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(MBNA CORPORATION LOGO)





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logo



CONTENTS 1
    
    2002 Financial Highlights2
    
    Letter to Stockholders4
    
    Who We Are6
    
    How We Market8
    
    Getting The Right Customers...
And Keeping Them10
    
    Diversified Funding11
    
    Financials84
    
    MBNA Corporation Board of Directors,MBNA Corporation Principal Officers,MBNA Office Locations logo


Getting the right Customers and keeping them
is the foundation of our business. It demands
a single-minded commitment to Customer
satisfaction. Meeting this commitment requires
tough standards, good people, and constant
attention to the importance of each individual
Customer. It means having an attitude.
Written by Charlie Cawley, endorsed by the
companys management, and introduced
during the summer of 1986, the precepts shown
throughout this annual report express our
attitude. They 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.








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graphic

2002 FINANCIAL HIGHLIGHTS



|                                                           |                                                  |      |      |                 |       |  |   |             |   |  |      |             |   |      |   |             |   |  |   |            |  
|---------------------------------------------------------- | ------------------------------------------------ | ---- | ---- | --------------- | ----- |  | - | ----------- | - |  | ---- | ----------- | - | ---- | - | ----------- | - |  | - | ---------- | -
|Year Ended December
        31,                            |                                                  | 2002 |      |                 | 2001  |  |   | 2000        |   |  | 1999 |             |   | 1998 |  
|                                                          
|(dollars
          in thousands, except per share amounts) |                                                  |      |      |                 |       |  |   |             |   |  |      |             |   |      |   |             |   |  |   |           
|Per
          Common Share Data (c)                        |                                                  |      |      |                 |       |  |   |             |   |  |      |             |   |      |   |             |   |  |   |           
|                                                          
|                                                           | Earnings                                         |      | $    | **1.37**        | ****  |  | $ | 1.31        |   |  | $    | 1.05        |   |      | $ | .84         |   |  | $ | .68        |  
|                                                           | Earningsassuming
          dilution             |      |      | **1.34**        | ****  |  |   | 1.28        |   |  |      | 1.02        |   |      |   | .80         |   |  |   | .64        |  
|                                                           | Dividends
          (a)                          |      |      | **.27**         | ****  |  |   | .24         |   |  |      | .21         |   |      |   | .19         |   |  |   | .16        |  
|                                                           | Book
          value                             |      |      | **6.96**        | ****  |  |   | 5.94        |   |  |      | 5.02        |   |      |   | 3.31        |   |  |   | 1.93       |  
|Ratios
          (c)                                       |                                                  |      | **** | ****            |       |  |   |             |   |  |      |             |   |      |   |             |   |  |   |           
|                                                          
|                                                           | Return
          on average total assets         |      |      | **3.67**        | **%** |  |   | 4.16        | % |  |      | 3.94        | % |      |   | 3.62        | % |  |   | 3.38       | %
|                                                           | Return
          on average stockholders equity |      |      | **21.29**       | ****  |  |   | 24.07       |   |  |      | 25.79       |   |      |   | 27.18       |   |  |   | 36.91      |  
|                                                           | Stockholders
          equity to total assets   |      |      | **17.22**       | ****  |  |   | 17.16       |   |  |      | 17.13       |   |      |   | 13.61       |   |  |   | 9.27       |  
|Financial
          Statement Data (c)                     |                                                  |      | **** | ****            |       |  |   |             |   |  |      |             |   |      |   |             |   |  |   |           
|                                                          
|                                                           | Net
          interest income (b)                |      | $    | **2,074,575**   | ****  |  | $ | 1,657,340   |   |  | $    | 1,395,015   |   |      | $ | 1,175,759   |   |  | $ | 935,502    |  
|                                                           | Other
          operating income (b)             |      |      | **6,752,923**   | ****  |  |   | 6,673,316   |   |  |      | 4,920,403   |   |      |   | 4,193,527   |   |  |   | 3,189,139  |  
|                                                          
|                                                           | Net
          Income(c)                          |      |      | **1,765,954**   | ****  |  |   | 1,694,291   |   |  |      | 1,312,532   |   |      |   | 1,024,423   |   |  |   | 776,266    |  
|                                                          
|                                                           | Deposits                                         |      |      | **30,616,216**  | ****  |  |   | 27,094,745  |   |  |      | 24,343,595  |   |      |   | 18,714,753  |   |  |   | 15,407,040 |  
|                                                           | Stockholders
          equity                   |      |      | **9,101,319**   | ****  |  |   | 7,798,718   |   |  |      | 6,627,278   |   |      |   | 4,199,443   |   |  |   | 2,391,035  |  
|Managed
          Data                                     |                                                  |      | **** | ****            |       |  |   |             |   |  |      |             |   |      |   |             |   |  |   |           
|                                                          
|                                                           | Total
          managed loans                    |      | $    | **107,257,842** | ****  |  | $ | 97,496,051  |   |  | $    | 88,790,721  |   |      | $ | 72,255,513  |   |  | $ | 59,641,106 |  
|                                                           | Sales
          and cash advance volume          |      |      | **160,046,164** | ****  |  |   | 142,261,636 |   |  |      | 125,683,731 |   |      |   | 105,806,935 |   |  |   | 82,968,874 |  

|1
|-





|(a) |  | On January 23, 2003, the Board of Directors approved an increase of 14.3%
in the quarterly dividend to $.08 per common share.                                                                                                                                                                      
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(b) |  | For purposes of comparability, certain prior period amounts have been
reclassified. These reclassifications did not affect net income.                                                                                                                                                             
|   
|(c) |  | For full year 2002, net income excluding the change in estimates for
accrued interest and fees in September 2002 would have been $1.93 billion or
$1.47 per common shareassuming dilution, an increase of 14.8% over 2001. See
page 16 of the Financials for an explanation of the FFIEC guidance.



graphic





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THINK OF YOURSELF AS A CUSTOMER graphic

AL LERNER 1933-2002

|2
|-

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|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Eleven years ago, a quiet, unpretentious man
from Brooklyn stood before Wall Street and
predicted the future. Al Lerner told a skeptical
investment community that he believed in the
people of MBNAso much so that he was
willing to invest his own hard-earned money
in the companys initial public offering.
That was Al Lerner. Al firmly believed in the
people of MBNA and he saw what the future
of the company could bea future that others
couldnt see. Theres nothing that this company
does that all our competitors cant do tomorrow,
Lerner once said. The difference is the people
of MBNA and the MBNA attitude. |  | In October, world leaders, sports figures,
neighbors, family, and friends joined us in
saying goodbye and thank you to a man who
enriched the lives of all he met. We are the
company we are todaythe company he
predicted we would becomebecause of
Al Lerner. It was his vision, his leadership,
his drive, and his reputation for integrity
that made MBNA happen. He will be missed.
In the words of Charlie Cawley, All of us,
each in our own way, have lost something
that can never be replaced. Al Lerner was
our friend, leader, and inspiration. He will
always be our hero.Reprinted from 3rd quarter 2002 report.





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THINK OF YOURSELF AS A CUSTOMER graphic

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|DEAR STOCKHOLDERS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|This report presents MBNAs full-year results for 2002our 21st year in business and 12th as a public company.
Net income increased to $1.77 billion or $1.34 per common share. If you remove the impact of the one-time industrywide
FFIEC accounting change, net income would have been $1.93 billion or $1.47 per share, an increase of 14.8%.
Considering the economic environment that existed during 2002, we feel this increase is satisfactory and brings the
number of years of substantial earnings increases to twelveforty-eight consecutive quarters. In addition, we raised the
quarterly dividend rate 14.3% to $.08 per common share, the 12th
consecutive year the dividend has been increased.
|We are proud of and thankful for the performance of the people of MBNA during the past year. Their efforts
produced exceptional results in challenging times. These results include:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

| |   |                                                                                                                                                                                                                                                     |  | 
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | 
| | n | Growing loan outstandings $9.8 billion to $107.3 billion. That is a 10% growth rate compared to 3% growth
in the revolving credit industry.                                                                                                         |  | 
|
| | n | The acquisition of 12 million new accounts. The characteristics of these new cardholders are consistent with
those of existing Customers. Even in this difficult environment, we added a record number of new accounts
without diminishing quality. |  | 
| | n | The signing of 405 new endorsements and the renewal of more than 1,100 group contracts. The new
endorsements cover a population of 41 million potential Customers.                                                                                  |  | 
|
| | n | Controlling loan losses at 4.99%higher than usual but still lower than published industry levels.                                                                                                                                                  |  | 

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Today, MBNA is the largest independent credit card company in the world and the undisputed leader in endorsed
marketing. More than 5,100 organizations in the United States, United Kingdom, Ireland, Canada, and Spain endorse
our products. Each one of these groups is a franchise in itselfa franchise that ensures a continuing supply of new
Customers year after year. We have nearly 30 million active borrowers and our typical Customer has an average
household income of $71,000, owns a home, and has an 18-year history of paying their bills on time. Our card is
carried by 75% of all physicians, 54% of all attorneys, 70% of all dentists, 63% of all nurses, 52% of all engineers,
and 40% of all teachers in the United States.
|The most profound event this year was the loss of our Chairman and friend Al Lerner. Every principle he believed
in will continue. He was an incredible man and we will miss him
always.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|Sincerely,                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

Signatures of Bruce Hammonds, John Cochran, Randy Lerner and Charlie Cawley





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graphic

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|4 |  | WHO WE ARE
MBNA Corporation is a holding company with
three primary banks: MBNA America Bank, N.A.,
a national bank in the United States; MBNA Europe
Bank Limited, a fully chartered bank in the United
Kingdom; and MBNA Canada Bank, a fully chartered
bank in Canada. Like all banks, we take deposits
and make loans. Our lending business has $107.3
billion in managed loans, and our Customers have
more than $30 billion on deposit primarily in money
market and certificate of deposit accounts.
But thats where the similarity to a traditional
bank ends. We dont have bank branches, checking
accounts, or large commercial loans. We simply
take deposits and make loans to individuals.
Thats our business. We like it.
We like the credit card lending business for a number
of reasons. There is universal demand for our
product.There are tens of millions of people in
the countries where we operate who could and do
qualify for a credit card. Its a business with a
very long history and an enduring life cycle.
Done right, credit card lending produces
relatively low-risk assets.MBNAs $107.3 billion
in loans are spread among 28.5 million active |  | Through credit cards, people are freed from
the need to carry cash and are able to
purchase the things they need today, while
paying for them sensibly out of future income.
borrowers with an average account balance of
$3,760. We have no industry, geographic, or
individual account concentrations.
We acquire our Customers through a unique marketing
propositionselling to people with a strong common
interestand we keep our Customers by providing
top-quality service. We also have a disciplined
underwriting process that ensures we select the right
Customer. MBNAs typical Customer has a significant
history of paying bills on time. This history is the best
indicator of the future quality of our loan portfolio.
Any company that is disciplined will produce
consistent resultssomething we have been able
to do for the 21 years since MBNA was founded in
1982. At MBNA, our primary focus is on the quality
of each individual Customer. It is this focus that
has driven our consistent results, even through
challenging economic and business cycles. And
it will continue to do so.

MBNA PRECEPT





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MBNA HAS ALLIANCES WITH A VARIETY OF COMPANIES INCLUDING RETAILERS SUCH AS L.L.BEAN AND BASS PRO SHOPS.

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  | 
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | 
|By the end of 2002, our credit card
businesses in the United Kingdom,
Ireland, Canada, and Spain reached
8.2 million accounts with $15.8
billion in loans, a 47% increase from
last year. Loans from international
markets have grown from 6% to
15% of our total portfolio over the
last five years.credit cards graphicInternationally,
we employ the
same business
strategy as in the
United States
marketing to
people with strong common interests.
In 2002, MBNA Europe earned
endorsements from 73 new groups
and financial institutions, including
Rotary International, Delta Airlines,
Chelsea Football Club, Alliance &
Leicester, and Concern Ireland,
and now has nearly 900 groups in
total. Marketing to supporters of
these organizations helped generate |  | 2.3 million new accounts in 2002.
MBNA Europes loans increased to
$13.3 billion and market share of
credit card loans reached 15% in the
United Kingdom and 20% in Ireland.credit cards graphicIn 2002, MBNA
completed its
fifth year of
doing business
in Canada. In
that short time,
MBNA Canada has grown to become
the second largest MasterCard issuer in
Canada with a total market share of
more than 8% of Canadian bank card
loans. Outstanding loans grew 30%,
reaching $2.5 billion in 2002. We
added 68 endorsements in 2002, and
now have the endorsements of more
than 450 organizations and financial
institutions in Canada, including the
PGA TOUR, Canadian Federation of
Medical Students, Canadian Bar
Association, and the University of
Western Ontario. Our marketing |  | programs generated more than
700,000 new accounts from these
organizations in 2002.credit cards graphicMBNA entered
its fourth
international
market in 2002
with the opening
of MBNA
España. MBNA España currently has
more than 100 people responding to
Customer calls and decisioning loans
at our new office located outside
Madrid in Las Rozas.
Our 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. This
portfolio reached $12 billion in loans
while adding more than 700,000 new
accounts in 2002. |  | 

Canada United Kingdom Ireland Spain graphic





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HOW WE MARKET graphic

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|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|6 |  | HOW WE MARKET
LLBean VISA
MBNAs approach to the credit
card business is unique. We sell
to people who share common
interests and focus on groups
with strong ties to their members,
fans, and Customerssuch as
professional societies, sports organizations, alumni
associations, and financial institutions. We call this
endorsed marketing.VISA and MasterCardToday, more than 5,100
organizations in the United States,
United Kingdom, Ireland,
Canada, and Spain endorse
MBNA products. We organize
our sales and marketing efforts
into nine business development sectors. Each sector
is led by senior managers who focus on specific
audiences. Our Professional market sector, for
example, exceeds $21 billion in loans to members
of nearly 1,400 organizations, including the American
College of Surgeons, National Society of Professional
Engineers, the American Institute of Architects,
and the California Dental Association. This sector
generated more than 1 million new accounts and
received endorsements from 72 new organizations
in 2002. |  | NFL VISA and MLB MasterCardMBNA products are also
endorsed by more than 650
sports teams and organizations.
Nearly 7.3 million people now
carry an MBNA credit card
featuring their favorite team,
race car driver, or sports-related activity. This past
year, we added 1.6 million new accounts in this
sector, and loans exceeded $10 billion. MBNA
issues the official affinity credit cards of the
National Football League, Major League Baseball,
the National Hockey League, National Basketball
Association, NASCAR, the PGA TOUR, and the
United States Tennis Association. Sports enthusiasts
are very loyal and make excellent Customers.MasterCard and VISAMBNA is the official credit card
of more than 700 colleges and
universities, including 10 of
the 11 Big Ten schools and
seven of the Pac-10 schools.
Nearly 4 million alumni and
students from these schools use MBNA products,
totaling $8.2 billion in loans. Marketing to alumni
and students gives MBNA the opportunity to build
long-term relationships with Customers with
very attractive characteristics.

MBNA PRECEPT



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5.8 MILLION CUSTOMERS USE MBNAS INTERNET SERVICES TO SHOP AND MANAGE THEIR ACCOUNTS.

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|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | 
|credit cards graphic
Although
MBNA doesnt
have branches,
our products
are marketed
through more
than 15,000 bank branches in
the United States, the United
Kingdom, and Ireland through
the endorsement of hundreds of
financial institutions. More than
7.6 million financial institution
accounts acquired through
marketing programs or portfolio
acquisitions have generated
$15.5 billion in loans for MBNA.
In 2002, MBNA acquired the
credit card portfolios of
Wachovia in the United States
and Alliance & Leicester plc,
one of the United Kingdoms
largest financial services
companies. We continue |  | to pursue portfolios with high-quality Customers and good
opportunities for future growth.
credit cards graphicThe affinity
business
continues
to be strong.
In 2002,
we received
the endorsements of 405 new
organizations including, for
example, Bass Pro Shops, Ohio
State University, Pittsburgh
University, Bristol University
(U.K.), Canadian Bar Association,
and the National Basketball
Association. These endorsements
helped generate 12 million new
accounts in 2002 and will
continue to be an important
source of new accounts for
many years. |  | In 2002, we enhanced account
acquisition by implementing
new technology that allows a
Customer to apply for a credit
card at the point of sale and
receive an instant decision.
This technology was particularly
successful with groups in our
Alliance and Sports market
sectors. For example, our credit
card program with Bass Pro
Shops generated more than
150,000 new credit card
accounts in 2002. |  | 





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|8 |  | GETTING THE RIGHT CUSTOMERS ...MBNA is in the individual lending business, in
which Customer quality is essential to success.
At MBNA, it all starts with Getting the right
Customers. Our unique marketing proposition
enables us to target our marketing effectively to
attract the most qualified applicants.
MBNA credit professionals review millions of
applications every year. They rely on sophisticated
technology and behavioral scoring systems to
assist them in choosing the right Customers and
Loan Less Comparison chart
assigning the right credit
lines. However, the most
important tools are their
experience and good
judgment. They look for
three basic things from
applicants before approving
them for a loan: their
capacity to repay, their stability, and most
important, a history of paying bills on time. These
have been our credit standards every day for 21
yearsand they will never change.
Our lenders evaluate a wide range of factors in
reaching their final credit decisions. These include
multiple debt-to-income ratios, credit-utilization
calculations, length of credit history, depth of credit |  | file, length of time at residence, and length of time
on job, as well as performance on existing loans
with other creditors.
In addition, when a credit analyst is reviewing an
application, she or he has the flexibility to say yes,
no, or maybe. If the answer is maybe, which
happens 25% of the time, the analyst contacts the
applicant for additional information, thus gaining
a better understanding of the applicants circumstances
before making a final lending decision.
Getting the right Customers
has always been a top priority.
MBNAs typical Customer has
an average household income
of $71,000, owns a home, has
worked in his or her current
job for 11 years, and has an
18-year history of paying bills. The new cardholders
that we added in 2002 have similar characteristics,
including an average household income of $72,000,
11 years of employment, and a credit history of 17 years.
Customer characteristics are independently
researched and validated by Harris Interactive Inc.,
which ranks among the top market research firms in
the world.

MBNA PRECEPT





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MBNA IS AMONG THE INDUSTRYS LEADERS IN SUCCESSFULLY COMPLETING POINT-OF-SALE AUTHORIZATION REQUESTS.

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  | 
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | 
|...AND KEEPING THEM                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|Getting the right Customers
is just half of the job. To be
successful, we also have to keep
the right Customers. And thats
done by people, people who have
an attitudesatisfy the Customer.MBNAs commitment to providing
superior Customer service is an
attitude that prevails throughout
the company. We hire people
who like other people and then
give them the tools they need
to satisfy Customers. We want
an environment that makes
people feel good about where
they workby providing the
right education, cutting-edge
technology, a comfortable work
setting, and programs that help
balance the demands of family
and work. People who feel good
about where they work do a
better job satisfying Customerswhich has a direct impact on the
companys financial results. |  | Nearly two decades ago, MBNA
was the first credit card company
to offer 24-hour service to all
of its Customers. The people
working in our Customer
Satisfaction area received nearly
100 million inquiries from
Customers in 2002ranging
from requests for credit line
increases and duplicate statements
to questions about card benefits
and account balances. Each of
these contacts represented an
opportunity to demonstrate our
commitment to providing
superior Customer service.
Another important factor in
MBNAs ability to keep the right
Customers is the companys
commitment to the latest
technology. Nearly all our
systems are built or customized
in-house to meet the ongoing
needs and expectations of our
Customers. Technology makes
us more efficient, which is a key
element in satisfying Customers. |  | In addition, technology allows
us to effectively offer Customers
additional MBNA products,
including deposit accounts,
consumer loans, and business
credit cards.
At MBNA, everyone is responsible
for meeting the needs of our
Customers. We do this by taking
a personal approach to Customer
satisfactionsatisfying Customers
one at a time. This approach
strengthens our relationships
with individual Customers as
well as with the thousands of
membership groups that endorse
MBNAs products.graphic |  | 

MBNA PRECEPT





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graphic

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|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |  | DIVERSIFIED FUNDING                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|  
|10 |  | MBNA continues to expand and diversify its funding
sources to support both current and future asset
growth in the United States and internationally. Our
diversified funding sources include asset-backed
securitizations, retail deposits, bank notes, brokered
CDs, senior and subordinated debt, medium term
notes, trust preferred securities and preferred stock.Securitizations of MBNAs loan receivables continue
to be a major source of funding. MBNA has been
the 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 and used by MBNA to
fund many of its lending activities.
The U.S. public 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 credit
quality of the receivables have allowed the company
to price these issues at favorable rates compared to
other issuers. MBNA strengthened its status as the
industry leader by issuing 31 securitizations totaling |  | $15.5 billion in 2002. These transactions continue
to be well received by investors.
We also have established a $30 billion deposit base,
mainly through the issuance of certificates of deposit
and money market deposit accounts. More than
2,000 groups endorse our deposit products for their
members, including the Military Officers Association
of America and the National Education Association.
MBNAs retail deposit products are marketed much
like our other products, through the mail and over
the telephone. The returns to our investors tend to
be higher, since we are able to pass on the savings
we realize by not having a costly branch network.
MBNAs unsecured debt programs offer further
diversification of our funding sources and are
attractive investments for pension funds, investment
advisors, foreign and domestic banks, and insurance
companies. They allow MBNA to tap new markets
of institutional investors in multiple geographic
markets. Current outstandings under these programs,
excluding trust preferred securities are $8 billion
with maturities up to 10 years. In addition, MBNA
has $1.1 billion of trust preferred securities with
maturities up to 30 years.

MBNA PRECEPT





---



##### 



FINANCIALS TABLE OF CONTENTS



---



##### 



|12 | THINK OF YOURSELF AS A CUSTOMER
|-- | -------------------------------



TEN-YEAR STATISTICAL SUMMARY (dollars in

thousands, except per share amounts)

Year
        Ended December 31,
      
      2002
      
      
      2001
      
      
      2000Income
          Statement Data for the Year (a)
      
      ****
      ****
      ****Net
          interest income (b)
      
      **$**
      **2,074,575**
      ****
      
      $
      1,657,340
      
      
      $
      1,395,015Provision
          for possible credit losses
      
      ****
      **1,340,157**
      ****
      
      
      1,140,615
      
      
      
      547,309Other
          operating income (b)
      
      ****
      **6,752,923**
      ****
      
      
      6,673,316
      
      
      
      4,920,403Other
          operating expense
      
      ****
      **4,701,925**
      ****
      
      
      4,474,831
      
      
      
      3,647,702Net
          income
      
      ****
      **1,765,954**
      ****
      
      
      1,694,291
      
      
      
      1,312,532Per
          Common Share Data for the Year (a) (c)
      
      ****
      ****
      ****Earnings
      
      **$**
      **1.37**
      ****
      
      $
      1.31
      
      
      $
      1.05Earningsassuming
          dilution
      
      ****
      **1.34**
      ****
      
      
      1.28
      
      
      
      1.02Dividends
      
      ****
      **.27**
      ****
      
      
      .24
      
      
      
      .21Book
          value
      
      ****
      **6.96**
      ****
      
      
      5.94
      
      
      
      5.02Ratios
      
      ****
      ****
      ****Net
          interest margin (d) (e)
      
      ****
      **5.54**
      **%**
      
      
      5.51
      %
      
      
      5.50
      %Return
          on average total assets
      
      ****
      **3.67**
      ****
      
      
      4.16
      
      
      
      3.94Return
          on average stockholders equity
      
      ****
      **21.29**
      ****
      
      
      24.07
      
      
      
      25.79Average
          receivables to average deposits
      
      ****
      **88.88**
      ****
      
      
      80.88
      
      
      
      85.79Stockholders
          equity to total assets
      
      ****
      **17.22**
      ****
      
      
      17.16
      
      
      
      17.13Loan
          receivables (e):
      
      ****
      ****
      ****Delinquency
          (f)
      
      ****
      **4.28**
      ****
      
      
      4.64
      
      
      
      3.89Net
          credit losses
      
      ****
      **4.57**
      ****
      
      
      4.20
      
      
      
      3.38Managed
          loans (e):
      
      ****
      ****
      ****Delinquency
      
      ****
      **4.88**
      ****
      
      
      5.09
      
      
      
      4.49Net
          credit losses
      
      ****
      **4.99**
      ****
      
      
      4.74
      
      
      
      4.39Managed
          Data
      
      ****
      ****
      ****At
          year end:
      
      ****
      ****
      ****Loans
          held for securitization
      
      **$**
      **11,029,627**
      ****
      
      $
      9,929,948
      
      
      $
      8,271,933Loan
          portfolio
      
      ****
      **17,696,881**
      ****
      
      
      14,703,616
      
      
      
      11,682,904Securitized
          loans
      
      ****
      **78,531,334**
      ****
      
      
      72,862,487
      
      
      
      68,835,884****
      
      ****Total
          managed loans
      
      **$**
      **107,257,842**
      ****
      
      $
      97,496,051
      
      
      $
      88,790,721****
      
      ****Average
          for the year:
      
      ****
      ****
      ****Loans
          held for securitization
      
      **$**
      **8,130,207**
      ****
      
      $
      6,909,840
      
      
      $
      8,129,333Loan
          portfolio
      
      ****
      **17,184,993**
      ****
      
      
      13,429,548
      
      
      
      9,588,815Securitized
          loans
      
      ****
      **74,718,731**
      ****
      
      
      70,560,600
      
      
      
      59,726,838****
      
      ****Total
          managed loans
      
      **$**
      **100,033,931**
      ****
      
      $
      90,899,988
      
      
      $
      77,444,986****
      
      ****For
          the year:
      
      ****
      ****
      ****Net
          interest margin (d) (e)
      
      ****
      **8.42**
      **%**
      
      
      8.42
      %
      
      
      7.08
      %Sales
          and cash advance volume
      
      **$**
      **160,046,164**
      ****
      
      $
      142,261,636
      
      
      $
      125,683,731Balance
          Sheet Data at Year End
      
      ****
      ****
      ****Investment
          securities and money market instruments
      
      **$**
      **9,489,481**
      ****
      
      $
      6,577,734
      
      
      $
      5,255,615Loans
          held for securitization
      
      ****
      **11,029,627**
      ****
      
      
      9,929,948
      
      
      
      8,271,933Credit
          card loans
      
      ****
      **9,484,115**
      ****
      
      
      8,261,575
      
      
      
      7,798,772Other
          consumer loans
      
      ****
      **8,212,766**
      ****
      
      
      6,442,041
      
      
      
      3,884,132****
      
      ****Total
          loan portfolio
      
      ****
      **17,696,881**
      ****
      
      
      14,703,616
      
      
      
      11,682,904Reserve
          for possible credit losses
      
      ****
      **(1,111,299**
      **)**
      
      
      (833,423
      )
      
      
      (527,573
      )****
      
      ****Net
          loan portfolio
      
      ****
      **16,585,582**
      ****
      
      
      13,870,193
      
      
      
      11,155,331Total
          assets
      
      ****
      **52,856,746**
      ****
      
      
      45,447,945
      
      
      
      38,678,096Total
          deposits
      
      ****
      **30,616,216**
      ****
      
      
      27,094,745
      
      
      
      24,343,595Long-term
          debt and bank notes
      
      ****
      **9,538,173**
      ****
      
      
      6,867,033
      
      
      
      5,735,635Stockholders
          equity
      
      ****
      **9,101,319**
      ****
      
      
      7,798,718
      
      
      
      6,627,278Average
          Balance Sheet Data for the Year
      
      ****
      ****
      ****Investment
          securities and money market instruments
      
      **$**
      **8,319,552**
      ****
      
      $
      6,560,000
      
      
      $
      5,082,598Loans
          held for securitization
      
      ****
      **8,130,207**
      ****
      
      
      6,909,840
      
      
      
      8,129,333Credit
          card loans
      
      ****
      **9,672,043**
      ****
      
      
      7,887,115
      
      
      
      6,784,742Other
          consumer loans
      
      ****
      **7,512,950**
      ****
      
      
      5,542,433
      
      
      
      2,804,073****
      
      ****Total
          loan portfolio
      
      ****
      **17,184,993**
      ****
      
      
      13,429,548
      
      
      
      9,588,815Reserve
          for possible credit losses
      
      ****
      **(941,780**
      **)**
      
      
      (656,654
      )
      
      
      (549,033
      )****
      
      ****Net
          loan portfolio
      
      ****
      **16,243,213**
      ****
      
      
      12,772,894
      
      
      
      9,039,782Total
          assets
      
      ****
      **48,154,027**
      ****
      
      
      40,764,316
      
      
      
      33,299,176Total
          deposits
      
      ****
      **28,481,487**
      ****
      
      
      25,147,782
      
      
      
      20,654,087Long-term
          debt and bank notes
      
      ****
      **8,040,419**
      ****
      
      
      6,309,446
      
      
      
      5,699,638Stockholders
          equity
      
      ****
      **8,293,823**
      ****
      
      
      7,039,986
      
      
      
      5,088,882Weighted
          average common shares outstanding (000) (c)
      
      ****
      **1,277,787**
      ****
      
      
      1,277,745
      
      
      
      1,230,827Weighted
          average common shares outstanding and common stock equivalents (000)
          (c)
      
      ****
      **1,302,712**
      ****
      
      
      1,314,230
      
      
      
      1,269,803




|(a) |  | MBNA Corporation (the Corporation) changed the estimated value of accrued
interest and fees in September 2002 resulting 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assuming dilution for the year
ended December 31, 2002 would have been $1.47 excluding the change.                                                                                                                                                                                                                 
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(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 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. 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.





---



##### 



| | THINK OF YOURSELF AS A CUSTOMER
| | -------------------------------



1999
        
        
        1998
        
        
        1997
        
        
        1996
        
        
        1995
        
        
        1994
        
        
        1993$
        1,175,759
        
        
        $
        935,502
        
        
        $
        822,521
        
        
        $
        640,477
        
        
        $
        544,226
        
        
        $
        532,108
        
        
        $
        474,323636,614
        
        
        
        463,372
        
        
        
        349,493
        
        
        
        275,477
        
        
        
        173,875
        
        
        
        132,853
        
        
        
        115,9694,193,527
        
        
        
        3,189,139
        
        
        
        2,772,201
        
        
        
        1,993,176
        
        
        
        1,460,317
        
        
        
        1,037,956
        
        
        
        757,1423,077,708
        
        
        
        2,407,204
        
        
        
        2,223,121
        
        
        
        1,626,882
        
        
        
        1,246,067
        
        
        
        996,110
        
        
        
        924,8721,024,423
        
        
        
        776,266
        
        
        
        622,500
        
        
        
        474,495
        
        
        
        353,099
        
        
        
        266,593
        
        
        
        207,796$
        .84
        
        
        $
        .68
        
        
        $
        .53
        
        
        $
        .41
        
        
        $
        .31
        
        
        $
        .24
        
        
        $
        .18.80
        
        
        
        .64
        
        
        
        .51
        
        
        
        .39
        
        
        
        .30
        
        
        
        .23
        
        
        
        .18.19
        
        
        
        .16
        
        
        
        .14
        
        
        
        .13
        
        
        
        .11
        
        
        
        .09
        
        
        
        .083.31
        
        
        
        1.93
        
        
        
        1.56
        
        
        
        1.25
        
        
        
        .99
        
        
        
        .82
        
        
        
        .685.30
        %
        
        
        5.08
        %
        
        
        5.36
        %
        
        
        5.52
        %
        
        
        5.74
        %
        
        
        7.61
        %
        
        
        8.76
        %3.62
        
        
        
        3.38
        
        
        
        3.25
        
        
        
        3.26
        
        
        
        3.09
        
        
        
        3.16
        
        
        
        3.1527.18
        
        
        
        36.91
        
        
        
        35.56
        
        
        
        34.46
        
        
        
        35.51
        
        
        
        32.70
        
        
        
        30.0185.33
        
        
        
        86.04
        
        
        
        88.82
        
        
        
        92.50
        
        
        
        91.60
        
        
        
        93.05
        
        
        
        85.3413.61
        
        
        
        9.27
        
        
        
        9.25
        
        
        
        10.00
        
        
        
        9.56
        
        
        
        9.51
        
        
        
        10.513.82
        
        
        
        3.86
        
        
        
        3.93
        
        
        
        3.59
        
        
        
        3.11
        
        
        
        2.60
        
        
        
        3.033.65
        
        
        
        3.42
        
        
        
        3.16
        
        
        
        2.68
        
        
        
        2.31
        
        
        
        2.30
        
        
        
        2.734.45
        
        
        
        4.62
        
        
        
        4.59
        
        
        
        4.28
        
        
        
        3.70
        
        
        
        3.03
        
        
        
        3.274.33
        
        
        
        4.31
        
        
        
        3.97
        
        
        
        3.35
        
        
        
        2.74
        
        
        
        2.59
        
        
        
        2.97$
        9,692,616
        
        
        $
        1,692,268
        
        
        $
        2,900,198
        
        
        $
        2,469,974
        
        
        $
        3,168,427
        
        
        $
        2,299,026
        
        
        $
        741,8697,971,093
        
        
        
        11,776,099
        
        
        
        8,261,876
        
        
        
        7,659,078
        
        
        
        4,967,491
        
        
        
        3,407,974
        
        
        
        3,725,50954,591,804
        
        
        
        46,172,739
        
        
        
        38,217,786
        
        
        
        28,494,481
        
        
        
        18,575,786
        
        
        
        13,036,864
        
        
        
        7,891,140$
        72,255,513
        
        
        $
        59,641,106
        
        
        $
        49,379,860
        
        
        $
        38,623,533
        
        
        $
        26,711,704
        
        
        $
        18,743,864
        
        
        $
        12,358,518$
        4,071,394
        
        
        $
        2,577,482
        
        
        $
        2,875,212
        
        
        $
        2,529,484
        
        
        $
        2,269,362
        
        
        $
        1,330,011
        
        
        $
        642,75010,351,101
        
        
        
        9,352,807
        
        
        
        7,563,301
        
        
        
        6,174,095
        
        
        
        4,792,536
        
        
        
        4,000,271
        
        
        
        3,425,93549,706,760
        
        
        
        40,970,936
        
        
        
        32,746,963
        
        
        
        22,514,014
        
        
        
        15,440,499
        
        
        
        9,462,401
        
        
        
        6,596,387$
        64,129,255
        
        
        $
        52,901,225
        
        
        $
        43,185,476
        
        
        $
        31,217,593
        
        
        $
        22,502,397
        
        
        $
        14,792,683
        
        
        $
        10,665,0727.42
        %
        
        
        7.47
        %
        
        
        7.50
        %
        
        
        7.62
        %
        
        
        7.42
        %
        
        
        8.16
        %
        
        
        8.47
        %$
        105,806,935
        
        
        $
        82,968,874
        
        
        $
        66,399,425
        
        
        $
        48,666,129
        
        
        $
        34,272,909
        
        
        $
        25,078,918
        
        
        $
        17,889,747$
        4,572,052
        
        
        $
        5,440,939
        
        
        $
        4,594,709
        
        
        $
        3,194,664
        
        
        $
        2,669,402
        
        
        $
        2,269,081
        
        
        $
        1,440,6849,692,616
        
        
        
        1,692,268
        
        
        
        2,900,198
        
        
        
        2,469,974
        
        
        
        3,168,427
        
        
        
        2,299,026
        
        
        
        741,8696,060,564
        
        
        
        8,975,051
        
        
        
        5,830,221
        
        
        
        5,722,299
        
        
        
        4,090,553
        
        
        
        2,882,232
        
        
        
        2,949,9951,910,529
        
        
        
        2,801,048
        
        
        
        2,431,655
        
        
        
        1,936,779
        
        
        
        876,938
        
        
        
        525,742
        
        
        
        775,5147,971,093
        
        
        
        11,776,099
        
        
        
        8,261,876
        
        
        
        7,659,078
        
        
        
        4,967,491
        
        
        
        3,407,974
        
        
        
        3,725,509(516,261
        )
        
        
        (296,474
        )
        
        
        (211,744
        )
        
        
        (184,720
        )
        
        
        (134,295
        )
        
        
        (123,335
        )
        
        
        (113,310
        )7,454,832
        
        
        
        11,479,625
        
        
        
        8,050,132
        
        
        
        7,474,358
        
        
        
        4,833,196
        
        
        
        3,284,639
        
        
        
        3,612,19930,859,132
        
        
        
        25,806,260
        
        
        
        21,305,513
        
        
        
        17,035,342
        
        
        
        13,228,889
        
        
        
        9,671,858
        
        
        
        7,319,75618,714,753
        
        
        
        15,407,040
        
        
        
        12,913,213
        
        
        
        10,151,686
        
        
        
        8,608,914
        
        
        
        6,632,489
        
        
        
        5,241,8835,708,880
        
        
        
        5,939,025
        
        
        
        5,478,917
        
        
        
        3,950,358
        
        
        
        2,657,600
        
        
        
        1,687,357
        
        
        
        779,5534,199,443
        
        
        
        2,391,035
        
        
        
        1,970,050
        
        
        
        1,704,308
        
        
        
        1,265,058
        
        
        
        919,578
        
        
        
        769,131$
        5,797,141
        
        
        $
        4,905,943
        
        
        $
        3,851,867
        
        
        $
        2,927,351
        
        
        $
        2,451,783
        
        
        $
        1,684,316
        
        
        $
        1,364,3504,071,394
        
        
        
        2,577,482
        
        
        
        2,875,212
        
        
        
        2,529,484
        
        
        
        2,269,362
        
        
        
        1,330,011
        
        
        
        642,7508,184,713
        
        
        
        6,820,538
        
        
        
        5,456,349
        
        
        
        4,907,814
        
        
        
        4,160,230
        
        
        
        3,207,110
        
        
        
        2,735,1912,166,388
        
        
        
        2,532,269
        
        
        
        2,106,952
        
        
        
        1,266,281
        
        
        
        632,306
        
        
        
        793,161
        
        
        
        690,74410,351,101
        
        
        
        9,352,807
        
        
        
        7,563,301
        
        
        
        6,174,095
        
        
        
        4,792,536
        
        
        
        4,000,271
        
        
        
        3,425,935(416,627
        )
        
        
        (256,676
        )
        
        
        (204,765
        )
        
        
        (155,768
        )
        
        
        (128,403
        )
        
        
        (118,538
        )
        
        
        (111,253
        )9,934,474
        
        
        
        9,096,131
        
        
        
        7,358,536
        
        
        
        6,018,327
        
        
        
        4,664,133
        
        
        
        3,881,733
        
        
        
        3,314,68228,310,222
        
        
        
        22,982,349
        
        
        
        19,125,282
        
        
        
        14,571,288
        
        
        
        11,425,721
        
        
        
        8,432,511
        
        
        
        6,596,41916,901,334
        
        
        
        13,866,645
        
        
        
        11,752,887
        
        
        
        9,408,843
        
        
        
        7,709,840
        
        
        
        5,728,432
        
        
        
        4,767,6695,974,276
        
        
        
        5,873,122
        
        
        
        4,639,430
        
        
        
        3,029,250
        
        
        
        2,212,591
        
        
        
        1,199,520
        
        
        
        537,6093,769,539
        
        
        
        2,103,043
        
        
        
        1,750,459
        
        
        
        1,377,072
        
        
        
        994,287
        
        
        
        815,243
        
        
        
        692,4601,201,530
        
        
        
        1,127,783
        
        
        
        1,127,756
        
        
        
        1,127,718
        
        
        
        1,127,758
        
        
        
        1,127,760
        
        
        
        1,127,7601,255,625
        
        
        
        1,184,131
        
        
        
        1,184,702
        
        
        
        1,167,709
        
        
        
        1,155,696
        
        
        
        1,143,772
        
        
        
        1,140,177


|(d) |  | Net interest margin ratios are presented on a fully taxable equivalent
basis.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(e) |  | In December 2000, the Corporation implemented the Federal Financial
Institutions Examination Councils (FFIEC) revised policy on the
classification of
consumer loans. Excluding the one-time FFIEC adjustment, loan delinquency and
managed loan delinquency would have been 4.19% 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.
|   
|(f) |  | Loan delinquency does not include loans held for securitization or
securitized loans.                                                                                                                                                                                                                                                                                                                                                                                                                                                                          





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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



This discussion is intended to further the readers understanding of
the consolidated financial statements, financial condition, and
results of operations of MBNA Corporation. It should be read in
conjunction with the consolidated financial statements, notes, and
tables included in this report. For purposes of comparability,
certain prior period amounts have been reclassified. INTRODUCTION MBNA Corporation (the Corporation), a bank holding company
located in Wilmington, Delaware, is the parent company of MBNA
America Bank, N.A. (the Bank), a national bank and the
Corporations principal subsidiary. The Bank has two wholly
owned foreign bank subsidiaries, MBNA 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 endorsed credit cards,
marketed primarily to members of associations, and customers of
financial institutions and other organizations. 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), which offers mortgage loans, aircraft loans,
and business card products. Mortgage and aircraft loans are
included in other consumer loan receivables, and business card
products are included in credit card loan receivables in the
Corporations consolidated statements of financial condition. 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. The Corporation obtains funds to make these loans to its
Customers primarily through raising deposits, the issuance of
short-term and long-term debt, and the process of asset securitization.
Asset securitization removes loan principal receivables from
the 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 consolidated
financial statements in accordance with accounting principles
generally accepted in the United States (GAAP). 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, and interest earned on investment securities
and money market instruments and other interest-earning assets.
The Corporations primary costs are the costs of funding 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; royalties to endorsing organizations;
business development and operating expenses; and
income taxes. CRITICAL ACCOUNTING POLICIES Management makes certain judgments and uses certain estimates
and assumptions when applying accounting principles in the
preparation of the Corporations consolidated financial statements.
The Corporations critical accounting policies that require
management to make significant judgments, estimates, and
assumptions relate to the accounting for asset securitization, the
reserve for possible credit losses, intangible assets, and revenue
recognition. The development and selection of the critical accounting
policies, and the related disclosure below have been reviewed
with the Audit Committee of the 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 retained beneficial
interests, including an interest-only strip receivable. The interest-only
strip receivable represents the contractual right to receive
from the trust interest and other revenue less certain costs over the
estimated life of the securitized loan principal receivables. The Corporation estimates the fair value of the interest-only strip
receivable based on the present value of expected future net
revenue flows (excess spread). 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 and late
fees on securitized loans, 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. These projections are used to determine 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.








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The assumptions and estimates used to estimate the fair value of
the interest-only strip receivable at December 31, 2002, reflect
managements judgment as to the expected excess spread to be
earned and 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 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 can also
affect the projected interest income on securitized loans, as the
Corporation could reprice the portfolio as a result of changes in
market conditions. 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. Payment rates could
fluctuate based on general economic conditions and competition.
Actual and expected changes in these factors may result in future
estimates of the excess spread and payment rates being materially
different from the estimates used in the periods covered by this report. On a quarterly basis, the Corporation reviews and adjusts as
appropriate, the assumptions and estimates used in determining
the fair value of the interest-only strip receivable recognized in
connection with the Corporations securitization transactions. If
these 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 payment rate, the Corporations financial position
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 $226 million in the value of the total
interest-only strip receivable at December 31, 2002, and a related
change in securitization income for 2002.
Note 8 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 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. 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 establishes appropriate


levels of reserve for its products based on their risk characteristics.
The Corporation then reserves for the projected probable net
credit losses based on its projection of these amounts. A provision is
charged against earnings to maintain the reserve for possible credit
losses at an appropriate level. 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 portfolio, in 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 position 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 $111 million in the reserve for possible credit losses
and the provision 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 recoverable,
by comparing their carrying value to the sum of the undiscounted
expected future cash flows from the 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
credit card relationships. These estimates and assumptions include
levels of account 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.






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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, 2002. If actual levels of active account attrition for
all acquired portfolios would adversely change 10%, the estimated
undiscounted cash flows of acquired Customer accounts in the
aggregate would still exceed the net book value of acquired
Customer accounts. Prior to 2002, the Corporation amortized the value of 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
PCCRs. As a result of the study, effective January 1, 2002,
the Corporation extended the amortization period of the domestic
PCCRs to 15 years to more appropriately match the amortization
period with the 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 of December 31, 2002, the Corporation amortized the
value of foreign PCCRs over a period of 10 years. Beginning
January 1, 2003, the Corporation will extend the amortization
period of foreign PCCRs to 15 years. As of December 31, 2002,
approximately 82% of the net book value of PCCRs was being
amortized using a 15 year period; the remainder was being
amortized over 10 years. 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 consolidated
statements of financial condition. The Corporation also uses
certain assumptions and estimates in the valuation of the accrued
interest and fees on securitized loans which is included in accounts
receivable from securitization in the Corporations 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
and fees on securitized loans, the Corporations financial position
and results of operations could have differed materially. For example,
a 5% change in managements projection of the estimated
yield could have resulted in a change totaling approximately
$32 million in interest income and other operating income. The Corporation also recognizes fees on loan receivables in
earnings (except annual fees) 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 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 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. If management had made different assumptions about uncollectible
interest and fees, the Corporations financial position and
results of operations could have differed materially. For example,
a 10% change in managements estimate of uncollectible interest
and fees could have resulted in a change totaling approximately
$40 million in interest income and other operating income. 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), this 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.
Subsequent discussions of this change in estimate on the
Corporations financial results only include the third quarter 2002
impact as the Corporation does not expect this change to have a
material effect on earnings in subsequent periods.








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REGULATORY IMPACT The banking and consumer credit industry is subject to extensive
regulation and examination. Recent changes in laws and regulations
and in policies applied by banking or other regulators affecting
banking, consumer credit, bankruptcy or other matters have
affected the Corporations financial condition and results of
operations. Certain of these changes and their impacts are
discussed throughout this report, including the impact on revenue
recognition of the change in the estimated value of accrued interest
and fees in September 2002 discussed under Critical Accounting
PoliciesRevenue Recognition and in the several financial
statement items and results affected by the change and the impact
on delinquencies at December 31, 2000 of the implementation of
the FFIEC revised policy on the classification of consumer loans
discussed under Loan QualityDelinquencies. Future changes
in laws and regulations and in policies applied by banking or other
regulators also could affect the Corporations financial condition
and results of operations in future periods. EARNINGS SUMMARY (Net Income Bar Graph) Net income for 2002 increased 4.2% to $1.8 billion or $1.34 per
common share from $1.7 billion or $1.28 per common share
in 2001. Net income for 2001 increased 29.1% from $1.3 billion or $1.02 per common share in 2000.
Excluding the change in the estimated
value of accrued interest and fees, net
income for 2002 would have increased
14.1% to $1.9 billion or $1.47 per
common share. All earnings per
common share amounts are presented
assuming dilution and have been
adjusted to reflect the 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 July 1, 2002. The overall growth in earnings for
2002 was primarily attributable to the
growth in the Corporations managed
loans outstanding, partially offset by the change in the estimated
value of accrued interest and fees and higher credit losses. The
overall growth in earnings for 2001 was primarily attributable to
the growth in the Corporations managed loans outstanding and
an increase in the managed net interest margin, partially offset by
higher credit losses and other operating expenses.


(Earnings Per Common Share Bar Graph) Managed loans consist of the
Corporations loans held for securitization,
loan portfolio, and securitized
loans. Asset securitization removes
loan principal receivables from the
consolidated statements of financial
condition by the sale of loan principal
receivables to a trust that qualifies as a
sale under GAAP. The Corporation continues to own
and service the accounts that generate
the loan principal receivables sold
to the trusts. In a credit card securitization,
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 loan principal receivables generated by the account.
During a securitizations revolving period, the Corporation agrees
to sell the additional loan 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. Asset securitization converts interest income, interchange income,
credit card and other consumer loan fees, insurance income,
recoveries on charged-off securitized loans, gross credit losses, and
other trust expenses into securitization income. 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 the securitized loan principal
receivables in the same fashion as the Corporations owned loans.
Management, analysts, 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 account relationships are not sold to the
trust. 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 loan originations and the related credit
risks inherent in the owned portfolio and the Corporations
retained interests in its securitization transactions.






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(MANAGED LOANS)
The Corporations average managed
loans increased 10.0% to $100.0 billion
for 2002 from $90.9 billion for 2001
and increased 17.4% in 2001 from
$77.4 billion for 2000. Total managed
loans at December 31, 2002, were
$107.3 billion, as compared to
$97.5 billion at December 31, 2001,
and $88.8 billion at December 31,
2000. The growth in managed loans
for 2002 and 2001 was a result of the
Corporations continued marketing
efforts and loan portfolio acquisitions.
The Corporation acquired 405 and
439 new endorsements from organizations
and added 12.0 million and
9.5 million new accounts during 2002
and 2001, respectively. The Corporations managed net credit
losses as a percentage of average
managed loans for 2002 were 4.99%,
as compared to 4.74% in 2001 and
4.39% in 2000. The managed net
interest margin was 8.42% in 2002
and 2001, and 7.08% in 2000.
Excluding the change in the estimated
value of accrued interest and fees, the
managed net interest margin would
have increased to 8.67% for 2002. The
managed net interest margin for 2002
and 2001 reflects actions by the
Federal Open Market Committee
(FOMC) of the Federal Reserve
throughout 2001 that impacted overall
market interest rates and decreased the
Corporations on-balance-sheet and
securitization funding costs. 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, the
Corporations return on average total
assets would have been 4.01% for
2002. The decrease in the return on
average total assets was primarily the
result of net income growing at a
slower rate than average total assets.
The Corporations return on average total assets for 2001 increased
to 4.16% from 3.94% for 2000. The increase in the return on
average total assets for 2001 was a result of the Corporations net
income growing faster than its average total assets.


(RETURN ON AVERAGE STOCKHOLDER'S EQUITY)
The Corporations return on average
stockholders equity was 21.29% for
2002, as compared to 24.07% for
2001 and 25.79% for 2000. The
decline in the return on average
stockholders equity is primarily the
result of net income growing at a
slower rate than average stockholders
equity. In addition, average stockholders
equity includes the impact of
$1.6 billion of capital from the
issuance of 75 million shares of
common stock by the Corporation in
August 2000. Excluding the change in
the estimated value of accrued interest
and fees, the Corporations return on
average stockholders equity would have been 23.19% for 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 1 and 2 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, 2002, 2001, and 2000. Net interest income, on a fully taxable equivalent basis, increased
$416.6 million to $2.1 billion for 2002 from 2001. Excluding the
change in the estimated value of accrued interest and fees, net
interest income, on a fully taxable equivalent basis, would have
increased $482.9 million or 29.1% from 2001. Average interest-earning
(NET INTEREST INCOME)
assets increased $7.3 billion
from 2001, primarily as 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% for 2002 from 2001. Excluding
the change in the estimated value of
accrued interest and fees, the yield on
average interest-earning assets would
have been 9.99% for 2002. Average
interest-bearing liabilities increased
$5.7 billion for 2002 from 2001, as a
result of an increase of $3.3 billion in








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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 net impact of the changes in
interest rates on the Corporations net interest income was a
$75.7 million decrease for 2002, compared to an increase of
$74.2 million for 2001. The impact on the Corporations net interest income from the
changes in interest rates in 2002 and 2001 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 67.6% of the average
interest-earning assets as of December 31, 2002 and 2001. 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 factors 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 rates or have short-term maturities.
Accordingly, 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, led to a $75.7 million decrease in the 2002 net
interest income. The decline in the overall market interest rates
due to the actions by the FOMC throughout 2001, that caused the
Corporations interest rate sensitive liabilities to reprice at a faster
rate than the Corporations interest rate sensitive assets in 2001,
led to a $74.2 million increase in the 2001 net interest income. Net interest income, on a fully taxable equivalent basis, increased
$261.6 million to $1.7 billion for 2001 from 2000. Average
interest-earning assets increased $4.7 billion for 2001 from 2000,
primarily as a result of an increase in average loan receivables of
$2.6 billion. The yield on average interest-earning assets
decreased 63 basis points to 11.54% for 2001 from 2000. Average
interest-bearing liabilities increased $4.9 billion for 2001 from
2000, primarily as a result of an increase of $4.3 billion in average
interest-bearing deposits. The rate paid on average interest-bearing
liabilities decreased 63 basis points to 5.82% for 2001 from 2000.
The decrease reflected 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 5.54% for 2002, as compared to 5.51% for 2001. 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, the net interest margin, on a
fully taxable equivalent basis, would have been 5.71% for 2002.
The change in the net interest margin for 2002 was primarily 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 on-balance-sheet interest-bearing
liabilities matured and repriced during the continued low
interest rate environment, partially offset by the change in the
estimated value of accrued interest and fees. The Corporations net
interest margin in 2002 also had the full benefit of the actions by
the FOMC throughout 2001. The net interest margin remained unchanged for 2001 as actions
by the FOMC throughout 2001 that impacted overall market
interest rates and increased net interest income were offset by
growth in the Corporations average interest-earning assets. INVESTMENT SECURITIES AND MONEY MARKET INSTRUMENTS The Corporation seeks to maintain its investment securities and
money market instruments position at a level appropriate for the
Corporations liquidity needs. The Corporations average investment
securities and average money market instruments are affected by
the timing of receipt of funds from asset securitization transactions,
deposits, loan payments, and 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 22.2% for 2002,
compared to 21.8% for 2001 and 20.0% for 2000. Money market
instruments increased in 2002 to provide liquidity to support
portfolio acquisition activity and anticipated loan growth. During
2001, the Corporation increased its liquidity position partially to
anticipate possible market disruptions in response to the tragic
events on September 11, 2001. (INVESTMENT SECURITIES INTEREST INCOME)
Interest income on investment securities
for 2002, on a fully taxable equivalent
basis, decreased to $141.1 million
from 2001. The decrease in interest
income on investment securities for
2002 was primarily a result of a
158 basis point decrease in the yield
earned on average investment securities,
partially offset by an increase in
average investment securities of
$700.2 million from 2001. Interest
income on investment securities, on a
fully taxable equivalent basis,
decreased to $169.4 million in 2001
from 2000. The decrease in interest








---



##### 



|20 | THINK OF YOURSELF AS A CUSTOMER
|-- | -------------------------------



TABLE 1: STATEMENTS OF AVERAGE BALANCES, YIELDS AND RATES, INCOME OR EXPENSE(dollars in thousands, yields and rates on a fully taxable equivalent basis)

Year
        Ended December 31,
      
      
      
      2002
      
      
      
      
      
      
      2001
      
      
      
      
      
      
      2000**Average**
      ****
     
      **Yield/**
      ****
     
      **Income**
      
     
      Average
      
     
      Yield/
      
     
      Income
      
     
      Average
      
     
      Yield/
      
     
      Income**Balance**
      ****
     
      **Rate**
      ****
     
      **or
        Expense**
     
      
      Balance
      
     
      Rate
      
     
      or
        Expense
     
      
      Balance
      
     
      Rate
      
     
      or
        ExpenseAssetsInterest-earning
          assets:Money
          market instruments:Interest-earning
          time deposits in other banks:Domestic
      
      **$**
      **1,244**
      ****
      ****
      ****
      **.96**
      **%**
      
      **$**
      **12**
      
      
      $
      1,199
      
      
      
      3.59
      %
      
      $
      43
      
      
      $
      9,562
      
      
      
      5.65
      %
      
      $
      540Foreign
      
      ****
      **2,149,065**
      ****
      ****
      ****
      **2.47**
      ****
      
      ****
      **53,121**
      
      
      
      1,690,774
      
      
      
      4.22
      
      
      
      71,298
      
      
      
      1,324,770
      
      
      
      6.28
      
      
      
      83,187****
      
      ****
      ****
      ****
      ****
      ****
      
      ****Total
          interest-earning time deposits in other banks
      
      ****
      **2,150,309**
      ****
      ****
      ****
      **2.47**
      ****
      
      ****
      **53,133**
      
      
      
      1,691,973
      
      
      
      4.22
      
      
      
      71,341
      
      
      
      1,334,332
      
      
      
      6.27
      
      
      
      83,727Federal
          funds sold
      
      ****
      **2,127,914**
      ****
      ****
      ****
      **1.67**
      ****
      
      ****
      **35,460**
      
      
      
      1,526,879
      
      
      
      3.71
      
      
      
      56,651
      
      
      
      676,512
      
      
      
      6.43
      
      
      
      43,486****
      
      ****
      ****
      ****
      ****
      ****
      
      ****Total
          money market instruments
      
      ****
      **4,278,223**
      ****
      ****
      ****
      **2.07**
      ****
      
      ****
      **88,593**
      
      
      
      3,218,852
      
      
      
      3.98
      
      
      
      127,992
      
      
      
      2,010,844
      
      
      
      6.33
      
      
      
      127,213Investment
          securities (a):
      
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      
      ****
      ****Taxable
      
      ****
      **3,931,275**
      ****
      ****
      ****
      **3.51**
      ****
      
      ****
      **138,124**
      
      
      
      3,238,438
      
      
      
      5.08
      
      
      
      164,577
      
      
      
      2,969,987
      
      
      
      5.86
      
      
      
      174,109Tax-exempt
          (b)
      
      ****
      **110,054**
      ****
      ****
      ****
      **2.69**
      ****
      
      ****
      **2,965**
      
      
      
      102,710
      
      
      
      4.68
      
      
      
      4,807
      
      
      
      101,767
      
      
      
      6.65
      
      
      
      6,763****
      
      ****
      ****
      ****
      ****
      ****
      
      ****Total
          investment securities
      
      ****
      **4,041,329**
      ****
      ****
      ****
      **3.49**
      ****
      
      ****
      **141,089**
      
      
      
      3,341,148
      
      
      
      5.07
      
      
      
      169,384
      
      
      
      3,071,754
      
      
      
      5.89
      
      
      
      180,872Other
          interest-earning assets (a) (c)
      
      ****
      **3,808,179**
      ****
      ****
      ****
      **9.33**
      ****
      
      ****
      **355,446**
      
      
      
      3,197,381
      
      
      
      12.00
      
      
      
      383,686
      
      
      
      2,592,189
      
      
      
      12.00
      
      
      
      311,063Loan
          receivables:
      
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      
      ****
      ****Loans
          held for securitization:
      
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      
      ****
      ****Domestic:
      
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      
      ****
      ****Credit
          card
      
      ****
      **6,311,804**
      ****
      ****
      ****
      **12.89**
      ****
      
      ****
      **813,536**
      
      
      
      5,178,099
      
      
      
      14.61
      
      
      
      756,463
      
      
      
      6,052,151
      
      
      
      14.83
      
      
      
      897,477Other
          consumer
      
      ****
      **438,187**
      ****
      ****
      ****
      **15.30**
      ****
      
      ****
      **67,062**
      
      
      
      605,683
      
      
      
      15.86
      
      
      
      96,088
      
      
      
      1,043,722
      
      
      
      16.41
      
      
      
      171,315****
      
      ****
      ****
      ****
      ****
      ****
      
      ****Total
          domestic loans held for securitization
      
      ****
      **6,749,991**
      ****
      ****
      ****
      **13.05**
      ****
      
      ****
      **880,598**
      
      
      
      5,783,782
      
      
      
      14.74
      
      
      
      852,551
      
      
      
      7,095,873
      
      
      
      15.06
      
      
      
      1,068,792Foreign
      
      ****
      **1,380,216**
      ****
      ****
      ****
      **12.75**
      ****
      
      ****
      **175,960**
      
      
      
      1,126,058
      
      
      
      12.99
      
      
      
      146,330
      
      
      
      1,033,460
      
      
      
      13.32
      
      
      
      137,663****
      
      ****
      ****
      ****
      ****
      ****
      
      ****Total
          loans held for securitization
      
      ****
      **8,130,207**
      ****
      ****
      ****
      **13.00**
      ****
      
      ****
      **1,056,558**
      
      
      
      6,909,840
      
      
      
      14.46
      
      
      
      998,881
      
      
      
      8,129,333
      
      
      
      14.84
      
      
      
      1,206,455Loan
          portfolio (c):
      
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      
      ****
      ****Domestic:
      
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      
      ****
      ****Credit
          card
      
      ****
      **7,269,526**
      ****
      ****
      ****
      **10.61**
      ****
      
      ****
      **771,292**
      
      
      
      6,368,297
      
      
      
      12.80
      
      
      
      814,853
      
      
      
      5,706,303
      
      
      
      13.10
      
      
      
      747,349Other
          consumer
      
      ****
      **5,895,108**
      ****
      ****
      ****
      **13.73**
      ****
      
      ****
      **809,659**
      
      
      
      4,388,008
      
      
      
      14.89
      
      
      
      653,267
      
      
      
      1,988,794
      
      
      
      14.31
      
      
      
      284,551****
      
      ****
      ****
      ****
      ****
      ****
      
      ****Total
          domestic loan portfolio
      
      ****
      **13,164,634**
      ****
      ****
      ****
      **12.01**
      ****
      
      ****
      **1,580,951**
      
      
      
      10,756,305
      
      
      
      13.65
      
      
      
      1,468,120
      
      
      
      7,695,097
      
      
      
      13.41
      
      
      
      1,031,900Foreign
      
      ****
      **4,020,359**
      ****
      ****
      ****
      **11.35**
      ****
      
      ****
      **456,503**
      
      
      
      2,673,243
      
      
      
      12.16
      
      
      
      325,025
      
      
      
      1,893,718
      
      
      
      12.23
      
      
      
      231,606****
      
      ****
      ****
      ****
      ****
      ****
      
      ****Total
          loan portfolio
      
      ****
      **17,184,993**
      ****
      ****
      ****
      **11.86**
      ****
      
      ****
      **2,037,454**
      
      
      
      13,429,548
      
      
      
      13.35
      
      
      
      1,793,145
      
      
      
      9,588,815
      
      
      
      13.18
      
      
      
      1,263,506****
      
      ****
      ****
      ****
      ****
      ****
      
      ****Total
          loan receivables
      
      ****
      **25,315,200**
      ****
      ****
      ****
      **12.22**
      ****
      
      ****
      **3,094,012**
      
      
      
      20,339,388
      
      
      
      13.73
      
      
      
      2,792,026
      
      
      
      17,718,148
      
      
      
      13.94
      
      
      
      2,469,961****
      
      ****
      ****
      ****
      ****
      ****
      
      ****Total
          interest-earning assets
      
      ****
      **37,442,931**
      ****
      ****
      ****
      **9.83**
      ****
      
      ****
      **3,679,140**
      
      
      
      30,096,769
      
      
      
      11.54
      
      
      
      3,473,088
      
      
      
      25,392,935
      
      
      
      12.17
      
      
      
      3,089,109Cash
          and due from banks
      
      ****
      **766,003**
      ****
      ****
      ****
      ****
      ****
      
      ****
      ****
      
      
      
      744,798
      
      
      
      
      
      
      
      
      
      
      
      676,007Premises
          and equipment, net
      
      ****
      **2,160,766**
      ****
      ****
      ****
      ****
      ****
      
      ****
      ****
      
      
      
      1,972,000
      
      
      
      
      
      
      
      
      
      
      
      1,695,014Other
          assets (c)
      
      ****
      **8,726,107**
      ****
      ****
      ****
      ****
      ****
      
      ****
      ****
      
      
      
      8,607,403
      
      
      
      
      
      
      
      
      
      
      
      6,084,253Reserve
          for possible credit losses
      
      ****
      **(941,780**
      **)**
      ****
      ****
      ****
      ****
      
      ****
      ****
      
      
      
      (656,654
      )
      
      
      
      
      
      
      
      
      
      
      (549,033
      )****
      
      ****
      ****
      ****
      ****
      ****
      
      ****
      ****Total
          assets
      
      **$**
      **48,154,027**
      ****
      ****
      ****
      ****
      ****
      
      ****
      ****
      
      
      $
      40,764,316
      
      
      
      
      
      
      
      
      
      
      $
      33,299,176****
      
      ****
      ****
      ****
      ****
      ****
      
      ****
      ****Liabilities
          and Stockholders Equity
      
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      
      ****
      ****Interest-bearing
          liabilities:
      
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      
      ****
      ****Interest-bearing
          deposits:
      
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      
      ****
      ****Domestic:
      
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      
      ****
      ****Time
          deposits
      
      **$**
      **19,485,060**
      ****
      ****
      ****
      **5.28**
      ****
      
      ****
      **1,027,905**
      
      
      $
      17,999,374
      
      
      
      6.43
      
      
      
      1,157,995
      
      
      $
      14,502,004
      
      
      
      6.39
      
      
      
      927,297Money
          market deposit accounts
      
      ****
      **7,040,563**
      ****
      ****
      ****
      **2.70**
      ****
      
      ****
      **190,072**
      
      
      
      5,534,407
      
      
      
      4.51
      
      
      
      249,425
      
      
      
      4,615,183
      
      
      
      6.17
      
      
      
      284,821Interest-bearing
          transaction accounts
      
      ****
      **47,157**
      ****
      ****
      ****
      **1.71**
      ****
      
      ****
      **808**
      
      
      
      43,675
      
      
      
      3.46
      
      
      
      1,513
      
      
      
      39,635
      
      
      
      5.15
      
      
      
      2,041Savings
          accounts
      
      ****
      **74,839**
      ****
      ****
      ****
      **1.74**
      ****
      
      ****
      **1,302**
      
      
      
      16,967
      
      
      
      2.99
      
      
      
      508
      
      
      
      9,208
      
      
      
      5.09
      
      
      
      469****
      
      ****
      ****
      ****
      ****
      ****
      
      ****Total
          domestic interest-bearing deposits
      
      ****
      **26,647,619**
      ****
      ****
      ****
      **4.58**
      ****
      
      ****
      **1,220,087**
      
      
      
      23,594,423
      
      
      
      5.97
      
      
      
      1,409,441
      
      
      
      19,166,030
      
      
      
      6.34
      
      
      
      1,214,628Foreign:
      
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      
      ****
      ****Time
          deposits
      
      ****
      **924,325**
      ****
      ****
      ****
      **3.83**
      ****
      
      ****
      **35,440**
      
      
      
      701,937
      
      
      
      5.02
      
      
      
      35,265
      
      
      
      801,631
      
      
      
      5.73
      
      
      
      45,947****
      
      ****
      ****
      ****
      ****
      ****
      
      ****Total
          interest-bearing deposits
      
      ****
      **27,571,944**
      ****
      ****
      ****
      **4.55**
      ****
      
      ****
      **1,255,527**
      
      
      
      24,296,360
      
      
      
      5.95
      
      
      
      1,444,706
      
      
      
      19,967,661
      
      
      
      6.31
      
      
      
      1,260,575Borrowed
          funds:
      
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      
      ****
      ****Short-term
          borrowings:
      
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      
      ****
      ****Domestic
      
      ****
      **1,037,403**
      ****
      ****
      ****
      **3.57**
      ****
      
      ****
      **37,051**
      
      
      
      383,638
      
      
      
      4.39
      
      
      
      16,858
      
      
      
      388,415
      
      
      
      6.11
      
      
      
      23,739Foreign
      
      ****
      **215,718**
      ****
      ****
      ****
      **2.75**
      ****
      
      ****
      **5,927**
      
      
      
      179,993
      
      
      
      4.39
      
      
      
      7,908
      
      
      
      179,917
      
      
      
      5.79
      
      
      
      10,413****
      
      ****
      ****
      ****
      ****
      ****
      
      ****Total
          short-term borrowings
      
      ****
      **1,253,121**
      ****
      ****
      ****
      **3.43**
      ****
      
      ****
      **42,978**
      
      
      
      563,631
      
      
      
      4.39
      
      
      
      24,766
      
      
      
      568,332
      
      
      
      6.01
      
      
      
      34,152Long-term
          debt and bank notes (d):
      
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      
      ****
      ****Domestic
      
      ****
      **5,696,163**
      ****
      ****
      ****
      **3.05**
      ****
      
      ****
      **173,463**
      
      
      
      4,620,270
      
      
      
      5.23
      
      
      
      241,805
      
      
      
      4,610,744
      
      
      
      7.03
      
      
      
      323,955Foreign
      
      ****
      **2,344,256**
      ****
      ****
      ****
      **5.61**
      ****
      
      ****
      **131,527**
      
      
      
      1,689,176
      
      
      
      6.09
      
      
      
      102,788
      
      
      
      1,088,894
      
      
      
      6.71
      
      
      
      73,045****
      
      ****
      ****
      ****
      ****
      ****
      
      ****Total
          long-term debt and bank notes
      
      ****
      **8,040,419**
      ****
      ****
      ****
      **3.79**
      ****
      
      ****
      **304,990**
      
      
      
      6,309,446
      
      
      
      5.46
      
      
      
      344,593
      
      
      
      5,699,638
      
      
      
      6.97
      
      
      
      397,000****
      
      ****
      ****
      ****
      ****
      ****
      
      ****Total
          borrowed funds
      
      ****
      **9,293,540**
      ****
      ****
      ****
      **3.74**
      ****
      
      ****
      **347,968**
      
      
      
      6,873,077
      
      
      
      5.37
      
      
      
      369,359
      
      
      
      6,267,970
      
      
      
      6.88
      
      
      
      431,152****
      
      ****
      ****
      ****
      ****
      ****
      
      ****Total
          interest-bearing liabilities
      
      ****
      **36,865,484**
      ****
      ****
      ****
      **4.35**
      ****
      
      ****
      **1,603,495**
      
      
      
      31,169,437
      
      
      
      5.82
      
      
      
      1,814,065
      
      
      
      26,235,631
      
      
      
      6.45
      
      
      
      1,691,727Noninterest-bearing
          deposits
      
      ****
      **909,543**
      ****
      ****
      ****
      ****
      ****
      
      ****
      ****
      
      
      
      851,422
      
      
      
      
      
      
      
      
      
      
      
      686,426Other
          liabilities
      
      ****
      **2,085,177**
      ****
      ****
      ****
      ****
      ****
      
      ****
      ****
      
      
      
      1,703,471
      
      
      
      
      
      
      
      
      
      
      
      1,288,237****
      
      ****
      ****
      ****
      ****
      ****
      
      ****
      ****Total
          liabilities
      
      ****
      **39,860,204**
      ****
      ****
      ****
      ****
      ****
      
      ****
      ****
      
      
      
      33,724,330
      
      
      
      
      
      
      
      
      
      
      
      28,210,294Stockholders
          equity
      
      ****
      **8,293,823**
      ****
      ****
      ****
      ****
      ****
      
      ****
      ****
      
      
      
      7,039,986
      
      
      
      
      
      
      
      
      
      
      
      5,088,882****
      
      ****
      ****
      ****
      ****
      ****
      
      ****
      ****Total
          liabilities and stockholders equity
      
      **$**
      **48,154,027**
      ****
      ****
      ****
      ****
      ****
      
      ****
      ****
      
      
      $
      40,764,316
      
      
      
      
      
      
      
      
      
      
      $
      33,299,176****
      
      ****
      ****
      ****
      ****
      ****
      
      ****Net
          interest income (c)
      
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      
      **$**
      **2,075,645**
      
      
      
      
      
      
      
      
      
      
      $
      1,659,023
      
      
      
      
      
      
      
      
      
      
      $
      1,397,382****
      ****
      ****
      ****
      ****
      ****
      ****
      
      ****Net
          interest margin (c)
      
      ****
      ****
      ****
      ****
      ****
      **5.54**
      ****
      
      ****
      ****
      
      
      
      
      
      
      
      5.51
      
      
      
      
      
      
      
      
      
      
      
      5.50Interest
          rate spread (c)
      
      ****
      ****
      ****
      ****
      ****
      **5.48**
      ****
      
      ****
      ****
      
      
      
      
      
      
      
      5.72
      
      
      
      
      
      
      
      
      
      
      
      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 the
investment securities were carried at amortized cost, there would not be a
material impact on the net interest margin.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(b) |  | The fully taxable equivalent adjustment for the years ended December 31,
2002, 2001, and 2000, was $1,070, $1,683, and $2,367, respectively.                                                                                                                                        
|   
|(c) |  | December 31, 2002 includes the impact of the change in the estimated value
of accrued interest and fees.                                                                                                                                                                            
|   
|(d) |  | 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.                                                                                                  





---



##### 



| | THINK OF YOURSELF AS A CUSTOMER
| | -------------------------------



TABLE 2: RATE-VOLUME VARIANCE ANALYSIS (a) (dollars in thousands, on a fully taxable equivalent basis)

Year
        Ended December 31,
      
      
      
      2002
        Compared to 2001
      
      
      
      
      
      2001
        Compared to 2000**Volume**
      ****
   
      **Rate**
      ****
   
      **Total**
      
   
      Volume
      
   
      Rate
      
   
      Total**Interest-Earning
          Assets**
      
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****Money
          market instruments:
      
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****Interest-earning
          time deposits in other banks:
      
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****Domestic
      
      **$**
      **2**
      ****
      ****
      **$**
      **(33**
      **)**
      ****
      **$**
      **(31**
      **)**
      
      $
      (351
      )
      
      $
      (146
      )
      
      $
      (497
      )Foreign
      
      ****
      **16,160**
      ****
      ****
      ****
      **(34,337**
      **)**
      ****
      ****
      **(18,177**
      **)**
      
      
      19,534
      
      
      
      (31,423
      )
      
      
      (11,889
      )****
      
      ****
      ****
      ****
      
      ****
      ****
      ****
      
      ****Total
          interest-earning time deposits in other banks
      
      ****
      **16,162**
      ****
      ****
      ****
      **(34,370**
      **)**
      ****
      ****
      **(18,208**
      **)**
      
      
      19,183
      
      
      
      (31,569
      )
      
      
      (12,386
      )Federal
          funds sold
      
      ****
      **17,180**
      ****
      ****
      ****
      **(38,371**
      **)**
      ****
      ****
      **(21,191**
      **)**
      
      
      37,368
      
      
      
      (24,203
      )
      
      
      13,165****
      
      ****
      ****
      ****
      
      ****
      ****
      ****
      
      ****Total
          money market instruments
      
      ****
      **33,342**
      ****
      ****
      ****
      **(72,741**
      **)**
      ****
      ****
      **(39,399**
      **)**
      
      
      56,551
      
      
      
      (55,772
      )
      
      
      779Investment
          securities:
      
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****Taxable
      
      ****
      **30,761**
      ****
      ****
      ****
      **(57,214**
      **)**
      ****
      ****
      **(26,453**
      **)**
      
      
      14,890
      
      
      
      (24,422
      )
      
      
      (9,532
      )Tax-exempt
      
      ****
      **323**
      ****
      ****
      ****
      **(2,165**
      **)**
      ****
      ****
      **(1,842**
      **)**
      
      
      62
      
      
      
      (2,018
      )
      
      
      (1,956
      )****
      
      ****
      ****
      ****
      
      ****
      ****
      ****
      
      ****Total
          investment securities
      
      ****
      **31,084**
      ****
      ****
      ****
      **(59,379**
      **)**
      ****
      ****
      **(28,295**
      **)**
      
      
      14,952
      
      
      
      (26,440
      )
      
      
      (11,488
      )Other
          interest-earning assets (b)
      
      ****
      **65,767**
      ****
      ****
      ****
      **(94,007**
      **)**
      ****
      ****
      **(28,240**
      **)**
      
      
      72,623
      
      
      
      
      
      
      
      72,623Loan
          receivables:
      
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****Loans
          held for securitization:
      
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****Domestic:
      
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****Credit
          card
      
      ****
      **152,942**
      ****
      ****
      ****
      **(95,869**
      **)**
      ****
      ****
      **57,073**
      ****
      
      
      (127,869
      )
      
      
      (13,145
      )
      
      
      (141,014
      )Other
          consumer
      
      ****
      **(25,740**
      **)**
      ****
      ****
      **(3,286**
      **)**
      ****
      ****
      **(29,026**
      **)**
      
      
      (69,670
      )
      
      
      (5,557
      )
      
      
      (75,227
      )****
      
      ****
      ****
      ****
      
      ****
      ****
      ****
      
      ****Total
          domestic loans held for securitization
      
      ****
      **127,202**
      ****
      ****
      ****
      **(99,155**
      **)**
      ****
      ****
      **28,047**
      ****
      
      
      (197,539
      )
      
      
      (18,702
      )
      
      
      (216,241
      )Foreign
      
      ****
      **32,450**
      ****
      ****
      ****
      **(2,820**
      **)**
      ****
      ****
      **29,630**
      ****
      
      
      12,098
      
      
      
      (3,431
      )
      
      
      8,667****
      
      ****
      ****
      ****
      
      ****
      ****
      ****
      
      ****Total
          loans held for securitization
      
      ****
      **159,652**
      ****
      ****
      ****
      **(101,975**
      **)**
      ****
      ****
      **57,677**
      ****
      
      
      (185,441
      )
      
      
      (22,133
      )
      
      
      (207,574
      )Loan
          portfolio (b):
      
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****Domestic:
      
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****Credit
          card
      
      ****
      **106,392**
      ****
      ****
      ****
      **(149,953**
      **)**
      ****
      ****
      **(43,561**
      **)**
      
      
      85,036
      
      
      
      (17,532
      )
      
      
      67,504Other
          consumer
      
      ****
      **210,189**
      ****
      ****
      ****
      **(53,797**
      **)**
      ****
      ****
      **156,392**
      ****
      
      
      356,732
      
      
      
      11,984
      
      
      
      368,716****
      
      ****
      ****
      ****
      
      ****
      ****
      ****
      
      ****Total
          domestic loan portfolio
      
      ****
      **316,581**
      ****
      ****
      ****
      **(203,750**
      **)**
      ****
      ****
      **112,831**
      ****
      
      
      441,768
      
      
      
      (5,548
      )
      
      
      436,220Foreign
      
      ****
      **154,218**
      ****
      ****
      ****
      **(22,740**
      **)**
      ****
      ****
      **131,478**
      ****
      
      
      94,786
      
      
      
      (1,367
      )
      
      
      93,419****
      
      ****
      ****
      ****
      
      ****
      ****
      ****
      
      ****Total
          loan portfolio
      
      ****
      **470,799**
      ****
      ****
      ****
      **(226,490**
      **)**
      ****
      ****
      **244,309**
      ****
      
      
      536,554
      
      
      
      (6,915
      )
      
      
      529,639****
      
      ****
      ****
      ****
      
      ****
      ****
      ****
      
      ****Total
          loan receivables
      
      ****
      **630,451**
      ****
      ****
      ****
      **(328,465**
      **)**
      ****
      ****
      **301,986**
      ****
      
      
      351,113
      
      
      
      (29,048
      )
      
      
      322,065****
      
      ****
      ****
      ****
      
      ****
      ****
      ****
      
      ****Total
          interest income (b)
      
      ****
      **760,644**
      ****
      ****
      ****
      **(554,592**
      **)**
      ****
      ****
      **206,052**
      ****
      
      
      495,239
      
      
      
      (111,260
      )
      
      
      383,979**Interest-Bearing
          Liabilities**
      
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****Interest-bearing
          deposits:
      
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****Domestic:
      
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****Time
          deposits
      
      ****
      **90,173**
      ****
      ****
      ****
      **(220,263**
      **)**
      ****
      ****
      **(130,090**
      **)**
      
      
      224,970
      
      
      
      5,728
      
      
      
      230,698Money
          market deposit accounts
      
      ****
      **56,875**
      ****
      ****
      ****
      **(116,228**
      **)**
      ****
      ****
      **(59,353**
      **)**
      
      
      50,229
      
      
      
      (85,625
      )
      
      
      (35,396
      )Interest-bearing
          transaction accounts
      
      ****
      **112**
      ****
      ****
      ****
      **(817**
      **)**
      ****
      ****
      **(705**
      **)**
      
      
      192
      
      
      
      (720
      )
      
      
      (528
      )Savings
          accounts
      
      ****
      **1,086**
      ****
      ****
      ****
      **(292**
      **)**
      ****
      ****
      **794**
      ****
      
      
      286
      
      
      
      (247
      )
      
      
      39****
      
      ****
      ****
      ****
      
      ****
      ****
      ****
      
      ****Total
          domestic interest-bearing deposits
      
      ****
      **148,246**
      ****
      ****
      ****
      **(337,600**
      **)**
      ****
      ****
      **(189,354**
      **)**
      
      
      275,677
      
      
      
      (80,864
      )
      
      
      194,813Foreign:
      
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****Time
          deposits
      
      ****
      **9,659**
      ****
      ****
      ****
      **(9,484**
      **)**
      ****
      ****
      **175**
      ****
      
      
      (5,360
      )
      
      
      (5,322
      )
      
      
      (10,682
      )****
      
      ****
      ****
      ****
      
      ****
      ****
      ****
      
      ****Total
          interest-bearing deposits
      
      ****
      **157,905**
      ****
      ****
      ****
      **(347,084**
      **)**
      ****
      ****
      **(189,179**
      **)**
      
      
      270,317
      
      
      
      (86,186
      )
      
      
      184,131Borrowed
          funds:
      
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****Short-term
          borrowings:
      
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****Domestic
      
      ****
      **23,882**
      ****
      ****
      ****
      **(3,689**
      **)**
      ****
      ****
      **20,193**
      ****
      
      
      (289
      )
      
      
      (6,592
      )
      
      
      (6,881
      )Foreign
      
      ****
      **1,366**
      ****
      ****
      ****
      **(3,347**
      **)**
      ****
      ****
      **(1,981**
      **)**
      
      
      4
      
      
      
      (2,509
      )
      
      
      (2,505
      )****
      
      ****
      ****
      ****
      
      ****
      ****
      ****
      
      ****Total
          short-term borrowings
      
      ****
      **25,248**
      ****
      ****
      ****
      **(7,036**
      **)**
      ****
      ****
      **18,212**
      ****
      
      
      (285
      )
      
      
      (9,101
      )
      
      
      (9,386
      )Long-term
          debt and bank notes:
      
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****Domestic
      
      ****
      **47,886**
      ****
      ****
      ****
      **(116,228**
      **)**
      ****
      ****
      **(68,342**
      **)**
      
      
      668
      
      
      
      (82,818
      )
      
      
      (82,150
      )Foreign
      
      ****
      **37,274**
      ****
      ****
      ****
      **(8,535**
      **)**
      ****
      ****
      **28,739**
      ****
      
      
      37,067
      
      
      
      (7,324
      )
      
      
      29,743****
      
      ****
      ****
      ****
      
      ****
      ****
      ****
      
      ****Total
          long-term debt and bank notes
      
      ****
      **85,160**
      ****
      ****
      ****
      **(124,763**
      **)**
      ****
      ****
      **(39,603**
      **)**
      
      
      37,735
      
      
      
      (90,142
      )
      
      
      (52,407
      )****
      
      ****
      ****
      ****
      
      ****
      ****
      ****
      
      ****Total
          borrowed funds
      
      ****
      **110,408**
      ****
      ****
      ****
      **(131,799**
      **)**
      ****
      ****
      **(21,391**
      **)**
      
      
      37,450
      
      
      
      (99,243
      )
      
      
      (61,793
      )****
      
      ****
      ****
      ****
      
      ****
      ****
      ****
      
      ****Total
          interest expense
      
      ****
      **268,313**
      ****
      ****
      ****
      **(478,883**
      **)**
      ****
      ****
      **(210,570**
      **)**
      
      
      307,767
      
      
      
      (185,429
      )
      
      
      122,338****
      
      ****
      ****
      ****
      
      ****
      ****
      ****
      
      ****Net
          interest income (b)
      
      **$**
      **492,331**
      ****
      ****
      **$**
      **(75,709**
      **)**
      ****
      **$**
      **416,622**
      ****
      
      $
      187,472
      
      
      $
      74,169
      
      
      $
      261,641****
      
      ****
      ****
      ****
      
      ****
      ****
      ****
      
      ****




|(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) |  | December 31, 2002 amounts include reductions from the change in the
estimated value of accrued interest and fees.                                                                                                     





---



##### 



|22 | THINK OF YOURSELF AS A CUSTOMER
|-- | -------------------------------





income on investment securities for 2001 was attributable to a
decrease of 82 basis points in the yield earned on average investment
securities for 2001 from 2000, partially offset by an increase of
$269.4 million in average investment securities for 2001 from 2000. (MONEY MARKET INSTRUMENTS INTEREST INCOME)
Money market instruments include
interest-earning time deposits in other
banks and federal funds sold. Interest
income on money market instruments
was $88.6 million for 2002, a decrease
of $39.4 million 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. Interest income on money
market instruments was $128.0 million
for 2001 as average money market
instruments increased $1.2 billion for
2001. This higher level of average money market instruments was
offset by a decrease of 235 basis points in the yield earned on
average money market instruments from 2000. The decreases in the yield on investment securities and money
market instruments for 2002 and 2001 reflect actions by the FOMC
throughout 2001 that impacted overall market interest rates. Note 7 to the audited consolidated financial statements provides
further detail regarding the Corporations investment securities. OTHER INTEREST-EARNING ASSETS Interest income on other interest-earning assets decreased
$28.2 million to $355.4 million for 2002 from 2001, as compared
to an increase of $72.6 million to $383.7 million for 2001 from
2000. The decrease in interest income on other interest-earning
assets for 2002 was attributable to a decrease of 267 basis points in
the yield earned on average other interest-earning assets in 2002,
partially offset by an increase of $610.8 million in average other
interest-earning assets, as compared to 2001. The decrease in the
yield earned on average other interest-earning assets in 2002
was primarily attributable to the decrease in the discount rate
assumptions used in the valuation of the Corporations retained
beneficial interests in its securitization transactions. The increase
in interest income on other interest-earning assets for 2001
was attributable to an increase of $605.2 million in average other
interest-earning assets, as compared to 2000. The increase in average
other interest-earning assets in 2002 and 2001 reflects higher levels
of interest-earning beneficial interests which the Corporation
retains in its securitization transactions.


The Corporation adopted Emerging Issues Task Force Issue 99-20,
Recognition of Interest Income and Impairment on Purchased
and Retained Beneficial Interests in Securitized Financial Assets
(EITF 99-20) on April 1, 2001. As a result, the Corporation now
records accretion of interest income related to retained beneficial
interests in its securitization transactions as interest income in the
Corporations consolidated statements of income. This income was
previously recorded as securitization income in the Corporations
consolidated statements of income. These retained beneficial interests
include the interest-only strip receivable, cash reserve
accounts, and accrued interest and fees on securitized loans. The
Corporation includes these retained beneficial interests in accounts
receivable from securitization in the consolidated statements of
financial condition. The implementation of EITF 99-20 did not have
a material impact on the Corporations consolidated net income.

Note 8 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 loan portfolio. (LOAN RECEIVABLES INTEREST INCOME) Interest income generated by the
Corporations loan receivables increased
$302.0 million to $3.1 billion for 2002
from 2001. Excluding the change in
the estimated value of accrued interest
and fees, interest income generated by
the Corporations loan receivables
would have been $3.2 billion for
2002, an increase of $368.3 million
from 2001. The increase 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.
The decrease in the yield on average loan receivables for 2002
reflects lower promotional and other interest rates offered to attract
and retain Customers and to grow loan receivables, an increase in
the percentage of loans in the portfolio with promotional rates,
and the impact of the change in the estimated value of accrued
interest and fees. Excluding the change in the estimated value of
accrued interest and fees, the yield earned by the Corporation for
2002 on average loan receivables would have been 12.47%.








---



##### 



| | THINK OF YOURSELF AS A CUSTOMER
| | -------------------------------



TABLE 3: LOAN RECEIVABLES DISTRIBUTION (dollars in thousands)



December
        31,
      
      2002
      

      
      
      
      
      2001
      
      
      
      
      
      2000
      
      
      
      
      
      1999
      
      
      
      
      
      1998**Loans
          Held for Securitization (a)**Domestic:Credit
          card
      
      **$**
      **9,157,751**
      ****
      ****
      ****
      **31.9**
      **%**
      
      $
      7,943,965
      
      
      
      32.2
      %
      
      $
      6,396,652
      
      
      
      32.1
      %
      
      $
      7,835,429
      
      
      
      44.3
      %
      
      $
      1,135,004
      
      
      
      8.4
      %Other
          consumer
      
      ****
      **40,962**
      ****
      ****
      ****
      **.1**
      ****
      
      
      1,032,697
      
      
      
      4.2
      
      
      
      1,022,756
      
      
      
      5.1
      
      
      
      1,001,271
      
      
      
      5.7
      
      
      
      114,747
      
      
      
      .9****
      
      ****
      ****
      ****
      
      ****Total
          domestic loans held for securitization
      
      ****
      **9,198,713**
      ****
      ****
      ****
      **32.0**
      ****
      
      
      8,976,662
      
      
      
      36.4
      
      
      
      7,419,408
      
      
      
      37.2
      
      
      
      8,836,700
      
      
      
      50.0
      
      
      
      1,249,751
      
      
      
      9.3Foreign (b)
      
      ****
      **1,830,914**
      ****
      ****
      ****
      **6.4**
      ****
      
      
      953,286
      
      
      
      3.9
      
      
      
      852,525
      
      
      
      4.3
      
      
      
      855,916
      
      
      
      4.9
      
      
      
      442,517
      
      
      
      3.3****
      
      ****
      ****
      ****
      
      ****Total loans held for
securitization
    
    
    11,029,627
    
    
    
    38.4
    
    
    
    9,929,948
    
    
    
    40.3
    
    
    
    8,271,933
    
    
    
    41.5
    
    
    
    9,692,616
    
    
    
    54.9
    
    
    
    1,692,268
    
    
    
    12.6**Loan
          Portfolio**
      
      ****
      ****
      ****
      ****
      ****
      ****
      ****Domestic:
      
      ****
      ****
      ****
      ****
      ****
      ****
      ****Credit
          card
      
      ****
      **6,413,116**
      ****
      ****
      ****
      **22.3**
      ****
      
      
      6,439,471
      
      
      
      26.1
      
      
      
      6,612,913
      
      
      
      33.1
      
      
      
      5,116,381
      
      
      
      28.9
      
      
      
      7,981,106
      
      
      
      59.2Other
          consumer
      
      ****
      **6,285,751**
      ****
      ****
      ****
      **21.9**
      ****
      
      
      5,094,198
      
      
      
      20.7
      
      
      
      2,799,289
      
      
      
      14.0
      
      
      
      1,268,019
      
      
      
      7.2
      
      
      
      2,748,511
      
      
      
      20.4****
      
      ****
      ****
      ****
      
      ****Total
          domestic loan portfolio
      
      ****
      **12,698,867**
      ****
      ****
      ****
      **44.2**
      ****
      
      
      11,533,669
      
      
      
      46.8
      
      
      
      9,412,202
      
      
      
      47.1
      
      
      
      6,384,400
      
      
      
      36.1
      
      
      
      10,729,617
      
      
      
      79.6Foreign
          (b)
      ****
      ****
      **4,998,014**
      ****
      ****
      ****
      **17.4**
      ****
      
      
      3,169,947
      
      
      
      12.9
      
      
      
      2,270,702
      
      
      
      11.4
      
      
      
      1,586,693
      
      
      
      9.0
      
      
      
      1,046,482
      
      
      
      7.8****
      
      ****
      ****
      ****
      
      ****Total
          loan portfolio
      
      ****
      **17,696,881**
      ****
      ****
      ****
      **61.6**
      ****
      
      
      14,703,616
      
      
      
      59.7
      
      
      
      11,682,904
      
      
      
      58.5
      
      
      
      7,971,093
      
      
      
      45.1
      
      
      
      11,776,099
      
      
      
      87.4****
      
      ****
      ****
      ****
      
      ****Total
          loan receivables
      
      **$**
      **28,726,508**
      ****
      ****
      ****
      **100.0**
      **%**
      
      $
      24,633,564

      
      
      
      100.0
      %
      
      $
      19,954,837
      
      
      
      100.0
      %
      
      $
      17,663,709
      
      
      
      100.0
      %
      
      $
      13,468,367
      
      
      
      100.0
      %






|(a) |  | Loans held for securitization includes loans which 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 which
management intends to securitize or sell within one year.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(b) |  | Note 26 to the audited consolidated financial statements provides the
foreign loan distribution between credit card and other consumer loans.                                                                                                                                                                                                                                                               



During 2001, interest income on loan receivables increased
$322.1 million to $2.8 billion from 2000. The increase in interest
income during 2001 was primarily the result of a $2.6 billion
increase in average loan receivables. The yield earned by the
Corporation for 2001 on these receivables decreased 21 basis
points to 13.73% from 2000. Table 3 presents the Corporations loan receivables at year end
distributed by loan type. Loan receivables increased to $28.7 billion
at December 31, 2002, as compared to $24.6 billion and
$20.0 billion at December 31, 2001 and 2000, respectively. (LOAN RECEIVABLES DISTRIBUTION)


Domestic credit card loan receivables increased to $15.6 billion at
December 31, 2002, from $14.4 billion at December 31, 2001,
and $13.0 billion at December 31, 2000. The increase in domestic
credit card loan receivables during 2002 and 2001 was a 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. The Corporation anticipates increasing the required minimum
monthly payment amounts for its credit card loan accounts in the
fourth quarter of 2003. Credit card Customers are generally
required to make a minimum monthly payment equal to the lesser
of the sum of finance charges and fees assessed that month plus
$15 or 2.25% of the outstanding balance on the account. After the
change, credit card Customers will generally be required to make a
minimum monthly payment equal to 2.0% of the outstanding
balance on the account, or 2.25% of the outstanding balance
for accounts that are over their credit limit or 90 or more days
delinquent and for certain other accounts. Increasing minimum
monthly payment amounts will likely reduce the Corporations
credit card loan receivables and the interest income on those
receivables in future periods. The impact is not expected to be
material in 2003 because the Corporation anticipates making the
change late in 2003. The impact in 2004 will depend on the actual
payment patterns of Customers after the change, whether or not
the Customers who pay down more quickly the account balance
reuse the available credit, and other factors that are difficult to
predict or quantify. Also, the impact could vary based on activation
programs or other actions the Corporation will take to attempt to
limit the impact.








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|24 | THINK OF YOURSELF AS A CUSTOMER
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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 were in their
scheduled amortization period and the trusts used principal
payments on securitized loans to pay the investors rather than to
purchase new loan principal receivables. During 2001, the
Corporation securitized $10.8 billion of domestic credit card loan
principal receivables, offset by an increase of $7.9 billion in the
Corporations domestic credit card loan receivables when certain
securitization transactions were in their scheduled amortization
period and the trusts 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
$2.5 billion of domestic credit card loan receivables during 2002,
including a $1.3 billion credit card loan portfolio from Wachovia
Corporation. The Corporation acquired $706.7 million of domestic
credit card loan receivables in 2001. The yield on average domestic credit card loan receivables was
11.67% for 2002, as compared to 13.61% for 2001 and 13.99%
for 2000. Excluding the change in the estimated value of accrued
interest and fees, the yield on average domestic credit card loan
receivables would have been 11.93% in 2002. The decrease of
194 basis points in the yield on average domestic credit card loan
receivables for 2002 reflects lower promotional and other interest
rates offered to attract and retain Customers and to grow loan
receivables, an increase in the percentage of loans in the portfolio
with promotional rates, and the impact of the change in the
estimated value of accrued interest and fees. Domestic credit card loans held for securitization increased to
$9.2 billion at December 31, 2002, from $7.9 billion at
December 31, 2001 and $6.4 billion at December 31, 2000. The
increases reflect higher planned levels of domestic credit card
securitizations. Domestic other consumer loan receivables increased to
$6.3 billion at December 31, 2002, compared to $6.1 billion and
$3.8 billion at December 31, 2001 and 2000, respectively. The
increase in domestic other consumer loan receivables during 2002
and 2001 was 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. In 2001, the Corporations domestic other consumer
loans also increased as the Corporation funded certain receivables
through on-balance-sheet secured borrowing transactions totaling
$1.0 billion, which are included in short-term borrowings in the
Corporations consolidated statements of financial condition.


The yield on average domestic other consumer loan receivables
was 13.84% for 2002, as compared to 15.01% for 2001 and
15.03% for 2000. Excluding the change in the estimated value of
accrued interest and fees, the yield on average domestic other
consumer loan receivables would have been 14.22% 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 2002, the decrease in
the yield on average domestic other consumer loan receivables
reflects lower promotional and other interest rates offered to attract
and retain Customers and to grow loan receivables, an increase in
the percentage of loans in the portfolio with promotional rates,
and the impact of the change in the estimated value of accrued
interest and fees. Domestic other consumer loans held for securitization decreased
to $41.0 million at December 31, 2002, from $1.0 billion at
December 31, 2001, as the Corporation reduced the amount of
other consumer loans it intends to securitize or sell within one
year. 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, 2002. The net gains realized by the Corporation
from the sale of its mortgage loans were not material to the
Corporations consolidated statements of income for 2002,
2001, and 2000. Foreign loan receivables increased to $6.8 billion at December 31,
2002, as compared to $4.1 billion at December 31, 2001, and
$3.1 billion at December 31, 2000. The growth in foreign loan
receivables for 2002 and 2001 was a result of loan originations
through marketing programs at the Corporations two foreign bank
subsidiaries, 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 2001, MBNA Europe acquired
approximately $396.2 million in credit card loan receivables.
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
transactions were in their scheduled amortization period and the
trusts used principal payments to pay the investors rather than to
purchase new loan principal receivables from the Corporation.
During 2001, the Corporation securitized approximately
$1.5 billion of foreign credit card loan principal receivables.
The impact of these securitizations on foreign loan receivables
was partially offset by an increase of $420.9 million in the
Corporations foreign loan receivables that resulted when certain
securitization transactions were in their scheduled amortization
period and the trusts used principal payments to pay the investors








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| | THINK OF YOURSELF AS A CUSTOMER
| | -------------------------------





rather than to purchase new loan principal receivables from the
Corporation. 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 strengthening of foreign
currencies against the U.S. dollar also increased foreign loan
receivables by $509.7 million during 2002. The yield on average foreign loan receivables was 11.71% for
2002, as compared to 12.41% and 12.62% for 2001 and 2000,
respectively. Excluding the change in the estimated value
of accrued interest and fees, the yield on average foreign loan
receivables would have been 11.79% for 2002. The decline in the
yield on average foreign loan receivables for 2002 reflects lower
promotional and other interest rates offered to attract and retain
Customers and to grow loan receivables, and the change in the
estimated value of accrued interest and fees. Note 9 to the audited consolidated financial statements provides
further detail regarding the Corporations loan receivables. ACCOUNTS RECEIVABLE FROM SECURITIZATION Accounts receivable from securitization decreased $568.6 million
or 7.6% to $6.9 billion at December 31, 2002, as compared to
$7.5 billion at December 31, 2001. The decrease in accounts
receivable from securitization is primarily related to a decline in
the amount due from the trusts on the sale of new loan principal
receivables due to the timing of securitizations that are in amortization
and the Corporations change in the estimated value of
accrued interest and fees. INTANGIBLE ASSETS Intangible assets increased $606.3 million or 23.5% to $3.2 billion
at December 31, 2002, as compared to $2.6 billion at
December 31, 2001. The increase in intangible assets is primarily
related to portfolio acquisitions. During 2002, the Corporation
acquired a $1.3 billion credit card loan portfolio from Wachovia
Corporation as part of its total portfolio acquisitions in 2002. As
part of this acquisition, the Corporation recognized an additional
$277.1 million of domestic PCCRs. During 2002, the Corporation
also acquired a $1.2 billion credit card loan portfolio from
Alliance & Leicester plc. As part of this acquisition, the
Corporation recognized an additional $392.9 million of foreign
PCCRs. These increases were partially offset by the amortization
of intangible assets of $348.7 million during 2002. PREPAID EXPENSES AND DEFERRED CHARGES Prepaid expenses and deferred charges increased $67.9 million or
19.7% to $412.6 million at December 31, 2002, as compared to
$344.7 million at December 31, 2001. The increase was primarily
related to increases in prepaid employee benefit plan costs and
unamortized debt issuance costs.


OTHER ASSETS Other assets increased $738.3 million or 61.3% to $1.9 billion at
December 31, 2002, as compared to $1.2 billion at
December 31, 2001. The increase was primarily related to an
increase in the Corporations net deferred tax assets of
$159.4 million and an increase of $427.5 million in the gross
unrealized gains on the Corporations interest rate swap agreements,
forward exchange contracts, and foreign exchange swap agreements
accounted for under Statement of Financial Accounting
Standards No. 133, Accounting for Derivative Instruments and
Hedging Activities (Statement No. 133), as amended. The interest
rate swap agreements and foreign exchange swap agreements
are used to hedge changes in the fair value of the Corporations
fixed-rate long-term debt and bank notes attributable to changes in
benchmark interest rates and currency fluctuations. During 2002, the Corporation increased its use of interest rate
swap agreements and foreign exchange swap agreements by
entering into an additional $3.9 billion notional value of interest
rate swap agreements and an additional $1.3 billion notional value
of foreign exchange swap agreements consistent with the increase
in the Corporations borrowed funds. The Corporation uses
interest rate swap agreements and foreign exchange swap
agreements to change a portion of fixed-rate funding sources to
floating-rate to better 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. 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 were offset by changes in the carrying value of the
corresponding hedged long-term debt and bank notes. Notes 3 and 28 to the audited consolidated financial statements
provide further detail regarding the Corporations derivative
financial instruments and hedging activity. DEPOSITS Total interest expense on deposits was $1.3 billion for 2002,
compared to $1.4 billion for 2001. The decrease in interest
expense on deposits of $189.2 million 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 Corporations on-balance-sheet funding costs as a
portion of the Corporations deposits matured and were reinvested
in a lower interest rate environment. Total interest expense on deposits increased to $1.4 billion for
2001, compared to $1.3 billion for 2000. The increase in interest
expense on deposits during 2001 was primarily the result of a
$4.3 billion increase in average interest-bearing deposits, partially








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|26 | THINK OF YOURSELF AS A CUSTOMER
|-- | -------------------------------





offset by a 36 basis point decrease in the rate paid on 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
Corporations on-balance-sheet funding costs. The Corporations money market deposit accounts are variable-rate
products. In addition, the Corporations foreign time deposits,
although fixed-rate in nature, generally mature within one year.
Therefore, the lower market interest rates throughout 2001
decreased the rate paid on average money market deposit accounts
and average foreign time deposits during the years ended
December 31, 2002 and 2001. The Corporations domestic time
deposits are primarily fixed-rate deposits with maturities that
range from six months to five years, thus lower market interest
rates in 2001 decreased the average rate paid on the Corporations
average domestic time deposits for 2002, but not to the same
extent as average money market accounts and average foreign-time
deposits. The lower market interest rates did not significantly
lower the average rate paid on the Corporations average domestic
time deposits in 2001, as compared to 2000. The increases in average interest-bearing deposits for 2002 and
2001 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. BORROWED FUNDS Borrowed funds include both short-term borrowings and
long-term debt and bank notes. Interest expense on short-term borrowings was $43.0 million for
2002, compared to $24.8 million and $34.2 million for 2001 and
2000, respectively. 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
are secured by $1.1 billion of domestic other consumer loan
receivables. The Corporation has the option to liquidate these
structured financings on a monthly basis. The decrease in interest
expense on short-term borrowings for 2001 was primarily a result
of a decrease of 162 basis points in the rate paid on average short-term
borrowings. For 2002 and 2001, 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 14 to the audited consolidated financial statements provides
further detail regarding the Corporations short-term borrowings.


Interest expense on long-term debt and bank notes decreased to
$305.0 million for 2002, as compared to $344.6 million for 2001
and $397.0 million for 2000. The decrease in interest expense on
long-term debt and bank notes in 2002 was primarily a 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 interest expense on long-term debt and bank notes in
2001 was primarily the result of a decrease in the interest rate paid
on average long-term debt and bank notes of 151 basis points,
offset by an increase in average long-term debt and bank notes of
$609.8 million. For 2002 and 2001, the decrease in the interest
rate paid on average long-term debt and bank notes reflects actions
by the FOMC throughout 2001 that impacted overall market
interest rates. Interest expense on domestic long-term debt and bank notes
decreased to $173.5 million during 2002, as compared to
$241.8 million for 2001 and $324.0 million for 2000. The
decrease in interest expense on domestic long-term debt and bank
notes for 2002 was primarily the 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 long-term debt and bank notes of $1.1 billion.
The decrease in interest expense on domestic long-term debt and
bank notes for 2001 was primarily as a result of a decrease of
180 basis points in the interest rate paid on average domestic
long-term debt and bank notes, as compared to 2000. For 2002
and 2001, 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 to $131.5 million for 2002, compared to $102.8 million
for 2001 and $73.0 million for 2000. 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 $655.1 million and $600.3 million for 2002 and 2001,
respectively. MBNA Europe and MBNA Canada issued additional
long-term debt and bank notes in 2002 and 2001 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 15 to the audited consolidated financial statements provides
further detail regarding the Corporations long-term debt and
bank notes.








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| | THINK OF YOURSELF AS A CUSTOMER
| | -------------------------------





ACCRUED EXPENSES AND OTHER LIABILITIES Accrued expenses and other liabilities increased $378.8 million or
22.5% to $2.1 billion at December 31, 2002, as compared to
$1.7 billion at December 31, 2001. This increase was primarily the
result of increases in the timing of certain compensation payments
of $114.4 million, the continued accumulation of amounts due on
Customer rewards programs expected to be redeemed in future
periods of $49.8 million, and an increase in the gross unrealized
losses of the Corporations interest rate swap agreements, forward
exchange contracts, and foreign exchange swap agreements
accounted for under Statement No. 133 of $120.4 million. ACCUMULATED OTHER COMPREHENSIVE INCOME Accumulated other comprehensive income was $84.7 million at
December 31, 2002, as compared to a loss of $48.4 million at
December 31, 2001. The change was primarily attributable to
favorable foreign currency translation related to the strengthening
of foreign currencies against the U.S. dollar. Note 17 to the audited consolidated financial statements provides
further detail on the components of other comprehensive income. OTHER OPERATING INCOME (OTHER OPERATING INCOME BAR CHART) Total other operating income was $6.8 billion for 2002, as
compared to $6.7 billion in 2001. Excluding the change in
the estimated value of accrued interest and fees, total other operating income for 2002 would have
been $7.0 billion, an increase of
$277.0 million or 4.2% from 2001.
Total other operating income increased
35.6% for 2001 as compared to
$4.9 billion in 2000. Securitization income was $5.7 billion
for 2002 and 2001 and $4.1 billion for
2000. Excluding the change in the
estimated value of accrued interest and
fees, securitization income would have
been $5.8 billion in 2002, an increase
of $116.0 million or 2.0% from 2001.
The levels of securitization income
are affected by the levels of average
securitized interest-earning assets for
the period, the net interest margin on
the securitized interest-earning assets for the period, other fee
income generated by securitized loans, and net charge-offs on
securitized loans. Also included in securitization income is the net
incremental change in the interest-only strip receivable (after transaction
costs) for all securitization transactions that the Corporation
recognizes as sales in accordance with Statement No. 140. In
accordance with Statement No. 140, the Corporation recognizes an
interest-only strip receivable that represents the contractual right to
receive from the trust interest and other revenue less certain costs
over the estimated life of the securitized loan principal receivables.


Securitization income decreased $56.0 million or 1.0% in 2002
as compared to 2001, primarily due to the decrease in the net
incremental change in the interest-only strip receivable in 2002 as
compared to 2001 and the higher levels of net charge-offs on
securitized loans, offset by the higher levels of average securitized
loans and the higher net interest margin on securitized interest
earning assets during 2002. Securitization income also declined
during 2002 as a result of the impact of the change in the
estimated value of accrued interest and fees. The net incremental
change in the interest-only strip receivable for all securitization
transactions recognized by the Corporation in securitization
income was a $41.2 million decrease during 2002 (net of securitization
transaction costs) as compared to a $204.2 million increase
(net of securitization transaction costs) for 2001, resulting in
a decrease in securitization income of $245.4 million from 2001
to 2002. The projected excess spread for securitized credit card loan principal
receivables was 4.84% at December 31, 2002, as compared
to 5.14% at December 31, 2001. The impact of the change in the
projected excess spread for securitized credit card loan principal
receivables resulted in an approximate $70 million decrease in
securitization income in 2002. The projected excess spread for
securitized other consumer loan principal receivables was .91% at
December 31, 2002, as compared to 2.60% at December 31, 2001.
The impact of the change in the projected excess spread for
securitized other consumer loan principal receivables resulted in
an approximate $75 million decrease in securitization income in
2002. The decrease in the projected excess spread assumptions
was primarily the result of decreases in the projected interest yields
on securitized loans resulting from the Corporations pricing
decisions to attract and retain Customers and to grow loans, along
with higher projected charge-off rates on securitized credit card
and other consumer loan principal receivables. These changes were partially offset by a decrease in the projected
interest rate paid to investors due to actions by the FOMC
throughout 2001 that impacted overall market interest rates, as the
interest rates paid to the investors in the Corporations securitized
transactions are primarily variable in nature. Note 8 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. In addition, the net charge-off rate on securitized loans increased
to 5.13% in 2002 from 4.89% in 2001, consistent with the overall
trend in the Corporations managed loan portfolio. This increase in
the net charge-off rate in 2002 from 2001 decreased securitization
income $383.4 million during 2002. Also, average securitized loans increased $4.2 billion or 5.9% in
2002 as compared to 2001. This growth in average securitized
loans reflects the overall growth in the Corporations average
managed loans, which increased 10.0% for 2002. In addition, the
net interest margin on securitized interest-earning assets increased








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|28 | THINK OF YOURSELF AS A CUSTOMER
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to 9.93% during 2002 as compared to 9.72% during 2001. The
securitized net interest margin represents securitized net interest
income for the period expressed as a percentage of average securitized
interest-earning assets. 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
12.36% in 2002 as compared to 14.15% in 2001. The decrease in
the yield earned on average securitized loans for 2002 reflects
lower promotional and other interest rates offered to attract and
retain Customers and to grow managed loans, along with the
change in the estimated value of accrued interest and fees. The
average interest rate paid to investors in the Corporations securitization
transactions was 2.45% for 2002 as compared to 4.33%
for 2001. 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. Excluding the
change in the estimated value of accrued interest and fees, the net
interest margin on securitized interest-earning assets in 2002
would have been 10.23% and the yield earned on average securitized
loans would have been 12.63%. The growth in average securitized loans, combined with the
increase in the net interest margin increased securitization income
$497.3 million in 2002 as compared to 2001. Other fee income
also increased $75.5 million or 3.1% in 2002 as compared to 2001,
primarily due to the growth in securitized loans, further offsetting
the adverse impact of the decrease in the net incremental change in
the interest-only strip receivable and the higher net charge-offs
on securitized loans. Excluding the change in the estimated value
of accrued interest and fees, other fee income on securitized loans
in 2002 would have increased $160.0 million or 6.6%. 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 a component of the net
incremental change in the interest-only strip receivable. The gain
was $154.6 million (net of securitization transaction costs of
$41.7 million) for 2002 (on the sale of $15.5 billion of credit card
loan principal receivables in 2002), as compared to $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). During 2002, as a result of the change in the estimated value of
accrued interest and fees (for further discussion, see Critical
Accounting PoliciesRevenue Recognition), accounts receivable
from securitization was reduced by $172.0 million at
September 30, 2002. This reduction was primarily a result of
a decrease in the carrying value of accrued interest and fees on
securitized loans. The change in the estimated value of accrued interest and fees
reduced accrued interest and fees on securitized loans by
$295.9 million at September 30, 2002. 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. The Corporation has 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 the $172.0 million
reduction to securitization income discussed above. Securitization income increased $1.6 billion or 39.2% in 2001
as compared to 2000, primarily due to the growth in average
securitized loans, which increased $10.8 billion, or 18.1%, in 2001
as compared to 2000. This growth in average securitized loans
reflects the overall growth of the Corporations average managed
loans, which increased 17.4% during 2001. In addition, the net
interest margin on securitized interest-earning assets increased to
9.72% during 2001 as compared to 7.77% during 2000. The
increase in the net interest margin on securitized interest-earning
assets during 2001 primarily reflects the decrease in the interest
rate paid to investors in the Corporations securitization transactions.
While the yield earned on average securitized loans was
14.15% in 2001 as compared to 14.22% in 2000, the average
interest rate paid to investors in the Corporations securitization
transactions decreased to 4.33% in 2001, from 6.26% in 2000. The
decrease in 2001 reflects actions by the FOMC throughout 2001
that impacted overall market interest rates since the interest rate
paid to investors generally resets on a monthly basis. The growth in average securitized loans, combined with the
increase in the net interest margin increased securitization income
$2.1 billion in 2001 as compared to 2000. Other fee income was
relatively flat in 2001 as compared to 2000. Finally, in 2001, there
was a $204.2 million increase in the net incremental change in the
interest-only strip receivable (net of securitization transaction
costs) as compared to a $22.3 million increase in the net incremental
change in the interest-only strip receivable (net of securitization
transaction costs) in 2000, resulting in an increase in
securitization income of $181.9 million from 2000 to 2001. The
projected excess spread for securitized credit card loan principal
receivables was 5.14% at December 31, 2001, as compared
to 3.73% at December 31, 2000, and the projected excess spread
for securitized other consumer loan principal receivables was
2.60% at December 31, 2001, as compared to 3.89% at
December 31, 2000. The increase in the projected excess spread








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| | THINK OF YOURSELF AS A CUSTOMER
| | -------------------------------





assumptions for securitized credit card loan principal receivables
was primarily a result of a lower interest rate paid to investors used
in the excess spread assumption at the end of 2001 as compared
to 2000 due to the actions by the FOMC throughout 2001
that impacted overall market interest rates. The lower anticipated
interest rate paid to investors was partially offset by lower
projected interest income yields on securitized loans and higher
projected charge-off rates. For securitized other consumer loan
principal receivables, the decrease in the excess spread assumption
was primarily a result of higher projected charge-off rates for the
other consumer loan portfolio. Also, the net charge-off rate on securitized loans increased to
4.89% in 2001 from 4.69% in 2000, consistent with the overall
trend in the Corporations managed loan portfolio. This increase in
the net charge-off rate in 2001 from 2000 decreased securitization
income $651.0 million for 2001. 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 a component of the net
incremental change in the interest-only strip receivable. The gain
was $96.7 million (net of securitization transaction costs of
$62.3 million) for 2001 (on the sale of $12.4 billion of credit card
loan principal receivables in 2001) as compared to $110.4 million
(net of securitization transaction costs of $64.9 million) in
2000 (on the sale of $14.2 billion of credit card loan principal
receivables and $1.6 billion of other consumer loan principal
receivables in 2000). 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 Inc. and Visa U.S.A. Inc.
Interchange income increased $56.5 million to $357.4 million in
2002 from 2001. Interchange income increased $14.8 million to
$301.0 million in 2001 from 2000. The increases in interchange
income were primarily a result of increases in cardholder sales volume. Credit card fees were $385.4 million for 2002, as compared to
$295.1 million for 2001 and $289.5 million for 2000. Excluding
the change in the estimated value of accrued interest and fees, credit
card fees would have been $400.4 million for 2002, an increase of
$105.3 million or 35.7% from 2001. Credit card fees include
annual, late, overlimit, returned check, cash advance, express
payment, and other miscellaneous fees earned on the Corporations
credit card loans. The increase in credit card fees in 2002 was a
result of the growth in the Corporations outstanding loan
receivables, the number of accounts, and the number of fees assessed. Other consumer loan fees were $100.9 million in 2002, as
compared to $92.4 million in 2001 and $64.5 million in 2000.
Excluding the change in the estimated value of accrued interest
and fees, other consumer loan fees would have been $109.7 million
in 2002, an increase of $17.3 million or 18.7% from 2001. Other
consumer loan fees include annual, late, overlimit, returned check,
check transaction, express payment, and other miscellaneous fees


earned on the Corporations other consumer loans. The increase
in other consumer loan fees in 2002 and 2001 was a result of the
growth in the Corporations other consumer loan receivables, the
number of accounts, and the number of fees assessed. The Corporations insurance income primarily relates to fees
received for marketing credit related life and disability insurance
and credit protection products to its loan Customers. The
Corporation recognizes insurance income over the policy or contract
period as earned. Insurance income was $181.5 million in 2002,
as compared to $145.3 million for 2001 and $85.1 million in 2000. OTHER OPERATING EXPENSE Total other operating expense increased 5.1% to $4.7 billion for
2002, compared to an increase of 22.7% to $4.5 billion for 2001.
The growth in other operating expense for 2002 and 2001 reflects
the Corporations continued investment in attracting, servicing,
and retaining credit card and other consumer loan Customers. The Corporation added 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. The Corporation added
9.5 million new accounts in 2001 and 13.7 million new accounts
in 2000. The Corporation added 405 new endorsements from
organizations during 2002, compared to 439 new endorsements
in 2001 and 459 new endorsements in 2000. The growth in other operating expense was slower in 2002, as
compared to 2001, primarily as a result of slower growth in the
number of employees. Salaries and employee benefits increased
$126.1 million to $1.9 billion for 2002 and $309.9 million to
$1.8 billion for 2001. The increases in salaries and employee
benefits primarily reflect the increased number of employees to
service the Corporations higher number of Customers, increases
in employee compensation levels, and in 2002 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. At December 31, 2002, the Corporation had approximately
26,100 full-time equivalent employees, as compared to
approximately 25,400 full-time equivalent employees at
December 31, 2001 and approximately 22,700 full-time equivalent
employees at December 31, 2000. Included in salaries and employee benefits is the net periodic
benefit cost for the Corporations Pension Plan (Pension Plan)
and the Supplemental Executive Retirement Plan (SERP) of
$66.6 million in 2002 compared to $34.3 million in 2001, and
$36.1 million in 2000. The Corporation anticipates, based on
current conditions, that net periodic benefit cost for the Pension
Plan and the SERP plan will increase by $33.5 million in 2003
because of a lower assumed discount rate, a lower expected return
on plan assets, and normal operations of the plans, partially offset
by a lower assumed rate of compensation increase. The
Corporation expects to contribute approximately $70 million to
the Pension Plan in 2003.








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|30 | THINK OF YOURSELF AS A CUSTOMER
|-- | -------------------------------





Amortization of intangible assets decreased $33.1 million to
$348.7 million for 2002, as compared to an increase of
$108.6 million to $381.8 million for 2001. The decrease during
2002 was primarily attributable to the change in the Corporations
amortization period of its PCCRs. Prior to 2002, the Corporation amortized the value of 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
PCCRs. As a result of the study, effective January 1, 2002, the
Corporation extended the amortization period of the domestic
PCCRs to 15 years to more appropriately match the amortization
period with the PCCRs estimated useful lives. As of
December 31, 2002, the Corporation amortized the value of
its foreign PCCRs over a period of 10 years. Beginning
January 1, 2003, the Corporation will extend the amortization
period of its foreign PCCRs to 15 years. As a result of the change in the amortization period for PCCRs, the
Corporations 2002 income before income taxes increased
$100.5 million ($63.7 million after taxes). Without the change in
the amortization period of the 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 to the audited consolidated financial statements provides
further detail regarding the Corporations intangible assets. Purchased services increased $45.3 million to $544.1 million
in 2002, as compared to $498.8 million in 2001, and
$358.7 million in 2000. Advertising expense increased
$46.5 million to $315.4 million in 2002, as compared to
$268.9 million in 2001, and $224.6 million in 2000. The
increases in purchased services and advertising expense reflect the
Corporations continued investment in attracting, servicing, and
retaining domestic and foreign credit card and other consumer
loan Customers. Loan receivable fraud losses decreased
$11.7 million to $160.6 million in 2002 as compared to
$172.4 million in 2001 and $164.0 million in 2000. The decrease
in loan receivable fraud losses in 2002 was attributable to an
increase in the number of employees dedicated to fraud detection
and improved fraud detection strategies. Note 22 to the audited consolidated financial statements provides
further detail regarding the Corporations other operating
expenses. INCOME TAXES The Corporation recognized applicable income taxes of
$1.0 billion for 2002 and 2001 as compared to $807.9 million for
2000. These amounts represent an effective tax rate of 36.6% for
2002, 37.6% for 2001, and 38.1% for 2000. The reduction in the
effective tax rate was primarily driven by favorable resolution of
examination issues at the federal and state levels. Note 19 to the
audited consolidated financial statements reconciles reported
applicable income taxes to the amount computed by applying the
federal statutory rate to income before income taxes.


LOAN QUALITY Table 4 presents delinquent loans for the Corporations loan portfolio,
excluding loans held for securitization, and the Corporations
managed loans, and includes the impact of the change in the
estimated value of accrued interest and fees. 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, general economic conditions, the success of the
Corporations collection efforts, the composition of credit card and
other consumer loans included in the Corporations loan receivables,
and the seasoning of the Corporations loans. 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 Corporation
considers these and other factors in determining an appropriate
reserve for possible credit losses. DELINQUENCIES 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
(DELINQUENCY LOAN PORTFOLIO)
and fees continue to accrue on the
Corporations delinquent loans.
In February 1999, the FFIEC revised
its policy on the classification of
consumer loans. The revised policy
established uniform guidelines for the
charge off of loans to delinquent,
bankrupt, and deceased borrowers, for
the charge off of fraudulent accounts,
and for re-aging delinquent accounts.
The Corporation implemented the
FFIECs guidelines in December 2000
by accelerating the charge-off of some
delinquent loans. The Corporation
charges off open-end delinquent retail
loans by the end of the month in
which they become 180 days contractually
past due, closed-end delinquent
retail loans by the end of the month in
which they become 120 days contractually
past due, and bankrupt accounts
60 days after receiving notice of filing
from the bankruptcy courts. The
Corporation charges off deceased
accounts when the loss is determined.
Fraudulent accounts are charged off
within 90 days after identifying the
account as fraudulent. Before the
implementation of the new policy, the
Corporation charged off open-end








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| | THINK OF YOURSELF AS A CUSTOMER
| | -------------------------------





delinquent retail loans prior to becoming 210 days contractually
past due, closed-end delinquent retail loans prior to becoming
150 days contractually past due, bankrupt accounts by the end of
the third billing cycle after receipt of notice of filing from the bankruptcy
court, deceased accounts prior to becoming 210 days
contractually past due and fraudulent accounts within 150 days
after identification. As a result of the one-time FFIEC adjustment,
the Corporation recognized in the fourth quarter of 2000 approximately
one additional month of principal charge-offs and
recorded a $75.0 million pre-tax charge related primarily to the
reversal of accrued interest and fees on the additional charged-off
loans. Without the acceleration of charge off of some delinquent
accounts as a result of the implementation of the revised FFIEC
policy, loan portfolio delinquency and managed loan delinquency
would have been 4.19% and 4.94%, respectively, at
December 31, 2000. Delinquency as a percentage of the Corporations loan portfolio
was 4.28% at December 31, 2002, compared with 4.64% and
3.89% at December 31, 2001, and 2000, respectively. Excluding
the change in the estimated value of accrued interest and fees,
delinquency as a percentage of the loan portfolio would have been
4.77% at December 31, 2002. Delinquency as a percentage of
managed loans was 4.88% at December 31, 2002, compared to
5.09% and 4.49% at December 31, 2001, and 2000, respectively.
Excluding the change in the estimated value of accrued interest


and fees, delinquency as a percentage of managed loans would
have been 5.19% at December 31, 2002. Loan delinquency on the domestic credit card loan portfolio was
4.17% at December 31, 2002, as compared to 4.58% and 4.22%
at December 31, 2001 and 2000, respectively. Excluding the
change in the estimated value of accrued interest and fees, loan
delinquency on the domestic credit card loan portfolio would have
been 4.97% at December 31, 2002. Loan delinquency on the
domestic other consumer loan portfolio was 6.23% at December 31,
2002, as compared to 5.96% and 4.47% at December 31, 2001
and 2000, respectively. Excluding the change in the estimated
value of accrued interest and fees, loan delinquency on the domestic
other consumer loan portfolio would have been 6.67% at
December 31, 2002. Loan delinquency on the foreign loan portfolio
was 1.98% at December 31, 2002, as compared to 2.63% and
2.23% at December 31, 2001 and 2000, respectively. Excluding
the change in the estimated value of accrued interest and fees, loan
delinquency on the foreign loan portfolio would have been 2.12%
at December 31, 2002. The delinquency rate on the Corporations
foreign loans is historically lower than the delinquency rate on the
Corporations domestic credit card loans. The Corporations
domestic other consumer loans generally have a higher delinquency
and charge-off rate than the Corporations domestic credit
card loans. As a result, the Corporation generally charges higher
interest rates on domestic other consumer loans.




TABLE 4: DELINQUENT LOANS (a) (b) (dollars in thousands)



December
        31,
      
      2002
      
      
      
      
      
      
      2001
      
      
      
      
      
      
      2000
      
      
      
      
      
      
      1999
      
      
      
      
      
      
      1998Loan
          PortfolioLoan
          portfolio outstanding
      
      $
      17,696,881
      
      
      
      
      
      
      $
      14,703,616
      
      
      
      
      
      
      $
      11,682,904
      
      
      
      
      
      
      $
      7,971,093
      
      
      
      
      
      
      $
      11,776,099Loan
          portfolio delinquent:30
          to 59 days
      
      **$**
      **269,251**
      ****
      ****
      ****
      **1.52**
      **%**
      
      $
      260,421
      
      
      
      1.77
      %
      
      $
      176,128
      
      
      
      1.51
      %
      
      $
      105,667
      
      
      
      1.33
      %
      
      $
      166,352
      
      
      
      1.41
      %60
          to 89 days
      
      ****
      **169,544**
      ****
      ****
      ****
      **.96**
      ****
      
      
      145,061
      
      
      
      .99
      
      
      
      95,859
      
      
      
      .82
      
      
      
      60,452
      
      
      
      .76
      
      
      
      93,699
      
      
      
      .8090
          or more days
      
      ****
      **319,445**
      ****
      ****
      ****
      **1.80**
      ****
      
      
      276,277
      
      
      
      1.88
      
      
      
      182,955
      
      
      
      1.56
      
      
      
      138,531
      
      
      
      1.73
      
      
      
      194,472
      
      
      
      1.65****
      
      ****
      ****
      ****
      
      ****Total
      
      **$**
      **758,240**
      ****
      ****
      ****
      **4.28**
      **%**
      
      $
      681,759
      
      
      
      4.64
      %
      
      $
      454,942
      
      
      
      3.89
      %
      
      $
      304,650
      
      
      
      3.82
      %
      
      $
      454,523
      
      
      
      3.86
      %****
      
      ****
      ****
      ****
      
      ****Loan
          portfolio delinquent by geographic area:
      
      ****
      ****
      ****
      ****
      ****
      ****
      ****Domestic:
      
      ****
      ****
      ****
      ****
      ****
      ****
      ****Credit
          card
      
      **$**
      **267,631**
      ****
      ****
      ****
      **4.17**
      **%**
      
      $
      294,901
      
      
      
      4.58
      %
      
      $
      279,347
      
      
      
      4.22
      %
      
      $
      211,976
      
      
      
      4.14
      %
      
      $
      337,886
      
      
      
      4.23
      %Other
          consumer
      
      ****
      **391,568**
      ****
      ****
      ****
      **6.23**
      ****
      
      
      303,365
      
      
      
      5.96
      
      
      
      125,043
      
      
      
      4.47
      
      
      
      59,163
      
      
      
      4.67
      
      
      
      86,438
      
      
      
      3.14****
      
      ****
      ****
      ****
      ****
      ****Total
          domestic
      
      ****
      **659,199**
      ****
      ****
      ****
      **5.19**
      ****
      
      
      598,266
      
      
      
      5.19
      
      
      
      404,390
      
      
      
      4.30
      
      
      
      271,139
      
      
      
      4.25
      
      
      
      424,324
      
      
      
      3.95Foreign
      
      ****
      **99,041**
      ****
      ****
      ****
      **1.98**
      ****
      
      
      83,493
      
      
      
      2.63
      
      
      
      50,552
      
      
      
      2.23
      
      
      
      33,511
      
      
      
      2.11
      
      
      
      30,199
      
      
      
      2.89****
      
      ****
      ****
      ****
      ****
      ****Total
      
      **$**
      **758,240**
      ****
      ****
      ****
      **4.28**
      ****
      
      $
      681,759
      
      
      
      4.64
      
      
      $
      454,942
      
      
      
      3.89
      
      
      $
      304,650
      
      
      
      3.82
      
      
      $
      454,523
      
      
      
      3.86****
      
      ****
      ****
      ****
      ****
      ****Managed
          Loans
      
      ****
      ****
      ****
      ****
      ****
      ****
      ****Managed
          loans outstanding
      
      **$**
      **107,257,842**
      ****
      ****
      ****
      ****
      ****
      
      $
      97,496,051
      
      
      
      
      
      
      $
      88,790,721
      
      
      
      
      
      
      $
      72,255,513
      
      
      
      
      
      
      $
      59,641,106Managed
          loans delinquent:
      
      ****
      ****
      ****
      ****
      ****
      ****
      ****30
          to 59 days
      
      **$**
      **1,814,690**
      ****
      ****
      ****
      **1.69**
      **%**
      
      $
      1,816,893
      
      
      
      1.86
      %
      
      $
      1,492,296
      
      
      
      1.68
      %
      
      $
      1,110,127
      
      
      
      1.54
      %
      
      $
      995,902
      
      
      
      1.67
      %60
          to 89 days
      
      ****
      **1,117,914**
      ****
      ****
      ****
      **1.04**
      ****
      
      
      1,039,861
      
      
      
      1.07
      
      
      
      846,762
      
      
      
      .95
      
      
      
      648,272
      
      
      
      .90
      
      
      
      555,468
      
      
      
      .9390
          or more days
      
      ****
      **2,296,907**
      ****
      ****
      ****
      **2.15**
      ****
      
      
      2,105,707
      
      
      
      2.16
      
      
      
      1,647,480
      
      
      
      1.86
      
      
      
      1,458,497
      
      
      
      2.01
      
      
      
      1,203,947
      
      
      
      2.02****
      
      ****
      ****
      ****
      
      ****Total
      
      **$**
      **5,229,511**
      ****
      ****
      ****
      **4.88**
      **%**
      
      $
      4,962,461
      
      
      
      5.09
      %
      
      $
      3,986,538
      
      
      
      4.49
      %
      
      $
      3,216,896
      
      
      
      4.45
      %
      
      $
      2,755,317
      
      
      
      4.62
      %****
      
      ****
      ****
      ****
      
      ****Managed
          loans delinquent by geographic area:
      
      ****
      ****
      ****
      ****
      ****
      ****
      ****Domestic:
      
      ****
      ****
      ****
      ****
      ****
      ****
      ****Credit
          card
      
      **$**
      **3,971,802**
      ****
      ****
      ****
      **5.00**
      **%**
      
      $
      3,779,113
      
      
      
      5.05
      %
      
      $
      3,187,131
      
      
      
      4.52
      %
      
      $
      2,657,974
      
      
      
      4.52
      %
      
      $
      2,361,726
      
      
      
      4.83
      %Other
          consumer
      
      ****
      **793,037**
      ****
      ****
      ****
      **6.61**
      ****
      
      
      811,159
      
      
      
      6.86
      
      
      
      546,049
      
      
      
      5.74
      
      
      
      364,897
      
      
      
      5.83
      
      
      
      253,137
      
      
      
      4.31****
      
      ****
      ****
      ****
      ****
      ****Total
          domestic
      
      ****
      **4,764,839**
      ****
      ****
      ****
      **5.21**
      ****
      
      
      4,590,272
      
      
      
      5.29
      
      
      
      3,733,180
      
      
      
      4.67
      
      
      
      3,022,871
      
      
      
      4.65
      
      
      
      2,614,863
      
      
      
      4.78Foreign
      
      ****
      **464,672**
      ****
      ****
      ****
         **2.94**
      ****
      
      
      372,189
      
      
      
           3.45
      
      
      
      253,358
      
      
      
           2.87
      
      
      
      194,025
      
      
      
           2.70
      
      
      
      140,454
      
      
      
           2.86****
      
      ****
      ****
      ****
      ****
      ****Total
      
      **$**
      **5,229,511**
      ****
      ****
      ****
      **4.88**
      ****
      
      $
      4,962,461
      
      
      
      5.09
      
      
      $
      3,986,538
      
      
      
      4.49
      
      
      $
      3,216,896
      
      
      
      4.45
      
      
      $
      2,755,317
      
      
      
      4.62****
      
      ****
      ****
      ****
      ****
      ****




|(a) |  | In December 2000, the Corporation implemented the FFIECs revised policy on
the classification of consumer loans. Excluding the one-time FFIEC adjustment,
loan portfolio delinquency and managed loan delinquency would have been 4.19%
and 4.94%, respectively, at December 31, 2000.            
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(b) |  | 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, loan portfolio delinquency and managed loan delinquency would have
been 4.77% and 5.19%, respectively, at December 31, 2002.





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##### 



|32 | THINK OF YOURSELF AS A CUSTOMER
|-- | -------------------------------



TABLE 5: OTHER NONPERFORMING LOANS (a) (dollars in thousands)

December
        31,
      
      2002
      
      
      2001
      
      
      2000
      
      
      1999
      
      
      1998**Loan
          Portfolio**Nonaccrual
          loans
      
      **$**
      **27,049**
      ****
      
      $
      17,459
      
      
      $
      22,574
      
      
      $
      12,245
      
      
      $
      3,182Reduced-rate
          loans
      
      ****
      **395,134**
      ****
      
      
      299,541
      
      
      
      238,747
      
      
      
      153,082
      
      
      
      157,737****
      
      ****Total
          other nonperforming loans
      
      **$**
      **422,183**
      ****
      
      $
      317,000
      
      
      $
      261,321
      
      
      $
      165,327
      
      
      $
      160,919****
      
      ****Other
          nonperforming loans as a % of ending loan portfolio
      
      ****
      **2.39**
      **%**
      
      
      2.16
      %
      
      
      2.24
      %
      
      
      2.07
      %
      
      
      1.37
      %**Managed
          Loans**
      
      ****
      ****
      ****Nonaccrual
          loans
      
      **$**
      **287,283**
      ****
      
      $
      173,825
      
      
      $
      190,553
      
      
      $
      116,696
      
      
      $
      19,283Reduced-rate
          loans
      
      ****
      **2,824,426**
      ****
      
      
      2,360,392
      
      
      
      1,948,217
      
      
      
      1,696,489
      
      
      
      1,177,107****
      
      ****Total
          other nonperforming loans
      
      **$**
      **3,111,709**
      ****
      
      $
      2,534,217
      
      
      $
      2,138,770
      
      
      $
      1,813,185
      
      
      $
      1,196,390****
      
      ****Other
          nonperforming loans as a % of ending managed loans
      
      ****
      **2.90**
      **%**
      
      
      2.60
      %
      
      
      2.41
      %
      
      
      2.51
      %
      
      
      2.01
      %




|(a) |  | In September 2002, the Corporation changed its estimated value of accrued
interest and fees. Excluding the change in the estimated value of accrued
interest
and fees, other nonperforming loans as a percentage of the loan portfolio and
as a percentage of managed loans would have been 2.40% and 2.91%, respectively,
at December 31, 2002.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



A Customers account may be re-aged to remove existing delinquency.
The intent of a re-age is to assist Customers who have
recently overcome temporary financial difficulties, and have clearly
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 opened 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 payments equal to a total of three minimum payments
within the last 90 days, including one full minimum payment
during the last 30 days. 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 $5.2 billion of managed loans re-aged
during 2002, compared to $5.6 billion during 2001 and
$4.7 billion during 2000. 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. Of those accounts that were
re-aged during the three months ended December 31, 2000,
approximately 17.6% returned to delinquency status and approximately
18.8% charged off by December 31, 2001. In January 2003, the Corporation implemented several changes in
re-age practices, including higher minimum monthly payment
amounts for re-aged accounts, that tighten the use of re-ages. The
Corporation anticipates the amount of managed loans re-aged will
continue to be reduced and managed net credit losses will increase
as a result of these changes. The impact of these changes will
depend on the impact of different account management and
collection strategies or other actions the Corporation will take to
attempt to offset the impact of stricter re-age policies and on the
general economic conditions and other factors affecting the
Corporations loan quality. The Corporation may modify the terms of its credit card and other
consumer loan agreements with borrowers who have experienced
financial difficulties, by either reducing their interest rate or


placing them on nonaccrual status. These other nonperforming
loans are presented in Table 5 for the Corporations loan portfolio,
excluding loans held for securitization, and managed loans. Other nonperforming loans as a percentage of the Corporations
loan portfolio were 2.39% at December 31, 2002, as compared to
2.16% at December 31, 2001 and 2.24% at December 31, 2000.
Other nonperforming loans as a percentage of managed loans were
2.90% at December 31, 2002, as compared to 2.60% at
December 31, 2001 and 2.41% at December 31, 2000. The ratio
for 2002 increased as a result of the Corporation increasing the
use of reduced-rate and nonaccrual programs to assist Customers
who are experiencing financial difficulties in meeting their repayment
obligations. NET CREDIT LOSSES The Corporations net credit losses include the principal amount
of loans 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 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 by
reducing the respective income statement
NET CREDIT LOSSES
captions, loan receivables, and
accrued income receivable. The difference
between the amounts the
Corporation was contractually entitled
to and the amounts recognized as
revenue were $1.4 billion,
$858.3 million, and $691.8 million for
the years ended December 31, 2002,
2001, and 2000, respectively. Fraud
losses are recognized through a charge
to other expense. The Corporation
records current period recoveries on
loans previously charged off in the
reserve for possible credit losses. The








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| | THINK OF YOURSELF AS A CUSTOMER
| | -------------------------------





(NET CREDIT LOSSES)
Corporation sells charged-off loans
and records the proceeds received
from these sales as recoveries. Net credit losses during 2002
were $1.2 billion, compared to
$855.0 million for 2001 and
$599.6 million for 2000. The increases
in net credit losses during 2002 and
2001 reflect an overall weakening of
general economic conditions, an
increase in the Corporations outstanding
loan receivables, and the continued
seasoning of the Corporations
loan receivables. Net credit losses as a percentage of
average loan receivables were 4.57%
for 2002 compared to 4.20% for 2001, and 3.38% for 2000. The
Corporations managed net credit losses as a percentage of average
managed loans for 2002 were 4.99%, compared to 4.74% for
2001 and 4.39% for 2000. Domestic credit card net credit losses as
a percentage of average domestic credit card loan receivables were
4.40% for 2002, as compared to 4.36% and 3.45% for 2001 and
2000, respectively. Domestic other consumer net credit losses as a
percentage of average domestic other consumer loan receivables
were 6.67% for 2002, as compared to 5.08% and 4.29% for 2001
and 2000, respectively. In addition to the weakening of 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 2.51% for 2002, as compared to 2.59% and
2.18% for 2001 and 2000, respectively. The lower level of net
credit losses on the Corporations foreign loan receivables reflects
the growth in the Corporations foreign loan receivables and the
seasoning of those accounts as a higher percentage of newer, less
seasoned accounts results in a lower charge-off ratio. Managed domestic credit card net credit losses as a percentage of
average managed domestic credit card loans were 4.93% for 2002,
as compared to 4.70% and 4.42% for 2001 and 2000, respectively.
Managed domestic other consumer net credit losses as a percentage
of average managed domestic other consumer loans were 7.45%
for 2002, as compared to 6.48% and 5.66% for 2001 and 2000,
respectively. Managed foreign net credit losses as a percentage of
average managed foreign loans were 3.00% for 2002, as compared


to 3.03% and 2.85% for 2001 and 2000, respectively. The net
credit loss ratio is calculated by dividing net credit losses, which
exclude uncollectible accrued interest and fees and fraud losses,
for the period by average loan receivables, which include the billed
interest and fees for the corresponding period. 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 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. 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 establishes
appropriate levels of reserve for its products based on their risk
characteristics. The Corporation then reserves for the projected
probable net credit losses based on its projection of these amounts.
A provision is charged against earnings to maintain the reserve for
possible credit losses at an appropriate level. The Corporations reserve for possible credit losses increased
$277.9 million during 2002 to $1.1 billion at December 31, 2002,
as compared to $833.4 million at December 31, 2001, and
$527.6 million at December 31, 2000. The provision for possible
credit losses for the year ended December 31, 2002 was
$1.3 billion, compared to $1.1 billion in 2001, and $547.3 million
in 2000. The increase in the reserve for possible credit losses and
the related provision for possible credit losses in 2002 primarily
reflects a weaker economy as demonstrated by the increase in the
Corporations net credit losses. During the fourth quarter of 2002,
the Corporation increased its reserves for domestic other consumer
loans by $109.5 million because these products exhibited higher
credit risk. Table 6 illustrates the allocation of the reserve for possible credit
losses. 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




TABLE 6: ALLOCATION OF RESERVE FOR POSSIBLE CREDIT LOSSES (dollars in thousands)

December
        31,
      
      2002
      
      
      
      
      
      2001
      
      
      
      
      
      2000
      
      
      
      
      
      1999
      
      
      
      
      
      1998Domestic:Credit
          card
      
      $
      518,889
      
      
      
      46.7
      %
      
      $
      578,995
      
      
      
      69.5
      %
      
      $
      396,806
      
      
      
      75.2
      %
      
      $
      428,847
      
      
      
      83.1
      %
      
      $
      224,006
      
      
      
      75.5
      %Other
          consumer
      
      
      462,756
      
      
      
      41.6
      
      
      
      203,040
      
      
      
      24.3
      
      
      
      102,350
      
      
      
      19.4
      
      
      
      63,801
      
      
      
      12.3
      
      
      
      60,132
      
      
      
      20.3Domestic
          reserve for possible credit losses
      
      
      981,645
      
      
      
      88.3
      
      
      
      782,035
      
      
      
      93.8
      
      
      
      499,156
      
      
      
      94.6
      
      
      
      492,648
      
      
      
      95.4
      
      
      
      284,138
      
      
      
      95.8Foreign
      
      
      129,654
      
      
      
      11.7
      
      
      
      51,388
      
      
      
      6.2
      
      
      
      28,417
      
      
      
      5.4
      
      
      
      23,613
      
      
      
      4.6
      
      
      
      12,336
      
      
      
      4.2Reserve
          for possible credit losses
      
      $
      1,111,299
      
      
      
      100.0
      %
      
      $
      833,423
      
      
      
      100.0
      %
      
      $
      527,573
      
      
      
      100.0
      %
      
      $
      516,261
      
      
      
      100.0
      %
      
      $
      296,474
      
      
      
      100.0
      %






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##### 



|34 | THINK OF YOURSELF AS A CUSTOMER
|-- | -------------------------------



TABLE 7: RESERVE FOR POSSIBLE CREDIT LOSSES (dollars in thousands)

December
        31,
      
      2002
      
      2001
      
      2000
      
      1999
      
      1998Reserve
          for possible credit losses, beginning of year
      
      $
      833,423
      
      
      $
      527,573
      
      
      $
      516,261
      
      
      $
      296,474
      
      
      $
      211,744Reserves
          acquired
      
      
      84,878
      
      
      
      20,748
      
      
      
      64,726
      
      
      
      109,757
      
      
      
      29,932Provision
          for possible credit losses:Domestic
      
      
      1,153,486
      
      
      
      1,028,047
      
      
      
      477,630
      
      
      
      590,558
      
      
      
      439,648Foreign
      
      
      186,671
      
      
      
      112,568
      
      
      
      69,679
      
      
      
      46,056
      
      
      
      23,724Total
          provision for possible credit losses
      
      
      1,340,157
      
      
      
      1,140,615
      
      
      
      547,309
      
      
      
      636,614
      
      
      
      463,372Foreign
          currency translation
      
      
      9,053
      
      
      
      (499
      )
      
      
      (1,081
      )
      
      
      (96
      )
      
      
      (125
      )Credit
          losses:Domestic:Credit
          card
      
      
      (635,408
      )
      
      
      (541,072
      )
      
      
      (435,134
      )
      
      
      (422,504
      )
      
      
      (330,952
      )Other
          consumer
      
      
      (447,135
      )
      
      
      (265,829
      )
      
      
      (138,892
      )
      
      
      (104,268
      )
      
      
      (86,407
      )Total
          domestic credit losses
      
      
      (1,082,543
      )
      
      
      (806,901
      )
      
      
      (574,026
      )
      
      
      (526,772
      )
      
      
      (417,359
      )Foreign
      
      
      (157,025
      )
      
      
      (117,572
      )
      
      
      (72,831
      )
      
      
      (41,157
      )
      
      
      (22,754
      )Total
          credit losses
      
      
      (1,239,568
      )
      
      
      (924,473
      )
      
      
      (646,857
      )
      
      
      (567,929
      )
      
      
      (440,113
      )Recoveries:Domestic:Credit
          card
      
      
      37,532
      
      
      
      38,174
      
      
      
      29,367
      
      
      
      27,356
      
      
      
      23,244Other
          consumer
      
      
      24,548
      
      
      
      11,938
      
      
      
      8,811
      
      
      
      7,611
      
      
      
      5,193Total
          domestic recoveries
      
      
      62,080
      
      
      
      50,112
      
      
      
      38,178
      
      
      
      34,967
      
      
      
      28,437Foreign
      
      
      21,276
      
      
      
      19,347
      
      
      
      9,037
      
      
      
      6,474
      
      
      
      3,227Total
          recoveries
      
      
      83,356
      
      
      
      69,459
      
      
      
      47,215
      
      
      
      41,441
      
      
      
      31,664Net
          credit losses
      
      
      (1,156,212
      )
      
      
      (855,014
      )
      
      
      (599,642
      )
      
      
      (526,488
      )
      
      
      (408,449
      )Reserve
          for possible credit losses, end of year
      
      $
      1,111,299
      
      
      $
      833,423
      
      
      $
      527,573
      
      
      $
      516,261
      
      
      $
      296,474Net
          credit losses as a % of average loan receivables
      
      
      4.57
      %
      
      
      4.20
      %
      
      
      3.38
      %
      
      
      3.65
      %
      
      
      3.42
      %Reserve
          for possible credit losses as a % of ending loan receivables
      
      
      3.87
      
      
      
      3.38
      
      
      
      2.64
      
      
      
      2.92
      
      
      
      2.20Ending
          loan receivables
      
      $
      28,726,508
      
      
      $
      24,633,564
      
      
      $
      19,954,837
      
      
      $
      17,663,709
      
      
      $
      13,468,367Average
          loan receivables
      
      
      25,315,200
      
      
      
      20,339,388
      
      
      
      17,718,148
      
      
      
      14,422,495
      
      
      
      11,930,289






risk of loss. 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. During 2002, the Corporation
increased the provision for possible credit losses related to domestic
other consumer loans because these products exhibited higher
credit risk. 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 a percentage
of total loan receivables and because the Corporation anticipates
higher probable net credit losses on its foreign loans due to
the continued seasoning of the portfolio. The increase in 2001 in the reserve for possible credit losses and
the related provision for possible credit losses primarily reflects a
weaker economy as demonstrated by the increase in the
Corporations delinquency and net credit losses. The Corporation
also anticipated an increase in 2001 in the dollar amount of
probable net credit losses, as the Corporation had experienced an
increase in the number of bankruptcy filings as well as an increase
in the Corporations loan receivables. 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, in 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 $84.9 million, $20.7 million,
and $64.7 million for 2002, 2001, and 2000, respectively. Table 7 presents an analysis of the Corporations reserve for possible
credit losses. 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. 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.








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##### 



| | THINK OF YOURSELF AS A CUSTOMER
| | -------------------------------



TABLE 8: REGULATORY CAPITAL RATIOS

Minimum
        
        Well-CapitalizedDecember 31,
        
        2002
        
        2001
        
        Requirements
        
        RequirementsMBNA CorporationTier 1
        
        
        15.73
        %
        
        
        15.99
        %
        
        
        4.00
        %
        
        
        (a
        )Total
        
        
        19.65
        
        
        
        17.97
        
        
        
        8.00
        
        
        
        (a
        )Leverage
        
        
        18.55
        
        
        
        18.12
        
        
        
        4.00
        
        
        
        (a
        )MBNA America Bank, N.A.Tier 1
        
        
        12.58
        
        
        
        13.14
        
        
        
        4.00
        
        
        
        6.00
        %Total
        
        
        16.41
        
        
        
        15.13
        
        
        
        8.00
        
        
        
        10.00Leverage
        
        
        15.81
        
        
        
        15.00
        
        
        
        4.00
        
        
        
        5.00MBNA America (Delaware), N.A.Tier 1
        
        
        28.06
        
        
        
        18.24
        
        
        
        4.00
        
        
        
        6.00Total
        
        
        29.36
        
        
        
        19.28
        
        
        
        8.00
        
        
        
        10.00Leverage
        
        
        23.21
        
        
        
        18.49
        
        
        
        4.00
        
        
        
        5.00


|(a) |  | Not applicable for bank holding companies.
|--- |  | ------------------------------------------



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, 2002 and 2001, 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, shown in Table 8, have been computed in
accordance with regulatory accounting practices. In November 2001, the FFIEC published revised risk-based capital
guidelines to address the treatment of recourse obligations, retained
interests in securitization transactions, and direct credit substitutes
that expose banks and bank holding companies to credit risk. The
revised guidelines imposed a dollar-for-dollar capital charge on
retained interests and a concentration limit on the interest-only
strip receivable, a subset of retained interests in a securitization
transaction. The Corporations retained interests include the interest-only
strip receivable, cash reserve accounts, accrued interest and
fees on securitized loans, and other subordinated interests
(discussed under Note 8 in the audited consolidated financial
statements). The Corporation adopted the revised guidelines at
December 31, 2002. The adoption increased capital requirements
of the Corporation, the Bank, and MBNA Delaware and resulted
in an additional capital charge which decreased their Tier 1 Capital
ratios by approximately 210, 260, and 25 basis points, respectively,
and their Total Capital ratios by approximately 200, 275, and 25
basis points, respectively. The Leverage ratio remained unchanged
for each entity. After the adoption of the revised guidelines, the
Corporation remained adequately capitalized, and the Bank and
MBNA Delaware remained well-capitalized for regulatory capital
purposes. No conditions or events have occurred since
December 31, 2002, that have changed the Corporations classification
as adequately capitalized and the Banks or MBNA
Delawares classification as well-capitalized.


In August 2000, the Corporation issued 75 million shares of
common stock, raising $1.6 billion of capital, net of issuance costs.
The Corporation contributed $750.0 million of the net proceeds
from this offering to the Bank to complete the acquisition of the
consumer and commercial revolving credit loan portfolio from
First Union Corporation. The Corporation used the remaining
proceeds from the common stock offering for other general
corporate purposes. The Corporation utilizes different capital securities in its overall
capital structure to meet its regulatory capital needs. At
December 31, 2002, the Corporation had $1.1 billion (par value)
issued and outstanding of guaranteed preferred beneficial interests
in Corporations junior subordinated deferrable interest
debentures, which mature from 2026 through 2033, as compared
to $566.3 million (par value) at December 31, 2001. During 2002,
the Corporation, through MBNA Capital D and MBNA Capital E,
issued $300 million (par value) and $200 million (par value) of
guaranteed preferred beneficial interests in Corporations junior
subordinated deferrable interest debentures, maturing in 2032 and
2033, respectively. The Bank had $1.3 billion (par value) of
subordinated notes outstanding at December 31, 2002. During
2002, the Bank issued $500 million (par value) of 6.625% and
$500 million (par value) of 7.125% Subordinated Notes, maturing
in 2012. The subordinated notes outstanding at December 31, 2002
will mature in 2008 and 2012. The Bank had $450.0 million (par
value) of subordinated notes outstanding at December 31, 2001.
The Corporation also had 4.5 million shares of 7
1/2 % Cumulative Preferred Stock, Series A, and 4.0 million shares of Adjustable Rate
Cumulative Preferred Stock, Series B, both with a $25 stated value
per share, outstanding at December 31, 2002 and 2001. The guaranteed preferred beneficial interests in Corporations
junior subordinated deferrable interest debentures and preferred
stock both qualify as regulatory capital under the Federal Reserve
Boards guidelines and enhance the Corporations regulatory capital.
The Banks Subordinated Notes, subject to the timing of their
maturity, qualify as regulatory capital under the Office of the








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|36 | THINK OF YOURSELF AS A CUSTOMER
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Comptroller of the Currencys guidelines and enhance the Banks
and the Corporations regulatory capital. The guaranteed preferred
beneficial interests in Corporations junior subordinated deferrable
interest debentures, preferred stock, and the subordinated notes
also provide a long-term source of funds. The shares of the Series A Preferred Stock and Series B Preferred
Stock are redeemable, in whole or in part, solely at the option of
the Corporation. Shares of the Series A and Series B Preferred
Stock are not convertible into other securities of the Corporation.
Dividends on the preferred stock are cumulative from the date of
original issue and are payable quarterly. Note 24 to the audited consolidated financial statements provides
further detail regarding the Corporations capital adequacy. DIVIDEND LIMITATIONS The payment of dividends in the future and the amount of such
dividends, if any, will be at the discretion of the Corporations
Board of Directors. The payment of preferred and common stock
dividends by the Corporation may be limited by certain factors,
including regulatory capital requirements, broad enforcement
powers of the federal bank regulatory agencies, and tangible net
worth maintenance requirements under the Corporations revolving
credit facilities. The payment of common stock dividends may also
be limited by the terms of 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 its
common stock. In addition, if the Corporation defers interest
payments for consecutive periods covering 10 semiannual periods
or 20 consecutive quarterly periods, depending on the series, on
its guaranteed preferred beneficial interests in Corporations junior
subordinated deferrable interest debentures, the Corporation may
not be permitted to declare or pay any cash dividends on the
Corporations Common Stock, or pay any interest on debt securities
that have equal or lower priority than the junior subordinated
deferrable interest debentures. During 2002, the Corporation
declared dividends on its preferred stock of $14.2 million and on
its common stock of $349.3 million. 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
transfers to surplus or to a fund for the retirement of any preferred
stock. In addition, a national bank may not pay any dividends in
an amount greater than its undivided 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, 2002, the amount of undivided
profits available for declaration and payment of dividends
from the Bank to the Corporation was $3.7 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 declaration
and payment of dividends from the Bank to the Corporation was
$1.3 billion at December 31, 2002. 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. This
facility was not drawn upon at December 31, 2002. If this facility
had been drawn upon at December 31, 2002, the amount of
retained earnings available for declaration of dividends would have
been limited to $1.9 billion. On January 23, 2003, the Corporations Board of Directors
declared a quarterly dividend of $.08 per common share, payable
April 1, 2003, to stockholders of record as of March 15, 2003. Also
on January 23, 2003, the Corporations Board of Directors declared
a quarterly dividend of $.46875 per share on the 7 1/2% Cumulative
Preferred Stock, Series A, and a quarterly dividend of $.34380 per
share on the Adjustable Rate Cumulative Preferred Stock, Series B.
The preferred stock dividends are payable April 15, 2003, to
stockholders of record as of March 31, 2003. Table 9 presents the Corporations return on average total assets
and stockholders equity and other equity ratios, including the
Corporations dividend payout ratio. TABLE 9: RETURN ON AVERAGE TOTAL ASSETS
AND STOCKHOLDERS EQUITY Year Ended December 31,
        
        2002
        
        2001
        
        2000Return on average total assets
        
        
        3.67
        %
        
        
        4.16
        %
        
        
        3.94
        %Return on average stockholders equity
        
        
        21.29
        
        
        
        24.07
        
        
        
        25.79Average stockholders equity to average
total assets
        
        
        17.22
        
        
        
        17.27
        
        
        
        15.28Dividend payout ratio
        
        
        20.15
        
        
        
        18.75
        
        
        
        20.59
  LIQUIDITY AND RATE SENSITIVITY The Corporation seeks to maintain prudent levels of liquidity,
interest rate risk, and foreign currency exchange rate risk. LIQUIDITY MANAGEMENT Liquidity management is the process by which the Corporation
manages the use and availability of various funding sources to
meet its current and future operating needs. These needs change as
loans grow, 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.








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TABLE 10: SUMMARY OF ESTIMATED LIQUIDITY REQUIREMENTS (dollars in thousands)

Estimated Liquidity Requirements|
    at December 31, 2002
    |Within 1 Year
    
    
    1-5 Years
    
    
    Over 5 Years
    
    
    TotalDeposits
    
    $
    17,844,491
    
    
    $
    12,763,911
    
    
    $
    7,814
    
    
    $
    30,616,216Short-term borrowings
    
    
    1,250,103
    
    
    
    
    
    
    
    
    
    
    
    1,250,103Long-term debt and bank notes (par value)
    
    
    1,229,624
    
    
    
    4,530,915
    
    
    
    3,332,175
    
    
    
    9,092,714Securitized loans (investor principal)
    
    
    9,283,352
    
    
    
    51,669,044
    
    
    
    16,012,120
    
    
    
    76,964,516Minimum rental payments under noncancelable operating leases
    
    
    26,118
    
    
    
    40,726
    
    
    
    180
    
    
    
    67,024Total estimated liquidity requirements
    
    $
    29,633,688
    
    
    $
    69,004,596
    
    
    $
    19,352,289
    
    
    $
    117,990,573






Table 10 provides a summary of the Corporations estimated
liquidity requirements at December 31, 2002. The Corporation estimates that it will have $29.6 billion in liquidity
requirements within the next year. These requirements include
$17.8 billion in deposits and $9.3 billion related to certain
securitization transactions that will enter their scheduled
amortization period. Based on past deposit activity, the Corporation expects to retain a
majority of its deposit balances as they mature. Therefore, the
Corporation anticipates the net cash outflow related to deposits
within the next year will be significantly less than reported above.
At December 31, 2002, the Corporation funded 73.2% of its
managed loans through securitization transactions. To maintain an
appropriate funding level, the Corporation expects to securitize
additional loan principal receivables during 2003. The consumer asset-backed securitization market in the United
States exceeded $1.5 trillion at December 31, 2002, with approximately
$351.0 billion of asset-backed securities issued during
2002. An additional $134.9 billion of consumer asset-backed
securities were issued in the European markets during 2002. 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 principal 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 on the


Corporations consolidated statements of financial condition,
and lower 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 statements of
financial condition, the Corporation would likely need to raise
additional capital to support loan and asset growth, and meet the
regulatory capital requirements. 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 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. To facilitate liquidity management, the Corporation uses a variety
of funding sources to establish a maturity pattern that provides (FUNDING SOURCES)








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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 receivables as a
major funding alternative. In addition, further liquidity is provided
to the Corporation through committed credit facilities. The Bank, MBNA Europe, and the Corporation have a $2.5 billion
senior unsecured syndicated revolving credit facility, committed
through March 2004, available to the Bank and MBNA Europe
with sublimit availability in an amount of $300.0 million for the
Corporation. The Bank unconditionally and irrevocably guarantees
the obligations of MBNA Europe under this facility. 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
minimum requirements. In addition, these conditions require that
the Corporation not permit its double leverage ratio (defined as
the sum of the Corporations intangible assets and investment in
subsidiaries divided by total stockholders equity) to exceed 1.25.
The facility may be used for general corporate purposes and was
not drawn upon at December 31, 2002. At December 31, 2002,
the ratio of the Banks managed loan receivables 90 days or more
past due plus nonaccruing receivables to managed receivables was
2.46%, the Corporations double leverage ratio was 1.02, and the
level of consolidated tangible net worth exceeded the minimum
level required. Other funding programs established by the Corporation include
senior medium-term notes and senior notes. At December 31, 2002,
the Corporation had $1.8 billion (par value) in senior medium-term
notes outstanding that mature in varying amounts from
2003 to 2012, as compared to $1.1 billion (par value) at
December 31, 2001. In addition, the Corporation had
$100.0 million (par value) in senior notes outstanding at
December 31, 2002 and 2001, that mature in 2005. The
Corporation expects to pay the interest on both the senior
medium-term notes and senior notes from dividends and other
payments received from the Bank. Other funding programs established by the Corporations bank
subsidiaries include deposits, bank notes, medium-term notes,
deposit notes, and committed facilities. Total deposits at December 31, 2002, were $30.6 billion,
compared to $27.1 billion and $24.3 billion at December 31, 2001
and 2000, respectively. The Corporation utilizes deposits to fund
loan and other asset growth and to diversify funding sources. Total
deposits increased as a result of heightened consumer demand for
deposit products and attractive pricing relative to other investment
opportunities.


Direct deposits are deposits marketed to and received from individual
Customers without the use of a third-party intermediary. Other
deposits are deposits generally obtained through the use of a third-party
intermediary. Included in the Corporations other deposits
at December 31, 2002, were brokered deposits of $8.3 billion,
compared to $7.0 billion and $7.5 billion at December 31, 2001
and 2000, respectively. These deposits represented 27.1%, 25.9%,
and 30.8% of total deposits at December 31, 2002, 2001, and
2000, respectively. If these brokered deposits were not renewed at
maturity, 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 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, 2002, 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 11 provides the maturities of the Corporations deposits at
December 31, 2002. Included in the deposit maturity category of
three months or less are money market deposit accounts,
noninterest-bearing deposits, interest-bearing transaction
accounts, and savings accounts totaling $8.5 billion. TABLE 11: MATURITIES OF DEPOSITS(dollars in thousands) Direct
    
    
    Other
    
    
    TotalDecember 31, 2002
    
    Deposits
    
    
    Deposits
    
    
    DepositsThree months or less
    
    $
    10,609,529
    
    
    $
    876,320
    
    
    $
    11,485,849Over three months through
twelve months
    
    
    4,111,578
    
    
    
    2,247,064
    
    
    
    6,358,642Over one year through five years
    
    
    7,018,332
    
    
    
    5,745,579
    
    
    
    12,763,911Over five years
    
    
    7,814
    
    
    
    
    
    
    
    7,814Total deposits
    
    $
    21,747,253
    
    
    $
    8,868,963
    
    
    $
    30,616,216
  Table 12 presents the maturity distribution of the Corporations
domestic time deposits in amounts of $100,000 or more for the
three most recent years. The Corporation also had $648.2 million
of foreign time deposits and $154.9 million of foreign
noninterest-bearing deposits at December 31, 2002. The majority
of the foreign time deposits were in amounts in excess of $100,000
and mature within one year. The Corporation also held $4.1 billion in investment securities
and $5.3 billion of money market instruments at December 31,
2002, compared to $3.5 billion in investment securities and
$3.0 billion in money market instruments at December 31, 2001.
The investment securities primarily consist of high-quality, AAA-rated
securities, most of which can be used as collateral under
repurchase agreements. Of the investment securities at
December 31, 2002, $1.9 billion is anticipated to mature within








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TABLE 12: DOMESTIC TIME DEPOSITS OF $100,000 OR MORE (a)
(dollars in thousands)

December 31,
        
        2002
        
        
        
        
        
        
        2001
        
        
        
        
        
        
        2000Three months or less
        
        $
        548,380
        
        
        
        16.4
        %
        
        $
        643,012
        
        
        
        19.0
        %
        
        $
        503,160
        
        
        
        17.7
        %Over three months through six months
        
        
        479,662
        
        
        
        14.4
        
        
        
        745,978
        
        
        
        22.0
        
        
        
        580,873
        
        
        
        20.5Over six months through twelve months
        
        
        654,637
        
        
        
        19.6
        
        
        
        827,575
        
        
        
        24.4
        
        
        
        676,613
        
        
        
        23.8Over twelve months
        
        
        1,654,141
        
        
        
        49.6
        
        
        
        1,172,604
        
        
        
        34.6
        
        
        
        1,078,286
        
        
        
        38.0Total
        
        $
        3,336,820
        
        
        
        100.0
        %
        
        $
        3,389,169
        
        
        
        100.0
        %
        
        $
        2,838,932
        
        
        
        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.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



(INVESTMENT SECURITIES AND MONEY MARKET INSTRUCTMENTS) 12 months. The Corporations investment securities available-for-sale
portfolio, which consists primarily of U.S. Treasury obligations
and short-term variable-rate securities, was $3.7 billion at
December 31, 2002, and $3.1 billion at December 31, 2001. These
investment securities, along with the money market instruments,
provide increased liquidity and flexibility to support the
Corporations funding requirements. Money market instruments
increased at December 31, 2002, from December 31, 2001, to
provide liquidity to support portfolio acquisition activity and
anticipated loan growth.


Table 13 presents the estimated maturities and yields of
the Corporations investment securities on a fully taxable
equivalent basis. An additional source of funding for the Bank is provided by its
global bank note program. Notes may be issued under this
program with maturities of one week or more from the date of
issue. During 2002, the Bank issued $500.0 million (par value) of
bank notes, compared to $600.0 million (par value) in 2001. At
December 31, 2002, the Bank had $2.4 billion (par value) of bank
notes outstanding, as compared to $2.5 billion (par value) of bank
notes outstanding at December 31, 2001. The bank notes are
included in long-term debt and bank notes in the Corporations
consolidated statements of financial condition. The Bank has a $750.0 million warehouse facility committed
through March 2003. The Bank may take advances under the facility
subject to covenants and conditions customary in a transaction of
this nature. The Bank intends to renew the warehouse facility
through 2004. This facility may be used for general corporate
purposes and was not drawn upon at December 31, 2002. MBNA Europe had $2.1 billion (par value) and $1.7 billion (par
value) of euro medium-term notes outstanding at December 31,
2002 and 2001, respectively. These euro medium-term notes are
issued in various foreign currencies and are unconditionally and
irrevocably guaranteed in respect to all payments by the Bank. MBNA Europe has a £325.0 million (approximately
$523.9 million at December 31, 2002) multi-currency syndicated




TABLE 13: INVESTMENT SECURITIES(dollars in thousands, yields on a fully taxable equivalent basis)

|
        Estimated Maturities at December 31, 2002
        |Within 1 Year
        
        
        1-5 Years
        
        
        6-10 Years
        
        
        Over 10 Years
        
        
        
        
        
        TotalBook
        
        
        Yield
        
        
        Book
        
        
        Yield
        
        
        Book
        
        
        Yield
        
        
        Book
        
        
        Yield
        
        
        Book
        
        
        YieldInvestment Securities Available-for-SaleU.S. Treasury and other U.S. government
agencies obligations
        
        $
        1,399,777
        
        
        
        3.67
        %
        
        $
        1,126,754
        
        
        
        2.85
        %
        
        $
        
        
        
        
        
        %
        
        $
        
        
        
        
        
        %
        
        $
        2,526,531
        
        
        
        3.30
        %State and political subdivisions of
the United States
        
        
        101,370
        
        
        
        2.40
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        101,370
        
        
        
        2.40Asset-backed and other securities
        
        
        359,868
        
        
        
        2.75
        
        
        
        651,515
        
        
        
        1.92
        
        
        
        15,038
        
        
        
        1.65
        
        
        
        1,486
        
        
        
        1.64
        
        
        
        1,027,907
        
        
        
        2.21Total investment securities available-for-sale
        
        $
        1,861,015
        
        
        
        3.42
        
        
        $
        1,778,269
        
        
        
        2.51
        
        
        $
        15,038
        
        
        
        1.65
        
        
        $
        1,486
        
        
        
        1.64
        
        
        $
        3,655,808
        
        
        
        2.97Investment Securities Held-to-MaturityU.S. Treasury and other U.S. government
agencies obligations
        
        $
        
        
        
        
        
        
        
        $
        
        
        
        
        
        
        
        $
        
        
        
        
        
        
        
        $
        410,471
        
        
        
        5.35
        
        
        $
        410,471
        
        
        
        5.35State and political subdivisions of
the United States
        
        
        140
        
        
        
        8.10
        
        
        
        156
        
        
        
        7.23
        
        
        
        649
        
        
        
        6.94
        
        
        
        6,344
        
        
        
        8.25
        
        
        
        7,289
        
        
        
        8.11Asset-backed and other securities
        
        
        1,000
        
        
        
        6.20
        
        
        
        1,000
        
        
        
        5.30
        
        
        
        
        
        
        
        
        
        
        
        65,861
        
        
        
        6.00
        
        
        
        67,861
        
        
        
        5.99Total investment securities held-to-maturity
        
        $
        1,140
        
        
        
        6.44
        
        
        $
        1,156
        
        
        
        5.56
        
        
        $
        649
        
        
        
        6.94
        
        
        $
        482,676
        
        
        
        5.48
        
        
        $
        485,621
        
        
        
        5.48








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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, 2002. MBNA Canada had CAD$395.1 million (par value), which is
approximately $250.8 million of short-term deposit notes and
CAD$750.0 million (par value), which is approximately
$476.1 million of medium-term deposit notes outstanding at
December 31, 2002. MBNA Canada had CAD$390.6 million (par
value), which is approximately $245.6 million of short-term
deposit notes outstanding and CAD$652.0 million (par value),
which is approximately $410.0 million of medium-term deposit
notes outstanding at December 31, 2001. The deposit notes are
unconditionally and irrevocably guaranteed as to payment of
principal and interest by the Bank. MBNA Canada has a CAD$350.0 million (approximately
$222.2 million at December 31, 2002) multi-currency syndicated
revolving credit facility committed through July 2004. During
2002, CAD$315.0 million (approximately $200.0 million at
December 31, 2002) of the facility was extended to July 2005. In
addition, MBNA Canada has a CAD$50.0 million (approximately
$31.7 million at December 31, 2002) credit facility committed
through March 2003. MBNA Canada may take advances under the
facilities subject to covenants and conditions customary in a
transaction of this nature. These facilities are unconditionally and
irrevocably guaranteed by the Bank. These facilities may be used
for general corporate purposes and were not drawn upon at
December 31, 2002. The Corporation had outstanding lines of credit of $622.7 billion
and $560.9 billion committed to its Customers at
December 31, 2002 and 2001, respectively. Of those total
commitments, $515.4 billion and $463.4 billion were unused at
December 31, 2002 and 2001, respectively. While this amount
represents the total available lines of credit to Customers, the
Corporation has not experienced and does not anticipate that all of
its Customers will exercise their entire available line of credit at
any given point in time. The Corporation has the right to reduce or
cancel these available lines of credit at any time. 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 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, 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 14. 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, 2002, variable-rate loans made up 6.0% of
total managed loans, compared to 4.5% of total managed loans at
December 31, 2001. These variable-rate loans are generally
indexed to the U.S. Prime Rate published in The Wall Street Journal
and reprice quarterly. Including the managed adjustment, results
of the gap analysis show that, within one year, the Corporations
liabilities reprice faster than its assets, indicating an earnings risk
from rising interest rates. Although the static gap methodology is widely accepted for its
simplicity in identifying interest rate risk, it ignores many changes
that can occur, such as repricing strategies, market spread
adjustments, and anticipated hedging transactions. For these
reasons, the Corporation analyzes its level of interest rate risk
using several other analytical techniques, including simulation
analysis. All of the analytical techniques used by the Corporation
to measure interest rate risk include the impact of 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. Also








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TABLE 14: INTEREST RATE SENSITIVITY SCHEDULE
(dollars in thousands)

December 31, 2002
    |
    Subject to Repricing
    |Within 1 Year
    
    
    1-5 Years
    
    
    After 5 Years
    
    
    TotalInterest-Earning AssetsInterest-earning time deposits in other banks:Domestic
    
    $
    1,217
    
    
    $
    
    
    
    $
    
    
    
    $
    1,217Foreign
    
    
    3,701,835
    
    
    
    
    
    
    
    
    
    
    
    3,701,835Total interest-earning time deposits in other banks
    
    
    3,703,052
    
    
    
    
    
    
    
    
    
    
    
    3,703,052Federal funds sold
    
    
    1,645,000
    
    
    
    
    
    
    
    
    
    
    
    1,645,000Investment securities (a):Available-for-sale
    
    
    2,444,037
    
    
    
    1,211,771
    
    
    
    
    
    
    
    3,655,808Held-to-maturity
    
    
    1,140
    
    
    
    1,156
    
    
    
    483,325
    
    
    
    485,621Other interest-earning assets
    
    
    3,630,124
    
    
    
    
    
    
    
    
    
    
    
    3,630,124Loans held for securitization:Domestic
    
    
    9,198,713
    
    
    
    
    
    
    
    
    
    
    
    9,198,713Foreign
    
    
    1,830,914
    
    
    
    
    
    
    
    
    
    
    
    1,830,914Total loans held for securitization
    
    
    11,029,627
    
    
    
    
    
    
    
    
    
    
    
    11,029,627Loan portfolio:Domestic:Credit card
    
    
    5,049,682
    
    
    
    1,363,434
    
    
    
    
    
    
    
    6,413,116Other consumer
    
    
    4,494,785
    
    
    
    1,433,243
    
    
    
    357,723
    
    
    
    6,285,751Total domestic loan portfolio
    
    
    9,544,467
    
    
    
    2,796,677
    
    
    
    357,723
    
    
    
    12,698,867Foreign
    
    
    2,761,688
    
    
    
    2,236,326
    
    
    
    
    
    
    
    4,998,014Total loan portfolio
    
    
    12,306,155
    
    
    
    5,033,003
    
    
    
    357,723
    
    
    
    17,696,881Total interest-earning assets
    
    
    34,759,135
    
    
    
    6,245,930
    
    
    
    841,048
    
    
    
    41,846,113Interest-Bearing LiabilitiesInterest-bearing deposits:Domestic:Time deposits
    
    
    8,659,327
    
    
    
    12,763,661
    
    
    
    7,814
    
    
    
    21,430,802Money market deposit accounts
    
    
    7,520,119
    
    
    
    
    
    
    
    
    
    
    
    7,520,119Interest-bearing transaction accounts
    
    
    45,414
    
    
    
    
    
    
    
    
    
    
    
    45,414Savings accounts
    
    
    55,965
    
    
    
    
    
    
    
    
    
    
    
    55,965Total domestic interest-bearing deposits
    
    
    16,280,825
    
    
    
    12,763,661
    
    
    
    7,814
    
    
    
    29,052,300Foreign:Time deposits
    
    
    647,979
    
    
    
    250
    
    
    
    
    
    
    
    648,229Total interest-bearing deposits
    
    
    16,928,804
    
    
    
    12,763,911
    
    
    
    7,814
    
    
    
    29,700,529Borrowed funds:Short-term borrowings:Domestic
    
    
    1,000,000
    
    
    
    
    
    
    
    
    
    
    
    1,000,000Foreign
    
    
    250,103
    
    
    
    
    
    
    
    
    
    
    
    250,103Total short-term borrowings
    
    
    1,250,103
    
    
    
    
    
    
    
    
    
    
    
    1,250,103Long-term debt and bank notes:Domestic
    
    
    1,318,108
    
    
    
    2,988,800
    
    
    
    2,630,257
    
    
    
    6,937,165Foreign
    
    
    764,584
    
    
    
    1,819,930
    
    
    
    16,494
    
    
    
    2,601,008Total long-term debt and bank notes
    
    
    2,082,692
    
    
    
    4,808,730
    
    
    
    2,646,751
    
    
    
    9,538,173Total borrowed funds
    
    
    3,332,795
    
    
    
    4,808,730
    
    
    
    2,646,751
    
    
    
    10,788,276Total interest-bearing liabilities
    
    
    20,261,599
    
    
    
    17,572,641
    
    
    
    2,654,565
    
    
    
    40,488,805Gap before managed adjustments
    
    
    14,497,536
    
    
    
    (11,326,711
    )
    
    
    (1,813,517
    )
    
    
    1,357,308Managed adjustments (b)
    
    
    (23,856,690
    )
    
    
    21,452,615
    
    
    
    1,498,039
    
    
    
    (906,036
    )Gap after managed adjustments
    
    $
    (9,359,154
    )
    
    $
    10,125,904
    
    
    $
    (315,478
    )
    
    $
    451,272Cumulative gap after managed adjustments
    
    $
    (9,359,154
    )
    
    $
    766,750
    
    
    $
    451,272Cumulative gap after managed adjustments as a % of managed assets
    
    
    (7.12
    )%
    
    
    .58
    %
    
    
    .34
    %


|(a) |  | Investment securities are presented using estimated maturities.                                                      
|--- |  | ---------------------------------------------------------------------------------------------------------------------
|(b) |  | Managed adjustments reflect the impact interest rates have on securitized
loans and derivative financial instruments.





included in the analysis are various actions that the Corporation
would likely undertake to minimize the impact of adverse
movements in interest rates. Based on the simulation analysis at
December 31, 2002, the Corporation could experience a decrease
in projected net income during the next 12 months of approximately
$57 million, as compared to a decrease of approximately
$67 million in projected 2002 net income based on the simulation
analysis at December 31, 2001, 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. For each incremental 100 basis points
introduced into the simulation analysis, the Corporation could
experience an additional decrease of approximately $57 million in
projected net income during the next 12 months. These assumptions are inherently uncertain and, as a result, the
analysis cannot precisely predict the impact of higher interest rates
on net income. Actual results would differ from simulated results
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.








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The Corporation has the contractual right to reprice fixed-rate
credit card loans at any time by giving notice to the Customer.
Accordingly, an 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 all of 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, 2002, the Corporation could experience a decrease
in stockholders equity, net of tax, of approximately $127 million,
as compared to a decrease in stockholders equity, net of tax, of
approximately $66 million at December 31, 2001, as a result of a
10% depreciation of the Corporations unhedged capital exposure
in foreign subsidiaries to the U.S. dollar position. On January 1, 2001, the Corporation recognized a $2.5 million
(pre-tax) loss upon implementation of Statement No. 133, as
amended. The adoption of Statement No. 133 by the Corporation
did not materially affect the Corporations hedging strategy. CROSS-BORDER OUTSTANDINGS At December 31, 2002, 2001, and 2000 the Corporation had
cross-border outstandings in excess of 1% of total consolidated
assets in the United Kingdom of $3.7 billion, $1.0 billion, and
$529.5 million, respectively. The Corporation does not have
significant local currency outstanding in the United Kingdom that
is not hedged or funded by local currency borrowings. The
cross-border outstandings in the United Kingdom are primarily
short-term in nature. 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. A credit card account represents a contractual relationship between
the lender and the Customer. A loan receivable represents a
financial asset. 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 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 the above described subordinated classes. The
Corporation receives a servicing fee for servicing the loans. 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 trust 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








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(MANAGED LOANS DISTRIBUTION)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 amortization
period begins and the trust distributes principal payments 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 maintains retained interests in its securitization
transactions, which are included in accounts receivable from
securitization in the Corporations consolidated statements
of financial condition. The investors and providers of credit
enhancement have a lien on a portion of these retained interests


of $1.2 billion and $1.1 billion at December 31, 2002 and 2001,
respectively. The Corporation has no further obligation to provide
funding support to either the investors or the trusts if the securitized
loans are not paid when due. IMPACT OF SECURITIZATION TRANSACTIONS
ON THE CORPORATIONS RESULTS 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.
The managed financial data also includes the impact of the gain
recognized on securitized loan principal receivables in accordance
with Statement No. 140. Managed financial data is presented in
Table 15. Management, analysts, 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 account relationships are not sold
to the trust. 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 securitizations. When adjusted for the effects of securitization, the Corporations
managed data may be reconciled to its consolidated financial statements.
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. The securitization adjustment for interest income was $8.9 billion
in 2002, as compared to $9.6 billion in 2001 and $8.2 billion in
2000. Excluding the change in the estimated value of accrued
interest and fees, the securitization adjustment for interest income
would have been $9.1 billion in 2002. The securitization




TABLE 15: MANAGED FINANCIAL DATA
(dollars in thousands)

Year Ended December 31,
    
    2002
    
    
    2001
    
    
    2000Managed interest income (a)
    
    $
    12,555,277
    
    
    $
    13,073,453
    
    
    $
    11,268,251Managed interest expense
    
    
    3,436,600
    
    
    
    4,869,311
    
    
    
    5,431,142Managed provision for possible credit losses
    
    
    5,175,540
    
    
    
    4,592,629
    
    
    
    3,348,289Managed other operating income (a)
    
    
    3,544,204
    
    
    
    3,578,528
    
    
    
    3,279,289Managed LoansAt period end
    
    
    107,257,842
    
    
    
    97,496,051
    
    
    
    88,790,721Average for the period
    
    
    100,033,931
    
    
    
    90,899,988
    
    
    
    77,444,986


|(a) |  | Includes the change in the estimated value of accrued interest and fees.
Excluding the change in the estimated value of accrued interest and fees,
managed interest
income would have been $12.8 billion for 2002.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





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|44 | THINK OF YOURSELF AS A CUSTOMER
|-- | -------------------------------





adjustment for interest expense was $1.8 billion in 2002, as
compared to $3.1 billion in 2001 and $3.7 billion in 2000. The
securitization adjustment for provision for possible credit losses
was $3.8 billion in 2002, as compared to $3.5 billion in 2001 and
$2.8 billion in 2000. The securitization adjustment for other
operating income was $3.2 billion in 2002 as compared to
$3.1 billion in 2001 and $1.6 billion in 2000. Excluding the
change in the estimated value of accrued interest and fees on securitized
loans, the securitization adjustment for other operating
income would have been $3.4 billion for 2002. Managed interest income was $12.6 billion in 2002, as compared
to $13.1 billion in 2001. The decrease in managed interest income
in 2002 was due to a decrease in the yield earned on average
managed interest-earning assets of 183 basis points to 11.59% in
2002, partially offset by an increase in average managed interest-earning
assets of $10.9 billion in 2002. Excluding the change in
the estimated value of the accrued interest and fees, the yield
would have decreased by 159 basis points in 2002. The decrease
in the yield earned on average managed interest-earning assets
primarily reflects lower promotional and other interest rates
offered to attract and retain Customers and to grow managed
loans. Managed interest income was $13.1 billion in 2001, as
compared to $11.3 billion in 2000. The increase in managed
interest income in 2001 was due to an increase in average
managed interest-earning assets of $11.9 billion from 2000 and
an increase in the yield earned on average managed interest-earning
assets of 24 basis points to 13.42% in 2001. Managed interest expense decreased $1.4 billion in 2002 from
2001. The decrease in managed interest expense was due to a
decrease in the rate paid on average managed interest-bearing
liabilities of 171 basis points in 2002, partially offset by an increase
in average managed interest-bearing liabilities of $9.9 billion in
2002. The decrease in the rate paid on average managed
interest-bearing liabilities was a result of actions by the FOMC
throughout 2001 that impacted overall market interest rates.
Managed interest expense decreased $561.8 million in 2001, as
compared to 2000. The decrease in managed interest expense in 2001
was due to a decrease in the rate paid on average managed interest-bearing
liabilities of 153 basis points in 2001, partially offset by an
increase in the average managed interest-bearing liabilities of $15.8
billion in 2001. The decrease in the rate paid on average managed
interest-bearing liabilities was a result of actions by the FOMC
throughout 2001 that impacted overall market interest rates. The managed provision for possible credit losses increased
$582.9 million in 2002 from 2001. The increase in the managed
provision for possible credit losses primarily reflects increases in
the Corporations managed net credit losses. The managed
provision for possible credit losses increased $1.2 billion in 2001
from 2000. This increase was also due primarily to increases in the
Corporations managed net credit losses.


Managed other operating income was $3.5 billion in 2002, as
compared to $3.6 billion in 2001. The decrease in managed other
operating income was primarily the result of the net incremental
change in the interest-only strip receivable for all securitization
transactions, offset by an increase in insurance and interchange
income. Managed other operating income was $3.6 billion
in 2001, as compared to $3.3 billion in 2000. The increase in
managed other operating income was due to an increase in
interchange income, insurance income, and the net incremental
change in the interest-only strip receivable for all securitization
transactions. NEW ACCOUNTING PRONOUNCEMENT In January 2003, Financial Accounting Standards Board
Interpretation No. 46, Consolidation of Variable Interest Entities
(Interpretation No. 46), was issued. Interpretation No. 46 clarifies
the rules for consolidation by an investor of an entity for which
the investors ownership interest changes with changes in the
entitys net asset value. 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. As a result, the implementation of
Interpretation No. 46 is not expected to have a material impact on
the accounting for the Corporations asset securitizations. SECURITIZATION TRANSACTION ACTIVITY During 2002, the Corporation securitized credit card loan principal
receivables totaling $15.5 billion, including the securitization of
£999.1 million (approximately $1.5 billion) by MBNA Europe and
CAD$1.0 billion (approximately $635.2 million) by MBNA
Canada. During 2001, the Corporation securitized credit card loan
receivables totaling $12.4 billion, including the securitization of
£749.7 million (approximately $1.1 billion) by MBNA Europe and
CAD$700.0 million (approximately $449.3 million) by MBNA
Canada. The total amount of securitized loans was $78.5 billion
(SECURITIZED LOANS BAR CHART)
or 73.2% of managed loans at December 31, 2002, compared to
$72.9 billion or 74.7% at December 31,
2001. The total amount of securitized
domestic credit card loans was 80.4%
and 80.8% of managed domestic
credit card loans at December 31,
2002 and 2001, respectively.
Securitized domestic other consumer
loans were 47.3% and 48.2% of
managed domestic other consumer
loans at December 31, 2002 and 2001,
respectively, while securitized foreign
loans were 56.8% and 61.8% of
managed foreign loans at December 31,
2002 and 2001, respectively.








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| | THINK OF YOURSELF AS A CUSTOMER
| | -------------------------------



TABLE 16:
SECURITIZED LOANS DISTRIBUTION (dollars in thousands)

|                            |                          |                                            |       |                |                |      |      |          |           |       |   |            |            |  |  |      |       |   |   |            |            |  |      |      |       |   |   |            |            |      |  |      |       |   |   |            |            |  |  |      |       |  
|--------------------------- | ------------------------ | ------------------------------------------ | ----- | -------------- | -------------- | ---- | ---- | -------- | --------- | ----- | - | ---------- | ---------- |  |  | ---- | ----- | - | - | ---------- | ---------- |  | ---- | ---- | ----- | - | - | ---------- | ---------- | ---- |  | ---- | ----- | - | - | ---------- | ---------- |  |  | ---- | ----- | -
|December
        31,        |                          | 2002                                       |       |                |                |      |      |          | 2001      |       |   |            |            |  |  | 2000 |       |   |   |            |            |  | 1999 |      |       |   |   |            |            | 1998 |  |      |       |   |  
|                           
|Securitized
          Loans |                          |                                            |       |                |                |      |      |          |           |       |   |            |            |  |  |      |       |   |   |            |            |  |      |      |       |   |   |            |            |      |  |      |       |   |   |            |            |  |  |     
|Domestic:                   |                          |                                            |       |                |                |      |      |          |           |       |   |            |            |  |  |      |       |   |   |            |            |  |      |      |       |   |   |            |            |      |  |      |       |   |   |            |            |  |  |     
|                            | Credit
          card    |                                            | **$** | **63,886,876** | ****           | **** | **** | **81.4** | **%**     |       | $ | 60,501,860 |            |  |  | 83.1 | %     |   | $ | 57,425,582 |            |  |      | 83.4 | %     |   | $ | 45,851,922 |            |      |  | 84.0 | %     |   | $ | 39,739,387 |            |  |  | 86.1 | %    
|                            | Other
          consumer |                                            | ****  | **5,677,908**  | ****           | **** | **** | **7.2**  | ****      |       |   | 5,702,658  |            |  |  | 7.8  |       |   |   | 5,691,769  |            |  |      | 8.3  |       |   |   | 3,987,180  |            |      |  | 7.3  |       |   |   | 3,007,858  |            |  |  | 6.5  |      
|                            |                          |                                            |       | ****           | ****           |      | **** |          |           |       |   |            |            |  |  |      |       |   |   |            |            |  |      |      |       |   |   |            |            |      | 
|                            |                          | Total
          domestic securitized loans |       | ****           | **69,564,784** | **** | **** | ****     | **88.6**  | ****  |   |            | 66,204,518 |  |  |      | 90.9  |   |   |            | 63,117,351 |  |      |      | 91.7  |   |   |            | 49,839,102 |      |  |      | 91.3  |   |   |            | 42,747,245 |  |  |      | 92.6  |  
|Foreign:                    |                          | ****                                       | ****  | ****           | ****           | **** | **** | ****     |           |       |   |            |            |  |  |      |       |   |   |            |            |  |      |      |       |   |   |            |            |      |  |      |       |   |   |            |            |  |  |     
|                            | Credit
          card    |                                            | ****  | **8,966,550**  | ****           | **** | **** | **11.4** | ****      |       |   | 6,657,969  |            |  |  | 9.1  |       |   |   | 5,650,485  |            |  |      | 8.2  |       |   |   | 4,565,996  |            |      |  | 8.4  |       |   |   | 3,052,070  |            |  |  | 6.6  |      
|                            | Other
          consumer |                                            | ****  | ****          | ****           | **** | **** | ****    | ****      |       |   |           |            |  |  |     |       |   |   | 68,048     |            |  |      | .1   |       |   |   | 186,706    |            |      |  | .3   |       |   |   | 373,424    |            |  |  | .8   |      
|                            |                          |                                            |       | ****           | ****           |      | **** |          |           |       |   |            |            |  |  |      |       |   |   |            |            |  |      |      |       |   |   |            |            |      | 
|                            |                          | Total
          foreign securitized loans  |       | ****           | **8,966,550**  | **** | **** | ****     | **11.4**  | ****  |   |            | 6,657,969  |  |  |      | 9.1   |   |   |            | 5,718,533  |  |      |      | 8.3   |   |   |            | 4,752,702  |      |  |      | 8.7   |   |   |            | 3,425,494  |  |  |      | 7.4   |  
|                            |                          |                                            |       | ****           | ****           |      | **** |          |           |       |   |            |            |  |  |      |       |   |   |            |            |  |      |      |       |   |   |            |            |      | 
|                            |                          | Total
          securitized loans          |       | **$**          | **78,531,334** | **** | **** | ****     | **100.0** | **%** |   | $          | 72,862,487 |  |  |      | 100.0 | % |   | $          | 68,835,884 |  |      |      | 100.0 | % |   | $          | 54,591,804 |      |  |      | 100.0 | % |   | $          | 46,172,739 |  |  |      | 100.0 | %
|                            |                          |                                            |       | ****           | ****           |      | **** |          |           |       |   |            |            |  |  |      |       |   |   |            |            |  |      |      |       |   |   |            |            |      | 
|                           



Table 16 presents the Corporations securitized loans distribution. During 2002, there was an increase of $10.2 billion in the
Corporations loan receivables that occurred when certain securitizations
matured as scheduled and the trusts used principal
payments to pay the investors rather than purchasing new loan
principal receivables from the Corporation. The Corporations loan
receivables are expected to increase an additional $9.3 billion
during 2003 as a result of estimated maturities of existing securitization
transactions. Table 17 presents the amounts, at
December 31, 2002, of investor principal in securitized loan receivables
scheduled to mature in future years. These amounts are based
upon the estimated maturity of outstanding securitization transactions,
which are subject to change. 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.


Table 18 presents summarized yields for each trust for the three-month
period ended December 31, 2002. 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, then the securitizations will begin to amortize
earlier than their scheduled contractual amortization date. TABLE 17: ESTIMATED MATURITIES OF INVESTOR PRINCIPAL (dollars in thousands) 2003
        
        **$**
        **9,283,352**
        ****2004
        
        
        **11,089,568**
        ****2005
        
        
        **12,659,207**
        ****2006
        
        
        **17,385,894**
        ****2007
        
        
        **10,534,375**
        ****Thereafter
        
        
        **16,012,120**
        ********Total
            amortization of investor principal
        
        
        **76,964,516**
        ****Billed
            interest and fees included in securitized loans
        
        
        **1,566,818**
        ********Total
            securitized loans
        
        **$**
        **78,531,334**
        ****




TABLE 18: YIELDS ON SECURITIZED
  TRANSACTIONS (dollars in thousands)

|                                               |  |           |            |  |                 |  |    |            |   |                                                      |         |   |  |          |       |   |                      |                                        |      |     |  |  |       |   |  |  |      |  
|---------------------------------------------- |  | --------- | ---------- |  | --------------- |  | -- | ---------- | - | ---------------------------------------------------- | ------- | - |  | -------- | ----- | - | -------------------- | -------------------------------------- | ---- | --- |  |  | ----- | - |  |  | ---- | -
|                                               |  |           |            |  |                 |  |    |            | | | For
        the Three Months Ended December 31, 2002 | |      
|                                              
|                                               |  |           |            |  |                 |  |    |            |   |                                                      |         |   |  |          |       |   |                      | Yield
        in Excess of Minimum (a) |     
|                                               |  |           |            |  |                 |  |    |            |   |                                                      |         |   |  |          |       |   |                      |                                        |     
|                                               |  |           |            |  | Number          |  |    | Average    |   |                                                      | Average |   |  |          |       |   | Series
        Range |                                       
|                                               |  | Investor  |            |  | of
      Series |  |    | Annualized |   |                                                      | Minimum |   |  | Weighted |       |   |                      |                                       
|                                               |  | Principal |            |  | in
      Trust  |  |    | Yield      |   |                                                      | Yield   |   |  | Average  |       |   | High                 |                                        |      | Low | 
|                                               |  |          
|MBNA Master
        Credit Card Trust II       |  | $         | 38,009,757 |  |                 |  | 52 |            |   |                                                      | 17.81   | % |  |          | 9.72  | % |                      |                                        | 8.09 | %   |  |  | 8.48  | % |  |  | 5.02 | %
|UK Receivables
        Trust                   |  |           | 4,108,203  |  |                 |  | 9  |            |   |                                                      | 19.89   |   |  |          | 11.11 |   |                      |                                        | 8.77 |     |  |  | 9.54  |   |  |  | 6.61 |  
|Gloucester
        Credit Card Trust           |  |           | 1,872,837  |  |                 |  | 8  |            |   |                                                      | 19.25   |   |  |          | 9.30  |   |                      |                                        | 9.95 |     |  |  | 10.72 |   |  |  | 9.25 |  
|MBNA Master
        Consumer Loan Trust        |  |           | 5,560,278  |  |                 |  | 3  |            |   |                                                      | (b      | ) |  |          | (b    | ) |                      |                                        | (b   | )   |  |  | (b    | ) |  |  | (b   | )
|MBNA Triple
        A Master Trust             |  |           | 2,000,000  |  |                 |  | 2  |            |   |                                                      | 16.39   |   |  |          | 9.45  |   |                      |                                        | 6.94 |     |  |  | 7.45  |   |  |  | 6.77 |  
|MBNA Credit
        Card Master Note Trust (c) |  |           | 22,094,025 |  |                 |  | 38 |            |   |                                                      | 17.79   |   |  |          | 9.65  |   |                      |                                        | 8.14 |     |  |  | 8.14  |   |  |  | 8.14 |  
|UK Receivables
        Trust II                |  |           | 2,819,416  |  |                 |  | 4  |            |   |                                                      | 19.53   |   |  |          | 11.18 |   |                      |                                        | 8.35 |     |  |  | 8.52  |   |  |  | 8.06 |  
|Multiple
        Asset Note Trust              |  |           | 500,000    |  |                 |  | 1  |            |   |                                                      | 17.17   |   |  |          | 9.73  |   |                      |                                        | 7.44 |     |  |  | 7.44  |   |  |  | 7.44 |  
|                                              

|(a) |  | The Yield in Excess of Minimum represents the trusts average annualized
yield less its average minimum yield. The yields are on a cash basis and were
not affected by the change in the estimated value of accrued interest and fees (for further
discussion see Critical Accounting PoliciesRevenue Recognition).                                                                                            
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(b) |  | 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 Table 18.                                           
|   
|(c) |  | 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. This average yield in excess of minimum
impacts the distribution of principal to investors of all classes within the
MBNAseries.





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|-- | -------------------------------



MANAGEMENTS REPORT ON THE CONSOLIDATED
FINANCIAL STATEMENTS AND INTERNAL CONTROL

The accompanying consolidated financial statements were prepared by management,
which is responsible for the
integrity and objectivity of the information presented, including amounts that
must necessarily be based on judgments
and estimates. The consolidated financial statements were prepared in
conformity with accounting principles generally
accepted in the United States, and in situations where acceptable alternative
accounting principles exist, management
selected the method that 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.

-s- Charles M. Cawley





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##### 



REPORT OF INDEPENDENT AUDITORS

Board of Directors and Stockholders
MBNA Corporation

We have audited the accompanying consolidated statements of financial condition
of MBNA Corporation and
subsidiaries as of December 31, 2002 and 2001, 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, 2002. 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, 2002
and 2001, and the consolidated results
of their operations and their cash flows for each of the three years in the
period ended December 31, 2002, in
conformity with accounting principles generally accepted in the United States.

SIG ERNST & YOUNG LLP

Baltimore, Maryland
January 23, 2003





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|48 | THINK OF YOURSELF AS A CUSTOMER
|-- | -------------------------------



CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (dollars in thousands, except per share amounts)

December 31,
        
        2002
        
        
        2001AssetsCash and due from banks
        
        $
        721,972
        
        
        $
        962,118Interest-earning time deposits in other banks
        
        
        3,703,052
        
        
        
        1,676,863Federal funds sold
        
        
        1,645,000
        
        
        
        1,354,000Investment securities:Available-for-sale (amortized cost of $3,617,505 and $3,077,711 at December 31, 2002
and 2001, respectively)
        
        
        3,655,808
        
        
        
        3,106,884Held-to-maturity
(market value of $494,333 and $426,317 at December 31, 2002
and 2001, respectively)
        
        
        485,621
        
        
        
        439,987Loans held for securitization
        
        
        11,029,627
        
        
        
        9,929,948Loan portfolio:Credit card
        
        
        9,484,115
        
        
        
        8,261,575Other consumer
        
        
        8,212,766
        
        
        
        6,442,041Total loan portfolio
        
        
        17,696,881
        
        
        
        14,703,616Reserve for possible credit losses
        
        
        (1,111,299
        )
        
        
        (833,423
        )Net loan portfolio
        
        
        16,585,582
        
        
        
        13,870,193Premises and equipment, net
        
        
        2,188,644
        
        
        
        2,112,139Accrued income receivable
        
        
        371,089
        
        
        
        369,383Accounts receivable from securitization
        
        
        6,926,876
        
        
        
        7,495,501Intangible assets, net
        
        
        3,188,501
        
        
        
        2,582,163Prepaid expenses and deferred charges
        
        
        412,609
        
        
        
        344,692Other assets
        
        
        1,942,365
        
        
        
        1,204,074Total assets
        
        $
        52,856,746
        
        
        $
        45,447,945LiabilitiesDeposits:Time deposits
        
        $
        22,079,031
        
        
        $
        19,792,466Money market deposit accounts
        
        
        7,520,119
        
        
        
        6,271,850Noninterest-bearing deposits
        
        
        915,687
        
        
        
        948,440Interest-bearing transaction accounts
        
        
        45,414
        
        
        
        49,234Savings accounts
        
        
        55,965
        
        
        
        32,755Total deposits
        
        
        30,616,216
        
        
        
        27,094,745Short-term borrowings
        
        
        1,250,103
        
        
        
        1,774,816Long-term debt and bank notes
        
        
        9,538,173
        
        
        
        6,867,033Accrued interest payable
        
        
        286,158
        
        
        
        226,653Accrued expenses and other liabilities
        
        
        2,064,777
        
        
        
        1,685,980Total liabilities
        
        
        43,755,427
        
        
        
        37,649,227Stockholders EquityPreferred stock ($.01 par value, 20,000,000 shares authorized, 8,573,882 shares issued and outstanding
at December 31, 2002 and 2001)
        
        
        86
        
        
        
        86Common stock ($.01 par value, 1,500,000,000 shares authorized, 1,277,671,875 shares issued and outstanding
at December 31, 2002 and 2001)
        
        
        12,777
        
        
        
        12,777Additional paid-in capital
        
        
        2,296,568
        
        
        
        2,529,563Retained earnings
        
        
        6,707,162
        
        
        
        5,304,725Accumulated other comprehensive income
        
        
        84,726
        
        
        
        (48,433
        )Total stockholders equity
        
        
        9,101,319
        
        
        
        7,798,718Total liabilities and stockholders equity
        
        $
        52,856,746
        
        
        $
        45,447,945


The accompanying notes are an integral part of the consolidated financial
statements.



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| | THINK OF YOURSELF AS A CUSTOMER
| | -------------------------------



CONSOLIDATED STATEMENTS OF INCOME (dollars in thousands, except per share amounts)

Year Ended December 31,
        
        2002
        
        
        2001
        
        
        2000Interest IncomeLoan portfolio
        
        $
        2,037,454
        
        
        $
        1,793,145
        
        
        $
        1,263,506Loans held for securitization
        
        
        1,056,558
        
        
        
        998,881
        
        
        
        1,206,455Investment securities:Taxable
        
        
        138,124
        
        
        
        164,577
        
        
        
        174,109Tax-exempt
        
        
        1,895
        
        
        
        3,124
        
        
        
        4,396Time deposits in other banks
        
        
        53,133
        
        
        
        71,341
        
        
        
        83,727Federal funds sold
        
        
        35,460
        
        
        
        56,651
        
        
        
        43,486Other interest income
        
        
        355,446
        
        
        
        383,686
        
        
        
        311,063Total interest income
        
        
        3,678,070
        
        
        
        3,471,405
        
        
        
        3,086,742Interest ExpenseDeposits
        
        
        1,255,527
        
        
        
        1,444,706
        
        
        
        1,260,575Short-term borrowings
        
        
        42,978
        
        
        
        24,766
        
        
        
        34,152Long-term debt and bank notes
        
        
        304,990
        
        
        
        344,593
        
        
        
        397,000Total interest expense
        
        
        1,603,495
        
        
        
        1,814,065
        
        
        
        1,691,727Net Interest Income
        
        
        2,074,575
        
        
        
        1,657,340
        
        
        
        1,395,015Provision for possible credit losses
        
        
        1,340,157
        
        
        
        1,140,615
        
        
        
        547,309Net interest income after provision for possible credit losses
        
        
        734,418
        
        
        
        516,725
        
        
        
        847,706Other Operating IncomeSecuritization income
        
        
        5,666,352
        
        
        
        5,722,324
        
        
        
        4,109,846Interchange
        
        
        357,410
        
        
        
        300,957
        
        
        
        286,182Credit card fees
        
        
        385,422
        
        
        
        295,101
        
        
        
        289,468Other consumer loan fees
        
        
        100,862
        
        
        
        92,447
        
        
        
        64,549Insurance
        
        
        181,474
        
        
        
        145,338
        
        
        
        85,091Other
        
        
        61,403
        
        
        
        117,149
        
        
        
        85,267Total other operating income
        
        
        6,752,923
        
        
        
        6,673,316
        
        
        
        4,920,403Other Operating ExpenseSalaries and employee benefits
        
        
        1,947,389
        
        
        
        1,821,293
        
        
        
        1,511,389Occupancy expense of premises
        
        
        171,989
        
        
        
        159,075
        
        
        
        139,566Furniture and equipment expense
        
        
        232,662
        
        
        
        220,802
        
        
        
        199,833Other
        
        
        2,349,885
        
        
        
        2,273,661
        
        
        
        1,796,914Total other operating expense
        
        
        4,701,925
        
        
        
        4,474,831
        
        
        
        3,647,702Income Before Income Taxes
        
        
        2,785,416
        
        
        
        2,715,210
        
        
        
        2,120,407Applicable income taxes
        
        
        1,019,462
        
        
        
        1,020,919
        
        
        
        807,875Net Income
        
        $
        1,765,954
        
        
        $
        1,694,291
        
        
        $
        1,312,532Earnings Per Common Share
        
        $
        1.37
        
        
        $
        1.31
        
        
        $
        1.05Earnings Per Common ShareAssuming Dilution
        
        
        1.34
        
        
        
        1.28
        
        
        
        1.02


The accompanying notes are an integral part of the consolidated financial
statements.





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|50 | THINK OF YOURSELF AS A CUSTOMER
|-- | -------------------------------



CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY(dollars in thousands, except per share amounts)

|
        Outstanding Shares
          |AccumulatedAdditional
        
        
        
        
        
        Other
        
        
        TotalPreferred
        
        
        Common
        
        
        Preferred
        
        
        Common
        
        
        Paid-in
        
        
        Retained
        
        
        Comprehensive
        
        
        Stockholders(000)
        
        
        (000)
        
        
        Stock
        
        
        Stock
        
        
        Capital
        
        
        Earnings
        
        
        Income
        
        
        EquityBalance, December 31, 1999
        
        
        8,574
        
        
        
        1,202,672
        
        
        $
        86
        
        
        $
        12,027
        
        
        $
        1,301,926
        
        
        $
        2,897,964
        
        
        $
        (12,560
        )
        
        $
        4,199,443Comprehensive income:Net income
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        1,312,532
        
        
        
        
        
        
        
        1,312,532Foreign currency translation, net of tax
(accumulated amount of ($46,956) at
December 31, 2000)
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        (42,640
        )
        
        
        (42,640
        )Net unrealized gains on investment securities
available-for-sale and other financial
instruments, net of tax (accumulated
amount of $8,432 at December 31, 2000)
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        16,676
        
        
        
        16,676Other comprehensive income, net of tax
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        (25,964
        )Comprehensive income
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        1,286,568Cash dividends:Common$.21 per share
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        (264,574
        )
        
        
        
        
        
        
        (264,574
        )Preferred
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        (14,674
        )
        
        
        
        
        
        
        (14,674
        )Issuance of common stock, net of issuance costs
        
        
        
        
        
        
        75,000
        
        
        
        
        
        
        
        750
        
        
        
        1,598,305
        
        
        
        
        
        
        
        
        
        
        
        1,599,055Exercise of stock options and other awards
        
        
        
        
        
        
        15,931
        
        
        
        
        
        
        
        159
        
        
        
        62,715
        
        
        
        
        
        
        
        
        
        
        
        62,874Stock-based compensation tax benefit
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        59,015
        
        
        
        
        
        
        
        
        
        
        
        59,015Amortization of deferred compensation expense
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        23,035
        
        
        
        
        
        
        
        
        
        
        
        23,035Acquisition and retirement of common stock
        
        
        
        
        
        
        (15,897
        )
        
        
        
        
        
        
        (159
        )
        
        
        (323,305
        )
        
        
        
        
        
        
        
        
        
        
        (323,464
        )Balance, 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
amount 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 gains on investment securities
available-for-sale and other financial
instruments, net of tax (accumulated
amount 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
        
        
        $
        9,101,319


The accompanying notes are an integral part of the consolidated financial
statements.



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##### 



| | THINK OF YOURSELF AS A CUSTOMER
| | -------------------------------



CONSOLIDATED STATEMENTS OF CASH FLOWS (dollars in thousands)

Year
        Ended December 31,
      
      2002
      
      
      2001
      
      
      2000Operating
          Activities
      
      ****
      ****
      ****Net
          income
      
      **$**
      **1,765,954**
      ****
      
      $
      1,694,291
      
      
      $
      1,312,532Adjustments
          to reconcile net income to net cash provided by operating activities:
      
      ****
      ****
      ****Provision
          for possible credit losses
      
      ****
      **1,340,157**
      ****
      
      
      1,140,615
      
      
      
      547,309Depreciation,
          amortization, and accretion
      
      ****
      **779,638**
      ****
      
      
      715,386
      
      
      
      555,482(Benefit)
          provision for deferred income taxes
      
      ****
      **(151,707**
      **)**
      
      
      (111,267
      )
      
      
      44,807Decrease
          (increase) in accrued income receivable
      
      ****
      **5,282**
      ****
      
      
      (64,944
      )
      
      
      (90,611
      )Decrease
          (increase) in accounts receivable from securitization
      
      ****
      **602,160**
      ****
      
      
      (418,375
      )
      
      
      (2,823,021
      )Increase
          (decrease) in accrued interest payable
      
      ****
      **53,861**
      ****
      
      
      (10,468
      )
      
      
      55,538Decrease
          (increase) in other operating activities
      
      ****
      **203,799**
      ****
      
      
      (142,334
      )
      
      
      403,799****Net
          cash provided by operating activities
      
      ****
      **4,599,144**
      ****
      
      
      2,802,904
      
      
      
      5,835Investing
          Activities
      
      ****
      ****
      ****Net
          increase in money market instruments
      
      ****
      **(2,271,289**
      **)**
      
      
      (842,624
      )
      
      
      (702,879
      )Proceeds
          from maturities of investment securities available-for-sale
      
      ****
      **1,054,876**
      ****
      
      
      1,673,341
      
      
      
      714,223Proceeds
          from sale of investment securities available-for-sale
      
      ****
      **13,126**
      ****
      
      
      505
      
      
      
      Purchases
          of investment securities available-for-sale
      
      ****
      **(1,606,729**
      **)**
      
      
      (2,119,000
      )
      
      
      (634,154
      )Proceeds
          from maturities of investment securities held-to-maturity
      
      ****
      **45,752**
      ****
      
      
      33,280
      
      
      
      13,210Purchases
          of investment securities held-to-maturity
      
      ****
      **(86,775**
      **)**
      
      
      (89,124
      )
      
      
      (103,981
      )Proceeds
          from securitization of loans
      
      ****
      **15,373,055**
      ****
      
      
      12,329,830
      
      
      
      15,757,593Loan
          portfolio acquisitions
      
      ****
      **(4,479,966**
      **)**
      
      
      (1,301,628
      )
      
      
      (4,991,780
      )Increase
          in loans due to principal payments to investors in the Corporations
          securitization transactions
      
      ****
      **(10,195,864**
      **)**
      
      
      (8,277,644
      )
      
      
      (5,615,980
      )Net
          loan originations
      
      ****
      **(6,294,442**
      **)**
      
      
      (8,615,423
      )
      
      
      (9,595,791
      )Net
          purchases of premises and equipment
      
      ****
      **(360,019**
      **)**
      
      
      (552,113
      )
      
      
      (325,019
      )****Net
          cash used in investing activities
      
      ****
      **(8,808,275**
      **)**
      
      
      (7,760,600
      )
      
      
      (5,484,558
      )Financing
          Activities
      
      ****
      ****
      ****Net
          increase in money market deposit accounts, noninterest-bearing deposits,
          interest-bearing transaction accounts, and savings accounts
      
      ****
      **1,214,202**
      ****
      
      
      1,430,101
      
      
      
      869,681Net
          increase in time deposits
      
      ****
      **2,161,613**
      ****
      
      
      1,353,297
      
      
      
      4,806,633Net
          (decrease) increase in short-term borrowings
      
      ****
      **(524,606**
      **)**
      
      
      1,626,185
      
      
      
      (874,821
      )Proceeds
          from issuance of long-term debt and bank notes
      
      ****
      **3,749,413**
      ****
      
      
      2,043,964
      
      
      
      1,187,014Maturity
          of long-term debt and bank notes
      
      ****
      **(1,803,816**
      **)**
      
      
      (900,757
      )
      
      
      (1,097,916
      )Proceeds
          from exercise of stock options and other awards
      
      ****
      **138,422**
      ****
      
      
      84,032
      
      
      
      62,874Acquisition
          and retirement of common stock
      
      ****
      **(615,503**
      **)**
      
      
      (376,095
      )
      
      
      (323,464
      )Proceeds
          from issuance of common stock
      
      ****
      ****
      ****
      
      
      
      
      
      
      1,599,055Dividends
          paid
      
      ****
      **(350,740**
      **)**
      
      
      (312,382
      )
      
      
      (267,250
      )****Net
          cash provided by financing activities
      
      ****
      **3,968,985**
      ****
      
      
      4,948,345
      
      
      
      5,961,806****(Decrease)
          Increase in Cash and Cash Equivalents
      
      ****
      **(240,146**
      **)**
      
      
      (9,351
      )
      
      
      483,083Cash
          and cash equivalents at beginning of year
      
      ****
      **962,118**
      ****
      
      
      971,469
      
      
      
      488,386****Cash
          and cash equivalents at end of year
      
      **$**
      **721,972**
      ****
      
      $
      962,118
      
      
      $
      971,469****Supplemental
          Disclosures
      
      ****
      ****
      ****Interest
          expense paid
      
      **$**
      **1,589,080**
      ****
      
      $
      1,869,919
      
      
      $
      1,636,238****Income
          taxes paid
      
      **$**
      **1,020,878**
      ****
      
      $
      892,519
      
      
      $
      721,368****


The accompanying notes are an integral part of the consolidated financial
statements.







---



##### 



|52 | THINK OF YOURSELF AS A CUSTOMER
|-- | -------------------------------



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 endorsed
credit cards, marketed primarily to members of associations and
customers of financial institutions and other organizations. 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), which offers mortgage
loans, aircraft loans, and business card products. The accompanying 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 2002 presentation. NOTE 2: PRINCIPLES OF CONSOLIDATION The accompanying consolidated financial statements include, after
intercompany elimination, the accounts of all subsidiaries of the
Corporation, all of which are wholly owned. The Corporation,
through MBNA Capital A, MBNA Capital B, MBNA Capital C,
MBNA Capital D, and MBNA Capital E trusts, issues capital securities
and common securities. The trusts are treated as wholly
owned subsidiaries of the Corporation. 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). The trusts are not
subsidiaries of the Corporation and are excluded from the
Corporations consolidated financial statements. 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. As such, the limited partnerships are not
consolidated. The Corporations investments in these limited
partnerships are recorded in other assets in the Corporations
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). The Corporation does not
hold investment securities for trading purposes. Realized gains
and losses and other-than-temporary impairments related to
investment securities are determined using the specific identification
method and are reported in other operating income as gains or
losses on investment securities. 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 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 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
significantly 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








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##### 



| | THINK OF YOURSELF AS A CUSTOMER
| | -------------------------------





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 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. 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 establishes
appropriate levels of reserve for its products based on their risk
characteristics. The Corporation then reserves for the projected
probable net credit losses based on its projection of these amounts.
A provision is charged against earnings to maintain the reserve for
possible credit losses at an appropriate level. The Corporation charges off open-end delinquent retail loans by
the end of the month in which the account becomes 180 days
contractually past due, closed-end delinquent retail loans by the
end of the month in which the account becomes 120 days
contractually past due, and bankrupt accounts within 60 days
of receiving notification from the bankruptcy courts. The
Corporation charges off deceased accounts when the loss is
determined. The Corporation records current period recoveries
on loans previously charged off in the reserve for possible credit
losses. The Corporation sells charged-off loans and records the
proceeds received from these sales as recoveries. 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. 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. 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 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
credit card relationships. These estimates and assumptions include
levels of account 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 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 PCCRs. As a result of the study, effective
January 1, 2002 the Corporation extended the amortization period
of the domestic PCCRs to 15 years to more appropriately match
the amortization period with the PCCRs estimated useful lives.
The Corporation is amortizing the remaining carrying amount as








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of December 31, 2001 of the domestic PCCRs over the revised
remaining amortization period. As of December 31, 2002, the
Corporation amortized the value of its foreign PCCRs over a period
of 10 years. Beginning January 1, 2003, the Corporation will
extend the amortization period of its foreign PCCRs to 15 years. As
of December 31, 2002, approximately 82% of the net book value
of PCCRs was being amortized using a 15 year period; the remain-der
was being amortized over 10 years. As a result of the change in the amortization period for 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 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. The Corporations intangible assets had a gross carrying value of
$4.5 billion at December 31, 2002 and $3.6 billion at
December 31, 2001, and accumulated amortization of $1.3 billion
and $971.7 million at December 31, 2002 and 2001, respectively.
In 2002, the Corporation acquired approximately $3.7 billion of
credit card loan receivables. As part of these acquisitions, the
Corporation recognized an additional $903.8 million of PCCRs. The Corporations intangible asset amortization expense was
$348.7 million, $381.8 million, and $273.2 million for the years
ended December 31, 2002, 2001, and 2000, respectively. The
Corporation expects intangible asset amortization to be approximately
$368.4 million, $352.6 million, $333.7 million,
$310.9 million, and $283.7 million for the years ending
December 31, 2003, 2004, 2005, 2006, and 2007, respectively. There were no impairment write-downs of intangible assets for the
year ended December 31, 2002 and no material impairment write-downs
for the years ended December 31, 2001 and 2000. In June 2001, the FASB issued Statement of Financial Accounting
Standards No. 142, Goodwill and Other Intangible Assets
(Statement No. 142), effective for fiscal years beginning after
December 15, 2001. The Corporation has adopted Statement
No. 142. At December 31, 2002 and 2001, the Corporation did
not have any intangible assets with indefinite lives or any other
nonamortizing assets and, as a result, the pro formanet income,
pro formaearnings per common share, and pro formaearnings per
common shareassuming dilution amounts required by
Statement No. 142 have not been presented. 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).


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 of three 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 other assets in the
Corporations consolidated statements of financial condition. 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 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 21. 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). No options-based
employee compensation cost is reflected in net income, as 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 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. The following table illustrates the effect on net income
and earnings per common share as required by Statement of
Financial Accounting Standards No. 148, Accounting for Stock-Based
Compensation-Transition and Disclosure, an amendment








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PRO FORMA NET INCOME AND EARNINGS
  PER COMMON SHARE(dollars in thousands,
  except per share amounts)

Year Ended December 31,
        
        
        
        
        
        2002
        
        
        2001
        
        
        2000Net IncomeAs reported
        
        $
        
        
        
        
        1,765,954
        
        
        $
        1,694,291
        
        
        $
        1,312,532Add: Stock-based employee compensation expense included in reported net income, net of
related tax effects
        
        
        
        
        
        
        94,172
        
        
        
        31,355
        
        
        
        23,035Deduct: Total stock-based employee compensation expense determined under fair value method
for all awards, net of related tax effects
        
        
        
        
        
        
        (168,582
        )
        
        
        (106,679
        )
        
        
        (64,621
        )Pro forma
        
        $
        
        
        
        
        1,691,544
        
        
        $
        1,618,967
        
        
        $
        1,270,946Earnings Per Common ShareAs reported
        
        $
        
        
        
        
        1.37
        
        
        $
        1.31
        
        
        $
        1.05Pro forma
        
        
        
        
        
        
        1.31
        
        
        
        1.26
        
        
        
        1.02Earnings Per Common Share
Assuming DilutionAs reported
        
        
        
        
        
        
        1.34
        
        
        
        1.28
        
        
        
        1.02Pro forma
        
        
        
        
        
        
        1.29
        
        
        
        1.23
        
        
        
        .99




of FASB Statement No. 123 (Statement No. 148) if the
Corporation had applied the fair value recognition provisions of
FASB Statement No. 123, Accounting for Stock-based
Compensation, (Statement No. 123) to options-based employee
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. The
derived fair value estimates cannot be substantiated by comparison
to independent markets. 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 2002,
2001, and 2000, were: dividend yield of 1.10%, 1.08%, and
1.12%, expected volatility of 34.21%, 34.00%, and 34.90%, and a
risk-free interest rate of 4.50%, 4.61%, and 6.66%, respectively.
The expected life was 5.4 years for 2002, 2001, and 2000. 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 other
comprehensive income included in stockholders equity, net of tax.


DERIVATIVE FINANCIAL INSTRUMENTS AND
HEDGING ACTIVITIES The Corporation adopted Statement of Financial Accounting
Standards No. 133, Accounting for Derivative Instruments and
Hedging Activities (Statement No. 133), as amended on
January 1, 2001. Statement No. 133 required that all derivative
financial instruments be recorded in the Corporations consolidated
statements of financial condition at fair value and established criteria
for designation and effectiveness of hedging relationships. The
Corporation recognized a $2.5 million (pre-tax) loss upon
implementation of Statement No. 133, on January 1, 2001. 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. The Corporation accounts for changes in the fair value of
fair value hedges and the corresponding hedged items as a
component of other operating income on the Corporations
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 consolidated statements of income. The gross
unrealized gains and gross unrealized losses on the Corporations
derivative financial instruments are included as a component of
other assets or accrued expenses and other liabilities, respectively,
in the Corporations consolidated statements of financial condition.
The gross unrealized gains and gross unrealized losses on the
corresponding hedged items are included as part of the carrying
value of the hedged item in the Corporations consolidated
statements of financial condition.








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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 life of the related
agreement. Gains and losses associated with the termination of
interest rate swap agreements for identified positions are deferred
and amortized over the remaining lives of the related underlying
assets/liabilities as an adjustment to the yield/rate. Unamortized
deferred gains and losses associated with terminated interest
rate swap agreements are included in the underlying assets/liabilities
hedged. 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 consolidated statements
of financial condition. The Corporation also uses certain
assumptions and estimates in the valuation of accrued interest and
fees on securitized loans which is included in accounts receivable
from securitization in the Corporations consolidated statements of
financial condition. The Corporation also recognizes fees on loan receivables in
earnings (except annual fees) 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 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 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, 2002 and 2001, the incremental
direct loan origination costs deferred were $58.8 million and
$49.8 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 earning 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
the Corporation was contractually entitled to and the amounts
recognized as revenue was $1.4 billion, $858.3 million, and
$691.8 million for the years ended December 31, 2002, 2001, and
2000, 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 Inc. and Visa U.S.A. Inc.
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.








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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 consolidated statements of
cash flows using the indirect method, which involves the
reconciliation of net income to net cash flow from operating
activities. In addition, the Corporation nets certain cash receipts
and cash payments relating to deposits placed with and
withdrawn from other financial institutions; time deposits
accepted and repayments of those deposits; and loans made to
Customers and principal collections of those loans. For purposes
of the consolidated statements of cash flows, cash and cash
equivalents include cash and due from banks.


NOTE 4: NEW ACCOUNTING PRONOUNCEMENTS 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 of an entity for which the investors ownership interest
changes with changes in the entitys net asset value. 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. As a
result, the implementation of Interpretation No. 46 is not expected
to have a material impact on the accounting for the Corporations
asset securitizations. Statement of Financial Accounting Standards No. 147,
Acquisitions of Certain Financial Institutions (Statement
No. 147) issued in October 2002 provided guidance on the
accounting for the acquisition of a financial institution. For
acquisitions occurring after September 30, 2002, Statement
No. 147 also amended Statement No. 144 to include long-term
customer-relationship intangible assets such as the value of PCCRs.
The implementation of Statement No. 147 did not have a material
impact on the Corporations consolidated financial statements. In December 2002, Statement No. 148 was issued. Statement
No. 148 provided alternative methods of transition for a voluntary
change to the fair-value-based method of accounting for
stock-based employee compensation. In addition, Statement
No. 148 amended the disclosure requirements of Statement
No. 123 to require prominent disclosures in both annual and
interim financial statements about the method of accounting
for stock-based employee compensation and the effect of the
method used on reported results. In accordance with Statement No. 148, the Corporation will also
include these disclosures in its quarterly financial statements
beginning March 31, 2003. The planned implementation of
Statement No. 148 will not impact the Corporations accounting
for stock-based employee compensation or its consolidated
financial results at this time as the Corporation has not changed to
the fair-value-based method of accounting for stock-based
employee compensation. 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 2002 and 2001, the average amount of these reserves was
$4.7 million and $18.0 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 at
December 31, 2002 and 2001 were $31.3 million of collateralizing
advances provided by an underwriter of MBNA Europes
securitization transactions completed in 2000.








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NOTE 7: INVESTMENT
  SECURITIESSUMMARY OF INVESTMENT SECURITIES(dollars in thousands)

|                                          |                                                              |                                                |   |           |           |  |            |        |        |            |   |         |         |   |   |           |           | 
|----------------------------------------- | ------------------------------------------------------------ | ---------------------------------------------- | - | --------- | --------- |  | ---------- | ------ | ------ | ---------- | - | ------- | ------- | - | - | --------- | --------- | 
|                                          |                                                              |                                                |   |           |           |  | Gross      |        |        | Gross      |   |         |         |  
|                                          |                                                              |                                                |   | Amortized |           |  | Unrealized |        |        | Unrealized |   |         | Market  |  
|                                          |                                                              |                                                |   | Cost      |           |  | Gains      |        |        | Losses     |   |         | Value   |  
|                                         
|December 31, 2002                         |                                                              |                                                |   |           |           |  |            |        |        |            |   |         |         |   |   |          
|Investment securities available-for-sale: |                                                              |                                                |   |           |           |  |            |        |        |            |   |         |         |   |   |          
|                                          | U.S. Treasury and other U.S. government agencies obligations |                                                | $ | 2,489,612 |           |  | $          | 36,919 |        |            | $ |        |         |   | $ | 2,526,531 |          
|                                          | State and political subdivisions of the United States        |                                                |   | 101,370   |           |  |            |       |        |            |   |        |         |   |   | 101,370   |          
|                                          | Asset-backed and other securities                            |                                                |   | 1,026,523 |           |  |            | 1,928  |        |            |   | (544    | )       |   |   | 1,027,907 |          
|                                          |                                                              |                                                |   |           |           |  |            |        |        |            |   |        
|                                          |                                                              | Total investment securities available-for-sale |   | $         | 3,617,505 |  |            | $      | 38,847 |            |   | $       | (544    | ) |   | $         | 3,655,808 | 
|                                          |                                                              |                                                |   |           |           |  |            |        |        |            |   |        
|Investment securities held-to-maturity:   |                                                              |                                                |   |           |           |  |            |        |        |            |   |         |         |   |   |          
|                                          | U.S. Treasury and other U.S. government agencies obligations |                                                | $ | 410,471   |           |  | $          | 9,139  |        |            | $ | (629    | )       |   | $ | 418,981   |          
|                                          | State and political subdivisions of the United States        |                                                |   | 7,289     |           |  |            | 189    |        |            |   |        |         |   |   | 7,478     |          
|                                          | Asset-backed and other securities                            |                                                |   | 67,861    |           |  |            | 13     |        |            |   |        |         |   |   | 67,874    |          
|                                          |                                                              |                                                |   |           |           |  |            |        |        |            |   |        
|                                          |                                                              | Total investment securities held-to-maturity   |   | $         | 485,621   |  |            | $      | 9,341  |            |   | $       | (629    | ) |   | $         | 494,333   | 
|                                          |                                                              |                                                |   |           |           |  |            |        |        |            |   |        
|December 31, 2001                         |                                                              |                                                |   |           |           |  |            |        |        |            |   |         |         |   |   |          
|Investment securities available-for-sale: |                                                              |                                                |   |           |           |  |            |        |        |            |   |         |         |   |   |          
|                                          | U.S. Treasury and other U.S. government agencies obligations |                                                | $ | 2,134,378 |           |  | $          | 29,971 |        |            | $ | (699    | )       |   | $ | 2,163,650 |          
|                                          | State and political subdivisions of the United States        |                                                |   | 105,067   |           |  |            | 41     |        |            |   |        |         |   |   | 105,108   |          
|                                          | Asset-backed and other securities                            |                                                |   | 838,266   |           |  |            | 942    |        |            |   | (1,082  | )       |   |   | 838,126   |          
|                                          |                                                              |                                                |   |           |           |  |            |        |        |            |   |        
|                                          |                                                              | Total investment securities available-for-sale |   | $         | 3,077,711 |  |            | $      | 30,954 |            |   | $       | (1,781  | ) |   | $         | 3,106,884 | 
|                                          |                                                              |                                                |   |           |           |  |            |        |        |            |   |        
|Investment securities held-to-maturity:   |                                                              |                                                |   |           |           |  |            |        |        |            |   |         |         |   |   |          
|                                          | U.S. Treasury and other U.S. government agencies obligations |                                                | $ | 370,613   |           |  | $          | 456    |        |            | $ | (15,548 | )       |   | $ | 355,521   |          
|                                          | State and political subdivisions of the United States        |                                                |   | 6,692     |           |  |            | 1,389  |        |            |   | (9      | )       |   |   | 8,072     |          
|                                          | Asset-backed and other securities                            |                                                |   | 62,682    |           |  |            | 42     |        |            |   |        |         |   |   | 62,724    |          
|                                          |                                                              |                                                |   |           |           |  |            |        |        |            |   |        
|                                          |                                                              | Total investment securities held-to-maturity   |   | $         | 439,987   |  |            | $      | 1,887  |            |   | $       | (15,557 | ) |   | $         | 426,317   | 
|                                          |                                                              |                                                |   |           |           |  |            |        |        |            |   |        
|December 31, 2000                         |                                                              |                                                |   |           |           |  |            |        |        |            |   |         |         |   |   |          
|Investment securities available-for-sale: |                                                              |                                                |   |           |           |  |            |        |        |            |   |         |         |   |   |          
|                                          | U.S. Treasury and other U.S. government agencies obligations |                                                | $ | 1,704,107 |           |  | $          | 6,351  |        |            | $ | (1,790  | )       |   | $ | 1,708,668 |          
|                                          | State and political subdivisions of the United States        |                                                |   | 95,811    |           |  |            | 30     |        |            |   |        |         |   |   | 95,841    |          
|                                          | Asset-backed and other securities                            |                                                |   | 862,044   |           |  |            | 390    |        |            |   | (747    | )       |   |   | 861,687   |          
|                                          |                                                              |                                                |   |           |           |  |            |        |        |            |   |        
|                                          |                                                              | Total investment securities available-for-sale |   | $         | 2,661,962 |  |            | $      | 6,771  |            |   | $       | (2,537  | ) |   | $         | 2,666,196 | 
|                                          |                                                              |                                                |   |           |           |  |            |        |        |            |   |        
|Investment securities held-to-maturity:   |                                                              |                                                |   |           |           |  |            |        |        |            |   |         |         |   |   |          
|                                          | U.S. Treasury and other U.S. government agencies obligations |                                                | $ | 315,707   |           |  | $          | 74     |        |            | $ | (15,398 | )       |   | $ | 300,383   |          
|                                          | State and political subdivisions of the United States        |                                                |   | 6,095     |           |  |            | 101    |        |            |   | (113    | )       |   |   | 6,083     |          
|                                          | Asset-backed and other securities                            |                                                |   | 62,286    |           |  |            |       |        |            |   | (205    | )       |   |   | 62,081    |          
|                                          |                                                              |                                                |   |           |           |  |            |        |        |            |   |        
|                                          |                                                              | Total investment securities held-to-maturity   |   | $         | 384,088   |  |            | $      | 175    |            |   | $       | (15,716 | ) |   | $         | 368,547   | 
|                                          |                                                              |                                                |   |           |           |  |            |        |        |            |   |        
|                                         



ESTIMATED
MATURITIES OF INVESTMENT SECURITIES
(dollars in thousands) Amortized
        
        
        MarketDecember 31, 2002
        
        Cost
        
        
        ValueInvestment Securities Available-for-SaleDue within one year
        
        $
        1,843,625
        
        
        $
        1,861,015Due after one year through five years
        
        
        1,757,275
        
        
        
        1,778,269Due after five years through ten years
        
        
        15,112
        
        
        
        15,038Due after ten years
        
        
        1,493
        
        
        
        1,486Total investment securities
available-for-sale
        
        $
        3,617,505
        
        
        $
        3,655,808Investment Securities Held-to-MaturityDue within one year
        
        $
        1,140
        
        
        $
        1,158Due after one year through five years
        
        
        1,156
        
        
        
        1,156Due after five years through ten years
        
        
        649
        
        
        
        649Due after ten years
        
        
        482,676
        
        
        
        491,370Total investment securities
held-to-maturity
        
        $
        485,621
        
        
        $
        494,333


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 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). The Corporation did not sell any investment
securities during 2000. Included in U.S. Treasury and other U.S.
government agencies obligations are the Banks investment in
securities of U.S. government sponsored entities. The Corporation
had investment securities with a book value of $3.2 billion and
$2.8 billion at December 31, 2002 and 2001, respectively, held in
the Banks account with the Federal Reserve Bank of Philadelphia,
which are available for use as collateral.








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##### 



| | THINK OF YOURSELF AS A CUSTOMER
| | -------------------------------





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 trusts 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 in loan receivables and had $17.7 billion and
$14.6 billion at December 31, 2002 and 2001, respectively. 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. During 2002 and 2001, the Corporation sold loan principal
receivables in numerous securitization transactions. At
December 31, 2002 and 2001, the trusts had approximately
$77.0 billion and $71.1 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. 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


ACCOUNTS RECEIVABLE FROM SECURITIZATION
    (dollars in thousands) December
            31,
    
    
    2002
    
    
    
    2001Sale of new loan principal receivables
    
    $
    1,813,589
    
    
    $
    2,202,403Accrued interest and fees
on securitized loans
    
    
    2,027,281
    
    
    
    2,216,839Interest-only strip receivable
    
    
    1,129,965
    
    
    
    1,124,063Accrued servicing fees
    
    
    667,246
    
    
    
    688,185Cash reserve accounts
    
    
    473,271
    
    
    
    397,954Other subordinated retained interests
    
    
    613,659
    
    
    
    657,246Other
    
    
    201,865
    
    
    
    208,811Total accounts receivable
from securitization
    
    $
    6,926,876
    
    
    $
    7,495,501 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 amortization period of the securitization transaction. During 2002, as a result of the change in the estimated value of
accrued interest and fees, accounts receivable from securitization
was reduced $172.0 million at September 30, 2002. This reduction
was primarily a result of a decrease in the carrying value of
accrued interest and fees on securitized loans.




SECURITIZATION CASH FLOWS (dollars in billions)

|                                                           |  |      |  |  |      |        |       |      |          |   |     |  |  |   |  |        |  |  |          |  |  |   |     |  |  |        |  |  |          |  |      |  |  |   |     | 
|---------------------------------------------------------- |  | ---- |  |  | ---- | ------ | ----- | ---- | -------- | - | --- |  |  | - |  | ------ |  |  | -------- |  |  | - | --- |  |  | ------ |  |  | -------- |  | ---- |  |  | - | --- | 
|Year Ended December 31,                                    |  | 2002 |  |  | 2001 |        |       | 2000 |         
|                                                          
|                                                           |  |      |  |  |      | Credit |       |      | Other    |   |     |  |  |   |  | Credit |  |  | Other    |  |  |   |     |  |  | Credit |  |  | Other    | 
|                                                           |  |      |  |  |      | Card   |       |      | Consumer |   |     |  |  |   |  | Card   |  |  | Consumer |  |  |   |     |  |  | Card   |  |  | Consumer | 
|                                                           |  |      |  |  |      |        |       |      |         
|Proceeds from new securitizations                          |  | $    |  |  |      |        | 15.4  |      |          | $ |    |  |  | $ |  |        |  |  | 12.3     |  |  | $ |    |  |  | $      |  |  |          |  | 14.2 |  |  | $ | 1.6 | 
|Collections reinvested in revolving-period securitizations |  |      |  |  |      |        | 103.9 |      |          |   | 3.4 |  |  |   |  |        |  |  | 92.2     |  |  |   | 3.5 |  |  |        |  |  |          |  | 80.5 |  |  |   | 2.8 | 
|Contractual servicing fees received                        |  |      |  |  |      |        | 1.3   |      |          |   | .1  |  |  |   |  |        |  |  | 1.2      |  |  |   | .1  |  |  |        |  |  |          |  | 1.0  |  |  |   | .1  | 
|Cash flows received on retained interests                  |  |      |  |  |      |        | 4.5   |      |          |   | .2  |  |  |   |  |        |  |  | 3.9      |  |  |   | .1  |  |  |        |  |  |          |  | 2.7  |  |  |   | .1  | 
|                                                          





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##### 



|60 | THINK OF YOURSELF AS A CUSTOMER
|-- | -------------------------------



SUPPLEMENTAL CREDIT
LOSS INFORMATION (dollars in
thousands)

|                             |                    |                |                         |            |             |             |   |           |            |            |   |         |          |            |   |           |            |            |  
|---------------------------- | ------------------ | -------------- | ----------------------- | ---------- | ----------- | ----------- | - | --------- | ---------- | ---------- | - | ------- | -------- | ---------- | - | --------- | ---------- | ---------- | -
|                             |                    |                |                         |            |             | Average     |   |           |            | Credit     |   |         |          |            |   |           |            | Net Credit |  
|                             |                    |                |                         |            |             | Balance     |   |           |            | Losses     |   |         |          | Recoveries |   |           |            | Losses     |  
|                            
|Year ended December 31, 2002 |                    |                |                         |            |             |             |   |           |            |            |   |         |          |            |   |          
|                             | Managed Loans:     |                |                         |            |             |             |   |           |            |            |   |         |          |            |   |           |           
|                             |                    | Credit card    |                         | $          | 86,378,943  |             |   | $         | 4,331,274  |            |   | $       | (281,068 | )          |   | $         | 4,050,206  |           
|                             |                    | Other consumer |                         |            | 13,654,988  |             |   |           | 995,105    |            |   |         | (53,716  | )          |   |           | 941,389    |           
|                             |                    |                |                         |            |             |             |   |           |            |            |   |         |          |            |   |          
|                             |                    |                | Total managed loans     |            |             | 100,033,931 |   |           |            | 5,326,379  |   |         |          | (334,784   | ) |           |            | 4,991,595  |  
|                             | Securitized 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 | )        |            | $ | 1,156,212 |           
|                             |                    |                |                         |            |             |             |   |           |            |            |   |         |          |            |   |          
|Year ended December 31, 2001 |                    |                |                         |            |             |             |   |           |            |            |   |         |          |            |   |          
|                             | Managed Loans:     |                |                         |            |             |             |   |           |            |            |   |         |          |            |   |           |           
|                             |                    | Credit card    |                         | $          | 79,008,957  |             |   | $         | 3,865,206  |            |   | $       | (282,118 | )          |   | $         | 3,583,088  |           
|                             |                    | Other consumer |                         |            | 11,891,031  |             |   |           | 756,563    |            |   |         | (32,623  | )          |   |           | 723,940    |           
|                             |                    |                |                         |            |             |             |   |           |            |            |   |         |          |            |   |          
|                             |                    |                | Total managed loans     |            |             | 90,899,988  |   |           |            | 4,621,769  |   |         |          | (314,741   | ) |           |            | 4,307,028  |  
|                             | Securitized 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   |           
|                             |                    |                |                         |            |             |             |   |           |            |            |   |         |          |            |   |          
|Year ended December 31, 2000 |                    |                |                         |            |             |             |   |           |            |            |   |         |          |            |   |          
|                             | Managed Loans:     |                |                         |            |             |             |   |           |            |            |   |         |          |            |   |           |           
|                             |                    | Credit card    |                         | $          | 68,661,028  |             |   | $         | 3,116,240  |            |   | $       | (181,299 | )          |   | $         | 2,934,941  |           
|                             |                    | Other consumer |                         |            | 8,783,958   |             |   |           | 490,059    |            |   |         | (24,378  | )          |   |           | 465,681    |           
|                             |                    |                |                         |            |             |             |   |           |            |            |   |         |          |            |   |          
|                             |                    |                | Total managed loans     |            |             | 77,444,986  |   |           |            | 3,606,299  |   |         |          | (205,677   | ) |           |            | 3,400,622  |  
|                             | Securitized Loans: |                |                         |            |             |             |   |           |            |            |   |         |          |            |   |           |           
|                             |                    | Credit card    |                         |            | (54,790,675 | )           |   |           | (2,624,680 | )          |   |         | 145,044  |            |   |           | (2,479,636 | )         
|                             |                    | Other consumer |                         |            | (4,936,163  | )           |   |           | (334,762   | )          |   |         | 13,418   |            |   |           | (321,344   | )         
|                             |                    |                |                         |            |             |             |   |           |            |            |   |         |          |            |   |          
|                             |                    |                | Total securitized loans |            |             | (59,726,838 | ) |           |            | (2,959,442 | ) |         |          | 158,462    |   |           |            | (2,800,980 | )
|                             |                    |                |                         |            |             |             |   |           |            |            |   |         |          |            |   |          
|                             | Loan receivables   |                | $                       | 17,718,148 |             |             | $ | 646,857   |            |            | $ | (47,215 | )        |            | $ | 599,642   |           
|                             |                    |                |                         |            |             |             |   |           |            |            |   |         |          |            |   |          
|                            



The change in the estimated value of accrued interest and fees
reduced the carrying value of accrued interest and fees on securitized
loans by $295.9 million in 2002. 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. The Corporation has 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 the $172.0 million reduction to securitization income
discussed above. Included in accounts receivable from securitization in the
consolidated statements of financial condition at December 31, 2002
and 2001, were $1.2 billion and $1.1 billion, respectively, 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








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##### 



| | THINK OF YOURSELF AS A CUSTOMER
| | -------------------------------



SUPPLEMENTAL LOAN DELINQUENCY INFORMATION (a)
(dollars in thousands)

|                                        |                          |                                   |             |             |                |      |           |             |            |   |            |             |             |   |           |            |            |  
|--------------------------------------- | ------------------------ | --------------------------------- | ----------- | ----------- | -------------- | ---- | --------- | ----------- | ---------- | - | ---------- | ----------- | ----------- | - | --------- | ---------- | ---------- | -
|Year
        Ended December 31,         |                          | 2002                              | |           | 2001       
|                                       
|                                        |                          |                                   | **Loans**   |             |                | **** | **Loans** |             |            |   | Loans      |             |             |   | Loans     |           
|                                        |                          | **Outstanding**                   |             | ****        | **Delinquent** |      |           | Outstanding |            |   | Delinquent |            
|                                        |                          |                                   |             |             |                |      |           |             |            |   |            |             |             |   |           |           
|Managed Loans                           |                          |                                   |             |             |                |      |           |             |            |   |            |             |             |   |           |           
|                                        | Credit card              |                                   | $           | 93,326,206  |                |      | $         | 4,401,277   |            |   | $          | 84,318,655  |             |   | $         | 4,125,597  |           
|                                        | Other
          consumer |                                   |             | 13,931,636  |                |      |           | 828,234     |            |   |            | 13,177,396  |             |   |           | 836,864    |           
|                                        |                          |                                   |             |             |                |      |           |             |            |   |            |             |             |   |           |           
|                                        |                          | Total
          managed loans     |             |             | 107,257,842    |      |           |             | 5,229,511  |   |            |             | 97,496,051  |   |           |            | 4,962,461  |  
|                                        |                          |                                   |             |             |                |      |           |             |            |   |            |             |             |   |           |           
|Securitized Loans                       |                          |                                   |             |             |                |      |           |             |            |   |            |             |             |   |           |           
|                                        | Credit
          card    |                                   |             | (72,853,426 | )              |      |           | (3,576,439  | )          |   |            | (67,159,829 | )           |   |           | (3,367,095 | )         
|                                        | Other
          consumer |                                   |             | (5,677,908  | )              |      |           | (401,469    | )          |   |            | (5,702,658  | )           |   |           | (444,465   | )         
|                                        |                          |                                   |             |             |                |      |           |             |            |   |            |             |             |   |           |           
|                                        |                          | Total
          securitized loans |             |             | (78,531,334    | )    |           |             | (3,977,908 | ) |            |             | (72,862,487 | ) |           |            | (3,811,560 | )
|                                        |                          |                                   |             |             |                |      |           |             |            |   |            |             |             |   |           |           
|Loan
          receivables              |                          |                                   | 28,726,508  |             |                |      | 1,251,603 |             |            |   | 24,633,564 |             |             |   | 1,150,901 |           
|Loans
          held for securitization |                          |                                   | (11,029,627 | )           |                |      | (493,363  | )           |            |   | (9,929,948 | )           |             |   | (469,142  | )         
|                                        |                          |                                   |             |             |                |      |           |             |            |   |            |             |             |   |           |           
|Loan
          portfolio                |                          | $                                 | 17,696,881  |             |                | $    | 758,240   |             |            | $ | 14,703,616 |             |             | $ | 681,759   |           
|                                        |                          |                                   |             |             |                |      |           |             |            |   |            |             |             |   |           |           

---



|(a) |  | Loans delinquent are loans which are 30 days or more past due.
|--- |  | --------------------------------------------------------------



collateral from any party to the securitization transactions and
does not have any risk of counterparty 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 consolidated statements of income.
The gain was $154.6 million (net of securitization transaction
costs of $41.7 million) for 2002 (on the sale of $15.5 billion of
credit card loan principal receivables in 2002), as compared to
$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) and $110.4 million (net of
securitization transaction costs of $64.9 million) in 2000 (on the
sale of $14.2 billion of credit card loan principal receivables and
$1.6 billion of other consumer loan principal receivables in 2000). The Corporations securitization assumptions related to the
interest-only strip receivable and their sensitivities to adverse
changes are presented in the Securitization Key Assumptions and
Sensitivities table. The adverse changes to the key assumptions and
estimates are hypothetical and are presented in accordance with
Statement No. 140. The adverse changes presented were selected
based on changes in estimates that the Corporation has


SECURITIZATION KEY ASSUMPTIONS
  AND SENSITIVITIES (a)(dollars in
thousands)

---

|                                                          |                                                      |      |           |         |   |          |        |        |        |   |           |          |  |   |         |         |  |          |         |         |  |   |         |        | 
|--------------------------------------------------------- | ---------------------------------------------------- | ---- | --------- | ------- | - | -------- | ------ | ------ | ------ | - | --------- | -------- |  | - | ------- | ------- |  | -------- | ------- | ------- |  | - | ------- | ------ | 
|Year
        Ended December 31,                           |                                                      | 2002 | |         | 2001    | | | 2000    
|                                                         
|                                                          |                                                      |      | Credit    |         |   | Other    |        |        | Credit |   |           | Other    |  |   | Credit  |         |  | Other   
|                                                          |                                                      |      | Card      |         |   | Consumer |        |        | Card   |   |           | Consumer |  |   | Card    |         |  | Consumer
|                                                          |                                                      |      |           |         |   |         
|Interest-only
          strip receivable                  |                                                      | $    | 1,091,447 |         |   | $        | 38,518 |        |        | $ | 1,008,419 |          |  | $ | 115,644 |         |  | $        | 698,758 |         |  | $ | 155,568 |       
|Weighted
          average life (in years)                |                                                      |      | .33       |         |   |          | .87    |        |        |   | .35       |          |  |   | .93     |         |  |          | .35     |         |  |   | .82     |       
|Loan
          payment rate (weighted average rate)       |                                                      |      | 14.44     | %       |   |          | 5.05   | %      |        |   | 13.60     | %        |  |   | 4.67    | %       |  |          | 13.88   | %       |  |   | 5.26    | %     
|                                                          | Impact
          on fair value of 20% adverse change |      | $         | 156,897 |   |          | $      | 5,835  |        |   | $         | 144,892  |  |   | $       | 17,304  |  |          | $       | 99,982  |  |   | $       | 23,224 | 
|                                                          | Impact
          on fair value of 40% adverse change |      |           | 268,019 |   |          |        | 10,081 |        |   |           | 246,857  |  |   |         | 29,870  |  |          |         | 170,920 |  |   |         | 40,312 | 
|Gross
          credit losses (b) (weighted average rate) |                                                      |      | 5.43      | %       |   |          | 9.83   | %      |        |   | 5.25      | %        |  |   | 8.40    | %       |  |          | 4.31    | %       |  |   | 6.17    | %     
|                                                          | Impact
          on fair value of 20% adverse change |      | $         | 244,432 |   |          | $      | 38,518 |        |   | $         | 205,460  |  |   | $       | 74,666  |  |          | $       | 163,314 |  |   | $       | 49,402 | 
|                                                          | Impact
          on fair value of 40% adverse change |      |           | 488,865 |   |          |        | 38,518 |        |   |           | 410,919  |  |   |         | 115,644 |  |          |         | 326,628 |  |   |         | 98,804 | 
|Excess
          spread (c) (weighted average rate)       |                                                      |      | 4.84      | %       |   |          | .91    | %      |        |   | 5.14      | %        |  |   | 2.60    | %       |  |          | 3.73    | %       |  |   | 3.89    | %     
|                                                          | Impact
          on fair value of 20% adverse change |      | $         | 218,289 |   |          | $      | 7,704  |        |   | $         | 201,684  |  |   | $       | 23,129  |  |          | $       | 139,752 |  |   | $       | 31,096 | 
|                                                          | Impact
          on fair value of 40% adverse change |      |           | 436,579 |   |          |        | 15,407 |        |   |           | 403,368  |  |   |         | 46,258  |  |          |         | 279,504 |  |   |         | 62,192 | 
|Discount
          rate (weighted average rate)           |                                                      |      | 9.00      | %       |   |          | 9.00   | %      |        |   | 12.00     | %        |  |   | 12.00   | %       |  |          | 12.00   | %       |  |   | 12.00   | %     
|                                                          | Impact
          on fair value of 20% adverse change |      | $         | 4,870   |   |          | $      | 404    |        |   | $         | 6,195    |  |   | $       | 1,709   |  |          | $       | 4,212   |  |   | $       | 2,055  | 
|                                                          | Impact
          on fair value of 40% adverse change |      |           | 9,703   |   |          |        | 801    |        |   |           | 12,326   |  |   |         | 3,378   |  |          |         | 8,337   |  |   |         | 4,036  | 

---



|(a) |  | The sensitivities do not reflect actions management might take to offset
the impact of the adverse changes.                                                                                                                                                                                                                    
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(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, late fees, and
charged-off loan recoveries, less gross credit losses, contractual servicing
fees, and the interest
rate paid to investors. The excess spread at December 31, 2002 includes the
impact of the change in the estimated value of accrued interest and fees.





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##### 



|62 | THINK OF YOURSELF AS A CUSTOMER
|-- | -------------------------------





experienced. 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 adverse changes. The Corporation adopted Emerging Issues Task Force
Issue 99-20, Recognition of Interest Income and Impairment on
Purchased and Retained Beneficial Interests in Securitized
Financial Assets (EITF 99-20), on April 1, 2001. As a result, the
Corporation records accretion of interest income related to
beneficial interests retained in a securitization transaction
accounted for as a sale as interest income in the Corporations
consolidated statements of income. This income was previously
recorded as securitization income in the Corporations
consolidated statements of income. The implementation of
EITF 99-20 did not have a material impact on the Corporations
consolidated net income.


NOTE 9: GEOGRAPHIC 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, 2002.




GEOGRAPHIC DISTRIBUTION OF LOAN RECEIVABLES, SECURITIZED LOANS, AND MANAGED LOANS (dollars in thousands)

Loan Receivables
        
        
        Securitized Loans
        
        
        Managed LoansDecember 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
        %December 31, 2001United States:Northern
        
        $
        2,470,728
        
        
        
        10.0
        %
        
        $
        8,484,970
        
        
        
        11.6
        %
        
        $
        10,955,698
        
        
        
        11.2
        %Mid-Atlantic
        
        
        3,558,029
        
        
        
        14.5
        
        
        
        11,692,313
        
        
        
        16.1
        
        
        
        15,250,342
        
        
        
        15.6Southern
        
        
        4,028,540
        
        
        
        16.4
        
        
        
        13,452,626
        
        
        
        18.5
        
        
        
        17,481,166
        
        
        
        17.9Central
        
        
        3,479,120
        
        
        
        14.1
        
        
        
        11,207,159
        
        
        
        15.4
        
        
        
        14,686,279
        
        
        
        15.1Western
        
        
        3,766,008
        
        
        
        15.3
        
        
        
        11,974,475
        
        
        
        16.4
        
        
        
        15,740,483
        
        
        
        16.2Southwestern
        
        
        2,881,953
        
        
        
        11.7
        
        
        
        9,241,436
        
        
        
        12.7
        
        
        
        12,123,389
        
        
        
        12.4United Kingdom/Ireland
        
        
        3,630,104
        
        
        
        14.7
        
        
        
        5,245,294
        
        
        
        7.2
        
        
        
        8,875,398
        
        
        
        9.1Canada
        
        
        493,129
        
        
        
        2.0
        
        
        
        1,412,675
        
        
        
        1.9
        
        
        
        1,905,804
        
        
        
        2.0Other
        
        
        325,953
        
        
        
        1.3
        
        
        
        151,539
        
        
        
        .2
        
        
        
        477,492
        
        
        
        .5Total
        
        $
        24,633,564
        
        
        
        100.0
        %
        
        $
        72,862,487
        
        
        
        100.0
        %
        
        $
        97,496,051
        
        
        
        100.0
        %








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##### 



| | THINK OF YOURSELF AS A CUSTOMER
| | -------------------------------





NOTE 10: RESERVE FOR POSSIBLE CREDIT LOSSES In February 1999, the FFIEC revised its policy on the classification
of consumer loans. The revised policy established uniform
guidelines for the charge off of loans to delinquent, bankrupt,
deceased borrowers, fraudulent accounts, and for re-aging
delinquent accounts. The Corporation implemented the FFIEC
guidelines in December 2000 by recognizing one additional month
of principal charge-offs. CHANGES IN THE RESERVE FOR POSSIBLECREDIT LOSSES (dollars in thousands) December 31,
        
        2002
        
        
        2001
        
        
        2000Reserve for possible credit losses,
beginning of year
        
        $
        833,423
        
        
        $
        527,573
        
        
        $
        516,261Reserves acquired
        
        
        84,878
        
        
        
        20,748
        
        
        
        64,726Provision for possible
credit losses
        
        
        1,340,157
        
        
        
        1,140,615
        
        
        
        547,309Foreign currency translation
        
        
        9,053
        
        
        
        (499
        )
        
        
        (1,081
        )Credit losses
        
        
        (1,239,568
        )
        
        
        (924,473
        )
        
        
        (646,857
        )Recoveries
        
        
        83,356
        
        
        
        69,459
        
        
        
        47,215Net credit losses
        
        
        (1,156,212
        )
        
        
        (855,014
        )
        
        
        (599,642
        )Reserve for possible credit losses,
end of year
        
        $
        1,111,299
        
        
        $
        833,423
        
        
        $
        527,573 NOTE 11: PREMISES AND EQUIPMENT Depreciation expense was $224.3 million, $208.0 million, and
$187.6 million for the years ended December 31, 2002, 2001, and
2000, respectively. SUMMARY OF PREMISES AND EQUIPMENT(dollars in thousands) December 31,
        
        2002
        
        
        2001Land
        
        $
        220,943
        
        
        $
        215,649Buildings and improvements
        
        
        1,957,432
        
        
        
        1,842,850Furniture and equipment
        
        
        1,262,444
        
        
        
        1,117,188Total
        
        
        3,440,819
        
        
        
        3,175,687Accumulated depreciation
        
        
        (1,252,175
        )
        
        
        (1,063,548
        )Premises and equipment, net
        
        $
        2,188,644
        
        
        $
        2,112,139


NOTE 12: 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 $29.7 million,
$26.7 million, and $28.7 million for the years ended
December 31, 2002, 2001, and 2000, respectively. FUTURE MINIMUM RENTAL PAYMENTS
  UNDER NONCANCELABLE OPERATING LEASES(dollars in thousands) 2003
        
        $
        26,1182004
        
        
        21,7742005
        
        
        13,4212006
        
        
        4,5252007
        
        
        1,006Thereafter
        
        
        180Total minimum lease payments
        
        $
        67,024 NOTE 13: DEPOSITS Total deposits were $30.6 billion and $27.1 billion at
December 31, 2002 and 2001, 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
$3.3 billion and $3.4 billion at December 31, 2002 and 2001,
respectively. The aggregate amount of deposits by maturity as of
December 31, 2002 was as follows: MATURITIES OF DEPOSITS(dollars
  in thousands) Direct
        
        
        Other
        
        
        TotalDecember 31, 2002
        
        Deposits
        
        
        Deposits
        
        
        DepositsThree months or less
        
        $
        10,609,529
        
        
        $
        876,320
        
        
        $
        11,485,849Over three months through
twelve months
        
        
        4,111,578
        
        
        
        2,247,064
        
        
        
        6,358,642Over one year through
five years
        
        
        7,018,332
        
        
        
        5,745,579
        
        
        
        12,763,911Over five years
        
        
        7,814
        
        
        
        
        
        
        
        7,814Total deposits
        
        $
        21,747,253
        
        
        $
        8,868,963
        
        
        $
        30,616,216








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|64 | THINK OF YOURSELF AS A CUSTOMER
|-- | -------------------------------





NOTE 14: 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, 2002 are two
on-balance-sheet structured financings totaling $1.0 billion, which
were entered into during 2001. These structured financings are
secured by $1.1 billion of domestic other consumer loan
receivables. The Corporation has an option to liquidate these
structured financings on a monthly basis. 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$395.1 million (par value), which was approximately
$250.8 million of short-term deposit notes at December 31, 2002.




SUMMARY OF
SHORT-TERM BORROWINGS(dollars in thousands)

Year Ended December 31,
        
        2002
        
        
        2001
        
        
        2000Federal 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
        
        
        $
        1,863
        
        
        $
        57,139Maximum amount outstanding at any month end
        
        
        
        
        
        
        
        
        
        
        235,000Weighted average interest rate during the year
        
        
        1.80
        %
        
        
        3.76
        %
        
        
        6.30
        %Other Short-Term BorrowingsBalance at year end
        
        $
        1,250,103
        
        
        $
        1,774,816
        
        
        $
        159,512Weighted average interest rate at year end
        
        
        3.31
        %
        
        
        2.94
        %
        
        
        5.76
        %Average balance outstanding during the year
        
        $
        1,251,619
        
        
        $
        561,768
        
        
        $
        511,193Maximum amount outstanding at any month end
        
        
        1,340,653
        
        
        
        1,774,816
        
        
        
        803,337Weighted average interest rate during the year
        
        
        3.43
        %
        
        
        4.40
        %
        
        
        5.98
        %




NOTE 15: LONG-TERM DEBT AND BANK NOTES Long-term debt and bank notes consist of borrowings having an
original maturity of one year or more. Deposit liabilities have priority over the claims of other unsecured
creditors of the Bank, including the holders of obligations, such as
bank notes, in the event of liquidation. Original issue discount and deferred issuance costs are amortized
over the terms of the related debt issuances. The Corporation uses interest rate swap agreements 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. 6 
7/8% SENIOR NOTES These notes are direct, unsecured obligations of the Corporation
and are not subordinated to any other indebtedness of
the Corporation. Interest on the 6 7/8% senior notes is payable
semiannually. These notes may not be redeemed prior to their
stated maturity.


SENIOR MEDIUM-TERM NOTES These notes are direct, unsecured obligations of the Corporation
and are not subordinated to any other indebtedness of the
Corporation. These notes may not be redeemed prior to their
stated maturities. The Corporation had $1.4 billion (par value) of
fixed-rate senior medium-term notes outstanding at
December 31, 2002, with rates ranging from 5.625% to 7.50%.
Interest on the fixed-rate senior medium-term notes is payable
semiannually. The Corporation also had $339.0 million (par value)
of floating-rate senior medium-term notes outstanding at
December 31, 2002. These floating-rate senior medium-term notes
are priced between 45 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, 2002, the three-month LIBOR was 1.38%. 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, 2002, with rates ranging from
5.375% to 7.76%. Interest is payable semiannually. The Bank also
had $365.0 million (par value) of floating-rate bank notes
outstanding at December 31, 2002, with rates priced between
23 basis points and 60 basis points over the three-month LIBOR.
Interest is payable quarterly.








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##### 



| | THINK OF YOURSELF AS A CUSTOMER
| | -------------------------------



SUMMARY OF LONG-TERM DEBT AND BANK NOTES (dollars in thousands)

December 31,
        
        2002
        
        
        2001Parent Company6
 7/8% Senior Notes, maturing in 2005
        
        $
        99,761
        
        
        $
        99,677Fixed-Rate Senior Medium-Term Notes, with a weighted average interest rate of 6.55% and 6.61%, respectively, maturing
in varying amounts from 2003 through 2012
        
        
        1,522,701
        
        
        
        356,828Floating-Rate Senior Medium-Term Notes, maturing in varying amounts from 2003 through 2004
        
        
        338,862
        
        
        
        703,339Total parent company
        
        
        1,961,324
        
        
        
        1,159,844SubsidiariesFixed-Rate Bank Notes, with a weighted average interest rate of 6.66% and 7.10%, respectively, maturing in varying amounts
from 2003 through 2008
        
        
        2,139,385
        
        
        
        1,702,854Floating-Rate Bank Notes, maturing in varying amounts from 2003 through 2005
        
        
        364,668
        
        
        
        885,995Fixed-Rate Medium-Term Deposit Notes, with a weighted average interest rate of 6.08% and 6.23%, respectively, maturing
in varying amounts from 2003 through 2008
        
        
        338,685
        
        
        
        239,873Floating-Rate Medium-Term Deposit Notes, maturing in varying amounts from 2003 through 2005
        
        
        142,563
        
        
        
        175,611Fixed-Rate Euro Medium-Term Notes, with a weighted average interest rate of .80% on the Japanese yen denominated notes,
matured in 2002
        
        
        
        
        
        
        41,941Fixed-Rate Euro Medium-Term Notes, with a weighted average interest rate of 5.83% and 5.50%, respectively, on the Euro
denominated notes, maturing from 2004 through 2007
        
        
        1,608,198
        
        
        
        873,498Floating-Rate Euro Medium-Term Notes, maturing in varying amounts from 2003 through 2004
        
        
        511,562
        
        
        
        745,2647.25% Subordinated Notes, matured in 2002
        
        
        
        
        
        
        205,8206.75% Subordinated Notes, maturing in 2008
        
        
        281,797
        
        
        
        257,9696.625% Subordinated Notes, maturing in 2012
        
        
        548,957
        
        
        
        7.125% Subordinated Notes, maturing in 2012
        
        
        511,094
        
        
        
        Guaranteed Preferred Beneficial Interests in Corporations Junior Subordinated Deferrable Interest Debentures, series A,
with an interest rate of 8.278%, maturing in 2026
        
        
        290,811
        
        
        
        265,218Guaranteed 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
        
        
        277,421
        
        
        
        277,187Guaranteed Preferred Beneficial Interests in Corporations Junior Subordinated Deferrable Interest Debentures, series C,
with an interest rate of 8.25%, maturing in 2027
        
        
        36,562
        
        
        
        35,959Guaranteed Preferred Beneficial Interests in Corporations Junior Subordinated Deferrable Interest Debentures, series D,
with an interest rate of 8.125%, maturing in 2032
        
        
        319,232
        
        
        
        Guaranteed Preferred Beneficial Interests in Corporations Junior Subordinated Deferrable Interest Debentures, series E,
with an interest rate of 8.10%, maturing in 2033
        
        
        205,914
        
        
        
        Long-term debt and bank notes
        
        $
        9,538,173
        
        
        $
        6,867,033




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, 2002, MBNA Canada had
CAD$525.0 million (par value), which was approximately
$333.3 million, of fixed-rate medium-term deposit notes outstanding,
with rates ranging from 4.35% to 7.26%. Interest is payable
semiannually. MBNA Canada also had CAD$225.0 million (par
value), which was approximately $142.8 million, of floating-rate
medium-term deposit notes outstanding at December 31, 2002.
These floating-rate medium-term deposit notes are priced between
60 basis points and 102 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, 2002, the ninety-day bankers
acceptance rate was 2.84%. 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, 2002, MBNA Europe had outstanding
EUR1.5 billion (par value), which was approximately $1.6 billion,


of Fixed-Rate Euro Medium-Term Notes, with interest payable
annually. During 2002, the JPY5.5 billion (par value), which was
approximately $41.9 million at December 31, 2001, matured. At December 31, 2002, 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, 2002 were £54.5 million (par value), which was
approximately $87.9 million, with interest priced between 50 basis
points and 80 basis points over the three-month Sterling LIBOR,
EUR300.0 million (par value), which was approximately
$314.6 million, with interest priced between 55 basis points and
62.5 basis points over the three-month Euro Interbank Offered
Rate (EURIBOR), HKD130.0 million (par value), which was
approximately $16.8 million, with interest priced at 100 basis
points over the three-month Hong Kong Interbank Offered Rate
(HIBOR), JPY9.2 billion (par value), which was approximately
$78.0 million, with interest priced between 35 basis points and
74 basis points over the three-month Japanese LIBOR (JPY
LIBOR), and $15.0 million (par value) with interest priced at
75 basis points over the three-month LIBOR. Interest on these
Floating-Rate Euro Medium-Term Notes is payable quarterly. At December 31, 2002, the three-month Sterling LIBOR was
4.02%, the three-month EURIBOR was 2.87%, the three-month
HIBOR was 1.50%, and the three-month JPY LIBOR was .07%.








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7.25% SUBORDINATED NOTES During 2002, the 7.25% Subordinated Notes matured. The 7.25% Subordinated Notes were subordinated to the claims of depositors
and other creditors of the Bank, unsecured, and not subject to
redemption prior to maturity. Interest was payable semiannually.
The 7.25% Subordinated Notes were issued by the Bank in 1992
and previously qualified as Tier 2 Capital, which is included in
Total Capital, under the risk-based capital guidelines for both
banks and bank holding companies. 6.75% SUBORDINATED NOTES The 6.75% Subordinated Notes are subordinated to the claims of
depositors and other creditors of the Bank, unsecured, and not
subject to redemption prior to maturity. Interest is payable
semiannually. The 6.75% Subordinated Notes were issued by the
Bank in 1998 and qualify as Tier 2 Capital, which is included in
Total Capital, under the risk-based capital guidelines for both
banks and bank holding companies. 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. GUARANTEED PREFERRED BENEFICIAL
INTERESTS IN CORPORATIONS JUNIOR
SUBORDINATED DEFERRABLE INTEREST
DEBENTURES The Corporation, through 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, issued capital securities and common securities:
series A, series B, series C, series D, and series E, respectively. The
series capital securities are presented as guaranteed preferred
beneficial interests in Corporations junior subordinated deferrable
interest debentures in the summary of long-term debt and bank
notes. The Corporation is the owner of all the beneficial ownership
interests represented by the common securities of the trusts. The
trusts exist for the sole purpose of issuing the series capital


securities and the series common securities and investing the
proceeds in junior subordinated deferrable interest debentures issued
by the Corporation. For financial reporting purposes, the trusts are
treated as wholly owned subsidiaries of the Corporation and are
included in the Corporations consolidated financial statements.
These securities qualify as regulatory capital for the Corporation. The junior subordinated deferrable interest debentures are the
sole assets of the trusts, and the payments under the junior
subordinated deferrable interest debentures are the sole revenues
of the trusts. Interest on the series capital securities is payable
semiannually or quarterly. 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. MINIMUM ANNUAL
MATURITIES OF LONG-TERM DEBT AND BANK NOTES (dollars in thousands) MBNAParent
        
        
        Corporation and(Par Value)
        
        Company
        
        
        Subsidiaries2003
        
        $
        434,000
        
        
        $
        1,229,6242004
        
        
        130,000
        
        
        
        1,795,0262005
        
        
        100,000
        
        
        
        806,7892006
        
        
        
        
        
        
        641,2662007
        
        
        700,000
        
        
        
        1,287,834








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The obligations of the Corporation under the relevant junior
subordinated deferrable interest debentures, indenture, trust
agreement, and guarantee in the aggregate constitute a full and
unconditional guarantee by the Corporation of all trust
obligations under the series capital securities issued by the trusts.
The junior subordinated deferrable interest debentures are
unsecured and rank junior and are subordinate in right of payment
to all senior debt obligations of the Corporation. NOTE 16: 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, 2002 and
2001. The Corporation also had 4.0 million shares of adjustable
rate cumulative preferred stock, Series B, outstanding at
December 31, 2002 and 2001. 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. The Board of Directors declared the dividends presented in the
Preferred Stock Dividend Summary below 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 23, 2003, the Corporations Board of Directors
declared a quarterly dividend of $.08 per common share, payable
April 1, 2003, to stockholders of record as of March 15, 2003. 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 August 2000, the Corporation issued 75 million shares of
common stock. The Corporation used the net proceeds from this
offering, $1.6 billion net of issuance costs, to complete the
acquisition of the consumer and commercial revolving credit loan
portfolio from First Union Corporation in September 2000 and for
other general corporate purposes.




PREFERRED STOCK DIVIDEND SUMMARY



|
       Series
        A
      
      |
      Series
        BDividend
      
      
      Dividend per
      
      
      Dividend
      
      
      Dividend perDeclaration Date
      
      Payment Date
      
      
      Rate
      
      
      Preferred Share
       
      
      Rate
       
      
      Preferred ShareJanuary 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
      
      
      
      .35270October 10, 2000
      
      January
          16, 2001
      
      
      
      7.50
      
      
      
      .46875
      
      
      
      5.92
      
      
      
      .37020July 12, 2000
      
      October
          16, 2000
      
      
      
      7.50
      
      
      
      .46875
      
      
      
      6.02
      
      
      
      .37650April 12, 2000
      
      July 17,
          2000
      
      
      
      7.50
      
      
      
      .46875
      
      
      
      6.07
      
      
      
      .37960January 10, 2000
      
      April 15,
          2000
      
      
      
      7.50
      
      
      
      .46875
      
      
      
      6.40
      
      
      
      .39970








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NOTE 17: 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
following table. Favorable foreign currency translation for the year ended
December 31, 2002 was primarily related to the strengthening of
foreign currencies against the U.S. dollar.




OTHER COMPREHENSIVE INCOME COMPONENTS (dollars in thousands)

Year
        Ended December 31,
      
      2002
      
      
      2001
      
      
      2000Before
          TaxForeign
          currency translation
      
      **$**
      **140,757**
      ****
      
      $
      (28,984
      )
      
      $
      (42,640
      )Net
          unrealized (losses) gains on investment securities available-for-sale
          and other financial instruments
      
      ****
      **(51**
      **)**
      
      
      29,764
      
      
      
      26,191Minimum
          benefit plan liability adjustment
      
      ****
      **(6,734**
      **)**
      
      
      
      
      
      
      ****Other
          comprehensive income (loss), before tax
      
      **$**
      **133,972**
      ****
      
      $
      780
      
      
      $
      (16,449
      )****Applicable
          Income Tax
      
      ****
      ****
      ****Foreign
          currency translation
      
      **$**
      ****
      ****
      
      $
      
      
      
      $
      Net
          unrealized gains on investment securities available-for-sale and other
          financial instruments
      
      ****
      **3,271**
      ****
      
      
      10,689
      
      
      
      9,515Minimum
          benefit plan liability adjustment
      
      ****
      **(2,458**
      **)**
      
      
      
      
      
      
      ****Other
          comprehensive income tax expense
      
      **$**
      **813**
      ****
      
      $
      10,689
      
      
      $
      9,515****Net
          of Tax
      
      ****
      ****
      ****Foreign
          currency translation
      
      **$**
      **140,757**
      ****
      
      $
      (28,984
      )
      
      $
      (42,640
      )Net
          unrealized (losses) gains on investment securities available-for-sale
          and other financial instruments
      
      ****
      **(3,322**
      **)**
      
      
      19,075
      
      
      
      16,676Minimum
          benefit plan liability adjustment
      
      ****
      **(4,276**
      **)**
      
      
      
      
      
      
      ****Other
          comprehensive income (loss), net of tax
      
      **$**
      **133,159**
      ****
      
      $
      (9,909
      )
      
      $
      (25,964
      )****




NOTE 18: 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
20,637,750 stock options with an average exercise 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 16,984,500 stock options with an average option price of
$21.71 per 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
prices being greater than the average market price of the common
shares. These stock options expire in 2010 and 2011. All stock
options outstanding at December 31, 2000 were included in the
computation of earnings per common shareassuming dilution.




COMPUTATION OF
EARNINGS PER COMMON SHARE
(dollars in thousands, except per
share amounts)

Year Ended December
        31,
      
      2002
      
      
      2001
      
      
      2000Earnings
          per Common ShareNet
          income
      
      **$**
      **1,765,954**
      ****
      
      $
      1,694,291
      
      
      $
      1,312,532Less:
          preferred stock dividend requirements
      
      ****
      **14,178**
      ****
      
      
      14,142
      
      
      
      14,674****Net
          income applicable to common stock
      
      **$**
      **1,751,776**
      ****
      
      $
      1,680,149
      
      
      $
      1,297,858****Weighted
          average common shares outstanding (000)
      
      ****
      **1,277,787**
      ****
      
      
      1,277,745
      
      
      
      1,230,827****Earnings
          per common share
      
      **$**
      **1.37**
      ****
      
      $
      1.31
      
      
      $
      1.05****Earnings
          per Common ShareAssuming Dilution
      
      ****
      ****
      ****Net
          income
      
      **$**
      **1,765,954**
      ****
      
      $
      1,694,291
      
      
      $
      1,312,532Less:
          preferred stock dividend requirements
      
      ****
      **14,178**
      ****
      
      
      14,142
      
      
      
      14,674****Net
          income applicable to common stock
      
      **$**
      **1,751,776**
      ****
      
      $
      1,680,149
      
      
      $
      1,297,858****Weighted
          average common shares outstanding (000)
      
      ****
      **1,277,787**
      ****
      
      
      1,277,745
      
      
      
      1,230,827Net
          effect of dilutive stock options (000)
      
      ****
      **24,925**
      ****
      
      
      36,485
      
      
      
      38,976****Weighted
          average common shares outstanding and common stock equivalents (000)
      
      ****
      **1,302,712**
      ****
      
      
      1,314,230
      
      
      
      1,269,803****Earnings
          per common shareassuming dilution
      
      **$**
      **1.34**
      ****
      
      $
      1.28
      
      
      $
      1.02****








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NOTE 19: 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,
      
      2002
      
      
      2001
      
      
      2000Income
          before income taxes
      ****
      **$**
      **2,785,416**
      ****
      
      $
      2,715,210
      
      
      $
      2,120,407Statutory
          tax rate
      ****
      ****
      **35**
      **%**
      
      
      35
      %
      
      
      35
      %****
      
      ****Income
          tax at statutory tax rate
      ****
      ****
      **974,896**
      ****
      
      
      950,324
      
      
      
      742,142State
          taxes, net of federal benefit
      ****
      ****
      **23,951**
      ****
      
      
      30,321
      
      
      
      19,569Other
      ****
      ****
      **20,615**
      ****
      
      
      40,274
      
      
      
      46,164****
      
      ****Total
          income taxes
      ****
      **$**
      **1,019,462**
      ****
      
      $
      1,020,919
      
      
      $
      807,875****
      
      ****
 The components of the Corporations income tax expense related
to continued operations are as follows: COMPONENTS OF THE
CORPORATIONS INCOME TAX EXPENSE (dollars in
thousands) Year
        Ended December 31,
      
      2002
      
      
      2001
      
      
      2000Current
          Income TaxesU.S.
          federal
      
      **$**
      **1,017,511**
      ****
      
      $
      1,020,232
      
      
      $
      668,974U.S.
          state and local
      
      ****
      **36,848**
      ****
      
      
      46,648
      
      
      
      30,106Foreign
      
      ****
      **116,810**
      ****
      
      
      65,306
      
      
      
      63,988****Total
          current income taxes
      
      ****
      **1,171,169**
      ****
      
      
      1,132,186
      
      
      
      763,068Deferred
          Income Taxes
      
      ****
      ****
      ****U.S.
          federal, state, and local
      
      ****
      **(143,601**
      **)**
      
      
      (125,324
      )
      
      
      47,326Foreign
      
      ****
      **(8,106**
      **)**
      
      
      14,057
      
      
      
      (2,519
      )****Total
          deferred income taxes
      
      ****
      **(151,707**
      **)**
      
      
      (111,267
      )
      
      
      44,807****Total
          income taxes
      
      **$**
      **1,019,462**
      ****
      
      $
      1,020,919
      
      
      $
      807,875****
 Foreign subsidiaries contributed approximately 14.7% in 2002,
12.2% in 2001, and 9.6% in 2000 to consolidated income before
income taxes. No U.S. income taxes have been provided on the
accumulated undistributed earnings of foreign subsidiaries,
totaling $893.7 million at December 31, 2002, 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. At December 31, 2001,
the Corporation had a valuation allowance in accordance with
Statement of Financial Accounting Standards No. 109 Accounting
for Income Taxes (Statement No. 109), related to foreign loss
carryforwards and tax credits. As a result of the Corporations
continual increase in taxable earnings, and the expectation that
this trend will continue, the Corporation eliminated the valuation
allowance related to these foreign loss carryforwards and tax
credits in 2002.


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,
      
      2002
      
      
      2001Deferred
          Tax AssetsReserve
          for possible credit losses
      
      **$**
      **277,625**
      ****
      
      $
      195,508Intangible
          assets and other similar items
      
      ****
      **107,660**
      ****
      
      
      125,436Foreign
          tax loss carryforwards and tax credits
      
      ****
      **1,961**
      ****
      
      
      29,026Other
          deferred tax assets
      
      ****
      **377,206**
      ****
      
      
      310,023****Total
          deferred tax assets
      
      ****
      **764,452**
      ****
      
      
      659,993Valuation
          allowance
      
      ****
      ****
      ****
      
      
      (29,026
      )****Total
          deferred tax assets less valuation allowance
      
      ****
      **764,452**
      ****
      
      
      630,967Deferred
          Tax Liabilities
      
      ****
      ****
      ****Securitizations
          and related items
      
      ****
      **(350,192**
      **)**
      
      
      (383,500
      )Other
          deferred tax liabilities
      
      ****
      **(107,842**
      **)**
      
      
      (100,439
      )****Total
          deferred tax liabilities
      
      ****
      **(458,034**
      **)**
      
      
      (483,939
      )****Net
          deferred tax assets
      
      **$**
      **306,418**
      ****
      
      $
      147,028****
 NOTE 20: EMPLOYEE BENEFIT PLANS 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 2002, nor is it
likely to be achieved in 2003 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; as of December 31, 2002, the Pension Plan had a funded
ratio of 66%, based on the fair market value of the Plans assets of
$263.3 million and a PBO of $397.2 million.








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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 combined financial information of the two employee benefit
plans is presented in the following table. BENEFIT PLAN
FINANCIAL INFORMATION (dollars in
thousands) Year
        Ended December 31,
      
      2002
      
      
      2001Change
          in Benefit ObligationNet
          benefit obligation, beginning of year
      
      **$**
      **379,006**
      ****
      
      $
      286,689Service
          costbenefits earned during the year
      
      ****
      **50,928**
      ****
      
      
      35,699Interest
          cost on projected benefit obligation
      
      ****
      **34,648**
      ****
      
      
      24,690Actuarial
          loss
      
      ****
      **78,955**
      ****
      
      
      37,377Plan
          amendments
      
      ****
      **33,827**
      ****
      
      
      (2,673
      )Gross
          benefits paid
      
      ****
      **(3,602**
      **)**
      
      
      (2,776
      )****Net
          benefit obligation, end of year
      
      **$**
      **573,762**
      ****
      
      $
      379,006****Change
          in Plan Assets
      
      ****
      ****
      ****Fair
          value of plan assets, beginning of year
      
      **$**
      **247,460**
      ****
      
      $
      263,500Actual
          return on plan assets
      
      ****
      **(39,047**
      **)**
      
      
      (52,373
      )Employer
          contributions
      
      ****
      **58,525**
      ****
      
      
      39,109Gross
          benefits paid
      
      ****
      **(3,602**
      **)**
      
      
      (2,776
      )****Fair
          value of plan assets, end of year
      
      **$**
      **263,336**
      ****
      
      $
      247,460****Funded
          status
      
      **$**
      **(310,426**
      **)**
      
      $
      (131,546
      )Unrecognized
          net actuarial loss
      
      ****
      **210,997**
      ****
      
      
      70,298Unrecognized
          prior service cost
      
      ****
      **53,844**
      ****
      
      
      23,345Unrecognized
          net transition obligation
      
      ****
      **2,109**
      ****
      
      
      2,455****Net
          amount recognized
      
      **$**
      **(43,476**
      **)**
      
      $
      (35,448
      )****Amounts
          Recognized in the Consolidated Statements of Financial Condition
      
      ****
      ****
      ****Prepaid
          benefit cost
      
      **$**
      **64,791**
      ****
      
      $
      46,891Accrued
          benefit cost
      
      ****
      **(108,267**
      **)**
      
      
      (82,339
      )Additional
          minimum liability
      
      ****
      **(49,202**
      **)**
      
      
      (20,382
      )Intangible
          asset
      
      ****
      **42,468**
      ****
      
      
      20,382Accumulated
          other comprehensive income
      
      ****
      **6,734**
      ****
      
      
      ****Net
          amount recognized
      
      **$**
      **(43,476**
      **)**
      
      $
      (35,448
      )****Significant
          Assumptions Used in the Corporations Defined Benefit Plans
      
      ****
      ****
      ****Discount
          rate
      
      ****
      **6.75**
      **%**
      
      
      7.50
      %Rate
          of compensation increase
      
      ****
      **5.50**
      ****
      
      
      6.00Expected
          rate of return on plan assets
      
      ****
      **9.00**
      ****
      
      
      9.50
 There were no plan assets for the SERP plan at December 31, 2002
and 2001. The accumulated benefit obligation for the SERP plan
was $157.5 million and $102.7 million at December 31, 2002
and 2001, respectively. In 2002, the Corporation decreased the discount rate used to
value its PBO for both the Pension Plan and the SERP plan to
6.75% from 7.50% in 2001, 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
$64 million and $16 million, respectively, for the year ended
December 31, 2002. Net periodic benefit cost for the Pension Plan
and the SERP plan increased by $32.3 million in 2002 as
compared to 2001, primarily as a result of normal operations of
the plans including additional participants, $13.8 million; a lower


than assumed return on plan assets in prior years, $8.9 million;
and a lower assumed discount rate, $7.9 million. In 2002, the
Corporation decreased the expected rate of compensation increase
for both the Pension Plan and the SERP plan to 5.5% from 6.0%
after re-evaluating the expected future rate of compensation
increases. This was done to reflect the long-term expectation of
compensation rate increases.  COMPONENTS OF NET
PERIODIC BENEFIT COST (dollars in
thousands) Year
        Ended December 31,
      
      2002
      
      
      2001
      
      
      2000Service
          costbenefits earned during the year
      
      **$**
      **50,928**
      ****
      
      $
      35,699
      
      
      $
      33,141Interest
          cost on projected benefit obligation
      
      ****
      **34,648**
      ****
      
      
      24,690
      
      
      
      20,777Expected
          return on plan assets
      
      ****
      **(25,579**
      **)**
      
      
      (25,406
      )
      
      
      (17,961
      )Net
          amortization and deferral
      
      ****
      **6,584**
      ****
      
      
      (677
      )
      
      
      108****Net
          periodic benefit cost
      
      **$**
      **66,581**
      ****
      
      $
      34,306
      
      
      $
      36,065****Assumptions
          Used to Determine Net Periodic Benefit Cost
      
      ****
      ****
      ****Discount
          rate
      
      ****
      **7.50**
      **%**
      
      
      8.00
      %
      
      
      8.00
      %Rate
          of compensation increase
      
      ****
      **6.00**
      ****
      
      
      6.00
      
      
      
      6.00Expected
          rate of return on plan assets
      
      ****
      **9.50**
      ****
      
      
      9.50
      
      
      
      9.00
 In 2002, the Corporation re-evaluated the expected rate of return on
plan assets assumption, and decreased the expected rate of return
on plan assets to 9.0% from 9.5% in 2001. This was done to
reflect the long-term expectation of capital market conditions. 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 Pension Plan 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 $33.5 million in 2003 because of a lower assumed
discount rate, a lower expected return on plan assets, and normal
operations of the plans, partially offset by a lower assumed rate of
compensation increases. The Corporation expects to contribute
approximately $70 million to the Pension Plan in 2003. 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 charged $27.0 million, $23.1 million, and
$18.7 million in 2002, 2001, and 2000, respectively, to other
operating expense for the costs related to the 401(k) Plan.








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| | THINK OF YOURSELF AS A CUSTOMER
| | -------------------------------





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. The
expenses for these plans are charged to other operating expense
and were not material to the Corporations consolidated financial
statements. 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 consolidated financial statements. NOTE 21: 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, 2002, 2001, and 2000, the amount of shares of
common stock available for future grants under the 1997 Plan
were 15.8 million shares, 11.1 million shares, and 24.1 million
shares, respectively. The maximum number of restricted stock
awards that can be granted in any calendar year is 3 million shares,
subject to certain exceptions. The maximum number of stock
options that can be granted to any one participant in any calendar
year is 3.38 million. 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 4.6 million stock options in 2002,
6.8 million stock options in 2001, and 2.4 million stock options in
2000 which were immediately exercisable following the effective
date of the grant. During 2002, 2001, and 2000, 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 3.0 million
common shares in 2002, 2.9 million common shares in 2001,
and 3.0 million common shares in 2000. The restricted common
shares issued had an approximate aggregate market value of
$69.1 million, $66.9 million, and $54.3 million at the time of
grant for 2002, 2001, and 2000, 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




SUMMARY OF STOCK OPTIONS OUTSTANDING
(shares in thousands)



December
        31, 2002
      |
      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
      
      10,515
      
      
      
      2.1
      years
      
      $
      3.96
      
      
      
      10,515
      
      
      $
      3.965.00
      
      to
      
      

9.99
      
      17,526
      
      
      
      4.1
      
      
      
      
      7.82
      
      
      
      17,526
      
      
      
      7.8210.00
      
      to
      
      
      14.99
      
      23,490
      
      
      
      6.2
      
      
      
      
      14.19
      
      
      
      19,586
      
      
      
      14.2615.00
      
      to
      
      
      19.99
      
      14,171
      
      
      
      6.3
      
      
      
      
      17.69
      
      
      
      11,904
      
      
      
      17.6720.00
      
      to
      
      
      25.00
      
      45,026
      
      
      
      8.8
      
      
      
      
      22.52
      
      
      
      21,217
      
      
      
      22.201.00
      
      to
      
      
      25.00
      
      110,728
      
      
      
      
      
      
      
      
      
      
      
      
      80,748






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| | THINK OF YOURSELF AS A CUSTOMER
| | -------------------------------





SUMMARY OF STOCK OPTION PLANS
ACTIVITY (shares in thousands)  WeightedNumber
      
      
      Averageof
        Shares
      
      
      Exercise
        Price2002Options
          outstanding, beginning of year
      
      ****
      **113,026**
      ****
      ****
      **$**
      **12.66**Granted
      
      ****
      **20,675**
      ****
      ****
      ****
      **23.88**Exercised
      
      ****
      **(22,521**
      **)**
      ****
      ****
      **6.15**Canceled
      
      ****
      **(452**
      **)**
      ****
      ****
      **19.90******
      ****
      ****
      ****Options
          outstanding, end of year
      
      ****
      **110,728**
      ****
      ****
      ****
      **16.05******
      ****
      ****
      ****Options
          exercisable, end of year
      
      ****
      **80,748**
      ****
      ****
      ****
      **14.11******
      ****
      ****
      ****Weighted
          average fair value of options granted during the year
      
      **$**
      **8.37**
      ****
      ****
      ****
      ********
      ****
      ****
      ****2001Options
          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
      
      $
      7.502000Options
          outstanding, beginning of year
      
      
      102,801
      
      
      $
      8.69Granted
      
      
      12,212
      
      
      
      13.98Exercised
      
      
      (12,941
      )
      
      
      4.86Canceled
      
      
      (149
      )
      
      
      15.54Options
          outstanding, end of year
      
      
      101,923
      
      
      
      9.80Options
          exercisable, end of year
      
      
      66,758Weighted
          average fair value of options granted during the year
      
      $
      5.48
 retirement, or are released sooner, any remaining unamortized
market value of the restricted shares is immediately expensed. At
December 31, 2002 and 2001, the unamortized compensation
expense related to the restricted stock awards was $158.2 million
and $183.0 million, respectively. 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 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.
During 2000, the Corporation purchased 15.9 million common
shares for $323.5 million in connection with the issuance of
restricted stock and the exercise of stock options and received
$62.9 million in proceeds from the exercise of those stock options.


NOTE 22: OTHER
OPERATING EXPENSE
OTHER EXPENSE COMPONENT OF OTHER OPERATING EXPENSE
(dollars in thousands)  Year
        Ended December 31,
      
      2002
      
      
      2001
      
      
      2000Purchased
          services
      
      **$**
      **544,104**
      ****
      
      $
      498,809
      
      
      $
      358,688Advertising
      
      ****
      **315,393**
      ****
      
      
      268,897
      
      
      
      224,582Collection
      
      ****
      **54,872**
      ****
      
      
      46,260
      
      
      
      41,960Stationery
          and supplies
      
      ****
      **48,073**
      ****
      
      
      45,477
      
      
      
      39,963Service
          bureau
      
      ****
      **75,444**
      ****
      
      
      63,375
      
      
      
      55,217Postage
          and delivery
      
      ****
      **366,129**
      ****
      
      
      354,226
      
      
      
      287,368Telephone
          usage
      
      ****
      **86,562**
      ****
      
      
      84,900
      
      
      
      75,785Loan
          receivable fraud losses
      
      ****
      **160,639**
      ****
      
      
      172,366
      
      
      
      164,027Amortization
          of intangible assets
      
      ****
      **348,727**
      ****
      
      
      381,792
      
      
      
      273,219Computer
          software
      
      ****
      **101,625**
      ****
      
      
      83,230
      
      
      
      71,052Other
      
      ****
      **248,317**
      ****
      
      
      274,329
      
      
      
      205,053****Total
          other expense
      
      **$**
      **2,349,885**
      ****
      
      $
      2,273,661
      
      
      $
      1,796,914****
 NOTE 23: 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 its guaranteed preferred beneficial
interests in Corporations junior subordinated deferrable interest
debentures, the Corporation may not be permitted to declare or
pay any cash dividends on the Corporations Common Stock or
interest on debt securities that have equal or lower priority than
the junior subordinated deferrable interest debentures. The Corporation is a legal entity separate and distinct from its
banking and other subsidiaries. The primary source of funds for
payment of preferred and common stock dividends by the
Corporation is dividends received from the Bank. The amount of
dividends that a 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








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| | THINK OF YOURSELF AS A CUSTOMER
| | -------------------------------





requirements. At December 31, 2002, the amount of undivided
profits available for declaration and payment of dividends from the
Bank to the Corporation was $3.7 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
$1.3 billion at December 31, 2002. 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 25: Commitments and Contingencies). This facility
was not drawn upon at December 31, 2002. If this facility had
been drawn upon at December 31, 2002, the amount of retained
earnings available for declaration of dividends would have been
limited to $1.9 billion. NOTE 24: 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, 2002 and 2001,
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. In November 2001, the FFIEC published revised risk-based capital
guidelines to address the treatment of recourse obligations,
retained interests in securitization transactions, and direct credit
substitutes that expose banks and bank holding companies to
credit risk. The revised guidelines imposed a dollar-for-dollar
capital charge on retained interests and a concentration limit on
the interest-only strip receivable, a subset of retained interests in a
securitization transaction. The Corporations retained interests in a




CAPITAL ADEQUACY
(dollars in thousands)



To
        Be Well-CapitalizedFor
        Capital
      
      
      Under
        Prompt Corrective|
      Actual
      |
      
      Adequacy
        Purposes
      
      |
      Action
        ProvisionsAmount
      
      
      Ratio
      
      
      Amount
      
      
      Ratio
      
      
      Amount
      
      
      RatioDecember 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
      
      
      
      5.00December 31,
          2001Tier
          1 Capital (to Risk-Weighted Assets):MBNA Corporation
      
      
      7,818,571
      
      
      
      15.99
      
      
      
      1,955,703
      
      
      
      4.00
      
      
      
      (a
      )MBNA America
          Bank, N.A.
      
      
      6,077,705
      
      
      
      13.14
      
      
      
      1,850,421
      
      
      
      4.00
      
      
      
      2,775,631
      
      
      
      6.00MBNA
          America (Delaware), N.A.
      
      
      299,278
      
      
      
      18.24
      
      
      
      65,642
      
      
      
      4.00
      
      
      
      98,463
      
      
      
      6.00Total
          Capital (to Risk-Weighted Assets):MBNA Corporation
      
      
      8,783,987
      
      
      
      17.97
      
      
      
      3,911,406
      
      
      
      8.00
      
      
      
      (a
      )MBNA America
          Bank, N.A.
      
      
      6,997,176
      
      
      
      15.13
      
      
      
      3,700,842
      
      
      
      8.00
      
      
      
      4,626,052
      
      
      
      10.00MBNA
          America (Delaware), N.A.
      
      
      316,337
      
      
      
      19.28
      
      
      
      131,284
      
      
      
      8.00
      
      
      
      164,105
      
      
      
      10.00Tier
          1 Capital (to Average Assets):MBNA Corporation
      
      
      7,818,571
      
      
      
      18.12
      
      
      
      1,725,687
      
      
      
      4.00
      
      
      
      (a
      )MBNA America
          Bank, N.A.
      
      
      6,077,705
      
      
      
      15.00
      
      
      
      1,620,755
      
      
      
      4.00
      
      
      
      2,025,944
      
      
      
      5.00MBNA
          America (Delaware), N.A.
      
      
      299,278
      
      
      
      18.49
      
      
      
      64,749
      
      
      
      4.00
      
      
      
      80,936
      
      
      
      5.00




|(a) |  | Not applicable for bank holding companies.
|--- |  | ------------------------------------------





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|74 | THINK OF YOURSELF AS A CUSTOMER
|-- | -------------------------------





securitization include an interest-only strip receivable, cash reserve
accounts, accrued interest and fees on securitized loans, and other
subordinated interests (discussed under Note 8: Asset
Securitization). The Corporation implemented the revised guidelines
at December 31, 2002. The adoption increased capital
requirements of the Corporation, the Bank, and MBNA Delaware
and resulted in an additional capital charge which decreased their
Tier 1 Capital ratios by approximately 210, 260, and 25 basis
points, respectively, and their Total Capital ratios by approximately
200, 275, and 25 basis points, respectively. The Leverage ratio
remained unchanged for each entity. The Corporation remained
adequately capitalized, and the Bank and MBNA Delaware
remained well-capitalized for regulatory capital purposes. No
conditions or events have occurred since December 31, 2002,
that have changed the Corporations classification as adequately
capitalized and the Banks or MBNA Delawares classification as
well-capitalized. NOTE 25: COMMITMENTS AND CONTINGENCIES A loan commitment 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 $622.7 billion and $560.9 billion
committed to its Customers at December 31, 2002 and 2001,
respectively. Of those total commitments, $515.4 billion and
$463.4 billion were unused at December 31, 2002 and 2001,
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. The
Corporation has the right to reduce or cancel these available lines
of credit at any time. The Bank, MBNA Europe, and the Corporation have a $2.5 billion
senior unsecured syndicated revolving credit facility committed
through March 2004. The facility is available to the Bank and
MBNA Europe with sublimit availability in an amount of
$300.0 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, 2002. Advances from the $2.5 billion senior 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
minimum requirements. In addition, these conditions require that


the Corporation not permit its double leverage ratio (defined as the
sum of the Corporations intangible assets and investment in
subsidiaries divided by total stockholders equity) to exceed 1.25.
At December 31, 2002, the ratio of the Banks managed loan
receivables 90 days or more past due plus nonaccruing
receivables to managed receivables was 2.46%, the Corporations
double leverage ratio was 1.02, and the level of consolidated
tangible net worth exceeded the minimum level required. The Bank has a $750.0 million warehouse facility committed
through March 2003. The Bank may take advances under the
facility subject to covenants and conditions customary in a
transaction of this nature. The Bank intends to renew the
warehouse facility through 2004. This facility may be used for
general corporate purposes and was not drawn upon at
December 31, 2002. MBNA Europe has a £325.0 million (approximately $523.9 million
at December 31, 2002) 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, 2002. MBNA Canada has a CAD$350.0 million (approximately
$222.2 million at December 31, 2002) multi-currency syndicated
revolving credit facility committed through July 2004. During
2002, CAD$315.0 million (approximately $200.0 million at
December 31, 2002) of the facility was extended to July 2005.
MBNA Canada also has a CAD$50.0 million (approximately
$31.7 million at December 31, 2002) credit facility committed
through March 2003. MBNA Canada may take advances under the
facilities subject to covenants and conditions customary in a
transaction of this nature. These facilities are unconditionally and
irrevocably guaranteed by the Bank. These facilities may be used
for general corporate purposes and were not drawn upon at
December 31, 2002. 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, 2002 and
2001 and not yet paid are included in the consolidated statements
of financial condition under accrued expenses and other liabilities
and are not material to the consolidated financial statements at
December 31, 2002 and 2001, respectively.








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| | THINK OF YOURSELF AS A CUSTOMER
| | -------------------------------





NOTE 26: FOREIGN ACTIVITIES
SELECTED FOREIGN FINANCIAL DATA(dollars in thousands)  December 31,
    
    
    
    
    
    2002
    
    
    
    
    
    
    2001
    
    
    2000United Kingdom/Ireland/
SpainTotal assets
    
    $
    
    
    
    
    9,194,940
    
    
    $
    
    
    
    
    5,654,605
    
    
    $
    3,951,404Total income
    
    
    
    
    
    
    1,298,322
    
    
    
    
    
    
    
    1,011,309
    
    
    
    786,793Income before income taxes
    
    
    
    
    
    
    199,986
    
    
    
    
    
    
    
    199,221
    
    
    
    164,912Net income
    
    
    
    
    
    
    148,497
    
    
    
    
    
    
    
    149,786
    
    
    
    121,041Other ForeignTotal assets
    
    
    
    
    
    
    3,490,746
    
    
    
    
    
    
    
    1,884,726
    
    
    
    1,651,315Total income
    
    
    
    
    
    
    303,356
    
    
    
    
    
    
    
    251,774
    
    
    
    191,114Income (loss) before
income taxes
    
    
    
    
    
    
    79,989
    
    
    
    
    
    
    
    27,329
    
    
    
    (17,914
    )Net income (loss)
    
    
    
    
    
    
    70,250
    
    
    
    
    
    
    
    35,890
    
    
    
    (14,960
    )Total ForeignTotal assets
    
    
    
    
    
    
    12,685,686
    
    
    
    
    
    
    
    7,539,331
    
    
    
    5,602,719Total income
    
    
    
    
    
    
    1,601,678
    
    
    
    
    
    
    
    1,263,083
    
    
    
    977,907Income before income taxes
    
    
    
    
    
    
    279,975
    
    
    
    
    
    
    
    226,550
    
    
    
    146,998Net income
    
    
    
    
    
    
    218,747
    
    
    
    
    
    
    
    185,676
    
    
    
    106,081DomesticTotal assets
    
    
    
    
    
    
    40,171,060
    
    
    
    
    
    
    
    37,908,614
    
    
    
    33,075,377Total income
    
    
    
    
    
    
    8,829,315
    
    
    
    
    
    
    
    8,881,638
    
    
    
    7,029,238Income before income taxes
    
    
    
    
    
    
    2,505,441
    
    
    
    
    
    
    
    2,488,660
    
    
    
    1,973,409Net income
    
    
    
    
    
    
    1,547,207
    
    
    
    
    
    
    
    1,508,615
    
    
    
    1,206,451MBNA CorporationTotal assets
    
    
    
    
    
    
    52,856,746
    
    
    
    
    
    
    
    45,447,945
    
    
    
    38,678,096Total income
    
    
    
    
    
    
    10,430,993
    
    
    
    
    
    
    
    10,144,721
    
    
    
    8,007,145Income before income taxes
    
    
    
    
    
    
    2,785,416
    
    
    
    
    
    
    
    2,715,210
    
    
    
    2,120,407Net income
    
    
    
    
    
    
    1,765,954
    
    
    
    
    
    
    
    1,694,291
    
    
    
    1,312,532
 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 $1.8 billion and
in MBNA Canada was $277.8 million at December 31, 2002. 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. FOREIGN LOAN RECEIVABLES DISTRIBUTION(dollars in thousands)  December 31,
    
    2002
    
    
    2001Loans Held for SecuritizationCredit card
    
    $
    1,830,914
    
    
    $
    953,286Total loans held for securitization
    
    
    1,830,914
    
    
    
    953,286Loan PortfolioCredit card
    
    
    3,070,999
    
    
    
    1,822,104Other consumer
    
    
    1,927,015
    
    
    
    1,347,843Total loan portfolio
    
    
    4,998,014
    
    
    
    3,169,947Total loan receivables
    
    $
    6,828,928
    
    
    $
    4,123,233


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. NOTE 27: 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 consolidated statements of financial condition
and were not material to the Corporations financial results. NOTE 28: FAIR VALUE OF FINANCIAL INSTRUMENTS The following presents the fair value of financial instruments at
December 31, 2002 and 2001, whether or not recognized in the
Corporations consolidated statements of financial condition, for
which it is practicable to estimate that value. In addition, certain
financial instruments and all nonfinancial instruments are
excluded in accordance with 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
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.








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|76 | THINK OF YOURSELF AS A CUSTOMER
|-- | -------------------------------



CARRYING VALUES AND ESTIMATED FAIR VALUES OF THE CORPORATIONS FINANCIAL
ASSETS
(dollars in thousands)



December
        31,
      
      2002
      
      |
      2001Carrying
      
      
      Estimated
      
      
      Carrying
      
      
      EstimatedValue
      
      
      Fair
        Value
      
      
      Value
      
      
      Fair
        ValueFinancial Assets
      
      
      ****
      ****
      ****
      ****
      ****
      ****Cash and due from banks
      
      $
      **721,972**
      ****
      ****
      **$**
      **721,972**
      ****
      
      $
      962,118
      
      
      $
      962,118Money
          market instruments
      
      
      **5,348,052**
      ****
      ****
      ****
      **5,348,052**
      ****
      
      
      3,030,863
      
      
      
      3,030,863Investment
          securities:
      
      
      ****
      ****
      ****
      ****
      ****
      ****Available-for-sale
      
      
      **3,655,808**
      ****
      ****
      ****
      **3,655,808**
      ****
      
      
      3,106,884
      
      
      
      3,106,884Held-to-maturity
      
      
      **485,621**
      ****
      ****
      ****
      **494,333**
      ****
      
      
      439,987
      
      
      
      426,317Loans
          held for securitization
      
      
      **11,029,627**
      ****
      ****
      ****
      **11,029,627**
      ****
      
      
      9,929,948
      
      
      
      9,929,948Loan
          portfolio, net of reserve for possible credit losses
      
      
      **16,585,582**
      ****
      ****
      ****
      **16,585,582**
      ****
      
      
      13,870,193
      
      
      
      13,870,193Accrued
          income receivable
      
      
      **371,089**
      ****
      ****
      ****
      **371,089**
      ****
      
      
      369,383
      
      
      
      369,383Accounts
          receivable from securitization
      
      
      **6,926,876**
      ****
      ****
      ****
      **6,926,876**
      ****
      
      
      7,495,501
      
      
      
      7,495,501




The carrying value of loans held for securitization reported in the
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 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 frequently at market rates. The valuations of loans held for securitization and the loan portfolio
do not include the value that relates to estimated cash flows from
new 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 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
consolidated statements of financial condition approximate their
fair values as a result of the short-term nature of these assets. 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.




CARRYING VALUES AND ESTIMATED FAIR VALUES OF THE CORPORATIONS FINANCIAL
LIABILITIES (dollars in thousands)



December 31,
      
      2002
      |
      2001Carrying
      
      
      Estimated
      
      Carrying
      
      
      EstimatedValue
      
      
      Fair
        Value
      
      Value
      
      
      Fair
        ValueFinancial
          LiabilitiesDeposits
      
      **$**
      **30,616,216**
      ****
      ****
      **$**
      **31,715,373**
      
      $
      27,094,745
      
      
      $
      27,828,000Short-term
          borrowings
      
      ****
      **1,250,103**
      ****
      ****
      ****
      **1,294,866**
      
      
      1,774,816
      
      
      
      1,774,816Long-term
          debt and bank notes
      
      ****
      **9,538,173**
      ****
      ****
      ****
      **10,543,933**
      
      
      6,867,033
      
      
      
      7,001,000Accrued
          interest payable
      
      ****
      **286,158**
      ****
      ****
      ****
      **286,158**
      
      
      226,653
      
      
      
      226,653






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##### 



| | THINK OF YOURSELF AS A CUSTOMER
| | -------------------------------





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 guaranteed preferred
beneficial interests in 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 The Corporation utilizes derivative financial instruments to
enhance its ability to manage interest rate risk and foreign currency
exchange rate risk. Derivative financial instruments do not expose
the Corporation to credit risk equal to their notional amount,
however, the Corporation is exposed to credit risk if the
counterparty fails to perform. This credit risk is measured as the
gross unrealized gain on the financial instrument. 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 by quoted market prices or dealer quotes. This value
generally reflects the estimated amounts that the Corporation would
receive or pay to terminate the instruments at the reporting date. The Corporation accounts for changes in the fair value of fair
value hedges and the corresponding hedged item as a component
of other operating income on the Corporations consolidated
statements of income. 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
consolidated statements of income. The gross unrealized gains


and gross unrealized losses on the Corporations derivative financial
instruments are included as a component of other assets or
accrued expenses and other liabilities, respectively, in the
Corporations consolidated statements of financial condition. The
gross unrealized gains and gross unrealized losses on the
corresponding hedged item are included as part of the carrying
value of the hedged item in the Corporations consolidated
statements of financial condition. 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 qualify as
fair value hedges under Statement No. 133. The fair value of
the Corporations interest rate swap agreements was a gross
unrealized gain of $468.4 million at December 31, 2002. At
December 31, 2001, the outstanding interest rate swap agreements
had a gross unrealized gain of $100.7 million and a gross
unrealized loss of $9.2 million. For the years ended
December 31, 2002 and 2001, the Corporations hedging ineffectiveness
for its interest rate swap agreements was immaterial
to the Corporations consolidated statements of income. At
December 31, 2002, the Corporation had interest rate swap agreements
maturing in varying amounts from 2003 through 2033. Under the terms of certain interest rate swap agreements, each
party may be required to pledge certain assets if the market value
of the interest rate swap agreement exceeds an amount set forth in
the agreement or in the event of a change in credit rating. There
were no securities pledged under the terms of the interest rate
swap agreements at December 31, 2002 and 2001. The Bank
held $44.7 million in deposits received from swap counterparties,
that were collateralizing interest rate swap agreements at




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, 1999
    
    $
    1,041,303
    
    
    $
    1,040,721
    
    
    $
    200,675
    
    
    $
    2,282,699Additions
    
    
    713,523
    
    
    
    5,787,563
    
    
    
    290,783
    
    
    
    6,791,869Maturities
    
    
    
    
    
    
    (5,507,100
    )
    
    
    (40,000
    )
    
    
    (5,547,100
    )Balance, 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
    
    
    $
    12,807,662






---



##### 



|78 | THINK OF YOURSELF AS A CUSTOMER
|-- | -------------------------------



SIGNIFICANT CLASSES OF DERIVATIVE FINANCIAL INSTRUMENTS
(dollars in thousands)



|
      Weighted
        Average
      |Notional
      
      
      
      
      
      
      
      
      
      
      Maturity
      
      
      EstimatedAmount
      
      
      Receive
        Rate (a)
      
      
      Pay
        Rate (b)
      
      
      in
        Years
      
      
      Fair
        ValueDecember 31,
          2002
      
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****Interest
          rate swap agreements
      
      **$**
      **6,543,943**
      ****
      ****
      ****
      **5.71**
      **%**
      ****
      ****
      **2.21**
      **%**
      ****
      ****
      **7.6**
      ****
      ****
      ****
      ****Gross
          unrealized gains
      
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      **$**
      **468,425**Gross
          unrealized losses
      
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ********
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****Total
      
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      **$**
      **468,425******
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****Forward
          exchange contractspounds sterling
      
      ****
      **1,340,576**
      ****
      ****
      ****
      **1.57**
      ****
      ****
      ****
      **1.61**
      ****
      ****
      ****
      **.1**
      ****
      ****
      ****
      ****Gross
          unrealized gains
      
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      **$**
      ****Gross
          unrealized losses
      
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      **(33,488**
      )****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****Total
      
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      **$**
      **(33,488**
      )****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****Forward
          exchange contractseuros
      
      ****
      **77,296**
      ****
      ****
      ****
      **1.01**
      ****
      ****
      ****
      **1.05**
      ****
      ****
      ****
      **.1**
      ****
      ****
      ****
      ****Gross
          unrealized gains
      
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      **$**
      ****Gross
          unrealized losses
      
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      **(4,726**
      )****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****Total
      
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      **$**
      **(4,726**
      )****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****Forward
          exchange contractsU.S. dollars
      
      ****
      **1,848,448**
      ****
      ****
      ****
      **.66**
      ****
      ****
      ****
      **.62**
      ****
      ****
      ****
      **.1**
      ****
      ****
      ****
      ****Gross
          unrealized gains
      
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      **$**
      ****Gross
          unrealized losses
      
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      **(60,733**
      )****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****Total
      
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      **$**
      **(60,733**
      )****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****Foreign
          exchange swap agreements
      
      ****
      **2,997,399**
      ****
      ****
      ****
      **4.45**
      **%**
      ****
      ****
      **5.43**
      **%**
      ****
      ****
      **2.7**
      ****
      ****
      ****
      ****Gross
          unrealized gains
      
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      **$**
      **66,233**Gross
          unrealized losses
      
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      **(101,157**
      )****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****Total
      
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      **$**
      **(34,924**
      )****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****
      ****December 31,
          2001Interest
          rate swap agreements
      
      
      2,883,373
      
      
      
      5.89
      %
      
      
      2.58
      %
      
      
      5.6Gross
          unrealized gains
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      $
      100,657Gross
          unrealized losses
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      (9,167
      )Total
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      $
      91,490Forward
          exchange contractspounds sterling
      
      
      1,310,626
      
      
      
      1.44
      
      
      
      1.45
      
      
      
      .1Gross
          unrealized gains
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      $
      1,423Gross
          unrealized losses
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      (9,347
      )Total
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      $
      (7,924
      )Forward
          exchange contractseuros
      
      
      54,434
      
      
      
      .90
      
      
      
      .88
      
      
      
      .1Gross
          unrealized gains
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      $
      1,170Gross
          unrealized losses
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      Total
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      $
      1,170Forward
          exchange contractsU.S. dollars
      
      
      78,063
      
      
      
      .69
      
      
      
      .69
      
      
      
      .1Gross
          unrealized gains
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      $
      56Gross
          unrealized losses
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      (35
      )Total
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      $
      21Foreign
          exchange swap agreements
      
      
      1,852,129
      
      
      
      4.11
      %
      
      
      5.36
      %
      
      
      2.7Gross
          unrealized gains
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      $
      3,897Gross
          unrealized losses
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      (61,174
      )Total
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      $
      (57,277
      )




|(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 the forward exchange contract was denominated in at
December 31, 2002 and 2001, respectively.



December 31, 2002. MBNA Europe held an additional
$16.8 million in deposits received from swap counterparties,
that were collateralizing interest rate swap agreements at
December 31, 2002. At December 31, 2001, the Bank held a
$21.0 million deposit received from a swap counterparty, which
was collateralizing an interest rate swap agreement. 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 and 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 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
reexchanged at the agreed-upon exchange rate.








---



##### 



| | THINK OF YOURSELF AS A CUSTOMER
| | -------------------------------



EXPECTED MATURITIES OF DERIVATIVE FINANCIAL INSTRUMENTS(dollars in thousands)

December 31, 2002
    
    Within 1 Year
    
    
    1-5 Years
    
    
    6-10 Years
    
    
    Over 10 Years
    
    
    TotalInterest Rate Swap AgreementsNotional amount
    
    $
    199,229
    
    
    $
    3,328,842
    
    
    $
    2,265,872
    
    
    $
    750,000
    
    
    $
    6,543,943Estimated fair value
    
    
    3,395
    
    
    
    215,304
    
    
    
    183,769
    
    
    
    65,957
    
    
    
    468,425Forward Exchange ContractsNotional amount
    
    
    3,266,320
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,266,320Estimated fair value
    
    
    (98,947
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (98,947
    )Foreign Exchange Swap AgreementsNotional amount
    
    
    407,588
    
    
    
    2,089,811
    
    
    
    500,000
    
    
    
    
    
    
    
    2,997,399Estimated fair value
    
    
    (3,339
    )
    
    
    (18,696
    )
    
    
    (12,889
    )
    
    
    
    
    
    
    (34,924
    )




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 $19.4 million at
December 31, 2002, and a gross unrealized loss of $4.0 million
at December 31, 2001. 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 $46.8 million and a gross unrealized loss
of $101.2 million at December 31, 2002. The fair value of the
Corporations foreign exchange swap agreements not designated
or effective as accounting hedges was a gross unrealized gain of
$3.9 million and a gross unrealized loss of $57.2 million at
December 31, 2001. For the year ended December 31, 2002, the
Corporation recognized a net gain of $22.4 million on its foreign
exchange swap agreements and an offsetting net loss of
$58.5 million on the related underlying long-term debt and bank
notes in the consolidated statements of income. For the year ended
December 31, 2001, the Corporation recognized a net loss of
$52.6 million on its foreign exchange swap agreements and an
offsetting net gain of $72.4 million on the related underlying long-term
debt and bank notes in the consolidated statements of
income. The Corporations hedging ineffectiveness for its foreign
exchange swap agreements was immaterial to the Corporations
consolidated statements of income for 2002 and 2001. The
Corporations foreign exchange swap agreements mature in varying
amounts from 2003 through 2008. 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, 2002, was a gross unrealized loss, or a liability, of
$98.9 million, which was recognized in the consolidated
statements of income as a net loss of $98.9 million (pre-tax). The
recognized fair value of the open forward exchange contracts at
December 31, 2001, was a gross unrealized gain, or an asset, of
$2.7 million and a gross unrealized loss, or a liability, of
$9.4 million, which was recognized in the consolidated statements
of income as a net loss of $6.7 million (pre-tax). The net loss of $98.9 million on the Corporations open forward
exchange contracts outstanding at December 31, 2002, shown in
the table above, 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 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
consolidated statements of income. The net loss of $6.7 million on
the Corporations open forward exchange contracts outstanding at
December 31, 2001, along with the gains on its matured forward
exchange contracts, resulted in a net gain of $28.3 million on the
Corporations forward exchange contracts in the consolidated
statements of income for the year ended December 31, 2001. The
Corporation recognized an offsetting net loss of $40.2 million
on the related foreign denominated assets and liabilities in the
consolidated statements of income. The Corporations forward
exchange contracts all mature in 2003.








---



##### 



|80 | THINK OF YOURSELF AS A CUSTOMER
|-- | -------------------------------





NOTE 29: 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 93.0% and 91.6% of the
consolidated assets of the Corporation at December 31, 2002 and
2001, respectively.




CONDENSED STATEMENTS OF FINANCIAL CONDITION(dollars in thousands)

December 31,
    
    2002
    
    
    2001AssetsCash and due from bank subsidiary
    
    $
    4,219
    
    
    $
    3,145Interest-earning time deposits due from bank subsidiary
    
    
    1,097,796
    
    
    
    479,796Notes receivable from non-bank subsidiaries
    
    
    1,490,162
    
    
    
    1,486,887Investment in subsidiaries:Bank
    
    
    9,030,463
    
    
    
    7,228,830Non-bank
    
    
    268,899
    
    
    
    242,671Premises and equipment, net
    
    
    197,736
    
    
    
    152,385Accrued income receivable
    
    
    56,926
    
    
    
    32,770Other assets
    
    
    362,752
    
    
    
    216,726Total assets
    
    $
    12,508,953
    
    
    $
    9,843,210Liabilities and Stockholders EquityLong-term debt
    
    $
    1,961,324
    
    
    $
    1,159,844Junior subordinated deferrable interest debentures due to non-bank subsidiaries
    
    
    1,162,839
    
    
    
    595,792Accrued interest payable
    
    
    39,539
    
    
    
    12,164Dividends payable
    
    
    92,412
    
    
    
    79,635Accrued expenses and other liabilities
    
    
    151,520
    
    
    
    197,057Total liabilities
    
    
    3,407,634
    
    
    
    2,044,492Stockholders equity
    
    
    9,101,319
    
    
    
    7,798,718Total liabilities and stockholders equity
    
    $
    12,508,953
    
    
    $
    9,843,210


CONDENSED STATEMENTS OF INCOME(dollars in thousands)

Year Ended December 31,
    
    2002
    
    
    2001
    
    
    2000Operating IncomeInterest income
    
    $
    122,165
    
    
    $
    121,264
    
    
    $
    151,450Dividends from subsidiaries:Bank
    
    
    352,000
    
    
    
    308,000
    
    
    
    296,681Non-bank
    
    
    1,410
    
    
    
    1,181
    
    
    
    1,452Management fees from subsidiaries
    
    
    166,160
    
    
    
    97,867
    
    
    
    70,245Other
    
    
    3,820
    
    
    
    15,044
    
    
    
    3,128Total operating income
    
    
    645,555
    
    
    
    543,356
    
    
    
    522,956Operating ExpenseInterest expense
    
    
    93,321
    
    
    
    90,092
    
    
    
    133,600Salaries and employee benefits
    
    
    99,479
    
    
    
    41,249
    
    
    
    33,813Other
    
    
    59,388
    
    
    
    49,652
    
    
    
    32,019Total operating expense
    
    
    252,188
    
    
    
    180,993
    
    
    
    199,432Income before income taxes and equity in undistributed net income of subsidiaries
    
    
    393,367
    
    
    
    362,363
    
    
    
    323,524Applicable income taxes
    
    
    22,284
    
    
    
    24,694
    
    
    
    16,380Equity in undistributed net income of subsidiaries:Bank
    
    
    1,390,837
    
    
    
    1,354,094
    
    
    
    1,002,055Non-bank
    
    
    4,034
    
    
    
    2,528
    
    
    
    3,333Net Income
    
    $
    1,765,954
    
    
    $
    1,694,291
    
    
    $
    1,312,532








---



##### 



| | THINK OF YOURSELF AS A CUSTOMER
| | -------------------------------



CONDENSED STATEMENTS OF CASH FLOWS(dollars in thousands)

Year Ended December 31,
    
    2002
    
    
    2001
    
    
    2000Operating ActivitiesNet income
    
    $
    1,765,954
    
    
    $
    1,694,291
    
    
    $
    1,312,532Adjustments to reconcile net income to net cash provided by operating activities:Equity in undistributed earnings of subsidiaries
    
    
    (1,394,871
    )
    
    
    (1,356,622
    )
    
    
    (1,005,388
    )Deferred income tax benefit
    
    
    (8,560
    )
    
    
    (4,658
    )
    
    
    (4,374
    )Depreciation and amortization
    
    
    110,883
    
    
    
    42,688
    
    
    
    32,296(Increase) decrease in other operating activities
    
    
    (22,683
    )
    
    
    95,984
    
    
    
    26,282Net cash provided by operating activities
    
    
    450,723
    
    
    
    471,683
    
    
    
    361,348Investing ActivitiesNet (increase) decrease in interest-earning time deposits due from bank subsidiary
    
    
    (618,000
    )
    
    
    336,500
    
    
    
    (80,900
    )Net issuance of notes receivable from non-bank subsidiaries
    
    
    (3,275
    )
    
    
    (176,668
    )
    
    
    (169,219
    )Net purchases of premises and equipment
    
    
    (60,888
    )
    
    
    (35,771
    )
    
    
    (49,213
    )Net investment in subsidiaries
    
    
    (162,214
    )
    
    
    (47,285
    )
    
    
    (765,999
    )Proceeds from sale of investment securities available-for-sale
    
    
    13,126
    
    
    
    
    
    
    
    Net cash (used in) provided by investing activities
    
    
    (831,251
    )
    
    
    76,776
    
    
    
    (1,065,331
    )Financing ActivitiesProceeds from issuance of long-term debt
    
    
    1,188,959
    
    
    
    294,562
    
    
    
    Maturity of long-term debt
    
    
    (495,000
    )
    
    
    (241,000
    )
    
    
    (367,000
    )Proceeds from issuance of junior subordinated deferrable interest debentures to
non-bank subsidiaries
    
    
    515,464
    
    
    
    
    
    
    
    Proceeds from issuance of common stock
    
    
    
    
    
    
    
    
    
    
    1,599,055Proceeds from exercise of stock options and other awards
    
    
    138,422
    
    
    
    84,032
    
    
    
    62,874Acquisition and retirement of common stock
    
    
    (615,503
    )
    
    
    (376,095
    )
    
    
    (323,464
    )Dividends paid
    
    
    (350,740
    )
    
    
    (312,382
    )
    
    
    (267,250
    )Net cash provided by (used in) financing activities
    
    
    381,602
    
    
    
    (550,883
    )
    
    
    704,215Increase (Decrease) in Cash and Cash Equivalents
    
    
    1,074
    
    
    
    (2,424
    )
    
    
    232Cash and cash equivalents at beginning of year
    
    
    3,145
    
    
    
    5,569
    
    
    
    5,337Cash and cash equivalents at end of year
    
    $
    4,219
    
    
    $
    3,145
    
    
    $
    5,569Supplemental DisclosuresInterest expense paid
    
    $
    160,794
    
    
    $
    95,304
    
    
    $
    137,141Income taxes paid
    
    $
    
    
    
    $
    
    
    
    $
    






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##### 



|82 | THINK OF YOURSELF AS A CUSTOMER
|-- | -------------------------------



QUARTERLY DATA (UNAUDITED)(dollars in thousands, except per share amounts)

Three Months Ended
    
    
    
    
    
    March 31,
    
    
    June 30,
    
    
    September 30,
    
    
    December 31,2002Interest 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
    
    
    
    1,297,2852001Interest income
    
    
    
    
    
    $
    834,155
    
    
    $
    858,284
    
    
    $
    867,036
    
    
    $
    911,930Interest expense
    
    
    
    
    
    
    479,021
    
    
    
    453,591
    
    
    
    451,333
    
    
    
    430,120Net interest income
    
    
    
    
    
    
    355,134
    
    
    
    404,693
    
    
    
    415,703
    
    
    
    481,810Provision for possible credit losses
    
    
    
    
    
    
    218,840
    
    
    
    322,216
    
    
    
    314,322
    
    
    
    285,237Other operating income
    
    
    
    
    
    
    1,453,343
    
    
    
    1,575,145
    
    
    
    1,805,614
    
    
    
    1,839,214Other operating expense
    
    
    
    
    
    
    1,091,151
    
    
    
    1,048,443
    
    
    
    1,140,421
    
    
    
    1,194,816Income before income taxes
    
    
    
    
    
    
    498,486
    
    
    
    609,179
    
    
    
    766,574
    
    
    
    840,971Net income
    
    
    
    
    
    
    311,055
    
    
    
    380,128
    
    
    
    478,342
    
    
    
    524,766Net income applicable to common stock
    
    
    
    
    
    
    307,492
    
    
    
    376,607
    
    
    
    474,804
    
    
    
    521,246Earnings per common share
    
    
    
    
    
    
    .24
    
    
    
    .29
    
    
    
    .37
    
    
    
    .41Earnings per common shareassuming dilution
    
    
    
    
    
    
    .23
    
    
    
    .29
    
    
    
    .36
    
    
    
    .40Weighted average common shares outstanding (000)
    
    
    
    
    
    
    1,277,760
    
    
    
    1,277,780
    
    
    
    1,277,718
    
    
    
    1,277,722Weighted average common shares outstanding and common
stock equivalents (000)
    
    
    
    
    
    
    1,317,602
    
    
    
    1,316,623
    
    
    
    1,312,708
    
    
    
    1,310,084


|For purposes of comparability, certain prior period amounts have been
reclassified.
|-----------------------------------------------------------------------------------



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 reports filed with the Securities and Exchange
Commission on Form 10-Q and its 2001 Annual Report filed on
Form 10-K have been adjusted to reflect the stock split. On April 1, 2001, the Corporation adopted EITF 99-20. The
Corporation now records accretion of interest income related to
beneficial interests retained in a securitization transaction
accounted for as a sale as interest income in the Corporations
consolidated statements of income. This income was previously
recorded as securitization income in the Corporations consolidated
statements of income. For purposes of comparability, certain
prior period amounts previously reported in the Corporations
2001 reports filed with the Securities and Exchange Commission
on Form 10-Q and its Annual Report filed on Form 10-K have
been reclassified. As a result, interest income and other operating
income were adjusted.








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##### 



| | THINK OF YOURSELF AS A CUSTOMER
| | -------------------------------



PREFERRED STOCK PRICE RANGE AND DIVIDENDS (UNAUDITED)

DividendsDeclared perHigh
    
    
    Low
    
    
    Close
    
    
    Preferred ShareSeries A2002Fourth 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
    
    
    
    
    
    
    
    .468752001Fourth quarter
    
    
    25.50
    
    
    
    25.00
    
    
    
    25.25
    
    
    
    
    
    
    
    .46875Third quarter
    
    
    26.09
    
    
    
    24.85
    
    
    
    25.00
    
    
    
    
    
    
    
    .46875Second quarter
    
    
    25.90
    
    
    
    24.20
    
    
    
    25.40
    
    
    
    
    
    
    
    .46875First quarter
    
    
    24.99
    
    
    
    23.50
    
    
    
    24.40
    
    
    
    
    
    
    
    .46875Series B2002Fourth 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
    
    
    
    
    
    
    
    .343802001Fourth quarter
    
    
    22.75
    
    
    
    21.34
    
    
    
    22.30
    
    
    
    
    
    
    
    .34380Third quarter
    
    
    21.75
    
    
    
    21.40
    
    
    
    21.45
    
    
    
    
    
    
    
    .35020Second quarter
    
    
    22.56
    
    
    
    21.75
    
    
    
    21.75
    
    
    
    
    
    
    
    .34380First quarter
    
    
    22.56
    
    
    
    22.56
    
    
    
    22.56
    
    
    
    
    
    
    
    .35270






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 23, 2003, the Corporations Board of Directors
declared a quarterly dividend of $.46875 per share on the 7 1/2 %
Cumulative Preferred Stock, Series A, and a quarterly dividend of
$.34380 per share on the Adjustable Rate Cumulative Preferred
Stock, Series B. Both dividends are payable April 15, 2003 to
stockholders of record as of March 31, 2003.




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

DividendsDeclared perHigh
    
    
    Low
    
    
    Close
    
    
    Common Share2002Fourth 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
    
    
    
    
    
    
    
    .072001Fourth quarter
    
    
    23.69
    
    
    
    18.41
    
    
    
    23.47
    
    
    
    
    
    
    
    .06Third quarter
    
    
    24.90
    
    
    
    16.70
    
    
    
    20.19
    
    
    
    
    
    
    
    .06Second quarter
    
    
    25.45
    
    
    
    20.80
    
    
    
    22.00
    
    
    
    
    
    
    
    .06First quarter
    
    
    26.04
    
    
    
    19.21
    
    
    
    22.07
    
    
    
    
    
    
    
    .06


|(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, 2003, the Corporation had 2,743
common stockholders of record. This figure does not include
beneficial owners for whom Cede & Co. or others act as nominees.


On January 23, 2003, the Corporations Board of Directors
declared a quarterly dividend of $.08 per common share, payable
April 1, 2003 to stockholders of record as of March 15, 2003.








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##### 





THINK OF YOURSELF AS A CUSTOMER


MBNA CORPORATION BOARD OF DIRECTORSJames H. Berick, Esq.
        
        William L. Jews
        
        Stuart L. Markowitz, M.D.
        
        Michael Rosenthal, Ph.D.Retired Partner
        
        President and Chief Executive Officer
        
        Internist and Managing Partner
        
        ProfessorSquire, Sanders & Dempsey L.L.P.
        
        CareFirst BlueCross BlueShield
        
        Drs. Markowitz, Rosenberg,
        
        Columbia UniversityStein & AssociatesCharles M. Cawley(31)
        
        Norma Lerner
        
        
        
        Former Associate Dean forChief Executive Officer
        
        Investor
        
        Clinical Professor
        
        Academic Administration atCase Western Reserve University,
        
        Columbia CollegeBenjamin R. Civiletti, Esq.
        
        Randolph D. Lerner, Esq.
        
        College of MedicineChairman
        
        ChairmanVenable, Baetjer and Howard, LLP
        
        
        
        William B. Milstead*Owner, Cleveland Browns
        
        Retired PartnerFormer Attorney General
        
        
        
        Ernst & Young, LLPof the United States*Nominated for Board of DirectorsMBNA AMERICA BANK N.A. PRINCIPAL OFFICERSJohn R. Cochran III(30)
        
        Sunil F. Antani(25)
        
        Louis J. Freeh(2)
        
        John W. Scheflen(11)President and
        
        
        
        
        
        CounselChief Operating Officer
        
        Gregg Bacchieri(25)
        
        John J. Hewes(18)Chief Lending Officer
        
        
        
        Michelle D. Shepherd(18)Bruce L. Hammonds(25)
        
        
        
        Charles C. Krulak(4)Chairman and
        
        Kenneth F. Boehl(27)
        
        
        
        David W. Spartin(22)Chief Executive Officer
        
        Auditor
        
        Janine D. Marrone(16)Penelope J. Taylor(31)Richard K. Struthers(25)
        
        Jules J. Bonavolonta(6)
        
        Frank J. McKelvey(19)Chairman, MBNA Europe
        
        
        
        
        
        Kenneth A. Vecchione(5)and MBNA Canada
        
        Ronald W. Davies(29)
        
        Charles K. Messick(14)
        
        Chief Financial OfficerChief Technology Officer84
Lance L. Weaver(12)Chief Administrative Officer
        
        Douglas R. Denton(14)
Shane G. Flynn(14)
        
        William P. Morrison(15)
Edward H. Murphy(18)
        
        Kevin P. Wren(8)
Thomas D. Wren(8)P.J. ODwyer(14)
        
        Vernon H.C. Wright(34)Robert J. A. Fraser(6)
        
        
        
        Chief Corporate Finance OfficerMichael G. Rhodes(11)Chief Marketing Officer(Years with the company)MBNA OFFICE LOCATIONSINTERNATIONAL
        
        CANADA
        
        SPAIN
        
        50 Pleasant St.HEADQUARTERS
        
        
        
        C/José Echegaray, 6.
        
        Fort Kent, ME 047431600 James Naismith Dr.
        
        28230 Las RozasMBNA Corporation
        
        Gloucester, Ontario
        
        Madrid, Spain
        
        16 Godfrey Dr.Wilmington, DE 19884
        
        K1B 5N8
        
        
        
        Orono, ME 04473(800) 441-7048
        
        
        
        MARKETING SYSTEMS1000 de la Gauchetière Suite 4300
        
        HEADQUARTERS
        
        901 Washington Ave.MBNA OFFICES
        
        Montréal, Québec
        
        
        
        Portland, ME 04103H3B 4W5
        
        32 Washington St.UNITED STATES
        
        
        
        Camden, ME 04843
        
        18 Green Hill Dr.IRELAND
        
        (800) 386-6262
        
        Presque Isle, ME 0476975 Enterprise, Suite 200Aliso Viejo, CA 92656
        
        46 St. Stephens Green
        
        MARKETING SYSTEMS
        
        12 Water St.Dublin 2, Ireland
        
        OFFICES
        
        Rockland, ME 04841210 Town Park DriveKennesaw, GA 30144
        
        Dublin Road
        
        1075 Silver Lake Blvd.
        
        100 Main St., Suite 303Carrick-on-Shannon
        
        Dover, DE 19904
        
        Dover, NH 0382011333 McCormick Rd.
        
        Co Leitrim, IrelandHunt Valley, MD 21031
        
        
        
        400 Christiana Rd.
        
        320 University Ave.UNITED KINGDOM
        
        Newark, DE 19713
        
        Newark, NJ 071021 Hatley Rd.Belfast, ME 04915
        
        Stansfield House
        
        210 Town Park Drive
        
        388 S. Main St.Chester Business Park
        
        Kennesaw, GA 30144
        
        Akron, OH 44311320 University Ave.
        
        Wrexham Rd.Newark, NJ 07102
        
        Chester, Cheshire
        
        11333 McCormick Rd.
        
        25875 Science Park Dr.CH4 9QQ
        
        Hunt Valley, MD 21031
        
        Beachwood, OH 441229 W. 57th St.
        
        United KingdomNew York, NY 10019
        
        
        
        5 Industrial Pkwy.
        
        2568 Park Centre Blvd.86 Jermyn St.
        
        Brunswick, ME 04011
        
        State College, PA 1680125875 Science Park Dr.
        
        London SW1Y 6JDBeachwood, OH 44122
        
        United Kingdom
        
        274 Front St.
        
        16001 N. Dallas Pkwy.Farmington, ME 04938
        
        Dallas, TX 7524816001 N. Dallas Pkwy.Dallas, TX 75248






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##### 





THINK OF YOURSELF AS A CUSTOMER




SUBSIDIARIES OF MBNA CORPORATION


MBNA AMERICA BANK, N.A.

The principal subsidiary of MBNA Corporation, MBNA America, a national bank
with $105.4 billion in managed loans, is the largest independent credit card
lender in the world. It also provides retail deposit, consumer loan, and
insurance products. MBNA America markets its products through thousands of
membership organizations and financial institutions and is the recognized
industry leader in endorsed marketing.



SUBSIDIARIES OF MBNA AMERICA BANK, N.A.


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.

MBNA EUROPE

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

MBNA issues credit cards in Canada. MBNA Canada is headquartered in Ottawa,
Ontario, with a business development office in Montréal, Québec.

MBNA INSURANCE AGENCY, INC.

MBNA Insurance Agency, Inc., markets credit-related life and disability and
credit protection.

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.



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 |  | Brian D. Dalphon, Director, Investor Relations
|MBNA Corporation                       |  | MBNA Corporation                              
|Wilmington, DE 19884-0141              |  | Wilmington, DE 19884-0131                     
|(800) 362-6255 or (302) 456-8588       |  | (800) 362-6255 or (302) 432-1251              
|Internet address: www.MBNA.com         |  |                                               



COMMON STOCK


Listed on New York Stock Exchange
 Stock Symbol KRB


|                                                                   | 
|------------------------------------------------------------------ | 
|This annual report was printed on paper recycled from MBNA offices | 





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#####