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[MBNA CORPORATION LOGO]
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[PHOTO] credit cards
SUCCESS IS GETTING THE RIGHT CUSTOMERS...
AND KEEPING THEM.
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1999 ANNUAL REPORT
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CONTENTS
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2 TEN-YEAR SUMMARY
3 FINANCIAL HIGHLIGHTS
4 1999 HIGHLIGHTS
5 TO OUR STOCKHOLDERS
6 WHAT WE DO
7 WHERE WE ARE TODAY
8 UNIQUE MARKETING PROPOSITION
10 JUDGMENTAL LENDING
11 SERVING CUSTOMERS ONE AT A TIME
12 PREPARING FOR THE FUTURE
14 THE MBNA DIFFERENCE--PEOPLE
16 MBNA.COM
18 MBNA EDUCATION FOUNDATION
20 MBNA INTERNATIONAL MAP
21 FINANCIALS
75 SENIOR EXECUTIVES
76 DIRECTORS AND OFFICERS
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"IT'S YOUR ATTITUDE, NOT YOUR APTITUDE,
THAT DETERMINES YOUR ALTITUDE."
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TEN-YEAR SUMMARY
EARNINGS PER COMMON SHARE--ASSUMING DILUTION
90 91 92 93 94 95 96 97 98 99
.17 .20 .23 .27 .35 .46 .59 .76 .97 1.21
NET INCOME
(millions)
90 91 92 93 94 95 96 97 98 99
129.0 149.2 172.7 207.8 266.6 353.1 474.5 622.5 776.3 1,024.4
MANAGED LOANS (ending)
(billions)
90 91 92 93 94 95 96 97 98 99
7.4 8.8 9.9 12.4 18.7 26.7 38.6 49.4 59.6 72.3
SALES AND CASH ADVANCE VOLUME
(billions)
90 91 92 93 94 95 96 97 98 99
11.5 12.9 14.5 17.9 25.1 34.3 48.7 66.4 83.0 105.8
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FINANCIAL HIGHLIGHTS
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YEAR ENDED DECEMBER 31, 1999 1998 1997 1996 1995
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(dollars in thousands, except per share amounts)
PER COMMON SHARE DATA FOR THE YEAR
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Earnings ............................. $ 1.26 $ 1.01 $ .80 $ .61 $ .47
Earnings--assuming dilution .......... 1.21 .97 .76 .59 .46
Dividends (a) ........................ .28 .24 .21 .19 .17
Book value ........................... 4.97 2.90 2.34 1.87 1.48
RATIOS
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Return on average total assets ....... 3.62% 3.38% 3.25% 3.26% 3.09%
Return on average stockholders'
equity ............................. 27.18 36.91 35.56 34.46 35.51
Stockholders' equity to total
assets ............................. 13.61 9.27 9.25 10.00 9.56
FINANCIAL STATEMENT DATA FOR THE YEAR
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Net interest income .................. $ 933,765 $ 742,339 $ 692,390 $ 640,477 $ 544,226
Other operating income ............... 4,207,821 3,228,969 2,812,879 1,895,923 1,424,618
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NET INCOME .............................. 1,024,423 776,266 622,500 474,495 353,099
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Deposits ............................. 18,714,753 15,407,040 12,913,213 10,151,686 8,608,914
Stockholders' equity ................. 4,199,443 2,391,035 1,970,050 1,704,308 1,265,058
MANAGED LOAN DATA
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Managed loans at year end ............ $ 72,255,513 $ 59,641,106 $ 49,379,860 $ 38,623,533 $ 26,711,704
Sales and cash advance volume ........ 105,806,935 82,968,874 66,399,425 48,666,129 34,272,909
===============================================================================================================================
(a) On January 10, 2000, the Board of Directors approved an increase of 14.3%
in the quarterly dividend to $.08 per common share.
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"We don't have a culture, we have an attitude. MBNA America . . . 22,000
people, and every single one with an attitude--Satisfy the Customer."
BRUCE L. HAMMONDS
Chief Operating Officer
JOHN R. COCHRAN
Chief Marketing Officer
M. SCOT KAUFMAN
Chief Financial Officer
[PHOTO]
1999 Highlights
- - Continued consistent earnings record, averaging an increase of 25%, in each of
the 36 quarters or nine years since becoming a public company.
- - Grew managed loans $12.6 billion, or 21% from 1998, to $72.3 billion--nearly
four times the industry's overall growth rate.
- - Added 12.5 million new accounts--leading the industry.
- - Maintained superior credit quality with charge-offs at 4.33% for the year,
well below the published industry average of 6%.
- - Acquired endorsements of 400 new groups, including the Marine Corps
Association, GO Network, American Automobile Association (AAA), Montreal
Canadiens, Northwestern University, Auburn University, Royal Canadian Legion,
Chester College (U.K.), The Irish Cycling Federation, Medsite.com, Toronto
Raptors, Rugby Football League (U.K.), and the Association of the U.S. Army.
- - Extended exclusive endorsement agreements with more than 800 organizations,
including Clemson University, American Nurses Association, Gateway, Inc.,
BoatU.S., National Society of Professional Engineers, American Institute of
Architects, American College of Physicians, University of Georgia, University
of Delaware, and the Baltimore Orioles.
- - Continued expansion of MBNA International to 4.4 million Customers with $7.2
billion in loan balances, up 46% from 1998. Completed the second full year of
operations in Canada with $900 million in loan balances and 250 group
endorsements.
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MBNA IS A COMPANY OF
PEOPLE COMMITTED TO:
Providing the Customer with the finest
products backed by consistently
top-quality service.
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Delivering these products and services
efficiently, thus ensuring fair prices
to the Customer and a sound investment
for the stockholder.
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Treating the Customer as we expect to be
treated--putting the Customer first
every day--and meaning it.
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Being leaders in innovation, quality,
efficiency and Customer satisfaction. Being
known for doing the little things and big
things well.
Expecting and accepting from ourselves
nothing short of the best. Remembering that
each of us, the people of MBNA, makes
the unassailable
difference.
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Getting the right Customers and keeping them
is the foundation of our business. It demands
a single-minded commitment to Customer
satisfaction. Meeting this commitment requires
tough standards, good people, and constant
attention to the importance of each individual
Customer. It means having an attitude. Written
by Charlie Cawley, and introduced during the
summer of 1986, the precepts above express
our attitude. They are displayed throughout
the company, and each person carries a copy.
These words have been reviewed every year
since they were written, including this year, and
have never been changed. They are simple and
straightforward, and we mean every single word.
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MBNA COMMON STOCK
PRICE PERFORMANCE
IPO 91 92 93 94 95 96 97 98 99
SPLIT ADJUSTED 1.48 2.34 3.27 4.4 4.62 7.29 12.33 18.21 24.81 27.25
ONE SHARE PURCHASED ON 1/22/91 AT THE INITIAL PUBLIC OFFERING PRICE OF $22.50
($1.49 ADJUSTED FOR STOCK SPLITS) HAS GROWN TO 15.2 SHARES WORTH A TOTAL OF
$413.85 ($27.25 PER SHARE ADJUSTED FOR SPLITS). DURING THE PERIOD SINCE THE IPO,
THE CORPORATION'S AVERAGE ANNUAL TOTAL RETURN TO STOCKHOLDERS HAS BEEN 44%.
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[PHOTO]
ALFRED LERNER
Chairman and Chief Executive Officer, MBNA Corporation
CHARLES M. CAWLEY
President, MBNA Corporation
Chief Executive Officer, MBNA America Bank, N.A.
It is always the
thousands of little
things done right
that add up to
the unassailable
advantage.
TO OUR STOCKHOLDERS
This report presents MBNA's full-year results for 1999, our 18th year in
business and our best year yet. Earnings increased 32.0% to $1.024
billion--bringing to 36 the number of consecutive quarters of consistent
earnings growth averaging 25% since MBNA became a public company in 1991. Loans
outstanding grew to $72.3 billion, a $12.6 billion increase over year-end 1998.
This 21% growth rate was nearly four times that of our industry. We also added
12.5 million new accounts. The characteristics of new cardholders are consistent
with the superior quality of the company's existing Customers. The typical new
Customer has a $62,000 average annual household income, has been employed for 11
years, owns a home, and has a 16-year history of paying bills promptly. Loan
losses continue to be significantly lower than published industry levels. In
1999, our managed loan losses were 4.33%, compared to the industry average of
6%.
MBNA is in the business of allowing people to have the things they want today
while paying for them sensibly out of future income. It is an enduring business
and we like it. Although credit cards will continue to be our core business, we
are investing in other areas to strengthen the company for the future. This
year, for example, we grew our international business, expanded our consumer
finance business, and introduced new insurance products.
The Internet is emerging as an interesting and potentially significant
contributor to future growth. As use of the Internet increases, our Customers
are using their MBNA cards for purchases with increasing frequency. This year,
3.5 million MBNA Customers made over $1.5 billion in purchases on the
Internet--and this is just the beginning.
This report is a print version of presentations we make to investors throughout
the year. It's intended to give you an accurate overview of your company. We
hope you enjoy it.
/s/ ALFRED LERNER /s/ CHARLES M. CAWLEY
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The difference
between good and
great is attitude.
WHAT WE DO
MBNA Corporation is a holding company comprised of three banks: MBNA America
Bank, N.A., a national bank in the United States; MBNA International Bank
Limited, a fully chartered bank in the United Kingdom; and MBNA Canada Bank, a
fully chartered bank in Canada. Like all traditional banks, we take deposits and
make loans. Our Customers have more than $18 billion on deposit with us in
money market and certificate of deposit accounts with an average individual
balance of $26,000. We also offer a variety of loan products. Currently these
loans total $6.2 billion.
But that is where the similarity to a traditional bank ends. At MBNA, there are
no branches, no commercial loans, and only a small number of checking accounts.
We specialize in making loans to individuals through credit cards, providing a
service that frees people from the need to carry cash and lets them have the
things they need today while paying for them out of future income. It is a good
business, and we like it.
Our basic product is one for which there is universal demand. There are
approximately 150 million people in the United States, 25 million people in the
United Kingdom, and 15 million people in Canada who would qualify for a credit
card. And this number continually refreshes itself as young people enter
adulthood.
It is a business with no concentration of risk. There are no geographic,
industry, or Customer concentrations. Our $72 billion loan portfolio is spread
among 21 million active borrowers in the United States, the United Kingdom, and
Canada.
The credit card is a product that nearly everyone wants. Although this is a
strength, it also makes it a business in which success only comes to those who
can differentiate themselves. We do so through the methods we use to attract
new Customers and satisfy them once we have them. If you're not good at both of
these things, nothing else matters, and MBNA is very good at both.
ON THE CHART AT RIGHT, THE LINE REPRESENTS MBNA'S GROWTH IN MANAGED LOANS, WHILE
THE BARS INDICATE THE GROWTH IN NET INCOME. MBNA HAS REPORTED INCREASED
EARNINGS, AVERAGING 25%, IN EACH OF THE 36 QUARTERS THAT IT HAS BEEN A PUBLIC
COMPANY.
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CONSISTENT PROFITABLE GROWTH
82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99
Managed Loans ($ Billions)
0 0 1 2 67 75 90 104 129 149 173 208 267 353 474 623 776 1,024
Net Income ($ Millions)
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MBNA SPECIALIZES IN MAKING LOANS TO INDIVIDUALS THROUGH CREDIT CARDS. OUR
CUSTOMERS USED THEIR MBNA CREDIT CARDS 790 MILLION TIMES IN 1999, SPENDING MORE
THAN $100 BILLION.
Success is getting the right Customers and keeping them.
[PHOTO] authorization terminal
WHERE WE ARE TODAY
During 1999, MBNA recorded its ninth consecutive year of earnings growth,
averaging 25%, since its initial public offering in 1991. The company's business
fundamentals continued to be as strong as ever. Managed loans grew $12.6 billion
to $72.3 billion, a 21% growth rate that was nearly four times the rate of the
overall U.S. credit card industry. MBNA expanded its market share of credit card
loans in the United States and the United Kingdom to 14% and 13%, respectively,
and solidified its position as the largest independent credit card lender in the
world.
This year also marked the fourth consecutive year in which loans grew by more
than $10 billion. The addition of 12.5 million new accounts and 400 new
endorsements from organizations strengthened future growth prospects. Today,
thousands of affinity organizations endorse MBNA products to their members, and
the company's products are used by more than 40 million people worldwide.
DURING 1999, MBNA ADDED 12.5 MILLION NEW ACCOUNTS--LEADING THE
INDUSTRY.
In 1999, MBNA continued to grow its international and consumer finance
businesses and expanded its insurance business with a new partnership with
American International Group (AIG). In addition, MBNA acquired several
high-quality credit card portfolios from prominent financial institutions. We
entered into long-term marketing agreements with most of these institutions,
including SunTrust Banks and PNC Bank, the ninth and thirteenth largest banks in
the U.S., respectively.
MBNA's formula for success remains very simple: Success is getting the right
Customers and keeping them. We have a unique marketing proposition, affinity
marketing, and a very stringent underwriting process that ensures that we lend
money to only the most qualified individuals. Just as important, we are able to
retain Customers by providing top-quality service, one Customer at a time.
This approach to business is the reason MBNA has achieved consistent, profitable
growth. Success has been and is a result of an intense focus on the quality of
each Customer. This is the most important facet of our business, especially
during times of rapid growth. In lending, quality is achieved by choosing
Customers who have the capacity to repay, proven stability, and a habit of being
financially responsible. MBNA Customers have all of these characteristics--and
they have not changed over time. The typical new Customer has an average annual
household income of $62,000, owns a home, and has a 16-year history of paying
bills promptly. The quality of MBNA's Customers is reflected in loan losses that
have remained significantly below industry averages. The company's consistent
focus on Customer quality is the most reliable predictor of the future.
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UNIQUE MARKETING PROPOSITION
MBNA's approach to the credit card business is unique. We sell to people who
share common interests and focus on groups with strong ties to their members,
fans, and Customers.
Getting the right Customer begins in sales and marketing. When an organization
such as a professional society, an alumni association, or a sports team chooses
to endorse MBNA, that decision is based on the belief that we will deliver
top-quality service to their members or Customers.
Today, more than 4,500 organizations in the United States, the United Kingdom,
and Canada endorse MBNA products to their members. Our $16 billion Professional
sector counts more than 1,300 organizations, including 37 state dental, 41 state
bar, 36 state medical, and 49 state nurses associations. In 1999, we added 84
groups to this sector, including the North Carolina Medical Society and the U.S.
Marine Corps Association. These groups join organizations as diverse as the
Association of Trial Lawyers of America, the American Medical Student
Association, and the National Society of Professional Engineers. Overall, MBNA
credit cards are carried by 58% of all physicians, 43% of all lawyers, 66% of
all dentists, and more than a quarter of all nurses, teachers, engineers, and
architects in the United States.
DURING 1999, MBNA
RENEWED ENDORSEMENTS WITH
MORE THAN 800 ORGANIZATIONS.
MBNA's roster of sports organizations also continued to grow in 1999. More than
4.3 million Customers now carry MBNA credit cards featuring their favorite
teams, racecar drivers, or other sports-related activities. We added more than
one million new Customers in the Sports sector, and outstanding loans reached $5
billion. We issue the official credit cards of the National Football League,
Major League Baseball, the National Hockey League, NASCAR, the Professional
Golfers Association, and 14 of the National Basketball Association teams. In
addition, the NFL endorsement enables us to market to the fans of 31 teams, now
happily including the Cleveland Browns.
MBNA products are also endorsed by more than 500 colleges and universities,
including nine of the Big 10 schools and six of the PAC 10 schools. More than
three million alumni and students from these schools use MBNA products,
producing $5 billion in loans. The Colleges and Universities sector enables us
to attract high-quality Customers as they enter the work force after graduation.
Although MBNA doesn't have branches, our products are sold in more than 10,000
bank offices across the United States and the United Kingdom through the
endorsement of 650 financial institutions. More than four million
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[PHOTO]
GREGG BACCHIERI
Senior Vice Chairman, CEO of MBNA Consumer Finance
"We keep Customers by treating them well--by thinking of ourselves as Customers
every minute of every day."
[PHOTO]
MICHELLE D. SHEPHERD
Vice Chairwoman, Advertising and Internet Marketing
"Customer loyalty is something that is earned through exceeding Customer
expectations during every contact--this is the reason MBNA Customers use their
cards 47% more than the average credit card holder."
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[PHOTO]
CHARLES C. KRULAK
Senior Vice Chairman, Administration
"Success comes from hiring the right people--people with the right attitude
about satisfying Customers--and then equipping them with the tools and education
to do their jobs."
[PHOTO]
JANINE D. MARRONE
Chief Executive Officer, MBNA Consumer Services
"By building on our strengths in marketing and Customer service, we can achieve
great success in our new business endeavors as well."
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[PHOTO] NASCAR race
MBNA'S NASCAR CREDIT CARD PROGRAM ADDED A RECORD NUMBER OF ACCOUNTS IN 1999
THANKS IN PART TO MBNA'S SUPPORT OF JOE GIBBS RACING AND DRIVER BOBBY LABONTE,
WHO EARNED FIVE WINS TO SECURE SECOND PLACE IN WINSTON CUP SERIES POINTS.
[PHOTO] credit cards
financial institution Customers have produced $6.5 billion in loans for MBNA.
In addition, we've developed hundreds of affinity programs for people who have a
strong common interest but do not belong to a formal organization. These
programs include the "Don't mess with Texas" card and the Irish-American
Heritage card. In 1999, such programs produced 1.3 million new Customers.
DIVERSIFIED ACQUISITION METHODS
After signing an affinity group or developing an affinity program, we implement
an effective marketing campaign to get the right Customer. In 1999, MBNA's 12.5
million new accounts came through a variety of acquisition channels, including
through the mail, over the phone, through television or other media, in person
at events, and via the Internet.
During the year, direct mail continued to be the most effective means of
marketing. Our full-service, in-house advertising agency customized mailings for
thousands of affinity groups and hundreds of common-interest marketing programs.
The internal design and production of these programs enable the company's
marketing managers to work closely with the advertising agency, resulting in
creative, targeted, and cost-effective programs that produce consistent results.
To complement direct mail, we continue to operate a large telephone sales
program. MBNA Marketing Systems, Inc., has telephone sales units throughout the
United States and in the United Kingdom and generated more than two million new
accounts in 1999. Each telephone call was shaped by the Customer's group
affiliation or personal interests. For example, representatives in our Dublin,
Ireland, office were very successful marketing MBNA's Irish-American Heritage
card in the United States.
MBNA's person-to-person marketing efforts generated nearly one million new
accounts during 6,500 events in 1999. This method is especially successful at
NASCAR races, NFL games, and professional conventions.
MBNA products are also offered over the Internet through the Web sites of nearly
1,000 endorsing organizations. Affinity marketing and effective acquisition
methods have resulted in loan growth that is consistently higher than that of
other lenders in the credit card industry.
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[PHOTO] people/credit card
We are looking for people who like other people.
JUDGMENTAL LENDING
Getting the right Customer begins with effective targeted marketing and ends
with the work of the credit analyst or lender. MBNA's credit professionals
reviewed more than 18 million applications in 1999. They rely on sophisticated
technology and behavioral scoring systems to assist them in choosing the right
Customer and assigning the right credit line. However, the most important tool
they rely on is their good judgment. In one of the many ways MBNA is different
from other credit card issuers, people--not computers--decide whether or not to
approve a loan.
When a credit analyst (lender) is reviewing an application, he or she has the
flexibility to say "yes," "no," or "maybe." If the answer is "maybe," which
happens 25% of the time, the analyst contacts the applicant for additional
information, thus gaining a better understanding of the applicant's
circumstances before making a final decision. A computer would make the decision
without having this additional information--information that is critical in
making the right decision.
This personal approach has helped build a superior Customer base. A typical MBNA
Customer has an average household income of $62,000, owns a home, and has a
16-year history of paying bills on time. Not only do our Customers look good,
they perform well. Our Customers use their cards 47% more than the average
credit card holder does, with typical purchase amounts 46% higher than the
average credit card transaction. The result is higher loan balances per Customer
and greater revenue for MBNA. In addition, loss rates in 1999 were 28% below the
industry average. The characteristics of our Customers have remained relatively
unchanged over the last 18 years, and we are confident that this will continue.
MAINTAINING CUSTOMER QUALITY IS MBNA'S TOP PRIORITY. IN 1999, THE COMPANY'S LOAN
LOSSES CONTINUED TO BE SIGNIFICANTLY LOWER THAN PUBLISHED INDUSTRY LEVELS.
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LOAN LOSS COMPARISON
1992 1993 1994 1995 1996 1997 1998 1999
INDUSTRY [PLOT POINT INFORMATION NOT AVAILABLE]
MBNA [PLOT POINT INFORMATION NOT AVAILABLE]
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[PHOTO] magazines
Think of yourself as a Customer.
[PHOTO] person
SERVING CUSTOMERS ONE AT A TIME
Getting the right Customer is just part of MBNA's strategy for producing
consistent results. Keeping our Customers once we get them determines our future
success. MBNA keeps Customers by treating them well. Maintaining high levels of
Customer satisfaction has enabled us to retain 97% of our profitable Customers
year after year. In fact, MBNA's Platinum Plus credit card, carried by 17
million Customers, was ranked highest in Customer loyalty among Platinum Visa
and MasterCard credit cards in the 1999 Comprehensive Credit Cardholder
Satisfaction Study by J.D. Power and Associates.
In 1999, we received more than 80 million Customer inquiries, ranging from
requests for duplicate statements and account information to questions about
card benefits and transaction history. Each contact represents an opportunity to
let the Customer know how important he or she is to us.
MBNA's commitment to providing superior Customer service starts by hiring people
who like other people and giving them the tools they need to satisfy Customers.
We have an environment that makes people feel good about where they work. This
environment includes ample educational opportunities, cutting-edge technology, a
comfortable work setting, and programs that help balance the demands of family
and work. In 1999, Fortune ranked MBNA in the top ten on its list of the "100
Best Companies to Work For in America," and for the sixth consecutive year
Working Mother magazine named MBNA among the nation's top companies for working
mothers. Additionally, Business Week named MBNA among the best companies for
work and family. People who feel good about where they work do a better job of
satisfying Customers.
MBNA uses superior technology to support world-class service levels. Unlike most
credit card issuers, MBNA controls every aspect of the Customer relationship.
Our own processing systems enable us effectively to insure a top-quality
product. In 1999, MBNA efficiently handled more than 175 million Customer
payments, 375 million statements and letters, and 790 million individual
Customer transactions totaling $106 billion. We develop technology internally to
ensure the reliability and responsiveness of the computer and telecommunication
systems used to satisfy Customers.
At MBNA, we focus on satisfying one Customer at a time. This approach
strengthens our relationship with individual Customers as well as with the
thousands of membership groups that endorse our products.
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PREPARING FOR THE FUTURE
MBNA has consistently produced significant expansion in its U.S. credit card
business, and there is still plenty of opportunity to grow. Although credit
cards will remain the company's primary business, we continue to invest in other
products and services. In 1999, we expanded our international, consumer finance,
and insurance businesses.
MBNA INTERNATIONAL
MBNA's international business in the United Kingdom, Ireland, and Canada has
grown to 4.3 million Customers with $7.2 billion in loans, a 46% increase from
the end of 1998.
In 1999, MBNA Europe expanded its market share to 13% in the United Kingdom and
Ireland and acquired nearly 1 million new Customers. Internationally, we utilize
the same business strategy as in the United States--marketing to people with
strong common interests. MBNA Europe earned endorsements from 56 new groups in
1999 and now has more than 700 membership organizations, including the Royal
College of Physicians, Manchester United Football Club, and The Irish Cycling
Federation. Two thousand people working at four locations in the U.K. and
Ireland support our European operations.
MBNA Canada finished its second full year of marketing and is producing results
similar to those of the United Kingdom at a comparable point in time. In 1999,
outstanding loans more than doubled to $900 million with more than
IN LESS THAN TWO YEARS, MBNA HAS EARNED THE ENDORSEMENTS OF 250 ORGANIZATIONS IN
CANADA, WITH $900 MILLION IN LOANS.
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[PHOTO]
RONALD W. DAVIES
Senior Vice Chairman, Chief Technology Officer
"Technology supports every aspect of MBNA's business--and we have an ongoing
commitment to developing state-of-the-art systems that enable us to better
satisfy Customers."
[PHOTO]
RICHARD K. STRUTHERS
Senior Vice Chairman, MBNA International
"Ours is not a complicated business, but success nonetheless depends on being
constantly vigilant about the service you provide to Customers."
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[PHOTO]
TERRI C. MURPHY
Division Head, Personnel
"Our success comes down to the people who work here, and that's never going to
change."
[PHOTO]
LANCE L. WEAVER
Senior Vice Chairman
"MBNA is a company of people who like other people. So, it follows that MBNA
people genuinely care for Customers and, just as importantly, for the people who
live in the communities where we live and work.
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[PHOTO] people
IN 1999, MBNA'S SALES FINANCE BUSINESS GREW 75% AND NOW HAS $1.8 BILLION IN
LOANS.
Excellence does not come by chance . . . it comes by choice.
[PHOTO] person
1 million Customers. We strengthened our position in Canada by signing new
endorsements with 122 membership organizations, including the Montreal
Canadiens, the Royal Canadian Legion, and the Toronto Maple Leafs. In total, 250
organizations endorse MBNA Canada's products. Now more than 400 people work for
MBNA Canada at its two locations in Ottawa, Ontario, and Montreal, Quebec. The
international business will continue to be an important part of the company's
growth.
CONSUMER FINANCE
In addition to credit cards, MBNA lends people money through a variety of other
loan products. These products are marketed through the mail and over the
telephone and are endorsed by more than 2,000 of our affinity groups. Our sales
finance business also provides fixed-term, unsecured loans for Customers to
finance larger purchases such as computers and furniture.
MBNA Consumer Finance has $6.2 billion in loans and generated nearly 1 million
new accounts in 1999. Sales finance, which reached $1.8 billion in outstanding
loans, was a major driver of growth in 1999, contributing 800,000 new accounts.
In 1999, MBNA pioneered immediate Web-based decisions for loan applications,
which accelerated loan growth and enhanced Customer satisfaction.
INSURANCE
MBNA has been selling credit-related insurance since 1987 and has more than two
million Customers. In 1999, MBNA formed a partnership with AIG to market
insurance to our Customers. We market automobile insurance through the mail and
by referrals from our Customer service representatives. The quality of MBNA
Customers makes them good candidates for a variety of insurance products. In
addition, more than 100 organizations that endorse MBNA loan products also
endorse insurance products, including Penn State University, Purdue University,
ASPCA, and the Indiana University Alumni Association.
We are also expanding our relationship with AIG to include several new products,
including homeowners, personal umbrella insurance, and annuities. This ability
to cross-sell financial service products to more than 40 million Customers
provides tremendous opportunities for the future.
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[PHOTO] precepts
The MBNA Difference--People
The single most important ingredient in our success has always been the people
of MBNA.
MBNA distinguishes itself because the people of the company all have an
attitude--satisfy the Customer. This attitude has driven our
Attitude is Everything.
success and will continue to drive everything that we do. The fanciest program
or product will only take a company so far. It is the people behind the product
that make the difference.
Seven out of every ten people who join the company are referred by people who
already work here. Our thorough hiring process involves people currently in
similar jobs, supervisors, experienced personnel recruiters, and senior
executives. In addition to determining an applicant's technical ability, each
interviewer uses his or her experience and skill to determine whether the
candidate is a person who likes other people. People who like other people find
it easy to think of themselves as Customers--they find it easy to "satisfy the
Customer."
After the right people are in place, our next steps to ensure success are
straightforward: set aggressive goals and define expectations for performance;
measure results and reward achievement; provide the tools and education people
need to do their jobs; insure a work environment that enables people to "satisfy
the Customer."
There are many things about MBNA that distinguish it from other companies, among
them our affinity marketing strategy and personalized approach to lending. None
of our distinctive differences, however, are more important--or have a greater
impact on our success--than the people of MBNA.
[PHOTO] people
[PHOTO] people
[PHOTO] people
[PHOTO] people
14
23
If every company is a portrait
of its people . . .
[PHOTO] people
[PHOTO] people
[PHOTO] people
MBNA is a masterpiece.
[PHOTO] people
[PHOTO] people
[PHOTO] people
15
24
[PHOTO] computer mouse
[GRAPHIC] affinity logos
MBNA.com
Use of the Internet for business continues to grow. MBNA's Internet strategy
builds on the thousands of affinity relationships we have and offers Customers a
comprehensive group of Web services. In 1999, the company sharpened its Internet
focus in three main areas: Internet marketing, electronic commerce, and online
banking. MBNA.com includes mbna offers.com, a home page with links to various
Web sites; mbnawallet.com; mbnanetaccess.com; and several Internet shopping
destination sites.
INTERNET MARKETING
MBNA has been marketing credit cards on the Web sites of its affinity groups
since 1995. While modest in comparison to our other acquisition channels,
Internet results are improving rapidly. Nearly 400,000 new Customers were added
in 1999--twice as many as the year before, and we expect over one million this
year.
Rather than marketing through banner ads, MBNA uses a targeted approach to
attract new Customers. This approach increases response rates and is more
cost-effective. MBNA's products are currently featured on nearly 1,000 endorsing
organizations' Web sites, including for example, the National Education
Association, the National Football League, and the Penn State Alumni
Association. Through these endorsements, MBNA has launched numerous personalized
e-mail campaigns using addresses provided by endorsing organizations, often
yielding better response rates than direct mail.
The Internet is more than just another marketing channel. It offers additional
opportunities for us to develop valuable affinity relationships. For example, in
1999, MBNA signed several agreements with top-quality Internet-related
organizations whose members share strong common interests. These include
Medsite.com, a Web site for medical professionals, and womenCONNECT.com, a Web
site for professional women and female business owners.
IN 1999, MBNA ENHANCED CUSTOMER SATISFACTION BY CREATING AN ONLINE BANKING SITE
THAT ALLOWS CUSTOMERS TO VIEW ACCOUNT ACTIVITY AND MAKE ACCOUNT CHANGES AND
INQUIRIES THROUGH THE INTERNET.
[PHOTO] person
16
25
[PHOTO]
MICHAEL G. RHODES
Vice Chairman, Marketing
"We continued to produce consistently good results in 1999 by adhering to our
basic strategy--success is getting the right Customers and keeping them."
[PHOTO]
DAVID W. SPARTIN
Vice Chairman
"Our consistent financial performance in each of the 36 quarters or nine years
since becoming a public company is the direct result of the attitude and
commitment of the people of MBNA."
26
[PHOTO]
KENNETH F. BOEHL
Vice Chairman, Chief Control Officer
"We control all aspects of our business, paying particular attention to those
that affect the quality and effectiveness of our service--and this gives us a
major competitive advantage."
[PHOTO]
JULES J. BONAVOLONTA
Vice Chairman, Administrative Services
"The single most important factor in our success has always been the people of
MBNA."
27
[PHOTO] people
MBNA continues to employ a targeted approach to attract new Customers on the
Internet.
In March 1999, MBNA and Infoseek announced an exclusive, multi-year agreement
for the GO Network, which serves more than 22 million users. Through GO Network
partners, including ESPN.com, NASCAR.com, and ABCNEWS.com, we are able to
target people effectively and offer products consistent with their online
interests.
MBNA Consumer Finance is also attracting new Customers through the Internet.
Having pioneered the instant loan application decision through the Gateway
computer sales finance program, we expanded this technology to other products.
The technology enables Customers to apply for a loan at the point of sale,
receive their account information, and complete the purchase online within
seconds.
MBNAWALLET.COM
In 1999, e-commerce spending was more than twice 1998's level, exceeding $20
billion. This number is expected to triple within two years, with credit cards
being the predominant method of payment.
To meet the demand of e-commerce Customers, increase Internet transaction
volume, and stimulate card usage, MBNA launched an e-wallet product,
mbnawallet.com. MBNAwallet simplifies online shopping by allowing Customers to
save credit card and prefilled shipping information once, store it securely in
the network data center, and then simply activate it with a click of the mouse.
In addition to making online shopping easier, the service offers enhancements
such as special offers with select merchants, transaction records, links to
merchants' Customer service, shipping status, and promotional offers featuring
other MBNA products. Also, MBNAwallet allows Customers to create their own
shopping hubs with Internet merchants--in a sense creating personalized,
"virtual" shopping malls.
MBNANETACCESS.COM
In April 1999, MBNA launched an online banking site for its Customers. The site,
mbnanetaccess.com, allows Customers to view account activity, pay their MBNA
credit card bills online, view past statements, and make account changes and
inquiries through secure e-forms. NetAccess also includes a revenue-enhancing
page called the Cash Center that allows Customers to initiate balance transfers,
receive cash advance checks, and move funds to their checking and savings
accounts. NetAccess will increase Customer satisfaction and decrease service
cost. In addition, we can expand the service to promote other products through
customized online marketing.
[GRAPHIC] affinity logos
17
28
[PHOTO] brochures
MBNA Education Foundation
MBNA focuses much of its community effort on education. The MBNA Education
Foundation was established to improve the quality and availability of education,
especially to economically disadvantaged young people, and to provide financial
support for innovative academic programs. In 1998, MBNA doubled the Foundation's
original funding to $60 million, $50 million from the corporation and $10
million from the personal donations of MBNA people. In an overwhelming show of
support for the work of the Education Foundation, 12,600 MBNA people and their
families and friends raised $2.8 million during this year's Delaware and Maine
Walks for Education, increasing the two-year total to nearly $5 million. In
March 1999, the company announced a $10 million commitment to provide financial
and educational support to students and schools in Cleveland, Ohio, in addition
to those in Delaware and Maine.
The Foundation has two major components: the Excellence in Education Grants
Program, which provides grants to teachers and schools for the development of
results-oriented academic initiatives; and the College Scholarship Program,
which provides college scholarships to help ensure that financially needy
students with a desire to succeed acquire a high-quality education. To date,
$10.2 million in scholarships has been awarded to more than 600 young people to
pursue higher education at accredited colleges and universities in Delaware and
Maine.
The Excellence in Education Grants Program enables teachers and principals of
public, private, and parochial schools to apply for grants to fund the
development of initiatives that enhance their students' educational experience.
The program encourages teachers and school administrators to apply for grants
for programs that will improve the learning environment. MBNA people actively
assist the teachers during the application process. The grant applications are
then reviewed by
THE PEOPLE OF MBNA AND THEIR FAMILIES AND FRIENDS HAVE RAISED NEARLY $5
MILLION OVER THE LAST TWO YEARS DURING THE COMPANY'S WALKS FOR EDUCATION.
[PHOTO] people
18
29
[PHOTO]
HELEN F. GRAHAM
1941-1999
Helen F. Graham, a lifelong advocate for people with developmental disabilities
and executive director of both MBNA's Support Services department and the Helen
F. Graham Foundation, passed away on December 31, 1999.
A member of the company's Senior Operating Committee, Helen joined MBNA in 1995
and created the Support Services department to provide employment opportunities
for people with developmental disabilities. The department began with five
people working in the Crozier Center. Today, more than 170 Support Services
people work throughout MBNA offices in Delaware and Maine as a result of Helen's
vision.
As a senior manager of MBNA, Helen was able to use her unique combination of
skills to change people's lives. Her drive, compassion, and
intelligence--coupled with a profound respect for the abilities of every
person--resulted in a program that benefited hundreds. The mark she has made is
indelible.
(over)
30
"All of us who knew Helen admired her for her energy and enthusiasm, for her
intolerance for anything but equal treatment for all, and for her unwavering
dedication to people with handicaps. She was strong and insisted that everyone
live up to their potential and she loved and supported all those who made an
effort to do so."
--Charlie Cawley
Inspired by a "very special" disabled family member, Helen began a career in
special education as a student teacher at Ithaca College in New York. She went
on to earn a master's degree in special education from the University of Arizona
and a master's equivalency in counseling and psychology at Loyola College of
Maryland. She taught special education for the Department of Defense and then
worked for 13 years at the Ridge School in Baltimore County, Maryland.
Helen's extraordinary commitment to special education lies at the very core of
the Helen F. Graham Foundation for people with developmental disabilities, which
MBNA created in 1999. The Foundation is being funded initially over five years
by a $5 million grant from MBNA and its senior managers.
Grants from the Helen F. Graham Foundation will be awarded to schools for
initiatives involving children who receive special education services and to
nonprofit organizations dedicated to expanding educational opportunities for
people with developmental disabilities.
31
independent grant committees comprised of community leaders in Delaware, Maine,
and Cleveland. Since the program's inception, $10.8 million in grants has been
awarded to support 2,000 innovative programs.
The grants from the Foundation provide direct funding for programs that teachers
have always wanted to implement but lacked the financial support to do so. For
example, William Penn High School in New Castle, Delaware, used a $7,050
Excellence in Education grant to help reestablish the high school's theater
program after a 20-year hiatus. A teacher from North Haven Island in Maine's
Penobscot Bay used an $8,800 grant to teach his students about their
boat-building heritage while constructing a 32-foot Boston Pilot Lifesaving
boat. MBNA's Cleveland Education Initiative awarded its first grant to Miles
Elementary School to fund a kindergarten literacy program.
MBNA people contributed more than 250,000 hours of their personal time to
charitable and educational causes in 1999.
In addition, MBNA operates college and career counseling to complement the MBNA
Scholars' learning outside the classroom. This helps students realize their
ultimate educational objectives through tutorial assistance, SAT preparation,
college planning, and resume writing. More than 1,000 Scholars working as
interns at MBNA have participated in mentoring programs, community service, and
career development seminars. Delaware, Maine, and
[PHOTO]
MBNA's Excellence in Education Grants Program encourages teachers and school
administrators to apply for grants for programs that will improve the learning
environment.
Cleveland Scholars are also matched with MBNA people who act as advisors to help
them achieve college success, maintain scholarship eligibility, and prepare for
careers.
Though it was established just three years ago, the Foundation is already having
a profound impact. Students and teachers are benefiting from educational
opportunities and programs that were unavailable to them before.
As the Foundation continues its work, its impact in the community will widen
with the happy result of significantly improving the quality of future people of
MBNA.
[PHOTO] people
19
32
[PHOTO] globe
MBNA International
[PHOTO] map
Key
-- Headquarters
-- Regional Centers
-- Sales Offices
HEADQUARTERS
- -- MBNA Corporation
Wilmington, DE 19884
(800) 441-7048
UNITED STATES OFFICES
REGIONAL CENTERS
- -- 16001 N. Dallas Pkwy.
Dallas, TX 75248
(800) 435-9672
- -- 44 Montgomery St.
San Francisco, CA 94104
(800) 585-4956
- -- 11333 McCormick Rd.
Hunt Valley, MD 21031
(888) 680-6945
- -- 1 Hatley Rd.
Belfast, ME 04915
(800) 843-3526
- -- 25875 Science Park Dr.
Beachwood, OH 44122
(800) 410-6262
- -- 1501 Yamato Rd.
Boca Raton, FL 33431
(800) 841-6845
SALES OFFICES
- -- 9 W. 57th St.
New York, NY 10019
(800) 746-6262
- -- 676 North Michigan Ave.
Chicago, IL 60611
(800) 906-6262
- -- 2600 Century Pkwy.
Atlanta, GA 30345
(800) 446-7048
MARKETING SYSTEMS
32 Washington St.
Camden, ME 04843
(800) 386-6262
16 Godfrey Dr.
Orono, ME 04473
(800) 503-6262
901 Washington Ave.
Portland, ME 04103
(800) 626-2488
5 Industrial Pkwy.
Brunswick, ME 04011
(800) 645-6682
260 Main St.
Presque Isle, ME 04769
(800) 545-2977
100 Main St.
Dover, NH 03820
(800) 330-5929
16001 N. Dallas Pkwy.
Dallas, TX 75248
(800) 435-9672
1501 Yamato Rd.
Boca Raton, FL 33431
(800) 841-6845
11333 McCormick Rd.
Hunt Valley, MD 21031
(888) 680-6945
400 Christiana Rd.
Newark, DE 19713
(800) 441-7048
860 Silver Lake Blvd.
Dover, DE 19904
(800) 346-2620
2568 Park Centre Blvd.
State College, PA 16801
(800) 471-6262
25875 Science Park Dr.
Beachwood, OH 44122
(800) 410-6262
388 S. Main St.
Akron, OH 44311
(800) 731-9260
274 Front St.
Farmington, ME 04938
(888) 465-3110
50 Pleasant St.
Fort Kent, ME 04743
(888) 336-6262
Newark, NJ
(To open in 2000)
INTERNATIONAL OFFICES
CANADA
- -- 1600 James Naismith Dr.
Gloucester,
Ontario K1B 5N8
(888) 871-6262
- -- 1000 de la Gauchetiere
Suite 4300
Montreal, Quebec
H3B 4W5
(514) 390-2151
ENGLAND
- -- Stansfield House
Chester Business Park
Wrexham Rd.
Chester, Cheshire
CH4 9QQ
United Kingdom
(011) 44-1244-672000
- -- 86 Jermyn St.
London SW1Y 6JD
United Kingdom
(011) 44-171-389-6200
IRELAND (The Republic Of)
- -- 46 St. Stephen's Green
Dublin 2, Ireland
(011) 353-1-619-6000
SCOTLAND
- -- One St. Colme Street
Edinburgh,
Scotland EH3 6AA
(011) 44-131-220-8240
20
33
[PHOTO] trading floor
FINANCIAL CONTENTS
22 TEN-YEAR STATISTICAL SUMMARY
24 GLOSSARY OF FINANCIAL TERMS
25 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
42 SUPPLEMENTAL FINANCIAL INFORMATION
43 MANAGEMENT'S REPORT ON CONSOLIDATED FINANCIAL STATEMENTS AND INTERNAL
CONTROL
44 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
45 CONSOLIDATED STATEMENTS OF INCOME
46 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
47 CONSOLIDATED STATEMENTS OF CASH FLOWS
48 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
71 REPORT OF INDEPENDENT AUDITORS
72 QUARTERLY DATA
73 PREFERRED STOCK PRICE RANGE AND DIVIDENDS
74 COMMON STOCK PRICE RANGE AND DIVIDENDS
21
34
MBNA CORPORATION AND SUBSIDIARIES
TEN-YEAR STATISTICAL SUMMARY
- --------------------------------------------------------------------------------
(dollars in thousands, except per share amounts)
- -----------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1999 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
INCOME STATEMENT DATA FOR THE YEAR
Net interest income............................... $ 933,765 $ 742,339 $ 692,390 $ 640,477
Provision for possible credit losses.............. 408,914 310,039 260,040 178,224
Other operating income............................ 4,207,821 3,228,969 2,812,879 1,895,923
Other operating expense........................... 3,077,708 2,407,204 2,223,121 1,626,882
Net income........................................ 1,024,423 776,266 622,500 474,495
PER COMMON SHARE DATA FOR THE YEAR
Earnings (a)...................................... $ 1.26 $ 1.01 $ .80 $ .61
Earnings--assuming dilution (a)................... 1.21 .97 .76 .59
Dividends......................................... .28 .24 .21 .19
Book value........................................ 4.97 2.90 2.34 1.87
RATIOS
Return on average total assets.................... 3.62% 3.38% 3.25% 3.26%
Return on average stockholders' equity............ 27.18 36.91 35.56 34.46
Average receivables to average deposits........... 85.33 86.04 88.82 92.50
Stockholders' equity to total assets.............. 13.61 9.27 9.25 10.00
Loan portfolio:
Delinquency (c)............................... 3.82 3.86 3.93 3.59
Net credit losses............................. 2.63 2.39 2.14 1.98
Managed loans (d):
Delinquency................................... 4.45 4.62 4.59 4.28
Net credit losses............................. 4.33 4.31 3.97 3.35
Net interest margin (e)....................... 7.42 7.47 7.50 7.62
MANAGED LOAN DATA (d)
At year end:
Loans held for securitization................. $ 9,692,616 $ 1,692,268 $ 2,900,198 $ 2,469,974
Loan portfolio................................ 7,971,093 11,776,099 8,261,876 7,659,078
Securitized loans............................. 54,591,804 46,172,739 38,217,786 28,494,481
----------------- ------------------ ---------------- --------------
Total managed loans........................ $ 72,255,513 $ 59,641,106 $ 49,379,860 $ 38,623,533
================ ================= ================ ==============
Average for the year:
Loans held for securitization................. $ 4,071,394 $ 2,577,482 $ 2,875,212 $ 2,529,484
Loan portfolio................................ 10,351,101 9,352,807 7,563,301 6,174,095
Securitized loans............................. 49,706,760 40,970,936 32,746,963 22,514,014
----------------- ----------------- ---------------- --------------
Total managed loans................... $ 64,129,255 $ 52,901,225 $ 43,185,476 $ 31,217,593
================= ================ ================ ==============
For the year:
Sales and cash advance volume................. $ 105,806,935 $ 82,968,874 $ 66,399,425 $ 48,666,129
BALANCE SHEET DATA AT YEAR END
Investment securities and money market instruments $ 4,572,052 $ 5,440,939 $ 4,594,709 $ 3,194,664
Loans held for securitization..................... 9,692,616 1,692,268 2,900,198 2,469,974
Credit card loans................................. 6,060,564 8,975,051 5,830,221 5,722,299
Other consumer loans.............................. 1,910,529 2,801,048 2,431,655 1,936,779
---------------- ------------------ ------------------ --------------
Total loans............................ 7,971,093 11,776,099 8,261,876 7,659,078
Reserve for possible credit losses................ (355,959) (216,911) (162,476) (118,427)
----------------- ------------------ ------------------ --------------
Net loans............................. 7,615,134 11,559,188 8,099,400 7,540,651
Total assets...................................... 30,859,132 25,806,260 21,305,513 17,035,342
Total deposits.................................... 18,714,753 15,407,040 12,913,213 10,151,686
Long-term debt and bank notes..................... 5,708,880 5,939,025 5,478,917 3,950,358
Stockholders' equity.............................. 4,199,443 2,391,035 1,970,050 1,704,308
AVERAGE BALANCE SHEET DATA FOR THE YEAR
Investment securities and money market instruments $ 5,797,141 $ 4,905,943 $ 3,851,867 $ 2,927,351
Loans held for securitization..................... 4,071,394 2,577,482 2,875,212 2,529,484
Credit card loans................................. 8,184,713 6,820,538 5,456,349 4,907,814
Other consumer loans.............................. 2,166,388 2,532,269 2,106,952 1,266,281
----------------- ------------------ ----------------- --------------
Total loans........................... 10,351,101 9,352,807 7,563,301 6,174,095
Reserve for possible credit losses................ (299,754) (192,024) (143,277) (111,041)
---------------- ------------------ ----------------- --------------
Net loans............................. 10,051,347 9,160,783 7,420,024 6,063,054
Total assets...................................... 28,310,222 22,982,349 19,125,282 14,571,288
Total deposits.................................... 16,901,334 13,866,645 11,752,887 9,408,843
Long-term debt and bank notes..................... 5,974,276 5,873,122 4,639,430 3,029,250
Stockholders' equity.............................. 3,769,539 2,103,043 1,750,459 1,377,072
Weighted average common shares outstanding (000) 801,020 751,856 751,837 751,812
Weighted average common shares outstanding and
common stock equivalents (000)................... 837,083 789,421 789,801 778,473
- ------------------------------------------------------------------------------------------------------------------------------------
(a) Earnings per common share is computed using net income
applicable to common stock and weighted average common shares
outstanding, whereas, earnings per common share--assuming
dilution includes the potential dilutive effect of common stock
equivalents in accordance with Statement of Financial Accounting
Standards No. 128, "Earnings per Share." MBNA Corporation's ("the
Corporation") common stock equivalents are solely related to
employee stock options. The Corporation has no other common stock
equivalents. For comparative purposes, earnings per common share
and earnings per common share--assuming dilution for the year
ended December 31, 1990, is presented on a pro forma basis.
(b) During 1991, the Corporation became an independent corporation
traded publicly on the New York Stock Exchange. Accordingly,
dividends per common share, book value per common share, and
stockholders' equity ratios have not been presented for the year
ended December 31, 1990.
(c) Loan portfolio delinquency does not include loans held for
securitization or securitized loans.
22
35
- -----------------------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990
- -----------------------------------------------------------------------------------------------------------------------------------
$ 544,226 $ 532,108 $ 474,323 $ 357,515 $ 239,599 $ 164,315
138,176 108,477 98,795 97,534 57,951
1,424,618 1,013,580 739,968 577,505 540,708 451,863
1,246,067 996,110 924,872 565,467 459,035 354,462
353,099 266,593 207,796 172,732 149,213 128,998
$ .47 $ .35 $ .28 $ .23 .20 $ .17
.46 .35 .27 .23 .20 .17
.17 .14 .13 .12 .11 (b)
1.48 1.22 1.02 .88 .79 (b)
3.09% 3.16% 3.15% 2.96% 2.79% 3.87%
35.51 32.70 30.01 28.55 28.55 (b)
91.60 93.05 85.34 69.98 71.77 103.51
9.56 9.51 10.51 10.25 9.86 (b)
3.11 2.60 3.03 3.78 4.39 4.15
1.91 1.96 2.43 2.87 2.65 1.79
3.70 3.03 3.27 3.99 4.40 4.52
2.74 2.59 2.97 3.33 3.05 2.21
7.42 8.16 8.47 7.22 6.36 6.55
$ 3,168,427 $ 2,299,026 $ 741,869 $ 678,000 $ 600,000 $ 567,000
4,967,491 3,407,974 3,725,509 3,300,650 2,886,405 2,672,733
18,575,786 13,036,864 7,891,140 5,881,479 5,327,901 4,137,950
----------- ----------- ---------- ------------- ---------- -----------
$ 26,711,704 $ 18,743,864 $ 12,358,518 $ 9,860,129 $ 8,814,306 $ 7,377,683
=========== =========== =========== ============= ========== ===========
$ 2,269,362 $ 1,330,011 $ 642,750 $ 733,473 $ 560,447 $ 707,632
4,792,536 4,000,271 3,425,935 2,659,305 2,707,535 1,907,208
15,440,499 9,462,401 6,596,387 5,528,394 4,563,279 3,798,409
----------- ----------- ----------- -------------- ----------- -----------
$ 22,502,397 $ 14,792,683 $ 10,665,072 $ 8,921,172 7,831,261 $ 6,413,249
=========== =========== =========== ============== =========== ===========
$ 34,272,909 $ 25,078,918 $ 17,889,747 $ 14,523,570 $ 12,915,104 $ 11,541,181
$ 2,669,402 $ 2,269,081 $ 1,440,684 $ 1,345,995 $ 1,768,048 $ 540,660
3,168,427 2,299,026 741,869 678,000 600,000 567,000
4,090,553 2,882,232 2,949,995 2,659,007 2,299,912 2,216,604
876,938 525,742 775,514 641,643 586,493 456,129
----------- ----------- ----------- ----------- ----------- -----------
4,967,491 3,407,974 3,725,509 3,300,650 2,886,405 2,672,733
(104,886) (101,519) (97,580) (97,580) (97,580) (97,580)
----------- ----------- ----------- ----------- ----------- -----------
4,862,605 3,306,455 3,627,929 3,203,070 2,788,825 2,575,153
13,228,889 9,671,858 7,319,756 6,454,511 6,009,028 4,579,514
8,608,914 6,632,489 5,241,883 4,568,791 5,094,011 4,202,159
2,657,600 1,687,357 779,553 470,601 - -
1,265,058 919,578 769,131 661,290 592,230 214,098
$ 2,451,783 $ 1,684,316 $ 1,364,350 $ 1,572,911 $ 1,401,469 $ 160,356
2,269,362 1,330,011 642,750 733,473 560,447 707,632
4,160,230 3,207,110 2,735,191 2,050,487 2,176,144 1,529,759
632,306 793,161 690,744 608,818 531,391 377,449
----------- ----------- ----------- ----------- ----------- -----------
4,792,536 4,000,271 3,425,935 2,659,305 2,707,535 1,907,208
(103,568) (99,175) (97,580) (97,580) (93,284) (76,509)
----------- ----------- ----------- ----------- ----------- -----------
4,688,968 3,901,096 3,328,355 2,561,725 2,614,251 1,830,699
11,425,721 8,432,511 6,596,419 5,829,052 5,347,990 3,330,155
7,709,840 5,728,432 4,767,669 4,847,911 4,553,186 2,526,109
2,212,591 1,199,520 537,609 116,301 - -
994,287 815,243 692,460 605,079 522,721 258,719
751,839 751,840 751,840 752,360 751,878 751,781
770,464 762,515 760,118 760,187 756,576 751,781
- ------------------------------------------------------------------------------------------------------------------------------------
(d) Managed loans include the Corporation's loans held for
securitization, loan portfolio, and securitized loans.
(e) Managed net interest margin is
presented on a fully taxable equivalent basis.
The consolidated financial highlights for the year ended December 31, 1990,
reflect the combined results of the "Credit Card and Certain Related Banking
Activities of MBNA America Bank, N.A., and Certain Affiliates" prior to the
organization of the Corporation.
23
36
MBNA CORPORATION AND SUBSIDIARIES
GLOSSARY OF FINANCIAL TERMS
The following definitions may be helpful when reading Management's Discussion
and Analysis of Financial Condition and Results of Operations of MBNA
Corporation ("the Corporation").
ASSET SECURITIZATION
Asset securitization removes loan receivables from the consolidated statements
of financial condition by selling them, generally to a trust. Asset
securitization 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.
BORROWED FUNDS
Borrowed funds include both short-term borrowings and long-term debt and bank
notes.
CREDIT CARD FEES
Credit card fees include annual, late, overlimit, returned check, cash advance,
and other miscellaneous fees.
CREDIT RISK
Credit risk is the possibility that a loss may occur should a borrower or
counterparty fail to honor the terms of a contract.
DIRECT DEPOSITS
Direct deposits are deposits marketed to and received from individual Customers
without the use of a third-party intermediary.
FOREIGN ACTIVITIES
The Corporation's foreign activities are primarily performed through MBNA
America Bank, N.A.'s ("the Bank") two foreign bank subsidiaries, MBNA
International Bank Limited ("MBNA Europe") and MBNA Canada Bank ("MBNA
Canada"). The Bank also has a foreign branch office in the Grand Cayman
Islands.
FOREIGN CURRENCY EXCHANGE RATE RISK
Foreign currency exchange rate risk refers to the potential changes in current
and future earnings or capital arising from movements in foreign exchange rates
and occurs as a result of cross-currency investment and funding activities. The
Corporation's foreign currency exchange rate risk is primarily limited to the
unhedged position of the Corporation's net investment in its foreign
subsidiaries.
FULLY TAXABLE EQUIVALENT (FTE) BASIS
FTE basis represents the income on total interest-earning assets that is either
tax-exempt or taxed at a reduced rate, adjusted to give effect to the prevailing
incremental federal income tax rate, and adjusted for nondeductible carrying
costs and state income taxes, where applicable. Yield calculations, where
appropriate, include these adjustments.
INSURANCE INCOME
Insurance income representa the fee the Corporation receives for marketing
credit-related Life and Disability, Automobile, and Life and Health insurance
products. The Corporation does not retain any of the uderwriting risk
associated with the insurance products it markets.
INTERCHANGE INCOME
Interchange income is a fee paid by a merchant bank to the card-issuing bank
through the interchange network as compensation for risk, grace period, and
other operating costs. Such fees are set annually by MasterCard International
and Visa International.
INTEREST RATE RISK
Interest rate risk refers to potential changes in current and future net
interest income resulting from changes in interest rates, and differences in the
repricing characteristics between interest rate sensitive assets and
liabilities.
INTEREST RATE SENSITIVE ASSETS/LIABILITIES
Interest rate sensitive assets/liabilities have yields/rates that can change
within a designated time period due to their maturity, a change in an underlying
index rate, or the contractual ability of the Corporation to change the
yield/rate.
INVESTMENT SECURITIES
Investment securities include both those available-for-sale and those
held-to-maturity. The Corporation does not hold investment securities for
trading purposes.
LOAN PORTFOLIO
Loan portfolio includes credit card and other consumer loans, excluding loans
held for securitization, as reported on the consolidated statements of financial
condition as total loans.
LOAN RECEIVABLES
Loan receivables consist of the Corporation's loans held for securitization and
loan portfolio.
MANAGED LOANS
Managed loans consist of the Corporation's loans held for securitization, loan
portfolio, and securitized loans.
MONEY MARKET INSTRUMENTS
Money market instruments include interest-earning time deposits in other banks
and federal funds sold and securities purchased under resale agreements.
NET INTEREST INCOME
Net interest income represents interest income on total interest-earning assets,
on an FTE basis where appropriate, less interest expense on total
interest-bearing liabilities.
OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS
Off-balance-sheet financial instruments include interest rate swap agreements,
forward exchange contracts, and foreign exchange swap agreements. The
Corporation uses interest rate swap agreements to change fixed-rate funding
sources to floating-rate funding sources to better match the rate sensitivity of
the Corporation's assets. The Corporation uses forward exchange contracts and
foreign exchange swap agreements to reduce its exposure to foreign currency
exchange rate risk primarily related to its foreign bank subsidiaries.
The Corporation does not hold or issue off-balance-sheet financial instruments
for trading purposes.
24
37
MBNA CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
This discussion is intended to further the reader's understanding of the
consolidated financial statements, financial condition, and results of
operations of MBNA Corporation. It should be read in conjunction with the
consolidated financial statements, notes, tables, and glossary of financial
terms included 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.
NET INCOME
(MILLIONS)
97 98 99
$ 622.5 $ 776.3 $ 1,024.4
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 PER COMMON SHARE-ASSUMING DILUTION
(BILLIONS)
90 91 92 93 94 95 96 97 98 99
.17 .20 .23 .27 .35 .46 .59 .76 .97 1.21
EARNINGS SUMMARY
Net income for 1999 increased 32.0% to $1.0 billion or $1.21 per common share
from $776.3 million or $.97 per common share in 1998. Net income for 1998
increased 24.7% from $622.5 million or $.76 per common share in 1997. Earnings
per common share amounts are presented assuming dilution.
The overall growth in earnings is primarily attributable to the growth in the
Corporation's managed loans outstanding. Managed loans at December 31, 1999,
increased $12.6 billion to $72.3 billion from December 31, 1998, as the
Corporation acquired 400 new endorsements from organizations and added 12.5
million new accounts. During 1998, managed loans increased $10.3 billion from
$49.4 billion at December 31, 1997. During 1998, the Corporation acquired 475
new endorsements from organizations and added 9.3 million new accounts. The
Corporation's average managed loans increased $11.2 billion to $64.1 billion in
1999 from 1998, while average managed loans increased $9.7 billion to $52.9
billion in 1998 from 1997. The Corporation's growth in managed loans in both
1999 and 1998 was a result of the Corporation's continued marketing efforts and
loan portfolio acquisitions.
The Corporation continues to be an active participant in the asset
securitization market. Asset securitization is the sale of loans to investors,
generally through a trust, that converts interest income, interchange, credit
card and other fees, and insurance income in excess of interest paid to
investors; credit losses; and other trust expenses into securitization income,
while reducing the Corporation's on-balance-sheet assets. Gains are recognized
by the Corporation in securitization income at the time of initial sale and each
subsequent sale of loan receivables in a securitization. During 1999, the
Corporation securitized $13.3 billion of credit card and other consumer loan
receivables, bringing the total amount of outstanding securitized loans to
$54.6 billion at December 31, 1999. During 1998, the Corporation securitized
$10.7 billion of credit card and other consumer loan receivables, bringing the
total amount of outstanding securitized loans to $46.2 billion at December 31,
1998.
RETURN ON AVERAGE TOTAL ASSETS
97 98 99
3.25% 3.38% 3.62%
RETURN ON AVERAGE STOCKHOLDERS'S EQUITY
97 98 99
35.56% 36.91% 7.18%
The Corporation's return on average total assets in 1999 increased to 3.62% from
3.38% in 1998 and 3.25% in 1997. The increases in return on average total assets
are a result of the Corporation's net income growing faster than its average
total assets as a result of asset securitization. The Corporation's return on
average stockholders' equity is 27.18% in 1999, compared to 36.91% in 1998 and
35.56% in 1997. The lower return on average stockholders' equity in 1999 is
primarily a result of an increase in average stockholders' equity from the
issuance of 50 million shares of common stock in January 1999 for $1.2 billion,
net of issuance costs. The increase in the return on average stockholders'
equity in 1998 was primarily a result of an increase in net income partially
offset by the growth in average stockholders' equity. 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.
25
38
MBNA CORPORATION AND SUBSIDIARIES
TABLE 1: STATEMENTS OF AVERAGE BALANCES, YIELDS AND RATES, INCOME OR EXPENSE
(dollars in thousands, yields and rates on a fully taxable equivalent basis)
- ------------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Average Yield/ Income Average Yield/ Income
Amount Rate or Expense Amount Rate or Expense
--------------------------------------- -------------------------------------
ASSETS
Interest-earning assets:
Interest-earning time deposits in other banks:
Domestic...................................... $ 3,450 3.91% $ 135 $ 8,806 4.69% $ 413
Foreign....................................... 2,309,914 5.20 120,099 2,349,929 5.75 135,007
----------- ---------- ----------- -----------
Total interest-earning time deposits
in other banks......................... 2,313,364 5.20 120,234 2,358,735 5.74 135,420
Federal funds sold and securities purchased
under resale agreements....................... 936,265 5.05 47,264 538,009 5.35 28,783
----------- ---------- ----------- -----------
Total money market instruments......... 3,249,629 5.15 167,498 2,896,744 5.67 164,203
Investment securities (a):
Taxable....................................... 2,451,511 5.38 131,818 1,917,645 5.79 111,092
Tax-exempt (b)................................ 96,001 5.75 5,519 91,554 5.72 5,238
----------- ---------- ----------- -----------
Total investment securities............ 2,547,512 5.39 137,337 2,009,199 5.79 116,330
Loans held for securitization:
Domestic......................................... 3,163,296 13.67 432,570 1,853,805 14.36 266,190
Foreign.......................................... 908,098 13.52 122,735 723,677 14.64 105,952
----------- ---------- ----------- -----------
Total loans held for securitization.... 4,071,394 13.64 555,305 2,577,482 14.44 372,142
Loans:
Domestic:
Credit card................................ 7,183,094 13.43 964,912 6,174,766 14.19 876,094
Other consumer............................. 1,988,622 14.14 281,117 2,288,374 13.94 318,958
----------- ---------- ----------- -----------
Total domestic loans................... 9,171,716 13.59 1,246,029 8,463,140 14.12 1,195,052
Foreign.......................................... 1,179,385 13.40 158,034 889,667 13.52 20,278
----------- ---------- ----------- -----------
Total loans............................ 10,351,101 13.56 1,404,063 9,352,807 14.06 1,315,330
----------- ---------- ----------- -----------
Total loan receivables................. 14,422,495 13.59 1,959,368 11,930,289 14.14 1,687,472
----------- ---------- ----------- -----------
Total interest-earning assets.......... 20,219,636 11.20 2,264,203 16,836,232 11.69 1,968,005
Cash and due from banks.............................. 541,644 459,842
Premises and equipment, net.......................... 1,651,977 1,633,761
Other assets......................................... 6,196,719 4,244,538
Reserve for possible credit losses................... (299,754) (192,024)
----------- -----------
Total assets......................................... $28,310,222 $22,982,349
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing deposits:
Domestic:
Time deposits (c).............................. $11,193,882 5.90 660,933 $ 8,965,995 6.27 562,161
Money market deposit accounts.................. 4,308,305 5.01 215,705 3,564,300 5.40 192,384
Interest-bearing transaction accounts.......... 36,895 4.27 1,574 31,644 4.67 1,478
Savings accounts............................... 37,808 4.33 1,636 11,303 4.60 520
----------- ---------- ----------- -----------
Total domestic interest-bearing deposits..... 15,576,890 5.65 879,848 12,573,242 6.02 756,543
Foreign:
Time deposits..................................... 742,210 5.33 39,578 865,975 6.88 59,561
----------- ---------- ----------- -----------
Total interest-bearing deposits................. 16,319,100 5.63 919,426 13,439,217 6.07 816,104
Borrowed funds:
Short-term borrowings:
Domestic....................................... 441,993 5.67 25,047 223,437 5.53 12,347
Foreign........................................ 222,383 5.08 11,290 225,065 6.08 13,691
----------- ---------- ----------- -----------
Total short-term borrowings.................. 664,376 5.47 36,337 448,502 5.81 26,038
Long-term debt and bank notes:
Domestic (c)...................................... 5,450,998 6.18 336,728 5,643,825 6.44 363,593
Foreign........................................... 523,278 6.88 36,015 229,297 7.89 18,098
----------- ---------- ----------- -----------
Total long-term debt and bank notes............ 5,974,276 6.24 372,743 5,873,122 6.50 381,691
----------- ---------- ----------- -----------
Total borrowed funds........................... 6,638,652 6.16 409,080 6,321,624 6.45 407,729
----------- ---------- ----------- -----------
Total interest-bearing liabilities............. 22,957,752 5.79 1,328,506 19,760,841 6.19 1,223,833
Demand deposits...................................... 582,234 427,428
Other liabilities.................................... 1,000,697 691,037
----------- -----------
Total liabilities............................. 24,540,683 20,879,306
Stockholders' equity................................. 3,769,539 2,103,043
----------- -----------
Total liabilities and stockholders' equity.... $28,310,222 $22,982,349
=========== ---------- =========== -----------
Net interest income........................... $ 935,697 $ 744,172
========== ===========
Net interest margin........................... 4.63 4.42
Interest rate spread.......................... 5.41 5.50
- ------------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1997
- ----------------------------------------------------------------------------------------------------
Average Yield/ Income
Amount Rate or Expense
----------------------------------------
ASSETS
Interest-earning assets:
Interest-earning time deposits in other banks:
Domestic...................................... $ 2,683 3.80% $ 102
Foreign....................................... 848,229 5.77 48,971
----------- ----------
Total interest-earning time deposits
in other banks......................... 850,912 5.77 49,073
Federal funds sold and securities purchased
under resale agreements....................... 430,614 5.56 23,962
----------- ----------
Total money market instruments......... 1,281,526 5.70 73,035
Investment securities (a):
Taxable....................................... 2,480,722 5.70 141,429
Tax-exempt (b)................................ 89,619 6.03 5,402
----------- ----------
Total investment securities........... 2,570,341 5.71 146,831
Loans held for securitization:
Domestic...................................... 2,486,520 14.50 360,506
Foreign....................................... 388,692 14.44 56,139
----------- ----------
Total loans held for securitization... 2,875,212 14.49 416,645
Loans:
Domestic:
Credit card................................... 5,196,643 14.16 735,971
Other consumer................................ 1,938,292 14.49 280,822
----------- ----------
Total domestic loans.................. 7,134,935 14.25 1,016,793
Foreign....................................... 428,366 13.91 59,600
----------- ----------
Total loans........................... 7,563,301 14.23 1,076,393
----------- ----------
Total loan receivables................ 10,438,513 14.30 1,493,038
----------- ----------
Total interest-earning assets......... 14,290,380 11.99 1,712,904
Cash and due from banks.............................. 495,835
Premises and equipment, net.......................... 1,292,284
Other assets......................................... 3,190,060
Reserve for possible credit losses................... (143,277)
-----------
Total assets.......................... $19,125,282
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing deposits:
Domestic:
Time deposits (c).............................. $ 8,011,904 6.30 504,742
Money market deposit accounts.................. 2,908,901 5.42 157,786
Interest-bearing transaction accounts.......... 27,779 4.72 1,310
Savings accounts............................... 11,578 4.68 542
----------- ----------
Total domestic interest-bearing deposits..... 10,960,162 6.06 664,380
Foreign:
Time deposits..................................... 452,530 6.53 29,540
----------- ----------
Total interest-bearing deposits................. 11,412,692 6.08 693,920
Borrowed funds:
Short-term borrowings:
Domestic....................................... 285,894 5.69 16,257
Foreign........................................ 52,261 6.75 3,527
----------- ----------
Total short-term borrowings.................. 338,155 5.85 19,784
Long-term debt and bank notes:
Domestic (c)...................................... 4,459,829 6.52 290,814
Foreign........................................... 179,601 7.85 14,105
----------- ----------
Total long-term debt and bank notes............ 4,639,430 6.57 304,919
----------- ----------
Total borrowed funds........................... 4,977,585 6.52 324,703
----------- ----------
Total interest-bearing liabilities............. 16,390,277 6.21 1,018,623
Demand deposits...................................... 340,195
Other liabilities.................................... 644,351
-----------
Total liabilities............................. 17,374,823
Stockholders' equity................................. 1,750,459
-----------
Total liabilities and stockholders' equity.... $19,125,282
=========== ----------
Net interest income........................... $ 694,281
==========
Net interest margin........................... 4.86
Interest rate spread.......................... 5.78
- ----------------------------------------------------------------------------------------------------
(a) Average amounts for investment securities available-for-sale are based on
market values; if these securities were carried at amortized cost, there
would be no impact on the net interest margin.
(b) The fully taxable equivalent adjustment for the years ended December 31,
1999, 1998, and 1997, was $1,932, $1,833, and $1,891, respectively.
(c) Includes the impact of interest rate swap agreements used to change
fixed-rate funding sources to floating-rate funding sources.
26
39
MBNA CORPORATION AND SUBSIDIARIES
TABLE 2: RATE-VOLUME VARIANCE ANALYSIS (a)
(dollars in thousands, on a fully taxable equivalent basis)
- -------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1999 COMPARED TO 1998
- -------------------------------------------------------------------------------------------------------------------------
Volume Rate Total
-----------------------------------------------
INTEREST-EARNING ASSETS
Interest-earning time deposits in other banks:
Domestic ........................................................ $ (218) $ (60) $ (278)
Foreign ......................................................... (2,266) (12,642) (14,908)
---------- ---------- ----------
Total interest-earning time deposits in other banks ..... (2,484) (12,702) (15,186)
Federal funds sold and securities purchased under resale agreements 20,190 (1,709) 18,481
---------- ---------- ----------
Total money market instruments .......................... 17,706 (14,411) 3,295
Investment securities:
Taxable ......................................................... 29,162 (8,436) 20,726
Tax-exempt ...................................................... 256 25 281
---------- ---------- ----------
Total investment securities ............................. 29,418 (8,411) 21,007
Loans held for securitization:
Domestic ........................................................ 179,635 (13,255) 166,380
Foreign ......................................................... 25,406 (8,623) 16,783
---------- ---------- ----------
Total loans held for securitization ..................... 205,041 (21,878) 183,163
Loans:
Domestic:
Credit card ................................................... 137,322 (48,504) 88,818
Other consumer ................................................ (42,316) 4,475 (37,841)
---------- ---------- ----------
Total domestic loans .................................... 95,006 (44,029) 50,977
Foreign ......................................................... 38,831 (1,075) 37,756
---------- ---------- ----------
Total loans ............................................. 133,837 (45,104) 88,733
---------- ---------- ----------
Total loan receivables .................................. 338,878 (66,982) 271,896
---------- ---------- ----------
Total interest income ................................... 386,002 (89,804) 296,198
INTEREST-BEARING LIABILITIES
Interest-bearing deposits:
Domestic:
Time deposits ................................................. 133,091 (34,319) 98,772
Money market deposit accounts ................................. 37,999 (14,678) 23,321
Interest-bearing transaction accounts ......................... 231 (135) 96
Savings accounts .............................................. 1,149 (33) 1,116
---------- ---------- ----------
Total domestic interest-bearing deposits ................ 172,470 (49,165) 123,305
Foreign:
Time deposits ................................................. (7,769) (12,214) (19,983)
---------- ---------- ----------
Total interest-bearing deposits ......................... 164,701 (61,379) 103,322
Borrowed funds:
Short-term borrowings:
Domestic ................................................... 12,377 323 12,700
Foreign .................................................... (161) (2,240) (2,401)
---------- ---------- ----------
Total short-term borrowings ............................. 12,216 (1,917) 10,299
Long-term debt and bank notes:
Domestic ................................................... (12,191) (14,674) (26,865)
Foreign .................................................... 20,503 (2,586) 17,917
---------- ---------- ----------
Total long-term debt and bank notes ..................... 8,312 (17,260) (8,948)
---------- ---------- ----------
Total borrowed funds .................................... 20,528 (19,177) 1,351
---------- ---------- ----------
Total interest expense .................................. 185,229 (80,556) 104,673
---------- ---------- ----------
Net interest income ..................................... $ 200,773 $ (9,248) $ 191,525
========== ========== ==========
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1998 COMPARED TO 1997
- -------------------------------------------------------------------------------------------------------------------------
Volume Rate Total
------------------------------------------------
INTEREST-EARNING ASSETS
Interest-earning time deposits in other banks:
Domestic ........................................................ $ 282 $ 29 $ 311
Foreign ......................................................... 86,276 (240) 86,036
---------- ---------- ----------
Total interest-earning time deposits in other banks ..... 86,558 (211) 86,347
Federal funds sold and securities purchased under resale agreements 5,776 (955) 4,821
---------- ---------- ----------
Total money market instruments .......................... 92,334 (1,166) 91,168
Investment securities:
Taxable ......................................................... (32,585) 2,248 (30,337)
Tax-exempt ...................................................... 115 (279) (164)
---------- ---------- ----------
Total investment securities ............................. (32,470) 1,969 (30,501)
Loans held for securitization:
Domestic ........................................................ (90,884) (3,432) (94,316)
Foreign ......................................................... 49,034 779 49,813
---------- ---------- ----------
Total loans held for securitization ..................... (41,850) (2,653) (44,503)
Loans:
Domestic:
Credit card ................................................... 138,777 1,346 140,123
Other consumer ................................................ 49,129 (10,993) 38,136
---------- ---------- ----------
Total domestic loans .................................... 187,906 (9,647) 178,259
Foreign ......................................................... 62,412 (1,734) 60,678
---------- ---------- ----------
Total loans ............................................. 250,318 (11,381) 238,937
---------- ---------- ----------
Total loan receivables .................................. 208,468 (14,034) 194,434
---------- ---------- ----------
Total interest income ................................... 268,332 (13,231) 255,101
INTEREST-BEARING LIABILITIES
Interest-bearing deposits:
Domestic:
Time deposits ................................................. 59,832 (2,413) 57,419
Money market deposit accounts ................................. 35,379 (781) 34,598
Interest-bearing transaction accounts ......................... 181 (13) 168
Savings accounts .............................................. (13) (9) (22)
---------- ---------- ----------
Total domestic interest-bearing deposits ................ 95,379 (3,216) 92,163
Foreign:
Time deposits ................................................. 28,356 1,665 30,021
---------- ---------- ----------
Total interest-bearing deposits ......................... 123,735 (1,551) 122,184
Borrowed funds:
Short-term borrowings:
Domestic ................................................... (3,463) (447) (3,910)
Foreign .................................................... 10,545 (381) 10,164
---------- ---------- ----------
Total short-term borrowings ............................. 7,082 (828) 6,254
Long-term debt and bank notes:
Domestic ................................................... 76,317 (3,538) 72,779
Foreign .................................................... 3,922 71 3,993
---------- ---------- ----------
Total long-term debt and bank notes ..................... 80,239 (3,467) 76,772
---------- ---------- ----------
Total borrowed funds .................................... 87,321 (4,295) 83,026
---------- ---------- ----------
Total interest expense .................................. 211,056 (5,846) 205,210
---------- ---------- ----------
Net interest income ..................................... $ 57,276 $ (7,385) $ 49,891
========== ========== ==========
- -------------------------------------------------------------------------------------------------------------------------
(a) The rate-volume variance for each category has been allocated on a
consistent basis between rate and volume variances based on the percentage
of the rate or volume variance to the sum of the two absolute variances.
NET INTEREST INCOME
Net interest income represents interest income on total interest-earning assets,
on a fully taxable equivalent basis where appropriate, less interest expense on
total interest-bearing liabilities. Table 2 illustrates the impact that rate and
volume changes had on the Corporation's net interest income for the years
presented.
Net interest income, on a fully taxable equivalent basis, increased $191.5
million to $935.7 million in 1999 from 1998. The increase in net interest income
in 1999 is primarily a result of a $3.4 billion increase in average
interest-earning assets from 1998, offset by a $3.2 billion increase in average
interest-bearing liabilities. The increase in average interest-earning assets
for the year ended December 31, 1999, is primarily a result of an increase in
average loan receivables of $2.5 billion. Average investment securities and
money market instruments also increased $891.2 million during 1999 as compared
to the same period in 1998. The increase in interest-bearing liabilities
resulted primarily from funding the increase in interest-earning assets,
accounts receivable from securitizations, 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 securitizations and the value of acquired Customer accounts are
included in other assets in Table 1. For the year ended December 31, 1999, the
yield earned on average interest-earning assets decreased 49 basis points, while
the rate paid on average interest-bearing liabilities declined 40 basis points
as compared to the same period in 1998. The decline in the yield earned on
average interest-earning assets and rates paid on average interest-bearing
liabilities reflects actions by the Federal Reserve Board
27
40
MBNA CORPORATION AND SUBSIDIARIES
during the last four months of 1998 which impacted overall market interest rates
in 1999. Also the Corporation reduced rates on loan products in order to attract
and retain Customers and grow loan receivables.
NET INTEREST INCOME (FULLY TABLE EQUIVALENT BASIS)
(millions)
97 98 99
664.3 744.2 935.7
Net interest income, on a fully taxable equivalent basis, increased $49.9
million to $744.2 million in 1998 from $694.3 million in 1997. The increase in
net interest income in 1998 was primarily a result of a $2.5 billion increase
in average interest-earning assets from 1997, offset by a $3.4 billion increase
in average interest-bearing liabilities and a 30 basis point decline in the
yield earned on average interest-earning assets for the same period. The
increase in average interest-earning assets for 1998 was a result of a $1.5
billion increase in average loan receivables combined with a $1.0 billion
increase in average investment securities and money market instruments, as
compared to the same period in 1997. The increase in interest-bearing
liabilities resulted primarily from funding the increase in interest-earning
assets and accounts receivable from securitizations.
Net interest margin represents net interest income on a fully taxable equivalent
basis expressed as a percentage of average total interest-earning assets. The
Corporation's net interest margin, on a fully taxable equivalent basis, was
4.63% in 1999, compared to 4.42% in 1998 and 4.86% in 1997.
INVESTMENT SECURITIES AND MONEY MARKET INSTRUMENTS
Interest income on investment securities in 1999, on a fully taxable equivalent
basis, increased $21.0 million to $137.3 million from 1998. The increase in 1999
was primarily the result of a $538.3 million increase in average investment
securities, offset by a 40 basis point decrease in the yield earned on these
securities. Interest income on investment securities, on a fully taxable
equivalent basis, decreased $30.5 million to $116.3 million in 1998 from 1997.
The decrease in 1998 was primarily the result of a $561.1 million decrease in
average investment securities, offset by an 8 basis point increase in the yield
earned on these securities.
INVESTMENT SECURITIES INTEREST INCOME
(FULLY TAXABLE EQUIVALENT BASIS)
(millions)
97 98 99
146.8 116.3 137.3
Interest income on money market instruments increased $3.3 million to $167.5
million in 1999 from 1998. The increase in 1999 was primarily the result of an
increase of $352.9 million in average money market instruments from 1998, offset
by a 52 basis point decrease in the yield earned on these instruments. Interest
income on money market instruments increased $91.2 million to $164.2 million in
1998 from 1997. The increase in 1998 was primarily the result of an increase of
$1.6 billion in average money market instruments from 1997, offset by a 3 basis
point decrease in the yield earned on these instruments.
MONEY MARKET INSTRUMENTS
INTEREST INCOME BASIS)
(millions)
97 98 99
73.0 164.2 167.5
Average investment securities and money market instruments are affected by the
timing of the 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 invested in short-term, liquid
money market instruments and investment securities available-for-sale until the
funds are needed for loan growth and other liquidity needs. Average money
market instruments were also higher during 1999 as a result of the investment of
the net proceeds from the issuance
TABLE 3: INVESTMENT SECURITIES
(dollars in thousands, yields on a fully taxable equivalent basis)
- ------------------------------------------------------------------------------------------------------------------------
ESTIMATED MATURITIES AT DECEMBER 31, 1999
- ------------------------------------------------------------------------------------------------------------------------
WITHIN 1 YEAR 1-5 YEARS 6-10 YEARS
BOOK YIELD BOOK YIELD BOOK YIELD
---------------------- --------------------- -----------------
INVESTMENT SECURITIES AVAILABLE-FOR-SALE
U.S. Treasury and other U.S. government
agencies obligations............................ $324,528 4.79% $1,252,824 5.40% $ - -%
State and political subdivisions of the
United States................................... 97,791 7.62 - - - -
Asset-backed and other securities................. 380,902 6.46 648,798 6.33 36,293 6.64
-------- ---------- --------
Total investment securities available-for-sale. $803,221 5.93 $1,901,622 5.72 $ 36,293 6.64
======== ========== ========
INVESTMENT SECURITIES HELD-TO-MATURITY
U.S. Treasury and other U.S. government
agencies obligations............................ $ - - $ - - $ - -
State and political subdivisions of the
United States................................... 95 4.60 207 4.73 - -
Asset-backed and other securities................. - - 12,906 6.90 - -
-------- ---------- --------
Total investment securities held-to-maturity... $ 95 4.60 $ 13,113 6.87 $ - -
======== ========== ========
- ------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
ESTIMATED MATURITIES AT DECEMBER 31, 1999
- ---------------------------------------------------------------------------------------------------
OVER 10 YEARS TOTAL
BOOK YIELD BOOK YIELD
------------------ ------------------------
INVESTMENT SECURITIES AVAILABLE-FOR-SALE
U.S. Treasury and other U.S. government
agencies obligations............................ $ - -% $1,577,352 5.27%
State and political subdivisions of the
United States................................... - - 97,791 7.62
Asset-backed and other securities................. 11,527 6.63 1,077,520 6.39
-------- ----------
Total investment securities available-for-sale. $ 11,527 6.63 $2,752,663 5.79
======== ==========
INVESTMENT SECURITIES HELD-TO-MATURITY
U.S. Treasury and other U.S. government
agencies obligations............................ $248,652 5.44 $ 248,652 5.44
State and political subdivisions of the
United States................................... 5,861 5.52 6,163 5.48
Asset-backed and other securities................. 25,920 6.00 38,826 6.30
-------- ----------
Total investment securities held-to-maturity... $280,433 5.49 $ 293,641 5.55
======== ==========
- ---------------------------------------------------------------------------------------------------
28
41
MBNA CORPORATION AND SUBSIDIARIES
of common stock by the Corporation in January 1999, until used to complete the
acquisition of the credit card business of PNC Bank N.A. ("PNC") in March 1999,
and for other general corporate purposes. The growth in money market
instruments was offset in the fourth quarter of 1999 as the Corporation
reinvested funds from maturing money market instruments in treasury
obligations, included in the investment securities available-for-sale
portfolio, as part of the Corporation's Year 2000 readiness planning.
The Corporation tries to maintain its investment securities and money market
instruments position at a level appropriate for the Corporation's anticipated
liquidity needs. Average investment securities and money market instruments as a
percentage of average interest-earning assets was 28.7% in 1999, compared to
29.1% in 1998 and 27.0% in 1997.
Table 3 reflects the estimated maturities of the Corporation's investment
securities and weighted average yields, on a fully taxable equivalent basis, at
December 31, 1999.
Note D to the audited consolidated financial statements provides further detail
regarding the Corporation's investment securities.
LOAN RECEIVABLES
Interest income generated by the Corporation's loan receivables increased $271.9
million to $2.0 billion in 1999. The increase is the result of a $2.5 billion
increase in average loan receivables, offset by a decrease of 55 basis points in
the yield earned on these receivables.
During 1998, interest income on loan receivables increased $194.4 million to
$1.7 billion. The increase in interest income during 1998 was the result of a
$1.5 billion increase in average loan receivables, offset by a decrease of 16
basis points in the yield earned on these loan receivables.
Table 4 presents the Corporation's loan receivables at year end distributed by
loan type, excluding securitized loans. Loan receivables increased 31.1% to
$17.7 billion at December 31, 1999, compared to $13.5 billion and $11.2 billion
at December 31, 1998 and 1997, respectively.
LOAN RECEIVABLES INTEREST INCOME
(billions)
97 98 99
1.5 1.7 2.0
Domestic credit card loan receivables increased to $13.0 billion at December
31, 1999, compared to $9.1 billion and $7.8 billion at December 31, 1998 and
1997, respectively. The increases in credit card loan receivables in 1999 and
1998 were a result of the Corporation's marketing programs, such as the MBNA
Platinum Plus MasterCard and Visa programs, and loan portfolio acquisitions.
The Corporation acquired $4.7 billion of domestic credit card loan receivables
during 1999, including the acquisition of $2.7 billion of credit card loan
receivables from PNC during the first quarter of 1999 and a $1.4 billion credit
card loan portfolio from SunTrust Banks during the fourth quarter of 1999, which
are included in loans held for securitization. The Corporation acquired $2.1
billion of credit card loan portfolios in 1998. The growth in outstanding
domestic loan receivables is offset by the Corporation's continued
securitization of domestic credit card loan receivables. In 1999, the
Corporation securitized $10.8 billion of domestic credit card loan receivables,
while $4.9 billion of previously securitized credit card loan receivables
amortized back into the Corporation's loan portfolio. In 1998, the Corporation
securitized $7.8 billion of domestic credit card loan receivables, while $2.5
billion of previously securitized credit card loan receivables amortized back
into the Corporation's loan portfolio.
Domestic other consumer loan receivables decreased to $2.3 billion at December
31, 1999, compared to $2.9 billion and $2.2 billion at December 31, 1998 and
1997, respectively. The decrease in domestic
TABLE 4: LOAN RECEIVABLES DISTRIBUTION
(dollars in thousands)
- ----------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------
LOANS HELD FOR SECURITIZATION (a)
Domestic:
Credit card................... $ 7,835,429 44.3% $1,135,004 8.4% $2,297,400 20.6%
Other consumer................ 1,001,271 5.7 114,747 .9 - -
----------- ----- ---------- ----- ----------- -----
Total domestic loans held for
securitization............. 8,836,700 50.0 1,249,751 9.3 2,297,400 20.6
Foreign (b)..................... 855,916 4.9 442,517 3.3 602,798 5.4
----------- ----- ---------- ----- ----------- -----
Total loans held for
securitization............. 9,692,616 54.9 1,692,268 12.6 2,900,198 26.0
LOAN PORTFOLIO
Domestic:
Credit card................... 5,116,381 28.9 7,981,106 59.2 5,475,933 49.0
Other consumer................ 1,268,019 7.2 2,748,511 20.4 2,187,216 19.6
----------- ----- ---------- ----- ----------- -----
Total domestic loan portfolio 6,384,400 36.1 10,729,617 79.6 7,663,1496 8.6
Foreign (b)..................... 1,586,693 9.0 1,046,482 7.8 598,727 5.4
----------- ----- ---------- ----- ----------- -----
Total loan portfolio........ 7,971,093 45.1 11,776,099 87.4 8,261,876 74.0
----------- ----- ---------- ----- ----------- -----
Total loan receivables...... $17,663,709 100.0% $13,468,367 100.0% $11,162,074 100.0%
=========== ===== ========== ===== =========== =====
- ----------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
DECEMBER 31, 1996 1995
- -------------------------------------------------------------------------------------------
LOANS HELD FOR SECURITIZATION (a)
Domestic:
Credit card................... $2,206,218 21.8% $2,780,802 34.2%
Other consumer................ - - - -
----------- ----- ---------- -----
Total domestic loans held for
securitization............. 2,206,218 21.8 2,780,802 34.2
Foreign (b)..................... 263,756 2.6 387,625 4.7
----------- ----- ---------- -----
Total loans held for
securitization............. 2,469,974 24.4 3,168,427 38.9
LOAN PORTFOLIO
Domestic:
Credit card................... 5,514,326 54.4 3,957,129 48.7
Other consumer................ 1,840,052 18.2 870,893 10.7
----------- ----- ---------- -----
Total domestic loan portfolio 7,354,378 72.6 4,828,022 59.4
Foreign (b)..................... 304,700 3.0 139,469 1.7
----------- ----- ---------- -----
Total loan portfolio........ 7,659,078 75.6 4,967,491 61.1
----------- ----- ---------- -----
Total loan receivables...... $10,129,052 100.0% $ 8,135,918 100.0%
=========== ===== ========== =====
- -------------------------------------------------------------------------------------------
(a) Loans held for securitization includes loan receivables in which certain
affinity groups or financial institutions have the contractual right to
acquire the loans from the Corporation at fair value after a stated
contractual period of time.
(b) Note T to the audited consolidated financial statements provides the
foreign loan receivables distribution between credit card and other
consumer loans.
29
42
MBNA CORPORATION AND SUBSIDIARIES
other consumer loan receivables in 1999 is primarily related to the sale of the
Corporation's home equity loan portfolio of approximately $760.0 million in
October 1999, offset by loan growth in the Corporation's lines of credit
accessed through checks and by other consumer loan portfolio acquisitions of
$227.1 million. The Corporation realized a net gain from the sale of the home
equity loan portfolio which was not material to the Corporation's 1999 financial
results. The increase in domestic other consumer loan receivables in 1998 was a
result of the Corporation's acquisition of $1.0 billion in 1998 of domestic
other consumer loan portfolios combined with origination of loans through lines
of credit accessed through checks and home equity loans. The Corporation
securitized domestic other consumer loans of $1.0 billion in 1999, and had a net
increase in securitized domestic other consumer loans of $565.7 million in 1998.
Foreign loan receivables increased $953.6 million to $2.4 billion at December
31, 1999, as compared to $1.5 billion at December 31, 1998, and $1.2 billion at
December 31, 1997. The growth in foreign loan receivables is a result of the
marketing programs at the Corporation's two foreign bank subsidiaries, MBNA
Europe and MBNA Canada. Also, during 1998 the Corporation acquired $213.9
million of foreign credit card loan receivables. The Corporation securitized
$1.5 billion of foreign credit card loan receivables in 1999 and $1.8 billion of
foreign loan receivables in 1998.
LOAN RECEIVABLES DISTRIBUTION
(millions)
DECEMBER 31, 1999 DECEMBER 31, 1998
Domestic credit card loan receivables $12,951.8 $9,116.1
Domestic other consumer loan receivables $ 2,269.3 $2,863.3
Foreign loan receivables $ 2,442.6 $1,489.0
Note C to the audited consolidated financial statements provides further detail
regarding the Corporation's loan receivables.
CROSS-BORDER OUTSTANDINGS
The Corporation periodically holds cross-border outstandings, which are
generally interest-earning time deposits in other banks. At December 31, 1999,
the Corporation had cross-border outstandings in excess of 1% of total
consolidated assets of $696.1 million in the United Kingdom. The Corporation had
cross-border outstandings in excess of 1% of total consolidated assets of $358.7
million in the United Kingdom, $402.8 million in Germany, and $325.9 million in
Canada at December 31, 1998, and $255.0 million in Canada at December 31, 1997.
The Corporation does not have significant local currency outstandings in these
countries that are not hedged or funded by local currency borrowings. The
cross-border outstandings in the above countries are primarily short-term in
nature.
DEPOSITS
Total interest expense on deposits was $919.4 million in 1999, compared to
$816.1 million and $693.9 million in 1998 and 1997, respectively. The increase
in interest expense of $103.3 million during 1999 was primarily the result of a
$2.9 billion increase in average interest-bearing deposits, offset by a 44 basis
point decrease in the rate paid on average interest-bearing deposits. The
increase in interest expense on deposits of $122.2 million during 1998 was
primarily the result of a $2.0 billion increase in average interest-bearing
deposits.
The increase in average interest-bearing deposits in 1999 was a result of the
Corporation's continued emphasis on marketing certificates of deposit and money
market deposit accounts as well as obtaining other deposits through the use of
third-party intermediaries to fund loan and other asset growth and diversify
funding sources. The increase in average interest-bearing deposits in 1998 was a
result of the Corporation's continued marketing of certificates of deposit and
money market deposit accounts. In addition, foreign average interest-bearing
deposits increased $413.4 million in 1998, which provided funding for the
Corporation's foreign bank subsidiaries' loan growth.
BORROWED FUNDS
Interest expense on short-term borrowings increased to $36.3 million in 1999,
compared to $26.0 million and $19.8 million in 1998 and 1997, respectively. The
increase in interest expense on short-term borrowings in 1999 was primarily the
result of an increase in average short-term borrowings of $215.9 million from
1998, offset by a 34 basis point decrease in the rate paid on average short-term
borrowings. The increase in average short-term borrowings in 1999 was to provide
funding for the Corporation's short-term liquidity needs. The increase in
interest expense on short-term borrowings in 1998 was primarily the result of an
increase in average short-term borrowings of $110.3 million from 1997, offset by
a 4 basis point decrease in the rate paid on average short-term borrowings. The
increase in short-term borrowings in 1998 was to provide funding for the
Corporation's domestic and foreign loan growth.
Note G to the audited consolidated financial statements provides further detail
regarding the Corporation's short-term borrowings.
Interest expense on long-term debt and bank notes decreased to $372.7 million in
1999, compared to $381.7 million in 1998 and $304.9 million in 1997. The
decrease in interest expense in 1999 was primarily a result of a 26 basis point
decline in the rate paid on average long-term debt and bank notes, as the rate
on the Corporation's variable-rate long-term debt and bank notes decreased as a
result of lower market rates. Also, the Corporation replaced maturing higher
rate long-term debt and bank notes with lower rate long-term debt and bank notes
during 1999. The decrease in interest expense in 1999 is offset by a $101.2
million increase in average long-term debt and bank notes as the Corporation's
foreign bank subsidiaries issued additional long-term debt and bank notes. The
increase in interest expense in 1998 primarily reflects the issuance of
additional long-term debt and bank notes by the Corporation to diversify its
funding sources, to fund both domestic and foreign loan growth, and for
30
43
MBNA CORPORATION AND SUBSIDIARIES
other general corporate purposes. Average long-term debt and bank notes
increased to $5.9 billion in 1998 as compared to $4.6 billion in 1997.
Note H to the audited consolidated financial statements provides further detail
regarding the Corporation's long-term debt and bank notes.
OTHER OPERATING INCOME
Total other operating income increased 30.3% or $978.9 million to $4.2 billion
in 1999 from 1998. The increase in other operating income during 1999 was
primarily attributable to a $799.0 million or 28.1% increase in securitization
income, which grew to $3.6 billion from 1998. The increase in securitization
income was the result of an $8.7 billion or 21.3% increase in average
securitized loans to $49.7 billion from 1998, in addition to a decline in the
average rate paid to investors in the Corporation's securitized loans. Also,
during the three months ended March 31, 1999, the Corporation increased the fees
charged to its credit card and other consumer loan Customers. As a result, loan
servicing fees related to securitized loans, credit card fees and other income
increased in 1999 as compared to 1998.
OTHER OPERATING INCOME
(billions)
97 98 99
2.8 3.2 4.2
Total other operating income increased 14.8% or $416.1 million to $3.2 billion
in 1998 from 1997. The increase in other operating income during 1998 was
primarily attributable to an increase of 13.5% or $337.4 million in
securitization income from 1997. The increase in securitization income was the
result of an $8.2 billion or 25.1% increase in average securitized loans to
$41.0 billion from 1997.
On January 1, 1997, the Corporation adopted Statement of Financial Accounting
Standards No. 125, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities" ("Statement No. 125"), effective for all
transactions occurring after December 31, 1996. In accordance with Statement No.
125, gains are recognized in securitization income at the time of initial sale
and each subsequent sale of loan receivables in a securitization. Securitization
income includes the gains recognized by the Corporation, in addition to other
fees received by the Corporation for the servicing of securitized loans. As a
result of Statement No. 125, securitization income increased $23.3 million in
1999, $17.9 million in 1998, and $325.1 million in 1997. These increases may
not be representative of future periods. The Corporation periodically reviews
the assumptions used in determining the net impact related to Statement No. 125.
If these assumptions change, the related receivable and securitization income
would be affected.
Insurance income decreased $19.3 million to $59.6 million in 1999, as compared
to 1998. The Corporation suspended marketing new automobile insurance policies
through its underwriter in July 1998. During 1999 the Corporation began
marketing automobile insurance to the Corporation's Customers through American
International Group, Inc. ("AIG"), its new insurance underwriter. Insurance
income increased $36.5 million to $79.0 million in 1998, primarily as a result
of the growth in fee income generated from the Corporation's insurance agency
business.
Interchange income increased $81.9 million during 1999, as compared to an
increase of $23.8 million in 1998. The increases in interchange income in 1999
and 1998 are a result of the increases in the Corporation's sales volume in
addition to an increase in the interchange rate set by MasterCard and Visa in
1999.
OTHER OPERATING EXPENSE
Total other operating expense increased 27.9% to $3.1 billion in 1999 from $2.4
billion in 1998, compared to an increase of 8.3% in 1998 from $2.2 billion in
1997. The growth in other operating expense reflects the Corporation's continued
investment in business development activities to enhance the ability of the
Corporation to attract and retain Customers. The Corporation added 12.5 million
new accounts in 1999, compared to 9.3 million new accounts in 1998 and 9.4
million new accounts in 1997. The Corporation added 400 new endorsements from
organizations in 1999, compared to 475 in 1998 and 563 in 1997. The Corporation
also has continued to invest in its other consumer loan, foreign, and insurance
agency businesses. The growth in other operating expense also includes
amortization of intangible assets which increased $116.5 million to $170.6
million for the year ended December 31, 1999, as a result of the Corporation's
loan portfolio acquisitions, including the acquisition of the credit card
business of PNC in March 1999 and the acquisition of the credit card loan
portfolio of SunTrust Banks in November 1999. Based on the Corporation's
portfolio acquisitions in 1999, the Corporation expects amortization expense
related to intangible assets to be higher in 2000. Total other operating expense
in 1997 included the Corporation's investment in additional business development
efforts of an amount equivalent to the increase in securitization income
recognized by the Corporation as a result of the adoption of Statement No. 125,
and therefore the adoption of Statement No. 125 did not materially impact the
Corporation's 1997 consolidated net income.
Note Q to the audited consolidated financial statements provides further detail
regarding the Corporation's other operating expenses.
YEAR 2000 READINESS DISCLOSURE
PROJECT OVERVIEW
Like most major financial institutions, the Corporation is highly dependent upon
technology to deliver products and services to its Customers. Credit card
transactions and authorizations require a variety of voice and data networks and
service providers to operate successfully. Sophisticated computer and
telecommunication systems enable the Corporation to process these transactions
and service Customer accounts. Many computer applications had been written using
two digits rather than four to define the applicable year, and therefore may not
have recognized a date using "00" as the Year 2000. Computer applications may
not have been able to properly process transactions with dates in the Year 2000
or thereafter.
31
44
MBNA CORPORATION AND SUBSIDIARIES
The Corporation began its Year 2000 Project ("the Project") to address this
issue in 1994. The Project included all hardware and software for mission
critical applications, including systems that service and support loans,
deposits, Customer service activities, and financial systems. The Project
included all vendor supplied services, non-technology equipment, such as
building operation and security systems, tele-communication components and
services, local area network and desktop computing environments, and other
areas.
PROJECT READINESS
The Corporation completed all planned project components including the
assessment, renovation, validation and implementation phases, four readiness
test cycles, and an independent review of substantial portions of the
Corporation's computer applications by third-party vendors.
The Corporation successfully completed the transition into the Year 2000 with no
material issues. All business areas completed validation checks and there were
no disruptions in Customer service or system availability.
The Corporation relies on various third parties to perform processing services
and to supply critical system applications. Critical third-party-provided
software applications were tested regardless of vendor statements of fitness to
ensure Year 2000 compliance. Regular meetings and site visits were held and will
continue to be held with MasterCard International, Visa International, and other
critical third-party service providers to evaluate and monitor their compliance.
The Corporation considers all critical vendor-supplied products to be compliant.
COSTS
The total cost associated with required modifications to become Year 2000
compliant were not material to the Corporation's consolidated financial
statements. The estimated total cost of the Project is expected to be
approximately $40 million. Costs incurred and expensed through December 31,
1999, were approximately $38 million. The majority of the remaining cost is
associated with testing and preparation for validating leap year processing.
INCOME TAXES
The Corporation recognized applicable income taxes of $630.5 million in 1999,
compared to $477.8 million in 1998 and $399.6 million in 1997. This represents
an effective tax rate of 38.1% in 1999 and 1998, and 39.1% in 1997. Note S to
the audited consolidated financial statements reconciles reported applicable
income taxes to the amount computed by applying the federal statutory rate to
income before income taxes.
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 3.82%
at December 31, 1999, compared with 3.86% and 3.93% at December 31, 1998 and
1997, respectively. Delinquency as a percentage of managed loans was 4.45% at
December 31, 1999, compared to 4.62% and 4.59% at December 31, 1998 and 1997,
respectively. Table 5 presents the stages of delinquency of the Corporation's
loan portfolio, excluding loans held for securitization.
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 6.
The Corporation's total managed other nonperforming loans as a percentage of
ending managed loans was 2.51% at December 31, 1999, compared to 2.01% and 1.77%
at December 31, 1998 and 1997, respectively.
TABLE 5: DELINQUENT LOANS
(dollars in thousands)
- -----------------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
Loan portfolio......... $7,971,093 $11,776,099 $8,261,876 $7,659,078 $4,967,491
Loans delinquent:
30 to 59 days....... $ 105,667 1.33% $ 166,352 1.41% $ 125,870 1.52% $ 114,382 1.49% $ 65,651 1.32%
60 to 89 days....... 60,452 .76 93,699 .80 64,275 .78 52,857 .69 30,162 .61
90 or more days..... 138,531 1.73 194,472 1.65 134,865 1.63 107,679 1.41 58,894 1.18
---------- ---- ----------- ---- ---------- ---- ---------- ---- ---------- ----
Total $ 304,650 3.82% $ 454,523 3.86% $ 325,010 3.93% $ 274,918 3.59% $ 154,707 3.11%
========== ==== =========== ==== ========== ==== ========== ==== ========== ====
Loans delinquent by
geographic area:
Domestic............ $ 271,139 4.25% $ 424,324 3.95% $ 313,467 4.09% $ 269,035 3.66% $ 151,316 3.13%
Foreign............. 33,511 2.11 30,199 2.89 11,543 1.93 5,883 1.93 3,391 2.43
- -----------------------------------------------------------------------------------------------------------------------------------
32
45
MBNA CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
TABLE 6: OTHER NONPERFORMING LOANS
(dollars in thousands)
DECEMBER 31, 1999 1998 1997 1996 1995
Nonaccrual loans ........................................ $ 12,245 $ 3,182 $ 2,520 $ 1,820 $ 1,037
Reduced-rate loans ...................................... 153,082 157,737 114,218 72,134 28,526
-------- -------- -------- ------- -------
Total other nonperforming loans ...................... $165,327 $160,919 $116,738 $73,954 $29,563
======== ======== ======== ======= =======
Other nonperforming loans as a % of ending loan
portfolio ............................................. 2.07% 1.37% 1.41% .97% .60%
----------------------------------------------------------------------------------------------------------------------------
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 during 1999 were $379.5 million, compared to $285.4 million in
1998 and $223.8 million in 1997. Net credit losses do not include credit losses
from securitized loans, which are charged to the related trusts in accordance
with their respective contractual agreements. The increases in net credit losses
for 1999 and 1998 reflect increases in the Corporation's outstanding loan
receivables, the general economic conditions, and the seasoning of the
Corporation's accounts, offset by recoveries from the sale of charged-off
receivables.
Net credit losses as a percentage of average loan receivables increased to 2.63%
during 1999, compared to 2.39% in 1998 and 2.14% in 1997. The Corporation's
managed credit losses as a percentage of average managed loans in 1999 was
4.33%, compared to 4.31% and 3.97% in 1998 and 1997, respectively.
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 7
presents an analysis of the Corporation's reserve for possible credit losses.
The provision for possible credit losses for the year ended December 31, 1999,
increased 31.9% to $408.9 million compared to
TABLE 7: RESERVE FOR POSSIBLE CREDIT LOSSES
(dollars in thousands)
DECEMBER 31, 1999 1998 1997
Reserve for possible credit losses, beginning of year .............. $ 216,911 $ 162,476 $ 118,427
Reserves acquired ............................................... 109,757 29,932 7,975
Provision for possible credit losses ............................ 408,914 310,039 260,040
Foreign currency translation .................................... (96) (125) (203)
Credit losses:
Domestic:
Credit card ............................................... (422,504) (330,952) (294,608)
Other consumer ............................................ (104,268) (86,407) (57,970)
------------ ------------ ------------
Total domestic credit losses ........................... (526,772) (417,359) (352,578)
Foreign ...................................................... (41,157) (22,754) (6,964)
------------ ------------ ------------
Total credit losses .................................... (567,929) (440,113) (359,542)
Recoveries:
Domestic:
Credit card ............................................... 147,851 133,172 126,012
Other consumer ............................................ 21,301 12,656 7,555
------------ ------------ ------------
Total domestic recoveries .............................. 169,152 145,828 133,567
Foreign ...................................................... 19,250 8,874 2,212
------------ ------------ ------------
Total recoveries ....................................... 188,402 154,702 135,779
------------ ------------ ------------
Net credit losses ............................................... (379,527) (285,411) (223,763)
------------ ------------ ------------
Reserve for possible credit losses, end of year .................... $ 355,959 $ 216,911 $ 162,476
============ ============ ============
Net credit losses as a % of average loan receivables ............... 2.63% 2.39% 2.14%
Net credit losses as a % of beginning reserve ...................... 174.97 175.66 188.95
Reserve for possible credit losses as a % of ending loan
receivables ...................................................... 2.02 1.61 1.46
Ending loan receivables ............................................ $ 17,663,709 $ 13,468,367 $ 11,162,074
Average loan receivables ........................................... 14,422,495 11,930,289 10,438,513
- ----------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1996 1995
Reserve for possible credit losses, beginning of year .............. $ 104,886 $ 101,519
Reserves acquired ............................................... 7,553 -
Provision for possible credit losses ............................ 178,224 138,176
Foreign currency translation .................................... 488 (90)
Credit losses:
Domestic:
Credit card ............................................... (226,067) (161,004)
Other consumer ............................................ (23,504) (10,553)
------------ -----------
Total domestic credit losses ........................... (249,571) (171,557)
Foreign ...................................................... (4,846) (3,336)
------------ -----------
Total credit losses .................................... (254,417) (174,893)
Recoveries:
Domestic:
Credit card ............................................... 76,605 37,765
Other consumer ............................................ 4,438 2,273
------------ -----------
Total domestic recoveries .............................. 81,043 40,038
Foreign ...................................................... 650 136
------------ -----------
Total recoveries ....................................... 81,693 40,174
------------ -----------
Net credit losses ............................................... (172,724) (134,719)
------------ -----------
Reserve for possible credit losses, end of year .................... $ 118,427 $ 104,886
============ ===========
Net credit losses as a % of average loan receivables ............... 1.98% 1.91%
Net credit losses as a % of beginning reserve ...................... 164.68 132.70
Reserve for possible credit losses as a % of ending loan
receivables ...................................................... 1.17 1.29
Ending loan receivables ............................................ $ 10,129,052 $ 8,135,918
Average loan receivables ........................................... 8,703,579 7,061,898
- -------------------------------------------------------------------------------------------------------
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MBNA CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
TABLE 8: ALLOCATION OF RESERVE FOR POSSIBLE CREDIT LOSSES
(dollars in thousands)
DECEMBER 31, 1999 1998 1997
Domestic:
Credit card ......................... $287,767 80.9% $152,405 70.3% $134,910 83.0%
Other consumer ...................... 51,672 14.5 54,752 25.2 23,031 14.2
-------- ----- -------- ------ -------- -----
Domestic reserve for possible
credit losses .................. 339,439 95.4 207,157 95.5 157,941 97.2
Foreign ................................ 16,520 4.6 9,754 4.5 4,535 2.8
-------- ----- -------- ------ -------- -----
Reserve for possible credit losses $355,959 100.0% $216,911 $100.0% $162,476 100.0%
======== ===== ======== ====== ======== =====
DECEMBER 31, 1996 1995
Domestic:
Credit card ......................... $ 95,253 80.4% $ 82,596 78.7%
Other consumer ...................... 18,446 15.6 18,009 17.2
-------- ----- -------- -----
Domestic reserve for possible
credit losses .................. 113,699 96.0 100,605 95.9
Foreign ................................ 4,728 4.0 4,281 4.1
-------- ----- -------- -----
Reserve for possible credit losses $118,427 100.0% $104,886 100.0%
======== ===== ======== =====
$310.0 million in 1998 and $260.0 million in 1997. For the year ended December
31, 1999, the Corporation recorded $109.8 million of reserves acquired in
connection with the credit card business of PNC and other loan portfolios. The
Corporation internally allocates the reserve for possible credit losses among
domestic credit card loans, domestic other consumer loans, and foreign loans, as
presented in Table 8. 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.
In February 1999, the Federal Financial Institutions Examination Council
published a revised policy statement on the classification of consumer loans.
The revised policy establishes uniform guidelines for the charge-off of loans to
delinquent, bankrupt, and deceased borrowers, for charge-off of fraudulent
accounts, and for re-aging, extending, deferring or rewriting delinquent
accounts. The guidelines must be implemented by December 31, 2000. The
Corporation expects to complete and implement the guidelines prior to or on
December 31, 2000. The Corporation will accelerate charge-off of some
delinquent loans when it implements the guidelines, and does not expect
implementation to have a material impact on the Corporation's consolidated
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 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 December 31, 1999, and
December 31, 1998, 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 9, have been computed in accordance
with regulatory accounting practices.
TABLE 9: REGULATORY CAPITAL RATIOS
MINIMUM WELL-CAPITALIZED
DECEMBER 31, 1999 1998 REQUIREMENTS REQUIREMENTS
MBNA CORPORATION
Tier 1 ................ 14.72% 11.44% 4.00% (a)
Total ................. 17.02 13.96 8.00 (a)
Leverage .............. 14.90 11.34 4.00 (a)
MBNA AMERICA BANK, N.A
Tier 1 ................ 11.06 11.69 4.00 6.00%
Total ................. 13.44 14.28 8.00 10.00
Leverage .............. 11.61 11.55 4.00 5.00
- --------------------------------------------------------------------------------
(a) Not applicable for bank holding companies.
34
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MBNA CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
In January 1999, the Corporation issued 50 million shares of common stock,
raising $1.2 billion of capital, net of issuance costs. The Corporation
contributed $300.0 million of the net proceeds from this offering to the Bank in
order to complete the acquisition of the credit card business of PNC. The
Corporation used the remaining portion for other general corporate purposes.
At December 31, 1999 and 1998, the Corporation had $566.3 million issued and
outstanding of guaranteed preferred beneficial interests in Corporation's junior
subordinated deferrable interest debentures, which mature in 2026 and 2027.
The Corporation also has 4.5 million shares of 71/2% Cumulative Preferred Stock,
Series A, and 4.0 million shares of Adjustable Rate Cumulative Preferred Stock,
Series B, both with a $25 stated value per share, outstanding at December 31,
1999 and 1998. The shares of the Series A Preferred Stock are redeemable, in
whole or in part, solely at the option of the Corporation on or after January
15, 2001, while the shares of the Series B Preferred Stock are redeemable, in
whole or in part, solely at the option of the Corporation on or after October
15, 2001. The Series B Preferred Stock may also be redeemed in whole at the
option of the Corporation in the event of certain amendments to the Internal
Revenue Code of 1986 with respect to the dividends-received deduction.
Shares of the Series A and B Preferred Stock are not convertible into other
securities of the Corporation. Dividends on the preferred stock are cumulative
from the date of original issue and are payable quarterly.
The guaranteed preferred beneficial interests in Corporation's junior
subordinated deferrable interest debentures and preferred stock both qualify as
regulatory capital under the Federal Reserve Board guidelines and enhance the
Corporation's regulatory capital, while also providing a long-term source of
funds.
The Bank has $450.0 million of Subordinated Notes outstanding at December 31,
1999 and 1998, that qualify as regulatory capital under the Comptroller of the
Currency's guidelines. These Subordinated Notes enhance the Bank's regulatory
capital while also providing a long-term source of funds.
Note M to the audited consolidated financial statements provides further detail
regarding the Corporation's capital adequacy.
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
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 for consecutive
periods covering 10 semiannual periods or 20 consecutive quarterly periods,
depending upon 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 1999, the Corporation declared dividends of $14.3 million on its
preferred stock and $224.5 million on its common stock.
On January 10, 2000, the Corporation's Board of Directors declared a quarterly
dividend of $.08 per common share, payable April 1, 2000 to shareholders of
record as of March 16, 2000. Also, on January 10, 2000, the Corporation's Board
of Directors declared a quarterly dividend of $.46875 per share on the 71/2%
Cumulative Preferred Stock, Series A, and a quarterly dividend of $.3997 per
share on the Adjustable Rate Cumulative Preferred Stock, Series B. The preferred
stock dividends are payable April 15, 2000, to stockholders of record as of
March 31, 2000.
Table 10 reflects the Corporation's return on average total assets and
stockholders' equity, and other equity ratios, including the Corporation's
dividend payout ratio.
TABLE 10: RETURN ON AVERAGE TOTAL ASSETS AND STOCKHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 1999 1998 1997
Return on average total assets......................... 3.62% 3.38% 3.25%
Return on average stockholders' equity................. 27.18 36.91 35.56
Average stockholders' equity to average total assets... 13.32 9.15 9.15
Dividend payout ratio.................................. 23.14 24.74 27.63
- -----------------------------------------------------------------------------------------
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 December 31, 1999, the amount of retained earnings available
for declaration and payment of dividends from the Bank to the Corporation was
$1.6 billion. Payment of dividends by the Bank to the Corporation, however, can
be further limited by federal bank regulatory agencies.
35
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MBNA CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
The Bank's payment of dividends to the Corporation may also be limited by a
tangible net worth requirement under the Bank's revolving credit facility. This
facility was not drawn upon as of December 31, 1999. If this facility had been
drawn upon as of December 31, 1999, the amount of retained earnings available
for declaration of dividends would have been further limited to $426.2 million.
LIQUIDITY AND RATE SENSITIVITY
The Corporation seeks to maintain prudent levels of liquidity, interest rate
risk, and foreign currency exchange rate risk.
LIQUIDITY MANAGEMENT
Liquidity management is the process by which the Corporation manages the use and
availability of various funding sources to meet its current and future operating
needs. These needs change as loans grow, deposits mature, and payments on
obligations are made. Because the characteristics of the Corporation's assets
and liabilities change, liquidity management is a dynamic process, affected by
the pricing and maturity of loans, deposits, and other assets and liabilities.
This process is also affected by changes in the relationship between short-term
and long-term interest rates.
To facilitate liquidity management, the Corporation uses a variety of funding
sources to establish a maturity pattern that provides a prudent mixture of
short- and long-term funds. The Corporation obtains funds through deposits and
debt issuance, and uses securitization of the Corporation's loan receivables as
a major funding alternative.
FUNDING SOURCES
(millions)
DECEMBER 31, 1999 DECEMBER 31, 1998
Direct Deposits $12,987.8 $11,617.2
Other Deposits $ 5,727.0 $ 3,789.9
Borrowed Funds $ 6,747.9 $ 7,170.2
Stockholders' Equity $ 4,199.4 $ 2,391.0
The funding programs established by the Corporation include medium-term notes,
senior notes, and committed credit facilities.
At December 31, 1999, the Corporation has $1.4 billion in Senior Medium-Term
Notes outstanding that mature in varying amounts from 2000 to 2004, as compared
to $1.8 billion at December 31, 1998. In addition, the Corporation has $100.0
million in Senior Notes outstanding at December 31, 1999, that mature in 2005 as
compared to $250.0 million at December 31, 1998. The Corporation expects to pay
the interest on both the Senior Medium-Term Notes and Senior Notes from dividend
and other payments received from the Bank.
At December 31, 1999, the Corporation has two one-year revolving credit
facilities totaling $75.0 million. These credit facilities were renewed during
1999 with $25.0 million committed through February 2000 and $50.0 million
committed through September 2000. The Corporation may take advances under these
facilities subject to certain conditions, including requirements for tangible
net worth. These facilities may be used for general corporate purposes and were
not drawn upon as of December 31, 1999.
Funding programs established by the Corporation's bank subsidiaries include
deposits, bank notes, and committed credit facilities.
Total deposits at December 31, 1999, were $18.7 billion, compared with $15.4
billion and $12.9 billion at December 31, 1998 and 1997, respectively. The
increase in deposits from 1998 is the result of a $1.4 billion increase in
direct deposits and a $1.9 billion increase in other deposits. Other deposits
are deposits generally obtained through the use of a third-party intermediary.
The Corporation began increasing its use of other deposits as a cost-effective
funding source. The increase in deposits from 1997 was the result of a $1.7
billion increase in direct deposits. These increases in direct deposits were
primarily the result of the Corporation's emphasis on marketing its deposit
products and offering competitive rates. Table 11 provides the maturities of the
Corporation's deposits at December 31, 1999. Included in the deposit maturity
category of three months or less are money market deposit accounts,
noninterest-bearing demand deposits, interest-bearing transaction accounts, and
savings accounts totaling $5.0 billion.
TABLE 11: MATURITIES OF DEPOSITS
(dollars in thousands)
DECEMBER 31, 1999 DIRECT OTHER TOTAL
Three months or less .............. $ 6,339,727 $1,385,416 $ 7,725,143
Over three months through
twelve months ................... 3,532,930 1,223,375 4,756,305
Over one year through five years... 3,109,932 3,118,181 6,228,113
Over five years ................... 5,192 - 5,192
----------- ---------- -----------
Total deposits ............... $12,987,781 $5,726,972 $18,714,753
=========== ========== ===========
In addition, Table 12 presents the maturity distribution of the Corporation's
domestic time deposits in amounts of $100,000 or more for the most recent three
years. The Corporation also has $810.7 million of foreign time deposits at
December 31, 1999. The majority of the foreign time deposits were in amounts in
excess of $100,000 and mature within one year.
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MBNA CORPORATION AND SUBSIDIARIES
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TABLE 12: DOMESTIC TIME DEPOSITS OF $100,000 OR MORE
(dollars in thousands)
DECEMBER 31, 1999 1998 1997
Three months or less ................ $ 438,018 20.5% $ 448,223 23.3% $ 467,227 26.8%
Over three months through six months 429,521 20.1 356,045 18.6 314,060 18.0
Over six months through twelve months 618,406 29.0 483,843 25.2 370,052 21.3
Over twelve months .................. 649,351 30.4 632,533 32.9 590,838 33.9
---------- ----- ---------- ----- ---------- -----
Total ......................... $2,135,296 100.0% $1,920,644 100.0% $1,742,177 100.0%
========== ===== ========== ===== ========== =====
An additional source of funding for the Bank is provided by a global bank note
program. These notes may be issued with maturities of one week or more from the
date of issue. During 1999, the Bank issued $315.0 million of bank notes,
compared to $106.5 million in 1998. At December 31, 1999, the Bank has $2.4
billion of bank notes outstanding, which are included in long-term borrowings.
At December 31, 1998, the Bank had $2.6 billion of bank notes outstanding, of
which $36.5 million were included in short-term borrowings.
The Bank has a $2.0 billion syndicated revolving credit facility committed
through February 2001. Advances are subject to covenants and conditions
customary in a transaction of this kind. These conditions include requirements
for the Corporation to maintain a minimum level of tangible net worth, in
addition to managed loan receivables 90 days or more past due plus nonaccrual
receivables not to exceed 6% of managed credit card receivables. Should managed
credit card losses equal or exceed 5% for a period of four consecutive quarters,
a ratio of qualifying loan receivables to outstanding borrowings under the
facility of at least 115% will be required in order to draw under this facility.
At December 31, 1999, the minimum tangible net worth requirement for this
facility is $1.8 billion. The facility may be used for general corporate
purposes and was not drawn upon as of December 31, 1999.
MBNA Europe has a Pound Sterling 300.0 million (approximately $484.7 million at
December 31, 1999) multi-currency syndicated revolving credit facility committed
through October 2000. MBNA Europe may take advances under the facility subject
to certain conditions, including requirements for tangible net worth,
outstanding loan receivables, and account delinquencies. The facility may be
used for general corporate purposes and was not drawn upon as of December 31,
1999.
MBNA Europe also has Pound Sterling 165.0 million (approximately $266.6
million), EUR165.5 million (approximately $166.2 million), and $10.0 million
Euro Medium-Term Notes outstanding at December 31, 1999. These notes were
issued by MBNA Europe during 1999 and are unconditionally and irrevocably
guaranteed in all respects to all payments by the Bank.
MBNA Canada has a CAD$300.0 million (approximately $206.5 million at December
31, 1999) multi-currency syndicated revolving credit facility committed through
December 2001. This facility was not drawn upon at December 31, 1999.
MBNA Canada also has CAD$217.3 million (approximately $149.6 million) of
short-term deposit notes outstanding at December 31, 1999. In addition, MBNA
Canada has CAD$290.1 million (approximately $199.7 million) of Medium-Term
Deposit Notes outstanding at December 31, 1999. The deposit notes are
unconditionally and irrevocably guaranteed in all respects to all payments by
the Bank.
The Corporation also held $3.0 billion in investment securities and $1.5 billion
in money market instruments at December 31, 1999, compared to $1.9 billion in
investment securities and $3.6 billion in money market instruments at December
31, 1998. 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 December 31, 1999, $803.3 million
is anticipated to mature within 12 months. The Corporation's investment
securities available-for-sale portfolio, which consists primarily of short-term
and variable-rate securities, was $2.8 billion at December 31, 1999, compared to
$1.7 billion at December 31, 1998, as the Corporation increased its investment
in U.S. Treasury securities as part of its contingency funding plans related to
its Year 2000 readiness planning. These investment securities, along with the
money market instruments, provide increased liquidity and flexibility to support
the Corporation's funding requirements.
INVESTMENT SECURITIES AND MONEY MARKET INSTRUMENTS
(millions)
DECEMBER 31, 1999 DECEMBER 31, 1998
Interest-earning time
deposits in other banks $1,525.7 $2,831.2
Federal funds sold and
securities purchased
under resale agreements $ 0 $ 730.0
Investment securities
available-for-sale $2,752.7 $1,663.7
Investment securities
held-to-maturity $ 293.6 $ 216.0
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MBNA CORPORATION AND SUBSIDIARIES
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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 off-balance-sheet financial instruments.
Off-balance-sheet financial instruments include interest rate swap agreements.
The Corporation uses interest rate swap agreements to change fixed-rate funding
sources to floating-rate funding sources to better match the rate sensitivity of
the Corporation's assets. For this reason, the Corporation includes a managed
adjustment to quantify and capture the full impact of interest rate risk on the
Corporation's earnings.
The Corporation's interest rate risk using the static gap methodology is
presented in Table 13. This method reports the difference between interest rate
sensitive assets and liabilities at a specific point in time. Management uses
the static gap methodology to identify the Corporation's directional interest
rate risk. Interest rate sensitive assets and liabilities are reported based on
estimated and contractual repricings. Fixed-rate credit card loans, which may be
repriced by the Corporation at any time by giving notice to the Customer, are
placed in the table using a seventeen-month repricing schedule. The Corporation
also offers variable-rate credit card loans. At December 31, 1999, variable-rate
loans made up 12.4% of total managed loans, compared to 17.1% of total managed
loans at December 31, 1998. These variable-rate loans are generally indexed to
the U.S. Prime Rate published in The Wall Street Journal and reprice quarterly.
Including the managed adjustment, results of the gap analysis show that, within
one year, the Corporation's liabilities reprice faster than its assets,
indicating an earnings risk from rising interest rates.
Although the static gap methodology is widely accepted for its simplicity in
identifying interest rate risk, it ignores many changes that can occur, such as
repricing strategies, market spread adjustments, and anticipated hedging
transactions. For these reasons, the Corporation analyzes its level of interest
rate risk using several other analytical techniques, including simulation
analysis. All of the analytical techniques used by the Corporation to measure
interest rate risk include the impact of on-balance-sheet and off-balance-sheet
financial instruments.
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
which the Corporation would undertake to minimize the impact of adverse
movements in interest rates. The Corporation has the contractual right to
reprice fixed-rate credit card loans at any time, by giving notice to the
Customer. Accordingly, a key assumption in the simulation analysis is the
repricing of fixed-rate credit card loans in response to an upward movement in
interest rates, with a lag of approximately 45 days between interest rate
movements and fixed-rate credit card loan repricings. The Corporation has
repriced its fixed-rate credit card loans on numerous occasions in the past, and
expects to continue to do so in response to changes in interest rates, market
conditions, or other factors.
Based on the simulation analysis at December 31, 1999, the Corporation could
experience a decrease in projected 2000 net income of approximately $36 million,
as compared to a decrease of approximately $33 million in projected 1999 net
income based on the simulation analysis at December 31, 1998, if interest rates
at the time the simulation analysis was performed increased 100 basis points
over 12 months.
These assumptions are inherently uncertain and, as a result, the analysis cannot
precisely predict the impact of higher interest rates on net income. Actual
results would differ from simulated results due to timing, magnitude, and
frequency of interest rate changes, changes in market conditions, and management
strategies to offset 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 December 31, 1999, the Corporation would expect a decrease in
stockholders' equity, net of tax, of approximately $33 million, as compared to a
decrease of approximately $22 million in stockholders' equity, net of tax, at
December 31, 1998, as a result of a 10% depreciation of the Corporation's
unhedged foreign exposure to the U.S. dollar position.
The Corporation does not have any other off-balance-sheet financial instruments.
38
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MBNA CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
TABLE 13: INTEREST RATE SENSITIVITY SCHEDULE
(dollars in thousands)
DECEMBER 31, 1999 SUBJECT TO REPRICING
Within 1 Year 1-5 Years After 5 Years Total
--------------- ------------- ---------------- --------
INTEREST-EARNING ASSETS
Interest-earning time deposits in other banks:
Domestic ..................................................... $ 3,536 $ - $ - $ 3,536
Foreign ...................................................... 1,522,212 - - 1,522,212
------------ ------------ --------- ------------
Total interest-earning time deposits in other banks .... 1,525,748 - - 1,525,748
Investment securities (a):
Available-for-sale ........................................... 1,367,384 1,385,279 - 2,752,663
Held-to-maturity ............................................. 1,095 12,113 280,433 293,641
Loans held for securitization:
Domestic ..................................................... 8,836,700 - - 8,836,700
Foreign ...................................................... 855,916 - - 855,916
------------ ------------ --------- ------------
Total loans held for securitization .................... 9,692,616 - - 9,692,616
Loans:
Domestic:
Credit card ............................................... 3,970,801 1,145,580 - 5,116,381
Other consumer ............................................ 774,287 282,918 210,814 1,268,019
------------ ------------ --------- ------------
Total domestic loans ................................... 4,745,088 1,428,498 210,814 6,384,400
Foreign ................................................... 918,076 668,617 - 1,586,693
------------ ------------ --------- ------------
Total loans ............................................ 5,663,164 2,097,115 210,814 7,971,093
------------ ------------ --------- ------------
Total interest-earning assets .......................... 18,250,007 3,494,507 491,247 22,235,761
INTEREST-BEARING LIABILITIES
Interest-bearing deposits:
Domestic:
Time deposits ............................................. 6,656,733 6,227,863 5,192 12,889,788
Money market deposit accounts ............................. 4,397,909 - - 4,397,909
Interest-bearing transaction accounts ..................... 39,388 - - 39,388
Savings accounts .......................................... 9,262 - - 9,262
------------ ------------ --------- ------------
Total domestic interest-bearing deposits ............... 11,103,292 6,227,863 5,192 17,336,347
Foreign:
Time deposits ............................................. 810,470 250 - 810,720
------------ ------------ --------- ------------
Total interest-bearing deposits ........................ 11,913,762 6,228,113 5,192 18,147,067
Borrowed funds:
Short-term borrowings:
Domestic .................................................. 890,000 - - 890,000
Foreign ................................................... 149,004 - - 149,004
------------ ------------ --------- ------------
Total short-term borrowings ............................ 1,039,004 - - 1,039,004
Long-term debt and bank notes:
Domestic .................................................. 3,124,136 1,077,955 654,370 4,856,461
Foreign ................................................... 610,113 242,306 - 852,419
------------ ------------ --------- ------------
Total long-term debt and bank notes .................... 3,734,249 1,320,261 654,370 5,708,880
------------ ------------ --------- ------------
Total borrowed funds ................................... 4,773,253 1,320,261 654,370 6,747,884
------------ ------------ --------- ------------
Total interest-bearing liabilities ..................... 16,687,015 7,548,374 659,562 24,894,951
------------ ------------ --------- ------------
Gap before managed adjustments .................................. 1,562,992 (4,053,867) (168,315) (2,659,190)
Managed adjustments (b) ......................................... (9,107,364) 11,174,038 (343,723) 1,722,951
------------ ------------ --------- ------------
Gap after managed adjustments ................................... $ (7,544,372) $ 7,120,171 $(512,038) $ (936,239)
============ ============ ========= ============
Cumulative gap after managed adjustments ........................ $ (7,544,372) $ (424,201) $(936,239)
============ ============ =========
Cumulative gap after managed adjustments as a % of managed
assets ........................................................ (8.83)% (.50)% (1.10)%
- ----------------------------------------------------------------------------------------------------------------------------------
(a) Investment securities are presented using estimated maturities.
(b) Managed adjustments reflect the impact interest rates have on securitized
loans and off-balance-sheet financial instruments.
39
52
MBNA CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
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.
MANAGED LOAN DISTRIBUTION
(billions)
97 98 99
PLOT POINTS TO COME FROM CLIENT
SECURITIZED LOANS
(billions)
97 98 99
38.2 45.2 54.6
Asset securitization involves the sale, generally to a trust, of a pool of loan
receivables. The Corporation continues to own the accounts which generate the
loan receivables. In addition, the Corporation also sells the rights to new loan
receivables, including most fees generated by and payments received from 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 months 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 loan receivables increase by the amount of any new purchases or
cash advance activity on the accounts.
Distribution of principal to the 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 1999, the Corporation securitized credit card loan receivables totaling
$12.3 billion, including the securitization of Pound Sterling 750.0 million
(approximately $1.2 billion) by MBNA Europe and CAD$500.0 million (approximately
$342.3 million) by MBNA Canada. The Corporation also increased its
securitization of other consumer loans through a $1.0 billion increase in a
private multi-seller commercial paper conduit to $4.0 billion at December 31,
1999, from $3.0 billion at December 31, 1998. In 1998, the Corporation
securitized a total of $9.3 billion of its credit card loan receivables,
including the securitization of credit card loan receivables of Pound Sterling
750.0 million (approximately $1.3 billion) by MBNA Europe and CAD$250.0 million
(approximately $161.4 million) by MBNA Canada. The Corporation also increased
its securitization of other consumer loans through a net increase in a private
multi-seller commercial paper conduit to $3.0 billion at December 31, 1998, from
$2.4 billion in 1997, and the securitization of Pound Sterling 225.0 million
(approximately $374.3 million) of installment loans by MBNA Europe. The total
amount of outstanding securitized loans was $54.6 billion or 75.6% of managed
loans as of December 31, 1999, compared to $46.2 billion or 77.4% at December
31, 1998.
Table 14 shows the Corporation's securitized loan distribution.
TABLE 14: SECURITIZED LOAN DISTRIBUTION
(dollars in thousands)
DECEMBER 31, 1999 1998 1997
SECURITIZED LOANS
Domestic:
Credit card .................. $45,851,922 $39,739,387 $34,181,350
Other consumer ............... 3,987,180 3,007,858 2,442,116
----------- ----------- -----------
Total domestic
securitized loans ....... 49,839,102 42,747,245 36,623,466
Foreign:
Credit card .................. 4,565,996 3,052,070 1,594,320
Other consumer ............... 186,706 373,424 -
----------- ----------- -----------
Total foreign
securitized loans ....... 4,752,702 3,425,494 1,594,320
----------- ----------- -----------
Total securitized loans ... $54,591,804 $46,172,739 $38,217,786
=========== =========== ===========
- --------------------------------------------------------------------------
During 1999, $5.1 billion of previously securitized loans amortized back into
the Corporation's loan portfolio or matured, compared to $3.0 billion in 1998.
After the revolving period, new charges and cash advances are for the account of
the Corporation, which increases the Corporation's on-balance-sheet assets.
Table 15 presents the amounts, at December 31, 1999, of investor principal (face
value) in securitized loan receivables scheduled to amortize into the
Corporation's loan receivables in future years or mature. The amortization
amounts are based upon estimated amortization periods which are subject to
change.
TABLE 15: AMORTIZATIONS OF INVESTOR PRINCIPAL (FACE VALUE)
(dollars in thousands)
2000 ......................................... $ 5,103,181
2001 ......................................... 7,280,488
2002 ......................................... 10,058,913
2003 ......................................... 8,811,460
2004 ......................................... 8,966,152
Thereafter ................................... 13,234,463
-----------
Total amortizations of investor principal . 53,454,657
Accrued interest included in securitized loans 1,137,147
-----------
Total securitized loans ................... $54,591,804
===========
- ------------------------------------------------------------
40
53
- -------------------------------------------------------------------------------
Table 16 compares the average annualized yield for the three-month period ended
December 31, 1999, to the minimum yield for each transaction. The yield for each
of the transactions is presented on a cash basis and includes various credit
card or other fees as specified in the securitization agreements.
TABLE 16: YIELDS ON SECURITIZED TRANSACTIONS (a)
THREE-MONTH AVERAGE
Yield in
Annualized Minimum Excess of
Yield Yield Minimum
- ----------------------------------------------------------------------------------
MasterTrust II 94-C .................. 18.69% 13.25% 5.44%
MasterTrust II 94-E .................. 18.69 13.02 5.67
MasterTrust II 95-A .................. 18.69 13.31 5.38
MasterTrust II 95-B .................. 18.69 13.17 5.52
MasterTrust II 95-C .................. 18.69 13.24 5.45
MasterTrust II 95-D .................. 18.69 13.10 5.59
MasterTrust II 95-E .................. 18.69 13.24 5.45
Cards No. 1 .......................... 20.18 12.04 8.14
MasterTrust II 95-F .................. 18.69 13.73 4.96
MasterTrust II 95-G .................. 18.69 13.24 5.45
MasterTrust II 95-I .................. 18.69 13.18 5.51
MasterTrust II 95-J .................. 18.69 13.25 5.44
MasterTrust II 96-A .................. 18.69 13.22 5.47
MasterTrust II 96-B .................. 18.69 13.29 5.40
MasterTrust II 96-C .................. 18.69 13.16 5.53
MasterTrust II 96-D .................. 18.69 13.16 5.53
Cards No. 2 .......................... 20.18 11.62 8.56
MasterTrust II 96-E .................. 18.69 13.19 5.50
MasterTrust II 96-F .................. 19.67 13.30 6.37
MasterTrust II 96-G .................. 18.69 13.20 5.49
MasterTrust II 96-H .................. 18.72 13.19 5.53
MasterTrust II 96-I .................. 18.72 12.98 5.74
MasterTrust II 96-J .................. 18.69 13.16 5.53
MasterTrust II 96-K .................. 18.69 13.14 5.55
MasterTrust II 96-M .................. 18.72 13.24 5.48
Cards No. 3 .......................... 20.18 11.54 8.6
MasterTrust II 97-A .................. 18.72 13.02 5.70
MasterTrust II 97-B .................. 18.69 13.22 5.47
MasterTrust II 97-C .................. 18.69 13.12 5.57
MasterTrust II 97-D .................. 18.72 13.19 5.53
MasterTrust II 97-E .................. 18.72 13.47 5.25
MasterTrust II 97-F .................. 18.69 13.07 5.62
MasterTrust II 97-G .................. 18.69 13.17 5.52
Cards No. 4 .......................... 20.18 12.44 7.74
MasterTrust II 97-H .................. 18.72 13.10 5.62
MasterTrust II 97-I .................. 18.69 13.10 5.59
MasterTrust II 97-J .................. 18.69 13.13 5.56
Consumer Loan MasterTrust 97-1 (b) ... 18.68 13.51 5.17
MasterTrust II 97-K .................. 18.69 13.14 5.55
MasterTrust II 97-L .................. 18.72 13.09 5.63
MasterTrust II 97-M .................. 18.72 13.50 5.22
MasterTrust II 97-N .................. 18.72 13.16 5.56
MasterTrust II 97-O .................. 18.69 13.18 5.51
MasterTrust II 98-A .................. 18.69 13.12 5.57
Cards No. 5 .......................... 20.18 12.76 7.42
MasterTrust II 98-B .................. 18.72 13.51 5.21
MasterTrust II 98-C .................. 18.69 13.08 5.61
MasterTrust II 98-D .................. 18.69 12.99 5.70
MasterTrust II 98-E .................. 18.72 13.55 5.17
MasterTrust II 98-F .................. 18.72 13.06 5.66
MasterTrust II 98-G .................. 18.69 13.17 5.52
MasterTrust II 98-H .................. 18.69 13.03 5.66
Cards No. 6 .......................... 20.18 12.15 8.03
MasterTrust II 98-I .................. 18.69 13.29 5.40
MasterTrust II 98-J .................. 18.69 12.26 6.43
MasterTrust II 98-K .................. 18.69 13.29 5.40
UK 98-A (b) .......................... 15.64 12.91 2.73
Cards No. 7 .......................... 20.18 12.37 7.81
Gloucester Credit Card Trust 98-1 .... 17.44 10.00 7.44
MasterTrust II 98-L .................. 18.69 12.94 5.75
MasterTrust II 99-A .................. 18.69 13.17 5.52
MasterTrust II 99-B .................. 18.69 13.12 5.57
Acquired Portfolio MasterTrust 99-1 .. 19.76 13.37 6.39
MasterTrust II 99-C .................. 18.72 13.32 5.40
Cards No. 8 .......................... 20.18 12.09 8.09
MasterTrust II 99-D .................. 18.69 13.23 5.46
MasterTrust II 99-E .................. 18.69 13.16 5.53
MasterTrust II 99-F .................. 18.72 13.00 5.72
MasterTrust II 99-G .................. 18.69 13.24 5.45
Cards No. 9 .......................... 20.18 12.11 8.07
MasterTrust II 99-H .................. 18.73 13.69 5.04
MasterTrust II 99-I .................. 18.61 13.05 5.56
MasterTrust II 99-J .................. 18.63 13.22 5.41
Gloucester Credit Card Trust 99-1 .... 17.33 9.97 7.36
(a) MasterTrust II 99-K issued October 27, 1999, MasterTrust II 99-L issued
November 5, 1999, MasterTrust II 99-M issued December 1, 1999, Gloucester
Credit Card Trust 99-2 issued December 3, 1999, and Cards No. 10 issued
December 9, 1999, are excluded from the yields presented above as a
result of their recency.
(b) Yields are provided for informational purposes only. Distribution to
investors may begin sooner if the credit enhancement amount falls below a
predetermined contractual level.
41
54
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)
YEAR ENDED DECEMBER 31, 1999 1998 1997
At Year End
Loans held for securitization................................................... $ 9,692,616 $ 1,692,268 $ 2,900,198
Loan portfolio.................................................................. 7,971,093 11,776,099 8,261,876
Securitized loans............................................................... 54,591,804 46,172,739 38,217,786
---------- ---------- -----------
Total managed loans .................................................... $ 72,255,513 $ 59,641,106 $ 49,379,860
=========== =========== ===========
Average for the Year
Loans held for securitization .................................................. $ 4,071,394 $ 2,577,482 $ 2,875,212
Loan portfolio ................................................................. 10,351,101 9,352,807 7,563,301
Securitized loans .............................................................. 49,706,760 40,970,936 32,746,963
---------------- --------------- --------------
Total managed loans .................................................... $ 64,129,255 $ 52,901,225 $ 43,185,476
================ =============== ==============
Managed Ratios
Delinquency .................................................................... 4.45% 4.62% 4.59%
Net credit losses .............................................................. 4.33 4.31 3.97
Net interest margin(on an FTE basis) ........................................... 7.42 7.47 7.50
- ------------------------------------------------------------------------------------------------------------------------------
ENDING LOANS
(managed)
97 98 99
49.4 59.6 72.3
DELINQUENCY
(managed)
97 98 99
4.59 4.62 4.45
NET CREDIT LOSSES
(managed)
97 98 99
3.97 4.31 4.33
NET INTEREST MARGIN
(managed)
97 98 99
7.50 7.41 7.42
42
55
MBNA CORPORATION AND SUBSIDIARIES
MANAGEMENT'S REPORT ON CONSOLIDATED FINANCIAL STATEMENTS AND INTERNAL CONTROL
- -------------------------------------------------------------------------------
The accompanying consolidated financial statements were prepared by management,
which is responsible for the integrity and objectivity of the information
presented, including amounts that must necessarily be based on judgments and
estimates. The consolidated financial statements were prepared in conformity
with generally accepted accounting principles, and in situations where
acceptable alternative accounting principles exist, management selected the
method that was appropriate in the circumstance. Financial information appearing
throughout this Annual Report to Stockholders is consistent with the
consolidated financial statements.
Management depends upon MBNA Corporation's systems of internal control in
meeting its responsibilities for reliable consolidated financial statements. In
management's opinion, these systems provide reasonable assurance that assets are
safeguarded and that transactions are properly recorded and executed in
accordance with management's authorizations. Judgments are required to assess
and balance the relative cost and expected benefits of these controls. As an
integral part of the systems of internal control, the Corporation maintains a
professional staff of internal auditors who conduct operational and special
audits and coordinate audit coverage with the independent auditors.
The consolidated financial statements have been audited by the Corporation's
independent auditors, Ernst & Young LLP, whose independent professional opinion
appears separately.
The Audit Committee of the Board of Directors, composed solely of outside
directors, meets periodically with the internal auditors, the independent
auditors, and management to review the work of each and ensure that each is
properly discharging its responsibilities. The independent auditors have free
access to the Committee to discuss the results of their audit work and their
evaluations of the adequacy of internal controls and the quality of financial
reporting.
/s/ ALFRED LERNER /s/ CHARLES M. CAWLEY
Alfred Lerner Charles M. Cawley
Chairman and President
Chief Executive Officer MBNA Corporation
MBNA Corporation
/s/ M. SCOT KAUFMAN /s/ KENNETH F. BOEHL
M. Scot Kaufman Kenneth F. Boehl
Chief Financial Officer General Auditor
MBNA Corporation MBNA Corporation
43
56
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
- -------------------------------------------------------------------------------
(dollars in thousands, except per share amounts)
DECEMBER 31, 1999 1998
Assets
Cash and due from banks ......................................................................... $ 488,386 $ 382,882
Interest-earning time deposits in other banks ................................................... 1,525,748 2,831,215
Federal funds sold and securities purchased under resale agreements ............................. -- 730,000
Investment securities:
Available-for-sale (at market value, amortized cost of $2,772,305 and $1,666,123
at December 31, 1999 and 1998, respectively) ................................................. 2,752,663 1,663,704
Held-to-maturity (market value of $264,832 and $211,473 at December 31, 1999 and
1998, respectively) .......................................................................... 293,641 216,020
Loans held for securitization ................................................................... 9,692,616 1,692,268
Loans:
Credit card ................................................................................... 6,060,564 8,975,051
Other consumer ................................................................................ 1,910,529 2,801,048
------------- -------------
Total loans ................................................................................ 7,971,093 11,776,099
Reserve for possible credit losses ............................................................ (355,959) (216,911)
------------- -------------
Net loans .................................................................................. 7,615,134 11,559,188
Premises and equipment, net ..................................................................... 1,659,446 1,617,596
Accrued income receivable ....................................................................... 216,867 193,019
Accounts receivable from securitizations ........................................................ 4,128,046 3,595,556
Prepaid expenses and deferred charges ........................................................... 274,894 237,587
Other assets .................................................................................... 2,211,691 1,087,225
------------- -------------
Total assets ............................................................................... $ 30,859,132 $ 25,806,260
============= =============
Liabilities
Deposits:
Time deposits ................................................................................. $ 13,700,508 $ 10,745,062
Money market deposit accounts ................................................................. 4,397,909 4,125,523
Noninterest-bearing demand deposits ........................................................... 567,686 462,266
Interest-bearing transaction accounts ......................................................... 39,388 35,399
Savings accounts .............................................................................. 9,262 38,790
------------- -------------
Total deposits ............................................................................. 18,714,753 15,407,040
Short-term borrowings ........................................................................... 1,039,004 1,231,195
Long-term debt and bank notes ................................................................... 5,708,880 5,939,025
Accrued interest payable ........................................................................ 182,990 153,201
Accrued expenses and other liabilities .......................................................... 1,014,062 684,764
------------- -------------
Total liabilities .......................................................................... 26,659,689 23,415,225
Stockholders' Equity
Preferred stock ($.01 par value, 20,000,000 shares authorized,
8,573,882 shares issued and outstanding at December 31, 1999 and 1998) ......................... 86 86
Common stock ($.01 par value, 1,500,000,000 shares authorized, 801,781,250 shares
and 751,795,674 shares issued and outstanding at December 31, 1999 and 1998,
respectively) .................................................................................. 8,018 7,518
Additional paid-in capital ...................................................................... 1,305,935 271,050
Retained earnings ............................................................................... 2,897,964 2,112,374
Accumulated other comprehensive income .......................................................... (12,560) 7
------------- -------------
Total stockholders' equity ................................................................. 4,199,443 2,391,035
------------- -------------
Total liabilities and stockholders' equity ................................................. $ 30,859,132 $ 25,806,260
============= =============
- -----------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial
statements.
44
57
CONSOLIDATED STATEMENTS OF INCOME
- -------------------------------------------------------------------------------
(dollars in thousands, except per share amounts)
YEAR ENDED DECEMBER 31, 1999 1998 1997
Interest Income
Loans ................................................................... $ 1,404,063 $ 1,315,330 $ 1,076,393
Investment securities:
Taxable ................................................................. 131,818 111,092 141,429
Tax-exempt .............................................................. 3,587 3,405 3,511
Time deposits in other banks ............................................... 120,234 135,420 49,073
Federal funds sold and securities purchased under resale agreements ........ 47,264 28,783 23,962
Loans held for securitization .............................................. 555,305 372,142 416,645
------------- ------------- -------------
Total interest income ................................................. 2,262,271 1,966,172 1,711,013
Interest Expense
Deposits ................................................................... 919,426 816,104 693,920
Short-term borrowings ...................................................... 36,337 26,038 19,784
Long-term debt and bank notes .............................................. 372,743 381,691 304,919
------------- ------------- -------------
Total interest expense ................................................ 1,328,506 1,223,833 1,018,623
------------- ------------- -------------
Net Interest Income ........................................................ 933,765 742,339 692,390
Provision for possible credit losses ....................................... 408,914 310,039 260,040
------------- ------------- -------------
Net interest income after provision for possible credit losses ............. 524,851 432,300 432,350
Other Operating Income
Interchange ................................................................ 220,298 138,415 114,598
Credit card fees ........................................................... 199,485 129,758 103,144
Securitization income ...................................................... 3,643,209 2,844,244 2,506,817
Insurance .................................................................. 59,638 78,981 42,455
Other ...................................................................... 85,191 37,571 45,865
------------- ------------- -------------
Total other operating income .......................................... 4,207,821 3,228,969 2,812,879
Other Operating Expense
Salaries and employee benefits ............................................. 1,261,491 1,070,909 990,039
Occupancy expense of premises .............................................. 126,881 119,879 85,552
Furniture and equipment expense ............................................ 181,091 170,975 150,410
Other ...................................................................... 1,508,245 1,045,441 997,120
------------- ------------- -------------
Total other operating expense ......................................... 3,077,708 2,407,204 2,223,121
------------- ------------- -------------
Income Before Income Taxes ................................................. 1,654,964 1,254,065 1,022,108
Applicable income taxes .................................................... 630,541 477,799 399,608
------------- ------------- -------------
Net Income ................................................................. $ 1,024,423 $ 776,266 $ 622,500
============ ============ ============
Earnings Per Common Share .................................................. $ 1.26 $ 1.01 $ .80
Earnings Per Common Share--Assuming Dilution ............................... 1.21 .97 .76
- ----------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial
statements.
45
58
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
- -------------------------------------------------------------------------------
(dollars in thousands, except per share amounts)
OUTSTANDING SHARES
Preferred Common Preferred Common
(000) (000) Stock Stock
---------------------------------------------------------
Balance, December 31, 1996 ................................ 12,000 751,781 $ 120 $ 7,518
Comprehensive income:
Net income .............................................. - - - -
Foreign currency translation, net of tax
(accumulated amount of $2,924 at
December 31, 1997) .................................. - - - -
Net unrealized gains on investment securities
available-for-sale and other financial
instruments, net of tax (accumulated amount of
$6,783 at December 31, 1997) .......................... - - - -
Other comprehensive income, net of tax ..................
Comprehensive income.......................................
Cash dividends:
Common--$.21 per share .................................. - - - -
Preferred ............................................... - - - -
Exercise of stock options and other awards ................ - 9,464 - 95
Acquisition and retirement of common stock ................ - (9,464) - (95)
Acquisition and retirement of preferred stock ............. (3,426) - (34) -
---------------------------------------------------------
Balance, December 31, 1997 ................................ 8,574 751,781 86 7,518
Comprehensive income:
Net income .............................................. - - - -
Foreign currency translation, net of tax
(accumulated amount of $2,422 at
December 31, 1998) .................................. - - - -
Net unrealized losses on investment securities
available-for-sale and other financial
instruments, net of tax (accumulated amount
of $2,160 at December 31, 1998) ..................... - - - -
Minimum benefit plan liability adjustment, net
of tax(accumulated amount of ($4,575) at
December 31, 1998) .................................. - - - -
Other comprehensive income, net of tax
Comprehensive income
Cash dividends:
Common--$.24 per share .................................. - - - -
Preferred ............................................... - - - -
Exercise of stock options and other awards ................ - 11,923 - 119
Acquisition and retirement of common stock ................ - (11,908) - (119)
---------------------------------------------------------
Balance, December 31, 1998 ................................ 8,574 751,796 86 7,518
Comprehensive income:
Net income .............................................. - - - -
Foreign currency translation, net of tax
(accumulated amount of ($4,316) at December
31, 1999) ........................................... - - - -
Net unrealized losses on investment securities
available-for-sale and other financial
instruments, net of tax (accumulated
amount of ($8,244) at December 31, 1999) ............ - - - -
Minimum benefit plan liability adjustment, net
of tax(accumulated amount of $0 at
December 31, 1999) .................................. - - - -
Other comprehensive income, net of tax
Comprehensive income.......................................
Cash dividends:
Common--$.28 per share .................................. - - - -
Preferred ............................................... - - - -
Exercise of stock options and other awards ................ - 7,719 - 77
Issuance of common stock, net of issuance costs ........... - 50,000 - 500
Acquisition and retirement of common stock ................ - (7,734) - (77)
----------- ----------- ----------- -----------
Balance, December 31, 1999 ................................ 8,574 801,781 $ 86 $ 8,018
=========== =========== =========== ===========
Accumulated
Additional Other Total
Paid-in Retained Comprehensive Stockholders
Capital Earnings Income Equity
---------------------------------------------------------
Balance, December 31, 1996 ................................ $ 599,725 $ 1,088,312 $ 8,633 $ 1,704,308
Comprehensive income:
Net income .............................................. - 622,500 - 622,500
Foreign currency translation, net of tax
(accumulated amount of $2,924 at
December 31, 1997) .................................. - - (4,986) (4,986)
Net unrealized gains on investment securities
available-for-sale and other financial
instruments, net of tax (accumulated amount of
$6,783 at December 31, 1997) .......................... - - 6,060 6,060
-----------
Other comprehensive income, net of tax .................. 1,074
-----------
Comprehensive income ...................................... 623,574
Cash dividends:
Common--$.21 per share .................................. - (160,417) - (160,417)
Preferred ............................................... - (16,394) - (16,394)
Exercise of stock options and other awards ................ 65,116 - - 65,211
Acquisition and retirement of common stock ................ (157,351) - - (157,446)
Acquisition and retirement of preferred stock ............. (85,619) (3,133) - (88,786)
--------------------------------------------------------
Balance, December 31, 1997 ................................ 421,871 1,530,868 9,707 1,970,050
Comprehensive income:
Net income .............................................. - 776,266 - 776,266
Foreign currency translation, net of tax
(accumulated amount of $2,422 at
December 31, 1998) .................................. - - (502) (502)
Net unrealized losses on investment securities
available-for-sale and other financial
instruments, net of tax (accumulated amount
of $2,160 at December 31, 1998) ..................... - - (4,623) (4,623)
Minimum benefit plan liability adjustment, net
of tax (accumulated amount of ($4,575) at
December 31, 1998) .................................. - - (4,575) (4,575)
-----------
Other comprehensive income, net of tax .................. (9,700)
-----------
Comprehensive income ...................................... 766,566
Cash dividends:
Common--$.24 per share .................................. - (180,468) - (180,468)
Preferred ............................................... - (14,292) - (14,292)
Exercise of stock options and other awards ................ 96,320 - - 96,439
Acquisition and retirement of common stock ................ (247,141) - - (247,260)
--------------------------------------------------------
Balance, December 31, 1998 ................................ 271,050 2,112,374 7 2,391,035
Comprehensive income:
Net income .............................................. - 1,024,423 - 1,024,423
Foreign currency translation, net of tax
(accumulated amount of ($4,316) at December
31, 1999) ........................................... - - (6,738) (6,738)
Net unrealized losses on investment securities
available-for-sale and other financial
instruments, net of tax (accumulated
amount of ($8,244) at December 31, 1999) ............ - - (10,404) (10,404)
Minimum benefit plan liability adjustment, net
of tax (accumulated amount of $0 at
December 31, 1999) .................................. - - 4,575 4,575
-----------
Other comprehensive income, net of tax .................. (12,567)
-----------
Comprehensive income....................................... 1,011,856
Cash dividends:
Common--$.28 per share .................................. - (224,520) - (224,520)
Preferred ............................................... - (14,313) - (14,313)
Exercise of stock options and other awards ................ 72,559 - - 72,636
Issuance of common stock, net of issuance costs ........... 1,173,586 - - 1,174,086
Acquisition and retirement of common stock ................ (211,260) - - (211,337)
----------- ----------- ----------- -----------
Balance, December 31, 1999 ................................ $ 1,305,935 $ 2,897,964 $ (12,560) $ 4,199,443
=========== =========== =========== ===========
- ------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial
statements.
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59
CONSOLIDATED STATEMENTS OF CASH FLOWS
- -------------------------------------------------------------------------------
(dollars in thousands)
YEAR ENDED DECEMBER 31, 1999 1998 1997
Operating Activities
Net income ..................................................................... $ 1,024,423 $ 776,266 $ 622,500
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for possible credit losses ........................................ 408,914 310,039 260,040
Depreciation, amortization, and accretion ................................... 426,443 256,587 145,957
(Benefit) provision for deferred income taxes ............................... (46,604) 6,689 41,349
Increase in accrued income receivable ....................................... (23,848) (46,055) (48,804)
Increase in accounts receivable from securitizations ........................ (532,490) (759,725) (1,058,508)
Increase in accrued interest payable ........................................ 29,789 15,986 30,028
Decrease (increase) in other operating activities ........................... 122,226 (49,466) 130,103
------------ ------------ ------------
Net cash provided by operating activities ................................ 1,408,853 510,321 122,665
Investing Activities
Net decrease (increase) in money market instruments ............................ 2,035,467 (1,475,150) (1,209,451)
Proceeds from maturities of investment securities available-for-sale ........... 828,800 2,113,501 8,546,878
Purchases of investment securities available-for-sale .......................... (1,945,110) (1,604,699) (8,947,215)
Proceeds from maturities of investment securities held-to-maturity ............. 44,718 215,239 305,206
Purchases of investment securities held-to-maturity ............................ (100,186) (84,791) (53,269)
Proceeds from securitization of loans .......................................... 13,287,994 10,681,836 13,172,133
Acquisition of credit card business of PNC Bank, N.A. .......................... (3,191,786) - -
Loan portfolio acquisitions .................................................... (2,726,633) (3,654,132) (1,307,038)
Proceeds from sale of loan portfolios .......................................... 764,263 171,769 34,734
Amortization of securitized loans .............................................. (5,084,811) (3,008,978) (3,637,385)
Net loan originations .......................................................... (8,616,649) (7,119,584) (9,728,725)
Net purchases of premises and equipment ........................................ (235,124) (214,640) (660,046)
------------ ------------ ------------
Net cash used in investing activities .................................... (4,939,057) (3,979,629) (3,484,178)
Financing Activities
Net increase in money market deposit accounts, noninterest-bearing
demand deposits, interest-bearing transaction accounts, and savings accounts .. 352,267 1,183,936 485,796
Net increase in time deposits .................................................. 2,955,446 1,309,891 2,275,731
Net (decrease) increase in short-term borrowings ............................... (192,191) 1,038,572 (500,764)
Proceeds from issuance of long-term debt and bank notes ........................ 891,495 876,126 1,803,231
Maturity of long-term debt and bank notes ...................................... (1,134,257) (424,677) (312,770)
Acquisition and retirement of preferred stock .................................. - - (52,483)
Proceeds from exercise of stock options and other awards ....................... 27,932 42,454 31,948
Acquisition and retirement of common stock ..................................... (211,337) (247,260) (157,446)
Proceeds from issuance of common stock ......................................... 1,174,086 - -
Dividends paid ................................................................. (227,733) (189,916) (173,729)
------------ ------------ ------------
Net cash provided by financing activities ................................ 3,635,708 3,589,126 3,399,514
------------ ------------ ------------
Increase in Cash and Cash Equivalents .......................................... 105,504 119,818 38,001
Cash and cash equivalents at beginning of year ................................. 382,882 263,064 225,063
------------ ------------ ------------
Cash and cash equivalents at end of year........................................ $ 488,386 $ 382,882 $ 263,064
============ ============ ===========
Supplemental Disclosures
Interest expense paid........................................................... $ 1,295,597 $ 1,207,603 $ 988,675
============ ============ ===========
Income taxes paid............................................................... $ 610,806 $ 406,191 $ 224,840
============ ============ ===========
- ----------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial
statements.
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60
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE A: SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed in the
preparation of the consolidated financial statements.
BUSINESS
MBNA Corporation ("the Corporation") is a registered bank holding company,
incorporated under the laws of Maryland. It 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.
BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles in the United States
that require the Corporation's management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the consolidated financial
statements as well as the reported amount of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include, after intercompany
elimination, the accounts of all subsidiaries of the Corporation, all of which
are wholly owned. For purposes of comparability, certain prior year amounts have
been reclassified.
FOREIGN ACTIVITIES
The Corporation's foreign activities are primarily performed through the Bank's
two foreign bank subsidiaries, MBNA Europe and MBNA Canada. The Bank also has a
foreign branch office in the Grand Cayman Islands.
FOREIGN CURRENCY TRANSLATION AND TRANSACTIONS
The financial statements of the Corporation's foreign subsidiaries have been
translated into U.S. dollars in accordance with generally accepted accounting
principles. Assets and liabilities have been translated using the exchange rate
at year end. Income and expense amounts have been translated using the
appropriate exchange rate for the period in which the transaction took place.
The translation gains and losses resulting from the change in exchange rates
have been reported as a component of comprehensive income included in
stockholders' equity, net of tax. The effect on the consolidated statements of
income from foreign currency transaction gains and losses is immaterial for all
years presented.
INVESTMENT SECURITIES
Investment securities available-for-sale are recorded at market value with
unrealized gains and losses, net of tax, reported as a component of
comprehensive income included in stockholders' equity. Investment securities
held-to-maturity are reported at cost (adjusted for amortization of premiums and
accretion of discounts). The Corporation does not hold investment securities for
trading purposes. Realized gains and losses and other-than-temporary impairments
related to investment securities are determined using the specific
identification method and are reported in other operating income as gains or
losses on investment securities.
LOANS HELD FOR SECURITIZATION
Loans held for securitization are the lesser of loans eligible for
securitization or sale, or loans that management intends to securitize or sell
within one year. Also included are loan receivables in which certain affinity
groups or financial institutions have the contractual right to acquire the loans
from the Corporation at fair value after a stated contractual period of time.
These loans are carried at the lower of aggregate cost or market value.
INTEREST INCOME ON LOANS
Interest income is recognized based upon the principal amount of loans
outstanding. Interest income is generally recognized until the loan is charged
off. The accrued interest portion of the charged-off loan balance is deducted
from current period interest income, while the principal balance is charged off
against the reserve for possible credit losses.
CREDIT CARD FEES AND COSTS
Credit card fees include annual, late, overlimit, returned check, cash advance,
and other miscellaneous fees. These fees are assessed according to agreements
with the Corporation's credit card Customers. Accrued credit card fees
previously recognized on charged-off accounts are deducted from current period
credit card fee income.
Annual credit card fees and incremental direct loan origination costs are
deferred and amortized on a straight-line basis over the one-year period to
which they pertain. The Corporation does not charge an annual credit card fee
during the first year the account is originated, while incremental direct loan
origination costs are deferred only in the first year. These costs are included
in prepaid expenses and deferred charges. At December 31, 1999 and 1998, the
incremental direct loan origination costs deferred were $41.6 million and $42.4
million, respectively.
LOAN RECEIVABLE FRAUD LOSSES
The Corporation incurs loan receivable fraud losses from the unauthorized use of
Customer accounts and counterfeiting. These fraudulent transactions, when
identified, are reclassified to other assets from loans and reduced to estimated
net recoverable values through a charge to operating expense. The remaining net
recoverable values are generally charged off after four months (sooner if the
collectibility of the account is no longer assured).
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61
- -------------------------------------------------------------------------------
RESERVE FOR POSSIBLE CREDIT LOSSES
The Corporation makes certain estimates and assumptions that affect the
determination of the reserve 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. Significant changes in these factors could impact the
appropriate reserve for possible credit losses. A provision is charged to
operating expense to maintain the reserve at an appropriate level. The
Corporation's policy is generally to charge off accounts when they become 180
days contractually past due. The Corporation records acquired reserves for
current period loan 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.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated depreciation and
amortization, computed principally by the straight-line method over the
estimated useful lives of the assets. Maintenance and repairs are included in
operating expense, while the cost of improvements is capitalized.
PREPAID EXPENSES AND DEFERRED CHARGES
The principal components of prepaid expenses and deferred charges include direct
loan origination costs, royalties advanced to the Corporation's affinity groups
and financial institutions, and commissions paid on brokered certificates of
deposit. These costs are deferred and amortized over the period the Corporation
receives a benefit or the remaining term of the liability.
INTERCHANGE
Interchange income is a fee paid by a merchant bank to the card-issuing bank
through the interchange network as compensation for risk, grace period, and
other operating costs. Such fees are set annually by MasterCard International
and Visa International. The Corporation recognizes interchange income as earned.
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. Interest rate swap agreements are agreements between
counterparties to exchange cash flows based on the difference between two
interest rates, applied to a notional principal amount for a specific period.
Interest rate swap agreements may subject the Corporation to market risk
associated with changes in interest rates, as a result of the change to
floating-rate funding sources, as well as the risk of default by a counterparty
to the agreement.
Amounts paid or received related to outstanding interest rate swap contracts
that are used in the asset/liability management process are accrued and
recognized in earnings, as an adjustment to the related interest income or
expense of the hedged asset/liability, over the life of the related agreement.
For interest rate swap agreements to qualify for hedge accounting treatment the
following conditions must be met: the underlying asset/liability being hedged by
the interest rate swap agreement exposes the Corporation to interest rate risk;
the interest rate swap agreement reduces the Corporation's sensitivity to
interest rate risk; and the interest rate swap agreements are designated and
deemed effective in hedging the Corporation's exposure to interest rate risk.
All of the Corporation's interest rate swap agreements qualify for hedge
accounting treatment. The Corporation does not hold or issue interest rate swap
agreements for trading purposes. Gains and losses associated with the
termination of interest rate swap agreements for identified positions are
deferred and amortized over the remaining lives of the related agreements as an
adjustment to the yield. Unamortized deferred gains and losses on terminated
interest rate swap agreements are included in the underlying assets/liabilities
hedged.
FOREIGN EXCHANGE SWAP AGREEMENTS
The Corporation enters into foreign exchange swap agreements to reduce its
exposure to foreign currency exchange rate risk primarily related to activity
associated with its foreign bank subsidiaries. Foreign exchange swap agreements
are agreements to exchange principal amounts of different currencies, usually at
a prevailing exchange rate. When the agreement matures, the underlying principal
or notional amount will be reexchanged at the agreed-upon exchange rate. These
foreign exchange swap agreements are marked to market with any unrealized gains
or losses recognized in other operating income. The Corporation does not hold or
issue foreign exchange swap agreements for trading purposes.
FORWARD EXCHANGE CONTRACTS
The Corporation enters into forward exchange contracts to reduce its exposure to
foreign currency exchange rate risk primarily related to activity associated
with its foreign bank subsidiaries. Forward exchange contracts are commitments
to buy or sell foreign currency at a future date for a contracted price. These
off-balance-sheet financial instruments may expose the Corporation to varying
degrees of credit and market risk and are subject to the same credit and risk
limitations as the Corporation's on-balance-sheet financial instruments. The
premium paid or received for these contracts is amortized over the life of the
agreement to other operating income. For contracts to effectively hedge foreign
currency exchange risk, they must reduce the Corporation's sensitivity to
foreign currency exchange rate risk. For contracts that are designated and
effective as hedges of its net investment in the Bank's foreign subsidiaries,
gains and losses are deferred and reported in stockholders' equity, net of tax,
as an offset to translation gains and losses. Contracts, or portions thereof,
that are not effective as hedges are marked to market with any gains or losses
recognized in other operating income. The Corporation only has forward exchange
contracts that are designated and effective as hedges. The Corporation does not
hold or issue forward exchange contracts for trading purposes. For any contracts
that are terminated early, the remaining premium or discount is immediately
recognized in other operating income.
The Corporation can also enter into forward exchange contracts to reduce its
exposure to foreign currency exchange rate risk related to its deposits. The
contracts are marked to market with gains or losses recognized in other
operating income.
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STOCK-BASED EMPLOYEE COMPENSATION
The Corporation measures compensation cost for employee stock options and
similar instruments using the intrinsic-value-based method of accounting
prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" ("APB Opinion No. 25").
INCOME TAXES
The Corporation accounts for income taxes using the liability method. Under the
liability method, deferred tax assets and liabilities are determined based on
the differences between the financial statement carrying amounts and the tax
bases of existing assets and liabilities (i.e., temporary differences) and are
measured at the prevailing enacted tax rates that will be in effect when these
differences are settled or realized.
STATEMENTS OF CASH FLOWS
The Corporation has presented the consolidated statements of cash flows using
the indirect method, which involves the reconciliation of net income to net cash
flow from operating activities. In addition, the Corporation nets certain cash
receipts and cash payments relating to deposits placed with and withdrawn from
other financial institutions; time deposits accepted and repayments of those
deposits; and loans made to Customers and principal collections of those loans.
For purposes of the consolidated statements of cash flows, cash and cash
equivalents include cash and due from banks.
INTANGIBLE ASSETS
Intangible assets, including the value of acquired Customer accounts and
goodwill, are amortized over the periods the Corporation receives a benefit, not
exceeding fifteen years. The Corporation amortizes its intangible assets
generally using the straight-line method or may use an accelerated method in
order to better match the expected future cash flows from the use of the asset.
Intangible assets, which are included in other assets, had a net book value of
$1.6 billion and $671.4 million at December 31, 1999 and 1998, respectively. The
increase in intangible assets in 1999 is a result of the acquisition of the
credit card business of PNC Bank, N.A. ("PNC"), the credit card loan portfolio
of SunTrust Banks, and other loan portfolios. The Corporation had accumulated
amortization related to its intangible assets of $314.3 million and $144.1
million at December 31, 1999 and 1998, respectively.
The Corporation periodically reviews the carrying value of its intangible
assets for impairment. The intangible assets are carried at the lower of net
book value or fair value, with the fair value determined by discounting the
expected future cash flows from the use of the asset, using an appropriate
discount rate. The Corporation performs this valuation based on the size and
nature of the intangible asset. For intangible assets that are not considered
material, the Corporation performs this calculation by grouping the assets by
year of acquisition. 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.
CREDIT CARD BUSINESS ACQUISITION
On March 28, 1999, the Bank acquired the credit card business of PNC for
approximately $3.2 billion. The acquisition, accounted for as a purchase,
included $2.7 billion of credit card loan receivables. The Bank funded the
acquisition from the proceeds of the issuance of shares of common stock by the
Corporation in January 1999, from securitization of credit card loan
receivables, and from the proceeds of maturing money market investments.
NEW ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("Statement No. 133"), establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and hedging activities. In
June 1999, Statement of Financial Accounting Standards No. 137, "Accounting for
Derivative Instruments and Hedging Activities--Deferral of the Effective Date of
FASB Statement No. 133" ("Statement No. 137"), was issued and extends the
effective date for Statement No. 133 to all fiscal quarters of all fiscal years
beginning after June 15, 2000. Based on the Corporation's current level of
derivative and hedging activities, the implementation of Statement No. 133, as
amended by Statement No. 137, should not have a material impact on the
Corporation's consolidated financial statements.
In February 1999, the Federal Financial Institutions Examination Council
published a revised policy statement on the classification of consumer loans.
The revised policy establishes uniform guidelines for the charge-off of loans to
delinquent, bankrupt, and deceased borrowers, for charge-off of fraudulent
accounts, and for re-aging, extending, deferring or rewriting delinquent
accounts. The guidelines must be implemented by December 31, 2000. The
Corporation expects to complete and implement the guidelines prior to or on
December 31, 2000. The Corporation will accelerate charge-off of some delinquent
loans when it implements the guidelines, and does not expect implementation to
have a material impact on the Corporation's consolidated statement of income for
the year ended December 31, 2000.
NOTE B: 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.
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COMPUTATION OF EARNINGS PER COMMON SHARE
(dollars in thousands, except per share amounts)
YEAR ENDED DECEMBER 31, 1999 1998 1997
Basic
Net income ......................................................................... $ 1,024,423 $ 776,266 $ 622,500
Less: preferred stock dividend requirements ........................................ 14,313 14,292 19,527
------------ ------------ ------------
Net income applicable to common stock .............................................. $ 1,010,110 $ 761,974 $ 602,973
============ ============ ===========
Weighted average common shares outstanding (000) ................................... 801,020 751,856 751,837
============ ============ ===========
Earnings per common share .......................................................... $ 1.26 $ 1.01 $ .80
============ ============ ===========
Diluted
Net income ......................................................................... $ 1,024,423 $ 776,266 $ 622,500
Less: preferred stock dividend requirements ........................................ 14,313 14,292 19,527
------------ ------------ ------------
Net income applicable to common stock .............................................. $ 1,010,110 $ 761,974 $ 602,973
============ ============ ===========
Weighted average common shares outstanding (000) ................................... 801,020 751,856 751,837
Net effect of dilutive stock options--based on the treasury stock method using
average market price (000) ........................................................ 36,063 37,565 37,964
------------ ------------ ------------
Weighted average common shares outstanding and common stock equivalents (000) ...... 837,083 789,421 789,801
============ ============ ===========
Earnings per common share--assuming dilution ....................................... $ 1.21 $ .97 $ .76
============ ============ ===========
- ----------------------------------------------------------------------------------------------------------------------------------
There were 9,762,000 stock options with an average option price of $26.86 per
share outstanding at December 31, 1999, which were not included in the
computation of earnings per common share--assuming dilution for 1999 as a result
of the stock options' exercise price being greater than the average market price
of the common shares. These stock options expire in 2009.
NOTE C: GEOGRAPHIC DIVERSIFICATION OF LOANS
The Corporation originates credit card and other consumer loans, primarily
throughout the United States, the United Kingdom, and Canada. The table below
details the geographic distribution of the Corporation's loan receivables,
securitized loans, and managed loans. Credit card and other consumer loans
originated in the United States are broadly distributed throughout the United
States' geographic regions. Credit card and other consumer loans issued by MBNA
Europe are primarily located in the United Kingdom, while MBNA Canada issues
credit card loans in Canada.
The Corporation's loans are generally made on an unsecured basis after reviewing
each potential Customer's credit application and evaluating the applicant's
financial history and ability and willingness to repay. The maximum credit line
to individual credit card Customers is generally $100,000, the average line is
$11,100, and the average balance outstanding per account is $3,400 at December
31, 1999.
GEOGRAPHIC DISTRIBUTION OF LOAN RECEIVABLES, SECURITIZED LOANS, AND MANAGED LOANS
(dollars in thousands)
LOAN RECEIVABLES SECURITIZED LOANS MANAGED LOANS
December 31, 1999
United States:
Northern ..................... $ 1,895,220 10.7% $ 6,885,785 12.6% $ 8,781,005 12.1%
Mid-Atlantic ................. 2,768,038 15.7 8,151,305 14.9 10,919,343 15.1
Southern ..................... 3,216,351 18.2 8,328,543 15.3 11,544,894 16.0
Central ...................... 2,502,055 14.2 8,905,188 16.3 11,407,243 15.8
Western ...................... 2,788,430 15.8 9,997,587 18.3 12,786,017 17.7
Southwestern ................. 1,899,273 10.7 7,459,175 13.7 9,358,448 12.9
United Kingdom .................. 2,058,872 11.7 4,229,987 7.7 6,288,859 8.7
Canada .......................... 383,737 2.2 522,715 1.0 906,452 1.3
Other ........................... 151,733 .8 111,519 .2 263,252 .4
----------- ----------- ----------- ----------- ----------- -----------
Total .................... $17,663,709 100.0% $54,591,804 100.0% $72,255,513 100.0%
=========== =========== =========== =========== =========== ===========
December 31, 1998
United States:
Northern ..................... $ 1,547,570 11.5% $ 5,823,424 12.6% $ 7,370,994 12.4%
Mid-Atlantic ................. 1,917,398 14.2 6,823,748 14.8 8,741,146 14.6
Southern ..................... 1,995,097 14.8 7,149,923 15.5 9,145,020 15.3
Central ...................... 2,007,707 14.9 7,340,829 15.9 9,348,536 15.7
Western ...................... 2,659,009 19.7 8,974,906 19.4 11,633,915 19.5
Southwestern ................. 1,824,832 13.6 6,536,971 14.2 8,361,803 14.0
United Kingdom .................. 1,247,682 9.3 3,262,905 7.1 4,510,587 7.6
Canada .......................... 241,317 1.8 162,589 .3 403,906 .7
Other ........................... 27,755 .2 97,444 .2 125,199 .2
----------- ----------- ----------- ----------- ----------- -----------
Total .................... $13,468,367 100.0% $46,172,739 100.0% $59,641,106 100.0%
=========== =========== =========== =========== =========== ===========
- ------------------------------------------------------------------------------------------------------------------------------
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NOTE D: INVESTMENT SECURITIES
SUMMARY OF INVESTMENT SECURITIES
(dollars in thousands)
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
December 31, 1999
Investment securities available-for-sale:
U.S. Treasury and other U.S. government agencies obligations ..... $ 1,593,232 $ - $ (15,880) $ 1,577,352
State and political subdivisions of the United States ............ 97,792 - (1) 97,791
Asset-backed and other securities ................................ 1,081,281 149 (3,910) 1,077,520
----------- ----------- ----------- -----------
Total investment securities available-for-sale ................. $ 2,772,305 $ 149 $ (19,791) $ 2,752,663
=========== =========== =========== ===========
Investment securities held-to-maturity:
U.S. Treasury and other U.S. government agencies obligations ..... $ 248,652 $ - $ (28,086) $ 220,566
State and political subdivisions of the United States ............ 6,163 33 (720) 5,476
Asset-backed and other securities ................................ 38,826 - (36) 38,790
----------- ----------- ----------- -----------
Total investment securities held-to-maturity ................... $ 293,641 $ 33 $ (28,842) $ 264,832
=========== =========== =========== ===========
December 31, 1998
Investment securities available-for-sale:
U.S. Treasury and other U.S. government agencies obligations...... $ 526,192 $ 1,340 $ (48) $ 527,484
State and political subdivisions of the United States ............ 89,529 40 - 89,569
Asset-backed and other securities ................................ 1,050,402 189 (3,940) 1,046,651
----------- ----------- ----------- -----------
Total investment securities available-for-sale ................. $ 1,666,123 $ 1,569 $ (3,988) $ 1,663,704
=========== =========== =========== ===========
Investment securities held-to-maturity:
U.S. Treasury and other U.S. government agencies obligations ..... $ 194,418 $ 412 $ (5,189) $ 189,641
State and political subdivisions of the United States ............ 2,685 255 - 2,940
Asset-backed and other securities ................................ 18,917 - (25) 18,892
=========== =========== =========== ===========
Total investment securities held-to-maturity ................... $ 216,020 $ 667 $ (5,214) $ 211,473
=========== =========== =========== ===========
December 31, 1997
Investment securities available-for-sale:
U.S. Treasury and other U.S. government agencies obligations ..... $ 1,074,179 $ 1,371 $ (170) $ 1,075,380
State and political subdivisions of the United States ............ 91,282 48 (14) 91,316
Asset-backed and other securities ................................ 995,408 720 (360) 995,768
----------- ----------- ----------- -----------
Total investment securities available-for-sale ................. $ 2,160,869 $ 2,139 $ (544) $ 2,162,464
=========== =========== =========== ===========
Investment securities held-to-maturity:
U.S. Treasury and other U.S. government agencies obligations ..... $ 285,747 $ 105 $ (4,142) $ 281,710
State and political subdivisions of the United States ............ 1,628 105 (265) 1,468
Asset-backed and other securities ................................ 58,805 97 (212) 58,690
----------- ----------- ----------- -----------
Total investment securities held-to-maturity ................... $ 346,180 $ 307 $ (4,619) $ 341,868
=========== =========== =========== ===========
- ----------------------------------------------------------------------------------------------------------------------------------
ESTIMATED MATURITIES OF INVESTMENT SECURITIES
(dollars in thousands)
AMORTIZED MARKET
DECEMBER 31, 1999 COST VALUE
Investment Securities Available-for-Sale
Due within one year .............................................. $ 806,256 $ 803,221
Due after one year through five years ............................ 1,918,014 1,901,622
Due after five years through ten years ........................... 36,460 36,293
Due after ten years .............................................. 11,575 11,527
----------- -----------
Total investment securities available-for-sale ................. $ 2,772,305 $ 2,752,663
=========== ===========
Investment Securities Held-to-Maturity
Due within one year .............................................. $ 95 $ 95
Due after one year through five years ............................ 13,113 13,074
Due after five years through ten years ........................... - -
Due after ten years .............................................. 280,433 251,663
----------- -----------
Total investment securities held-to-maturity ................... $ 293,641 $ 264,832
=========== ===========
- ----------------------------------------------------------------------------------------------------
The Corporation did not sell any investment securities during 1999, 1998, and
1997. The Corporation has pledged investment securities with a book value of
$767.9 million at December 31, 1999. These investment securities are pledged at
the Federal Reserve Bank as part of the Corporation's funding plans related to
its Year 2000 readiness planning. No investment securities were pledged by the
Corporation at December 31, 1998.
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NOTE E: RESERVE FOR POSSIBLE CREDIT LOSSES
CHANGES IN THE RESERVE FOR POSSIBLE CREDIT LOSSES
(dollars in thousands)
DECEMBER 31, 1999 1998 1997
Reserve for possible credit losses,
beginning of year ................................................................. $ 216,911 $ 162,476 $ 118,427
Reserves acquired ............................................................... 109,757 29,932 7,975
Provision for possible credit losses ............................................ 408,914 310,039 260,040
Foreign currency translation .................................................... (96) (125) (203)
Credit losses ................................................................... (567,929) (440,113) (359,542)
Recoveries.................... .................................................. 188,402 154,702 135,779
------------ ------------ ------------
Net credit losses ............................................................. (379,527) (285,411) (223,763)
------------ ------------ ------------
Reserve for possible credit losses,
end of year ....................................................................... $ 355,959 $ 216,911 $ 162,476
============ ============ ===========
- ----------------------------------------------------------------------------------------------------------------------------------
NOTE F: PREMISES AND EQUIPMENT
Depreciation expense for the years ended December 31, 1999, 1998, and 1997, was
$183.9 million, $172.3 million, and $124.6 million, respectively.
SUMMARY OF PREMISES AND EQUIPMENT
(dollars in thousands)
DECEMBER 31, 1999 1998
Land.......................................... $ 159,955 $ 148,118
Buildings and improvements.................... 1,429,825 1,323,301
Furniture and equipment....................... 773,533 676,838
---------------- --------------
Total .................................... 2,363,313 2,148,257
Accumulated depreciation and amortization .... (703,867) (530,661)
---------------- --------------
Premises and equipment, net .............. $ 1,659,446 $ 1,617,596
================ ==============
- ------------------------------------------------------------------------------------
The Corporation leases certain office facilities and equipment under operating
lease agreements that provide for payment of property taxes, insurance, and
maintenance costs. These leases generally include renewal options, with certain
leases providing purchase options. Rental expense for operating leases was $33.0
million, $33.1 million, and $31.3 million, for the years ended December 31,
1999, 1998, and 1997, respectively.
FUTURE MINIMUM RENTAL PAYMENTS UNDER NONCANCELABLE OPERATING LEASES
(dollars in thousands)
2000............................................... $ 26,174
2001............................................... 18,040
2002............................................... 12,574
2003............................................... 7,111
2004............................................... 4,962
Thereafter......................................... 2,189
---------------
Total minimum lease payments ................. $ 71,050
===============
NOTE G: SHORT-TERM BORROWINGS
Federal funds purchased and securities sold under repurchase agreements are
overnight borrowings that generally mature within one business day of the
transaction date. Other short-term borrowings consist primarily of federal funds
purchased that mature in more than one business day, short-term bank notes
issued from the global bank note program established by the Bank, short-term
deposit notes issued by MBNA Canada, and other transactions with maturities
greater than one business day but less than one year.
Included in short-term borrowings for December 31, 1999 and 1998, is an
outstanding $275.0 million receivables financing facility entered into during
1998 which was renewed in 1999. This receivables financing facility was used by
the Corporation to fund an acquisition of loan receivables. Loan receivables in
the amount of $417.6 million at December 31, 1999, and $387.4 million at
December 31, 1998, are subject to a lien by the provider of the facility.
The short-term deposit notes issued by MBNA Canada are unconditionally and
irrevocably guaranteed as to payment of principal and interest by the Bank.
SUMMARY OF SHORT-TERM BORROWINGS
(dollars in thousands)
YEAR ENDED DECEMBER 31, 1999 1998 1997
Federal Funds Purchased and Securities Sold Under Repurchase Agreements
Balance at year end..................................................................... $ 195,000 $ - $ -
Weighted average interest rate at year end.............................................. 6.96% -% -%
Average amount outstanding during the year.............................................. $ 16,832 $ 54,426 $ 16,712
Maximum amount outstanding at any month end............................................. 195,000 410,000 297,000
Weighted average interest rate during the year.......................................... 4.91% 5.66% 5.59%
Other Short-Term Borrowings
Balance at year end..................................................................... $ 844,004 $ 1,231,195 $ 192,623
Weighted average interest rate at year end.............................................. 5.95% 5.13% 7.53%
Average amount outstanding during the year.............................................. $ 647,544 $ 394,076 $ 321,443
Maximum amount outstanding at any month end............................................. 1,007,165 1,231,195 646,529
Weighted average interest rate during the year.......................................... 5.48% 5.83% 5.86%
- -----------------------------------------------------------------------------------------------------------------------------------
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NOTE H: LONG-TERM DEBT AND BANK NOTES
Long-term debt and bank notes consist of borrowings having an original maturity
of one year or more.
SUMMARY OF LONG-TERM DEBT AND BANK NOTES
(dollars in thousands)
DECEMBER 31, 1999 1998
Parent Company
67/8 % Senior Notes, maturing in 2005................................... $ 99,497 $ 249,226
Fixed-Rate Senior Medium-Term Notes, with a weighted average interest
rate of 6.49% and 6.61%, respectively, maturing in varying amounts
from 2000 through 2004................................................. 553,693 625,604
Floating-Rate Senior Medium-Term Notes, maturing in varying amounts
from 2000 through 2003................................................. 815,739 1,183,146
----------- -----------
Total parent company............................................... 1,468,929 2,057,976
Subsidiaries
Fixed-Rate Bank Notes, with a weighted average interest rate of 6.76%
and 6.80%, respectively, maturing in varying amounts from 2000
through 2005........................................................... 885,689 770,767
Floating-Rate Bank Notes, maturing in varying amounts from 2000
through 2004........................................................... 1,491,823 1,815,244
Fixed-Rate Bilateral Credit Facility, with an interest rate of 7.29%,
maturing in varying amounts in 2000 and 2001........................... 2,784 6,204
Fixed-Rate Bilateral Credit Facility, with an interest rate of
7.2033%, maturing in 2000.............................................. 16,157 16,636
Floating-Rate Bilateral Credit Facility, maturing in 2001 16,157 16,636
Fixed-Rate Syndicated Credit Facility, with an interest rate of
7.645%, maturing in 2001.............................................. 121,178 124,770
Fixed-Rate Medium-Term Deposit Notes, with a weighted average interest
rate of 6.17% and 6.35%, respectively, maturing in varying amounts
from 2001 through 2004................................................. 120,262 65,615
Floating-Rate Medium-Term Deposit Notes, maturing in varying amounts
from 2001 through 2004................................................. 78,931 -
Floating-Rate Euro Medium-Term Notes, maturing in varying amounts in
2002 and 2003.......................................................... 442,145 -
7.25% Subordinated Notes, maturing in 2002.............................. 199,077 198,789
6.75% Subordinated Notes, maturing in 2008.............................. 247,640 247,392
Subordinated Guaranteed Floating-Rate Notes, maturing in 2005........... 54,805 55,772
Guaranteed Preferred Beneficial Interests in Corporation's Junior
Subordinated Deferrable Interest Debentures, series A, with an
interest rate of 8.278%, maturing in 2026.............................. 250,000 250,000
Guaranteed Preferred Beneficial Interests in Corporation's Junior
Subordinated Deferrable Interest Debentures, series B, with an
interest rate equal to 80 basis points above the three-month London
Interbank Offered Rate, maturing in 2027.............................. 277,000 276,921
Guaranteed Preferred Beneficial Interests in Corporation's Junior
Subordinated Deferrable Interest Debentures, series C, with an
interest rate of 8.25%, maturing in 2027............................... 36,303 36,303
----------- -----------
Long-term debt and bank notes...................................... $ 5,708,880 $ 5,939,025
=========== ===========
- ----------------------------------------------------------------------------------------------------------------------------------
6 7/8% SENIOR NOTES
These notes are direct, unsecured obligations of the Corporation and are not
subordinated to any other indebtedness of the Corporation. Interest on the 67/8%
Senior Notes is payable semiannually. These notes may not be redeemed prior to
their stated maturity.
SENIOR MEDIUM-TERM NOTES
These notes are direct, unsecured obligations of the Corporation and are not
subordinated to any other indebtedness of the Corporation. The Corporation has
$555.0 million of Fixed-Rate Senior Medium-Term Notes outstanding, with rates
ranging from 5.97% to 7.125%. Interest on the Fixed-Rate Senior Medium-Term
Notes is payable semiannually. The Corporation also has $817.0 million of
Floating-Rate Senior Medium-Term Notes outstanding. These Floating-Rate Senior
Medium-Term Notes are priced between 30 basis points and 66 basis points over
the three-month London Interbank Offered Rate (LIBOR). Interest on the
Floating-Rate Senior Medium-Term Notes is payable quarterly. At December 31,
1999, the three-month LIBOR is 6.00%.
BANK NOTES
The Bank Notes are direct, unconditional, unsecured obligations of the Bank,
and are not subordinated to any other obligations of the Bank. The Bank has
$888.2 million outstanding of Fixed-Rate Bank Notes, with rates ranging from
5.96% to 7.76%. Interest is payable semiannually. The Bank also has $1.5 billion
outstanding of Floating-Rate Bank Notes, with rates priced between 15 basis
points and 50 basis points over the three-month LIBOR. Interest is payable
quarterly.
BILATERAL CREDIT FACILITIES
These facilities are direct, unsecured obligations of MBNA Europe, and are not
subordinated to any other obligations of MBNA Europe. At December 31, 1999, MBNA
Europe has fixed-rate facilities totaling Pound Sterling 11.7 million
(approximately $18.9 million) outstanding with interest payable monthly. MBNA
Europe also has a Pound Sterling 10.0 million (approximately $16.2 million)
floating-rate facility outstanding at December 31, 1999. This draw is priced at
17.5 basis points above the three-month Sterling LIBOR and is payable
semiannually. At December 31, 1999, the three-month Sterling LIBOR is 6.08%.
SYNDICATED CREDIT FACILITY
The syndicated credit facility is an unsecured obligation of MBNA Europe and is
not subordinated to any other obligation of MBNA Europe. Interest is payable
quarterly.
MEDIUM-TERM DEPOSIT NOTES
These notes are direct, unconditional, unsecured obligations of MBNA Canada and
are not subordinated to any other obligation of MBNA Canada. At December 31,
1999, MBNA Canada has CAD$175.1 million (approximately $120.5 million)
Fixed-Rate Medium-Term Deposit Notes outstanding with interest payable
semiannually. MBNA Canada also has CAD$115.0 million (approximately $79.2
million) of Floating-Rate Medium-Term Deposit Notes outstanding at December 31,
1999. These Floating-Rate Medium-Term Deposit Notes are priced between 58 basis
points and 73 basis points over the ninety-day Bankers Acceptance Rate and are
payable quarterly. The Medium-Term Deposit Notes are
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unconditionally guaranteed as to payment of principal and interest by the Bank,
and are not redeemable prior to their stated maturity. At December 31, 1999, the
ninety-day Bankers Acceptance Rate is 5.10%.
EURO MEDIUM-TERM NOTES
The Euro Medium-Term Notes are unsecured obligations of MBNA Europe. These notes
are unconditionally and irrevocably guaranteed in respect to all payments by the
Bank. MBNA Europe has Pound Sterling 165.0 million (approximately $266.6
million) of Floating-Rate Euro Medium-Term Notes outstanding at December 31,
1999, with interest priced between 37.5 basis points and 55 basis points over
the three-month sterling LIBOR, and EUR165.5 million (approximately $166.2
million) of Floating-Rate Euro Medium-Term Notes outstanding at December 31,
1999, with interest priced between 47 basis points and 55 basis points over the
three-month Euro Interbank Offered Rate (EURIBOR). MBNA Europe also has $10.0
million of Floating-Rate Euro Medium-Term Notes denominated in U.S. dollars
outstanding at December 31, 1999 with interest priced at 45 basis points over
the six-month LIBOR. These Euro Medium-Term Notes were issued during 1999 and
interest is payable quarterly or semiannually depending upon the issuance. At
December 31, 1999, the three-month EURIBOR is 3.34% and the six-month LIBOR is
6.13%.
7.25% SUBORDINATED NOTES
The 7.25% Subordinated Notes are subordinated to the claims of depositors and
other creditors of the Bank, unsecured, and not subject to redemption prior to
maturity. Interest is payable semiannually. The 7.25% Subordinated Notes were
issued by the Bank in 1992 and qualify as Tier 2 Capital, which is included in
Total Capital, under the risk-based capital guidelines for both banks and bank
holding companies.
6.75% SUBORDINATED NOTES
The 6.75% Subordinated Notes are subordinated to the claims of depositors and
other creditors of the Bank, unsecured, and not subject to redemption prior to
maturity. Interest is payable semiannually. The 6.75% Subordinated Notes were
issued by the Bank in 1998 and qualify as Tier 2 Capital, which is included in
Total Capital, under the risk-based capital guidelines for both banks and bank
holding companies.
SUBORDINATED GUARANTEED FLOATING-RATE NOTES
MBNA Europe has Pound Sterling 34.0 million (approximately $54.9 million) of
Subordinated Guaranteed Floating-Rate Notes outstanding. Interest on these notes
is priced between 100 basis points and 145 basis points over the three-month
Sterling LIBOR for the first five years, with a 50 basis point increase for the
last five years. These notes were issued by MBNA Europe in 1995 and are
unsecured. Interest on these notes is payable quarterly or semiannually. The
Subordinated Guaranteed Floating-Rate Notes are redeemable, in whole or in part,
at their principal amount in or after May 2000, at the option of MBNA Europe,
subject, if required, to the prior consent of the Financial Services Authority.
The Subordinated Guaranteed Floating-Rate Notes are unconditionally and
irrevocably guaranteed on a subordinated basis by the Bank. The obligations of
the Bank, under this guarantee, also constitute unsecured obligations,
subordinated to the claims of all senior creditors of the Bank.
GUARANTEED PREFERRED BENEFICIAL INTERESTS IN CORPORATION'S
JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURES
The Corporation, through MBNA Capital A, MBNA Capital B, and MBNA Capital C,
each a statutory business trust created under the laws of the State of Delaware,
issued capital securities and common securities: series A, series B, and series
C, respectively. The series capital securities are presented as "guaranteed
preferred beneficial interests in Corporation's junior subordinated deferrable
interest debentures" in the summary of long-term debt and bank notes. The
Corporation is the owner of all the beneficial ownership interests represented
by the common securities of the trusts. The trusts exist for the sole purpose of
issuing the series capital securities and the series common securities and
investing the proceeds in junior subordinated deferrable interest debentures
issued by the Corporation. For financial reporting purposes, the trusts are
treated as wholly owned subsidiaries of the Corporation.
The junior subordinated deferrable interest debentures are the sole assets of
the trusts, and the payments under the junior subordinated deferrable interest
debentures are the sole revenues of the trusts. Interest on the series capital
securities is payable semiannually or quarterly; however, the Corporation has
the right to defer payment of interest on the junior subordinated deferrable
interest debentures at any time, or from time to time, for a period not
exceeding 10 consecutive semiannual periods or 20 consecutive quarterly periods
depending upon the series. If the payment of interest is deferred on the junior
subordinated deferrable interest debentures, distributions on the series
securities will be deferred and the Corporation also 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 less priority than the junior subordinated
deferrable interest debentures.
The series capital securities are subject to mandatory redemption, in whole or
in part, upon repayment of the junior subordinated deferrable interest
debentures at their stated maturity or their earlier redemption. The junior
subordinated deferrable interest debentures are redeemable prior to their stated
maturity at the option of the Corporation, on or after the contractually
specified dates, in whole at any time, or in part from time to time, or prior to
the contractually specified dates, in whole only within 90 days following the
occurrence of certain tax or capital treatment events. The series capital
securities have a preference with respect to cash distributions and amounts
payable on liquidation or redemption over the series common securities.
The obligations of the Corporation under the relevant junior subordinated
deferrable interest debentures, indenture, trust agreement, and guarantee in the
aggregate constitute a full and unconditional guarantee by the Corporation of
all trust obligations under the series capital securities issued by the trusts.
The junior subordinated deferrable interest debentures are unsecured and rank
junior and are subordinate in right of payment to all senior debt obligations of
the Corporation.
These securities qualify as regulatory capital for the Corporation.
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MINIMUM ANNUAL MATURITIES OF LONG-TERM DEBT AND BANK NOTES
(dollars in thousands)
MBNA
PARENT CORPORATION AND
COMPANY SUBSIDIARIES
2000.................................. $ 367,000 $1,033,075
2001.................................. 241,000 939,933
2002.................................. 345,000 1,544,723
2003.................................. 384,000 770,832
2004.................................. 35,000 444,424
- ------------------------------------------------------------------
Deposit liabilities have priority over the claims of other unsecured creditors
of the Bank, including the holders of obligations, such as bank notes, in the
event of liquidation.
Original issue discount and deferred issuance costs are amortized over the terms
of the related debt issuances.
The Corporation uses interest rate 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 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.
NOTE I: ASSET SECURITIZATION
Asset securitization involves the sale, generally to a trust, of a pool of loan
receivables, and is accomplished primarily through the public and private
issuance of asset-backed securities. Certificates representing undivided
interests in the trust are sold by the trust to investors, while the remaining
undivided interest is retained by the Corporation. The Corporation includes the
remaining undivided interest in loan receivables and had $8.0 billion and $7.6
billion of such amounts outstanding at December 31, 1999 and 1998, respectively.
The carrying value of these loan receivables approximates fair value. 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.
In accordance with Statement of Financial Accounting Standards No. 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities" ("Statement No. 125"), gains are recognized in securitization
income at the time of initial sale and each subsequent sale of loan receivables
in an asset securitization. The Corporation recognizes the gain from securitized
loans in securitization income on the Corporation's consolidated statements of
income and includes the related receivable in accounts receivable from
securitizations on the consolidated statements of financial condition at the
time of sale. The related receivable represents the contractual right to receive
interest and other cash flows from the trust and is reported at market value
with unrealized gains and losses, net of tax, included as a component of
stockholders' equity. At December 31, 1999 and 1998, the amount of the
receivable was $579.1 million and $497.0 million, respectively. Transaction
costs incurred by the Corporation are immediately recognized as a reduction to
the gain recorded from the asset securitization transaction. Securitization
income also includes the other fees received by the Corporation for the
servicing of securitized loans.
The Corporation uses certain assumptions and estimates in determining the gain
recognized at the time of initial sale and each subsequent sale in accordance
with Statement No. 125. These assumptions and estimates include projections
concerning the annual percentage rates charged to Customers,
charge-off experience, loan repayment rates, the cost of funds, and discount
rates commensurate with the risks involved. Based on these assumptions and
estimates, the incremental net change recognized by the Corporation in
securitization income was a $23.3 million increase in 1999, a $17.9 million
increase in 1998, and a $325.1 million increase in 1997. These assumptions are
reviewed periodically by the Corporation. If these assumptions change, the
related receivable and securitization income would be affected.
Proceeds from securitization transactions were approximately $13.3 billion,
$10.7 billion, and $13.2 billion in 1999, 1998, and 1997, respectively. At
December 31, 1999 and 1998, approximately $53.5 billion and $45.3 billion,
respectively, of investor principal (face value) remained outstanding.
Included in accounts receivable from securitizations in the consolidated
statements of financial condition at December 31, 1999 and 1998, were $417.9
million and $294.8 million, respectively, of receivables subject to a lien by
the providers of the credit enhancement facility for individual securitizations.
The providers of the credit enhancement have no other recourse to the
Corporation. The Corporation does not receive collateral from any party to the
securitization, and the Corporation does not have any risk of
counterparty nonperformance.
NOTE J: EMPLOYEE BENEFIT PLANS
Statement of Financial Accounting Standards No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits" ("Statement No. 132"),
effective for financial statements issued for fiscal years beginning after
December 15, 1997, revises employers' disclosures about pension and other
postretirement benefit plans. It does not change the measurement or recognition
of those plans. The adoption of Statement No. 132 did not have an impact on the
Corporation's consolidated financial statements.
The Corporation has a noncontributory defined benefit pension plan and a
supplemental executive retirement plan ("SERP").
The Corporation increased the discount rate used to value its projected benefit
obligation for both the pension and SERP plans in 1999 to reflect the current
rate environment. The change in assumptions will not have a material impact on
the Corporation's consolidated financial statements for 2000.
In 1998, the Corporation lowered the discount rate used to value its projected
benefit obligation for both the pension and SERP plans to reflect the then
current rate environment. This change in assumption did not have a material
impact on the Corporation's consolidated financial statements for 1999.
The following table illustrates the combined financial information of the two
employee benefit plans.
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BENEFIT PLAN FINANCIAL INFORMATION
(dollars in thousands)
- -------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1999 1998
- -------------------------------------------------------------------------------------
CHANGE IN BENEFIT OBLIGATION
Net benefit obligation, beginning of year.......... $ 212,158 $ 157,468
Service cost--benefits earned during the year... 36,481 23,151
Interest cost on projected benefit obligation... 16,554 11,937
Actuarial (gain) loss........................... (60,978) 18,130
Plan amendments................................. 8,747 2,594
Gross benefits paid............................. (2,744) (1,122)
------------ ------------
Net benefit obligation, end of year................ $ 210,218 $ 212,158
============ ============
CHANGE IN PLAN ASSETS
Fair value of plan assets, beginning of year....... $ 139,874 $ 108,737
Actual return on plan assets ................... 31,728 11,242
Employer contributions.......................... 31,429 21,017
Gross benefits paid............................. (2,744) (1,122)
------------ ------------
Fair value of plan assets, end of year............. $ 200,287 $ 139,874
============ ============
Funded status...................................... $ (9,931) $ (72,284)
Unrecognized net actuarial (gain) loss............. (43,448) 36,614
Unrecognized prior service cost.................... 10,112 1,786
Unrecognized net transition obligation............. 3,146 3,491
------------ ------------
Net amount recognized........................... $ (40,121) $ (30,393)
============ ============
AMOUNTS RECOGNIZED IN THE CONSOLIDATED STATEMENTS
OF FINANCIAL CONDITION
Prepaid benefit cost............................... $ 7,137 $ 2,912
Accrued benefit cost............................... (47,258) (33,305)
Additional minimum liability....................... (7,982) (17,895)
Intangible asset and accumulated other
comprehensive income 7,982 17,895
------------ ------------
Net amount recognized........................... $ (40,121) $ (30,393)
============ ============
SIGNIFICANT ACTUARIAL ASSUMPTIONS USED IN
DETERMINING THE PROJECTED BENEFIT OBLIGATION
Discount rate...................................... 8.00% 6.75%
Rate of compensation increase...................... 6.00 6.00
Expected return on plan assets..................... 9.00 9.00
- -------------------------------------------------------------------------------------
The accumulated benefit obligation in excess of the fair value of SERP plan
assets was $55.2 million at December 31, 1999, and $51.2 million at December 31,
1998. There were no plan assets for the SERP plan at December 31, 1999 and 1998.
PENSION PLAN
The Corporation's noncontributory defined benefit pension plan covers
substantially all people employed by the Corporation in the United States who
meet certain age and service requirements. The benefits are based on years of
service and the person's compensation during the last ten years of employment.
The Corporation's funding policy is to make contributions sufficient to achieve
a target-funded ratio on an accumulated benefit obligation basis between 130%
and 140%, and only tax-deductible contributions may be made. Contributions are
intended to provide not only for benefits earned to date, but also for those
expected to be earned in the future.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
The Corporation's unfunded SERP plan, established in 1991, provides certain
officers with supplemental retirement benefits in excess of limits imposed on
qualified plans by federal tax law.
COMPONENTS OF NET PERIODIC BENEFIT COST
(dollars in thousands)
- ---------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1999 1998 1997
- ---------------------------------------------------------------------------------
Service cost--benefits earned
during the year ................. $ 36,481 $ 23,151 $ 20,692
Interest cost on projected benefit
obligation ...................... 16,554 11,937 10,246
Expected return on plan assets ... (12,929) (10,031) (6,752)
Net amortization and deferral .... 1,051 464 630
-------- -------- --------
Net periodic benefit cost ..... $ 41,157 $ 25,521 $ 24,816
======== ======== ========
- ---------------------------------------------------------------------------------
OTHER PLANS
The Corporation's foreign bank subsidiaries each have pension plans for their
employees. MBNA Europe has a pension plan that covers substantially all of its
people who meet certain age and service requirements. MBNA Europe contributes 6%
of an eligible person's base salary. In addition, eligible participants may
contribute up to a maximum of 15% of base salary, with the first 6% matched at a
rate of 50% by MBNA Europe. MBNA Canada has a registered retirement savings plan
that covers substantially all of its people who meet certain age and service
requirements. MBNA Canada contributes 5% of an eligible person's base salary. In
addition, eligible participants may contribute up to a maximum of 10% of base
salary, with the first 6% matched at the rate of 50% by MBNA Canada. The
expenses for these plans are charged to other operating expense and were not
material to the Corporation's consolidated financial statements.
401(K) PLUS SAVINGS PLAN
The MBNA Corporation 401(k) Plus Savings Plan ("401(k) Plan") is a defined
contribution plan that is intended to qualify under section 401(k) of the
Internal Revenue Code. The 401(k) Plan covers substantially all people in the
United States who have been employed by the Corporation for one or more years
and have completed at least one thousand hours of service in any one year. For
these people, the Corporation automatically contributes 1% of base salary.
Additionally, eligible participants may make pretax and after-tax contributions,
with contributions up to 6% of base salary matched 50% by the Corporation.
Expense charged to operations for the 401(k) Plan was $16.5 million, $14.8
million, and $12.1 million in 1999, 1998, and 1997, respectively.
POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS
The Corporation and its subsidiaries provide certain health care and life
insurance benefits for certain people upon reaching retirement. Initially, a
plan was established for people aged 45 and older with at least ten years of
service as of December 31, 1993. The plan was closed to future enrollment
effective December 31, 1998. The plan was extended on January 1, 1999, to people
aged 40 and older with at least five years of service. A person must meet the
requirements for early retirement status to be eligible for these benefits. The
Corporation records the estimated cost of benefits provided to its former or
inactive employees on an accrual basis. Expenses charged to other operating
expense were not material to the Corporation's consolidated financial
statements.
57
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- --------------------------------------------------------------------------------
NOTE K: STOCK OPTION PLAN
The Corporation's 1997 Long Term Incentive Plan ("1997 Plan") and 1991 Long Term
Incentive Plan ("1991 Plan") authorize the issuance of shares of common stock
pursuant to incentive and nonqualified stock options, and restricted share
awards to officers, directors, key employees, consultants, and advisors of the
Corporation. Beginning in 1997, all stock options and restricted stock awards
were granted from the 1997 Plan.
During 1999, the shareholders approved an amendment to the 1997 Plan. The
amendment to the 1997 Plan authorizes, subject to certain exceptions and
additional limitations, grants of stock options and restricted shares for an
indefinite number of shares of common stock, so long as immediately after the
grants, the sum of the number of outstanding stock options and restricted shares
does not exceed 10% of fully diluted shares outstanding as defined in the
amendment to the 1997 Plan. At December 31, 1999, the amount of shares of common
stock available for future grants under the 1997 Plan was 11.5 million shares.
The maximum number of restricted stock awards that can be granted in
any calendar year is 2.0 million shares, subject to certain exceptions.
During 1998, the shareholders approved an amendment to the 1997 Plan, which
increased the number of shares of the Corporation's Common Stock which may be
issued pursuant to grants made under the 1997 Plan from 24.8 million shares to
32.3 million shares. At December 31, 1998, the amount of shares of common stock
available for future grants under the 1997 Plan was 4.8 million shares.
Stock options are granted with an exercise price that is not less than the fair
market value of the Corporation's Common Stock on the date the option is
granted, and none may be exercised more than ten years from the date of grant.
Stock options granted to selected officers and key employees of the Corporation,
other than performance-based common stock options and other special grants,
generally become exercisable for one-fifth of the common shares subject to the
options each year and continue to become exercisable for up to one-fifth per
year until they are completely exercisable after five years. Those granted to
nonemployee directors are exercisable immediately.
During 1999, there were no shares of performance-based common stock options
granted under the 1997 Plan. In 1998, performance-based common stock options for
1.8 million shares were granted, while 13.4 million shares were granted in 1997.
These stock options become exercisable when the Corporation achieves certain net
income targets, net income and stock price targets, or outstanding managed loan
targets. If these conditions are not achieved, these options then become
exercisable for one day on the day before their termination date.
The Corporation granted 2.0 million stock options in 1999, 2.3 million stock
options in 1998, and 190,000 stock options in 1997 which were immediately
exercisable following the effective date of the grant. Also during 1999, the
Corporation granted 25,000 stock options which become exercisable in February
2000.
SUMMARY OF STOCK OPTION PLANS ACTIVITY
(shares in thousands)
- ------------------------------------------------------------------------------------
NUMBER WEIGHTED AVERAGE
OF SHARES EXERCISE PRICE
- ------------------------------------------------------------------------------------
1999
Options outstanding, beginning of year............ 64,422 $ 10.19
Granted........................................ 9,936 26.81
Exercised...................................... (5,720) 4.88
Canceled....................................... (104) 15.39
-------
Options outstanding, end of year.................. 68,534 13.04
=======
Options exercisable, end of year.................. 38,547
=======
Weighted average fair value of options
granted during the year.......................... $ 9.85
=======
1998
Options outstanding, beginning of year............ 65,261 $ 7.47
Granted........................................ 10,483 22.07
Exercised...................................... (9,821) 4.32
Canceled....................................... (1,501) 13.52
-------
Options outstanding, end of year.................. 64,422 10.19
=======
Options exercisable, end of year.................. 35,770
=======
Weighted average fair value of options
granted during the year.......................... $ 6.99
=======
1997
Options outstanding, beginning of year............ 58,244 $ 5.22
Granted 15,199 14.18
Exercised (8,182) 3.90
Canceled - -
-------
Options outstanding, end of year.................. 65,261 7.47
=======
Options exercisable, end of year.................. 25,955
=======
Weighted average fair value of options
granted during the year.......................... $ 4.91
=======
- ------------------------------------------------------------------------------------
In 1998, 225,000 stock options which become exercisable in October 2001, and
75,000 stock options which become exercisable in three equal installments
beginning in January 1999 were granted. The Corporation also granted 750,000
stock options during 1997 which are exercisable in July 2001. In 1996, 54,000
stock options were granted subject to shareholder approval of the 1997 Plan and
are included in the Summary of Stock Option Plans Activity in 1997.
Restricted shares were also issued under the 1997 Plan to the Corporation's
senior officers. A total of 2.0 million common shares and 1.5 million common
shares, net of forfeited restricted shares, with an approximate aggregate market
value of $56.6 million and $31.8 million at the time of grant, were issued in
1999 and 1998, respectively. A total of 1.3 million common shares, with an
approximate aggregate market value of $22.1 million at the time of grant, were
issued in 1997. The market value of these restricted shares at the date of grant
is amortized into expense over a period that approximates the restriction
period, generally 10 years. If the restrictions are removed, generally upon
death, disability, or retirement, any remaining unamortized market value of the
restricted shares is expensed. At December 31, 1999, the
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- --------------------------------------------------------------------------------
SUMMARY OF STOCK OPTIONS OUTSTANDING
(shares in thousands)
- -------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1999 OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- -------------------------------------------------------------------------------------------------------------------------
Weighted Average
Number Remaining Weighted Average Number Weighted Average
Range of Exercise Prices of Shares Contractual Life Exercise Price of Shares Exercise Price
- -------------------------------------------------------------------------------------------------------------------------
$ 1.00 to $ 4.99 15,735 4.0 YEARS $ 4.25 15,735 $ 4.25
5.00 to 9.99 18,080 5.9 7.19 13,786 6.95
10.00 to 14.99 12,191 7.3 13.13 610 12.62
15.00 to 19.99 2,334 8.0 18.31 261 17.90
20.00 to 24.99 10,368 8.4 22.17 4,713 22.34
25.00 to 30.00 9,826 9.4 26.85 3,442 26.69
------ ------
1.00 to 30.00 68,534 38,547
====== ======
- -------------------------------------------------------------------------------------------------------------------------
unamortized compensation expense related to the restricted stock awards is
$114.6 million.
To the extent stock options are exercised and restricted shares are awarded from
time to time under the 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.
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("Statement No. 123"), defines a fair-value-based method of
accounting for an employee stock option or similar equity instrument. However,
it allows an entity to continue to measure compensation cost for those
instruments using the intrinsic-value-based method of accounting prescribed by
APB Opinion No. 25. As permitted by Statement No. 123, the Corporation elected
to retain the intrinsic-value-based method of accounting for stock option grants
in accordance with APB Opinion No. 25. However, certain additional disclosures
are required by Statement No. 123 about stock-based employee compensation
arrangements regardless of the method used to account for them. In accordance
with Statement No. 123, the Black-Scholes option pricing model is one technique
allowed to determine the fair value of options. The model uses different
assumptions that can significantly affect the fair value of the options. The
derived fair value estimates cannot be substantiated by comparison to
independent markets.
The Corporation estimated the fair value of each option grant on the date of
grant. The following weighted average assumptions used in the Black-Scholes
option pricing model for grants in 1999, 1998, and 1997, were dividend yield of
1.25%, 1.59%, and 2.11%, expected volatility of 34.39%, 30.81%, and 30.08%,
risk-free interest rates of 5.73%, 5.44%, and 6.63%, and expected lives of 5.4
years, 5.1 years, and 6.5 years, respectively.
If the fair value of stock option grants determined in accordance with Statement
No. 123 had been included in operating expenses in 1999, 1998, and 1997, the
Corporation's net income, earnings per common share, and earnings per common
share--assuming dilution on a pro forma basis would have been as presented in
the following table. The compensation expense recognized in pro forma net income
for 1999, 1998, and 1997 may not be representative of the effects on pro forma
net income for future years.
PRO FORMA NET INCOME AND EARNINGS PER COMMON SHARE
(dollars in thousands, except per share amounts)
- ------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1999 1998 1997
- ------------------------------------------------------------------------------------
NET INCOME
As reported................... $ 1,024,423 $ 776,266 $ 622,500
Pro forma..................... 986,547 746,138 608,838
EARNINGS PER COMMON SHARE
As reported................... 1.26 1.01 .80
Pro forma..................... 1.21 .97 .78
EARNINGS PER COMMON SHARE--
ASSUMING DILUTION
As reported................... 1.21 .97 .76
Pro forma..................... 1.16 .93 .75
- ------------------------------------------------------------------------------------
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- --------------------------------------------------------------------------------
NOTE L: STOCKHOLDERS' EQUITY
PREFERRED STOCK
The Corporation is authorized to issue 20.0 million shares of preferred stock
with a par value of $.01 per share. The Corporation had 4.5 million shares of
7 1/2% Cumulative Preferred Stock, Series A, outstanding at December 31, 1999
and 1998. The Corporation also had 4.0 million shares of Adjustable Rate
Cumulative Preferred Stock, Series B, outstanding at December 31, 1999 and 1998.
Both of the outstanding series preferred stock have a $25 stated value per
share.
The Corporation repurchased 2.0 million shares of Adjustable Rate Cumulative
Preferred Stock, Series B, during 1997 for $52.5 million. Also, during 1997, the
Corporation, through MBNA Capital C, issued $36.3 million of 8.25% Trust
Originated Preferred Securities (guaranteed preferred beneficial interests in
Corporation's junior subordinated deferrable interest debentures, series C) in
exchange for 1.5 million shares of 7 1/2% Cumulative Preferred Stock, Series A.
Shares of the series preferred stock are not convertible into any other
securities of the Corporation. The series preferred stock will not be entitled
to the benefits of any sinking fund. All preferred shares rank senior to common
shares both as to dividends and liquidation preference, but have no general
voting rights. In the event that the equivalent of six full quarterly dividend
periods are in arrears, the holders of the outstanding shares of the preferred
stock (voting as a single class) will be entitled to vote for the election of
two additional directors to serve until all dividends in arrears have been paid
in full.
Dividends on the Series A Preferred Stock are cumulative from the date of
original issue and are payable quarterly in arrears on January 15, April 15,
July 15, and October 15 of each year. The shares of the Series A Preferred Stock
are redeemable, in whole or in part, solely at the option of the Corporation on
or after January 15, 2001, at a price of $25 per share, plus accrued and unpaid
dividends.
Dividends on the Series B Preferred Stock are cumulative from the date of
original issue and are payable quarterly in arrears on January 15, April 15,
July 15, and October 15 of each year. The dividend rate for any dividend period
will be equal to 99.0% of the highest of the Treasury Bill Rate, the Ten-Year
Constant Maturity Rate, and the Thirty-Year Constant Maturity Rate,
as determined in advance of such dividend period, but not less than 5.5% per
annum or more than 11.5% per annum. The amount of dividends payable with respect
to the Series B Preferred Stock will be adjusted in the event of certain
amendments to the Internal Revenue Code of 1986 ("Tax Code") with respect to the
dividends-received deduction. The shares of the Series B Preferred Stock are
redeemable, in whole or in part, solely at the option of the Corporation on or
after October 15, 2001, at a price of $25 per share, plus accrued and unpaid
dividends. The Series B Preferred Stock may also be redeemed in whole, at the
option of the Corporation, in the event of certain amendments to the Tax Code
with respect to the dividends-received deduction.
The Corporation may, from time to time, acquire series preferred stock in the
open market by tender offer, exchange offer, or otherwise. The Corporation's
decision to make such acquisitions is dependent on many factors, including
market conditions in effect at the time of any contemplated acquisition.
The Board of Directors declared the following dividends for the Corporation's
Series A and Series B Preferred Stock.
PREFERRED STOCK DIVIDEND SUMMARY
- -------------------------------------------------------------------------------------------------------------------
SERIES A SERIES B
Declaration Payment Dividend Dividend per Dividend Dividend per
Date Date Rate Preferred Share Rate Preferred Share
- -------------------------------------------------------------------------------------------------------------------
January 10, 2000 April 15, 2000 7.50% $ .46875 6.40% $ .39970
October 7, 1999 January 15, 2000 7.50 .46875 6.01 .37590
July 13, 1999 October 15, 1999 7.50 .46875 6.01 .37560
April 13, 1999 July 15, 1999 7.50 .46875 5.55 .34680
January 15, 1999 April 15, 1999 7.50 .46875 5.50 .34380
October 13, 1998 January 15, 1999 7.50 .46875 5.50 .34380
July 14, 1998 October 15, 1998 7.50 .46875 5.58 .34900
April 14, 1998 July 15, 1998 7.50 .46875 5.85 .36540
January 13, 1998 April 15, 1998 7.50 .46875 5.86 .36600
October 14, 1997 January 15, 1998 7.50 .46875 6.29 .39320
July 15, 1997 October 15, 1997 7.50 .46875 6.66 .41610
April 21, 1997 July 15, 1997 7.50 .46875 6.98 .43622
January 14, 1997 April 15, 1997 7.50 .46875 6.56 .40990
- -------------------------------------------------------------------------------------------------------------------
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- --------------------------------------------------------------------------------
COMMON STOCK
On January 10, 2000, the Corporation's Board of Directors declared a dividend of
$.08 per common share, payable April 1, 2000, to stockholders of record as of
March 16, 2000.
In January 1999, the Corporation issued 50 million shares of common stock. The
Corporation used the net proceeds from this offering, $1.2 billion net of
issuance costs, to complete the purchase of the credit card business of PNC, and
for other general corporate purposes.
On July 14, 1998, the Board of Directors approved a three-for-two split of the
Corporation's Common Stock, effected in the form of a dividend, issued October
1, 1998, to stockholders of record as of September 15, 1998. All common share
and per common share data reflect the Corporation's stock splits.
On April 21, 1998, the stockholders of the Corporation approved an amendment to
the Corporation's charter to increase the number of authorized shares of common
stock from 700.0 million shares to 1.5 billion shares. The amendment became
effective April 28, 1998.
NOTE M: 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
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 consolidated 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 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 have been computed in accordance with regulatory accounting practices.
CAPITAL ADEQUACY
(dollars in thousands)
- ----------------------------------------------------------------------------------------------------------------------------
TO BE WELL-CAPITALIZED
FOR CAPITAL UNDER PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
Amount Ratio Amount Ratio Amount Ratio
-------------------------------------------------------------------------
DECEMBER 31, 1999
Tier 1 Capital (to Risk-Weighted Assets):
MBNA Corporation.................... $ 4,380,971 14.72% $ 1,190,282 4.00% (a)
MBNA America Bank, N.A. ............ 3,175,442 11.06 1,148,580 4.00 $ 1,722,870 6.00%
Total Capital (to Risk-Weighted Assets):
MBNA Corporation.................... 5,064,201 17.02 2,380,563 8.00 (a)
MBNA America Bank, N.A. ............ 3,858,215 13.44 2,297,160 8.00 2,871,450 10.00
Tier 1 Capital (to Average Assets):
MBNA Corporation.................... 4,380,971 14.90 1,176,244 4.00 (a)
MBNA America Bank, N.A. ............ 3,175,442 11.61 1,094,479 4.00 1,368,099 5.00
DECEMBER 31, 1998
Tier 1 Capital (to Risk-Weighted Assets):
MBNA Corporation.................... 2,829,507 11.44 989,510 4.00 (a)
MBNA America Bank, N.A. ............ 2,625,832 11.69 898,139 4.00 1,347,208 6.00
Total Capital (to Risk-Weighted Assets):
MBNA Corporation.................... 3,454,181 13.96 1,979,021 8.00 (a)
MBNA America Bank, N.A. ............ 3,205,671 14.28 1,796,278 8.00 2,245,347 10.00
Tier 1 Capital (to Average Assets):
MBNA Corporation.................... 2,829,507 11.34 997,628 4.00 (a)
MBNA America Bank, N.A. ............ 2,625,832 11.55 909,112 4.00 1,136,390 5.00
- ----------------------------------------------------------------------------------------------------------------------------
(a) Not applicable for bank holding companies.
61
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- --------------------------------------------------------------------------------
NOTE N: CASH AND DIVIDEND RESTRICTIONS
The Bank is required by the Federal Reserve Bank to maintain cash reserves
against certain categories of average deposit liabilities. During 1999 and 1998,
the average amount of these reserves was $8.8 million and $1.2 million,
respectively, after deducting currency and coin holdings.
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
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 for consecutive periods
covering 10 semiannual periods or 20 consecutive quarterly periods, depending on
the series, on its guaranteed preferred beneficial interests in Corporation's
junior subordinated deferrable interest debentures, the Corporation may not be
permitted to declare or pay any cash dividends on the Corporation's capital
stock or interest on debt securities that have equal or lower priority than the
junior subordinated deferrable interest debentures.
The Corporation is a legal entity separate and distinct from its banking and
other subsidiaries. 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 transfer 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
December 31, 1999, the amount of retained earnings available for declaration and
payment of dividends from the Bank to the Corporation was $1.6 billion. Payment
of dividends by the Bank to the Corporation, however, can be further limited by
federal bank regulatory agencies.
The Bank's payment of dividends to the Corporation may also be limited by a
tangible net worth requirement under the Bank's revolving credit facility. This
facility was not drawn upon as of December 31, 1999. If this facility had been
drawn upon as of December 31, 1999, the amount of retained earnings available
for declaration of dividends would have been further limited to $426.2 million.
NOTE O: COMPREHENSIVE INCOME
On January 1, 1998, the Corporation adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("Statement No. 130").
Statement No. 130 establishes standards for the reporting and disclosure of
comprehensive income and its components in the financial statements. The
adoption of Statement No. 130 had no impact on the Corporation's consolidated
financial statements. Statement No. 130 requires the impact of foreign currency
translation, unrealized gains or losses on the Corporation's investment
securities available-for-sale and other financial instruments, and changes in
certain minimum benefit plan liabilities, which, prior to adoption, were
reported separately in stockholders' equity, to be included in other
comprehensive
OTHER COMPREHENSIVE INCOME COMPONENTS
(dollars in thousands)
- ----------------------------------------------------------------------------------------------------------------------------
BEFORE TAX TAX (BENEFIT) NET OF TAX
YEAR ENDED AMOUNT EXPENSE AMOUNT
- ----------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1999
Foreign currency translation........................................... $ (6,738) $ - $ (6,738)
Net unrealized losses on investment securities available-for-sale
and other financial instruments....................................... (16,164) (5,760) (10,404)
Minimum benefit plan liability adjustment.............................. 7,205 2,630 4,575
----------- ----------- -----------
Other comprehensive income....................................... $ (15,697) $ (3,130) $ (12,567)
=========== =========== ===========
DECEMBER 31, 1998
Foreign currency translation........................................... $ (510) $ (8) $ (502)
Net unrealized losses on investment securities available-for-sale
and other financial instruments....................................... (7,332) (2,709) (4,623)
Minimum benefit plan liability adjustment.............................. (7,205) (2,630) (4,575)
----------- ----------- -----------
Other comprehensive income (15,047) $ (5,347) $ (9,700)
=========== =========== ===========
DECEMBER 31, 1997
Foreign currency translation........................................... $ (4,588) $ 398 $ (4,986)
Net unrealized gains on investment securities available-for-sale
and other financial instruments....................................... 9,570 3,510 6,060
----------- ----------- -----------
Other comprehensive income $ 4,982 $ 3,908 $ 1,074
=========== =========== ===========
- ----------------------------------------------------------------------------------------------------------------------------
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- --------------------------------------------------------------------------------
income. For purposes of comparability, prior years' consolidated financial
statements have been reclassified to conform to the requirements of Statement
No. 130.
NOTE P: RELATED PARTY TRANSACTIONS
The Corporation's directors and executive officers hold credit cards or other
lines of credit issued by the Bank on the same terms prevailing at the time for
those issued to other persons.
NOTE Q: OTHER OPERATING EXPENSE
In March 1998, Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use" ("SOP 98-1"), was issued. This
statement, effective for financial statements issued for fiscal years beginning
after December 15, 1998, provides guidance on accounting for the costs of
computer software developed or obtained for internal use. Earlier application
was encouraged. The Corporation adopted SOP 98-1 in 1998. The adoption of SOP
98-1 did not have a material impact on the Corporation's consolidated financial
statements.
OTHER EXPENSE COMPONENT OF OTHER OPERATING EXPENSE
(dollars in thousands)
- -------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1999 1998 1997
- -------------------------------------------------------------------------------------
Purchased services........................... $ 312,936 $ 226,773 $ 287,016
Advertising.................................. 211,263 146,896 133,124
Collection................................... 40,692 31,987 27,378
Stationery and supplies...................... 36,779 32,376 30,960
Service bureau............................... 46,080 35,159 31,516
Postage and delivery......................... 280,356 194,321 186,015
Telephone usage.............................. 73,552 60,538 57,647
Loan receivable fraud losses................. 102,604 81,958 64,572
Amortization of intangible assets............ 170,636 54,155 31,290
Computer software............................ 58,987 49,419 46,227
Other ....................................... 174,360 131,859 101,375
----------- ---------- ----------
Total other operating expense................ $ 1,508,245 $1,045,441 $ 997,120
=========== ========== ==========
- -------------------------------------------------------------------------------------
NOTE R: COMMITMENTS AND CONTINGENCIES
At December 31, 1999, the Corporation had outstanding lines of credit of $399.1
billion committed to its Customers. Of that total commitment, $326.8 billion is
unused. While this amount represents the total available lines of credit to
Customers, the Corporation has not experienced and does not anticipate that all
of its Customers will exercise their entire available line of credit at any
given point in time. The Corporation has the right to reduce or cancel these
available lines of credit at any time.
The Corporation has two one-year revolving credit facilities totaling $75.0
million. These credit facilities were renewed during 1999 with $25.0 million
committed through February 2000 and $50.0 million committed through September
2000. The Corporation may take advances under these facilities subject to
certain conditions, including requirements for tangible net worth. These
facilities may be used for general corporate purposes and were not drawn upon as
of December 31, 1999.
The Bank has a $2.0 billion syndicated revolving credit facility committed
through February 2001. Advances are subject to covenants and conditions
customary in a transaction of this kind. These conditions include requirements
for the Corporation to maintain a minimum level of tangible net worth, in
addition to managed loan receivables 90 days or more past due plus nonaccrual
receivables not to exceed 6% of managed credit card receivables. Should managed
credit card losses equal or exceed 5% for a period of four consecutive quarters,
a ratio of qualifying loan receivables to outstanding borrowings under the
facility of at least 115% will be required in order to draw under this facility.
At December 31, 1999, the minimum tangible net worth requirement for this
facility is $1.8 billion. The facility may be used for general corporate
purposes and was not drawn upon as of December 31, 1999.
MBNA Europe has six bilateral credit facilities, with maturities ranging from
2000 to 2002, totaling Pound Sterling 60.0 million (approximately $96.9 million
at December 31, 1999). MBNA Europe may take advances under the facilities
subject to certain conditions, including requirements for tangible net worth.
The facilities may be used for general corporate purposes. At December 31, 1999,
MBNA Europe had Pound Sterling 30.0 million (approximately $48.5 million)
available to be drawn under the facilities.
In addition, MBNA Europe has a Pound Sterling 300.0 million (approximately
$484.7 million at December 31, 1999) multi-currency syndicated revolving credit
facility committed through October 2000. MBNA Europe may take advances under the
facility subject to certain conditions, including requirements for tangible net
worth, outstanding loan receivables, and account delinquencies. The facility may
be used for general corporate purposes and was not drawn upon as of December 31,
1999.
MBNA Canada has a CAD$300.0 million (approximately $206.5 million at December
31, 1999) multi-currency syndicated revolving credit facility committed through
December 2001 and a CAD$50.0 million (approximately $34.4 million at December
31, 1999) multi-currency credit facility committed through February 2000. MBNA
Canada may take advances under the facilities subject to certain conditions
customary in a transaction of this kind. These facilities may be used for
general corporate purposes and were not drawn upon as of December 31, 1999.
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NOTE S: INCOME TAXES
RECONCILIATION OF STATUTORY INCOME TAXES
(dollars in thousands)
- -------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1999 1998 1997
- -------------------------------------------------------------------------------------------------
Income before income taxes...................... $ 1,654,964 $ 1,254,065 $ 1,022,108
Statutory tax rate.............................. 35% 35% 35%
----------- ----------- -----------
Income tax at statutory tax rate................ 579,237 438,923 357,738
State taxes, net of federal benefit............. 20,449 17,800 11,182
Other........................................... 30,855 21,076 30,688
----------- ----------- -----------
Total income taxes.......................... $ 630,541 $ 477,799 $ 399,608
=========== =========== ===========
Current income taxes:
U.S. federal.................................. $ 572,571 $ 410,532 $ 324,891
U.S. state and local.......................... 31,459 27,384 17,203
Foreign....................................... 73,115 33,194 16,165
----------- ----------- -----------
Total current income taxes.................. 677,145 471,110 358,259
Deferred income taxes (benefit):
U.S. federal, state, and local................ (48,700) 409 44,479
Foreign....................................... 2,096 6,280 (3,130)
----------- ----------- -----------
Total deferred income taxes (benefits)...... (46,604) 6,680 41,349
----------- ----------- -----------
Total income taxes.......................... $ 630,541 $ 477,799 $ 399,608
=========== =========== ===========
- -------------------------------------------------------------------------------------------------
Foreign subsidiaries contributed approximately 12.9% in 1999, 7.1% in 1998, and
3.8% in 1997 to consolidated income before income taxes.
No U.S. income taxes have been provided on the accumulated undistributed
earnings of foreign subsidiaries, totaling $198.1 million at December 31, 1999,
which continue to be reinvested. It is not practicable to determine the amount
of any additional U.S. income taxes that might be payable in the event that
these earnings are repatriated.
SUMMARY OF DEFERRED TAXES
(dollars in thousands)
- ------------------------------------------------------------------------------------
DECEMBER 31, 1999 1998
- ------------------------------------------------------------------------------------
Deferred tax assets:
Reserve for possible credit losses................. $ 67,960 $ 61,887
Intangible assets and other similar items.......... 68,077 48,557
Other deferred tax assets.......................... 193,174 143,342
---------- ----------
Total deferred tax assets....................... 329,211 253,786
Valuation allowance................................ - -
---------- ----------
Total deferred tax assets less valuation
allowance...................................... 329,211 253,786
Deferred tax liabilities:
Securitizations and related items.................. (166,346) (137,201)
Other deferred tax liabilities..................... (61,259) (64,098)
---------- ----------
Total deferred tax liabilities.................. (227,605) (201,299)
---------- ----------
Net deferred tax assets......................... $ 101,606 $ 52,487
========== ==========
- ------------------------------------------------------------------------------------
NOTE T: FOREIGN ACTIVITIES
The Corporation's foreign activities are primarily performed through the Bank's
two foreign bank subsidiaries, MBNA Europe and MBNA Canada. The Bank also has a
foreign branch office in the Grand Cayman Islands, which invests in
interest-earning time deposits and accepts eurodollar deposits. This branch also
participates in the loan receivables securitized by MBNA Europe.
FOREIGN LOAN RECEIVABLES DISTRIBUTION
(dollars in thousands)
- ------------------------------------------------------------------------------------------------
DECEMBER 31, 1999 1998
- ------------------------------------------------------------------------------------------------
LOANS HELD FOR SECURITIZATION
Credit card ............................................ $ 855,916 $ 442,517
---------- ----------
Total loans held for securitization ................ 855,916 442,517
LOAN PORTFOLIO
Credit card ............................................ 944,183 993,945
Other consumer ......................................... 642,510 52,537
---------- ----------
Total loan portfolio ............................... 1,586,693 1,046,482
---------- ----------
Total loan receivables ............................. $2,442,609 $1,488,999
========== ==========
- ------------------------------------------------------------------------------------------------
Because certain foreign operations are integrated with many of the Bank's
domestic operations, estimates and assumptions have been made to assign certain
income and expense items between domestic and foreign operations. Amounts are
allocated for interest costs to users of funds, capital invested, income taxes,
and for other items incurred. The provision for possible credit losses is
allocated based on specific charge-off experience and risk characteristics of
the foreign loan receivables.
SELECTED FOREIGN FINANCIAL DATA
(dollars in thousands)
- -----------------------------------------------------------------------------------
DECEMBER 31, 1999 1998 1997
- -----------------------------------------------------------------------------------
UNITED KINGDOM
Total assets ................ $ 3,104,940 $ 2,108,273 $ 1,748,997
Total income ................ 696,585 527,884 306,380
Income before income taxes .. 213,137 104,708 37,430
Net income .................. 148,806 72,249 27,099
OTHER FOREIGN
Total assets ................ 1,706,289 2,680,694 1,169,926
Total income ................ 179,257 138,187 36,740
Loss before income taxes .... (44,032) (50,977) (8,544)
Net loss .................... (38,815) (44,875) (7,561)
TOTAL FOREIGN
Total assets ................ 4,811,229 4,788,967 2,918,923
Total income ................ 875,842 666,071 343,120
Income before income taxes .. 169,105 53,731 28,886
Net income .................. 109,991 27,374 19,538
DOMESTIC
Total assets ................ 26,047,903 21,017,293 18,386,590
Total income ................ 5,594,250 4,529,070 4,180,772
Income before income taxes .. 1,485,859 1,200,334 993,222
Net income .................. 914,432 748,892 602,962
MBNA CORPORATION
Total assets ................ 30,859,132 25,806,260 21,305,513
Total income ................ 6,470,092 5,195,141 4,523,892
Income before income taxes .. 1,654,964 1,254,065 1,022,108
Net income .................. 1,024,423 776,266 622,500
- -----------------------------------------------------------------------------------
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- --------------------------------------------------------------------------------
NOTE U: SEGMENT REPORTING
In June 1997, Statement of Financial Accounting Standards No. 131, "Disclosures
about Segments of an Enterprise and Related Information" ("Statement No. 131"),
was issued, effective for fiscal years beginning after December 15, 1997.
Statement No. 131 establishes standards for the disclosure of selected
information pertaining to operating segments of a public company in its interim
and annual financial statements. The adoption of Statement No. 131 in 1998 did
not have an impact on the Corporation's consolidated financial statements.
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. The
managed results also include the impact of Statement No. 125.
SEGMENT REPORTING
(dollars in thousands)
- -------------------------------------------------------------------------------------------------
TOTAL SECURITIZATION TOTAL
YEAR ENDED MANAGED ADJUSTMENT CONSOLIDATED
- -------------------------------------------------------------------------------------------------
DECEMBER 31, 1999
Interest income ....................... $ 9,133,754 $ (6,871,483) $ 2,262,271
Interest expense ...................... 3,945,953 (2,617,447) 1,328,506
------------ ------------ ------------
Net interest income ................... 5,187,801 (4,254,036) 933,765
Provision for possible credit losses .. 2,804,410 (2,395,496) 408,914
------------ ------------ ------------
Net interest income after provision
for possible credit losses .......... 2,383,391 (1,858,540) 524,851
Other operating income ................ 2,349,281 1,858,540 4,207,821
Other operating expense ............... 3,077,708 - 3,077,708
------------ ------------ ------------
Income before income taxes ............ 1,654,964 - 1,654,964
Applicable income taxes ............... 630,541 - 630,541
------------ ------------ ------------
Net income ............................ $ 1,024,423 $ - $ 1,024,423
============ ============ ============
Ending loans outstanding .............. $ 72,255,513 $(54,591,804) $ 17,663,709
DECEMBER 31, 1998
Interest income ....................... $ 7,856,703 $ (5,890,531) $ 1,966,172
Interest expense ...................... 3,543,127 (2,319,294) 1,223,833
------------ ------------ ------------
Net interest income ................... 4,313,576 (3,571,237) 742,339
Provision for possible credit losses .. 2,303,166 (1,993,127) 310,039
------------ ------------ ------------
Net interest income after provision
for possible credit losses .......... 2,010,410 (1,578,110) 432,300
Other operating income ................ 1,650,859 1,578,110 3,228,969
Other operating expense ............... 2,407,204 - 2,407,204
------------ ------------ ------------
Income before income taxes ............ 1,254,065 - 1,254,065
Applicable income taxes ............... 477,799 - 477,799
------------ ------------ ------------
Net income ............................ $ 776,266 $ - $ 776,266
============ ============ ============
Ending loans outstanding .............. $ 59,641,106 $(46,172,739) $ 13,468,367
DECEMBER 31, 1997
Interest income ....................... $ 6,401,838 $ (4,690,825) $ 1,711,013
Interest expense ...................... 2,877,851 (1,859,228) 1,018,623
------------ ------------ ------------
Net interest income ................... 3,523,987 (2,831,597) 692,390
Provision for possible credit losses .. 1,749,243 (1,489,203) 260,040
------------ ------------ ------------
Net interest income after provision
for possible credit losses .......... 1,774,744 (1,342,394) 432,350
Other operating income ................ 1,470,485 1,342,394 2,812,879
Other operating expense ............... 2,223,121 - 2,223,121
------------ ------------ ------------
Income before income taxes ............ 1,022,108 - 1,022,108
Applicable income taxes ............... 399,608 - 399,608
------------ ------------ ------------
Net income ............................ $ 622,500 $ - $ 622,500
============ ============ ============
Ending loans outstanding .............. $ 49,379,860 $(38,217,786) $ 11,162,074
- -------------------------------------------------------------------------------------------------
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- --------------------------------------------------------------------------------
NOTE V: FAIR VALUE OF FINANCIAL INSTRUMENTS
The following presents the fair value of financial instruments as of December
31, 1999 and 1998, whether or not recognized in the Corporation's consolidated
statements of financial condition, for which it is practicable to estimate that
value. In addition, certain financial instruments and all nonfinancial
instruments are excluded in accordance with generally accepted accounting
principles. In cases where quoted market prices are not available, fair values
are estimated using present value or other valuation techniques. These
techniques are significantly affected by the assumptions used, including the
discount rate and estimates of future cash flows. The derived fair value
estimates cannot be substantiated by comparison to independent market values
and, in many cases, could not be realized in an immediate settlement of the
instrument. Accordingly, the aggregate fair value amounts presented do not
represent the underlying value of the Corporation.
FINANCIAL ASSETS
CASH AND DUE FROM BANKS: Cash and due from banks are carried at an amount that
approximates fair value.
MONEY MARKET INSTRUMENTS: Money market instruments include interest-earning time
deposits in other banks and federal funds sold and securities purchased under
resale agreements. As a result of the short-term nature of these instruments,
the carrying amounts reported in the consolidated statements of financial
condition approximate these assets' fair value.
INVESTMENT SECURITIES: Fair value is based on the market value of the individual
investment security without regard to any premium or discount that may result
from concentrations of ownership of a financial instrument, possible tax
ramifications, or estimated transaction costs. Market value for
investment securities is based on quoted market prices or dealer quotes.
LOANS HELD FOR SECURITIZATION: The carrying value of loans held for
securitization approximates its fair value due to the short-term nature of these
assets.
LOAN PORTFOLIO: The carrying value of the Corporation's loan portfolio
approximates its fair value. The loan portfolio includes variable-rate loans,
with interest rates that approximate current market rates, and fixed-rate loans,
which can be repriced frequently at market rates.
The valuations of loans held for securitization and the loan portfolio do not
include the value that relates to estimated cash flows from new loans generated
from existing Customers over the remaining life of the loan receivables or the
value of established Customer relationships. Accordingly, the fair values of
loans held for securitization and the loan portfolio do not represent the
underlying value of the Corporation's accounts.
ACCRUED INCOME RECEIVABLE: Accrued income receivable includes interest and fee
income earned but not yet received from investment securities, money market
instruments, loan receivables, interest rate swap agreements, and insurance
products. The carrying amount reported in the consolidated statements of
financial condition approximates the fair value of these assets due to their
relatively short-term nature.
ACCOUNTS RECEIVABLE FROM SECURITIZATIONS: The fair value of accounts receivable
from securitizations is determined by discounting the future cash flows from the
securitizations using rates currently available to the Corporation for
instruments with similar terms and remaining maturities.
FINANCIAL LIABILITIES
TOTAL DEPOSITS: The fair value of money market deposit accounts,
noninterest-bearing demand deposits, interest-bearing transaction accounts, and
savings accounts is equal to the amount payable upon demand. The fair value of
time deposits is estimated by discounting the future cash flows of the stated
maturities using estimated rates currently offered for like deposits. The
valuation does not include the benefit that results from the low-cost funding
provided by the various deposit liabilities compared to the cost of borrowing
funds in the market.
SHORT-TERM BORROWINGS: Short-term borrowings include federal funds purchased and
securities sold under repurchase agreements, short-term bank notes, and other
short-term borrowings. The fair
CARRYING VALUES AND ESTIMATED FAIR VALUES OF THE CORPORATION'S FINANCIAL ASSETS
(dollars in thousands)
- -------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1999 1998
- -------------------------------------------------------------------------------------------------------------------
Carrying Fair Carrying Fair
Value Value Value Value
-----------------------------------------------------------------
FINANCIAL ASSETS
Cash and due from banks ................... $ 488,386 $ 488,386 $ 382,882 $ 382,882
Money market instruments .................. 1,525,748 1,525,748 3,561,215 3,561,215
Investment securities:
Available-for-sale ...................... 2,752,663 2,752,663 1,663,704 1,663,704
Held-to-maturity ........................ 293,641 264,832 216,020 211,473
Loans held for securitization ............. 9,692,616 9,692,616 1,692,268 1,692,268
Loan portfolio, net of reserve
for possible credit losses .............. 7,615,134 7,615,134 11,559,188 11,559,188
Accrued income receivable ................. 216,867 216,867 193,019 193,019
Accounts receivable from securitizations .. 4,128,046 4,122,000 3,595,556 3,590,000
- -------------------------------------------------------------------------------------------------------------------
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- --------------------------------------------------------------------------------
CARRYING VALUES AND ESTIMATED FAIR VALUES OF THE CORPORATION'S FINANCIAL
LIABILITIES
(dollars in thousands)
- ----------------------------------------------------------------------------------------------------------
DECEMBER 31, 1999 1998
- ----------------------------------------------------------------------------------------------------------
Carrying Fair Carrying Fair
Value Value Value Value
FINANCIAL LIABILITIES
Total deposits ................... $18,714,753 $18,670,000 $15,407,040 $15,613,000
Short-term borrowings ............ 1,039,004 1,039,004 1,231,195 1,231,195
Long-term debt and bank notes .... 5,708,880 5,663,000 5,939,025 6,054,000
Accrued interest payable ......... 182,990 182,990 153,201 153,201
- ----------------------------------------------------------------------------------------------------------
value of short-term borrowings approximates the carrying value of these
instruments based upon their short-term nature.
LONG-TERM DEBT AND BANK NOTES: The fair value of primarily all of the
Corporation's long-term debt and bank notes is estimated by discounting the
future cash flows of the stated maturities of the long-term debt and bank notes
using estimated rates currently offered for similar debt obligations. The fair
value of the Corporation's guaranteed preferred beneficial interests in
Corporation's junior subordinated deferrable interest debentures is based upon
its quoted market price.
ACCRUED INTEREST PAYABLE: Accrued interest payable includes interest expensed
but not yet paid for deposits, short-term borrowings, long-term debt and bank
notes, and interest rate swap agreements. The carrying amount approximates the
fair value of these liabilities due to their relatively short-term nature.
NOTE W: OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS
The Corporation uses interest rate swap agreements to change fixed-rate funding
sources to floating-rate funding sources to better match the rate sensitivity of
the Corporation's assets. The Corporation uses forward exchange contracts to
reduce its exposure to foreign currency exchange rate risk primarily related to
activity associated with the Corporation's foreign bank subsidiaries.
The Corporation entered into a foreign exchange swap agreement to facilitate the
issuance of a portion of the Subordinated Guaranteed Floating-Rate Notes by MBNA
Europe and offset this exposure to foreign currency exchange rate risk with
an additional foreign exchange swap agreement. These foreign exchange swap
agreements have no impact on the Corporation's consolidated financial
statements.
MBNA Europe has also entered into foreign exchange swap agreements to offset the
exposure to foreign currency exchange rate risk related to the issuance of
certain Euro Medium-Term Notes denominated in Euro or U.S. dollars during 1999.
The fair value of the Corporation's off-balance-sheet financial instruments is
represented by the estimated unrealized gains or losses as determined by quoted
market prices or dealer quotes. This value generally reflects the estimated
amounts that the Corporation would receive or pay to terminate the instruments
at the reporting date.
At December 31, 1999 and 1998, the Corporation had interest rate swap agreements
with underlying notional amounts of $1.0 billion and $655.0 million,
respectively. These agreements had a net unrealized loss of approximately $31.0
million and a net unrealized gain of $24.0 million at December 31, 1999 and
1998, respectively.
The notional amounts underlying the Corporation's forward exchange contracts at
December 31, 1999 and 1998, were $1.0 billion and $857.1 million, respectively.
These contracts had a net unrealized gain of $7.8 million at December 31, 1999,
and $4.9 million at December 31, 1998.
The notional amounts underlying the Corporation's foreign exchange swap
agreements were $200.7 million at
SUMMARY OF ACTIVITY OF OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS (NOTIONAL
AMOUNTS)
(dollars in thousands)
- -------------------------------------------------------------------------------------------------------
INTEREST RATE FORWARD EXCHANGE FOREIGN EXCHANGE
SWAP AGREEMENTS CONTRACTS SWAP AGREEMENTS TOTAL
- -------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1996 .. $ 1,350,000 $ 420,255 $ 40,000 $ 1,810,255
Additions ................... - 2,825,310 - 2,825,310
Maturities .................. (1,000,000) (2,733,440) - (3,733,440)
----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1997 .. 350,000 512,125 40,000 902,125
Additions ................... 305,000 3,939,639 - 4,244,639
Maturities .................. - (3,594,633) - (3,594,633)
----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1998 .. 655,000 857,131 40,000 1,552,131
Additions ................... 536,303 3,410,572 160,675 4,107,550
Maturities .................. (150,000) (3,226,982) - (3,376,982)
----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1999 .. $ 1,041,303 $ 1,040,721 $ 200,675 $ 2,282,699
=========== =========== =========== ===========
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- --------------------------------------------------------------------------------
SIGNIFICANT CLASSES OF OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS
(dollars in thousands)
- ------------------------------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE
- ------------------------------------------------------------------------------------------------------------------------
Notional Receive Maturity Estimated
Amount Rate (a) Pay Rate (b) in Years Fair Value
----------------------------------------------------------------------
DECEMBER 31, 1999
Interest rate swap agreements ............. $ 1,041,303 6.84% 6.30% 11.2
Gross unrealized gains .................. $ -
Gross unrealized losses ................. (31,042)
-----------
Total ................................. $ (31,042)
===========
Forward exchange contracts--pounds sterling 1,027,744 1.62 .1 .2
Gross unrealized gains .................. $ 10,480
Gross unrealized losses ................. (3,335)
-----------
Total ................................. $ 7,145
===========
Forward exchange contracts--Irish punts ... 12,977 1.35 1.28 .1
Gross unrealized gains .................. $ 696
Gross unrealized losses ................. -
-----------
Total ................................. $ 696
===========
Foreign exchange swap agreements .......... 200,675 1.62 1.62 3.6
Gross unrealized gains .................. $ 392
Gross unrealized losses ................. (5,040)
-----------
Total ................................. $ (4,648)
===========
DECEMBER 31, 1998
Interest rate swap agreements ............. 655,000 6.28% 5.22 5.2
Gross unrealized gains .................. $ 24,031
Gross unrealized losses ................. -
-----------
Total ................................. $ 24,031
===========
Forward exchange contracts--pounds sterling 834,686 1.67 1.66 .2
Gross unrealized gains .................. $ 6,462
Gross unrealized losses ................. (1,762)
-----------
Total ................................. $ 4,700
===========
Forward exchange contracts--Irish punts ... 15,162 1.51 1.49 .1
Gross unrealized gains .................. $ 190
Gross unrealized losses ................. -
-----------
Total ................................. $ 190
===========
Forward exchange contracts--US dollars .... 7,283 .60 .60 .1
Gross unrealized gains .................. $ 3
Gross unrealized losses ................. (29)
-----------
Total ................................. $ (26)
===========
Foreign exchange swap agreements .......... 40,000 1.66 1.66 6.4
Gross unrealized gains .................. $ 835
Gross unrealized losses ................. (835)
-----------
Total ................................. $ -
===========
- ------------------------------------------------------------------------------------------------------------------------
(a) Weighted average receive rate represents the fixed-rate contracted at the
time the off-balance-sheet financial instruments were entered into.
(b) Weighted average pay rate for the forward exchange contracts represents the
spot rate for the currency the forward exchange contract is denominated in
at December 31, 1999 and 1998, respectively. The pay rate for the interest
rate swap agreements is generally based upon the three-month LIBOR and is
the rate in effect at December 31, 1999 and 1998, respectively.
December 31, 1999, and $40.0 million at December 31, 1998. These contracts had a
net unrealized loss of $4.6 million at December 31, 1999.
Although off-balance-sheet financial instruments do not expose the Corporation
to credit risk equal to the notional amount, the Corporation is exposed to
credit risk if the counterparty fails to perform. This credit risk is measured
as the gross unrealized gain on the financial instrument. The Corporation enters
into off-balance-sheet financial instruments with counterparties who have credit
ratings of investment grade as rated by the major rating agencies.
Under the terms of certain interest rate swap agreements, each party may be
required to pledge certain assets if the market value of the interest rate swap
agreement exceeds an amount set forth in the agreement or in the event of a
change in its credit rating. There were no securities pledged under the terms of
the interest rate swap agreements at December 31, 1999 and 1998.
68
81
- --------------------------------------------------------------------------------
At December 31, 1999, the Corporation had interest rate swap agreements maturing
in varying amounts from 2002 through 2027. The Corporation's forward exchange
contracts all mature in 2000, and the foreign exchange swap agreements mature in
varying amounts from 2002 through 2005.
EXPECTED MATURITIES OF OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS
(dollars in thousands)
- -----------------------------------------------------------------------------------------------------------
DECEMBER 31, 1999 WITHIN 1 YEAR 1-5 YEARS OVER 5 YEARS TOTAL
- -----------------------------------------------------------------------------------------------------------
INTEREST RATE SWAP AGREEMENTS
Notional amount .............. $ - $ 505,000 $ 536,303 $ 1,041,303
Estimated fair value ......... - (9,177) (21,865) (31,042)
FORWARD EXCHANGE CONTRACTS
Notional amount .............. 1,040,721 - - 1,040,721
Estimated fair value ......... 7,841 - - 7,841
FOREIGN EXCHANGE SWAP AGREEMENTS
Notional amount .............. - 160,675 40,000 200,675
Estimated fair value ......... - (4,648) - (4,648)
- -----------------------------------------------------------------------------------------------------------
NOTE X: PARENT COMPANY FINANCIAL INFORMATION
The Corporation conducts its credit card operations primarily through its wholly
owned subsidiary, MBNA America Bank, N.A. At December 31, 1999, the Bank
constituted 94.0% of the consolidated assets of the Corporation. The parent
company's investment in subsidiaries represents the total equity of all
consolidated subsidiaries, using the equity method of accounting for
investments.
CONDENSED STATEMENTS OF FINANCIAL CONDITION
(dollars in thousands)
- ----------------------------------------------------------------------------------------------
DECEMBER 31, 1999 1998
- ----------------------------------------------------------------------------------------------
ASSETS
Cash and due from banks .................................... $ 5,337 $ 6,928
Interest-earning time deposits due from bank subsidiary .... 735,396 167,213
Notes receivable from non-bank subsidiaries ................ 1,386,424 1,833,384
Investment in subsidiaries:
Bank ..................................................... 3,825,972 2,753,782
Non-bank ................................................. 239,011 225,835
Premises and equipment, net ................................ 87,340 61,081
Accrued income receivable .................................. 17,649 21,907
Other assets ............................................... 132,772 107,229
---------- ----------
Total assets ........................................... $6,429,901 $5,177,359
========== ==========
Liabilities and Stockholders' Equity
Long-term debt ............................................. $1,468,929 $2,057,976
Junior subordinated deferrable interest debentures due to
non-bank subsidiaries .................................... 580,725 580,644
Accrued interest payable ................................... 21,745 27,134
Dividends payable .......................................... 59,205 48,105
Accrued expenses and other liabilities ..................... 99,854 72,465
---------- ----------
Total liabilities ...................................... 2,230,458 2,786,324
Stockholders' equity ....................................... 4,199,443 2,391,035
---------- ----------
Total liabilities and stockholders' equity ............. $6,429,901 $5,177,359
========== ==========
- ----------------------------------------------------------------------------------------------
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- --------------------------------------------------------------------------------
CONDENSED STATEMENTS OF INCOME
(dollars in thousands)
- ----------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------
OPERATING INCOME
Interest income ........................................... $ 166,782 $ 134,751 $ 100,351
Dividends from subsidiaries:
Bank .................................................... 240,000 194,000 188,000
Non-bank ................................................ 1,270 1,298 4,201
Management fees from subsidiaries ......................... 38,206 32,993 32,507
Other ..................................................... 44 43 23
----------- ---------- ----------
Total operating income ............................... 446,302 363,085 325,082
OPERATING EXPENSE
Interest expense .......................................... 160,229 167,241 120,997
Salaries and employee benefits ............................ 24,083 18,073 16,117
Other ..................................................... 12,553 13,245 12,400
----------- ---------- ----------
Total operating expense .............................. 198,559 149,514 149,514
----------- ---------- ----------
Income before income taxes and equity in undistributed
net income (loss) of subsidiaries ........................ 249,437 164,526 175,568
Applicable income taxes (benefit) ......................... 1,575 (10,466) (6,807)
Equity in undistributed net income (loss) of subsidiaries:
Bank .................................................... 784,731 606,872 450,375
Non-bank ................................................ (6,170) (5,598) (10,250)
----------- ---------- ----------
NET INCOME ................................................ $ 1,024,423 $ 776,266 $ 622,500
=========== ========== ==========
- ----------------------------------------------------------------------------------------------------------
CONDENSED STATEMENTS OF CASH FLOWS
(dollars in thousands)
- ----------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income ................................................ $ 1,024,423 $ 776,266 $ 622,500
Adjustments to reconcile net income to net cash provided by
operating activities:
Equity in undistributed earnings of subsidiaries ........ (776,561) (601,274) (440,125)
(Benefit) provision for deferred income taxes ........... (4,644) 610 (233)
Depreciation and amortization ........................... 19,481 12,924 9,615
Decrease in other operating activities .................. 39,981 38,824 15,974
----------- ---------- ----------
Net cash provided by operating activities ............. 302,680 227,350 207,731
INVESTING ACTIVITIES
Net increase in interest-earning time deposits due from
bank subsidiary .......................................... (568,183) (8,800) (58,238)
Net decrease (increase) in notes receivable from non-bank
subsidiaries ............................................. 446,960 (155,211) (646,457)
Net (purchases) sales of premises and equipment ........... (33,626) 5,741 (29,439)
Net investment in subsidiaries ............................ (321,370) (87,339) (37,701)
----------- ---------- ----------
Net cash used in investing activities ................. (476,219) (245,609) (771,835)
FINANCING ACTIVITIES
Proceeds from issuance of long-term debt .................. - 493,918 679,304
Maturity of long-term debt ................................ (591,000) (80,000) (50,000)
Proceeds from issuance of junior subordinated deferrable
interest debentures due to non-bank subsidiaries ......... - - 286,469
Acquisition and retirement of preferred stock ............. - - (52,483)
Proceeds from issuance of common stock .................... 1,174,086 - -
Proceeds from exercise of stock options and other awards .. 27,932 42,454 31,948
Acquisition and retirement of common stock ................ (211,337) (247,260) (157,446)
Dividends paid ............................................ (227,733) (189,916) (173,729)
----------- ---------- ----------
Net cash provided by financing activities ............. 171,948 19,196 564,063
----------- ---------- ----------
(Decrease Increase in Cash and Cash Equivalents ........... (1,591) 937 (41)
Cash and cash equivalents at beginning of year ............ 6,928 5,991 6,032
----------- ---------- ----------
Cash and cash equivalents at end of year .................. $ 5,337 $ 6,928 $ 5,991
=========== ========== ==========
SUPPLEMENTAL DISCLOSURES
Interest expense paid ..................................... $ 163,785 $ 161,102 $ 111,665
=========== ========== ==========
Income taxes paid ......................................... $ - $ - $ -
----------- ---------- ----------
- ----------------------------------------------------------------------------------------------------------
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REPORT OF INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
Board of Directors and Stockholders
MBNA Corporation
We have audited the accompanying consolidated statements of financial condition
of MBNA Corporation and subsidiaries as of December 31, 1999 and 1998, and the
related consolidated statements of income, changes in stockholders' equity, and
cash flows for each of the three years in the period ended December 31, 1999.
These financial statements are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of MBNA Corporation
and subsidiaries at December 31, 1999 and 1998, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1999, in conformity with accounting principles generally
accepted in the United States.
/s/ ERNST & YOUNG LLP
Baltimore, Maryland
January 14, 2000
71
84
QUARTERLY DATA
- --------------------------------------------------------------------------------
(unaudited)
SUMMARY OF CONSOLIDATED QUARTERLY FINANCIAL INFORMATION
(dollars in thousands, except per share amounts)
- --------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED MARCH 31, JUNE 30,
- --------------------------------------------------------------------------------------------------------------------
1999
Interest income ............................................................... $ 541,348 $ 586,824
Interest expense .............................................................. 314,567 319,763
Net interest income ........................................................... 226,781 267,061
Provision for possible credit losses .......................................... 84,464 129,756
Other operating income ........................................................ 903,730 1,028,532
Other operating expense ....................................................... 745,573 798,823
Income before income taxes .................................................... 300,474 367,014
Net income .................................................................... 185,993 227,182
Net income applicable to common stock ......................................... 182,477 223,655
Earnings per common share ..................................................... .23 .28
Earnings per common share--assuming dilution .................................. .22 .27
Weighted average common shares outstanding (000) .............................. 798,538 801,803
Weighted average common shares outstanding and common stock
equivalents (000) ............................................................ 834,887 838,771
1998
Interest income ............................................................... $ 465,653 $ 458,337
Interest expense .............................................................. 290,080 291,454
Net interest income ........................................................... 175,573 166,883
Provision for possible credit losses .......................................... 88,598 78,542
Other operating income ........................................................ 699,510 765,196
Other operating expense ....................................................... 545,135 575,688
Income before income taxes .................................................... 241,350 277,849
Net income .................................................................... 149,396 171,988
Net income applicable to common stock ......................................... 145,774 168,384
Earnings per common share ..................................................... .19 .22
Earnings per common share--assuming dilution .................................. .18 .21
Weighted average common shares outstanding (000) .............................. 751,871 751,808
Weighted average common shares outstanding and common stock equivalents (000) . 792,247 790,417
- --------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED SEPTEMBER 30, DECEMBER 31,
- ----------------------------------------------------------------------------------------------------------------------
1999
Interest income ............................................................... $ 544,822 $ 589,277
Interest expense .............................................................. 335,801 358,375
Net interest income ........................................................... 209,021 230,902
Provision for possible credit losses .......................................... 105,020 89,674
Other operating income ........................................................ 1,118,307 1,157,252
Other operating expense ....................................................... 751,413 781,899
Income before income taxes .................................................... 470,895 516,581
Net income .................................................................... 291,484 319,764
Net income applicable to common stock ......................................... 287,859 316,119
Earnings per common share ..................................................... .36 .39
Earnings per common share--assuming dilution .................................. .34 .38
Weighted average common shares outstanding (000) .............................. 801,890 801,804
Weighted average common shares outstanding and common stock
equivalents (000) ............................................................ 838,608 836,038
1998
Interest income ............................................................... $ 515,523 $ 526,659
Interest expense .............................................................. 317,094 325,205
Net interest income ........................................................... 198,429 201,454
Provision for possible credit losses .......................................... 78,569 64,330
Other operating income ........................................................ 831,211 933,052
Other operating expense ....................................................... 601,163 685,218
Income before income taxes .................................................... 349,908 384,958
Net income .................................................................... 216,593 238,289
Net income applicable to common stock ......................................... 213,046 234,770
Earnings per common share ..................................................... .28 .31
Earnings per common share--assuming dilution .................................. .27 .30
Weighted average common shares outstanding (000) .............................. 751,806 751,937
Weighted average common shares outstanding and common stock equivalents (000) . 787,685 787,406
- ----------------------------------------------------------------------------------------------------------------------
72
85
PREFERRED STOCK PRICE RANGE AND DIVIDENDS
- --------------------------------------------------------------------------------
(unaudited)
- ----------------------------------------------------------------------------------------------------------------------
PREFERRED STOCK PRICE RANGE AND DIVIDENDS
DIVIDENDS
DECLARED PER
SERIES A HIGH LOW CLOSE COMMON SHARE
- ----------------------------------------------------------------------------------------------------------------------
1999
First quarter ........................... $ 26 7/8 $ 25 9/16 $ 26 1/8 $ .46875
Second quarter .......................... 27 3/8 25 15/16 25 15/16 .46875
Third quarter ........................... 26 3/8 25 25 1/8 .46875
Fourth quarter .......................... 25 1/2 22 25 .46875
1998
First quarter ........................... 27 5/8 26 1/2 26 3/4 .46875
Second quarter .......................... 27 7/16 26 5/8 27 1/16 .46875
Third quarter ........................... 27 26 1/2 26 1/2 .46875
Fourth quarter .......................... 26 1/4 24 25/32 26 .46875
SERIES B
1999
First quarter ........................... 25 5/8 24 3/4 25 .34380
Second quarter .......................... 25 5/8 25 25 3/16 .34680
Third quarter ........................... 25 1/4 24 7/8 24 7/8 .37560
Fourth quarter .......................... 25 3/4 23 9/16 24 1/2 .37590
1998
First quarter ........................... 26 1/16 25 3/16 25 7/8 .36600
Second quarter .......................... 26 1/8 25 3/8 26 1/8 .36540
Third quarter ........................... 26 7/16 25 5/8 25 5/8 .34900
Fourth quarter .......................... 25 1/2 25 25 .34380
- ----------------------------------------------------------------------------------------------------------------------
The Corporation has two series of preferred stock issued and outstanding, both
with a $25 stated value per share. Each series of preferred stock is traded on
the New York Stock Exchange, the Series A Preferred Stock under the symbol
"KRBpfa" and the Series B Preferred Stock under the symbol "KRBpfb."
On January 10, 2000, the Corporation's Board of Directors declared a quarterly
dividend of $.46875 per share on the 71/2% Cumulative Preferred Stock, Series A,
and a quarterly dividend of $.3997 per share on the Adjustable Rate Cumulative
Preferred Stock, Series B. Both dividends are payable April 15, 2000, to
stockholders of record as of March 31, 2000.
73
86
COMMON STOCK PRICE RANGE AND DIVIDENDS
- --------------------------------------------------------------------------------
(unaudited)
- ----------------------------------------------------------------------------------------------------------------------
COMMON STOCK PRICE RANGE AND DIVIDENDS
DIVIDENDS
DECLARED PER
HIGH LOW CLOSE COMMON SHARE
1999
- ----------------------------------------------------------------------------------------------------------------------
First quarter ............................... $ 27 15/16 $ 22 3/16 $ 23 7/8 $ .07
Second quarter .............................. 30 3/4 22 1/2 30 5/8 .07
Third quarter ............................... 32 1/2 22 13/16 22 13/16 .07
Fourth quarter .............................. 29 1/8 20 15/16 27 1/4 .07
1998
First quarter ............................... 25 17 3/16 23 7/8 .06
Second quarter .............................. 25 5/16 20 5/16 22 1/16 .06
Third quarter ............................... 25 1/16 15 11/16 19 1/16 .06
Fourth quarter .............................. 25 3/8 13 3/4 24 13/16 .06
- ----------------------------------------------------------------------------------------------------------------------
The Corporation's Common Stock is traded on the New York Stock Exchange under
the symbol "KRB" and is listed as "MBNA" in newspapers. At January 27, 2000, the
Corporation had 3,079 common stockholders of record. This does not include
beneficial owners for whom Cede & Co. or others act as nominees.
On January 10, 2000, the Corporation's Board of Directors declared a dividend of
$.08 per common share payable April 1, 2000, to stockholders of record as of
March 16, 2000.
74
87
SENIOR EXECUTIVES (alphabetically)
- --------------------------------------------------------------------------------
CHARLES M. CAWLEY, 59, is president of MBNA Corporation and chief executive
officer of its banking subsidiary, MBNA America Bank, N.A. Mr. Cawley has more
than 36 years' management experience in the financial services industry and was
the senior member of the group that established MBNA in 1982. A graduate of
Georgetown University and a member of its board of directors, Mr. Cawley also
serves on the boards of the Eisenhower Exchange Fellowships, the American
Architectural Foundation, the Marine Corps Law Enforcement Foundation, America's
Promise, and the Owl's Head Transportation Museum. He is chairman of the board
of The Grand Opera House in Wilmington, Delaware, and is on the executive
committee of the boards of the Farnsworth Art Museum and the University of
Delaware. Mr. Cawley is also a member of the board of trustees of St. Benedict's
Preparatory School.
JOHN R. COCHRAN III, 48, is chief marketing officer and oversees all business
development and marketing activities, including sales, marketing, advertising,
regional marketing, telemarketing, and group administration. He is also
responsible for Customer satisfaction, community relations, and external
affairs. Mr. Cochran has 27 years' management experience in the financial
services industry and was a member of the group that established MBNA in 1982. A
graduate of Loyola College (Maryland), Mr. Cochran developed the endorsed
marketing concept that has led to MBNA signing thousands of membership groups
and financial institutions. He also established what is now one of the nation's
largest financial institution telephone sales operations. Mr. Cochran is vice
chairman of the board of trustees of Loyola College and is a member of the board
of visitors of the Delaware Council for Economic Education, and the Delaware
Public Policy Institute.
BRUCE L. HAMMONDS, 51, is chief operating officer and oversees MBNA's credit,
Customer assistance, consumer finance, control, and information services. He is
also responsible for MBNA Europe, MBNA Canada, and MBNA Consumer Services. Mr.
Hammonds has 30 years' management experience in consumer lending and was a
member of the group that established MBNA in 1982. A graduate of the University
of Baltimore, Mr. Hammonds is director of the Delaware State Chamber of
Commerce, the Delaware Housing Partnership, and the Delaware Business
Roundtable. He is on the Board of Trustees of Goldey-Beacom College and is a
member of the College of Business and Economics Visiting Committee at the
University of Delaware.
M. SCOT KAUFMAN, 50, is chief financial officer and oversees MBNA's accounting,
finance, and treasury activities. Mr. Kaufman is also responsible for
administrative services and personnel. Mr. Kaufman joined MBNA in 1985 and has
29 years' experience in the financial services industry. A graduate of the
University of Baltimore with an M.B.A. in finance, Mr. Kaufman has held senior
management positions overseeing a variety of areas within MBNA and supervised
the financial aspects of MBNA's transition to a public company in 1991. Mr.
Kaufman began his career as an internal auditor, later becoming the corporate
auditor, treasurer, and controller. Mr. Kaufman is active in many professional
associations, including the American Institute of CPAs, the Financial Executive
Institute, and the National Association of Accountants. He is also a member of
the Delaware Economic and Financial Advisory Council.
ALFRED LERNER, 66, is chief executive officer of MBNA Corporation and chairman
of its Board of Directors. Mr. Lerner has more than 17 years' management
experience in banking and finance and has served as chairman and chief executive
officer of MBNA Corporation since its initial public offering in 1991. He has
been chairman of the Town and Country Trust since 1993 and was chief executive
officer from 1993 to 1997. He has been chairman and owner of the Cleveland
Browns since October 1998. A graduate of Columbia University and vice chairman
of its board of trustees, Mr. Lerner also is president of the Cleveland Clinic
Foundation and a member of its board of trustees. He is also a trustee of New
York Presbyterian Hospital and Case Western Reserve University, and a member of
the Board of Directors of the Marine Corps Law Enforcement Foundation.
RICHARD K. STRUTHERS, 44, a senior vice chairman, oversees MBNA's international,
insurance, deposit, travel, business card, and portfolio acquisition activities.
Mr. Struthers has 22 years' management experience in consumer lending and was a
member of the group that established MBNA in 1982. He began his financial
services career in 1977 as a manager for a national bank's consumer banking and
credit card division. A graduate of Penn State University and the Retail School
at the University of Virginia, Mr. Struthers has held senior management
positions overseeing most of the major operating divisions of MBNA. He is a
member of the board of directors of Emmaus House and is a member of the board
of visitors of the Penn State Business School.
LANCE L. WEAVER, 45, a senior vice chairman, oversees corporate affairs, law,
industry relations, investor relations, communications, real estate, and the
MBNA Foundation. Mr. Weaver joined MBNA in 1991 and has 25 years' experience in
consumer lending and administration. A graduate of Georgetown University, Mr.
Weaver has had previous experience at two national banks as a vice president
and senior vice president of mortgage lending activities. He is a member of the
United Way of Delaware's Executive Committee and the Georgetown University Board
of Regents. Mr. Weaver serves on the board of Tower Hill School and is vice
chairman of the Business--Public Education Council in Delaware. He also serves
on MasterCard International's Global Board, the Grand Opera House's Executive
Committee, and is a member of the Board of Directors of Christiana Care
Corporation.
75
88
MBNA CORPORATION
BOARD OF DIRECTORS
--------------------
ALFRED LERNER
Chairman and
Chief Executive Officer
MBNA Corporation
CHARLES M. CAWLEY
President
MBNA Corporation
Chief Executive Officer
MBNA America Bank, N.A.
JAMES H. BERICK, ESQ.
Partner Squire, Sanders & Dempsey L.L.P.
Former Chairman Berick, Pearlman & Mills Co., L.P.A.
BENJAMIN R. CIVILETTI, ESQ.
Chairman
Venable, Baetjer and Howard, LLP
Former Attorney General
of the United States
RANDOLPH D. LERNER, ESQ.
Partner
Securities Advisors, L.P.
STUART L. MARKOWITZ, M.D.
Internist and Managing Partner
Drs. Markowitz, Rosenberg,
Stein & Associates
Clinical Professor
Case Western Reserve University,
College of Medicine
MICHAEL ROSENTHAL, PH.D.
Professor
Columbia University
Former Associate Dean
for Academic Administration
Columbia College
MBNA AMERICA BANK, N.A.
OFFICERS
- --------------------------------------------------------------------------------
EXECUTIVE COMMITTEE
- --------------------------------------------------------------------------------
Gregg Bacchieri
Kenneth F. Boehl
Jules J. Bonavolonta
Charles M. Cawley
John R. Cochran III
William H. Daiger, Jr.
Ronald W. Davies
Shane G. Flynn
Bruce L. Hammonds
M. Scot Kaufman
Charles C. Krulak
Alfred Lerner ex officio
Michael G. Rhodes
John W. Scheflen
Michelle D. Shepherd
David W. Spartin
Richard K. Struthers
Lance L. Weaver
Vernon H.C. Wright
MANAGEMENT COMMITTEE
- --------------------------------------------------------------------------------
Steve Boyden
Jae W. Chung
Robert V. Ciarrocki
Brian D. Dalphon
Douglas R. Denton
Robert J.A. Fraser
Janine D. Marrone
Frank B. McEntee
William P. Morrison
Terri C. Murphy
Patrick J. O'Dwyer
Francis H. Otenasek
Kevin C. Schindler
Diane C. Sievering
April M. Stercula
Kenneth A. Vecchione
Kevin P. Wren
Thomas D. Wren
Terrance R. Flynn
John J. Hewes
OPERATING EXECUTIVES
- --------------------------------------------------------------------------------
Frank Andrews
Sunil F. Antani
Ann L. Balthis
Lisa F. Baughman
Randall J. Black
Elizabeth A. Cahill
John P. Carey
James E. Carrington
Hugh L. Chater
William T. Christie
Michael H. Copley
John A. Corrozi
Richard M. Croswell
Joseph R. Crouse
Patrick Crowfoot
Thomas L. Cuccia
Douglas M. Cummings
Salvatore A. DeAngelo
Joseph A. DePaulo
Joseph A. DeSantis
Robert V. DeSantis
Peter S.P. Dimsey
Theodore Dixon
Michael E. Durroh
K. David Elgena
Gloria G. Eppig
James H. Erskine III
William J. Esposito
William M. Fore
Lee M. Friedman
John M. Gala
Joseph J. Gatti
Peter J. Gatti
Brian F. Gimlett
Helen F. Graham
Mark Green
J. Patrick Gugerty
Bob B. Hallmark
Chairman Emeritus
Hallmark Information
Services
Richard A. Hardin, Sr.
Vaughn C. Hardin
David L. Harris
Douglas O. Hart
Robert J. Hayman
James E. Healy
Elizabeth Hershey-Ross
David M. Hirt
Anne T. Hogan
Thomas W. Horne
Richard G. Huber
Scott A. Hudson
Joseph F. Jaret
James K. Kallstrom
David B. Kedash
Michael D. Keeports
David L. Kot
Kevin L. Kramer
Thomas G. Lackey
Elizabeth B. Lee
Mark Levitt
Craig S. Lewis
Timothy E. Love
Philip Manning
Victor P. Manning
Edward J. Matthews
David H. Maxwell
Kathleen B. McEntee
Frank J. McKelvey III
Charles K. Messick
Charles H. Moloney
Susan D. Morrison
Paul Muller III
Edward H. Murphy
Peter Murray
Al Natali
Matthew H. Neels
Maureen M. O'Brien
Ian O'Doherty
Kenneth R. Pizer
Edward G. Plummer
Gerald P. Plush
Jerald M. Pollard
John C. Richmond
Karen E. Rose
Salvatore J. Rossi, Jr.
James J. Roszkowski
Robin D. Russell
W. Craig Schroeder
Michael S. Schuck
Richard E. Seta
Stephen K. Shock
Maureen Sierocinski
David L. Simms
Richard B. Skinner, Jr.
Brett H. Smith
Timothy P. Staley
Penelope J. Taylor
Thomas G. Thomaides
James D. Thornton
Tracey L. Tibbs
Thomas D. Veale
William W. Wagner
Steven P. Walczak
Howard C. Wallace
Todd T. Weaver
Charles F. Wheatley
Robert J. Wolf
76
89
SUBSIDIARIES OF MBNA CORPORATION
- --------------------------------------------------------------------------------
MBNA AMERICA BANK, N.A.
The principal subsidiary of MBNA Corporation, MBNA America, a national bank with
$72.0 billion in managed loans, is the largest independent credit card lender in
the world. It also provides retail deposit, consumer loan, and insurance
products. MBNA America is the recognized industry leader in affinity marketing,
with endorsements from thousands of membership organizations and financial
institutions.
SUBSIDIARIES OF MBNA AMERICA BANK, N.A.
- --------------------------------------------------------------------------------
MBNA INTERNATIONAL BANK LIMITED (MBNA EUROPE)
MBNA issues credit cards in the United Kingdom and the Republic of Ireland. MBNA
Europe is headquartered in Chester, England, with a business development office
in London and sales offices in Dublin, Ireland, and Edinburgh, Scotland.
MBNA CANADA BANK (MBNA CANADA)
MBNA issues credit cards in Canada. MBNA Canada began marketing in early 1998
and is headquartered in Ottawa, Ontario, with a business development office in
Montreal, Quebec.
MBNA INSURANCE SERVICES
MBNA Insurance Services markets and services credit-related Life and Disability,
personal Property & Casualty, and Life & Health insurance.
MBNA MARKETING SYSTEMS, INC.
MBNA has state-of-the-art telephone sales facilities to support account
acquisition and maintains offices in Delaware, Florida, Maine, Maryland, New
Hampshire, Ohio, Pennsylvania, and Texas. In addition to credit cards, MBNA
Marketing Systems cross-sells consumer loan, deposit, and insurance products.
MBNA CONSUMER SERVICES, INC.
(subsidiary of MBNA Corporation)
MBNA Consumer Services, Inc., is licensed to provide home equity loans in 42
states and the District of Columbia.
MBNA HALLMARK INFORMATION SERVICES, INC.
MBNA Hallmark Information Services, Inc., headquartered in Dallas, Texas,
provides information technology support and services to MBNA America Bank, N.A.,
and its affiliates.
INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
Ernst & Young LLP
CORPORATE REGISTRARS AND TRANSFER AGENTS
- --------------------------------------------------------------------------------
National City Bank (common stock)
The Bank of New York (preferred stock)
PRINCIPAL FINANCIAL CONTACT
- --------------------------------------------------------------------------------
For further information about MBNA Corporation or its subsidiaries, please
contact:
David W. Spartin Steve Boyden
Vice Chairman Director, Investor Relations
MBNA Corporation MBNA Corporation
Wilmington, DE 19884-0141 Wilmington, DE 19884-0131
(800) 362-6255 (800) 362-6255
(302) 456-8588 (302) 432-1480
Internet address: www.mbna.com
COMMON STOCK
- --------------------------------------------------------------------------------
Listed on New York Stock Exchange
Stock Symbol KRB
[RECYCLE PAPER LOGO] This annual report was printed on paper recycled from
MBNA offices.
90
[MBNA CORPORATION LOGO]
- --------------------------------------------------------------------------------
[PHOTO] automobile
ATTENTION TO DETAIL
DRIVES EVERYTHING WE DO.
- --------------------------------------------------------------------------------
SUCCESS IS NEVER FINAL.