Banking Terms Glossary

Adjustable Rate Mortgage (ARM)

A loan in which the interest rate is periodically adjusted, moving higher or lower in the same ratio as a pre-selected index such as Treasury Bill rates. ARM loans may include caps on interest rate increases in a given time period, and over the life of the loan, and may include limits on the frequency of interest rate adjustments. ARM loans generally have initial below market interest rates in return for the borrower sharing the risk that interest rates may rise during the life of the loan.

Amortization

The repayment of a loan calculated so that the principal will be paid in full through monthly payments of principal and interest for a predetermined period of time. Many home mortgages are fully amortized in 15, 20 or 30 years.

Annual Percentage Rate (APR)

The rate required by Truth in Lending laws. It is designed to show customers the total cost of credit, including the stated interest rate plus certain finance and service charges.

Appreciation

An estimate of the market value of a piece of property by a qualified appraiser. The increase in value of an item, specifically the increase in market value of real estate.

Asset

Anything owned by an individual or company that has commercial usefulness or value if sold. An asset may be physical property or items, or enforceable claims against others. Loans made by a financial institution are assets of that institution. Assets also include real estate, equipment, cash, investments in stocks and bonds and any other resource that can be converted into cash.

Authorized Signer

A person appointed by the owner of an account to draw, sign and deliver checks, drafts, bills of exchange or other orders for the payment of money, including checks payable to the authorized signer's order and to endorse checks, drafts or other instruments owned by the owner.

Automated Clearing House (ACH)

A computer-based clearing and settlement facility established to process the exchange of electronic transactions between participating depository institutions. Such electronic transactions take the place of paper checks.

Automated Teller Machine (ATM)

A machine that permits customers to gain access to their accounts through the use of a magnetically encoded plastic card and by pushing appropriate buttons on a computer terminal. ATMs dispense cash, transfer funds from one account to another and perform other functions and are available 24 hours a day.

Balance

The remaining amount credited to a customer's account, representing the amount the customer is entitled to withdraw (see three types of deposit system balances below), or conversely, the remaining amount of a customer's debt, which is the amount the customer is obligated to repay.

Ledger Balance

Account balance after all activity for the previous day has been posted to the account.

Current Balance

Ledger balance plus or minus today's on-line activity. On-line activity includes in-bank teller and dollar activity, memo posting, ATM/Check Card activity and ACH transactions.

Available Balance

Current balance plus any unused portion of an overdraft protection account (if you have one), minus any holds on the account.

Balance Sheet

A financial statement that contains the types and amounts of assets, liabilities and net worth of a company, institution or individual. Also called a statement of condition.

Balloon Payment

The lump sum payment of the unpaid principal remaining at the end of the term of a balloon mortgage loan or other non-amortizing loan.

Basis Point

One basis point equals 1/100th of one percent: .0001. For example, 50 basis points is .005. Basis points are frequently used to describe changes in yields of interest rates.

Borrower

Individual or institution receiving funds in the form of a loan and obligated to repay the loan, usually with interest. A borrower is called a mortgagor when the loan is secured by real estate.

Cancelled Check

A check that has been paid by the financial institution on which it was drawn. It is stamped "paid" on the day it is paid and it is charged to the account of the person who wrote the check.

Capital

Funds raised by a business through the sale of stock plus retained earnings. Wealth, including money and property, owned, used or accumulated by a person or a company.

Cash Flow

The amount of cash earned after paying all expenses and taxes. Cash flow is calculated by adding net after-tax income plus any bookkeeping expenses that result in items being deducted but not paid out in cash. Such bookkeeping entries include amounts charged off for depreciation, depletion, amortization and charges to reserves. Cash flow is a measure of a company's worth and its ability to pay dividends on its stock.

Cashier's Check

A check written by a financial institution on its own funds and signed by a cashier. It is payable to a third party named by the customer who pays for the check at the time it is written. A cashier's check which is drawn against the funds of the institution differs from a certified check, which is drawn against the funds in a specific depositor's account.

Certificate of Deposit (CD)

The certificate issued to a depositor who opens a certificate account. The certificate is the written document issued by the financial institution as evidence of a deposit. It includes the issuer's promise to return the deposit at a specified future date plus earnings at a specified rate of interest.

Check

A written order instructing a financial institution to pay immediately on demand a specified amount of money from the check writer's account to the person named on the check or, if a specific person is not named, to whoever bears the check to the institution for payment.

Checking Account

A demand deposit account, withdrawals from which may be made by a written, negotiable instrument.

Check Card

A plastic card with which a customer may withdraw funds on deposit in the customer's account using an automated teller machine. Peoples National Bank Check Cards may also be used at any merchant who also accepts Visa. A check card transaction pays the seller of goods or services by withdrawing funds already on deposit in the buyer's account, as opposed to a credit card transaction in which funds are loaned to the buyer by the card issuer.

Closing

The consummation of a financial transaction. In mortgage lending, closing is the process of delivering a deed, signing notes, mortgages and other loan documents, and advancing funds by the lender. All of these transactions normally occur at the same time.

Closing Costs

Expenses paid by the buyer and/or seller for the cost of processing the sale of financing or real property. Such costs include loan fees, title fees and appraisal fees.

Collateral

Something of value that is pledged as security for a loan. The lender can repossess the collateral if the loan is not repaid.

Collection

The presentation for payment and the subsequent actual payment of a draft, check or other obligation. The process of resolving a delinquent loan.

Compound Interest

The interest that accrues when earnings for each specified period of time are added to the principal, thus increasing the principal base on which subsequent interest is computed.

Consumer Credit

Any loan or extension of credit to an individual for personal, family or household use not involving real estate.

Countersignature

An additional signature attesting to the authenticity of the first signature or the authenticity of the document being signed.

Coupon Book

A set of notices, usually computer generated, that a borrower remits to the lender, one at a time, with each loan repayment.

Credit

The provision of goods or services in exchange for the promise of future payment. An accounting term that refers to the right - hand side of an account record in which the amounts are entered in a double entry system of bookkeeping.

Creditor

An individual, business or other organization to whom money or something of value is owed.

Debit

In accounting, an entry on the left-hand side of an account recording which amounts are recorded in a double entry system of bookkeeping. A charge to a customer's access account or deposit account.

Debt

Money, services, goods or anything else of value that is owed by one person to another as the result of a previous agreement.

Deed

Written agreement in proper legal form that conveys title to, or an interest in, real property.

Delinquent Loan

A loan that is 30 to 60 days past due with no payments being made.

Demand Deposit Account (DDA)

An account from which a depositor may withdraw funds immediately without prior notice, commonly known as a checking account. Since funds may be withdrawn on demand in person or by presentation of a check, the account has many of the liquid characteristics of circulating currency.

Deposit

The placement of funds into an account at an institution in order to increase the credit balance of the account. That which is deposited. A sum of money given to assure the future purchase of something. A portion of the purchase price given as earnest money, or a down payment, by the buyer to the seller.

Depreciation

The decline in the dollar value of an asset over time and through use. The amount of annual depreciation may be computed differently for tax purposes than the actual decline in value.

Direct Deposit

A plan in which an individual authorizes the issuer of payroll, Social Security, dividend or other checks to send the checks directly to a thrift institution or bank for deposit in the individual's account.

Down Payment

An initial, partial payment made at the time of purchase to permit the buyer to take delivery of the purchase. A partial payment made to evidence good faith that the buyer will complete the purchase transaction at the time the contract is signed.

Draft

A written order signed by one party (the drawer) requesting a second party (the drawee) to pay a specified amount of money to a third party (the payee) at some future time. A check is a draft.

Due Date

The date on which all or part of a debt is required to be paid; the maturity date.

Endorsement

A signature either stamped or written by hand on the back of a negotiable instrument by which the signer transfers ownership of the instrument to another party.

Equity

In real estate, equity is the difference between the fair market value of a property and the amount of any mortgage debt, or liens against the property, still outstanding. In business, the excess of a firm's assets over its liabilities. The term is also used to refer to the ownership interest of stockholders in a company, and to the value of the investments raised by the stock offerings.

Federal Deposit Insurance Corporation (FDIC)

A government corporation that insures deposits in thrift institutions and commercial banks. The FDIC administers the Savings Association Insurance Fund (SAIF) providing deposit insurance to thrifts, and the Bank Insurance Fund (BIF) providing deposit insurance to commercial banks.

Financial Statements

Reports that summarize a firm's accounting data and indicate its financial condition. The four basic financial statements are: the balance sheet, income statement, statement of retained earning, and statement of changes in financial position.

First Mortgage

A mortgage that creates a lien against real property with the lien having first priority against other claims in the event of foreclosure.

Fixed Rate Mortgage

A mortgage in which the interest rate and the amount of each payment remain constant throughout the life of the loan.

Sell Stop Order

An order to a broker to sell stock when the price falls to a specified level.

Fully Amortizing Loan

A loan in which the principal and interest will be repaid fully through regular installments by the time the loan's term ends.

Garnishment

A notice to an employer or other asset holder requiring that monies, wages or property due a debtor be withheld and given to a creditor to be applied to a specific debt in arrears.

Gross Income

Total income before taxes and other expenses are deducted.

Guardian Account

An account established at a financial institution in the name of a guardian who acts on behalf of and administers the funds for the benefit of the ward.

Home Equity Loan

A closed-end loan secured by the borrower's residential property. Also known as a second mortgage.

Home Equity Line of Credit

A revolving, open-end loan extended under a line of credit and secured by the borrower's residential property. Also known as a second mortgage.

Inactive Account

A savings account on which no transaction has occurred (except the crediting of earnings) for a specific number of years. Also called a dormant account.

Individual Retirement Account (IRA)

An interest-earning retirement savings account in which the allowable contributions and earnings are not taxed until the funds are withdrawn, after age 59.

Installment Credit

The practice of paying for goods or services after receiving them by making two or more payments within a specified period of time.

Interest

A fee paid for using money that belongs to another, usually expressed as an annual percentage of the amount used. A financial institution makes periodic payments of interest to savers for the use of their deposited funds. A borrower pays interest to the financial institution for the use of its funds.

Interest Credited

Interest that a financial institution automatically deposits to an interest - bearing account.

Interest Earned

Interest generated by not yet credited or paid.

Interest Paid

Interest that a financial institution mails directly to a depositor.

Interest Rate

The percentage of the principal paid by the borrower to the lender for the use of the lender's money.

Investment

An outlay of a sum of money to be used in such a way that a profit or increase in capital may be expected.

Late Charge

A penalty fee imposed by a lender for delinquent payments.

Legal Guardian

A person appointed by the court to manage any substantial property of a minor.

Liability

An item of value that is part of the overall debt or obligation of a person or business. For example, a mortgage is a liability of the homeowner/borrower, but the same mortgage is an asset of the savings and loan/lender.

Lien

A claim by one person on the property of another person, making the property security for the payment of a debt.

Life of Loan

The agreed upon length of time in which a loan must be repaid.

Line of Credit

A pre-established loan authorization with a specified borrowing limit extended by a lending institution to an individual or business based on creditworthiness. A line of credit allows borrowers to obtain a number of loans without re-applying each time as long as the total of borrowed funds does not exceed the credit limit.

Loan Origination

To make or issue a loan; the process whereby a lender qualifies a borrower, appraises the collateral, processes all documents, advances funds and places the loan on the books.

Loan Processing

All the steps taken by a lending institution from the time a loan application is received to the time the loan is closed and placed on the books, including taking the application, conducting the credit investigation, evaluating the loan terms and other steps.

Loan Terms

The specifications in a loan agreement that prescribe the loan amount, interest rate, length of time in which to repay the loan and any other enforceable agreements entered into by the borrower and lender to effect the advance of funds.

Loan-to-Value Ratio

The relationship expressed as a percentage of the amount of money loaned to the appraised value of the real estate pledged as security for the loan. For example, an $85,000 loan on a $100,000 house would have a loan-to-value ratio of 85%.

Maturity

The end of the period of time for which a mortgage loan is written; the date(s) on which some types of investments as bonds may be redeemed at face value. The date on which a note, time draft, bill of exchange, certificate of deposit or other negotiable instrument becomes due and payable.

Money Market Deposit Account (MMDA)

A savings account, offered by financial institutions, that pays fluctuating market rates of interest as long as the balance does not fall below a predetermined minimum.

Mortgage

A legal document by which real property is pledged as security for the repayment of a loan; the pledge is canceled when the debt is paid in full.

Mortgage Loan

An advance of funds from a lender, called the mortgagee, to a borrower, called the mortgagor, secured by real property and evidenced by a document called a mortgage. The mortgage sets forth the conditions of the loans, the manner and duration or repayment and reserves to the mortgagee the right to repossess the pledged property if the mortgagor fails to repay any portion of principal and interest.

Negotiable Instrument

A written promise or order signed by the maker to transfer a specified sum of money on demand or at a fixed future time to the person named on the instrument or to the bearer. A negotiable instrument is usually in the form of a check, draft, bill of exchange, promissory note or acceptance.

Net

The amount remaining after certain deductions have been made from the gross amount.

Net Income

Gross income less expenses, including taxes and insurance, but before depreciation, additions to reserves or distribution of earnings.

Net Worth

The value in dollars of all assets less all liabilities.

Notary Public

A public figure authorized to attest to the signing of documents, such as deeds or mortgages. The notary public certifies that he or she has witnessed the signing of the document by also signing the document and affixing his or her official seal.

Note

An instrument bearing legal evidence of debt. A note is signed by the maker (borrower) and promises to pay a specified sum of money to the lender at a certain future date and place.

Obligation

The requirement imposed on a debtor to pay a debt and the legal right of a creditor to enforce payment.

Outstanding Check

A check that has not yet been presented for payment to the financial institution on which it was drawn.

Outstanding Debt

That portion of a debt which remains unpaid. Outstanding loan balance refers to that portion of principal that has not been repaid.

Overdraft

A draft or check written for an amount that exceeds the funds in the account on which the check is drawn.

Overdue

The status of a payment that is late and not yet paid.

Partially Amortizing Loan

A loan in which the periodic payments cover all of the interest charges but only part of the principal, therefore leaving an unpaid principal balance when the loan matures.

Past Due

The status of a scheduled loan payments that has not been paid on time.

Payee

The person or organization to who a check, draft or note is payable. The payee's name follows the words: "Pay to the order of."

Payoff

The complete repayment of loan principal, interest and any other sums due; payoff occurs either over the scheduled full term of the loan, or through one or more prepayments.

Penalty

A charge imposed for a total or partial withdrawal from a certificate of deposit (CD) prior to the maturity.

Personal Check

A check drawn on a depositor institution by an individual against the individual's own funds.

Personal Identification Number (PIN)

A number or code used by an account holder in conjunction with an ATM card to verify the user's identity to an automated teller machine.

Personal Loan

An unsecured loan usually made for the purpose of debt consolidation, vacation or the purchase of durable goods. Also called a signature loan.

Personal Property

Any property that is not real property.

Prepayment

A payment made before its scheduled due date.

Principal

The capital sum of a loan. The amount of borrowed funds to be repaid. An individual or firm buying or selling for his/her/its own account.

Principal Balance

The portion of a loan not yet repaid, exclusive of interest or other charges.

Purchase Agreement

A signed document stating the purchaser's agreement to buy and the seller's agreement to sell a specified property under stated terms and conditions.

Receipt

A written acknowledgment that something of value was received.

Refinancing

The repayment of a loan with funds from a new loan secured by the same property as the first loan. The new loan may be from the same or a different lending institution.

Returned Check

A check that was presented to the financial institution on which it was drawn, was refused payment by that institution and was sent back unpaid.

Revolving Credit

A line of credit extended to customers who may use it as often as desired up to a certain dollar limit. Items purchased using this line of credit may be paid in full upon receipt of a monthly statement, or they may be paid for in several installments, for which an interest charge is added.

Safe Deposit Box

A container in a secure vault that is rented to an individual or organization for the safekeeping of valuables.

Savings Account

An account maintained by a customer with a depository institution for the purpose of accumulating funds over a period of time. Funds deposited in a savings account may be withdrawn only by the account owner or a duly authorized agent, or on the owner's nontransferable order. The account may be owned by one or more persons. Some accounts require funds to be kept on deposit for minimum length of time, while others permit unlimited access to funds. Earnings are in the form of interest for deposit type accounts.

Savings - Secured Loan

A loan secured by funds on deposit in a savings account, normally maintained at the lending institution. Funds in the savings account equal to the amount of outstanding principal of the loan may not be withdrawn.

Secured Loan

A loan for which the borrower pledges collateral that will be forfeited to the lender if the borrower fails to repay the loan.

Signature Card

A form signed by a depositor upon opening an account at a financial institution. The card establishes the type of account ownership and sets forth the account terms and the obligations of the customer and the institution. Signature cards are used by companies for subsequent identification of the customer.

Simple Interest

Interest that is calculated on the outstanding principal balance and not on any interest previously earned.

Statement

A written record prepared by a financial institution, usually once a month, listing all transactions for an account, including deposits, withdrawals, checks, electronic transfers, fees and other charges and interest credited or earned.

Stop Payment Order

An order by a customer instructing a financial institution to refuse payment when presented with a specific draft or check written by the customer. Stop payment orders cannot be performed on Check Card transactions.

Surcharge

An additional charge imposed for a specific service, product or purpose.

Time Deposit

A deposit of funds in a financial institution under an agreement stipulating that (a) the funds must be kept on deposit for a stated period of time, or (b) the institution may require a minimum period of notification before a withdrawal is made.

Title

The ownership right to property, including the right of possession. The document or instrument constituting evidence of such an ownership right.

Title Search

A review of public records to determine whether there are any claims or defects in the current owner's title to real estate.

Transaction

Any agreement between two or more parties that established a legal obligation. The act of carrying out such an obligation. All activities that affect a deposit account that are performed at the request of the account holder. All events that cause some change in the assets, liabilities or net worth of a business.

Traveler's Check

A type of check designed especially for business or vacation travelers. The traveler pays for the checks in advance. Thus, the check is an order from the issuing company to pay on demand. Traveler's checks are issued in various fixed denominations, may be cashed almost anywhere in the world and are insured against loss, theft or destruction.

Truth-In-Lending

The popular name for the Consumer Credit Protection Act (Regulation Z), which requires lenders disclose to borrowers the cost of financing during the life of the loan.

Truth in Savings Act

Congress created the Truth in Lending Act in 1991 to aid consumers in making informed decisions about deposit accounts and to verify account activity. All financial institutions are required to give Truth in Savings disclosures to consumers when an account is opened or when such information is requested. The disclosures explain the terms and conditions under which interest is paid and fees are assessed in connection with an account.

Wire Transfer

An order to pay or to credit money transmitted electronically rather than by paper check.

Withdrawal

A removal of funds from a savings or checking account by the account's owner.

Withdrawal Form

A source document filled out by a customer to authorize a withdrawal from the customer's savings or checking account. The form is kept by the financial institution for its records.

Withdrawal Penalty

A charge imposed upon an account holder for the early removal of funds from a certificate account, usually an amount equal to interest earned during a pre-specified period.

Workout Agreement

A plan approved by borrower and lender by which the delinquent borrower can reschedule loan payments so that the entire outstanding principal is eventually repaid.

Yield

The return on an investment, expressed as a percentage of the price originally paid for it. If the investment, such as a security, is to be sold, its yield is its return expressed as a percentage of its current market price. Income derived from an investment in property. To give up possession; to pay.