8
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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 - 851,781,250 Shares
Outstanding as of September 30, 2000
MBNA CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
Page
Part I - Financial Information
Item 1. Financial Statements
Consolidated Statements of Financial Condition - 1
September 30, 2000 (unaudited) and December 31, 1999
Consolidated Statements of Income - 3
For the Three and Nine Months Ended September 30, 2000 and 1999
(unaudited)
Consolidated Statements of Changes in Stockholders' Equity - 5
For the Nine Months Ended September 30, 2000 and 1999
(unaudited)
Consolidated Statements of Cash Flows - 7
For the Nine Months Ended September 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 1. Legal Proceedings 47
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)
September 30, December 31,
2000 1999
------------- -------------
(unaudited)
ASSETS
Cash and due from banks......................... $ 846,823 $ 488,386
Interest-earning time deposits in other banks... 1,427,867 1,525,748
Federal funds sold and securities purchased
under resale agreements........................ 1,060,000 -
Investment securities:
Available-for-sale (at market value,
amortized cost of $2,787,199 and $2,772,305
at September 30, 2000 and December 31, 1999,
respectively)................................ 2,779,529 2,752,663
Held-to-maturity (market value of $306,329
and $264,832 at September 30, 2000 and
December 31, 1999, respectively)............. 332,078 293,641
Loans held for securitization................... 6,991,585 9,692,616
Loans:
Credit card................................... 7,994,814 6,060,564
Other consumer................................ 3,058,351 1,910,529
------------- -------------
Total loans................................. 11,053,165 7,971,093
Reserve for possible credit losses............ (428,925) (355,959)
------------- -------------
Net loans................................... 10,624,240 7,615,134
Premises and equipment, net..................... 1,735,234 1,659,446
Accrued income receivable....................... 224,263 216,867
Accounts receivable from securitizations........ 6,451,327 4,128,046
Prepaid expenses and deferred charges........... 356,869 274,894
Other assets.................................... 3,514,704 2,211,691
------------- -------------
Total assets................................ $ 36,344,519 $ 30,859,132
============= =============
September 30, December 31,
2000 1999
------------- -------------
(unaudited)
LIABILITIES
Deposits:
Time deposits................................. $ 16,082,330 $ 13,700,508
Money market deposit accounts................. 4,746,215 4,397,909
Noninterest-bearing demand deposits........... 715,676 567,686
Interest-bearing transaction accounts......... 41,680 39,388
Savings accounts.............................. 8,945 9,262
------------- -------------
Total deposits.............................. 21,594,846 18,714,753
Short-term borrowings........................... 797,518 1,039,004
Long-term debt and bank notes................... 5,871,633 5,708,880
Accrued interest payable........................ 205,888 182,990
Accrued expenses and other liabilities.......... 1,585,394 1,014,062
------------- -------------
Total liabilities........................... 30,055,279 26,659,689
STOCKHOLDERS' EQUITY
Preferred stock ($.01 par value, 20,000,000
shares authorized, 8,573,882 shares issued
and outstanding at September 30, 2000 and
December 31, 1999)............................. 86 86
Common stock ($.01 par value, 1,500,000,000
shares authorized, 851,781,250 shares issued
and outstanding at September 30, 2000 and
801,781,250 shares issued and outstanding at
December 31, 1999)............................. 8,518 8,018
Additional paid-in capital...................... 2,757,159 1,305,935
Retained earnings............................... 3,579,193 2,897,964
Accumulated other comprehensive income.......... (55,716) (12,560)
------------- -------------
Total stockholders' equity.................. 6,289,240 4,199,443
------------- -------------
Total liabilities and stockholders' equity.. $ 36,344,519 $ 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 Nine Months
Ended September 30, Ended September 30,
---------------------- ----------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
(unaudited)
INTEREST INCOME
Loans......................... $ 331,308 $ 329,997 $ 926,275 $1,055,089
Investment securities:
Taxable..................... 45,054 36,116 129,742 90,908
Tax-exempt.................. 1,116 876 3,253 2,612
Time deposits in other banks.. 23,566 25,745 61,400 88,516
Federal funds sold and
securities purchased under
resale agreements............ 15,315 9,377 27,612 33,800
Loans held for securitization. 292,620 142,711 895,288 402,069
---------- ---------- ---------- ----------
Total interest income...... 708,979 544,822 2,043,570 1,672,994
INTEREST EXPENSE
Deposits...................... 328,114 230,398 896,187 665,873
Short-term borrowings......... 7,359 9,209 30,935 26,445
Long-term debt and bank notes. 98,472 96,194 290,030 277,813
---------- ---------- ---------- ----------
Total interest expense..... 433,945 335,801 1,217,152 970,131
---------- ---------- ---------- ----------
NET INTEREST INCOME........... 275,034 209,021 826,418 702,863
Provision for possible credit
losses....................... 113,283 105,020 302,430 319,240
---------- ---------- ---------- ----------
Net interest income after
provision for possible
credit losses................ 161,751 104,001 523,988 383,623
OTHER OPERATING INCOME
Interchange................... 70,881 56,822 205,229 157,602
Credit card fees.............. 78,116 51,153 216,656 143,070
Securitization income......... 1,123,680 972,303 3,054,596 2,648,088
Insurance..................... 23,879 14,618 60,372 43,430
Other......................... 29,594 23,411 93,704 58,379
---------- ---------- ---------- ----------
Total other operating
income.................... $1,326,150 $1,118,307 $3,630,557 $3,050,569
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
---------------------- ----------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
(unaudited)
OTHER OPERATING EXPENSE
Salaries and employee
benefits..................... $ 401,612 $ 335,474 $1,148,626 $ 968,489
Occupancy expense of premises. 36,358 32,620 103,617 94,576
Furniture and equipment
expense...................... 49,230 45,400 145,981 135,306
Other......................... 404,983 337,919 1,320,608 1,097,438
---------- ---------- ---------- ----------
Total other operating
expense................... 892,183 751,413 2,718,832 2,295,809
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES.... 595,718 470,895 1,435,713 1,138,383
Applicable income taxes....... 226,969 179,411 547,007 433,724
---------- ---------- ---------- ----------
NET INCOME.................... $ 368,749 $ 291,484 $ 888,706 $ 704,659
========== ========== ========== ==========
EARNINGS PER COMMON SHARE..... $ .44 $ .36 $ 1.08 $ .87
EARNINGS PER COMMON SHARE-
ASSUMING DILUTION............ .43 .34 1.05 .83
==============================================================================
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-$.24 per share...... - - - -
Preferred.................. - - - -
Issuance of common stock,
net of issuance costs....... - 50,000 - 500
Exercise of stock options
and other awards............ - 8,634 - 86
Stock option tax benefit..... - - - -
Amortization of deferred
compensation expense........ - - - -
Acquisition and retirement
of common stock............. - (8,634) - (86)
----------- ---------- --------- ----------
BALANCE, SEPTEMBER 30, 2000.. 8,574 851,781 $ 86 $ 8,518
=========== ========== ========= ==========
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-$.21 per share...... - - - -
Preferred.................. - - - -
Issuance of common stock,
net of issuance costs....... - 50,000 - 500
Exercise of stock options
and other awards............ - 6,737 - 68
Stock option tax benefit..... - - - -
Amortization of deferred
compensation expense........ - - - -
Acquisition and retirement
of common stock............. - (6,752) - (68)
----------- ---------- --------- ----------
BALANCE, SEPTEMBER 30, 1999.. 8,574 801,781 $ 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................ - 888,706 - 888,706
Other comprehensive
income, net of tax....... - - (43,156) (43,156)
------------
Comprehensive income........ 845,550
------------
Cash dividends:
Common-$.24 per share..... - (196,429) - (196,429)
Preferred................. - (11,048) - (11,048)
Issuance of common stock,
net of issuance costs...... 1,598,555 - - 1,599,055
Exercise of stock options
and other awards........... 42,660 - - 42,746
Stock option tax benefit.... 43,983 - - 43,983
Amortization of deferred
compensation expense....... 17,969 - - 17,969
Acquisition and retirement
of common stock............ (251,943) - - (252,029)
---------- ---------- ------------- ------------
BALANCE, SEPTEMBER 30, 2000. $2,757,159 $3,579,193 $ (55,716) $ 6,289,240
========== ========== ============= ============
BALANCE, DECEMBER 31, 1998.. $ 271,050 $2,112,374 $ 7 $ 2,391,035
Comprehensive income:
Net income................ - 704,659 - 704,659
Other comprehensive
income, net of tax....... - - (4,092) (4,092)
------------
Comprehensive income........ 700,567
------------
Cash dividends:
Common-$.21 per share..... - (168,392) - (168,392)
Preferred................. - (10,668) - (10,668)
Issuance of common stock,
net of issuance costs...... 1,173,586 - - 1,174,086
Exercise of stock options
and other awards........... 25,189 - - 25,257
Stock option tax benefit.... 33,129 - - 33,129
Amortization of deferred
compensation expense....... 6,861 - - 6,861
Acquisition and retirement
of common stock............ (185,644) - - (185,712)
---------- ---------- ------------- ------------
BALANCE, SEPTEMBER 30, 1999. $1,324,171 $2,637,973 $ (4,085) $ 3,966,163
========== ========== ============= ============
==============================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
MBNA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
For the Nine Months Ended
September 30,
--------------------------
2000 1999
------------ ------------
(unaudited)
OPERATING ACTIVITIES
Net income........................................ $ 888,706 $ 704,659
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Provision for possible credit losses............ 302,430 319,240
Depreciation, amortization, and accretion....... 396,180 298,143
Provision (benefit) for deferred income taxes... 26,675 (13,923)
(Increase) decrease in accrued income receivable. (7,396) 17,377
Increase in accounts receivable from
securitizations................................ (2,323,281) (450,155)
Increase in accrued interest payable............ 22,898 19,440
Decrease in other operating activities.......... 240,498 234,248
------------ ------------
Net cash (used in) provided by operating
activities....................................... (453,290) 1,129,029
INVESTING ACTIVITIES
Net increase in money market instruments.......... (962,119) (269,797)
Proceeds from maturities of investment securities
available-for-sale............................... 381,004 651,729
Purchases of investment securities
available-for-sale............................... (424,713) (1,667,089)
Proceeds from maturities of investment securities
held-to-maturity ................................ 9,740 36,662
Purchases of investment securities
held-to-maturity................................. (48,761) (77,512)
Proceeds from securitization of loans............. 11,403,654 10,272,482
Proceeds from sale of loans....................... 153,169 4,748
Acquisition of credit card business of
PNC Bank, N.A.................................... - (3,191,786)
Loan portfolio acquisitions....................... (4,564,770) (982,370)
Amortization of securitized loans................. (3,354,837) (4,067,243)
Net loan originations............................. (5,625,617) (4,189,680)
Net purchases of premises and equipment........... (234,241) (181,622)
------------ ------------
Net cash used in investing activities......... $ (3,267,491) $ (3,661,478)
For the Nine Months Ended
September 30,
--------------------------
2000 1999
------------ ------------
(unaudited)
FINANCING ACTIVITIES
Net increase in time deposits..................... $ 2,381,822 $ 1,899,073
Net increase in money market deposit accounts,
noninterest-bearing demand deposits,
interest-bearing transaction accounts,
and savings accounts............................. 498,271 318,256
Net decrease in short-term borrowings............. (241,486) (622,001)
Proceeds from issuance of long-term debt
and bank notes................................... 1,074,386 674,454
Maturity of long-term debt and bank notes......... (828,088) (535,595)
Proceeds from exercise of stock options
and other awards................................. 42,746 25,257
Acquisition and retirement of common stock........ (252,029) (185,712)
Proceeds from issuance of common stock............ 1,599,055 1,174,086
Dividends paid.................................... (195,459) (167,962)
------------ ------------
Net cash provided by financing activities..... 4,079,218 2,579,856
------------ ------------
INCREASE IN CASH AND CASH EQUIVALENTS............. 358,437 47,407
Cash and cash equivalents at beginning of period.. 488,386 382,882
------------ ------------
Cash and cash equivalents at end of period........ $ 846,823 $ 430,289
============ ============
SUPPLEMENTAL DISCLOSURE
Interest expense paid............................. $ 1,194,044 $ 947,912
============ ============
Income taxes paid................................. $ 549,361 $ 428,328
============ ============
==============================================================================
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 nine months ended September 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 12, 2000 July 17, 2000 7.50 .46875 6.07 .37960
July 12, 2000 October 16, 2000 7.50 .46875 6.02 .37650
October 10, 2000 January 16, 2001 7.50 .46875 5.92 .37020
NOTE C: COMMON STOCK
In August 2000, the Corporation issued 50 million shares of common stock.
The Corporation used the net proceeds from this offering, $1.6 billion net of
issuance costs, to complete the $5.7 billion acquisition of the consumer and
commercial revolving credit loan portfolio from First Union Corporation in
September 2000, and for other general corporate purposes.
On October 10, 2000 the Corporation's Board of Directors declared a quarterly
cash dividend of $.08 per common share, payable January 1, 2001 to stockholders
of record as of December 15, 2000.
To the extent stock options are exercised or restricted shares are awarded from
time to time under the Corporation's Long Term Incentive Plans, the Board of
Directors has approved the purchase, on the open market or in privately
negotiated transactions, of the number of common shares issued.
NOTE D: COMPREHENSIVE INCOME
(dollars in thousands)
The components of comprehensive income, net of tax, are as follows:
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
-------------------- --------------------
2000 1999 2000 1999
--------- --------- --------- ---------
Net income........................ $ 368,749 $ 291,484 $ 888,706 $ 704,659
Other comprehensive income:
Foreign currency translation.... (17,722) 19,054 (51,784) 3,115
Net unrealized gains (losses)
on investment securities
available-for-sale and other
financial instruments.......... 5,614 (1,685) 8,628 (4,756)
Minimum benefit plan liability
adjustment..................... - - - (2,451)
--------- --------- --------- ---------
Other comprehensive income........ (12,108) 17,369 (43,156) (4,092)
--------- --------- --------- ---------
Comprehensive income.............. $ 356,641 $ 308,853 $ 845,550 $ 700,567
========= ========= ========= =========
The components of accumulated other comprehensive income, net of tax, are as
follows:
September 30, December 31,
2000 1999
------------- -------------
Foreign currency translation................... $ (56,100) $ (4,316)
Net unrealized gains (losses) on investment
securities available-for-sale and other
financial instruments......................... 384 (8,244)
------------- -------------
Accumulated other comprehensive income......... $ (55,716) $ (12,560)
============= =============
NOTE E: EARNINGS PER COMMON SHARE
Earnings per common share ("basic") is computed using net income applicable to
common stock and weighted average common shares outstanding during the period.
Earnings per common share-assuming dilution ("diluted") is computed using net
income applicable to common stock and weighted average common shares
outstanding during the period after consideration of the potential dilutive
effect of common stock equivalents, based on the treasury stock method using an
average market price for the period. The Corporation's common stock
equivalents are solely related to employee stock options. The Corporation does
not have any other common stock equivalents.
Computation of Earnings Per Common Share
(dollars in thousands, except per share amounts)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
-------------------- --------------------
2000 1999 2000 1999
--------- --------- --------- ---------
BASIC
Net income........................ $ 368,749 $ 291,484 $ 888,706 $ 704,659
Less: preferred stock dividend
requirements..................... 3,650 3,625 11,048 10,668
--------- --------- --------- ---------
Net income applicable to common
stock............................ $ 365,099 $ 287,859 $ 877,658 $ 693,991
========= ========= ========= =========
Weighted average common shares
outstanding (000)................ 826,310 801,890 810,053 800,756
========= ========= ========= =========
Earnings per common share......... $ .44 $ .36 $ 1.08 $ .87
========= ========= ========= =========
DILUTED
Net income........................ $ 368,749 $ 291,484 $ 888,706 $ 704,659
Less: preferred stock dividend
requirements..................... 3,650 3,625 11,048 10,668
--------- --------- --------- ---------
Net income applicable to common
stock............................ $ 365,099 $ 287,859 $ 877,658 $ 693,991
========= ========= ========= =========
Weighted average common shares
outstanding (000)................ 826,310 801,890 810,053 800,756
Net effect of dilutive stock
options-based on the treasury
stock method using average
market price (000)............... 28,362 36,718 25,160 36,680
--------- --------- --------- ---------
Weighted average common shares
outstanding and common stock
equivalents (000)................ 854,672 838,608 835,213 837,436
========= ========= ========= =========
Earnings per common share-
assuming dilution................ $ .43 $ .34 $ 1.05 $ .83
========= ========= ========= =========
NOTE F: LONG-TERM DEBT AND BANK NOTES
Long-term debt and bank notes consist of borrowings having an original maturity
of one year or more. During the nine months ended September 30, 2000, the
Corporation issued long-term debt and bank notes consisting of the following:
Par Value
----------------------
(dollars in thousands)
Fixed-Rate Bank Notes, with an interest rate of 7.75%,
payable semiannually, maturing in 2005................. $ 600,000
Floating-Rate Bank Notes, priced between 56 basis
points and 60 basis points over the three-month London
Interbank Offered Rate (LIBOR), payable quarterly,
maturing in 2005....................................... 35,000
Fixed-Rate Medium-Term Deposit Notes, with an interest
rate of 7.26% on the Canadian dollar denominated
note, payable semiannually, maturing in 2003
(CAD$20.0 million)..................................... 13,779
Floating-Rate Medium-Term Deposit Notes, priced between
55 basis points and 65 basis points over the
ninety-day Bankers Acceptance Rate, payable quarterly,
maturing in varying amounts in 2002 through 2005
(CAD$110.0 million).................................... 74,963
Fixed-Rate Euro Medium-Term Notes, with an interest
rate of .80% on the Japanese yen denominated notes,
payable annually, maturing in 2002 (JPY5.5 billion).... 51,249
Floating-Rate Euro Medium-Term Notes, priced
50 basis points over the three-month Hong Kong
Interbank Offered Rate, with interest payable
quarterly, maturing in 2002 (HKD300.0 million)......... 38,468
Floating-Rate Euro Medium-Term Notes, priced between
25 basis points and 35 basis points over the
three-month Japanese LIBOR, with interest payable
quarterly, maturing in varying amounts in 2002 and
2003 (JPY7.0 billion).................................. 63,990
Floating-Rate Euro Medium-Term Notes, priced between
50 basis points and 62 basis points over the
three-month Sterling LIBOR, with interest payable
quarterly, maturing in varying amounts in 2003 and
2004 (38.5 million pounds sterling).................... 60,561
Floating-Rate Euro Medium-Term Notes, priced at 62.5
basis points over the three-month Euro Interbank
Offered Rate, payable quarterly, maturing in 2003
(EUR150.0 million)..................................... 143,505
During the nine months ended September 30, 2000, MBNA International Bank
Limited ("MBNA Europe") redeemed the 34.0 million pounds sterling of
Subordinated Guaranteed Floating-Rate Notes, in accordance with the terms of
the notes.
The Corporation uses interest rate swap agreements and foreign exchange swap
agreements to change a portion of fixed-rate long-term debt and bank notes to
floating-rate long-term debt and bank notes to better match the interest rate
sensitivity of the Corporation's assets. The Corporation also uses foreign
exchange swap agreements to reduce its foreign currency exchange risk on a
portion of long-term debt and bank notes issued by MBNA Europe.
During the three months ended September 30, 2000, MBNA America Bank, N.A.,
("the Bank") entered into two interest rate swap agreements each with an
underlying notional amount of $300.0 million, related to the issuance of the
$600.0 million fixed-rate bank notes.
In addition, during the nine months ended September 30, 2000, MBNA Europe
entered into foreign exchange swap agreements to reduce the foreign currency
exchange risk and the interest rate sensitivity related to the fixed-rate Euro
Medium-Term Notes issued in Japanese yen and to reduce the exposure to foreign
currency exchange rate risk related to the issuance of floating-rate Euro
Medium-Term Notes denominated in Japanese yen, Euro, and Hong Kong dollar
currencies.
NOTE G: SENIOR SYNDICATED REVOLVING CREDIT FACILITY
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 replaced the Bank's
prior 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.
NOTE H: 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
September 30, 2000
------------------------------------------
Total Securitization Total
Managed Adjustments Consolidated
------------ -------------- ------------
Interest income.................. $ 2,893,266 $ (2,184,287) $ 708,979
Interest expense................. 1,408,534 (974,589) 433,945
------------ -------------- ------------
Net interest income.............. 1,484,732 (1,209,698) 275,034
Provision for possible credit
losses.......................... 770,936 (657,653) 113,283
------------ -------------- ------------
Net interest income after
provision for possible credit
losses.......................... 713,796 (552,045) 161,751
Other operating income........... 774,105 552,045 1,326,150
Other operating expense.......... 892,183 - 892,183
------------ -------------- ------------
Income before income taxes....... 595,718 - 595,718
Applicable income taxes.......... 226,969 - 226,969
------------ -------------- ------------
Net income....................... $ 368,749 $ - $ 368,749
============ ============== ============
For the Three Months Ended
September 30, 1999
------------------------------------------
Total Securitization Total
Managed Adjustments Consolidated
------------ -------------- ------------
Interest income.................. $ 2,315,412 $ (1,770,590) $ 544,822
Interest expense................. 1,002,053 (666,252) 335,801
------------ -------------- ------------
Net interest income.............. 1,313,359 (1,104,338) 209,021
Provision for possible credit
losses.......................... 712,387 (607,367) 105,020
------------ -------------- ------------
Net interest income after
provision for possible credit
losses.......................... 600,972 (496,971) 104,001
Other operating income........... 621,336 496,971 1,118,307
Other operating expense.......... 751,413 - 751,413
------------ -------------- ------------
Income before income taxes....... 470,895 - 470,895
Applicable income taxes.......... 179,411 - 179,411
------------ -------------- ------------
Net income....................... $ 291,484 $ - $ 291,484
============ ============== ============
For the Nine Months Ended
September 30, 2000
------------------------------------------
Total Securitization Total
Managed Adjustments Consolidated
------------ -------------- ------------
Interest income.................. $ 8,106,348 $ (6,062,778) $ 2,043,570
Interest expense................. 3,874,773 (2,657,621) 1,217,152
------------ -------------- ------------
Net interest income.............. 4,231,575 (3,405,157) 826,418
Provision for possible credit
losses.......................... 2,234,247 (1,931,817) 302,430
------------ -------------- ------------
Net interest income after
provision for possible credit
losses.......................... 1,997,328 (1,473,340) 523,988
Other operating income........... 2,157,217 1,473,340 3,630,557
Other operating expense.......... 2,718,832 - 2,718,832
------------ -------------- ------------
Income before income taxes....... 1,435,713 - 1,435,713
Applicable income taxes.......... 547,007 - 547,007
------------ -------------- ------------
Net income....................... $ 888,706 $ - $ 888,706
============ ============== ============
Ending loans outstanding......... $ 84,671,443 $ (66,626,693) $ 18,044,750
For the Nine Months Ended
September 30, 1999
------------------------------------------
Total Securitization Total
Managed Adjustments Consolidated
------------ -------------- ------------
Interest income.................. $ 6,666,238 $ (4,993,244) $ 1,672,994
Interest expense................. 2,819,255 (1,849,124) 970,131
------------ -------------- ------------
Net interest income.............. 3,846,983 (3,144,120) 702,863
Provision for possible credit
losses.......................... 2,078,814 (1,759,574) 319,240
------------ -------------- ------------
Net interest income after
provision for possible credit
losses.......................... 1,768,169 (1,384,546) 383,623
Other operating income........... 1,666,023 1,384,546 3,050,569
Other operating expense.......... 2,295,809 - 2,295,809
------------ -------------- ------------
Income before income taxes....... 1,138,383 - 1,138,383
Applicable income taxes.......... 433,724 - 433,724
------------ -------------- ------------
Net income....................... $ 704,659 $ - $ 704,659
============ ============== ============
Ending loans outstanding......... $ 67,353,183 $ (52,662,759) $ 14,690,424
NOTE I: INTANGIBLE ASSETS
Intangible assets, including the value of acquired Customer accounts and
goodwill, are amortized over the periods the Corporation receives a benefit,
not exceeding fifteen years. The Corporation amortizes its intangible assets
generally using 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 $2.7 billion and $1.6 billion
at September 30, 2000 and December 31, 1999, respectively. The increase in
intangible assets during the nine months ended September 30, 2000, is primarily
a result of the acquisition of the consumer and commercial revolving credit
loan portfolio from First Union Corporation and other loan portfolios. The
Corporation had accumulated amortization related to its intangible assets of
$481.8 million at September 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 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 will implement the guidelines in December 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. 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.
In September 2000, Statement of Financial Accounting Standards No. 140,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities" ("Statement No. 140") was issued. Statement No. 140 replaces
Statement of Financial Accounting Standards No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities"
("Statement No. 125"), and revises the standards for accounting for
securitizations and other transfers of financial assets and collateral and
requires certain disclosures, but it carries over most of Statement No. 125's
provisions without reconsideration. Statement No. 140 is effective for
transfers and servicing of financial assets and extinguishments of liabilities
occurring after March 31, 2001. However, Statement No. 140 is effective for
disclosures relating to securitization transactions and collateral for fiscal
years ending after December 15, 2000. The implementation of Statement No. 140
will not have a material impact on the Corporation's consolidated financial
statements.
MBNA CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(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 September 30, 2000 increased 26.5% to
$368.7 million or $.43 per common share, from $291.5 million or $.34 per
common share for the same period in 1999. Net income for the nine months ended
September 30, 2000 increased 26.1% to $888.7 million or $1.05 per common
share, from $704.7 million or $.83 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 18.6% and 19.2% to $77.8 billion and $74.6 billion for the
three and nine months ended September 30, 2000, compared to $65.6 billion and
$62.6 billion for the same periods in 1999, respectively. Total managed loans
at September 30, 2000 were $84.7 billion, a $17.3 billion increase from
September 30, 1999, and a $12.4 billion increase since December 31, 1999. The
growth in managed loans includes the $5.7 billion acquisition of the consumer
and commercial revolving credit loan portfolio from First Union Corporation on
September 30, 2000. During the nine months ended September 30, 2000, the
Corporation acquired 335 new endorsements from organizations and added 11.5
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. The Corporation had $66.6 billion of outstanding securitized
loans at September 30, 2000. During the three and nine months ended
September 30, 2000, the Corporation securitized $4.7 billion and $11.4 billion
of credit card and other consumer loan receivables, respectively. In addition,
the Corporation assumed $3.9 billion of securitized credit card loan
receivables as part of the acquisition of the consumer and commercial
revolving credit loan portfolio from First Union Corporation.
The Corporation's return on average total assets for the three and nine months
ended September 30, 2000 was 4.38% and 3.70%, as compared to 4.02% and 3.39%
for the same periods in 1999, respectively. The Corporation's return on
average stockholders' equity for the three and nine months ended September 30,
2000 was 27.56% and 25.65%, compared to 30.15% and 25.67% for the same periods
in 1999, respectively. The decline in the Corporation's return on average
stockholders' equity during the three months ended September 30, 2000 was
primarily a result of an increase in average stockholders' equity from the
issuance of 50 million shares of common stock in August 2000 for $1.6 billion,
net of issuance costs.
NET INTEREST INCOME
Net interest income for the three and nine months ended September 30, 2000, on
a fully taxable equivalent basis, was $275.6 million and $828.2 million
compared to $209.5 million and $704.3 million for the same periods in 1999,
respectively. Average interest-earning assets increased $3.6 billion and $2.5
billion for the three and nine months ended September 30, 2000, as compared to
the same periods in 1999, respectively. The yield on average interest-earning
assets increased 112 basis points and 96 basis points for the three and nine
months ended September 30, 2000, respectively, as compared to the same periods
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 $2.9 billion and $3.0 billion for the three and nine
months ended September 30, 2000, respectively, as compared to the same periods
in 1999. The rate paid on average interest-bearing liabilities increased 87
basis points and 61 basis points for the three and nine months ended September
30, 2000, respectively, as compared to the same periods in 1999. The increase
in the rate paid on average interest-bearing liabilities reflects actions by
the Federal Reserve Board which impacted overall market interest rates. The
increase in interest-bearing liabilities is primarily a result of an increase
of $3.8 billion and $3.3 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.
The net interest margin, on a fully taxable equivalent basis, was 4.74% and
4.94% for the three and nine months ended September 30, 2000, as compared to
4.25% and 4.72% 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 $9.3 million and $39.8 million to $46.8 million and $134.7 million
for the three and nine months ended September 30, 2000, respectively, as
compared to the same periods in 1999. The increase in interest income on
investment securities for the three and nine months ended September 30, 2000,
was the result of an increase in average investment securities of $327.5
million and $695.2 million, respectively. In addition, the yield earned on
average investment securities increased 64 basis points and 52 basis points,
respectively, as compared to the same periods in 1999.
Interest income on money market instruments increased $3.8 million to $38.9
million for the three months ended September 30, 2000, as compared to the same
period in 1999. The increase in interest income on money market instruments
for the three months ended September 30, 2000 is a result of an increase of 132
basis points in the yield earned on average money market instruments, offset by
a decrease of $300.8 million in average money market instruments, as compared
to the same period in 1999. Interest income on money market instruments
decreased $33.3 million to $89.0 million for the nine months ended
September 30, 2000, as compared to the same period in 1999. The decrease in
interest income on money market instruments for the nine months ended
September 30, 2000 is a result of a decrease of $1.3 billion in average money
market instruments, offset by an increase of 121 basis points in the yield
earned on average money market instruments, as compared to the same period in
1999.
The Corporation tries to maintain its investment securities and money market
instruments position at a level appropriate for the Corporation's anticipated
liquidity needs. The Corporation's 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 investment securities and money
market instruments as a percentage of average interest-earning assets were
23.7% and 22.2% for the three and nine months ended September 30, 2000, as
compared to 27.9% and 28.2% for the same periods in 1999, respectively.
The increase in average investment securities and the decline in money market
instruments for the three and nine months ended September 30, 2000 is 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. During the nine months ended
September 30, 1999, average money market instruments were also higher than
normal as a result of the temporary investment of the net proceeds from the
issuance of common stock by the Corporation in January 1999.
LOAN RECEIVABLES
Interest income generated by the Corporation's loan receivables increased
$151.2 million and $364.4 million to $623.9 million and $1.8 billion for the
three and nine months ended September 30, 2000, respectively, as compared to
the same periods in 1999. The increase is primarily attributable to an
increase in average loan receivables of $3.6 billion and $3.1 billion for the
three and nine months ended September 30, 2000, respectively, as compared to
the same periods in 1999. The yield earned by the Corporation on loan
receivables increased 74 basis points to 14.05% and 35 basis points to 13.95%
for the three and nine months ended September 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. Loan receivables increased $381.0
million to $18.0 billion at September 30, 2000, compared to December 31, 1999.
The increase in loan receivables is a result of growth in the Corporation's net
loan originations, portfolio acquisitions of $3.3 billion, and $3.4 billion of
previously securitized loans amortizing back into the Corporation's loan
portfolio, offset by the Corporation securitizing $11.4 billion of credit card
and other consumer loan receivables during the nine months ended September 30,
2000. Included in portfolio acquisitions is $1.8 billion of consumer and
commercial revolving credit loan receivables from First Union Corporation,
which are recorded on the Corporation's consolidated balance sheet.
TABLE 1: LOAN RECEIVABLES DISTRIBUTION
(dollars in thousands)
September 30, December 31,
2000 1999
------------- -------------
(unaudited)
Loans held for securitization:
Domestic:
Credit card................................ $ 4,835,281 $ 7,835,429
Other consumer............................. 1,020,868 1,001,271
------------- -------------
Total domestic loans held for
securitization.......................... 5,856,149 8,836,700
Foreign...................................... 1,135,436 855,916
------------- -------------
Total loans held for securitization...... 6,991,585 9,692,616
Loan portfolio:
Domestic:
Credit card................................ 6,886,884 5,116,381
Other consumer............................. 2,154,147 1,268,019
------------- -------------
Total domestic loan portfolio............ 9,041,031 6,384,400
Foreign...................................... 2,012,134 1,586,693
------------- -------------
Total loan portfolio..................... 11,053,165 7,971,093
------------- -------------
Total loan receivables................... $ 18,044,750 $ 17,663,709
============= =============
DEPOSITS
Total interest expense on deposits increased $97.7 million and $230.3 million
to $328.1 million and $896.2 million for the three and nine months ended
September 30, 2000, respectively, compared to $230.4 million and $665.9 million
for the same periods in 1999. The increase in interest expense for the three
and nine months ended September 30, 2000 is the result of an increase in
average interest-bearing deposits of $3.8 billion and $3.4 billion,
respectively, in addition to a 87 basis point and a 60 basis point increase in
the rate 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 nine months ended September 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 $7.4 million and $30.9 million
for the three and nine months ended September 30, 2000, as compared to $9.2
million and $26.4 million for the same periods in 1999, respectively. The
decrease for the three months ended September 30, 2000 is primarily a result of
a decrease in average short-term borrowings of $215.3 million offset by an 100
basis point increase in the rate paid on average short-term borrowings. The
increase in interest expense for the nine months ended September 30, 2000 is
primarily a result of an 88 basis point increase in the rate paid on average
short-term borrowings.
Total interest expense on long-term debt and bank notes for the three and nine
months ended September 30, 2000 increased to $98.5 million and $290.0 million,
as compared to $96.2 million and $277.8 million for the same periods in 1999,
respectively. Interest on domestic long-term debt and bank notes for the three
and nine months ended September 30, 2000 decreased $7.0 million and $16.7
million, primarily as a result of a decrease in average long-term debt and bank
notes, offset by an increase in the rate paid of 109 basis points and 85 basis
points on the domestic 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 nine months ended September 30, 2000 increased $9.3 million
and $28.9 million, as compared to the same periods in 1999, respectively,
primarily as a result of the issuances of Euro Medium-Term Notes by MBNA Europe
and Medium-Term Deposit Notes by MBNA Canada.
Table 2 provides further detail regarding the Corporation's average balances,
yields and rates, and income or expense for the three and nine months ended
September 30, 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
September 30, 2000
--------------------------------
Average Yield/ Income
Amount Rate or Expense
------------ ------ ----------
(unaudited)
ASSETS
Interest-earning assets:
Interest-earning time deposits in other
banks:
Domestic................................. $ 32,056 6.03% $ 486
Foreign.................................. 1,413,859 6.49 23,080
------------ ----------
Total interest-earning time deposits
in other banks...................... 1,445,915 6.48 23,566
Federal funds sold and securities
purchased under resale agreements......... 920,951 6.62 15,315
------------ ---------
Total money market instruments....... 2,366,866 6.54 38,881
Investment securities(a):
Taxable.................................. 3,016,255 5.94 45,054
Tax-exempt(b)............................ 101,027 6.76 1,717
------------ ---------
Total investment securities.......... 3,117,282 5.97 46,771
Loans held for securitization:
Domestic................................. 6,722,112 14.98 253,151
Foreign.................................. 1,178,805 13.32 39,469
------------ ----------
Total loans held for securitization.. 7,900,917 14.73 292,620
Loans:
Domestic:
Credit card............................ 5,717,289 13.56 194,897
Other consumer......................... 1,865,189 14.85 69,616
------------ ----------
Total domestic loans................. 7,582,478 13.88 264,513
Foreign.................................. 2,184,804 12.16 66,795
------------ ----------
Total loans.......................... 9,767,282 13.49 331,308
------------ ----------
Total loan receivables............... 17,668,199 14.05 623,928
------------ ----------
Total interest-earning assets........ 23,152,347 12.19 $ 709,580
Cash and due from banks...................... 688,112
Premises and equipment, net.................. 1,699,109
Other assets................................. 8,293,230
Reserve for possible credit losses........... (375,600)
------------
Total assets......................... $ 33,457,198
============
(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
September 30, 2000
--------------------------------
Average Yield/ Income
Amount Rate or Expense
------------ ------ ----------
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing deposits:
Domestic:
Time deposits.......................... $ 14,758,984 6.52% $ 241,904
Money market deposit accounts.......... 4,631,719 6.40 74,533
Interest-bearing transaction accounts.. 38,632 5.22 507
Savings accounts....................... 9,127 5.19 119
------------ ----------
Total domestic interest-bearing
deposits............................ 19,438,462 6.49 317,063
Foreign:
Time deposits.......................... 754,197 5.83 11,051
------------ ----------
Total interest-bearing deposits...... 20,192,659 6.46 328,114
Borrowed funds:
Short-term borrowings:
Domestic............................... 291,553 6.81 4,991
Foreign................................ 160,326 5.88 2,368
------------ ----------
Total short-term borrowings.......... 451,879 6.48 7,359
Long-term debt and bank notes(c):
Domestic............................... 4,357,307 7.22 79,033
Foreign................................ 1,129,206 6.85 19,439
------------ ----------
Total long-term debt and bank notes.. 5,486,513 7.14 98,472
------------ ----------
Total borrowed funds................. 5,938,392 7.09 105,831
------------ ----------
Total interest-bearing liabilities... 26,131,051 6.61 433,945
Demand deposits.............................. 688,335
Other liabilities............................ 1,315,568
------------
Total liabilities.................... 28,134,954
Stockholders' equity......................... 5,322,244
------------
Total liabilities and stockholders'
equity.............................. $ 33,457,198
============ ----------
Net interest income.................. $ 275,635
==========
Net interest margin.................. 4.74
Interest rate spread................. 5.58
(b) The fully taxable equivalent adjustment for the three months ended
September 30, 2000 was $601.
(c) Includes the impact of interest rate swap agreements used to change fixed-
rate funding sources to floating-rate funding sources.
For the Three Months Ended
September 30, 1999
--------------------------------
Average Yield/ Income
Amount Rate or Expense
------------ ------ ----------
(unaudited)
ASSETS
Interest-earning assets:
Interest-earning time deposits in other
banks:
Domestic................................. $ 3,689 4.41% $ 41
Foreign.................................. 1,949,700 5.23 25,704
------------ ----------
Total interest-earning time deposits
in other banks...................... 1,953,389 5.23 25,745
Federal funds sold and securities
purchased under resale agreements......... 714,266 5.21 9,377
------------ ---------
Total money market instruments....... 2,667,655 5.22 35,122
Investment securities(a):
Taxable.................................. 2,692,985 5.32 36,116
Tax-exempt(b)............................ 96,788 5.53 1,348
------------ ----------
Total investment securities.......... 2,789,773 5.33 37,464
Loans held for securitization:
Domestic................................. 3,227,950 13.02 105,914
Foreign.................................. 1,094,648 13.34 36,797
------------ ----------
Total loans held for securitization.. 4,322,598 13.10 142,711
Loans:
Domestic:
Credit card............................ 7,069,013 13.21 235,360
Other consumer......................... 1,588,307 14.28 57,187
------------ ----------
Total domestic loans................. 8,657,320 13.41 292,547
Foreign.................................. 1,113,766 13.34 37,450
------------ ----------
Total loans.......................... 9,771,086 13.40 329,997
------------ ----------
Total loan receivables............... 14,093,684 13.31 472,708
------------ ----------
Total interest-earning assets........ 19,551,112 11.07 $ 545,294
Cash and due from banks...................... 567,976
Premises and equipment, net.................. 1,672,239
Other assets................................. 7,315,586
Reserve for possible credit losses........... (327,877)
------------
Total assets......................... $ 28,779,036
============
(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 net interest margin.
For the Three Months Ended
September 30, 1999
--------------------------------
Average Yield/ Income
Amount Rate or Expense
------------ ------ ----------
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing deposits:
Domestic:
Time deposits.......................... $ 11,287,050 5.85% $ 166,484
Money market deposit accounts.......... 4,346,288 5.01 54,920
Interest-bearing transaction accounts.. 35,542 3.90 349
Savings accounts....................... 8,922 4.18 94
------------ ----------
Total domestic interest-bearing
deposits............................ 15,677,802 5.61 221,847
Foreign:
Time deposits.......................... 673,309 5.04 8,551
------------ ----------
Total interest-bearing deposits...... 16,351,111 5.59 230,398
Borrowed funds:
Short-term borrowings:
Domestic............................... 421,641 5.71 6,065
Foreign................................ 245,576 5.08 3,144
------------ ----------
Total short-term borrowings.......... 667,217 5.48 9,209
Long-term debt and bank notes(c):
Domestic............................... 5,572,523 6.13 86,063
Foreign................................ 625,806 6.42 10,131
------------ ----------
Total long-term debt and bank notes.. 6,198,329 6.16 96,194
------------ ----------
Total borrowed funds................. 6,865,546 6.09 105,403
------------ ----------
Total interest-bearing liabilities... 23,216,657 5.74 335,801
Demand deposits.............................. 646,194
Other liabilities............................ 1,080,845
------------
Total liabilities.................... 24,943,696
Stockholders' equity......................... 3,835,340
------------
Total liabilities and stockholders'
equity.............................. $ 28,779,036
============ ----------
Net interest income.................. $ 209,493
==========
Net interest margin.................. 4.25
Interest rate spread................. 5.33
(b) The fully taxable equivalent adjustment for the three months ended
September 30, 1999 was $472.
(c) Includes the impact of interest rate swap agreements used to change fixed-
rate funding sources to floating-rate funding sources.
For the Nine Months Ended
September 30, 2000
--------------------------------
Average Yield/ Income
Amount Rate or Expense
------------ ------ ----------
(unaudited)
ASSETS
Interest-earning assets:
Interest-earning time deposits in other
banks:
Domestic................................. $ 12,292 5.77% $ 531
Foreign.................................. 1,305,084 6.23 60,869
------------ ----------
Total interest-earning time deposits
in other banks...................... 1,317,376 6.23 61,400
Federal funds sold and securities
purchased under resale agreements......... 582,130 6.34 27,612
------------ ---------
Total money market instruments....... 1,899,506 6.26 89,012
Investment securities(a):
Taxable.................................. 2,974,569 5.83 129,742
Tax-exempt(b)............................ 102,312 6.53 5,004
------------ ---------
Total investment securities.......... 3,076,881 5.85 134,746
Loans held for securitization:
Domestic................................. 7,349,478 14.48 796,826
Foreign.................................. 984,858 13.35 98,462
------------ ----------
Total loans held for securitization.. 8,334,336 14.35 895,288
Loans:
Domestic:
Credit card............................ 5,453,878 13.58 554,457
Other consumer......................... 1,810,331 14.77 200,161
------------ ----------
Total domestic loans................. 7,264,209 13.88 754,618
Foreign.................................. 1,840,953 12.46 171,657
------------ ----------
Total loans.......................... 9,105,162 13.59 926,275
------------ ----------
Total loan receivables............... 17,439,498 13.95 1,821,563
------------ ----------
Total interest-earning assets........ 22,415,885 12.19 $2,045,321
Cash and due from banks...................... 656,496
Premises and equipment, net.................. 1,677,151
Other assets................................. 7,718,523
Reserve for possible credit losses........... (367,033)
------------
Total assets......................... $ 32,101,022
============
(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 Nine Months Ended
September 30, 2000
--------------------------------
Average Yield/ Income
Amount Rate or Expense
------------ ------ ----------
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing deposits:
Domestic:
Time deposits.......................... $ 13,944,625 6.28% $ 656,008
Money market deposit accounts.......... 4,528,463 6.05 205,022
Interest-bearing transaction accounts.. 37,424 5.11 1,431
Savings accounts....................... 9,302 5.05 352
------------ ----------
Total domestic interest-bearing
deposits............................ 18,519,814 6.22 862,813
Foreign:
Time deposits.......................... 778,119 5.73 33,374
------------ ----------
Total interest-bearing deposits...... 19,297,933 6.20 896,187
Borrowed funds:
Short-term borrowings:
Domestic............................... 482,896 6.40 23,142
Foreign................................ 183,653 5.67 7,793
------------ ----------
Total short-term borrowings.......... 666,549 6.20 30,935
Long-term debt and bank notes(c):
Domestic............................... 4,583,720 6.94 238,040
Foreign................................ 1,041,913 6.67 51,990
------------ ----------
Total long-term debt and bank notes.. 5,625,633 6.89 290,030
------------ ----------
Total borrowed funds................. 6,292,182 6.81 320,965
------------ ----------
Total interest-bearing liabilities... 25,590,115 6.35 1,217,152
Demand deposits.............................. 652,488
Other liabilities............................ 1,229,928
------------
Total liabilities.................... 27,472,531
Stockholders' equity......................... 4,628,491
------------
Total liabilities and stockholders'
equity.............................. $ 32,101,022
============ ----------
Net interest income.................. $ 828,169
==========
Net interest margin.................. 4.94
Interest rate spread................. 5.84
(b) The fully taxable equivalent adjustment for the nine months ended
September 30, 2000 was $1,751.
(c) Includes the impact of interest rate swap agreements used to change fixed-
rate funding sources to floating-rate funding sources.
For the Nine Months Ended
September 30, 1999
--------------------------------
Average Yield/ Income
Amount Rate or Expense
------------ ------ ----------
(unaudited)
ASSETS
Interest-earning assets:
Interest-earning time deposits in other
banks:
Domestic................................. $ 3,434 3.82% $ 98
Foreign.................................. 2,316,316 5.10 88,418
------------ ----------
Total interest-earning time deposits
in other banks...................... 2,319,750 5.10 88,516
Federal funds sold and securities
purchased under resale agreements......... 917,202 4.93 33,800
------------ ---------
Total money market instruments....... 3,236,952 5.05 122,316
Investment securities(a):
Taxable.................................. 2,286,548 5.32 90,908
Tax-exempt(b)............................ 95,092 5.65 4,018
------------ ----------
Total investment securities.......... 2,381,640 5.33 94,926
Loans held for securitization:
Domestic................................. 3,005,294 13.69 307,639
Foreign.................................. 911,904 13.84 94,430
------------ ----------
Total loans held for securitization.. 3,917,198 13.72 402,069
Loans:
Domestic:
Credit card............................ 7,363,871 13.45 740,676
Other consumer......................... 2,011,251 13.92 209,402
------------ ----------
Total domestic loans................. 9,375,122 13.55 950,078
Foreign.................................. 1,028,564 13.65 105,011
------------ ----------
Total loans.......................... 10,403,686 13.56 1,055,089
------------ ----------
Total loan receivables............... 14,320,884 13.60 1,457,158
------------ ----------
Total interest-earning assets........ 19,939,476 11.23 $1,674,400
Cash and due from banks...................... 518,780
Premises and equipment, net.................. 1,642,604
Other assets................................. 6,000,740
Reserve for possible credit losses........... (290,067)
------------
Total assets......................... $ 27,811,533
============
(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 Nine Months Ended
September 30, 1999
--------------------------------
Average Yield/ Income
Amount Rate or Expense
------------ ------ ----------
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing deposits:
Domestic:
Time deposits.......................... $ 10,837,995 5.89% $ 477,727
Money market deposit accounts.......... 4,284,486 4.90 157,121
Interest-bearing transaction accounts.. 36,263 4.14 1,124
Savings accounts....................... 47,605 4.31 1,535
------------ ----------
Total domestic interest-bearing
deposits............................ 15,206,349 5.61 637,507
Foreign:
Time deposits.......................... 703,047 5.39 28,366
------------ ----------
Total interest-bearing deposits...... 15,909,396 5.60 665,873
Borrowed funds:
Short-term borrowings:
Domestic............................... 431,508 5.48 17,687
Foreign................................ 232,488 5.04 8,758
------------ ----------
Total short-term borrowings.......... 663,996 5.32 26,445
Long-term debt and bank notes(c):
Domestic............................... 5,589,438 6.09 254,762
Foreign................................ 448,948 6.86 23,051
------------ ----------
Total long-term debt and bank notes.. 6,038,386 6.15 277,813
------------ ----------
Total borrowed funds................. 6,702,382 6.07 304,258
------------ ----------
Total interest-bearing liabilities... 22,611,778 5.74 970,131
Demand deposits.............................. 565,282
Other liabilities............................ 964,844
------------
Total liabilities.................... 24,141,904
Stockholders' equity......................... 3,669,629
------------
Total liabilities and stockholders'
equity.............................. $ 27,811,533
============ ----------
Net interest income.................. $ 704,269
==========
Net interest margin.................. 4.72
Interest rate spread................. 5.49
(b) The fully taxable equivalent adjustment for the nine months ended
September 30, 1999 was $1,406.
(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 18.6% and 19.0% to $1.3 billion and $3.6
billion for the three and nine months ended September 30, 2000, respectively,
from $1.1 billion and $3.1 billion for the same periods in 1999. The increase
in other operating income is primarily attributable to a $151.4 million and
$406.5 million, or 15.6% and 15.4% increase, in securitization income for the
three and nine months ended September 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 $8.6 billion and
$8.9 billion, or 16.7% and 18.4%, for the three and nine months ended
September 30, 2000, respectively, offset by an increase in the average rate
paid to investors in the Corporation's securitized loans. Credit card fees
increased 52.7% and 51.4% to $78.1 million and $216.7 million for the three and
nine months ended September 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, credit card fees and loan servicing fees related to securitized
loans increased for the nine months ended September 30, 2000, as compared to
the same period 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 also increased $14.1 million and $47.6
million to $70.9 million and $205.2 million for the three and nine months ended
September 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 Inc. and Visa
U.S.A., Inc. in April 1999.
OTHER OPERATING EXPENSE
Total other operating expense increased 18.7% and 18.4% to $892.2 million and
$2.7 billion for the three and nine months ended September 30, 2000,
respectively, from $751.4 million and $2.3 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 nine months ended September 30, 2000,
the Corporation added 11.5 million new accounts or 14.9 million new Customers.
The Corporation also added 335 new endorsements from organizations during the
nine months ended September 30, 2000.
The growth in total other operating expense included an increase in salaries
and employee benefits of $66.1 million and $180.1 million to $401.6 million and
$1.1 billion for the three and nine months ended September 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 $34.6 million and
$73.5 million to $74.6 million and $184.9 million for the three and nine months
ended September 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: OTHER EXPENSE COMPONENT OF OTHER OPERATING EXPENSE
(dollars in thousands)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
-------------------- ----------------------
2000 1999 2000 1999
--------- --------- ---------- ----------
(unaudited)
Purchased services............... $ 78,469 $ 71,641 $ 260,013 $ 241,751
Advertising...................... 44,602 43,850 183,231 158,016
Collection....................... 10,359 10,467 32,531 30,029
Stationery and supplies.......... 8,745 8,391 26,844 27,555
Service bureau................... 14,128 12,396 38,640 34,003
Postage and delivery............. 57,331 61,699 244,947 215,025
Telephone usage.................. 18,904 18,582 55,159 55,356
Loan receivable fraud losses..... 41,796 27,154 109,866 73,433
Amortization of intangible
assets.......................... 74,637 40,085 184,924 111,408
Computer software................ 16,969 13,631 51,661 43,853
Other............................ 39,043 30,023 132,792 107,009
--------- --------- ---------- ----------
Total other operating expense.. $ 404,983 $ 337,919 $1,320,608 $1,097,438
========= ========= ========== ==========
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 3.94%
at September 30, 2000, compared to 3.82% at December 31, 1999. The
Corporation's managed delinquency, as a percentage of managed loans, was 4.65%
at September 30, 2000, as compared to 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)
September 30, 2000 December 31, 1999
------------------ -----------------
(unaudited)
Loan portfolio......................... $ 11,053,165 $ 7,971,093
Loans delinquent:
30 to 59 days........................ $ 165,966 1.50% $ 105,667 1.33%
60 to 89 days........................ 85,721 .78 60,452 .76
90 or more days...................... 183,517 1.66 138,531 1.73
------------ ---- ----------- ----
Total.............................. $ 435,204 3.94% $ 304,650 3.82%
============ ==== =========== ====
Loans delinquent by geographic area:
Domestic............................. $ 392,020 4.34% $ 271,139 4.25%
Foreign.............................. 43,184 2.15 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 placing them on nonaccrual status.
These other nonperforming loans, excluding loans held for securitization, are
presented in Table 5.
TABLE 5: OTHER NONPERFORMING LOANS
(dollars in thousands)
September 30, 2000 December 31, 1999
------------------ -----------------
(unaudited)
Nonaccrual loans....................... $ 24,519 $ 12,245
Reduced-rate loans..................... 246,302 153,082
------------------ -----------------
Total other nonperforming loans...... $ 270,821 $ 165,327
================== =================
Other nonperforming loans as a % of
ending loan portfolio................. 2.45% 2.07%
The Corporation's total managed other nonperforming loans as a percentage of
ending managed loans was 2.63% at September 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 nine months ended September 30, 2000 were
$97.0 million and $286.0 million, respectively, compared to $105.0 million and
$292.5 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 and nine months ended September 30, 2000,
reflects the current economic conditions.
Annualized net credit losses as a percentage of average loan receivables were
2.19% for both the three and nine months ended September 30, 2000, as compared
to 2.98% and 2.72% for the same periods in 1999. The Corporation's annualized
managed credit losses as a percentage of average managed loans for the three
and nine months ended September 30, 2000 were 3.88% and 3.96%, respectively, as
compared to 4.34% and 4.37% 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 months ended
September 30, 2000, increased 7.9% to $113.3 million from $105.0 million, and
for the nine months ended September 30, 2000 decreased 5.3% to $302.4 million
from $319.2 million. 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 Nine Months
Ended September 30, Ended September 30,
-------------------- --------------------
2000 1999 2000 1999
--------- --------- --------- ---------
(unaudited)
Beginning of period............... $ 375,300 $ 326,897 $ 355,959 $ 216,911
Reserves acquired............... 37,733 194 57,859 84,285
Provision for possible credit
losses......................... 113,283 105,020 302,430 319,240
Foreign currency translation.... (441) 957 (1,311) 197
Credit losses:
Domestic:
Credit card................. (101,324) (123,680) (312,389) (326,205)
Other consumer.............. (25,623) (20,339) (87,126) (79,355)
--------- --------- --------- ---------
Total domestic credit
losses................... (126,947) (144,019) (399,515) (405,560)
Foreign....................... (20,083) (11,095) (45,715) (29,471)
--------- --------- --------- ---------
Total credit losses....... (147,030) (155,114) (445,230) (435,031)
Recoveries:
Domestic:
Credit card................. 38,648 39,991 123,762 115,339
Other consumer.............. 5,270 5,197 17,353 16,241
--------- --------- --------- ---------
Total domestic recoveries. 43,918 45,188 141,115 131,580
Foreign....................... 6,162 4,953 18,103 10,913
--------- --------- --------- ---------
Total recoveries.......... 50,080 50,141 159,218 142,493
--------- --------- --------- ---------
Net credit losses............... (96,950) (104,973) (286,012) (292,538)
--------- --------- --------- ---------
End of period..................... $ 428,925 $ 328,095 $ 428,925 $ 328,095
========= ========= ========= =========
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 will implement the guidelines in December 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 September 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
September 30, December 31, Minimum Capitalized
2000 1999 Requirements Requirements
------------- ------------ ------------ ------------
(unaudited)
MBNA Corporation
Tier 1.................. 17.00% 14.72% 4.00% (a)
Total................... 19.10 17.02 8.00 (a)
Leverage................ 17.90 14.90 4.00 (a)
MBNA America Bank, N.A.
Tier 1.................. 10.89 11.06 4.00 6.00%
Total................... 13.00 13.44 8.00 10.00
Leverage................ 12.33 11.61 4.00 5.00
(a) Not applicable for bank holding companies.
In August 2000, the Corporation issued 50 million shares of common stock,
raising $1.6 billion of capital, net of issuance costs. The Corporation
contributed $750.0 million of the net proceeds from this offering to the Bank
in order to complete the acquisition of the consumer and commercial revolving
credit loan portfolio from First Union Corporation in September 2000. The
Corporation will use the remaining portion for other general corporate
purposes.
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 nine months ended September 30,
2000, the Corporation declared dividends on its preferred stock of $11.0
million and on its common stock of $196.4 million.
On October 10, 2000 the Corporation's Board of Directors declared a quarterly
cash dividend of $.08 per common share, payable January 1, 2001 to shareholders
of record as of December 15, 2000. Also, on October 10, 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 $.3702 per share on the Adjustable Rate Cumulative Preferred Stock,
Series B. The preferred stock dividends are payable January 16, 2001 to
stockholders of record as of December 31, 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 September 30, 2000, the amount of retained
earnings available for declaration and payment of dividends from the Bank to
the Corporation was $1.7 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 September 30, 2000, the
amount of retained earnings available for declaration of dividends would have
been further limited to $399.0 million.
LIQUIDITY MANAGEMENT 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-term 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 September 30, 2000 and December 31, 1999 were $21.6 billion
and $18.7 billion, respectively. Included in total deposits at September 30,
2000 are $831.1 million of foreign time deposits, which generally mature within
one year. Table 8 presents the maturities of the Corporation's deposits at
September 30, 2000.
TABLE 8: MATURITIES OF DEPOSITS AT SEPTEMBER 30, 2000
(dollars in thousands)
Direct Other Total
Deposits Deposits Deposits
------------ ------------ ------------
(unaudited)
Three months or less(a)............. $ 6,706,707 $ 1,249,965 $ 7,956,672
Over three months through twelve
months............................. 3,799,481 1,468,628 5,268,109
Over one year through five years.... 4,567,525 3,797,508 8,365,033
Over five years..................... 5,032 - 5,032
------------ ------------ ------------
Total deposits.................... $ 15,078,745 $ 6,516,101 $ 21,594,846
============ ============ ============
(a) Includes money market deposit accounts, noninterest-bearing demand
deposits, interest-bearing transaction accounts, and savings accounts
totaling $5.5 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 replaced the Bank's
prior 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 $2.5
billion of money market instruments at September 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 September 30, 2000, $1.6
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 September 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 SEPTEMBER 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.. $1,100,480 $ 598,934 $ - $ -
State and political subdivisions
of the United States............. 92,938 2,058 - -
Asset-backed and other securities. 443,244 490,913 35,756 15,206
---------- ---------- --------- --------
Total investment securities
available-for-sale............. $1,636,662 $1,091,905 $ 35,756 $ 15,206
========== ========== ========= ========
HELD-TO-MATURITY
U.S. Treasury and other U.S.
government agencies obligations.. $ - $ - $ - $288,164
State and political subdivisions
of the United States............. 10 186 - 5,882
Asset-backed and other securities. - 11,916 - 25,920
---------- ---------- --------- --------
Total investment securities
held-to-maturity............... $ 10 $ 12,102 $ - $319,966
========== ========== ========= ========
Book Market
Value Value
---------- ----------
AVAILABLE-FOR-SALE
U.S. Treasury and other U.S.
government agencies obligations.. $1,699,414 $1,699,414
State and political subdivisions
of the United States............. 94,996 94,996
Asset-backed and other securities. 985,119 985,119
---------- ----------
Total investment securities
available-for-sale............. $2,779,529 $2,779,529
========== ==========
HELD-TO-MATURITY
U.S. Treasury and other U.S.
government agencies obligations.. $ 288,164 $ 262,659
State and political subdivisions
of the United States............. 6,078 5,859
Asset-backed and other securities. 37,836 37,811
---------- ----------
Total investment securities
held-to-maturity............... $ 332,078 $ 306,329
========== ==========
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 September 30, 2000, the Corporation could
experience a decrease in projected net income during the next twelve months of
approximately $54 million, if interest rates were to increase 100 basis points
over September 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 September 30, 2000, the Corporation could experience a
decrease in stockholders' equity, net of tax, of approximately $39 million as a
result of a 10% depreciation of the Corporation's unhedged capital exposure in
foreign subsidiaries 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 months ended September 30, 2000, the Corporation securitized
credit card loan receivables totaling $4.2 billion. Also, the Corporation
securitized $551.0 million of other consumer loans during the three months
ended September 30, 2000. During the nine months ended September 30, 2000,
the Corporation securitized credit card loan receivables totaling $9.8
billion, including a securitization of 498.3 million pounds sterling
(approximately $732.0 million) by MBNA Europe and a securitization of
CAD$400.0 million (approximately $270.0 million) by MBNA Canada Bank. Also,
the Corporation securitized $1.7 billion of other consumer loans during the
nine months ended September 30, 2000. During the three and nine months ended
September 30, 2000, $1.3 billion and $3.4 billion of previously securitized
credit card and other consumer loan receivables amortized or matured,
respectively. In addition, the Corporation assumed $3.9 billion of
securitized credit card loan receivables as part of the acquisition of the
consumer and commercial revolving credit loan portfolio from First Union
Corporation. The total amount of outstanding securitized loans was $66.6
billion or 78.7% of managed loans at September 30, 2000, compared to $54.6
billion or 75.6% at December 31, 1999. During the remainder of 2000, an
additional $1.7 billion of previously securitized loans is scheduled to
amortize or mature. 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)
September 30, December 31,
2000 1999
------------- -------------
(unaudited)
Securitized Loans
Domestic:
Credit card................................. $ 55,949,157 $ 45,851,922
Other consumer.............................. 5,694,936 3,987,180
------------- -------------
Total domestic securitized loans.......... 61,644,093 49,839,102
Foreign:
Credit card................................. 4,894,779 4,565,996
Other consumer.............................. 87,821 186,706
------------- -------------
Total foreign securitized loans........... 4,982,600 4,752,702
------------- -------------
Total securitized loans................... $ 66,626,693 $ 54,591,804
============= =============
Table 11 compares the average annualized yield for the three month period ended
September 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 1994-C.................. 19.20% 13.53% 5.67%
MasterTrust II 1994-E.................. 19.20 13.53 5.67
MasterTrust II 1995-A.................. 19.20 13.55 5.65
MasterTrust II 1995-C.................. 19.20 13.48 5.72
MasterTrust II 1995-E.................. 19.20 13.49 5.71
MasterTrust II 1995-G.................. 19.20 13.48 5.72
MasterTrust II 1995-I.................. 19.20 13.42 5.78
MasterTrust II 1995-J.................. 19.20 13.50 5.70
MasterTrust II 1996-A.................. 19.20 13.47 5.73
MasterTrust II 1996-B.................. 19.20 13.53 5.67
MasterTrust II 1996-C.................. 19.20 13.41 5.79
MasterTrust II 1996-D.................. 19.20 13.41 5.79
Cards No. 2............................ 19.47 12.11 7.36
MasterTrust II 1996-E.................. 19.20 13.44 5.76
MasterTrust II 1996-F.................. 19.20 13.49 5.71
MasterTrust II 1996-G.................. 19.20 13.46 5.74
MasterTrust II 1996-H.................. 19.23 13.43 5.80
MasterTrust II 1996-I.................. 19.24 13.50 5.74
MasterTrust II 1996-J.................. 19.20 13.42 5.78
MasterTrust II 1996-K.................. 19.20 13.41 5.79
MasterTrust II 1996-M.................. 19.23 13.48 5.75
Cards No. 3............................ 19.47 12.20 7.27
MasterTrust II 1997-B.................. 19.20 13.46 5.74
MasterTrust II 1997-C.................. 19.20 13.39 5.81
MasterTrust II 1997-D.................. 19.23 13.41 5.82
MasterTrust II 1997-E.................. 19.23 13.45 5.78
MasterTrust II 1997-F.................. 19.20 13.33 5.87
MasterTrust II 1997-G.................. 19.20 13.43 5.77
Cards No. 4............................ 19.47 12.63 6.84
MasterTrust II 1997-H.................. 19.24 13.48 5.76
MasterTrust II 1997-I.................. 19.20 13.37 5.83
MasterTrust II 1997-J.................. 19.20 13.40 5.80
MasterTrust II 1997-K.................. 19.20 13.40 5.80
MasterTrust II 1997-L.................. 19.23 13.34 5.89
MasterTrust II 1997-M.................. 19.23 13.47 5.76
MasterTrust II 1997-N.................. 19.23 13.39 5.84
MasterTrust II 1997-O.................. 19.20 13.44 5.76
MasterTrust II 1998-A.................. 19.20 13.38 5.82
Cards No. 5............................ 19.47 13.03 6.44
MasterTrust II 1998-B.................. 19.23 13.49 5.74
MasterTrust II 1998-C.................. 19.20 13.29 5.91
MasterTrust II 1998-D.................. 19.20 13.20 6.00
MasterTrust II 1998-E.................. 19.23 13.46 5.77
Three-Month Average
----------------------- Yield in
Annualized Minimum Excess of
Yield Yield Minimum
---------- ----------- ---------
(unaudited)
MasterTrust II 1998-F.................. 19.24% 13.44% 5.80%
MasterTrust II 1998-G.................. 19.20 13.43 5.77
MasterTrust II 1998-H.................. 19.20 13.48 5.72
Cards No. 6............................ 19.47 12.68 6.79
MasterTrust II 1998-I.................. 19.20 13.55 5.65
MasterTrust II 1998-J.................. 19.20 11.97 7.23
MasterTrust II 1998-K.................. 19.20 13.54 5.66
Cards No. 7............................ 19.47 12.88 6.59
Gloucester Credit Card Trust 1998-1.... 18.49 11.13 7.36
MasterTrust II 1998-L.................. 19.20 13.63 5.57
MasterTrust II 1999-A.................. 19.20 13.37 5.83
MasterTrust II 1999-B.................. 19.20 13.28 5.92
MasterTrust II 1999-C.................. 19.23 13.54 5.69
Cards No. 8............................ 19.47 12.77 6.70
MasterTrust II 1999-D.................. 19.20 13.39 5.81
MasterTrust II 1999-E.................. 19.20 13.41 5.79
MasterTrust II 1999-F.................. 19.23 13.23 6.00
MasterTrust II 1999-G.................. 19.20 13.44 5.76
Cards No. 9............................ 19.47 12.79 6.68
MasterTrust II 1999-H.................. 19.23 13.60 5.63
MasterTrust II 1999-I.................. 19.20 13.40 5.80
MasterTrust II 1999-J.................. 19.20 13.56 5.64
Gloucester Credit Card Trust 1999-1.... 18.49 11.31 7.18
MasterTrust II 1999-K.................. 19.32 13.57 5.75
MasterTrust II 1999-L.................. 19.20 13.56 5.64
MasterTrust II 1999-M.................. 19.20 13.39 5.81
Gloucester Credit Card Trust 1999-2.... 18.50 11.36 7.14
Cards No. 10........................... 19.47 12.82 6.65
MasterTrust II 2000-A.................. 19.20 13.48 5.72
MasterTrust II 2000-B.................. 19.20 13.40 5.80
MasterTrust II 2000-C.................. 19.20 13.45 5.75
MasterTrust II 2000-D.................. 19.20 13.56 5.64
MasterTrust II 2000-E.................. 19.20 13.65 5.55
MasterTrust II 2000-F.................. 19.06 14.47 4.59
Gloucester Credit Card Trust 2000-1.... 18.52 12.75 5.77
(a) MasterTrust II 2000-G issued on July 20, 2000, MasterTrust II 2000-H issued
on August 23, 2000, MasterTrust II 2000-I issued on September 8, 2000, MBNA
Triple A Trust 2000-1 and MBNA Triple A Trust 2000-2 issued on September 28,
2000, Cards No. 11 issued on September 28, 2000, and the series related to the
First Union Corporation loan portfolio acquisition are excluded from the yields
presented above as a result of their recency. Consumer Loan MasterTrust
1997-1, Consumer Loan MasterTrust 2000-1, Consumer Loan MasterTrust 2000-2, and
UK 1998-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)
September 30, December 31,
2000 1999
--------------- ---------------
AT PERIOD END:
Loans held for securitization............. $ 6,991,585 $ 9,692,616
Loan portfolio............................ 11,053,165 7,971,093
Securitized loans......................... 66,626,693 54,591,804
--------------- ---------------
Total managed loans..................... $ 84,671,443 $ 72,255,513
=============== ===============
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
------------------------ ------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
AVERAGE FOR THE PERIOD:
Loans held for
securitization......... $ 7,900,917 $ 4,322,598 $ 8,334,336 $ 3,917,198
Loan portfolio.......... 9,767,282 9,771,086 9,105,162 10,403,686
Securitized loans....... 60,120,484 51,512,620 57,190,189 48,282,248
----------- ----------- ----------- -----------
Total managed loans... $77,788,683 $65,606,304 $74,629,687 $62,603,132
=========== =========== =========== ===========
MANAGED RATIOS:
Delinquency............. 4.65% 4.67%
Net credit losses....... 3.88 4.34 3.96% 4.37%
Net interest margin
(on a fully taxable
equivalent basis)...... 7.10 7.33 7.10 7.54
PART II-OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In May 1996, Andrew B. Spark filed a lawsuit against the Corporation, the Bank
and certain of its officers and its subsidiary MBNA Marketing Systems, Inc.
The case is pending in the United States District Court for the District of
Delaware. This suit is a purported class action. The plaintiff alleges that
the Bank's advertising of its cash promotional annual percentage rate program
was fraudulent and deceptive. The plaintiff seeks unspecified damages
including actual, treble and punitive damages and attorneys' fees for an
alleged breach of contract, violation of the Delaware Deceptive Trade Practices
Act and violation of the federal Racketeer Influenced and Corrupt Organizations
Act. In February 1998, a class was certified by the District Court. In
September 2000, the Court gave preliminary approval to a settlement of this
suit for approximately $8.7 million. A hearing on final approval will be held
in February 2001. In October 1998, Gerald D. Broder filed a lawsuit against
the Corporation and the Bank in the Supreme Court of New York, County of New
York. This suit is a purported class action. The plaintiff alleges that the
Bank's advertising of its cash promotional annual percentage rate program was
fraudulent and deceptive. The plaintiff seeks unspecified damages including
actual, treble and punitive damages and attorney's fees for an alleged breach
of contract, common law fraud and violation of New York consumer protection
statutes. In April 2000, summary judgment was granted to the Corporation on the
common law fraud claim and a class was certified by the Court. In May 2000,
the Corporation filed an appeal from the order certifying a class. The
Corporation believes that its advertising practices were and are proper under
applicable federal and state law and intends to defend this action vigorously.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
Index of Exhibits
Exhibit Description of Exhibit
------- -----------------------------------------------------
12 Computation of Ratio of Earnings to Combined Fixed
Charges and Preferred Stock Dividend Requirements
27 Financial Data Schedule
Exhibit 12: Computation of Ratio of Earnings to Combined Fixed Charges and
Preferred Stock Dividend Requirements
(dollars in thousands)
For the Nine Months Ended
September 30,
--------------------------
2000 1999
------------ ------------
(unaudited)
INCLUDING INTEREST ON DEPOSITS
Earnings:
Income before income taxes....................... $ 1,435,713 $ 1,138,383
Fixed charges.................................... 1,226,414 979,685
Interest capitalized during period, net of
amortization of previously capitalized interest. (2,826) (2,144)
------------ ------------
Earnings, for computation purposes............... $ 2,659,301 $ 2,115,924
============ ============
Fixed Charges and Preferred Stock Dividend
Requirements:
Interest on deposits, short-term borrowings,
and long-term debt and bank notes, expensed or
capitalized..................................... $ 1,220,366 $ 972,579
Portion of rents representative of the interest
factor.......................................... 6,048 7,106
------------ ------------
Fixed charges.................................... 1,226,414 979,685
Preferred stock dividend requirements............ 17,848 17,234
------------ ------------
Fixed charges and preferred stock dividend
requirements, including interest on deposits,
for computation purposes........................ $ 1,244,262 $ 996,919
============ ============
Ratio of earnings to combined fixed charges and
preferred stock dividend requirements,
including interest on deposits.................. 2.14 2.12
For the Nine Months Ended
September 30,
--------------------------
2000 1999
------------ ------------
(unaudited)
EXCLUDING INTEREST ON DEPOSITS
Earnings:
Income before income taxes....................... $ 1,435,713 $ 1,138,383
Fixed charges.................................... 330,227 313,812
Interest capitalized during period, net of
amortization of previously capitalized interest. (2,842) (2,160)
------------ ------------
Earnings, for computation purposes............... $ 1,763,098 $ 1,450,035
============ ============
Fixed Charges and Preferred Stock Dividend
Requirements:
Interest on short-term borrowings and long-term
debt and bank notes, expensed or capitalized.... $ 324,179 $ 306,706
Portion of rents representative of the interest
factor.......................................... 6,048 7,106
------------ ------------
Fixed charges.................................... 330,227 313,812
Preferred stock dividend requirements............ 17,848 17,234
------------ ------------
Fixed charges and preferred stock dividend
requirements, excluding interest on deposits,
for computation purposes........................ $ 348,075 $ 331,046
============ ============
Ratio of earnings to combined fixed charges and
preferred stock dividend requirements,
excluding interest on deposits.................. 5.07 4.38
The ratio of earnings to combined fixed charges and preferred stock dividend
requirements is computed by dividing (i) income before income taxes and fixed
charges less interest capitalized during such period, net of amortization of
previously capitalized interest, by (ii) fixed charges and preferred stock
dividend requirements. Fixed charges consist of interest, expensed or
capitalized, on borrowings (including or excluding deposits, as applicable),
and the portion of rental expense which is deemed representative of interest.
The preferred stock dividend requirements represent the pretax earnings which
would have been required to cover such dividend requirements on the
Corporation's Preferred Stock outstanding.
b. Reports on Form 8-K
1. Report dated July 12, 2000, reporting MBNA Corporation's earnings
release for the second quarter of 2000.
2. Report dated July 20, 2000, reporting the securitization of $750.0
million of credit card receivables by MBNA America Bank, N.A.
3. Report dated July 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 July 2000.
4. Report dated August 14, 2000, reporting the definitive agreement for the
purchase by MBNA Corporation of First Union Corporation's consumer and
commercial revolving credit loan portfolio and the underwriting and
pricing agreements for the issuance of 50 million shares of common stock.
5. Report dated August 23, 2000, reporting the securitization of $700.0
million of credit card receivables by MBNA America Bank, N.A.
6. Report dated August 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 August 2000.
7. Report dated September 8, 2000, reporting the securitization of $1.0
billion of credit card receivables by MBNA America Bank, N.A.
8. Report dated September 28, 2000, reporting the securitization of 498.3
million pounds sterling of credit card receivables by MBNA
International Bank Limited.
9. Report dated September 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 September 2000.
10. Report dated October 11, 2000, reporting MBNA Corporation's earnings
release for the third quarter of 2000.
11. Report dated October 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 October 2000.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
MBNA CORPORATION
Date: November 14, 2000 By: /s/ M. Scot Kaufman
-------------------------------
M. Scot Kaufman
Senior Executive Vice President
Chief Financial Officer
