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 September 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
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MBNA Corporation
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Maryland 52-1713008
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Wilmington, DE 19884-0141
- -------------------------------------------------------------------------------
(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 -- 751,781,250 Shares
Outstanding as of September 30, 1998
MBNA CORPORATION AND SUBSIDIARIES
Table of Contents
Page
Part I - Financial Information
Item 1. Financial Statements
Consolidated Statements of Financial Condition - 1
September 30, 1998 (unaudited) and December 31, 1997
Consolidated Statements of Income - 3
For the Three and Nine Months Ended September 30, 1998 and 1997
(unaudited)
Consolidated Statements of Changes in Stockholders' Equity - 5
For the Nine Months Ended September 30, 1998 and 1997
(unaudited)
Consolidated Statements of Cash Flows - 7
For the Nine Months Ended September 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 43
Part II - Other Information
Item 1. Legal Proceedings 44
Item 5. Other Information 44
Item 6. Exhibits and Reports on Form 8-K 44
Signature 48
MBNA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(dollars in thousands, except per share amounts)
September 30, December 31,
1998 1997
------------- -------------
(unaudited)
ASSETS
Cash and due from banks........................... $ 278,364 $ 263,064
Interest-earning time deposits in other banks..... 2,669,751 1,427,065
Federal funds sold and securities purchased
under resale agreements.......................... 15,000 659,000
Investment securities:
Available-for-sale (at market value, amortized
cost of $1,546,503 and $2,160,869 at
September 30, 1998 and December 31, 1997,
respectively).................................. 1,548,361 2,162,464
Held-to-maturity (market value of $330,421
and $341,868 at September 30, 1998 and
December 31, 1997, respectively)............... 332,343 346,180
Loans held for securitization..................... 2,571,323 2,900,198
Loans:
Credit card..................................... 7,413,371 5,830,221
Other consumer.................................. 2,598,953 2,431,655
------------- -------------
Total loans................................... 10,012,324 8,261,876
Reserve for possible credit losses.............. (206,202) (162,476)
------------- -------------
Net loans..................................... 9,806,122 8,099,400
Premises and equipment, net....................... 1,636,560 1,579,058
Accrued income receivable......................... 155,409 146,964
Accounts receivable from securitizations.......... 3,641,109 2,835,831
Prepaid expenses and deferred charges............. 223,035 212,563
Other assets...................................... 937,648 673,726
------------- -------------
Total assets.................................. $ 23,815,025 $ 21,305,513
============= =============
September 30, December 31,
1998 1997
------------- -------------
(unaudited)
LIABILITIES
Deposits:
Time deposits................................... $ 9,910,761 $ 9,435,171
Money market deposit accounts................... 3,748,783 3,122,385
Noninterest-bearing demand deposits............. 432,287 311,670
Interest-bearing transaction accounts........... 25,642 31,669
Savings accounts................................ 7,841 12,318
------------- -------------
Total deposits................................ 14,125,314 12,913,213
Short-term borrowings............................. 620,103 192,623
Long-term debt and bank notes..................... 5,967,790 5,478,917
Accrued interest payable.......................... 143,153 137,215
Accrued expenses and other liabilities............ 716,163 613,495
------------- -------------
Total liabilities............................. 21,572,523 19,335,463
STOCKHOLDERS' EQUITY
Preferred stock($.01 par value, 20,000,000
shares authorized, 8,573,882 shares issued
and outstanding at September 30, 1998 and
December 31, 1997, respectively)................. 86 86
Common stock ($.01 par value, 1,500,000,000
shares authorized, 751,781,250 shares issued
and outstanding at September 30, 1998 and
December 31, 1997, respectively)................. 7,518 7,518
Additional paid-in capital........................ 302,748 421,871
Retained earnings and accumulated other
comprehensive income............................. 1,932,150 1,540,575
------------- -------------
Total stockholders' equity.................... 2,242,502 1,970,050
------------- -------------
Total liabilities and stockholders' equity.... $ 23,815,025 $ 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 Nine Months
Ended September 30, Ended September 30,
--------------------- -----------------------
1998 1997 1998 1997
---------- ---------- ----------- -----------
(unaudited)
INTEREST INCOME
Loans........................... $ 350,613 $ 269,084 $ 935,895 $ 772,390
Investment securities:
Taxable....................... 24,370 37,232 85,336 103,198
Tax-exempt.................... 869 875 2,562 2,582
Time deposits in other banks.... 37,965 10,739 94,106 32,343
Federal funds sold and
securities purchased under
resale agreements.............. 2,571 6,706 18,321 16,105
Loans held for securitization... 99,135 112,588 303,293 351,162
---------- ---------- ----------- -----------
Total interest income....... 515,523 437,224 1,439,513 1,277,780
INTEREST EXPENSE
Deposits........................ 209,261 183,341 599,127 500,177
Short-term borrowings........... 8,976 1,716 14,969 18,767
Long-term debt and bank notes... 98,857 78,718 284,532 219,864
---------- ---------- ----------- -----------
Total interest expense...... 317,094 263,775 898,628 738,808
---------- ---------- ----------- -----------
NET INTEREST INCOME............. 198,429 173,449 540,885 538,972
Provision for possible credit
losses......................... 78,569 60,403 245,709 206,171
---------- ---------- ----------- -----------
Net interest income after
provision for possible credit
losses......................... 119,860 113,046 295,176 332,801
OTHER OPERATING INCOME
Interchange..................... 36,097 28,068 100,111 83,296
Credit card fees................ 33,512 17,315 95,041 76,012
Securitization income........... 724,584 627,749 2,018,598 1,823,402
Insurance....................... 23,374 12,209 60,565 27,337
Other........................... 13,644 6,698 21,602 19,446
---------- ---------- ----------- -----------
Total other operating
income..................... $ 831,211 $ 692,039 $ 2,295,917 $ 2,029,493
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
--------------------- -----------------------
1998 1997 1998 1997
---------- ---------- ----------- -----------
(unaudited)
OTHER OPERATING EXPENSE
Salaries and employee benefits.. $ 254,334 $ 257,971 $ 762,132 $ 735,848
Occupancy expense of premises... 30,916 21,587 84,354 60,784
Furniture and equipment expense. 41,209 39,882 126,998 109,239
Other........................... 274,704 204,102 748,502 742,850
---------- ---------- ----------- -----------
Total other operating
expense.................... 601,163 523,542 1,721,986 1,648,721
---------- ---------- ----------- -----------
Income before income taxes...... 349,908 281,543 869,107 713,573
Applicable income taxes......... 133,315 109,717 331,130 279,372
---------- ---------- ----------- -----------
NET INCOME...................... $ 216,593 $ 171,826 $ 537,977 $ 434,201
========== ========== =========== ===========
EARNINGS PER COMMON SHARE....... $ .28 $ .22 $ .70 $ .56
EARNINGS PER COMMON SHARE-
ASSUMING DILUTION.............. .27 .21 .67 .53
==============================================================================
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............ 8,574 751,781 $ 86 $ 7,518
Net income............................ - - - -
Cash dividends:
Common-$.18 per share............... - - - -
Preferred........................... - - - -
Exercise of stock options and other
awards............................... - 9,176 - 92
Acquisition and retirement of
common stock......................... - (9,176) - (92)
Foreign currency translation, net
of tax (accumulated amount of
$9,151 at September 30, 1998)........ - - - -
Net unrealized losses on investment
securities available-for-sale and
other financial instruments, net
of tax (accumulated amount of
$4,834 at September 30, 1998)........ - - - -
Minimum benefit plan liability
adjustment, net of tax
(accumulated amount of ($4,575)
at September 30, 1998)............... - - - -
--------- -------- --------- ---------
BALANCE, SEPTEMBER 30, 1998........... 8,574 751,781 $ 86 $ 7,518
========= ======== ========= =========
BALANCE, DECEMBER 31, 1996............ 12,000 751,781 $ 120 $ 7,518
Net income............................ - - - -
Cash dividends:
Common-$.16 per share............... - - - -
Preferred........................... - - - -
Exercise of stock options and other
awards............................... - 6,407 - 64
Acquisition and retirement of
common stock......................... - (6,407) - (64)
Acquisition and retirement of
preferred stock...................... (3,426) - (34) -
Foreign currency translation, net
of tax (accumulated amount of
$1,354 at September 30, 1997)........ - - - -
Net unrealized gains on investment
securities available-for-sale and
other financial instruments, net
of tax (accumulated amount of
$7,268 at September 30, 1997)........ - - - -
--------- -------- --------- ---------
BALANCE, SEPTEMBER 30, 1997........... 8,574 751,781 $ 86 $ 7,518
========= ======== ========= =========
Retained Earnings
and Accumulated
Additional Other Total
Paid-in Comprehensive Stockholders'
Capital Income Equity
---------- ----------------- ------------
BALANCE, DECEMBER 31, 1997.......... $ 421,871 $ 1,540,575 $ 1,970,050
Net income.......................... - 537,977 537,977
Cash dividends:
Common-$.18 per share............. - (135,332) (135,332)
Preferred......................... - (10,773) (10,773)
Exercise of stock options and other
awards............................. 76,389 - 76,481
Acquisition and retirement of
common stock....................... (195,512) - (195,604)
Foreign currency translation, net
of tax (accumulated amount of
$9,151 at September 30, 1998)...... - 6,227 6,227
Net unrealized losses on investment
securities available-for-sale and
other financial instruments, net
of tax (accumulated amount of
$4,834 at September 30, 1998)...... - (1,949) (1,949)
Minimum benefit plan liability
adjustment, net of tax
(accumulated amount of ($4,575)
at September 30, 1998)............. - (4,575) (4,575)
---------- ----------------- ------------
BALANCE, SEPTEMBER 30, 1998......... $ 302,748 $ 1,932,150 $ 2,242,502
========== ================= ============
BALANCE, DECEMBER 31, 1996.......... $ 599,725 $ 1,096,945 $ 1,704,308
Net income.......................... - 434,201 434,201
Cash dividends:
Common-$.16 per share............. - (120,294) (120,294)
Preferred......................... - (12,665) (12,665)
Exercise of stock options and other
awards............................. 50,545 - 50,609
Acquisition and retirement of
common stock... ................... (100,790) - (100,854)
Acquisition and retirement of
preferred stock.................... (85,619) (3,133) (88,786)
Foreign currency translation, net
of tax (accumulated amount of
$1,354 at September 30, 1997)...... - (6,556) (6,556)
Net unrealized gains on investment
securities available-for-sale and
other financial instruments, net
of tax (accumulated amount of
$7,268 at September 30, 1997)...... - 6,545 6,545
---------- ----------------- ------------
BALANCE, SEPTEMBER 30, 1997......... $ 463,861 $ 1,395,043 $ 1,866,508
========== ================= ============
==============================================================================
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 Nine Months Ended
September 30,
---------------------------
1998 1997
------------- -------------
(unaudited)
OPERATING ACTIVITIES
Net income........................................ $ 537,977 $ 434,201
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for possible credit losses............ 245,709 206,171
Depreciation, amortization, and accretion....... 179,941 102,011
(Benefit) provision for deferred income taxes... (5,762) 12,935
Increase in accrued income receivable........... (8,445) (17,001)
Increase in accounts receivable from
securitizations................................ (805,278) (1,937,660)
Increase in accrued interest payable............ 5,938 30,495
Decrease in other operating activities.......... 53,031 281,666
------------- -------------
Net cash provided by (used in) operating
activities................................... 203,111 (887,182)
INVESTING ACTIVITIES
Net increase in money market instruments.......... (598,686) (326,963)
Proceeds from maturities of investment securities
available-for-sale............................... 1,912,968 5,939,431
Purchases of investment securities
available-for-sale............................... (1,286,114) (6,536,585)
Proceeds from maturities of investment securities
held-to-maturity ................................ 73,382 177,778
Purchases of investment securities
held-to-maturity................................. (59,288) (40,002)
Proceeds from securitization of loans............. 7,238,835 9,679,866
Proceeds from sale of loan portfolios............. 78,943 -
Loan portfolio acquisitions....................... (2,483,701) (1,118,744)
Amortization of securitized loans................. (2,045,833) (2,074,885)
Net loan originations............................. (4,645,562) (6,694,463)
Net purchases of premises and equipment........... (184,721) (475,972)
------------- -------------
Net cash used in investing activities......... $ (1,999,777)$ (1,470,539)
For the Nine Months Ended
September 30,
---------------------------
1998 1997
------------- -------------
(unaudited)
FINANCING ACTIVITIES
Net increase in time deposits..................... $ 475,590 $ 1,971,345
Net increase in money market deposit accounts,
noninterest-bearing demand deposits,
interest-bearing transaction accounts,
and savings accounts............................. 736,511 364,366
Net increase (decrease) in short-term borrowings.. 427,480 (664,241)
Proceeds from issuance of long-term debt
and bank notes................................... 760,011 1,288,667
Maturity of long-term debt and bank notes......... (283,636) (261,425)
Proceeds from exercise of stock options
and other awards................................. 32,892 24,839
Acquisition and retirement of common stock........ (195,604) (100,854)
Acquisition and retirement of preferred stock..... - (52,483)
Dividends paid.................................... (141,278) (129,828)
------------- -------------
Net cash provided by financing activities..... 1,811,966 2,440,386
------------- -------------
INCREASE IN CASH AND CASH EQUIVALENTS............. 15,300 82,665
Cash and cash equivalents at beginning of period.. 263,064 225,063
------------- -------------
Cash and cash equivalents at end of period........ $ 278,364 $ 307,728
============= =============
SUPPLEMENTAL DISCLOSURE
Interest expense paid............................. $ 893,253 $ 707,527
============= =============
Income taxes paid................................. $ 279,407 $ 133,136
============= =============
==============================================================================
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 nine months ended
September 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 $554.9 million and $366.1 million at
September 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 an appropriate
discount rate. 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 nine months ended September 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 5.97% to 6.34%, payable
semiannually, maturing in varying amounts from
2000 through 2003.................................. $ 105,000
Floating-Rate Senior Medium-Term Notes, priced
between 45 basis points and 66 basis points over
the three-month London Interbank Offered Rate
(LIBOR), payable quarterly, maturing in varying
amounts from 2000 through 2003..................... 340,000
Fixed-Rate Senior Medium-Term Bank Notes, with
interest rates varying from 5.96% to 6.08%,
payable semiannually, maturing in varying amounts
from 2000 through 2001............................. 70,000
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: COMMON STOCK
On July 14, 1998, the Board of Directors approved a 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 September 15, 1998.
Accordingly, all common share and per common share data have been restated to
reflect this stock split.
NOTE F: EARNINGS PER COMMON SHARE
The Corporation adopted Statement of Financial Accounting Standards No. 128,
"Earnings per Share" (Statement No. 128), effective for financial statements
issued for periods ending after December 15, 1997. In accordance with
Statement No. 128, earnings per common share ("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 for the three and nine months ended September 30, 1997, have been
restated to reflect the adoption of Statement No. 128.
Computation of Earnings Per Common Share
(dollars in thousands, except per share data)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
--------------------- -----------------------
1998 1997 1998 1997
---------- ---------- ----------- -----------
BASIC
Net income...................... $ 216,593 $ 171,826 $ 537,977 $ 434,201
Less: preferred stock dividend
requirements................... 3,547 3,820 10,773 15,798
---------- ---------- ----------- -----------
Net income applicable to common
stock.......................... $ 213,046 $ 168,006 $ 527,204 $ 418,403
========== ========== =========== ===========
Weighted average common shares
outstanding (000).............. 751,806 751,813 751,828 751,828
========== ========== =========== ===========
Earnings per common share....... $ .28 $ .22 $ .70 $ .56
========== ========== =========== ===========
DILUTED
Net income...................... $ 216,593 $ 171,826 $ 537,977 $ 434,201
Less: preferred stock dividend
requirements................... 3,547 3,820 10,773 15,798
---------- ---------- ----------- -----------
Net income applicable to common
stock.......................... $ 213,046 $ 168,006 $ 527,204 $ 418,403
========== ========== =========== ===========
Weighted average common shares
outstanding (000).............. 751,806 751,813 751,828 751,828
Net effect of dilutive stock
options-based on the treasury
stock method using average
market price (000)............. 35,879 40,652 38,272 37,446
---------- ---------- ----------- -----------
Weighted average common shares
outstanding and common stock
equivalents (000).............. 787,685 792,465 790,100 789,274
========== ========== =========== ===========
Earnings per common share-
assuming dilution.............. $ .27 $ .21 $ .67 $ .53
========== ========== =========== ===========
There were 9.1 million stock options with an average option price of $22.44 per
share at September 30, 1998, which were not included in the computation of
earnings per common share-assuming dilution for 1998 as a result of the stock
options' exercise price being greater than the average market price of the
common shares. These stock options expire in 2008.
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 G: 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
October 13, 1998 January 15, 1999 7.50 .46875 5.50 .3438
NOTE H: 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. The
adoption of Statement No. 130 had no impact on the Corporation's consolidated
financial statements. Statement No. 130 requires the impact of foreign
currency translation, unrealized gains or losses on the Corporation's
investment securities available-for-sale and other financial instruments, 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 nine
months ended September 30, 1998 and 1997 are as follows:
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
--------------------- -----------------------
1998 1997 1998 1997
---------- ---------- ----------- -----------
Net Income...................... $ 216,593 $ 171,826 $ 537,977 $ 434,201
Foreign currency translation.... 3,414 (3,660) 6,227 (6,556)
Net unrealized (losses) gains
on investment securities
available-for-sale and other
financial instruments.......... (111) 1,612 (1,949) 6,545
Minimum benefit plan liability
adjustment..................... - - (4,575) -
---------- ---------- ----------- -----------
Comprehensive income............ $ 219,896 $ 169,778 $ 537,680 $ 434,190
========== ========== =========== ===========
The components of retained earnings and accumulated other comprehensive
income, net of tax, at September 30, 1998 and December 31, 1997 are as
follows:
September 30, December 31,
1998 1997
------------- -------------
Foreign currency translation..................... $ 9,151 $ 2,924
Net unrealized gains on investment securities
available-for-sale and other financial
instruments..................................... 4,834 6,783
Minimum benefit plan liability adjustment........ (4,575) -
------------- -------------
Accumulated other comprehensive income........... 9,410 9,707
Retained earnings................................ 1,922,740 1,530,868
------------- -------------
Retained earnings and accumulated other
comprehensive income............................ $ 1,932,150 $ 1,540,575
============= =============
NOTE I: 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.
MBNA CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This discussion is intended to further the reader's understanding of the
consolidated financial condition and results of operations of MBNA Corporation
(the "Corporation"). It should be read in conjunction with the consolidated
financial statements, notes, 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 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, insurance, 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 and money
market instruments, 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, effected in the form of a dividend, issued
October 1, 1998, to stockholders of record as of September 15, 1998.
Accordingly, all common share and per common share data have been restated to
reflect this stock split.
EARNINGS SUMMARY
Net income for the three months ended September 30, 1998 increased 26.1% to
$216.6 million or $.27 per common share, from $171.8 million or $.21 per
common share for the same period in 1997. Net income for the nine months
ended September 30, 1998 increased 23.9% to $538.0 million, or $.67 per common
share, from $434.2 million or $.53 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 September 30,
1998 were $56.3 billion, a $10.1 billion increase from September 30, 1997, and
a $6.9 billion increase since December 31, 1997. The Corporation acquired 342
new endorsements from organizations and added 6.6 million new accounts during
the nine months ended September 30, 1998. Included in the Corporation's
managed loan growth is $2.3 billion of credit card and other consumer loan
receivables acquired during the nine months ended September 30, 1998. The
Corporation's average managed loans increased 21.6% and 22.9% to $54.1 billion
and $51.4 billion for the three and nine months ended September 30, 1998,
compared to $44.5 billion and $41.8 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 nine months
ended September 30, 1998, the Corporation securitized approximately $4.7
billion and $7.3 billion of loan receivables, respectively, bringing the total
amount of outstanding securitized loans to $43.7 billion at September 30,
1998.
Return on average total assets for the three and nine months ended
September 30, 1998, was 3.66% and 3.23%, as compared to 3.48% and 3.12% for
the same periods during 1997, respectively. The increase in the return on
average total assets for the three and nine months ended September 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 nine months ended September 30, 1998
was 39.77% and 35.26%, compared to 38.27% and 33.84% for the same periods in
1997, respectively. The higher return on average stockholders' equity is
primarily a result of the 26.1% and 23.9% increase in net income for the three
and nine months ended September 30, 1998 which exceeded the 21.3% and 18.9%
increase in average stockholders' equity. The slower growth in average
stockholders' equity reflects the Corporation's acquisition of its common
stock and payment of dividends to its 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 nine months ended September 30, 1998, on
a fully taxable equivalent basis, was $198.9 million and $542.3 million,
compared to $173.9 million and $540.4 million for the same periods in 1997,
respectively. The increase in net interest income for the three and nine
months ended September 30, 1998 is a result of an increase in average interest-
earning assets of $2.8 billion and $2.2 billion, respectively, offset by an
increase in average interest-bearing liabilities of $3.5 billion and $3.2
billion, and a decline in yields earned on average interest-earning assets of
15 basis points and 28 basis points, respectively, as compared to the same
periods in 1997. The increase in average interest-earning assets for the three
and nine months ended September 30, 1998 is a result of an increase in loan
receivables of $2.1 billion and $1.2 billion, and an increase in investment
securities and money market instruments of $662.7 million and $978.9 million,
respectively, as compared to the same periods in 1997. The increase in
average interest-bearing liabilities during these periods resulted primarily
from funding the increases in average interest-earning assets and accounts
receivable from securitization, which is included in other assets.
The net interest margin, on a fully taxable equivalent basis, was 4.58% and
4.43% for the three and nine months ended September 30, 1998, as compared to
4.78% and 5.08% for the same periods in 1997, respectively. The decline in
the net interest margin for both the three and nine months ended September 30,
1998 is primarily a result of average interest-earning assets growing faster
than net interest income, as compared to the same periods in 1997.
INVESTMENT SECURITIES AND MONEY MARKET INSTRUMENTS
Interest income on investment securities, on a fully taxable equivalent basis,
decreased $12.9 million to $25.7 million, and $17.9 million to $89.3 million
for the three and nine months ended September 30, 1998, respectively, as
compared to the same periods in 1997. The decrease for the three and nine
months ended September 30, 1998 is the result of a decrease in average
investment securities of $919.3 million and $469.8 million, respectively,
offset by an increase in the yield earned on average investment securities of 9
basis points and 14 basis points, respectively, as compared to the same period
in 1997.
Interest income on money market instruments increased $23.1 million to $40.5
million, and $64.0 million to $112.4 million for the three and nine months
ended September 30, 1998, respectively, as compared to the same periods in
1997. The increase for the three and nine months ended September 30, 1998 is
primarily a result of an increase of $1.6 billion and $1.4 billion in average
money market instruments when compared to the same periods in 1997,
respectively. In addition, the yield earned on average money market instruments
increased 1 basis point and 15 basis points for the three and nine months ended
September 30, 1998, as 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, long-term debt and bank
notes, and maturities of investment securities. 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.
LOAN RECEIVABLES
Interest income generated by the Corporation's loan receivables increased
$68.1 million and $115.6 million to $449.7 million and $1.2 billion for the
three and nine months ended September 30, 1998, as compared to the same periods
in 1997, respectively. The increase is primarily attributable to an increase
in average loan receivables of $2.1 billion and $1.2 billion for the three and
nine months ended September 30, 1998, respectively, as compared to the same
periods in 1997. The yield earned by the Corporation on loan receivables
declined 27 basis points to 14.06% for the three months ended September 30,
1998 and 12 basis points to 14.12% for the nine months ended September 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)
September 30, December 31,
1998 1997
------------- -------------
(unaudited)
Loans held for securitization:
Domestic:
Credit card.............................. $ 1,428,207 $ 2,297,400
Other consumer........................... 29,835 -
------------- -------------
Total domestic loans held for
securitization........................ 1,458,042 2,297,400
Foreign.................................... 1,113,281 602,798
------------- -------------
Total loans held for securitization.... 2,571,323 2,900,198
Loan portfolio:
Domestic:
Credit card.............................. 6,669,645 5,475,933
Other consumer........................... 2,542,155 2,187,216
------------- -------------
Total domestic loan portfolio.......... 9,211,800 7,663,149
Foreign.................................... 800,524 598,727
------------- -------------
Total loan portfolio................... 10,012,324 8,261,876
------------- -------------
Total loan receivables................. $ 12,583,647 $ 11,162,074
============= =============
DEPOSITS
Total interest expense on deposits increased $25.9 million and $99.0 million to
$209.3 million and $599.1 million for the three and nine months ended
September 30, 1998, respectively, as compared to the same periods in 1997. The
increase for the three months ended September 30, 1998 is the result of an
increase in average interest-bearing deposits of $1.7 billion offset by a 2
basis point decline in the rates paid on average interest-bearing deposits, as
compared with the same period in 1997. The increase in the nine months ended
September 30, 1998 is the result of an increase in average interest-bearing
deposits of $2.0 billion combined with an 11 basis point increase in the rates
paid on average interest-bearing deposits as compared with the same period 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. In
addition, foreign average interest-bearing deposits increased $665.1 million
and $353.0 million for the three and nine months ended September 30, 1998, as
compared to the same periods in 1997, to provide funding of the Corporation's
foreign bank subsidiaries' loan growth.
BORROWED FUNDS
Interest expense on short-term borrowings increased $7.3 million to $9.0
million for the three months ended September 30, 1998 as compared to the same
period in 1997. The increase is primarily the result of an increase in
short-term borrowings of $521.9 million for the three months ended
September 30, 1998, as compared to the same period in 1997. The increase in
short-term borrowings is to provide short-term funding for the Corporation's
foreign and domestic loan growth. Interest expense on short-term borrowings
decreased $3.8 million to $15.0 million for the nine months ended September 30,
1998, as compared to the same period in 1997. The decrease is primarily the
result of a decrease in average short-term borrowings of $102.2 million for the
nine months ended September 30, 1998, as compared to the same period in 1997.
Total interest expense on long-term debt and bank notes increased $20.1 million
and $64.7 million to $98.9 million and $284.5 million for the three and nine
months ended September 30, 1998, respectively, as compared to the same periods
in 1997. The increase in interest expense reflects the issuance of additional
long-term debt and bank notes to diversify funding sources, to fund loan
growth, and for other general corporate purposes. Average long-term debt and
bank notes increased $1.2 billion and $1.4 billion for the three and nine
months ended September 30, 1998, respectively, as compared to the same periods
in 1997.
Table 2 provides further detail regarding the Corporation's average balances,
yields and rates, and income or expense for the three and nine months ended
September 30, 1998 and 1997, respectively.
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
September 30, 1998
--------------------------------
Average Yield/ Income
Amount Rate or Expense
------------ ------ ----------
(unaudited)
ASSETS
Interest-earning assets:
Interest-earning time deposits in other
banks:
Domestic.................................. $ 4,014 4.55% $ 46
Foreign................................... 2,594,776 5.80 37,919
------------ ----------
Total interest-earning time deposits
in other banks....................... 2,598,790 5.80 37,965
Federal funds sold and securities purchased
under resale agreements.................... 182,570 5.59 2,571
Investment securities(a):
Taxable................................... 1,659,607 5.83 24,370
Tax-exempt(b)............................. 94,575 5.60 1,336
------------ ----------
Total investment securities........... 1,754,182 5.81 25,706
Loans held for securitization:
Domestic.................................. 2,043,504 14.29 73,623
Foreign................................... 724,533 13.97 25,512
------------ ----------
Total loans held for securitization... 2,768,037 14.21 99,135
Loans:
Domestic:
Credit card............................. 6,204,907 14.33 224,124
Other consumer.......................... 2,478,017 13.60 84,946
------------ ----------
Total domestic loans.................. 8,682,924 14.12 309,070
Foreign................................... 1,238,554 13.31 41,543
------------ ----------
Total loans........................... 9,921,478 14.02 350,613
------------ ----------
Total interest-earning assets......... 17,225,057 11.88 $ 515,990
Cash and due from banks....................... 437,933
Premises and equipment, net................... 1,647,176
Other assets.................................. 4,363,096
Reserve for possible credit losses............ (197,943)
------------
Total assets.......................... $ 23,475,319
============
(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 September 30, 1998 was $467.
For the Three Months Ended
September 30, 1998
--------------------------------
Average Yield/ Income
Amount Rate or Expense
------------ ------ ----------
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing deposits:
Domestic:
Time deposits........................... $ 8,790,345 6.28% $ 139,071
Money market deposit accounts........... 3,665,430 5.48 50,616
Interest-bearing transaction accounts... 29,659 4.74 354
Savings accounts........................ 8,253 4.66 97
------------ ----------
Total domestic interest-bearing
deposits............................. 12,493,687 6.04 190,138
Foreign:
Time deposits........................... 1,065,454 7.12 19,123
------------ ----------
Total interest-bearing deposits....... 13,559,141 6.12 209,261
Borrowed funds:
Short-term borrowings:
Domestic................................ 321,776 5.64 4,575
Foreign................................. 319,410 5.47 4,401
------------ ----------
Total short-term borrowings........... 641,186 5.55 8,976
Long-term debt and bank notes:
Domestic(c)............................. 5,759,459 6.49 94,147
Foreign................................. 220,288 8.48 4,710
------------ ----------
Total long-term debt and bank notes... 5,979,747 6.56 98,857
------------ ----------
Total borrowed funds.................. 6,620,933 6.46 107,833
------------ ----------
Total interest-bearing liabilities.... 20,180,074 6.23 317,094
Demand deposits............................... 433,497
Other liabilities............................. 701,105
------------
Total liabilities..................... 21,314,676
Stockholders' equity.......................... 2,160,643
------------
Total liabilities and stockholders'
equity............................... $ 23,475,319
============ ----------
Net interest income................... $ 198,896
==========
Net interest margin................... 4.58
Interest rate spread.................. 5.65
(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
September 30, 1997
--------------------------------
Average Yield/ Income
Amount Rate or Expense
------------ ------ ----------
(unaudited)
ASSETS
Interest-earning assets:
Interest-earning time deposits in other
banks:
Domestic.................................. $ 2,675 4.45% $ 30
Foreign................................... 720,870 5.89 10,709
------------ ----------
Total interest-earning time deposits
in other banks....................... 723,545 5.89 10,739
Federal funds sold and securities purchased
under resale agreements.................... 475,869 5.59 6,706
Investment securities(a):
Taxable................................... 2,583,498 5.72 37,232
Tax-exempt(b)............................. 89,962 5.94 1,346
------------ ----------
Total investment securities........... 2,673,460 5.72 38,578
Loans held for securitization:
Domestic.................................. 2,757,636 14.51 100,846
Foreign................................... 317,227 14.69 11,742
------------ ----------
Total loans held for securitization... 3,074,863 14.53 112,588
Loans:
Domestic:
Credit card............................. 4,957,219 14.20 177,371
Other consumer.......................... 2,078,381 14.43 75,584
------------ ----------
Total domestic loans.................. 7,035,600 14.26 252,955
Foreign................................... 455,580 14.05 16,129
------------ ----------
Total loans........................... 7,491,180 14.25 269,084
------------ ----------
Total interest-earning assets......... 14,438,917 12.03 $ 437,695
Cash and due from banks....................... 519,291
Premises and equipment, net................... 1,361,877
Other assets.................................. 3,444,209
Reserve for possible credit losses............ (157,762)
------------
Total assets.......................... $ 19,606,532
============
(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 September 30, 1997 was $471.
For the Three Months Ended
September 30, 1997
--------------------------------
Average Yield/ Income
Amount Rate or Expense
------------ ------ ----------
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing deposits:
Domestic:
Time deposits(c)........................ $ 8,458,446 6.38% $ 135,925
Money market deposit accounts........... 2,958,170 5.40 40,294
Interest-bearing transaction accounts... 27,223 4.77 327
Savings accounts........................ 11,739 4.80 142
------------ ----------
Total domestic interest-bearing
deposits............................. 11,455,578 6.12 176,688
Foreign:
Time deposits........................... 400,330 6.59 6,653
------------ ----------
Total interest-bearing deposits....... 11,855,908 6.14 183,341
Borrowed funds:
Short-term borrowings:
Domestic ............................... 101,446 5.66 1,446
Foreign................................. 17,867 6.00 270
------------ ----------
Total short-term borrowings........... 119,313 5.71 1,716
Long-term debt and bank notes:
Domestic(c)............................. 4,546,610 6.51 74,609
Foreign................................. 205,272 7.94 4,109
------------ ----------
Total long-term debt and bank notes... 4,751,882 6.57 78,718
------------ ----------
Total borrowed funds.................. 4,871,195 6.55 80,434
------------ ----------
Total interest-bearing liabilities.... 16,727,103 6.26 263,775
Demand deposits............................... 375,319
Other liabilities............................. 722,745
------------
Total liabilities..................... 17,825,167
Stockholders' equity.......................... 1,781,365
------------
Total liabilities and stockholders'
equity............................... $ 19,606,532
============ ----------
Net interest income................... $ 173,920
==========
Net interest margin................... 4.78
Interest rate spread.................. 5.77
(c) Includes the impact of interest rate swap agreements used to change fixed-
rate funding sources to floating-rate funding sources.
For the Nine Months Ended
September 30, 1998
--------------------------------
Average Yield/ Income
Amount Rate or Expense
------------ ------ ----------
(unaudited)
ASSETS
Interest-earning assets:
Interest-earning time deposits in other
banks:
Domestic.................................. $ 10,731 4.88% $ 392
Foreign................................... 2,149,328 5.83 93,714
------------ ----------
Total interest-earning time deposits
in other banks....................... 2,160,059 5.82 94,106
Federal funds sold and securities purchased
under resale agreements.................... 439,065 5.58 18,321
Investment securities(a):
Taxable................................... 1,952,423 5.84 85,336
Tax-exempt(b)............................. 90,942 5.79 3,941
------------ ----------
Total investment securities........... 2,043,365 5.84 89,277
Loans held for securitization:
Domestic.................................. 2,214,653 14.43 239,023
Foreign................................... 595,991 14.42 64,270
------------ ----------
Total loans held for securitization... 2,810,644 14.43 303,293
Loans:
Domestic:
Credit card............................. 5,841,733 14.19 620,174
Other consumer.......................... 2,178,656 13.76 224,246
------------ ----------
Total domestic loans.................. 8,020,389 14.08 844,420
Foreign................................... 903,068 13.54 91,475
------------ ----------
Total loans........................... 8,923,457 14.02 935,895
------------ ----------
Total interest-earning assets......... 16,376,590 11.76 $1,440,892
Cash and due from banks....................... 455,656
Premises and equipment, net................... 1,635,140
Other assets.................................. 4,011,147
Reserve for possible credit losses............ (184,063)
------------
Total assets.......................... $ 22,294,470
============
(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 nine months
ended September 30, 1998 was $1,379.
For the Nine Months Ended
September 30, 1998
--------------------------------
Average Yield/ Income
Amount Rate or Expense
------------ ------ ----------
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing deposits:
Domestic:
Time deposits........................... $ 8,785,414 6.32% $ 415,290
Money market deposit accounts........... 3,435,610 5.51 141,501
Interest-bearing transaction accounts... 30,921 4.77 1,103
Savings accounts........................ 9,267 4.70 326
------------ ----------
Total domestic interest-bearing
deposits............................. 12,261,212 6.09 558,220
Foreign:
Time deposits........................... 765,966 7.14 40,907
------------ ----------
Total interest-bearing deposits....... 13,027,178 6.15 599,127
Borrowed funds:
Short-term borrowings:
Domestic................................ 126,866 5.64 5,351
Foreign................................. 203,726 6.31 9,618
------------ ----------
Total short-term borrowings........... 330,592 6.05 14,969
Long-term debt and bank notes:
Domestic(c)............................. 5,598,714 6.49 271,644
Foreign................................. 221,333 7.79 12,888
------------ ----------
Total long-term debt and bank notes... 5,820,047 6.54 284,532
------------ ----------
Total borrowed funds.................. 6,150,639 6.51 299,501
------------ ----------
Total interest-bearing liabilities.... 19,177,817 6.26 898,628
Demand deposits............................... 404,744
Other liabilities............................. 672,030
------------
Total liabilities..................... 20,254,591
Stockholders' equity.......................... 2,039,879
------------
Total liabilities and stockholders'
equity............................... $ 22,294,470
============ ----------
Net interest income................... $ 542,264
==========
Net interest margin................... 4.43
Interest rate spread.................. 5.50
(c) Includes the impact of interest rate swap agreements used to change fixed-
rate funding sources to floating-rate funding sources.
For the Nine Months Ended
September 30, 1997
--------------------------------
Average Yield/ Income
Amount Rate or Expense
------------ ------ ----------
(unaudited)
ASSETS
Interest-earning assets:
Interest-earning time deposits in other
banks:
Domestic.................................. $ 2,683 4.24% $ 85
Foreign................................... 759,067 5.68 32,258
------------ ----------
Total interest-earning time deposits
in other banks....................... 761,750 5.68 32,343
Federal funds sold and securities purchased
under resale agreements.................... 388,692 5.54 16,105
Investment securities(a):
Taxable................................... 2,424,416 5.69 103,198
Tax-exempt(b)............................. 88,707 5.99 3,972
------------ ----------
Total investment securities........... 2,513,123 5.70 107,170
Loans held for securitization:
Domestic.................................. 2,892,274 14.39 311,373
Foreign................................... 370,612 14.35 39,789
------------ ----------
Total loans held for securitization... 3,262,886 14.39 351,162
Loans:
Domestic:
Credit card............................. 4,980,203 14.08 524,514
Other consumer.......................... 1,920,084 14.50 208,218
------------ ----------
Total domestic loans.................. 6,900,287 14.20 732,732
Foreign................................... 382,949 13.85 39,658
------------ ----------
Total loans........................... 7,283,236 14.18 772,390
------------ ----------
Total interest-earning assets......... 14,209,687 12.04 $1,279,170
Cash and due from banks....................... 471,442
Premises and equipment, net................... 1,214,633
Other assets.................................. 2,872,334
Reserve for possible credit losses............ (136,628)
------------
Total assets.......................... $ 18,631,468
============
(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 nine months
ended September 30, 1997 was $1,390.
For the Nine Months Ended
September 30, 1997
--------------------------------
Average Yield/ Income
Amount Rate or Expense
------------ ------ ----------
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing deposits:
Domestic:
Time deposits(c)........................ $ 7,769,166 6.27% $ 364,129
Money market deposit accounts........... 2,848,908 5.41 115,228
Interest-bearing transaction accounts... 26,927 4.68 943
Savings accounts........................ 11,422 4.67 399
------------ ----------
Total domestic interest-bearing
deposits............................. 10,656,423 6.03 480,699
Foreign:
Time deposits........................... 412,932 6.31 19,478
------------ ----------
Total interest-bearing deposits....... 11,069,355 6.04 500,177
Borrowed funds:
Short-term borrowings:
Domestic ............................... 381,935 5.69 16,244
Foreign................................. 50,858 6.63 2,523
------------ ----------
Total short-term borrowings........... 432,793 5.80 18,767
Long-term debt and bank notes:
Domestic(c)............................. 4,299,730 6.53 209,848
Foreign................................. 166,055 8.06 10,016
------------ ----------
Total long-term debt and bank notes... 4,465,785 6.58 219,864
------------ ----------
Total borrowed funds.................. 4,898,578 6.51 238,631
------------ ----------
Total interest-bearing liabilities.... 15,967,933 6.19 738,808
Demand deposits............................... 328,206
Other liabilities............................. 620,017
------------
Total liabilities..................... 16,916,156
Stockholders' equity.......................... 1,715,312
------------
Total liabilities and stockholders'
equity............................... $ 18,631,468
============ ----------
Net interest income................... $ 540,362
==========
Net interest margin................... 5.08
Interest rate spread.................. 5.85
(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 20.1% and 13.1% to $831.2 million and
$2.3 billion for the three and nine months ended September 30, 1998,
respectively, from $692.0 million and $2.0 billion for the same periods in
1997. The increase in other operating income is primarily attributable to a
15.4% and 10.7% increase in securitization income, which grew to $724.6 million
and $2.0 billion for the three and nine months ended September 30, 1998,
respectively, as compared to the same periods in 1997. Securitization income
includes the gains recognized by the Corporation in accordance with Statement
of Financial Accounting Standards No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities" (Statement
No. 125), which was adopted by the Corporation on January 1, 1997, in addition
to other earnings recognized by the Corporation for the servicing of previously
securitized loans. As a result of Statement No. 125, securitization income
includes $754,000 and $12.2 million for the three and nine months ended
September 30, 1998, respectively, as compared to $74.9 million and $319.3
million for the same periods in 1997. Without the impact of Statement No. 125,
securitization income would have increased 30.9% and 33.4%, for the three and
nine months ended September 30, 1998, respectively, while other operating
income would have increased 34.6% and 33.5% for the three and nine months ended
September 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 $7.5 billion and $8.4 billion, or
22.0% and 26.8%, to $41.4 billion and $39.7 billion for the three and nine
months ended September 30, 1998, respectively, as compared to the same periods
in 1997. In addition, insurance income increased $11.2 million and $33.2
million for the three and nine months ended September 30, 1998, respectively,
primarily as a result of the growth in fee income generated from the
Corporation's insurance agency business, which markets credit-related life and
disability, automobile, and life and health insurance. During the third
quarter of 1998, the Corporation suspended marketing automobile insurance and
terminated its contract with TIG, its insurance carrier for automobile
insurance. The Corporation is actively seeking a new carrier for automobile
insurance.
OTHER OPERATING EXPENSE
Total other operating expense increased 14.8% to $601.2 million and 4.4% to
$1.7 billion for the three and nine months ended September 30, 1998,
respectively, as compared to the same periods in 1997. Total other operating
expense for the periods in 1997 includes the Corporation's investment in
additional business development efforts of an amount equivalent to the increase
in securitization income recognized by the Corporation as a result of the
adoption of Statement No. 125. Without these expenses, total other operating
expense would have increased 33.8% and 28.6% for the three and nine months
ended September 30, 1998, respectively, as compared to the same periods in
1997. For the nine months ended September 30, 1998, the Corporation added 6.6
million new accounts and 342 new endorsements from organizations.
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 Nine Months
Ended September 30, Ended September 30,
-------------------- --------------------
1998 1997 1998 1997
--------- --------- --------- ---------
(unaudited)
Purchased services................ $ 58,069 $ 63,728 $ 168,246 $ 213,049
Advertising....................... 45,403 22,303 103,811 109,503
Collection........................ 8,554 7,832 23,514 20,998
Stationery and supplies........... 8,338 7,317 23,514 22,812
Service bureau.................... 9,370 9,324 25,022 23,366
Postage and delivery.............. 49,433 38,622 143,631 142,408
Telephone usage................... 17,056 14,297 41,929 42,835
Credit card fraud losses.......... 19,380 16,161 60,104 47,282
Amortization of intangible assets. 11,807 7,904 32,062 22,033
Computer software................. 12,235 9,147 36,039 27,289
Other............................. 35,059 7,467 90,630 71,275
--------- --------- --------- ---------
Total other operating expense... $ 274,704 $ 204,102 $ 748,502 $ 742,850
========= ========= ========= =========
YEAR 2000
Project Overview
Like most major financial institutions, the Corporation is highly dependent
upon technology to deliver products and services to its Customers. Credit card
transactions and authorizations require a variety of voice and data networks,
and service providers to operate successfully. Sophisticated computer and
telecommunication systems enable the Corporation to process these transactions
and service customer accounts. Many computer applications have been written
using two digits rather than four to define the applicable year, and therefore
may not recognize a date using "00" as the Year 2000. If proper steps are not
taken to address this issue, this could result in the inability of the
application to properly process transactions with dates in the Year 2000 or
thereafter.
The Corporation began its Year 2000 Project ("the Project") to address this
issue in 1994. The Project is organized into six major components: Application
Software; Infrastructure; Business Unit; Telecommunication; Desktop
Infrastructure; and Readiness Testing. The Application Software component
includes all internally developed and purchased software used to perform
specific business functions. This portion of the Project encompasses nearly
all mission critical applications, including systems that service and support
loans, deposits, customer service activities, and financial systems. The
Infrastructure component includes the computer hardware and associated system's
software upon which Application Software is run, and includes Mainframe and
Distributed system platforms. The Business Unit component encompasses
application software, developed or acquired, managed outside the technology
area. It also includes all vendor supplied services and non-technology
equipment, such as systems to operate and secure buildings. The
Telecommunication component incorporates all voice and data networking and
switching components; voice response technology; and local, long distance, and
international telecommunication services. The Desktop Infrastructure component
addresses local area network and desktop computing environments and includes
all hardware and software components. The Readiness Testing component is the
final comprehensive integrated test of Application Software and Infrastructure
in a fully Year 2000 compliant environment. This will include interfaces with
major vendors such as MasterCard International and Visa International.
The Corporation expects to be substantially complete with the Application
Software, Infrastructure, Business Unit, Telecommunication, and Desktop
Infrastructure components of the Project by December 31, 1998. This includes
the assessment, renovation, validation and implementation phases. Assessment
activities will continue throughout 1999 to minimize overall risk. During
1999, the Corporation will complete implementation of any newly purchased
software, perform the readiness testing, and finalize contingency plans.
Project Readiness
The Application Software and Infrastructure are the most substantial components
of the Project and are complete and have been implemented into production, with
the exception of a small number of purchased software packages. Application
Software is extensively tested for Year 2000 readiness prior to placing it into
production. The Corporation expects that the updates to the remaining
purchased software packages will be implemented by June 30, 1999. Business
Unit efforts, which primarily involve work with third-party vendors, are
estimated to be more than 50% complete. The Corporation's business units have
completed Year 2000 assessments and are in varying stages of renovation,
validation and implementation. Vendors have been contacted regarding their
progress and regular meetings and site visits have been, and will continue to
be, held with critical vendors to evaluate their progress. Remediation of
Business Unit's applications is planned and on track to be completed by
June 30, 1999. The Corporation does not have significant Year 2000 exposure
from non-technology equipment.
Internal telecommunication hardware and software upgrades are estimated to be
85% complete with planned final completion by December 31, 1998. The
Corporation is actively participating in various telecommunication forums in
order to monitor telecommunication service provider readiness, and to establish
interoperability testing standards.
The Desktop Infrastructure efforts are estimated to be 60% complete with
planned completion by March 31, 1999.
A standalone test environment is currently being constructed to perform
extensive final readiness testing. A standalone test environment is separate
from the Corporation's production systems and thus reduces the risk that
testing will disrupt the Corporation's operations. This environment will
include a voice and data network as well as mainframe, distributed, and desktop
computers. All critical applications will be fully tested in a Year 2000
compliant environment as a final assurance step. This environment will be
maintained throughout 1999 in order to allow testing of significant system
changes and newly acquired software.
The Corporation relies on various third-parties to perform processing services
and to supply critical system applications. Critical third-party provided
software applications are being tested regardless of vendor statements of
fitness to ensure Year 2000 compliance. Regular meetings and site visits are
being held with MasterCard International, Visa International and other critical
third party service providers to evaluate and monitor their project status.
Costs
The total cost associated with required modifications to become Year 2000
compliant is not expected to be material to the Corporation's consolidated
financial position. The estimated total cost of the Project is expected to be
approximately $40 million. Costs incurred and expensed through December 31,
1998 are expected to be approximately $20 million. The majority of the
remaining cost is associated with conducting the readiness testing, preparing
contingency plans, and staffing a transition team for early 2000.
Risks
Because the Corporation's business is highly reliant on various types of
computer technologies, disruptions caused by Year 2000 failures have the
potential to have a material impact on operations, liquidity, and financial
condition. Due to the general uncertainty of the Year 2000 readiness of some
third-party providers, at this time the Corporation can not with absolute
certainty determine whether or not consequences of Year 2000 failures will have
a material impact on the Corporation's results of operations, liquidity or
financial condition. Based on the current project status and extensive testing
completed and planned, the Corporation expects any internal system failure
caused by Year 2000 will be handled in the normal course of business and will
not have a significant impact on the Corporation. It is more likely that any
impact will result from a third-party that the Corporation conducts business
with directly or indirectly. A likely worst case scenario would involve major
disruption of the telecommunications network, a major disruption in the supply
of electrical power, failure of one or more of the primary financial switching
networks or, in the United Kingdom, failure of the primary data servicing
provider. Revenues could be negatively impacted if Year 2000 failures prevent
the Corporation or other entities from processing customer transactions and
cause customers to curtail credit card spending for a period of time.
Contingency Plans
The Corporation has a standing contingency plan that addresses various types of
business interruptions. This plan is tested and updated on a regular basis.
The Corporation has been and will continue to develop contingency plans to
address possible negative impacts specific to the Year 2000 problem. Plans are
completed and in place for any critical third-party software application which
will not be Year 2000 compliant by December 31, 1998. At this time it is not
expected that these plans will need to be implemented. Contingency plans for
critical third-party providers are in varying stages of development. These
plans are expected to be completed by June 30, 1999. The Corporation maintains
a standing contingency plan to address liquidity and capital needs. A plan
specific to Year 2000 implications has been completed. This plan will continue
to be modified as necessary based on identified or perceived market risks.
Efforts are underway in each business unit to revise existing contingency plans
to address specific Year 2000 implications. These plans will continue to be
updated throughout 1999 as additional information becomes available regarding
specific identified risks.
Safe Harbor for Forward Looking Statements
The above disclosure on Year 2000 issues includes forward-looking statements
concerning the Corporation's future operations, expenses and financial
performance. Such statements are subject to risks and uncertainties that may
cause the Corporation's actual operations and performance to differ materially
from those set forth in such forward-looking statements. Factors which could
cause the Corporation's actual results to differ materially from those
projected by the Corporation include, but are not limited to, the following:
(1) failure of third parties providing software, telecommunications, data
networks, and other products or services to the Corporation to become Year 2000
compliant; (2) insufficient staff and other technical resources; (3) unexpected
difficulties in implementing system enhancements; (4) disruptions in the
overall consumer credit market due to Year 2000 problems; and (5) disruptions
in capital markets due to Year 2000 problems.
INCOME TAXES
Applicable income taxes increased $23.6 million and $51.8 million to $133.3
million and $331.1 million for the three and nine months ended September 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 seasoning of the Corporation's loans. As new loans season, the delinquency
rate on these loans 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 3.87%
at September 30, 1998, compared with 3.93% at December 31, 1997. The
Corporation's managed delinquency, as a percentage of managed loans, was 4.69%
at September 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)
September 30, 1998 December 31, 1997
------------------ -----------------
(unaudited)
Loan portfolio....................... $10,012,324 $ 8,261,876
Loans delinquent:
30 to 59 days...................... $ 154,931 1.55% $ 125,870 1.52%
60 to 89 days...................... 77,077 .77 64,275 .78
90 or more days.................... 155,065 1.55 134,865 1.63
----------- ----- ----------- -----
Total............................ $ 387,073 3.87% $ 325,010 3.93%
=========== ===== =========== =====
Loans delinquent by geographic area:
Domestic........................... $ 366,956 3.98% $ 313,467 4.09%
Foreign............................ 20,117 2.51 11,543 1.93
Net Credit Losses
The Corporation's policy is generally to charge off accounts when they become
180 days contractually past due. The Corporation sells charged-off
receivables and records the proceeds received from these sales as recoveries,
thereby reducing net credit losses.
Net credit losses for the three and nine months ended September 30, 1998 were
$76.8 million and $222.3 million, respectively, as compared to $53.3 million
and $170.7 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 nine months ended
September 30, 1998, reflects an increase in the Corporation's outstanding
loans, the general economic conditions, and the seasoning of the Corporation's
loans, offset by recoveries from the sale of charged-off receivables.
Net credit losses as a percentage of average loan receivables were 2.42% and
2.53% for the three and nine months ended September 30, 1998, respectively, as
compared to 2.02% and 2.16% for the three and nine months ended September 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 nine
months ended September 30, 1998 were 4.42% and 4.34%, respectively, as compared
to 4.07% and 3.93% for the same periods in 1997. 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 nine months ended
September 30, 1998 was $78.6 million and $245.7 million, respectively, as
compared to $60.4 million and $206.2 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 Nine Months
Ended September 30, Ended September 30,
-------------------- --------------------
1998 1997 1998 1997
--------- --------- --------- ---------
(unaudited)
Reserve for possible credit
losses, beginning of period....... $ 194,685 $ 151,719 $ 162,476 $ 118,427
Reserves acquired................ 9,673 2,231 20,181 7,257
Provision for possible
credit losses................... 78,569 60,403 245,709 206,171
Foreign currency translation..... 62 (144) 131 (274)
Credit losses:
Domestic:
Credit card.................. (88,967) (66,174) (256,256) (221,566)
Other consumer............... (21,104) (19,645) (65,862) (39,262)
--------- --------- --------- ---------
Total domestic credit
losses.................... (110,071) (85,819) (322,118) (260,828)
Foreign........................ (6,490) (2,279) (14,698) (4,894)
--------- --------- --------- ---------
Total credit losses........ (116,561) (88,098) (336,816) (265,722)
Recoveries:
Domestic:
Credit card.................. 34,447 32,959 101,437 88,786
Other consumer............... 3,829 1,179 9,382 4,812
--------- --------- --------- ---------
Total domestic recoveries.. 38,276 34,138 110,819 93,598
Foreign........................ 1,498 649 3,702 1,441
--------- --------- --------- ---------
Total recoveries........... 39,774 34,787 114,521 95,039
--------- --------- --------- ---------
Net credit losses................ (76,787) (53,311) (222,295) (170,683)
--------- --------- --------- ---------
Reserve for possible credit
losses, end of period............. $ 206,202 $ 160,898 $ 206,202 $ 160,898
========= ========= ========= =========
The Federal Financial Institutions Examinations Council, on June 30, 1998,
proposed a revised policy statement on the classification of consumer loans.
If adopted, the revised policy statement could establish a uniform charge-off
period of 150 days delinquency for open-end and closed-end consumer loans.
Alternatively, the proposal also contains guidance that could standardize the
methodology for implementing the existing 180 day charge-off policy requirement
for open-end consumer loans. The revised policy statement could also provide
guidance for loans affected by bankruptcy, fraudulent activity and death;
establish standards for re-aging, extending, deferring or rewriting of past due
accounts; and broaden the circumstances under which partial payments are
recognized as full payments for purposes of determining that a loan is no
longer delinquent. If the proposal is adopted, the Corporation could be
required to accelerate charge-off of its delinquent loan receivables.
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 September 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
September 30, 1998
-------------------------------------------
Minimum Well-Capitalized
Ratios Requirements Requirements
---------- ------------- ----------------
(unaudited)
MBNA Corporation
Tier 1............................ 11.11% 4.00% (a)
Total............................. 13.91 8.00 (a)
Leverage.......................... 11.25 4.00 (a)
MBNA America Bank, N.A.
Tier 1............................ 11.36% 4.00% 6.00%
Total............................. 14.01 8.00 10.00
Leverage.......................... 11.53 4.00 5.00
(a) Not applicable for bank holding companies.
During the nine months ended September 30, 1998, the Corporation declared
dividends on its preferred and common stock of $146.1 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
September 30, 1998, the amount of retained earnings available for declaration
and payment of dividends from the Bank to the Corporation was $1.2 billion.
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 September 30, 1998. If this facility
had been drawn upon as of September 30, 1998, the amount of retained earnings
available for declaration of dividends would have been limited to $675.6
million.
On October 9, 1998, the Board of Directors declared a quarterly dividend of
$.06 per common share, payable January 1, 1999 to stockholders of record as of
December 15, 1998. Also, on October 13, 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 $.3438 per share on the Adjustable
Rate Cumulative Preferred Stock, Series B. The preferred stock dividends are
payable January 15, 1999 to stockholders of record as of December 30, 1998.
LIQUIDITY AND RATE SENSITIVITY
The Corporation seeks to maintain 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. The Corporation obtains funds through deposits and
debt issuance, and uses securitization of the Bank's loan receivables as a
major funding alternative.
Total deposits at September 30, 1998 and December 31, 1997 were $14.1 billion
and $12.9 billion, respectively. Included in total deposits at September 30,
1998 are $968.9 million of foreign time deposits, with the majority maturing
within one year. Table 7 presents the maturities of the Corporation's deposits
at September 30, 1998.
TABLE 7: MATURITIES OF DEPOSITS AT SEPTEMBER 30, 1998
(dollars in thousands)
Direct Other Total
Deposits Deposits Deposits
----------- ----------- -----------
(unaudited)
Three months or less(a)................. $ 5,536,930 $ 1,046,431 $ 6,583,361
Over three months through twelve months. 3,079,576 688,888 3,768,464
Over one year through five years........ 2,507,860 1,259,499 3,767,359
Over five years......................... 6,130 - 6,130
----------- ----------- -----------
Total deposits........................ $11,130,496 $ 2,994,818 $14,125,314
=========== =========== ===========
(a) Includes money market deposit accounts, noninterest-bearing demand
deposits, interest-bearing transaction accounts, and savings accounts of
$4.2 billion.
During the nine months ended September 30, 1998, the Corporation issued $105.0
million of fixed-rate and $340.0 million of floating-rate senior medium-term
notes, while the Bank issued $70.0 million of fixed-rate senior medium-term
bank notes and $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 September 30, 1998, the Corporation, through MBNA International, had
utilized 17.8 million pounds sterling (approximately $29.9 million) from its
existing 300.0 million pounds sterling multi-currency committed syndicated
revolving credit facility. In addition, MBNA Canada Bank had CAD$25.0 million
(approximately $16.3 million) drawn from its existing CAD$125.0 million multi-
currency syndicated revolving credit facility, CAD$100.0 million outstanding
(approximately $65.4 million) from a bridge facility, and CAD$278.5 million
(approximately $182.1 million) of commercial paper outstanding at September 30,
1998. These borrowings are included in short-term borrowings in the
consolidated statements of financial condition and provide short-term funding
for the Corporation's foreign bank subsidiaries.
The Corporation also held $1.9 billion in investment securities and $2.7
billion of money market instruments at September 30, 1998, compared with $2.5
billion in investment securities and $2.1 billion of money market instruments
at December 31, 1997. 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 $1.9 billion in investment
securities at September 30, 1998, $856.7 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 $1.5 billion at September 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 SEPTEMBER 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.. $ 401,735 $ - $ - $ -
State and political subdivisions
of the United States............. 91,087 1,010 - -
Asset-backed and other securities. 203,309 756,145 90,758 4,317
---------- ---------- ---------- --------
Total investment securities
available-for-sale............. $ 696,131 $ 757,155 $ 90,758 $ 4,317
========== ========== ========== ========
HELD-TO-MATURITY
U.S. Treasury and other U.S.
government agencies obligations.. $ 130,516 $ 5,486 $ - $144,678
State and political subdivisions
of the United States............. - - - 2,671
Asset-backed and other securities. 30,075 2,000 - 16,917
---------- ---------- ---------- --------
Total investment securities
held-to-maturity............... $ 160,591 $ 7,486 $ - $164,266
========== ========== ========== ========
Book Market
Value Value
---------- ----------
AVAILABLE-FOR-SALE
U.S. Treasury and other U.S.
government agencies obligations.. $ 401,735 $ 401,735
State and political subdivisions
of the United States............. 92,097 92,097
Asset-backed and other securities. 1,054,529 1,054,529
---------- ----------
Total investment securities
available-for-sale............. $1,548,361 $1,548,361
========== ==========
HELD-TO-MATURITY
U.S. Treasury and other U.S.
government agencies obligations.. $ 280,680 $ 278,743
State and political subdivisions
of the United States............. 2,671 2,697
Asset-backed and other securities. 48,992 48,981
---------- ----------
Total investment securities
held-to-maturity............... $ 332,343 $ 330,421
========== ==========
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. 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 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 September 30, 1998, the Corporation could
experience a decrease in projected net income during the next twelve months of
approximately $37 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 September 30, 1998, the Corporation would expect a decrease in stockholders'
equity, net of tax, of approximately $22 million as a result of a 10%
depreciation of the Corporation's unhedged foreign exposure to the U.S. dollar
position.
The Corporation does not have any other off-balance-sheet financial
instruments.
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 nine months ended September 30, 1998, the Bank securitized
credit card loan receivables totaling $3.6 billion and $6.2 billion,
respectively, including the securitization of 250.0 million pounds sterling and
500.0 million pounds sterling, respectively, by MBNA International Bank
Limited. The Bank also increased its securitization of other consumer loans
through a private multi-seller commercial paper conduit to $3.0 billion from
$2.4 billion during the three months ended September 30, 1998. Amortization of
previously securitized loan receivables totaled $1.2 billion and $2.0 billion
for the three and nine months ended September 30, 1998, respectively. The total
amount of outstanding securitized loans was $43.7 billion or 77.6% of managed
loans as of September 30, 1998, compared to $38.2 billion or 77.4% of managed
loans at December 31, 1997. An additional $990.9 million of previously
securitized loans is scheduled to amortize during the fourth quarter 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
September 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 93-3(b).................. 21.90% 13.32% 8.58%
MasterTrust 93-4(b).................. 21.07 13.77 7.30
MasterTrust 94-1..................... 19.16 13.15 6.01
MasterTrust 94-2..................... 19.16 13.21 5.95
MasterTrust II 94-A.................. 18.40 13.17 5.23
MasterTrust II 94-B.................. 18.40 13.14 5.26
MasterTrust II 94-C.................. 18.40 13.25 5.15
MasterTrust II 94-E.................. 18.40 13.08 5.32
MasterTrust II 95-A.................. 18.40 13.22 5.18
MasterTrust II 95-B.................. 18.40 13.10 5.30
MasterTrust II 95-C.................. 18.40 13.15 5.25
MasterTrust II 95-D.................. 18.40 13.02 5.38
MasterTrust II 95-E.................. 18.40 13.16 5.24
Cards No. 1.......................... 20.96 13.11 7.85
MasterTrust II 95-F.................. 18.40 13.73 4.67
MasterTrust II 95-G.................. 18.40 13.15 5.25
MasterTrust II 95-H.................. 18.40 13.01 5.39
MasterTrust II 95-I.................. 18.40 13.09 5.31
MasterTrust II 95-J.................. 18.40 13.17 5.23
MasterTrust II 96-A.................. 18.40 13.14 5.26
MasterTrust II 96-B.................. 18.40 13.21 5.19
MasterTrust II 96-C.................. 18.40 13.08 5.32
MasterTrust II 96-D.................. 18.40 13.08 5.32
Cards No. 2.......................... 20.96 12.82 8.14
MasterTrust II 96-E.................. 18.40 13.11 5.29
MasterTrust II 96-F.................. 18.40 12.61 5.79
MasterTrust II 96-G.................. 18.40 13.14 5.26
MasterTrust II 96-H.................. 18.42 13.09 5.33
MasterTrust II 96-I.................. 18.42 13.15 5.27
MasterTrust II 96-J.................. 18.40 13.10 5.30
MasterTrust II 96-K.................. 18.40 13.08 5.32
MasterTrust II 96-L.................. 18.42 13.02 5.40
MasterTrust II 96-M.................. 18.42 13.13 5.29
Cards No. 3.......................... 20.96 12.85 8.11
MasterTrust II 97-A.................. 18.42 12.94 5.48
MasterTrust II 97-B.................. 18.40 13.13 5.27
Three-Month Average
----------------------- Yield in
Annualized Minimum Excess of
Yield Yield Minimum
---------- ----------- ---------
(unaudited)
MasterTrust II 97-C.................. 18.40% 13.06% 5.34%
MasterTrust II 97-D.................. 18.42 13.07 5.35
MasterTrust II 97-E.................. 18.42 13.08 5.34
MasterTrust II 97-F.................. 18.40 13.01 5.39
MasterTrust II 97-G.................. 18.40 13.10 5.30
Cards No. 4.......................... 20.96 13.41 7.55
MasterTrust II 97-H.................. 18.42 13.08 5.34
MasterTrust II 97-I.................. 18.40 13.04 5.36
MasterTrust II 97-J.................. 18.40 13.07 5.33
Consumer Loan MasterTrust 97-1....... 17.39 13.86 3.53
MasterTrust II 97-K.................. 18.40 13.08 5.32
MasterTrust II 97-L.................. 18.42 13.00 5.42
MasterTrust II 97-M.................. 18.42 13.09 5.33
MasterTrust II 97-N.................. 18.42 13.05 5.37
MasterTrust II 97-O.................. 18.40 13.12 5.28
MasterTrust II 98-A.................. 18.40 13.05 5.35
Cards No. 5.......................... 20.96 12.22 8.74
MasterTrust II 98-B.................. 18.42 13.11 5.31
MasterTrust II 98-C.................. 18.18 13.54 4.64
(a) MasterTrust II 98-D issued on July 30, 1998, MasterTrust II 98-E
issued on August 11, 1998, MasterTrust II 98-F issued on August 26, 1998,
MasterTrust II 98-G issued on September 10, 1998, MasterTrust II 98-H
issued on September 29, 1998, and Cards No. 6 issued on September 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)
September 30, 1998 December 31, 1997
------------------ -----------------
AT PERIOD END:
Loans held for securitization....... $ 2,571,323 $ 2,900,198
Loan portfolio...................... 10,012,324 8,261,876
Securitized loans................... 43,703,887 38,217,786
------------------ -----------------
Total managed loans............... $ 56,287,534 $ 49,379,860
================== =================
Total managed interest-earning
assets........................... $ 60,852,989 $ 53,974,569
================== =================
Total managed assets.............. $ 67,518,912 $ 59,523,299
================== =================
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
------------------------- -------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
AVERAGE:
Loans held for
securitization......... $ 2,768,037 $ 3,074,863 $ 2,810,644 $ 3,262,886
Loan portfolio.......... 9,921,478 7,491,180 8,923,457 7,283,236
Securitized loans....... 41,375,203 33,910,575 39,672,626 31,276,734
------------ ------------ ------------ ------------
Total managed loans... $ 54,064,718 $ 44,476,618 $ 51,406,727 $ 41,822,856
============ ============ ============ ============
Total managed
interest-earning
assets............... $ 58,600,260 $ 48,349,492 $ 56,049,216 $ 45,486,421
============ ============ ============ ============
Total managed assets.. $ 64,850,522 $ 53,517,107 $ 61,967,096 $ 49,908,202
============ ============ ============ ============
MANAGED RATIOS:
Net interest margin
(on an FTE basis)...... 7.55% 7.47% 7.46% 7.47%
Delinquency............. 4.69 4.44
Net credit losses....... 4.42 4.07 4.34 3.93
PART II-OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On October 23, 1998, Gerald D. Broder filed a lawsuit against the Corporation
and the Bank in the Supreme Court of the State of New York, County of New York.
This suit is a purported class action. The plaintiff complains that the Bank's
advertising of its cash promotional annual percentage rate program was
fraudulent and deceptive. The plaintiff seeks unspecified damages including
actual, treble and punitive damages and attorneys fees for an alleged breach of
contract, common law fraud and violation of New York consumer protection
statutes. The Corporation believes that its advertising practices are proper
under applicable federal and state law and intends to defend vigorously against
the action.
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's 1999 Annual Meeting of Stockholders is scheduled for
April 27, 1999.
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 Nine Months Ended
September 30,
--------------------------
1998 1997
------------ ------------
(unaudited)
INCLUDING INTEREST ON DEPOSITS
Earnings:
Income before income taxes....................... $ 869,107 $ 713,573
Fixed charges.................................... 910,813 750,133
Interest capitalized during period, net of
amortization of previously capitalized interest. (4,965) (2,997)
------------ ------------
Earnings, for computation purposes............... $ 1,774,955 $ 1,460,709
============ ============
Fixed Charges and Preferred Stock Dividend
Requirements:
Interest on deposits, short-term borrowings,
and long-term debt and bank notes, expensed or
capitalized..................................... $ 903,796 $ 741,936
Portion of rents representative of the interest
factor.......................................... 7,017 8,197
------------ ------------
Fixed charges.................................... 910,813 750,133
Preferred stock dividend requirements (a)........ 17,404 25,962
------------ ------------
Fixed charges and preferred stock dividend
requirements, including interest on deposits,
for computation purposes........................ $ 928,217 $ 776,095
============ ============
Ratio of earnings to combined fixed charges and
preferred stock dividend requirements,
including interest on deposits.................. 1.91 1.88
(a) Preferred stock dividend requirements are adjusted to represent a pretax
earnings equivalent.
For the Nine Months Ended
September 30,
--------------------------
1998 1997
------------ ------------
(unaudited)
EXCLUDING INTEREST ON DEPOSITS
Earnings:
Income before income taxes....................... $ 869,107 $ 713,573
Fixed charges.................................... 311,686 249,956
Interest capitalized during period, net of
amortization of previously capitalized interest. (4,981) (3,013)
------------ ------------
Earnings, for computation purposes............... $ 1,175,812 $ 960,516
============ ============
Fixed Charges and Preferred Stock Dividend
Requirements:
Interest on short-term borrowings and long-term
debt and bank notes, expensed or capitalized.... $ 304,669 $ 241,759
Portion of rents representative of the interest
factor.......................................... 7,017 8,197
------------ ------------
Fixed charges.................................... 311,686 249,956
Preferred stock dividend requirements (a)........ 17,404 25,962
------------ ------------
Fixed charges and preferred stock dividend
requirements, excluding interest on deposits,
for computation purposes........................ $ 329,090 $ 275,918
============ ============
Ratio of earnings to combined fixed charges and
preferred stock dividend requirements,
excluding interest on deposits.................. 3.57 3.48
(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, expensed or
capitalized, on borrowings (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 July 14, 1998, reporting MBNA Corporation's earnings
release for the second quarter of 1998.
2. Report dated July 30, 1998, reporting the securitization of
$559.0 million of credit card receivables by MBNA America Bank, N.A.
3. 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.
4. Report dated August 11, 1998, reporting the securitization of
$882.4 million of credit card receivables by MBNA America Bank, N.A.
5. Report dated August 26, 1998, reporting the securitization of
$500.0 million of credit card receivables by MBNA America Bank, N.A.
6. Report dated August 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 August 1998.
7. Report dated September 10, 1998, reporting the securitization of
$750.0 million of credit card receivables by MBNA America Bank, N.A.
8. Report dated September 24, 1998, reporting the securitization of
250.0 million pounds sterling of credit card receivables by MBNA
International Bank Limited.
9. Report dated September 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 September 1998.
10. Report dated October 7, 1998, reporting MBNA Corporation's earnings
release for the third quarter of 1998.
11. Report dated October 22, 1998, reporting the securitization of
$750.0 million of credit card receivables by MBNA America Bank, N.A.
12. Report dated October 29, 1998, reporting the securitization of
$750.0 million of credit card receivables by MBNA America Bank, N.A.
13. Report dated October 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 October 1998.
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: November 13, 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 NINE MONTHS ENDED SEPTEMBER 30, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 278,364
<INT-BEARING-DEPOSITS> 2,669,751
<FED-FUNDS-SOLD> 15,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,548,361
<INVESTMENTS-CARRYING> 332,343
<INVESTMENTS-MARKET> 330,421
<LOANS> 12,583,647<F1>
<ALLOWANCE> 206,202
<TOTAL-ASSETS> 23,815,025
<DEPOSITS> 14,125,314
<SHORT-TERM> 620,103
<LIABILITIES-OTHER> 859,316
<LONG-TERM> 5,967,790
0
86
<COMMON> 7,518
<OTHER-SE> 2,234,898
<TOTAL-LIABILITIES-AND-EQUITY> 23,815,025
<INTEREST-LOAN> 1,239,188<F1>
<INTEREST-INVEST> 87,898
<INTEREST-OTHER> 112,427
<INTEREST-TOTAL> 1,439,513
<INTEREST-DEPOSIT> 599,127
<INTEREST-EXPENSE> 898,628
<INTEREST-INCOME-NET> 540,885
<LOAN-LOSSES> 245,709
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,721,986
<INCOME-PRETAX> 869,107
<INCOME-PRE-EXTRAORDINARY> 869,107
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 537,977
<EPS-PRIMARY> .70<F2>
<EPS-DILUTED> .67<F2>
<YIELD-ACTUAL> 11.76<F3>
<LOANS-NON> 0
<LOANS-PAST> 155,065<F4>
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 162,476
<CHARGE-OFFS> 336,816
<RECOVERIES> 114,521
<ALLOWANCE-CLOSE> 206,202
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
<FN>
<F1> Includes Loans Held for Securitization.
<F2> EPS-Primary and EPS-Diluted have been restated to reflect the
three-for-two split of the Corporation's Common Stock effected in
the form of a dividend, issued October 1, 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>
