Bank Analysis School Case Study

APPENDIX C: Adjusting the ROAA Ratio for non-recurring items

If the bank is a C-Corporation: Actual net income + or - Nonrecurring items

(subtract nonrecurring income, or add back nonrecurring expenses)

Tax effect 1 (Add back taxes paid on nonrecurring income, or subtract the amount of taxes that would have been incurred if not for nonrecurring expenses) = Adjusted net income Annualize the adjusted net income (if necessary) / Average assets = Adjusted Core ROAA Ratio

+ or -

If the bank is an S-Corporation: Pre-tax net operating income + or - Nonrecurring items

(subtract nonrecurring income, or add back nonrecurring expenses)

=

Adjusted pre-tax net operating income Annualize the adjusted pre-tax net operating income (if necessary) X 1 minus the tax rate 1 (this captures the estimated tax effect) / Average assets = Adjusted Core ROAA Adj. Sub S Ratio

1 The tax rate in almost all cases will be 21 percent. Refer to the tax rate table in the Appendix of the UBPR User’s Guide for additional information.