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The Finance Expert’s Guide to Banks and Credit Unions: What Makes Financial Services Tick

March 22, 2022 Vena Solutions  
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So you’re joining the world of banks and credit unions?

If you’re a finance professional new to the industry, chances are you probably already have some ideas on how to build opportunities in your new business. From digital transformation to FP&A, CPM and scenario planning, banks and credit unions offer a lot of potential to financial professionals. While a risk-averse business by nature, new chances for innovation have emerged for the right finance leaders.

But before you can jump in, there’s still a learning curve.

Banks and credit unions can get lost in a deluge of data across core banking, GL, ERP, ALM, FTP and HRIS systems. That data needs to be integrated, reconciled and analyzed to showcase key figures such as NIM, ROA and ROE in various reports and plans for management, the SEC, IFRS and any other regulatory standards boards. 

But first up: What does any of that even mean? 

Keep reading for a primer on the statements, systems, rates, regulatory needs, planning and reporting methodologies and tools that are all a day-to-day part of working on a bank or credit union finance team. By the end of it, we hope you’ll be up to date on all of the big-money questions you have entering this new world.

The Financial Statements Used in Banking

Many of the financial statements used in banking are the same that corporations also use when reporting on revenues, expenses, assets, liabilities, equity and more. So there’s a good chance you’re already familiar with some of them, even if they may draw on slightly different data. Others are completely unique to the banking sector. 

The following are some of the line items you can expect to find on a bank’s financial statements.


Actuals are transactions that have occurred and are measured as the revenues coming in and costs going out. Actuals are not the budgeted or estimated amounts, but the actual revenues and costs being recorded at any given point in time.

Net Interest Margin

Net Interest Margin (NIM) is a measurement that helps banks understand if they are operating profitably by comparing the interest payments coming in and the interest payments going out. A positive NIM indicates profitability whereas a negative NIM is a red flag for investors because it shows the bank is paying more interest on products such as savings accounts than they are making in interest from products such as loans.

Assets Under Management

Assets Under Management (AUM) refers to the market value of assets managed by a bank or financial services firm on behalf of its clients. Depending on the financial institution, AUM may include bank deposits, investment products and other assets owned by their clients. Since bank fees may be related to Assets Under Management—such as when they are collected as a percentage of investment performance gains—AUM can be an important indicator of financial strength and profitability.

Return on Assets

Return on Assets (ROA)—calculated by dividing your total assets by net income—indicates how efficiently a bank is generating profits from existing assets. A bank with a higher ROA has made more using less.

Return on Equity

Return on Equity (ROE)—net income divided by shareholders’ equity—indicates how efficiently a bank is generating profits from existing equity (assets minus liabilities). This measure is similar to Return on Assets (ROA) except that ROE includes debts in the equation.

Annualized Interest Rate

An annualized interest rate estimates the rate of return on interest for the year based on a periodic rate, such as a monthly or quarterly rate. For example, if you receive a periodic monthly interest payment of 0.125% on your savings account and multiply that rate by 12, you get the annualized rate of 1.5%.

Interest Revenue

Banks make Interest Revenue by charging interest on borrowed funds, such as loans or mortgages.

Interest Expenses

Banks pay Interest Expenses to borrow money from depositors, such as when they pay you an interest rate on your savings account.

Interest-Earning Assets

Interest-Earning Assets are assets that produce income for banks—for example, loans, mortgages and lines of credit.

Interest-Bearing Liabilities

Interest-Bearing Liabilities are debts that cost money for banks to hold—for example, savings or checking accounts.

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The Systems Banks Rely On

Like many businesses today, banks and credit unions rely on a range of systems in order to run smoothly—each providing a source of financial and non-financial data that help finance teams strategize the best way forward (as long as they have a way to integrate that data). Again, some are unique to the banking and financial services industry, while others are the same systems you may have encountered elsewhere. Here are a few you may come across.

Core Banking System

The Core Banking System is the underlying backend technology that processes all "core" banking activities and transactions, such as new account creation, deposits, withdrawals, interest calculations and so on.

General Ledger

A General Ledger (GL) keeps track of all bank transactions and categorizes them into accounts, such as assets, liabilities, income, etc. Financial statements are created from the information in the general ledger.

Asset Liability Management System

Asset Liability Management (ALM) Systems calculate cashflows for individual interest-bearing loans and deposits. By properly managing cashflows, a bank can become more resilient to market changes. ALM frameworks, objectives, risk levels and regulatory constraints can vary between banks.

Human Resource Information System

A Human Resource Information System (HRIS) keeps track of human capital within the bank, including employee information, applicant tracking, payroll and benefits administration.

Enterprise Resource Planning System

An Enterprise Resource Planning (ERP) System integrates data from a wide range of banking processes to improve cross-functional collaboration between departments, including planning, purchasing, marketing, customer service and human resources.

Getting To Know Bank Rates

A bank’s profitability is greatly influenced by a variety of rates that set the price for their key source of income—interest. The following are some of the rates that can greatly impact bank loans and their interest rates.

Fund Transfer Pricing Rates

Fund Transfer Pricing (FTP) is a methodology of assigning fund transfer charges to assets and funding credit to liabilities. FTP rates help determine how each source of funding contributes to the overall profitability of a bank. Banks often use specialized FTP software applications to calculate FTP rates.

Interest Rate

An Interest Rate is the amount a bank charges for borrowing funds, expressed as a percentage of the principal. A borrower is charged an interest rate based on their level of risk, usually derived from a credit score. Higher-risk borrowers pay higher interest rates.

Prime Rate

Prime Rate, also known as Prime Lending Rate and Prime Interest Rate, is the lowest interest rate that commercial banks can charge their lowest-risk (usually) corporate customers on loans. Interest rates for other loans, such as personal loans and mortgages, are based on the prime rate and adjusted based on risk.

Base Rate

Base Rate, also known as the Base Interest Rate or Bank Rate, is the interest rate that a central bank, such as the Federal Reserve, charges commercial banks for loans. If the central bank increases its base rate, commercial banks will increase their interest rates to make up for the increased cost of borrowing.

Yield Curve

A Yield Curve is a line graph that plots yields to maturity or interest rates across different contract lengths for similar debts and risk levels. The curve shows the relation between the interest rate and the time to maturity. A normal yield curve is upward sloping and shows that longer-term debts are associated with higher yields.

Federal Funds Rate

The Federal Funds Rate is the target interest rate used by commercial banks to borrow and lend excess reserves to each other overnight, as set by the Federal Open Market Committee (FOMC), a part of the Federal Reserve System. The Federal Funds Rate can impact short-term consumer loans as well as the stock market and is, therefore, an important influencer of U.S. markets.

Accrued Interest Payable

Accrued Interest Payable is the amount of interest that accumulates on a loan and gets added to the balance on the account. Accrued interest = (Daily Interest Rate) x (Days Interest Has Accrued) x (Account Balance).

Basis Points

A Basis Point is the smallest unit of measure for interest rate changes and other percentages in finance. One basis point is one-hundredth of 1%. It’s also known as: bp, bps, bips, beeps and points.

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Planning and Reporting for the Banking Industry

Finance professionals in the bank and credit union space rely on a mix of planning and reporting methodologies and tools that help them make informed decisions throughout every stage of the planning cycle. Some of these include the following:

Product Margin Planning

Product Margin Planning estimates the profit margins for different product categories at the bank, such as investment products and loan products.

Run-On/Run-Off Planning

Run-On/Run-Off planning is the planning of:

  • The Run On: The increases in asset balances (through new business origination).
  • The Run Off:  The decreases in asset balances (through prepayments, loan maturities, etc.).

Variance Reporting

Banks use Variance Reporting to compare budgets against actuals. The difference between the budget and actual result is the variance.

Interest Rate Shock Impact Analysis

Interest Rate Shock Impact Analysis is used to predict how a bank’s interest income, portfolio value and net asset value would react to sudden interest rate changes.

Banking Regulatory Requirements

Today’s banks are faced with strict regulatory requirements and need to comply with a variety of standards for all types of planning, budgeting and forecasting data sources. Understanding the regulations you need to comply with is critical if you’re joining a financial team in the banking industry. Here are some you should know:

Securities and Exchange Commission

The U.S. Securities and Exchange Commission (SEC) is a federal regulatory agency designed to protect investors against fraudulent practices and other manipulative practices while maintaining the proper functioning of the securities markets.

Call Reporting

All commercial banks must file Consolidated Reports of Condition and Income ("Call Reporting") to the Federal Deposit Insurance Corporation (FDIC) at the end of each quarter to help bank regulatory agencies assess the condition, performance and risk profile of individual institutions as well as the broader industry.


Phew! There’s a lot to cover, but with an understanding of the unique workings of banks and credit unions, combined with your own financial know-how, we hope you feel ready to join the world of financial services and start putting your mark on it. We’ll be here encouraging you on as you do.

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