Why Banks Must Prioritize PPNR Growth in 2025

Michael Perito, Principal and Head of Bank Strategy at Travillian, urges banks to refocus on pre–provision net revenue (PPNR) growth in 2025. His comments were made in a thought-leadership piece on the Travillian Next website. 

PPNR is a crucial measure of a bank’s ability to generate earnings from its core operations before accounting for potential loan losses, making it an essential tool for assessing financial stability and resilience. For example, during the 2008 financial crisis, banks with strong PPNR (such as JPMorgan Chase) were able to absorb credit losses better than weaker institutions, allowing them to remain profitable and avoid government bailouts. 

PPNR is calculated as: 

• Net interest income (interest earned on loans minus interest paid on deposits) 
• Plus noninterest income (fees, trading, and investment activities) 
• Minus noninterest expenses (operating costs like salaries and rent) 

It is widely used by regulators in stress testing to evaluate how well a bank can withstand economic downturns and by investors to compare profitability across periods without distortions from loan loss provisions. 

Over the past two years, Perito notes, the banking industry has been preoccupied with rising deposit costs, margin compression, rate marks, commercial real estate credit concerns, and liquidity levels. While these issues remain relevant, Perito asserts that banks have largely addressed them, making this the opportune moment to shift attention back to PPNR and return on average assets (ROAA). 

Improved Bank Margins: Signs of Expansion

Banks have strengthened their financial positions in several key areas: 

• Margins, after bottoming out, are beginning to expand 
• Rate marks have improved 
• Open capital markets have enabled many banks to bolster Tier 1 capital 
• Liquidity is at its highest level in decades, supported by elevated cash balances and a renewed emphasis on asset/liability management at the board level 
• Credit concerns continue to persist, but they are an inherent part of the banking business and cannot be eliminated. Banks are, however, showing evidence of properly managing them 

The Case for PPNR Growth

Given this backdrop, Perito advises bank leaders to prioritize PPNR growth. Unlike credit volatility, PPNR serves as a consistent measure of top-line growth and operating leverage in the present quarter, while also offering a long-term view of profitability. This shift in focus is particularly timely, as PPNR for the 100 largest U.S. banks saw nearly 10 percent year-over-year growth in the fourth quarter of 2024—the first positive quarter in over a year. This improvement follows significant contractions earlier in 2023 and 2024, signaling a recovery that banks should leverage to drive future performance. 

PPNR as a Key Metric: Measuring Bank Progress and Profitability

Institutional investors, sell-side analysts, investment bankers, and bank executives broadly agree that there are no systemic credit concerns for the industry over the next four years. Therefore, the focus should be on whether banks are achieving profitable growth after a prolonged period of income compression. PPNR offers a transparent, industry-wide metric to assess progress in this area. 

Read More from Mike Perito: 

• Roadmap For Your Bank: Takeaways from the 2025 Bank Director Conference 
• Building Trust Between Banks and Fintechs: A Conversation with Brad Hanson 
• Banking Expert Insights: Navigating the Future of Fintech 

Communicating Bank Growth: Leveraging PPNR Outlooks for Stakeholder Engagement

Perito emphasizes the importance of effective communication with external stakeholders. While transparency and honesty remain fundamental, there are no rigid rules dictating how banks should frame their financial narratives. As bank valuations recover following fourth-quarter earnings, Perito encourages executives to articulate their PPNR outlooks strategically, ensuring that messaging aligns with sustained positive momentum.

2025: A Prime Opportunity for Proactive Bank Growth Through PPNR

For banking leaders, the takeaway is clear, according to Perito: 2025 presents a prime opportunity to shift the narrative from defensive concerns to proactive growth. By concentrating on PPNR and profitability, banks can reinforce investor confidence and position themselves for long-term success in an evolving financial landscape. 

The full version of this story about focusing on PPNR in 2025 can be found on Travillian Next.