Drip
Portfolio Report
Thursday, April 16, 1998
by Dale Wettlaufer
([email protected])
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 [email protected] 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
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 Trading account securities ..................1,349 Other interest income .........................211 ------- (A) Total interest income ..................16,579 ------- Interest expense Deposits ....................................3,955 Borrowed funds ..............................2,264 Trading account liabilities ...................678 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 General administrative and miscellaneous ......243 ------- (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.
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