Bank Analysis School - September 2023

APPENDIX B: Adjusting the ROAA Ratio for nonrecurring items

Instructions: Enter figures from the Call Report or UBPR into the correct table below and follow the calculations to determine an adjusted ROAA Ratio based on core earnings performance. Note: general ledger data will likely not produce an accurate ratio, due to adjustments for tax equivalency.

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 Prior to 2018 the tax rate in almost all cases was 34%. Beginning in 2018, the tax rate was lowered to 21%. Refer to the tax rate table in the UBPR User's Guide for additional information.

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