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Definition of Common Finance Terms in Financial Statements

Allowances for Loan and Lease Losses
A reserve account on the balance sheet used to cover probable loan losses (i.e. before losses have been confirmed - confirmed losses would result in a charge-off or write-down), excluding loans measured at fair value. Also commonly referred to as the Loan Loss Reserve.

Asset
Property and items of monetary value owned by a person or business; can include cash, securities, loans and leases, receivables, product inventory, land, buildings and equipment. In banking, asset consists primary of debt securities, loans and leases that produce income for the bank.

Assets Under Management (AUM) The total market value of assets under the investment advisory and/or discretion of Global Wealth and Investment Management which generates asset management fees based on a percentage of the assets' market values. AUM reflects assets that are generally managed for institutional, high net worth and retail clients, and are distributed through various investment products including mutual funds, other commingled vehicles and separate accounts. AUM is classifed into two categories, Liquidity AUM and Long-Term AUM. Liquidity AUM are assets under advisory and discretion of the wealth management and investment management divisions in which the investment strategy seeks current income, while maintaining liquidity and capital preservation. The duration of these strategies is primarily less than one year. Long-term AUM are assets under advisoty and/or discretion of investment management division in which the duration of investment strategy is longer than one year.

Balance Sheet
A financial statement showing the company's assets, liabilities and capital on a given date. In dollar amounts, the balance sheet shows what the company owned (assets), owed (liabilities) and the ownership interest in the company of its stockholders (capital or stockholders' equity).

Basel Committee on Banking Supervision
An international regulatory body, named for the city in Switzerland where it is based that seeks to improve the quality of banking supervision worldwide. The Basel Committee focusses on setting requirements for bank capital and liquidity levels.

Basis Point
A unit relating to interest rate that is equal to 1/100th of a percentage point. It is frequently used to express differences in interest rates of less than 1 percent.

Capital
Capital represents the portion of a bank's liabilities that is available as a buffer in case assets on the balance sheet decline in value. There are many forms of capital. The strongest is common stock because there is no requirement to pay it back, nor is there a legal requirement to pay dividends. Common stock also has the lowest payment priority in bankruptcy, with the legal right only to receive any residual value after all other claimants are paid. Preferred securities are also a form of capital, but they are not regarded as being as strong as common capital.

CECL (Current Expected Credit Losses)
It is a credit loss accounting standard that was issued by the Financial Accounting Standards Board (FASB). The CECL standard requires the measurement of the allowance for credit losses to be based on management's best estimate of lifetime expected credit losses instead of the previous standard that relied on incurred losses. While the standard changes the measurement of the allowance for credit losses, it does not change the company's credit risk or the ultimate losses in the portfolio.

Common Equity Tier 1 Capital (CET1
The most commonly used measure of capital. CET1 includes only the highest quality elements of capital and many consider it the best measure of financial strength. The largest component of CET1 is common equity, to which a number of additions and substractions are made.

Charge-offs
When a customer becomes severely delinquent on a debt, in most cases at the point of six months without payment, the creditor may declare the debt is unlikely to be colltected. The loan amount (in excess of any collateral) is written off, resulting in a deduction against revenue on the income statement. On the balance sheet, loans and leases are reduced by the same amount, often offset by the loan loss reserve.

Common Stock
A security (along with any preferred stock) that represents an ownership interest in a corporation; also referred to as an equity security. While preferred stock may have priority as to receipt of dividends and other distributions, holders of common stock generally exercise greater control and may receive greater rewards in the form of dividends and capital appreciation.

Credit Quality
Refers to the quality of a company's loan portfolios. When credit quality declines, the comapny's credit cost increases, either because more of the bank's loans have been classified as nonperforming (nor prducing income) and charged-off, and/or because the company has been required to increase its credit reserve.

Credit Value Adjustment (CVA)
A portfolio adjustment required to properly reflect a counterparty's credit risk exposure as part of the fair value of derivative instruments.

Credit Underwriting
Detailed credit policies regarding, and analysis performed prior to, granting a loan based on credit information furnished by a borrower, publicly available information about the borrower and the lender's evaluation of the borrower's credit needs and ability to pay.

Debit Value Adjustment (DVA)
A portfolio adjustment required to properly reflect the Corporation's own credit risk exposure as part of the fair value of derivative instruments and/or structured liabilities.

Derivatives
A contract or agreement whose value is derived from changes in an underlying index such as interest rates, foreign exchange rates or prices of securities. Derivatives used by the corporations include swaps, financial futures and forward settlement contracts and option contracts.

Diluted Earnings (loss) per common share or Diluted EPS
Earnings (loss) per share adjusted for the dilutive impact of additional common shares that could be issued as a result of outstanding stock options, restricted stock, restricted stock units, outstanding warrants and the dilution resulting from the conversion of convertible preferred stock, if applicable. By adding the net of these potential issances to the denominator of the EPS ratio calculation, results can be compared across firms.

Earnings (loss) per common share (EPS)
Calculated by dividing net income applicable to common stockholders (i.e. adjusted for preferred stock dividends and less any income allocated to participating securities) by the average number of outstanding common shares. This metric shows the portion of a company's profit allocated to each outstanding share of common stock. Most companies express their profit in terms of EPS.

Efficiency Ratio
Calculated by dividing noninterest expenses by revenue. This measure illustrates how much it costs the company to generate each dollar of revenue. A lower ratio means that more of the company's revenue becomes profit.

Fully taxable-equivalent basis
Net interest income reported on a fully taxable-equivalent basis (FTE) adjusts non-taxable interest income so that it is comparable to tax interest income.

Funding Valuation Adjustment (FVA)
A portfolio adjustment required to include funding costs on uncollateralized derivatives and derivatives where the corporation is not permitted to use the collateral it receives.

Goodwill
An intangible asset representing the excess of the purchase price of an asset over its fair market value at the time of acquisition.

Income Statement (P&L)
Financial statement detailing a company's results of operations, such as revenue, expenses and earnings, for a specified period. Also referred to as a profit and loss statement.

Liability
All obligations of a company arising from past transactions or events, including accounts, wages and salaries payable, deposits, dividends declared (but not paid), accrued taxes, and fixed or long-term debt. In banking, the majority of liabilities on the balance sheet consist of deposits, accrued expenses and long-term debt.

Liquidity
Liquidity refers to the ability of a company to convert assets to cash quickly. This term also refers to the ability of the company to absort maturities and deposit withdrawals, finance asset growth and business operations, and meet contractual obligations through unconstrained access to funding at reasonable market rates.

Market Capitalization
One measure of the value of a company, determined by multipying the number of the company's outstanding shares by the current stock price.

Mortgage Servicing Right (MSR)
The right to service a mortgage loan when the underlying loan is sold or securitized. Servicing includes collections for principal, interest and escrow payments from borrowers and accounting for and remitting principal and interest payments to investors. A company's MSR are assets on its financial statements that are generally measured at fair value.

Net Income (loss)
The amount of profit or loss calculated by subtracting all costs, expenses and taxes from a company's total net revenue. Also known as the earnings or the bottom line.

Net Income (loss) applicable to common shareholders
Net income (earnings) less dividends recorded during the period related to preferred stock, less dividends accumulated on cummulative preferred stock during the period.

Net Interest Income
Interest earned from loans or investments, less the interest paid on the money (such as deposits) used to fund those loans or investments.

Net Interest Yield (Net interest margin)
Calculated by dividing net interest income by average total interest earning assets. It is a measure of the difference between interest earned on assets (e.g. loans and investments) and interest paid on interest-bearing liabilities (e.g. deposits and other sources of funding.)

Noninterest expenses
Operating costs incurred to run the business, such as salaries, leases for property and equipment, data processing and marketing costs.

Noninterest income
Fee-based income (also known as revenue) received from services such as service charges, investment management fees, mortgage servicing income, investment banking fees, and trading account profits (or losses).

Nonperforming asset
An asset (for example, certain loans on the balance sheet) is classified as nonperforming when full repayment of the loan is doubtful. Certain types of loans 90 days past due are typically classified as nonperforming.

Off-balance sheet financing
A type of financing that is not reflected on a balance sheet and thus does not affect borrowing capacity. Generally Accepted Accounting Principles (GAAP) require that information be provided in financial statements about off-balance sheet financing involving creedit, market and liqudity risk.

Operating leverage
The difference between the growth rate in revenue and the growth rate in expenses. For example, a 4 percent growth rate in revenue and 2 percent growth rate in expenses would equate to positive 2 percent operating leverage. Or, a 4 percent growth rate in revenue and a 6 percent growth rate in expenses would equate to negative 2 percent operating leverage.

Preferred Stock
A security (along with common stock) that represents an ownership interest in a corporation, also referred to as an equity security. Preferred stock may pay a fixed dividend and often has claim to assets of a company in the event of liquidation ahead of holders of common stock. Price/Earning ratio (P/E)
Stock price divided by its earnings per share. The ratio advises investors how much they are paying for the company's earning power. A higher ratio indicates that investors are paying more for the stock and as a result expect more earnings growth.

Provision Expense
A charge the company takes in its income statement (P&L) to replenish the loan loss reserve. Also referred to as provision for credit losses.

Return on average common shareholders' equity (ROE)
Calculated by dividing the net income for the period by the average common shareholder's equity during the period. At the business unit level, the unit's earnings are divided by the capital allocated to that business. This measure illustrates how effectively the company is employing shareholders' capital. It is usually compared over periods of time to reveal trends in the company (or business unit) or in the overall industry. It is also used to compare a company with its peers.

Return on tangible shareholders equity (ROTE)
Measures the earnings contribution of a unit as a percentage of the shareholders' equity allocated to that unit reduced by allocated goodwill and intangible assets (excluding MSRs), net of related deferred tax liabilities.

Revenue
Revenue (also referred to as income) is received from the sale of goods and services. In banking, revenue is classified as net interest income and noninterest income.

Risk
The bank is in the business of taking risk. The goal is to make every good loan and transaction we can within the company's risk appetite. Some of the common risks are:

Strategic risk
Results from adverse business decisions, ineffective or inappropriate business plans, or failure to respond to changes in the competitive environment, business cycles, customer preferences, product obsolescence, execution and/or other inherent risks of the business.

Credit risk
The risk of loss arising from the inability of a borrower or counterparty to meet its obligations. Credit risk can also arise from operational failures that result in an errorneous advance, commitment or investment of funds.

Market risk
The risk that values of assets and liabilities or revenues will be adversely affected by changes in market conditions, such as interest rate movements.

Liquidity risk
The potential inability to meet expected or unexpected cash flow and collateral needs while continuing to support businesses and customers with the appropriate funding sources under a range of economic conditions. The primary aim of liqudity management is to meet all contractual and contingent financial obligations at all times, including periods of stress.

Operational risk
The risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. Operational risk may occur anywhere in a company, not solely in operations functions, and it effects may extend beyond financial losses. It includes legal risk too.

Compliance risk
The failure to adhere to laws, rules, regulations, internal policies and procedures that could result in monetary damages, losses or harm the company's reputation or image.

Risk-weighted assets
Measures the value of a bank's assets, such as loans and leases, or off-balance sheet exposures, weighted according to risk. This sort of asset classification is used in determining the capital requirement or Capital Adequacy Ratio (CAR) for a financial institution.

Securities Underwriting
A process by which an investment bank raised capital from investors on behalf of a company or government entity issuing securities (both equity and debt). Securitization
The process of pooling contractual debts (such as mortgages or credit-card receivables) or other assets that generate receivables into securities. Investors then purchase those securities, giving them the right to the revenue from the underlying asset.

Tangible Common Equity (TCE)
A measure of a company's financial strength. It reflects how much equity owners would receive in the event of liquidation. Tangible common equity is calculated as common shareholder's equity less goodwill and other tangibles (excluding MSRs), net of related deferred tax liabilities.

Value-at-Risk (VaR)
A VaR model estimates a range of hypothetical scenarios to calculate a potential loss which is not expected to be exceeded with a specified confidence level. VaR represents the worst loss the portfolio is expected to experience based on historical trends with a given level of confidence and depends on the volatility of the positions in the portfolio and how strongly their risks are correlated. A VaR model is an effective tool in estimating ranges of potential gains and losses on our trading portfolios and is a key statistic used to measure and manage market risk.

Warrants
A security issued by a company that gives a holder the right to buy stock of the company at a specified price often within a fixed period of time.

Yield
Return on a loan or investment, stated as a percentage of the price.

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