21
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, 2000
-------------------------------------------------
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
--------------------- ------------------------
Commission file number 1-10683
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MBNA Corporation
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(Exact name of registrant as specified in its charter)
Maryland 52-1713008
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Wilmington, DE 19884-0141
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(Address of principal executive offices) (Zip Code)
(800) 362-6255
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes x No
---------- ----------
Common Stock, $.01 Par Value - 801,781,250 Shares
Outstanding as of June 30, 2000
MBNA CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
Page
Part I - Financial Information
Item 1. Financial Statements
Consolidated Statements of Financial Condition - 1
June 30, 2000 (unaudited) and December 31, 1999
Consolidated Statements of Income - 3
For the Three and Six Months Ended June 30, 2000 and 1999
(unaudited)
Consolidated Statements of Changes in Stockholders' Equity - 5
For the Six Months Ended June 30, 2000 and 1999
(unaudited)
Consolidated Statements of Cash Flows - 7
For the Six Months Ended June 30, 2000 and 1999
(unaudited)
Notes to the Consolidated Financial Statements (unaudited) 9
Item 2. Management's Discussion and Analysis of Financial Condition 18
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,
2000 1999
------------ ------------
(unaudited)
ASSETS
Cash and due from banks........................... $ 491,345 $ 488,386
Interest-earning time deposits in other banks..... 1,358,245 1,525,748
Federal funds sold and securities purchased
under resale agreements.......................... 400,000 -
Investment securities:
Available-for-sale (at market value, amortized
cost of $2,797,192 and $2,772,305 at
June 30, 2000 and December 31, 1999,
respectively).................................. 2,781,524 2,752,663
Held-to-maturity (market value of $284,359
and $264,832 at June 30, 2000 and
December 31, 1999, respectively)............... 313,709 293,641
Loans held for securitization..................... 7,426,197 9,692,616
Loans:
Credit card..................................... 6,791,080 6,060,564
Other consumer.................................. 2,904,205 1,910,529
------------ ------------
Total loans................................... 9,695,285 7,971,093
Reserve for possible credit losses.............. (375,300) (355,959)
------------ ------------
Net loans..................................... 9,319,985 7,615,134
Premises and equipment, net....................... 1,673,323 1,659,446
Accrued income receivable......................... 183,872 216,867
Accounts receivable from securitizations.......... 5,456,904 4,128,046
Prepaid expenses and deferred charges............. 314,117 274,894
Other assets...................................... 2,418,337 2,211,691
------------ ------------
Total assets.................................. $ 32,137,558 $ 30,859,132
============ ============
June 30, December 31,
2000 1999
------------ ------------
(unaudited)
LIABILITIES
Deposits:
Time deposits................................... $ 15,246,694 $ 13,700,508
Money market deposit accounts................... 4,516,707 4,397,909
Noninterest-bearing demand deposits............. 632,850 567,686
Interest-bearing transaction accounts........... 34,226 39,388
Savings accounts................................ 9,369 9,262
------------ ------------
Total deposits................................ 20,439,846 18,714,753
Short-term borrowings............................. 342,832 1,039,004
Long-term debt and bank notes..................... 5,484,948 5,708,880
Accrued interest payable.......................... 187,077 182,990
Accrued expenses and other liabilities............ 1,223,083 1,014,062
------------ ------------
Total liabilities............................. 27,677,786 26,659,689
STOCKHOLDERS' EQUITY
Preferred stock ($.01 par value, 20,000,000
shares authorized, 8,573,882 shares issued
and outstanding at June 30, 2000 and
December 31, 1999)............................... 86 86
Common stock ($.01 par value, 1,500,000,000
shares authorized, 801,781,250 shares issued
and outstanding at June 30, 2000 and
December 31, 1999)............................... 8,018 8,018
Additional paid-in capital........................ 1,213,041 1,305,935
Retained earnings................................. 3,282,235 2,897,964
Accumulated other comprehensive income............ (43,608) (12,560)
------------ ------------
Total stockholders' equity.................... 4,459,772 4,199,443
------------ ------------
Total liabilities and stockholders' equity.... $ 32,137,558 $ 30,859,132
============ ============
==============================================================================
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,
---------------------- ----------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
(unaudited)
INTEREST INCOME
Loans.......................... $ 326,851 $ 343,265 $ 594,967 $ 725,092
Investment securities:
Taxable...................... 43,268 30,471 84,688 54,792
Tax-exempt................... 1,169 859 2,137 1,736
Time deposits in other banks... 18,673 22,222 37,834 62,771
Federal funds sold and
securities purchased under
resale agreements............. 4,471 6,202 12,297 24,423
Loans held for securitization.. 273,473 183,805 602,668 259,358
---------- ---------- ---------- ----------
Total interest income....... 667,905 586,824 1,334,591 1,128,172
INTEREST EXPENSE
Deposits....................... 292,963 221,771 568,073 435,475
Short-term borrowings.......... 11,507 7,730 23,576 17,236
Long-term debt and bank notes.. 95,122 90,262 191,558 181,619
---------- ---------- ---------- ----------
Total interest expense...... 399,592 319,763 783,207 634,330
---------- ---------- ---------- ----------
NET INTEREST INCOME............ 268,313 267,061 551,384 493,842
Provision for possible credit
losses........................ 89,301 129,756 189,147 214,220
---------- ---------- ---------- ----------
Net interest income after
provision for possible credit
losses........................ 179,012 137,305 362,237 279,622
OTHER OPERATING INCOME
Interchange.................... 66,598 60,988 134,348 100,780
Credit card fees............... 66,049 53,309 138,540 91,917
Securitization income.......... 1,002,128 873,182 1,930,916 1,675,785
Insurance...................... 19,450 19,396 36,493 28,812
Other.......................... 39,146 21,657 64,110 34,968
---------- ---------- ---------- ----------
Total other operating
income..................... $1,193,371 $1,028,532 $2,304,407 $1,932,262
For the Three Months For the Six Months
Ended June 30, Ended June 30,
---------------------- ----------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
(unaudited)
OTHER OPERATING EXPENSE
Salaries and employee benefits. $ 382,209 $ 342,176 $ 747,014 $ 633,015
Occupancy expense of premises.. 33,210 31,030 67,259 61,956
Furniture and equipment
expense....................... 47,441 45,316 96,751 89,906
Other.......................... 448,479 380,301 915,625 759,519
---------- ---------- ---------- ----------
Total other operating
expense.................... 911,339 798,823 1,826,649 1,544,396
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES..... 461,044 367,014 839,995 667,488
Applicable income taxes........ 175,658 139,832 320,038 254,313
---------- ---------- ---------- ----------
NET INCOME..................... $ 285,386 $ 227,182 $ 519,957 $ 413,175
========== ========== ========== ==========
EARNINGS PER COMMON SHARE...... $ .35 $ .28 $ .64 $ .51
EARNINGS PER COMMON SHARE-
ASSUMING DILUTION............. .34 .27 .62 .49
==============================================================================
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, 1999. 8,574 801,781 $ 86 $ 8,018
Comprehensive income:
Net income............... - - - -
Other comprehensive
income, net of tax...... - - - -
Comprehensive income.......
Cash dividends:
Common-$.16 per share.... - - - -
Preferred................ - - - -
Exercise of stock options
and other awards.......... - 5,371 - 54
Acquisition and retirement
of common stock........... - (5,371) - (54)
----------- ---------- --------- ----------
BALANCE, JUNE 30, 2000..... 8,574 801,781 $ 86 $ 8,018
=========== ========== ========= ==========
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
=========== ========== ========= ==========
Accumulated
Additional Other Total
Paid-in Retained Comprehensive Stockholders'
Capital Earnings Income Equity
---------- ---------- ------------- ------------
BALANCE, DECEMBER 31, 1999. $1,305,935 $2,897,964 $ (12,560) $ 4,199,443
Comprehensive income:
Net income............... - 519,957 - 519,957
Other comprehensive
income, net of tax...... - - (31,048) (31,048)
------------
Comprehensive income....... 488,909
------------
Cash dividends:
Common-$.16 per share.... - (128,288) - (128,288)
Preferred................ - (7,398) - (7,398)
Exercise of stock options
and other awards.......... 50,335 - - 50,389
Acquisition and retirement
of common stock........... (143,229) - - (143,283)
---------- ---------- ------------- ------------
BALANCE, JUNE 30, 2000..... $1,213,041 $3,282,235 $ (43,608) $ 4,459,772
========== ========== ============= ============
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
========== ========== ============= ============
==============================================================================
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,
--------------------------
2000 1999
------------ ------------
(unaudited)
OPERATING ACTIVITIES
Net income........................................ $ 519,957 $ 413,175
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Provision for possible credit losses............ 189,147 214,220
Depreciation, amortization, and accretion....... 251,537 191,959
Provision (benefit) for deferred income taxes... 12,308 (8,163)
Decrease in accrued income receivable........... 32,995 36,172
Increase in accounts receivable from
securitizations................................ (1,328,858) (167,666)
Increase in accrued interest payable............ 4,087 2,716
Decrease in other operating activities.......... 118 144,420
------------ ------------
Net cash (used in) provided by operating
activities....................................... (318,709) 826,833
INVESTING ACTIVITIES
Net (increase) decrease in money market
instruments...................................... (232,497) 1,211,647
Proceeds from maturities of investment securities
available-for-sale............................... 253,395 469,279
Purchases of investment securities
available-for-sale............................... (298,343) (1,186,826)
Proceeds from maturities of investment securities
held-to-maturity ................................ 5,651 27,688
Purchases of investment securities
held-to-maturity................................. (26,323) (64,735)
Proceeds from securitization of loans............. 6,677,685 4,628,709
Proceeds from sale of loans....................... 67,407 4,741
Acquisition of credit card business of
PNC Bank, N.A.................................... - (3,191,786)
Loan portfolio acquisitions....................... (1,397,080) (938,733)
Amortization of securitized loans................. (2,031,196) (1,602,124)
Net loan originations............................. (3,171,885) (1,551,745)
Net purchases of premises and equipment........... (118,627) (116,672)
------------ ------------
Net cash used in investing activities......... $ (271,813) $ (2,310,557)
For the Six Months Ended
June 30,
--------------------------
2000 1999
------------ ------------
(unaudited)
FINANCING ACTIVITIES
Net increase in time deposits..................... $ 1,546,186 $ 748,002
Net increase in money market deposit accounts,
noninterest-bearing demand deposits,
interest-bearing transaction accounts,
and savings accounts............................. 178,907 222,440
Net decrease in short-term borrowings............. (696,172) (684,931)
Proceeds from issuance of long-term debt
and bank notes................................... 413,814 376,632
Maturity of long-term debt and bank notes......... (597,711) (184,812)
Proceeds from exercise of stock options
and other awards................................. 19,395 20,649
Acquisition and retirement of common stock........ (143,283) (117,033)
Proceeds from issuance of common stock............ - 1,174,086
Dividends paid.................................... (127,655) (108,308)
------------ ------------
Net cash provided by financing activities..... 593,481 1,446,725
------------ ------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.. 2,959 (36,999)
Cash and cash equivalents at beginning of period.. 488,386 382,882
------------ ------------
Cash and cash equivalents at end of period........ $ 491,345 $ 345,883
============ ============
SUPPLEMENTAL DISCLOSURE
Interest expense paid............................. $ 778,727 $ 629,952
============ ============
Income taxes paid................................. $ 396,115 $ 262,520
============ ============
==============================================================================
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.
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, 2000 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 2000. The notes to the consolidated financial statements
contained in the Annual Report on Form 10-K for the year ended December 31,
1999 should be read in conjunction with these consolidated financial
statements.
NOTE B: PREFERRED STOCK
The Corporation's Board of Directors declared the following quarterly cash
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 10, 2000 April 15, 2000 7.50% $ .46875 6.40% $ .39970
April 13, 2000 July 17, 2000 7.50 .46875 6.07 .37960
July 12, 2000 October 16, 2000 7.50 .46875 6.02 .37650
NOTE C: COMMON STOCK
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.
On July 12, 2000 the Corporation's Board of Directors declared a quarterly cash
dividend of $.08 per common share, payable October 1, 2000 to stockholders of
record as of September 15, 2000.
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.
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,
-------------------- --------------------
2000 1999 2000 1999
--------- --------- --------- ---------
BASIC
Net income........................ $ 285,386 $ 227,182 $ 519,957 $ 413,175
Less: preferred stock dividend
requirements..................... 3,672 3,527 7,398 7,043
--------- --------- --------- ---------
Net income applicable to common
stock............................ $ 281,714 $ 223,655 $ 512,559 $ 406,132
========= ========= ========= =========
Weighted average common shares
outstanding (000)................ 801,821 801,803 801,835 800,180
========= ========= ========= =========
Earnings per common share......... $ .35 $ .28 $ .64 $ .51
========= ========= ========= =========
DILUTED
Net income........................ $ 285,386 $ 227,182 $ 519,957 $ 413,175
Less: preferred stock dividend
requirements..................... 3,672 3,527 7,398 7,043
--------- --------- --------- ---------
Net income applicable to common
stock............................ $ 281,714 $ 223,655 $ 512,559 $ 406,132
========= ========= ========= =========
Weighted average common shares
outstanding (000)................ 801,821 801,803 801,835 800,180
Net effect of dilutive stock
options-based on the treasury
stock method using average
market price (000)............... 24,487 36,968 23,541 36,660
--------- --------- --------- ---------
Weighted average common shares
outstanding and common stock
equivalents (000)................ 826,308 838,771 825,376 836,840
========= ========= ========= =========
Earnings per common share-
assuming dilution................ $ .34 $ .27 $ .62 $ .49
========= ========= ========= =========
NOTE E: 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 generally amortizes its intangible
assets using 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 $1.7 billion and $1.6 billion at June 30,
2000 and December 31, 1999, respectively. The Corporation had accumulated
amortization related to its intangible assets of $423.2 million at June 30,
2000 and $314.3 million at December 31, 1999.
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. The Corporation makes certain estimates and assumptions
that affect the determination of the fair value of the intangible assets.
Significant changes in these factors could impact the amortization of the
Corporation's intangible assets.
NOTE F: COMPREHENSIVE INCOME
(dollars in thousands)
The components of comprehensive income, net of tax, are as follows:
For the Three Months For the Six Months
Ended June 30, Ended June 30,
-------------------- --------------------
2000 1999 2000 1999
--------- --------- --------- ---------
Net income........................ $ 285,386 $ 227,182 $ 519,957 $ 413,175
Other comprehensive income:
Foreign currency translation.... (28,349) (7,976) (34,062) (15,939)
Net unrealized gains (losses)
on investment securities
available-for-sale and other
financial instruments.......... 3,735 (4,278) 3,014 (3,071)
Minimum benefit plan liability
adjustment..................... - - - (2,451)
--------- --------- --------- ---------
Other comprehensive income........ (24,614) (12,254) (31,048) (21,461)
--------- --------- --------- ---------
Comprehensive income.............. $ 260,772 $ 214,928 $ 488,909 $ 391,714
========= ========= ========= =========
The components of accumulated other comprehensive income, net of tax, are as
follows:
June 30, December 31,
2000 1999
------------ ------------
Foreign currency translation..................... $ (38,378) $ (4,316)
Net unrealized losses on investment securities
available-for-sale and other financial
instruments..................................... (5,230) (8,244)
------------ ------------
Accumulated other comprehensive income........... $ (43,608) $ (12,560)
============ ============
NOTE G: 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, 2000, the
Corporation issued long-term debt and bank notes consisting of the following:
Par Value
----------------------
(dollars in thousands)
Fixed-Rate Euro Medium-Term Notes, with an interest
rate of .80% on the yen denominated note, payable
annually, maturing in 2002 (JPY5.5 billion)............. $ 51,249
Floating-Rate Euro Medium-Term Notes, priced between
25 basis points and 35 basis points over the
three-month Japanese London Interbank Offered Rate
(LIBOR), with interest payable quarterly, maturing
in varying amounts in 2002 and 2003 (JPY7.0 billion).... 63,989
Floating-Rate Euro Medium-Term Notes, priced between
50 basis points and 58 basis points over the
three-month Sterling LIBOR, with interest payable
quarterly, maturing in varying amounts in 2003 and 2004
(35.0 million pounds sterling).......................... 55,419
Fixed-Rate Medium-Term Deposit Notes, with an interest
rate of 7.26% on the Canadian dollar denominated notes,
payable semiannually, maturing in 2003 (CAD$20.0
million)................................................ 13,779
Floating-Rate Medium-Term Deposit Notes, priced between
55 basis points and 60 basis points over the ninety-day
Bankers Acceptance Rate, payable quarterly, maturing
in varying amounts in 2002 and 2005 (CAD$75.0 million).. 51,676
Floating-Rate Euro Medium-Term Notes, priced at 62.5
basis points over the three-month Euro Interbank
Offered Rate (EURIBOR), payable quarterly, maturing in
2003 (EUR150.0 million)................................. 143,505
Floating-Rate Bank Notes, priced between 56 basis points
and 60 basis points over the three-month LIBOR, payable
quarterly, maturing in 2005............................. 35,000
During the six months ended June 30, 2000, MBNA International Bank Limited
entered into foreign exchange swap agreements to offset the exposure to foreign
currency exchange rate risk related to the issuance of Euro Medium-Term Notes
denominated in Japanese yen and Euro currencies.
Also, during the three months ended June 30, 2000, MBNA International Bank
Limited redeemed 34.0 million pounds sterling of Subordinated Guaranteed
Floating-Rate Notes in accordance with the terms of the notes.
NOTE H: SENIOR SYNDICATED REVOLVING CREDIT FACILITY
MBNA America Bank, N.A. ("the Bank"), MBNA International Bank Limited
("MBNA Europe"), and the Corporation arranged a $2.5 billion senior syndicated
revolving credit facility in April 2000. The facility consists of a senior
unsecured $2.5 billion four-year revolving credit facility available to the
Bank and MBNA Europe with sublimit availability in an amount of $300.0 million
for the Corporation. The Bank will unconditionally and irrevocably guarantee
the obligations of MBNA Europe. The facility replaces the Bank's existing four-
year $2.0 billion syndicated revolving credit facility.
Advances from the $2.5 billion senior syndicated revolving credit facility are
subject to covenants and conditions customary in a transaction of this kind.
These conditions include requirements for both the Corporation and the Bank to
maintain a minimum level of consolidated tangible net worth. These conditions
also require the Bank to not permit its managed loan receivables 90 days or
more past due plus nonaccruing receivables to exceed 6% of managed credit card
receivables and to maintain its regulatory capital ratios, as defined by
current regulatory standards, at or above regulatory minimum requirements. In
addition, these conditions require that the Corporation not permit its double
leverage ratio (defined as the sum of the Corporation's intangible assets and
investment in subsidiaries divided by total stockholders' equity) to exceed
1.25.
NOTE I: 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's results on a
managed basis. Therefore, an adjustment is required to reconcile the managed
financial information to the Corporation's reported financial information in
its consolidated financial statements. This adjustment reclassifies
securitization income into interest income, interchange, credit card and other
fees, insurance income, interest paid to investors, credit losses, and other
trust expenses.
SEGMENT REPORTING
(dollars in thousands)
For the Three Months Ended
June 30, 2000
------------------------------------------
Total Securitization Total
Managed Adjustments Consolidated
------------ -------------- ------------
Interest income.................. $ 2,663,805 $ (1,995,900) $ 667,905
Interest expense................. 1,273,297 (873,705) 399,592
------------ -------------- ------------
Net interest income.............. 1,390,508 (1,122,195) 268,313
Provision for possible credit
losses.......................... 731,508 (642,207) 89,301
------------ -------------- ------------
Net interest income after
provision for possible credit
losses.......................... 659,000 (479,988) 179,012
Other operating income........... 713,383 479,988 1,193,371
Other operating expense.......... 911,339 - 911,339
------------ -------------- ------------
Income before income taxes....... 461,044 - 461,044
Applicable income taxes.......... 175,658 - 175,658
------------ -------------- ------------
Net income....................... $ 285,386 $ - $ 285,386
============ ============== ============
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 Six Months Ended
June 30, 2000
------------------------------------------
Total Securitization Total
Managed Adjustments Consolidated
------------ -------------- ------------
Interest income.................. $ 5,213,082 $ (3,878,491) $ 1,334,591
Interest expense................. 2,466,239 (1,683,032) 783,207
------------ -------------- ------------
Net interest income.............. 2,746,843 (2,195,459) 551,384
Provision for possible credit
losses.......................... 1,463,311 (1,274,164) 189,147
------------ -------------- ------------
Net interest income after
provision for possible credit
losses.......................... 1,283,532 (921,295) 362,237
Other operating income........... 1,383,112 921,295 2,304,407
Other operating expense.......... 1,826,649 - 1,826,649
------------ -------------- ------------
Income before income taxes....... 839,995 - 839,995
Applicable income taxes.......... 320,038 - 320,038
------------ -------------- ------------
Net income....................... $ 519,957 $ - $ 519,957
============ ============== ============
Ending loans outstanding......... $ 76,332,656 $ (59,211,174) $ 17,121,482
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
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. In June 2000, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging
Activities an Amendment of FASB Statement No. 133" ("Statement No. 138").
Statement No. 138 addresses a limited number of issues causing implementation
difficulties for entities that apply Statement No. 133, and amends the
accounting and reporting standards of Statement No. 133 for certain derivative
instruments and certain hedging activities. Based on the Corporation's current
level of derivative and hedging activities, the implementation of Statement No.
133, as amended by Statement No. 137 and Statement No. 138, should 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 December 31, 2000. The
Corporation expects to 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 statement of income for the
year ended December 31, 2000.
In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation" ("Interpretation No. 44") which is an interpretation of
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB Opinion No. 25"). Interpretation No. 44 clarifies the
application of APB Opinion No. 25 for certain issues. The effective date for
Interpretation No. 44 is July 1, 2000, but certain conclusions in
Interpretation No. 44 cover specific events that occurred after December 15,
1998, or January 12, 2000. To the extent that Interpretation No. 44 covers
events occurring during the period after December 31, 1998 or January 12, 2000,
but before the effective date of July 1, 2000, the effects of applying this
interpretation will be recognized on a prospective basis from July 1, 2000. The
Corporation adopted Interpretation No. 44 on July 1, 2000 and the
implementation of Interpretation No. 44 did not have a material impact on the
Corporation's consolidated financial statements.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements"
("SAB No. 101"). SAB No. 101 provides further guidance in applying generally
accepted accounting principles to selected revenue recognition issues, in
addition to providing disclosure requirements. The Corporation adopted SAB No.
101 during the three months ended June 30, 2000 and the implementation of SAB
No. 101 did not have a material impact on the Corporation's consolidated
financial statements.
MBNA CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(unaudited)
This discussion is intended to further the reader's understanding of the
consolidated financial statements, financial condition, and results of
operations of MBNA Corporation. It should be read in conjunction with the
consolidated financial statements, notes, and tables included elsewhere in this
report.
INTRODUCTION
MBNA Corporation, ("the 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 the 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 largest
independent credit card lender in the world 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, 2000 increased 25.6% to $285.4
million or $.34 per common share, from $227.2 million or $.27 per common share
for the same period in 1999. Net income for the six months ended June 30, 2000
increased 25.8% to $520.0 million or $.62 per common share, from $413.2
million or $.49 per common share for the same period in 1999. 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 17.5% and 19.6% to $74.1 billion and $73.0 billion for the
three and six months ended June 30, 2000, compared to $63.1 billion and $61.1
billion for the same periods in 1999, respectively. Total managed loans at
June 30, 2000 were $76.3 billion, an $11.8 billion increase from June 30, 1999,
and a $4.1 billion increase since December 31, 1999. During the six months
ended June 30, 2000, the Corporation acquired 212 new endorsements from
organizations and added 5.3 million new accounts.
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, credit card and 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. Gains are recognized by the Corporation in securitization income at
the time of initial sale and each subsequent sale of loan receivables in a
securitization. During the three and six months ended June 30, 2000, the
Corporation securitized $5.2 billion and $6.7 billion of credit card and other
consumer loan receivables, respectively, bringing the total amount of
outstanding securitized loans to $59.2 billion at June 30, 2000.
The Corporation's return on average total assets for the three and six months
ended June 30, 2000 was 3.63% and 3.33%, as compared to 3.28% and 3.05% for
the same periods in 1999, respectively. The Corporation's return on average
stockholders' equity for the three and six months ended June 30, 2000 was
26.36% and 24.44%, compared to 24.68% and 23.24% for the same periods in 1999,
respectively.
NET INTEREST INCOME
Net interest income for the three months ended June 30, 2000, on a fully
taxable equivalent basis, was $268.9 million compared to $267.5 million for the
same period in 1999. Average interest-earning assets increased $1.5 billion for
the three months ended June 30, 2000, as compared to the same period in 1999.
The yield on average interest-earning assets increased 74 basis points for the
three months ended June 30, 2000, as compared to the same period in 1999. The
increase in the yield earned by the Corporation on average interest-earning
assets is primarily the result of a change in the mix of interest-earning
assets to higher yielding loan receivables from lower yielding investment
securities and money market instruments. Average interest-bearing liabilities
increased $2.8 billion for the three months ended June 30, 2000, as compared to
the same period in 1999. The rate paid on average interest-bearing liabilities
increased 65 basis points for the three months ended June 30, 2000, as compared
to the same period in 1999. The increase in the rate paid on average interest-
earning liabilities reflects actions by the Federal Reserve Board which
impacted overall market interest rates. The increase in average interest-
bearing liabilities of $2.8 billion for the three months ended June 30, 2000 is
primarily a result of an increase of $3.0 billion in average domestic interest-
bearing deposits, which were used to fund the increase in average interest-
earning assets, accounts receivable from securitization, and the value of
acquired Customer accounts. The value of acquired Customer accounts represents
the premiums paid by the Corporation in excess of acquired loan receivables.
Both accounts receivable from securitization and the value of acquired Customer
accounts are included in other assets in Table 2.
Net interest income for the six months ended June 30, 2000, on a fully taxable
equivalent basis, was $552.5 million compared to $494.8 million for the same
period in 1999. The increase in net interest income for the six months ended
June 30, 2000 is primarily a result of an increase in average interest-earning
assets of $1.9 billion, as compared to the same period in 1999. Average loan
receivables for the six months ended June 30, 2000 increased $2.9 billion, as
compared to the same period in 1999. Average investment securities and money
market instruments decreased $980.8 million for the six months ended June 30,
2000 as compared to the same period in 1999. The yield on average interest-
earning assets increased 88 basis points for the six months ended June 30,
2000, as compared to same period in 1999. The increase in the yield earned by
the Corporation on average interest-earning assets is primarily the result of a
change in the mix of interest-earning assets to higher yielding loan
receivables from lower yielding investment securities and money market
instruments. Average interest-bearing liabilities increased of $3.0 billion for
the six months ended June 30, 2000, as compared to the same period in 1999.
The increase in average interest-bearing liabilities for the six months ended
June 30, 2000 is primarily a result of an increase $3.2 billion in average
interest-bearing deposits. The rate paid on average interest-bearing
liabilities increased 48 basis points for the six months ended June 30, 2000,
as compared to the same period in 1999. The increase in the rate paid on
average interest-earning liabilities reflects actions by the Federal Reserve
Board which impacted overall market interest rates.
The net interest margin, on a fully taxable equivalent basis, was 4.96% and
5.04% for the three and six months ended June 30, 2000, as compared to 5.29%
and 4.95% for the same periods in 1999, respectively.
INVESTMENT SECURITIES AND MONEY MARKET INSTRUMENTS
Interest income on investment securities, on a fully taxable equivalent basis,
increased $13.3 million and $30.5 million to $45.1 million and $88.0 million
for the three and six months ended June 30, 2000, respectively, as compared to
the same periods in 1999. The increase in interest income on investment
securities for the three and six months ended June 30, 2000 was the result of
an increase in average investment securities of $656.4 million and $882.3
million, respectively. In addition, the yield earned on average investment
securities increased 62 basis points and 46 basis points for the three and six
months ended June 30, 2000, respectively, as compared to the same periods in
1999.
Interest income on money market instruments decreased $5.3 million and $37.1
million to $23.1 million and $50.1 million for the three and six months ended
June 30, 2000, respectively, as compared to the same periods in 1999. The
decrease in interest income on money market instruments for the three and six
months ended June 30, 2000 is a result of a decrease of $831.7 million and $1.9
billion in average money market instruments, offset by an increase of 136 basis
points and 107 basis points in the yield earned on average money market
instruments, respectively, as compared to the same periods in 1999.
Average investment securities and money market instruments are affected by the
timing of receipt of funds from asset securitizations, deposits, loan payments,
long-term debt and bank notes, and maturities of investment securities. Funds
received from these sources are generally 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. Average money market
instruments were also higher than normal during the six months ended
June 30, 1999 as a result of the temporary investment of the net proceeds from
the issuance of common stock by the Corporation in January 1999. The increase
in average investment securities and the decline in average money market
instruments for the three and six months ended June 30, 2000 are primarily a
result of the Corporation reinvesting funds during the fourth quarter of 1999
from maturing money market instruments into U.S. Treasury obligations, included
in the investment securities available-for-sale portfolio, as part of the
Corporation's Year 2000 readiness planning. The Corporation tries to maintain
its investment securities and money market instruments position at a level
appropriate for the Corporation's anticipated and potential liquidity needs.
Average investment securities and money market instruments as a percentage of
average interest-earning assets were 20.9% and 21.4% for the three and six
months ended June 30, 2000, as compared to 23.3% and 28.3% for the same periods
in 1999, respectively.
LOAN RECEIVABLES
Interest income generated by the Corporation's loan receivables increased
$73.3 million and $213.2 million to $600.3 million and $1.2 billion for the
three and six months ended June 30, 2000, respectively, as compared to the same
periods in 1999. The increase is primarily attributable to an increase in
average loan receivables of $1.7 billion and $2.9 billion for the three and six
months ended June 30, 2000, respectively, as compared to the same periods in
1999. The yield earned by the Corporation on loan receivables increased 42
basis points to 14.01% and 15 basis points to 13.90% for the three and six
months ended June 30, 2000, respectively, as compared to the same periods in
1999.
Table 1 presents the Corporation's period-end loan receivables distribution by
loan type, excluding securitized loans.
TABLE 1: LOAN RECEIVABLES DISTRIBUTION
(dollars in thousands) June 30, December 31,
2000 1999
------------- -------------
(unaudited)
Loans held for securitization:
Domestic:
Credit card................................ $ 5,965,379 $ 7,835,429
Other consumer............................. 563,214 1,001,271
------------- -------------
Total domestic loans held for
securitization.......................... 6,528,593 8,836,700
Foreign...................................... 897,604 855,916
------------- -------------
Total loans held for securitization...... 7,426,197 9,692,616
Loan portfolio:
Domestic:
Credit card................................ 5,769,867 5,116,381
Other consumer............................. 2,095,494 1,268,019
------------- -------------
Total domestic loan portfolio............ 7,865,361 6,384,400
Foreign...................................... 1,829,924 1,586,693
------------- -------------
Total loan portfolio..................... 9,695,285 7,971,093
------------- -------------
Total loan receivables................... $ 17,121,482 $ 17,663,709
============= =============
Loan receivables decreased $542.2 million to $17.1 billion at June 30, 2000,
compared to December 31, 1999. The decrease in loan receivables at June 30,
2000 was primarily due to the Corporation securitizing $5.3 billion of domestic
credit card loan receivables, $1.1 billion of other consumer loan receivables,
and $270.0 million of foreign loans, offset by the Corporation's net loan
originations, loan portfolio acquisitions, and $2.0 billion of previously
securitized loans amortizing back into the Corporation's loan portfolio. During
the six months ended June 30, 2000, the Corporation acquired $993.1 million of
domestic credit card loan receivables, and $209.8 million of domestic other
consumer loan receivables, respectively.
DEPOSITS
Total interest expense on deposits increased $71.2 million and $132.6 million
to $293.0 million and $568.1 million for the three and six months ended
June 30, 2000, respectively, compared to $221.8 million and $435.5 million for
the same periods in 1999. The increase in interest expense for the three and
six months ended June 30, 2000 is the result of an increase in average interest-
bearing deposits of $3.0 billion and $3.2 billion, respectively, in addition to
a 63 basis point and a 46 basis point increase in the rates paid on average
interest-bearing deposits, respectively, as compared with the same periods in
1999. The increase in average interest-bearing deposits for the three and six
months ended June 30, 2000 was a result of the Corporation's continued emphasis
on marketing domestic certificates of deposit as well as obtaining other
domestic deposits through the use of third-party intermediaries to fund loan
and other asset growth and to diversify funding sources.
BORROWED FUNDS
Interest expense on short-term borrowings was $11.5 million and $23.6 million
for the three and six months ended June 30, 2000, as compared to $7.7 million
and $17.2 million for the same periods in 1999, respectively. The increase was
a result of an increase in average short-term borrowings of $141.6 million and
$112.7 million for the three and six months ended June 30, 2000, respectively,
combined with a 108 basis point and 87 basis point increase in the rates paid
on average short-term borrowings, as compared to the same periods in 1999. The
increases in average short-term borrowings for the three and six months ended
June 30, 2000 were primarily to provide funding for the Corporation's short-
term domestic liquidity needs.
Total interest expense on long-term debt and bank notes for the three and six
months ended June 30, 2000 increased to $95.1 million and $191.6 million, as
compared to $90.3 million and $181.6 million for the same periods in 1999,
respectively. Interest on domestic long-term debt and bank notes for the three
and six months ended June 30, 2000 decreased $4.9 million and $9.7 million as a
result of the maturing of domestic long-term debt and bank notes being replaced
by domestic deposits, offset by an increase in the rates paid of 88 basis
points and 73 basis points on average long-term debt and bank notes,
respectively, as compared to the same periods in 1999. Interest on foreign long-
term debt and bank notes for the three and six months ended June 30, 2000
increased $9.8 million and $19.6 million, respectively, primarily as a result
of the issuances of Euro Medium-Term Notes by MBNA Europe and Medium-Term
Deposit Notes by MBNA Canada, as compared to the same periods in 1999.
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, 2000 and 1999, respectively.
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, 2000
--------------------------------
Average Yield/ Income
Amount Rate or Expense
------------ ------ ----------
(unaudited)
ASSETS
Interest-earning assets:
Interest-earning time deposits in other
banks:
Domestic................................. $ 1,332 2.72% $ 9
Foreign.................................. 1,196,294 6.27 18,664
------------ ----------
Total interest-earning time deposits
in other banks...................... 1,197,626 6.27 18,673
Federal funds sold and securities
purchased under resale agreements......... 281,253 6.39 4,471
------------ ---------
Total money market instruments....... 1,478,879 6.29 23,144
Investment securities(a):
Taxable.................................. 2,982,729 5.83 43,268
Tax-exempt(b)............................ 102,854 7.03 1,797
------------ ---------
Total investment securities.......... 3,085,583 5.87 45,065
Loans held for securitization:
Domestic................................. 6,807,891 14.58 246,768
Foreign.................................. 823,469 13.04 26,705
------------ ----------
Total loans held for securitization.. 7,631,360 14.41 273,473
Loans:
Domestic:
Credit card............................ 5,793,721 13.61 196,009
Other consumer......................... 2,011,071 14.81 74,072
------------ ----------
Total domestic loans................. 7,804,792 13.92 270,081
Foreign.................................. 1,792,467 12.74 56,770
------------ ----------
Total loans.......................... 9,597,259 13.70 326,851
------------ ----------
Total loan receivables............... 17,228,619 14.01 600,324
------------ ----------
Total interest-earning assets........ 21,793,081 12.34 $ 668,533
Cash and due from banks...................... 644,953
Premises and equipment, net.................. 1,664,922
Other assets................................. 7,901,177
Reserve for possible credit losses........... (369,405)
------------
Total assets......................... $ 31,634,728
============
(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.
For the Three Months Ended
June 30, 2000
--------------------------------
Average Yield/ Income
Amount Rate or Expense
------------ ------ ----------
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing deposits:
Domestic:
Time deposits.......................... $ 13,728,392 6.25% $ 213,435
Money market deposit accounts.......... 4,526,929 6.01 67,591
Interest-bearing transaction accounts.. 36,253 5.19 468
Savings accounts....................... 9,412 5.13 120
------------ ----------
Total domestic interest-bearing
deposits............................ 18,300,986 6.19 281,614
Foreign:
Time deposits.......................... 792,128 5.76 11,349
------------ ----------
Total interest-bearing deposits...... 19,093,114 6.17 292,963
Borrowed funds:
Short-term borrowings:
Domestic............................... 522,230 6.46 8,393
Foreign................................ 221,081 5.67 3,114
------------ ----------
Total short-term borrowings.......... 743,311 6.23 11,507
Long-term debt and bank notes:
Domestic(c)............................ 4,558,577 6.87 77,884
Foreign................................ 1,035,460 6.70 17,238
------------ ----------
Total long-term debt and bank notes.. 5,594,037 6.84 95,122
------------ ----------
Total borrowed funds................. 6,337,348 6.77 106,629
------------ ----------
Total interest-bearing liabilities... 25,430,462 6.32 399,592
Demand deposits.............................. 643,729
Other liabilities............................ 1,206,080
------------
Total liabilities.................... 27,280,271
Stockholders' equity......................... 4,354,457
------------
Total liabilities and stockholders'
equity.............................. $ 31,634,728
============ ----------
Net interest income.................. $ 268,941
==========
Net interest margin.................. 4.96
Interest rate spread................. 6.02
(b) The fully taxable equivalent adjustment for the three months ended
June 30, 2000 was $628.
(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, 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
----------- ----------
Total money market instruments....... 2,310,614 4.93 28,424
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 loan receivables............... 15,561,004 13.59 527,070
------------ ----------
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.
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
(b) The fully taxable equivalent adjustment for the three months ended
June 30, 1999 was $462.
(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, 2000
--------------------------------
Average Yield/ Income
Amount Rate or Expense
------------ ------ ----------
(unaudited)
ASSETS
Interest-earning assets:
Interest-earning time deposits in other
banks:
Domestic................................. $ 2,302 3.93% $ 45
Foreign.................................. 1,250,099 6.08 37,789
------------ ----------
Total interest-earning time deposits
in other banks...................... 1,252,401 6.08 37,834
Federal funds sold and securities
purchased under resale agreements......... 410,857 6.02 12,297
------------ ---------
Total money market instruments....... 1,663,258 6.06 50,131
Investment securities(a):
Taxable.................................. 2,953,497 5.77 84,688
Tax-exempt(b)............................ 102,962 6.42 3,287
------------ ---------
Total investment securities.......... 3,056,459 5.79 87,975
Loans held for securitization:
Domestic................................. 7,666,608 14.26 543,675
Foreign.................................. 886,818 13.38 58,993
------------ ----------
Total loans held for securitization.. 8,553,426 14.17 602,668
Loans:
Domestic:
Credit card............................ 5,320,724 13.59 359,560
Other consumer......................... 1,782,602 14.73 130,545
------------ ----------
Total domestic loans................. 7,103,326 13.88 490,105
Foreign.................................. 1,667,139 12.65 104,862
------------ ----------
Total loans.......................... 8,770,465 13.64 594,967
------------ ----------
Total loan receivables............... 17,323,891 13.90 1,197,635
------------ ----------
Total interest-earning assets........ 22,043,608 12.19 $1,335,741
Cash and due from banks...................... 640,515
Premises and equipment, net.................. 1,666,051
Other assets................................. 7,428,010
Reserve for possible credit losses........... (362,702)
------------
Total assets......................... $ 31,415,482
============
(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.
For the Six Months Ended
June 30, 2000
--------------------------------
Average Yield/ Income
Amount Rate or Expense
------------ ------ ----------
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing deposits:
Domestic:
Time deposits.......................... $ 13,532,971 6.15% $ 414,104
Money market deposit accounts.......... 4,476,267 5.86 130,489
Interest-bearing transaction accounts.. 36,814 5.05 924
Savings accounts....................... 9,391 4.99 233
------------ ----------
Total domestic interest-bearing
deposits............................ 18,055,443 6.08 545,750
Foreign:
Time deposits.......................... 790,211 5.68 22,323
------------ ----------
Total interest-bearing deposits...... 18,845,654 6.06 568,073
Borrowed funds:
Short-term borrowings:
Domestic............................... 579,620 6.30 18,151
Foreign................................ 195,444 5.58 5,425
------------ ----------
Total short-term borrowings.......... 775,064 6.12 23,576
Long-term debt and bank notes:
Domestic(c)............................ 4,698,169 6.81 159,007
Foreign................................ 997,787 6.56 32,551
------------ ----------
Total long-term debt and bank notes.. 5,695,956 6.76 191,558
------------ ----------
Total borrowed funds................. 6,471,020 6.69 215,134
------------ ----------
Total interest-bearing liabilities... 25,316,674 6.22 783,207
Demand deposits.............................. 634,368
Other liabilities............................ 1,186,637
------------
Total liabilities.................... 27,137,679
Stockholders' equity......................... 4,277,803
------------
Total liabilities and stockholders'
equity.............................. $ 31,415,482
============ ----------
Net interest income.................. $ 552,534
==========
Net interest margin.................. 5.04
Interest rate spread................. 5.97
(b) The fully taxable equivalent adjustment for the six months ended
June 30, 2000 was $1,150.
(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
------------ ---------
Total money market instruments....... 3,526,319 4.99 87,194
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 loan receivables............... 14,436,367 13.75 984,450
------------ ----------
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.
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
(b) The fully taxable equivalent adjustment for the six months ended
June 30, 1999 was $934.
(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 16.0% and 19.3% to $1.2 billion and $2.3
billion for the three and six months ended June 30, 2000, respectively, from
$1.0 billion and $1.9 billion for the same periods in 1999. The increase in
other operating income is primarily attributable to a $128.9 million and $255.1
million, or 14.8% and 15.2% increase, in securitization income for the three
and six months ended June 30, 2000, respectively, as compared to the same
periods in 1999. The increase in securitization income is primarily
attributable to the growth in average securitized loans of $9.3 billion and
$9.1 billion, or 19.7% and 19.4%, for the three and six months ended June 30,
2000, respectively, offset by an increase in the average rate paid to investors
in the Corporation's securitized loans. Credit card fees increased 23.9% and
50.7% to $66.0 million and $138.5 million for the three and six months ended
June 30, 2000, respectively, as compared to the same periods in 1999. Credit
card fees increased as a result of the growth in the Corporation's outstanding
loan receivables, accounts, and the number of fees assessed. Also, loan
servicing fees related to securitized loans and credit card fees increased for
the three and six months ended June 30, 2000, as compared to the same periods
in 1999, as a result of the Corporation increasing its fees charged to credit
card and other consumer loan Customers during the first three months of 1999.
Interchange income increased $5.6 million and $33.6 million to $66.6 million
and $134.3 million for the three and six months ended June 30, 2000,
respectively, as compared to the same periods in 1999, as a result of an
increase in the Corporation's sales volume, in addition to an increase in the
interchange rate set by MasterCard International and Visa International in
April 1999.
OTHER OPERATING EXPENSE
Total other operating expense increased 14.1% and 18.3% to $911.3 million and
$1.8 billion for the three and six months ended June 30, 2000, respectively,
from $798.8 million and $1.5 billion for the same periods in 1999. The growth
in other operating expense reflects the Corporation's continued investment in
attracting, servicing, and retaining credit card and other consumer loan
Customers. For the six months ended June 30, 2000, the Corporation added 5.3
million new accounts or 6.8 million new Customers. The Corporation added 212
new endorsements from organizations during the six months ended June 30, 2000.
The growth in total other operating expense included an increase in salaries
and employee benefits of $40.0 million and $114.0 million to $382.2 million and
$747.0 million for the three and six months ended June 30, 2000, respectively,
as compared to the same periods in 1999. The increase in salaries and employee
benefits reflects the increased number of people to service the Corporation's
higher number of customers. The growth in other operating expense includes
amortization of intangible assets which increased $13.4 million and $39.0
million to $57.6 million and $110.3 million for the three and six months ended
June 30, 2000, respectively, as compared to the same periods in 1999. The
increase in amortization of intangible assets is a result of the Corporation's
loan portfolio acquisitions.
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,
-------------------- --------------------
2000 1999 2000 1999
--------- --------- --------- ---------
(unaudited)
Purchased services................ $ 91,368 $ 82,904 $ 181,544 $ 170,110
Advertising....................... 70,279 53,741 138,629 114,166
Collection........................ 11,648 9,659 22,172 19,562
Stationery and supplies........... 8,920 9,464 18,099 19,164
Service bureau.................... 11,677 11,275 24,512 21,607
Postage and delivery.............. 89,418 76,681 187,616 153,326
Telephone usage................... 18,610 16,997 36,255 36,774
Loan receivable fraud losses...... 34,371 23,642 68,070 46,279
Amortization of intangible assets. 57,580 44,172 110,287 71,323
Computer software................. 17,092 14,465 34,692 30,222
Other............................. 37,516 37,301 93,749 76,986
--------- --------- --------- ---------
Total other operating expense... $ 448,479 $ 380,301 $ 915,625 $ 759,519
========= ========= ========= =========
LOAN QUALITY
The Corporation's loan quality at any time reflects, among other factors, the
quality of the Corporation's credit card and other consumer loans, the general
economic conditions, the success of the Corporation's collection efforts, and
the seasoning of the Corporation's loans. As new loans season, the delinquency
rate on these loans generally rises and then stabilizes.
Delinquencies
An account is contractually delinquent if the minimum payment is not received
by the specified date on the Customer's statement. However, the Corporation
generally continues to accrue interest until the loan is either paid or charged
off. Delinquency, as a percentage of the Corporation's loan portfolio was
3.77% at June 30, 2000, compared to 4.17% at June 30, 1999 and 3.82% at
December 31, 1999. The Corporation's managed delinquency, as a percentage of
managed loans, was 4.44% at June 30, 2000, as compared to 4.64% at June 30,
1999 and 4.45% at December 31, 1999.
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, 2000 December 31, 1999
------------------ -----------------
(unaudited)
Loan portfolio......................... $ 9,695,285 $ 7,971,093
Loans delinquent:
30 to 59 days........................ $ 131,519 1.36% $ 105,667 1.33%
60 to 89 days........................ 72,512 .75 60,452 .76
90 or more days...................... 161,501 1.66 138,531 1.73
------------ ---- ----------- ----
Total.............................. $ 365,532 3.77% $ 304,650 3.82%
============ ==== =========== ====
Loans delinquent by geographic area:
Domestic............................. $ 326,699 4.15% $ 271,139 4.25%
Foreign.............................. 38,833 2.12 33,511 2.11
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 entering into special payment
arrangements resulting in the Corporation not accruing interest income on the
outstanding loan balance. These other nonperforming loans, excluding loans
held for securitization, are presented in Table 5.
TABLE 5: OTHER NONPERFORMING LOANS
(dollars in thousands)
June 30, 2000 December 31, 1999
------------------ -----------------
(unaudited)
Nonaccrual loans....................... $ 18,503 $ 12,245
Reduced-rate loans..................... 148,014 153,082
------------------ -----------------
Total other nonperforming loans...... $ 166,517 $ 165,327
================== =================
Other nonperforming loans as a % of
ending loan portfolio................. 1.72% 2.07%
The Corporation's total managed other nonperforming loans as a percentage of
ending managed loans was 2.65% at June 30, 2000, as compared to 2.51% at
December 31, 1999.
NET CREDIT LOSSES
The Corporation's policy is generally to charge off accounts when they become
180 days contractually past due. The Corporation sells charged-off receivables
and records the proceeds received from these sales as recoveries, thereby
reducing net credit losses.
Net credit losses for the three and six months ended June 30, 2000 were $89.3
million and $189.1 million, respectively, compared to $107.0 million and $187.6
million for the same periods in 1999. 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 decrease in net
credit losses for the three months ended June 30, 2000, reflects the current
economic conditions.
Annualized net credit losses as a percentage of average loan receivables were
2.07% and 2.18% for the three and six months ended June 30, 2000, respectively,
as compared to 2.75% and 2.60% for the same period in 1999. The Corporation's
annualized managed credit losses as a percentage of average managed loans for
the three and six months ended June 30, 2000 were 3.95% and 4.01%,
respectively, as compared to 4.41% and 4.39% for the same periods in 1999.
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, 2000, decreased 31.2% to $89.3 million and 11.7% to $189.1 million,
respectively, as compared to $129.8 million and $214.2 million for the same
periods in 1999. The Corporation's provision for credit losses reflects the
current period net charge-off levels during the three and six months ended June
30, 2000. The Corporation records acquired reserves for current period loan
portfolio acquisitions. 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,
-------------------- --------------------
2000 1999 2000 1999
--------- --------- --------- ---------
(unaudited)
Reserve for possible credit
losses, beginning of period...... $ 368,108 $ 303,717 $ 355,959 $ 216,911
Reserves acquired............... 7,894 831 20,126 84,091
Provision for possible credit
losses......................... 89,301 129,756 189,147 214,220
Foreign currency translation.... (709) (394) (870) (760)
Credit losses:
Domestic:
Credit card................. (95,413) (114,960) (211,065) (202,525)
Other consumer.............. (33,667) (27,734) (61,503) (59,016)
--------- --------- --------- ---------
Total domestic credit
losses................... (129,080) (142,694) (272,568) (261,541)
Foreign....................... (13,435) (10,169) (25,632) (18,376)
--------- --------- --------- ---------
Total credit losses....... (142,515) (152,863) (298,200) (279,917)
Recoveries:
Domestic:
Credit card................. 40,918 36,951 85,114 75,348
Other consumer.............. 5,682 5,109 12,083 11,044
--------- --------- --------- ---------
Total domestic recoveries. 46,600 42,060 97,197 86,392
Foreign....................... 6,621 3,790 11,941 5,960
--------- --------- --------- ---------
Total recoveries.......... 53,221 45,850 109,138 92,352
--------- --------- --------- ---------
Net credit losses............... (89,294) (107,013) (189,062) (187,565)
--------- --------- --------- ---------
Reserve for possible credit
losses, end of period............ $ 375,300 $ 326,897 $ 375,300 $ 326,897
========= ========= ========= =========
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 December 31, 2000. The
Corporation expects to 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 statement of income for the
year ended December 31, 2000.
CAPITAL ADEQUACY
The Corporation is subject to risk-based capital guidelines adopted by the
Federal Reserve Board for bank holding companies. The Bank is also subject to
similar capital requirements adopted by the Office of the Comptroller of the
Currency. Under these requirements, the 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 and the
Bank's financial statements. Under the capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Corporation and the Bank
must meet specific capital guidelines that involve quantitative measures of
their assets, liabilities, and certain off-balance-sheet items as calculated
under regulatory accounting practices.
The Corporation's and the Bank's capital amounts and classification are also
subject to qualitative judgments by the federal bank regulators about
components, risk weightings, and other factors. At June 30, 2000, and
December 31, 1999, the Corporation's and the Bank's capital exceeded all
minimum regulatory requirements to which they are subject, and the Bank was
"well-capitalized" as defined under the federal bank regulatory guidelines.
The risk-based capital ratios, shown in Table 7, have been computed in
accordance with regulatory accounting practices.
TABLE 7: REGULATORY CAPITAL RATIOS
Well
June 30, December 31, Minimum Capitalized
2000 1999 Requirements Requirements
----------- ------------ ------------ ------------
(unaudited)
MBNA Corporation
Tier 1.................... 14.62% 14.72% 4.00% (a)
Total..................... 16.85 17.02 8.00 (a)
Leverage.................. 14.72 14.90 4.00 (a)
MBNA America Bank, N.A.
Tier 1.................... 11.55 11.06 4.00 6.00%
Total..................... 13.87 13.44 8.00 10.00
Leverage.................. 12.04 11.61 4.00 5.00
(a) Not applicable for bank holding companies.
DIVIDEND LIMITATIONS
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. During the six months ended June 30, 2000, the
Corporation declared dividends on its preferred stock of $7.4 million and on
its common stock of $128.3 million.
On July 12, 2000, the Corporation's Board of Directors declared a quarterly
cash dividend of $.08 per common share, payable October 1, 2000 to shareholders
of record as of September 15, 2000. Also, on July 12, 2000, the Corporation's
Board of Directors declared a quarterly cash dividend of $.46875 per share on
the 7 1/2% Cumulative Preferred Stock, Series A, and a quarterly dividend of
$.3765 per share on the Adjustable Rate Cumulative Preferred Stock, Series B.
The preferred stock dividends are payable October 16, 2000 to stockholders of
record as of September 30, 2000.
The Corporation is a legal entity separate and distinct from its banking and
other subsidiaries. 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, 2000, the amount of retained earnings
available for declaration and payment of dividends from the Bank to the
Corporation was $1.8 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 senior syndicated revolving credit
facility. If this facility had been drawn upon as of June 30, 2000, the amount
of retained earnings available for declaration of dividends would have been
further limited to $590.5 million.
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.
The funding programs established by the Corporation include medium-term notes,
senior notes, and committed credit facilities. Funding programs established by
the Corporation's bank subsidiaries include deposits, bank notes, and committed
credit facilities.
Total deposits at June 30, 2000 and December 31, 1999 were $20.4 billion and
$18.7 billion, respectively. Included in total deposits at June 30, 2000 are
$876.3 million of foreign time deposits, which generally mature within one
year. Table 8 presents the maturities of the Corporation's deposits at
June 30, 2000.
TABLE 8: MATURITIES OF DEPOSITS AT JUNE 30, 2000
(dollars in thousands)
Direct Other Total
Deposits Deposits Deposits
------------ ------------ ------------
(unaudited)
Three months or less(a)............. $ 6,904,637 $ 1,264,287 $ 8,168,924
Over three months through twelve
months............................. 3,337,872 1,474,410 4,812,282
Over one year through five years.... 4,053,908 3,399,371 7,453,279
Over five years..................... 5,361 - 5,361
------------ ------------ ------------
Total deposits.................... $ 14,301,778 $ 6,138,068 $ 20,439,846
============ ============ ============
(a) Includes money market deposit accounts, noninterest-bearing demand
deposits, interest-bearing transaction accounts, and savings accounts
totaling $5.2 billion.
The Bank, MBNA Europe and the Corporation arranged a $2.5 billion senior
syndicated revolving credit facility in April 2000. The facility consists of a
senior unsecured $2.5 billion four-year revolving credit facility available to
the Bank and MBNA Europe with sublimit availability in an amount of $300.0
million for the Corporation. The Bank will unconditionally and irrevocably
guarantee the obligations of MBNA Europe. The facility replaces the Bank's
existing four-year $2.0 billion syndicated revolving credit facility.
Advances from the $2.5 billion senior syndicated revolving credit facility are
subject to covenants and conditions customary in a transaction of this kind.
These conditions include requirements for both the Corporation and the Bank to
maintain a minimum level of consolidated tangible net worth. These conditions
also require the Bank to not permit its managed loan receivables 90 days or
more past due plus nonaccruing receivables to exceed 6% of managed credit card
receivables and to maintain its regulatory capital ratios at or above
regulatory minimum requirements. In addition, these conditions require that
the Corporation not permit its double leverage ratio (defined as the sum of the
Corporation's intangible assets and investment in subsidiaries divided by total
stockholders' equity) to exceed 1.25.
The Corporation also held $3.1 billion in investment securities and $1.8
billion of money market instruments at June 30, 2000, compared with $3.0
billion in investment securities and $1.5 billion of money market instruments
at December 31, 1999. The investment securities primarily consist of high-
quality, AAA-rated securities, most of which can be used as collateral under
repurchase agreements. Of the investment securities at June 30, 2000, $1.3
billion is anticipated to mature within twelve months. The Corporation's
investment securities available-for-sale portfolio, which consists primarily of
U.S. Treasury obligations or short-term and variable-rate securities, was $2.8
billion at June 30, 2000 and December 31, 1999. 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, 2000
(dollars in thousands) (unaudited)
Estimated Maturity
--------------------------------------------
Within 1 1-5 6-10 Over
Year Years Years 10 Years
---------- ---------- --------- ---------
AVAILABLE-FOR-SALE
U.S. Treasury and other U.S.
government agencies obligations.. $ 798,992 $ 822,352 $ - $ -
State and political subdivisions
of the United States............. 91,955 4,154 - -
Asset-backed and other securities. 418,575 605,220 29,542 10,734
---------- ---------- --------- ---------
Total investment securities
available-for-sale............. $1,309,522 $1,431,726 $ 29,542 $ 10,734
========== ========== ========= =========
HELD-TO-MATURITY
U.S. Treasury and other U.S.
government agencies obligations.. $ - $ - $ - $ 269,580
State and political subdivisions
of the United States............. 55 191 - 5,751
Asset-backed and other securities. - 12,212 - 25,920
---------- ---------- --------- ---------
Total investment securities
held-to-maturity............... $ 55 $ 12,403 $ - $ 301,251
========== ========== ========= =========
Book Market
Value Value
---------- ----------
AVAILABLE-FOR-SALE
U.S. Treasury and other U.S.
government agencies obligations.. $1,621,344 $1,621,344
State and political subdivisions
of the United States............. 96,109 96,109
Asset-backed and other securities. 1,064,071 1,064,071
---------- ----------
Total investment securities
available-for-sale............. $2,781,524 $2,781,524
========== ==========
HELD-TO-MATURITY
U.S. Treasury and other U.S.
government agencies obligations.. $ 269,580 $ 240,455
State and political subdivisions
of the United States............. 5,997 5,818
Asset-backed and other securities. 38,132 38,086
---------- ----------
Total investment securities
held-to-maturity............... $ 313,709 $ 284,359
========== ==========
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.
The Corporation analyzes its level of interest rate risk using several
analytical techniques, which include the impact of on-balance-sheet financial
instruments. 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 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. For this reason, the Corporation analyzes its
level of interest rate risk on a managed basis in order to quantify and capture
the full impact of interest rate risk on the Corporation's earnings.
An analytical technique that the Corporation uses to measure interest rate risk
is simulation analysis. Key assumptions in the Corporation's simulation
analysis include cash flows and maturities of interest rate sensitive
instruments, changes in market conditions, loan volumes and pricing, consumer
preferences, fixed-rate credit card repricings as part of the Corporation's
normal planned business strategy, and management's capital plans. Also
included in the analysis are various actions 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 response to
changes in interest rates, market conditions, or other factors.
Based on the simulation analysis at June 30, 2000, the Corporation could
experience a decrease in projected net income during the next twelve months of
approximately $49 million, if interest rates were to increase 100 basis points
over June 30, 2000 levels.
The assumptions are inherently uncertain and, as a result, the analysis cannot
precisely predict the impact of higher interest rates on net income. Actual
results would differ from simulated results due to timing, magnitude, and
frequency of interest rate changes, changes in market conditions, and
management strategies to offset the Corporation's 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
considers the net impact to stockholders' equity under various foreign exchange
rate scenarios. At June 30, 2000, the Corporation could experience a decrease
in stockholders' equity, net of tax, of approximately $37 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 that 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
the accounts. The trust sells undivided interests in the trust to investors,
while the Corporation retains the remaining undivided interest. The senior
classes of the asset-backed securities receive a AAA credit rating at the time
of issuance. This AAA credit rating is generally achieved through the sale of
lower rated subordinated classes of asset-backed securities. 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 the investors according to the terms of the transaction.
When the trust allocates principal payments to the investors, the Corporation's
on-balance-sheet loan receivables increase by the amount of any new purchases
or cash advance activity on the accounts.
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.
During the three and six months ended June 30, 2000, the Corporation
securitized credit card loan receivables totaling $4.1 billion and $5.6
billion, including a securitization of CAD$400 (approximately $270.0 million)
by MBNA Canada Bank. The Corporation also securitized other consumer loan
receivables of $1.1 billion for the three and six months ended June 30, 2000.
During the three and six months ended June 30, 2000, $1.4 billion and $2.0
billion of previously securitized credit card and other consumer loan
receivables amortized or matured. The total amount of outstanding securitized
loans was $59.2 billion or 77.6% of managed loans at June 30, 2000, compared to
$54.6 billion or 75.6% at December 31, 1999. An additional $3.0 billion of
previously securitized loans is scheduled to amortize or mature during the
remainder of 2000. The amortization amounts are based upon estimated
amortization periods, which are subject to change.
Table 10 shows the Corporation's securitized loan distribution.
TABLE 10: SECURITIZED LOAN DISTRIBUTION
(dollars in thousands)
June 30, December 31,
2000 1999
------------ ------------
(unaudited)
Securitized Loans
Domestic:
Credit card.................................. $ 49,390,570 $ 45,851,922
Other consumer............................... 5,126,593 3,987,180
------------ ------------
Total domestic securitized loans........... 54,517,163 49,839,102
Foreign:
Credit card.................................. 4,580,580 4,565,996
Other consumer............................... 113,431 186,706
------------ ------------
Total foreign securitized loans............ 4,694,011 4,752,702
------------ ------------
Total securitized loans.................... $ 59,211,174 $ 54,591,804
============ ============
Table 11 compares the average annualized yield for the three month period ended
June 30, 2000, 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 11: YIELDS ON SECURITIZED TRANSACTIONS (a)
Three-Month Average
----------------------- Yield in
Annualized Minimum Excess of
Yield Yield Minimum
---------- ----------- ---------
(unaudited)
MasterTrust II 94-C.................... 18.71% 13.44% 5.27%
MasterTrust II 94-E.................... 18.71 13.23 5.48
MasterTrust II 95-A.................... 18.71 13.48 5.23
MasterTrust II 95-C.................... 18.71 13.41 5.30
MasterTrust II 95-E.................... 18.71 13.42 5.29
Cards No. 1............................ 19.89 12.46 7.43
MasterTrust II 95-F.................... 18.71 13.52 5.19
MasterTrust II 95-G.................... 18.71 13.41 5.30
MasterTrust II 95-I.................... 18.71 13.35 5.36
MasterTrust II 95-J.................... 18.71 13.43 5.28
MasterTrust II 96-A.................... 18.71 13.40 5.31
MasterTrust II 96-B.................... 18.71 13.47 5.24
MasterTrust II 96-C.................... 18.71 13.34 5.37
MasterTrust II 96-D.................... 18.71 13.34 5.37
Cards No. 2............................ 19.89 12.35 7.54
MasterTrust II 96-E.................... 18.71 13.37 5.34
MasterTrust II 96-F.................... 18.71 13.26 5.45
MasterTrust II 96-G.................... 18.71 13.40 5.31
MasterTrust II 96-H.................... 18.73 13.38 5.35
MasterTrust II 96-I.................... 18.74 13.25 5.49
MasterTrust II 96-J.................... 18.71 13.36 5.35
MasterTrust II 96-K.................... 18.71 13.34 5.37
MasterTrust II 96-M.................... 18.73 13.43 5.30
Cards No. 3............................ 19.89 12.47 7.42
MasterTrust II 97-B.................... 18.71 13.39 5.32
MasterTrust II 97-C.................... 18.71 13.32 5.39
MasterTrust II 97-D.................... 18.73 13.36 5.37
MasterTrust II 97-E.................... 18.74 13.13 5.61
MasterTrust II 97-F.................... 18.71 13.26 5.45
MasterTrust II 97-G.................... 18.71 13.36 5.35
Cards No. 4............................ 19.89 12.88 7.01
MasterTrust II 97-H.................... 18.74 13.24 5.50
MasterTrust II 97-I.................... 18.71 13.30 5.41
MasterTrust II 97-J.................... 18.71 13.33 5.38
MasterTrust II 97-K.................... 18.71 13.34 5.37
MasterTrust II 97-L.................... 18.73 13.29 5.44
MasterTrust II 97-M.................... 18.74 13.15 5.59
MasterTrust II 97-N.................... 18.73 13.35 5.38
MasterTrust II 97-O.................... 18.71 13.38 5.33
MasterTrust II 98-A.................... 18.71 13.31 5.40
Cards No. 5............................ 19.89 13.26 6.63
MasterTrust II 98-B.................... 18.74 13.17 5.57
MasterTrust II 98-C.................... 18.71 13.23 5.48
MasterTrust II 98-D.................... 18.71 13.15 5.56
MasterTrust II 98-E.................... 18.74 13.16 5.58
Three-Month Average
----------------------- Yield in
Annualized Minimum Excess of
Yield Yield Minimum
---------- ----------- ---------
(unaudited)
MasterTrust II 98-F.................... 18.74% 13.20% 5.54%
MasterTrust II 98-G.................... 18.71 13.37 5.34
MasterTrust II 98-H.................... 18.71 13.26 5.45
Cards No. 6............................ 19.89 12.90 6.99
MasterTrust II 98-I.................... 18.71 13.48 5.23
MasterTrust II 98-J.................... 18.71 12.06 6.65
MasterTrust II 98-K.................... 18.71 13.48 5.23
Cards No. 7............................ 19.89 13.10 6.79
Gloucester Credit Card Trust 98-1...... 17.28 10.84 6.44
MasterTrust II 98-L.................... 18.71 13.28 5.43
MasterTrust II 99-A.................... 18.71 13.32 5.39
MasterTrust II 99-B.................... 18.71 13.25 5.46
MasterTrust II 99-C.................... 18.73 13.49 5.24
Cards No. 8............................ 19.89 13.02 6.87
MasterTrust II 99-D.................... 18.71 13.35 5.36
MasterTrust II 99-E.................... 18.71 13.34 5.37
MasterTrust II 99-F.................... 18.73 13.19 5.54
MasterTrust II 99-G.................... 18.71 13.39 5.32
Cards No. 9............................ 19.89 13.04 6.85
MasterTrust II 99-H.................... 18.74 13.29 5.45
MasterTrust II 99-I.................... 18.71 13.36 5.35
MasterTrust II 99-J.................... 18.71 13.53 5.18
Gloucester Credit Card Trust 99-1...... 17.28 10.91 6.37
MasterTrust II 99-K.................... 18.83 13.37 5.46
MasterTrust II 99-L.................... 18.71 13.49 5.22
MasterTrust II 99-M.................... 18.71 13.35 5.36
Gloucester Credit Card Trust 99-2...... 17.29 11.07 6.22
Cards No. 10........................... 19.89 13.09 6.80
MasterTrust II 2000-A.................. 18.71 13.44 5.27
MasterTrust II 2000-B.................. 18.87 14.63 4.24
(a) MasterTrust II 2000-C issued on April 13, 2000, MasterTrust II 2000-D
issued on May 11, 2000, MasterTrust II 2000-E issued on June 1, 2000,
MasterTrust II 2000-F issued on June 23, 2000, Gloucester Credit Card Trust
2000-1 issued on June 28, 2000 and Consumer Loan MasterTrust 2000-1 issued on
June 29, 2000 are excluded from the yields presented above as a result of their
recency. Consumer Loan MasterTrust 97-1 and UK 98-A are excluded as the yield
in excess of minimum does not impact the distribution of principal to
investors. Distribution to investors may begin earlier than the scheduled time
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
asset securitizations have on the Corporation's managed assets.
MANAGED ASSET DATA
(dollars in thousands)
June 30, 2000 December 31, 1999
--------------- -----------------
AT PERIOD END:
Loans held for securitization......... $ 7,426,197 $ 9,692,616
Loan portfolio........................ 9,695,285 7,971,093
Securitized loans..................... 59,211,174 54,591,804
--------------- -----------------
Total managed loans................. $ 76,332,656 $ 72,255,513
=============== =================
For the Three Months For the Six Months
Ended June 30, Ended June 30,
------------------------ ------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
AVERAGE FOR THE PERIOD:
Loans held for
securitization......... $ 7,631,360 $ 5,276,424 $ 8,553,426 $ 3,711,138
Loan portfolio.......... 9,597,259 10,284,580 8,770,465 10,725,229
Securitized loans....... 56,832,969 47,493,415 55,708,941 46,640,292
----------- ----------- ----------- -----------
Total managed loans... $74,061,588 $63,054,419 $73,032,832 $61,076,659
=========== =========== =========== ===========
MANAGED RATIOS:
Delinquency............. 4.44% 4.64%
Net credit losses....... 3.95 4.41 4.01% 4.39%
Net interest margin
(on an FTE basis)...... 7.12 7.70 7.11 7.65
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,
--------------------------
2000 1999
------------ ------------
(unaudited)
INCLUDING INTEREST ON DEPOSITS
Earnings:
Income before income taxes....................... $ 839,995 $ 667,488
Fixed charges.................................... 789,736 640,747
Interest capitalized during period, net of
amortization of previously capitalized interest. (1,867) (1,224)
------------ ------------
Earnings, for computation purposes............... $ 1,627,864 $ 1,307,011
============ ============
Fixed Charges and Preferred Stock Dividend
Requirements:
Interest on deposits, short-term borrowings,
and long-term debt and bank notes, expensed or
capitalized..................................... $ 785,333 $ 635,757
Portion of rents representative of the interest
factor.......................................... 4,403 4,990
------------ ------------
Fixed charges.................................... 789,736 640,747
Preferred stock dividend requirements............ 11,952 11,378
------------ ------------
Fixed charges and preferred stock dividend
requirements, including interest on deposits,
for computation purposes........................ $ 801,688 $ 652,125
============ ============
Ratio of earnings to combined fixed charges and
preferred stock dividend requirements,
including interest on deposits.................. 2.03 2.00
For the Six Months Ended
June 30,
--------------------------
2000 1999
------------ ------------
(unaudited)
EXCLUDING INTEREST ON DEPOSITS
Earnings:
Income before income taxes....................... $ 839,995 $ 667,488
Fixed charges.................................... 221,663 205,272
Interest capitalized during period, net of
amortization of previously capitalized interest. (1,877) (1,234)
------------ ------------
Earnings, for computation purposes............... $ 1,059,781 $ 871,526
============ ============
Fixed Charges and Preferred Stock Dividend
Requirements:
Interest on short-term borrowings and long-term
debt and bank notes, expensed or capitalized.... $ 217,260 $ 200,282
Portion of rents representative of the interest
factor.......................................... 4,403 4,990
------------ ------------
Fixed charges.................................... 221,663 205,272
Preferred stock dividend requirements............ 11,952 11,378
------------ ------------
Fixed charges and preferred stock dividend
requirements, excluding interest on deposits,
for computation purposes........................ $ 233,615 $ 216,650
============ ============
Ratio of earnings to combined fixed charges and
preferred stock dividend requirements,
excluding interest on deposits.................. 4.54 4.02
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 12, 2000, reporting MBNA Corporation's earnings
release for the first quarter of 2000.
2. Report dated April 13, 2000, reporting the securitization of
$1.5 billion of credit card receivables by MBNA America Bank, N.A.
3. Report dated April 30, 2000, 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 2000.
4. Report dated May 11, 2000, reporting the securitization of
$850.0 million of credit card receivables by MBNA America Bank, N.A.
5. Report dated May 31, 2000, 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 2000.
6. Report dated June 1, 2000, reporting the securitization of $590.0
million of credit card receivables by MBNA America Bank, N.A.
7. Report dated June 23, 2000, reporting the securitization of $882.4
million of credit card receivables by MBNA America Bank, N.A.
8. Report dated June 28, 2000, reporting the securitization of CAD$400.0
million of credit card receivables by MBNA Canada Bank.
9. Report dated June 30, 2000, 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 2000.
10. Report dated July 12, 2000, reporting MBNA Corporation's earnings
release for the second quarter of 2000.
11. Report dated July 20, 2000, reporting the securitization of $750.0
million of credit card receivables by MBNA America Bank, N.A.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
MBNA CORPORATION
Date: August 11, 2000 By: /s/ M. Scot Kaufman
-------------------------------
M. Scot Kaufman
Senior Executive Vice President
Chief Financial Officer
