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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
[ ] 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
MBNA CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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MARYLAND 52-1713008
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
1100 NORTH KING STREET
WILMINGTON, DE 19884-0141
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
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REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (800) 362-6255
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
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TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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Common Stock, $.01 par value New York Stock Exchange
6 7/8% Senior Notes due October 1, 1999 New York Stock Exchange
7 1/2% Cumulative Preferred Stock, Series A New York Stock Exchange
Adjustable Rate Cumulative Preferred Stock, Series B New York Stock Exchange
MBNA Capital A 8.278% Capital Securities, Series A, New York Stock Exchange
guaranteed by MBNA Corporation to the extent
described therein
MBNA Capital B Floating Rate Capital Securities, New York Stock Exchange
Series B, guaranteed by MBNA Corporation to the
extent described therein
MBNA Capital C 8.25% Trust Originated Preferred New York Stock Exchange
Securities, Series C, guaranteed by MBNA Corporation
to the extent described therein
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SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None
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 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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in the definitive proxy or information
statement incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
As of March 10, 1998, the aggregate market value of the voting and
non-voting common equity held by non-affiliates of the Registrant calculated by
reference to the closing price of the Registrant's Common Stock as reported on
the New York Stock Exchange was $14,615,157,060. As of March 10, 1998, there
were outstanding 501,187,500 shares of Common Stock, par value $.01 per share,
which stock is the only class of Registrant's common stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 1997 Annual Report to Stockholders for the year ended
December 31, 1997 are incorporated by reference into Parts I, II and IV.
Portions of the definitive Proxy Statement for the Annual Meeting of
Stockholders to be held April 21, 1998 are incorporated by reference into Part
III.
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MBNA CORPORATION
1997 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
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PAGE
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PART I
ITEM 1. Business.................................................... 1
ITEM 2. Properties.................................................. 9
ITEM 3. Legal Proceedings........................................... 10
ITEM 4. Submission of Matters to a Vote of Security Holders......... 10
Executive Officers of the Registrant........................ 10
PART II
ITEM 5. Market for the Registrant's Common Stock and Related
Stockholder Matters....................................... 12
ITEM 6. Selected Financial Data..................................... 12
ITEM 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 12
ITEM 7A Quantitative and Qualitative Disclosures about Market
Risk...................................................... 12
ITEM 8. Financial Statements and Supplementary Data................. 12
ITEM 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................. 12
PART III
ITEM 10. Directors and Executive Officers of the Registrant.......... 13
ITEM 11. Executive Compensation...................................... 13
ITEM 12. Security Ownership of Certain Beneficial Owners and
Management................................................ 13
ITEM 13. Certain Relationships and Related Transactions.............. 13
PART IV
ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K....................................................... 14
Signatures............................................................. 17
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PART I
ITEM 1. BUSINESS
OVERVIEW
MBNA Corporation (the "Corporation"), a registered bank holding company,
was incorporated under the laws of Maryland on December 6, 1990. It is the
parent company of MBNA America Bank, N.A. (the "Bank"), a national bank
organized in January 1991 as the successor to a national bank formed in 1982.
Through the Bank, the Corporation is the world's largest independent credit card
lender 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 insurance and deposit products.
PRODUCTS
Credit Cards
The Corporation offers two general types of credit cards, premium and
standard, issued under either the MasterCard(R) or Visa(R) name.* The
Corporation markets standard and premium cards to new Customers and it markets
premium cards to qualifying standard card Customers. Premium cards include Gold
and Platinum Plus cards. Premium card usage and average account balances are
generally higher than those of standard card Customers.
Other Consumer Loans
The Corporation's consumer finance products include unsecured lines of
credit accessed by check and unsecured installment loans. These products are
marketed by the Bank to existing credit card Customers, as well as others, and
are used by Customers primarily for large purchases or consolidation of other
consumer debt.
The Corporation also offers home equity and airplane loans to individuals
through a subsidiary, MBNA Consumer Services, Inc., which is currently licensed
in 42 states and the District of Columbia. Beginning in 1998, the Corporation
expects to offer these loans through MBNA America Bank (Delaware), a state bank
organized under Delaware law.
Deposits
The Corporation offers money market deposit accounts and certificates of
deposit. Money market deposit accounts provide Customers with liquidity and
convenience of service, as well as insurance up to $100,000 per depositor by the
Federal Deposit Insurance Corporation ("FDIC"). Certificates of deposit are
traditional fixed term investments with maturities that typically range from six
to sixty months. They are also insured by the FDIC up to $100,000. Deposit
products are offered to members of the Corporation's endorsing associations, to
existing credit card Customers and to others.
Insurance
The Corporation offers credit insurance to its credit card Customers. It
also offers automobile insurance and life insurance through the Bank to
Customers. The Bank is currently licensed to provide its property and casualty
and life and health insurance products in approximately 40 states.
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* MasterCard(R) is a federally registered servicemark of MasterCard
International Inc.; Visa(R) is a federally registered servicemark of Visa
U.S.A., Inc.
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MARKETING
The Corporation directs its marketing efforts primarily to members of
endorsing groups, to customers of financial institutions, and to targeted lists
of people with a strong common interest. The Corporation is the recognized
leader in affinity marketing, with endorsements from thousands of membership
organizations and financial institutions.
Credit cards issued to affinity group members or financial institution
customers usually carry custom graphics and the name and logo of the endorsing
organization. The Corporation develops a customized marketing program for each
endorsing organization or financial institution. In addition to servicing the
credit cards, the Corporation offers economic incentives to the endorsing groups
and financial institutions.
The Corporation's affinity marketing approach includes created personal
interest and regional affinity programs for people with strong common interests
but without a specific group affiliation. Personal interest programs are offered
to people with common interests through purchased targeted lists. Regional
programs include state and city series cards that bear images of regional or
local scenes.
The Corporation also offers co-branded cards through relationships with
commercial firms, including professional sports teams. These programs typically
include arrangements for incentives to Customers to purchase services or
merchandise from the co-branding firm.
The Corporation primarily uses direct mail, telemarketing and
person-to-person marketing to market its credit cards and other products.
Thousands of different marketing campaigns are developed each year, generating
millions of direct mail pieces designed to add accounts and stimulate use. The
Corporation customizes its marketing approach for each program. The
Corporation's in-house advertising agency designs custom graphics for credit
cards and prepares direct mail programs and advertisements. In addition, the
Corporation's marketing activities include efforts to retain profitable accounts
and programs designed to activate new accounts and stimulate usage of existing
accounts, primarily through balance transfer programs.
The Corporation conducts marketing activities in the United States through
MBNA Marketing Systems, Inc., a subsidiary of the Bank. The Corporation markets
credit cards and other consumer loans in the United Kingdom through MBNA
International Bank Limited, a subsidiary of the Bank.
MBNA Marketing Systems, Inc. has regional centers in Maine, Ohio, Texas,
Maryland, Florida and California and sales offices in New York City, Chicago and
Washington, D.C. MBNA International Bank Limited has its headquarters in
Chester, England and a sales and marketing office in London. These regional
centers and sales offices assist the Corporation to obtain endorsements,
increase its familiarity with local markets, better understand the needs and
motivations of Customers and keep in close touch with what competitors are
doing.
MBNA Marketing Systems, Inc. has 12 telemarketing facilities in 9 states.
As of December 31, 1997, it employed approximately 4,400 people in
telemarketing, the majority of whom worked part time. The telemarketing
organization generates new accounts by calling prospects obtained from
membership lists of endorsing organizations and other prospects lists. Other
consumer loan, deposit and credit insurance products are marketed to existing
and new Customers.
MBNA International Bank Limited has sales offices in Dublin, Ireland and
Edinburgh, Scotland. In late 1997, the Corporation began offering credit cards
in Canada through MBNA Canada Bank, a limited purpose bank organized under
Canadian law.
CREDIT
The Corporation makes credit decisions by combining sophisticated
technology and predictive models with the insight of a credit analyst. Approved
credit applications are reviewed individually by a credit analyst, who assigns a
credit line based on a review of the potential Customer's financial history and
capacity to repay. Less than half of the credit applications received by the
Corporation in 1997 were approved. Credit analysts review credit reports
obtained through an independent credit reporting agency, and use a delinquency
probability model to assist them in reaching a credit decision for each
applicant. Credit analysts also review
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and verify other information, such as employment and income, when necessary to
make a credit decision. Further levels of review are automatically triggered,
depending upon the level of risk indicated by the delinquency probability model
and a combination of other factors indicative of credit quality. Credit analysts
review applications obtained through pre-approved offers to ensure adherence to
credit standards and that the appropriate credit limit is assigned. Credit lines
for existing Customers are regularly reviewed for credit line increases, and
when appropriate, reductions in credit lines. The Corporation's Loan Review
Department independently reviews selected applications to ensure quality and
consistency. The Corporation's losses have been consistently below the Visa and
MasterCard industry average.
RISK CONTROL
The Corporation manages risk at the Customer level through sophisticated
analytical techniques combined with regular judgmental review. Transactions are
evaluated at the point of sale, where risk levels are balanced with
profitability and Customer satisfaction. Additionally, Customers showing signs
of financial stress are periodically reviewed, a process which includes an
examination of the Customer's credit file and in many cases a phone call for
clarification of the situation.
A balanced approach is also used when stimulating portfolio growth. Risk
levels are measured through statistical models that incorporate payment
behavior, employment information, and transaction activity. Credit bureau scores
and attributes are obtained and combined with internal information to allow the
Corporation to increase credit lines and promote cash usage while minimizing
additional risk.
The Corporation utilizes technology, including a neural network and expert
systems, to detect and prevent fraud at its earliest stages. It also employs
authorization strategies to control fraud losses.
COLLECTION (CUSTOMER ASSISTANCE)
The Corporation's collection (Customer Assistance) philosophy, based on a
persistent yet professional approach, is to work with each past due Customer at
an early stage of delinquency. The Corporation employs several computerized
systems to assist in the collection of past due accounts. Initially, the
Predictive Management System analyzes each Customer's purchase and repayment
habits, and selects accounts for initial contact with the objective of
contacting the highest risk accounts first. Subsequently, the accounts selected
are queued to the Corporation's proprietary Collection Tracking and Analysis
system (CTA) and Outbound Call Management System (OCMS). OCMS sorts accounts by
a number of factors, including time zone, degree of delinquency and dollar
amount due. OCMS automatically dials delinquent accounts in order of priority.
Representatives are automatically linked to the Customer's account information
and voice line when a contact is established. Customers who are experiencing
significant financial problems and may consider filing for bankruptcy are
referred to a specialized group of people who have been educated on effective
alternatives to bankruptcy, including debt counseling.
CTA is used to work accounts continually, by market sector, at each stage
of delinquency through the 180-day past due level. As an account enters the
180-day delinquency level, it is classified as a potential charge-off. Accounts
failing to make a payment during the 180-day cycle are written off. Managers may
defer charge-off of an account for another month, pending continued payment
activity or other special circumstances. Senior manager approval is required on
all exceptions to charge-off.
A Customer account may be reaged to remove existing delinquency. Generally,
to qualify for reaging, the account must have been open for at least one year
and cannot have been reaged during the preceding 365 days. The Customer must
have made payments equal to a total of three minimum payments in the last 90
days, including one full minimum payment during the last 30 days. All account
reages are approved by a manager. Collection reages are reviewed by the Loan
Review Department.
Once an account has been charged-off, it may be sold to a third party
vendor or retained by the Corporation for collection. The Corporation has
entered into contracts for the sale of these accounts which
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provide pricing which is comparable to amounts which were realized from previous
charge-off collection efforts, after the deduction of the costs of collection.
OPERATIONS
Credit card processing services performed by MBNA Hallmark Information
Services, Inc. ("Information Services"), a wholly-owned subsidiary of the Bank,
include data processing, payment processing, statement rendering, card
production and network services. Information Services' data network provides an
interface to MasterCard and Visa for performing authorizations and settlement
funds transfers. Most data processing and network functions are performed at
Information Services' facilities in Dallas, Texas, and Newark, Delaware.
Information Services generates and mails to Customers monthly statements
summarizing account activity and processes Customer payments.
TECHNOLOGY
The Corporation uses sophisticated systems and technology in all aspects of
its business operations to enhance Customer service and improve efficiency.
These systems include marketing databases, advanced telecommunications networks
to support Customer service and telemarketing, a credit decisioning system which
processes credit card applications with on-line credit bureaus to support
credit, neural networks to identify and prevent fraud, and selective statement
insertion for customizing communications with Customers. These systems enable
the Corporation to implement customized marketing and service strategies for
endorsed organizations. The Corporation relies primarily on internal development
of technology solutions to ensure the flexibility, quality and responsiveness of
computer and telecommunication systems needed in its business.
TERMS AND CONDITIONS
Each credit card Customer and the Corporation enter into an agreement which
governs the terms and conditions of the Customer's MasterCard or Visa account.
The Corporation reserves the right to add or change any terms, conditions,
services or features of its MasterCard or Visa accounts at any time, including
increasing or decreasing periodic finance charges, other charges or minimum
payment terms. The agreement with each Customer provides that the Corporation
may apply such changes, when applicable, to current outstanding balances as well
as to future transactions. The Customer can avoid certain changes by notice to
the Corporation and by not using the account.
A Customer may use a credit card for purchases and cash advances. Monthly
periodic finance charges are calculated by multiplying the applicable average
daily balances on the account by the applicable daily periodic rates and by the
number of days in the billing cycle. Finance charges are calculated on purchases
from the date of the purchase or the first day of the billing cycle in which the
purchase posts to the account, whichever is later, and are not assessed in most
circumstances on new purchases if all balances shown in the previous billing
statement are paid in full by the payment due date, which is generally 3 days
before the next billing date. Finance charges are not assessed in most
circumstances on previous purchases if all balances shown on the two previous
billing statements are paid by their respective due dates. Finance charges on
cash advances are calculated from the date of the transaction. Customers are
required to make a minimum monthly payment equal to the greater of $15 or 2% of
the outstanding balance on the account.
The Corporation offers fixed and variable rates on credit card accounts and
also offers temporary promotional rates. Variable rates are offered at a
percentage rate tied to the U.S. prime rate published in The Wall Street Journal
and are adjusted, if applicable, quarterly.
The Corporation assesses an annual fee on some Customer accounts. Annual
fees, when assessed, are generally waived for the first year on new accounts and
thereafter may be waived or rebated. The Corporation assesses cash advance
transaction, certain purchase, late, overlimit and returned check fees on
Customer accounts in accordance with agreements with Customers.
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REGULATORY MATTERS
General
As a bank holding company, the Corporation is subject to regulation under
the Bank Holding Company Act of 1956 (the "BHCA") and to the BHCA's examination
and reporting requirements. Under the BHCA, bank holding companies may not
directly or indirectly acquire the ownership or control of more than five
percent of the voting shares or substantially all of the assets of any company,
including a bank, without the prior approval of the Board of Governors of the
Federal Reserve System (the "Federal Reserve Board"). In addition, bank holding
companies generally are prohibited under the BHCA from engaging in non-banking
activities, subject to certain exceptions.
The earnings of the Bank and the Corporation are affected by general
economic conditions, monetary policies and the actions of various regulatory
authorities, including the Federal Reserve Board, the Federal Deposit Insurance
Corporation (the "FDIC") and the Office of the Comptroller of the Currency (the
"OCC"). In addition, there are numerous governmental requirements and
regulations which affect the activities of the Corporation.
The Bank is subject to supervision and examination by the OCC, the Bank's
primary regulator. The Bank is insured by, and therefore also is subject to the
regulations of, the FDIC, and is also subject to requirements and restrictions
under federal and state law, including requirements to maintain reserves against
deposits, restrictions on the types and amounts of loans that may be granted and
the interest that may be charged thereon, and limitations on the types of
investments that may be made and the types of services that may be offered.
MBNA International Bank Limited is subject to regulations and supervision
by the Bank of England and the OCC. MBNA America Bank (Delaware) is subject to
regulations and supervision by the State Bank Commissioner of Delaware and the
FDIC. MBNA Canada Bank is subject to regulations and supervision by the Office
of Superintendent of Financial Institutions, the Canadian Deposit Insurance
Corporation and the OCC.
Dividends
The principal source of funds to the Corporation to pay dividends, interest
and principal on debt securities and to meet other obligations is dividends from
the Bank. The Bank is subject to limitations on the dividends it may pay to the
Corporation. The Corporation may also be subject to limitations on the payment
of dividends to stockholders. See "Capital Adequacy" on pages 29 and 30 of the
1997 Annual Report to Stockholders, which is incorporated herein by reference.
In addition, both the Corporation and the Bank are subject to various regulatory
policies and requirements relating to the payment of dividends, including
requirements to maintain capital above regulatory minimums. The appropriate
federal regulatory authority is authorized to determine under certain
circumstances relating to the financial condition of a bank or bank holding
company that the payment of dividends would be an unsafe or unsound practice and
to prohibit payment thereof. The OCC and the Federal Reserve Board have each
indicated that banking organizations should generally pay dividends only out of
current operating earnings.
Borrowings by the Corporation
There are various legal restrictions on the extent to which the Corporation
may borrow or otherwise obtain credit from, or engage in certain other
transactions with, the Bank. In general, these restrictions require that any
such extensions of credit must be secured by designated amounts of specified
collateral and are limited, as to any one of the Corporation or its non-bank
subsidiaries, to 10 percent of the Bank's capital stock and surplus, and as to
the Corporation and all such non-bank subsidiaries in the aggregate, to 20
percent of the Bank's capital stock and surplus.
Extensions of credit and other transactions between the Bank and the
Corporation must be on terms and under circumstances, including credit
standards, that are substantially the same or at least as favorable to the Bank
as those prevailing at the time for comparable transactions with non-affiliated
companies.
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Capital Requirements
The Corporation is subject to risk-based capital guidelines adopted by the
Federal Reserve Board for bank holding companies. The Bank is subject to similar
risk-based capital requirements adopted by the OCC. The guidelines require a
minimum ratio of total capital to risk-weighted assets (including certain
off-balance sheet items, such as interest rate swaps) of 8%. At least half of
the total capital may be comprised of common stockholders' equity,
non-cumulative perpetual preferred stock and a limited amount of cumulative
perpetual preferred stock, less goodwill and certain other intangible assets
("Tier 1 risk-based capital"). The remainder ("Total risk-based capital") may
consist of mandatory convertible debt securities, a limited amount of
subordinated debt, other preferred stock and a limited amount of reserves for
possible credit losses. In addition, the Federal Reserve Board has adopted a
minimum leverage ratio (Tier 1 risk-based capital to average total assets less
goodwill and certain other intangible assets) of 3% for bank holding companies
that meet certain specified criteria, including that they have the agency's
highest supervisory rating. Under the guidelines, holding companies that do not
satisfy the criteria for the lowest requirement and holding companies
undertaking expansion programs must maintain a leverage ratio at least 100 basis
points to 200 basis points higher than the 3% minimum ratio. At December 31,
1997 regulatory capital ratios for the Corporation were: Tier 1 risk-based
capital, 9.82%; Total risk-based capital, 11.99%; and leverage, 11.13%. The
Bank's ratios at December 31, 1997 were: Tier 1 risk-based capital, 9.56%; Total
risk-based capital, 11.06%; and leverage, 10.90%. Holding companies and banks
may be subject to higher risk-based and leverage capital ratios depending on
other specific factors, such as interest rate risk, concentrations of credit
risk, and the conduct of non-traditional activities.
Corporation Support of Bank
Under the National Bank Act, if the capital stock of a national bank is
impaired by losses or otherwise, the OCC is authorized to require payment of the
deficiency by assessment upon the bank's stockholders and, if any such
assessment is not paid, to sell the stock to make good the deficiency. Under
Federal Reserve Board policy, the Corporation is expected to act as a source of
financial strength to the Bank and to commit resources to support it. Any
capital loans by the Corporation to the Bank are subordinate in right of payment
to deposits and to certain other indebtedness of the Bank.
FDICIA and FDIC Insurance
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") provided increased funding for the Bank Insurance Fund ("BIF") of the
FDIC and provided for expanded regulation of banks and bank holding companies.
The regulation includes expanded federal banking agency examinations and
increased powers of federal banking agencies to take corrective action to
resolve the problems of insured depository institutions with capital
deficiencies. These powers vary depending on which of several levels of
capitalization a particular institution meets.
FDIC regulations adopted under FDICIA prohibit a bank from accepting
brokered deposits unless (i) it is well capitalized or (ii) it is adequately
capitalized and receives a waiver from the FDIC. A bank that is adequately
capitalized and that accepts brokered deposits under a waiver from the FDIC may
not pay an interest rate on any deposit in excess of 75 basis points over
certain prevailing market rates; there are no such restrictions on a bank that
is well capitalized. As of December 31, 1997 the Bank met the FDIC's definition
of a well capitalized institution for purposes of accepting brokered deposits.
For the purposes of the brokered deposit rules, a bank is defined to be "well
capitalized" if it maintains a ratio of Tier 1 risk-based capital to
risk-adjusted assets of at least 6%, a ratio of total risk-based capital to
risk-weighted assets of at least 10% and a leverage ratio of at least 5% and is
not subject to any order, direction or written agreement to maintain specific
capital levels. Under the regulatory definition of brokered deposits, as of
December 31, 1997, the Bank had brokered deposits of $2.6 billion.
The Bank is subject to FDIC deposit insurance assessments for the BIF. Each
financial institution is assigned to one of three capital groups -- well
capitalized, adequately capitalized or undercapitalized -- and further assigned
to one of three subgroups within a capital group, on the basis of supervisory
evaluations by the
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institution's primary federal and, if applicable, state supervisors and other
information relevant to the institution's financial condition and the risk posed
to the applicable insurance fund. The assessment rate applicable to the Bank in
the future will depend in part upon the risk assessment classification assigned
to the Bank by the FDIC and in part on the BIF assessment schedule adopted by
the FDIC. FDIC regulations currently provide that premiums related to deposits
assessed by the BIF are to be assessed at a rate of between 0 cents and 27 cents
per $100 of deposits.
The Deposit Insurance Funds Act of 1996 ("DIFA") also separated, effective
January 1, 1997, the Financing Corporation ("FICO") assessment to service the
interest on its bond obligations from the BIF and the Savings Association
Insurance Fund ("SAIF") assessments. The amount assessed on individual
institutions by the FICO will be in addition to the amount, if any, paid for
deposit insurance according to the FDIC's risk-related assessment rate
schedules. FICO assessment rates may be adjusted quarterly to reflect a change
in assessment base for the BIF. By law, the FICO rate on BIF-assessable deposits
must be one-fifth the rate on SAIF-assessable deposits until the insurance funds
are merged or until January 1, 2000, whichever occurs first.
Regulation of the Credit Card Business
The relationship between the Corporation and its Customers is extensively
regulated by federal and state consumer protection laws. The Truth in Lending
Act requires credit card issuers to make certain disclosures along with their
applications and solicitations, upon opening an account and with each periodic
statement. The Act also imposes certain substantive requirements and
restrictions on credit card issuers and provides Customers with certain rights
to dispute unauthorized charges and to have their billing errors corrected
promptly. Customers are also given the right to have their payments promptly
credited to their accounts.
The Equal Credit Opportunity Act prohibits lenders from discriminating in
extending credit on certain criteria such as an applicant's sex, race and
marital status. In order to protect borrowers from such discrimination, the Act
requires credit card issuers to disclose the reasons they took adverse action
against an applicant or a Customer.
The Fair Credit Reporting Act generally regulates credit reporting
agencies, but also imposes some duties on credit card issuers as users of
consumer credit reports. For instance, the Act prohibits the use of a consumer
credit report by a credit card issuer except in connection with a proposed
business transaction with the consumer. The Act also requires that credit card
issuers notify consumers when they take adverse action based upon information
obtained from credit reporting agencies.
The federal regulators are authorized to impose penalties for violations of
these statutes and, in certain cases, to order the Corporation to pay
restitution to injured Customers. Customers may bring actions for damages for
certain violations. In addition, a Customer may be entitled to assert a
violation of these consumer protection laws by way of set-off against the
Customer's obligation to pay the outstanding credit card balance.
The National Bank Act, which governs the activities of national banks,
authorizes national banks to use various alternative interest rates when they
make loans, including the highest interest rate authorized for state chartered
lenders located in the state where the national bank is located. This ability to
"export" rates, as provided for in the Act, is relied upon by the Bank to charge
Customers the interest rates and fees permitted by Delaware law regardless of an
inconsistent law of the state in which the Customer is located, thereby
facilitating the Bank's nationwide credit card lending activities.
Interstate Banking
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
permits bank holding companies, with Federal Reserve Board approval, to acquire
banks located in states other than the holding company's home state, generally
without regard to whether the transaction is prohibited under state law. In
addition, effective June 1, 1997, national and state banks with different home
states were permitted to merge across state lines, with approval of the
appropriate federal banking agency, unless the home state of a participating
bank passed legislation prior to this date expressly prohibiting interstate bank
mergers.
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Insurance
Section 92 of the National Bank Act authorizes the Bank to engage in the
business of insurance as an agency from a place of less than 5,000 people. In
order to conduct an agency business the Bank must obtain licensing approval in
each state in which it intends to operate and is subject to state regulation on
agency and agent licensing, disclosure requirements, policy delivery and other
matters. State requirements which are so burdensome or onerous as to
significantly impair the exercise by a national bank of the powers granted to it
under Section 92 are preempted. There are differences among federal and state
regulators as to the extent of federal preemption of state insurance agency
regulation which have not been resolved.
COMPETITION
The Corporation's business is highly competitive. The Corporation competes
with numerous banks with national, regional and local operations in domestic and
international markets and with non-bank competitors who issue credit and charge
cards. Strategies used by the Corporation's competitors include targeted
marketing, low introductory rates, no annual fee credit cards, balance transfers
and discounts on products and services. The Corporation also uses these
strategies and, in addition, relies on its strategy of marketing to people with
a strong common interest and its superior Customer service to compete with its
competitors.
EMPLOYEES
As of December 31, 1997, the Corporation had approximately 20,000
employees.
IMPORTANT FACTORS REGARDING FORWARD-LOOKING STATEMENTS
From time to time the Corporation may make forward-looking statements
concerning the Corporation's future performance. Such statements are subject to
risks and uncertainties that may cause the Corporation's actual performance to
differ materially from that set forth in such forward-looking statements.
Factors which could cause the Corporation's actual financial and other results
to differ materially from those projected by the Corporation in forward-looking
statements include, but are not limited to the following:
Competition
The Corporation's business is highly competitive. Competition from other
lenders could affect the Corporation's loans outstanding, Customer retention,
and the rates and fees charged on the Corporation's loans.
Economic Conditions
The Corporation's business is affected by general economic conditions
beyond the Corporation's control, including employment levels, consumer
confidence, and interest rates. A recession or slowdown in the economy may cause
an increase in delinquencies and credit losses and reduce new account growth and
charge volume.
Delinquencies and Credit Losses
An increase in delinquencies and credit losses could affect the
Corporation's financial performance. Delinquencies and credit losses are
influenced by a number of factors, including the quality of the Corporation's
credit card and other consumer loans, general economic conditions, the success
of the Corporation's collection efforts, and the average seasoning of the
Corporation's accounts.
Interest Rate Increases
An increase in interest rates could increase the Corporation's cost of
funds and reduce the net interest margin. The Corporation's ability to manage
the risk of interest rate increases is dependent on its overall product and
funding mix and its ability to successfully reprice outstanding loans.
8
<PAGE> 11
Availability of Funding and Securitization
Changes in the amount, type, and cost of funding available to the
Corporation could affect the Corporation's performance. A major funding
alternative for the Corporation is the securitization of credit card and other
consumer loans. Difficulties or delays in securitizing loans or changes in the
current legal, regulatory, accounting, and tax environment governing
securitizations could adversely affect the Corporation.
Customer Behavior
The acceptance and use of credit card and other consumer loan products for
consumer spending has increased significantly in recent years. The Corporation's
performance could be affected by changes in such acceptance and use, and overall
consumer spending.
New Products and Services
The Corporation's performance could be affected by difficulties or delays
in the development of new products or services, including products or services
beyond credit card and other consumer loans. These may include failure of
Customers to accept these products or services when planned, losses associated
with the testing of new products or services, or financial, legal or other
difficulties that may arise in the course of such implementation. In addition,
the Corporation could face competition with new products or services, which may
affect the success of such products or services.
Growth
The growth of the Corporation's existing business and the development of
new products and services will be dependent upon the ability of the Corporation
to continue to develop the necessary operations, systems, and technology; hire
qualified people; and obtain funding for significant capital investments.
Legal and Regulatory
The banking and consumer credit industry is subject to extensive
regulation. Changes in the laws and regulations and in policies applied by
banking or other regulators affecting banking, consumer credit or other matters
could impact the Corporation's performance. For example, in recent years
Congress has considered legislation which would have had the effect of limiting
the interest rate that could be charged on credit card accounts. In addition,
the Corporation could incur unanticipated litigation or compliance costs.
ITEM 2. PROPERTIES
The Corporation has approximately 3,000,000 square feet of administrative
offices and credit card facilities in five office complexes that it owns in
Delaware. The majority of these facilities were designed and built expressly for
the Corporation's credit card operations. These complexes include space for
future expansion.
MBNA Hallmark Information Services, Inc. conducts its processing from an
approximately 300,000 square feet facility that the Corporation owns in Dallas,
Texas as well as from approximately 300,000 square feet of office space at the
Bank's facilities in Newark, Delaware. The Corporation is constructing
additional space in its Texas facility.
MBNA Marketing Systems, Inc. has the following regional offices:
approximately 200,000 square feet of space in Camden, Maine and approximately
130,000 square feet of space in Belfast, Maine; approximately 300,000 square
feet of space in Cleveland, Ohio; approximately 30,000 square feet of space in
Information Services' Dallas facility; approximately 175,000 square feet of
space in Boca Raton, Florida and approximately 150,000 square feet of space in
Hunt Valley, Maryland. These facilities are owned by the Corporation. The
Corporation is constructing expansion space in Maine, Florida, Ohio and
Maryland.
MBNA Marketing Systems, Inc. has a leased regional office in San Francisco
and leased sales offices in New York City, Chicago and Washington, D.C. The
leases are for 10-year terms and contain renewal options
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which, if exercised, would extend the leases up to five additional years in New
York City and San Francisco and 10 additional years in Chicago and Washington,
D.C. Marketing Systems leases or owns telesales facilities in Delaware, Georgia,
Maine, Maryland, New Hampshire, Ohio and Pennsylvania.
MBNA International Bank Limited's credit card operations are located in
approximately 160,000 square feet of space in Chester, England which it
purchased in 1994. It maintains a sales office of approximately 4,500 square
feet in London and another sales office of approximately 10,000 square feet in
Edinburgh, Scotland. MBNA International Bank Limited conducts operations in
Ireland from approximately 17,000 square feet of office space located in Dublin.
MBNA Canada Bank's credit card operations are located in approximately
25,000 square feet of leased office space in Gloucester, Ontario.
ITEM 3. LEGAL PROCEEDINGS
In May 1996, Andrew B. Spark filed a lawsuit against the Corporation, the
Bank and certain of its officers and its subsidiary MBNA Marketing Systems, Inc.
The case is pending in the United States District Court for the District of
Delaware. This suit is a purported class action. The plaintiff alleges that the
Bank's advertising of its cash promotional annual percentage rate program was
fraudulent and deceptive. The plaintiff seeks unspecified damages including
actual, treble and punitive damages and attorney's fees for an alleged breach of
contract, violation of the Delaware Deceptive Trade Practices Act and violation
of the federal Racketeer Influenced and Corrupt Organizations Act. In February
1998, a class was certified. The Corporation believes that its advertising
practices are proper under applicable federal and state law and intends to
defend the action vigorously.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of 1997, no matters were submitted to a vote of
security holders of the Corporation.
------------------------------
EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning the Corporation's executive officers is set forth
below.
Alfred Lerner (64) has been Chief Executive Officer of MBNA Corporation and
Chairman of its Board of Directors since January 1991 and a director of the Bank
since December 1991. Mr. Lerner served as Chairman of the Board and Chief
Executive Officer of MNC Financial, Inc. ("MNC Financial") from September 1990
to July 1991 and as Chairman of the Board from July 1991 to October 1993. He
also served as Chairman of the Board of Equitable Bancorporation from July 1983
until it merged with MNC Financial in January 1990. He has been Chairman of The
Town and Country Trust since August 1993 and was Chief Executive Officer from
August 1993 until October 1997. He was Chairman of the Board of The Progressive
Corporation, an insurance holding company, from 1988 to April 1993. A graduate
of Columbia University and a member of its Board of Trustees, Mr. Lerner also is
president of the Cleveland Clinic Foundation and a member of its Board of
Trustees. He is also a trustee of Case Western Reserve University and a member
of the Board of Directors of the Marine Corps Law Enforcement Foundation.
Charles M. Cawley (57) has been President and a director of the Corporation
and Chairman and Chief Executive Officer of the Bank since January 1991. He has
more than 32 years of management experience in the financial services industry
and was the senior operating executive that formed the Bank in 1982. He has
served as Chief Executive Officer of the Bank since 1990, and as President since
1985. He has been a director of the Bank since 1982. He serves on the boards of
Georgetown University, the University of Delaware, the Eisenhower Exchange
Fellowships, and the American Architectural Foundation. He is Chairman of the
Board of the Grand Opera House in Wilmington, Delaware.
John R. Cochran III (46) oversees all business development and marketing
activities. He has been an Executive Vice President of the Corporation since
January 1991. He has served as Senior Vice Chairman of
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<PAGE> 13
the Bank since April 1997 and Chief Administrative Officer since January 1998.
He has 25 years of management experience in the financial services industry and
was a member of the management team that established the Bank in 1982. He has
been a director of the Bank since 1986.
Bruce L. Hammonds (49) oversees credit, loss prevention, customer
satisfaction, consumer finance and loan review activities. He has been an
Executive Vice President of the Corporation since January 1991. He has served as
Senior Vice Chairman of the Bank since April 1997 and as its Chief Operating
Officer since 1990. He has 28 years of management experience in consumer lending
and was a member of the management team that established the Bank in 1982. He
has been a director of the Bank since 1986.
M. Scot Kaufman (48) oversees accounting, finance, treasury, facilities,
and security activities. He has been an Executive Vice President and Treasurer
of the Corporation since January 1991 and Chief Accounting Officer since July
1991. He has been Chief Financial Officer of the Corporation since July 1992. He
has served as Senior Vice Chairman of the Bank since April 1997 and as its Chief
Financial Officer since 1985. He has 26 years of experience in the financial
services industry and has been with the Corporation since 1985. He has been a
director of the Bank since 1986.
Lance L. Weaver (43) oversees industry relations, community relations,
corporate affairs, law, government relations, compensation and benefits, and
real estate. He has been an Executive Vice President of the Corporation since
April 1994. He has served as Senior Vice Chairman of the Bank since July 1997
and served as Chief Administrative Officer of the Bank from February 1993 to
January 1998. He has 23 years of experience in consumer lending and
administration and has been with the Corporation since 1991. He has been a
director of the Bank since February 1993.
Ronald W. Davies (56) oversees MBNA Hallmark Information Services, which
provides the Corporation with telecommunications, production operations,
information systems, and systems operations and development. He has been an
Executive Vice President of the Corporation since October 1991. He has served as
Senior Vice Chairman of the Bank since December 1997 and Chief Technology
Officer of the Bank since April 1991. He has served as Chairman and Chief
Executive Officer of MBNA Hallmark Information Services, Inc. since August 1991.
He has 33 years of experience in information systems and technology management
and has been with the Corporation since 1991. He has been a director of the Bank
since April 1991.
Richard K. Struthers (42) oversees international, insurance, deposit,
travel and business card activities. He has been an Executive Vice President of
the Corporation since April 1997. He has served as Senior Vice Chairman of the
Bank since December 1997. He has 20 years of experience in consumer lending and
was a member of the management team that established the Bank in 1982. He has
been a director of the Bank since January 1997.
Gregg Bacchieri (42) oversees all loss prevention efforts. He has been an
Executive Vice President of the Corporation and Vice Chairman of the Bank since
July 1997. He has 19 years of management experience in retail lending and was a
member of the management team that established the Bank in 1982. He has been a
director of the Bank since July 1997.
Kenneth F. Boehl (43) joined the Corporation in 1988 and serves as the
corporate auditor and is responsible for risk management and personnel
activities. He has been an Executive Vice President of the Corporation and Vice
Chairman of the Bank since July 1997. He has been the Senior Control Officer of
the Bank since April 1992. He has 22 years of experience in financial
management. He has been a director of the Bank since July 1997.
Jules J. Bonavolonta (57) oversees special operations, operating services,
health and safety services, and facilities management. He has been an Executive
Vice President of the Corporation and Vice Chairman of the Bank since October
1997. Prior to joining the Corporation, he served as President of Universal
Network, Inc., a security consulting firm, from August 1995 to March 1997. He
was director of corporate security for Consolidated Edison of New York from
January 1991 to August 1992 and for Republic National Bank of New York from
August 1992 to July 1995. He had a 23 year career with the Federal Bureau of
Investigation which included extensive experience in domestic and international
investigations, including as Chief of the
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<PAGE> 14
Organized Crime and Narcotics Division. He joined the Corporation in March 1997
and has been a director of the Bank since October 1997.
David W. Spartin (40) oversees investor relations, media relations,
communications, community education initiatives, management services, and
administration. He has been an Executive Vice President of the Corporation since
April 1997 and has served as Vice Chairman of the Bank since March 1997. He has
19 years of experience in the financial services industry and has been with the
Corporation since 1991. He has been a director of the Bank since March 1997.
David W. Nelms (37) oversees marketing activities. He has been an Executive
Vice President of the Corporation and Vice Chairman of the Bank since October
1997. He has 10 years of experience in the financial services industry and has
been with the Corporation since 1991. He has been a director of the Bank since
October 1997.
Vernon H. C. Wright (55) oversees treasury activities, including
securitization, investments and funding, and corporate finance. He has been an
Executive Vice President and Chief Corporate Finance Officer of the Corporation
and Chief Corporate Finance Officer of the Bank since July 1992. He has been
Vice Chairman of the Bank since September 1995 and Group Head of Treasury for
the Bank since January 1996. He has more than 25 years of experience in retail
and commercial lending and has been with the Corporation since 1991. He has been
a director of the Bank since November 1992.
John W. Scheflen (51) is responsible for all legal matters and governmental
and corporate affairs. He has been an Executive Vice President, General Counsel
and Secretary of the Corporation and Secretary and Cashier of the Bank since
March 1992. Prior to joining the Corporation he was a partner with Venable,
Baetjer and Howard from 1984 to March 1992. He has been with the Corporation
since 1992.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
"Common Stock Price Range and Dividends" on page 64 and "Capital Adequacy"
on pages 29 and 30 of the 1997 Annual Report to Stockholders are incorporated
herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
"Ten-Year Statistical Summary" on pages 18 and 19 of the 1997 Annual Report
to Stockholders is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" on pages 21 through 35 of the 1997 Annual Report to Stockholders is
incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
"Interest Rate Sensitivity" and " Foreign Currency Exchange Rate
Sensitivity" on pages 32 through 34 of the 1997 Annual Report to Stockholders
are incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements and Notes to the Consolidated
Financial Statements, the "Report of Independent Auditors" and the "Summary of
Consolidated Quarterly Financial Information" on pages 38 through 63 of the 1997
Annual Report to Stockholders are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
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<PAGE> 15
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
"Election of Directors" on pages 4 and 5 in the Definitive Proxy Statement
is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
"Election of Directors" on pages 4 and 5, "Executive Compensation" on pages
6 through 9 and "Compensation Committee Interlocks and Insider Participation" on
page 11 in the Definitive Proxy Statement are incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
"Security Ownership of Management and Certain Beneficial Owners" on pages 2
and 3 in the Definitive Proxy Statement is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
"Compensation Committee Interlocks and Insider Participation" and "Certain
Relationships" on page 11 in the Definitive Proxy Statement are incorporated
herein by reference.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) INDEX TO FINANCIAL STATEMENTS:
1. The following consolidated financial statements of MBNA Corporation and
subsidiaries are incorporated herein by reference from the pages designated in
the 1997 Annual Report to Stockholders:
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Consolidated Statements of Financial Condition, December 31,
1997 and 1996............................................. 38
Consolidated Statements of Income for the years ended
December 31,
1997, 1996 and 1995....................................... 39
Consolidated Statements of Changes in Stockholders' Equity
for the years ended December 31, 1997, 1996 and 1995...... 40
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995.......................... 41
Notes to the Consolidated Financial Statements.............. 42-61
Report of Independent Auditors.............................. 62
</TABLE>
2. Financial Statement Schedules
No Financial Statement Schedules are required to be filed.
3. Exhibits:
The following exhibits are incorporated by reference or filed herewith.
References to the 1990 Form S-1 are to the Registrant's Registration Statement
on Form S-1 effective January 22, 1991, Registration No. 33-38125. References to
the 1997 Form S-4 are to Amendment No. 1 of the Registrant's Registration
Statement on Form S-4, Registration No. 333-21181, filed on February 25, 1997.
References to the 1991 Form 10-K, the 1992 Form 10-K, the 1993 Form 10-K, the
1994 Form 10-K, the 1995 Form 10-K and the 1996 Form 10-K are to the
Registrant's Annual Reports on Form 10-K for the years ended December 31, 1991,
1992, 1993, 1994, 1995 and 1996, respectively.
<TABLE>
<S> <C>
Exhibit 3.1 Articles of Incorporation, as amended and supplemented.
(incorporated by reference to Exhibit 3.1 of 1996 Form 10-K)
Exhibit 3.2 By-laws, as amended
Exhibit 4.1* Senior Indenture dated as of September 29, 1992, between the
Registrant and Bankers Trust Company, as Trustee.
Exhibit 4.2* Subordinated Indenture, dated as of November 24, 1992,
between the Registrant and Harris Trust and Savings Bank, as
Trustee.
Exhibit 4.3* Fiscal and Paying Agency Agreement, dated September 21,
1992, between MBNA America Bank, N.A. and Harris Trust and
Savings Bank, as Fiscal and Paying Agent, for the 7.25%
Subordinated Notes due 2002.
Exhibit 4.4* Issuing and Paying Agency Agreement dated as of December 10,
1991, and amended as of August 11, 1993, December 21, 1994
and May 6, 1996 between MBNA America Bank, N.A. and First
Trust of New York, National Association.
Exhibit 4.5 Junior Subordinated Indenture between the Registrant and The
Bank of New York, as Debenture Trustee (incorporated by
reference to Exhibit 4(c) of 1997 Form S-4).
Exhibit 4.6 Amended and Restated Trust Agreement, dated as of December
18, 1996, between the Registrant and The Bank of New York
(incorporated by reference to Exhibit 4.6 of 1996 Form
10-K).
</TABLE>
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<PAGE> 17
<TABLE>
<S> <C>
Exhibit 4.7 Guarantee Agreement, dated as of December 18, 1996, between the Registrant and The Bank of New
York (incorporated by reference to Exhibit 4.7 of 1996 Form 10-K).
Exhibit 4.8 Amended and Restated Trust Agreement, dated as of January 23, 1997, between the Registrant and
The Bank of New York (incorporated by reference to Exhibit 4.8 of 1996 Form 10-K).
Exhibit 4.9 Guarantee Agreement, dated as of January 23, 1997, between the Registrant and The Bank of New
York (incorporated by reference to Exhibit 4.9 of 1996 Form 10-K).
Exhibit 4.10 Amended and Restated Trust Agreement, dated as of February 24, 1997, between the Registrant and
The Bank of New York (incorporated by reference to Exhibit 4(e)(4) of the 1997 Form S-4).
Exhibit 4.11 Guarantee Agreement, dated as of March 31, 1997 between the Registrant and The Bank of New York.
Exhibit 10.1 Tax Sharing and Indemnity Agreement with MNC Financial (incorporated by reference to Exhibit 10.2
of 1990 Form S-1).
Exhibit 10.2 License Agreement with MasterCard (incorporated by reference to Exhibit 10.3 of 1990 Form S-1).
Exhibit 10.3 License Agreement with VISA (incorporated by reference to Exhibit 10.4 of 1990 Form S-1).
Exhibit 10.4 Share Purchase Agreement with Alfred Lerner (including Registration Rights Agreement)
(incorporated by reference to Exhibit 10.10 of 1990 Form S-1).
Exhibit 10.5 Amended and Restated Competitive Advance and Revolving Credit Facility Agreement, dated as of
January 15, 1997, among MBNA America Bank, N.A., certain lenders and Chase Manhattan Bank, as
Agent (incorporated by reference to Exhibit 10.5 of 1996 Form 10-K).
Exhibit 10.6 Second Amendment dated April 10, 1996 and Third Amendment dated February 27, 1997 to the Credit
Agreement dated as of April 13, 1994, between the Registrant and Bank of America National Trust
and Savings Association (incorporated by reference to Exhibit 10.6 of 1996 Form 10-K and original
agreement incorporated by reference to Exhibit 10.7 of 1994 Form 10-K and First Amendment dated
April 7, 1995 incorporated by reference to Exhibit 10.6 of 1995 Form 10-K).
Exhibit 10.7 Amendment dated October 2, 1996 and amendment dated June 28, 1996 to the Credit Agreement, dated
as of October 5, 1994, between Registrant and The Bank of New York (incorporated by reference to
Exhibit 10.7 of 1996 Form 10-K and original Agreement incorporated by reference to Exhibit 10.8
of 1994 Form 10-K and Amendment dated October 4, 1995 incorporated by reference to Exhibit 10.7
of 1995 Form 10-K).
Exhibit 10.8** 1991 Long Term Incentive Plan, as amended (incorporated by reference to Exhibit 10.3 of Form 10-Q
for the quarter ended March 31, 1997 and Exhibit 10.8 of 1995 Form 10-K), and forms of Stock
Option Agreements (1993 agreement incorporated by reference to Exhibit 10.12 of 1993 Form 10-K
and 1995 agreements incorporated by reference to Exhibit 10.8 of 1995 Form 10-K).
Exhibit 10.9** 1997 Long Term Incentive Plan (incorporated by reference to Exhibit 10.1 of Form 10-Q for the
quarter ended March 31, 1997) and form of Stock Option Grant.
Exhibit 10.10** Form of Restricted Stock Agreement (incorporated by reference to Exhibit 10.9 of 1995 Form 10-K).
Exhibit 10.11** MBNA Corporation Supplemental Executive Retirement Plan, as amended and restated November 12,
1996 (incorporated by reference to Exhibit 10.10 of 1996 Form 10-K).
Exhibit 10.12** Assumed Deferred Compensation Plans (1989 Deferred Compensation Plan incorporated by reference to
Exhibit 10.12 of 1991 Form 10-K and 1988 Deferred Compensation Plan incorporated by reference to
Exhibit 10.14 of 1993 Form 10-K).
</TABLE>
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<PAGE> 18
<TABLE>
<S> <C>
Exhibit 10.13** MBNA Corporation Senior Executive Performance Plan (incorporated by reference to Exhibit 10.2 of
Form 10-Q for the quarter ended March 31, 1997).
Exhibit 10.14** Form of Split Dollar Agreement (incorporated by reference to Exhibit 10.18 of 1992 Form 10-K).
Exhibit 10.15** Deferred Compensation Plan and form of Agreement, as amended and restated effective April 1, 1995
(incorporated by reference to Exhibit 10.16 of 1994 Form 10-K).
Exhibit 10.16 Amended and Restated Multicurrency Revolving Credit Facility Agreement dated as of October 11,
1996, among MBNA International Bank Limited, certain lenders and The First National Bank of
Chicago, as Agent.
Exhibit 12 Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividend
Requirements.
Exhibit 13 1997 Annual Report to Stockholders.
Exhibit 21 Subsidiaries of the Corporation.
Exhibit 23 Consent of Independent Auditors.
Exhibit 27 Financial Data Schedule.
</TABLE>
- ---------------
* The Registrant agrees to furnish a copy to the Securities and Exchange
Commission on request.
** Management contract or compensatory plan or arrangement required to be filed
as an exhibit pursuant to Item 14(c) of Form 10-K.
(B) REPORTS ON FORM 8-K
1. Report dated October 14, 1997, reporting MBNA Corporation's
earnings release for the third quarter of 1997.
2. Report dated October 22, 1997, reporting the securitization of
$750.0 million of credit card receivables by MBNA America Bank,
N.A.
3. Report dated October 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 October 1997.
4. Report dated November 6, 1997, reporting the securitization of
$750.0 million of credit card receivables by MBNA America Bank,
N.A.
5. Report dated November 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 November 1997.
6. Report dated December 9, 1997, reporting the securitization of
$900.0 million of credit card receivables by MBNA America Bank,
N.A.
7. Report dated December 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 December 1997.
8. Report dated January 13, 1998, reporting MBNA Corporation's
earnings release for the fourth quarter of 1997.
9. Report dated January 31, 1998, 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 1998.
10. Report dated February 28, 1998, 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 1998.
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<PAGE> 19
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
MBNA CORPORATION
By: /s/ ALFRED LERNER
------------------------------------
Alfred Lerner
Chairman and Chief Executive Officer
March 20, 1998
Pursuant to the requirement of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ ALFRED LERNER Chairman, Chief Executive March 20, 1998
- --------------------------------------------------- Officer and Director
Alfred Lerner (principal executive officer)
/s/ CHARLES M. CAWLEY President and Director March 20, 1998
- ---------------------------------------------------
Charles M. Cawley
/s/ M. SCOT KAUFMAN Executive Vice President and March 20, 1998
- --------------------------------------------------- Treasurer (principal financial
M. Scot Kaufman and accounting officer)
/s/ JAMES H. BERICK Director March 20, 1998
- ---------------------------------------------------
James H. Berick, Esq.
/s/ BENJAMIN R. CIVILETTI Director March 20, 1998
- ---------------------------------------------------
Benjamin R. Civiletti, Esq.
/s/ RANDOLPH D. LERNER Director March 20, 1998
- ---------------------------------------------------
Randolph D. Lerner, Esq.
/s/ STUART L. MARKOWITZ Director March 20, 1998
- ---------------------------------------------------
Stuart L. Markowitz, M.D.
/s/ MICHAEL ROSENTHAL Director March 20, 1998
- ---------------------------------------------------
Michael Rosenthal, Ph.D.
</TABLE>
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[RECYCLED LOGO] PRINTED ON RECYCLED PAPER
<PAGE> 1
MBNA CORPORATION
COMPOSITE BYLAWS
ARTICLE I - STOCKHOLDERS
SECTION 1. ANNUAL MEETING
The annual meeting of the stockholders of the Corporation, for the
election of the directors and for the transaction of such other business within
the power of the Corporation as properly may come before the meeting, shall be
held at such place as the Board of Directors may designate, at such date and
hour during the month of April as shall be determined by the Board of
Directors.
SECTION 2. SPECIAL MEETING
At any time in the intervals between annual meetings, a special
meeting of the stockholders may be called by the Chairman of the Board of
Directors or by the President or by the Board of Directors. Upon the request in
writing by stockholders entitled to cast at least 25% of all the votes entitled
to be cast at the meeting, the Secretary shall call a special meeting of the
stockholders. The request shall state the purpose of the meeting and the
matters proposed to be acted on. The Secretary shall inform such stockholders
of the reasonably estimated costs of preparing and mailing the notice of the
meeting and, upon payment to the Corporation of such costs, the Secretary shall
give notice of the time, place and purpose of the meeting in the manner
provided in these Bylaws. Unless requested by stockholders entitled to cast a
majority of all the votes entitled to be cast at the meeting, a special meeting
need not be called to consider any matter which is substantially the same as a
matter voted on at any special meeting of the stockholders held during the
preceding 12 months.
SECTION 3. NOTICE OF MEETING
Not less than ten (10) days nor more than ninety (90) days before the
date of every stockholder's meeting, the Secretary shall give to each
stockholder entitled to vote thereat, written or printed notice stating the
time and place of such meeting, and in the case of a special meeting, the
purpose or purposes for which the meeting is called, by third-class or
first-class mail, postage prepaid, mailed to each stockholder of record at his
address as shown upon the books of the Corporation.
1
<PAGE> 2
SECTION 4. NOTICE OF STOCKHOLDER BUSINESS
At any annual or special meeting of the stockholders, only such
business shall be conducted as shall have been properly brought before the
meeting. To be properly brought before an annual or special meeting, the
business, including any nomination for election of directors, must be (i)
specified in the notice of meeting (or any supplement thereto) given by or at
the direction of the board of directors, (ii) otherwise properly brought before
the meeting by or at the direction of the board of directors, or (iii)
otherwise properly brought before the meeting by a stockholder.
For business to be properly brought before an annual or special
meeting by a stockholder, the stockholder must have given timely notice thereof
in writing to the Secretary of the Corporation. To be timely, any such notice
must be delivered or mailed to the principal executive offices of the Company
not later than sixty (60) days prior to the date of the meeting. If less than
seventy (70) days' notice or prior public disclosure of the date of the meeting
is given or made to stockholders, any such notice by a stockholder to be timely
must be so received not later than the close of business on the tenth day
following the day on which notice of the date of the annual or special meeting
was given or such public disclosure was made.
Any such notice by a stockholder shall set forth as to each matter the
stockholder proposes to bring before the annual or special meeting (i) a brief
description of the business desired to be brought before the annual or special
meeting and the reasons for conducting such business at the annual or special
meeting, (ii) the name and address, as they appear on the Corporation's books,
of the stockholder proposing such business, (iii) the class and number of
shares of the capital stock of the Corporation which are beneficially owned by
the stockholder and (iv) any material interest of the stockholder in such
business. If a stockholder proposes the nomination for election of directors,
such notice by the stockholder shall also set forth as to each person whom the
stockholder proposes to nominate (i) the name, age, business address and
residence address of such person, (ii) the principal occupation or employment
of such person, (iii) the class and number of shares of the capital stock of
the Corporation which are beneficially owned by such person and (iv) any other
information relating to such person that is required to be disclosed in
solicitations of proxies for the election of Directors pursuant to Regulation
14A under the Securities Exchange Act of 1934 or any successor regulation
thereto, including without limitation such person's written consent to being
named in the proxy statement as a nominee and to serving as a Director if
elected and whether any person intends to seek reimbursement from the
Corporation of the expenses of any solicitation of proxies should such person
be elected a Director of the Corporation. No person shall be entitled to
receive reimbursement from the Corporation of the expenses of a solicitation of
proxies for the election as a Director of a person named in such notice unless
such notice states that such reimbursement will be sought from the Corporation.
2
<PAGE> 3
Notwithstanding anything in these bylaws to the contrary, no business
shall be conducted at any annual or special meeting except in accordance with
the procedures set forth in this Section. The chairman of the annual or special
meeting shall, if the facts warrant, determine and declare to the meeting that
business was not properly brought before the meeting in accordance with the
provisions of this Section and, if he should so determine, he shall so declare
to the meeting that any such business not properly brought before the meeting
shall not be considered or transacted.
SECTION 4. QUORUM
At any meeting of stockholders the presence in person or by proxy of
stockholders entitled to cast a majority of the votes thereat shall constitute
a quorum.
A meeting of stockholders convened on the date for which it was called
may be adjourned from time to time by vote of a majority of the shares present
in person or by proxy even if less than a quorum without further notice to a
date not more than 120 days after the original record date. At such reconvened
meeting at which a quorum shall be present, any business may be transacted
which might have been transacted at the meeting originally called. The
stockholders present at a duly organized meeting may continue to transact
business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum.
SECTION 5. PROXIES
At all meetings of stockholders, a stockholder may vote the shares
owned of record by him either in person or by proxy executed in writing by the
stockholder or by his duly authorized attorney-in-fact. Such proxy shall be
filed with the Secretary of the Corporation before or at the time of the
meeting. No proxy shall be valid after eleven (11) months from the date of its
execution, unless otherwise provided in the proxy.
SECTION 6. VOTING
Each stockholder shall be entitled to one vote for each share of stock
held by him. At all elections of directors of the Corporation, each stockholder
shall have the right to vote, in person or by proxy, the shares owned of record
by him, for as many persons as there are directors to be elected and for whose
election he has a right to vote. A plurality of the votes cast at a meeting of
stockholders, duly called and at which a quorum is present, shall be sufficient
to elect any director. A majority of the votes cast at a meeting of
stockholders, duly called and at which a quorum is present, shall be sufficient
to take or authorize action upon any other matter which may properly come
before the meeting unless more than a majority of votes is required by law or
the Charter.
3
<PAGE> 4
ARTICLE II - DIRECTORS
SECTION 1. POWERS
The business and affairs of the Corporation shall be managed by or
under the direction of its Board of Directors, which may exercise all of the
powers of the Corporation, except such as are by statute expressly conferred
upon or reserved to the stockholders.
SECTION 2. NUMBER AND TENURE
The number of directors of the Corporation shall be that number as may
be fixed from time to time by resolution of the Board of Directors but in no
event shall be less than the lesser of three (3) or the number of stockholders
or more than twenty (20).
SECTION 3. VACANCIES
Any vacancy occurring in the Board of Directors, other than one
occurring because of an increase in the number of directors, may be filled by
the affirmative vote of a majority of the remaining directors. A vacancy
occurring in the Board of Directors by reason of an increase in the number of
directors may be filled by a majority of the entire Board of Directors. A
director elected to fill a vacancy shall be elected for the unexpired term of
his predecessor in office.
SECTION 4. REGULAR MEETINGS
The Board of Directors shall meet for the purpose of organization, the
election of officers, and the transaction of other business as soon as
practicable after each annual election of directors. Notice of such meeting
need not be given .
The Board of Directors shall also meet regularly at such times as may
be stated from time to time by the Board.
SECTION 5. SPECIAL MEETINGS
Special meetings of the Board of Directors may be called by the
Chairman of the Board of Directors, the President or by a majority of the
Board.
4
<PAGE> 5
SECTION 6. NOTICE
Notice of every regular, except as otherwise provided in Article II,
Section 4 of these Bylaws, or special meeting of the Board shall be given to
each director at least one (l) day previous thereto by written notice delivered
personally or mailed to his last known business or residence address, or by
telegram sent to his last known business or residence address, or by personal
telephone call. Any director may waive notice of any meeting by written waiver
filed with the records of the meeting, either before or after the holding
thereof. The attendance of a director at a meeting shall constitute a waiver of
notice of such meeting, except where a director attends a meeting for the
express purpose of objecting to the transaction of any business because the
meeting is not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any regular or special meeting of the Board
of Directors need be specified in the notice or waiver of notice of such
meeting.
SECTION 7. QUORUM
A majority of the Board of Directors shall constitute a quorum for the
transaction of business, but if less than such quorum is present at a meeting,
a majority of the directors present may adjourn the meeting from time to time
without further notice.
SECTION 8. MANNER OF ACTING
The action of a majority of the directors present at a meeting at
which a quorum is present shall be the action of the Board of Directors unless
the concurrence of a greater proportion is required for such action by law, the
Charter or these Bylaws.
SECTION 9. COMMITTEES
The Board of Directors may establish committees, composed of at least
two directors, from among its members. Any such committee shall serve at the
pleasure of the Board of Directors and shall have such powers in the management
of the business and affairs of the Corporation as may be delegated by the Board
of Directors consistent with law. The Board of Directors may fill any vacancy
on a committee. Committees shall meet at the call of the Chairman of the Board
of Directors or any two or more members. A majority of the members of a
committee shall constitute a quorum for the transaction of business and the
actions of a majority of the members present at a meeting at which a quorum is
present shall be the action of the committee. The members of any committee
present at a meeting, whether or not they constitute a quorum, may appoint a
director to act in the place of an absent member. Each committee shall report
its actions to the Board of Directors. Any action taken by a committee shall be
subject to review or alteration by the Board of Directors, provided that no
rights of third persons arising from any action taken or permitted upon the
failure of approval of such committee shall be affected by any such review or
alteration or by disapproval by the Board of Directors of any report by the
committee.
5
<PAGE> 6
SECTION 10. COMPENSATION
Directors shall receive for their services as directors of the
Corporation such compensation as shall be determined by resolution of the Board
of Directors. A director may serve the Corporation or its subsidiaries in any
other capacity and receive compensation therefor.
SECTION 11. INFORMAL ACTION
Any action required or permitted to be taken at any meeting of the
Board of Directors may be taken without a meeting, if a written consent to such
action is signed by all members of the Board of Directors and such written
consent is filed with the minutes of proceedings of the Board of Directors.
ARTICLE III - OFFICERS
SECTION 1. NUMBER
The officers of the Corporation shall be a Chairman of the Board, a
President, one or more Vice Presidents, a Secretary, a Treasurer, and such
other officers as the Board of Directors may elect or may be appointed as
provided in Section 2 hereof. Any two offices may be held by the same persons,
except those of President and Vice President, but no officer shall execute,
acknowledge or verify any instrument in more than one capacity, if such
instrument is required to be executed, acknowledged or verified by any two or
more officers. In its discretion, the Board of Directors may leave unfilled any
offices except those of President, Treasurer and Secretary.
SECTION 2. ELECTION AND TENURE
The officers of the Corporation shall be elected by the Board of
Directors at the first meeting of the Board of Directors held after each annual
meeting of the stockholders, or as soon after such first meeting as may be
convenient. Each officer shall hold office for a term of one (l) year and until
his successor shall have been duly elected and shall have qualified.
SECTION 3. REMOVAL
Any officer or agent of the Corporation may be removed by the Board of
Directors whenever, in its judgment, the best interests of the Corporation will
be served thereby, but such removal shall be without prejudice to the contract
rights, if any, of the person so removed. The Board of Directors may authorize
any officer to remove subordinate officers.
SECTION 4. VACANCIES
A vacancy in any office may be filled by the Board of Directors for
the unexpired portion of the term.
6
<PAGE> 7
SECTION 5. CHAIRMAN OF THE BOARD
The Chairman of the Board, if one is elected by the Board of
Directors, shall be the chief executive officer of the Corporation, shall have
general charge and supervision of the policies and affairs of the Corporation,
shall preside at all meetings of the Board of Directors and stockholders and
shall have such other duties as are provided in these Bylaws and as from time
to time may be assigned by the Board of Directors.
SECTION 6. PRESIDENT
The President shall have such duties as are provided in these Bylaws
or as from time to time may be assigned by the Board of Directors and the
Chairman of the Board. In the absence of the Chairman of the Board of Directors
or if one is not elected, the President shall perform the duties and exercise
the functions of the Chairman of the Board of Directors.
SECTION 7. VICE PRESIDENTS
The Vice President or Vice Presidents shall have such duties and
functions as from time to time may be assigned by the Board of Directors or the
Chairman of the Board or the President, except as may otherwise be provided by
the Board of Directors.
SECTION 8. SECRETARY
The Secretary shall be responsible for the minute books of the
Corporation, in which he shall maintain and preserve the organization papers of
the Corporation, the Articles of Incorporation, the Bylaws and the proceedings
of regular and special meetings of the stockholders, the Board of Directors and
any committees. He shall be responsible for the custody of the seal of the
Corporation and shall be responsible for such other duties and functions as may
be assigned from time to time by the Board of Directors, the Chairman of the
Board or the President.
SECTION 9. TREASURER
The Treasurer shall have general charge of the financial affairs of
the Corporation. He shall in general have all powers and perform all duties and
functions incident to the office of Treasurer and such as may from time to time
be prescribed by the Board of Directors, the Chairman of the Board or the
President.
SECTION 10. OTHER OFFICERS
Such other officers as may be elected by the Board of Directors shall
have such powers and perform such duties as the Board of Directors, the
Chairman of the Board of Directors or the President may from time to time
prescribe.
7
<PAGE> 8
SECTION 11. SALARIES
Salaries to be paid to all officers and employees shall be fixed in
such manner as the Board of Directors may determine from time to time and no
officer shall be prevented from receiving such salary by reason of the fact
that he is also a director of the Corporation.
SECTION 12. SPECIAL APPOINTMENTS
In the absence or incapacity of any officer, or in the event of a
vacancy in any office, the Board of Directors may designate any person to fill
any such office pro tempore or for any particular purpose.
SECTION 13. VOTING STOCK HELD BY THE CORPORATION
Unless otherwise ordered by the Board of Directors, the Chairman of
the Board of Directors, the President or a Vice President or other officer
thereunto duly authorized by the Chairman of the Board of Directors or the
President shall have full power and authority on behalf of the Corporation to
attend and to vote at any meeting of stockholders of any corporation in which
this Corporation may hold stock, and may exercise on behalf of the Corporation
any and all of the rights and powers incident to the ownership of such stock at
any such meeting, and shall have power and authority to execute and deliver
proxies and consents on behalf of this Corporation in connection with the
exercise by this Corporation of the rights and powers incident to the ownership
of such stock. The Board of Directors, from time to time, may confer like
powers upon any other person or persons.
ARTICLE IV - INDEMNIFICATION
The Corporation shall indemnify its directors to the fullest extent
that indemnification of directors is permitted by the Maryland General
Corporation Law. The Corporation shall indemnify its officers to the same
extent as its directors and to such further extent as is consistent with law.
The Corporation shall indemnify its directors and officers who, while serving
as directors or officers of the Corporation, also serve at the request of the
Corporation as a director, officer, partner, trustee, employee, agent or
fiduciary of another corporation, partnership, joint venture, trust, other
enterprise or employee benefit plan to the fullest extent consistent with law.
The indemnification and other rights provided by this Article shall continue as
to a person who has ceased to be a director or officer and shall inure to the
benefit of the heirs, executors and administrators of such a person.
Any director or officer seeking indemnification within the scope of
this Article shall be entitled to advances from the Corporation for payment of
the reasonable expenses incurred by him in connection with the matter as to
which he is seeking indemnification in the manner and to the fullest extent
permissible under the Maryland General Corporation Law without requiring a
preliminary determination of ultimate entitlement of indemnification.
8
<PAGE> 9
The Board of Directors may make further provision consistent with law
for indemnification and advance of expenses to directors, officers, employees
and agents by resolution, agreement or otherwise. The indemnification provided
by this Article shall not be deemed exclusive of any other right, with respect
to indemnification or otherwise, to which those seeking indemnification may be
entitled under any insurance or other agreement or resolution of stockholders
or disinterested directors or otherwise.
References in this Article are to the Maryland General Corporation Law
as from time to time amended. No amendment of these Bylaws shall affect any
right of any person under this Article based on any event, omission or
proceeding prior to the amendment.
ARTICLE V - SEAL
The seal of the Corporation shall be in the form of two concentric
circles inscribed with the name of the Corporation and the year and State in
which it is incorporated.
ARTICLE VI - ISSUE AND TRANSFER OF STOCK
SECTION 1. ISSUE
Certificates representing shares of the Corporation shall be in such
form as shall be determined by the Board of Directors. Each certificate shall
be signed manually by, or bear the facsimile signature of, the Chairman of the
Board, the President, or a Vice President and countersigned by, or bear the
facsimile signature of, the Secretary or an Assistant Secretary or the
Treasurer or an Assistant Treasurer and shall be sealed with the corporate seal
or a facsimile thereof. All certificates surrendered to the Corporation for
transfer shall be cancelled, and no new certificates shall be issued until the
former certificate for a like number of shares shall have been surrendered and
cancelled, except that in case of a lost, stolen, destroyed or mutilated
certificate, a new one may be issued therefor upon such terms and indemnity to
the Corporation as the Board of Directors may prescribe.
SECTION 2. TRANSFER OF SHARES
Transfer of shares of the Corporation shall be made only on its stock
transfer books by the holder of record thereof, or by his attorney thereunto
authorized by power of attorney duly executed and filed with the Secretary of
the Corporation, and on surrender for cancellation of the certificate for such
shares. The person in whose name shares stand on the books of the Corporation
shall be deemed to be the owner thereof for all purposes.
9
<PAGE> 10
SECTION 3. FIXING DATE FOR DETERMINATION OF STOCKHOLDERS' RIGHTS
The Board of Directors may fix, in advance, a date as the record date
for the purpose of determining stockholders entitled to notice of, or to vote
at, any meeting of stockholders, or stockholders entitled to receive payment of
any dividend or the allotment of any rights, or in order to make a
determination of stockholders for another proper purpose. Only stockholders of
record on such date shall be entitled to notice of, and to vote at, such
meeting or to receive such dividends or rights, as the case may be and
notwithstanding any transfer of any stock on the books of the Corporation after
such record date fixed as aforesaid.
ARTICLE VII - EMERGENCIES
During the period of an emergency declared by the President of the
United States, or the person performing his functions, of a nature and
sufficient severity to prevent the conduct and management of the affairs and
business of the Corporation by its directors, officers and committees in the
manner contemplated by these Bylaws (other than this Article VII), any two or
more available members of the Board of Directors shall constitute a quorum of
the Board of Directors for the full conduct and management of the affairs and
business of the Corporation. Other provisions of the Bylaws or resolutions
contrary to or inconsistent with the provisions hereof shall be suspended until
it shall be determined by said interim Board of Directors that it shall be to
the advantage of the Corporation to resume the conduct and management of its
affairs and business under all the other provisions of the Bylaws and
resolutions.
If during any such emergency any authorized place of business of the
Corporation shall be unable to function, all or part of the business ordinarily
conducted at such location may be relocated elsewhere in suitable quarters as
may be designated by the interim Board of Directors or by such persons as are
then conducting the affairs of the Corporation. Any such temporarily relocated
place of business of the Corporation shall be returned to its authorized
location as soon as practicable.
ARTICLE VIII - CONTROL SHARE ACQUISITION STATUTE EXEMPTIONS
Any acquisition of shares of the Corporation on or after January 21,
1991 by Alfred Lerner (or his successor in interest) ("Lerner") or by The
Progressive Corporation (or its successors in interest) ("Progressive"), or by
any present or future affiliate or associate thereof so long as such affiliate
or associate is at the time in question such an affiliate or associate (or any
person acting in concert or in a group with any of the foregoing) is, pursuant
to Section 3-702(b) of the Maryland General Corporation Law (the "MGCL") (or
any successor or replacement provision or statute), hereby approved for
purposes of, and exempted from the provisions of, Subtitle 7 of Title 3 of the
MGCL (or any successor or replacement provision or statute) with the result
that any shares acquired by any such person shall have all voting rights
otherwise appurtenant thereto, notwithstanding Subtitle 7 of Title 3 of the
MGCL (or any successor or replacement provision or statute).
10
<PAGE> 11
Notwithstanding anything in the Charter or Bylaws of the Corporation
(as each may be amended from time to time) to the contrary, this ARTICLE may
not be amended, altered or repealed except with the unanimous approval of all
of the members of the Board of Directors and the written consent of all persons
or entities then in existence and specified above that may be adversely
affected, or that may lose any privilege or right, as a result of such
amendment, alteration or repeal.
ARTICLE IX - AMENDMENTS
These Bylaws may be altered, amended or repealed, and new Bylaws may
be adopted, by the Board of Directors. The stockholders of the Corporation
shall have no power to make, amend or repeal any Bylaw.
11
<PAGE> 1
- -------------------------------------------------------------------------------
GUARANTEE AGREEMENT
BETWEEN
MBNA CORPORATION
(AS GUARANTOR)
AND
THE BANK OF NEW YORK
(AS TRUSTEE)
DATED AS OF
MARCH 31, 1997
- -------------------------------------------------------------------------------
<PAGE> 2
CROSS-REFERENCE TABLE*
<TABLE>
<CAPTION>
Section of
Trust Indenture Act Section of
of 1939, as amended Guarantee Agreement
- ------------------- -------------------
<S> <C>
310(a). . . . . . . . . . . . . . . . . . . . . . . . . . 4.1(a)
310(b). . . . . . . . . . . . . . . . . . . . . . . . . . 4.1(c), 2.8
310(c). . . . . . . . . . . . . . . . . . . . . . . . . . Inapplicable
311(a). . . . . . . . . . . . . . . . . . . . . . . . . . 2.2(b)
311(b). . . . . . . . . . . . . . . . . . . . . . . . . . 2.2(b)
311(c). . . . . . . . . . . . . . . . . . . . . . . . . . Inapplicable
312(a). . . . . . . . . . . . . . . . . . . . . . . . . . 2.2(a)
312(b). . . . . . . . . . . . . . . . . . . . . . . . . . 2.2(b)
313 . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3
314(a). . . . . . . . . . . . . . . . . . . . . . . . . . 2.4
314(b). . . . . . . . . . . . . . . . . . . . . . . . . . Inapplicable
314(c). . . . . . . . . . . . . . . . . . . . . . . . . . 2.5
314(d). . . . . . . . . . . . . . . . . . . . . . . . . . Inapplicable
314(e). . . . . . . . . . . . . . . . . . . . . . . . . . 1.1, 2.5, 3.2
314(f). . . . . . . . . . . . . . . . . . . . . . . . . . 2.1, 3.2
315(a). . . . . . . . . . . . . . . . . . . . . . . . . . 3.1(d)
315(b). . . . . . . . . . . . . . . . . . . . . . . . . . 2.7
315(c). . . . . . . . . . . . . . . . . . . . . . . . . . 3.1
315(d). . . . . . . . . . . . . . . . . . . . . . . . . . 3.1(d)
316(a). . . . . . . . . . . . . . . . . . . . . . . . . . 1.1, 2.6, 5.4
316(b). . . . . . . . . . . . . . . . . . . . . . . . . . 5.3
316(c). . . . . . . . . . . . . . . . . . . . . . . . . . 8.2
317(a). . . . . . . . . . . . . . . . . . . . . . . . . . Inapplicable
317(b). . . . . . . . . . . . . . . . . . . . . . . . . . Inapplicable
318(a). . . . . . . . . . . . . . . . . . . . . . . . . . 2.1(b)
318(b). . . . . . . . . . . . . . . . . . . . . . . . . . 2.1
318(c). . . . . . . . . . . . . . . . . . . . . . . . . . 2.1(a)
</TABLE>
- ----------------
* This Cross-Reference Table does not constitute part of the Guarantee
Agreement and shall not affect the interpretation of any of its terms
or provisions.
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II. TRUST INDENTURE ACT . . . . . . . . . . . . . . . . . . . . . . 4
Section 2.1. Trust Indenture Act; Application . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 2.2. List of Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 2.3. Reports by the Guarantee Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 2.4. Periodic Reports to the Guarantee Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 2.5. Evidence of Compliance with Conditions Precedent . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 2.6. Events of Default; Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 2.7. Event of Default; Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 2.8. Conflicting Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE III. POWERS, DUTIES AND RIGHTS
OF THE GUARANTEE TRUSTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 3.1. Powers and Duties of the Guarantee Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 3.2. Certain Rights of Guarantee Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 3.3. Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE IV. GUARANTEE TRUSTEE . . . . . . . . . . . . . . . . . . . . . . . 9
Section 4.1. Guarantee Trustee: Eligibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 4.2. Appointment, Removal and Resignation of the Guarantee Trustee . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE V. GUARANTEE . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 5.1. Guarantee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 5.2. Waiver of Notice and Demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 5.3. Obligations Not Affected . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 5.4. Rights of Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 5.5. Guarantee of Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 5.6. Subrogation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 5.7. Independent Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE VI. COVENANTS AND SUBORDINATION . . . . . . . . . . . . . . . . . . . . 12
Section 6.1. Subordination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 6.2. Pari Passu Guarantees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
</TABLE>
<PAGE> 4
<TABLE>
<S> <C> <C>
ARTICLE VII. TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 7.1. Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE VIII. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . 13
Section 8.1. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 8.2. Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 8.3. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 8.4. Consolidation, Merger, Conveyance, Transfer or Lease . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 8.5. Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 8.6. Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 8.7. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
</TABLE>
<PAGE> 5
GUARANTEE AGREEMENT
This GUARANTEE AGREEMENT, dated as of March 31, 1997, is executed and
delivered by MBNA CORPORATION, a Maryland corporation (the "Guarantor") having
its principal office at Wilmington, Delaware 19884, and THE BANK OF NEW YORK,
a New York banking corporation, as trustee (the "Guarantee Trustee"), for the
benefit of the Holders (as defined herein) from time to time of the Preferred
Securities and Common Securities (each as defined herein and together, the
"Securities") of MBNA Capital C, a Delaware statutory business trust (the
"Issuer").
WHEREAS, pursuant to an Amended and Restated Trust Agreement, dated as
of March 31, 1997 (the "Trust Agreement"), among the Guarantor, as Depositor,
the Property Trustee and the Delaware Trustee named therein, the Administrative
Trustees named therein and the Holders from time to time of undivided
beneficial interests in the assets of the Issuer, the Issuer is issuing
$36,302,950 aggregate Liquidation Amount (as defined in the Trust Agreement) of
its 8.25% Trust Originated Preferred Securities, Liquidation Amount $25 per
preferred security) (the "Preferred Securities") representing preferred
undivided beneficial interests in the assets of the Issuer and having the terms
set forth in the Trust Agreement;
WHEREAS, the Preferred Securities will be issued by the Issuer and the
proceeds thereof, together with the proceeds from the issuance of the Issuer's
Common Securities (as defined herein), will be used to purchase the Debentures
(as defined in the Trust Agreement) of the Guarantor which will be deposited
with The Bank of New York, as Property Trustee under the Trust Agreement, as
trust assets; and
WHEREAS, as incentive for the Holders to purchase Securities the
Guarantor desires irrevocably and unconditionally to agree, to the extent set
forth herein, to pay to the Holders of the Securities the Guarantee Payments
(as defined herein) and to make certain other payments on the terms and
conditions set forth herein.
NOW, THEREFORE, in consideration of the purchase by each Holder of
Securities, which purchase the Guarantor hereby agrees shall benefit the
Guarantor, the Guarantor executes and delivers this Guarantee Agreement for the
benefit of the Holders from time to time of the Securities.
ARTICLE I. DEFINITIONS
SECTION 1.1. Definitions.
As used in this Guarantee Agreement, the terms set forth below shall,
unless the context otherwise requires, have the following meanings. Capitalized
or otherwise defined terms used but not otherwise defined herein shall have the
meanings assigned to such terms in the Trust Agreement as in effect on the date
hereof.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person; provided, however, that an Affiliate of the
Guarantor shall not be deemed to be an Affiliate of the Issuer. For the
purposes of this definition, "control" when used with respect to any specified
Person means the power to direct the management and policies of such Person,
directly or indirectly, whether through the ownership of voting securities, by
contract or otherwise; and the terms "controlling" and "controlled" have
meanings correlative to the foregoing.
<PAGE> 6
"Board of Directors" means either the board of directors of the
Guarantor or any committee of that board duly authorized to act hereunder.
"Common Securities" means the securities representing common undivided
beneficial interests in the assets of the Issuer.
"Event of Default" means a default by the Guarantor on any of its
payment or other obligations under this Guarantee Agreement; provided, however,
that, except with respect to a default in payment of any Guarantee Payments,
the Guarantor shall have received notice of default and shall not have cured
such default within 90 days after receipt of such notice.
"Guarantee Payments" means the following payments or distributions,
without duplication, with respect to the Securities, to the extent not paid or
made by or on behalf of the Issuer: (i) any accumulated and unpaid
Distributions (as defined in the Trust Agreement) required to be paid on the
Securities, to the extent the Issuer shall have funds on hand available
therefor at such time, (ii) the redemption price, including all accrued and
unpaid Distributions to the date of redemption (the"Redemption Price"), with
respect to any Securities called for redemption by the Issuer, to the extent
the Issuer shall have funds on hand available therefor at such time, and (iii)
upon a voluntary or involuntary termination, winding up or liquidation of the
Issuer, unless Debentures are distributed to the Holders, the lesser of (a) the
aggregate of the Liquidation Amount plus accrued and unpaid Distributions to
the date of payment and (b) the amount of assets of the Issuer remaining
available for distribution to Holders in liquidation of the Issuer after
satisfaction of liabilities to creditors of the Issuer as required by
applicable law (in either case, the "Liquidation Distribution").
"Guarantee Trustee" means The Bank of New York, until a Successor
Guarantee Trustee has been appointed and has accepted such appointment pursuant
to the terms of this Guarantee Agreement, and thereafter means each such
Successor Guarantee Trustee.
"Holder" means any holder, as registered on the books and records of
the Issuer, of any Securities; provided, however, that in determining whether
the holders of the requisite percentage of Securities have given any request,
notice, consent or waiver hereunder, "Holder" shall not include the Guarantor,
the Guarantee Trustee, or any Affiliate of the Guarantor or the Guarantee
Trustee.
"Indenture" means the Junior Subordinated Indenture dated as of
December 18, 1996, as supplemented and amended between the Guarantor and The
Bank of New York, as trustee.
"List of Holders" has the meaning specified in Section 2.2(a).
"Majority in aggregate Liquidation Amount of the Securities" means,
except as provided by the Trust Indenture Act, a vote by the Holder(s), voting
separately as a class, of more than 50% of the aggregate Liquidation Amount of
all then outstanding Securities issued by the Issuer.
"Officers' Certificate" means, with respect to any Person, a
certificate signed by the Chairman or a Vice Chairman of the Board of Directors
of such Person or the President or a Vice President of such Person, and by the
Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary of
such Person, and delivered to the Guarantee Trustee. Any Officers' Certificate
delivered with respect to compliance with a condition or covenant provided for
in this Guarantee Agreement shall include:
(a) a statement that each officer signing the Officers' Certificate
has read the covenant or condition and the definitions relating thereto;
(b) a brief statement of the nature and scope of the examination or
investigation undertaken by each officer in rendering the Officers'
Certificate;
<PAGE> 7
(c) a statement that each officer has made such examination or
investigation as, in such officer's opinion, is necessary to enable such
officer to express an informed opinion as to whether or not such covenant or
condition has been complied with; and
(d) a statement as to whether, in the opinion of each officer, such
condition or covenant has been complied with.
"Person" means a legal person, including any individual, corporation,
estate, partnership, joint venture, association, joint stock company, limited
liability company, trust, unincorporated association, or government or any
agency or political subdivision thereof, or any other entity of whatever
nature.
"Responsible Officer" when used with respect to the Guarantee Trustee
means any officer of the Guarantee Trustee assigned by the Guarantee Trustee
from time to time to administer its corporate trust matters.
"Successor Guarantee Trustee" means a successor Guarantee Trustee
possessing the qualifications to act as Guarantee Trustee under Section 4.1.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as
amended.
ARTICLE II. TRUST INDENTURE ACT
SECTION 2.1. Trust Indenture Act; Application.
(a) This Guarantee Agreement is subject to the provisions of the Trust
Indenture Act that are required to be part of this Guarantee Agreement and
shall, to the extent applicable, be governed by such provisions.
(b) If and to the extent that any provision of this Guarantee
Agreement limits, qualifies or conflicts with the duties imposed by Sections
310 to 317, inclusive, of the Trust Indenture Act, such imposed duties shall
control.
SECTION 2.2. List of Holders.
(a) The Guarantor will furnish or cause to be furnished to the
Guarantee Trustee:
(i) semi-annually, not more than 15 days after January 15 and
July 15 in each year, a list, in such form as the Guarantee Trustee
may reasonably require, of the names and addresses of the Holders as
of such January 1 and July 1, and
(ii) at such other times as the Guarantee Trustee may request
in writing, within 30 days after the receipt by the Guarantor of any
such request, a list of similar form and content as of a date not more
than 15 days prior to the time such list is furnished,
excluding from any such list names and addresses received by the
Guarantee Trustee in its capacity as Securities Registrar.
(b) The Guarantee Trustee shall comply with its obligations under
Section 311(a), Section 311(b) and Section 312(b) of the Trust Indenture Act.
SECTION 2.3. Reports by the Guarantee Trustee.
The Guarantee Trustee shall transmit to Holders such reports
concerning the Guarantee
<PAGE> 8
Trustee and its actions under this Guarantee Agreement as may be required
pursuant to the Trust Indenture Act at the times and in the manner provided
pursuant thereto. If required by Section 313(a) of the Trust Indenture Act,
the Guarantee Trustee shall, within sixty days after each May 15 following the
date of this Guarantee Agreement deliver to Holders a brief report, dated as of
such May 15, which complies with the provisions of such Section 313(a).
SECTION 2.4. Periodic Reports to the Guarantee Trustee.
The Guarantor shall provide to the Guarantee Trustee, the Securities
and Exchange Commission and the Holders such documents, reports and
information, if any, as required by Section 314 of the Trust Indenture Act and
the compliance certificate required by Section 314 of the Trust Indenture Act,
in the form, in the manner and at the times required by Section 314 of the
Trust Indenture Act. Delivery of such reports, information and documents to
the Guarantee Trustee is for informational purposes only and the Guarantee
Trustee's receipt of such shall not constitute constructive notice of any
information contained therein, including the Guarantor's compliance with any of
its covenants hereunder (as to which the Guarantee Trustee is entitled to rely
exclusively on Officers' Certificates).
SECTION 2.5. Evidence of Compliance with Conditions Precedent.
The Guarantor shall provide to the Guarantee Trustee such evidence of
compliance with such conditions precedent, if any, provided for in this
Guarantee Agreement that relate to any of the matters set forth in Section
314(c) of the Trust Indenture Act. Any certificate or opinion required to be
given by an officer pursuant to Section 314(c)(1) may be given in the form of
an Officers' Certificate.
SECTION 2.6. Events of Default; Waiver.
The Holders of a Majority in aggregate Liquidation Amount of the
Securities may, by vote, on behalf of the Holders, waive any past Event of
Default and its consequences. Upon such waiver, any such Event of Default shall
cease to exist, and any Event of Default arising therefrom shall be deemed to
have been cured, for every purpose of this Guarantee Agreement, but no such
waiver shall extend to any subsequent or other default or Event of Default or
impair any right consequent therefrom.
SECTION 2.7. Event of Default; Notice.
(a) The Guarantee Trustee shall, within 90 days after the occurrence
of an Event of Default, transmit by mail, first class postage prepaid, to the
Holders, notices of all Events of Default actually known to the Guarantee
Trustee, unless such defaults have been cured before the giving of such notice,
provided, that, except in the case of a default in the payment of a Guarantee
Payment, the Guarantee Trustee shall be protected in withholding such notice if
and so long as the Board of Directors, the executive committee or a trust
committee of directors and/or Responsible Officers of the Guarantee Trustee in
good faith determines that the withholding of such notice is in the interests
of the Holders.
(b) The Guarantee Trustee shall not be deemed to have knowledge of any
Event of Default unless the Guarantee Trustee shall have received written
notice, or a Responsible Officer charged with the administration of this
Guarantee Agreement shall have obtained written notice, of such Event of
Default.
SECTION 2.8. Conflicting Interests.
The Trust Agreement shall be deemed to be specifically described in
this Guarantee Agreement for the purposes of clause (i) of the first proviso
contained in Section 310(b) of the Trust
<PAGE> 9
Indenture Act.
ARTICLE III. POWERS, DUTIES AND RIGHTS OF THE GUARANTEE TRUSTEE
SECTION 3.1. Powers and Duties of the Guarantee Trustee.
(a) This Guarantee Agreement shall be held by the Guarantee Trustee
for the benefit of the Holders, and the Guarantee Trustee shall not transfer
this Guarantee Agreement to any Person except a Holder exercising his or her
rights pursuant to Section 5.4(iv) or to a Successor Guarantee Trustee on
acceptance by such Successor Guarantee Trustee of its appointment to act as
Successor Guarantee Trustee. The right, title and interest of the Guarantee
Trustee shall automatically vest in any Successor Guarantee Trustee, upon
acceptance by such Successor Guarantee Trustee of its appointment hereunder,
and such vesting and cessation of title shall be effective whether or not
conveyancing documents have been executed and delivered pursuant to the
appointment of such Successor Guarantee Trustee.
(b) If an Event of Default has occurred and is continuing, the
Guarantee Trustee shall enforce this Guarantee Agreement for the benefit of the
Holders.
(c) The Guarantee Trustee, before the occurrence of any Event of
Default and after the curing of all Events of Default that may have occurred,
shall undertake to perform only such duties as are specifically set forth in
this Guarantee Agreement, and no implied covenants shall be read into this
Guarantee Agreement against the Guarantee Trustee. In case an Event of Default
has occurred (that has not been cured or waived pursuant to Section 2.6), the
Guarantee Trustee shall exercise such of the rights and powers vested in it by
this Guarantee Agreement, and use the same degree of care and skill in its
exercise thereof, as a prudent person would exercise or use under the
circumstances in the conduct of his or her own affairs.
(d) No provision of this Guarantee Agreement shall be construed to
relieve the Guarantee Trustee from liability for its own negligent action, its
own negligent failure to act or its own willful misconduct, except that:
(i) prior to the occurrence of any Event of Default and after
the curing or waiving of all such Events of Default that may have
occurred:
(A) the duties and obligations of the Guarantee Trustee shall
be determined solely by the express provisions of this Guarantee
Agreement, and the Guarantee Trustee shall not be liable except for
the performance of such duties and obligations as are specifically set
forth in this Guarantee Agreement; and
(B) in the absence of bad faith on the part of the Guarantee
Trustee, the Guarantee Trustee may conclusively rely, as to the truth
of the statements and the correctness of the opinions expressed
therein, upon any certificates or opinions furnished to the Guarantee
Trustee and conforming to the requirements of this Guarantee
Agreement; but in the case of any such certificates or opinions that
by any provision hereof or of the Trust Indenture Act are specifically
required to be furnished to the Guarantee Trustee, the Guarantee
Trustee shall be under a duty to examine the same to determine whether
or not they conform to the requirements of this Guarantee Agreement;
(ii) the Guarantee Trustee shall not be liable for any error
of judgment made in good faith by a Responsible Officer of the
Guarantee Trustee, unless it shall be proved that the Guarantee
Trustee was negligent in ascertaining the pertinent facts upon which
such judgment was made;
(iii) the Guarantee Trustee shall not be liable with respect
to any action taken or
<PAGE> 10
omitted to be taken by it in good faith in accordance with the
direction of the Holders of not less than a Majority in aggregate
Liquidation Amount of the Securities relating to the time, method and
place of conducting any proceeding for any remedy available to the
Guarantee Trustee, or exercising any trust or power conferred upon the
Guarantee Trustee under this Guarantee Agreement; and
(iv) no provision of this Guarantee Agreement shall require
the Guarantee Trustee to expend or risk its own funds or otherwise
incur personal financial liability in the performance of any of its
duties or in the exercise of any of its rights or powers, if the
Guarantee Trustee shall have reasonable grounds for believing that the
repayment of such funds or liability is not reasonably assured to it
under the terms of this Guarantee Agreement or adequate indemnity
against such risk or liability is not reasonably assured to it.
SECTION 3.2. Certain Rights of Guarantee Trustee.
(a) Subject to the provisions of Section 3.1:
(i) The Guarantee Trustee may rely and shall be fully
protected in acting or refraining from acting upon any resolution,
certificate, statement, instrument, opinion, report, notice, request,
direction, consent, order, bond, debenture, note, other evidence of
indebtedness or other paper or document reasonably believed by it to
be genuine and to have been signed, sent or presented by the proper
party or parties.
(ii) Any direction or act of the Guarantor contemplated by
this Guarantee Agreement shall be sufficiently evidenced by an
Officers' Certificate unless otherwise prescribed herein.
<PAGE> 11
(iii) Whenever, in the administration of this Guarantee
Agreement, the Guarantee Trustee shall deem it desirable that a matter
be proved or established before taking, suffering or omitting to take
any action hereunder, the Guarantee Trustee (unless other evidence is
herein specifically prescribed) may, in the absence of bad faith on
its part, request and rely upon an Officers' Certificate which, upon
receipt of such request from the Guarantee Trustee, shall be promptly
delivered by the Guarantor.
(iv) The Guarantee Trustee may consult with legal counsel of
its selection, and the advice or opinion of such legal counsel with
respect to legal matters shall be full and complete authorization and
protection in respect of any action taken, suffered or omitted to be
taken by it hereunder in good faith and in accordance with such advice
or opinion. Such legal counsel may be legal counsel to the Guarantor
or any of its Affiliates and may be one of its employees. The
Guarantee Trustee shall have the right at any time to seek
instructions concerning the administration of this Guarantee Agreement
from any court of competent jurisdiction.
(v) The Guarantee Trustee shall be under no obligation to
exercise any of the rights or powers vested in it by this Guarantee
Agreement at the request or direction of any Holder, unless such
Holder shall have provided to the Guarantee Trustee such adequate
security and indemnity as would satisfy a reasonable person in the
position of the Guarantee Trustee, against the costs, expenses
(including attorneys' fees and expenses) and liabilities that might be
incurred by it in complying with such request or direction, including
such reasonable advances as may be requested by the Guarantee Trustee;
provided that, nothing contained in this Section 3.2(a)(v) shall be
taken to relieve the Guarantee Trustee, upon the occurrence of an
Event of Default, of its obligation to exercise the rights and powers
vested in it by this Guarantee Agreement.
(vi) The Guarantee Trustee shall not be bound to make any
investigation into the facts or matters stated in any resolution,
certificate, statement, instrument, opinion, report, notice, request,
direction, consent, order, bond, debenture, note, other evidence of
indebtedness or other paper or document, but the Guarantee Trustee, in
its discretion, may make such further inquiry or investigation into
such facts or matters as it may see fit.
(vii) The Guarantee Trustee may execute any of the trusts or
powers hereunder or perform any duties hereunder either directly or by
or through its agents or attorneys, and the Guarantee Trustee shall
not be responsible for any misconduct or negligence on the part of any
such agent or attorney appointed with due care by it hereunder.
(viii) Whenever in the administration of this Guarantee
Agreement the Guarantee Trustee shall deem it desirable to receive
written instructions with respect to enforcing any remedy or right or
taking any other action hereunder, the Guarantee Trustee (A) may
request written instructions from the Holders, (B) may refrain from
enforcing such remedy or right or taking such other action until such
written instructions are received, and (C) shall be protected in
acting in accordance with such written instructions.
(ix) The Guarantee Trustee shall not be liable for any action
taken, suffered, or omitted to be taken by it in good faith and
reasonably believed by it to be authorized or within the discretion or
rights or powers conferred upon it by this Guarantee Agreement.
(b) No provision of this Guarantee Agreement shall be deemed to impose
any duty or obligation on the Guarantee Trustee to perform any act or acts or
exercise any right, power, duty or obligation conferred or imposed on it in any
jurisdiction in which it shall be illegal, or in which the Guarantee Trustee
shall be unqualified or incompetent in accordance with applicable law, to
perform any such act or acts or to exercise any such right, power, duty or
obligation. No permissive power or authority available to the Guarantee Trustee
shall be construed to be a duty to act in accordance with such power and
authority.
<PAGE> 12
SECTION 3.3. Indemnity.
The Guarantor agrees to indemnify the Guarantee Trustee for, and to
hold it harmless against, any loss, liability or expense incurred without
negligence or bad faith on the part of the Guarantee Trustee, arising out of or
in connection with the acceptance or administration of this Guarantee
Agreement, including the costs and expenses of defending itself against any
claim or liability in connection with the exercise or performance of any of its
powers or duties hereunder.
ARTICLE IV. GUARANTEE TRUSTEE
SECTION 4.1. Guarantee Trustee: Eligibility.
(a) There shall at all times be a Guarantee Trustee which shall:
(i) not be an Affiliate of the Guarantor; and
(ii) be a Person that is eligible pursuant to the Trust
Indenture Act to act as such and has a combined capital and surplus of
at least $50,000,000, and shall be a corporation meeting the
requirements of Section 310(a) of the Trust Indenture Act. If such
corporation publishes reports of condition at least annually, pursuant
to law or to the requirements of the supervising or examining
authority, then, for the purposes of this Section and to the extent
permitted by the Trust Indenture Act, the combined capital and surplus
of such corporation shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so
published.
(b) If at any time the Guarantee Trustee shall cease to be eligible to
so act under Section 4.1(a), the Guarantee Trustee shall immediately resign in
the manner and with the effect set out in Section 4.2(c).
(c) If the Guarantee Trustee has or shall acquire any "conflicting
interest" within the meaning of Section 310(b) of the Trust Indenture Act, the
Guarantee Trustee and Guarantor shall in all respects comply with the
provisions of Section 310(b) of the Trust Indenture Act.
SECTION 4.2. Appointment, Removal and Resignation of the Guarantee
Trustee.
(a) Subject to Section 4.2(b), the Guarantee Trustee may be appointed
or removed without cause at any time by the Guarantor.
(b) The Guarantee Trustee shall not be removed until a Successor
Guarantee Trustee has been appointed and has accepted such appointment by
written instrument executed by such Successor Guarantee Trustee and delivered
to the Guarantor. If an instrument of acceptance by a Successor Guarantee
Trustee shall not have been delivered to the Guarantee Trustee within 30 days
after such removal, the Guarantee Trustee being removed may petition any court
of competent jurisdiction for the appointment of a Successor Guarantee Trustee.
<PAGE> 13
(c) The Guarantee Trustee appointed hereunder shall hold office until
a Successor Guarantee Trustee shall have been appointed or until its removal or
resignation. The Guarantee Trustee may resign from office (without need for
prior or subsequent accounting) by an instrument in writing executed by the
Guarantee Trustee and delivered to the Guarantor, which resignation shall not
take effect until a Successor Guarantee Trustee has been appointed and has
accepted such appointment by instrument in writing executed by such Successor
Guarantee Trustee and delivered to the Guarantor and the resigning Guarantee
Trustee.
(d) If no Successor Guarantee Trustee shall have been appointed and
accepted appointment as provided in this Section 4.2 within 60 days after
delivery to the Guarantor of an instrument of resignation, the resigning
Guarantee Trustee may petition, at the expense of the Guarantor, any court of
competent jurisdiction for appointment of a Successor Guarantee Trustee. Such
court may thereupon, after prescribing such notice, if any, as it may deem
proper, appoint a Successor Guarantee Trustee.
ARTICLE V. GUARANTEE
SECTION 5.1. Guarantee.
The Guarantor irrevocably and unconditionally agrees to pay in full to
the Holders the Guarantee Payments (without duplication of amounts theretofore
paid by or on behalf of the Issuer), as and when due, regardless of any
defense, right of set-off or counterclaim which the Issuer may have or assert.
The Guarantor's obligation to make a Guarantee Payment may be satisfied by
direct payment of the required amounts by the Guarantor to the Holders or by
causing the Issuer to pay such amounts to the Holders.
SECTION 5.2. Waiver of Notice and Demand.
The Guarantor hereby waives notice of acceptance of the Guarantee
Agreement and of any liability to which it applies or may apply, presentment,
demand for payment, any right to require a proceeding first against the
Guarantee Trustee, Issuer or any other Person before proceeding against the
Guarantor, protest, notice of nonpayment, notice of dishonor, notice of
redemption and all other notices and demands.
SECTION 5.3. Obligations Not Affected.
The obligations, covenants, agreements and duties of the Guarantor
under this Guarantee Agreement shall in no way be affected or impaired by
reason of the happening from time to time of any of the following:
(a) the release or waiver, by operation of law or otherwise, of the
performance or observance by the Issuer of any express or implied agreement,
covenant, term or condition relating to the Securities to be performed or
observed by the Issuer;
(b) the extension of time for the payment by the Issuer of all or any
portion of the Distributions (other than an extension of time for payment of
Distributions that results from the extension of any interest payment period on
the Debentures as provided in the Indenture), Redemption Price, Liquidation
Distribution or any other sums payable under the terms of the Securities or the
extension of time for the performance of any other obligation under, arising
out of, or in connection with, the Securities;
(c) any failure, omission, delay or lack of diligence on the part of
the Holders to enforce, assert or exercise any right, privilege, power or
remedy conferred on the Holders pursuant to the terms of the Securities, or any
action on the part of the Issuer granting indulgence or extension of any kind;
<PAGE> 14
(d) the voluntary or involuntary liquidation, dissolution, sale of any
collateral, receivership, insolvency, bankruptcy, assignment for the benefit of
creditors, reorganization, arrangement, composition or readjustment of debt of,
or other similar proceedings affecting, the Issuer or any of the assets of the
Issuer;
(e) any invalidity of, or defect or deficiency in, the Securities;
(f) the settlement or compromise of any obligation guaranteed hereby
or hereby incurred; or
(g) any other circumstance whatsoever that might otherwise constitute
a legal or equitable discharge or defense of a guarantor, it being the intent
of this Section 5.3 that the obligations of the Guarantor hereunder shall be
absolute and unconditional under any and all circumstances.
There shall be no obligation of the Holders to give notice to, or obtain the
consent of, the Guarantor with respect to the happening of any of the
foregoing.
SECTION 5.4. Rights of Holders.
The Guarantor expressly acknowledges that: (i) this Guarantee
Agreement will be deposited with the Guarantee Trustee to be held for the
benefit of the Holders; (ii) the Guarantee Trustee has the right to enforce
this Guarantee Agreement on behalf of the Holders; (iii) the Holders of a
Majority in liquidation preference of the Securities have the right to direct
the time, method and place of conducting any proceeding for any remedy
available to the Guarantee Trustee in respect of this Guarantee Agreement or
exercising any trust or power conferred upon the Guarantee Trustee under this
Guarantee Agreement; and (iv) any Holder may institute a legal proceeding
directly against the Guarantor to enforce its rights under this Guarantee
Agreement, without first instituting a legal proceeding against the Guarantee
Trustee, the Issuer or any other Person.
SECTION 5.5. Guarantee of Payment
This Guarantee Agreement creates a guarantee of payment and not of
collection. This Guarantee Agreement will not be discharged except by payment
of the Guarantee Payments in full (without duplication of amounts theretofore
paid by the Issuer) or upon distribution of Debentures to Holders as provided
in the Trust Agreement.
SECTION 5.6. Subrogation.
The Guarantor shall be subrogated to all (if any) rights of the
Holders against the Issuer in respect of any amounts paid to the Holders by the
Guarantor under this Guarantee Agreement and shall have the right to waive
payment by the Issuer pursuant to Section 5.1; provided, however, that the
Guarantor shall not (except to the extent required by mandatory provisions of
law) be entitled to enforce or exercise any rights which it may acquire by way
of subrogation or any indemnity, reimbursement or other agreement, in all cases
as a result of payment under this Guarantee Agreement, if, at the time of any
such payment, any amounts are due and unpaid under this Guarantee Agreement. If
any amount shall be paid to the Guarantor in violation of the preceding
<PAGE> 15
sentence, the Guarantor agrees to hold such amount in trust for the Holders and
to pay over such amount to the Holders.
SECTION 5.7. Independent Obligations.
The Guarantor acknowledges that its obligations hereunder are
independent of the obligations of the Issuer with respect to the Securities and
that the Guarantor shall be liable as principal and as debtor hereunder to make
Guarantee Payments pursuant to the terms of this Guarantee Agreement
notwithstanding the occurrence of any event referred to in subsections (a)
through (g), inclusive, of Section 5.3 hereof.
ARTICLE VI. COVENANTS AND SUBORDINATION
SECTION 6.1. Subordination.
The obligations of the Guarantor under this Guarantee Agreement will
constitute unsecured obligations of the Guarantor and will rank subordinate and
junior in right of payment to all Senior Debt (as defined in the Indenture) of
the Guarantor, except those made pari passu or subordinate to such obligations
expressly by their terms. in the same manner as set forth in Article XIII of
the Indenture.
SECTION 6.2. Pari Passu Guarantees.
The obligations of the Guarantor under this Guarantee Agreement shall
rank pari passu with the obligations of the Guarantor under any similar
Guarantee Agreements issued by the Guarantor on behalf of the holders of
preferred securities issued by any Trust (as defined in the Indenture).
ARTICLE VII. TERMINATION
SECTION 7.1. Termination.
This Guarantee Agreement shall terminate and be of no further force and
effect upon (i) full payment of the Redemption Price of all Securities, (ii)
the distribution of Debentures to the Holders in exchange for all of the
Securities or (iii) full payment of the amounts payable in accordance with
the Trust Agreement upon liquidation of the Issuer. Notwithstanding the
foregoing, this Guarantee Agreement will continue to be effective or will be
reinstated, as the case may be, if at any time any Holder must restore
payment of any sums paid with respect to Securities or this Guarantee
Agreement.
ARTICLE VIII. MISCELLANEOUS
SECTION 8.1. Successors and Assigns.
All guarantees and agreements contained in this Guarantee Agreement
shall bind the successors, assigns, receivers, trustees and representatives of
the Guarantor and shall inure to the benefit of the Holders of the Securities
then outstanding. Except in connection with a consolidation, merger or sale
involving the Guarantor that is permitted under Article VIII of the Indenture
and pursuant to which the successor or assignee agrees in writing to perform
the Guarantor's obligations hereunder, the Guarantor shall not assign its
obligations hereunder.
SECTION 8.2. Amendments.
<PAGE> 16
Except with respect to any changes which do not adversely affect the
rights of the Holders or the Guarantee Trustee in any material respect (in
which case no consent of the Holders or the Guarantee Trustee, as the case may
be, will be required), this Guarantee Agreement may only be amended with the
prior approval of the Holders of not less than a Majority in Liquidation Amount
of all the outstanding Securities and of the Guarantee Trustee. The provisions
of Article VI of the Trust Agreement concerning meetings of the Holders shall
apply to the giving of such approval.
SECTION 8.3. Notices.
Any notice, request or other communication required or permitted to be
given hereunder shall be in writing, duly signed by the party giving such
notice, and delivered, telecopied or mailed by first class mail as follows:
(a) if given to the Guarantor, to the address set forth below or such
other address, facsimile number or to the attention of such other Person as the
Guarantor may give notice to the Holders:
MBNA Corporation
Wilmington, Delaware 19884
Facsimile No.: 302-456-8348
Attention: Vernon H.C. Wright
(b) if given to the Issuer, in care of the Guarantee Trustee, at the
Issuer's (and the Guarantee Trustee's) address set forth below or such other
address as the Guarantee Trustee on behalf of the Issuer may give notice to the
Holders:
MBNA Capital C
c/o MBNA Corporation
Wilmington, Delaware 19884
Facsimile No.: 302-456-8348
Attention: Vernon H.C. Wright
with a copy to:
The Bank of New York
101 Barclay Street, Floor 21 West
New York, New York 10286
Facsimile No.: 212-815-5915
Attention: Corporate Trust Administration
<PAGE> 17
(c) if given to any Holder, at the address set forth on the books and
records of the Issuer.
All notices hereunder shall be deemed to have been given when received
in person, telecopied with receipt confirmed, or mailed by first class mail,
postage prepaid, except that if a notice or other document is refused delivery
or cannot be delivered because of a changed address of which no notice was
given, such notice or other document shall be deemed to have been delivered on
the date of such refusal or inability to deliver.
SECTION 8.4. Consolidation, Merger, Conveyance, Transfer or Lease.
The Guarantor shall not consolidate with or merge into any other
Person or convey, transfer or lease its properties and assets substantially as
an entirety to any Person, and no Person shall consolidate with or merge into
the Guarantor or convey, transfer or lease its properties and assets
substantially as an entirety to the Guarantor, unless it has complied with the
terms of Section 8.1 of the Indenture.
SECTION 8.5. Benefit.
This Guarantee Agreement is solely for the benefit of the Holders and
is not separately transferable from the Securities.
SECTION 8.6. Interpretation.
In this Guarantee Agreement, unless the context otherwise requires:
(a) capitalized terms used in this Guarantee Agreement but not
defined in the preamble hereto have the respective meanings assigned to them in
Section 1.1;
(b) a term defined anywhere in this Guarantee Agreement has the same
meaning throughout;
(c) all references to "the Guarantee Agreement" or "this Guarantee
Agreement" are to this Guarantee Agreement as modified, supplemented or amended
from time to time;
(d) all references in this Guarantee Agreement to Articles and
Sections are to Articles and Sections of this Guarantee Agreement unless
otherwise specified;
(e) a term defined in the Trust Indenture Act has the same meaning
when used in this Guarantee Agreement unless otherwise defined in this
Guarantee Agreement or unless the context otherwise requires;
(f) a reference to the singular includes the plural and vice versa;
and
(g) the masculine, feminine or neuter genders used herein shall
include the masculine, feminine and neuter genders.
SECTION 8.7. Governing Law.
THIS GUARANTEE AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD
TO THE CONFLICT OF LAW PRINCIPLES THEREOF.
<PAGE> 18
This instrument may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
THIS GUARANTEE AGREEMENT is executed as of the day and year first above
written.
MBNA CORPORATION
By:
Name:
Title:
THE BANK OF NEW YORK
as Guarantee Trustee
------------------------
By:
Name:
Title:
------------------------
<PAGE> 1
OFFICER COMPENSATION
[NAME]
APRIL 21, 1997
<TABLE>
<S> <C>
Performance Options <Total>
Exercise Price $29.625
</TABLE>
The options are exercisable one-third on January 1 after the year MBNA's net
income after tax is $1 Billion and one-third on January 1 of each of the next
two years.
Additional terms are included in the 1997 Long Term Incentive Plan and the
Policies adopted for its administration. Copies may be obtained from the
Compensation Department.
<PAGE> 1
EXHIBIT
POUND STERLING 300,000,000
MULTICURRENCY REVOLVING CREDIT FACILITY AGREEMENT
between
MBNA INTERNATIONAL BANK LIMITED
as borrower
THE FIRST NATIONAL BANK OF CHICAGO
as lead arranger
BANK OF AMERICA INTERNATIONAL LIMITED
and
DEUTSCHE MORGAN GRENFELL
as co-arrangers
and
THE FIRST NATIONAL BANK OF CHICAGO
as agent
and
THE FINANCIAL INSTITUTIONS
referred to herein as Banks
as amended and restated pursuant to an Amendment
Agreement dated 11 October 1996
Clifford Chance
London
for the Borrower
and
Allen & Overy
London
for the Banks
<PAGE> 2
CONTENTS
<TABLE>
<CAPTION>
CLAUSE PAGE NO.
PART 1
INTERPRETATION
<S> <C> <C>
1. INTERPRETATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
PART 2
THE FACILITY
2. THE FACILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3. PURPOSE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4. CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5. NATURE OF BANKS' OBLIGATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
PART 3
UTILISATION OF THE FACILITY
6. UTILISATION OF THE FACILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
PART 4
INTEREST
7. INTEREST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
8. MARKET DISRUPTION AND ALTERNATIVE INTEREST RATES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
PART 5
REPAYMENT, CANCELLATION PREPAYMENT AND EXTENSION
9. REPAYMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
10. CANCELLATION, PREPAYMENT AND EXTENSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
PART 6
CHANGES IN CIRCUMSTANCES
11. TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
12. TAX RECEIPTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
13. INCREASED COSTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
14. ILLEGALITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
15. MITIGATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
PART 7
REPRESENTATIONS, COVENANTS AND EVENTS OF DEFAULT
<S> <C> <C>
16. REPRESENTATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
17. FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
18. FINANCIAL CONDITION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
19. COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
20. EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
PART 8
DEFAULT INTEREST AND INDEMNITY
21. DEFAULT INTEREST AND INDEMNITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
PART 9
PAYMENTS
22. CURRENCY OF ACCOUNT AND PAYMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
23. PAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
24. SET-OFF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
25. REDISTRIBUTION OF PAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
PART 10
FEES, COSTS AND EXPENSES
26. FEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
27. COSTS AND EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
PART 11
AGENCY PROVISIONS
28. THE AGENT, THE ARRANGERS AND THE BANKS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
PART 12
ASSIGNMENTS AND TRANSFERS
29. BENEFIT OF AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
30. ASSIGNMENTS AND TRANSFERS BY THE BORROWER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
31. ASSIGNMENTS AND TRANSFERS BY BANKS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
32. DISCLOSURE OF INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
PART 13
MISCELLANEOUS
<S> <C> <C>
33. CALCULATIONS AND EVIDENCE OF DEBT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
34. REMEDIES AND WAIVERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
35. AMENDMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
36. PARTIAL INVALIDITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
37. NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
PART 14
LAW AND JURISDICTION
38. LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
39. JURISDICTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
</TABLE>
<TABLE>
<CAPTION>
THE SCHEDULES
<S> <C> <C>
The First Schedule : The Banks
The Second Schedule : Form of Transfer Certificate
The Third Schedule : Condition Precedent Documents
The Fourth Schedule : Notice of Drawdown
The Fifth Schedule : Associated Costs Rate
The Sixth Schedule : Ecu
</TABLE>
<PAGE> 5
THIS AGREEMENT originally dated the twenty-fifth day of October, 1995 and
amended and restated as of the Commencement Date referred to in the Amendment
Agreement dated 11 October 1996 to which this Agreement is an exhibit, is made
BETWEEN
<PAGE> 6
(1) MBNA INTERNATIONAL BANK LIMITED (the "BORROWER");
(2) THE FIRST NATIONAL BANK OF CHICAGO (the "LEAD ARRANGER");
(3) BANK OF AMERICA INTERNATIONAL LIMITED and DEUTSCHE BANK AG LONDON (the
"CO-ARRANGERS", together with the Lead Arranger, the "ARRANGERS");
(4) THE FIRST NATIONAL BANK OF CHICAGO (the "AGENT"); and
(5) THE FINANCIAL INSTITUTIONS named in the First Schedule (the "BANKS").
NOW IT IS HEREBY AGREED as follows:
PART 1
INTERPRETATION
1. INTERPRETATION
1.1 In this Agreement:
"ADVANCE" means, save as otherwise provided herein, an advance made or to be
made by the Banks hereunder;
"AMENDMENT AGREEMENT" means the amendment agreement pertaining hereto and
executed on 11 October 1996;
"ASSOCIATED COSTS RATE" means, in relation to any Advance or unpaid sum
denominated in Sterling, the cost (to the extent that any Bank is required to
comply with such requirements in relation to the Facility) imputed to any Bank
of compliance with the mandatory liquid asset requirements of the Bank of
England during the Term of any such Advance or any such unpaid sum, determined
in accordance with the Fifth Schedule;
"AVAILABLE COMMITMENT" means, in relation to a Bank at any time and save as
otherwise provided herein, its Commitment at such time LESS the aggregate of
its portions of the Sterling Amounts of the Advances which are then outstanding
and, in the case of a proposed drawdown of the Facility only, so as to take
into account:
(i) any reduction in the Commitment of a Bank which will occur
prior to the commencement of, or during, the Term relating to
the proposed drawdown;
(ii) the Sterling Amounts of any Advances which, pursuant to any
other drawdown of the Facility, any Banks are then obliged to
make on or before the proposed drawdown date
- 2 -
<PAGE> 7
relating to such proposed drawdown; and
(iii) the Sterling Amounts of any Advances which are made by any
Bank pursuant hereto and which are due to be repaid on or
before the proposed drawdown date relating to such drawdown,
Provided that such amount shall not be less than zero;
"AVAILABLE FACILITY" means, at any time, the aggregate amount of the Available
Commitments at such time;
"COMMITTED CURRENCIES" means Belgian Francs, Danish Krone, Dutch Guilders,
French Francs, German Marks, Irish Pounds, Italian Lire, Portuguese Escudos,
Spanish Pesetas, Sterling, United States Dollars and Ecus,
Provided that on and after the Stage 3 Commencement Date any such currency
which is a Stage 3 Participating Currency shall cease to be a Committed
Currency whereupon the Euro shall become a Committed Currency;
"COMMITMENT" means, in relation to a Bank at any time and save as otherwise
provided herein, the amount set opposite its name in the First Schedule;
"CONTINUING BANK" shall have the meaning ascribed to it in Clause 10.5;
"COVERAGE DATE" means:
(i) in the event that the Borrower fails to deliver any financial
statements required to be delivered pursuant to Clause 17.1(i)
or (ii) on or before the date specified for such delivery in
such Clause, each day from such specified delivery date to the
date on which all such financial statements are actually
delivered; and
(ii) otherwise, any day if the Loss Ratio in respect of the period
of two consecutive financial semi-annual periods ending on the
last day of the most recent financial semi-annual period in
respect of which financial statements have been delivered
pursuant to Clause 17.1(i) or (ii) equals or exceeds five per
cent. (5%);
"COVERAGE RATIO" means, on any date, the ratio of (i) the amount of Eligible
Receivables as of the close of business on a business day not more than five
business days prior to such date (adjusted for any subsequent Securitisations
within the last five business days), as such date is selected by the Borrower
to (ii) the aggregate principal Sterling Amount of all Advances outstanding on
such date, after giving effect to any Advances due to be made;
"DEFAULT" means an Event of Default or an event which, with the giving of
notice, lapse of time or fulfilment of any other applicable condition (or any
combination of the foregoing), would constitute an Event of Default;
- 3 -
<PAGE> 8
"EFFECTIVE DATE" shall have the meaning ascribed to it in Clause 10.5;
"ELIGIBLE RECEIVABLES" means, on any date, the aggregate of:
(i) any Receivables which are owned by any member of the Group on
such date to the extent they are or would be reflected on a
consolidated balance sheet of the Borrower, prepared in
accordance with accounting principles generally accepted in
England and Wales and consistently applied; and
(ii) any Transferor's Retained Interests on such date,
in each case, other than any such Receivables or Transferors' Retained
Interests which are (a) in accounts (or, in the case of the Transferors'
Retained Interests, represent indirect interests in Receivables in accounts)
that are treated by the relevant member of the Group as non-accruing or that
have balances ninety days or more past due, (b) represent the Financed Portion
of Receivables subject to a Securitisation or (c) are otherwise subject to an
encumbrance;
"EVENT OF DEFAULT" means any of those events specified in Clause 20.1;
"FACILITY" means the multicurrency revolving credit facility granted to the
Borrower in this Agreement;
"FACILITY OFFICE" means, in relation to the Agent or any Bank, the office
identified with its signature below (or, in the case of a Transferee, at the
end of the Transfer Certificate to which it is a party as Transferee) or such
other office as it may from time to time select and notify to the Borrower;
"FINAL MATURITY DATE" means 25 October 2000 (or if such day is not a business
day, the immediately succeeding business day), as the same may be extended
pursuant to Clause 10.5 hereof;
"FINANCED PORTION" means at any time, with respect to Receivables subject to a
Securitisation, an amount of such Receivables equal to the aggregate amount of
then outstanding debt or equity instruments or securities (other than any
Transferors' Retained Interests) issued in connection with such Securitisation,
in each case determined in accordance with accounting principles generally
accepted in England and Wales and consistently applied;
"GROUP" means, at any time, the Borrower and its subsidiaries;
"INSTRUCTING GROUP" means,
(i) whilst no Advances are outstanding hereunder, a Bank or group of Banks
whose Commitments amount (or, if each Bank's Commitment has been
reduced to zero, did immediately before such reduction to zero amount)
in aggregate to more than sixty-six and two thirds per cent. of the
Total Commitments; and
(ii) whilst at least one Advance is outstanding hereunder, a Bank or group
of Banks to whom in
- 4 -
<PAGE> 9
aggregate more than sixty-six and two thirds per cent. of the Sterling
Amount of the Loan is owed;
"LETTER OF COMFORT" means the letter from the Parent addressed to the Agent
(for and on behalf of the Banks) and dated 25 October 1995;
"LETTER OF SUPPORT" means the letter dated 30 June, 1993 from the Parent to the
Bank of England in respect of the liabilities of the Borrower;
"LIBOR" means:
A. in relation to any Advance or unpaid sum denominated in a currency
(other than Belgian Francs, Danish Krone or Irish Pounds) the rate per
annum determined by the Agent to be equal to the arithmetic mean
(rounded upwards to the nearest four decimal places) of:
(i) the offered quotations which appear on the appropriate page
(being the relevant page set out below or as the same may be
replaced from time to time) of the Reuter Monitor Money Rates
Service for the display of London Interbank Offered Rates for
the currency of the relevant amount and for the specified
period at or about 11.00 a.m. on the Quotation Date for such
specified period
<TABLE>
<CAPTION>
CURRENCY REUTERS PAGE
<S> <C>
Dutch Guilder FRBG
French Franc FRBF
German Mark FRBD
Italian Lire FRBG
Portuguese Escudo FRBH
Spanish Peseta FRBG
Sterling FRBD
United States Dollar FRBD
ECU FRBE; or
</TABLE>
(ii) if the Reuter Monitor Money Rates Service shall cease to be
available, the offered quotation which appears on the
appropriate page (being the relevant page set out below or as
the same may be replaced from time to time) of the Telerate
screen which displays British Bankers Association Interest
Settlement Rates for deposits in the currency of the relevant
amount for the specified period at or about 11.00 a.m. on the
Quotation Date for such specified period
<TABLE>
<CAPTION>
CURRENCY TELERATE PAGE
<S> <C>
Dutch Guilder 3740
French Franc 3740
German Mark 3750
</TABLE>
- 5 -
<PAGE> 10
<TABLE>
<S> <C>
Italian Lire 3740
Portuguese Escudo 3770
Spanish Peseta 3740
Sterling 3750
United States Dollars 3750
ECU N/A; or
</TABLE>
(iii) if the Reuter Monitor Money Rates Service shall cease to be
available and no quotation appears on the appropriate page of
the Telerate screen for the relevant currency for the
specified period or if no such display rate is then available
for the relevant currency for such specified period, the rates
(as notified to the Agent) at which each of the Reference
Banks was offering to prime banks in the London Interbank
Market deposits in the currency of such amount and for such
specified period at or about 11.00 a.m. on the Quotation Date
for such specified period;
B. in relation to any Advance or unpaid sum denominated in Danish Krone
or Irish Pounds, the rate per annum determined by the Agent to be
equal to the arithmetic mean (rounded upwards to the nearest four
decimal places) of the rates (as notified to the Agent) at which each
of the Reference Banks was offering to prime banks in the London
Interbank Market deposits in Danish Krone or Irish Pounds for such
specified period at or about 11.00 a.m. on the Quotation Date for such
specified period; and
C. in relation to any Advance or unpaid sum denominated in Belgian
Francs, the rate per annum determined by the Agent to be equal to the
arithmetic mean (rounded upwards to the nearest four decimal places)
of the offered quotations which appear on Page BE Fixing of the Reuter
Monitor Money Rates Service for the display of London Interbank
Offered Rates for the currency of the relevant amount and for the
specified period at or about 11.00 a.m. on the Quotation Date for such
period Provided that if no such display rate is then available for
Belgian Francs for such specified period, the rate per annum
determined by the Agent to be equal to the arithmetic mean (rounded
upwards to the nearest four decimal places) of the rates (as notified
to the Agent) at which each of the Reference Banks was offering to
banks in the London Interbank Market deposits in Belgian Francs for
such specified period at or about 11.00 a.m. on the Quotation Date for
such specified period,
and, for the purposes of paragraphs A, B and C of this definition, "SPECIFIED
PERIOD" means the Term of such Advance or, as the case may be, the relevant
period in respect of which LIBOR falls to be determined in relation to such
unpaid sum;
"LIQUIDITY FACILITY" means the advances facility provided by the Parent to the
Borrower in a minimum amount of pound sterling 150,000,000 or any replacement
facility thereof;
"LOAN" means the aggregate principal amount for the time being outstanding
hereunder;
- 6 -
<PAGE> 11
"LOSS RATIO" means, in respect of any period of two consecutive financial
semi-annual periods of the Borrower, the ratio of (i) the aggregate credit
losses net of recoveries and purification of interest and fees with respect to
Managed Credit Card Receivables during such period to (ii) the average
aggregate amount of Managed Credit Card Receivables;
"MANAGED CREDIT CARD RECEIVABLES" shall have the meaning ascribed to it in
Clause 18.2(ii);
"MARGIN" means 0.2% (one fifth of one per cent.) per annum;
- 7 -
<PAGE> 12
"MATERIAL ADVERSE EFFECT" means a material adverse effect on (i) the business,
assets, operations or financial condition of the Borrower or the Group as a
whole, (ii) the ability of the Borrower to perform its obligations hereunder or
(iii) the rights or remedies of the Banks hereunder;
"MATERIAL SUBSIDIARY" means, at any time, a subsidiary of the Borrower:
(a) whose net profits (or, in the case of a subsidiary which
itself has subsidiaries, consolidated net profits) before
taxation and, where appropriate, profits and/losses on sale or
termination of operations as shown by the latest audited
profit and loss account of that subsidiary is at least 10 per
cent. of Group Profit (as defined below) as shown by the
latest published audited consolidated profit and loss account
of the Borrower and its subsidiaries; or
(b) whose total assets (or, in the case of a subsidiary which
itself has subsidiaries, consolidated total assets) as shown
by the latest audited balance sheet of that subsidiary amount
in value to at least 10 per cent. of the consolidated total
assets of the Borrower and its subsidiaries as shown by the
latest published audited consolidated balance sheet of the
Group; or
(c) to which has been transferred (whether by one transaction or a
series of transactions, related or not) the whole or
substantially the whole of the assets of a subsidiary which
immediately prior to such transaction or any such transactions
was a Material Subsidiary; or
(d) to which has been transferred assets or an undertaking which,
taken together with the assets of the transferee subsidiary,
amount in value to at least 10 per cent. of the consolidated
assets of the Group as shown by the latest published audited
consolidated balance sheet of the Group,
Provided however that:
(i) a subsidiary which has become a Material Subsidiary pursuant
to the provisions of section (c) or (d) of the definition
shall cease to be a Material Subsidiary after whichever is the
later of the first date of publication of the first audited
consolidated profit and loss account and consolidated balance
sheet of the Group prepared as of a date after such subsidiary
became a Material Subsidiary and the date of the report of the
auditors of that subsidiary on or relating to the first
audited profit and loss account and balance sheet of such
subsidiary prepared as of a date after such subsidiary became
a Material Subsidiary unless it remains to be treated as a
Material Subsidiary pursuant to the provisions of section (a)
or (b) of this definition;
(ii) each of the audited consolidated profit and loss accounts and
consolidated balance sheets of the Group shall be adjusted in
such manner as the auditors of the Borrower think fair and
appropriate to take account of the subsidiaries acquired or
disposed of after the date to or at which such profit and loss
account or balance sheet is made up and of subsidiaries
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<PAGE> 13
excluded from consolidation therein;
(iii) references herein to the audited consolidated profit and loss
account and consolidated balance sheet of a subsidiary which
has subsidiaries shall be construed as references to the
audited consolidated profit and loss account and consolidated
balance sheet of such subsidiary and its subsidiaries, if such
are required to be produced and audited or, if no such profit
and loss account or balance sheet are required to be produced
and audited, pro forma consolidated profit and loss account
and consolidated balance sheet prepared for the purposes of
the report by the auditors of the Borrower referred to below;
and
(iv) the said net profit or consolidated profit and the said total
assets or consolidated total assets of any subsidiary shall,
if expressed in a currency other than Sterling, be translated
into Sterling for the purpose of this definition at the rates
of exchange used for the purposes of the preparation of the
published audited profit and loss account or balance sheet of
the Group or such other rates as the auditors of the Borrower
may consider appropriate.
A report by the auditors of the Borrower that in their opinion a subsidiary is
or is not or was or was not at any particular time or during any particular
period a Material Subsidiary shall, in the absence of manifest error, be
conclusive and binding on all concerned and for the purpose of this definition
"GROUP PROFIT" shall mean the consolidated net profit before taxation (and,
where appropriate, profits and/or losses on sale or termination of operations)
of the Group, taking credit for any profits of, and deducting any loss, of any
corporation which is not a subsidiary to the extent that the same is
attributable to the Borrower and is included in the audited consolidated profit
and loss account of the Group, without making any deduction in respect of
minority interests held by any person who is not a member of the Group;
"NOTICE OF DRAWDOWN" means a notice substantially in the form set out in the
Fourth Schedule;
"OPTIONAL CURRENCY" means any currency (other than Sterling and any Committed
Currency) which is freely transferable and freely convertible into Sterling;
"ORIGINAL CONSOLIDATED FINANCIAL STATEMENTS" means the audited consolidated
financial statements of the Borrower for its financial year ended 31 December
1995;
"ORIGINAL STERLING AMOUNT" means, in relation to an Advance, the amount thereof
requested in the Notice of Drawdown relating thereto (as the same may be
reduced pursuant to Clause 6.5) or, if such Advance is not denominated in
Sterling, the equivalent of such amount (as the same may be so reduced) in
Sterling, calculated as at the date of such Notice of Drawdown;
"PARENT" means MBNA America Bank, N.A.;
"PROPORTION" means, in relation to a Bank:
(i) whilst no Advances are outstanding hereunder, the proportion
borne by its Commitment to the Total Commitments (or, if the
Total Commitments are then zero, by its
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<PAGE> 14
Commitment to the Total Commitments immediately prior to their
reduction to zero); or
(ii) whilst at least one Advance is outstanding hereunder, the
proportion borne by its share of the Sterling Amount of the
Loan to the Sterling Amount of the Loan;
"QUALIFYING BANK" means any person who is a bank for the purposes of Section
349 of the Income and Corporation Taxes Act 1988 (a "SECTION 349 BANK") and,
with respect to any interest payable to such person hereunder, such person is
within the charge to United Kingdom corporation tax as respects such interest
at the time when such interest is paid;
"QUOTATION DATE" means, in relation to any period for which an interest rate is
to be determined hereunder, the day on which quotations would ordinarily be
given by prime banks in the London Interbank Market for deposits in the
currency in relation to which such rate is to be determined for delivery on the
first day of that period, provided that, if for any such period quotations
would ordinarily be given on more than one date, the Quotation Date for that
period shall be the last of those dates;
"RECEIVABLES" means any credit card or other loan receivables which have arisen
in the ordinary course of business of any member of the Group (including,
without limitation, through the purchase of any body corporate or any loan
assets);
"REFERENCE BANKS" means:
(i) in respect of Belgian Francs, the principal London offices of
Kredietbank N.V., Deutsche Bank AG, Banque Bruxelles Lambert,
Generale Bank and Morgan Guaranty Trust Company of New York;
(ii) in respect of Danish Krone, the principal London offices of
Den Danske Bank Aktieselskab, Deutsche Bank AG, The First
National Bank of Chicago, Jyske Bank and Unibank;
(iii) in respect of Irish Pounds, the principal London offices of
Allied Irish Bank plc, Bank of Ireland, Barclays Bank PLC,
Deutsche Bank AG and The First National Bank of Chicago; and
(iv) in respect of all other currencies, the principal London
offices of Bank of America National Trust and Savings
Association, Barclays Bank PLC, Deutsche Bank AG London, The
First National Bank of Chicago and Lloyds Bank Plc;
or, in any such case, such other bank or banks as may from time to time be
agreed between the Borrower and an Instructing Group;
"REPAYMENT DATE" means, in relation to any Advance, the last day of the Term
thereof;
"SECURITISATION" means the transfer or pledge of assets or interests in assets
to a trust, partnership, corporation or other entity, which transfer or pledge
is funded by such entity in whole or in part by the
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<PAGE> 15
issuance of instruments or securities that are paid principally from the
cashflow derived from such assets or interests in assets;
"SELECTED CURRENCY" is defined in Clause 22.2;
"STAGE 3 COMMENCEMENT DATE" means the date set by the European Council for the
commencement of Stage 3 of the European Monetary Union as referred to in The
Treaty on European Union of 7 February 1992;
"STAGE 3 PARTICIPATING CURRENCY" means those currencies of the member states of
the European Community which participate in Stage 3 of the European Monetary
Union as referred to in The Treaty on European Union of 7 February 1992 and
shall include the Ecu;
"STERLING AMOUNT" means:
(a) in relation to any Advance, its Original Sterling Amount as
reduced by the proportion (if any) of such Advance which has
been repaid; and
(b) in relation to the Loan, the aggregate of the Sterling Amounts
of the outstanding Advances;
"TERM" means, save as otherwise provided herein, in relation to any Advance,
the period for which such Advance is borrowed as specified in the Notice of
Drawdown relating thereto which, in the case of an Advance to be denominated in
a Stage 3 Participating Currency which is to be made prior to the Stage 3
Commencement Date, shall not extend beyond the Stage 3 Commencement Date;
"TOTAL COMMITMENTS" means, at any time, the aggregate of the Banks'
Commitments;
"TRANSFER CERTIFICATE" means a certificate substantially in the form set out in
the Second Schedule signed by a Bank, a Transferee and the Agent whereby:
(i) such Bank seeks to procure the transfer to such Transferee of
all or a part of such Bank's rights and obligations hereunder
upon and subject to the terms and conditions set out in Clause
31; and
(ii) such Transferee undertakes to perform the obligations it will
assume as a result of delivery of such certificate to the
Agent as is contemplated in Clause 31.3;
"TRANSFER DATE" means, in relation to any Transfer Certificate, the date for
the making of the transfer as specified in the schedule to such Transfer
Certificate;
"TRANSFEREE" means a bank or other financial institution to which a Bank seeks
to transfer all or part of such Bank's rights and obligations hereunder;
"TRANSFERORS' RETAINED INTERESTS" means any beneficial debt or equity interest
held by any member of
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<PAGE> 16
the Group in any trust, partnership, corporation or other entity to which
Receivables of any member of the Group have been transferred in a
Securitisation and, for the purposes hereof, the amount of the Transferors'
Retained Interests at any date shall be the amount that would be reflected on a
consolidated balance sheet of the Group at such date prepared in accordance
with accounting principles generally accepted in England and Wales and
consistently applied together with any amount which would be so reflected but
for any financing relating thereto which does not transfer any ownership
therein; and
"TREATY" means the European Community Treaty being the treaty establishing the
European Community dated 1957, as amended by subsequent treaties, in particular
as amended by the Treaty on European Union and as may, from time to time, be
further amended or supplemented.
1.2 Any reference in this Agreement to:
the "AGENT" "ARRANGERS" or any "BANK" shall be construed so as to include its
and any subsequent successors, Transferees and assigns in accordance with their
respective interests;
a "BUSINESS DAY" shall be construed as a reference to a day (other than a
Saturday or Sunday) on which (i) banks are generally open for business in
London and (ii) if such reference relates to a date for the payment or purchase
of any sum denominated in:
(a) an Optional Currency or a Committed Currency (other than Ecu or Euro),
banks generally are open for business in the principal financial
centre of the country of such Optional Currency or Committed Currency;
(b) Ecu, (1) the Ecu Clearing and Settlement System operated by the Ecu
Banking Association (or, if such clearing system ceases to be
operative, such other clearing system (if any) reasonably determined
by the Agent to be a successor hereto) is open for business and (2)
banks generally are open for business in the financial centre then
relevant for the purposes of paragraph (ii) of Clause 23.1; and
(c) Euro, (1) the clearing and settlement system generally used for the
purposes of clearing and settlement of Euro for transactions of the
type contemplated herein as reasonably determined by the Agent is open
for business and (2) banks are generally open for business in the
financial centre then relevant for the purposes of paragraph (ii) of
Clause 23.1;
a "CURRENCY" includes the Ecu and, for the avoidance of doubt, on and after the
Stage 3 Commencement Date, the Euro;
a "CLAUSE" shall, subject to any contrary indication, be construed as a
reference to a clause hereof;
an "ENCUMBRANCE" shall be construed as a reference to a mortgage, charge,
pledge, lien, assignment by way of security, retention of title or other
security interest;
"EQUITY SHARE CAPITAL" has the meaning ascribed to it in s744 of the Companies
Act 1985;
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<PAGE> 17
the "EQUIVALENT" on any given date in one currency (the "FIRST CURRENCY") of an
amount denominated in another currency (the "SECOND CURRENCY") is a reference
to the amount of the first currency which could be purchased with the amount of
the second currency at the spot rate of exchange quoted by the Agent at or
about 9.15 a.m. on such date for the purchase of the first currency with the
second currency;
"HOLDING COMPANY" of a person shall be construed as a reference to any person
of which the first-mentioned person is a subsidiary;
"INDEBTEDNESS" shall be construed so as to include any obligation (whether
incurred as principal or as surety) for the payment or repayment of money,
whether present or future, actual or contingent;
"INDEBTEDNESS FOR BORROWED MONEY" shall be construed as a reference to any
indebtedness of any person for or in respect of:
(i) all indebtedness for money borrowed by such person or
for the deferred purchase price of property or
services (other than current trade liabilities
incurred in the ordinary course of business and
payable in accordance with customary practices);
(ii) any other indebtedness for money borrowed by such
person which is evidenced by a note, bond, debenture
or similar instrument;
(iii) all obligations of such person in respect of
acceptances issued or created for the account of such
person;
(iv) all liabilities secured by any encumbrance on any
property owned by such person even though such person
has not assumed or otherwise become liable for the
payment thereof; and
(v) contingent obligations of such person in respect of
indebtedness of others of a type specified in any of
(i) to (iv) above (other than any undrawn lines of
credit or undrawn credit commitments to any persons),
provided that indebtedness for borrowed money shall not include with respect to
any such person which is a bank:
(a) indebtedness for borrowed money in respect of retail
deposits held by such person;
(b) indebtedness for borrowed money in respect of
agreements in the ordinary course of business to
purchase or repurchase securities or loans; and
(c) contingent liabilities incurred in the ordinary
course of banking business (including banker's
acceptances, trade acceptances, letters of credit and
finance acceptances),
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<PAGE> 18
and provided further that each of the foregoing items in this definition shall
be deemed to constitute indebtedness for borrowed money only to the extent it
would be (or in the case of contingent obligations, the indebtedness for
borrowed money of the primary obligor would be) required to be reflected as a
liability by generally accepted accounting principles in England and Wales;
a "MONTH" is a reference to a period starting on one day in a calendar month
and ending on the numerically corresponding day in the next succeeding calendar
month save that, where any such period would otherwise end on a day which is
not a business day, it shall end on the next succeeding business day, unless
that day falls in the calendar month succeeding that in which it would
otherwise have ended, in which case it shall end on the immediately preceding
business day Provided that, if a period starts on the last business day in a
calendar month or if there is no numerically corresponding day in the month in
which that period ends, that period shall end on the last business day in that
later month (and references to "MONTHS" shall be construed accordingly);
a "PART" shall, subject to any contrary indication, be construed as a reference
to a part hereof;
a "PERSON" shall be construed as a reference to any person, firm, company,
corporation, government, state or agency of a state or any association or
partnership (whether or not having separate legal personality) of two or more
of the foregoing;
a "SCHEDULE" shall, subject to any contrary indication, be construed as a
reference to a schedule hereto;
a "SUBSIDIARY" of a company or corporation shall be construed as a reference to
any company or corporation:
(i) which is controlled, directly or indirectly, by the
first-mentioned company or corporation;
(ii) more than half the issued share capital of which is
beneficially owned, directly or indirectly, by the
first-mentioned company or corporation; or
(iii) which is a subsidiary of another subsidiary of the
first-mentioned company or corporation
and, for these purposes, a company or corporation shall be treated as being
controlled by another if that other company or corporation is able to direct
its affairs and/or to control the composition of its board of directors or
equivalent body;
"TAX" shall be construed so as to include any tax, levy, impost, duty or other
charge of a similar nature (including, without limitation, any penalty or
interest payable in connection with any failure to pay or any delay in paying
any of the same);
"VALUE" in relation to the definitions of "Ecu" and/or "ECU" shall have the
same meaning as in articles 109 g and 109 l(4) of the Treaty;
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<PAGE> 19
"VAT" shall be construed as a reference to value added tax including any
similar tax which may be imposed in place thereof from time to time; and
the "WINDING-UP", "DISSOLUTION" or "ADMINISTRATION" of a company or corporation
shall be construed so as to include any equivalent or analogous proceedings
under the law of the jurisdiction in which such company or corporation is
incorporated or any jurisdiction in which such company or corporation carries
on business including proceedings relating to liquidation, winding-up,
reorganisation, dissolution, administration, arrangement or adjustment of debts
or protection or relief of debtors.
1.3 "POUND STERLING" and "STERLING" denote the lawful currency of the
United Kingdom, "BELGIAN FRANC" denotes the lawful currency of Belgium, "DANISH
KRONE" denotes the lawful currency of the Kingdom of Denmark, "DUTCH GUILDER"
denotes the lawful currency of the Kingdom of the Netherlands, "ECU" denotes a
unit of account identical in value to the ECU (or European Currency Unit) and
"ECU" denotes the unit of account for the time being used in the European
Community and described in the Sixth Schedule (ECU), "EURO" denotes on and
after the Stage 3 Commencement Date, the unit of account from time to time of
the European Communities, "FRENCH FRANC" denotes the lawful currency of the
Republic of France, "GERMAN MARK" denotes the lawful currency of the Federal
Republic of Germany, "IRISH POUND" denotes the lawful currency of the Republic
of Ireland, "ITALIAN LIRE" denotes the lawful currency of the Republic of
Italy, "PORTUGUESE ESCUDO" denotes the lawful currency of the Republic of
Portugal, "SPANISH PESETA" denotes the lawful currency of the Kingdom of Spain
and "UNITED STATES DOLLAR" denotes the lawful currency of the United States of
America.
1.4 Save where the contrary is indicated, any reference in this Agreement
to:
(i) this Agreement or any other agreement or document
shall be construed as a reference to this Agreement
or, as the case may be, such other agreement or
document as the same may have been, or may from time
to time be, amended, varied, novated or supplemented;
(ii) a statute shall be construed as a reference to such
statute as the same may have been, or may from time
to time be, amended or re-enacted; and
(iii) a time of day shall be construed as a reference to
London time.
1.5 Clause, Part and Schedule headings are for ease of reference only.
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PART 2
THE FACILITY
2. THE FACILITY
The Banks grant to the Borrower, upon the terms and subject to the conditions
hereof, a multicurrency revolving credit facility in an aggregate amount of
pound sterling 300,000,000 or its equivalent from time to time in Committed
Currencies and/or Optional Currencies.
3. PURPOSE
3.1 The Facility is intended for general corporate purposes.
3.2 Neither the Agent, the Arrangers and the Banks nor any of them shall
be obliged to concern themselves with the application of amounts raised by the
Borrower hereunder.
4. CONDITIONS PRECEDENT
Save as the Banks may otherwise agree, the Borrower may not deliver any Notice
of Drawdown hereunder unless the Agent has confirmed to the Borrower and the
Banks that it has received all of the documents listed in the Third Schedule
and that each is, in form and substance, satisfactory to the Agent. The Agent
undertakes to give such confirmation promptly upon its having received all such
documents and found them to be satisfactory.
5. NATURE OF BANKS' OBLIGATIONS
5.1 The obligations of each Bank hereunder are several.
5.2 The failure by a Bank to perform its obligations hereunder shall not
affect the obligations of the Borrower towards any other party hereto nor shall
any other party be liable for the failure by such Bank to perform its
obligations hereunder.
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<PAGE> 21
PART 3
UTILISATION OF THE FACILITY
6. UTILISATION OF THE FACILITY
6.1 Save as otherwise provided herein, an Advance will be made by the
Banks to the Borrower if:
(i) not more than ten business days nor later than 10.00
a.m. on the first business day (in the case of an
Advance to be made in Sterling) or later than 10.00
a.m. on the third business day (in the case of an
Advance to be made in another Committed Currency or
in an Optional Currency) before the proposed date for
the making of such Advance, the Agent has received
from the Borrower a Notice of Drawdown therefor,
receipt of which shall oblige the Borrower to borrow
the amount therein requested on the date therein
stated upon the terms and subject to the conditions
contained herein;
(ii) the proposed date for the making of such Advance is a
business day falling one month or more before the
Final Maturity Date;
(iii) the relevant Notice of Drawdown states the currency
of denomination of the Advance requested, which shall
be a Committed Currency or an Optional Currency,
provided that, if the Borrower selects an Optional
Currency, the Borrower may also select a Committed
Currency which is to apply if its selection of such
Optional Currency becomes ineffective pursuant to
Clause 6.2;
(iv) upon the making of such Advance there will be no more
than fifteen Advances then outstanding hereunder and
the Loan will not be denominated in more than five
Optional Currencies;
(v) the proposed amount of such Advance is (a) a minimum
amount of pound sterling 5,000,000 and an integral
multiple of pound sterling 1,000,000 or (b) equal to
the amount of the Available Facility (or, in either
case, if the Advance is to be denominated in another
Committed Currency or an Optional Currency, such
comparable amount thereof as the Agent may from time
to time specify following discussions with the
Borrower);
(vi) the proposed Term of such Advance is a period of:
(a) one, two, three, six or nine months,
(b) (in the case of a Term relating to an Advance
denominated in a Stage 3 Participating
Currency which would otherwise extend beyond
the Stage 3 Commencement Date) such duration
that it shall end on such date, or
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<PAGE> 22
(c) such other period as may be agreed between
the Borrower and the Agent (acting on the
instructions of the Banks), which in the case
of (a) and (b) above ends initially on a day
which is or precedes the Existing Maturity
Date and thereafter on a day which is or
precedes the Requested Maturity Date (as both
these terms are defined in Clause 10.5);
(vii) either:
(a) no Default is outstanding or would result from
the making of the Advance; and
(b) the representations set out in Clauses 16.1
and 16.2 are true on and as of the proposed
date for the making of such Advance,
or the Banks agree (notwithstanding any matter
mentioned at (b) above or that an Event of Default is
outstanding or would result from the making of the
Advance) to the making of such Advance.
6.2 If the Borrower requests that an Advance be denominated in an Optional
Currency but:
(i) no later than 12.00 noon on the third business day preceding
the first day of the Term of such Advance, any Bank notifies
the Agent that it does not agree to such request; or
(ii) no later than 11.00 a.m. on the Quotation Date for such
Advance, the Agent notifies the Borrower and the Banks that
the Agent is of the opinion that it is not feasible for such
Advance to be denominated in such Optional Currency,
then, unless the Borrower and the Banks otherwise agree, such Advance shall not
be made unless the Borrower specified in the Notice of Drawdown in respect of
such Advance that in such event such Advance should be denominated in a
Committed Currency in which case such Advance shall be made in such Committed
Currency in an amount equal to the Original Sterling Amount relating to such
Notice of Drawdown.
6.3 If the date on which a Notice of Drawdown is delivered pursuant to
Clause 6.1 is a Coverage Date, the Coverage Ratio on such date shall equal or
exceed one hundred and fifteen per cent. (115%) and the Borrower shall deliver
to the Agent together with such Notice of Drawdown a certificate, dated the
same date as the Notice of Drawdown, setting out, in reasonable detail, a
computation of such Coverage Ratio.
6.4 Each Bank will participate through its Facility Office in each Advance
made pursuant to Clause 6.1 in the proportion borne by its Available Commitment
to the Available Facility immediately prior to the making of that Advance.
6.5 If a Bank's Commitment is reduced in accordance with the terms hereof
(other than pursuant to
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<PAGE> 23
Clause 31) after the Agent has received the Notice of Drawdown for an Advance,
then both the Original Sterling Amount and the actual amount of that Advance
shall be reduced accordingly.
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<PAGE> 24
PART 4
INTEREST
7. INTEREST
7.1 Subject to Clause 7.3 hereof, on the Repayment Date relating to each
Advance the Borrower shall pay accrued interest on that Advance.
7.2 The rate of interest applicable to an Advance from time to time during
its Term shall be the rate per annum which is the sum of the Margin, the
Associated Costs Rate (in the case of Advances denominated in Sterling) in
respect thereof at such time (if applicable) and LIBOR on the Quotation Date
therefor.
7.3 If an Advance is made for a Term exceeding six months, the Borrower
shall pay interest accrued on that Advance on the date which is six months
following the date such Advance is made in respect of the period of the Term
elapsed and shall pay interest accrued in respect of the remaining period of
the Term terminating on the Repayment Date relating to such Advance on such
Repayment Date.
8. MARKET DISRUPTION AND ALTERNATIVE INTEREST RATES
8.1 If, in relation to any Advance:
(i) the Agent informs the Borrower that at or about 11.00 a.m.
on the Quotation Date for such Advance, neither the Reuter
Monitor Money Rates Service nor the Telerate Screen Service
quotation was available and none or only one of the
Reference Banks was offering to prime banks in the London
Interbank Market (or in respect of Belgian Francs, the
Brussels Interbank Market) deposits in the currency in which
such Advance is to be denominated for the proposed Term of
such Advance; or
(ii) before the close of business on the Quotation Date for such
Advance, the Agent has been notified by a Bank or each of a
group of Banks to whom in aggregate fifty per cent. or more
of the Advance to be made would be owed, that the rate at
which deposits in the currency in which such Advance is to
be denominated for the proposed Term of such Advance were
being offered in the London Interbank Market (or in respect
of Belgian Francs, the Brussels Interbank Market) does not
accurately reflect the cost to it of obtaining such
deposits,
then, notwithstanding the provisions of Clause 7:
(a) the Agent shall notify the other parties hereto of such
event;
(b) the Borrower shall promptly notify the Agent whether or not
it would like such Advance to be made;
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<PAGE> 25
(c) the Agent and the Borrower shall enter into negotiations
forthwith with a view to agreeing a substitute basis for
determining the rates of interest which may be applicable to
Advances in the future Provided that such negotiations shall
not continue for a period exceeding thirty days from the
date when the Agent gave the notification in (a) above; and
(d) the duration of the Term of any Advance which proceeds on
the basis of a rate agreed pursuant to (c) above shall be,
at the Borrower's option, for any period not exceeding one
month.
Any such substitute basis that is agreed shall take effect in accordance with
its terms and be binding on each party hereto Provided that the Agent may not
agree any such substitute basis without the prior consent of each Bank.
8.2 If no substitute basis is agreed pursuant to Clause 8.1 in respect of
an Advance affected by Clause 8.1 before the end of the Term of such Advance,
each Bank's portion of any such Advance shall bear interest during its Term at
the rate per annum determined by the Agent to be the sum of the Margin and
Associated Costs Rate in respect thereof at such time (if applicable) and the
cost to such Bank (as certified by it to the Agent with a copy to the Borrower
and expressed as a rate per annum) of funding such portion of such Advance from
whatever source it may reasonably select.
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<PAGE> 26
PART 5
REPAYMENT, CANCELLATION PREPAYMENT AND EXTENSION
9. REPAYMENT
9.1 The Borrower shall repay each Advance made to it in full on the
Repayment Date relating thereto.
9.2 The Borrower shall not repay all or any part of any Advance
outstanding hereunder except at the times and in the manner expressly provided
herein but, subject to the terms and conditions hereof, shall be entitled to
re-borrow any amount repaid.
10. CANCELLATION, PREPAYMENT AND EXTENSION
10.1 The Borrower may, by giving to the Agent not less than thirty days'
prior notice to that effect, cancel the whole or any part (being a minimum
amount of pound sterling 5,000,000 and an integral multiple of pound sterling
5,000,000) of the Available Facility. Any such cancellation shall reduce the
Commitment of each Bank rateably.
10.2 Any notice of cancellation given by the Borrower pursuant to Clause
10.1 shall be irrevocable and shall specify the date upon which such
cancellation is to be made and the amount of such cancellation.
10.3 If the Borrower becomes obliged to pay any tax or other amount for the
account of any Bank under Clause 11.1 or if any Bank claims indemnification
from the Borrower under Clause 11.2 or Clause 13.1, the Borrower may, within
thirty days thereafter and by not less than five days' prior notice to the
Agent (which notice shall be irrevocable), either:
(i) cancel such Bank's Commitment whereupon such Bank
shall cease to be obliged or entitled to participate
in further Advances and its Commitment shall be
reduced to zero; or
(ii) in consideration for payment of the amount of its
participation in the Loan and any accrued interest
thereon, require such Bank (at the Borrower's
expense) to transfer forthwith its rights, benefits
and/or obligations hereunder in accordance with
Clause 31.3 to such one or more other banks or
financial institutions as the Borrower, with the
prior approval of the Agent (such approval not to be
unreasonably withheld), may have nominated as a
Transferee.
10.4 The Borrower may, by giving to the Agent not less than five business
days' prior notice to that effect, prepay in the currency of such Advance the
whole or any part (the Sterling Amount of which being a minimum amount of pound
sterling 5,000,000 and an integral multiple of pound sterling 1,000,000 or in
the case of an Advance denominated in another Committed Currency or an Optional
Currency, such comparable amount thereof as may be agreed between the Agent and
the Borrower) of any Advance on any business day. Any such repayment must be
accompanied by accrued interest and any amount payable as a result of the
provisions
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of Clause 21.4 and shall satisfy the Borrower's obligations under Clause 9.1
pro tanto.
10.5 (i) The Borrower may request, in a notice given as herein
provided to the Agent during the sixty day period commencing on the date that
is two years prior to the initial Final Maturity Date (the "EXISTING MATURITY
DATE"), that the Final Maturity Date be extended, which notice shall specify a
date (which shall be not fewer than sixty and not more than ninety days after
the date of such notice) as of which the requested extension is to be effective
(the "EFFECTIVE DATE"), and the new Final Maturity Date (which shall be two
years after the Existing Maturity Date) to be in effect following such
extension (the "REQUESTED MATURITY DATE"). Each Bank, acting in its sole
discretion, shall, not later than a date which is thirty days prior to the
Effective Date, notify the Borrower and the Agent of its election to extend or
not to extend the Existing Maturity Date with respect to its Commitment. Any
Bank which shall not, during such period, notify the Borrower and the Agent of
its election to extend the Existing Maturity Date shall be deemed to have
elected not to extend the Existing Maturity Date with respect to its Commitment
(any Bank which shall, during such period, notify the Borrower and the Agent of
an election not to extend its Commitment and any Bank so deemed to have elected
not to extend its Commitment being referred to as a "TERMINATING BANK"). The
election of any Bank to agree to such extension shall not obligate any other
Bank to agree.
(ii) If Banks holding Commitments that aggregate to at least
sixty-six and two thirds per cent. of the aggregate amount of the Commitments
on the Effective Date (including Commitments of all Terminating Banks on such
date) shall have agreed to extend the Existing Maturity Date, then, effective
as of the Effective Date, (a) the Commitments of the Banks other than
Terminating Banks (the "CONTINUING BANKS") shall, subject to the other
provisions of this Agreement, be extended to the Requested Maturity Date
specified in the notice from the Borrower, and also to such Banks the term
"Final Maturity Date", as used herein, shall from the Effective Date mean such
Requested Maturity Date, provided that if such date is not a business day, then
such Requested Maturity Date shall be the next preceding business day and (b)
the Commitments of the Terminating Banks shall continue until the Existing
Maturity Date, and shall then terminate, and as to the Terminating Banks, the
term "Final Maturity Date", as used herein, shall continue to mean such
Existing Maturity Date; Provided that notwithstanding the foregoing, the
extension of the Existing Maturity Date shall not be effective with respect to
any Bank unless:
(A) no Default shall have occurred and be continuing on
each of the date of the notice requesting such extension or
on the Effective Date; and
(B) each of the representations and warranties set forth
in Clauses 16 shall be true and correct in all material
respects on and as of each of the date of the notice
requesting such extension and the Effective Date with the
same effect as though made on and as of each date, except to
the extent such representations and warranties expressly
relate to an earlier date.
10.6 In the event that the Final Maturity Date shall have been extended for
the Continuing Banks in accordance with Clause 10.5 and, in connection with
such extension, there are Terminating Banks, the Borrower may, at its own
expense, require any Terminating Bank to transfer in whole or in part, without
recourse (in accordance with Clause 31) all or part of its interests, rights
and obligations under this
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<PAGE> 28
Agreement to a Transferee (which Transferee may be another Bank, if another
Bank accepts such transfer) that shall assume such transferred obligations and
that shall agree that its Commitment will expire on the Final Maturity Date in
effect for Continuing Banks pursuant to Clause 10.5; Provided that (i) the
Borrower shall have received written consent of the Agent in the case of a
Transferee that is not a Bank, which consent shall not be unreasonably
withheld, and (ii) the assigning Bank shall have received from such Transferee
full payment in immediately available funds of the principal of and interest
accrued to the date of such payment on its participations in Advances made by
it hereunder to the extent that such participations are subject to such
transfer and all other amounts owed to it hereunder. Any such Transferee's
initial Final Maturity Date shall be the Final Maturity Date in effect at the
time of such transfer for the Continuing Banks. The Borrower shall not have
any right to require a Bank to assign any part of its interests, rights and
obligations under this Agreement pursuant to this Clause 10.6 unless it has
notified such Bank of its intention to require the transfer thereof at least
ten days prior to the proposed transfer date.
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<PAGE> 29
PART 6
CHANGES IN CIRCUMSTANCES
11. TAXES
11.1 All payments to be made by the Borrower to any person hereunder shall
be made free and clear of and without deduction or withholding for or on
account of tax unless the Borrower is required to make such a payment subject
to the deduction or withholding of tax, in which case the sum payable by the
Borrower in respect of which such deduction or withholding is required to be
made shall be increased to the extent necessary to ensure that, after the
making of the required deduction or withholding, such person receives and
retains (free from any liability in respect of any such deduction or
withholding) a net sum equal to the sum which it would have received and so
retained had no such deduction or withholding been made or required to be made.
11.2 Without prejudice to the provisions of Clause 11.1, if any person or
the Agent on its behalf is required to make any payment on account of tax (not
being a tax imposed on its net income or any part of its net income) on or in
relation to any sum received or receivable hereunder by such person or the
Agent on its behalf (including, without limitation, any sum received or
receivable under this Clause 11) or any liability in respect of any such
payment is asserted, imposed, levied or assessed against such person or the
Agent on its behalf, the Borrower shall, within three business days of the
demand of the Agent, promptly indemnify such person against such payment or
liability, together with any interest, penalties and expenses payable or
incurred in connection therewith.
11.3 A Bank intending to make a claim pursuant to Clause 11.2, shall within
thirty days after becoming aware of the circumstances giving rise to such
claim, notify the Agent that it intends to submit a claim pursuant to Clause
11.2 (whereupon the Agent shall promptly notify the Borrower thereof) and
within sixty days of such notification to the Agent it shall deliver to the
Agent a certificate setting out in reasonable detail the basis of such claim
(whereupon the Agent shall promptly deliver to the Borrower a copy of such
certificate) Provided that nothing herein shall require such Bank to disclose
any confidential information relating to the organisation of its affairs. In
the event that a Bank fails to notify the Agent and submit a claim in
accordance with the provisions of this Clause 11.3, then no compensation shall
be payable under Clause 11.2 in respect of any period prior to such Bank's
delivery of the certificate as aforesaid.
11.4 The Borrower shall not be obliged to make any payment under this
Clause in respect of any deduction or withholding or payment of tax which would
not have been required to be deducted, withheld or paid if the relevant Bank
had been, at the date on which such deduction, withholding or payment was
required to be made, a Qualifying Bank and had taken all interest received by
it under this Agreement from the Borrower in respect of any Advance into
account as a trading receipt of its banking business, unless such Bank has
ceased to be a Qualifying Bank as a result of the introduction of or any change
in (or in the interpretation or application of) any relevant law or practice of
the applicable taxing authorities which occurs after, and is not publicly known
to be contemplated at, the date of this Agreement. Save to the extent that the
Borrower and any Bank agree otherwise, each Bank represents to the Borrower
that it is a Qualifying Bank, and shall notify the Borrower if at any time it
is not, or will cease to be, a
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<PAGE> 30
Qualifying Bank as soon as reasonably practicable upon becoming aware of such
event.
11.5 If the Borrower makes a payment under this Clause for account of a
Bank and such Bank determines that it has received or been granted a credit
against or relief or remission for or repayment of tax paid or payable by it in
respect of or calculated with reference to the deduction or withholding giving
rise to such payment, such Bank shall, to the extent that it can do so without
prejudice to the retention of such credit, relief, remission or repayment and
provided that no Event of Default or other failure to pay an amount due
hereunder shall have occurred and then be continuing, pay to the Borrower such
amount as such Bank shall have determined is attributable to such deduction or
withholding. Any payment by a Bank under this Clause 11.5 shall be prima facie
evidence of the amount due to the Borrower hereunder and shall be accepted by
the Borrower in full and final settlement of its rights of reimbursement
hereunder in respect of the relevant deduction or withholding. Nothing herein
contained shall interfere with any Bank's rights to arrange its tax affairs in
whatever manner it thinks fit and, in particular, each Bank shall not be under
any obligation to claim credit, relief, remission or repayment from or against
its corporate profits or similar tax liability in respect of the amount of such
deduction or withholding in priority to any other claims, reliefs, credits or
deductions available to it, nor shall any Bank be obliged to disclose any
information relating to its tax affairs or any of its tax computations.
12. TAX RECEIPTS
12.1 If, at any time, the Borrower becomes aware that it is required by law
to make any deduction or withholding from any sum payable by it hereunder (or
if thereafter the Borrower becomes aware of any change in the rates at which or
the manner in which such deductions or withholdings are calculated), the
Borrower shall promptly notify the Agent.
12.2 If the Borrower makes any payment hereunder in respect of which it is
required to make any deduction or withholding, it shall pay the full amount
required to be deducted or withheld to the relevant taxation or other authority
within the time allowed for such payment under applicable law and shall deliver
to the Agent for each Bank, within thirty days after it has made such payment
to the applicable authority, an original receipt (or a certified copy thereof)
issued by such authority evidencing the payment to such authority of all
amounts so required to be deducted or withheld in respect of that Bank's share
of such payment.
13. INCREASED COSTS
13.1 If, by reason of:
(i) any change in law or in its interpretation or
administration; and/or
(ii) compliance with any request from or requirement (with which
type of request or requirement it is customary for financial
institutions to comply) of any central bank (other than the
requirements of the Bank of England reflected in the
Associated Costs Rate) or other fiscal, monetary or other
authority (including, without limitation, a request or
requirement which affects the manner in which a Bank or a
holding company of such Bank is required to or does maintain
capital resources having regard to such
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<PAGE> 31
Bank's obligations hereunder and to amounts owing to it
hereunder but excluding any changes arising as a result of
the implementation of the 1988 Basle Convergence Agreement
on capital standards relating to capital adequacy and
weightings as in force at the date of this Agreement);
and/or
(iii) the Borrower ceasing to be an authorised institution under
the Banking Act 1987 resulting in any cost being incurred or
reduction in the rate of return arising in the circumstances
referred to in sub-paragraphs (a) and/or (b) below,
then where:
(a) a Bank or a holding company of such Bank incurs a cost as a
result of such Bank's having entered into and/or performing
its obligations under this Agreement and/or assuming or
maintaining a commitment under this Agreement and/or making
one or more Advances hereunder;
(b) a Bank or a holding company of such Bank is unable to obtain
the rate of return on its overall capital, by any amount
deemed by such Bank to be material, which it would have been
able to obtain but for such Bank's having entered into
and/or performing its obligations and/or assuming or
maintaining a commitment under this Agreement;
(c) there is any increase in the cost to a Bank or a holding
company of such Bank of funding or maintaining all or any of
the advances comprised in a class of advances formed by or
including the Advances made or to be made by such Bank
hereunder; or
(d) a Bank or a holding company of such Bank becomes liable to
make any payment on account of tax or otherwise (not being a
tax imposed on the net income or any part of its net income)
on or calculated by reference to the amount of the Advances
made or to be made by such Bank hereunder and/or to any sum
received or receivable by it hereunder,
the Borrower shall, from time to time within three business days of the demand
of the Agent, promptly pay to the Agent for the account of that Bank amounts
sufficient to indemnify that Bank or a holding company of such Bank against, as
the case may be, (1) such cost, (2) such reduction in such rate of return (or
such proportion of such reduction as is, in the reasonable opinion of that
Bank, attributable to its obligations hereunder), (3) such increased cost (or
such proportion of such increased cost as is, in the reasonable opinion of that
Bank, attributable to its funding or maintaining advances hereunder) or (4) (to
the extent that the Bank is not compensated therefor pursuant to the provisions
of Clause 11 or would have been so compensated but for Clause 11.4) such
liability Provided always that in the event that the Borrower is notified
pursuant to Clause 13.2 more than fourteen days after the relevant Bank becomes
aware of the circumstances giving rise to such claim, no compensation shall be
payable under this Clause 13 in respect of any period before the Borrower was
notified as aforesaid.
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<PAGE> 32
13.2 A Bank intending to make a claim pursuant to Clause 13.1 shall
promptly after becoming aware of the circumstances giving rise to such claim,
deliver to the Agent a certificate setting out in reasonable detail the basis
of such claim, whereupon the Agent shall promptly notify the Borrower thereof
and deliver to the Borrower a copy of such certificate Provided that nothing
herein shall require such Bank to disclose any confidential information
relating to the organisation of its affairs.
13.3 Notwithstanding the foregoing provisions of Clause 13, no Bank shall
be entitled to make a claim under this Clause 13 unless the circumstances
giving rise to such claim are capable of application to a class of banks and
not solely to such Bank as is entitled to make the claim.
14. ILLEGALITY
If, at any time, it is unlawful for a Bank to make, fund or allow to remain
outstanding all or any of the Advances made or to be made by it hereunder, then
that Bank shall, promptly after becoming aware of the same, deliver to the
Borrower through the Agent a certificate to that effect and:
(i) such Bank shall not thereafter be obliged to make
Advances hereunder and the amount of its Commitment
shall be immediately reduced to zero; and
(ii) if the Agent on behalf of such Bank so requires, the
Borrower shall on such date as the Agent shall have
specified (being the latest date by which the
relevant law requires that the same be repaid or, if
earlier, on the last day of the then current Term
relating thereto) repay such Bank's share of any
outstanding Advances together with accrued interest
thereon and all other amounts owing to such Bank
hereunder.
15. MITIGATION
15.1 If, in respect of any Bank, circumstances arise which would or would
upon the giving of notice result in:
(i) the reduction of its Commitment to zero pursuant to
Clause 14(i);
(ii) an increase in the amount of any payment to be made
to it for its account pursuant to Clause 11.1; or
(iii) a claim for indemnification pursuant to Clause 11.2
or Clause 13.1,
then, without in any way limiting, reducing or otherwise qualifying the rights
of such Bank or the obligations of the Borrower under any of the Clauses
referred to in (i), (ii) or (iii) above such Bank shall promptly upon becoming
aware of the same notify the Agent thereof and, in consultation with the Agent
and the Borrower and to the extent that it can do so without prejudice to its
own position, use reasonable efforts to take such steps as may be reasonably
open to it to mitigate the effects of such circumstances including, without
limitation, the transfer of its Facility Office or the transfer of its rights
and obligations
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<PAGE> 33
hereunder to another financial institution acceptable to the Borrower and
willing to participate in the Facility Provided that such Bank shall be under
no obligation to take any such action if, in the reasonable opinion of such
Bank, to do so might have any adverse effect upon its business, operations or
financial condition.
15.2 If the Borrower determines in good faith that a reasonable basis
exists for contesting a tax in respect of which the Borrower has had to pay
additional amounts pursuant to Clauses 11.1 or 11.2 or if a Bank or the Agent
shall become aware that it is entitled to claim a refund from a third party for
the tax in respect of which such additional amount has been paid by the
Borrower, such Bank to the extent that it can do so without prejudice to its
own position shall, following a request by the Borrower (and at the Borrower's
expense for all reasonable expenses incurred by such Bank with prior
consultation with the Borrower) co-operate with the Borrower to use its
reasonable endeavours to contest such tax or claim such refund. The provisions
of this Clause 15.2 shall continue to extend to a transferor Bank after its
rights, benefits and/or obligations hereunder have been transferred pursuant to
Clause 10.3(ii). Notwithstanding the foregoing provisions of this Clause 15.2,
nothing herein contained shall interfere with any Bank's rights to arrange its
tax affairs in whatever manner it thinks fit and, in particular, each Bank
shall not be under any obligation to claim credit, relief, remission or
repayment from or against its corporate profits or similar tax liability in
respect of the amount of such deduction or withholding in priority to any other
claims, reliefs, credits or deductions available to it, nor shall any Bank be
obliged to disclose any information relating to its tax affairs or any of its
tax computations.
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<PAGE> 34
PART 7
REPRESENTATIONS, COVENANTS AND EVENTS OF DEFAULT
16. REPRESENTATIONS
16.1 The Borrower represents that:
(i) it is a limited liability company duly incorporated
and validly existing under the laws of England and is
a Qualifying Bank;
(ii) it has the power to enter into and perform, and has
taken all corporate and other action required to
authorise the entry into and performance of, this
Agreement and the transactions contemplated hereby;
(iii) subject to the qualifications as to matters of law
only as provided in the opinion of Allen & Overy
referred to in the Third Schedule this Agreement
constitutes its legal and valid obligations binding
and enforceable in accordance with its terms;
(iv) all official and other authorisations, approvals,
consents, licences, exemptions, filings,
registrations, notarisations, and other matters
required in connection with the entry into,
performance and validity of this Agreement and the
transactions contemplated hereby have been obtained
or effected (as appropriate) and are in full force
and effect except to the extent that failure to do so
would not, in the aggregate for all such failures,
reasonably be expected to have a Material Adverse
Effect;
(v) under the laws of England in force at the date of
this Agreement, it will not be required to make any
deduction or withholding from any payment it may make
hereunder Provided that such payment is made to a
Qualifying Bank;
(vi) under the laws of England in force at the date
hereof, the claims of the Agent, the Arrangers and
the Banks against the Borrower under this Agreement
will rank at least pari passu with the claims of all
its other unsecured creditors save those whose claims
are preferred solely by any bankruptcy, insolvency,
liquidation or other similar laws of general
application; and
(vii) in any proceedings taken in England in relation to
this Agreement, it will not be entitled to claim for
itself or any of its assets immunity from suit,
execution, attachment or other legal process.
16.2 The Borrower further represents that:
(i) it has not taken any corporate action nor (to the
best of the Borrower's
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<PAGE> 35
knowledge and belief) have any other steps been taken
or legal proceedings been started or threatened
against it for its winding-up, dissolution,
administration or re-organisation or for the
appointment of a receiver, administrator,
administrative receiver, trustee or similar officer
of it or of any or all of its assets or revenues
which would reasonably be expected to result in a
Material Adverse Effect;
(ii) the Original Consolidated Financial Statements were
prepared in accordance with accounting principles
generally accepted in England and Wales and
consistently applied and give (in conjunction with
the notes thereto) a true and fair view of the
financial condition of the Group at the date as of
which they were prepared and the results of the
Group's operations during the financial year then
ended;
(iii) as at the date as of which the Original Consolidated
Financial Statements were prepared no member of the
Group had any liabilities (contingent or otherwise
and save for contingent obligations under undrawn
lines of credit or undrawn credit commitments to any
persons) which were not disclosed thereby (or by the
notes thereto) or reserved against therein save to
any other member of the Group nor any unrealised or
anticipated losses arising from commitments entered
into by it which were not so disclosed or reserved
against;
(iv) save as permitted by Clause 19.2(i), no encumbrance
exists over all or any Eligible Receivables;
(v) the execution by the Borrower of this Agreement and
its exercise of its rights and performance of its
obligations hereunder will not result in the
existence of nor oblige it to create any encumbrance
over all or any of its present or future revenues or
assets;
(vi) the execution by the Borrower of this Agreement and
its exercise of its rights and performance of its
obligations hereunder do not and will not:
(a) conflict with any agreement, mortgage, bond
or other instrument to which it is a party or
which is binding upon it or any of its
assets;
(b) conflict with its constitutive documents and
rules and regulations; or
(c) conflict with any applicable law, regulation
or official or judicial order;
(vii) it is not in breach of or in default under any
agreement to which it is a party or which is binding
on it or any of its assets to an extent or in a
manner which individually or together with all such
defaults would reasonably be expected to result in a
Material Adverse Effect;
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<PAGE> 36
(viii) no action or administrative proceedings of or before
any court or agency against the Borrower or any other
member of the Group which purport to, affect or
pertain to this Agreement or any of the transactions
contemplated hereby and which would reasonably be
expected to result in a Material Adverse Effect has
(to the best of the Borrower's knowledge and belief)
been started or threatened;
(ix) the execution by the Borrower of this Agreement
constitutes, and its exercise of its rights and
performance of its obligations hereunder will
constitute, private and commercial acts done and
performed for private and commercial purposes; and
(x) it is a subsidiary of the Parent and at least
seventy-five per cent. (75%) of its issued equity
share capital is owned by the Parent.
16.3 The Borrower further represents that:
(i) no action or administrative proceeding of or before
any court or agency which would reasonably be
expected to result in a Material Adverse Effect has
(to the best of the Borrower's knowledge and belief)
been started or threatened; and
(ii) since publication of the Original Consolidated
Financial Statements, there has been no change to the
financial condition of the Borrower which has had a
Material Adverse Effect.
17. FINANCIAL INFORMATION
17.1 The Borrower shall:
(i) as soon as the same are published, but in any event
within 180 days after the end of each of its
financial years, deliver to the Agent in sufficient
copies for the Banks the annual report and accounts
of the Borrower (which, for the avoidance of doubt,
shall mean the directors' report, the report of the
auditors, the consolidated financial statements and
the notes thereto) for such financial year;
(ii) as soon as the same become available, but in any
event within 90 days after the end of each half of
each of its financial years, deliver to the Agent in
sufficient copies for the Banks the consolidated
financial statements of the Borrower for such period;
(iii) furnish the Agent with copies of the annual and
quarterly reports made by MBNA Corporation and copies
of the quarterly call reports made by the Parent
promptly after the same become available except to
the extent such reports are private and not publicly
available;
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<PAGE> 37
(iv) provide the Agent, at the same time as it delivers
its financial statements pursuant to (i) above:
(a) an up-to-date list of the Material
Subsidiaries; and
(b) a certificate showing in reasonable detail a
calculation of the Loss Ratio and the Managed
Credit Card Receivables for the relevant
periods; and
(v) from time to time on the request of the Agent,
furnish the Agent with such information about the
business and financial condition of the Group as the
Agent may reasonably require provided that it shall
be under no obligation to supply any information the
supply of which is contrary to any confidential
obligation binding on it or the supply of which would
constitute a breach of law or regulation.
17.2 The Borrower shall ensure that:
(i) each set of financial statements delivered by it
pursuant to paragraphs (i) and (ii) of Clause 17.1 is
certified by a duly authorised officer of the
Borrower as giving a true and fair view of the
financial condition of the Group as at the end of the
period to which those financial statements relate and
of the results of its operations during such period;
and
(ii) each set of financial statements delivered by it
pursuant to paragraph (i) of Clause 17.1 has been
audited by an internationally recognised firm of
independent accountants.
17.3 The Borrower shall ensure that each set of financial statements
submitted to the Agent by it pursuant to Clause paragraphs (i) and (ii) of
Clause 17.1 is prepared using accounting bases, policies, practices and
procedures consistent with those applied in the preparation of the Original
Consolidated Financial Statements unless, at any time after the date hereof,
any change is made to the basis upon which any relevant financial statements
are prepared then the Borrower shall notify the Agent of such change and if
requested to do so by the Agent the Borrower shall ensure that the auditors for
the time being of the Borrower provide:
(i) a description of such change and the adjustments
which would be required to be made to the financial
statements so that such financial statements reflect
the accounting bases, policies, practices and
procedures upon which the Original Consolidated
Financial Statements were prepared; and
(ii) sufficient information, in such detail and format as
may be reasonably required by the Agent, to enable
the Banks to make an accurate comparison between the
financial position indicated by such set of financial
statements and the Original Consolidated Financial
Statements or, as the case may be, the latest set of
financial statements as were previously delivered to
the Agent hereunder,
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<PAGE> 38
and any reference in this Agreement to such financial statements shall be
construed as a reference to such financial statements as adjusted to reflect
the basis upon which the Original Consolidated Financial Statements were
prepared.
17.4 The obligations of the Borrower under this Clause 17 shall remain in
full force and effect whilst any amounts are outstanding from the Borrower
and/or whilst any Bank has a Commitment under the Facility.
18. FINANCIAL CONDITION
18.1 The Borrower shall ensure that:
(i) its minimum risk asset ratio is equal to or exceeds
eight per cent., such ratio to be calculated
according to the instructions in Form RAR 1 as issued
by the Bank of England from time to time;
(ii) Consolidated Tangible Net Worth shall, on any date,
not be less than the sum of (i) pound sterling
50,000,000 plus (ii) forty per cent. (40%) of the
Borrower's consolidated net income, if positive, for
each financial year that ends on or after 31
December, 1995, plus (iii) if such date is not the
last day of a financial year, forty per cent. (40%)
of the Borrower's net income, if positive, for the
then elapsed portion of the current financial year
ending on the last day of the financial half-year
which ends on or before such date; and
(iii) as of the last day of any month prior to the Final
Maturity Date, the aggregate amount of Managed Credit
Card Receivables that are ninety days or more past
due plus (without duplication) the aggregate amount
of Managed Credit Card Receivables that are treated
by the relevant member of the Group as non-accruing,
in each case for the Borrower and its subsidiaries,
does not exceed an amount equal to six per cent. of
the aggregate amount of Managed Credit Card
Receivables as of such day.
18.2 In this Clause 18:
(i) "CONSOLIDATED TANGIBLE NET WORTH" means, on any date,
the amount paid up or credited as paid up on the
issued share capital of the Borrower PLUS the
consolidated share premium account of the Borrower,
PLUS the consolidated reserves of the Group PLUS the
consolidated retained earnings of the Group (or LESS
the amount outstanding to the debit of the
consolidated profit and loss account of the Group)
all as shown in the then latest published audited
consolidated balance sheet of the Borrower (the
"LATEST BALANCE SHEET") (and for the avoidance of
doubt there shall be no double counting in respect of
the aforesaid) PLUS any liabilities of any member of
the Group which qualify as either a Hybrid Capital
Instrument or as Term Subordinated Debt which fall
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within the description of these terms set out in
Notice Number: BSD/1994/3 dated May 1994 and issued
by the Banking Supervision Division of the Bank of
England but adjusted so as to:
(a) deduct any amount attributable to goodwill
and other intangible assets;
(b) deduct (to the extent included) any amounts
arising from an upward revaluation (other
than a revaluation made or verified by a
professional revaluation) of fixed assets
made at any time after the date hereof;
(c) reflect any variation in the issued share
capital of the Borrower and the consolidated
capital and reserves of the Group after the
date of the latest balance sheet (other than
in respect of any variation in the balance
standing to the credit or debit of the profit
and loss account since that date);
(d) exclude any amount attributable to minority
interests; and
(e) exclude any amount attributable to preferred
shares which are redeemable at the option of
the holder prior to the Final Maturity Date;
and
(ii) "MANAGED CREDIT CARD RECEIVABLES" means the aggregate
of on-balance sheet credit card receivables of the
Group and credit card receivables of the Group
transferred in a Securitisation,
and, in the case of Clauses 18.2(i)(a), (d) and (e), as determined
from the audited consolidated financial statements of the Group for
the relevant period as adjusted pursuant to the provisions of Clause
17.3.
18.3 All expressions used in the definitions of this Clause 18 which are
not otherwise defined herein shall be construed in accordance with generally
accepted accounting principles in England and Wales (as used in the Group's
most recent audited annual consolidated financial statements).
18.4 The obligations of the Borrower under this Clause 18 shall remain in
full force and effect whilst any amounts are outstanding from the Borrower
and/or whilst any Bank has a Commitment under the Facility.
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19. COVENANTS
19.1 The Borrower shall:
(i) obtain, comply with the terms of and do all that is
necessary to maintain in full force and effect all
authorisations, approvals, licences and consents
required in or by the laws and regulations of England
to enable it lawfully to enter into and perform its
obligations under this Agreement or to ensure the
legality, validity, enforceability or admissibility
in evidence in England of this Agreement except to
the extent that failure to do so would not, in the
aggregate for all such failures, reasonably be
expected to have a Material Adverse Effect;
(ii) ensure that it and each other member of the Group
maintains insurances on and in relation to its
business and assets with reputable underwriters or
insurance companies against such risks and to such
extent as it maintains on the date hereof;
(iii) after the delivery of any Notice of Drawdown and
before the proposed making of the Advance requested
therein, notify the Agent of the occurrence of any
event which results in or may reasonably be expected
to result in any of the representations contained in
Clauses 16.1 and 16.2 being untrue at or before the
time of the proposed making of such Advance;
(iv) promptly, upon becoming aware of the same, inform the
Agent of the occurrence of any Default and, upon
receipt of a written request to that effect from the
Agent, confirm to the Agent that, save as previously
notified to the Agent or as notified in such
confirmation, no Default has occurred;
(v) ensure that at all times the claims of the Agent, the
Arrangers and the Banks against it under this
Agreement rank at least pari passu with the claims of
all its other unsecured creditors save those whose
claims are preferred by any bankruptcy, insolvency,
liquidation or other similar laws of general
application;
(vi) ensure it is at all times an authorised institution
under the Banking Act 1987; and
(vii) promptly advise the Agent if the Liquidity Facility
ceases to be maintained by the Parent for any reason.
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<PAGE> 41
19.2 The Borrower shall not and shall ensure that each other member of the
Group shall not, without the prior written consent of an Instructing Group:
(i) create, incur, assume or suffer to exist any
encumbrance upon or with respect to or enter into any
contractual rights of set-off (other than as a means
of collecting or recovering any Eligible Receivables)
in relation to any Eligible Receivables or Receivable
which would be Eligible Receivables but for a failure
to comply with clauses (a) or (c) of the definition
of the term "Eligible Receivables", whether now owned
or hereafter acquired, provided that the foregoing
shall not prohibit:
(a) any Securitisation of Eligible Receivables
other than the Transferors' Retained
Interests;
(b) any Securitisation of Transferors' Retained
Interests, if such Securitisation qualifies
for sale treatment in accordance with
accounting principles generally accepted in
England and Wales and consistently applied;
or
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<PAGE> 42
(c) any Securitisation of Transferors' Retained
Interests which does not qualify for sale
treatment in accordance with accounting
principles generally accepted in England and
Wales and consistently applied, provided that
after giving effect to such Securitisation
the Coverage Ratio (calculated after taking
into account such Securitisation) equals or
exceeds one hundred and fifteen per cent.;
and
(ii) sell, lease, transfer or otherwise dispose of, by one
or more transactions or series of transactions
(whether related or not), the whole or any part of
its revenues or assets (including accounts and notes
receivable, with or without recourse) or enter into
any agreements to do any of the foregoing if to do so
would result in a Material Adverse Effect (Provided
that the foregoing shall not preclude the sale of
investment securities for then current market value)
other than Securitisations or repurchase agreements.
19.3 The obligations of the Borrower under this Clause 19 shall remain in
full force and effect whilst any amounts are outstanding from the Borrower
and/or whilst any Bank has a Commitment under the Facility.
20. EVENTS OF DEFAULT
20.1 If:
(i) the Borrower fails to pay any amount of principal due
from it hereunder at the time, in the currency and in
the manner specified herein unless such failure is
remedied within three business days of the due date
for payment thereof or, if the Borrower shall on that
due date, demonstrate to the Agent that, for any
reason beyond the control of the Borrower and not in
any way attributable to any act or neglect of the
Borrower, the relevant payment cannot be so made,
then within five business days of its due date; or
(ii) the Borrower fails to pay any sum due from it
hereunder (other than an amount referred to in Clause
20.1(i) above) in the currency and in the manner
specified herein within five business days of the due
date; or
(iii) any representation or statement made by the Borrower
in this Agreement or in any Notice of Drawdown or any
other notice or other document, certificate or
statement delivered by it pursuant to Clauses 17.2(i)
or 19.1(iv) is or proves to have been incorrect or
misleading in any material respect; or
(iv) the Borrower fails duly to perform or comply with any
of the obligations expressed to be assumed by it in
Clause 18.1(ii) or (iii), Clause 19.1(vi) or Clause
19.2; or
(v) the Borrower fails duly to perform or comply with any
other obligation expressed to be assumed by it in
this Agreement and such failure is capable of remedy
but has not been remedied within thirty days after
the Agent has given notice thereof to the Borrower to
remedy such failure to the satisfaction of the Agent;
or
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<PAGE> 43
(vi) any indebtedness for borrowed money of the Borrower
or any other member of the Group in an amount or
aggregate amount exceeding pound sterling 5,000,000
(or its equivalent in other currencies) is not paid
when due after taking into account any applicable
grace periods, or any such indebtedness is declared
to be or otherwise becomes due and payable prior to
its specified maturity by reason of default or event
of default or any creditor or creditors of the
Borrower or any other member of the Group become
entitled by reason of default or event of default to
declare any such indebtedness due and payable prior
to its specified maturity; or
(vii) the Borrower or any Material Subsidiary is unable to
pay its debts as they fall due, commences
negotiations with any one or more of its creditors
with a view to the general readjustment or
rescheduling of its indebtedness or makes a general
assignment for the benefit of or a composition with
its creditors; or
(viii) the Borrower or any Material Subsidiary takes any
corporate action or other steps are taken or legal
proceedings are started by any person for its
winding-up, dissolution, administration or
re-organisation (other than any solvent
reconstruction previously approved by the Agent in
writing, acting on the instructions of the
Instructing Group) or for the appointment of a
receiver, administrator, administrative receiver,
trustee or similar officer of it or of any or all of
its revenues and assets and either such actions,
steps or legal proceedings:
(a) result in the relevant order being made
against such company or its revenues and
assets; or
(b) are not stayed, withdrawn, dismissed or
discharged, as the case may be, within sixty
days of such action, steps or proceedings
being commenced; or
(ix) any execution or distress is levied against or an
encumbrancer takes possession of the whole or any
part considered by the Agent to be material of, the
property, undertaking or assets of the Borrower or of
any Material Subsidiary unless, in any such case, the
same is being contested in good faith by appropriate
means and is removed, discharged or paid out within
thirty days; or
(x) at any time any act, condition or thing required to
be done, fulfilled or performed in order (a) to
enable the Borrower lawfully to enter into, exercise
its rights under and perform the obligations
expressed to be assumed by it in this Agreement, (b)
to ensure that the obligations expressed to be
assumed by the Borrower in this Agreement are legal,
valid, binding and enforceable or (c) to make this
Agreement admissible in evidence in England is not
done, fulfilled or performed; or
(xi) at any time it is or becomes unlawful for the
Borrower to perform or comply with any or all of its
obligations hereunder or any of the obligations of
the
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<PAGE> 44
Borrower hereunder are not or cease to be legal,
valid and binding; or
(xii) the Parent revokes or repudiates the Letter of
Support or the Letter of Comfort or the Liquidity
Facility is no longer made available to the Borrower;
or
(xiii) the Parent ceases to own at least seventy-five per
cent. (75%) of the issued equity share capital of the
Borrower; or
(xiv) the Group taken as a whole ceases to be predominantly
engaged in the credit and other similar card
business, other consumer loan business and businesses
which are related thereto or are reasonable
extensions thereof,
then, and in any such case and at any time thereafter whilst such event is
continuing, the Agent may (and, if so instructed by an Instructing Group,
shall) by written notice to the Borrower:
(a) declare the Advances to be immediately due and payable
(whereupon the same shall become so payable together with
accrued interest thereon and any other sums then owed by the
Borrower hereunder) or declare the Advances to be due and
payable on demand of the Agent; and/or
(b) declare that the Facility shall be cancelled, whereupon the
same shall be cancelled and the Commitment of each Bank
shall be reduced to zero.
20.2 If, pursuant to Clause 20.1, the Agent declares the Advances to be due
and payable on demand of the Agent, then, and at any time thereafter, the Agent
may (and, if so instructed by an Instructing Group, shall) by written notice to
the Borrower call for repayment of the Advances on such date as it may specify
in such notice (whereupon the same shall become due and payable on such date
together with accrued interest thereon and any other sums then owed by the
Borrower hereunder) or withdraw its declaration with effect from such date as
it may specify in such notice.
20.3 If, pursuant to Clause 20.1(a), the Agent declares the Advances to be
due and payable on demand, the Term in respect of any such Advance shall, if
the Agent subsequently demands payment before the scheduled Repayment Date in
respect of such Advance, be deemed (except for the purposes of Clause 21.4) to
be of such length that it ends on the date that such demand is made.
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<PAGE> 45
PART 8
DEFAULT INTEREST AND INDEMNITY
21. DEFAULT INTEREST AND INDEMNITY
21.1 If any sum due and payable by the Borrower hereunder is not paid on
the due date therefor in accordance with the provisions of Clause 23 or if any
sum other than a sum as previously referred to in this Clause 21.1 due and
payable by the Borrower under any judgment of any court in connection herewith
is not paid on the date of such judgment, the period beginning on such due date
or, as the case may be, the date of such judgment and ending on the date upon
which the obligation of the Borrower to pay such sum (the balance thereof for
the time being unpaid being herein referred to as an "UNPAID SUM") is
discharged shall be divided into successive periods, each of which (other than
the first) shall start on the last day of the preceding such period and the
duration of each of which shall (except as otherwise provided in this Clause
21) be selected by the Agent having regard to the likely period of default.
21.2 During each such period relating thereto as is mentioned in Clause
21.1 an unpaid sum shall bear interest (before as well as after judgment) at
the rate per annum which is the sum from time to time of one per cent., the
Margin, the Associated Costs Rate (in the case of unpaid sums denominated in
Sterling), in respect thereof at such time (if applicable) and LIBOR on the
Quotation Date therefor Provided that:
(i) if, for any such period, LIBOR cannot be determined,
the rate of interest applicable to such unpaid sum
shall be the sum from time to time of one per cent.,
the Margin, the Associated Costs Rate (in the case of
unpaid sums denominated in Sterling), in respect
thereof at such time (if applicable) and the rate per
annum determined by the Agent to be the arithmetic
mean (rounded upwards to the nearest four decimal
places) of the rates notified by each Reference Bank
to the Agent before the last day of such period to be
those which express as a percentage rate per annum
the cost to it of funding from whatever sources it
may reasonably select its portion of such unpaid sum
for such period; and
(ii) if such unpaid sum is all or part of an Advance which
became due and payable on a day other than the last
day of the Term thereof, the first such period
applicable thereto shall be of a duration equal to
the unexpired portion of that Term and the rate of
interest applicable thereto from time to time during
such period shall be that which exceeds by one per
cent. the rate which would have been applicable to it
had it not so fallen due.
21.3 Any interest which shall have accrued under Clause 21.2 in respect of
an unpaid sum shall be due and payable and shall be paid by the Borrower at the
end of the period by reference to which it is calculated or on such other date
or dates as the Agent may specify by written notice to the Borrower.
21.4 If any Bank or the Agent on its behalf receives or recovers all or any
part of such Bank's share of an Advance otherwise than on the last day of the
Term thereof, the Borrower shall pay to the Agent within three business days of
the Agent's demand for account of such Bank an amount equal to the
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<PAGE> 46
amount (if any) by which (i) the additional interest which would have been
payable on the amount so received or recovered had it been received or
recovered on the last day of the Term thereof exceeds (ii) the amount of
interest which, in the reasonable opinion of the Agent, would have been payable
to the Agent or such Bank (as applicable) on the last day of the Term thereof
in respect of a deposit in the currency of the amount so received or recovered
equal to the amount so received or recovered placed by it with a prime bank in
London for a period starting on the third business day following the date of
such receipt or recovery and ending on the last day of the Term thereof.
21.5 The Borrower undertakes to indemnify within three business days of the
Agent's demand:
(i) each of the Agent, the Arrangers and the Banks
against any reasonable cost, claim, loss, expense
(including legal fees) or liability together with any
VAT thereon, which any of them may sustain or incur
as a direct consequence of the occurrence of any
Event of Default or any default by the Borrower in
the performance of any of the obligations expressed
to be assumed by it in this Agreement;
(ii) the Agent against any reasonable cost or loss it may
suffer or incur as a result of (i) its entering into,
or performing, any foreign exchange contract for the
purposes of Clause 23 or (ii) its implementing the
provisions of Clause 22.2;
(iii) each Bank against any reasonable loss it may suffer
as a result of its funding its portion of an Advance
requested by the Borrower hereunder but not made by
reason of the operation of any provision hereof; and
(iv) each Bank against any loss it may suffer or incur as
a result of its funding its portion of an Advance in
an Optional Currency which is denominated in a
Committed Currency by reason of the provisions of
paragraphs (i) or (ii) of Clause 6.2.
21.6 Any unpaid sum shall (for the purposes of this Clause 21, Clause 13.1
and the Fifth Schedule) be treated as an advance and accordingly in this Clause
21 and the Fifth Schedule the term "Advance" includes any unpaid sum and
"Term", in relation to an unpaid sum, includes each such period relating
thereto as is mentioned in Clause 21.1.
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<PAGE> 47
PART 9
PAYMENTS
22. CURRENCY OF ACCOUNT AND PAYMENT
22.1 Sterling is the currency of account and payment for each and every sum
at any time due from the Borrower hereunder Provided that:
(i) each repayment of an Advance or a part thereof shall
be made in the currency in which such Advance is
denominated at the time of that repayment;
(ii) each payment of interest shall be made in the
currency in which the sum in respect of which such
interest is payable is denominated;
(iii) any amount expressed to be payable in a currency other
than Sterling shall be paid in that other currency;
(iv) each payment in respect of costs and expenses shall
be made in the currency in which the same were
incurred; and
(v) each payment pursuant to Clause 11.2 or Clause 13.1
shall be made in the currency specified by the party
claiming thereunder.
22.2 If the Agent at any time determines (after consultation with the
Reference Banks and the Banks) that:
(a) the ECU has ceased to be utilised as the basic accounting
unit of the European Community;
(b) for reasons affecting the market in Ecu generally, Ecu are
not freely traded between banks internationally; or
(c) it is illegal, impossible or impracticable for payments to
be made hereunder in Ecu,
then (unless the Ecu or the Euro has been adopted as the currency of all the
member states of the European Community) the Agent may, in its discretion but
after consultation with the Borrower and the Banks, declare (such declaration
to be binding on all the parties hereto) that any payment made or to be made
thereafter which, but for this provision would have been payable in Ecu shall
be made in a component currency of the Ecu or Sterling (as selected by the
Agent after consultation with the Borrower and the Reference Banks and the
Banks) (the "SELECTED CURRENCY") and the amount to be so paid shall be
calculated on the basis of the equivalent of the Ecu in the Selected Currency
determined in accordance with the provisions of the Sixth Schedule.
22.3 If any sum due from the Borrower under this Agreement or any order or
judgment given or made in relation hereto has to be converted from the currency
(the "FIRST CURRENCY") in which the same is payable hereunder or under such
order or judgment into another currency (the "SECOND CURRENCY") for the purpose
of (i) making or filing a claim or proof against the Borrower, (ii) obtaining
an order or
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<PAGE> 48
judgment in any court or other tribunal or (iii) enforcing any order or
judgment given or made in relation hereto, the Borrower, as a separate and
independent obligation, shall indemnify and hold harmless each of the persons
to whom such sum is due from and against any loss suffered as a result of any
discrepancy between (a) the rate of exchange used for such purpose to convert
the sum in question from the first currency into the second currency and (b)
the rate or rates of exchange at which such person may in the ordinary course
of business purchase the first currency with the second currency upon receipt
of a sum paid to it in satisfaction, in whole or in part, of any such order,
judgment, claim or proof.
23. PAYMENTS
23.1 On each date on which this Agreement requires an amount to be paid by
the Borrower or any of the Banks hereunder, the Borrower or, as the case may
be, such Bank shall make the same available to the Agent:
(i) where such amount is denominated in Sterling, by
payment in Sterling and in immediately available,
freely transferable, cleared funds via CHAPS 40-50-20
(or such other sort-code, account or bank as the
Agent may have specified for this purpose); or
(ii) where such amount is denominated in a Committed
Currency or an Optional Currency, by payment in such
Committed Currency or Optional Currency and in
immediately available, freely transferable, cleared
funds to such account with such bank in the principal
financial centre of the country of such Committed
Currency or Optional Currency (or, in the case of
amounts denominated in Ecu or Euro, in the financial
centre reasonably designated by the Agent for this
purpose) as the Agent shall have specified for this
purpose.
23.2 If, at any time, it shall become impracticable (by reason of any
action of any governmental authority or any change in law, exchange control
regulations or any similar event) for the Borrower to make any payments
hereunder in the manner specified in Clause 23.1, then the Borrower may agree
with each or any of the Banks to such reasonable alternative arrangements
(which arrangements the Bank may not unreasonably decline) for the payment
direct to such Bank of amounts due to such Bank hereunder Provided that, in
the absence of any such agreement with any Bank, the Borrower shall be obliged
to make all payments due to such Bank in the manner specified herein. Upon
reaching such agreement the Borrower and such Bank shall immediately notify the
Agent thereof and shall thereafter promptly notify the Agent of all payments
made direct to such Bank.
23.3 Save as otherwise provided herein, each payment received by the Agent
for the account of another person pursuant to Clause 23.1 shall:
(i) in the case of a payment received for the account of
the Borrower, be made available by the Agent to the
Borrower by application:
(a) first, in or towards payment the same day (in
the currency and funds of receipt) of any
amount then due from the Borrower hereunder
to the person from whom the amount was so
received or in or towards the purchase of any
amount of any currency to be so applied; and
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<PAGE> 49
(b) secondly, in or towards payment the same day
(in the currency and funds of receipt) to
such account of the Borrower with such bank
in the principal financial centre of the
country of the currency of such payment (or,
in the case of amounts denominated in Ecus or
Euros, in the financial centre reasonably
designated by the Agent for this purpose) as
the Borrower shall have previously notified
to the Agent for this purpose; and
(ii) in the case of any other payment, be made available
by the Agent to the person for whose account such
payment was received (in the case of a Bank, for the
account of the Facility Office) for value the same
day by transfer to such account of such person with
such bank in the principal financial centre of the
country of the currency of such payment (or, in the
case of amounts denominated in Ecus or Euros, in the
financial centre reasonably designated by the Agent
for this purpose) as such person shall have
previously notified to the Agent.
23.4 All payments required to be made by the Borrower hereunder shall be
calculated without reference to any set-off or counterclaim and shall be made
free and clear of and without any deduction for or on account of any set-off or
counterclaim.
23.5 Where a sum is to be paid hereunder to the Agent for account of
another person, the Agent shall not be obliged to make the same available to
that other person until it has been able to establish to its reasonable
satisfaction that it has actually received such sum, but if it does so and it
proves to be the case that it had not actually received such sum, then the
person to whom such sum was so made available shall on request refund the same
to the Agent together with an amount sufficient to indemnify the Agent against
any cost or loss it may have suffered or incurred by reason of its having paid
out such sum prior to its having received such sum.
24. SET-OFF
Following the occurrence of an Event of Default which is continuing, the
Borrower authorises each Bank to apply any credit balance to which the Borrower
is entitled on any account of the Borrower with that Bank in satisfaction of
any sum due and payable from the Borrower to such Bank hereunder but unpaid;
for this purpose, each Bank is authorised to purchase with the moneys standing
to the credit of any such account such other currencies as may be necessary to
effect such application. No Bank shall be obliged to exercise any right given
to it by this Clause 24.
25. REDISTRIBUTION OF PAYMENTS
25.1 If, at any time, the proportion which any Bank (a "RECOVERING BANK")
has received or recovered (whether by payment, the exercise of a right of
set-off or combination of accounts or otherwise) in respect of its portion of
any payment (a "RELEVANT PAYMENT") to be made under this Agreement by the
Borrower for account of such Recovering Bank and one or more other Banks is
greater (the portion of such receipt or recovery giving rise to such excess
proportion being herein called an "EXCESS AMOUNT") than the proportion thereof
so received or recovered by the Bank or Banks so receiving or recovering the
smallest proportion thereof (which shall include a nil receipt), then:
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<PAGE> 50
(i) such Recovering Bank shall pay to the Agent an amount
equal to such excess amount;
(ii) there shall thereupon fall due from the Borrower to
such Recovering Bank an amount equal to the amount
paid out by such Recovering Bank pursuant to
paragraph (i) above, the amount so due being, for the
purposes hereof, treated as if it were an unpaid part
of such Recovering Bank's portion of such relevant
payment; and
(iii) the Agent shall treat the amount received by it from
such Recovering Bank pursuant to paragraph (i) above
as if such amount had been received by it from the
Borrower in respect of such relevant payment and
shall pay the same to the persons entitled thereto
(including such Recovering Bank) pro rata to their
respective entitlements thereto,
Provided that to the extent that any excess amount is attributable to a payment
to a Bank pursuant to Clause 23.3(i)(a) such portion of such excess amount as
is so attributable shall not be required to be shared pursuant hereto.
25.2 If any sum (a "RELEVANT SUM") received or recovered by a Recovering
Bank in respect of any amount owing to it by the Borrower becomes repayable and
is repaid by such Recovering Bank, then:
(i) each Bank which has received a share of such relevant
sum by reason of the implementation of Clause 25.1
shall, upon request of the Agent, pay to the Agent
for account of such Recovering Bank an amount equal
to its share of such relevant sum; and
(ii) there shall thereupon fall due from the Borrower to
each such Bank an amount equal to the amount paid out
by it pursuant to paragraph (i) above, the amount so
due being, for the purposes hereof, treated as if it
were the sum payable to such Bank against which such
Bank's share of such relevant sum was applied.
25.3 A Bank shall not be obliged to share any amount with any other Bank
which it has received or recovered as a result of taking legal proceedings
where such other Bank had an opportunity to participate in those legal
proceedings but did not do so and did not take separate legal proceedings.
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PART 10
FEES, COSTS AND EXPENSES
26. FEES
26.1 The Borrower shall pay to the Agent for account of each Bank a
commitment commission calculated at the rate of 0.095 per cent. per annum on
the amount of such Bank's Available Commitment from day to day during the
period beginning on the Commencement Date (as defined in the Amendment
Agreement) and ending on the Final Maturity Date and payable in arrear on the
last day of each successive period of three months which ends during such
period and on the Final Maturity Date.
26.2 The Borrower shall pay to the Agent for account of each Bank the fees
specified in the letter of even date with the Amendment Agreement from the
Agent on behalf of the Banks to the Borrower at the times, and in the amounts,
specified in such letter.
26.3 The Borrower shall pay to each of the Arrangers for the account of
each Arranger the fees specified in the respective letter of 25 October 1995
from each of the Arrangers to the Borrower at the times, and in the amounts,
specified in such letters.
26.4 The Borrower shall pay to the Agent for its own account the agency
fees specified in the letter of 25 October 1995 from the Agent to the Borrower
at the times, and in the amounts, specified in such letter.
26.5 On the Effective Date, the Borrower shall pay to each Continuing Bank
a fee of 0.02 per cent. on the amount of its Commitment on such date.
27. COSTS AND EXPENSES
27.1 The Borrower shall, from time to time on demand of the Agent,
reimburse the Agent for all reasonable costs and expenses (including legal fees
up to the amount agreed by the Agent with the Borrower) together with any VAT
thereon incurred by it in connection with the negotiation, preparation and
execution of this Agreement and the completion of the transactions herein
contemplated.
27.2 The Borrower shall, from time to time on demand of the Agent,
reimburse the Agent, the Arrangers and the Banks for all reasonable costs and
expenses (including legal fees) together with any VAT thereon incurred in or in
connection with the preservation and/or enforcement of any of the rights of the
Agent, the Arrangers and the Banks under this Agreement except to the extent
such costs and expenses result from negligence or wilful misconduct of the
Agent, the Arrangers or the Banks.
27.3 The Borrower shall pay all United Kingdom stamp, registration and
other taxes to which this Agreement or any judgment given in connection
herewith is or at any time may be subject and shall, from time to time within
three business days of the demand of the Agent, indemnify the Agent, the
Arrangers and the Banks against any liabilities, costs, claims and expenses
resulting from any failure to pay or any delay in paying any such tax.
27.4 If the Borrower fails to perform any of its obligations under this
Clause 27, each Bank shall, in its Proportion, indemnify each of the Agent and
the Arrangers against any loss incurred by any of them
- 47 -
<PAGE> 52
as a result of such failure except to the extent that such loss results
directly from the Agent's negligence or wilful misconduct and the Borrower
shall forthwith reimburse each Bank for any payment made by it pursuant to this
Clause 27.4.
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<PAGE> 53
PART 11
AGENCY PROVISIONS
28. THE AGENT, THE ARRANGERS AND THE BANKS
28.1 Each Arranger and each Bank hereby appoints the Agent to act as its
agent in connection herewith and authorises the Agent to exercise such rights,
powers, authorities and discretions as are specifically delegated to the Agent
by the terms hereof together with all such rights, powers, authorities and
discretions as are reasonably incidental thereto.
28.2 The Agent may:
(i) assume that:
(a) any representation made by the Borrower in
connection herewith is true;
(b) no Default has occurred;
(c) the Borrower is not in breach of or default
under its obligations hereunder; and
(d) any right, power, authority or discretion
vested herein upon an Instructing Group, the
Banks or any other person or group of persons
has not been exercised,
unless it has, in its capacity as agent for the
Banks, received notice to the contrary from any other
party hereto;
(ii) assume that the Facility Office of each Bank is that
identified with its signature below (or, in the case
of a Transferee, at the end of the Transfer
Certificate to which it is a party as Transferee)
until it has received from such Bank a notice
designating some other office of such Bank to replace
its Facility Office and act upon any such notice
until the same is superseded by a further such
notice;
(iii) engage and pay for the advice or services of any
lawyers, accountants, surveyors or other experts
whose advice or services may to it seem necessary,
expedient or desirable and rely upon any advice so
obtained;
(iv) rely as to any matters of fact which might reasonably
be expected to be within the knowledge of the
Borrower upon a certificate signed by or on behalf of
the Borrower;
(v) rely upon any communication or document believed by
it to be genuine;
(vi) save as otherwise provided herein, refrain from
exercising any right, power or discretion vested in
it as agent hereunder unless and until instructed by
an
- 49 -
<PAGE> 54
Instructing Group as to whether or not such right,
power or discretion is to be exercised and, if it is
to be exercised, as to the manner in which it should
be exercised; and
(vii) refrain from acting in accordance with any
instructions of an Instructing Group to begin any
legal action or proceeding arising out of or in
connection with this Agreement until it shall have
received such security as it may require (whether by
way of payment in advance or otherwise) for all
costs, claims, losses, expenses (including legal
fees) and liabilities together with any VAT thereon
which it will or may expend or incur in complying
with such instructions.
28.3 The Agent shall:
(i) promptly inform each Bank of the contents of any
notice or document received by it in its capacity as
Agent from the Borrower hereunder;
(ii) promptly notify each Bank of the occurrence of any
Default or any default by the Borrower in the due
performance of or compliance with its obligations
under this Agreement of which the Agent has express
notice from any other party hereto;
(iii) save as otherwise provided herein, act as agent
hereunder in accordance with any instructions given
to it by an Instructing Group, which instructions
shall be binding on all of the Arrangers and the
Banks; and
(iv) save as otherwise provided herein, if so instructed
by an Instructing Group, refrain from exercising any
right, power or discretion vested in it as agent
hereunder.
28.4 Notwithstanding anything to the contrary expressed or implied herein,
neither the Agent nor any of the Arrangers shall:
(i) be bound to enquire as to:
(a) whether or not any representation made by the
Borrower in connection herewith is true;
(b) the occurrence or otherwise of any Default;
(c) the performance by the Borrower of its
obligations hereunder; or
(d) any breach of or default by the Borrower of
or under its obligations hereunder;
(ii) be bound to account to any Bank for any sum or the
profit element of any sum received by it for its own
account;
(iii) be bound to disclose to any other person any
information relating to any
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<PAGE> 55
member of the Group if such disclosure would or might
in its opinion constitute a breach of any law or
regulation or be otherwise actionable at the suit of
any person; or
(iv) be under any obligations other than those for which
express provision is made herein.
28.5 Each Bank shall, in its Proportion, from time to time on demand by the
Agent, indemnify the Agent, against any and all costs, claims, losses, expenses
(including legal fees) and liabilities together with any VAT thereon which the
Agent may incur, otherwise than by reason of its own gross negligence or wilful
misconduct, in acting in its capacity as agent hereunder.
28.6 Neither the Agent and the Arrangers nor any of them accepts any
responsibility for the accuracy and/or completeness of any information supplied
by the Borrower in connection herewith or for the legality, validity,
effectiveness, adequacy or enforceability of this Agreement or any related
document and neither the Agent and the Arrangers nor any of them shall be under
any liability as a result of taking or omitting to take any action in relation
to this Agreement or any related document, save in the case of gross negligence
or wilful misconduct.
28.7 Each of the Banks agrees that it will not assert or seek to assert
against any director, officer or employee of the Agent or any Arranger any
claim it might have against any of them in respect of the matters referred to
in Clause 28.6.
28.8 The Agent and each of the Arrangers may accept deposits from, lend
money to and generally engage in any kind of banking or other business with the
Borrower or any of its related entities.
28.9 The Agent may resign its appointment hereunder at any time without
assigning any reason therefor by giving not less than thirty days' prior
written notice to that effect to each of the other parties hereto Provided
that no such resignation shall be effective until a successor for the Agent is
appointed in accordance with the succeeding provisions of this Clause 28 and
has accepted such appointment in writing.
28.10 If the Agent gives notice of its resignation pursuant to Clause 28.9,
then any reputable and experienced bank or other financial institution may
(with the prior consent of the Borrower, such consent not to be unreasonably
withheld Provided that it is understood that such consent may be withheld in
relation to a bank or financial institution whose primary business is similar
to or in direct competition with that of the Group) be appointed as a successor
to the Agent by an Instructing Group during the period of such notice but, if
no such successor is so appointed, the Agent may appoint such a successor
itself.
28.11 If a successor to the Agent is appointed under the provisions of
Clause 28.10, then upon such successor's acceptance of such appointment (i) the
retiring Agent shall be discharged from any further obligation hereunder but
shall remain entitled to the benefit of the provisions of this Clause 28 and
(ii) its successor and each of the other parties hereto shall have the same
rights and obligations amongst themselves as they would have had if such
successor had been a party hereto.
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<PAGE> 56
28.12 It is understood and agreed by each Bank that it has itself been, and
will continue to be, solely responsible for making its own independent
appraisal of and investigations into the financial condition, creditworthiness,
condition, affairs, status and nature of the Borrower and, accordingly, each
Bank warrants to the Agent and the Arrangers that it has not relied on and will
not hereafter rely on the Agent and the Arrangers nor any of them:
(i) to check or enquire on its behalf into the adequacy,
accuracy or completeness of any information provided
by the Borrower in connection with this Agreement or
the transactions herein contemplated (whether or not
such information has been or is hereafter circulated
to such Bank by the Agent and the Arrangers or any of
them); or
(ii) to assess or keep under review on its behalf the
financial condition, creditworthiness, condition,
affairs, status or nature of the Borrower.
28.13 In acting as Agent for the Banks, the Agent's agency division shall be
treated as a separate entity from any other of its divisions or departments
and, notwithstanding the foregoing provisions of this Clause 28, in the event
that the Agent should act for the Borrower in any capacity in relation to any
other matter, any information given by the Borrower to the Agent in such other
capacity may be treated as confidential by the Agent.
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<PAGE> 57
PART 12
ASSIGNMENTS AND TRANSFERS
29. BENEFIT OF AGREEMENT
This Agreement shall be binding upon and enure to the benefit of each party
hereto and its or any subsequent successors, Transferees and assigns.
30. ASSIGNMENTS AND TRANSFERS BY THE BORROWER
The Borrower shall not be entitled to assign or transfer all or any of its
rights, benefits and obligations hereunder without the prior written consent of
the Banks.
31. ASSIGNMENTS AND TRANSFERS BY BANKS
31.1 Any Bank may, at any time, assign all or any of its rights and
benefits hereunder or transfer in accordance with Clause 31.3 all or any of its
rights, benefits and obligations to a person subject to the prior written
consent of the Borrower and the Agent (such consent not to be unreasonably
withheld or delayed Provided that it is understood that such consent may be
withheld in relation to a bank or financial institution whose primary business
is similar to or in direct competition with that of the Group or where the
Borrower reasonably considers that the credit-worthiness of the transferee bank
is substantially below that of the transferor bank). Unless the Borrower and
the Agent agree otherwise, any partial assignment, transfer or novation must be
a minimum Commitment amount of pound sterling 5,000,000.
31.2 If any Bank assigns all or any of its rights and benefits hereunder in
accordance with Clause 31.1, then, unless and until the assignee has agreed
with the Agent, the Arrangers and the other Banks that it shall be under the
same obligations towards each of them as it would have been under if it had
been an original party hereto as a Bank, the Agent, the Arrangers and the other
Banks shall not be obliged to recognise such assignee as having the rights
against each of them which it would have had if it had been such a party
hereto.
31.3 If any Bank wishes to transfer all or any of its rights, benefits
and/or obligations hereunder as contemplated in Clause 31.1, then such transfer
may be effected by the delivery to the Agent of a duly completed and duly
executed Transfer Certificate in which event, on the later of the Transfer Date
specified in such Transfer Certificate and the fifth business day after (or
such earlier business day endorsed by the Agent on such Transfer Certificate
falling on or after) the date of delivery of such Transfer Certificate to the
Agent:
(i) to the extent that in such Transfer Certificate the
Bank party thereto seeks to transfer its rights,
benefits and obligations hereunder, such Bank and the
other parties hereto at such time shall be released
from further obligations towards one another
hereunder and their respective rights against one
another shall be cancelled (such rights, benefits and
obligations being referred to in this Clause 31.3 as
"DISCHARGED RIGHTS AND OBLIGATIONS");
- 53 -
<PAGE> 58
(ii) the Borrower and the Transferee party thereto shall
assume obligations towards one another and/or acquire
rights against one another which differ from such
discharged rights and obligations only insofar as the
Borrower and such Transferee have assumed and/or
acquired the same in place of the Borrower and such
Bank; and
(iii) the Agent, the Arrangers, such Transferee and the
other Banks shall acquire the same rights and
benefits and assume the same obligations between
themselves as they would have acquired and assumed
had such Transferee been an original party hereto as
a Bank with the rights, benefits and/or obligations
acquired or assumed by it as a result of such
transfer.
31.4 On the date upon which a transfer takes effect pursuant to Clause
31.3, the Transferee in respect of such transfer shall pay to the Agent for its
own account a transfer fee of pound sterling 750.
31.5 If, at any time, a Bank assigns or transfers any of its rights,
benefits and obligations hereunder or transfers its Facility Office and, at the
time of such assignment or transfer there arises an obligation on the part of
the Borrower under Clauses 11 and 13 to pay to that Bank or its assignee or
transferee any amount in excess of the amount it would have then been obliged
to pay but for the assignment or transfer then the Borrower shall not be
obliged to pay the amount of such excess.
31.6 For the avoidance of doubt, if any Bank assigns all or any of its
rights hereunder in accordance with Clause 31.1 or transfers all or any of its
rights, benefits and/or obligations hereunder as contemplated in Clause 31.1,
the relevant assignee or transferee, by accepting such assignment or entering
into such transfer, shall represent to the Borrower that it is a Qualifying
Bank, and agrees that it shall notify the Borrower if at any time it is not, or
will cease to be, a Qualifying Bank as soon as reasonably practicable upon
becoming aware of such event.
32. DISCLOSURE OF INFORMATION
32.1 Neither the Agent, the Arrangers nor any Bank may disclose to any
actual or potential assignee or Transferee or to any person who may otherwise
enter into contractual relations with such Bank in relation to this Agreement
any information about the Borrower without the prior written consent of the
Borrower (which consent shall not be unreasonably withheld or delayed) and then
only on the basis that prior to any such disclosure the recipient of such
information agrees to preserve in accordance with Clause 32.2 the
confidentiality of any information relating to the Borrower and the Group
received by it and the Agent has received a written undertaking addressed to
the Borrower and the proposed assignor or transferor to that effect.
32.2 The Agent, the Arrangers and each Bank agree that they will treat as
confidential all information provided to it by the Borrower or its agents in
relation to the Facility and only use such information or disclose it to others
in connection with arrangements arising under this Agreement except that the
Agent, the Arrangers or any Bank, as the case may be, may disclose such
information:
(i) in accordance with Clause 32.1;
(ii) to the extent to which it is required to do so by law
or by order of any court
- 54 -
<PAGE> 59
referred to in Clause 39 or at the request of any
regulatory body;
(iii) if necessary or advisable, in connection with any
legal proceedings relating to this Agreement Provided
that where the Borrower is not a party to such legal
proceedings then the Borrower must be given prior
notification to such information being disclosed;
(iv) to their employees, directors, agents, lawyers,
accountants and other professional advisors and to
such of their officers, directors, employees, agents,
independent auditors and representatives of such
Agent, Arranger or Bank as need to know such
information in connection with such party's
administration of its obligations hereunder Provided
that such persons referred to in this sub-paragraph
(iv) must be informed of the confidential nature of
the information and of the restrictions imposed
herein; and
(v) to the extent that such information otherwise becomes
public information (otherwise than by disclosure by
any of the Agent, the Arrangers or any Bank).
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<PAGE> 60
PART 13
MISCELLANEOUS
33. CALCULATIONS AND EVIDENCE OF DEBT
33.1 Interest and commitment commission shall accrue from day to day and
shall be calculated on the basis of a year of 360 days (or, in any case where
market practice differs, in accordance with market practice) and the actual
number of days elapsed in respect of interest or 365 days and the actual number
of days elapsed in respect of commitment commission.
33.2 Any repayment of an Advance denominated in a Committed Currency or in
an Optional Currency shall reduce the amount of such Advance by the amount of
such Committed Currency or Optional Currency respectively repaid and shall
reduce the Sterling Amount of such Advance proportionately.
33.3 If on any occasion a Reference Bank or Bank fails to supply the Agent
with a quotation required of it under the foregoing provisions of this
Agreement, the rate for which such quotation was required shall be determined
from those quotations which are supplied to the Agent Provided that at least
two Reference Banks supply a quotation.
33.4 Each Bank shall maintain in accordance with its usual practice
accounts evidencing the amounts from time to time lent by and owing to it
hereunder.
33.5 The Agent shall maintain on its books a control account or accounts in
which shall be recorded (i) the amount of any Advance made or arising hereunder
and each Bank's share therein, (ii) the amount of all principal, interest and
other sums due or to become due from the Borrower to any of the Banks hereunder
and each Bank's share therein and (iii) the amount of any sum received or
recovered by the Agent hereunder and each Bank's share therein.
33.6 In any legal action or proceeding arising out of or in connection with
this Agreement, the entries made in the accounts maintained pursuant to Clauses
33.4 and 33.5 shall be prima facie evidence of the existence and amounts of the
obligations of the Borrower therein recorded.
33.7 A certificate of a Bank as to (i) the amount by which a sum payable to
it hereunder is to be increased under Clause 11.1 or (ii) the amount for the
time being required to indemnify it against any such cost, payment or liability
as is mentioned in Clause 11.2 or 13.1 shall, in the absence of manifest error,
be conclusive for the purposes of this Agreement.
34. REMEDIES AND WAIVERS
No failure to exercise, nor any delay in exercising, on the part of the Agent,
the Arrangers and the Banks or any of them, any right or remedy hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
right or remedy prevent any further or other exercise thereof or the exercise
of any other right or remedy. The rights and remedies herein provided are
cumulative and not exclusive of any rights or remedies provided by law.
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<PAGE> 61
35. AMENDMENTS
35.1 With the prior written consent of an Instructing Group, the Agent and
the Borrower may from time to time enter into written amendments, supplements
or modifications hereto for the purpose of adding any provisions to this
Agreement or changing in any manner the rights of all or any of the Agent, the
Arrangers and the Banks or of the Borrower hereunder, and, at the request of
the Borrower with the prior consent of an Instructing Group, the Agent on
behalf of the Arrangers and the Banks may execute and deliver to the Borrower a
written instrument waiving prospectively or retrospectively, on such terms and
conditions as the Agent may specify in such instrument, any of the requirements
of this Agreement or any Event of Default and its consequences Provided,
however, that:
(i) no waiver and no amendment, supplement or
modification shall, without the prior consent of all
the Banks:
(a) amend or modify the definitions of Final
Maturity Date or Instructing Group;
(b) amend, modify or waive any provision of
Clauses 18.1, 19.2(i) or 25 or this Clause 35;
(c) increase any Bank's Commitment (other than
pursuant to Clause 31), the amount of the
Facility, change the principal amount of or
currency of any Advance or extend the Term of
any Advance; or
(d) decrease the amount of, change the currency
of or extend the date for any payment of
interest, fees or any other amount payable to
all or any of the Agent, the Arrangers and
the Banks; and
(ii) notwithstanding any other provision hereof, the Agent
shall not be obliged to agree to any waiver,
amendment, supplement or modification if the same
would:
(a) amend, modify or waive any provision of this
Clause 35; or
(b) otherwise amend, modify or waive any of the
Agent's rights under this Agreement or
subject the Agent to any additional
obligations thereunder.
35.2 If the Borrower requests any amendment, supplement, modification or
waiver in accordance with Clause 35.1, then the Borrower shall, within five
business days of demand of the Agent, reimburse the Agent for all costs and
expenses (including legal fees) together with any VAT thereon reasonably
incurred by the Agent in the negotiation, preparation and execution of any
written instrument contemplated by Clause 35.1.
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<PAGE> 62
36. PARTIAL INVALIDITY
If, at any time, any provision hereof is or becomes illegal, invalid or
unenforceable in any respect under the law of any jurisdiction, neither the
legality, validity or enforceability of the remaining provisions hereof nor the
legality, validity or enforceability of such provision under the law of any
other jurisdiction shall in any way be affected or impaired thereby.
37. NOTICES
37.1 Each communication to be made hereunder shall be made in writing but,
unless otherwise stated, may be made by telex, telefax or letter.
37.2 Any communication or document to be made or delivered by one person to
another pursuant to this Agreement shall (unless that other person has by
fifteen days' written notice to the Agent specified another address) be made or
delivered to that other person at the address, telex or telefax number
identified with its signature below (or, in the case of a Transferee, at the
end of the Transfer Certificate to which it is a party as Transferee) and shall
be deemed to have been made or delivered, in the case of any communication made
by letter, when left at that address or, as the case may be, ten days after
being deposited in the post postage prepaid in an envelope addressed to that
other person at that address and in the case of any communication made by telex
or telefax, when transmission thereof has been completed Provided that where
such communication has been transmitted out of office hours at the place of
receipt, then delivery shall be deemed to be made on the next business day
following such transmission. Any communication or document to be made or
delivered to the Agent shall be effective only when received by the Agent and
then only if the same is expressly marked for the attention of the department
or officer identified with the Agent's signature below (or such other
department or officer as the Agent shall from time to time specify for this
purpose).
37.3 In the case of communications sent by telefax, a hard copy of each
such communication must be delivered to the recipient's address not later than
two business days following the day on which such telefax was sent.
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<PAGE> 63
PART 14
LAW AND JURISDICTION
38. LAW
This Agreement shall be governed by, and shall be construed in accordance with,
English law.
39. JURISDICTION
39.1 Each of the parties hereto irrevocably agrees for the benefit of each
of the Agent, the Arrangers and the Banks that the courts of England shall have
jurisdiction to hear and determine any suit, action or proceeding, and to
settle any disputes, which may arise out of or in connection with this
Agreement and, for such purposes, irrevocably submits to the jurisdiction of
such courts.
39.2 The Borrower irrevocably waives any objection which it might now or
hereafter have to the courts referred to in Clause 39.1 being nominated as the
forum to hear and determine any suit, action or proceeding, and to settle any
disputes, which may arise out of or in connection with this Agreement and
agrees not to claim that any such court is not a convenient or appropriate
forum.
39.3 The submission to the jurisdiction of the courts referred to in Clause
39.1 shall not (and shall not be construed so as to) limit the right of the
Agent, the Arrangers and the Banks or any of them to take proceedings against
the Borrower in any other court of competent jurisdiction nor shall the taking
of proceedings in any one or more jurisdictions preclude the taking of
proceedings in any other jurisdiction (whether concurrently or not) if and to
the extent permitted by applicable law.
AS WITNESS the hands of the duly authorised representatives of the parties
hereto the day and year first before written.
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<PAGE> 64
THE FIRST SCHEDULE
THE BANKS
<TABLE>
<CAPTION>
BANK COMMITMENT (POUND STERLING)
<S> <C>
The First National Bank of Chicago 21,000,000
ABN AMRO Bank N.V. 20,000,000
Deutsche Bank AG London 20,000,000
Bank Austria AG 16,000,000
Commerzbank Aktiengesellschaft, London Branch 16,000,000
Lloyds Bank Plc 16,000,000
Morgan Guaranty Trust Company of New York 16,000,000
Cooperative Centrale Raiffeiesen-Boerenleenbank B.A. 16,000,000
Westdeutsche Landesbank Girozentrale, London Branch 16,000,000
Bank of America National Trust and Savings Association 15,000,000
Bayerische Landesbank Girozentrale, London Branch 15,000,000
Kredietbank N.V., London Branch 15,000,000
Union Bank of Switzerland 15,000,000
Dresdner Bank AG London Branch 12,000,000
The Royal Bank of Scotland plc 12,000,000
NationsBank N.A. 12,000,000
Barclays Bank PLC 10,000,000
The Chase Manhattan Bank 10,000,000
Bankgesellschaft Berlin AG, London Branch 10,000,000
Societe Generale, London Branch 10,000,000
Allied Irish Banks plc 7,000,000
-----------
300,000,000
-----------
</TABLE>
- 60 -
<PAGE> 65
THE SECOND SCHEDULE
FORM OF TRANSFER CERTIFICATE
To: The First National Bank of Chicago
TRANSFER CERTIFICATE
relating to the agreement (as from time to time amended, varied, novated or
supplemented, the "Facility Agreement") originally dated 25 October 1995
whereby following an amendment agreement dated 11 October 1996 a pound sterling
300,000,000 multicurrency revolving credit facility was made available to MBNA
International Bank Limited as borrower by a group of banks on whose behalf The
First National Bank of Chicago acted as agent in connection therewith.
1. Terms defined in the Facility Agreement shall, subject to any contrary
indication, have the same meanings herein. The terms Bank and Transferee are
defined in the schedule hereto.
2. The Bank (i) confirms that the details in the schedule hereto under
the heading "BANK'S COMMITMENT" or "ADVANCE(S)" accurately summarises its
Commitment and/or, as the case may be, its participation in, and the Term and
Repayment Date of, one or more existing Advances and (ii) requests the
Transferee to accept and procure the transfer to the Transferee of the portion
specified in the schedule hereto of, as the case may be, its Commitment and/or
its participation in such Advance(s) by counter-signing and delivering this
Transfer Certificate to the Agent at its address for the service of notices
specified in the Facility Agreement.
3. The Transferee hereby requests the Agent to accept this Transfer
Certificate as being delivered to the Agent pursuant to and for the purposes of
Clause 31.3 of the Facility Agreement so as to take effect in accordance with
the terms thereof on the Transfer Date or on such later date as may be
determined in accordance with the terms thereof.
4. The Transferee confirms that it has received a copy of the Facility
Agreement together with such other information as it has required in connection
with this transaction and that it has not relied and will not hereafter rely on
the Bank to check or enquire on its behalf into the legality, validity,
effectiveness, adequacy, accuracy or completeness of any such information and
further agrees that it has not relied and will not rely on the Bank to assess
or keep under review on its behalf the financial condition, creditworthiness,
condition, affairs, status or nature of the Borrower.
5. The Transferee hereby undertakes with the Bank and each of the other
parties to the Facility Agreement that it will perform in accordance with their
terms all those obligations which by the terms of the Facility Agreement will
be assumed by it after delivery of this Transfer Certificate to the Agent and
satisfaction of the conditions (if any) subject to which this Transfer
Certificate is expressed to take effect.
6. The Bank makes no representation or warranty and assumes no
responsibility with respect to the legality, validity, effectiveness, adequacy
or enforceability of the Facility Agreement or any document relating thereto
and assumes no responsibility for the financial condition of the Borrower or
for the
- 61 -
<PAGE> 66
performance and observance by the Borrower of any of its obligations under the
Facility Agreement or any document relating thereto and any and all such
conditions and warranties, whether express or implied by law or otherwise, are
hereby excluded.
7. The Bank hereby gives notice that nothing herein or in the Facility
Agreement (or any document relating thereto) shall oblige the Bank to (i)
accept a re-transfer from the Transferee of the whole or any part of its
rights, benefits and/or obligations under the Facility Agreement transferred
pursuant hereto or (ii) support any losses directly or indirectly sustained or
incurred by the Transferee for any reason whatsoever including, without
limitation, the non-performance by the Borrower or any other party to the
Facility Agreement (or any document relating thereto) of its obligations under
any such document. The Transferee hereby acknowledges the absence of any such
obligation as is referred to in (i) or (ii) above.
8. This Transfer Certificate and the rights and obligations of the
parties hereunder shall be governed by and construed in accordance with English
law.
THE SCHEDULE
1. Bank:
2. Transferee:
3. Transfer Date:
4. Commitment:
Bank's Commitment Portion Transferred
5. Advance(s):
Amount of Term and
Bank's Participation Repayment Date Portion Transferred
[Transferor Bank] [Transferee Bank]
By: By:
Date: Date:
- 62 -
<PAGE> 67
ADMINISTRATIVE DETAILS OF TRANSFEREE
Address:
Contact Name:
Account for Payments
in Sterling:
Telex:
Telephone:
THE FIRST NATIONAL BANK OF CHICAGO
By:
Date:
- 63 -
<PAGE> 68
THE THIRD SCHEDULE
CONDITION PRECEDENT DOCUMENTS
1. Confirmation by a duly authorised officer of the Borrower that there
have been no changes to the constitutive documents of the Borrower
since 25 October 1995.
2. A copy, certified a true copy by a duly authorised officer of the
Borrower, of extracts of resolutions of the directors of the Borrower
and an extract from resolutions of the Executive Committee of the
directors of the Borrower approving the terms and conditions, and the
execution and delivery, of the Amendment Agreement and authorising a
named person or persons to sign the Amendment Agreement and any
documents to be delivered by the Borrower pursuant thereto (or such
other evidence of authority as the Agent shall reasonably require).
3. A certificate of a duly authorised officer of the Borrower setting out
the names and specimen signatures of the person or persons authorised
to sign, on behalf of the Borrower, the Amendment Agreement and any
documents to be delivered by the Borrower pursuant thereto.
4. An opinion of Allen & Overy, solicitors to the Agent, in substantially
the form distributed to the Banks prior to the execution hereof.
5. Payment of the fees referred to in Clause 26 to the extent then due.
6. Confirmation by a duly authorised officer of the Parent that the
Letter of Comfort remains applicable to this Agreement.
7. A certificate of a duly authorised officer of the Borrower confirming
the maintenance of the Liquidity Facility by the Parent.
- 64 -
<PAGE> 69
THE FOURTH SCHEDULE
NOTICE OF DRAWDOWN
From: MBNA International Bank Limited
To: The First National Bank of Chicago
Dated:
Dear Sirs,
1. We refer to the agreement (as from time to time amended, varied,
novated or supplemented, the "Facility Agreement") originally dated 25 October
1995 and made between MBNA International Bank Limited as borrower, The First
National Bank of Chicago as lead arranger, Bank of America International
Limited and Deutsche Bank AG London as co-arrangers, The First National Bank of
Chicago as agent and the financial institutions named therein as banks. Terms
defined in the Facility Agreement shall have the same meaning in this notice.
2. We hereby give you notice that, pursuant to the Facility Agreement and
upon the terms and subject to the conditions contained therein, we wish an
Advance to be made to us as follows:
(i) Currency and Amount:
(ii) Drawdown Date:
(iii) Term:
[3. If it is not possible, pursuant to Clause 6.2 of the Facility
Agreement, for the Advance to be made in the currency specified, we would wish
the Advance to be denominated in [specify Committed Currency].]
[3./4.] We confirm that, at the date hereof, the representations set out in
Clauses 16.1 and 16.2 of the Facility Agreement are true and no Default has
occurred.
[4./5.] The proceeds of this drawdown should be credited to [insert account
details].
[5./6.] We confirm that the date of this Notice of Drawdown *[is a Coverage
Date and the Coverage Ratio equals or exceeds 115%, details of which
computation are attached hereto]/[is not a Coverage Date].
Yours faithfully
.............................
for and on behalf of
- --------------------------------------------------------------------------------
* Delete as appropriate
- 65 -
<PAGE> 70
MBNA INTERNATIONAL BANK LIMITED
- 66 -
<PAGE> 71
THE FIFTH SCHEDULE
ASSOCIATED COSTS RATE
1. For the purposes of this Agreement, the cost of compliance with
existing requirements of the Bank of England in respect of Advances denominated
in Sterling will be calculated by the Agent in relation to each Advance by
reference to the circumstances existing on the first day of the Term in respect
of such Advance and, if such Term exceeds three months, at three calendar
monthly intervals from the first day of such Term during its duration in
accordance with the following formula:
AB + C(B - E) + D(B - F) per cent. per annum
------------------------
100 - (A + D)
Where:
A is the percentage of eligible liabilities which the Agent is
from time to time required to maintain as an interest free
cash deposit with the Bank of England to comply with cash
ratio requirements.
B is the percentage rate per annum at which Sterling deposits
are offered by the Agent, in accordance with its normal
practice, for a period equal to (i) the Term (or, as the case
may be, remainder of such Term) in respect of the relevant
Advance or (ii) three months, whichever is the shorter, to a
leading bank in the London Interbank Market at or about 11.00
a.m. in a sum approximately equal to the amount of such
Advance.
C is the percentage of eligible liabilities which the Agent is
from time to time required by the Bank of England to maintain
as secured money with members of the London Discount Market
Association ("LDMA") and/or as secured call money with money
brokers and gilt edged market makers.
D is the percentage of eligible liabilities which the Agent is
required from time to time to maintain as interest bearing
special deposits with the Bank of England.
E is the percentage rate per annum at which members of the LDMA
are offered Sterling deposits in a sum approximately equal to
the amount of the relevant Advance as a callable fixture from
the Agent for such period as determined in accordance with B
above at or about 11.00 a.m.
F is the percentage rate per annum payable by the Bank of
England to the Agent on interest bearing special deposits.
2. For the purposes of this Schedule "ELIGIBLE LIABILITIES" and "SPECIAL
DEPOSITS" shall bear the meanings ascribed to them from time to time by the
Bank of England.
3. The percentages used in A, C and D above shall be those required to be
maintained on the first day of the relevant period as determined in accordance
with B above.
4. In application of the above formula, A, B, C, D, E and F will be
included in the formula as
- 67 -
<PAGE> 72
figures and not as percentages e.g. if A is 0.5 per cent. and B is 12 per
cent., AB will be calculated as 0.5 x 12 and not as 0.5 per cent. x 12 per
cent.
5. Calculations will be made on the basis of a 365 day year (or, if
market practice differs, in accordance with market practice).
6. A negative result obtained by subtracting E from B or F from B shall
be taken as zero.
7. Additional amounts calculated in accordance with this Schedule are
payable on the last day of the Term to which they relate.
8. The determination of the Associated Costs Rate in relation to any
period shall, in the absence of manifest error, be conclusive and binding on
all of the parties hereto.
9. The Agent may from time to time, after consultation with the Borrower
and the Banks, determine and notify to all the parties hereto any amendments or
variations which are required to be made to the formula set out above in order
to comply with any requirements from time to time imposed by the Bank of
England in relation to Advances denominated in Sterling (including without
limitation, any requirements relating to Sterling primary liquidity) and, any
such determination shall, in the absence of manifest error, be conclusive and
binding on all the parties hereto.
- 68 -
<PAGE> 73
THE SIXTH SCHEDULE
ECU
1. Pursuant to Council Regulation (EC) No. 3320/94 of 22 December, 1994
the ECU is at the date of the Amendment Agreement valued on the basis of
specified amounts of the currencies of the member states of the European
Community as shown below:
<TABLE>
<S> <C>
0.6242 German Mark
0.08784 Pound Sterling
1.332 French Francs
151.8 Italian Lire
0.2198 Dutch Guilder
3.301 Belgian Francs
0.130 Luxembourg Franc
0.1976 Danish Krone
1.44 Greek Drachma
0.008552 Irish Pound
6.885 Spanish Peseta
1.393 Portuguese Escudo
</TABLE>
Article 109g of the Treaty provides as follows:
The currency composition of the ECU basket shall not be changed. From
the start of the third stage, the value of the ECU shall be
irrevocably fixed in accordance with Article 109l(4).
However, if the composition of the ECU is at any time changed, then references
in this Agreement to an Ecu or an ECU shall be construed as references to an
Ecu or, as the case may be, an ECU as so changed.
2. If the Agent makes a declaration pursuant to Clause 22.2 then the
equivalent of the Ecu in each of the component currencies as of any day (the
"DAY OF VALUATION") shall be determined by the Agent as follows:
The components of the Ecu for this purpose (the "COMPONENTS") shall be
the currency amounts that were components of the ECU when the ECU was
most recently used in the European Community*.
The equivalent of the Ecu in the Selected Currency shall be determined
by calculating the sum of the Sterling equivalents of the Components
(the "STERLING SUM"), and, where the Selected Currency is not
Sterling, by then calculating the equivalent amount in the Selected
Currency of the Sterling Sum using the same rate or rates as that or
those used for determining the Sterling equivalent of the relevant
Component as set forth below.
Unless otherwise specified by the Agent, the Sterling equivalent of
each of the Components
- 69 -
<PAGE> 74
shall be the arithmetic mean determined by the Agent on the basis of
the middle spot delivery quotations prevailing at 11.00 a.m. (London
time) in the London Foreign Exchange Market on the Day of Valuation,
as obtained by the Agent from the Reference Banks.**
Unless otherwise specified by the Agent, in the event that there is
more than one market for dealing in any component currency by reason
of foreign exchange regulations or for any other reason, the market to
be referred to in respect of such currency shall be that upon which a
non-resident issuer of securities denominated in such currency would
purchase such currency in order to make payments in respect of such
securities.
* In the event that the official unit of any component
currency of the Ecu is altered by way of combination or
subdivision, the number of units of that currency as a
Component shall be divided or multiplied in the same
proportion. In the event that two or more component
currencies are consolidated into a single currency, the
amounts of those currencies as Components shall be replaced
by an amount in such single currency equal to the sum of the
amounts of the consolidated component currencies expressed
in such single currency. In the event that any component
currency should be divided into two or more currencies, the
amount of that currency as a Component shall be replaced by
amounts of such two or more currencies each of which shall
be equal in the amount of the former component currency
divided by the number of currencies into which that currency
was divided.
** In the event no such direct quotations are available for a
component currency on a Day of Valuation from any of the
Reference Banks because foreign exchange markets are closed
in the country of issue of that currency or for any other
reason, the most recent direct quotations of the Reference
Banks for that currency obtained by the Agent shall be used
in computing the equivalent of the Ecu on such Day of
Valuation, provided, however, that such most recent
quotations may be used only if they were prevailing not more
than two business days in the country of issue before such
Day of Valuation. Beyond such period of two business days,
the Agent shall determine the Sterling equivalent of such
Component on the basis of cross rates derived from middle
spot delivery quotations for such component currency and for
Sterling prevailing at 11.00 a.m. (London time) on such Day
of Valuation, as obtained by the Agent from two or more
major banks, as selected by the Agent. Within such period
of two business days, the Agent shall determine the Sterling
equivalent of such Component on the basis of such cross
rates if the Agent judges that the equivalent so calculated
is more representative than the Sterling equivalent
calculated on the basis of such most recent direct
quotations.
3. All determinations made by the Agent shall be at its sole discretion
and shall, in the absence of manifest error, be conclusive for all purposes and
binding upon the Borrower.]
-70-
<PAGE> 1
EXHIBIT 12: COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND
PREFERRED STOCK DIVIDEND REQUIREMENTS (dollars in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------------
1997 1996 (b) 1995 1994 1993 (c)
----------- ----------- ------------ ----------- -----------
INCLUDING INTEREST ON DEPOSITS
<S> <C> <C> <C> <C> <C>
Earnings:
Income before income taxes.......................... $ 1,022,108 $ 731,294 $ 584,601 $ 441,101 $ 190,624
Fixed charges....................................... 1,035,069 755,884 609,742 316,647 183,148
Interest capitalized during period, net of
amortization of previously capitalized interest... (4,967) (2,370) (3,409) (683) (1,146)
----------- ----------- ----------- ----------- -----------
Earnings, for computation purposes.................. $ 2,052,210 $ 1,484,808 $ 1,190,934 $ 757,065 $ 372,626
=========== =========== =========== =========== ===========
Fixed Charges and Preferred Stock
Dividend Requirements:
Interest on deposits, short-term borrowings,
and long-term debt and bank notes,
expensed or capitalized.............................$ 1,023,765 $ 746,008 $ 600,047 $ 308,242 $ 179,647
Portion of rents representative of the
interest factor.................................... 11,304 9,876 9,695 8,405 3,501
----------- ----------- ----------- ----------- -----------
Fixed charges........................................ 1,035,069 755,884 609,742 316,647 183,148
Preferred stock dividend requirements (a)............ 32,065 23,269 2,432 - -
----------- ----------- ----------- ----------- -----------
Fixed charges and preferred stock dividend
requirements, including interest on deposits,
for computation purposes............................$ 1,067,134 $ 779,153 $ 612,174 $ 316,647 $ 183,148
=========== =========== =========== =========== ===========
Ratio of earnings to combined fixed charges and
preferred stock dividend requirements, including
interest on deposits............................... 1.92 1.91 1.95 2.39 2.03
EXCLUDING INTEREST ON DEPOSITS
Earnings:
Income before income taxes...........................$ 1,022,108 $ 731,294 $ 584,601 $ 441,101 $ 190,624
Fixed charges........................................ 341,149 227,999 171,585 94,495 38,100
Interest capitalized during period net of
amortization of previously capitalized interest.... (4,988) (2,391) (3,430) - (760)
----------- ----------- ----------- ----------- -----------
Earnings, for computation purposes.................. $ 1,358,269 $ 956,902 $ 752,756 $ 535,596 $ 227,964
=========== =========== =========== =========== ===========
Fixed Charges and Preferred Stock
Dividend Requirements:
Interest on short-term borrowings,
and long-term debt and bank notes,
expensed or capitalized........................... $ 329,845 $ 218,123 $ 161,890 $ 86,090 $ 34,599
Portion of rents representative of the
interest factor................................... 11,304 9,876 9,695 8,405 3,501
------------ ----------- ----------- ----------- -----------
Fixed charges....................................... 341,149 227,999 171,585 94,495 38,100
Preferred stock dividend requirements (a)........... 32,065 23,269 2,432 - -
------------ ----------- ----------- ----------- -----------
Fixed charges and preferred stock dividend
requirements, excluding interest on deposits,
for computation purposes...........................$ 373,214 $ 251,268 $ 174,017 $ 94,495 $ 38,100
=========== =========== =========== =========== ===========
Ratio of earnings to combined fixed charges and
preferred stock dividend requirements, excluding
interest on deposits............................... 3.64 3.81 4.33 5.67 5.98
</TABLE>
(a) Preferred stock dividend requirements are adjusted to represent a pretax
earnings equivalent
(b) Income before income taxes for the year ended December 31, 1996, includes
a charge of $54.3 million related to the launch of the MBNA Platinum Plus
MasterCard and Visa program. Without the charge, the ratio of earnings to
combined fixed charges and preferred stock dividend requirements,
including and excluding interest on deposits, would have been 1.98 and
4.02, respectively.
(c) Income before income taxes for 1993 includes a charge of $150.0 million
for the termination of a marketing agreement with an independent
third-party marketing organization. Without the charge, the ratio of
earnings to combined fixed charges and preferred stock dividend
requirements, including and excluding interest on deposits, would have
been 2.85 and 9.92, respectively.
The ratio of earnings to combined fixed charges and preferred stock dividend
requirements is computed by dividing (i) income before income taxes and fixed
charges less interest capitalized during such period, net of amortization of
previously capitalized interest, by (ii) fixed charges and preferred stock
dividend requirements. Fixed charges consist of interest expense on borrowings,
including capitalized interest (including or excluding deposits, as the case
may be), and the portion of rental expense which is deemed representative of
interest. The preferred stock dividend requirements represent the pretax
earnings which would have been required to cover such dividend requirements on
the Corporation's preferred stock outstanding. The Corporation did not have any
preferred stock outstanding during the periods prior to 1995 presented above
and accordingly there were no preferred stock dividend requirements during such
periods.
<PAGE> 1
[MBNA CORPORATION LOGO]
[PHOTO] Collage of credit cards
SUCCESS IS GETTING THE RIGHT CUSTOMERS...
AND KEEPING THEM.
1997 ANNUAL REPORT
---------------------
<PAGE> 2
CONTENTS
- --------------------
2 FINANCIAL HIGHLIGHTS
3 TO OUR STOCKHOLDERS
4 WHAT WE DO/WHERE WE ARE TODAY
7 HOW WE MARKET
9 REGIONALIZATION
12 INTERNATIONAL
13 TECHNOLOGY
14 EDUCATION FOUNDATION
17 FINANCIALS
65 SENIOR EXECUTIVES
66 DIRECTORS AND OFFICERS
Printed on the cover
are selected credit cards
issued by MBNA Europe
1997 HIGHLIGHTS
Increased earnings by 31.2% to $622.5 million.
-
Grew managed loans by 28% to $49.4 billion, a $10.8 billion increase over 1996,
while the industry's growth rate slowed to 6%.
-
Added more new accounts (9.4 million)--for the third consecutive year--than any
other issuer ever added in a single year.
-
Maintained superior credit quality with charge-offs at 3.97% for the year, well
below the published industry average of 6.57%.
-
Acquired the endorsements of 563 new groups including, for example, Major
League Baseball, PGA of America, Subaru of America,
University of Pennsylvania, Barnes & Noble, Inc., Fidelity Investments, Royal
Naval Association (UK), and the Law Society of
Ireland.
-
Extended exclusive endorsement agreements with the National Football League,
the National Hockey League, the New York Yankees, the
University of Arizona Alumni Association, the California Alumni Association,
and more than 600 other organizations.
-
Expanded MBNA International to 1.9 million Customers with $2.8 billion in loan
balances just 50 months after issuing its first
credit card. Began operations of MBNA Canada with headquarters in Ottawa.
<PAGE> 3
MBNA IS A COMPANY OF PEOPLE COMMITTED TO:
Providing the Customer with the finest products backed by
consistently top-quality service.
-
Delivering these products and services efficiently, thus ensuring
fair prices to the Customer and a sound investment for the
stockholder.
-
Treating the Customer as we expect to be treated--putting the
Customer first every day--and meaning it.
-
Being leaders in innovation, quality, efficiency, and Customer
satisfaction. Being known for doing the little things and the big
things well.
-
Expecting and accepting from ourselves nothing short of the best.
Remembering that each of us, the people of MBNA, makes the
unassailable difference.
Getting the right Customers and keeping them
is the foundation of our business. It demands a single-minded
commitment to Customer satisfaction. Meeting this commitment requires
tough standards, good people, and constant attention to the
importance of each individual Customer. It means having an attitude.
Introduced during the summer of 1986, the precepts above express our
attitude. They are displayed throughout the company, and each person
carries a copy. These words have been reviewed every year since they
were written and have never been changed. They are simple and
straightforward, and we mean every single word.
[PHOTO] MBNA Headquarters entrance.
<PAGE> 4
EARNINGS PER COMMON SHARE--
ASSUMING DILUTION
<TABLE>
<CAPTION>
(dollars)
<S> <C>
88 0.18
89 0.21
90 0.26
91 0.30
92 0.34
93 0.41
94 0.52
95 0.68
96 0.89
97 1.15
</TABLE>
NET INCOME
<TABLE>
<CAPTION>
(millions)
<S> <C>
88 90.1
89 104.1
90 129.0
91 149.2
92 172.7
93 207.8
94 266.6
95 353.1
96 474.5
97 622.5
</TABLE>
MANAGED LOANS (ENDING)
<TABLE>
<CAPTION>
(billions)
<S> <C>
88 4.5
89 5.7
90 7.4
91 8.8
92 9.9
93 12.4
94 18.7
95 26.7
96 38.6
97 49.4
</TABLE>
SALES AND CASH ADVANCE VOLUME
<TABLE>
<CAPTION>
(billions)
<S> <C>
88 7.3
89 9.1
90 11.5
91 12.9
92 14.5
93 17.9
94 25.1
95 34.3
96 48.7
97 66.4
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997 1996 1995 1994 1993
(dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
PER COMMON SHARE DATA FOR THE YEAR (a)
- -----------------------------------------------------------------------------------------------------------------------------------
Earnings . . . . . . . . . . . . . . . . . . . $ 1.20 $ .92 $ .70 $ .53 $ .41
Earnings--assuming dilution . . . . . . . . . 1.15 .89 .68 .52 .41
Dividends (b) . . . . . . . . . . . . . . . . .32 .28 .25 .21 .19
Book value . . . . . . . . . . . . . . . . . . 3.50 2.80 2.22 1.83 1.53
RATIOS
- -----------------------------------------------------------------------------------------------------------------------------------
Return on average total assets . . . . . . . . 3.25% 3.26% 3.09% 3.16% 3.15%
Return on average stockholders' equity . . . . 35.56 34.46 35.51 32.70 30.01
Stockholders' equity to total assets . . . . . 9.25 10.00 9.56 9.51 10.51
FINANCIAL STATEMENT DATA FOR THE YEAR
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest income . . . . . . . . . . . . . $ 692,390 $ 640,477 $ 544,226 $ 532,108 $ 474,323
Other operating income . . . . . . . . . . . . 2,812,879 1,895,923 1,424,618 1,013,580 739,968
Net income . . . . . . . . . . . . . . . . . . 622,500 474,495 353,099 266,593 207,796
Deposits . . . . . . . . . . . . . . . . . . . 12,913,213 10,151,686 8,608,914 6,632,489 5,241,883
Stockholders' equity . . . . . . . . . . . . . 1,970,050 1,704,308 1,265,058 919,578 769,131
MANAGED LOAN DATA
- -----------------------------------------------------------------------------------------------------------------------------------
Managed loans at year end . . . . . . . . . . $49,379,860 $38,623,533 $26,711,704 $18,743,864 $12,358,518
Sales and cash advance volume . . . . . . . . 66,399,425 48,666,129 34,272,909 25,078,918 17,889,747
</TABLE>
(a) For comparative purposes, per common share data have been restated to
reflect the adoption of Statement of Financial Accounting Standards
No. 128, "Earnings per Share," and the three-for-two split of the
Corporation's Common Stock, effected in the form of a dividend, issued
October 1, 1997, to stockholders of record as of September 15, 1997.
(b) On January 13, 1998, the Board of Directors approved an increase of
12.5% in the quarterly dividend to $.09 per common share.
[PHOTO]
Pictured left to right: MBNA America Executive Committee members Ronald W.
Davies, Lance L. Weaver, Bruce L. Hammonds, John R. Cochran III, M. Scot
Kaufman, and Richard K. Struthers.
<PAGE> 5
TO OUR STOCKHOLDERS
[PHOTO]
Al Lerner and Charlie Cawley.
This report presents MBNA's full-year results for 1997. During the past year,
earnings increased 31.2% to $622.5 million. Loans outstanding grew to $49.4
billion, a $10.8 billion increase over year-end 1996. We also added a record
9.4 million new accounts. The characteristics of new cardholders are consistent
with the exceptional quality of the company's existing Customers. The typical
new Customer has a $59,000 average annual household income, has been employed
for 10 years, owns a home, and has a 13-year history of paying bills promptly.
Loan losses continue to be significantly below published industry levels. In
1997, our managed loan losses were 3.97%, compared to an industry average of
6.57%. We achieved these results by focusing on the quality of each individual
Customer. This focus continues to differentiate us, even when the business
becomes more difficult--as it did last year.
During 1997, we invested heavily in the U.S. credit card business while
expanding new businesses. MBNA International, which now has 1.9 million
Customers, expanded into Ireland and Canada. MBNA Insurance Services completed
its first full year of operations, and MBNA Consumer Finance grew loans to $4.6
billion.
This year's report is similar in format to last year's because the fundamentals
of our business are unchanged. It is important that we consistently repeat
these fundamentals, not only for you, but for all of us here at MBNA. In this
year's report, we continue to focus on what we do, why we like what we do,
where we are today, and how we feel about the future.
As always, the company's success would not be possible without the
intelligence, enthusiasm, and hard work of the people of MBNA. It is their
attitude about satisfying each Customer that drives our success.
We hope you enjoy this report and find it informative.
/s/ AL LERNER /s/ CHARLIE CAWLEY
THINK OF YOURSELF AS A CUSTOMER.
COMPLACENCY IS DEVASTATING.
SUCCESS IS NEVER FINAL.
3
<PAGE> 6
PLATINUM PLUS
In March of 1996, MBNA began marketing the MBNA Platinum Plus credit card.
Today, more than 9 million Customers carry this card, with total balances of
$12.0 billion. The typical MBNA Platinum Plus Customer has an $80,000 annual
household income and a 14-year history of paying bills on time. These excellent
Customer characteristics are a direct result of our success in marketing this
product to members of our affinity groups. The Platinum Plus credit card is
designed for individuals who we expect will qualify for a higher credit line,
such as doctors, lawyers, and other professionals.
WHAT WE DO/WHERE WE ARE TODAY
MBNA Corporation is a bank holding company comprised of two banks. MBNA America
Bank, N.A., is a national bank in the United States, and MBNA International
Bank Limited, is a fully chartered bank in the United Kingdom. Like traditional
banks, we take deposits and make loans. MBNA Customers have deposited more than
$12 billion in MBNA money market accounts and certificates of deposit with an
average balance of $26,000. We also lend to our Customers through a variety of
loan products, including installment loans and home equity loans for such
things as home improvements, vacations, and college tuition. But that is where
the similarity to traditional banks ends. At MBNA, there are no branches, no
commercial loans, and only a small number of checking accounts. We specialize
in making loans to individuals through a credit card.
There are many opinions about what type of business we are in and what a
company must focus on to be successful. People have referred to lending through
credit cards as a technology business, an information business, and even a
marketing business. While all of these things must be done well to succeed,
none of them is our business. We are in the business of lending people money.
It is a very simple business that, done correctly, is a very good business.
It is a business with universal demand. There are approximately 150 million
people in the United States and another 20 million in the United Kingdom who
could qualify for loans through credit cards. More than 25 million of these
people have MBNA credit cards today.
It is also a very enduring business. It enables people to have the things they
need today and pay for them out of future income.
[PHOTO]
Todd Crouchek
MBNA now employs 20,000 people who work at 26 locations around the world.
EXCELLENCE IS A POINT OF VIEW. IT ISN'T BRILLIANCE OR GETTING THE BREAKS. IT'S
CONSISTENT ATTENTION TO AND HONEST RESPECT FOR THE CUSTOMER.
4
<PAGE> 7
<TABLE>
<CAPTION>
OUR CUSTOMERS:
- - USE US MORE: MBNA INDUSTRY
- -----------------------------------------------------------------------
<S> <C> <C>
Average account balance $3,434 $2,372
Average transaction $138 $94
- - DEFAULT LESS:
- -----------------------------------------------------------------------
Loan losses per $1,000 of average outstanding $40 $66
</TABLE>
MBNA Customers are very loyal. They carry higher balances, spend more, and
demonstrate a greater willingness to repay than the typical customer of our
competitors.
Our grandparents shopped for what they needed at the local grocery store, and
the grocer recorded each transaction in a ledger. Then, on payday, the bill
was settled. Even then, people purchased what they needed that day and paid out
of future income. We are in the same business, a business with an enduring life
cycle.
It is also a business that enables us to avoid concentration of risk. There are
no geographic, industry, or Customer concentrations. Our Customers are spread
across the United States and the United Kingdom just as the population is
distributed. There is no one industry whose difficulties would affect us. Our
loans are spread across millions of borrowers with an average balance of
$3,434. That's $49.4 billion in loans spread out among 14.4 million active
borrowers.
All credit cards do the same thing. That makes the credit card commodity-like,
and as with most commodity products, almost everyone wants one. That is a
strength of the business. However, it also makes this a business in which it is
hard for most credit card companies to differentiate themselves. Not for us. We
differentiate ourselves by how we attract new Customers and how we satisfy
those Customers once we have them. During 1997, our portfolio grew 28%,
compared to an industry growth rate of 6%. MBNA's formula for success remains
very simple. Success is getting the right Customers and keeping them. That has
always been our aim, and in this business--the business of lending people
money--if you're not good at both of these things, nothing else matters. We
are very good at both.
WHERE WE ARE TODAY
During 1997, MBNA added 9.4 million new accounts and increased loans by $10.8
billion to $49.4 billion. We accelerated the growth of our consumer finance
business, which markets unsecured installment loans, home equity loans, and
revolving lines of credit. This business grew to $4.6 billion in managed
loans, a $1.4 billion increase from 1996. We also expanded our insurance
business and began marketing property & casualty and life & health products in
addition to credit insurance. We increased outstanding loans in the United
Kingdom to $2.8 billion--a 56% increase over year-end 1996. In 1997, MBNA
started marketing in Ireland and received approval to begin marketing in
Canada.
CREDIT
At MBNA, credit decisions are made by combining sophisticated technology and
highly predictive models with the insight of credit professionals. We look at
each potential Customer individually. This process allows us to contact the
Customer for additional information in order to make the right credit decision.
It also ensures that people who should get an MBNA credit card get one, and
that those who shouldn't, don't. Fewer than half of all applicants qualify for
an MBNA card. Those who do, receive credit lines that properly fit their
specific situations. This personal approach to credit evaluation gets our
relationship with a new Customer off to the right start and has resulted in
losses that are consistently lower than published industry levels.
[PHOTO]
Tammy Miller
MBNA combines sophisticated technology with the insight of credit professionals
when making lending decisions.
WE ARE WHAT WE REPEATEDLY DO. EXCELLENCE, THEN, IS NOT AN ACT BUT A HABIT.
5
<PAGE> 8
FUNDING
MBNA continues to utilize asset-backed securitizations as a major source of
funding. In 1997, MBNA issued more than $13 billion in asset-backed securities,
resulting in $38.2 billion in outstanding securitized loans at year-end. The
innovative design of these securitizations, MBNA's reputation, and the quality
of the receivables included in the packages have enabled the company to price
these issues at very attractive rates. The completion of several global
transactions broadened our funding sources in 1997. These transactions provide
our expanded investor base with MBNA's first asset-backed securitizations
denominated in the Netherlands guilder and the French franc.
In addition to securitizations, MBNA utilized bank notes, senior debt, and
trust-preferred securities, along with a $12.9 billion deposit base, to fund
growth this past year.
[PHOTO]
Vernon Wright, Linda Phillips
MBNA continued to diversify its funding sources in 1997.
LOAN LOSS COMPARISON Six year Loan Loss Comparison to Industry
[CHART]
As a result of MBNA's ability to get the right Customers, our credit losses
remain well below industry averages.
MBNA has had twenty-eight quarters of consistent earnings growth since becoming
a public company in 1991. With this rapid growth, quality is essential. In the
lending business, quality is achieved by choosing Customers who have the
capacity to repay, proven stability, and a habit of being financially
responsible. MBNA Customers have these characteristics. Our typical Customer
has a $60,000 family income--more than enough capacity to handle a $3,400
credit card balance--has been in his or her job for 13 years, and owns a home.
More importantly, he or she has demonstrated excellent financial habits by
paying bills promptly for an average of 15 years. It is these financial habits
that we rely on most when making a loan. This focus on quality and consistency
has been constant and will continue.
The superior quality of our Customers is reflected in their account
performance. On average, MBNA Customers carry balances that are 45% higher than
the industry average. A typical purchase on an MBNA credit card is $138,
compared to an industry average of $94. This difference results in a
significant advantage as higher balances result in greater revenues per
Customer. In addition, our Customers are very loyal. More than 97% of Customers
who use our product and pay interest stay with us from year to year.
The quality of our Customer is also reflected in loan losses that have remained
consistently lower than industry averages. As loan losses in the industry have
increased, the difference between MBNA and the rest of the industry has become
clearer. From our marketing strategy to our lending practices, the focus is on
the quality of each Customer. It is the fundamental part of a successful
lending business, and it is the primary factor that guides our growth and
performance.
WHAT GETS ATTENDED TO GETS DONE.
6
<PAGE> 9
HOW WE MARKET
During the past year, we strengthened the things that contribute to the
continued success of our business. At MBNA, we've established a franchise,
affinity marketing--marketing products to people with a strong common interest.
Affinity marketing is done in two ways: first, by marketing to groups of people
who belong to formal organizations that endorse MBNA products, and second, by
marketing to groups of people who share common interests but do not belong to
specific organizations. Regional marketing offices give us a strong platform
for developing these programs.
ENDORSED MARKETING
More than 4,500 organizations in the United States and the United Kingdom
endorse MBNA products to their members. One significant part of this business
is MBNA's Sports sector, which markets to 600 sports-related organizations
whose members have generated nearly $4 billion in loans using MBNA products.
MBNA's credit card is the official card of the National Football League, Major
League Baseball, the National Hockey League, NASCAR, the Association of Tennis
Professionals, and the Professional Golfers Association. Sports enthusiasts
are very loyal Customers. After only three years of marketing, the National
Football League endorsement has generated 1 million Customers with $600 million
in loans. We recently extended this agreement with the NFL through the year
2003. Similar success has been achieved through the Major League Baseball
endorsement. More than 500,000 baseball fans carry MBNA credit cards and have
$400 million in loans. The characteristics of Customers acquired through sports
marketing have been very strong. A typical new Customer in the Sports sector
has a family income of $55,000, owns a home, and has a 12-year history of
paying bills promptly.
MBNA's products are also endorsed by more than 500 colleges and universities.
[PHOTO]
Joseph Gatti, Elizabeth Hershey-Ross, Natalie Di Costanza, Mike Boush
MBNA people work closely with the thousands of affinity organizations and
financial institutions that endorse MBNA products. Together, they develop
innovative marketing programs that target the interests of potential Customers.
MOTORSPORTS
MBNA's Motorsports sector has more than 300 groups that endorse MBNA products,
including NASCAR, the Indianapolis Motor Speedway, and the National Hot Rod
Association. More than 1.7 million MBNA Customers, with loan balances of $2
billion, demonstrate their loyalty by using the card of their favorite
motorsport or hobby. In 1997, MBNA people attended 500 motorsport events all
over the United States and in the United Kingdom and attracted 400,000 new
Customers. More than 115,000 of these new Customers were added through the
endorsement of NASCAR.
EVERYTHING STARTS WITH THE CUSTOMER.
7
<PAGE> 10
DIVERSIFIED MARKETING SOURCES
MBNA acquired 9.4 million new accounts during 1997 through a variety of
acquisition methods. Our in-house advertising agency developed thousands of
direct mail campaigns, leading to 2.9 million new accounts; the 4,000 people in
MBNA's telemarketing subsidiary generated 3.7 million new accounts; and MBNA
people attended events and sold our products directly to more than 1 million
new Customers. Choosing the right acquisition method is a critical first step
in designing customized marketing programs for each of the organizations that
endorses MBNA and the hundreds of non-endorsed affinity programs we develop
internally.
Three million alumni members and students from these institutions use MBNA
products and carry $4 billion in loans. This marketing sector provides the
opportunity to attract high-quality Customers as they enter the market after
graduation. MBNA received new endorsements from 110 colleges and universities
in 1997 including the University of Pennsylvania, Washington State University,
and Louisiana State University.
Although MBNA doesn't have branches, our products are sold in 5,000 bank
branches across the United States and the United Kingdom through the
endorsement of 800 financial institutions. Nearly $3 billion in loans have been
generated in the Financial Institution sector.
The Professional sector is one of our most important. Members of more than
1,200 professional associations have $12 billion in loans with MBNA.
Nationally, 54% of physicians, 25% of nurses, 36% of lawyers, 29% of teachers,
and 27% of engineers use an MBNA product. Two million new accounts were
generated in this sector last year. We also received endorsements from 110 new
organizations.
The endorsed marketing franchise is one of the primary reasons we are confident
about the future. We strengthened this franchise in 1997 by earning
endorsements from 563 new organizations and extending the contracts of over 600
more that already endorse us. Endorsed affinity marketing will generate about
half of our new accounts over the next three to four years. The other half will
come from direct affinity marketing programs developed in our regional
marketing offices.
[PHOTO]
C. Michael Cawley, M.D.
Fifty-four percent of all physicians and twenty-five percent of all nurses
carry an MBNA credit card.
MBNA generated 9.4 million new accounts in 1997 through a variety of
acquisition methods including direct mail, telemarketing, advertising, and
event marketing.
EXCELLENCE DOES NOT COME BY CHANCE...
8
<PAGE> 11
REGIONALIZATION
During the last three years, we've decentralized our marketing activities into
six regional centers in the United States. The people in these regional offices
work with local affinity groups--symphonies, colleges, high schools, alumni
associations, banks, and other organizations in their territory. Being closer
to our affinity groups gives us a better understanding of the needs and
motivations of potential MBNA Customers and allows us to develop more effective
marketing programs.
MBNA's regional presence helps us to identify and sign new affinity groups. We
have regional offices in Maine, Ohio, Maryland, Georgia, Florida, Texas, and
California. Through these offices, we obtain many groups that endorse MBNA
products, including the Maine State Nurses Association, the Cleveland Indians,
the University of Georgia, the Florida Bar, and the Stanford University Alumni
Association.
Affinity marketing also targets groups of people with common interests but no
affiliation to a specific organization. Marketing officers in 25 states
specialize in developing these types of programs. These officers have
identified hundreds of marketing opportunities by being close to their local
markets.
[PHOTO] Collage of credit cards
Regional interest credit card programs will generate a large percentage of new
accounts throughout the next three to four years.
[PHOTO] Customer using credit card
MBNA Customers used their MBNA credit cards 480 million times in 1997 and spent
$66 billion. Every one of those times was an opportunity for us to satisfy our
Customers.
One example of this approach is the I Love New York card, a program designed
for people who are proud to live in the state of New York. So far, that program
has generated nearly 80,000 accounts with $75 million in loans. The Don't mess
with Texas card is another example. More than 220,000 Texans carry this card
with loans totaling $415 million. Programs like these are continuously being
developed all across the country.
Another program under development in the Northern region will feature the work
of well-known artist Jamie Wyeth. In 1997, Mr. Wyeth signed an agreement with
us to do a painting of a lighthouse to be featured on a credit card. Because we
have a local presence in New England, we know that people who live or vacation
there appreciate the Wyeth family and will like this credit card. This card was
developed by a marketing officer in the state of Maine after meeting Mr. Wyeth.
Regional marketing generates a large percentage of new accounts, and the state
marketing initiative is an important component of MBNA's future growth.
CUSTOMER SATISFACTION
Just as important as getting the right Customers is keeping them. That is why
providing superior service is very important to people who work at MBNA.
Whenever Customers contact us--something they did 50 million times in
1997--MBNA people treat them as individuals, attempting to satisfy them one at
a time.
When Customers call us, they talk to representatives who have the ability and
authority to address inquiries promptly and courteously. MBNA Customer
Satisfaction representatives also have the tools to address most of our
Customers' concerns at the initial point of contact. Using the multiple
features of their Customer Satisfaction Super Station, a powerful,
user-friendly computer work station, representatives are able to access a wide
range of Customer information from various systems and make instant account
changes on-line. This is done millions of times a year--and each time is an
opportunity for us to demonstrate our commitment to satisfying our Customers.
...IT COMES BY CHOICE.
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<PAGE> 12
MBNA AMERICA
[PHOTO] Central Region credit cards
CENTRAL REGION More than 23% of the 20 million households in the Central
region carry MBNA credit cards with total loan balances of $7.9 billion. This
region, based in Beachwood, Ohio, manages 624 affinity groups including Indiana
State University, the Cleveland Clinic, the Chicago Bulls, and the Ohio Nurses
Association. We attracted 2.3 million new Customers in the Central region in
1997.
[PHOTO] Mid-Atlantic Region credit cards
MID-ATLANTIC REGION MBNA established its Mid-Atlantic regional office in Hunt
Valley, Maryland. This office manages many of MBNA's key affinity groups, such
as The Retired Officers Association, The American Institute of Architects, and
the Baltimore Orioles. Groups managed in this region now total 617 and helped
attract 1.7 million new Customers in 1997. Nearly 30% of the 13 million
households in the region carry MBNA credit cards with loan balances of $7.5
billion.
[PHOTO] Northern Region credit cards
NORTHERN REGION In 1993, MBNA established its first regional office in Camden,
Maine. This office now manages 782 groups including the University of Maine,
the Boston Celtics, Maine State Nurses Association, and Boston College Alumni
Association. We added 1.6 million new Customers in 1997, and 29% of the 11.7
million households in the region now carry MBNA credit cards with total loan
balances of $6.4 billion.
[PHOTO] Southern Region credit cards
SOUTHERN REGION MBNA's Southern regional offices are located in Boca Raton,
Florida, and Atlanta, Georgia, and manage 490 affinity groups, including the
University of Georgia, The Florida Bar, the General Alumni Association of the
University of North Carolina at Chapel Hill, and the Florida Nurses
Association. Through our marketing efforts to these groups, we were able to add
1.7 million new Customers and increase loan balances to $7.7 billion in this
region. Nearly 20% of the 19 million total households in the region now carry
MBNA credit cards.
MBNA AMERICA--20,000 PEOPLE WITH AN ATTITUDE...
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<PAGE> 13
MBNA INTERNATIONAL
[PHOTO] Southwestern Region credit cards.
SOUTHWESTERN REGION The Southwestern region, based in Dallas, Texas, manages
512 affinity groups, such as the Texas Rangers, the Dallas Cowboys, and the
Association of Former Students of Texas A&M University. We attracted 1.5
million new Customers and increased loan balances in the region to $7.2
billion. More than 21% of the 16 million households in the region now carry
MBNA credit cards.
[PHOTO] Western Region credit cards.
WESTERN REGION In 1997, MBNA opened a regional office in San Francisco that
manages 443 groups, including the Sierra Club, California Federal Bank,
Stanford University Alumni Association, and the State Bar of California. We
added 1.9 million new Customers, and currently 22% of the 19 million total
households in the region carry an MBNA credit card with total loan balances of
$9.9 billion.
[PHOTO] MBNA Europe credit cards.
MBNA EUROPE MBNA Europe grew to 1.9 million Customers with $2.8 billion in
outstanding loans. We opened sales offices in Dublin, Ireland, and in
Edinburgh, Scotland. Utilizing the same affinity marketing strategy as in the
United States, we have received endorsements from such prestigious
organizations as Burberry's, Mercedes Benz, Bradford & Bingley Building
Society, and the World Wide Fund for Nature. This year, we signed the Law
Society of Ireland, the Institute of British Engineers, Oxford University, and
the Royal Institute of Architects, bringing our total number of endorsements to
530.
[PHOTO] MBNA Canada credit cards.
MBNA CANADA MBNA began full operations in Canada from our office in Ottawa,
Ontario, in 1997. We have signed Canadian endorsements including Ducks
Unlimited Canada, the Canadian Society for Civil Engineering, and the Wildlife
Rescue Association. We will also have the opportunity to leverage existing
relationships and market group members in Canada for the National Hockey
League, Major League Baseball, and numerous professional organizations.
...SATISFY THE CUSTOMER.
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<PAGE> 14
CONSUMER FINANCE
MBNA's consumer finance business reached $4.6 billion in loans at the end of
1997, up 42% from $3.3 billion at the end of 1996. Consumer finance products
are marketed the same way we market credit cards--through the mail and over the
phone. These products include lines of credit accessed by check, installment
loans, and home equity loans. We opened 500,000 new accounts in 1997 and now
offer these products to more than 2,000 of our affinity groups. Consumer
Finance established several new consumer loan products in 1997, including sales
finance programs with Gateway 2000, IBM, and Princess Cruise Lines, which
generated nearly $300 million in new loans.
INTERNATIONAL
[PHOTO] MBNA International facility.
MBNA's international business grew 56% in 1997 as loans outstanding reached
$2.8 billion.
During 1997, MBNA's international business grew to 1.9 million Customers with
$2.8 billion in loans. MBNA now has an 8% share of the United Kingdom market.
We continue to utilize the same strategy that we use in the United
States--marketing to people with strong common interests. MBNA Europe received
endorsements from 121 organizations this year, bringing the total to 530. New
endorsements included the Institute of British Engineers, British Motor
Heritage Trust, PGA, and Oxford University, which helped generate more than
550,000 new accounts in the United Kingdom in 1997.
Our international business expanded into other countries in 1997, with the
opening of sales offices in Dublin, Ireland, and in Edinburgh, Scotland. These
offices signed many new affinity groups such as the Law Society of Ireland, the
Royal Institute of Architects in Ireland, and the Edinburgh Fringe Festival. In
Ireland, Customer interest has been high since MBNA began marketing there in
March.
[PHOTO] Credit cards
MBNA will begin marketing in Canada through many of its existing endorsements
in the U.S. including Ducks Unlimited and the NHL.
MBNA opened an office in Ottawa, Ontario, Canada, during the fourth quarter of
1997. The credit card industry continues to grow in Canada and currently
consists of approximately 12 million people carrying credit cards with $20
billion in loans. In December, we signed our first Canadian endorsement, Ducks
Unlimited Canada, and marketing to this group and others will begin during the
first quarter of 1998. Canada offers an additional opportunity because existing
endorsements in the United States can be used to market there. Examples include
the National Hockey League, Major League Baseball, and many professional
organizations with members in Canada.
There are now 1,300 MBNA people working in England, Ireland, Scotland, and
Canada. The growth of our international business will continue to be an
important part of our future.
IT IS ALWAYS THE THOUSANDS OF LITTLE THINGS DONE RIGHT THAT ADD UP TO THE
UNASSAILABLE ADVANTAGE.
12
<PAGE> 15
TECHNOLOGY
MBNA's systems continue to meet our company's expanding needs with
industry-leading capabilities. Controlling all technology through our own
subsidiary, MBNA Hallmark Information Services, enables us to customize how we
meet the needs of the company. We can control every aspect of our Customer
relationships and ensure consistency and quality in the delivery of our
products. In 1997, MBNA's systems efficiently handled 12.5 billion on-line
transactions, 120 million Customer payments, 17 million requests for credit
cards, and 192 million Customer statements and letters.
In all, MBNA invested more than $100 million in improved technologies during
1997 and made nearly 100,000 system changes. Many of these enhancements helped
us meet the challenging needs of our growing new businesses--Consumer Finance
and Insurance Services. In addition, we continue to make technology investments
that enhance service and efficiency in MBNA's credit card operations. One
initiative improved the systems used to process Customer requests for credit
line increases. The changes provided an easy-to-use graphical interface between
multiple systems and enabled credit analysts to make these lending decisions
more efficiently. The time to process these requests has been reduced by 50%.
We further upgraded our telecommunications network using fiber optic technology
that improved the flow of information and data among all our worldwide
operations.
Technology supports every aspect of MBNA's business, and we have an ongoing
commitment to invest in state-of-the-art systems that enable us to better
satisfy Customers.
[PHOTO]
Richard Ramson, Wendy Jordan
MBNA systems processed nearly 500 million Customer transactions in 1997.
[PHOTO] Insurance marketing materials
MBNA INSURANCE SERVICES
For more than 10 years, MBNA has been selling credit-related insurance and now
has more than 1.4 million Customers. During 1997, MBNA Insurance Services began
marketing automobile insurance and introduced life and disability insurance
products as well. In each of these businesses, MBNA acts as an agent for
insurance that is underwritten by a third party. As a result, MBNA bears no
underwriting risk.
The major focus for Insurance Services during 1997 was the establishment of the
automobile insurance business. Stability and financial habits are strong
indicators of how responsibly people drive their automobiles. Since MBNA's
Customers have demonstrated stability and excellent financial habits, they are
very good candidates for automobile insurance. Automobile insurance can be sold
and serviced by telephone and mail--marketing channels with which MBNA has 15
years of experience.
Insurance is a logical extension of our product offering.
ABOVE ALL, WE WANT A REPUTATION FOR DOING THE LITTLE THINGS WELL...
...AND THE BIG THINGS WILL FOLLOW.
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EDUCATION FOUNDATION
MBNA is a company of "people who like other people." All of us demonstrate this
through a strong commitment to the community. MBNA people contributed more than
175,000 hours of their personal time to charitable and educational causes
during 1997, assisting people in need, including children, the homeless, and
the elderly.
Much of our community activity focuses on supporting educational initiatives.
There is no better way to contribute to the community and ensure future
excellence than by providing economically disadvantaged students with access to
a good education. MBNA recently expanded its commitment to provide financial
support to students and schools through the establishment of the MBNA Education
Foundation. This foundation has financing of $60 million over the next five
years, contributed by the corporation and personally contributed by individual
officers.
The foundation's program consists of two major components: the MBNA Excellence
in Education Grants Program, which enables teachers and principals of public,
private, and parochial schools to apply for grants to fund the development of
new, results-oriented educational initiatives; and MBNA scholarship programs,
which allow graduating high school seniors to apply for financial assistance to
be used at any accredited college or university within their state.
Scholar-ships are awarded to students who demonstrate outstanding merit as well
as financial need. In 1997, MBNA awarded more than 280 grants totaling $1.7
million and 160 scholarships providing $3.2 million in financial assistance
over four years.
As part of MBNA's Education Grants Program, we work with local schools to
develop innovative programs to broaden the educational experience of their
students. For example, the Stubbs Elementary School in Wilmington, Delaware,
used MBNA grant money to purchase books for its library and to implement a
"student of the month" recognition program. The Saturday School program at the
Central Middle School in Dover, Delaware, provides a constructive alternative
to suspensions of students with behavioral problems by focusing on academic
success. In Millsboro,
[PHOTO]
Jacqueline Loughman Powell
The people of MBNA work with local schools to develop innovative programs to
broaden the educational experience of their students.
[PHOTO]
[PHOTO] Teacher and classroom
MBNA awarded more than 280 grants in 1997 to enable teachers and other
educators to develop results-oriented education initiatives.
If every company is a portrait of its people...
14
<PAGE> 17
[PHOTO] Graduates
In 1997, MBNA awarded 160 scholarships through the MBNA Education Foundation.
Delaware, the Long Neck Elementary School used grant money to purchase
large-screen monitors and other equipment to accommodate the learning and
research needs of all students, including those with visual and hearing
impairments. The New Castle Vo-Tech School District in Wilmington, Delaware,
initiated the Teens Exploring Construction program to rotate eighth-grade
students through building and construction trades during a week-long camp. In
Rockport, Maine, MBNA's Education Foundation helped elementary school students
put on a musical dinner theater program to teach students about different
countries' cultures through songs and ethnic cuisine. Fifth-grade students from
Prescott Memorial School in Maine used grant funding to research the problem of
marine mammals that become entangled in fishing nets. This project culminated
in a report to the Governor, who publicly applauded the students' educational
accomplishments.
MBNA also established a new College and Career Counseling and Mentoring Service
to further assist students outside the classroom with counseling, tutoring,
summer employment, and work study opportunities. The counseling service also
focuses on middle school and high school students who are at risk of not
staying in school and teaches them the value of continuing their education.
In addition to these initiatives, MBNA also assists with local educational
support and guidance programs. We continue to assist St. Benedict's
Preparatory School in Newark, New Jersey, with educational, summer work study,
and graduate workshop programs. People from our Southern regional center in
Boca Raton, Florida, tutor adults once a week in support of the Palm Beach
County Literacy Coalition. In Chester, England, people work with the Young
Enterprise Program in local schools to mentor groups of pupils so that they can
learn firsthand about business and industry. MBNA people tutor students in
Cleveland's Randallwood Elementary School. In Chicago, MBNA people mentor
scholarship recipients from the Daniel Murphy Foundation--economically
disadvantaged eighth-grade students who demonstrate high academic potential.
At MBNA, we firmly believe that a good education is the foundation for a
lifetime of achievement and reward. Not only is it beneficial to the
individual, but it is also the beginning of a very positive cycle--as educated
people in turn teach their own children the advantages of completing school.
[PHOTO] Children reading.
MBNA SCHOLARS PROGRAM
MBNA's commitment to education and excellence is reflected in its Scholars
Program. The program was established in 1993 to provide college scholarships
for the children of people who work at MBNA. Scholars must maintain a minimum
GPA to qualify for renewal each year with additional financial awards going to
those students who achieve a GPA of 3.0 or higher. In all, MBNA has awarded
more than $4.2 million in renewable scholarships to 600 recipients. Besides
scholarships, the program also provides MBNA families with a wide range of
college-oriented resources, including college counseling, leadership seminars,
summer internships, and mentoring programs. MBNA also offers financial
assistance for college education through low-cost student loans and deposit
account contributions for the parents of newborns to establish long-term
savings plans for future education expenses. Overall, the MBNA Scholars Program
has helped to provide more than $8 million in financial resources to support
the educational needs and aspirations of the sons and daughters of MBNA people.
MBNA Senior Executives personally funded 50% of the MBNA Scholars Program.
...MBNA is a masterpiece.
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<PAGE> 18
REGIONAL MAP
[MAP]
KEY
- Headquarters
= Regional Centers
+ Sales Offices
* Telesales Offices
HEADQUARTERS
- - MBNA Corporation
Wilmington, DE 19884
(800) 441-7048
NORTHERN REGION
= 1 Hatley Rd.
Belfast, ME 04915
(800) 843-3526
(Operations Center)
= 32 Washington St.
Camden, ME 04843
(800) 386-6262
* 16 Godfrey Dr.
Orono, ME 04473
(800) 503-6262
* 901 Washington Ave.
Portland, ME 04103
(800) 626-2488
* 5 Industrial Pkwy.
Brunswick, ME 04011
(800) 645-6682
* 100 Main St.
Dover, NH 03820
(800) 330-5929
WESTERN REGION
= 44 Montgomery St.
San Francisco, CA 94104
(800) 585-4956
MID-ATLANTIC REGION
= 11333 McCormick Rd.
Hunt Valley, MD 21031
(888) 680-6945
+ 9 W. 57th St.
New York, NY 10019
(800) 746-6262
+ 800 Connecticut Ave., NW
Washington, DC 20006
(800) 789-6262
* 400 Christiana Rd.
Newark, DE 19713
(800) 441-7048
* 860 Silver Lake Blvd.
Dover, DE 19901
(800) 346-2620
* 2568 Park Centre Blvd.
State College, PA 16801
(800) 471-6262
* 849 Fairmount Ave.
Towson, MD 21286
(800) 346-2621
SOUTHERN REGION
= 1501 Yamato Rd.
Boca Raton, FL 33431
(800) 841-6845
= 2600 Century Pkwy.
Atlanta, GA 30345
(800) 446-7048
SOUTHWESTERN REGION
=* 16001 N. Dallas Pkwy.
Dallas, TX 75248
(800) 435-9672
CENTRAL REGION
=* 25875 Science Park Dr.
Beachwood, OH 44122
(800) 410-6262
+ 676 North Michigan Ave.
Chicago, IL 60611
(800) 906-6262
* 388 S. Main St.
Akron, OH 44311
(800) 731-9260
ENGLAND
= Stansfield House
Chester Business Park
Wrexham Rd.
Chester, Cheshire CH49QQ
United Kingdom
(011) 44-1244-672000
+ 86 Jermyn St.
London SW1Y6JD
United Kingdom
(011) 44-171-389-6200
SCOTLAND
+ One St.Colme Street
Edinburgh, Scotland EH36AA
(011) 44-131-220-8949
IRELAND (THE REPUBLIC OF)
+ 46 St. Stephen's Green
Dublin 2, Ireland
(011) 353-1-619-6000
CANADA
= 1600 James Naismith Dr.
Gloucester, Ontario K1B5N8
(888) 871-6262
Ultimately, the only thing that really counts is the Customer.
16
<PAGE> 19
MBNA CORPORATION AND SUBSIDIARIES
FINANCIAL CONTENTS
- ---------------------------------------------
18 Ten-Year Statistical Summary
20 Glossary of Financial Terms
21 Management's Discussion and
Analysis of Financial Condition
and Results of Operations
36 Supplemental Financial Information
37 Management's Report on
Consolidated Financial
Statements and Internal Control
38 Consolidated Statements
of Financial Condition
39 Consolidated Statements of Income
40 Consolidated Statements of
Changes in Stockholders' Equity
41 Consolidated Statements of Cash Flows
42 Notes to the Consolidated
Financial Statements
62 Report of Independent Auditors
63 Quarterly Data
64 Stock Price Ranges and Dividends
[PHOTO] New York Stock Exchange.
<PAGE> 20
MBNA CORPORATION AND SUBSIDIARIES
TEN-YEAR STATISTICAL SUMMARY
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997 1996 1995 1994
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA FOR THE YEAR
Net interest income............................................. $ 692,390 $ 640,477 $ 544,226 $ 532,108
Provision for possible credit losses............................ 260,040 178,224 138,176 108,477
Other operating income.......................................... 2,812,879 1,895,923 1,424,618 1,013,580
Other operating expense......................................... 2,223,121 1,572,551 1,246,067 996,110
Net income (a).................................................. 622,500 474,495 353,099 266,593
PER COMMON SHARE DATA FOR THE YEAR (b)
Earnings (c).................................................... $ 1.20 $ .92 $ .70 $ .53
Earnings--assuming dilution (c)................................. 1.15 .89 .68 .52
Dividends....................................................... .32 .28 .25 .21
Book value...................................................... 3.50 2.80 2.22 1.83
RATIOS
Return on average total assets.................................. 3.25% 3.26% 3.09% 3.16%
Return on average stockholders' equity.......................... 35.56 34.46 35.51 32.70
Average receivables to average deposits......................... 88.82 92.50 91.60 93.05
Stockholders' equity to total assets............................ 9.25 10.00 9.56 9.51
Loan portfolio:
Delinquency (e).............................................. 3.93 3.59 3.11 2.60
Net credit losses............................................ 2.14 1.98 1.91 1.96
Managed loans (f):
Delinquency.................................................. 4.59 4.28 3.70 3.03
Net credit losses............................................ 3.97 3.35 2.74 2.59
Net interest margin (g)...................................... 7.50 7.62 7.42 8.16
MANAGED LOAN DATA (f)
At year end:
Loans held for securitization................................ $ 2,900,198 $ 2,469,974 $ 3,168,427 $ 2,299,026
Loan portfolio............................................... 8,261,876 7,659,078 4,967,491 3,407,974
Securitized loans............................................ 38,217,786 28,494,481 18,575,786 13,036,864
-------------- ----------- -------------- ------------
Total managed loans....................................... $ 49,379,860 $38,623,533 $ 26,711,704 $ 18,743,864
============== =========== ============== ============
Average:
Loans held for securitization................................ $ 2,875,212 $ 2,529,484 $ 2,269,362 $ 1,330,011
Loan portfolio............................................... 7,563,301 6,174,095 4,792,536 4,000,271
Securitized loans............................................ 32,746,963 22,514,014 15,440,499 9,462,401
-------------- ----------- -------------- ------------
Total managed loans....................................... $ 43,185,476 $31,217,593 $ 22,502,397 $ 14,792,683
============== =========== ============== ============
For the year:
Sales and cash advance volume................................ $ 66,399,425 $48,666,129 $ 34,272,909 $ 25,078,918
BALANCE SHEET DATA AT YEAR END
Investment securities and money market instruments.............. $ 4,594,709 $ 3,194,664 $ 2,669,402 $ 2,269,081
Loans held for securitization................................... 2,900,198 2,469,974 3,168,427 2,299,026
Credit card loans............................................... 5,830,221 5,722,299 4,090,553 2,882,232
Other consumer loans............................................ 2,431,655 1,936,779 876,938 525,742
-------------- ----------- -------------- ------------
Total loans.................................................. 8,261,876 7,659,078 4,967,491 3,407,974
Reserve for possible credit losses.............................. (162,476) (118,427) (104,886) (101,519)
-------------- ----------- -------------- ------------
Net loans.................................................... 8,099,400 7,540,651 4,862,605 3,306,455
Total assets.................................................... 21,305,513 17,035,342 13,228,889 9,671,858
Total deposits.................................................. 12,913,213 10,151,686 8,608,914 6,632,489
Long-term debt and bank notes................................... 5,478,917 3,950,358 2,657,600 1,687,357
Stockholders' equity............................................ 1,970,050 1,704,308 1,265,058 919,578
AVERAGE BALANCE SHEET DATA
Investment securities and money market instruments.............. $ 3,851,867 $ 2,927,351 $ 2,451,783 $ 1,684,316
Loans held for securitization................................... 2,875,212 2,529,484 2,269,362 1,330,011
Credit card loans............................................... 5,456,349 4,907,814 4,160,230 3,207,110
Other consumer loans............................................ 2,106,952 1,266,281 632,306 793,161
-------------- ----------- -------------- ------------
Total loans.................................................. 7,563,301 6,174,095 4,792,536 4,000,271
Reserve for possible credit losses.............................. (143,277) (111,041) (103,568) (99,175)
-------------- ----------- -------------- ------------
Net loans.................................................... 7,420,024 6,063,054 4,688,968 3,901,096
Total assets.................................................... 19,125,282 14,571,288 11,425,721 8,432,511
Total deposits.................................................. 11,752,887 9,408,843 7,709,840 5,728,432
Long-term debt and bank notes................................... 4,639,430 3,029,250 2,212,591 1,199,520
Stockholders' equity............................................ 1,750,459 1,377,072 994,287 815,243
Weighted average common shares outstanding (000) (b)............ 501,225 501,208 501,226 501,227
Weighted average common shares outstanding and
common stock equivalents (000) (b)............................. 526,534 518,982 513,643 508,343
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The consolidated financial statements for the years ended prior to December 31,
1991, reflect the combined results of the "Credit Card and Certain Related
Banking Activities of MBNA America Bank, N.A., and Certain Affiliates" prior to
the organization of MBNA Corporation ("the Corporation"). The consolidated
financial statements for the years ended December 31, 1991, and thereafter
reflect the independent Corporation.
(a) Net income for the year ended December 31, 1996, includes a $32.8 million
tax benefit related to deductions for the amortization of Customer-based
intangible assets acquired in connection with the 1991 initial public
offering of the Corporation's Common Stock, and a charge of $32.8 million
net of tax ($54.3 million pretax) related to the launch of the MBNA Platinum
Plus MasterCard and Visa program. Net income for the year ended December 31,
1993, includes an $89.8 million tax benefit related to the recognition of
tax deductions for the amortization of Customer-based intangible assets
acquired in connection with the 1991 initial public offering of the
Corporation's Common Stock. Net income for the year ended December 31, 1993,
also includes a charge of $150.0 million ($92.9 million, net of tax) for the
termination of a marketing agreement with an independent third-party
marketing organization.
(b) Per common share data and weighted average common shares outstanding and
common stock equivalents have been restated to reflect the adoption of
Statement of Financial Accounting Standards No. 128, "Earnings per Share"
(Statement No.128), and the three-for-two split of the Corporation's Common
Stock, effected in the form of a dividend, issued October 1, 1997, to
stockholders of record as of September 15, 1997.
18
<PAGE> 21
MBNA CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
1993 1992 1991 1990 1989 1988
<S> <C> <C> <C> <C> <C>
$ 474,323 $ 357,515 $ 239,599 $ 164,315 $ 116,754 $ 149,641
98,795 97,534 86,723 57,951 43,319 63,262
739,968 577,505 540,708 451,863 343,551 254,828
774,872 565,467 459,035 354,462 258,357 203,853
207,796 172,732 149,213 128,998 104,109 90,065
$ .41 $ .34 $ .30 $ .26 $ .21 $ .18
.41 .34 .30 .26 .21 .18
.19 .17 .16 (d) (d) (d)
1.53 1.32 1.18 (d) (d) (d)
3.15% 2.96% 2.79% 3.87% 4.13% 3.55%
30.01 28.55 28.55 (d) (d) (d)
85.34 69.98 71.77 103.51 124.73 153.30
10.51 10.25 9.86 (d) (d) (d)
3.03 3.78 4.39 4.15 3.52 3.33
2.43 2.87 2.65 1.79 1.77 1.99
3.27 3.99 4.40 4.52 3.66 3.59
2.97 3.33 3.05 2.21 1.97 1.85
8.47 7.22 6.36 6.55 5.77 6.56
$ 741,869 $ 678,000 $ 600,000 $ 567,000 $ 418,800 $ -
3,725,509 3,300,650 2,886,405 2,672,733 1,842,473 1,906,947
7,891,140 5,881,479 5,327,901 4,137,950 3,456,587 2,600,182
------------- ------------- ------------- ------------- ------------- -------------
$ 12,358,518 $ 9,860,129 $ 8,814,306 $ 7,377,683 $ 5,717,860 $ 4,507,129
============= ============= ============= ============= ============= =============
$ 642,750 $ 733,473 $ 560,447 $ 707,632 $ 215,223 $ -
3,425,935 2,659,305 2,707,535 1,907,208 1,782,051 2,280,480
6,596,387 5,528,394 4,563,279 3,798,409 2,898,169 1,360,452
------------- ------------- ------------- ------------- ------------- -------------
$ 10,665,072 $ 8,921,172 $ 7,831,261 $ 6,413,249 $ 4,895,443 $ 3,640,932
============= ============= ============= ============= ============= =============
$ 17,889,747 $ 14,523,570 $ 12,915,104 $ 11,541,181 $ 9,075,967 $ 7,256,735
$ 1,440,684 $ 1,345,995 $ 1,768,048 $ 540,660 $ 151,973 $ 97,386
741,869 678,000 600,000 567,000 418,800 -
2,949,995 2,659,007 2,299,912 2,216,604 1,587,652 1,743,292
775,514 641,643 586,493 456,129 254,821 163,655
------------- ------------- ------------- ------------- ------------- -------------
3,725,509 3,300,650 2,886,405 2,672,733 1,842,473 1,906,947
(97,580) (97,580) (97,580) (97,580) (82,098) (74,152)
------------- ------------- ------------- ------------- ------------- -------------
3,627,929 3,203,070 2,788,825 2,575,153 1,760,375 1,832,795
7,319,756 6,454,511 6,009,028 4,579,514 2,858,924 2,276,114
5,241,883 4,568,791 5,094,011 4,202,159 1,743,969 1,521,907
779,553 470,601 - - - -
769,131 661,290 592,230 214,098 256,904 203,980
$ 1,364,350 $ 1,572,911 $ 1,401,469 $ 160,356 $ 182,254 $ 35,547
642,750 733,473 560,447 707,632 215,223 -
2,735,191 2,050,487 2,176,144 1,529,759 1,584,368 2,146,851
690,744 608,818 531,391 377,449 197,683 133,629
------------- ------------- ------------- ------------- ------------- -------------
3,425,935 2,659,305 2,707,535 1,907,208 1,782,051 2,280,480
(97,580) (97,580) (93,284) (76,509) (73,120) (64,110)
------------- ------------- ------------- ------------- ------------- -------------
3,328,355 2,561,725 2,614,251 1,830,699 1,708,931 2,216,370
6,596,419 5,829,052 5,347,990 3,330,155 2,519,192 2,538,968
4,767,669 4,847,911 4,553,186 2,526,109 1,601,225 1,487,568
537,609 116,301 - - - -
692,460 605,079 522,721 258,719 274,991 230,510
501,227 501,573 501,252 501,188 501,188 501,188
506,745 506,791 504,384 501,188 501,188 501,188
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(c) The Corporation adopted Statement No. 128 effective for financial statements
issued for periods ending after December 15, 1997. In accordance with
Statement No. 128, earnings per common share is computed using net income
applicable to common stock and weighted average common shares outstanding,
whereas earnings per common share--assuming dilution includes the potential
dilutive effect of common stock equivalents which are solely related to
employee stock options. The Corporation has no other common stock
equivalents. For comparative purposes, earnings per common share and
earnings per common share--assuming dilution for the years ended prior to
December 31, 1991, are presented on a pro forma basis.
(d) During 1991, MBNA Corporation became an independent corporation traded
publicly on the New York Stock Exchange. Accordingly, dividends per common
share, book value per common share, and stockholders' equity ratios have not
been presented for the years ended prior to December 31, 1991.
(e) Loan portfolio delinquency does not include loans held for securitization or
securitized loans.
(f) Managed loans include the Corporation's loans held for securitization, loan
portfolio, and securitized loans.
(g) Managed net interest margin is presented on a fully taxable equivalent
basis.
19
<PAGE> 22
MBNA CORPORATION AND SUBSIDIARIES
GLOSSARY OF FINANCIAL TERMS
The following definitions may be helpful when reading Management's Discussion
and Analysis of Financial Condition and Results of Operations of MBNA
Corporation ("the Corporation").
ASSET SECURITIZATION
Asset securitization removes loan receivables from the consolidated statements
of financial condition by selling them, generally to a trust. Asset
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.
CREDIT CARD FEES
Credit card fees include annual, late, overlimit, returned check, cash advance,
and other miscellaneous fees.
CREDIT RISK
Credit risk is the possibility that a loss may occur should a borrower or
counterparty fail to fully honor the terms of a contract.
DIRECT DEPOSITS
Direct deposits are deposits marketed to and received from individual Customers
without the use of a third-party intermediary.
FOREIGN ACTIVITIES
The Corporation's foreign activities are primarily performed through MBNA
America Bank, N.A.'s ("the Bank") two foreign bank subsidiaries, MBNA
International Bank Limited ("MBNA International")and MBNA Canada Bank ("MBNA
Canada"). The Bank also has a foreign branch office in the Grand Cayman Islands.
FOREIGN CURRENCY EXCHANGE RATE RISK
Foreign currency exchange rate risk refers to the potential changes in current
and future earnings or capital arising from movements in foreign exchange rates
and occurs as a result of cross-currency investment and funding activities. The
Corporation's foreign currency exchange rate risk is limited to the unhedged
position of the Corporation's net investment in its foreign subsidiaries.
FULLY TAXABLE EQUIVALENT (FTE) BASIS
FTE basis represents the income on total interest-earning assets that is either
tax-exempt or taxed at a reduced rate, adjusted to give effect to the prevailing
incremental federal income tax rate, and adjusted for nondeductible carrying
costs and state income taxes, where applicable. Yield calculations, where
appropriate, include these adjustments.
INTERCHANGE INCOME
Interchange income is a fee paid by a merchant bank to the card-issuing bank
through the interchange network as compensation for risk, grace period, and
other operating costs. Such fees are set annually by MasterCard International
and Visa International.
INTEREST RATE RISK
Interest rate risk refers to potential changes in current and future earnings
resulting from changes in interest rates, and differences in the repricing
characteristics between interest rate sensitive assets and liabilities.
INTEREST RATE SENSITIVE ASSETS/LIABILITIES
Interest rate sensitive assets/liabilities have yields/rates that can change
within a designated time period, due to their maturity, to a change in an
underlying index rate, or to the contractual ability of the Corporation to
change the yield/rate.
INVESTMENT SECURITIES
Investment securities include both those available-for-sale and those
held-to-maturity.
LOAN PORTFOLIO
Loan portfolio includes credit card and other consumer loans, excluding loans
held for securitization, as reported on the consolidated statements of financial
condition.
LOAN RECEIVABLES
Loan receivables consist of the Corporation's loan portfolio and loans held for
securitization.
MANAGED LOANS
Managed loans consist of the Corporation's loan portfolio, loans held for
securitization, and securitized loans.
MONEY MARKET INSTRUMENTS
Money market instruments include interest-earning time deposits in other banks
and federal funds sold and securities purchased under resale agreements.
NET INTEREST INCOME
Net interest income represents interest income on total interest-earning assets,
on an FTE basis where appropriate, reduced by interest expense on total
interest-bearing liabilities.
NET INTEREST MARGIN
Net interest margin represents net interest income on an FTE basis expressed as
a percentage of average total interest-earning assets.
OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS
Off-balance-sheet financial instruments include interest rate swap agreements,
forward exchange contracts, and foreign exchange swap agreements. The
Corporation has used interest rate swap agreements to change fixed-rate funding
sources to floating-rate funding sources to better match the rate sensitivity of
the Corporation's assets.
The Corporation uses forward exchange contracts and foreign exchange swap
agreements to reduce its exposure to foreign currency exchange rate risk
primarily related to MBNA International, a foreign bank subsidiary in the United
Kingdom.
The Corporation does not hold or issue off-balance-sheet financial instruments
for trading purposes.
20
<PAGE> 23
MBNA CORPORATION AND SUBSIDIARIES
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, tables, and glossary of financial terms included 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
the world's largest independent credit card lender 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 insurance and
deposit products.
NET INCOME
<TABLE>
<CAPTION>
(millions)
<S> <C>
95 353.1
96 474.5
97 622.5
</TABLE>
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.
On July 15, 1997, the Board of Directors approved a three-for-two split of the
Corporation's Common Stock, effected in the form of a dividend, issued on
October 1, 1997, to stockholders of record as of September 15, 1997.
Accordingly, all common share and per common share data in the following
discussion includes the effect of all the Corporation's stock splits.
EARNINGS SUMMARY
Net income for 1997 increased 31.2% to $622.5 million or $1.15 per common share
from 1996's net income of $474.5 million or $.89 per common share. Net income
for 1996 increased 34.4% to $474.5 million or $.89 per common share from $353.1
million or $.68 per common share in 1995. Earnings per common share amounts are
presented assuming dilution in accordance with Statement of Financial Accounting
Standards No. 128, "Earnings per Share."
The overall growth in earnings is primarily attributable to the growth in the
Corporation's managed loans outstanding. During 1997, managed loans increased
$10.8 billion to $49.4 billion at December 31, 1997, as the Corporation acquired
563new endorsements from organizations and added 9.4 million new accounts. The
Corporation's average managed loans increased 38.3% or $12.0 billion to $43.2
billion in 1997 from 1996. Managed loans in 1996 increased $11.9 billion to
$38.6 billion from 1995. The Corporation's average managed loans increased 38.7%
or $8.7 billion to $31.2 billion in 1996 from 1995. 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. Asset 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 1997, the Corporation
securitized approximately $13.2 billion of loan receivables, bringing the total
amount of outstanding securitized loans to $38.2 billion at December 31, 1997.
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 recognized in securitization income at the time of initial sale and each
subsequent sale of loan receivables in a securitization. As a result of the
adoption of Statement No. 125, securitization income increased $325.1 million in
1997. The Corporation invested an amount equivalent to the increase in
securitization income from the adoption of Statement No. 125 in additional
business development efforts; therefore, this incremental increase in
securitization income did not materially impact the Corporation's consolidated
net income. Previously, the Corporation recognized the earnings from
securitization over the life of the transaction.
RETURN ON AVERAGE
TOTAL ASSETS
<TABLE>
<S> <C>
95 3.09%
96 3.26%
97 3.25%
</TABLE>
RETURN ON AVERAGE
STOCKHOLDERS' EQUITY
<TABLE>
<S> <C>
95 35.51%
96 34.46%
97 35.56%
</TABLE>
Table 1 reflects the Corporation's returns on average total assets and
stockholders' equity, and other equity ratios.
Return on average total assets was essentially the same for 1997 and 1996 as a
result of the similarity between the percentage growth in net income and the
growth in average total assets. The return on average stockholders' equity for
1997 increased primarily as a result of an increase in net income partially
offset by the growth in average stockholders' equity. The return on average
stockholders' equity for 1996 decreased primarily as a result of an increase in
average stockholders' equity related to the Corporation's issuance of $150.0
million of preferred stock in both 1995 and 1996, which offset the percentage
growth in net income.
TABLE 1: RETURN ON AVERAGE TOTAL ASSETS AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997 1996 1995
<S> <C> <C> <C>
RETURN ON AVERAGE TOTAL ASSETS.................................. 3.25% 3.26% 3.09%
RETURN ON AVERAGE STOCKHOLDERS' EQUITY.......................... 35.56 34.46 35.51
AVERAGE STOCKHOLDERS' EQUITY TO AVERAGE TOTAL ASSETS............ 9.15 9.45 8.70
DIVIDEND PAYOUT RATIO........................................... 27.83 31.46 36.76
</TABLE>
21
<PAGE> 24
MBNA CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
TABLE 2: STATEMENTS OF AVERAGE BALANCES, YIELDS AND RATES, INCOME OR EXPENSE
(DOLLARS IN THOUSANDS, YIELDS AND RATES ON A FULLY TAXABLE EQUIVALENT BASIS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
AVERAGE YIELD/ INCOME
AMOUNT RATE OR EXPENSE
------------------------------------
<S> <C> <C> <C>
ASSETS
Interest-earning assets:
Interest-earning time deposits in other banks:
Domestic........................................................... $ 2,683 3.80% $ 102
Foreign............................................................ 848,229 5.77 48,971
----------- ---------
Total interest-earning time deposits in other banks........... 850,912 5.77 49,073
Federal funds sold and securities purchased under resale agreements.. 430,614 5.56 23,962
Investment securities (a):
Taxable............................................................ 2,480,722 5.70 141,429
Tax-exempt (b)..................................................... 89,619 6.03 5,402
----------- ---------
Total investment securities................................... 2,570,341 5.71 146,831
Loans held for securitization:
Domestic........................................................... 2,486,520 14.50 360,506
Foreign............................................................ 388,692 14.44 56,139
----------- ---------
Total loans held for securitization........................... 2,875,212 14.49 416,645
Loans:
Domestic:
Credit card...................................................... 5,196,643 14.16 735,971
Other consumer................................................... 1,938,292 14.49 280,822
----------- ---------
Total domestic loans.......................................... 7,134,935 14.25 1,016,793
Foreign............................................................ 428,366 13.91 59,600
----------- ---------
Total loans................................................... 7,563,301 14.23 1,076,393
----------- ---------
Total interest-earning assets................................. 14,290,380 11.99 1,712,904
Cash and due from banks................................................ 495,835
Premises and equipment, net............................................ 1,292,284
Other assets........................................................... 3,190,060
Reserve for possible credit losses..................................... (143,277)
-----------
Total assets.................................................. $19,125,282
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing deposits:
Domestic:
Time deposits (c)................................................ $ 8,011,904 6.30 504,742
Money market deposit accounts.................................... 2,908,901 5.42 157,786
Interest-bearing transaction accounts............................ 27,779 4.72 1,310
Savings accounts................................................. 11,578 4.68 542
----------- ---------
Total domestic interest-bearing deposits...................... 10,960,162 6.06 664,380
Foreign:
Time deposits.................................................... 452,530 6.53 29,540
----------- ---------
Total interest-bearing deposits............................... 11,412,692 6.08 693,920
Borrowed funds:
Federal funds purchased and securities
sold under repurchase agreements.................................. 16,712 5.59 935
Other short-term borrowings........................................ 321,443 5.86 18,849
Long-term debt and bank notes:
Domestic (c)..................................................... 4,459,829 6.52 290,814
Foreign.......................................................... 179,601 7.85 14,105
----------- ---------
Total long-term debt and bank notes........................... 4,639,430 6.57 304,919
----------- ---------
Total borrowed funds.......................................... 4,977,585 6.52 324,703
----------- ---------
Total interest-bearing liabilities............................ 16,390,277 6.21 1,018,623
Demand deposits........................................................ 340,195
Other liabilities...................................................... 644,351
-----------
Total liabilities............................................. 17,374,823
Stockholders' equity................................................... 1,750,459
-----------
Total liabilities and stockholders' equity.................... $19,125,282
=========== ---------
Net interest income........................................... $ 694,281
=========
Net interest margin........................................... 4.86
Interest rate spread.......................................... 5.78
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
AVERAGE YIELD/ INCOME
AMOUNT RATE OR EXPENSE
------------------------------------
<S> <C> <C> <C>
ASSETS
Interest-earning assets:
Interest-earning time deposits in other banks:
Domestic........................................................... $ 2,250 3.87% $ 87
Foreign............................................................ 528,882 5.57 29,441
----------- ---------
Total interest-earning time deposits in other banks........... 531,132 5.56 29,528
Federal funds sold and securities purchased under resale agreements.. 184,347 5.39 9,935
Investment securities (a):
Taxable............................................................ 2,126,411 5.79 123,054
Tax-exempt (b)..................................................... 85,461 5.99 5,116
----------- ---------
Total investment securities................................... 2,211,872 5.79 128,170
Loans held for securitization:
Domestic........................................................... 2,169,426 14.02 304,118
Foreign............................................................ 360,058 14.44 52,002
----------- ---------
Total loans held for securitization........................... 2,529,484 14.08 356,120
Loans:
Domestic:
Credit card...................................................... 4,701,009 13.92 654,410
Other consumer................................................... 1,227,915 14.03 172,336
----------- ---------
Total domestic loans.......................................... 5,928,924 13.94 826,746
Foreign............................................................ 245,171 14.10 34,559
----------- ---------
Total loans................................................... 6,174,095 13.95 861,305
----------- ---------
Total interest-earning assets................................. 11,630,930 11.91 1,385,058
Cash and due from banks................................................ 350,463
Premises and equipment, net............................................ 931,455
Other assets........................................................... 1,769,481
Reserve for possible credit losses..................................... (111,041)
-----------
Total assets.................................................. $14,571,288
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing deposits:
Domestic:
Time deposits (c)................................................ $ 6,147,083 5.89 361,934
Money market deposit accounts.................................... 2,540,850 5.30 134,777
Interest-bearing transaction accounts............................ 23,504 4.58 1,077
Savings accounts................................................. 10,181 4.56 464
----------- ---------
Total domestic interest-bearing deposits...................... 8,721,618 5.71 498,252
Foreign:
Time deposits.................................................... 497,654 5.95 29,633
----------- ---------
Total interest-bearing deposits............................... 9,219,272 5.73 527,885
Borrowed funds:
Federal funds purchased and securities
sold under repurchase agreements.................................. 67,712 5.39 3,648
Other short-term borrowings........................................ 269,538 5.51 14,849
Long-term debt and bank notes:
Domestic (c)..................................................... 2,926,018 6.44 188,425
Foreign.......................................................... 103,232 7.73 7,983
----------- ---------
Total long-term debt and bank notes........................... 3,029,250 6.48 196,408
----------- ---------
Total borrowed funds.......................................... 3,366,500 6.38 214,905
----------- ---------
Total interest-bearing liabilities............................ 12,585,772 5.90 742,790
Demand deposits........................................................ 189,571
Other liabilities...................................................... 418,873
-----------
Total liabilities............................................. 13,194,216
Stockholders' equity................................................... 1,377,072
-----------
Total liabilities and stockholders' equity.................... $14,571,288
=========== ---------
Net interest income........................................... $ 642,268
=========
Net interest margin........................................... 5.52
Interest rate spread.......................................... 6.01
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
AVERAGE YIELD/ INCOME
AMOUNT RATE OR EXPENSE
------------------------------------
<S> <C> <C> <C>
ASSETS
Interest-earning assets:
Interest-earning time deposits in other banks:
Domestic........................................................... $ 2,236 4.52% $ 101
Foreign............................................................ 259,763 6.06 15,731
----------- ---------
Total interest-earning time deposits in other banks........... 261,999 6.04 15,832
Federal funds sold and securities purchased under resale agreements.. 129,657 5.96 7,727
Investment securities (a):
Taxable............................................................ 1,980,322 6.03 119,322
Tax-exempt (b)..................................................... 79,805 6.41 5,116
----------- ---------
Total investment securities................................... 2,060,127 6.04 124,438
Loans held for securitization:
Domestic........................................................... 2,151,807 14.04 302,037
Foreign............................................................ 117,555 14.44 16,972
----------- ---------
Total loans held for securitization........................... 2,269,362 14.06 319,009
Loans:
Domestic:
Credit card...................................................... 3,827,429 14.10 539,642
Other consumer................................................... 630,760 13.75 86,761
----------- ---------
Total domestic loans.......................................... 4,458,189 14.05 626,403
Foreign............................................................ 334,347 14.71 49,197
----------- ---------
Total loans................................................... 4,792,536 14.10 675,600
----------- ---------
Total interest-earning assets................................. 9,513,681 12.01 1,142,606
Cash and due from banks................................................ 197,374
Premises and equipment, net............................................ 685,022
Other assets........................................................... 1,133,212
Reserve for possible credit losses..................................... (103,568)
-----------
Total assets.................................................. $11,425,721
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing deposits:
Domestic:
Time deposits (c)................................................ $ 5,084,445 5.70 289,816
Money market deposit accounts.................................... 1,903,931 5.79 110,244
Interest-bearing transaction accounts............................ 19,212 5.10 980
Savings accounts................................................. 8,401 5.05 424
----------- ---------
Total domestic interest-bearing deposits...................... 7,015,989 5.72 401,464
Foreign:
Time deposits.................................................... 563,072 6.52 36,693
----------- ---------
Total interest-bearing deposits............................... 7,579,061 5.78 438,157
Borrowed funds:
Federal funds purchased and securities
sold under repurchase agreements.................................. 49,141 6.01 2,952
Other short-term borrowings........................................ 148,804 6.14 9,143
Long-term debt and bank notes:
Domestic (c)..................................................... 2,180,341 6.57 143,330
Foreign.......................................................... 32,250 9.32 3,007
----------- ---------
Total long-term debt and bank notes........................... 2,212,591 6.61 146,337
----------- ---------
Total borrowed funds.......................................... 2,410,536 6.57 158,432
----------- ---------
Total interest-bearing liabilities............................ 9,989,597 5.97 596,589
Demand deposits........................................................ 130,779
Other liabilities...................................................... 311,058
-----------
Total liabilities............................................. 10,431,434
Stockholders' equity................................................... 994,287
-----------
Total liabilities and stockholders' equity.................... $11,425,721
=========== ---------
Net interest income........................................... $ 546,017
=========
Net interest margin........................................... 5.74
Interest rate spread.......................................... 6.04
</TABLE>
- --------------------------------------------------------------------------------
(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 adjustment for the years ended December 31,
1997, 1996, and 1995, was $1,891, $1,791, and $1,791, respectively.
(c) Includes the impact of interest rate swap agreements used to change
fixed-rate funding sources to floating-rate funding sources.
22
<PAGE> 25
MBNA CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
TABLE 3: RATE-VOLUME VARIANCE ANALYSIS (a)
(dollars in thousands, on a fully taxable equivalent basis)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997 COMPARED TO 1996
VOLUME RATE TOTAL
-------------------------------------
<S> <C> <C> <C>
INTEREST-EARNING ASSETS
Interest-earning time deposits in other banks:
Domestic .............................................................. $ 16 $ (1) $ 15
Foreign ............................................................... 18,399 1,131 19,530
--------- --------- ---------
Total interest-earning time deposits in other banks ................. 18,415 1,130 19,545
Federal funds sold and securities purchased under resale agreements ...... 13,694 333 14,027
Investment securities:
Taxable ............................................................... 20,225 (1,850) 18,375
Tax-exempt ............................................................ 250 36 286
--------- --------- ---------
Total investment securities ......................................... 20,475 (1,814) 18,661
Loans held for securitization:
Domestic .............................................................. 45,684 10,704 56,388
Foreign ............................................................... 4,137 - 4,137
--------- --------- ---------
Total loans held for securitization ................................. 49,821 10,704 60,525
Loans:
Domestic:
Credit card ......................................................... 70,024 11,537 81,561
Other consumer loans ................................................ 102,750 5,736 108,486
--------- --------- ---------
Total domestic loans ................................................ 172,774 17,273 190,047
Foreign ............................................................... 25,494 (453) 25,041
--------- --------- ---------
Total loans ......................................................... 198,268 16,820 215,088
--------- --------- ---------
Total interest income ............................................... 300,673 27,173 327,846
INTEREST-BEARING LIABILITIES
Interest-bearing deposits:
Domestic:
Time deposits ....................................................... 116,042 26,766 142,808
Money market deposit accounts ....................................... 19,904 3,105 23,009
Interest-bearing transaction accounts ............................... 201 32 233
Savings accounts .................................................... 65 13 78
--------- --------- ---------
Total domestic interest-bearing deposits ............................ 136,212 29,916 166,128
Foreign:
Time deposits ....................................................... (2,812) 2,719 (93)
--------- --------- ---------
Total interest-bearing deposits ..................................... 133,400 32,635 166,035
Borrowed funds:
Federal funds purchased and securities sold under repurchase agreements (2,848) 135 (2,713)
Other short-term borrowings ........................................... 2,997 1,003 4,000
Long-term debt and bank notes:
Domestic ............................................................ 99,987 2,402 102,389
Foreign ............................................................. 5,996 126 6,122
--------- --------- ---------
Total long-term debt and bank notes ................................. 105,983 2,528 108,511
--------- --------- ---------
Total borrowed funds ................................................ 106,132 3,666 109,798
--------- --------- ---------
Total interest expense .............................................. 239,532 36,301 275,833
--------- --------- ---------
Net interest income ................................................. $ 61,141 $ (9,128) $ 52,013
========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996 COMPARED TO 1995
VOLUME RATE TOTAL
-------------------------------------
<S> <C> <C> <C>
INTEREST-EARNING ASSETS
Interest-earning time deposits in other banks:
Domestic .............................................................. $ 1 $ (15) $ (14)
Foreign ............................................................... 15,076 (1,366) 13,710
--------- --------- ---------
Total interest-earning time deposits in other banks ................. 15,077 (1,381) 13,696
Federal funds sold and securities purchased under resale agreements ...... 3,005 (797) 2,208
Investment securities:
Taxable ............................................................... 8,576 (4,844) 3,732
Tax-exempt ............................................................ 350 (350) -
--------- --------- ---------
Total investment securities ......................................... 8,926 (5,194) 3,732
Loans held for securitization:
Domestic .............................................................. 2,464 (383) 2,081
Foreign ............................................................... 35,030 - 35,030
--------- --------- ---------
Total loans held for securitization ................................. 37,494 (383) 37,111
Loans:
Domestic:
Credit card ......................................................... 121,690 (6,922) 114,768
Other consumer loans ................................................ 83,775 1,800 85,575
--------- --------- ---------
Total domestic loans ................................................ 205,465 (5,122) 200,343
Foreign ............................................................... (12,645) (1,993) (14,638)
--------- --------- ---------
Total loans ......................................................... 192,820 (7,115) 185,705
Total interest income ............................................... 257,322 (14,870) 242,452
INTEREST-BEARING LIABILITIES
Interest-bearing deposits:
Domestic:
Time deposits ....................................................... 62,295 9,823 72,118
Money market deposit accounts ....................................... 34,405 (9,872) 24,533
Interest-bearing transaction accounts ............................... 204 (107) 97
Savings accounts .................................................... 84 (44) 40
--------- --------- ---------
Total domestic interest-bearing deposits ............................ 96,988 (200) 96,788
Foreign:
Time deposits ....................................................... (4,052) (3,008) (7,060)
--------- --------- ---------
Total interest-bearing deposits ..................................... 92,936 (3,208) 89,728
Borrowed funds:
Federal funds purchased and securities sold under repurchase agreements 1,025 (329) 696
Other short-term borrowings ........................................... 6,738 (1,032) 5,706
Long-term debt and bank notes:
Domestic ............................................................ 48,075 (2,980) 45,095
Foreign ............................................................. 5,570 (594) 4,976
--------- --------- ---------
Total long-term debt and bank notes ................................. 53,645 (3,574) 50,071
--------- --------- ---------
Total borrowed funds ................................................ 61,408 (4,935) 56,473
--------- --------- ---------
Total interest expense .............................................. 154,344 (8,143) 146,201
--------- --------- ---------
Net interest income ................................................. $ 102,978 $ (6,727) $ 96,251
========= ========= =========
</TABLE>
- --------------------------------------------------------------------------------
(a) The rate-volume variance for each category has been allocated on a
consistent basis between rate and volume variances based on the percentage
of the rate or volume variance to the sum of the two absolute variances.
NET INTEREST INCOME
Table 3 illustrates the impact that rate and volume changes had on the
Corporation's net interest income for the years presented.
Net interest income, on a fully taxable equivalent basis, increased 8.1% or
$52.0 million to $694.3 million in 1997 from 1996, as shown in Table 2. The
increase in net interest income in 1997 is primarily a result of a $2.7 billion
increase in average interest-earning assets from 1996, offset by a $3.8 billion
increase in average interest-bearing liabilities and a 66 basis point decline in
the net interest margin for the same period. The growth in average
interest-earning assets is primarily a result of a $1.7 billion increase in
average loan receivables combined with an increase of $924.5 million in average
investment securities and money market instruments. The increase in
interest-bearing liabilities resulted primarily from funding the increase in
interest-earning assets and accounts receivable from securitizations, which is
included in other assets.
Net interest income, on a fully taxable equivalent basis, increased 17.6% or
$96.3 million to $642.3 million in 1996 from 1995, as also shown in Table 2. The
increase in net interest income in 1996 was primarily a result of a $2.1 billion
increase in average interest-earning assets from 1995, offset by a $2.6 billion
increase in average interest-bearing liabilities and a 22 basis point decline
23
<PAGE> 26
MBNA CORPORATION AND SUBSIDIARIES
in the net interest margin for the same period. The growth in average
interest-earning assets reflects a $1.6 billion increase in average loan
receivables and a $475.6 million increase in average investment securities and
money market instruments. The increase in interest-bearing liabilities resulted
primarily from funding the increase in interest-earning assets.
NET INTEREST INCOME
(fully taxable equivalent basis)
<TABLE>
<CAPTION>
(millions)
<S> <C>
95 546.0
96 642.3
97 694.3
</TABLE>
The net interest margin, on a fully taxable equivalent basis, was 4.86% for
1997, compared to 5.52% and 5.74% for 1996 and 1995, respectively. The decline
in the net interest margin for 1997 is primarily a result of an increase in
average interest-bearing liabilities that was partially used to fund the growth
in accounts receivable from securitizations, which is included in other assets,
combined with a 31 basis point increase in average rates paid on
interest-bearing liabilities. The decline in the net interest margin for 1996
was primarily a result of an increase in average interest-bearing liabilities
that was partially used to fund the growth of noninterest-earning assets
combined with a 10 basis point decrease in yields earned on interest-earning
assets.
INVESTMENT SECURITIES AND MONEY MARKET INSTRUMENTS
In 1997, interest income on investment securities, on a fully taxable equivalent
basis, increased $18.7 million to $146.8 million from 1996. The increase in 1997
is primarily the result of a $358.5 million increase in average investment
securities, offset by an 8 basis point decrease in yields earned on these
securities. Interest income on money market instruments increased $33.6 million
to $73.0 million in 1997 from 1996. The increase in 1997 was primarily the
result of an increase of $566.0 million in average money market instruments from
1996, combined with an 18 basis point increase in the yields earned on these
instruments.
INTEREST INCOME FROM
INVESTMENT SECURITIES AND
MONEY MARKET INSTRUMENTS
(fully taxable equivalent basis)
<TABLE>
<CAPTION>
(millions)
<S> <C>
95 148.0
96 167.6
97 219.9
</TABLE>
Interest income on investment securities, on a fully taxable equivalent basis,
increased $3.7 million to $128.2 million in 1996 from 1995. This increase was
the result of a $151.7 million increase in average investment securities, offset
by a 25 basis point decrease in yields earned on these securities. Interest
income on money market instruments increased $15.9 million to $39.5 million in
1996 from 1995. The increase in 1996 was primarily the result of an increase of
$323.8 million in average money market instruments from 1995, offset by a 50
basis point decrease in the yields earned on these instruments.
The increases in average investment securities and money market instruments are
primarily a result of the timing of the receipt of funds from asset
securitizations. Funds received from the securitization transactions typically
are invested in investment securities available-for-sale and money market
instruments until they are needed to fund loan growth.
Average investment securities and money market instruments as a percentage of
average interest-earning assets was 27.0% for 1997, compared to 25.2% in 1996
and 25.8% in 1995. Table 4 reflects the estimated maturities of the
Corporation's investment securities and weighted average yields, on a fully
taxable equivalent basis, at December 31, 1997.
Note C to the audited consolidated financial statements provides further detail
regarding the Corporation's investment securities.
TABLE 4: INVESTMENT SECURITIES
(dollars in thousands, yields on a fully taxable equivalent basis)
<TABLE>
<CAPTION>
ESTIMATED MATURITIES AT DECEMBER 31, 1997
Within 1 Year 1-5 Years 6-10 Years
Book Yield Book Yield Book Yield
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AVAILABLE-FOR-SALE:
U.S. Treasury and other U.S. government
agencies obligations ........................... $ 773,974 5.76% $ 301,406 6.03% $ - -%
State and political subdivisions of the
United States .................................. 84,778 6.61 6,538 6.39 - -
Asset-backed and other securities ............... 146,097 6.09 793,871 6.13 53,663 6.14
---------- ---------- ----------
Total investment securities available-for-sale $1,004,849 5.87 $1,101,815 6.10 $ 53,663 6.14
========== ========== ==========
HELD-TO-MATURITY:
U.S. Treasury and other U.S. government
agencies obligations .......................... $ 168,926 5.07 $ 25,963 5.92 $ - -
State and political subdivisions of the
United States ................................. - - - - - -
Asset-backed and other securities ............... 39,572 5.64 2,316 7.36 - -
---------- ---------- ----------
Total investment securities held-to-maturity . $ 208,498 5.18 $ 28,279 6.04 $ - -
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
ESTIMATED MATURITIES
AT DECEMBER 31, 1997
Over 10 Years Total
Book Yield Book Yield
---------------------------------------------
<S> <C> <C> <C> <C>
AVAILABLE-FOR-SALE:
U.S. Treasury and other U.S. government
agencies obligations ........................... $ - -% $1,075,380 5.84%
State and political subdivisions of the
United States .................................. - - 91,316 6.59
Asset-backed and other securities ............... 2,137 6.12 995,768 6.14
---------- ----------
Total investment securities available-for-sale $ 2,137 6.12 $2,162,464 6.01
========== ==========
HELD-TO-MATURITY:
U.S. Treasury and other U.S. government
agencies obligations .......................... $ 90,858 6.03 $ 285,747 5.47
State and political subdivisions of the
United States ................................. 1,628 6.04 1,628 6.04
Asset-backed and other securities ............... 16,917 6.00 58,805 5.81
---------- ----------
Total investment securities held-to-maturity . $ 109,403 6.03 $ 346,180 5.53
========== ==========
</TABLE>
24
<PAGE> 27
MBNA CORPORATION AND SUBSIDIARIES
LOAN RECEIVABLES
Interest income generated by the Corporation's loan receivables increased $275.6
million to $1.5 billion in 1997. The increase is the result of a $1.7 billion
increase in average loan receivables, combined with an increase of 31 basis
points in the average yields earned on these receivables.
INTEREST INCOME FROM
LOAN RECEIVABLES
<TABLE>
<CAPTION>
(millions)
<S> <C>
95 994.6
96 1,217.4
97 1,493.0
</TABLE>
Interest income on loan receivables increased $222.8 million to $1.2 billion in
1996. The increase in interest income during 1996 was the result of a $1.6
billion increase in average loan receivables, offset by a decrease of 9 basis
points in the average yields earned on these receivables.
Table 5 presents the Corporation's period-end loan receivables distribution by
loan type, excluding securitized loans, and the percentage of loan receivables
represented by type of loan. Loan receivables increased 10.2% to $11.2 billion
at December 31, 1997, compared to $10.1 billion and $8.1 billion at December 31,
1996 and 1995, respectively.
Credit card loan receivables increased to $8.7 billion at December 31, 1997,
compared to $8.2 billion and $7.3 billion at December 31, 1996 and 1995,
respectively. The increases in credit card loan receivables for 1997 and 1996
were a result of the Corporation's successful marketing programs, such as the
introduction of the MBNA Platinum Plus MasterCard and Visa program in early
1996, as well as competitive pricing strategies. The Corporation offers
variable-rate credit card loans as well as variable-rate home equity loans to
certain new and existing Customers. At December 31, 1997, variable-rate loans
made up 19.9% of total managed loans compared to 42.1% of total managed loans 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. The
decline in variable-rate loans was primarily the result of the Corporation
repricing outstanding credit card loans from variable-rate to fixed-rate. The
Corporation has the contractual right to reprice fixed-rate credit card loans at
any time, by giving notice to the Customer.
Other consumer loan receivables increased to $2.4 billion at December 31, 1997,
compared to $1.9 billion and $876.9 million at December 31, 1996 and 1995,
respectively. The increases in other consumer loans for 1997 and 1996 were a
result of the Corporation's increased efforts to originate other consumer loans
in both years, combined with the acquisition of other consumer loan portfolios
in 1996. Additionally, the Bank increased its securitization of other consumer
loans from $1.4 billion in 1996 to $2.4 billion in 1997.
Note D to the audited consolidated financial statements provides further detail
regarding the Corporation's loan receivables.
TABLE 5: LOAN RECEIVABLES DISTRIBUTION
(dollars in thousands)
<TABLE>
<CAPTION>
DECEMBER 31, 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C>
Loans held for securitization:
Domestic:
Credit card .................... $ 2,297,400 20.6% $ 2,206,218 21.8% $ 2,780,802 34.2%
Other consumer ................. - - - - - -
----------- ----- ----------- ----- ----------- -----
Total domestic loans held for
securitization ............. 2,297,400 20.6 2,206,218 21.8 2,780,802 34.2
Foreign (a) ...................... 602,798 5.4 263,756 2.6 387,625 4.7
----------- ----- ----------- ----- ----------- -----
Total loans held for
securitization ............. 2,900,198 26.0 2,469,974 24.4 3,168,427 38.9
Loan portfolio:
Domestic:
Credit card .................... 5,475,933 49.0 5,514,326 54.4 3,957,129 48.7
Other consumer ................. 2,187,216 19.6 1,840,052 18.2 870,893 10.7
----------- ----- ----------- ----- ----------- -----
Total domestic loan portfolio 7,663,149 68.6 7,354,378 72.6 4,828,022 59.4
Foreign (a) ...................... 598,727 5.4 304,700 3.0 139,469 1.7
----------- ----- ----------- ----- ----------- -----
Total loan portfolio ........ 8,261,876 74.0 7,659,078 75.6 4,967,491 61.1
----------- ----- ----------- ----- ----------- -----
Total loan receivables ...... $11,162,074 100.0% $10,129,052 100.0% $ 8,135,918 100.0%
=========== ===== =========== ===== =========== =====
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1994 1993
<S> <C> <C> <C> <C>
Loans held for securitization:
Domestic:
Credit card .................... $ 1,899,026 33.3% $ 741,869 16.6%
Other consumer ................. 400,000 7.0 - -
----------- ----- ----------- -----
Total domestic loans held for
securitization ............. 2,299,026 40.3 741,869 16.6
Foreign (a) ...................... - - - -
----------- ----- ----------- -----
Total loans held for
securitization ............. 2,299,026 40.3 741,869 16.6
Loan portfolio:
Domestic:
Credit card .................... 2,506,942 43.9 2,935,418 65.7
Other consumer ................. 521,036 9.1 775,514 17.4
----------- ----- ----------- -----
Total domestic loan portfolio 3,027,978 53.0 3,710,932 83.1
Foreign (a) ...................... 379,996 6.7 14,577 .3
----------- ----- ----------- -----
Total loan portfolio ........ 3,407,974 59.7 3,725,509 83.4
----------- ----- ----------- -----
Total loan receivables ...... $ 5,707,000 100.0% $ 4,467,378 100.0%
=========== ===== =========== =====
</TABLE>
(a) Note S to the audited consolidated financial statements provides the foreign
loan receivables distribution between credit card and other consumer loans.
25
<PAGE> 28
MBNA CORPORATION AND SUBSIDIARIES
DEPOSITS
Total interest expense on deposits was $693.9 million for 1997, compared to
$527.9 million and $438.2 million for 1996 and 1995, respectively. The increase
in interest expense of $166.0 million during 1997 is primarily the result of a
$2.2 billion increase in average interest-bearing deposits combined with a 35
basis point increase in rates paid on average interest-bearing deposits. The
increase in interest expense on deposits of $89.7 million during 1996 was the
result of a $1.6 billion increase in average interest-bearing deposits offset by
a 5 basis point decrease in rates paid on average interest-bearing deposits.
The increases in average interest-bearing deposits for 1997 and 1996 were a
result of the Corporation's continued emphasis on marketing certificates of
deposit and money market deposit accounts to fund loan growth and diversify
funding sources.
BORROWED FUNDS
Interest expense on short-term borrowings increased to $19.8 million for 1997,
compared to $18.5 million and $12.1 million for 1996 and 1995, respectively. The
increase in interest expense on short-term borrowings for 1997 is primarily the
result of rates paid on average short-term borrowings which increased 37 basis
points from 1996. The increase in interest expense for 1996 was primarily the
result of an increase in average short-term borrowings of $139.3 million offset
by a 63 basis point decrease in the rates paid on these average short-term
borrowings.
Note G to the audited consolidated financial statements provides further detail
regarding the Corporation's short-term borrowings.
During 1997 and 1996, the Corporation continued to increase its funding provided
by long-term debt and bank notes to add diversity to the Corporation's funding
sources, to fund loan growth, to acquire premises and equipment, and for other
general corporate purposes. As a result, average long-term debt and bank notes
increased $1.6 billion to $4.6 billion, increasing interest expense related to
long-term debt and bank notes by $108.5 million to $304.9 million in 1997 from
1996. The average rates paid on these funds increased 9 basis points during
1997.
In 1996, interest expense related to long-term debt and bank notes increased
$50.1 million to $196.4 million from 1995. This increase was primarily the
result of an increase of $816.7 million in average long-term debt and bank notes
to $3.0 billion, offset by a decrease of 13 basis points in the rates paid on
these funds.
Note H to the audited consolidated financial statements provides further detail
regarding the Corporation's long-term debt and bank notes.
OTHER OPERATING INCOME
Total other operating income increased 48.4% or $917.0 million to $2.8 billion
in 1997 from 1996. The increase in other operating income during 1997 is
primarily attributable to an increase of 52.0% or $857.5 million in
securitization income for the period. The increase in securitization income is
the result of a $10.2 billion or 45.5% increase in average securitized loans to
$32.7 billion from 1996, combined with the adoption of Statement No. 125 by the
Corporation. Securitization income includes the gains recognized by the
Corporation in accordance with Statement No. 125, in addition to the
contractually specified other fees earned by the Corporation for the servicing
of previously securitized loans. Interchange income also increased $26.4 million
from 1996, as the Corporation's sales volume increased. In addition, other
income increased $32.5 million to $88.3 million in 1997. The increase is
primarily attributable to the gain on the sale of the Corporation's merchant
card processing business and growth in fee income generated from the
Corporation's insurance agency business.
OTHER OPERATING INCOME
<TABLE>
<CAPTION>
(billions)
<S> <C>
95 1.4
96 1.9
97 2.8
</TABLE>
On January 1, 1997, the Corporation adopted 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 includes the related receivable in
accounts receivable from securitizations 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. Previously, the Corporation recognized the earnings from
securitization over the life of the transaction. As a result of the adoption of
Statement No. 125, securitization income increased $325.1 million in 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
Corporation invested an amount equivalent to the increase in securitization
income from the adoption of Statement No. 125 in additional business development
efforts; therefore, this incremental increase in securitization income did not
materially impact the Corporation's consolidated net income. In accordance with
Statement No. 125, prior years have not been restated.
In 1996, total other operating income increased 33.1% or $471.3 million to $1.9
billion from 1995. The increase in 1996 was primarily attributable to an
increase of 37.8% or $452.6 million in securitization income for the period.
Securitization income, generated by securitized loans prior to the adoption of
Statement No. 125, consisted of interest income, interchange and other fees in
excess of interest paid to Certificateholders; credit losses; and other trust
expenses. The increase in securitization income was the direct result of an
increase in average securitized loans of $7.1 billion during 1996.
26
<PAGE> 29
MBNA CORPORATION AND SUBSIDIARIES
In addition, credit card fees increased $20.3 million to $102.6 million during
1996. This increase was primarily the result of increases in late and overlimit
fees.
During 1996, MBNA Hallmark Information Services, Inc., the Corporation's
information processing subsidiary, did not renew contracts with external
Customers in order to increase its focus on providing information technology
support and services to the Bank and its affiliates. As a result, processing
fees included in other operating income decreased.
OTHER OPERATING EXPENSE
Total other operating expense increased 41.4% to $2.2 billion in 1997 from $1.6
billion in 1996, compared to an increase of 26.2% in 1996 from 1995. 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 investment in business development included an amount
equivalent to the increase in securitization income resulting from the adoption
of Statement No. 125. The Corporation added approximately 9.4 million new
accounts in 1997 compared to 7.5 million in 1996. The Corporation also invested
in expanding its other consumer loan, foreign, and insurance agency businesses.
Note P to the audited consolidated financial statements provides further detail
regarding the Corporation's other operating expenses.
In October 1995, Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" (Statement No. 123), was issued. This
statement, effective for fiscal years beginning after December 15, 1995, defines
a fair-value-based method of accounting for an employee stock option or similar
equity instrument. However, it allows a company to continue to measure
compensation cost for those instruments using the intrinsic-value-based method
of accounting prescribed by Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB Opinion No. 25). Statement No.
123 requires certain additional disclosures about stock-based employee
compensation arrangements regardless of the method used to account for them. As
permitted by Statement No. 123, the Corporation elected to retain the
intrinsic-value-based method of accounting for stock option grants in accordance
with APB Opinion No. 25. The adoption of Statement No. 123 had no impact on the
Corporation's consolidated financial statements.
Note K to the audited consolidated financial statements provides further detail
regarding the Corporation's stock option plans.
Many computer applications have been written using two digits rather than four
to define the applicable year, and therefore may not recognize a date using "00"
as the Year 2000. This could result in the inability of the application to
properly process transactions with dates in the Year 2000 or thereafter. The
Corporation has substantially completed an assessment of the impact of this
problem on its computer systems and applications, including the systems that
service the Corporation's loans, and is executing a plan to make the necessary
programming changes, and has begun to test and implement them. The Corporation
expects to complete implementation of the necessary changes to its mainframe,
distributed, and desktop systems by the end of 1998, and its other systems by
mid-1999.
The Corporation is actively monitoring the progress of third parties, whose
systems provide information to the Corporation's systems, in achieving Year 2000
compliance and is developing contingency plans to address any failure of a
critical vendor to do so. Based on its efforts and the information available to
date, and assuming the continued availability of staff and other technical
resources, and no unexpected difficulty in implementing system enhancements, the
Corporation believes that it will not incur significant operational disruptions
or material costs as a result of the Year 2000 problem. However, there can be no
assurance that the systems of third parties with which the Corporation deals
will be timely converted and will not adversely affect the Corporation's
business.
SPECIAL MARKETING PROGRAM
During 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.
INCOME TAXES
The Corporation recognized applicable income taxes of $399.6 million in 1997,
compared to $289.6 million in 1996 and $231.5 million in 1995. This represents
an effective tax rate of 39.1% for 1997, and 39.6% for 1996 and 1995. Applicable
income taxes for 1996 exclude the effect of the tax benefit from Customer-based
intangible assets described below. Note R to the audited consolidated financial
statements reconciles reported applicable income taxes to the amount computed by
applying the federal statutory rate to income before income taxes.
Net income for 1996 included 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 these assets because there were uncertainties concerning the tax treatment of
such assets. In 1993, the U.S. Supreme Court affirmed that Customer-based
intangible assets may be amortized for tax purposes. Accordingly, the
Corporation recognized a portion of the tax benefit related to the
Customer-based intangible assets. During 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.
27
<PAGE> 30
MBNA CORPORATION AND SUBSIDIARIES
TABLE 6: DELINQUENT LOANS
(dollars in thousands)
<TABLE>
<CAPTION>
DECEMBER 31, 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loan portfolio ....... $8,261,876 $7,659,078 $4,967,491 $3,407,974 $3,725,509
Loans delinquent:
30 to 59 days ...... $ 125,870 1.52% $ 114,382 1.49% $ 65,651 1.32% $ 38,912 1.14% $ 41,501 1.11%
60 to 89 days ...... 64,275 .78 52,857 .69 30,162 .61 17,962 .53 20,984 .56
90 or more days .... 134,865 1.63 107,679 1.41 58,894 1.18 31,804 .93 50,477 1.36
---------- ---- ---------- ---- ---------- ---- ---------- ---- ---------- ----
Total ............ $ 325,010 3.93% $ 274,918 3.59% $ 154,707 3.11% $ 88,678 2.60% $ 112,962 3.03%
========== ==== ========== ==== ========== ==== ========== ==== ========== ====
Loans delinquent by
geographic area:
Domestic ........... $ 313,467 4.09% $ 269,035 3.66% $ 151,316 3.13% $ 82,664 2.73% $ 112,962 3.04%
Foreign ............ 11,543 1.93 5,883 1.93 3,391 2.43 6,014 1.58 - -
</TABLE>
LOAN QUALITY
The Corporation's loan quality at any time reflects, among other factors, the
quality of the Corporation's credit card 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 3.93%
at December 31, 1997, compared with 3.59% at December 31, 1996. Delinquency as a
percentage of managed loans was 4.59% at December 31, 1997, compared to 4.28% at
December 31, 1996. Table 6 presents the stages of delinquency of the
Corporation's loan portfolio, excluding loans held for securitization.
TABLE 7: RESERVE FOR POSSIBLE CREDIT LOSSES
(dollars in thousands)
<TABLE>
<CAPTION>
DECEMBER 31, 1997 1996 1995
<S> <C> <C> <C>
Reserve for possible credit losses, beginning of year .............. $ 118,427 $ 104,886 $ 101,519
Reserves acquired ................................................ 7,975 7,553 -
Provision for possible credit losses ............................. 260,040 178,224 138,176
Foreign currency translation ..................................... (203) 488 (90)
Credit losses:
Domestic:
Credit card .................................................. (294,608) (226,067) (161,004)
Other consumer ............................................... (57,970) (23,504) (10,553)
------------ ------------ ------------
Total domestic credit losses ............................... (352,578) (249,571) (171,557)
Foreign ........................................................ (6,964) (4,846) (3,336)
------------ ------------ ------------
Total credit losses ........................................ (359,542) (254,417) (174,893)
Recoveries:
Domestic:
Credit card .................................................. 126,012 76,605 37,765
Other consumer ............................................... 7,555 4,438 2,273
------------ ------------ ------------
Total domestic recoveries .................................. 133,567 81,043 40,038
Foreign ........................................................ 2,212 650 136
------------ ------------ ------------
Total recoveries ........................................... 135,779 81,693 40,174
------------ ------------ ------------
Net credit losses ................................................ (223,763) (172,724) (134,719)
------------ ------------ ------------
Reserve for possible credit losses, end of year .................... $ 162,476 $ 118,427 $ 104,886
============ ============ ============
Net credit losses as a % of average loan receivables ............... 2.14% 1.98% 1.91%
Net credit losses as a % of beginning reserve ...................... 188.95 164.68 132.70
Reserve for possible credit losses as a % of ending loan receivables 1.46 1.17 1.29
Ending loan receivables ............................................ $ 11,162,074 $ 10,129,052 $ 8,135,918
Average loan receivables ........................................... 10,438,513 8,703,579 7,061,898
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1994 1993
<S> <C> <C>
Reserve for possible credit losses, beginning of year .............. $ 97,580 $ 97,580
Reserves acquired ................................................ - -
Provision for possible credit losses ............................. 108,477 98,795
Foreign currency translation ..................................... 21 -
Credit losses:
Domestic:
Credit card .................................................. (98,613) (88,099)
Other consumer ............................................... (33,331) (30,332)
------------ ------------
Total domestic credit losses ............................... (131,944) (118,431)
Foreign ........................................................ (350) -
------------ ------------
Total credit losses ........................................ (132,294) (118,431)
Recoveries:
Domestic:
Credit card .................................................. 26,052 18,577
Other consumer ............................................... 1,672 1,059
------------ ------------
Total domestic recoveries .................................. 27,724 19,636
Foreign ........................................................ 11 -
------------ ------------
Total recoveries ........................................... 27,735 19,636
------------ ------------
Net credit losses ................................................ (104,559) (98,795)
------------ ------------
Reserve for possible credit losses, end of year .................... $ 101,519 $ 97,580
============ ============
Net credit losses as a % of average loan receivables ............... 1.96% 2.43%
Net credit losses as a % of beginning reserve ...................... 107.15 101.25
Reserve for possible credit losses as a % of ending loan receivables 1.78 2.18
Ending loan receivables ............................................ $ 5,707,000 $ 4,467,378
Average loan receivables ........................................... 5,330,282 4,068,685
</TABLE>
28
<PAGE> 31
MBNA CORPORATION AND SUBSIDIARIES
NET CREDIT LOSSES
Net credit losses during 1997 were $223.8 million, compared to $172.7 million
for 1996 and $134.7 million for 1995. 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 increases in net
credit losses for 1997 and 1996 reflect increases in the Corporation's
outstanding loan receivables, the general economic conditions, and the seasoning
of the Corporation's accounts, offset by recoveries from the sale of charged-off
receivables.
The Corporation's policy is generally to charge off accounts when they become
180 days contractually past due. Periodically, 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.
Annual net credit losses as a percentage of average loan receivables increased
to 2.14% during 1997, compared to 1.98% for 1996 and 1.91% for 1995. The
Corporation's annual managed credit losses as a percentage of average managed
loans for 1997 was 3.97%, compared to 3.35% and 2.74% for 1996 and 1995,
respectively.
RESERVE AND PROVISION FOR POSSIBLE CREDIT LOSSES
Table 7 presents an analysis of the Corporation's reserve for possible credit
losses. The loan portfolio is regularly reviewed to determine an appropriate
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. A provision is charged to
operating expense to maintain the reserve at an appropriate level. 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 year ended December 31, 1997,
increased $81.8 million or 45.9% from 1996, compared to a $40.0 million or 29.0%
increase in 1996 from 1995.
The reserve for possible credit losses is internally allocated among domestic
credit card loans, domestic other consumer loans, and foreign loans, as
presented in Table 8.
TABLE 8: ALLOCATION OF RESERVE FOR POSSIBLE CREDIT LOSSES
(dollars in thousands)
<TABLE>
<CAPTION>
DECEMBER 31, 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Domestic:
Credit card ........................ $134,910 83.0% $ 95,253 80.4% $ 82,596 78.7% $ 79,396 78.2% $ 78,396 80.3%
Other consumer ..................... 23,031 14.2 18,446 15.6 18,009 17.2 20,691 20.4 18,814 19.3
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Domestic reserve for possible
credit losses ................... 157,941 97.2 113,699 96.0 100,605 95.9 100,087 98.6 97,210 99.6
Foreign .............................. 4,535 2.8 4,728 4.0 4,281 4.1 1,432 1.4 370 .4
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Reserve for possible credit losses $162,476 100.0% $118,427 100.0% $104,886 100.0% $101,519 100.0% $ 97,580 100.0%
======== ===== ======== ===== ======== ===== ======== ===== ======== =====
</TABLE>
CAPITAL ADEQUACY
The Corporation is subject to risk-based capital guidelines adopted by the
Federal Reserve Board for bank holding companies. The Bank is also subject to
similar capital requirements adopted by the Office of the Comptroller of the
Currency. Under these requirements, the regulatory agencies have established
quantitative measures to ensure that minimum thresholds for Tier 1 capital,
Total capital, and Leverage ratios are maintained. Failure to meet these minimum
capital requirements can initiate certain mandatory--and possible additional
discretionary--actions by the regulators, that, if undertaken, could have a
direct material effect on the Corporation's and the Bank's consolidated
financial statements. Under the 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's and the Bank's capital amounts and
classification are also subject to qualitative judgments by the regulators about
components, risk weightings, and other factors. At December 31, 1997, both the
Corporation's and the Bank's capital exceeded all minimum regulatory
requirements to which they are subject, and the Bank was "well-capitalized" as
defined under the regulatory guidelines. Both the Corporation's and the Bank's
risk-based capital ratios, shown in Table 9, have been computed in accordance
with regulatory accounting practices.
TABLE 9: REGULATORY CAPITAL RATIOS
<TABLE>
<CAPTION>
MINIMUM WELL-CAPITALIZED
DECEMBER 31, 1997 RATIOS REQUIREMENTS REQUIREMENTS
<S> <C> <C> <C>
MBNA Corporation
Tier 1.................. 9.82% 4.00% (a)
Total................... 11.99 8.00 (a)
Leverage................ 11.13 4.00 (a)
MBNA America Bank, N.A.
Tier 1.................. 9.56% 4.00% 6.00%
Total................... 11.06 8.00 10.00
Leverage................ 10.90 4.00 5.00
</TABLE>
(a) Not applicable for bank holding companies.
29
<PAGE> 32
MBNA CORPORATION AND SUBSIDIARIES
Note N to the audited consolidated financial statements provides further detail
regarding the Corporation's capital adequacy.
In 1996, the Federal Reserve announced that cumulative preferred securities,
having the characteristics of the guaranteed preferred beneficial interests in
Corporation's junior subordinated deferrable interest debentures, could be
included in Tier 1 capital for bank holding companies. As a result, the
Corporation issued $250.0 million of guaranteed preferred beneficial interests
in Corporation's junior subordinated deferrable interest debentures in December
1996 and $280.0 million in January 1997. These securities qualify as regulatory
capital for the Corporation. Such regulatory capital treatment, together with
the Corporation's ability to deduct, for income tax purposes, interest payable
on the junior subordinated deferrable interest debentures, provides the
Corporation with lower-cost regulatory capital. The Corporation contributed the
proceeds from the $250.0 million issuance of guaranteed preferred beneficial
interests in Corporation's junior subordinated deferrable interest debentures as
capital to the Bank.
During 1997, the Corporation declared dividends on its preferred and common
stock of $176.8 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 for
consecutive periods covering five years on its 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 than 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 December 31, 1997, the
amount of retained earnings available for declaration and payment of dividends
from the Bank to the Corporation was $651.0 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 December 31, 1997.
LIQUIDITY AND RATE SENSITIVITY
The financial condition of the Corporation is managed with a focus on
maintaining high-quality credit standards and prudent levels of liquidity,
interest rate risk, and foreign currency exchange rate risk.
LIQUIDITY MANAGEMENT
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 pricing and
maturity of loans, deposits, and other assets and liabilities. This process is
also 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 and establishes a maturity pattern that provides a prudent mixture of
short- and long-term funds. Funding programs have been established by the
Corporation and the Bank.
During 1997, the Corporation issued $682.5 million in Senior Medium-Term Notes,
compared to $200.0 million in 1996. At December 31, 1997, the Corporation has
$1.4 billion in Senior Medium-Term Notes outstanding that mature from 1998 to
2004, as compared to $765.5 million at December 31, 1996. In addition, the
Corporation had $250.0 million in Senior Notes outstanding at December 31, 1997
and 1996, that mature in 1999 and 2005. The net proceeds were used to fund
growth in other consumer loans, to purchase premises and equipment, and for
other general corporate purposes. The Corporation expects to pay the interest on
both the Senior Notes and Senior Medium-Term Notes from dividend, lease, and
other payments received primarily from the Bank.
The Corporation has two one-year revolving credit facilities totaling $50.0
million. These credit facilities were renewed during 1997 with $25.0 million
expiring in March 1998 and $25.0 million expiring in September 1998. The
Corporation may take advances under these facilities subject to certain
conditions, including requirements for tangible net worth. These facilities may
be used for general corporate purposes and were not drawn upon as of December
31, 1997.
In April 1995, the Corporation established a $100.0 million commercial paper
program that allows the Corporation to issue commercial paper with a maturity of
270 days or less. At December 31, 1997, there was no commercial paper
outstanding.
In December 1996, the Corporation issued $250.0 million of guaranteed preferred
beneficial interests in Corporation's junior subordinated deferrable interest
debentures. These securities qualify as regulatory capital for the Corporation,
and the proceeds were contributed as additional capital to the Bank.
30
<PAGE> 33
MBNA CORPORATION AND SUBSIDIARIES
In January 1997, the Corporation issued $280.0 million of guaranteed preferred
beneficial interests in Corporation's junior subordinated deferrable interest
debentures. These securities qualify as regulatory capital for the Corporation,
and the proceeds were used for general corporate purposes.
In September 1996, the Corporation issued 6.0 million shares of Adjustable Rate
Cumulative Preferred Stock, Series B, with a $25 stated value per share. The
shares of the Series B Preferred Stock are redeemable, in whole or in part,
solely at the option of the Corporation on or after October 15, 2001. The Series
B Preferred Stock may also be redeemed in whole at the option of the Corporation
in the event of certain amendments to the Internal Revenue Code of 1986 with
respect to the dividends-received deduction.
During 1997, the Corporation repurchased 2.0 million shares of Adjustable Rate
Cumulative Preferred Stock, Series B, for $52.5 million. At December 31, 1997,
the Corporation has 4.0 million shares of Adjustable Rate Cumulative Preferred
Stock, Series B, outstanding.
In November 1995, the Corporation issued 6.0 million shares of 71/2% Cumulative
Preferred Stock, Series A, with a $25 stated value per share. The shares of the
Series A Preferred Stock are redeemable, in whole or in part, solely at the
option of the Corporation on or after January 15, 2001.
During 1997, the Corporation, through MBNACapital 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 71/2% 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 71/2% Cumulative Preferred
Stock, Series A, outstanding at December 31, 1997.
Shares of the Series A and B Preferred Stock are not convertible into any other
securities of the Corporation. Dividends on the preferred stock are cumulative
from the date of original issue and are payable quarterly. Note L to the audited
consolidated financial statements provides further detail regarding the
Corporation's Preferred Stock.
Funding programs established by the Bank include deposits, bank notes, deposit
notes, subordinated notes, and committed credit facilities.
Total deposits at December 31, 1997, were $12.9 billion, compared with $10.2
billion and $8.6 billion at December 31, 1996 and 1995, respectively. The
increase in deposits from 1996 is primarily the result of a $2.2 billion
increase in direct deposits. The increase in deposits from 1995 was the result
of a $1.6 billion increase in direct deposits. These increases in direct
deposits were primarily the result of the Corporation's emphasis on marketing
certificates of deposit and offering competitive rates. Table 10 provides the
maturities of the Corporation's deposits at December 31, 1997. Included in the
deposit maturity category of three months or less are money market deposit
accounts, noninterest-bearing demand deposits, interest-bearing transaction
accounts, and savings accounts of $3.5 billion.
TABLE 10: MATURITIES OF DEPOSITS
(dollars in thousands)
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DIRECT OTHER TOTAL
<S> <C> <C> <C>
Three months or less .............. $ 4,644,221 $ 710,121 $ 5,354,342
Over three months through
twelve months .................... 2,536,352 636,518 3,172,870
Over one year through five years .. 2,717,604 1,662,601 4,380,205
Over five years ................... 5,796 - 5,796
----------- ----------- -----------
Total deposits .................. $ 9,903,973 $ 3,009,240 $12,913,213
=========== =========== ===========
</TABLE>
In addition, Table 11 presents the maturity distribution of the Corporation's
domestic time deposits in amounts of $100,000 or more for the most recent three
years. The Corporation also has $549.2 million of foreign time deposits at
December 31, 1997. The majority of the foreign time deposits were in amounts in
excess of $100,000 and mature within one year.
TABLE 11: DOMESTIC TIME DEPOSITS OF $100,000 OR MORE
(dollars in thousands)
<TABLE>
<CAPTION>
DECEMBER 31, 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C>
Three months or less... $ 467,227 26.8% $ 486,008 33.2% $ 271,560 23.4%
Over three months
through six months.... 314,060 18.0 226,810 15.5 331,383 28.6
Over six months
through twelve
months ............... 370,052 21.3 279,976 19.1 198,613 17.2
Over twelve months .... 590,838 33.9 470,704 32.2 356,474 30.8
---------- ----- ---------- ----- ---------- -----
Total ............... $1,742,177 100.0% $1,463,498 100.0% $1,158,030 100.0%
========== ===== ========== ===== ========== =====
</TABLE>
An additional source of funding for the Bank is provided by a medium-term bank
note/deposit note program. These notes may be issued with maturities ranging
from nine months to fifteen years from the date of issue. During 1997, the Bank
issued $712.0 million of bank notes, compared to $860.0 million in 1996. At
December 31, 1997 and 1996, the Bank had $2.9 billion and $2.4 billion,
respectively, issued and outstanding under this program.
The Bank can also obtain funding through the issuance of short-term bank notes,
with maturities ranging from seven days to one year from the date of issue. The
Bank has no short-term bank notes outstanding at December 31, 1997. The Bank had
$459.0 million of short-term bank notes outstanding at December 31, 1996.
In addition to these funding sources, the Bank has $200.0 million of 7.25%
Subordinated Notes outstanding at December 31, 1997 and 1996, which mature in
September 2002. These Subordinated Notes qualify as regulatory capital under the
Comptroller of the Currency's guidelines and enhance the Bank's regulatory
capital level, while also providing a long-term source of funds.
In January 1997, the Bank extended its $2.0 billion committed syndicated
revolving credit facility through February 2001. Advances are subject to
covenants and conditions customary in a transaction
31
<PAGE> 34
MBNA CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
FUNDING SOURCES
(dollars in millions)
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
<S> <C> <C>
Direct deposits $9,904.0 $7,751.0
Borrowed funds $5,671.5 $4,643.7
Other deposits $3,009.2 $2,400.7
Equity $1,970.1 $1,704.3
</TABLE>
of this kind. These conditions include requirements for tangible net worth of at
least $760.0 million, increased by 40% of the Bank's net income earned after
September 30, 1996, and managed loan receivables 90 days or more past due plus
nonaccrual receivables not to exceed 6% of managed credit card receivables.
Should managed credit card losses equal or exceed 5% for a period of four
consecutive quarters, a ratio of qualifying loan receivables to outstanding
borrowings under the facility of at least 115% is required. The facility may be
used for general corporate purposes and was not drawn upon as of December 31,
1997.
MBNA International Bank Limited ("MBNA International") has pound sterling 34.0
million (approximately $55.8 million at December 31, 1997) of Subordinated
Guaranteed Floating-Rate Notes outstanding which also provide a long-term source
of funds.
In addition, MBNA International has a pound sterling 300.0 million
(approximately $492.8 million at December 31, 1997) multi-currency committed
syndicated revolving credit facility which expires in October 2000. MBNA
International may take advances under the facility subject to certain
conditions, including requirements for tangible net worth, outstanding loan
receivables, and account delinquencies. The facility may be used for general
corporate purposes and had pound sterling 100.0 million (approximately $164.3
million) and IR pound sterling 20.0 million (approximately $28.4 million)
outstanding at December 31, 1997. These borrowings, which are included as part
of short-term borrowings in the consolidated statements of financial condition,
matured and were paid in January 1998.
INVESTMENT SECURITIES AND MONEY MARKET INSTRUMENTS
(dollars in millions)
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
<S> <C> <C>
Investment securities available-for-sale $2,162.5 $1,719.7
Interest-earning time deposits in other banks $1,427.1 $621.6
Federal funds sold and securities purchased
under resale agreements $659.0 $255.0
Investment securities held-to-maturity $346.2 $598.3
</TABLE>
The Corporation also has $2.5 billion in investment securities and $2.1 billion
in money market instruments at December 31, 1997, compared to $2.3 billion in
investment securities and $876.6 million in money market instruments at December
31, 1996. The investment securities primarily consist of high-quality, AAA-rated
securities, most of which can be used as collateral under repurchase agreements.
Of the investment securities at December 31, 1997, $1.2 billion is anticipated
to mature within 12 months. The Corporation has increased its investment
securities available-for-sale portfolio, which consists primarily of short-term
and variable-rate securities, to $2.2 billion at December 31, 1997, from $1.7
billion at December 31, 1996. These investment securities, along with the money
market instruments, provide increased liquidity and flexibility to support the
Corporation's funding requirements.
INTEREST RATE SENSITIVITY
Interest rate sensitivity refers to the change in earnings resulting from
fluctuations in interest rates, variability in spread relationships, and the
differences in repricing intervals between assets and liabilities. The
management of interest rate sensitivity attempts to maximize earnings by
minimizing any negative impacts of changing market rates, asset and liability
mix, and prepayment trends.
Table 12 presents the Corporation's interest rate risk using the static gap
methodology. This method reports the difference between interest rate sensitive
assets and liabilities at a specific point in time. Management uses the static
gap methodology to identify the Corporation's directional interest rate risk.
Interest rate sensitive assets and liabilities are reported based on estimated
and contractual repricings. Fixed-rate credit card loans, which can be repriced
by the Corporation at any time by giving notice to the Customer, are placed in
the table using a seventeen-month repricing schedule.
In addition to its on-balance-sheet activities, interest rate risk includes the
interest rate sensitivity of securitization income from securitized loans and
the impact of off-balance-sheet financial instruments. Off-balance-sheet
financial instruments include interest rate swap agreements, forward exchange
contracts, and foreign exchange swap agreements. The Corporation does not have
any other off-balance-sheet financial instruments. The Corporation has used
interest rate swap agreements to change fixed-rate funding sources to
floating-rate funding sources to better match the rate sensitivity of the
Corporation's assets. For this reason, Table 12 includes a management adjustment
to quantify and capture the full impact of interest rate risk on the
Corporation's earnings. Results of the gap analysis show that, within one year,
the Corporation's liabilities reprice faster than its assets, indicating an
earnings risk to rising interest rates.
32
<PAGE> 35
MBNA CORPORATION AND SUBSIDIARIES
TABLE 12: INTEREST RATE SENSITIVITY SCHEDULE
(dollars in thousands)
<TABLE>
<CAPTION>
DECEMBER 31, 1997 SUBJECT TO REPRICING
Within 1 Year 1-5 Years After 5 Years Total
------------- ------------- -------------- ------------
<S> <C> <C> <C> <C>
INTEREST-EARNING ASSETS
Interest-earning time deposits in other banks:
Domestic ........................................................ $ 2,687 $ - $ - $ 2,687
Foreign ......................................................... 1,424,378 - - 1,424,378
------------ ------------ ------------ ------------
Total interest-earning time deposits in other banks ........ 1,427,065 - - 1,427,065
Federal funds sold and securities purchased under resale
agreements ....................................................... 659,000 - - 659,000
Investment securities (a):
Available-for-sale .............................................. 1,846,451 316,013 - 2,162,464
Held-to-maturity ................................................ 209,498 27,279 109,403 346,180
Loans held for securitization:
Domestic ........................................................ 2,297,400 - - 2,297,400
Foreign ......................................................... 602,798 - - 602,798
------------ ------------ ------------ ------------
Total loans held for securitization ........................ 2,900,198 - - 2,900,198
Loans:
Domestic:
Credit card ................................................... 4,531,266 944,667 - 5,475,933
Other consumer ................................................ 1,378,584 463,588 345,044 2,187,216
------------ ------------ ------------ ------------
Total domestic loans ....................................... 5,909,850 1,408,255 345,044 7,663,149
Foreign: ........................................................ 257,987 340,740 - 598,727
------------ ------------ ------------ ------------
Total loans ................................................ 6,167,837 1,748,995 345,044 8,261,876
------------ ------------ ------------ ------------
Total interest-earning assets .............................. 13,210,049 2,092,287 454,447 15,756,783
INTEREST-BEARING LIABILITIES
Interest-bearing deposits:
Domestic:
Time deposits ................................................. 4,500,261 4,379,955 5,796 8,886,012
Money market deposit accounts ................................. 3,122,385 - - 3,122,385
Interest-bearing transaction accounts ......................... 31,669 - - 31,669
Savings accounts .............................................. 12,318 - - 12,318
------------ ------------ ------------ ------------
Total domestic interest-bearing deposits ................... 7,666,633 4,379,955 5,796 12,052,384
Foreign:
Time deposits ................................................. 548,909 250 - 549,159
------------ ------------ ------------ ------------
Total interest-bearing deposits ............................ 8,215,542 4,380,205 5,796 12,601,543
Borrowed funds:
Short-term borrowings ........................................... 192,623 - - 192,623
Long-term debt and bank notes:
Domestic ...................................................... 3,302,908 1,363,581 590,596 5,257,085
Foreign ....................................................... 76,095 145,737 - 221,832
------------ ------------ ------------ ------------
Total long-term debt and bank notes ........................ 3,379,003 1,509,318 590,596 5,478,917
------------ ------------ ------------ ------------
Total borrowed funds ....................................... 3,571,626 1,509,318 590,596 5,671,540
------------ ------------ ------------ ------------
Total interest-bearing liabilities ......................... 11,787,168 5,889,523 596,392 18,273,083
------------ ------------ ------------ ------------
Gap before managed adjustments .................................... 1,422,881 (3,797,236) (141,945) (2,516,300)
Managed adjustments (b) ........................................... (5,842,678) 7,136,319 - 1,293,641
------------ ------------ ------------ ------------
Gap after managed adjustments ..................................... $ (4,419,797) $ 3,339,083 $ (141,945) $ (1,222,659)
============ ============ ============ ============
Cumulative gap after managed adjustments .......................... $ (4,419,797) $ (1,080,714) $ (1,222,659)
============ ============ ============
Cumulative gap after managed adjustments
as a percent of total managed assets (c) ......................... (7.43)% (1.82)% (2.05)%
</TABLE>
(a) Investment securities are presented using estimated maturities.
(b) Managed adjustments reflect the impact interest rates have on securitized
loans and off-balance-sheet financial instruments.
(c) Total managed assets at December 31, 1997, were $59,523,299. MBNA
Corporation and Subsidiaries
Although the static gap methodology is widely accepted for its simplicity in
identifying interest rate risk, it ignores many changes that can occur such as
repricing strategies, market spread adjustments, and anticipated hedging
transactions. For these reasons, the Corporation analyzes its level of interest
rate risk using several analytical techniques including simulation analysis. All
of the analytical techniques used to measure interest rate risk include the
impact of on-balance-sheet and off-balance-sheet financial instruments.
33
<PAGE> 36
MBNA CORPORATION AND SUBSIDIARIES
Key assumptions in the Corporation's simulation analysis include cash flows and
maturities of interest rate sensitive instruments; changes in market conditions;
loan volumes and pricing; consumer preferences; fixed-rate credit card
repricings as part of the Corporation's normal planned business strategy; and
management's capital plans. Also included in the analysis are various actions
which the Corporation would undertake to minimize the impact of adverse
movements in interest rates. The Corporation has the contractual right to
reprice fixed-rate credit card loans at any time, by giving notice to the
Customer. Accordingly, a key assumption in the simulation analysis is the
repricing of fixed-rate credit card loans in response to an upward movement in
interest rates, with a lag of approximately 45 days between interest rate
movements and fixed-rate credit card loan repricings. The Corporation has
repriced its fixed-rate credit card loans on numerous occasions in the past, and
will continue to do so in the future in response to changes in interest rates,
market conditions, or other factors.
Based on the simulation analysis at December 31, 1997, the Corporation could
experience a decrease in projected 1998 net income of approximately $39 million
if interest rates increased from current levels by 100 basis points over 12
months.
These assumptions are inherently uncertain and as a result, the analysis cannot
precisely predict the impact of higher interest rates on net income. Actual
results would differ from simulated results due to timing, magnitude, and
frequency of interest rate changes, changes in market conditions, and management
strategies to offset its potential exposure, among other factors.
FOREIGN CURRENCY EXCHANGE RATE SENSITIVITY
Foreign currency exchange rate risk refers to the potential changes in current
and future earnings or capital arising from movements in foreign exchange rates
and occurs as a result of cross-currency investment and funding activities. The
Corporation's foreign currency exchange rate risk is limited to the unhedged
position of the Corporation's net investment in its foreign subsidiaries. The
Corporation uses forward exchange contracts and foreign exchange swap agreements
to reduce its exposure to foreign currency exchange rate risk. Management
reviews the foreign currency exchange rate risk of the Corporation on a routine
basis. During this review, management considers the net impact to stockholders'
equity under various foreign exchange rate scenarios. At December 31, 1997, the
Corporation would expect a decrease in stockholders' equity, net of tax, of
approximately $11 million as a result of a 10% depreciation of the unhedged
Pound Sterling to the U.S. dollar position.
SECURITIZATION
Securitization of the Bank's loan receivables continues to be a major funding
alternative for the Corporation. Securitization 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 sold by the trust to investors (Investor
Certificateholders), generally through a public offering, while the Seller's
interest 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 months to 168
months, the trust makes no principal payments to the Investor
Certificateholders. The trust uses payments received on the accounts to pay
interest to the Investor Certificateholders and to purchase new loan receivables
generated by the accounts, in accordance with the terms of the transaction, 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 loan receivables increase by the amount of any
new purchases or cash advance activity on the accounts.
During 1997, the Bank securitized loan receivables totaling $13.2 billion
through both public and private markets, including a securitization of pound
sterling 250.0 million by MBNA International. In 1996, the Bank securitized a
total of $11.3 billion of its loan receivables, including two securitizations
totaling pound sterling 500.0 million by MBNA International. These
securitizations bring the total amount of outstanding securitized loans to $38.2
billion or 77.4% of managed loans as of December 31, 1997, compared to $28.5
billion or 73.8% at December 31, 1996. The bank increased its securitization of
other consumer loans through private multi-seller commercial paper conduits to
$2.4 billion in 1997, from $1.4 billion in 1996, and $586.5 million in 1995.
The Corporation's securitized loan distribution is shown in Table 13.
TABLE 13: SECURITIZED LOAN DISTRIBUTION
(dollars in thousands)
<TABLE>
<CAPTION>
DECEMBER 31, 1997 1996 1995
<S> <C> <C> <C>
Securitized loans:
Credit card ................ $35,775,670 $27,082,046 $17,989,333
Other consumer ............. 2,442,116 1,412,435 586,453
----------- ----------- -----------
Total securitized loans .. $38,217,786 $28,494,481 $18,575,786
=========== =========== ===========
</TABLE>
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 14 compares the average annualized yield for
the three-month period ended December 31, 1997, to the minimum
34
<PAGE> 37
MBNA CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
TABLE 14: YIELDS ON SECURITIZED TRANSACTIONS (a)
THREE-MONTH AVERAGE
Yield in
Annualized Minimum Excess of
Yield Yield Minimum
- --------------------------------------------------------------------------
<S> <C> <C> <C>
MasterTrust 92-2 (b) ................ 25.37% 14.82% 10.55%
MasterTrust 92-3 (b) ................ 21.37 13.88 7.49
MasterTrust 93-1 (b) ................ 20.56 13.63 6.93
MasterTrust 93-3 .................... 18.69 12.26 6.43
MasterTrust 93-4 .................... 18.69 13.08 5.61
MasterTrust 94-1 .................... 18.69 12.97 5.72
MasterTrust 94-2 .................... 18.69 13.04 5.65
MasterTrust II 94-A ................. 18.01 12.92 5.09
MasterTrust II 94-B ................. 18.01 12.89 5.12
MasterTrust II 94-C ................. 18.01 13.00 5.01
MasterTrust II 94-E ................. 18.01 12.78 5.23
Gold Reserve ........................ 17.86 14.03 3.83
MasterTrust II 95-A ................. 18.01 12.97 5.04
MasterTrust II 95-B ................. 18.01 12.85 5.16
MasterTrust II 95-C ................. 18.01 12.90 5.11
MasterTrust II 95-D ................. 18.01 12.76 5.25
MasterTrust II 95-E ................. 18.01 12.90 5.11
Cards No. 1 ......................... 21.14 12.38 8.76
MasterTrust II 95-F ................. 18.01 13.34 4.67
MasterTrust II 95-G ................. 18.01 12.90 5.11
MasterTrust II 95-H ................. 18.01 12.75 5.26
MasterTrust II 95-I ................. 18.01 12.84 5.17
MasterTrust II 95-J ................. 18.01 12.92 5.09
MasterTrust II 96-A ................. 18.01 12.88 5.13
MasterTrust II 96-B ................. 18.01 12.95 5.06
MasterTrust II 96-C ................. 18.01 12.82 5.19
MasterTrust II 96-D ................. 18.01 12.83 5.18
Cards No. 2 ......................... 21.14 12.33 8.81
MasterTrust II 96-E ................. 18.01 12.86 5.15
MasterTrust II 96-F ................. 18.01 12.76 5.25
MasterTrust II 96-G ................. 18.01 12.88 5.13
MasterTrust II 96-H ................. 18.04 12.85 5.19
MasterTrust II 96-I ................. 18.04 13.01 5.03
MasterTrust II 96-J ................. 18.01 12.84 5.17
MasterTrust II 96-K ................. 18.01 12.83 5.18
MasterTrust II 96-L ................. 18.04 12.79 5.25
MasterTrust II 96-M ................. 18.04 12.90 5.14
Cards No. 3 ......................... 21.14 12.42 8.72
MasterTrust II 97-A ................. 18.04 12.69 5.35
MasterTrust II 97-B ................. 18.01 12.88 5.13
MasterTrust II 97-C ................. 18.01 12.81 5.20
MasterTrust II 97-D ................. 18.04 12.84 5.20
MasterTrust II 97-E ................. 18.04 12.76 5.28
MasterTrust II 97-F ................. 18.01 12.75 5.26
MasterTrust II 97-G ................. 18.01 12.85 5.16
Cards No. 4 ......................... 21.14 12.75 8.39
MasterTrust II 97-H ................. 18.06 12.86 5.20
MasterTrust II 97-I ................. 18.01 12.79 5.22
MasterTrust II 97-J ................. 17.84 13.11 4.73
Consumer Loan MasterTrust 97-1(c) ... 16.20 12.24 3.96
</TABLE>
(a) MasterTrust II 97-K issued on October 22, 1997, MasterTrust II 97-M issued
on November 6, 1997, MasterTrust II 97-L issued on November 13, 1997,
MasterTrust II 97-N issued on December 9, 1997, and MasterTrust II97-O
issued on December 23, 1997, are excluded from the yields presented above
as a result of their recency.
(b) Represents a transaction that has entered its scheduled controlled
amortization period.
(c) Yields are provided for informational purposes only. Distribution to
Investor Certificateholders may begin sooner if the credit enhancement
amount falls below a predetermined contractual level.
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.
In addition, $3.6 billion of previously securitized loans in existing trusts
amortized back into the Bank's loan portfolio during 1997, compared to $1.6
billion in 1996. After the revolving period, new charges and cash advances are
for the account of the Bank, which increases the Corporation's on-balance-sheet
assets. Table 15 presents the amounts, at December 31, 1997, of investor
principal (face value) in securitized receivables scheduled to amortize into the
Bank's loan portfolio in future years. The amortization amounts are based upon
estimated amortization periods which are subject to change.
TABLE 15: AMORTIZATIONS OF INVESTOR PRINCIPAL (FACE VALUE)
(dollars in thousands)
<TABLE>
<S> <C>
1998 ............................................ $ 3,068,494
1999 ............................................ 6,907,585
2000 ............................................ 5,584,383
2001 ............................................ 5,764,676
2002 ............................................ 4,588,169
Thereafter ...................................... 11,653,275
-----------
Total amortizations of investor principal ..... 37,566,582
Accrued interest included in securitized loans .. 651,204
-----------
Total securitized loans ....................... $38,217,786
===========
</TABLE>
35
<PAGE> 38
MBNA CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL FINANCIAL INFORMATION
(unaudited)
The following supplemental financial 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)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997 1996 1995
<S> <C> <C> <C>
AT YEAR END:
Loans held for securitization ............. $ 2,900,198 $ 2,469,974 $ 3,168,427
Loan portfolio ............................ 8,261,876 7,659,078 4,967,491
Securitized loans ......................... 38,217,786 28,494,481 18,575,786
----------- ----------- -----------
Total managed loans .................... $49,379,860 $38,623,533 $26,711,704
=========== =========== ===========
Total managed interest-earning assets .. $53,974,569 $41,818,197 $29,381,106
=========== =========== ===========
Total managed assets ................... $59,523,299 $45,529,823 $31,804,675
=========== =========== ===========
AVERAGE:
Loans held for securitization ............. $ 2,875,212 $ 2,529,484 $ 2,269,362
Loan portfolio ............................ 7,563,301 6,174,095 4,792,536
Securitized loans ......................... 32,746,963 22,514,014 15,440,499
----------- ----------- -----------
Total managed loans .................... $43,185,476 $31,217,593 $22,502,397
=========== =========== ===========
Total managed interest-earning assets .. $47,037,343 $34,144,944 $24,954,180
=========== =========== ===========
Total managed assets ................... $51,872,245 $37,085,302 $26,866,220
=========== =========== ===========
MANAGED RATIOS:
Delinquency ............................... 4.59% 4.28% 3.70%
Net credit losses ......................... 3.97 3.35 2.74
Net interest margin (on an FTE basis) ..... 7.50 7.62 7.42
</TABLE>
OTHER OPERATING INCOME
ENDING LOANS
(managed)
<TABLE>
<CAPTION>
(billions)
<S> <C>
95 26.7
96 38.6
97 49.4
</TABLE>
DELINQUENCY
(managed)
<TABLE>
<S> <C>
95 3.70%
96 4.28%
97 4.59%
</TABLE>
NET CREDIT LOSSES
(managed)
<TABLE>
<S> <C>
95 2.74%
96 3.35%
97 3.97%
</TABLE>
NET INTEREST MARGIN
(managed)
<TABLE>
<S> <C>
95 7.42%
96 7.62%
97 7.50%
</TABLE>
36
<PAGE> 39
MBNA CORPORATION AND SUBSIDIARIES
MANAGEMENT'S REPORT ON CONSOLIDATED FINANCIAL STATEMENTS AND INTERNAL CONTROL
The accompanying consolidated financial statements were prepared by
management, who are responsible for the integrity and objectivity of
the information presented, including amounts that must necessarily be
based on judgments and estimates. The consolidated financial
statements were prepared in conformity with generally accepted
accounting principles, and in situations where acceptable alternative
accounting principles exist, management selected the method that was
appropriate in the circumstance. Financial information appearing
throughout this Annual Report to Stockholders is consistent with the
consolidated financial statements.
Management depends upon MBNA Corporation's systems of internal control
in meeting its responsibilities for reliable consolidated financial
statements. In management's opinion, these systems provide reasonable
assurance that assets are safeguarded and that transactions are
properly recorded and executed in accordance with management's
authorizations. Judgments are required to assess and balance the
relative cost and expected benefits of these controls. As an integral
part of the systems of internal control, the Corporation maintains a
professional staff of internal auditors who conduct operational and
special audits and coordinate audit coverage with the independent
auditors.
The consolidated financial statements have been audited by the
Corporation's independent auditors, Ernst & Young LLP, whose
independent professional opinion appears separately.
The Audit Committee of the Board of Directors, composed solely of
outside directors, meets periodically with the internal auditors, the
independent auditors, and management to review the work of each and
ensure that each is properly discharging its responsibilities. The
independent auditors have free access to the Committee to discuss the
results of their audit work and their evaluations of the adequacy of
internal controls and the quality of financial reporting.
/s/ ALFRED LERNER /s/ CHARLES M. CAWLEY
Alfred Lerner Charles M. Cawley
Chairman and President
Chief Executive Officer MBNA Corporation
MBNA Corporation
/s/ M. SCOT KAUFMAN /s/ KENNETH F. BOEHL
M. Scot Kaufman Kenneth F. Boehl
Chief Financial Officer General Auditor
MBNA Corporation MBNA Corporation
37
<PAGE> 40
MBNA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31, 1997 1996
- ------------------------------------------------------------------------------------------------------ --------- --------
<S> <C> <C>
ASSETS
Cash and due from banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 263,064 $ 225,063
Interest-earning time deposits in other banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,427,065 621,614
Federal funds sold and securities purchased under resale agreements . . . . . . . . . . . . . . . . . . 659,000 255,000
Investment securities:
Available-for-sale (at market value, amortized cost of $2,160,869 and $1,718,643 at December 31, 1997
and 1996, respectively) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,162,464 1,719,730
Held-to-maturity (market value of $341,868 and $592,208 at December 31, 1997
and 1996, respectively) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 346,180 598,320
Loans held for securitization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,900,198 2,469,974
Loans:
Credit card . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,830,221 5,722,299
Other consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,431,655 1,936,779
------------ -----------
Total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,261,876 7,659,078
Reserve for possible credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (162,476) (118,427)
------------ -----------
Net loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,099,400 7,540,651
Premises and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,579,058 1,047,183
Accrued income receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146,964 98,160
Accounts receivable from securitizations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,835,831 1,777,323
Prepaid expenses and deferred charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 212,563 204,139
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 673,726 478,185
------------ -----------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 21,305,513 $17,035,342
============ ===========
LIABILITIES
Deposits:
Time deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,435,171 $ 7,159,440
Money market deposit accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,122,385 2,719,545
Noninterest-bearing demand deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 311,670 233,885
Interest-bearing transaction accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,669 27,995
Savings accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,318 10,821
------------ -----------
Total deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,913,213 10,151,686
Short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 192,623 693,387
Long-term debt and bank notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,478,917 3,950,358
Accrued interest payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137,215 107,187
Accrued expenses and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 613,495 428,416
------------ -----------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,335,463 15,331,034
STOCKHOLDERS' EQUITY
Preferred stock ($.01 par value, 20,000,000 shares authorized, 8,573,882 shares and 12,000,000 shares
issued and outstanding at December 31, 1997 and 1996, respectively) . . . . . . . . . . . . . . . . . 86 120
Common stock ($.01 par value, 700,000,000 shares authorized, 501,187,500 shares
issued and outstanding at December 31, 1997 and 1996, respectively) . . . . . . . . . . . . . . . . . 5,012 5,012
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 424,377 602,231
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,540,575 1,096,945
------------ -----------
Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,970,050 1,704,308
------------ -----------
Total liabilities and stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 21,305,513 $17,035,342
============ ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
38
<PAGE> 41
MBNA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997 1996 1995
- --------------------------------------------------------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
INTEREST INCOME
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,076,393 $ 861,305 $ 675,600
Investment securities:
Taxable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141,429 123,054 119,322
Tax-exempt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,511 3,325 3,325
Time deposits in other banks . . . . . . . . . . . . . . . . . . . . . . . 49,073 29,528 15,832
Federal funds sold and securities purchased under resale agreements . . . . 23,962 9,935 7,727
Loans held for securitization . . . . . . . . . . . . . . . . . . . . . . . 416,645 356,120 319,009
------------ ------------ ------------
Total interest income . . . . . . . . . . . . . . . . . . . . . . . . 1,711,013 1,383,267 1,140,815
INTEREST EXPENSE
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 693,920 527,885 438,157
Short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,784 18,497 12,095
Long-term debt and bank notes . . . . . . . . . . . . . . . . . . . . . . . 304,919 196,408 146,337
------------ ------------ ------------
Total interest expense . . . . . . . . . . . . . . . . . . . . . . . . 1,018,623 742,790 596,589
------------ ------------ ------------
NET INTEREST INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . 692,390 640,477 544,226
Provision for possible credit losses . . . . . . . . . . . . . . . . . . . 260,040 178,224 138,176
------------ ------------ ------------
Net interest income after provision for possible credit losses . . . . . . 432,350 462,253 406,050
OTHER OPERATING INCOME
Interchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114,598 88,191 88,051
Credit card fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103,144 102,579 82,293
Securitization income . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,506,817 1,649,337 1,196,781
Gain on investment securities . . . . . . . . . . . . . . . . . . . . . . . - - 39
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88,320 55,816 57,454
------------ ------------ ------------
Total other operating income . . . . . . . . . . . . . . . . . . . . . 2,812,879 1,895,923 1,424,618
OTHER OPERATING EXPENSE
Salaries and employee benefits . . . . . . . . . . . . . . . . . . . . . . 990,039 732,971 552,538
Occupancy expense of premises . . . . . . . . . . . . . . . . . . . . . . . 85,552 66,536 44,915
Furniture and equipment expense . . . . . . . . . . . . . . . . . . . . . . 150,410 97,785 88,221
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 997,120 675,259 560,393
------------ ------------ ------------
Total other operating expense . . . . . . . . . . . . . . . . . . . . 2,223,121 1,572,551 1,246,067
------------ ------------ ------------
INCOME BEFORE INCOME TAXES AND SPECIAL MARKETING PROGRAM . . . . . . . . . 1,022,108 785,625 584,601
Special marketing program . . . . . . . . . . . . . . . . . . . . . . . . . - 54,331 -
------------ ------------ ------------
INCOME BEFORE INCOME TAXES . . . . . . . . . . . . . . . . . . . . . . . . 1,022,108 731,294 584,601
Applicable income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 399,608 289,592 231,502
Tax benefit from Customer-based intangible assets . . . . . . . . . . . . . - (32,793) -
------------ ------------ ------------
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 622,500 $ 474,495 $ 353,099
============ ============ ============
EARNINGS PER COMMON SHARE . . . . . . . . . . . . . . . . . . . . . . . . . $ 1.20 $ .92 $ .70
EARNINGS PER COMMON SHARE--ASSUMING DILUTION . . . . . . . . . . . . . . . 1.15 .89 .68
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
39
<PAGE> 42
MBNA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
OUTSTANDING SHARES
Additional
Preferred Common Preferred Common Paid-in Retained
(000) (000) Stock Stock Capital Earnings
----- ----- ----- ----- ------- --------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1994 . . . . . . . . . . . . . - 501,188 $ - $ 5,012 $ 371,561 $ 543,005
Net income . . . . . . . . . . . . . . . . . . . . . - - - - - 353,099
Cash dividends:
Common--$.25 per share . . . . . . . . . . . . . . - - - - - (124,769)
Preferred . . . . . . . . . . . . . . . . . . . . - - - - - (1,469)
Exercise of stock options and other awards . . . . . - 4,912 - 49 22,160 -
Acquisition and retirement of common stock . . . . . - (4,912) - (49) (49,780) -
Issuance of preferred stock, net of issuance costs . 6,000 - 60 - 145,010 -
Foreign currency translation, net of tax
(accumulated amount of $391 at December 31, 1995) . - - - - - 148
Net unrealized gains on investment securities
available-for-sale, net of tax (accumulated amount
of $189 at December 31, 1995) . . . . . . . . . . . - - - - - 1,021
-------- --------- ------ ------- --------- ----------
BALANCE, DECEMBER 31, 1995 . . . . . . . . . . . . . 6,000 501,188 60 5,012 488,951 771,035
Net income . . . . . . . . . . . . . . . . . . . . . - - - - - 474,495
Cash dividends:
Common--$.28 per share . . . . . . . . . . . . . . - - - - - (142,583)
Preferred . . . . . . . . . . . . . . . . . . . . - - - - - (14,055)
Exercise of stock options and other awards . . . . . - 4,939 - 49 38,997 -
Acquisition and retirement of common stock . . . . . - (4,939) - (49) (71,864) -
Issuance of preferred stock, net of issuance costs . 6,000 - 60 - 146,147 -
Foreign currency translation, net of tax
(accumulated amount of $7,910 at December 31, 1996) - - - - - 7,519
Net unrealized gains on investment securities
available-for-sale, net of tax (accumulated amount
of $723 at December 31, 1996) . . . . . . . . . . . - - - - - 534
-------- --------- ------- --------- ----------- ------------
BALANCE, DECEMBER 31, 1996 . . . . . . . . . . . . . 12,000 501,188 120 5,012 602,231 1,096,945
Net income . . . . . . . . . . . . . . . . . . . . . - - - - - 622,500
Cash dividends:
Common--$.32 per share . . . . . . . . . . . . . . - - - - - (160,417)
Preferred . . . . . . . . . . . . . . . . . . . . - - - - - (16,394)
Exercise of stock options and other awards . . . . . - 6,309 - 63 65,148 -
Acquisition and retirement of common stock . . . . . - (6,309) - (63) (157,383) -
Acquisition and retirement of preferred stock . . . . (3,426) - (34) - (85,619) (3,133)
Foreign currency translation, net of tax
(accumulated amount of $2,924 at December 31, 1997) - - - - - (4,986)
Net unrealized gains on investment securities
available-for-sale and other financial instruments,
net of tax (accumulated amount of $6,783
at December 31, 1997) . . . . . . . . . . . . . . . - - - - - 6,060
-------- --------- ------- --------- ------------ ------------
BALANCE, DECEMBER 31, 1997 . . . . . . . . . . . . . 8,574 501,188 $ 86 $ 5,012 $ 424,377 $ 1,540,575
======== ========= ======= ========= ============ ============
</TABLE>
<TABLE>
<CAPTION>
Total
Stockholders'
Equity
------
<S> <C>
BALANCE, DECEMBER 31, 1994 . . . . . . . . . . . . . $ 919,578
Net income . . . . . . . . . . . . . . . . . . . . . 353,099
Cash dividends:
Common--$.25 per share . . . . . . . . . . . . . . (124,769)
Preferred . . . . . . . . . . . . . . . . . . . . (1,469)
Exercise of stock options and other awards . . . . . 22,209
Acquisition and retirement of common stock . . . . . (49,829)
Issuance of preferred stock, net of issuance costs . 145,070
Foreign currency translation, net of tax
(accumulated amount of $391 at December 31, 1995) . 148
Net unrealized gains on investment securities
available-for-sale, net of tax (accumulated amount
of $189 at December 31, 1995) . . . . . . . . . . . 1,021
------------
BALANCE, DECEMBER 31, 1995 . . . . . . . . . . . . . 1,265,058
Net income . . . . . . . . . . . . . . . . . . . . . 474,495
Cash dividends:
Common--$.28 per share . . . . . . . . . . . . . . (142,583)
Preferred . . . . . . . . . . . . . . . . . . . . (14,055)
Exercise of stock options and other awards . . . . . 39,046
Acquisition and retirement of common stock . . . . . (71,913)
Issuance of preferred stock, net of issuance costs . 146,207
Foreign currency translation, net of tax
(accumulated amount of $7,910 at December 31, 1996) 7,519
Net unrealized gains on investment securities
available-for-sale, net of tax (accumulated amount
of $723 at December 31, 1996) . . . . . . . . . . . 534
------------
BALANCE, DECEMBER 31, 1996 . . . . . . . . . . . . . 1,704,308
Net income . . . . . . . . . . . . . . . . . . . . . 622,500
Cash dividends:
Common--$.32 per share . . . . . . . . . . . . . . (160,417)
Preferred . . . . . . . . . . . . . . . . . . . . (16,394)
Exercise of stock options and other awards . . . . . 65,211
Acquisition and retirement of common stock . . . . . (157,446)
Acquisition and retirement of preferred stock . . . . (88,786)
Foreign currency translation, net of tax
(accumulated amount of $2,924 at December 31, 1997) (4,986)
Net unrealized gains on investment securities
available-for-sale and other financial instruments,
net of tax (accumulated amount of $6,783
at December 31, 1997) . . . . . . . . . . . . . . . 6,060
------------
BALANCE, DECEMBER 31, 1997 . . . . . . . . . . . . . $ 1,970,050
============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
40
<PAGE> 43
MBNA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997 1996 1995
- -------------------------------------------------------------------------------------- -------- --------- ---------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 622,500 $ 474,495 $ 353,099
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Provision for possible credit losses . . . . . . . . . . . . . . . . . . . . . . . 260,040 178,224 138,176
Depreciation, amortization, and accretion . . . . . . . . . . . . . . . . . . . . 145,957 96,602 76,584
Gain on investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . - - (39)
Provision (benefit) for deferred income taxes . . . . . . . . . . . . . . . . . . 41,349 (32,006) 9,633
Increase in accrued income receivable . . . . . . . . . . . . . . . . . . . . . . (48,804) (4,524) (28,560)
Increase in accounts receivable from securitizations . . . . . . . . . . . . . . . (1,058,508) (825,755) (218,850)
Increase in accrued interest payable . . . . . . . . . . . . . . . . . . . . . . . 30,028 13,787 24,797
Decrease (increase) in other operating activities . . . . . . . . . . . . . . . . 130,103 63,477 (14,167)
----------- --------- ----------
Net cash provided by (used in) operating activities . . . . . . . . . . . . . . 122,665 (35,700) 340,673
INVESTING ACTIVITIES
Net increase in money market instruments . . . . . . . . . . . . . . . . . . . . . . (1,209,451) (303,003) (306,036)
Proceeds from maturities of investment securities available-for-sale . . . . . . . . 8,546,878 4,450,709 2,852,934
Purchases of investment securities available-for-sale . . . . . . . . . . . . . . . . (8,947,215) (5,234,815) (3,303,589)
Proceeds from sale of investment securities available-for-sale . . . . . . . . . . . - - 35,249
Proceeds from maturities of investment securities held-to-maturity . . . . . . . . . 305,206 604,869 357,870
Purchases of investment securities held-to-maturity . . . . . . . . . . . . . . . . . (53,269) (19,302) (18,657)
Proceeds from securitization of loans . . . . . . . . . . . . . . . . . . . . . . . . 13,172,133 11,223,917 6,180,743
Portfolio acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,272,304) (1,475,498) (77,324)
Amortization of securitized loans . . . . . . . . . . . . . . . . . . . . . . . . . . (3,637,385) (1,608,334) (775,000)
Net loan originations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (9,728,725) (10,540,920) (7,921,653)
Net purchases of premises and equipment . . . . . . . . . . . . . . . . . . . . . . . (660,046) (303,173) (344,490)
----------- --------- ----------
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . (3,484,178) (3,205,550) (3,319,953)
FINANCING ACTIVITIES
Net increase in money market deposit accounts, noninterest-bearing
demand deposits, interest-bearing transaction accounts, and savings accounts . . . 485,796 530,931 746,110
Net increase in time deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,275,731 1,011,841 1,230,315
Net (decrease) increase in short-term borrowings . . . . . . . . . . . . . . . . . . (500,764) 403,844 179,043
Proceeds from issuance of long-term debt and bank notes . . . . . . . . . . . . . . . 1,803,231 1,444,985 1,092,395
Maturity of long-term debt and bank notes . . . . . . . . . . . . . . . . . . . . . (312,770) (165,192) (123,000)
Proceeds from issuance of preferred stock . . . . . . . . . . . . . . . . . . . . . . - 146,207 145,070
Acquisition and retirement of preferred stock . . . . . . . . . . . . . . . . . . . . (52,483) - -
Proceeds from exercise of stock options and other awards . . . . . . . . . . . . . . 31,948 22,869 12,780
Acquisition and retirement of common stock . . . . . . . . . . . . . . . . . . . . . (157,446) (71,913) (49,829)
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (173,729) (149,115) (120,312)
----------- --------- ----------
Net cash provided by financing activities . . . . . . . . . . . . . . . . . . . 3,399,514 3,174,457 3,112,572
----------- --------- ----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . . . . . . . . 38,001 (66,793) 133,292
Cash and cash equivalents at beginning of year . . . . . . . . . . . . . . . . . . . 225,063 291,856 158,564
----------- --------- ----------
Cash and cash equivalents at end of year . . . . . . . . . . . . . . . . . . . . . . $ 263,064 $ 225,063 $ 291,856
=========== ========= ==========
SUPPLEMENTAL DISCLOSURES:
Interest expense paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 988,675 $ 728,091 $ 572,232
=========== ========= ==========
Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 224,840 $ 248,329 $ 194,364
=========== ========= ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
41
<PAGE> 44
MBNA CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE A: SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed in the
preparation of the consolidated financial statements.
BUSINESS
MBNA Corporation ("the Corporation") is a registered bank holding company,
incorporated under the laws of Maryland. It is the parent company of MBNA
America Bank, N.A., ("the Bank") a national bank. Through the Bank, the
Corporation is the world's largest independent credit card lender. The
Corporation 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 insurance and deposit products.
BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles that require the
Corporation's management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the consolidated financial statements as well as
the reported amount of revenues and expenses during the reporting period.
Actual results could differ from these estimates.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include, after intercompany
elimination, the accounts of all subsidiaries of the Corporation, all of which
are wholly owned. For purposes of comparability, certain prior year amounts
have been reclassified.
FOREIGN ACTIVITIES
The Corporation's foreign activities are primarily performed through the Bank's
two foreign bank subsidiaries, MBNA International Bank Limited ("MBNA
International") and MBNA Canada Bank ("MBNA Canada"). The Bank also has a
foreign branch office in the Grand Cayman Islands.
FOREIGN CURRENCY TRANSLATION AND TRANSACTIONS
The financial statements of the Corporation's foreign subsidiaries have been
translated into U.S. dollars in accordance with generally accepted accounting
principles. Assets and liabilities have been translated using the exchange rate
at year end. Income and expense amounts have been translated using the average
exchange rate for the period in which the transaction took place. The
translation gains and losses resulting from the change in exchange rates have
been reported as a component of stockholders' equity, net of tax. The effect on
the consolidated statements of income from foreign currency transaction gains
and losses is immaterial for all years presented.
INVESTMENT SECURITIES
Investment securities available-for-sale are reported at market value with
unrealized gains and losses, net of tax, included as a component of
stockholders' equity. Investment securities held-to-maturity are reported at
cost (adjusted for amortization of premiums and accretion of discounts). The
Corporation does not have a trading securities portfolio.
Realized gains and losses and other-than-temporary impairments related to debt
and equity securities are determined using the specific identification method
and are reported in other operating income as gains or losses on investment
securities.
LOANS HELD FOR SECURITIZATION
Loans held for securitization are the lesser of loans eligible for
securitization or loans that management intends to securitize within one year.
These loans are carried at the lower of aggregate cost or market value.
INTEREST INCOME ON LOANS
Interest income is recognized based upon the principal amount of loans
outstanding. Interest income is generally recognized until the loan is charged
off. The accrued interest portion of the charged-off loan balance is deducted
from current period interest income, while the principal balance is charged off
against the reserve for possible credit losses.
CREDIT CARD FEES AND COSTS
Credit card fees include annual, late, overlimit, returned check, cash advance,
and other miscellaneous fees. These fees are assessed according to agreements
with Customers. Credit card fees recognized on charged-off accounts are
deducted from credit card fee income.
Annual credit card fees and incremental direct loan origination costs are
deferred and amortized on a straight-line basis over the one-year period to
which the fees pertain. The Corporation does not charge an annual credit card
fee during the first year the account is originated, while incremental direct
loan origination costs are deferred only in the first year. These costs are
included in prepaid expenses and deferred charges. At December 31, 1997 and
1996, the incremental direct loan origination costs deferred were $45.6 million
and $34.7 million, respectively.
RESERVE FOR POSSIBLE CREDIT LOSSES
The Corporation makes certain estimates and assumptions that affect the
determination of the reserve for possible credit losses. The loan portfolio is
regularly reviewed to determine an appropriate 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. Significant changes in these factors could impact
the appropriate reserve for possible credit losses. A provision is charged to
operating expense to maintain the reserve at an appropriate level. The
Corporation's policy is generally to charge off accounts when they become 180
days contractually past due.
CREDIT CARD FRAUD LOSSES
The Corporation incurs credit card fraud losses from unauthorized use of
Customer credit cards and counterfeiting. These fraudulent transactions, when
identified, are reclassified to other assets from loans and reduced to
estimated net recoverable values through a charge to operating expense. The
remaining net recoverable values are generally charged off after four months
(sooner if the collectibility of the account is no longer assured).
42
<PAGE> 45
MBNA CORPORATION AND SUBSIDIARIES
PREPAID EXPENSES AND DEFERRED CHARGES
The principal components of prepaid expenses and deferred charges include
direct loan origination costs, royalties advanced to the Corporation's
affinity groups and financial institutions, issuance costs related to long-term
debt and bank notes, and commissions paid on brokered certificates of deposit.
These costs are deferred and amortized over the period the Corporation receives
a benefit or the remaining term of the liability.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated depreciation and
amortization, computed principally by the straight-line method over the
estimated useful lives of the assets. Maintenance and repairs are included in
operating expense, while the cost of improvements is capitalized.
INTEREST RATE SWAP AGREEMENTS
The Corporation uses interest rate swap agreements to change fixed-rate funding
sources to floating-rate funding sources. The Corporation does not hold or
issue interest rate swap agreements for trading purposes. Interest rate swap
agreements may subject the Corporation to market risk associated with changes
in interest rates, as a result of the change to floating-rate, as well as the
risk of default by a counterparty to the agreement. Under the terms of certain
interest rate swap agreements, each party may be required to pledge certain
assets if the market value of the interest rate swap agreement exceeds an
amount set forth in the agreement or in the event of a change in its credit
rating.
Amounts paid or received related to outstanding interest rate swap contracts
that are used in the asset/liability management process are accrued and
recognized in earnings, as an adjustment to the related interest income or
expense of the hedged asset/liability, over the life of the related agreement.
For interest rate swap agreements to qualify for hedge accounting treatment the
following conditions must be met: the underlying asset/liability being hedged
by the interest rate swap agreement exposes the Corporation to interest rate
risk; the interest rate swap agreement reduces the Corporation's sensitivity to
interest rate risk; and the interest rate swap agreements are designated and
deemed effective in hedging the Corporation's exposure to interest rate risk.
All of the Corporation's interest rate swap agreements qualify for hedge
accounting treatment. Gains and losses associated with the termination of
interest rate swap agreements for identified positions are deferred and
amortized over the remaining lives of the related agreements as an adjustment
to the yield. Unamortized deferred gains and losses on terminated interest rate
swap agreements are included in the underlying assets/liabilities hedged.
FOREIGN EXCHANGE SWAP AGREEMENTS
Foreign exchange swap agreements are agreements to exchange principal amounts
of different currencies, usually at a prevailing exchange rate. The Corporation
enters into foreign exchange swap agreements to reduce its exposure to foreign
currency exchange rate risk primarily related to MBNA International. When the
agreement matures, the underlying principal or notional amount will be
reexchanged at the agreed-upon exchange rate. These foreign exchange swap
agreements are marked to market with any unrealized gains or losses recognized
in other operating income. The Corporation does not hold or issue foreign
exchange swap agreements for trading purposes.
FORWARD EXCHANGE CONTRACTS
Forward exchange contracts are commitments to buy or sell foreign currency at a
future date for a contracted price. The Corporation enters into forward
exchange contracts to reduce its exposure to foreign currency exchange rate
risk primarily related to its foreign bank subsidiaries. The Corporation does
not hold or issue forward exchange contracts for trading purposes. These
financial instruments may expose the Corporation to varying degrees of credit
and market risk and are subject to the same credit and risk limitations as
those recorded on the balance sheet. The premium paid or received for these
contracts is amortized over the life of the agreement to other operating
income. For contracts to effectively hedge foreign currency exchange risk,
they must reduce the Corporation's sensitivity to foreign currency exchange
risk. For contracts that are designated and effective as hedges of its net
investment in the Bank's foreign subsidiaries, gains and losses are deferred
and reported in stockholders' equity, net of tax, as an offset to translation
gains and losses. Contracts, or portions thereof, that are not effective as
hedges are marked to market with any gains or losses recognized in other
operating income. The Corporation only has forward exchange contracts that are
designated and effective as hedges. For any contracts that are terminated
early, the remaining premium or discount is immediately recognized in other
operating income.
The Corporation can also enter into forward exchange contracts to reduce its
exposure to foreign currency exchange rate risk related to its deposits. The
contracts are marked to market with gains or losses recognized in other
operating income.
INCOME TAXES
The Corporation accounts for income taxes using the liability method. Under the
liability method, deferred tax assets and liabilities are determined based on
the differences between the financial statement carrying amounts and the tax
bases of existing assets and liabilities (i.e., temporary differences) and are
measured at the prevailing enacted tax rates that will be in effect when these
differences are settled or realized.
STATEMENTS OF CASH FLOWS
The Corporation has presented the consolidated statements of cash flows using
the indirect method, which involves the reconciliation of net income to net
cash flow from operating activities. In addition, the Corporation nets certain
cash receipts and cash payments relating to deposits placed with and withdrawn
from other financial institutions; time deposits accepted and repayments of
those deposits; and loans made to Customers and principal collections of those
loans. For purposes of the consolidated statements of cash flows, cash and cash
equivalents include cash and due from banks.
43
<PAGE> 46
MBNA CORPORATION AND SUBSIDIARIES
INTANGIBLE ASSETS
Intangible assets, including the value of acquired Customer accounts and
goodwill, are amortized over the periods the Corporation receives a benefit,
not exceeding fifteen years. Intangible assets, which are included in other
assets, had a net book value of $366.1 million and $213.8 million at December
31, 1997 and 1996, respectively.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" (Statement No. 130), and Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information" (Statement No. 131), were issued. Statement No. 130
establishes standards for the reporting and disclosure of comprehensive income
and its components in the financial statements. This statement is effective for
fiscal years beginning after December 15, 1997, and will not have an impact on
the Corporation's consolidated financial statements. Statement No. 131
establishes standards for the disclosure of selected information pertaining to
operating segments of a public company in its interim and annual financial
statements. This statement is effective for financial statements for periods
beginning after December 15, 1997, and will not have an impact on the
Corporation's consolidated financial statements.
NOTE B: EARNINGS PER COMMON SHARE
Statement of Financial Accounting Standards No. 128, "Earnings per Share"
(Statement No. 128), effective for financial statements issued for periods
ending after December 15, 1997, specifies the computation, presentation, and
disclosure requirements for earnings per common share. Statement No. 128
replaces primary and fully diluted earnings per common share, under Accounting
Principles Board Opinion No. 15, "Earnings per Share", with basic and diluted
earnings per common share, respectively. The adoption of Statement No. 128 did
not have a material impact on the Corporation's consolidated financial
statements.
Earnings per common share ("basic") is computed using net income applicable to
common stock and weighted average common shares outstanding during the period.
Earnings per common share--assuming dilution ("diluted") is computed using net
income applicable to common stock and weighted average common shares
outstanding during the period after consideration of the potential dilutive
effect of common stock equivalents based on the treasury stock method using an
average market price for the period. The Corporation's common stock equivalents
are solely related to employee stock options. The Corporation does not have any
other common stock equivalents.
For comparative purposes, earnings per common share and weighted average common
shares outstanding and common stock equivalents have been restated to reflect
the adoption of Statement No. 128 and the three-for-two stock split of the
Corporation's Common Stock, effected in the form of a dividend, issued October
1, 1997, to stockholders of record as of September 15, 1997.
COMPUTATION OF EARNINGS PER COMMON SHARE
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997 1996 1995
- -------------------------------------------------------------------------- -------- -------- --------
<S> <C> <C> <C>
BASIC
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 622,500 $ 474,495 $ 353,099
Less: preferred stock dividend requirements . . . . . . . . . . . . . . . . 19,527 14,055 1,469
------------ ------------ ------------
Net income applicable to common stock . . . . . . . . . . . . . . . . . . . $ 602,973 $ 460,440 $ 351,630
============ ============ ============
Weighted average common shares outstanding (000) . . . . . . . . . . . . . 501,225 501,208 501,226
============ ============ ============
Earnings per common share . . . . . . . . . . . . . . . . . . . . . . . . . $ 1.20 $ .92 $ .70
============ ============ ============
DILUTED
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 622,500 $ 474,495 $ 353,099
Less: preferred stock dividend requirements . . . . . . . . . . . . . . . . 19,527 14,055 1,469
------------ ------------ ------------
Net income applicable to common stock . . . . . . . . . . . . . . . . . . . $ 602,973 $ 460,440 $ 351,630
============ ============ ============
Weighted average common shares outstanding (000) . . . . . . . . . . . . . 501,225 501,208 501,226
Net effect of dilutive stock options--based on the treasury stock
method using average market price (000) . . . . . . . . . . . . . . . . 25,309 17,774 12,417
------------ ------------ ------------
Weighted average common shares outstanding and common stock equivalents (000) 526,534 518,982 513,643
------------ ------------ ------------
Earnings per common share--assuming dilution . . . . . . . . . . . . . . . $ 1.15 $ .89 $ .68
============ ============ ============
</TABLE>
There were 1,675,000 stock options with an average option price of $28.75 per
share outstanding at December 31, 1997, which were not included in the
computation of earnings per common share--assuming dilution for 1997 as a
result of the stock options' exercise price being greater than the average
market price of the common shares. These stock options expire in 2007.
44
<PAGE> 47
MBNA CORPORATION AND SUBSIDIARIES
NOTE C: INVESTMENT SECURITIES
SUMMARY OF INVESTMENT SECURITIES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
---------- ---------- ---------- ----------
DECEMBER 31, 1997
Available-for-sale:
<S> <C> <C> <C> <C>
U.S. Treasury and other U.S. government agencies obligations . . . $1,074,179 $ 1,371 $ (170) $1,075,380
State and political subdivisions of the United States . . . . . . 91,282 48 (14) 91,316
Asset-backed and other securities . . . . . . . . . . . . . . . . 995,408 720 (360) 995,768
---------- ---------- ---------- ----------
Total investment securities available-for-sale . . . . . . . . . $2,160,869 $ 2,139 $ (544) $2,162,464
========== ========== ========== ==========
Held-to-maturity:
U.S. Treasury and other U.S. government agencies obligations . . . $ 285,747 $ 105 $ (4,142) $ 281,710
State and political subdivisions of the United States . . . . . . 1,628 105 (265) 1,468
Asset-backed and other securities . . . . . . . . . . . . . . . . . 58,805 97 (212) 58,690
---------- ---------- ---------- ----------
Total investment securities held-to-maturity . . . . . . . . . . $ 346,180 $ 307 $ (4,619) $ 341,868
========== ========== ========== ==========
DECEMBER 31, 1996
Available-for-sale:
U.S. Treasury and other U.S. government agencies obligations . . . $ 605,034 $ - $ (150) $ 604,884
State and political subdivisions of the United States . . . . . . 87,521 128 (48) 87,601
Asset-backed and other securities . . . . . . . . . . . . . . . . 1,026,088 1,821 (664) 1,027,245
---------- ---------- ---------- ----------
Total investment securities available-for-sale . . . . . . . . . $1,718,643 $ 1,949 $ (862) $1,719,730
========== ========== ========== ==========
Held-to-maturity:
U.S. Treasury and other U.S. government agencies obligations . . . $ 506,346 $ 368 $ (6,409) $ 500,305
State and political subdivisions of the United States . . . . . . 454 29 (1) 482
Asset-backed and other securities . . . . . . . . . . . . . . . . . 91,520 373 (472) 91,421
---------- ---------- ---------- ----------
Total investment securities held-to-maturity . . . . . . . . . . $ 598,320 $ 770 $ (6,882) $ 592,208
========== ========== ========== ==========
DECEMBER 31, 1995
Available-for-sale:
U.S. Treasury and other U.S. government agencies obligations . . . $ 209,599 $ - $ (93) $ 209,506
State and political subdivisions of the United States . . . . . . . 84,519 247 (38) 84,728
Asset-backed and other securities . . . . . . . . . . . . . . . . 617,759 301 (230) 617,830
---------- ---------- ---------- ----------
Total investment securities available-for-sale . . . . . . . . . $ 911,877 $ 548 $ (361) $ 912,064
========== ========== ========== ==========
Held-to-maturity:
U.S. Treasury and other U.S. government agencies obligations . . . $1,000,869 $ 6,768 $ (3,179) $1,004,458
State and political subdivisions of the United States . . . . . . 421 90 - 511
Asset-backed and other securities . . . . . . . . . . . . . . . . . 182,437 1,078 (383) 183,132
---------- ---------- ---------- ----------
Total investment securities held-to-maturity . . . . . . . . . . $1,183,727 $ 7,936 $ (3,562) $1,188,101
========== ========== ========== ==========
</TABLE>
ESTIMATED MATURITIES OF INVESTMENT SECURITIES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AMORTIZED MARKET
DECEMBER 31, 1997 COST VALUE
-------------- --------------
<S> <C> <C>
Available-for-sale:
Due within one year . . . . . . . . . . . . . . . . . . . $ 1,005,018 $ 1,004,849
Due after one year through five years . . . . . . . . . . 1,100,038 1,101,815
Due after five years through ten years . . . . . . . . . . 53,674 53,663
Due after ten years . . . . . . . . . . . . . . . . . . . 2,139 2,137
-------------- --------------
Total investment securities available-for-sale . . . . . $ 2,160,869 $ 2,162,464
============== ==============
Held-to-maturity:
Due within one year . . . . . . . . . . . . . . . . . . . $ 208,498 $ 207,492
Due after one year through five years . . . . . . . . . . 28,279 28,230
Due after five years through ten years . . . . . . . . . . - -
Due after ten years . . . . . . . . . . . . . . . . . . . 109,403 106,146
-------------- --------------
Total investment securities held-to-maturity . . . . . . $ 346,180 $ 341,868
============== ==============
</TABLE>
The Corporation did not sell any investment securities during 1997 and 1996.
For the year ended December 31, 1995, the Corporation sold an investment
security resulting in a realized gain of $39,000, having a net after-tax effect
of $26,000.
There were no securities pledged at December 31, 1997. At December 31, 1996,
$3.0 million of U.S. Treasury Notes included in investment securities
held-to-maturity were pledged by the Corporation.
45
<PAGE> 48
MBNA CORPORATION AND SUBSIDIARIES
NOTE D: GEOGRAPHIC DIVERSIFICATION OF LOANS
The Corporation originates credit card and other consumer loans, primarily
throughout the United States and the United Kingdom. The table below details
the geographic distribution of the Corporation's loan receivables, securitized
loans, and managed loans. Credit card and other consumer loans originated in
the United States are broadly distributed throughout the United States'
geographic regions as presented below. Credit card and other consumer loans
issued by MBNA International are primarily located in the United Kingdom.
The Corporation's loans are generally made on an unsecured basis after
reviewing each potential Customer's credit application and evaluating the
applicant's financial history and ability and willingness to repay. The maximum
credit line to individual credit card Customers is generally $100,000, the
average line is $9,900, and the average balance outstanding per account is
$3,400 at December 31, 1997.
GEOGRAPHIC DISTRIBUTION OF LOAN RECEIVABLES, SECURITIZED LOANS, AND MANAGED
LOANS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
LOAN RECEIVABLES SECURITIZED LOANS MANAGED LOANS
---------------- ----------------- -------------
DECEMBER 31, 1997
United States:
<S> <C> <C> <C> <C> <C>
Northeast . . . . . . . . . . . . . . . . . . $ 2,261,165 20.2% $ 8,479,769 22.2% $10,740,934 21.8%
Southeast . . . . . . . . . . . . . . . . . . 1,932,440 17.3 7,125,276 18.6 9,057,716 18.3
Central . . . . . . . . . . . . . . . . . . . 2,366,419 21.2 6,137,295 16.0 8,503,714 17.2
Midwest . . . . . . . . . . . . . . . . . . . 1,086,129 9.7 7,019,407 18.4 8,105,536 16.4
West . . . . . . . . . . . . . . . . . . . . . 2,230,451 20.0 7,782,733 20.4 10,013,184 20.3
United Kingdom . . . . . . . . . . . . . . . . . 1,201,522 10.8 1,594,320 4.2 2,795,842 5.7
Other . . . . . . . . . . . . . . . . . . . . . . 83,948 .8 78,986 .2 162,934 .3
----------- ----- ------------ ----- ----------- -----
Total . . . . . . . . . . . . . . . . . . . . $11,162,074 100.0% $ 38,217,786 100.0% $49,379,860 100.0%
=========== ===== ============ ===== =========== =====
DECEMBER 31, 1996
United States:
Northeast . . . . . . . . . . . . . . . . . . $ 2,270,100 22.4% $ 6,308,313 22.1% $ 8,578,413 22.2%
Southeast . . . . . . . . . . . . . . . . . . 1,796,666 17.8 5,340,563 18.7 7,137,229 18.5
Central . . . . . . . . . . . . . . . . . . . 1,490,589 14.7 4,467,284 15.7 5,957,873 15.4
Midwest . . . . . . . . . . . . . . . . . . . 1,829,213 18.1 5,200,397 18.3 7,029,610 18.2
West . . . . . . . . . . . . . . . . . . . . . 2,110,374 20.8 5,895,947 20.7 8,006,321 20.7
United Kingdom . . . . . . . . . . . . . . . . . 568,456 5.6 1,227,267 4.3 1,795,723 4.7
Other . . . . . . . . . . . . . . . . . . . . . . 63,654 .6 54,710 .2 118,364 .3
----------- ----- ------------ ----- ----------- -----
Total . . . . . . . . . . . . . . . . . . . . $10,129,052 100.0% $ 28,494,481 100.0% $38,623,533 100.0%
=========== ===== ============ ===== =========== =====
</TABLE>
NOTE E: RESERVE FOR POSSIBLE CREDIT LOSSES
CHANGES IN THE RESERVE FOR POSSIBLE CREDIT LOSSES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, 1997 1996 1995
<S> <C> <C> <C>
Reserve for possible credit losses,
beginning of year . . . . . . . . . . . . $ 118,427 $ 104,886 $ 101,519
Reserves acquired . . . . . . . . . . . 7,975 7,553 -
Provision for possible credit losses . . 260,040 178,224 138,176
Foreign currency translation . . . . . . (203) 488 (90)
Credit losses . . . . . . . . . . . . . (359,542) (254,417) (174,893)
Recoveries . . . . . . . . . . . . . . . 135,779 81,693 40,174
----------- ----------- ------------
Net credit losses . . . . . . . . . . (223,763) (172,724) (134,719)
----------- ----------- ------------
Reserve for possible credit losses,
end of year . . . . . . . . . . . . . . . $ 162,476 $ 118,427 $ 104,886
=========== =========== ============
</TABLE>
NOTE F: PREMISES AND EQUIPMENT
SUMMARY OF PREMISES AND EQUIPMENT
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, 1997 1996
- ------------------------------------------------------------- -------- ----------
<S> <C> <C>
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 160,876 $ 111,907
Buildings and improvements . . . . . . . . . . . . . . . . . 1,158,703 731,509
Furniture and equipment . . . . . . . . . . . . . . . . . . . 623,670 463,437
----------- --------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . 1,943,249 1,306,853
Accumulated depreciation and amortization . . . . . . . . . . (364,191) (259,670)
----------- --------------
Premises and equipment, net . . . . . . . . . . . . . . . $ 1,579,058 $ 1,047,183
=========== ==============
</TABLE>
Depreciation expense for the years ended December 31, 1997, 1996, and 1995, was
$124.6 million, $76.7 million, and $67.1 million, respectively.
46
<PAGE> 49
MBNA CORPORATION AND SUBSIDIARIES
The Corporation leases certain office facilities and equipment under operating
lease agreements that provide for payment of property taxes, insurance, and
maintenance costs. These leases generally include renewal options, with certain
leases providing purchase options. Rental expense for operating leases was
$31.3 million, $26.7 million, and $25.5 million for the years ended December
31, 1997, 1996, and 1995, respectively.
FUTURE MINIMUM RENTAL PAYMENTS UNDER NONCANCELABLE OPERATING LEASES
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
1998 . . . . . . . . . . . . . . . . . . . . . $ 26,876
1999 . . . . . . . . . . . . . . . . . . . . . 17,721
2000 . . . . . . . . . . . . . . . . . . . . . 10,084
2001 . . . . . . . . . . . . . . . . . . . . . 5,937
2002 . . . . . . . . . . . . . . . . . . . . . 4,520
Thereafter . . . . . . . . . . . . . . . . . . 7,997
--------
Total minimum lease payments . . . . . . . . $ 73,135
========
</TABLE>
NOTE G: SHORT-TERM BORROWINGS
Federal funds purchased and securities sold under repurchase agreements are
overnight borrowings that generally mature within one business day of the
transaction date. Other short-term borrowings consist primarily of federal
funds purchased that mature in more than one business day, short-term bank
notes issued from the short-term bank note program established by the Bank, and
other transactions with maturities greater than one business day but less than
one year.
SUMMARY OF SHORT-TERM BORROWINGS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997 1996 1995
- ------------------------------------------------------------ ----------- ----------- ----------
<S> <C> <C> <C>
FEDERAL FUNDS PURCHASED AND SECURITIES
SOLD UNDER REPURCHASE AGREEMENTS
Balance at year end . . . . . . . . . . . . . . . . . . . . $ - $ - $ 115,000
Weighted average interest rate at year end . . . . . . . . -% -% 5.63%
Average amount outstanding
during the year . . . . . . . . . . . . . . . . . . . . . $ 16,712 $ 67,712 $ 49,141
Maximum amount outstanding at any
month end . . . . . . . . . . . . . . . . . . . . . . . . 297,000 325,000 243,477
Weighted average interest rate during
the year . . . . . . . . . . . . . . . . . . . . . . . . . 5.59% 5.39% 6.01%
OTHER SHORT-TERM BORROWINGS
Balance at year end . . . . . . . . . . . . . . . . . . . . $ 192,623 $ 693,387 $ 174,543
Weighted average interest rate at year end . . . . . . . . 7.53% 5.66% 5.61%
Average amount outstanding
during the year . . . . . . . . . . . . . . . . . . . . . $ 321,443 $ 269,538 $ 148,804
Maximum amount outstanding at any
month end . . . . . . . . . . . . . . . . . . . . . . . . 646,529 693,387 319,417
Weighted average interest rate during
the year . . . . . . . . . . . . . . . . . . . . . . . . . 5.86% 5.51% 6.14%
</TABLE>
NOTE H: LONG-TERM DEBT AND BANK NOTES
Long-term debt and bank notes consist of borrowings having an original maturity
of one year or more.
SUMMARY OF LONG-TERM DEBT AND BANK NOTES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, 1997 1996
- ------------------------------------------------------------- --------- ---------
<S> <C> <C>
PARENT COMPANY
67/8% Senior Notes, maturing in 1999 and 2005 . . . . . . . $ 248,935 $ 248,661
Fixed-Rate Senior Medium-Term Notes, with a
weighted average interest rate of 6.70% and
6.66%, respectively, maturing in varying
amounts from 1999 through 2004 . . . . . . . . . . . . . . 520,246 405,838
Floating-Rate Senior Medium-Term Notes,
maturing in varying amounts from 1998
through 2002 . . . . . . . . . . . . . . . . . . . . . . . 872,838 356,948
-------------- ---------------
Total Parent Company . . . . . . . . . . . . . . . . . . 1,642,019 1,011,447
SUBSIDIARIES
Fixed-Rate Medium-Term Bank Notes, with a
weighted average interest rate of 7.29% and
6.87%, respectively, maturing in varying
amounts from 1998 through 2005 . . . . . . . . . . . . . . 875,117 1,105,232
Floating-Rate Medium-Term Bank Notes,
maturing in varying amounts from 1998
through 2004 . . . . . . . . . . . . . . . . . . . . . . . 1,978,281 1,277,824
Fixed-Rate Bilateral Credit Facility, with an
interest rate of 7.29%, maturing in varying
amounts from 1998 through 2001 . . . . . . . . . . . . . . 10,756 17,127
Fixed-Rate Bilateral Credit Facility, with an
interest rate of 7.2033%, maturing in 2000 . . . . . . . . 16,425 -
Floating-Rate Bilateral Credit Facility,
maturing in 2001 . . . . . . . . . . . . . . . . . . . . . 16,425 34,254
Fixed-Rate Syndicated Credit Facility, with an
interest rate of 7.645%, maturing in 2001 . . . . . . . . 123,187 -
7.25% Subordinated Notes, maturing in 2002 . . . . . . . . 198,519 198,269
Subordinated Guaranteed Floating-Rate Notes,
maturing in 2005 . . . . . . . . . . . . . . . . . . . . . 55,039 56,205
Guaranteed Preferred Beneficial Interests in
Corporation's Junior Subordinated Deferrable
Interest Debentures, series A, with an interest
rate of 8.278%, maturing in 2026 . . . . . . . . . . . . . 250,000 250,000
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
three-month London Interbank Offered Rate,
maturing in 2027 . . . . . . . . . . . . . . . . . . . . . 276,846 -
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 -
-------------- ---------------
Balance, end of year . . . . . . . . . . . . . . . . . . $ 5,478,917 $ 3,950,358
============== ===============
</TABLE>
47
<PAGE> 50
MBNA CORPORATION AND SUBSIDIARIES
6 7/8% SENIOR NOTES
These notes are direct, unsecured obligations of the Corporation and are not
subordinated to any other indebtedness of the Corporation. Interest on the
6 7/8% Senior Notes is payable semiannually. These notes may not be redeemed
prior to their stated maturity.
SENIOR MEDIUM-TERM NOTES
These notes are direct, unsecured obligations of the Corporation and are not
subordinated to any other indebtedness of the Corporation. The Corporation has
$522.5 million of Fixed-Rate Senior Medium-Term Notes outstanding, with rates
ranging from 6.14% to 7.49%. Interest on the Fixed-Rate Senior Medium-Term
Notes is payable semiannually. The Corporation also has $875.5 million of
Floating-Rate Senior Medium-Term Notes outstanding. These Floating-Rate Senior
Medium-Term Notes are priced between 15 basis points and 47 basis points over
the three-month London Interbank Offered Rate (LIBOR). Interest on the
Floating-Rate Senior Medium-Term Notes is payable quarterly. At December 31,
1997, the three-month LIBOR was 5.81%.
MEDIUM-TERM BANK NOTES
The Medium-Term Bank Notes are direct, unconditional, unsecured, and are not
subordinated to any other obligations of the Bank. The Bank has $877.2 million
outstanding of Fixed-Rate Medium-Term Bank Notes with rates ranging from 6.00%
to 7.76%. Interest is payable semiannually. The Bank also has $2.0 billion
outstanding of Floating-Rate Medium-Term Bank Notes, with rates priced between
5 basis points to 37.5 basis points over the three-month LIBOR. Interest is
payable quarterly.
BILATERAL CREDIT FACILITIES
These facilities are direct, unsecured, and are not subordinated to any other
obligations of MBNA International. At December 31, 1997, MBNA International has
pound sterling 16.5 million outstanding with interest payable monthly. MBNA
International also has a pound sterling 10.0 million floating-rate facility
outstanding at December 31, 1997. This draw was priced at 17.5 basis points
above the three-month Sterling LIBOR and is payable semiannually. At December
31, 1997, the three-month Sterling LIBOR was 7.69%.
SYNDICATED CREDIT FACILITY
This facility is unsecured and is not subordinated to any other obligation of
MBNA International. At December 31, 1997, MBNA International has pound sterling
75.0 million outstanding with interest payable quarterly.
7.25% SUBORDINATED NOTES
The 7.25% Subordinated Notes are subordinated to the claims of depositors and
other creditors of the Bank, unsecured, and not subject to redemption prior to
maturity. Interest is payable semiannually. The 7.25% Subordinated Notes were
issued by the Bank in 1992 and qualify as Tier 2 capital, which is included in
total capital, under the risk-based capital guidelines for both banks and bank
holding companies.
SUBORDINATED GUARANTEED FLOATING-RATE NOTES
MBNA International has pound sterling 34.0 million of Subordinated Guaranteed
Floating-Rate Notes outstanding. Interest on these notes is priced between 100
basis points and 145 basis points over the three-month Sterling LIBOR for the
first five years, with a 50 basis point increase for the last five years. These
notes were issued by MBNA International in 1995 and are unsecured. Interest on
these notes is payable quarterly or semiannually.
The obligations of MBNA International are unconditionally and irrevocably
guaranteed on a subordinated basis by the Bank. The obligations of the Bank,
under its guarantee, also constitute unsecured obligations, subordinated to the
claims of all senior creditors of the Bank.
GUARANTEED PREFERRED BENEFICIAL INTERESTS IN CORPORATION'S JUNIOR SUBORDINATED
DEFERRABLE INTEREST DEBENTURES
The Corporation, through MBNA Capital A, MBNA Capital B, and MBNA Capital C,
each a statutory business trust created under the laws of the State of
Delaware, issued capital securities and common securities: series A, series B,
and series C, respectively. The series capital securities are presented as
"guaranteed preferred beneficial interests in Corporation's junior
subordinated deferrable interest debentures" in the summary of long-term debt
and bank notes. MBNA Corporation is the owner of all the beneficial ownership
interests represented by the common securities of the trusts. The trusts exist
for the sole purpose of issuing the series capital securities and the series
common securities and investing the proceeds in junior subordinated deferrable
interest debentures issued by the Corporation. For financial reporting
purposes, the trusts are treated as wholly owned subsidiaries of the
Corporation.
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. Interest on the series capital
securities is payable semiannually; however, the Corporation has the right to
defer payment of interest on the junior subordinated deferrable interest
debentures at any time, or from time to time, for a period not exceeding 10
consecutive semiannual periods. If the payment of interest is deferred on the
junior subordinated deferrable interest debentures, distributions on the series
securities will be deferred and the Corporation also 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 less priority than the junior
subordinated deferrable interest debentures.
The series capital securities are subject to mandatory redemption, in whole or
in part, upon repayment of the junior subordinated deferrable interest
debentures at their stated maturity or their earlier redemption. The junior
subordinated deferrable interest debentures are redeemable prior to their
stated maturity at the option of the Corporation, on or after the contractually
specified dates, in whole at any time, or in part from time to time, or prior
to the contractually specified dates, in whole only within 90 days following
the occurrence
48
<PAGE> 51
MBNA CORPORATION AND SUBSIDIARIES
of certain tax or capital treatment events. The series capital securities have
a preference with respect to cash distributions and amounts payable on
liquidation or redemption over the series common securities.
The obligations of the Corporation under the relevant junior subordinated
deferrable interest debentures, indenture, trust agreement, and guarantee in
the aggregate constitute a full and unconditional guarantee by the Corporation
of all trust obligations under the series capital securities issued by the
trusts. The junior subordinated deferrable interest debentures are unsecured
and rank junior and are subordinate in right of payment to all senior debt
obligations of the Corporation.
MINIMUM ANNUAL MATURITIES OF LONG-TERM DEBT AND BANK NOTES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PARENT
PARENT COMPANY AND
COMPANY SUBSIDIARIES
------- ------------
<S> <C> <C>
1998 . . . . . . . . . . . . . . . $ 80,000 $ 424,631
1999 . . . . . . . . . . . . . . . 591,000 1,118,295
2000 . . . . . . . . . . . . . . . 242,000 873,375
2001 . . . . . . . . . . . . . . . 120,000 670,492
2002 . . . . . . . . . . . . . . . 345,000 1,219,150
</TABLE>
Deposit liabilities have priority over the claims of other unsecured creditors
of the Bank, including the holders of obligations, such as bank notes, in the
event of liquidation.
Original issue discount and deferred issuance costs are amortized over the
terms of the related debt issuances.
The Corporation has used interest rate swap agreements to change a portion of
fixed-rate long-term debt and bank notes to floating-rate long-term debt and
bank notes to better match the rate sensitivity of the Corporation's assets.
NOTE I: ASSET SECURITIZATION
The Corporation periodically securitizes certain pools of loan receivables in
both public and private markets. Certificates representing undivided interests
in the trust are sold by the trust to investors, while the Seller's interest is
retained by the Bank. The Corporation includes the Seller's interest in loan
receivables and had $8.5 billion and $6.7 billion outstanding at December 31,
1997, and 1996, respectively. The carrying value of these loan receivables
approximates fair value. The senior classes of the asset-backed securities are
generally credit-enhanced by a third party to provide a AAA credit rating at
the time of issuance.
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 recognized at the time of initial sale and each subsequent sale of loan
receivables in a securitization. As a result, the Corporation recognizes the
gain from securitized loans in securitization income on the Corporation's
consolidated statements of income and includes the related receivable in
accounts receivable from securitizations on the consolidated statements of
financial condition at the time of sale. The related receivable represents the
contractual right to receive interest and other cash flows from the trusts and
is reported at market value with unrealized gains and losses, net of tax,
included as a component of stockholders' equity. Transaction costs incurred by
the Corporation are immediately recognized as a reduction to the gain recorded
from the securitization transaction. Securitization income also includes the
additional earnings from the Corporation's securitized loans previously
reported as loan servicing fees. Previously, the Corporation recognized the
earnings from securitizations over the life of the transaction. As a result of
the adoption of Statement No. 125, securitization income increased $325.1
million in 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. In accordance with Statement No. 125, prior years have not
been restated.
Proceeds from securitization transactions were approximately $13.2 billion,
$11.2 billion, and $6.2 billion in 1997, 1996, and 1995, respectively. At
December 31, 1997 and 1996, approximately $37.6 billion and $28.0 billion of
investor principal (face value) remained outstanding, respectively.
Included in accounts receivable from securitizations in the consolidated
statements of financial condition at December 31, 1997 and 1996, were $284.1
million and $225.2 million, respectively, of receivables subject to a lien by
the providers of the credit enhancement facility for individual
securitizations. The providers of the credit enhancement have no other recourse
to the Corporation. The Corporation does not receive collateral from any party
to the securitization, and the Corporation does not have any risk of
counterparty nonperformance.
NOTE J: EMPLOYEE BENEFIT PLANS
PENSION PLAN
The Corporation has a noncontributory defined benefit pension plan covering all
people employed by the Corporation who meet certain age and service
requirements. The benefits are based on years of service and the person's
compensation during the last 10 years of employment. The Corporation's funding
policy is to make contributions sufficient to achieve a target-funded ratio on
an accumulated benefit obligation basis between 130% and 140%. The funded
ratio, as of the plan's measurement date of September 30, may never be less
than 100%, and only tax-deductible contributions may be made. Contributions are
intended to provide not only for benefits earned to date, but also for those
expected to be earned in the future.
49
<PAGE> 52
MBNA CORPORATION AND SUBSIDIARIES
RECONCILIATION OF THE PENSION PLAN'S ACTUARIALLY DETERMINED FUNDED STATUS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997 1996
- --------------------------------------------------- -------- ----------
<S> <C> <C>
ACCUMULATED BENEFITS
Actuarial present value of accumulated
benefit obligation:
Vested . . . . . . . . . . . . . . . . . . . . . $ 36,921 $ 28,088
Nonvested . . . . . . . . . . . . . . . . . . . 10,013 6,998
------------ --------------
Total . . . . . . . . . . . . . . . . . . . . $ 46,934 $ 35,086
============ ==============
Pension (Liability) Asset
Actuarial present value of projected benefit
obligation for service rendered to date . . . . . $ (120,198) $ (88,108)
Plan assets at fair value--primarily listed
stocks and fixed-income securities . . . . . . . . 108,737 71,941
------------ --------------
Plan assets less than projected
benefit obligation . . . . . . . . . . . . . . . . (11,461) (16,167)
Unrecognized prior service cost . . . . . . . . . . (1,387) (1,499)
Unrecognized net loss from past experience
different from that assumed and effects of
change in assumptions . . . . . . . . . . . . . . 11,768 18,801
Unrecognized net assets arising at transition . . . (348) (417)
------------ --------------
Pension (liability) asset . . . . . . . . . . . $ (1,428) $ 718
============ ==============
Significant actuarial assumptions used in
determining the projected benefit obligation
are as follows:
Discount rate . . . . . . . . . . . . . . . . . . 7.50% 7.75%
Average rate of compensation increase . . . . . . 6.50 6.50
</TABLE>
The Corporation lowered the discount rate used to value its projected benefit
obligation for the pension plan in 1997 to reflect the current rate
environment. This change in assumption will not have a material impact on the
Corporation's consolidated financial statements for 1998.
In 1996, the Corporation raised the discount rate used to value its projected
benefit obligation for the pension plan to reflect the then current rate
environment. This change in assumption did not have a material impact on the
Corporation's consolidated financial statements for 1997.
COMPONENTS OF NET PERIODIC PENSION COST
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997 1996 1995
- ---------------------------------------------------------- ------------ ----------- -----------
<S> <C> <C> <C>
Service cost--benefits earned
during the period . . . . . . . . . . . . . . . . . . . $ 17,026 $ 16,468 $ 9,183
Interest cost on projected benefit obligation . . . . . . 7,694 6,464 4,110
Actual return on plan assets . . . . . . . . . . . . . . (22,009) (5,798) (6,272)
Net amortization and deferral . . . . . . . . . . . . . . 15,355 2,656 4,001
------------- ------------ ------------
Net periodic pension cost . . . . . . . . . . . . . . $ 18,066 $ 19,790 $ 11,022
============= ============ ============
</TABLE>
The expected long-term rate of return on plan assets used in determining net
periodic pension cost was 9.00% in 1997, 1996, and 1995.
401(K) PLUS SAVINGS PLAN
The MBNA Corporation 401(k) Plus Savings Plan ("the 401(k) Plan") is a defined
contribution plan that is intended to qualify under section 401(k) of the
Internal Revenue Code. The 401(k) Plan covers substantially all people who have
been employed by the Corporation for one or more years and have completed at
least one thousand hours of service in any one year. For these people, the
Corporation automatically contributes 1% of base salary. Additionally, these
people may elect to make both pretax and after-tax contributions, with
contributions up to 6% of base salary matched 50% by the Corporation. Expense
charged to operations for the 401(k) Plan was $12.1 million, $9.9 million, and
$8.3 million in 1997, 1996, and 1995, respectively.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN ("SERP")
The Corporation also maintains an unfunded plan, established in 1991, that
provides certain officers with supplemental retirement benefits in excess of
limits imposed on qualified plans by federal tax law.
RECONCILIATION OF THE SERP PLAN'S ACTUARIALLY DETERMINED FUNDED STATUS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997 1996
- ----------------------------------------------------------------- ----------- -----------
<S> <C> <C>
Accumulated Benefits
Actuarial present value of accumulated
benefit obligation:
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 21,835 $ 15,101
Nonvested . . . . . . . . . . . . . . . . . . . . . . . . . . 14,557 10,068
------------ ------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 36,392 $ 25,169
============ ============
SERP Liability
Actuarial present value of projected benefit
obligation for service rendered to date . . . . . . . . . . . . $ (37,270) $ (25,745)
Plan assets at fair value . . . . . . . . . . . . . . . . . . . . - -
Plan assets less than projected benefit obligation . . . . . . . (37,270) (25,745)
Unrecognized prior service cost . . . . . . . . . . . . . . . . . 549 (1,922)
Unrecognized net loss from past experience
different from that assumed and effects of
change in assumptions . . . . . . . . . . . . . . . . . . . . . . 8,083 4,979
Unrecognized net obligation arising at transition . . . . . . . . 4,184 4,599
Adjustment required to recognize
minimum liability . . . . . . . . . . . . . . . . . . . . . . . (11,938) (7,080)
------------ ------------
SERP liability . . . . . . . . . . . . . . . . . . . . . . . $ (36,392) $ (25,169)
============ ============
Significant actuarial assumptions used in
determining the projected benefit obligation
are as follows:
Discount rate . . . . . . . . . . . . . . . . . . . . . . . . 7.50% 7.75%
Average rate of compensation increase . . . . . . . . . . . . 6.50 6.50
</TABLE>
During 1997, the Corporation lowered the discount rate used to value its
projected benefit obligation for the SERP plan to reflect the current rate
environment. This change in assumption will not have a material impact on the
Corporation's consolidated financial statements for 1998.
During 1996, the Corporation raised the discount rate used to value its
projected benefit obligation for the SERP plan to reflect the then current rate
environment. This change in assumption did not have a material impact on the
Corporation's consolidated financial statements for 1997.
50
<PAGE> 53
MBNA CORPORATION AND SUBSIDIARIES
COMPONENTS OF NET SERP COST
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997 1996 1995
- --------------------------------------------------------- ---------- --------- -----------
<S> <C> <C> <C>
Service cost--benefits earned
during the year . . . . . . . . . . . . . . . . . . . . $ 3,666 $ 2,253 $ 2,209
Interest cost on projected benefit obligation . . . . . . 2,552 1,847 1,438
Net amortization and deferral . . . . . . . . . . . . . . 532 477 339
---------- ----------- ------------
Net SERP cost . . . . . . . . . . . . . . . . . . . . $ 6,750 $ 4,577 $ 3,986
========== =========== ============
</TABLE>
POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS
The Corporation and its subsidiaries provide certain health care and life
insurance benefits for people actively employed who may continue to be eligible
for these benefits upon reaching retirement. People aged 45 and older with at
least 10 years of service as of December 31, 1993, are eligible for these
benefits. The Corporation records the estimated cost of benefits provided to
its former or inactive employees after employment but before retirement on an
accrual basis. Expenses charged to other operating expense were not material to
the Corporation's consolidated financial statements.
NOTE K: STOCK OPTION PLAN
In April 1997, the shareholders approved the Corporation's new 1997 Long Term
Incentive Plan ("1997 Plan"), which authorizes the issuance of 16.5 million
shares of common stock pursuant to incentive and nonqualified stock options,
and restricted or unrestricted share awards to officers, directors, key
employees, consultants, and advisors of the Corporation. Once the 1997 Plan was
approved by the shareholders, all stock options and restricted stock awards
were granted from this plan, since essentially all of the 67.5 million shares
authorized for option and share awards under the Corporation's 1991 Long Term
Incentive Plan ("1991 Plan") had been granted. Therefore, as of December 31,
1997 and 1996, the combined amount of shares of common stock available for
future grants under both the 1991 and 1997 Plans was 5.6 million and 127,000,
respectively.
Stock options are granted with an exercise price that is not less than the fair
market value of the Corporation's Common Stock on the date the option is
granted, and none may be exercised more than 10 years from the date of grant.
Stock options granted to selected officers and key employees of the Corporation,
other than performance-based common stock options, become exercisable for
one-fifth of the common shares subject to the options each year and continue to
become exercisable for up to one-fifth per year until they are completely
exercisable after five years. Those granted to nonemployee directors are
exercisable immediately following the effective date of the grant.
During 1997, performance-based common stock options for 8.9 million shares were
granted under the 1997 Plan. In 1996, performance-based common stock options
for 2.6 million shares were granted. These options become exercisable when the
Corporation achieves certain net income and stock price targets. If these
conditions are not achieved, these options then become exercisable for one day
on the day before their termination date.
The Corporation also granted 500,000 stock options during 1997 which are
exercisable in July 2001. In 1996, 36,000 options were granted subject to
shareholder approval of the 1997 Plan. These options are included in the
Summary of Stock Option Plans Activity in 1997.
SUMMARY OF STOCK OPTION PLANS ACTIVITY
(SHARES IN THOUSANDS)
<TABLE>
<CAPTION>
NUMBER WEIGHTED AVERAGE
OF SHARES EXERCISE PRICE
--------- --------------
<S> <C> <C>
1997
Options outstanding at beginning of year . . . . . . 38,829 $ 7.83
Granted . . . . . . . . . . . . . . . . . . . . . 10,132 21.27
Exercised . . . . . . . . . . . . . . . . . . . . (5,454) 5.86
Canceled . . . . . . . . . . . . . . . . . . . . . - -
----------
Options outstanding at end of year . . . . . . . . . 43,507 11.21
==========
Options exercisable at end of year . . . . . . . . . 17,303
==========
Weighted average fair value of options
granted during the year . . . . . . . . . . . . . . $ 7.37
==========
1996
Options outstanding at beginning of year . . . . . . 38,046 $ 6.92
Granted . . . . . . . . . . . . . . . . . . . . . 5,185 12.35
Exercised . . . . . . . . . . . . . . . . . . . . (4,382) 5.22
Canceled . . . . . . . . . . . . . . . . . . . . . (20) 6.16
Options outstanding at end of year . . . . . . . . . 38,829 7.83
==========
Options exercisable at end of year . . . . . . . . . 14,249
==========
Weighted average fair value of options
granted during the year . . . . . . . . . . . . . . $ 3.56
==========
1995
Options outstanding at beginning of year . . . . . . 26,468 $ 5.29
Granted . . . . . . . . . . . . . . . . . . . . . 15,414 8.82
Exercised . . . . . . . . . . . . . . . . . . . . (3,821) 3.35
Canceled . . . . . . . . . . . . . . . . . . . . . (15) 5.19
----------
Options outstanding at end of year . . . . . . . . . 38,046 6.92
==========
Options exercisable at end of year . . . . . . . . . 11,208
==========
Weighted average fair value of options
granted during the year . . . . . . . . . . . . . . $ 2.39
==========
</TABLE>
Restricted shares were also issued under the 1997 Plan to the Corporation's
executive officers. A total of 855,000 common shares, with an approximate
aggregate market value of $22.1 million at the time of grant, were issued in
1997. A total of 557,000 common shares, with an approximate aggregate market
value of $9.5 million at the time of grant, were issued in 1996 under the 1991
Plan. The market value of these restricted shares at the date of grant is
amortized into expense over a period less than the restriction period. If the
restrictions have been removed, generally upon death, disability, or
retirement, the remaining unamortized market value of the restricted shares is
expensed.
To the extent stock options are exercised and restricted shares are awarded
from time to time under the Plans, the Board of Directors has approved the
purchase, on the open market or in privately negotiated transactions, of the
number of common shares issued.
51
<PAGE> 54
MBNA CORPORATION AND SUBSIDIARIES
SUMMARY OF STOCK OPTIONS OUTSTANDING
(SHARES IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, 1997 OPTIONS OUTSTANDING OPTIONS EXERCISABLE
WEIGHTED AVERAGE
NUMBER REMAINING WEIGHTED AVERAGE NUMBER WEIGHTED AVERAGE
RANGE OF EXERCISE PRICES OF SHARES CONTRACTUAL LIFE EXERCISE PRICE OF SHARES EXERCISE PRICE
------------------------ --------- ---------------- -------------- --------- --------------
<S> <C> <C> <C> <C> <C>
$2.00 to 6.99 11,220 5.4 years $ 5.48 10,165 $ 5.38
7.00 to 8.99 10,932 6.7 7.37 3,253 7.48
9.00 to 12.99 11,125 8.1 11.55 3,630 11.38
17.00 to 19.99 8,440 9.3 19.69 228 18.66
24.00 to 27.99 853 9.9 27.38 15 24.70
28.00 to 30.99 937 9.6 29.55 12 28.75
------ ------
$2.00 to 30.99 43,507 17,303
====== ======
</TABLE>
In October 1995, Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" (Statement No. 123), was issued. This
statement, effective for fiscal years beginning after December 15, 1995,
defines a fair-value-based method of accounting for an employee stock option or
similar equity instrument. However, it allows an entity to continue to measure
compensation cost for those instruments using the intrinsic-value-based method
of accounting prescribed by Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB Opinion No. 25). Statement No.
123 requires certain additional disclosures about stock-based employee
compensation arrangements regardless of the method used to account for them. As
permitted by Statement No. 123, the Corporation elected to retain the
intrinsic-value-based method of accounting for stock option grants in
accordance with APB Opinion No. 25. The adoption of Statement No. 123 had no
impact on the Corporation's consolidated financial statements.
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions used for grants in 1997 and 1996, respectively: dividend yield of
2.11% and 2.71%; expected volatility of 30.08% and 28.74%; risk-free interest
rates of 6.63% and 6.46%; and expected lives of 6.5 years and 5.4 years.
The Black-Scholes model is only one technique allowed to determine the fair
value of options in accordance with Statement No. 123. The model uses different
assumptions that can significantly affect the fair value of the options. In that
regard, the derived fair value estimates cannot be substantiated by comparison
to independent markets.
The Corporation applies APB Opinion No. 25 and related interpretations in
accounting for the Plans. Had compensation cost for the Plans been determined
consistent with the fair-value-based method of accounting under Statement No.
123, the Corporation's net income, earnings per common share and earnings per
common share--assuming dilution on a pro forma basis would have been as
presented in the following table. The compensation expense recognized in pro
forma net income for 1997, 1996, and 1995 may not be representative of the
effects on pro forma net income for future years.
PRO FORMA NET INCOME AND EARNINGS PER COMMON SHARE
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997 1996 1995
- ---------------------------------------- ------- ---------- -----------
<S> <C> <C> <C>
Net income:
As reported . . . . . . . . . . . . $ 622,500 $ 474,495 $ 353,099
Pro forma . . . . . . . . . . . . . 608,838 466,020 349,215
Earnings per common share:
As reported . . . . . . . . . . . . 1.20 .92 .70
Pro forma . . . . . . . . . . . . . 1.18 .90 .69
Earnings per common share--
assuming dilution:
As reported . . . . . . . . . . . . 1.15 .89 .68
Pro forma . . . . . . . . . . . . . 1.12 .87 .68
</TABLE>
NOTE L: STOCKHOLDERS' EQUITY
PREFERRED STOCK
The Corporation is authorized to issue 20.0 million shares of preferred stock
with a par value of $.01 per share. In 1996, the Corporation issued 6.0 million
shares of Adjustable Rate Cumulative Preferred Stock, Series B, with a $25
stated value per share. Dividends on the Series B Preferred Stock are
cumulative from the date of original issue and are payable quarterly in arrears
on January 15, April 15, July 15, and October 15 of each year, commencing on
October 15, 1996. The dividend rate for the initial dividend period from
September 23, 1996, to October 15, 1996, was 7.0% per year. Thereafter, the
dividend rate for any dividend period will be equal to 99.0% of the highest of
the Treasury Bill Rate, the Ten-Year Constant Maturity Rate, and the
Thirty-Year Constant Maturity Rate, as determined in advance of such dividend
period, but not less than 5.5% per annum or more than 11.5% per annum. The
amount of dividends payable with respect to the Series B Preferred Stock will
be adjusted in the event of certain amendments to the Internal Revenue Code of
1986 ("the Code") with respect to the dividends-received deduction. The shares
of the Series B Preferred Stock are redeemable, in whole or in part, solely at
the option of the Corporation on or after October 15, 2001, at a price of $25
per share, plus accrued and unpaid dividends. The Series B Preferred Stock may
also be redeemed in whole, at the option of the Corporation, in the
52
<PAGE> 55
MBNA CORPORATION AND SUBSIDIARIES
event of certain amendments to the Code with respect to the dividends-received
deduction.
In 1995, the Corporation issued 6.0 million shares of 7 1/2% Cumulative
Preferred Stock, Series A, with a $25 stated value per share. Dividends on the
Series A Preferred Stock are cumulative from the date of original issue and are
payable quarterly in arrears on January 15, April 15, July 15, and October 15
of each year, commencing January 15, 1996, at a rate of 7.50% per annum. The
shares of the Series A Preferred Stock are redeemable, in whole or in part,
solely at the option of the Corporation on or after January 15, 2001, at a
price of $25 per share, plus accrued and unpaid dividends.
Shares of the series preferred stock are not convertible into any other
securities of the Corporation. The series preferred stock will not be entitled
to the benefits of any sinking fund. All preferred shares rank senior to common
shares both as to dividends and liquidation preference, but have no general
voting rights. In the event that the equivalent of six full quarterly dividend
periods are in arrears, the holders of the outstanding shares of the preferred
stock (voting as a single class) will be entitled to vote for the election of
two additional directors to serve until all dividends in arrears have been paid
in full.
The Corporation may, from time to time, acquire series preferred stock in the
open market by tender offer, exchange offer, or otherwise. The Corporation's
decision to make such acquisitions is dependent on many factors, including
market conditions in effect at the time of any contemplated acquisition.
During 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 had 4.5 million shares of 7 1/2% Cumulative
Preferred Stock, Series A, outstanding at December 31, 1997.
The Corporation also repurchased 2.0 million shares of Adjustable Rate
Cumulative Preferred Stock, Series B, during 1997 for $52.5 million. There were
4.0 million shares of Adjustable Rate Cumulative Preferred Stock, Series B,
outstanding at December 31, 1997. The Board of Directors declared the
following dividends for the Corporation's Series A and Series B Preferred
Stock, during 1997 and 1996.
PREFERRED STOCK DIVIDENDS DECLARED
DECLARATION DATE
<TABLE>
<CAPTION>
SERIES A SERIES B
DIVIDEND DIVIDEND PER DIVIDEND DIVIDEND PER
RATE PREFERRED SHARE RATE PREFERRED SHARE
-------- --------------- --------- ----------------
<S> <C> <C> <C> <C>
October 14, 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . 7.50% $ .46875 6.29% $ .39320
July 15, 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.50 .46875 6.66 .41610
April 21, 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.50 .46875 6.98 .43622
January 14, 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . 7.50 .46875 6.56 .40990
October 15, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . 7.50 .46875 6.83 .42690
September 24, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . - - 7.00 .10690
July 11, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.50 .46875 - -
April 18, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.50 .46875 - -
January 17, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . 7.50 .46875 - -
</TABLE>
COMMON STOCK
On July 15, 1997, the Board of Directors approved a three-for-two split of the
Corporation's Common Stock, effected in the form of a dividend. In connection
with this transaction, one additional share of common stock was issued on
October 1, 1997, for every two common shares held by stockholders of record as
of September 15, 1997.
On October 15, 1996, the Board of Directors approved a three-for-two split of
the Corporation's Common Stock, effected in the form of a dividend. In
connection with this transaction, one additional share of common stock was
issued on January 1, 1997, for every two common shares held by stockholders of
record as of December 16, 1996.
On April 22, 1996, the stockholders of the Corporation approved an amendment to
the Corporation's charter to increase the number of authorized shares of common
stock from 390.0 million shares to 700.0 million shares. This amendment became
effective May 3, 1996.
On January 17, 1996, the Board of Directors approved a three-for-two split of
the Corporation's Common Stock, effected in the form of a dividend. In
connection with this transaction, one additional share of common stock was
issued on February 16, 1996, for every two common shares held by stockholders
of record as of February 2, 1996.
All common share and per common share data have been restated to reflect all of
the Corporation's stock splits.
NOTE M: CASH AND DIVIDEND RESTRICTIONS
The Bank is required by the Federal Reserve Bank to maintain cash reserves
against certain categories of average deposit liabilities. During 1997 and
1996, these required cash reserves were satisfied by currency and coin
holdings.
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.
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
53
<PAGE> 56
MBNA CORPORATION AND SUBSIDIARIES
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 pay dividends will depend on its future net income and
capital requirements. At December 31, 1997, the amount of retained earnings
available for declaration and payment of dividends from the Bank to the
Corporation was $651.0 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 December 31, 1997.
NOTE N: CAPITAL ADEQUACY
The Corporation and the 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's and the Bank's capital amounts and
classification are subject to qualitative judgments by the regulators about
components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Corporation and the Bank to maintain minimum amounts and ratios
(set forth in the Capital Adequacy table below) of Tier 1 and Total Capital to
risk weighted assets and of Tier 1 Capital to average assets (Leverage ratio).
Management believes that the Corporation and the Bank met all capital adequacy
requirements to which they were subject at December 31, 1997.
At December 31, 1997, 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 as set forth in the Capital Adequacy table.
CAPITAL ADEQUACY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
TO BE WELL-CAPITALIZED
FOR CAPITAL UNDER PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
-------------------- ------------------- ------------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
-------------------- ------------------- ------------------------
December 31, 1997
<S> <C> <C> <C> <C> <C> <C>
Tier 1 Capital (to Risk Weighted Assets):
MBNA Corporation . . . . . . . . . . . . . . . $ 2,283,775 9.82% $ 930,006 4.00% (a)
MBNA America Bank, N.A. . . . . . . . . . . . 2,034,966 9.56 851,237 4.00 $ 1,276,856 6.00%
Total Capital (to Risk Weighted Assets):
MBNA Corporation . . . . . . . . . . . . . . . 2,787,958 11.99 1,860,013 8.00 (a)
MBNA America Bank, N.A. . . . . . . . . . . . 2,353,460 11.06 1,702,474 8.00 2,128,093 10.00
Tier 1 Capital (to Average Assets):
MBNA Corporation . . . . . . . . . . . . . . . 2,283,775 11.13 820,969 4.00 (a)
MBNA America Bank, N.A. . . . . . . . . . . . 2,034,966 10.90 746,553 4.00 933,191 5.00
December 31, 1996
Tier 1 Capital (to Risk Weighted Assets):
MBNA Corporation . . . . . . . . . . . . . . . 1,814,730 10.89 666,342 4.00 (a)
MBNA America Bank, N.A. . . . . . . . . . . . 1,366,092 10.01 546,095 4.00 819,142 6.00
Total Capital (to Risk Weighted Assets):
MBNA Corporation . . . . . . . . . . . . . . . 2,201,934 13.22 1,332,684 8.00 (a)
MBNA America Bank, N.A. . . . . . . . . . . . 1,681,088 12.31 1,092,190 8.00 1,365,237 10.00
Tier 1 Capital (to Average Assets):
MBNA Corporation . . . . . . . . . . . . . . . 1,814,730 11.21 647,626 4.00 (a)
MBNA America Bank, N.A. . . . . . . . . . . . 1,366,092 9.24 591,186 4.00 738,983 5.00
</TABLE>
(a) Not applicable for bank holding companies.
54
<PAGE> 57
MBNA CORPORATION AND SUBSIDIARIES
NOTE O: COMMITMENTS AND CONTINGENCIES
At December 31, 1997, the Corporation had outstanding lines of credit of $247.9
billion committed to its Customers. Of that total commitment, $198.5 billion is
unused. While this amount represents the total available lines of credit to
Customers, the Corporation has not experienced and does not anticipate that all
of its Customers will exercise their entire available line at any given point
in time. The Corporation has the right to reduce or cancel these available
lines of credit at any time.
The Corporation has two one-year revolving credit facilities totaling $50.0
million. These credit facilities were renewed in 1997 with $25.0 million
expiring in March 1998 and $25.0 million expiring in September 1998. The
Corporation may take advances under these facilities subject to certain
conditions, including requirements for tangible net worth. These facilities may
be used for general corporate purposes and were not drawn upon as of December
31, 1997.
In January 1997, the Bank extended its $2.0 billion committed syndicated
revolving credit facility through February 2001. Advances are subject to
covenants and conditions customary in a transaction of this kind. These
conditions include requirements for tangible net worth of at least $760.0
million, increased by 40% of the Bank's net income earned after September 30,
1996, and managed loan receivables 90 days or more past due plus nonaccrual
receivables not to exceed 6% of managed credit card receivables. Should managed
credit card losses equal or exceed 5% for a period of four consecutive
quarters, a ratio of qualifying loan receivables to outstanding borrowings
under the facility of at least 115% is required. The facility may be used for
general corporate purposes and was not drawn upon as of December 31, 1997.
MBNA International has seven bilateral credit facilities, ranging from one to
five years, totaling pound sterling 66.5 million (approximately $109.3 million
at December 31, 1997). MBNA International may take advances under the
facilities subject to certain conditions, including requirements for tangible
net worth. The facilities may be used for general corporate purposes. At
December 31, 1997, MBNA International had pound sterling 40.0 million
(approximately $65.7 million) available to be drawn under the facilities.
In addition, MBNA International has a pound sterling 300.0 million
(approximately $492.8 million at December 31, 1997) multi-currency committed
syndicated revolving credit facility which expires in October 2000. This
facility was increased by MBNA International during 1996 from pound sterling
200.0 million to pound sterling 300.0 million. MBNA International may take
advances under the facility subject to certain conditions, including
requirements for tangible net worth, outstanding loan receivables, and account
delinquencies. The facility may be used for general corporate purposes and had
pound sterling 100.0 million (approximately $164.3 million) and IR pound
sterling 20.0 million (approximately $28.4 million) outstanding at December 31,
1997. These borrowings, which are included as part of short-term borrowings in
the consolidated statements of financial condition, matured in January 1998.
MBNA Canada, the Bank's foreign bank subsidiary organized in late 1997, has a
six-year CAD$125.0 million (approximately $87.5 million at December 31, 1997)
multi-currency syndicated revolving credit facility, which expires in December
2003. MBNA Canada may take advances under the facility subject to certain
conditions customary in a transaction of this kind. The facility may be used
for general corporate purposes and was not drawn upon as of December 31, 1997.
NOTE P: OTHER OPERATING EXPENSE
OTHER EXPENSE COMPONENT OF OTHER OPERATING EXPENSE
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997 1996 1995
<S> <C> <C> <C>
Purchased services . . . . . . . . $ 287,016 $ 177,701 $ 148,746
Advertising . . . . . . . . . . . . 133,124 103,407 89,020
Collection . . . . . . . . . . . . 27,378 23,914 20,117
Stationery and supplies . . . . . . 30,960 26,155 20,342
Service bureau . . . . . . . . . . 31,516 25,112 19,509
Postage and delivery . . . . . . . 186,015 114,591 95,370
Telephone usage . . . . . . . . . . 57,647 49,016 38,438
Credit card fraud losses . . . . . 64,572 47,307 40,927
Amortization of intangible assets . 31,290 14,577 9,175
Computer software . . . . . . . . . 46,227 23,880 18,321
Other . . . . . . . . . . . . . . . 101,375 69,599 60,428
----------- ----------- -----------
Total other operating expense . $ 997,120 $ 675,259 $ 560,393
=========== =========== ===========
</TABLE>
NOTE Q: SPECIAL MARKETING PROGRAM
During 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.
NOTE R: INCOME TAXES
RECONCILIATION OF STATUTORY INCOME TAXES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997 1996 1995
<S> <C> <C> <C>
Income before income taxes . . . . . . $ 1,022,108 $ 731,294 $ 584,601
Statutory tax rate . . . . . . . . . . 35% 35% 35%
-------------- -------------- ------------
Income tax at statutory tax rate . . . 357,738 255,953 204,610
State taxes, net of federal benefit . . 11,182 9,751 9,133
Other . . . . . . . . . . . . . . . . . 30,688 23,888 17,759
-------------- -------------- ------------
Applicable income taxes . . . . . . . . 399,608 289,592 231,502
Tax benefit from Customer-based
intangible assets . . . . . . . . . . - (32,793) -
-------------- -------------- ------------
Total income taxes . . . . . . . . $ 399,608 $ 256,799 $ 231,502
============== ============== ============
Current income taxes . . . . . . . . . $ 358,259 $ 288,805 $ 221,869
Deferred income taxes (benefit) . . . . 41,349 (32,006) 9,633
-------------- -------------- ------------
Total income taxes . . . . . . . . $ 399,608 $ 256,799 $ 231,502
============== ============== ============
</TABLE>
55
<PAGE> 58
MBNA CORPORATION AND SUBSIDIARIES
SUMMARY OF NET DEFERRED TAX ASSETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, 1997 1996
<S> <C> <C>
Reserve for possible credit losses . . . . $ 51,979 $ 41,500
Customer-based intangible assets . . . . . 65,927 77,310
Other deferred tax assets . . . . . . . . . 141,111 102,332
------------ ------------
Total deferred tax assets . . . . . . . 259,017 221,142
Valuation allowance . . . . . . . . . . . . - -
------------ ------------
Total deferred tax assets less valuation
allowance . . . . . . . . . . . . . . . 259,017 221,142
Total deferred tax liabilities . . . . . (205,333) (121,900)
------------ ------------
Net deferred tax assets . . . . . . . . $ 53,684 $ 99,242
============ ============
</TABLE>
Net income for 1996 included 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 these assets because there were uncertainties concerning the tax treatment
of such assets. In 1993, the U.S. Supreme Court affirmed that Customer-based
intangible assets may be amortized for tax purposes. Accordingly, the
Corporation recognized a portion of the tax benefit related to the
Customer-based intangible assets. During 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.
NOTE S: FOREIGN ACTIVITIES
The Corporation's foreign activities are primarily performed through the Bank's
two foreign bank subsidiaries, MBNA International and MBNA Canada. The Bank
also has a foreign branch office in the Grand Cayman Islands, which invests in
interest-earning time deposits and accepts eurodollar deposits. This branch
also participates in the loan receivables securitized by MBNA International.
FOREIGN LOAN RECEIVABLES DISTRIBUTION
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, 1997 1996
<S> <C> <C>
LOANS HELD FOR SECURITIZATION:
Credit card . . . . . . . . . . . . . . . $ 602,798 $ 263,756
------------ -------------
Total loans held for securitization . . 602,798 263,756
LOAN PORTFOLIO:
Credit card . . . . . . . . . . . . . . . 354,288 207,973
Other consumer . . . . . . . . . . . . . . 244,439 96,727
------------ -------------
Total loan portfolio . . . . . . . . . . 598,727 304,700
------------ -------------
Total loan receivables . . . . . . . . . $ 1,201,525 $ 568,456
============ =============
</TABLE>
Because certain foreign operations are integrated with many of the Bank's
domestic operations, estimates and assumptions have been made to attribute
certain income and expenses between domestic and foreign operations. Amounts
are allocated for interest costs to users of funds and for other items
incurred. The provision for credit losses is allocated based on specific
charge-off experience and risk characteristics of the foreign loan receivables.
The Corporation does not have a significant geographic area in which total
assets, total income, income before income taxes, or net income exceeds 10% of
the comparable amount reported in the consolidated financial statements.
Therefore, the Corporation's foreign financial information is presented on a
combined basis.
SELECTED FOREIGN DATA
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, 1997 1996 1995
<S> <C> <C> <C>
DOMESTIC
Total assets . . . . . . . . . . . . . . . . . . . $ 18,386,590 $ 15,625,584 $ 12,166,636
Total income . . . . . . . . . . . . . . . . . . . 4,180,772 3,080,178 2,453,922
Income before income taxes . . . . . . . . . . . . 993,222 731,950 592,352
Net income . . . . . . . . . . . . . . . . . . . . 602,962 473,345 358,903
FOREIGN
Total assets . . . . . . . . . . . . . . . . . . . 2,918,923 1,409,758 1,062,253
Total income . . . . . . . . . . . . . . . . . . . 343,120 199,012 111,511
Income (loss) before income taxes . . . . . . . . . 28,886 (656) (7,751)
Net income (loss) . . . . . . . . . . . . . . . . . 19,538 1,150 (5,804)
MBNA CORPORATION
Total assets . . . . . . . . . . . . . . . . . . . 21,305,513 17,035,342 13,228,889
Total income . . . . . . . . . . . . . . . . . . . 4,523,892 3,279,190 2,565,433
Income before income taxes . . . . . . . . . . . . 1,022,108 731,294 584,601
Net income . . . . . . . . . . . . . . . . . . . . 622,500 474,495 353,099
</TABLE>
NOTE T: RELATED PARTY TRANSACTIONS
The Corporation's directors and executive officers hold credit cards or other
lines of credit issued by the Bank on the same terms prevailing at the time for
those issued to other persons.
NOTE U: FAIR VALUE OF FINANCIAL INSTRUMENTS
The following presents the fair value of financial instruments as of December
31, 1997 and 1996, whether or not recognized in the Corporation's consolidated
statements of financial condition, for which it is practicable to estimate that
value. In addition, certain financial instruments and all nonfinancial
instruments are excluded in accordance with generally accepted accounting
principles. In cases where quoted market prices are not available, fair values
are estimated using present value or other valuation techniques. These
techniques are significantly affected by the assumptions used, including the
discount rate and estimates of future cash flows. In that regard, the derived
fair value estimates cannot be substantiated by comparison to independent
market values and, in many cases, could not be realized in an immediate
settlement of the instrument. Accordingly, the aggregate fair value amounts
presented do not represent the underlying value of the Corporation.
56
<PAGE> 59
MBNA CORPORATION AND SUBSIDIARIES
FINANCIAL ASSETS
CASH AND DUE FROM BANKS: Cash and due from banks are carried at an amount that
approximates fair value.
MONEY MARKET INSTRUMENTS: Money market instruments include interest-earning
time deposits in other banks and federal funds sold and securities purchased
under resale agreements. As a result of the short-term nature of these
instruments, the carrying amounts reported in the consolidated statements of
financial condition approximate these assets' fair value.
INVESTMENT SECURITIES: Fair value is based on the market value of the
individual investment security without regard to any premium or discount that
may result from concentrations of ownership of a financial instrument, possible
tax ramifications, or estimated transaction costs. Market value for investment
securities is based on quoted market prices or dealer quotes.
LOANS HELD FOR SECURITIZATION: The carrying value of loans held for
securitization approximates its fair value due to the short-term nature of
these assets.
LOAN PORTFOLIO: The carrying value of the Corporation's loan portfolio
approximates its fair value. The loan portfolio includes variable-rate loans,
which are at current market rates, and fixed-rate loans, which can be repriced
frequently at market rates.
These valuations do not include the value that relates to estimated cash flows
from new loans generated from existing Customers over the remaining life of the
portfolio or the value of established Customer relationships. Accordingly, the
fair values of loans held for securitization and the loan portfolio do not
represent the underlying value of the Corporation's loan receivables.
ACCRUED INCOME RECEIVABLE: Accrued income receivable includes interest income
earned but not yet received from investment securities, money market
instruments, loan receivables, and interest rate swap agreements. The carrying
amount reported in the consolidated statements of financial condition
approximates the fair value of these assets due to their relatively short-term
nature.
ACCOUNTS RECEIVABLE FROM SECURITIZATIONS: The fair value of accounts receivable
from securitizations is determined by discounting the future cash flows from
the securitizations using rates currently available to the Corporation for
instruments with similar terms and remaining maturities.
CARRYING VALUES AND ESTIMATED FAIR VALUES OF THE CORPORATION'S FINANCIAL ASSETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, 1997 1996
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
FINANCIAL ASSETS
Cash and due from banks . . . . . . . . . . . . . . . . . . . . . . . $ 263,064 $ 263,064 $ 225,063 $ 225,063
Money market instruments . . . . . . . . . . . . . . . . . . . . . . 2,086,065 2,086,065 876,614 876,614
Investment securities:
Available-for-sale . . . . . . . . . . . . . . . . . . . . . . . . 2,162,464 2,162,464 1,719,730 1,719,730
Held-to-maturity . . . . . . . . . . . . . . . . . . . . . . . . . 346,180 341,868 598,320 592,208
Loans held for securitization . . . . . . . . . . . . . . . . . . . . 2,900,198 2,900,198 2,469,974 2,469,974
Loan portfolio, net of reserve for possible credit losses . . . . . . 8,099,400 8,099,400 7,540,651 7,540,651
Accrued income receivable . . . . . . . . . . . . . . . . . . . . . . 146,964 146,964 98,160 98,160
Accounts receivable from securitizations . . . . . . . . . . . . . . 2,835,831 2,825,000 1,777,323 1,768,000
</TABLE>
FINANCIAL LIABILITIES
TOTAL DEPOSITS: The fair value of noninterest-bearing demand deposits, savings
accounts, interest-bearing transaction accounts, and money market deposit
accounts is equal to the amount payable upon demand. The fair value of time
deposits is estimated by discounting the future cash flows of the stated
maturities using estimated rates currently offered for like deposits. The
valuation does not include the benefit that results from the low-cost funding
provided by the various deposit liabilities compared to the cost of borrowing
funds in the market.
SHORT-TERM BORROWINGS: Short-term borrowings include federal funds purchased
and securities sold under repurchase agreements, short-term bank notes, and
other short-term borrowings. The fair value of short-term borrowings
approximates the carrying value of these instruments based upon their
short-term nature.
LONG-TERM DEBT AND BANK NOTES: The fair value of primarily all of the
Corporation's long-term debt and bank notes is estimated by discounting the
future cash flows of the stated maturities of the long-term debt and bank notes
using estimated rates currently offered for similar debt obligations. The fair
value of the Corporation's guaranteed preferred beneficial interests in
Corporation's junior subordinated deferrable interest debentures is based upon
its quoted market price.
ACCRUED INTEREST PAYABLE: Accrued interest payable includes interest expensed
but not yet paid for deposits, short-term borrowings, long-term debt and bank
notes, and interest rate swap agreements. The carrying amount approximates the
fair value of these liabilities due to their relatively short-term nature.
57
<PAGE> 60
MBNA CORPORATION AND SUBSIDIARIES
CARRYING VALUES AND ESTIMATED FAIR VALUES OF THE CORPORATION'S FINANCIAL
LIABILITIES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, 1997 1996
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
----------- ----------- ---------- ----------
FINANCIAL LIABILITIES
<S> <C> <C> <C> <C>
Total deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . $12,913,213 $13,052,000 $10,151,686 $10,243,000
Short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . 192,623 192,623 693,387 693,387
Long-term debt and bank notes . . . . . . . . . . . . . . . . . . . . 5,478,917 5,532,000 3,950,358 3,996,000
Accrued interest payable . . . . . . . . . . . . . . . . . . . . . . 137,215 137,215 107,187 107,187
</TABLE>
OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS
The fair value of the Corporation's off-balance-sheet financial instruments is
represented by the estimated unrealized gains or losses as determined by quoted
market prices or dealer quotes. This value generally reflects the estimated
amounts that the Corporation would receive or pay to terminate the instruments
at the reporting date.
As of December 31, 1997 and 1996, the Corporation had interest rate swap
agreements with underlying notional amounts of $350.0 million and $1.4 billion,
respectively. These agreements had a net unrealized gain of approximately $5.0
million and $5.5 million at December 31, 1997 and 1996, respectively.
The Corporation also has forward exchange contracts and foreign exchange swap
agreements that are used to manage its foreign exchange rate risk. The notional
amounts underlying the forward exchange contracts at December 31, 1997 and
1996, were $512.1 million and $420.3 million, respectively. These contracts had
a net unrealized gain of $2.3 million at December 31, 1997 and a net unrealized
loss of $15.7 million at December 31, 1996.
The notional value underlying the Corporation's foreign exchange swap
agreements at December 31, 1997 and 1996, was $40.0 million, with a net
realizable value of $0 for both periods.
SUMMARY OF ACTIVITY OF OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS (NOTIONAL
AMOUNTS)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FORWARD EXCHANGE INTEREST RATE FOREIGN EXCHANGE
CONTRACTS SWAP AGREEMENTS SWAP AGREEMENTS TOTAL
<S> <C> <C> <C> <C>
Balance, December 31, 1994 . . . . . . . . . . . . . . . $ 83,076 $ 2,100,000 $ - $ 2,183,076
Additions . . . . . . . . . . . . . . . . . . . . . . . . 1,107,469 - 40,000 1,147,469
Maturities . . . . . . . . . . . . . . . . . . . . . . . (920,572) (750,000) - (1,670,572)
----------- ------------ ------------ ------------
Balance, December 31, 1995 . . . . . . . . . . . . . . . 269,973 1,350,000 40,000 1,659,973
Additions . . . . . . . . . . . . . . . . . . . . . . . . 2,641,344 - - 2,641,344
Maturities . . . . . . . . . . . . . . . . . . . . . . . (2,491,062) - - (2,491,062)
----------- ------------ ------------ ------------
Balance, December 31, 1996 . . . . . . . . . . . . . . . 420,255 1,350,000 40,000 1,810,255
Additions . . . . . . . . . . . . . . . . . . . . . . . . 2,825,310 - - 2,825,310
Maturities . . . . . . . . . . . . . . . . . . . . . . . (2,733,440) (1,000,000) - (3,733,440)
----------- ------------ ------------ ------------
BALANCE, DECEMBER 31, 1997 . . . . . . . . . . . . . . . $ 512,125 $ 350,000 $ 40,000 $ 902,125
=========== ============ ============ ============
</TABLE>
NOTE V: OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS
The Corporation uses interest rate swap agreements to change fixed-rate funding
sources to floating-rate funding sources to better match the rate sensitivity
of the Corporation's assets. The Corporation also uses forward exchange
contracts to reduce its exposure to foreign currency exchange rate risk
primarily related to MBNA International.
The Corporation also entered into a foreign exchange swap agreement during 1995
to facilitate the issuance of a portion of the Subordinated Guaranteed
Floating-Rate Notes by MBNA International and offset this exposure to foreign
currency exchange rate risk with an additional foreign exchange swap agreement.
These foreign exchange swap agreements have no impact on the Corporation's
consolidated income statements.
Although off-balance-sheet financial instruments do not expose the Corporation
to credit risk equal to the notional amount, the Corporation is exposed to
credit risk in an off-balance-sheet financial instrument if the counterparty
fails to perform. This credit risk is measured as the gross unrealized gain on
the financial instrument. The Corporation had gross unrealized gains on
interest rate swap agreements of $5.0 million and $5.5 million at December 31,
1997 and 1996, respectively. In addition, the Corporation had $6.4 million of
gross unrealized gains on forward exchange contracts at December 31, 1997, and
no gross unrealized gains on forward exchange contracts at December 31, 1996.
The Corporation also had gross unrealized gains on foreign exchange swap
agreements of $765,000 and $1.6 million at December 31, 1997 and 1996,
58
<PAGE> 61
MBNA CORPORATION AND SUBSIDIARIES
respectively. The credit risk is reduced in these instruments by dealing only
with highly rated counterparties who have credit ratings of investment grade as
rated by the major rating agencies.
There were no securities pledged under the terms of the interest rate swap
agreements at December 31, 1997 and 1996.
At December 31, 1997, the Corporation has interest rate swap agreements with a
notional amount of $150.0 million maturing in 1999 and $200.0 million maturing
in 2002. The Corporation's forward exchange contracts mature in 1998 and the
foreign exchange swap agreements mature in 2005.
SIGNIFICANT CLASSES OF OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
NOTIONAL MATURITY ESTIMATED
AMOUNT RECEIVE RATE(a) PAY RATE (b) IN YEARS FAIR VALUE
---------- --------------- ------------ -------- ----------
<S> <C> <C> <C> <C> <C>
DECEMBER 31, 1997
Forward exchange contracts--pounds sterling . . . . . . $ 512,125 1.65 1.64 .1
Gross unrealized gains . . . . . . . . . . . . . . . $ 6,360
Gross unrealized losses . . . . . . . . . . . . . . (4,022)
----------
Total . . . . . . . . . . . . . . . . . . . . . . $ 2,338
==========
Interest rate swap agreements . . . . . . . . . . . . . 350,000 6.45% 5.91% 3.4
Gross unrealized gains . . . . . . . . . . . . . . . $ 5,033
Gross unrealized losses . . . . . . . . . . . . . . -
----------
Total . . . . . . . . . . . . . . . . . . . . . . $ 5,033
==========
Foreign exchange swap agreements . . . . . . . . . . . 40,000 1.64 1.64 7.4
Gross unrealized gains . . . . . . . . . . . . . . . $ 765
Gross unrealized losses . . . . . . . . . . . . . . (765)
----------
Total . . . . . . . . . . . . . . . . . . . . . . $ -
==========
DECEMBER 31, 1996
Forward exchange contracts--pounds sterling . . . . . . 420,255 1.65 1.71 .1
Gross unrealized gains . . . . . . . . . . . . . . . $ -
Gross unrealized losses . . . . . . . . . . . . . . (15,663)
----------
Total . . . . . . . . . . . . . . . . . . . . . . $ (15,663)
==========
Interest rate swap agreements . . . . . . . . . . . . . 1,350,000 6.42% 5.54% 1.6
Gross unrealized gains . . . . . . . . . . . . . . . $ 5,457
Gross unrealized losses . . . . . . . . . . . . . . -
----------
Total . . . . . . . . . . . . . . . . . . . . . . $ 5,457
==========
Foreign exchange swap agreements . . . . . . . . . . . 40,000 1.71 1.71 8.4
Gross unrealized gains . . . . . . . . . . . . . . . $ 1,630
Gross unrealized losses . . . . . . . . . . . . . . (1,630)
----------
Total . . . . . . . . . . . . . . . . . . . . . . $ -
==========
</TABLE>
(a) Weighted average receive rate represents the fixed-rate contracted for at
the time the off-balance-sheet financial instruments were entered into.
(b) Weighted average pay rate for the forward exchange contracts represents
the spot rate at December 31, 1997 and 1996, respectively. The pay rate
for the interest rate swap agreements is generally based upon the
three-month LIBOR and is the rate in effect at December 31, 1997 and 1996,
respectively.
EXPECTED MATURITIES OF OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, 1997 WITHIN 1 YEAR 1-5 YEARS 6-10 YEARS TOTAL
<S> <C> <C> <C> <C>
Forward exchange contracts--pounds sterling
Notional amount . . . . . . . . . . . . . . . . . . . . . $ 512,125 $ - $ - $ 512,125
Estimated fair value . . . . . . . . . . . . . . . . . . . 2,338 - - 2,338
Interest rate swap agreements
Notional amount . . . . . . . . . . . . . . . . . . . . . - 350,000 - 350,000
Estimated fair value . . . . . . . . . . . . . . . . . . . - 5,033 - 5,033
Foreign exchange swap agreements
Notional amount . . . . . . . . . . . . . . . . . . . . . - - 40,000 40,000
Estimated fair value . . . . . . . . . . . . . . . . . . . - - - -
</TABLE>
59
<PAGE> 62
MBNA CORPORATION AND SUBSIDIARIES
NOTE W: PARENT COMPANY FINANCIAL INFORMATION
MBNA Corporation conducts its credit card operations primarily through its
wholly owned subsidiary, MBNA America Bank, N.A. At December 31, 1997, the Bank
constituted 90.7% of the consolidated assets of MBNA Corporation. The parent
company's investment in subsidiaries represents the total equity of all
consolidated subsidiaries, using the equity method of accounting for
investments.
CONDENSED STATEMENTS OF FINANCIAL CONDITION
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, 1997 1996
<S> <C> <C>
ASSETS
Cash and due from banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,991 $ 6,032
Money market instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 158,413 100,175
Notes receivable from non-bank subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . 1,678,173 1,031,716
Investment in subsidiaries:
Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,096,490 1,645,011
Non-bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 204,211 176,789
Premises and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72,119 47,692
Accrued income receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,177 12,757
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76,588 41,478
------------ ------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,311,162 $ 3,061,650
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,642,019 $ 1,011,447
Junior subordinated deferrable interest debentures due to non-bank subsidiaries . . . . . 580,566 257,732
Accrued interest payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,025 15,039
Dividends payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43,261 40,179
Accrued expenses and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . 52,241 32,945
------------ ------------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,341,112 1,357,342
Stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,970,050 1,704,308
------------ ------------
Total liabilities and stockholders' equity . . . . . . . . . . . . . . . . . . . . . . $ 4,311,162 $ 3,061,650
============ ============
</TABLE>
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
YEAR ENDED DECEMBER 31, 1997 1996 1995
<S> <C> <C> <C>
OPERATING INCOME
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 100,351 $ 66,056 $ 47,611
Dividends from subsidiaries:
Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 188,000 148,000 134,000
Non-bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,201 23 -
Management fees from subsidiaries . . . . . . . . . . . . . . . . . . . . . 32,507 29,058 22,135
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 23 24
---------- ------------ -----------
Total operating income . . . . . . . . . . . . . . . . . . . . . . . . 325,082 243,160 203,770
OPERATING EXPENSE
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120,997 60,605 48,102
Salaries and employee benefits . . . . . . . . . . . . . . . . . . . . . . 16,117 16,320 9,812
Occupancy expense of premises . . . . . . . . . . . . . . . . . . . . . . . 2,280 2,233 2,165
Furniture and equipment expense . . . . . . . . . . . . . . . . . . . . . . 8,448 4,860 3,847
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,672 2,157 3,659
---------- ------------ -----------
Total operating expense . . . . . . . . . . . . . . . . . . . . . . . 149,514 86,175 67,585
---------- ------------ -----------
Income before income taxes and equity in undistributed net
income (loss) of subsidiaries. . . . . . . . . . . . . . . . . . . . . . . 175,568 156,985 136,185
Applicable income taxes (benefit) . . . . . . . . . . . . . . . . . . . . . (6,807) 2,560 920
Equity in undistributed net income (loss) of subsidiaries:
Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 450,375 326,590 218,215
Non-bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (10,250) (6,520) (381)
---------- ------------ -----------
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 622,500 $ 474,495 $ 353,099
========== ============ ===========
</TABLE>
60
<PAGE> 63
MBNA CORPORATION AND SUBSIDIARIES
CONDENSED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997 1996 1995
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 622,500 $ 474,495 $ 353,099
Adjustments to reconcile net income to net cash provided
by operating activities:
Equity in undistributed earnings of subsidiaries . . . . . . . . . . . . (440,125) (320,070) (217,834)
(Benefit) provision for deferred income taxes . . . . . . . . . . . . . (233) 371 (612)
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . 9,615 8,532 5,069
Decrease in other operating activities . . . . . . . . . . . . . . . . . 15,974 2,615 6,419
--------- --------- ---------
Net cash provided by operating activities . . . . . . . . . . . . . . 207,731 165,943 146,141
INVESTING ACTIVITIES
Net (increase) decrease in money market instruments . . . . . . . . . . . . (58,238) 83,164 (122,372)
Net increase in notes receivable from non-bank subsidiaries . . . . . . . . (646,457) (317,682) (250,770)
Net purchases of premises and equipment . . . . . . . . . . . . . . . . . . (29,439) (11,868) (13,368)
Investment in subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . (37,701) (298,532) (19,940)
--------- --------- ---------
Net cash used in investing activities . . . . . . . . . . . . . . . . (771,835) (544,918) (406,450)
FINANCING ACTIVITIES
Proceeds from issuance of long-term debt and bank notes . . . . . . . . . . 679,304 199,222 273,322
Maturity of long-term debt and bank notes . . . . . . . . . . . . . . . . . (50,000) (25,000) -
Proceeds from issuance of junior subordinated deferrable interest debentures
to non-bank subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . 286,469 257,732 -
Proceeds from issuance of preferred stock . . . . . . . . . . . . . . . . . - 146,207 145,070
Acquisition and retirement of preferred stock . . . . . . . . . . . . . . . (52,483) - -
Proceeds from exercise of stock options and other awards . . . . . . . . . 31,948 22,869 12,780
Acquisition and retirement of common stock . . . . . . . . . . . . . . . . (157,446) (71,913) (49,829)
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (173,729) (149,115) (120,312)
--------- --------- ---------
Net cash provided by financing activities . . . . . . . . . . . . . . 564,063 380,002 261,031
--------- --------- ---------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . . . (41) 1,027 722
Cash and cash equivalents at beginning of year . . . . . . . . . . . . . . 6,032 5,005 4,283
--------- --------- ---------
Cash and cash equivalents at end of year . . . . . . . . . . . . . . . . . $ 5,991 $ 6,032 $ 5,005
========= ========= =========
SUPPLEMENTAL DISCLOSURES:
Interest expense paid . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 111,665 $ 58,308 $ 44,521
========= ========= =========
Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ - $ - $ -
========= ========= =========
</TABLE>
61
<PAGE> 64
MBNA CORPORATION AND SUBSIDIARIES
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
MBNA Corporation
We have audited the accompanying consolidated statements of financial condition
of MBNA Corporation and subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of income, changes in stockholders' equity, and
cash flows for each of the three years in the period ended December 31, 1997.
These financial statements are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of MBNA Corporation
and subsidiaries at December 31, 1997 and 1996, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
As discussed in Note I to the consolidated financial statements, effective
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."
/s/ ERNST & YOUNG LLP
Baltimore, Maryland
January 13, 1998
62
<PAGE> 65
MBNA CORPORATION AND SUBSIDIARIES
QUARTERLY DATA
(UNAUDITED)
SUMMARY OF CONSOLIDATED QUARTERLY FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
<S> <C> <C> <C> <C>
1997
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . $405,288 $435,268 $437,224 $433,233
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . 224,509 250,524 263,775 279,815
Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . 180,779 184,744 173,449 153,418
Provision for possible credit losses . . . . . . . . . . . . . . . . 58,405 87,363 60,403 53,869
Other operating income . . . . . . . . . . . . . . . . . . . . . . . 642,620 694,834 692,039 783,386
Other operating expense . . . . . . . . . . . . . . . . . . . . . . . 559,791 565,388 523,542 574,400
Income before income taxes . . . . . . . . . . . . . . . . . . . . . 205,203 226,827 281,543 308,535
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123,942 138,433 171,826 188,299
Net income applicable to common stock . . . . . . . . . . . . . . . . 117,711 132,686 168,006 184,570
Earnings per common share (a) . . . . . . . . . . . . . . . . . . . . .23 .26 .34 .37
Earnings per common share--assuming dilution (a) . . . . . . . . . . .22 .25 .32 .35
Weighted average common shares outstanding (000) (a) . . . . . . . . 501,229 501,219 501,208 501,243
Weighted average common shares outstanding and
common stock equivalents (000) (a) . . . . . . . . . . . . . . . . . 525,280 524,925 528,310 527,576
1996
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . $322,303 $321,814 $351,820 $387,330
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . 171,108 171,684 190,915 209,083
Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . 151,195 150,130 160,905 178,247
Provision for possible credit losses . . . . . . . . . . . . . . . . 49,488 49,112 35,273 44,351
Other operating income . . . . . . . . . . . . . . . . . . . . . . . 397,548 444,061 472,348 581,966
Other operating expense . . . . . . . . . . . . . . . . . . . . . . . 346,532 374,020 383,538 468,461
Income before income taxes . . . . . . . . . . . . . . . . . . . . . 98,392 171,059 214,442 247,401
Net income (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . 92,222 103,320 129,523 149,430
Net income applicable to common stock (b) . . . . . . . . . . . . . . 89,409 100,508 126,477 144,046
Earnings per common share (a) . . . . . . . . . . . . . . . . . . . . .18 .20 .25 .29
Earnings per common share--assuming dilution (a) . . . . . . . . . . .17 .19 .24 .28
Weighted average common shares outstanding (000) (a) . . . . . . . . 501,216 501,204 501,197 501,215
Weighted average common shares outstanding and
common stock equivalents (000) (a) . . . . . . . . . . . . . . . . . 517,267 517,588 518,234 522,806
</TABLE>
(a) The Corporation adopted Statement of Financial Accounting Standards
No. 128, "Earnings per Share" (Statement No. 128), effective for
financial statements issued for periods ending after December 15,
1997. In accordance with Statement No. 128, earnings per common share
is computed using net income applicable to common stock and weighted
average common shares outstanding, whereas earnings per common
share--assuming dilution includes the potential dilutive effect of
common stock equivalents which are solely related to employee stock
options. The Corporation has no other common stock equivalents. For
comparative purposes, all common share and per common share amounts
have been restated to reflect the adoption of Statement No. 128 and
for the three-for-two split of the Corporation's Common Stock,
effected in the form of a dividend, issued October 1, 1997, to
stockholders of record as of September 15, 1997.
(b) Net income for the three months ended March 31, 1996, includes a $32.8
million tax benefit related to deductions for the amortization of
Customer-based intangible assets acquired in connection with the
initial public offering of the Corporation's Common Stock, and a
charge of $32.8 million net of tax ($54.3 million pretax) related to
the launch of the MBNA Platinum Plus MasterCard and Visa program.
63
<PAGE> 66
MBNA CORPORATION AND SUBSIDIARIES
STOCK PRICE RANGES AND DIVIDENDS
(UNAUDITED)
COMMON STOCK PRICE RANGE AND DIVIDENDS
<TABLE>
<CAPTION>
DIVIDENDS
DECLARED PER
HIGH LOW COMMON SHARE
--------- -------- ----------------
<S> <C> <C> <C>
1997
First quarter . . . . $ 24 3/4 $ 18 3/16 $ .08
Second quarter . . . 24 11/16 18 11/16 .08
Third quarter . . . . 30 1/8 24 7/8 .08
Fourth quarter . . . 29 1/4 25 9/16 .08
1996
First quarter . . . . $ 13 13/16 $ 10 1/8 $ .07
Second quarter . . . 14 1/16 12 .07
Third quarter . . . . 15 7/16 11 13/16 .07
Fourth quarter . . . 19 15 3/16 .07
</TABLE>
Market price and per common share data have been restated to reflect the
three-for-two split of the Corporation's Common Stock, effected in the form of
a dividend, issued October 1, 1997, to stockholders of record as of September
15, 1997.
The Corporation's Common Stock is traded on the New York Stock Exchange under
the symbol "KRB" and is listed as "MBNA" in newspapers. At February 13, 1998,
the Corporation had 2,924 common stockholders of record. This does not include
beneficial owners for whom Cede & Co. or others act as nominees.
On January 13, 1998, the Board of Directors approved an increase in the
quarterly dividend to $.09 per common share. The cash dividend is payable April
1, 1998, to stockholders of record as of March 16, 1998.
PREFERRED STOCK PRICE RANGE AND DIVIDENDS
<TABLE>
<CAPTION>
DIVIDENDS
DECLARED PER
HIGH LOW PREFERRED SHARE
-------- ------- ---------------
<S> <C> <C> <C>
SERIES A
1997
First quarter . . $ 27 5/32 $ 25 5/8 $ .46875
Second quarter . . 26 45/64 25 7/8 .46875
Third quarter . . 26 13/16 26 .46875
Fourth quarter . . 27 5/16 26 1/16 .46875
1996
First quarter . . $ 25 1/8 $ 24 1/8 $ .46875
Second quarter . . 25 23 7/8 .46875
Third quarter . . 24 5/8 24 .46875
Fourth quarter . . 26 3/4 24 3/8 .46875
SERIES B
1997
First quarter . . $ 27 1/4 $ 25 1/2 $ .40990
Second quarter . . 27 1/4 26 3/4 .43622
Third quarter . . 27 26 3/8 .41610
Fourth quarter . . 26 3/4 25 13/16 .39320
1996
Third quarter . . $ 24 3/4 $ 24 5/8 $ .10690
Fourth quarter . . 26 1/8 24 5/8 .42690
</TABLE>
The Corporation has two series of preferred stock issued and outstanding, both
with a $25 stated value per share. Each series of preferred stock is traded on
the New York Stock Exchange, the Series A Preferred Stock under the symbol
"KRBpfa" and the Series B Preferred Stock under the symbol "KRBpfb."
On January 13, 1998, the Board of Directors declared a quarterly dividend of
$.46875 per share on the 71/2% Cumulative Preferred Stock, Series A, and a
quarterly dividend of $.3660 per share on the Adjustable Rate Cumulative
Preferred Stock, Series B. Both dividends are payable April 15, 1998, to
stockholders of record as of March 31, 1998.
64
<PAGE> 67
SENIOR EXECUTIVES
CHARLES M. CAWLEY, 57, is president of MBNA Corporation and chief executive
officer of its banking subsidiary, MBNA America Bank, N.A. Mr. Cawley has more
than 32 years' management experience in the financial services industry and was
the senior member of the management team that established MBNA in 1982. A
graduate of Georgetown University and a member of its board of directors, Mr.
Cawley also serves on the boards of the University of Delaware, the Eisenhower
Exchange Fellowships, and the American Architectural Foundation. He is chairman
of the board of The Grand Opera House in Wilmington, Delaware.
Chief Administrative Officer JOHN R. COCHRAN III, 46, oversees all business
development and marketing activities, including sales, marketing, advertising,
regional marketing, telemarketing, and group administration. Mr. Cochran has 25
years' management experience in the financial services industry and was a
member of the management team that established MBNA in 1982. A graduate of
Loyola College (Maryland), Mr. Cochran developed the endorsed marketing concept
that has led to MBNA signing thousands of membership groups and financial
institutions. He also established what is now one of the nation's largest
financial institution telephone sales operations. Mr. Cochran is a member of
the board of trustees of Loyola College and a member of the board of visitors
of the Delaware Council for Economic Education and the Ronald McDonald House of
Delaware.
RONALD W. DAVIES, 56, joined MBNA in 1991 and oversees MBNA Hallmark
Information Services, which provides MBNA with telecommunications, production
operations, information systems, and systems operations and development. Mr.
Davies has 33 years' experience in information systems and technology
management. A graduate of the University of California, with a master's degree
in economics, Mr. Davies gained experience in the aerospace and banking
industries in various data processing, bank operations, marketing, and
administrative positions.
Chief Operating Officer BRUCE L. HAMMONDS, 49, oversees MBNA's credit, loss
prevention, Customer satisfaction, consumer finance and loan review activities.
Mr. Hammonds has 28 years' management experience in consumer lending and was a
member of the management team that established MBNA in 1982. A graduate of the
University of Baltimore, Mr. Hammonds is director of the Delaware State Chamber
of Commerce, the Delaware Housing Partnership, and the Delaware Business
Roundtable. He is on the Board of Trustees of Goldey-Beacom College and is a
member of the College of Business and Economics Visiting Committee at the
University of Delaware.
Chief Financial Officer M. SCOT KAUFMAN, 48, joined MBNA in 1985 and oversees
MBNA's accounting, finance, treasury, facilities, and security activities. Mr.
Kaufman has 26 years' experience in the financial services industry. A graduate
of the University of Baltimore with an M.B.A. in finance, Mr. Kaufman has held
senior management positions over-seeing a variety of areas within MBNA and
supervised the financial aspects of MBNA's transition to a public company in
1991. Mr. Kaufman began his career as an internal auditor, later becoming a
corporate auditor, treasurer, and controller. Mr. Kaufman is active in many
professional associations, including the American Institute of CPAs, the
Financial Executive Institute, and the National Association of Accountants. He
is also a member of the Delaware Economic and Financial Advisory Council.
ALFRED LERNER, 64, is chief executive officer of MBNA Corporation and chairman
of its Board of Directors. Mr. Lerner served as chairman of the board and chief
executive officer of MNC Financial Inc. from September 1990 to July 1991 and as
chairman of the board from July 1991 to October 1993. He also served as
chairman of the board of Equitable Bancorporation from July 1983 until it
merged with MNC Financial in January 1990. He has been chairman of the Town and
Country Trust since August 1993 and was chief executive officer from August
1993 to October 1997. He was chairman of the board of The Progressive
Corporation, an insurance holding company, from 1988 to April 1993. A graduate
of Columbia University and a member of its board of trustees, Mr. Lerner also
is president of the Cleveland Clinic Foundation and a member of its board of
trustees. He is also a trustee of Case Western Reserve University and a member
of the board of directors of the Marine Corps Law Enforcement Foundation.
RICHARD K. STRUTHERS, 42, oversees MBNA's international, insurance, deposit,
travel, and Business Card activities. Mr. Struthers has 20 years' management
experience in consumer lending and was a member of the management team that
established MBNA in 1982. A graduate of Penn State University and the Retail
School of Banking at the University of Virginia,Mr. Struthers has held several
management positions, overseeing most of the major operating divisions of MBNA.
Mr. Struthers is a member of the board of Emmaus House and serves on the
marketing committee of Visa U.S.A.
LANCE L. WEAVER, 43, joined MBNA in 1991 and oversees industry relations,
community relations, corporate affairs, law, government relations, compensation
and benefits, and real estate. Mr. Weaver has 23 years' experience in consumer
lending and administration. A graduate of Georgetown University, Mr. Weaver has
had previous experience at two national banks as a vice president and senior
vice president of mortgage lending activities. Mr. Weaver is chairman-elect of
the United Way of Delaware and is a member of the Georgetown University Board
of Regents. He serves on the board of Tower Hill School and is chairman of
Wilmington 2000, a consortium of business and government planners working
toward the revitalization of downtown Wilmington, Delaware, and its environs.
Mr. Weaver also serves on MasterCard International's Global Board and Executive
Committee.
65
<PAGE> 68
MBNA CORPORATION
BOARD OF DIRECTORS
ALFRED LERNER
Chairman and Chief Executive Officer
MBNA Corporation
CHARLES M. CAWLEY
President
MBNA Corporation
Chief Executive Officer
MBNA America Bank, N.A.
JAMES H. BERICK, ESQ.
Chairman
Berick, Pearlman & Mills Co., L.P.A.
BENJAMIN R. CIVILETTI, ESQ.
Chairman
Venable, Baetjer and Howard, LLP
Former Attorney General
of the United States
RANDOLPH D. LERNER, ESQ.
Partner
Securities Advisors, L.P.
STUART L. MARKOWITZ, M.D.
Internist and Managing Partner
Drs. Markowitz, Rosenberg,
Stein & Associates
Clinical Professor
Case Western Reserve University,
College of Medicine
MICHAEL ROSENTHAL, Ph.D.
Professor
Columbia University
Former Associate Dean
for Academic Administration
Columbia College
MBNA AMERICA BANK, N.A.
OFFICERS
EXECUTIVE COMMITTEE
Charles M. Cawley Bruce L. Hammonds Richard K. Struthers
John R. Cochran III M. Scot Kaufman Lance L. Weaver
Ronald W. Davies Alfred Lerner ex officio
MANAGEMENT COMMITTEE
Gregg Bacchieri Robert J.A. Fraser Michelle D. Shepherd
Kenneth F. Boehl John J. Hewes Diane C. Sievering
Jules J. Bonavolonta Janine D. Marrone David W. Spartin
Steve Boyden Thomas P. McGinley Kevin P. Wren
William H. Daiger, Jr. David W. Nelms Thomas D. Wren
Shane G. Flynn Michael G. Rhodes Vernon H.C. Wright
Terrance R. Flynn John W. Scheflen
OPERATING EXECUTIVES
Sunil F. Antani Richard G. Huber Frank W. Quillen
Lisa F. Baughman Scott A. Hudson John C. Richmond
John P. Carey James K. Kallstrom Karen E. Rose
James E. Carrington Alvin Kaltman Salvatore J. Rossi, Jr.
Robert V. Ciarrocki Kevin L. Kramer James J. Roszkowski
John A. Corrozi Mark Levitt Michael R. Scanlan
Douglas M. Cummings Craig S. Lewis Kevin C. Schindler
Brian D. Dalphon Timothy E. Love W. Craig Schroeder
Salvatore A. DeAngelo Victor P. Manning Michael S. Schuck
Douglas R. Denton David H. Maxwell Stephen K. Shock
Joseph A. DeSantis Kathleen B. McEntee David L. Simms
Robert V. DeSantis Frank B. McEntee Richard B. Skinner
Peter S.P. Dimsey Frank J. McKelvey III Timothy P. Staley
Theodore Dixon Charles K. Messick April M. Stercula
Kevin A. Dolan, M.D. Susan D. Morrison Penelope J. Taylor
K. David Elgena William P. Morrison James D. Thornton
James H. Erskine III Paul Muller III Thomas D. Veale
William J. Esposito Edward H. Murphy Steven P. Walczak
John M. Gala Terri C. Murphy Howard C. Wallace
Joseph J. Gatti Al Natali Todd T. Weaver
Peter J. Gatti Maureen A. O'Brien Charles F. Wheatley
Bob B. Hallmark Patrick J. O'Dwyer Dena H. Williams
Denny P. Hanysak Francis H. Otenasek Robert J. Wolf
David L. Harris Kenneth R. Pizer
David M. Hirt Edward G. Plummer
IN MATTERS OF STYLE SWIM WITH THE CURRENT;
IN MATTERS OF PRINCIPLE STAND LIKE A ROCK.
--Thomas Jefferson
66
<PAGE> 69
SUBSIDIARIES OF MBNA CORPORATION
MBNA AMERICA BANK, N.A.
The principal subsidiary of MBNA Corporation, MBNA America is a national bank
with $48.7 billion in managed loans, and is the largest independent credit card
lender in the world, and one of the two largest overall. It also provides
retail deposit, consumer loan, and insurance services. MBNA America is the
recognized industry leader in affinity marketing, with endorsements from
thousands of membership organizations and financial institutions.
SUBSIDIARIES OF MBNA AMERICA BANK, N.A.
MBNA INTERNATIONAL BANK LIMITED (MBNA EUROPE)
MBNA issues credit cards in the United Kingdom. MBNA Europe is located in
Chester, England, with a business development office in London and sales
offices in Dublin, Ireland, and Edinburgh, Scotland.
MBNA INSURANCE SERVICES
MBNA Insurance Services, which markets and services credit-related Life and
Disability, personal Property and Casualty, and Life and Health insurance, is
located in Greenville, Delaware. MBNA is currently licensed to provide its
automobile insurance products in 40 states.
MBNA MARKETING SYSTEMS, INC.
MBNA has state-of-the-art telephone sales facilities to support account
acquisition and maintains offices in Delaware, Florida, Georgia, Maine,
Maryland, New Hampshire, Ohio, Pennsylvania, and Texas. In addition to credit
cards, Marketing Systems cross-sells consumer loan, deposit, and insurance
products.
MBNA CONSUMER SERVICES, INC.
(subsidiary of MBNA Corporation)
MBNA Consumer Services, Inc., is licensed to provide home equity loans in 42
states and the District of Columbia.
MBNA HALLMARK INFORMATION SERVICES, INC.
MBNA Hallmark Information Services, Inc., headquartered in Dallas, Texas,
provides information technology support and services to MBNA America Bank,
N.A., and its affiliates.
MBNA CANADA BANK (MBNA CANADA)
MBNA has established a bank to issue credit cards in Canada. MBNA Canada began
marketing in early 1998, and is located in Ottawa, Ontario, Canada.
INDEPENDENT AUDITORS
Ernst & Young LLP
CORPORATE REGISTRARS AND TRANSFER AGENTS
National City Bank (common stock)
The Bank of New York (preferred stock)
PRINCIPAL FINANCIAL CONTACT
For further information about MBNA Corporation or its subsidiaries, please
contact:
Brian D. Dalphon
Director, Investor Relations
MBNA Corporation
Wilmington, DE 19884-0131
(800) 362-6255
(302) 432-1251
Internet address: www.mbnainternational.com
COMMON STOCK
Listed on New York Stock Exchange
Stock Symbol KRB
[RECYCLE LOGO] This annual report was printed on paper recycled from MBNA
offices.
<PAGE> 70
[MBNA CORPORATION LOGO]
[PHOTO] Automobile
ATTENTION TO DETAIL
DRIVES EVERYTHING WE DO.
SUCCESS IS NEVER FINAL.
<PAGE> 1
Exhibit 21 Subsidiaries of MBNA Corporation
<TABLE>
<CAPTION>
Name Incorporated
- ---- ------------
<S> <C>
MBNA America Bank, N.A. United States
MBNA International Bank Limited* United Kingdom
MBNA Consumer Services, Inc. Delaware
MBNA Hallmark Information Services, Inc.* Delaware
MBNA Marketing Systems, Inc.* Delaware
</TABLE>
*A subsidiary of MBNA America Bank, N.A.
<PAGE> 1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the following Registration
Statements of MBNA Corporation, and in the related Prospectuses, of our report
dated January 13, 1998, with respect to the consolidated financial statements
of MBNA Corporation, included in the 1997 Annual Report to Stockholders of MBNA
Corporation and incorporated by reference in this Annual Report (Form 10-K) for
the year ended December 31, 1997:
<TABLE>
<S> <C> <C>
Number 33-41936 on Form S-8 dated July 22, 1991
Number 33-41895 on Form S-8 dated July 24, 1991
Number 33-50498 on Form S-3 (as amended by Post-Effective
Amendment No. 1) dated August 28, 1992
Number 33-71640 on Form S-8 dated November 15, 1993
Number 33-76278 on Form S-3 (as amended by Amendment No. 1)
dated April 8, 1994
Number 33-95438 on Form S-8 dated August 4, 1995
Number 33-95600 on Form S-3 (as amended by Pre-Effective
Amendment No. 1) dated September 1, 1995
Number 333-17187 on Form S-3 dated December 3, 1996
Number 333-15721 on Form S-3 (as amended by Amendment No. 2)
dated December 10, 1996
Number 333-21181 on Form S-4 (as amended by Amendment No. 1)
dated February 25, 1997
Number 333-06824 on Form S-8 dated April 22, 1997
</TABLE>
Baltimore, Maryland
March 16, 1998
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MBNA
CORPORATION'S FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 263,064
<INT-BEARING-DEPOSITS> 1,427,065
<FED-FUNDS-SOLD> 659,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 2,162,464
<INVESTMENTS-CARRYING> 346,180
<INVESTMENTS-MARKET> 341,868
<LOANS> 11,162,074<F1>
<ALLOWANCE> 162,476
<TOTAL-ASSETS> 21,305,513
<DEPOSITS> 12,913,213
<SHORT-TERM> 192,623
<LIABILITIES-OTHER> 750,710
<LONG-TERM> 5,478,917
0
86
<COMMON> 5,012
<OTHER-SE> 1,964,952
<TOTAL-LIABILITIES-AND-EQUITY> 21,305,513
<INTEREST-LOAN> 1,493,038<F1>
<INTEREST-INVEST> 144,940
<INTEREST-OTHER> 73,035
<INTEREST-TOTAL> 1,711,013
<INTEREST-DEPOSIT> 693,920
<INTEREST-EXPENSE> 1,018,623
<INTEREST-INCOME-NET> 692,390
<LOAN-LOSSES> 260,040
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,223,121
<INCOME-PRETAX> 1,022,108
<INCOME-PRE-EXTRAORDINARY> 1,022,108
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 622,500
<EPS-PRIMARY> 1.20<F2>
<EPS-DILUTED> 1.15<F2>
<YIELD-ACTUAL> 11.99<F3>
<LOANS-NON> 0
<LOANS-PAST> 134,865<F4>
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 118,427
<CHARGE-OFFS> 359,542
<RECOVERIES> 135,779
<ALLOWANCE-CLOSE> 162,476
<ALLOWANCE-DOMESTIC> 157,941
<ALLOWANCE-FOREIGN> 4,535
<ALLOWANCE-UNALLOCATED> 0
<FN>
<F1> Includes Loans Held for Securitization.
<F2> EPS - Primary represents EPS and EPS-Diluted represents EPS-Assuming
Dilution. The Corporation adopted Statement of Financial Accounting
Standards No. 128 "Earnings per Share" (Statement No. 128), for
financial statements issued for periods ending after December 15,
1997. In accordance with Statement No. 128, earnings per common
share is computed using net income applicable to common stock and
weighted average common shares outstanding, whereas earnings per
common share-assuming dilution includes the potential effect of
common stock equivalents which are solely related to employee
stock options. Per common share data have been restated to reflect
the adoption of Statement No. 128 and the three-for-two split of the
Corporation's Common Stock, effected in the form of a dividend,
issued October 1, 1997, to stockholders of record as of
September 15, 1997.
<F3> On a fully taxable equivalent basis.
<F4> Excludes Loans Held for Securitization.
</FN>
</TABLE>
