RWA and foreign currency denominated capital deductions. This risk, predominantly in U.S. dollars, is managed using derivative hedges and by funding the investments in matching currencies. We actively manage this position to ensure that the potential impact on our capital ratios is within an acceptable tolerance in accordance with the policy approved by the CRO, while giving consideration to the impact on earnings and shareholders’ equity. Structural foreign exchange risk is managed by Treasury under the guidance of GALCO with monitoring and oversight by Capital Markets Risk Management. A 1% appreciation of the Canadian dollar would reduce our shareholders’ equity as at October 31, 2021 by approximately $160 million (2020: $150 million) on an after-tax basis. Our non-functional currency denominated earnings are converted into the functional currencies through spot or forward foreign exchange transactions. Typically, there is no significant impact of exchange rate fluctuations on our consolidated statement of income. Derivatives held for ALM purposes Where derivatives are held for ALM purposes, and when transactions meet the criteria specified under IFRS, we apply hedge accounting for the risks being hedged, as discussed in Notes 13 and 14 to the consolidated financial statements. Derivative hedges that do not qualify for hedge accounting treatment are referred to as economic hedges and are recorded at fair value on the consolidated balance sheet with changes in fair value recognized in the consolidated statement of income. Economic hedges for other than FVO financial instruments may lead to income volatility because the hedged items are recorded either on a cost or amortized cost basis or recorded at fair value on the consolidated balance sheet with changes in fair value recognized through OCI. This income volatility may not be representative of the overall risk. Equity risk Non-trading equity risk arises primarily in our strategy and corporate development activities and strategic investments portfolio. The investments comprise public and private equities, investments in limited partnerships, and equity-accounted investments. The following table provides the amortized cost and fair values of our non-trading equities: $ millions, as at October 31 2021 Equity securities designated at FVOCI Equity-accounted investments in associates (1) 2020 Equity securities designated at FVOCI Equity-accounted investments in associates (1) Cost Fair value $ 730 66 $ 796 $ 576 71 $ 647 $ 836 89 $ 925 $ 585 93 $ 678 (1) Excludes our equity-accounted joint ventures. See Note 26 to the consolidated financial statements for further details. Pension risk We sponsor defined benefit pension plans in a number of jurisdictions. As at October 31, 2021, our consolidated defined benefit pension plans were in a net asset position of $1,323 million, compared with $185 million as at October 31, 2020. The change in the net asset position of our pension plans is disclosed in Note 19 to the consolidated financial statements. Our Canadian pension plans represent approximately 92% of our pension plans, the most significant of which is our principal Canadian pension plan (the CIBC Pension Plan). The estimated impact on our Canadian defined benefit obligations of a 100 basis point change in the discount rate is disclosed in Note 19 to the consolidated financial statements. The MRCC is responsible for sound governance and oversight, and delegates management authority to the Pension Benefits Management Committee (PBMC). An appropriate investment strategy for the CIBC Pension Plan is set through a statement of investment objectives, policies and procedures. Within Treasury, the Pension Investment Management department is responsible for developing and implementing custom investment strategies to sustainably deliver pension benefits within manageable risk tolerances and capital impacts. Key risks include actuarial risks (such as longevity risk), interest rate risk, currency risk, market (investment) risk, and health-care cost inflation risks. The CIBC Pension Plan principally manages these risk exposures through its liability-driven investment strategy, which includes the use of derivatives for risk management and rebalancing purposes, as well as the ability to enhance returns. The use of derivatives within the CIBC Pension Plan is governed by the plan’s derivatives policy that was approved by the PBMC. The fair value of derivatives held in the CIBC Pension Plan is disclosed in Note 19 to the consolidated financial statements. A principal risk for the CIBC Pension Plan is interest rate risk, which it mitigates through a combination of physical bonds and a bond overlay program funded through the use of repurchase agreements. The plan also operates a currency overlay strategy, which may use forwards or similar instruments, to manage and mitigate its currency risk. Investment risk is mitigated through a multi-asset portfolio construction process that diversifies across a variety of market risk drivers. CIBC 2021 ANNUAL REPORT 71 Management’s discussion and analysis Liquidity risk Liquidity risk is the risk of having insufficient cash or its equivalent in a timely and cost-effective manner to meet financial obligations as they come due. Common sources of liquidity risk inherent in banking services include unanticipated withdrawals of deposits, the inability to replace maturing debt, credit and liquidity commitments, and additional pledging or other collateral requirements. Our approach to liquidity risk management supports our business strategy, aligns with our risk appetite and adheres to regulatory expectations. Our management strategies, objectives and practices are regularly reviewed to align with changes to the liquidity environment, including regulatory, business and/or market developments. Liquidity risk remains within CIBC’s risk appetite. Governance and management We manage liquidity risk in a manner that enables us to withstand a liquidity stress event without an adverse impact on the viability of our operations. Actual and anticipated cash flows generated from on- and off-balance sheet exposures are routinely measured and monitored to ensure compliance with established limits. We incorporate stress testing into the management and measurement of liquidity risk. Stress test results assist with the development of our liquidity assumptions, identification of potential constraints to funding planning, and contribute to the design of our contingency funding plan. Liquidity risk is managed using the three lines of defence model, and the ongoing management of liquidity risk is the responsibility of the Treasurer, supported by guidance from GALCO. The Treasurer is responsible for managing the activities and processes required for measurement and the reporting and monitoring of CIBC’s liquidity risk position as the first line of defence. The Liquidity and Non-Trading Market Risk group provides independent oversight of the measurement, monitoring and control of liquidity risk, as the second line of defence. Internal audit is the third line of defence providing reasonable assurance to senior management and the Audit Committee of the Board on the effectiveness of CIBC’s governance practices, risk management processes, and internal control as part of its risk-based audit plan and in accordance with its mandate as described in the Internal Audit Charter. The GALCO governs CIBC’s liquidity risk management, ensuring the liquidity risk management methodologies, assumptions, and key metrics are regularly reviewed and aligned with CIBC’s requirements. The Liquidity Risk Management Committee, a subcommittee of GALCO, monitors global liquidity risk and is responsible for ensuring that CIBC’s liquidity risk profile is comprehensively measured and managed in alignment with CIBC’s strategic direction, risk appetite and regulatory requirements. The RMC provides governance through bi-annual review of CIBC’s liquidity risk management policy, and recommends liquidity risk tolerance to the Board through the risk appetite statement which is reviewed annually. Policies Our liquidity risk management policy establishes requirements that enable us to meet anticipated liquidity needs in both normal and stressed conditions by maintaining a sufficient amount of available unencumbered liquid assets and diversified funding sources. Branches and subsidiaries possessing unique liquidity characteristics, due to distinct businesses or jurisdictional requirements, maintain local liquidity practices in alignment with CIBC’s liquidity risk management policy. Our pledging policy sets out consolidated limits for the pledging of CIBC’s assets across a broad range of financial activities. These limits ensure unencumbered liquid assets are available for liquidity purposes. We maintain a detailed global contingency funding plan that sets out the strategies for addressing liquidity shortfalls in emergency and unexpected situations, and delineates the requirements necessary to manage a range of stress conditions, establishes lines of responsibility, articulates implementation, defines escalation procedures, and is aligned to CIBC’s risk appetite. In order to reflect CIBC’s organizational complexity, regional and subsidiary contingency funding plans are maintained to respond to liquidity stresses unique to the jurisdictions within which CIBC operates, and support CIBC as an enterprise. Risk measurement Our liquidity risk tolerance is defined by our risk appetite statement, which is approved annually by the Board, and forms the basis for the delegation of liquidity risk authority to senior management. We use both regulatory-driven and internally developed liquidity risk metrics to measure our liquidity risk exposure. Internally, our liquidity position is measured using the Liquidity Horizon, which combines contractual and behavioural cash flows to measure the future point in time when projected cumulative cash outflows exceed cash inflows under a combined CIBC-specific and market-wide stress scenario. Expected and potential anticipated inflows and outflows of funds generated from on- and off-balance sheet exposures are measured and monitored on a regular basis to ensure compliance with established limits. These cash flows incorporate both contractual and behavioural on- and off-balance sheet cash flows. Our liquidity measurement system provides liquidity risk exposure reports that include the calculation of the internal liquidity stress tests and regulatory reporting such as the LCR, Net Stable Funding Ratio (NSFR) and Net Cumulative Cash Flow (NCCF). Our liquidity management also incorporates the monitoring of our unsecured wholesale funding position and funding capacity. Risk appetite CIBC’s risk appetite statement ensures prudent management of liquidity risk by outlining qualitative considerations and quantitative metrics including the LCR and Liquidity Horizon. Quantitative metrics are measured and managed to a set of limits approved by Risk Management. Stress testing A key component of our liquidity risk management, and complementing our assessments of liquidity risk exposure, is liquidity risk stress testing. Liquidity stress testing involves the application of name-specific and market-wide stress scenarios at varying levels of severity to assess the amount of available liquidity required to satisfy anticipated obligations as they come due. The scenarios model potential liquidity and funding requirements in the event of changes to unsecured wholesale funding and deposit run-off, contingent liquidity utilization, and liquid asset marketability. 72 CIBC 2021 ANNUAL REPORT Management’s discussion and analysis Liquid assets Available liquid assets include unencumbered cash and marketable securities from on- and off-balance sheet sources, that can be used to access funding in a timely fashion. Encumbered liquid assets, composed of assets pledged as collateral and those assets that are deemed restricted due to legal, operational, or other purposes, are not considered as sources of available liquidity when measuring liquidity risk. Encumbered and unencumbered liquid assets from on- and off-balance sheet sources are summarized as follows: $ millions, as at October 31 2021 Cash and deposits with banks Securities issued or guaranteed by sovereigns, central banks, and multilateral development banks Other debt securities Equities Canadian government guaranteed National Housing Act mortgage-backed securities Other liquid assets (2) 2020 Cash and deposits with banks Securities issued or guaranteed by sovereigns, central banks, and multilateral development banks Other debt securities Equities Canadian government guaranteed National Housing Act mortgage-backed securities Other liquid assets (2) Bank owned liquid assets 56,997 $ Securities received as collateral – $ Total liquid assets 56,997 $ Encumbered liquid assets 252 $ Unencumbered liquid assets (1) $ 56,745 113,515 5,681 37,855 36,116 12,772 $ 262,936 $ 62,518 112,403 4,798 27,169 40,592 10,909 100,944 5,510 22,996 214,459 11,191 60,851 134,370 1,827 25,133 80,089 9,364 35,718 948 3,927 $ 134,325 37,064 16,699 $ 397,261 14,677 7,203 $ 183,462 22,387 9,496 $ 213,799 $ – $ 62,518 $ 133 $ 62,385 92,202 4,288 15,924 895 2,109 204,605 9,086 43,093 41,487 13,018 108,425 2,603 21,449 13,084 5,441 96,180 6,483 21,644 28,403 7,577 $ 258,389 $ 115,418 $ 373,807 $ 151,135 $ 222,672 (1) Unencumbered liquid assets are defined as on-balance sheet assets, assets borrowed or purchased under resale agreements, and other off-balance sheet collateral received less encumbered liquid assets. (2) Includes cash pledged as collateral for derivatives transactions, select ABS and precious metals. The following table summarizes unencumbered liquid assets held by CIBC (parent) and its domestic and foreign subsidiaries: $ millions, as at October 31 CIBC (parent) Domestic subsidiaries Foreign subsidiaries 2021 $ 153,971 12,271 47,557 $ 213,799 2020 $ 170,936 12,355 39,381 $ 222,672 Asset haircuts and monetization depth assumptions under a liquidity stress scenario are applied to determine asset liquidity value. Haircuts take into consideration those margins applicable at central banks – such as the Bank of Canada and the U.S. Federal Reserve Bank – historical observations, and securities characteristics including asset type, issuer, credit ratings, currency and remaining term to maturity, as well as available regulatory guidance. Our unencumbered liquid assets decreased by $8.9 billion since October 31, 2020, as a result of asset growth and planned funding repayments that are a part of our ongoing business operations and strategies. Furthermore, we maintain access eligibility to the Bank of Canada’s Emergency Lending Assistance program and the U.S. Federal Reserve Bank’s Discount Window. Asset encumbrance In the course of our day-to-day operations, securities and other assets are pledged to secure obligations, participate in clearing and settlement systems and for other collateral management purposes. The following table provides a summary of our total on- and off-balance sheet encumbered and unencumbered assets: $ millions, as at October 31 2021 Cash and deposits with banks Securities (3) Loans, net of allowance for credit losses (4) Other assets 2020 Cash and deposits with banks Securities (3) Loans, net of allowance for credit losses (4) Other assets Encumbered Unencumbered Total assets $ Pledged as collateral – 154,382 1,488 6,599 $ 162,469 $ – 127,974 7,946 4,950 $ 140,870 $ Other (1) 252 1,817 44,615 – $ 46,684 $ 133 678 42,291 – $ 43,102 $ Available as collateral 56,745 134,018 29,331 3,005 $ 223,099 $ 62,385 132,493 34,103 2,731 $ 231,712 $ Other (2) – – 376,487 77,820 $ 454,307 $ – – 322,441 69,382 $ 391,823 $ 56,997 290,217 451,921 87,424 $ 886,559 $ 62,518 261,145 406,781 77,063 $ 807,507 (1) Includes assets supporting CIBC’s long-term funding activities and assets restricted for legal or other reasons, such as restricted cash. (2) Other unencumbered assets are not subject to any restrictions on their use to secure funding or as collateral, however they are not considered immediately available to existing borrowing programs. (3) Total securities comprise certain on-balance sheet securities, as well as off-balance sheet securities received under resale agreements, secured borrowings transactions, and collateral-for-collateral transactions. (4) Loans included as available as collateral represent the loans underlying National Housing Act mortgage-backed securities and Federal Home Loan Banks eligible loans. Restrictions on the flow of funds Our subsidiaries are not subject to significant restrictions that would prevent transfers of funds, dividends or capital distributions. However, certain subsidiaries have different capital and liquidity requirements, established by applicable banking and securities regulators. We monitor and manage our capital and liquidity requirements across these entities to ensure that resources are used efficiently and entities are in compliance with local regulatory and policy requirements. CIBC 2021 ANNUAL REPORT 73 Management’s discussion and analysis Liquidity coverage ratio The objective of the LCR is to promote short-term resilience of a bank’s liquidity risk profile, ensuring that it has adequate unencumbered high- quality liquid resources to meet its liquidity needs in a 30-day acute stress scenario. Canadian banks are required by OSFI to achieve a minimum LCR value of 100%. We are in compliance with this requirement. In accordance with the calibration methodology contained in OSFI’s Liquidity Adequacy Requirements (LAR) Guideline, we report the LCR to OSFI on a monthly basis. The ratio is calculated as the total of unencumbered high-quality liquid assets (HQLA) over the total net cash outflows in the next 30 calendar days. The LCR’s numerator consists of unencumbered HQLA, which follow an OSFI-defined set of eligibility criteria that considers fundamental and market-related characteristics, and the relative ability to operationally monetize assets on a timely basis during a period of stress. Our centrally- managed liquid asset portfolio includes those liquid assets reported in the HQLA, such as central government treasury bills and bonds, central bank deposits and high-rated sovereign, agency, provincial, and corporate securities. Asset eligibility limitations inherent in the LCR metric do not necessarily reflect our internal assessment of our ability to monetize our marketable assets under stress. The ratio’s denominator reflects net cash outflows expected in the LCR’s stress scenario over the 30-calendar-day period. Expected cash outflows represent LCR-defined withdrawal or draw-down rates applied against outstanding liabilities and off-balance sheet commitments, respectively. Significant contributors to our LCR outflows include business and financial institution deposit run-off, draws on undrawn lines of credit and unsecured debt maturities. Cash outflows are partially offset by cash inflows, which are calculated at OSFI-prescribed LCR inflow rates, and include performing loan repayments and maturing non-HQLA marketable assets. During a period of financial stress, institutions may use their stock of HQLA, thereby falling below 100%, as maintaining the LCR at 100% under such circumstances could produce undue negative effects on the institution and other market participants. The LCR is calculated and disclosed using a standard OSFI-prescribed template. $ millions, average of the three months ended October 31, 2021 Total unweighted value (1) Total weighted value (2) HQLA 1 HQLA Cash outflows Unsecured wholesale funding, of which: Stable deposits Less stable deposits Retail deposits and deposits from small business customers, of which: Operational deposits (all counterparties) and deposits in networks of cooperative banks Non-operational deposits (all counterparties) Unsecured debt 2 3 4 5 6 7 8 9 10 Outflows related to derivative exposures and other collateral requirements 11 Outflows related to loss of funding on debt products 12 13 Credit and liquidity facilities 14 Other contractual funding obligations 15 Other contingent funding obligations Secured wholesale funding Additional requirements, of which: 16 Total cash outflows Cash inflows Secured lending (e.g. reverse repos) Inflows from fully performing exposures 17 18 19 Other cash inflows 20 Total cash inflows 21 22 23 Total HQLA Total net cash outflows LCR $ millions, average of the three months ended July 31, 2021 24 25 26 Total HQLA Total net cash outflows LCR n/a $ 174,728 $ 214,521 95,749 118,772 211,789 81,800 103,701 26,288 n/a 135,763 20,194 2,330 113,239 3,301 332,834 n/a 81,977 18,030 4,917 15,759 2,872 12,887 102,507 20,016 56,203 26,288 4,558 32,528 11,374 2,330 18,824 3,301 6,435 165,088 13,792 8,509 4,917 $ 104,924 $ 27,218 n/a n/a n/a n/a n/a n/a Total adjusted value $ 174,728 $ 137,870 127 % Total adjusted value $ 168,259 $ 133,491 126 % (1) Unweighted inflow and outflow values are calculated as outstanding balances maturing or callable within 30 days of various categories or types of liabilities, off-balance sheet items or contractual receivables. (2) Weighted values are calculated after the application of haircuts (for HQLA) and inflow and outflow rates prescribed by OSFI. n/a Not applicable as per the LCR common disclosure template. Our average LCR as at October 31, 2021 increased to 127% from 126% in the prior quarter, mainly due to higher HQLA, largely offset by an increase in net cash outflows. Furthermore, we report the LCR to OSFI in multiple currencies, thus measuring the extent of potential currency mismatch under the ratio. CIBC predominantly operates in major currencies with deep and fungible foreign exchange markets. Net stable funding ratio (NSFR) Derived from the BCBS’s Basel III framework and incorporated into OSFI’s LAR Guideline, the NSFR standard aims to promote long-term resilience of the financial sector by requiring banks to maintain a sustainable funding profile in relation to the composition of their assets and off-balance sheet activities. Canadian D-SIBs are required to maintain a minimum NSFR value of 100% on a consolidated bank basis. CIBC is in compliance with this requirement. In accordance with the calibration methodology contained in OSFI’s LAR Guideline, we report the NSFR to OSFI on a quarterly basis. The ratio is calculated as total available stable funding (ASF) over the total required stable funding (RSF). 74 CIBC 2021 ANNUAL REPORT Management’s discussion and analysis The numerator consists of the portion of capital and liabilities considered reliable over a one-year time horizon. The NSFR considers longer- term sources of funding to be more stable than short-term funding and deposits from retail and commercial customers to be behaviourally more stable than wholesale funding of the same maturity. In accordance with our funding strategy, key drivers of our ASF include client deposits supplemented by secured and unsecured wholesale funding, and capital instruments. The denominator represents the amount of stable funding required based on the OSFI-defined liquidity characteristics and residual maturities of assets and off-balance sheet exposures. The NSFR ascribes varying degrees of RSF such that HQLA and short-term exposures are assumed to have a lower funding requirement than less liquid and longer-term exposures. Our RSF is largely driven by retail, commercial and corporate lending, investments in liquid assets, derivative exposures, and undrawn lines of credit and liquidity. The ASF and RSF may be adjusted to zero for certain liabilities and assets that are determined to be interdependent if they meet the NSFR- defined criteria, which take into account the purpose, amount, cash flows, tenor and counterparties among other aspects to ensure the institution is acting solely as a pass-through unit for the underlying transactions. We report, where applicable, interdependent assets and liabilities arising from transactions OSFI has designated as eligible for such treatment in the LAR Guideline. The NSFR is calculated and disclosed using an OSFI-prescribed template, which captures the key quantitative information based on liquidity characteristics unique to the NSFR as defined in the LAR Guideline. As a result, amounts presented in the table below may not allow for direct comparison with the annual consolidated financial statements. Retail deposits and deposits from small business customers $ millions, as at October 31, 2021 ASF item Regulatory capital Other capital instruments Stable deposits Less stable deposits Operational deposits Other wholesale funding Capital 1 2 3 4 5 6 7 Wholesale funding 8 9 10 11 12 13 14 Total ASF Liabilities with matching interdependent assets Other liabilities NSFR derivative liabilities All other liabilities and equity not included in the above categories RSF item 15 16 17 18 19 Total NSFR HQLA Deposits held at other financial institutions for operational purposes Performing loans and securities Performing loans to financial institutions secured by Level 1 HQLA Performing loans to financial institutions secured by non-Level 1 HQLA a b c d e Unweighted value by residual maturity No maturity <6 months 6 months to <1 year >1 year Weighted value $ 46,972 $ 46,972 – 197,887 92,198 105,689 157,812 81,359 76,453 – – – $ – – 30,121 12,748 17,373 158,071 3,025 155,046 1,627 – $ – – 7,967 4,797 3,170 41,263 – 41,263 892 82,324 (1) 7,020 (1) 4,945 4,945 – 10,103 6,530 3,573 67,193 – 67,193 14,276 – 49,449 145 25,710 – 58,465 – 2,553 97,988 25,608 – 48,154 2,457 5 300,559 1,596 $ 51,916 51,916 – 227,177 110,785 116,392 185,956 42,192 143,764 – 7,469 7,469 472,518 15,052 1,282 325,693 4,412 and unsecured performing loans to financial institutions 698 28,233 6,338 12,324 19,288 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 Performing loans to non-financial corporate clients, loans to retail and small business customers, and loans to sovereigns, central banks and public sector entities, of which: With a risk weight of less than or equal to 35% under the Basel II standardized approach for credit risk Performing residential mortgages, of which: With a risk weight of less than or equal to 35% under the Basel II standardized approach for credit risk Securities that are not in default and do not qualify as HQLA, including exchange-traded equities Assets with matching interdependent liabilities Other assets Physical traded commodities, including gold Assets posted as initial margin for derivative contracts and contributions to default funds of central counterparties NSFR derivative assets NSFR derivative liabilities before deduction of variation margin posted All other assets not included in the above categories Off-balance sheet items Total RSF NSFR $ millions, as at July 31, 2021 35 36 37 Total ASF Total RSF NSFR (1) No assigned time period per disclosure template design. 27,221 31,121 17,718 102,108 134,812 – 17,910 – 11,503 – 21,036 – 180,548 – 151,991 17,910 11,427 20,959 176,049 148,091 12,636 – 13,137 3,005 1,523 1,627 605 892 80,203 (1) 3,983 14,276 10,132 38,538 8,693 (1) 11,914 (1) 15,982 (1) 83 336,705 (1) 4,993 15,190 – 47,512 2,554 7,389 4,893 799 31,877 11,823 $ 401,362 118 % Weighted value $ 454,792 $ 389,814 117 % Our NSFR as at October 31, 2021 increased to 118% from 117% in the prior quarter, due to an increase in long-term funding largely offset by an increase in lending in line with strategic business growth. CIBC 2021 ANNUAL REPORT 75 Management’s discussion and analysis CIBC considers the impact of its business decisions on the LCR, NSFR and other liquidity risk metrics that it regularly monitors as part of a robust liquidity risk management function. Variables that can impact the metrics month-over-month include, but are not limited to, items such as wholesale funding activities and maturities, strategic balance sheet initiatives, and transactions and market conditions affecting collateral. Reporting of the LCR and NSFR is calibrated centrally by Treasury, in conjunction with the SBUs and other functional groups. Funding We fund our operations with client-sourced deposits, supplemented with a wide range of wholesale funding. Our principal approach aims to fund our consolidated balance sheet with deposits primarily raised from personal and commercial banking channels. We maintain a foundation of relationship-based core deposits, whose stability is regularly evaluated through internally developed statistical assessments. We routinely access a range of short-term and long-term secured and unsecured funding sources diversified by geography, depositor type, instrument, currency and maturity. We raise long-term funding from existing programs including covered bonds, asset securitizations and unsecured debt. We continuously evaluate opportunities to diversify into new funding products and investor segments in an effort to maximize funding flexibility and minimize concentration and financing costs. We regularly monitor wholesale funding levels and concentrations to internal limits consistent with our desired liquidity risk profile. GALCO and RMC review and approve CIBC’s funding plan, which incorporates projected asset and liability growth, funding maturities, and output from our liquidity position forecasting. The following table provides the contractual maturity profile of our wholesale funding sources at their carrying values: $ millions, as at October 31, 2021 Less than 1 month 1–3 months 3–6 months 6–12 months Less than 1 year total 1–2 years Over 2 years Deposits from banks (1) Certificates of deposit and commercial paper Bearer deposit notes and bankers’ acceptances Senior unsecured medium-term notes (2) Senior unsecured structured notes Covered bonds/asset-backed securities $ 5,642 $ 8,566 978 1,485 – Mortgage securitization Covered bonds Cards securitization Subordinated liabilities Other Of which: Secured Unsecured 358 $ 422 $ 304 $ 6,726 $ – $ 18,998 2,065 865 – 352 1,058 – – – 11,808 1,588 1,290 – 1,279 – – – – 22,349 257 5,211 31 895 6,850 – – 247 61,721 4,888 8,851 31 2,526 7,908 – – 247 496 – 16,360 187 4,069 4,376 – – – – $ – – 23,192 62 10,447 11,545 1,721 5,539 8 – – – – – Total 6,726 62,217 4,888 48,403 280 17,042 23,829 1,721 5,539 255 $ 16,671 $ 23,696 $ 16,387 $ 36,144 $ 92,898 $ 25,488 $ 52,514 $ 170,900 $ – $ 1,410 $ 1,279 $ 7,745 $ 10,434 $ 8,445 $ 23,713 $ 16,671 22,286 15,108 28,399 82,464 17,043 28,801 42,592 128,308 $ 16,671 $ 23,696 $ 16,387 $ 36,144 $ 92,898 $ 25,488 $ 52,514 $ 170,900 October 31, 2020 $ 17,139 $ 15,400 $ 12,670 $ 35,224 $ 80,433 $ 17,648 $ 54,253 $ 152,334 (1) Includes non-negotiable term deposits from banks. (2) Includes wholesale funding liabilities which are subject to conversion under bail-in regulations. See the “Capital management” section for additional details. The following table provides the diversification of CIBC’s wholesale funding by currency: $ billions, as at October 31 CAD USD Other $ 48.0 91.5 31.4 2021 28 % 54 18 $ 50.8 75.4 26.1 $ 170.9 100 % $ 152.3 2020 33 % 50 17 100 % We manage liquidity risk in a manner that enables us to withstand severe liquidity stress events. Wholesale funding may present a higher risk of run-off in stress situations, and we maintain significant portfolios of unencumbered liquid assets to mitigate this risk. See the “Liquid assets” section for additional details. Funding plan Our funding plan is updated at least quarterly, or in response to material changes in underlying assumptions and business developments. The plan incorporates projected asset and liability growth from our ongoing operations, and the output from our liquidity position forecasting. 76 CIBC 2021 ANNUAL REPORT Management’s discussion and analysis Credit ratings Our access to and cost of wholesale funding are dependent on multiple factors, among them credit ratings provided by rating agencies. Rating agencies’ opinions are based upon internal methodologies, and are subject to change based on factors including, but not limited to, financial strength, competitive position, macroeconomic backdrop and liquidity positioning. On July 15, 2021, Fitch affirmed CIBC’s ratings and revised the outlook to Stable from Negative. Our credit ratings are summarized in the following table: As at October 31, 2021 Deposit/Counterparty (1) Legacy senior debt (2) Senior debt (3) Subordinated indebtedness Subordinated indebtedness – NVCC (4) Limited recourse capital notes – NVCC (4) Preferred shares – NVCC (4) Short-term debt Outlook DBRS AA AA AA(L) A(H) A(L) BBB(H) Pfd-2 R-1(H) Stable Fitch AA AA AA- A A n/a n/a F1+ Stable Moody’s Aa2 Aa2 A2 Baa1 Baa1 Baa3 Baa3 P-1 Stable S&P A+ A+ BBB+ BBB+ BBB BB+ P-3(H) A-1 Stable (1) DBRS Long-Term Issuer Rating; Fitch Long-Term Deposit Rating and Derivative Counterparty Rating; Moody’s Long-Term Deposit and Counterparty Risk Assessment Rating; S&P’s Issuer Credit Rating. (2) Includes senior debt issued prior to September 23, 2018 as well as senior debt issued on or after September 23, 2018 which is not subject to bail-in regulations. (3) Comprises liabilities which are subject to conversion under bail-in regulations. See the “Capital management” section for additional details. (4) Comprises instruments which are treated as NVCC in accordance with OSFI’s CAR Guideline. n/a Not applicable. Additional collateral requirements for rating downgrades We are required to deliver collateral to certain derivative counterparties in the event of a downgrade to our current credit risk rating. The collateral requirement is based on MTM exposure, collateral valuations, and collateral arrangement thresholds, as applicable. The following table presents the additional cumulative collateral requirements for rating downgrades: $ billions, as at October 31 One-notch downgrade Two-notch downgrade Three-notch downgrade 2021 $ 0.1 0.2 0.3 2020 $ 0.1 0.2 0.3 Regulatory developments concerning liquidity On March 27, 2020, as a COVID-19 support measure, OSFI had allowed a temporary increase to the covered bond limit from 5.5% to 10% of total assets to facilitate greater access to the Bank of Canada facilities. The temporary increase in the limit targeted covered bonds pledged directly to the Bank of Canada, with the limit relating to market instruments remaining at 5.5%. Effective April 6, 2021, as a result of improvements to liquidity and access to term funding, OSFI announced the unwinding of the temporary increase of the covered bond limit for deposit-taking institutions. CIBC remains compliant with the stipulated requirements. CIBC 2021 ANNUAL REPORT 77 Management’s discussion and analysis Contractual obligations Contractual obligations give rise to commitments of future payments affecting our short- and long-term liquidity and capital resource needs. These obligations include financial liabilities, credit and liquidity commitments, and other contractual obligations. Assets and liabilities The following table provides the contractual maturity profile of our on-balance sheet assets, liabilities and equity at their carrying values. Contractual analysis is not representative of our liquidity risk exposure, however this information serves to inform our management of liquidity risk, and provide input when modelling a behavioural balance sheet. $ millions, as at October 31, 2021 Assets Cash and non-interest-bearing deposits with banks (1) Interest-bearing deposits with banks Securities Cash collateral on securities borrowed Securities purchased under resale agreements Loans Residential mortgages Personal Credit card Business and government Allowance for credit losses Derivative instruments Customers’ liability under acceptances Other assets Less than 1 month 1–3 months 3–6 months 6–9 months 9–12 months 1–2 years 2–5 years Over 5 years No specified maturity Total $ 34,573 $ 22,424 2,453 12,368 – $ – 8,440 – – $ – 5,830 – – $ – 4,596 – – $ – 4,632 – – $ – 18,937 – – $ – 44,911 – – $ – 32,562 – – $ 34,573 – 22,424 161,401 39,040 12,368 – 37,147 12,451 10,728 4,580 666 2,000 – – – 67,572 1,766 703 234 9,366 – 2,450 9,801 – 4,565 695 468 5,488 – 5,851 1,109 – 9,121 988 701 9,341 – 3,199 24 – 13,146 963 701 9,907 – 1,998 9 – 12,919 862 702 9,791 – 1,567 15 – 40,758 411 2,806 24,422 – 6,576 – – 161,304 3,398 5,522 54,542 – 6,634 – – 7,947 3,947 – 18,719 – 7,637 – – – 29,930 – 8,637 (2,849) – – 40,554 251,526 41,897 11,134 150,213 (2,849) 35,912 10,958 40,554 $ 133,285 $ 39,067 $ 39,932 $ 35,900 $ 31,154 $ 95,910 $ 276,311 $ 70,812 $ 115,312 $ 837,683 October 31, 2020 (2) $ 131,720 $ 32,390 $ 42,722 $ 34,448 $ 29,883 $ 102,112 $ 226,577 $ 70,961 $ 98,738 $ 769,551 Liabilities Deposits (3) Obligations related to securities sold short Cash collateral on securities lent Obligations related to securities sold under repurchase agreements Derivative instruments Acceptances Other liabilities Subordinated indebtedness Equity $ 30,570 $ 34,446 $ 31,584 $ 40,666 $ 26,305 $ 35,021 $ 48,347 $ 14,255 $ 359,964 $ 621,158 22,790 2,463 22,790 2,463 – – – – – – – – – – – – – – – – 45,145 3,639 9,804 26 – – 17,597 5,264 1,109 49 – – 8,038 2,660 24 75 – – 563 1,909 9 77 – – 192 1,515 15 80 – – 345 4,382 – 290 – – – 5,473 – 620 – – – 7,259 – 916 5,539 – – – – 22,828 – 45,830 71,880 32,101 10,961 24,961 5,539 45,830 $ 114,437 $ 58,465 $ 42,381 $ 43,224 $ 28,107 $ 40,038 $ 54,440 $ 27,969 $ 428,622 $ 837,683 October 31, 2020 $ 98,552 $ 40,528 $ 58,834 $ 43,919 $ 26,555 $ 33,273 $ 58,938 $ 26,416 $ 382,536 $ 769,551 (1) Cash includes interest-bearing demand deposits with the Bank of Canada. (2) Restated from amounts previously presented. (3) Comprises $213.9 billion (2020: $202.2 billion) of personal deposits; $387.1 billion (2020: $351.6 billion) of business and government deposits and secured borrowings; and $20.2 billion (2020: $17.0 billion) of bank deposits. The changes in the contractual maturity profile were primarily due to the natural migration of maturities and also reflect the impact of our regular business activities. Credit-related commitments The following table provides the contractual maturity of notional amounts of credit-related commitments. Since a significant portion of commitments are expected to expire without being drawn upon, the total of the contractual amounts is not representative of future liquidity requirements. $ millions, as at October 31, 2021 Unutilized credit commitments Securities lending (2) Standby and performance letters of credit Backstop liquidity facilities Documentary and commercial letters of credit Other Less than 1 month 1–3 months 3–6 months 6–9 months 9–12 months 1–2 years 2–5 years Over 5 years $ 2,324 $ 10,907 $ 4,357 $ 4,972 $ 5,149 $ 24,371 $ 57,189 $ 3,625 – – 53 3,690 – 658 43,002 3,101 – 4,561 2,511 10,522 – 2,740 10 3,015 2,435 680 – 609 292 – 636 12 No specified maturity (1) Total $ 188,449 – – – $ 301,343 50,578 15,775 12,174 35 978 63 – 29 – 23 – 3 – 12 – 29 – – – – – 194 978 $ 49,440 $ 28,564 $ 10,516 $ 9,343 $ 7,902 $ 25,284 $ 57,866 $ 3,678 $ 188,449 $ 381,042 October 31, 2020 $ 39,474 $ 24,451 $ 11,188 $ 8,798 $ 6,427 $ 20,638 $ 51,245 $ 1,714 $ 173,157 $ 337,092 (1) Includes $141.5 billion (2020: $131.3 billion) of personal, home equity and credit card lines, which are unconditionally cancellable at our discretion. (2) Excludes securities lending of $2.5 billion (2020: $1.8 billion) for cash because it is reported on the consolidated balance sheet. 78 CIBC 2021 ANNUAL REPORT Management’s discussion and analysis Other off-balance sheet contractual obligations The following table provides the contractual maturities of other off-balance sheet contractual obligations affecting our funding needs: $ millions, as at October 31, 2021 (1) Purchase obligations (2) Future lease commitments (1) Investment commitments Underwriting commitments Pension contributions (3) Less than 1 month $ 124 –– 21 268 20 $ 414 1–3 months $ 136 3–6 months $ 161 6–9 months $ 259 – 233 – –– – 39 $ 176 58 $ 221 58 $ 320 9–12 months $ 124 – – 58 $ 185 1–2 years $ 472 1 1 – –– – $ 483 2–5 years $ 661 69 5 – $ 735 $ Over 5 years 136 722 329 – – $ 1,187 Total $ 2,073 81 0 337 268 233 $ 3,721 October 31, 2020 $ 211 $ 243 $ 231 $ 239 $ 204 $ 488 $ 795 $ 1,625 $ 4,036 (1) Excludes operating lease obligations that are accounted for under IFRS 16, which are typically recognized on the consolidated balance sheet, and operating and tax expenses relating to lease commitments. The table includes lease obligations that are not accounted for under IFRS 16, including those related to future starting lease commitments for which we have not yet recognized a lease liability and right-of-use asset. (2) Obligations that are legally binding agreements whereby we agree to purchase products or services with specific minimum or baseline quantities defined at fixed, minimum or variable prices over a specified period of time are defined as purchase obligations. Purchase obligations are included through to the termination date specified in the respective agreements, even if the contract is renewable. Many of the purchase agreements for goods and services include clauses that would allow us to cancel the agreement prior to expiration of the contract within a specific notice period. However, the amount above includes our obligations without regard to such termination clauses (unless actual notice of our intention to terminate the agreement has been communicated to the counterparty). The table excludes purchases of debt and equity instruments that settle within standard market time frames. (3) Includes estimated minimum funding contributions for our funded defined benefit pension plans in Canada, the U.S., the U.K., and the Caribbean. Estimated minimum funding contributions are included only for the next annual period as the minimum contributions are affected by various factors, such as market performance and regulatory requirements, and are therefore subject to significant variability. Other risks Strategic risk Strategic risk is the risk of ineffective or improper implementation of business strategies, including mergers, acquisitions and divestitures. It includes the potential financial loss due to the failure of organic growth initiatives or failure to respond appropriately to changes in the business environment. For additional details on corporate transactions, see the “Top and emerging risks” section. Oversight of strategic risk is the responsibility of the ExCo and the Board. At least annually, the CEO outlines the process and presents the strategic business plan to the Board for review and approval. As part of the annual planning process, Risk Management assesses the overall and business unit strategic plans to ensure alignment with our risk appetite. The Board reviews the plan in light of management’s assessment of emerging market trends, the competitive environment, potential risks and other key issues. One of the tools for measuring, monitoring and controlling strategic risk is attribution of regulatory capital against this risk. Our regulatory capital models include a strategic risk component for those businesses utilizing capital to fund an acquisition or a significant organic growth strategy. Operational risk Operational risk is the risk of loss resulting from people, inadequate or failed internal processes and systems, or from external events. As part of the normal course of business, CIBC is exposed to operational risks in its business activities and external environment. Operational risks which may adversely impact CIBC include the following: Anti-money laundering / anti-terrorist financing The risk of CIBC’s potential non-conformance with global AML and ATF regulatory requirements and sanctions regulations leading to enhanced regulatory scrutiny, regulatory censure (i.e., cease and desist orders) and/or financial loss (i.e., regulatory, criminal or civil penalties and/or forfeiture of assets). See “Anti-money laundering” in the “Top and emerging risks” section for further details. Fraud risk The risk relating to the intentions to defraud, misappropriate property/assets or circumvent regulations, the law or CIBC policy and can be committed by either employees or by outsiders such as clients or third parties. Information security risk (including cyber security) The risk to the confidentiality, integrity and availability of CIBC-owned information, and the information entrusted to CIBC by clients, employees, shareholders, business partners, and third parties that if leaked, accessed without authorization or lost, could cause damage to CIBC’s business and its customers. See “Technology, information and cyber security risk” in the “Top and emerging risks” section for further details. Technology risk The risk of compromised availability, degradation, recovery, capacity, performance, integrity of new or existing systems. See “Technology, information and cyber security risk” in the “Top and emerging risks” section for further details. Third party risk The potential risk that may arise from relying on a third party business arrangement between CIBC and another entity, by contract or otherwise. This includes activities that involve outsourced products and services, use of outside consultants, networking arrangements, managed services, services provided by affiliates and subsidiaries, joint ventures, sponsorships, no-fee contracts, and any other arrangement that involves the delivery of business activities, functions or processes to CIBC and/or its clients. See “Third Party Risk” in the “Top and emerging risks” section for further details. Other operational risks include business interruption risk, data risk, conduct risk (see the “Conduct risk” section below), financial reporting risk, legal risk (see the “Reputation and legal risk” section below), model risk, people risk, privacy risk, project risk, physical security risk, regulatory compliance risk (see the “Regulatory compliance risk” section below) and transaction processing risk. Our comprehensive Operational Risk Management Policy, supported by policies, tools, systems and governance structure, is used to mitigate operational risk. We continuously monitor our operational risk profile to ensure we are operating within CIBC’s approved risk appetite. CIBC 2021 ANNUAL REPORT 79 Management’s discussion and analysis Governance and management Operational risk is managed through the three lines of defence model and articulated in the Operational Risk Management Policy. A strong risk culture and communication between the three lines of defence are important characteristics of effective risk management. (i) As the first line of defence, our SBUs and functional groups own the risks and are accountable and responsible for identifying and assessing risks inherent in their activities in accordance with the CIBC risk appetite. In addition, they establish and maintain controls to mitigate such risks. The first line of defence may include governance groups within the relevant area to facilitate the control framework and other risk-related processes. Control groups provide subject matter expertise to the business lines and/or implement and maintain enterprise-wide control programs and activities. While control groups collaborate with the lines of business in identifying and managing risk, they also challenge risk decisions and risk mitigation strategies. (ii) The second line of defence is independent from the first line of defence and provides an enterprise-wide view of specific risk types, guidance and effective challenge to risk and control activities. Risk Management is the primary second line of defence. Risk Management may leverage the subject matter expertise of other groups (e.g., third parties or control groups) to inform their independent assessments, as appropriate. (iii) As the third line of defence, CIBC’s internal audit function provides reasonable assurance to senior management and the Audit Committee of the Board on the effectiveness of CIBC’s governance practices, risk management processes, and internal control as part of its risk-based audit plan and in accordance with its mandate as described in the Internal Audit Charter. Global Operational Risk Management (GORM) oversees CIBC’s operational risk exposures. The Head of GORM chairs the Operational Risk and Control Committee (ORCC), a subcommittee of the GRC, with representation from the SBUs and functional groups. The ORCC is a management forum providing oversight of CIBC’s operational risk and internal control environment. The Chair of the ORCC reports significant operational risk matters to the GRC and RMC. Operational risk management approach Information transparency, timely escalation, clear accountability and a robust internal control environment are the principles forming the basis of the Operational Risk Management Policy, which supports and governs the processes of identifying, measuring, mitigating, monitoring, and reporting operational risks. We mitigate operational losses by consistently applying risk-based approaches and employing risk-specific assessment tools. Regular review of our risk governance structure ensures clarity of, and ownership in, key risk areas. Risk identification and measurement CIBC’s business lines regularly conduct reviews of operational risks inherent in their products, services or processes and assess ways to mitigate and manage them in alignment with CIBC’s risk appetite. These reviews include using risk and control self-assessments, audit findings, operational risk scenarios, past internal and external loss events, key risk indicators trends, change initiative risk assessments and in-depth risk reviews to form a holistic operational risk profile for the business lines. Under the three lines of defence model, GORM and relevant control groups challenge business lines’ risk assessments and mitigation actions. Operational loss is one of the key operational risk metrics informing us of areas of heightened risk. We collect and analyze internal operational loss event data for themes and trends. The occurrence of a material or potential material loss triggers an investigation to determine the root causes of the incident and the effectiveness of existing mitigating controls, as well as the identification of any additional mitigating actions. Additionally, we monitor the external environment for emerging or potential risks to CIBC. The analysis of material operational risk events is performed by the first line of defence and the outputs of the analysis are subject to formal independent challenge by our second line of defence. The analysis of material operational risk events forms one component of our ongoing operational risk reporting to senior management and the Board. Business lines conduct change initiative risk assessment on risks inherent to the initiatives (for example, new product launches or major system changes). Identified inherent risks of the change initiative and related mitigation actions are challenged by GORM and other relevant second line of defence groups, as well as control groups, to ensure residual risks remain within the approved risk appetite. We use the standardized method to quantify our operational risk exposure in the form of operational risk regulatory capital, as agreed with local regulators. Risk mitigation Our primary tool for mitigating operational risk exposure is a robust internal control environment. Our internal control framework outlines key principles, structure and processes underpinning our approach to managing risks through effective controls. Under our framework, all key controls are subject to ongoing testing and review to ensure they effectively mitigate our operational risk exposures. In addition, our corporate insurance program may afford additional protection from loss while our global business continuity management program enables us to achieve operational resilience by delivering critical services to our clients through disruption. Risk monitoring and reporting Both forward-looking key risk indicators (KRIs) as well as backward-looking key performance indicators provide insight into our risk exposure and are used to monitor the main drivers of exposure associated with key operational risks and their adherence to the operational risk appetite. KRIs assist in early detection of potential operational risk events by identifying unfavourable trends and highlighting controls that may not be designed or operating effectively. Business lines are required to identify and implement KRIs for material risk exposures on an ongoing basis. Escalation triggers are used to highlight risk exposures requiring additional attention from senior management and/or the Board. The second line of defence challenges the selection of KRIs and the appropriateness of thresholds. Our risk monitoring processes support a transparent risk-reporting program, informing both senior management and the Board of our control environment, operational risk exposures, and mitigation strategies. 80 CIBC 2021 ANNUAL REPORT Management’s discussion and analysis Environmental and related social risk Environmental and related social risk is the risk of financial loss or damage to reputation associated with environmental issues including related social issues, whether arising from our credit and investment activities or related to our own operations. Our corporate environmental policy, originally approved by the Board in 1993, with the most recent biennial update and approval by our CRO in 2021, commits CIBC to responsible conduct in all activities to protect and conserve the environment; safeguard the interests of all stakeholders from unacceptable levels of environmental risk; and support the principles of sustainable development. As environmental and social risk management requires a multi-disciplinary approach, CIBC’s Board and its committees provide ongoing oversight; and CIBC’s ESG Council, which comprises senior executives from across Strategic Business Units and Functional Groups, is responsible for bank-wide input and coordination on strategic ESG initiatives in response to CIBC’s environmental and social responsibilities. Within CIBC’s Risk Management function, the Enterprise Risk Management group provides independent oversight of the measurement, monitoring and control of environmental risk. This group is led by the Senior Vice-President, Enterprise Risk Management, who has direct accountability to the CRO for environmental risk oversight. Our environmental risk management team is responsible for developing environmental strategy, setting environmental performance standards and targets, and reporting on performance. The corporate environmental policy is addressed by an integrated corporate environmental management program that is under the overall management of the environmental risk management team. Environmental and related social evaluations are integrated into our credit risk assessment processes, with standards and procedures in place for all sectors. In addition, environmental and related social risk assessments in project finance, project-related corporate and bridge loans are required, in accordance with our commitment to the Equator Principles, which are a voluntary set of guidelines for financial institutions based on the screening criteria of the International Finance Corporation. We adopted the Equator Principles in 2003. An escalation process is in place for transactions with the potential to have significant environmental and related social risk, with escalation up to the Reputation and Legal Risks Committee for senior executive review, if required. We also conduct ongoing research and benchmarking on environmental issues such as climate change as they may pertain to responsible lending practices. We are a participant in the CDP (formerly Carbon Disclosure Project) climate change program, which promotes corporate disclosure to the investment community on greenhouse gas emissions and climate change management. We are a supporter of the reporting framework developed by the TCFD, which provides guidance for voluntary, consistent climate-related risk disclosures. In 2019, CIBC published its first climate-related disclosure aligned to the TCFD recommendations and structured around its four core elements. Our TCFD report, available on our website, provides details as to how CIBC is identifying and managing both physical and transition risks associated with climate change. We keep informed of emerging risks by engaging with stakeholders through established partnerships, such as the United Nations Environment Program – Finance Initiative (UNEP-FI) and the Rocky Mountain Institute (RMI) Center of Climate-Aligned Finance (CCAF). We are also a signatory to external sustainability frameworks such as the Partnership for Carbon Accounting Financials (PCAF), the Global Reporting Initiative (GRI) and the Sustainability Accounting Standards Board (SASB) to ensure comparable sustainability disclosure. In 2018, CIBC Asset Management Inc. became a signatory to the United Nations-supported Principles for Responsible Investment, which commit signatories to incorporate environmental and social issues into investment analysis and decision making across all investment classes. The environmental risk management team works closely with our main business units and functional groups to ensure that high standards of environmental responsibility are applied to the banking services that we provide to our clients, the relationships we have with our stakeholders, and to the way we manage our facilities. Our Supplier Code of Conduct sets out the principles, standards and behaviours that our suppliers must follow, as we expect that they act ethically and adhere to all applicable laws, rules and regulations, such as maintaining responsible labour practices and human rights, in the jurisdictions in which they operate. Our Modern Slavery and Human Trafficking Statement commits CIBC to respecting human rights and standing against slavery and human trafficking in all our business segments and throughout our supply chains. More information on our environmental governance, policy, management and performance can be found in our Sustainability Report, which is available on our website. The information provided on our website does not form a part of this document. Regulatory compliance risk Regulatory compliance risk is the risk of CIBC’s potential non-conformance with applicable regulatory requirements. Our regulatory compliance philosophy is to manage and mitigate regulatory compliance risk through the promotion of a strong risk culture within the parameters established by CIBC’s Risk Appetite Statement. The foundation of this approach is a comprehensive Regulatory Compliance Management (RCM) framework. The RCM framework, owned by the Senior Vice-President, Chief Compliance Officer and Global Regulatory Affairs, and approved by the RMC, maps regulatory requirements to internal policies, procedures and/or controls that govern regulatory compliance. Our Compliance department is responsible for the development and maintenance of a comprehensive regulatory compliance program, including oversight of the RCM framework. This department is independent of business management and regularly reports to the RMC. Primary responsibility for compliance with all applicable regulatory requirements rests with senior management of the business and functional groups, and extends to all employees. The Compliance department’s activities support those groups, with particular emphasis on regulatory requirements that govern the relationship between CIBC and its clients. See the “Regulatory developments” section for further details. CIBC 2021 ANNUAL REPORT 81 Management’s discussion and analysis Insurance risk Insurance risk is the risk of loss arising from the obligation to pay out benefits and expenses on insurance policies in excess of expected amounts. Unfavourable actual experience could emerge due to adverse fluctuations in timing, size and frequency of actual claims (e.g., mortality, morbidity), policyholder behaviour (e.g., cancellation of coverage), or associated expenses. Insurance contracts provide financial compensation to the beneficiary in the event of an insured risk occurring in exchange for premiums. We are exposed to insurance risk in our life insurance business and in our reinsurance business within the respective subsidiaries. Senior management of the insurance and reinsurance subsidiaries have primary responsibility for managing insurance risk with oversight by Risk Management. The insurance and reinsurance subsidiaries also have their own boards of directors, and an independent Appointed Actuary who provide additional input to risk management oversight. Processes and oversight are in place to manage the risk to our insurance business. Underwriting risk on business assumed is managed through risk policies that limit exposure to an individual life, to certain types of business and to regions. Our risk governance practices ensure strong independent oversight and control of risk within the insurance businesses. The subsidiaries’ boards outline the internal risk and control structure to manage insurance risk, which includes risk, capital and control policies, processes as well as limits and governance. Senior management of the insurance and reinsurance subsidiaries and Risk Management attend the subsidiaries’ board meetings. Reputation and legal risks Our reputation and financial soundness are of fundamental importance to us and to our clients, shareholders, third parties, regulators, team members and communities. Reputation risk is the risk of negative publicity regarding our business conduct or practices which, whether true or not, could significantly harm our reputation as a leading financial institution, or could materially and adversely affect our business, operations or financial condition. Legal risk is the risk of financial loss arising from one or more of the following factors: (a) civil, criminal or regulatory enforcement proceedings against us; (b) our failure to correctly document, enforce or comply with contractual obligations; (c) failure to comply with our legal obligations to clients, investors, team members, counterparties or other stakeholders; (d) failure to take appropriate legal measures to protect our assets or security interests; or (e) misconduct by our team members or agents. All team members at CIBC play an important role in protecting our reputation by ensuring that the highest ethical standards are followed in how we act and what we do. Not only must we act with integrity at all times, we must also ensure that activities being conducted do not pose undue risks to CIBC’s reputation for ethical, sound and responsible business practices. As a result, requirements for the management and oversight of potential reputation risk are integrated throughout our framework of policies and related procedures. These processes include the management of various risks as set out in CIBC’s Risk Appetite Statement, Risk Management Framework and Code of Conduct. Our Reputation Risk Management Framework, Global Reputation and Legal Risks Policy and business-specific procedures outline how we safeguard our reputation through identification, assessment, escalation and mitigation of potential reputation and legal risks. Proactive management of potential reputation and legal risks is a key responsibility of CIBC and all our team members. Overall governance and oversight of reputation risk is provided by the Board, primarily through the RMC of the Board. Senior management oversight of reputation and legal risks is provided by the Reputation and Legal Risks Committee, which is a sub-committee of GRC and reports its activities regularly to the GRC. Conduct risk Conduct risk is the risk that the actions or omissions (i.e., behaviour) of the organization, team members and/or third parties: do not align with our desired culture and values; deliver poor or unfair outcomes for clients, team members or shareholders; result in adverse market practices and outcomes; impact CIBC’s reputation as a leading financial institution; or materially and adversely affect our business, operations or financial condition. Our Conduct and Culture Risk Framework applies enterprise-wide and outlines how we manage conduct risk through the proactive identification, measurement and management of potential conduct risk. Every team member is accountable for the identification and management of conduct risk. The overarching principles and requirements for maintaining appropriate conduct and addressing inappropriate conduct are covered in the CIBC Code of Conduct and other business specific and corporate-wide policies, frameworks, programs, processes and procedures. All team members must abide by the code, and CIBC policies and procedures in carrying out the accountabilities of their role. Overall governance of conduct risk is provided by the Board and its committees, including the CGC, as well as senior management committees. 82 CIBC 2021 ANNUAL REPORT Management’s discussion and analysis Accounting and control matters Critical accounting policies and estimates As discussed in the “Economic and market environment” section, progress towards containing outbreaks of the COVID-19 pandemic through vaccination campaigns and less restrictive public health measures provided an improving economic backdrop for CIBC. However, the pandemic, fueled by more contagious variants, continues to pose a risk to the recovery. As a result, we continue to operate in an uncertain environment. This gives rise to heightened uncertainty as it relates to our critical accounting estimates and increases the need to apply judgment in evaluating the economic and market environment and its impact on significant estimates. This particularly impacts estimates relating to the allowance for credit losses. A summary of significant accounting policies is presented in Note 1 to the consolidated financial statements. Changes in the judgments and estimates required in the critical accounting policies discussed below could have a material impact on our financial results. We have established control procedures to ensure accounting policies are applied consistently and processes for changing methodologies are well controlled. IFRS 16 “Leases” CIBC adopted IFRS 16 “Leases” (IFRS 16) in place of International Accounting Standards (IAS) 17 “Leases” as of November 1, 2019. We applied IFRS 16 on a modified retrospective basis. As permitted, we did not restate our prior period comparative consolidated financial statements, which were reported under the prior guidance. The impact of adopting IFRS 16 is discussed in Note 1. As a lessee, we recognize a right-of-use asset and a corresponding lease liability based on the present value of future lease payments, less any lease incentives receivable, when the lessor makes the leased asset available for use to CIBC, based on the non-cancellable portion of the lease term, adjusted for any renewal or termination options that are reasonably certain to be exercised. Measurement of the right-of-use asset also includes any initial direct costs of procuring the lease, and any lease payments made or lease incentives received prior to lease commencement. Discount rates are based on the rate implicit in the lease, if determinable, or on CIBC’s incremental borrowing rate. Where a property lease contains both a lease and non-lease component, we have elected not to allocate the consideration in the contract to each of the components. Subsequent to initial measurement, CIBC measures the lease liability by increasing the carrying amount to reflect interest on the lease liability based on the discount rate at the time of recognition and reducing the carrying amount to reflect lease payments made during the period, net of any remeasurements for lease reassessment or modifications. The right-of-use asset is measured using the cost model and amortized on a straight-line basis over the lease term. Right-of-use assets and the corresponding lease liabilities are recognized in Property and equipment and Other liabilities, respectively, on our consolidated balance sheet. The right-of-use asset and the corresponding lease liability are remeasured when there is a change in lease term, a change in the assessment of an option to purchase a leased asset, a change in the expected residual value guarantee (if any), or a change in future lease payments due to a change in the index or rate applicable to the payment. Right-of-use assets are tested for impairment as required under IAS 36 “Impairment of Assets”. In addition, the evaluation of the useful life for depreciation is assessed under IAS 36. Lease payments for low-value assets, short-term leases and variable leases are systematically recognized in Non-interest expenses based on the nature of the expense. As an intermediate lessor, we classify a sublease as an operating or finance sublease based on whether substantially all of the risks and rewards related to the underlying right-of-use asset are transferred to the sub-lessee. If classified as a finance sublease, the related right-of-use asset is derecognized and an investment in sublease is recognized, with the difference recognized in the consolidated statement of income as a gain or loss. In measuring the investment in sublease, we apply the head lease discount rate unless the rate implicit in the sublease is determinable. Where a finance sublease includes lease and non-lease components, we allocate the total consideration in the contract to each component based on the standalone prices for each of these components. The investment in sublease is recognized in Other assets on our consolidated balance sheet, and is subsequently measured using the effective interest rate method, with interest income recognized over the term of the sublease. Rental income from operating subleases is recognized on a systematic basis over the lease term. Interest Rate Benchmark Reform: Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 In response to reforms to interest rate benchmarks, the International Accounting Standards Board (IASB) issued amendments to impacted accounting standards in two phases to provide relief to entities impacted by the transition to alternative rates. In September 2019, the IASB issued “Interest Rate Benchmark Reform: Amendments to IFRS 9, IAS 39 and IFRS 7” (the Phase 1 amendments), which provides relief for specific hedge accounting requirements to address uncertainties in the period before interest rate benchmark reform, and provides disclosure requirements related to interest rate benchmark reform. Only the amendments to IAS 39 “Financial Instruments: Recognition and Measurement” (IAS 39) and IFRS 7 “Financial Instruments: Disclosures” (IFRS 7) apply to us because we elected to continue to apply the hedge accounting requirements of IAS 39 upon the adoption of IFRS 9 “Financial Instruments” (IFRS 9). CIBC elected to early adopt the Phase 1 amendments effective November 1, 2019 to prepare for uncertainties that may increase relating to the timing or amount of benchmark-based cash flows of hedged items and hedging instruments. The relief provided in the Phase 1 amendments allows hedge accounting to continue during the period of uncertainty before the replacement of existing interest rate benchmarks with an alternative rate. The application of this relief will end at the earlier of the discontinuation of the impacted hedge relationship and when the uncertainty arising from the reform is no longer present with respect to the timing and amount of cash flows of the hedged item and hedging instrument, which is expected to occur on the cessation date of the relevant LIBOR rate. In August 2020, the IASB issued “Interest Rate Benchmark Reform: Phase 2 Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16” (the Phase 2 amendments), which addresses issues that affect financial reporting once an existing rate is replaced with an alternative rate and provides for additional disclosure requirements. As we elected to continue to apply the hedge accounting requirements of IAS 39 upon the adoption of IFRS 9, the Phase 2 amendments apply to the classification and measurement sections of IFRS 9, the hedge accounting sections of IAS 39 and to IFRS 7, IFRS 4 and IFRS 16 for us. While the Phase 2 amendments are effective for annual periods beginning on or after January 1, 2021, CIBC elected to early adopt the Phase 2 amendments effective November 1, 2020. The Phase 2 amendments permit modifications of amortized cost financial assets and financial liabilities, and lessee lease liabilities that are made as a direct consequence of IBOR reform, and on an economically equivalent basis to be accounted for by updating the effective interest rate prospectively with no immediate gain or loss recognition. The amendments also provide temporary relief that allows for hedging relationships to CIBC 2021 ANNUAL REPORT 83 Management’s discussion and analysis continue upon the replacement of an existing interest rate benchmark with an alternative rate under certain qualifying conditions. The amendments allow entities to redefine the hedged risk to an alternative rate, and to amend the description of the hedged item, the hedging instrument, and how the entity will assess hedge effectiveness to reflect changes required by the reform without discontinuing the hedge relationship. The amendments also provide temporary relief that allows entities to designate an alternative rate as a risk component to hedge provided that the entity reasonably expects that the alternative rate will become separately identifiable within 24 months of its first designation. Judgment is involved in our evaluation of whether certain modifications have been made on an economically equivalent basis and in assessing whether an alternative rate will become separately identifiable within 24 months following its designation. Further relief is also provided for cash flow hedges, where the amounts accumulated in the cash flow reserve are deemed to be based on the alternative rates on which the hedged future cash flows are determined. As a result of the adoption of the Phase 2 amendments, we have provided additional disclosures related to our exposures to significant benchmark rates subject to the reform in Note 1 to our consolidated financial statements. We have established an enterprise-wide transition program to assess the impact of interest rate benchmark reform and manage the process to transition to alternative benchmark rates. For details on this program, refer to the “Other regulatory developments” section. International Financial Reporting Interpretations Committee 23 “Uncertainty over Income Tax Treatments” CIBC adopted International Financial Reporting Interpretations Committee 23 “Uncertainty over Income Tax Treatments” (IFRIC 23) as at November 1, 2019. IFRIC 23 clarifies the accounting for uncertainties in income taxes. There was no impact to our consolidated financial statements and no changes in our accounting policies as a result of adopting IFRIC 23. Conceptual Framework for Financial Reporting The Conceptual Framework sets out the fundamental concepts that underlie the preparation and presentation of financial statements and serves to guide the IASB in developing IFRS standards. The Conceptual Framework is effective for annual periods beginning on or after January 1, 2020. As a result, CIBC adopted the Conceptual Framework as at November 1, 2020. There was no impact to our consolidated financial statements and no changes in our accounting policies as a result of adopting the Conceptual Framework. Use and classification of financial instruments As a financial institution, our assets and liabilities primarily comprise financial instruments, which include deposits, securities, loans, derivatives, acceptances, repurchase agreements, and subordinated indebtedness. We use these financial instruments for both trading and non-trading activities. Trading activities primarily include the purchase and sale of securities and metals, transacting in foreign exchange and derivative instruments in the course of facilitating client trades and taking proprietary trading positions with the objective of income generation. Non-trading activities generally include the business of lending, investing, funding, and ALM. The use of financial instruments may either introduce or mitigate exposures to market, credit and/or liquidity risks. See the “Management of risk” section for details on how these risks are managed. Financial instruments are accounted for according to their classification. Judgment is applied in determining the appropriate classification of financial instruments under IFRS 9, in particular as it relates to the assessment of whether debt financial assets meet the solely payment of principal and interest (SPPI) test, and the assessment of the business model used to manage financial assets. For details on the accounting for these instruments under IFRS 9, see Note 1 to the consolidated financial statements. Determination of fair value of financial instruments Under IFRS 9, debt and equity securities mandatorily measured and designated at FVTPL, business and government loans mandatorily measured and designated at FVTPL, obligations related to securities sold short, derivative contracts, FVOCI securities and FVO financial instruments are carried at fair value. FVO financial instruments include certain debt securities, certain secured borrowings, obligations related to securities sold under repurchase agreements, structured deposits and business and government deposits. Retail mortgage interest rate commitments are also designated as FVO financial instruments. IFRS 13 defines fair value to be the price that would be received to sell an asset or paid to transfer a liability at the measurement date in an orderly arm’s-length transaction between market participants in the principal market under current market conditions (i.e., the exit price). Fair value measurements are categorized into levels within a fair value hierarchy based on the nature of the valuation inputs (Level 1, 2 or 3). We have an established and documented process for determining fair value. Fair value is based on unadjusted quoted prices in an active market for the same instrument, where available (Level 1). If active market prices or quotes are not available for an instrument, fair value is then based on valuation models in which the significant inputs are observable (Level 2) or in which one or more of the significant inputs are non-observable (Level 3). Estimating fair value requires the application of judgment. The type and level of judgment required is largely dependent on the amount of observable market information available. For instruments valued using internally developed models that use significant non-observable market inputs and are therefore classified within Level 3 of the hierarchy, the judgment used to estimate fair value is more significant than when estimating the fair value of instruments classified within Levels 1 and 2. To ensure that valuations are appropriate, a number of policies and controls are in place, including independent validation of valuation inputs to external sources such as exchange quotes, broker quotes or other management-approved independent pricing sources. The following table presents amounts, in each category of financial instruments, which are valued using valuation techniques based on Level 3 inputs. For further details of the valuation of and sensitivity associated with Level 3 financial assets and liabilities, see Note 3 to the consolidated financial statements. 84 CIBC 2021 ANNUAL REPORT Management’s discussion and analysis $ millions, as at October 31 Assets Securities mandatorily measured and designated at FVTPL and loans mandatorily measured at FVTPL Debt securities measured at FVOCI and equity securities designated at FVOCI Derivative instruments Liabilities Deposits and other liabilities (2) Derivative instruments 2021 2020 Level 3 Total (1) Level 3 Total (1) $ 1,099 392 97 $ 1,588 $ 742 267 $ 1,009 $ 1.1 % 0.7 0.3 802 240 358 0.8 % $ 1,400 3.8 % 0.8 1.3 % $ $ (4) 298 294 0.9 % 0.4 1.1 0.8 % – % 1.0 0.4 % (1) Represents the percentage of Level 3 assets and liabilities over total assets and liabilities for each reported category that are carried on the consolidated balance sheet at fair value. (2) Includes FVO deposits and bifurcated embedded derivatives. Note 3 to the consolidated financial statements presents the valuation methods used to determine fair value showing separately those financial instruments that are carried at fair value on the consolidated balance sheet and those that are not. In order to reflect the observed market practice of pricing collateralized and uncollateralized derivatives, our valuation approach uses overnight indexed swap curves as the discount rate in the valuation of collateralized derivatives and market cost of funding in the valuation of uncollateralized derivatives. The use of a market cost of funds curve reduces the fair value of uncollateralized derivative assets incremental to the reduction in fair value for credit risk already reflected through the CVA. In contrast, the use of a market cost of funds curve reduces the fair value of uncollateralized derivative liabilities in a manner that generally includes adjustments for our own credit. As market practices continue to evolve in regard to derivative valuation, further adjustments may be required in the future. Fair value adjustments We apply judgment in establishing valuation adjustments that take into account various factors that may have an impact on the valuation of financial instruments that are carried at fair value on the consolidated balance sheet. Such factors include, but are not limited to, the bid-offer spread, illiquidity due to lack of market depth and other market risks, parameter uncertainty, model risk, and credit risk. The establishment of fair value adjustments involves estimates that are based on accounting processes and judgments by management. We evaluate the adequacy of the fair value adjustments on an ongoing basis. The level of fair value adjustments could change as events warrant and may not reflect ultimate realizable amounts. As at October 31, 2021, the total valuation adjustments related to financial instruments carried at fair value on the consolidated balance sheet was $270 million (2020: $358 million), primarily related to credit risk, bid-offer spreads, and parameter uncertainty of our derivative assets and liabilities, as well as adjustments recognized for valuing our uncollateralized derivative assets and liabilities based on an estimated market cost of funds curve. Impairment of financial assets Under IFRS 9, we establish and maintain ECL allowances for all debt instrument financial assets classified as amortized cost or FVOCI. In addition, the ECL allowances apply to loan commitments and financial guarantees that are not measured at FVTPL. ECL allowances represent credit losses that reflect an unbiased and probability-weighted amount that is determined by evaluating a range of possible outcomes, the time value of money and reasonable and supportable information about past events, current conditions and forecasts of future economic conditions. One of the objectives of IFRS 9 is to record lifetime losses on all financial instruments that have experienced a significant increase in credit risk since their initial recognition. As a result, ECL allowances are measured at amounts equal to either: (i) 12-month ECL; or (ii) lifetime ECL for those financial instruments that have experienced a significant increase in credit risk since initial recognition or when there is objective evidence of impairment. Key drivers of expected credit loss The ECL impairment requirements of IFRS 9 require that we make judgments and estimates related to matters that are uncertain. In particular, the ECL requirements of IFRS 9 incorporate the following elements that are subject to a high level of judgment:   Measuring both 12-month and lifetime credit losses; and  Forecasting forward-looking information for multiple scenarios and determining the probability weighting of each scenario. Determining when a significant increase in credit risk of a loan has occurred; In addition, the interrelationship between these elements is also subject to a high degree of judgment. Changes in the judgments and estimates related to IFRS 9 can have a significant impact on the level of ECL allowance recognized and the period-over-period volatility of the provision for credit losses. Changes in a particular period could have a material impact on our financial results. The uncertainty created by the COVID-19 pandemic has increased the level of judgment applied in respect of all of these elements. During the year ended October 31, 2021, improvements in our economic outlook resulted in moderate reductions in our stage 1 and stage 2 performing ECLs relative to the increases recognized in 2020 as a result of the onset of the COVID-19 pandemic. Significant judgment continued to be inherent in the forecasting of forward-looking information, including with regard to our base case assumption that vaccination programs, including the efficacy of the vaccines and the rate of vaccination, will be able to effectively respond to emerging variants and that the government will respond to subsequent waves of infection with targeted health measures rather than broader economic closures. Significant judgment also continues to be applied in evaluating changes in various credit metrics due to concerns that they may not correlate with losses to the same extent as they may have in prior periods as a result of various government support measures and changes in consumer behaviours that are unique to the current environment. See Note 6 to our consolidated financial statements for more information concerning the high level of judgment inherent in the estimation of ECL allowance under IFRS 9, including the impact of the COVID-19 pandemic. CIBC 2021 ANNUAL REPORT 85 Management’s discussion and analysis Use of the regulatory framework Our ECL model leverages the data, systems and processes that are used to calculate Basel expected losses regulatory adjustments for the portion of our portfolios under the AIRB approach. Significant judgment is applied in making appropriate adjustments to the Basel parameters to meet IFRS 9 requirements, including the conversion of through-the-cycle and downturn parameters used in the Basel regulatory calculations to point-in-time parameters used under IFRS 9 that consider forward-looking information. In addition, credit losses under IFRS 9 are 12 months for stage 1 financial instruments and lifetime for stage 2 and stage 3 financial instruments, compared to 12 months for AIRB portfolios under Basel. The main adjustments necessary to Basel risk parameters are explained in the table below: Regulatory Capital IFRS 9 Through-the-cycle PD represents long-run average PD throughout a full economic cycle Point-in-time 12-month or lifetime PD based on current conditions and relevant forward-looking assumptions Downturn LGD based on losses that would be expected in an economic downturn and subject to certain regulatory floors Discounted using the cost of capital Based on the drawn balance plus expected utilization of any undrawn portion prior to default, and cannot be lower than the drawn balance Unbiased probability-weighted LGD based on estimated LGD including impact of relevant forward-looking assumptions such as changes in collateral value Discounted using the original effective interest rate Amortization and repayment of principal and interest from the balance sheet date to the default date is also captured ECL is discounted from the default date to the reporting date PD LGD EAD Other Attribution of provision for credit losses We recognize provision for credit losses on both impaired (stage 3) and performing (stages 1 and 2) loans in the respective SBUs. Provision for credit losses recognized directly on our consolidated statement of income is in respect to financial instruments classified as loans and bankers’ acceptances. Provision for credit losses for FVOCI debt securities and amortized cost securities are recognized in Gains (losses) from debt securities measured at FVOCI and amortized cost, net in the consolidated statement of income. Hedge accounting The IFRS 9 hedge accounting guidance is intended to better align the accounting with risk management activities. However, IFRS 9 allows the existing hedge accounting requirements under IAS 39 to continue in place of the hedge accounting requirements under IFRS 9. As permitted, we previously elected to not adopt the IFRS 9 hedge accounting requirements and instead retained the IAS 39 hedge accounting requirements. As required, we have adopted the hedge accounting disclosure requirements under amendments to IFRS 7 that were effective in 2018. As a result of interest rate benchmark reform, we have adopted “Interest Rate Benchmark Reform: Amendments to IFRS 9, IAS 39 and IFRS 7” (Phase 1 amendments) issued by the IASB as of November 1, 2019, and adopted “Interest Rate Benchmark Reform: Phase 2 Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4, and IFRS 16” (Phase 2 amendments) as of November 1, 2020. See the “Interest Rate Benchmark Reform: Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16” section above for more information. Securitizations and structured entities Securitization of our own assets Under IFRS 10 “Consolidated Financial Statements” (IFRS 10), judgment is exercised in determining whether an investor controls an investee including assessing whether the investor has: (i) power over the investee; (ii) exposure, or rights, to variable returns from its involvement with the investee; and (iii) the ability to affect those returns through its power over the investee. Power may be exercised through voting or similar rights or, in the case of structured entities, through contractual arrangements that direct the relevant activities of the investee. When voting rights are not relevant in deciding whether CIBC has power over an entity, particularly for complex SEs, the assessment of control considers all facts and circumstances, including the purpose and design of the investee, its relationship with other parties and each party’s ability to make decisions over significant activities, and whether CIBC is acting as a principal or as an agent. We sponsor several SEs that have purchased and securitized our own assets including Cards II Trust, which we consolidate under IFRS 10. We also securitize our own mortgage assets through a government-sponsored securitization program. We sell these securitized assets to a government-sponsored securitization vehicle that we do not consolidate, as well as to other third parties. IFRS 9 provides guidance on when to derecognize financial assets. A financial asset is derecognized when the contractual rights to receive cash flows from the asset have expired, or when we have transferred the rights to receive cash flows from the asset such that:  We have transferred substantially all the risks and rewards of the asset; or  We have neither transferred nor retained substantially all the risks and rewards of the asset, but have transferred control of the asset. We have determined that our securitization activities related to residential mortgages and cards receivables are accounted for as secured borrowing transactions because we have not met the aforementioned criteria. Securities lending and repurchase transactions generally do not result in the transfer of substantially all the risks and rewards of the securities and as a result do not result in derecognition of the securities. We also sell certain U.S. commercial mortgages to third parties that qualify for derecognition because we have transferred substantially all the risks and rewards of the mortgages and have no continuous involvement after the transfer. Securitization of third-party assets We also sponsor several SEs that purchase pools of third-party assets. We consider a number of factors in determining whether CIBC controls these SEs. We monitor the extent to which we support these SEs, through direct investment in the debt issued by the SEs and through the provision of liquidity protection to the other debtholders, to assess whether we should consolidate these entities. IFRS 10 also requires that we reconsider our consolidation assessment if facts and circumstances relevant to the entities indicate that there are changes to one or more of the three elements of control described above. Factors that trigger reassessment include, but are not limited to, significant changes in ownership structure of the entities, changes in contractual or governance arrangements, provision of a liquidity facility beyond the original terms, transactions with the entities that were not contemplated originally and changes in the financing structure of the entities. 86 CIBC 2021 ANNUAL REPORT Management’s discussion and analysis Specifically, in relation to our multi-seller conduits, we would reconsider our consolidation assessment if our level of interest in the ABCP issued by the conduits changes significantly, or in the rare event that the liquidity facility that we provide to the conduits is drawn or amended. A significant increase in our holdings of the outstanding commercial paper issued by the conduits would become more likely in a scenario in which the market for bank-sponsored ABCP suffered a significant deterioration such that the conduits were unable to roll their ABCP. For additional information on the securitizations of our own assets and third-party assets, see the “Off-balance sheet arrangements” section and Note 7 to the consolidated financial statements. Asset impairment Goodwill As at October 31, 2021, we had goodwill of $4,954 million (2020: $5,253 million). Goodwill is not amortized, but is tested, at least annually, for impairment by comparing the recoverable amount of the cash-generating unit (CGU) to which goodwill has been allocated, with the carrying amount of the CGU including goodwill. Any deficiency is recognized as impairment of goodwill. The recoverable amount of a CGU is defined as the higher of its estimated fair value less cost to sell and its value in use. Goodwill is also required to be tested for impairment whenever there are indicators that it may be impaired. Estimation of the recoverable amount is an area of significant judgment. Recoverable amounts are estimated using internally developed models that require the use of significant assumptions including forecasted earnings, discount rates, growth rates, forecasted regulatory capital requirements, and price-earnings multiples. Reductions in the estimated recoverable amount could arise from various factors, such as reductions in forecasted cash flows, an increase in the assumed level of required capital, and any adverse changes to the discount rate or terminal growth rates either in isolation or in any combination thereof. Where our estimated recoverable amount is not significantly in excess of the carrying amount of the CGU, additional judgment is required, and reductions in the recoverable amount are more likely to result in an impairment charge. In the fourth quarter of 2021, we performed our annual impairment test. We concluded that the recoverable amounts of our CGUs were in excess of their carrying amounts. As discussed in Note 4 to our consolidated financial statements, in the second quarter of 2020 we recognized a goodwill impairment charge of $28 million on our CIBC FirstCaribbean CGU. In the fourth quarter of 2020, we concluded that held for sale accounting was no longer appropriate and we recognized an additional goodwill impairment charge of $220 million based on our revised estimate of the recoverable value of CIBC FirstCaribbean. This reduced the carrying amount of the goodwill relating to the CIBC FirstCaribbean CGU to $35 million (US$26 million) as at October 31, 2020. No additional goodwill impairment loss was recognized for the year ended October 31, 2021. For additional information, see Note 4 and Note 9 to our consolidated financial statements. Other intangible assets and long-lived assets As at October 31, 2021, we had other intangible assets with an indefinite life of $140 million (2020: $142 million). Acquired intangible assets are separately recognized if the benefits of the intangible assets are obtained through contractual or other legal rights, or if the intangible assets can be sold, transferred, licensed, rented, or exchanged. Determining the useful lives of intangible assets requires judgment and fact-based analysis. Intangible assets with an indefinite life are not amortized but are assessed for impairment by comparing the recoverable amount to the carrying amount. The recoverable amount is defined as the higher of the estimated fair value less cost to sell and value in use. An impairment test is required at least annually, or whenever there are indicators that these assets may be impaired. Long-lived assets and other identifiable intangible assets with a definite life are amortized over their estimated useful lives. These assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount is higher than the recoverable amount. Determining the recoverable amount of intangible assets and long-lived assets is an area of judgment as we estimate the future cash flows expected to result from the use of the asset and, where appropriate, cash flows arising from the asset’s eventual disposition. For additional details, see Note 9 to the consolidated financial statements. Income taxes We are committed to responsible tax practices. We execute active tax governance and tax compliance processes to meet the requirements of tax laws in all countries where we operate. We seek to manage tax and reputational risk to ensure any financial exposure is well understood and remains consistent with our strategy, risk appetite and financial goals. We are subject to income tax laws in the various jurisdictions where we operate, and the tax laws in those jurisdictions are potentially subject to different interpretations by us and the relevant taxation authority, which gives rise to uncertainty. We use judgment in the estimation of income taxes and deferred tax assets and liabilities. As a result, management judgment is applied in the interpretation of the relevant tax laws and in estimating the provision for current and deferred income taxes. For tax positions where there is uncertainty regarding the ultimate determination of the tax impact, including positions which are under audit, dispute or appeal, we recognize provisions to consider this uncertainty based on our best estimate of the amount expected to be paid based on an assessment of the relevant factors. Deferred tax assets or liabilities are determined for each temporary difference based on the tax rates that are expected to be in effect in the period that the assets are realized or the liabilities are settled. Deferred tax liabilities are generally recognized for all taxable temporary differences unless the temporary differences relate to our net investments in foreign operations (NIFOs) and will not reverse in the foreseeable future. We are required to assess whether it is probable that our deferred tax assets will be realized prior to their expiration and, based on all of the available evidence, determine if any portion of our deferred tax assets should not be recognized. The factors used to assess the probability of realization are based on our past experience of income and capital gains, forecasts of future net income before income taxes, available tax planning strategies that could be implemented to realize the deferred tax assets, and the remaining expiration period of tax loss carryforwards. In addition, for deductible temporary differences arising from our NIFOs, we must consider whether the temporary difference will reverse in the foreseeable future. Although realization is not assured, we believe, based on all of the available evidence, it is probable that the recognized deferred tax assets will be realized. Income tax accounting impacts all of our reporting segments. For further details on our income taxes, see Note 20 to the consolidated financial statements. CIBC 2021 ANNUAL REPORT 87 Management’s discussion and analysis Contingent liabilities and provisions Legal proceedings and other contingencies In the ordinary course of its business, CIBC is a party to a number of legal proceedings, including regulatory investigations, in which claims for substantial monetary damages are asserted against CIBC and its subsidiaries. Legal provisions are established if, in the opinion of management, it is both probable that an outflow of economic benefits will be required to resolve the matter, and a reliable estimate can be made of the amount of the obligation. If the reliable estimate of probable loss involves a range of potential outcomes within which a specific amount appears to be a better estimate, that amount is accrued. If no specific amount within the range of potential outcomes appears to be a better estimate than any other amount, the mid-point in the range is accrued. In some instances, however, it is not possible to determine whether an obligation is probable or to reliably estimate the amount of loss, in which case no accrual can be made. While there is inherent difficulty in predicting the outcome of legal proceedings, based on current knowledge and in consultation with legal counsel, we do not expect the outcome of these matters, individually or in aggregate, to have a material adverse effect on our consolidated financial statements. However, the outcome of these matters, individually or in aggregate, may be material to our operating results for a particular reporting period. We regularly assess the adequacy of CIBC’s litigation accruals and make the necessary adjustments to incorporate new information as it becomes available. CIBC considers losses to be reasonably possible when they are neither probable nor remote. It is reasonably possible that CIBC may incur losses in addition to the amounts recorded when the loss accrued is the mid-point of a range of reasonably possible losses, or the potential loss pertains to a matter in which an unfavourable outcome is reasonably possible but not probable. A description of significant ongoing matters to which CIBC is a party can be found in Note 23 to the consolidated financial statements. The provisions disclosed in Note 23 include all of CIBC’s accruals for legal matters as at October 31, 2021, including amounts related to the significant legal proceedings described in that note and to other legal matters. CIBC believes the estimate of the aggregate range of reasonably possible losses, in excess of the amounts accrued, for its significant legal proceedings, where it is possible to make such an estimate, is from nil to approximately $1.1 billion as at October 31, 2021. This estimated aggregate range of reasonably possible losses is based upon currently available information for those significant proceedings in which CIBC is involved, taking into account CIBC’s best estimate of such losses for those cases for which an estimate can be made. CIBC’s estimate involves significant judgment, given the varying stages of the proceedings and the existence of multiple defendants in many of such proceedings whose share of the liability has yet to be determined. The range does not include potential punitive damages and interest. The matters underlying the estimated range as at October 31, 2021 consist of the significant legal matters disclosed in Note 23 to the consolidated financial statements. The matters underlying the estimated range will change from time to time, and actual losses may vary significantly from the current estimate. For certain matters, CIBC does not believe that an estimate can currently be made as many of them are in preliminary stages and certain matters have no specific amount claimed. Consequently, these matters are not included in the range. Restructuring During the first quarter of 2020, we recognized a restructuring charge of $339 million in Corporate and Other associated with ongoing efforts to transform our cost structure and simplify our bank. This charge consisted primarily of employee severance and related costs and was recorded in Non-interest expenses – Employee compensation and benefits. As at October 31, 2021, the remaining provision related to this restructuring charge was $99 million. This amount represents our best estimate as at October 31, 2021 of the amount required to settle the obligation, including obligations related to ongoing payments as a result of the restructuring. For further details on our restructuring provision, see Note 23 to the consolidated financial statements. Post-employment and other long-term benefit plan assumptions We sponsor a number of benefit plans to eligible employees, including registered and supplemental pension plans, and post-retirement medical and dental plans (other post-employment benefit plans). We also continue to sponsor a long-term disability income replacement plan and associated medical and dental benefits (collectively, other long-term benefit plans). The long-term disability plan was closed to new claims effective June 1, 2004. The calculation of net defined benefit plan expense and obligations depends on various actuarial assumptions such as discount rates, health- care cost trend rates, turnover of employees, projected salary increases, retirement age, and mortality rates. The actuarial assumptions used for determining the net defined benefit plan expense for a fiscal year are set at the beginning of the annual reporting period, are reviewed in accordance with accepted actuarial practice and are approved by management. The discount rate assumption used in measuring the net defined benefit plan expense and obligations reflects market yields, as of the measurement date, on high-quality debt instruments with a currency and term to maturity that match the currency and expected timing of benefit payments. Our discount rate is estimated by developing a yield curve based on high-quality corporate bonds. While there is a deep market of high-quality corporate bonds denominated in Canadian dollars with short and medium terms to maturity, there is not a deep market in bonds with terms to maturity that match the timing of all the expected benefit payments for all of our Canadian plans. As a result, for our Canadian pension, other post-employment and other long-term benefit plans, we estimate the yields of high-quality corporate bonds with longer-term maturities by extrapolating current yields on bonds with short- and medium-term durations along the yield curve. Judgment is required in constructing the yield curve, and as a result, different methodologies applied in constructing the yield curve can give rise to different discount rates. For further details of our annual pension and other post-employment expense and obligations, see Note 19 and Note 1 to the consolidated financial statements. Self-managed loyalty points program We sponsor certain self-managed credit card loyalty points programs for which we recognize credit card loyalty point liabilities that are subject to periodic remeasurement to reflect the expected cost of redemption as this expectation changes over time. The calculation of the expected cost of redemption requires the use of judgment and depends on various assumptions, including estimation of the cost per point and the long-term redemption rate. For further details on our self-managed loyalty points programs, see Note 1 to the consolidated financial statements. 88 CIBC 2021 ANNUAL REPORT Management’s discussion and analysis Accounting developments Transition to IFRS 17 IFRS 17 “Insurance Contracts” (IFRS 17), issued in May 2017, replaces IFRS 4 “Insurance Contracts”. In June 2020, the IASB issued amendments to IFRS 17 partly aimed at helping companies implement the standard. IFRS 17, incorporating the amendments, is effective for annual reporting periods beginning on or after January 1, 2023, which for us, will be November 1, 2023. IFRS 17 provides comprehensive guidance on the recognition, measurement, presentation and disclosure of insurance contracts we issue and reinsurance contracts we hold. We continue to prepare for the implementation of IFRS 17, which is overseen by an Executive Steering Committee. Significant progress has been made in evaluating the required changes to our accounting and actuarial policies resulting from the adoption of IFRS 17. We plan to implement the required technology solution to support the new requirements in the upcoming year. Other regulatory developments Reforms to interest rate benchmarks Various interest rate and other indices that are deemed to be “benchmarks” (including LIBOR) are the subject of international regulatory guidance and proposals for reform. Regulators in various jurisdictions have pushed for the transition from Interbank Offered Rates (IBORs) to alternative benchmark rates (alternative rates), based upon risk-free rates determined using actual market transactions. The U.K.’s Financial Conduct Authority (FCA) originally announced in July 2017 that it would not compel banks to submit LIBOR rates after December 2021. In March 2021, the FCA and the ICE Benchmark Administration (IBA) announced the dates for the cessation or loss of representativeness of various LIBOR rates including that GBP, EUR, CHF and JPY LIBORs will cease on December 31, 2021 and that most USD LIBOR tenors will cease on June 30, 2023. This announcement results in a fixed spread between the LIBOR rate and the alternative rate for a given tenor which will apply on the cessation of the relevant LIBOR rates. The extension for most USD LIBOR tenors until June 30, 2023 is intended to allow for many legacy contracts to mature before the cessation date, although originations of new USD LIBOR linked products would cease after the end of 2021. The transition from current reference rates to alternative rates may adversely affect the value of, return on, or trading market for contracts linked to existing benchmarks. These developments may cause some LIBOR and other benchmarks to be discontinued. A significant number of CIBC’s derivatives, securities, and lending and deposit contracts reference various interest rate benchmarks, including contracts with maturity dates that extend beyond the cessation dates announced by the FCA in March 2021. In response to the proposed reforms to interest rate benchmarks, CIBC established an Enterprise IBOR Transition Program (“Program”), to manage and coordinate all aspects of the transition. The Program is supported by a formal governance structure and dedicated working groups that include stakeholders from frontline businesses as well as functional groups such as Treasury, Technology and Operations, Risk Management, Legal, and Finance, to facilitate the transition. An IBOR Steering Committee has been established with responsibility for oversight and execution of the Program, including:     Ensuring key project milestones are met; Providing direction and guidance on a holistic basis; Reviewing and resolving key issues and risks; and Ensuring that our transition strategies and any transition actions remain consistent with CIBC’s overall strategy, risk appetite, and control framework. As a part of the Program, we are transitioning our existing IBOR based contracts to those that reference the new alternative rates, and have developed business processes to support the transition. We are on track to substantially complete the remediation of our non-USD LIBOR referenced contracts by incorporating appropriate fallback language or by replacing the LIBOR referenced rates to the corresponding alternative rates with appropriate spread adjustments. We have ceased the issuance of GBP and JPY LIBOR linked products earlier this year, and expect to cease origination of new USD LIBOR products before the end of calendar year 2021 in a manner consistent with regulatory expectations. We are also working with clearing houses to transition our existing non-USD LIBOR referenced derivatives cleared by them to alternative rates, which is expected to occur in December 2021. We have also started to offer products based upon alternative rates to our clients, and have continued to make information available to them, advising on developments on IBOR transition. We continue to assess the impact of IBOR reform on our operations, engage with industry associations on ongoing developments on the transition to risk-free rates, and continue to incorporate recent developments into our project plan. The Program provides regular updates to senior management, including the Executive Committee, and the Board. Current accounting policy changes relating to interest rate benchmark reform The IASB has addressed interest rate benchmark reform and its effects on financial reporting in two phases. The first phase focuses on issues affecting financial reporting in the period before the interest rate benchmark reform, while the second phase focuses on issues that affect financial reporting once the existing rate is replaced with an alternative rate. See the “Accounting and controls matters” section and Note 1 to our consolidated financial statements for additional details. CIBC 2021 ANNUAL REPORT 89 Management’s discussion and analysis Client-focused reforms In October 2019, the CSA published final amendments to National Instrument 31-103 “Registration Requirements, Exemptions, and Ongoing Registrant Obligations” and its Companion Policy. The client-focused reforms are supported by new and/or amended requirements with respect to know your client, enhanced suitability, product due diligence, know your product, conflicts of interest, relationship disclosure, referrals, and misleading communications. The CSA expects that these requirements will result in a new, higher standard of conduct across all categories for registered dealers, advisers and their representatives. In addition, the IIROC and the Mutual Fund Dealers Association (MFDA) published rule amendments aligning to the CSA client-focused reforms. Due to COVID-19, the original implementation dates scheduled for June 30, 2020 (conflicts of interest) and December 31, 2020 (all remaining amendments) were deferred to 2021. Pursuant to the new timelines, the requirements related to conflicts of interest were effective June 30, 2021 and all other remaining requirements are effective December 31, 2021. These requirements impact our Canadian Commercial Banking and Wealth Management and Canadian Personal and Business Banking SBUs, as well as Direct Financial Services within our Capital Markets SBU. Relevant changes to our policies and procedures to comply with the conflicts of interest requirements were implemented by June 30, 2021. We expect to implement the remaining changes to our policies and procedures to comply with the remaining requirements by December 31, 2021. CDIC – Deposit protection modernization In April 2019, the Canadian federal government approved changes to the Canada Deposit Insurance Corporation Act intended to strengthen and modernize deposit protection. The changes occur in two phases. The first phase was effective on April 30, 2020, and included changes to extend CDIC coverage to foreign currency deposits and deposits with terms greater than five years, and to eliminate coverage for travellers’ cheques. The second phase will be effective on April 30, 2022, and will include additional changes such as providing separate coverage for certain registered plans and introducing new requirements for deposits held in trust. Related-party transactions We have various processes in place to ensure that the relevant related-party information is identified and reported to the CGC of the Board on a quarterly basis, as required by the Bank Act (Canada). The CGC has the responsibility for reviewing our policies and practices in identifying transactions with our related parties that may materially affect us, and reviewing the associated procedures for promoting compliance with the Bank Act (Canada). In the ordinary course of business, we provide banking services and enter into transactions with related parties on terms similar to those offered to unrelated parties. Related parties include key management personnel(1), their close family members, and entities that they or their close family members control or jointly control. Related parties also include associates and joint ventures accounted for under the equity method, and post-employment benefit plans for CIBC employees. Loans to these related parties are made in the ordinary course of business and on substantially the same terms as for comparable transactions with unrelated parties. We offer a subsidy on annual fees and preferential interest rates on credit card balances to senior officers which is the same offer extended to all employees of CIBC. In addition, CIBC offers deferred share and other plans to non-employee directors, executives, and certain other key employees. Details of our compensation of key management personnel(1) and our investments in equity-accounted associates and joint ventures are disclosed in Notes 18, 19, 25 and 26 to the consolidated financial statements. (1) Key management personnel are defined as those persons having authority and responsibility for planning, directing and controlling the activities of CIBC directly or indirectly and comprise the members of the Board (referred to as directors), ExCo and certain named officers per the Bank Act (Canada) (collectively referred to as senior officers). Board members who are also ExCo members are included as senior officers. 90 CIBC 2021 ANNUAL REPORT Management’s discussion and analysis Policy on the Scope of Services of the Shareholders’ Auditor The “Policy on the Scope of Services of the Shareholders’ Auditors” sets out the parameters for the engagement of the shareholders’ auditor by CIBC that are consistent with applicable law, including the U.S. Sarbanes-Oxley Act of 2002 and SEC rules. The policy requires the Audit Committee’s pre-approval of all work performed by the shareholders’ auditor and prohibits CIBC from engaging the shareholders’ auditor for “prohibited” services. The Audit Committee is accountable for the oversight of the work of the shareholders’ auditor and for an annual assessment of the engagement team’s qualifications, performance and independence, including lead audit partner rotation. The Audit Committee is also responsible for conducting a periodic comprehensive review of the external auditor at least every five years. The Audit Committee’s oversight activities over the shareholders’ auditor are disclosed in our Management Proxy Circular. Controls and procedures Disclosure controls and procedures CIBC’s disclosure controls and procedures are designed to provide reasonable assurance that relevant information is accumulated and communicated to CIBC’s management, including the President and CEO and the Chief Financial Officer (CFO), to allow timely decisions regarding required disclosure. CIBC’s management, with the participation of the President and CEO and the CFO, has evaluated the effectiveness of CIBC’s disclosure controls and procedures as at October 31, 2021 (as defined in the rules of the SEC and the CSA). Based on that evaluation, the President and CEO and the CFO have concluded that such disclosure controls and procedures were effective. Management’s annual report on internal control over financial reporting CIBC’s management is responsible for establishing and maintaining adequate internal control over financial reporting for CIBC. Internal control over financial reporting is a process designed by, or under the supervision of, the President and CEO and the CFO and effected by the Board, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS as issued by the IASB. CIBC’s internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records, that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of CIBC; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with IFRS as issued by the IASB, and that receipts and expenditures of CIBC are being made only in accordance with authorizations of CIBC’s management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of CIBC’s assets that could have a material effect on the consolidated financial statements. All internal control systems, no matter how well designed, have inherent limitations and may not prevent or detect misstatements on a timely basis. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. CIBC’s management has used the Internal Control – Integrated Framework that was published in 2013 by the COSO as the basis to evaluate the effectiveness of CIBC’s internal control over financial reporting. As at October 31, 2021, management assessed the effectiveness of CIBC’s internal control over financial reporting and concluded that such internal control was effective. Ernst & Young LLP, the shareholders’ auditor, has audited the consolidated financial statements of CIBC for the year ended October 31, 2021, and has also issued a report on internal control over financial reporting under standards of the Public Company Accounting Oversight Board (United States). Changes in internal control over financial reporting There have been no changes in CIBC’s internal control over financial reporting during the year ended October 31, 2021 that have materially affected, or are reasonably likely to materially affect, its internal control. CIBC 2021 ANNUAL REPORT 91 Management’s discussion and analysis Supplementary annual financial information Average balance sheet, net interest income and margin Average balance (1) Interest Average rate $ millions, for the year ended October 31 2021 2020 2019 2021 2020 2019 2021 2020 2019 Total domestic assets 550,730 510,353 459,897 11,676 13,335 15,433 Domestic assets (2) Cash and deposits with banks Securities Securities borrowed or purchased under resale agreements Loans Residential mortgages Personal and credit card Business and government Total loans Other interest-bearing assets Derivative instruments Customers’ liability under acceptances Other non-interest-bearing assets Foreign assets (2) Cash and deposits with banks Securities Securities borrowed or purchased under resale agreements Loans Residential mortgages Personal and credit card Business and government Total loans Other interest-bearing assets Derivative instruments Customers’ liability under acceptances Other non-interest-bearing assets Total foreign assets Total assets Domestic liabilities (2) Personal Deposits Business and government Bank Secured borrowings Total deposits Derivative instruments Acceptances Obligations related to securities sold short Obligations related to securities lent or sold under repurchase agreements Other liabilities Subordinated indebtedness Total domestic liabilities Foreign liabilities (2) Deposits Personal Business and government Bank Secured borrowings Total deposits Derivative instruments Acceptances Obligations related to securities sold short Obligations related to securities lent or sold under repurchase agreements Other liabilities Subordinated indebtedness Total foreign liabilities Total liabilities Shareholders’ equity Non-controlling interests $ 37,527 $ 82,262 30,232 $ 76,063 7,156 $ 66,954 $ 95 1,567 150 $ 1,776 164 1,852 0.25 % 0.50 % 1.90 2.33 2.29 % 2.77 27,203 230,606 50,110 70,755 351,471 8,901 11,382 10,613 21,371 26,498 208,811 51,948 68,072 328,831 5,194 14,334 9,560 19,641 23,950 203,575 53,490 63,131 320,196 3,837 10,248 10,170 17,386 154 5,141 2,962 1,712 9,815 45 – – – 290 5,581 3,433 2,043 496 6,347 4,012 2,434 11,057 12,793 62 – – – 128 – – – 30,270 72,870 51,157 4,501 1,321 66,677 72,499 923 24,186 1 6,985 20,050 62,014 42,199 4,429 1,309 66,015 71,753 701 20,629 1 7,792 13,305 49,059 35,491 3,815 1,435 55,443 60,693 555 13,419 – 7,297 36 574 165 157 83 1,995 2,235 55 – – – 99 792 552 176 97 2,416 2,689 55 – – – 232 927 978 201 105 2,819 3,125 2 – – – 258,891 225,139 179,819 3,065 4,187 5,264 0.57 2.23 5.91 2.42 2.79 0.51 – – – 2.12 0.12 0.79 0.32 3.49 6.28 2.99 3.08 5.96 – – – 1.18 1.09 2.67 6.61 3.00 3.36 1.19 – – – 2.61 0.49 1.28 1.31 3.97 7.41 3.66 3.75 7.85 – – – 1.86 2.07 3.12 7.50 3.86 4.00 3.34 – – – 3.36 1.74 1.89 2.76 5.27 7.32 5.08 5.15 0.36 – – – 2.93 $ 809,621 $ 735,492 $ 639,716 $ 14,741 $ 17,522 $ 20,697 1.82 % 2.38 % 3.24 % $ 189,599 $ 172,913 $ 157,537 $ 178,476 2,105 39,076 198,978 2,220 37,893 153,092 1,915 39,111 428,690 10,621 10,614 19,018 26,349 20,432 5,340 392,570 14,398 9,563 16,794 27,374 6,464 4,891 351,655 10,790 10,171 15,412 15,995 14,621 4,549 734 $ 1,170 3 378 2,285 – – 229 151 36 120 1,405 $ 2,019 13 668 4,105 – – 251 220 49 152 1,861 3,033 29 1,037 5,960 – – 285 477 9 193 521,064 472,054 423,193 2,821 4,777 6,924 16,795 134,038 16,848 1,883 169,564 22,571 1 1,050 50,142 2,395 96 245,819 766,883 42,563 175 16,974 113,877 13,891 1,322 146,064 20,718 1 1,047 41,881 13,706 152 223,569 695,623 39,682 187 15,543 97,429 12,277 226 125,475 14,130 – 1,089 35,413 3,014 150 179,271 602,464 37,072 180 62 268 20 16 366 – – 7 57 29 2 461 3,282 – – 142 964 100 15 1,221 – – 3 436 34 7 1,701 6,478 – – 193 2,068 197 4 2,462 – – 6 721 28 5 3,222 10,146 – – 0.39 % 0.81 % 0.59 0.14 1.00 1.13 0.62 1.71 1.18 % 1.98 1.51 2.65 0.53 – – 1.20 0.57 0.18 2.25 0.54 0.37 0.20 0.12 0.85 0.22 – – 0.67 0.11 1.21 2.08 0.19 0.43 – – 1.05 – – 1.49 0.80 0.76 3.11 1.01 0.84 0.85 0.72 1.13 0.84 – – 0.29 1.04 0.25 4.61 0.76 0.93 – – 1.69 – – 1.85 2.98 0.06 4.24 1.64 1.24 2.12 1.60 1.77 1.96 – – 0.55 2.04 0.93 3.33 1.80 1.68 – – Total liabilities and equity $ 809,621 $ 735,492 $ 639,716 $ 3,282 $ 6,478 $ 10,146 0.41 % 0.88 % 1.59 % Net interest income and net interest margin (3) $ 11,459 $ 11,044 $ 10,551 1.42 % 1.50 % 1.65 % Additional disclosures: Non-interest-bearing deposit liabilities Domestic Foreign $ 76,224 $ 22,396 59,862 $ 18,430 48,478 14,582 (1) Average balances are calculated as a weighted average of daily closing balances. (2) Classification as domestic or foreign is based on domicile of debtor or customer. (3) Net interest income as a percentage of average assets. 92 CIBC 2021 ANNUAL REPORT Management’s discussion and analysis Volume/rate analysis of changes in net interest income $ millions 2021/2020 2020/2019 Increase (decrease) due to change in: Increase (decrease) due to change in: Domestic assets (1) Cash and deposits with banks Securities Securities borrowed or purchased under resale agreements $ Loans Residential mortgages Personal and credit card Business and government Total loans Other interest-bearing assets Change in domestic interest income Foreign assets (1) Cash and deposits with banks Securities Securities borrowed or purchased under resale agreements Loans Residential mortgages Personal and credit card Business and government Total loans Other interest-bearing assets Change in foreign interest income Total change in interest income Domestic liabilities (1) Personal Deposits Business and government Bank Secured borrowings Total deposits Obligations related to securities sold short Obligations related to securities lent or sold under repurchase agreements Other liabilities Subordinated indebtedness Change in domestic interest expense Foreign liabilities (1) Deposits Personal Business and government Bank Secured borrowings Total deposits Obligations related to securities sold short Obligations related to securities lent or sold under repurchase agreements Other liabilities Subordinated indebtedness Change in foreign interest expense Total change in interest expense Change in total net interest income Average balance Average rate 36 145 8 583 (121) 81 543 44 776 50 139 117 3 1 24 28 17 $ (91) (354) (144) (1,023) (350) (412) (1,785) (61) (2,435) (113) (357) (504) (22) (15) (445) (482) (17) $ Total (55) (209) (136) (440) (471) (331) (1,242) (17) (1,659) (63) (218) (387) (19) (14) (421) (454) – Average balance Average rate $ 529 252 53 163 (116) 190 237 45 1,116 118 245 185 32 (9) 538 561 1 $ (543) (328) (259) (929) (463) (581) (1,973) (111) (3,214) (251) (380) (611) (57) 1 (941) (997) 52 $ Total (14) (76) (206) (766) (579) (391) (1,736) (66) (2,098) (133) (135) (426) (25) (8) (403) (436) 53 351 (1,473) (1,122) 1,110 (2,187) (1,077) $ 1,127 $ (3,908) $ (2,781) $ 2,226 $ (5,401) $ (3,175) $ $ $ 136 232 1 (20) 349 33 (8) 106 14 494 (1) 171 21 6 197 – 86 (28) (3) 252 746 381 $ (807) (1,081) (11) (270) (2,169) (55) (61) (119) (46) $ (671) (849) (10) (290) (1,820) (22) (69) (13) (32) $ 182 503 3 (1) 687 26 339 (5) 15 $ (638) (1,517) (19) (368) (2,542) (60) (596) 45 (56) $ (456) (1,014) (16) (369) (1,855) (34) (257) 40 (41) (2,450) (1,956) 1,062 (3,209) (2,147) (79) (867) (101) (5) (1,052) 4 (465) 23 (2) (1,492) (3,942) 34 $ $ (80) (696) (80) 1 (855) 4 (379) (5) (5) (1,240) 18 349 26 19 412 – 132 99 – 643 $ $ (3,196) $ 1,705 415 $ 521 $ $ (69) (1,453) (123) (8) (1,653) (3) (417) (93) 2 (2,164) (5,373) (28) (51) (1,104) (97) 11 (1,241) (3) (285) 6 2 (1,521) (3,668) 493 $ $ (1) Classification as domestic or foreign is based on domicile of debtor or customer. CIBC 2021 ANNUAL REPORT 93 Management’s discussion and analysis Analysis of net loans and acceptances(1) Canada (2) 85,338 60,760 $ 382,221 $ 343,677 $ 333,366 $ 326,572 $ 315,885 74,934 76,595 69,076 Analysis of net loans and acceptances (continued)(1) 2021 2020 2019 2018 2017 $ 246,581 $ 216,215 $ 204,383 $ 203,930 $ 203,787 39,533 11,805 255,125 6,481 5,403 5,186 6,237 1,912 3,019 13,293 5,558 3,159 668 464 539 281 40,317 10,550 267,082 5,844 9,434 5,442 6,824 2,115 3,326 20,782 6,829 3,627 610 474 608 108 41,506 12,060 257,496 6,426 6,885 6,000 6,969 2,318 3,294 16,297 6,011 3,246 824 446 624 275 41,906 12,143 258,432 6,064 7,565 6,548 6,975 2,465 3,972 18,465 6,965 3,648 1,024 628 713 191 39,940 10,362 296,883 6,259 11,407 6,549 6,663 2,222 3,430 25,151 7,242 2,539 415 283 589 238 343 2,526 4,397 3,664 1,666 – 406 2,218 3,783 3,333 1,173 – 557 2,193 3,027 3,221 857 – 527 1,880 3,328 2,870 954 – 291 1,818 2,840 2,937 869 – 2021 $ 2,071 542 22 2,635 48 13,705 2,449 4,808 2,500 1,283 18,138 129 1,818 127 165 2,275 1,196 71 1,255 3,654 3,927 229 – 2020 $ 2,000 409 27 2,436 292 7,560 2,089 5,095 2,547 1,057 18,750 103 2,364 142 141 1,939 1,015 99 1,283 3,332 4,203 216 – U.S. (2) 2019 $ 1,527 435 35 1,997 115 8,111 2,215 4,398 2,399 958 16,871 124 2,447 154 162 1,387 314 92 1,263 2,353 2,941 127 – 2018 $ 1,152 $ 356 36 1,544 39 5,529 2,013 3,720 2,143 695 14,559 79 1,852 60 215 1,202 887 2017 902 326 35 1,263 95 3,248 1,904 3,567 1,559 702 13,761 107 1,838 87 209 883 756 102 893 1,650 3,040 92 – 117 602 1,713 3,099 7 12 (245) (341) (144) (98) (195) (282) (536) (138) (108) (83) 2021 $ 2,594 647 125 3,366 268 3,896 596 1,789 93 91 1,264 36 238 490 – 130 130 95 2,909 3,519 23 1,736 – 2020 $ 2,587 664 145 3,396 252 2,227 517 1,758 49 97 1,312 147 346 507 – 107 140 58 3,033 2,945 27 1,817 – Other (2) 2019 $ 2,531 757 157 3,445 258 2,103 510 1,801 128 61 1,529 104 28 642 – 21 185 81 2,012 1,926 34 1,657 – 2018 $ 2,453 715 159 3,327 266 2,043 618 1,675 125 92 1,624 25 74 710 – – 208 85 1,642 833 28 1,598 – 2017 $ 2,379 583 152 3,114 218 841 706 1,736 432 111 1,325 22 185 784 – 20 301 89 1,847 878 29 1,662 – 57,495 $ 60,130 51,691 $ 54,127 46,293 $ 48,290 38,662 34,183 $ 40,206 $ 35,446 Total 2021 2018 2020 2019 2017 $ 251,246 $ 220,802 $ 208,441 $ 207,535 $ 207,068 40,442 11,992 259,502 6,794 9,492 7,796 11,540 3,903 3,832 28,379 5,687 5,182 1,539 673 1,442 1,338 42,577 12,255 262,367 6,731 14,457 8,631 12,364 4,586 4,081 32,480 6,115 5,172 1,594 661 1,826 1,370 41,390 10,722 272,914 6,388 19,221 8,048 13,677 4,711 4,480 40,844 7,079 6,337 1,259 615 2,654 1,263 43,098 12,335 263,874 6,437 17,779 9,273 13,174 4,992 4,991 36,865 7,193 6,123 1,820 790 2,121 690 41,129 10,509 302,884 6,575 29,008 9,594 13,260 4,815 4,804 44,553 7,407 4,595 1,032 448 2,994 1,564 509 6,690 11,570 7,614 3,631 – 563 6,534 10,060 7,563 3,206 – 730 5,468 7,306 6,196 2,641 – 714 4,415 5,811 5,938 2,644 – 497 4,267 5,431 6,065 2,538 12 $ millions, as at October 31 Residential mortgages Personal Credit card Total net consumer loans Non-residential mortgages Financial institutions Retail and wholesale Business services Manufacturing – capital goods Manufacturing – consumer goods Real estate and construction (3) Agriculture Oil and gas Mining Forest products Hardware and software Telecommunications and cable Publishing, printing, and broadcasting Transportation Utilities Education, health and social services Governments Others Stage 1 and 2 allowance for credit losses (2017: Collective allowance allocated to business and government loans) (3)(4) Total net business and government loans, including acceptances Total net loans and acceptances $ millions, as at October 31 Residential mortgages Personal Credit card Total net consumer loans Non-residential mortgages Financial institutions Retail and wholesale Business services Manufacturing – capital goods Manufacturing – consumer goods Real estate and construction (3) Agriculture Oil and gas Mining Forest products Hardware and software Telecommunications and cable Publishing, printing, and broadcasting Transportation Utilities Education, health and social services Governments Others Stage 1 and 2 allowance for credit losses (2017: Collective allowance allocated to business and government loans) (3)(4) Total net business and government loans, including acceptances Total net loans and acceptances (141) (151) (73) (90) (73) (668) (1,028) (355) (296) (351) 17,162 $ 20,528 15,188 $ 18,584 13,007 $ 16,452 11,556 $ 14,883 11,113 $ 14,227 159,995 106,056 $ 462,879 $ 416,388 $ 398,108 $ 381,661 $ 365,558 119,294 143,474 134,234 (1) In the third quarter of 2021, certain amounts by sector were revised from those previously presented to align with our revised sector definition, or to better match the borrowers’ risk profiles with the relevant sectors. (2) Classification by country is primarily based on domicile of debtor or customer. (3) Stage 3 allowance for credit losses (2017: individual allowance under IAS 39) is allocated to business and government loans, including acceptances, by category above. (4) Stage 1 and 2 allowance (2017: collective allowance under IAS 39) are primarily allocated based on the geographic location where they are recorded. 94 CIBC 2021 ANNUAL REPORT Management’s discussion and analysis Summary of allowance for credit losses $ millions, as at or for the year ended October 31 Balance at beginning of year under IAS 39 Impact of adopting IFRS 9 at November 1, 2017 Balance at beginning of year under IFRS 9 Provision for credit losses Write-offs Domestic (2) Residential mortgages Personal and credit card Other business and government Foreign (2) Residential mortgages Personal and credit card Other business and government Total write-offs Recoveries Domestic (2) Personal and credit card Other business and government Foreign (2) Residential mortgages Personal and credit card Other business and government Total recoveries Net write-offs Interest income on impaired loans Foreign exchange and other Balance at end of year Comprises: Loans Undrawn credit facilities and other off-balance sheet exposures Ratio of net write-offs during the year to average loans outstanding during the year 2021 n/a n/a 2020 n/a n/a 2019 n/a n/a 2018 (1) 2017 $ 1,737 63 $ 1,813 n/a $ 3,722 158 $ 2,044 2,489 $ 1,741 1,286 1,800 870 n/a 829 21 869 51 17 19 80 22 897 30 7 14 160 19 866 37 35 14 79 1,130 1,050 1,057 173 6 2 6 7 194 936 (40) (7) 174 6 – 4 6 190 860 (23) (46) 168 15 – 5 5 193 864 (26) (15) 26 663 126 1 17 153 986 185 5 3 4 9 206 780 (41) (89) 15 755 43 1 7 114 935 170 4 6 7 5 192 743 (45) (23) $ 2,970 $ 3,722 $ 2,044 $ 1,741 $ 1,737 $ 2,849 121 $ 3,540 182 $ 1,915 129 $ 1,639 102 $ 1,618 119 0.18 % 0.19 % 0.25 % 0.24 % 0.26 % (1) Effective November 1, 2017, all loans that are contractually 90 days in arrears are automatically classified as impaired and as stage 3 under IFRS 9, except for credit card loans which are classified as impaired and are fully written off when payments are contractually 180 days in arrears or at the earlier of the notice of bankruptcy, settlement proposal, or enlistment of credit counselling services. The determination of impairment was generally the same under IAS 39, except (i) residential mortgages guaranteed or insured by a Canadian government (federal or provincial) or a Canadian government agency were not classified as impaired until payments were contractually 365 days in arrears, and (ii) residential mortgages guaranteed or insured by a private insurer, or loans that were fully secured and in the process of collection were not classified as impaired until payments were contractually 180 days in arrears. (2) Classification as domestic or foreign is primarily based on domicile of debtor or customer. n/a Not applicable. Allowance for credit losses on impaired loans as a percentage of gross impaired loans $ millions, as at October 31 Domestic (4) Residential mortgages Personal loans Business and government Total domestic Foreign (4) Residential mortgages Personal loans Business and government Total foreign Total allowance 2021 2020 2019 2018 (2) 2017 (3) 2021 2020 2019 2018 (2) 2017 (3) Allowance for credit losses (1) Allowance as a % of gross impaired loans $ 54 64 344 462 104 42 164 310 $ 69 $ 80 406 555 82 33 244 359 61 $ 98 217 376 79 30 159 268 54 $ 22 79 56 189 89 30 174 293 110 43 175 123 31 148 302 12.7 % 61.5 72.9 10.8 % 60.2 62.6 10.5 % 62.4 45.8 10.9 % 57.7 41.5 46.2 39.1 31.0 24.6 48.8 72.4 29.2 37.3 47.7 68.8 34.4 38.6 46.5 63.8 36.4 41.0 49.4 66.7 35.8 41.2 7.5 % 94.8 41.7 34.2 55.7 56.4 28.3 37.8 $ 772 $ 914 $ 644 $ 482 $ 477 42.1 % 38.9 % 34.5 % 32.6 % 36.4 % (1) Excludes allowance on undrawn credit facilities and other off-balance sheet exposures. (2) Effective November 1, 2017, all loans that are contractually 90 days in arrears are automatically classified as impaired and as stage 3 under IFRS 9, except for credit card loans which are classified as impaired and are fully written off when payments are contractually 180 days in arrears or at the earlier of the notice of bankruptcy, settlement proposal, or enlistment of credit counselling services. The determination of impairment was generally the same under IAS 39, except (i) residential mortgages guaranteed or insured by a Canadian government (federal or provincial) or a Canadian government agency were not classified as impaired until payments were contractually 365 days in arrears, and (ii) residential mortgages guaranteed or insured by a private insurer, or loans that were fully secured and in the process of collection were not classified as impaired until payments were contractually 180 days in arrears. (3) Under IAS 39, comprises individual allowance, and collective allowance related to personal, scored small business, and mortgage impaired loans that are greater than 90 days delinquent. (4) Classification as domestic or foreign is primarily based on domicile of debtor or customer. CIBC 2021 ANNUAL REPORT 95 Management’s discussion and analysis Allowance on performing loans as a percentage of net loans and acceptances $ millions, as at October 31 2021 2020 2019 2018 (3) 2017 2021 2020 2019 2018 (3) 2017 Allowance for credit losses (1)(2) Allowance as a % of net loans and acceptances Domestic Residential mortgages Personal loans Credit cards Business and government Total domestic Foreign Residential mortgages Personal loans Credit cards Business and government Total foreign $ $ $ 65 647 619 245 89 697 659 341 $ 38 415 413 144 1,576 1,786 1,010 57 15 6 423 501 123 22 8 687 840 33 10 7 211 261 $ 29 362 415 98 904 42 10 3 198 253 34 345 383 187 949 24 9 3 156 192 – % 1.6 6.0 0.3 0.4 1.2 1.3 4.1 0.6 0.6 – % – % – % – % 1.7 6.2 0.4 0.5 2.7 2.1 4.7 1.0 1.2 1.0 3.4 0.2 0.3 0.8 0.8 3.6 0.4 0.4 0.9 3.4 0.1 0.3 1.2 0.9 1.5 0.4 0.5 0.9 3.2 0.3 0.3 0.7 1.0 1.6 0.3 0.4 Total stage 1 and 2 allowance (2017: total allowance) $ 2,077 $ 2,626 $ 1,271 $ 1,157 $ 1,141 0.4 % 0.6 % 0.3 % 0.3 % 0.3 % (1) Excludes allowance on undrawn credit facilities and other off-balance sheet exposures. (2) Stage 1 and 2 allowance (2017: collective allowance under IAS 39) are primarily allocated based on the geographic location where they are recorded. (3) Effective November 1, 2017, all loans that are contractually 90 days in arrears are automatically classified as impaired and as stage 3 under IFRS 9, except for credit card loans which are classified as impaired and are fully written off when payments are contractually 180 days in arrears or at the earlier of the notice of bankruptcy, settlement proposal, or enlistment of credit counselling services. The determination of impairment was generally the same under IAS 39, except (i) residential mortgages guaranteed or insured by a Canadian government (federal or provincial) or a Canadian government agency were not classified as impaired until payments were contractually 365 days in arrears, and (ii) residential mortgages guaranteed or insured by a private insurer, or loans that were fully secured and in the process of collection were not classified as impaired until payments were contractually 180 days in arrears. Net loans and acceptances by geographic location(1) $ millions, as at October 31 Canada Atlantic provinces Quebec Ontario Prairie provinces Alberta, Northwest Territories and Nunavut British Columbia and Yukon Stage 1 and 2 allowance (2017: collective allowance) allocated to Canada (2) Total Canada U.S. Other countries 2021 2020 2019 2018 2017 $ 14,898 35,092 202,789 15,092 46,816 69,110 $ 14,685 30,916 176,915 14,710 46,133 62,104 $ 14,578 30,113 169,073 14,680 45,103 60,829 $ 14,036 28,598 165,592 13,947 44,896 60,407 $ 14,194 27,027 157,987 13,746 44,354 59,479 (1,576) (3) (1,786) (3) (1,010) (3) (904) (3) (902) (4) 382,221 60,130 20,528 343,677 54,127 18,584 333,366 48,290 16,452 326,572 315,885 40,206 14,883 35,446 14,227 Total net loans and acceptances $ 462,879 $ 416,388 $ 398,108 $ 381,661 $ 365,558 (1) Classification by country is primarily based on domicile of debtor or customer. (2) Stage 1 and 2 allowance (2017: collective allowance under IAS 39) are primarily allocated based on the geographic location where they are recorded. (3) Stage 3 allowance for credit losses (2017: individual allowance under IAS 39) is allocated to provinces above, including acceptances. (4) Under IAS 39, relates to collective allowance, except for: (i) residential mortgages greater than 90 days delinquent; and (ii) personal loans and scored small business loans greater than 30 days delinquent. 96 CIBC 2021 ANNUAL REPORT Management’s discussion and analysis Net impaired loans $ millions, as at October 31 Gross impaired loans Residential mortgages Personal Total gross impaired consumer loans Non-residential mortgages Financial institutions Retail, wholesale and business services Manufacturing – consumer and capital goods Real estate and construction Agriculture Resource-based industries Telecommunications, media and technology Transportation Utilities Other Canada (1) U.S. (1) 2021 2020 2019 2018 (2) 2017 2021 2020 2019 2018 (2) 2017 $ 425 $ 104 637 $ 133 581 $ 497 $ 292 116 137 157 $ 529 2 4 192 24 16 10 50 4 6 93 71 472 770 15 8 383 5 39 27 124 1 4 38 5 649 738 3 2 283 6 38 53 46 2 4 32 5 474 634 408 3 5 62 7 39 8 1 2 3 – 5 135 769 100 7 – 38 6 33 9 2 3 2 – 3 103 511 337 18 3 21 – 70 55 51 239 – 7 6 – – 8 436 457 – $ 17 5 22 – 34 98 65 169 – 135 6 – 34 21 562 584 – $ $ 16 5 21 – 37 89 35 46 – 69 2 – – 23 13 2 15 – 65 44 14 90 – 54 2 1 – 56 301 322 – 326 341 – $ 9 2 11 – 8 52 1 137 – 114 2 – – 45 359 370 – Total gross impaired – business and government loans Total gross impaired loans Other past due loans (3) 1,001 64 1,419 127 1,212 96 Total gross impaired and other past due loans $ 1,065 $ 1,546 $ 1,308 $ 869 $ 848 $ 457 $ 584 $ 322 $ 341 $ 370 Allowance for credit losses Residential mortgages Personal Total allowance – consumer loans Non-residential mortgages Financial institutions Retail, wholesale and business services Manufacturing – consumer and capital goods Real estate and construction Agriculture Resource-based industries Telecommunications, media and technology Transportation Utilities Other Total allowance – business and government loans Total allowance Net impaired loans Residential mortgages Personal Total net impaired consumer loans Non-residential mortgages Financial institutions Retail, wholesale and business services Manufacturing – consumer and capital goods Real estate and construction Agriculture Resource-based industries Telecommunications, media and technology Transportation Utilities Other $ $ $ $ 54 64 69 $ 80 61 $ 98 54 $ 79 118 – 1 177 9 8 7 33 3 3 79 24 344 149 – 4 289 3 11 22 56 – 2 17 2 406 159 – 1 151 4 16 24 11 – 2 5 3 217 133 – – 26 4 15 4 1 1 2 – 3 56 22 110 132 2 – 18 5 9 – 2 2 2 – 3 43 $ 5 $ 2 7 – 15 19 3 62 – 1 1 – – – $ 3 2 5 – 8 24 29 58 – 48 2 – 5 1 3 1 4 – 1 28 – 28 – 34 – – – 10 101 175 101 $ 2 $ – 2 – 14 27 1 41 – 5 – – – – 88 462 $ 555 $ 376 $ 189 $ 175 $ 108 $ 180 $ 105 $ 90 $ 371 $ 40 411 568 $ 53 621 2 3 15 15 8 3 17 1 3 14 47 15 4 94 2 28 5 68 1 2 21 3 520 $ 443 $ 270 6 58 59 $ 579 3 1 132 2 22 29 35 2 2 27 2 257 501 276 3 5 36 3 24 4 – 1 1 – 2 79 5 – 20 1 24 9 – 1 – – – 60 $ $ $ 13 1 14 – 55 36 48 177 – 6 5 – – 8 335 14 3 17 – 26 74 36 111 – 87 4 – 29 20 387 $ 13 4 17 – 36 61 35 18 – 35 2 – – 13 11 2 13 – 51 17 13 49 – 49 2 1 – 56 200 238 – – – – – 16 – 41 – 8 – – – – 65 65 9 2 11 – 8 36 1 96 – 106 2 – – 45 294 Total net impaired – business and government loans 128 243 Total net impaired loans $ 539 $ 864 $ 836 $ 580 $ 336 $ 349 $ 404 $ 217 $ 251 $ 305 (1) Classification by country is primarily based on domicile of debtor or customer. (2) Effective November 1, 2017, all loans that are contractually 90 days in arrears are automatically classified as impaired and as stage 3 under IFRS 9, except for credit card loans which are classified as impaired and are fully written off when payments are contractually 180 days in arrears or at the earlier of the notice of bankruptcy, settlement proposal, or enlistment of credit counselling services. The determination of impairment was generally the same under IAS 39, except (i) residential mortgages guaranteed or insured by a Canadian government (federal or provincial) or a Canadian government agency were not classified as impaired until payments were contractually 365 days in arrears, and (ii) residential mortgages guaranteed or insured by a private insurer, or loans that were fully secured and in the process of collection were not classified as impaired until payments were contractually 180 days in arrears. (3) Represents loans where repayment of principal or payment of interest is contractually in arrears between 90 and 180 days. CIBC 2021 ANNUAL REPORT 97 Management’s discussion and analysis Net impaired loans (continued) $ millions, as at October 31 Gross impaired loans Residential mortgages Personal Other (1) Total 2021 2020 2019 2018 (2) 2017 2021 2020 2019 2018 (2) 2017 $ 195 55 $ 155 43 $ 154 42 $ 167 43 $ 212 53 $ 638 $ 809 $ 751 204 181 162 $ 677 182 $ 513 171 Total gross impaired consumer loans 250 198 196 210 265 Non-residential mortgages Financial institutions Retail, wholesale and business services Manufacturing – consumer and capital goods Real estate and construction Agriculture Resource-based industries Telecommunications, media and technology Transportation Utilities Other Total gross impaired – business and government loans Total gross impaired loans Other past due loans (3) 11 1 53 16 42 – – – 2 – – 125 375 2 11 1 49 3 55 – 27 – 2 – – 148 346 5 17 – 43 4 59 – – – 2 – 11 136 332 3 15 1 52 4 72 1 – – 3 – 12 160 370 3 17 2 57 5 78 1 – – 4 – – 164 429 3 800 13 75 300 91 297 10 57 10 8 93 79 990 26 43 530 73 263 27 286 7 6 72 26 1,033 1,833 66 1,359 2,349 132 955 20 39 415 45 143 53 115 4 6 32 39 911 859 18 71 158 25 201 9 55 4 7 – 73 621 684 24 10 147 12 248 10 116 5 6 – 48 626 1,866 99 1,480 103 1,310 340 Total gross impaired and other past due loans $ 377 $ 351 $ 335 $ 373 $ 432 $ 1,899 $ 2,481 $ 1,965 $1,583 $1,650 Allowance for credit losses Residential mortgages Personal $ 99 $ 79 31 40 $ 76 29 $ 87 30 $ 123 31 Total allowance – consumer loans 139 110 105 117 154 Non-residential mortgages Financial institutions Retail, wholesale and business services Manufacturing – consumer and capital goods Real estate and construction Agriculture Resource-based industries Telecommunications, media and technology Transportation Utilities Other Total allowance – business and government loans 2 1 33 4 22 – – – 1 – – 63 2 1 21 2 29 – 13 – 1 – – 69 5 – 18 2 30 – – – 1 – 2 58 7 1 28 3 39 1 – – 2 – 5 86 9 – 29 3 39 1 – – 2 – – 83 $ 158 $ 151 $ 140 128 113 106 264 2 17 229 16 92 7 34 4 4 79 24 508 264 2 13 334 34 98 22 117 2 3 22 3 650 268 5 2 197 6 74 24 45 – 3 5 15 376 $ 143 109 $ 145 141 252 286 7 15 81 8 95 5 6 1 4 – 8 11 – 63 8 89 1 10 2 4 – 3 230 191 Total allowance Net impaired loans Residential mortgages Personal $ 202 $ 179 $ 163 $ 203 $ 237 $ 772 $ 914 $ 644 $ 482 $ 477 $ 96 $ 76 $ 78 $ 80 $ 89 $ 480 $ 658 $ 611 76 68 56 15 13 13 22 12 $ 534 73 $ 368 30 Total net impaired consumer loans Non-residential mortgages Financial institutions Retail, wholesale and business services Manufacturing – consumer and capital goods Real estate and construction Agriculture Resource-based industries Telecommunications, media and technology Transportation Utilities Other Total net impaired – business and government loans 111 9 – 20 12 20 – – – 1 – – 62 88 9 – 28 1 26 – 14 – 1 – – 79 91 12 – 25 2 29 – – – 1 – 9 78 93 8 – 24 1 33 – – – 1 – 7 74 111 8 2 28 2 39 – – – 2 – – 81 536 11 58 71 75 205 3 23 6 4 14 55 525 726 24 30 196 39 165 5 169 5 3 50 23 709 687 15 37 218 39 69 29 70 4 3 27 24 535 607 11 56 77 17 106 4 49 3 3 – 65 391 398 13 10 84 4 159 9 106 3 2 – 45 435 Total net impaired loans $ 173 $ 167 $ 169 $ 167 $ 192 $ 1,061 $ 1,435 $ 1,222 $ 998 $ 833 (1) Classification by country is primarily based on domicile of debtor or customer. (2) Effective November 1, 2017, all loans that are contractually 90 days in arrears are automatically classified as impaired and as stage 3 under IFRS 9, except for credit card loans which are classified as impaired and are fully written off when payments are contractually 180 days in arrears or at the earlier of the notice of bankruptcy, settlement proposal, or enlistment of credit counselling services. The determination of impairment was generally the same under IAS 39, except (i) residential mortgages guaranteed or insured by a Canadian government (federal or provincial) or a Canadian government agency were not classified as impaired until payments were contractually 365 days in arrears, and (ii) residential mortgages guaranteed or insured by a private insurer, or loans that were fully secured and in the process of collection were not classified as impaired until payments were contractually 180 days in arrears. (3) Represents loans where repayment of principal or payment of interest is contractually in arrears between 90 and 180 days. 98 CIBC 2021 ANNUAL REPORT Management’s discussion and analysis Deposits $ millions, for the year ended October 31 2021 2020 2019 2021 2020 2019 2021 2020 2019 Average balance (1) Interest Rate Deposits in domestic bank offices (2) Payable on demand Personal Business and government Bank Payable after notice Personal Business and government Bank Payable on a fixed date Personal Business and government Bank Secured borrowings $ 12,820 $ 67,233 8,881 11,945 $ 50,683 5,761 130,636 64,661 351 50,479 105,251 2,167 37,893 109,856 56,758 276 55,164 102,953 2,078 39,076 $ 9,939 43,539 4,517 99,859 44,691 256 51,522 85,978 1,161 39,111 $ 5 164 – 194 390 2 552 684 2 378 Total domestic 480,372 434,550 380,573 2,371 Deposits in foreign bank offices Payable on demand Personal Business and government Bank Payable after notice Personal Business and government Payable on a fixed date Personal Business and government Bank Secured borrowings Total foreign Total deposits 2,213 24,156 37 8,305 16,623 1,941 55,092 7,632 1,883 1,971 20,454 31 8,119 12,825 2,832 48,680 7,850 1,322 117,882 104,084 1,687 15,687 13 6,909 9,544 3,164 51,082 8,245 226 96,557 1 8 1 33 26 11 166 18 16 280 14 305 1 460 659 2 969 1,358 20 668 4,456 2 32 1 66 83 36 546 89 15 870 $ 17 585 3 855 927 4 1,040 2,063 23 1,037 6,554 2 70 – 82 185 58 1,271 196 4 1,868 0.04 % 0.24 – 0.12 % 0.60 0.02 0.17 % 1.34 0.07 0.15 0.60 0.57 1.09 0.65 0.09 1.00 0.49 0.05 0.03 2.70 0.40 0.16 0.57 0.30 0.24 0.85 0.24 0.42 1.16 0.72 1.76 1.32 0.96 1.71 1.03 0.10 0.16 3.23 0.81 0.65 1.27 1.12 1.13 1.13 0.84 0.86 2.07 1.56 2.02 2.40 1.98 2.65 1.72 0.12 0.45 – 1.19 1.94 1.83 2.49 2.38 1.77 1.93 $ 598,254 $ 538,634 $ 477,130 $ 2,651 $ 5,326 $ 8,422 0.44 % 0.99 % 1.77 % (1) Average balances are calculated as a weighted average of daily closing balances. (2) Deposits by foreign depositors in our domestic bank offices amounted to $51.9 billion (2020: $42.2 billion; 2019: $29.3 billion). Short-term borrowings $ millions, as at or for the year ended October 31 Amounts outstanding at end of year Obligations related to securities sold short Obligations related to securities lent or sold under repurchase agreements Total short-term borrowings Obligations related to securities sold short Average balance (1) Maximum month-end balance Average interest rate Obligations related to securities lent or sold under repurchase agreements Average balance (1) Maximum month-end balance Average interest rate (1) Average balances are calculated as a weighted average of daily closing balances. Fees paid to the shareholders’ auditor $ millions, for the year ended October 31 Audit fees (1) Audit-related fees (2) Tax fees (3) All other fees (4) Total 2021 2020 2019 $ 22,790 74,343 $ 97,133 $ 15,963 73,477 $ 89,440 $ 15,635 53,623 $ 69,258 $ 20,068 22,790 $ 17,841 22,467 $ 16,501 18,448 1.18 % 1.42 % 1.76 % $ 76,491 83,664 $ 69,255 81,349 $ 51,408 57,346 0.27 % 0.95 % 2.33 % 2021 $ 23.1 2.3 1.3 – $ 26.7 2020 $ 24.0 2.2 1.4 – $ 27.6 2019 $ 22.3 1.7 1.9 0.1 $ 26.0 (1) For the audit of CIBC’s annual financial statements and the audit of certain of our subsidiaries, as well as other services normally provided by the principal auditor in connection with CIBC’s statutory and regulatory filings. Audit fees also include the audit of internal control over financial reporting under the standards of the Public Company Accounting Oversight Board (United States). (2) For the assurance and related services that are reasonably related to the performance of the audit or review of CIBC’s consolidated financial statements, including accounting consultation, various agreed upon procedures and translation of financial reports. (3) For tax compliance and advisory services. (4) Includes fees for non-audit services. CIBC 2021 ANNUAL REPORT 99 Management’s discussion and analysis Glossary Allowance for credit losses Under IFRS 9, allowance for credit losses represents 12 months of expected credit losses (ECL) for instruments that have not been subject to a significant increase in credit risk, while allowance for credit losses represents lifetime ECL for instruments that have been subject to a significant increase in credit risk, including impaired instruments. ECL allowances for loans and acceptances are included in Allowance for credit losses on the consolidated balance sheet. ECL allowances for fair value through other comprehensive income (FVOCI) debt securities are included as a component of the carrying value of the securities, which are measured at fair value. Expected credit loss allowances for other financial assets are included in the carrying value of the instrument. ECL allowances for guarantees and loan commitments are included in Other liabilities. Under IAS 39, allowance for credit losses generally represented an allowance set up in the financial statements sufficient to absorb specifically identified and inherent credit-related losses in CIBC’s portfolio of loans, acceptances, letters of credit and guarantees. This allowance can be “collective”, assessed by reviewing a portfolio of loans with similar characteristics, or “individual”, assessed by reviewing the characteristics of an individual exposure. Allowance for credit losses are adjusted for provisions for (reversals of) credit losses and are reduced by write-offs, net of recoveries. Amortized cost The amount at which a financial asset or financial liability is measured at initial recognition minus repayments, plus or minus any unamortized origination date premiums or discounts, plus or minus any basis adjustments resulting from a fair value hedge, and minus any reduction for impairment (directly or through the use of an allowance account). The amount of a financial asset or liability measured at initial recognition is the cost of the financial asset or liability including capitalized transaction costs and deferred fees. Assets under administration (AUA) Assets administered by CIBC that are beneficially owned by clients and are, therefore, not reported on the consolidated balance sheet. The services provided by CIBC are of an administrative nature, such as safekeeping of securities, client reporting and record keeping, collection of investment income, and the settlement of purchase and sale transactions. In addition, assets under management (AUM) amounts are included in the amounts reported under AUA. Assets under management (AUM) Assets managed by CIBC that are beneficially owned by clients and are, therefore, not reported on the consolidated balance sheet. The service provided in respect of these assets is discretionary portfolio management on behalf of the clients. Average interest-earning assets Average interest-earning assets include interest-bearing deposits with banks, interest-bearing demand deposits with the Bank of Canada, securities, cash collateral on securities borrowed or securities purchased under resale agreements, loans net of allowance for credit losses, and certain sublease-related assets. Basis point One-hundredth of a percentage point (0.01%). Collateral Assets pledged to secure loans or other obligations, which are forfeited if the obligations are not repaid. Collateralized debt obligation (CDO) Securitization of any combination of corporate debt, asset-backed securities (ABS), mortgage-backed securities or tranches of other CDOs to form a pool of diverse assets that are tranched into securities that offer varying degrees of risk and return to meet investor demand. Collateralized loan obligation (CLO) Securitizations of diversified portfolios of corporate debt obligations and/or ABS that are tranched into securities that offer varying degrees of risk and return to meet investor demand. Common shareholders’ equity Common shareholders’ equity includes common shares, contributed surplus, retained earnings and accumulated other comprehensive income (AOCI). Credit derivatives A category of financial instruments that allow one party (the beneficiary) to separate and transfer the credit risk of nonpayment or partial payment of an underlying financial instrument to another party (the guarantor). Credit valuation adjustment (CVA) A valuation adjustment that is required to be considered in measuring fair value of over-the-counter (OTC) derivatives to recognize the risk that any given derivative counterparty may not ultimately be able to fulfill its obligations. In assessing the net counterparty credit risk (CCR) exposure, we take into account credit mitigants such as collateral, master netting arrangements, and settlements through clearing houses. Current replacement cost The estimated cost of replacing an asset at the present time according to its current worth. Derivatives A financial contract that derives its value from the performance of an underlying instrument, index or financial rate. 100 CIBC 2021 ANNUAL REPORT Management’s discussion and analysis Dividend payout ratio Common share dividends paid as a percentage of net income after preferred share dividends, premium on preferred share redemptions, and distributions on other equity instruments. Dividend yield Dividends per common share divided by the closing common share price. Effective interest rate method A method of calculating the amortized cost of a financial asset or financial liability and of allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate, a shorter period, to the net carrying amount of the financial asset or financial liability. Efficiency ratio Non-interest expenses as a percentage of total revenue (net interest income and non-interest income). Exchange-traded derivative contracts Standardized derivative contracts (e.g., futures contracts and options) that are transacted on an organized exchange and cleared through a central clearing house, and are generally subject to standard margin requirements. Fair value The price that would be received to sell an asset, or paid to transfer a liability, between market participants in an orderly transaction in the principal market at the measurement date under current market conditions. Forward contracts A non-standardized contract to buy or sell a specified asset at a specified price and specified date in the future. Forward rate agreement An OTC forward contract that determines an interest rate to be paid or received commencing on a specified date in the future for a specified period. Full-time equivalent employees A measure that normalizes the number of full-time and part-time employees, base salary plus commissioned employees, and 100% commissioned employees into equivalent full-time units based on actual hours of paid work during a given period, for individuals whose compensation is included in the Employee compensation and benefits line on the consolidated statement of income. Futures A standardized contract to buy or sell a specified commodity, currency or financial instrument of standardized quantity and quality at a specific price and date in the future. Futures contracts are traded on an exchange. Guarantees and standby letters of credit Primarily represent CIBC’s obligation, subject to certain conditions, to make payments to third parties on behalf of clients, if these clients cannot make those payments, or are unable to meet other specified contractual obligations. Hedge A transaction intended to offset potential losses/gains that may be incurred in a transaction or portfolio. Loan loss ratio The ratio is calculated as the provision for credit losses on impaired loans to average loans and acceptances, net of allowance for credit losses. Mark-to-market The fair value (as defined above) at which an asset can be sold or a liability can be transferred. Net interest income The difference between interest earned on assets (such as loans and securities) and interest incurred on liabilities (such as deposits and subordinated indebtedness). Net interest margin Net interest income as a percentage of average assets. Normal course issuer bid (NCIB) Involves a listed company buying its own shares for cancellation through a stock exchange or other published market, from time to time, and is subject to the various rules of the exchanges and securities commissions. Notional amount Principal amount or face amount of a financial contract used for the calculation of payments made on that contract. Off-balance sheet financial instruments A financial contract that is based mainly on a notional amount and represents a contingent asset or liability of an institution. Such instruments include credit-related arrangements. CIBC 2021 ANNUAL REPORT 101 Management’s discussion and analysis Office of the Superintendent of Financial Institutions (OSFI) OSFI supervises and regulates all banks, all federally incorporated or registered trust and loan companies, insurance companies, cooperative credit associations, fraternal benefit societies, and federal pension plans in Canada. Operating leverage Operating leverage is the difference between the year-over-year percentage change in revenue and year-over-year percentage change in non-interest expenses. Options A financial contract under which the writer (seller) confers the right, but not the obligation, to the purchaser to either buy (call option) or sell (put option) a specified amount of an underlying asset or instrument at a specified price either at or by a specified date. Provision for (reversal of) credit losses An amount charged or credited to income to adjust the allowance for credit losses to the appropriate level, for both performing and impaired financial assets. Provision for (reversal of) credit losses for loans and acceptances and related off-balance sheet loan commitments is included in the Provision for (reversal of) credit losses line on the consolidated statement of income. Provision for (reversal of) credit losses for debt securities measured at FVOCI or amortized cost is included in Gains (losses) from debt securities measured at FVOCI and amortized cost, net. Return on average assets or average interest-earning assets Net income expressed as a percentage of average assets or average interest-earning assets. Return on common shareholders’ equity Net income attributable to equity shareholders expressed as a percentage of average common shareholders’ equity. Securities borrowed Securities are typically borrowed to cover short positions. Borrowing requires the pledging of collateral by the borrower to the lender. The collateral may be cash or a highly rated security. Securities lent Securities are typically lent to a borrower to cover their short positions. Borrowing requires the pledging of collateral by the borrower to the lender. The collateral provided may be cash or a highly rated security. Securities purchased under resale agreements A transaction where a security is purchased by the buyer and, at the same time, the buyer commits to resell the security to the original seller at a specific price and date in the future. Securities sold short A transaction in which the seller sells securities that it does not own. Initially the seller typically borrows the securities in order to deliver them to the purchaser. At a later date, the seller buys identical securities in the market to replace the borrowed securities. Securities sold under repurchase agreements A transaction where a security is sold by the seller and, at the same time, the seller commits to repurchase the security from the original purchaser at a specific price and date in the future. Structured entities (SEs) Entities that have been designed so that voting or similar rights are not the dominant factor in deciding who controls the entity, such as when any voting rights relate to administrative tasks only and the relevant activities are directed by means of contractual arrangements. Swap contracts A financial contract in which counterparties exchange a series of cash flows based on a specified notional amount over a specified period. Taxable equivalent basis (TEB) The gross-up of tax-exempt revenue on certain securities to a TEB. There is an equivalent offsetting adjustment to the income tax expense. Total shareholder return The total return earned on an investment in CIBC’s common shares. The return measures the change in shareholder value, assuming dividends paid are reinvested in additional shares. 102 CIBC 2021 ANNUAL REPORT Management’s discussion and analysis Risk and capital glossary Advanced internal ratings-based (AIRB) approach for credit risk Internal models based on historical experience of key risk assumptions such as probability of default (PD), loss given default (LGD) and exposure at default (EAD) are used to compute the capital requirements subject to the Office of the Superintendent of Financial Institutions (OSFI) approval. A capital floor based on the standardized approach is also calculated by banks under the AIRB approach for credit risk and an adjustment to risk- weighted assets (RWA) may be required as prescribed by OSFI. Asset/liability management (ALM) The practice of managing risks that arise from mismatches between the assets and liabilities, mainly in the non-trading areas of the bank. Techniques are used to manage the relative duration of CIBC’s assets (such as loans) and liabilities (such as deposits), in order to minimize the adverse impact of changes in interest rates. Bail-in eligible liabilities Bail-in eligible liabilities include long-term (i.e., original maturity over 400 days), unsecured senior debt issued on or after September 23, 2018 that is tradable and transferrable, and any preferred shares and subordinated debt that are not considered non-viability contingent capital (NVCC). Consumer deposits, secured liabilities (including covered bonds), certain financial contracts (including derivatives) and certain structured notes are not bail-in eligible. Bank exposures All direct credit risk exposures to deposit-taking institutions and regulated securities firms, and exposures guaranteed by those entities. Business and government portfolio A category of exposures that includes lending to businesses and governments, where the primary basis of adjudication relies on the determination and assignment of an appropriate risk rating that reflects the credit risk of the exposure. Central counterparty (CCP) A clearing house that interposes itself between counterparties to clear contracts traded in one or more financial markets, becoming the buyer to every seller and the seller to every buyer and thereby ensuring the future performance of open contracts. Comprehensive approach for securities financing transactions A framework for the measurement of counterparty credit risk (CCR) with respect to securities financing transactions, which utilizes a volatility- adjusted collateral value to reduce the amount of the exposure. Common Equity Tier 1 (CET1), Tier 1 and Total capital ratios CET1, Tier 1 and total regulatory capital, divided by RWA, as defined by OSFI’s Capital Adequacy Requirements (CAR) Guideline, which is based on Basel Committee on Banking Supervision (BCBS) standards. Corporate exposures All direct credit risk exposures to corporations, partnerships and proprietorships, and exposures guaranteed by those entities. Credit risk The risk of financial loss due to a borrower or counterparty failing to meet its obligations in accordance with contractual terms. Drawn exposure The amount of credit risk exposure resulting from loans and other receivables advanced to the customer. Economic capital Economic capital provides a framework to evaluate the returns of each strategic business unit, commensurate with risk assumed. Economic capital is a non-GAAP risk measure based upon an internal estimate of equity capital required by the businesses to absorb unexpected losses consistent with our targeted risk rating over a one-year horizon. Economic capital comprises primarily credit, market, operational and strategic risk capital. Economic profit A non-GAAP risk-adjusted performance measure used for measuring economic value added. It is calculated as earnings of each business less a charge for the cost of capital. Exposure at default (EAD) An estimate of the amount of exposure to a customer at the event of, and at the time of, default. Incremental risk charge (IRC) A capital charge applied in addition to market risk capital specifically to cover default and migration risk in unsecuritized credit assets of varying liquidity held in the trading book. Internal Capital Adequacy Assessment Process (ICAAP) A framework and process designed to provide a comprehensive view on capital adequacy, as defined by Pillar II of the Basel Accord, wherein we identify and measure our risks on an ongoing basis in order to ensure that the capital available is sufficient to cover all risks across CIBC. CIBC 2021 ANNUAL REPORT 103 Management’s discussion and analysis Internal models approach (IMA) for market risk Models, which have been developed by CIBC and approved by OSFI, for the measurement of risk and regulatory capital in the trading portfolio for general market risk, debt specific risk, and equity specific risk. Internal model method (IMM) for counterparty credit risk Models, which have been developed by CIBC and approved by OSFI, for the measurement of CCR with respect to over-the-counter (OTC) derivatives. Internal ratings-based (IRB) approach for securitization exposures This approach comprises two calculation methods available for securitization exposures that require OSFI approval: the Internal Ratings-Based Approach (SEC-IRBA) is available to the banks approved to use the IRB approach for underlying exposures securitized and the Internal Assessment Approach (SEC-IAA) available for certain securitization exposures extended to asset-backed commercial paper (ABCP) programs. Leverage ratio exposure The leverage ratio exposure is defined under the OSFI rules as on-balance sheet assets (unweighted) less Tier 1 capital regulatory adjustments plus derivative exposures, securities financing transaction exposures with a limited form of netting under certain conditions, and other off-balance sheet exposures (such as commitments, direct credit substitutes, forward asset purchases, standby/trade letters of credit and securitization exposures). While OSFI currently permits exposures arising from central bank reserves and sovereign-issued securities that qualify as High Quality Liquid Assets (HQLA) to be excluded from the exposure measure for leverage ratio purposes, the exclusion will no longer be available for sovereign- issued securities after December 31, 2021. Leverage ratio Defined as Tier 1 capital divided by the leverage ratio exposure determined in accordance with guidelines issued by OSFI, which are based on BCBS standards. Liquidity coverage ratio (LCR) Derived from the BCBS’s Basel III framework and incorporated into OSFI’s Liquidity Adequacy Requirements (LAR) Guideline, the LCR is a liquidity standard that aims to ensure that an institution has an adequate stock of unencumbered HQLA that consists of cash or assets that can be converted into cash at little or no loss of value in private markets, to meet its liquidity needs for a 30-calendar-day liquidity stress scenario. Liquidity risk The risk of having insufficient cash or its equivalent in a timely and cost-effective manner to meet financial obligations as they come due. Loss given default (LGD) An estimate of the amount of exposure to a customer that will not be recovered following a default by that customer, expressed as a percentage of the EAD. LGD is generally based on through-the-cycle assumptions for regulatory capital purposes, and generally based on point-in-time assumptions reflecting forward-looking information for IFRS 9 expected credit loss (ECL) purposes. Market risk The risk of economic financial loss in our trading and non-trading portfolios from adverse changes in underlying market factors, including interest rates, foreign exchange rates, equity market prices, commodity prices, credit spreads and customer behaviour for retail products. Master netting agreement An industry standard agreement designed to reduce the credit risk of multiple transactions with a counterparty through the creation of a legal right of offset of exposures in the event of a default by that counterparty and through the provision for net settlement of all contracts through a single payment. Net cumulative cash flow (NCCF) The NCCF is a liquidity horizon metric defined under OSFI’s LAR Guideline as a monitoring and supervision tool for liquidity risk that measures an institution’s detailed cash flows in order to capture the risk posed by funding mismatches between assets and liabilities. Net stable funding ratio (NSFR) Derived from the BCBS’s Basel III framework and incorporated into OSFI’s LAR Guideline, the NSFR standard aims to promote long-term resilience of the financial sector by requiring banks to maintain a sustainable stable funding profile in relation to the composition of their assets and off-balance sheet activities. Non-viability contingent capital (NVCC) Effective January 1, 2013, in order to qualify for inclusion in regulatory capital, all non-common Tier 1 and Tier 2 capital instruments must be capable of absorbing losses at the point of non-viability of a financial institution. This will ensure that investors in such instruments bear losses before taxpayers where the government determines that it is in the public interest to rescue a non-viable bank. Operational risk The risk of loss resulting from people, inadequate or failed internal processes and systems, or from external events. Other off-balance sheet exposure The amount of credit risk exposure resulting from the issuance of guarantees and letters of credit. Other retail This exposure class includes all loans other than qualifying revolving retail and real estate secured personal lending that are extended to individuals and small businesses under the regulatory capital reporting framework. 104 CIBC 2021 ANNUAL REPORT Management’s discussion and analysis Over-the-counter derivatives exposure The amount of credit risk exposure resulting from derivatives that trade directly between two counterparties, rather than through exchanges. Probability of default (PD) An estimate of the likelihood of default for any particular customer which occurs when that customer is not able to repay its obligations as they become contractually due. PD is based on through-the-cycle assumptions for regulatory capital purposes, and based on point-in-time assumptions reflecting forward-looking information for IFRS 9 ECL purposes. Qualifying central counterparty (QCCP) An entity that is licensed to operate as a CCP and is permitted by the appropriate regulator or oversight body to operate as such with respect to the products offered by that CCP. Qualifying revolving retail This exposure class includes credit cards, unsecured lines of credit and overdraft protection products extended to individuals. Under the standardized approach, these exposures would be included under “other retail”. Real estate secured personal lending This exposure class includes residential mortgages and home equity loans and lines of credit extended to individuals. Regulatory capital Regulatory capital, as defined by OSFI’s CAR Guideline, is comprised of CET1, Additional Tier 1 (AT1) and Tier 2 capital. CET1 capital includes common shares, retained earnings, accumulated other comprehensive income (AOCI) (excluding AOCI relating to cash flow hedges and changes in fair value option liabilities attributable to changes in own credit risk) and qualifying instruments issued by a consolidated banking subsidiary to third parties, less regulatory adjustments for items such as goodwill and other intangible assets, deferred tax assets, net assets related to defined benefit pension plans, and certain investments. On March 27, 2020, OSFI introduced transitional arrangements for the capital treatment of expected loss provisioning, such that part of the allowances that would otherwise be included in Tier 2 capital will instead qualify for inclusion in CET1 capital subject to certain adjustments and limitations until fiscal year 2022. AT1 capital primarily includes NVCC preferred shares, Limited Recourse Capital Notes, qualifying instruments issued by a consolidated subsidiary to third parties, and non-qualifying innovative Tier 1 notes which are subject to phase-out rules for capital instruments. Tier 1 capital is comprised of CET1 plus AT1. Tier 2 capital includes NVCC subordinated indebtedness, non-qualifying subordinated indebtedness subject to phase-out rules for capital instruments, eligible general allowances, and qualifying instruments issued by a consolidated subsidiary to third parties. Total capital is comprised of Tier 1 capital plus Tier 2 capital. Qualifying regulatory capital instruments must be capable of absorbing loss at the point of non-viability of the financial institution; non-qualifying capital instruments were excluded from regulatory capital at a rate of 10% per annum commencing January 1, 2013 through to November 1, 2021. Repo-style transactions exposure The amount of credit risk exposure resulting from our securities bought or sold under resale agreements, as well as securities borrowing and lending activities. Reputation risk The risk of negative publicity regarding CIBC’s business conduct or practices which, whether true or not, could significantly harm CIBC’s reputation as a leading financial institution, or could materially and adversely affect CIBC’s business, operations, or financial condition. Resecuritization A securitization exposure in which the risk associated with an underlying pool of exposures is tranched and at least one of the underlying exposures is a securitization exposure. Retail portfolios A category of exposures that primarily includes consumer but also small business lending, where the primary basis of adjudication relies on credit- scoring models. Risk-weighted assets RWA consist of three components: (i) RWA for credit risk, which are calculated using the AIRB and standardized approaches, (ii) RWA for market risk, and (iii) RWA for operational risk. The AIRB RWA are calculated using PDs, LGDs, EADs, and in some cases maturity adjustments, while the standardized approach applies risk weighting factors specified in the OSFI guidelines to on- and off-balance sheet exposures. The RWA for market risk in the trading portfolio are based on the internal models approved by OSFI with the exception of the RWA for traded securitization assets where we are using the methodology defined by OSFI. The RWA for operational risk, which relate to the risk of losses resulting from people, inadequate or failed internal processes, and systems or from external events, are calculated under a standardized approach. Since the introduction of Basel II in 2008, OSFI has prescribed a capital floor requirement for institutions that use the AIRB approach for credit risk. The capital floor is determined by comparing a capital requirement calculated by reference to the Basel II standardized approach against the Basel III calculation, as specified by OSFI. Any shortfall in the Basel III capital requirement is added to RWA. Securitization The process of selling assets (normally financial assets such as loans, leases, trade receivables, credit card receivables or mortgages) to trusts or other structured entities (SEs). A SE normally issues securities or other forms of interests to investors and/or the asset transferor, and the SE uses the proceeds from the issue of securities or other forms of interest to purchase the transferred assets. The SE will generally use the cash flows generated by the assets to meet the obligations under the securities or other interests issued by the SE, which may carry a number of different risk profiles. Sovereign exposures All direct credit risk exposures to governments, central banks and certain public sector entities, and exposures guaranteed by those entities. CIBC 2021 ANNUAL REPORT 105 Management’s discussion and analysis Standardized approach for credit risk Applied to exposures when there is not sufficient information to allow for the use of the AIRB approach for credit risk. Credit risk capital requirements are calculated based on a standardized set of risk weights as prescribed in the CAR Guideline. The standardized risk weights are based on external credit assessments, where available, and other risk-related factors, including export credit agencies, exposure asset class, collateral, etc. Standardized approach for operational risk Capital is based on prescribed percentages that vary by business activity and is applied to the three-year average gross income. Standardized approach for securitization exposures This approach comprises the calculation methods available for securitization exposures that do not require OSFI approval: the External Ratings- Based Approach (SEC-ERBA) and the Standardized Approach (SEC-SA). Strategic risk The risk of ineffective or improper implementation of business strategies, including mergers and acquisitions. It includes the potential financial loss due to the failure of organic growth initiatives or failure to respond appropriately to changes in the business environment. Stressed Value-at-Risk (VaR) A value-at-risk calculation using a one-year observation period related to significant losses for the given portfolio at a specified level of confidence and time horizon. Structural foreign exchange risk Structural foreign exchange risk primarily consists of the risk inherent in net investments in foreign operations due to changes in foreign exchange rates, and foreign currency denominated RWA and foreign currency denominated capital deductions. Structural interest rate risk Structural interest rate risk primarily consists of the risk arising due to mismatches in assets and liabilities, which do not arise from trading and trading-related businesses. Total loss absorbing capacity (TLAC) measure The sum of Total capital and bail-in eligible liabilities that have a residual maturity greater than one year. Bail-in eligible liabilities include long-term (original maturity over 400 days), unsecured senior debt issued on or after September 23, 2018, that is tradable and transferrable, and any preferred shares and subordinated debt that are not NVCC. Consumer deposits, secured liabilities (for example, covered bonds), eligible financial contracts (for example derivatives) and certain structured notes are excluded from the bail-in power. Total loss absorbing capacity ratio Defined as TLAC measure divided by risk-weighted assets determined in accordance with guidelines issued by OSFI, which are based on BCBS standards. Total loss absorbing capacity leverage ratio Defined as TLAC measure divided by leverage ratio exposure measure determined in accordance with guidelines issued by OSFI, which are based on BCBS standards. Transitional arrangements for capital treatment of expected loss provisioning On March 27, 2020, OSFI introduced transitional arrangements for expected credit loss provisioning. These arrangements result in a portion of allowances that would otherwise be included in Tier 2 capital qualifying for inclusion in CET1 capital. The amount of ECL allowances eligible for inclusion in CET1 capital is determined based on the increase in stage 1 and stage 2 allowances relative to balances as at January 31, 2020 as a baseline. This amount is then adjusted for tax effects and is subject to a scaling factor that will decrease over time. The scaling factor has been set at 70% for fiscal 2020, 50% for fiscal 2021, and 25% for fiscal 2022. For exposures under the internal ratings-based (IRB) approach, the lower of this amount and excess allowances eligible for inclusion in Tier 2 capital is included as CET1 capital under the transitional arrangements. Undrawn exposures The amount of credit risk exposure resulting from loans that have not been advanced to a customer, but which a customer may be entitled to draw in the future. Value-at-Risk (VaR) Generally accepted risk measure that uses statistical models to estimate the distribution of possible returns on a given portfolio at a specified level of confidence and time horizon. 106 CIBC 2021 ANNUAL REPORT Consolidated financial statements Consolidated financial statements 108 109 113 116 117 118 119 120 121 122 Financial reporting responsibility Independent auditor’s report – Canadian generally accepted auditing standards Report of independent registered public accounting firm – Standards of the Public Company Accounting Oversight Board (United States) Report of independent registered public accounting firm – Internal control over financial reporting Consolidated balance sheet Consolidated statement of income Consolidated statement of comprehensive income Consolidated statement of changes in equity Consolidated statement of cash flows Notes to the consolidated financial statements Details of the notes to the consolidated financial statements 122 Note 1 – Basis of preparation and summary of 135 Note 2 136 Note 3 143 Note 4 143 Note 5 145 Note 6 153 Note 7 significant accounting policies – Impact of COVID-19 – Fair value measurement – Significant transactions – Securities – Loans – Structured entities and derecognition of financial assets – Property and equipment – Goodwill, software and other intangible assets 156 Note 8 156 Note 9 158 Note 10 – Other assets 159 Note 11 – Deposits 159 Note 12 – Other liabilities 159 Note 13 – Derivative instruments 164 Note 14 – Designated accounting hedges 168 Note 15 – Subordinated indebtedness 169 Note 16 – Common and preferred shares and other equity instruments Income taxes 173 Note 17 – Capital Trust securities 174 Note 18 – Share-based payments 176 Note 19 – Post-employment benefits 181 Note 20 – 183 Note 21 – Earnings per share 184 Note 22 – Commitments, guarantees and pledged assets 185 Note 23 – Contingent liabilities and provisions 189 Note 24 – Concentration of credit risk 190 Note 25 – Related-party transactions 191 Note 26 – Investments in equity-accounted associates and joint ventures 192 Note 27 – Significant subsidiaries 193 Note 28 – Financial instruments – disclosures 194 Note 29 – Offsetting financial assets and liabilities 194 Note 30 – 195 Note 31 – Segmented and geographic information 197 Note 32 – Future accounting policy changes Interest income and expense CIBC 2021 ANNUAL REPORT 107 Consolidated financial statements Financial reporting responsibility Management of Canadian Imperial Bank of Commerce (CIBC) is responsible for the preparation, presentation, accuracy and reliability of the Annual Report, which includes the consolidated financial statements and management’s discussion and analysis (MD&A). The consolidated financial statements have been prepared in accordance with Section 308(4) of the Bank Act (Canada), which requires that the financial statements be prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). The MD&A has been prepared in accordance with the requirements of applicable securities laws. The consolidated financial statements and MD&A contain items that reflect the best estimates and judgments of the expected effects of current events and transactions with appropriate consideration to materiality. Financial information appearing throughout the Annual Report is consistent with the consolidated financial statements. Management has developed and maintained effective systems, controls and procedures to ensure that information used internally and disclosed externally is reliable and timely. CIBC’s system of internal controls and supporting procedures are designed to provide reasonable assurance that transactions are authorized, assets are safeguarded and proper records are maintained. These internal controls and supporting procedures include the communication of policies and guidelines, the establishment of an organizational structure that provides appropriate and well-defined responsibilities and accountability, and the careful selection and training of qualified staff. Management has assessed the effectiveness of CIBC’s internal control over financial reporting as at year-end using the Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). Based upon this assessment, we have determined that internal control over financial reporting is effective in all material respects and CIBC is in compliance with the requirements set by the U.S. Securities and Exchange Commission (SEC) under the U.S. Sarbanes-Oxley Act. CIBC’s Chief Executive Officer and Chief Financial Officer have certified CIBC’s annual filings with the SEC under the U.S. Sarbanes-Oxley Act and with the Canadian Securities Administrators under Canadian securities laws. The Internal Audit department reviews and reports on the effectiveness of CIBC’s internal control, risk management and governance systems and processes, including accounting and financial controls, in accordance with the audit plan approved by the Audit Committee. Our Chief Auditor has unfettered access to the Audit Committee. The Board of Directors oversees management’s responsibilities for financial reporting through the Audit Committee, which is composed of independent directors. The Audit Committee reviews CIBC’s interim and annual consolidated financial statements and MD&A and recommends them for approval by the Board of Directors. Other key responsibilities of the Audit Committee include monitoring CIBC’s system of internal control, and reviewing the qualifications, independence and service quality of the shareholders’ auditor and the performance of CIBC’s internal auditors. Ernst & Young LLP, the shareholders’ auditor, obtains an understanding of CIBC’s internal controls and procedures for financial reporting to plan and conduct such tests and other audit procedures as they consider necessary in the circumstances to express their opinions in the reports that follow. Ernst & Young LLP has unrestricted access to the Audit Committee to discuss their audit and related matters. The Office of the Superintendent of Financial Institutions (OSFI) Canada is mandated to protect the rights and interest of depositors and creditors of CIBC. Accordingly, OSFI examines and enquires into the business and affairs of CIBC, as deemed necessary, to ensure that the provisions of the Bank Act (Canada) are being complied with and that CIBC is in sound financial condition. Victor G. Dodig President and Chief Executive Officer Hratch Panossian Chief Financial Officer December 1, 2021 108 CIBC 2021 ANNUAL REPORT Consolidated financial statements Independent auditor’s report To the shareholders and directors of Canadian Imperial Bank of Commerce Opinion We have audited the consolidated financial statements of Canadian Imperial Bank of Commerce (CIBC), which comprise the consolidated balance sheets as at October 31, 2021 and 2020, and the consolidated statements of income, consolidated statements of comprehensive income, consolidated statements of changes in equity and the consolidated statements of cash flows for each of the years in the three-year period ended October 31, 2021, and notes to the consolidated financial statements, including a summary of significant accounting policies (collectively referred to as the “consolidated financial statements”). In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of CIBC as at October 31, 2021 and 2020, and its consolidated financial performance and its consolidated cash flows for each of the years in the three-year period ended October 31, 2021 in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board. Basis for opinion We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the “Auditor’s responsibilities for the audit of the consolidated financial statements” section of our report. We are independent of CIBC in accordance with the ethical requirements that are relevant to our audit of the consolidated financial statements in Canada, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key audit matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements for the year ended October 31, 2021. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context. We have fulfilled the responsibilities described in the “Auditor’s responsibilities for the audit of the consolidated financial statements” section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the consolidated financial statements. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying consolidated financial statements. CIBC 2021 ANNUAL REPORT 109 Consolidated financial statements Key audit matter Allowance for credit losses As described in Note 1 and Note 6 to the consolidated financial statements, CIBC has used an expected credit loss (ECL) model to recognize $3.0 billion in allowances for credit losses on its consolidated balance sheet. ECL allowances represent an unbiased and probability-weighted amount, which is determined by evaluating a range of possible outcomes and reasonable and supportable information about past events, current conditions, and forecasts of future economic conditions. Forward-looking information (FLI), which involves significant judgment, is explicitly incorporated into the estimation of ECL allowances. ECL allowances are measured at amounts equal to either (i) 12-month ECL; or (ii) lifetime ECL for those financial instruments that have experienced a significant increase in credit risk (SICR) since initial recognition or when there is objective evidence of impairment. Auditing the allowance for credit losses was complex, involved significant auditor judgment, and required the involvement of specialists due to the inherent complexity of the models, the large volume of data used, assumptions, judgments, and the interrelationship of these variables in measuring the ECL. Significant assumptions and judgments with respect to the estimation of the allowance for credit losses include (i) the determination of when a loan has experienced a SICR; (ii) the forecast of FLI for multiple economic scenarios and the probability weighting of those scenarios; (iii) the calculation of both 12-month and lifetime credit losses; and (iv) the application of expert credit judgment. Management has applied a heightened use of judgment in the areas noted above, when assessing the impact of COVID-19 on the allowance for credit losses. Specifically, management has applied judgment in assessing the effect of certain credit metrics and forward- looking information in the current environment given the impact of COVID-19. How our audit addressed the key audit matter We obtained an understanding, evaluated the design and tested the operating effectiveness of management’s controls, including those related to technology, over the allowance for credit losses. The controls we tested included, amongst others, controls over model development, validation and monitoring, economic forecasting, data completeness and accuracy, the determination of internal risk ratings for non-retail loans, and the governance and oversight controls over the review of the overall ECL, including the application of expert credit judgment. To test the allowance for credit losses, amongst other procedures, we assessed, with the assistance of our credit risk specialists, whether the methodology and assumptions used in significant models that estimate ECL are consistent with the requirements of IFRS and industry standards. For a sample of models, our credit risk specialists reperformed the model validation and monitoring tests performed by management. This included an assessment of the thresholds used to determine a SICR. For a sample of FLI variables, with the assistance of our economic specialists, we evaluated management’s forecasting methodology and compared management’s FLI to independently derived forecasts and publicly available information. We also evaluated the scenario probability weights used in the ECL models. With the assistance of our credit risk specialists, we also evaluated management’s methodology and governance over the application of expert credit judgment by evaluating that the amounts recorded were reflective of underlying credit and/or economic conditions including the impact of COVID-19. We tested the completeness and accuracy of data used in the measurement of the ECL by agreeing to documents and systems and evaluated a sample of non-retail borrower risk ratings against CIBC’s risk rating scale. On a sample basis, we recalculated the ECL to test the mathematical accuracy of management’s models. We also assessed the adequacy of the allowance for credit loss financial statement note disclosures. Fair value measurement of derivatives As described in Note 3 and Note 13 of the consolidated financial statements, CIBC has recognized $35.9 billion in derivative assets and $32.1 billion in derivative liabilities. The portfolio of derivative instruments is presented by level within the fair value hierarchy, with the majority of the portfolio classified as Level 2. While derivative instruments classified as Level 1 have quoted market prices, those classified as Level 2 and 3 require valuation techniques that use observable and non-observable market inputs and involve the application of management judgment. Auditing the valuation of derivatives was complex and required the application of significant auditor judgment and involvement of valuation specialists where the fair value was determined based on complex models and/or significant non-observable market inputs, including any significant valuation adjustments. The inputs and modelling assumptions used to determine fair value that were subject to significant auditor judgment included, amongst others, correlations, volatilities and credit spreads. The valuation of derivatives is sensitive to these inputs as they are forward-looking and could be affected by future economic and market conditions. Key audit matter How our audit addressed the key audit matter We obtained an understanding, evaluated the design and tested the operating effectiveness of management’s controls over the valuation of CIBC’s derivatives portfolio, including those related to technology. The controls we tested included, amongst others, controls over the development and validation of models used to determine the fair value of derivatives, controls over the independent price verification process, including the integrity of significant inputs described above, and controls over the review of significant valuation adjustments applied. To test the valuation of these derivatives, our audit procedures included, amongst others, an evaluation of the methodologies and significant inputs used by CIBC. With the assistance of our valuation specialists, we performed an independent valuation for a sample of derivatives and valuation adjustments to assess the modelling assumptions and significant inputs used by CIBC to estimate the fair value. We independently obtained significant inputs from external market data in performing our independent valuation. For a sample of models, and with the assistance of our valuation specialists, we assessed the valuation methodologies used by CIBC to determine fair value. We also assessed the adequacy of the disclosures related to the fair value measurement of derivatives. 110 CIBC 2021 ANNUAL REPORT Consolidated financial statements Key audit matter Measurement of uncertain tax provisions As described in Note 20 of the consolidated financial statements, CIBC has disclosed its significant accounting judgments, estimates and assumptions in relation to accounting for uncertainty in income taxes. CIBC operates in a tax environment with constantly evolving and complex tax legislation for financial institutions. Uncertainty in tax positions may arise as tax legislation is subject to interpretation. Estimating uncertain tax provisions requires management judgment to be applied in the interpretation of tax laws across the various jurisdictions in which CIBC operates. This includes significant judgment in the determination of whether it is probable that CIBC’s tax filing positions will be sustained relating to certain complex tax positions and the measurement of such provision when recognized. Auditing CIBC’s uncertain tax provisions required the involvement of our tax professionals and the application of judgment, including the interpretation of applicable tax legislation and jurisprudence. How our audit addressed the key audit matter We obtained an understanding, evaluated the design and tested the operating effectiveness of management’s controls over CIBC’s uncertain tax provisions. This included, amongst others, controls over management’s assessment of the technical merits of tax positions and the process related to the measurement of any related income tax provisions. With the assistance of our tax professionals, our audit procedures included, amongst others, an assessment of the technical merits of income tax positions taken by CIBC and the measurement of any related uncertain tax provisions recorded. We inspected and evaluated correspondence from the relevant income tax authorities, income tax advice obtained by CIBC from external advisors including income tax opinions, CIBC’s interpretations of tax laws and the assessment thereof with respect to uncertain tax positions. We evaluated the reasonability of CIBC’s treatment of any new information received during the year relating to the amounts recorded. We also assessed the adequacy of the disclosures related to uncertain tax positions. Other information Management is responsible for the other information. The other information comprises:  Management’s discussion and analysis; and  The information, other than the consolidated financial statements and our auditor’s report thereon, in the Annual Report. Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. We obtained management’s discussion and analysis and the Annual Report prior to the date of this auditor’s report. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact in this auditor’s report. We have nothing to report in this regard. Responsibilities of management and those charged with governance for the consolidated financial statements Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with IFRS, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated financial statements, management is responsible for assessing CIBC’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate CIBC or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing CIBC’s financial reporting process. Auditor’s responsibilities for the audit of the consolidated financial statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements. As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:  Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of CIBC’s internal control. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on CIBC’s ability to continue as a going    CIBC 2021 ANNUAL REPORT 111 Consolidated financial statements concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause CIBC to cease to continue as a going concern. Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation. Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within CIBC to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.   We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. The engagement partner on the audit resulting in this independent auditor’s report is Helen Mitchell. /s/ Ernst & Young LLP Chartered Professional Accountants Licensed Public Accountants Toronto, Canada December 1, 2021 112 CIBC 2021 ANNUAL REPORT Consolidated financial statements Report of independent registered public accounting firm To the shareholders and directors of Canadian Imperial Bank of Commerce Opinion on the consolidated financial statements We have audited the accompanying consolidated balance sheets of Canadian Imperial Bank of Commerce (CIBC) as of October 31, 2021 and 2020, the related consolidated statements of income, comprehensive income, changes in equity and cash flows for each of the years in the three- year period ended October 31, 2021, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of CIBC at October 31, 2021 and 2020, and its consolidated financial performance and its consolidated cash flows for each of the years in the three-year period ended October 31, 2021 in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), CIBC’s internal control over financial reporting as of October 31, 2021, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated December 1, 2021 expressed an unqualified opinion thereon. Basis for opinion These consolidated financial statements are the responsibility of CIBC’s management. Our responsibility is to express an opinion on CIBC’s consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to CIBC in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical audit matters The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. CIBC 2021 ANNUAL REPORT 113 Consolidated financial statements Description of the matter Allowance for credit losses As described in Note 1 and Note 6 to the consolidated financial statements, CIBC has used an expected credit loss (ECL) model to recognize $3.0 billion in allowances for credit losses on its consolidated balance sheet. ECL allowances represent an unbiased and probability-weighted amount, which is determined by evaluating a range of possible outcomes and reasonable and supportable information about past events, current conditions, and forecasts of future economic conditions. Forward- looking information (FLI), which involves significant judgment, is explicitly incorporated into the estimation of ECL allowances. ECL allowances are measured at amounts equal to either (i) 12-month ECL; or (ii) lifetime ECL for those financial instruments that have experienced a significant increase in credit risk (SICR) since initial recognition or when there is objective evidence of impairment. Auditing the allowance for credit losses was complex, involved significant auditor judgment, and required the involvement of specialists due to the inherent complexity of the models, the large volume of data used, assumptions, judgments, and the interrelationship of these variables in measuring the ECL. Significant assumptions and judgments with respect to the estimation of the allowance for credit losses include (i) the determination of when a loan has experienced a SICR; (ii) the forecast of FLI for multiple economic scenarios and the probability weighting of those scenarios; (iii) the calculation of both 12-month and lifetime credit losses; and (iv) the application of expert credit judgment. Management has applied a heightened use of judgment in the areas noted above, when assessing the impact of COVID-19 on the allowance for credit losses. Specifically, management has applied judgment in assessing the effect of certain credit metrics and forward-looking information in the current environment given the impact of COVID-19. How we addressed the matter in our audit We obtained an understanding, evaluated the design and tested the operating effectiveness of management’s controls, including those related to technology, over the allowance for credit losses. The controls we tested included, amongst others, controls over model development, validation and monitoring, economic forecasting, data completeness and accuracy, the determination of internal risk ratings for non-retail loans, and the governance and oversight controls over the review of the overall ECL, including the application of expert credit judgment. To test the allowance for credit losses, amongst other procedures, we assessed, with the assistance of our credit risk specialists, whether the methodology and assumptions used in significant models that estimate ECL are consistent with the requirements of IFRS and industry standards. For a sample of models, our credit risk specialists reperformed the model validation and monitoring tests performed by management. This included an assessment of the thresholds used to determine a SICR. For a sample of FLI variables, with the assistance of our economic specialists, we evaluated management’s forecasting methodology and compared management’s FLI to independently derived forecasts and publicly available information. We also evaluated the scenario probability weights used in the ECL models. With the assistance of our credit risk specialists, we also evaluated management’s methodology and governance over the application of expert credit judgment by evaluating that the amounts recorded were reflective of underlying credit and/or economic conditions including the impact of COVID-19. We tested the completeness and accuracy of data used in the measurement of the ECL by agreeing to documents and systems and evaluated a sample of non-retail borrower risk ratings against CIBC’s risk rating scale. On a sample basis, we recalculated the ECL to test the mathematical accuracy of management’s models. We also assessed the adequacy of the allowance for credit loss financial statement note disclosures. Description of the matter Fair value measurement of derivatives As described in Note 3 and Note 13 of the consolidated financial statements, CIBC has recognized $35.9 billion in derivative assets and $32.1 billion in derivative liabilities. The portfolio of derivative instruments is presented by level within the fair value hierarchy, with the majority of the portfolio classified as Level 2. While derivative instruments classified as Level 1 have quoted market prices, those classified as Level 2 and 3 require valuation techniques that use observable and non-observable market inputs and involve the application of management judgment. Auditing the valuation of derivatives was complex and required the application of significant auditor judgment and involvement of valuation specialists where the fair value was determined based on complex models and/or significant non-observable market inputs, including any significant valuation adjustments. The inputs and modelling assumptions used to determine fair value that were subject to significant auditor judgment included, amongst others, correlations, volatilities and credit spreads. The valuation of derivatives is sensitive to these inputs as they are forward-looking and could be affected by future economic and market conditions. How we addressed the matter in our audit We obtained an understanding, evaluated the design and tested the operating effectiveness of management’s controls over the valuation of CIBC’s derivatives portfolio, including those related to technology. The controls we tested included, amongst others, controls over the development and validation of models used to determine the fair value of derivatives, controls over the independent price verification process, including the integrity of significant inputs described above, and controls over the review of significant valuation adjustments applied. To test the valuation of these derivatives, our audit procedures included, amongst others, an evaluation of the methodologies and significant inputs used by CIBC. With the assistance of our valuation specialists, we performed an independent valuation for a sample of derivatives and valuation adjustments to assess the modelling assumptions and significant inputs used by CIBC to estimate the fair value. We independently obtained significant inputs from external market data in performing our independent valuation. For a sample of models, and with the assistance of our valuation specialists, we assessed the valuation methodologies used by CIBC to determine fair value. We also assessed the adequacy of the disclosures related to the fair value measurement of derivatives. 114 CIBC 2021 ANNUAL REPORT Consolidated financial statements Description of the matter Measurement of uncertain tax provisions As described in Note 20 of the consolidated financial statements, CIBC has disclosed its significant accounting judgments, estimates and assumptions in relation to accounting for uncertainty in income taxes. CIBC operates in a tax environment with constantly evolving and complex tax legislation for financial institutions. Uncertainty in tax positions may arise as tax legislation is subject to interpretation. Estimating uncertain tax provisions requires management judgment to be applied in the interpretation of tax laws across the various jurisdictions in which CIBC operates. This includes significant judgment in the determination of whether it is probable that CIBC’s tax filing positions will be sustained relating to certain complex tax positions and the measurement of such provision when recognized. Auditing CIBC’s uncertain tax provisions required the involvement of our tax professionals and the application of judgment, including the interpretation of applicable tax legislation and jurisprudence. How we addressed the matter in our audit We obtained an understanding, evaluated the design and tested the operating effectiveness of management’s controls over CIBC’s uncertain tax provisions. This included, amongst others, controls over management’s assessment of the technical merits of tax positions and the process related to the measurement of any related income tax provisions. With the assistance of our tax professionals, our audit procedures included, amongst others, an assessment of the technical merits of income tax positions taken by CIBC and the measurement of any related uncertain tax provisions recorded. We inspected and evaluated correspondence from the relevant income tax authorities, income tax advice obtained by CIBC from external advisors including income tax opinions, CIBC’s interpretations of tax laws and the assessment thereof with respect to uncertain tax positions. We evaluated the reasonability of CIBC’s treatment of any new information received during the year relating to the amounts recorded. We also assessed the adequacy of the disclosures related to uncertain tax positions. /s/ Ernst & Young LLP Chartered Professional Accountants Licensed Public Accountants We have served as CIBC’s auditor since 2002. Toronto, Canada December 1, 2021 CIBC 2021 ANNUAL REPORT 115 Consolidated financial statements Report of independent registered public accounting firm To the shareholders and directors of Canadian Imperial Bank of Commerce Opinion on internal control over financial reporting We have audited Canadian Imperial Bank of Commerce’s (CIBC) internal control over financial reporting as of October 31, 2021, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, CIBC maintained, in all material respects, effective internal control over financial reporting as of October 31, 2021, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of CIBC as of October 31, 2021 and 2020, and the related consolidated statements of income, comprehensive income, changes in equity and cash flows for each of the years in the three-year period ended October 31, 2021, and the related notes and our report dated December 1, 2021 expressed an unqualified opinion thereon. Basis for opinion CIBC’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the “Management’s annual report on internal control over financial reporting” section contained in the accompanying management’s discussion and analysis. Our responsibility is to express an opinion on CIBC’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to CIBC in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and limitations of internal control over financial reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ Ernst & Young LLP Chartered Professional Accountants Licensed Public Accountants Toronto, Canada December 1, 2021 116 CIBC 2021 ANNUAL REPORT Consolidated financial statements Consolidated balance sheet Millions of Canadian dollars, as at October 31 ASSETS Cash and non-interest-bearing deposits with banks Interest-bearing deposits with banks Securities (Note 5) Cash collateral on securities borrowed Securities purchased under resale agreements Loans (Note 6) Residential mortgages Personal Credit card Business and government Allowance for credit losses Other Derivative instruments (Note 13) Customers’ liability under acceptances Property and equipment (Note 8) Goodwill (Note 9) Software and other intangible assets (Note 9) Investments in equity-accounted associates and joint ventures (Note 26) Deferred tax assets (Note 20) Other assets (Note 10) LIABILITIES AND EQUITY Deposits (Note 11) Personal Business and government Bank Secured borrowings Obligations related to securities sold short Cash collateral on securities lent Obligations related to securities sold under repurchase agreements Other Derivative instruments (Note 13) Acceptances Deferred tax liabilities (Note 20) Other liabilities (Note 12) Subordinated indebtedness (Note 15) Equity Preferred shares and other equity instruments (Note 16) Common shares (Note 16) Contributed surplus Retained earnings Accumulated other comprehensive income (AOCI) Total shareholders’ equity Non-controlling interests Total equity 2021 2020 $ 34,573 $ 43,531 22,424 161,401 12,368 67,572 251,526 41,897 11,134 150,213 (2,849) 451,921 35,912 10,958 3,286 4,954 2,029 658 402 29,225 87,424 18,987 149,046 8,547 65,595 221,165 42,222 11,389 135,546 (3,540) 406,782 32,730 9,606 2,997 5,253 1,961 658 650 23,208 77,063 $ 837,683 $ 769,551 $ 213,932 344,388 20,246 42,592 $ 202,152 311,426 17,011 40,151 621,158 570,740 22,790 2,463 71,880 32,101 10,961 38 24,923 68,023 5,539 4,325 14,351 110 25,793 1,069 45,648 182 45,830 15,963 1,824 71,653 30,508 9,649 33 22,134 62,324 5,712 3,575 13,908 117 22,119 1,435 41,154 181 41,335 $ 837,683 $ 769,551 The accompanying notes and shaded sections in “MD&A – Management of risk” are an integral part of these consolidated financial statements. Victor G. Dodig President and Chief Executive Officer Nicholas D. Le Pan Director CIBC 2021 ANNUAL REPORT 117 Consolidated financial statements Consolidated statement of income Millions of Canadian dollars, except as noted, for the year ended October 31 2021 2020 2019 Interest income (Note 30) (1) Loans Securities Securities borrowed or purchased under resale agreements Deposits with banks Interest expense (Note 30) Deposits Securities sold short Securities lent or sold under repurchase agreements Subordinated indebtedness Other Net interest income Non-interest income Underwriting and advisory fees Deposit and payment fees Credit fees Card fees Investment management and custodial fees Mutual fund fees Insurance fees, net of claims Commissions on securities transactions Gains (losses) from financial instruments measured/designated at fair value through profit or loss (FVTPL), net Gains (losses) from debt securities measured at fair value through other comprehensive income (FVOCI) and amortized cost, net Foreign exchange other than trading (FXOTT) Income from equity-accounted associates and joint ventures (Note 26) Other Total revenue Provision for credit losses (Note 6) Non-interest expenses Employee compensation and benefits Occupancy costs Computer, software and office equipment Communications Advertising and business development Professional fees Business and capital taxes Other (Notes 4 and 9) Income before income taxes Income taxes (Note 20) Net income Net income attributable to non-controlling interests Preferred shareholders and other equity instrument holders Common shareholders Net income attributable to equity shareholders Earnings per share (EPS) (in dollars) (Note 21) Basic Diluted Dividends per common share (in dollars) (Note 16) $ 12,150 2,141 319 131 $ 13,863 2,568 842 249 $ 16,048 2,779 1,474 396 14,741 17,522 20,697 2,651 236 208 122 65 3,282 5,326 254 656 159 83 6,478 11,459 11,044 713 797 1,152 460 1,621 1,772 358 426 607 90 276 55 229 8,556 20,015 158 6,450 916 2,030 318 237 277 111 1,196 468 781 1,020 410 1,382 1,586 386 362 694 9 234 79 286 7,697 18,741 2,489 6,259 944 1,939 308 271 203 117 1,321 11,535 11,362 8,322 1,876 6,446 17 158 6,271 $ $ $ 4,890 1,098 3,792 2 122 3,668 $ $ $ 8,422 291 1,198 198 37 10,146 10,551 475 908 958 458 1,305 1,595 430 313 761 34 304 92 427 8,060 18,611 1,286 5,726 892 1,874 303 359 226 110 1,366 10,856 6,469 1,348 $ 5,121 $ $ 25 111 4,985 $ 6,429 $ 3,790 $ 5,096 $ 13.97 13.93 5.84 $ 8.23 8.22 5.82 $ 11.22 11.19 5.60 (1) Interest income included $13.2 billion for the year ended October 31, 2021 (2020: $15.7 billion; 2019: $18.8 billion) calculated based on the effective interest rate method. The accompanying notes and shaded sections in “MD&A – Management of risk” are an integral part of these consolidated financial statements. 118 CIBC 2021 ANNUAL REPORT Consolidated financial statements Consolidated statement of comprehensive income Millions of Canadian dollars, for the year ended October 31 Net income 2021 2020 2019 $ 6,446 $ 3,792 $ 5,121 Other comprehensive income (loss) (OCI), net of income tax, that is subject to subsequent reclassification to net income Net foreign currency translation adjustments Net gains (losses) on investments in foreign operations Net gains (losses) on hedges of investments in foreign operations Net change in debt securities measured at FVOCI Net gains (losses) on securities measured at FVOCI Net (gains) losses reclassified to net income Net change in cash flow hedges Net gains (losses) on derivatives designated as cash flow hedges Net (gains) losses reclassified to net income OCI, net of income tax, that is not subject to subsequent reclassification to net income Net gains (losses) on post-employment defined benefit plans Net gains (losses) due to fair value change of fair value option (FVO) liabilities attributable to changes in credit risk Net gains (losses) on equity securities designated at FVOCI Total OCI (1) Comprehensive income Comprehensive income attributable to non-controlling interests Preferred shareholders and other equity instrument holders Common shareholders Comprehensive income attributable to equity shareholders (2,610) 1,495 (1,115) (50) (66) (116) 178 (315) (137) 917 12 100 1,029 382 (202) 180 254 (22) 232 142 19 161 80 (56) 50 74 (339) 647 (21) (10) (31) 244 (28) 216 137 (6) 131 (220) 28 (2) (194) 122 $ 6,107 $ 4,439 $ 5,243 $ $ 17 158 5,932 $ $ 2 122 4,315 $ $ 2 5 111 5,107 $ 6,090 $ 4,437 $ 5,218 (1) Includes $43 million of losses for 2021 (2020: $44 million of gains; 2019: $44 million of gains) relating to our investments in equity-accounted associates and joint ventures. Millions of Canadian dollars, for the year ended October 31 Income tax (expense) benefit allocated to each component of OCI Subject to subsequent reclassification to net income Net foreign currency translation adjustments Net gains (losses) on investments in foreign operations Net gains (losses) on hedges of investments in foreign operations Net change in debt securities measured at FVOCI Net gains (losses) on securities measured at FVOCI Net (gains) losses reclassified to net income Net change in cash flow hedges Net gains (losses) on derivatives designated as cash flow hedges Net (gains) losses reclassified to net income Not subject to subsequent reclassification to net income Net gains (losses) on post-employment defined benefit plans Net gains (losses) due to fair value change of FVO liabilities attributable to changes in credit risk Net gains (losses) on equity securities designated at FVOCI 2021 2020 2019 $ 45 (53) (8) (11) 23 12 (64) 112 48 (311) (4) (34) (349) $ 42 (46) (4) (59) 7 (52) (51) (7) (58) (19) 20 (17) (16) $ – (16) (16) (36) 10 (26) (49) 2 (47) 77 (10) – 67 $ (297) $ (130) $ (22) The accompanying notes and shaded sections in “MD&A – Management of risk” are an integral part of these consolidated financial statements. CIBC 2021 ANNUAL REPORT 119 Consolidated financial statements Consolidated statement of changes in equity Millions of Canadian dollars, for the year ended October 31 Preferred shares and other equity instruments (Note 16) Balance at beginning of year Issue of preferred shares and limited recourse capital notes (LRCNs) Balance at end of year Common shares (Note 16) Balance at beginning of year Issue of common shares Purchase of common shares for cancellation Treasury shares Balance at end of year Contributed surplus Balance at beginning of year Compensation expense arising from equity-settled share-based awards Exercise of stock options and settlement of other equity-settled share-based awards Other Balance at end of year Retained earnings Balance at beginning of year before accounting policy changes Impact of adopting IFRS 15 at November 1, 2018 Impact of adopting IFRS 16 at November 1, 2019 Balance at beginning of year after accounting policy changes Net income attributable to equity shareholders Dividends and distributions (Note 16) Preferred and other equity instruments Common Premium on purchase of common shares for cancellation Realized gains (losses) on equity securities designated at FVOCI reclassified from AOCI Other Balance at end of year AOCI, net of income tax AOCI, net of income tax, that is subject to subsequent reclassification to net income Net foreign currency translation adjustments Balance at beginning of year Net change in foreign currency translation adjustments Balance at end of year Net gains (losses) on debt securities measured at FVOCI Balance at beginning of year Net change in debt securities measured at FVOCI Balance at end of year Net gains (losses) on cash flow hedges Balance at beginning of year Net change in cash flow hedges Balance at end of year AOCI, net of income tax, that is not subject to subsequent reclassification to net income Net gains (losses) on post-employment defined benefit plans Balance at beginning of year Net change in post-employment defined benefit plans Balance at end of year Net gains (losses) due to fair value change of FVO liabilities attributable to changes in credit risk Balance at beginning of year Net change attributable to changes in credit risk Balance at end of year Net gains (losses) on equity securities designated at FVOCI Balance at beginning of year Net gains (losses) on equity securities designated at FVOCI Realized gains (losses) on equity securities designated at FVOCI reclassified to retained earnings Balance at end of year Total AOCI, net of income tax Non-controlling interests Balance at beginning of year Net income attributable to non-controlling interests Dividends Other Balance at end of year Equity at end of year n/a Not applicable. 2021 3,575 750 4,325 $ $ $ 13,908 458 – (15) $ 14,351 $ $ 117 19 (43) 17 110 n/a n/a n/a $ 22,119 6,429 (158) (2,622) – 27 (2) $ 25,793 2020 2,825 750 3,575 $ $ $ 13,591 371 (68) 14 $ 13,908 $ $ 125 14 (20) (2) 117 $ 20,972 n/a 148 21,120 3,790 (122) (2,592) (166) 93 (4) $ 22,119 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 1,173 (1,115) $ 58 $ 993 180 1,173 309 (116) 193 274 (137) 137 (283) 917 634 (40) 12 (28) 2 100 (27) 75 1,069 181 17 (9) (7) 182 $ $ $ $ $ $ $ $ $ $ $ $ $ 77 232 309 113 161 274 (363) 80 (283) 16 (56) (40) 45 50 (93) 2 1,435 186 2 (15) 8 181 2019 2,250 575 2,825 $ $ $ 13,243 377 (30) 1 $ 13,591 $ $ 136 16 (27) – 125 $ 18,537 6 n/a 18,543 5,096 (111) (2,488) (79) 18 (7) $ 20,972 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 1,024 (31) 993 (139) 216 77 (18) 131 113 (143) (220) (363) (12) 28 16 65 (2) (18) 45 881 173 25 (11) (1) 186 $ 45,830 $ 41,335 $ 38,580 The accompanying notes and shaded sections in “MD&A – Management of risk” are an integral part of these consolidated financial statements. 120 CIBC 2021 ANNUAL REPORT Consolidated financial statements Consolidated statement of cash flows Millions of Canadian dollars, for the year ended October 31 2021 2020 2019 Cash flows provided by (used in) operating activities Net income Adjustments to reconcile net income to cash flows provided by (used in) operating activities: $ 6,446 $ 3,792 $ 5,121 Provision for credit losses Amortization and impairment (1) Stock options and restricted shares expense Deferred income taxes Losses (gains) from debt securities measured at FVOCI and amortized cost Net losses (gains) on disposal of property and equipment Other non-cash items, net Net changes in operating assets and liabilities Interest-bearing deposits with banks Loans, net of repayments Deposits, net of withdrawals Obligations related to securities sold short Accrued interest receivable Accrued interest payable Derivative assets Derivative liabilities Securities measured at FVTPL Other assets and liabilities measured/designated at FVTPL Current income taxes Cash collateral on securities lent Obligations related to securities sold under repurchase agreements Cash collateral on securities borrowed Securities purchased under resale agreements Other, net (2) Cash flows provided by (used in) financing activities Issue of subordinated indebtedness Redemption/repurchase/maturity of subordinated indebtedness Issue of preferred shares and limited recourse capital notes, net of issuance cost Issue of common shares for cash Purchase of common shares for cancellation Net sale (purchase) of treasury shares Dividends and distributions paid Repayment of lease liabilities Cash flows provided by (used in) investing activities Purchase of securities measured/designated at FVOCI and amortized cost Proceeds from sale of securities measured/designated at FVOCI and amortized cost Proceeds from maturity of debt securities measured at FVOCI and amortized cost Cash used in acquisitions, net of cash acquired Net sale (purchase) of property, equipment, software and other intangibles (2) Effect of exchange rate changes on cash and non-interest-bearing deposits with banks Net increase (decrease) in cash and non-interest-bearing deposits with banks during the year Cash and non-interest-bearing deposits with banks at beginning of year Cash and non-interest-bearing deposits with banks at end of year (3) Cash interest paid Cash interest received Cash dividends received Cash income taxes paid 158 1,017 19 (41) (90) – 927 (3,437) (46,883) 47,521 6,827 46 (419) (3,172) 1,582 (9,552) 7,277 543 639 (2,248) (3,821) (1,977) (4,694) (3,332) 1,000 (1,008) 748 284 – (15) (2,649) (305) (1,945) (49,896) 23,917 23,312 – (839) (3,506) (175) (8,958) 43,531 2,489 1,311 14 (228) (9) 4 (767) (5,468) (18,891) 82,120 328 97 (238) (8,832) 5,184 (8,296) 1,563 1,287 2 19,852 (4,883) (9,394) (270) 60,767 1,000 (33) 747 163 (234) 14 (2,571) (307) (1,221) (54,075) 11,883 23,093 – (781) (19,880) 25 39,691 3,840 1,286 838 16 108 (34) (7) (229) (208) (17,653) 19,838 1,853 (122) 138 (2,484) 4,037 (1,826) 1,222 (309) (909) 20,961 1,824 (10,785) (3,590) 19,086 1,500 (1,001) 568 157 (109) 1 (2,406) – (1,290) (42,304) 13,764 10,948 (25) (723) (18,340) 4 (540) 4,380 $ 34,573 $ 3,701 13,890 897 1,374 $ 43,531 $ 6,716 16,774 845 39 $ 3,840 $ 10,008 19,840 735 1,549 (1) Comprises amortization and impairment of buildings, right-of-use assets, furniture, equipment, leasehold improvements, software and other intangible assets, and goodwill. (2) Certain information has been reclassified to conform to the presentation adopted in the current year. (3) Includes restricted cash of $446 million (2020: $463 million; 2019: $479 million) and interest-bearing demand deposits with Bank of Canada. The accompanying notes and shaded sections in “MD&A – Management of risk” are an integral part of these consolidated financial statements. CIBC 2021 ANNUAL REPORT 121 Consolidated financial statements Notes to the consolidated financial statements Canadian Imperial Bank of Commerce (CIBC) is a diversified financial institution governed by the Bank Act (Canada). CIBC was formed through the amalgamation of the Canadian Bank of Commerce and Imperial Bank of Canada in 1961. Through our four strategic business units (SBUs) – Canadian Personal and Business Banking, Canadian Commercial Banking and Wealth Management, U.S. Commercial Banking and Wealth Management, and Capital Markets – CIBC provides a full range of financial products and services to 11 million personal banking, business, public sector and institutional clients in Canada, the U.S. and around the world. Refer to Note 31 for further details on our business units. CIBC is incorporated and domiciled in Canada, with our registered and principal business offices located at CIBC Square, Toronto, Ontario effective November 1, 2021. Note 1 Basis of preparation and summary of significant accounting policies Basis of preparation The consolidated financial statements of CIBC have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). These consolidated financial statements also comply with Section 308(4) of the Bank Act (Canada) and the requirements of the Office of the Superintendent of Financial Institutions (OSFI). CIBC has consistently applied the same accounting policies throughout all periods presented, except for the adoption of the “Conceptual Framework for Financial Reporting” effective November 1, 2020, the adoption of “Interest Rate Benchmark Reform: Phase 2 Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16” (the Phase 2 amendments) effective November 1, 2020, the adoption of “Interest Rate Benchmark Reform: Amendments to IFRS 9, IAS 39 and IFRS 7” (the Phase 1 amendments) effective November 1, 2019, the adoption of IFRS 16 “Leases” effective November 1, 2019, and the adoption of International Financial Reporting Interpretations Committee (IFRIC) 23 “Uncertainty over Income Tax Treatments” effective November 1, 2019, each of which were adopted without restatement of comparative periods as discussed below under the sections titled “Conceptual Framework for Financial Reporting (Conceptual Framework)”, “Interest Rate Benchmark Reform”, “Leases”, and “International Financial Reporting Interpretations Committee 23: Uncertainty over Income Tax Treatments (IFRIC 23)”. These consolidated financial statements are presented in millions of Canadian dollars, unless otherwise indicated. These consolidated financial statements were authorized for issue by the Board of Directors (the Board) on December 1, 2021. Summary of significant accounting policies The following paragraphs describe our significant accounting policies. Use of estimates and assumptions The preparation of the consolidated financial statements in accordance with IFRS requires management to make estimates and assumptions that affect the recognized and measured amounts of assets, liabilities, net income, comprehensive income and related disclosures. Significant estimates and assumptions are made in the areas of the valuation of financial instruments, allowance for credit losses, the evaluation of whether to consolidate structured entities (SEs), asset impairment, income taxes, provisions and contingent liabilities, post-employment and other long-term benefit plan assumptions and the valuation of self-managed loyalty points programs. Actual results could differ from these estimates and assumptions. Basis of consolidation We consolidate entities over which we have control. We have control over another entity when we have: (i) power to direct relevant activities of the entity; (ii) exposure, or rights, to variable returns from our involvement with the entity; and (iii) the ability to affect those returns through our power over the entity. Subsidiaries Subsidiaries are entities over which CIBC has control. Generally, CIBC has control of its subsidiaries through a shareholding of more than 50% of the voting rights, and has significant exposure to the subsidiaries based on its ownership interests of more than 50%. The effects of potential voting rights that CIBC has the practical ability to exercise are considered when assessing whether control exists. Subsidiaries are consolidated from the date control is obtained by CIBC and are deconsolidated from the date control is lost. Consistent accounting policies are applied for all consolidated subsidiaries. Details of our significant subsidiaries are provided in Note 27. Structured entities A SE is an entity that has been designed so that voting or similar rights are not the dominant factor in deciding who controls the entity, such as when any voting rights relate to administrative tasks only and the significant relevant activities are directed by contractual arrangements. SEs often have some or all of the following features or attributes: (i) restricted activities; (ii) a narrow and well-defined objective, such as to securitize our own financial assets or third-party financial assets to provide sources of funding or to provide investment opportunities for investors by passing on risks and rewards associated with the assets of the SE to investors; (iii) insufficient equity to permit the SE to finance its activities without subordinated financial support; or (iv) financing in the form of multiple contractually linked instruments to investors that create concentrations of credit or other risks. Examples of SEs include securitization vehicles, asset-backed financings, and investment funds. When voting rights are not relevant in deciding whether CIBC has power over an entity, particularly for complex SEs, the assessment of control considers all facts and circumstances, including the purpose and design of the investee, its relationship with other parties and each party’s ability to make decisions over significant activities, and whether CIBC is acting as a principal or as an agent. We do not have control over an investee when we are acting as the agent for a third-party. In assessing whether we are an agent we determine (i) the scope of our decision-making authority, (ii) the rights held by other parties, (iii) the remuneration to which we are entitled and (iv) our exposure to variability of returns from other interests that we hold in the investee. Consolidation conclusions are reassessed whenever there is a change in the specific facts and circumstances relevant to one or more of the three elements of control. Factors that trigger the reassessment include, but are not limited to, significant changes in ownership structure of the 122 CIBC 2021 ANNUAL REPORT Consolidated financial statements entities, changes in contractual or governance arrangements, provision of a liquidity facility beyond the original terms, transactions with the entities that were not contemplated originally and changes in the financing structure of the entities. Transactions eliminated on consolidation All intercompany transactions, balances and unrealized gains and losses on transactions are eliminated on consolidation. Non-controlling interests Non-controlling interests are presented on the consolidated balance sheet as a separate component of equity that is distinct from CIBC’s shareholders’ equity. The net income attributable to non-controlling interests is presented separately in the consolidated statement of income. Associates and joint ventures We classify investments in entities over which we have significant influence, and that are neither subsidiaries nor joint ventures, as associates. Significant influence is presumed to exist where we hold, either directly or indirectly, between 20% and 50% of the voting rights of an entity, or, in the case of a limited partnership, where CIBC is a co-general partner. Significant influence also may exist where we hold less than 20% of the voting rights of an entity, for example if we have influence over policy-making processes through representation on the entity’s Board of Directors, or by other means. Where we are a party to a contractual arrangement whereby we undertake an economic activity that is subject to joint control together with one or more parties, we classify our interest in the venture as a joint venture. Investments in associates and interests in joint ventures are accounted for using the equity method. Under the equity method, such investments are initially measured at cost, including attributable goodwill and intangible assets, and are adjusted thereafter for the post-acquisition change in our share of the net assets of the investment. In applying the equity method for an investment that has a different reporting period from that of CIBC, adjustments are made for the effects of any significant events or transactions that occur between the reporting date of the investment and CIBC’s reporting date. Foreign currency translation Monetary assets and liabilities and non-monetary assets and liabilities measured at fair value that are denominated in foreign currencies are translated into the functional currencies of operations at prevailing exchange rates at the date of the consolidated balance sheet. Revenue and expenses are translated using average monthly exchange rates. Realized and unrealized gains and losses arising from translation into functional currencies are included in the consolidated statement of income, with the exception of unrealized foreign exchange gains and losses on FVOCI equity securities, which are included in AOCI. Assets and liabilities of foreign operations with a functional currency other than the Canadian dollar, including goodwill and fair value adjustments arising on acquisition, are translated into Canadian dollars at the exchange rates prevailing as at the consolidated balance sheet date, while revenue and expenses of these foreign operations are translated into Canadian dollars at the average monthly exchange rates. Exchange gains and losses arising from the translation of these foreign operations and from the results of hedging the net investment in these foreign operations, net of applicable taxes, are included in Net foreign currency translation adjustments, in AOCI. Any accumulated exchange gains and losses, including the impact of hedging, and any applicable taxes in AOCI are reclassified into the consolidated statement of income when there is a disposal of a foreign operation, including a partial disposal of a foreign operation that involves the loss of control. On partial disposal of a foreign operation that does not involve the loss of control, the proportionate share of the accumulated exchange gains and losses, including the impact of hedging, and any applicable taxes previously recognized in AOCI are reclassified into the consolidated statement of income. Accounting for financial instruments Classification and measurement of financial instruments All financial assets must be classified at initial recognition as financial instruments mandatorily measured at FVTPL (trading and non-trading), financial instruments measured at amortized cost, debt financial instruments measured at FVOCI, equity financial instruments designated at FVOCI, or financial instruments designated at FVTPL (fair value option), based on the contractual cash flow characteristics of the financial assets and the business model under which the financial assets are managed. All financial assets and derivatives are required to be measured at fair value with the exception of financial assets measured at amortized cost. Financial assets are required to be reclassified when and only when the business model under which they are managed has changed. All reclassifications are to be applied prospectively from the reclassification date. The classification and measurement model requires that all debt instrument financial assets that do not meet a “solely payment of principal and interest” (SPPI) test, including those that contain embedded derivatives, be classified at initial recognition as FVTPL. The SPPI test is conducted to identify whether the contractual cash flows of a financial instrument are “solely payments of principal and interest” such that any variability in the contractual cash flows is consistent with a “basic lending arrangement”. “Principal” for the purpose of this test is defined as the fair value of the financial asset at initial recognition and may change over the life of the financial asset, for example, due to repayments of principal or amortization of the premium/discount. “Interest” for the purpose of this test is defined as the consideration for the time value of money and credit risk, which are the most significant elements of interest within a lending arrangement. Contractual terms that introduce a more than de minimis exposure to risks or volatility in the contractual cash flows that are unrelated to a basic lending arrangement do not give rise to contractual cash flows that are solely payments of principal and interest on the amount outstanding. The intent of the SPPI test is to ensure that debt instruments that contain non-basic lending features, such as conversion options and equity-linked payouts, are measured at FVTPL. For debt instrument financial assets that meet the SPPI test, classification at initial recognition is determined based on the business model under which these instruments are managed. Debt instruments that are managed on a “held for trading” or “fair value” basis are classified as FVTPL. Debt instruments that are managed on a “hold to collect and for sale” basis are classified as FVOCI for debt. Debt instruments that are managed on a “hold to collect” basis are classified as amortized cost. We consider the following in our determination of the applicable business model for financial assets: I) II) III) The basis on which performance of the portfolio is being evaluated; and IV) The frequency and significance of sales activity. The business purpose of the portfolio; The risks that are being managed and the type of business activities that are being carried out on a day-to-day basis to manage the risks; All equity instrument financial assets are classified at initial recognition as FVTPL unless they are not held with the intent for short-term profit-taking and an irrevocable designation is made to classify the instrument as FVOCI for equities. CIBC 2021 ANNUAL REPORT 123 Consolidated financial statements Financial liabilities, other than derivatives, obligations related to securities sold short and FVO liabilities, are measured at amortized cost. Derivatives, obligations related to securities sold short and FVO financial liabilities are measured at fair value. Derivatives are measured at FVTPL, except to the extent that they are designated in a hedging relationship, in which case the International Accounting Standard (IAS) 39 “Financial Instruments: Recognition and Measurement” (IAS 39) hedge accounting requirements continue to apply. Financial instruments mandatorily measured at FVTPL (trading and non-trading) Trading financial instruments are mandatorily measured at FVTPL as they are held for trading purposes or are part of a managed portfolio with a pattern of short-term profit-taking. Non-trading financial assets are also mandatorily measured at fair value if their contractual cash flow characteristics do not meet the SPPI test or if they are managed together with other financial instruments on a fair value basis. Trading and non-trading financial instruments mandatorily measured at FVTPL are remeasured at fair value as at the consolidated balance sheet date. Gains and losses realized on disposition and unrealized gains and losses from changes in fair value are included in Non-interest income as Gains (losses) from financial instruments measured/designated at FVTPL, net. Interest income and dividends earned on trading and non-trading securities and dividends and interest expense incurred on securities sold short are included in Interest income and Interest expense, respectively. Financial instruments designated at FVTPL (fair value option) Financial instruments designated at FVTPL are those that we voluntarily designate at initial recognition as instruments that we will measure at fair value through the consolidated statement of income that would otherwise fall into a different accounting category. The FVO designation, once made, is irrevocable and can only be applied if reliable fair values are available, when doing so eliminates or significantly reduces the measurement inconsistency that would otherwise arise from measuring assets or liabilities on a different basis and if certain OSFI requirements pertaining to certain loans are met. Financial liabilities may also be designated at FVTPL when they are part of a portfolio which is managed on a fair value basis, in accordance with our investment strategy, and are reported internally on that basis. Designation at FVTPL may also be applied to financial liabilities that have one or more embedded derivatives that would otherwise require bifurcation. We apply the FVO to certain mortgage commitments. Gains and losses realized on dispositions and unrealized gains and losses from changes in the fair value of FVO financial instruments are treated in the same manner as financial instruments which are mandatorily measured at FVTPL, except that changes in the fair value of FVO liabilities that are attributable to changes in own credit risk are recognized in OCI. Dividends and interest earned and interest expense incurred on FVO assets and liabilities are included in Interest income and Interest expense, respectively. Financial assets measured at amortized cost Financial assets measured at amortized cost are debt financial instruments with contractual cash flows that meet the SPPI test and are managed on a “hold to collect” basis. These financial assets are recognized initially at fair value plus or minus direct and incremental transaction costs, and are subsequently measured at amortized cost, using the effective interest rate method, net of an allowance for expected credit losses (ECL). Loans measured at amortized cost include residential mortgages, personal loans, credit cards and most business and government loans. Certain portfolios of treasury securities that are managed on a “hold to collect” basis are also classified as amortized cost. Most deposits with banks, securities purchased under resale agreements, cash collateral on securities borrowed and most customers’ liability under acceptances are accounted for at amortized cost. Debt financial assets measured at FVOCI Debt financial instruments measured at FVOCI are non-derivative financial assets with contractual cash flows that meet the SPPI test and are managed on a “hold to collect and for sale” basis. FVOCI debt instruments are measured initially at fair value, plus direct and incremental transaction costs. Subsequent to initial recognition, FVOCI debt instruments are remeasured at fair value, with the exception that changes in ECL allowances in addition to related foreign exchange gains or losses are recognized in the consolidated statement of income. Cumulative gains and losses previously recognized in OCI are transferred from AOCI to the consolidated statement of income when the debt instrument is sold. Realized gains and losses on sale, determined on an average cost basis, and changes in ECL allowances, are included in Gains (losses) from debt securities measured at FVOCI and amortized cost, net in the consolidated statement of income. Interest income from FVOCI debt instruments is included in Interest income. FVOCI debt instruments include our treasury securities which are managed on a “hold to collect and for sale” basis. A debt financial instrument is classified as impaired (stage 3) when one or more events that have a detrimental impact on the estimated future cash flows of that financial instrument have occurred after its initial recognition. Evidence of impairment includes indications that the borrower is experiencing significant financial difficulty, or a default or delinquency has occurred. Equity financial instruments designated at FVOCI Equity financial instruments are measured at FVTPL unless an irrevocable designation is made to measure them at FVOCI. Gains or losses from changes in the fair value of equity instruments designated at FVOCI, including any related foreign exchange gains or losses, are recognized in OCI. Amounts recognized in OCI will not be subsequently recycled to profit or loss, with the exception of dividends that are not considered a return of capital, which are recognized as interest income when received in the consolidated statement of income. Instead, cumulative gains or losses upon derecognition of the equity instrument will be transferred within equity from AOCI to retained earnings and presented in Realized gains (losses) on equity securities designated at FVOCI reclassified to retained earnings in the consolidated statement of changes in equity. Financial assets designated as FVOCI include non-trading equity securities, primarily related to our investment in private companies and limited partnerships. Impairment of financial assets ECL allowances are recognized on all financial assets that are debt instruments classified either as amortized cost or FVOCI and for all loan commitments and financial guarantees that are not measured at FVTPL. ECL allowances represent credit losses that reflect an unbiased and probability-weighted amount which is determined by evaluating a range of possible outcomes, the time value of money and reasonable and supportable information about past events, current conditions and forecasts of future economic conditions. Forward-looking information is explicitly incorporated into the estimation of ECL allowances, which involves significant judgment (see Note 6 for additional details). ECL allowances for loans and acceptances are included in Allowance for credit losses on the consolidated balance sheet. ECL allowances for FVOCI debt securities are included as a component of the carrying value of the securities, which are measured at fair value. ECL allowances for other financial assets are included in the carrying value of the instrument. ECL allowances for guarantees and loan commitments are included in Other liabilities. 124 CIBC 2021 ANNUAL REPORT Consolidated financial statements ECL allowances are measured at amounts equal to either: (i) 12-month ECL; or (ii) lifetime ECL for those financial instruments which have experienced a significant increase in credit risk since initial recognition or when there is objective evidence of impairment. The calculation of ECL allowances is based on the expected value of three probability-weighted scenarios to measure the expected cash shortfalls, discounted at the effective interest rate. A cash shortfall is the difference between the contractual cash flows that are due and the cash flows that we expect to receive. The key inputs in the measurement of ECL allowances are as follows:    The probability of default (PD) is an estimate of the likelihood of default over a given time horizon; The loss given default (LGD) is an estimate of the loss arising in the case where a default occurs at a given time; and The exposure at default (EAD) is an estimate of the exposure at a future default date. Lifetime ECL is the expected credit losses that result from all possible default events over the expected life of a financial instrument. 12-month ECL is the portion of lifetime expected credit losses that represent the expected credit losses that result from default events on the financial instrument that are possible within the 12 months after the reporting date. Stage migration and significant increase in credit risk As a result of the requirements above, financial instruments subject to ECL allowances are categorized into three stages. For performing financial instruments: Stage 1 is comprised of all performing financial instruments which have not experienced a significant increase in credit risk since initial recognition. We recognize 12 months of ECL for stage 1 financial instruments. In assessing whether credit risk has increased significantly, we compare the risk of a default occurring on the financial instrument as at the reporting date with the risk of a default occurring on the financial instrument as at the date of its initial recognition. Stage 2 is comprised of all performing financial instruments which have experienced a significant increase in credit risk since initial recognition. We recognize lifetime ECL for stage 2 financial instruments. In subsequent reporting periods, if the credit risk of the financial instrument improves such that there is no longer a significant increase in credit risk since initial recognition, then we revert to recognizing 12 months of ECL as the financial instrument has migrated back to stage 1. We determine whether a financial instrument has experienced a significant increase in credit risk since its initial recognition on an individual financial instrument basis. Changes in the required ECL allowance, including the impact of financial instruments migrating between stage 1 and stage 2, are recorded in Provision for credit losses in the consolidated statement of income. Significant judgment is required in the application of significant increase in credit risk (see Note 6 for additional details). Stage 3 financial instruments are those that we have classified as impaired. We recognize lifetime ECL for all stage 3 financial instruments. We classify a financial instrument as impaired when one or more events that have a detrimental impact on the estimated future cash flows of that financial instrument have occurred after its initial recognition. Evidence of impairment includes indications that the borrower is experiencing significant financial difficulties, or a default or delinquency has occurred. All financial instruments on which repayment of principal or payment of interest is contractually 90 days in arrears are automatically considered impaired, except for credit card loans, which are classified as impaired and are fully written off when payments are contractually 180 days in arrears or at the earlier of the notice of bankruptcy, settlement proposal, or enlistment of credit counselling services. A financial instrument is no longer considered impaired when all past due amounts, including interest, have been recovered, and it is determined that the principal and interest are fully collectable in accordance with the original contractual terms or revised market terms of the financial instrument with all criteria for the impaired classification having been remedied. Financial instruments are written off, either partially or in full, against the related allowance for credit losses when we judge that there is no realistic prospect of future recovery in respect of those amounts. When financial instruments are secured, this is generally after all collateral has been realized or transferred to CIBC, or in certain circumstances, when the net realizable value of any collateral and other available information suggests that there is no reasonable expectation of further recovery. In subsequent periods, any recoveries of amounts previously written off are credited to the provision for credit losses. Purchased loans Both purchased performing and purchased credit-impaired loans are initially measured at their acquisition date fair values. As a result of recording these loans at fair value, no allowance for credit losses is recognized in the purchase equation at the acquisition date. Fair value is determined by estimating the principal and interest cash flows expected to be collected and discounting those cash flows at a market rate of interest. At the acquisition date, we classify a loan as performing where we expect timely collection of all amounts in accordance with the original contractual terms of the loan and as credit-impaired where it is probable that we will not be able to collect all contractually required payments. For purchased performing loans, the acquisition date fair value adjustment on each loan is amortized to interest income over the expected remaining life of the loan using the effective interest rate method. The remaining unamortized amounts relating to those loans are recorded in income in the period that the loan is repaid. ECL allowances are established in Provision for credit losses in the consolidated statement of income immediately after the acquisition date based on classifying each loan in stage 1, since the acquisition date is established as the initial recognition date of purchased performing loans for the purpose of assessing whether a significant increase in credit risk has occurred. Subsequent to the acquisition date, ECL allowances are estimated in a manner consistent with our significant increase in credit risk and impairment policies that we apply to loans that we originate. For purchased credit-impaired loans, the acquisition date fair value adjustment on each loan consists of management’s estimate of the shortfall of principal and interest cash flows expected to be collected and the time value of money. The time value of money component of the fair value adjustment is amortized to interest income over the expected remaining life of the loan using the effective interest rate method. Subsequent to the acquisition date, we regularly re-estimate the expected cash flows for purchased credit-impaired loans. Decreases in the expected cash flows will result in an increase in our ECL allowance. Increases in the expected cash flows will result in a recovery of the ECL allowance. ECL allowances for purchased credit-impaired loans are reported in stage 3. Originated credit-impaired financial assets The accounting for originated credit-impaired financial assets operates in a similar manner to the accounting for purchased credit-impaired loans in that originated credit-impaired assets are initially recognized at fair value with no initial ECL allowance as concerns about the collection of future cash flows are instead reflected in the origination date discount. The time value of money component of the discount is amortized to interest income over the expected remaining life of the financial asset using the effective interest rate method. Changes in expectation regarding the contractual CIBC 2021 ANNUAL REPORT 125 Consolidated financial statements cash flows for loans are recognized immediately in Provision for credit losses and for securities are recognized in Gains (losses) from debt securities measured at FVOCI and amortized cost, net. This accounting generally applies to financial assets that result from debt restructuring arrangements in which a previously impaired financial asset is exchanged for a new financial asset that is either recognized at a fair value that represents a deep discount to par or for which there are significant concerns over the ability to collect the contractual cash flows. Determination of fair value Fair value is the price that would be received to sell an asset or paid to transfer a liability between market participants in an orderly transaction in the principal market at the measurement date under current market conditions (i.e., the exit price). Fair value measurements are categorized into three levels within a fair value hierarchy (Level 1, 2 or 3) based upon the market observability of the valuation inputs used in measuring the fair value. See Note 3 for more details about fair value measurement subsequent to initial recognition by type of financial instrument. Transaction costs Transaction costs relating to financial instruments mandatorily measured or designated at FVTPL are expensed as incurred. Transaction costs are amortized over the expected life of the instrument using the effective interest rate method for instruments measured at amortized cost, and debt instruments measured at FVOCI. For equity instruments designated at FVOCI, transaction costs are included in the instrument’s carrying value. Date of recognition of securities We account for all securities transactions on our consolidated balance sheet using settlement date accounting. Effective interest rate Interest income and expense for all financial instruments measured at amortized cost and for debt securities measured at FVOCI are recognized in Interest income and Interest expense using the effective interest rate method. The effective interest rate is the rate that exactly discounts estimated future cash receipts or payments through the expected life of the financial instrument to the net carrying value of the financial asset or liability upon initial recognition. When calculating the effective interest rate, we estimate future cash flows considering all contractual terms of the financial instrument, but not future credit losses. Fees relating to loan origination, including commitment, restructuring and renegotiation fees, are considered an integral part of the yield earned on the loan and are accounted for using the effective interest rate method. Fees received for commitments that are not expected to result in a loan are included in Non-interest income over the commitment period. Loan syndication fees are included in Non-interest income on completion of the syndication arrangement, provided that the yield on the portion of the loan we retain is at least equal to the average yield earned by the other lenders involved in the financing; otherwise, an appropriate portion of the fee is deferred as unearned income and amortized to interest income using the effective interest rate method. Interest income is recognized on stage 1 and stage 2 financial assets measured at amortized cost by applying the effective interest rate to the gross carrying amount of the financial instrument. For stage 3 financial instruments, interest income is recognized using the rate of interest used to discount the estimated future cash flows for the purpose of measuring the impairment loss and applied to the net carrying value of the financial instrument. Securitizations and derecognition of financial assets Securitization of our own assets provides us with an additional source of liquidity. As we generally retain substantially all of the risks and rewards of the transferred assets, assets remain on the consolidated balance sheet and funding from these transactions is accounted for as Deposits – secured borrowings. Our contractual right to receive cash flows from the assets has expired; Securitizations to non-consolidated SEs are accounted for as sales, with the related assets being derecognized, only where:   We transfer our contractual rights to receive the cash flows of the financial asset, and have: (i) transferred substantially all the risks and rewards of ownership, or (ii) neither retained nor transferred substantially all the risks and rewards, but have not retained control; or The transfer meets the criteria of a qualifying pass-through arrangement.  Derecognition of financial liabilities A financial liability is derecognized when the obligation under the liability is discharged, cancelled or expires. If an existing financial liability is replaced by another liability from the same lender on substantially different terms, or the terms of the existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and a recognition of a new liability, and the difference in the respective carrying values is recognized in the consolidated statement of income. The repurchase of a debt instrument is considered an extinguishment of that debt instrument even if we intend to resell the instrument in the near term. Financial guarantees Financial guarantees are financial contracts that require the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due in accordance with the original or modified terms of a debt instrument. Financial guarantee contracts issued by CIBC that are not classified as insurance contracts are initially recognized as a liability at fair value, adjusted for transaction costs that are directly attributable to the issuance of the guarantees, which is generally the premium received or receivable on the date the guarantee was given. Subsequently, financial guarantee liabilities are measured at the higher of the initial fair value, less cumulative amortization, and the applicable ECL allowances. A financial guarantee that qualifies as a derivative is remeasured at fair value as at each reporting date and reported as Derivative instruments in assets or liabilities, as appropriate. Mortgage commitments Mortgage interest rate commitments are extended to our retail clients in contemplation of borrowing to finance the purchase of homes under mortgages to be funded by CIBC in the future. These commitments are usually for periods of up to 120 days and generally entitle the borrower to receive funding at the lower of the interest rate at the time of the commitment and the rate applicable at the funding date. We use financial instruments, such as interest rate derivatives, to economically hedge our exposure to an increase in interest rates. Based on our estimate of the commitments expected to be exercised, a financial liability would be recognized on our consolidated balance sheet, to which we apply the FVO. We 126 CIBC 2021 ANNUAL REPORT Consolidated financial statements also carry the associated economic hedges at fair value on the consolidated balance sheet. Changes in the fair value of the FVO commitment liability and the associated economic hedges are included in Gains (losses) from financial instruments measured/designated at FVTPL, net. In addition, since the fair value of the commitments is priced into the mortgage, the difference between the mortgage amount and its fair value at funding is recognized in the consolidated statement of income to offset the carrying value of the mortgage commitment that is released upon its expiry. Offsetting of financial assets and financial liabilities Financial assets and financial liabilities are offset, and the amount presented net, when we have a legally enforceable right to set off the recognized amounts and intend to settle on a net basis or to realize the asset and settle the liability simultaneously. Acceptances and customers’ liability under acceptances Acceptances constitute a liability of CIBC on negotiable instruments issued to third parties by our customers. We earn a fee for guaranteeing and then making the payment to the third parties. The amounts owed to us by our customers in respect of these guaranteed amounts are reflected in assets as Customers’ liability under acceptances. Securities purchased under resale agreements and obligations related to securities sold under repurchase agreements Securities purchased under resale agreements are treated as collateralized lending transactions as they represent the purchase of securities affected with a simultaneous agreement to sell them back at a future date at a fixed price, which is generally near term. These transactions are classified and measured at amortized cost, as they meet the SPPI criteria and are managed under a hold to collect business model, unless they were classified at FVTPL or designated under the FVO. For Securities purchased under resale agreements that are classified at amortized cost, an ECL is applied. Interest income is accrued using the effective interest rate method and is included in Interest income – Securities borrowed or purchased under resale agreements in the consolidated statement of income. Similarly, securities sold under agreements to repurchase are treated as collateralized borrowing transactions at amortized cost with interest expense accrued using the effective interest rate method and are included in Interest expense – Securities lent or sold under repurchase agreements in the consolidated statement of income. Certain obligations related to securities sold under repurchase agreements are designated at FVTPL under the FVO. Cash collateral on securities borrowed and securities lent The right to receive back cash collateral paid and the obligation to return cash collateral received on borrowing and lending of securities, which is generally near term, is recognized as cash collateral on securities borrowed and securities lent, respectively. These transactions are classified and measured at amortized cost as they meet the SPPI criteria and are managed under a hold to collect business model. For Cash collateral on securities borrowed classified at amortized cost, an ECL is applied. Interest income on cash collateral paid and interest expense on cash collateral received together with the security borrowing fees and security lending income are included in Interest income – Securities borrowed or purchased under resale agreements and Interest expense – Securities lent or sold under repurchase agreements, respectively. For securities borrowing and lending transactions where securities are pledged or received as collateral, securities pledged by CIBC remain on the consolidated balance sheet and securities received by CIBC are not recognized on the consolidated balance sheet. Derivatives We use derivative instruments for both asset/liability management (ALM) and trading purposes. The derivatives used for ALM purposes allow us to manage financial risks, such as movements in interest and foreign exchange rates, while our derivative trading activities are primarily driven by client activities. We may also take proprietary trading positions within prescribed risk limits with the objective of earning income. All derivative instruments are recognized initially, and are measured subsequently, at fair value and are reported as assets where they have a positive fair value and as liabilities where they have a negative fair value, in both cases as derivative instruments. Any realized and unrealized gains or losses on derivatives used for trading purposes are recognized immediately in Gains (losses) from financial instruments measured/designated at FVTPL, net. The accounting for derivatives used for ALM purposes depends on whether they qualify for hedge accounting as discussed below. Fair values of exchange-traded derivatives are based on quoted market prices. Fair values of over-the-counter (OTC) derivatives, including OTC derivatives that are centrally cleared, are obtained using valuation techniques, including discounted cash flow models and option pricing models. See Note 13 for further information on the valuation of derivatives. Derivatives used for ALM purposes that qualify for hedge accounting As permitted at the time of transition to IFRS 9 “Financial Instruments” (IFRS 9), we previously elected to continue to apply the hedge accounting requirements of IAS 39. We adopted the Phase 1 and Phase 2 amendments to IAS 39, together with the associated IFRS 7 “Financial Instruments: Disclosures” (IFRS 7) disclosure requirements, relating to interest rate benchmark reform for hedge accounting relationships impacted by the reform. See the “Interest Rate Benchmark Reform” section below for further detail. We apply hedge accounting for derivatives held for ALM purposes that meet specified criteria. There are three types of hedges: fair value, cash flow and hedges of net investments in foreign operations (NIFOs). When hedge accounting is not applied, the change in the fair value of the derivative is recognized in the consolidated statement of income (see “Derivatives used for ALM purposes that are not designated for hedge accounting” below). In order for derivatives to qualify for hedge accounting, the hedge relationship must be designated and formally documented at its inception in accordance with IAS 39. The particular risk management objective and strategy, the specific asset, liability or cash flow being hedged, as well as how hedge effectiveness is assessed, are documented. Hedge effectiveness requires a high correlation of changes in fair values or cash flows between the hedged and hedging items. We assess the effectiveness of derivatives in hedging relationships, both at inception and on an ongoing basis. Ineffectiveness results to the extent that the change in the fair value of the hedging derivative differs from the change in the fair value of the hedged risk in the hedged item, or the cumulative change in the fair value of the hedging derivative exceeds the cumulative change in the fair value of expected future cash flows of the hedged item. The amount of ineffectiveness of hedging instruments is recognized immediately in the consolidated statement of income. Fair value hedges We designate fair value hedges primarily as part of interest rate risk management strategies that use derivatives to hedge changes in the fair value of financial instruments with fixed interest rates. Changes in fair value attributed to the hedged interest rate risk are accounted for as basis adjustments to the hedged financial instruments and are included in Net interest income. Changes in fair value from the hedging derivatives are also included in Net interest income. Any differences between the two represent hedge ineffectiveness that is included in Net interest income. CIBC 2021 ANNUAL REPORT 127 Consolidated financial statements Similarly, for hedges of foreign exchange risk, changes in the fair value from the hedging derivatives and non-derivatives are included in FXOTT. Changes in the fair value of the hedged item from the hedged foreign exchange risk are accounted for as basis adjustments and are also included in FXOTT. Any difference between the two represents hedge ineffectiveness. If the hedging instrument expires or is sold, terminated or exercised, or where the hedge no longer meets the criteria for hedge accounting, the hedge relationship is terminated and the basis adjustment applied to the hedged item is amortized over the remaining term of the hedged item. If the hedged item is derecognized, the unamortized basis adjustment is recognized immediately in the consolidated statement of income. Cash flow hedges We designate cash flow hedges as part of interest rate risk management strategies that use derivatives to mitigate our risk from variable cash flows by effectively converting certain variable-rate financial instruments to fixed-rate financial instruments, and as part of foreign exchange rate risk management strategies to hedge forecasted foreign currency denominated cash flows. We also designate cash flow hedges to hedge changes in CIBC’s share price in respect of certain cash-settled share-based payment awards. The effective portion of the change in fair value of the derivative instrument is recognized in OCI until the variability in cash flows being hedged is recognized in the consolidated statement of income in future accounting periods, at which time an appropriate portion of the amount that was in AOCI is reclassified into the consolidated statement of income. The ineffective portion of the change in fair value of the hedging derivative is included in Net interest income, FXOTT, or Non-interest expenses immediately as it arises. If the hedging instrument expires or is sold, terminated or exercised, or where the hedge no longer meets the criteria for hedge accounting, the hedge relationship is terminated. Upon termination of the hedge relationship, any remaining amount in AOCI remains therein until it is recognized in the consolidated statement of income when the variability in cash flows hedged or the hedged forecast transaction is ultimately recognized in the consolidated statement of income. When the forecasted transaction is no longer expected to occur, the related cumulative gain or loss in AOCI is recognized immediately in the consolidated statement of income. Hedges of NIFOs with a functional currency other than the Canadian dollar We may designate NIFO hedges to mitigate the foreign exchange risk on our NIFOs with a functional currency other than the Canadian dollar. These hedges are accounted for in a similar manner to cash flow hedges. The change in fair value of the hedging instrument relating to the effective portion is recognized in OCI. The change in fair value of the hedging instrument attributable to the forward points and relating to the ineffective portion is recognized immediately in FXOTT. Gains and losses in AOCI are reclassified to the consolidated statement of income upon the disposal or partial disposal of the investment in the foreign operation that involves the loss of control, as explained in the “Foreign currency translation” policy above. Derivatives used for ALM purposes that are not designated for hedge accounting The change in fair value of the derivatives not designated as accounting hedges but used to economically hedge FVO assets or liabilities is included in Gains (losses) from financial instruments measured/designated at FVTPL, net. The change in fair value of other derivatives not designated as accounting hedges but used for other economic hedging purposes is included in Non-interest income as FXOTT or Other, as appropriate, or in the case of economic hedges of cash-settled share-based payment obligations, in compensation expense. Embedded derivatives Derivatives embedded in financial liabilities are accounted for as separate derivatives when their economic characteristics and risks are not closely related to those of the host instrument and the terms of the embedded derivative represent those of a freestanding derivative in situations where the combined instrument is not classified as FVTPL or FVO. These embedded derivatives, which are classified together with the host instrument on the consolidated balance sheet, are measured at fair value, with changes therein included in the consolidated statement of income. The residual amount of the host liability is accreted to its maturity value through Interest income and Interest expense, respectively, using the effective interest rate method. Gains at inception on derivatives embedded in financial instruments bifurcated for accounting purposes are not recognized at inception; instead they are recognized over the life of the residual host instrument. Where an embedded derivative is separable from the host instrument but the fair value, as at the acquisition or reporting date, cannot be reliably measured separately or is otherwise not bifurcated, the entire combined contract is measured at FVTPL. Financial assets with embedded derivatives are classified in their entirety into the appropriate classification at initial recognition through an assessment of the contractual cash flow characteristics of the asset and the business model under which it is managed. Accumulated other comprehensive income AOCI is included on the consolidated balance sheet as a separate component of total equity, net of income tax. It includes net unrealized gains and losses on FVOCI debt and equity securities, the effective portion of gains and losses on derivative instruments designated within effective cash flow hedges under IAS 39, unrealized foreign currency translation gains and losses on foreign operations with a functional currency other than the Canadian dollar net of gains or losses on related hedges, net gains (losses) related to fair value changes of FVO liabilities attributable to changes in own credit risk, and net gains (losses) on post-employment defined benefit plans. Treasury shares Where we repurchase our own equity instruments, these instruments are treated as treasury shares and are deducted from equity at their cost with any gain or loss recognized in Contributed surplus or Retained earnings as appropriate. No gain or loss is recognized in the consolidated statement of income on the purchase, sale, issue or cancellation of our own equity instruments. Any difference between the carrying value and the consideration, if reissued, is also included in Contributed surplus. Liabilities and equity We classify financial instruments as a liability or equity based on the substance of the contractual arrangement. An instrument is classified as a liability if it is a contractual obligation to deliver cash or another financial asset, or to exchange financial assets or financial liabilities at potentially unfavourable terms. A contract is also classified as a liability if it is a non-derivative and could obligate us to deliver a variable number of our own shares or it is a derivative other than one that can be settled by the delivery of a fixed amount of cash or another financial asset for a fixed number of our own equity instruments. An instrument is classified as equity if it evidences a residual interest in our assets after deducting all liabilities. The components of a compound financial instrument are classified and accounted for separately as assets, liabilities, or equity as appropriate. Incremental costs directly attributable to the issuance of equity instruments are shown in equity, net of income tax. 128 CIBC 2021 ANNUAL REPORT Consolidated financial statements Property and equipment Land is recognized initially at cost and is subsequently measured at cost less any accumulated impairment losses. Buildings, furniture, equipment and leasehold improvements are recognized initially at cost and are subsequently measured at cost less accumulated depreciation and any accumulated impairment losses. Depreciation commences when the assets are available for use and is recognized on a straight-line basis to depreciate the cost of these assets to their estimated residual value over their estimated useful lives. The estimated useful lives are as follows:     Buildings – 40 years Computer equipment – 3 to 7 years Office furniture, equipment and other – 4 to 15 years Leasehold improvements – over the estimated useful life Depreciation methods, useful lives and residual values are reviewed at each annual reporting date and are adjusted if appropriate. Gains and losses on disposal are included in Non-interest income – Other. Leases CIBC adopted IFRS 16 “Leases” (IFRS 16) in place of IAS 17 “Leases” as of November 1, 2019. We applied IFRS 16 on a modified retrospective basis. As permitted, we did not restate our prior period comparative consolidated financial statements, which were reported under the prior guidance. The impact of adopting IFRS 16 is discussed below. As a lessee, we recognize a right-of-use asset and a corresponding lease liability based on the present value of future lease payments, less any lease incentives receivable, when the lessor makes the leased asset available for use to CIBC, based on the non-cancellable portion of the lease term, adjusted for any renewal or termination options that are reasonably certain to be exercised. Measurement of the right-of-use asset also includes any initial direct costs of procuring the lease, and any lease payments made or lease incentives received prior to lease commencement. Discount rates are based on the rate implicit in the lease, if determinable, or on CIBC’s incremental borrowing rate. Where a property lease contains both a lease and non-lease component, we have elected not to allocate the consideration in the contract to each of the components. Subsequent to initial measurement, CIBC measures the lease liability by increasing the carrying amount to reflect interest on the lease liability based on the discount rate at the time of recognition and reducing the carrying amount to reflect lease payments made during the period, net of any remeasurements for lease reassessment or modifications. The right-of-use asset is measured using the cost model, and amortized on a straight-line basis over the lease term. Right-of-use assets and the corresponding lease liabilities are recognized in Property and equipment and Other liabilities, respectively, on our consolidated balance sheet. The right-of-use asset and the corresponding lease liability are remeasured when there is a change in lease term, a change in the assessment of an option to purchase a leased asset, a change in the expected residual value guarantee (if any), or a change in future lease payments due to a change in the index or rate applicable to the payment. Right-of-use assets are tested for impairment as required under IAS 36 “Impairment of Assets” (IAS 36). In addition, the evaluation of the useful life for depreciation is assessed under IAS 36. Lease payments for low-value assets, short-term leases and variable leases are systematically recognized in Non-interest expenses based on the nature of the expense. As an intermediate lessor, we classify a sublease as an operating or finance sublease based on whether substantially all of the risks and rewards related to the underlying right-of-use asset are transferred to the sub-lessee. If classified as a finance sublease, the related right-of-use asset is derecognized and an investment in sublease is recognized, with the difference recognized in the consolidated statement of income as a gain or loss. In measuring the investment in sublease, we apply the head lease discount rate unless the rate implicit in the sublease is determinable. Where a finance sublease includes lease and non-lease components, we allocate the total consideration in the contract to each component based on the standalone prices for each of these components. The investment in sublease is recognized in Other assets on our consolidated balance sheet, and is subsequently measured using the effective interest rate method, with interest income recognized over the term of the sublease. Rental income from operating subleases is recognized on a systematic basis over the lease term. Transition impact from adoption of IFRS 16 The adoption of IFRS 16 resulted in the recognition of approximately $1.7 billion of lease liabilities and $1.6 billion of right-of-use assets as at November 1, 2019. The amount of the right-of-use assets recognized was determined based on the amount of the lease liabilities less the existing deferred rent liabilities as at October 31, 2019. Furthermore, the reassessment of certain subleases related to a previously recognized finance lease property, a portion of which is rented out and considered investment property, resulted in an increase in net assets as a result of the recognition of additional sublease- related assets, net of the derecognition of amounts related to the corresponding head lease. The after-tax impact to retained earnings as a result of adopting IFRS 16 was an increase of $0.1 billion. The following permitted recognition exemptions and practical expedients were applied:  A single discount rate curve was applied to portfolios of leases with reasonably similar characteristics at the date of application. The weighted average incremental borrowing rate applied on our existing lease portfolio was 2.31%. In contracts where we are the lessee, we did not reassess contracts that were identified as finance leases under the previous accounting standard (IAS 17).   We elected to exclude leases of assets considered as low value and short-term leases with a remaining term of less than 12 months.  We applied the onerous lease provisions recognized as at October 31, 2019 as an alternative to performing an impairment review of our right- of-use assets as at November 1, 2019. Where an onerous lease provision was recorded on a lease, the right-of-use asset was reduced by the amount of that provision on transition and no further impairment review was performed.  We elected not to separate lease and non-lease components of a lease contract when calculating the lease liability and corresponding right- of-use asset for certain classes of assets. Non-lease components may consist of, but are not limited to, common area maintenance expenses and utility charges. Other occupancy costs not within the scope of IFRS 16 continue to be recorded as operating expenses. Goodwill, software and other intangible assets Goodwill represents the excess of the purchase price over the fair value of the net identifiable assets, liabilities and contingent liabilities acquired in business combinations. Identifiable intangible assets are recognized separately from goodwill when they are separable or arise from contractual or other legal rights, and have fair values that can be reliably measured. Goodwill is not amortized, but is subject to impairment review at least annually or more frequently if there are indicators that the goodwill may be impaired. Refer to the “Impairment of non-financial assets” policy below. Intangible assets represent software and customer relationships, core deposit intangibles, investment management contracts, and brand names recognized as part of past acquisitions. Intangible assets with definite useful lives are measured at cost less accumulated amortization and CIBC 2021 ANNUAL REPORT 129 Consolidated financial statements accumulated impairment losses. Each intangible asset is assessed for legal, regulatory, contractual, competitive or other factors to determine if the useful life is definite. Intangible assets with definite useful lives are amortized over their estimated useful lives, which are as follows:    Software – 5 to 10 years Contract-based intangibles – 8 to 15 years Core deposit and customer relationship intangibles – 3 to 16 years Intangible assets with indefinite useful lives are measured at cost less any accumulated impairment losses. Indefinite-life intangible assets are tested for impairment at least annually and whenever there is an indication that the asset may be impaired. Refer to the “Impairment of non-financial assets” policy below. Impairment of non-financial assets The carrying values of non-financial assets with definite useful lives, including right-of-use assets, buildings and equipment, and intangible assets with definite useful lives are reviewed to determine whether there is any indication of impairment. Goodwill and intangible assets with indefinite useful lives are tested for impairment at least annually, and whenever there is an indication that the asset may be impaired. If any such indication of impairment exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss, if any. For the purpose of reviewing non-financial assets with definite useful lives for impairment, asset groups are reviewed at their lowest level for which identifiable cash inflows are largely independent of cash inflows of other assets or groups of assets. This grouping is referred to as a cash- generating unit (CGU). Corporate assets do not generate separate cash inflows. Corporate assets are tested for impairment at the minimum collection of CGUs to which the corporate asset can be allocated reasonably and consistently. The recoverable amount is the greater of fair value less costs to sell and value in use. Value in use is the present value of the future cash flows expected to be derived from the asset or CGU. When the carrying value exceeds its recoverable amount, an impairment loss equal to the difference between the two amounts is recognized in the consolidated statement of income. If an impairment subsequently reverses, the carrying value of the asset is increased to the extent that the carrying value of the underlying assets does not exceed the carrying value that would have been determined, net of depreciation or amortization, if no impairment had been recognized. Any impairment reversal is recognized in the consolidated statement of income in the period in which it occurs. Goodwill is assessed for impairment based on the group of CGUs expected to benefit from the synergies of the business combination, and the lowest level at which management monitors the goodwill. Any potential goodwill impairment is identified by comparing the recoverable amount of the CGU grouping to which the goodwill is allocated to its carrying value including the allocated goodwill. If the recoverable amount is less than its carrying value, an impairment loss is recognized in the consolidated statement of income in the period in which it occurs. Impairment losses on goodwill are not subsequently reversed if conditions change. Income taxes Income tax comprises current tax and deferred tax. Income tax is recognized in the consolidated statement of income, except to the extent that it relates to items recognized in OCI or directly in equity, in which case it is recognized accordingly. Current tax is the tax expected to be payable on the taxable profit for the year, calculated using tax rates enacted or substantively enacted as at the reporting date, and any adjustment to tax payable in respect of previous years. Current tax assets and liabilities are offset when CIBC intends to settle on a net basis and the legal right to offset exists. Deferred tax is recognized on temporary differences between the carrying value of assets and liabilities on the consolidated balance sheet and the corresponding amounts attributed to such assets and liabilities for tax purposes. Deferred tax liabilities are generally recognized for all taxable temporary differences unless the temporary differences relate to our NIFOs and will not reverse in the foreseeable future. Deferred tax assets, other than those arising from our NIFOs, are recognized to the extent that it is probable that future taxable profits will be available against which deductible temporary differences can be utilized. Deferred tax assets arising from our NIFOs are recognized for deductible temporary differences which are expected to reverse in the foreseeable future to the extent that it is probable that future taxable profits will be available against which these deductible temporary differences can be utilized. Deferred tax is not recognized for temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable income, or for taxable temporary differences arising on the initial recognition of goodwill. Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted as at the reporting date. Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities and they relate to income taxes levied by the same tax authority on the same taxable entity or tax reporting group. We are subject to income tax laws in the various jurisdictions where we operate, and the tax laws in those jurisdictions are potentially subject to different interpretations by us and the relevant taxation authority, which gives rise to uncertainty. For tax positions where there is uncertainty regarding the ultimate determination of the tax impact, including positions which are under audit, dispute or appeal, we recognize provisions to consider this uncertainty based on our best estimate of the amount expected to be paid based on an assessment of the relevant factors. Pension and other post-employment benefits We are the sponsor of a number of employee benefit plans. These plans include both defined benefit and defined contribution pension plans, and various other post-employment benefit plans including post-retirement medical and dental benefits. Defined benefit plans The cost of pensions and other post-employment benefits earned by employees is actuarially determined separately for each plan using the projected unit credit method and our best estimate of salary escalation, retirement ages of employees, mortality and expected health-care costs. This represents CIBC’s defined benefit obligation, which is measured as at the reporting date. The discount rate used to measure the defined benefit obligation is based on the yield of a portfolio of high-quality corporate bonds denominated in the same currency in which the benefits are expected to be paid and with terms to maturity that, on average, match the terms of the defined benefit obligation. Plan assets are measured at fair value as at the reporting date. The net defined benefit asset (liability) represents the present value of the defined benefit obligation less the fair value of plan assets. The net defined benefit asset (liability) is included in Other assets and Other liabilities, respectively. 130 CIBC 2021 ANNUAL REPORT Consolidated financial statements Current service cost reflects the cost of providing post-employment benefits earned by employees in the current period. Current service cost is calculated as the present value of the benefits attributed to the current year of service and is recognized in the consolidated statement of income. The current service cost is calculated using a separate discount rate to reflect the longer duration of future benefit payments associated with the additional year of service to be earned by the plan’s active participants. Past service costs arising from plan amendments or curtailments are recognized in net income in the period in which they arise. Net interest income or expense comprises interest income on plan assets and interest expense on the defined benefit obligation. Interest income is calculated by applying the discount rate to the plan assets, and interest expense is calculated by applying the discount rate to the defined benefit obligation. Net interest income or expense is recognized in the consolidated statement of income. Actuarial gains and losses represent changes in the present value of the defined benefit obligation which result from changes in actuarial assumptions and differences between previous actuarial assumptions and actual experience, and from differences between the actual return on plan assets and assumed interest income on plan assets. Net actuarial gains and losses are recognized in OCI in the period in which they arise and are not subject to subsequent reclassification to net income. Cumulative net actuarial gains and losses are included in AOCI. When the calculation results in a net defined benefit asset, the recognized asset is limited to the present value of economic benefits available in the form of future refunds from the plan or reductions in future contributions to the plan (the asset ceiling). For plans where we do not have an unconditional right to a refund of surplus, we determine the asset ceiling by reference to future economic benefits available in the form of reductions in future contributions to the plan, in which case the present value of economic benefits is calculated giving consideration to minimum funding requirements for future service that apply to the plan. Where a reduction in future contributions to the plan is not currently realizable at the reporting date, we estimate whether we will have the ability to reduce contributions for future service at some point during the life of the plan by taking into account, among other things, expected future returns on plan assets. If it is anticipated that we will not be able to recover the value of the net defined benefit asset, after considering minimum funding requirements for future service, the net defined benefit asset is reduced to the amount of the asset ceiling. When the payment in the future of minimum funding requirements related to past service would result in a net defined benefit surplus, or an increase in a net defined benefit surplus, the minimum funding requirements are recognized as a liability to the extent that the surplus would not be fully available as a refund or a reduction in future contributions. Any funded status surplus is limited to the present value of future economic benefits available in the form of refunds from the plan or reductions in future contributions to the plan. Defined contribution plans Costs for defined contribution plans are recognized during the year in which the service is provided. Other long-term employee benefits CIBC sponsors a closed long-term disability plan that is classified as a long-term defined benefit arrangement. As the amount of the long-term disability benefit does not depend on the length of service, the obligation is recognized when an event occurs that gives rise to an obligation to make payments. CIBC also offers other medical and dental benefits to employees while on long-term disability. The amount of other long-term employee benefits is actuarially calculated using the projected unit credit method. Under this method, the benefit is discounted to determine its present value. The methodology used to determine the discount rate used to value the long-term employee benefit obligation is consistent with that for pension and other post-employment benefit plans. Actuarial gains and losses and past service costs are recognized in the consolidated statement of income in the period in which they arise. Share-based payments We provide compensation to certain employees and directors in the form of share-based awards. Compensation expense for share-based awards is recognized from the service commencement date to the earlier of the contractual vesting date or the employee’s retirement eligible date. For grants regularly awarded in the annual incentive compensation cycle (annual incentive grant), the service commencement date is considered to be the start of the fiscal year that precedes the fiscal year in which the grant is made. The service commencement date in respect of special awards granted outside of the annual cycle is the grant date. The amount of compensation expense recognized is based on management’s best estimate of the number of share-based awards expected to vest, including estimates of expected forfeitures, which are revised periodically as appropriate. For the annual incentive grant, compensation expense is recognized from the service commencement date based on the estimated fair value of the forthcoming grant with the estimated fair value adjusted to the actual fair value at the grant date. Under the Restricted Share Award (RSA) plan, where grants are settled in the cash equivalent of common shares, changes in the obligation which arise from fluctuations in the market price of common shares, net of related hedges, are recognized in the consolidated statement of income as compensation expense in proportion to the award recognized. Under the Performance Share Unit (PSU) plan, where grants are settled in the cash equivalent of common shares, changes in the obligation which arise from fluctuations in the market price of common shares, and revised estimates of the performance factor, net of related hedges, are recognized in the consolidated statement of income as compensation expense in proportion to the award recognized. The performance factor ranges from 75% to 125% of the initial number of units awarded based on CIBC’s performance relative to the other major Canadian banks. Compensation expense in respect of the Employee Stock Option Plan (ESOP) is based on the grant date fair value. Where the service commencement date precedes the grant date, compensation expense is recognized from the service commencement date based on the estimated fair value of the award at the grant date, with the estimated fair value adjusted to the actual fair value at the grant date. Compensation expense results in a corresponding increase to contributed surplus. If the ESOP award is exercised, the proceeds we receive, together with the amount recognized in Contributed surplus, are credited to common share capital. If the ESOP award expires unexercised, the compensation expense remains in Contributed surplus. As part of our acquisition of Wellington Financial Fund V LP (Wellington Financial) in the first quarter of 2018, equity-settled awards in the form of exchangeable shares with specific service and non-market performance vesting conditions were issued to selected employees. Compensation expense in respect of the exchangeable shares is based on the grant date fair value, adjusted for changes in the estimated impact of the non- market performance conditions. Compensation in the form of Deferred Share Units (DSUs) issued pursuant to the Deferred Share Unit Plan, the Deferred Compensation Plan (DCP), and the Directors’ Plan, entitles the holder to receive the cash equivalent of a CIBC common share. At the time DSUs are granted, the related expense in respect of the cash compensation that an employee or director would otherwise receive would have been fully recognized. Changes in the obligations which arise from fluctuations in the market price of common shares, net of related hedges, are recognized in the consolidated statement of income as compensation expense for employee DSUs and as Non-interest expense – Other for Directors’ DSUs. Our contributions under the Employee Share Purchase Plan (ESPP) are expensed as incurred. CIBC 2021 ANNUAL REPORT 131 Consolidated financial statements The impact due to our changes in common share price in respect of cash-settled share-based compensation under the RSA and PSU plans is hedged through the use of derivatives. We designate these derivatives within cash flow hedge accounting relationships. The effective portion of the change in fair value of these derivatives is recognized in OCI and is reclassified into compensation expense, within the consolidated statement of income, over the period that the hedged awards impact the consolidated statement of income. The ineffective portion of the change in fair value of the hedging derivatives is recognized in the consolidated statement of income immediately as it arises. Provisions and contingent liabilities Provisions are liabilities of uncertain timing or amount. A provision is recognized when we have a present legal or constructive obligation as a result of a past event, it is probable that an outflow of economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. The provision is recognized as the best estimate of the amount required to settle the obligation at the reporting date, taking into account the risk and uncertainties related to the obligation. Where material, provisions are discounted to reflect the time value of money, and the increase in the obligation due to the passage of time is presented as Interest expense in the consolidated statement of income. Contingent liabilities are possible obligations that arise from past events whose existence will be confirmed only by the occurrence, or non- occurrence, of one or more uncertain future events not wholly within the control of CIBC, or are present obligations that have arisen from past events but are not recognized because it is not probable that settlement will require the outflow of economic benefits. Provisions and contingent liabilities are disclosed in the consolidated financial statements. Earnings per share We present basic and diluted EPS for our common shares. Basic EPS is computed by dividing net income for the period attributable to CIBC common shareholders by the weighted-average number of common shares outstanding during the period. The net income attributable to CIBC common shareholders is determined after deducting the after- tax amount of dividends on preferred shares and distributions on other equity instruments, which are accounted for in retained earnings, from the net income attributable to equity shareholders. Diluted EPS is computed by dividing net income for the period attributable to CIBC common shareholders by the weighted-average number of diluted common shares outstanding for the period. Diluted common shares reflect the potential dilutive effect of contingently issuable shares and the exercise of stock options based on the treasury stock method. The number of contingently issuable shares included in diluted EPS is based on the number of shares that would be issuable if the end of the reporting period were the end of the contingency period. For stock options, the treasury stock method determines the number of incremental common shares by assuming that outstanding stock options, whose exercise price is less than the average market price of common shares during the period, are exercised and then reduced by the number of common shares assumed to be repurchased with the exercise proceeds from the assumed exercise of the options. Instruments determined to have an antidilutive effect for the period are excluded from the calculation of diluted EPS. Fee and commission income The recognition of fee and commission income is determined by the purpose of the fee or commission and the terms specified in the contract with the customer. Revenue is recognized when, or as, a performance obligation is satisfied by transferring control of the service to the customer, in the amount of the consideration to which we expect to be entitled. Revenue may therefore be recognized at a point in time upon completion of the service or over time as the services are provided. When revenue is recognized over time, we are generally required to provide the services each period, such that control of the services is transferred evenly to the customer, and we therefore measure our progress towards completion of the service based upon the time elapsed. For contracts where the transaction price includes variable consideration, revenue is only recognized to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved, which typically occurs by the end of the reporting period. When another party is involved in providing a service to a customer, we determine whether the nature of our performance obligation is that of a principal or an agent. If we control the service before it is transferred to the customer, we are acting as the principal and present revenue separately from the amount paid to the other party; otherwise we are the agent and present revenue net of the amount paid to the other party. Our performance obligations typically have a term of one year or less, with payment received upon satisfaction of the performance obligation or shortly afterwards, and as a result there is no significant financing component and we do not typically capitalize the costs of obtaining contracts with our customers. Income which forms an integral part of the effective interest rate of a financial instrument is recognized as an adjustment to the effective interest rate. In addition to these general principles, the following specific policies are also applied: Underwriting and advisory fees are earned on debt and equity securities placements and transaction-based advisory services. Underwriting fees are typically recognized at the point in time when the transaction is completed. Advisory fees are generally recognized as revenue over the period of the engagement as the related services are provided or at the point in time when the transaction is completed. Deposit and payment fees arise from personal and business deposit accounts and cash management services. Monthly and annual fees are recognized over the period that the related services are provided. Transactional fees are recognized at the point in time when the related services are provided. Credit fees consist of loan syndication fees, loan commitment fees, letter of credit fees, banker’s acceptance stamping fees, and securitization fees. Credit fees are generally recognized over the period that the related services are provided, except for loan syndication fees, which are typically recognized at the point in time that the financing placement is completed. Card fees primarily include interchange income, overlimit fees, cash advance fees, and annual fees. Card fees are recognized at the point in time that the related services are provided, except for annual fees, which are recognized over the 12-month period to which they relate. The cost of credit card loyalty points is recognized as a reduction of interchange income when the loyalty points are issued for both self-managed and third- party loyalty points programs. Credit card loyalty point liabilities are recognized for self-managed loyalty point programs and are subject to periodic remeasurement to reflect the expected cost of redemption as this expectation changes over time. Commissions on securities transactions include brokerage commissions for transactions executed on behalf of clients, trailer fees and mutual fund sales commissions. Brokerage commissions and mutual fund sales commissions are generally recognized at the point in time that the related transaction is executed. Trailer fees are typically calculated based upon the average daily net asset value of the mutual fund units held by clients and are recognized over time as the related services are provided. Investment management fees are primarily based on the respective value of the assets under management (AUM) or assets under administration (AUA) and are recognized over the period that the related services are provided. Investment management fees relating to our asset management and private wealth management business are generally calculated based on point-in-time AUM balances, and investment 132 CIBC 2021 ANNUAL REPORT Consolidated financial statements management fees relating to our retail brokerage business are generally calculated based on point-in-time AUM or AUA balances. Custodial fees are recognized as revenue over the applicable service period, which is generally the contract term. Mutual fund fees and administration fees are earned on fund management services and are recognized over the period that the mutual funds are managed based upon a specified percentage of the daily net asset values of the respective mutual funds. In certain circumstances, CIBC may, on a discretionary basis, elect to absorb certain expenses that would otherwise be payable by the mutual funds directly. These expenses are recognized in Non-interest expenses on the consolidated statement of income. Interest Rate Benchmark Reform Various interest rate and other indices that are deemed to be “benchmarks” including the London Interbank Offered Rate (LIBOR) are the subject of international regulatory guidance and proposals for reform. Regulators in various jurisdictions have advocated for the transition from Interbank Offered Rates (IBORs) to alternative benchmark rates (alternative rates), based upon risk-free rates determined using actual market transactions. The United Kingdom’s (U.K.’s) Financial Conduct Authority (FCA) originally announced in July 2017 that it would not compel banks to submit LIBOR rates after December 2021. In March 2021, the FCA and the ICE Benchmark Administration (IBA) announced the dates for the cessation or loss of representativeness of various LIBOR rates including that the GBP, EUR, CHF and JPY LIBORs will cease on December 31, 2021 and that most USD LIBOR tenors will cease on June 30, 2023. This announcement results in a fixed spread between the LIBOR rate and the alternative rate for a given tenor which will apply on the cessation of the relevant LIBOR rates. While the extension for most USD LIBOR tenors until June 30, 2023 allows for many legacy contracts to mature before the cessation date, originations of new USD LIBOR linked products are expected to cease after the end of calendar 2021. In June 2021, OSFI announced its expectations for the cessation of IBOR rates, which are consistent with the announcements previously made by the FCA and IBA. OSFI also expects financial institutions to prioritize system and model updates to accommodate alternative rates and to be able to transact in alternative rates by the end of 2021. We expect to be compliant with these regulatory expectations. In an effort to increase the liquidity of swaps indexed to alternative rates and to accelerate the progress of transitioning away from USD LIBOR, in June 2021, the Alternative Reference Rates Committee (ARRC) endorsed the Secured Overnight Financing Rate (SOFR) First initiative announced by the Commodity Futures Trading Commission. As a result of this initiative, interdealer brokers are recommended to trade swaps that are indexed to risk-free rates in place of swaps indexed to LIBOR commencing July 26, 2021. Subsequent to this change in interdealer trading conventions, ARRC formally recommended the Chicago Mercantile Exchange (CME) Group’s forward-looking SOFR term rate (Term SOFR), which is expected to provide entities with greater certainty over SOFR based lending rates since term rates are established at the beginning of a contractual interest reset period in contrast to overnight rates such as SOFR that are reset each day. As a participant in the interdealer broker market, CIBC has the necessary processes, systems and models to comply with the SOFR First initiative and will continue to monitor the development of Term SOFR as we manage IBOR transition. In November 2021, the FCA announced that it will require the LIBOR benchmark administrator to publish certain sterling and Japanese yen LIBOR settings on a non-representative synthetic basis during 2022, which would allow certain legacy contracts to continue to use certain LIBOR settings for a limited time period after the December 31, 2021 cessation date. We do not expect the FCA announcement to materially affect our transition to alternative rates and expect to achieve substantial completion of our remediation of non-USD LIBOR contracts before December 31, 2021 in a manner consistent with regulatory expectations. In response to interest rate benchmark reform, the IASB issued “Interest Rate Benchmark Reform: Phase 2 Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4, and IFRS 16” (Phase 2 amendments) in August 2020. These amendments address issues that affect financial reporting once an existing rate is replaced with an alternative rate and conclude the IASB’s amendments to financial reporting standards due to the effects of interest rate benchmark reform. While the Phase 2 amendments are effective for annual periods beginning on or after January 1, 2021, we elected to early adopt the Phase 2 amendments effective November 1, 2020. Only the amendments to the classification and measurement sections of IFRS 9, the hedge accounting sections of IAS 39 “Financial Instruments: Recognition and Measurement” (IAS 39), and to IFRS 7 “Financial Instruments: Disclosures”, IFRS 4 “Insurance Contracts”, and IFRS 16 “Leases” apply to us because we elected to continue to apply the hedge accounting requirements of IAS 39 upon the adoption of IFRS 9 “Financial Instruments” (IFRS 9). The Phase 2 amendments permit modifications of amortized cost financial assets and financial liabilities, and lessee lease liabilities that are made as a direct consequence of IBOR reform, and on an economically equivalent basis to be accounted for by updating the effective interest rate prospectively with no immediate gain or loss recognition. The amendments also provide temporary relief that allows for hedging relationships to continue upon the replacement of an existing interest rate benchmark with an alternative rate under certain qualifying conditions, including the amendment of the hedge designation and documentation to reflect the new rate without discontinuing the hedge relationship and provide relief in establishing new hedging relationships based upon alternative rates. The amendments also provide temporary relief that allows entities to designate an alternative rate as a risk component to hedge provided that the entity reasonably expects that the alternative rate will become separately identifiable within 24 months of its first designation. Further relief is also provided for cash flow hedges, where the amounts accumulated in the cash flow reserve are deemed to be based on the alternative rates on which the hedged future cash flows are determined. As a result of the adoption of the Phase 2 amendments, we have provided additional disclosures related to our exposures to significant benchmark rates subject to the reform below. The IASB had previously issued “Interest Rate Benchmark Reform: Amendments to IFRS 9, IAS 39 and IFRS 7” (Phase 1 amendments) in September 2019. The Phase 1 amendments provide temporary relief for specific hedge accounting requirements to address uncertainties in the period prior to replacement of IBORs, and provide specific disclosure requirements for the affected hedging relationships. These amendments allow for hedge accounting to continue before the replacement of existing interest rate benchmark with an alternative rate, and provide an exemption from the requirement to discontinue hedge accounting if a hedge relationship does not meet the hedge effectiveness requirements solely as a result of IBOR transition. The application of this relief will end at the earlier of the discontinuation of the impacted hedge relationship and when the uncertainty arising from the reform is no longer present with respect to the timing and amount of cash flows of the hedged item and hedging instrument, which is expected to occur on the cessation date of the relevant LIBOR rate. We adopted the Phase 1 amendments effective November 1, 2019. As IBORs are widely referenced by large volumes of derivative, loan and cash products, the transition presents a number of risks to us, and the industry as a whole. These transition risks include market risk (as new basis risks emerge), model risk, operational risk (as processes are changed or newly introduced), legal risk (as contracts are revised) and conduct risk (in ensuring clients are adequately informed/prepared). In response to the proposed reforms to interest rate benchmarks, we have established an Enterprise IBOR Transition Program (Program), which is supported by a formal governance structure and dedicated working groups that include stakeholders from frontline businesses as well as functional groups such as Treasury, Technology and Operations, Risk Management, Legal and Finance, to manage and coordinate all aspects of the transition, including the identification and mitigation of the risks. An IBOR Steering Committee has been established with responsibility for oversight and execution of the Program. The IBOR Steering Committee manages the impact of the transition risks through appropriate mitigating actions. We also continue to engage with industry associations to incorporate recent developments into our project plan. The Program provides regular updates to the senior management including the Executive Committee, and the Board of Directors. CIBC 2021 ANNUAL REPORT 133 Consolidated financial statements As a part of the Program, we are transitioning our existing IBOR based contracts to those that reference the new alternative rates, and have developed business processes to support the transition. We are on track to substantially complete the remediation of our non-USD LIBOR referenced contracts by incorporating appropriate fallback language or by replacing the LIBOR referenced rates to the corresponding alternative rates with appropriate spread adjustments. We have ceased the issuance of GBP and JPY LIBOR linked products earlier this year, and expect to cease origination of new USD LIBOR products by the end of calendar year 2021 in a manner consistent with regulatory expectations. We are also working with clearing houses to transition our existing non-USD LIBOR referenced derivatives cleared by them to alternative rates, which is expected to occur in December 2021. We have also started to offer products based upon alternative rates to our clients, and have continued to make information available to them, advising on developments on IBOR transition. The following table presents the approximate notional amounts of our derivatives and the gross outstanding balances of our non-derivative financial assets and financial liabilities that are indexed to USD LIBOR, GBP LIBOR and other benchmark rates with a maturity date beyond June 30, 2023 for USD LIBOR, and December 31, 2021 for other benchmark rates expected to be affected by IBOR reform. Notional/gross outstanding amounts (1)(2)(3) October 31, 2021 November 1, 2020 (4) (billions of Canadian dollars) USD LIBOR GBP LIBOR Others (5) USD LIBOR GBP LIBOR Others (5) Maturing after June 2023 Maturing after December 2021 Maturing after June 2023 Maturing after December 2021 Non-derivative financial assets Securities Loans Non-derivative financial liabilities Secured borrowing deposits and subordinated indebtedness Other deposits Derivatives $ 1.6 36.9 38.5 0.1 1.0 1.1 735.7 $ – $ – 2.3 2.3 1.1 – 1.1 89.9 – – – – – 36.8 $ 1.9 21.2 23.1 0.1 1.0 1.1 478.5 $ – $ – 2.4 2.4 1.1 – 1.1 70.4 – – – – – 33.4 (1) Excludes financial instruments which reference rates in multi-rate jurisdictions, including Canadian Dollar Offered Rate (CDOR), Euro Interbank Offered Rate (EURIBOR) and Australian Bank Bill Swap Rate. While the 6-month and 12-month tenors of CDOR discontinued on May 17, 2021, we did not hold material positions referencing these tenors as at November 1, 2020. Other tenors of CDOR are expected to continue. (2) The table excludes undrawn loan commitments. As at October 31, 2021, the total outstanding undrawn loan commitments that are potentially subject to the transition are estimated to be $47.9 billion (November 1, 2020: $27.7 billion) which can be drawn in USD LIBOR and have a maturity date beyond June 30, 2023 and $1.4 billion (November 1, 2020: $1.0 billion) which can be drawn in GBP LIBOR and have a maturity date beyond December 31, 2021. (3) For cross-currency swaps for which both legs reference benchmark rates that are subject to transition, the relevant notional amount for each leg has been included in the table above. (4) Certain prior period amounts were restated. (5) Includes exposures indexed to JPY LIBOR, CHF LIBOR and EUR LIBOR. International Financial Reporting Interpretations Committee 23 “Uncertainty over Income Tax Treatments” (IFRIC 23) CIBC adopted IFRIC 23 as at November 1, 2019. IFRIC 23 clarifies the accounting for uncertainties in income taxes. There was no impact to our consolidated financial statements and no changes in our accounting policies as a result of adopting IFRIC 23. Conceptual Framework for Financial Reporting (Conceptual Framework) The Conceptual Framework sets out the fundamental concepts that underlie the preparation and presentation of financial statements and serves to guide the IASB in developing IFRS standards. The Conceptual Framework is effective for annual periods beginning on or after January 1, 2020. As a result, CIBC adopted the Conceptual Framework as at November 1, 2020. There was no impact to our consolidated financial statements and no changes in our accounting policies as a result of adopting the Conceptual Framework. 134 CIBC 2021 ANNUAL REPORT Consolidated financial statements Note 2 Impact of COVID-19 Progress towards containing outbreaks of the COVID-19 pandemic through vaccination campaigns and less restrictive public health measures provided an improving economic backdrop for CIBC. However, the pandemic, fueled by more contagious variants, continues to pose a risk to the recovery. As a result, we continue to operate in an uncertain environment. This gives rise to heightened uncertainty as it relates to our critical accounting estimates and increases the need to apply judgment in evaluating the economic and market environment and its impact on significant estimates. This particularly impacts estimates relating to the allowance for credit losses. See Note 6 for more information. A summary of significant accounting policies is presented in Note 1 to the consolidated financial statements. Changes in the judgments and estimates required in the critical accounting policies discussed below could have a material impact on our financial results. We have established control procedures to ensure accounting policies are applied consistently and processes for changing methodologies are well controlled. Government lending programs in response to COVID-19 At the onset of the COVID-19 pandemic, the Government of Canada introduced the Canada Emergency Business Account (CEBA) program and a number of lending programs to improve access to credit and financing for Canadian businesses facing operational cash flow and liquidity challenges. In addition, the U.S. federal government introduced the Paycheck Protection Program (PPP) under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). Further details about the programs in which we have more significant participation, and the associated accounting impacts, are described below. Canada Emergency Business Account program The purpose of the CEBA program is to provide interest-free, partially forgivable loans of up to $60,000 to qualifying small businesses and not-for- profit organizations to help cover their operating costs during a period when their revenues have been temporarily reduced. The CEBA program is underwritten by Export Development Canada (EDC) and was available to borrowers until June 30, 2021. The program utilized the infrastructure of eligible financial institutions, including CIBC, to provide loans that were partially forgivable to existing clients of these financial institutions, including CIBC, that met the underwriting standards of EDC. Loans advanced under the CEBA program are not recognized on our consolidated balance sheet because they are funded by EDC and all of the resulting cash flows and associated risks and rewards, including any exposure to payment defaults and principal forgiveness, are assumed by EDC. EDC provides a fee to participating financial institutions which is intended to reimburse the costs associated with administering the loans, which we recognized as a reduction of other non-interest expenses. The CEBA program was launched in the second quarter of 2020 and expanded subsequently to facilitate the application of the program to certain borrowers that would not have otherwise qualified. As at October 31, 2021, loans of $4.5 billion (2020: $2.9 billion), net of repayments, had been provided to CIBC clients under the CEBA program, and the program is now closed to new applicants, although we continue to facilitate this program. EDC-guaranteed loans and Highly Affected Sectors Credit Availability Program (HASCAP) for small and medium-sized enterprises Both of these programs are designed to encourage lending to existing clients. Under the EDC-guaranteed loan program, EDC guarantees 80% of new qualifying operating credit and cash flow term loans of up to $6.25 million to small and medium-sized enterprises. Under HASCAP, Business Development Bank of Canada (BDC) guarantees 100% of new qualifying term loans for amounts ranging from $25,000 to $1 million. Loans provided under both programs are recognized on our consolidated balance sheet as business and government loans classified at amortized cost. Similar to existing guarantee arrangements, the guarantee from EDC and BDC on these loans is reflected in our estimate of ECL. Associated fees paid or received under these programs are accounted for over the expected life of the loan using the effective interest rate method. As at October 31, 2021, $293 million (2020: $252 million) of loans have been authorized under these programs, of which $246 million (2020: $175 million), net of repayments, was outstanding on our consolidated balance sheet. Co-lending program for small and medium-sized enterprises (co-lend program) Under the co-lend program, the BDC and participating financial institutions co-lend term loans to help qualifying businesses meet their operational cash flow requirements. BDC finances 80% of the loans, with CIBC financing the remaining 20%. The program offers differing maximum financing amounts based on business revenues. Loans originated under this program are interest-only for the first 12 months. We recognize our 20% interest in loans originated under this program on our consolidated balance sheet as business and government loans classified at amortized cost, to which ECL are applied. The remaining 80% interest financed by BDC is not recognized on our consolidated balance sheet as the risks and rewards, including all interest and credit losses, are passed to BDC. The servicing fee paid by BDC to CIBC for administering their share of the loans is recognized over the servicing period. As at October 31, 2021, $380 million (2020: $368 million) of loans have been authorized under this program, of which $73 million (2020: $73 million), representing CIBC’s 20% pro-rata share, remains outstanding on our consolidated balance sheet. Paycheck Protection Program In the U.S., the PPP was temporarily added to the U.S. Small Business Administration’s (SBA) Loan Program, under the U.S. federal government’s CARES Act, to help businesses to keep their workforces employed during the COVID-19 pandemic. The PPP ended on May 31, 2021 for new loan applications. Loans provided under the PPP are forgivable by the SBA if employee and compensation levels are maintained, and the loan proceeds are primarily applied towards payroll, rent, mortgage interest, or utilities. The SBA reimburses CIBC for all loans forgiven pursuant to the program and for all payment defaults. Loans originated under the PPP are recognized on our consolidated balance sheet as business and government loans classified at amortized cost. As the SBA’s guarantee is integral to the origination of these loans, it is reflected in our estimate of the ECL associated with these loans. As at October 31, 2021, the outstanding balance of loans provided to our clients under this program was US$0.5 billion (2020: US$1.9 billion). CIBC 2021 ANNUAL REPORT 135 Consolidated financial statements Note 3 Fair value measurement This note presents the fair values of financial instruments and explains how we determine those values. Note 1, “Basis of preparation and summary of significant accounting policies”, sets out the accounting treatment for each measurement category of financial instruments. Fair value is defined as the price that would be received to sell an asset, or paid to transfer a liability, between market participants in an orderly transaction in the principal market at the measurement date under current market conditions (i.e., the exit price). The determination of fair value requires judgment and is based on market information, where available and appropriate. Fair value measurements are categorized into three levels within a fair value hierarchy (Level 1, 2 or 3) based on the valuation inputs used in measuring the fair value, as outlined below.  Level 1 – Unadjusted quoted market prices in active markets for identical assets or liabilities we can access at the measurement date. Bid prices, ask prices or prices within the bid and ask, which are the most representative of the fair value, are used as appropriate to measure fair value. Fair value is best evidenced by an independent quoted market price for the same instrument in an active market. An active market is one where transactions are occurring with sufficient frequency and volume to provide quoted prices on an ongoing basis. Level 2 – Quoted prices for identical assets or liabilities in markets that are inactive or observable market quotes for similar instruments, or use of valuation techniques where all significant inputs are observable. Inactive markets may be characterized by a significant decline in the volume and level of observed trading activity or through large or erratic bid/offer spreads. In instances where traded markets do not exist or are not considered sufficiently active, we measure fair value using valuation models. Level 3 – Non-observable or indicative prices or use of valuation techniques where one or more significant inputs are non-observable.   For a significant portion of our financial instruments, quoted market prices are not available because of the lack of traded markets, and even where such markets do exist, they may not be considered sufficiently active to be used as a final determinant of fair value. When quoted market prices in active markets are not available, we would consider using valuation models. The valuation model and technique we select maximizes the use of observable market inputs to the extent possible and appropriate in order to estimate the price at which an orderly transaction would take place at the measurement date. In an inactive market, we consider all reasonably available information, including any available pricing for similar instruments, recent arm’s-length market transactions, any relevant observable market inputs, indicative dealer or broker quotations, and our own internal model-based estimates. Valuation adjustments are an integral component of our fair valuation process. We apply judgment in establishing valuation adjustments that take into account various factors that may have an impact on the valuation. Such factors primarily include, but are not limited to, the bid-offer spreads, illiquidity due to lack of market depth, parameter uncertainty and other market risk, model risk and credit risk of our derivative assets and liabilities, as well as adjustments for valuing our uncollateralized derivative assets and liabilities based on an estimated market cost of funds curve. Generally, the unit of account for a financial instrument is the individual instrument, and valuation adjustments are applied at an individual instrument level, consistent with that unit of account. In cases where we manage a group of financial assets and liabilities that consist of substantially similar and offsetting risk exposures, the fair value of the group of financial assets and liabilities is measured on the basis of the net open risks. We apply judgment in determining the most appropriate inputs and the weighting we ascribe to each such input as well as in our selection of valuation methodologies. Regardless of the valuation technique we use, we incorporate assumptions that we believe market participants would make for credit, funding, and liquidity considerations. When the fair value of a financial instrument at inception is determined using a valuation technique that incorporates one or more significant inputs that are non-observable, no inception profit or loss (the difference between the determined fair value and the transaction price) is recognized at the time the asset or liability is initially recorded. Any gains or losses at inception are deferred and recognized only in future periods over the term of the instruments or when the inputs become significantly observable. We have an ongoing process for evaluating and enhancing our valuation techniques and models. Where enhancements are made, they are applied prospectively, so that fair values reported in prior periods are not recalculated on the new basis. Valuation models used, including analytics for the construction of yield curves and volatility surfaces, are vetted and approved, consistent with our model risk policy. To ensure that valuations are appropriate, we have established internal guidance on fair value measurement, which is reviewed periodically in recognition of the dynamic nature of markets and the constantly evolving pricing practices in the market. A number of policies and controls are put in place to ensure that the internal guidance on fair value measurement is being applied consistently and appropriately, including independent validation of valuation inputs to external sources such as exchange quotes, broker quotes or other management-approved independent pricing sources. Key model inputs, such as yield curves and volatilities, are independently verified. The results from the independent price validation and any valuation adjustments are reviewed by the Independent Price Verification Committee on a monthly basis. This includes, but is not limited to, reviewing fair value adjustments and methodologies, independent price verification results, limits and valuation uncertainty. Due to the judgment used in applying a wide variety of acceptable valuation techniques and models, as well as the use of estimates inherent in this process, estimates of fair value for the same or similar assets may differ among financial institutions. The calculation of fair value is based on market conditions as at each consolidated balance sheet date and may not be reflective of ultimate realizable value. Methods and assumptions Financial instruments with fair value equal to carrying value For financial instruments that are not carried on the consolidated balance sheet at fair value and where we consider the carrying value to be a reasonable approximation of fair value due to their short-term nature and generally negligible credit risk, the fair values disclosed for these financial instruments are assumed to equal their carrying values. These financial instruments are: cash and non-interest-bearing deposits with banks; short- term interest-bearing deposits with banks; cash collateral on securities borrowed; securities purchased under resale agreements; customers’ liability under acceptances; cash collateral on securities lent; obligations related to securities sold under repurchase agreements; acceptances; deposits with demand features; and certain other financial assets and liabilities. Securities The fair value of debt or equity securities and obligations related to securities sold short is based on quoted bid or ask market prices where available in an active market. Securities for which quotes in an active market are not available are valued using all reasonably available market information as described below. The fair value of government issued or guaranteed securities that are not traded in an active market is calculated by applying valuation techniques such as discounted cash flow models using implied yields derived from the prices of actively traded government securities and most recently observable spread differentials. The fair value of corporate debt securities is determined using the most recently executed transaction prices, and where appropriate, adjusted to the price of these securities obtained from independent dealers, brokers, and third-party multi-contributor consensus pricing sources. When observable price quotations are not available, fair value is determined based on discounted cash flow models using observable discounting curves 136 CIBC 2021 ANNUAL REPORT Consolidated financial statements such as benchmark and government yield curves and spread differentials observed through independent dealers, brokers, and third-party multi- contributor consensus pricing sources. Asset-backed securities (ABS) and mortgage-backed securities (MBS) not issued or guaranteed by a government are valued using discounted cash flow models making maximum use of market observable inputs, such as broker quotes on identical or similar securities and other pricing information obtained from third-party pricing sources adjusted for the characteristics and the performance of the underlying collateral. Other key inputs used include prepayment and liquidation rates, credit spreads, and discount rates commensurate with the risks involved. These assumptions factor in information that is derived from actual transactions, underlying reference asset performance, external market research, and market indices, where appropriate. Privately issued debt and equity securities, which include certain Community Reinvestment Act equity investments and Federal Home Loan Bank (FHLB) stock, are valued using recent market transactions, where available. Otherwise, fair values are derived from valuation models using a market or income approach. These models consider various factors, including projected cash flows, earnings, revenue or other third-party evidence as available. The fair value of limited partnership investments is based upon net asset values published by third-party fund managers and is adjusted for more recent information, where available and appropriate. The carrying value of Community Reinvestment Act equity investments and FHLB stock approximates fair value. Loans The fair value of variable-rate loans and loans for which interest rates are repriced or reset frequently is assumed to be equal to their carrying value. The fair value for fixed-rate loans is estimated using a discounted cash flow calculation that uses market interest rates. The ultimate fair value of loans disclosed is net of the associated allowance for credit losses. The fair value of loans is not adjusted for the value of any credit derivatives used to manage the credit risk associated with them. The fair value of these credit derivatives is disclosed separately. Other assets and other liabilities Other assets and other liabilities mainly comprise accrued interest receivable or payable, brokers’ client accounts receivable or payable, precious metals and accounts receivable or payable. The fair values of other assets and other liabilities are primarily assumed to be at cost or amortized cost as we consider the carrying value to be a reasonable approximation of fair value, except for the fair value of precious metals, which is quoted in an active market. Other assets also include investment in bank-owned life insurance carried at the cash surrender value, which is assumed to be a reasonable approximation of fair value. Deposits The fair values of floating-rate deposits and demand deposits are assumed to be equal to their amortized cost. The fair value of fixed-rate deposits is determined by discounting the contractual cash flows using either current market interest rates with similar remaining terms or rates estimated using internal models and broker quotes. The fair value of deposit notes issued to CIBC Capital Trust is determined by reference to the quoted market prices of CIBC Tier 1 Notes – Series B issued by CIBC Capital Trust. The fair value of deposit liabilities with embedded optionality includes the fair value of those options. The fair value of equity- and commodity-linked notes includes the fair value of embedded equity and commodity derivatives. Certain deposits designated at FVTPL are structured notes that have coupons or repayment terms linked to the performance of commodities, debt or equity securities. The fair value of these structured notes is estimated using internally vetted valuation models for the debt and embedded derivative portions of the notes by incorporating market observable prices of the referenced securities or comparable securities, and other inputs such as interest rate yield curves, equity prices or indices, market volatility levels, foreign exchange rates and changes in our own credit risk, where appropriate. Where observable prices or inputs are not available, management judgment is required to determine fair values by assessing other relevant sources of information such as historical data, proxy information from similar transactions, and through extrapolation and interpolation techniques. Appropriate market risk valuation adjustments for such inputs are assessed in all such instances. The fair value of secured borrowings, which comprises liabilities issued by or as a result of activities associated with the securitization of residential mortgages, the Covered Bond Programme, and consolidated securitization vehicles, is based on identical or proxy market observable quoted bond prices or determined by discounting the contractual cash flows using maximum market observable inputs, such as market interest rates, or credit spreads implied by debt instruments of similar credit quality, as appropriate. Subordinated indebtedness The fair value of subordinated indebtedness is determined by reference to market prices for the same or similar debt instruments. Derivative instruments The fair value of exchange-traded derivatives such as options and futures is based on quoted market prices. OTC derivatives primarily consist of interest rate swaps, foreign exchange forwards, equity and commodity derivatives, interest rate and currency derivatives, and credit derivatives. For such instruments, where quoted market prices or third-party consensus pricing information are not available, valuation techniques are employed to estimate fair value on the basis of pricing models. Such vetted pricing models incorporate current market measures for interest rates, foreign exchange rates, equity and commodity prices and indices, credit spreads, corresponding market volatility levels, and other market-based pricing factors. In order to reflect the observed market practice of pricing collateralized and uncollateralized derivatives, our valuation approach uses overnight indexed swap (OIS) curves as the discount rate for valuing collateralized derivatives and uses an estimated market cost of funds curve as the discount rate for valuing uncollateralized derivatives. For most collateralized derivatives that are cleared through central clearing houses, changes to market discounting conventions were implemented in 2020 to support the global market efforts to transition IBOR to the new benchmark rates. Certain centrally cleared collateralized derivatives have transitioned to the use of the new benchmark replacement rates as the overnight index discount rates, including USD derivatives cleared through London Clearing House (LCH) or Chicago Mercantile Exchange (CME), which have transitioned their discounting from the US Fed Funds rate to the SOFR. Uncollateralized derivatives are valued based on an estimated market cost of funds curve, which reduces the fair value of uncollateralized derivative assets incremental to the reduction in fair value for credit risk already reflected through the credit valuation adjustment (CVA). In contrast, the use of a market cost of funds curve reduces the fair value of uncollateralized derivative liabilities in a manner that generally includes adjustments for our own credit. As market practices continue to evolve in regard to derivative valuation, further adjustments may be required in the future. In determining the fair value of complex and customized derivatives, such as equity, credit, and commodity derivatives written in reference to indices or baskets of reference, we consider all reasonably available information including any relevant observable market inputs, third-party consensus pricing inputs, indicative dealer and broker quotations, and our own internal model-based estimates, which are vetted and pre-approved in accordance with our model risk policy, and are regularly and periodically calibrated. The model calculates fair value based on inputs specific to the type of contract, which may include stock prices, correlation for multiple assets, interest rates, foreign exchange rates, yield curves, and volatility surfaces. Where observable prices or inputs are not available, management judgment is required to determine fair values by assessing other CIBC 2021 ANNUAL REPORT 137 Consolidated financial statements relevant sources of information such as historical data, proxy information from similar transactions, and through extrapolation and interpolation techniques. Appropriate parameter uncertainty and market risk valuation adjustments for such inputs and other model risk valuation adjustments are assessed in all such instances. In addition to reflecting estimated market funding costs in our valuation of uncollateralized derivative receivables, we also consider whether a CVA is required to recognize the risk that any given derivative counterparty may not ultimately be able to fulfill its obligations. The CVA is driven off market-observed credit spreads or proxy credit spreads and our assessment of the net counterparty credit risk (CCR) exposure. In assessing this exposure, we also take into account credit mitigants such as collateral, master netting arrangements, and settlements through clearing houses. As noted above, the fair value of uncollateralized derivative liabilities based on market cost of funding generally includes adjustments for our own credit. Mortgage commitments The fair value of mortgage commitments designated at FVTPL is for fixed-rate residential mortgage commitments and is based on changes in market interest rates for the loans between the commitment and the consolidated balance sheet dates. The valuation model takes into account the expected probability that outstanding commitments will be exercised as well as the length of time the commitment is offered. Fair value of financial instruments $ millions, as at October 31 2021 Financial assets Carrying value Amortized cost Mandatorily measured at FVTPL Designated at FVTPL Fair value through OCI Cash and deposits with banks Securities Cash collateral on securities borrowed Securities purchased under resale agreements Loans $ 56,701 $ 35,159 12,368 60,482 296 72,192 – 7,090 $ – $ 53 – – – – – 332 – – – 251,230 41,129 10,509 123,054 – 10,958 21,054 16 – – 25,651 35,912 – – $ 205,461 $ 334,632 20,246 41,539 – 10,961 – 2,463 – – – – 32,101 – 22,790 – $ 8,471 $ 9,756 – 1,053 – – – – 67,905 16,854 5,539 – 113 – 3,975 51 – $ – $ 117 – – – – – 357 – – – 220,739 41,390 10,722 110,220 – 9,606 15,940 63 – – 23,291 32,730 – – $ 199,593 $ 301,546 17,011 39,560 – 9,649 – 1,824 – – – – 30,508 – 15,963 – $ 2,559 $ 9,880 – 591 – – – – 54,617 15,282 5,712 – 133 – 17,036 9 – – 53,997 – – – – – – – – – – – – – – – – – – – – – 54,553 – – – – – – – – – – – – – – – – – – – – Total $ 56,997 $ 161,401 12,368 67,572 251,246 41,129 10,509 149,037 35,912 10,958 21,054 Fair value Fair value over (under) carrying value 56,997 161,712 12,368 67,572 249,786 41,114 10,509 148,960 35,912 10,958 21,054 $ – 311 – – (1,460) (15) – (77) – – – $ 213,932 $ 213,949 345,533 20,246 42,838 32,101 10,961 22,790 2,463 344,388 20,246 42,592 32,101 10,961 22,790 2,463 71,880 17,018 5,539 $ 62,518 $ 149,046 8,547 65,595 220,802 41,390 10,722 133,868 32,730 9,606 15,940 71,880 17,018 5,820 62,518 149,599 8,547 65,595 222,920 41,452 10,722 134,097 32,730 9,606 15,940 $ 202,152 $ 202,345 312,279 17,011 40,586 30,508 9,649 15,963 1,824 311,426 17,011 40,151 30,508 9,649 15,963 1,824 71,653 15,424 5,712 71,653 15,424 5,993 $ $ $ 17 1,145 – 246 – – – – – – 281 – 553 – – 2,118 62 – 229 – – – 193 853 – 435 – – – – – – 281 Residential mortgages Personal Credit card Business and government Derivative instruments Customers’ liability under acceptances Other assets Financial liabilities Deposits Personal Business and government Bank Secured borrowings Derivative instruments Acceptances Obligations related to securities sold short Cash collateral on securities lent Obligations related to securities sold under repurchase agreements Other liabilities Subordinated indebtedness Residential mortgages Personal Credit card Business and government Derivative instruments Customers’ liability under acceptances Other assets Financial liabilities Deposits Personal Business and government Bank Secured borrowings Derivative instruments Acceptances Obligations related to securities sold short Cash collateral on securities lent Obligations related to securities sold under repurchase agreements (1) Other liabilities Subordinated indebtedness 2020 Financial assets Cash and deposits with banks Securities Cash collateral on securities borrowed Securities purchased under resale agreements Loans $ 61,570 $ 31,800 8,547 58,090 948 62,576 – 7,505 (1) Includes obligations related to securities sold under repurchase agreements supported by bearer deposit notes that are pledged as collateral under the Bank of Canada Term Repo Facility. 138 CIBC 2021 ANNUAL REPORT Consolidated financial statements Fair value of derivative instruments $ millions, as at October 31 Held for trading Interest rate derivatives Over-the-counter – Forward rate agreements – Swap contracts – Purchased options – Written options $ Exchange-traded – Purchased options Total interest rate derivatives Foreign exchange derivatives Over-the-counter – Forward contracts – Swap contracts – Purchased options – Written options Total foreign exchange derivatives Credit derivatives Over-the-counter – Credit default swap contracts – protection purchased – Credit default swap contracts – protection sold Total credit derivatives Equity derivatives Over-the-counter Exchange-traded Total equity derivatives Precious metal derivatives Over-the-counter Total precious metal derivatives Other commodity derivatives Over-the-counter Exchange-traded Total other commodity derivatives Total held for trading Held for ALM Interest rate derivatives Over-the-counter – Forward rate agreements – Swap contracts – Purchased options – Written options Total interest rate derivatives Foreign exchange derivatives Over-the-counter – Forward contracts – Swap contracts Total foreign exchange derivatives – Credit default swap contracts – protection purchased Credit derivatives Over-the-counter Total credit derivatives Equity derivatives Over-the-counter Total equity derivatives Other commodity derivatives Over-the-counter Total other commodity derivatives Total held for ALM Total fair value Less: effect of netting Positive Negative $ 127 8,365 101 – 8,593 3 3 $ 79 7,928 – 177 8,184 – – 2021 Net 48 437 101 (177) 409 3 3 Positive Negative $ $ 108 12,296 109 – 12,513 4 4 $ 161 9,309 – 129 9,599 – – 2020 Net (53) 2,987 109 (129) 2,914 4 4 8,596 8,184 412 12,517 9,599 2,918 5,373 5,214 293 – 10,880 50 3 53 1,842 4,650 6,492 132 132 8,151 343 8,494 5,555 3,600 – 203 9,358 58 45 103 5,356 3,422 8,778 147 147 2,348 1,122 3,470 34,647 30,040 148 236 6 – 390 22 805 827 – – 48 48 – – 37 341 – – 378 40 1,641 1,681 1 1 1 1 – – (182) 1,614 293 (203) 1,522 (8) (42) (50) (3,514) 1,228 (2,286) (15) (15) 5,803 (779) 5,024 4,607 111 (105) 6 – 12 (18) (836) (854) (1) (1) 47 47 – – 6,655 3,469 303 – 6,358 3,613 – 214 10,427 10,185 104 2 106 1,995 3,153 5,148 283 283 2,604 271 2,875 47 100 147 3,427 3,537 6,964 366 366 1,806 325 2,131 297 (144) 303 (214) 242 57 (98) (41) (1,432) (384) (1,816) (83) (83) 798 (54) 744 31,356 29,392 1,964 – 310 17 1 328 14 1,021 1,035 – – 8 8 3 3 1 392 – – 393 14 684 698 1 1 24 24 – – (1) (82) 17 1 (65) – 337 337 (1) (1) (16) (16) 3 3 258 2,222 – 1,265 35,912 (16,585) 2,061 32,101 (16,585) (796) 3,811 – 1,374 1,116 32,730 (19,347) 30,508 (19,347) $ 19,327 $ 15,516 $ 3,811 $ 13,383 $ 11,161 $ 2,222 CIBC 2021 ANNUAL REPORT 139 Consolidated financial statements Assets and liabilities not carried on the consolidated balance sheet at fair value The table below presents the fair values by level within the fair value hierarchy for those assets and liabilities in which fair value is not assumed to equal the carrying value: $ millions, as at October 31 Financial assets Amortized cost securities Loans Residential mortgages Personal Credit card Business and government Investment in equity-accounted associates (1) Financial liabilities Deposits Personal Business and government Bank Secured borrowings Subordinated indebtedness Level 1 Level 2 Level 3 Quoted market price Valuation technique – observable market inputs Valuation technique – non-observable market inputs 2021 2020 2021 2020 2021 2020 Total 2021 Total 2020 $ – $ – $ 34,878 $ 31,773 $ 592 $ 580 $ 35,470 $ 32,353 – – – – – $ $ – – – – – – – – – 10 – – – – – – – – – – – – – – – 249,770 41,114 10,509 122,977 89 222,857 41,452 10,722 110,449 83 249,770 41,114 10,509 122,977 89 222,857 41,452 10,722 110,449 93 $ 42,015 $ 146,442 9,751 40,050 5,820 52,648 132,016 10,048 38,275 5,993 $ $ 1,107 2,222 – 1,735 – 1,282 2,302 – 1,720 – $ 43,122 $ 148,664 9,751 41,785 5,820 53,930 134,318 10,048 39,995 5,993 (1) See Note 26 for details of our equity-accounted associates. Financial instruments carried on the consolidated balance sheet at fair value The table below presents the fair values of financial instruments by level within the fair value hierarchy: $ millions, as at October 31 Financial assets Deposits with banks Securities mandatorily measured and designated at FVTPL Government issued or guaranteed Corporate equity Corporate debt Mortgage- and asset-backed Loans mandatorily measured at FVTPL Business and government Residential mortgages Debt securities measured at FVOCI Government issued or guaranteed Corporate debt Mortgage- and asset-backed Equity securities designated at FVOCI Corporate equity Securities purchased under resale agreements measured at FVTPL Derivative instruments Interest rate Foreign exchange Credit Equity Precious metal Other commodity Total financial assets Financial liabilities Deposits and other liabilities (4) Obligations related to securities sold short Obligations related to securities sold under repurchase agreements Derivative instruments Interest rate Foreign exchange Credit Equity Precious metal Other commodity Total financial liabilities $ $ $ Level 1 Level 2 Level 3 Quoted market price Valuation technique – observable market inputs 2021 2020 2021 2020 Valuation technique – non-observable market inputs 2020 2021 Total 2021 Total 2020 $ – $ – $ 296 $ 948 $ – $ – $ 296 $ 948 3,015 37,981 – – 40,996 – – – 5,309 – – 5,309 125 125 – 3,917 27,919 – – 31,836 – – – 3,912 – – 3,912 41 41 – 24,737 (1) 219 3,997 2,235 (2) 31,188 25,091 (1) 47 3,525 2,018 (2) 30,681 24,945 16 24,961 38,122 7,833 1,897 47,852 319 319 23,022 63 23,085 41,269 6,224 2,563 50,056 304 304 7,090 7,505 3 – – 4,650 – 343 4,996 4 – – 3,153 – 271 3,428 51,426 $ 39,217 8,948 11,707 4 1,877 132 8,151 30,819 12,793 11,462 8 1,791 283 2,607 28,944 $ 142,525 $ 141,523 – $ (11,226) – (5,363) $ (18,702) $ (11,564) (13,176) (10,600) $ $ – 4 2 55 61 1,038 (3) – 1,038 – – – – 392 392 – 35 – 49 13 – – 97 1,588 – 16 25 135 176 626 (3) – 626 – – – – 240 240 – 48 – 98 212 – – 358 $ 1,400 (742) – $ – – (3,975) (17,036) – – – – (3,422) – (1,122) (4,544) (15,770) $ – – – (3,537) – (325) (3,862) (9,225) $ (8,426) (11,039) (50) (5,280) (147) (2,348) (27,290) (61,531) $ (9,964) (10,883) (41) (3,288) (366) (1,806) (26,348) (67,160) (136) – (54) (77) – – (267) (1,009) $ $ 4 – – (28) – (107) (163) – – (298) (294) 27,752 38,204 3,999 2,290 72,245 25,983 16 25,999 43,431 7,833 1,897 53,161 836 836 29,008 27,982 3,550 2,153 62,693 23,648 63 23,711 45,181 6,224 2,563 53,968 585 585 7,090 7,505 8,986 11,707 53 6,540 132 8,494 35,912 12,845 11,462 106 5,156 283 2,878 32,730 $ 195,539 $ 182,140 $ (19,444) $ (22,790) (13,172) (15,963) (3,975) (17,036) (8,562) (11,039) (104) (8,779) (147) (3,470) (32,101) (78,310) $ (9,992) (10,883) (148) (6,988) (366) (2,131) (30,508) (76,679) $ (1) Includes $49 million related to securities designated at FVTPL (2020: $57 million). (2) Includes $4 million related to ABS designated at FVTPL (2020: $60 million). (3) Includes $332 million related to loans designated at FVTPL (2020: $357 million). (4) Comprises deposits designated at FVTPL of $18,530 million (2020: $13,419 million), net bifurcated embedded derivative liabilities of $750 million (2020: net bifurcated embedded derivative assets of $389 million), other liabilities designated at FVTPL of $51 million (2020: $9 million), and other financial liabilities measured at fair value of $113 million (2020: $133 million). 140 CIBC 2021 ANNUAL REPORT Consolidated financial statements Transfers between levels in the fair value hierarchy are deemed to have occurred at the beginning of the year in which the transfer occurred. Transfers between levels can occur as a result of additional or new information regarding valuation inputs and changes in their observability. During the year, we transferred $19 million of securities mandatorily measured at FVTPL (2020: $197 million) from Level 1 to Level 2 and $2 million (2020: nil) from Level 2 to Level 1, and nil of securities sold short (2020: $1,851 million) from Level 1 to Level 2 and nil of securities sold short (2020: nil) from Level 2 to Level 1 due to changes in the observability of the inputs used to value these securities. In addition, transfers between Level 2 and Level 3 were made during 2021 and 2020, primarily due to changes in the assessment of the observability of certain correlation, market volatility and probability inputs that were used in measuring the fair value of our fair value option liabilities and derivatives. The following table presents the changes in fair value of financial assets and liabilities in Level 3. These instruments are measured at fair value utilizing non-observable market inputs. We often hedge positions with offsetting positions that may be classified in a different level. As a result, the gains and losses for assets and liabilities in the Level 3 category presented in the table below do not reflect the effect of offsetting gains and losses on the related hedging instruments that are classified in Level 1 and Level 2. $ millions, for the year ended October 31 2021 Securities mandatorily measured and designated at FVTPL Corporate equity Corporate debt Mortgage- and asset-backed Loans mandatorily measured at FVTPL Business and government Equity securities designated at FVOCI Corporate equity Derivative instruments Interest rate Credit Equity Total assets Deposits and other liabilities (5) Derivative instruments Interest rate Credit Equity Total liabilities 2020 Securities mandatorily measured and designated at FVTPL Corporate equity Corporate debt Mortgage- and asset-backed Loans mandatorily measured at FVTPL Business and government Debt securities measured at FVOCI Corporate debt Equity securities designated at FVOCI Corporate equity Derivative instruments Interest rate Credit Equity Total assets Deposits and other liabilities (5) Derivative instruments Interest rate Credit Equity Total liabilities Net gains (losses) included in income (1) Opening balance Realized (2) Unrealized (2)(3) Net gains (losses) included in OCI (4) Transfer in to Level 3 Transfer out of Level 3 Purchases/ Issuances Sales/ Settlements Closing balance $ $ 16 25 135 626 240 48 98 212 $ – – – – – – (22) (3) $ 1,400 $ (25) $ 4 $ (340) $ $ (28) (107) (163) – 22 (41) (5) 13 – (3) – 1 (27) 2 (19) (541) (28) 34 (6) $ (294) $ (359) $ (541) $ $ 7 23 173 831 – 291 56 104 252 $ 1,737 $ (601) $ $ (1) (112) (155) $ (869) $ – – – – – – – (7) – (7) – – 7 – 7 $ $ $ (8) 2 – – – – 32 1 (40) (13) 512 (33) (2) 14 $ 491 $ $ $ $ $ $ $ $ – – – (51) 80 – – – 29 – – – – – – – – 3 (3) 63 – – – 63 – – – – _ $ $ $ – – – – – – – – – $ $ – – – – – (2) – (32) 23 2 44 556 137 3 – 10 $ (34) $ 775 (15) $ (14) $ (93) $ (30) $ (38) (124) 4 2 55 (90) 1,038 (65) 392 (15) – (176) 35 49 13 $ $ (538) $ 1,588 257 $ (742) (26) – – (6) – 58 (31) – (69) (17) (3) 144 (136) (54) (77) $ (41) $ 38 $ (193) $ 381 $ (1,009) $ 7 – – – 20 – – – – 27 $ – – – – – – – – – – $ $ $ $ $ 10 – 118 $ – – (156) 1,270 (1,478) 1 50 6 – 53 $ 1,508 (18) (164) (46) – (53) 16 25 135 626 – 240 48 98 212 (42) $ 29 $ (72) $ $ (1,915) $ 1,400 178 $ 4 – – – – – – – – (60) 6 – 38 (28) (107) (163) $ (42) $ 29 $ (132) $ 222 $ (294) (1) Cumulative AOCI gains or losses related to equity securities designated at FVOCI are reclassified from AOCI to retained earnings at the time of disposal or derecognition. (2) Includes foreign currency gains and losses related to debt securities measured at FVOCI. (3) Comprises unrealized gains and losses relating to these assets and liabilities held at the end of the reporting year. (4) Foreign exchange translation on loans mandatorily measured at FVTPL held by foreign operations and denominated in the same currency as the foreign operations is included in OCI. (5) Includes deposits designated at FVTPL of $90 million (2020: $137 million), net bifurcated embedded derivative liabilities of $601 million (2020: net bifurcated embedded derivative assets of $141 million) and other liabilities designated at FVTPL of $51 million (2020: nil). CIBC 2021 ANNUAL REPORT 141 Consolidated financial statements Quantitative information about significant non-observable inputs Valuation techniques using one or more non-observable inputs are used for a number of financial instruments. The following table discloses the valuation techniques and quantitative information about the significant non-observable inputs used in Level 3 financial instruments: $ millions, as at October 31 Securities mandatorily measured and designated at FVTPL Corporate equity and debt Mortgage- and asset-backed 2021 Valuation techniques Key non-observable inputs Low High Range of inputs $ 6 55 Earnings multiple Credit spread Market proxy or direct broker quote Market proxy or direct broker quote Valuation multiple Discounted cash flow 11.6 11.6 2.0 % 0.5 2.0 % 0.5 Equity securities designated at FVOCI Corporate equity Limited partnerships and private companies Loans mandatorily measured at FVTPL Business and government Derivative instruments Interest rate Credit Equity Total assets $ 392 Adjusted net asset value (1) Valuation multiple Proxy share price Net asset value (3) Earnings multiple Proxy share price n/a 8.6 x n/a n/a 10.6 x n/a 1,038 Discounted cash flow Credit spread 0.6 % 2.1 % 35 Proprietary model (2) n/a Market volatility Probability assumption 49 Market proxy or direct broker quote Market proxy or direct broker quote 13 Market correlation 1,588 Option model Option model n/a 47.1 % 100.0 % – % 33.9 % n/a 90.2 % 100.0 % 40.6 % 92.0 % Deposits and other liabilities Deposits designated at FVTPL and net bifurcated embedded derivative liabilities $ (691) Other liabilities designated at FVTPL (51) Option model Option model Market volatility Market correlation Funding ratio 9.0 % (18.0) % 32.7 % 18.6 % 100.0 % 32.7 % Derivative instruments Interest rate Credit Equity Total liabilities $ (136) Proprietary model (2) n/a Market volatility Probability assumption (54) Market proxy or direct broker quote Market proxy or direct broker quote (77) Market correlation (1,009) Option model Option model n/a 47.1 % 100.0 % – % 27.1 % n/a 90.3 % 100.0 % 40.6 % 97.8 % (1) Adjusted net asset value is determined using reported net asset values obtained from the fund manager or general partner of the limited partnership or the limited liability company and may be adjusted for current market levels where appropriate. (2) Using valuation techniques that we consider to be non-observable. (3) The range of net asset value price or proxy share price has not been disclosed due to the wide range and diverse nature of the investments. n/a Not applicable. Sensitivity of Level 3 financial assets and liabilities The following section describes the significant non-observable inputs identified in the table above, the interrelationships between those inputs, where applicable, and the change in fair value if changing one or more of the non-observable inputs within a reasonably possible range would impact the fair value significantly. The fair value of our limited partnerships is determined based on the net asset value provided by the fund managers, adjusted as appropriate. The fair value of limited partnerships is sensitive to changes in the net asset value, and by adjusting the net asset value within a reasonably possible range, the aggregate fair value of our limited partnerships would increase or decrease by $90 million (2020: $63 million). While our standalone derivatives are recorded as derivative assets or derivative liabilities, our derivatives embedded in our structured note deposit liabilities or deposit liabilities designated at FVTPL are recorded within deposits and other liabilities. The determination of the fair value of certain Level 3 embedded derivatives and certain standalone derivatives requires significant assumptions and judgment to be applied to both the inputs and the valuation techniques employed. These derivatives are sensitive to long-dated market volatility and correlation inputs, which we consider to be non- observable. Market volatility is a measure of the anticipated future variability of a market price and is an important input for pricing options, which are inherent in many of our Level 3 derivatives. A higher market volatility generally results in a higher option price, with all else held constant, due to the higher probability of obtaining a greater return from the option, and results in an increase in the fair value of our Level 3 derivatives. Correlation inputs are used to value those derivatives where the payout is dependent upon more than one market price. For example, the payout of an equity basket option is based upon the performance of a basket of stocks, and the interrelationships between the price movements of those stocks. A positive correlation implies that two inputs tend to change the fair value in the same direction, while a negative correlation implies that two inputs tend to change the fair value in the opposite direction. Changes in market correlation could result in an increase or a decrease in the fair value of our Level 3 derivatives and embedded derivatives. By adjusting the non-observable inputs by reasonably alternative amounts, the fair value of our net Level 3 standalone derivatives and embedded derivatives would increase by $95 million or decrease by $86 million (2020: increase by $84 million or decrease by $74 million). Financial instruments designated at FVTPL Financial assets designated at FVTPL include certain debt securities and loans that were designated at FVTPL on the basis of being managed together with derivatives to eliminate or significantly reduce financial risks. Deposits and other liabilities designated at FVTPL include:  Certain business and government deposit liabilities, certain secured borrowings and certain obligations related to securities sold under repurchase agreements that are economically hedged with derivatives and other financial instruments, and certain financial liabilities that have one or more embedded derivatives that significantly modify the cash flows of the host liability but are not bifurcated from the host instrument; and 142 CIBC 2021 ANNUAL REPORT Consolidated financial statements  Our mortgage commitments to retail clients to provide mortgages at fixed rates that are economically hedged with derivatives and other financial instruments. The carrying value of our securities designated at FVTPL represents our maximum exposure to credit risk related to these assets designated at FVTPL. The change in fair value attributable to change in credit risk of these assets designated at FVTPL during the year is insignificant (2020: insignificant). The fair value of a liability designated at FVTPL reflects the credit risk relating to that liability. For those liabilities designated at FVTPL for which we believe changes in our credit risk would impact the fair value from the note holders’ perspective, the related fair value changes were recognized in OCI. Changes in fair value attributable to changes in our own credit are measured as the difference between: (i) the period-over- period change in the present value of the expected cash flows using a discount curve adjusted for our own credit; and (ii) the period-over-period change in the present value of the same expected cash flows using a discount curve based on the benchmark curve adjusted for our own credit as implied at inception of the liability designated at FVTPL. The pre-tax impact of changes in CIBC’s own credit risk on our liabilities designated at FVTPL was gains of $16 million for the year and losses of $39 million cumulatively (2020: losses of $76 million for the year and losses of $55 million cumulatively). A net gain of $50 million, net of hedges (2020: a net gain of $60 million), was realized for assets designated at FVTPL and liabilities designated at FVTPL, which is included in the consolidated statement of income under Gains (losses) from financial instruments measured/ designated at FVTPL, net. The estimated contractual amount payable at maturity of deposits designated at FVTPL, which is based on the par value and the intrinsic value of the applicable embedded derivatives, is $872 million higher (2020: $786 million higher) than its fair value. The intrinsic value of the embedded derivatives reflects the structured payoff of certain FVO deposit liabilities, which we hedge economically with derivatives and other FVTPL financial instruments. Note 4 Significant transactions Acquisition of Canadian Costco credit card portfolio On September 2, 2021, we announced that we entered into a long-term agreement to become the exclusive issuer of Costco-branded Mastercard credit cards in Canada. We will also acquire the existing Canadian Costco credit card portfolio, which has over $3 billion in outstanding balances. This transaction is expected to be completed in the first half of fiscal 2022, subject to customary closing conditions. Sale of CIBC FirstCaribbean On November 8, 2019, we announced that we had entered into a definitive agreement to sell 66.73% of the outstanding shares of CIBC FirstCaribbean to GNB Financial Group Limited (GNB) for total consideration of approximately US$797 million, subject to closing adjustments to reflect certain changes in CIBC FirstCaribbean’s book value. The closing of this transaction would have resulted in CIBC retaining a 24.9% minority interest in CIBC FirstCaribbean. In the fourth quarter of 2019, we recognized a goodwill impairment charge of $135 million as a result of the valuation implied from the definitive agreement with GNB. Commencing in the first quarter of 2020, the assets and liabilities of CIBC FirstCaribbean were treated as held for sale, and measured at the lower of their aggregate carrying amount and fair value less costs to sell, on the basis that the transaction was highly probable to close in 2020 subject to regulatory approvals. In the second quarter of 2020, we recognized an additional goodwill impairment charge of $28 million based on the estimated impact of the COVID-19 pandemic on the recoverable value of the 24.9% interest in CIBC FirstCaribbean that we expected to retain. As a result of the lengthy regulatory review process, the worsening impact of the COVID-19 pandemic on the Caribbean economy and our revised expectations regarding the likelihood and timing of closing of a potential transaction, we concluded in the fourth quarter of 2020 that held for sale accounting was no longer appropriate. As a result, we were required to assess the recoverable amount of the remaining goodwill based on current market conditions rather than the definitive agreement with GNB. This assessment reflected revised expectations concerning the impact of the COVID-19 pandemic and led to the recognition of an additional goodwill impairment charge of $220 million. On February 3, 2021, we announced that the proposed sale of CIBC FirstCaribbean to GNB did not receive approval from CIBC FirstCaribbean’s regulators and that the transaction will not proceed. For additional information, see Note 9. Note 5 Securities Securities $ millions, as at October 31 Debt securities measured at FVOCI Equity securities designated at FVOCI Securities measured at amortized cost (1) Securities mandatorily measured and designated at FVTPL 2021 2020 $ 53,161 836 35,159 72,245 $ 161,401 $ 53,968 585 31,800 62,693 $ 149,046 (1) During the year, $39 million of amortized cost debt securities were disposed of shortly before their maturity, resulting in a realized gain of less than $1 million (2020: a realized gain of $2 million). CIBC 2021 ANNUAL REPORT 143 Consolidated financial statements $ millions, as at October 31 Within 1 year 1 to 5 years 5 to 10 years Over 10 years No specific maturity 2021 Total 2020 Total Carrying Carrying Carrying Carrying Carrying Carrying Carrying value Yield (1) value Yield (1) value Yield (1) value Yield (1) value Yield (1) value Yield (1) value Yield (1) Residual term to contractual maturity Debt securities measured at FVOCI Securities issued or guaranteed by: Canadian federal government Other Canadian governments U.S. Treasury and agencies Other foreign governments Mortgage-backed securities (2) Asset-backed securities Corporate debt $ 2,516 264 5,687 3,259 – – 1,765 $ 13,491 0.9 % $ 5,664 7,508 2.2 8,317 0.2 3,303 0.5 401 – – – 5,672 0.7 0.9 % $ 1.8 0.7 0.6 1.0 – 0.4 160 6,156 123 155 321 – 381 1.8 % $ 2.3 0.2 5.2 2.5 – 0.5 – 261 – 58 823 352 15 – % $ 2.4 – 5.9 1.1 1.3 3.6 $ 30,865 $ 7,296 $ 1,509 $ – – – – – – – – – % $ – – – – – – 8,340 14,189 14,127 6,775 1,545 352 7,833 0.9 % $ 11,409 2.0 15,315 0.5 12,596 0.7 5,861 1.4 2,368 1.3 195 0.5 6,224 $ 53,161 $ 53,968 0.6 % 1.0 0.7 0.8 1.4 1.8 0.7 Equity securities designated at FVOCI Corporate public equity Corporate private equity $ $ – – – – % $ – $ – – – Securities measured at amortized cost Securities issued or guaranteed by: Canadian federal government Other Canadian governments U.S. Treasury and agencies Other foreign governments Mortgage-backed securities (3) Asset-backed securities Corporate debt $ 398 131 2,391 135 152 – 1,343 $ 4,550 $ 1,234 6,278 8,242 167 1,541 274 2,472 $ 20,208 – % $ – $ $ – – – 36 5,611 2,241 31 1,062 – 366 – % $ – $ $ – – – – – – 362 657 35 – $ 9,347 $ 1,054 Securities mandatorily measured and designated at FVTPL Securities issued or guaranteed by: Canadian federal government Other Canadian governments U.S. Treasury and agencies Other foreign governments Mortgage-backed securities (4) Asset-backed securities Corporate debt $ 2,193 1,136 753 2,817 1 97 913 $ 2,218 2,025 3,208 1,129 1,771 190 2,234 $ 909 1,075 788 48 184 39 630 Corporate public equity $ 7,910 $ 12,775 $ 3,673 – – $ – – $ – – $ $ 3,132 6,098 186 37 1 7 222 $ 9,683 – – $ – % $ – $ $ $ $ $ n/m n/m 126 710 836 – – – – – – – – – – – – – – – – 38,204 $ 38,204 $ $ $ $ $ $ n/m n/m 126 710 836 1,668 12,020 12,874 695 3,412 309 4,181 n/m n/m 42 543 585 790 11,072 10,968 551 3,954 662 3,803 $ 35,159 $ 31,800 $ 8,452 10,334 4,935 4,031 1,957 333 3,999 $ 34,041 38,204 $ 11,655 9,783 5,596 1,974 1,582 571 3,550 $ 34,711 27,982 $ 38,204 $ 27,982 Total securities (5) $ 25,951 $ 63,848 $ 20,316 $ 12,246 $ 39,040 $ 161,401 $ 149,046 (1) Represents the weighted-average yield, which is determined by applying the weighted average of the yields of individual fixed income securities. (2) Includes securities backed by mortgages insured by the Canada Mortgage and Housing Corporation (CMHC), with amortized cost of $301 million (2020: $410 million) and fair value of $303 million (2020: $413 million); securities issued by Federal National Mortgage Association (Fannie Mae), with amortized cost of $537 million (2020: $888 million) and fair value of $554 million (2020: $918 million); securities issued by Federal Home Loan Mortgage Corporation (Freddie Mac), with amortized cost of $235 million (2020: $367 million) and fair value of $243 million (2020: $380 million); and securities issued by Government National Mortgage Association, a U.S. government corporation (Ginnie Mae), with amortized cost of $443 million (2020: $655 million) and fair value of $445 million (2020: $657 million). (3) Includes securities backed by mortgages insured by the CMHC, with amortized cost of $419 million (2020: $609 million) and fair value of $420 million (2020: $610 million); securities issued by Fannie Mae, with amortized cost of $838 million (2020: $1,165 million) and fair value of $851 million (2020: $1,197 million); securities issued by Freddie Mac, with amortized cost of $1,823 million (2020: $2,008 million) and fair value of $1,859 million (2020: $2,091 million); and securities issued by Ginnie Mae, with amortized cost of $39 million (2020: $69 million) and fair value of $40 million (2020: $71 million). (4) Includes securities backed by mortgages insured by the CMHC of $1,954 million (2020: $1,547 million). (5) Includes securities denominated in U.S. dollars with carrying value of $80.2 billion (2020: $68.4 billion) and securities denominated in other foreign currencies with carrying value of $4,611 million (2020: $2,616 million). n/m Not meaningful. Fair value of debt securities measured and equity securities designated at FVOCI $ millions, as at October 31 Securities issued or guaranteed by: Canadian federal government Other Canadian governments U.S. Treasury and agencies Other foreign governments Mortgage-backed securities Asset-backed securities Corporate debt Corporate public equity (2) Corporate private equity Cost/ Amortized cost (1) Gross unrealized gains Gross unrealized losses $ 8,310 14,007 14,157 6,750 1,516 354 7,820 52,914 67 663 730 $ 31 182 23 30 29 – 15 310 60 84 144 $ (1) $ – (53) (5) – (2) (2) (63) (1) (37) (38) 2021 Fair value 8,340 14,189 14,127 6,775 1,545 352 7,833 53,161 126 710 836 Cost/ Amortized cost (1) Gross unrealized gains Gross unrealized losses 2020 Fair value $ 11,379 15,187 12,533 5,825 2,320 197 6,194 53,635 30 546 576 $ 32 128 63 38 49 – 31 341 15 43 58 $ (2) $ 11,409 15,315 – 12,596 – 5,861 (2) 2,368 (1) 195 (2) 6,224 (1) (8) (3) (46) (49) 53,968 42 543 585 $ 53,644 $ 454 $ (101) $ 53,997 $ 54,211 $ 399 $ (57) $ 54,553 (1) Net of allowance for credit losses for debt securities measured at FVOCI of $19 million (2020: $22 million). (2) Includes restricted stock. 144 CIBC 2021 ANNUAL REPORT Consolidated financial statements Fair value of equity securities designated at FVOCI that were disposed of during the year was $25 million (2020: $88 million). Net realized cumulative after-tax gains of $27 million for the year (2020: $93 million) were reclassified from AOCI to retained earnings, resulting from dispositions of equity securities designated at FVOCI and return on capital distributions from limited partnerships designated at FVOCI. Dividend income recognized on equity securities designated at FVOCI that were still held as at October 31, 2021 was $5 million (2020: $5 million). Dividend income recognized on equity securities designated at FVOCI that were disposed of during the year was nil (2020: $2 million). The table below presents profit or loss recognized on FVOCI securities: $ millions, for the year ended October 31 Realized gains Realized losses (Provision for) reversal of credit losses on debt securities 2021 $ 91 (2) 2 $ 91 2020 $ 30 (1) (8) $ 21 2019 $ 40 (2) (3) $ 35 Allowance for credit losses The following table provides a reconciliation of the opening balance to the closing balance of the ECL allowance for debt securities measured at FVOCI: $ millions, as at or for the year ended October 31 2021 Debt securities measured at FVOCI Balance at beginning of year Provision for (reversal of) credit losses (1) Write-offs Foreign exchange and other Balance at end of year 2020 Debt securities measured at FVOCI Balance at beginning of year Provision for credit losses (1)(2) Write-offs Foreign exchange and other Balance at end of year Stage 1 Stage 2 Stage 3 Collective provision 12-month ECL performing Collective provision lifetime ECL performing Collective and individual provision lifetime ECL credit-impaired $ $ 18 (13) – (1) 4 $ 14 5 – (1) $ 18 $ 4 11 – – $ 15 $ 3 2 – (1) $ 4 Total $ 22 (2) – (1) 1 9 $ $ – – – – $ – $ 6 1 – (7) (3) $ – $ 23 8 – (9) $ 22 (1) Included in the Gains (losses) from debt securities measured at FVOCI and amortized cost, net on our consolidated statement of income. (2) Excludes stage 3 provisions for credit losses of $14 million for the year ended October 31, 2020 for originated credit-impaired amortized cost securities that are recognized in the Gains (losses) from debt securities measured at FVOCI and amortized cost, net on our consolidated statement of income. (3) Includes ECL of $8 million relating to Barbados U.S. dollar denominated securities that were derecognized in the third quarter of 2020 as a result of a U.S. dollar denominated debt restructuring agreement completed with the Government of Barbados. Note 6 Loans(1)(2) $ millions, as at October 31 2021 2020 Residential mortgages (4) Personal Credit card Business and government (4) Gross amount $ 251,526 41,897 11,134 150,213 $ 454,770 Stage 3 allowance $ 158 106 – 508 $ 772 $ Stages 1 and 2 allowance 122 662 625 668 $ 2,077 $ allowance (3) Total Net total 280 $ 251,246 41,129 768 10,509 625 149,037 1,176 $ 2,849 $ 451,921 Gross amount $ 221,165 42,222 11,389 135,546 $ 410,322 Stages 1 and 2 allowance Stage 3 allowance Total allowance (3) Net total 363 $ 220,802 41,390 832 10,722 667 133,868 1,678 $ 914 $ 2,626 $ 3,540 $ 406,782 $ 151 $ 113 – 650 212 $ 719 667 1,028 (1) Loans are net of unearned income of $591 million (2020: $530 million). (2) Includes gross loans of $83.3 billion (2020: $76.6 billion) denominated in U.S. dollars and $9.3 billion (2020: $8.4 billion) denominated in other foreign currencies. (3) Includes ECL allowances for customers’ liability under acceptances. (4) Includes $16 million of residential mortgages (2020: $63 million) and $25,651 million of business and government loans (2020: $23,291 million) that are measured at FVTPL. CIBC 2021 ANNUAL REPORT 145 Consolidated financial statements Allowance for credit losses The following table provides a reconciliation of the opening balance to the closing balance of the ECL allowance: $ millions, as at or for the year ended October 31 Stage 1 Stage 2 Collective provision 12-month ECL performing Collective provision lifetime ECL performing Stage 3 Collective and individual provision lifetime ECL credit-impaired Residential mortgages Balance at beginning of year Originations net of repayments and other derecognitions Changes in model Net remeasurement (1) Transfers (1) – to 12-month ECL – to lifetime ECL performing – to lifetime ECL credit-impaired Provision for (reversal of) credit losses (2) Write-offs (3) Recoveries Interest income on impaired loans Foreign exchange and other Balance at end of year Personal Balance at beginning of year Originations net of repayments and other derecognitions Changes in model Net remeasurement (1) Transfers (1) – to 12-month ECL – to lifetime ECL performing – to lifetime ECL credit-impaired Provision for (reversal of) credit losses (2) Write-offs (3) Recoveries Interest income on impaired loans Foreign exchange and other Balance at end of year Credit card Balance at beginning of year Originations net of repayments and other derecognitions Changes in model Net remeasurement (1) Transfers (1) – to 12-month ECL – to lifetime ECL performing – to lifetime ECL credit-impaired Provision for (reversal of) credit losses (2) Write-offs (3) Recoveries Interest income on impaired loans Foreign exchange and other Balance at end of year Business and government Balance at beginning of year Originations net of repayments and other derecognitions Changes in model Net remeasurement (1) Transfers (1) – to 12-month ECL – to lifetime ECL performing – to lifetime ECL credit-impaired Provision for (reversal of) credit losses (2) Write-offs (3) Recoveries Interest income on impaired loans Foreign exchange and other Balance at end of year Total ECL allowance (4) Comprises: Loans Undrawn credit facilities and other off-balance sheet exposures (5) $ 51 16 7 (123) 119 (9) – 10 – – – (2) 59 204 37 (19) (309) 287 (47) (1) (52) – – – (2) 150 136 – (14) (259) 305 (31) (1) – – – – – 136 453 31 (12) (302) 198 (63) (4) (152) – – – (24) 277 622 551 71 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 161 (13) (8) 22 (104) 27 (16) (92) – – – (6) 63 546 (47) 33 281 (281) 62 (47) 1 – – – – 547 572 (66) 123 373 (305) 31 (211) (55) – – – – 517 683 (35) (26) (19) (173) 79 (30) (204) – – – (30) 449 $ $ 1,576 $ 1,526 50 $ $ $ $ $ $ $ $ $ $ 151 (21) 24 68 (15) (18) 16 54 (27) 3 (17) (6) 158 113 (9) – 179 (6) (15) 48 197 (266) 70 (4) (4) 106 – – – 83 – – 212 295 (414) 119 – – – 652 (35) 1 197 (25) (16) 34 156 (279) 14 (20) (15) 508 772 772 – 2021 Total 363 (18) 23 (33) – – – (28) (27) 3 (17) (14) 280 863 (19) 14 151 – – – 146 (266) 70 (4) (6) 803 708 (66) 109 197 – – – 240 (414) 119 – – 653 $ $ $ $ $ $ $ 1,788 (39) (37) (124) – – – (200) (279) 14 (20) (69) $ 1,234 $ 2,970 $ 2,849 121 (1) Transfers represent stage movements of prior period ECL allowances to the current period stage classification. Net remeasurement represents the current period change in ECL allowances for transfers, net write-offs, changes in forecasts of forward-looking information, parameter updates, and partial repayments in the period. (2) Provision for (reversal of) credit losses for loans, and undrawn credit facilities and other off-balance sheet exposures is presented as Provision for (reversal of) credit losses on our consolidated statement of income. (3) We generally continue to pursue collection on the amounts that were written off. The degree of collection efforts varies from one jurisdiction to another, depending on the local regulations and original agreements with customers. (4) See Note 5 for the ECL allowance on debt securities measured at FVOCI. The table above excludes the ECL allowance on debt securities classified at amortized cost of $15 million as at October 31, 2021 (2020: $16 million), $13 million of which was stage 3 ECL allowance on originated credit-impaired amortized cost debt securities (2020: $14 million). The ECL allowances for other financial assets classified at amortized cost were immaterial as at October 31, 2021 and were excluded from the table above. Financial assets other than loans that are classified at amortized cost are presented on our consolidated balance sheet net of ECL allowances. (5) Included in Other liabilities on our consolidated balance sheet. (6) Includes the ECL allowance for purchased credit-impaired loans from the acquisition of The PrivateBank. 146 CIBC 2021 ANNUAL REPORT Consolidated financial statements $ millions, as at or for the year ended October 31 Residential mortgages Balance at beginning of year Originations net of repayments and other derecognitions Changes in model Net remeasurement (1) Transfers (1) – to 12-month ECL – to lifetime ECL performing – to lifetime ECL credit-impaired Provision for (reversal of) credit losses (2) Write-offs (3) Recoveries Interest income on impaired loans Foreign exchange and other Balance at end of year Personal Balance at beginning of year Originations net of repayments and other derecognitions Changes in model Net remeasurement (1) Transfers (1) – to 12-month ECL – to lifetime ECL performing – to lifetime ECL credit-impaired Provision for (reversal of) credit losses (2) Write-offs (3) Recoveries Interest income on impaired loans Foreign exchange and other Balance at end of year Credit card Balance at beginning of year Originations net of repayments and other derecognitions Changes in model Net remeasurement (1) Transfers (1) – to 12-month ECL – to lifetime ECL performing – to lifetime ECL credit-impaired Provision for (reversal of) credit losses (2) Write-offs (3) Recoveries Interest income on impaired loans Foreign exchange and other Balance at end of year Business and government Balance at beginning of year Originations net of repayments and other derecognitions Changes in model Net remeasurement (1) Transfers (1) – to 12-month ECL – to lifetime ECL performing – to lifetime ECL credit-impaired Provision for (reversal of) credit losses (2) Write-offs (3) Recoveries Interest income on impaired loans Foreign exchange and other Balance at end of year Total ECL allowance (4) Comprises: Loans Undrawn credit facilities and other off-balance sheet exposures (5) See previous page for footnote references. Stage 1 Stage 2 Collective provision 12-month ECL performing Collective provision lifetime ECL performing Stage 3 Collective and individual provision lifetime ECL credit-impaired (6) $ $ 28 9 (3) (21) 61 (23) – 23 – – – – 51 $ 174 37 (13) (186) 300 (108) – 30 – – – – $ 204 $ 145 (3) (6) (223) 281 (58) – (9) – – – – $ 136 $ 239 51 14 264 113 (201) (21) 220 – – – (6) $ 453 $ 844 $ 735 109 $ $ $ $ $ $ $ 43 (12) 30 123 (51) 39 (10) 119 – – – (1) 161 271 (51) 181 378 (292) 126 (67) 275 – – – – 546 340 (69) 59 674 (281) 58 (209) 232 – – – – 572 158 (45) (1) 594 (103) 210 (121) 534 – – – (9) $ 683 $ 1,962 $ 1,891 71 $ 140 (17) – 73 (10) (16) 10 40 (16) 6 (19) – $ 151 $ 128 (12) – 247 (8) (18) 67 276 (353) 66 (5) 1 $ 113 $ $ – – – 89 – – 209 298 (409) 111 – – – $ 378 (20) (1) 349 (10) (9) 142 451 (157) 9 (21) (8) $ 652 $ 916 $ 914 2 2020 Total 211 (20) 27 175 – – – 182 (16) 6 (19) (1) 363 573 (26) 168 439 – – – 581 (353) 66 (5) 1 863 485 (72) 53 540 – – – 521 (409) 111 – – 708 775 (14) 12 1,207 $ $ $ $ $ $ $ – – – 1,205 (157) 9 (21) (23) $ 1,788 $ 3,722 $ 3,540 182 CIBC 2021 ANNUAL REPORT 147 Consolidated financial statements Inputs, assumptions and model techniques Our ECL allowances are estimated using complex models that incorporate inputs, assumptions and model techniques that involve a high degree of management judgment. In particular, the following ECL elements are subject to a high level of judgment that can have a significant impact on the level of ECL allowances provided:    Determining when a significant increase in credit risk (SICR) of a loan has occurred; Measuring both 12-month and lifetime credit losses; and Forecasting forward-looking information for multiple scenarios and determining the probability weighting of the scenarios driven by the changes in the macroeconomic environment. In addition, the interrelationship between these elements is also subject to a high degree of judgment which can also have a significant impact on the level of ECL recognized. The uncertainties inherent in the COVID-19 pandemic have increased the level of judgment applied in respect of all these elements as discussed below. Actual credit losses could differ materially from those reflected in our estimates. Determining when a significant increase in credit risk has occurred The determination of whether a loan has experienced a SICR has a significant impact on the level of ECL allowance as loans that are in stage 1 are measured at 12-month ECL, while loans in stage 2 are measured at lifetime ECL. Migration of loans between stage 1 and stage 2 can cause significant volatility in the amount of the recognized ECL allowances and the provision for credit losses in a particular period. For the majority of our retail loan portfolios, we determine a SICR based on relative changes in the loan’s lifetime PD since its initial recognition. The PDs used for this purpose are the expected value of our upside, downside and base case lifetime PDs. Significant judgment is involved in determining the upside, downside and base case lifetime PDs through the incorporation of forward-looking information into long-run PDs, in determining the probability weightings of the scenarios, and in determining the relative changes in PDs that are indicative of a SICR for our various retail products. Increases in the expected PDs or decreases in the thresholds for changes in PDs that are indicative of a SICR can cause significant migration of loans from stage 1 to stage 2, which in turn can cause a significant increase in the amount of ECL allowances recognized. In contrast, decreases in the expected PDs or increases in the thresholds for changes in PDs that are indicative of a SICR can cause significant migration of loans from stage 2 to stage 1. For the majority of our business and government loan portfolios, we determine a SICR based on relative changes in internal risk ratings since initial recognition. Significant judgment is involved in the determination of the internal risk ratings. Deterioration or improvement in the risk ratings or adjustments to the risk rating downgrade thresholds used to determine a SICR can cause significant migration of loans and securities between stage 1 and stage 2, which in turn can have a significant impact on the amount of ECL allowances recognized. While potentially significant to the level of ECL allowances recognized, the thresholds for changes in PDs that are indicative of a SICR for our retail portfolios and the risk rating downgrade thresholds used to determine a SICR for our business and government loan portfolios are not expected to change significantly over time. All loans on which repayment of principal or payment of interest is contractually 30 days in arrears and all business and government loans that have migrated to the watch list risk rating are normally automatically migrated to stage 2 from stage 1. As at October 31, 2021, if the ECL for the stage 2 performing loans were measured using stage 1 ECL as opposed to lifetime ECL, the expected credit losses would be $731 million lower than the total recognized IFRS 9 ECL on performing loans (2020: $743 million). Impact of the COVID-19 pandemic The determination of whether a SICR has occurred in the COVID-19 pandemic required a heightened application of judgment in a number of areas, including with respect to the evaluation of the evolving macroeconomic environment, and the impact of client relief programs and government support. Consistent with guidance issued by the IASB, interest or principal deferments pursuant to various relief programs provided to both our retail and business and government clients during the early stages of the pandemic had not automatically resulted in a SICR that would have triggered migration to stage 2 by reason only that a deferral under the program was granted. However, the inclusion of a loan in a relief program did not preclude its migration to stage 2 if we determined that there was a SICR based on our assessment of the changes in the risk of a default occurring over the expected life of a loan. For retail clients and consistent with our past practice, SICR was determined based on an evaluation of the relative increase in lifetime PDs using forward-looking information reflective of our expectations. However, we applied judgment in the degree that our forecasts of certain forward- looking information, including unemployment, should cause a SICR in light of the level of government support provided. For the majority of our business and government clients, we continued to utilize risk ratings as the primary determinant of a SICR. We applied judgment in the determination of the industries most impacted by the COVID-19 pandemic and assessed the associated impact on risk ratings after considering the benefit of government support. Measuring both 12-month and lifetime expected credit losses Our ECL models leverage the PD, LGD, and EAD parameters, as well as the portfolio segmentation used to calculate Basel expected loss regulatory adjustments for the portion of our retail and business and government portfolios under the advanced internal ratings-based (AIRB) approach. Adjustments are made to the Basel parameters to meet IFRS 9 requirements, including the conversion of through-the-cycle and downturn parameters used in the Basel regulatory calculations to point-in-time parameters used under IFRS 9 that consider forward-looking information. For standardized business and government portfolios, available long-run PDs, LGDs and EADs are also converted to point-in-time parameters through the incorporation of forward-looking information for the purpose of measuring ECL under IFRS 9. Significant judgment is involved in determining which forward-looking information variables are relevant for particular portfolios and in determining the extent by which through-the-cycle parameters should be adjusted for forward-looking information to determine point-in-time parameters. While changes in the set of forward-looking information variables used to convert through-the-cycle PDs, LGDs and EADs into point-in-time parameters can either increase or decrease ECL allowances in a particular period, changes to the mapping of forward-looking information variables to particular portfolios are expected to be infrequent. However, changes in the particular forward-looking information parameters used to quantify point-in-time parameters will be frequent as our forecasts are updated on a quarterly basis. Increases in the level of pessimism in the forward-looking information variables will cause increases in ECL, while increases in the level of optimism in the forward-looking information variables will cause decreases in ECL. These increases and decreases could be significant in any particular period and will start to occur in the period where our outlook of the future changes. 148 CIBC 2021 ANNUAL REPORT Consolidated financial statements With respect to the lifetime of a financial instrument, the maximum period considered when measuring ECL is the maximum contractual period over which we are exposed to credit risk. For revolving facilities, such as credit cards, the lifetime of a credit card account is the expected behavioural life. Significant judgment is involved in the estimate of the expected behavioural life. Increases in the expected behavioural life will increase the amount of ECL allowances, in particular for revolving loans in stage 2. Impact of the COVID-19 pandemic The measurement of ECL in the COVID-19 pandemic required a heightened application of judgment in a number of areas, including with respect to our expectations concerning the degree to which forward-looking information would correlate with credit losses in the COVID-19 environment which was initially characterized by unprecedented levels of government support and continues to be characterized by low levels of consumer spending and default rates relative to the historical experience in our models. We applied judgment with respect to the degree that certain industries and portfolios would be negatively impacted by the COVID-19 pandemic, the degree that various government support programs will continue to limit credit losses, and the degree that continued easing of pandemic-related constraints on economic activity is expected to impact business and consumer credit. Forecasting forward-looking information for multiple scenarios and determining the probability weighting of the scenarios As indicated above, forward-looking information is incorporated into both our assessment of whether a financial asset has experienced a SICR since its initial recognition and in our estimate of ECL. From analysis of historical data, our risk management function has identified and reflected in our ECL allowance those relevant forward-looking information variables that contribute to credit risk and losses within our retail and business and government loan portfolios. Within our retail loan portfolio, key forward-looking information variables include Canadian unemployment rates, housing prices, gross domestic product (GDP) growth and household debt service ratios. In many cases these variables are forecasted at the provincial level. Housing prices are also forecasted at the municipal level in some cases. Within our business and government loan portfolio, key drivers that impact the credit performance of the entire portfolio include Standard & Poor’s (S&P) 500 growth rates, business credit growth rates, unemployment rates and credit spreads, while forward-looking information variables such as commodity prices and mining activity are significant for certain portfolios, and U.S. unemployment rates and U.S. GDP growth are significant for our U.S. portfolios. For the majority of our loan portfolios, our forecast of forward-looking information variables is established from a “base case” or most likely scenario that is used internally by management for planning and forecasting purposes. For most of the forward-looking information variables related to our Canadian businesses, we have forecast scenarios by province. In forming the base case scenario, we consider the forecasts of international organizations and monetary authorities such as the Organisation for Economic Co-operation and Development (OECD), the International Monetary Fund (IMF), and the Bank of Canada, as well as private sector economists. We then derive reasonably possible “upside case” and “downside case” scenarios using external forecasts that are above and below our base case and the application of management judgment. A probability weighting is assigned to our base case, upside case and downside case scenarios based on management judgment. The forecasting process is overseen by a governance committee consisting of internal stakeholders from across our bank including Risk Management, Economics, Finance and the impacted SBUs and involves a significant amount of judgment both in determining the forward-looking information forecasts for our various scenarios and in determining the probability weighting assigned to the scenarios. In general, a worsening of our outlook on forecasted forward-looking information for each scenario, an increase in the probability of the downside case scenario occurring, or a decrease in the probability of the upside case scenario occurring will increase the number of loans migrating from stage 1 to stage 2 and increase the estimated ECL allowance. In contrast, an improvement in our outlook on forecasted forward-looking information, an increase in the probability of the upside case scenario occurring, or a decrease in the probability of the downside case scenario occurring will have the opposite impact. It is not possible to meaningfully isolate the impact of changes in the various forward-looking information variables for a particular scenario because of both the interrelationship between the variables and the interrelationship between the level of pessimism inherent in a particular scenario and its probability of occurring. Impact of the COVID-19 pandemic The forecasting of forward-looking information and the determination of scenario weightings in the COVID-19 pandemic continued to require a heightened application of judgment in a number of areas as our forecast reflects numerous assumptions and uncertainties regarding the economic impact of the COVID-19 pandemic. The following table provides the base case, upside case and downside case scenario forecasts for select forward-looking information variables used to estimate our ECL. As at October 31, 2021 Real GDP year-over-year growth Canada (2) United States Unemployment rate Canada (2) United States Canadian Housing Price Index growth (2) S&P 500 Index growth rate Canadian household debt service ratio West Texas Intermediate Oil Price (US$) Base case Upside case Downside case Average value over the next 12 months Average value over the remaining forecast period (1) Average value over the next 12 months Average value over the remaining forecast period (1) Average value over the next 12 months Average value over the remaining forecast period (1) 4.2 % 4.7 % 6.4 % 4.4 % 6.1 % 6.1 % 13.6 % 69 $ 2.4 % 2.2 % 5.9 % 3.9 % 2.8 % 4.6 % 14.4 % 64 $ 5.6 % 5.8 % 6.0 % 3.8 % 10.7 % 10.3 % 13.0 % 74 $ 2.8 % 3.3 % 5.5 % 3.4 % 6.3 % 8.6 % 14.2 % 81 $ 3.1 % 2.8 % 7.3 % 6.0 % 2.2 % (0.6)% 14.1 % 56 $ 1.6 % 1.3 % 6.8 % 5.0 % (2.2)% (1.7)% 14.7 % 54 $ (1) The remaining forecast period is generally two to four years. (2) National-level forward-looking forecasts are presented in the table above, which represent the aggregation of the provincial-level forecasts used to estimate our ECL. Housing Price Index growth rates are also forecasted at the municipal level in some cases. As a result, the forecasts for individual provinces or municipalities reflected in our ECL will differ from the national forecasts presented above. CIBC 2021 ANNUAL REPORT 149 Consolidated financial statements As at October 31, 2020 Real GDP year-over-year growth Canada (2) United States Unemployment rate Canada (2) United States Canadian Housing Price Index growth (2) S&P 500 Index growth rate Canadian household debt service ratio West Texas Intermediate Oil Price (US$) See previous page for footnote references. Base case Upside case Downside case Average value over the next 12 months Average value over the remaining forecast period (1) Average value over the next 12 months Average value over the remaining forecast period (1) Average value over the next 12 months Average value over the remaining forecast period (1) 1.6 % 1.7 % 8.7 % 7.4 % 2.4 % 5.6 % 13.9 % 42 $ 3.8 % 3.5 % 6.7 % 4.7 % 3.0 % 4.8 % 14.0 % 53 $ 3.6 % 3.0 % 7.4 % 5.1 % 11.2 % 11.2 % 12.8 % 51 $ 4.6 % 4.2 % 5.9 % 3.5 % 10.4 % 7.7 % 13.5 % 60 $ 0.03 % (0.6)% 9.5 % 9.2 % (6.9)% (3.5)% 14.8 % 34 $ 2.0 % 1.7 % 8.4 % 7.3 % (0.8)% (5.3)% 15.0 % 39 $ As required, the forward-looking information used to estimate expected credit losses reflects our expectations as at October 31, 2021 and October 31, 2020, respectively, and does not reflect changes in expectation as a result of economic forecasts that may have subsequently emerged. The base case, upside case and downside case amounts shown represent the average value of the forecasts over the respective projection horizons. Our economic forecasts are made in the context of the continuing recovery underway from the severe downturn experienced in the second calendar quarter of 2020. As at October 31, 2021, our underlying base case projection is characterized by a deceleration in economic activity and a stall in the downward trend of the unemployment rate in the near term due to the likelihood of a modest rise in COVID-19 cases over the winter and continuing global supply chain disruptions. Our base case outlook continues to assume that effective mass vaccinations will further progress over the remainder of calendar 2021 and that the vaccination programs will be able to effectively respond to the new and emerging variants and that governments will respond to future infections of the virus and its variants with targeted health measures rather than broader economic closures. Our base case assumes that economic activity will return to the pre-COVID-19 levels in Canada in the first half of 2022, and that the unemployment rate will reach pre-pandemic levels in the latter half of 2022. Due to the relatively quicker end to large-scale lockdowns in the U.S. relative to Canada, our base case continues to assume that the U.S. will experience full economic recovery slightly before Canada. The downside case forecast allows for a pullback in economic activity and a rise in the unemployment rate in the near term, if governments have to respond to rising virus cases with stricter measures than assumed under the base case. It also reflects a slower recovery thereafter to a lower level of sustained economic activity and an unemployment rate persistently above where it stood pre-pandemic. Meanwhile, the upside scenario continues to reflect a quicker recovery, with the pre-pandemic level of activity reached in the fourth calendar quarter of 2021 and continuing at a higher trend level than the base case thereafter. As indicated above, forecasting forward-looking information for multiple scenarios and determining the probability weighting of the scenarios involves a high degree of management judgment, particularly in light of the COVID-19 pandemic. Although the severity of the virus appears to be diminishing where vaccination rates are high, it remains a threat as case counts continue to rise in some countries and uncertainties remain regarding the pace of global vaccination efforts and the need for additional doses. Assumptions concerning the timing and effectiveness of mass vaccination programs to contain the spread of COVID-19 and its potential new variants such that severe restrictions will no longer need to be imposed by governments to limit the impact of subsequent waves of infection are material to these forecasts. If we were to only use our base case scenario for the measurement of ECL for our performing loans, our ECL allowance would be $249 million lower than the recognized ECL as at October 31, 2021 (2020: $204 million). If we were to only use our downside case scenario for the measurement of ECL for our performing loans, our ECL allowance would be $414 million higher than the recognized ECL as at October 31, 2021 (2020: $938 million). This sensitivity is isolated to the measurement of ECL and therefore did not consider changes in the migration of exposures between stage 1 and stage 2 from the determination of the SICR that would have resulted in a 100% base case scenario or a 100% downside case scenario. As a result, our ECL allowance on performing loans could exceed the amount implied by the 100% downside case scenario from the migration of additional exposures from stage 1 to stage 2. Actual credit losses could differ materially from those reflected in our estimates. Use of management overlays Management overlays to ECL allowance estimates are adjustments which we use in circumstances where we judge that our existing inputs, assumptions and model techniques do not capture all relevant risk factors. The emergence of new macroeconomic, microeconomic or political events, along with expected changes to parameters, models or data that are not incorporated in our current parameters, internal risk rating migrations, or forward-looking information are examples of such circumstances. Impact of the COVID-19 pandemic To address the uncertainties inherent in the COVID-19 environment, we utilized management overlays with respect to the impact that the COVID-19 pandemic was estimated to have on the migration of certain business and government exposures that we believed were the most susceptible to these risks and the resulting measurement of the ECL for those exposures. The mitigating impact of government support measures was considered in the determination of these overlays to the extent not already reflected in our models, particularly in the early stages of the pandemic in 2020. In addition, management overlays were applied with respect to the impact of certain credit metrics and forward-looking information that are not expected to be as indicative of improvements in the credit condition of the portfolios as the historical experience in our models would have otherwise suggested, particularly during the recovery period in 2021. The use of management overlays requires the application of significant judgment that impacts the amount of ECL allowances recognized. Actual credit losses could differ materially from those reflected in our estimates. 150 CIBC 2021 ANNUAL REPORT Consolidated financial statements The following tables provide the gross carrying amount of loans, and the contractual amounts of undrawn credit facilities and other off-balance sheet exposures based on the application of our 12-month point-in-time PDs under IFRS 9 to our risk management PD bands within each respective stage for retail exposures, and based on our internal risk ratings for business and government exposures. Refer to the “Credit risk” section of the MD&A for details on the CIBC risk categories. Loans(1) $ millions, as at October 31 Residential mortgages – Exceptionally low – Very low – Low – Medium – High – Default – Not rated Stage 1 Stage 2 Stage 3 (2)(3) $ 162,307 $ 49,958 22,912 364 – – 2,160 2021 Total $ 162,401 50,598 29,459 5,035 840 443 2,750 251,526 280 251,246 18,609 5,183 12,480 3,763 1,055 109 698 41,897 768 41,129 2,065 715 5,000 2,788 435 – 131 11,134 625 10,509 66,525 90,363 3,052 1,033 198 161,171 1,176 159,995 Stage 1 Stage 2 Stage 3 (2)(3) $ $ 146,139 45,678 12,491 232 – – 1,810 206,350 51 206,299 $ 2 1,166 6,042 4,924 1,054 – 818 14,006 161 13,845 23,302 1,618 8,662 1,265 331 – 513 35,691 179 35,512 3,285 1,388 2,340 1,778 – – 135 8,926 125 8,801 50,691 80,471 447 – 218 131,827 380 131,447 – 157 2,497 2,768 769 – 159 6,350 540 5,810 – – – 1,973 472 – 18 2,463 542 1,921 307 7,319 4,291 – 49 11,966 648 11,318 – – – – – 654 155 809 151 658 – – – – – 140 41 181 113 68 – – – – – – – – – – – – – 1,359 – 1,359 650 709 2020 Total $ 146,141 46,844 18,533 5,156 1,054 654 2,783 221,165 363 220,802 23,302 1,775 11,159 4,033 1,100 140 713 42,222 832 41,390 3,285 1,388 2,340 3,751 472 – 153 11,389 667 10,722 50,998 87,790 4,738 1,359 267 145,152 1,678 143,474 94 640 6,547 4,671 840 – 395 13,187 63 13,124 1 4 4,389 2,773 803 – 60 8,030 537 7,493 – – 347 2,195 435 – 8 2,985 498 2,487 562 4,599 2,985 – 24 8,170 428 7,742 $ – – – – – 443 195 638 158 480 – – – – – 109 53 162 106 56 – – – – – – – – – – – – – 1,033 – 1,033 508 525 Gross residential mortgages (4)(5) ECL allowance Net residential mortgages 237,701 59 237,642 Personal – Exceptionally low – Very low – Low – Medium – High – Default – Not rated Gross personal (5) ECL allowance Net personal Credit card – Exceptionally low – Very low – Low – Medium – High – Default – Not rated Gross credit card ECL allowance Net credit card Business and government (6) – Investment grade – Non-investment grade – Watch list – Default – Not rated Gross business and government (4)(7) ECL allowance Net business and government 18,608 5,179 8,091 990 252 – 585 33,705 125 33,580 2,065 715 4,653 593 – – 123 8,149 127 8,022 65,963 85,764 67 – 174 151,968 240 151,728 Total net amount of loans $ 430,972 $ 30,846 $ 1,061 $ 462,879 $ 382,059 $ 32,894 $ 1,435 $ 416,388 (1) The table excludes debt securities measured at FVOCI, for which ECL allowances of $19 million (2020: $22 million) were recognized in AOCI. In addition, the table excludes debt securities classified at amortized cost, for which ECL allowances of $15 million were recognized as at October 31, 2021 (2020: $16 million), $13 million of which was stage 3 ECL allowance on originated credit-impaired amortized cost debt securities (2020: $14 million). Other financial assets classified at amortized cost were also excluded from the table above as their ECL allowances were immaterial as at October 31, 2021 and October 31, 2020. Financial assets other than loans that are classified as amortized cost are presented on our consolidated balance sheet net of ECL allowances. (2) Excludes foreclosed assets of $18 million (2020: $23 million), which were included in Other assets on our consolidated balance sheet. (3) As at October 31, 2021, 89% (2020: 93%) of stage 3 impaired loans were either fully or partially collateralized. (4) Includes $16 million (2020: $63 million) of residential mortgages and $25,651 million (2020: $23,291 million) of business and government loans that are measured at FVTPL. (5) The internal risk rating grades presented for residential mortgages and certain personal loans do not take into account loan guarantees or insurance issued by the Canadian government (federal or provincial), Canadian government agencies, or private insurers, as the determination of whether a significant increase in credit risk has occurred for these loans is based on relative changes in the loans’ lifetime PD without considering collateral or other credit enhancements. (6) Certain prior period amounts were restated. (7) Includes customers’ liability under acceptances of $10,958 million (2020: $9,606 million). CIBC 2021 ANNUAL REPORT 151 Consolidated financial statements Undrawn credit facilities and other off-balance sheet exposures $ millions, as at October 31 Retail – Exceptionally low – Very low – Low – Medium – High – Default – Not rated Gross retail ECL allowance Net retail Business and government (1) – Investment grade – Non-investment grade – Watch list – Default – Not rated Gross business and government ECL allowance Net business and government Total net undrawn credit facilities and Stage 1 Stage 2 Stage 3 2021 Total Stage 1 Stage 2 Stage 3 $ $ 130,212 12,868 7,937 740 73 – 375 152,205 34 152,171 111,877 58,652 19 – 346 170,894 37 170,857 12 59 1,811 896 495 – 8 3,281 29 3,252 524 1,714 734 – 9 2,981 21 2,960 $ $ – $ 130,224 12,927 – 9,748 – 1,636 – 568 – 34 34 383 – $ 124,690 6,632 8,703 909 263 – 411 34 – 34 – – – 91 – 91 – 91 155,520 63 155,457 112,401 60,366 753 91 355 173,966 58 173,908 141,608 36 141,572 89,883 55,910 91 – 795 146,679 73 146,606 8 137 416 692 503 – 23 1,779 36 1,743 149 3,679 1,665 – 41 5,534 35 5,499 $ – – – – – 28 – 28 – 28 – – – 129 – 129 2 127 2020 Total $ 124,698 6,769 9,119 1,601 766 28 434 143,415 72 143,343 90,032 59,589 1,756 129 836 152,342 110 152,232 other off-balance sheet exposures $ 323,028 $ 6,212 $ 125 $ 329,365 $ 288,178 $ 7,242 $ 155 $ 295,575 (1) Certain prior period amounts were restated. Net interest income after provision for credit losses $ millions, for the year ended October 31 Interest income Interest expense Net interest income Provision for (reversal of) credit losses Net interest income after provision for credit losses 2021 $ 14,741 3,282 11,459 158 2020 $ 17,522 6,478 11,044 2,489 2019 $ 20,697 10,146 10,551 1,286 $ 11,301 $ 8,555 $ 9,265 Modified financial assets and client relief programs During the early stages of the pandemic, CIBC had been actively engaged in lending activities to support our clients who were experiencing financial hardship caused by the COVID-19 pandemic, including payment deferral options offered on cards, residential mortgages, personal lending products, and business and government loans. Modification gains or losses resulting from client relief programs were not significant. As part of CIBC’s usual lending business, from time to time we may modify the contractual terms of loans classified as stage 2 and stage 3 for which the borrower has experienced financial difficulties, through the granting of a concession in the form of below-market rates or terms that we would not otherwise have considered. During the year ended October 31, 2021, loans classified as stage 2 or stage 3 with an amortized cost of $654 million (2020: $10,498 million) were either modified through the granting of a financial concession in response to the borrower having experienced financial difficulties or were subject to the client relief programs in response to COVID-19, in each case before the time of modification or deferral. In addition, the gross carrying amount of previously modified or deferred stage 2 or stage 3 loans that have returned to stage 1 during the year ended October 31, 2021 was $1,461 million (2020: $5,287 million). 152 CIBC 2021 ANNUAL REPORT Consolidated financial statements Note 7 Structured entities and derecognition of financial assets Structured entities SEs are entities that have been designed so that voting or similar rights are not the dominant factor in deciding who controls the entity, such as when any voting rights relate to administrative tasks only and the relevant activities are directed by means of contractual arrangements. SEs are entities that are created to accomplish a narrow and well-defined objective. CIBC is involved with various types of SEs for which the business activities include securitization of financial assets, asset-backed financings, and asset management. We consolidate a SE when the substance of the relationship indicates that we control the SE. Consolidated structured entities We consolidate the following SEs: Credit card securitization trust We sell an ownership interest in a revolving pool of credit card receivables generated under certain credit card accounts to Cards II Trust (Cards II), which purchases a proportionate share of credit card receivables on certain credit card accounts, with the proceeds received from the issuance of notes. We consolidate this trust because we have the power to direct the relevant activities and have exposure to substantially all the variability of returns for the excess spread (the deferred purchase price) that we receive over time. Our credit card securitizations are revolving securitizations, with credit card receivable balances fluctuating from month to month as credit card clients repay their balances and new receivables are generated. The notes are presented as Secured borrowings within Deposits on the consolidated balance sheet. As at October 31, 2021, $1.7 billion of credit card receivable assets with a fair value of $1.7 billion (2020: $1.7 billion with a fair value of $1.7 billion) supported associated funding liabilities of $1.7 billion with a fair value of $1.7 billion (2020: $1.7 billion with a fair value of $1.7 billion). Covered bond guarantor Under the Legislative Covered Bond Programme, we transfer a pool of conventional uninsured mortgages to the CIBC Covered Bond (Legislative) Guarantor Limited Partnership (the Guarantor LP). The Guarantor LP holds interest and title to these transferred mortgages and serves to guarantee payment of principal and interest to bondholders. The covered bond liabilities are on-balance sheet obligations that are fully collateralized by the mortgage assets over which bondholders enjoy a priority claim in the event of CIBC’s insolvency. We consolidate this entity because we have the ability to direct the relevant activities and retain substantially all of the variability of returns on the underlying mortgages. As at October 31, 2021, our Legislative Covered Bond Programme had outstanding covered bond liabilities of $23.8 billion with a fair value of $24.0 billion (2020: $19.6 billion with a fair value of $19.7 billion). CIBC-managed investment funds We establish and manage investment funds such as mutual funds and pooled funds. We act as an investment manager and earn market-based management fees, and for certain pooled funds, performance fees which are generally based on the performance of the funds. Seed capital is provided from time to time to CIBC-managed investment funds for initial launch. We consolidate those investment funds in which we have power to direct the relevant activities of the funds and in which our seed capital, or our units held, are significant relative to the total variability of returns of the funds such that we are deemed to be a principal rather than an agent. As at October 31, 2021, the total assets and non-controlling interests in consolidated CIBC-managed investment funds were $50 million and $14 million, respectively (2020: $7 million and $3 million, respectively). Non-controlling interests in consolidated CIBC-managed investment funds are included in Other liabilities as the investment fund units are mandatorily redeemable at the option of the investor. Community-based tax-advantaged investments We sponsor certain SEs that invest in community development projects in the U.S. through the issuance of below-market loans that generate a return primarily through the realization of tax credits. As at October 31, 2021, the program had outstanding loans of $92 million (2020: $75 million). We consolidate these entities because we have the ability to direct the relevant activities and retain substantially all of the variability of returns on the underlying loans. Non-consolidated structured entities The following SEs are not consolidated by CIBC because we do not have control over these SEs: Single-seller and multi-seller conduits We manage and administer a single-seller conduit and several CIBC-sponsored multi-seller conduits in Canada. The multi-seller conduits acquire direct or indirect ownership or security interests in pools of financial assets from our clients and finance the acquisitions by issuing asset-backed commercial paper (ABCP) to investors. The single-seller conduit acquires financial assets and finances these acquisitions through a credit facility provided by a syndicate of financial institutions. The sellers to the conduits may continue to service the assets and may be exposed to credit losses realized on these assets, typically through the provision of over-collateralization or another form of credit enhancement. The conduits may also obtain credit enhancement from third-party providers. As at October 31, 2021, the total assets in the single-seller conduit and multi-seller conduits amounted to $0.6 billion and $7.6 billion, respectively (2020: $0.5 billion and $8.4 billion, respectively). We generally provide the multi-seller conduits with commercial paper backstop liquidity facilities, securities distribution, and provide both the single and multi-seller conduits with accounting, cash management, and operations services. The liquidity facilities for the managed and administered multi-seller conduits require us to provide funding, subject to the satisfaction of certain conditions with respect to the conduits, for ABCP not placed with external investors. We also may purchase ABCP issued by the multi-seller conduits for market-making purposes. We are required to maintain certain short-term and/or long-term debt ratings with respect to the liquidity facilities that we provide to the sponsored multi-seller conduits. If we are downgraded below the level specified under the terms of those facilities, we must provide alternative satisfactory liquidity arrangements, such as procuring an alternative liquidity provider that meets the minimum rating requirements. CIBC 2021 ANNUAL REPORT 153 Consolidated financial statements We may also act as the counterparty to derivative contracts entered into by a multi-seller conduit in order to convert the yield of the underlying assets to match the needs of the multi-seller conduit’s investors or to mitigate the interest rate, basis, and currency risk within the conduit. All fees earned in respect of activities with the conduits are on a market basis. Third-party structured vehicles We have investments in and provide loans, liquidity and credit facilities to third-party SEs. We also have investments in limited partnerships in which we generally are a passive investor of the limited partnerships as a limited partner, and in some cases, we are the co-general partner and have significant influence over the limited partnerships. Similar to other limited partners, we are obligated to provide funding up to our commitment level to these limited partnerships. Loan Warehouse Financing We provide interim senior financing to third-party SEs for the purpose of future securitization. The SE is established by a third-party investor, who provides the initial investment into the SE (the equity investors). The senior financing enables the SE to purchase a loan portfolio at the direction of a collateral manager during the warehousing phase of the securitization. When the securitization transaction closes, the senior lenders are repaid by proceeds from the issuance of debt securities to investors. Community Reinvestment Act investments We hold debt and equity investments in limited liability entities to further our U.S. Community Reinvestment Act initiatives with a carrying value of $338 million (2020: $328 million). These entities invest in qualifying community development projects, including affordable housing projects that generate a return primarily by the realization of tax credits. Similar to other limited investors in these entities, we are obligated to provide funding up to our commitment level to these limited liability entities. As at October 31, 2021, the total assets of these limited liability entities were $5.9 billion (2020: $5.2 billion). CIBC Capital Trust We had issued senior deposit notes to CIBC Capital Trust, which funded the purchase of these notes through the issuance of CIBC Tier 1 Notes – Series B (Notes) that match the term of the senior deposit notes. The Notes were eligible for Tier 1 regulatory capital treatment and were subject to the phase-out rules for capital instruments that would be viewed as non-qualifying capital instruments. On November 1, 2021, CIBC Capital Trust redeemed all $300 million of its 10.25% Notes. As a result of the redemption of the Notes by CIBC Capital Trust, CIBC redeemed the corresponding senior deposit notes issued by CIBC to CIBC Capital Trust on November 1, 2021. See Note 17 for additional details. CIBC-managed investment funds As indicated above, we establish investment funds, including mutual funds and pooled funds, to provide clients with investment opportunities and we may receive management fees and performance fees. We may hold insignificant amounts of fund units in these CIBC-managed funds. We do not consolidate these funds if we do not have significant variability of returns from our interests in these funds such that we are deemed to be an agent through our capacity as the investment manager, rather than a principal. We do not guarantee the performance of CIBC-managed investment funds. As at October 31, 2021, the total AUM in the non-consolidated CIBC-managed investment funds amounted to $152.5 billion (2020: $125.2 billion). CIBC structured collateralized debt obligation (CDO) vehicles We hold exposures to structured CDO vehicles through investments in, or written credit derivatives referencing, these structured vehicles. The structured vehicles are funded through the issuance of senior and subordinated tranches. We may hold a portion of those senior and/or subordinated tranches. We previously curtailed our business activity in structuring CDO vehicles within our structured credit run-off portfolio. Our exposures to CDO vehicles mainly arose through our previous involvement in acting as structuring and placement agent for the CDO vehicles. As at October 31, 2021, the assets in the CIBC structured CDO vehicles have a total principal amount of $181 million (2020: $214 million). Our on-balance sheet amounts and maximum exposure to loss related to SEs that are not consolidated are set out in the table below. The maximum exposure comprises the carrying value of unhedged investments, the notional amounts for liquidity and credit facilities, and the notional amounts less accumulated fair value losses for unhedged written credit derivatives on SE reference assets. The impact of CVA is not considered in the table below. 154 CIBC 2021 ANNUAL REPORT Consolidated financial statements $ millions, as at October 31, 2021 On-balance sheet assets at carrying value (2) Securities Loans Investments in equity-accounted associates and joint ventures October 31, 2020 On-balance sheet liabilities at carrying value (2) Deposits Derivatives (3) October 31, 2020 Maximum exposure to loss, net of hedges Investments and loans Notional of written derivatives, less fair value losses Liquidity, credit facilities and commitments Less: hedges of investments, loans and written derivatives exposure October 31, 2020 Single-seller and multi-seller conduits Third-party structured vehicles Loan Warehouse Financing $ $ $ $ $ $ $ 35 106 – 141 107 – – – $ 1,621 2,217 – $ 3,838 $ 3,165 $ – 3,245 – $ 3,245 $ 395 $ $ – $ – – – $ – – – $ – $ – 141 – 7,539 (4) – $ 7,680 $ 8,497 $ 3,838 – 2,016 – $ 5,854 $ 5,682 $ 3,245 – 921 – $ 4,166 $ 758 Other (1) $ 393 – 1 $ 394 $ 343 $ $ $ 300 54 354 4 10 $ 394 33 129 (36) $ 520 $ 492 (1) Includes Community Reinvestment Act-related investment vehicles, CIBC Capital Trust, CIBC-managed investment funds, CIBC structured CDO vehicles and third-party structured vehicles related to structured credit run-off. (2) Excludes SEs established by CMHC, Fannie Mae, Freddie Mac, Ginnie Mae, FHLB, Federal Farm Credit Bank, and Student Loan Marketing Association. (3) Comprises written credit default swaps (CDS) and total return swaps (TRS) under which we assume exposures. Excludes foreign exchange derivatives, interest rate derivatives and other derivatives provided as part of normal client facilitation. (4) Excludes an additional $3.0 billion (2020: $2.1 billion) relating to our backstop liquidity facilities provided to the multi-seller conduits as part of their commitment to fund purchases of additional assets. Also excludes $35 million (2020: $12 million) of our direct investments in the multi-seller conduits which we consider investment exposure. We also hold investments in a variety of third-party investment funds, which include, but are not limited to, exchange-traded funds, mutual funds, and investment trusts. We buy and sell units of these investment funds as part of trading activities or client facilitation businesses that are managed as part of larger portfolios. We generally are a passive investor and are not the investment manager in any of these investment funds. We are not the sponsor of any third-party investment funds, nor do we have the power over key decision-making activities of the funds. Our maximum exposure to loss from our investments is limited to the carrying amounts of our investments and any unutilized commitment we have provided to these funds. In addition, we issue certain structured notes and enter into equity derivatives that are referenced to the return of certain investment funds. Accordingly, we do not include our interests in these third-party investment funds in the table above. Derecognition of financial assets We enter into transactions in the normal course of business in which we transfer recognized financial assets directly to third parties, but retain substantially all of the risks and rewards of those assets. The risks include credit, interest rate, foreign exchange, pre-payment and other price risks whereas the rewards include income streams associated with the assets. Due to the retention of risks, the transferred financial assets are not derecognized and such transfers are accounted for as secured borrowing transactions. The majority of our financial assets transferred to non-consolidated entities that do not qualify for derecognition are: (i) residential mortgage loans under securitization transactions; (ii) securities held by counterparties as collateral under repurchase agreements; and (iii) securities lent under securities lending agreements. Residential mortgage securitizations We securitize fully insured fixed- and variable-rate residential mortgage pools through the creation of National Housing Act (NHA) MBS under the NHA MBS Program, sponsored by CMHC. Under the Canada Mortgage Bond Program, sponsored by CMHC, we sell MBS to a government- sponsored securitization trust that issues securities to investors. We do not consolidate the securitization trust. We may act as a counterparty in interest rate swap agreements where we pay the trust the interest due to investors and receive the interest on the MBS. We have also sold MBS directly to CMHC under the Government of Canada’s Insured Mortgage Purchase Program. The sale of mortgage pools that comprise the NHA MBS does not qualify for derecognition as we retain pre-payment, credit, and interest rate risks associated with the mortgages, which represent substantially all the risks and rewards. As a result, the mortgages remain on our consolidated balance sheet and are carried at amortized cost. We also recognize the cash proceeds from the securitization as Deposits – Secured borrowings. Securities held by counterparties as collateral under repurchase agreements We enter into arrangements whereby we sell securities but enter into simultaneous arrangements to repurchase the securities at a fixed price on a future date thereby retaining substantially all the risks and rewards. As a result, the securities remain on our consolidated balance sheet. Securities lent for cash collateral or for securities collateral We enter into arrangements whereby we lend securities but with arrangements to receive the securities at a future date, thereby retaining substantially all the risks and rewards. As a result, the securities remain on our consolidated balance sheet. The following table provides the carrying amount and fair value of transferred financial assets that did not qualify for derecognition and the associated financial liabilities: $ millions, as at October 31 Residential mortgage securitizations (1) Securities held by counterparties as collateral under repurchase agreements (2) Securities lent for cash collateral (2) Securities lent for securities collateral (2) Associated liabilities (3) Carrying amount 2021 Fair value $ 17,121 $ 17,023 36,469 1 31,548 $ 85,139 $ 85,041 $ 85,061 $ 85,122 36,469 1 31,548 Carrying amount $ 17,550 36,720 13 20,226 $ 74,509 $ 75,853 2020 Fair value $ 17,726 36,720 13 20,226 $ 74,685 $ 76,080 (1) Consists mainly of Canadian residential mortgage loans transferred to Canada Housing Trust. Certain cash in transit balances related to the securitization process amounting to $792 million (2020: $1,148 million) have been applied to reduce these balances. (2) Does not include over-collateralization of assets pledged. Repurchase and securities lending arrangements are conducted with both CIBC-owned and third-party assets on a pooled basis. The carrying amounts represent an estimated allocation related to the transfer of our own financial assets. (3) Includes the obligation to return off-balance sheet securities collateral on securities lent and fair value hedge basis adjustments. CIBC 2021 ANNUAL REPORT 155 Consolidated financial statements Note 8 Property and equipment Right-of- use assets (1) Land and buildings Computer equipment Office furniture, equipment and other (2) Leasehold improvements (2) Total $ millions, as at or for the year ended October 31 2021 Cost Balance at beginning of year Additions (3) Disposals (4) Adjustments (5) Balance at end of year $ 1,790 607 (61) (33) $ 681 33 (3) (8) $ 2,303 $ 703 $ 1,109 65 (28) (11) $ 1,135 2020 Balance at end of year $ 1,790 $ 681 $ 1,109 2021 Accumulated depreciation Balance at beginning of year Depreciation (4) Disposals (4) Adjustments (5) Balance at end of year 2020 Balance at end of year Net book value As at October 31, 2021 As at October 31, 2020 $ $ $ 316 301 (55) (12) 550 316 $ 305 15 (4) (3) $ 313 $ 305 $ 1,753 $ 1,474 $ 390 $ 376 $ $ $ $ $ 869 102 (38) (10) 923 869 212 240 $ 1,129 – (131) (16) $ 982 $ 1,129 $ 553 48 (120) (9) $ 472 $ 553 $ 510 $ 576 $ 1,178 167 (29) (14) $ 5,887 872 (252) (82) $ 1,302 $ 6,425 $ 1,178 $ 5,887 $ $ $ $ $ 847 64 (22) (8) 881 847 421 331 $ 2,890 530 (239) (42) $ 3,139 $ 2,890 $ 3,286 $ 2,997 (1) Includes right-of-use assets with a net book value of $49 million as at November 1, 2019 that were rented out through operating sublease arrangements. (2) Includes $234 million (2020: $306 million) of work-in-progress not subject to depreciation. (3) Includes impact of lease modifications. (4) Includes write-offs for properties that were vacated in the fourth quarter of 2021, and write-offs of fully depreciated assets. (5) Includes foreign currency translation adjustments. Cost of net additions and disposals during the year was: Canadian Personal and Business Banking net disposals of $70 million (2020: net additions of $860 million); Canadian Commercial Banking and Wealth Management net disposals of $5 million (2020: nil); U.S. Commercial Banking and Wealth Management net additions of $31 million (2020: net additions of $219 million); Capital Markets net additions of $20 million (2020: net additions of $166 million); and Corporate and Other net additions of $644 million (2020: net disposals of $17 million). Note 9 Goodwill, software and other intangible assets Goodwill The carrying amount of goodwill is reviewed for impairment annually as at August 1 and whenever there are events or changes in circumstances which indicate that the carrying amount may not be recoverable. Goodwill is allocated to CGUs for the purposes of impairment testing based on the lowest level for which identifiable cash inflows are largely independent of cash inflows from other assets or groups of assets. The goodwill impairment test is performed by comparing the recoverable amount of the CGU to which goodwill has been allocated with the carrying amount of the CGU including goodwill, with any deficiency recognized as impairment to goodwill. The recoverable amount of a CGU is defined as the higher of its estimated fair value less cost to sell and value in use. We have three significant CGUs to which goodwill has been allocated. The changes in the carrying amount of goodwill are allocated to each CGU as follows: CGUs Canadian Wealth Management U.S. Commercial Banking and Wealth Management $ 884 – – $ 884 $ 884 – – $ 884 $ 4,131 – (293) Other $ 203 – (3) Total $ 5,253 – (299) $ 3,838 $ 200 $ 4,954 $ 4,084 – 47 $ 203 – – $ 5,449 (248) 52 $ 4,131 $ 203 $ 5,253 $ millions, as at or for the year ended October 31 2021 Balance at beginning of year Impairment Foreign currency translation adjustments Balance at end of year 2020 Balance at beginning of year Impairment Foreign currency translation adjustments Balance at end of year CIBC FirstCaribbean $ $ 35 – (3) 32 $ 278 (248) 5 $ 35 156 CIBC 2021 ANNUAL REPORT Consolidated financial statements Impairment testing of goodwill and key assumptions CIBC FirstCaribbean CIBC acquired a controlling interest in CIBC FirstCaribbean in December 2006 and now holds 91.7% of its shares. CIBC FirstCaribbean is a major Caribbean bank offering a full range of financial services in corporate and investment banking, retail and business banking, and wealth management. CIBC FirstCaribbean, which has assets of approximately US$13 billion, operates in the Caribbean and is traded on the stock exchanges of Barbados and Trinidad and Tobago. The results of CIBC FirstCaribbean, including goodwill impairment charges thereon, are included in Corporate and Other. On November 8, 2019 and as discussed in Note 4, we announced that we had entered into a definitive agreement to sell 66.73% of CIBC FirstCaribbean’s outstanding shares to GNB. As a result of the valuation implied from the definitive agreement with GNB, we recognized a goodwill impairment charge of $135 million in the fourth quarter of 2019. Commencing in the first quarter of 2020, the assets and liabilities of CIBC FirstCaribbean were treated as held for sale, and measured at the lower of their aggregate carrying amount and fair value less costs to sell, on the basis that the transaction was highly probable to close in 2020, subject to regulatory approvals. In the second quarter of 2020, we recognized an additional goodwill impairment charge of $28 million based on the estimated impact of the COVID-19 pandemic on the recoverable value of the 24.9% interest in CIBC FirstCaribbean that we expected to retain. As a result of the lengthy regulatory review process, the worsening impact of the COVID-19 pandemic on the Caribbean economy and our revised expectations regarding the likelihood and timing of closing of a potential transaction, we concluded in the fourth quarter of 2020 that held for sale accounting was no longer appropriate. As a result, we were required to assess the recoverable amount of the remaining goodwill based on current market conditions rather than the definitive agreement with GNB. This assessment reflected revised expectations concerning the impact of the COVID-19 pandemic and led to the recognition of an additional goodwill impairment charge of $220 million. On February 3, 2021, we announced that the proposed sale of CIBC FirstCaribbean to GNB did not receive regulatory approval and that the transaction will not proceed. In the fourth quarter of 2021, we performed our annual impairment test as at August 1, 2021. The recoverable amount of CIBC FirstCaribbean for 2021 is based on a value in use calculation that is estimated using a five-year cash flow projection approved by management of CIBC FirstCaribbean and an estimate of the capital required to be maintained in the region to support ongoing operations. We have determined that the estimated recoverable amount of the CIBC FirstCaribbean CGU was in excess of its carrying amount. As a result, no impairment charge was recognized during 2021. U.S. Commercial Banking and Wealth Management The recoverable amount of the U.S. Commercial Banking and Wealth Management CGU (including The PrivateBank and Geneva Advisors) is based on a value in use calculation. For our annual impairment test as at August 1, 2021, we reverted to using a five-year cash flow projection to estimate the value in use, as compared to the ten-year cash flow projection utilized in the prior year, to reflect the partial recovery to more normal levels of economic growth. The cash flows projections are based on the financial plans approved by management, and an estimate of the capital required to be maintained to support ongoing operations. We have determined that for the impairment testing performed as at August 1, 2021, the estimated recoverable amount of the U.S. Commercial Banking and Wealth Management CGU was in excess of its carrying amount. As a result, no impairment charge was recognized during 2021. A terminal growth rate of 4.3% as at August 1, 2021 (August 1, 2020: 4.0%) was applied to the years after the five-year forecast. All of the forecasted cash flows were discounted at an after-tax rate of 9.3% as at August 1, 2021 (10.9% pre-tax) which we believe to be a risk-adjusted discount rate appropriate to U.S. Commercial Banking and Wealth Management (we used an after-tax rate of 10.2% as at August 1, 2020). The determination of a discount rate and a terminal growth rate require the exercise of judgment. The discount rate was determined based on the following primary factors: (i) the risk-free rate; (ii) an equity risk premium; and (iii) beta adjustment to the equity risk premium based on a review of betas of comparable publicly traded financial institutions in the region. The terminal growth rate was based on management’s expectations of real growth and forecast inflation rates. If alternative reasonably possible changes in key assumptions were applied, the result of the impairment test would not differ. Estimation of the recoverable amount is an area of significant judgment. The recoverable amount is estimated using an internally developed model which requires the use of significant assumptions including forecasted earnings, a discount rate, a terminal growth rate and forecasted regulatory capital requirements. Reductions in the estimated recoverable amount could arise from various factors, such as reductions in forecasted cash flows, an increase in the assumed level of required capital, and any adverse changes to the discount rate or terminal growth rate either in isolation or in any combination thereof. Canadian Wealth Management The recoverable amount of the Canadian Wealth Management CGU is based on a fair value less cost to sell calculation. The fair value is estimated using an earnings-based approach whereby the forecasted earnings are based on the Wealth Management internal plan which was approved by management and covers a three-year period. The calculation incorporates the forecasted earnings multiplied by an earnings multiple derived from observable price-to-earnings multiples of comparable wealth management institutions. The price-to-earnings multiples of those comparable wealth management institutions ranged from 7.0 to 10.9 as at August 1, 2021 (August 1, 2020: 7.9 to 13.7). We have determined that the estimated recoverable amount of the Wealth Management CGU was well in excess of its carrying amount as at August 1, 2021. As a result, no impairment charge was recognized during 2021. If alternative reasonably possible changes in key assumptions were applied, the result of the impairment test would not differ. Other The goodwill relating to the Other CGUs is comprised of amounts which individually are not considered to be significant. We have determined that for the impairment testing performed as at August 1, 2021, the estimated recoverable amount of these CGUs was in excess of their carrying amounts. Allocation to strategic business units Goodwill of $4,954 million (2020: $5,253 million) is allocated to the SBUs as follows: Canadian Commercial Banking and Wealth Management of $954 million (2020: $954 million), Corporate and Other of $95 million (2020: $98 million), U.S. Commercial Banking and Wealth Management of $3,837 million (2020: $4,131 million), Capital Markets of $61 million (2020: $63 million), and Canadian Personal and Business Banking of $7 million (2020: $7 million). CIBC 2021 ANNUAL REPORT 157 Consolidated financial statements Software and other intangible assets The carrying amount of indefinite-lived intangible assets is provided in the following table: $ millions, as at or for the year ended October 31 2021 Balance at beginning of year Foreign currency translation adjustments Balance at end of year 2020 Balance at beginning of year Foreign currency translation adjustments Balance at end of year (1) Represents management contracts purchased as part of past acquisitions. (2) Acquired as part of the CIBC FirstCaribbean acquisition. The components of finite-lived software and other intangible assets are as follows: Contract based (1) Brand name (2) Total $ 116 – $ 116 $ 116 – $ 116 $ 26 (2) $ 24 $ 26 – $ 26 $ 142 (2) $ 140 $ 142 – $ 142 $ millions, as at or for the year ended October 31 2021 Gross carrying amount Balance at beginning of year Additions Disposals (5) Adjustments (6) Balance at end of year 2020 Balance at end of year 2021 Accumulated amortization Balance at beginning of year Amortization and impairment (5) Disposals (5) Adjustments (6) Balance at end of year 2020 Balance at end of year Net book value As at October 31, 2021 As at October 31, 2020 Core deposit Software (1) intangibles (2) Contract based (3) Customer relationships (4) $ 3,508 592 (19) (20) $ 4,061 $ 3,508 $ 1,983 408 (8) (16) $ 2,367 $ 1,983 $ 1,694 $ 1,525 $ 619 – – (44) $ 575 $ 619 $ 457 51 – (33) $ 475 $ 457 $ 100 $ 162 $ 22 – – (2) $ 20 $ 22 $ 12 3 – (2) $ 13 $ 12 7 $ $ 10 Total $ 4,406 592 (19) (84) $ 4,895 $ 4,406 $ 2,587 487 (8) (60) $ 3,006 $ 2,587 $ 257 – – (18) $ 239 $ 257 $ 135 25 – (9) $ 151 $ 135 88 $ $ 122 $ 1,889 $ 1,819 (1) Includes $659 million (2020: $620 million) of work-in-progress not subject to amortization. (2) Acquired as part of the acquisitions of CIBC FirstCaribbean and The PrivateBank. (3) Represents a combination of management contracts purchased as part of past acquisitions including The PrivateBank and Geneva Advisors in 2017, as well as Lowenhaupt Global Advisors, LLC (LGA) and Cleary Gull in 2019. (4) Represents customer relationships associated with past acquisitions including The PrivateBank and Geneva Advisors in 2017, and LGA in 2019. (5) Includes write-offs of fully amortized assets. (6) Includes foreign currency translation adjustments. Net additions and disposals of gross carrying amount during the year were: Canadian Personal and Business Banking net disposals of $2 million (2020: net additions of $1 million); Canadian Commercial Banking and Wealth Management net disposals of nil (2020: net disposals of nil); U.S. Commercial Banking and Wealth Management net additions of $5 million (2020: net disposals of $8 million); Capital Markets net disposals of nil (2020: net disposals of nil); and Corporate and Other net additions of $570 million (2020: net additions of $459 million). Note 10 Other assets $ millions, as at October 31 Accrued interest receivable Defined benefit asset (Note 19) Precious metals (1) Brokers’ client accounts Current tax receivable Other prepayments Derivative collateral receivable Accounts receivable Other (2) $ 2021 1,271 1,372 3,005 12,273 1,676 582 6,599 859 1,588 $ 2020 1,317 247 2,731 9,153 2,201 557 4,950 519 1,533 $ 29,225 $ 23,208 (1) Includes gold and silver bullion that are measured at fair value using unadjusted market prices quoted in active markets. (2) Includes investments in subleases of $664 million as at October 31, 2021 (2020: $749 million), related to certain subleases we have re-assessed as finance subleases as part of the adoption of IFRS 16. For the year ended October 31, 2021, finance income related to our investment in sublease was $47 million (2020: $53 million). Future lease payments receivable are $472 million over the next five years, and $683 million thereafter until expiry of the subleases. 158 CIBC 2021 ANNUAL REPORT Consolidated financial statements Note 11 Deposits(1)(2) $ millions, as at October 31 Personal Business and government (7)(8) Bank Secured borrowings (9) Comprises: Held at amortized cost Designated at fair value Total deposits include (10): Non-interest-bearing deposits Canada U.S. Other international Interest-bearing deposits Canada U.S. Other international Payable on Payable after Payable on a demand (3) notice (4) fixed date (5)(6) 2021 Total $ 16,339 100,719 10,334 – $ 146,017 86,394 161 – $ 51,576 157,275 9,751 42,592 $ 213,932 344,388 20,246 42,592 2020 Total $ 202,152 311,426 17,011 40,151 $ 127,392 $ 232,572 $ 261,194 $ 621,158 $ 570,740 $ 602,628 18,530 $ 557,321 13,419 $ 621,158 $ 570,740 $ 93,850 16,522 5,601 $ 71,122 13,833 5,798 406,642 70,312 28,231 389,439 66,399 24,149 $ 621,158 $ 570,740 (1) Includes deposits of $215.4 billion (2020: $185.2 billion) denominated in U.S. dollars and deposits of $37.1 billion (2020: $30.2 billion) denominated in other foreign currencies. (2) Net of purchased notes of $2.2 million (2020: $3.1 billion). (3) Includes all deposits for which we do not have the right to require notice of withdrawal. These deposits are generally chequing accounts. (4) Includes all deposits for which we can legally require notice of withdrawal. These deposits are generally savings accounts. (5) Includes all deposits that mature on a specified date. These deposits are generally term deposits, guaranteed investment certificates, and similar instruments. (6) Includes $32.6 billion (2020: $19.9 billion) of deposits which are subject to the bank recapitalization (bail-in) conversion regulations issued by the Department of Finance Canada. These regulations provide certain statutory powers to the Canada Deposit Insurance Corporation (CDIC), including the ability to convert specified eligible shares and liabilities of CIBC into common shares in the event that CIBC is determined to be non-viable. (7) Includes $300 million (2020: $303 million) of Notes issued to CIBC Capital Trust. These Notes were redeemed on November 1, 2021. For additional information, see Note 17. (8) Includes $8.8 billion (2020: $9.1 billion) of structured note liabilities that were sold upon issuance to third-party financial intermediaries, who may resell the notes to retail investors in foreign jurisdictions. (9) Comprises liabilities issued by or as a result of activities associated with the securitization of residential mortgages, Covered Bond Programme, and consolidated securitization vehicles. (10) Classification is based on geographical location of the CIBC office. Note 12 Other liabilities $ millions, as at October 31 Accrued interest payable Defined benefit liability (Note 19) Gold and silver certificates Brokers’ client accounts Derivative collateral payable Negotiable instruments Accrued employee compensation and benefits Accounts payable and accrued expenses Other (1) $ 2021 781 602 113 5,809 6,662 1,149 2,961 2,259 4,587 $ 2020 1,200 676 133 5,303 4,772 1,110 2,174 2,153 4,613 $ 24,923 $ 22,134 (1) Includes the carrying value of our lease liabilities, which was $2,134 million as at October 31, 2021 (2020: $1,866 million). The undiscounted cash flows related to the contractual maturity of our lease liabilities is $363 million for the period less than 1 year, $1,074 million between years 1-5, and $1,107 million thereafter until expiry of the leases. During the year ended October 31, 2021, interest expense on lease liabilities was $51 million (2020: $60 million). Note 13 Derivative instruments As described in Note 1, in the normal course of business, we use various derivative instruments for both trading and ALM purposes. These derivatives limit, modify or give rise to varying degrees and types of risk. $ millions, as at October 31 Trading (Note 3) ALM (Note 3) (1) 2021 2020 Assets Liabilities Assets Liabilities $ 34,647 1,265 $ 30,040 2,061 $ 31,356 1,374 $ 29,392 1,116 $ 35,912 $ 32,101 $ 32,730 $ 30,508 (1) Comprised of derivatives that qualify for hedge accounting under IAS 39 and derivatives used for economic hedges. CIBC 2021 ANNUAL REPORT 159 Consolidated financial statements Derivatives used by CIBC The majority of our derivative contracts are OTC transactions, which consist of: (i) contracts that are bilaterally negotiated and settled between CIBC and the counterparty to the contract; and (ii) contracts that are bilaterally negotiated and then cleared through a central counterparty (CCP). Bilaterally negotiated and settled contracts are usually traded under a standardized International Swaps and Derivatives Association (ISDA) agreement with collateral posting arrangements between CIBC and its counterparties. Terms are negotiated directly with counterparties and the contracts have industry-standard settlement mechanisms prescribed by ISDA. Centrally cleared contracts are generally bilaterally negotiated and then novated to, and cleared through, a CCP. The industry promotes the use of CCPs to clear OTC trades. The central clearing of derivative contracts generally facilitates the reduction of credit exposures due to the ability to net settle offsetting positions. Consequently, derivative contracts cleared through CCPs generally attract less capital relative to those settled with non-CCPs. The remainder of our derivative contracts are exchange-traded derivatives, which are standardized in terms of their amounts and settlement dates, and are bought and sold on organized and regulated exchanges. These exchange-traded derivative contracts consist primarily of options and futures. Interest rate derivatives Forward rate agreements are OTC contracts that effectively fix a future interest rate for a period of time. A typical forward rate agreement provides that at a pre-determined future date, a cash settlement will be made between the counterparties based upon the difference between a contracted rate and a market rate to be determined in the future, calculated on a specified notional principal amount. No exchange of principal amount takes place. Certain forward rate agreements are bilaterally transacted and then novated and settled through a clearing house which acts as a CCP. Interest rate swaps are OTC contracts in which two counterparties agree to exchange cash flows over a period of time based on rates applied to a specified notional principal amount. A typical interest rate swap would require one counterparty to pay a fixed market interest rate in exchange for a variable market interest rate determined from time to time, with both calculated on a specified notional principal amount. No exchange of principal amount takes place. Certain interest rate swaps are bilaterally transacted and then novated and settled through a clearing house which acts as a CCP. Interest rate options are contracts in which one party (the purchaser of an option) acquires from another party (the writer of an option), in exchange for a premium, the right, but not the obligation, to either buy or sell, on a specified future date or within a specified time, a specified financial instrument at a contracted price. The underlying financial instrument has a market price which varies in response to changes in interest rates. Options are transacted in both OTC and exchange-traded markets. Interest rate futures are standardized contracts transacted on an exchange. They are based upon an agreement to buy or sell a specified quantity of a financial instrument on a specified future date, at a contracted price. These contracts differ from forward rate agreements in that they are in standard amounts with standard settlement dates and are transacted through an exchange. Foreign exchange derivatives Foreign exchange forwards are OTC contracts in which one counterparty contracts with another to exchange a specified amount of one currency for a specified amount of a second currency, at a future date or range of dates. Foreign exchange futures contracts are similar in mechanics to foreign exchange forward contracts except that they are in standard currency amounts with standard settlement dates and are transacted through an exchange. Foreign exchange swap contracts comprise foreign exchange swaps and cross-currency interest rate swaps. Foreign exchange swaps are transactions in which a currency is simultaneously purchased in the spot market and sold for a different currency in the forward market, or vice versa. Cross-currency interest rate swaps are transactions in which counterparties exchange principal and interest flows in different currencies over a period of time. These contracts are used to manage both currency and interest rate exposures. Credit derivatives Credit derivatives are OTC contracts designed to transfer the credit risk in an underlying financial instrument (usually termed as a reference asset) from one counterparty to another. The most common credit derivatives are CDS and certain TRS. CDS contracts provide protection against the decline in value of a reference asset as a result of specified credit events such as default or bankruptcy. These derivatives are similar in structure to an option whereby the purchaser pays a premium to the seller of the CDS contract in return for payment contingent on the occurrence of a credit event. The protection purchaser has recourse to the protection seller for the difference between the face value of the CDS contract and the fair value of the reference asset at the time of settlement. Neither the purchaser nor the seller under the CDS contract has recourse to the entity that issued the reference asset. Certain CDS contracts are cleared through a CCP. In credit derivative TRS contracts, one counterparty agrees to pay or receive cash amounts based on the returns of a reference asset, including interest earned on these assets in exchange for amounts that are based on prevailing market funding rates. These cash settlements are made regardless of whether there is a credit event. Upon the occurrence of a credit event, the parties may either exchange cash payments according to the value of the defaulted assets or exchange cash based on the notional amount for physical delivery of the defaulted assets. Equity derivatives Equity swaps are OTC contracts in which one counterparty agrees to pay, or receive from the other, cash amounts based on changes in the value of a stock index, a basket of stocks or a single stock in exchange for amounts that are based either on prevailing market funding rates or changes in the value of a different stock index, basket of stocks or a single stock. These contracts generally include payments in respect of dividends. Equity options give the purchaser of the option, for a premium, the right, but not the obligation, to buy from or sell to the writer of an option, an underlying stock index, basket of stocks, or a single stock at a contracted price. Options are transacted in both OTC and exchange markets. Equity index futures are standardized contracts transacted on an exchange. They are based on an agreement to pay or receive a cash amount based on the difference between the contracted price level of an underlying stock index and its corresponding market price level at a specified future date. There is generally no actual delivery of stocks that comprise the underlying index. These contracts are in standard amounts with standard settlement dates. Precious metal and other commodity derivatives We also transact in other derivative products, including commodity forwards, futures, swaps and options, such as precious metal and energy- related products in both OTC and exchange markets. 160 CIBC 2021 ANNUAL REPORT Consolidated financial statements Notional amounts The notional amounts are not recorded as assets or liabilities, as they represent the face amount of the contract to which a rate or price is applied to determine the amount of cash flows to be exchanged. In most cases, notional amounts do not represent the potential gain or loss associated with market or credit risk of such instruments. The following table presents the notional amounts of derivative instruments: $ millions, as at October 31 2021 2020 Residual term to contractual maturity Less than 1 year 1 to 5 years Over 5 years Total notional amounts Trading ALM Trading ALM $ 9,679 $ 3,081 $ – $ 12,760 $ 7,149 $ 5,611 $ 10,593 $ 3,026 Interest rate derivatives Over-the-counter Forward rate agreements Centrally cleared forward rate agreements Swap contracts Centrally cleared swap contracts Purchased options Written options Exchange-traded Futures contracts Purchased options Written options Total interest rate derivatives Foreign exchange derivatives Over-the-counter Forward contracts Swap contracts Purchased options Written options Exchange-traded Futures contracts Total foreign exchange derivatives Credit derivatives Over-the-counter Credit default swap contracts – protection purchased Centrally cleared credit default swap contracts – protection purchased Credit default swap contracts – protection sold Centrally cleared credit default swap contracts – protection sold Total credit derivatives Equity derivatives Over-the-counter Exchange-traded Total equity derivatives Precious metal derivatives Over-the-counter Exchange-traded Total precious metal derivatives Other commodity derivatives Over-the-counter Centrally cleared commodity derivatives Exchange-traded Total other commodity derivatives Total notional amount of which: Over-the-counter (1) Exchange-traded 87,710 46,976 1,064,805 5,794 7,384 1,222,348 134,137 5,251 10,251 149,639 1,371,987 695,383 128,433 18,224 20,529 862,569 6 862,575 1,102 97 874 – 2,073 59,281 75,276 134,557 6,678 406 7,084 17,510 119 21,810 39,439 12,488 132,683 1,752,039 6,429 5,573 1,912,293 30,507 – – 30,507 1,942,800 19,864 260,439 1,685 2,090 284,078 – 87,201 642,217 1,440 1,216 732,074 – – – – 732,074 1,318 155,259 22 7 156,606 100,198 266,860 3,459,061 13,663 14,173 3,866,715 164,644 5,251 10,251 180,146 4,046,861 716,565 544,131 19,931 22,626 1,303,253 100,198 243,655 2,998,139 13,319 13,912 3,376,372 164,644 5,251 10,251 180,146 3,556,518 709,628 491,884 19,843 21,887 1,243,242 – 284,078 – 156,606 6 1,303,259 6 1,243,248 149,428 264,184 2,840,793 9,188 9,370 – 29,852 445,189 1,754 766 3,283,556 480,587 269,670 3,060 5,060 277,790 – – – – 3,561,346 480,587 1,071,423 486,689 19,008 22,229 1,599,349 8,751 42,326 – 454 51,531 3 – 1,599,352 51,531 – 23,205 460,922 344 261 490,343 – – – – 490,343 6,937 52,247 88 739 60,011 – 60,011 27 123 – – 150 574 561 334 68 1,537 25,562 18,097 43,659 140 4 144 23,142 – 12,151 35,293 561 989 96 309 1,955 600 191 791 – – – 558 – 412 970 2,237 1,647 1,304 377 5,565 2,210 1,524 1,304 377 5,415 1,907 2,424 614 1,309 6,254 85,443 93,564 83,612 93,564 179,007 177,176 1,831 – 1,831 86,865 89,824 176,689 6,818 410 7,228 41,210 119 34,373 75,702 6,818 410 7,228 41,210 119 34,373 75,702 – – – – – – – 9,681 524 10,205 34,142 55 18,700 52,897 29 160 9 – 198 4,914 – 4,914 – – – 8 – – 8 $ 2,417,715 $ 2,307,511 $ 892,396 $ 5,617,622 $ 5,065,287 $ 552,335 $ 5,406,743 $ 537,238 537,238 – 4,756,788 308,499 2,246,752 60,759 5,309,123 308,499 2,170,578 247,137 5,019,902 386,841 552,335 – 891,793 603 (1) For OTC derivatives that are not centrally cleared, $1,622.2 billion (2020: $1,984.6 billion) are with counterparties that have two-way collateral posting arrangements, $37.1 billion (2020: $44.9 billion) are with counterparties that have one-way collateral posting arrangements, and $88.4 billion (2020: $88.3 billion) are with counterparties that have no collateral posting arrangements. Counterparties with whom we have more than insignificant OTC derivative portfolios and one-way collateral posting arrangements are either sovereign entities or supra national financial institutions. CIBC 2021 ANNUAL REPORT 161 Consolidated financial statements Risk In the following sections, we discuss the risks related to the use of derivatives and how we manage these risks. Market risk Derivatives are financial instruments where valuation is linked to changes in interest rates, foreign exchange rates, equity, commodity, credit prices or indices. Changes in value as a result of the aforementioned risk factors are referred to as market risk. Market risk arising from derivative trading activities is managed in order to mitigate risk in line with CIBC’s risk appetite. To manage market risk, we set market risk limits and may enter into hedging transactions. Credit risk Credit risk arises from the potential for a counterparty to default on its contractual obligations and the possibility that prevailing market conditions are such that a loss would occur in replacing the defaulted transaction. We limit the credit risk of OTC derivatives through the use of ISDA master netting agreements, collateral, CCPs and other credit mitigation techniques. We clear eligible derivatives through CCPs in accordance with various global initiatives. Where feasible, we novate existing bilaterally negotiated and settled derivatives to a CCP in an effort to reduce CIBC’s credit risk exposure. We establish counterparty credit limits and limits for CCP exposures based on a counterparty’s creditworthiness and the type of trading relationship with each counterparty (underlying agreements, business volumes, product types, tenors, etc.). We negotiate netting agreements to contain the build-up of credit exposure resulting from multiple transactions with more active counterparties. Such agreements provide for the simultaneous close-out and netting of all transactions with a counterparty, in the case of a counterparty default. A number of these agreements incorporate a Credit Support Annex, which is a bilateral security agreement that, among other things, provides for the exchange of collateral between parties in the event that one party’s exposure to the other exceeds agreed upon thresholds. Credit risk on exchange-traded futures and options is limited, as these transactions are standardized contracts executed on established exchanges, whose CCPs assume the obligations of both counterparties. Similarly, swaps that are centrally cleared represent limited credit risk because these transactions are novated to the CCP, which assumes the obligations of the original bilateral counterparty. All exchange-traded and centrally cleared contracts are subject to initial margin and daily settlement of variation margins, designed to protect participants from losses incurred from a counterparty default. A CVA is determined using the fair value based exposure we have on derivative contracts. We believe that we have made appropriate fair value adjustments to date. The establishment of fair value adjustments involves estimates that are based on accounting processes and judgments by management. We evaluate the adequacy of the fair value adjustments on an ongoing basis. Market and economic conditions relating to derivative counterparties may change in the future, which could result in significant future losses. The following table summarizes our credit exposure arising from derivatives, which includes the current replacement cost, credit equivalent amount and risk-weighted amount. In the second quarter of 2020, we adopted the Internal Model Method (IMM) for the determination of the EAD amount for most of our derivatives portfolios. The EAD amount is based on effective expected positive exposure (EEPE) which computes, through simulation, the expected exposures with consideration to the expected movements in underlying risk factor and netting/collateral agreements. It is calculated as EEPE multiplied by the prescribed alpha factor of 1.4 and is reduced by CVA losses. The EAD amount is then multiplied by counterparty risk variables to arrive at the risk-weighted amount. The risk-weighted amount is used in determining the regulatory capital requirements for derivatives. From the first quarter of 2019 to the second quarter of 2020, the Standardized Approach for Counterparty Credit Risk (SA-CCR) was used in calculating the replacement cost, EAD amount and risk-weighted assets. The current replacement cost was the estimated cost to replace all contracts that have a positive market value, representing an unrealized gain to us. The replacement cost of an instrument was dependent upon its terms relative to prevailing market prices. Replacement cost included the impact of certain collateral amounts and the impact of master netting agreements. The EAD amount was calculated as the sum of replacement cost and the potential future exposure, multiplied by an alpha of 1.4, and was reduced by CVA losses. The potential future exposure was an estimate of the amount by which the current replacement cost could increase over the remaining term of each transaction, based on a formula prescribed by OSFI. Similar to IMM, the EAD amount was then multiplied by counterparty risk variables to arrive at the risk-weighted amount. 162 CIBC 2021 ANNUAL REPORT Consolidated financial statements $ millions, as at October 31 Current replacement cost (2) Credit equivalent Trading ALM Total amount (3) 2021 Risk- weighted amount Current replacement cost (2) Credit equivalent Trading ALM Total amount (3) 2020 (1) Risk- weighted amount 35 4,182 26 8 4,251 332 4,583 4,027 2,684 156 50 6,917 105 18 123 3,910 6,298 Interest rate derivatives Over-the-counter Forward rate agreements Swap contracts Purchased options Written options $ – $ 2,116 14 4 2,134 4 141 2 – 147 Exchange-traded 3 – $ 4 $ 2,257 16 4 2,281 3 Foreign exchange derivatives Over-the-counter Forward contracts Swap contracts Purchased options Written options Credit derivatives Over-the-counter Credit default swap contracts – protection purchased – protection sold Equity derivatives Over-the-counter Exchange-traded Precious metal derivatives Over-the-counter Exchange-traded Other commodity derivatives Over-the-counter Exchange-traded RWA related to non-trade exposures to central counterparties RWA related to CVA charge 2,137 147 2,284 943 452 144 40 1,579 3 1 4 254 1,310 1,564 41 – 41 4,106 17 4,123 196 389 14 – 599 1 – 1 79 – 79 2 – 2 2 – 2 1,139 841 158 40 2,178 4 1 5 333 1,310 1,643 43 – 43 4,108 17 4,125 $ 31 1,360 14 4 1,409 10 $ – $ 16 $ 16 $ 3,974 17 9 4,000 – 237 6 – 259 – 4,211 23 9 4,259 – 135 6,744 35 5 6,919 309 $ 12 2,705 26 2 2,745 9 1,419 4,000 259 4,259 7,228 2,754 1,335 751 54 19 2,159 851 358 116 47 1,372 364 481 1 – 846 1,215 839 117 47 2,218 7 10 17 275 579 854 58 – 58 1,293 3 1,296 9 – 9 55 – 55 – – – 25 – 25 16 10 26 330 579 909 58 – 58 1,318 3 1,321 16 7 23 935 195 10,208 1,130 128 53 181 6,246 2,506 8,752 88 2 90 1,788 100 1,888 306 7,174 4,974 2,324 182 44 7,524 144 13 157 3,100 3,929 7,029 136 20 156 2,365 1,291 3,656 1,423 700 65 20 2,208 21 6 27 658 120 778 55 1 56 866 52 918 213 7,202 Total derivatives $ 9,448 $ 830 $ 10,278 $ 30,764 $ 14,189 $ 7,597 $ 1,194 $ 8,791 $ 25,750 $ 14,156 (1) Effective in the second quarter of 2020, we adopted the IMM approach for CCR for qualifying derivative transactions which impacted the calculation of EAD and risk- weighted assets (RWA). Some derivatives are not eligible for IMM and remain under SA-CCR. (2) Current replacement cost reflects the current mark-to-market (MTM) value of derivatives offset by eligible financial collateral, where present. (3) Under IMM, EEPE is used, which computes, through simulation, the expected exposures with consideration to the expected movements in underlying risk factor and netting/collateral agreements. The EAD is calculated as EEPE multiplied by the prescribed alpha factor of 1.4. The EAD under SA-CCR is calculated as the sum of replacement cost and potential future exposure, multiplied by the prescribed alpha factor of 1.4. The following table presents the current replacement cost of derivatives by geographic region based on the location of the derivative counterparty: $ millions, as at October 31 2021 Canada U.S. Other countries Total Canada U.S. Other countries 2020 Total Derivative instruments By counterparty type Financial institutions Governments Corporate $ 558 641 1,824 $ 1,693 1 3,445 $ 1,130 17 969 $ 3,381 659 6,238 $ 921 982 1,823 $ 949 – 1,774 $ 1,156 4 1,182 $ 3,026 986 4,779 Total derivative instruments $ 3,023 $ 5,139 $ 2,116 $ 10,278 $ 3,726 $ 2,723 $ 2,342 $ 8,791 CIBC 2021 ANNUAL REPORT 163 Consolidated financial statements Note 14 Designated accounting hedges Hedge accounting We apply hedge accounting as part of managing the market risk of certain non-trading portfolios arising from changes due to interest rates, foreign exchange rates, and equity market prices. See the shaded sections in “Non-trading activities” in the MD&A for further information on our risk management strategy for these risks. See Note 13 for further information on the derivatives used by CIBC. Interest rate risk The majority of our derivative contracts used to hedge certain exposures to benchmark interest rate risk are interest rate swaps. For fair value hedges, we convert our fixed interest rate exposures from the hedged financial instruments to floating interest rate exposures. For cash flow hedges, we convert certain exposures to cash flow variability from our variable rate instruments to fixed interest rate exposures. Foreign currency risk For our fair value hedges, we mainly use various combinations of cross-currency interest rate swaps and interest rate swaps to hedge our exposures to foreign currency risk together with interest rate risk, converting our fixed foreign currency rate exposures to floating functional currency rate exposures. For our cash flow hedges, the majority of our derivative contracts are used to hedge our exposures to cash flow variability arising from fluctuations in foreign exchange rates, and mainly consist of cross-currency interest rate swaps. For NIFO hedges, we use a combination of foreign denominated deposit liabilities and foreign exchange forwards to manage our foreign currency exposure of our NIFOs with a functional currency other than the Canadian dollar. Equity price risk We use cash-settled total return swaps in designated cash flow hedge relationships to hedge changes in CIBC’s share price in respect of certain cash-settled share-based compensation awards. Note 18 provides details on our cash-settled share-based compensation plans. For the hedge relationships described above, hedge effectiveness is assessed at the inception of the hedge relationship and on an ongoing basis, primarily using the dollar offset method. The sources of hedge ineffectiveness are mainly attributed to the following: Utilization of hedging instruments that have a non-zero fair value at the inception of the hedge relationship;  Differences in fixed rates, when contractual coupons of the fixed rate hedged items are designated;  Differences in the discounting factors between the hedged item and the hedging instruments arising from different rate reset frequencies and  timing of cash flows; and Differences in the discount curves to determine the basis adjustments of the hedged items and the fair value of the hedging derivatives, including from the application of OIS and CVA to the valuation of derivatives when they are applicable.  164 CIBC 2021 ANNUAL REPORT Consolidated financial statements Designated hedging instruments The following table provides a summary of financial instruments designated as hedging instruments: $ millions, as at October 31 2021 Cash flow hedges Foreign exchange risk Notional amount of the hedging instrument (1)(2) Maturity range Fair value of the hedging derivatives Less than 1 year 1-5 years Over 5 years Assets Liabilities Gains (losses) on changes in fair value used for calculating hedge ineffectiveness Cross-currency interest rate swaps $ 13,002 $ 6,605 $ 6,397 $ – $ 165 $ 191 $ (55) Interest rate risk Interest rate swaps Equity share price risk Equity swaps NIFO hedges Foreign exchange risk Foreign exchange forwards Deposits (3) Fair value hedges Interest rate risk Interest rate swaps Foreign exchange / interest rate risk Cross-currency interest rate swaps Interest rate swaps 12,073 4,846 7,227 1,679 964 715 – – – 44 – 1 $ 26,754 $ 12,415 $ 14,339 $ – $ 209 $ 192 $ 226 24,116 $ 226 24,116 $ $ 24,342 $ 24,342 $ – – – $ $ – – – $ $ $ 1 n/a 1 $ 1 n/a 1 (223) 529 251 14 1,534 1,548 $ $ $ $ 190,769 $ 72,010 $ 99,532 $ 19,227 $ 152 $ 162 $ 1,018 38,213 20,907 7,804 4,113 23,483 13,692 6,926 3,102 478 – 1,391 – $ 249,889 $ 83,927 $ 136,707 $ 29,255 $ 630 $ 1,553 $ 300,985 $ 120,684 $ 151,046 $ 29,255 $ 840 $ 1,746 48 (260) $ 806 $ 2,605 2020 Cash flow hedges Foreign exchange risk Cross-currency interest rate swaps $ 7,329 $ 3,692 $ 3,637 $ – $ 134 $ 161 $ 43 Interest rate risk Interest rate swaps Equity share price risk Equity swaps NIFO hedges Foreign exchange risk Foreign exchange forwards Deposits (3) Fair value hedges Interest rate risk Interest rate swaps Foreign exchange / interest rate risk Cross-currency interest rate swaps Interest rate swaps 15,104 6,085 9,019 1,171 1,012 159 – – 13 5 – 23 320 (131) $ 23,604 $ 10,789 $ 12,815 $ – $ 152 $ 184 $ 232 $ 247 20,409 $ 247 $ 20,409 $ 20,656 $ 20,656 $ – $ – – $ – $ – – $ – $ n/a – $ – n/a – $ (2) (154) $ (156) $ 205,518 $ 61,911 $ 126,570 $ 17,037 $ 170 $ 194 $ (815) 34,329 17,025 2,185 – 26,689 14,311 5,455 2,714 795 – $ 256,872 $ 301,132 $ $ 64,096 $ 167,570 $ 25,206 $ 965 $ 95,541 $ 180,385 $ 25,206 $ 1,117 $ 486 5 685 869 (26) 66 (775) (699) $ $ (1) For some hedge relationships, we apply a combination of derivatives to hedge the underlying exposures; therefore, the notional amounts of the derivatives generally exceed the carrying amount of the hedged items. (2) As at October 31, 2021, the notional amount of our derivatives in designated hedge accounting relationships that were indexed to U.S. LIBOR with a maturity date beyond June 30, 2023, and CHF LIBOR and GBP LIBOR with a maturity date beyond December 31, 2021, was $39 billion and $9 billion, respectively. See “Interest Rate Benchmark Reform” in Note 1 for details. (3) Notional amount represents the principal amount of deposits as at October 31, 2021 and October 31, 2020. n/a Not applicable. CIBC 2021 ANNUAL REPORT 165 Consolidated financial statements The following table provides the average rate or price of the hedging derivatives: As at October 31 2021 Cash flow hedges Foreign exchange risk Cross-currency interest rate swaps Interest rate risk Interest rate swaps Equity share price risk Equity swaps NIFO hedges Foreign exchange risk Foreign exchange forwards Fair value hedges Interest rate risk Interest rate swaps Foreign exchange / interest rate risk Cross-currency interest rate swaps Interest rate swaps 2020 Cash flow hedges Foreign exchange risk Cross-currency interest rate swaps Interest rate risk Interest rate swaps Equity share price risk Equity swaps NIFO hedges Foreign exchange risk Foreign exchange forwards Fair value hedges Interest rate risk Interest rate swaps Foreign exchange / interest rate risk Cross-currency interest rate swaps Interest rate swaps Average exchange rate (1) Average fixed interest rate (1) Average share price AUD – CAD GBP – CAD AUD – CAD HKD – CAD EUR – CAD GBP – CAD USD – CAD AUD – CAD EUR – CAD GBP – CAD AUD – CAD HKD – CAD EUR – CAD GBP – CAD USD – CAD CAD USD 0.94 1.72 n/a n/a n/a 0.92 0.16 n/a 1.57 % 0.77 % n/a n/a n/a n/a CAD 1.37 % 1.50 1.66 1.27 n/a n/a n/a 0.97 1.51 1.68 n/a n/a n/a 0.93 0.17 CHF EUR GBP 0.08 % 1.31 % 1.29 % (0.02)% (0.39)% 0.71 % n/a n/a CAD USD 1.60 % 1.65 % n/a n/a n/a n/a CAD 1.52 % 1.41 1.65 1.36 n/a n/a n/a CHF EUR GBP 0.12 % 1.06 % 1.69 % (0.41)% 0.00 % 0.71 % n/a n/a n/a $ 118.17 n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a $ 105.11 n/a n/a n/a n/a n/a n/a n/a n/a n/a (1) Includes average foreign exchange rates and interest rates relating to significant hedging relationships. n/a Not applicable. 166 CIBC 2021 ANNUAL REPORT Consolidated financial statements Designated hedged items The following table provides information on designated hedged items: $ millions, as at or for the year ended October 31 Assets Liabilities Assets Liabilities Carrying amount of the hedged item Accumulated amount of fair value hedge adjustments on the hedged item Gains (losses) on change in fair value used for calculating hedge ineffectiveness 2021 Cash flow hedges (1) Foreign exchange risk Deposits Interest rate risk Loans Equity share price risk Share-based payment NIFO hedges Fair value hedges (2) Interest rate risk Securities Loans Deposits Subordinated indebtedness Foreign exchange / interest rate risk Deposits 2020 Cash flow hedges (1) Foreign exchange risk Deposits Interest rate risk Loans Equity share price risk Share-based payment NIFO hedges Fair value hedges (2) Interest rate risk Securities Loans Deposits Subordinated indebtedness Foreign exchange / interest rate risk Loans Deposits $ – $ 5,514 12,070 – $ 12,070 $ 24,342 $ 31,661 45,180 – – $ $ $ – 1,549 7,063 – – – 91,414 5,419 – $ 76,841 19,662 $ 116,495 $ – $ 3,132 15,092 – $ 15,092 $ 20,656 $ 33,319 62,171 – – $ $ $ – 1,061 4,193 – – – 90,597 4,632 5 – $ 95,495 – 17,331 $ 112,560 n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a $ $ (243) (583) – – – (826) $ $ – – (261) 10 (154) (405) n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a $ 1,347 1,005 – – – – $ 2,352 $ – – 1,466 202 – 81 $ 1,749 $ 54 223 (529) $ (252) $ (1,548) $ (1,403) (1,340) 1,568 192 217 (766) $ $ (44) (320) 131 (233) 156 783 1,161 (1,019) (113) – (35) 777 $ $ $ $ (1) As at October 31, 2021, the amount remaining in AOCI related to discontinued cash flow hedges was a net gain of $73 million (2020: $134 million). (2) As at October 31, 2021, the accumulated fair value hedge net asset adjustment remaining on the consolidated balance sheet related to discontinued fair value hedges was $44 million (2020: net asset of $75 million). n/a Not applicable. Hedge accounting gains (losses) in the consolidated statement of comprehensive income $ millions, for the year ended October 31 2021 Cash flow hedges Foreign exchange risk Interest rate risk Equity share price risk NIFO hedges – foreign exchange risk Hedges of net investment in foreign operations 2020 Cash flow hedges Foreign exchange risk Interest rate risk Equity share price risk NIFO hedges – foreign exchange risk Hedges of net investment in foreign operations Beginning balance of AOCI – hedge reserve (after-tax) Change in the value of the hedging instrument recognized in OCI (before-tax) Amount reclassified from accumulated OCI to income (before-tax) (1) Tax benefit (expense) Ending balance of AOCI hedge reserve (after-tax) Hedge ineffectiveness gains (losses) recognized in income $ $ (2) 279 (3) 274 $ $ (64) (223) 529 242 $ 57 (63) (421) $ (427) $ $ 2 75 (29) 48 $ $ (7) 68 76 137 $ $ – – – – $ (1,341) $ 1,548 $ $ (2) 98 17 113 $ $ 4 320 (131) 193 $ (1,139) $ (156) $ $ $ $ – $ (53) $ 154 $ – (4) (74) 104 26 $ $ – (65) 7 (58) $ $ (2) 279 (3) 274 $ (2) – – $ (2) – $ (46) $ (1,341) $ – (1) During the year ended October 31, 2021, the amount reclassified from AOCI to net income for cash flow hedges of forecasted transactions that were no longer expected to occur was nil (2020: immaterial). CIBC 2021 ANNUAL REPORT 167 Consolidated financial statements Hedge accounting gains (losses) in the consolidated statement of income $ millions, for the year ended October 31 2021 Fair value hedges Interest rate risk Foreign exchange / interest rate risk 2020 Fair value hedges Interest rate risk Foreign exchange / interest rate risk Note 15 Subordinated indebtedness Gains (losses) on the hedging instruments Gains (losses) on the hedged items attributable to hedged risk Hedge ineffectiveness gains (losses) recognized in income $ 1,018 (212) $ $ 806 (815) 40 $ (775) $ (983) 217 $ (766) $ 812 (35) $ 777 $ 35 5 $ 40 $ (3) 5 $ 2 The debt issues included in the table below are outstanding unsecured obligations of CIBC and its subsidiaries and are subordinated to the claims of depositors and other creditors as set out in their terms. Foreign currency denominated indebtedness funds foreign currency denominated assets. All redemptions are subject to regulatory approval. Terms of subordinated indebtedness $ millions, as at October 31 Interest rate % Contractual maturity date Earliest date redeemable At greater of Canada Yield Price (1) and par At par Denominated in foreign currency TT$175 million $ 5.75 (3) 3.42 (5)(6) 3.45 (5)(8) 8.70 2.95 (5)(9) 2.01 (10) 11.60 1.96 (11) 10.80 8.70 8.70 8.70 Floating (12) Floating (14) July 11, 2024 (4) January 26, 2026 April 4, 2028 May 25, 2029 (4) June 19, 2029 July 21, 2030 January 7, 2031 April 21, 2031 May 15, 2031 May 25, 2032 (4) May 25, 2033 (4) May 25, 2035 (4) July 31, 2084 August 31, 2085 January 26, 2021 (7) April 4, 2023 June 19, 2024 July 21, 2025 April 21, 2026 January 7, 1996 May 15, 2021 July 27, 1990 August 20, 1991 US$38 million (13) US$11 million (15) 2021 2020 Par value 32 – 1,500 25 1,500 1,000 200 1,000 150 25 25 25 47 14 Carrying value (2) $ 32 – 1,525 37 1,484 976 196 976 146 39 40 42 47 14 $ Par value 35 1,000 1,500 25 1,500 1,000 200 – 150 25 25 25 59 17 Carrying value (2) $ 35 1,001 1,568 40 1,535 1,000 214 – 160 44 45 48 59 17 Subordinated indebtedness sold short (held) for trading purposes 5,543 (15) 5,554 (15) 5,561 (54) 5,766 (54) $ 5,528 $ 5,539 $ 5,507 $ 5,712 (1) Canada Yield Price: a price calculated at the time of redemption to provide a yield to maturity equal to the yield of a Government of Canada bond of appropriate maturity plus a pre-determined spread. (2) Carrying values of fixed-rate subordinated indebtedness notes reflect the impact of interest rate hedges in an effective hedge relationship. (3) Guaranteed Subordinated Term Notes in Trinidad and Tobago dollars issued on July 11, 2018 by FirstCaribbean International Bank (Trinidad & Tobago) Limited, a subsidiary of CIBC FirstCaribbean, and guaranteed on a subordinated basis by CIBC FirstCaribbean. (4) Not redeemable prior to maturity date. (5) Debentures are also subject to a non-viability contingent capital (NVCC) provision, necessary for the Debentures to qualify as Tier 2 regulatory capital under Basel III. As such, the Debentures are automatically converted into common shares upon the occurrence of a Trigger Event as described in the capital adequacy guidelines. In such an event, the Debentures are convertible into a number of common shares, determined by dividing 150% of the par value plus accrued and unpaid interest by the average common share price (as defined in the relevant prospectus supplements) subject to a minimum price of $5.00 per share (subject to adjustment in certain events as defined in the relevant prospectus supplements). (6) Interest rate is fixed at the indicated rate until the earliest date redeemable at par by CIBC and, thereafter, at a rate of 2.57% above the three-month Canadian dollar bankers’ acceptance rate. (7) On January 26, 2021, we redeemed all $1.0 billion of our 3.42% Debentures due January 26, 2026. In accordance with their terms, the Debentures were redeemed at 100% of their principal amount, plus accrued and unpaid interest thereon. (8) Interest rate is fixed at the indicated rate until the earliest date redeemable at par by CIBC and, thereafter, at a rate of 1.00% above the three-month Canadian dollar bankers’ acceptance rate. (9) Interest rate is fixed at the indicated rate until the earliest date redeemable at par by CIBC and, thereafter, at a rate of 1.18% above the three-month Canadian dollar bankers’ acceptance rate. (10) Interest rate is fixed at the indicated rate until the earliest date redeemable at par by CIBC and, thereafter, at a rate of 1.28% above the three-month Canadian dollar bankers’ acceptance rate. (11) Interest rate is fixed at the indicated rate until the earliest date redeemable at par by CIBC and, thereafter, at a rate of 0.56% above the three-month Canadian dollar bankers’ acceptance rate. (12) Interest rate is based on the six-month US$ LIBOR plus 0.25%. (13) US$6 million (2020: US$21 million) of this issue was repurchased and cancelled during 2021. (14) Interest rate is based on the six-month US$ LIBOR plus 0.125%. (15) US$2 million (2020: US$4 million) of this issue was repurchased and cancelled during 2021. 168 CIBC 2021 ANNUAL REPORT Consolidated financial statements Note 16 Common and preferred shares and other equity instruments The following table presents the number of common and preferred shares outstanding and dividends paid, and other equity instruments and distributions paid thereon: Common and preferred shares outstanding and other equity instruments $ millions, except number of shares and per share amounts, as at or for the year ended October 31 Shares outstanding Number 2021 Dividends and distributions paid Shares outstanding 2020 Dividends and distributions paid Shares outstanding 2019 Dividends and distributions paid of shares Amount Amount $ per share Number of shares Amount Amount $ per share Number of shares Amount Amount $ per share Common shares 450,829,278 $ 14,351 $ 2,622 $ 5.84 446,932,750 $ 13,892 $ 2,592 $ 5.82 445,325,744 $ 13,589 $ 2,488 $ 5.60 Class A Preferred Shares Series 39 Series 41 Series 43 Series 45 Series 47 Series 49 Series 51 16,000,000 12,000,000 12,000,000 32,000,000 18,000,000 13,000,000 10,000,000 400 300 300 800 450 325 250 15 12 9 35 20 17 13 0.93 16,000,000 0.98 12,000,000 0.79 12,000,000 1.10 32,000,000 1.13 18,000,000 1.30 13,000,000 1.29 10,000,000 400 300 300 800 450 325 250 15 12 10 35 20 17 13 0.93 16,000,000 0.97 12,000,000 0.87 12,000,000 1.10 32,000,000 1.13 18,000,000 1.30 13,000,000 1.29 10,000,000 400 300 300 800 450 325 250 16 11 11 35 20 13 5 0.96 0.94 0.90 1.10 1.13 1.00 0.53 $ 2,825 $ 121 $ 2,825 $ 122 $ 2,825 $ 111 Treasury shares – common shares Treasury shares – preferred shares (1,302) $ (20) – – 152,579 $ – 16 – 15,931 $ – 2 – Other Equity Instruments Limited recourse capital notes Series 1 (1) Limited recourse capital notes Series 2 (3) $ $ 750 $ 37 4.375% (2) 750 $ – 4.000% (2) $ $ 750 $ – 4.375% (2) – $ – $ $ – $ – $ – – (1) See 4.375% Limited Recourse Capital Notes Series 1 (NVCC) (subordinated indebtedness) section below for details. (2) Represents the annual interest rate percentage applicable to the LRCNs issued as at October 31 for each respective year. (3) See 4.000% Limited Recourse Capital Notes Series 2 (NVCC) (subordinated indebtedness) section below for details. Common shares CIBC’s authorized capital consists of an unlimited number of common shares, without nominal or par value. Common shares issued $ millions, except number of shares, as at or for the year ended October 31 Number of shares 2021 Amount Number of shares 2020 Amount Number of shares 2019 Amount Balance at beginning of year Issuance pursuant to: Equity-settled share-based compensation plans (1) Shareholder investment plan Employee share purchase plan Purchase of common shares for cancellation Treasury shares 447,085,329 $ 13,908 445,341,675 $ 13,591 442,826,380 $ 13,243 1,705,070 1,011,279 1,180,179 450,981,857 – (153,881) 176 132 150 823,502 1,534,320 1,457,784 87 144 140 511,567 1,777,738 1,213,078 52 194 131 $ 14,366 – (15) 449,157,281 (2,208,600) 136,648 $ 13,962 (68) 14 446,328,763 (1,000,000) 12,912 $ 13,620 (30) 1 Balance at end of year 450,827,976 $ 14,351 447,085,329 $ 13,908 445,341,675 $ 13,591 (1) Includes the settlement of contingent consideration related to prior acquisitions. Common shares reserved for issue As at October 31, 2021, 13,470,943 common shares (2020: 14,996,337) were reserved for future issue pursuant to stock option plans, 11,837,505 common shares (2020: 12,848,784) were reserved for future issue pursuant to the Shareholder Investment Plan, 6,823,960 common shares (2020: 8,183,815) were reserved for future issue pursuant to the ESPP and other activities, and 2,397,018,750 common shares (2020: 2,246,208,750) were reserved for future issue pursuant to instruments which include an NVCC provision requiring conversion into common shares upon the occurrence of a Trigger Event as described in the capital adequacy guidelines. Normal course issuer bid On March 13, 2020, following the onset of the COVID-19 pandemic, OSFI imposed temporary measures on federally regulated financial institutions to cease dividend increases and share buybacks in order to ensure that the additional capital available is used to support Canadian lending activities. The temporary measures were lifted by OSFI effective November 4, 2021. We intend to purchase for cancellation up to 10 million common shares, or approximately 2.2% of our outstanding common shares, under a new NCIB, subject to the approval of the TSX. Our previous bid expired on June 3, 2020. CIBC 2021 ANNUAL REPORT 169 Consolidated financial statements Preferred shares and other equity instruments CIBC is authorized to issue an unlimited number of Class A Preferred Shares and Class B Preferred Shares without nominal or par value, issuable in series, provided that, for each class of preferred shares, the maximum aggregate consideration for all outstanding shares at any time does not exceed $10 billion. There are no Class B Preferred Shares currently outstanding. Preferred share and other equity instruments rights and privileges Class A Preferred Shares Each series of Class A Preferred Shares bears quarterly non-cumulative dividends. Non-cumulative Rate Reset Class A Preferred Shares Series 39, 41, 43, 45, 47, 49, and 51 (NVCC) are redeemable, subject to regulatory approval if required, for cash by CIBC on or after the specified redemption dates at the cash redemption prices indicated in the terms of the preferred shares. Non-cumulative Rate Reset Class A Preferred Shares Series 39 (NVCC) (Series 39 shares) On June 11, 2014, we issued 16 million Series 39 shares with a par value of $25.00 per share, for gross proceeds of $400 million. For the initial five- year period to the earliest redemption date of July 31, 2019, the Series 39 shares paid quarterly cash dividends, as declared, at a rate of 3.90%. The dividend was reset to 3.713%, payable quarterly as and when declared by the Board, effective for the five-year period commencing July 31, 2019. On July 31, 2024, and on July 31 every five years thereafter, the dividend rate will reset to be equal to the then current five-year Government of Canada bond yield plus 2.32%. Holders of the Series 39 shares had the right to convert their shares on a one-for-one basis into Non-cumulative Floating Rate Class A Preferred Shares Series 40 (NVCC) (Series 40 shares), subject to certain conditions, on July 31, 2019. As the conditions for conversion were not met, no Series 40 shares were issued, and all of the Series 39 shares remain outstanding. Holders of the Series 39 shares will have the right to convert their shares on a one-for-one basis into Series 40 shares, subject to certain conditions, on July 31, 2024 and on July 31 every five years thereafter. Holders of the Series 40 shares will be entitled to receive a quarterly floating rate dividend, if declared, equal to the three-month Government of Canada Treasury Bill yield plus 2.32%. Holders of the then outstanding Series 40 shares may convert their shares on a one-for-one basis into Series 39 shares, subject to certain conditions, on July 31, 2029 and on July 31 every five years thereafter. Subject to regulatory approval and certain provisions of the shares, we may redeem all or any part of the then outstanding Series 39 shares at par on July 31, 2024, and on July 31 every five years thereafter; we may redeem all or any part of the then outstanding Series 40 shares at par on July 31, 2029, and on July 31 every five years thereafter. Non-cumulative Rate Reset Class A Preferred Shares Series 41 (NVCC) (Series 41 shares) On December 16, 2014, we issued 12 million Series 41 shares with a par value of $25.00 per share, for gross proceeds of $300 million. For the initial five-year period to the earliest redemption date of January 31, 2020, the Series 41 shares paid quarterly cash dividends, as declared, at a rate of 3.75%. The dividend was reset to 3.909%, payable quarterly as and when declared by the Board, effective for the five-year period commencing January 31, 2020. On January 31, 2025, and on January 31 every five years thereafter, the dividend rate will reset to be equal to the then current five-year Government of Canada bond yield plus 2.24%. Holders of the Series 41 shares had the right to convert their shares on a one-for-one basis into Non-cumulative Floating Rate Class A Preferred Shares Series 42 (NVCC) (Series 42 shares), subject to certain conditions, on January 31, 2020. As the conditions for conversion were not met, no Series 42 shares were issued, and all of the Series 41 shares remain outstanding. Holders of the Series 41 shares will have the right to convert their shares on a one-for-one basis into Series 42 shares, subject to certain conditions, on January 31, 2025 and on January 31 every five years thereafter. Holders of the Series 42 shares will be entitled to receive a quarterly floating rate dividend, if declared, equal to the three-month Government of Canada Treasury Bill yield plus 2.24%. Holders of the then outstanding Series 42 shares may convert their shares on a one-for-one basis into Series 41 shares, subject to certain conditions, on January 31, 2030 and on January 31 every five years thereafter. Subject to regulatory approval and certain provisions of the shares, we may redeem all or any part of the then outstanding Series 41 shares at par on January 31, 2025 and on January 31 every five years thereafter; we may redeem all or any part of the then outstanding Series 42 shares at par on January 31, 2030 and on January 31 every five years thereafter. Non-cumulative Rate Reset Class A Preferred Shares Series 43 (NVCC) (Series 43 shares) On March 11, 2015, we issued 12 million Series 43 shares with a par value of $25.00 per share, for gross proceeds of $300 million. For the initial five-year period to the earliest redemption date of July 31, 2020, the Series 43 shares paid quarterly cash dividends, as declared, at a rate of 3.60%. The dividend was reset to 3.143%, payable quarterly as and when declared by the Board, effective for the five-year period commencing July 31, 2020. On July 31, 2025, and on July 31 every five years thereafter, the dividend rate will reset to be equal to the then current five-year Government of Canada bond yield plus 2.79%. Holders of the Series 43 shares had the right to convert their shares on a one-for-one basis into Non-cumulative Floating Rate Class A Preferred Shares Series 44 (NVCC) (Series 44 shares), subject to certain conditions, on July 31, 2020. As the conditions for conversion were not met, no Series 44 shares were issued, and all of the Series 43 shares remain outstanding. Holders of the Series 43 shares will have the right to convert their shares on a one-for-one basis into Series 44 shares, subject to certain conditions, on July 31, 2025 and on July 31 every five years thereafter. Holders of the Series 44 shares will be entitled to receive a quarterly floating rate dividend, if declared, equal to the three-month Government of Canada Treasury Bill yield plus 2.79%. Holders of the then outstanding Series 44 shares may convert their shares on a one-for-one basis into Series 43 shares, subject to certain conditions, on July 31, 2030 and on July 31 every five years thereafter. Subject to regulatory approval and certain provisions of the shares, we may redeem all or any part of the then outstanding Series 43 shares at par on July 31, 2025 and on July 31 every five years thereafter; we may redeem all or any part of the then outstanding Series 44 shares at par on July 31, 2030 and on July 31 every five years thereafter. Non-cumulative Rate Reset Class A Preferred Shares Series 45 (NVCC) (Series 45 shares) On June 2, 2017, we issued 32 million Series 45 shares with a par value of $25.00 per share, for gross proceeds of $800 million. For the initial five-year period to the earliest redemption date of July 31, 2022, the Series 45 shares pay quarterly cash dividends, as declared, at a rate of 4.40%. On July 31, 2022, and on July 31 every five years thereafter, the dividend rate will reset to be equal to the then current five-year Government of Canada bond yield plus 3.38%. Holders of the Series 45 shares will have the right to convert their shares on a one-for-one basis into Non-cumulative Floating Rate Class A Preferred Shares Series 46 (NVCC) (Series 46 shares), subject to certain conditions, on July 31, 2022 and on July 31 every five years thereafter. Holders of the Series 46 shares will be entitled to receive a quarterly floating rate dividend, if declared, equal to the three-month Government of Canada Treasury Bill yield plus 3.38%. Holders of the then outstanding Series 46 shares may convert their shares on a one-for-one basis into Series 45 shares, subject to certain conditions, on July 31, 2027 and on July 31 every five years thereafter. 170 CIBC 2021 ANNUAL REPORT Consolidated financial statements Subject to regulatory approval and certain provisions of the shares, we may redeem all or any part of the then outstanding Series 45 shares at par on July 31, 2022 and on July 31 every five years thereafter; we may redeem all or any part of the then outstanding Series 46 shares at par on July 31, 2027 and on July 31 every five years thereafter. Non-cumulative Rate Reset Class A Preferred Shares Series 47 (NVCC) (Series 47 shares) On January 18, 2018, we issued 18 million Non-cumulative Rate Reset Class A Preferred Shares Series 47 (NVCC) (Series 47 shares) with a par value of $25.00 per share, for gross proceeds of $450 million. For the initial five-year period to the earliest redemption date of January 31, 2023, the Series 47 shares pay quarterly cash dividends, as declared, at a rate of 4.50%. On January 31, 2023, and on January 31 every five years thereafter, the dividend rate will reset to be equal to the then current five-year Government of Canada bond yield plus 2.45%. Holders of the Series 47 shares will have the right to convert their shares on a one-for-one basis into Non-cumulative Floating Rate Class A Preferred Shares Series 48 (NVCC) (Series 48 shares), subject to certain conditions, on January 31, 2023 and on January 31 every five years thereafter. Holders of the Series 48 shares will be entitled to receive a quarterly floating rate dividend, if declared, equal to the three-month Government of Canada Treasury Bill yield plus 2.45%. Holders of the then outstanding Series 48 shares may convert their shares on a one-for-one basis into Series 47 shares, subject to certain conditions, on January 31, 2028 and on January 31 every five years thereafter. Subject to regulatory approval and certain provisions of the shares, we may redeem all or any part of the then outstanding Series 47 shares at par on January 31, 2023 and on January 31 every five years thereafter; we may redeem all or any part of the then outstanding Series 48 shares at par on January 31, 2028 and on January 31 every five years thereafter. Non-cumulative Rate Reset Class A Preferred Shares Series 49 (NVCC) (Series 49 shares) On January 22, 2019, we issued 13 million Non-cumulative Rate Reset Class A Preferred Shares Series 49 (NVCC) (Series 49 shares) with a par value of $25.00 per share, for gross proceeds of $325 million. For the initial five-year period to the earliest redemption date of April 30, 2024, the Series 49 shares pay quarterly cash dividends, as declared, at a rate of 5.20%. On April 30, 2024, and on April 30 every five years thereafter, the dividend rate will reset to be equal to the then current five-year Government of Canada bond yield plus 3.31%. Holders of the Series 49 shares will have the right to convert their shares on a one-for-one basis into Non-cumulative Floating Rate Class A Preferred Shares Series 50 (NVCC) (Series 50 shares), subject to certain conditions, on April 30, 2024 and on April 30 every five years thereafter. Holders of the Series 50 shares will be entitled to receive a quarterly floating rate dividend, if declared, equal to the three-month Government of Canada Treasury Bill yield plus 3.31%. Holders of the then outstanding Series 50 shares may convert their shares on a one-for-one basis into Series 49 shares, subject to certain conditions, on April 30, 2029 and on April 30 every five years thereafter. Subject to regulatory approval and certain provisions of the shares, we may redeem all or any part of the then outstanding Series 49 shares at par on April 30, 2024 and on April 30 every five years thereafter; we may redeem all or any part of the then outstanding Series 50 shares at par on April 30, 2029 and on April 30 every five years thereafter. Non-cumulative Rate Reset Class A Preferred Shares Series 51 (NVCC) (Series 51 shares) On June 4, 2019, we issued 10 million Non-cumulative Rate Reset Class A Preferred Shares Series 51 (NVCC) (Series 51 shares) with a par value of $25.00 per share, for gross proceeds of $250 million. For the initial five-year period to the earliest redemption date of July 31, 2024, the Series 51 shares pay quarterly cash dividends, as declared, at a rate of 5.15%. On July 31, 2024, and on July 31 every five years thereafter, the dividend rate will reset to be equal to the then current five-year Government of Canada bond yield plus 3.62%. Holders of the Series 51 shares will have the right to convert their shares on a one-for-one basis into Non-cumulative Floating Rate Class A Preferred Shares Series 52 (NVCC) (Series 52 shares), subject to certain conditions, on July 31, 2024 and on July 31 every five years thereafter. Holders of the Series 52 shares will be entitled to receive a quarterly floating rate dividend, if declared, equal to the three-month Government of Canada Treasury Bill yield plus 3.62%. Holders of the then outstanding Series 52 shares may convert their shares on a one-for-one basis into Series 51 shares, subject to certain conditions, on July 31, 2029 and on July 31 every five years thereafter. Subject to regulatory approval and certain provisions of the shares, we may redeem all or any part of the then outstanding Series 51 shares at par on July 31, 2024 and on July 31 every five years thereafter; we may redeem all or any part of the then outstanding Series 52 shares at par on July 31, 2029 and on July 31 every five years thereafter. 4.375% Limited Recourse Capital Notes Series 1 (NVCC) (subordinated indebtedness) (LRCN Series 1 Notes) On September 16, 2020, we issued $750 million principal amount of 4.375% Limited Recourse Capital Notes Series 1 (NVCC) (subordinated indebtedness). The LRCN Series 1 Notes mature on October 28, 2080, and bear interest at a fixed rate of 4.375% per annum (paid semi-annually) until October 28, 2025. Starting on October 28, 2025, and every five years thereafter until October 28, 2075, the interest rate will be reset to the then current five-year Government of Canada bond yield plus 4.000% per annum. Concurrently with the issuance of the LRCN Series 1 Notes, we issued Non-Cumulative 5-Year Fixed Rate Reset Class A Preferred Shares Series 53 (NVCC) (Series 53 Preferred Shares) which are held in the CIBC LRCN Limited Recourse Trust (Limited Recourse Trust) that is consolidated by CIBC and as a result the Series 53 Preferred Shares are eliminated in CIBC’s consolidated financial statements. In the event of non-payment by CIBC of the principal amount of, interest on, or redemption price for, the LRCN Series 1 Notes when due, the sole remedy of each LRCN Series 1 Note holder is limited to that holder’s proportionate share of the Series 53 Preferred Shares held in the Limited Recourse Trust. Subject to regulatory approval, we may redeem the LRCN Series 1 Notes, in whole or in part, every five years during the period from September 28 to and including October 28, commencing in 2025, at par. The LRCN Series 1 Notes and the Series 53 Preferred Shares carry standard NVCC provisions necessary for them to qualify as Tier 1 regulatory capital under Basel III (see “NVCC conversion mechanics” below). Upon the occurrence of a Trigger Event, each Series 53 Preferred Share held in the Limited Recourse Trust will automatically and immediately be converted, without the consent of LRCN Series 1 Note holders, into a variable number of common shares which will be delivered to LRCN Series 1 Note holders in satisfaction of the principal amount of, and accrued and unpaid interest on, all of the LRCN Series 1 Notes. All claims of LRCN Series 1 Note holders against CIBC under the LRCN Series 1 Notes will be extinguished upon receipt of such common shares. 4.000% Limited Recourse Capital Notes Series 2 (NVCC) (subordinated indebtedness) (LRCN Series 2 Notes) On September 14, 2021, we issued $750 million principal amount of 4.000% Limited Recourse Capital Notes Series 2 (NVCC) (subordinated indebtedness). The LRCN Series 2 Notes mature on January 28, 2082, and bear interest at a fixed rate of 4.000% per annum (paid semi-annually) until January 28, 2027. Starting on January 28, 2027, and every five years thereafter until January 28, 2077, the interest rate will be reset to the then current five-year Government of Canada bond yield plus 3.102% per annum. CIBC 2021 ANNUAL REPORT 171 Consolidated financial statements Concurrently with the issuance of the LRCN Series 2 Notes, we issued Non-Cumulative 5-Year Fixed Rate Reset Class A Preferred Shares Series 54 (NVCC) (the Series 54 Preferred Shares) which are held in the Limited Recourse Trust that is consolidated by CIBC and as a result the Series 54 Preferred Shares are eliminated in CIBC’s consolidated financial statements. In the event of non-payment by CIBC of the principal amount of, interest on, or redemption price for, the LRCN Series 2 Notes when due, the sole remedy of each LRCN Series 2 Note holder is limited to that holder’s proportionate share of the Series 54 Preferred Shares held in the Limited Recourse Trust. Subject to regulatory approval, we may redeem the LRCN Series 2 Notes, in whole or in part, every five years during the period from December 28 to and including January 28, commencing on December 28, 2026, at par. The LRCN Series 2 Notes and the Series 54 Preferred Shares carry standard NVCC provisions necessary for them to qualify as Tier 1 regulatory capital under Basel III (see “NVCC conversion mechanics” below). Upon the occurrence of a Trigger Event, each Series 54 Preferred Share held in the Limited Recourse Trust will automatically and immediately be converted, without the consent of LRCN Series 2 Note holders, into a variable number of common shares which will be delivered to LRCN Series 2 Note holders in satisfaction of the principal amount of, and accrued and unpaid interest on, all of the LRCN Series 2 Notes. All claims of LRCN Series 2 Note holders against CIBC under the LRCN Series 2 Notes will be extinguished upon receipt of such common shares. Limited Recourse Capital Notes (the Notes) The Notes are compound instruments with both equity and liability features as payments of interest and principal in cash are made at our discretion, as the sole recourse of each Note holder in the event of non-payment will be limited to that holder’s proportionate share of the non-cumulative Rate Reset Class A Preferred Shares Series 53 and 54 held in the Limited Recourse Trust. The liability component of the Notes has a nominal value and, as a result, the full proceeds received upon the issuance of the Notes have been presented as equity on the consolidated balance sheet and any interest payments paid thereon are accounted for as equity distributions. NVCC conversion mechanics Each series of Class A preferred shares discussed above are subject to an NVCC provision, necessary for the shares to qualify as regulatory capital under Basel III. As such, the shares are automatically converted into common shares upon the occurrence of a “Trigger Event”. As described in the Capital Adequacy Guidelines, a Trigger Event occurs when OSFI determines the bank is or is about to become non-viable and, if after conversion of all contingent instruments and consideration of any other relevant factors or circumstances, it is reasonably likely that its viability will be restored or maintained; or if the bank has accepted or agreed to accept a capital injection or equivalent support from a federal or provincial government, without which OSFI would have determined the bank to be non-viable. Each such share is convertible into a number of common shares, determined by dividing the par value of $25.00 ($1,000 in the case of the Series 53 and 54 Preferred Shares) plus declared and unpaid dividends (except for the Series 53 and 54 Preferred Shares while held in the Limited Recourse Trust) by the average common share price (as defined in the relevant prospectus supplement) subject to a minimum price of $5.00 per share (subject to adjustment in certain events as defined in the relevant prospectus supplement). We have recorded the Series 39, Series 41, Series 43, Series 45, Series 47, Series 49, and Series 51 shares as equity. Terms of Class A Preferred Shares Outstanding as at October 31, 2021 Series 39 Series 41 Series 43 Series 45 Series 47 Series 49 Series 51 Quarterly dividends per share (1) Earliest specified redemption date Cash redemption price per share $ 0.232063 July 31, 2024 $ 0.244313 January 31, 2025 $ 0.196438 $ 0.275000 July 31, 2025 July 31, 2022 $ 0.281250 January 31 2023 $ 0.325000 $ 0.321875 April 30, 2024 July 31, 2024 $ 25.00 $ 25.00 $ 25.00 $ 25.00 $ 25.00 $ 25.00 $ 25.00 (1) Quarterly dividends may be adjusted depending on the timing of issuance or redemption. Restrictions on the payment of dividends Under Section 79 of the Bank Act (Canada), a bank, including CIBC, is prohibited from declaring or paying any dividends on its preferred or common shares if there are reasonable grounds for believing that the bank is, or the payment would cause it to be, in contravention of any capital adequacy or liquidity regulation or any direction to the bank made by OSFI. As noted above, OSFI imposed measures on federally regulated financial institutions to cease dividend increases in March 2020. The temporary measures were lifted effective November 4, 2021. In addition, our ability to pay common share dividends is also restricted by the terms of the outstanding preferred shares. These terms provide that we may not pay dividends on our common shares at any time without the approval of holders of the outstanding preferred shares, unless all dividends to preferred shareholders that are then payable have been declared and paid or set apart for payment. Our Series 53 and 54 Preferred Shares further limit the payment of dividends on the outstanding Class A Preferred Shares Series 39 to 51 in certain limited circumstances. We had agreed that if CIBC Capital Trust failed to pay any interest payments on its $300 million of CIBC Tier 1 Notes – Series B, due June 30, 2108, we would not declare dividends of any kind on any of our preferred or common shares for a specified period of time. These Notes were redeemed on November 1, 2021. For additional details, see Note 17. Currently, these limitations do not restrict the payment of dividends on our preferred or common shares. Capital Objectives, policy and procedures Our overall capital management objective is to employ a strong and efficient capital base. We manage capital in accordance with a capital policy approved by the Board, which includes specific guidelines that relate to capital strength, capital mix, dividends and return of capital, and the unconsolidated capital adequacy of regulated entities. Capital is monitored continuously for compliance. Each year, a Capital Plan and three-year outlook are established as a part of the financial plan, and they encompass all material elements of capital: forecasts of sources and uses of capital including earnings, dividends, business growth, and corporate initiatives, as well as maturities, redemptions, and issuances of capital instruments. The Capital Plan is stress-tested to ensure that it is sufficiently robust under severe but plausible stress scenarios. The level of capital and capital ratios are monitored throughout the year including a comparison to the Capital Plan. There were no significant changes made to the objectives, policy, guidelines and procedures during the year. 172 CIBC 2021 ANNUAL REPORT Consolidated financial statements Regulatory capital requirements under Basel III Our regulatory capital requirements are determined in accordance with guidelines issued by OSFI, which are based on the capital standards developed by the Basel Committee on Banking Supervision (BCBS). CIBC has been designated by OSFI as a domestic systemically important bank (D-SIB) in Canada, and is subject to a Common Equity Tier 1 (CET1) surcharge equal to 1.0% of RWA. OSFI also expects D-SIBs to hold a Domestic Stability Buffer (DSB) of 2.5% effective October 31, 2021, reflecting an increase from 1.0% since March 2020. The 2.5% reflects the highest DSB requirement under OSFI capital requirements. This results in current targets, including all buffer requirements, for CET1, Tier 1 and Total capital ratios of 10.5%, 12.0%, and 14.0%, respectively. These targets may be higher for certain institutions at OSFI’s discretion. Regulatory capital and ratios Regulatory capital under Basel III consists of CET1, Tier 1 and Tier 2 capital. CET1 capital includes common shares, retained earnings, AOCI (excluding AOCI relating to cash flow hedges and changes to FVO liabilities attributable to changes in own credit risk), and qualifying instruments issued by a consolidated banking subsidiary to third parties, less regulatory adjustments for items such as goodwill and other intangible assets (net of related deferred tax liabilities), certain deferred tax assets, net assets related to defined benefit pension plans as reported on our consolidated balance sheet (net of related deferred tax liabilities), and certain investments. Additional Tier 1 (AT1) capital primarily includes NVCC preferred shares, Limited Recourse Capital Notes, qualifying instruments issued by a consolidated subsidiary to third parties, and non-qualifying innovative Tier 1 notes subject to phase-out rules for capital instruments. Tier 2 capital includes NVCC subordinated indebtedness, non-qualifying subordinated indebtedness subject to phase-out rules for capital instruments, eligible collective allowance under the standardized approach, and qualifying instruments issued by a consolidated subsidiary to third parties. Our capital ratios and leverage ratio are presented in the table below: $ millions, as at October 31 CET1 capital (1) Tier 1 capital Total capital Total RWA CET1 ratio Tier 1 capital ratio Total capital ratio Leverage ratio exposure Leverage ratio A $ 2021 33,751 38,344 44,202 $ 2020 30,876 34,775 40,969 272,814 254,871 12.4 % 14.1 % 16.2 % 12.1 % 13.6 % 16.1 % B A/B $ 823,343 $ 741,760 4.7 % 4.7 % (1) Beginning in the second quarter of 2020, includes the impact of the ECL transitional arrangement announced by OSFI on March 27, 2020. The transitional arrangement results in a portion of ECL allowances that would otherwise be included in Tier 2 capital qualifying for inclusion in CET1 capital. The amount is subject to certain adjustments and limitations until 2022. During the years ended October 31, 2021 and 2020, we have complied with OSFI’s regulatory capital requirements. Note 17 Capital Trust securities CIBC Capital Trust is a trust wholly owned by CIBC and established under the laws of the Province of Ontario. As at October 31, 2021, CIBC Capital Trust had $300 million outstanding of CIBC Tier 1 Notes – Series B, due June 30, 2108 (the Notes), redeemable on or after June 30, 2014 at the Canada Yield Price; redeemable at par on June 30, 2039. The Notes were issued on March 13, 2009. CIBC Capital Trust is not consolidated by CIBC and the senior deposit notes issued by CIBC to CIBC Capital Trust are reported as Deposits – Business and government on the consolidated balance sheet. The Notes were structured to achieve Tier 1 regulatory capital treatment and, as such, had features of equity capital, including the deferral of cash interest under certain circumstances (Deferral Events). In the case of a Deferral Event, holders of the Notes will be required to invest interest paid on the Notes in our perpetual preferred shares. Should CIBC Capital Trust fail to pay the semi-annual interest payments on the Notes in full, we will not declare dividends of any kind on any of our preferred or common shares for a specified period of time. Subject to the approval of OSFI, CIBC Capital Trust may, in whole or in part, on the redemption dates specified, and on any date thereafter, redeem the CIBC Tier 1 Notes – Series B without the consent of the holders. Also, subject to the approval of OSFI, CIBC Capital Trust may redeem all, but not part of, the CIBC Tier 1 Notes – Series B prior to the earliest redemption date specified without the consent of the holders, upon the occurrence of certain specified tax or regulatory events. Under the OSFI Capital Adequacy Requirements (CAR) Guideline, any Tier 1 Notes – Series B outstanding as of November 1, 2021 would not be recognized as regulatory capital. With OSFI’s prior approval, on November 1, 2021, CIBC Capital Trust redeemed all $300 million of its 10.25% Tier 1 Notes – Series B at 100% of their principal amount together with accrued and unpaid interest up to but excluding the redemption date. As a result of the redemption of the Tier 1 Notes – Series B by CIBC Capital Trust, CIBC also redeemed the corresponding senior deposit notes issued by CIBC to CIBC Capital Trust on November 1, 2021. CIBC 2021 ANNUAL REPORT 173 Consolidated financial statements Note 18 Share-based payments We provide the following share-based compensation to certain employees and directors in the form of cash-settled or equity-settled awards. Restricted share award plan Under the RSA plan, share unit equivalents (RSA units) are granted to certain key employees on an annual basis or during the year as special grants. RSA grants are made in the form of cash-settled awards which generally vest and settle in cash either at the end of three years or one-third annually beginning one year after the date of the grant. Dividend equivalents on RSA units are paid in cash or in the form of additional RSA units to the employees at the end of the vesting period or settlement date. Grant date fair value of each cash-settled RSA unit granted is calculated based on the average closing price per common share on the Toronto Stock Exchange (TSX) for the 10 trading days prior to a date specified in the grant terms. Upon vesting, each RSA unit is settled in cash based on the average closing price per common share on the TSX for the 10 trading days prior to the vesting date. During the year, 2,899,365 RSAs were granted at a weighted-average price of $111.34 (2020: 2,864,000 granted at a weighted-average price of $113.62; 2019: 2,666,888 granted at a weighted-average price of $113.01) and the number of RSAs outstanding as at October 31, 2021 was 8,521,839 (2020: 8,391,532; 2019: 8,343,235). Compensation expense in respect of RSAs, before the impact of hedging for changes in share price, totalled $692 million in 2021 (2020: $275 million; 2019: $319 million). As at October 31, 2021, liabilities in respect of RSAs, which are included in Other liabilities, were $1,136 million (2020: $775 million). Performance share unit plan Under the PSU plan, awards are granted to certain key employees on an annual basis in December. PSU grants are made in the form of cash- settled awards which vest and settle in cash at the end of three years. Dividend equivalents on PSUs are provided in the form of additional PSUs. The grant date fair value of each cash-settled PSU is calculated based on the average closing price per common share on the TSX for the 10 trading days prior to a date specified in the grant terms. The final number of PSUs that vest will range from 75% to 125% of the initial number awarded based on CIBC’s performance relative to the other major Canadian banks. Upon vesting, each PSU is settled in cash based on the average closing price per common share on the TSX for the 10 trading days prior to the vesting date. During the year, 876,295 PSUs were granted at a weighted-average price of $110.16 (2020: 835,785 granted at a weighted-average price of $115.30; 2019: 952,273 granted at a weighted-average price of $113.48). As at October 31, 2021, the number of PSUs outstanding, before the impact of CIBC’s relative performance, was 2,911,800 (2020: 2,967,248; 2019: 3,033,980). Compensation expense in respect of PSUs, before the impact of hedging for changes in share price, totalled $241 million in 2021 (2020: $90 million; 2019: $106 million). As at October 31, 2021, liabilities in respect of PSUs, which are included in Other liabilities, were $413 million (2020: $286 million). Exchangeable shares As part of our acquisition of Wellington Financial in the first quarter of 2018, equity-settled awards in the form of exchangeable shares, which vest over a period of up to five years and have specific service and non-market performance vesting conditions, were issued to selected employees. Employees receive dividend equivalents in the form of additional common shares upon vesting. Compensation expense in respect of the exchangeable shares is based on the grant date fair value, adjusted for the impact of best estimates on the satisfaction of the service requirements and non-market performance conditions. At the acquisition, each exchangeable share was granted at $123.99, and the number of exchangeable shares outstanding that have not vested as at October 31, 2021 was 153,015 (2020: 278,711; 2019: 386,010). Compensation expense in respect of exchangeable shares totalled $12 million in 2021 (2020: $9 million; 2019: $8 million). Deferred share unit plan/deferred compensation plan Under the DSU plan and DCP plan, certain employees can elect to receive DSUs in exchange for cash compensation that they would otherwise be entitled to. In addition, certain key employees are granted DSUs during the year as special grants. DSUs are generally fully vested upon grant or vest in accordance with the vesting schedule defined in the grant agreement and settle in cash on a date within the period specified in the plan terms. Employees receive dividend equivalents in the form of additional DSUs. Grant date fair value of each cash settled DSU that is not granted under the DCP is calculated based on the average closing price per common share on the TSX for the 10 trading days prior to a date specified in the grant terms. These DSUs are settled in cash based on the average closing price per common share on the TSX for the 10 trading days prior to the payout date and after the employee’s termination of employment. The grant date fair value for DCP grants is based on the closing stock price on the New York Stock Exchange (NYSE) on the last day of the calendar quarter. Upon distribution, each DSU is settled in cash based on the average closing price per common share on the NYSE for the 10 trading days prior to the date of the distribution. During the year, 182,174 DSUs were granted at a weighted-average price of $110.62 (2020: 183,941 granted at a weighted-average price of $106.22; 2019: 173,089 granted at a weighted-average price of $110.53) and the number of DSUs outstanding as at October 31, 2021 was 893,018 (2020: 791,571; 2019: 617,281). Compensation expense in respect of DSUs, before the impact of hedging for changes in share price, totalled $70 million in 2021 (2020: $8 million; 2019: $17 million). As at October 31, 2021, liabilities in respect of DSUs, which are included in Other liabilities, were $146 million (2020: $90 million). Directors’ plans Each director who is not an officer or employee of CIBC may elect to receive 1) the annual equity retainer as either DSUs or common shares, under the Director DSU/Common Share Election Plan and 2) all or a portion of their remuneration in the form of cash, common shares or DSU’s under the Non-Officer Director Share Plan. The value of DSUs credited to a director is payable when he or she is no longer a director or employee of CIBC or of an affiliate of CIBC, and for directors subject to section 409A of the U.S. Internal Revenue Code of 1986, as amended, the director is not providing any services to CIBC or any member of its controlled group as an independent contractor. In addition, under the Director DSU/Common Share Election Plan, the value of DSUs is payable only if the director is not related to, or affiliated with, CIBC as defined in the Income Tax Act (Canada). Other non-interest expense in respect of the DSU components, before the impact of hedging for changes in share price of these plans, totalled $14 million in 2021 (2020: nil; 2019: $3 million). As at October 31, 2021, liabilities in respect of DSUs, which are included in Other liabilities, were $37 million (2020: $23 million). 174 CIBC 2021 ANNUAL REPORT Consolidated financial statements Stock option plans Under the ESOP, stock options are periodically granted to certain key employees. Options provide the employee with the right to purchase common shares from CIBC at a fixed price not less than the closing price of the shares on the trading day immediately preceding the grant date. In general, the options vest by the end of the fourth year and expire 10 years from the grant date. The following tables summarize the activities of the stock options and provide additional details related to stock options outstanding and vested. As at or for the year ended October 31 Outstanding at beginning of year Granted Exercised (2) Forfeited Cancelled/expired Outstanding at end of year Exercisable at end of year Available for grant Reserved for future issue Number of stock options 5,680,111 1,057,208 (1,525,394) (63,998) – 5,147,927 2021 Weighted- average exercise price (1) $ 100.39 110.79 87.83 111.85 – $ 106.67 2020 Weighted- average exercise price $ 96.93 109.87 68.10 70.66 – Number of stock options 5,176,962 818,290 (314,469) (672) – Number of stock options 4,713,163 894,324 (393,055) (35,714) (1,756) 5,680,111 $ 100.39 5,176,962 2019 Weighted- average exercise price $ 91.05 111.50 58.60 110.42 45.63 $ 96.93 2,067,561 $ 98.96 2,783,694 $ 88.63 2,290,139 $ 80.27 8,323,016 13,470,943 9,316,226 14,996,337 10,133,844 15,310,806 (1) For foreign currency-denominated options granted and exercised during the year, the weighted-average exercise prices are translated using exchange rates as at the grant date and settlement date, respectively. The weighted-average exercise price of outstanding balances as at October 31, 2021 reflects the conversion of foreign currency-denominated options at the year-end exchange rate. (2) The weighted-average share price at the date of exercise was $128.51 (2020: $97.72; 2019: $106.94). As at October 31, 2021 Stock options outstanding Stock options vested Range of exercise prices $11.00 – $55.00 $55.01 – $65.00 $65.01 – $75.00 $75.01 – $85.00 $85.01 – $95.00 $95.01 – $105.00 $105.01 – $115.00 $115.01 – $125.00 Number outstanding 98,164 99,889 39,090 104,408 156,437 526,392 3,438,358 685,189 5,147,927 Weighted- average contractual life remaining 1.15 3.81 0.12 1.08 2.04 3.70 7.51 6.09 6.38 Weighted- average exercise price $ 30.59 56.54 71.51 80.10 90.52 99.34 110.71 120.02 $ 106.67 Number outstanding 98,164 99,889 39,090 104,408 156,437 526,392 724,534 318,647 2,067,561 Weighted- average exercise price $ 30.59 56.54 71.51 80.10 90.52 99.34 110.56 120.02 $ 98.96 The fair value of options granted during the year was measured at the grant date using the Black-Scholes option pricing model. Model assumptions are based on observable market data for the risk-free interest rate and dividend yield, contractual terms for the exercise price, and historical experience for expected life. Volatility assumptions are best estimates of market implied volatility matching the exercise price and expected life of the options. The following weighted-average assumptions were used as inputs into the Black-Scholes option pricing model to determine the fair value of options on the date of grant: For the year ended October 31 Weighted-average assumptions Risk-free interest rate Expected dividend yield Expected share price volatility Expected life Share price/exercise price 2021 2020 2019 0.96 % 6.50 % 20.25 % 2.00 % 6.80 % 15.30 % 2.63 % 5.87 % 18.36 % 6 years $ 110.79 6 years $ 109.87 6 years $ 111.50 For 2021, the weighted-average grant date fair value of options was $6.73 (2020: $3.90; 2019: $8.22). Compensation expense in respect of stock options totalled $7 million in 2021 (2020: $5 million; 2019: $7 million). Employee share purchase plan Under our Canadian ESPP, qualifying employees can choose each year to have any portion of their eligible earnings withheld to purchase common shares. We match 50% of the employee contribution amount, up to a maximum contribution of 3% of eligible earnings, subject to a ceiling of $2,250 annually. CIBC contributions vest after employees have two years of continuous participation in the plan, and all subsequent contributions vest immediately. Similar programs exist in other regions globally, where each year qualifying employees can choose to have a portion of their eligible earnings withheld to purchase common shares and receive a matching employer contribution subject to each plan’s provisions. Employee contributions to our ESPP are used to purchase common shares from Treasury. CIBC FirstCaribbean operates an ESPP locally, in which contributions are used by the plan trustee to purchase CIBC FirstCaribbean common shares in the open market. Our contributions are expensed as incurred and totalled $53 million in 2021 (2020: $50 million; 2019: $48 million). CIBC 2021 ANNUAL REPORT 175 Consolidated financial statements Note 19 Post-employment benefits We sponsor pension and other post-employment benefit plans for eligible employees in a number of jurisdictions including Canada, the U.S., the U.K., and the Caribbean. Our pension plans include registered funded defined benefit pension plans, supplemental arrangements that provide pension benefits in excess of statutory limits, and defined contribution plans. We also provide certain health-care, life insurance, and other benefits to eligible employees and retired members. Plan assets and defined benefit obligations related to our defined benefit plans are measured for accounting purposes as at October 31 each year. Plan characteristics, funding and risks Pension plans Pension plans include CIBC’s Canadian, U.S., U.K., and Caribbean pension plans. CIBC’s Canadian pension plans represent approximately 92% of our consolidated defined benefit obligation. All of our Canadian pension plans are defined benefit plans, the most significant of which is our principal Canadian pension plan (the CIBC Pension Plan), which encompasses approximately 66,000 active, deferred, and retired members. The CIBC Pension Plan provides members with monthly pension income at retirement based on a prescribed plan formula which is based on a combination of maximum yearly pensionable earnings, average earnings at retirement and length of service recognized in the plan. There is a two-year waiting period for members to join the CIBC Pension Plan. The CIBC Pension Plan is funded through a separate trust. Actuarial funding valuations are prepared by the Plan’s external actuary at least once every three years or more frequently as required by Canadian pension legislation to determine CIBC’s minimum funding requirements as well as maximum permitted contributions. Any deficits determined in the funding valuations must generally be funded over a period not exceeding fifteen years. CIBC’s pension funding policy is to make at least the minimum annual required contributions required by regulations. Any contributions in excess of the minimum requirements are discretionary. The CIBC Pension Plan is registered with OSFI and the Canada Revenue Agency (CRA) and is subject to the acts and regulations that govern federally regulated pension plans. Other post-employment plans Other post-employment plans include CIBC’s Canadian, U.S. and Caribbean post-retirement health-care benefit plans (referred to for disclosure purposes as other post-employment plans). CIBC’s Canadian other post-employment plan (the Canadian post-employment plan) represents more than 93% of our consolidated other post-employment defined benefit obligation. The Canadian post-employment plan provides medical, dental and life insurance benefits to retirees that meet specified eligibility requirements, including specified age and service period eligibility requirements. CIBC reimburses 100% of the cost of benefits for eligible employees that retired prior to January 1, 2009, whereas the contribution level for medical and dental benefits for eligible employees that retire subsequent to this date has been fixed at a specified level. The plan is funded on a pay-as-you-go basis. Benefit changes There were no material changes to the terms of our Canadian defined benefit pension plans in 2021 or 2020. Certain plan amendments were made to our other pension and other post-employment plans in 2020, which resulted in a negative past service cost. Risks CIBC’s defined benefit plans expose the group to actuarial risks (such as longevity risk), currency risk, interest rate risk, market (investment) risk and health-care cost inflation risks. The CIBC pension plan operates a currency overlay strategy, which may use forwards or similar instruments, to manage and mitigate its currency risk. Interest rate risk is managed as part of the CIBC pension plan’s liability-driven investment strategy through a combination of physical bonds, overlays funded in the repo market, and/or derivatives. Market (investment) risk is mitigated through a multi-asset portfolio construction process that diversifies across a variety of market risk drivers. The use of derivatives within the CIBC pension plan is governed by its derivatives policy that was approved by the Pension Benefits Management Committee (PBMC) and permits the use of derivatives to manage risk at the discretion of the Pension Investment Committee (PIC). In addition to the management of interest rate risk, risk reduction and mitigation strategies may include hedging of currency, credit spread and/or equity risks. The derivatives policy also permits the use of derivatives to enhance plan returns. Plan governance All of CIBC’s pension arrangements are governed by local pension committees, senior management or a board of trustees. However, all significant plan changes require approval from the Management Resources and Compensation Committee (MRCC). For the Canadian pension plans, the MRCC is responsible for setting the strategy for the pension plans, reviewing material risks, performance including funded status, and approving material design or governance changes. While specific investment policies are determined at a plan level to reflect the unique characteristics of each plan, common investment policies for all plans include the optimization of the risk-return relationship using a portfolio of multiple asset classes diversified by market segment, economic sector, and issuer. The objectives are to secure the benefits promised by our funded plans, to maximize long-term investment returns while not compromising the benefit security of the respective plans, manage the level of funding contributions in conjunction with the stability of the funded status, and implement all policies in a cost effective manner. Investments in quoted debt and equity (held either directly or indirectly through investment funds) represent the most significant asset allocations. The use of derivatives is limited to the purposes and instruments described in the derivatives policy of the CIBC Pension Plan. These include the use of synthetic debt or equity instruments, currency hedging, risk reduction and enhancement of returns. Investments in specific asset classes are further diversified across funds, managers, strategies, sectors and geographies, depending on the specific characteristics of each asset class. The exposure to any one of these asset classes will be determined by our assessment of the needs of the plan assets and economic and financial market conditions. Factors evaluated before adopting the asset mix include demographics, cash-flow payout requirements, liquidity requirements, actuarial assumptions, expected benefit increases, and plan funding requirements. 176 CIBC 2021 ANNUAL REPORT Consolidated financial statements Management of the assets of the various Canadian plans has been delegated primarily to the PIC, which is a committee that is composed of CIBC management. The PIC is responsible for the appointment and termination of individual investment managers (which includes CIBC Asset Management Inc., a wholly owned subsidiary of CIBC), who each have investment discretion within established target asset mix ranges as set by the PBMC. Should a fund’s actual asset mix fall outside specified ranges, the assets are re-balanced as required to be within the target asset mix ranges. On a periodic basis, an Asset-Liability Matching study is performed in which the consequences of the strategic investment policies are analyzed. Management of the actuarial valuations of the various Canadian plans is primarily the responsibility of the PBMC. The PBMC is responsible for approving the actuarial assumptions for the valuations of the plans, and for recommending the level of annual funding for the Canadian plans to CIBC senior management. Local committees with similar mandates manage our non-Canadian plans and annually report back to the MRCC on all material governance activities. Amounts recognized on the consolidated balance sheet The following tables present the financial position of our defined benefit pension and other post-employment plans for Canada, the U.S., the U.K., and our Caribbean subsidiaries. Other minor plans operated by some of our subsidiaries are not material and are not included in these disclosures. $ millions, as at or for the year ended October 31 Defined benefit obligation Balance at beginning of year Current service cost Past service cost (1) Interest cost on defined benefit obligation Employee contributions Benefits paid Special termination benefits Foreign exchange rate changes Net actuarial (gains) losses on defined benefit obligation Balance at end of year Plan assets Fair value at beginning of year Interest income on plan assets (2) Net actuarial gains (losses) on plan assets (2) Employer contributions Employee contributions Benefits paid Plan administration costs Foreign exchange rate changes Fair value at end of year Net defined benefit asset (liability) Valuation allowance (3) Pension plans Other post-employment plans 2021 2020 2021 2020 $ 9,139 280 (1) 267 5 (386) – (49) (691) $ 8,564 $ 9,341 282 479 249 5 (386) (8) (58) $ 9,904 1,340 (17) $ 8,722 277 (20) 268 5 (369) 10 8 238 $ 9,139 $ 8,853 277 349 227 5 (369) (7) 6 $ 9,341 202 (17) 185 $ 609 7 9 17 – (26) – (3) (64) $ 549 $ – – – 26 – (26) – – $ 671 14 (77) 20 – (26) – 1 6 $ 609 $ – – – 26 – (26) – – $ – $ – (549) – (609) – $ (549) $ (609) Net defined benefit asset (liability), net of valuation allowance $ 1,323 $ (1) Prior year amounts include amounts related to the restructuring charge, and gains related to plan amendments recognized in 2020. See Note 23 for additional details on the restructuring charge. (2) The actual return on plan assets for the year was $761 million (2020: $626 million). (3) The valuation allowance reflects the effect of asset ceiling on plans with a net defined benefit asset. The net defined benefit asset (liability), net of valuation allowance, included in Other assets and Other liabilities is as follows: $ millions, as at October 31 Other assets Other liabilities (1) Pension plans Other post-employment plans 2021 $ 1,372 (49) $ 1,323 2020 $ 247 (62) $ 185 2021 – (549) (549) $ $ 2020 – (609) (609) $ $ (1) Excludes $4 million (2020: $5 million) of other liabilities for other post-employment plans of immaterial subsidiaries. The defined benefit obligation and plan assets by region are as follows: $ millions, as at October 31 Defined benefit obligation Canada U.S., U.K., and the Caribbean Defined benefit obligation at the end of year Plan assets Canada U.S., U.K., and the Caribbean Plan assets at the end of year Pension plans Other post-employment plans 2021 2020 2021 2020 $ 7,846 718 $ 8,564 $ 8,996 908 $ 9,904 $ 8,384 755 $ 9,139 $ 8,469 872 $ 9,341 $ 512 37 $ 549 $ $ – – – $ 568 41 $ 609 $ $ – – – CIBC 2021 ANNUAL REPORT 177 Consolidated financial statements Amounts recognized in the consolidated statement of income The net defined benefit expense for our defined benefit plans in Canada, the U.S., the U.K., and the Caribbean is as follows: $ millions, for the year ended October 31 Current service cost (1) Past service cost (2) Interest cost on defined benefit obligation Interest income on plan assets Special termination benefits (2) Plan administration costs Loss on settlements Net defined benefit plan expense recognized in net income Pension plans Other post-employment plans 2021 $ 280 (1) 267 (282) – 8 – $ 272 2020 $ 277 (20) 268 (277) 10 7 – $ 265 2019 $ 218 1 303 (323) – 6 1 $ 206 2021 2020 2019 $ $ 7 9 17 – – – – 33 $ $ 14 (77) 20 – – – – 11 – 24 – – – – $ (43) $ 35 (1) The 2021, 2020 and 2019 current service costs were calculated using separate discount rates of 2.99%, 3.14%, and 4.14%, respectively, to reflect the longer duration of future benefits payments associated with the additional year of service to be earned by the plan’s active participants. (2) Prior year amount includes amounts related to the restructuring charge, and gains related to plan amendments recognized in 2020. See Note 23 for additional details on the restructuring charge. Amounts recognized in the consolidated statement of comprehensive income The net remeasurement gains (losses) recognized in OCI for our defined benefit plans in Canada, the U.S., the U.K., and the Caribbean is as follows: Pension plans Other post-employment plans $ millions, for the year ended October 31 2021 2020 2019 2021 2020 2019 Actuarial gains (losses) on defined benefit obligation arising from changes in: Demographic assumptions Financial assumptions Experience Net actuarial gains (losses) on plan assets Changes in asset ceiling excluding interest income $ (1) 798 (106) 479 – $ 148 (327) (59) 349 (1) $ – (1,133) (45) 965 (5) Net remeasurement gains (losses) recognized in OCI (1) $ 1,170 $ 110 $ (218) $ $ 16 42 6 – – 64 $ 13 $ (26) 7 – – – (78) 1 – – $ (6) $ (77) (1) Excludes net remeasurement gains/losses recognized in OCI in respect of immaterial subsidiaries not included in the disclosures totalling $6 million net losses (2020: $5 million of net losses; 2019: $2 million of net losses). Canadian defined benefit plans As the Canadian defined benefit pension and other post-employment benefit plans represent approximately 92% of our consolidated defined benefit obligation, they are the subject and focus of the disclosures in the balance of this note. Disaggregation and maturity profile of defined benefit obligation The breakdown of the defined benefit obligation for our Canadian plans between active, deferred and retired members is as follows: $ millions, as at October 31 Active members Deferred members Retired members Total Pension plans Other post-employment plans 2021 $ 4,014 569 3,263 $ 7,846 2020 $ 4,362 626 3,396 $ 8,384 $ 2021 99 – 413 $ 512 2020 $ 129 – 439 $ 568 The weighted-average duration of the defined benefit obligation for our Canadian plans is as follows: As at October 31 Weighted-average duration, in years Pension plans Other post-employment plans 2021 14.2 2020 14.8 2021 11.7 2020 12.6 178 CIBC 2021 ANNUAL REPORT Consolidated financial statements Plan assets The major categories of our defined benefit pension plan assets for our Canadian plans are as follows: $ millions, as at October 31 Asset category (1) Canadian equity securities (2) Debt securities (3) Government bonds Corporate bonds Investment funds (4) Canadian equity funds U.S. equity funds International equity funds (5) Global equity funds (5) Emerging markets equity funds Fixed income funds Other (2) Alternative investments (6) Cash and cash equivalents and other Obligations related to securities sold under repurchase agreements 2021 2020 $ 753 8 % $ 540 6 % 4,917 755 5,672 40 560 39 1,171 296 110 2,216 1,740 257 (1,642) 355 55 8 63 1 6 1 13 3 1 25 20 2 (18) 4 5,001 1,195 6,196 30 423 32 961 229 117 1,792 1,281 241 (1,581) (59) 59 14 73 – 5 – 12 3 1 21 16 3 (19) – $ 8,996 100 % $ 8,469 100 % (1) Asset categories are based upon risk classification including synthetic exposure through derivatives. The fair value of derivatives as at October 31, 2021 was a net derivative asset of $30 million (2020: net derivative liability of $41 million). (2) Pension benefit plan assets include CIBC issued securities and deposits of nil (2020: $7 million), representing nil of Canadian plan assets (2020: 0.1%). All of the equity securities held as at October 31, 2021 and 2020 have daily quoted prices in active markets except hedge funds, infrastructure, and private equity. (3) All debt securities held as at October 31, 2021 and 2020 are investment grade, of which $134 million (2020: $244 million) have daily quoted prices in active markets. (4) $40 million (2020: $31 million) of the investment funds are directly held as at October 31, 2021 and have daily quoted prices in active markets. (5) Global equity funds include North American and international investments, whereas International equity funds do not include North American investments. (6) Comprised of private equity, infrastructure, private debt and real estate funds. Principal actuarial assumptions The weighted-average principal assumptions used to determine the defined benefit obligation for our Canadian plans are as follows: As at October 31 Discount rate Rate of compensation increase (1) Pension plans Other post-employment plans 2021 2020 2021 2020 3.5 % 2.1 % 2.8 % 2.0 % 3.4 % 2.1 % 2.7 % 2.0 % (1) Rates of compensation increase for 2021 and 2020 reflect the use of a salary growth rate assumption table that is based on the age and tenure of the employees. The table yields a weighted-average salary growth rate of approximately 2.1% per annum (2020: 2.0%). Assumptions regarding future mortality have been based on published statistics and mortality tables. The current longevities underlying the values of the defined benefit obligation of our Canadian plans are as follows (in years): As at October 31 Longevity at age 65 for current retired members Males Females Longevity at age 65 for current members aged 45 Males Females 2021 2020 23.4 24.5 24.4 25.4 23.4 24.5 24.3 25.4 The assumed health-care cost trend rates of the Canadian other post-employment plan providing medical, dental, and life insurance benefits are as follows: For the year ended October 31 Health-care cost trend rates assumed for next year Rate to which the cost trend rate is assumed to decline Year that the rate reaches the ultimate trend rate 2021 4.9 % 4.0 % 2040 2020 5.2 % 4.0 % 2040 CIBC 2021 ANNUAL REPORT 179 Consolidated financial statements Sensitivity analysis Reasonably possible changes to one of the principal actuarial assumptions, holding other assumptions constant, would have affected the defined benefit obligation of our Canadian plans as follows: Estimated increase (decrease) in defined benefit obligation Pension plans Other post-employment plans $ millions, as at October 31 Discount rate (100 basis point change) Decrease in assumption Increase in assumption Rate of compensation increase (100 basis point change) Decrease in assumption Increase in assumption Health-care cost trend rates (100 basis point change) Decrease in assumption Increase in assumption Future mortality 1 year shorter life expectancy 1 year longer life expectancy n/a Not applicable. 2021 $ 1,256 (1,028) (267) 309 n/a n/a (192) 189 2021 $ 69 (57) – – (22) 25 (13) 14 The sensitivity analyses presented above are indicative only, and should be considered with caution as they have been calculated in isolation without changing other assumptions. In practice, changes in one assumption may result in changes in another, which may magnify or counteract the disclosed sensitivities. Future cash flows Cash contributions The most recently completed actuarial valuation of the CIBC Pension Plan for funding purposes was as at October 31, 2020. The next actuarial valuation of this plan for funding purposes will be effective as of October 31, 2021. The minimum contributions for 2022 are anticipated to be $233 million for the Canadian defined benefit pension plans and $28 million for the Canadian other post-employment benefit plans. These estimates are subject to change since contributions are affected by various factors, such as market performance, regulatory requirements, and management’s ability to change funding policy. Expected future benefit payments The expected future benefit payments for our Canadian plans for the next 10 years are as follows: $ millions, for the year ended October 31 Defined benefit pension plans Other post-employment plans 2022 2023 2024 2025 2026 2027–2031 Total $ 346 28 $ 354 28 $ 362 29 $ 371 29 $ 380 30 $ 2,039 156 $ 3,852 300 $ 374 $ 382 $ 391 $ 400 $ 410 $ 2,195 $ 4,152 Defined contributions and other plans We also maintain defined contribution plans for certain employees and make contributions to government pension plans. The expense recognized in the consolidated statement of income for these benefit plans is as follows: $ millions, for the year ended October 31 Defined contribution pension plans Government pension plans (1) (1) Includes Canada Pension Plan, Quebec Pension Plan, and U.S. Federal Insurance Contributions Act. 2021 2020 2019 $ 40 143 $ 33 137 $ 29 121 $ 183 $ 170 $ 150 180 CIBC 2021 ANNUAL REPORT Consolidated financial statements Note 20 Income taxes Total income taxes $ millions, for the year ended October 31 Consolidated statement of income Provision for (reversal of) current income taxes Adjustments for prior years Current income tax expense Provision for (reversal of) deferred income taxes Adjustments for prior years Effect of changes in tax rates and laws Origination and reversal of temporary differences OCI Total comprehensive income Components of income tax $ millions, for the year ended October 31 Current income taxes Federal Provincial Foreign Deferred income taxes Federal Provincial Foreign 2021 2020 2019 $ (22) 1,939 1,917 $ (40) 1,366 1,326 $ (125) 1,365 1,240 19 1 (61) (41) 1,876 297 37 4 (269) (228) 1,098 130 107 34 (33) 108 1,348 22 $ 2,173 $ 1,228 $ 1,370 $ 2021 918 629 398 1,945 137 90 1 228 $ 2020 613 420 390 1,423 (67) (44) (84) (195) $ 2019 634 428 226 1,288 30 20 32 82 $ 2,173 $ 1,228 $ 1,370 The combined Canadian federal and provincial income tax rate varies each year according to changes in the statutory rates imposed by each of these jurisdictions, and according to changes in the proportion of our business carried out in each province. We are also subject to Canadian taxation on income of foreign branches. Earnings of foreign subsidiaries would generally only be subject to Canadian tax when distributed to Canada. Additional Canadian taxes that would be payable if all foreign subsidiaries’ retained earnings were distributed to the Canadian parent as dividends are estimated to be nil. The effective rates of income tax in the consolidated statement of income are different from the combined Canadian federal and provincial income tax rates as set out in the following table: Reconciliation of income taxes $ millions, for the year ended October 31 2021 2020 2019 Combined Canadian federal and provincial income tax rate applied to income before income taxes Income taxes adjusted for the effect of: Earnings of foreign subsidiaries Tax-exempt income Changes in income tax rate on deferred tax balances Impact of equity-accounted income Other (1) $ 2,188 26.3 % $ 1,291 26.4 % $ 1,718 26.5 % (136) (150) 1 (13) (14) (1.6) (1.8) – (0.2) (0.2) (66) (134) 4 (18) 21 (1.3) (2.7) 0.1 (0.4) 0.4 (214) (131) 34 (23) (36) (3.3) (2.0) 0.5 (0.4) (0.5) Income taxes in the consolidated statement of income $ 1,876 22.5 % $ 1,098 22.5 % $ 1,348 20.8 % (1) Prior period amounts include the Enron settlement recognized in the first quarter of 2019. CIBC 2021 ANNUAL REPORT 181 Consolidated financial statements Deferred income taxes Sources of and movement in deferred tax assets and liabilities Deferred tax assets $ millions, for the year ended October 31 2021 Balance at beginning of year Recognized in net income Recognized in OCI Other (2) Allowance for credit losses Property and equipment $ 314 (80) – (12) $ 39 3 – (2) Pension and employee benefits Provisions $ $ 554 59 (296) (10) 53 51 – (1) Financial instrument revaluation Tax loss carry- forwards (1) Other Total assets $ $ 1 (7) 43 (13) 19 (3) – (11) $ 236 $ 1,216 7 (253) (54) (16) – (5) Balance at end of year $ 222 $ 40 $ 307 $ 103 $ 24 $ 5 $ 215 $ 916 2020 Balance at beginning of year before accounting policy changes Impact of adopting IFRS 16 at November 1, 2019 Balance at beginning of year after accounting policy changes Recognized in net income Recognized in OCI Other (2) Balance at end of year 2019 Balance at beginning of year before accounting policy changes Impact of adopting IFRS 15 at November 1, 2018 Balance at beginning of year after accounting policy changes Recognized in net income Recognized in OCI Other (2) Balance at end of year Deferred tax liabilities $ millions, for the year ended October 31 2021 Balance at beginning of year Recognized in net income Recognized in OCI Other (2) Balance at end of year 2020 Balance at beginning of year before accounting policy changes Impact of adopting IFRS 16 at November 1, 2019 (3) Balance at beginning of year after accounting policy changes Recognized in net income Recognized in OCI Other (2) Balance at end of year 2019 Balance at beginning of year before accounting policy changes Impact of adopting IFRS 15 at November 1, 2018 Balance at beginning of year after accounting policy changes Recognized in net income Recognized in OCI Other (2) Balance at end of year Net deferred tax assets as at October 31, 2021 Net deferred tax assets as at October 31, 2020 Net deferred tax assets as at October 31, 2019 $ $ $ 170 – 170 143 – 1 314 298 – 298 (124) – (4) $ 47 – $ 567 – $ 47 (23) – 15 567 4 (18) 1 $ 39 $ 554 $ $ 12 – 12 14 – 21 47 $ $ 437 – 437 46 83 1 567 $ $ 20 – 20 33 – – 53 16 – 16 3 – 1 20 $ $ $ 1 – 1 – – – 1 $ 24 – $ 157 $ (12) 986 (12) 24 (1) – (4) 145 114 – (23) 974 270 (18) (10) $ 19 $ 236 $ 1,216 $ 66 – 38 – 66 (32) (50) 17 38 (14) – – $ 127 $ 3 130 20 – 7 994 3 997 (87) 33 43 986 $ 170 $ $ 1 $ 24 $ 157 $ Intangible assets $ (305) (26) – 4 Property and equipment Pension and employee benefits $ (112) 27 – 3 $ (15) 1 (15) 5 Financial instrument revaluation $ (63) 28 (1) 17 Goodwill $ (86) (2) – – Other Total liabilities $ (18) $ 6 – – (599) 34 (16) 29 $ (327) $ (82) $ (24) $ (88) $ (19) $ (12) $ (552) $ (315) – $ (68) (39) $ (315) 13 – (3) (107) (6) – 1 (9) – (9) (5) (2) 1 $ (84) – $ (25) – $ (6) $ – (507) (39) (84) (2) – – (25) (24) (13) (1) (6) (18) – 6 (546) (42) (15) 4 $ (305) $ (112) $ (15) $ (86) $ (63) $ (18) $ (599) $ (287) – $ (287) (16) – (12) $ (315) $ (47) – (47) (12) – (9) (68) $ (11) – $ (85) – $ (12) – $ 6 (5) $ (436) (5) (11) (1) (6) 9 (85) (1) – 2 (12) (4) – (9) 1 13 (1) (19) (441) (21) (7) (38) $ (9) $ (84) $ (25) $ (6) $ (507) $ $ $ 364 617 479 (1) The deferred tax effect of tax loss carryforwards includes $5 million (2020: $19 million; 2019: $22 million) that relate to operating losses (of which $2 million relate to Canada, and $3 million relate to the Caribbean) that expire in various years commencing in 2022, and nil (2020: nil, 2019: $2 million) that relate to U.S. capital losses. (2) Includes foreign currency translation adjustments. (3) Transition impact from the adoption of IFRS 16 at November 1, 2019 is reported net for lease liability and right-of-use assets. Deferred tax assets and liabilities are assessed by entity for presentation in our consolidated balance sheet. As a result, the net deferred tax assets of $364 million (2020: $617 million) are presented in the consolidated balance sheet as deferred tax assets of $402 million (2020: $650 million) and deferred tax liabilities of $38 million (2020: $33 million). 182 CIBC 2021 ANNUAL REPORT Consolidated financial statements Unrecognized tax losses The amount of unused operating tax losses for which deferred tax assets have not been recognized was $1,611 million as at October 31, 2021 (2020: $1,855 million), of which $674 million (2020: $669 million) relates to the U.S. region and $937 million (2020: $1,186 million) relates to the Caribbean region. These unused operating tax losses expire within 10 years. The amount of unused capital tax losses for which deferred tax assets have not been recognized was $519 million as at October 31, 2021 (2020: $611 million). These unused capital tax losses relate to Canada. Enron In prior years, the Canada Revenue Agency (CRA) issued reassessments disallowing the deduction of Enron settlement payments and related legal expenses (the Enron expenses). In January 2019, CIBC entered into a settlement agreement (the Agreement) with the CRA that provides certainty with respect to the portion of the Enron expenses deductible in Canada. The Agreement resulted in the recognition of a net $38 million tax recovery in the first quarter of 2019. This recovery was determined after taking into account taxable refund interest in Canada and also the portion of the Enron expenses that are expected to be deductible in the United States (the U.S. deduction). The U.S. deduction has not been agreed to by the Internal Revenue Service. It is possible that adjustments may be required to the amount of tax benefits recognized in the U.S. Dividend received deduction The CRA has reassessed CIBC approximately $1,420 million of additional income tax by denying the tax deductibility of certain 2011 to 2016 Canadian corporate dividends on the basis that they were part of a “dividend rental arrangement”. The dividends that were subject to the reassessments are similar to those prospectively addressed by the rules in the 2015 and 2018 Canadian federal budgets. In August 2021, CIBC filed a Notice of Appeal with the Tax Court of Canada and the matter is now in litigation. It is possible that subsequent years may be reassessed for similar activities. CIBC is confident that its tax filing positions were appropriate and intends to defend itself vigorously. Accordingly, no amounts have been accrued in the consolidated financial statements. Foreign exchange capital loss reassessment In November 2021, the Tax Court of Canada ruled against CIBC on its 2007 foreign exchange capital loss reassessment (Decision). CIBC disagrees with the Decision and filed its Appeal in November 2021. CIBC remains confident that its tax filing position was appropriate. Accordingly, no amounts have been accrued in the consolidated financial statements. The exposure of additional tax and interest related to this and similar matters is approximately $300 million in addition to the potential inability to utilize approximately $500 million in unrecognized capital tax loss carryforwards. Note 21 Earnings per share $ millions, except per share amounts, for the year ended October 31 Basic EPS Net income attributable to equity shareholders Less: preferred share dividends and distributions on other equity instruments Net income attributable to common shareholders Weighted-average common shares outstanding (thousands) Basic EPS Diluted EPS Net income attributable to common shareholders Weighted-average common shares outstanding (thousands) Add: stock options potentially exercisable (1) (thousands) Add: restricted shares and equity-settled consideration (thousands) Weighted-average diluted common shares outstanding (thousands) $ $ $ 2021 6,429 158 6,271 448,953 13.97 6,271 448,953 1,061 169 450,183 $ $ $ 2020 3,790 122 3,668 445,435 8.23 3,668 445,435 378 208 446,021 $ $ $ 2019 5,096 111 4,985 444,324 11.22 4,985 444,324 702 431 445,457 Diluted EPS $ 13.93 $ 8.22 $ 11.19 (1) Excludes average options outstanding of nil with a weighted-average exercise price of nil (2020: 3,748,652 with a weighted-average exercise price of $111.53; 2019: 2,319,723 with a weighted-average exercise price of $114.29), to the extent that the options’ exercise prices were less than the average market price of CIBC’s common shares. CIBC 2021 ANNUAL REPORT 183 Consolidated financial statements Note 22 Commitments, guarantees and pledged assets Commitments Credit-related arrangements Credit-related arrangements are generally off-balance sheet instruments and are typically entered into to meet the financing needs of clients. In addition, there are certain exposures for which we could be obligated to extend credit that are not recorded on the consolidated balance sheet. Our policy of requiring collateral or other security to support credit-related arrangements and the types of security held is generally the same as for loans. The contract amounts presented below for credit-related arrangements represent the maximum amount of additional credit that we could be obligated to extend. The contract amounts also represent the additional credit risk amounts should the contracts be fully drawn, the counterparties default and any collateral held proves to be of no value. As many of these arrangements will expire or terminate without being drawn upon, the contract amounts are not necessarily indicative of future cash requirements or actual risk of loss. $ millions, as at October 31 Securities lending (1) Unutilized credit commitments (2) Backstop liquidity facilities Standby and performance letters of credit Documentary and commercial letters of credit Other commitments to extend credit 2021 2020 Contract amounts $ 50,578 301,343 12,174 15,775 194 978 $ 39,186 268,089 12,907 14,565 196 2,149 $ 381,042 $ 337,092 (1) Excludes securities lending of $2.5 billion (2020: $1.8 billion) for cash because it is reported on the consolidated balance sheet. (2) Includes $141.5 billion (2020: $131.3 billion) of personal, home equity and credit card lines, which are unconditionally cancellable at our discretion. In addition, the client securities lending of the joint ventures which CIBC has with The Bank of New York Mellon totalled $81.7 billion (2020: $78.1 billion) of which $8.6 billion (2020: $8.0 billion) are transactions between CIBC and the joint ventures. CIBC has provided indemnities to customers of the joint ventures in respect of securities lending transactions with third parties amounting to $68.0 billion (2020: $64.3 billion). For further information on the joint ventures, see Note 26. Securities lending Securities lending represents our credit exposure when we lend our own or our clients’ securities to a borrower and the borrower defaults on the redelivery obligation. The borrower must fully collateralize the security lent at all times. Unutilized credit commitments Unutilized credit commitments are the undrawn portion of lending facilities that we have approved to meet the requirements of clients. These lines may include various conditions that must be satisfied prior to drawdown and include facilities extended in connection with contingent acquisition financing. The credit risk associated with these lines arises from the possibility that a commitment will be drawn down as a loan at some point in the future, prior to the expiry of the commitment. The amount of collateral obtained, if deemed necessary, is based on our credit evaluation of the borrower and may include a charge over the present and future assets of the borrower. Backstop liquidity facilities We provide irrevocable backstop liquidity facilities primarily to ABCP conduits. We are the financial services agent for some of these conduits, while other conduits are administered by third parties. The liquidity facilities for our sponsored ABCP programs, Safe Trust, Sure Trust, Sound Trust and Stable Trust, require us to provide funding to fund non-defaulted assets, subject to the satisfaction of certain limited conditions with respect to the conduits. Standby and performance letters of credit These represent an irrevocable obligation to make payments to third parties in the event that clients are unable to meet their contractual financial or performance obligations. The credit risk associated with these instruments is essentially the same as that involved in extending irrevocable loan commitments to clients. The amount of collateral obtained, if deemed necessary, is based on our credit evaluation of the borrower and may include a charge over present and future assets of the borrower. Documentary and commercial letters of credit Documentary and commercial letters of credit are short-term instruments issued on behalf of a client, authorizing a third-party, such as an exporter, to draw drafts on CIBC up to a specified amount, subject to specific terms and conditions. We are at risk for any drafts drawn that are not ultimately settled by the client; however, the amounts drawn are collateralized by the related goods. Other commitments to extend credit These represent other commitments to extend credit, and primarily include forward-dated securities financing trades in the form of securities purchased under resale agreements with various counterparties that are executed on or before the end of our reporting period and that settle shortly after period end, usually within five business days. Other commitments As an investor in merchant banking activities, we enter into commitments to fund external private equity funds. In connection with these activities, we had commitments to invest up to $337 million (2020: $212 million). In addition, we act as underwriter for certain new issuances under which we alone or together with a syndicate of financial institutions purchase these new issuances for resale to investors. As at October 31, 2021, the related underwriting commitments were $268 million (2020: $94 million). 184 CIBC 2021 ANNUAL REPORT Consolidated financial statements Guarantees and other indemnification agreements Guarantees A guarantee is a contract that requires the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor failed to make payment when due in accordance with the original or modified terms of a debt instrument. Guarantees include standby and performance letters of credit as discussed above, and credit derivatives protection sold, as discussed in Note 13. Other indemnification agreements In the ordinary course of business, we enter into contractual arrangements under which we may agree to indemnify the counterparty to such arrangement from any losses relating to a breach of representations and warranties, a failure to perform certain covenants, or for claims or losses arising from certain external events as outlined within the particular contract. This may include, for example, losses arising from changes in tax legislation, litigation, or claims relating to past performance. In addition, we indemnify each of our directors and officers to the extent permitted by law, against any and all claims or losses (including any amounts paid in settlement of any such claims) incurred as a result of their service to CIBC. In most indemnities, maximum loss clauses are generally not provided for, and as a result, no defined limit of the maximum potential liability exists. Amounts are accrued when we have a present legal or constructive obligation as a result of a past event, when it is both probable that an outflow of economic benefits will be required to resolve the matter, and when a reliable estimate can be made of the amount of the obligation. We believe that the likelihood of the conditions arising to trigger obligations under these contract arrangements is remote. Historically, any payments made in respect of these contracts have not been significant. Amounts related to these indemnifications, representations, and warranties reflected within the consolidated financial statements as at October 31, 2021 and 2020 are not significant. Pledged assets In the normal course of business, on- and off-balance sheet assets are pledged as collateral for various activities. The following table summarizes asset pledging amounts and the activities to which they relate: $ millions, as at October 31 Assets pledged in relation to: Securities lending Obligations related to securities sold under repurchase agreements Obligations related to securities sold short Securitizations Covered bonds Derivatives Foreign governments and central banks (1) Clearing systems, payment systems, and depositories (2) Other (1) Includes assets pledged to maintain access to central bank facilities in foreign jurisdictions. (2) Includes assets pledged in order to participate in clearing and payment systems and depositories. Note 23 Contingent liabilities and provisions $ 2021 2020 50,895 $ 73,687 22,790 18,824 25,416 16,266 252 649 374 41,042 69,528 15,963 20,818 21,073 14,410 133 605 400 $ 209,153 $ 183,972 In the ordinary course of its business, CIBC is a party to a number of legal proceedings, including regulatory investigations, in which claims for substantial monetary damages are asserted against CIBC and its subsidiaries. Legal provisions are established if, in the opinion of management, it is both probable that an outflow of economic benefits will be required to resolve the matter, and a reliable estimate can be made of the amount of the obligation. If the reliable estimate of probable loss involves a range of potential outcomes within which a specific amount appears to be a better estimate, that amount is accrued. If no specific amount within the range of potential outcomes appears to be a better estimate than any other amount, the mid-point in the range is accrued. In some instances, however, it is not possible either to determine whether an obligation is probable or to reliably estimate the amount of loss, in which case no accrual can be made. While there is inherent difficulty in predicting the outcome of legal proceedings, based on current knowledge and in consultation with legal counsel, we do not expect the outcome of these matters, individually or in aggregate, to have a material adverse effect on our consolidated financial statements. However, the outcome of these matters, individually or in aggregate, may be material to our operating results for a particular reporting period. We regularly assess the adequacy of CIBC’s litigation accruals and make the necessary adjustments to incorporate new information as it becomes available. CIBC considers losses to be reasonably possible when they are neither probable nor remote. It is reasonably possible that CIBC may incur losses in addition to the amounts recorded when the loss accrued is the mid-point of a range of reasonably possible losses, or the potential loss pertains to a matter in which an unfavourable outcome is reasonably possible but not probable. CIBC believes the estimate of the aggregate range of reasonably possible losses, in excess of the amounts accrued, for its significant legal proceedings, where it is possible to make such an estimate, is from nil to approximately $1.1 billion as at October 31, 2021. This estimated aggregate range of reasonably possible losses is based upon currently available information for those significant proceedings in which CIBC is involved, taking into account CIBC’s best estimate of such losses for those cases for which an estimate can be made. CIBC’s estimate involves significant judgment, given the varying stages of the proceedings and the existence of multiple defendants in many of such proceedings whose share of the liability has yet to be determined. The range does not include potential punitive damages and interest. The matters underlying the estimated range as at October 31, 2021 consist of the significant legal matters disclosed below. The matters underlying the estimated range will change from time to time, and actual losses may vary significantly from the current estimate. For certain matters, CIBC does not believe that an estimate can currently be made as many of them are in preliminary stages and certain matters have no specific amount claimed. Consequently, these matters are not included in the range. The following is a description of CIBC’s significant legal proceedings, which we intend to vigorously defend. CIBC 2021 ANNUAL REPORT 185 Consolidated financial statements Green v. Canadian Imperial Bank of Commerce, et al. In July 2008, a shareholder plaintiff commenced this proposed class action in the Ontario Superior Court of Justice against CIBC and several former and current CIBC officers and directors. It alleges that CIBC and the individual officers and directors violated the Ontario Securities Act through material misrepresentations and non-disclosures relating to CIBC’s exposure to the U.S. sub-prime mortgage market. The plaintiffs instituted this action on behalf of all CIBC shareholders in Canada who purchased shares between May 31, 2007 and February 28, 2008. The action seeks damages of $5 billion. In July 2012, the plaintiffs’ motions for leave to file the statement of claim and for class certification were dismissed by the Ontario Superior Court of Justice. In February 2014, the Ontario Court of Appeal released its decision overturning the lower court and allowing the matter to proceed as a certified class action. In August 2014, CIBC and the individual defendants were granted leave to appeal to the Supreme Court of Canada. The defendants’ appeal to the Supreme Court of Canada was heard in February 2015. In December 2015, the Supreme Court of Canada upheld the Ontario Court of Appeal’s decision allowing the matter to proceed as a certified class action. The trial, which was scheduled to start in October 2021, has been adjourned. A settlement agreement has been reached, subject to court approval. Pursuant to the proposed settlement, CIBC will pay the plaintiffs $125 million. Fresco v. Canadian Imperial Bank of Commerce Gaudet v. Canadian Imperial Bank of Commerce In June 2007, two proposed class actions were filed against CIBC in the Ontario Superior Court of Justice (Fresco) and in the Quebec Superior Court (Gaudet). Each makes identical claims for unpaid overtime for full-time, part-time, and retail frontline non-management employees. The Ontario action seeks $500 million in damages plus $100 million in punitive damages for all employees in Canada, while the Quebec action is limited to employees in Quebec and has been stayed pending the outcome of the Ontario action. In June 2009, in the Ontario action, the motion judge denied certification of the matter as a class action. In September 2010, the Ontario Divisional Court upheld the motion judge’s denial of the plaintiff’s certification motion and the award of costs to CIBC by a two-to-one majority. In January 2011, the Ontario Court of Appeal granted the plaintiff leave to appeal the decision denying certification. In June 2012, the Ontario Court of Appeal overturned the lower court and granted certification of the matter as a class action. The Supreme Court of Canada released its decision in March 2013 denying CIBC leave to appeal certification of the matter as a class action, and denying the plaintiff’s cross appeal on aggregate damages. The motions for summary judgment were heard in December 2019. In March 2020, the court found CIBC liable for unpaid overtime. CIBC has appealed the liability decision. A decision on remedies was released in August 2020 and the court certified aggregate damages as a common issue and directed that the availability and quantum, if any, of aggregate damages be determined at a later date. The plaintiffs’ claim for punitive damages was dismissed. In October 2020, the court released its decision on limitation periods finding that limitation periods cannot be determined on a class wide basis. CIBC has appealed the decisions on remedies and limitation periods. The appeal was heard in September 2021. The court reserved its decision. Credit card class actions – Interchange fees litigation: Bancroft-Snell v. Visa Canada Corporation, et al. 9085-4886 Quebec Inc. v. Visa Canada Corporation, et al. Watson v. Bank of America Corporation, et al. Fuze Salon v. BofA Canada Bank, et al. 1023926 Alberta Ltd. v. Bank of America Corporation, et al. The Crown & Hand Pub Ltd. v. Bank of America Corporation, et al. Hello Baby Equipment Inc. v. BofA Canada Bank, et al. Since 2011, seven proposed class actions have been commenced against VISA Canada Corporation (Visa), MasterCard International Incorporated (MasterCard), CIBC and numerous other financial institutions. The actions, brought on behalf of all merchants who accepted payment by Visa or MasterCard from March 23, 2001 to the present, allege two “separate, but interrelated” conspiracies: one in respect of Visa and one in respect of MasterCard. The claims allege that Visa and MasterCard conspired with their issuing banks to set default interchange rate and merchant discount fees and that certain rules (Honour All Cards and No Surcharge) have the effect of increasing the merchant discount fees. The claims allege civil conspiracy, violation of the Competition Act, interference with economic interests and unjust enrichment. The claims seek unspecified general and punitive damages. The motion for class certification in Watson was granted in March 2014. The appeal of the decision granting class certification was heard in December 2014. In August 2015, the British Columbia Court of Appeal allowed the appeals in part, resulting in certain causes of action being struck and others being reinstated. The matter remains certified as a class action. The trial in Watson which was scheduled to commence in October 2020 has been adjourned. The motion for class certification in 9085-4886 Quebec Inc. (formerly Bakopanos) was heard in November 2017. In February 2018, the Court certified 9085-4886 Quebec Inc. as a class action. In May 2019, the plaintiffs’ appeal of the certification decision in 9085-4886 Quebec Inc. was heard and in July 2019, the Quebec Court of Appeal allowed the plaintiffs’ appeal. Five of the seven actions have been settled subject to court approval. The motions for court approval of the settlement are scheduled for December 2021. The remaining two actions will be stayed. CIBC will contribute towards a proposed settlement. Mortgage prepayment class actions: Jordan v. CIBC Mortgages Inc. Lamarre v. CIBC Mortgages Inc. Sherry v. CIBC Mortgages Inc. Haroch v. Toronto Dominion Bank, et al. In 2011, three proposed class actions were filed in the Superior Courts of Ontario (Jordan), Quebec (Lamarre) and British Columbia (Sherry) against CIBC Mortgages Inc. The representative plaintiffs allege that since 2005, CIBC Mortgages Inc. wrongfully charged or overcharged mortgage prepayment penalties and that the calculation clauses in the mortgage contract that provide for discretion in applying the prepayment penalties are void and unenforceable at law. The motion for class certification in Sherry was granted in June 2014 conditional on the plaintiffs framing a workable class definition. In July 2014, CIBC filed a Notice of Appeal. CIBC’s appeal of the certification decision in Sherry was heard in April 2016. In June 2016, the British Columbia Court of Appeal allowed the appeal in Sherry in part, resulting in certain causes of action being struck. Sherry remains certified as a class action, and continuation of the certification motion on the amended pleading was heard November 2017. In August 2018, the court certified certain of the plaintiffs’ causes of action in Sherry. The appeal in Sherry was heard in April 2019. In May 2020, the court dismissed CIBC’s appeal. The certification motion in Jordan was heard in August 2018. In February 2019, the court certified Jordan as a class action. CIBC’s motion for leave to appeal the certification decision in Jordan was denied in June 2019. In May 2018, a new proposed class action, Haroch, was filed in the Superior Court of Quebec against CIBC, CIBC Mortgages Inc. and several other financial institutions. The action is brought on behalf of Quebec residents who during the class period allegedly paid a mortgage prepayment charge in excess of three months’ interest. The plaintiffs allege that the defendants created complex prepayment formulas that are contrary to the 186 CIBC 2021 ANNUAL REPORT Consolidated financial statements Quebec Civil Code, the Quebec Consumer Protection Act and the Interest Act and seek damages back to 2015. Haroch and Lamarre have been consolidated. The motion for class certification in Haroch was heard in June 2019 and in July 2019, the court certified the matter as a class action against CIBC and CIBC Mortgages Inc. CIBC and CIBC Mortgages Inc. sought leave to appeal the certification decision. The Jordan and Sherry actions have been settled subject to court approval, for which hearings are scheduled for February 2022. The appeal of the certification decision in Haroch did not proceed as the matter has been settled against CIBC, subject to court approval. Cerberus Capital Management L.P. v. CIBC In November 2015, Securitized Asset Funding 2011-2, LTD., a special purpose investment vehicle affiliated with Cerberus Capital Management L.P. (collectively, Cerberus), commenced a New York State Court action against CIBC seeking unspecified damages of “at least hundreds of millions of dollars”. The action relates to two transactions in 2008 and 2011 in which CIBC issued a limited recourse note and certificate to Cerberus which significantly reduced CIBC’s exposure to the U.S. residential real estate market. The complaint alleges that CIBC breached its contracts with Cerberus by failing to appropriately calculate and pay with respect to two of the payment streams due under the 2008 note and 2011 certificate. In January 2016, CIBC served its answer denying Cerberus’ allegations and asserting counterclaims. Pre-trial discovery was completed and the parties filed a Note of Issue and Certificate of Readiness for Trial in August 2021. In September 2021, CIBC filed a motion for summary judgment, which is scheduled to be heard in December 2021. A non-jury trial is scheduled to commence in March 2022. Valeant class actions: Catucci v. Valeant Pharmaceuticals International Inc., et al. Potter v. Valeant Pharmaceuticals International Inc., et al. In March 2016, a proposed class action was filed in the Quebec Superior Court on behalf of purchasers of shares in Valeant Pharmaceuticals International Inc. against the issuer, its directors and officers, its auditors and the underwriting syndicates for six public offerings from 2013 to 2015. CIBC World Markets Corp. was part of the underwriting syndicate for three of the offerings (underwriting 1.5% of a US$1.6 billion offering in June 2013, 1.5% of a US$900 million offering in December 2013 and 0.625% of an offering comprising US$5.25 billion and €1.5 billion in March 2015). The proposed class action alleges various misrepresentations on the part of Valeant and the other defendants, including representations made in the prospectus of the public offerings, relating to Valeant’s relationships with various “specialty pharmacies” who were allegedly acting improperly in the distribution of Valeant’s products resulting in Valeant’s operational results, revenues, and share price during the relevant period being artificially inflated. In July 2016, a similar proposed class action (Potter v. Valeant Pharmaceuticals International Inc., et al.) was commenced in New Jersey Federal Court. The motion for class certification in Catucci and motion to dismiss in Potter were heard in April 2017. In September 2017, the court certified Catucci as a class action. The defendants sought leave to appeal the certification decision, which was dismissed in December 2017. In Potter, the court dismissed the action against the underwriters, without prejudice to the plaintiff to re-plead its allegations. In November 2020, the Catucci class action was settled. The underwriters did not contribute to the settlement. This matter is now closed. Pilon v. Amex Bank of Canada, et al. In January 2018, a proposed class action was commenced in Quebec against CIBC and several other financial institutions. The action alleges that the defendants breached the Quebec Consumer Protection Act and the Bank Act when they unilaterally increased the credit limit on the plaintiffs’ credit cards. The claim seeks the return of all over limit fees charged to Quebec customers beginning in January 2015 as well as punitive damages of $500 per class member. The motion for class certification was heard in April 2019. In August 2019, the court dismissed the certification motion. The plaintiff’s appeal of the decision denying certification was heard in February 2021. In March 2021, the court dismissed the plaintiff’s appeal. In May 2021, the plaintiff filed a motion seeking leave to appeal to the Supreme Court of Canada. Simplii privacy class actions: Bannister v. CIBC (formerly John Doe v. CIBC) Steinman v. CIBC In June 2018, two proposed class actions were filed in the Ontario Superior Court against CIBC on behalf of Simplii Financial clients who allege their personal information was disclosed as a result of a security incident in May 2018. The actions allege that Simplii Financial failed to protect its clients’ personal information. The Bannister proposed class action seeks aggregated damages of approximately $550 million, while the Steinman proposed class action, which has been stayed, sought damages per class member plus punitive damages of $20 million. The motion for certification in Bannister, which was scheduled for December 2019, was adjourned. In April 2021, the court approved the settlement in the Bannister and Steinman actions. Pursuant to the settlement, CIBC agreed to pay $2 million to settle these actions. This matter is now closed. Order Execution Only class actions: Pozgaj v. CIBC and CIBC Trust Frayce v. BMO Investorline Inc., et al Michaud v. BBS Securities Inc. et al In September 2018, a proposed class action (Pozgaj) was filed in the Ontario Superior Court against CIBC and CIBC Trust. It alleges that the defendants should not have paid mutual fund trailing commissions to order-execution-only-dealers. The action is brought on behalf of all persons who held units of CIBC mutual funds through order-execution-only-dealers and seeks $200 million in damages. In 2020, two proposed class action were filed in the Ontario Superior Court (Frayce) and the Supreme Court of British Columbia (Michaud) against CIBC Investor Services Inc. and several other dealers. The proposed actions allege that the defendants should not have received and accepted trailing commissions for service and advice on mutual funds purchased through their respective order-execution-only-dealers. The proposed actions are brought on behalf of all persons who purchased units of mutual funds through an order-execution-only-dealer owned by one or more of the defendants and seeks unspecified compensatory and punitive damages. The motion for class certification in Frayce is scheduled for February 2022, and the Michaud action has been stayed. CIBC 2021 ANNUAL REPORT 187 Consolidated financial statements York County on Behalf of the County of York Retirement Fund v. Rambo, et al. In February 2019, a class action complaint was filed in the Northern District of California against the directors, certain officers and the underwriters of several senior note offerings of the Pacific Gas and Electric Company (PG&E) that took place between March 2016 and April 2018, the total issuance amount for the series of offerings being approximately US$4 billion. CIBC World Markets Corp. was part of the underwriting syndicate for an offering, whereby CIBC World Markets Corp. underwrote 6% of a US$650 million December 2016 issuance of senior notes. The offering involved the issuance of two tranches of notes: US$400 million of 30-year senior notes maturing in December 2046 and US$250 million of one-year floating rate notes that matured and were repaid in November 2017. The complaint alleges that the disclosure documentation associated with the note offerings contained misrepresentations and/or omissions of material facts, including with respect to PG&E’s failure to comply with various safety regulations, vegetation management programs and requirements, as well as understating the extent to which its equipment has allegedly caused multiple fires in California, including before the wildfires that occurred in California in 2017 and 2018. In October 2019, the defendants filed a motion to dismiss. Pope v. CIBC and CIBC Trust In August 2020, a proposed class action was filed in the Supreme Court of British Columbia against CIBC and CIBC Trust. The action alleges that the defendants misrepresented their investment strategy and charged unitholders excess fees in relation to the CIBC Canadian Equity Fund and certain CIBC portfolio funds. The action is brought on behalf of all persons who hold or held units of these funds from January 2005 to present and seeks unspecified compensatory and punitive damages. In December 2020, CIBC Asset Management Inc. was added as a defendant. The motion for class certification was heard in August 2021 and taken under reserve. Salko v. CIBC Investor Services Inc. et al In March 2021, a proposed class action was commenced in Quebec against CIBC Investor Services Inc. and several other financial institutions. The plaintiff subsequently added CIBC World Markets Inc. and additional financial institutions as defendants. The action seeks the reimbursement of currency conversion fees alleged to have been unlawfully charged to class members and concealed by the defendants, as well as exemplary and punitive damages. The plaintiff seeks reimbursement of fees charged to clients since March 15, 2018, as well as punitive damages in the amount of 5% of the total sum of fees charged to class members, plus interest. The motion for class certification is scheduled for April 2022. The Registered Retirement Savings Plan (RRSP) of J.T.G v. Her Majesty The Queen CIBC Trust Corporation is the trustee of a self-directed RRSP that has been the subject of proceedings in the Tax Court of Canada. The proceedings arise from appeals of tax assessments made by the Minister of National Revenue against the RRSP for the 2004 to 2009 taxation years under Parts I and XI.1 of the Income Tax Act (Canada). At the time they were made in March 2013, the Part I assessment amounted to approximately $139 million and the Part XI.1 reassessment totalled approximately $144 million, in each case including all taxes, penalties and interest. In April 2021, the Tax Court of Canada released a decision allowing the appeal in part of the assessment under Part I and dismissing the appeal of the reassessment under Part XI.1. The RRSP by its trustee CIBC Trust has appealed this decision to the Federal Court of Appeal. To the extent there is a shortfall in the RRSP’s ability to satisfy any of the Part XI.1 reassessment that may be upheld by the courts, CIBC Trust may be liable to pay a portion of that reassessment. Legal provisions The following table presents changes in our legal provisions: $ millions, for the year ended October 31 Balance at beginning of year Additional new provisions recognized Less: Amounts incurred and charged against existing provisions Unused amounts reversed and other adjustments Balance at end of year 2021 $ 151 169 (13) (6) $ 2020 67 92 (5) (3) $ 301 $ 151 Restructuring During the first quarter of 2020, we recognized a restructuring charge of $339 million in Corporate and Other associated with ongoing efforts to transform our cost structure and simplify our bank. The charge consisted primarily of employee severance and related costs and was recorded in Non-interest expenses – Employee compensation and benefits. The following table presents changes in the restructuring provision: $ millions, for the year ended October 31 Balance at beginning of year Additional new provisions recognized Less: Amounts incurred and charged against existing provisions Unused amounts reversed Balance at end of year 2021 $ 222 14 2020 26 370 $ (112) (25) (152) (22) $ 99 $ 222 The amount of $99 million recognized represents our best estimate as at October 31, 2021 of the amount required to settle the obligation, including obligations related to ongoing payments as a result of the restructuring. 188 CIBC 2021 ANNUAL REPORT Consolidated financial statements Note 24 Concentration of credit risk Concentration of credit exposure may arise with a group of counterparties that have similar economic characteristics or are located in the same geographic region. The ability of such counterparties to meet contractual obligations would be similarly affected by changing economic, political or other conditions. The amounts of credit exposure associated with our on- and off-balance sheet financial instruments are summarized in the following table: Credit exposure by country of ultimate risk $ millions, as at October 31 2021 Canada U.S. Other countries Total Canada U.S. Other countries 2020 Total On-balance sheet Major assets (1)(2)(3) Off-balance sheet Credit-related arrangements Financial institutions Governments Retail Corporate $ 537,932 $ 181,813 $ 77,384 $ 797,129 $ 512,542 $ 151,337 $ 70,945 $ 734,824 $ 59,636 $ 18,315 $ 16,458 $ 10 11,229 700 154,341 33,233 77,939 8 383 8,790 94,409 $ 11,247 155,424 119,962 48,236 $ 13,482 $ 12,737 $ 10 554 30,839 9,860 142,351 70,130 7 434 8,452 74,455 9,877 143,339 109,421 $ 303,145 $ 52,258 $ 25,639 $ 381,042 $ 270,577 $ 44,885 $ 21,630 $ 337,092 (1) Major assets consist of cash and deposits with banks, loans and acceptances net of allowance for credit losses, securities, securities borrowed or purchased under resale agreements, and derivative instruments. (2) Includes Canadian currency of $522.8 billion (2020: $497.3 billion) and foreign currencies of $274.3 billion (2020: $237.5 billion). (3) No industry or foreign jurisdiction accounted for more than 10% of loans and acceptances net of allowance for credit losses, with the exception of the U.S., which accounted for 13% as at October 31, 2021 (2020: 13%). See Note 13 for derivative instruments by country and counterparty type of ultimate risk. In addition, see Note 22 for details on the client securities lending of the joint ventures which CIBC has with The Bank of New York Mellon. Also see shaded sections in “MD&A – Management of risk” for a detailed discussion on our credit risk. CIBC 2021 ANNUAL REPORT 189 Consolidated financial statements Note 25 Related-party transactions In the ordinary course of business, we provide banking services and enter into transactions with related parties on terms similar to those offered to unrelated parties. Related parties include key management personnel(1), their close family members, and entities that they or their close family members control or jointly control. Related parties also include associates and joint ventures accounted for under the equity method, and post- employment benefit plans for CIBC employees. Loans to these related parties are made in the ordinary course of business and on substantially the same terms as for comparable transactions with unrelated parties. As CIBC’s subsidiaries are consolidated, transactions with these entities have been eliminated and are not reported as related-party transactions. We offer a subsidy on annual fees and preferential interest rates on credit card balances to senior officers, which is the same offer extended to all employees of CIBC. Key management personnel and their affiliates As at October 31, 2021, loans to key management personnel(1) and their close family members and to entities that they or their close family members control or jointly control totalled $17 million (2020: $139 million), letters of credit and guarantees were nil (2020: $2 million), and undrawn credit commitments totalled $11 million (2020: $65 million). These outstanding balances are generally unsecured and we have no provision for credit losses on impaired loans relating to these amounts for the years ended October 31, 2021 and 2020. (1) Key management personnel are defined as those persons having authority and responsibility for planning, directing and controlling the activities of CIBC directly or indirectly and comprise the members of the Board (referred to as directors), Executive Committee and certain named officers per the Bank Act (Canada) (collectively referred to as senior officers). Board members who are also Executive Committee members are included as senior officers. Compensation of key management personnel $ millions, for the year ended October 31 Short-term benefits (1) Post-employment benefits Share-based benefits (2) Termination benefits Total compensation 2021 Senior officers $ $ 18 3 30 – 51 2020 Senior officers $ $ 18 3 30 4 55 Directors $ $ 3 – 1 – 4 Directors $ $ 3 – 1 – 4 (1) Comprises salaries, statutory and non-statutory benefits related to senior officers and fees related to directors recognized during the year. Also includes annual incentive plan payments related to senior officers on a cash basis. (2) Comprises grant-date fair values of awards granted in the year. Refer to the following Notes for additional details on related-party transactions: Share-based payment plans See Note 18 for details of these plans offered to directors and senior officers. Post-employment benefit plans See Note 19 for related-party transactions between CIBC and the post-employment benefit plans. Equity-accounted associates and joint ventures See Note 26 for details of our investments in equity-accounted associates and joint ventures. 190 CIBC 2021 ANNUAL REPORT Consolidated financial statements Note 26 Investments in equity-accounted associates and joint ventures Joint ventures CIBC is a 50/50 joint venture partner with The Bank of New York Mellon in two joint ventures: CIBC Mellon Trust Company and CIBC Mellon Global Securities Services Company (collectively referred to as CIBC Mellon), which provide trust and asset servicing, both in Canada. As at October 31, 2021, the carrying value of our investments in the joint ventures was $592 million (2020: $587 million), which was included in Corporate and Other. As at October 31, 2021, loans to the joint ventures totalled $5 million (2020: nil) and undrawn credit commitments totalled $122 million (2020: $164 million). CIBC, The Bank of New York Mellon, and CIBC Mellon have, jointly and severally, provided indemnities to customers of the joint ventures in respect of securities lending transactions. See Note 22 for additional details. There was no unrecognized share of losses of any joint ventures, either for the year or cumulatively. In 2021 and 2020, none of our joint ventures experienced any significant restrictions to transfer funds in the form of cash dividends or distributions, or repayment of loans or advances. The following table provides the summarized aggregate financial information related to our proportionate interest in the equity-accounted joint ventures: $ millions, for the year ended October 31 Net income OCI Total comprehensive income 2021 $ 51 (44) $ 7 2020 67 43 $ $ 110 2019 88 45 $ $ 133 Associates As at October 31, 2021, the total carrying value of our investments in associates was $66 million (2020: $71 million). These investments comprise: listed associates with a carrying value of nil (2020: $10 million) and a fair value of nil (2020: $10 million); and unlisted associates with a carrying value of $66 million (2020: $61 million) and a fair value of $89 million (2020: $83 million). Of the total carrying value of our investments in associates, $9 million (2020: $10 million) was included in Canadian Personal and Business Banking, $37 million (2020: $37 million) in Capital Markets, and $20 million (2020: $24 million) in Corporate and Other. As at October 31, 2021, loans to associates totalled $34 million (2020: nil) and undrawn credit commitments totalled $1 million (2020: $79 million). We also had commitments to invest up to nil (2020: nil) in our associates. There was no unrecognized share of losses of any associate, either for the year or cumulatively. In 2021 and 2020, none of our associates experienced any significant restrictions to transfer funds in the form of cash dividends or distributions, or repayment of loans or advances. The following table provides the summarized aggregate financial information related to our proportionate interest in equity-accounted associates: $ millions, for the year ended October 31 Net income OCI Total comprehensive income 2021 $ $ 4 1 5 2020 $ $ 12 1 13 2019 $ $ 4 (1) 3 CIBC 2021 ANNUAL REPORT 191 Consolidated financial statements Note 27 Significant subsidiaries The following is a list of significant subsidiaries in which CIBC, either directly or indirectly, owns 100% of the voting shares, except where noted. $ millions, as at October 31, 2021 Subsidiary name (1) Canada and U.S. CIBC Asset Management Inc. CIBC BA Limited CIBC Bancorp USA Inc. Canadian Imperial Holdings Inc. CIBC Inc. CIBC World Markets Corp. CIBC Bank USA CIBC Private Wealth Group, LLC CIBC Delaware Trust Company CIBC National Trust Company CIBC Private Wealth Advisors, Inc. CIBC Investor Services Inc. CIBC Life Insurance Company Limited CIBC Mortgages Inc. CIBC Securities Inc. CIBC Trust Corporation CIBC World Markets Inc. CIBC Wood Gundy Financial Services Inc. CIBC Wood Gundy Financial Services (Quebec) Inc. INTRIA Items Inc. International CIBC Australia Ltd CIBC Capital Markets (Europe) S.A. CIBC Cayman Holdings Limited CIBC Cayman Bank Limited CIBC Cayman Capital Limited CIBC Cayman Reinsurance Limited CIBC Investments (Cayman) Limited FirstCaribbean International Bank Limited (91.7%) FirstCaribbean International Bank and Trust Company (Cayman) Limited (91.7%) CIBC Fund Administration Services (Asia) Limited (91.7%) FirstCaribbean International Bank (Bahamas) Limited (87.3%) Sentry Insurance Brokers Ltd. (87.3%) FirstCaribbean International Bank (Barbados) Limited (91.7%) FirstCaribbean International Finance Corporation (Leeward & Windward) Limited (91.7%) FirstCaribbean International Securities Limited (91.7%) FirstCaribbean International Bank (Cayman) Limited (91.7%) FirstCaribbean International Finance Corporation (Netherlands Antilles) N.V. (91.7%) FirstCaribbean International Bank (Curacao) N.V. (91.7%) FirstCaribbean International Bank (Jamaica) Limited (91.7%) FirstCaribbean International Bank (Trinidad and Tobago) Limited (91.7%) FirstCaribbean International Trust Company (Bahamas) Limited (91.7%) FirstCaribbean International Wealth Management Bank (Barbados) Limited (91.7%) Address of head or principal office Book value of shares owned by CIBC (2) Toronto, Ontario, Canada $ 444 Toronto, Ontario, Canada Chicago, Illinois, U.S. New York, New York, U.S. New York, New York, U.S. New York, New York, U.S. Chicago, Illinois, U.S. Atlanta, Georgia, U.S. Wilmington, Delaware, U.S. Atlanta, Georgia, U.S. Chicago, Illinois, U.S. Toronto, Ontario, Canada Toronto, Ontario, Canada Toronto, Ontario, Canada Toronto, Ontario, Canada Toronto, Ontario, Canada Toronto, Ontario, Canada Toronto, Ontario, Canada Montreal, Quebec, Canada – (3) 9,331 25 23 230 2 591 306 Mississauga, Ontario, Canada 100 19 550 1,742 2,820 Sydney, New South Wales, Australia Luxembourg George Town, Grand Cayman, Cayman Islands George Town, Grand Cayman, Cayman Islands George Town, Grand Cayman, Cayman Islands George Town, Grand Cayman, Cayman Islands George Town, Grand Cayman, Cayman Islands Warrens, St. Michael, Barbados George Town, Grand Cayman, Cayman Islands Hong Kong, China Nassau, The Bahamas Nassau, The Bahamas Warrens, St. Michael, Barbados Castries, St. Lucia Kingston, Jamaica George Town, Grand Cayman, Cayman Islands Curacao, Netherlands Antilles Curacao, Netherlands Antilles Kingston, Jamaica Maraval, Port of Spain, Trinidad & Tobago Nassau, The Bahamas Warrens, St. Michael, Barbados CIBC World Markets (Japan) Inc. Tokyo, Japan 48 (1) Each subsidiary is incorporated or organized under the laws of the state or country in which the principal office is situated, except for Canadian Imperial Holdings Inc., CIBC Inc., CIBC Capital Corporation, CIBC World Markets Corp., CIBC Private Wealth Group, LLC, CIBC Private Wealth Advisors, Inc., and CIBC Bancorp USA Inc., which were incorporated or organized under the laws of the State of Delaware, U.S.; CIBC National Trust Company, which was organized under the laws of the U.S.; and CIBC World Markets (Japan) Inc., which was incorporated in Barbados. (2) The book value of shares of subsidiaries is shown at cost and may include non-voting common and preferred shares. These amounts are eliminated upon consolidation. (3) The book value of shares owned by CIBC is less than $1 million. In addition to the above, we consolidate certain SEs where we have control over the SE. See Note 7 for additional details. 192 CIBC 2021 ANNUAL REPORT Consolidated financial statements Note 28 Financial instruments – disclosures Certain disclosures required by IFRS 7 are provided in the shaded sections of the “MD&A – Management of risk”, as permitted by IFRS. The following table provides a cross referencing of those disclosures in the MD&A. Description For each type of risk arising from financial instruments, an entity shall disclose: the exposure to risks and how they arise; objectives, policies and processes used for managing the risks; methods used to measure the risk; and description of collateral. Credit risk: gross exposure to credit risk, credit quality and concentration of exposures. Market risk: trading portfolios – Value-at-Risk (VaR); stressed VaR, incremental risk charge, non-trading portfolios – interest rate risk, foreign exchange risk and equity risk. Liquidity risk: liquid assets, maturity of financial assets and liabilities, and credit commitments. Section Risk overview Credit risk Market risk Liquidity risk Operational risk Reputation and legal risks Conduct risk Regulatory compliance risk Credit risk Market risk Liquidity risk We have provided quantitative disclosures related to credit risk consistent with Basel guidelines in the “Credit risk” section of the MD&A. The table below sets out the categories of the on-balance sheet exposures that are subject to the credit risk framework as set out in the Capital Adequacy Requirements (CAR) Guideline issued by OSFI under the different Basel approaches based on the carrying value of those exposures in our consolidated financial statements. The credit risk framework includes CCR exposures arising from OTC derivatives, repo-style transactions and trades cleared through CCPs, as well as securitization exposures. Items not subject to the credit risk framework include exposures that are subject to the market risk framework, amounts that are not subject to capital requirements or are subject to deduction from capital, and amounts relating to CIBC’s insurance subsidiaries, which are excluded from the scope of regulatory consolidation. $ millions, as at October 31 AIRB approach Standardized approach Other credit risk (1) Total subject to credit risk Not subject to credit risk Total consolidated balance sheet 2021 Cash and deposits with banks Securities Cash collateral on securities borrowed Securities purchased under resale agreements Loans Allowance for credit losses Derivative instruments Customers’ liability under acceptances Other assets $ 40,418 93,476 12,362 67,572 408,087 (2,190) 35,865 10,671 21,889 $ 14,764 11,686 6 – 43,463 (659) 47 287 292 $ 1,793 – – – 1,494 – – – 7,988 $ 56,975 105,162 12,368 67,572 453,044 (2,849) 35,912 10,958 30,169 $ 22 56,239 – – 1,726 – – – 10,385 $ 56,997 161,401 12,368 67,572 454,770 (2,849) 35,912 10,958 40,554 Total credit exposures $ 688,150 $ 69,886 $ 11,275 $ 769,311 $ 68,372 $ 837,683 2020 Total credit exposures $ 634,193 $ 65,911 $ 10,699 $ 710,803 $ 58,748 $ 769,551 (1) Includes credit risk exposures arising from other assets that are subject to the credit risk framework but are not included in the standardized or AIRB frameworks, including other balance sheet assets which are risk-weighted at 100%, significant investments in the capital of non-financial institutions, and amounts below the thresholds for capital deduction that are risk-weighted at 250%. CIBC 2021 ANNUAL REPORT 193 Consolidated financial statements Note 29 Offsetting financial assets and liabilities The following table identifies the amounts that have been offset on the consolidated balance sheet in accordance with the requirements of IAS 32 “Financial Instruments: Presentation”, and also those amounts that are subject to enforceable netting agreements but do not qualify for offsetting on the consolidated balance sheet either because we do not have a currently enforceable legal right to set-off the recognized amounts, or because we do not intend to settle on a net basis or to realize the asset and settle the liability simultaneously. $ millions, as at October 31 2021 Financial assets Derivatives Cash collateral on securities Securities purchased under resale borrowed agreements Financial liabilities Derivatives Cash collateral on securities lent Obligations related to securities sold under repurchase agreements 2020 Financial assets Derivatives Cash collateral on securities Securities purchased under resale borrowed agreements Amounts subject to enforceable netting agreements Gross amounts of recognized financial assets Gross amounts offset on the consolidated balance sheet (1) Related amounts not set-off on the consolidated balance sheet Net amounts Financial instruments (2) Collateral received (3) Net amounts Amounts not subject to enforceable netting agreements (4) Net amounts presented on the consolidated balance sheet $ 53,285 $ (22,668) $ 30,617 $ (16,585) $ (6,375) $ 7,657 $ 5,295 $ 35,912 12,368 – 12,368 – (12,121) 247 – 12,368 71,777 $ 137,430 (4,205) 67,572 $ (26,873) $ 110,557 – 1,149 $ (16,585) $ (84,919) $ 9,053 (66,423) – $ 5,295 67,572 $ 115,852 $ 49,607 2,463 $ (22,668) $ 26,939 2,463 – $ (16,585) $ – (6,617) $ 3,737 132 (2,331) $ 5,162 – $ 32,101 2,463 76,085 $ 128,155 (4,205) 71,880 $ (26,873) $ 101,282 – 1,313 $ (16,585) $ (79,515) $ 5,182 (70,567) – $ 5,162 71,880 $ 106,444 $ 59,024 $ (29,989) $ 29,035 $ (19,347) $ (5,170) $ 4,518 $ 3,695 $ 32,730 8,547 – 8,547 – (8,267) 280 – 8,547 68,335 $ 135,906 (2,740) 65,595 $ (32,729) $ 103,177 – 417 $ (19,347) $ (78,615) $ 5,215 (65,178) – $ 3,695 65,595 $ 106,872 Financial liabilities Derivatives Cash collateral on securities lent Obligations related to securities sold under repurchase agreements $ 56,461 1,824 $ (29,989) $ 26,472 1,824 – $ (19,347) $ – (5,883) $ 1,242 105 (1,719) $ 4,036 – $ 30,508 1,824 74,393 $ 132,678 (2,740) 71,653 $ (32,729) $ 99,949 – 285 $ (19,347) $ (78,970) $ 1,632 (71,368) – $ 4,036 71,653 $ 103,985 (1) Comprises amounts related to financial instruments which qualify for offsetting. Derivatives cleared through the CME are considered to be settled-to-market and not collateralized-to-market. Derivatives which are settled-to-market are settled on a daily basis, resulting in derecognition, rather than offsetting, of the related amounts. As a result, settled-to-market amounts are not considered to be subject to enforceable netting arrangements. In the absence of this, an amount of $309 million as at October 31, 2021 (2020: $964 million) relating to derivatives cleared through CME would otherwise have been considered to be offset on the consolidated balance sheet. (2) Comprises amounts subject to set-off under enforceable netting agreements, such as ISDA agreements, derivative exchange or clearing counterparty agreements, global master repurchase agreements, and global master securities lending agreements. Under such arrangements, all outstanding transactions governed by the relevant agreement can be offset if an event of default or other predetermined event occurs. (3) Collateral received and pledged amounts are reflected at fair value, but have been limited to the net balance sheet exposure so as not to include any over-collateralization. (4) Includes exchange-traded derivatives and derivatives which are settled-to-market. The offsetting and collateral arrangements discussed above and other credit risk mitigation strategies used by CIBC are further explained in the “Credit risk” section of the MD&A. Certain amounts of securities received as collateral are restricted from being sold or re-pledged. Note 30 Interest income and expense The table below provides the consolidated interest income and expense by accounting categories. $ millions, for the year ended October 31 2021 Measured at amortized cost (1)(2) Debt securities measured at FVOCI (1) Other (3) Total 2020 Measured at amortized cost (1)(2) Debt securities measured at FVOCI (1) Other (3) Total 2019 Measured at amortized cost (1) Debt securities measured at FVOCI (1) Other (3) Total Interest income $ 12,816 349 1,576 $ 14,741 $ 15,055 685 1,782 $ 17,522 $ 17,871 960 1,866 $ 20,697 Interest expense 2,830 n/a 452 3,282 6,062 n/a 416 6,478 $ $ $ $ $ 9,824 n/a 322 $ 10,146 (1) Interest income for financial instruments that are measured at amortized cost and debt securities that are measured at FVOCI is calculated using the effective interest rate method. (2) Effective November 1, 2019, includes interest income on sublease-related assets and interest expense on lease liabilities under IFRS 16. (3) Includes interest income and expense and dividend income for financial instruments that are mandatorily measured and designated at FVTPL and equity securities designated at FVOCI. n/a Not applicable. 194 CIBC 2021 ANNUAL REPORT Consolidated financial statements Note 31 Segmented and geographic information CIBC has four SBUs – Canadian Personal and Business Banking, Canadian Commercial Banking and Wealth Management, U.S. Commercial Banking and Wealth Management, and Capital Markets. These SBUs are supported by Corporate and Other. Canadian Personal and Business Banking provides personal and business clients across Canada with financial advice, services and solutions through banking centres, digital, and mobile channels to help make their ambitions a reality. Canadian Commercial Banking and Wealth Management provides high-touch, relationship-oriented banking and wealth management services to middle-market companies, entrepreneurs, high-net-worth individuals and families across Canada, as well as asset management services to institutional investors. U.S. Commercial Banking and Wealth Management provides commercial banking and private wealth services across the U.S., as well as personal and small business banking services in four U.S. Midwestern markets and focuses on middle-market and mid-corporate companies and high-net-worth individuals and families. Capital Markets provides integrated global markets products and services, investment banking advisory and execution, corporate banking solutions and top-ranked research to our clients around the world. It includes Direct Financial Services which focuses on expanding CIBC’s digitally- enabled capabilities to provide a cohesive set of direct banking, direct investing and innovative multi-currency payment solutions for CIBC’s clients. Corporate and Other includes the following functional groups – Technology, Infrastructure and Innovation, Risk Management, People, Culture and Brand, Finance and Enterprise Strategy, as well as other support groups. The expenses of these functional and support groups are generally allocated to the business lines within the SBUs. The majority of the functional and support costs of CIBC Bank USA are recognized directly in the U.S. Commercial Banking and Wealth Management SBU. Corporate and Other also includes the results of CIBC FirstCaribbean and other strategic investments, as well as other income statement and balance sheet items not directly attributable to the business lines. Business unit allocations Revenue, expenses, and other balance sheet resources related to certain activities are generally allocated to the lines of business within the SBUs. Treasury activities impact the financial results of the SBUs. Each line of business within our SBUs is charged or credited with a market-based cost of funds on assets and liabilities, respectively, which impacts the revenue performance of the SBUs. This market-based cost of funds takes into account the cost of maintaining sufficient regulatory capital to support business requirements, including the cost of preferred shares. Once the interest and liquidity risks inherent in our client-driven assets and liabilities are transfer priced into Treasury, they are managed within CIBC’s risk framework and limits. Consistent with the changes discussed in the “Changes made to our business segments” section, the residual financial results associated with Treasury activities are reported in Corporate and Other. Capital is attributed to the SBUs based on the estimated amount of regulatory capital required to support their businesses, which is intended to consistently measure and align the costs with the underlying benefits and risks associated with SBU activities. Earnings on unattributed capital remain in Corporate and Other. We review our transfer pricing methodologies on an ongoing basis to ensure they reflect changing market environments and industry practices. We use a Product Owner/Customer Segment/Distributor Channel allocation management model to measure and report the results of operations of various lines of business within our SBUs. The model uses certain estimates and methodologies to process internal transfers between the impacted lines of business for sales, renewals and trailer commissions as well as certain attributable costs. Periodically, the sales, renewals and trailer commission rates paid to customer segments for certain products/services are revised and applied prospectively. The non-interest expenses of the functional and support groups are generally allocated to the business lines within the SBUs based on appropriate criteria and methodologies. The basis of allocation is reviewed periodically to reflect changes in support to business lines. Other costs not directly attributable to business lines remain in Corporate and Other. We recognize provision for credit losses on both impaired (stage 3) and performing (stages 1 and 2) loans in the respective SBUs. Changes made to our business segments 2021 The following changes were made in the first quarter of 2021:   Simplii Financial and CIBC Investor’s Edge, previously reported in Canadian Personal and Business Banking, are now part of the newly- created Direct Financial Services line of business in Capital Markets, along with certain other direct payment services that were previously in Capital Markets. This change was made to align with the mandates of the relevant SBUs. The financial results associated with U.S. treasury activities in U.S. Commercial Banking and Wealth Management are now included within Treasury in Corporate and Other. In addition, the transfer pricing methodology between U.S. Commercial Banking and Wealth Management and Treasury in Corporate and Other has been enhanced. Both changes align the treatment of U.S. Commercial Banking and Wealth Management with our other SBUs, and allow for better management of interest rate and liquidity risks. These changes impacted the results of our SBUs. Prior period amounts were revised accordingly. There was no impact on consolidated net income resulting from these changes. CIBC 2021 ANNUAL REPORT 195 Consolidated financial statements Results by reporting segments and geographic areas $ millions, for the year ended October 31 Canadian Personal and Business Banking Canadian Commercial Banking and Wealth Management U.S. Commercial Banking and Wealth Management Capital Markets Corporate and Other CIBC Total Canada (1) U.S. (1) Caribbean (1) Other countries (1) 2021 Net interest income (2) $ Non-interest income (3)(4) Total revenue Provision for (reversal of) credit losses Amortization and impairment (5) Other non-interest expenses Income (loss) before income taxes Income taxes (2) 5,954 2,196 8,150 350 213 4,201 3,386 892 $ 1,291 3,379 $ 1,449 $ 745 2,701 $ 1,819 4,670 2,194 4,520 (39) 27 2,416 2,266 601 (75) 109 1,012 1,148 222 (100) 11 2,106 2,503 646 417 481 22 657 783 (981) (485) 20,015 15,389 158 1,017 10,518 8,322 1,876 320 812 8,423 5,834 1,320 64 $ 11,459 $ 8,556 9,159 $ 6,230 1,470 1,365 2,835 (165) 128 1,382 1,490 381 $ $ 672 622 1,294 21 60 504 709 101 158 339 497 (18) 17 209 289 74 215 Net income (loss) $ 2,494 $ 1,665 $ 926 $ 1,857 $ (496) $ 6,446 $ 4,514 $ 1,109 $ 608 $ Net income (loss) attributable to: Non-controlling interests Equity shareholders $ – 2,494 $ – 1,665 $ – $ – $ 17 $ 17 $ – $ 926 1,857 (513) 6,429 4,514 – 1,109 $ $ 17 591 – 215 Average assets (6)(7) $ 272,645 $ 70,070 $ 46,733 $ 255,063 $ 165,110 $ 809,621 $ 624,791 $ 130,302 $ 36,777 $ 17,751 2020 (8) Net interest income (2) $ Non-interest income (3)(4) Total revenue Provision for (reversal of) credit losses Amortization and impairment (5) Other non-interest expenses Income (loss) before income taxes Income taxes (2) 5,849 2,073 7,922 1,189 230 4,078 2,425 640 $ 1,248 2,873 $ 1,422 $ 621 2,354 $ 1,699 171 $ 11,044 $ 431 7,697 8,449 $ 5,243 4,121 2,043 4,053 602 18,741 13,692 303 30 2,149 1,639 437 487 126 1,000 430 55 311 10 1,919 1,813 505 199 915 905 (1,417) (539) 2,489 1,311 10,051 4,890 1,098 1,648 805 7,991 3,248 700 Net income (loss) $ 1,785 $ 1,202 $ 375 $ 1,308 $ (878) $ 3,792 $ 2,548 $ Net income (loss) attributable to: Non-controlling interests Equity shareholders $ – 1,785 $ – 1,202 $ – $ – $ 2 $ 2 $ – $ 375 1,308 (880) 3,790 2,548 1,583 1,167 2,750 623 174 1,336 617 165 452 – 452 $ $ 890 616 1,506 199 312 530 465 89 $ 376 $ $ $ 2 374 122 671 793 19 20 194 560 144 416 – 416 Average assets (6)(7) $ 252,955 $ 65,839 $ 48,201 $ 230,163 $ 138,334 $ 735,492 $ 554,787 $ 122,721 $ 33,012 $ 24,972 2019 (8) Net interest income (2) $ Non-interest income (3)(4) Total revenue Provision for (reversal of) credit losses Amortization and impairment (5) Other non-interest expenses Income (loss) before income taxes Income taxes (2) 5,944 2,296 8,240 889 96 4,363 2,892 766 $ 1,205 2,822 $ 1,327 $ 584 1,681 $ 1,794 394 $ 10,551 $ 564 8,060 7,890 $ 6,008 4,027 1,911 3,475 958 18,611 13,898 163 8 2,098 1,758 471 73 109 1,005 724 76 160 4 1,798 1,513 396 1 621 754 (418) (361) 1,286 838 10,018 6,469 1,348 1,111 508 7,985 4,294 1,008 Net income (loss) $ 2,126 $ 1,287 $ 648 $ 1,117 $ (57) $ 5,121 $ 3,286 $ Net income (loss) attributable to: Non-controlling interests Equity shareholders $ – 2,126 $ – 1,287 $ – $ – $ 648 1,117 25 $ (82) 25 $ – $ 5,096 3,286 1,405 1,099 2,504 173 139 1,290 902 139 763 – 763 $ $ 820 643 1,463 1 181 556 725 155 $ 570 $ $ $ 25 545 436 310 746 1 10 187 548 46 502 – 502 Average assets (6)(7) $ 249,545 $ 62,552 $ 41,190 $ 194,115 $ 92,314 $ 639,716 $ 501,066 $ 99,152 $ 27,086 $ 12,412 (1) Net income and average assets are allocated based on the geographic location where they are recorded. (2) U.S. Commercial Banking and Wealth Management and Capital Markets net interest income and income taxes include taxable equivalent basis (TEB) adjustments of nil and $204 million, respectively (2020: nil and $183 million, respectively; 2019: $2 million and $177 million, respectively) with an equivalent offset in Corporate and Other. (3) The fee and commission income within non-interest income consists primarily of underwriting and advisory fees, deposit and payment fees, credit fees, card fees, investment management and custodial fees, mutual fund fees and commissions on securities transactions. Underwriting and advisory fees are earned primarily in Capital Markets with the remainder earned in Canadian Commercial Banking and Wealth Management. Deposit and payment fees are earned primarily in Canadian Personal and Business Banking, with the remainder earned mainly in Canadian Commercial Banking and Wealth Management and Corporate and Other. Credit fees are earned primarily in Canadian Commercial Banking and Wealth Management, Capital Markets, and U.S. Commercial Banking and Wealth Management. Card fees are earned primarily in Canadian Personal and Business Banking, with the remainder earned mainly in Corporate and Other. Investment management and custodial fees are earned primarily in Canadian Commercial Banking and Wealth Management and U.S. Commercial Banking and Wealth Management, with the remainder earned mainly in Corporate and Other. Mutual fund fees are earned primarily in Canadian Commercial Banking and Wealth Management and U.S. Commercial Banking and Wealth Management. Commissions on securities transactions are earned primarily in Capital Markets and Canadian Commercial Banking and Wealth Management. (4) Includes intersegment revenue, which represents internal sales commissions and revenue allocations under the Product Owner/Customer Segment/Distributor Channel allocation management model. (5) Comprises amortization and impairment of buildings, right-of-use assets, furniture, equipment, leasehold improvements, software and other intangible assets, and goodwill. (6) Assets are disclosed on an average basis as this measure is most relevant to a financial institution and is the measure reviewed by management. (7) Average balances are calculated as a weighted average of daily closing balances. (8) Certain prior period information has been revised. See the “Changes made to our business segments” section for additional details. 196 CIBC 2021 ANNUAL REPORT Consolidated financial statements The following table provides a breakdown of revenue from our reporting segments: $ millions, for the year ended October 31 Canadian Personal and Business Banking Canadian Commercial Banking and Wealth Management Commercial banking Wealth management U.S. Commercial Banking and Wealth Management (2) Commercial banking Wealth management (3) Capital Markets (2) Global markets Corporate and investment banking Direct financial services Corporate and Other (2) International banking Other 2021 2020 (1) 2019 (1) $ 8,150 $ 7,922 $ 8,240 $ 1,827 2,843 $ 4,670 $ 1,444 750 $ 2,194 $ 2,076 1,616 828 $ 4,520 $ 1,663 2,458 $ 4,121 $ 1,421 622 $ 2,043 $ 1,999 1,344 710 $ 4,053 $ $ 687 (206) 481 $ $ 734 (132) 602 $ 1,633 2,394 $ 4,027 $ 1,300 611 $ 1,911 $ 1,583 1,231 661 $ 3,475 $ $ 798 160 958 (1) Certain prior period information has been revised. See the “Changes made to our business segments” section for additional details. (2) U.S. Commercial Banking and Wealth Management and Capital Markets revenue includes a TEB adjustment of nil and $204 million, respectively (2020: nil and $183 million, respectively; 2019: $2 million and $177 million, respectively) with an equivalent offset in Corporate and Other. (3) Includes revenue related to the U.S. Paycheck Protection Program. Note 32 Future accounting policy changes IFRS 17 “Insurance Contracts” (IFRS 17) IFRS 17 “Insurance Contracts” (IFRS 17), issued in May 2017, replaces IFRS 4 “Insurance Contracts”. On June 25, 2020, the IASB issued amendments to IFRS 17 partly aimed at helping companies implement the standard. IFRS 17, incorporating the amendments, is effective for annual reporting periods beginning on or after January 1, 2023, which for us will be November 1, 2023. IFRS 17 provides comprehensive guidance on the recognition, measurement, presentation and disclosure of insurance contracts we issue and reinsurance contracts we hold. We continue to prepare for the implementation of IFRS 17, which is overseen by an Executive Steering Committee. Significant progress has been made in evaluating the required changes to our accounting and actuarial policies resulting from the adoption of IFRS 17. We plan to implement the required technology solution to support the new requirements in the upcoming year. CIBC 2021 ANNUAL REPORT 197 Quarterly review Condensed consolidated statement of income Unaudited, $ millions, for the three months ended Oct. 31 Jul. 31 Apr. 30 2021 Jan. 31 Oct. 31 Jul. 31 Apr. 30 2020 Jan. 31 Net interest income Non-interest income $ 2,980 2,084 $ 2,893 2,163 $ 2,747 2,185 $ 2,839 2,124 $ 2,792 1,808 $ 2,729 1,979 $ 2,762 1,816 $ 2,761 2,094 5,064 78 3,135 1,851 411 5,056 (99) 2,918 2,237 507 4,932 32 2,756 2,144 493 4,963 147 2,726 2,090 465 4,600 291 2,891 1,418 402 4,708 525 2,702 1,481 309 $ 1,440 $ 1,730 $ 1,651 $ 1,625 $ 1,016 $ 1,172 $ 4,578 1,412 2,704 462 70 392 4,855 261 3,065 1,529 317 $ 1,212 $ 4 $ 5 $ 4 $ 4 $ 1 $ 2 $ (8) $ 7 Net income attributable to equity shareholders $ 1,436 $ 1,725 $ 1,647 $ 1,621 $ 1,015 $ 1,170 $ 47 1,389 30 1,695 51 1,596 30 1,591 30 985 31 1,139 Condensed consolidated balance sheet Unaudited, $ millions, as at Oct. 31 Jul. 31 Apr. 30 2021 Jan. 31 Oct. 31 Jul. 31 Apr. 30 30 370 400 31 1,174 $ 1,205 2020 Jan. 31 20,731 129,349 $ 56,997 $ 50,296 $ 47,197 $ 63,293 $ 62,518 $ 68,422 $ 55,471 $ 161,401 157,478 155,122 150,493 149,046 144,344 133,806 79,940 76,206 74,679 75,953 74,142 62,060 71,706 63,904 251,526 53,031 150,213 (2,849) 35,912 10,958 40,554 245,045 52,101 144,130 (2,926) 34,360 10,817 38,560 234,747 53,004 136,567 (3,200) 35,313 11,002 38,447 226,594 52,680 134,863 (3,484) 34,165 10,322 38,029 221,165 53,611 135,546 (3,540) 32,730 9,606 34,727 216,469 53,150 138,496 (3,347) 43,476 9,689 35,786 213,254 53,541 147,855 (3,064) 40,319 8,993 37,255 209,792 55,565 129,539 (1,948) 25,251 9,505 30,430 $ 837,683 $ 806,067 $ 782,878 $ 782,908 $ 769,551 $ 768,545 $ 759,136 $ 672,118 $ 213,932 $ 210,683 $ 207,028 $ 206,090 $ 202,152 $ 197,409 $ 194,080 $ 182,773 264,775 11,928 38,423 25,380 9,568 311,426 17,011 40,151 30,508 9,649 311,628 16,405 40,693 42,875 9,802 290,800 17,497 41,411 41,188 9,051 310,445 18,666 38,726 32,158 10,380 313,201 17,140 39,194 34,121 11,071 332,974 18,708 40,604 29,291 10,879 344,388 20,246 42,592 32,101 10,961 97,133 24,961 5,539 45,830 90,059 22,931 5,653 44,285 89,594 23,196 5,653 42,680 97,743 22,078 4,693 41,929 89,440 22,167 5,712 41,335 82,765 21,047 5,822 40,099 96,288 23,750 4,818 40,253 76,188 19,158 4,695 39,230 $ 837,683 $ 806,067 $ 782,878 $ 782,908 $ 769,551 $ 768,545 $ 759,136 $ 672,118 Total revenue Provision for (reversal of) credit losses Non-interest expenses Income before income taxes Income taxes Net income Net income (loss) attributable to non- controlling interests Preferred shareholders and other equity instrument holders Common shareholders Assets Cash and deposits with banks Securities Securities borrowed or purchased under resale agreements Loans Residential mortgages Personal and credit card Business and government Allowance for credit losses Derivative instruments Customers’ liability under acceptances Other assets Liabilities and equity Deposits Personal Business and government Bank Secured borrowings Derivative instruments Acceptances Obligations related to securities lent or sold short or under repurchase agreements Other liabilities Subordinated indebtedness Equity 198 CIBC 2021 ANNUAL REPORT Select financial measures Unaudited, as at or for the three months ended Oct. 31 Jul. 31 Apr. 30 2021 Jan. 31 Oct. 31 Jul. 31 Apr. 30 2020 Jan. 31 Return on common shareholders’ equity Return on average assets (1) Average common shareholders’ equity ($ millions) (1) Average assets ($ millions) (1) Average assets to average common equity (1) Capital and leverage CET1 ratio Tier 1 capital ratio Total capital ratio Leverage ratio Net interest margin Operating leverage Efficiency ratio 13.4 % 0.68 % 17.1 % 0.85 % 17.1 % 0.85 % 17.0 % 0.81 % 10.7 % 0.52 % 12.1 % 0.62 % 4.0 % 0.22 % 13.1 % 0.71 % 40,984 $ $ $ 835,931 39,263 $ 35,671 $ 806,768 $ 795,373 $ 799,948 $ 778,933 $ 757,589 $ 725,701 $ 679,531 37,386 $ 37,360 $ 36,762 $ 37,067 $ 38,189 $ 20.4 20.5 20.8 21.6 21.2 20.3 19.4 19.0 12.4 % 14.1 % 16.2 % 4.7 % 1.41 % 1.7 % 61.9 % 12.3 % 13.7 % 16.0 % 4.6 % 1.42 % (0.6)% 57.7 % 12.4 % 13.9 % 16.2 % 4.7 % 1.42 % 5.8 % 55.9 % 12.3 % 13.8 % 15.8 % 4.7 % 1.41 % 13.3 % 54.9 % 12.1 % 13.6 % 16.1 % 4.7 % 1.43 % (5.5)% 62.9 % 11.8 % 13.0 % 15.4 % 4.6 % 1.43 % (1.7)% 57.4 % 11.3 % 12.5 % 14.5 % 4.5 % 1.55 % (3.7)% 59.1 % 11.3 % 12.5 % 14.5 % 4.3 % 1.62 % (4.7)% 63.1 % (1) Average balances are calculated as a weighted average of daily closing balances. Common share information Unaudited, as at or for the three months ended Oct. 31 Jul. 31 Apr. 30 2021 Jan. 31 Oct. 31 Jul. 31 Apr. 30 2020 Jan. 31 Weighted-average basic shares outstanding (thousands) Per share – basic earnings – diluted earnings – dividends – book value (1) Closing share price (2) Dividend payout ratio 450,469 449,590 448,455 447,281 446,321 445,416 444,739 445,248 $ 3.08 3.07 1.46 91.66 150.17 $ 3.77 3.76 1.46 90.06 145.07 $ 3.56 3.55 1.46 86.70 127.78 $ 3.56 3.55 1.46 85.24 108.98 $ 2.21 2.20 1.46 84.05 99.38 $ 2.56 2.55 1.46 83.17 92.73 47.3 % 38.7 % 41.0 % 41.1 % 66.2 % 57.1 % $ 0.83 0.83 1.46 83.67 82.48 176.0 % $ 2.64 2.63 1.44 81.38 107.92 54.6 % (1) Common shareholders’ equity divided by the number of common shares issued and outstanding at end of period. (2) The high and low price during the period, and closing price on the last trading day of the period, on the TSX. CIBC 2021 ANNUAL REPORT 199 Ten-year statistical review Condensed consolidated statement of income Unaudited, $ millions, for the year ended October 31 Net interest income Non-interest income Total revenue Provision for credit losses Non-interest expenses Income before income taxes Income taxes 2021 2020 2019 2018 2017 2016 2015 2014 2013 2012 $ 11,459 $ 11,044 $ 10,551 $ 10,065 $ 8,977 $ 8,366 $ 7,915 $ 7,459 $ 7,453 $ 7,326 5,159 5,941 6,669 7,769 5,252 5,904 7,303 8,556 8,060 7,697 20,015 158 11,535 8,322 1,876 18,741 2,489 11,362 4,890 1,098 18,611 1,286 10,856 6,469 1,348 17,834 870 10,258 6,706 1,422 16,280 829 9,571 5,880 1,162 15,035 1,051 8,971 5,013 718 13,856 771 8,861 4,224 634 13,363 937 8,512 3,914 699 12,705 1,121 7,608 3,976 626 12,485 1,291 7,202 3,992 689 Net income $ 6,446 $ 3,792 $ 5,121 $ 5,284 $ 4,718 $ 4,295 $ 3,590 $ 3,215 $ 3,350 $ 3,303 Net income (loss) attributable to non-controlling interests $ 17 $ 2 $ 25 $ 17 $ 19 $ 20 $ 14 $ (3) $ (2) $ 9 Preferred shareholders and other equity instrument holders Common shareholders Net income attributable to equity shareholders 158 6,271 122 3,668 111 4,985 89 5,178 52 4,647 38 4,237 45 3,531 87 3,131 99 3,253 158 3,136 $ 6,429 $ 3,790 $ 5,096 $ 5,267 $ 4,699 $ 4,275 $ 3,576 $ 3,218 $ 3,352 $ 3,294 Condensed consolidated balance sheet Unaudited, $ millions, as at October 31 2021 2020 2019 2018 2017 2016 2015 2014 2013 2012 Assets Cash and deposits with banks Securities Securities borrowed or purchased $ 56,997 161,401 $ 62,518 $ 17,359 $ 17,691 $ 14,152 $ 14,165 $ 18,637 $ 13,547 $ 93,419 121,310 101,664 149,046 59,542 87,423 74,982 6,379 $ 71,984 4,727 65,334 under resale agreements 79,940 74,142 59,775 48,938 45,418 33,810 33,334 36,796 28,728 28,474 Loans Residential mortgages Personal and credit card Business and government Allowance for credit losses Derivative instruments Customers’ liability under acceptances Other assets Liabilities and equity Deposits Personal Business and government Bank Secured borrowings Derivative instruments Acceptances Obligations related to securities lent or sold short or under repurchase agreements Capital Trust securities (1) Other liabilities Subordinated indebtedness Non-controlling interests Shareholders’ equity 251,526 53,031 150,213 (2,849) 35,912 221,165 53,611 135,546 (3,540) 32,730 208,652 56,406 125,798 (1,915) 23,895 207,749 55,731 109,555 (1,639) 21,431 207,271 53,315 97,766 (1,618) 24,342 187,298 50,373 71,437 (1,691) 27,762 169,258 48,321 65,276 (1,670) 26,342 157,526 47,087 56,075 (1,660) 20,680 150,938 49,213 48,207 (1,698) 19,947 150,056 50,476 43,624 (1,860) 27,039 10,958 40,554 9,606 34,727 9,167 31,157 10,265 25,714 8,824 22,375 12,364 18,416 9,796 19,033 9,212 16,098 9,720 14,588 10,436 14,813 $ 837,683 $ 769,551 $ 651,604 $ 597,099 $ 565,264 $ 501,357 $ 463,309 $ 414,903 $ 398,006 $ 393,119 $ 213,932 $ 202,152 $ 178,091 $ 163,879 $ 159,327 $ 148,081 $ 137,378 $ 130,085 $ 125,034 $ 118,153 125,055 4,723 52,413 27,091 10,481 134,736 5,592 49,802 19,724 9,721 225,622 13,789 40,968 23,271 8,828 178,850 10,785 39,644 29,057 9,796 240,149 14,380 42,607 20,973 10,296 190,240 17,842 39,484 28,807 12,395 148,793 7,732 38,783 21,841 9,212 344,388 20,246 42,592 32,101 10,961 257,502 11,224 38,895 25,113 9,188 311,426 17,011 40,151 30,508 9,649 97,133 n/a 24,961 5,539 182 45,648 89,440 n/a 22,167 5,712 181 41,154 69,258 n/a 19,069 4,684 186 38,394 47,353 n/a 18,266 4,080 173 34,943 43,708 n/a 15,305 3,209 202 31,035 24,550 n/a 12,919 3,366 201 23,472 20,149 n/a 12,223 3,874 193 21,360 23,764 n/a 10,932 4,978 164 18,619 20,313 n/a 10,862 4,228 175 17,819 21,259 1,678 11,076 4,823 170 16,197 $ 837,683 $ 769,551 $ 651,604 $ 597,099 $ 565,264 $ 501,357 $ 463,309 $ 414,903 $ 398,006 $ 393,119 (1) Commencing November 1, 2012, CIBC Capital Trust was deconsolidated. n/a Not applicable. 200 CIBC 2021 ANNUAL REPORT Select financial measures Unaudited, as at or for the year ended October 31 Return on equity Return on average assets (1) Average common shareholders’ equity ($ millions) (1) Average assets ($ millions) (1) Average assets to average common equity (1) Capital and leverage – Basel III CET1 ratio Tier 1 capital ratio Total capital ratio Leverage ratio Basel II Tier 1 capital ratio Total capital ratio Net interest margin Operating leverage Efficiency ratio 2021 2020 2019 2018 2017 2016 2015 2014 2013 2012 16.1 % 0.80 % 10.0 % 0.52 % 14.5 % 0.80 % 16.6 % 0.88 % 18.3 % 0.87 % 19.9 % 0.84 % 18.7 % 0.79 % 18.3 % 0.78 % 21.4 % 0.83 % 22.2 % 0.83 % $ 38,881 $ 809,621 $ 36,792 $ 735,492 $ 34,467 $ 639,716 $ 31,184 $ 598,441 $ 25,393 $ 542,365 $ 21,275 $ 509,140 $ 18,857 $ 455,324 $ 17,067 $ 411,481 $ 15,167 $ 403,546 $ 14,116 $ 397,155 20.8 20.0 18.6 19.2 21.4 23.9 24.1 24.1 26.6 28.1 12.4 % 14.1 % 16.2 % 4.7 % n/a n/a 1.42 % 5.3 % 57.6 % 12.1 % 13.6 % 16.1 % 4.7 % n/a n/a 1.50 % (4.0)% 60.6 % 11.6 % 12.9 % 15.0 % 4.3 % n/a n/a 1.65 % (1.5)% 58.3 % 11.4 % 12.9 % 14.9 % 4.3 % n/a n/a 1.68 % 2.4 % 57.5 % 10.6 % 12.1 % 13.8 % 4.0 % n/a n/a 1.66 % 1.6 % 58.8 % 11.3 % 12.8 % 14.8 % 4.0 % n/a n/a 1.64 % 7.3 % 59.7 % 10.8 % 12.5 % 15.0 % 3.9 % n/a n/a 1.74 % (0.4)% 63.9 % 10.3 % 12.2 % 15.5 % n/a n/a n/a 1.81 % (6.7)% 63.7 % 9.4 % 11.6 % 14.6 % n/a n/a n/a 1.85 % (3.9)% 59.9 % n/a n/a n/a n/a 13.8 % 17.3 % 1.84 % 4.2 % 57.7 % (1) Average balances are calculated as a weighted average of daily closing balances. n/a Not applicable. Condensed consolidated statement of changes in equity Unaudited, $ millions, for the year ended October 31 Balance at beginning of year Adjustment for change in accounting policy Premium on purchase of common shares Premium on redemption of preferred shares Changes in share capital Preferred and other equity instruments Common Changes in contributed surplus Changes in OCI Net income Dividends and distributions Preferred and other equity instruments Common Non-controlling interests Other Balance at end of year 2021 2020 2019 2018 2017 2016 2015 2014 2013 2012 $ 41,335 $ 38,580 $ 35,116 $ 31,237 $ 23,673 $ 21,553 $ 18,783 $ 17,994 $ 16,367 $ 16,091 – – – 750 443 (7) (339) 6,429 (158) (2,622) 1 (2) 148 (1) 6 (2) (91) (3) (166) (79) (313) – – – 750 317 (8) 647 3,790 (122) (2,592) (5) (4) 575 348 (11) 122 5,096 (111) (2,488) 13 (7) 453 695 (1) 317 5,267 (89) (2,356) (25) 22 – – – 797 4,522 65 (338) 4,699 (52) (2,121) 1 (9) – (209) – – 213 (4) (248) 4,275 (38) (1,879) 8 2 – (9) – (31) 31 1 933 3,576 (45) (1,708) 29 (7) – (4) 7 (5) (180) (250) (422) (118) – – (30) (675) 29 (7) 145 3,218 (87) (1,567) (11) (6) – (16) (3) 325 3,352 (99) (1,523) 5 1 (1,050) 393 (8) (435) 3,294 (128) (1,470) 8 – $ 45,830 $ 41,335 $ 38,580 $ 35,116 $ 31,237 $ 23,673 $ 21,553 $ 18,783 $ 17,994 $ 16,367 (1) Represents the impact of adoption of IFRS 16 “Leases”. (2) Represents the impact of adoption of IFRS 15 “Revenue from Contracts with Customers”. (3) Represents the impact of adoption of IFRS 9 “Financial Instruments”. (4) Represents the impact of adoption of IFRS 10 “Consolidated Financial Statements”. (5) Represents the impact of adoption of amendments to IAS 19 “Employee Benefits”. CIBC 2021 ANNUAL REPORT 201 Common share information Unaudited, as at or for the year ended October 31 Weighted-average number basic shares outstanding (thousands) Per share – basic earnings – diluted earnings – dividends – book value (2) Closing share price (3) Dividend payout ratio 2021 2020 2019 2018 2017 2016 2015 2014 2013 2012 448,953 445,435 444,324 443,082 (1) 412,636 395,389 397,213 397,620 400,880 403,685 $ 13.97 $ 13.93 5.84 91.66 150.17 41.8 % 8.23 $ 8.22 5.82 84.05 99.38 70.7 % 11.22 $ 11.19 5.60 79.87 112.31 11.69 $ 11.65 5.32 73.83 113.68 11.26 $ 11.24 5.08 66.55 113.56 10.72 $ 10.70 4.75 56.59 100.50 8.89 $ 8.87 4.30 51.25 100.28 7.87 $ 7.86 3.94 44.30 102.89 49.9 % 45.5 % 45.6 % 44.3 % 48.4 % 50.0 % 8.11 $ 8.11 3.80 40.36 88.70 46.8 % 7.77 7.76 3.64 35.83 78.56 46.9 % (1) Excludes 2,010,890 common shares which were issued and outstanding but which had not been acquired by a third-party as at October 31, 2017. These shares were issued as a component of our acquisition of The PrivateBank. (2) Common shareholders’ equity divided by the number of common shares issued and outstanding at end of year. (3) The high and low price during the year, and closing price on the last trading day of the year, on the TSX. Preferred shares and other equity instruments(1) Unaudited, for the year ended October 31 Preferred shares Class A Series 18 Series 19 Series 23 Series 26 Series 27 Series 28 Series 29 Series 30 Series 31 Series 32 Series 33 Series 35 Series 37 Series 39 Series 41 Series 43 Series 45 Series 47 Series 49 Series 51 Other equity instruments Limited Recourse Capital Notes (2) Series 1 Series 2 2021 2020 2019 2018 2017 2016 2015 2014 2013 2012 $ – – – – – – – – – – – – – 0.9283 0.9773 0.7858 1.1000 1.1250 1.3000 1.2875 $ – – – – – – – – – – – – – 0.9283 0.9673 0.8714 1.1000 1.1250 1.3000 1.2875 $ – – – – – – – – – – – – – 0.9633 0.9375 0.9000 1.1000 1.1250 0.9990 0.5256 $ – – – – – – – – – – – – – 0.9750 0.9375 0.9000 1.1000 0.8769 – – $ – – – – – – – – – – – – – 0.9750 0.9375 0.9000 0.4551 – – – $ – – – – – – – – – – – – – 0.9750 0.9375 0.9000 – – – – $ – – – – 0.3500 – 0.6750 – – – – – – 0.9750 0.8203 0.5764 – – – – $ – – – 1.4375 1.4000 – 1.3500 – – – 1.0031 0.8125 1.2188 0.3793 – – – – – – $ – – – 1.4375 1.4000 – 1.3500 – – – 1.3375 1.6250 1.6250 – – – – – – – $ 1.3694 – – 1.4375 1.4000 – 1.3500 – 0.2938 0.5625 1.3375 1.6250 1.6250 – – – – – – – 4.375% 4.000% 4.375% –% –% –% –% –% –% –% –% –% –% –% –% –% –% –% –% –% (1) The dividends and distributions are adjusted for the number of days during the year that the share and other equity instruments are outstanding at the time of issuance and redemption. (2) Represents the annual interest rate percentage applicable to the LRCNs issued as at October 31 for each respective year. 202 CIBC 2021 ANNUAL REPORT Shareholder information Fiscal Year November 1st to October 31st Key Dates Reporting dates 2022 First quarter results – Friday, February 25, 2022 Second quarter results – Thursday, May 26, 2022 Third quarter results – Thursday, August 25, 2022 Fourth quarter results – Thursday, December 1, 2022 Annual Meeting of Shareholders 2022 CIBC’s Annual Meeting of Shareholders will be held on April 7, 2022. For more details, please visit our Annual Meeting webpage at https://www.cibc.com/en/about-cibc/investor-relations/annual-meeting.html. Common shares of CIBC (CM) are listed on the Toronto Stock Exchange and the New York Stock Exchange. Preferred shares are listed on the Toronto Stock Exchange. Dividends Quarterly dividends were paid on CIBC common and preferred shares in 2021: Common shares Record date Sep 28/21 Jun 28/21 Mar 29/21 Dec 29/20 Preferred shares Stock Series 39 Payment date Dividends per share Oct 28/21 Jul 28/21 Apr 28/21 Jan 28/21 $1.46 $1.46 $1.46 $1.46 Number of common shares on record date 450,483,543 449,702,743 448,685,825 447,366,726 Series 41 Series 43 Series 45 Series 47 Series 49 Series 51 Ticker symbol Quarterly dividend $0.232063 CM.PR.O CM.PR.P $0.244313 CM.PR.Q $0.196438 CM.PR.R $0.275000 CM.PR.S $0.281250 CM.PR.T $0.325000 CM.PR.Y $0.321875 2022 dividend payment dates (Subject to approval by the CIBC Board of Directors) Record dates December 29, 2021 March 28, 2022 June 28, 2022 September 28, 2022 Payment dates January 28, 2022 April 28, 2022 July 28, 2022 October 28, 2022 Eligible dividends CIBC designates any and all dividends paid or deemed for Canadian federal, provincial or territorial income tax purposes to be paid on or after January 1, 2006 to be “eligible dividends”, unless otherwise indicated in respect of dividends paid subsequent to this notification, and hereby notifies all recipients of such dividends of this designation. Regulatory capital Information on CIBC’s regulatory capital instruments and regulatory capital position may be found at https://www.cibc.com/en/about-cibc/investor- relations/regulatory-capital-instruments.html. Credit ratings Credit rating information can be found on page 77 in this Annual Report. Shareholder investment plan All Canadian and U.S. resident registered holders of CIBC common shares and designated Class A preferred shares may participate in one or more of the following options and pay no brokerage commissions or service charges: Dividend reinvestment option – Canadian residents may have dividends reinvested in additional CIBC common shares. Share purchase option – Canadian residents may purchase up to $50,000 of additional CIBC common shares during the fiscal year. Stock dividend option – U.S. residents may elect to receive stock dividends on CIBC common shares. Further information is available through TSX Trust Company (Canada) (formerly AST Trust Company) and on the CIBC website at www.cibc.com. Transfer agent and registrar For information relating to shareholdings, shareholder investment plan, dividends, direct dividend deposit, dividend reinvestment accounts and lost certificates, or to eliminate duplicate mailings of shareholder material, please contact: CIBC 2021 ANNUAL REPORT 203 TSX Trust Company (Canada), P.O. Box 700, Postal Station B, Montreal, QC, H3B 3K3 416 682-3860 or 1 800 258-0499 (Canada and the U.S. only), Fax 1 888 249-6189, Email: inquiries@astfinancial.com, Website: www.astfinancial.com/ca. Common and preferred shares are transferable in Canada at the offices of our agent, TSX Trust Company (Canada), in Toronto, Montreal, Calgary and Vancouver. In the U.S., common shares are transferable at: Computershare Inc., By Mail: P.O. Box 505000 Louisville, KY 40233; By Overnight Delivery: 462 S. 4th St. Suite 1600, Louisville, KY 40202, 1 800 589-9836, Website: www.computershare.com/investor. Registered shareholders can opt to have their shares recorded electronically in the Direct Registration System (DRS). Please contact our transfer agent for details. How to reach us: CIBC Head Office 81 Bay Street, CIBC Square, Toronto, Ontario, Canada M5J 0E7 SWIFT code: CIBCCATT Website: www.cibc.com Investor Relations Email: Mailbox.InvestorRelations@cibc.com Corporate Secretary Email: corporate.secretary@cibc.com Office of the CIBC Ombudsman Toll-free across Canada: 1 800 308-6859 Toronto: 416 861-3313 Email: ombudsman@cibc.com CIBC Telephone Banking Toll-free across Canada: 1 800 465-2422 Communications and Public Affairs Email: Mailbox.Communications@cibc.com Client Care Toll-free across Canada: 1 800 465-2255 Email: client.care@cibc.com Where to find more information CIBC Annual Report 2021 Additional print copies of the Annual Report will be available in March 2022 and may be obtained by emailing Mailbox.InvestorRelations@cibc.com. The Annual Report is also available online at www.cibc.com/ca/investor-relations/annual-reports.html. Des exemplaires supplémentaires du Rapport annuel seront disponibles en mars 2022 et peuvent être commandés par courriel à relationsinvestisseurs@cibc.com. Le Rapport annuel est aussi disponible à l’adresse www.cibc.com/ca/investor-relations/annual-reports-fr.html. CIBC Sustainability Report and Public Accountability Statement 2021 This report reviews our economic, environmental, social and governance activities over the past year and will be available in March 2022 at https://www.cibc.com/en/about-cibc/corporate-responsibility.html. Management Proxy Circular 2022 The Management Proxy Circular contains information for shareholders about CIBC’s annual meeting, including information relating to the election of CIBC’s directors, appointment of auditors and shareholder proposals, as well as other matters. The 2022 Proxy Circular will be available in March 2022 at www.cibc.com. Corporate Governance CIBC’s Statement of Corporate Governance Practices describes the governance framework that guides the Board and management in fulfilling their obligations to CIBC and our shareholders. This statement and other information on Corporate Governance at CIBC, including our CIBC Code of Conduct for all employees and Directors, can be found on our corporate website at www.cibc.com/ca/inside-cibc/governance/governance- practices.html. Regulatory Filings In Canada with the Canadian Securities Administrators at www.sedar.com. In the U.S. with the U.S. Securities and Exchange Commission at www.sec.gov/edgar.shtml. Incorporation Canadian Imperial Bank of Commerce (CIBC) is a diversified financial institution governed by the Bank Act (Canada). CIBC was formed through the amalgamation of The Canadian Bank of Commerce and Imperial Bank of Canada in 1961. The Canadian Bank of Commerce was originally incorporated as Bank of Canada by special act of the legislature of the Province of Canada in 1858. Subsequently, the name was changed to The Canadian Bank of Commerce and it opened for business under that name in 1867. Imperial Bank of Canada was incorporated in 1875 by special act of the Parliament of Canada and commenced operations in that year. Trademarks Trademarks used in this Annual Report which are owned by Canadian Imperial Bank of Commerce, or its subsidiaries in Canada and/or other countries include, “CIBC Agility”, “CIBC Bank USA Smart Account”, the CIBC logo, “CIBC eDeposit”, “CIBC FirstCaribbean International Bank”, “CIBC ForeignCash Online”, “CIBC Global Money Transfer”, “CIBC GoalPlanner”, “CIBC Investor’s Edge”, “CIBC Miracle Day”, “CIBC Mobile Banking”, “CIBC Pace It”, “CIBC Personal Portfolio Services”, “CIBC Private Wealth Management”, “CIBC Smart”, “CIBC SmartBanking”, “CIBC Team Next”, “Simplii Financial” and “Wood Gundy”. All other trademarks mentioned in this annual report which are not owned by Canadian Imperial Bank of Commerce or its subsidiaries, are the property of their respective owners. 204 CIBC 2021 ANNUAL REPORT Board of Directors: Katharine B. Stevenson Chair of the Board CIBC Corporate Director Toronto, Ontario, Canada Joined in 2011 Patrick D. Daniel (CGC, MRCC) Corporate Director Calgary, Alberta, Canada Joined in 2009 Charles J. G. Brindamour (RMC) Chief Executive Officer Intact Financial Corporation Toronto, Ontario, Canada Joined in 2020 Luc Desjardins (AC) President and Chief Executive Officer Superior Plus Corp. Toronto, Ontario, Canada Joined in 2009 Nanci E. Caldwell (MRCC) Corporate Director Woodside, California, U.S.A. Joined in 2015 Michelle L. Collins (AC) President Cambium LLC Chicago, Illinois, U.S.A. Joined in 2017 Victor G. Dodig President and Chief Executive Officer CIBC Toronto, Ontario, Canada Joined in 2014 Kevin J. Kelly (MRCC – Chair) Corporate Director Toronto, Ontario, Canada Joined in 2013 Christine E. Larsen (RMC) Corporate Director Montclair, New Jersey, U.S.A. Joined in 2016 Jane L. Peverett (AC, CGC – Chair) Corporate Director West Vancouver, British Columbia, Canada Joined in 2009 Nicholas D. Le Pan (AC – Chair) Corporate Director Ottawa, Ontario, Canada Joined in 2008 Martine Turcotte (CGC, MRCC) Corporate Director Verdun, Québec, Canada Joined in 2014 AC – Audit Committee CGC – Corporate Governance Committee MRCC – Management Resources and Compensation Committee RMC – Risk Management Committee Mary Lou Maher (RMC) Corporate Director Toronto, Ontario, Canada Joined in 2021 Barry L. Zubrow (CGC, RMC – Chair) Chief Executive Officer ITB LLC West Palm Beach, Florida, U.S.A. Joined in 2015 CIBC 2021 ANNUAL REPORT 205 www.cibc.com

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