Board of Governors of the Federal Reserve System

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Figure 1. Projecting net income and regulatory capital

A flowchart with five steps, leading from one to the next.

• Net interest income plus noninterest income, minus noninterest expense, equals pre-provision net revenue (PPNR).
  (Note: PPNR includes income from mortgage servicing rights and losses from operational-risk events and other real-estate owned (OREO) costs.)
• PPNR plus other revenue, minus provisions for credit losses (see footnote), minus Available-for-sale (AFS) and Held-to-maturity (HTM) securities losses (see footnote), minus Held for sale (HFS) and Fair-value option (FVO) loan losses, minus trading and counterparty losses, equals pre-tax net income.
  (Note: Change in the allowances for credit losses plus net charge-offs, equals provisions for credit losses.)
• Pre-tax net income minus taxes, minus income attributable to minority interest, minus change in the valuation allowance, equals after-tax net income.
• After-tax net income, minus payments on non-common capital, plus other comprehensive income, equals change in equity capital.
• Change in equity capital, minus change in adjustments and deductions from regulatory capital, plus other additions to regulatory capital, equals change in regulatory capital.

Footnote: For firms that have adopted ASU 2016-13, the Federal Reserve intends to incorporate its projection of expected credit losses on securities in the Allowance for Credit Losses, in accordance with Financial Accounting Standards Board (FASB), Financial Instruments–Credit Losses (Topic 326), FASB Accounting Standards Update (ASU) 2016-13 (Norwalk, Conn.: FASB, June 2016).

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