51
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
-------------------------------------------------
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
--------------------- ------------------------
Commission file number 1-10683
---------------------------------------------------------
MBNA Corporation
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Maryland 52-1713008
- -------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Wilmington, DE 19884-0141
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(800) 362-6255
- -------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
- -------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes x No
---------- ----------
Common Stock, $.01 Par Value - 801,782,515 Shares
Outstanding as of June 30, 1999
MBNA CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
Page
Part I - Financial Information
Item 1. Financial Statements
Consolidated Statements of Financial Condition - 1
June 30, 1999 (unaudited) and December 31, 1998
Consolidated Statements of Income - 3
For the Three and Six Months Ended June 30, 1999 and 1998
(unaudited)
Consolidated Statements of Changes in Stockholders' Equity - 5
For the Six Months Ended June 30, 1999 and 1998
(unaudited)
Consolidated Statements of Cash Flows - 7
For the Six Months Ended June 30, 1999 and 1998
(unaudited)
Notes to the Consolidated Financial Statements (unaudited) 9
Item 2. Management's Discussion and Analysis of Financial Condition 17
and Results of Operations (unaudited)
Supplemental Financial Information (unaudited) 46
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K 47
Signature 51
MBNA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(dollars in thousands, except per share amounts)
June 30, December 31,
1999 1998
------------ ------------
(unaudited)
ASSETS
Cash and due from banks........................... $ 345,883 $ 382,882
Interest-earning time deposits in other banks..... 1,758,568 2,831,215
Federal funds sold and securities purchased
under resale agreements.......................... 591,000 730,000
Investment securities:
Available-for-sale (at market value, amortized
cost of $2,379,966 and $1,666,123 at
June 30, 1999 and December 31, 1998,
respectively).................................. 2,372,200 1,663,704
Held-to-maturity (market value of $255,659
and $211,473 at June 30, 1999 and
December 31, 1998, respectively)............... 274,629 216,020
Loans held for securitization..................... 5,410,118 1,692,268
Loans:
Credit card..................................... 7,879,505 8,975,051
Other consumer.................................. 2,052,369 2,801,048
------------ ------------
Total loans................................... 9,931,874 11,776,099
Reserve for possible credit losses.............. (326,897) (216,911)
------------ ------------
Net loans..................................... 9,604,977 11,559,188
Premises and equipment, net....................... 1,633,718 1,617,596
Accrued income receivable......................... 156,847 193,019
Accounts receivable from securitizations.......... 3,763,222 3,595,556
Prepaid expenses and deferred charges............. 281,991 237,587
Other assets...................................... 1,802,617 1,087,225
------------ ------------
Total assets.................................. $ 27,995,770 $ 25,806,260
============ ============
June 30, December 31,
1999 1998
------------ ------------
(unaudited)
LIABILITIES
Deposits:
Time deposits................................... $ 11,493,064 $ 10,745,062
Money market deposit accounts................... 4,326,115 4,125,523
Noninterest-bearing demand deposits............. 513,349 462,266
Interest-bearing transaction accounts........... 35,697 35,399
Savings accounts................................ 9,257 38,790
------------ ------------
Total deposits................................ 16,377,482 15,407,040
Short-term borrowings............................. 546,264 1,231,195
Long-term debt and bank notes..................... 6,125,799 5,939,025
Accrued interest payable.......................... 155,917 153,201
Accrued expenses and other liabilities............ 1,016,878 684,764
------------ ------------
Total liabilities............................. 24,222,340 23,415,225
STOCKHOLDERS' EQUITY
Preferred stock ($.01 par value, 20,000,000
shares authorized, 8,573,882 shares issued
and outstanding at June 30, 1999 and
December 31, 1998)............................... 86 86
Common stock ($.01 par value, 1,500,000,000
shares authorized, 801,782,515 shares and
751,795,674 shares issued and outstanding at
June 30, 1999 and December 31, 1998,
respectively).................................... 8,018 7,518
Additional paid-in capital........................ 1,380,538 271,050
Retained earnings................................. 2,406,242 2,112,374
Accumulated other comprehensive income............ (21,454) 7
------------ ------------
Total stockholders' equity.................... 3,773,430 2,391,035
------------ ------------
Total liabilities and stockholders' equity.... $ 27,995,770 $ 25,806,260
============ ============
==============================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
MBNA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except per share amounts)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
---------------------- ----------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
(unaudited)
INTEREST INCOME
Loans.......................... $ 343,265 $ 293,046 $ 725,092 $ 585,282
Investment securities:
Taxable...................... 30,471 28,953 54,792 60,966
Tax-exempt................... 859 907 1,736 1,693
Time deposits in other banks... 22,222 32,794 62,771 56,141
Federal funds sold and
securities purchased under
resale agreements............. 6,202 8,575 24,423 15,750
Loans held for securitization.. 183,805 94,062 259,358 204,158
---------- ---------- ---------- ----------
Total interest income....... 586,824 458,337 1,128,172 923,990
INTEREST EXPENSE
Deposits....................... 221,771 194,205 435,475 389,866
Short-term borrowings.......... 7,730 1,969 17,236 5,993
Long-term debt and bank notes.. 90,262 95,280 181,619 185,675
---------- ---------- ---------- ----------
Total interest expense...... 319,763 291,454 634,330 581,534
---------- ---------- ---------- ----------
NET INTEREST INCOME............ 267,061 166,883 493,842 342,456
Provision for possible credit
losses........................ 129,756 78,542 214,220 167,140
---------- ---------- ---------- ----------
Net interest income after
provision for possible credit
losses........................ 137,305 88,341 279,622 175,316
OTHER OPERATING INCOME
Interchange.................... 60,988 33,442 100,780 64,014
Credit card fees............... 53,309 28,992 91,917 61,529
Securitization income.......... 873,182 676,649 1,675,785 1,294,014
Insurance...................... 19,396 21,101 28,812 37,191
Other.......................... 21,657 5,012 34,968 7,958
---------- ---------- ---------- ----------
Total other operating
income..................... $1,028,532 $ 765,196 $1,932,262 $1,464,706
For the Three Months For the Six Months
Ended June 30, Ended June 30,
---------------------- ----------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
(unaudited)
OTHER OPERATING EXPENSE
Salaries and employee benefits. $ 342,176 $ 261,236 $ 633,015 $ 507,798
Occupancy expense of premises.. 31,030 26,962 61,956 53,438
Furniture and equipment
expense....................... 45,316 41,682 89,906 85,789
Other.......................... 380,301 245,808 759,519 473,798
---------- ---------- ---------- ----------
Total other operating
expense.................... 798,823 575,688 1,544,396 1,120,823
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES..... 367,014 277,849 667,488 519,199
Applicable income taxes........ 139,832 105,861 254,313 197,815
---------- ---------- ---------- ----------
NET INCOME..................... $ 227,182 $ 171,988 $ 413,175 $ 321,384
========== ========== ========== ==========
EARNINGS PER COMMON SHARE...... $ .28 $ .22 $ .51 $ .42
EARNINGS PER COMMON SHARE-
ASSUMING DILUTION............. .27 .21 .49 .40
==============================================================================
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, 1998. 8,574 751,796 $ 86 $ 7,518
Comprehensive income:
Net income............... - - - -
Other comprehensive
income, net of tax...... - - - -
Comprehensive income.......
Cash dividends:
Common-$.14 per share.... - - - -
Preferred................ - - - -
Exercise of stock options
and other awards.......... - 4,387 - 44
Issuance of common stock,
net of issuance costs..... - 50,000 - 500
Acquisition and retirement
of common stock........... - (4,400) - (44)
--------- -------- --------- ---------
BALANCE, JUNE 30, 1999..... 8,574 801,783 $ 86 $ 8,018
========= ======== ========= =========
BALANCE, DECEMBER 31, 1997. 8,574 751,781 $ 86 $ 7,518
Comprehensive income:
Net income............... - - - -
Other comprehensive
income, net of tax...... - - - -
Comprehensive income.......
Cash dividends:
Common-$.12 per share.... - - - -
Preferred................ - - - -
Exercise of stock options
and other awards.......... - 6,833 - 68
Acquisition and retirement
of common stock........... - (6,833) - (68)
--------- -------- --------- ---------
BALANCE, JUNE 30, 1998..... 8,574 751,781 $ 86 $ 7,518
========= ======== ========= =========
Accumulated
Additional Other Total
Paid-in Retained Comprehensive Stockholders'
Capital Earnings Income Equity
---------- ---------- ------------- ------------
BALANCE, DECEMBER 31, 1998. $ 271,050 $2,112,374 $ 7 $ 2,391,035
Comprehensive income:
Net income............... - 413,175 - 413,175
Other comprehensive
income, net of tax...... - - (21,461) (21,461)
------------
Comprehensive income....... 391,714
------------
Cash dividends:
Common-$.14 per share.... - (112,264) - (112,264)
Preferred................ - (7,043) - (7,043)
Exercise of stock options
and other awards.......... 52,891 - - 52,935
Issuance of common stock,
net of issuance costs..... 1,173,586 - - 1,174,086
Acquisition and retirement
of common stock........... (116,989) - - (117,033)
---------- ---------- ------------- ------------
BALANCE, JUNE 30, 1999..... $1,380,538 $2,406,242 $ (21,454) $ 3,773,430
========== ========== ============= ============
BALANCE, DECEMBER 31, 1997. $ 421,871 $1,530,868 $ 9,707 $ 1,970,050
Comprehensive income:
Net income............... - 321,384 - 321,384
Other comprehensive
income, net of tax...... - - (3,600) (3,600)
------------
Comprehensive income....... 317,784
------------
Cash dividends:
Common-$.12 per share.... - (90,232) - (90,232)
Preferred................ - (7,226) - (7,226)
Exercise of stock options
and other awards.......... 67,017 - - 67,085
Acquisition and retirement
of common stock........... (149,764) - - (149,832)
---------- ---------- ------------- ------------
BALANCE, JUNE 30, 1998..... $ 339,124 $1,754,794 $ 6,107 $ 2,107,629
========== ========== ============= ============
==============================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
MBNA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
For the Six Months Ended
June 30,
------------------------
1999 1998
----------- -----------
(unaudited)
OPERATING ACTIVITIES
Net income........................................... $ 413,175 $ 321,384
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for possible credit losses............... 214,220 167,140
Depreciation, amortization, and accretion.......... 191,959 112,070
Benefit for deferred income taxes.................. (8,163) (3,442)
Decrease in accrued income receivable.............. 36,172 1,131
Increase in accounts receivable from
securitizations................................... (167,666) (230,173)
Increase (decrease) in accrued interest payable.... 2,716 (2,104)
Decrease (increase) in other operating activities.. 144,420 (27,974)
----------- -----------
Net cash provided by operating activities........ 826,833 338,032
INVESTING ACTIVITIES
Net decrease (increase) in money market instruments.. 1,211,647 (379,770)
Proceeds from maturities of investment securities
available-for-sale.................................. 469,279 1,854,409
Purchases of investment securities
available-for-sale.................................. (1,186,826) (1,103,983)
Proceeds from maturities of investment securities
held-to-maturity ................................... 27,688 49,023
Purchases of investment securities
held-to-maturity.................................... (64,735) (31,130)
Proceeds from securitization of loans................ 4,628,709 2,556,562
Proceeds from sale of loan portfolios................ 4,741 -
Acquisition of credit card business of
PNC Bank, N.A....................................... (3,191,786) -
Loan portfolio acquisitions.......................... (938,733) (1,394,684)
Amortization of securitized loans.................... (1,602,124) (895,833)
Net loan originations................................ (1,551,745) (2,048,278)
Net purchases of premises and equipment.............. (116,672) (153,712)
----------- -----------
Net cash used in investing activities............ $(2,310,557) $(1,547,396)
For the Six Months Ended
June 30,
------------------------
1999 1998
----------- -----------
(unaudited)
FINANCING ACTIVITIES
Net increase (decrease) in time deposits............. $ 748,002 $ (65,168)
Net increase in money market deposit accounts,
noninterest-bearing demand deposits,
interest-bearing transaction accounts,
and savings accounts................................ 222,440 474,016
Net (decrease) increase in short-term borrowings..... (684,931) 625,629
Proceeds from issuance of long-term debt
and bank notes...................................... 376,632 511,577
Maturity of long-term debt and bank notes............ (184,812) (102,488)
Proceeds from exercise of stock options
and other awards.................................... 20,649 29,031
Acquisition and retirement of common stock........... (117,033) (149,832)
Proceeds from issuance of common stock............... 1,174,086 -
Dividends paid....................................... (108,308) (92,564)
----------- -----------
Net cash provided by financing activities........ 1,446,725 1,230,201
----------- -----------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS..... (36,999) 20,837
Cash and cash equivalents at beginning of period..... 382,882 263,064
----------- -----------
Cash and cash equivalents at end of period........... $ 345,883 $ 283,901
=========== ===========
SUPPLEMENTAL DISCLOSURE
Interest expense paid................................ $ 629,952 $ 585,514
=========== ===========
Income taxes paid.................................... $ 262,520 $ 185,376
=========== ===========
==============================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
MBNA CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE A: BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of MBNA
Corporation ("the Corporation") have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles for complete consolidated financial statements.
For purposes of comparability, certain prior period amounts have been
reclassified. In the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and six months ended June 30,
1999 are not necessarily indicative of the results that may be expected for the
year ended December 31, 1999. The notes to the consolidated financial
statements contained in the Annual Report on Form 10-K for the year ended
December 31, 1998 should be read in conjunction with these consolidated
financial statements.
NOTE B: PREFERRED STOCK
The Corporation's 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 15, 1999 April 15, 1999 7.50% $ .46875 5.50% $ .3438
April 13, 1999 July 15, 1999 7.50 .46875 5.55 .3468
July 13, 1999 October 15, 1999 7.50 .46875 6.01 .3756
NOTE C: COMMON STOCK
In January 1999, the Corporation issued 50 million shares of common stock. The
Corporation used the net proceeds from this offering, approximately $1.2
billion, to complete the purchase of the credit card business of PNC Bank, N.A.
("PNC"), and for other general corporate purposes.
On July 13, 1999 the Corporation's Board of Directors declared a quarterly cash
dividend of $.07 per common share, payable October 1, 1999 to stockholders of
record as of September 15, 1999.
NOTE D: EARNINGS PER COMMON SHARE
Earnings per common share ("basic") is computed using net income applicable to
common stock and weighted average common shares outstanding during the period.
Earnings per common share-assuming dilution ("diluted") is computed using net
income applicable to common stock and weighted average common shares
outstanding during the period after consideration of the potential dilutive
effect of common stock equivalents, based on the treasury stock method using an
average market price for the period. The Corporation's common stock
equivalents are solely related to employee stock options. The Corporation does
not have any other common stock equivalents. For comparative purposes,
earnings per common share (basic and diluted) and weighted average common
shares outstanding and common stock equivalents reflect the three-for-two stock
split of the Corporation's Common Stock, effected in the form of a dividend,
issued October 1, 1998, to shareholders of record as of September 15, 1998.
Computation of Earnings Per Common Share
(dollars in thousands, except per share amounts)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
-------------------- --------------------
1999 1998 1999 1998
--------- --------- --------- ---------
BASIC
Net income......................... $ 227,182 $ 171,988 $ 413,175 $ 321,384
Less: preferred stock dividend
requirements...................... 3,527 3,604 7,043 7,226
--------- --------- --------- ---------
Net income applicable to common
stock............................. $ 223,655 $ 168,384 $ 406,132 $ 314,158
========= ========= ========= =========
Weighted average common shares
outstanding (000)................. 801,803 751,808 800,180 751,839
========= ========= ========= =========
Earnings per common share.......... $ .28 $ .22 $ .51 $ .42
========= ========= ========= =========
DILUTED
Net income......................... $ 227,182 $ 171,988 $ 413,175 $ 321,384
Less: preferred stock dividend
requirements...................... 3,527 3,604 7,043 7,226
--------- --------- --------- ---------
Net income applicable to common
stock............................. $ 223,655 $ 168,384 $ 406,132 $ 314,158
========= ========= ========= =========
Weighted average common shares
outstanding (000)................. 801,803 751,808 800,180 751,839
Net effect of dilutive stock
options-based on the treasury
stock method using average
market price (000)................ 36,968 38,609 36,660 39,488
--------- --------- --------- ---------
Weighted average common shares
outstanding and common stock
equivalents (000)................. 838,771 790,417 836,840 791,327
========= ========= ========= =========
Earnings per common share.......... $ .27 $ .21 $ .49 $ .40
========= ========= ========= =========
To the extent stock options are exercised or restricted shares are awarded from
time to time under the Corporation's Long Term Incentive Plans, the Board of
Directors has approved the purchase, on the open market or in privately
negotiated transactions, of the number of common shares issued.
NOTE E: COMPREHENSIVE INCOME
The components of comprehensive income, net of tax, for the three and six
months ended June 30, 1999 and 1998 are as follows:
For the Three Months For the Six Months
Ended June 30, Ended June 30,
-------------------- --------------------
1999 1998 1999 1998
--------- --------- --------- ---------
Net income......................... $ 227,182 $ 171,988 $ 413,175 $ 321,384
Other comprehensive income:
Foreign currency translation..... (7,976) (888) (15,939) 2,813
Net unrealized (losses) gains on
investment securities
available-for-sale and other
financial instruments........... (4,278) 606 (3,071) (1,838)
Minimum benefit plan liability
adjustment...................... - - (2,451) (4,575)
--------- --------- --------- ---------
Other comprehensive income......... (12,254) (282) (21,461) (3,600)
--------- --------- --------- ---------
Comprehensive income............... $ 214,928 $ 171,706 $ 391,714 $ 317,784
========= ========= ========= =========
The components of accumulated other comprehensive income, net of tax, at
June 30, 1999 and December 31, 1998 are as follows:
June 30, December 31,
1999 1998
------------ ------------
Foreign currency translation....................... $ (13,517) $ 2,422
Net unrealized (losses) gains on investment
securities available-for-sale and other
financial instruments............................. (911) 2,160
Minimum benefit plan liability adjustment.......... (7,026) (4,575)
------------ ------------
Accumulated other comprehensive income............. $ (21,454) $ 7
============ ============
NOTE F: LONG-TERM DEBT AND BANK NOTES
Long-term debt and bank notes consist of borrowings having an original maturity
of one year or more. During the six months ended June 30, 1999, the
Corporation issued long-term debt and bank notes consisting of the following:
Par Value
----------------------
(dollars in thousands)
Floating-Rate Bank Notes, priced at 42 basis points
over the three-month London Interbank Offered Rate
(LIBOR), payable quarterly, maturing in 2004.......... $ 25,000
Fixed-Rate Medium-Term Deposit Notes, with interest
rates varying from 5.875% to 5.98%, payable
semiannually, maturing in varying amounts from
2001 through 2004 (approximately CAD$73.1 million).... 49,412
Floating-Rate Medium-Term Deposit Notes, priced
between 58 basis points and 70 basis points over the
ninety-day Bankers Acceptance Rate, payable quarterly,
maturing in varying amounts from 2001 through 2004
(approximately CAD$75.0 million)...................... 50,751
Floating-Rate Euro Medium-Term Note, priced at 37.5
basis points over the three-month sterling LIBOR,
payable quarterly, maturing in 2002 (approximately
150.0 million pounds sterling)........................ 236,265
The Floating-Rate Euro Medium-Term Note was issued by MBNA International Bank
Limited and is unsecured, with all payments unconditionally and irrevocably
guaranteed by MBNA America Bank, N.A.
NOTE G: SEGMENT REPORTING
The Corporation derives its income primarily from credit card loans, other
consumer loans, and insurance products. The credit card and other consumer loan
products have similar economic characteristics and, therefore, have been
aggregated into one operating segment. The Corporation's insurance products
have also been aggregated into the one operating segment due to immateriality.
The Corporation allocates resources on a managed basis and financial
information provided to management reflects the Corporation on a managed basis.
Therefore, an adjustment is required to reconcile the managed financial
information to the Corporation's reported financial information shown in its
consolidated financial statements. This adjustment reclassifies securitization
income into interest income, interchange, other fees, insurance income,
interest paid to investors, credit losses, and other trust expenses. The
managed results also include the impact of Statement of Financial Accounting
Standards No. 125, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishment of Liabilities."
For the Three Months Ended
June 30, 1999
------------------------------------------
Total Securitization Total
Managed Adjustments Consolidated
------------ -------------- ------------
Interest income................... $ 2,217,233 $ (1,630,409) $ 586,824
Interest expense.................. 915,528 (595,765) 319,763
------------ -------------- ------------
Net interest income............... 1,301,705 (1,034,644) 267,061
Provision for possible credit
losses........................... 718,475 (588,719) 129,756
------------ -------------- ------------
Net interest income after
provision for possible credit
losses........................... 583,230 (445,925) 137,305
Other operating income............ 582,607 445,925 1,028,532
Other operating expense........... 798,823 - 798,823
------------ -------------- ------------
Income before income taxes........ 367,014 - 367,014
Applicable income taxes........... 139,832 - 139,832
------------ -------------- ------------
Net income........................ $ 227,182 $ - $ 227,182
============ ============== ============
For the Three Months Ended
June 30, 1998
------------------------------------------
Total Securitization Total
Managed Adjustments Consolidated
------------ -------------- ------------
Interest income................... $ 1,879,143 $ (1,420,806) $ 458,337
Interest expense.................. 851,304 (559,850) 291,454
------------ -------------- ------------
Net interest income............... 1,027,839 (860,956) 166,883
Provision for possible credit
losses........................... 563,469 (484,927) 78,542
------------ -------------- ------------
Net interest income after
provision for possible credit
losses........................... 464,370 (376,029) 88,341
Other operating income............ 389,167 376,029 765,196
Other operating expense........... 575,688 - 575,688
------------ -------------- ------------
Income before income taxes........ 277,849 - 277,849
Applicable income taxes........... 105,861 - 105,861
------------ -------------- ------------
Net income........................ $ 171,988 $ - $ 171,988
============ ============== ============
For the Six Months Ended
June 30, 1999
------------------------------------------
Total Securitization Total
Managed Adjustments Consolidated
------------ -------------- ------------
Interest income................... $ 4,350,826 $ (3,222,654) $ 1,128,172
Interest expense.................. 1,817,202 (1,182,872) 634,330
------------ -------------- ------------
Net interest income............... 2,533,624 (2,039,782) 493,842
Provision for possible credit
losses........................... 1,366,427 (1,152,207) 214,220
------------ -------------- ------------
Net interest income after
provision for possible credit
losses........................... 1,167,197 (887,575) 279,622
Other operating income............ 1,044,687 887,575 1,932,262
Other operating expense........... 1,544,396 - 1,544,396
------------ -------------- ------------
Income before income taxes........ 667,488 - 667,488
Applicable income taxes........... 254,313 - 254,313
------------ -------------- ------------
Net income........................ $ 413,175 $ - $ 413,175
============ ============== ============
Ending loans outstanding.......... $ 64,524,688 $ (49,182,696) $ 15,341,992
For the Six Months Ended
June 30, 1998
------------------------------------------
Total Securitization Total
Managed Adjustments Consolidated
------------ -------------- ------------
Interest income................... $ 3,695,689 $ (2,771,699) $ 923,990
Interest expense.................. 1,684,720 (1,103,186) 581,534
------------ -------------- ------------
Net interest income............... 2,010,969 (1,668,513) 342,456
Provision for possible credit
losses........................... 1,098,847 (931,707) 167,140
------------ -------------- ------------
Net interest income after
provision for possible credit
losses........................... 912,122 (736,806) 175,316
Other operating income............ 727,900 736,806 1,464,706
Other operating expense........... 1,120,823 - 1,120,823
------------ -------------- ------------
Income before income taxes........ 519,199 - 519,199
Applicable income taxes........... 197,815 - 197,815
------------ -------------- ------------
Net income........................ $ 321,384 $ - $ 321,384
============ ============== ============
Ending loans outstanding.......... $ 52,747,779 $ (40,032,895) $ 12,714,884
NOTE H: 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. The Corporation amortizes its intangible assets
generally using the straight-line method. The Corporation may use an
accelerated method in order to better match the expected future cash flows from
the use of the asset. Intangible assets, which are included in other assets,
had a net book value of $1.3 billion and $671.4 million at June 30, 1999 and
December 31, 1998, respectively. The Corporation had accumulated amortization
related to its intangible assets of $215.7 million at June 30, 1999 and $144.1
million at December 31, 1998.
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 I: CREDIT CARD BUSINESS ACQUISITION
In March 1999, MBNA America Bank, N.A. ("the Bank"), a wholly owned subsidiary
of the Corporation, acquired the credit card business of PNC for approximately
$3.2 billion. The acquisition included $2.7 billion of credit card receivables.
The Bank funded the acquisition from the proceeds of the issuance of shares of
common stock by MBNA Corporation in January 1999, from securitization of credit
card receivables, and from the proceeds of maturing money market instruments.
NOTE J: NEW ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("Statement No. 133") establishes
accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts, and hedging
activities. In June 1999, Statement of Financial Accounting Standards No. 137,
"Accounting for Derivative Instruments and Hedging Activities-Deferral of the
Effective Date of FASB Statement No. 133" ("Statement No. 137") was issued and
extends the effective date for Statement No. 133 to all fiscal quarters of all
fiscal years beginning after June 15, 2000. Based on the Corporation's current
level of derivative and hedging activities, the implementation of Statement No.
133, as amended by Statement No. 137, will not have a material impact on the
Corporation's consolidated financial statements.
In February 1999, the Federal Financial Institutions Examination Council
published a revised policy statement on the classification of consumer loans.
The revised policy establishes uniform guidelines for the charge-off of loans
to delinquent, bankrupt, and deceased borrowers, for charge-off of fraudulent
accounts, and for re-aging, extending, deferring or rewriting delinquent
accounts. The guidelines must be implemented by June 30, 1999, unless
programming resources are required, in which case they must be implemented by
December 31, 2000. The Corporation is currently working on its programming
changes and expects to complete and implement the guidelines prior to or on
December 31, 2000. The Corporation will accelerate charge-off of some
delinquent loans when it implements the guidelines, and does not expect
implementation to 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
(unaudited)
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 located in Wilmington, Delaware, is
the parent company of MBNA America Bank, N.A. ("the Bank"), a national bank and
MBNA Corporation's principal subsidiary. The Bank has two wholly owned foreign
bank subsidiaries, MBNA International Bank Limited ("MBNA Europe") located in
the United Kingdom and MBNA Canada Bank ("MBNA Canada") located in Canada.
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 income, and interest earned on
investment securities and money market instruments. The Corporation's primary
costs are the costs of funding its loan receivables and investment securities
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.
EARNINGS SUMMARY
Net income for the three months ended June 30, 1999 increased 32.1% to $227.2
million or $.27 per common share, from $172.0 million or $.21 per common share
for the same period in 1998. Net income for the six months ended June 30, 1999
increased 28.6% to $413.2 million or $.49 per common share, from $321.4
million or $.40 per common share for the same period in 1998. Earnings per
common share amounts are presented assuming dilution.
The overall growth in earnings was primarily attributable to the growth in the
Corporation's managed loans outstanding. The Corporation's average managed
loans increased 25.1% and 22.0% to $63.1 billion and $61.1 billion for the
three and six months ended June 30, 1999, compared to $50.4 billion and $50.1
billion for the three and six months ended June 30, 1998, respectively. Total
managed loans at June 30, 1999 were $64.5 billion, an $11.8 billion increase
from June 30, 1998, and a $4.9 billion increase since December 31, 1998. The
increase in managed loans includes $2.7 billion of credit card loans acquired
from PNC Bank, N.A ("PNC") during the three months ended March 31, 1999.
The Corporation continues to be an active participant in the asset
securitization market. Asset securitization is the sale of loans to
investors, generally through a trust, that converts interest income,
interchange, other fees, and insurance income in excess of interest paid to
investors; credit losses; and other trust expenses into securitization income,
while reducing the Corporation's on-balance-sheet assets. During the three
and six months ended June 30, 1999, the Corporation securitized approximately
$3.4 billion and $4.6 billion of credit card and other consumer loan
receivables, respectively, bringing the total amount of outstanding
securitized loans to $49.2 billion at June 30, 1999.
Return on average total assets for the three and six months ended June 30,
1999 was 3.28% and 3.05%, as compared to 3.16% and 2.99% for the same periods
during 1998, respectively. The increase in the return on average total assets
for the three and six months ended June 30, 1999 is a result of the
Corporation's net income growing faster than its average total assets as a
result of securitization. The Corporation's return on average stockholders'
equity for the three and six months ended June 30, 1999 was 24.68% and 23.24%,
compared to 34.25% and 32.76% for the same periods in 1998, respectively. The
lower return on average stockholders' equity is primarily a result of the
increase in average stockholders' equity from the sale of 50 million shares of
common stock in January 1999 for approximately $1.2 billion, net of issuance
costs.
NET INTEREST INCOME
Net interest income for the three and six months ended June 30, 1999, on a
fully taxable equivalent basis, was $267.5 million and $494.8 million, compared
to $167.4 million and $343.4 million for the same periods in 1998,
respectively. The increase in net interest income for the three and six months
ended June 30, 1999 is a result of an increase in average interest-earning
assets of $4.3 billion and $4.2 billion, respectively, combined with a decline
of 57 basis points and 54 basis points in the rate paid on average interest-
bearing liabilities, respectively, as compared to the same periods in 1998.
The increase in net interest income for the three and six months ended June 30,
1999 is offset by an increase in average interest-bearing liabilities of $3.9
billion and $3.6 billion, respectively, as compared to the same periods in
1998. 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. The increase in average
interest-earning assets for the three and six months ended June 30, 1999 is a
result of an increase in average loan receivables of $4.6 billion and $3.2
billion, respectively, as compared to the same periods in 1998. The decrease in
the rates paid in average interest-bearing liabilities is a result of the
decreases in interest rates by the Federal Reserve Board in the last four
months of 1998 impacting overall market interest rates.
The net interest margin, on a fully taxable equivalent basis, was 5.29% and
4.95% for the three and six months ended June 30, 1999, respectively, as
compared to 4.20% and 4.34% for the same periods in 1998.
INVESTMENT SECURITIES AND MONEY MARKET INSTRUMENTS
Interest income on investment securities, on a fully taxable equivalent basis,
increased $1.4 million to $31.8 million for the three months ended June 30,
1999, as compared to the same period in 1998. The increase for the three
months ended June 30, 1999 is the result of an increase in average investment
securities of $344.2 million, offset by a decrease in the yield earned on
average investment securities of 59 basis points, as compared to the same
period in 1998.
Interest income on investment securities, on a fully taxable equivalent basis,
decreased $6.1 million to $57.5 million for the six months ended June 30, 1999,
as compared to the same period in 1998. The decrease for the six months ended
June 30, 1999 is the result of a decrease in average investment securities of
$16.2 million, in addition to a decrease in the yield earned on average
investment securities of 52 basis points, as compared to the same period in
1998.
Interest income on money market instruments decreased $12.9 million to $28.4
million for the three months ended June 30, 1999, as compared to the same
period in 1998. The decrease for the three months ended June 30, 1999 is a
result of a decrease of $584.3 million in average money market instruments, and
a decrease of 80 basis points in the yield earned, as compared to the same
period in 1998.
Interest income on money market instruments increased $15.3 million to $87.2
million for the six months ended June 30, 1999, as compared to the same period
in 1998. The increase for the six months ended June 30, 1999 is a result of an
increase of $1.0 billion in average money market instruments, offset by a
decrease of 79 basis points in the yield earned, as compared to the same period
in 1998.
The changes in average money market instruments are primarily a result of the
timing of receipt of funds from asset securitizations, deposits, net loan
payments, 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 and investment securities available-for-sale
until the funds are needed for loan growth and other liquidity needs. In
addition, average money market instruments were also higher during the six
months ended June 30, 1999, as a result of the investment of the net proceeds
from the issuance of common stock by the Corporation in January 1999, until
used to complete the acquisition of the credit card business of PNC in March
1999, and for other general corporate purposes.
LOAN RECEIVABLES
Interest income generated by the Corporation's loan receivables increased
$140.0 million to $527.1 million for the three months ended June 30, 1999 and
$195.0 million to $984.5 million for the six months ended June 30, 1999, as
compared to the same periods in 1998. The increase is primarily attributable
to an increase in average loan receivables of $4.6 billion and $3.2 billion for
the three and six months ended June 30, 1999, respectively, as compared to the
same periods in 1998. The yield earned by the Corporation on loan receivables
declined 53 basis points to 13.59% and 40 basis points to 13.75% for the three
and six months ended June 30, 1999, respectively, as compared to the same
periods in 1998.
Table 1 presents the Corporation's period-end loan receivables distribution by
loan type, excluding securitized loans. Loan receivables increased 13.9% to
$15.3 billion at June 30, 1999, respectively, compared to $13.5 billion at
December 31, 1998. The increase in loan receivables includes $2.7 billion of
credit card receivables related to the acquisition of the credit card business
of PNC. In addition, during the three and six months ended June 30, 1999, the
Corporation securitized loan receivables totaling $3.4 billion and $4.6
billion, respectively, while $707.4 million and $1.6 billion, respectively, of
previously securitized loans amortized back into the Corporation's loan
portfolio.
TABLE 1: LOAN RECEIVABLES DISTRIBUTION
(dollars in thousands)
June 30, 1999 December 31, 1998
----------------- -----------------
(unaudited)
Loans held for securitization:
Domestic:
Credit card........................... $ 4,270,414 $ 1,135,004
Other consumer........................ 85,959 114,747
----------------- -----------------
Total domestic loans held for
securitization..................... 4,356,373 1,249,751
Foreign................................. 1,053,745 442,517
----------------- -----------------
Total loans held for securitization. 5,410,118 1,692,268
Loan portfolio:
Domestic:
Credit card........................... 6,930,986 7,981,106
Other consumer........................ 2,016,106 2,748,511
----------------- -----------------
Total domestic loan portfolio....... 8,947,092 10,729,617
Foreign................................. 984,782 1,046,482
----------------- -----------------
Total loan portfolio................ 9,931,874 11,776,099
----------------- -----------------
Total loan receivables.............. $ 15,341,992 $ 13,468,367
================= =================
DEPOSITS
Total interest expense on deposits increased $27.6 million and $45.6 million to
$221.8 million and $435.5 million for the three and six months ended June 30,
1999, respectively, compared to $194.2 million and $389.9 million for the same
periods in 1998. The increase in interest expense for the three and six months
ended June 30, 1999 is the result of an increase in average interest-bearing
deposits of $3.3 billion and $2.9 billion, respectively, offset by a 59 basis
point and 56 basis point decline in the rate paid on interest-bearing deposits,
respectively, as compared with the same periods in 1998.
The increases in average interest-bearing deposits for the three and six months
ended June 30, 1999 were a result of the Corporation's continued emphasis on
marketing certificates of deposit and money market deposit accounts to fund
loan growth and diversify funding sources.
BORROWED FUNDS
Interest expense on short-term borrowings was $7.7 million and $17.2 million
for the three and six months ended June 30, 1999, as compared to $2.0 million
and $6.0 million for the same periods in 1998, respectively. The increases are
primarily the result of an increase in average short-term borrowings of $479.1
million and $489.6 million for the three and six months ended June 30, 1999,
offset by a 130 basis point and 175 basis point decline in the rates paid on
average short-term borrowings, as compared to the same periods in 1998. The
increases in average short-term borrowings for the three and six months ended
June 30, 1999 were to provide funding for the Corporation's domestic and
foreign loan growth.
Total interest expense on long-term debt and bank notes for the three and six
months ended June 30, 1999 decreased to $90.3 million and $181.6 million,
respectively, as compared to $95.3 million and $185.7 million for the same
periods in 1998. The declines in interest expense are primarily a result of the
decrease of 40 basis points and 37 basis points in the rates paid on average
long-term debt and bank notes, offset by the increase in average long-term debt
and bank notes of $60.6 million and $218.2 million for the three and six months
ended June 30, 1999, respectively, as compared to the same periods in 1998.
Table 2 provides further detail regarding the Corporation's average balances,
yields and rates, and income or expense for the three and six months ended
June 30, 1999 and 1998.
TABLE 2: STATEMENTS OF AVERAGE BALANCES, YIELDS AND RATES, INCOME OR EXPENSE
(dollars in thousands, yields and rates on a fully taxable equivalent basis)
For the Three Months Ended
June 30, 1999
--------------------------------
Average Yield/ Income
Amount Rate or Expense
------------ ------ ----------
(unaudited)
ASSETS
Interest-earning assets:
Interest-earning time deposits in other
banks:
Domestic.................................. $ 3,292 3.41% $ 28
Foreign................................... 1,792,743 4.97 22,194
------------ ----------
Total interest-earning time deposits
in other banks....................... 1,796,035 4.96 22,222
Federal funds sold and securities purchased
under resale agreements.................... 514,579 4.83 6,202
Investment securities(a):
Taxable................................... 2,332,847 5.24 30,471
Tax-exempt(b)............................. 96,367 5.50 1,321
------------ ----------
Total investment securities........... 2,429,214 5.25 31,792
Loans held for securitization:
Domestic.................................. 4,247,624 13.99 148,204
Foreign................................... 1,028,800 13.88 35,601
------------ ----------
Total loans held for securitization... 5,276,424 13.97 183,805
Loans:
Domestic:
Credit card............................. 7,377,201 13.29 244,502
Other consumer.......................... 1,974,220 13.47 66,293
------------ ----------
Total domestic loans.................. 9,351,421 13.33 310,795
Foreign................................... 933,159 13.96 32,470
------------ ----------
Total loans........................... 10,284,580 13.39 343,265
------------ ----------
Total interest-earning assets......... 20,300,832 11.60 $ 587,286
Cash and due from banks....................... 498,452
Premises and equipment, net................... 1,635,532
Other assets.................................. 5,694,648
Reserve for possible credit losses............ (314,618)
------------
Total assets.......................... $ 27,814,846
============
(a) Average amounts for investment securities available-for-sale are based on
market values; if these securities were carried at amortized cost, there
would not be a material impact on the net interest margin.
(b) The fully taxable equivalent (FTE) basis adjustment for the three months
ended June 30, 1999 was $462.
For the Three Months Ended
June 30, 1999
--------------------------------
Average Yield/ Income
Amount Rate or Expense
------------ ------ ----------
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing deposits:
Domestic:
Time deposits........................... $ 10,849,744 5.87% $ 158,673
Money market deposit accounts........... 4,306,524 4.82 51,733
Interest-bearing transaction accounts... 37,180 4.38 406
Savings accounts........................ 77,728 4.28 830
------------ ----------
Total domestic interest-bearing
deposits............................. 15,271,176 5.56 211,642
Foreign:
Time deposits........................... 773,589 5.25 10,129
------------ ----------
Total interest-bearing deposits....... 16,044,765 5.54 221,771
Borrowed funds:
Short-term borrowings:
Domestic................................ 367,979 5.34 4,902
Foreign................................. 233,687 4.85 2,828
------------ ----------
Total short-term borrowings........... 601,666 5.15 7,730
Long-term debt and bank notes:
Domestic(c)............................. 5,542,774 5.99 82,798
Foreign................................. 425,171 7.04 7,464
------------ ----------
Total long-term debt and bank notes... 5,967,945 6.07 90,262
------------ ----------
Total borrowed funds.................. 6,569,611 5.98 97,992
------------ ----------
Total interest-bearing liabilities.... 22,614,376 5.67 319,763
Demand deposits............................... 534,961
Other liabilities............................. 972,943
------------
Total liabilities..................... 24,122,280
Stockholders' equity.......................... 3,692,566
------------
Total liabilities and stockholders'
equity............................... $ 27,814,846
============ ----------
Net interest income................... $ 267,523
==========
Net interest margin................... 5.29
Interest rate spread.................. 5.93
(c) Includes the impact of interest rate swap agreements used to change fixed-
rate funding sources to floating-rate funding sources.
For the Three Months Ended
June 30, 1998
--------------------------------
Average Yield/ Income
Amount Rate or Expense
------------ ------ ----------
(unaudited)
ASSETS
Interest-earning assets:
Interest-earning time deposits in other
banks:
Domestic.................................. $ 6,292 4.65% $ 73
Foreign................................... 2,271,589 5.78 32,721
------------ ----------
Total interest-earning time deposits
in other banks....................... 2,277,881 5.77 32,794
Federal funds sold and securities purchased
under resale agreements.................... 617,002 5.57 8,575
Investment securities(a):
Taxable................................... 1,992,607 5.83 28,953
Tax-exempt(b)............................. 92,425 6.06 1,396
------------ ----------
Total investment securities........... 2,085,032 5.84 30,349
Loans held for securitization:
Domestic.................................. 2,179,209 14.63 79,492
Foreign................................... 418,070 13.98 14,570
------------ ----------
Total loans held for securitization... 2,597,279 14.53 94,062
Loans:
Domestic:
Credit card............................. 5,644,181 14.20 199,859
Other consumer.......................... 1,936,984 13.53 65,321
------------ ----------
Total domestic loans.................. 7,581,165 14.03 265,180
Foreign................................... 821,056 13.61 27,866
------------ ----------
Total loans........................... 8,402,221 13.99 293,046
------------ ----------
Total interest-earning assets......... 15,979,415 11.52 $ 458,826
Cash and due from banks....................... 425,724
Premises and equipment, net................... 1,644,067
Other assets.................................. 3,932,210
Reserve for possible credit losses............ (185,275)
------------
Total assets.......................... $ 21,796,141
============
(a) Average amounts for investment securities available-for-sale are based on
market values; if these securities were carried at amortized cost, there
would not be a material impact on the net interest margin.
(b) The fully taxable equivalent (FTE) basis adjustment for the three months
ended June 30, 1998 was $489.
For the Three Months Ended
June 30, 1998
--------------------------------
Average Yield/ Income
Amount Rate or Expense
------------ ------ ----------
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing deposits:
Domestic:
Time deposits........................... $ 8,650,832 6.32% $ 136,413
Money market deposit accounts........... 3,426,364 5.49 46,940
Interest-bearing transaction accounts... 31,497 4.75 373
Savings accounts........................ 8,706 4.65 101
------------ ----------
Total domestic interest-bearing
deposits............................. 12,117,399 6.08 183,827
Foreign:
Time deposits........................... 597,113 6.97 10,378
------------ ----------
Total interest-bearing deposits....... 12,714,512 6.13 194,205
Borrowed funds:
Short-term borrowings:
Domestic................................ 28,519 5.71 406
Foreign................................. 94,002 6.67 1,563
------------ ----------
Total short-term borrowings........... 122,521 6.45 1,969
Long-term debt and bank notes:
Domestic (c)............................ 5,685,488 6.42 91,063
Foreign................................. 221,849 7.62 4,217
------------ ----------
Total long-term debt and bank notes... 5,907,337 6.47 95,280
------------ ----------
Total borrowed funds.................. 6,029,858 6.47 97,249
------------ ----------
Total interest-bearing liabilities.... 18,744,370 6.24 291,454
Demand deposits............................... 395,157
Other liabilities............................. 642,683
------------
Total liabilities..................... 19,782,210
Stockholders' equity.......................... 2,013,931
------------
Total liabilities and stockholders'
equity............................... $ 21,796,141
============ ----------
Net interest income................... $ 167,372
==========
Net interest margin................... 4.20
Interest rate spread.................. 5.28
(c) Includes the impact of interest rate swap agreements used to change fixed-
rate funding sources to floating-rate funding sources.
For the Six Months Ended
June 30, 1999
--------------------------------
Average Yield/ Income
Amount Rate or Expense
------------ ------ ----------
(unaudited)
ASSETS
Interest-earning assets:
Interest-earning time deposits in other
banks:
Domestic.................................. $ 3,305 3.48% $ 57
Foreign................................... 2,502,662 5.05 62,714
------------ ----------
Total interest-earning time deposits
in other banks....................... 2,505,967 5.05 62,771
Federal funds sold and securities purchased
under resale agreements.................... 1,020,352 4.83 24,423
Investment securities(a):
Taxable................................... 2,079,960 5.31 54,792
Tax-exempt(b)............................. 94,231 5.71 2,670
------------ ----------
Total investment securities........... 2,174,191 5.33 57,462
Loans held for securitization:
Domestic.................................. 2,892,120 14.07 201,725
Foreign................................... 819,018 14.19 57,633
------------ ----------
Total loans held for securitization... 3,711,138 14.09 259,358
Loans:
Domestic:
Credit card............................. 7,513,745 13.56 505,316
Other consumer.......................... 2,226,229 13.79 152,215
------------ ----------
Total domestic loans.................. 9,739,974 13.61 657,531
Foreign................................... 985,255 13.83 67,561
------------ ----------
Total loans........................... 10,725,229 13.63 725,092
------------ ----------
Total interest-earning assets......... 20,136,877 11.31 $1,129,106
Cash and due from banks....................... 493,774
Premises and equipment, net................... 1,627,541
Other assets.................................. 5,332,420
Reserve for possible credit losses............ (270,848)
------------
Total assets.......................... $ 27,319,764
============
(a) Average amounts for investment securities available-for-sale are based on
market values; if these securities were carried at amortized cost, there
would not be a material impact on the net interest margin.
(b) The fully taxable equivalent (FTE) basis adjustment for the six months
ended June 30, 1999 was $934.
For the Six Months Ended
June 30, 1999
--------------------------------
Average Yield/ Income
Amount Rate or Expense
------------ ------ ----------
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing deposits:
Domestic:
Time deposits........................... $ 10,609,746 5.92% $ 311,243
Money market deposit accounts........... 4,253,072 4.85 102,201
Interest-bearing transaction accounts... 36,630 4.27 775
Savings accounts........................ 67,268 4.32 1,441
------------ ----------
Total domestic interest-bearing
deposits............................. 14,966,716 5.60 415,660
Foreign:
Time deposits........................... 718,163 5.56 19,815
------------ ----------
Total interest-bearing deposits....... 15,684,879 5.60 435,475
Borrowed funds:
Short-term borrowings:
Domestic................................ 436,523 5.37 11,622
Foreign................................. 225,835 5.01 5,614
------------ ----------
Total short-term borrowings........... 662,358 5.25 17,236
Long-term debt and bank notes:
Domestic(c)............................. 5,598,037 6.08 168,699
Foreign................................. 359,053 7.26 12,920
------------ ----------
Total long-term debt and bank notes... 5,957,090 6.15 181,619
------------ ----------
Total borrowed funds.................. 6,619,448 6.06 198,855
------------ ----------
Total interest-bearing liabilities.... 22,304,327 5.74 634,330
Demand deposits............................... 524,155
Other liabilities............................. 905,882
------------
Total liabilities..................... 23,734,364
Stockholders' equity.......................... 3,585,400
------------
Total liabilities and stockholders'
equity............................... $ 27,319,764
============ ----------
Net interest income................... $ 494,776
==========
Net interest margin................... 4.95
Interest rate spread.................. 5.57
(c) Includes the impact of interest rate swap agreements used to change fixed-
rate funding sources to floating-rate funding sources.
For the Six Months Ended
June 30, 1998
--------------------------------
Average Yield/ Income
Amount Rate or Expense
------------ ------ ----------
(unaudited)
ASSETS
Interest-earning assets:
Interest-earning time deposits in other
banks:
Domestic.................................. $ 14,146 4.93% $ 346
Foreign................................... 1,922,912 5.85 55,795
------------ ----------
Total interest-earning time deposits
in other banks....................... 1,937,058 5.84 56,141
Federal funds sold and securities purchased
under resale agreements.................... 569,438 5.58 15,750
Investment securities(a):
Taxable................................... 2,101,258 5.85 60,966
Tax-exempt(b)............................. 89,096 5.90 2,605
------------ ----------
Total investment securities........... 2,190,354 5.85 63,571
Loans held for securitization:
Domestic.................................. 2,301,646 14.49 165,400
Foreign................................... 530,655 14.73 38,758
------------ ----------
Total loans held for securitization... 2,832,301 14.54 204,158
Loans:
Domestic:
Credit card............................. 5,657,136 14.12 396,050
Other consumer.......................... 2,026,494 13.86 139,300
------------ ----------
Total domestic loans.................. 7,683,630 14.05 535,350
Foreign................................... 732,545 13.75 49,932
------------ ----------
Total loans........................... 8,416,175 14.02 585,282
------------ ----------
Total interest-earning assets......... 15,945,326 11.70 $ 924,902
Cash and due from banks....................... 464,663
Premises and equipment, net................... 1,629,022
Other assets.................................. 3,832,255
Reserve for possible credit losses............ (177,007)
------------
Total assets.......................... $ 21,694,259
============
(a) Average amounts for investment securities available-for-sale are based on
market values; if these securities were carried at amortized cost, there
would not be a material impact on the net interest margin.
(b) The fully taxable equivalent (FTE) basis adjustment for the six months
ended June 30, 1998 was $912.
For the Six Months Ended
June 30, 1998
--------------------------------
Average Yield/ Income
Amount Rate or Expense
------------ ------ ----------
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing deposits:
Domestic:
Time deposits........................... $ 8,782,907 6.34% $ 276,219
Money market deposit accounts........... 3,318,795 5.52 90,885
Interest-bearing transaction accounts... 31,563 4.79 749
Savings accounts........................ 9,782 4.72 229
------------ ----------
Total domestic interest-bearing
deposits............................. 12,143,047 6.11 368,082
Foreign:
Time deposits........................... 613,740 7.16 21,784
------------ ----------
Total interest-bearing deposits....... 12,756,787 6.16 389,866
Borrowed funds:
Short-term borrowings:
Domestic................................ 27,795 5.63 776
Foreign................................. 144,926 7.26 5,217
------------ ----------
Total short-term borrowings........... 172,721 7.00 5,993
Long-term debt and bank notes:
Domestic(c)............................. 5,517,009 6.49 177,497
Foreign................................. 221,865 7.43 8,178
------------ ----------
Total long-term debt and bank notes... 5,738,874 6.52 185,675
------------ ----------
Total borrowed funds.................. 5,911,595 6.54 191,668
------------ ----------
Total interest-bearing liabilities.... 18,668,382 6.28 581,534
Demand deposits............................... 390,130
Other liabilities............................. 657,251
------------
Total liabilities..................... 19,715,763
Stockholders' equity.......................... 1,978,496
------------
Total liabilities and stockholders'
equity............................... $ 21,694,259
============ ----------
Net interest income................... $ 343,368
==========
Net interest margin................... 4.34
Interest rate spread.................. 5.42
(c) Includes the impact of interest rate swap agreements used to change fixed-
rate funding sources to floating-rate funding sources.
OTHER OPERATING INCOME
Total other operating income increased 34.4% and 31.9% to $1.0 billion and $1.9
billion for the three and six months ended June 30, 1999, from $765.2 million
and $1.5 billion for the same periods in 1998. The increase in other operating
income is primarily attributable to a $196.5 million and $381.8 million
increase, or 29.0% and 29.5%, increase in securitization income for the three
and six months ended June 30, 1999, respectively, as compared to the same
periods in 1998. The increase in securitization income is primarily
attributable to the growth in average securitized loans of $8.1 billion and
$7.8 billion, or 20.5% and 20.2%, for the three and six months ended June 30,
1999, respectively, in addition to a decline in the average rate paid to
investors in the Corporation's securitized loans. Also, during the three
months ended March 31, 1999, the Corporation increased the fees charged to its
credit card and other consumer loan customers. As a result, loan servicing
fees related to securitized loans, credit card fees, and other income increased
for the three and six months ended June 30, 1999, as compared to the same
periods in 1998.
OTHER OPERATING EXPENSE
Total other operating expense increased 38.8% to $798.8 million and 37.8% to
$1.5 billion, for the three and six months ended June 30, 1999, respectively,
from $575.7 million and $1.1 billion for the same periods in 1998. The
increases in purchased services, advertising, postage and delivery, and
telephone usage for the three and six months ended June 30, 1999, as compared
to the same period in 1998, reflect additional business development activities
by the Corporation. For the six months ended June 30, 1999, the Corporation
added 7.3 million new accounts, of which 2.8 million new accounts were acquired
from PNC, as compared to 4.2 million new accounts for the same period in 1998.
The Corporation added 180 new endorsements from organizations, including 70 in
the United Kingdom and Canada, during the six months ended June 30, 1999.
Amortization of intangible assets increased $34.2 million and $51.1 million to
$44.2 million and $71.3 million for the three and six months ended June 30,
1999, respectively, as a result of portfolio acquisitions, including the
acquisition of the credit card business of PNC in March 1999. Table 3 provides
further detail regarding the Corporation's other operating expenses.
TABLE 3: OTHER EXPENSE COMPONENT OF OTHER OPERATING EXPENSE
(dollars in thousands)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
-------------------- --------------------
1999 1998 1999 1998
--------- --------- --------- ---------
(unaudited)
Purchased services................ $ 82,904 $ 54,660 $ 170,110 $ 110,177
Advertising....................... 53,741 36,244 114,166 58,408
Collection........................ 9,659 8,251 19,562 14,960
Stationery and supplies........... 9,464 7,939 19,164 15,176
Service bureau.................... 11,275 8,586 21,607 15,652
Postage and delivery.............. 76,681 49,030 153,326 94,198
Telephone usage................... 16,997 11,818 36,774 24,873
Credit card fraud losses.......... 23,642 20,298 46,279 40,724
Amortization of intangible assets. 44,172 9,923 71,323 20,255
Computer software................. 14,465 12,420 30,222 23,804
Other............................. 37,301 26,639 76,986 55,571
--------- --------- --------- ---------
Total other operating expense... $ 380,301 $ 245,808 $ 759,519 $ 473,798
========= ========= ========= =========
YEAR 2000 Readiness Disclosure
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. Computer applications may
not be able 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
internally developed or acquired application software that is managed outside
the technology area. It also includes all vendor supplied services and non-
technology equipment, such as building operation and security systems. 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 includes interfaces with major
vendors such as MasterCard International and Visa International.
Project Readiness
The Corporation has completed the Application Software, Infrastructure,
Business Unit, Telecommunication, and Desktop Infrastructure components of the
Project. This included the assessment, renovation, validation and
implementation phases. Assessment activities will continue throughout 1999 to
address Year 2000 compliance issues that may arise with any significant system
changes or from newly acquired software.
A stand-alone test environment has been constructed to perform extensive final
readiness testing. The stand-alone 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 includes 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. Testing within the readiness environment began in
March 1999. The Corporation has successfully completed two test cycles of the
December 31, 1999 to January 1, 2000 rollover, along with other significant
dates. In addition to testing the transition to the new century, other key
dates tested included September 9, 1999, year-end 2000 and the Year 2000 leap
year. This environment will be maintained throughout 1999 in order to allow
testing of significant system changes and newly acquired software. Also, the
Corporation has had portions of its applications systems which are
significantly affected by Year 2000 dates independently reviewed by third-party
vendors.
The Corporation relies on various third-parties to perform processing services
and to supply critical system applications. Critical third-party provided
software applications are tested regardless of vendor statements of fitness to
ensure Year 2000 compliance. Regular meetings and site visits have been held
and will continue to be 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 June 30, 1999
were approximately $28 million. The majority of the remaining cost is
associated with completing the readiness testing 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 the Corporation's operations, liquidity,
and financial condition. Due primarily to the general uncertainty of the Year
2000 readiness of some third-party providers, at this time the Corporation
cannot with substantial 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
that any internal Year 2000 system failure 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 developed and will continue to refine contingency plans to
address possible negative impacts specific to the Year 2000 problem. Round
table testing of contingency plans has been conducted for all major business
areas. Contingency plans will continue to be reviewed throughout 1999.
Simulation exercises will be conducted to further test contingency plans.
Contingency plans for critical third-party providers have also been completed.
The Corporation also 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.
Safe Harbor for Forward-Looking Statements
The Corporation's 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: failure of third-parties providing software, telecommunications,
data networks, and other products or services to the Corporation to make such
products or services Year 2000 compliant; insufficient staff and other
technical resources; unexpected difficulties in implementing system
enhancements; disruptions in the overall consumer credit market due to Year
2000 problems; and disruptions in capital markets due to Year 2000 problems.
INCOME TAXES
Applicable income taxes increased $34.0 million and $56.5 million to $139.8
million and $254.3 million for the three and six months ended June 30, 1999,
respectively, compared to the same periods in 1998.
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 4.17%
at June 30, 1999, compared to 3.86% at December 31, 1998. The Corporation's
managed delinquency, as a percentage of managed loans, was 4.64% at June 30,
1999, as compared to 4.62% at December 31, 1998.
Table 4 presents the stages of delinquency of the Corporation's loan portfolio,
excluding loans held for securitization.
TABLE 4: DELINQUENT LOANS
(dollars in thousands)
June 30, 1999 December 31, 1998
------------------ ------------------
(unaudited)
Loan portfolio......................... $ 9,931,874 $ 11,776,099
Loans delinquent:
30 to 59 days........................ $ 151,302 1.52% $ 166,352 1.41%
60 to 89 days........................ 79,224 .80 93,699 .80
90 or more days...................... 183,748 1.85 194,472 1.65
------------ ---- ------------ ----
Total.............................. $ 414,274 4.17% $ 454,523 3.86%
============ ==== ============ ====
Loans delinquent by geographic area:
Domestic............................. $ 384,090 4.29% $ 424,324 3.95%
Foreign.............................. 30,184 3.07 30,199 2.89
The Corporation may modify the terms of its credit card and other consumer loan
agreements with borrowers who have experienced financial difficulties, by
either reducing their interest rate or placing them on nonaccrual status.
These other nonperforming loans, excluding loans held for securitization, are
presented in the following table.
TABLE 5: OTHER NONPERFORMING LOANS
(dollars in thousands)
June 30, 1999 December 31, 1998
------------------ ------------------
(unaudited)
Nonaccrual loans..................... $ 5,342 $ 3,182
Reduced-rate loans................... 143,717 157,737
------------------ ------------------
Total other nonperforming loans.... $ 149,059 $ 160,919
================== ==================
Other nonperforming loans as a % of
ending loan portfolio.............. 1.50% 1.37%
The Corporation's total managed other nonperforming loans as a percentage of
ending managed loans was 2.02% at June 30, 1999, as compared to 2.01% at
December 31, 1998.
NET CREDIT LOSSES
The Corporation's policy is generally to charge off accounts when they become
180 days contractually past due. The Corporation sells certain 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 six months ended June 30, 1999 were $107.0
million and $187.6 million, compared to $71.6 million and $145.5 million for
the same periods in 1998. Net credit losses do not include credit losses from
securitized loans, which are charged to the related trusts in accordance with
their respective contractual agreements. The increase in net credit losses for
the three and six months ended June 30, 1999, reflects an increase in the
Corporation's outstanding loan receivables, the general economic conditions,
and the seasoning of the Corporation's accounts, offset by recoveries from the
sale of charged-off receivables. Annualized net credit losses as a percentage
of average loan receivables were 2.75% and 2.60% for the three and six months
ended June 30, 1999, respectively, as compared to 2.61% and 2.59% for the same
periods in 1998. The Corporation's annualized managed credit losses as a
percentage of average managed loans for the three and six months ended June 30,
1999 were 4.41% and 4.39%, respectively, as compared to 4.42% and 4.30% for the
same periods in 1998.
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. Table 6
presents an analysis of the Corporation's reserve for possible credit losses.
The provision for possible credit losses for the three and six months ended
June 30, 1999, increased 65.2% to $129.8 million and 28.2% to $214.2 million,
respectively, as compared to $78.5 million and $167.1 million for the three and
six months ended June 30, 1998. In addition, the Corporation records acquired
reserves for current period loan portfolio acquisitions. During the six months
ended June 30, 1999, the Corporation recorded $84.1 million of reserves
acquired in connection with the credit card business of PNC and other loan
portfolios. The reserve for possible credit losses is a general allowance
applicable to the Corporation's loan portfolio and does not include an
allocation for credit risk related to securitized loans. Losses on securitized
loans are absorbed directly by the related trusts under their respective
contractual agreements, and reduce securitization income rather than the
reserve for possible credit losses.
TABLE 6: RESERVE FOR POSSIBLE CREDIT LOSSES
(dollars in thousands)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
-------------------- --------------------
1999 1998 1999 1998
--------- --------- --------- ---------
(unaudited)
Reserve for possible credit losses,
beginning of period............... $ 303,717 $ 178,297 $ 216,911 $ 162,476
Reserves acquired................ 831 9,511 84,091 10,508
Provision for possible credit
losses.......................... 129,756 78,542 214,220 167,140
Foreign currency translation..... (394) (20) (760) 69
Credit losses:
Domestic:
Credit card.................. (114,960) (81,427) (202,525) (167,289)
Other consumer............... (27,734) (24,570) (59,016) (44,758)
--------- --------- --------- ---------
Total domestic credit
losses.................... (142,694) (105,997) (261,541) (212,047)
Foreign........................ (10,169) (3,983) (18,376) (8,208)
--------- --------- --------- ---------
Total credit losses........ (152,863) (109,980) (279,917) (220,255)
Recoveries:
Domestic:
Credit card.................. 36,951 33,994 75,348 66,990
Other consumer............... 5,109 3,218 11,044 5,553
--------- --------- --------- ---------
Total domestic recoveries.. 42,060 37,212 86,392 72,543
Foreign........................ 3,790 1,123 5,960 2,204
--------- --------- --------- ---------
Total recoveries........... 45,850 38,335 92,352 74,747
--------- --------- --------- ---------
Net credit losses................ (107,013) (71,645) (187,565) (145,508)
--------- --------- --------- ---------
Reserve for possible credit losses,
end of period..................... $ 326,897 $ 194,685 $ 326,897 $ 194,685
========= ========= ========= =========
In February 1999, the Federal Financial Institutions Examination Council
published a revised policy statement on the classification of consumer loans.
The revised policy establishes uniform guidelines for the charge-off of loans
to delinquent, bankrupt, and deceased borrowers, for charge-off of fraudulent
accounts, and for re-aging, extending, deferring or rewriting delinquent
accounts. The guidelines must be implemented by June 30, 1999, unless
programming resources are required, in which case they must be implemented by
December 31, 2000. The Corporation is currently working on its programming
changes and expects to complete and implement the guidelines prior to or on
December 31, 2000. The Corporation will accelerate charge-off of some
delinquent loans when it implements the guidelines, and does not expect
implementation to have a material impact on the Corporation's consolidated
financial statements.
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 wholly owned state
bank subsidiary 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 these
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 the capital adequacy
guidelines and the regulatory framework for prompt corrective action, the
Corporation, the Bank, and the State Bank must meet specific capital guidelines
that involve quantitative measures of their assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting practices.
The Corporation's, the Bank's, and the State Bank's capital amounts and
classification are also subject to qualitative judgments by the federal bank
regulators about components, risk weightings, and other factors. At June 30,
1999, 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 7, have been
computed in accordance with regulatory accounting practices. The assets of the
State Bank are not material, and therefore, its ratios have not been presented.
TABLE 7: REGULATORY CAPITAL RATIOS
June 30, 1999
-------------------------------------------
Minimum Well-Capitalized
Ratios Requirements Requirements
---------- ------------- ----------------
(unaudited)
MBNA Corporation
Tier 1............................ 15.67% 4.00% (a)
Total............................. 18.30 8.00 (a)
Leverage.......................... 15.00 4.00 (a)
MBNA America Bank, N.A.
Tier 1............................ 11.58% 4.00% 6.00%
Total............................. 14.38 8.00 10.00
Leverage.......................... 11.33 4.00 5.00
(a) Not applicable for bank holding companies.
In January 1999, the Corporation issued 50 million shares of common stock,
raising approximately $1.2 billion of capital, net of issuance costs. The
Corporation contributed $300.0 million of the net proceeds from this offering
to the Bank in order to complete the acquisition of the credit card business of
PNC. The Corporation used the remaining portion for other general corporate
purposes.
During the six months ended June 30, 1999, the Corporation declared dividends
on its preferred and common stock of $119.3 million. The payment of dividends
in the future and the amount of such dividends, if any, will be at the
discretion of the Corporation's Board of Directors. The payment of preferred
and common stock dividends by the Corporation may be limited by certain
factors, including regulatory capital requirements, broad enforcement powers of
the federal bank regulatory agencies, and tangible net worth maintenance
requirements under the Corporation's revolving credit facilities. The payment
of common stock dividends may also be limited by the terms of the outstanding
preferred stock. If the Corporation has not paid scheduled dividends on the
preferred stock, or declared the dividends and set aside funds for payment, the
Corporation may not declare or pay any cash dividends on the common stock. In
addition, if the Corporation defers interest payments for consecutive periods
covering 10 semiannual periods or 20 consecutive quarterly periods, depending
on the series, on its guaranteed preferred beneficial interests in
Corporation's junior subordinated deferrable interest debentures, the
Corporation may not be permitted to declare or pay any cash dividends on the
Corporation's capital stock or interest on debt securities that have equal or
lower priority than the junior subordinated deferrable interest debentures.
The Corporation is a legal entity separate and distinct from its banking and
other subsidiaries. Therefore, 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, less any required transfers to surplus or to a fund
for the retirement of any preferred stock. In addition, a national bank may
not pay any dividends in an amount greater than its undivided profit. Under
current regulatory practice, national banks may pay dividends only out of
current operating earnings. Also, a bank may not declare dividends if such
declaration would leave the bank inadequately capitalized. Therefore, the
ability of the Bank to declare dividends will depend on its future net income
and capital requirements. At June 30, 1999, the amount of retained earnings
available for declaration and payment of dividends from the Bank to the
Corporation was $1.4 billion. Payment of dividends by the Bank to the
Corporation, however, can be further limited by federal bank regulatory
agencies.
The Bank's payment of dividends to the Corporation may also be limited by a
tangible net worth requirement under the Bank's revolving credit facility.
This facility was not drawn upon as of June 30, 1999. If this facility had
been drawn upon as of June 30, 1999, the amount of retained earnings available
for declaration of dividends would have been limited to $469.8 million.
On July 13, 1999, the Corporation's Board of Directors declared a quarterly
dividend of $.07 per common share, payable October 1, 1999 to shareholders of
record as of September 15, 1999. Also, on July 13, 1999 the Corporation's
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 $.3756
per share on the Adjustable Rate Cumulative Preferred Stock, Series B. The
preferred stock dividends are payable October 15, 1999 to stockholders of
record as of September 30, 1999.
LIQUIDITY AND RATE SENSITIVITY
The Corporation seeks to maintain 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 the use
and availability of 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 Corporation's loan receivables as
a major funding alternative.
Total deposits at June 30, 1999 and December 31, 1998 were $16.4 billion and
$15.4 billion, respectively. Included in total deposits at June 30, 1999 are
$549.6 million of foreign time deposits which all mature within one year.
Table 8 presents the maturities of the Corporation's deposits at June 30, 1999.
TABLE 8: MATURITIES OF DEPOSITS AT JUNE 30, 1999
(dollars in thousands)
Direct Other Total
Deposits Deposits Deposits
----------- ----------- -----------
(unaudited)
Three months or less(a)................. $ 6,201,837 $ 815,504 $ 7,017,341
Over three months through twelve months. 3,107,642 988,285 4,095,927
Over one year through five years........ 2,669,295 2,588,528 5,257,823
Over five years......................... 6,391 - 6,391
----------- ----------- -----------
Total deposits........................ $11,985,165 $ 4,392,317 $16,377,482
=========== =========== ===========
(a) Includes money market deposit accounts, noninterest-bearing demand
deposits, interest-bearing transaction accounts, and savings accounts of
$4.9 billion.
During the six months ended June 30, 1999, the Corporation, through the Bank,
issued $25.0 million of floating-rate bank notes. The Corporation also issued,
through MBNA Europe, a 150.0 million pounds sterling (approximately $236.3
million) floating-rate Euro medium-term note, and through MBNA Canada Bank,
CAD$73.1 million (approximately $49.4 million) of fixed-rate medium-term
deposit notes, and CAD$75.0 million (approximately $50.8 million) of
floating-rate medium-term deposit notes. These borrowings are included in long-
term debt and bank notes in the consolidated statements of financial condition.
The Corporation also held $2.6 billion in investment securities and $2.3
billion of money market instruments at June 30, 1999, compared with $1.9
billion in investment securities and $3.6 billion of money market instruments
at December 31, 1998. The Corporation partially funded the acquisition of the
credit card business of PNC in March 1999 from the proceeds of maturing money
market instruments. The Corporation's investment securities primarily consist
of high-quality, AAA-rated securities, most of which can be used as collateral
under repurchase agreements. Of the $2.6 billion in investment securities at
June 30, 1999, $668.1 million is anticipated to mature within twelve months.
The Corporation's investment securities available-for-sale portfolio, which
consists primarily of short-term and variable-rate securities, was $2.4 billion
at June 30, 1999, compared to $1.7 billion at December 31, 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 9.
TABLE 9: SUMMARY OF INVESTMENT SECURITIES AT JUNE 30, 1999
(dollars in thousands) (unaudited)
Estimated Maturity
--------------------------------------------
Within 1 Over
Year 1-5 Years 6-10 Years 10 Years
---------- ---------- ---------- --------
AVAILABLE-FOR-SALE
U.S. Treasury and other U.S.
government agencies obligations.. $ 200,683 $ 962,477 $ - $ -
State and political subdivisions
of the United States............. 87,869 1,007 - -
Asset-backed and other securities. 367,186 691,038 59,493 2,447
---------- ---------- ---------- --------
Total investment securities
available-for-sale............. $ 655,738 $1,654,522 $ 59,493 $ 2,447
========== ========== ========== ========
HELD-TO-MATURITY
U.S. Treasury and other U.S.
government agencies obligations.. $ 12,210 $ - $ - $217,863
State and political subdivisions
of the United States............. 105 10 207 5,682
Asset-backed and other securities. - 12,632 - 25,920
---------- ---------- ---------- --------
Total investment securities
held-to-maturity............... $ 12,315 $ 12,642 $ 207 $249,465
========== ========== ========== ========
Book Market
Value Value
---------- ----------
AVAILABLE-FOR-SALE
U.S. Treasury and other U.S.
government agencies obligations.. $1,163,160 $1,163,160
State and political subdivisions
of the United States............. 88,876 88,876
Asset-backed and other securities. 1,120,164 1,120,164
---------- ----------
Total investment securities
available-for-sale............. $2,372,200 $2,372,200
========== ==========
HELD-TO-MATURITY
U.S. Treasury and other U.S.
government agencies obligations.. $ 230,073 $ 211,302
State and political subdivisions
of the United States............. 6,004 5,819
Asset-backed and other securities. 38,552 38,538
---------- ----------
Total investment securities
held-to-maturity............... $ 274,629 $ 255,659
========== ==========
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 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 reflect 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 expects to continue to do so in the future
in response to changes in interest rates, market conditions, or other factors.
Based on the simulation analysis at June 30, 1999, the Corporation could
experience a decrease in projected net income during the next twelve months of
approximately $26 million, if interest rates at the time the simulation
analysis was performed increased 100 basis points over twelve months.
The assumptions used in the simulation analysis 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. The Corporation's foreign currency exchange rate risk is primarily
limited to the unhedged position of the Corporation's net investment in its
foreign subsidiaries. The Corporation uses forward exchange contracts and
foreign exchange swap agreements to reduce its exposure to foreign currency
exchange rate risk. Management reviews the foreign currency exchange rate risk
of the Corporation on a routine basis. During this review, management
regularly reviews the net impact to stockholders' equity under various foreign
exchange rate scenarios. At June 30, 1999, the Corporation would expect a
decrease in stockholders' equity, net of tax, of approximately $28 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.
ASSET SECURITIZATION
Asset securitization of loan receivables 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.
Asset securitization involves the sale, generally to a trust, of a pool of loan
receivables. The Corporation continues to own the accounts, which generate the
loan receivables. In addition, the Corporation also sells the rights to new
loan receivables, including most fees generated by and payments received from
these accounts. The trust sells undivided interests in the trust to investors,
while the Corporation retains the remaining undivided interest. The Corporation
continues to service the accounts and receives a servicing fee for doing so.
During the revolving period, which generally ranges from 24 to 108 months, the
trust makes no principal payments to the investors. Instead, the trust uses
principal 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's undivided interest
remains unchanged. Once the revolving period ends, the trust distributes
principal payments to investors according to the terms of the transaction.
When the trust allocates principal payments to the investors, the Corporation's
loan receivables increase by the amount of any new purchases or cash advance
activity on the accounts.
During the three and six months ended June 30, 1999, the Corporation
securitized credit card and other consumer loan receivables totaling $3.4
billion and $4.6 billion, respectively, including a securitization of 250.0
million pounds sterling by MBNA International Bank Limited. Amortization of
previously securitized loan receivables totaled $707.4 million and $1.6 billion
for the three and six months ended June 30, 1999, respectively. The total
amount of outstanding securitized loans was $49.2 billion or 76.2% of managed
loans at June 30, 1999, compared to $46.2 billion or 77.4% at December 31,
1998. An additional $3.2 billion of previously securitized loans is scheduled
to amortize during the remainder of 1999. The amortization amounts are based
upon estimated amortization periods which are subject to change.
Distribution of principal to investors may begin sooner if the average
annualized yield (generally including interest income, interchange, and other
fees) for three consecutive months, drops below a minimum yield (generally
equal to the sum of the coupon rate payable to investors, contractual servicing
fees, and principal credit losses during the period) or certain other events
occur. Table 10 compares the average annualized yield for the three month
period ended June 30, 1999, 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 10: YIELDS ON SECURITIZED TRANSACTIONS (a)
Three-Month Average
----------------------- Yield in
Annualized Minimum Excess of
Yield Yield Minimum
---------- ----------- ---------
(unaudited)
MasterTrust 94-1(b).................. 22.86% 13.57% 9.29%
MasterTrust 94-2(b).................. 20.81 13.05 7.76
MasterTrust II 94-A.................. 18.24 12.27 5.97
MasterTrust II 94-B.................. 18.24 12.25 5.99
MasterTrust II 94-C.................. 18.24 12.35 5.89
MasterTrust II 94-E.................. 18.24 12.26 5.98
MasterTrust II 95-A.................. 18.24 12.38 5.86
MasterTrust II 95-B.................. 18.24 12.25 5.99
MasterTrust II 95-C.................. 18.24 12.31 5.93
MasterTrust II 95-D.................. 18.24 12.17 6.07
MasterTrust II 95-E.................. 18.24 12.32 5.92
Cards No. 1.......................... 20.40 11.24 9.16
MasterTrust II 95-F.................. 18.24 13.61 4.63
MasterTrust II 95-G.................. 18.24 12.31 5.93
MasterTrust II 95-I.................. 18.24 12.25 5.99
MasterTrust II 95-J.................. 18.24 12.32 5.92
MasterTrust II 96-A.................. 18.24 12.30 5.94
MasterTrust II 96-B.................. 18.24 12.36 5.88
MasterTrust II 96-C.................. 18.24 12.24 6.00
MasterTrust II 96-D.................. 18.24 12.24 6.00
Cards No. 2.......................... 20.40 11.12 9.28
MasterTrust II 96-E.................. 18.24 12.27 5.97
MasterTrust II 96-F.................. 18.24 12.26 5.98
MasterTrust II 96-G.................. 18.24 12.29 5.95
MasterTrust II 96-H.................. 18.26 12.25 6.01
MasterTrust II 96-I.................. 18.26 12.32 5.94
MasterTrust II 96-J.................. 18.24 12.25 5.99
MasterTrust II 96-K.................. 18.24 12.24 6.00
MasterTrust II 96-L.................. 18.26 12.19 6.07
MasterTrust II 96-M.................. 18.26 12.30 5.96
Cards No. 3.......................... 20.40 11.19 9.21
MasterTrust II 97-A.................. 18.26 12.10 6.16
MasterTrust II 97-B.................. 18.24 12.29 5.95
MasterTrust II 97-C.................. 18.24 12.22 6.02
MasterTrust II 97-D.................. 18.26 12.24 6.02
MasterTrust II 97-E.................. 18.26 12.23 6.03
MasterTrust II 97-F.................. 18.24 12.16 6.08
MasterTrust II 97-G.................. 18.24 12.26 5.98
Cards No. 4.......................... 20.40 11.60 8.80
MasterTrust II 97-H.................. 18.26 12.41 5.85
Three-Month Average
----------------------- Yield in
Annualized Minimum Excess of
Yield Yield Minimum
---------- ----------- ---------
(unaudited)
MasterTrust II 97-I.................. 18.24% 12.20% 6.04%
MasterTrust II 97-J.................. 18.24 12.23 6.01
MasterTrust II 97-K.................. 18.24 12.23 6.01
MasterTrust II 97-L.................. 18.26 12.17 6.09
MasterTrust II 97-M.................. 18.26 12.26 6.00
MasterTrust II 97-N.................. 18.26 12.22 6.04
MasterTrust II 97-O.................. 18.24 12.27 5.97
Consumer Loan MasterTrust 97-1(c).... 17.73 13.74 3.99
MasterTrust II 98-A.................. 18.24 12.21 6.03
Cards No. 5.......................... 20.40 12.81 7.59
MasterTrust II 98-B.................. 18.26 12.27 5.99
MasterTrust II 98-C.................. 18.24 12.24 6.00
MasterTrust II 98-D.................. 18.24 12.16 6.08
MasterTrust II 98-E.................. 18.26 12.38 5.88
MasterTrust II 98-F.................. 18.26 12.37 5.89
MasterTrust II 98-G.................. 18.24 12.26 5.98
MasterTrust II 98-H.................. 18.24 12.25 5.99
MasterTrust II 98-I.................. 18.24 12.38 5.86
Cards No. 6.......................... 20.40 11.65 8.75
MasterTrust II 98-J.................. 18.24 12.39 5.85
MasterTrust II 98-K.................. 18.24 12.37 5.87
MasterTrust II 98-L.................. 18.24 12.34 5.90
Cards No. 7.......................... 20.40 11.85 8.55
Gloucester Credit Card Trust 98-1.... 16.29 9.39 6.90
UK 98-A.............................. 16.92 13.12 3.80
MasterTrust II 99-A.................. 18.25 12.83 5.42
MasterTrust II 99-B.................. 18.22 12.93 5.29
(a) Acquired Portfolio MasterTrust 99-1 issued on April 28, 1999,
MasterTrust II 99-C issued on May 18, 1999, Cards No. 8 issued May 20,
1999, and MasterTrust II 99-D issued on June 3, 1999 are excluded from
the yields presented above as a result of their recency.
(b) Represents a transaction that has entered its scheduled controlled
amortization period.
(c) Yields are provided for informational purposes only. Distribution to
Investors may begin sooner if the credit enhancement amount falls
below a predetermined contractual level.
MBNA CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL FINANCIAL INFORMATION
(unaudited)
The following supplemental financial information presents selected managed
asset data and managed ratios pertaining to the Corporation. This information
is used to evaluate the Corporation's financial condition as well as the impact
securitizations have on the Corporation's managed assets.
MANAGED ASSET DATA
(dollars in thousands)
June 30, 1999 December 31, 1998
----------------- -----------------
AT PERIOD END:
Loans held for securitization......... $ 5,410,118 $ 1,692,268
Loan portfolio........................ 9,931,874 11,776,099
Securitized loans..................... 49,182,696 46,172,739
----------------- -----------------
Total managed loans................. $ 64,524,688 $ 59,641,106
================= =================
For the Three Months For the Six Months
Ended June 30, Ended June 30,
------------------------ ------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
AVERAGE FOR THE PERIOD:
Loans held for
securitization.......... $ 5,276,424 $ 2,597,279 $ 3,711,138 $ 2,832,301
Loan portfolio........... 10,284,580 8,402,221 10,725,229 8,416,175
Securitized loans........ 47,493,415 39,415,940 46,640,292 38,807,228
----------- ----------- ----------- -----------
Total managed loans.... $63,054,419 $50,415,440 $61,076,659 $50,055,704
=========== =========== =========== ===========
MANAGED RATIOS:
Delinquency.............. 4.64% 4.60%
Net credit losses........ 4.41 4.42 4.39% 4.30%
Net interest margin
(on an FTE basis)....... 7.70 7.45 7.65 7.41
PART II-OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
Index of Exhibits
Exhibit Description of Exhibit
------- ----------------------
12 Computation of Ratio of Earnings to Combined Fixed
Charges and Preferred Stock Dividend Requirements
27 Financial Data Schedule
Exhibit 12: Computation of Ratio of Earnings to Combined Fixed Charges and
Preferred Stock Dividend Requirements
(dollars in thousands)
For the Six Months Ended
June 30,
--------------------------
1999 1998
------------ ------------
(unaudited)
INCLUDING INTEREST ON DEPOSITS
Earnings:
Income before income taxes....................... $ 667,488 $ 519,199
Fixed charges.................................... 640,747 591,093
Interest capitalized during period, net of
amortization of previously capitalized interest. (1,224) (4,549)
------------ ------------
Earnings, for computation purposes............... $ 1,307,011 $ 1,105,743
============ ============
Fixed Charges and Preferred Stock Dividend
Requirements:
Interest on deposits, short-term borrowings,
and long-term debt and bank notes, expensed or
capitalized..................................... $ 635,757 $ 586,218
Portion of rents representative of the interest
factor.......................................... 4,990 4,875
------------ ------------
Fixed charges.................................... 640,747 591,093
Preferred stock dividend requirements............ 11,378 11,674
------------ ------------
Fixed charges and preferred stock dividend
requirements, including interest on deposits,
for computation purposes........................ $ 652,125 $ 602,767
============ ============
Ratio of earnings to combined fixed charges and
preferred stock dividend requirements,
including interest on deposits.................. 2.00 1.83
For the Six Months Ended
June 30,
--------------------------
1999 1998
------------ ------------
(unaudited)
EXCLUDING INTEREST ON DEPOSITS
Earnings:
Income before income taxes....................... $ 667,488 $ 519,199
Fixed charges.................................... 205,272 201,227
Interest capitalized during period, net of
amortization of previously capitalized interest. (1,234) (4,559)
------------ ------------
Earnings, for computation purposes............... $ 871,526 $ 715,867
============ ============
Fixed Charges and Preferred Stock Dividend
Requirements:
Interest on short-term borrowings and long-term
debt and bank notes, expensed or capitalized.... $ 200,282 $ 196,352
Portion of rents representative of the interest
factor.......................................... 4,990 4,875
------------ ------------
Fixed charges.................................... 205,272 201,227
Preferred stock dividend requirements............ 11,378 11,674
------------ ------------
Fixed charges and preferred stock dividend
requirements, excluding interest on deposits,
for computation purposes........................ $ 216,650 $ 212,901
============ ============
Ratio of earnings to combined fixed charges and
preferred stock dividend requirements,
excluding interest on deposits.................. 4.02 3.36
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 April 13, 1999, reporting MBNA Corporation's earnings
release for the first quarter of 1999.
2. Report dated April 30, 1999, reporting the net credit losses and
loan delinquencies for MBNA America Bank, N.A., for its net loan
portfolio and managed loan portfolio for April 1999.
3. Report dated May 31, 1999, reporting the net credit losses and
loan delinquencies for MBNA America Bank, N.A., for its net loan
portfolio and managed loan portfolio for May 1999.
4. Report dated June 3, 1999, reporting the securitization of
$500.0 million of credit card receivables by MBNA America Bank, N.A.
5. Report dated June 30, 1999, reporting the net credit losses and
loan delinquencies for MBNA America Bank, N.A., for its net loan
portfolio and managed loan portfolio for June 1999.
6. Report dated July 7, 1999, reporting the securitization of
$1.0 billion of credit card receivables by MBNA America Bank, N.A.
7. Report dated July 13, 1999, reporting MBNA Corporation's earnings
release for the second quarter of 1999.
8. Report dated July 29, 1999, reporting the securitization of
$750.0 million of credit card receivables by MBNA America Bank, N.A.
9. Report dated July 31, 1999, 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 1999.
10. Report dated August 3, 1999, reporting the securitization of
$599.3 million of credit card receivables by MBNA America Bank, N.A.
11. Report dated August 12, 1999, reporting the securitization of
250.0 million pounds sterling of credit card receivables by
MBNA International Bank Limited.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
MBNA CORPORATION
Date: August 13, 1999 By: /s/ M. Scot Kaufman
------------------------
M. Scot Kaufman
Executive Vice President
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MBNA
CORPORATION'S FORM 10-Q FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 345,883
<INT-BEARING-DEPOSITS> 1,758,568
<FED-FUNDS-SOLD> 591,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 2,372,200
<INVESTMENTS-CARRYING> 274,629
<INVESTMENTS-MARKET> 255,659
<LOANS> 15,341,992<F1>
<ALLOWANCE> 326,897
<TOTAL-ASSETS> 27,995,770
<DEPOSITS> 16,377,482
<SHORT-TERM> 546,264
<LIABILITIES-OTHER> 1,172,795
<LONG-TERM> 6,125,799
0
86
<COMMON> 8,018
<OTHER-SE> 3,765,326
<TOTAL-LIABILITIES-AND-EQUITY> 27,995,770
<INTEREST-LOAN> 984,450<F1>
<INTEREST-INVEST> 56,528
<INTEREST-OTHER> 87,194
<INTEREST-TOTAL> 1,128,172
<INTEREST-DEPOSIT> 435,475
<INTEREST-EXPENSE> 634,330
<INTEREST-INCOME-NET> 493,842
<LOAN-LOSSES> 214,220
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,544,396
<INCOME-PRETAX> 667,488
<INCOME-PRE-EXTRAORDINARY> 667,488
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 413,175
<EPS-BASIC> .51<F2>
<EPS-DILUTED> .49<F2>
<YIELD-ACTUAL> 11.31<F3>
<LOANS-NON> 5,342<F4>
<LOANS-PAST> 183,748<F4>
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 143,717<F4>
<ALLOWANCE-OPEN> 216,911
<CHARGE-OFFS> 279,917
<RECOVERIES> 92,352
<ALLOWANCE-CLOSE> 326,897
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
<FN>
<F1> Includes loans held for securitization.
<F2> EPS-Primary and EPS-Diluted reflects the three-for-two
split of the Corporation's Common Stock effected in the
form of a dividend, issued 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>
