UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
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or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
--------------------- ------------------------
Commission file number 1-10683
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MBNA Corporation
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(Exact name of registrant as specified in its charter)
Maryland 52-1713008
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Wilmington, DE 19884
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(Address of principal executive offices) (Zip Code)
(800) 362-6255
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes x No
---------- ----------
Common Stock, $.01 Par Value -- 334,125,000 Shares
Outstanding as of March 31, 1997
MBNA CORPORATION AND SUBSIDIARIES
Table of Contents
Page
Part I - Financial Information
Item 1. Financial Statements
Consolidated Statements of Financial Condition - 1
March 31, 1997 (unaudited) and December 31, 1996
Consolidated Statements of Income - 3
For the Three Months Ended March 31, 1997 and 1996 (unaudited)
Consolidated Statements of Changes in Stockholders' Equity - 5
For the Three Months Ended March 31, 1997 and 1996 (unaudited)
Consolidated Statements of Cash Flows - 7
For the Three Months Ended March 31, 1997 and 1996 (unaudited)
Notes to the Consolidated Financial Statements (unaudited) 9
Item 2. Management's Discussion and Analysis of Financial Condition 12
and Results of Operations
Supplemental Financial Information 30
Part II - Other Information
Item 4. Submission of Matters to a Vote of Security Holders 31
Item 6. Exhibits and Reports on Form 8-K 32
Signature 38
MBNA CORPORATION AND SUBSIDIARIES
Consolidated Statements of Financial Condition
(dollars in thousands)
March 31, December 31,
1997 1996
------------ ------------
(unaudited)
ASSETS
Cash and due from banks.......................... $ 384,228 $ 225,063
Interest-earning time deposits in other banks.... 1,119,030 621,614
Federal funds sold and securities purchased
under resale agreements......................... 295,000 255,000
Investment securities:
Available-for-sale (at market value, amortized
cost of $1,838,338 and $1,718,643 at
March 31, 1997 and December 31, 1996,
respectively)................................. 1,838,814 1,719,730
Held-to-maturity (market value of $583,524
and $592,208 at March 31, 1997 and
December 31, 1996, respectively).............. 593,665 598,320
Loans held for securitization.................... 3,143,495 2,469,974
Loans:
Credit card.................................... 5,210,951 5,722,299
Other consumer................................. 1,608,830 1,936,779
------------ ------------
Total loans.................................. 6,819,781 7,659,078
Reserve for possible credit losses............. (127,828) (118,427)
------------ ------------
Net loans.................................... 6,691,953 7,540,651
Premises and equipment, net...................... 1,125,940 1,047,183
Accrued income receivable........................ 101,156 98,160
Accounts receivable from securitizations......... 2,061,685 1,777,323
Prepaid expenses and deferred charges............ 235,519 204,139
Other assets..................................... 517,346 478,185
------------ ------------
Total assets................................. $ 18,107,831 $ 17,035,342
============ ============
March 31, December 31,
1997 1996
------------ ------------
(unaudited)
LIABILITIES
Deposits:
Time deposits.................................. $ 7,690,659 $ 7,159,440
Money market deposit accounts.................. 2,837,580 2,719,545
Noninterest-bearing demand deposits............ 343,450 233,885
Interest-bearing transaction accounts.......... 25,754 27,995
Savings accounts............................... 11,204 10,821
------------ ------------
Total deposits............................... 10,908,647 10,151,686
Short-term borrowings............................ 547,007 693,387
Long-term debt and bank notes.................... 4,258,604 3,950,358
Accrued interest payable......................... 126,028 107,187
Accrued expenses and other liabilities........... 571,570 428,416
------------ ------------
Total liabilities............................ 16,411,856 15,331,034
STOCKHOLDERS' EQUITY
Preferred stock($.01 par value, 20,000,000
shares authorized, 9,547,882 and 12,000,000
shares issued and outstanding at March 31, 1997
and December 31, 1996, respectively)............ 95 120
Common stock ($.01 par value, 700,000,000 shares
authorized, 334,125,000 shares issued and
outstanding at March 31, 1997 and
December 31, 1996, respectively)................ 3,341 3,341
Additional paid-in capital....................... 521,840 603,902
Retained earnings................................ 1,170,699 1,096,945
------------ ------------
Total stockholders' equity................... 1,695,975 1,704,308
------------ ------------
Total liabilities and stockholders' equity... $ 18,107,831 $ 17,035,342
============ ============
==============================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
MBNA CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income
(dollars in thousands, except per share amounts)
For the Three Months Ended
March 31,
-----------------------------
1997 1996
----------- -----------
(unaudited)
INTEREST INCOME
Loans....................................... $ 259,241 $ 178,979
Investment securities:
Taxable................................... 31,605 29,559
Tax-exempt................................ 817 824
Time deposits in other banks................ 9,920 6,904
Federal funds sold and securities
purchased under resale agreements.......... 3,773 743
Loans held for securitization............... 99,932 105,294
----------- -----------
Total interest income................... 405,288 322,303
INTEREST EXPENSE
Deposits.................................... 148,846 122,921
Short-term borrowings....................... 8,345 2,801
Long-term debt and bank notes............... 67,318 45,386
----------- -----------
Total interest expense.................. 224,509 171,108
----------- -----------
NET INTEREST INCOME......................... 180,779 151,195
Provision for possible credit losses........ 58,405 49,488
----------- -----------
Net interest income after provision for
possible credit losses..................... 122,374 101,707
OTHER OPERATING INCOME
Interchange................................. 26,048 19,809
Credit card fees............................ 29,004 25,550
Securitization income....................... 576,738 337,064
Other....................................... 10,830 15,125
----------- -----------
Total other operating income............ $ 642,620 $ 397,548
For the Three Months Ended
March 31,
-----------------------------
1997 1996
----------- -----------
(unaudited)
OTHER OPERATING EXPENSE
Salaries and employee benefits.............. $ 225,457 $ 170,186
Occupancy expense of premises............... 18,832 14,703
Furniture and equipment expense............. 33,616 21,977
Other....................................... 281,886 139,666
----------- -----------
Total other operating expense........... 559,791 346,532
----------- -----------
Income before income taxes and special
marketing program.......................... 205,203 152,723
Special marketing program................... - 54,331
----------- -----------
Income before income taxes.................. 205,203 98,392
Applicable income taxes..................... 81,261 38,963
Tax benefit from Customer-based intangible
assets..................................... - (32,793)
----------- -----------
NET INCOME.................................. $ 123,942 $ 92,222
=========== ===========
EARNINGS PER COMMON SHARE................... $ .34 $ .26
Weighted average common shares outstanding
and common stock equivalents (000)......... 350,187 344,844
==============================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
MBNA CORPORATION AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
(dollars in thousands, except per share amounts)
(unaudited)
Outstanding Shares
------------------
Preferred Common Preferred Common
(000) (000) Stock Stock
--------- -------- --------- --------
BALANCE, DECEMBER 31, 1996........... 12,000 334,125 $ 120 $ 3,341
Net income........................... - - - -
Cash dividends:
Common-$.12 per share.............. - - - -
Preferred.......................... - - - -
Exercise of stock options and other
awards.............................. - 1,321 - 13
Acquisition and retirement of common
stock............................... - (1,321) - (13)
Acquisition and retirement of
preferred stock..................... (2,452) - (25) -
Foreign currency translation, net of
tax (accumulated amount of $3,240
at March 31, 1997).................. - - - -
Net unrealized gains on investment
securities available-for-sale and
other financial instruments, net
of tax (accumulated amount of
$1,533 at March 31, 1997)........... - - - -
--------- -------- --------- --------
BALANCE, MARCH 31, 1997.............. 9,548 334,125 $ 95 $ 3,341
========= ======== ========= ========
BALANCE, DECEMBER 31, 1995........... 6,000 334,125 $ 60 $ 3,341
Net income........................... - - - -
Cash dividends:
Common-$.11 per share.............. - - - -
Preferred.......................... - - - -
Exercise of stock options and other
awards.............................. - 1,140 - 11
Acquisition and retirement of common
stock............................... - (1,140) - (11)
Foreign currency translation, net of
tax (accumulated amount of $132
at March 31, 1996).................. - - - -
Net unrealized losses on investment
securities available-for-sale, net
of tax (accumulated amount of
($98) at March 31, 1996)............ - - - -
--------- -------- --------- --------
BALANCE, MARCH 31, 1996.............. 6,000 334,125 $ 60 $ 3,341
========= ======== ========= ========
Additional Total
Paid-in Retained Stockholders'
Capital Earnings Equity
---------- ---------- -------------
BALANCE, DECEMBER 31, 1996........... $ 603,902 $1,096,945 $ 1,704,308
Net income........................... - 123,942 123,942
Cash dividends:
Common-$.12 per share.............. - (40,097) (40,097)
Preferred.......................... - (4,911) (4,911)
Exercise of stock options and other
awards.............................. 23,636 - 23,649
Acquisition and retirement of common
stock............................... (44,420) - (44,433)
Acquisition and retirement of
preferred stock..................... (61,278) (1,320) (62,623)
Foreign currency translation, net of
tax (accumulated amount of $3,240
at March 31, 1997).................. - (4,670) (4,670)
Net unrealized gains on investment
securities available-for-sale and
other financial instruments, net
of tax (accumulated amount of
$1,533 at March 31, 1997)........... - 810 810
---------- ---------- -------------
BALANCE, MARCH 31, 1997.............. $ 521,840 $1,170,699 $ 1,695,975
========== ========== =============
BALANCE, DECEMBER 31, 1995........... $ 490,622 $ 771,035 $ 1,265,058
Net income........................... - 92,222 92,222
Cash dividends:
Common-$.11 per share.............. - (35,640) (35,640)
Preferred.......................... - (2,813) (2,813)
Exercise of stock options and other
awards.............................. 13,215 - 13,226
Acquisition and retirement of common
stock............................... (21,135) - (21,146)
Foreign currency translation, net of
tax (accumulated amount of $132
at March 31, 1996).................. - (259) (259)
Net unrealized losses on investment
securities available-for-sale, net
of tax (accumulated amount of
($98) at March 31, 1996)............ - (287) (287)
---------- ---------- -------------
BALANCE, MARCH 31, 1996.............. $ 482,702 $ 824,258 $ 1,310,361
========== ========== =============
===============================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
MBNA CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(dollars in thousands)
For the Three Months Ended
March 31,
--------------------------
1997 1996
----------- -----------
(unaudited)
OPERATING ACTIVITIES
Net income......................................... $ 123,942 $ 92,222
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Provision for possible credit losses............ 58,405 49,488
Depreciation, amortization, and accretion....... 31,997 22,506
Provision (benefit) for deferred income taxes... 3,681 (61,714)
(Increase) decrease in accrued income
receivable..................................... (2,996) 9,829
Increase in accounts receivable from
securitizations................................ (284,362) (167,657)
Increase in accrued interest payable............ 18,841 8,072
Decrease in other operating activities.......... 91,429 31,954
----------- -----------
Net cash provided by (used in) operating
activities................................... 40,937 (15,300)
INVESTING ACTIVITIES
Net increase in money market instruments........... (537,416) (285,599)
Proceeds from maturities of investment securities
available-for-sale................................ 1,642,387 808,796
Purchases of investment securities
available-for-sale................................ (1,754,460) (1,057,503)
Proceeds from maturities of investment securities
held-to-maturity ................................. 22,061 141,128
Purchases of investment securities
held-to-maturity.................................. (17,475) (7,464)
Proceeds from securitization of loans.............. 2,358,542 1,694,503
Portfolio acquisitions............................. (231,798) (19,734)
Amortization of securitized loans.................. (533,736) (166,666)
Net loan originations.............................. (1,508,802) (1,096,670)
Net purchases of premises and equipment............ (107,231) (74,680)
----------- -----------
Net cash used in investing activities......... $ (667,928) $ (63,889)
For the Three Months Ended
March 31,
--------------------------
1997 1996
----------- -----------
(unaudited)
FINANCING ACTIVITIES
Net increase in time deposits...................... $ 531,219 $ 143,759
Net increase in money market deposit accounts,
noninterest-bearing demand deposits,
interest-bearing transaction accounts,
and savings accounts.............................. 225,742 230,708
Net decrease in short-term borrowings.............. (146,380) (281,687)
Proceeds from issuance of long-term debt
and bank notes.................................... 276,786 106,196
Maturity of long-term debt and bank notes.......... (1,480) -
Proceeds from exercise of stock options
and other awards.................................. 12,036 8,172
Acquisition and retirement of common stock......... (44,433) (21,146)
Acquisition and retirement of preferred stock...... (26,320) -
Dividends paid..................................... (41,014) (33,094)
----------- -----------
Net cash provided by financing activities..... 786,156 152,908
----------- -----------
INCREASE IN CASH AND CASH EQUIVALENTS.............. 159,165 73,719
Cash and cash equivalents at beginning of period... 225,063 291,856
----------- -----------
Cash and cash equivalents at end of period......... $ 384,228 $ 365,575
=========== ===========
SUPPLEMENTAL DISCLOSURE
Interest expense paid.............................. $ 205,023 $ 162,860
=========== ===========
Income taxes paid.................................. $ 32,077 $ 45,055
=========== ===========
===============================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
MBNA CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE A: BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of MBNA
Corporation ("the Corporation") have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles for complete consolidated financial statements.
For purposes of comparability, certain prior period amounts have been
reclassified. In the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three months ended March 31, 1997 are
not necessarily indicative of the results that may be expected for the year
ended December 31, 1997. The notes to the consolidated financial statements
contained in the Annual Report on Form 10-K for the year ended
December 31, 1996 should be read in conjunction with these consolidated
financial statements.
NOTE B: EARNINGS PER COMMON SHARE
Earnings per common share are computed using net income applicable to common
stock and the weighted average number of common shares outstanding during the
period after consideration of the dilutive effect of stock options.
For comparative purposes, earnings per common share and weighted average common
shares outstanding and common stock equivalents have been restated to reflect
the three-for-two split of the Corporation's Common Stock effected in the form
of a dividend, issued January 1, 1997, to stockholders of record as of
December 16, 1996.
In February 1997, Statement of Financial Accounting Standards No. 128,
"Earnings per Share" (Statement No. 128), was issued. This statement, effective
for financial statements issued for periods ending after December 15, 1997,
specifies the computation, presentation, and disclosure requirements for
earnings per share. Statement No. 128 replaces primary and fully diluted
earnings per share, under Accounting Principles Board Opinion No. 15, "Earnings
per Share," with basic and diluted earnings per share, respectively. The
adoption of Statement No. 128 will not have a material impact on the
Corporation's consolidated earnings per share for the periods ended
March 31, 1997 and 1996.
NOTE C: LONG-TERM DEBT AND BANK NOTES
Long-term debt and bank notes consist of borrowings having an original maturity
of one year or more. During the three months ended March 31, 1997, the
Corporation, through MBNA Capital B and MBNA Capital C, each a statutory
business trust created under the laws of the State of Delaware, issued
guaranteed preferred beneficial interests in Corporation's junior subordinated
deferrable interest debentures, series B and series C, respectively, as
follows:
(Par Value)
--------------------------
(dollars in thousands)
Guaranteed preferred beneficial interests in
Corporation's junior subordinated deferrable
interest debentures, series B, with an
interest rate equal to 80 basis points above
the London Interbank Offered Rate (LIBOR),
maturing in 2027.............................. $280,000
Guaranteed preferred beneficial interests in
Corporation's junior subordinated deferrable
interest debentures, series C, with an
interest rate of 8.25%, maturing in 2027...... 36,303
The Corporation owns all the common securities of the trusts. The junior
subordinated deferrable interest debentures are the sole assets of the trusts,
and the payments under the junior subordinated deferrable interest debentures
are the sole revenues of the trusts. The obligations of the Corporation, under
the relevant indenture, trust agreement, and guarantee, in the aggregate,
constitute a full and unconditional guarantee by the Corporation of all trust
obligations under the guaranteed preferred beneficial interests in
Corporation's junior subordinated deferrable interest debentures issued by the
trust.
NOTE D: PREFERRED STOCK
During the three months ended March 31, 1997, the Corporation, through MBNA
Capital C issued 1.5 million shares of 8.25% Trust Originated Preferred
Securities (guaranteed preferred beneficial interests in Corporation's junior
subordinated deferrable interest debentures, series C) in exchange for 1.5
million shares of 7 1/2% Cumulative Preferred Stock, Series A. The value of
the shares exchanged was $36.3 million. After the exchange, the Corporation
has 4.5 million shares of 7 1/2% Cumulative Preferred Stock, Series A,
outstanding at March 31, 1997.
The Corporation also repurchased 1.0 million shares of Adjustable Rate
Cumulative Preferred Stock, Series B during the three months ended
March 31, 1997 for the amount of $26.3 million. There are 5.0 million shares
of Adjustable Rate Cumulative Preferred Stock, Series B, outstanding at
March 31, 1997.
On April 21, 1997, the Board of Directors declared a quarterly dividend of
$.46875 per share on the 7 1/2% Cumulative Preferred Stock, Series A and a
quarterly dividend of $.43622 per share on the Adjustable Rate Cumulative
Preferred Stock, Series B. All preferred stock dividends are payable
July 15, 1997 to stockholders of record as of June 30, 1997.
NOTE E: ASSET SECURITIZATION
On January 1, 1997, the Corporation adopted Statement of Financial Accounting
Standards No. 125, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities" (Statement No. 125), effective for all
transactions occurring after December 31, 1996. Under Statement No. 125, gains
are now recognized at the time of initial sale and each subsequent sale of loan
receivables in a securitization. As a result, the Corporation now recognizes
the gain from securitized loans in securitization income on the Corporation's
consolidated statements of income and the related receivable in accounts
receivable from securitization on the consolidated statements of financial
condition at the time of sale. Securitization income also includes the
additional earnings from the Corporation's securitized loans previously
reported as loan servicing fees. As a result of the adoption of Statement
No. 125, securitization income increased $123.1 million for the three months
ended March 31, 1997. This increase is not representative of future periods.
Any future gains that will be recognized by the Corporation in accordance with
Statement No. 125 will be dependent upon the timing and the amount of future
securitizations. The increase in securization income from the adoption of
Statement No. 125 was invested in additional business development efforts and
therefore had no material impact on consolidated net income. Previously, the
Corporation recognized this income over the life of the securitization. Prior
years have not been restated in accordance with Statement No. 125.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This discussion is intended to further the reader's understanding of the
consolidated financial condition and results of operations of MBNA Corporation
(the "Corporation"). It should be read in conjunction with the consolidated
financial statements, notes, and tables included elsewhere in this report.
INTRODUCTION
MBNA Corporation, a bank holding company, is the parent company of MBNA America
Bank, N.A. (the "Bank"), a national bank. Through the Bank, the Corporation is
one of the world's largest bank credit card lenders and is the leading issuer
of affinity credit cards marketed primarily to members of associations and
Customers of financial institutions. In addition to its credit card lending,
the Corporation also makes other consumer loans and offers various deposit
products.
The Corporation generates interest and other income through finance charges
assessed on outstanding loan receivables, interchange income, credit card fees,
securitization income, and interest earned on investment securities and money
market instruments. The Corporation's primary costs are the costs of funding
its loan receivables and investment securities, which include interest paid on
deposits, short-term borrowings, and long-term debt and bank notes; credit
losses; royalties paid to affinity groups and financial institutions; business
development and operating expenses; and income taxes.
EARNINGS SUMMARY
Net income for the three months ended March 31, 1997 was $123.9 million or
$.34 per common share, increasing 34.4% from $92.2 million or $.26 per common
share for the same period in 1996. Earnings per common share is computed
using weighted average common shares outstanding, including common stock
equivalents, of 350.2 million shares for the three months ended March 31, 1997
and 344.8 million shares for the same period in 1996.
The overall growth in earnings was primarily attributable to the growth in
managed loans outstanding. Total managed loans at March 31, 1997 were $40.3
billion, a $12.5 billion increase from March 31, 1996 and a $1.7 billion
increase since December 31, 1996. The Corporation's average managed loans
increased 45.1% to $39.2 billion for the three months ended March 31, 1997,
compared to $27.0 billion for the same period in 1996. Included in managed
loans are the Corporation's loans held for securitization, loan portfolio,
and securitized loans.
The Corporation continues to be an active participant in the asset
securitization market. Securitization converts interest income, interchange,
and other fees in excess of interest paid to Certificateholders; credit
losses; and other trust expenses into securitization income, while reducing
the Corporation's on-balance-sheet assets. During the three months ended
March 31, 1997, the Corporation securitized approximately $2.4 billion of loan
receivables, bringing the total amount of outstanding securitized loans to
$30.3 billion as of March 31, 1997.
Return on average total assets for the three months ended March 31, 1997, was
2.88%, compared to 2.79% for the same period during 1996. The higher return
is primarily a result of the 34.4% increase in net income. This increase in
net income exceeded the 31.3% increase in the Corporation's average total
assets for the three months ended March 31, 1997. Return on average
stockholders' equity for the three months ended March 31, 1997 was 29.89%,
compared to 29.85% for the same period in 1996. The increase in net income was
offset by the increase in average stockholders' equity.
NET INTEREST INCOME
Net interest income for the three months ended March 31, 1997, on a fully
taxable equivalent basis, was $181.2 million, compared to $151.6 million for
the same period in 1996. The increase in net interest income for the three
months ended March 31, 1997 is primarily a result of an increase in average
interest-earning assets of $2.8 billion for the period, partially offset by a
24 basis point decline in the net interest margin and an increase of $3.4
billion in average interest-bearing liabilities for the same period. The
increase in interest-earning assets during the three months ended
March 31, 1997 was a result of increases in average investment securities and
money market instruments of $721.7 million and average loan receivables of
$2.1 billion, respectively. The increase in interest-bearing liabilities
during this period resulted primarily from funding the increases in interest-
earning assets.
The net interest margin, on a fully taxable equivalent basis, was 5.40% for
the three months ended March 31, 1997, compared to 5.64% for the same period
in 1996.
INVESTMENT SECURITIES AND MONEY MARKET INSTRUMENTS
Interest income on investment securities and money market instruments, on a
fully taxable equivalent basis, increased $8.1 million for the three months
ended March 31, 1997, as compared to the same period in 1996. The increase for
the three months ended March 31, 1997 is primarily a result of an increase of
$471.8 million in average money market instruments when compared to the same
period in 1996. The increases are the result of the timing of receipt of funds
from asset securitizations. Funds received from these securitizations are
typically invested in money market instruments and investment securities
available-for-sale until they are needed to fund loan growth. The increase
in interest income earned on investment securities and money market instruments
was partially offset by a decline of 23 basis points in the yield earned on the
Corporation's investment securities and money market instruments for the three
months ended March 31, 1997, as compared to the same period in 1996.
LOAN RECEIVABLES
Interest income generated by the Corporation's loan receivables increased $74.9
million to $359.2 million for the three months ended March 31, 1997, from
$284.3 million for the same period in 1996. The increase is primarily
attributable to an increase in average loan receivables of $2.1 billion to
$10.2 billion for the three months ended March 31, 1997, compared to the same
period in 1996. The yield earned on the Corporation's average loan receivables
increased by 23 basis points.
At March 31, 1997, variable-rate credit cards and home equity loans were 38.6%
of total managed loans, compared to 42.1% at December 31, 1996. These variable-
rate loans are indexed to the U.S. Prime Rate published in The Wall Street
Journal and generally reprice quarterly.
DEPOSITS
Total interest expense on deposits increased $25.9 million to $148.8 million
for the three months ended March 31, 1997, compared to $122.9 million for the
same period in 1996. The increase is primarily the result of an increase in
average interest-bearing deposits of $1.6 billion as the Corporation continues
to emphasize marketing certificates of deposits and money market deposit
accounts to fund loan growth and diversify funding sources. Also, the rates
paid on average interest-bearing deposits increased 18 basis points from 1996.
BORROWED FUNDS
Interest expense on short-term borrowings increased $5.5 million to $8.3
million for the three months ended March 31, 1997, compared to $2.8 million
for the same period in 1996. This increase reflects the Corporation's
utilization of the short-term bank note program and other short-term borrowings
to meet short-term funding requirements.
Total interest expense on long-term debt and bank notes increased $21.9 million
to $67.3 million for the three months ended March 31, 1997, compared to $45.4
million for the same period in 1996. The increase in interest expense reflects
the issuance of additional long-term debt and bank notes to diversify funding
sources, to fund loan growth, to acquire premises and equipment, and for other
general corporate purposes. Average long-term debt and bank notes increased
$1.5 billion to $4.2 billion for the three months ended March 31, 1997 from
$2.7 billion for the same period in 1996.
TABLE 1: STATEMENT OF AVERAGE BALANCES, YIELDS AND RATES, INCOME OR EXPENSE
(dollars in thousands; yields and rates on a fully taxable equivalent basis)
For the Three Months Ended
March 31, 1997
--------------------------------
Average Yield/ Income
Amount Rate or Expense
------------ ------ -----------
(unaudited)
ASSETS
Interest-earning assets:
Money market instruments:
Interest-earning time deposits in other
banks...................................... $ 729,199 5.52% $ 9,920
Federal funds sold and securities purchased
under resale agreements.................... 282,822 5.41 3,773
------------ -----------
Total money market instruments............ 1,012,021 5.49 13,693
Investment securities (a):
Taxable..................................... 2,283,881 5.61 31,605
Tax-exempt(b)............................... 88,186 5.78 1,257
------------ -----------
Total investment securities............... 2,372,067 5.62 32,862
Loans held for securitization................. 2,842,503 14.26 99,932
Loans:
Credit card................................. 5,253,425 14.06 182,182
Other consumer.............................. 2,134,488 14.64 77,059
------------ -----------
Total loans............................... 7,387,913 14.23 259,241
------------ -----------
Total interest-earning assets........... 13,614,504 12.09 $ 405,728
Cash and due from banks....................... 433,476
Premises and equipment, net................... 1,085,398
Other assets.................................. 2,467,803
Reserve for possible credit losses............ (119,214)
------------
Total assets............................ $ 17,481,967
============
For the Three Months Ended
March 31, 1997
--------------------------------
Average Yield/ Income
Amount Rate or Expense
------------ ------ -----------
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing deposits:
Time deposits (c)........................... $ 7,432,241 6.13% $ 112,350
Money market deposit accounts............... 2,759,597 5.30 36,075
Interest-bearing transaction accounts....... 26,399 4.58 298
Savings accounts............................ 10,983 4.54 123
------------ -----------
Total interest-bearing deposits........... 10,229,220 5.90 148,846
Borrowed funds:
Federal funds purchased and securities sold
under repurchase agreements................ 8,511 5.34 112
Other short-term borrowings................. 581,355 5.74 8,233
Long-term debt and bank notes (c)........... 4,156,332 6.57 67,318
------------ -----------
Total borrowed funds...................... 4,746,198 6.47 75,663
------------ -----------
Total interest-bearing liabilities...... 14,975,418 6.08 224,509
Demand deposits............................... 304,640
Other liabilities............................. 520,224
------------
Total liabilities....................... 15,800,282
Stockholders' equity.......................... 1,681,685
------------
Total liabilities and stockholders'
equity................................. $ 17,481,967
============ -----------
Net interest income..................... $ 181,219
===========
Net interest margin..................... 5.40
Interest rate spread.................... 6.01
(a) Average amounts for investment securities available-for-sale are based on
market values; if these securities were carried at amortized cost, there
would be no impact on the net interest margin.
(b) The fully taxable equivalent (FTE) basis adjustment for the three months
ended March 31, 1997 was $440.
(c) Includes the impact of interest rate swap agreements used to change fixed-
rate funding sources to floating-rate funding sources.
For the Three Months Ended
March 31, 1996
--------------------------------
Average Yield/ Income
Amount Rate or Expense
------------ ------ -----------
(unaudited)
ASSETS
Interest-earning assets:
Money market instruments:
Interest-earning time deposits in other
banks...................................... $ 486,486 5.71% $ 6,904
Federal funds sold and securities purchased
under resale agreements.................... 53,769 5.56 743
------------ -----------
Total money market instruments............ 540,255 5.69 7,647
Investment securities (a):
Taxable..................................... 2,037,647 5.83 29,559
Tax-exempt(b)............................... 84,464 6.04 1,268
------------ -----------
Total investment securities............... 2,122,111 5.84 30,827
Loans held for securitization................. 3,014,301 14.05 105,294
Loans:
Credit card................................. 4,233,784 13.92 146,493
Other consumer.............................. 912,599 14.32 32,486
------------ -----------
Total loans............................... 5,146,383 13.99 178,979
------------ -----------
Total interest-earning assets........... 10,823,050 11.99 $ 322,747
Cash and due from banks....................... 324,613
Premises and equipment, net................... 845,250
Other assets.................................. 1,431,480
Reserve for possible credit losses............ (106,243)
------------
Total assets............................ $ 13,318,150
============
For the Three Months Ended
March 31, 1996
--------------------------------
Average Yield/ Income
Amount Rate or Expense
------------ ------ -----------
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing deposits:
Time deposits (c)........................... $ 6,255,715 5.84% $ 90,853
Money market deposit accounts............... 2,357,451 5.41 31,702
Interest-bearing transaction accounts....... 21,620 4.69 252
Savings accounts............................ 9,711 4.72 114
------------ -----------
Total interest-bearing deposits........... 8,644,497 5.72 122,921
Borrowed funds:
Federal funds purchased and securities sold
under repurchase agreements................ 125,771 5.36 1,677
Other short-term borrowings................. 81,669 5.54 1,124
Long-term debt and bank notes (c)........... 2,727,700 6.69 45,386
------------ -----------
Total borrowed funds...................... 2,935,140 6.60 48,187
------------ -----------
Total interest-bearing liabilities...... 11,579,637 5.94 171,108
Demand deposits............................... 160,653
Other liabilities............................. 335,327
------------
Total liabilities....................... 12,075,617
Stockholders' equity.......................... 1,242,533
------------
Total liabilities and stockholders'
equity................................. $ 13,318,150
============ -----------
Net interest income..................... $ 151,639
===========
Net interest margin..................... 5.64
Interest rate spread.................... 6.05
(a) Average amounts for investment securities available-for-sale are based on
market values; if these securities were carried at amortized cost, there
would be no impact on the net interest margin.
(b) The fully taxable equivalent basis adjustment for the three months ended
March 31, 1996 was $444.
(c) Includes the impact of interest rate swap agreements used to change fixed-
rate funding sources to floating-rate funding sources.
OTHER OPERATING INCOME
Total other operating income increased $245.1 million or 61.6% to $642.6
million for the three months ended March 31, 1997, from $397.5 million for the
same period in 1996. This increase is primarily attributable to a 71.1%
increase in securitization income, which grew $239.7 million to $576.7 million
for the three months ended March 31, 1997, as compared to the three months
ended March 31, 1996. The increase in securitization income is primarily the
result of the adoption of Statement of Financial Accounting Standards No. 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities" (Statement No. 125) by the Corporation and a $10.1 billion or
53.6% increase in average securitized loans to $28.9 billion for the three
months ended March 31, 1997, compared to the same period in 1996.
Securitization income includes the gains recognized by the Corporation in
accordance with Statement No. 125, in addition to the contractual specified
loan servicing fees recognized by the Corporation for the servicing of
previously securitized loans.
On January 1, 1997, the Corporation adopted Statement of Financial Accounting
Standards No. 125, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities" (Statement No. 125), effective for all
transactions occurring after December 31, 1996. Under Statement No. 125, gains
are now recognized at the time of initial sale and each subsequent sale of loan
receivables in a securitization. As a result, the Corporation now recognizes
the gain from securitized loans in securitization income on the Corporation's
consolidated statements of income and the related receivable in accounts
receivable from securitization on the consolidated statements of financial
condition at the time of sale. Securitization income also includes the
additional earnings from the Corporation's securitized loans previously
reported as loan servicing fees. As a result of the adoption of Statement
No. 125, securitization income increased $123.1 million for the three months
ended March 31, 1997. This increase is not representative of future periods.
Any future gains that will be recognized by the Corporation in accordance with
Statement No. 125 will be dependent upon the timing and the amount of future
securitizations. The increase in securization income from the adoption of
Statement No. 125 was invested in additional business development efforts and
therefore had no material impact on consolidated net income. Previously, the
Corporation recognized this income over the life of the securitization. Prior
years have not been restated in accordance with Statement No. 125.
OTHER OPERATING EXPENSE
Total other operating expense increased 61.5% to $559.8 million for the three
months ended March 31, 1997 from $346.5 million for the same period in 1996.
The growth in other operating expense reflects the Corporation's continued
investment in business development to enhance the ability of the Corporation to
attract and retain Customers. The increase in other operating expense also
resulted from the Corporation investing the increase in securitization income
from the adoption of Statement No. 125 in additional business development
efforts. The Corporation opened approximately 2.4 million new accounts during
the three months ended March 31, 1997. Table 2 presents the other expense
component of other operating expense.
TABLE 2: OTHER EXPENSE COMPONENT OF OTHER OPERATING EXPENSE
(dollars in thousands)
For the Three Months Ended
March 31,
--------------------------
1997 1996
--------- ---------
(unaudited)
Purchased services....................... $ 79,231 $ 37,277
Advertising.............................. 49,027 13,414
Collection............................... 5,934 6,286
Stationery and supplies.................. 7,639 5,332
Service bureau........................... 7,283 4,810
Postage and delivery..................... 55,636 24,967
Telephone usage.......................... 14,365 9,755
Credit card fraud losses................. 15,033 11,004
Amortization of intangible assets........ 6,848 2,526
Computer software........................ 7,919 5,246
Other.................................... 32,971 19,049
--------- ---------
Total other operating expense.......... $ 281,886 $ 139,666
========= =========
SPECIAL MARKETING PROGRAM
During the three months ended March 31, 1996, the Corporation charged $32.8
million net of tax ($54.3 million pretax) to earnings related to the launch of
the MBNA Platinum Plus MasterCard and Visa program. This item was recognized by
the Corporation during the three months ended March 31, 1996.
INCOME TAXES
Applicable income taxes were $81.3 million for the three months ended
March 31, 1997, compared to $39.0 million for the three months ended
March 31, 1996, excluding the effect of the tax benefit from Customer-based
intangible assets.
Net income for the three months ended March 31, 1996, includes a $32.8 million
tax benefit related to the recognition of tax deductions for the amortization
of Customer-based intangible assets acquired in connection with the
Corporation's 1991 initial public offering. The initial public offering
resulted in certain Customer-based intangible assets being recorded for income
tax purposes only, creating future tax deductions relating to these intangible
assets. The Corporation did not initially recognize, for financial statement
purposes, any tax benefit related to those assets because there were
uncertainties concerning the tax treatment of such assets. During the second
quarter of 1993, the U.S. Supreme Court in the "Newark Morning Ledger" case
affirmed that Customer-based intangible assets may be amortized for tax
purposes and the Corporation recognized $89.8 million of the tax benefit
related to the Customer-based intangible assets. During the three months ended
March 31, 1996, the Internal Revenue Service completed an audit of the
Corporation's 1991 and 1992 tax returns and entered into a final agreement with
the Corporation regarding the tax treatment of the intangible assets. As a
result, the Corporation recognized the remaining tax benefit relating to the
intangible assets, $32.8 million, during the three month period ended
March 31, 1996.
ASSET QUALITY
The Corporation's asset quality at any time reflects, among other factors, the
quality of the credit card loans and other consumer loans, the general economic
conditions, the success of the Corporation's collection efforts, and the
average seasoning of the Corporation's accounts. As new accounts season, the
delinquency rate on these accounts generally rises and then stabilizes.
Delinquencies
An account is contractually delinquent if the minimum payment is not received
by the specified date on the Customer's statement. However, the Corporation
generally continues to accrue interest until the loan is either paid or charged
off. Delinquency as a percentage of the Corporation's loan portfolio was 3.30%
at March 31, 1997, compared with 3.59% at December 31, 1996. The Corporation's
delinquency, as a percentage of managed loans, was 4.23% at March 31, 1997,
compared with 4.28% at December 31, 1996. Table 3 presents the delinquency of
the Corporation's loan portfolio, excluding loans held for securitization.
TABLE 3: DELINQUENT LOANS
(dollars in thousands)
March 31, 1997 December 31, 1996
----------------- -----------------
(unaudited)
Loan portfolio..................... $ 6,819,781 $ 7,659,078
Loans delinquent:
30 to 59 days.................... $ 88,428 1.30% $ 114,382 1.49%
60 to 89 days.................... 43,412 .63 52,857 .69
90 or more days.................. 93,262 1.37 107,679 1.41
----------- ---- ----------- ----
Total.......................... $ 225,102 3.30% $ 274,918 3.59%
=========== ==== =========== ====
Net Credit Losses
Net credit losses for the three months ended March 31, 1997 were $50.8
million, compared to $47.4 million for the same period in 1996. Net credit
losses do not include credit losses from securitized loans, which are charged
to the related trusts, in accordance with their respective contractual
agreements. The increase in net credit losses for the three months ended
March 31, 1997 reflects increases in the Corporation's outstanding loans,
the general economic conditions, and the seasoning of the Corporation's
accounts, offset by sales of charged-off receivables.
The Corporation's policy is generally to charge off accounts when they become
180 days contractually past due. From time to time, the Corporation sells
previously charged-off receivables. The proceeds received by the Corporation
from these sales are recorded as recoveries and thus reduce net credit losses.
Net credit losses as a percentage of average loan receivables were 1.99% for
the three months ended March 31, 1997, compared to 2.32% for the same period
last year. For the full year ended December 31, 1996, net credit losses were
1.98% of average loan receivables. The Corporation's managed credit losses as a
percentage of average managed loans for the three months ended March 31, 1997
were 3.75%, compared to 3.28% for the same period last year. For the full year
ended December 31, 1996, managed credit losses were 3.35% of average managed
loans.
Reserve and Provision for Possible Credit Losses
The loan portfolio is regularly reviewed to determine an appropriate range for
the reserve for possible credit losses based upon the impact of economic
conditions on the borrowers' ability to repay, past collection experience, the
risk characteristics of the portfolio, and other factors that deserve current
recognition. A provision is charged to operating expense to maintain the
reserve level within this range. The reserve for possible credit losses,
however, does not include an allocation for credit risk related to securitized
loans, which is absorbed directly by the related trusts under their respective
contractual agreements, thus reducing securitization income rather than the
reserve for possible credit losses. The provision for possible credit losses
for the three months ended March 31, 1997 was $58.4 million compared to $49.5
million for the same period in 1996. Table 4 presents the change in the
Corporation's reserve for possible credit losses.
TABLE 4: RESERVE FOR POSSIBLE CREDIT LOSSES
(dollars in thousands)
For the Three Months Ended
March 31,
--------------------------
1997 1996
----------- -----------
(unaudited)
Reserve balance, beginning of period......... $ 118,427 $ 104,886
Reserves acquired.......................... 2,030 -
Provision for possible credit losses....... 58,405 49,488
Foreign currency translation............... (204) (72)
Credit losses.............................. (85,590) (59,108)
Recoveries................................. 34,760 11,710
----------- -----------
Net credit losses........................ (50,830) (47,398)
----------- -----------
Reserve balance, end of period............... $ 127,828 $ 106,904
=========== ===========
CAPITAL ADEQUACY
The Corporation and Bank are subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory-and possible additional
discretionary-actions by regulators that, if undertaken, could have a direct
material effect on the Corporation's and the Bank's consolidated financial
statements. Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, the Corporation and the Bank must meet specific
capital guidelines that involve quantitative measures of their assets,
liabilities, and certain off balance-sheet items as calculated under regulatory
accounting practices. The Corporation and the Bank's capital amounts and
classification are also subject to qualitative judgements by the regulators
about components, risk weightings, and other factors. Quantitative measures
established by regulation to ensure capital adequacy require the Corporation
and Bank to maintain minimum amounts and ratios (set forth in Table 5 below)
of Tier 1 and Total Capital to risk weighted assets and of Tier 1 Capital to
average assets (Leverage ratio). As of March 31, 1997, the Corporation and the
Bank exceeded all capital requirements to which they are subject, and the Bank
was "well capitalized" under the regulatory framework for prompt corrective
action. To be categorized as "well-capitalized" the Bank must maintain minimum
Tier 1 Capital, Total Capital, and Leverage ratios. Both the Corporation's and
the Bank's risk-based capital ratios, shown in Table 5, have been computed in
accordance with regulatory accounting policies.
TABLE 5: REGULATORY CAPITAL RATIOS
March 31, 1997
----------------------------------------
MBNA MBNA America Minimum
Corporation Bank, N.A. Requirements
----------- ------------ ------------
(unaudited)
Tier 1............................ 11.02% 10.52% 4.00%
Total............................. 14.70 12.57 8.00
Leverage.......................... 10.83 10.31 3.00
During the three months ended March 31, 1997, the Corporation declared
dividends on its preferred and common stock of $45.0 million. The payment of
preferred and common stock dividends by the Corporation may be limited by
certain factors including regulatory capital requirements, broad enforcement
powers of the federal bank regulatory agencies, and tangible net worth
maintenance requirements under the Corporation's revolving credit facilities.
In addition, if the Corporation defers interest payments for consecutive
periods covering five years on the guaranteed preferred beneficial interests in
Corporation's junior subordinated deferrable interest debentures, the
Corporation may not be permitted to declare or pay any cash dividends on the
Corporation's capital stock or interest on debt securities that have equal or
lower priority over claims as the junior subordinated deferrable interest
debentures.
The primary source of funds for payment of preferred and common stock dividends
by the Corporation is dividends received from the Bank. The amount of
dividends that a bank may declare in any year is subject to certain regulatory
restrictions. Generally, dividends declared in a given year by a national bank
are limited to its net profit, as defined by regulatory agencies, for that
year, combined with its retained net income for the preceding two years. Also,
a bank may not declare dividends if such declaration would leave the bank
inadequately capitalized. Therefore, the ability of the Bank to declare
dividends will depend on its future net income and capital requirements. At
March 31, 1997, the amount of retained earnings available for declaration of
dividends from the Bank to the Corporation was $582.0 million. Payment of
dividends by the Bank to the Corporation, however, may be further limited by
federal bank regulatory agencies.
The Bank's payment of dividends to the Corporation may also be limited by a
tangible net worth requirement under the Bank's revolving credit facility.
This facility was not drawn upon as of March 31, 1997.
LIQUIDITY
Liquidity management is the process by which the Corporation manages its access
to various funding sources to meet its current and future operating needs.
These needs change as loans grow, deposits mature, and payments on obligations
are made. Because the characteristics of the Corporation's assets and
liabilities change, liquidity management is a dynamic process, affected by
changes in the relationship between short-term and long-term interest rates.
To facilitate liquidity management, the Corporation uses a variety of funding
sources to establish a maturity pattern that provides a prudent mixture of
short and long-term funds. Funding sources are available to the Corporation
through deposits, debt issuance, and equity programs.
Deposits generated by the Bank are a major source of funds for the Corporation.
Total deposits at March 31, 1997 and December 31, 1996 were $10.9 billion and
$10.2 billion, respectively. The increase in deposits is primarily the result
of the Corporation's continued emphasis on marketing certificate of deposits
and offering competitive rates. Table 6 presents the maturities of the
Corporation's deposits as of March 31, 1997.
TABLE 6: MATURITIES OF DEPOSITS AT MARCH 31, 1997
(dollars in thousands)
Direct Other Total
Deposits Deposits Deposits
----------- ----------- -----------
(unaudited)
Three months or less.................... $ 4,032,686 $ 518,132 $ 4,550,818
Over three months through twelve months. 1,917,671 659,460 2,577,131
Over one year through five years........ 2,205,243 1,567,239 3,772,482
Over five years......................... 5,705 2,511 8,216
----------- ----------- -----------
Total deposits........................ $ 8,161,305 $ 2,747,342 $10,908,647
=========== =========== ===========
During the three months ended March 31, 1997, the Corporation, through MBNA
International, drew down 50.0 million pounds sterling (approximately $82.0
million) from its existing 300.0 million pounds sterling multi-currency
committed syndicated revolving credit facility. These draws mature in May and
June of 1997 and are included as part of short-term borrowings in the
consolidated statements of financial condition. In January 1997, the
Corporation issued $280.0 million of guaranteed preferred beneficial interests
in Corporation's junior subordinated deferrable interest debentures. The
securities qualify as regulatory capital for the Corporation, and the proceeds
were used for general corporate purposes.
The Corporation also held $2.4 billion in investment securities and $1.4
billion of money market instruments at March 31, 1997, compared with $2.3
billion in investment securities and $876.6 million of money market instruments
at December 31, 1996. The investment securities primarily consisted of high-
quality, AAA-rated securities, most of which can be used as collateral under
repurchase agreements. Of the $2.4 billion in investment securities at
March 31, 1997, $1.1 billion is anticipated to mature within 12 months.
At March 31, 1997, the Corporation had $1.8 billion of investment securities
available-for-sale. These investment securities and money market instruments
provided increased liquidity and flexibility to support the Corporation's
funding requirements. Estimated maturities (including the impact of estimated
prepayments) of the Corporation's investment securities portfolio are presented
in Table 7.
TABLE 7: SUMMARY OF INVESTMENT SECURITIES AT MARCH 31, 1997
(dollars in thousands)
Estimated Maturity
-------------------------------------------
Within 1 Over
Year 1-5 Years 6-10 Years 10 Years
--------- --------- ---------- ---------
(unaudited)
AVAILABLE-FOR-SALE
U.S. Treasury and other U.S.
government agencies obligations.. $ 636,269 $ 99,063 $ - $ -
State and political subdivisions
of the United States............. 77,214 11,511 - -
Asset-backed and other securities. 76,914 863,116 71,722 3,005
--------- --------- ---------- ---------
Total investment securities
available-for-sale............. $ 790,397 $ 973,690 $ 71,722 $ 3,005
========= ========= ========== =========
HELD-TO-MATURITY
U.S. Treasury and other U.S.
government agencies obligations.. $ 256,454 $ 189,499 $ - $ 58,187
State and political subdivisions
of the United States............. - - - 458
Asset-backed and other securities. 29,064 42,086 1,000 16,917
--------- --------- ---------- ---------
Total investment securities
held-to-maturity............... $ 285,518 $ 231,585 $ 1,000 $ 75,562
========= ========= ========== =========
Book Market
Value Value
---------- ----------
AVAILABLE-FOR-SALE
U.S. Treasury and other U.S.
government agencies obligations.. $ 735,332 $ 735,332
State and political subdivisions
of the United States............. 88,725 88,725
Asset-backed and other securities. 1,014,757 1,014,757
---------- ----------
Total investment securities
available-for-sale............. $1,838,814 $1,838,814
========== ==========
HELD-TO-MATURITY
U.S. Treasury and other U.S.
government agencies obligations.. $ 504,140 $ 494,393
State and political subdivisions
of the United States............. 458 404
Asset-backed and other securities. 89,067 88,727
---------- ----------
Total investment securities
held-to-maturity............... $ 593,665 $ 583,524
========== ==========
SECURITIZATION
Securitization of the Bank's loan receivables continues to be a major funding
alternative for the Corporation. This is accomplished primarily through the
public and private issuance of asset-backed securities. As loan receivables
are securitized, the Corporation's on-balance sheet funding needs are reduced
by the amount of loans securitized.
Securitization involves the sale, generally to a trust, of a pool of loan
receivables. These loan receivables arise from accounts whose ownership is
retained by the Bank. In addition to selling the existing loan receivables,
rights to new loan receivables, including most fees generated by and payments
made from these accounts, are sold. Certificates representing undivided
interests in the trust are issued. The Investor Certificates are sold by the
trust to investors, generally through a public offering. Interest is paid to
the Investor Certificateholders during the life of the transaction. The Seller
Certificate is retained by the Bank. The Bank continues to service the
accounts and receives a servicing fee for doing so.
During the revolving period, which generally ranges from 24 to 168 months, no
principal payments are made to the Investor Certificateholders. Payments
received on the accounts are used to pay interest to the Investor
Certificateholders and to purchase new loan receivables generated by the
accounts, so that the principal dollar amount of the Investor Certificate
remains unchanged. Once the revolving period ends, principal payments are
allocated for distribution to the Investor Certificateholders according to the
terms of the transaction. As principal payments are allocated to the Investor
Certificateholders, the Bank's on balance sheet loan receivables increase by
the amount of any new purchases or cash advance activity on the accounts.
During the three months ended March 31, 1997, the Bank securitized loan
receivables totaling $2.4 billion through both public and private markets.
Amortization of previously securitized loan receivables totaled $533.7 million
for the three month period ended March 31, 1997. This securitization activity
brings the total amount of outstanding securitized loans to $30.3 billion or
75.3% of managed loans as of March 31, 1997, compared to $28.5 billion or 73.8%
of managed loans at December 31, 1996. An additional $2.4 billion of previously
securitized loans is scheduled to amortize into the Bank's loan portfolio
during the remainder of 1997.
Distribution of principal to the Investor Certificateholders may begin sooner
if the average annualized yield (generally including interest income,
interchange, and other fees) for three consecutive months drops below a minimum
yield (generally equal to the sum of the certificate rate payable to investors,
contractual servicing fees, and principal credit losses during the period) or
certain other events occur. Table 8 compares the average annualized yield for
the three-month period ended March 31, 1997, to the minimum yield for each
transaction. The yield for each of the transactions is presented on a cash
basis and includes various credit card or other fees as specified in the
securitization agreements.
TABLE 8: YIELDS ON SECURITIZED TRANSACTIONS (a)
Three-Month Average
----------------------- Yield in
Annualized Minimum Excess of
Yield Yield Minimum
---------- ----------- ---------
(unaudited)
MasterTrust 91-1(b).................. 29.10% 17.40% 11.70%
MasterTrust 92-1(b).................. 19.84 14.65 5.19
MasterTrust 92-2(b).................. 18.59 13.28 5.31
MasterTrust 92-3..................... 18.03 12.78 5.25
MasterTrust 93-1..................... 18.03 12.73 5.30
MasterTrust 93-3..................... 18.13 12.37 5.76
MasterTrust 93-4..................... 18.13 12.70 5.43
MasterTrust 94-1..................... 18.13 12.60 5.53
MasterTrust 94-2..................... 18.13 12.66 5.47
MasterTrust II 94-A.................. 17.26 12.26 5.00
MasterTrust II 94-B.................. 17.26 12.23 5.03
MasterTrust II 94-C.................. 17.26 12.34 4.92
MasterTrust II 94-D.................. 17.26 12.22 5.04
MasterTrust II 94-E.................. 17.26 12.20 5.06
Gold Reserve......................... 19.26 14.55 4.71
MasterTrust II 95-A.................. 17.26 12.33 4.93
MasterTrust II 95-B.................. 17.26 12.22 5.04
MasterTrust II 95-C.................. 17.26 12.27 4.99
MasterTrust II 95-D.................. 17.26 12.14 5.12
MasterTrust II 95-E.................. 17.26 12.28 4.98
Cards No. 1.......................... 20.38 10.96 9.42
MasterTrust II 95-F.................. 17.26 13.14 4.12
MasterTrust II 95-G.................. 17.26 12.27 4.99
MasterTrust II 95-H.................. 17.26 12.13 5.13
MasterTrust II 95-I.................. 17.26 12.22 5.04
MasterTrust II 95-J.................. 17.26 12.29 4.97
MasterTrust II 96-A.................. 17.26 12.26 5.00
MasterTrust II 96-B.................. 17.26 12.32 4.94
MasterTrust II 96-C.................. 17.26 12.20 5.06
MasterTrust II 96-D.................. 17.26 12.20 5.06
Cards No. 2.......................... 20.38 10.75 9.63
MasterTrust II 96-E.................. 17.26 12.23 5.03
MasterTrust II 96-F.................. 17.26 12.22 5.04
MasterTrust II 96-G.................. 17.26 12.25 5.01
MasterTrust II 96-H.................. 17.28 12.20 5.08
MasterTrust II 96-I.................. 17.28 12.28 5.00
MasterTrust II 96-J.................. 17.26 12.22 5.04
MasterTrust II 96-K.................. 17.26 12.20 5.06
MasterTrust II 96-L.................. 17.32 12.41 4.91
MasterTrust II 96-M.................. 17.25 12.41 4.84
Gold Option.......................... 17.79 9.95 7.84
Cards No. 3.......................... 19.77 11.09 8.68
(a) MasterTrust II 97-A issued on January 30, 1997, MasterTrust II 97-B issued
on February 27, 1997, and MasterTrust II 97-C issued on March 26, 1997, are
excluded from the yields presented above as a result of their recency.
(b) Represents a maturing transaction that has entered its scheduled controlled
amortization period.
MBNA CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL FINANCIAL INFORMATION
(unaudited)
The following supplemental information presents selected managed asset
data and managed ratios pertaining to the Corporation. This information is used
to evaluate the Corporation's financial condition as well as the impact
securitizations have on the Corporation's managed assets.
MANAGED ASSET DATA
(dollars in thousands)
March 31, 1997 December 31, 1996
----------------- -----------------
AT PERIOD END:
Loans held for securitization......... $ 3,143,495 $ 2,469,974
Loan portfolio........................ 6,819,781 7,659,078
Securitized loans..................... 30,312,516 28,494,481
----------------- -----------------
Total managed loans................. $ 40,275,792 $ 38,623,533
================= =================
Total managed interest-earning
assets............................. $ 44,122,301 $ 41,818,197
================= =================
Total managed assets................ $ 48,420,347 $ 45,529,823
================= =================
For the Three Months Ended
March 31,
------------------------------------
1997 1996
----------------- -----------------
AVERAGE:
Loans held for securitization......... $ 2,842,503 $ 3,014,301
Loan portfolio........................ 7,387,913 5,146,383
Securitized loans..................... 28,948,853 18,850,045
----------------- -----------------
Total managed loans................. $ 39,179,269 $ 27,010,729
================= =================
Total managed interest-earning
assets............................. $ 42,563,357 $ 29,673,095
================= =================
Total managed assets................ $ 46,430,820 $ 32,168,195
================= =================
MANAGED RATIOS:
Delinquency........................... 4.23% 3.85%
Net credit losses..................... 3.75 3.28
Net interest margin (on an FTE basis). 7.54 7.68
PART II-OTHER INFORMATION
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The 1997 Annual Meeting of the Stockholders of MBNA Corporation was held
on April 21, 1997.
The stockholders elected the following nominees to the Corporation's Board
of Directors to serve for the coming year and until their successors are
elected and qualify. The following shows the separate tabulation of votes for
each nominee:
Number of Votes
-------------------------------
For Withheld
----------- ----------
Alfred Lerner................. 280,819,525 4,250,536
Charles M. Cawley............. 280,851,917 4,218,144
James H. Berick, Esq.......... 280,864,958 4,205,103
Benjamin R. Civiletti, Esq.... 244,157,875 40,912,186
Randolph D. Lerner, Esq....... 280,485,648 4,584,413
Stuart L. Markowitz, M.D...... 281,642,123 3,427,938
Michael Rosenthal, Ph.D....... 281,642,673 3,427,388
The shareholders approved the new 1997 Long Term Incentive Plan. There were
257,521,565 affirmative votes, 26,758,083 negative votes, and 790,413
abstentions. The shareholders also approved the new Senior Executive
Performance Plan. There were 275,984,813 affirmative votes, 7,929,027 negative
votes, and 1,156,221 abstentions.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
Index of Exhibits
Exhibit Description of Exhibit
------- ----------------------
10.1 1997 Long Term Incentive Plan
10.2 Senior Executive Performance Plan
10.3 Amendment to 1991 Long Term Incentive Plan
11 Computation of Earnings Per Common Share
27 Financial Data Schedule
Exhibit 10.1: 1997 LONG TERM INCENTIVE PLAN
1. Establishment
MBNA Corporation (the "Corporation") hereby establishes the 1997 LONG TERM
INCENTIVE PLAN (the "Plan"). The Plan permits the grant of stock options and
restricted or unrestricted share awards for shares of the Corporation's Common
Stock ("Common Stock").
2. Administration
The Plan shall be administered by the Board of Directors of the
Corporation or a committee ("Committee") of the Board of Directors. All
references herein to "Committee" shall mean the Board of Directors if no
committee of the Board of Directors is appointed or otherwise authorized to act
on a particular matter. The Committee shall have all power and authority
necessary to administer the Plan, including but not limited to the power to
select persons to participate in the Plan, determine the terms of grants made
under the Plan, interpret the Plan and adopt such policies for carrying out the
Plan as it may deem appropriate. The decisions of the Committee on all matters
relating to the Plan shall be conclusive.
3. Shares Available for the Plan; Limitations
(a) Shares of Common Stock may be issued by the Corporation pursuant to
incentive or nonqualified stock options or restricted or unrestricted share
awards granted under the Plan.
(b) The number of shares of Common Stock with respect to which stock
option and share awards may be made pursuant to the Plan is 11,000,000. If any
grant under the Plan expires or terminates unexercised, becomes unexercisable
or is forfeited as to any shares, such unpurchased or forfeited shares shall
thereafter be available for further grants under the Plan.
(c) The maximum number of shares of Common Stock with respect to which
options may be granted pursuant to the Plan in any calendar year to any one
participant is 1,000,000.
(d) In the event of a reorganization, recapitalization, stock split, stock
dividend, combination of shares, merger, share exchange, consolidation,
substantial distribution of assets, or any other change in the corporate
structure or shares of the Corporation, the maximum numbers and total of shares
provided in Sections 3(b) and 3(c), but not Section 5(e), and the kinds of
shares under the Plan shall be appropriately adjusted.
4. Participation
Participation in the Plan is limited to officers, directors, key
employees, consultants and advisors of the Corporation and its subsidiaries
selected by the Committee. Only officers and key employees of the Corporation
and its subsidiaries are eligible to receive incentive stock options.
5. Stock Options
(a) The Committee may from time to time grant to participants non-
qualified stock options or incentive stock options.
(b) The price per share payable upon the exercise of each option shall not
be less than 100% of the fair market value of a share of Common Stock on the
date the option is granted.
(c) The Committee shall determine all terms and conditions of options,
including but not limited to the period for exercise, the expiration date and
any conditions to exercise. The Committee may amend or modify the terms of any
outstanding option grant.
(d) Options may be exercised in any manner approved by the Committee. If
authorized by the Committee, a participant may deliver Common Stock, including
shares acquired upon exercise of the option, to pay the exercise price or
withholding taxes in connection with exercise of an option.
(e) Each person who becomes a nonemployee director of the Corporation
shall be granted an option to purchase 5,000 shares of Common Stock on the date
the person becomes a director and each person who is a nonemployee director on
January 2 of each year beginning in 1998 shall be granted an option to purchase
5,000 shares of Common Stock on that date or the next day the New York Stock
Exchange is open for trading. The exercise price shall be the closing price of
the Common Stock on the New York Stock Exchange on the grant date. All non-
employee director's options are exercisable immediately following the effective
date of the grant, shall have a term of ten years, and shall expire 90 days
after the grantee is no longer a director.
6. Restricted and Unrestricted Share Awards
The Committee may from time to time award shares of Common Stock to
participants in such amounts and on such terms as it determines. Each award of
shares shall specify the restrictions, if any, on the shares. The Committee may
waive or modify any restriction.
7. Amendment and Termination of the Plan
The Plan may be amended or terminated at any time by the Board of
Directors. The Board of Directors may condition any amendment of the Plan on
approval by the stockholders of the Corporation. No further grants may be made
under the Plan after December 31, 2006.
Exhibit 10.2: SENIOR EXECUTIVE PERFORMANCE PLAN
Purpose
The purpose of the Senior Executive Performance Plan (the "Plan") is to
set forth the terms on which annual bonuses will be paid to participating
senior executives of MBNA Corporation and MBNA America Bank, N.A. and their
subsidiaries (collectively the "Corporation"). The Plan is intended to permit
the Corporation to deduct fully annual bonuses paid to senior executives in
determining its federal income taxes in accordance with Section 162(m) of the
Internal Revenue Code of l986, as amended.
Administration
The Plan has been approved by and shall be administered by the
Compensation Committee of the Board of Directors of the Corporation or a
subcommittee of the Compensation Committee composed of two or more "outside
directors" as defined in Section 162(m) and the regulations thereunder (the
"Committee"). The Committee shall interpret the Plan and shall have the
authority and duties set forth in the Plan.
Covered Officers
The Plan applies each year to those officers of the Corporation whose
compensation would be subject to the limitations of Section 162(m) or the
regulations thereunder for that year.
Bonuses
Each covered officer who is employed by the Corporation during a calendar
year while this Plan is in effect will be eligible to receive a bonus, if the
Corporation achieves the net income target for that year established or to be
established by the Committee, in an amount equal in 1997 to 200% of the covered
officer's 1997 base salary and in each subsequent year the Plan is in effect to
200% of the senior executive's 1997 base salary plus 20% for each year after
1997. No bonus will be paid for any year pursuant to the Plan unless the net
income objective for that year has been attained. The Committee may reduce or
eliminate bonuses for any reason in its sole discretion notwithstanding
attainment of the net income objective for that year.
The Committee will determine the net income objective for each year's
bonuses not later than 90 days after the commencement of each year, provided
that the net income objective for such year is substantially uncertain. Net
income for purposes of the Plan means consolidated net income of the
Corporation before extraordinary items and the cumulative net effect of
accounting changes occurring or adopted following approval of the net income
objective by the Committee. The Committee shall make appropriate adjustments
in net income objectives to reflect any changes in federal or applicable state
income tax rates.
No bonus shall be paid pursuant to this Plan for any year until the
Committee has certified that the net income target for that year has been
attained. Bonuses shall be paid promptly following the Committee's
certification that the net income objective for that year has been attained.
Annual bonuses payable pursuant to the Plan may be paid in cash, restricted or
unrestricted shares of Common Stock, or both, as determined by the Committee.
Miscellaneous
No covered officer may assign the right to receive any benefit under the
Plan. The Committee may approve payment of any amount which a disabled or
deceased covered officer would have earned under the Plan to the covered
officer's spouse or estate.
The Plan shall be submitted to the Corporation's stockholders for approval
in accordance with Section 162(m).
The Committee may amend or change the Plan at any time and in any manner.
After the Plan has been approved by the Corporation's stockholders, the Plan
may not be amended or changed without stockholder approval if the amendment or
change would limit the deductibility of bonuses paid pursuant to the Plan under
Section 162(m).
The Plan will be effective beginning with bonuses for 1997. The Plan will
continue in effect without further stockholder approval until terminated by the
Committee. The Committee may terminate the Plan at any time.
EXHIBIT 10.3 Amendment to 1991 Long Term Incentive Plan
On January 21, 1997, the MBNA Corporation Board of Directors approved amendment
of the 1991 Long Term Incentive Plan ("1991 Plan") to conform all of the
provisions of the 1991 Plan to those of the 1997 Long Term Incentive Plan and
authorized the Stock Option Committee to make any changes to outstanding stock
option and restricted stock awards under the 1991 Plan that the Committee deems
appropriate to implement the amendments. No further stock options or restricted
stock may be granted under the 1991 Plan.
Exhibit 11: Computation of Earnings Per Common Share
(dollars in thousands, except per share data)
For the Three Months Ended
March 31,
--------------------------
1997 1996
----------- -----------
(unaudited)
PRIMARY
Average common shares outstanding............... 334,152 334,144
Net effect of dilutive stock options--based on
the treasury stock method using average
market price................................... 16,035 10,700
----------- -----------
Total......................................... 350,187 344,844
=========== ===========
Net income...................................... $ 123,942 $ 92,222
Less: preferred stock dividend requirements.... 6,231 2,813
----------- -----------
Net income applicable to common stock........... $ 117,711 $ 89,409
=========== ===========
Per common share amount......................... $ .34 $ .26
=========== ===========
FULLY DILUTED
Average common shares outstanding............... 334,152 334,144
Net effect of dilutive stock options--based on
the treasury stock method using the higher of
ending or average market prices................ 16,035 11,694
----------- -----------
Total......................................... 350,187 345,838
=========== ===========
Net income...................................... $ 123,942 $ 92,222
Less: preferred stock dividend requirements.... 6,231 2,813
----------- -----------
Net income applicable to common stock........... $ 117,711 $ 89,409
=========== ===========
Per common share amount......................... $ .34 $ .26
=========== ===========
Earnings per common share is based on the weighted average number of
common shares outstanding during the period after consideration of the dilutive
effect of common stock options. Primary earnings per common share assumes the
maximum dilutive effect of common stock equivalents, using average market
prices. Fully diluted earnings per common share assumes the maximum dilutive
effect of common stock equivalents, using the higher of ending or average
market prices.
To the extent stock options are exercised or restricted shares are awarded
from time to time under the Corporation's Long Term Incentive Plans, the Board
of Directors has approved the purchase on the open market or in privately
negotiated transactions of the number of shares issued.
b. Reports on Form 8-K
1. Report dated January 14, 1997, reporting MBNA Corporation's earnings
release for the fourth quarter of 1996.
2. Report dated January 31, 1997, reporting the net credit losses and loan
delinquencies for MBNA America Bank, N.A., for its net loan portfolio and
managed loan portfolio for January 1997.
3. Report dated February 27, 1997, reporting the securitization of
approximately $1.0 billion of credit card receivables by MBNA America
Bank, N.A.
4. Report dated February 28, 1997, reporting the net credit losses and loan
delinquencies for MBNA America Bank, N.A., for its net loan portfolio and
managed loan portfolio for February 1997.
5. Report dated March 26, 1997, reporting the securitization of
approximately $750.0 million of credit card receivables by MBNA America
Bank, N.A.
6. Report dated March 31, 1997, reporting the net credit losses and loan
delinquencies for MBNA America Bank, N.A., for its net loan portfolio and
managed loan portfolio for March 1997.
7. Report dated April 9, 1997, reporting MBNA Corporation's earnings
release for the first quarter of 1997.
8. Report dated April 30, 1997, reporting the net credit losses and loan
delinquencies for MBNA America Bank, N.A., for its net loan portfolio and
managed loan portfolio for April 1997.
9. Report dated May 8, 1997, reporting the securitization of
approximately $750.0 million of credit card receivables by MBNA America
Bank, N.A.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
MBNA CORPORATION
Date: May 15, 1997 By: /s/ M. Scot Kaufman
----------------------------
M. Scot Kaufman
Executive Vice President
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
MBNA CORPORATION'S FORM 10-Q FOR THE QUARTERLY PERIOD ENDED
MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 384,228
<INT-BEARING-DEPOSITS> 1,119,030
<FED-FUNDS-SOLD> 295,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,838,814
<INVESTMENTS-CARRYING> 593,665
<INVESTMENTS-MARKET> 583,524
<LOANS> 9,963,276<F1>
<ALLOWANCE> 127,828
<TOTAL-ASSETS> 18,107,831
<DEPOSITS> 10,908,647
<SHORT-TERM> 547,007
<LIABILITIES-OTHER> 697,598
<LONG-TERM> 4,258,604
0
95
<COMMON> 3,341
<OTHER-SE> 1,692,539
<TOTAL-LIABILITIES-AND-EQUITY> 18,107,831
<INTEREST-LOAN> 359,173<F1>
<INTEREST-INVEST> 32,422
<INTEREST-OTHER> 13,693
<INTEREST-TOTAL> 405,288
<INTEREST-DEPOSIT> 148,846
<INTEREST-EXPENSE> 224,509
<INTEREST-INCOME-NET> 180,779
<LOAN-LOSSES> 58,405
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 559,791
<INCOME-PRETAX> 205,203
<INCOME-PRE-EXTRAORDINARY> 205,203
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 123,942
<EPS-PRIMARY> .34<F2>
<EPS-DILUTED> .34<F2>
<YIELD-ACTUAL> 12.09<F3>
<LOANS-NON> 0
<LOANS-PAST> 93,262<F4>
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 118,427
<CHARGE-OFFS> 85,590
<RECOVERIES> 34,760
<ALLOWANCE-CLOSE> 127,828
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
<FN>
<F1>Includes Loans Held for Securitization.
<F2>EPS-Primary and EPS-Diluted reflects the three-for-two
split of the Corporation's Common Stock effected in the form
of a dividend,issued January 1, 1997, to stockholders of record
as of the close of business on December 16, 1996.
<F3>On a fully taxable equivalent basis.
<F4>Excludes Loans Held for Securitization.
</FN>
</TABLE>
