---
title: "Pre-Tax Return on Assets: definition, formula, and thresholds"
description: "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."
canonical_url: https://www.bankregreports.com/glossary/pretax-roa/
source: BankRegReports
category: "Profitability"
units: "%"
schedule: "Schedule RI"
---

# Pre-Tax Return on Assets

> 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.

## Formula

```
Pre-Tax ROA = Pre-Tax Net Operating Income (annualized) / Average Total Assets
```

Pre-tax net operating income is net interest income plus noninterest income, less noninterest expense and the provision for credit losses, including securities gains or losses but before income taxes and discontinued operations. It is annualized and divided by average total assets.

## Why it matters

Tax rates differ sharply across banks (Subchapter S banks pay no entity-level tax, and others carry different deferred-tax positions) so after-tax return on assets can flatter or penalize a bank for reasons unrelated to operations. Pre-tax ROA levels the field and isolates how well the bank actually runs its business.

## How to read it

A healthy community bank typically earns 1.2%-1.8% pre-tax ROA. Below ~1% signals thin operating profitability before any tax benefit; above ~2% is strong. Comparing pre-tax and after-tax ROA reveals how much of a bank's reported return is driven by its tax structure.

## Thresholds

| Range | Reading | What it means |
|---|---|---|
| > 1.8% | Strong | Robust operating profitability. |
| 1.2-1.8% | Normal | Healthy community-bank range. |
| 0.7-1.2% | Watch | Thin operating earnings. |
| < 0.7% | Weak | Operating profitability under pressure. |


## Worked example

A bank generating $16 million of pre-tax net operating income on $1.0 billion of average assets earns a 1.6% pre-tax ROA. If its after-tax ROA is 1.5%, the small gap reflects a modest effective tax rate; a Subchapter S peer might show pre-tax and after-tax ROA nearly equal.

## Questions

### Why look at pre-tax ROA instead of regular ROA?

Because tax situations vary. Subchapter S banks pay no corporate income tax, and others carry different deferred-tax assets or one-time tax items. Pre-tax ROA removes those differences so two banks' operating performance can be compared directly.

### How does pre-tax ROA relate to net operating income?

Pre-tax ROA is pre-tax net operating income expressed as a percentage of average assets. Net operating income is the after-tax version of the same earnings stream, so the two move together, differing by the bank's tax expense.

## 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.
- [Net Operating Income to Average Assets](https://www.bankregreports.com/glossary/net-operating-income/): 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.
- [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.
- [Efficiency Ratio](https://www.bankregreports.com/glossary/efficiency-ratio/): A bank's efficiency ratio is its noninterest expense divided by its net interest income plus its noninterest income, expressed as a percentage. It shows how many cents the bank spends to earn each dollar of revenue, so a lower ratio is better.

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