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(picture)




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(PICTURE)(PICTURE)




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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.
Introduced during the summer of 1986,
the precepts are displayed throughout
the company, and each person has a
copy. These words have been reviewed
every year since they were written,
and not one word has ever been
changed. (In 2000, a new precept was
added.) These precepts are simple and
straightforward, and we mean every
single one.
 CONTENTS 2
    
    2003 Financial Highlights3
    
    Letter to Stockholders4
    
    Who We Are6
    
    How We Market8
    
    How We Lend9
    
    How We Keep Customers10
    
    Funding11
    
    Financials104
    
    MBNA Corporation Board of Directors,MBNA Principal Officers,MBNA Office Locations
 PICTURE




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2


(picture)

2003
FINANCIAL HIGHLIGHTS

Year Ended December 31,
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000
    
    
    1999(dollars in thousands, except per share amounts)Per Common Share Data (a)Earnings
    
    $
    1.82
    
    
    $
    1.37
    
    
    $
    1.31
    
    
    $
    1.05
    
    
    $
    .84Earningsassuming dilution
    
    
    1.79
    
    
    
    1.34
    
    
    
    1.28
    
    
    
    1.02
    
    
    
    .80Dividends (b)
    
    
    .36
    
    
    
    .27
    
    
    
    .24
    
    
    
    .21
    
    
    
    .19Book value
    
    
    8.53
    
    
    
    6.96
    
    
    
    5.94
    
    
    
    5.02
    
    
    
    3.31RatiosReturn on average total assets
    
    
    4.16
    %
    
    
    3.67
    %
    
    
    4.16
    %
    
    
    3.94
    %
    
    
    3.62
    %Return on average stockholders
equity
    
    
    22.98
    
    
    
    21.29
    
    
    
    24.07
    
    
    
    25.79
    
    
    
    27.18Stockholders equity to total assets
    
    
    18.80
    
    
    
    17.22
    
    
    
    17.16
    
    
    
    17.13
    
    
    
    13.61Sales and cash advance volume
    
    $
    184,293,873
    
    
    $
    160,046,164
    
    
    $
    142,261,636
    
    
    $
    125,683,731
    
    
    $
    105,806,935Financial Statement DataNet interest income (c)
    
    $
    2,350,373
    
    
    $
    2,074,575
    
    
    $
    1,657,340
    
    
    $
    1,395,015
    
    
    $
    1,175,759Other operating income (c)
    
    
    7,825,480
    
    
    
    6,752,923
    
    
    
    6,673,316
    
    
    
    4,920,403
    
    
    
    4,193,527Net Income(a)
    
    
    2,338,104
    
    
    
    1,765,954
    
    
    
    1,694,291
    
    
    
    1,312,532
    
    
    
    1,024,423Deposits
    
    
    31,836,081
    
    
    
    30,616,216
    
    
    
    27,094,745
    
    
    
    24,343,595
    
    
    
    18,714,753Stockholders equity
    
    
    11,113,040
    
    
    
    9,101,319
    
    
    
    7,798,718
    
    
    
    6,627,278
    
    
    
    4,199,443Managed DataTotal managed loans
    
    $
    118,493,560
    
    
    $
    107,257,842
    
    
    $
    97,496,051
    
    
    $
    88,790,721
    
    
    $
    72,255,513




|(a) |  | For full year 2002, net income excluding the change in the estimated value
of accrued interest and fees in September 2002 would have been $1.93 billion or
$1.47 per common shareassuming dilution.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(b) |  | On January 22, 2004, the Board of Directors approved an increase of 20%
in the quarterly dividend to $.12 per common share.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------



|(c) |  | For purposes of
comparability, certain prior period amounts have been reclassified. These
reclassifications did not affect net income.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------

This annual report includes managed data. A reconciliation of the managed data
to the most directly comparable GAAP data is included in the Managements
Discussion and Analysis of Financial Condition and Results of Operations
section of the annual report.



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(BAR CHART)



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3




DEAR
STOCKHOLDERS On behalf of all the people of MBNA, we
are pleased to report another year of
solid financial performance. For the 13th consecutive year, we have
recorded increases in both our earnings and
our quarterly dividends. Net income for 2003
increased to $2.34 billion, or $1.79 per
common share, and the quarterly dividend rate
rose 20% to $.12 per common share. Everything that happens at MBNA is the
direct result of the commitment and
dedication of the people who work here.
We are very proud of the people of MBNA
and what they have accomplished over a
long period of time.


(picture)


Several notable achievements helped drive our performance in 2003:



| |  | Growing managed loans $11.2 billion to $118.5 billion.
|- |  | ------------------------------------------------------



| |  | The acquisition of 10.7 million new accounts with characteristics that
are consistent with our existing cardholders.
|- |  | --------------------------------------------------------------------------------------------------------------------



| |  | The signing of 384 new endorsements and the renewal of more than 1,400
group contractsremaining the leader in affinity marketing.
|- |  | ----------------------------------------------------------------------------------------------------------------------------------



| |  | Controlling loan losses at 5.22%lower than published industry levels.
|- |  | ----------------------------------------------------------------------

MBNA is an international financial services company providing lending,
insurance, and deposit account products and services. Our core business is to
provide credit card services to affinity groups, financial institutions, and
consumers. We provide a service that enables people to have the things they
need today while paying for them sensibly out of future income. It is a good
business and an enduring one. It is a business that if done right, can produce
consistent profitabilitysomething we have been able to do for 22 years through
varying economic cycles.

We continue to strengthen the company through investments in new products and
services. Our marketing franchise consists of more than 5,000 organizations
that endorse our products throughout the United States, the United Kingdom,
Ireland, Canada, and Spainand these organizations will help ensure a
continuing supply of new Customers.

On December 30, 2003, Charlie Cawley, MBNAs CEO, retired after more than 31
years with MBNA and its former parent company. We thank him for his leadership,
vision, and determination, and for his contributions to MBNAs success and
growth.

This years annual report discusses the factors that shaped 2003 results. It
also explores MBNAs approach to its businessthe mix of beliefs, practices,
and commitments that define us. We believe it is a solid formula for success.

Sincerely,

(signatures)



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4


(picture)



WHO WE ARE (picture) MBNA Corporation is an
international financial
services company that
provides lending, insurance,
and deposit account products
and services through MBNA
America Bank, N.A., in the United States;
MBNA Europe Bank Limited in the United
Kingdom, Ireland, and Spain; and MBNA
Canada Bank in Canada. Our core business
is lending through credit cards to
consumers. (picture) The credit card business is
a good business for a
number of reasons. Credit
cards free people from the
need to carry cash and let
them have the things they
need today and pay for them
out of future income. It is
a business that has
universal demand. Demand
for our product cuts across
industry, geography, and
Customer type. Literally
tens of millions of
potential additional
Customers already could
qualify for our cards in
the countries in which we
operate, and economic
growth and development
bring millions more into
the market every year. That
leaves plenty of
opportunities to add new
accounts and grow our
business. It is a business with no industry,
geographic, or Customer concentrations. Our
loans are spread across the five countries
where we do business with more than 30
million active borrowers whose average
account balance is $3,800so credit card
lending produces relatively low-risk
assets. It is a business that is reliably
profitable. Done right, the credit card
business is a business that can be
managed and priced to achieve consistent profitabilitysomething
MBNA has been able to do since 1982.


(picture) (picture) MBNA has been successful
by carefully differentiating the
company from its
competitors through our
excellence in marketing,
lending, and providing
service to our Customers.
We predominately market
our products through
affinity marketingselling
to people with a common
interest. (picture) MBNAs preeminence in the
affinity credit card market
can be traced to our
ability to do many things.
We understand the
importance of partnering
with organizations that
people care about. We
provide products that
enable consumers to express
their pride, passion, and
interests and be rewarded
for it. In addition, we
provide our affinity
partners with the ability
to strengthen their
relationship with their
members. Our approach to affinity marketing is based
on a simple yet demanding formula: use our
understanding of people who share common
interests to craft the best products,
marketing programs, and lending strategies,
and then provide Customers




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5
 (picture)  MBNA Europe with truly
superior service and attention. Our
expertise has enabled us to develop
successful partnerships with more than
5,000 endorsing organizations. Our approach also has enabled us to
successfully expand internationally. Just
five years ago, our international
operations represented just 8% of our
managed loan portfolio. In 2003, the
figure grew to 18%. (picture) In 1993, MBNA entered its
first international market
in the United Kingdom, and
since then has become the
second largest credit card
lender in the United
Kingdom with $17.2 billion
in loans and a 15% market
share. MBNA Europe has
earned the endorsement of
more than 900 membership
organizations and
financial institutions,
including Thomas Cook,
Abbey, Law Society of
Ireland, Royal College of
Physicians of England,
Oxford University, the
WWF, Alliance & Leicester,
and Manchester United. In
2003, we added new
endorsements including the
British Heart Foundation,
National Geographic, and
Banco Cooperativo in
Spain, among many others.
 MBNA Canada (picture) Our experience in the
United Kingdom helped us
expand our international
business by opening a bank
in Canada in 1997. Since
then, MBNA Canada has
generated $3.6 billion in
loans and 2.5 million
accounts and gained a
market share of 9%. In
2003, we added 79 new
endorsements in Canada
including Sheridan
College, the Toronto Blue
Jays, and the Edmonton
Oilers. MBNAs international operations are an
important part of the companys future. We
have been successful in other countries
because we follow the same principles that
made us an industry leader in the United
States. Our $12 billion Consumer Finance
business includes installment and
revolving unsecured loan products.
Customers use these non-credit card
products to consolidate loans or for
large expenses such as home
improvements or college tuition.




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6


(picture)



HOW WE MARKET MBNAs business is the business of affinity. (picture) Affinity marketing seeks to
understand and identify people
sharing a special bond or
relationshippeople united by
some shared experience, common
pursuit, belief, or other
unifying considerationand to
market products that help
satisfy and promote that sense
of affinity and belonging. MBNA is the recognized leader in credit
card affinity marketing. Since we first
entered the business in 1982, we have
marketed our products and services through
more than 5,000 endorsing organizations,
serving the needs of more than 50 million
Customers. Our business sectors encompass an
exceptionally broad range of affinity
groups. Today, we enjoy endorsements
internationally from organizations
representing such groups as: (picture) Professionals including
physicians, dentists,
attorneys, educators,
military, and law
enforcement. Our Professional sector
has more than 1,400
professional organization
endorsements, including
the
Association of Trial Lawyers of America,
the American Medical Student Association,
and the American Institute of Architects.
The sector added more than 1 million new
accounts in 2003. Special interest groups. MBNA provides
credit cards for members of a variety
of clubs, associations, and other
organizations devoted to supporting
special causes. Endorsing environmental
groups, for example, include the Nature
Conservancy, Sierra Club, and National
Audubon Society.


Enthusiasts for virtually all major
sports, including baseball,
football, basketball, hockey, golf,
tennis, and motorsports.More than
700 sports-related organizations,
including the National Football
League, Major League Baseball,
NASCAR, and the PGA, endorse MBNA
products, and more than 7.8 million
people now carry MBNA cards featuring
their favorite team or race car
driver. College and university alumni and
loyalists.MBNA is the official credit card
of more than 800 colleges and universities.
Familiar names on our cards include Penn
State University, the University of
California at Los Angeles, the University
of North Carolina, and Stanford University. (picture)




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7
  More than 350 financial institutions. MBNA
products are sold to Customers of such
well-known names as Wachovia Bank,
SunTrust Bank, and PNC Bank. These
financial institution partnerships helped
generate 750,000 new accounts in 2003
through a network of more than 15,000 bank
branches. Alliances with nearly 100 prominent
businesses.Our alliances with other
companies allow us to reach out to
Customers of L.L. Bean, Cendant, Barnes &
Noble, Carlson Wagonlit Travel, and
Amtrak among others. In 2003, MBNA earned 384 new endorsements
from such high-quality organizations as
Merrill Lynch, eBay, Gander Mountain, the
American Institute of Chemical Engineers,
the California Teachers Association, and
Arizona State University. Affinity
marketing enabled us to acquire 10.7
million new accounts in 2003. The marketing
programs we used included a spectrum of
techniques and channels: Direct Mailis one of our most important
marketing tools. MBNAs in-house,
full-service advertising agency develops
thousands of customized mail campaigns for
our affinity groups. Keeping design and
production of these campaigns inside lets
marketing managers and advertising
professionals work together closely on a
continuing basis, helping generate the
creative and cost-effective programs that
have made direct mail the source of the
majority of our new accounts. Telesalescomplements our customized
direct mail campaigns. We operate one of
the largest financial services telesales
systems in the United States and Europe,
which allows us to customize each call to
appeal to the personal interest or group
affiliation of the individual Customer.
 (picture) Event Marketingextends our personal
approach to marketing to large events.
Each year, we attend more than 1,000
events, ranging from football games to
professional conventions, to offer our
products directly to members or fans of
our endorsing organizations. The Internetallows us to use the Web
sites of our endorsing organizations and
the e-mail addresses of their members to
market our products. Advertisingin the
publications and newsletters of many of
our groups also provides a targeted and
effective means of bringing our product
offering to more potential Customers. In addition to these familiar marketing
methods, our commitment to innovation has
led to the development of our newest
acquisition channelPoint-of-Sale
Marketing. This technique allows a
Customer to apply for a credit card in a
bank or retail store and receive an
instant loan decision for immediate
activation. Point-of-sale programs with
firms such as Bass Pro Shops, Gander
Mountain, and RadioShack have been
particularly successful.




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8
  HOW
WE LEND MBNAs unique marketing strategy and
diverse acquisition methods get the right
people to apply for our products.
Effective lending ensures that MBNA
chooses the right Customers. The right
Customer is someone who borrows from us
and pays us back responsibly. Our success
at approving the right Customer is the
result of a personal approach to lending.
Experienced credit analysts, using
sophisticated technology, highly
predictive scoring models, and good common
sense, approve most of the loans we make
at MBNA. Credit analysts look at many factors
before making a lending decision. They
analyze the applicants capacity to
repaymaking sure their income is
sufficient to handle their household debt.
They also look at the overall stability of
the individual, such as homeownership and
length of time on the job. And most
important, the credit analyst makes sure
the applicant has good repayment habits
with a history of paying bills on time. (chart)
 More than a third of all
teachers in the U.S. carry an MBNA credit card. (picture) A credit analyst may decide yes, no, or
maybe when making a lending decision.
When a credit analyst says maybe, he or
she calls the applicant to develop
additional information needed to change
the answer to yes or no. This additional
information is fundamental in making the
right lending decision and also ensures
that the Customer receives the proper
credit line. Marketing to people with strong common
interests and judgmental lending result in
getting Customers who perform well and are
very loyal. MBNA Customers have a 53%
higher balance per active account and are
25% less likely to default than industry
averages.




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9
  HOW
WE KEEP CUSTOMERS Getting the right Customers is just part of
producing consistent results. Keeping these
Customers is equally important to our
success now and in the future. We do this
by treating our Customers as we expect to
be treated. Every time a Customer
communicates with us presents another
opportunity to strengthen our relationship.
Each person who works at MBNA is
responsible for influencing how our
Customers feel about the company.
Maintaining high levels of Customer
satisfaction enables us to continue to
retain our most profitable Customers and
endorsing organizations every year. We make substantial investments in the
latest and best technology to enhance the
quality and efficiency of our Customer
satisfaction. Our Customer Satisfaction and
Loss Prevention Super Stations, for
example, provide MBNA representatives with
the tools and information they need to meet
Customer needs. We match that investment
with unremitting attention to how we do
things. Customer Satisfaction representatives
communicate directly with our Customers
every day. We receive nearly 100 million
Customer inquiries each year, and every
contact is an opportunity for MBNA to
exceed our Customers expectations and let
them know how important they are to us.
MBNA representatives are empowered to make
decisions
 and exercise individual judgment
to satisfy our Customersone at a time. We
continually monitor service standards
important to our Customers, such as average
speed of answer and initial call
resolution, to ensure that we maintain the
highest levels of Customer satisfaction. The single most important factor in our
success has always been the people of
MBNA. Today, MBNA is a company of 28,000
people driven to satisfy the Customer. (picture)




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10
 (picture)  FUNDING MBNA continues to expand and diversify its
funding sources and investor base to
support asset growth globally. Our funding
sources include asset-backed
securitizations, retail deposits, brokered
CDs, and senior and subordinated debt. MBNA continues to securitize loan
receivables as a major source of
funding. MBNA has been a leader in this
market since pioneering the practice of
securitizing credit card receivables in
1986. Asset securitization removes loan
receivables from the balance sheet
through a sale to a trust that is
independent of MBNA. The securities
issued by these trusts are primarily
AAA-rated securities sold to investors
on a global basis. Subordinated
asset-backed securities are also sold
to investors and typically not retained
by MBNA. Proceeds are used by MBNA to
fund its lending activities. The global credit card asset
securitization market continues to be a
vibrant, cost-effective source of funding.
The innovative design of these
securitizations, MBNAs reputation, and
the consistent performance of the
receivables have allowed the company to
price these transactions at favorable
rates compared to other issuers. MBNA
issues in multiple currencies and markets,
drawing investors from North America,
Europe, and Asia to participate in
transactions. MBNA maintained its status
as a top-tier issuer by completing 31
securitizations totaling $13.6 billion in
2003. Securitizations now total $84.9
billion. These transactions continue to be
well received by investors. We also have established a $32 billion deposit base,
mainly through the issuance of retail certificate of
 (picture) deposit and money market
accounts. More than 2,000 affinity groups endorse our deposit products for
their members, including the American Automobile Association, Military Officers
Association of America, and National Education Association. MBNAs retail
deposit products are marketed much like our other products: through the mail
and over the telephone. MBNA does not maintain a large retail branch network;
as a result, we can offer investors very competitive rates on deposit products. MBNAs unsecured debt programs are also
important components of our funding mix
and are attractive investments for
pension funds, investment advisors,
foreign and domestic banks, insurance
companies, and retail investors. They
allow MBNA to tap investors in domestic
and international markets. Current
outstandings under these programs are
$11.8 billion.




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(FINANCIALS TABLE OF CONTENTS)



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12


FIVE-YEAR STATISTICAL SUMMARY(dollars in thousands, except per share amounts)

Year Ended December 31,
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000
    
    
    1999Income Statement Data for the Year (a)Net interest income (b)
    
    $
    2,350,373
    
    
    $
    2,074,575
    
    
    $
    1,657,340
    
    
    $
    1,395,015
    
    
    $
    1,175,759Provision for possible credit losses
    
    
    1,392,701
    
    
    
    1,340,157
    
    
    
    1,140,615
    
    
    
    547,309
    
    
    
    636,614Other operating income (b)
    
    
    7,825,480
    
    
    
    6,752,923
    
    
    
    6,673,316
    
    
    
    4,920,403
    
    
    
    4,193,527Other operating expense
    
    
    5,124,147
    
    
    
    4,701,925
    
    
    
    4,474,831
    
    
    
    3,647,702
    
    
    
    3,077,708Net income
    
    
    2,338,104
    
    
    
    1,765,954
    
    
    
    1,694,291
    
    
    
    1,312,532
    
    
    
    1,024,423Per Common Share Data for the Year (a) (c)Earnings
    
    $
    1.82
    
    
    $
    1.37
    
    
    $
    1.31
    
    
    $
    1.05
    
    
    $
    .84Earningsassuming dilution
    
    
    1.79
    
    
    
    1.34
    
    
    
    1.28
    
    
    
    1.02
    
    
    
    .80Dividends
    
    
    .36
    
    
    
    .27
    
    
    
    .24
    
    
    
    .21
    
    
    
    .19Book value
    
    
    8.53
    
    
    
    6.96
    
    
    
    5.94
    
    
    
    5.02
    
    
    
    3.31Ratios (a)Net interest margin (d) (e)
    
    
    5.37
    %
    
    
    5.54
    %
    
    
    5.51
    %
    
    
    5.50
    %
    
    
    5.30
    %Return on average total assets
    
    
    4.16
    
    
    
    3.67
    
    
    
    4.16
    
    
    
    3.94
    
    
    
    3.62Return on average stockholders equity
    
    
    22.98
    
    
    
    21.29
    
    
    
    24.07
    
    
    
    25.79
    
    
    
    27.18Stockholders equity to total assets
    
    
    18.80
    
    
    
    17.22
    
    
    
    17.16
    
    
    
    17.13
    
    
    
    13.61Loan receivables (e) (f):Delinquency (g)
    
    
    3.84
    
    
    
    4.36
    
    
    
    4.67
    
    
    
    4.03
    
    
    
    4.01Net credit losses (h)
    
    
    4.84
    
    
    
    4.57
    
    
    
    4.20
    
    
    
    3.38
    
    
    
    3.65Sales and cash advance volume
    
    $
    184,293,873
    
    
    $
    160,046,164
    
    
    $
    142,261,636
    
    
    $
    125,683,731
    
    
    $
    105,806,935Managed Data (a) (i)At year end:Loans held for securitization
    
    $
    13,084,105
    
    
    $
    11,029,627
    
    
    $
    9,929,948
    
    
    $
    8,271,933
    
    
    $
    9,692,616Loan portfolio
    
    
    20,539,972
    
    
    
    17,696,881
    
    
    
    14,703,616
    
    
    
    11,682,904
    
    
    
    7,971,093Securitized loans
    
    
    84,869,483
    
    
    
    78,531,334
    
    
    
    72,862,487
    
    
    
    68,835,884
    
    
    
    54,591,804Total managed loans
    
    $
    118,493,560
    
    
    $
    107,257,842
    
    
    $
    97,496,051
    
    
    $
    88,790,721
    
    
    $
    72,255,513Average for the year:Loans held for securitization
    
    $
    9,198,810
    
    
    $
    8,130,207
    
    
    $
    6,909,840
    
    
    $
    8,129,333
    
    
    $
    4,071,394Loan portfolio
    
    
    18,985,008
    
    
    
    17,184,993
    
    
    
    13,429,548
    
    
    
    9,588,815
    
    
    
    10,351,101Securitized loans
    
    
    81,691,156
    
    
    
    74,718,731
    
    
    
    70,560,600
    
    
    
    59,726,838
    
    
    
    49,706,760Total managed loans
    
    $
    109,874,974
    
    
    $
    100,033,931
    
    
    $
    90,899,988
    
    
    $
    77,444,986
    
    
    $
    64,129,255For the year:Delinquency (e) (g)
    
    
    4.39
    %
    
    
    4.88
    %
    
    
    5.09
    %
    
    
    4.49
    %
    
    
    4.45
    %Net credit losses (e) (h)
    
    
    5.22
    
    
    
    4.99
    
    
    
    4.74
    
    
    
    4.39
    
    
    
    4.33Net interest margin (d) (e)
    
    
    8.39
    
    
    
    8.42
    
    
    
    8.42
    
    
    
    7.08
    
    
    
    7.42Net interest income
    
    $
    10,204,638
    
    
    $
    9,118,677
    
    
    $
    8,204,142
    
    
    $
    5,837,109
    
    
    $
    5,187,801Provision for possible credit losses
    
    
    5,768,170
    
    
    
    5,175,540
    
    
    
    4,592,629
    
    
    
    3,348,289
    
    
    
    2,885,149Other operating income
    
    
    4,346,684
    
    
    
    3,544,204
    
    
    
    3,578,528
    
    
    
    3,279,289
    
    
    
    2,430,020




|(a) |  | In September 2002, MBNA Corporation implemented the one-time industry wide
Federal Financial Institutions Examination Councils (FFIEC) accounting
guidance, and changed the estimated value of accrued interest and fees,
resulting in a decrease to income before income taxes of $263.7 million ($167.2
million after taxes) for the year ended December 31, 2002. Net income for the
year ended December 31, 2002 was $1.8 billion or $1.34 per common
shareassuming dilution. Excluding this change in September 2002, earnings per
common shareassuming dilution for the year ended December 31, 2002 would have
been $1.47, an increase of 15% compared with the year ended December 31, 2001.
Earnings per common shareassuming dilution for the year ended December 31,
2003 increased 34%, compared with the year ended December 31, 2002. Excluding
this change in September 2002, earnings per common shareassuming dilution for
the year ended December 31, 2003 would have increased 22%, compared with the
year ended December 31, 2002.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(b) |  | For purposes of comparability, certain prior period amounts have been
reclassified. These reclassifications did not affect net income.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   
|(c) |  | Per common share data and weighted average common shares outstanding and
common stock equivalents have been adjusted to reflect the three-for-two stock
split of MBNA Corporations Common Stock effected in the form of a dividend,
issued on July 15, 2002, to stockholders of record as of the close of business
on July 1, 2002. 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.                                                                                                                                                                                                                                                                                                                                                                  
|   
|(d) |  | Net interest margin ratios are presented on a fully taxable equivalent
basis.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   
|(e) |  | In December 2000, MBNA Corporation implemented the FFIEC revised policy on
the classification of consumer loans. Excluding the one-time FFIEC adjustment,
loan delinquency and managed loan delinquency would have been 4.32% and 4.94%,
respectively, at December 31, 2000, and loan receivable net credit losses,
managed net credit losses, managed net interest margin, and net interest margin
would have been 3.03%, 3.94%, 7.14%, and 5.54%, respectively, for the year
ended December 31, 2000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      



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##### 



FIVE-YEAR
STATISTICAL SUMMARY  Continued(dollars
in thousands) Year Ended December 31,
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000
    
    
    1999Balance Sheet Data at Year End (a)Investment securities and money market instruments (b)
    
    $
    9,581,715
    
    
    $
    9,423,620
    
    
    $
    6,517,052
    
    
    $
    5,205,395
    
    
    $
    4,546,132Loans held for securitization
    
    
    13,084,105
    
    
    
    11,029,627
    
    
    
    9,929,948
    
    
    
    8,271,933
    
    
    
    9,692,616Credit card loans
    
    
    11,910,507
    
    
    
    9,484,115
    
    
    
    8,261,575
    
    
    
    7,798,772
    
    
    
    6,060,564Other consumer loans
    
    
    8,629,465
    
    
    
    8,212,766
    
    
    
    6,442,041
    
    
    
    3,884,132
    
    
    
    1,910,529Total loan portfolio
    
    
    20,539,972
    
    
    
    17,696,881
    
    
    
    14,703,616
    
    
    
    11,682,904
    
    
    
    7,971,093Reserve for possible credit losses
    
    
    (1,216,316
    )
    
    
    (1,111,299
    )
    
    
    (833,423
    )
    
    
    (527,573
    )
    
    
    (516,261
    )Net loan portfolio
    
    
    19,323,656
    
    
    
    16,585,582
    
    
    
    13,870,193
    
    
    
    11,155,331
    
    
    
    7,454,832Total assets
    
    
    59,113,355
    
    
    
    52,856,746
    
    
    
    45,447,945
    
    
    
    38,678,096
    
    
    
    30,859,132Total deposits
    
    
    31,836,081
    
    
    
    30,616,216
    
    
    
    27,094,745
    
    
    
    24,343,595
    
    
    
    18,714,753Long-term debt and bank notes
    
    
    12,145,628
    
    
    
    9,538,173
    
    
    
    6,867,033
    
    
    
    5,735,635
    
    
    
    5,708,880Stockholders equity
    
    
    11,113,040
    
    
    
    9,101,319
    
    
    
    7,798,718
    
    
    
    6,627,278
    
    
    
    4,199,443Average Balance Sheet Data for the Year (a)Investment securities and money market instruments (b)
    
    $
    11,693,550
    
    
    $
    8,257,838
    
    
    $
    6,500,608
    
    
    $
    5,051,619
    
    
    $
    5,771,007Loans held for securitization
    
    
    9,198,810
    
    
    
    8,130,207
    
    
    
    6,909,840
    
    
    
    8,129,333
    
    
    
    4,071,394Credit card loans
    
    
    10,657,649
    
    
    
    9,672,043
    
    
    
    7,887,115
    
    
    
    6,784,742
    
    
    
    8,184,713Other consumer loans
    
    
    8,327,359
    
    
    
    7,512,950
    
    
    
    5,542,433
    
    
    
    2,804,073
    
    
    
    2,166,388Total loan portfolio
    
    
    18,985,008
    
    
    
    17,184,993
    
    
    
    13,429,548
    
    
    
    9,588,815
    
    
    
    10,351,101Reserve for possible credit losses
    
    
    (1,158,510
    )
    
    
    (941,780
    )
    
    
    (656,654
    )
    
    
    (549,033
    )
    
    
    (416,627
    )Net loan portfolio
    
    
    17,826,498
    
    
    
    16,243,213
    
    
    
    12,772,894
    
    
    
    9,039,782
    
    
    
    9,934,474Total assets
    
    
    56,232,903
    
    
    
    48,154,027
    
    
    
    40,764,316
    
    
    
    33,299,176
    
    
    
    28,310,222Total deposits
    
    
    31,880,540
    
    
    
    28,481,487
    
    
    
    25,147,782
    
    
    
    20,654,087
    
    
    
    16,901,334Long-term debt and bank notes
    
    
    10,557,593
    
    
    
    8,040,419
    
    
    
    6,309,446
    
    
    
    5,699,638
    
    
    
    5,974,276Stockholders equity
    
    
    10,172,778
    
    
    
    8,293,823
    
    
    
    7,039,986
    
    
    
    5,088,882
    
    
    
    3,769,539Weighted average common shares outstanding (000) (c)
    
    
    1,278,166
    
    
    
    1,277,787
    
    
    
    1,277,745
    
    
    
    1,230,827
    
    
    
    1,201,530Weighted average common shares outstanding and common
stock equivalents (000) (c)
    
    
    1,295,142
    
    
    
    1,302,712
    
    
    
    1,314,230
    
    
    
    1,269,803
    
    
    
    1,255,625
  (f)
    
    Loan receivables include loans held for securitization and the loan
portfolio.(g)
    
    Delinquency represents accruing loans that are 30 days or more past due.(h)
    
    MBNA Corporations net credit loss ratio is calculated by dividing
annualized net credit losses, which exclude uncollectible accrued interest and
fees and fraud losses, for the period by average loans, which include estimated
collectible billed interest and fees for the corresponding period.(i)
    
    MBNA Corporation allocates resources on a managed basis, and financial data
provided to management reflects MBNA Corporations results on a managed basis.
Managed data assumes MBNA Corporations securitized loan principal
receivables have not been sold and presents the earnings on securitized loan
principal receivables in the same fashion as MBNA Corporations owned loans.
Management, equity and debt analysts, rating agencies and others evaluate
MBNA Corporations operations on a managed basis because the loans that are
securitized are subject to underwriting standards comparable to MBNA
Corporations owned loans, and MBNA Corporation services the securitized and
owned loans, and the related accounts, together and in the same manner
without regard to ownership of the loans. In a securitization, the loan
principal receivables are sold to the trust, but the account relationships
are not sold. MBNA Corporation continues to own and service the accounts that
generate the securitized loan principal receivables. The credit performance
of the entire managed loan portfolio is important to understand the quality
of originations and the related credit risks inherent in the owned portfolio
and retained interests in its securitization transactions.Table 34 reconciles income statement data for the period to managed net
interest income, managed provision for possible credit losses, and managed
other operating income, and the loan receivables net credit loss ratio to the
managed net credit loss ratio, the loan receivables delinquency ratio to the
managed delinquency ratio, and the net interest margin ratio to the managed
net interest margin ratio. Managed other operating income includes the impact
of the net gain (loss) recognized on securitization activity in accordance
with Statement of Financial Accounting Standards No. 140, Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilitiesa Replacement of FASB Statement No. 125 (Statement No. 140).




---



##### 



14
 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
audited consolidated financial statements, notes, and tables included in this
report. For purposes of comparability, certain prior period amounts have been
reclassified. Page15
    
    Introduction and Overview16
    
    Critical Accounting Policies19
    
    Change in Accounting Estimate for Interestand Fees Recognized In 200219
    
    Earnings Summary21
    
    Net Interest Income25
    
    Investment Securities and Money Market Instruments26
    
    Other Interest-Earning Assets26
    
    Loan Receivables29
    
    Premises and Equipment30
    
    Accounts Receivable from Securitization30
    
    Prepaid Expenses and Deferred Charges30
    
    Other Assets30
    
    Interest-Bearing Deposits31
    
    Borrowed Funds31
    
    Noninterest-Bearing Deposits31
    
    Accrued Expenses and Other Liabilities32
    
    Accumulated Other Comprehensive Income32
    
    Total Other Operating Income36
    
    Total Other Operating Expense37
    
    Income Taxes37
    
    Loan Quality45
    
    Dividend Limitations46
    
    Capital Adequacy46
    
    Off-Balance Sheet Arrangements52
    
    Liquidity and Rate Sensitivity59
    
    Cross-Border Outstandings59
    
    Regulatory Matters60
    
    Managed Reconciliation of the Five-Year Statistical Summary




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##### 



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS  INTRODUCTION AND OVERVIEW 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 Europe Bank Limited (MBNA
Europe) located in the United Kingdom (U.K.)
and MBNA Canada Bank (MBNA Canada) located in
Canada. The Corporations primary business is
giving its Customers the ability to have what
they need today and pay for it out of future
income by lending money through credit card and
other consumer loans. Through the Bank, the
Corporation is the largest independent credit
card lender in the world and is the leading
issuer of credit cards through endorsed
marketing. In addition to its credit card
lending, the Corporation also makes other
consumer loans, which include installment and
revolving unsecured loan products, and offers
insurance and deposit products. The Corporation
is also the parent of MBNA America (Delaware),
N.A. (MBNA Delaware), a national bank, which
offers business card products, mortgage loans,
aircraft loans, and other specialty lending
products. Mortgage loans, aircraft loans, and
other specialty lending products are included
in other consumer loan receivables, and
business card products are included in credit
card loan receivables in the Corporations
audited consolidated statements of financial
condition. The Corporation seeks to manage its
business to achieve its net income and other
objectives. It does this primarily by
attempting to grow loans to generate related
interest and other operating income through
adding new accounts and stimulating usage of
existing accounts while controlling loan losses
and expense growth. The Corporation generates
income through finance charges assessed on
outstanding loan receivables, securitization
income, interchange income, credit card and
other consumer loan fees, insurance income,
interest earned on investment securities and
money market instruments and other
interest-earning assets. The Corporations
primary costs are the costs of funding and
growing its loan receivables, investment
securities, and other assets, which include
interest paid on deposits, short-term
borrowings and long-term debt and bank notes,
credit losses, business development and
operating expenses, royalties to endorsing
organizations, and income taxes. The Corporation obtains funds to make loans to
its Customers primarily through the process of
asset securitization, raising deposits, and the
issuance of short-term and long-term debt.
Asset securitization removes loan principal
receivables from the audited consolidated
statements of financial condition through the
sale of loan principal receivables to a trust.
The trust sells securities backed by those loan
principal receivables to investors. The trusts
 are independent of the Corporation, and the
Corporation has no control over the trusts. The
trusts are not subsidiaries of the Corporation
and are excluded from the Corporations audited
consolidated financial statements in accordance
with accounting principles generally accepted
in the United States (GAAP). The Corporation
allocates resources on a managed basis, and
financial data provided to management reflects
the Corporations results on a managed basis.
Managed data assumes the Corporations
securitized loan principal receivables have not
been sold and presents the earnings on
securitized loan principal receivables in the
same fashion as the Corporations owned loans.
Management, equity and debt analysts, rating
agencies and others evaluate the Corporations
operations on a managed basis because the loans
that are securitized are subject to
underwriting standards comparable to the
Corporations owned loans, and the Corporation
services the securitized and owned loans, and
the related accounts, together and in the same
manner without regard to ownership of the
loans. In a securitization, the loan principal
receivables are sold to the trust, but the
account relationships are not sold. The
Corporation continues to own and service the
accounts that generate the securitized loan
principal receivables. The credit performance
of the entire managed loan portfolio is
important to understand the quality of
originations and the related credit risks
inherent in the owned portfolio and retained
interests in securitization transactions. Asset
securitization has a significant effect on the
Corporations audited consolidated financial
statements. The impact is discussed under
Off-Balance Sheet ArrangementsImpact of
Off-Balance Sheet Securitization Transactions
on the Corporations Results. Securitization
income is the most significant revenue item and
is discussed under Total Other Operating
Income. Whenever managed data is included in
this report, a reconciliation of the managed
data to the most directly comparable financial
measure presented in accordance with GAAP is
provided. DURING 2003, THE CORPORATION:  
    
    Grew loan receivables by $4.9 billion to
$33.6 billion, and grew managed loans by $11.2
billion to $118.5 billion, through marketing
and portfolio acquisitions. The Corporations
international loan growth in the U.K., Canada,
Ireland, and Spain benefited in part from the
strengthening of foreign currencies against the
U.S. dollar, which increased foreign loan
receivables by $960.9 million in 2003.  
    
    Added 10.7 million new loan, deposit, and
insurance accounts, 384 new endorsements from
organizations, and renewed more than 1,400
group contracts. The Corporation is now
endorsed by more than 5,000 affinity groups and
financial institutions.




---



##### 



16
  
    
    Maintained a relatively stable net interest
margin by balancing the interest rates it
charges on its loan accounts against the
Corporations funding costs. The net interest
margin was 5.37% and 5.54% for the years ended
December 31, 2003 and 2002, respectively. The
managed net interest margin was 8.39% and 8.42%
for the years ended December 31, 2003 and 2002,
respectively.  
    
    Controlled loan losses at 4.84%
and losses on managed loans at 5.22%. Loan
quality was affected by general economic
conditions, such as levels of unemployment,
bankruptcy filings, and the continued seasoning
of the Corporations loan receivables and
managed loans.  
    
    Increased interchange income,
credit card fee income, and insurance income.  
    
    Continued to securitize loan principal
receivables as a source of funding, increasing
securitization income.  
    
    Controlled other operating expenses, which
increased at a slower rate than growth in
managed loans. These items, as well as other factors,
contributed to the increase in net income for
2003 to $2.3 billion, or $1.79 per common
shareassuming dilution and are discussed in
further detail throughout Managements
Discussion and Analysis of Financial Condition
and Results of Operations. 2004 In 2004, the Corporation will continue to focus
on loan and account growth and managing its net
interest margin, while attempting to control
expenses and credit losses and manage its
business to achieve its net income and other
objectives. Should interest rates increase in 2004, the
Corporations funding costs are likely to
increase, impacting the Corporations managed
net interest margin. The Corporation could then
determine to increase the interest rates it
charges on its loan accounts or change its
promotional or other interest rates on new
loans in marketing activation programs to
attempt to achieve a certain net interest
margin. Any increases in the rates it charges
on accounts could have an effect on the
Corporations efforts to attract new Customers
and grow managed loans, particularly with the
continuing competition in the credit card and
consumer lending industry. The Corporations
interest rate risk is further discussed under
Liquidity and Rate Sensitivity. In 2004, the Corporations results will continue to be
affected by the amount of credit losses. Credit
losses are influenced by a number of factors,
including the credit quality of the
Corporations loans, general economic
conditions, the level of consumer bankruptcies
and regulatory policies. The pace of the U.S.
economic recovery in 2004, and the levels of
consumer spending and consumer confidence will
be important factors that affect the
Corporations success controlling credit losses
and growing loans. In 2004, the Corporation
will continue to utilize strategies to control
other operating expenses. These expenses are
important for the Corporation to continue to
attract new accounts and grow
 loans. However,
the Corporation will continue to strive to be
more efficient and focus on controlling the
growth of these expenses so that they grow more
slowly than the growth in managed loans. For
2004, management will be focused on the above
challenges and opportunities and other factors
affecting the business similar to the factors
driving 2003 results as discussed in
Managements Discussion and Analysis of
Financial Condition and Results of Operations.
The risks to achieving the Corporations
financial objectives for 2004 are discussed in
the Important Factors Regarding
Forward-Looking Statements section of the
Corporations Annual Report on Form 10-K for
the year ended December 31, 2003. The
Corporation has filed as exhibits to its Form
10-K the certification of the Chief Executive
Officer and the certification of the Chief
Financial Officer under section 302 of the
Sarbanes-Oxley Act of 2002. CRITICAL ACCOUNTING POLICIES Management makes certain judgments and uses
certain estimates and assumptions when applying
accounting principles in the preparation of the
Corporations audited consolidated financial
statements. The nature of the estimates and
assumptions are material due to the levels of
subjectivity and judgment necessary to account
for highly uncertain factors or the
susceptibility of such factors to change.
Management has identified the policies related
to the accounting for asset securitization, the
reserve for possible credit losses, intangible
assets, and revenue recognition as critical
accounting policies, which require management
to make significant judgments, estimates and
assumptions. Management believes the current
assumptions and other considerations used to
estimate amounts reflected in the Corporations
audited consolidated financial statements are
appropriate. However, if actual experience
differs from the assumptions and other
considerations used in estimating amounts
reflected in the Corporations audited
consolidated financial statements, the
resulting changes could have a material adverse
effect on the Corporations consolidated
results of operations, and in certain
situations, could have a material adverse
effect on the Corporations financial
condition. The development and selection of the
critical accounting policies, and the related
disclosures have been reviewed with the Audit
Committee of the Corporations Board of
Directors. ASSET SECURITIZATION The Corporation uses securitization of its loan
principal receivables as one source to meet its
funding needs. The Corporation accounts for its
securitization transactions in accordance with
Statement of Financial Accounting Standards No.
140, Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of
Liabilitiesa Replacement of FASB Statement No.
125 (Statement No. 140), issued by the
Financial Accounting Standards Board (FASB).
When the Corporation securitizes loan




---



##### 



principal
receivables, the Corporation recognizes a gain
on sale and retained beneficial interests,
including an interest-only strip receivable.
The interest-only strip receivable represents
the contractual right to receive interest and
other revenue less certain costs from the trust
over the estimated life of the securitized loan
principal receivables. The Corporations
securitization trusts are qualified
special-purpose entities as defined by
Statement No. 140 that are specifically
exempted from the requirements of FASB
Interpretation No. 46, Consolidation of
Variable Interest Entities (Interpretation
No. 46). The Corporation estimates the fair value of the
interest-only strip receivable based on the
present value of expected future net revenue
flows. Since quoted market prices for the
interest-only strip receivable are not
available, management uses certain assumptions
and estimates in determining the fair value of
the interest-only strip receivable. These
assumptions and estimates include projections
concerning interest income, certain fees,
recoveries on charged-off securitized loans,
gross credit losses on securitized loans,
contractual servicing fees, and the interest
rate paid to investors in a securitization
transaction (excess spread). These
projections are used to estimate the excess
spread to be earned by the Corporation over the
estimated life of the securitized loan
principal receivables. The other assumptions
and estimates used by the Corporation in
estimating the fair value of the interest-only
strip receivable include projected loan payment
rates, which are used to determine the
estimated life of the securitized loan
principal receivables, and an appropriate
discount rate. The assumptions and estimates used to estimate
the fair value of the interest-only strip
receivable at December 31, 2003, reflect
managements judgment as to the expected excess
spread to be earned and projected loan payment
rates to be experienced on the securitized
loans. These estimates are likely to change in
the future, as the individual components of the
excess spread and projected loan payment rates
are sensitive to market and economic
conditions. For example, the rates paid to
investors in the Corporations securitization
transactions are primarily variable rates
subject to change based on changes in market
interest rates. Changes in market interest
rates and competitive pressures can also affect
the projected interest income on securitized
loans, as the Corporation could reprice the
managed loan portfolio. Credit loss projections
could change in the future based on changes in
the credit quality of the securitized loans,
the Corporations account management and
collection practices, and general economic
conditions. Projected loan payment rates could
fluctuate based on general economic conditions
and competition. Actual and expected changes in
these assumptions may result in future
estimates of the excess spread and projected
loan payment rates being materially different
from the estimates used in the periods covered
by this report. On a quarterly basis, the Corporation reviews
prior assumptions and estimates compared to
actual trust performance and other factors
based on the prior period that approximates the
average life of the securitized loan
receivables. The actual trust performance
 results and other factors are compared to the
estimates and assumptions used in the
determination of the fair value of the
interest-only strip receivable. Based on this
review and the Corporations current
assumptions and estimates for future periods,
the Corporation adjusts as appropriate, the
assumptions and estimates used in determining
the fair value of the interest-only strip
receivable. If the assumptions change, or
actual results differ from projected results,
the interest-only strip receivable and
securitization income would be affected. If
management had made different assumptions for
the periods covered by this report that raised
or lowered the excess spread or projected loan
payment rates, the Corporations financial
condition and results of operations could have
differed materially. For example, a 20% change
in the excess spread assumption for all
securitized loan principal receivables could
have resulted in a change of approximately $268
million in the value of the total interest-only
strip receivable at December 31, 2003, and a
related change in securitization income. Based on quarterly 2003 reviews of the interest-only
strip receivable, the actual performance of the
securitized receivables did not materially
differ from the assumptions and estimates used
to value the interest-only strip receivable. Note 8: Asset Securitization to the audited
consolidated financial statements provides
further detail regarding the Corporations
assumptions and estimates used in determining
the fair value of the interest-only strip
receivable and their sensitivities to adverse
changes. RESERVE FOR POSSIBLE CREDIT LOSSES The Corporation maintains the reserve for
possible credit losses at an amount sufficient
to absorb losses inherent in the Corporations
loan principal receivables at the reporting
date based on a projection of probable net
credit losses. To project probable net credit
losses, the Corporation regularly performs a
migration analysis of delinquent and current
accounts. A migration analysis is a technique
used to estimate the likelihood that a loan
receivable will progress through the various
delinquency stages and ultimately charge off.
On a quarterly basis, the Corporation reviews
and adjusts, as appropriate, these estimates.
The Corporations projection of probable net
credit losses considers the impact of economic
conditions on the borrowers ability to repay,
past collection experience, the risk
characteristics and composition of the
portfolio, and other factors. The Corporation
then reserves for the projected probable net
credit losses based on its projection of these
amounts. The Corporation establishes
appropriate levels of the reserve for possible
credit losses for its products, including
domestic credit card, domestic other consumer
and foreign loans, based on their risk
characteristics. A provision is charged against
earnings to maintain the reserve for possible
credit losses at an appropriate level. The
Corporation records acquired reserves for
current period loan acquisitions. The Corporations projections of probable net
credit losses are inherently uncertain, and as
a result the Corporation cannot predict with
certainty the amount of such losses. Changes in




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##### 



18
  economic conditions, the risk characteristics
and composition of the portfolio, bankruptcy
laws or regulatory policies, and other factors
could impact the Corporations actual and
projected net credit losses and the related
reserve for possible credit losses. If
management had made different assumptions about
probable net credit losses, the Corporations
financial condition and results of operations
could have differed materially. For example, a
10% change in managements projection of
probable net credit losses could have resulted
in a change of approximately $122 million in
the reserve for possible credit losses and a
related change in the provision for possible
credit losses at December 31, 2003. Based on
the 2003 review of the reserve for possible
credit losses, the actual net credit losses did
not materially differ from the projections of
net credit losses used to establish the reserve
for possible credit losses. Note 10: Reserve for Possible Credit Losses to
the audited consolidated financial statements
provides further detail regarding the
Corporations reserve for possible credit
losses. INTANGIBLE ASSETS The Corporations intangible assets include
purchased credit card relationships (PCCRs),
which are carried at net book value. The
Corporation records these intangible assets as
part of the acquisition of credit card loans
and the corresponding Customer relationships.
The Corporations intangible assets are
amortized over the period the assets are
expected to contribute to the cash flows of the
Corporation, which reflect the expected pattern
of benefit. PCCRs are amortized using an
accelerated method based upon the projected
cash flows the Corporation will receive from
the Customer relationships during the estimated
useful lives of the PCCRs. The Corporations PCCRs are subject to
impairment tests in accordance with Statement
of Financial Accounting Standards No. 144,
Accounting for the Impairment or Disposal of
Long-Lived Assets (Statement No. 144). The
Corporation reviews the carrying value of its
PCCRs for impairment on a quarterly basis, or
sooner, whenever events or changes in
circumstances indicate that their carrying
amount may not be fully recoverable, by
comparing their carrying value to the sum of
the undiscounted expected future cash flows
from the loans and corresponding credit card
relationships. In accordance with Statement No.
144, an impairment exists if the sum of the
undiscounted expected future cash flows is less
than the carrying amount of the asset. An
impairment would result in a write-down of the
PCCRs to estimated fair value based on the
discounted future cash flows expected from the
PCCRs. The Corporation performs the impairment
test on a specific portfolio basis, since it
represents the lowest level for which
identifiable cash flows are independent of the
cash flows of other assets and liabilities. The
Corporation makes certain estimates and
assumptions that affect the determination of
the expected future cash flows from the loans
and corresponding credit card relationships.
These estimates and assumptions include levels
of account usage and activation,
 active account
attrition, funding costs, credit loss
experience, servicing costs, growth in average
account balances, interest and fees assessed on
loans, and other factors. Significant changes
in these estimates and assumptions could result
in an impairment of the PCCRs. The estimated
undiscounted cash flows of acquired Customer
credit card relationships exceeds the $3.1
billion net book value of the Corporations
PCCRs at December 31, 2003 by approximately
$3.8 billion. If the
active account attrition
rates for all acquired portfolios in the twelve
month period following December 31, 2003, were
to be 10 percentage points higher than the
rates assumed by management when it valued the
PCCRs (for example, the assumed attrition rates
were 10% but the actual rates were 20%) and all
other estimates and assumptions were held
constant, the estimated undiscounted cash flows
of acquired Customer accounts in the aggregate
would still exceed the net book value of
acquired Customer accounts by approximately
$2.6 billion, and no impairment would result on
any individual PCCR. There were no impairment
write-downs of intangible assets during the
year ended December 31, 2003. REVENUE RECOGNITION Interest income is recognized based upon the
amount of loans outstanding and their
contractual annual percentage rates. Interest
income is included in loan receivables when
billed to the Customer. The Corporation accrues
unbilled interest income on a monthly basis
from the Customers statement billing cycle
date to the end of the month. The Corporation
uses certain estimates and assumptions (for
example, estimated yield) in the determination
of the accrued unbilled portion of interest
income that is included in accrued income
receivable in the Corporations audited
consolidated statements of financial condition.
The Corporation also uses certain assumptions
and estimates in the valuation of the accrued
interest on securitized loans which is included
in accounts receivable from securitization in
the Corporations audited consolidated
statements of financial condition. If
management had made different assumptions about
the determination of the accrued unbilled
portion of interest income and the valuation of
accrued interest on securitized loans, the
Corporations financial condition and results
of operations could have differed materially.
For example, a 10% change in managements
projection of the estimated yield on its loan
receivables and the valuation of the accrued
interest receivable on securitized loans could
have resulted in a change totaling
approximately $70 million in interest income
and other operating income at December 31,
2003. For 2003, the Corporations estimated
yield on its loan receivables and the valuation
of the accrued interest receivable on
securitized loans did not materially differ
from the actual yield. The Corporation also
recognizes fees (except annual fees) on loan
receivables in earnings as the fees are
assessed according to agreements with the
Corporations Customers. Credit card and other
consumer loan fees include annual, late,
overlimit, returned check, cash advance,
express payment, and other miscellaneous




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##### 



fees.
These fees are included in the Corporations
loan receivables when billed. Annual fees on
loan receivables 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 adjusts
the amount of interest and fee income on loan
receivables recognized in the current period
for its estimate of interest and fee income
that it does not expect to collect in
subsequent periods through adjustments to the
respective income statement captions, loan
receivables, and accrued income receivable. The
estimate of uncollectible interest and fees is
based on a migration analysis of delinquent and
current loan receivables that will progress
through the various delinquency stages and will
ultimately charge off. The Corporation also
adjusts the estimated value of accrued interest
and fees on securitized loans for the amount of
uncollectible interest and fees that are not
expected to be collected through an adjustment
to accounts receivable from securitization and
securitization income. This estimate is also
based on a migration analysis of delinquent and
current securitized loans that will progress
through the various delinquency stages and
ultimately charge off. On a quarterly basis,
the Corporation reviews and adjusts, as
appropriate, these estimates. If management had made different assumptions
about uncollectible interest and fees on its
loan receivables and its securitized loans, the
Corporations financial condition and results
of operations could have differed. For example,
a 10% change in managements estimate of
uncollectible interest and fees could have
resulted in a change totaling approximately $41
million in interest income and other operating
income at December 31, 2003. CHANGE IN ACCOUNTING ESTIMATE FOR INTEREST AND FEES RECOGNIZED IN 2002 In September 2002, the Corporation implemented
the Federal Financial Institutions Examination
Council (FFIEC) guidance for uncollectible
accrued interest and fees for its managed loan
portfolio. As a result, the Corporation changed
its estimate of the value of accrued interest
and fees in September 2002. The change in the
estimated value of accrued interest and fees
resulted in a decrease to income before income
taxes of $263.7 million ($167.2 million after
taxes) or $.13 per common shareassuming
dilution for the year ended December 31, 2002,
through a reduction of $66.3 million of
interest income and $197.4 million of other
operating income. This change in the estimated
value of accrued interest and fees in 2002 also
reduced ending total loan receivables by $86.5
million, accrued income receivable by $5.2
million, and accounts receivable from
securitization by $172.0 million. The
Corporations earnings per common share,
excluding the change in the estimated value of
accrued interest and fees in 2002, would have
been $1.50 for the year ended December 31,
2002, and earnings per common shareassuming
dilution would have been $1.47 for the year
ended December 31, 2002. The change in the
estimated value of accrued interest and fees
has not had a material effect on earnings in
subsequent periods.
 Throughout this report, various items in the
consolidated financial statements are discussed
excluding the change in the estimated value of (BAR CHART)
accrued interest and fees in 2002. Management
believes this presentation is useful to
investors because the change in accounting
estimate had a material impact on the results
of operations in 2002, but not in 2003. As a
result, the business factors and trends
affecting the Corporations results from 2002
to 2003 and from 2001 to 2002 in certain cases
are better discussed and analyzed without the
impact of the change in estimate. EARNINGS SUMMARY Net income for 2003
increased $572.2 million or
32.4% to $2.3 billion or
$1.79 per common share from
$1.8 billion or $1.34 per
common share in 2002.
Excluding the change in the
estimated value of accrued
interest and fees in 2002,
net income would have
increased $405.0 million or
20.9% for 2003. Net income
for 2002 increased $71.7
million or 4.2% from $1.7
billion or $1.28 per common
share in 2001. Excluding
the change in the estimated
value of accrued interest
and fees in 2002, net
income would have increased
$238.8 million or 14.1% to
$1.9 billion or $1.47 per
common share for 2002. All
earnings per common share
amounts are presented
assuming dilution. The overall growth in
earnings for 2003 was
primarily attributable to
the growth in the
Corporations loan
receivables, higher levels
of securitized loans, an
increase in other operating
income, interest income,
and a decrease in interest
expense, partially offset
by higher credit losses and
an increase in other
operating expense. The
overall growth in earnings
for 2002 was primarily
attributable to the growth
in the Corporations loan
receivables and higher
levels of securitized
loans, partially offset by
the change in the estimated
value of accrued interest
and fees in 2002 and higher
credit losses.




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##### 



20
 TABLE 1: SUMMARIZED CONSOLIDATED STATEMENTS OF INCOME(dollars in thousands, except per share amounts) Year Ended December 31,
    
    2003
    
    
    2002
    
    
    2001Total interest income
    
    $
    3,858,884
    
    
    $
    3,678,070
    
    
    $
    3,471,405Total interest expense
    
    
    1,508,511
    
    
    
    1,603,495
    
    
    
    1,814,065Net interest income
    
    
    2,350,373
    
    
    
    2,074,575
    
    
    
    1,657,340Provision for possible credit losses
    
    
    1,392,701
    
    
    
    1,340,157
    
    
    
    1,140,615Net interest income after provision for possible credit losses
    
    
    957,672
    
    
    
    734,418
    
    
    
    516,725Total other operating income
    
    
    7,825,480
    
    
    
    6,752,923
    
    
    
    6,673,316Total other operating expense
    
    
    5,124,147
    
    
    
    4,701,925
    
    
    
    4,474,831Income before income taxes
    
    
    3,659,005
    
    
    
    2,785,416
    
    
    
    2,715,210Applicable income taxes
    
    
    1,320,901
    
    
    
    1,019,462
    
    
    
    1,020,919Net income
    
    $
    2,338,104
    
    
    $
    1,765,954
    
    
    $
    1,694,291Earnings per common share
    
    $
    1.82
    
    
    $
    1.37
    
    
    $
    1.31Earnings per
common shareassuming dilution
    
    
    1.79
    
    
    
    1.34
    
    
    
    1.28Dividends per common share
    
    
    .36
    
    
    
    .27
    
    
    
    .24
  Table 1 summarizes the Corporations
consolidated statements of income, which has
been derived from the audited consolidated
financial statements, for the years ended
December 31, 2003, 2002, and 2001. Ending loan receivables increased $4.9 billion
or 17.0% to $33.6 billion for 2003 and
increased $4.1 billion or 16.6% to $28.7
billion for 2002 from $24.6 billion for 2001.
Total managed loans increased $11.2 billion or
10.5% to $118.5 billion for 2003 and increased
$9.8 billion or 10.0% to $107.3 billion for
2002, as compared to $97.5 billion for 2001.
Average loan receivables increased $2.9 billion
or 11.3% to $28.2 billion for 2003 and
increased $5.0 billion or 24.5% to $25.3
billion for 2002 from $20.3 billion for 2001.
Total average managed loans increased $9.8
billion or 9.8% to $109.9 billion for 2003 and
increased $9.1 billion or 10.0% to $100.0
billion for 2002 from $90.9 billion for 2001. Table 2 reconciles the Corporations loan
receivables to its managed loans and average
loan receivables to its average managed loans. Other operating income increased $1.1 billion
or 15.9% to $7.8 billion for 2003 and increased
$79.6 million or 1.2% to $6.8 billion for 2002
from $6.7 billion for 2001. Excluding the
change in the estimated value of accrued
interest and fees in 2002, other operating
income would have increased $875.2 million or
 12.6% for 2003 and $277.0 million or 4.2% for
2002. Interest income increased $180.8 million
or 4.9% to $3.9 billion for 2003 and increased
$206.7 million or 6.0% to $3.7 billion for 2002
from $3.5 billion for 2001. Excluding the
change in the estimated value of accrued
interest and fees in 2002, interest income
would have increased $114.5 million or 3.1% for
2003 and $272.9 million or 7.9% for 2002.
Interest expense decreased $95.0 million or
5.9% to $1.5 billion for 2003 and decreased
$210.6 million or 11.6% to $1.6 billion for
2002 from $1.8 billion for 2001. Other
operating expense increased $422.2 million or
9.0% to $5.1 billion for 2003, and increased
$227.1 million or 5.1% to $4.7 billion for 2002
from $4.5 billion for 2001. The net credit loss ratio on loan receivables
for 2003 was 4.84%, as compared to 4.57% in
2002, and 4.20% in 2001. The net credit loss
ratio on managed loans for 2003 was 5.22%, as
compared to 4.99% in 2002 and 4.74% in 2001.
Delinquency on loan receivables at December 31,
2003 was 3.84%, as compared to 4.36% at
December 31, 2002 and 4.67% at December 31,
2001. Delinquency on managed loans was 4.39% at
December 31, 2003, as compared to 4.88% at
December 31, 2002, and 5.09% at December 31,
2001. Refer to Table 13 for a reconciliation of the
loan receivables delinquency ratio to the
managed delinquency ratio. Refer to Table 18
for a reconciliation of the loan receivables
net credit loss ratio to the managed net credit
loss ratio.
   TABLE 2: RECONCILIATION OF LOAN RECEIVABLES TO MANAGED LOANS(dollars in thousands) Year Ended December 31,
    
    2003
    
    
    2002
    
    
    2001At Year End:Loans held for securitization
    
    $
    13,084,105
    
    
    $
    11,029,627
    
    
    $
    9,929,948Loan portfolio
    
    
    20,539,972
    
    
    
    17,696,881
    
    
    
    14,703,616Loan receivables
    
    
    33,624,077
    
    
    
    28,726,508
    
    
    
    24,633,564Securitized loans
    
    
    84,869,483
    
    
    
    78,531,334
    
    
    
    72,862,487Total managed loans
    
    $
    118,493,560
    
    
    $
    107,257,842
    
    
    $
    97,496,051Average for the Year:Loans held for securitization
    
    $
    9,198,810
    
    
    $
    8,130,207
    
    
    $
    6,909,840Loan portfolio
    
    
    18,985,008
    
    
    
    17,184,993
    
    
    
    13,429,548Loan receivables
    
    
    28,183,818
    
    
    
    25,315,200
    
    
    
    20,339,388Securitized loans
    
    
    81,691,156
    
    
    
    74,718,731
    
    
    
    70,560,600Total managed loans
    
    $
    109,874,974
    
    
    $
    100,033,931
    
    
    $
    90,899,988




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##### 



(BAR CHART) The Corporations return on
average total assets for
2003 increased to 4.16%
from 3.67% for 2002.
Excluding the change in the
estimated value of accrued
interest and fees in 2002,
the Corporations return on
average total assets for
2003 would have increased
15 basis points from 2002
as a result of the
Corporations net income
growing faster than its
average total assets. The
Corporations return on
average total assets for
2002 decreased to 3.67%
from 4.16% for 2001.
Excluding the change in the
estimated value of accrued
interest and fees in 2002,
the Corporations return on
average total assets for
2002 would have decreased
15 basis points from 2001
as a result of the
Corporations net income
growing slower than its
average total assets. The Corporations net income grew at a faster
rate than its average total assets during 2003,
excluding the change in the estimated value of
accrued interest and fees in 2002, primarily as
a result of an increase of 11.7% in
securitization income for 2003 from 2002. Net
income grew at a slower rate than average total
assets during 2002, excluding the change in the
estimated value of accrued interest and fees in
2002, primarily as a result of an increase of
only 2.0% in securitization income for 2002
from 2001. See Total Other Operating Income
for further discussion of the changes in
securitization income for 2003 and 2002. The Corporations return on average
stockholders equity was 22.98% for 2003, as
compared to 21.29% for 2002 and 24.07% for
2001. Excluding the change in the estimated
value of accrued interest and fees in 2002, the
Corporations return on average stockholders
equity would have decreased 21 basis points and
88 basis points for 2003 and 2002,
respectively, as a result of the
 (BAR CHART) Corporations net income
growing at a slower rate
than its average
stockholders equity. The
Corporations net income
typically grows at a slower
rate than its average
stockholders equity as the
Corporation reinvests a
significant portion of its
net income back into the
business. Also, the
strengthening of foreign
currencies against the U.S.
dollar increased
stockholders equity,
partially offset by an
increase in the
Corporations dividend rate
per common share and other
factors. Table 3 reconciles
the Corporations return on
average total assets and
return on average
stockholders equity for
2002, to the Corporations
return on average total
assets and return on
average stockholders
equity for 2002 excluding
the change in the estimated
value of accrued interest
and fees in 2002. 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. Fully taxable equivalent 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. Tables 4 and 5 provide further
detail regarding the Corporations average
balances, yields and rates, interest income and
expense, and the impact that rate and volume
changes had on the Corporations net interest
income for the years ended December 31, 2003,
2002, and 2001.
   TABLE 3: RECONCILIATION OF THE AS REPORTED RETURN ON AVERAGE TOTAL ASSETS AND STOCKHOLDERS EQUITY TO THE RETURN ON AVERAGE TOTAL ASSETS AND STOCKHOLDERS EQUITY EXCLUDING THE
CHANGE IN THE ESTIMATED VALUE OF ACCRUED INTEREST AND FEES IN 2002(dollars in thousands) Year Ended December 31, 2002Average Balance
    
    
    Ratio
    
    
    Net IncomeReturn on Average Total AssetsAs reported
    
    $
    48,154,027
    
    
    
    3.67
    %
    
    $
    1,765,954Impact of the change in the estimated value of accrued interest and fees in 2002
    
    
    67,182
    
    
    
    
    
    
    
    167,167Excluding the change in the estimated value of accrued interest and fees in 2002
    
    $
    48,221,209
    
    
    
    4.01
    
    
    $
    1,933,121Return on Average Stockholders EquityAs reported
    
    $
    8,293,823
    
    
    
    21.29
    
    
    $
    1,765,954Impact of the change in the estimated value of accrued interest and fees in 2002
    
    
    42,593
    
    
    
    
    
    
    
    167,167Excluding the change in the estimated value of accrued interest and fees in 2002
    
    $
    8,336,416
    
    
    
    23.19
    
    
    $
    1,933,121




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##### 



22
 TABLE 4: 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,
    2003
    |
    2002
    |
    2001Average
    
    
    Yield/
    
    
    Income
    
    
    Average
    
    
    Yield/
    
    
    Income
    
    
    Average
    
    
    Yield/
    
    
    IncomeBalance
    
    
    Rate
    
    
    or Expense
    
    
    Balance
    
    
    Rate
    
    
    or Expense
    
    
    Balance
    
    
    Rate
    
    
    or ExpenseAssetsInterest-earning assets:Money market instruments:Interest-earning time deposits in other banks:Domestic
    
    $
    8,181
    
    
    
    1.91
    %
    
    $
    156
    
    
    $
    1,244
    
    
    
    .96
    %
    
    $
    12
    
    
    $
    1,199
    
    
    
    3.59
    %
    
    $
    43Foreign
    
    
    4,629,799
    
    
    
    1.71
    
    
    
    79,103
    
    
    
    2,149,065
    
    
    
    2.47
    
    
    
    53,121
    
    
    
    1,690,774
    
    
    
    4.22
    
    
    
    71,298Total interest-earning time deposits
in other banks
    
    
    4,637,980
    
    
    
    1.71
    
    
    
    79,259
    
    
    
    2,150,309
    
    
    
    2.47
    
    
    
    53,133
    
    
    
    1,691,973
    
    
    
    4.22
    
    
    
    71,341Federal funds sold
    
    
    2,957,819
    
    
    
    1.12
    
    
    
    33,137
    
    
    
    2,127,914
    
    
    
    1.67
    
    
    
    35,460
    
    
    
    1,526,879
    
    
    
    3.71
    
    
    
    56,651Total money market instruments
    
    
    7,595,799
    
    
    
    1.48
    
    
    
    112,396
    
    
    
    4,278,223
    
    
    
    2.07
    
    
    
    88,593
    
    
    
    3,218,852
    
    
    
    3.98
    
    
    
    127,992Investment securities (a):Domestic:Taxable (b)
    
    
    3,722,062
    
    
    
    2.67
    
    
    
    99,223
    
    
    
    3,688,047
    
    
    
    3.42
    
    
    
    126,062
    
    
    
    3,001,592
    
    
    
    5.04
    
    
    
    151,173Tax-exempt (c)
    
    
    109,403
    
    
    
    1.99
    
    
    
    2,176
    
    
    
    110,054
    
    
    
    2.69
    
    
    
    2,965
    
    
    
    102,710
    
    
    
    4.68
    
    
    
    4,807Total domestic investment securities
    
    
    3,831,465
    
    
    
    2.65
    
    
    
    101,399
    
    
    
    3,798,101
    
    
    
    3.40
    
    
    
    129,027
    
    
    
    3,104,302
    
    
    
    5.02
    
    
    
    155,980Foreign
    
    
    266,286
    
    
    
    4.19
    
    
    
    11,147
    
    
    
    181,514
    
    
    
    4.60
    
    
    
    8,349
    
    
    
    177,454
    
    
    
    5.55
    
    
    
    9,840Total investment securities
    
    
    4,097,751
    
    
    
    2.75
    
    
    
    112,546
    
    
    
    3,979,615
    
    
    
    3.45
    
    
    
    137,376
    
    
    
    3,281,756
    
    
    
    5.05
    
    
    
    165,820Other interest-earning assets (a) (b) (d)
    
    
    3,904,013
    
    
    
    7.82
    
    
    
    305,468
    
    
    
    3,869,893
    
    
    
    9.28
    
    
    
    359,159
    
    
    
    3,256,773
    
    
    
    11.89
    
    
    
    387,250Loan receivables:Loans held for securitization:Domestic:Credit card
    
    
    7,143,690
    
    
    
    12.33
    
    
    
    881,161
    
    
    
    6,311,804
    
    
    
    12.89
    
    
    
    813,536
    
    
    
    5,178,099
    
    
    
    14.61
    
    
    
    756,463Other consumer
    
    
    52,883
    
    
    
    5.35
    
    
    
    2,827
    
    
    
    438,187
    
    
    
    15.30
    
    
    
    67,062
    
    
    
    605,683
    
    
    
    15.86
    
    
    
    96,088Total domestic loans held for
securitization
    
    
    7,196,573
    
    
    
    12.28
    
    
    
    883,988
    
    
    
    6,749,991
    
    
    
    13.05
    
    
    
    880,598
    
    
    
    5,783,782
    
    
    
    14.74
    
    
    
    852,551Foreign
    
    
    2,002,237
    
    
    
    11.44
    
    
    
    228,989
    
    
    
    1,380,216
    
    
    
    12.75
    
    
    
    175,960
    
    
    
    1,126,058
    
    
    
    12.99
    
    
    
    146,330Total loans held for securitization
    
    
    9,198,810
    
    
    
    12.10
    
    
    
    1,112,977
    
    
    
    8,130,207
    
    
    
    13.00
    
    
    
    1,056,558
    
    
    
    6,909,840
    
    
    
    14.46
    
    
    
    998,881Loan portfolio (d):Domestic:Credit card
    
    
    7,346,064
    
    
    
    10.71
    
    
    
    786,682
    
    
    
    7,269,526
    
    
    
    10.61
    
    
    
    771,292
    
    
    
    6,368,297
    
    
    
    12.80
    
    
    
    814,853Other consumer
    
    
    6,229,575
    
    
    
    13.78
    
    
    
    858,553
    
    
    
    5,895,108
    
    
    
    13.73
    
    
    
    809,659
    
    
    
    4,388,008
    
    
    
    14.89
    
    
    
    653,267Total domestic loan portfolio
    
    
    13,575,639
    
    
    
    12.12
    
    
    
    1,645,235
    
    
    
    13,164,634
    
    
    
    12.01
    
    
    
    1,580,951
    
    
    
    10,756,305
    
    
    
    13.65
    
    
    
    1,468,120Foreign
    
    
    5,409,369
    
    
    
    10.56
    
    
    
    571,021
    
    
    
    4,020,359
    
    
    
    11.35
    
    
    
    456,503
    
    
    
    2,673,243
    
    
    
    12.16
    
    
    
    325,025Total loan portfolio
    
    
    18,985,008
    
    
    
    11.67
    
    
    
    2,216,256
    
    
    
    17,184,993
    
    
    
    11.86
    
    
    
    2,037,454
    
    
    
    13,429,548
    
    
    
    13.35
    
    
    
    1,793,145Total loan receivables
    
    
    28,183,818
    
    
    
    11.81
    
    
    
    3,329,233
    
    
    
    25,315,200
    
    
    
    12.22
    
    
    
    3,094,012
    
    
    
    20,339,388
    
    
    
    13.73
    
    
    
    2,792,026Total interest-earning assets
    
    
    43,781,381
    
    
    
    8.82
    
    
    
    3,859,643
    
    
    
    37,442,931
    
    
    
    9.83
    
    
    
    3,679,140
    
    
    
    30,096,769
    
    
    
    11.54
    
    
    
    3,473,088Cash and due from banks
    
    
    781,507
    
    
    
    
    
    
    
    
    
    
    
    766,003
    
    
    
    
    
    
    
    
    
    
    
    744,798Premises and equipment, net (b)
    
    
    2,576,437
    
    
    
    
    
    
    
    
    
    
    
    2,434,161
    
    
    
    
    
    
    
    
    
    
    
    2,153,716Other assets (b) (d)
    
    
    10,252,088
    
    
    
    
    
    
    
    
    
    
    
    8,452,712
    
    
    
    
    
    
    
    
    
    
    
    8,425,687Reserve for possible credit losses
    
    
    (1,158,510
    )
    
    
    
    
    
    
    
    
    
    
    (941,780
    )
    
    
    
    
    
    
    
    
    
    
    (656,654
    )Total assets
    
    $
    56,232,903
    
    
    
    
    
    
    
    
    
    
    $
    48,154,027
    
    
    
    
    
    
    
    
    
    
    $
    40,764,316Liabilities and Stockholders EquityInterest-bearing liabilities:Interest-bearing deposits:Domestic:Time deposits
    
    $
    21,472,666
    
    
    
    4.39
    
    
    
    942,296
    
    
    $
    19,485,060
    
    
    
    5.28
    
    
    
    1,027,905
    
    
    $
    17,999,374
    
    
    
    6.43
    
    
    
    1,157,995Money market deposit accounts
    
    
    7,844,120
    
    
    
    1.80
    
    
    
    141,117
    
    
    
    7,040,563
    
    
    
    2.70
    
    
    
    190,072
    
    
    
    5,534,407
    
    
    
    4.51
    
    
    
    249,425Interest-bearing transaction accounts
    
    
    50,369
    
    
    
    1.07
    
    
    
    538
    
    
    
    47,157
    
    
    
    1.71
    
    
    
    808
    
    
    
    43,675
    
    
    
    3.46
    
    
    
    1,513Savings accounts
    
    
    82,088
    
    
    
    1.18
    
    
    
    967
    
    
    
    74,839
    
    
    
    1.74
    
    
    
    1,302
    
    
    
    16,967
    
    
    
    2.99
    
    
    
    508Total domestic interest-bearing deposits
    
    
    29,449,243
    
    
    
    3.68
    
    
    
    1,084,918
    
    
    
    26,647,619
    
    
    
    4.58
    
    
    
    1,220,087
    
    
    
    23,594,423
    
    
    
    5.97
    
    
    
    1,409,441Foreign:Time deposits
    
    
    712,239
    
    
    
    3.21
    
    
    
    22,888
    
    
    
    924,325
    
    
    
    3.83
    
    
    
    35,440
    
    
    
    701,937
    
    
    
    5.02
    
    
    
    35,265Total interest-bearing deposits
    
    
    30,161,482
    
    
    
    3.67
    
    
    
    1,107,806
    
    
    
    27,571,944
    
    
    
    4.55
    
    
    
    1,255,527
    
    
    
    24,296,360
    
    
    
    5.95
    
    
    
    1,444,706Borrowed funds:Short-term borrowings:Domestic
    
    
    988,533
    
    
    
    3.46
    
    
    
    34,185
    
    
    
    1,037,403
    
    
    
    3.57
    
    
    
    37,051
    
    
    
    383,638
    
    
    
    4.39
    
    
    
    16,858Foreign
    
    
    153,421
    
    
    
    3.22
    
    
    
    4,947
    
    
    
    215,718
    
    
    
    2.75
    
    
    
    5,927
    
    
    
    179,993
    
    
    
    4.39
    
    
    
    7,908Total short-term borrowings
    
    
    1,141,954
    
    
    
    3.43
    
    
    
    39,132
    
    
    
    1,253,121
    
    
    
    3.43
    
    
    
    42,978
    
    
    
    563,631
    
    
    
    4.39
    
    
    
    24,766Long-term debt and bank notes (e):Domestic
    
    
    7,291,420
    
    
    
    2.50
    
    
    
    182,240
    
    
    
    5,696,163
    
    
    
    3.05
    
    
    
    173,463
    
    
    
    4,620,270
    
    
    
    5.23
    
    
    
    241,805Foreign
    
    
    3,266,173
    
    
    
    5.49
    
    
    
    179,333
    
    
    
    2,344,256
    
    
    
    5.61
    
    
    
    131,527
    
    
    
    1,689,176
    
    
    
    6.09
    
    
    
    102,788Total long-term debt and bank notes
    
    
    10,557,593
    
    
    
    3.42
    
    
    
    361,573
    
    
    
    8,040,419
    
    
    
    3.79
    
    
    
    304,990
    
    
    
    6,309,446
    
    
    
    5.46
    
    
    
    344,593Total borrowed funds
    
    
    11,699,547
    
    
    
    3.42
    
    
    
    400,705
    
    
    
    9,293,540
    
    
    
    3.74
    
    
    
    347,968
    
    
    
    6,873,077
    
    
    
    5.37
    
    
    
    369,359Total interest-bearing liabilities
    
    
    41,861,029
    
    
    
    3.60
    
    
    
    1,508,511
    
    
    
    36,865,484
    
    
    
    4.35
    
    
    
    1,603,495
    
    
    
    31,169,437
    
    
    
    5.82
    
    
    
    1,814,065Noninterest-bearing deposits
    
    
    1,719,058
    
    
    
    
    
    
    
    
    
    
    
    909,543
    
    
    
    
    
    
    
    
    
    
    
    851,422Other liabilities
    
    
    2,480,038
    
    
    
    
    
    
    
    
    
    
    
    2,085,177
    
    
    
    
    
    
    
    
    
    
    
    1,703,471Total liabilities
    
    
    46,060,125
    
    
    
    
    
    
    
    
    
    
    
    39,860,204
    
    
    
    
    
    
    
    
    
    
    
    33,724,330Stockholders equity
    
    
    10,172,778
    
    
    
    
    
    
    
    
    
    
    
    8,293,823
    
    
    
    
    
    
    
    
    
    
    
    7,039,986Total liabilities and
stockholders equity
    
    $
    56,232,903
    
    
    
    
    
    
    
    
    
    
    $
    48,154,027
    
    
    
    
    
    
    
    
    
    
    $
    40,764,316Net interest income (d)
    
    
    
    
    
    
    
    
    
    $
    2,351,132
    
    
    
    
    
    
    
    
    
    
    $
    2,075,645
    
    
    
    
    
    
    
    
    
    
    $
    1,659,023Net interest margin (d)
    
    
    
    
    
    
    5.37
    
    
    
    
    
    
    
    
    
    
    
    5.54
    
    
    
    
    
    
    
    
    
    
    
    5.51Interest rate spread (d)
    
    
    
    
    
    
    5.22
    
    
    
    
    
    
    
    
    
    
    
    5.48
    
    
    
    
    
    
    
    
    
    
    
    5.72
  (a)
    
    Average balances for investment securities available-for-sale and other
interest-earning assets are based on market values or estimated market values;
if these assets were carried at amortized cost, there would not be a material
impact on the net interest margin.(b)
    
    For purposes of comparability, certain prior period amounts have been
reclassified.(c)
    
    The fully taxable equivalent adjustment for the years ended December 31,
2003, 2002, and 2001 was $759, $1,070, and $1,683, respectively.(d)
    
    December 31, 2002 includes the impact of the change in the estimated value of accrued
interest and fees.(e)
    
    Includes the impact of interest rate swap agreements and foreign exchange
swap agreements used to change a portion of fixed-rate funding sources to
floating-rate funding sources.




---



##### 



TABLE 5: RATE-VOLUME VARIANCE ANALYSIS (a) (dollars in thousands, on a fully taxable equivalent basis) Year Ended December 31,
    
    2003 Compared to 2002
    |

    2002 Compared to 2001Volume
    
    
    Rate
    
    
    Total
    
    
    Volume
    
    
    Rate
    
    
    TotalInterest-Earning AssetsMoney market instruments:Interest-earning time deposits in other banks:Domestic
    
    $
    123
    
    
    $
    21
    
    
    $
    144
    
    
    $
    2
    
    
    $
    (33
    )
    
    $
    (31
    )Foreign
    
    
    46,381
    
    
    
    (20,399
    )
    
    
    25,982
    
    
    
    16,160
    
    
    
    (34,337
    )
    
    
    (18,177
    )Total interest-earning time deposits in other banks
    
    
    46,504
    
    
    
    (20,378
    )
    
    
    26,126
    
    
    
    16,162
    
    
    
    (34,370
    )
    
    
    (18,208
    )Federal funds sold
    
    
    11,367
    
    
    
    (13,690
    )
    
    
    (2,323
    )
    
    
    17,180
    
    
    
    (38,371
    )
    
    
    (21,191
    )Total money market instruments
    
    
    57,871
    
    
    
    (34,068
    )
    
    
    23,803
    
    
    
    33,342
    
    
    
    (72,741
    )
    
    
    (39,399
    )Investment securities:Domestic:Taxable (b)
    
    
    1,152
    
    
    
    (27,991
    )
    
    
    (26,839
    )
    
    
    29,954
    
    
    
    (55,065
    )
    
    
    (25,111
    )Tax-exempt
    
    
    (17
    )
    
    
    (772
    )
    
    
    (789
    )
    
    
    323
    
    
    
    (2,165
    )
    
    
    (1,842
    )Total domestic investment securities
    
    
    1,135
    
    
    
    (28,763
    )
    
    
    (27,628
    )
    
    
    30,277
    
    
    
    (57,230
    )
    
    
    (26,953
    )Foreign
    
    
    3,605
    
    
    
    (807
    )
    
    
    2,798
    
    
    
    221
    
    
    
    (1,712
    )
    
    
    (1,491
    )Total investment securities
    
    
    4,740
    
    
    
    (29,570
    )
    
    
    (24,830
    )
    
    
    30,498
    
    
    
    (58,942
    )
    
    
    (28,444
    )Other interest-earning assets (b) (c)
    
    
    3,140
    
    
    
    (56,831
    )
    
    
    (53,691
    )
    
    
    65,516
    
    
    
    (93,607
    )
    
    
    (28,091
    )Loan receivables:Loans held for securitization:Domestic:Credit card
    
    
    103,746
    
    
    
    (36,121
    )
    
    
    67,625
    
    
    
    152,942
    
    
    
    (95,869
    )
    
    
    57,073Other consumer
    
    
    (36,916
    )
    
    
    (27,319
    )
    
    
    (64,235
    )
    
    
    (25,740
    )
    
    
    (3,286
    )
    
    
    (29,026
    )Total domestic loans held for securitization
    
    
    66,830
    
    
    
    (63,440
    )
    
    
    3,390
    
    
    
    127,202
    
    
    
    (99,155
    )
    
    
    28,047Foreign
    
    
    72,656
    
    
    
    (19,627
    )
    
    
    53,029
    
    
    
    32,450
    
    
    
    (2,820
    )
    
    
    29,630Total loans held for securitization
    
    
    139,486
    
    
    
    (83,067
    )
    
    
    56,419
    
    
    
    159,652
    
    
    
    (101,975
    )
    
    
    57,677Loan portfolio (c):Domestic:Credit card
    
    
    8,161
    
    
    
    7,229
    
    
    
    15,390
    
    
    
    106,392
    
    
    
    (149,953
    )
    
    
    (43,561
    )Other consumer
    
    
    46,087
    
    
    
    2,807
    
    
    
    48,894
    
    
    
    210,189
    
    
    
    (53,797
    )
    
    
    156,392Total domestic loan portfolio
    
    
    54,248
    
    
    
    10,036
    
    
    
    64,284
    
    
    
    316,581
    
    
    
    (203,750
    )
    
    
    112,831Foreign
    
    
    148,502
    
    
    
    (33,984
    )
    
    
    114,518
    
    
    
    154,218
    
    
    
    (22,740
    )
    
    
    131,478Total loan portfolio
    
    
    202,750
    
    
    
    (23,948
    )
    
    
    178,802
    
    
    
    470,799
    
    
    
    (226,490
    )
    
    
    244,309Total loan receivables
    
    
    342,236
    
    
    
    (107,015
    )
    
    
    235,221
    
    
    
    630,451
    
    
    
    (328,465
    )
    
    
    301,986Total interest income (c)
    
    
    407,987
    
    
    
    (227,484
    )
    
    
    180,503
    
    
    
    759,807
    
    
    
    (553,755
    )
    
    
    206,052Interest-Bearing LiabilitiesInterest-bearing deposits:Domestic:Time deposits
    
    
    98,196
    
    
    
    (183,805
    )
    
    
    (85,609
    )
    
    
    90,173
    
    
    
    (220,263
    )
    
    
    (130,090
    )Money market deposit accounts
    
    
    19,849
    
    
    
    (68,804
    )
    
    
    (48,955
    )
    
    
    56,875
    
    
    
    (116,228
    )
    
    
    (59,353
    )Interest-bearing transaction accounts
    
    
    52
    
    
    
    (322
    )
    
    
    (270
    )
    
    
    112
    
    
    
    (817
    )
    
    
    (705
    )Savings accounts
    
    
    117
    
    
    
    (452
    )
    
    
    (335
    )
    
    
    1,086
    
    
    
    (292
    )
    
    
    794Total domestic interest-bearing deposits
    
    
    118,214
    
    
    
    (253,383
    )
    
    
    (135,169
    )
    
    
    148,246
    
    
    
    (337,600
    )
    
    
    (189,354
    )Foreign:Time deposits
    
    
    (7,360
    )
    
    
    (5,192
    )
    
    
    (12,552
    )
    
    
    9,659
    
    
    
    (9,484
    )
    
    
    175Total interest-bearing deposits
    
    
    110,854
    
    
    
    (258,575
    )
    
    
    (147,721
    )
    
    
    157,905
    
    
    
    (347,084
    )
    
    
    (189,179
    )Borrowed funds:Short-term borrowings:Domestic
    
    
    (1,712
    )
    
    
    (1,154
    )
    
    
    (2,866
    )
    
    
    23,882
    
    
    
    (3,689
    )
    
    
    20,193Foreign
    
    
    (1,897
    )
    
    
    917
    
    
    
    (980
    )
    
    
    1,366
    
    
    
    (3,347
    )
    
    
    (1,981
    )Total short-term borrowings
    
    
    (3,609
    )
    
    
    (237
    )
    
    
    (3,846
    )
    
    
    25,248
    
    
    
    (7,036
    )
    
    
    18,212Long-term debt and bank notes:Domestic
    
    
    43,270
    
    
    
    (34,493
    )
    
    
    8,777
    
    
    
    47,886
    
    
    
    (116,228
    )
    
    
    (68,342
    )Foreign
    
    
    50,676
    
    
    
    (2,870
    )
    
    
    47,806
    
    
    
    37,274
    
    
    
    (8,535
    )
    
    
    28,739Total long-term debt and bank notes
    
    
    93,946
    
    
    
    (37,363
    )
    
    
    56,583
    
    
    
    85,160
    
    
    
    (124,763
    )
    
    
    (39,603
    )Total borrowed funds
    
    
    90,337
    
    
    
    (37,600
    )
    
    
    52,737
    
    
    
    110,408
    
    
    
    (131,799
    )
    
    
    (21,391
    )Total interest expense
    
    
    201,191
    
    
    
    (296,175
    )
    
    
    (94,984
    )
    
    
    268,313
    
    
    
    (478,883
    )
    
    
    (210,570
    )Net interest income (c)
    
    $
    206,796
    
    
    $
    68,691
    
    
    $
    275,487
    
    
    $
    491,494
    
    
    $
    (74,872
    )
    
    $
    416,622
  (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.(b)
    
    For purposes of comparability, certain prior period amounts have been
reclassified.(c)
    
    Rate-volume variance amounts include the impact of the change in the
estimated value of accrued interest and fees in 2002.




---



##### 



24
  (BAR CHART) Net interest income, on a
fully taxable equivalent
basis, increased $275.5
million or 13.3% to $2.4
billion for 2003 from 2002.
Excluding the change in the
estimated value of accrued
interest and fees in 2002,
net interest income, on a
fully taxable equivalent
basis, would have increased
$209.2 million or 9.8% in
2003. Average
interest-earning assets
increased $6.3 billion or
16.9% to $43.8 billion for
2003 from 2002. The
increase in average
interest-earning assets for
2003 was primarily the
result of an increase in
average loan receivables of
$2.9 billion and an
increase in average money
market instruments of $3.3
billion. The yield on
average interest-earning
assets decreased 101 basis
points to 8.82%, as
compared to 9.83% for 2002.
The decrease in the yield
on average interest-earning
assets was primarily the
result of the decrease in
the yield earned on average
loan receivables, average
total investment securities
and money market
instruments, and average
other interest-earning
assets, combined with an
increase in lower yielding
average total investment
securities and money market
instruments, and other
interest-earning assets as
a percentage of total
average interest-earning
assets. The decrease in the
yield on average
interest-earning assets for
2003, as compared to 2002,
would have been larger
excluding the change in the
estimated value of accrued
interest and fees in 2002,
which decreased the yield
earned on average loan
receivables by 25 basis
points for 2002 (see Loan
Receivables for further
discussion). Table 6 highlights average interest-earning
assets and average interest-bearing
liabilities. Average interest-bearing liabilities increased
$5.0 billion or 13.6% to $41.9 billion for 2003
from 2002. The increase in average
interest-bearing liabilities for 2003 was
primarily the result of an increase of $2.6
billion in average interest-bearing deposits
and an increase of $2.4 billion in average
borrowed funds. The 75 basis point decrease in
the rate paid on average interest-bearing
liabilities to 3.60% for 2003, from 4.35% for
2002, reflects the continued impact of actions
by the Federal Open Market
 Committee (FOMC) of the Federal Reserve
throughout 2001, in the fourth quarter of 2002,
and the second quarter of 2003 that impacted
overall market interest rates. The impact on
the Corporations net interest income from the
changes in interest rates in 2003 and 2002
reflects the difference in the timeframe the
Corporations interest rate sensitive assets
and interest rate sensitive liabilities
reprice. The Corporations loan receivables
comprised approximately 64.4% and 67.6% of the
average interest-earning assets for 2003 and
2002, respectively. Loan receivables are not
repriced directly as market conditions change.
Instead, these assets are repriced over time as
the underlying Customer account behavior
changes, market rate conditions change,
competitive pressures change, and other events
occur. A portion of the Corporations interest
rate sensitive liabilities, however, can
reprice more rapidly due to changes in the
market interest rate environment, since they
have either variable interest rates or are
swapped to variable interest rates or have
short-term maturities. Accordingly, the decline
in the overall market interest rates in the
fourth quarter of 2002 and the second quarter
of 2003, that caused a portion of the
Corporations interest rate sensitive
liabilities to reprice at a faster rate than a
portion of the Corporations interest rate
sensitive assets, led to a $68.7 million
increase in 2003 net interest income. The
impact of the increase in the interest rates in
2003 would have been smaller excluding the
change in the estimated value of accrued
interest and fees in 2002. Actions by the FOMC
throughout 2001, and the competitive
environment reduced the yields on the
Corporations interest rate sensitive assets in
2002 further than the decline in the rates on
the Corporations interest rate sensitive
liabilities in 2002 which had already begun to
reprice in 2001. These changes, combined with
the change in the estimated value of accrued
interest and fees in 2002, led to a $74.9
million decrease in 2002 net interest income.
The impact of the decrease in the interest
rates in 2002 would have been smaller excluding
the change in the estimated value of accrued
interest and fees in 2002. Net interest income, on a fully taxable
equivalent basis, increased $416.6 million or
25.1% to $2.1 billion for 2002 from 2001.
Excluding the change in the estimated value of
accrued interest and fees in 2002, net interest
income, on a fully taxable equivalent basis
would have increased $482.9 million or 29.1%
from 2001.
   TABLE 6: SUMMARIZED AVERAGE INTEREST-EARNING ASSETS AND AVERAGE INTEREST-BEARING LIABILITIES(dollars in thousands, yields and rates on a fully taxable equivalent basis) Year Ended December 31,
    
    2003
    |
    2002
    |
    2001Average
    
    
    Yield/
    
    
    Income or
    
    
    Average
    
    
    Yield/
    
    
    Income or
    
    
    Average
    
    
    Yield/
    
    
    Income orBalance
    
    
    Rate
    
    
    Expense
    
    
    Balance
    
    
    Rate
    
    
    Expense
    
    
    Balance
    
    
    Rate
    
    
    ExpenseTotal interest-earning assets
    
    $
    43,781,381
    
    
    
    8.82
    %
    
    $
    3,859,643
    
    
    $
    37,442,931
    
    
    
    9.83
    %
    
    $
    3,679,140
    
    
    $
    30,096,769
    
    
    
    11.54
    %
    
    $
    3,473,088Total interest-bearing liabilities
    
    
    41,861,029
    
    
    
    3.60
    
    
    
    1,508,511
    
    
    
    36,865,484
    
    
    
    4.35
    
    
    
    1,603,495
    
    
    
    31,169,437
    
    
    
    5.82
    
    
    
    1,814,065Net interest income
    
    
    
    
    
    
    
    
    
    $
    2,351,132
    
    
    
    
    
    
    
    
    
    
    $
    2,075,645
    
    
    
    
    
    
    
    
    
    
    $
    1,659,023Net interest margin
    
    
    
    
    
    
    5.37
    
    
    
    
    
    
    
    
    
    
    
    5.54
    
    
    
    
    
    
    
    
    
    
    
    5.51




---



##### 



Average interest-earning assets increased $7.3
billion or 24.4% to $37.4 billion for 2002 from
2001. The increase in average interest-earning
assets for 2002 was primarily a result of an
increase in average loan receivables of $5.0
billion and an increase in average investment
securities and money market instruments of $1.8
billion. The yield on average interest-earning
assets decreased 171 basis points to 9.83%, as
compared to 11.54% for 2001. The decrease in
the yield on average interest-earning assets
was primarily the result of the decrease in the
yield earned on average loan receivables,
average total investment securities and money
market instruments, and average other
interest-earning assets. The decrease in the
yield would have been smaller excluding the
change in the estimated value of accrued
interest and fees in 2002, which decreased the
yield earned on average loan receivables by 25
basis points for 2002 (see Loan Receivables
for further discussion). Average interest-bearing liabilities increased
$5.7 billion or 18.3% to $36.9 billion for 2002
from 2001. The increase in average
interest-bearing liabilities for 2002, was
primarily the result of an increase of $3.3
billion in average interest-bearing deposits
and an increase of $2.4 billion in average
borrowed funds. The 147 basis point decrease in
the rate paid on average interest-bearing
liabilities to 4.35% for 2002, from 5.82% for
2001, reflects actions by the FOMC throughout
2001 that impacted overall market interest
rates and lowered the Corporations cost of
funds. The Corporations net interest margin,
on a fully taxable equivalent basis, was 5.37%
for 2003, as compared to 5.54% for 2002. The
net interest margin represents net interest
income on a fully taxable equivalent basis
expressed as a percentage of average total
interest-earning assets. Excluding the change
in the estimated value of accrued interest and
fees in 2002, the net interest margin, on a
fully taxable equivalent basis for 2003, would
have decreased 34 basis points as compared to
2002, primarily as a result of average
interest-earning assets growing at a faster
rate than net interest income combined with the
decrease in the yield earned on average
interest-earning assets, partially offset by
the decrease in the rate paid on average
interest-bearing liabilities. Also, the
increase in lower yielding average total
investment securities and money market
instruments, and other interest-earning assets
as a percentage of average interest-earning
assets further reduced the net interest margin. The Corporations net interest margin, on a
fully taxable equivalent basis, was 5.54% for
2002, as compared to 5.51% for 2001. Excluding
the change in the estimated value of accrued
interest and fees in 2002, the net interest
margin, on a fully taxable equivalent basis,
would have increased 20 basis points for 2002,
primarily as a result of the actions by the
FOMC throughout 2001 that impacted overall
market interest rates and decreased the
Corporations funding costs, as the
Corporations interest-bearing liabilities
matured and repriced during the continued low
interest rate environment. The Corporations
net interest margin in 2002 also had the full
benefit of the actions by the FOMC throughout
2001.
 See Off-Balance Sheet
ArrangementsImpact of
Off-Balance Sheet Securitization Transactions
on the Corporations Results for a discussion
of the managed net interest margin and a
reconciliation of the net interest margin ratio
to the net interest margin ratio excluding the
change in the estimated value of accrued
interest and fees in 2002. INVESTMENT SECURITIES AND MONEY MARKET INSTRUMENTS The Corporation seeks to maintain its portfolio
of investment securities and money market
instruments at a level appropriate for the
Corporations liquidity needs. The
Corporations average
(BAR GRAPHS)
investment securities and money
market instruments are affected by the
timing of receipt of funds from asset
securitization transactions, deposits,
loan payments, and unsecured long-term debt and bank note issuances.
Funds received from these sources are
normally invested in short-term, liquid
money market instruments and investment securities available-for-sale until
the funds are needed for loan growth
and other liquidity needs. Average investment securities and
money market instruments as a
percentage of average interest-earning
assets were 26.7% for 2003, as
compared to 22.1% for 2002 and
21.6% for 2001. Money market instruments increased in 2003 to provide
liquidity to support portfolio acquisition activity, to support anticipated
loan growth, and in anticipation of
possible market disruptions due to
uncertainty created by world events.
Also, money market instruments
increased in 2003 as a result of the
change in the timing of the remittance
of principal collections on securitized
loans to the trusts (see Noninterest-Bearing Deposits for further discussion). Money market instruments
increased in 2002 to provide liquidity
to support portfolio acquisition activity
and anticipated loan growth. Interest income on investment securities for
2003, on a fully taxable equivalent basis,
decreased $24.8 million or 18.1% to $112.5
million for 2003 from 2002. The decrease in
interest income on investment securities for
2003 was primarily a result of a 70 basis point
decrease in the yield earned on average
investment securities, partially offset by an
increase in average investment securities of
$118.1 million from 2002. Interest income on




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##### 



26
  investment securities for 2002, on a fully
taxable equivalent basis, decreased $28.4
million or 17.2% to $137.4 million for 2002
from 2001. The decrease in interest income on
investment securities for 2002 was primarily a
result of a 160 basis point decrease in the
yield earned on average investment securities,
partially offset by an increase in average
investment securities of $697.9 million from
2001. Money market instruments include
interest-earning time deposits in other banks
and federal funds sold. Interest income on
money market instruments was $112.4 million for
2003, an increase of $23.8 million or 26.9%
from 2002. The increase in interest income on
money market instruments was primarily the
result of an increase in average money market
instruments of $3.3 billion for 2003, partially
offset by a 59 basis point decrease in the
yield earned on average money market
instruments. Interest income on money market
instruments was $88.6 million for 2002, a
decrease of $39.4 million or 30.8% from 2001.
The decrease in interest income on money market
instruments was primarily the result of a 191
basis point decrease in the yield earned on
average money market instruments for 2002,
partially offset by a $1.1 billion increase in
average money market instruments for 2002. OTHER INTEREST-EARNING ASSETS Other interest-earning assets include the
Corporations retained interests in
securitization transactions, which are the
interest-only strip receivable, cash reserve
accounts, accrued interest and fees on
securitized loans, and other subordinated
retained interests. Also included in other
interest-earning assets is Federal Reserve Bank
stock. The Corporation accrues interest income
related to its retained beneficial interests in
its securitization transactions accounted for
as sales in the Corporations audited
consolidated financial statements. The
Corporation includes these retained interests
in accounts receivable from securitization in
the audited consolidated statements of
financial condition. Interest income on other
interest-earning assets decreased $53.7 million
or 14.9% to $305.5 million for 2003 from 2002,
as compared to a decrease of $28.1 million or
7.3% to $359.2 million for 2002 from 2001. The
decrease in interest income on other
interest-earning assets for 2003 was primarily
the result of a decrease in the yield earned on
average other interest-earning assets of 146
basis points in 2003. The decrease in the yield
earned on average other interest-earning assets
in 2003 was primarily the result of the
decrease in the discount rate assumptions used
in the valuation of the Corporations retained
beneficial interests in its securitization
transactions. The decrease in interest income
on other interest-earning assets for 2002 was
primarily the result of a decrease of 261 basis
points in the yield earned on average other
interest-earning assets in 2002, partially
offset by an increase of $613.1 million in
average other interest-earning assets, as
compared to 2001. The decrease in the yield
earned on average other interest-earning assets
was primarily the result of the decrease in the
discount rate assumptions used in the valuation
of the Corporations retained beneficial
interests in its securitization transactions.
 Note 8: Asset Securitization to the audited
consolidated financial statements provides
further detail regarding the Corporations
asset securitization transactions. LOAN RECEIVABLES Loan receivables consist of the Corporations
loans held for securitization and the loan
portfolio. Interest income generated by the
Corporations loan receivables increased $235.2
million or 7.6% to $3.3 billion for 2003 from
2002. Excluding the change in the estimated
value of accrued
(BAR CHART)
interest and fees in 2002, the
interest income generated by the Corporations
loan receivables would have increased by $169.0
million or 5.3% from 2002. The increase in
interest income on loan receivables for 2003
was primarily the result of an increase in
average loan receivables of $2.9 billion from
2002, partially offset by a decrease in the
yield earned on average loan receivables. The
yield earned by the Corporation for 2003 on
average loan receivables was 11.81%, as
compared to 12.22% for 2002. Excluding the
change in the estimated value of accrued
interest and fees in 2002, the yield earned by
the Corporation for 2003 on average loan
receivables would have decreased 66 basis
points from 2002. Interest income generated by
the Corporations loan receivables increased
$302.0 million or 10.8% to $3.1 billion for
2002 from 2001. Excluding the change in the
estimated value of accrued interest and fees in
2002, the interest income generated by the
Corporations loan receivables would have
increased by $368.2 million or 13.2% from 2001.
The increase in interest (PIE GRAPHS)




---



##### 



TABLE 7: LOAN RECEIVABLES DISTRIBUTION(dollars in thousands) December 31,
    
    2003
    
    
    
    
    
    2002
    
    
    
    
    
    2001
    
    
    
    
    
    2000
    
    
    
    
    
    1999Loans Held for Securitization (a)Domestic:Credit card
    
    $
    10,274,262
    
    
    
    30.6
    %
    
    $
    9,157,751
    
    
    
    31.9
    %
    
    $
    7,943,965
    
    
    
    32.2
    %
    
    $
    6,396,652
    
    
    
    32.1
    %
    
    $
    7,835,429
    
    
    
    44.3
    %Other consumer
    
    
    11,653
    
    
    
    
    
    
    
    40,962
    
    
    
    .1
    
    
    
    1,032,697
    
    
    
    4.2
    
    
    
    1,022,756
    
    
    
    5.1
    
    
    
    1,001,271
    
    
    
    5.7Total domestic loans held for securitization
    
    
    10,285,915
    
    
    
    30.6
    
    
    
    9,198,713
    
    
    
    32.0
    
    
    
    8,976,662
    
    
    
    36.4
    
    
    
    7,419,408
    
    
    
    37.2
    
    
    
    8,836,700
    
    
    
    50.0Foreign (b)
    
    
    2,798,190
    
    
    
    8.3
    
    
    
    1,830,914
    
    
    
    6.4
    
    
    
    953,286
    
    
    
    3.9
    
    
    
    852,525
    
    
    
    4.3
    
    
    
    855,916
    
    
    
    4.9Total loans held for securitization
    
    
    13,084,105
    
    
    
    38.9
    
    
    
    11,029,627
    
    
    
    38.4
    
    
    
    9,929,948
    
    
    
    40.3
    
    
    
    8,271,933
    
    
    
    41.5
    
    
    
    9,692,616
    
    
    
    54.9Loan PortfolioDomestic:Credit card
    
    
    7,905,173
    
    
    
    23.5
    
    
    
    6,413,116
    
    
    
    22.3
    
    
    
    6,439,471
    
    
    
    26.1
    
    
    
    6,612,913
    
    
    
    33.1
    
    
    
    5,116,381
    
    
    
    28.9Other consumer
    
    
    6,211,016
    
    
    
    18.5
    
    
    
    6,285,751
    
    
    
    21.9
    
    
    
    5,094,198
    
    
    
    20.7
    
    
    
    2,799,289
    
    
    
    14.0
    
    
    
    1,268,019
    
    
    
    7.2Total domestic loan portfolio
    
    
    14,116,189
    
    
    
    42.0
    
    
    
    12,698,867
    
    
    
    44.2
    
    
    
    11,533,669
    
    
    
    46.8
    
    
    
    9,412,202
    
    
    
    47.1
    
    
    
    6,384,400
    
    
    
    36.1Foreign (b)
    
    
    6,423,783
    
    
    
    19.1
    
    
    
    4,998,014
    
    
    
    17.4
    
    
    
    3,169,947
    
    
    
    12.9
    
    
    
    2,270,702
    
    
    
    11.4
    
    
    
    1,586,693
    
    
    
    9.0Total loan portfolio
    
    
    20,539,972
    
    
    
    61.1
    
    
    
    17,696,881
    
    
    
    61.6
    
    
    
    14,703,616
    
    
    
    59.7
    
    
    
    11,682,904
    
    
    
    58.5
    
    
    
    7,971,093
    
    
    
    45.1Total loan receivables
    
    $
    33,624,077
    
    
    
    100.0
    %
    
    $
    28,726,508
    
    
    
    100.0
    %
    
    $
    24,633,564
    
    
    
    100.0
    %
    
    $
    19,954,837
    
    
    
    100.0
    %
    
    $
    17,663,709
    
    
    
    100.0
    %
  (a)
    
    Loans held for securitization includes loans originated through certain
endorsing organizations or financial institutions who have the contractual
right to purchase the loans from the Corporation at fair value and the lesser
of loan principal receivables eligible for securitization or sale or loan
principal receivables which management intends to securitize or sell within one
year.(b)
    
    Note 28: Foreign Activities to the audited consolidated financial
statements provides the foreign loan distribution between credit card and other
consumer loans.  income on loan receivables for 2002 was primarily the result of
an increase in average loan receivables of $5.0 billion from 2001, partially
offset by a decrease in the yield earned on average loan receivables. The yield
earned by the Corporation for 2002 on average loan receivables was 12.22%, as
compared to 13.73% for 2001. Excluding the change in the estimated value of
accrued interest and fees in 2002, the yield earned by the Corporation for 2002
on average loan receivables would have decreased 126 basis points from 2001. Table 7 presents the Corporations loan receivables distributed by loan type.
Loan receivables increased to $33.6 billion at December 31, 2003, as compared
to $28.7 billion and $24.6 billion at December 31, 2002 and 2001, respectively. Domestic credit card loan receivables increased $2.6 billion or 16.8% to $18.2
billion at December 31, 2003, from $15.6 billion at December 31, 2002, and
$14.4 billion at December 31, 2001. The increase in domestic credit card loan
receivables during 2003 and 2002 was the result of loan originations through
marketing programs and loan portfolio acquisitions, partially offset by a net
increase in securitized domestic credit card loan principal receivables. Higher
Customer payment volume also slowed the growth in domestic credit card loan
receivables for 2002, as compared to 2001. During 2003, the Corporation
securitized $10.8 billion of domestic credit card loan principal receivables,
partially offset by an increase of $7.0 billion in the Corporations domestic
credit card loan receivables when certain securitization transactions used
principal payments on securitized loans to pay the investors rather than to
purchase new loan principal receivables. During 2002, the Corporation
securitized $13.3 billion of domestic credit card loan
 principal receivables, partially offset by an increase of $9.7 billion in the Corporations domestic
credit card loan receivables when certain securitization transactions used
principal payments on securitized loans to pay the investors rather than to
purchase new loan principal receivables. When the trusts use principal payments
to pay the investors, the Corporations on-balance-sheet loan receivables
increase by the amount of any new loans on the Customer accounts because the
trusts are no longer purchasing new loan receivables from the Corporation. The
Corporation acquired $1.4 billion of domestic credit card loan receivables
during 2003 and $2.5 billion of domestic credit card loan receivables in 2002,
including a $1.3 billion credit card loan portfolio from Wachovia Corporation. The yield on average domestic credit card loan
receivables was 11.51% for 2003, as compared to
11.67% for 2002 and 13.61% for 2001. Excluding
the change in the estimated value of accrued
interest and fees in 2002, the yield on average
domestic credit card loan receivables would
have decreased 42 basis points for 2003 and 168
basis points for 2002. The decrease in the
yield on average domestic credit card loan
receivables for 2003 and 2002, excluding the
change in the estimated value of accrued
interest and fees in 2002, reflects lower
interest rates offered to attract and retain
Customers and to grow loan receivables, and an
increase in the percentage of loans in the
portfolio with promotional interest rates. Domestic credit card loans held for
securitization increased $1.1 billion or 12.2%
to $10.3 billion at December 31, 2003, from
$9.2 billion at December 31, 2002 and $7.9
billion at December 31, 2001. The increases
reflect higher planned levels of domestic
credit card securitizations.




---



##### 



28
 TABLE 8: RECONCILIATION OF AVERAGE LOAN RECEIVABLES TO AVERAGE MANAGED LOANS(dollars in thousands) Year Ended December 31,
    
    
    
    
    
    2003
    
    
    
    
    |
    
    

    
    
    2002
    
    
    
    
    |
    
    
    

    
    2001Average
    
    
    
    
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    
    
    
    
    AverageBalance
    
    
    Yield
    
    
    Income
    
    
    Balance
    
    
    Yield
    
    
    Income
    
    
    Balance
    
    
    Yield
    
    
    IncomeLoan receivables:Domestic credit card
    
    $
    14,489,754
    
    
    
    11.51
    %
    
    $
    1,667,843
    
    
    $
    13,581,330
    
    
    
    11.67
    %
    
    $
    1,584,828
    
    
    $
    11,546,396
    
    
    
    13.61
    %
    
    $
    1,571,316Domestic other consumer
    
    
    6,282,458
    
    
    
    13.71
    
    
    
    861,380
    
    
    
    6,333,295
    
    
    
    13.84
    
    
    
    876,721
    
    
    
    4,993,691
    
    
    
    15.01
    
    
    
    749,355Foreign
    
    
    7,411,606
    
    
    
    10.79
    
    
    
    800,010
    
    
    
    5,400,575
    
    
    
    11.71
    
    
    
    632,463
    
    
    
    3,799,301
    
    
    
    12.41
    
    
    
    471,355Total loan receivables
    
    
    28,183,818
    
    
    
    11.81
    
    
    
    3,329,233
    
    
    
    25,315,200
    
    
    
    12.22
    
    
    
    3,094,012
    
    
    
    20,339,388
    
    
    
    13.73
    
    
    
    2,792,026Securitized loans
    
    
    81,691,156
    
    
    
    11.98
    
    
    
    9,786,020
    
    
    
    74,718,731
    
    
    
    12.36
    
    
    
    9,232,653
    
    
    
    70,560,600
    
    
    
    14.15
    
    
    
    9,985,734Total managed loans
    
    $
    109,874,974
    
    
    
    11.94
    
    
    $
    13,115,253
    
    
    $
    100,033,931
    
    
    
    12.32
    
    
    $
    12,326,665
    
    
    $
    90,899,988
    
    
    
    14.06
    
    
    $
    12,777,760
  Domestic other consumer loan receivables
decreased $104.0 million or 1.6% to $6.2
billion at December 31, 2003, as compared to
$6.3 billion and $6.1 billion at December 31,
2002 and 2001, respectively. The decrease in
domestic other consumer loan receivables during
2003 was primarily a result of a decrease in
the Corporations sales finance loan
receivables as the Corporation placed less
emphasis on this product in 2003. This decrease
was partially offset by a $433.9 million
portfolio acquisition comprised of unsecured
lines of credit to small businesses during the
fourth quarter of 2003. The increase in
domestic other consumer loan receivables during
2002 was primarily a result of loan growth from
lines of credit accessed through checks and
growth in sales finance loans. Sales finance
loans are loan products offered by the
Corporation through associations with retailers
where the Corporation provides financing to
Customers to purchase the retailers goods and
services. Table 8 reconciles the Corporations
average loan receivables to average managed
loans. The yield on average domestic other consumer
loan receivables was 13.71% for 2003, as
compared to 13.84% for 2002 and 15.01% for
2001. Excluding the change in the estimated
value of accrued interest and fees in 2002, the
yield on average domestic other consumer loan
receivables would have decreased 51 basis
points for 2003 and 79 basis points for 2002.
The Corporations domestic other consumer loans
generally have higher delinquency and
charge-off rates than the Corporations
domestic credit card loans. As a result, the
Corporation generally charges higher interest
rates on its domestic other consumer loans than
on its domestic credit card loans. For 2003,
the decrease in the yield on average domestic
other consumer loan receivables, excluding the
change in the estimated value of accrued
interest and fees in 2002, reflects an increase
in the percentage of unsecured loans and a
decrease in the percentage of sales finance
loans as compared to total domestic other
consumer loans. The Corporation generally
charges a higher interest rate for its sales
finance products than its other unsecured
lending products. For 2002, the decrease in the
yield on average domestic other consumer loan
receivables, excluding the change in the
estimated value of accrued interest and fees in
2002, reflects lower promotional and other
interest rates offered to attract and retain
Customers and to grow loan receivables, and an
increase in the percentage of loans in the
portfolio with promotional rates.
 Domestic other consumer loans held for
securitization decreased $29.3 million to $11.7
million at December 31, 2003, from $41.0
million at December 31, 2002, and $1.0 billion
at December 31, 2001. The Corporation
originates and sells mortgage loans through
MBNA Delaware. The mortgage loans that MBNA
Delaware originates and intends to sell are the
only items included in domestic other consumer
loans held for securitization at December 31,
2003 and 2002. The 2002 domestic other consumer
loans held for securitization decreased in
comparison to 2001 as the Corporation reduced
the amount of other consumer loans it intended
to securitize or sell within one year at
December 31, 2002. The net gains realized by
the Corporation from the sale of its mortgage
loans were not material to the Corporations
audited consolidated statements of income for
2003, 2002, and 2001. Foreign loan receivables increased $2.4 billion
or 35.0% to $9.2 billion at December 31, 2003,
as compared to $6.8 billion at December 31,
2002, and $4.1 billion at December 31, 2001.
The growth in foreign loan receivables for 2003
was a result of loan originations through
marketing programs at the Corporations two
foreign bank subsidiaries, MBNA Europe and MBNA
Canada, combined with the strengthening of
foreign currencies against the U.S. dollar,
partially offset by a net increase in
securitization activity. The strengthening of
foreign currencies increased foreign loan
receivables by $960.9 million in 2003. Also
during 2003, the Corporation securitized
approximately $2.8 billion of foreign credit
card loan principal receivables, partially
offset by an increase of $1.5 billion in the
Corporations foreign loan receivables when
certain securitization transactions used
principal payments to pay the investors rather
than to purchase new loan principal receivables
from the Corporation. The growth in foreign
loan receivables for 2002 was primarily a
result of loan originations through marketing
programs at MBNA Europe and MBNA Canada, and
foreign portfolio acquisitions. During 2002,
MBNA Europe acquired approximately $1.2 billion
of credit card loan receivables from Alliance &
Leicester plc. During 2002, the Corporation
securitized approximately $2.2 billion of
foreign credit card loan principal receivables,
partially offset by an increase of $512.3
million in the Corporations foreign loan
receivables when certain securitization




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##### 



TABLE 9: RECONCILIATION OF THE AS REPORTED LOAN YIELDS TO THE LOAN YIELDS
EXCLUDING THE CHANGE IN THE ESTIMATED VALUE OF ACCRUED INTEREST AND FEES IN
2002(dollars in thousands) Year Ended December 31, 2002AverageBalance
    
    
    Yield
    
    
    IncomeAs ReportedLoan receivables:Domestic credit card
    
    $
    13,581,330
    
    
    
    11.67
    %
    
    $
    1,584,828Domestic other consumer
    
    
    6,333,295
    
    
    
    13.84
    
    
    
    876,721Foreign
    
    
    5,400,575
    
    
    
    11.71
    
    
    
    632,463Total loan receivables
    
    
    25,315,200
    
    
    
    12.22
    
    
    
    3,094,012Securitized loans
    
    
    74,718,731
    
    
    
    12.36
    
    
    
    9,232,653Total managed loans
    
    $
    100,033,931
    
    
    
    12.32
    
    
    $
    12,326,665Impact of the Change in the Estimated Value of Accrued Interest and Fees in 2002Loan receivables:Domestic credit card
    
    $
    12,428
    
    
    
    
    
    
    $
    36,824Domestic other consumer
    
    
    8,228
    
    
    
    
    
    
    
    25,219Foreign
    
    
    1,374
    
    
    
    
    
    
    
    4,193Total loan receivables
    
    
    22,030
    
    
    
    
    
    
    
    66,236Securitized loans
    
    
    71,386
    
    
    
    
    
    
    
    211,425Total managed loans
    
    $
    93,416
    
    
    
    
    
    
    $
    277,661Excluding the Change in the Estimated Value of Accrued Interest and Fees in 2002Loan receivables:Domestic credit card
    
    $
    13,593,758
    
    
    
    11.93
    
    
    $
    1,621,652Domestic other consumer
    
    
    6,341,523
    
    
    
    14.22
    
    
    
    901,940Foreign
    
    
    5,401,949
    
    
    
    11.79
    
    
    
    636,656Total loan receivables
    
    
    25,337,230
    
    
    
    12.47
    
    
    
    3,160,248Securitized loans
    
    
    74,790,117
    
    
    
    12.63
    
    
    
    9,444,078Total managed loans
    
    $
    100,127,347
    
    
    
    12.59
    
    
    $
    12,604,326
  transactions used principal payments to pay the
investors rather than to purchase new loan
principal receivables from the Corporation. The
strengthening of foreign currencies against the
U.S. dollar also increased foreign loan
receivables by $509.7 million during 2002. In January 2004, the Corporation acquired
approximately $1.5 billion in insurance premium
finance loans as part of its acquisition of
Premium Credit Limited, the largest independent
insurance premium finance company in the U.K.
Through insurance premium financing, the
Corporation will make loans to businesses,
including professionals and small business
owners, to pay premiums on property, general
liability, and other types of insurance. The
Corporation will also provide loans to retail
consumers to pay premiums on insurance. The
Corporation will generate these loans through
its relationships with a network of brokers and
insurance companies. The yield on average foreign loan receivables
was 10.79% for 2003, as compared to 11.71% for
2002 and 12.41% for 2001. Excluding the change
in the estimated value of accrued interest and
fees in 2002, the yield on average foreign loan
receivables would have decreased 100 basis
points for 2003 and 62 basis points for 2002.
The decline in the yield on average foreign
loan receivables for 2003 and 2002, excluding
the change in the estimated value of accrued
interest and fees in 2002, reflects lower
promotional and other interest rates offered to
attract and retain Customers and to grow loan
receivables.
 Table 9 reconciles the Corporations loan
yields for 2002, to the loan yields excluding
the change in the estimated value of accrued
interest and fees in 2002. Note 9: Geographical Diversification of Loans
to the audited consolidated financial
statements provides further detail regarding
the Corporations loan receivables. PREMISES AND EQUIPMENT Effective January 1, 2003, the Corporation
reclassified capitalized software from other
assets to premises and equipment in the
Corporations audited consolidated statements
of financial condition. Also, effective January
1, 2003, the Corporation reclassified computer
software expense, which includes amortization
of capitalized software, from the other expense
component of other operating expenses to
furniture and equipment expense in the
Corporations audited consolidated statements
of income. Capitalized software was $461.3
million (net of accumulated amortization of
$271.9 million) and $330.5 million (net of
accumulated amortization of $216.2 million) at
December 31, 2003, and December 31, 2002,
respectively. Computer software expense,
including amortization of capitalized software,
was $127.3 million, $101.6 million, and $83.2
million for 2003, 2002, and 2001, respectively.
For purposes of comparability, prior period
amounts have been reclassified.




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##### 



30
  In 2002, the Corporation launched a multi-phase
project to extend the use of the Corporations
U.S. core Customer information systems to MBNA
Europes business in the U.K. and Ireland. MBNA
Canada already uses this system. The capital
expenditures associated with capitalized
software for this project at December 31, 2003
and 2002, were $214.0 million and $89.4
million, respectively. The Corporation
anticipates total capital expenditures of
approximately $300 million related to this
project and estimates the project will be
completed during the second quarter of 2004. ACCOUNTS RECEIVABLE FROM SECURITIZATION Accounts receivable from securitization
increased $839.6 million or 12.1% to $7.8
billion at December 31, 2003, as compared to
$6.9 billion at December 31, 2002. The increase
in accounts receivable from securitization is
primarily related to an increase in the amount
due from the trusts due to an increase in the
amounts due on the sale of new loan principal
receivables to the trust and the revaluation of
the Corporations interest-only strip
receivable. Note 8: Asset Securitization to the
audited consolidated financial statements
provides further detail regarding accounts
receivable from securitization. PREPAID EXPENSES AND DEFERRED CHARGES Prepaid expenses and deferred charges increased
$87.2 million or 21.1% to $499.8 million at
December 31, 2003, as compared to $412.6
million at December 31, 2002. The increase was
primarily related to increases in prepaid
royalties to endorsing organizations of $49.5
million and deferred loan origination costs of
$20.1 million. OTHER ASSETS Other assets increased $211.1 million or 12.6%
to $1.9 billion at December 31, 2003, as
compared to $1.7 billion at December 31, 2002.
The increase is primarily the result of
increases in the Corporations Community
Development investments in the form of limited
partnership interests that qualify under the
Community Reinvestment Act, the cash surrender
value of corporate owned life insurance
policies, and the fair market value of interest
rate swap agreements and foreign exchange swap
agreements accounted for as fair value hedges
under Statement of Financial Accounting
Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities (Statement
No. 133), as amended. The increase in the fair
market value of the Corporations interest rate
swap agreements and foreign exchange swap
agreements that qualified for, and are
accounted for, as fair value hedges was
partially offset by changes in the carrying
value of the corresponding hedged long-term
debt and bank notes. In addition to the
increases discussed above, on July 1, 2003, the
Corporations other assets increased by $32.9
million related to the deconsolidation of MBNA
Capital A, MBNA Capital B, MBNA Capital C, MBNA
Capital D, and MBNA Capital E, each a statutory
business trust created under the laws of the
State of Delaware.
 Note 17: Long-Term Debt and Bank Notes to the
audited consolidated financial statements
provides further discussion. Note 3: Significant Accounting
PoliciesDerivative Financial Instruments and
Hedging Activities and Note 30: Fair Value of
Financial Instruments to the audited
consolidated financial statements provide
further detail regarding the Corporations
derivative financial instruments and hedging
activities. INTEREST-BEARING DEPOSITS Total interest expense on deposits decreased
$147.7 million or 11.8% to $1.1 billion for
2003, compared to $1.3 billion for 2002. The
decrease in interest expense on deposits for
2003 was primarily the result of an 88 basis
point decrease in the rate paid on average
interest-bearing deposits, partially offset by
a $2.6 billion increase in average
interest-bearing deposits. The decrease in the
rate paid on average interest-bearing deposits
reflects the continued impact of actions by the
FOMC throughout 2001, the fourth quarter of
2002, and the second quarter of 2003, that
impacted overall market interest rates and
decreased the funding costs of the Corporation. Total interest expense on deposits decreased
$189.2 million or 13.1% to $1.3 billion for
2002, as compared to $1.4 billion for 2001. The
decrease in interest expense on deposits for
2002 was primarily the result of a 140 basis
point decrease in the rate paid on average
interest-bearing deposits, partially offset by
a $3.3 billion increase in average
interest-bearing deposits. The decrease in the
rate paid on average interest-bearing deposits
reflects actions by the FOMC throughout 2001
that impacted overall market interest rates and
decreased the funding costs of the
Corporations deposits as a portion of the
Corporations deposits matured and were
reinvested in a lower interest rate
environment. The Corporations money market
deposit accounts are variable-rate products. In
addition, the Corporations foreign time
deposits, although fixed-rate, generally mature
within one year. Therefore, the decrease in
market interest rates in the fourth quarter of
2002 and the second quarter of 2003 permitted
the Corporation to decrease the rate paid on
average money market deposit accounts and
average foreign time deposits during the year
ended December 31, 2003, as compared to the
same period in 2002. The Corporations domestic
time deposits are primarily fixed-rate deposits
with maturities that range from three months to
five years. Therefore, the Corporation realized
the benefits of the decrease in market rates in
2002 and 2003 on domestic time deposits more
slowly than the benefits of lower market rates
on money market deposits and foreign time
deposits and continued to realize the benefit
of the decrease in market rates throughout 2001
on domestic time deposits. The increases in average interest-bearing
deposits for 2003 and 2002 were a result of the
Corporations continued emphasis on marketing
domestic time deposits and money market deposit
accounts to members of certain endorsing
organizations, as well as obtaining other
domestic deposits through the use of
third-party intermediaries, to fund loan and
other asset growth and to diversify funding
sources.




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##### 



BORROWED FUNDS Borrowed funds include both short-term
borrowings and long-term debt and bank notes. Interest expense on short-term borrowings
decreased $3.8 million or 8.9% to $39.1 million
for 2003, compared to an increase of $18.2
million or 73.5% to $43.0 million for 2002. The
decrease in interest expense on short-term
borrowings for 2003 was primarily a result of a
decrease of $111.2 million in average
short-term borrowings. The increase in interest
expense on short-term borrowings for 2002 was
primarily a result of an increase of $689.5
million in average short-term borrowings,
partially offset by a 96 basis point decrease
in the interest rate paid on average short-term
borrowings. The increase in average short-term
borrowings in 2002 was primarily a result of
on-balance-sheet structured financings totaling
$1.0 billion, which were entered into during
the second half of 2001. These structured
financings were secured by $1.1 billion of
domestic other consumer loan receivables. For
2002, the decrease in the rate paid on average
short-term borrowings reflects actions by the
FOMC throughout 2001 that impacted overall
market interest rates. Note 16: Short-Term
Borrowings 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 increased $56.6 million or 18.6% to
$361.6 million for 2003, compared to a decrease
of $39.6 million or 11.5% to $305.0 million for
2002. The increase in interest expense on
long-term debt and bank notes in 2003 was
primarily a result of an increase in average
long-term debt and bank notes of $2.5 billion,
partially offset by a decrease in the interest
rate paid on average long-term debt and bank
notes of 37 basis points. The decrease in the
interest rate paid on average long-term debt
and bank notes for 2003 reflects actions by the
FOMC in the fourth quarter of 2002 and the
second quarter of 2003 that impacted overall
market interest rates. The decrease in interest
expense on long-term debt and bank notes in
2002 was primarily the result of a decrease in
the interest rate paid on average long-term
debt and bank notes of 167 basis points,
partially offset by an increase in average
long-term debt and bank notes of $1.7 billion.
The decrease in the interest rate paid on
average long-term debt and bank notes for 2002
reflects actions by the FOMC throughout 2001
that impacted overall market interest rates. Interest expense on domestic long-term debt and
bank notes increased $8.8 million or 5.1% to
$182.2 million during 2003, as compared to a
decrease of $68.3 million or 28.3% to $173.5
million for 2002. The increase in interest
expense on domestic long-term debt and bank
notes for 2003 was primarily the result of an
increase in average long-term debt and bank
notes of $1.6 billion, partially offset by a
decrease of 55 basis points in the interest
rate paid on average domestic long-term debt
and bank notes, as compared to 2002. The
Corporation issued additional long-term debt
and bank notes during 2003 to fund
 loan and other asset growth and to diversify funding
sources. The decrease in the rate paid on
average domestic long-term debt and bank notes
for 2003 reflects actions by the FOMC in the
fourth quarter of 2002 and the second quarter
of 2003 that impacted overall market interest
rates. The decrease in interest expense on
domestic long-term debt and bank notes for 2002
was primarily a result of a decrease of 218
basis points in the interest rate paid on
average domestic long-term debt and bank notes,
as compared to 2001, partially offset by an
increase in average domestic long-term debt and
bank notes of $1.1 billion. For 2002, the
decrease in the rate paid on average domestic
long-term debt and bank notes reflects actions
by the FOMC throughout 2001 that impacted
overall market interest rates. Interest expense on foreign long-term debt and bank notes
increased $47.8 million or 36.3% to $179.3
million for 2003, and increased $28.7 million
or 28.0% to $131.5 million for 2002. The
increases in interest expense on foreign
long-term debt and bank notes were primarily a
result of an increase in average foreign
long-term debt and bank notes of $921.9 million
and $655.1 million for 2003 and 2002,
respectively. MBNA Europe and MBNA Canada
issued additional long-term debt and bank notes
in 2003 and 2002 to fund loan and other asset
growth and to diversify funding sources. The Corporation uses interest rate swap agreements
and foreign exchange swap agreements to change
a portion of fixed-rate long-term debt and bank
notes to floating-rate long-term debt and bank
notes to more closely match the interest rate
sensitivity of the Corporations assets. The
Corporation also uses foreign exchange swap
agreements to minimize its foreign currency
exchange risk on a portion of long-term debt
and bank notes issued by MBNA Europe. Note 17:
Long-Term Debt and Bank Notes to the audited
consolidated financial statements provides
further detail regarding the Corporations
long-term debt and bank notes. NONINTEREST-BEARING DEPOSITS Noninterest-bearing deposits increased $1.5
billion or 164.2% to $2.4 billion at December
31, 2003, as compared to $915.7 million at
December 31, 2002. This increase was a result
of the change in the timing of the remittance
of principal collections on securitized loans
to the trusts. Since the second quarter of
2003, the Corporation is no longer obligated to
transfer principal collections on the
Corporations primary domestic credit card
securitization trust on a daily basis. These
funds are now retained on behalf of the trust
with the Corporation until the funds are
remitted on a monthly basis. The funds are
primarily invested in money market instruments
until they are remitted to the trust. ACCRUED EXPENSES AND OTHER LIABILITIES Accrued expenses and other liabilities
increased $609.1 million or 29.5% to $2.7
billion at December 31, 2003, as compared to
$2.1 billion at December 31, 2002. This
increase was primarily




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##### 



32
  the result of increases
in the gross unrealized losses on the
Corporations interest rate swap agreements,
forward exchange contracts, and foreign
exchange swap agreements accounted for under
Statement No. 133, an increase in income taxes
payable, and an increase in amounts accrued for
Customer reward programs expected to be
redeemed in future periods. ACCUMULATED OTHER COMPREHENSIVE INCOME Accumulated other comprehensive income
increased $324.6 million to $409.3 million at
December 31, 2003, as compared to $84.7 million
at December 31, 2002. The increase was
primarily attributable to favorable foreign
currency translation related to the
strengthening of foreign currencies against the
U.S. dollar. Note 19: Comprehensive Income to
the audited consolidated financial statements
provides further detail on the components of
other comprehensive income. TOTAL OTHER OPERATING INCOME Total other operating income includes
securitization income, interchange income,
credit card fees, other consumer loan fees,
insurance income, and other income. Total other
operating income
(BAR GRAPH)
increased $1.1 billion or
15.9% to $7.8 billion for 2003, as compared to
$6.8 billion in 2002. Excluding the change in
the estimated value of accrued interest and
fees in 2002, total other operating income for
2003 would have increased $875.2 million or
12.6% from 2002. Total other operating income
increased $79.6 million or 1.2% for 2002 as
compared to $6.7 billion for 2001. Excluding
the change in the estimated value of accrued
interest and fees in 2002, total other
operating income would have increased $277.0
million or 4.2% for 2002.
 Table 10 presents the components of total other operating income. TABLE 10: COMPONENTS OF TOTAL OTHER OPERATING INCOME(dollars in thousands) Year Ended December 31,
    
    2003
    
    
    2002
    
    
    2001Securitization income:Excess servicing fees (a)
    
    $
    4,875,381
    
    
    $
    4,304,428
    
    
    $
    4,206,551Loan servicing fees (a)
    
    
    1,535,427
    
    
    
    1,403,132
    
    
    
    1,311,537Gain from the sale of loan
principal receivables for
new securitizations (b)
    
    
    124,450
    
    
    
    154,556
    
    
    
    96,732Net revaluation of the
interest-only strip
receivable (b)
    
    
    (11,302
    )
    
    
    (195,764
    )
    
    
    107,504Total securitization income
    
    
    6,523,956
    
    
    
    5,666,352
    
    
    
    5,722,324Interchange
    
    
    391,827
    
    
    
    357,410
    
    
    
    300,957Credit card fees
    
    
    513,605
    
    
    
    385,422
    
    
    
    295,101Other consumer loan fees
    
    
    108,226
    
    
    
    100,862
    
    
    
    92,447Insurance
    
    
    231,941
    
    
    
    181,474
    
    
    
    145,338Other
    
    
    55,925
    
    
    
    61,403
    
    
    
    117,149Total other operating
income
    
    $
    7,825,480
    
    
    $
    6,752,923
    
    
    $
    6,673,316
  (a)
    
    Total securitization servicing fees
include excess servicing fees and loan
servicing fees.(b)
    
    The net gain (or loss) from
securitization activity includes the gain
from the sale of loan principal receivables
for new securitizations and the net
revaluation of the interest-only strip
receivable. Certain components and increases in total other
operating income are discussed as follows: SECURITIZATION INCOME Securitization income includes excess servicing
and loan servicing fees, the gain from the sale
of loan principal receivables recognized for
new securitizations, and the net revaluation of
the Corporations interest-only strip
receivable. The Corporation has the rights to
all excess revenue generated from the
securitized loans arising after the trusts
absorb the cost of funds, loan servicing fees
and credit losses (excess servicing fees).
The Corporation continues to service the
securitized loans and receives an annual
contractual servicing fee of approximately 2%
of the investor principal outstanding (loan
servicing fees). The Corporation




---



##### 



recognizes a
gain from the sale of loan principal
receivables for new securitizations.
Securitization income is also impacted by the
net revaluation of the Corporations
interest-only strip receivable as a result of
changes in the estimated excess spread to be
earned in the future and changes in projected
loan payment rates and securitization
transactions that are currently in their
scheduled accumulation period. The accumulation
period occurs when the trusts begin
accumulating principal collections to make
payments to the investors, instead of
purchasing new loan principal receivables from
the Corporation. Securitization income increased $857.6 million
or 15.1% to $6.5 billion for 2003, as compared
to a decrease of $56.0 million or 1.0% to $5.7
billion for 2002 from 2001. Excluding the
change in the estimated value of accrued
interest and fees in 2002, securitization
income would have increased $685.6 million or
11.7% for 2003 and $116.0 million or 2.0% for
2002. The increases are discussed below. Total Securitization Servicing Fees Total securitization servicing fees include
both excess servicing fees and loan servicing
fees. These items are discussed below. Table 11 provides further detail regarding total excess servicing fees. TABLE 11: COMPONENTS OF TOTAL EXCESS SERVICING FEES(dollars in thousands) Year Ended December 31,
    
    2003
    
    
    2002
    
    
    2001Interest income
on securitized loans
    
    $
    9,484,680
    
    
    $
    8,877,207
    
    
    $
    9,602,048Interest expense
on securitized loans
    
    
    (1,630,415
    )
    
    
    (1,833,105
    )
    
    
    (3,055,246
    )Net interest income
on securitized loans
    
    
    7,854,265
    
    
    
    7,044,102
    
    
    
    6,546,802Other fee income
on securitized loans
    
    
    2,932,012
    
    
    
    2,498,841
    
    
    
    2,423,300Net credit losses
on securitized loans
    
    
    (4,375,469
    )
    
    
    (3,835,383
    )
    
    
    (3,452,014
    )Total securitization
servicing fees
    
    
    6,410,808
    
    
    
    5,707,560
    
    
    
    5,518,088Loan servicing fees
    
    
    (1,535,427
    )
    
    
    (1,403,132
    )
    
    
    (1,311,537
    )Total excess servicing fees
    
    $
    4,875,381
    
    
    $
    4,304,428
    
    
    $
    4,206,551
 Excess Servicing Fees Excess servicing fees increased $571.0 million
or 13.3% to $4.9 billion for 2003, as compared
to an increase of $97.9 million or 2.3% to $4.3
billion for 2002 from $4.2 billion for 2001.
The increases for 2003 and 2002 were primarily
the result of increases in net interest income
and other fee income earned on securitized
loans, partially offset by an increase in net
credit losses on securitized loans.
 The net interest income earned on securitized
loans increased excess servicing fees by $810.2
million or 11.5% to $7.9 billion for 2003, as
compared to an increase of $497.3 million or
7.6% for 2002 from 2001. Excluding the change
in the estimated value of accrued interest and
fees in 2002, net interest income earned on
securitized loans would have increased excess
servicing fees by $598.8 million or 8.3% for
2003 and $708.7 million or 10.8% for 2002.
Securitized net interest income, excluding the
change in the estimated value of accrued
interest and fees in 2002, was affected by the
growth in average securitized loans, which
increased $7.0 billion or 9.3% to $81.7 billion
for 2003, as compared to an increase of $4.2
billion or 5.9% to $74.7 billion for 2002. The
growth in average securitized loans was
consistent with the overall growth in the
Corporations average managed loans, which
increased 9.8% and 10.0% for 2003 and 2002,
respectively. In addition, the net interest
margin on securitized interest-earning assets
increased to 10.09% for 2003, as compared to
9.93% in 2002, and 9.72% for 2001. Excluding
the change in the estimated value of accrued
interest and fees in 2002, the securitized net
interest margin would have decreased 14 basis
points for 2003, and would have increased 51
basis points for 2002. The securitized net
interest margin represents securitized net
interest income for the period expressed as a
percentage of average securitized
interest-earning assets. Refer to Off-Balance
Sheet ArrangementsImpact of Off-Balance Sheet
Securitization Transactions on the
Corporations Results for a reconciliation of
the Corporations net interest margin on
securitized interest-earning assets to the net
interest margin and a reconciliation of the
securitized net interest margin ratio to the
securitized net interest margin ratio excluding
the change in the estimated value of accrued
interest and fees in 2002. Changes in the yield
earned on average securitized loans and the
interest rate paid to investors in the
Corporations securitization transactions
impact the securitized net interest margin. The
yield earned on average securitized loans was
11.98% for 2003, as compared to 12.36% in 2002,
and 14.15% in 2001. Excluding the change in the
estimated value of accrued interest and fees in
2002, the yield earned on average securitized
loans would have decreased 65 basis points for
2003 and 152 basis points for 2002. Refer to
Loan Receivables for a reconciliation of the
securitized loan yields to the loan receivables
loan yields and a reconciliation of securitized
loan yields to the securitized loan yields
excluding the change in the estimated value of
accrued interest and fees in 2002. The decrease
in the yield earned on average securitized
loans for 2003 and 2002, excluding the change
in the estimated value of accrued interest and
fees in 2002, reflects lower average interest
rates offered to attract and retain Customers
and to grow




---



##### 



34
  managed loans. The average interest rate paid
to investors in the Corporations
securitization transactions was 2.04% for 2003,
as compared to 2.51% in 2002, and 4.44% in
2001. Refer to Off-Balance Sheet
ArrangementsImpact of Off-Balance Sheet
Securitization Transactions on the
Corporations Results for a reconciliation of
the average interest rate paid to investors in
the Corporations securitization transactions
to the average interest rate on net-interest
bearing liabilities. The decrease in the
average interest rate paid to investors in 2003
reflects the continued impact of actions by the
FOMC throughout 2001, in the fourth quarter of
2002, and the second quarter of 2003 that
impacted overall market interest rates. The
decrease in the average interest rate paid to
investors in 2002 reflects actions by the FOMC
throughout 2001 that impacted overall market
interest rates. The interest rate paid to
investors generally resets on a monthly basis. Other fee income generated by securitized loans
increased excess servicing fees by $433.2
million or 17.3% for 2003, as compared to $75.5
million or 3.1% for 2002, primarily as a result
of higher average securitized loans. The
increase in 2003 is also attributable to an
increase in the average fees assessed related
to the implementation of modified fee
structures, which included higher late,
overlimit, and cash advance fees. Excluding the
change in the estimated value of accrued
interest and fees in 2002, the increase in
other fee income in 2003 would have been
smaller. Therefore, the change in 2002 would
have been larger. The net charge-off rate on securitized loans
increased 23 basis points to 5.36% in 2003 as
compared to an increase of 24 basis points to
5.13% in 2002 from 4.89% in 2001. The increase
was consistent with the overall trend in the
Corporations managed loan portfolio. The
increase in net credit losses on securitized
loans decreased excess servicing fees by $540.1
million or 14.1% for 2003 and $383.4 million or
11.1% for 2002. An additional decrease to
excess servicing fees was a result of the
increase in loan servicing fees, which is
described below. LOAN SERVICING FEES Loan servicing fees during 2003 increased
$132.3 million or 9.4% to $1.5 billion, as
compared to an increase of $91.6 million or
7.0% to $1.4 billion for 2002, from $1.3
billion for 2001. The increase was a result of
a $7.0 billion or 9.3% increase in average
securitized loans for 2003, as compared to a
$4.2 billion or 5.9% increase in average
securitized loans for 2002. The growth in
average securitized loans reflects the overall
growth in the Corporations average managed
loans, which increased 9.8% and 10.0% for 2003
and 2002, respectively. NET GAIN (OR LOSS) FROM SECURITIZATION ACTIVITY The net gain (or loss) from securitization
activity consists of gains associated with the
sale of new loan principal receivables (net of
securitization transaction costs), changes in
the projected excess
 spread used to value the
interest-only strip receivable for securitized
credit card and other consumer loan principal
receivables, and all other changes in the fair
value of the interest-only strip receivable.
The net gain from securitization activity was
$113.1 million for 2003, as compared to a net
loss of $41.2 million in 2002, resulting in an
increase in securitization income of $154.4
million for 2003. Excluding the change in the
estimated value of accrued interest and fees in
2002, there would have been a net loss of
$165.1 million for 2002, which would have
resulted in an increase in securitization
income of $278.3 million for 2003. During the third quarter of 2003, the Corporation began
including projected express payment and
returned check fees in the determination of the
fair value of the interest-only strip
receivable. Upon inclusion of projected express
payment and returned check fees, the
interest-only strip receivable and
securitization income increased by
approximately $28.9 million. For the fourth
quarter of 2003, this inclusion increased the
interest-only strip receivable and
securitization income an additional $3.0
million. The Corporation began including
express payment fees in the determination of
the fair value of the interest-only strip
receivable because Customers are increasingly
choosing to utilize express payment services to
ensure that their payments are received on time
and that they do not incur a late fee. The
Corporation does not expect the inclusion of
these fees to have a material effect on the
Corporations earnings in subsequent periods. The net loss from securitization activity was
$41.2 million for 2002, as compared to a net
gain of $204.2 million in 2001, resulting in a
decrease in securitization income of $245.4
million for 2002. Excluding the change in the
estimated value of accrued interest and fees in
2002, there would have been a net loss of
$165.1 million for 2002, which would have
resulted in a decrease in securitization income
of $369.3 million for 2002. During 2002, the change in the estimated value
of accrued interest and fees in 2002 reduced
the carrying value of accrued interest and fees
on securitized loans by $295.9 million. The
Corporation also adjusted the value of the
interest-only strip receivable as a result of
the change in the estimated value of the
uncollectible accrued interest and fees in
2002. The Corporation had always included an
estimate of uncollectible accrued interest and
fees in determining the value of the
interest-only strip receivable. Since the
Corporation now recognizes uncollectible
interest and fees in the estimated value of
accrued interest and fees on securitized loans,
the estimated value of the interest-only strip
receivable was adjusted at September 30, 2002.
The value of uncollectible accrued interest and
fees on securitized loans that are currently
owed by the underlying Customer are now
considered in the value of accrued interest and
fees on securitized loans. Accordingly, the
estimated value of the interest-only strip
receivable now only considers the impact of
uncollectible interest and fees that will be




---



##### 







billed to the underlying Customer in the
future. This adjustment caused the
interest-only strip receivable to increase
$123.9 million at September 30, 2002. The net
impact of these changes resulted in a $172.0
million reduction to accounts receivable from
securitization. Certain components of the net
gain (or loss) from securitization activity are
discussed separately as follows: GAIN
FROM THE SALE OF LOAN PRINCIPAL RECEIVABLES

The gain from the sale of loan principal
receivables for new securitization transactions
that the Corporation recognizes as sales in
accordance with Statement No. 140 is included
in securitization income in the Corporations
audited consolidated statements of income. The
gain was $124.5 million (net of securitization
transaction costs of $51.2 million) for 2003
(on the sale of $13.6 billion of credit card
loan principal receivables in 2003), as
compared to a gain of $154.6 million (net of
securitization transaction costs of $41.7
million) in 2002 (on the sale of $15.5 billion
of credit card loan principal receivables in
2002), and a gain of $96.7 million (net of
securitization transaction costs of $62.3
million) in 2001 (on the sale of $12.4 billion
of credit card loan principal receivables in
2001). NET REVALUATION OF THE INTEREST-ONLY STRIP RECEIVABLE

The projected excess spread used to value the
interest-only strip receivable for securitized
credit card loan principal receivables
increased to 5.19% at December 31, 2003, as
compared to 4.84% at December 31, 2002. The
increase in the projected excess spread for
December 31, 2003, used to value the
interest-only strip receivable, was the result
of a decrease in the projected interest rate
paid to investors, combined with lower
projected charge-off rates on securitized
credit card loan principal receivables, and the
inclusion of projected express payment and
returned check fees in the excess spread used
to value the interest-only strip receivable,
which began in the third quarter of 2003,
partially offset by a decrease in projected
interest yields on securitized credit card loan
principal receivables resulting from the
Corporations pricing decisions to attract and
retain Customers and to grow managed loans.
This increase in the projected excess spread
used to value the interest-only strip
receivable for securitized credit card loan
principal receivables was offset by an increase
in the projected loan payment rates and
securitization transactions that are currently
in their scheduled accumulation period. The
projected excess spread used to value the
interest-only strip receivable for securitized
other consumer loan principal receivables
increased to 1.95% at December 31, 2003, as
compared to .91% at December 31, 2002. The
increase in the projected excess spread used to
value the interest-only strip receivable was
the result of lower projected charge-off rates
on securitized other consumer loan principal
receivables combined with a decrease in the
projected interest rate paid to investors, and
the inclusion of projected express payment and
returned check fees in the excess spread used
to value the interest-


only strip receivable,
which began in the third quarter of 2003. The
net of these items and all other changes in the
fair value of the interest-only strip
receivable for both securitized credit card
loan principal receivables and securitized
other consumer loan principal receivables
resulted in a $11.3 million loss for 2003. The projected excess spread used to value the
interest-only strip receivable for securitized
credit card loan principal receivables
decreased to 4.84% at December 31, 2002, as
compared to 5.14% at December 31, 2001. The
decrease in the projected excess spread for
December 31, 2002, used to value the
interest-only strip receivable, was the result
of a decrease in the projected interest yields
on securitized credit card loan principal
receivables resulting from the Corporations
pricing decisions to attract and retain
Customers and to grow managed loans, partially
offset by the change in the estimated value of
accrued interest and fees in 2002. The decrease
in the projected excess spread used to value
the interest-only strip receivable for
securitized credit card loan principal
receivables was combined with an increase in
the projected loan payment rates and
securitization transactions that are currently
in their scheduled accumulation period. The
projected excess spread used to value the
interest-only strip receivable for securitized
other consumer loan principal receivables
decreased to .91% at December 31, 2002, as
compared to 2.60% at December 31, 2001. The
decrease in the projected excess spread used to
value the interest-only strip receivable was
the result of an increase in projected
charge-off rates on securitized other consumer
loan principal receivables, a decrease in the
projected interest yield on securitized other
consumer loan principal receivables, offset by
the change in the estimated value of accrued
interest and fees in 2002. The net of these
items and all other changes in the fair value
of the interest-only strip receivable for both
securitized credit card loan principal
receivables and securitized other consumer loan
principal receivables resulted in a $195.8
million loss for 2002. Note 8: Asset Securitization to the audited
consolidated financial statements provides
further detail regarding the sensitivity to
changes in the key assumptions and estimates
used in determining the estimated value of the
interest-only strip receivable. 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 Incorporated (MasterCard) and
Visa U.S.A. Incorporated (Visa). Interchange income increased $34.4 million or
9.6% to $391.8 million in 2003, as compared to
an increase of $56.5 million or 18.8% to $357.4
million for 2002 from $301.0 million for 2001.
The increases in interchange income in 2003 and
2002 were primarily the result of increases in
cardholder




---



##### 





36




sales volume. Additionally in 2003,
MasterCard and Visa increased their interchange
rates, which were partially offset by higher
costs associated with Customer reward programs.
Interchange income on securitized loans is
included in securitization income. CREDIT CARD FEES

Credit card fees include annual, late,
overlimit, returned check, cash advance,
express payment, and other miscellaneous fees
on credit card loans. Credit card fees increased $128.2 million or
33.3% to $513.6 million for 2003, as compared
to an increase of $90.3 million or 30.6% to
$385.4 million for 2002 from $295.1 million for
2001. Excluding the change in the estimated
value of accrued interest and fees in 2002,
credit card fees would have increased $113.2
million or 28.3% for 2003 and $105.3 million or
35.7% for 2002. The increase in credit card
fees for 2003 was primarily the result of the
growth in the Corporations loan receivables,
the number of accounts, and an increase in the
average fees assessed related to the
implementation of modified fee structures,
which included higher late, overlimit, and cash
advance fees. The increase in credit card fees
in 2002 was primarily the result of the growth
in the Corporations loan receivables, the
number of accounts, and the number of fees
assessed. Credit card fees on securitized loans
are included in securitization income. INSURANCE INCOME

The Corporations insurance income primarily
relates to fees received for marketing credit
related life and disability insurance and
credit protection products to its Customers.
The Corporation recognizes insurance income
over the policy or contract period as earned. Insurance income increased $50.5 million or
27.8% to $231.9 million in 2003, as compared to
an increase of $36.1 million or 24.9% to $181.5
million for 2002 from $145.3 million for 2001.
The increases for 2003 and 2002 were primarily
the result of increases in the number of
accounts using credit related insurance
products and in the fees associated with these
products. Insurance income on securitized loans
is included in securitization income. TOTAL OTHER OPERATING EXPENSE

Total other operating expense includes salaries
and employee benefits, occupancy expense of
premises, furniture and equipment expense, and
other operating expenses. Total other operating
expense increased $422.2 million or 9.0% to
$5.1 billion for 2003, as compared to an
increase of $227.1 million or 5.1% to $4.7
billion for 2002 from $4.5 billion for 2001.
The growth in total other operating expense for
2003 and 2002 primarily reflects the
Corporations continued investment in
attracting, servicing, and retaining credit
card and other consumer loan Customers.


The Corporation added 10.7 million new accounts
in 2003, as compared to 12.0 million new
accounts in 2002, including 1.2 million
accounts from the Wachovia portfolio
acquisition and 1.0 million accounts from the
Alliance & Leicester plc portfolio acquisition,
and 9.5 million new accounts in 2001. The
Corporation added 384 new endorsements from
organizations during 2003, as compared to 405
new endorsements in 2002 and 439 new
endorsements in 2001. Certain components of
other operating expenses are discussed below. SALARIES AND EMPLOYEE BENEFITS

Salaries and employee benefits increased $135.7
million or 7.0% to $2.1 billion for 2003, as
compared to an increase of $126.1 million or
6.9% to $1.9 billion in 2002 from $1.8 billion
in 2001. The increase in salaries and employee
benefits for 2003 is primarily related to
increases in employee salary levels and
additional MBNA Europe employees as a result of
the operations in Spain. The increase for 2003
also includes the release of restrictions on
restricted stock awards of $41.8 million. The
increase in salaries and employee benefits for
2002 was primarily related to increases in
employee salary levels and an additional
compensation expense of $51.3 million
associated with the immediate vesting of
restricted stock awards on the death of a
holder of the awards. The Corporation had approximately 26,500, 26,100, and 25,400
full-time equivalent employees at December 31,
2003, 2002, and 2001, respectively. Included in salaries and employee benefits is
the net periodic benefit cost for the
Corporations noncontributory deferred benefit
pension plan (Pension Plan) and the
supplemental executive retirement plan (SERP)
of $96.1 million in 2003, as compared to $66.6
million in 2002 and $34.3 million in 2001. The
Corporation anticipates, based on current
conditions, that net periodic benefit cost for
the Pension Plan and the SERP plan will
increase by $20.9 million in 2004 because of a
lower assumed discount rate and normal
operations of the plans, partially offset by a
lower assumed rate of compensation increase.
The Corporation expects to contribute the
maximum tax deductible contribution to the
Pension Plan in 2004, which is estimated to be
approximately $75 million. In 2003, the
Corporation contributed $69.0 million to the
Pension Plan. Note 22: Employee Benefits to the audited
consolidated financial statements provides
further detail regarding the Corporations
employee benefits. OTHER
EXPENSE COMPONENT OF OTHER
OPERATING EXPENSE

The other expense component of other operating
expense increased $265.2 million or 11.8% to
$2.5 billion for 2003, as compared to $2.2
billion in 2002 and 2001. Certain components of
the other expense component of other operating
expense are discussed separately.




---



##### 







Table 12 provides further detail regarding the
other expense component of the Corporations
other operating expenses. TABLE 12: OTHER EXPENSE COMPONENT OF OTHER
OPERATING EXPENSE(dollars in thousands) Year Ended December 31,
    
    
    2003
    
    
    
    2002
    
    
    
    2001Purchased services
    
    $
    582,724
    
    
    $
    544,104
    
    
    $
    498,809Advertising
    
    
    421,965
    
    
    
    315,393
    
    
    
    268,897Collection
    
    
    77,482
    
    
    
    54,872
    
    
    
    46,260Stationery and supplies
    
    
    41,833
    
    
    
    48,073
    
    
    
    45,477Service bureau
    
    
    83,171
    
    
    
    75,444
    
    
    
    63,375Postage and delivery
    
    
    459,592
    
    
    
    366,129
    
    
    
    354,226Telephone usage
    
    
    89,448
    
    
    
    86,562
    
    
    
    84,900Loan receivable fraud losses
    
    
    139,193
    
    
    
    160,639
    
    
    
    172,366Amortization of intangible assets
    
    
    410,973
    
    
    
    348,727
    
    
    
    381,792Other
    
    
    207,031
    
    
    
    248,317
    
    
    
    274,329Total other expense
    
    $
    2,513,412
    
    
    $
    2,248,260
    
    
    $
    2,190,431
 ADVERTISING

Advertising expense increased $106.6 million or
33.8% to $422.0 million for 2003, as compared
to an increase of $46.5 million or 17.3% to
$315.4 million in 2002 from $268.9 million in
2001. The increases in advertising expense for
2003 and 2002 reflect the Corporations
continued investment in attracting and
retaining Customers. Also during 2003, the
Corporation increased the marketing of its
products through increased levels of mailings
to existing and potential Customers. POSTAGE AND DELIVERY

Postage and delivery expense increased $93.5
million or 25.5% to $459.6 million for 2003, as
compared to an increase of $11.9 million or
3.4% to $366.1 million in 2002 from $354.2
million in 2001. The increases in postage and
delivery expense for 2003 and 2002 reflect the
Corporations continued investment in
attracting, servicing, and retaining Customers.
Also during 2003, the Corporation increased the
marketing of its products through increased
levels of mailings to existing and potential
Customers. AMORTIZATION OF INTANGIBLE ASSETS

Amortization of intangible assets increased
$62.2 million or 17.8% to $411.0 million for
2003, as compared to a decrease of $33.1
million or 8.7% to $348.7 million in 2002 from
$381.8 million in 2001. The increase in
amortization of intangible assets for 2003 was
the result of higher levels of PCCRs, primarily
from the Wachovia and Alliance & Leicester plc
credit card portfolio acquisitions, which were
acquired in the second and third quarters of
2002, respectively. Prior to 2003, the Corporation amortized the value of its foreign
PCCRs over a period of 10 years. Effective
January 1, 2003, the Corporation extended the
amortization period for its foreign PCCRs to 15
years to more appropriately match the
amortization period with the foreign PCCRs
estimated useful lives. The change in estimate
did not have a material impact on the
Corporations financial condition or results of
operations for the year ended December 31,
2003.


The decrease in amortization of intangible
assets in 2002 was primarily attributable to
the change in the Corporations amortization
period of its domestic PCCRs. Prior to 2002,
the Corporation amortized the value of its
domestic PCCRs over a period of 10 years. In
the first quarter of 2002, the Corporation
completed a statistical study of the useful
lives of its acquired domestic PCCRs. As a
result of the study, effective January 1, 2002,
the Corporation extended the amortization
period of its domestic PCCRs to 15 years to
more appropriately match the amortization
period with the domestic PCCRs estimated
useful lives. As a result of the change in the
amortization period for domestic PCCRs, the
Corporations 2002 income before income taxes
increased $100.5 million ($63.7 million after
taxes). Excluding the change in the
amortization period of the domestic PCCRs, the
Corporations earnings per common share would
have been $1.32 and earnings per common
shareassuming dilution would have been $1.30
in 2002. Note 3: Significant Accounting
PoliciesIntangible Assets to the audited
consolidated financial statements provides
further detail regarding the Corporations
intangible assets. OTHER

Other expense decreased $41.3 million or 16.6%
to $207.0 million for 2003, as compared to a
decrease of $26.0 million or 9.5% to $248.3
million in 2002 from $274.3 million in 2001.
The decrease in other expense for 2003 was
primarily related to increases in the market
value of company owned life insurance, as
compared to decreases in the market value in
2002. INCOME TAXES

Income tax expense increased $301.4 million or
29.6% to $1.3 billion for 2003, as compared to
$1.0 billion for 2002 and 2001. These amounts
represent an effective tax rate of 36.1% for
2003, 36.6% for 2002, and 37.6% for 2001. The
reduction in the effective tax rate was
primarily driven by favorable resolutions of
tax examination issues at the federal and state
levels and an increase in favorable tax
adjustments. Note 21: Income Taxes to the
audited consolidated financial statements
provides further detail regarding the
Corporations income taxes. LOAN QUALITY

The Corporations loan quality, at any time,
reflects, among other factors, the credit
quality of the Corporations credit card and
other consumer loans, the success of the
Corporations collection efforts, the
composition of credit card and other consumer
loans included in the Corporations loan
receivables, the seasoning of the Corporations
loans, and general economic conditions. As new
loans season, the delinquency and charge-off
rates on these loans normally rise and then
stabilize. The Corporations financial results
are sensitive to changes in delinquencies and
net credit losses related to the Corporations
loans. During an economic downturn,
delinquencies and net credit losses are more
likely to increase. The




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##### 





38




Corporation considers the levels of delinquent
loans, renegotiated loans, re-aged loans, and
other factors in determining the appropriate
reserve for possible credit losses and the
estimate of uncollectible accrued interest and
fees. The following loan quality discussion
includes credit risk, delinquencies,
renegotiated loan programs, which include
nonaccrual loans and reduced-rate loans,
re-aged loans, net credit losses, the reserve
and provision for possible credit losses, and
the estimate of uncollectible accrued interest
and fees (see Critical Accounting
PoliciesReserve For Possible Credit Losses
and Revenue Recognition for further
discussion). CREDIT RISK

Credit risk is one of the Corporations most
significant risks. It primarily represents the
risk to earnings and capital arising from the
failure of Customers to repay loans according
to their terms. Credit risk is particularly
important for the Corporation because its
primary products are unsecured consumer credit
cards and other unsecured consumer loans that
generally have higher credit risks than secured
consumer lending products, such as mortgages
and automobile loans, and commercial lending
products. In addition, the Corporation
generates significant revenues from fees, such
as late and overlimit fees, on accounts that
exhibit higher credit risk. Management attempts
to manage credit risk through a variety of
techniques, including prudent underwriting of
applications for credit and review of credit
risk for portfolios of loans that are acquired,
setting and managing appropriate credit line
amounts, monitoring account usage and, where
appropriate, blocking use of accounts, and
working with Customers with past-due balances
to help them manage their accounts and to
collect past-due amounts. These efforts are
described under Business in the Corporations
2003 Annual Report on Form 10-K. The level of the Corporations credit risk is
affected by the Corporations marketing and
credit underwriting strategies. The Corporation
markets its products through endorsements from
associations, financial institutions, and other
organizations. Through this endorsed marketing
strategy and the Corporations underwriting of
loan applications, the Corporation attempts to
attract quality loan applicants and offer
optimal, initial credit lines on accounts and
periodic credit-line increases, resulting in
higher usage and average account balances. When
Customers experience financial difficulties
however, the higher usage and average account
balances will result in higher average balances
for accounts that charge off. The Corporation
attempts to control this risk through blocking
use of accounts or reducing credit lines. The
Corporation may also set or increase the
interest rate charged on accounts to compensate
for increased credit risk. For example, as
discussed under Loan QualityDelinquencies
below, the


Corporation generally charges higher interest
rates on domestic other consumer loan
receivables because these receivables typically
have a higher delinquency and charge-off rate
than the Corporations domestic credit card
loan receivables. The Corporation also assesses
certain fees, such as late and overlimit fees,
to encourage Customers to pay and manage their
accounts responsibly and to compensate the
Corporation for the risks associated with
certain activity on the Customers accounts. Credit quality and the impact of credit losses
on the Corporations financial condition and
results of operations are discussed below. DELINQUENCIES

The entire balance of an account is                             (bar chart)
contractually delinquent if the minimum payment
is not received by the specified date on the
Customers billing
statement. Interest and
fees continue to accrue on
the Corporations
delinquent loans.
Delinquency is reported on
accruing loans that are 30
or more days past due.
Delinquency as a percentage
of the Corporations loan
receivables was 3.84% at
December 31, 2003, as
compared to 4.36% and 4.67%
at December 31, 2002, and
2001, respectively. The
Corporations delinquency
as a percentage of managed
loans was 4.39% at December
31, 2003, as compared to
4.88% and 5.09% at December
31, 2002, and 2001,
respectively. The reduction
in the Corporations
delinquency rates was due
to growth in foreign loan
receivables, including
growth as a result of the
strengthening of foreign
currencies against the U.S.
dollar, and increased
collection efforts by the
Corporation during 2003. It
also reflects a decrease in
other consumer loan
receivables as a percentage
of total loan receivables.
The decrease in domestic
other consumer loan
receivables during 2003 was
due to a decrease in the
Corporations sales finance
loan receivables, as the
Corporation placed less
emphasis on this product in
2003.




---



##### 



TABLE 13: DELINQUENT LOANS (a) (b) (c)(dollars in thousands) December 31,
    
    
    2003
    
    
    
    
    
    
    
    2002
    
    
    
    
    
    
    
    2001
    
    
    
    
    
    
    
    2000
    
    
    
    
    
    
    
    1999Loan ReceivablesLoan receivables outstanding
    
    $
    33,624,077
    
    
    
    
    
    
    $
    28,726,508
    
    
    
    
    
    
    $
    24,633,564
    
    
    
    
    
    
    $
    19,954,837
    
    
    
    
    
    
    $
    17,663,709Loan receivables delinquent:30 to 59 days
    
    $
    429,266
    
    
    
    1.28
    %
    
    $
    439,911
    
    
    
    1.53
    %
    
    $
    433,212
    
    
    
    1.76
    %
    
    $
    304,928
    
    
    
    1.53
    %
    
    $
    246,160
    
    
    
    1.39
    %60 to 89 days
    
    
    277,928
    
    
    
    .83
    
    
    
    273,103
    
    
    
    .95
    
    
    
    242,784
    
    
    
    .99
    
    
    
    169,462
    
    
    
    .85
    
    
    
    140,909
    
    
    
    .8090 or more days (d)
    
    
    582,605
    
    
    
    1.73
    
    
    
    538,589
    
    
    
    1.88
    
    
    
    474,905
    
    
    
    1.92
    
    
    
    329,290
    
    
    
    1.65
    
    
    
    321,682
    
    
    
    1.82Total
    
    $
    1,289,799
    
    
    
    3.84
    %
    
    $
    1,251,603
    
    
    
    4.36
    %
    
    $
    1,150,901
    
    
    
    4.67
    %
    
    $
    803,680
    
    
    
    4.03
    %
    
    $
    708,751
    
    
    
    4.01
    %Loan receivables delinquent by
geographic area:Domestic:Credit card
    
    $
    775,420
    
    
    
    4.27
    %
    
    $
    722,988
    
    
    
    4.64
    %
    
    $
    676,876
    
    
    
    4.71
    %
    
    $
    562,716
    
    
    
    4.33
    %
    
    $
    551,013
    
    
    
    4.25
    %Other consumer
    
    
    339,199
    
    
    
    5.45
    
    
    
    391,568
    
    
    
    6.19
    
    
    
    366,695
    
    
    
    5.99
    
    
    
    173,204
    
    
    
    4.53
    
    
    
    115,274
    
    
    
    5.08Total domestic
    
    
    1,114,619
    
    
    
    4.57
    
    
    
    1,114,556
    
    
    
    5.09
    
    
    
    1,043,571
    
    
    
    5.09
    
    
    
    735,920
    
    
    
    4.37
    
    
    
    666,287
    
    
    
    4.38Foreign
    
    
    175,180
    
    
    
    1.90
    
    
    
    137,047
    
    
    
    2.01
    
    
    
    107,330
    
    
    
    2.60
    
    
    
    67,760
    
    
    
    2.17
    
    
    
    42,464
    
    
    
    1.74Total
    
    $
    1,289,799
    
    
    
    3.84
    
    
    $
    1,251,603
    
    
    
    4.36
    
    
    $
    1,150,901
    
    
    
    4.67
    
    
    $
    803,680
    
    
    
    4.03
    
    
    $
    708,751
    
    
    
    4.01Securitized LoansSecuritized loans outstanding
    
    $
    84,869,483
    
    
    
    
    
    
    $
    78,531,334
    
    
    
    
    
    
    $
    72,862,487
    
    
    
    
    
    
    $
    68,835,884
    
    
    
    
    
    
    $
    54,591,804Securitized loans delinquent:30 to 59 days
    
    $
    1,235,230
    
    
    
    1.46
    %
    
    $
    1,374,779
    
    
    
    1.75
    %
    
    $
    1,383,681
    
    
    
    1.90
    %
    
    $
    1,187,368
    
    
    
    1.72
    %
    
    $
    863,967
    
    
    
    1.58
    %60 to 89 days
    
    
    818,356
    
    
    
    .96
    
    
    
    844,811
    
    
    
    1.08
    
    
    
    797,077
    
    
    
    1.09
    
    
    
    677,300
    
    
    
    .98
    
    
    
    507,363
    
    
    
    .9390 or more days (d)
    
    
    1,860,265
    
    
    
    2.19
    
    
    
    1,758,318
    
    
    
    2.24
    
    
    
    1,630,802
    
    
    
    2.24
    
    
    
    1,318,190
    
    
    
    1.92
    
    
    
    1,136,815
    
    
    
    2.08Total
    
    $
    3,913,851
    
    
    
    4.61
    %
    
    $
    3,977,908
    
    
    
    5.07
    %
    
    $
    3,811,560
    
    
    
    5.23
    %
    
    $
    3,182,858
    
    
    
    4.62
    %
    
    $
    2,508,145
    
    
    
    4.59
    %Securitized loans delinquent by
geographic area:Domestic:Credit card
    
    $
    3,244,512
    
    
    
    4.80
    %
    
    $
    3,248,814
    
    
    
    5.09
    %
    
    $
    3,102,237
    
    
    
    5.13
    %
    
    $
    2,624,415
    
    
    
    4.57
    %
    
    $
    2,106,961
    
    
    
    4.60
    %Other consumer
    
    
    351,655
    
    
    
    6.20
    
    
    
    401,469
    
    
    
    7.07
    
    
    
    444,464
    
    
    
    7.79
    
    
    
    372,845
    
    
    
    6.55
    
    
    
    249,623
    
    
    
    6.26Total domestic
    
    
    3,596,167
    
    
    
    4.91
    
    
    
    3,650,283
    
    
    
    5.25
    
    
    
    3,546,701
    
    
    
    5.36
    
    
    
    2,997,260
    
    
    
    4.75
    
    
    
    2,356,584
    
    
    
    4.73Foreign
    
    
    317,684
    
    
    
    2.74
    
    
    
    327,625
    
    
    
    3.65
    
    
    
    264,859
    
    
    
    3.98
    
    
    
    185,598
    
    
    
    3.25
    
    
    
    151,561
    
    
    
    3.19Total
    
    $
    3,913,851
    
    
    
    4.61
    
    
    $
    3,977,908
    
    
    
    5.07
    
    
    $
    3,811,560
    
    
    
    5.23
    
    
    $
    3,182,858
    
    
    
    4.62
    
    
    $
    2,508,145
    
    
    
    4.59Managed LoansManaged loans outstanding
    
    $
    118,493,560
    
    
    
    
    
    
    $
    107,257,842
    
    
    
    
    
    
    $
    97,496,051
    
    
    
    
    
    
    $
    88,790,721
    
    
    
    
    
    
    $
    72,255,513Managed loans delinquent:30 to 59 days
    
    $
    1,664,496
    
    
    
    1.40
    %
    
    $
    1,814,690
    
    
    
    1.69
    %
    
    $
    1,816,893
    
    
    
    1.86
    %
    
    $
    1,492,296
    
    
    
    1.68
    %
    
    $
    1,110,127
    
    
    
    1.54
    %60 to 89 days
    
    
    1,096,284
    
    
    
    .93
    
    
    
    1,117,914
    
    
    
    1.04
    
    
    
    1,039,861
    
    
    
    1.07
    
    
    
    846,762
    
    
    
    .95
    
    
    
    648,272
    
    
    
    .9090 or more days (d)
    
    
    2,442,870
    
    
    
    2.06
    
    
    
    2,296,907
    
    
    
    2.15
    
    
    
    2,105,707
    
    
    
    2.16
    
    
    
    1,647,480
    
    
    
    1.86
    
    
    
    1,458,497
    
    
    
    2.01Total
    
    $
    5,203,650
    
    
    
    4.39
    %
    
    $
    5,229,511
    
    
    
    4.88
    %
    
    $
    4,962,461
    
    
    
    5.09
    %
    
    $
    3,986,538
    
    
    
    4.49
    %
    
    $
    3,216,896
    
    
    
    4.45
    %Managed loans delinquent by
geographic area:Domestic:Credit card
    
    $
    4,019,932
    
    
    
    4.69
    %
    
    $
    3,971,802
    
    
    
    5.00
    %
    
    $
    3,779,113
    
    
    
    5.05
    %
    
    $
    3,187,131
    
    
    
    4.52
    %
    
    $
    2,657,974
    
    
    
    4.52
    %Other consumer
    
    
    690,854
    
    
    
    5.81
    
    
    
    793,037
    
    
    
    6.61
    
    
    
    811,159
    
    
    
    6.86
    
    
    
    546,049
    
    
    
    5.74
    
    
    
    364,897
    
    
    
    5.83Total domestic
    
    
    4,710,786
    
    
    
    4.82
    
    
    
    4,764,839
    
    
    
    5.21
    
    
    
    4,590,272
    
    
    
    5.29
    
    
    
    3,733,180
    
    
    
    4.67
    
    
    
    3,022,871
    
    
    
    4.65Foreign
    
    
    492,864
    
    
    
    2.37
    
    
    
    464,672
    
    
    
    2.94
    
    
    
    372,189
    
    
    
    3.45
    
    
    
    253,358
    
    
    
    2.87
    
    
    
    194,025
    
    
    
    2.70Total
    
    $
    5,203,650
    
    
    
    4.39
    
    
    $
    5,229,511
    
    
    
    4.88
    
    
    $
    4,962,461
    
    
    
    5.09
    
    
    $
    3,986,538
    
    
    
    4.49
    
    
    $
    3,216,896
    
    
    
    4.45
  (a)
    
    Amounts exclude nonaccrual loans, which are presented in Table 15.(b)
    
    The Corporation considers these loans and other factors in determining an
appropriate reserve for possible credit losses and the estimate of
uncollectible accrued interest and fees.(c)
    
    In September 2002, the Corporation changed the estimated value of accrued
interest and fees. Excluding the change in the estimated value of accrued
interest and fees in 2002, delinquency on loan receivables and managed loans
would have been 4.66% and 5.19%, respectively, at December 31, 2002.(d)
    
    See Table 14 for further detail on accruing loans past due 90 days or more.    Table 13 presents a reconciliation of the
Corporations loan receivables delinquency
ratio to the managed loans delinquency ratio. Loan delinquency on domestic credit card loan
receivables was 4.27% at December 31, 2003, as
compared to 4.64% and 4.71% at December 31,
2002, and 2001, respectively. Loan delinquency
on domestic other consumer loan receivables was
5.45% at December 31, 2003, as compared to
6.19% and 5.99% at December 31, 2002, and 2001,
respectively. Loan delinquency on foreign loan
receivables was 1.90% at December 31, 2003, as
 compared to 2.01% and 2.60% at December 31,
2002, and 2001, respectively. The delinquency
rate on the Corporations foreign loan
receivables is typically lower than the
delinquency rate on the Corporations domestic
credit card loan receivables. The Corporations
domestic other consumer loan receivables
typically have a higher delinquency and
charge-off rate than the Corporations domestic
credit card loan receivables, and as a result,
the Corporation generally charges higher
interest rates on domestic other consumer loan
receivables.




---



##### 



40
 TABLE 14: ACCRUING LOANS PAST DUE 90 DAYS OR MORE (a) (b) (c)(dollars in
thousands) December 31,
    
    
    2003
    
    
    
    2002
    
    
    
    2001
    
    
    
    2000
    
    
    
    1999Loan ReceivablesDomestic:Credit card
    
    $
    365,668
    
    
    $
    310,413
    
    
    $
    289,907
    
    
    $
    236,010
    
    
    $
    250,534Other consumer
    
    
    164,315
    
    
    
    179,378
    
    
    
    150,189
    
    
    
    69,932
    
    
    
    54,636Total domestic
    
    
    529,983
    
    
    
    489,791
    
    
    
    440,096
    
    
    
    305,942
    
    
    
    305,170Foreign
    
    
    52,622
    
    
    
    48,798
    
    
    
    34,809
    
    
    
    23,348
    
    
    
    16,512Total
    
    $
    582,605
    
    
    $
    538,589
    
    
    $
    474,905
    
    
    $
    329,290
    
    
    $
    321,682Securitized LoansDomestic:Credit card
    
    $
    1,563,719
    
    
    $
    1,429,522
    
    
    $
    1,331,890
    
    
    $
    1,088,991
    
    
    $
    951,970Other consumer
    
    
    174,314
    
    
    
    186,256
    
    
    
    184,539
    
    
    
    156,326
    
    
    
    114,694Total domestic
    
    
    1,738,033
    
    
    
    1,615,778
    
    
    
    1,516,429
    
    
    
    1,245,317
    
    
    
    1,066,664Foreign
    
    
    122,232
    
    
    
    142,540
    
    
    
    114,373
    
    
    
    72,873
    
    
    
    70,151Total
    
    $
    1,860,265
    
    
    $
    1,758,318
    
    
    $
    1,630,802
    
    
    $
    1,318,190
    
    
    $
    1,136,815Managed LoansDomestic:Credit card
    
    $
    1,929,387
    
    
    $
    1,739,935
    
    
    $
    1,621,797
    
    
    $
    1,325,001
    
    
    $
    1,202,504Other consumer
    
    
    338,629
    
    
    
    365,634
    
    
    
    334,728
    
    
    
    226,258
    
    
    
    169,330Total domestic
    
    
    2,268,016
    
    
    
    2,105,569
    
    
    
    1,956,525
    
    
    
    1,551,259
    
    
    
    1,371,834Foreign
    
    
    174,854
    
    
    
    191,338
    
    
    
    149,182
    
    
    
    96,221
    
    
    
    86,663Total
    
    $
    2,442,870
    
    
    $
    2,296,907
    
    
    $
    2,105,707
    
    
    $
    1,647,480
    
    
    $
    1,458,497
  (a)
    
    Amounts exclude nonaccrual loans, which are presented in Table 15.(b)
    
    This Table provides further detail on 90 days or more delinquent loans
presented in Table 13.(c)
    
    The Corporation considers these loans and other factors in determining an
appropriate reserve for possible credit losses and the estimate of
uncollectible accrued interest and fees. Table 14 presents accruing loans past due 90 days or more. RENEGOTIATED LOAN PROGRAMS

The Corporation may modify the terms of its
credit card and other consumer loan agreements
with Customers who have experienced
financial difficulties by offering them
renegotiated loan programs, which include
either placing them on nonaccrual status or
reducing their interest rate. The Corporation
considers these loans and other factors in
determining an appropriate reserve for possible
credit losses and estimate of uncollectible
accrued interest and fees. TABLE 15: NONACCRUAL LOANS (a) (b)(dollars in thousands) December 31,
    
    
    2003
    
    
    
    2002
    
    
    
    2001
    
    
    
    2000
    
    
    
    1999Loan ReceivablesDomestic:Credit card$
    13,114
    
    
    $
    48,318
    
    
    $
    27,570
    
    
    $
    21,488
    
    
    $
    13,793Other consumer
    
    
    1,053
    
    
    
    2,481
    
    
    
    2,043
    
    
    
    2,628
    
    
    
    905Total domestic
    
    
    14,167
    
    
    
    50,799
    
    
    
    29,613
    
    
    
    24,116
    
    
    
    14,698Foreign
    
    
    85,284
    
    
    
    6,733
    
    
    
    6,159
    
    
    
    17,046
    
    
    
    9,214Total
    
    $
    99,451
    
    
    $
    57,532
    
    
    $
    35,772
    
    
    $
    41,162
    
    
    $
    23,912Nonaccrual loan receivables as a percentage
of ending loan receivables
    
    
    .30
    %
    
    
    .20
    %
    
    
    .15
    %
    
    
    .21
    %
    
    
    .14
    %Securitized LoansDomestic:Credit card$
    47,772
    
    
    $
    215,605
    
    
    $
    120,494
    
    
    $
    99,938
    
    
    $
    62,126Other consumer
    
    
    1,050
    
    
    
    2,348
    
    
    
    2,031
    
    
    
    4,571
    
    
    
    6,167Total domestic
    
    
    48,822
    
    
    
    217,953
    
    
    
    122,525
    
    
    
    104,509
    
    
    
    68,293Foreign129,140
    
    
    
    11,798
    
    
    
    15,528
    
    
    
    44,882
    
    
    
    24,491Total$
    177,962
    
    
    $
    229,751
    
    
    $
    138,053
    
    
    $
    149,391
    
    
    $
    92,784Nonaccrual
securitized loans
as a percentage of
ending securitized
loans
    
    
    .21
    %
    
    
    .29
    %
    
    
    .19
    %
    
    
    .22
    %
    
    
    .17
    %Managed LoansDomestic:Credit card$
    60,886
    
    
    $
    263,923
    
    
    $
    148,064
    
    
    $
    121,426
    
    
    $
    75,919Other consumer
    
    
    2,103
    
    
    
    4,829
    
    
    
    4,074
    
    
    
    7,199
    
    
    
    7,072Total domestic
    
    
    62,989
    
    
    
    268,752
    
    
    
    152,138
    
    
    
    128,625
    
    
    
    82,991Foreign214,424
    
    
    
    18,531
    
    
    
    21,687
    
    
    
    61,928
    
    
    
    33,705Total$
    277,413
    
    
    $
    287,283
    
    
    $
    173,825
    
    
    $
    190,553
    
    
    $
    116,696Nonaccrual managed loans as a percentage of
ending managed loans
    
    
    .23
    %
    
    
    .27
    %
    
    
    .18
    %
    
    
    .21
    %
    
    
    .16
    %
  (a)
    
    Although nonaccrual loans are charged off consistent with Corporations
charge-off policy as described in Loan QualityNet Credit Losses, nonaccrual
loans are not included in the delinquent loans presented in Table 13 and Table
14 and the reduced-rate loans presented in Table 16.(b)
    
    The Corporation considers these loans and other factors in determining an
appropriate reserve for possible credit losses and the estimate of
uncollectible accrued interest and fees.




---



##### 









TABLE 16: REDUCED-RATE LOANS (a) (b)(dollars in thousands)

December 31,
    
    
    2003
    
    
    
    2002
    
    
    
    2001
    
    
    
    2000
    
    
    
    1999Loan ReceivablesDomestic:Credit card
    
    $
    410,156
    
    
    $
    429,122
    
    
    $
    356,536
    
    
    $
    316,354
    
    
    $
    297,562Other consumer
    
    
    131,048
    
    
    
    163,521
    
    
    
    145,305
    
    
    
    79,378
    
    
    
    25,127Total domestic
    
    
    541,204
    
    
    
    592,643
    
    
    
    501,841
    
    
    
    395,732
    
    
    
    322,689Foreign
    
    
    31,446
    
    
    
    64,951
    
    
    
    42,572
    
    
    
    16,529
    
    
    
    6,236Total
    
    $
    572,650
    
    
    $
    657,594
    
    
    $
    544,413
    
    
    $
    412,261
    
    
    $
    328,925Reduced-rate loan receivables as a percentage
of ending loan receivables
    
    
    1.70
    %
    
    
    2.29
    %
    
    
    2.21
    %
    
    
    2.07
    %
    
    
    1.86
    %Securitized LoansDomestic:Credit card
    
    $
    1,626,721
    
    
    $
    1,928,406
    
    
    $
    1,601,882
    
    
    $
    1,381,046
    
    
    $
    1,167,012Other consumer
    
    
    139,476
    
    
    
    158,254
    
    
    
    144,439
    
    
    
    122,797
    
    
    
    186,795Total domestic
    
    
    1,766,197
    
    
    
    2,086,660
    
    
    
    1,746,321
    
    
    
    1,503,843
    
    
    
    1,353,807Foreign
    
    
    66,009
    
    
    
    80,172
    
    
    
    69,658
    
    
    
    32,113
    
    
    
    13,757Total
    
    $
    1,832,206
    
    
    $
    2,166,832
    
    
    $
    1,815,979
    
    
    $
    1,535,956
    
    
    $
    1,367,564Reduced-rate securitized loans as a percentage
of ending securitized loans
    
    
    2.16
    %
    
    
    2.76
    %
    
    
    2.49
    %
    
    
    2.23
    %
    
    
    2.51
    %Managed LoansDomestic:Credit card
    
    $
    2,036,877
    
    
    $
    2,357,528
    
    
    $
    1,958,418
    
    
    $
    1,697,400
    
    
    $
    1,464,574Other consumer
    
    
    270,524
    
    
    
    321,775
    
    
    
    289,744
    
    
    
    202,175
    
    
    
    211,922Total domestic
    
    
    2,307,401
    
    
    
    2,679,303
    
    
    
    2,248,162
    
    
    
    1,899,575
    
    
    
    1,676,496Foreign
    
    
    97,455
    
    
    
    145,123
    
    
    
    112,230
    
    
    
    48,642
    
    
    
    19,993Total
    
    $
    2,404,856
    
    
    $
    2,824,426
    
    
    $
    2,360,392
    
    
    $
    1,948,217
    
    
    $
    1,696,489Reduced-rate managed loans as a percentage
of ending managed loans
    
    
    2.03
    %
    
    
    2.63
    %
    
    
    2.42
    %
    
    
    2.19
    %
    
    
    2.35
    %




|(a) |  | Reduced-rate loans presented in this Table exclude accruing loans past due
90 days or more and nonaccrual loans, which are presented in Table 14 and Table
15, respectively.         
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(b) |  | The Corporation considers these loans and other factors in determining an
appropriate reserve for possible credit losses and the estimate of
uncollectible accrued interest and fees.



NONACCRUAL LOANS

On a case-by-case basis, management determines
whether an account should be placed on
nonaccrual status. When loans are classified as
nonaccrual, the accrual of interest ceases. In
future periods, when a payment is received, it
is recorded as a reduction of principal. Nonaccrual loan receivables as a percentage of
the Corporations ending loan receivables were
..30% at December 31, 2003, as compared to .20%
and .15% at December 31, 2002, and 2001,
respectively. Nonaccrual managed loans as a
percentage of ending managed loans were .23% at
December 31, 2003, as compared to .27% and .18%
at December 31, 2002, and 2001, respectively
(see Table 15 for a geographic breakdown of
nonaccrual loans). The decreases in domestic
nonaccrual loans are primarily the result of a
reduction in the number of renegotiated loan
programs offered to domestic Customers. The
increases in foreign nonaccrual loans are
primarily the result of MBNA Europe, in
September 2003, reclassifying certain
collection accounts to nonaccrual loans, as
well as MBNA Europe conforming its practices
with the Corporations domestic practices as to
when loans are placed on nonaccrual status,
combined with the strengthening of foreign
currencies against the U.S. dollar. Prior year
amounts have not been reclassified.


Table 15 presents the Corporations nonaccrual
loan receivables and includes a reconciliation
to the nonaccrual managed loans. REDUCED-RATE LOANS

On a case-by-case basis, management determines
whether an account should be placed on
reduced-rate status. Reduced-rate loans are
loans for which the interest rate was reduced
because of the inability of the Customer to
comply with the original terms and conditions
of the agreement. Income is accrued at the
reduced rate as long as the Customer complies
with the revised terms and conditions of the
agreement. Reduced-rate loan receivables as a percentage
of the Corporations ending loan receivables
were 1.70% at December 31, 2003, as compared to
2.29% and 2.21% at December 31, 2002, and 2001,
respectively. Reduced-rate managed loans as a
percentage of ending managed loans were 2.03%
at December 31, 2003, as compared to 2.63% and
2.42% at December 31, 2002, and 2001,
respectively. The decreases were primarily the
result of a reduction in the number of
renegotiated loan programs offered to
Customers. Table 16 presents the Corporations
reduced-rate loan receivables and includes a
reconciliation to the reduced-rate managed
loans.




---



##### 





42




TABLE 17: RE-AGED AMOUNTS (a)(dollars in thousands) December 31,2003
    
    2002
    
    2001Loan Receivables Re-aged AmountsDomestic:Credit card
    
    $
    374,410
    
    
    $
    732,916
    
    
    $
    735,824Other consumer
    
    
    235,635
    
    
    
    350,372
    
    
    
    321,049Total domestic
    
    
    610,045
    
    
    
    1,083,288
    
    
    
    1,056,873Foreign
    
    
    104,776
    
    
    
    71,500
    
    
    
    54,721Total loan receivables re-aged amounts
    
    $
    714,821
    
    
    $
    1,154,788
    
    
    $
    1,111,594Securitized Loan Re-aged
AmountsDomestic:Credit card
    
    $
    1,757,696
    
    
    $
    3,591,995
    
    
    $
    4,041,381Other consumer
    
    
    230,997
    
    
    
    332,735
    
    
    
    389,450Total domestic
    
    
    1,988,693
    
    
    
    3,924,730
    
    
    
    4,430,831Foreign
    
    
    148,013
    
    
    
    105,863
    
    
    
    90,450Total securitized loans re-aged amounts
    
    $
    2,136,706
    
    
    $
    4,030,593
    
    
    $
    4,521,281Managed Loan Re-aged
AmountsDomestic:Credit card
    
    $
    2,132,106
    
    
    $
    4,324,911
    
    
    $
    4,777,205Other consumer
    
    
    466,632
    
    
    
    683,107
    
    
    
    710,499Total domestic
    
    
    2,598,738
    
    
    
    5,008,018
    
    
    
    5,487,704Foreign
    
    
    252,789
    
    
    
    177,363
    
    
    
    145,171Total managed loans re-aged amounts.
    
    $
    2,851,527
    
    
    $
    5,185,381
    
    
    $
    5,632,875
  (a)
    
    Re-aged loans that returned to
delinquency status are included in the
delinquency amounts presented in Table 13
and Table 14. RE-AGED
LOANS
A Customers account may be re-aged to remove
existing delinquency. Generally, the intent of
a re-age is to assist Customers who have
recently overcome temporary financial
difficulties, and have demonstrated both the
ability and willingness to resume regular
payments, but may be unable to pay the entire
past due amount. To qualify for re-aging, the
account must have been open for at least one
year and cannot have been re-aged during the
preceding 365 days. An account may not be
re-aged more than two times in a five-year
period. To qualify for re-aging, the Customer
must also have made three regular minimum
monthly payments within the last 90 days. In
addition, the Corporation may re-age the
account of a Customer who is experiencing
long-term financial difficulties and apply
modified, concessionary terms and conditions to
the account. Such additional re-ages are
limited to one in a five year period and must
meet the qualifications for re-ages described
above, except that the Customers three
consecutive minimum monthly payments may be
based on the modified terms and conditions
applied to the account. All re-age strategies
are approved by the Corporations senior
management and the Corporations Loan Review
Department. Re-ages can have the effect of
delaying charge-offs. There were $714.8 million
of loan receivables re-aged during 2003, as
compared to $1.2 billion and $1.1 billion
during 2002 and 2001, respectively. Managed
loans re-aged during 2003 were $2.9 billion, as
compared to $5.2 billion and $5.6 billion
during 2002 and


2001, respectively. Of those accounts that were
re-aged during the three months ended December
31, 2002, approximately 22.0% returned to
delinquency status and approximately 21.8%
charged off by December 31, 2003. Of those
accounts that were re-aged during the three
months ended December 31, 2001, approximately
19.5% returned to delinquency status and
approximately 20.4% charged off by December 31,
2002. Table 17 presents the Corporations loan
receivables re-aged amounts and includes a
reconciliation to the managed re-aged amounts. The decreases for 2003 in loan receivables,
securitized loan, and managed loan re-aged
amounts were the result of changes in re-age
practices implemented by the Corporation during
2002 and the first quarter of 2003, which
reduced the number of accounts that qualified
for re-age. Re-aged amounts for 2002 were also
impacted by the changes in re-age practices. NET
CREDIT LOSSES
The Corporations net credit losses include the
principal amount of losses charged off less
current period recoveries and exclude
uncollectible accrued interest and fees and
fraud losses. Uncollectible accrued interest
and fees are recognized by the
Corporation through a (bar chart)
reduction of the amount of
interest income and fee
income recognized in the
current period that the
Corporation does not expect
to collect in subsequent
periods. The respective
income amounts, loan
receivables, and accrued
income receivable are
reduced for uncollectible
interest and fees. The
Corporation records current
period recoveries on loans
previously charged off in
the reserve for possible
credit losses. If the
Corporation sells
charged-off loans, it
records the proceeds
received from these sales
as recoveries. Fraud losses
are recognized through a
charge to other expense. The Corporation works with
Customers continually at
each stage of delinquency.
The Corporations policy is
to charge off open-end
delinquent retail loans by
the end of the month in
which the account becomes
180 days contractually past
due and closed-end
delinquent retail loans by
the end of the month in
which they become 120 days
contractually past due.
Delinquent bankrupt
accounts are charged off
the end of the second
calendar month following
receipt of notification of
filing from the




---



##### 



TABLE 18:
NET CREDIT LOSS RATIO (dollars in thousands) 2003
    |
    2002
    |
    2001
    |Net Credit
    
    
    Average
    
    
    Net Credit
    
    
    Net Credit
    
    
    Average
    
    
    Net Credit
    
    
    Net Credit
    
    
    Average
    
    
    Net CreditLosses
    
    
    Balance
    
    
    Loss Ratio
    
    
    Losses
    
    
    Balance
    
    
    Loss Ratio
    
    
    Losses
    
    
    Balance
    
    
    Loss RatioLoan ReceivablesDomestic:Credit card
    
    $
    682,282
    
    
    $
    14,489,754
    
    
    
    4.71
    %
    
    $
    597,876
    
    
    $
    13,581,330
    
    
    
    4.40
    %
    
    $
    502,898
    
    
    $
    11,546,396
    
    
    
    4.36
    %Other consumer
    
    
    476,770
    
    
    
    6,282,458
    
    
    
    7.59
    
    
    
    422,587
    
    
    
    6,333,295
    
    
    
    6.67
    
    
    
    253,891
    
    
    
    4,993,691
    
    
    
    5.08Total domestic loan receivables
    
    
    1,159,052
    
    
    
    20,772,212
    
    
    
    5.58
    
    
    
    1,020,463
    
    
    
    19,914,625
    
    
    
    5.12
    
    
    
    756,789
    
    
    
    16,540,087
    
    
    
    4.58Foreign
    
    
    204,644
    
    
    
    7,411,606
    
    
    
    2.76
    
    
    
    135,749
    
    
    
    5,400,575
    
    
    
    2.51
    
    
    
    98,225
    
    
    
    3,799,301
    
    
    
    2.59Total loan receivables
    
    $
    1,363,696
    
    
    $
    28,183,818
    
    
    
    4.84
    
    
    $
    1,156,212
    
    
    $
    25,315,200
    
    
    
    4.57
    
    
    $
    855,014
    
    
    $
    20,339,388
    
    
    
    4.20Securitized LoansDomestic:Credit card
    
    $
    3,532,128
    
    
    $
    65,914,563
    
    
    
    5.36
    
    
    $
    3,113,346
    
    
    $
    61,623,821
    
    
    
    5.05
    
    
    $
    2,823,610
    
    
    $
    59,185,084
    
    
    
    4.77Other consumer
    
    
    504,555
    
    
    
    5,682,404
    
    
    
    8.88
    
    
    
    474,122
    
    
    
    5,703,851
    
    
    
    8.31
    
    
    
    439,627
    
    
    
    5,703,402
    
    
    
    7.71Total domestic securitized
loans
    
    
    4,036,683
    
    
    
    71,596,967
    
    
    
    5.64
    
    
    
    3,587,468
    
    
    
    67,327,672
    
    
    
    5.33
    
    
    
    3,263,237
    
    
    
    64,888,486
    
    
    
    5.03Foreign
    
    
    338,786
    
    
    
    10,094,189
    
    
    
    3.36
    
    
    
    247,915
    
    
    
    7,391,059
    
    
    
    3.35
    
    
    
    188,777
    
    
    
    5,672,114
    
    
    
    3.33Total securitized loans
    
    $
    4,375,469
    
    
    $
    81,691,156
    
    
    
    5.36
    
    
    $
    3,835,383
    
    
    $
    74,718,731
    
    
    
    5.13
    
    
    $
    3,452,014
    
    
    $
    70,560,600
    
    
    
    4.89Managed LoansDomestic:Credit card
    
    $
    4,214,410
    
    
    $
    80,404,317
    
    
    
    5.24
    
    
    $
    3,711,222
    
    
    $
    75,205,151
    
    
    
    4.93
    
    
    $
    3,326,508
    
    
    $
    70,731,480
    
    
    
    4.70Other consumer
    
    
    981,325
    
    
    
    11,964,862
    
    
    
    8.20
    
    
    
    896,709
    
    
    
    12,037,146
    
    
    
    7.45
    
    
    
    693,518
    
    
    
    10,697,093
    
    
    
    6.48Total domestic managed loans
    
    
    5,195,735
    
    
    
    92,369,179
    
    
    
    5.62
    
    
    
    4,607,931
    
    
    
    87,242,297
    
    
    
    5.28
    
    
    
    4,020,026
    
    
    
    81,428,573
    
    
    
    4.94Foreign
    
    
    543,430
    
    
    
    17,505,795
    
    
    
    3.10
    
    
    
    383,664
    
    
    
    12,791,634
    
    
    
    3.00
    
    
    
    287,002
    
    
    
    9,471,415
    
    
    
    3.03Total managed loans
    
    $
    5,739,165
    
    
    $
    109,874,974
    
    
    
    5.22
    
    
    $
    4,991,595
    
    
    $
    100,033,931
    
    
    
    4.99
    
    
    $
    4,307,028
    
    
    $
    90,899,988
    
    
    
    4.74
  applicable court, but not later than the
applicable 180-day or 120-day timeframes
described above. Accounts of deceased Customers
are charged off when the loss is determined,
but not later than the applicable 180-day or
120-day timeframes described above. Accounts
failing to make a payment within charge-off
policy timeframes are written off. Managers may
on an exception basis defer charge off of an
account for another month, pending continued
payment activity or other special
circumstances. Senior manager approval is
required on all such exceptions to the above
charge-off policies. Loan receivables net
credit losses increased $207.5 million or 17.9%
to $1.4 billion for 2003, as compared to an
increase of $301.2 million or 35.2% to $1.2
billion for 2002, from $855.0 million for 2001.
Net credit losses as a percentage of average
loan receivables were 4.84% for 2003, as
compared to 4.57% and 4.20% for 2002, and 2001,
respectively. The Corporations managed net
credit losses as a percentage of average
managed loans for 2003, were 5.22%, as compared
to 4.99% and 4.74% for 2002, and 2001,
respectively. The increase in net credit losses
for 2003, reflects a weak economy, the
continuing seasoning of the Corporations
loans, and an increase in average loan
receivables. Domestic credit card net credit
losses as a percentage of average domestic
credit card loan receivables were 4.71% for
2003, as compared to 4.40% and 4.36% for 2002,
and 2001, respectively. Domestic other consumer
net credit losses as a percentage of average
domestic other consumer loan receivables were
7.59% for 2003, as compared to 6.67% and 5.08%
for 2002, and 2001, respectively. In addition
to the weak general economic conditions,
 domestic other consumer net credit losses
reflect the higher credit risk associated with
these products. Foreign net credit losses as a
percentage of average foreign loan receivables
were 2.76% for 2003, as compared to 2.51% and
2.59% for 2002, and 2001, respectively. The
lower level of net credit losses on the
Corporations foreign loan receivables, as
compared to domestic loan receivables,
primarily reflects the growth in the
Corporations foreign loan receivables and the
seasoning of those accounts. A higher
percentage of newer, less seasoned accounts
results in a lower charge-off ratio compared to
a more seasoned portfolio. Managed domestic
credit card net credit losses as a percentage
of average managed domestic credit card loans
were 5.24% for 2003, as compared to 4.93% and
4.70% for 2002, and 2001, respectively. Managed
domestic other consumer net credit losses as a
percentage of average managed domestic other
consumer loans were 8.20% for 2003, as compared
to 7.45% and 6.48% for 2002, and 2001,
respectively. Managed foreign net credit losses
as a percentage of average managed foreign
loans were 3.10% for 2003, as compared to 3.00%
and 3.03% for 2002, and 2001, respectively. The
net credit loss ratio is calculated by dividing
annualized net credit losses, which exclude
uncollectible accrued interest and fees and
fraud losses, for the period by average loan
receivables, which include the estimated
collectible billed interest and fees for the
corresponding period. Table 18 presents the Corporations loan
receivables net credit loss ratio and includes
a reconciliation to the managed net credit loss
ratio.




---



##### 



44
 TABLE 19: RESERVE FOR POSSIBLE CREDIT LOSSES(dollars in thousands) December 31,
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000
    
    
    1999Reserve for possible credit losses, beginning of year
    
    $
    1,111,299
    
    
    $
    833,423
    
    
    $
    527,573
    
    
    $
    516,261
    
    
    $
    296,474Reserves acquired
    
    
    61,116
    
    
    
    84,878
    
    
    
    20,748
    
    
    
    64,726
    
    
    
    109,757Provision for possible credit losses:Domestic
    
    
    1,189,344
    
    
    
    1,153,486
    
    
    
    1,028,047
    
    
    
    477,630
    
    
    
    590,558Foreign
    
    
    203,357
    
    
    
    186,671
    
    
    
    112,568
    
    
    
    69,679
    
    
    
    46,056Total provision for possible credit losses
    
    
    1,392,701
    
    
    
    1,340,157
    
    
    
    1,140,615
    
    
    
    547,309
    
    
    
    636,614Foreign currency translation
    
    
    14,896
    
    
    
    9,053
    
    
    
    (499
    )
    
    
    (1,081
    )
    
    
    (96
    )Credit losses:Domestic:Credit card
    
    
    (731,646
    )
    
    
    (635,408
    )
    
    
    (541,072
    )
    
    
    (435,134
    )
    
    
    (422,504
    )Other consumer
    
    
    (509,965
    )
    
    
    (447,135
    )
    
    
    (265,829
    )
    
    
    (138,892
    )
    
    
    (104,268
    )Total domestic credit losses
    
    
    (1,241,611
    )
    
    
    (1,082,543
    )
    
    
    (806,901
    )
    
    
    (574,026
    )
    
    
    (526,772
    )Foreign
    
    
    (238,175
    )
    
    
    (157,025
    )
    
    
    (117,572
    )
    
    
    (72,831
    )
    
    
    (41,157
    )Total credit losses
    
    
    (1,479,786
    )
    
    
    (1,239,568
    )
    
    
    (924,473
    )
    
    
    (646,857
    )
    
    
    (567,929
    )Recoveries:Domestic:Credit card
    
    
    49,364
    
    
    
    37,532
    
    
    
    38,174
    
    
    
    29,367
    
    
    
    27,356Other consumer
    
    
    33,195
    
    
    
    24,548
    
    
    
    11,938
    
    
    
    8,811
    
    
    
    7,611Total domestic recoveries
    
    
    82,559
    
    
    
    62,080
    
    
    
    50,112
    
    
    
    38,178
    
    
    
    34,967Foreign
    
    
    33,531
    
    
    
    21,276
    
    
    
    19,347
    
    
    
    9,037
    
    
    
    6,474Total recoveries
    
    
    116,090
    
    
    
    83,356
    
    
    
    69,459
    
    
    
    47,215
    
    
    
    41,441Net credit losses
    
    
    (1,363,696
    )
    
    
    (1,156,212
    )
    
    
    (855,014
    )
    
    
    (599,642
    )
    
    
    (526,488
    )Reserve for possible credit losses, end of year
    
    $
    1,216,316
    
    
    $
    1,111,299
    
    
    $
    833,423
    
    
    $
    527,573
    
    
    $
    516,261Net credit losses as a % of average loan receivables
    
    
    4.84
    %
    
    
    4.57
    %
    
    
    4.20
    %
    
    
    3.38
    %
    
    
    3.65
    %Reserve for possible credit losses as a % of ending loan receivables
    
    
    3.62
    
    
    
    3.87
    
    
    
    3.38
    
    
    
    2.64
    
    
    
    2.92Ending loan receivables
    
    $
    33,624,077
    
    
    $
    28,726,508
    
    
    $
    24,633,564
    
    
    $
    19,954,837
    
    
    $
    17,663,709Average loan receivables
    
    
    28,183,818
    
    
    
    25,315,200
    
    
    
    20,339,388
    
    
    
    17,718,148
    
    
    
    14,422,495
  RESERVE AND PROVISION FOR POSSIBLE CREDIT LOSSES
The Corporation maintains the reserve for
possible credit losses at an amount sufficient
to absorb losses inherent in the Corporations
loan principal receivables at the reporting
date based on a projection of probable net
credit losses. To project probable net credit
losses, the Corporation regularly performs a
migration analysis of delinquent and current
accounts. A migration analysis is a technique
used to estimate the likelihood that a loan
receivable will progress through the various
delinquency stages and ultimately charge off.
On a quarterly basis, the Corporation reviews
and adjusts, as appropriate, these estimates.
The Corporations projection of probable net
credit losses considers the impact of economic
conditions on the borrowers ability to repay,
past collection experience, the risk
characteristics and composition of the
portfolio, and other factors. The Corporation
then reserves for the projected probable net
credit losses based on its projection of these
amounts. The Corporation establishes
appropriate levels of the reserve for possible
credit losses for its products, including
domestic credit card, domestic other consumer
and foreign loans, based on their risk
characteristics. A provision is charged against
earnings to maintain the reserve for possible
credit losses at an appropriate level. 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
receivables and does not include an allocation
for credit risk related to securitized loans.
Net credit losses on securitized loans are
absorbed directly by the related trusts under
their respective contractual agreements and do
not affect the reserve for possible credit
losses.
 The Corporations reserve for possible credit
losses increased $105.0 million or 9.4% to $1.2
billion at December 31, 2003, as compared to an
increase of $277.9 million or 33.3% to $1.1
billion at December 31, 2002, from $833.4
million at December 31, 2001. The provision for
possible credit losses for 2003, increased
$52.5 million or 3.9% to $1.4 billion, as
compared to an increase of $199.5 million or
17.5% to $1.3 billion in 2002 from $1.1 billion
in 2001. The increases in the reserve for
possible credit losses and the related
provision for possible credit losses in 2003
and 2002 primarily reflects a weak economy, as
demonstrated by the increases in the
Corporations net credit losses, and increases
in loan receivables. While the Corporations reserve for possible
credit losses is a general reserve applicable
to the Corporations loan receivables, the
reserve for possible credit losses is allocated
to the Corporations domestic and foreign loan
receivables for internal purposes based on the
type of loan product and its underlying risk of
loss. The percentage of the reserve allocated
to the domestic other consumer loan receivables
decreased from 41.6% at December 31, 2002, to
37.5% at December 31, 2003, primarily due to a
decrease in the Corporations sales finance
loan receivables, as the Corporation placed
less emphasis on this product in 2003. The percentage of the reserve allocated to the
domestic other consumer loans increased from
24.3% at December 31, 2001, to 41.6% at
December 31, 2002. The percentage of the
reserve allocated to foreign loans increased
from 6.2% at December 31, 2001, to 11.7% at
December 31, 2002, because foreign loans
increased as




---



##### 



TABLE 20: ALLOCATION OF THE RESERVE FOR POSSIBLE CREDIT LOSSES(dollars in thousands) December 31,
    
    2003
    
    
    
    
    
    
    2002
    
    
    
    
    
    
    2001
    
    
    
    
    
    
    2000
    
    
    
    
    
    
    1999Domestic:Credit card
    
    $
    614,974
    
    
    
    50.5
    %
    
    $
    518,889
    
    
    
    46.7
    %
    
    $
    578,995
    
    
    
    69.5
    %
    
    $
    396,806
    
    
    
    75.2
    %
    
    $
    428,847
    
    
    
    83.1
    %Other consumer
    
    
    455,699
    
    
    
    37.5
    
    
    
    462,756
    
    
    
    41.6
    
    
    
    203,040
    
    
    
    24.3
    
    
    
    102,350
    
    
    
    19.4
    
    
    
    63,801
    
    
    
    12.3Domestic reserve for possible
credit losses
    
    
    1,070,673
    
    
    
    88.0
    
    
    
    981,645
    
    
    
    88.3
    
    
    
    782,035
    
    
    
    93.8
    
    
    
    499,156
    
    
    
    94.6
    
    
    
    492,648
    
    
    
    95.4Foreign
    
    
    145,643
    
    
    
    12.0
    
    
    
    129,654
    
    
    
    11.7
    
    
    
    51,388
    
    
    
    6.2
    
    
    
    28,417
    
    
    
    5.4
    
    
    
    23,613
    
    
    
    4.6Reserve for possible credit losses,
end of year
    
    $
    1,216,316
    
    
    
    100.0
    %
    
    $
    1,111,299
    
    
    
    100.0
    %
    
    $
    833,423
    
    
    
    100.0
    %
    
    $
    527,573
    
    
    
    100.0
    %
    
    $
    516,261
    
    
    
    100.0
    %
  a percentage of total loan receivables and
because the Corporation anticipated higher
probable net credit losses on its foreign loans
due to the continued seasoning of the
portfolio. Table 19 presents activity for the
Corporations reserve for possible credit
losses. During the fourth quarter of 2002, the
Corporation increased its reserve for domestic
other consumer loans by $109.5 million because
these products exhibited higher credit risk. The Corporations projections of probable net
credit losses are inherently uncertain, and as
a result, the Corporation cannot predict with
certainty the amount of such losses. Changes in
economic conditions, the risk characteristics
and composition of the Corporations loan
receivables, bankruptcy laws or regulatory
policies, and other factors could impact the
Corporations actual and projected net credit
losses and the related reserve for possible
credit losses. The Corporation recorded acquired reserves for
possible credit losses for loan portfolio
acquisitions of $61.1 million, $84.9 million,
and $20.7 million for 2003, 2002, and 2001,
respectively. Table 20 presents the allocation
of the reserve for possible credit losses. ESTIMATE OF UNCOLLECTIBLE ACCRUED INTEREST AND FEES The Corporation adjusts the amount of interest
and fee income on loan receivables recognized
in the current period for its estimate of
interest and fee income that it does not expect
to collect in subsequent periods through
adjustments to the respective income statement
amounts, loan receivables, and accrued income
receivable. The estimate of uncollectible
accrued interest and fees is based on a
migration analysis of delinquent and current
loan receivables that will progress through the
various delinquency stages and will ultimately
charge off. The Corporation also adjusts the
estimated value of accrued interest and fees on
securitized loans for the amount of
uncollectible interest and fees that are not
expected to be collected through an adjustment
to accounts receivable from securitization and
securitization income. This estimate is also
based on a migration analysis of delinquent and
current securitized loans that will progress
through the various delinquency stages and
ultimately charge off.
 The difference between the amounts of interest
and fees the Corporation was contractually
entitled to and the amounts recognized as
revenue was $1.2 billion, $1.4 billion and
$858.3 million during the years ended December
31, 2003, 2002, and 2001, respectively.
Excluding the change in the estimated value of
accrued interest and fees in 2002, the
difference between the amounts of interest and
fees the Corporation was contractually entitled
to and the amounts recognized as revenue was
$1.0 billion for 2002. The difference between
the amounts of interest and fees the
Corporation was contractually entitled to and
the amounts recognized as revenue for the year
ended December 31, 2003, excluding the change
in the estimated value of accrued interest and
fees in 2002, increased $141.1 million or
13.5%, primarily as a result of an increase in
ending managed loans. The increase of $185.6
million or 21.6% for the year ended December
31, 2002, excluding the change in the estimated
value of accrued interest and fees in 2002, was
primarily the result of an increase in managed
loans. Table 21 presents the domestic and foreign
amounts for the difference between the amounts
of interest and fees the Corporation was
contractually entitled to and the amounts
recognized as revenue. TABLE 21: DIFFERENCE BETWEEN THE AMOUNTS OF INTEREST AND FEES THE CORPORATION WAS
CONTRACTUALLY ENTITLED TO AND THE AMOUNTS RECOGNIZED AS REVENUE (a)(dollars in thousands) Year Ended December 31,
    
    2003
    
    
    2002
    
    
    2001 (b)Domestic
    
    $
    1,099,791
    
    
    $
    1,342,362
    
    
    $
    825,238Foreign
    
    
    85,326
    
    
    
    68,261
    
    
    
    33,110Total
    
    $
    1,185,117
    
    
    $
    1,410,623
    
    
    $
    858,348
  (a)
    
    Includes the valuation of securitized loans.(b)
    
    During 2001, the Corporation accrued
interest and fees on managed loans until the
managed loans were paid or charged off. When
the managed loans charged off, the Corporation
deducted the accrued interest and fees related
to the managed loans against current period
income. 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




---



##### 



46




powers of the federal bank
regulatory agencies, and tangible net worth
maintenance requirements under the
Corporations revolving credit facilities. The
payment of common stock dividends may also be
limited by the terms of the Corporations
preferred stock. Note 25: Dividend Limitations
to the audited consolidated financial
statements provides further detail regarding
the Corporations dividend limitations and is
incorporated by this reference into this
section. CAPITAL ADEQUACY The Corporation is subject to risk-based
capital guidelines adopted by the Federal
Reserve Board for bank holding companies. The
Bank and MBNA Delaware are also subject to
similar capital requirements adopted by the
Office of the Comptroller of the Currency.
Under these requirements, the federal bank
regulatory agencies have established
quantitative measures to ensure that minimum
thresholds for Tier 1 Capital, Total Capital,
and Leverage ratios are maintained. Failure to
meet these minimum capital requirements can
initiate certain mandatory, and possible
additional discretionary, actions by the
federal bank regulators that, if undertaken,
could have a direct material effect on the
Corporations, the Banks, and MBNA Delawares
consolidated financial statements. Under the
capital adequacy guidelines and the regulatory
framework for prompt corrective action, the
Corporation, the Bank, and MBNA Delaware 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. Note 26: Capital Adequacy to the
audited consolidated financial statements
provides further detail regarding the
Corporations, the Banks, and MBNA Delawares
capital adequacy and is incorporated by this
reference into this section. OFF-BALANCE SHEET ARRANGEMENTS In the normal course of business, the
Corporation is a party to a number of
activities that contain credit, market and
operational risk that are not reflected in
whole or in part in the Corporations audited
consolidated financial statements. Such
activities include asset securitization,
off-balance sheet derivative financial
instruments, and other items. ASSET SECURITIZATION Asset securitization is the process whereby
loan principal receivables are converted into
securities normally referred to as asset-backed
securities. The securitization of the
Corporations loan principal receivables is
accomplished through the public and private
issuance of asset-backed securities and is
accounted for in accordance with Statement No.
140. Asset securitization removes loan
principal receivables from the consolidated
statements of financial condition through the
transfer of loan principal receivables to a
trust. The trust then sells undivided interests
to investors that entitle the investors to
specified cash flows generated from the
securitized loan principal receivables, while


the Corporation retains the remaining undivided
interest and is entitled to specific cash flows
allocable to that retained interest. As loan
principal receivables are securitized, the
Corporations on-balance-sheet funding needs
are reduced by the amount of loans securitized.
Interpretation No. 46 requires consolidation of
certain off-balance sheet entities. The
Corporations securitization trusts are
qualified special-purpose entities as defined
by Statement No. 140 that are specifically
exempted from the requirements of
Interpretation No. 46. A credit card account represents a contractual
relationship between the Corporation and the
Customer. A loan receivable is a financial
asset of the Corporation. Unlike a mortgage or
other closed-end loan account, the terms of a
credit card account permit a Customer to borrow
additional amounts and to repay each month an
amount the Customer chooses, subject to a
minimum payment requirement. The account
remains open after repayment of the balance and
the Customer may continue to use it to borrow
additional amounts. The Corporation reserves
the right to change the account terms,
including interest rates and fees, in
accordance with the terms of the agreement and
applicable law. The credit card account is,
therefore, separate and distinct from the loan
receivable. In a credit card securitization, the loan
principal receivables are sold to the trust,
but the account relationships are not sold to
the securitization trust. The Corporation
retains ownership of the account relationship,
including the right to change the terms of the
account and the right to additional principal
receivables generated by the account. During a
securitizations revolving period, the
Corporation agrees to sell the additional
principal receivables to the trusts until the
trusts begin using principal collections to
make payments to investors. When the revolving
period of the securitization ends, the account
relationship between the Corporation and the
Customer continues. The undivided interests in the trusts sold to
investors are issued through different classes
of securities with different risk levels and
credit ratings. The Corporations
securitization transactions are generally
structured to include up to three classes of
securities sold to investors. With the
exception of the most senior class, each class
of securities issued by the trusts provides
credit enhancement, in the form of
subordination, to the more senior, higher-rated
classes. The most senior class of asset-backed
securities is the largest and generally
receives a AAA credit rating at the time of
issuance. In order to issue senior classes of
securities, it is necessary to obtain the
appropriate amount of credit enhancement,
generally through the issuance of subordinated
classes. The Corporations retained beneficial
interests, such as its interest-only strip
receivable and cash reserve accounts, provides
credit enhancement to the other subordinated
interests. The trusts are qualified special-purpose
entities as defined under Statement No. 140. To
meet the criteria to be considered a qualifying
special-purpose entity, a trust must be
demonstrably distinct from the Corporation and
have activities that are significantly limited






---



##### 



and entirely specified in the legal documents
that established the trust. The Corporation
cannot change the activities that the trusts
can perform. These activities may only be
changed by a majority of the beneficial
interest holders not including the Corporation.
As qualifying special-purpose entities under
Statement No. 140, the trusts assets and
liabilities are not consolidated in the
Corporations statements of financial
condition. The trusts are administered by an
independent trustee. During the revolving period, which normally
ranges from 24 months to 120 months, the trust
makes no principal payments to the investors in
the securitization. Instead, during the
revolving period, the trust uses principal
payments received from Customers, which pay off
the loan principal receivables that were sold
to the trust, to purchase for the trust from
the Corporation new loan principal receivables
generated by these accounts, in accordance with
the terms of the transaction, so that the
principal dollar amount of the investors
undivided interest remains unchanged. Once the
revolving period ends, the accumulation period
begins and the trust accumulates principal
payment for distribution to the investors
according to the terms of the transaction. When
the trust uses principal payments to pay the
investors, the Corporations on-balance-sheet
loan receivables increase by the amount of any
new loans on the Customer accounts because the
trust is no longer purchasing new loan
receivables from the Corporation. The
Corporation may fund this increase with its
deposit activity or re-securitize these assets. The Corporation maintains retained interests in
its securitization transactions, which are
included in accounts receivable from
securitization in the Corporations audited
consolidated statements of financial condition.
These retained interests include the cash
reserve accounts and other subordinated
interests. The investors and providers of
credit enhancement had a lien on a portion of
these retained interests of $1.2 billion at
December 31, 2003 and 2002. Should the trusts
experience cash flows which are insufficient to
satisfy its obligations to the beneficial
interest holders, these retained interests may
become impaired. The Corporation would have no
further obligation to provide funding support
to either the investors or the trusts if the
securitized loans are not paid when due. Note 8: Asset Securitization to the audited
consolidated financial statements provides
further detail regarding the Corporations
asset securitization transactions. IMPACT OF OFF-BALANCE SHEET SECURITIZATION TRANSACTIONS ON THE CORPORATIONS RESULTS When adjusted for the effects of
securitization, certain components of the
Corporations audited consolidated financial
information may be reconciled to its managed
data. This securitization adjustment
reclassifies interest income, interchange
income, credit card and other consumer loan
fees, insurance income, recoveries on
charged-off securitized loan principal
receivables in excess of interest paid to
investors, gross credit losses, and other trust
expenses into securitization income.
Table 22 reconciles income statement data for
the period to managed net interest income,
managed provision for possible credit losses,
and managed other operating income.
 TABLE 22: RECONCILIATION OF INCOME STATEMENT DATA FOR THE PERIOD TO MANAGED NET INTEREST
INCOME, MANAGED PROVISION FOR POSSIBLE CREDIT LOSSES, AND MANAGED OTHER OPERATING INCOME (dollars in thousands) Year Ended December 31,
    
    2003
    
    
    2002
    
    
    2001Net Interest IncomeNet interest income
    
    $
    2,350,373
    
    
    $
    2,074,575
    
    
    $
    1,657,340Securitization adjustments
    
    
    7,854,265
    
    
    
    7,044,102
    
    
    
    6,546,802Managed net interest income
    
    $
    10,204,638
    
    
    $
    9,118,677
    
    
    $
    8,204,142Provision for PossibleCredit LossesProvision for possible
credit losses
    
    $
    1,392,701
    
    
    $
    1,340,157
    
    
    $
    1,140,615Securitization adjustments
    
    
    4,375,469
    
    
    
    3,835,383
    
    
    
    3,452,014Managed provision for
possible credit losses
    
    $
    5,768,170
    
    
    $
    5,175,540
    
    
    $
    4,592,629Other Operating IncomeOther operating income
    
    $
    7,825,480
    
    
    $
    6,752,923
    
    
    $
    6,673,316Securitization adjustments
    
    
    (3,478,796
    )
    
    
    (3,208,719
    )
    
    
    (3,094,788
    )Managed other operating
income
    
    $
    4,346,684
    
    
    $
    3,544,204
    
    
    $
    3,578,528
 Managed net interest income increased $1.1
billion or 11.9% to $10.2 billion for 2003, as
compared to $9.1 billion in 2002. Excluding the
change in the estimated value of accrued
interest and fees in 2002, managed net interest
income would have increased $808.3 million or
8.6%, for 2003. Average managed
interest-earning assets increased $13.3 billion
or 12.3% to $121.6 billion for 2003, as
compared to $108.4 billion in 2002. The
increase in average managed interest-earning
assets was primarily the result of the increase
in average managed loans and investment
securities and money market instruments. The
yield earned on average managed
interest-earning assets for 2003 was 10.97% as
compared to 11.59% in 2002. The decrease in the
yield earned on managed average
interest-earning assets for 2003 was primarily
the result of lower rates offered to attract
and retain Customers and to grow managed loans
combined with a decrease in the yield earned on
average money market instruments and an
increase in lower yielding average investment
securities and money market instruments as a
percentage of average total managed
interest-earning assets. The decrease in the
yield on average managed interest-earning
assets for 2003, as compared to 2002, would
have been larger excluding the change in the
estimated value of accrued interest and fees in
2002, which decreased the yield earned on
average managed loans by 27 basis points for
2002. See Table 9 for a reconciliation of the
yield earned on average managed loans to the
yield earned on average managed loans excluding
the change in the estimated value of accrued
interest and fees in 2002.




---



##### 



48
 TABLE 23: RECONCILIATION OF AVERAGE INTEREST-EARNING ASSETS AND AVERAGE
INTEREST-BEARING LIABILITIES TO AVERAGE MANAGED INTEREST-EARNING ASSETS AND
AVERAGE MANAGED INTEREST-BEARING LIABILITIES (dollars in thousands, yields and rates on a fully taxable equivalent basis) Year Ended December 31,

2003
    |

2002
    |

2001Average
    
    Yield/
    
    Income or
    
    Average
    
    Yield/
    
    Income or
    
    Average
    
    Yield/
    
    Income orBalance
    
    Rate
    
    Expense
    
    Balance
    
    Rate
    
    Expense
    
    Balance
    
    Rate
    
    ExpenseAssetsNet interest-earning assets
    
    $
    43,781,381
    
    
    
    8.82
    %
    
    $
    3,859,643
    
    
    $
    37,442,931
    
    
    
    9.83
    %
    
    $
    3,679,140
    
    
    $
    30,096,769
    
    
    
    11.54
    %
    
    $
    3,473,088Securitization adjustments
    
    
    77,855,940
    
    
    
    12.18
    
    
    
    9,484,680
    
    
    
    70,910,552
    
    
    
    12.52
    
    
    
    8,877,207
    
    
    
    67,363,219
    
    
    
    14.25
    
    
    
    9,602,048Managed interest-bearing
liabilitiesManaged interest-earning
assets
    
    $
    121,637,321
    
    
    
    10.97
    
    
    $
    13,344,323
    
    
    $
    108,353,483
    
    
    
    11.59
    
    
    $
    12,556,347
    
    
    $
    97,459,988
    
    
    
    13.42
    
    
    $
    13,075,136LiabilitiesNet interest-bearing liabilities
    
    $
    41,861,029
    
    
    
    3.60
    
    
    $
    1,508,511
    
    
    $
    36,865,484
    
    
    
    4.35
    
    
    $
    1,603,495
    
    
    $
    31,169,437
    
    
    
    5.82
    
    
    $
    1,814,065Securitization adjustments
    
    
    80,033,724
    
    
    
    2.04
    
    
    
    1,630,415
    
    
    
    72,908,284
    
    
    
    2.51
    
    
    
    1,833,105
    
    
    
    68,763,345
    
    
    
    4.44
    
    
    
    3,055,246Managed interest-bearing
liabilities
    
    $
    121,894,753
    
    
    
    2.58
    
    
    $
    3,138,926
    
    
    $
    109,773,768
    
    
    
    3.13
    
    
    $
    3,436,600
    
    
    $
    99,932,782
    
    
    
    4.87
    
    
    $
    4,869,311
  Average managed interest-bearing liabilities
increased $12.1 billion or 11.0% to $121.9
billion for 2003, as compared to $109.8 billion
in 2002. The increase in average managed
interest-bearing liabilities was a result of
the increase in average securitized loans,
average interest-bearing deposits, and average
borrowed funds. The decrease in the rate paid
on average managed interest-bearing liabilities
of 55 basis points to 2.58% for 2003, from
3.13% in 2002, reflects the continued impact of
actions by the FOMC throughout 2001, in the
fourth quarter of 2002, and the second quarter
of 2003, that impacted overall market interest
rates. Managed net interest income increased
$914.5 million or 11.1% to $9.1 billion for
2002, as compared to $8.2 billion in 2001.
Excluding the change in the estimated value of
accrued interest and fees in 2002, managed net
interest income would have increased $1.2
billion or 14.5%, for 2002. Table 23 reconciles
average interest-earning assets and average
interest-bearing liabilities to average managed
interest-earning assets and average managed
interest-bearing liabilities, as well as the
corresponding yield earned and rate paid. Average managed interest-earning assets
increased $10.9 billion or 11.2% to $108.4
billion for 2002, as compared to $97.5 billion
in 2001. The increase in average managed
interest-earning assets was primarily the
result of the increase in average managed loans
and average investment securities and money
market instruments. The yield earned on average
managed interest-earning assets for 2002 was
11.59% as compared to 13.42% in 2001. The
decrease in the yield earned on average managed
interest-earning assets for 2002 primarily
reflects lower promotional and other interest
rates offered to attract and retain Customers
and to grow managed loans. The decrease in the
yield on average managed interest-earning
assets for 2002, as compared to 2001, would
have been smaller excluding the change in the
estimated value of accrued interest and fees in
2002, which decreased the yield earned on
average managed loans by 27 basis points for
2002. See Table 9 for a reconciliation of the
yield earned on average managed loans to the
yield earned on average managed loans excluding
the change in the estimated value of accrued
interest and fees in 2002.
 Average managed interest-bearing liabilities
increased $9.8 billion or 9.8% to $109.8
billion for 2002, as compared to $99.9 billion
in 2001. The increase in average managed
interest-bearing liabilities was a result of
the increase in average securitized loans,
average interest-bearing deposits, and average
borrowed funds. The decrease in the rate paid
on average managed interest-bearing liabilities
of 174 basis points to 3.13% for 2002, from
4.87% in 2001, reflects actions by the FOMC
throughout 2001 that impacted overall market
interest rates and decreased the Corporations
funding costs. The Corporations managed net interest margin,
on a fully taxable equivalent basis, was 8.39%
for 2003, as compared to 8.42% for 2002. The
managed net interest margin represents managed
net interest income on a fully taxable
equivalent basis expressed as a percentage of
managed average total interest-earning assets.
Excluding the change in the estimated value of
accrued interest and fees in 2002, the managed
net interest margin would have decreased 28
basis points for 2003 as compared to 2002. The
decrease in the managed net interest margin for
2003, excluding the change in the estimated
value of accrued interest and fees in 2002, was
primarily the result of the decrease in the(BAR CHART)
yield earned on managed average
interest-earning assets partially offset by the
decrease in the rate paid on managed average
interest-bearing liabilities. Also, the
increase in lower yielding average investment
securities and money market instruments as a
percentage of total managed average
interest-earning assets further reduced the
managed net interest margin.




---



##### 



TABLE 24: RECONCILIATION OF THE NET INTEREST MARGIN RATIO TO THE MANAGED NET INTEREST MARGIN RATIO (dollars in thousands) Year Ended December 31,
    2003
    |
    2002
    |
    2001Net
    
    
    
    
    
    
    
    
    
    Net
    
    
    
    
    
    
    
    
    
    NetAverage
    
    
    
    
    
    Interest
    
    Average
    
    
    
    
    
    Interest
    
    Average
    
    
    
    
    
    InterestEarning
    
    Net Interest
    
    Margin
    
    Earning
    
    Net Interest
    
    Margin
    
    Earning
    
    Net Interest
    
    MarginAssets
    
    Income
    
    Ratio
    
    Assets
    
    Income
    
    Ratio
    
    Assets
    
    Income
    
    RatioNet Interest Margin (a)Investment securities and
money market instruments (b)
    
    $
    11,693,550
    
    
    
    
    
    
    
    
    
    
    $
    8,257,838
    
    
    
    
    
    
    
    
    
    
    $
    6,500,608Other interest-earning assets (b)
    
    
    3,904,013
    
    
    
    
    
    
    
    
    
    
    
    3,869,893
    
    
    
    
    
    
    
    
    
    
    
    3,256,773Loan receivables (c)
    
    
    28,183,818
    
    
    
    
    
    
    
    
    
    
    
    25,315,200
    
    
    
    
    
    
    
    
    
    
    
    20,339,388Total
    
    $
    43,781,381
    
    
    $
    2,351,132
    
    
    
    5.37
    %
    
    $
    37,442,931
    
    
    $
    2,075,645
    
    
    
    5.54
    %
    
    $
    30,096,769
    
    
    $
    1,659,023
    
    
    
    5.51
    %Securitization AdjustmentsInvestment securities and
money market instruments
    
    $
    
    
    
    
    
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    
    
    
    $
    Other interest-earning assets
    
    
    (3,835,216
    )
    
    
    
    
    
    
    
    
    
    
    (3,808,179
    )
    
    
    
    
    
    
    
    
    
    
    (3,197,381
    )Securitized loans
    
    
    81,691,156
    
    
    
    
    
    
    
    
    
    
    
    74,718,731
    
    
    
    
    
    
    
    
    
    
    
    70,560,600Total
    
    $
    77,855,940
    
    
    
    7,854,265
    
    
    
    10.09
    
    
    $
    70,910,552
    
    
    
    7,044,102
    
    
    
    9.93
    
    
    $
    67,363,219
    
    
    
    6,546,802
    
    
    
    9.72Managed Net Interest Margin (a)Investment securities and
money market instruments (b)
    
    $
    11,693,550
    
    
    
    
    
    
    
    
    
    
    $
    8,257,838
    
    
    
    
    
    
    
    
    
    
    $
    6,500,608Other interest-earning assets (b)
    
    
    68,797
    
    
    
    
    
    
    
    
    
    
    
    61,714
    
    
    
    
    
    
    
    
    
    
    
    59,392Managed loans
    
    
    109,874,974
    
    
    
    
    
    
    
    
    
    
    
    100,033,931
    
    
    
    
    
    
    
    
    
    
    
    90,899,988Total
    
    $
    121,637,321
    
    
    
    10,205,397
    
    
    
    8.39
    
    
    $
    108,353,483
    
    
    
    9,119,747
    
    
    
    8.42
    
    
    $
    97,459,988
    
    
    
    8,205,825
    
    
    
    8.42
  (a)
    
    Net interest margin ratios are presented on a fully taxable equivalent
basis. The fully taxable equivalent adjustment for the years ended December 31,
2003, 2002, and 2001 was $759, $1,070, and $1,683, respectively.(b)
    
    For purposes of comparability, certain prior
period amounts have been reclassified.(c)
    
    Loan
receivables include loans held for securitization
and the loan portfolio.  The Corporations managed net interest margin,
on a fully taxable equivalent basis, was 8.42%
for both 2002 and 2001. Excluding the change in
the estimated value of accrued interest and
fees in 2002, the managed net interest margin
would have increased 25 basis points for 2002
as compared to 2001. The increase in the
managed net interest margin for 2002, excluding
the change in the estimated value of accrued
interest and fees in 2002, primarily reflects
actions by the FOMC that impacted overall
market interest rates and decreased the
Corporations funding costs. The net interest
margin is reconciled to the managed net
interest margin in Table 24 and the
reconciliation of the managed net interest
margin to the managed net interest margin
excluding the change in the estimated value of
accrued interest and fees in 2002 is presented
in Table 25. The managed provision for possible credit
losses increased $592.6 million or 11.5% to
$5.8 billion for 2003, and increased $582.9
million or 12.7% to $5.2 billion for 2002. The
increase in the managed provision for possible
credit losses was primarily the result of
increases in the Corporations managed net
credit losses and managed loans.
 Managed other operating income increased $802.5
million or 22.6% to $4.3 billion for 2003.
Excluding the change in the estimated value of
accrued interest and fees in 2002, managed
other operating income would have increased
$816.5 million or 23.1% for 2003. Managed other
operating income decreased $34.3 million or
1.0% to $3.5 billion for 2002. Excluding the
change in the estimated value of accrued
interest and fees in 2002, managed other
operating income would have decreased $48.3
million or 1.4% for 2002. The increase in
managed other operating income for 2003,
excluding the change in the estimated value of
accrued interest and fees in 2002, was
primarily the result of the net gains from
securitization activity, which includes changes
in fair value of the interest-only strip
receivable and the gains from the sale of loan
principal receivables, combined with an
increase in credit card fees, insurance income,
and interchange income. The decrease in managed
other operating income for 2002, excluding the
change in the estimated value of accrued
interest and fees in 2002, was primarily the
result of net losses from securitization
activity, which includes changes in fair value
of the interest-only strip receivable and the
gains from the sale of loan principal
receivables, partially offset by an increase in
insurance income and interchange income.




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##### 



50
 TABLE 25: RECONCILIATION OF THE AS REPORTED NET AND MANAGED NET INTEREST MARGIN
RATIOS TO THE NET AND MANAGED NET INTEREST MARGIN RATIOS EXCLUDING THE CHANGE
IN THE ESTIMATED VALUE OF ACCRUED INTEREST
AND FEES IN 2002(dollars in thousands) Year Ended December 31, 2002NetAverage
    
    
    
    
    
    
    InterestEarning
    
    
    Net Interest
    
    
    MarginAssets
    
    
    Income
    
    
    RatioAs ReportedNet Interest Margin (a)Investment securities and money market instruments (b)
    
    $
    8,257,838Other interest-earning assets (b)
    
    
    3,869,893Loan receivables (c)
    
    
    25,315,200Total
    
    $
    37,442,931
    
    
    $
    2,075,645
    
    
    
    5.54
    %Securitization AdjustmentsInvestment securities and money market instruments
    
    $
    Other interest-earning assets
    
    
    (3,808,179
    )Securitized loans
    
    
    74,718,731Total
    
    $
    70,910,552
    
    
    
    7,044,102
    
    
    
    9.93Managed Net Interest Margin (a)Investment securities and money market instruments (b)
    
    $
    8,257,838Other interest-earning assets (b)
    
    
    61,714Managed loans
    
    
    100,033,931Total
    
    $
    108,353,483
    
    
    
    9,119,747
    
    
    
    8.42Impact of the Change in the Estimated Value of Accrued Interest and Fees in 2002Net Interest Margin (a)Investment securities and money market instruments
    
    $
    Other interest-earning assets
    
    
    43,831Loan receivables (c)
    
    
    22,030Total
    
    $
    65,861
    
    
    
    66,278Securitization AdjustmentsInvestment securities and money market instruments
    
    $
    Other interest-earning assets
    
    
    (43,831
    )Securitized loans
    
    
    71,386Total
    
    $
    27,555
    
    
    
    211,383Managed Net Interest Margin (a)Investment securities and money market instruments
    
    $
    Other interest-earning assets
    
    
    Managed loans
    
    
    93,416Total
    
    $
    93,416
    
    
    
    277,661Excluding the Change in the Estimated Value of Accrued Interest and Fees in 2002Net Interest Margin (a)Investment securities and money market instruments (b)
    
    $
    8,257,838Other interest-earning assets (b)
    
    
    3,913,724Loan receivables (c)
    
    
    25,337,230Total
    
    $
    37,508,792
    
    
    
    2,141,923
    
    
    
    5.71Securitization AdjustmentsInvestment securities and money market instruments
    
    $
    Other interest-earning assets
    
    
    (3,852,010
    )Securitized loans
    
    
    74,790,117Total
    
    $
    70,938,107
    
    
    
    7,255,485
    
    
    
    10.23Managed Net Interest Margin (a)Investment securities and money market instruments (b)
    
    $
    8,257,838Other interest-earning assets (b)
    
    
    61,714Managed loans
    
    
    100,127,347Total
    
    $
    108,446,899
    
    
    
    9,397,408
    
    
    
    8.67
  (a)
    
    Net interest margin ratios are presented on a fully taxable equivalent
basis. The fully taxable equivalent adjustment for the year ended December 31,
2002 was $1,070.(b)
    
    For purposes of comparability, certain prior
period amounts have been reclassified.(c)
    
    Loan
receivables include loans held for securitization
and the loan portfolio.




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##### 



TABLE 26: SECURITIZED LOANS DISTRIBUTION(dollars in thousands) December 31,
    
    2003
    
    
    
    
    
    
    2002
    
    
    
    
    
    
    2001
    
    
    
    
    
    2000
    
    
    
    
    
    1999Securitized LoansDomestic:Credit card
    
    $
    67,620,822
    
    
    
    79.7
    %
    
    $
    63,886,876
    
    
    
    81.4
    %
    
    $
    60,501,860
    
    
    
    83.1
    %
    
    $
    57,425,582
    
    
    
    83.4
    %
    
    $
    45,851,922
    
    
    
    84.0
    %Other consumer
    
    
    5,671,832
    
    
    
    6.7
    
    
    
    5,677,908
    
    
    
    7.2
    
    
    
    5,702,658
    
    
    
    7.8
    
    
    
    5,691,769
    
    
    
    8.3
    
    
    
    3,987,180
    
    
    
    7.3Total domestic securitized loans
    
    
    73,292,654
    
    
    
    86.4
    
    
    
    69,564,784
    
    
    
    88.6
    
    
    
    66,204,518
    
    
    
    90.9
    
    
    
    63,117,351
    
    
    
    91.7
    
    
    
    49,839,102
    
    
    
    91.3Foreign:Credit card
    
    
    11,576,829
    
    
    
    13.6
    
    
    
    8,966,550
    
    
    
    11.4
    
    
    
    6,657,969
    
    
    
    9.1
    
    
    
    5,650,485
    
    
    
    8.2
    
    
    
    4,565,996
    
    
    
    8.4Other consumer
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    68,048
    
    
    
    .1
    
    
    
    186,706
    
    
    
    .3Total foreign securitized loans
    
    
    11,576,829
    
    
    
    13.6
    
    
    
    8,966,550
    
    
    
    11.4
    
    
    
    6,657,969
    
    
    
    9.1
    
    
    
    5,718,533
    
    
    
    8.3
    
    
    
    4,752,702
    
    
    
    8.7Total securitized loans
    
    $
    84,869,483
    
    
    
    100.0
    %
    
    $
    78,531,334
    
    
    
    100.0
    %
    
    $
    72,862,487
    
    
    
    100.0
    %
    
    $
    68,835,884
    
    
    
    100.0
    %
    
    $
    54,591,804
    
    
    
    100.0
    %
  OFF-BALANCE SHEET SECURITIZATION TRANSACTION ACTIVITY During 2003, the Corporation securitized credit
card loan principal receivables totaling $13.6
billion, including the securitization of £1.2
billion (approximately $2.0 billion) by MBNA
Europe and CAD$1.0 billion (approximately
$751.5 million) by MBNA Canada. The total
amount of securitized loans was $84.9 billion
or 71.6% of managed loans at December 31, 2003,
as compared to $78.5 billion or 73.2% at
December 31, 2002. The total amount of
securitized domestic credit card loans was
78.8% of managed domestic credit card loans at
December 31, 2003, as compared to 80.4% at
December 31, 2002. Securitized domestic other
consumer loans were 47.7% of managed domestic
other consumer loans at December 31, 2003, as
compared to 47.3% at December 31, 2002.
Securitized foreign loans were 55.7% of managed
foreign loans at December 31, 2003, as compared
to 56.8% at December 31, 2002. Table 26 presents the Corporations securitized
loans distribution. During 2003, there was an
increase of $8.5 billion in the Corporations
loan receivables that occurred when certain
securi-tizations matured as scheduled and the
trusts used principal payments to pay the
investors rather than purchasing new loan (PIE CHART)
 principal receivables from the Corporation. The
Corporations loan portfolio is expected to
increase an additional $14.9 billion during
2004 as a result of estimated maturities of
existing securitization transactions when
trusts use principal payments to pay investors
rather than purchasing new loan principal
receivables from the Corporation. This amount
is based upon the estimated maturity of
outstanding securitization transactions and
does not include any future securitization
activity. Should the Corporation choose or be
unable to securitize these assets in the
future, additional on-balance sheet funding and
capital would be required. Table 27 presents the Corporations estimated
maturities of investor principal. TABLE 27:
ESTIMATED MATURITIES OF INVESTOR PRINCIPAL (dollars in thousands) 2004 (a)
    
    $
    14,864,6992005
    
    
    12,498,8722006
    
    
    11,761,6002007
    
    
    15,469,9642008
    
    
    10,966,618Thereafter
    
    
    17,803,237Total amortization of investor principal
    
    
    83,364,990Estimated collectible billed interest and fees included
in securitized loans
    
    
    1,504,493Total securitized loans
    
    $
    84,869,483
  (a)
    
    The $4.5 billion Emerald Note Program,
comprised of short-term commercial paper, is
included in the 2004 category based on the
possibility that maturing Emerald Notes cannot
be re-issued. This event would cause the
transaction to begin amortizing, thus creating
a liquidity requirement. However, the
Corporation expects the Emerald Notes to
continue to be re-issued during the course of
the program through the scheduled final
maturity date. The Corporations securitization transactions
contain provisions which could require that the
excess spread generated by the securitized
loans be accumulated in the trusts to provide
additional credit enhancement to the investors.
These provisions require that excess spread be
retained once the yields in excess of minimum
yield for three consecutive months falls below
a range of 6.50% to 4.00% depending on the
terms of the particular securitization
transaction. At December 31, 2003 and 2002, no
excess spread was held by the trusts under
these provisions.




---



##### 



52
 TABLE 28: SECURITIZATION TRUST YIELDS IN EXCESS OF MINIMUM YIELD DATA(dollars in thousands) |
    For
the Three Months Ended December 31, 2003
    |Yield in Excess of Minimum (a)Number
    
    
    Average
    
    
    Average
    
    
    
    
    
    Series RangeInvestor
    
    
    of Series
    
    
    Annualized
    
    
    Minimum
    
    
    WeightedPrincipal
    
    
    in Trust
    
    
    Yield
    
    
    Yield
    
    
    Average
    
    
    High
    
    
    LowMBNA Master Credit Card Trust II
    
    $
    31,000,757
    
    
    
    43
    
    
    
    17.69
    %
    
    
    9.27
    %
    
    
    8.42
    %
    
    
    8.73
    %
    
    
    7.60
    %MBNA Credit Card Master Note Trust (b)
    
    
    32,426,435
    
    
    
    62
    
    
    
    17.68
    
    
    
    9.14
    
    
    
    8.54
    
    
    
    8.54
    
    
    
    8.54MBNA Master Consumer Loan Trust
    
    
    5,560,278
    
    
    
    3
    
    
    
    (c
    )
    
    
    (c
    )
    
    
    (c
    )
    
    
    (c
    )
    
    
    (c
    )MBNA Triple A Master Trust
    
    
    2,000,000
    
    
    
    2
    
    
    
    16.74
    
    
    
    8.75
    
    
    
    7.99
    
    
    
    8.02
    
    
    
    7.98Multiple Asset Note Trust
    
    
    1,000,000
    
    
    
    2
    
    
    
    18.61
    
    
    
    8.88
    
    
    
    9.73
    
    
    
    9.74
    
    
    
    9.72U.K. Receivables Trust
    
    
    3,222,539
    
    
    
    6
    
    
    
    19.57
    
    
    
    10.63
    
    
    
    8.94
    
    
    
    9.49
    
    
    
    6.76U.K. Receivables Trust II
    
    
    5,373,441
    
    
    
    7
    
    
    
    17.44
    
    
    
    10.19
    
    
    
    7.25
    
    
    
    7.53
    
    
    
    6.05Gloucester Credit Card Trust
    
    
    2,781,540
    
    
    
    10
    
    
    
    19.12
    
    
    
    9.87
    
    
    
    9.25
    
    
    
    9.87
    
    
    
    7.51
  (a)
    
    The Yield in Excess of Minimum Yield represents the trusts average
annualized yield less its average minimum yield.(b)
    
    MBNA Credit Card Master Note Trust issues a series of notes called the
MBNAseries. Through the MBNAseries, MBNA Credit Card Master Note Trust issues
specific classes of notes which contribute on a prorated basis to the
calculation of the average yield in excess of minimum yield. This average yield
in excess of minimum yield impacts the distribution of principal to investors
of all classes within the MBNAseries.(c)
    
    The MBNA Master Consumer Loan Trust yield in excess of minimum yield does
not impact the distribution of principal to investors. Distribution to
investors for transactions in this trust may begin earlier than the scheduled
time if the credit enhancement amount falls below a predetermined contractual
level. As a result, its yields are excluded from this Table.  Distribution of principal to investors may
begin sooner if the average annualized yield
(generally including interest income,
interchange income, charged-off loan
recoveries, and other fees) for three
consecutive months drops below a minimum yield
(generally equal to the sum of the interest
rate payable to investors, contractual
servicing fees, and principal credit losses
during the period) or certain other events
occur. If distribution of principal to
investors began sooner than expected, the
Corporation would likely need to raise
additional capital to support loan and asset
growth and meet regulatory capital
requirements. Table 28 presents summarized yields for each
trust for the three-month period ended December
31, 2003. The yield in excess of minimum yield
for each of the trusts is presented on a cash
basis and includes various credit card or other
fees as specified in the securitization
agreements. If the yield in excess of minimum
falls below 0% for a contractually specified
period, generally a three-month average, the
securitizations will begin to amortize earlier
than their scheduled contractual maturity date. OTHER OFF-BALANCE SHEET ARRANGEMENTS In January 2003, Interpretation No. 46 was
issued. In accordance with Interpretation No.
46, the Corporation has determined that MBNA
Capital A, MBNA Capital B, MBNA Capital C, MBNA
Capital D, and MBNA Capital E (collectively the
statutory trusts), are variable interest
entities and that the Corporation is not the
primary beneficiary. See Note 17: Long-Term
Debt and Bank Notes of the audited consolidated
financial statements for further discussion of
the statutory trusts. The Corporation utilizes certain derivative
financial instruments to enhance its ability to
manage interest rate risk and foreign currency
exchange rate risk that exist as part of its
ongoing business operations. See Note 30: Fair
Value of Financial Instruments of the audited
consolidated financial statements for further
detail regarding the Corporations derivative
financial instruments.
 LIQUIDITY AND RATE SENSITIVITY The Corporation seeks to maintain prudent
levels of liquidity, interest rate, 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, securitizations
mature, debt and deposits mature, and payments
on other 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 investment securities, loans,
deposits, securitizations, and other assets and
liabilities. The Corporation manages liquidity at two
primary levels. The first level is the
liquidity of the parent company, which is the
holding company that owns the banking
subsidiaries. The second level is the liquidity
of the banking subsidiaries. The management of
liquidity at both levels is essential because
the parent company and banking subsidiaries
each have different funding needs and funding
sources and each are subject to certain
regulatory guidelines and requirements. The
liquidity requirements of the Corporation are
met by the proceeds of regular dividend
payments from the Bank, the growth in retained
earnings from regular operations, and the
issuance of unsecured senior medium-term notes
and senior notes. The available cash position
of the Corporations parent-only legal entity
is maintained at a level sufficient to meet
anticipated cash needs for at least one year. The liquidity of the banking subsidiaries is
managed to reflect the anticipated cash
required to finance loan demand and to maintain
sufficient liquid assets to cover the
maturities for the next six months for all
off-balance sheet securitizations, unsecured
debt, and wholesale money market funding
sources. The level of liquid assets, which is
comprised of




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##### 





TABLE
29: ESTIMATED CONTRACTUAL OBLIGATIONS (a) (b) (dollars in
thousands) |
    
    Estimated
Contractual Obligations at December 31, 2003
    
    |Within 1 Year
    
    1-3 Years
    
    3-5 Years
    
    Over 5 Years
    
    TotalLong-term debt and bank notes (par) (c)
    
    $
    2,052,885
    
    $
    2,314,300
    
    $
    3,018,548
    
    $
    4,478,784
    
    $
    11,864,517Minimum
rental payments under noncancelable    operating leases
    
    
    28,400
    
    
    29,391
    
    
    2,070
    
    
    134
    
    
    59,995Purchase obligations (d)
    
    
    364,347
    
    
    339,904
    
    
    242,928
    
    
    65,698
    
    
    1,012,877Other long-term liabilities reflected in the Corporations
   audited consolidated statements of financial condition (e)
    
    
    120,981
    
    
    131,956
    
    
    40,353
    
    
    
    
    
    293,290Total estimated contractual obligations
    
    $
    2,566,613
    
    $
    2,815,551
    
    $
    3,303,899
    
    $
    4,544,616
    
    $
    13,230,679
  (a)
    
    Note 30: Fair Value of Financial InstrumentsDerivative Financial
Instruments provides detail on the Corporations derivative financial
instruments. These amounts are not included in this Table.(b)
    
    Table 30 provides detail on the maturities of deposits. These amounts are not included
in this Table.(c)
    
    Excludes interest.(d)
    
    Includes the royalties to endorsing organizations payable in the future
subject to certain conditions, Community Reinvestment Act obligations that
cannot be canceled, and other purchase obligations.(e)
    
    Includes amounts accrued for Customer reward programs, and other long-term
obligations.  the investments and money market assets described further in
Investment Securities and Money Market Instruments, is managed to a size
prudent for both anticipated loan receivable growth and overall conditions in
the markets for asset-backed securitization, unsecured corporate debt, and
short-term borrowed funds. The Corporation, the Bank, MBNA Europe, and MBNA
Canada also have access to the credit facilities described further in Note 27:
Commitments and Contingencies of the audited consolidated financial statements.
Finally, the deposit funding sources are also used to finance loan receivable
growth and to maintain a sufficient level of liquid assets. Table 29 provides a summary of the estimated
amounts and maturities of the contractual
obligations of the Corporation at December 31,
2003. If certain terms on the above estimated
contractual requirements are not met, there may
be an acceleration of the payment due dates
noted above. As of December 31, 2003, the
Corporation was not in default of any such
covenants. The Corporation estimates that it
will have $2.6 billion in contractual
obligation requirements within the next year. ASSET SECURITIZATION At December 31, 2003, the Corporation funded
71.6% of its managed loans through
securitization transactions. To maintain an
appropriate funding level, the Corporation
expects to securitize additional loan principal
receivables during 2004. The consumer
asset-backed securitization market in the
United States exceeded $1.6 trillion at
December 31, 2003, with approximately $440
billion of asset-backed securities issued
during 2003. An additional $233 billion of
consumer asset-backed securities were issued in
European markets during 2003. The Corporation
is a leading issuer in these markets, which
have remained stable through adverse
conditions. Despite the size and relative
stability of these markets and the
Corporations position as a leading issuer, if
these markets experience difficulties, the
Corporation may be unable to securitize its
loan principal receivables or to do so at
favorable pricing levels. Factors affecting the
Corporations ability to securitize its loan
principal receivables or to do so at favorable
pricing
 levels include the overall credit
quality of the Corporations loans, the
stability of the market for securitization
transactions, and the legal, regulatory,
accounting, and tax environments impacting
securitization transactions. The Corporation
does not believe adverse outcomes from these
events are likely to occur. If the Corporation
were unable to continue to securitize its loan
receivables at current levels, the Corporation
would use its investment securities and money
market instruments in addition to alternative
funding sources to fund increases in loan
receivables and meet its other liquidity needs.
The resulting change in the Corporations
current liquidity sources could potentially
subject the Corporation to certain risks. These
risks would include an increase in the
Corporations cost of funds, increases in the
reserve for possible credit losses and the
provision for possible credit losses as more
loans would remain in the Corporations audited
consolidated statements of financial condition,
and restrictions on loan growth if the
Corporation were unable to find alternative and
cost-effective funding sources. In addition, if the Corporation could not
continue to remove the loan principal
receivables from the Corporations audited
consolidated statements of financial condition,
the Corporation would likely need to raise
additional capital to support loan and asset
growth and meet regulatory capital
requirements. Table 27 presents the estimated maturities of investor principal. STOCK REPURCHASES 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. During 2003, the
Corporation issued 29.2 million common shares
upon the exercise of stock options and issuance
of restricted stock, and purchased 29.2 million
common shares for $618.3 million. The
Corporation received $275.8 million in proceeds
from the exercise of stock options during 2003.




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##### 



54  In the third quarter of 2003, the Corporation
issued 50.0 million shares of its common stock
in a public offering for approximately $1.1
billion, net of issuance costs. The shares were
issued under the Corporations existing shelf
registration statement. The Corporation used
the proceeds to repurchase the same number of
shares at the same price from the estate of the
Corporations former Chairman and Chief
Executive Officer. The estate has the right to
cause the sale of shares through a registration
rights agreement entered into in 1991 at the
time of the Corporations initial public
offering. The issuance and repurchase were done
to satisfy the Corporations obligation related
to the sale of shares by the estate. The sale
and repurchase of common stock did not impact
total common stock outstanding or capital
levels. FUNDING To facilitate liquidity management, the
Corporation uses a variety of funding sources
to establish a maturity pattern that provides a
prudent mixture of short-term and long-term
funds. The Corporation obtains funds through
deposits and debt issuances, and uses
securitization of the Corporations loan
principal receivables as a major funding
alternative. In addition, further liquidity is
provided to the Corporation through committed
credit facilities. (PIE CHART)   CREDIT FACILITIES The Corporation, the Bank, MBNA Europe, and
MBNA Canada have various credit facilities.
These facilities may be used for general
corporate purposes and were not drawn upon at
December 31, 2003. Note 27: Commitments and
Contingencies to the audited consolidated
financial statements provides further detail
regarding the Corporations credit facilities
and is incorporated by this reference into this
section.
 BORROWED FUNDS Short-term borrowings used by the Corporation
include federal funds purchased and securities
sold under repurchase agreements. Federal funds
purchased and securities sold under repurchase
agreements are overnight borrowings that
normally 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.
Short-term borrowings were $1.0 billion and
$1.3 billion for December 31, 2003 and 2002,
respectively. Other funding programs established by the Corporation for long-term
borrowings include senior medium-term notes and
senior notes. Other funding programs
established by the Corporations bank
subsidiaries include the Banks global bank
note program, MBNA Europes euro medium-note
program, and MBNA Canadas medium-term deposit
note program. MBNA Europe and MBNA Canadas
notes are unconditionally and irrevocably
guaranteed in respect to all payments by the
Bank. Long-term debt and bank notes were $12.1
billion and $9.5 billion for December 31, 2003
and 2002, respectively. See Table 29 for
estimated maturities of the contractual
obligations related to long-term debt and bank
notes as of December 31, 2003. Note 16: Short-Term Borrowings and Note 17: Long-Term
Debt and Bank Notes to the audited consolidated
financial statements provide further detail
regarding the Corporations borrowed funds and
is incorporated by this reference into this
section. DEPOSITS The Corporation utilizes deposits to fund loan
and other asset growth and to diversify funding
sources. The Corporation categorizes its
deposits into either direct or other deposits.
Direct deposits are deposits marketed to and
received from individual Customers without the
use of a third-party intermediary, and are an
important, stable, low-cost funding source that
typically react more slowly to interest rate
changes than other deposits. Other deposits,
which include brokered deposits, are deposits
generally obtained through the use of a
third-party intermediary. Total deposits
increased $1.2 billion or 4.0% to $31.8 billion
at December 31, 2003, as compared to $30.6
billion at December 31, 2002.




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##### 





Table 30 provides the maturities of the
Corporations deposits at December 31, 2003.
Included in the deposit maturity category of
one year or less are money market deposit
accounts, noninterest-bearing deposits,
interest-bearing transaction accounts, and
savings accounts totaling $10.3 billion. Based
on past activity, the Corporation expects to
retain a majority of its deposit balances as
they mature. TABLE 30: MATURITIES OF DEPOSITS (dollars in thousands) December 31, 2003
    
    DirectDeposits
    
    Other Deposits (a)
    
    
    Total DepositsDomestic:One year or less
    
    $
    16,401,083
    
    
    $
    2,686,220
    
    
    $
    19,087,303Over one year through
two years
    
    
    3,954,095
    
    
    
    1,871,494
    
    
    
    5,825,589Over two years through
three years
    
    
    1,568,129
    
    
    
    1,044,247
    
    
    
    2,612,376Over three years through
four years
    
    
    1,487,057
    
    
    
    779,926
    
    
    
    2,266,983Over four years through
five years
    
    
    830,244
    
    
    
    121,424
    
    
    
    951,668Over five years
    
    
    8,615
    
    
    
    
    
    
    
    8,615Total domestic deposits
    
    
    24,249,223
    
    
    
    6,503,311
    
    
    
    30,752,534Foreign (b)
    
    
    1,056,175
    
    
    
    27,372
    
    
    
    1,083,547Total deposits
    
    $
    25,305,398
    
    
    $
    6,530,683
    
    
    $
    31,836,081
  (a)
    
    At December 31, 2003, all other deposits were brokered deposits.(b)
    
    At December 31, 2003, all foreign deposits had maturities of one year or
less. Table 31 presents the maturity distribution of
the Corporations time deposits in amounts of
$100,000 or more at December 31, 2003, 2002 and
2001. Included in the Corporations direct deposits
at December 31, 2003 and 2002 were
noninterest-bearing deposits of $2.4 billion
and $915.7 million, representing 7.6% and 3.0%
of total deposits, respectively. The increase
in noninterest-bearing deposits was a


result of the change in the timing of the remittance of
principal collections on securitized loans to
the trust. Since the second quarter of 2003,
the Corporation is no longer obligated to
transfer principal collections to the
Corporations primary domestic credit card
trust on a daily basis. These funds are now
retained on behalf of the trust by the
Corporation until remittance on a monthly
basis. The Corporation also had
interest-bearing direct deposits at December
31, 2003 of $22.9 billion, as compared to $20.8
billion at December 31, 2002. Included in the Corporations other deposits at December 31,
2003 and 2002, were brokered deposits of $6.5
billion and $8.3 billion, representing 20.5%
and 27.1% of total deposits, respectively. If
any of the brokered deposits are not renewed at
maturity, the funding they provide could be
replaced by funds from maturing investment
securities and money market instruments or
other funding sources to fund increases in its
loan receivables and meet the Corporations
other liquidity needs. During 2003, other
deposits decreased because the Corporation
determined it had adequate liquidity from other
sources to meet its funding needs. While the
Corporation utilized other alternative funding
sources during this period, brokered deposits
will continue to be part of its funding
activities. The Federal Deposit Insurance
Corporation Improvement Act of 1991 limits the
use of brokered deposits to well-capitalized
insured depository institutions, and with a
waiver from the Federal Deposit Insurance
Corporation, to adequately capitalized
institutions. At December 31, 2003, the Bank
and MBNA Delaware were well-capitalized as
defined under the federal bank regulatory
guidelines. Based on the Corporations
historical access to the brokered deposit
market, it expects to replace maturing brokered
deposits with new brokered deposits or with the
Corporations direct deposits.


TABLE 31: TIME
DEPOSITS OF $100,000 OR MORE (a) (dollars in thousands)

December 31,
    
    
    2003
    
    
    
    
    
    
    
    2002
    
    
    
    
    
    
    
    2001Three months or less:Domestic
    
    $
    438,832
    
    
    
    10.2
    %
    
    $
    548,380
    
    
    
    13.8
    %
    
    $
    643,012
    
    
    
    15.5
    %Foreign
    
    
    852,249
    
    
    
    19.9
    
    
    
    611,135
    
    
    
    15.3
    
    
    
    711,960
    
    
    
    17.1Total three months or less
    
    
    1,291,081
    
    
    
    30.1
    
    
    
    1,159,515
    
    
    
    29.1
    
    
    
    1,354,972
    
    
    
    32.6Over three months through six months:Domestic
    
    
    360,223
    
    
    
    8.4
    
    
    
    479,662
    
    
    
    12.0
    
    
    
    745,978
    
    
    
    18.0Foreign
    
    
    4,032
    
    
    
    .1
    
    
    
    22,167
    
    
    
    .6
    
    
    
    49,266
    
    
    
    1.2Total over three months through six months
    
    
    364,255
    
    
    
    8.5
    
    
    
    501,829
    
    
    
    12.6
    
    
    
    795,244
    
    
    
    19.2Over six months through twelve months:Domestic
    
    
    722,902
    
    
    
    16.9
    
    
    
    654,637
    
    
    
    16.4
    
    
    
    827,575
    
    
    
    19.9Foreign
    
    
    5,626
    
    
    
    .1
    
    
    
    14,509
    
    
    
    .4
    
    
    
    3,622
    
    
    
    .1Total over six months through twelve months
    
    
    728,528
    
    
    
    17.0
    
    
    
    669,146
    
    
    
    16.8
    
    
    
    831,197
    
    
    
    20.0Over twelve months:Domestic
    
    
    1,900,128
    
    
    
    44.4
    
    
    
    1,654,141
    
    
    
    41.5
    
    
    
    1,172,604
    
    
    
    28.2Foreign
    
    
    
    
    
    
    
    
    
    
    250
    
    
    
    
    
    
    
    250
    
    
    
    Total over twelve months
    
    
    1,900,128
    
    
    
    44.4
    
    
    
    1,654,391
    
    
    
    41.5
    
    
    
    1,172,854
    
    
    
    28.2Total
    
    $
    4,283,992
    
    
    
    100.0
    %
    
    $
    3,984,881
    
    
    
    100.0
    %
    
    $
    4,154,267
    
    
    
    100.0
    %




|(a) |  | This table excludes deposits obtained by a third-party intermediary in
amounts of $100,000 or more which were subsequently distributed by
intermediaries to individuals in denominations of less than $100,000.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### 



56   TABLE 32: INVESTMENT SECURITIES(dollars in thousands, yields on a fully taxable equivalent basis) |
    Estimated
Maturities at December 31, 2003
    |Within 1 Year
    
    1-5 Years
    
    6-10 Years
    
    Over 10 Years
    
    Total
    
    Amortized
    
    MarketBook
    
    Yield
    
    Book
    
    Yield
    
    Book
    
    Yield
    
    Book
    
    Yield
    
    Book
    
    Yield
    
    Cost
    
    ValueAvailable-for-SaleDomestic:U.S. Treasury and other
U.S. government
agencies obligations
    
    $
    1,006,504
    
    
    
    2.54
    %
    
    $
    1,025,112
    
    
    
    1.65
    %
    
    $
    
    
    
    
    
    %
    
    $
    
    
    
    
    
    %
    
    $
    2,031,616
    
    
    
    2.09
    %
    
    $
    2,024,520
    
    
    $
    2,031,616State and political
subdivisions of
the United States
    
    
    102,685
    
    
    
    1.96
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    102,685
    
    
    
    1.96
    
    
    
    102,685
    
    
    
    102,685Asset-backed and
other securities
    
    
    488,060
    
    
    
    2.39
    
    
    
    1,255,420
    
    
    
    1.44
    
    
    
    57,388
    
    
    
    1.33
    
    
    
    165
    
    
    
    1.26
    
    
    
    1,801,033
    
    
    
    1.70
    
    
    
    1,796,824
    
    
    
    1,801,033Total domestic
investment securities
available-for-sale
    
    
    1,597,249
    
    
    
    2.46
    
    
    
    2,280,532
    
    
    
    1.54
    
    
    
    57,388
    
    
    
    1.33
    
    
    
    165
    
    
    
    1.26
    
    
    
    3,935,334
    
    
    
    1.91
    
    
    
    3,924,029
    
    
    
    3,935,334Foreign
    
    
    91,750
    
    
    
    4.03
    
    
    
    336,003
    
    
    
    4.07
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    427,753
    
    
    
    4.06
    
    
    
    428,040
    
    
    
    427,753Total investment
securities
available-for-sale
    
    $
    1,688,999
    
    
    
    2.54
    
    
    $
    2,616,535
    
    
    
    1.86
    
    
    $
    57,388
    
    
    
    1.33
    
    
    $
    165
    
    
    
    1.26
    
    
    $
    4,363,087
    
    
    
    2.12
    
    
    $
    4,352,069
    
    
    $
    4,363,087Held-to-MaturityDomestic:U.S. Treasury and other
U.S. government
agencies obligations
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    335,445
    
    
    
    5.21
    
    
    $
    335,445
    
    
    
    5.21
    
    
    $
    335,445
    
    
    $
    336,582State and political
subdivisions of
the United States
    
    
    135
    
    
    
    7.23
    
    
    
    
    
    
    
    
    
    
    
    649
    
    
    
    6.94
    
    
    
    6,831
    
    
    
    7.91
    
    
    
    7,615
    
    
    
    7.82
    
    
    
    7,615
    
    
    
    7,786Asset-backed and
other securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,239
    
    
    
    4.81
    
    
    
    9,239
    
    
    
    4.81
    
    
    
    9,239
    
    
    
    9,066Total domestic
investment securities
held-to-maturity
    
    
    135
    
    
    
    7.23
    
    
    
    
    
    
    
    
    
    
    
    649
    
    
    
    6.94
    
    
    
    351,515
    
    
    
    5.25
    
    
    
    352,299
    
    
    
    5.26
    
    
    
    352,299
    
    
    
    353,434Foreign
    
    
    
    
    
    
    
    
    
    
    1,000
    
    
    
    5.30
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,000
    
    
    
    5.30
    
    
    
    1,000
    
    
    
    1,000Total investment
securities
held-to-maturity
    
    $
    135
    
    
    
    7.23
    
    
    $
    1,000
    
    
    
    5.30
    
    
    $
    649
    
    
    
    6.94
    
    
    $
    351,515
    
    
    
    5.25
    
    
    $
    353,299
    
    
    
    5.26
    
    
    $
    353,299
    
    
    $
    354,434
  INVESTMENT SECURITIES AND MONEY MARKET INSTRUMENTS The Corporation also held $4.7 billion of
investment securities and $4.9 billion of money
market instruments at December 31, 2003,
compared to $4.1 billion of investment
securities and $5.3 billion in money market
instruments at December 31, 2002. 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 held at December 31, 2003, $1.7
billion are anticipated to mature within 12
months. The Corporations investment securities
available-for-sale portfolio, which consists
primarily of U.S. Treasury obligations or
short-term and variable-rate securities, was
$4.4 billion at December 31, 2003, and $3.7
billion at December 31, 2002. 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 remained relatively
flat at December 31, 2003, compared to December
31, 2002. Table 32 presents the summary of investment securities.




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##### 



TABLE 33: INTEREST RATE SENSITIVITY SCHEDULE(dollars in thousands) December 31, 2003
    |
    Subject to Repricing
    |Within 1 Year
    
    
    1-5 Years
    
    
    After 5 Years
    
    
    TotalInterest-Earning AssetsInterest-earning time deposits in other banks:Domestic
    
    $
    1,175
    
    
    $
    
    
    
    $
    
    
    
    $
    1,175Foreign
    
    
    3,589,154
    
    
    
    
    
    
    
    
    
    
    
    3,589,154Total interest-earning time deposits in other banks
    
    
    3,590,329
    
    
    
    
    
    
    
    
    
    
    
    3,590,329Federal funds sold
    
    
    1,275,000
    
    
    
    
    
    
    
    
    
    
    
    1,275,000Investment securities (a):Available-for-sale:Domestic
    
    
    2,466,554
    
    
    
    1,468,780
    
    
    
    
    
    
    
    3,935,334Foreign
    
    
    91,750
    
    
    
    336,003
    
    
    
    
    
    
    
    427,753Total available-for-sale
    
    
    2,558,304
    
    
    
    1,804,783
    
    
    
    
    
    
    
    4,363,087Held-to-maturity:Domestic
    
    
    135
    
    
    
    
    
    
    
    352,164
    
    
    
    352,299Foreign
    
    
    
    
    
    
    1,000
    
    
    
    
    
    
    
    1,000Total held-to-maturity
    
    
    135
    
    
    
    1,000
    
    
    
    352,164
    
    
    
    353,299Other interest-earning assets
    
    
    3,904,402
    
    
    
    
    
    
    
    70,040
    
    
    
    3,974,442Loans held for securitization:Domestic
    
    
    10,285,915
    
    
    
    
    
    
    
    
    
    
    
    10,285,915Foreign
    
    
    2,798,190
    
    
    
    
    
    
    
    
    
    
    
    2,798,190Total loans held for securitization
    
    
    13,084,105
    
    
    
    
    
    
    
    
    
    
    
    13,084,105Loan portfolio:Domestic:Credit card
    
    
    6,176,434
    
    
    
    1,728,739
    
    
    
    
    
    
    
    7,905,173Other consumer
    
    
    4,748,202
    
    
    
    1,064,607
    
    
    
    398,207
    
    
    
    6,211,016Total domestic loan portfolio
    
    
    10,924,636
    
    
    
    2,793,346
    
    
    
    398,207
    
    
    
    14,116,189Foreign
    
    
    3,624,393
    
    
    
    2,799,390
    
    
    
    
    
    
    
    6,423,783Total loan portfolio
    
    
    14,549,029
    
    
    
    5,592,736
    
    
    
    398,207
    
    
    
    20,539,972Total interest-earning assets
    
    
    38,961,304
    
    
    
    7,398,519
    
    
    
    820,411
    
    
    
    47,180,234Interest-Bearing LiabilitiesInterest-bearing deposits:Domestic:Time deposits
    
    
    9,001,744
    
    
    
    11,656,616
    
    
    
    8,615
    
    
    
    20,666,975Money market deposit accounts
    
    
    7,790,726
    
    
    
    
    
    
    
    
    
    
    
    7,790,726Interest-bearing transaction accounts
    
    
    47,334
    
    
    
    
    
    
    
    
    
    
    
    47,334Savings accounts
    
    
    49,930
    
    
    
    
    
    
    
    
    
    
    
    49,930Total domestic interest-bearing deposits
    
    
    16,889,734
    
    
    
    11,656,616
    
    
    
    8,615
    
    
    
    28,554,965Foreign:Time deposits
    
    
    861,907
    
    
    
    
    
    
    
    
    
    
    
    861,907Total interest-bearing deposits
    
    
    17,751,641
    
    
    
    11,656,616
    
    
    
    8,615
    
    
    
    29,416,872Borrowed funds:Short-term borrowings:Domestic
    
    
    899,779
    
    
    
    
    
    
    
    
    
    
    
    899,779Foreign
    
    
    125,684
    
    
    
    
    
    
    
    
    
    
    
    125,684Total short-term borrowings
    
    
    1,025,463
    
    
    
    
    
    
    
    
    
    
    
    1,025,463Long-term debt and bank notes:Domestic
    
    
    868,317
    
    
    
    3,978,100
    
    
    
    2,347,874
    
    
    
    7,194,291Foreign
    
    
    2,696,360
    
    
    
    1,176,166
    
    
    
    1,078,811
    
    
    
    4,951,337Total long-term debt and bank notes
    
    
    3,564,677
    
    
    
    5,154,266
    
    
    
    3,426,685
    
    
    
    12,145,628Total borrowed funds
    
    
    4,590,140
    
    
    
    5,154,266
    
    
    
    3,426,685
    
    
    
    13,171,091Total interest-bearing liabilities
    
    
    22,341,781
    
    
    
    16,810,882
    
    
    
    3,435,300
    
    
    
    42,587,963Gap before managed adjustments
    
    
    16,619,523
    
    
    
    (9,412,363
    )
    
    
    (2,614,889
    )
    
    
    4,592,271Managed adjustments (b)
    
    
    (25,036,704
    )
    
    
    22,845,190
    
    
    
    3,460,894
    
    
    
    1,269,380Gap after managed adjustments
    
    $
    (8,417,181
    )
    
    $
    13,432,827
    
    
    $
    846,005
    
    
    $
    5,861,651Cumulative gap after managed adjustments
    
    $
    (8,417,181
    )
    
    $
    5,015,646
    
    
    $
    5,861,651Cumulative gap after managed adjustments as a % of managed assets
    
    
    (5.91
    )%
    
    
    3.52
    %
    
    
    4.11
    %
  (a)
    
    Investment securities are presented using estimated maturities.(b)
    
    Managed adjustments reflect the impact interest rates have on securitized
loans and derivative financial instruments.  INTEREST RATE SENSITIVITY Interest rate sensitivity refers to the change
in earnings resulting from fluctuations in
interest rates, variability in the yield earned
on interest-earning assets and the rate paid on
interest-bearing liabilities, and the
differences in repricing intervals between
assets
 and liabilities. Interest rate changes
also impact the estimated value of the
interest-only strip receivable and
other-interest earning assets, and
securitization income. The management of
interest rate sensitivity attempts to maximize
earnings by minimizing any negative impacts of
changing market rates, asset and liability mix,




---



##### 



58    and prepayment trends. Interest rate sensitive
assets/liabilities have yields/rates that can
change within a designated time period as a
result of their maturity, a change in an
underlying index rate, or the contractual
ability of the Corporation to change the
yield/rate.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. The Corporation
analyzes its level of interest rate risk using
several analytical techniques. In addition to
on-balance-sheet activities, interest rate risk
includes the interest rate sensitivity of
securitization income from securitized loans
and the impact of interest rate swap agreements
and foreign exchange swap agreements. The
Corporation uses interest rate swap agreements
and foreign exchange swap agreements to change
a portion of fixed-rate funding sources to
floating-rate funding sources to better match
the rate sensitivity of the Corporations
assets. For this reason, the Corporation
analyzes its level of interest rate risk on a
managed basis 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 33. 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, 2003, variable-rate loans made up 7.0% of
total managed loans, compared to 6.0% of total
managed loans at December 31, 2002. These
variable-rate loans are generally indexed to
the U.S. Prime Rate published in The Wall
Street Journaland reprice quarterly. Including
the managed adjustment, results of the gap
analysis show that, within one year, the
Corporations liabilites 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 its financial assets and liabilities,
derivative financial instruments, and asset
securitizations.
 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. The analysis also assumes that
there is no impact on an annual basis in the
value of the interest-only strip receivable.
Also included in the analysis are various
actions which the Corporation would likely
undertake to minimize the impact of adverse
movements in interest rates. Based on the
simulation analysis at December 31, 2003, the
Corporation could experience a decrease in
projected net income during the next 12 months
of approximately $72 million, if interest rates
at the time the simulation analysis was
performed increased 100 basis points over the
next 12 months evenly distributed on the first
day of each of the next four quarters. 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 as a result of 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. 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;
its ability to do so in the future will depend
on changes in interest rates, market
conditions, and other factors. FOREIGN CURRENCY EXCHANGE RATE SENSITIVITY Foreign currency exchange rate risk refers to
the potential changes in current and future
earnings or capital arising from movements in
foreign exchange rates and occurs as a result
of cross-currency investment and funding
activities. The Corporations foreign currency
exchange rate risk is limited to the
Corporations net investment in its foreign
subsidiaries which is unhedged. 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, 2003, the Corporation could
experience a decrease in stockholders equity,
net of tax, of approximately $192 million as a
result of a 10% depreciation of the
Corporations unhedged capital exposure in
foreign subsidiaries to the U.S. dollar
position. CROSS-BORDER OUTSTANDINGS At December 31, 2003 and 2002 the Corporation
had cross-border outstandings in excess of 1%
of total consolidated assets in the U.K. of
$3.6 billion and $3.7 billion, respectively. At
December 31, 2001 the amount was $1.0 billion.
The Corporation does not have significant local
currency outstanding in the U.K. that is not
hedged or funded by local currency borrowings.
The cross-border outstandings in the U.K. are
primarily short-term in nature. REGULATORY MATTERS 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. After
a lengthy investigation by U.K. regulators of
MasterCard interchange rates in the U.K., the
regulators issued updated preliminary
conclusions on February 11, 2003, finding that
the interchange fee paid by merchant acquirers
to MasterCard card issuers in the U.K. is
anti-competitive and that the agreement between
MasterCards U.K. members for interchange leads
to an unjustifiably high fee being paid to
card-issuing banks. A hearing was held on May
21, 2003, and the regulators ruling is
pending. The ruling may be appealed and the
timing of a final ruling is uncertain. Similar
regulatory action could be taken against VISA
interchange rates in the U.K. In 2002, in
response to European Union regulatory action,
VISA agreed to reduce its interchange fee on
transactions across country lines within the
European Union, and in line with this reduction
in October 2003, VISA reduced its interchange
fee on transactions in the U.K. The Corporation
cannot predict if or when interchange rates in
the U.K. could be reduced. Any potential impact
could also vary based on business strategies or
other actions the Corporation will take to
attempt to limit the impact. BASEL COMMITTEE In April 2003, the Basel Committee on Banking
Supervision (the Committee) issued a
consultative document for public comment, The
New Basel Capital Accord, which proposes
significant
 revisions to the current Basel
Capital Accord. The proposed new accord would
establish a three-part framework for capital
adequacy that would include: (1) minimum
capital requirements; (2) supervisory review of
an institutions capital adequacy and internal
assessment process; and (3) market discipline
through increased disclosures regarding capital
adequacy. In August 2003, an advance notice of
proposed rulemaking was published by the Office
of the Comptroller of the Currency, the Board
of Governors of the Federal Reserve System, the
Federal Deposit Insurance Corporation and the
Office of Thrift Supervision (collectively the
Agencies). The advance notice of proposed
rulemaking was titled Risk-Based Capital
Guidelines; Implementation of New Basel Capital
Accord; Internal Ratings-Based Systems for
Corporate Credit and Operational Risk Advanced
Measurement Approaches for Regulatory Capital;
Proposed Rule and Notice (Proposed Regulatory
Guidance). The Proposed Regulatory Guidance
sets forth for industry comment the Agencies
views on a proposed framework for implementing
the New Basel Capital Accord in the United
States. In particular, the Proposed Regulatory
Guidance describes significant elements of the
Advanced Internal Ratings-Based approach for
credit risk and the Advanced Measurement
Approaches for operational risk. The Agencies
have determined that the advanced risk and
capital measurement methodologies of the new
accord will be applied on a mandatory basis for
large, internationally active banking
organizations. Institutions subject to the
mandatory application of the advanced
approaches would be those institutions with
total banking assets of $250 billion or more or
those institutions, such as the Corporation,
with total on-balance-sheet foreign exposure of
$10 billion or more. The final form of the
rules to be adopted by U.S. bank regulators is
still to be determined. Adoption of the
proposed new accord could lower capital ratios
for U.S. banking organizations, such as the
Corporations banking subsidiaries, due in part
to a new capital charge for operational risk
and to the final treatment of certain credit
risk exposures, including the treatment of
credit card loans and asset securitizations, in
calculating regulatory capital. Future changes
in laws and regulations and in policies applied
by banking or other regulators also could
affect the Corporations consolidated financial
condition and results of operations in future
periods.




---



##### 



60   TABLE 34: MANAGED RECONCILIATION OF THE FIVE-YEAR STATISTICAL SUMMARY RECONCILIATION OF INCOME STATEMENT DATA FOR THE PERIOD TO MANAGED NET INTEREST
INCOME, MANAGED PROVISION FOR POSSIBLE CREDIT LOSSES, AND MANAGED OTHER
OPERATING INCOME(dollars in thousands) Year Ended December 31,
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000
    
    
    1999Net Interest IncomeNet interest income
    
    $
    2,350,373
    
    
    $
    2,074,575
    
    
    $
    1,657,340
    
    
    $
    1,395,015
    
    
    $
    1,175,759Securitization adjustments
    
    
    7,854,265
    
    
    
    7,044,102
    
    
    
    6,546,802
    
    
    
    4,442,094
    
    
    
    4,012,042Managed net interest income
    
    $
    10,204,638
    
    
    $
    9,118,677
    
    
    $
    8,204,142
    
    
    $
    5,837,109
    
    
    $
    5,187,801Provision for Possible Credit LossesProvision for possible credit losses
    
    $
    1,392,701
    
    
    $
    1,340,157
    
    
    $
    1,140,615
    
    
    $
    547,309
    
    
    $
    636,614Securitization adjustments
    
    
    4,375,469
    
    
    
    3,835,383
    
    
    
    3,452,014
    
    
    
    2,800,980
    
    
    
    2,248,535Managed provision for possible credit losses
    
    $
    5,768,170
    
    
    $
    5,175,540
    
    
    $
    4,592,629
    
    
    $
    3,348,289
    
    
    $
    2,885,149Other Operating IncomeOther operating income
    
    $
    7,825,480
    
    
    $
    6,752,923
    
    
    $
    6,673,316
    
    
    $
    4,920,403
    
    
    $
    4,193,527Securitization adjustments
    
    
    (3,478,796
    )
    
    
    (3,208,719
    )
    
    
    (3,094,788
    )
    
    
    (1,641,114
    )
    
    
    (1,763,507
    )Managed other operating income
    
    $
    4,346,684
    
    
    $
    3,544,204
    
    
    $
    3,578,528
    
    
    $
    3,279,289
    
    
    $
    2,430,020
 RECONCILIATION OF THE LOAN RECEIVABLES NET CREDIT LOSS RATIO TO THE MANAGED NET CREDIT LOSS RATIO
(dollars in thousands) Year Ended December 31,
    2003
    

    
      |
2002
    
      |
    2001Net
    
    
    
    
    
    
    NetCredit
    
    
    Net
    
    
    
    
    
    
    NetCredit
    
    
    Net
    
    
    
    
    
    
    NetCreditCredit
    
    
    Average
    
    
    Loss
    
    
    Credit
    
    
    Average
    
    
    Loss
    
    
    Credit
    
    
    Average
    
    
    LossLosses (a)
    
    
    Balance
    
    
    Ratio (a)
    
    
    Losses (a)
    
    
    Balance
    
    
    Ratio (a)
    
    
    Losses (a)
    
    
    Balance
    
    
    Ratio (a)Loan receivables (b)
    
    $
    1,363,696
    
    
    $
    28,183,818
    
    
    
    4.84
    %
    
    $
    1,156,212
    
    
    $
    25,315,200
    
    
    
    4.57
    %
    
    $
    855,014
    
    
    $
    20,339,388
    
    
    
    4.20
    %Securitized loans
    
    
    4,375,469
    
    
    
    81,691,156
    
    
    
    5.36
    
    
    
    3,835,383
    
    
    
    74,718,731
    
    
    
    5.13
    
    
    
    3,452,014
    
    
    
    70,560,600
    
    
    
    4.89Managed loans
    
    $
    5,739,165
    
    
    $
    109,874,974
    
    
    
    5.22
    
    
    $
    4,991,595
    
    
    $
    100,033,931
    
    
    
    4.99
    
    
    $
    4,307,028
    
    
    $
    90,899,988
    
    
    
    4.74Year Ended December 31,
    2000
    
    
    |
    1999Net Credit
    
    
    
    
    
    
    
    
    
    
    Net CreditNet Credit
    
    
    Average
    
    
    Loss
    
    
    Net Credit
    
    
    Average
    
    
    LossLosses (a)
    
    
    Balance
    
    
    Ratio (a)
    
    
    Losses (a)
    
    
    Balance
    
    
    Ratio (a)Loan receivables (b)
    
    $
    599,642
    
    
    $
    17,718,148
    
    
    
    3.38
    %
    
    $
    526,488
    
    
    $
    14,422,495
    
    
    
    3.65
    %Securitized loans
    
    
    2,800,980
    
    
    
    59,726,838
    
    
    
    4.69
    
    
    
    2,248,535
    
    
    
    49,706,760
    
    
    
    4.52Managed loans
    
    $
    3,400,622
    
    
    $
    77,444,986
    
    
    
    4.39
    
    
    $
    2,775,023
    
    
    $
    64,129,255
    
    
    
    4.33
 RECONCILIATION OF THE LOAN RECEIVABLES DELINQUENCY RATIO TO THE MANAGED
DELINQUENCY RATIO
(dollars in thousands) December 31,
    2003
    
    
      |
    2002
    
      |
    2001Delinquent
    
    
    
    
    
    Delinquency
    
    
    Delinquent
    
    
    
    
    
    Delinquency
    
    
    Delinquent
    
    
    
    
    
    DelinquencyBalances (c)
    
    

Ending Loans
    
    

Ratio (c)
    
    

Balances (c)
    
    

Ending Loans
    
    

Ratio (c)
    
    

Balances (c)
    
    

Ending Loans
    
    

Ratio (c)Loan receivables (b)
    
    $
    1,289,799
    
    
    $
    33,624,077
    
    
    
    3.84
    %
    
    $
    1,251,603
    
    
    $
    28,726,508
    
    
    
    4.36
    %
    
    $
    1,150,901
    
    
    $
    24,633,564
    
    
    
    4.67
    %Securitized loans
    
    
    3,913,851
    
    
    
    84,869,483
    
    
    
    4.61
    
    
    
    3,977,908
    
    
    
    78,531,334
    
    
    
    5.07
    
    
    
    3,811,560
    
    
    
    72,862,487
    
    
    
    5.23Managed loans
    
    $
    5,203,650
    
    
    $
    118,493,560
    
    
    
    4.39
    
    
    $
    5,229,511
    
    
    $
    107,257,842
    
    
    
    4.88
    
    
    $
    4,962,461
    
    
    $
    97,496,051
    
    
    
    5.09December 31,
    
    2000
      |
    1999Delinquent
    
    
    
    
    
    
    Delinquency
    
    
    Delinquent
    
    
    
    
    
    
    DelinquencyBalances (c)
    
    
    Ending Loans
    
    
    Ratio (c)
    
    
    Balances (c)
    
    
    Ending Loans
    
    
    Ratio (c)Loan receivables (b)
    
    $
    803,680
    
    
    $
    19,954,837
    
    
    
    4.03
    %
    
    $
    708,751
    
    
    $
    17,663,709
    
    
    
    4.01
    %Securitized loans
    
    
    3,182,858
    
    
    
    68,835,884
    
    
    
    4.62
    
    
    
    2,508,145
    
    
    
    54,591,804
    
    
    
    4.59Managed loans
    
    $
    3,986,538
    
    
    $
    88,790,721
    
    
    
    4.49
    
    
    $
    3,216,896
    
    
    $
    72,255,513
    
    
    
    4.45




---



##### 



TABLE 34: MANAGED RECONCILIATION OF THE FIVE-YEAR STATISTICAL SUMMARY-Continued RECONCILIATION OF THE NET INTEREST MARGIN RATIO TO THE MANAGED NET INTEREST
MARGIN RATIO(dollars in thousands) Year Ended December 31,
    
    2003
    
      |
    2002
    
      |
    2001Net
    
    
    
    
    
    
    
    
    
    
    Net
    
    
    
    
    
    
    
    
    
    
    NetAverage
    
    
    
    
    
    
    Interest
    
    
    Average
    
    
    
    
    
    
    Interest
    
    
    Average
    
    
    
    
    
    
    InterestEarning
    
    
    Net Interest
    
    
    Margin
    
    
    Earning
    
    
    Net Interest
    
    
    Margin
    
    
    Earning
    
    
    Net Interest
    
    
    MarginAssets
    
    
    Income
    
    
    Ratio
    
    
    Assets
    
    
    Income
    
    
    Ratio
    
    
    Assets
    
    
    Income
    
    
    RatioNet Interest Margin (d)Investment securities and
money market instruments (e)
    
    $
    11,693,550
    
    
    
    
    
    
    
    
    
    
    $
    8,257,838
    
    
    
    
    
    
    
    
    
    
    $
    6,500,608Other interest-earning assets (e)
    
    
    3,904,013
    
    
    
    
    
    
    
    
    
    
    
    3,869,893
    
    
    
    
    
    
    
    
    
    
    
    3,256,773Loan receivables (b)
    
    
    28,183,818
    
    
    
    
    
    
    
    
    
    
    
    25,315,200
    
    
    
    
    
    
    
    
    
    
    
    20,339,388Total
    
    $
    43,781,381
    
    
    $
    2,351,132
    
    
    
    5.37
    %
    
    $
    37,442,931
    
    
    $
    2,075,645
    
    
    
    5.54
    %
    
    $
    30,096,769
    
    
    $
    1,659,023
    
    
    
    5.51
    %Securitization AdjustmentsInvestment securities and
money market instruments
    
    $
    
    
    
    
    
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    
    
    
    $
    Other interest-earning assets
    
    
    (3,835,216
    )
    
    
    
    
    
    
    
    
    
    
    (3,808,179
    )
    
    
    
    
    
    
    
    
    
    
    (3,197,381
    )Securitized loans
    
    
    81,691,156
    
    
    
    
    
    
    
    
    
    
    
    74,718,731
    
    
    
    
    
    
    
    
    
    
    
    70,560,600Total
    
    $
    77,855,940
    
    
    
    7,854,265
    
    
    
    10.09
    
    
    $
    70,910,552
    
    
    
    7,044,102
    
    
    
    9.93
    
    
    $
    67,363,219
    
    
    
    6,546,802
    
    
    
    9.72Managed Net Interest Margin (d)Investment securities and
money market instruments (e)
    
    $
    11,693,550
    
    
    
    
    
    
    
    
    
    
    $
    8,257,838
    
    
    
    
    
    
    
    
    
    
    $
    6,500,608Other interest-earning assets (e)
    
    
    68,797
    
    
    
    
    
    
    
    
    
    
    
    61,714
    
    
    
    
    
    
    
    
    
    
    
    59,392Managed loans
    
    
    109,874,974
    
    
    
    
    
    
    
    
    
    
    
    100,033,931
    
    
    
    
    
    
    
    
    
    
    
    90,899,988Total
    
    $
    121,637,321
    
    
    
    10,205,397
    
    
    
    8.39
    
    
    $
    108,353,483
    
    
    
    9,119,747
    
    
    
    8.42
    
    
    $
    97,459,988
    
    
    
    8,205,825
    
    
    
    8.42Year Ended December 31,
    
    2000
    
      |
    1999Net
    
    
    
    
    
    
    
    
    
    
    NetAverage
    
    
    
    
    
    
    Interest
    
    
    Average
    
    
    
    
    
    
    InterestEarning
    
    
    Net Interest
    
    
    Margin
    
    
    Earning
    
    
    Net Interest
    
    
    MarginAssets
    
    
    Income
    
    
    Ratio
    
    
    Assets
    
    
    Income
    
    
    RatioNet Interest Margin (d)Investment securities and
money market instruments (e)
    
    $
    5,051,619
    
    
    
    
    
    
    
    
    
    
    $
    5,771,007Other interest-earning assets (e)
    
    
    2,623,168
    
    
    
    
    
    
    
    
    
    
    
    2,042,750Loan receivables (b)
    
    
    17,718,148
    
    
    
    
    
    
    
    
    
    
    
    14,422,495Total
    
    $
    25,392,935
    
    
    $
    1,397,382
    
    
    
    5.50
    %
    
    $
    22,236,252
    
    
    $
    1,177,691
    
    
    
    5.30
    %Securitization AdjustmentsInvestment securities and
money market instruments
    
    $
    
    
    
    
    
    
    
    
    
    
    
    $
    Other interest-earning assets
    
    
    (2,592,189
    )
    
    
    
    
    
    
    
    
    
    
    (2,016,616
    )Securitized loans
    
    
    59,726,838
    
    
    
    
    
    
    
    
    
    
    
    49,706,760Total
    
    $
    57,134,649
    
    
    
    4,442,094
    
    
    
    7.77
    
    
    $
    47,690,144
    
    
    
    4,012,042
    
    
    
    8.41Managed Net Interest Margin (d)Investment securities and
money market instruments (e)
    
    $
    5,051,619
    
    
    
    
    
    
    
    
    
    
    $
    5,771,007Other interest-earning assets (e)
    
    
    30,979
    
    
    
    
    
    
    
    
    
    
    
    26,134Managed loans
    
    
    77,444,986
    
    
    
    
    
    
    
    
    
    
    
    64,129,255Total
    
    $
    82,527,584
    
    
    
    5,839,476
    
    
    
    7.08
    
    
    $
    69,926,396
    
    
    
    5,189,733
    
    
    
    7.42
  (a)
    
    MBNA Corporations net credit loss ratio is calculated by dividing
annualized net credit losses, which exclude uncollectible accrued interest and
fees and fraud losses, for the period by average loans, which include estimated
collectible billed interest and fees for the corresponding period.  (b)
    
    Loan receivables include loans held for
securitization and the loan portfolio.(c)
    
    Delinquency represents accruing loans that are
30 days or more past due.  (d)
    
    Net interest margin ratios are presented on a fully taxable equivalent
basis. The fully taxable equivalent adjustment for the year ended December 31,
2003, 2002, 2001, 2000, and 1999 was $759, $1,070, $1,683, $2,367, and $1,932,
respectively.  (e)
    
    For purposes of comparability, certain prior period amounts have been
reclassified.




---



##### 



62   MANAGEMENTS
REPORT ON THE CONSOLIDATED FINANCIALSTATEMENTS 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 accounting principles generally accepted in the United States, and in
situations where acceptable alternative accounting principles exist, management
selected the method that it believed was appropriate in the circumstances.
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 costs 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 evaluate whether each
is properly discharging its responsibilities. The independent auditors have
free access to the Audit Committee to discuss the results of their audit work
and their evaluations of the adequacy of internal controls and the quality of
financial reporting. (Hammonds, Wright and Schindler signatures)




---



##### 



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, 2003 and 2002, 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, 2003.
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, 2003 and 2002, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 2003, in conformity with accounting principles generally
accepted in the United States. (Ernst and Young LLP Signature) Baltimore, Maryland
January 22, 2004




---



##### 



64   CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (dollars in thousands, except per share amounts) December 31,
    
    2003
    
    
    2002AssetsCash and due from banks
    
    $
    660,022
    
    
    $
    721,972Interest-earning time deposits in other banks
    
    
    3,590,329
    
    
    
    3,703,052Federal funds sold
    
    
    1,275,000
    
    
    
    1,645,000Investment securities:Available-for-sale (amortized cost of $4,352,069 and $3,617,505 at December 31, 2003
and 2002, respectively)
    
    
    4,363,087
    
    
    
    3,655,808Held-to-maturity (market value of $354,434 and $428,472 at December 31, 2003
and 2002, respectively)
    
    
    353,299
    
    
    
    419,760Loans held for securitization
    
    
    13,084,105
    
    
    
    11,029,627Loan portfolio:Credit card
    
    
    11,910,507
    
    
    
    9,484,115Other consumer
    
    
    8,629,465
    
    
    
    8,212,766Total loan portfolio
    
    
    20,539,972
    
    
    
    17,696,881Reserve for possible credit losses
    
    
    (1,216,316
    )
    
    
    (1,111,299
    )Net loan portfolio
    
    
    19,323,656
    
    
    
    16,585,582Premises and equipment, net
    
    
    2,676,597
    
    
    
    2,519,101Accrued income receivable
    
    
    443,755
    
    
    
    371,089Accounts receivable from securitization
    
    
    7,766,477
    
    
    
    6,926,876Intangible assets, net
    
    
    3,188,368
    
    
    
    3,188,501Prepaid expenses and deferred charges
    
    
    499,775
    
    
    
    412,609Other assets
    
    
    1,888,885
    
    
    
    1,677,769Total assets
    
    $
    59,113,355
    
    
    $
    52,856,746LiabilitiesDeposits:Time deposits
    
    $
    21,528,882
    
    
    $
    22,079,031Money market deposit accounts
    
    
    7,790,726
    
    
    
    7,520,119Noninterest-bearing deposits
    
    
    2,419,209
    
    
    
    915,687Interest-bearing transaction accounts
    
    
    47,334
    
    
    
    45,414Savings accounts
    
    
    49,930
    
    
    
    55,965Total deposits
    
    
    31,836,081
    
    
    
    30,616,216Short-term borrowings
    
    
    1,025,463
    
    
    
    1,250,103Long-term debt and bank notes
    
    
    12,145,628
    
    
    
    9,538,173Accrued interest payable
    
    
    319,227
    
    
    
    286,158Accrued expenses and other liabilities
    
    
    2,673,916
    
    
    
    2,064,777Total liabilities
    
    
    48,000,315
    
    
    
    43,755,427Stockholders EquityPreferred stock ($.01 par value, 20,000,000 shares authorized, 8,573,882 shares issued and outstanding
at December 31, 2003 and 2002)
    
    
    86
    
    
    
    86Common stock ($.01 par value, 1,500,000,000 shares authorized, 1,277,597,840 shares at December 31, 2003
and 1,277,671,875 shares at December 31, 2002, issued and outstanding)
    
    
    12,776
    
    
    
    12,777Additional paid-in capital
    
    
    2,119,700
    
    
    
    2,296,568Retained earnings
    
    
    8,571,174
    
    
    
    6,707,162Accumulated other comprehensive income
    
    
    409,304
    
    
    
    84,726Total stockholders equity
    
    
    11,113,040
    
    
    
    9,101,319Total liabilities and stockholders equity
    
    $
    59,113,355
    
    
    $
    52,856,746
 The accompanying notes are an integral part of the consolidated financial statements.




---



##### 



CONSOLIDATED STATEMENTS OF INCOME(dollars in thousands, except per share amounts) Year Ended December 31,
    
    2003
    
    
    2002
    
    
    2001Interest IncomeLoan portfolio
    
    $
    2,216,256
    
    
    $
    2,037,454
    
    
    $
    1,793,145Loans held for securitization
    
    
    1,112,977
    
    
    
    1,056,558
    
    
    
    998,881Investment securities:Taxable
    
    
    110,370
    
    
    
    134,411
    
    
    
    161,013Tax-exempt
    
    
    1,417
    
    
    
    1,895
    
    
    
    3,124Time deposits in other banks
    
    
    79,259
    
    
    
    53,133
    
    
    
    71,341Federal funds sold
    
    
    33,137
    
    
    
    35,460
    
    
    
    56,651Other interest income
    
    
    305,468
    
    
    
    359,159
    
    
    
    387,250Total interest income
    
    
    3,858,884
    
    
    
    3,678,070
    
    
    
    3,471,405Interest ExpenseDeposits
    
    
    1,107,806
    
    
    
    1,255,527
    
    
    
    1,444,706Short-term borrowings
    
    
    39,132
    
    
    
    42,978
    
    
    
    24,766Long-term debt and bank notes
    
    
    361,573
    
    
    
    304,990
    
    
    
    344,593Total interest expense
    
    
    1,508,511
    
    
    
    1,603,495
    
    
    
    1,814,065Net Interest Income
    
    
    2,350,373
    
    
    
    2,074,575
    
    
    
    1,657,340Provision for possible credit losses
    
    
    1,392,701
    
    
    
    1,340,157
    
    
    
    1,140,615Net interest income after provision for possible credit losses
    
    
    957,672
    
    
    
    734,418
    
    
    
    516,725Other Operating IncomeSecuritization income
    
    
    6,523,956
    
    
    
    5,666,352
    
    
    
    5,722,324Interchange
    
    
    391,827
    
    
    
    357,410
    
    
    
    300,957Credit card fees
    
    
    513,605
    
    
    
    385,422
    
    
    
    295,101Other consumer loan fees
    
    
    108,226
    
    
    
    100,862
    
    
    
    92,447Insurance
    
    
    231,941
    
    
    
    181,474
    
    
    
    145,338Other
    
    
    55,925
    
    
    
    61,403
    
    
    
    117,149Total other operating income
    
    
    7,825,480
    
    
    
    6,752,923
    
    
    
    6,673,316Other Operating ExpenseSalaries and employee benefits
    
    
    2,083,120
    
    
    
    1,947,389
    
    
    
    1,821,293Occupancy expense of premises
    
    
    176,114
    
    
    
    171,989
    
    
    
    159,075Furniture and equipment expense
    
    
    351,501
    
    
    
    334,287
    
    
    
    304,032Other
    
    
    2,513,412
    
    
    
    2,248,260
    
    
    
    2,190,431Total other operating expense
    
    
    5,124,147
    
    
    
    4,701,925
    
    
    
    4,474,831Income Before Income Taxes
    
    
    3,659,005
    
    
    
    2,785,416
    
    
    
    2,715,210Applicable income taxes
    
    
    1,320,901
    
    
    
    1,019,462
    
    
    
    1,020,919Net Income
    
    $
    2,338,104
    
    
    $
    1,765,954
    
    
    $
    1,694,291Earnings Per Common Share
    
    $
    1.82
    
    
    $
    1.37
    
    
    $
    1.31Earnings Per Common ShareAssuming Dilution
    
    
    1.79
    
    
    
    1.34
    
    
    
    1.28Dividends Per Common Share
    
    
    .36
    
    
    
    .27
    
    
    
    .24
 The accompanying notes are an integral part of the consolidated financial statements.




---



##### 



66   CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY(dollars in thousands, except per share amounts) Outstanding SharesAccumulatedAdditional
    
    
    
    
    
    
    Other
    
    
    TotalPreferred
    
    
    Common
    
    
    Preferred
    
    
    Common
    
    
    Paid-in
    
    
    Retained
    
    
    Comprehensive
    
    
    Stockholders'(000)
    
    
    (000)
    
    
    Stock
    
    
    Stock
    
    
    Capital
    
    
    Earnings
    
    
    Income
    
    
    EquityBalance, December 31, 2000
    
    
    8,574
    
    
    
    1,277,706
    
    
    $
    86
    
    
    $
    12,777
    
    
    $
    2,721,691
    
    
    $
    3,931,248
    
    
    $
    (38,524
    )
    
    $
    6,627,278Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,694,291
    
    
    
    
    
    
    
    1,694,291Foreign currency translation, net of tax
(accumulated amount of ($75,940) at
December 31, 2001)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (28,984
    )
    
    
    (28,984
    )Net unrealized gains on investment securities
available-for-sale and other financial
instruments, net of tax (accumulated
gain of $27,507 at December 31, 2001)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19,075
    
    
    
    19,075Other comprehensive income, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,909
    )Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,684,382Cash dividends:Common$.24 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (306,672
    )
    
    
    
    
    
    
    (306,672
    )Preferred
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14,142
    )
    
    
    
    
    
    
    (14,142
    )Exercise of stock options and other awards
    
    
    
    
    
    
    15,833
    
    
    
    
    
    
    
    158
    
    
    
    83,874
    
    
    
    
    
    
    
    
    
    
    
    84,032Stock-based compensation tax benefit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    68,580
    
    
    
    
    
    
    
    
    
    
    
    68,580Amortization of deferred compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    31,355
    
    
    
    
    
    
    
    
    
    
    
    31,355Acquisition and retirement of common stock
    
    
    
    
    
    
    (15,867
    )
    
    
    
    
    
    
    (158
    )
    
    
    (375,937
    )
    
    
    
    
    
    
    
    
    
    
    (376,095
    )Balance, December 31, 2001
    
    
    8,574
    
    
    
    1,277,672
    
    
    
    86
    
    
    
    12,777
    
    
    
    2,529,563
    
    
    
    5,304,725
    
    
    
    (48,433
    )
    
    
    7,798,718Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,765,954
    
    
    
    
    
    
    
    1,765,954Foreign currency translation, net of tax
(accumulated amount of $64,817 at
December 31, 2002)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    140,757
    
    
    
    140,757Net unrealized losses on investment securities
available-for-sale and other financial
instruments, net of tax (accumulated
gain of $24,185 at December 31, 2002)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,322
    )
    
    
    (3,322
    )Minimum benefit plan liability adjustment,
net of tax (accumulated amount of ($4,276)
at December 31, 2002)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,276
    )
    
    
    (4,276
    )Other comprehensive income, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    133,159Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,899,113Cash dividends:Common$.27 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (349,339
    )
    
    
    
    
    
    
    (349,339
    )Preferred
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14,178
    )
    
    
    
    
    
    
    (14,178
    )Exercise of stock options and other awards
    
    
    
    
    
    
    25,521
    
    
    
    
    
    
    
    255
    
    
    
    138,167
    
    
    
    
    
    
    
    
    
    
    
    138,422Stock-based compensation tax benefit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    149,914
    
    
    
    
    
    
    
    
    
    
    
    149,914Amortization of deferred compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    94,172
    
    
    
    
    
    
    
    
    
    
    
    94,172Acquisition and retirement of common stock
    
    
    
    
    
    
    (25,521
    )
    
    
    
    
    
    
    (255
    )
    
    
    (615,248
    )
    
    
    
    
    
    
    
    
    
    
    (615,503
    )Balance, December 31, 2002
    
    
    8,574
    
    
    
    1,277,672
    
    
    
    86
    
    
    
    12,777
    
    
    
    2,296,568
    
    
    
    6,707,162
    
    
    
    84,726
    
    
    
    9,101,319Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,338,104
    
    
    
    
    
    
    
    2,338,104Foreign currency translation, net of tax
(accumulated amount of $417,617 at
December 31, 2003)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    352,800
    
    
    
    352,800Net unrealized losses on investment securities
available-for-sale and other financial
instruments, net of tax (accumulated
gain of $6,901 at December 31, 2003)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (17,284
    )
    
    
    (17,284
    )Minimum benefit plan liability adjustment,
net of tax (accumulated amount of ($15,214)
at December 31, 2003)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,938
    )
    
    
    (10,938
    )Other comprehensive income, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    324,578Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,662,682Cash dividends:Common$.36 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (460,028
    )
    
    
    
    
    
    
    (460,028
    )Preferred
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14,064
    )
    
    
    
    
    
    
    (14,064
    )Exercise of stock options and other awards
    
    
    
    
    
    
    29,152
    
    
    
    
    
    
    
    291
    
    
    
    275,502
    
    
    
    
    
    
    
    
    
    
    
    275,793Stock-based compensation tax benefit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    77,915
    
    
    
    
    
    
    
    
    
    
    
    77,915Issuance of common stock, net of issuance costs
    
    
    
    
    
    
    50,000
    
    
    
    
    
    
    
    500
    
    
    
    1,081,686
    
    
    
    
    
    
    
    
    
    
    
    1,082,186Amortization of deferred compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    88,061
    
    
    
    
    
    
    
    
    
    
    
    88,061Acquisition and retirement of common stock
    
    
    
    
    
    
    (79,226
    )
    
    
    
    
    
    
    (792
    )
    
    
    (1,700,032
    )
    
    
    
    
    
    
    
    
    
    
    (1,700,824
    )Balance, December 31, 2003
    
    
    8,574
    
    
    
    1,277,598
    
    
    $
    86
    
    
    $
    12,776
    
    
    $
    2,119,700
    
    
    $
    8,571,174
    
    
    $
    409,304
    
    
    $
    11,113,040
 The accompanying notes are an integral part of the consolidated financial
statements.




---



##### 



CONSOLIDATED STATEMENTS OF CASH FLOWS (dollars in thousands) Year Ended December 31,
    
    2003
    
    
    2002
    
    
    2001Operating ActivitiesNet income
    
    $
    2,338,104
    
    
    $
    1,765,954
    
    
    $
    1,694,291Adjustments to reconcile net income to net cash provided by operating activities:Provision for possible credit losses
    
    
    1,392,701
    
    
    
    1,340,157
    
    
    
    1,140,615Depreciation, amortization, and accretion
    
    
    861,459
    
    
    
    779,638
    
    
    
    715,386Benefit for deferred income taxes
    
    
    (1,980
    )
    
    
    (151,707
    )
    
    
    (111,267
    )(Increase) decrease in accrued income receivable
    
    
    (57,524
    )
    
    
    5,282
    
    
    
    (64,944
    )(Increase) decrease in accounts receivable from securitization
    
    
    (698,229
    )
    
    
    602,160
    
    
    
    (418,375
    )Increase (decrease) in accrued interest payable
    
    
    23,700
    
    
    
    53,861
    
    
    
    (10,468
    )Decrease (increase) in other operating activities
    
    
    9,570
    
    
    
    389,809
    
    
    
    (13,342
    )Net cash provided by operating activities
    
    
    3,867,801
    
    
    
    4,785,154
    
    
    
    2,931,896Investing ActivitiesNet decrease (increase) in money market instruments
    
    
    622,732
    
    
    
    (2,271,289
    )
    
    
    (842,624
    )Proceeds from maturities of investment securities available-for-sale
    
    
    1,802,968
    
    
    
    1,054,876
    
    
    
    1,673,341Proceeds from sale of investment securities available-for-sale
    
    
    
    
    
    
    13,126
    
    
    
    505Purchases of investment securities available-for-sale
    
    
    (2,520,608
    )
    
    
    (1,606,729
    )
    
    
    (2,119,000
    )Proceeds from maturities of investment securities held-to-maturity
    
    
    89,741
    
    
    
    45,752
    
    
    
    33,280Purchases of investment securities held-to-maturity
    
    
    (23,016
    )
    
    
    (81,596
    )
    
    
    (78,662
    )Proceeds from securitization of loans
    
    
    13,598,329
    
    
    
    15,373,055
    
    
    
    12,329,830Loan portfolio acquisitions
    
    
    (2,232,049
    )
    
    
    (4,479,966
    )
    
    
    (1,301,628
    )Increase in loans due to principal payments to investors in the Corporations
securitization transactions
    
    
    (8,542,510
    )
    
    
    (10,195,864
    )
    
    
    (8,277,644
    )Net loan originations
    
    
    (8,427,255
    )
    
    
    (6,294,442
    )
    
    
    (8,615,423
    )Net purchases of premises and equipment
    
    
    (414,833
    )
    
    
    (551,208
    )
    
    
    (691,567
    )Net cash used in investing activities
    
    
    (6,046,501
    )
    
    
    (8,994,285
    )
    
    
    (7,889,592
    )Financing ActivitiesNet increase in money market deposit accounts, noninterest-bearing
deposits, interest-bearing transaction accounts, and savings accounts
    
    
    1,739,818
    
    
    
    1,214,202
    
    
    
    1,430,101Net (decrease) increase in time deposits
    
    
    (629,721
    )
    
    
    2,161,613
    
    
    
    1,353,297Net (decrease) increase in short-term borrowings
    
    
    (264,713
    )
    
    
    (524,606
    )
    
    
    1,626,185Proceeds from issuance of long-term debt and bank notes
    
    
    3,320,585
    
    
    
    3,749,413
    
    
    
    2,043,964Maturity of long-term debt and bank notes
    
    
    (1,270,574
    )
    
    
    (1,803,816
    )
    
    
    (900,757
    )Proceeds from exercise of stock options and other awards
    
    
    275,793
    
    
    
    138,422
    
    
    
    84,032Acquisition and retirement of common stock
    
    
    (1,700,824
    )
    
    
    (615,503
    )
    
    
    (376,095
    )Proceeds from issuance of common stock
    
    
    1,082,186
    
    
    
    
    
    
    
    Dividends paid
    
    
    (435,800
    )
    
    
    (350,740
    )
    
    
    (312,382
    )Net cash provided by financing activities
    
    
    2,116,750
    
    
    
    3,968,985
    
    
    
    4,948,345Decrease in Cash and Cash Equivalents
    
    
    (61,950
    )
    
    
    (240,146
    )
    
    
    (9,351
    )Cash and cash equivalents at beginning of year
    
    
    721,972
    
    
    
    962,118
    
    
    
    971,469Cash and cash equivalents at end of year
    
    $
    660,022
    
    
    $
    721,972
    
    
    $
    962,118Supplemental DisclosuresInterest expense paid
    
    $
    1,524,959
    
    
    $
    1,589,080
    
    
    $
    1,869,919Income taxes paid
    
    $
    1,002,682
    
    
    $
    1,020,878
    
    
    $
    892,519
 The accompanying notes are an integral part of the consolidated financial
statements.




---



##### 



68   NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  NOTE 1: BUSINESS AND BASIS OF PRESENTATION 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 Europe
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 credit cards, through
endorsed marketing. In addition to its credit
card lending, the Corporation also makes other
consumer loans which include installment and
revolving unsecured loan products and offers
insurance and deposit products. The Corporation
is also the parent of MBNA America (Delaware),
N.A. (MBNA Delaware), a national bank, which
offers business card products, mortgage loans,
aircraft loans, and other specialty loan
products. The accompanying audited consolidated
financial statements have been prepared in
accordance with accounting principles generally
accepted in the United States (GAAP) that
require management to make estimates and
assumptions that affect reported amounts in the
financial statements and accompanying notes.
These estimates are based on information
available as of the date of the consolidated
financial statements. Therefore, actual results
could differ from these estimates. For purposes
of comparability, certain prior period amounts
have been reclassified to conform with the 2003
presentation. NOTE 2: PRINCIPLES OF CONSOLIDATION The accompanying audited consolidated financial
statements include, after intercompany
elimination, the accounts of all subsidiaries
of the Corporation, all of which are wholly
owned. The Corporation securitizes its loan
principal receivables through trusts that
qualify as special-purpose entities as defined
by Statement of Financial Accounting Standards
No. 140, Accounting for Transfers and
Servicing of Financial Assets and
Extinguishments of Liabilities-a replacement of
FASB Statement No. 125 (Statement No. 140),
issued by the Financial Accounting Standards
Board (FASB). In January 2003, FASB
Interpretation No. 46 Consolidation of
Variable Interest Entities (Interpretation
No. 46) was issued. Interpretation No. 46
clarified the rules for consolidation by an
investor entity for which the investors
ownership interest changes with changes in the
entitys net asset value. The Corporations
securitization trusts are specifically exempted
from the requirements of Interpretation No. 46
since they are qualified special-purpose
entities as defined by Statement No. 140. As a
result, the trusts are not subsidiaries of the
Corporation and are excluded from the
Corporations audited consolidated financial
statements in accordance with GAAP.
 The Corporation also holds Community
Development investments in the form of limited
partnership interests that qualify under the
Community Reinvestment Act. The Corporation
holds less than 50% interests in these
partnerships and does not control the limited
partnerships. The Corporation determined that
these partnerships are variable interest
entities as defined by Interpretation No. 46.
Interpretation No. 46 requires consolidation of
a variable interest entity by the primary
beneficiary of that entity. The Corporation
determined that it is not the primary
beneficiary of the limited partnerships,
therefore they are not consolidated and are
excluded from the Corporations audited
consolidated financial statements in accordance
with GAAP. The Corporations investments in
these limited partnerships are recorded in
other assets in the Corporations audited
consolidated statements of financial condition. In the third quarter of 2003, the Corporation
determined that MBNA Capital A, MBNA Capital B,
MBNA Capital C, MBNA Capital D, and MBNA
Capital E (collectively the statutory
trusts), were variable interest entities as
defined by Interpretation No. 46 and the
Corporation was not the primary beneficiary. As
a result, the statutory trusts were
deconsolidated effective July 1, 2003. The
deconsolidation of the statutory trusts
increased long-term debt and bank notes and the
investment in variable interest entities, which
is recorded in other assets in the
Corporations audited consolidated statements
of financial condition. NOTE 3: SIGNIFICANT ACCOUNTING POLICIES INVESTMENT SECURITIES Investment securities include both those
available-for-sale and those held-to-maturity.
Investment securities available-for-sale are
reported at market value with unrealized gains
and losses, net of tax, reported as a component
of other comprehensive income included in
stockholders equity. Investment securities
held-to-maturity are reported at cost (adjusted
for amortization of premiums and accretion of
discounts). 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. The Corporation does not
hold investment securities for trading
purposes. ASSET SECURITIZATION Asset securitization involves the sale to a
trust of a pool of loan principal receivables
and is accomplished through the public and
private issuance of asset-backed securities.
The Corporation removes loan principal
receivables from the Corporations consolidated
statements of financial condition for those
asset securitizations that qualify as sales in
accordance with Statement No. 140. Earnings on
the Corporations securitized loans, including
gains from securitizations, are included in
securitization income




---



##### 



and other interest income
in the Corporations audited consolidated
statements of income, and amounts due from the
trusts and the Corporations retained interests
are included in accounts receivable from
securitization in the Corporations audited
consolidated statements of financial condition. The trusts are qualified special-purpose
entities as defined under Statement No. 140. To
meet the criteria to be considered a qualifying
special-purpose entity, a trust must be
demonstrably distinct from the Corporation and
have activities that are signifi-cantly limited
and entirely specified in the legal documents
that established the trust. The Corporation
cannot change the activities that the trust can
perform. These activities may only be changed
by a majority of the beneficial interest
holders not including the Corporation. The
trusts are administered by an independent
trustee. LOANS HELD FOR SECURITIZATION Loans held for securitization includes loans
that were originated through certain endorsing
organizations or financial institutions who
have the contractual right to purchase the
loans from the Corporation at fair value and
the lesser of loan principal receivables
eligible for securitization or sale, or loan
principal receivables that management intends
to securitize or sell within one year. These
loans are carried at the lower of aggregate
cost or fair value. RESERVE FOR POSSIBLE CREDIT LOSSES The Corporation maintains the reserve for
possible credit losses at an amount sufficient
to absorb losses inherent in the Corporations
loan principal receivables at the reporting
date based on a projection of probable net
credit losses. To project probable net credit
losses, the Corporation regularly performs a
migration analysis of delinquent and current
accounts. A migration analysis is a technique
used to estimate the likelihood that a loan
receivable will progress through the various
delinquency stages and ultimately charge off.
On a quarterly basis, the Corporation reviews
and adjusts, as appropriate, these estimates.
The Corporations projection of probable net
credit losses considers the impact of economic
conditions on the borrowers ability to repay,
past collection experience, the risk
characteristics and composition of the
portfolio, and other factors. The Corporation
then reserves for the projected probable net
credit losses based on its projection of these
amounts. The Corporation establishes
appropriate levels of the reserve for possible
credit losses for its products, including
domestic credit card, domestic other consumer
and foreign loans, based on their risk
characteristics. A provision is charged against
earnings to maintain the reserve for possible
credit losses at an appropriate level. The
Corporation records acquired reserves for
current period loan acquisitions. The Corporation works with Customers
continually at each stage of delinquency. The
Corporations policy is to charge off open-end
delinquent retail loans by the end of the month
in which the account becomes 180 days
contractually past due and closed-end
 delinquent retail loans by the end of the month
in which they become 120 days contractually
past due. Delinquent bankrupt accounts are
charged off the end of the second calendar
month following receipt of notification of
filing from the applicable court, but not later
than the applicable 180-day or 120-day
timeframes described above. Accounts of
deceased Customers are charged off when the
loss is determined, but not later than the
applicable 180-day or 120-day timeframes
described above. Accounts failing to make a
payment within charge-off policy timeframes are
written off. Managers may on an exception basis
defer charge off of an account for another
month, pending continued payment activity or
other special circumstances. Senior manager
approval is required on all such exceptions to
the above charge-off policies. The reserve for
possible credit losses is a general allowance
applicable to the Corporations loan
receivables and does not include an allocation
for credit risk related to securitized loans.
Net credit losses on securitized loans are
absorbed directly by the related trusts under
their respective contractual agreements and do
not affect the reserve for possible credit
losses. DELINQUENT LOANS The entire balance of an account is
contractually delinquent if the minimum payment
is not received by the specified date on the
Customers billing statement. Interest and fees
continue to accrue on the Corporations
delinquent loans. Delinquency is reported on
accruing loans that are 30 or more days past
due. NONACCRUAL LOANS On a case-by-case basis, management determines
if an account should be placed on nonaccrual
status. When loans are classified as
nonaccrual, the accrual of interest ceases. In
future periods, when a payment is received, it
is recorded as a reduction of principal. 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 other operating expense. PREMISES AND EQUIPMENT Premises and equipment are stated at cost less
accumulated depreciation, computed by the
straight-line method over the estimated useful
lives of the assets. Buildings are depreciated over a period of 40
years and improvements are depreciated over the
shorter of eight years or the remaining useful
lives of the buildings that they relate to.
Furniture and equipment are depreciated over a
range of three years through eight years.
Maintenance and repairs are included in other
operating expense, while the cost of
improvements is capitalized. Land is not
depreciated.




---



##### 



70    Capitalized Software Purchased software and capitalized costs
related to internally developed software are
stated at cost less accumulated amortization,
computed using the straight-line method over
the estimated useful life of the assets which
range from three years through five years.
Costs incurred during the application
development stage related to internally
developed software are capitalized in
accordance with the American Institute of
Certified Public Accountants Statement of
Position 98-1, Accounting for the Cost of
Computer Software Developed or Obtained for
Internal Use (SOP 98-1). Costs incurred
during the preliminary project stage and the
post implementation stage are expensed as
incurred. Capitalized software is included in
premises and equipment in the Corporations
audited consolidated statements of financial
condition. Effective January 1, 2003, the Corporation
reclassified capitalized software from other
assets to premises and equipment in the
Corporations audited consolidated statements
of financial condition and reclassified
computer software expense, which includes
amortization of capitalized software, from the
other expense component of other operating
expense to furniture and equipment expense in
the Corporations audited consolidated
statements of income. Capitalized software was
$461.3 million (net of accumulated amortization
of $271.9 million) and $330.5 million (net of
accumulated amortization of $216.2 million) at
December 31, 2003, and 2002, respectively.
Computer software expense, including
amortization of capitalized software, was
$127.3 million, $101.6 million, and $83.2
million for the years ended December 31, 2003,
2002, and 2001, respectively. For purposes of
comparability, prior period amounts have been
reclassified. INTANGIBLE ASSETS The Corporations intangible assets include
purchased credit card relationships (PCCRs)
which are carried at net book value. The
Corporation records these intangible assets as
part of the acquisition of credit card loans
and the corresponding Customer relationships.
The Corporations intangible assets are
amortized over the period the assets are
expected to contribute to the cash flows of the
Corporation which reflect the expected pattern
of benefit. PCCRs are amortized using an
accelerated method based upon the projected
cash flows the Corporation will receive from
the Customer relationships during the estimated
useful lives of the PCCRs. The Corporations
PCCRs are subject to impairment tests in
accordance with Statement of Financial
Accounting Standards No. 144, Accounting for
the Impairment or Disposal of Long-Lived
Assets (Statement No. 144). The Corporation
reviews the carrying value of its PCCRs for
impairment on a quarterly basis, or sooner
whenever events or changes in circumstances
indicate that their carrying amount may not be
recoverable, by comparing their carrying value
to the sum of the undiscounted expected future
cash flows from the loans and corresponding
credit card relationships. In accordance with
Statement No. 144, an impairment exists if the
sum of the undiscounted expected future cash
flows is less than the carrying amount of the
asset. An impairment would result in a
write-down
 of the PCCRs to estimated fair value
based on the discounted future cash flows
expected from the PCCRs. The Corporation
performs the impairment test on a specific
portfolio basis, since it represents the lowest
level for which identifiable cash flows are
independent of the cash flows of other assets
and liabilities. The Corporation makes certain
estimates and assumptions that affect the
determination of the expected future cash flows
from the loans and corresponding credit card
relationships. These estimates and assumptions
include levels of account usage and activation,
active account attrition, funding costs, credit
loss experience, servicing costs, growth in
average account balances, interest and fees
assessed on loans, and other factors.
Significant changes in these estimates and
assumptions could result in an impairment of
the PCCRs. Prior to 2002, the Corporation
amortized the value of domestic PCCRs over a
period of 10 years. In the first quarter of
2002, the Corporation completed a statistical
study of the useful lives of its acquired
domestic PCCRs. As a result of the study,
effective January 1, 2002, the Corporation
extended the amortization period of its
domestic PCCRs to 15 years to more
appropriately match the amortization period
with the domestic PCCRs estimated useful
lives. The Corporation is amortizing the
remaining carrying amount as of December 31,
2001 of the domestic PCCRs over the revised
remaining amortization period. As a result of
the change in the amortization period for
domestic PCCRs, the Corporations 2002 income
before income taxes increased $100.5 million
($63.7 million after taxes). Excluding the
change in the amortization period of the
domestic PCCRs, the Corporations earnings per
common share would have been $1.32 and earnings
per common shareassuming dilution would have
been $1.30 in 2002. Prior to 2003, the
Corporation amortized the value of its foreign
PCCRs over a period of 10 years. Effective
January 1, 2003, the Corporation extended the
amortization period for its foreign PCCRs to 15
years to more appropriately match the
amortization period with the foreign PCCRs
estimated useful lives. The change in estimate
did not have a material impact on the
Corporations financial condition or results of
operations for the year ended December 31,
2003. The Corporations intangible assets had a gross
carrying value of $4.9 billion at December 31,
2003 and $4.5 billion at December 31, 2002, and
accumulated amortization of $1.7 billion and
$1.3 billion at December 31, 2003 and 2002,
respectively. In 2003, the Corporation acquired
approximately $1.5 billion of credit card loan
receivables. As part of these acquisitions, the
Corporation recognized $329.3 million of PCCRs. The Corporations intangible asset amortization
expense was $411.0 million, $348.7 million, and
$381.8 million for the years ended December 31,
2003, 2002, and 2001, respectively. There were
no impairment write-downs of intangible assets
for the years ended December 31, 2003 and 2002
and no material impairment write-downs for the
year ended December 31, 2001.




---



##### 



The following table presents expected
intangible asset amortization expense for the
next five years. EXPECTED INTANGIBLE ASSET AMORTIZATION
(dollars in thousands) 2004
    
    $
    428,6102005
    
    
    402,4192006
    
    
    361,8892007
    
    
    321,9052008
    
    
    289,745
 PREPAID EXPENSES AND DEFERRED CHARGES The principle components of prepaid expenses and deferred
charges include unamortized direct loan origination costs,
unamortized debt issuance costs, prepaid employee benefit plan
costs, 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.
Prepaid expenses and deferred charges also include royalties
advanced to the Corporations endorsing organizations (see
Royalties to Endorsing Organizations for further discussion). COMPREHENSIVE INCOME The Corporation accounts for comprehensive income in accordance
with Statement of Financial Accounting Standards No. 130,
Reporting Comprehensive Income (Statement No. 130).
Statement No. 130 established standards for the reporting
and presentation of comprehensive income in the financial
statements. The Corporation presents comprehensive income in its
audited consolidated statements of changes in stockholders
equity, net of related income taxes. 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 and are measured at the prevailing enacted
tax rates that will be in effect when these differences are settled
or realized.
 STOCK-BASED EMPLOYEE COMPENSATION The Corporation has two stock-based employee
compensation plans, which are more fully
described in Note 23: 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), as
interpreted by FASB Interpretation No. 44,
Accounting for Certain Transactions Involving
Stock Compensation (Interpretation No. 44).
All 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. For grants of restricted
shares of common stock, the market value of
restricted shares at the date of grant is
amortized into expense over a 10 year period
that approximates the restriction period, or
less if the restricted shares had a specific
vesting date less than 10 years from the date
of grant. Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based
Compensation, (Statement No. 123), as
amended, 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 employee stock option grants in
accordance with APB Opinion No. 25. Statement
No. 123 required certain additional disclosures
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 employee stock options. The model uses
different assumptions that can significantly
affect the fair value of the employee stock
options and the derived fair value estimates
cannot be substantiated by comparison to
independent markets. The following table presents the effect on net
income and earnings per common share as
required by Statement of Financial Accounting
Standards No. 148, Accounting for Stock-Based
   PRO FORMANET INCOME AND EARNINGS PER COMMON SHARE(dollars in thousands, except per share amounts) Year Ended December 31,
    
    2003
    
    
    2002
    
    
    2001Net IncomeAs reported
    
    $
    2,338,104
    
    
    $
    1,765,954
    
    
    $
    1,694,291Add: Stock-based employee compensation expense included in reported net income, net of
related tax effects
    
    
    56,271
    
    
    
    59,705
    
    
    
    19,565Deduct: Total stock-based employee compensation expense determined under fair value method
for all awards, net of related tax effects
    
    
    (130,191
    )
    
    
    (134,115
    )
    
    
    (94,889
    )Pro forma
    
    $
    2,264,184
    
    
    $
    1,691,544
    
    
    $
    1,618,967Earnings Per Common ShareAs reported
    
    $
    1.82
    
    
    $
    1.37
    
    
    $
    1.31Pro forma
    
    
    1.76
    
    
    
    1.31
    
    
    
    1.26Earnings Per Common ShareAssuming DilutionAs reported
    
    
    1.79
    
    
    
    1.34
    
    
    
    1.28Pro forma
    
    
    1.74
    
    
    
    1.29
    
    
    
    1.23




---



##### 



72    Compensation-Transition and Disclosure, an
amendment of FASB Statement No. 123
(Statement No. 148), if the Corporation had
applied the fair value recognition provisions
of Statement No. 123 to options-based employee
compensation. The Corporation estimated the fair value of
each employee stock option grant on the date of
grant. The weighted average assumptions used in
the Black-Scholes option pricing model for
grants in 2003, 2002, and 2001, were: dividend
yield of 1.11%, 1.10%, and 1.08%, expected
volatility of 35.98%, 34.21%, and 34.00%, and a
risk-free interest rate of 3.20%, 4.50%, and
4.61%, respectively. The weighted average
expected life was 5.4 years for 2003, 2002, and
2001. FOREIGN CURRENCY TRANSLATION The financial statements of the Corporations
foreign subsidiaries have been translated into
U.S. dollars in accordance with GAAP. Assets
and liabilities have been translated using the
exchange rate at year-end. Income and expense
amounts have been translated using the 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
accumulated other comprehensive income included
in stockholders equity, net of tax. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES The Corporation utilizes certain derivative
financial instruments to enhance its ability to
manage interest rate risk and foreign currency
exchange rate risk that exist as part of its
ongoing business operations. Derivative
financial instruments are entered into for
periods that match the related underlying
exposures and do not constitute positions
independent of these exposures. The Corporation
does not enter into derivative financial
instruments for trading purposes, nor is it a
party to any leveraged derivative financial
instruments. The Corporation can designate
derivative financial instruments as either fair
value hedges, cash flow hedges, or hedges of
net investments. The Corporation also has
derivative financial instruments that are not
designated as accounting hedges, which reduce
its exposure to foreign currency exchange rate
risk. For fair value hedges, the Corporation
accounts for changes in the fair value of the
derivative and the change in the fair value of
the hedged item for the hedged risk as a
component of other operating income on the
Corporations audited consolidated statements
of income. The Corporation does not have cash
flow hedges or hedges of net investments. For
derivative financial instruments that are not
designated as accounting hedges, the change in
fair value is reported in other operating
income in the Corporations audited
consolidated statements of income. The fair
value of derivative assets and liabilities are
included gross as a component of other assets
or accrued expenses and other liabilities,
respectively, in the Corporations audited
consolidated statements of financial condition.
For fair value hedges, the change in the fair
value of the hedged item related to the hedged
risk is included as part of the carrying value
of the related asset or liability in the
Corporations audited consolidated statements
of financial condition.
 Net interest income or net interest expense
related to outstanding interest rate swap
agreements are accrued and recognized in
earnings as an adjustment to the related
interest income or interest expense of the
hedged asset/liability over the term of the
hedging relationship. In the event an interest
rate swap is terminated prior to its
contractual maturity, the remaining unamortized
gain or loss included in the carrying amount of
the hedged item will be amortized over the
remaining life of the hedged item as an
adjustment to the yield on the asset/liability. REVENUE RECOGNITION Interest income is recognized based upon the
amount of loans outstanding and their
contractual annual percentage rates. Interest
income is included in loan receivables when
billed to the Customer. The Corporation accrues
unbilled interest income on a monthly basis
from the Customers statement billing cycle
date to the end of the month. The Corporation
uses certain estimates and assumptions (for
example, estimated yield) in the determination
of the accrued unbilled portion of interest
income that is included in accrued income
receivable in the Corporations audited
consolidated statements of financial condition.
The Corporation also uses certain assumptions
and estimates in the valuation of accrued
interest on securitized loans which is included
in accounts receivable from securitization in
the Corporations audited consolidated
statements of financial condition. The Corporation also recognizes fees (except
annual fees) on loan receivables in earnings as
the fees are assessed according to agreements
with the Corporations Customers. Credit card
and other consumer loan fees include annual,
late, overlimit, returned check, cash advance,
express payment, and other miscellaneous fees.
These fees are included in the Corporations
loan receivables when billed. Annual fees on
loan receivables 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 fee during the first year the
account is originated. The deferred annual fees
are included in accrued expenses and other
liabilities in the Corporations audited
consolidated statements of financial condition.
Incremental direct loan origination costs are
deferred only in the first year and are
included in prepaid expenses and deferred
charges. At December 31, 2003 and 2002, the
incremental direct loan origination costs
deferred were $78.8 million and $58.8 million,
respectively. The Corporation expenses
marketing costs as incurred. The Corporation adjusts the amount of interest
income and fee income recognized in the current
period for its estimate of interest and fee
income that it does not expect to collect in
subsequent periods through adjustments to the
respective income statement captions, loan
receivables, and accrued income receivable. The
estimate of uncollectible interest and fees is
based on a migration analysis of delinquent and
current loan receivables that will progress
through the various delinquency stages and
ultimately charge off. The Corporation also
adjusts the estimated value of




---



##### 



accrued interest
and fees on securitized loans for the amount of
uncollectible interest and fees that are not
expected to be collected through an adjustment
to accounts receivable from securitization and
securitization income. This estimate is also
based on a migration analysis of delinquent and
current securitized loans that will progress
through the various delinquency stages and
ultimately charge off. Prior to September 2002, the Corporation
accrued interest and fees on loan receivables
until the loan receivables were paid or charged
off. When loan receivables were charged off,
the Corporation deducted the accrued interest
and fees related to the loan receivables
against current period income. In September
2002, the Corporation implemented the Federal
Financial Institutions Examination Council
(FFIEC) guidance for uncollectible accrued
interest and fees for its managed loan
portfolio. As a result, the Corporation changed
its estimate of the value of accrued interest
and fees in September 2002. In accordance with Accounting Principles Board
Opinion No. 20, Accounting Changes (Opinion
No. 20), the change in the estimated value of
accrued interest and fees was recorded as a
change in accounting estimate in the third
quarter of 2002. The change in the estimated
value of accrued interest and fees resulted in
a decrease to income before income taxes of
$263.7 million ($167.2 million after taxes),
through a reduction of $66.3 million of
interest income and $197.4 million of other
operating income. The Corporations earnings
per common share and earnings per common
shareassuming dilution for the year ended
December 31, 2002 would have been $1.50 and
$1.47, respectively, excluding the change. The
difference between the amounts of interest and
fees the Corporation was contractually entitled
to and the amounts recognized as revenue was
$1.2 billion, $1.4 billion, and $858.3 million
for the years ended December 31, 2003, 2002,
and 2001, respectively. 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 Incorporated and Visa U.S.A.
Incorporated and are based on cardholder sales
volumes. The Corporation recognizes interchange
income as earned. The Corporation offers to its
Customers certain reward programs based on
charge volumes. The costs of these reward
programs related to loan receivables are
deducted from interchange income. The costs of
the reward programs related to securitized
loans are deducted from securitization income. INSURANCE INCOME The Corporations insurance income primarily
relates to fees received for marketing credit
related life and disability insurance and
credit protection products. The amount of
insurance income recorded is based on the terms
of insurance policies and credit protection
products. The Corporation recognizes insurance
income over the policy or contract period as
earned.
 ROYALTIES TO ENDORSING ORGANIZATIONS The Corporation has agreements with thousands
of organizations that endorse its loan and
deposit products. The organizations grant to
the Corporation exclusive rights to market its
products to the organizations members or
customers and provide their endorsements and
mailing lists. Some organizations, such as
financial institutions, also conduct marketing
activities for the Corporation. The
Corporations endorsing agreements normally
have a term of five years. The economic
incentives the Corporation pays to the
endorsing organizations typically include
payments based on new accounts, activation, and
revenue sharing. The Corporation accounts for
the portion of its payments to endorsing
organizations for new accounts that relate to
account originations as direct loan origination
costs. The Corporation defers these costs and
amortizes them over 12 months. The Corporation
accounts for payments to endorsing
organizations for marketing efforts they
perform on its behalf to activate a new account
after the account has been originated as other
expenses as incurred. The Corporation accounts
for revenue sharing payments as it earns the
related revenues. The Corporation deducts these
payments related to loan receivables from
interest income and payments related to
securitized loans from securitization income
since it considers them a reduction of the
revenue recognized. The Corporation, in some
cases, advances future compensation to be
earned by an endorsing organization. The
Corporation recognizes advances to an endorsing
organization as the organization earns the
royalties or over the term of the agreement
using the straight-line method, whichever
method results in greater amortization of the
advance. STATEMENTS OF CASH FLOWS The Corporation has presented the audited
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 related 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 audited consolidated statements
of cash flows, cash and cash equivalents
include cash and due from banks. NOTE 4: NEW ACCOUNTING PRONOUNCEMENT In January 2003, Interpretation No. 46 was
issued. In accordance with Interpretation No.
46, the Corporation has determined that MBNA
Capital A (registered December 1996), MBNA
Capital B (registered January 1997), MBNA
Capital C (registered March 1997), MBNA Capital
D (registered June 2002), and MBNA Capital E
(registered November 2002) (collectively the
statutory trusts), are variable interest
entities and that the Corporation is not the
primary beneficiary. The Corporation would not
absorb a majority of the statutory trusts
expected losses if they were to occur.
Effective July 1, 2003 the Corporation adopted
Interpretation




---



##### 



74    No. 46 and the statutory trusts were
deconsolidated. The Corporation is the owner of
all the beneficial ownership interests
represented by the common securities of the
statutory trusts. The statutory trusts exist
for the sole purpose of issuing the series
capital securities to investors and the series
common securities to the Corporation and
investing the proceeds in junior subordinated
deferrable interest debentures issued by the
Corporation. At July 1, 2003 the statutory
trusts had series common securities of $32.9
million and series capital securities of $1.1
billion. The deconsolidation of the statutory
trusts increased long-term debt and bank notes
and the investment in variable interest
entities by $32.9 million, which is included in
other assets. These capital securities
currently qualify as regulatory capital for the
Corporation. NOTE 5: CASH AND CASH EQUIVALENTS Cash and cash equivalents include cash and due
from banks. The Bank is required by the Federal
Reserve Bank to maintain cash reserves against
certain categories of average deposit
liabilities. During 2003 and 2002, the average
amount of these reserves was approximately $1.9
million and $4.7 million, respectively, after
deducting currency and coin holdings. NOTE 6: INTEREST-EARNING TIME DEPOSITS IN OTHER BANKS Included in the Corporations interest-earning
time deposits were $30.6 million and $31.3
million at December 31, 2003 and 2002,
respectively, which were collateralizing
advances provided by an underwriter of MBNA
Europes securitization transactions. Also, at
December 31, 2003, there were $28.5 million of
interest-earning time deposits which were
collateralizing MBNA Europes derivative
financial instruments. NOTE 7: INVESTMENT SECURITIES For the year ended December 31, 2003, the
Corporation wrote-off investment securities
held-to-maturity resulting in a realized loss
of $131,000 ($84,000 after taxes). For the year
ended December 31, 2002, the Corporation sold
investment securities available-for-sale
resulting in a realized loss of $95,000
($62,000
 ESTIMATED MATURITIES OF INVESTMENT SECURITIES (dollars in thousands) Amortized
    
    
    MarketDecember 31, 2003
    
    Cost
    
    
    ValueInvestment Securities Available-for-SaleDomestic:Due within one year
    
    $
    1,590,148
    
    
    $
    1,597,249Due after one year through five years
    
    
    2,276,402
    
    
    
    2,280,532Due after five years through ten years
    
    
    57,313
    
    
    
    57,388Due after ten years
    
    
    166
    
    
    
    165Total domestic investment securities
available-for-sale
    
    
    3,924,029
    
    
    
    3,935,334Foreign:Due within one year
    
    
    91,688
    
    
    
    91,750Due after one year through five years
    
    
    336,352
    
    
    
    336,003Total foreign investment securities
available-for-sale
    
    
    428,040
    
    
    
    427,753Total investment securities
available-for-sale
    
    $
    4,352,069
    
    
    $
    4,363,087Investment Securities Held-to-MaturityDomestic:Due within one year
    
    $
    135
    
    
    $
    137Due after one year through five years
    
    
    
    
    
    
    Due after five years through ten years
    
    
    649
    
    
    
    649Due after ten years
    
    
    351,515
    
    
    
    352,648Total domestic investment securities
held-to-maturity
    
    
    352,299
    
    
    
    353,434Foreign:Due within one year
    
    
    
    
    
    
    Due after one year through five years
    
    
    1,000
    
    
    
    1,000Total foreign investment securities
held-to-maturity
    
    
    1,000
    
    
    
    1,000Total investment securities
held-to-maturity
    
    $
    353,299
    
    
    $
    354,434
 after taxes). For the year ended December 31,
2001, the Corporation sold investment
securities available-for-sale resulting in a
realized loss of $36,000 ($23,000 after taxes).
Included in asset-backed and other securities
are the Banks investment in securities of U.S.
government sponsored entities. The Corporation
had investment securities with a book value of
$1.3 billion and $3.2 billion at December 31,
2003 and 2002, respectively, held in the Banks
account with the Federal Reserve Bank of
Philadelphia, which are available for use as
collateral.
   UNREALIZED LOSSES ON INVESTMENT SECURITIES(dollars in thousands) December 31, 2003
    
    Less than 12 months
    
    12 months or more
    
    TotalFair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedValue
    
    
    Losses
    
    
    Value
    
    
    Losses
    
    
    Value
    
    
    LossesInvestment securities available-for-sale:Domestic:U.S. Treasury and other U.S. government agencies obligations
    
    $
    199,633
    
    
    $
    (266
    )
    
    $
    
    
    
    $
    
    
    
    $
    199,633
    
    
    $
    (266
    )State and political subdivisions of the United States
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Asset-backed and other securities
    
    
    113,669
    
    
    
    (44
    )
    
    
    112,152
    
    
    
    (112
    )
    
    
    225,821
    
    
    
    (156
    )Total domestic investment securities available-for-sale
    
    
    313,302
    
    
    
    (310
    )
    
    
    112,152
    
    
    
    (112
    )
    
    
    425,454
    
    
    
    (422
    )Foreign
    
    
    427,753
    
    
    
    (287
    )
    
    
    
    
    
    
    
    
    
    
    427,753
    
    
    
    (287
    )Total investment securities available-for-sale
    
    $
    741,055
    
    
    $
    (597
    )
    
    $
    112,152
    
    
    $
    (112
    )
    
    $
    853,207
    
    
    $
    (709
    )Investment securities held-to-maturity:Domestic:U.S. Treasury and other U.S. government agencies obligations
    
    $
    202,031
    
    
    $
    (3,773
    )
    
    $
    
    
    
    $
    
    
    
    $
    202,031
    
    
    $
    (3,773
    )State and political subdivisions of the United States
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Asset-backed and other securities
    
    
    8,079
    
    
    
    (211
    )
    
    
    
    
    
    
    
    
    
    
    8,079
    
    
    
    (211
    )Total domestic investment securities held-to-maturity
    
    
    210,110
    
    
    
    (3,984
    )
    
    
    
    
    
    
    
    
    
    
    210,110
    
    
    
    (3,984
    )Foreign
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total investment securities held-to-maturity
    
    $
    210,110
    
    
    $
    (3,984
    )
    
    $
    
    
    
    $
    
    
    
    $
    210,110
    
    
    $
    (3,984
    )




---



##### 



SUMMARY OF INVESTMENT SECURITIES(dollars in thousands) Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    MarketCost
    
    
    Gains
    
    
    Losses
    
    
    ValueDecember 31, 2003Investment securities available-for-sale:Domestic:U.S. Treasury and other U.S. government
agencies obligations
    
    $
    2,024,520
    
    
    $
    7,362
    
    
    $
    (266
    )
    
    $
    2,031,616State and political subdivisions of the United States
    
    
    102,685
    
    
    
    
    
    
    
    
    
    
    
    102,685Asset-backed and other securities
    
    
    1,796,824
    
    
    
    4,365
    
    
    
    (156
    )
    
    
    1,801,033Total domestic investment securities available-for-sale
    
    
    3,924,029
    
    
    
    11,727
    
    
    
    (422
    )
    
    
    3,935,334Foreign
    
    
    428,040
    
    
    
    
    
    
    
    (287
    )
    
    
    427,753Total investment securities available-for-sale
    
    $
    4,352,069
    
    
    $
    11,727
    
    
    $
    (709
    )
    
    $
    4,363,087Investment securities held-to-maturity:Domestic:U.S. Treasury and other U.S. government
agencies obligations
    
    $
    335,445
    
    
    $
    4,910
    
    
    $
    (3,773
    )
    
    $
    336,582State and political subdivisions of the United States
    
    
    7,615
    
    
    
    171
    
    
    
    
    
    
    
    7,786Asset-backed and other securities
    
    
    9,239
    
    
    
    38
    
    
    
    (211
    )
    
    
    9,066Total domestic investment securities held-to-maturity
    
    
    352,299
    
    
    
    5,119
    
    
    
    (3,984
    )
    
    
    353,434Foreign
    
    
    1,000
    
    
    
    
    
    
    
    
    
    
    
    1,000Total investment securities held-to-maturity
    
    $
    353,299
    
    
    $
    5,119
    
    
    $
    (3,984
    )
    
    $
    354,434December 31, 2002Investment securities available-for-sale:Domestic:U.S. Treasury and other U.S. government agencies obligations (a)
    
    $
    1,908,384
    
    
    $
    26,850
    
    
    $
    
    
    
    $
    1,935,234State and political subdivisions of the United States
    
    
    101,370
    
    
    
    
    
    
    
    
    
    
    
    101,370Asset-backed and other securities (a)
    
    
    1,391,465
    
    
    
    10,607
    
    
    
    (544
    )
    
    
    1,401,528Total domestic investment securities available-for-sale
    
    
    3,401,219
    
    
    
    37,457
    
    
    
    (544
    )
    
    
    3,438,132Foreign
    
    
    216,286
    
    
    
    1,390
    
    
    
    
    
    
    
    217,676Total investment securities available-for-sale
    
    $
    3,617,505
    
    
    $
    38,847
    
    
    $
    (544
    )
    
    $
    3,655,808Investment securities held-to-maturity:Domestic:U.S. Treasury and other U.S. government agencies obligations (a)
    
    $
    400,724
    
    
    $
    9,061
    
    
    $
    (504
    )
    
    $
    409,281State and political subdivisions of the United States
    
    
    7,289
    
    
    
    189
    
    
    
    
    
    
    
    7,478Asset-backed and other securities (a)
    
    
    9,747
    
    
    
    78
    
    
    
    (125
    )
    
    
    9,700Total domestic investment securities held-to-maturity
    
    
    417,760
    
    
    
    9,328
    
    
    
    (629
    )
    
    
    426,459Foreign
    
    
    2,000
    
    
    
    13
    
    
    
    
    
    
    
    2,013Total investment securities held-to-maturity
    
    $
    419,760
    
    
    $
    9,341
    
    
    $
    (629
    )
    
    $
    428,472December 31, 2001Investment securities available-for-sale:Domestic:U.S. Treasury and other U.S. government agencies obligations (a)
    
    $
    1,657,001
    
    
    $
    20,822
    
    
    $
    (699
    )
    
    $
    1,677,124State and political subdivisions of the United States
    
    
    105,067
    
    
    
    41
    
    
    
    
    
    
    
    105,108Asset-backed and other securities (a)
    
    
    1,149,908
    
    
    
    9,621
    
    
    
    (845
    )
    
    
    1,158,684Total domestic investment securities available-for-sale
    
    
    2,911,976
    
    
    
    30,484
    
    
    
    (1,544
    )
    
    
    2,940,916Foreign
    
    
    165,735
    
    
    
    470
    
    
    
    (237
    )
    
    
    165,968Total investment securities available-for-sale
    
    $
    3,077,711
    
    
    $
    30,954
    
    
    $
    (1,781
    )
    
    $
    3,106,884Investment securities held-to-maturity:Domestic:U.S. Treasury and other U.S. government agencies obligations (a)
    
    $
    368,531
    
    
    $
    456
    
    
    $
    (15,443
    )
    
    $
    353,544State and political subdivisions of the United States
    
    
    6,692
    
    
    
    1,389
    
    
    
    (9
    )
    
    
    8,072Asset-backed and other securities (a)
    
    
    2,082
    
    
    
    
    
    
    
    (105
    )
    
    
    1,977Total domestic investment securities held-to-maturity
    
    
    377,305
    
    
    
    1,845
    
    
    
    (15,557
    )
    
    
    363,593Foreign
    
    
    2,000
    
    
    
    42
    
    
    
    
    
    
    
    2,042Total investment securities held-to-maturity
    
    $
    379,305
    
    
    $
    1,887
    
    
    $
    (15,557
    )
    
    $
    365,635
  (a)
    
    For purposes of comparability, prior period amounts have been reclassified.




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##### 



76    NOTE 8: ASSET SECURITIZATION Asset securitization removes loan principal
receivables from the Corporations consolidated
statements of financial condition and converts
interest income, interchange income, credit
card and other consumer loan fees, insurance
income, recoveries on charged-off securitized
loans in excess of interest paid to investors,
gross credit losses, and other trust expenses
into securitization income. Asset
securitization involves the sale to a trust of
a pool of loan principal receivables, and is
accomplished through the public and private
issuance of asset-backed securities.
Certificates representing undivided interests
in the trusts are sold by the trusts to
investors, while the remaining undivided
interest is retained by the Corporation. The
Corporation includes the remaining undivided
interest of $19.5 billion and $17.7 billion at
December 31, 2003 and 2002, respectively, in
loan receivables. Loan receivables consist of
the Corporations loans held for securitization
and the loan portfolio. The carrying value of
these loan principal receivables approximates
fair value. The senior classes of the
asset-backed securities generally receive a AAA
credit rating at the time of issuance. This AAA
credit rating is principally based on the
quality of the loan principal receivables, the
structure of the transaction, and additional
credit enhancement, generally through the sale
of lower-rated subordinated classes of
asset-backed securities. ACCOUNTS RECEIVABLE FROM SECURITIZATION (dollars in thousands) December 31,
    
    2003
    
    
    2002Sale of new loan principal receivables
    
    $
    2,191,335
    
    
    $
    1,813,589Accrued interest and fees
on securitized loans
    
    
    1,958,873
    
    
    
    2,027,281Interest-only strip receivable
    
    
    1,338,061
    
    
    
    1,129,965Accrued servicing fees
    
    
    777,623
    
    
    
    667,246Cash reserve accounts
    
    
    607,467
    
    
    
    473,271Other subordinated retained interests
    
    
    608,550
    
    
    
    613,659Other
    
    
    284,568
    
    
    
    201,865Total accounts receivable
from securitization
    
    $
    7,766,477
    
    
    $
    6,926,876
 During 2003 and 2002, the Corporation sold loan
principal receivables in numerous
securitization transactions. At December 31,
2003 and 2002, the trusts had approximately
$83.4 billion and $77.0 billion, respectively,
of investor principal outstanding. The
Corporation retains servicing responsibilities
for the loans in the trusts and maintains other
retained subordinated interests in the
securitized assets. These retained subordinated
 interests include an interest-only strip
receivable, cash reserve accounts, accrued
interest and fees on securitized loans, and
other subordinated interests and are included
in accounts receivable from securitization in
the audited consolidated statements of
financial condition. The Corporation receives
annual contractual servicing fees of
approximately 2% of the investor principal
outstanding and rights to current and future
revenue generated from securitized loans
arising after the investors in the trusts
receive the return for which they have
contracted and credit losses are absorbed. The
Corporation does not record a servicing asset
or a liability for these rights since the
contractual servicing fee approximates its
market value. Aside from the Corporations
remaining undivided interest in the trusts, the
investors and providers of credit enhancement
have a lien on a portion of the retained
subordinated interests. If cash flows allocated
to investors in the trusts are insufficient to
absorb expenses of the trust, then the retained
interests of the Corporation would be used to
absorb such deficiencies and may not be
realized by the Corporation. The Corporation
has no obligation to provide further funding
support to either the investors or the trusts
if the securitized loans are not paid when due.
The Corporations retained interests are
subordinate to the investors interests. The
value of the retained interests is subject to
credit, payment, and interest rate risks on the
transferred financial assets. The retained
interests are reported at estimated fair value
in accounts receivable from securitization with
changes in fair value recorded in earnings. Accounts receivable from securitization also
includes a receivable for the sale of new loan
principal receivables that have been
transferred to the trusts during the revolving
period. The Corporation realizes the receivable
for these sales from the trusts in the month
following the sale. The Corporation also
recognizes a receivable for accrued interest
and fees on securitized loans that relate to
the rights transferred by the Corporation to
the trusts for the cash collection of interest
and fees accrued on loan receivables prior to
the securitization transaction. As securitized
loans are paid off and new loan principal
receivables are transferred to the investor
interest in the trusts during the revolving
period, this receivable is collected and
re-established on a monthly basis at an amount
that approximates its fair value due to its
short-term nature. The Corporation regains the
right to keep the collection of the accrued
interest and fees from the Customer during the
accumulation period of the securitization
transaction.
   SECURITIZATION CASH FLOWS(dollars in millions) Year Ended December 31,
    
    2003
    
    2002
    
    2001Credit
    
    
    Other
    
    
    Credit
    
    
    Other
    
    
    Credit
    
    
    OtherCard
    
    
    Consumer
    
    
    Card
    
    
    Consumer
    
    
    Card
    
    
    ConsumerProceeds from new securitizations
    
    $
    13,598
    
    
    $
    
    
    
    $
    15,373
    
    
    $
    
    
    
    $
    12,330
    
    
    $
    Collections reinvested in revolving-period securitizations
    
    
    121,586
    
    
    
    3,389
    
    
    
    103,900
    
    
    
    3,385
    
    
    
    92,210
    
    
    
    3,500Contractual servicing fees received
    
    
    1,467
    
    
    
    56
    
    
    
    1,339
    
    
    
    56
    
    
    
    1,247
    
    
    
    56Cash flows received on retained interests
    
    
    4,913
    
    
    
    103
    
    
    
    4,505
    
    
    
    244
    
    
    
    3,886
    
    
    
    148




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##### 



SUPPLEMENTAL CREDIT LOSS INFORMATION(dollars in thousands) Average
    
    

    Credit
    
    
    
    
    
    
    Net CreditBalance
    
    
    Losses
    
    
    Recoveries
    
    
    LossesYear Ended December 31, 2003Managed Loans:Credit card
    
    $
    95,812,328
    
    
    $
    5,048,429
    
    
    $
    (359,680
    )
    
    $
    4,688,749Other consumer
    
    
    14,062,646
    
    
    
    1,124,353
    
    
    
    (73,937
    )
    
    
    1,050,416Total managed loans
    
    
    109,874,974
    
    
    
    6,172,782
    
    
    
    (433,617
    )
    
    
    5,739,165Securitized Loans:Credit card
    
    
    (76,008,752
    )
    
    
    (4,157,742
    )
    
    
    286,828
    
    
    
    (3,870,914
    )Other consumer
    
    
    (5,682,404
    )
    
    
    (535,254
    )
    
    
    30,699
    
    
    
    (504,555
    )Total securitized loans
    
    
    (81,691,156
    )
    
    
    (4,692,996
    )
    
    
    317,527
    
    
    
    (4,375,469
    )Loan receivables
    
    $
    28,183,818
    
    
    $
    1,479,786
    
    
    $
    (116,090
    )
    
    $
    1,363,696Year Ended December 31, 2002Managed Loans:Credit card
    
    $
    86,378,943
    
    
    $
    4,331,274
    
    
    $
    (281,068
    )
    
    $
    4,050,206Other consumer
    
    
    13,654,988
    
    
    
    995,105
    
    
    
    (53,716
    )
    
    
    941,389Total managed loans
    
    
    100,033,931
    
    
    
    5,326,379
    
    
    
    (334,784
    )
    
    
    4,991,595Securitized Loans:Credit card
    
    
    (69,014,880
    )
    
    
    (3,589,724
    )
    
    
    228,463
    
    
    
    (3,361,261
    )Other consumer
    
    
    (5,703,851
    )
    
    
    (497,087
    )
    
    
    22,965
    
    
    
    (474,122
    )Total securitized loans
    
    
    (74,718,731
    )
    
    
    (4,086,811
    )
    
    
    251,428
    
    
    
    (3,835,383
    )Loan receivables
    
    $
    25,315,200
    
    
    $
    1,239,568
    
    
    $
    (83,356
    )
    
    $
    1,156,212Year Ended December 31, 2001Managed Loans:Credit card
    
    $
    79,008,957
    
    
    $
    3,865,206
    
    
    $
    (282,118
    )
    
    $
    3,583,088Other consumer
    
    
    11,891,031
    
    
    
    756,563
    
    
    
    (32,623
    )
    
    
    723,940Total managed loans
    
    
    90,899,988
    
    
    
    4,621,769
    
    
    
    (314,741
    )
    
    
    4,307,028Securitized Loans:Credit card
    
    
    (64,817,684
    )
    
    
    (3,239,729
    )
    
    
    229,768
    
    
    
    (3,009,961
    )Other consumer
    
    
    (5,742,916
    )
    
    
    (457,567
    )
    
    
    15,514
    
    
    
    (442,053
    )Total securitized loans
    
    
    (70,560,600
    )
    
    
    (3,697,296
    )
    
    
    245,282
    
    
    
    (3,452,014
    )Loan receivables
    
    $
    20,339,388
    
    
    $
    924,473
    
    
    $
    (69,459
    )
    
    $
    855,014
  During 2002, the change in the estimated value
of accrued interest and fees in 2002 reduced
the carrying value of accrued interest and fees
on securitized loans by $295.9 million. The
Corporation also adjusted the value of the
interest-only strip receivable as a result of
the change in the estimated value of the
uncollectible accrued interest and fees in
2002. The Corporation had always included an
estimate of uncollectible accrued interest and
fees in determining the value of the
interest-only strip receivable. Since the
Corporation now recognizes uncollectible
interest and fees in the estimated value of
accrued interest and fees on securitized loans,
the estimated value of the interest-only strip
receivable was adjusted at September 30, 2002.
The value of uncollectible accrued interest and
fees on securitized loans that are currently
owed by the underlying Customer are now
considered in the value of accrued interest and
fees on securitized loans. Accordingly, the
estimated value of the interest-only strip
receivable now only considers the impact of
uncollectible interest and fees that will be
billed to the underlying Customer in the
future. This adjustment caused the
interest-only strip receivable to increase
$123.9 million at September 30, 2002. The net
impact of these changes resulted in a $172.0
million reduction to accounts receivable from
securitization.
 Included in accounts receivable from
securitization in the consolidated statements
of financial condition at December 31, 2003 and
2002, were $1.2 billion of amounts which are
subject to a lien by the investors and
providers of credit enhancement in the
securitization transactions. The investors and
providers of credit enhancement have no other
recourse to the Corporation. The Corporation
does not receive collateral from any party to
the securitization transactions and does not
have any risk of counter-party nonperformance. The gain from the sale of loan principal
receivables for new securitization transactions
that the Corporation recognizes as sales in
accordance with Statement No. 140 is included
in securitization income in the Corporations
audited consolidated statements of income. The
gain was $124.5 million (net of securitization
transaction costs of $51.2 million) for 2003
(on the sale of $13.6 billion of credit card
loan principal receivables in 2003), as compared to $154.6 million
(net of securitization transaction costs
of $41.7 million) in 2002 (on the sale of $15.5 billion of credit
card loan principal receivables in 2002) and a gain of
$96.7 million (net of securitization transaction costs of
$62.3 million) in 2001 (on the sale of $12.4 billion of credit card




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##### 



78   SUPPLEMENTAL LOAN DELINQUENCY INFORMATION (a)(dollars in thousands) December 31,
    
    2003
    
    2002Loans
    
    
    Loans
    
    
    Loans
    
    
    LoansOutstanding
    
    
    Delinquent
    
    
    Outstanding
    
    
    DelinquentManaged LoansCredit card
    
    $
    104,180,610
    
    
    $
    4,462,900
    
    
    $
    93,326,206
    
    
    $
    4,401,277Other consumer
    
    
    14,312,950
    
    
    
    740,750
    
    
    
    13,931,636
    
    
    
    828,234Total managed loans
    
    
    118,493,560
    
    
    
    5,203,650
    
    
    
    107,257,842
    
    
    
    5,229,511Securitized LoansCredit card
    
    
    (79,197,651
    )
    
    
    (3,562,196
    )
    
    
    (72,853,426
    )
    
    
    (3,576,439
    )Other consumer
    
    
    (5,671,832
    )
    
    
    (351,655
    )
    
    
    (5,677,908
    )
    
    
    (401,469
    )Total securitized loans
    
    
    (84,869,483
    )
    
    
    (3,913,851
    )
    
    
    (78,531,334
    )
    
    
    (3,977,908
    )Loan receivables
    
    $
    33,624,077
    
    
    $
    1,289,799
    
    
    $
    28,726,508
    
    
    $
    1,251,603
  (a)
    
    Loans delinquent are accruing loans which are 30 days or more past due.  loan principal receivables in 2001). During the third quarter of 2003, the
Corporation began including projected express payment and returned check fees
in the determination of the fair value of the interest-only strip receivable.
Upon inclusion of projected express payment and returned check fees, the
interest-only strip receivable and securitization income increased by
approximately $28.9 million for 2003. For the fourth quarter of 2003, this
inclusion increased the interest-only strip receivable and securitization
income an additional $3.0 million. The Corporation began including express
payment fees in the determination of the fair value of the interest-only strip
receivable because Customers are increasingly choosing to utilize express
payment services to ensure that their payments are received on time and that
they do not incur a late fee. The Corporation does not expect the inclusion of
these fees to have a material effect on the Corporations earnings in
subsequent periods. In accordance with Statement No. 140, the Corporation
recognizes an interest-only strip receivable, which represents the contractual
right to receive interest and other revenue less certain costs from the trusts
over the estimated life of securitized loan principal
 receivables. The
Corporation uses certain key assumptions and estimates in determining the value
of the interest-only strip receivable. These key assumptions and estimates
include projections concerning interest income, certain fees, charged-off loan
recoveries, gross credit losses, contractual servicing fees, and the interest
rate paid to investors. These assumptions are used to determine the excess
spread to be earned by the Corporation over the estimated life of the
securitized loan principal receivables. Other key assumptions and estimates
used by the Corporation include projected loan payment rates, which are used to
determine the estimated life of the securitized loan principal receivables, and
an appropriate discount rate. The Corporation reviews the key assumptions and
estimates used in determining the fair value of the interest-only strip
receivable on a quarterly basis and adjusts them as appropriate. If these
assumptions change or actual results differ from projected results, the
interest-only strip receivable and securitization income would be affected. The Corporations securitization key
assumptions and their sensitivities to adverse
changes are presented in the below table.
   SECURITIZATION KEY ASSUMPTIONS AND SENSITIVITIES (a)(dollars in thousands) Year Ended December 31,
    
    2003
    
    2002
    
    2001Credit
    
    
    Other
    
    
    Credit
    
    
    Other
    
    
    Credit
    
    
    OtherCard
    
    
    Consumer
    
    
    Card
    
    
    Consumer
    
    
    Card
    
    
    ConsumerInterest-only strip receivable
    
    $
    1,254,018
    
    
    $
    84,043
    
    
    $
    1,091,447
    
    
    $
    38,518
    
    
    $
    1,008,419
    
    
    $
    115,644Weighted average life (in years)
    
    
    .33
    
    
    
    .89
    
    
    
    .33
    
    
    
    .87
    
    
    
    .35
    
    
    
    .93Loan payment rate (weighted average rate)
    
    
    14.73
    %
    
    
    4.92
    %
    
    
    14.44
    %
    
    
    5.05
    %
    
    
    13.60
    %
    
    
    4.67
    %Impact on fair value of 20% adverse change
    
    $
    176,185
    
    
    $
    12,785
    
    
    $
    156,897
    
    
    $
    5,835
    
    
    $
    144,892
    
    
    $
    17,304Impact on fair value of 40% adverse change
    
    
    307,198
    
    
    
    21,980
    
    
    
    268,019
    
    
    
    10,081
    
    
    
    246,857
    
    
    
    29,870Gross credit losses (b) (weighted average rate)
    
    
    5.23
    %
    
    
    9.64
    %
    
    
    5.43
    %
    
    
    9.83
    %
    
    
    5.25
    %
    
    
    8.40
    %Impact on fair value of 20% adverse change
    
    $
    252,520
    
    
    $
    83,294
    
    
    $
    244,432
    
    
    $
    38,518
    
    
    $
    205,460
    
    
    $
    74,666Impact on fair value of 40% adverse change
    
    
    505,039
    
    
    
    84,043
    
    
    
    488,865
    
    
    
    38,518
    
    
    
    410,919
    
    
    
    115,644Excess spread (c) (weighted average rate)
    
    
    5.19
    %
    
    
    1.95
    %
    
    
    4.84
    %
    
    
    .91
    %
    
    
    5.14
    %
    
    
    2.60
    %Impact on fair value of 20% adverse change
    
    $
    250,804
    
    
    $
    16,809
    
    
    $
    218,289
    
    
    $
    7,704
    
    
    $
    201,684
    
    
    $
    23,129Impact on fair value of 40% adverse change
    
    
    501,607
    
    
    
    33,617
    
    
    
    436,579
    
    
    
    15,407
    
    
    
    403,368
    
    
    
    46,258Discount rate (weighted average rate)
    
    
    9.00
    %
    
    
    9.00
    %
    
    
    9.00
    %
    
    
    9.00
    %
    
    
    12.00
    %
    
    
    12.00
    %Impact on fair value of 20% adverse change
    
    $
    5,495
    
    
    $
    902
    
    
    $
    4,870
    
    
    $
    404
    
    
    $
    6,195
    
    
    $
    1,709Impact on fair value of 40% adverse change
    
    
    10,950
    
    
    
    1,789
    
    
    
    9,703
    
    
    
    801
    
    
    
    12,326
    
    
    
    3,378
  (a)
    
    The sensitivities do not reflect actions management might take to offset
the impact of possible adverse changes if they were to occur.(b)
    
    Gross credit
losses exclude the impact of recoveries; however, recoveries are included in
the determination of the excess spread.(c)
    
    Excess spread includes projections of interest income, certain fees, and
charged-off loan recoveries, less gross credit losses, contractual servicing
fees, and the interest rate paid to investors.




---



##### 



The adverse changes to the key assumptions and
estimates are hypothetical and are presented in
accordance with Statement No. 140. The amount
of the adverse change has been limited to the
recorded amount of the interest-only strip
receivable where the hypothetical change
exceeds the value of the interest-only strip
receivable. The sensitivities do not reflect
actions management might take to offset the
impact of the possible adverse changes if they
were to occur. NOTE 9: GEOGRAPHICAL DIVERSIFICATION OF LOANS The Corporation originates credit card and
other consumer loans, primarily throughout the
United States, the United Kingdom, Ireland,
Spain, and Canada. 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,
Ireland and Spain, while MBNA Canada issues
credit card and other consumer loans in Canada.
The following table details the geographic
distribution of the Corporations loan
receivables, securitized loans, and managed
loans. 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
average credit line to individual Customers is
approximately $12,000 and the average balance
per account is approximately $3,800 at December
31, 2003.
 NOTE 10: RESERVE FOR POSSIBLE CREDIT LOSSES The Corporation maintains the reserve for
possible credit losses at an amount sufficient
to absorb losses inherent in the Corporations
loan principal receivables at the reporting
date based on a projection of probable net
credit losses. CHANGES IN THE RESERVE FOR POSSIBLE CREDIT LOSSES(dollars in thousands) December 31,
    
    2003
    
    
    2002
    
    
    2001Reserve for possible credit losses,
beginning of year
    
    $
    1,111,299
    
    
    $
    833,423
    
    
    $
    527,573Reserves acquired
    
    
    61,116
    
    
    
    84,878
    
    
    
    20,748Provision for possible
credit losses
    
    
    1,392,701
    
    
    
    1,340,157
    
    
    
    1,140,615Foreign currency translation
    
    
    14,896
    
    
    
    9,053
    
    
    
    (499
    )Credit losses
    
    
    (1,479,786
    )
    
    
    (1,239,568
    )
    
    
    (924,473
    )Recoveries
    
    
    116,090
    
    
    
    83,356
    
    
    
    69,459Net credit losses
    
    
    (1,363,696
    )
    
    
    (1,156,212
    )
    
    
    (855,014
    )Reserve for possible credit losses,
end of year
    
    $
    1,216,316
    
    
    $
    1,111,299
    
    
    $
    833,423
 See Note 3: Significant Accounting
PoliciesReserve for Possible Credit Losses for
further detail on the Corporations policy
relating to the determination of the reserve
for possible credit losses.
   GEOGRAPHIC DISTRIBUTION OF LOAN RECEIVABLES, SECURITIZED LOANS, AND MANAGED LOANS (dollars in thousands) Loan Receivables
    
    
    Securitized Loans
    
    
    Managed LoansDecember 31, 2003United States:Northern
    
    $
    2,978,085
    
    
    
    8.9
    %
    
    $
    9,421,779
    
    
    
    11.1
    %
    
    $
    12,399,864
    
    
    
    10.4
    %Mid-Atlantic
    
    
    3,982,186
    
    
    
    11.8
    
    
    
    12,471,359
    
    
    
    14.7
    
    
    
    16,453,545
    
    
    
    13.9Southern
    
    
    4,907,262
    
    
    
    14.6
    
    
    
    15,200,016
    
    
    
    17.9
    
    
    
    20,107,278
    
    
    
    17.0Central
    
    
    4,158,939
    
    
    
    12.4
    
    
    
    12,773,701
    
    
    
    15.0
    
    
    
    16,932,640
    
    
    
    14.3Western
    
    
    4,282,156
    
    
    
    12.7
    
    
    
    13,037,909
    
    
    
    15.4
    
    
    
    17,320,065
    
    
    
    14.6Southwestern
    
    
    3,503,874
    
    
    
    10.4
    
    
    
    10,239,353
    
    
    
    12.1
    
    
    
    13,743,227
    
    
    
    11.6United Kingdom/Ireland/Spain
    
    
    8,421,986
    
    
    
    25.0
    
    
    
    8,738,274
    
    
    
    10.3
    
    
    
    17,160,260
    
    
    
    14.5Canada
    
    
    799,987
    
    
    
    2.4
    
    
    
    2,838,555
    
    
    
    3.3
    
    
    
    3,638,542
    
    
    
    3.1Other
    
    
    589,602
    
    
    
    1.8
    
    
    
    148,537
    
    
    
    .2
    
    
    
    738,139
    
    
    
    .6Total
    
    $
    33,624,077
    
    
    
    100.0
    %
    
    $
    84,869,483
    
    
    
    100.0
    %
    
    $
    118,493,560
    
    
    
    100.0
    %December 31, 2002United States:Northern
    
    $
    2,631,643
    
    
    
    9.1
    %
    
    $
    8,864,417
    
    
    
    11.3
    %
    
    $
    11,496,060
    
    
    
    10.7
    %Mid-Atlantic
    
    
    3,682,054
    
    
    
    12.8
    
    
    
    12,119,223
    
    
    
    15.4
    
    
    
    15,801,277
    
    
    
    14.7Southern
    
    
    4,418,794
    
    
    
    15.4
    
    
    
    14,635,670
    
    
    
    18.6
    
    
    
    19,054,464
    
    
    
    17.8Central
    
    
    3,695,040
    
    
    
    12.9
    
    
    
    11,766,278
    
    
    
    15.0
    
    
    
    15,461,318
    
    
    
    14.4Western
    
    
    3,860,223
    
    
    
    13.4
    
    
    
    12,372,409
    
    
    
    15.8
    
    
    
    16,232,632
    
    
    
    15.2Southwestern
    
    
    3,132,050
    
    
    
    10.9
    
    
    
    9,658,475
    
    
    
    12.3
    
    
    
    12,790,525
    
    
    
    11.9United Kingdom/Ireland/Spain
    
    
    6,264,711
    
    
    
    21.8
    
    
    
    7,054,676
    
    
    
    9.0
    
    
    
    13,319,387
    
    
    
    12.4Canada
    
    
    564,217
    
    
    
    2.0
    
    
    
    1,911,874
    
    
    
    2.4
    
    
    
    2,476,091
    
    
    
    2.3Other
    
    
    477,776
    
    
    
    1.7
    
    
    
    148,312
    
    
    
    .2
    
    
    
    626,088
    
    
    
    .6Total
    
    $
    28,726,508
    
    
    
    100.0
    %
    
    $
    78,531,334
    
    
    
    100.0
    %
    
    $
    107,257,842
    
    
    
    100.0
    %






---



##### 



80    NOTE 11: ACCRUING LOANS PAST DUE 90 DAYS OR MORE(dollars in thousands) December 31,
    
    2003
    
    
    2002Loan ReceivablesDomestic:Credit card
    
    $
    365,668
    
    
    $
    310,413Other consumer
    
    
    164,315
    
    
    
    179,378Total domestic
    
    
    529,983
    
    
    
    489,791Foreign
    
    
    52,622
    
    
    
    48,798Total
    
    $
    582,605
    
    
    $
    538,589Securitized LoansDomestic:Credit card
    
    $
    1,563,719
    
    
    $
    1,429,522Other consumer
    
    
    174,314
    
    
    
    186,256Total domestic
    
    
    1,738,033
    
    
    
    1,615,778Foreign
    
    
    122,232
    
    
    
    142,540Total
    
    $
    1,860,265
    
    
    $
    1,758,318Managed LoansDomestic:Credit card
    
    $
    1,929,387
    
    
    $
    1,739,935Other consumer
    
    
    338,629
    
    
    
    365,634Total domestic
    
    
    2,268,016
    
    
    
    2,105,569Foreign
    
    
    174,854
    
    
    
    191,338Total
    
    $
    2,442,870
    
    
    $
    2,296,907
 The table above excludes nonaccrual loans,
which are presented in Note 12: Nonaccrual
Loans. The Corporation considers these loans
and other factors in determining an appropriate
reserve for possible credit losses and the
estimate of uncollectible accrued interest and
fees. NOTE 12: NONACCRUAL LOANS(dollars in thousands) December 31,
    
    2003
    
    
    2002Loan ReceivablesDomestic:Credit card
    
    $
    13,114
    
    
    $
    48,318Other consumer
    
    
    1,053
    
    
    
    2,481Total domestic
    
    
    14,167
    
    
    
    50,799Foreign
    
    
    85,284
    
    
    
    6,733Total
    
    $
    99,451
    
    
    $
    57,532Nonaccrual loan receivables as a percentage
of ending loan receivables
    
    
    .30
    %
    
    
    .20
    %Securitized LoansDomestic:Credit card
    
    $
    47,772
    
    
    $
    215,605Other consumer
    
    
    1,050
    
    
    
    2,348Total domestic
    
    
    48,822
    
    
    
    217,953Foreign
    
    
    129,140
    
    
    
    11,798Total
    
    $
    177,962
    
    
    $
    229,751Nonaccrual securitized loans as a percentage
of ending securitized loans
    
    
    .21
    %
    
    
    .29
    %Managed LoansDomestic:Credit card
    
    $
    60,886
    
    
    $
    263,923Other consumer
    
    
    2,103
    
    
    
    4,829Total domestic
    
    
    62,989
    
    
    
    268,752Foreign
    
    
    214,424
    
    
    
    18,531Total
    
    $
    277,413
    
    
    $
    287,283Nonaccrual managed loans as a percentage
of ending managed loans
    
    
    .23
    %
    
    
    .27
    %
 Nonaccrual loans are charged off consistent
with the Corporations charge-off policy. On a
case-by-case basis, management determines if an
account should be placed on nonaccrual status.
When loans are classified as nonaccrual, the
accrual of interest ceases. In future periods
when a payment is received, it is recorded as a
reduction of principal. The Corporation
considers these loans and other factors in
determining an appropriate reserve for possible
credit losses and the estimate of uncollectible
accrued interest and fees. NOTE 13: PREMISES AND EQUIPMENT Depreciation expense was $229.2 million, $224.3
million, and $208.0 million for the years ended
December 31, 2003, 2002, and 2001,
respectively. Amortization expense on
capitalized software was $104.3 million, $83.6
million, and $65.7 million for the years ended
December 31, 2003, 2002, and 2001,
respectively. SUMMARY OF PREMISES AND EQUIPMENT (dollars in thousands) December 31,
    
    2003
    
    
    2002Land
    
    $
    207,479
    
    
    $
    220,943Buildings and improvements
    
    
    2,159,226
    
    
    
    1,957,432Furniture and equipment
    
    
    1,285,063
    
    
    
    1,262,444Software
    
    
    733,279
    
    
    
    546,615Total
    
    
    4,385,047
    
    
    
    3,987,434Accumulated depreciation
    
    
    (1,436,507
    )
    
    
    (1,252,175
    )Accumulated amortization on software
    
    
    (271,943
    )
    
    
    (216,158
    )Premises and equipment, net
    
    $
    2,676,597
    
    
    $
    2,519,101
 NOTE 14: LEASE COMMITMENTS 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 include renewal options, with certain
leases providing purchase options. Rental
expense for operating leases was $26.7 million,
$29.7 million, and $26.7 million for the years
ended December 31, 2003, 2002, and 2001,
respectively. FUTURE MINIMUM RENTAL PAYMENTS UNDER
NONCANCELABLE OPERATING LEASES(dollars in thousands) 2004
    
    $
    28,4002005
    
    
    20,6832006
    
    
    8,7082007
    
    
    1,8982008
    
    
    172Thereafter
    
    
    134Total minimum lease payments
    
    $
    59,995




---



##### 



SUMMARY OF SHORT-TERM BORROWINGS(dollars in thousands) Year Ended December 31,
    
    2003
    
    
    2002
    
    
    2001Federal Funds Purchased and Securities Sold Under Repurchased AgreementsBalance at year end
    
    $
    
    
    
    $
    
    
    
    $
    Weighted average interest rate at year end
    
    
    
    %
    
    
    
    %
    
    
    
    %Average balance outstanding during the year
    
    $
    
    
    
    $
    1,502
    
    
    $
    1,863Maximum amount outstanding at any month end
    
    
    
    
    
    
    
    
    
    
    Weighted average interest rate during the year
    
    
    
    %
    
    
    1.80
    %
    
    
    3.76
    %Other Short-Term BorrowingsBalance at year end
    
    $
    1,025,463
    
    
    $
    1,250,103
    
    
    $
    1,774,816Weighted average interest rate at year end
    
    
    3.75
    %
    
    
    3.31
    %
    
    
    2.94
    %Average balance outstanding during the year
    
    $
    1,141,954
    
    
    $
    1,251,619
    
    
    $
    561,768Maximum amount outstanding at any month end
    
    
    1,246,872
    
    
    
    1,340,653
    
    
    
    1,774,816Weighted average interest rate during the year
    
    
    3.43
    %
    
    
    3.43
    %
    
    
    4.40
    %
  NOTE 15: DEPOSITS Total deposits were $31.8 billion and $30.6
billion at December 31, 2003 and 2002,
respectively. The Corporation utilizes deposits
to fund loan and other asset growth and to
diversify funding sources. Direct deposits are
deposits marketed to and received from
individual Customers without the use of a
third-party intermediary. Other deposits are
deposits normally obtained through the use of a
third-party intermediary. Domestic time deposits in amounts of $100,000
or more totaled $3.4 billion and $3.3 billion
at December 31, 2003 and 2002, respectively.
Foreign time deposits in amount of $100,000 or
more totaled $861.9 million and $648.1 million
at December 31, 2003 and 2002, respectively.
The aggregate amount of deposits by maturity at
December 31, 2003 was as follows: MATURITIES OF DEPOSITS(dollars in thousands) Direct
    
    
    Other
    
    
    TotalDecember 31, 2003
    
    Deposits
    
    
    Deposits (a)
    
    
    DepositsDomestic:One year or less
    
    $
    16,401,083
    
    
    $
    2,686,220
    
    
    $
    19,087,303Over one year through
two years
    
    
    3,954,095
    
    
    
    1,871,494
    
    
    
    5,825,589Over two years through
three years
    
    
    1,568,129
    
    
    
    1,044,247
    
    
    
    2,612,376Over three years through
four years
    
    
    1,487,057
    
    
    
    779,926
    
    
    
    2,266,983Over four years through
five years
    
    
    830,244
    
    
    
    121,424
    
    
    
    951,668Over five years
    
    
    8,615
    
    
    
    
    
    
    
    8,615Total domestic deposits
    
    
    24,249,223
    
    
    
    6,503,311
    
    
    
    30,752,534Foreign (b)
    
    
    1,056,175
    
    
    
    27,372
    
    
    
    1,083,547Total deposits
    
    $
    25,305,398
    
    
    $
    6,530,683
    
    
    $
    31,836,081
  (a)
    
    At December 31, 2003, all other deposits were brokered deposits.(b)
    
    At December 31, 2003, all foreign deposits had maturities of one year or
less.
 NOTE 16: SHORT-TERM BORROWINGS Federal funds purchased and securities sold
under repurchase agreements are overnight
borrowings that normally 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 at December 31, 2003
are two on-balance-sheet structured financings
totaling $900.0 million, which were entered
into during 2003. These structured financings
are secured by $1.3 billion of domestic other
consumer loan receivables. The Corporation has
an option to liquidate these structured
financings on a monthly basis. Included in short-term borrowings at December
31, 2002 were two on-balance-sheet structured
financings totaling $1.0 billion, which were
entered into during 2001. These structured
financings were secured by $1.1 billion of
domestic other consumer loan receivables. The
Corporation liquidated these structured
financings in 2003. The short-term deposit notes issued by MBNA
Canada are unconditionally and irrevocably
guaranteed as to payment of principal and
interest by the Bank. MBNA Canada had CAD$163.0
million (par value), which was approximately
$125.9 million of short-term deposit notes at
December 31, 2003.




---



##### 



82    NOTE 17: LONG-TERM DEBT AND BANK NOTES Long-term debt and bank notes consist of
borrowings having an original maturity of one
year or more. Original issue discount and deferred issuance
costs are amortized over the terms of the
related debt issuances. The Corporation uses interest rate swap
agreements and foreign exchange swap agreements
to change a portion of fixed-rate long-term
debt and bank notes to floating-rate long-term
debt and bank notes to more closely 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. 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. 6.875% 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 6.875% 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.
These notes may not be redeemed prior to their
stated maturities. The Corporation had $2.3
billion (par value) of fixed-rate senior
medium-term notes outstanding at December 31,
2003, with rates ranging from 4.625% to 7.50%.
Interest on the fixed-rate senior medium-term
notes is payable semiannually. The Corporation
also had $95.0 million (par value) of
floating-rate senior medium-term notes
outstanding at December 31, 2003. These
floating-rate senior medium-term notes are
priced between 95 basis points and 175 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, 2003, the
three-month LIBOR was 1.15%.
   SUMMARY OF LONG-TERM DEBT AND BANK NOTES(dollars in thousands) December 31,
    
    2003
    
    
    2002Parent Company6.875% Senior Notes, maturing in 2005
    
    $
    99,856
    
    
    $
    99,761Fixed-Rate Senior Medium-Term Notes, with a weighted average interest rate of 6.06% and 6.55%, respectively, maturing
in varying amounts from 2004 through 2015
    
    
    2,324,231
    
    
    
    1,522,701Floating-Rate Senior Medium-Term Notes, maturing in varying amounts in 2004
    
    
    94,968
    
    
    
    338,862Junior Subordinated Deferrable Interest Debentures, series A, with an interest rate of 8.278% maturing in 2026
    
    
    287,576
    
    
    
    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
    
    
    286,112
    
    
    
    Junior Subordinated Deferrable Interest Debentures, series C, with an interest rate of 8.25% maturing in 2027
    
    
    35,764
    
    
    
    Junior Subordinated Deferrable Interest Debentures, series D, with an interest rate of 8.125% maturing in 2032
    
    
    320,362
    
    
    
    Junior Subordinated Deferrable Interest Debentures, series E, with an interest rate of 8.10% maturing in 2033
    
    
    204,810
    
    
    
    Total parent company
    
    
    3,653,679
    
    
    
    1,961,324SubsidiariesFixed-Rate Bank Notes, with a weighted average interest rate of 6.65% and 6.66%, respectively, maturing in varying amounts
from 2004 through 2008
    
    
    2,078,640
    
    
    
    2,139,385Floating-Rate Bank Notes, maturing in varying amounts from 2004 through 2005
    
    
    154,928
    
    
    
    364,668Fixed-Rate Medium-Term Deposit Notes, with a weighted average interest rate of 5.29% and 6.08%, respectively, maturing
in varying amounts from 2004 through 2008
    
    
    612,466
    
    
    
    338,685Floating-Rate Medium-Term Deposit Notes, maturing in varying amounts from 2004 through 2006
    
    
    217,068
    
    
    
    142,563Fixed-Rate Euro Medium-Term Notes, with a weighted average interest rate of 5.58% and 5.83%, respectively, maturing
from 2004 through 2009
    
    
    3,022,266
    
    
    
    1,608,198Floating-Rate Euro Medium-Term Notes, maturing in varying amounts from 2004 through 2008
    
    
    1,099,537
    
    
    
    511,5626.75% Subordinated Notes, maturing in 2008
    
    
    274,479
    
    
    
    281,7976.625% Subordinated Notes, maturing in 2012
    
    
    533,739
    
    
    
    548,9577.125% Subordinated Notes, maturing in 2012
    
    
    498,826
    
    
    
    511,094Guaranteed Preferred Beneficial Interests in Corporations Junior Subordinated Deferrable Interest Debentures, series A,
with an interest rate of 8.278%, maturing in 2026
    
    
    
    
    
    
    290,811Guaranteed 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
    
    
    
    
    
    
    277,421Guaranteed Preferred Beneficial Interests in Corporations Junior Subordinated Deferrable Interest Debentures, series C,
with an interest rate of 8.25%, maturing in 2027
    
    
    
    
    
    
    36,562Guaranteed Preferred Beneficial Interests in Corporations Junior Subordinated Deferrable Interest Debentures, series D,
with an interest rate of 8.125%, maturing in 2032
    
    
    
    
    
    
    319,232Guaranteed Preferred Beneficial Interests in Corporations Junior Subordinated Deferrable Interest Debentures, series E,
with an interest rate of 8.10%, maturing in 2033
    
    
    
    
    
    
    205,914Long-term debt and bank notes
    
    $
    12,145,628
    
    
    $
    9,538,173




---



##### 



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 had $2.0 billion (par value) of
fixed-rate bank notes outstanding at December
31, 2003, with rates ranging from 5.375% to
7.76%. Interest is payable semiannually. The
Bank also had $155.0 million (par value) of
floating-rate bank notes outstanding at
December 31, 2003, with rates priced between 30
basis points and 60 basis points over the
three-month LIBOR. Interest on bank notes is
payable quarterly. MINIMUM ANNUAL MATURITIES OF LONG-TERM DEBT AND BANK NOTES(dollars in thousands) MBNAParent
    
    
    Corporation and(Par Value)
    
    Company
    
    
    Subsidiaries2004
    
    $
    130,000
    
    
    $
    2,052,8852005
    
    
    100,000
    
    
    
    1,504,0402006
    
    
    
    
    
    
    810,2602007
    
    
    700,000
    
    
    
    1,408,7662008
    
    
    250,000
    
    
    
    1,609,782
 JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURES The Corporation, through MBNA Capital A
(registered December 1996), MBNA Capital B
(registered January 1997), MBNA Capital C
(registered March 1997), MBNA Capital D
(registered June 2002), and MBNA Capital E
(registered November 2002), each a statutory
business trust created under the laws of the
State of Delaware (collectively the statutory
trusts), issued capital securities and common
securities: series A, series B, series C,
series D, and series E, respectively. The
Corporation is the owner of all the beneficial
ownership interests represented by the common
securities of the statutory trusts. The
statutory 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.
These securities qualify as regulatory capital
for the Corporation. The junior subordinated deferrable interest
debentures are the sole assets of the statutory
trusts, and the payments under the junior
subordinated deferrable interest debentures are
the sole revenues of the statutory trusts.
Interest on the series capital securities is
payable semiannually or quarterly. 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
contractually specified early redemption dates
for series A, series B, series C, series D, and
series E capital securities are December 1,
2006, February 1, 2007, January 15, 2002,
October 1, 2007, and February 15, 2008,
respectively. These contractually specified
early redemption dates are subject to the
Corporation having received prior approval from
the Board of Governors of the Federal Reserve
System. 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 statutory trust
obligations under the series capital securities
issued by the statutory 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. In January
2003, the FASB issued Interpretation No. 46. In
accordance with Interpretation No. 46, the
Corporation determined that the statutory
trusts, were variable interest entities and
that the Corporation was not the primary
beneficiary. Effective July 1, 2003, the
statutory trusts were deconsolidated. As a
result of the decon-solidation, the junior
subordinated deferrable interest debentures are
included as parent company debt and recorded in
long-term debt and bank notes in the
Corporations consolidated financial statements
and the guaranteed preferred beneficial
interests in Corporations junior subordinated
deferrable interest debentures are excluded
from the Corporations audited consolidated
financial statements in accordance with GAAP. 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, 2003, MBNA Canada
had CAD$790.0 million (par value), which was
approximately $610.4 million, of fixed-rate
medium-term deposit notes




---



##### 



84




outstanding, with
rates ranging from 3.60% to 6.625%. Interest is
payable semiannually. MBNA Canada also had
CAD$281.3 million (par value), which was
approximately $217.3 million, of floating-rate
medium-term deposit notes outstanding at
December 31, 2003. These floating-rate
medium-term deposit notes are priced between 60
basis points and 105 basis points over the
ninety-day bankers acceptance rate. Interest is
payable quarterly. The medium-term deposit
notes are unconditionally guaranteed as to
payment of principal and interest by the Bank,
and are not redeemable prior to their stated
maturity. At December 31, 2003, the ninety-day
bankers acceptance rate was 2.68%. 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. At
December 31, 2003, MBNA Europe had outstanding
fixed-rate euro medium-term notes denominated
in various currencies. The fixed-rate euro
medium-term notes outstanding at December 31,
2003, were £250.0 million (par value), which
was approximately $448.0 million with interest
payable quarterly,
1.5 billion (par value), which was
approximately $1.9 billion with interest
payable quarterly, and 500.0 million (par
value), which was approximately $631.5 million
with interest payable annually. The fixed-rate
euro medium term notes had interest rates
ranging from 4.50% to 6.50%. At December 31, 2003, MBNA Europe also had
outstanding floating-rate euro medium-term
notes denominated in various currencies. The
floating-rate euro medium-term notes
outstanding at December 31, 2003 were £51.0
million (par value), which was approximately
$91.4 million, with interest priced between 58
basis points and 155 basis points over the
three-month Sterling LIBOR,
750.0 million (par value), which was
approximately $947.3 million, with interest
priced between 60 basis points and 105 basis
points over the three-month Euro Interbank
Offered Rate (EURIBOR), HKD130.0 million (par
value), which was approximately $16.9 million,
with interest priced at 100 basis points over
the three-month Hong Kong Interbank Offered
Rate (HIBOR), and $47.0 million (par value)
with interest priced between 50 basis points
and 64 basis points over the three-month LIBOR.
Interest on these floating-rate euro
medium-term notes is payable quarterly. At
December 31, 2003, the three-month Sterling
LIBOR was 4.04%, the three-month EURIBOR was
2.12%, and the three-month HIBOR was 1.52%.


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. 6.625% SUBORDINATED NOTES The 6.625% 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 6.625% Subordinated
Notes were issued by the Bank in 2002 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. 7.125% SUBORDINATED NOTES The 7.125% 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 7.125% Subordinated
Notes were issued by the Bank in 2002 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. NOTE 18: STOCKHOLDERS EQUITY PREFERRED STOCK The Corporation is authorized to issue 20
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, 2003 and 2002. The Corporation
also had 4.0 million shares of adjustable rate
cumulative preferred stock, Series B,
outstanding at December 31, 2003 and 2002. Both
of the outstanding series of preferred stock
have a $25 stated value per share. 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.






---



##### 



PREFERRED STOCK DIVIDEND SUMMARY |
    Series A
    |
    Series BDividend
    
    
    Dividend per
    
    
    Dividend
    
    
    Dividend perDeclaration Date
    
    Payment Date
    
    Rate
    
    
    Preferred Share
    
    
    Rate
    
    
    Preferred ShareJanuary 22, 2004
    
    April 15, 2004
    
    
    7.50
    %
    
    $
    .46875
    
    
    
    5.50
    %
    
    $
    .34380October 16, 2003
    
    January 15, 2004
    
    
    7.50
    
    
    
    .46875
    
    
    
    5.50
    
    
    
    .34380July 24, 2003
    
    October 15, 2003
    
    
    7.50
    
    
    
    .46875
    
    
    
    5.50
    
    
    
    .34380April 23, 2003
    
    July 15, 2003
    
    
    7.50
    
    
    
    .46875
    
    
    
    5.50
    
    
    
    .34380January 23, 2003
    
    April 15, 2003
    
    
    7.50
    
    
    
    .46875
    
    
    
    5.50
    
    
    
    .34380October 17, 2002
    
    January 15, 2003
    
    
    7.50
    
    
    
    .46875
    
    
    
    5.50
    
    
    
    .34380July 11, 2002
    
    October 15, 2002
    
    
    7.50
    
    
    
    .46875
    
    
    
    5.56
    
    
    
    .34740April 11, 2002
    
    July 15, 2002
    
    
    7.50
    
    
    
    .46875
    
    
    
    5.90
    
    
    
    .36850January 10, 2002
    
    April 15, 2002
    
    
    7.50
    
    
    
    .46875
    
    
    
    5.50
    
    
    
    .34380October 11, 2001
    
    January 15, 2002
    
    
    7.50
    
    
    
    .46875
    
    
    
    5.50
    
    
    
    .34380July 11, 2001
    
    October 15, 2001
    
    
    7.50
    
    
    
    .46875
    
    
    
    5.60
    
    
    
    .35020April 10, 2001
    
    July 16, 2001
    
    
    7.50
    
    
    
    .46875
    
    
    
    5.50
    
    
    
    .34380January 10, 2001
    
    April 16, 2001
    
    
    7.50
    
    
    
    .46875
    
    
    
    5.64
    
    
    
    .35270
  The Board of Directors declared the dividends
presented in the Preferred Stock Dividend
Summary for the Corporations Series A and
Series B Preferred Stock. 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, 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, at a price of $25 per share, plus
accrued and unpaid dividends. 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.
 COMMON STOCK On January 22, 2004, the Corporations Board of
Directors declared a quarterly dividend of $.12
per common share, payable April 1, 2004, to
stockholders of record as of March 15, 2004. On June 6, 2002, the Corporation announced a
three-for-two split of the Corporations Common
Stock, effected in the form of a dividend,
issued July 15, 2002, to stockholders of record
as of the close of business on July 1, 2002.
Accordingly, all common share and per common
share data have been adjusted to reflect this
stock split. In the third quarter of 2003, the Corporation
issued 50.0 million shares of its common stock
in a public offering for approximately $1.1
billion, net of issuance costs. The shares were
issued under the Corporations existing shelf
registration statement. The Corporation used
the proceeds to repurchase the same number of
shares at the same price from the estate of the
Corporations former Chairman and Chief
Executive Officer. The estate has the right to
cause the sale of shares through a registration
rights agreement entered into in 1991 at the
time of the Corporations initial public
offering. The issuance and repurchase were done
to satisfy the Corporations obligation related
to the sale of shares by the estate. The sale
and repurchase of common stock did not impact
total common stock outstanding or capital
levels.




---



##### 



86   OTHER COMPREHENSIVE INCOME COMPONENTS(dollars in thousands) Year Ended December 31,
    
    2003
    
    
    2002
    
    
    2001Before TaxForeign currency translation
    
    $
    352,800
    
    
    $
    140,757
    
    
    $
    (28,984
    )Net unrealized (losses) gains on investment securities available-for-sale
and other financial instruments
    
    
    (7,283
    )
    
    
    (51
    )
    
    
    29,764Minimum benefit plan liability adjustment
    
    
    (16,854
    )
    
    
    (6,734
    )
    
    
    Other comprehensive income, before tax
    
    $
    328,663
    
    
    $
    133,972
    
    
    $
    780Applicable Income TaxForeign currency translation
    
    $
    
    
    
    $
    
    
    
    $
    Net unrealized gains on investment securities available-for-sale
and other financial instruments
    
    
    10,001
    
    
    
    3,271
    
    
    
    10,689Minimum benefit plan liability adjustment
    
    
    (5,916
    )
    
    
    (2,458
    )
    
    
    Other comprehensive income tax expense
    
    $
    4,085
    
    
    $
    813
    
    
    $
    10,689Net of TaxForeign currency translation
    
    $
    352,800
    
    
    $
    140,757
    
    
    $
    (28,984
    )Net unrealized (losses) gains on investment securities available-for-sale
and other financial instruments
    
    
    (17,284
    )
    
    
    (3,322
    )
    
    
    19,075Minimum benefit plan liability adjustment
    
    
    (10,938
    )
    
    
    (4,276
    )
    
    
    Other comprehensive income (loss), net of tax
    
    $
    324,578
    
    
    $
    133,159
    
    
    $
    (9,909
    )
  NOTE 19: COMPREHENSIVE INCOME Statement No. 130 requires the impact of
foreign currency translation, unrealized gains
or losses on the Corporations investment
securities available-for-sale and other
financial instruments, and changes in certain
minimum benefit plan liabilities, to be
included in other comprehensive income. The
components of other comprehensive income on a
before tax and net of tax basis are presented
in the above table. Favorable foreign currency translation for the
year ended December 31, 2003 was primarily
related to the strengthening of foreign
currencies against the U.S. dollar. NOTE 20: EARNINGS PER COMMON SHARE Earnings per common share is computed using net
income applicable to common stock and weighted
average common shares outstanding during the
period. Earnings per common shareassuming
dilution 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. There were 34.7
million stock options with an average exercise
price of $22.91 per share outstanding at
December 31, 2003, which were not included in
the computation of earnings per common
shareassuming dilution for 2003 as a result of
the stock options exercise prices being
greater than the average market price of the
common shares. These stock options expire from
2010 through 2012. There were 20.6 million
stock options with an average option price of
$23.90 per share outstanding at December 31,
2002, which were not included in the
computation of earnings per common
shareassuming dilution for 2002 as a result of
the stock options exercise prices being
greater than the average market price of the
common shares. These stock options expire from
2010 through 2012. There were 17.0 million
stock options with an average price of $21.71
per
   COMPUTATION OF EARNINGS PER COMMON SHARE(dollars in thousands, except per share amounts) Year Ended December 31,
    
    2003
    
    
    2002
    
    
    2001Earnings per Common ShareNet income
    
    $
    2,338,104
    
    
    $
    1,765,954
    
    
    $
    1,694,291Less: preferred stock dividend requirements
    
    
    14,064
    
    
    
    14,178
    
    
    
    14,142Net income applicable to common stock
    
    $
    2,324,040
    
    
    $
    1,751,776
    
    
    $
    1,680,149Weighted average common shares outstanding (000)
    
    
    1,278,166
    
    
    
    1,277,787
    
    
    
    1,277,745Earnings per common share
    
    $
    1.82
    
    
    $
    1.37
    
    
    $
    1.31Earnings
per Common ShareAssuming DilutionNet income
    
    $
    2,338,104
    
    
    $
    1,765,954
    
    
    $
    1,694,291Less: preferred stock dividend requirements
    
    
    14,064
    
    
    
    14,178
    
    
    
    14,142Net income applicable to common stock
    
    $
    2,324,040
    
    
    $
    1,751,776
    
    
    $
    1,680,149Weighted average common shares outstanding (000)
    
    
    1,278,166
    
    
    
    1,277,787
    
    
    
    1,277,745Net effect of dilutive stock options (000)
    
    
    16,976
    
    
    
    24,925
    
    
    
    36,485Weighted average common shares outstanding and common stock equivalents (000)
    
    
    1,295,142
    
    
    
    1,302,712
    
    
    
    1,314,230Earnings per common share-assuming dilution
    
    $
    1.79
    
    
    $
    1.34
    
    
    $
    1.28




---



##### 



share outstanding at December 31, 2001, which
were not included in the computation of
earnings per common shareassuming dilution for
2001 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 2010 and 2011. NOTE 21: INCOME TAXES The following is a reconciliation of the
federal statutory income taxes to the
Corporations reported income taxes: RECONCILIATION OF FEDERAL STATUTORY INCOME TAXES(dollars in thousands) Year Ended December 31,
    
    2003
    
    
    2002
    
    
    2001Income before income taxes
    
    $
    3,659,005
    
    
    $
    2,785,416
    
    
    $
    2,715,210Statutory tax rate
    
    
    35
    %
    
    
    35
    %
    
    
    35
    %Income tax at statutory
tax rate
    
    
    1,280,652
    
    
    
    974,896
    
    
    
    950,324State taxes, net of
federal benefit
    
    
    31,321
    
    
    
    23,951
    
    
    
    30,321Other
    
    
    8,928
    
    
    
    20,615
    
    
    
    40,274Total income taxes
    
    $
    1,320,901
    
    
    $
    1,019,462
    
    
    $
    1,020,919
 The components of the Corporations income tax
expense related to continued operations are as
follows: COMPONENTS OF INCOME TAX EXPENSE (dollars in thousands) Year Ended December 31,
    
    2003
    
    
    2002
    
    
    2001Current Income TaxesU.S. federal
    
    $
    1,095,826
    
    
    $
    1,017,511
    
    
    $
    1,020,232U.S. state and local
    
    
    48,186
    
    
    
    36,848
    
    
    
    46,648Foreign
    
    
    178,869
    
    
    
    116,810
    
    
    
    65,306Total current income taxes
    
    
    1,322,881
    
    
    
    1,171,169
    
    
    
    1,132,186Deferred Income TaxesU.S. federal, state, and local
    
    
    (669
    )
    
    
    (143,601
    )
    
    
    (125,324
    )Foreign
    
    
    (1,311
    )
    
    
    (8,106
    )
    
    
    14,057Total deferred income taxes
    
    
    (1,980
    )
    
    
    (151,707
    )
    
    
    (111,267
    )Total income taxes
    
    $
    1,320,901
    
    
    $
    1,019,462
    
    
    $
    1,020,919
 Foreign subsidiaries contributed approximately
15.5% in 2003, 14.7% in 2002, and 12.2% in 2001
to consolidated income before income taxes. No
U.S. income taxes have been provided on the
accumulated undistributed earnings of foreign
subsidiaries, totaling $1.3 billion at December
31, 2003, 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. The Corporation has foreign tax
loss carryforwards, the tax effect of which is
$4.1 million, that begin to expire in 2017. At
December 31, 2003, the Corporation had a
valuation allowance in accordance with
Statement of Financial Accounting Standards No.
109 Accounting for Income Taxes (Statement
No. 109) of $4.1 million, related to foreign
tax loss carryforwards.
 Deferred income taxes reflect the net effects
of temporary differences between the carrying
amounts of assets and liabilities for financial
reporting purposes and the amounts used for
income tax purposes. Significant components of
the Corporations deferred tax assets and
liabilities are as follows: SUMMARY OF DEFERRED TAXES(dollars in thousands) December 31,
    
    2003
    
    
    2002Deferred Tax AssetsReserve for possible credit losses and the estimate
of uncollectible accrued interest and fees
    
    $
    292,235
    
    
    $
    277,625Intangible assets and other similar items
    
    
    108,386
    
    
    
    107,660Foreign tax loss carryforwards and tax credits
    
    
    4,142
    
    
    
    2,943Other deferred tax assets
    
    
    432,011
    
    
    
    377,206Total deferred tax assets
    
    
    836,774
    
    
    
    765,434Valuation allowance
    
    
    (4,142
    )
    
    
    (982
    )Total deferred tax assets less valuation
allowance
    
    
    832,632
    
    
    
    764,452Deferred Tax LiabilitiesSecuritizations and related items
    
    
    (380,350
    )
    
    
    (350,192
    )Other deferred tax liabilities
    
    
    (129,252
    )
    
    
    (107,842
    )Total deferred tax liabilities
    
    
    (509,602
    )
    
    
    (458,034
    )Net deferred tax assets
    
    $
    323,030
    
    
    $
    306,418
 NOTE 22: EMPLOYEE BENEFITS The Corporation has a noncontributory defined
benefit pension plan (Pension Plan) and a
supplemental executive retirement plan
(SERP). PENSION PLAN The Corporations Pension Plan covers
substantially all people employed by the
Corporation in the United States who meet
certain age and service requirements.
Retirement benefits are based on the number of
years of benefit service and a percentage of
the participants average annual compensation
during the five highest paid consecutive years
of their last 10 years of employment. The
Corporations funding policy is to have the
market value of the Pension Plans assets
achieve a target-funded ratio between 100% and
120% on a projected benefit obligation (PBO)
basis, and that only tax-deductible
contributions may be made. This target-funded
ratio is intended to accelerate the time frames
when the Pension Plan will no longer require
additional annual contributions. The
target-funded ratio was not achieved in 2003,
nor is it likely to be achieved in 2004 as a
result of the capital market and interest rate
environments, as well as limitations on
permissible tax deductible contributions to the
Pension Plan. The target-funded ratio is
calculated by dividing the fair market value of
plan assets by the PBO; at December 31, 2003,
the Pension Plan had a target-funded ratio of
73%, based on the fair market value of the
Pension Plans assets of $378.4 million and a
PBO of $517.8 million. At December 31, 2002,
the Pension Plan had a target-funded ratio of
66%, based on the fair market value of the
Pension Plans assets of $263.3 million and a
PBO of $397.2 million. As of December 31, 2003
and 2002, the Pension Plan had a funded ratio
on an accumulated benefit obligation (ABO)
basis of 135% and 122%, respectively.




---



##### 



88   BENEFIT PLAN FINANCIAL INFORMATION(dollars in thousands) Pension Plan
    
    SERP Plan
    
    TotalYear Ended December 31,
    
    2003
    
    
    2002
    
    
    2003
    
    
    2002
    
    
    2003
    
    
    2002Change in Benefit ObligationNet benefit obligation, beginning of year
    
    $
    397,182
    
    
    $
    267,422
    
    
    $
    176,580
    
    
    $
    111,584
    
    
    $
    573,762
    
    
    $
    379,006Service cost-benefits earned during the year
    
    
    49,775
    
    
    
    37,813
    
    
    
    15,090
    
    
    
    13,115
    
    
    
    64,865
    
    
    
    50,928Interest cost on projected benefit obligation
    
    
    28,899
    
    
    
    23,349
    
    
    
    12,964
    
    
    
    11,299
    
    
    
    41,863
    
    
    
    34,648Actuarial loss
    
    
    45,551
    
    
    
    58,574
    
    
    
    17,483
    
    
    
    20,381
    
    
    
    63,034
    
    
    
    78,955Plan amendments
    
    
    
    
    
    
    12,155
    
    
    
    7,218
    
    
    
    21,672
    
    
    
    7,218
    
    
    
    33,827Gross benefits paid
    
    
    (3,561
    )
    
    
    (2,131
    )
    
    
    (1,740
    )
    
    
    (1,471
    )
    
    
    (5,301
    )
    
    
    (3,602
    )Net benefit obligation, end of year
    
    $
    517,846
    
    
    $
    397,182
    
    
    $
    227,595
    
    
    $
    176,580
    
    
    $
    745,441
    
    
    $
    573,762Change in Plan AssetsFair value of plan assets, beginning of year
    
    $
    263,336
    
    
    $
    247,460
    
    
    $
    
    
    
    $
    
    
    
    $
    263,336
    
    
    $
    247,460Actual return on plan assets
    
    
    49,632
    
    
    
    (39,047
    )
    
    
    
    
    
    
    
    
    
    
    49,632
    
    
    
    (39,047
    )Employer contributions
    
    
    69,000
    
    
    
    57,054
    
    
    
    1,740
    
    
    
    1,471
    
    
    
    70,740
    
    
    
    58,525Gross benefits paid
    
    
    (3,561
    )
    
    
    (2,131
    )
    
    
    (1,740
    )
    
    
    (1,471
    )
    
    
    (5,301
    )
    
    
    (3,602
    )Fair value of plan assets, end of year
    
    $
    378,407
    
    
    $
    263,336
    
    
    $
    
    
    
    $
    
    
    
    $
    378,407
    
    
    $
    263,336Funded status
    
    $
    (139,439
    )
    
    $
    (133,846
    )
    
    $
    (227,595
    )
    
    $
    (176,580
    )
    
    $
    (367,034
    )
    
    $
    (310,426
    )Unrecognized net actuarial loss
    
    
    196,528
    
    
    
    185,152
    
    
    
    43,224
    
    
    
    25,845
    
    
    
    239,752
    
    
    
    210,997Unrecognized prior service cost
    
    
    12,400
    
    
    
    13,485
    
    
    
    44,399
    
    
    
    40,359
    
    
    
    56,799
    
    
    
    53,844Unrecognized net transition obligation
    
    
    
    
    
    
    
    
    
    
    1,694
    
    
    
    2,109
    
    
    
    1,694
    
    
    
    2,109Net amount recognized
    
    $
    69,489
    
    
    $
    64,791
    
    
    $
    (138,278
    )
    
    $
    (108,267
    )
    
    $
    (68,789
    )
    
    $
    (43,476
    )Amounts Recognized in the Consolidated Statements
of Financial ConditionPrepaid benefit cost
    
    $
    69,489
    
    
    $
    64,791
    
    
    $
    
    
    
    $
    
    
    
    $
    69,489
    
    
    $
    64,791Accrued benefit cost
    
    
    
    
    
    
    
    
    
    
    (138,278
    )
    
    
    (108,267
    )
    
    
    (138,278
    )
    
    
    (108,267
    )Additional minimum liability
    
    
    
    
    
    
    
    
    
    
    (69,681
    )
    
    
    (49,202
    )
    
    
    (69,681
    )
    
    
    (49,202
    )Intangible asset
    
    
    
    
    
    
    
    
    
    
    46,093
    
    
    
    42,468
    
    
    
    46,093
    
    
    
    42,468Accumulated other comprehensive income
    
    
    
    
    
    
    
    
    
    
    23,588
    
    
    
    6,734
    
    
    
    23,588
    
    
    
    6,734Net amount recognized
    
    $
    69,489
    
    
    $
    64,791
    
    
    $
    (138,278
    )
    
    $
    (108,267
    )
    
    $
    (68,789
    )
    
    $
    (43,476
    )Significant Assumptions used to Determine Benefit
Obligations, End of YearDiscount rate
    
    
    6.00
    %
    
    
    6.75
    %
    
    
    6.00
    %
    
    
    6.75
    %Rate of compensation increase
    
    
    5.00
    
    
    
    5.50
    
    
    
    5.00
    
    
    
    5.50Expected rate of return on plan assets
    
    
    9.00
    
    
    
    9.00
    
    
    
    9.00
    
    
    
    9.00
  SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN The Corporations SERP plan, established in
1991, provides certain officers with
supplemental retirement benefits in excess of
limits imposed on qualified plans by federal
tax law. The SERP plan provides a retirement
benefit up to a maximum of 80% of the
participants highest average salary for any 12
month period during the 72 months preceding
retirement. The SERP plan is unfunded, however,
the Corporation has life insurance policies on
certain participants of the SERP plan with a
cash surrender value of $83.9 million and $53.5
million at December 31, 2003 and 2002,
respectively. Financial information for both
the Pension Plan and the SERP plan is presented
in the above table. MBNA Corporation uses a
measurement date of September 30 for both its
Pension plan and SERP plan. BENEFIT PLAN FINANCIAL INFORMATION In 2003, the Corporation decreased the discount
rate used to value its PBO for both the Pension
Plan and the SERP plan to 6.00% from 6.75% in
2002, to reflect the current interest rate
environment. The change in the discount rate
increased the PBO for the Pension
 Plan and the SERP plan by approximately $87
million and $16 million, respectively, for the
year ended December 31, 2003. Net periodic
benefit cost for the Pension Plan and the SERP
plan increased by $29.5 million in 2003 as
compared to 2002, primarily as a result of a
lower than assumed return on plan assets, $11.5
million; a lower assumed discount rate, $9.7
million; and normal operations of the plans
including additional participants, $8.3
million. In 2003, the Corporation decreased the
expected rate of compensation increase for both
the Pension Plan and the SERP plan to 5.00%
from 5.50% in 2002 after re-evaluating the
expected future rate of compensation increases.
This was done to reflect the long-term
expectation of compensation rate increases and
to maintain an appropriate spread between this
assumption and the discount rate assumptions. In 2003, the Corporation retained its expected
return on plan assets assumption for both the
Pension Plan and the SERP Plan. The expected
return on plan assets assumption was determined
based on the Pension Plan and SERP Plans asset
allocation, a review of historic market
performance, historical plan performance and a
forecast of expected future asset returns.




---



##### 



COMPONENTS OF NET PERIODIC BENEFIT COST(dollars in thousands) Pension Plan

    |


    SERP Plan
    |

    TotalYear Ended December 31,
    
    2003
    
    
    2002
    
    
    2001
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2003
    
    
    2002
    
    
    2001Service cost-benefits
earned during the year
    
    $
    49,775
    
    
    $
    37,813
    
    
    $
    27,043
    
    
    $
    15,090
    
    
    $
    13,115
    
    
    $
    8,656
    
    
    $
    64,865
    
    
    $
    50,928
    
    
    $
    35,699Interest cost on projected
benefit obligation
    
    
    28,899
    
    
    
    23,349
    
    
    
    16,844
    
    
    
    12,964
    
    
    
    11,299
    
    
    
    7,846
    
    
    
    41,863
    
    
    
    34,648
    
    
    
    24,690Expected return on plan assets
    
    
    (26,050
    )
    
    
    (25,579
    )
    
    
    (25,406
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (26,050
    )
    
    
    (25,579
    )
    
    
    (25,406
    )Net amortization and deferral:Prior service cost
    
    
    1,085
    
    
    
    730
    
    
    
    (112
    )
    
    
    3,136
    
    
    
    2,598
    
    
    
    1,221
    
    
    
    4,221
    
    
    
    3,328
    
    
    
    1,109Actuarial loss (gain)
    
    
    10,593
    
    
    
    2,910
    
    
    
    (2,131
    )
    
    
    146
    
    
    
    
    
    
    
    
    
    
    
    10,739
    
    
    
    2,910
    
    
    
    (2,131
    )Transition (asset) obligation
    
    
    
    
    
    
    (69
    )
    
    
    (70
    )
    
    
    415
    
    
    
    415
    
    
    
    415
    
    
    
    415
    
    
    
    346
    
    
    
    345Net amortization
and deferral
    
    
    11,678
    
    
    
    3,571
    
    
    
    (2,313
    )
    
    
    3,697
    
    
    
    3,013
    
    
    
    1,636
    
    
    
    15,375
    
    
    
    6,584
    
    
    
    (677
    )Net periodic benefit cost
    
    $
    64,302
    
    
    $
    39,154
    
    
    $
    16,168
    
    
    $
    31,751
    
    
    $
    27,427
    
    
    $
    18,138
    
    
    $
    96,053
    
    
    $
    66,581
    
    
    $
    34,306Assumptions Used to Determine
Net Periodic Benefit CostDiscount rate
    
    
    6.75
    %
    
    
    7.50
    %
    
    
    8.00
    %
    
    
    6.75
    %
    
    
    7.50
    %
    
    
    8.00
    %Rate of compensation increase
    
    
    5.50
    
    
    
    6.00
    
    
    
    6.00
    
    
    
    5.50
    
    
    
    6.00
    
    
    
    6.00Expected return on plan assets
    
    
    9.00
    
    
    
    9.50
    
    
    
    9.50
    
    
    
    9.00
    
    
    
    9.50
    
    
    
    9.50
  Plan amendments adopted during 2003 resulted in
a $7.2 million increase in the net benefit
obligation. Additional participants in the SERP plan accounted for this increase. Plan
amendments adopted during 2002 resulted in a
$33.8 million increase in the net benefit
obligation. Additional participants in the SERP
plan accounted for $21.7 million of the
increase. The remaining $12.1 million was
related to the granting of benefit credited
service for participants pre-acquisition
service. The Corporation anticipates, based on
current conditions, that net periodic benefit
cost for the Pension Plan and the SERP plan
will increase by $20.9 million in 2004
primarily because of a lower assumed discount
rate and normal operations of the plans,
partially offset by a lower assumed rate of
compensation increase. COMPONENTS OF NET PERIODIC BENEFIT COST The components of net periodic benefit cost for
the Pension Plan and SERP Plan are presented in
the above table. PLAN ASSETS The Corporations Pension Plan asset allocation
at December 31, 2003 and 2002, and the target
allocation for 2004, are as follows: Target
    
    
    Percentage of PlanAllocation For
    
    
    Assets at Year EndYear Ended December 31,
    
    2004
    
    
    2003
    
    
    2002Asset CategoryEquity securities
    
    
    75
    %
    
    
    71
    %
    
    
    65
    %Tactical asset allocation
    
    
    10
    
    
    
    10
    
    
    
    10Debt securities
    
    
    15
    
    
    
    19
    
    
    
    25Total
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
 The purpose of the tactical asset allocation
component of the Pension Plan is to take
advantage of opportunities when market
conditions are favorable for equity, fixed
income or cash. This exposure has historically
provided plan assets an opportunity to earn
equity-like returns with volatility similar to
that of fixed income. All allocations are
rebalanced after they migrate +/- 5 percentage
points from their target allocation. The obligations of the Pension Plan are
dominated by obligations for active employees.
Only 2% of the obligation is attributable to
retirees. Because the timing of expected
benefit payments is so far in the future and
the size of the plan assets are small relative
to the Corporations assets, the investment
strategy is to allocate a large portion of
assets to equities, which the Corporation
believes will provide the highest return over
future periods. The fixed income assets are
invested in long duration debt securities in
order to better match the duration of the plan
obligations. The Corporation periodically conducts an asset
liability modeling study to ensure the
investment strategy is aligned with the profile
of the obligations. The long-term goals are to
maximize the plan funded status, minimize
contributions and pension expense, while taking
into consideration the potential volatility
risks of each of these items.




---



##### 



90    The projected benefit obligation, accumulated
benefit obligation, and fair value of plan
assets for the employee benefit plans are
presented in the table below. EMPLOYEE BENEFIT PLAN INFORMATION(dollars in thousands) December 31,
    
    2003
    
    
    2002Pension PlanProjected benefit obligation
    
    $
    517,846
    
    
    $
    397,182Accumulated benefit obligation
    
    
    279,696
    
    
    
    216,626Fair value of plan assets
    
    
    378,407
    
    
    
    263,336SERP PlanProjected benefit obligation
    
    $
    227,595
    
    
    $
    176,580Accumulated benefit obligation
    
    
    207,959
    
    
    
    157,469Fair value of plan assets
    
    
    
    
    
    
    
 EXPECTED CASH FLOWS A summary of the Corporations estimated
pension benefit cash flows for the next ten
years is presented in the following table. EXPECTED CASH FLOWS(dollars in thousands) Pension
    
    
    SERPPlan
    
    
    Plan
    
    
    TotalExpected Employer
Contributions2004 to plan trusts
    
    $
    75,000
    
    
    $
    
    
    
    $
    75,0002004 to plan participants
    
    
    
    
    
    
    3,097
    
    
    
    3,097Expected Benefit Payments2004
    
    
    2,238
    
    
    
    3,097
    
    
    
    5,3352005
    
    
    3,063
    
    
    
    7,577
    
    
    
    10,6402006
    
    
    4,134
    
    
    
    10,891
    
    
    
    15,0252007
    
    
    5,550
    
    
    
    13,229
    
    
    
    18,7792008
    
    
    7,469
    
    
    
    14,823
    
    
    
    22,2922009 through 2013
    
    
    87,133
    
    
    
    111,092
    
    
    
    198,225
 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 an
eligible persons base salary in cash.
Additionally, eligible participants may
contribute up to a maximum of 25% of base
salary on a pre-tax basis and 15% on an
after-tax basis, with the first 6% matched at a
rate of 50% by the Corporation in cash. The
Corporation recorded $28.6 million, $27.0
million, and $23.1 million to other operating
expense for the costs related to the 401(k)
Plan for the years ended 2003, 2002, and 2001,
respectively.
 OTHER PLANS The Corporations foreign bank subsidiaries
each have a pension plan 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 cash. 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 in cash. 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 cash. In addition, eligible
participants may contribute up to a maximum of
10% of base salary, with the first 6% matched
at a rate of 50% by MBNA Canada in cash. MBNA
Espana contributes 3% on the first 31,284 of
salary and 9% on the salary above 31,284. In
addition, eligible participates may contribute
up to a maximum of 6% of base salary, with the
first 3% matched at a rate of 50% by MBNA
Espana in cash. POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS The Corporation and its subsidiaries provide
certain health care and life insurance benefits
for certain people upon early retirement
through normal retirement age. Initially, a
plan was established for people aged 45 and
older with at least 10 years of service at
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. The expenses for these benefits
are charged to other operating expense and were
not material to the Corporations audited
consolidated financial statements. At September 30, 2003, a one-percentage-point
change in assumed health care cost trend rates
would have the following effect: HEALTHCARE EFFECT(dollars in thousands) 1-Percentage
    
    
    1-PercentagePoint Increase
    
    
    Point DecreaseEffect on postretirement
benefit obligation
    
    $
    4,917
    
    
    $
    (4,364
    )Effect on total of service cost
and interest cost
    
    
    543
    
    
    
    (480
    )




---



##### 



NOTE 23: STOCK-BASED EMPLOYEE COMPENSATION 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.
Currently, all stock options and restricted
stock awards are granted from the 1997 Plan. 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,
provided that 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 1997 Plan. At December 31, 2003, 2002, and
2001, the amount of shares of common stock
available for future grants under the 1997 Plan
were 26.9 million shares, 15.8 million shares,
and 11.1 million shares, respectively. The
maximum number of restricted stock awards that
can be granted in any calendar year is 3
million shares, not including restricted stock
awards in lieu of payment of cash bonuses. The
maximum number of stock options that can be
granted to any one participant in any calendar
year is 3.38 million options. 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 10 years from the date of
grant. Stock options granted to selected
officers and key employees of the Corporation
normally 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. Stock options
granted to nonemployee directors and certain
selected officers are exercisable immediately. The Corporation granted 1.6 million stock
options in 2003, 4.6 million stock options in
2002, and 6.8 million stock options in 2001
which were immediately exercisable following
the effective date of the grant. During 2003,
2002, and 2001, there were no performance-based
common stock options granted. Restricted common
shares were also issued under the 1997 Plan to
the Corporations senior officers for a total
of 5.4 million common shares, including 2.4
million common shares issued in lieu of
 SUMMARY OF STOCK OPTION PLANS ACTIVITY(shares in thousands) WeightedNumber
    
    
    Averageof Shares
    
    
    Exercise Price2003Options outstanding, beginning
of year
    
    
    110,728
    
    
    $
    16.05Granted
    
    
    12,514
    
    
    
    20.54Exercised
    
    
    (23,708
    )
    
    
    11.63Canceled
    
    
    (337
    )
    
    
    19.78Options outstanding, end of year
    
    
    99,197
    
    
    
    17.66Options exercisable, end of year
    
    
    71,526
    
    
    
    16.17Weighted average fair value of
options
granted during the year
    
    $
    7.022002Options outstanding, beginning
of year
    
    
    113,026
    
    
    $
    12.66Granted
    
    
    20,675
    
    
    
    23.88Exercised
    
    
    (22,521
    )
    
    
    6.15Canceled
    
    
    (452
    )
    
    
    19.90Options outstanding, end of year
    
    
    110,728
    
    
    
    16.05Options exercisable, end of year
    
    
    80,748
    
    
    
    14.11Weighted average fair value of
options
granted during the year
    
    $
    8.372001Options outstanding, beginning
of year
    
    
    101,923
    
    
    $
    9.80Granted
    
    
    24,125
    
    
    
    21.41Exercised
    
    
    (12,961
    )
    
    
    6.48Canceled
    
    
    (61
    )
    
    
    11.23Options outstanding, end of year
    
    
    113,026
    
    
    
    12.66Options exercisable, end of year
    
    
    78,890
    
    
    
    10.82Weighted average fair value of
options
granted during the year
    
    $
    7.50
 payment of cash bonuses in 2003, 3.0 million
common shares in 2002, and 2.9 million common
shares in 2001. The restricted common shares
issued had an approximate aggregate market
value of $111.4 million, $69.1 million, and
$66.9 million at the time of grant for 2003,
2002, and 2001, respectively. The market value
of these restricted shares at the date of grant
is amortized into expense over a period that
approximates the restriction period, which is
10 years, or less if the restricted common
shares had a specific vesting date less than 10
years from date of grant. If the restrictions
lapse, generally upon death, disability or
retirement, or are released sooner, any
remaining unamortized market value of the
restricted shares is immediately expensed. At
December 31, 2003 and 2002, the unamortized
compensation expense related to the restricted
stock awards was $183.3 million and $158.2
million, respectively.
   SUMMARY OF STOCK OPTIONS OUTSTANDING(shares in thousands) December 31, 2003
    
    
    
    
    
    Options Outstanding
    
    Options ExercisableWeighted AverageNumber
    
    
    Remaining
    
    
    Weighted Average
    
    
    Number
    
    
    Weighted AverageRange of Exercise Prices
    
    
    of Shares
    
    
    Contractual Life
    
    
    Exercise Price
    
    
    of Shares
    
    
    Exercise Price$    1.00
    
    to
    
    $
    4.99
    
    
    
    4,032
    
    
    1.55
    years
    
    
    $
    4.38
    
    
    
    4,032
    
    
    $
    4.385.00
    
    to
    
    
    9.99
    
    
    
    11,422
    
    
    3.05
    
    
    
    
    7.83
    
    
    
    11,422
    
    
    
    7.8310.00
    
    to
    
    
    14.99
    
    
    
    19,481
    
    
    5.16
    
    
    
    
    14.20
    
    
    
    17,599
    
    
    
    14.2315.00
    
    to
    
    
    19.99
    
    
    
    12,329
    
    
    5.40
    
    
    
    
    17.69
    
    
    
    12,138
    
    
    
    17.6920.00
    
    to
    
    
    25.00
    
    
    
    51,933
    
    
    8.08
    
    
    
    
    22.14
    
    
    
    26,335
    
    
    
    22.181.00
    
    to
    
    
    25.00
    
    
    
    99,197
    
    
    
    
    
    
    
    
    
    
    
    71,526




---



##### 



92    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. The Corporation considers
these stock repurchases in maintaining its
liquidity position. During 2003, the
Corporation purchased 29.2 million common
shares for $618.3 million in connection with
the issuance of restricted stock and the
exercise of stock options and received $275.8
million in proceeds from the exercise of those
stock options. During 2002, the Corporation
purchased 25.5 million common shares for $615.5
million in connection with the issuance of
restricted stock and the exercise of stock
options and received $138.4 million in proceeds
from the exercise of those stock options.
During 2001, the Corporation purchased 15.9
million common shares for $376.1 million in
connection with the issuance of restricted
stock and the exercise of stock options and
received $84.0 million in proceeds from the
exercise of those stock options. NOTE 24: OTHER OPERATING EXPENSE
OTHER EXPENSE COMPONENT OF OTHER
OPERATING EXPENSE(dollars in thousands) Year Ended December 31,
    
    2003
    
    
    2002
    
    
    2001Purchased services
    
    $
    582,724
    
    
    $
    544,104
    
    
    $
    498,809Advertising
    
    
    421,965
    
    
    
    315,393
    
    
    
    268,897Collection
    
    
    77,482
    
    
    
    54,872
    
    
    
    46,260Stationery and supplies
    
    
    41,833
    
    
    
    48,073
    
    
    
    45,477Service bureau
    
    
    83,171
    
    
    
    75,444
    
    
    
    63,375Postage and delivery
    
    
    459,592
    
    
    
    366,129
    
    
    
    354,226Telephone usage
    
    
    89,448
    
    
    
    86,562
    
    
    
    84,900Loan receivable fraud losses
    
    
    139,193
    
    
    
    160,639
    
    
    
    172,366Amortization of intangible assets
    
    
    410,973
    
    
    
    348,727
    
    
    
    381,792Other
    
    
    207,031
    
    
    
    248,317
    
    
    
    274,329Total other expense
    
    $
    2,513,412
    
    
    $
    2,248,260
    
    
    $
    2,190,431
 NOTE 25: DIVIDEND LIMITATIONS The payment of dividends in the future and the
amount of such dividends, if any, will be at
the discretion of the Corporations Board of
Directors. The payment of preferred and common
stock dividends by the Corporation may be
limited by certain factors, including
regulatory capital requirements, broad
enforcement powers of the federal bank
regulatory agencies, and tangible net worth
maintenance requirements under the
Corporations revolving credit facilities. The
payment of common stock dividends may also be
limited by the terms of the Corporations
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 the
Corporations junior subordinated deferrable
interest debentures, the Corporation may not be
permitted to declare or pay any cash dividends
on the Corporations Common Stock or interest
on debt securities that have equal or lower
priority than the junior subordinated
deferrable interest debentures. RETURN ON AVERAGE TOTAL ASSETS AND AVERAGE STOCKHOLDERS EQUITY Year Ended December 31,
    
    2003
    
    
    2002
    
    
    2001Return on average total assets
    
    
    4.16
    %
    
    
    3.67
    %
    
    
    4.16
    %Return on average stockholders equity
    
    
    22.98
    
    
    
    21.29
    
    
    
    24.07Average stockholders equity to average
total assets
    
    
    18.09
    
    
    
    17.22
    
    
    
    17.27Dividend payout ratio
    
    
    20.11
    
    
    
    20.15
    
    
    
    18.75
 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
national 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 profits. Also, a national 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, 2003,
the amount of undivided profits available for
declaration and payment of dividends from the
Bank to the Corporation was $4.4 billion. Also,
banking regulators have indicated that national
banks should generally pay dividends only out
of current operating earnings. Following this
practice, the amount of undivided profits
available for the declaration and payment of
dividends from the Bank to the Corporation was
$1.8 billion at December 31, 2003. 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 Corporations
senior syndicated revolving credit facility
(discussed under Note 27: Commitments and
Contingencies). This facility was not drawn
upon at December 31, 2003. If this facility had
been drawn upon at December 31, 2003, the
amount of retained earnings available for
declaration of dividends would have been
limited to $3.2 billion.




---



##### 



CAPITAL ADEQUACY(dollars in thousands) To Be Well-CapitalizedFor Capital
    
    Under Prompt CorrectiveActual
    |
    
    Adequacy Purposes
    |
    Action ProvisionsAmount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio
    
    
    Amount
    
    
    RatioDecember 31, 2003Tier 1 Capital (to Risk-Weighted Assets):MBNA Corporation
    
    $
    11,998,873
    
    
    
    18.47
    %
    
    $
    2,598,126
    
    
    
    4.00
    %
    
    
    (a
    )MBNA America Bank, N.A
    
    
    10,286,026
    
    
    
    16.38
    
    
    
    2,512,467
    
    
    
    4.00
    
    
    $
    3,768,700
    
    
    
    6.00
    %MBNA America (Delaware), N.A
    
    
    526,630
    
    
    
    28.38
    
    
    
    74,214
    
    
    
    4.00
    
    
    
    111,321
    
    
    
    6.00Total Capital (to Risk-Weighted Assets):MBNA Corporation
    
    
    14,409,042
    
    
    
    22.18
    
    
    
    5,196,252
    
    
    
    8.00
    
    
    
    (a
    )MBNA America Bank, N.A
    
    
    12,644,844
    
    
    
    20.13
    
    
    
    5,024,933
    
    
    
    8.00
    
    
    
    6,281,167
    
    
    
    10.00MBNA America (Delaware), N.A
    
    
    551,920
    
    
    
    29.75
    
    
    
    148,428
    
    
    
    8.00
    
    
    
    185,535
    
    
    
    10.00Tier 1 Capital (to Average Assets):MBNA Corporation
    
    
    11,998,873
    
    
    
    20.52
    
    
    
    2,338,976
    
    
    
    4.00
    
    
    
    (a
    )MBNA America Bank, N.A
    
    
    10,286,026
    
    
    
    18.52
    
    
    
    2,221,105
    
    
    
    4.00
    
    
    
    2,776,382
    
    
    
    5.00MBNA America (Delaware), N.A
    
    
    526,630
    
    
    
    32.47
    
    
    
    64,870
    
    
    
    4.00
    
    
    
    81,088
    
    
    
    5.00December 31, 2002Tier 1 Capital (to Risk-Weighted Assets):MBNA Corporation
    
    $
    9,466,935
    
    
    
    15.73
    %
    
    $
    2,407,978
    
    
    
    4.00
    %
    
    
    (a
    )MBNA America Bank, N.A
    
    
    7,596,885
    
    
    
    12.58
    
    
    
    2,416,236
    
    
    
    4.00
    
    
    $
    3,624,354
    
    
    
    6.00
    %MBNA America (Delaware), N.A
    
    
    431,918
    
    
    
    28.06
    
    
    
    61,579
    
    
    
    4.00
    
    
    
    92,368
    
    
    
    6.00Total Capital (to Risk-Weighted Assets):MBNA Corporation
    
    
    11,828,100
    
    
    
    19.65
    
    
    
    4,815,955
    
    
    
    8.00
    
    
    
    (a
    )MBNA America Bank, N.A
    
    
    9,914,225
    
    
    
    16.41
    
    
    
    4,832,472
    
    
    
    8.00
    
    
    
    6,040,590
    
    
    
    10.00MBNA America (Delaware), N.A
    
    
    451,999
    
    
    
    29.36
    
    
    
    123,157
    
    
    
    8.00
    
    
    
    153,947
    
    
    
    10.00Tier 1 Capital (to Average Assets):MBNA Corporation
    
    
    9,466,935
    
    
    
    18.55
    
    
    
    2,041,906
    
    
    
    4.00
    
    
    
    (a
    )MBNA America Bank, N.A
    
    
    7,596,885
    
    
    
    15.81
    
    
    
    1,921,607
    
    
    
    4.00
    
    
    
    2,402,009
    
    
    
    5.00MBNA America (Delaware), N.A
    
    
    431,918
    
    
    
    23.21
    
    
    
    74,446
    
    
    
    4.00
    
    
    
    93,058
    
    
    
    5.00(a) Not applicable for bank holding companies.
  NOTE 26: CAPITAL ADEQUACY The Corporation is subject to risk-based
capital guidelines adopted by the Federal
Reserve Board for bank holding companies. The
Bank and MBNA Delaware are also subject to
similar capital requirements adopted by the
Office of the Comptroller of the Currency.
Under these requirements, the federal bank
regulatory agencies have established
quantitative measures to ensure that minimum
thresholds for Tier 1 Capital, Total Capital,
and Leverage ratios are maintained. Failure to
meet these minimum capital requirements can
initiate certain mandatory, and possible
additional discretionary, actions by the
federal bank regulators that, if undertaken,
could have a direct material effect on the
Corporations, the Banks, and MBNA Delawares
consolidated financial statements. Under the
capital adequacy guidelines and the regulatory
framework for prompt corrective action, the
Corporation, the Bank, and MBNA Delaware must
meet specific capital guidelines that involve
quantitative measures of their assets,
liabilities, and certain off-balance-sheet
items as calculated under regulatory accounting
practices. The Corporations, the Banks, and
MBNA Delaware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, 2003 and 2002, the
Corporations, the Banks, and MBNA Delawares
capital exceeded all minimum regulatory
requirements to which they are subject, and the
Bank and MBNA Delaware were well-capitalized
as
 defined under the federal bank regulatory
guidelines. The risk-based capital ratios have
been computed in accordance with regulatory
accounting practices. At December 31, 2003, no
conditions or events had occurred that changed
the Corporations classification as adequately
capitalized and the Banks or MBNA Delawares
classification as well capitalized. MBNA
Europe and MBNA Canada are regulated by the
Financial Services Authority (FSA) and the
Office of the Superintendent of Financial
Institutions (OSFI), respectively, in regards
to capital adequacy. NOTE 27: COMMITMENTS AND CONTINGENCIES A loan commitment, commonly referred to as a
line of credit, is an agreement to lend to a
Customer subject to the Customers compliance
with the Customers account agreement. The
Corporation can reduce or cancel a credit card
commitment by providing the required prior
notice to the Customer, or without notice if
permitted by law. The Corporation had
outstanding lines of credit of $681.6 billion
and $622.7 billion committed to its Customers
at December 31, 2003 and 2002, respectively. Of
those total commitments, $563.1 billion and
$515.4 billion were unused at December 31, 2003
and 2002, respectively. While these amounts
represent 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.




---



##### 



94    Also, the Corporation holds Community
Development investments in the form of limited
partnership interests that qualify under the
Community Reinvestment Act. Unfunded
commitments for which the Corporation has
accrued for, related to these investments were
$110.8 million and $107.3 million at December
31, 2003 and 2002, respectively. The
Corporation also had unfunded commitments
related to these investments of $41.3 million
and $18.6 million at December 31, 2003 and
2002, respectively, which were not accrued for
in accordance with GAAP. The Corporation may
not cancel these commitments. The Corporation, the Bank, and their affiliates
are commonly subject to various pending or
threatened legal proceedings, including certain
class actions, arising out of the normal course
of business. In view of the inherent difficulty
of predicting the outcome of such matters, the
Corporation cannot state what the eventual
outcome of these matters will be. However, the
Corporation believes, based on current
knowledge and after consultation with counsel,
that the outcome of such matters will not have
a material adverse effect on the Corporations
consolidated financial condition or results of
operations. Amounts that have been recognized
for such losses as of December 31, 2003 and
2002 and not yet paid are included in the
audited consolidated statements of financial
condition under accrued expenses and other
liabilities and are not material to the audited
consolidated financial statements at December
31, 2003 and 2002, respectively. The Bank, MBNA Europe, and the Corporation have
a $2.5 billion senior unsecured syndicated
revolving credit facility committed through
July 2006, available to the Bank and MBNA
Europe with sublimit availability in an amount
of $500.0 million for the Corporation. The Bank
unconditionally and irrevocably guarantees the
obligations of MBNA Europe under the facility.
This facility may be used for general corporate
purposes and was not drawn upon at December 31,
2003. Advances from the $2.5 billion senior unsecured
syndicated revolving credit facility are
subject to covenants and conditions customary
in a transaction of this nature. These
conditions include requirements for both the
Corporation and the Bank to maintain a minimum
level of consolidated tangible net worth. These
conditions also require the Bank to not permit
its managed loan receivables 90 days or more
past due plus nonaccruing receivables to exceed
6% of managed receivables, as defined by the
agreement, and to maintain its regulatory
capital ratios at or above regulatory
well-capitalized requirements. In addition,
these conditions require that the Corporation
not permit its double leverage ratio (defined
as the sum of the Corporations intangible
assets and investment in subsidiaries divided
by total stockholders equity) to exceed 1.25
and to maintain its regulatory capital ratios
at or above regulatory minimum requirements. At
December 31, 2003, the ratio of the Banks
managed loan receivables 90 days or more past
due plus nonaccruing receivables to managed
receivables was 2.36%, the Corporations double
leverage ratio was 1.04, and the
 level of
consolidated tangible net worth exceeded the
minimum levels required. MBNA Europe has a £325.0 million (approximately
$582.4 million at December 31, 2003)
multi-currency syndicated revolving credit
facility committed until June 2005. MBNA Europe
may take advances under the facility subject to
covenants and conditions customary in a
transaction of this nature, including
requirements for tangible net worth and account
delinquencies. This facility is unconditionally
and irrevocably guaranteed by the Bank. The
facility may be used for general corporate
purposes and was not drawn upon at December 31,
2003. MBNA Canada has a CAD$350.0 million
(approximately $270.4 million at December 31,
2003) multi-currency syndicated revolving
credit facility committed through July 2004.
During 2003, CAD$315.0 million (approximately
$243.4 million at December 31, 2003) of the
facility was extended to July 2006. MBNA Canada
may take advances under the facility subject to
covenants and conditions customary in a
transaction of this nature. This facility is
unconditionally and irrevocably guaranteed by
the Bank. This facility may be used for general
corporate purposes and was not drawn upon at
December 31, 2003. NOTE 28: FOREIGN ACTIVITIES SELECTED FOREIGN FINANCIAL DATA(dollars in thousands) Year Ended December 31,
    
    2003
    
    
    2002
    
    
    2001United Kingdom/Ireland/
SpainTotal assets
    
    $
    11,958,296
    
    
    $
    9,194,940
    
    
    $
    5,654,605Total income
    
    
    1,671,370
    
    
    
    1,298,322
    
    
    
    1,011,309Income before income taxes
    
    
    262,401
    
    
    
    199,986
    
    
    
    199,221Net income
    
    
    198,076
    
    
    
    148,497
    
    
    
    149,786CanadaTotal assets
    
    
    1,506,838
    
    
    
    1,064,344
    
    
    
    883,787Total income
    
    
    398,420
    
    
    
    281,327
    
    
    
    208,663Income before income taxes
    
    
    143,782
    
    
    
    93,962
    
    
    
    42,541Net income
    
    
    87,897
    
    
    
    79,123
    
    
    
    42,541Other ForeignTotal assets
    
    
    2,377,345
    
    
    
    2,426,402
    
    
    
    1,000,939Total income
    
    
    40,068
    
    
    
    22,029
    
    
    
    43,111Income before income taxes
    
    
    (53,776
    )
    
    
    (13,973
    )
    
    
    (15,212
    )Net income
    
    
    (34,686
    )
    
    
    (8,873
    )
    
    
    (6,651
    )Total ForeignTotal assets
    
    
    15,842,479
    
    
    
    12,685,686
    
    
    
    7,539,331Total income
    
    
    2,109,858
    
    
    
    1,601,678
    
    
    
    1,263,083Income before income taxes
    
    
    352,407
    
    
    
    279,975
    
    
    
    226,550Net income
    
    
    251,287
    
    
    
    218,747
    
    
    
    185,676DomesticTotal assets
    
    
    43,270,876
    
    
    
    40,171,060
    
    
    
    37,908,614Total income
    
    
    9,574,506
    
    
    
    8,829,315
    
    
    
    8,881,638Income before income taxes
    
    
    3,306,598
    
    
    
    2,505,441
    
    
    
    2,488,660Net income
    
    
    2,086,817
    
    
    
    1,547,207
    
    
    
    1,508,615MBNA CorporationTotal assets
    
    
    59,113,355
    
    
    
    52,856,746
    
    
    
    45,447,945Total income
    
    
    11,684,364
    
    
    
    10,430,993
    
    
    
    10,144,721Income before income taxes
    
    
    3,659,005
    
    
    
    2,785,416
    
    
    
    2,715,210Net income
    
    
    2,338,104
    
    
    
    1,765,954
    
    
    
    1,694,291




---



##### 



The Corporations foreign activities are
primarily performed through the Banks two
foreign bank subsidiaries, MBNA Europe, which
has branches in Spain and Ireland, and MBNA
Canada. The Banks net investment in MBNA
Europe was $2.5 billion and in MBNA Canada was
$443.0 million at December 31, 2003. The Bank
also has a foreign branch office that invests
in interest-earning time deposits and accepts
Eurodollar deposits. This branch also
participates in a portion of the remaining
undivided interests in loan principal
receivables securitized by MBNA Europe. Because certain foreign operations are
integrated with many of the Banks domestic
operations, certain estimates and assumptions
have been made to assign 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. FOREIGN LOAN RECEIVABLES DISTRIBUTION(dollars in thousands) December 31,
    
    2003
    
    
    2002Loans Held for SecuritizationCredit card
    
    $
    2,798,190
    
    
    $
    1,830,914Total loans held for securitization
    
    
    2,798,190
    
    
    
    1,830,914Loan PortfolioCredit card
    
    
    4,005,334
    
    
    
    3,070,999Other consumer
    
    
    2,418,449
    
    
    
    1,927,015Total loan portfolio
    
    
    6,423,783
    
    
    
    4,998,014Total loan receivables
    
    $
    9,221,973
    
    
    $
    6,828,928
 NOTE 29: RELATED PARTY TRANSACTIONS The Corporations directors, executive
officers, certain members of their immediate
families, and certain affiliated companies hold
credit cards or other lines of credit issued by
the Corporation on the same terms prevailing at
the time for those issued to other persons. The
outstanding amounts are included in loan
receivables in the Corporations audited
consolidated statements of financial condition
and were not material to the Corporations
financial results. See Note 18:
Stockholders EquityCommon Stock
for information about a related party
transaction pertaining to the 2003 stock
issuance. NOTE 30: FAIR VALUE OF FINANCIAL INSTRUMENTS The following presents the fair value of
financial instruments at December 31, 2003 and
2002, whether or not recognized in the
Corporations audited consolidated statements
of financial condition, for which it is
practicable to estimate that value. In
addition, the fair value of certain financial
instruments and all nonfinancial instruments
are excluded from the audited consolidated
statements of financial condition in accordance
with GAAP. 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 are carried at an
amount that approximates fair value. Money market instruments include
interest-earning time deposits in other banks
and federal funds sold. As a result of the
short-term nature of these instruments, the
carrying amounts reported in the audited
consolidated statements of financial condition
approximate these assets fair values. The fair value of investment securities 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. The carrying value of loans held for
securitization reported in the audited
consolidated statements of financial condition
approximates its fair value as a result of the
short-term nature of these assets. The carrying
value of the Corporations loan portfolio
reported in the audited consolidated statements
of financial condition 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 at any
time by giving notice to the Customer. The valuations of loans held for securitization
and the loan portfolio do not include the value
that relates to estimated cash flows from new
and existing loans generated from current
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 includes interest and fee
income earned but not yet received from
investment securities and money market
instruments, loan receivables, interest rate
swap agreements, foreign exchange swap
agreements, and insurance products. The
carrying amount reported in the audited
consolidated statements of financial condition
approximates the fair value of these assets as
a result of their relatively short-term nature. The fair value of accounts receivable from
securitization is determined by a review of
each component. The interest-only strip
receivable, cash reserve accounts, accrued
interest and fees on securitized loans, and
other subordinated retained interests are
carried at amounts that approximate their fair
values. The carrying values of the sale of new
loan receivables, accrued servicing fees, and
other accounts receivable from securitization
reported in the audited consolidated statements
of financial condition approximate their fair
values as a result of the short-term nature of
these assets.




---



##### 



96   CARRYING VALUES AND ESTIMATED FAIR VALUES OF THE CORPORATIONS FINANCIAL ASSETS(dollars in thousands) December 31,
    
    2003
    |
    2002Carrying
    
    Estimated
    
    Carrying
    
    EstimatedValue
    
    Fair Value
    
    Value
    
    Fair ValueFinancial AssetsCash and due from banks
    
    $
    660,022
    
    
    $
    660,022
    
    
    $
    721,972
    
    
    $
    721,972Money market instruments
    
    
    4,865,329
    
    
    
    4,865,329
    
    
    
    5,348,052
    
    
    
    5,348,052Investment securities:Available-for-sale
    
    
    4,363,087
    
    
    
    4,363,087
    
    
    
    3,655,808
    
    
    
    3,655,808Held-to-maturity (a)
    
    
    353,299
    
    
    
    354,434
    
    
    
    419,760
    
    
    
    428,472Loans held for securitization
    
    
    13,084,105
    
    
    
    13,084,105
    
    
    
    11,029,627
    
    
    
    11,029,627Loan portfolio, net of reserve for possible credit losses
    
    
    19,323,656
    
    
    
    19,323,656
    
    
    
    16,585,582
    
    
    
    16,585,582Accrued income receivable
    
    
    443,755
    
    
    
    443,755
    
    
    
    371,089
    
    
    
    371,089Accounts receivable from securitization
    
    
    7,766,477
    
    
    
    7,766,477
    
    
    
    6,926,876
    
    
    
    6,926,876
  (a)
    
    For purposes of comparability, certain prior period amounts have been
restated.  FINANCIAL LIABILITIES The fair value of the Corporations deposits is
determined by a review of each component. The
fair value of money market deposit accounts,
noninterest-bearing 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 include federal funds
purchased and securities sold under repurchase
agreements, short-term deposit notes,
structured financings, and other short-term
borrowings. The fair value of federal funds
purchased and securities sold under repurchase
agreements, short-term deposit notes, and other
short-term borrowings approximates the carrying
value based upon their short-term nature. The
fair value of the Corporations structured
financings is estimated by discounting the
future cash flows of the stated maturities of
the structured financings using estimated rates
currently offered for similar structured
financings. The fair value of substantially 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, except
that the fair value of the Corporations junior
subordinated deferrable interest debentures is
based upon its quoted market price.
 Accrued interest payable includes interest
expensed but not yet paid for deposits,
short-term borrowings, long-term debt and bank
notes, interest rate swap agreements, and
foreign exchange swap agreements. The carrying
amount approximates the fair value of these
liabilities as a result of their relatively
short-term nature. DERIVATIVE FINANCIAL INSTRUMENTS By using derivative instruments, the
Corporation exposes itself to credit and market
risk. If a counterparty fails to fulfill its
performance obligations under a derivative
contract, the Corporations credit risk will
equal the fair value gain in the derivative.
Generally, when the fair value of the
derivative contract is positive, this indicates
that the counterparty owes the Corporation,
thus creating a repayment risk for the
Corporation. When the fair value of a
derivative contract is negative, the
Corporation owes the coun-terparty and,
therefore assumes no repayment risk. In order
to minimize the amount of credit risk, the
Corporation only enters into derivative
financial instruments with counterparties who
have credit ratings of investment grade as
rated by the major rating agencies. The
derivative financial instruments the
Corporation uses are interest rate swap
agreements, foreign exchange swap agreements
and forward exchange contracts. The fair value of the Corporations derivative
financial instruments is determined using
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.
   CARRYING VALUES AND ESTIMATED FAIR VALUES OF THE CORPORATIONS FINANCIAL LIABILITIES(dollars in thousands) December 31,
    
    2003
    
    |
    2002Carrying
    
    Estimated
    
    Carrying
    
    EstimatedValue
    
    Fair Value
    
    Value
    

Fair ValueFinancial LiabilitiesDeposits
    
    $
    31,836,081
    
    
    $
    32,549,248
    
    
    $
    30,616,216
    
    
    $
    31,715,373Short-term borrowings
    
    
    1,025,463
    
    
    
    1,053,277
    
    
    
    1,250,103
    
    
    
    1,294,866Long-term debt and bank notes
    
    
    12,145,628
    
    
    
    13,150,079
    
    
    
    9,538,173
    
    
    
    10,543,933Accrued interest payable
    
    
    319,227
    
    
    
    319,227
    
    
    
    286,158
    
    
    
    286,158




---



##### 



The Corporation uses interest rate swap
agreements to change fixed-rate funding sources
to floating-rate funding sources to more
closely match the interest 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.
 The Corporations interest rate swap agreements
are designated as fair value hedges under
Statement No. 133. The fair value of the
Corporations interest rate swap agreements was
a gross asset value of $361.6 million and a
gross liability value of $32.7 million at
December 31, 2003. At December 31, 2002, the
outstanding interest rate swap agreements had a
gross asset value of $468.4 million. For the
years ended December 31, 2003 and 2002, the
Corporations hedging ineffectiveness for its
interest rate swap agreements was immaterial to
the Corporations audited consolidated
statements of income. At December 31, 2003, the
Corporation had interest rate swap agreements
maturing in varying amounts from 2004 through
2033.
   SIGNIFICANT CLASSES OF DERIVATIVE FINANCIAL INSTRUMENTS(dollars in thousands) Weighted AverageNational
    
    
    
    
    
    
    
    
    
    
    Maturity
    
    
    EstimatedAmount
    
    
    Receive Rate (a)
    
    
    Pay Rate (b)
    
    
    in Years
    
    
    Fair ValueDecember 31, 2003Interest rate swap agreements
    
    $
    9,055,033
    
    
    
    5.43
    %
    
    
    2.03
    %
    
    
    6.8Gross unrealized gains
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    361,554Gross unrealized losses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (32,735
    )Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    328,819Forward
exchange contractspounds sterling
    
    
    1,557,372
    
    
    
    1.68
    
    
    
    1.79
    
    
    
    .1Gross unrealized gains
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    Gross unrealized losses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (94,016
    )Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (94,016
    )Forward exchange contractseuros
    
    
    101,034
    
    
    
    1.17
    
    
    
    1.26
    
    
    
    .1Gross unrealized gains
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    Gross unrealized losses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,661
    )Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (7,661
    )Forward exchange contractsU.S. dollars
    
    
    420,376
    
    
    
    .57
    
    
    
    .56
    
    
    
    .1Gross unrealized gains
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    Gross unrealized losses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,353
    )Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (6,353
    )Foreign exchange swap agreements
    
    
    4,696,241
    
    
    
    4.03
    %
    
    
    5.10
    %
    
    
    2.2Gross unrealized gains
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    209,712Gross unrealized losses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (257,242
    )Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (47,530
    )December 31, 2002Interest rate swap agreements
    
    $
    6,543,943
    
    
    
    5.71
    %
    
    
    2.21
    %
    
    
    7.6Gross unrealized gains
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    468,425Gross unrealized losses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    468,425Forward exchange contractspounds sterling
    
    
    1,340,576
    
    
    
    1.57
    
    
    
    1.61
    
    
    
    .1Gross unrealized gains
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    Gross unrealized losses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (33,488
    )Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (33,488
    )Forward exchange contractseuros
    
    
    77,296
    
    
    
    1.01
    
    
    
    1.05
    
    
    
    .1Gross unrealized gains
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    Gross unrealized losses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,726
    )Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (4,726
    )Forward exchange contractsU.S. dollars
    
    
    1,848,448
    
    
    
    .66
    
    
    
    .62
    
    
    
    .1Gross unrealized gains
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    Gross unrealized losses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (60,733
    )Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (60,733
    )Foreign exchange swap agreements
    
    
    2,997,399
    
    
    
    4.45
    %
    
    
    5.43
    %
    
    
    2.7Gross unrealized gains
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    66,233Gross unrealized losses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (101,157
    )Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (34,924
    )
  (a)
    
    Weighted average receive rate represents the rate contracted at the time
the derivative financial instruments were entered into.(b)
    
    Weighted average pay rate for the forward exchange contracts represents the
spot rate for the currency in which the forward exchange contract was
denominated at December 31, 2003 and 2002, respectively.




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##### 



98   EXPECTED MATURITIES OF DERIVATIVE FINANCIAL INSTRUMENTS(dollars in thousands) December 31, 2003
    
    Within 1 Year
    
    
    1-5 Years
    
    

6-10 Years
    
    
    Over 10 Years
    
    
    TotalInterest Rate Swap AgreementsNotional amount
    
    $
    966,494
    
    
    $
    3,922,734
    
    
    $
    3,079,502
    
    
    $
    1,086,303
    
    
    $
    9,055,033Estimated fair value
    
    
    15,481
    
    
    
    193,633
    
    
    
    102,370
    
    
    
    17,335
    
    
    
    328,819Forward Exchange ContractsNotional amount
    
    
    2,078,782
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,078,782Estimated fair value
    
    
    (108,030
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (108,030
    )Foreign Exchange Swap AgreementsNotional amount
    
    
    1,754,735
    
    
    
    2,310,004
    
    
    
    631,502
    
    
    
    
    
    
    
    4,696,241Estimated fair value
    
    
    104,477
    
    
    
    (145,793
    )
    
    
    (6,214
    )
    
    
    
    
    
    
    (47,530
    )
  The Corporation is exposed to foreign currency
exchange rate risk as a result of transactions
in currencies other than the designated
functional currency of its foreign bank
subsidiaries. The Corporation uses foreign
exchange swap agreements to reduce its exposure
to foreign currency exchange rate risk. The
foreign exchange swap agreements are primarily
related to the issuance of long-term debt and
bank notes by the Corporations foreign bank
subsidiaries. Foreign exchange swap agreements
are agreements to exchange principal amounts of
different currencies and interest rates,
usually at a prevailing exchange rate. When the
agreement matures, the underlying principal or
notional amount will be re-exchanged at the
agreed-upon exchange rate. The Corporations qualifying foreign exchange
swap agreements are accounted for as fair value
hedges. The fair value of the Corporations
qualifying foreign exchange swap agreements was
a gross unrealized gain of $61.7 million at
December 31, 2003, and a gross unrealized gain
of $19.4 million at December 31, 2002. The
Corporation also enters into foreign exchange
swap agreements that are not designated as
accounting hedges. The fair value of the
Corporations foreign exchange swap agreements
not designated as accounting hedges was a gross
unrealized gain of $148.0 million and a gross
unrealized loss of $257.2 million at December
31, 2003. The fair value of the Corporations
foreign exchange swap agreements not designated
as accounting hedges was a gross unrealized
gain of $46.8 million and a gross unrealized
loss of $101.2 million at December 31, 2002.
For the year ended December 31, 2003, the
Corporation recognized a net loss of $12.6
million on its foreign exchange swap
agreements. For the year ended December 31,
2002, the Corporation recognized a net gain of
$22.4 million on its foreign exchange swap
agreements. The Corporations hedging
ineffectiveness for its foreign exchange swap
agreements was immaterial to the Corporations
audited consolidated statements of income for
2003 and 2002. The Corporations foreign
exchange swap agreements mature in varying
amounts from 2004 through 2009. Under the terms of certain interest rate swap
agreements and foreign exchange swap
agreements, each party may be required to
pledge certain assets if the market value of
the interest rate swap agreements and foreign
exchange swap agreements exceeds an amount set
forth in the agreement or in the event of a
change in credit rating. This pledge of
collateral is intended to mitigate
 counterparty credit risk. There were $28.5
million of interest-earning time deposits
pledged by MBNA Europe under the terms of the
interest rate swap agreements and foreign
exchange swap agreements at December 31, 2003.
There were no securities pledged by the Bank
under the terms of the interest rate swap
agreements and foreign exchange swap agreements
at December 31, 2002. The Bank held $36.7
million in deposits received from swap
counterparties, that were collateralizing
interest rate swap agreements and foreign
exchange swap agreements at December 31, 2003.
MBNA Europe held an additional $85.1 million in
deposits received from swap counter-parties,
that were collateralizing interest rate swap
agreements and foreign exchange swap agreements
at December 31, 2003. At December 31, 2002, the
Bank held a $44.7 million deposit received from
a swap counterparty, which was collateralizing
an interest rate swap agreement. MBNA Europe
held an additional $16.8 million in deposits
received from swap counterparties, that were
collateralizing interest swap agreements and
foreign exchange swap agreements at December
31, 2002. The Corporation enters into transactions and
has related assets and liabilities in
currencies other than the currency in which the
Corporation or its foreign bank subsidiaries
operate. As a result, the Corporation is
exposed to foreign currency exchange rate risk
and enters into forward exchange contracts to
reduce its exposure to that risk. Those forward
exchange contracts are commitments to buy or
sell foreign currency at a future date for a
contracted price. Those forward exchange
contracts 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 other financial
instruments. While the forward exchange contracts reduce the
exposure to foreign currency exchange rate
movements, the contracts are not accounting
hedges under Statement No. 133. The recognized
fair value of the open forward exchange
contracts at December 31, 2003, was a gross
unrealized loss, or a liability, of $108.0
million, which was recognized in the audited
consolidated statements of income as a net loss
of $108.0 million (pre-tax). The recognized
fair value of the open forward exchange
contracts at December 31, 2002, was a gross
unrealized loss, or a liability, of $98.9
million, which was recognized in the audited
consolidated statements of income as a net loss
of $98.9 million (pre-tax).




---



##### 



SUMMARY OF ACTIVITY OF DERIVATIVE FINANCIAL INSTRUMENTS (NOTIONAL AMOUNTS)(dollars in thousands) Interest Rate
    
    Forward Exchange
    
    Foreign ExchangeSwap Agreements
    
    Contracts
    
    Swap Agreements
    
    TotalBalance, December 31, 2000
    
    $
    1,754,826
    
    
    $
    1,321,184
    
    
    $
    451,458
    
    
    $
    3,527,468Additions
    
    
    1,578,547
    
    
    
    9,400,474
    
    
    
    1,400,671
    
    
    
    12,379,692Maturities
    
    
    (450,000
    )
    
    
    (9,278,535
    )
    
    
    
    
    
    
    (9,728,535
    )Balance, December 31, 2001
    
    
    2,883,373
    
    
    
    1,443,123
    
    
    
    1,852,129
    
    
    
    6,178,625Additions
    
    
    3,933,176
    
    
    
    12,619,569
    
    
    
    1,266,104
    
    
    
    17,818,849Maturities
    
    
    (272,606
    )
    
    
    (10,796,372
    )
    
    
    (120,834
    )
    
    
    (11,189,812
    )Balance, December 31, 2002
    
    
    6,543,943
    
    
    
    3,266,320
    
    
    
    2,997,399
    
    
    
    12,807,662Additions
    
    
    2,674,016
    
    
    
    16,560,962
    
    
    
    2,106,430
    
    
    
    21,341,408Maturities
    
    
    (162,926
    )
    
    
    (17,748,500
    )
    
    
    (407,588
    )
    
    
    (18,319,014
    )Balance, December 31, 2003
    
    $
    9,055,033
    
    
    $
    2,078,782
    
    
    $
    4,696,241
    
    
    $
    15,830,056
  The net loss of $108.0 million on the
Corporations open forward exchange contracts
outstanding at December 31, 2003, along with
the losses on its matured forward exchange
contracts, resulted in a net loss of $168.1
million on the Corporations forward exchange
contracts in the audited consolidated
statements of income for the year ended
December 31, 2003. The Corporation recognized
an offsetting net gain of $290.6 million on the
related foreign denominated assets and
liabilities in the audited consolidated
statements of income for the year ended
December 31, 2003. The
 net loss of $98.9
million on the Corporations open forward
exchange contracts outstanding at December 31,
2002, along with the losses on its matured
forward exchange contracts, resulted in a net
loss of $185.2 million on the Corporations
forward exchange contracts in the audited
consolidated statements of income for the year
ended December 31, 2002. The Corporation
recognized an offsetting net gain of $160.0
million on the related foreign denominated
assets and liabilities in the audited
consolidated statements of income for the year
ended December 31, 2002.




---



##### 



100   NOTE 31: PARENT COMPANY FINANCIAL INFORMATION The parent companys investment in subsidiaries
represents the total equity of all consolidated
subsidiaries, using the equity
 method of
accounting for investments. The Corporations
principal subsidiary is the Bank, which
constituted 93.1% and 93.0% of the consolidated
assets of the Corporation at December 31, 2003
and 2002, respectively.
   CONDENSED STATEMENTS OF FINANCIAL CONDITION(dollars in thousands) December 31,
    
    2003
    
    
    2002AssetsCash and due from bank subsidiary
    
    $
    4,997
    
    
    $
    4,219Interest-earning time deposits due from bank subsidiary
    
    
    1,487,196
    
    
    
    1,097,796Notes receivable from non-bank subsidiaries
    
    
    1,513,745
    
    
    
    1,490,162Investment in subsidiaries:Bank
    
    
    11,250,446
    
    
    
    9,030,463Non-bank
    
    
    267,169
    
    
    
    268,899Premises and equipment, net
    
    
    167,530
    
    
    
    197,736Accrued income receivable
    
    
    84,644
    
    
    
    56,926Investment in variable interest entities
    
    
    32,902
    
    
    
    Other assets
    
    
    379,982
    
    
    
    362,752Total assets
    
    $
    15,188,611
    
    
    $
    12,508,953Liabilities and Stockholders EquityLong-term debt
    
    $
    2,519,055
    
    
    $
    1,961,324Junior subordinated deferrable interest debentures due to variable interest entities
    
    
    1,134,624
    
    
    
    1,162,839Accrued interest payable
    
    
    49,083
    
    
    
    39,539Dividends payable
    
    
    130,704
    
    
    
    92,412Accrued expenses and other liabilities
    
    
    242,105
    
    
    
    151,520Total liabilities
    
    
    4,075,571
    
    
    
    3,407,634Stockholders equity
    
    
    11,113,040
    
    
    
    9,101,319Total liabilities and stockholders equity
    
    $
    15,188,611
    
    
    $
    12,508,953
 CONDENSED STATEMENTS OF INCOME(dollars in thousands) Year Ended December 31,
    
    2003
    
    
    2002
    
    
    2001Operating IncomeInterest income
    
    $
    124,117
    
    
    $
    122,165
    
    
    $
    121,264Dividends from subsidiaries:Bank
    
    
    450,147
    
    
    
    352,000
    
    
    
    308,000Non-bank
    
    
    1,633
    
    
    
    1,410
    
    
    
    1,181Management fees from subsidiaries
    
    
    150,087
    
    
    
    166,160
    
    
    
    97,867Other
    
    
    7,427
    
    
    
    3,820
    
    
    
    15,044Total operating income
    
    
    733,411
    
    
    
    645,555
    
    
    
    543,356Operating ExpenseInterest expense
    
    
    104,546
    
    
    
    93,321
    
    
    
    90,092Salaries and employee benefits
    
    
    115,595
    
    
    
    99,479
    
    
    
    41,249Other
    
    
    30,179
    
    
    
    59,388
    
    
    
    49,652Total operating expense
    
    
    250,320
    
    
    
    252,188
    
    
    
    180,993Income before income taxes and equity in undistributed net income of subsidiaries
    
    
    483,091
    
    
    
    393,367
    
    
    
    362,363Applicable income taxes
    
    
    5,175
    
    
    
    22,284
    
    
    
    24,694Equity in undistributed net income of subsidiaries:Bank
    
    
    1,846,944
    
    
    
    1,390,837
    
    
    
    1,354,094Non-bank
    
    
    13,244
    
    
    
    4,034
    
    
    
    2,528Net Income
    
    $
    2,338,104
    
    
    $
    1,765,954
    
    
    $
    1,694,291




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##### 



CONDENSED STATEMENTS OF CASH FLOWS(dollars in thousands) Year Ended December 31,
    
    2003
    
    
    2002
    
    
    2001Operating ActivitiesNet income
    
    $
    2,338,104
    
    
    $
    1,765,954
    
    
    $
    1,694,291Adjustments to reconcile net income to net cash provided by operating activities:Equity in undistributed earnings of subsidiaries
    
    
    (1,860,188
    )
    
    
    (1,394,871
    )
    
    
    (1,356,622
    )Deferred income tax benefit
    
    
    (13,719
    )
    
    
    (8,560
    )
    
    
    (4,658
    )Depreciation and amortization
    
    
    104,444
    
    
    
    110,883
    
    
    
    42,688Decrease (increase) in other operating activities
    
    
    15,894
    
    
    
    (22,683
    )
    
    
    95,984Net cash provided by operating activities
    
    
    584,535
    
    
    
    450,723
    
    
    
    471,683Investing ActivitiesNet (increase) decrease in interest-earning time deposits due from bank subsidiary
    
    
    (389,400
    )
    
    
    (618,000
    )
    
    
    336,500Net issuance of notes receivable from non-bank subsidiaries
    
    
    (23,583
    )
    
    
    (3,275
    )
    
    
    (176,668
    )Net sales (purchases) of premises and equipment
    
    
    20,605
    
    
    
    (60,888
    )
    
    
    (35,771
    )Net investment in subsidiaries
    
    
    (17,925
    )
    
    
    (162,214
    )
    
    
    (47,285
    )Proceeds from sale of investment securities available-for-sale
    
    
    
    
    
    
    13,126
    
    
    
    Net cash (used in) provided by investing activities
    
    
    (410,303
    )
    
    
    (831,251
    )
    
    
    76,776Financing ActivitiesProceeds from issuance of long-term debt
    
    
    1,039,191
    
    
    
    1,188,959
    
    
    
    294,562Maturity of long-term debt
    
    
    (434,000
    )
    
    
    (495,000
    )
    
    
    (241,000
    )Proceeds from issuance of junior subordinated deferrable interest debentures to
variable interest entities
    
    
    
    
    
    
    515,464
    
    
    
    Proceeds from issuance of common stock
    
    
    1,082,186
    
    
    
    
    
    
    
    Proceeds from exercise of stock options and other awards
    
    
    275,793
    
    
    
    138,422
    
    
    
    84,032Acquisition and retirement of common stock
    
    
    (1,700,824
    )
    
    
    (615,503
    )
    
    
    (376,095
    )Dividends paid
    
    
    (435,800
    )
    
    
    (350,740
    )
    
    
    (312,382
    )Net cash (used in) provided by financing activities
    
    
    (173,454
    )
    
    
    381,602
    
    
    
    (550,883
    )Increase (Decrease) in Cash and Cash Equivalents
    
    
    778
    
    
    
    1,074
    
    
    
    (2,424
    )Cash and cash equivalents at beginning of year
    
    
    4,219
    
    
    
    3,145
    
    
    
    5,569Cash and cash equivalents at end of year
    
    $
    4,997
    
    
    $
    4,219
    
    
    $
    3,145Supplemental DisclosuresInterest expense paid
    
    $
    102,866
    
    
    $
    79,425
    
    
    $
    95,304Income taxes paid
    
    $
    
    
    
    $
    
    
    
    $
    




---



##### 



102   QUARTERLY DATA (UNAUDITED)(dollars in thousands, except per share amounts) Three Months Ended
    
    March 31,
    
    
    June 30,
    
    
    September 30,
    
    
    December 31,2003Interest income
    
    $
    944,027
    
    
    $
    959,915
    
    
    $
    969,529
    
    
    $
    985,413Interest expense
    
    
    388,431
    
    
    
    380,747
    
    
    
    369,617
    
    
    
    369,716Net interest income
    
    
    555,596
    
    
    
    579,168
    
    
    
    599,912
    
    
    
    615,697Provision for possible credit losses
    
    
    378,877
    
    
    
    345,603
    
    
    
    334,064
    
    
    
    334,157Other operating income
    
    
    1,788,009
    
    
    
    1,851,804
    
    
    
    2,032,469
    
    
    
    2,153,198Other operating expense
    
    
    1,287,875
    
    
    
    1,235,068
    
    
    
    1,267,389
    
    
    
    1,333,815Income before income taxes
    
    
    676,853
    
    
    
    850,301
    
    
    
    1,030,928
    
    
    
    1,100,923Net income
    
    
    432,509
    
    
    
    543,342
    
    
    
    658,763
    
    
    
    703,490Net income applicable to common stock
    
    
    428,993
    
    
    
    539,826
    
    
    
    655,247
    
    
    
    699,974Earnings per common share
    
    
    .34
    
    
    
    .42
    
    
    
    .51
    
    
    
    .55Earnings per
common shareassuming dilution
    
    
    .33
    
    
    
    .42
    
    
    
    .51
    
    
    
    .54Weighted average common shares outstanding (000)
    
    
    1,278,980
    
    
    
    1,278,144
    
    
    
    1,277,810
    
    
    
    1,277,748Weighted average common shares outstanding and common
stock equivalents (000)
    
    
    1,292,647
    
    
    
    1,294,246
    
    
    
    1,296,312
    
    
    
    1,297,3002002Interest income
    
    $
    915,701
    
    
    $
    895,618
    
    
    $
    887,423
    
    
    $
    979,328Interest expense
    
    
    402,425
    
    
    
    390,801
    
    
    
    405,152
    
    
    
    405,117Net interest income
    
    
    513,276
    
    
    
    504,817
    
    
    
    482,271
    
    
    
    574,211Provision for possible credit losses
    
    
    359,393
    
    
    
    274,932
    
    
    
    288,195
    
    
    
    417,637Other operating income
    
    
    1,596,266
    
    
    
    1,633,629
    
    
    
    1,668,145
    
    
    
    1,854,883Other operating expense
    
    
    1,166,695
    
    
    
    1,141,365
    
    
    
    1,234,395
    
    
    
    1,159,470Income before income taxes
    
    
    583,454
    
    
    
    722,149
    
    
    
    627,826
    
    
    
    851,987Net income
    
    
    369,910
    
    
    
    457,842
    
    
    
    398,042
    
    
    
    540,160Net income applicable to common stock
    
    
    366,394
    
    
    
    454,242
    
    
    
    394,498
    
    
    
    536,642Earnings per common share
    
    
    .29
    
    
    
    .36
    
    
    
    .31
    
    
    
    .42Earnings per
common shareassuming dilution
    
    
    .28
    
    
    
    .35
    
    
    
    .30
    
    
    
    .41Weighted average common shares outstanding (000)
    
    
    1,277,995
    
    
    
    1,277,703
    
    
    
    1,277,720
    
    
    
    1,277,734Weighted average common shares outstanding and common
stock equivalents (000)
    
    
    1,311,074
    
    
    
    1,305,288
    
    
    
    1,297,412
    
    
    
    1,297,285
  For the three months ended December 31, 2002,
the Corporation increased its provision for
possible credit losses and its reserve for
possible credit losses by $109.5 million
related to its other consumer loan receivables. For the three months ended December 31, 2002,
the Corporation recognized an additional $51.3
million of deferred compensation expense
associated with the immediate vesting of
restricted stock awards on the death of a
holder of the awards. For the three months ended September 30, 2002,
the Corporation changed its estimated value of
accrued interest and fees which resulted in a
decrease to income before income taxes of
$263.7 million through a reduction of $66.3
million of interest income and $197.4 million
of other operating income.
 On June 6, 2002, the Corporation announced a
three-for-two split of the Corporations Common
Stock, effected in the form of a dividend,
issued on July 15, 2002, to stockholders of
record as of the close of business on July 1,
2002. Accordingly, all common share and per
common share data previously reported in the
Corporations Form 10-Q filed with the
Securities and Exchange Commission for March
31, 2002 have been adjusted to reflect the
stock split.




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##### 



PREFERRED STOCK PRICE RANGE AND DIVIDENDS (UNAUDITED)

DividendsDeclared perHigh
    
    
    Low
    
    
    Close
    
    
    Preferred ShareSeries A2003Fourth quarter
    
    $
    26.60
    
    
    $
    25.25
    
    
    $
    25.85
    
    
    $
    .46875Third quarter
    
    
    26.35
    
    
    
    25.25
    
    
    
    25.35
    
    
    
    .46875Second quarter
    
    
    26.35
    
    
    
    25.25
    
    
    
    26.00
    
    
    
    .46875First quarter
    
    
    25.45
    
    
    
    24.60
    
    
    
    25.20
    
    
    
    .468752002Fourth quarter
    
    
    25.10
    
    
    
    24.40
    
    
    
    25.00
    
    
    
    .46875Third quarter
    
    
    25.50
    
    
    
    24.18
    
    
    
    24.85
    
    
    
    .46875Second quarter
    
    
    25.55
    
    
    
    25.00
    
    
    
    25.48
    
    
    
    .46875First quarter
    
    
    25.80
    
    
    
    24.85
    
    
    
    24.85
    
    
    
    .46875Series B2003Fourth quarter
    
    
    26.36
    
    
    
    25.00
    
    
    
    25.70
    
    
    
    .34380Third quarter
    
    
    25.75
    
    
    
    24.55
    
    
    
    25.10
    
    
    
    .34380Second quarter
    
    
    25.45
    
    
    
    23.20
    
    
    
    24.90
    
    
    
    .34380First quarter
    
    
    25.20
    
    
    
    22.95
    
    
    
    23.25
    
    
    
    .343802002Fourth quarter
    
    
    23.60
    
    
    
    21.45
    
    
    
    23.35
    
    
    
    .34380Third quarter
    
    
    24.10
    
    
    
    22.15
    
    
    
    22.50
    
    
    
    .34740Second quarter
    
    
    24.30
    
    
    
    22.75
    
    
    
    23.51
    
    
    
    .36850First quarter
    
    
    24.00
    
    
    
    22.35
    
    
    
    22.80
    
    
    
    .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 22, 2004, 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 $.3438 per share on the Adjustable
Rate Cumulative Preferred Stock, Series B. Both
dividends are payable April 15, 2004 to
stockholders of record as of March 31, 2004.


COMMON STOCK PRICE RANGE AND DIVIDENDS (a) (UNAUDITED)

DividendsDeclared perHigh
    
    
    Low
    
    
    Close
    
    
    Common Share2003Fourth quarter
    
    $
    25.45
    
    
    $
    23.50
    
    
    $
    24.85
    
    
    $
    .10Third quarter
    
    
    24.91
    
    
    
    20.72
    
    
    
    22.80
    
    
    
    .10Second quarter
    
    
    22.26
    
    
    
    15.23
    
    
    
    20.84
    
    
    
    .08First quarter
    
    
    20.75
    
    
    
    12.15
    
    
    
    15.05
    
    
    
    .082002Fourth quarter
    
    
    22.47
    
    
    
    15.31
    
    
    
    19.02
    
    
    
    .07Third quarter
    
    
    22.40
    
    
    
    13.80
    
    
    
    18.38
    
    
    
    .07Second quarter
    
    
    25.97
    
    
    
    21.23
    
    
    
    22.05
    
    
    
    .07First quarter
    
    
    25.93
    
    
    
    20.77
    
    
    
    25.71
    
    
    
    .07




|(a) |  | The common stock price and dividends have been adjusted to reflect the
three-for-two stock split of MBNA Corporations Common Stock effected in the
form of a dividend, issued on July 15, 2002, to stockholders of record as of
the close of business on July 1, 2002.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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 31, 2004, the Corporation had 2,789
common stockholders of record. This figure does
not include beneficial owners for whom Cede &
Co. or others act as nominees.


On January 22, 2004, the Corporations Board of
Directors declared a quarterly dividend of $.12
per common share, payable April 1, 2004 to
stockholders of record as of March 15, 2004.




---



##### 



(LOGO) MBNA CORPORATION BOARD OF DIRECTORS James H. Berick, Esq.
    
    Bruce L. Hammonds
    
    Randolph D. Lerner, Esq.
    
    William B. MilsteadRetired Partner
    
    President and Chief Executive Officer
    
    Chairman
    
    Retired PartnerSquire, Sanders & Dempsey L.L.P.
    
    
    
    Owner, Cleveland Browns
    
    Ernst & Young, LLPWilliam L. JewsBenjamin R. Civiletti, Esq.
    
    President and Chief Executive Officer
    
    Stuart L. Markowitz, M.D.
    
    Michael Rosenthal, Ph.D.Chairman
    
    CareFirst BlueCross BlueShield
    
    Internist and Managing Partner
    
    ProfessorVenable LLP
    
    
    
    Drs. Markowitz, Rosenberg,
    
    Columbia UniversityFormer Attorney General
    
    Norma Lerner
    
    Stein & Associatesof the United States
    
    Investor
    
    
    
    Former Associate Dean forClinical Professor
    
    Academic Administration atCase Western Reserve University,
    
    Columbia CollegeCollege of Medicine
 MBNA PRINCIPAL OFFICERS Bruce L. Hammonds
    
    Richard K. Struthers
    
    Douglas R. Denton
    
    Vernon H.C. WrightPresident and Chief Executive Officer
    
    Chairman, MBNA Europe
    
    Chief Technology Officer
    
    Chief Financial OfficerMBNA Corporation
    
    and MBNA Canada
    
    
    
    MBNA CorporationGeneral Charles C. KrulakJohn R. Cochran III
    
    Lance L. Weaver
    
    Chief Administrative Officer
    
    Kenneth A. VecchioneChairman and Chief Executive Officer
    
    U.S. Credit Card
    
    
    
    Chief Financial OfficerMBNA America Bank, N.A.
    
    
    
    Frank P. Bramble, Sr.
    
    MBNA America Bank, N.A.Planning
 MBNA OFFICE LOCATIONS (FLAGS) INTERNATIONAL
    
    32 Washington St.
    
    388 S. Main St.
    
    UNITED KINGDOMHEADQUARTERS
    
    Camden, ME 04843
    
    Akron, OH 44311Stansfield HouseMBNA Corporation
    
    274 Front St.
    
    25875 Science Park Dr.
    
    Chester Business ParkWilmington, DE 19884
    
    Farmington, ME 04938
    
    Beachwood, OH 44122
    
    Wrexham Rd.(800) 441-7048
    
    
    
    
    
    Chester, Cheshire50 Pleasant St.
    
    2568 Park Centre Blvd.
    
    CH4 9QQMBNA OFFICES
    
    Fort Kent, ME 04743
    
    State College, PA 16801
    
    United KingdomUNITED STATES
    
    16 Godfrey Dr.
    
    16001 N. Dallas Pkwy.
    
    86 Jermyn St.Orono, ME 04473
    
    Dallas, TX 75248
    
    London SW1Y 6JD75 Enterprise, Suite 200
    
    
    
    
    
    United KingdomAliso Viejo, CA 92656
    
    901 Washington Ave.Portland, ME 04103
    
    CANADA1075 Silver Lake Blvd.
    
    
    
    
    
    SPAINDover, DE 19904
    
    18 Green Hill Dr.
    
    1600 James Naismith Dr.Presque Isle, ME 04769
    
    Gloucester, Ontario
    
    C/José Echegaray, 6.210 Town Park Drive
    
    
    
    K1B 5N8
    
    28230 Las RozasKennesaw, GA 30144
    
    12 Water St.
    
    
    
    Madrid, SpainRockland, ME 04841
    
    1000 de la Gauchetière Suite 430011333 McCormick Rd.
    
    
    
    Montréal, QuébecHunt Valley, MD 21031
    
    100 Main St., Suite 303
    
    H3B 4W5
    
    CHINA1 Hatley Rd.
    
    Dover, NH 03820
    
    IRELAND
    
    (Representative Office)Belfast, ME 04915
    
    320 University Ave.Newark, NJ 07102
    
    46 St. Stephens Green
    
    Suite 2006, 20th Floor,5 Industrial Pkwy.
    
    
    
    Dublin 2, Ireland
    
    Jin Mao TowerBrunswick, ME 04011
    
    9 W. 57th St.
    
    
    
    88 Century Blvd.New York, NY 10019
    
    Dublin Road
    
    Pudong, Shanghai 200121Carrick-on-Shannon
    
    Peoples Republic of ChinaCo Leitrim, Ireland
   104




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##### 



SUBSIDIARIES OF MBNA CORPORATION  MBNA AMERICA BANK, N.A. The principal subsidiary of MBNA Corporation, MBNA America is the largest
independent credit card lender in the world. It also provides retail deposit,
consumer loan, and insurance products. MBNA America markets its products
through thousands of membership organizations and financial institutions and is
the recognized industry leader in endorsed marketing. MBNA DELAWARE The Corporation is also the parent of MBNA Delaware, a national bank that
offers mortgage loans, aircraft loans, and business card products. SUBSIDIARIES OF MBNA AMERICA BANK, N.A.  MBNA EUROPE BANK LIMITED MBNA issues credit cards in the United Kingdom, the Republic of Ireland, and
Spain. MBNA Europe is headquartered in Chester, England, with business
development offices in London, England; Dublin and Carrick-on-Shannon, Ireland;
and Las Rozas, Spain. MBNA CANADA BANK MBNA issues credit cards in Canada. MBNA Canada is headquartered in Ottawa,
Ontario, with a business development office in Montréal, Québec. MBNA MARKETING SYSTEMS, INC. MBNA has state-of-the-art telephone sales facilities to support account
acquisition and maintains offices in Delaware, Georgia, Maine, Maryland, New
Hampshire, New Jersey, Ohio, Pennsylvania, and Texas. In addition to credit
cards, MBNA Marketing Systems cross-sells consumer loan, deposit, and insurance
products. MBNA TECHNOLOGY, INC. MBNA Technology, Inc., headquartered in Dallas, Texas, provides information
technology support and services to MBNA America Bank, N.A., and its affiliates. MBNA.COM Through a single Web
addresswww.MBNA.comCustomers can access their existing
account information, apply for new credit card or consumer loan accounts, shop
for products and services, plan and finance travel, and open certificates of
deposit or money market accounts. INDEPENDENT AUDITORS  Ernst & Young LLP CORPORATE REGISTRARS AND TRANSFER AGENTS  National City Bank (common stock) (800) 622-6757
The Bank of New York (preferred stock) (212) 815-4302 PRINCIPAL FINANCIAL CONTACTS  For further information about MBNA Corporation or its subsidiaries, please contact: David
W. Spartin, Senior Vice Chairman
    
    Edward H. Murphy, Director,
Investor RelationsMBNA Corporation
    
    MBNA CorporationWilmington, DE 19884-0141
    
    Wilmington, DE 19884-0131(800) 362-6255 or (302) 456-8588
    
    (800) 362-6255 or (302) 432-0202
 Internet address: www.MBNA.com COMMON STOCK  Listed on New York Stock
Exchange
Stock Symbol KRB




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##### 



(MBNA LOGO)