How do I calculate pre-provision net revenue (PPNR)?

PPNR is calculated by adding net interest income and non-interest income together, then subtracting non-interest expense. The result isolates a bank's core operating earnings before any money is set aside for loan losses through provisions.

The formula for PPNR is:

PPNR = Net Interest Income + Non-Interest Income - Non-Interest Expense

You may also see this written as PPNR = Total Revenue - Non-Interest Expense, since total revenue is simply net interest income and non-interest income combined.

Walking Through the Calculation

Start with the bank's income statement. You need three figures:

Net interest income: the difference between what the bank earns on loans, securities, and other interest-earning assets and what it pays on deposits and borrowings. This is usually the single largest revenue line for any bank.

Non-interest income: revenue from sources other than lending. This includes service charges on deposit accounts, mortgage banking fees, wealth management and trust fees, card interchange income, trading revenue, and securities gains or losses.

Non-interest expense: all operating costs the bank incurs to run its business, including compensation and benefits, occupancy and equipment, technology, professional fees, FDIC insurance assessments, and other administrative costs.

Add net interest income and non-interest income to get total revenue. Then subtract non-interest expense. What remains is PPNR.

Worked Example

Suppose a regional bank reports the following for a full year:

Net interest income: $420 million

Non-interest income: $130 million

Non-interest expense: $320 million

Total revenue = $420M + $130M = $550 million.

PPNR = $550M - $320M = $230 million.

That $230 million represents what the bank earned from operations before setting aside anything for loan losses or paying income taxes.

Why Provisions Are Excluded

Provision for credit losses can swing sharply from one quarter to the next. Under the current expected credit losses (CECL) accounting standard, banks estimate lifetime losses on their loan portfolios and adjust reserves based on changing economic forecasts. During a strong economy, provisions might be minimal or even negative as banks release excess reserves. During a downturn, they can spike to multiples of normal levels.

These swings make net income noisy and hard to compare across periods. PPNR strips out that noise. If two banks each earn $200 million in PPNR but one took $50 million in provisions and the other took $120 million, their net incomes look very different, but their core earning capacity is identical. That distinction matters when assessing whether a bank can sustain itself through a full credit cycle.

PPNR and Stress Testing

Federal regulators rely heavily on PPNR projections when running stress tests on large banks. Under the Federal Reserve's stress testing framework, PPNR is the starting point for determining whether a bank can absorb severe losses and still maintain adequate capital ratios.

The logic is straightforward: a bank's ability to survive a deep recession depends on how much revenue it generates to offset rising loan losses. A bank with strong, stable PPNR can absorb heavier credit losses before its capital drops below regulatory minimums. Analysts and regulators both track PPNR trends closely for this reason, particularly at the largest institutions subject to annual stress testing.

Normalizing for Size

Raw PPNR dollar figures are not comparable across banks of different sizes. To compare a $500 billion bank with a $5 billion bank, divide annualized PPNR by average total assets:

PPNR / Average Total Assets = PPNR-to-Assets Ratio

A ratio around 2.0% or above is generally considered strong for a U.S. commercial bank. Below 1.5% may signal that the bank's operating model does not generate enough cushion to comfortably absorb credit losses through a cycle. Community banks often run somewhat higher PPNR-to-assets ratios than large banks, partly because community banks tend to operate in higher-margin lending niches.

Adjusted PPNR

Not all revenue and expense items are truly recurring. Many analysts calculate an adjusted PPNR that strips out one-time or volatile items:

Securities gains and losses are often excluded from non-interest income because they reflect market conditions and timing decisions rather than ongoing business performance.

Restructuring charges, merger-related costs, and litigation settlements are typically removed from non-interest expense.

Some analysts also exclude gains on sale of branches, early debt extinguishment costs, and tax credit partnership income.

Banks frequently report their own version of adjusted PPNR in earnings releases. When comparing adjusted PPNR across banks, pay attention to what each institution excludes. There is no single standard definition, so two banks' adjusted PPNR figures may not be calculated the same way.

Common Mistakes in the Calculation

The most frequent error is confusion about where provision expense fits. Provision for credit losses sits between PPNR and pre-tax income on the income statement. If you start from net income and try to work backward, make sure you add back both provision expense and income tax expense. Starting from the revenue side and subtracting only non-interest expense avoids this problem entirely.

Another common mistake is mixing time periods. If you are using quarterly net interest income, your non-interest income and non-interest expense figures must also be quarterly. Mixing an annualized figure with a single quarter's data produces a meaningless result.

Watch for reclassifications, too. Banks sometimes shift items between non-interest income and non-interest expense categories from one period to the next, particularly after mergers or accounting standard changes. This does not change the PPNR total (since both components feed the same calculation), but it can distort your analysis if you are tracking individual line items over time.

How PPNR Composition Varies by Bank Type

The mix of revenue and expenses behind PPNR differs meaningfully across bank types.

Community banks typically derive 75-85% of total revenue from net interest income. Their non-interest income tends to be modest, consisting mainly of deposit service charges and some mortgage banking fees. PPNR-to-assets ratios for well-run community banks often fall between 1.8% and 2.5%.

Large regional and money center banks have more diversified revenue. Non-interest income from capital markets, trading, investment banking, wealth management, and card fees can represent 30-50% of total revenue. Their expense bases are also more complex, with significant spending on technology and compliance. PPNR-to-assets ratios for these banks typically run between 1.5% and 2.2%, though the absolute dollar figures are much larger.

This composition difference matters when comparing PPNR trends across bank types, because the same macroeconomic forces affect interest-driven and fee-driven revenue differently.

Annualizing Quarterly Data

When working with a single quarter's data, multiply by four to approximate an annual rate. For a more accurate view, sum the trailing four quarters of each component individually, then compute PPNR from those trailing twelve-month totals.

The trailing four-quarter approach captures seasonality that a single quarter might miss. Many banks see seasonal patterns in mortgage banking revenue, wealth management fees, and certain expense categories that make any individual quarter an imperfect representation of the full-year run rate.

Where to Find the Inputs

All three PPNR components appear on the consolidated income statement in 10-K and 10-Q filings. Net interest income is typically shown as a subtotal, while non-interest income and non-interest expense appear as separate sections with line-item detail.

Many banks also report PPNR directly in quarterly earnings releases, earnings supplements, or investor presentations. Look for supplemental financial tables where it may appear under labels like pre-provision net revenue or pre-tax, pre-provision income. When a bank provides its own PPNR figure, check the footnotes to see whether any adjustments have been made.

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