TD Bank 2003 Annual Report Download - page 93

Acceptances: A bill of exchange or negotiable instrument drawn
by the borrower for payment at maturity and accepted by a bank.
Acceptances constitute a guarantee of payment by the Bank.
Assets under administration and management: Assets
owned by customers, for which the Bank provides management,
operational support and/or custodial services. These assets are not
reported on the Bank’s Consolidated Balance Sheet.
Average earning assets: The average of deposits with banks,
loans and securities based on daily balances for the period ending
October 31 in each fiscal year.
Basis point: A measurement unit defined as one hundredth of
one percent.
Capital asset pricing model: A model that describes the rela-
tionship between risk and expected return for securities. The
model states that the expected return of a security or portfolio
equals the rate on a risk-free security plus a risk premium.
Commitments to extend credit: Represent unutilized portions
of authorizations to extend credit in the form of loans, customers’
liability under acceptances, guarantees and letters of credit.
Current replacement cost: The estimated amount that would
be paid or received by the Bank if the rights and obligations under
contract were assigned to another counterparty.
Derivative financial instruments: See individual definitions
of foreign exchange forwards, forward rate agreements, futures,
options and swaps.
Dividend yield: Dividends per common share divided by current
year’s opening market price per common share.
Documentary and commercial letters of credit: Instruments
issued on behalf of a customer authorizing a third party to draw
drafts on the Bank up to a certain amount subject to specific terms
and conditions.
Earnings per share, basic: Net income less preferred share
dividends divided by the average number of common shares
outstanding.
Earnings per share, diluted: Net income less preferred share
dividends divided by the average number of common shares
outstanding adjusted for the dilutive effects of stock options.
Economic profit: Economic profit is a tool to measure shareholder
value creation. Economic profit is the Bank’s operating cash basis
net income applicable to common shares after providing a charge
for invested capital.
Efficiency ratio: Non-interest expenses as a percentage of
total revenue. The efficiency ratio measures the efficiency of
the Bank’s operations.
Foreign exchange forwards: Contracts to buy or sell foreign
currencies on a specified future date at a predetermined fixed rate.
Forward rate agreements: Contracts fixing an interest rate to
be paid or received on a notional principal of specified maturity
commencing on a specified future date.
Futures: Contracts to buy or sell a security at a predetermined
price on a specified future date. Each contract is between the Bank
and the organized exchange on which the contract is traded.
Guarantees and standby letters of credit: Irrevocable assurances
that the Bank will make payments in the event that a customer
cannot meet its obligations to third parties and they carry the same
credit risk, recourse and collateral security requirements as loans
extended to customers.
Hedging: A risk management technique intended to mitigate the
Bank’s exposure to fluctuations in interest rates, foreign currency
exchange rates, or other market factors. The elimination or
reduction of such exposure is accomplished by engaging in capital
markets activities to establish offsetting positions.
Impaired loans: Loans where, in management’s opinion, there has
been a deterioration of credit quality to the extent that the Bank
no longer has reasonable assurance as to the timely collection of
the full amount of principal and interest.
Invested capital: Invested capital is equal to common equity plus
the cumulative amount of goodwill and intangible assets amortized
as of the reporting date.
Location of ultimate risk: The location of residence of the cus-
tomer or, if guaranteed, the guarantor. However, where the customer
or guarantor is a branch office, the location of residence of the
head office is used, and where most of the customer’s or guaran-
tor’s assets or the security for the asset are situated in a different
country, that country is deemed to be the location of ultimate risk.
Foreign currency assets are not necessarily utilized in or repaid from
the geographic areas in which they are included.
Mark-to-market: The valuation at market rates, as at the balance
sheet date, of securities and derivatives held for trading purposes.
Master netting agreements: Legal agreements between two
parties that have multiple derivative contracts with each other that
provide for the net settlement of all contracts through a single pay-
ment, in a single currency, in the event of default on or termination
of any one contract.
Net interest income: The difference between the interest and
dividends earned from loans and securities, and the interest paid
on deposits and other liabilities.
Net interest rate margin: Net interest income as a percentage of
average earning assets.
Notional principal: A reference amount on which payments for
derivative financial instruments are based.
Options: Contracts in which the writer of the option grants the
buyer the future right, but not the obligation, to buy or to sell, a
security, exchange rate, interest rate, or other financial instrument
or commodity at a predetermined price, at or by a specified
future date.
Provision for credit losses: Amount added to the allowance
for credit losses to bring it to a level that management considers
adequate to absorb all credit related losses in its portfolio.
Return on common shareholders’ equity: Net income applicable
to common shareholders as a percentage of average common
shareholders’ equity. A broad measurement of a bank’s effectiveness
in employing shareholders’ funds.
Risk-weighted assets: Assets calculated by applying a regulatory
predetermined risk-weight factor to the face amount of each asset.
The face amount of off-balance sheet instruments are converted
to balance sheet (or credit) equivalents, using specified conversion
factors, before the appropriate risk-weights are applied. The risk-
weight factors are established by the Superintendent of Financial
Institutions Canada to convert assets and off-balance sheet exposures
to a comparable risk level.
Securities purchased under resale agreements: The purchase
of a security, normally a government bond, with the commitment
by the buyer to resell the security to the original seller at a specified
price.
Securities sold under repurchase agreements: The sale of
a security with the commitment by the seller to repurchase the
security at a specified price.
Securitization: The process by which financial assets, mainly
loans, are transferred to a trust, which normally issues a series of
different classes of asset-backed securities to investors to fund the
purchase of loans. The Bank normally accounts for these transfers
as a sale, provided certain conditions are met, and accordingly,
the loans are removed from the Consolidated Balance Sheet.
Swaps: Contracts that involve the exchange of fixed and floating
interest rate payment obligations and/or currencies on a notional
principal for a specified period of time.
Taxable equivalent basis (TEB): Net interest income is adjusted
to recognize non-taxable or tax exempt income such as dividends at
their equivalent before tax value. This permits uniform measure-
ment and comparison of net interest income.
Total market return: The change in market price plus dividends
paid during the year as a percentage of the current year’s opening
market price per common share.
TD BANK FINANCIAL GROUP ANNUAL REPORT 2003 •Glossary 91
Glossary of Financial and Banking Terms