TD Bank 2012 Annual Report Download - page 194

192 TD BANK GROUP ANNUAL REPORT 2012 GLOSSARY192
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.
Mark-to-Market: A valuation that reflects current market rates as at the balance
sheet date for financial instruments that are carried at fair value.
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 payment, in a single currency, in the event of
default or termination of any one contract.
Net Interest Margin: Net interest income as a percentage of average earning assets.
Notional: A reference amount on which payments for derivative financial
instruments are based.
Office of the Superintendent of Financial Institutions Canada (OSFI):
The regulator of Canadian federally chartered financial institutions and federally
administered pension plans.
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.
Prime Jumbo Mortgages: A classification of mortgages where borrowers have
a clean credit history consistent with prime lending criteria and standard mortgage
characteristics. However, the size of the mortgage exceeds the maximum size
allowed under government sponsored mortgage entity programs.
Provision for Credit Losses (PCL): 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 available to common
shareholders as a percentage of average common shareholders’ equity. A broad
measurement of a bank’s effectiveness in employing shareholders’ funds.
Return on Invested Capital (ROIC): A measure of shareholder value calculated
as adjusted net income less preferred dividends, divided by average invested capital.
Risk-weighted Assets (RWA): Assets calculated by applying a regulatory
predetermined risk-weight factor to on and off-balance sheet exposure. The risk-
weight factors are established by the OSFI to convert on and off-balance sheet
exposures to a comparable risk level.
Securitization: The process by which financial assets, mainly loans, are transferred
to a trust, which normally issues a series of asset-backed securities to investors to
fund the purchase of loans.
Special Purpose Entities (SPEs): Entities that are created to accomplish a
narrow and well-defined objective. SPEs may take the form of a corporation,
trust, partnership, or unincorporated entity. SPEs are often created with legal
arrangements that impose limits on the decision-making powers of their
governing board, trustees or management over the operations of the SPE.
Swaps: Contracts that involve the exchange of fixed and floating interest
rate payment obligations and currencies on a notional principal for a specified
period of time.
Taxable Equivalent Basis (TEB): A non-GAAP financial measure that increases
revenue and the provision for income taxes by an amount that would increase
revenue on certain tax-exempt securities to an equivalent before-tax basis to facilitate
comparison of net interest income from both taxable and tax-exempt sources.
Tier 1 Capital Ratio: Tier 1 capital represents the more permanent forms of
capital, consisting primarily of common shareholders’ equity, retained earnings,
preferred shares and innovative instruments. Tier 1 capital ratio is calculated as
Tier 1 capital divided by RWA.
Total Capital Ratio: Total capital is defined as the total of net Tier 1 and Tier 2
capital. Total capital ratio is calculated as total capital divided by RWA.
Total Shareholder Return (TSR): The change in market price plus dividends
paid during the year as a percentage of the prior year’s closing market price per
common share.
Value-at-Risk (VaR): A metric used to monitor and control overall risk levels and
to calculate the regulatory capital required for market risk in trading activities.
VaR measures the adverse impact that potential changes in market rates and
prices could have on the value of a portfolio over a specified period of time.
GLOSSARY
Financial and Banking Terms
Adjusted Results: A non-GAAP financial measure used to assess each of the
Bank’s businesses and to measure the Bank’s overall performance.
Allowance for Credit Losses: Total allowance for credit losses consists of
counterparty-specific, collectively assessed allowance for individually insignificant
impaired loans, and collectively assessed allowance for incurred but not identified
credit losses. The allowance is increased by the provision for credit losses, and
decreased by write-offs net of recoveries. The Bank maintains the allowance at
levels that management believes are adequate to absorb credit-related losses in
the lending portfolio.
Alt-A Mortgages: A classification of mortgages where borrowers have a clean
credit history consistent with prime lending criteria. However, characteristics
about the mortgage such as loan to value (LTV), loan documentation, occupancy
status or property type, etc., may cause the mortgage not to qualify under standard
underwriting programs.
Amortized Cost: The original cost of an investment purchased at a discount
or premium plus or minus the portion of the discount or premium subsequently
taken into income over the period to maturity.
Assets under Administration: Assets that are beneficially owned by customers
where the Bank provides services of an administrative nature, such as the collection
of investment income and the placing of trades on behalf of the clients (where
the client has made his or her own investment selection). These assets are not
reported on the Bank’s Consolidated Balance Sheet.
Assets under Management: Assets that are beneficially owned by customers,
managed by the Bank, where the Bank makes investment selections on behalf of
the client (in accordance with an investment policy). In addition to the TD family
of mutual funds, the Bank manages assets on behalf of individuals, pension funds,
corporations, institutions, endowments and foundations. These assets are not
reported on the Bank’s Consolidated Balance Sheet.
Asset-backed Securities (ABS): A security whose value and income payments
are derived from and collateralized (or “backed”) by a specified pool of under-
lying assets.
Average Common Equity: Average common equity is the equity cost of capital
calculated using the capital asset pricing model.
Average Earning Assets: The average carrying value of deposits with banks,
loans and securities based on daily balances for the period ending October 31
in each fiscal year.
Average Invested Capital: Average invested capital is equal to average
common equity plus the average cumulative after-tax amounts of goodwill and
intangible assets amortized as of the reporting date.
Carrying Value: The value at which an asset or liability is carried at on the
Consolidated Balance Sheet.
Collateralized Debt Obligation (CDO): Collateralized securities with multiple
tranches that are issued by special purpose entities (SPEs). Each tranche offers
a varying degree of risk and return to meet investor demand. In the event of a
default, interest and principal payments are made in order of seniority.
Dividend Yield: Dividends paid during the year divided by average of high and
low common share prices for the year.
Economic Profit: A tool to measure shareholder value creation. Economic profit
is the Bank’s adjusted net income less preferred dividends and a charge for
average invested capital.
Efficiency Ratio: Non-interest expenses as a percentage of total revenue, the
efficiency ratio measures the efficiency of the Bank’s operations.
Effective Interest Rate: Discount rate applied to estimated future cash payments
or receipts over the expected life of the financial instrument (or, when appropriate),
a shorter period, to arrive at the net carrying amount of the financial asset or liability.
Fair Value: The amount of consideration that would be agreed upon in an arm’s
length transaction between knowledgeable, willing parties who are under no
compulsion to act.
Forward Contracts: Contracts that oblige one party to the contract to buy and
the other party to sell an asset for a fixed price at a future date.
Futures: Contracts to buy or sell a security at a predetermined price on a specified
future date.
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.