Accesible Versions
Figure 1. Projecting net income and regulatory capital
A flowchart with five boxes, leading from the top box to the bottom box. Top first box, Net interest income plus noninterest income, minus noninterest expense, equals pre-provision net revenue (PPNR).1 Second box, PPNR plus other revenue, minus provisions for credit losses2, minus available-for-sale and held-to-maturity securities losses2, minus other losses/gains3, minus trading and counterparty losses, equals pre-tax net income. Third box, Pre-tax net income minus taxes, minus income attributable to minority interest, minus change in the valuation allowance, equals after-tax net income. Fourth box, After-tax net income minus payments on non-common capital, plus other comprehensive income, equals change in equity capital. Bottom fifth box, Change in equity capital minus change in adjustments and deductions from regulatory capital, plus other additions to regulatory capital, equals change in regulatory capital.
Note 1: PPNR includes income from mortgage servicing rights and losses from operational-risk events and other real-estate-owned (OREO) costs. Return to text
Note 2: For firms that have adopted ASU 2016-13, the Federal Reserve incorporates 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).
Change in the allowances for credit losses + net charge-offs = provisions for credit losses. Return to text
Note 3: Other losses/gains include losses on loans held-for-sale, loans measured under the fair-value option, and loan hedges. Return to text