---
title: "Net Operating Income to Average Assets: definition, formula, and thresholds"
description: "Net operating income is a bank's after-tax earnings from its ongoing business (including securities gains or losses but excluding discontinued operations) measured against average assets. It is a cleaner read on recurring profitability than headline net income."
canonical_url: https://www.bankregreports.com/glossary/net-operating-income/
source: BankRegReports
category: "Profitability"
units: "%"
schedule: "Schedule RI"
---

# Net Operating Income to Average Assets

> Net operating income is a bank's after-tax earnings from its ongoing business (including securities gains or losses but excluding discontinued operations) measured against average assets. It is a cleaner read on recurring profitability than headline net income.

## Formula

```
Net Operating Income Ratio = Net Operating Income (annualized) / Average Total Assets
```

Net operating income is income after securities gains or losses and applicable taxes, but before discontinued operations. GAAP eliminated extraordinary items in 2015 (ASU 2015-01), and the Call Report now reports discontinued operations on that line instead. Dividing by average total assets and annualizing puts it on the same basis as return on assets.

## Why it matters

Headline net income can be distorted by discontinued operations, such as the results of a business the bank has agreed to sell. Net operating income removes them so analysts can judge the profitability the bank can actually repeat quarter after quarter, which is what supports dividends and capital growth.

## How to read it

Net operating income to average assets tracks closely with return on assets for most banks; a wide gap between them flags that discontinued operations are propping up or dragging down reported net income. Other one-off items, such as a branch-sale gain or a merger charge, stay inside net operating income, so check the income statement for them too. A healthy community bank runs 1.0%-1.5% on this measure.

## Thresholds

| Range | Reading | What it means |
|---|---|---|
| > 1.3% | Strong | Solid recurring profitability. |
| 0.9-1.3% | Normal | Typical recurring return. |
| 0.5-0.9% | Watch | Thin recurring earnings. |
| < 0.5% | Weak | Recurring profitability under pressure. |


## Worked example

A bank reporting $13 million of net operating income on $1.0 billion of average assets earns 1.3%. If its reported net income implies a 1.6% return, the 0.3-point gap is coming from discontinued operations that will not recur.

## Questions

### How is net operating income different from net income?

Net operating income excludes discontinued operations, while net income includes everything. When the two diverge, a business being sold or exited is influencing the headline number.

### Does net operating income include securities gains and losses?

Yes. Net operating income includes realized gains and losses on securities, because those are considered part of normal balance-sheet management, but it excludes discontinued operations.

## Sources

- [FFIEC Call Report Schedule RI (Income Statement)](https://www.ffiec.gov/sites/default/files/data/reporting-forms/FFIEC031_FFIEC041_202606_i.pdf) (PDF)
- [FFIEC UBPR User's Guide - Summary Ratios](https://www.ffiec.gov/data/ubpr)

## Related metrics

- [Return on Assets](https://www.bankregreports.com/glossary/roa/): Return on assets (ROA) is a bank's annualized net income divided by its average total assets, expressed as a percentage. It shows how much profit the bank earns on each dollar of its balance sheet, whatever its size or capital structure.
- [Pre-Tax Return on Assets](https://www.bankregreports.com/glossary/pretax-roa/): Pre-tax return on assets measures a bank's operating profitability before income taxes, as a percentage of average assets. It strips out tax effects to compare the underlying earning power of banks with different tax situations.
- [Net Income](https://www.bankregreports.com/glossary/net-income/): Net income is a bank's bottom-line profit for the period: total revenue less interest expense, noninterest expense, the provision for credit losses, and taxes. It is the source of retained earnings and the numerator behind ROA and ROE.
- [Pre-Provision Net Revenue](https://www.bankregreports.com/glossary/pre-provision-net-revenue/): PPNR stands for pre-provision net revenue: a bank's net interest income plus noninterest income minus noninterest expense. It is what the bank earns before it sets aside provisions for credit losses and pays income tax, so it measures the earnings available to absorb loan losses.

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