UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
-------------------------------------------------
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
--------------------- ------------------------
Commission file number 1-10683
---------------------------------------------------------
MBNA Corporation
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Maryland 52-1713008
- -------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Wilmington, DE 19884-0141
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(800) 362-6255
- -------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
- -------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes x No
---------- ----------
Common Stock, $.01 Par Value -- 501,187,500 Shares
Outstanding as of June 30, 1998
MBNA CORPORATION AND SUBSIDIARIES
Table of Contents
Page
Part I - Financial Information
Item 1. Financial Statements
Consolidated Statements of Financial Condition - 1
June 30, 1998 (unaudited) and December 31, 1997
Consolidated Statements of Income - 3
For the Three and Six Months Ended June 30, 1998 and 1997
(unaudited)
Consolidated Statements of Changes in Stockholders' Equity - 5
For the Six Months Ended June 30, 1998 and 1997 (unaudited)
Consolidated Statements of Cash Flows - 7
For the Six Months Ended June 30, 1998 and 1997 (unaudited)
Notes to the Consolidated Financial Statements (unaudited) 9
Item 2. Management's Discussion and Analysis of Financial Condition 14
and Results of Operations
Supplemental Financial Information 39
Part II - Other Information
Item 5. Other Information 40
Item 6. Exhibits and Reports on Form 8-K 40
Signature 44
MBNA CORPORATION AND SUBSIDIARIES
Consolidated Statements of Financial Condition
(dollars in thousands, except per share amounts)
June 30, December 31,
1998 1997
------------ ------------
(unaudited)
ASSETS
Cash and due from banks........................... $ 283,901 $ 263,064
Interest-earning time deposits in other banks..... 2,465,835 1,427,065
Federal funds sold and securities purchased
under resale agreements.......................... - 659,000
Investment securities:
Available-for-sale (at market value, amortized
cost of $1,422,422 and $2,160,869 at
June 30, 1998 and December 31, 1997,
respectively).................................. 1,424,352 2,162,464
Held-to-maturity (market value of $324,055
and $341,868 at June 30, 1998 and
December 31, 1997, respectively)............... 328,469 346,180
Loans held for securitization..................... 3,392,797 2,900,198
Loans:
Credit card..................................... 6,530,081 5,830,221
Other consumer.................................. 2,792,006 2,431,655
------------ ------------
Total loans................................... 9,322,087 8,261,876
Reserve for possible credit losses.............. (194,685) (162,476)
------------ ------------
Net loans..................................... 9,127,402 8,099,400
Premises and equipment, net....................... 1,647,756 1,579,058
Accrued income receivable......................... 145,833 146,964
Accounts receivable from securitizations.......... 3,066,004 2,835,831
Prepaid expenses and deferred charges............. 212,724 212,563
Other assets...................................... 807,057 673,726
------------ ------------
Total assets.................................. $ 22,902,130 $ 21,305,513
============ ============
June 30, December 31,
1998 1997
------------ ------------
(unaudited)
LIABILITIES
Deposits:
Time deposits................................... $ 9,370,003 $ 9,435,171
Money market deposit accounts................... 3,542,880 3,122,385
Noninterest-bearing demand deposits............. 369,828 311,670
Interest-bearing transaction accounts........... 31,031 31,669
Savings accounts................................ 8,319 12,318
------------ ------------
Total deposits................................ 13,322,061 12,913,213
Short-term borrowings............................. 818,252 192,623
Long-term debt and bank notes..................... 5,894,392 5,478,917
Accrued interest payable.......................... 135,111 137,215
Accrued expenses and other liabilities............ 624,685 613,495
------------ ------------
Total liabilities............................. 20,794,501 19,335,463
STOCKHOLDERS' EQUITY
Preferred stock($.01 par value, 20,000,000
shares authorized, 8,573,882 shares issued
and outstanding at June 30, 1998 and
December 31, 1997, respectively)................. 86 86
Common stock ($.01 par value, 1,500,000,000 shares
authorized, 501,187,500 shares issued and
outstanding at June 30, 1998 and
December 31, 1997, respectively)................. 5,012 5,012
Additional paid-in capital........................ 341,630 424,377
Retained earnings and accumulated other
comprehensive income............................. 1,760,901 1,540,575
------------ ------------
Total stockholders' equity.................... 2,107,629 1,970,050
------------ ------------
Total liabilities and stockholders' equity.... $ 22,902,130 $ 21,305,513
============ ============
==============================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
MBNA CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income
(dollars in thousands, except per share amounts)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
--------------------- -----------------------
1998 1997 1998 1997
---------- ---------- ----------- -----------
(unaudited)
INTEREST INCOME
Loans........................... $ 293,046 $ 244,065 $ 585,282 $ 503,306
Investment securities:
Taxable....................... 28,953 34,361 60,966 65,966
Tax-exempt.................... 907 890 1,693 1,707
Time deposits in other banks.... 32,794 11,684 56,141 21,604
Federal funds sold and
securities purchased under
resale agreements.............. 8,575 5,626 15,750 9,399
Loans held for securitization... 94,062 138,642 204,158 238,574
---------- ---------- ----------- -----------
Total interest income........ 458,337 435,268 923,990 840,556
INTEREST EXPENSE
Deposits........................ 194,205 167,990 389,866 316,836
Short-term borrowings........... 1,969 8,706 5,993 17,051
Long-term debt and bank notes... 95,280 73,828 185,675 141,146
---------- ---------- ----------- -----------
Total interest expense....... 291,454 250,524 581,534 475,033
---------- ---------- ----------- -----------
NET INTEREST INCOME............. 166,883 184,744 342,456 365,523
Provision for possible credit
losses......................... 78,542 87,363 167,140 145,768
---------- ---------- ----------- -----------
Net interest income after
provision for possible credit
losses......................... 88,341 97,381 175,316 219,755
OTHER OPERATING INCOME
Interchange..................... 33,442 29,180 64,014 55,228
Credit card fees................ 28,992 29,693 61,529 58,697
Securitization income........... 676,649 618,915 1,294,014 1,195,653
Other........................... 26,113 17,046 45,149 27,876
---------- ---------- ----------- -----------
Total other operating income. $ 765,196 $ 694,834 $ 1,464,706 $ 1,337,454
For the Three Months For the Six Months
Ended June 30, Ended June 30,
--------------------- -----------------------
1998 1997 1998 1997
---------- ---------- ----------- -----------
(unaudited)
OTHER OPERATING EXPENSE
Salaries and employee benefits.. $ 261,236 $ 252,420 $ 507,798 $ 477,877
Occupancy expense of premises... 26,962 20,365 53,438 39,197
Furniture and equipment expense. 41,682 35,741 85,789 69,357
Other........................... 245,808 256,862 473,798 538,748
---------- ---------- ----------- -----------
Total other operating
expense..................... 575,688 565,388 1,120,823 1,125,179
---------- ---------- ----------- -----------
Income before income taxes...... 277,849 226,827 519,199 432,030
Applicable income taxes......... 105,861 88,394 197,815 169,655
---------- ---------- ----------- -----------
NET INCOME...................... $ 171,988 $ 138,433 $ 321,384 $ 262,375
========== ========== =========== ===========
EARNINGS PER COMMON SHARE....... $ .34 $ .26 $ .63 $ .50
EARNINGS PER COMMON SHARE-
ASSUMING DILUTION.............. .32 .25 .60 .48
==============================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
MBNA CORPORATION AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
(dollars in thousands, except per share amounts) (unaudited)
Outstanding Shares
------------------
Preferred Common Preferred Common
(000) (000) Stock Stock
--------- -------- --------- ---------
BALANCE, DECEMBER 31, 1997............ 8,574 501,188 $ 86 $ 5,012
Net income............................ - - - -
Cash dividends:
Common-$.18 per share............... - - - -
Preferred........................... - - - -
Exercise of stock options and other
awards............................... - 4,555 - 46
Acquisition and retirement of
common stock......................... - (4,555) - (46)
Foreign currency translation, net
of tax (accumulated amount of
$5,737 at June 30, 1998)............. - - - -
Net unrealized losses on investment
securities available-for-sale and
other financial instruments, net
of tax (accumulated amount of
$4,945 at June 30, 1998)............. - - - -
Minimum benefit plan liability
adjustment, net of tax
(accumulated amount of ($4,575)
at June 30, 1998).................... - - - -
--------- -------- --------- ---------
BALANCE, JUNE 30, 1998................ 8,574 501,188 $ 86 $ 5,012
========= ======== ========= =========
BALANCE, DECEMBER 31, 1996............ 12,000 501,188 $ 120 $ 5,012
Net income............................ - - - -
Cash dividends:
Common-$.16 per share............... - - - -
Preferred........................... - - - -
Exercise of stock options and other
awards............................... - 3,381 - 34
Acquisition and retirement of
common stock......................... - (3,381) - (34)
Acquisition and retirement of
preferred stock...................... (3,426) - (34) -
Foreign currency translation, net
of tax (accumulated amount of
$5,014 at June 30, 1997)............. - - - -
Net unrealized gains on investment
securities available-for-sale and
other financial instruments, net
of tax (accumulated amount of
$5,656 at June 30, 1997)............. - - - -
--------- -------- --------- ---------
BALANCE, JUNE 30, 1997................ 8,574 501,188 $ 86 $ 5,012
========= ======== ========= =========
Retained Earnings
and Accumulated
Additional Other Total
Paid-in Comprehensive Stockholders'
Capital Income Equity
---------- ----------------- ------------
BALANCE, DECEMBER 31, 1997.......... $ 424,377 $ 1,540,575 $ 1,970,050
Net income.......................... - 321,384 321,384
Cash dividends:
Common-$.18 per share............. - (90,232) (90,232)
Preferred......................... - (7,226) (7,226)
Exercise of stock options and other
awards............................. 67,039 - 67,085
Acquisition and retirement of
common stock....................... (149,786) - (149,832)
Foreign currency translation, net
of tax (accumulated amount of
$5,737 at June 30, 1998)........... - 2,813 2,813
Net unrealized losses on investment
securities available-for-sale and
other financial instruments, net
of tax (accumulated amount of
$4,945 at June 30, 1998)........... - (1,838) (1,838)
Minimum benefit plan liability
adjustment, net of tax
(accumulated amount of ($4,575)
at June 30, 1998).................. - (4,575) (4,575)
---------- ----------------- ------------
BALANCE, JUNE 30, 1998.............. $ 341,630 $ 1,760,901 $ 2,107,629
========== ================= ============
BALANCE, DECEMBER 31, 1996.......... $ 602,231 $ 1,096,945 $ 1,704,308
Net income.......................... - 262,375 262,375
Cash dividends:
Common-$.16 per share............. - (80,197) (80,197)
Preferred......................... - (8,845) (8,845)
Exercise of stock options and other
awards............................. 40,468 - 40,502
Acquisition and retirement of
common stock... ................... (75,585) - (75,619)
Acquisition and retirement of
preferred stock.................... (85,619) (3,133) (88,786)
Foreign currency translation, net
of tax (accumulated amount of
$5,014 at June 30, 1997)........... - (2,896) (2,896)
Net unrealized gains on investment
securities available-for-sale and
other financial instruments, net
of tax (accumulated amount of
$5,656 at June 30, 1997)........... - 4,933 4,933
---------- ----------------- ------------
BALANCE, JUNE 30, 1997.............. $ 481,495 $ 1,269,182 $ 1,755,775
========== ================= ============
==============================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
MBNA CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(dollars in thousands)
For the Six Months Ended
June 30,
--------------------------
1998 1997
------------ ------------
(unaudited)
OPERATING ACTIVITIES
Net income......................................... $ 321,384 $ 262,375
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for possible credit losses............. 167,140 145,768
Depreciation, amortization, and accretion........ 112,070 65,820
(Benefit) provision for deferred income taxes.... (3,442) 7,855
Decrease (increase) in accrued income receivable. 1,131 (9,723)
Increase in accounts receivable from
securitizations................................. (230,173) (592,130)
(Decrease) increase in accrued interest payable.. (2,104) 16,088
(Increase) decrease in other operating activities (27,974) 220,134
------------ ------------
Net cash provided by operating activities...... 338,032 116,187
INVESTING ACTIVITIES
Net increase in money market instruments........... (379,770) (880,549)
Proceeds from maturities of investment securities
available-for-sale................................ 1,854,409 3,478,688
Purchases of investment securities
available-for-sale................................ (1,103,983) (3,866,426)
Proceeds from maturities of investment securities
held-to-maturity ................................. 49,023 151,407
Purchases of investment securities
held-to-maturity.................................. (31,130) (28,672)
Proceeds from securitization of loans.............. 2,556,562 5,052,592
Portfolio acquisitions............................. (1,394,684) (454,716)
Amortization of securitized loans.................. (895,833) (879,770)
Net loan originations.............................. (2,048,278) (4,197,884)
Net purchases of premises and equipment............ (153,712) (270,748)
------------ ------------
Net cash used in investing activities.......... $ (1,547,396) $ (1,896,078)
For the Six Months Ended
June 30,
--------------------------
1998 1997
------------ ------------
(unaudited)
FINANCING ACTIVITIES
Net (decrease) increase in time deposits........... $ (65,168) $ 1,521,031
Net increase in money market deposit accounts,
noninterest-bearing demand deposits,
interest-bearing transaction accounts,
and savings accounts.............................. 474,016 244,261
Net increase (decrease) in short-term borrowings... 625,629 (335,157)
Proceeds from issuance of long-term debt
and bank notes.................................... 511,577 957,884
Maturity of long-term debt and bank notes.......... (102,488) (260,045)
Proceeds from exercise of stock options
and other awards.................................. 29,031 20,155
Acquisition and retirement of common stock......... (149,832) (75,619)
Acquisition and retirement of preferred stock...... - (52,483)
Dividends paid..................................... (92,564) (85,839)
------------ ------------
Net cash provided by financing activities...... 1,230,201 1,934,188
------------ ------------
INCREASE IN CASH AND CASH EQUIVALENTS.............. 20,837 154,297
Cash and cash equivalents at beginning of period... 263,064 225,063
------------ ------------
Cash and cash equivalents at end of period......... $ 283,901 $ 379,360
============ ============
SUPPLEMENTAL DISCLOSURE
Interest expense paid.............................. $ 585,514 $ 457,989
============ ============
Income taxes paid.................................. $ 185,376 $ 86,853
============ ============
==============================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
MBNA CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE A: BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of MBNA
Corporation ("the Corporation") have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles for complete consolidated financial statements.
For purposes of comparability, certain prior period amounts have been
reclassified. In the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and six months ended
June 30, 1998 are not necessarily indicative of the results that may be
expected for the year ended December 31, 1998. The notes to the consolidated
financial statements contained in the Annual Report on Form 10-K for the year
ended December 31, 1997 should be read in conjunction with these consolidated
financial statements.
NOTE B: CORPORATION'S CHARTER AMENDMENT
On April 21, 1998, the stockholders of the Corporation approved an amendment to
the Corporation's charter to increase the number of authorized shares of common
stock from 700.0 million shares to 1.5 billion shares. The amendment became
effective April 28, 1998.
NOTE C: 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 $431.8 million and $366.1 million at June 30,
1998 and December 31, 1997, respectively.
The Corporation periodically reviews the carrying value of its intangible
assets for impairment. The intangible assets are carried at the lower of net
book value or fair value, with the fair value determined by discounting the
expected future cash flows from the use of the asset, using a discount rate not
less than the discount rate used at the time of acquisition. The Corporation
performs this valuation based on the size and nature of the intangible asset.
For intangible assets that are not considered material, the Corporation
performs this calculation by grouping the assets by year of acquisition.
NOTE D: LONG-TERM DEBT AND BANK NOTES
Long-term debt and bank notes consist of borrowings having an original maturity
of one year or more. During the six months ended June 30, 1998, the
Corporation issued long-term debt and bank notes consisting of the following:
Par Value
----------------------
(dollars in thousands)
Fixed-Rate Senior Medium-Term Notes, with interest
rates varying from 6.306% to 6.34%, payable
semiannually, maturing in 2003..................... $ 55,000
Floating-Rate Senior Medium-Term Notes, priced
between 50 basis points and 66 basis points over
the three-month London Interbank Offered Rate
(LIBOR), payable quarterly, maturing in varying
amounts from 2001 through 2003..................... 210,000
6.75% Subordinated Notes, payable semiannually,
maturing in 2008................................... 250,000
The 6.75% Subordinated Notes are subordinated to the claims of depositors and
other creditors of MBNA America Bank, N.A., unsecured, and not subject to
redemption prior to maturity.
NOTE E: EARNINGS PER COMMON SHARE
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 (basic and diluted) 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 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.
On July 14, 1998, the Board of Directors approved a three-for-two split of the
Corporation's Common Stock, which will be effected in the form of a dividend,
to be issued October 1, 1998, to stockholders of record as of September 15,
1998. Per common share data and weighted average common shares outstanding and
common stock equivalents have not been restated to reflect this stock split.
Computation of Earnings Per Common Share
(dollars in thousands, except per share data)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
--------------------- -----------------------
1998 1997 1998 1997
---------- ---------- ----------- -----------
BASIC
Net income...................... $ 171,988 $ 138,433 $ 321,384 $ 262,375
Less: preferred stock dividend
requirements................... 3,604 5,747 7,226 11,978
---------- ---------- ----------- -----------
Net income applicable to common
stock.......................... $ 168,384 $ 132,686 $ 314,158 $ 250,397
========== ========== =========== ===========
Weighted average common shares
outstanding (000).............. 501,205 501,219 501,226 501,224
========== ========== =========== ===========
Earnings per common share....... $ .34 $ .26 $ .63 $ .50
========== ========== =========== ===========
DILUTED
Net income...................... $ 171,988 $ 138,433 $ 321,384 $ 262,375
Less: preferred stock dividend
requirements................... 3,604 5,747 7,226 11,978
---------- ---------- ----------- -----------
Net income applicable to common
stock.......................... $ 168,384 $ 132,686 $ 314,158 $ 250,397
========== ========== =========== ===========
Weighted average common shares
outstanding (000).............. 501,205 501,219 501,226 501,224
Net effect of dilutive stock
options-based on the treasury
stock method using average
market price (000)............. 25,740 23,706 26,325 23,878
---------- ---------- ----------- ----------
Weighted average common shares
outstanding and common stock
equivalents (000).............. 526,945 524,925 527,551 525,102
========== ========== =========== ===========
Earnings per common share-
assuming dilution.............. $ .32 $ .25 $ .60 $ .48
========== ========== =========== ===========
To the extent stock options are exercised or restricted shares are awarded
from time to time under the Corporation's Long Term Incentive Plans, the Board
of Directors has approved the purchase in the open market, or in privately
negotiated transactions, of the number of shares issued.
NOTE F: PREFERRED STOCK
The Board of Directors declared the following quarterly dividends for the
Corporation's Series A and Series B Preferred Stock:
Series A Series B
--------------------- ---------------------
Dividend Per Dividend Per
Dividend Preferred Dividend Preferred
Declaration Date Payment Date Rate Share Rate Share
- ---------------- ---------------- -------- ------------ -------- ------------
January 13, 1998 April 15, 1998 7.50% $ .46875 5.86% $ .3660
April 14, 1998 July 15, 1998 7.50 .46875 5.85 .3654
July 14, 1998 October 15, 1998 7.50 .46875 5.58 .3490
NOTE G: COMPREHENSIVE INCOME
On January 1, 1998, the Corporation adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" (Statement No. 130).
Statement No. 130 establishes standards for the reporting and disclosure of
comprehensive income and its components in the financial statements and had no
impact on the Corporation's consolidated financial statements. Statement
No. 130 requires unrealized gains or losses on the Corporation's investment
securities available-for-sale and other financial instruments, foreign currency
translation, and changes in certain minimum benefit plan liabilities, to be
included in other comprehensive income.
The components of comprehensive income, net of tax, for the three and six
months ended June 30, 1998 and 1997 are as follows:
For the Three Months For the Six Months
Ended June 30, Ended June 30,
--------------------- -----------------------
1998 1997 1998 1997
---------- ---------- ----------- -----------
Net Income...................... $ 171,988 $ 138,433 $ 321,384 $ 262,375
Foreign currency translation.... (888) 1,774 2,813 (2,896)
Net unrealized gains (losses)
on investment securities
available-for-sale and other
financial instruments.......... 606 4,123 (1,838) 4,933
Minimum benefit plan liability
adjustment..................... - - (4,575) -
---------- ---------- ----------- -----------
Comprehensive income............ $ 171,706 $ 144,330 $ 317,784 $ 264,412
========== ========== =========== ===========
The components of accumulated other comprehensive income, net of tax, at
June 30, 1998 and December 31, 1997 are as follows:
June 30, December 31,
1998 1997
------------ ------------
Foreign currency translation.................... $ 5,737 $ 2,924
Net unrealized gains on investment securities
available-for-sale and other financial
instruments.................................... 4,945 6,783
Minimum benefit plan liability adjustment....... (4,575) -
------------ ------------
Accumulated other comprehensive income.......... 6,107 9,707
Retained earnings............................... 1,754,794 1,530,868
------------ ------------
Retained earnings and accumulated other
comprehensive income........................... $ 1,760,901 $ 1,540,575
============ ============
NOTE H: NEW ACCOUNTING PRONOUNCEMENTS
In February 1998, Statement of Financial Accounting Standards No. 132,
"Employers' Disclosures about Pensions and Other Postretirement Benefits"
(Statement No. 132), was issued. This statement, effective for financial
statements issued for fiscal years beginning after December 15, 1997, revises
employers' disclosures about pension and other postretirement benefit plans.
It does not change the measurement or recognition of those plans. The adoption
of Statement No. 132 will not have an impact on the Corporation's consolidated
financial statements.
In March 1998, Statement of Position 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use" (SOP 98-1), was
issued. This statement, effective for financial statements issued for fiscal
years beginning after December 15, 1998, provides guidance on accounting for
the costs of computer software developed or obtained for internal use. Earlier
application is encouraged. The Corporation adopted SOP 98-1 during the three
month period ending March 31, 1998. The adoption of SOP 98-1 did not have a
material impact on the Corporation's consolidated financial statements.
In June 1998, Statement of Financial Accounting Standards No. 133, "Accounting
for Derivative Instruments and Hedging Activities" (Statement No. 133), was
issued. Statement No. 133 establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, and hedging activities. This statement is effective for
financial statements issued for all quarters of all fiscal years beginning
after June 15, 1999. Based on the Corporation's current level of derivative
and hedging activities, the adoption of Statement No. 133 will not have a
material impact on the Corporation's consolidated financial statements.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This discussion is intended to further the reader's understanding of the
consolidated financial condition and results of operations of MBNA Corporation
(the "Corporation"). It should be read in conjunction with the consolidated
financial statements, notes, and tables included elsewhere in this report.
INTRODUCTION
MBNA Corporation, a bank holding company, is the parent company of MBNA America
Bank, N.A. (the "Bank"), a national bank. Through the Bank, the Corporation is
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.
The Corporation generates interest and other income through finance charges
assessed on outstanding loan receivables, interchange income, credit card and
other 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 14, 1998, the Board of Directors approved a three-for-two split of the
Corporation's Common Stock, which will be effected in the form of a dividend,
to be issued October 1, 1998, to stockholders of record as of September 15,
1998. Per common share data and weighted average common shares outstanding and
common stock equivalents have not been restated to reflect this stock split.
EARNINGS SUMMARY
Net income for the three months ended June 30, 1998 increased 24.2% to $172.0
million or $.32 per common share, from $138.4 million or $.25 per common share
for the same period in 1997. Net income for the six months ended June 30,
1998 increased 22.5% to $321.4 million, or $.60 per common share, from $262.4
million or $.48 per common share for the same period in 1997. 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 was primarily attributable to the growth in the
Corporation's managed loans outstanding. Total managed loans at June 30, 1998
were $52.7 billion, a $9.6 billion increase from June 30, 1997, and a $3.4
billion increase since December 31, 1997. The Corporation acquired 221 new
endorsements from organizations and added 4.2 million new accounts during the
six months ended June 30, 1998. Included in the Corporation's managed loan
growth are $1.4 billion of credit card and other consumer loan receivables
acquired during the six months ended June 30, 1998. The Corporation's average
managed loans increased 20.7% and 23.7% to $50.4 billion and $50.1 billion for
the three and six months ended June 30, 1998, compared to $41.8 billion and
$40.5 billion for the same periods in 1997, respectively.
The Corporation continues to be an active participant in the asset
securitization market. Securitization converts interest income, interchange,
and other fees in excess of interest paid to Certificateholders; credit
losses; and other trust expenses into securitization income, while reducing
the Corporation's on-balance-sheet assets. During the three and six months
ended June 30, 1998, the Corporation securitized approximately $1.4 billion
and $2.6 billion of loan receivables, respectively, bringing the total amount
of outstanding securitized loans to $40.0 billion as of June 30, 1998.
Return on average total assets for the three and six months ended June 30,
1998, was 3.16% and 2.99%, as compared to 2.96% and 2.92% for the same periods
during 1997, respectively. The increase in the return on average total assets
for the three and six months ended June 30, 1998 is a result of the
Corporation's net income growing faster than its average total assets as a
result of securitization. The Corporation's return on average stockholders'
equity for the three and six months ended June 30, 1998 was 34.25% and 32.76%,
compared to 33.02% and 31.46% for the same periods in 1997, respectively. The
higher return on average stockholders' equity is primarily a result of the
24.2% and 22.5% increase in net income for the three and six months ended
June 30, 1998 which exceeded the 19.7% and 17.6% increase in average
stockholders' equity. The slower growth in average stockholders' equity was
primarily a result of the Corporation's acquisition of its common stock and
payment of dividends to stockholders. The Corporation repurchases common
stock when it issues shares upon exercise of stock options or restricted stock
awards pursuant to the Corporation's Long Term Incentive Plans.
NET INTEREST INCOME
Net interest income for the three and six months ended June 30, 1998, on a
fully taxable equivalent basis, was $167.4 million and $343.4 million,
compared to $185.2 million and $366.4 million for the same periods in 1997,
respectively. The decrease in net interest income for the three and six
months ended June 30, 1998 is primarily a result of an increase in average
interest-bearing liabilities of $2.6 billion and $3.1 billion, respectively,
offset by an increase in average interest-earning assets of $1.4 billion and
$1.9 billion, respectively, as compared to the same periods in 1997. The
increase in interest-bearing liabilities during these periods resulted
primarily from funding the increases in interest-earning assets, premises and
equipment, and accounts receivable from securitizations, which is included in
other assets. In addition, yields earned on average interest-earning assets
declined 48 basis points and 34 basis points for the three and six months
ended June 30, 1998, respectively, as compared to the same periods in 1997.
The decrease in yields earned on average interest-earning assets is primarily
a result of an increase in lower yielding investment securities and money
market instruments as a percentage of average interest-earning assets.
The net interest margin, on a fully taxable equivalent basis, was 4.20% and
4.34% for the three and six months ended June 30, 1998, as compared to 5.10%
and 5.24% for the same periods in 1997, respectively. The decline in the net
interest margin for both the three and six months ended June 30, 1998 is
primarily a result of the decrease in net interest income, combined with the
increase in average interest-earning assets for the three and six months ended
June 30, 1998, as compared to the same periods in 1997.
INVESTMENT SECURITIES AND MONEY MARKET INSTRUMENTS
Interest income on investment securities and money market instruments, on a
fully taxable equivalent basis, increased $18.7 million to $71.7 million, and
$35.9 million to $135.5 million for the three and six months ended June 30,
1998, respectively, as compared to the same periods in 1997. The increase for
the three and six months ended June 30, 1998 is primarily a result of an
increase of $1.7 billion and $1.4 billion in average money market instruments
when compared to the same periods in 1997, respectively. The increase in
average money market instruments is the result of the timing of receipt of
funds from loan securitizations, deposits and long-term debt and bank notes.
Funds received from these sources are invested in short-term, liquid money
market instruments until they are needed to fund loan growth and for other
future liquidity needs. The yield earned on investment securities and money
market instruments increased 7 basis points and 17 basis points for the three
and six months ended June 30, 1998, as compared to the same periods in 1997,
respectively.
LOAN RECEIVABLES
Interest income generated by the Corporation's loan receivables increased
$4.4 million and $47.6 million to $387.1 million and $789.4 million for the
three and six months ended June 30, 1998, as compared to the same periods in
1997, respectively. The increase is primarily attributable to an increase in
average loan receivables of $161.3 million and $712.5 million for the three and
six months ended June 30, 1998, as compared to the same periods in 1997,
respectively. The yield earned by the Corporation on loan receivables declined
4 basis points to 14.12% for the three months ended June 30, 1998 and 5 basis
points to 14.15% for the six months ended June 30, 1998, as compared to the
same periods in 1997.
Table 1 presents the Corporation's period-end loan receivables distribution by
loan type, excluding securitized loans.
TABLE 1: LOAN RECEIVABLES DISTRIBUTION
(dollars in thousands)
June 30, 1998 December 31, 1997
-------------- -----------------
(unaudited)
Loans held for securitization:
Domestic:
Credit card......................... $ 2,237,712 $ 2,297,400
Other consumer...................... 550,000 -
-------------- -----------------
Total domestic loans held for
securitization................... 2,787,712 2,297,400
Foreign............................... 605,085 602,798
-------------- -----------------
Total loans held for
securitization................... 3,392,797 2,900,198
Loan portfolio:
Domestic:
Credit card......................... 5,724,143 5,475,933
Other consumer...................... 2,473,706 2,187,216
-------------- -----------------
Total domestic loan portfolio..... 8,197,849 7,663,149
Foreign............................... 1,124,238 598,727
-------------- -----------------
Total loan portfolio.............. 9,322,087 8,261,876
-------------- -----------------
Total loan receivables............ $ 12,714,884 $ 11,162,074
============== =================
DEPOSITS
Total interest expense on deposits increased $26.2 million and $73.0 million to
$194.2 million and $389.9 million for the three and six months ended June 30,
1998, as compared to the same periods in 1997. The increase is the result of
an increase in average interest-bearing deposits of $1.6 billion and $2.1
billion for the three and six months ended June 30, 1998, respectively,
combined with a 6 basis point and 17 basis point increase in the rates paid on
average interest-bearing deposits for the three and six months ended June 30,
1998, respectively, as compared with the same periods in 1997. The increase in
average interest-bearing deposits is 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 decreased $6.7 million and $11.1
million to $2.0 million and $6.0 million for the three and six months ended
June 30, 1998, respectively, as compared to the same periods in 1997. The
decrease is primarily the result of a decrease in average short-term borrowings
of $471.8 million and $419.4 million for the three and six months ended
June 30, 1998, respectively, as compared to the same periods in 1997, offset by
an increase of 57 basis points and 119 basis points for the three and six
months ended June 30, 1998 in the rates paid on these average short-term
borrowings as compared to the same periods in 1997, respectively.
Total interest expense on long-term debt and bank notes increased $21.5 million
and $44.5 million to $95.3 million and $185.7 million for the three and six
months ended June 30, 1998, as compared to the same periods in 1997,
respectively. The increase in interest expense reflects the issuance of
additional long-term debt and bank notes to diversify funding sources, to fund
loan growth, to acquire premises and equipment, and for other general corporate
purposes. Average long-term debt and bank notes increased $1.4 billion for both
the three and six months ended June 30, 1998, as compared to the same periods
in 1997.
TABLE 2: STATEMENT OF AVERAGE BALANCES, YIELDS AND RATES, INCOME OR EXPENSE
(dollars in thousands, yields and rates on a fully taxable equivalent basis)
For the Three Months Ended
June 30, 1998
--------------------------------
Average Yield/ Income
Amount Rate or Expense
------------ ------ ----------
(unaudited)
ASSETS
Interest-earning assets:
Interest-earning time deposits in other
banks:
Domestic.................................. $ 6,292 4.65% $ 73
Foreign................................... 2,271,589 5.78 32,721
------------ ----------
Total interest-earning time deposits
in other banks....................... 2,277,881 5.77 32,794
Federal funds sold and securities purchased
under resale agreements.................... 617,002 5.57 8,575
Investment securities(a):
Taxable................................... 1,992,607 5.83 28,953
Tax-exempt(b)............................. 92,425 6.06 1,396
------------ ----------
Total investment securities........... 2,085,032 5.84 30,349
Loans held for securitization:
Domestic.................................. 2,179,209 14.63 79,492
Foreign................................... 418,070 13.98 14,570
------------ ----------
Total loans held for securitization... 2,597,279 14.53 94,062
Loans:
Domestic:
Credit card............................. 5,644,181 14.20 199,859
Other consumer.......................... 1,936,984 13.53 65,321
------------ ----------
Total domestic loans.................. 7,581,165 14.03 265,180
Foreign................................... 821,056 13.61 27,866
------------ ----------
Total loans........................... 8,402,221 13.99 293,046
------------ ----------
Total interest-earning assets......... 15,979,415 11.52 $ 458,826
Cash and due from banks....................... 425,724
Premises and equipment, net................... 1,644,067
Other assets.................................. 3,932,210
Reserve for possible credit losses............ (185,275)
------------
Total assets.......................... $ 21,796,141
============
(a) Average amounts for investment securities available-for-sale are based on
market values; if these securities were carried at amortized cost, there
would be no impact on the net interest margin.
(b) The fully taxable equivalent (FTE) basis adjustment for the three months
ended June 30, 1998 was $489.
For the Three Months Ended
June 30, 1998
--------------------------------
Average Yield/ Income
Amount Rate or Expense
------------ ------ ----------
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing deposits:
Domestic:
Time deposits........................... $ 8,650,832 6.32% $ 136,413
Money market deposit accounts........... 3,426,364 5.49 46,940
Interest-bearing transaction accounts... 31,497 4.75 373
Savings accounts........................ 8,706 4.65 101
------------ ----------
Total domestic interest-bearing
deposits............................. 12,117,399 6.08 183,827
Foreign:
Time deposits........................... 597,113 6.97 10,378
------------ ----------
Total interest-bearing deposits....... 12,714,512 6.13 194,205
Borrowed funds:
Short-term borrowings:
Domestic................................ 28,519 5.71 406
Foreign................................. 94,002 6.67 1,563
------------ ----------
Total short-term borrowings........... 122,521 6.45 1,969
Long-term debt and bank notes:
Domestic(c)............................. 5,685,488 6.42 91,063
Foreign................................. 221,849 7.62 4,217
------------ ----------
Total long-term debt and bank notes... 5,907,337 6.47 95,280
------------ ----------
Total borrowed funds.................. 6,029,858 6.47 97,249
------------ ----------
Total interest-bearing liabilities.... 18,744,370 6.24 291,454
Demand deposits............................... 395,157
Other liabilities............................. 642,683
------------
Total liabilities..................... 19,782,210
Stockholders' equity.......................... 2,013,931
------------
Total liabilities and stockholders'
equity............................... $ 21,796,141
============ ----------
Net interest income................... $ 167,372
==========
Net interest margin................... 4.20
Interest rate spread.................. 5.28
(c) Includes the impact of interest rate swap agreements used to change fixed-
rate funding sources to floating-rate funding sources.
For the Three Months Ended
June 30, 1997
--------------------------------
Average Yield/ Income
Amount Rate or Expense
------------ ------ ----------
(unaudited)
ASSETS
Interest-earning assets:
Interest-earning time deposits in other
banks:
Domestic.................................. $ 2,675 4.05% $ 27
Foreign................................... 829,892 5.63 11,657
------------ ----------
Total interest-earning time deposits
in other banks....................... 832,567 5.63 11,684
Federal funds sold and securities purchased
under resale agreements.................... 405,264 5.57 5,626
Investment securities(a):
Taxable................................... 2,402,576 5.74 34,361
Tax-exempt(b)............................. 87,954 6.24 1,369
------------ ----------
Total investment securities........... 2,490,530 5.75 35,730
Loans held for securitization:
Domestic.................................. 3,382,245 14.46 121,928
Foreign................................... 486,493 13.78 16,714
------------ ----------
Total loans held for securitization... 3,868,738 14.37 138,642
Loans:
Domestic:
Credit card............................. 4,949,029 13.94 171,979
Other consumer.......................... 1,655,316 14.33 59,152
------------ ----------
Total domestic loans.................. 6,604,345 14.04 231,131
Foreign................................... 365,135 14.21 12,934
------------ ----------
Total loans........................... 6,969,480 14.05 244,065
------------ ----------
Total interest-earning assets......... 14,566,579 12.00 $ 435,747
Cash and due from banks....................... 460,614
Premises and equipment, net................... 1,193,588
Other assets.................................. 2,694,262
Reserve for possible credit losses............ (132,484)
------------
Total assets.......................... $ 18,782,559
============
(a) Average amounts for investment securities available-for-sale are based on
market values; if these securities were carried at amortized cost, there
would be no impact on the net interest margin.
(b) The fully taxable equivalent (FTE) basis adjustment for the three months
ended June 30, 1997 was $479.
For the Three Months Ended
June 30, 1997
--------------------------------
Average Yield/ Income
Amount Rate or Expense
------------ ------ ----------
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing deposits:
Domestic:
Time deposits(c)........................ $ 7,713,402 6.27% $ 120,603
Money market deposit accounts........... 2,826,773 5.51 38,859
Interest-bearing transaction accounts... 27,150 4.70 318
Savings accounts........................ 11,537 4.66 134
------------ ----------
Total domestic interest-bearing
deposits............................. 10,578,862 6.06 159,914
Foreign:
Time deposits........................... 526,198 6.16 8,076
------------ ----------
Total interest-bearing deposits....... 11,105,060 6.07 167,990
Borrowed funds:
Short-term borrowings:
Domestic ............................... 518,316 5.75 7,430
Foreign................................. 76,054 6.73 1,276
------------ ----------
Total short-term borrowings........... 594,370 5.88 8,706
Long-term debt and bank notes:
Domestic(c)............................. 4,292,883 6.54 70,043
Foreign................................. 189,715 8.00 3,785
------------ ----------
Total long-term debt and bank notes... 4,482,598 6.61 73,828
------------ ----------
Total borrowed funds.................. 5,076,968 6.52 82,534
------------ ----------
Total interest-bearing liabilities.... 16,182,028 6.21 250,524
Demand deposits............................... 303,883
Other liabilities............................. 614,856
------------
Total liabilities..................... 17,100,767
Stockholders' equity.......................... 1,681,792
------------
Total liabilities and stockholders'
equity............................... $ 18,782,559
============ ----------
Net interest income................... $ 185,223
==========
Net interest margin................... 5.10
Interest rate spread.................. 5.79
(c) Includes the impact of interest rate swap agreements used to change fixed-
rate funding sources to floating-rate funding sources.
For the Six Months Ended
June 30, 1998
--------------------------------
Average Yield/ Income
Amount Rate or Expense
------------ ------ ----------
(unaudited)
ASSETS
Interest-earning assets:
Interest-earning time deposits in other
banks:
Domestic.................................. $ 14,146 4.93% $ 346
Foreign................................... 1,922,912 5.85 55,795
------------ ----------
Total interest-earning time deposits
in other banks....................... 1,937,058 5.84 56,141
Federal funds sold and securities purchased
under resale agreements.................... 569,438 5.58 15,750
Investment securities(a):
Taxable................................... 2,101,258 5.85 60,966
Tax-exempt(b)............................. 89,096 5.90 2,605
------------ ----------
Total investment securities........... 2,190,354 5.85 63,571
Loans held for securitization:
Domestic.................................. 2,301,646 14.49 165,400
Foreign................................... 530,655 14.73 38,758
------------ ----------
Total loans held for securitization... 2,832,301 14.54 204,158
Loans:
Domestic:
Credit card............................. 5,657,136 14.12 396,050
Other consumer.......................... 2,026,494 13.86 139,300
------------ ----------
Total domestic loans.................. 7,683,630 14.05 535,350
Foreign................................... 732,545 13.75 49,932
------------ ----------
Total loans........................... 8,416,175 14.02 585,282
------------ ----------
Total interest-earning assets......... 15,945,326 11.70 $ 924,902
Cash and due from banks....................... 464,663
Premises and equipment, net................... 1,629,022
Other assets.................................. 3,832,255
Reserve for possible credit losses............ (177,007)
------------
Total assets.......................... $ 21,694,259
============
(a) Average amounts for investment securities available-for-sale are based on
market values; if these securities were carried at amortized cost, there
would be no impact on the net interest margin.
(b) The fully taxable equivalent (FTE) basis adjustment for the six months
ended June 30, 1998 was $912.
For the Six Months Ended
June 30, 1998
--------------------------------
Average Yield/ Income
Amount Rate or Expense
------------ ------ ----------
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing deposits:
Domestic:
Time deposits........................... $ 8,782,907 6.34% $ 276,219
Money market deposit accounts........... 3,318,795 5.52 90,885
Interest-bearing transaction accounts... 31,563 4.79 749
Savings accounts........................ 9,782 4.72 229
------------ ----------
Total domestic interest-bearing
deposits............................. 12,143,047 6.11 368,082
Foreign:
Time deposits........................... 613,740 7.16 21,784
------------ ----------
Total interest-bearing deposits....... 12,756,787 6.16 389,866
Borrowed funds:
Short-term borrowings:
Domestic................................ 27,795 5.63 776
Foreign................................. 144,926 7.26 5,217
------------ ----------
Total short-term borrowings........... 172,721 7.00 5,993
Long-term debt and bank notes:
Domestic(c)............................. 5,517,009 6.49 177,497
Foreign................................. 221,865 7.43 8,178
------------ ----------
Total long-term debt and bank notes... 5,738,874 6.52 185,675
------------ ----------
Total borrowed funds.................. 5,911,595 6.54 191,668
------------ ----------
Total interest-bearing liabilities.... 18,668,382 6.28 581,534
Demand deposits............................... 390,130
Other liabilities............................. 657,251
------------
Total liabilities..................... 19,715,763
Stockholders' equity.......................... 1,978,496
------------
Total liabilities and stockholders'
equity............................... $ 21,694,259
============ ----------
Net interest income................... $ 343,368
==========
Net interest margin................... 4.34
Interest rate spread.................. 5.42
(c) Includes the impact of interest rate swap agreements used to change fixed-
rate funding sources to floating-rate funding sources.
For the Six Months Ended
June 30, 1997
--------------------------------
Average Yield/ Income
Amount Rate or Expense
------------ ------ ----------
(unaudited)
ASSETS
Interest-earning assets:
Interest-earning time deposits in other
banks:
Domestic.................................. $ 2,687 4.13% $ 55
Foreign................................... 778,482 5.58 21,549
------------ ----------
Total interest-earning time deposits
in other banks....................... 781,169 5.58 21,604
Federal funds sold and securities purchased
under resale agreements.................... 344,381 5.50 9,399
Investment securities(a):
Taxable................................... 2,343,556 5.68 65,966
Tax-exempt(b)............................. 88,070 6.01 2,626
------------ ----------
Total investment securities........... 2,431,626 5.69 68,592
Loans held for securitization:
Domestic.................................. 2,960,709 14.34 210,527
Foreign................................... 397,747 14.22 28,047
------------ ----------
Total loans held for securitization... 3,358,456 14.33 238,574
Loans:
Domestic:
Credit card............................. 4,991,885 14.02 347,143
Other consumer.......................... 1,839,623 14.54 132,634
------------ ----------
Total domestic loans.................. 6,831,508 14.16 479,777
Foreign................................... 346,032 13.71 23,529
------------ ----------
Total loans........................... 7,177,540 14.14 503,306
------------ ----------
Total interest-earning assets......... 14,093,172 12.04 $ 841,475
Cash and due from banks....................... 447,120
Premises and equipment, net................... 1,139,792
Other assets.................................. 2,581,658
Reserve for possible credit losses............ (125,886)
------------
Total assets.......................... $ 18,135,856
============
(a) Average amounts for investment securities available-for-sale are based on
market values; if these securities were carried at amortized cost, there
would be no impact on the net interest margin.
(b) The fully taxable equivalent (FTE) basis adjustment for the six months
ended June 30, 1997 was $919.
For the Six Months Ended
June 30, 1997
--------------------------------
Average Yield/ Income
Amount Rate or Expense
------------ ------ ----------
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing deposits:
Domestic:
Time deposits(c)........................ $ 7,418,814 6.20% $ 228,204
Money market deposit accounts........... 2,793,371 5.41 74,934
Interest-bearing transaction accounts... 26,777 4.64 616
Savings accounts........................ 11,261 4.60 257
------------ ----------
Total domestic interest-bearing
deposits............................. 10,250,223 5.98 304,011
Foreign:
Time deposits........................... 419,337 6.17 12,825
------------ ----------
Total interest-bearing deposits....... 10,669,560 5.99 316,836
Borrowed funds:
Short-term borrowings:
Domestic ............................... 524,504 5.69 14,798
Foreign................................. 67,626 6.72 2,253
------------ ----------
Total short-term borrowings........... 592,130 5.81 17,051
Long-term debt and bank notes:
Domestic(c)............................. 4,174,244 6.53 135,239
Foreign................................. 146,122 8.15 5,907
------------ ----------
Total long-term debt and bank notes... 4,320,366 6.59 141,146
------------ ----------
Total borrowed funds.................. 4,912,496 6.49 158,197
------------ ----------
Total interest-bearing liabilities.... 15,582,056 6.15 475,033
Demand deposits............................... 304,259
Other liabilities............................. 567,802
------------
Total liabilities..................... 16,454,117
Stockholders' equity.......................... 1,681,739
------------
Total liabilities and stockholders'
equity............................... $ 18,135,856
============ ----------
Net interest income................... $ 366,442
==========
Net interest margin................... 5.24
Interest rate spread.................. 5.89
(c) Includes the impact of interest rate swap agreements used to change fixed-
rate funding sources to floating-rate funding sources.
OTHER OPERATING INCOME
Total other operating income increased 10.1% and 9.5% to $765.2 million and
$1.5 billion for the three and six months ended June 30, 1998, respectively,
from $694.8 million and $1.3 billion for the same periods in 1997. The
increase in other operating income is primarily attributable to a 9.3% and 8.2%
increase in securitization income, which grew to $676.6 million and $1.3
billion for the three and six months ended June 30, 1998, respectively, as
compared to the same periods in 1997. Securitization income includes the gains
recognized by the Corporation as a result of the adoption of Statement of
Financial Accounting Standards No. 125, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities" (Statement No. 125) on
January 1, 1997, in addition to other earnings recognized by the Corporation
for the servicing of previously securitized loans. The gains recognized by the
Corporation as a result of Statement No. 125 were $7.4 million and $11.5
million for the three and six months ended June 30, 1998, respectively, as
compared to $121.3 million and $244.4 million for the same periods in 1997.
Without these gains, securitization income would have increased 34.5% and
34.8%, for the three and six months ended June 30, 1998, respectively, while
other operating income would have increased 32.1% and 33.0% for the three and
six months ended June 30, 1998, respectively, as compared to the same periods
in 1997. The increase in securitization income is primarily attributable to
the growth in average securitized loans, which increased $8.5 billion and $8.9
billion, or 27.5% and 29.6%, to $39.4 billion and $38.8 billion for the three
and six months ended June 30, 1998, respectively, as compared to the same
periods in 1997. In addition, other income increased $9.1 million and $17.3
million for the three and six months ended June 30, 1998, respectively,
primarily as a result of the growth in fee income generated from the
Corporation's insurance agency business.
OTHER OPERATING EXPENSE
Total other operating expense increased 1.8% to $575.7 million and decreased
.4% to $1.1 billion for the three and six months ended June 30, 1998,
respectively, as compared to the same periods in 1997. Total other operating
expense for these periods includes the Corporation's investment in additional
business development efforts of an amount equivalent to the gains recognized by
the Corporation as a result of the adoption of Statement No. 125. Without these
expenses, total other operating expense would have increased 28.0% and 26.0%
for the three and six months ended June 30, 1998, respectively, as compared to
the same periods in 1997, reflecting the Corporation's continued investment in
business development to enhance the ability of the Corporation to attract and
retain Customers. For the six months ended June 30, 1998, the Corporation
added 4.2 million new accounts. Table 3 provides further detail regarding the
Corporation's other operating expenses.
TABLE 3: OTHER EXPENSE COMPONENT OF OTHER OPERATING EXPENSE
(dollars in thousands)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
-------------------- --------------------
1998 1997 1998 1997
--------- --------- --------- ---------
(unaudited)
Purchased services................ $ 54,660 $ 70,090 $ 110,177 $ 149,321
Advertising....................... 36,244 38,173 58,408 87,200
Collection........................ 8,251 7,232 14,960 13,166
Stationery and supplies........... 7,939 7,856 15,176 15,495
Service bureau.................... 8,586 6,759 15,652 14,042
Postage and delivery.............. 49,030 48,150 94,198 103,786
Telephone usage................... 11,818 14,173 24,873 28,538
Credit card fraud losses.......... 20,298 16,088 40,724 31,121
Amortization of intangible assets. 9,923 7,281 20,255 14,129
Computer software................. 12,420 10,223 23,804 18,142
Other............................. 26,639 30,837 55,571 63,808
--------- --------- --------- ---------
Total other operating expense... $ 245,808 $ 256,862 $ 473,798 $ 538,748
========= ========= ========= =========
INCOME TAXES
Applicable income taxes increased $17.5 million and $28.2 million to $105.9
million and $197.8 million for the three and six months ended June 30, 1998,
Respectively, as compared to the same periods in 1997.
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 3.36%
at June 30, 1998, compared with 3.93% at December 31, 1997. The Corporation's
managed delinquency, as a percentage of managed loans, was 4.60% at June 30,
1998, as compared with 4.59% at December 31, 1997. Table 4 presents the stages
of delinquency of the Corporation's loan portfolio, excluding loans held for
securitization.
TABLE 4: DELINQUENT LOANS
(dollars in thousands)
June 30, 1998 December 31, 1997
------------------ -----------------
(unaudited)
Loan portfolio....................... $ 9,322,087 $ 8,261,876
Loans delinquent:
30 to 59 days...................... $ 119,079 1.28% $ 125,870 1.52%
60 to 89 days...................... 59,865 .64 64,275 .78
90 or more days.................... 133,861 1.44 134,865 1.63
----------- ----- ----------- -----
Total............................ $ 312,805 3.36% $ 325,010 3.93%
=========== ===== =========== =====
Loans delinquent by geographic area:
Domestic........................... $ 290,288 3.54% $ 313,467 4.09%
Foreign............................ 22,517 2.00 11,543 1.93
Net Credit Losses
Net credit losses for the three and six months ended June 30, 1998 were $71.6
million and $145.5 million, respectively, as compared to $66.5 million and
$117.4 million for the same periods in 1997. Net credit losses do not include
credit losses from securitized loans, which are charged to the related trusts,
in accordance with their respective contractual agreements. The increase in
net credit losses for the three and six months ended June 30, 1998, reflects
increases in the Corporation's outstanding loans, 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. The Corporation sells previously charged-off
receivables and records the proceeds received from these sales as recoveries,
thereby reducing net credit losses.
Net credit losses as a percentage of average loan receivables were 2.61% and
2.59% for the three and six months ended June 30, 1998, respectively, as
compared to 2.46% and 2.23% for the three and six months ended June 30, 1997,
respectively. For the full year ended December 31, 1997, net credit losses
were 2.14% of average loan receivables. The Corporation's managed credit
losses as a percentage of average managed loans for the three and six months
ended June 30, 1998 were 4.42% and 4.30%, respectively, as compared to 3.96%
and 3.86% for the same periods last year. For the full year ended December 31,
1997, managed credit losses were 3.97% of average managed loans.
Reserve and Provision 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 three and six months ended
June 30, 1998 was $78.5 million and $167.1 million, respectively, as compared
to $87.4 million and $145.8 million for the same periods in 1997. Table 5
presents an analysis of the Corporation's reserve for possible credit losses.
TABLE 5: RESERVE FOR POSSIBLE CREDIT LOSSES
(dollars in thousands)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
-------------------- --------------------
1998 1997 1998 1997
--------- --------- --------- ---------
(unaudited)
Reserve for possible credit
losses, beginning of period....... $ 178,297 $ 127,828 $ 162,476 $ 118,427
Reserves acquired................ 9,511 2,996 10,508 5,026
Provision for possible
credit losses................... 78,542 87,363 167,140 145,768
Foreign currency translation..... (20) 74 69 (130)
Credit losses:
Domestic:
Credit card.................. (81,427) (78,229) (167,289) (155,392)
Other consumer............... (24,570) (12,250) (44,758) (19,617)
--------- --------- --------- ---------
Total domestic credit
losses.................... (105,997) (90,479) (212,047) (175,009)
Foreign........................ (3,983) (1,555) (8,208) (2,615)
--------- --------- --------- ---------
Total credit losses........ (109,980) (92,034) (220,255) (177,624)
Recoveries:
Domestic:
Credit card.................. 33,994 23,238 66,990 55,827
Other consumer............... 3,218 1,797 5,553 3,633
--------- --------- --------- ---------
Total domestic recoveries.. 37,212 25,035 72,543 59,460
Foreign........................ 1,123 457 2,204 792
--------- --------- --------- ---------
Total recoveries........... 38,335 25,492 74,747 60,252
--------- --------- --------- ---------
Net credit losses................ (71,645) (66,542) (145,508) (117,372)
--------- --------- --------- ---------
Reserve for possible credit
losses, end of period............. $ 194,685 $ 151,719 $ 194,685 $ 151,719
========= ========= ========= =========
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. In March 1998, the Corporation began offering other consumer loans
through MBNA America Bank (Delaware) (the "State Bank"), a state bank organized
under Delaware law. The State Bank is subject to capital requirements adopted
by the Federal Deposit Insurance Corporation. Under these requirements, the
federal bank 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 minimum capital requirements can
initiate certain mandatory-and possible additional discretionary-actions by the
federal bank regulators, that, if undertaken, could have a direct material
effect on the Corporation's, the Bank's, and the State Bank's financial
statements. Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, the Corporation, the Bank, and the State 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, the Bank's, and the State
Bank's capital amounts and classification are also subject to qualitative
judgments by the federal bank regulators about components, risk weightings, and
other factors. At June 30, 1998, the Corporation's, the Bank's, and the State
Bank's capital exceeded all minimum regulatory requirements to which they are
subject, and the Bank and the State Bank were "well-capitalized" as defined
under the federal bank regulatory guidelines. The risk-based capital ratios,
shown in Table 6, have been computed in accordance with regulatory accounting
practices. The assets of the State Bank are not material and, therefore its
capital ratios are not included in the table below.
TABLE 6: REGULATORY CAPITAL RATIOS
June 30, 1998
-------------------------------------------
Minimum Well-Capitalized
Ratios Requirements Requirements
---------- ------------- ----------------
(unaudited)
MBNA Corporation
Tier 1............................ 10.78% 4.00% (a)
Total............................. 14.02 8.00 (a)
Leverage.......................... 11.28 4.00 (a)
MBNA America Bank, N.A.
Tier 1............................ 10.99% 4.00% 6.00%
Total............................. 13.90 8.00 10.00
Leverage.......................... 11.55 4.00 5.00
(a) Not applicable for bank holding companies.
During the six months ended June 30, 1998, the Corporation declared dividends
on its preferred and common stock of $97.5 million. The payment of preferred
and common stock dividends by the Corporation may be limited by certain factors
including regulatory capital requirements, broad enforcement powers of the
federal bank regulatory agencies, and tangible net worth maintenance
requirements under the Corporation's revolving credit facilities. In addition,
if the Corporation defers interest payments for consecutive periods covering
five years on the guaranteed preferred beneficial interests in Corporation's
junior subordinated deferrable interest debentures, the Corporation may not be
permitted to declare or pay any cash dividends on the Corporation's capital
stock or interest on debt securities that have equal or lower priority 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
June 30, 1998, the amount of retained earnings available for declaration and
payment of dividends from the Bank to the Corporation was $983.2 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 June 30, 1998. If this facility was
drawn upon as of June 30, 1998, the amount of retained earnings available for
declaration of dividends would have been limited to $708.7 million.
On July 14, 1998, the Board of Directors declared a quarterly dividend of $.09
per common share, payable October 1, 1998 to stockholders of record as of
September 9, 1998. Also, on July 14, 1998 the Board of Directors declared a
quarterly dividend of $.46875 per share on the 7 1/2% Cumulative Preferred
Stock, Series A, and a quarterly dividend of $.3490 per share on the Adjustable
Rate Cumulative Preferred Stock, Series B. The preferred stock dividends are
payable October 15, 1998 to stockholders of record as of September 30, 1998.
LIQUIDITY AND RATE SENSITIVITY
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 the
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 to establish a maturity pattern that provides a prudent mixture of
short- and long-term funds. Funding sources are available to the Corporation
through deposits, debt issuance, and equity programs. The Corporation also
uses securitization of the Bank's loan receivables as a major funding
alternative.
Deposits generated by the Bank are a major source of funds for the Corporation.
Total deposits at June 30, 1998 and December 31, 1997 were $13.3 billion and
$12.9 billion, respectively. Included in total deposits are $806.8 million of
foreign time deposits at June 30, 1998, with the majority maturing within one
year. Table 7 presents the maturities of the Corporation's deposits as of
June 30, 1998.
TABLE 7: MATURITIES OF DEPOSITS AT JUNE 30, 1998
(dollars in thousands)
Direct Other Total
Deposits Deposits Deposits
----------- ----------- -----------
(unaudited)
Three months or less(a)................. $ 4,814,797 $ 934,717 $ 5,749,514
Over three months through twelve months. 2,956,225 668,289 3,624,514
Over one year through five years........ 2,677,687 1,264,223 3,941,910
Over five years......................... 6,123 - 6,123
----------- ----------- -----------
Total deposits........................ $10,454,832 $ 2,867,229 $13,322,061
=========== =========== ===========
(a) Includes money market deposit accounts, noninterest-bearing demand
deposits, interest-bearing transaction accounts, and savings accounts of
$4.0 billion.
Funding sources are also available to the Corporation through debt programs
established by the Corporation and the Bank. During the six months ended
June 30, 1998, the Corporation issued $210.0 million of floating-rate and
$55.0 million of fixed-rate senior medium-term notes, while the Bank issued
$250.0 million of fixed-rate subordinated notes. The subordinated notes
qualify as regulatory capital under the Comptroller of the Currency's
guidelines and enhance the Bank's regulatory capital level, while providing a
long-term source of funds. The proceeds from these issuances were used for
general corporate purposes.
At June 30, 1998, the Corporation, through MBNA International, had utilized
33.5 million pounds sterling (approximately $55.8 million) from its existing
300.0 million pounds sterling multi-currency committed syndicated revolving
credit facility. In addition, MBNA Canada Bank had CAD$170.0 million
(approximately $115.8 million) drawn from two existing multi-currency
syndicated revolving credit facilities and CAD$135.0 million (approximately
$92.0 million) of commercial paper outstanding at June 30, 1998. These
borrowings are included as part of short-term borrowings in the consolidated
statements of financial condition.
The Corporation also held $1.8 billion in investment securities and $2.5
billion of money market instruments at June 30, 1998, compared with $2.5
billion in investment securities and $2.1 billion of money market instruments
at December 31, 1997. During the six months ended June 30, 1998, the
Corporation invested the funds from maturing investment securities into money
market instruments. The investment securities primarily consisted of
unencumbered, high-quality, AAA-rated securities, most of which can be used as
collateral under repurchase agreements. Of the $1.8 billion in investment
securities at June 30, 1998, $605.8 million is anticipated to mature within
twelve months. The Corporation's available-for-sale investment securities
portfolio, which consists primarily of short-term and variable-rate securities,
was $1.4 billion at June 30, 1998. These investment securities, along with the
money market instruments, provide increased liquidity and flexibility to
support the Corporation's funding requirements. Estimated maturities (including
the impact of estimated prepayments) of the Corporation's investment securities
portfolio are presented in Table 8
TABLE 8: SUMMARY OF INVESTMENT SECURITIES AT JUNE 30, 1998
(dollars in thousands) (unaudited)
Estimated Maturity
--------------------------------------------
Within 1 Over
Year 1-5 Years 6-10 Years 10 Years
---------- ---------- ---------- --------
AVAILABLE-FOR-SALE
U.S. Treasury and other U.S.
government agencies obligations.. $ 200,906 $ 100,328 $ - $ -
State and political subdivisions
of the United States............. 89,162 4,519 - -
Asset-backed and other securities. 138,807 807,283 80,231 3,116
---------- ---------- ---------- --------
Total investment securities
available-for-sale............. $ 428,875 $ 912,130 $ 80,231 $ 3,116
========== ========== ========== ========
HELD-TO-MATURITY
U.S. Treasury and other U.S.
government agencies obligations.. $ 143,222 $ 12,210 $ - $119,758
State and political subdivisions
of the United States............. - - - 1,644
Asset-backed and other securities. 33,718 1,000 - 16,917
---------- ---------- ---------- --------
Total investment securities
held-to-maturity............... $ 176,940 $ 13,210 $ - $138,319
========== ========== ========== ========
Book Market
Value Value
---------- ----------
AVAILABLE-FOR-SALE
U.S. Treasury and other U.S.
government agencies obligations.. $ 301,234 $ 301,234
State and political subdivisions
of the United States............. 93,681 93,681
Asset-backed and other securities. 1,029,437 1,029,437
---------- ----------
Total investment securities
available-for-sale............. $1,424,352 $1,424,352
========== ==========
HELD-TO-MATURITY
U.S. Treasury and other U.S.
government agencies obligations.. $ 275,190 $ 271,036
State and political subdivisions
of the United States............. 1,644 1,425
Asset-backed and other securities. 51,635 51,594
---------- ----------
Total investment securities
held-to-maturity............... $ 328,469 $ 324,055
========== ==========
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.
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 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 analyzes its level of interest rate risk using several
analytical techniques which all include the impact of on-balance-sheet and off-
balance-sheet financial instruments.
An analytical technique that the Corporation uses to measure interest rate risk
is simulation analysis. The Corporation's simulation analysis uses key
assumptions which 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 June 30, 1998, the Corporation could
experience a decrease in projected net income during the next twelve months of
approximately $38 million if interest rates increased from current levels by
100 basis points over the twelve 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 periodically. During this review, management considers the net
impact to stockholders' equity under various foreign exchange rate scenarios.
At June 30, 1998, the Corporation would expect a decrease in stockholders'
equity, net of tax, of approximately $13 million as a result of a 10%
depreciation of the Corporation's unhedged foreign currencies 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), while the remaining undivided interest is retained by the
Bank as the seller. The Bank continues to service the accounts and receives a
fee for doing so.
During the revolving period, which generally ranges from 24 to 168 months, the
trust makes no principal payments to the Investor Certificateholders. Instead,
the trust uses payments received on the accounts to purchase new loan
receivables generated by these 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 the three and six months ended June 30, 1998, the Bank securitized
credit card loan receivables totaling $1.4 billion and $2.6 billion,
respectively, including a securitization of 250.0 million pounds sterling by
MBNA International Bank Limited. Amortization of previously securitized credit
card loan receivables totaled $500.0 million and $895.8 million for the three
and six months ended June 30, 1998, respectively. The total amount of
outstanding securitized loans was $40.0 billion or 75.9% of managed loans as of
June 30, 1998, compared to $38.2 billion or 77.4% of managed loans at
December 31, 1997. An additional $2.7 billion of previously securitized loans
is scheduled to amortize during the remainder of 1998.
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, or one month for the
Consumer Loan Master Trust, 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 9 compares the average annualized yield for the three month period ended
June 30, 1998, to the minimum yield for each transaction. The yield for each
of the transactions is presented on a cash basis and includes various credit
card or other fees as specified in the securitization agreements.
TABLE 9: YIELDS ON SECURITIZED TRANSACTIONS (a)
Three-Month Average
----------------------- Yield in
Annualized Minimum Excess of
Yield Yield Minimum
---------- ----------- ---------
(unaudited)
MasterTrust 93-1(b).................. 22.79% 14.47% 8.32%
MasterTrust 93-3(b).................. 20.50 13.13 7.37
MasterTrust 93-4..................... 18.64 13.21 5.43
MasterTrust 94-1..................... 18.64 13.10 5.54
MasterTrust 94-2..................... 18.64 13.16 5.48
MasterTrust II 94-A.................. 18.09 12.99 5.10
MasterTrust II 94-B.................. 18.09 12.96 5.13
MasterTrust II 94-C.................. 18.09 13.07 5.02
MasterTrust II 94-E.................. 18.09 12.89 5.20
Gold Reserve......................... 17.75 14.38 3.37
MasterTrust II 95-A.................. 18.09 13.07 5.02
MasterTrust II 95-B.................. 18.09 12.95 5.14
MasterTrust II 95-C.................. 18.09 13.00 5.09
MasterTrust II 95-D.................. 18.09 12.87 5.22
MasterTrust II 95-E.................. 18.09 13.01 5.08
Cards No. 1.......................... 21.03 12.55 8.48
MasterTrust II 95-F.................. 18.09 13.61 4.48
MasterTrust II 95-G.................. 18.09 13.00 5.09
MasterTrust II 95-H.................. 18.09 12.86 5.23
MasterTrust II 95-I.................. 18.09 12.95 5.14
MasterTrust II 95-J.................. 18.09 13.02 5.07
MasterTrust II 96-A.................. 18.09 12.99 5.10
MasterTrust II 96-B.................. 18.09 13.06 5.03
MasterTrust II 96-C.................. 18.09 12.93 5.16
MasterTrust II 96-D.................. 18.09 12.93 5.16
Cards No. 2.......................... 21.03 12.52 8.51
MasterTrust II 96-E.................. 18.09 12.96 5.13
MasterTrust II 96-F.................. 18.09 13.13 4.96
MasterTrust II 96-G.................. 18.09 12.98 5.11
MasterTrust II 96-H.................. 18.11 12.89 5.22
MasterTrust II 96-I.................. 18.12 12.94 5.18
MasterTrust II 96-J.................. 18.09 12.94 5.15
Three-Month Average
----------------------- Yield in
Annualized Minimum Excess of
Yield Yield Minimum
---------- ----------- ---------
(unaudited)
MasterTrust II 96-K.................. 18.09% 12.93% 5.16%
MasterTrust II 96-L.................. 18.11 12.83 5.28
MasterTrust II 96-M.................. 18.11 12.94 5.17
Cards No. 3.......................... 21.03 12.42 8.61
MasterTrust II 97-A.................. 18.11 12.74 5.37
MasterTrust II 97-B.................. 18.09 12.99 5.10
MasterTrust II 97-C.................. 18.09 12.91 5.18
MasterTrust II 97-D.................. 18.11 12.88 5.23
MasterTrust II 97-E.................. 18.12 12.87 5.25
MasterTrust II 97-F.................. 18.09 12.85 5.24
MasterTrust II 97-G.................. 18.09 12.95 5.14
Cards No. 4.......................... 21.03 12.95 8.08
MasterTrust II 97-H.................. 18.12 12.98 5.14
MasterTrust II 97-I.................. 18.09 12.89 5.20
MasterTrust II 97-J.................. 18.09 12.92 5.17
Consumer Loan MasterTrust 97-1....... 16.32 13.61 2.71
MasterTrust II 97-K.................. 18.09 12.93 5.16
MasterTrust II 97-L.................. 18.11 12.80 5.31
MasterTrust II 97-M.................. 18.12 12.90 5.22
MasterTrust II 97-N.................. 18.11 12.86 5.25
MasterTrust II 97-O.................. 18.09 12.97 5.12
MasterTrust II 98-A.................. 18.13 13.49 4.64
Cards No. 5.......................... 21.03 12.92 8.11
(a) MasterTrust II 98-B issued on April 14, 1998, and MasterTrust II 98-C
issued on June 24, 1998 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.
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)
June 30, 1998 December 31, 1997
----------------- -----------------
AT PERIOD END:
Loans held for securitization......... $ 3,392,797 $ 2,900,198
Loan portfolio........................ 9,322,087 8,261,876
Securitized loans..................... 40,032,895 38,217,786
----------------- -----------------
Total managed loans................. $ 52,747,779 $ 49,379,860
================= =================
Total managed interest-earning
assets............................. $ 56,966,435 $ 53,974,569
================= =================
Total managed assets................ $ 62,935,025 $ 59,523,299
================= =================
For the Three Months For the Six Months
Ended June 30, Ended June 30,
------------------------- -------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
AVERAGE:
Loans held for
securitization......... $ 2,597,279 $ 3,868,738 $ 2,832,301 $ 3,358,456
Loan portfolio.......... 8,402,221 6,969,480 8,416,175 7,177,540
Securitized loans....... 39,415,940 30,916,249 38,807,228 29,937,986
------------ ------------ ------------ ------------
Total managed loans... $ 50,415,440 $ 41,754,467 $ 50,055,704 $ 40,473,982
============ ============ ============ ============
Total managed
interest-earning
assets............... $ 55,395,355 $ 45,482,828 $ 54,752,554 $ 44,031,158
============ ============ ============ ============
Total managed assets.. $ 61,212,081 $ 49,698,808 $ 60,501,487 $ 48,073,842
============ ============ ============ ============
MANAGED RATIOS:
Net interest margin
(on an FTE basis)..... 7.45% 7.40% 7.41% 7.47%
Delinquency............ 4.60 4.21
Net credit losses...... 4.42 3.96 4.30 3.86
PART II-OTHER INFORMATION
ITEM 5. OTHER INFORMATION
Stockholder proposals to be included in the Corporation's proxy material for
the 1999 Annual Meeting of Stockholders must be received at the Corporation's
principal executive offices not later than November 20, 1998.
Pursuant to Rule 14a-4 of the Securities Exchange Act of 1934, for the
Corporation's 1999 Annual Meeting of Stockholders, the Corporation will have
discretionary authority to vote shares represented by proxies on proposals
raised at the Annual Meeting if the Corporation does not receive notice of the
proposal by January 19, 1999.
A Corporation Bylaw provides that no business may be brought before an annual
or special meeting unless the stockholder has given written notice of the
business to the Corporation's Secretary not later than 60 days prior to the
date of the meeting, or if less than 70 days notice of the date of the meeting
has been given, the stockholder has given written notice within 10 days
following notice or publication of the date of the meeting.
The Corporation expects to provide notice of the date of the 1999 Annual
Meeting of Stockholders in its Form 10-Q for the period ended September 30,
1998.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
Index of Exhibits
Exhibit Description of Exhibit
------- ----------------------
12 Computation of Ratio of Earnings to Combined Fixed
Charges and Preferred Stock Dividend Requirements
27 Financial Data Schedule
Exhibit 12: Computation of Ratio of Earnings to Combined Fixed Charges and
Preferred Stock Dividend Requirements
(dollars in thousands)
For the Six Months Ended
June 30,
--------------------------
1998 1997
------------ ------------
(unaudited)
INCLUDING INTEREST ON DEPOSITS
Earnings:
Income before income taxes....................... $ 519,199 $ 432,030
Fixed charges.................................... 591,093 482,328
Interest capitalized during period, net of
amortization of previously capitalized interest. (4,549) (1,452)
------------ ------------
Earnings, for computation purposes............... $ 1,105,743 $ 912,906
============ ============
Fixed Charges and Preferred Stock Dividend
Requirements:
Interest on deposits, short-term borrowings,
and long-term debt and bank notes, expensed or
capitalized..................................... $ 586,218 $ 476,572
Portion of rents representative of the interest
factor.......................................... 4,875 5,756
------------ ------------
Fixed charges.................................... 591,093 482,328
Preferred stock dividend requirements (a)........ 11,674 19,723
------------ ------------
Fixed charges and preferred stock dividend
requirements, including interest on deposits,
for computation purposes........................ $ 602,767 $ 502,051
============ ============
Ratio of earnings to combined fixed charges and
preferred stock dividend requirements,
including interest on deposits.................. 1.83 1.82
For the Six Months Ended
June 30,
--------------------------
1998 1997
------------ ------------
(unaudited)
EXCLUDING INTEREST ON DEPOSITS
Earnings:
Income before income taxes....................... $ 519,199 $ 432,030
Fixed charges.................................... 201,227 165,492
Interest capitalized during period, net of
amortization of previously capitalized interest. (4,559) (1,462)
------------ ------------
Earnings, for computation purposes............... $ 715,867 $ 596,060
============ ============
Fixed Charges and Preferred Stock Dividend
Requirements:
Interest on short-term borrowings and long-term
debt and bank notes, expensed or capitalized.... $ 196,352 $ 159,736
Portion of rents representative of the interest
factor.......................................... 4,875 5,756
------------ ------------
Fixed charges.................................... 201,227 165,492
Preferred stock dividend requirements (a)........ 11,674 19,723
------------ ------------
Fixed charges and preferred stock dividend
requirements, excluding interest on deposits,
for computation purposes........................ $ 212,901 $ 185,215
============ ============
Ratio of earnings to combined fixed charges and
preferred stock dividend requirements,
excluding interest on deposits.................. 3.36 3.22
(a) Preferred stock dividend requirements are adjusted to represent a pretax
earnings equivalent.
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 applicable), 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.
b. Reports on Form 8-K
1. Report dated April 14, 1998, reporting MBNA Corporation's earnings
release for the first quarter of 1998.
2. Report dated April 30, 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 April 1998.
3. Report dated May 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 May 1998.
4. Report dated June 24, 1998, reporting the securitization of
$750.0 million of credit card receivables by MBNA America Bank, N.A.
5. Report dated June 30, 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 June 1998.
6. Report dated July 14, 1998, reporting MBNA Corporation's earnings
release for the second quarter of 1998.
7. Report dated July 30, 1998, reporting the securitization of
$559.0 million of credit card receivables by MBNA America Bank, N.A.
8. Report dated July 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 July 1998.
9. Report dated August 11, 1998, reporting the securitization of
$882.4 million of credit card receivables by MBNA America Bank, N.A
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
MBNA CORPORATION
Date: August 14, 1998 By: /s/ M. Scot Kaufman
------------------------
M. Scot Kaufman
Executive Vice President
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MBNA
CORPORATION'S FORM 10-Q FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 283,901
<INT-BEARING-DEPOSITS> 2,465,835
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,424,352
<INVESTMENTS-CARRYING> 328,469
<INVESTMENTS-MARKET> 324,055
<LOANS> 12,714,884<F1>
<ALLOWANCE> 194,685
<TOTAL-ASSETS> 22,902,130
<DEPOSITS> 13,322,061
<SHORT-TERM> 818,252
<LIABILITIES-OTHER> 759,796
<LONG-TERM> 5,894,392
0
86
<COMMON> 5,012
<OTHER-SE> 2,102,531
<TOTAL-LIABILITIES-AND-EQUITY> 22,902,130
<INTEREST-LOAN> 789,440<F1>
<INTEREST-INVEST> 62,659
<INTEREST-OTHER> 71,891
<INTEREST-TOTAL> 923,990
<INTEREST-DEPOSIT> 389,866
<INTEREST-EXPENSE> 581,534
<INTEREST-INCOME-NET> 342,456
<LOAN-LOSSES> 167,140
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,120,823
<INCOME-PRETAX> 519,199
<INCOME-PRE-EXTRAORDINARY> 519,199
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 321,384
<EPS-PRIMARY> .63<F2>
<EPS-DILUTED> .60<F2>
<YIELD-ACTUAL> 11.70<F3>
<LOANS-NON> 0
<LOANS-PAST> 133,861<F4>
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 162,476
<CHARGE-OFFS> 220,255
<RECOVERIES> 74,747
<ALLOWANCE-CLOSE> 194,685
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
<FN>
<F1> Includes Loans Held for Securitization.
<F2> EPS-Primary and EPS-Diluted have not 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, 1998, to stockholders of
record as of the close of business on September 15, 1998.
<F3> On a fully taxable equivalent basis.
<F4> Excludes Loans Held for Securitization.
</FN>
</TABLE>
