Drip Portfolio Report
Thursday, April 16, 1998
by Dale Wettlaufer (TMFRalegh@aol.com)

ALEXANDRIA, VA (April 16, 1998) -- I think we may be dawdling on the schedule a bit, so we'll get to an income statement and pull apart what we have here. The glossaries that we've done are available from this page now (on the top right) and should cover all of the important income statement items you see below, but if there are additional questions, please send them my way at DWettlaufer@fool.com and I'll address those in a follow-up column.

Revenues for a bank aren't just inflows found in total interest income and noninterest income. Revenues for a bank or financial services company are calculated net of an associated interest expense and are expressed as net interest income + noninterest income. Depending on how we're using this revenue figure, we can back out the provision for credit losses to get to a net revenue figure. In general, though, revenues are (A - B) + C, or total interest income minus total interest expense plus noninterest income. In the case of this company, revenues for the year were (A) \$16,579 minus (B) \$8,681 plus (C) \$5,002, or \$12,900. The margins we want to look at are efficiency ratio, cash efficiency ratio, net interest margin, and net income to revenues (net margin).

First, efficiency ratio. The noninterest expenses divided by revenues. The product of 1 minus the efficiency ratio is the analog of a manufacturing company's operating profit margin. Efficiency ratio is (D) / revenues, or 57.7%. Operating margin, then, would be 1 - 0.577, or 42.3%. For a better comparison to other companies, though, we want to look at cash efficiency ratio, which scrubs amortization of intangibles (principally goodwill) out of the noninterest expenses. So, we deduct (E) from (D) to get a cash efficiency ratio of 54.3%: (\$7,447 minus \$441) divided by revenues of \$12,900 = 54.3%. Remember, the lower the efficiency ratio, the higher the operating margin, and the higher the operating margin, the better. Cash operating margin, which is 1 minus the cash efficiency ratio, is 45.7%. higher than the operating margin we see above.

Below you'll find the income statement necessary to do the above calculations. We'll pick up with the other income statement measures above on Monday. Jeff is back from France and he'll be going over some housekeeping items tomorrow, so I bid you a great weekend. See you on Monday.

--Dale

All \$ in millions except for per-share amounts

Year Ended December 31 1997
```
Interest income
Interest and fees on loans and leases .....\$12,481
Interest and dividends on securities ........1,855
Federal funds sold and securities
purchased under agreements to resell ..........683
Other interest income .........................211
-------
(A)  Total interest income ..................16,579
-------
Interest expense
Deposits ....................................3,955
Borrowed funds ..............................2,264
Long-term debt ..............................1,784
------
(B)  Total interest expense ..................8,681
-------
Net interest income ..........................7,898
Provision for credit losses ....................800
------
Net credit income ............................7,098
Gains on sales of securities ...................153
Noninterest income
Service charges on deposit accounts .........1,546
Mortgage servicing and mortgage-related income 287
Investment banking income .....................627
Trading account profits and fees ..............265
Brokerage income ..............................234
Other nondeposit-related service fees .........310
Asset management and fiduciary service fees ...648
Credit card income ............................371
Other income ..................................714
-------
(C)  Total noninterest income ................5,002
-------
Foreclosed properties expense ...................10
Merger-related charge .......................... --
Other noninterest expense
Personnel ...................................3,643
Occupancy, net ................................634
Equipment .....................................604
Marketing .....................................300
Professional fees .............................312
(E) Amortization of intangibles ................441
Data processing ...............................283
Telecommunications ............................229
Other general operating .......................758
-------
(D)  Total other noninterest expense .........7,447
-------
Income before income taxes .................. 4,796
Income tax expense .......... ................1,719
-------
Net income ................................ \$ 3,077
=======
Net income available to common shareholders \$ 3,066
=======
Per-share information (1)
Earnings per common share .................\$  4.27
=======
Diluted earnings per common share..........\$  4.17
=======
Dividends per common share ................\$  1.37
=======

FoolWatch -- It's what's
going on at the Fool today.

TODAY'S
NUMBERS
```
 ``` Stock Close Change INTC 74 3/8 - 1/2 JNJ 70 -1 9/16 ```
```
Day     Month    Year    History
Drip      (0.69%)  (3.25%)   3.81%  (11.60%)
S&P 500   (1.00%)   0.58%   14.19%   16.49%
Nasdaq    (0.27%)   1.23%   18.33%   16.59%

Last Rec'd Total #  Security   In At   Current
04/01/98   9.015     INTC    \$80.417  \$74.375
03/10/98   3.170     JNJ     \$67.087  \$70.125

Last Rec'd Total# Security In At   Value   Change
04/01/98  9.015    INTC  \$724.94 \$670.47 (\$54.47)
03/10/98  3.170    JNJ   \$212.67 \$222.30   \$9.63

Base:  \$1400.00
Cash:   \$409.76**
Total: \$1302.53

The Drip Portfolio has been divided into 58.937 shares with an average purchase
price of \$23.754 per share.

The portfolio began with \$500 on July 28, 1997, adds \$100 on the 1st of every
month, and the goal is to have \$150,000 in stock by August of the year 2017.

**Transactions in progress:

03/17/98: Sent \$81 to buy/enroll in CPB.
03/17/98: Sent \$70 to buy more JNJ.

```