MBNA CORP - 10-Q Quarterly Report

(Registrant's telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes

Common Stock, $.01 Par Value - 1,277,675,670 Shares Outstanding as of September 30, 2004

MBNA CORPORATION AND SUBSIDIARIES

TABLE OF CONTENTS

				Page
PART I.	FINANCIAL INFORMATION

	Item 1.	Financial Statements (unaudited)

		Consolidated Statements of Financial Condition - September 30, 2004 and
		December 31, 2003		1

		Consolidated Statements of Income - For the Three and Nine Months Ended
		September 30, 2004, and 2003		2

		Consolidated Statements of Changes in Stockholders' Equity - For the Nine Months Ended September 30, 2004, and 2003		3

		Consolidated Statements of Cash Flows - For the Nine Months Ended
		September 30, 2004, and 2003		5

		Notes to the Consolidated Financial Statements		6

	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of
		Operations (unaudited)		20

	Item 3.	Quantitative and Qualitative Disclosure About Market Risk		91

	Item 4.	Controls and Procedures		91

PART II.	OTHER INFORMATION

	Item 1.		Legal Proceedings	92

	Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds	93

	Item 6.		Exhibits	94

	Signature			95

	Certifications			97

Item 1.

MBNA CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(dollars in thousands, except per share amounts)

	September 30, 2004			December 31, 2003
	(unaudited)
ASSETS
Cash and due from banks	$	794,839		$	660,022
Interest-earning time deposits in other banks		4,959,988			3,590,329
Federal funds sold		1,800,000			1,275,000
Investment securities:
Available-for-sale (amortized cost of $5,781,423 and $4,352,069 at September 30, 2004, and December 31, 2003, respectively)		5,776,485			4,363,087
Held-to-maturity (market value of $313,996 and $354,434 at September 30, 2004, and December 31, 2003, respectively)		313,711			353,299
Loans held for securitization		9,794,145			13,084,105
Loan portfolio:
Credit card		10,020,034			11,190,382
Other consumer		8,688,128			8,017,730
Commercial		3,638,815			1,331,860
Total loan portfolio		22,346,977			20,539,972
Reserve for possible credit losses		(1,141,839	)		(1,216,316	)
Net loan portfolio		21,205,138			19,323,656
Premises and equipment, net		2,719,765			2,676,597
Accrued income receivable		390,614			443,755
Accounts receivable from securitization		8,096,264			7,766,477
Intangible assets and goodwill, net		3,432,617			3,188,368
Prepaid expenses and deferred charges		509,279			499,775
Other assets		2,259,016			1,888,885
Total assets	$	62,051,861		$	59,113,355

LIABILITIES
Deposits:
Time deposits	$	22,060,123		$	21,528,882
Money market deposit accounts		7,108,855			7,790,726
Noninterest-bearing deposits		2,781,783			2,419,209
Interest-bearing transaction accounts		44,478			47,334
Savings accounts		151,902			49,930
Total deposits		32,147,141			31,836,081
Short-term borrowings		1,926,636			1,025,463
Long-term debt and bank notes		11,901,794			12,145,628
Accrued interest payable		324,613			319,227
Accrued expenses and other liabilities		3,258,025			2,673,916
Total liabilities		49,558,209			48,000,315

STOCKHOLDERS' EQUITY
Preferred stock ($.01 par value, 20,000,000 shares authorized, 8,573,882 shares issued and outstanding at September 30, 2004 and December 31, 2003)		86			86
Common stock ($.01 par value, 1,500,000,000 shares authorized, 1,277,675,670 shares issued and outstanding at September 30, 2004, and 1,277,597,840 shares issued and outstanding at December 31, 2003)		12,777			12,776
Additional paid-in capital		2,048,230			2,119,700
Retained earnings		10,009,043			8,571,174
Accumulated other comprehensive income		423,516			409,304
Total stockholders' equity		12,493,652			11,113,040
Total liabilities and stockholders' equity	$	62,051,861		$	59,113,355

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


	-1-

MBNA CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except per share amounts) (unaudited)

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2004		2003		2004		2003
Interest Income
Loan portfolio	$	600,018	$	552,845	$	1,768,007	$	1,639,263
Loans held for securitization		257,586		286,544		823,707		837,529
Investment securities:
Taxable		33,592		25,485		88,820		83,909
Tax-exempt		380		174		1,048		925
Time deposits in other banks		25,168		19,634		67,257		59,012
Federal funds sold		7,158		7,842		18,780		25,408
Other interest income		78,291		77,005		235,268		227,425
Total interest income		1,002,193		969,529		3,002,887		2,873,471

Interest Expense
Deposits		245,358		272,127		732,517		851,343
Short-term borrowings		19,933		10,247		51,123		30,377
Long-term debt and bank notes		125,241		87,243		345,536		257,075
Total interest expense		390,532		369,617		1,129,176		1,138,795
Net Interest Income		611,661		599,912		1,873,711		1,734,676
Provision for possible credit losses		273,387		334,064		890,105		1,058,544
Net interest income after provision for possible credit losses		338,274		265,848		983,606		676,132

Other Operating Income
Securitization income		1,770,235		1,705,748		4,981,410		4,709,155
Interchange		113,491		94,134		318,860		284,834
Credit card loan fees		134,251		119,607		398,471		347,078
Other consumer loan fees		46,941		29,220		123,959		84,079
Commercial loan fees		17,992		11,097		50,919		31,706
Insurance		51,512		57,168		149,638		166,496
Other		25,168		15,495		78,485		48,934
Total other operating income		2,159,590		2,032,469		6,101,742		5,672,282

Other Operating Expense
Salaries and employee benefits		545,143		516,011		1,666,054		1,554,703
Occupancy expense of premises		46,630		44,055		137,546		131,998
Furniture and equipment expense		105,913		88,070		293,965		261,737
Other		650,992		619,253		2,064,897		1,841,894
Total other operating expense		1,348,678		1,267,389		4,162,462		3,790,332
Income Before Income Taxes		1,149,186		1,030,928		2,922,886		2,558,082
Applicable income taxes		420,877		372,165		1,014,534		923,468
Net Income	$	728,309	$	658,763	$	1,908,352	$	1,634,614

Earnings Per Common Share	$	.57	$	.51	$	1.49	$	1.27
Earnings Per Common Share - Assuming Dilution		.56		.51		1.46		1.25
Dividends Per Common Share		.12		.10		.36		.26

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


	-2-

MBNA CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(dollars in thousands, except per share amounts) (unaudited)

	Outstanding Shares
	Preferred (000)		Common (000)			Preferred Stock		Common Stock

Balance, December 31, 2003		8,574		1,277,598		$	86	$	12,776
Comprehensive income:
Net income		-		-			-		-
Other comprehensive income, net of tax		-		-			-		-
Comprehensive income
Cash dividends:
Common - $.36 per share		-		-			-		-
Preferred		-		-			-		-
Exercise of stock options and other awards		-		11,550			-		116
Stock-based compensation tax benefit		-		-			-		-
Amortization of deferred compensation expense		-		-			-		-
Acquisition and retirement of common stock		-		(11,472	)		-		(115	)
Balance, September 30, 2004		8,574		1,277,676		$	86	$	12,777

Balance, December 31, 2002		8,574		1,277,672		$	86	$	12,777
Comprehensive income:
Net income		-		-			-		-
Other comprehensive income, net of tax		-		-			-		-
Comprehensive income
Cash dividends:
Common - $.26 per share		-		-			-		-
Preferred		-		-			-		-
Exercise of stock options and other awards		-		24,019			-		240
Stock-based compensation tax benefit		-		-			-		-
Issuance of common stock, net of issuance costs		-		50,000			-		500
Amortization of deferred compensation expense		-		-			-		-
Acquisition and retirement of common stock		-		(74,019	)		-		(740	)
Balance, September 30, 2003		8,574		1,277,672		$	86	$	12,777


	-3-

MBNA CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY - CONTINUED
(dollars in thousands, except per share amounts) (unaudited)

	Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income		Total Stockholders’ Equity

Balance, December 31, 2003	$	2,119,700		$	8,571,174		$	409,304	$	11,113,040
Comprehensive income:
Net income		-			1,908,352			-		1,908,352
Other comprehensive income, net of tax		-			-			14,212		14,212
Comprehensive income										1,922,564
Cash dividends:
Common - $.36 per share		-			(459,935	)		-		(459,935	)
Preferred		-			(10,548	)		-		(10,548	)
Exercise of stock options and other awards		109,597			-			-		109,713
Stock-based compensation tax benefit		38,432			-			-		38,432
Amortization of deferred compensation expense		70,622			-			-		70,622
Acquisition and retirement of common stock		(290,121	)		-			-		(290,236	)
Balance, September 30, 2004	$	2,048,230		$	10,009,043		$	423,516	$	12,493,652

Balance, December 31, 2002	$	2,296,568		$	6,707,162		$	84,726	$	9,101,319
Comprehensive income:
Net income		-			1,634,614			-		1,634,614
Other comprehensive income, net of tax		-			-			124,578		124,578
Comprehensive income										1,759,192
Cash dividends:
Common - $.26 per share		-			(332,293	)		-		(332,293	)
Preferred		-			(10,548	)		-		(10,548	)
Exercise of stock options and other awards		204,960			-			-		205,200
Stock-based compensation tax benefit		62,892			-			-		62,892
Issuance of common stock, net of issuance costs		1,081,669			-			-		1,082,169
Amortization of deferred compensation expense		55,484			-			-		55,484
Acquisition and retirement of common stock		(1,570,562	)		-			-		(1,571,302	)
Balance, September 30, 2003	$	2,131,011		$	7,998,935		$	209,304	$	10,352,113

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


	-4-

MBNA CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands) (unaudited)

	For the Nine Months Ended September 30,
	2004			2003
Operating Activities
Net income	$	1,908,352		$	1,634,614
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for possible credit losses		890,105			1,058,544
Depreciation, amortization, and accretion		708,410			630,166
Benefit for deferred income taxes		(5,700	)		(56,054	)
Decrease (increase) in accrued income receivable		59,656			(2,562	)
Increase in accounts receivable from securitization		(326,294	)		(3,278,463	)
Increase in accrued interest payable		1,814			33,173
Decrease in other operating activities		30,782			394,299
Net cash provided by operating activities		3,267,125			413,717
Investing Activities
Net increase in money market instruments		(1,855,433	)		(2,031,694	)
Proceeds from maturities of investment securities available-for-sale		1,090,560			1,353,724
Purchases of investment securities available-for-sale		(2,525,978	)		(1,608,980	)
Proceeds from maturities of investment securities held-to-maturity		62,068			69,014
Purchases of investment securities held-to-maturity		(22,224	)		(13,032	)
Proceeds from securitization of loans		10,220,306			10,170,349
Acquisitions of businesses		(355,688	)		-
Loan portfolio acquisitions		(1,377,008	)		(1,264,342	)
Increase in loans due to principal payments to investors in the Corporation's securitization transactions		(9,513,113	)		(5,402,965	)
Net loan repayments (originations)		3,040,381			(4,506,353	)
Net purchases of premises and equipment		(367,329	)		(294,978	)
Net cash used in investing activities		(1,603,458	)		(3,529,257	)
Financing Activities
Net (decrease) increase in money market deposit accounts, noninterest-bearing deposits, interest-bearing transaction accounts, and savings accounts		(220,363	)		1,992,249
Net increase (decrease) in time deposits		534,014			(426,434	)
Net decrease in short-term borrowings, excluding short-term borrowings assumed in acquisitions		(307,980	)		(81,738	)
Proceeds from issuance of long-term debt and bank notes		505,406			2,838,217
Maturity of long-term debt and bank notes		(1,414,489	)		(831,485	)
Proceeds from exercise of stock options and other awards		109,713			205,200
Acquisition and retirement of common stock		(290,236	)		(1,571,302	)
Proceeds from issuance of common stock		-			1,082,169
Dividends paid		(444,915	)		(304,504	)
Net cash (used in) provided by financing activities		(1,528,850	)		2,902,372
Increase (decrease) in cash and cash equivalents		134,817			(213,168	)
Cash and cash equivalents at beginning of period		660,022			721,972
Cash and cash equivalents at end of period	$	794,839		$	508,804

Supplemental Disclosure
Interest expense paid	$	1,116,311		$	1,144,299
Income taxes paid	$	819,829		$	544,657

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


	-5-

MBNA CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note A: Basis of Presentation

The accompanying unaudited consolidated financial statements of MBNA Corporation ("the Corporation") have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP") for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete consolidated financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The notes to the consolidated financial statements contained in the Annual Report on Form 10-K for the year ended December 31, 2003, should be read in conjunction with these consolidated financial statements. For pu rposes of comparability, certain prior period amounts have been reclassified. Operating results for the nine months ended September 30, 2004, are not necessarily indicative of the results that may be expected for the year ending December 31, 2004.

Note B: Stock-Based Employee Compensation

The Corporation has two stock-based employee compensation plans (which are more fully described in "Note 23: Stock-Based Employee Compensation" contained in the Annual Report on Form 10-K for the year ended December 31, 2003). 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 Financial Accounting Standards Board ("FASB") Interpretation No. 44, "Accounting for Certain Transactions Involving Stock Compensation" ("Interpretation No. 44"). All options are granted with an exercise price that is not less than the fair market value of the Corporation’s Common Stock on th e date the option is granted. For grants of restricted shares of common stock, the market value of restricted shares at the date of grant is amortized into expense over a 10 year period that approximates the restriction period, or less if the restricted shares had a specific vesting date less than 10 years from the date of grant.

Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation," ("Statement No. 123"), as amended, defines a fair-value-based method of accounting for an employee stock option or similar equity instrument. However, it allows an entity to continue to measure compensation cost for those instruments using the intrinsic-value-based method of accounting prescribed by APB Opinion No. 25. As permitted by Statement No. 123, the Corporation elected to retain the intrinsic-value-based method of accounting for employee stock option grants in accordance with APB Opinion No. 25.


	-6-

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 of FASB Statement No. 123" ("Statement No. 148"), if the Corporation had applied the fair value recognition provisions of Statement No. 123 to options-based employee compensation. In accordance with Statement No. 123, the Corporation uses the Black-Scholes option pricing model to value its employee stock option grants. The Black-Scholes option pricing model is one technique allowed to determine the fair value of employee stock options. The model uses various assumptions that can significantly affect the fair value of the employee stock options and the derived fair value estimat es cannot be substantiated by comparison to independent markets.

*Pro Forma* Net Income and Earnings Per Common Share
(dollars in thousands, except per share amounts) (unaudited)

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2004			2003			2004			2003
Net Income
As reported	$	728,309		$	658,763		$	1,908,352		$	1,634,614
Add: Stock-based employee compensation expense included in reported net income, net of related tax effects		17,384			7,408			46,109			35,454
Deduct: Total stock-based employee compensation expense determined under fair value method for all awards, net of related tax effects		(30,754	)		(23,201	)		(90,532	)		(91,909	)
Pro forma	$	714,939		$	642,970		$	1,863,929		$	1,578,159
Earnings Per Common Share
As reported	$	.57		$	.51		$	1.49		$	1.27
Pro forma		.56			.50			1.45			1.23
Earnings Per Common Share - Assuming Dilution
As reported		.56			.51			1.46			1.25
Pro forma		.55			.49			1.43			1.21

For the nine months ended September 30, 2004, 2.8 million shares of restricted common stock were issued under the Corporation's 1997 Long Term Incentive Plan to the Corporation's senior officers. The restricted common stock had an aggregate market value of $74.4 million when issued. The unamortized compensation expense related to all of the Corporation's outstanding restricted stock awards was $182.2 million and $183.3 million at September 30, 2004, and December 31, 2003, 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. During the three months ended September 30, 2004, the Corporation issued 1.7 million common shares upon the exercise of stock options, and purchased 1.7 million common shares for $31.2 million. During the nine months ended September 30, 2004, the Corporation issued 11.6 million common shares upon the exercise of stock options and issuance of restricted stock, and purchased 11.5 million common shares for $290.2 million. The Corporation received $19.8 million and $109.7 million in proceeds from the exercise of stock options and other awards for the three and nine months ended September 30, 2004, respectively.


	-7-

Note C: Preferred Stock

The Corporation's Board of Directors declared the following quarterly dividends for the Corporation's Series A and Series B Preferred Stock:


			Series A		Series B
Declaration Date	To Stockholders of Record as of	Payment Date	Dividend Rate	Dividend Per Preferred Share	Dividend Rate	Dividend Per Preferred Share
January 22, 2004	March 31, 2004	April 15, 2004	7.50%	$.46875	5.50%	$.34380
April 22, 2004	June 30, 2004	July 15, 2004	7.50	.46875	5.50	.34380
July 22, 2004	September 30, 2004	October 15, 2004	7.50	.46875	5.50	.34380
October 21, 2004	December 31, 2004	January 15, 2005	7.50	.46875	5.50	.34380

Note D: Common Stock

The Corporation’s Board of Directors declared the following quarterly dividends for the Corporation’s Common Stock:


Declaration Date	To Stockholders of Record as of	Payment Date	Dividend Per Common Share
January 22, 2004	March 15, 2004	April 1, 2004	$.12
April 22, 2004	June 14, 2004	July 1, 2004	.12
July 22, 2004	September 15, 2004	October 1, 2004	.12
October 21, 2004	December 15, 2004	January 1, 2005	.12


	-8-

Note E: 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.

Computation of Earnings Per Common Share
(dollars in thousands, except per share amounts) (unaudited)

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2004		2003		2004		2003
Earnings Per Common Share
Net income	$	728,309	$	658,763	$	1,908,352	$	1,634,614
Less: preferred stock dividend requirements		3,516		3,516		10,548		10,548
Net income applicable to common stock	$	724,793	$	655,247	$	1,897,804	$	1,624,066

Weighted average common shares outstanding (000)		1,277,665		1,277,810		1,277,781		1,278,307

Earnings per common share	$	.57	$	.51	$	1.49	$	1.27
Earnings Per Common Share - Assuming Dilution
Net income	$	728,309	$	658,763	$	1,908,352	$	1,634,614
Less: preferred stock dividend requirements		3,516		3,516		10,548		10,548
Net income applicable to common stock	$	724,793	$	655,247	$	1,897,804	$	1,624,066

Weighted average common shares outstanding (000)		1,277,665		1,277,810		1,277,781		1,278,307
Net effect of dilutive stock options (000)		16,442		18,502		19,618		16,108
Weighted average common shares outstanding and common stock equivalents (000)		1,294,107		1,296,312		1,297,399		1,294,415

Earnings per common share - assuming dilution	$	.56	$	.51	$	1.46	$	1.25

There were 50,000 (expiration dates ranging from 2011 through 2014) stock options with an average option exercise price of $24.85 per share outstanding for the three months ended September 30, 2004, that were not included in the computation of earnings per common share-assuming dilution as a result of the stock options’ exercise prices being greater than the average market price of the common shares, for the three months ended September 30, 2004. For the nine months ended September 30, 2004 all stock options outstanding were included in the computation of earnings per common share-assuming dilution, as a result of the stock options' exercise prices being less than the average market price of the common shares.

There were 20.5 million (expiration dates ranging from 2011 through 2012) and 53.8 million (expiration dates ranging from 2009 through 2013) stock options with an average option exercise price of $23.91 and $22.16 per share outstanding for the three and nine months ended September 30, 2003, respectively, that were not included in the computation of earnings per common share-assuming dilution as a result of the stock options’ exercise prices being greater than the average market price of the common shares, for the respective three and nine month periods.


	-9-

Note F: Off-Balance Sheet Asset Securitization

Off-balance sheet asset securitization removes loan principal receivables from the Corporation’s consolidated statements of financial condition and converts interest income, interchange income, loan fees, insurance income, and recoveries on charged-off securitized loans in excess of interest paid to investors, gross credit losses, and other trust expenses into securitization income. The Corporation retains servicing responsibilities for the loans in the trusts and maintains other retained interests in the securitized assets. These retained interests include an interest-only strip receivable, cash reserve accounts, accrued interest and fees on securitized loans, and other subordinated interests.

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"), the Corporation recognizes an interest-only strip receivable, which represents the contractual right to receive from the trusts interest and other revenue less certain costs over the estimated life of securitized loan principal receivables. The Corporation uses certain key assumptions and estimates in determining the value of the interest-only strip receivable. These key assumptions and estimates include projections concerning interest income, certain fees, charged-off loan recoveries, gross credit losses, contractual servicing fees, and the interest rate paid to investors. These assumptions are used to determine the excess spread to be earned by the Corporation over the estimated life of the securitized loan principal receivables. Other key assumptions and estimates used by the Corporation include projected loan payment rates, which are used to determine the estimated life of the securitized loan principal receivables, and an appropriate discount rate. The Corporation reviews the key assumptions and estimates used in determining the fair value of the interest-only strip receivable on a quarterly basis and adjusts them as appropriate. Should these assumptions change or actual results differ from projected results, the interest-only strip receivable and securitization income would be affected.

The Corporation’s securitization key assumptions and their sensitivities to adverse changes are presented in the following tables. The adverse changes to the key assumptions and estimates are hypothetical and are presented in accordance with Statement No. 140. The amount of the adverse change has been limited to the recorded amount of the interest-only strip receivable where the hypothetical change exceeds the value of the interest-only strip receivable. The sensitivities do not reflect actions management might take to offset the impact of the possible adverse changes if they were to occur. For discussion of changes in the excess spread, see "Total Other Operating Income" in Management’s Discussion and Analysis of Financial Condition and Results of Operati ons.


	-10-

Securitization Key Assumptions and Sensitivities (a):
(dollars in thousands) (unaudited)
	September 30, 2004									June 30, 2004
	Credit Card			Other Consumer			Commercial			Credit Card			Other Consumer			Commercial
Interest-only strip receivable	$	1,198,036		$	155,466		$	4,776		$	1,164,944		$	145,556		$	5,852
Weighted average life (in years)		.32			.91			.17			.32			.89			.17

Loan payment rate
(weighted average rate)		15.22	%		4.78	%		33.01	%		15.38	%		4.93	%		32.56	%
Impact on fair value of 20% adverse change	$	168,795		$	23,543		$	488		$	164,179		$	22,128		$	620
Impact on fair value of 40% adverse change		290,238			40,728			953			281,471			38,062			1,175

Gross credit losses (b)
(weighted average rate)		4.90	%		8.22	%		5.21	%		4.98	%		8.25	%		5.29	%
Impact on fair value of 20% adverse change	$	231,632		$	72,879		$	1,732		$	231,720		$	71,151		$	1,781
Impact on fair value of 40% adverse change		463,264			145,759			3,463			463,439			142,302			3,563

Excess spread (c)
(weighted average rate)		5.07	%		3.51	%		2.87	%		5.01	%		3.38	%		3.48	%
Impact on fair value of 20% adverse change	$	239,607		$	31,093		$	955		$	232,989		$	29,111		$	1,170
Impact on fair value of 40% adverse change		479,214			62,186			1,910			465,978			58,222			2,341

Discount rate
(weighted average rate)		9.00	%		9.00	%		9.00	%		9.00	%		9.00	%		9.00	%
Impact on fair value of 20% adverse change	$	5,106		$	1,710		$	12		$	4,928		$	1,559		$	15
Impact on fair value of 40% adverse change		10,175			3,391			24			9,821			3,092			29

(a) The sensitivities do not reflect actions management might take to offset the impact of possible adverse changes if they were to occur.
(b) Gross credit losses exclude the impact of recoveries; however, recoveries are included in the determination of the excess spread.
(c) Excess spread includes projections of interest income, certain fees, and charged-off loan recoveries, less gross credit losses, contractual servicing fees, and the interest rate paid to investors.


	-11-

Securitization Key Assumptions and Sensitivities (a):
(dollars in thousands) (unaudited)
	September 30, 2003									June 30, 2003
	Credit Card (d)			Other Consumer			Commercial (d)			Credit Card (d)			Other Consumer			Commercial (d)
Interest-only strip receivable	$	1,178,518		$	87,737		$	6,227		$	1,141,699		$	87,177		$	2,659
Weighted average life (in years)		.33			.95			.17			.34			.93			.15

Loan payment rate
(weighted average rate)		14.49	%		4.60	%		32.62	%		14.06	%		4.67	%		39.01	%
Impact on fair value of 20% adverse change	$	165,897		$	13,334		$	656		$	164,339		$	13,250		$	337
Impact on fair value of 40% adverse change		288,857			22,959			1,249			280,776			22,826			542

Gross credit losses (b)
(weighted average rate)		5.26	%		9.35	%		5.35	%		5.26	%		8.95	%		4.45	%
Impact on fair value of 20% adverse change	$	245,104		$	85,841		$	1,799		$	246,794		$	81,064		$	671
Impact on fair value of 40% adverse change		490,208			87,737			3,597			493,588			87,177			1,341

Excess spread (c)
(weighted average rate)		5.06	%		1.91	%		3.70	%		4.86	%		1.92	%		3.53	%
Impact on fair value of 20% adverse change	$	235,704		$	17,547		$	1,245		$	228,340		$	17,435		$	532
Impact on fair value of 40% adverse change		471,407			35,095			2,491			456,680			34,871			1,064

Discount rate
(weighted average rate)		9.00	%		9.00	%		9.00	%		9.00	%		9.00	%		9.00	%
Impact on fair value of 20% adverse change	$	5,175		$	999		$	16		$	5,136		$	980		$	6
Impact on fair value of 40% adverse change		10,312			1,980			31			10,233			1,942			12

(a) The sensitivities do not reflect actions management might take to offset the impact of possible adverse changes if they were to occur.
(b) Gross credit losses exclude the impact of recoveries; however, recoveries are included in the determination of the excess spread.
(c) Excess spread includes projections of interest income, certain fees, and charged-off loan recoveries, less gross credit losses, contractual servicing fees, and the interest rate paid to investors.
(d) The Corporation reclassified certain loan products to separately report its commercial loan products. Business card products were reclassified from credit card loans to commercial loans, and all other commercial loan products were reclassified from other consumer loans to commercial loans. Business card securitizations were previously included in credit card. For purposes of comparability, certain prior period amounts have been reclassified.


	-12-

Securitization Key Assumptions and Sensitivities (a):
(dollars in thousands) (unaudited)
	September 30, 2004									December 31, 2003
	Credit Card			Other Consumer			Commercial			Credit Card (d)			Other Consumer			Commercial (d)
Interest-only strip receivable	$	1,198,036		$	155,466		$	4,776		$	1,246,656		$	84,043		$	7,362
Weighted average life (in years)		.32			.91			.17			.33			.89			.17

Loan payment rate
(weighted average rate)		15.22	%		4.78	%		33.01	%		14.49	%		4.92	%		32.55	%
Impact on fair value of 20% adverse change	$	168,795		$	23,543		$	488		$	175,404		$	12,785		$	780
Impact on fair value of 40% adverse change		290,238			40,728			953			305,720			21,980			1,478

Gross credit losses (b)
(weighted average rate)		4.90	%		8.22	%		5.21	%		5.24	%		9.64	%		5.06	%
Impact on fair value of 20% adverse change	$	231,632		$	72,879		$	1,732		$	250,815		$	83,294		$	1,704
Impact on fair value of 40% adverse change		463,264			145,759			3,463			501,630			84,043			3,409

Excess spread (c)
(weighted average rate)		5.07	%		3.51	%		2.87	%		5.20	%		1.95	%		4.37	%
Impact on fair value of 20% adverse change	$	239,607		$	31,093		$	955		$	249,331		$	16,809		$	1,472
Impact on fair value of 40% adverse change		479,214			62,186			1,910			498,662			33,617			2,945

Discount rate
(weighted average rate)		9.00	%		9.00	%		9.00	%		9.00	%		9.00	%		9.00	%
Impact on fair value of 20% adverse change	$	5,106		$	1,710		$	12		$	5,476		$	902		$	19
Impact on fair value of 40% adverse change		10,175			3,391			24			10,913			1,789			37

(a) The sensitivities do not reflect actions management might take to offset the impact of possible adverse changes if they were to occur.
(b) Gross credit losses exclude the impact of recoveries; however, recoveries are included in the determination of the excess spread.
(c) Excess spread includes projections of interest income, certain fees, and charged-off loan recoveries, less gross credit losses, contractual servicing fees, and the interest rate paid to investors.
(d) The Corporation reclassified certain loan products to separately report its commercial loan products. Business card products were reclassified from credit card loans to commercial loans, and all other commercial loan products were reclassified from other consumer loans to commercial loans. Business card securitizations were previously included in credit card. For purposes of comparability, certain prior period amounts have been reclassified.


	-13-

Securitization Key Assumptions and Sensitivities (a):
(dollars in thousands) (unaudited)
	September 30, 2003									December 31, 2002
	Credit Card (d)			Other Consumer			Commercial (d)			Credit Card (d)			Other Consumer			Commercial (d)
Interest-only strip receivable	$	1,178,518		$	87,737		$	6,227		$	1,088,950		$	38,518		$	2,497
Weighted average life (in years)		.33			.95			.17			.34			.87			.16

Loan payment rate
(weighted average rate)		14.49	%		4.60	%		32.62	%		14.27	%		5.05	%		37.88	%
Impact on fair value of 20% adverse change	$	165,897		$	13,334		$	656		$	156,595		$	5,835		$	302
Impact on fair value of 40% adverse change		288,857			22,959			1,249			267,495			10,081			524

Gross credit losses (b)
(weighted average rate)		5.26	%		9.35	%		5.35	%		5.43	%		9.83	%		4.19	%
Impact on fair value of 20% adverse change	$	245,104		$	85,841		$	1,799		$	243,789		$	38,518		$	643
Impact on fair value of 40% adverse change		490,208			87,737			3,597			487,579			38,518			1,286

Excess spread (c)
(weighted average rate)		5.06	%		1.91	%		3.70	%		4.85	%		.91	%		3.25	%
Impact on fair value of 20% adverse change	$	235,704		$	17,547		$	1,245		$	217,790		$	7,704		$	499
Impact on fair value of 40% adverse change		471,407			35,095			2,491			435,580			15,407			999

Discount rate
(weighted average rate)		9.00	%		9.00	%		9.00	%		9.00	%		9.00	%		9.00	%
Impact on fair value of 20% adverse change	$	5,175		$	999		$	16		$	4,864		$	404		$	6
Impact on fair value of 40% adverse change		10,312			1,980			31			9,692			801			12

(a) The sensitivities do not reflect actions management might take to offset the impact of possible adverse changes if they were to occur.
(b) Gross credit losses exclude the impact of recoveries; however, recoveries are included in the determination of the excess spread.
(c) Excess spread includes projections of interest income, certain fees, and charged-off loan recoveries, less gross credit losses, contractual servicing fees, and the interest rate paid to investors.
(d) The Corporation reclassified certain loan products to separately report its commercial loan products. Business card products were reclassified from credit card loans to commercial loans, and all other commercial loan products were reclassified from other consumer loans to commercial loans. Business card securitizations were previously included in credit card. For purposes of comparability, certain prior period amounts have been reclassified.


	-14-

Note G: Short-Term Borrowings

Short-term borrowings used by the Corporation include federal funds purchased and securities sold under repurchase agreements. Federal funds purchased and securities sold under repurchase agreements are overnight borrowings that normally mature within one business day of the transaction date. Other short-term borrowings consist primarily of federal funds purchased that mature in more than one business day, short-term bank notes issued from the global bank note program established by the Bank, short-term deposit notes issued by MBNA Canada Bank, on-balance-sheet financing structures, and other transactions with maturities greater than one business day but less than one year.

In connection with the Premium Credit Limited acquisition in the first quarter of 2004, the Corporation assumed a short-term on-balance-sheet financing structured transaction with an available limit of £750.0 million (approximately $1.4 billion). At September 30, 2004, this financing structured transaction had an outstanding balance of £527.0 million (approximately $952.2 million) consisting of several tranches with maturities ranging between one to three months. These tranches are renewable upon maturity. This financing structured transaction is secured by £918.1 million (approximately $1.7 billion) of assets. See "Note K: Acquisitions" for further detail regarding the Premium Credit Limited acquisition.

Note H: Long-Term Debt and Bank Notes

Long-term debt and bank notes consist of borrowings having an original maturity of one year or more.

During the nine months ended September 30, 2004, the Corporation issued or assumed long-term debt and bank notes consisting of the following:


	Par Value
	(dollars in thousands) (unaudited)

Fixed-Rate Medium-Term Deposit Note, with an interest rate of 3.625%, payable semi-annually, maturing in 2007 (CAD$11.9 million)	$	8,936

Floating-Rate Loan Notes, priced at the three month Sterling London Interbank BID Rate, payable quarterly, maturing in 2011, issued in connection with the acquisition of Premium Credit Limited (£12.7 million) (a)		23,024

Fixed-Rate Asset-Backed Notes, with a weighted average interest rate of 5.33%, payable monthly, maturing in varying amounts from 2007 to 2018, assumed in connection with the acquisition of Sky Financial Solutions, Inc. (b)		604,230

Floating-Rate Asset-Backed Notes, payable monthly, maturing in 2012, assumed in connection with the acquisition of Sky Financial Solutions, Inc, (b)		116,327

Fixed-Rate Bank Note, with an interest rate of 4.625%, payable semi-annually, maturing in 2009		500,000

(a) See "Note K: Acquisitions" for further detail regarding the Premium Credit Limited acquisition.
(b) The Fixed-Rate and Floating-Rate Asset-Backed Notes assumed in connection with the acquisition of Sky Financial Solutions, Inc. were secured by approximately $750 million of loan receivables. See "Note K: Acquisitions" for further detail regarding the Sky Financial Solutions, Inc. acquisition.

During the nine months ended September 30, 2004, $115.0 million of Senior Medium-Term Notes, $355.0 million of Bank Notes, $179.7 million of Medium-Term Deposit Notes, and $695.0 million of Euro Medium-Term Notes matured. Also, during the nine months ended September 30, 2004, the Corporation paid down $69.8 million of asset-backed notes assumed in connection with the acquisition of Sky Financial Solutions, Inc. See "Note K: Acquisitions" for further detail regarding the Sky Financial Solutions, Inc. acquisition.


	-15-

Interest Rate and Foreign Exchange Swap Agreements

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 in order 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 Bank Limited ("MBNA Europe"). "Note 30: Fair Value of Financial Instruments - Derivative Financial Instruments" of the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2003, provides further detail regarding the Corporation’s derivative activities.

During the nine months ended September 30, 2004, MBNA Canada Bank entered into an interest rate swap agreement, with a total notional value of $8.9 million (CAD$11.9 million), related to the issuance of a Fixed-Rate Medium-Term Deposit Note. Also, during the nine months ended September 30, 2004, the Corporation entered into an interest rate swap agreement with a total notional value of $500.0 million, related to the issuance of a Fixed-Rate Bank Note. These swaps qualify as fair value hedges in accordance with Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("Statement No. 133"), as amended.


	-16-

Note I: Comprehensive Income

The components of comprehensive income, net of tax, are as follows:

Comprehensive Income
(dollars in thousands) (unaudited)

	For the Three Months Ended September 30,					For the Nine Months Ended September 30,
	2004		2003			2004			2003
Net income	$	728,309	$	658,763		$	1,908,352		$	1,634,614
Other comprehensive income:
Foreign currency translation		19,812		34,661			24,520			138,454
Net unrealized gains (losses) on investment securities available-for-sale		8,801		(4,536	)		(10,308	)		(13,876	)
Other comprehensive income		28,613		30,125			14,212			124,578
Comprehensive income	$	756,922	$	688,888		$	1,922,564		$	1,759,192

The components of accumulated other comprehensive income, net of tax, are as follows:

Components of Accumulated Other Comprehensive Income
(dollars in thousands)

	September 30, 2004			December 31, 2003
	(unaudited)

Foreign currency translation	$	442,137		$	417,617
Net unrealized (losses) gains on investment securities available-for-sale		(3,407	)		6,901
Minimum benefit plan liability adjustment		(15,214	)		(15,214	)
Accumulated other comprehensive income	$	423,516		$	409,304

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 period 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.


	-17-

Note J: Employee Benefits

The Corporation has a noncontributory defined benefit pension plan ("Pension Plan") and a supplemental executive retirement plan ("SERP"). The components of net periodic benefit cost for the Pension Plan and SERP for the three and nine months ended September 30, 2004 and 2003 are presented below.

Components of Net Periodic Benefit Cost
(dollars in thousands) (unaudited)
	Pension Plan						SERP						Total
	For the Three Months Ended September 30,						For the Three Months Ended September 30,						For the Three Months Ended September 30,
	2004			2003			2004			2003			2004			2003
Service cost-benefits earned during the period	$	15,056		$	12,358		$	3,758		$	3,826		$	18,814		$	16,184
Interest cost on projected benefit obligation		8,628			7,176			3,500			3,287			12,128			10,463
Expected return on plan assets		(9,426	)		(6,469	)		-			-			(9,426	)		(6,469	)
Net amortization and deferral:
Prior service cost		272			270			800			795			1,072			1,065
Actuarial loss		2,961			2,630			200			36			3,161			2,666
Transition obligation		-			-			100			106			100			106
Net amortization and deferral		3,233			2,900			1,100			937			4,333			3,837
Net periodic benefit cost	$	17,491		$	15,965		$	8,358		$	8,050		$	25,849		$	24,015

Assumptions Used to Determine Net Periodic Benefit Cost
Discount rate		6.00	%		6.75	%		6.00	%		6.75	%
Rate of compensation increase		5.00			5.50			5.00			5.50
Expected return on plan assets		9.00			9.00

Components of Net Periodic Benefit Cost
(dollars in thousands) (unaudited)
	Pension Plan						SERP						Total
	For the Nine Months Ended September 30,						For the Nine Months Ended September 30,						For the Nine Months Ended September 30,
	2004			2003			2004			2003			2004			2003
Service cost-benefits earned during the period	$	45,168		$	37,609		$	11,273		$	11,621		$	56,441		$	49,230
Interest cost on projected benefit obligation		25,884			21,836			10,500			9,983			36,384			31,819
Expected return on plan assets		(28,277	)		(19,684	)		-			-			(28,277	)		(19,684	)
Net amortization and deferral:
Prior service cost		814			820			2,400			2,415			3,214			3,235
Actuarial loss		8,884			8,004			600			111			9,484			8,115
Transition obligation		-			-			300			320			300			320
Net amortization and deferral		9,698			8,824			3,300			2,846			12,998			11,670
Net periodic benefit cost	$	52,473		$	48,585		$	25,073		$	24,450		$	77,546		$	73,035

Assumptions Used to Determine Net Periodic Benefit Cost
Discount rate		6.00	%		6.75	%		6.00	%		6.75	%
Rate of compensation increase		5.00			5.50			5.00			5.50
Expected return on plan assets		9.00			9.00

For the nine months ended September 30, 2004, the Corporation has contributed the maximum tax deductible contribution to the Pension Plan in 2004, which is approximately $69 million.


	-18-

Financial Staff Position No. FAS 106-2, which supercedes Financial Staff Position No. FAS 106-1, addresses the accounting and disclosure implications resulting from the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the "Act"), which was enacted on December 8, 2003. The Act introduced a prescription drug benefit under Medicare as well as a federal subsidy to sponsors of retiree health care benefit plans that provide a benefit that is at least actuarially equivalent to Medicare. The Corporation’s accounting for its health care benefit plan is not impacted by the effects of the Act.

Note K: Acquisitions

Premium Credit Limited

On January 27, 2004, MBNA Europe acquired 100% of the voting stock of Vendcrown Limited ("Vendcrown"). Vendcrown, through its principal subsidiary Premium Credit Limited ("PCL"), originates and funds loans to consumers and commercial businesses. The acquisition included $1.6 billion of commercial and consumer loan receivables. The acquisition was accounted for by allocating the purchase price to the assets acquired and liabilities assumed based on their fair values. As a result of the acquisition, the Corporation recorded goodwill and other intangible assets of $322.7 million. The Corporation also recorded acquired reserves for possible credit losses of $22.0 million in connection with this acquisition. The acquisition of PCL was not significant to the Corporation’s results of operations for the nine months ended September 30, 2004. The Corporation’s full-time equivalent employees increased by approximately 300 as a result of the transaction.

PCL is a specialty finance company that provides lending in several different product lines which will be new for MBNA Europe. Its principal products are loans for insurance premiums. Other products include loans for sports and leisure membership fees, professional fees, and private school fees. The acquisition of PCL reflects the continuing efforts of the Corporation to diversify into other lending products.

Sky Financial Solutions, Inc.

On March 31, 2004, the Corporation acquired 100% of the voting stock of Sky Financial Solutions, Inc. ("SFS"). The acquisition included $893.0 million of commercial loan receivables. As a result of the acquisition, the Corporation recorded goodwill and other intangible assets of $47.0 million. The Corporation also recorded acquired reserves for possible credit losses of $21.4 million in connection with the acquisition. The acquisition of SFS was not significant to the Corporation’s results of operations for the nine months ended September 30, 2004. The Corporation’s full-time equivalent employees increased by approximately 100 as a result of the transaction.

SFS is a commercial finance company that provides loans to meet the financing needs of medical professionals; these loans are typically used for practice start-up, working capital, practice acquisition, and equipment financing. SFS primarily sources its loan originations through referrals from equipment and supply vendors, practice brokers, state professional associations and Customers. The acquisition of SFS reflects the continuing efforts of the Corporation to diversify into other lending products.

The Corporation anticipates an increase of approximately $8.0 million in amortization of intangible assets expense during the remainder of 2004 related to the PCL and SFS transactions.


	-19-

ITEM 2.

MBNA CORPORATION AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(unaudited)

This discussion is intended to further the reader’s understanding of the consolidated financial statements, financial condition, and results of operations of MBNA Corporation. It should be read in conjunction with the consolidated financial statements, notes, and tables included in this report. For purposes of comparability, certain prior period amounts have been reclassified.

Management's Discussion and Analysis of Financial Condition and Results of Operations
		Page

	Introduction and Overview	21

	Critical Accounting Policies	23

	Earnings Summary	26

	Net Interest Income	28

	Investment Securities and Money Market Instruments	38

	Other Interest-Earning Assets	38

	Loan Receivables	39

	Premises and Equipment	42

	Accrued Income Receivable	43

	Accounts Receivable from Securitization	43

	Other Assets	43

	Interest-Bearing Deposits	43

	Borrowed Funds	44

	Noninterest-Bearing Deposits	46

	Accrued Expenses and Other Liabilities	46

	Total Other Operating Income	46

	Total Other Operating Expense	51

	Income Taxes	53

	Loan Quality	54

	Capital Adequacy	70

	Dividend Limitations	71

	Off-Balance Sheet Arrangements	72

	Liquidity and Rate Sensitivity	82

	Regulatory and Other Matters	87

	Important Factors Regarding Forward-Looking Statements	88


	-20-

Introduction and Overview

MBNA Corporation ("the Corporation"), a bank holding company located in Wilmington, Delaware, is the parent company of MBNA America Bank, N.A. ("the Bank"), a national bank and the Corporation’s principal subsidiary. The Bank has two wholly owned foreign bank subsidiaries, MBNA Europe Bank Limited ("MBNA Europe") located in the United Kingdom ("U.K.") and MBNA Canada Bank ("MBNA Canada") located in Canada. The Corporation’s primary business is providing its Customers the ability to have what they need today and pay for it out of future income by lending money through credit card loans, other consumer loans, and commercial loans. Through the Bank, the Corporation is the largest independent credit card lender in the world and is the leading issuer of credit cards through endorsed marketing.

In addition to its credit card lending, the Corporation makes other consumer loans and commercial loans. Other consumer loans include installment and revolving unsecured loan products, mortgage loans, aircraft loans, insurance premium financing loans (to consumers), and other specialty lending products to consumers. Commercial loans include business card products, professional practice financing loans, insurance premium financing loans (to businesses), small business lines of credit, and other commercial loans to businesses. The Corporation also offers insurance and deposit products. In the U.S., the Corporation offers its commercial loans and a portion of its other consumer loans through MBNA America (Delaware), N.A. ("MBNA Delaware"), a national bank and a subsidiary of the Corporation.

The Corporation seeks to achieve its net income and other objectives primarily by attempting to grow loans to generate related interest and other operating income, while controlling loan losses and expense growth. It grows loans by adding new accounts and stimulating usage of existing accounts as well as portfolio and other business acquisitions. The Corporation generates income through finance charges assessed on outstanding loan receivables, securitization income, interchange income, loan fees, insurance income, interest earned on investment securities and money market instruments and other interest-earning assets. The Corporation’s primary costs are the costs of funding and growing its loan receivables, investment securities, and other assets, which include interest paid on deposits, short-term borrowings and long-term debt and bank notes, credit losses, business development and operating expenses, royalties to endorsing organizations, and income taxes.

The Corporation obtains funds to make loans to its Customers primarily through the process of off-balance sheet asset securitizations, raising deposits, and the issuance of short-term and long-term debt and bank notes. Off-balance sheet 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 allocates resources on a managed basis, and financial data provided to management reflects the Corporation’s results on a managed basis. Managed data assumes the Corporation’s securitized loan principal receivables have not been sold and presents the earnings on securitized loan principal receivables in the same fashion as the Corporation’s owned loans. Management, equity and debt analysts, rating agencies and others evaluate the Corporation’s operations on a managed basis because the loans that are securitized are subject to underwriting standards comparable to the Corporation’s owned loans, and the Corporation services the securitized and owned loans, and the related accounts, together and in the same manner without regard to ownership of the loans. In a securitization, the loan principal receivables are sold to the trust, but the account relationships are not sold . The Corporation continues to own and service the accounts that generate the securitized loan principal receivables. The credit performance of the entire managed loan portfolio is important to understand the quality of loan originations and the related credit risks inherent in the owned portfolio and retained interests in securitization transactions.

Off-balance sheet asset securitizations have a significant effect on the Corporation’s consolidated financial statements. The impact is discussed under "Off-Balance Sheet Arrangements - Impact of Off-Balance Sheet Securitization Transactions on the Corporation’s Results." Securitization income is the most significant revenue item and is discussed under "Total Other Operating Income." Whenever managed data is included in this report, a reconciliation of the managed data to the most directly comparable financial measure presented in accordance with GAAP is provided.


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Executive Summary

Factors affecting the Corporation’s results for the third quarter of 2004 included loan growth, a declining net interest margin, higher total other operating income, improving asset quality trends, and other items discussed throughout this report. The Corporation attempts to achieve its net income and other objectives by balancing these and other factors.

Highlights for this quarter include:

• An increase in loans at the end of the third quarter of 2004 as compared to the third quarter of 2003. Loan receivables increased by $3.3 billion to $32.1 billion, and managed loans increased by $5.1 billion to $117.8 billion, as compared to September 30, 2003, through marketing programs and acquisitions, including the acquisitions of Premium Credit Limited ($1.6 billion of acquired commercial and other consumer loans) and Sky Financial Solutions, Inc. ($893.0 million of acquired commercial loans) in the first quarter of 2004. Management believes that loan growth in 2004 has been slower than in previous years in part because the Corporation has offered less 0% promotional rate offers on U.S. credit card accounts. Also, loan growth has been slower than in previous years in part because revolving consumer credit growth in the U.S. has been slower over the past two to three years. Management believes fo reign loan growth in 2004 has also been slower than in previous years due to the increasing competitive environment in the U.K. and Canada. See "Loan Receivables" for a discussion of the income earned on loan receivables, "Total Other Operating Income - Securitization Income" for a discussion of the income earned on securitized loans, and "Off-Balance Sheet Arrangements - Impact of Off-Balance Sheet Securitization Transactions on the Corporation’s Results" for a discussion of the income earned on managed loans.

• The net interest margin declined 20 basis points to 5.16% and the managed net interest margin declined 54 basis points to 7.82% for the three months ended September 30, 2004, as compared to the same period in 2003. See "Net Interest Income - Net Interest Margin" for a discussion of the net interest margin, "Total Other Operating Income - Securitization Income" for a discussion of the net interest margin earned on securitized loans, and "Off-Balance Sheet Arrangements - Impact of Off-Balance Sheet Securitization Transactions on the Corporation’s Results" for a discussion of managed net interest margin.

• Total other operating income increased $127.1 million to $2.2 billion for the three months ended September 30, 2004, as compared to the same period in 2003. See "Total Other Operating Income" for a discussion of total other operating income.

• Based on improving asset quality trends, enhanced collection strategies, and an improved economy, the provision for possible credit losses was $60.7 million lower in the third quarter of 2004 than in the third quarter of 2003. Net credit losses on loan receivables declined 42 basis points to 4.28% and net credit losses on managed loans declined 52 basis points to 4.61% for the three months ended September 30, 2004, as compared to the same period in 2003. Loan losses continue to be lower than published industry levels.

These items, as well as other factors, contributed to the increase in net income for the three months ended September 30, 2004 to $728.3 million or $.56 per common share - assuming dilution and are discussed in further detail throughout "Management’s Discussion and Analysis of Financial Condition and Results of Operations."

Recent Developments

In early October, the United States Supreme Court let stand a lower Court ruling that effectively allowed banks that issue cards on Visa’s or MasterCard’s networks also to issue cards on competitor networks. During the fourth quarter, the Corporation became the first U.S. financial institution to date to issue American Express-branded credit cards pursuant to the Corporation’s previously disclosed agreement with American Express.


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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 estimates and assumptions are material due to the levels of subjectivity and judgment necessary to account for highly uncertain factors or the susceptibility of such factors to change. Management has identified the policies related to the accounting for off-balance sheet asset securitization, the reserve for possible credit losses, intangible assets and goodwill, and revenue recognition as the critical accounting policies which require management to make significant judgments, estimates and assumptions.

Management believes that the current assumptions and other considerations used to estimate amounts reflected in the Corporation’s consolidated financial statements are appropriate. However, should actual experience differ from the assumptions and other considerations used in estimating amounts reflected in the Corporation’s consolidated financial statements, the resulting changes could have a material adverse effect on the Corporation’s consolidated results of operations, and in certain situations, could have a material adverse effect on the Corporation’s financial condition.

The development and selection of the critical accounting policies and the related disclosures have been reviewed with the Audit Committee of the Corporation’s Board of Directors.

Off-Balance Sheet Asset Securitization

The Corporation uses securitization of its loan principal receivables as one source to meet its funding needs. The Corporation accounts for its securitization transactions in accordance with Statement of Financial Accounting Standards No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities - a replacement of FASB Statement No. 125" ("Statement No. 140"), issued by the Financial Accounting Standards Board ("FASB"). When the Corporation securitizes loan principal receivables, the Corporation recognizes a gain on sale and retained beneficial interests, including an interest-only strip receivable. The interest-only strip receivable represents the contractual right to receive interest and other revenue less certain costs from the trust over the estimated life of the securitized loan principal receivables. The Corporation’s securitization trusts are qualified s pecial-purpose entities as defined by Statement No. 140 that are specifically exempted from the requirements of FASB Interpretation No. 46, "Consolidation of Variable Interest Entities" ("Interpretation No. 46").

The Corporation estimates the fair value of the interest-only strip receivable based on the present value of expected future net revenue flows. Since quoted market prices for the interest-only strip receivable are not available, management uses certain assumptions and estimates in determining the fair value of the interest-only strip receivable. These assumptions and estimates include projections concerning interest income, certain fees, recoveries on charged-off securitized loans, gross credit losses on securitized loans, contractual servicing fees, and the interest rate paid to investors in a securitization transaction ("excess spread"). These projections are used to estimate the excess spread to be earned by the Corporation over the estimated life of the securitized loan principal receivables. The other assumptions and estimates used by the Corporation in estimating the fair value of the interest-only st rip receivable include projected loan payment rates, which are used to determine the estimated life of the securitized loan principal receivables, and an appropriate discount rate.

The assumptions and estimates used to estimate the fair value of the interest-only strip receivable at September 30, 2004, reflect management’s judgment as to the expected excess spread to be earned and projected loan payment rates to be experienced on the securitized loans. These estimates are likely to change in the future, as the individual components of the excess spread and projected loan payment rates are sensitive to market and economic conditions. For example, the rates paid to investors in the Corporation’s securitization transactions are primarily variable rates subject to change based on changes in market interest rates. Changes in market interest rates and competitive pressures can also affect the projected interest income on securitized loans, as the Corporation could reprice the managed loan portfolio. Credit loss projections could change in the future based on changes in the credit quality of the securitized loans, the Corporation’s account management and collection practices, and general economic conditions. Projected loan payment rates could fluctuate based on general economic conditions and competition. Actual and expected changes in these assumptions may result in future estimates of the excess spread and projected loan payment rates being materially different from the estimates used in the periods covered by this report.

On a quarterly basis, the Corporation reviews prior assumptions and estimates compared to actual trust performance and other factors based on the prior period that approximates the average life of the securitized loan principal receivables. The actual trust performance results and other factors are compared to the estimates and assumptions used in the determination of the fair value of the interest-only strip receivable. Based on this review and the Corporation’s current assumptions and estimates for future periods, the Corporation adjusts, as appropriate, the assumptions and estimates used in determining the fair value of the interest-only strip receivable. If the assumptions change, or actual results differ from projected results, the interest-only strip receivable and securitization income would be affected. If management had made different assumptions for the periods covered by this report that rai sed or lowered the excess spread or projected loan payment rates, the Corporation’s financial condition and results of operations could have differed materially. For example, a 20% change in the excess spread assumption for all securitized loan principal receivables could have resulted in a change of approximately $272 million in the value of the total interest-only strip receivable at September 30, 2004, and a related change in securitization income.


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Based on quarterly 2003 and 2004 reviews of the interest-only strip receivable, the actual performance of the securitized receivables did not materially differ from the assumptions and estimates used to value the interest-only strip receivable.

"Note F: Off-Balance Sheet Asset Securitization" to the consolidated financial statements provides further detail regarding the Corporation’s assumptions and estimates used in determining the fair value of the interest-only strip receivable and their sensitivities to adverse changes.

Reserve For Possible Credit Losses

The Corporation maintains the reserve for possible credit losses at an amount sufficient to absorb losses inherent in the Corporation’s loan principal receivables at the reporting date based on a projection of probable net credit losses. To project probable net credit losses, the Corporation regularly performs a migration analysis of delinquent and current accounts. A migration analysis is a technique used to estimate the likelihood that a loan receivable will progress through the various delinquency stages and ultimately charge off. On a quarterly basis, the Corporation reviews and adjusts, as appropriate, these estimates. The Corporation’s projection of probable net credit losses considers the impact of economic conditions on the borrowers’ ability to repay, past collection experience, the risk characteristics and composition of the portfolio, and other factors. The Corporation then reserve s for the projected probable net credit losses based on its projection of these amounts. The Corporation establishes appropriate levels of the reserve for possible credit losses for its loan products based on their risk characteristics. A provision is charged against earnings to maintain the reserve for possible credit losses at an appropriate level. The Corporation records acquired reserves for current period loan acquisitions.

The Corporation’s projections of probable net credit losses are inherently uncertain, and as a result the Corporation cannot predict with certainty the amount of such losses. Changes in economic conditions, the risk characteristics and composition of the portfolio, bankruptcy laws or regulatory policies, and other factors could impact the Corporation’s actual and projected net credit losses and the related reserve for possible credit losses. If management had made different assumptions about probable net credit losses, the Corporation’s financial condition and results of operations could have differed materially. For example, a 10% change in management’s projection of probable net credit losses could have resulted in a change of approximately $114 million in the reserve for possible credit losses and a related change in the provision for possible credit losses at September 30, 2004.

Based on the 2003 and 2004 reviews of the reserve for possible credit losses, the actual net credit losses did not materially differ from the projections of net credit losses used to establish the reserve for possible credit losses.

"Loan Quality" provides further detail regarding the Corporation’s reserve for possible credit losses.

Intangible Assets and Goodwill

The Corporation’s intangible assets are primarily comprised of purchased credit card relationships ("PCCRs"). The Corporation records PCCRs as part of the acquisition of credit card loans and the corresponding Customer relationships. PCCRs, which are carried at net book value, 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.

In addition to PCCRs, the Corporation has purchased other consumer loan relationships (similar to PCCRs), goodwill, and other separately identifiable intangible assets. Goodwill is recorded as part of the Corporation’s acquisitions of businesses where the purchase price exceeds the fair market value of the net tangible and identifiable intangible assets. The Corporation’s goodwill is not amortized, but rather is subject to an annual impairment test in accordance with Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets." Other separately identifiable intangible assets are amortized over their expected useful lives and reviewed for impairment on a quarterly basis.


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The Corporation’s PCCRs are subject to impairment tests in accordance with Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("Statement No. 144"). The Corporation reviews the carrying value of its PCCRs for impairment on a quarterly basis, or sooner, whenever events or changes in circumstances indicate that their carrying amount may not be fully recoverable, by comparing their carrying value to the sum of the undiscounted expected future cash flows from the loans and corresponding credit card relationships. In accordance with Statement No. 144, an impairment exists if the sum of the undiscounted expected future cash flows is less than the carrying amount of the asset. An impairment would result in a write-down of the PCCRs to estimated fair value based on the discounted future cash flows expected from the PCCRs. The Corporation perfor ms the impairment test on a specific portfolio basis, since it represents the lowest level for which identifiable cash flows are independent of the cash flows of other assets and liabilities.

The Corporation makes certain estimates and assumptions that affect the determination of the expected future cash flows from the loans and corresponding credit card relationships. These estimates and assumptions include levels of account usage and activation, active account attrition, funding costs, credit loss experience, servicing costs, growth in average account balances, interest and fees assessed on loans, and other factors. Significant changes in these estimates and assumptions could result in an impairment of the PCCRs. The estimated undiscounted cash flows of acquired Customer credit card relationships exceeds the $3.0 billion net book value of the Corporation’s PCCRs at September 30, 2004 by approximately $3.3 billion. If the active account attrition rates for all acquired portfolios in the twelve month period following September 30, 2004, were to be 10 percentage points higher than the rates assumed by management when it valued the PCCRs (for example, the assumed attrition rates were 10% but the actual rates were 20%) and all other estimates and assumptions were held constant, the estimated undiscounted cash flows of acquired Customer accounts in the aggregate would still exceed the net book value of acquired Customer accounts by approximately $2.7 billion, and no impairment would result on any individual PCCR.

There were no impairment write-downs of intangible assets during 2004.

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 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 assumpti ons about the determination of the accrued unbilled portion of interest income and the valuation of accrued interest on securitized loans, the Corporation’s financial condition and results of operations could have differed materially. For example, a 10% change in management’s projection of the estimated yield on its loan receivables and the valuation of the accrued interest receivable on securitized loans could have resulted in a change totaling approximately $64 million in interest income and other operating income at September 30, 2004.

For the third quarter of 2004, the Corporation’s estimated yields on the accrued unbilled portion of interest income on its loan receivables and the valuation of the accrued interest receivable on securitized loans did not materially differ from the actual yields.

The Corporation also recognizes fees (except annual fees) on loans in earnings as the fees are assessed according to agreements with the Corporation’s Customers. Loan fees include annual, late, overlimit, returned check, cash advance, express payment, and other miscellaneous fees. These fees are included in the Corporation’s loan receivables when billed. Annual fees on loans and incremental direct loan origination costs are deferred and amortized on a straight-line basis over the one-year period to which they pertain. Overlimit fees are accrued for and included in earnings upon the Customer exceeding their credit limit and are billed to the Customer and included in loan receivables at the end of their billing cycle.

The Corporation adjusts the amount of interest and fee income on loan receivables recognized in the current period for its estimate of interest and fee income that it does not expect to collect in subsequent periods through adjustments to the respective income statement captions, loan receivables, and accrued income receivable. The estimate of uncollectible interest and fees is based on a migration analysis of delinquent and current loan receivables that may progress through the various delinquency stages and will ultimately charge off. The Corporation also adjusts the estimated value of accrued interest and fees on securitized loans for the amount of uncollectible interest and fees that are not expected to be collected through an adjustment to accounts receivable from securitization and securitization income. This estimate is also based on a migration analysis of delinquent and current securitized loans th at may progress through the various delinquency stages and ultimately charge off. On a quarterly basis, the Corporation reviews and adjusts, as appropriate, these estimates.


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Based on the 2003 and 2004 reviews of the estimate of uncollectible interest and fees, the actual amount of uncollectible interest and fees did not materially differ from the estimate of uncollectible interest and fees.

If management had made different assumptions about uncollectible interest and fees on its loan receivables and its securitized loans, the Corporation’s financial condition and results of operations could have differed materially. For example, a 10% change in management’s estimate of uncollectible interest and fees could have resulted in a change totaling approximately $35 million in interest income and other operating income at September 30, 2004.

Earnings Summary

Net income for the three months ended September 30, 2004 increased $69.5 million or 10.6% to $728.3 million or $.56 per common share, as compared to $658.8 million or $.51 per common share for the same period in 2003. Net income for the nine months ended September 30, 2004 increased $273.7 million or 16.7% to $1.9 billion or $1.46 per common share, as compared to $1.6 billion or $1.25 per common share for the same period in 2003. All earnings per common share amounts are presented assuming dilution.

The overall growth in earnings for the three months ended September 30, 2004, as compared to the same period in 2003, was primarily the result of growth in the Corporation’s loan receivables and higher levels of securitized loans, and related increases in interest income and other operating income, and a decrease in the provision for possible credit losses, partially offset by an increase in interest expense and other operating expenses.

The overall growth in earnings for the nine months ended September 30, 2004, as compared to the same period in 2003, was primarily the result of growth in the Corporation’s loan receivables and higher levels of securitized loans, and related increases in interest income and other operating income, and a decrease in the provision for possible credit losses and the effective income tax rate, partially offset by an increase in other operating expenses.

Ending loan receivables increased $3.3 billion or 11.5% to $32.1 billion at September 30, 2004, as compared to $28.8 billion at September 30, 2003. Total managed loans increased $5.1 billion or 4.5% to $117.8 billion at September 30, 2004, as compared to $112.8 billion at September 30, 2003.

Average loan receivables increased $2.5 billion or 8.8% to $30.9 billion and $3.1 billion or 11.0% to $30.9 billion for the three and nine months ended September 30, 2004, as compared to $28.4 billion and $27.8 billion for the same periods in 2003, respectively.

Average managed loans increased $7.5 billion or 6.8% to $118.5 billion and $9.2 billion or 8.5% to $117.8 billion for the three and nine months ended September 30, 2004, as compared to $111.0 billion and $108.6 billion for the same periods in 2003, respectively.

Interest income increased $32.7 million or 3.4% to $1.0 billion and $129.4 million or 4.5% to $3.0 billion for the three and nine months ended September 30, 2004, as compared to $969.5 million and $2.9 billion for the same periods in 2003, respectively.

Interest expense increased $20.9 million or 5.7% to $390.5 million for the three months ended September 30, 2004, as compared to $369.6 million for the same period in 2003.

The provision for possible credit losses decreased $60.7 million or 18.2% to $273.4 million and $168.4 million or 15.9% to $890.1 million for the three and nine months ended September 30, 2004, as compared to $334.1 million and $1.1 billion for the same periods in 2003, respectively. These decreases in the provision for possible credit losses were based on improving asset quality trends, enhanced collection strategies, and an improved economy.

The net credit loss ratio on loan receivables for the three and nine months ended September 30, 2004 was 4.28% and 4.44%, respectively. The net credit loss ratio on managed loans for the three and nine months ended September 30, 2004 was 4.61% and 4.85%, respectively. Delinquency on loan receivables and managed loans was 3.45% and 4.11%, respectively, at September 30, 2004.

See "Loan Quality - Net Credit Losses" for further detail regarding net credit losses. Refer to Table 17 for a reconciliation of the loan receivables net credit loss ratio to the managed net credit loss ratio for the three and nine months ended September 30, 2004. See "Loan Quality - Delinquencies" for further detail regarding delinquencies. Refer to Table 12 for a reconciliation of the loan receivables delinquency ratio to the managed loan delinquency ratio at September 30, 2004.


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Other operating income increased $127.1 million or 6.3% to $2.2 billion and $429.5 million or 7.6% to $6.1 billion for the three and nine months ended September 30, 2004, as compared to $2.0 billion and $5.7 billion for the same periods in 2003, respectively.

Other operating expense increased $81.3 million or 6.4% to $1.3 billion and $372.1 million or 9.8% to $4.2 billion for the three and nine months ended September 30, 2004, as compared to $1.3 billion and $3.8 billion for the same periods in 2003, respectively.

The Corporation's applicable income taxes increased $91.1 million to $1.0 billion for the nine months ended September 30, 2004, as compared to $923.5 million for the same period in 2003. These amounts represent an effective tax rate of 34.7% for the nine months ended September 30, 2004, as compared to 36.1% for the same period in 2003.

Table 1 summarizes the Corporation’s consolidated statements of income, which have been derived from the consolidated financial statements, for the three and nine months ended September 30, 2004 and 2003.

Table 1: Summarized Consolidated Statements of Income
(dollars in thousands, except per share amounts) (unaudited)

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2004		2003		2004		2003
Total interest income	$	1,002,193	$	969,529	$	3,002,887	$	2,873,471
Total interest expense		390,532		369,617		1,129,176		1,138,795
Net interest income		611,661		599,912		1,873,711		1,734,676
Provision for possible credit losses		273,387		334,064		890,105		1,058,544
Net interest income after provision for possible credit losses		338,274		265,848		983,606		676,132

Total other operating income		2,159,590		2,032,469		6,101,742		5,672,282
Total other operating expense		1,348,678		1,267,389		4,162,462		3,790,332
Income before income taxes		1,149,186		1,030,928		2,922,886		2,558,082
Applicable income taxes		420,877		372,165		1,014,534		923,468
Net income	$	728,309	$	658,763	$	1,908,352	$	1,634,614

Earnings per common share	$	.57	$	.51	$	1.49	$	1.27
Earnings per common share - assuming dilution		.56		.51		1.46		1.25
Dividends per common share		.12		.10		.36		.26


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Table 2 reconciles the Corporation’s loan receivables to its managed loans and average loan receivables to its average managed loans.

Table 2: Reconciliation of Loan Receivables to Managed Loans
(dollars in thousands) (unaudited)

	September 30,
	2004		2003
At Period End:
Loans held for securitization	$	9,794,145	$	9,674,690
Loan portfolio		22,346,977		19,141,399
Loan receivables		32,141,122		28,816,089
Securitized loans		85,672,350		83,939,987
Total managed loans	$	117,813,472	$	112,756,076

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2004		2003		2004		2003
Average for the Period:
Loans held for securitization	$	8,594,393	$	9,197,700	$	9,365,141	$	9,213,297
Loan portfolio		22,282,374		19,170,568		21,550,342		18,629,040
Loan receivables		30,876,767		28,368,268		30,915,483		27,842,337
Securitized loans		87,626,073		82,626,049		86,887,343		80,719,494
Total managed loans	$	118,502,840	$	110,994,317	$	117,802,826	$	108,561,831

The Corporation’s return on average total assets for the three and nine months ended September 30, 2004, was 4.73% and 4.20%, as compared to 4.56% and 3.94% for the same periods in 2003, respectively. The Corporation’s return on average stockholders’ equity was 23.42% and 21.15% for the three and nine months ended September 30, 2004, as compared to 25.48% and 22.41% for the same periods in 2003, respectively.

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. A 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.

Net interest income, on a fully taxable equivalent basis, increased $11.9 million or 2.0% to $611.9 million and $139.2 million or 8.0% to $1.9 billion for the three and nine months ended September 30, 2004, as compared to $600.0 million and $1.7 billion for the same periods in 2003, respectively.

Average Interest-Earning Assets

Average interest-earning assets increased $2.8 billion or 6.2% to $47.1 billion for the three months ended September 30, 2004, as compared to $44.4 billion for the same period in 2003. The increase in average interest-earning assets was primarily the result of an increase in average loan receivables of $2.5 billion. The yield on average interest-earning assets decreased 21 basis points to 8.46% for the three months ended September 30, 2004, as compared to 8.67% for the same period in 2003. The decrease in the yield on average interest-earning assets was primarily the result of the decrease in the yield earned on average loan receivables and investment securities, offset in part by the increase in the yield earned on average money market instruments.


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Average interest-earning assets increased $3.9 billion or 9.1% to $47.1 billion for the nine months ended September 30, 2004, as compared to $43.1 billion for the same period in 2003. The increase in average interest-earning assets was primarily the result of an increase in average loan receivables of $3.1 billion and an increase in average investment securities and money market instruments of $626.6 million. The yield on average interest-earning assets decreased 39 basis points to 8.52% for the nine months ended September 30, 2004, as compared to 8.91% for the same period in 2003. The decrease in the yield on average interest-earning assets was primarily the result of the decrease in the yield earned on average loan receivables.

Average Interest-Bearing Liabilities

Average interest-bearing liabilities increased $776.2 million or 1.8% to $43.0 billion for the three months ended September 30, 2004, as compared to $42.3 billion for the same period in 2003. The increase in average interest-bearing liabilities was the result of an increase of $1.8 billion in average borrowed funds, partially offset by a decrease of $998.1 million in average interest-bearing deposits. The increase in the rate paid on average interest-bearing liabilities of 14 basis points to 3.61% for the three months ended September 30, 2004, from 3.47% for the same period in 2003, was primarily the result of the increase in the rate paid on borrowed funds, partially offset by the decrease in the rate paid on interest-bearing deposits.

Average interest-bearing liabilities increased $1.3 billion or 3.0% to $43.0 billion for the nine months ended September 30, 2004, as compared to $41.7 billion for the same period in 2003. The increase in average interest-bearing liabilities was the result of an increase of $2.4 billion in average borrowed funds, partially offset by a decrease of $1.2 billion in average interest-bearing deposits. The decrease in the rate paid on average interest-bearing liabilities of 14 basis points to 3.51% for the nine months ended September 30, 2004, from 3.65% for the same period in 2003, was primarily the result of the decrease in the rate paid on interest-bearing deposits, partially offset by the increase in the rate paid on borrowed funds.

Net Interest Margin

The Corporation’s net interest margin, on a fully taxable equivalent basis, was 5.16% and 5.32% for the three and nine months ended September 30, 2004, as compared to 5.36% and 5.38% for the same periods in 2003, respectively. The net interest margin represents net interest income on a fully taxable equivalent basis expressed as a percentage of average total interest-earning assets. The 20 basis point and 6 basis point decrease in the net interest margin for the three and nine months ended September 30, 2004 as compared to the same periods in 2003, was primarily the result of a decrease in the interest rate spread between interest-earning assets and interest-bearing liabilities. The yield on the Corporation’s interest-earning assets and the rate paid on the Corporation’s interest-bearing liabil ities are discussed above.

See "Off Balance Sheet Arrangements - Impact of Off-Balance Sheet Securitization Transactions on the Corporation’s Results" for a discussion of the managed net interest margin and a reconciliation of the net interest margin ratio to the managed net interest margin ratio.

Tables 3 and 4 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 three and nine months ended September 30, 2004 and 2003.


	-29-

Table 3: Statements of Average Balances, Yields and Rates, Income or Expense
(dollars in thousands, yields and rates on a fully taxable equivalent basis) (unaudited)

For the Three Months Ended September 30,	2004								2003
	Average Balance			Yield/ Rate			Income or Expense		Average Balance			Yield/ Rate			Income or Expense
Assets
Interest-earning assets:
Money market instruments:
Interest-earning time deposits in other banks:
Domestic	$	113,015			1.10	%	$	313	$	15,282			.88	%	$	34
Foreign		4,297,544			2.30			24,855		4,993,618			1.56			19,600
Total interest-earning time deposits in other banks		4,410,559			2.27			25,168		5,008,900			1.56			19,634
Federal funds sold		1,923,701			1.48			7,158		3,057,989			1.02			7,842
Total money market instruments		6,334,260			2.03			32,326		8,066,889			1.35			27,476
Investment securities (a):
Domestic:
Taxable		5,094,719			2.15			27,476		3,636,195			2.49			22,797
Tax-exempt (b)		111,419			2.22			622		109,271			.95			261
Total domestic investment securities		5,206,138			2.15			28,098		3,745,466			2.44			23,058
Foreign		618,134			3.94			6,116		261,967			4.07			2,688
Total investment securities		5,824,272			2.34			34,214		4,007,433			2.55			25,746
Other interest-earning assets (a)		4,105,662			7.59			78,291		3,946,106			7.74			77,005
Loan receivables:
Loans held for securitization:
Domestic (c):
Credit card		6,507,096			11.91			194,861		6,910,971			12.84			223,736
Other consumer		37,865			5.94			565		60,930			5.22			802
Commercial		932			8.96			21		187,147			9.40			4,433
Total domestic loans held for securitization		6,545,893			11.88			195,447		7,159,048			12.69			228,971
Foreign (c):
Credit card		2,048,500			12.07			62,139		2,038,652			11.20			57,573
Other consumer		-			-			-		-			-			-
Commercial		-			-			-		-			-			-
Total foreign loans held for securitization		2,048,500			12.07			62,139		2,038,652			11.20			57,573
Total loans held for securitization		8,594,393			11.92			257,586		9,197,700			12.36			286,544
Loan portfolio:
Domestic (c):
Credit card		7,291,836			10.70			196,158		6,762,902			10.45			178,142
Other consumer		5,538,744			13.74			191,308		6,091,386			13.89			213,260
Commercial		2,447,693			8.01			49,290		742,372			8.13			15,217
Total domestic loan portfolio		15,278,273			11.37			436,756		13,596,660			11.86			406,619
Foreign (c):
Credit card		2,758,645			9.76			67,709		3,456,576			11.05			96,312
Other consumer		3,089,871			9.29			72,126		2,095,940			9.39			49,597
Commercial		1,155,585			8.07			23,427		21,392			5.88			317
Total foreign loan portfolio		7,004,101			9.27			163,262		5,573,908			10.41			146,226
Total loan portfolio		22,282,374			10.71			600,018		19,170,568			11.44			552,845
Total loan receivables		30,876,767			11.05			857,604		28,368,268			11.74			839,389
Total interest-earning assets		47,140,961			8.46			1,002,435		44,388,696			8.67			969,616
Cash and due from banks		902,041								773,578
Premises and equipment, net		2,711,046								2,593,456
Other assets		11,705,993								10,758,026
Reserve for possible credit losses		(1,196,568	)							(1,178,652	)
Total assets	$	61,263,473							$	57,335,104


	-30-

Table 3: Statements of Average Balances, Yields and Rates, Income or Expense-Continued

(dollars in thousands, yields and rates on a fully taxable equivalent basis) (unaudited)

For the Three Months Ended September 30,

2004

2003

Average Balance

Yield/

Rate

Income or Expense

Average Balance

Yield/

Rate

Income or Expense

Liabilities and Stockholders’ Equity

Interest-bearing liabilities:

Interest-bearing deposits:

Domestic:

Time deposits

20,914,482

3.95

207,695

21,412,349

4.32

232,965

Money market deposit accounts

7,485,003

1.59

29,905

8,003,751

1.59

32,019

Interest-bearing transaction accounts

47,175

.90

107

48,321

.84

102

Savings accounts

108,487

1.45

396

89,252

1.03

231

Total domestic interest-bearing deposits

28,555,147

3.32

238,103

29,553,673

3.56

265,317

Foreign:

Time deposits

846,721

3.41

7,255

846,316

3.19

6,810

Total interest-bearing deposits

29,401,868

3.32

245,358

30,399,989

3.55

272,127

Borrowed funds:

Short-term borrowings:

Domestic

900,387

3.38

7,660

1,000,014

3.40

8,563

Foreign

1,001,614

4.87

12,273

196,539

3.40

1,684

Total short-term borrowings

1,902,001

4.17

19,933

1,196,553

3.40

10,247

Long-term debt and bank notes (d):

Domestic

7,726,372

3.11

60,326

7,354,864

2.43

45,120

Foreign

4,014,379

6.43

64,915

3,317,024

5.04

42,123

Total long-term debt and bank notes

11,740,751

4.24

125,241

10,671,888

3.24

87,243

Total borrowed funds

13,642,752

4.23

145,174

11,868,441

3.26

97,490

Total interest-bearing liabilities

43,044,620

3.61

390,532

42,268,430

3.47

369,617

Noninterest-bearing deposits

2,773,844

2,173,021

Other liabilities

3,073,802

2,638,235

Total liabilities

48,892,266

47,079,686

Stockholders' equity

12,371,207

10,255,418

Total liabilities and stockholders' equity

61,263,473

57,335,104

Net interest income

611,903

599,999

Net interest margin

5.16

5.36

Interest rate spread

4.85

5.20

(a) Average balances for investment securities available-for-sale and other interest-earning assets are based on market values or estimated

market values; if these assets were carried at amortized cost, there would not be a material impact on the net interest margin.

(b) The fully taxable equivalent adjustment for the three months ended September 30, 2004 and 2003, was $242 and $87,

respectively.

(c) The Corporation reclassified certain loan products to separately report its commercial loan products. Business cards products

were reclassified from credit card loans to commercial loans, and all other commercial loan products were reclassified from

other consumer loans to commercial loans. For purposes of comparability, certain prior period amounts have been reclassified.

(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.


	-31-

Table 3: Statements of Average Balances, Yields and Rates, Income or Expense-Continued
(dollars in thousands, yields and rates on a fully taxable equivalent basis) (unaudited)

For the Nine Months Ended September 30,	2004								2003
	Average Balance			Yield/ Rate			Income or Expense		Average Balance			Yield/ Rate			Income or Expense
Assets
Interest-earning assets:
Money market instruments:
Interest-earning time deposits in other banks:
Domestic	$	106,436			.83	%	$	665	$	6,031			.95	%	$	43
Foreign		4,429,285			2.01			66,592		4,540,379			1.74			58,969
Total interest-earning time deposits in other banks		4,535,721			1.98			67,257		4,546,410			1.74			59,012
Federal funds sold		2,184,769			1.15			18,780		2,918,293			1.16			25,408
Total money market instruments		6,720,490			1.71			86,037		7,464,703			1.51			84,420
Investment securities (a):
Domestic:
Taxable		4,695,774			2.08			73,005		3,624,067			2.82			76,529
Tax-exempt (b)		111,142			2.07			1,724		109,177			1.79			1,462
Total domestic investment securities		4,806,916			2.08			74,729		3,733,244			2.79			77,991
Foreign		526,859			4.01			15,815		229,736			4.29			7,380
Total investment securities		5,333,775			2.27			90,544		3,962,980			2.88			85,371
Other interest-earning assets (a)		4,100,353			7.66			235,268		3,868,157			7.86			227,425
Loan receivables:
Loans held for securitization:
Domestic (c):
Credit card		7,037,193			11.78			620,604		6,914,167			12.47			644,876
Other consumer		39,133			5.81			1,702		52,903			5.23			2,068
Commercial		911			9.09			62		383,925			9.04			25,959
Total domestic loans held for securitization		7,077,237			11.75			622,368		7,350,995			12.24			672,903
Foreign (c):
Credit card		2,287,904			11.75			201,339		1,862,302			11.82			164,626
Other consumer		-			-			-		-			-			-
Commercial		-			-			-		-			-			-
Total foreign loans held for securitization		2,287,904			11.75			201,339		1,862,302			11.82			164,626
Total loans held for securitization		9,365,141			11.75			823,707		9,213,297			12.15			837,529
Loan portfolio:
Domestic (c):
Credit card		7,004,156			10.90			571,585		6,591,505			10.98			541,308
Other consumer		5,492,888			13.71			563,589		6,133,728			14.03			643,748
Commercial		2,044,385			8.12			124,347		689,484			7.87			40,570
Total domestic loan portfolio		14,541,429			11.57			1,259,521		13,414,717			12.22			1,225,626
Foreign (c):
Credit card		3,008,380			11.09			249,837		3,172,066			11.24			266,617
Other consumer		2,988,303			9.16			204,835		2,030,627			9.65			146,524
Commercial		1,012,230			7.10			53,814		11,630			5.70			496
Total foreign loan portfolio		7,008,913			9.69			508,486		5,214,323			10.61			413,637
Total loan portfolio		21,550,342			10.96			1,768,007		18,629,040			11.76			1,639,263
Total loan receivables		30,915,483			11.20			2,591,714		27,842,337			11.89			2,476,792
Total interest-earning assets		47,070,101			8.52			3,003,563		43,138,177			8.91			2,874,008
Cash and due from banks		924,295								762,766
Premises and equipment, net		2,703,882								2,553,960
Other assets		11,230,590								10,114,245
Reserve for possible credit losses		(1,226,719	)							(1,149,242	)
Total assets	$	60,702,149							$	55,419,906


	-32-

Table 3: Statements of Average Balances, Yields and Rates, Income or Expense-Continued

(dollars in thousands, yields and rates on a fully taxable equivalent basis) (unaudited)

For the Nine Months Ended September 30,

2004

2003

Average Balance

Yield/

Rate

Income or Expense

Average Balance

Yield/

Rate

Income or Expense

Liabilities and Stockholders' Equity

Interest-bearing liabilities:

Interest-bearing deposits:

Domestic:

Time deposits

20,854,376

4.01

626,159

21,734,015

4.45

722,656

Money market deposit accounts

7,625,188

1.59

90,638

7,821,728

1.87

109,530

Interest-bearing transaction accounts

50,694

.87

332

50,410

1.14

430

Savings accounts

78,106

1.22

713

87,190

1.22

796

Total domestic interest-bearing deposits

28,608,364

3.35

717,842

29,693,343

3.75

833,412

Foreign:

Time deposits

658,246

2.98

14,675

737,102

3.25

17,931

Total interest-bearing deposits

29,266,610

3.34

732,517

30,430,445

3.74

851,343

Borrowed funds:

Short-term borrowings:

Domestic

900,517

3.47

23,374

1,000,005

3.48

26,005

Foreign

1,023,371

3.62

27,749

177,098

3.30

4,372

Total short-term borrowings

1,923,888

3.55

51,123

1,177,103

3.45

30,377

Long-term debt and bank notes (d):

Domestic

7,592,852

2.74

155,559

7,280,597

2.54

138,329

Foreign

4,215,973

6.02

189,977

2,849,331

5.57

118,746

Total long-term debt and bank notes

11,808,825

3.91

345,536

10,129,928

3.39

257,075

Total borrowed funds

13,732,713

3.86

396,659

11,307,031

3.40

287,452

Total interest-bearing liabilities

42,999,323

3.51

1,129,176

41,737,476

3.65

1,138,795

Noninterest-bearing deposits

2,636,674

1,540,448

Other liabilities

3,010,831

2,389,316

Total liabilities

48,646,828

45,667,240

Stockholders' equity

12,055,321

9,752,666

Total liabilities and stockholders' equity

60,702,149

55,419,906

Net interest income

1,874,387

1,735,213

Net interest margin

5.32

5.38

Interest rate spread

5.01

5.26

(a) Average balances for investment securities available-for-sale and other interest-earning assets are based on market values or estimated

market values; if these assets were carried at amortized cost, there would not be a material impact on the net interest margin.

(b) The fully taxable equivalent adjustment for the nine months ended September 30, 2004 and 2003, was $676 and $537,

respectively.

(c) The Corporation reclassified certain loan products to separately report its commercial loan products. Business cards products were

reclassified from credit card loans to commercial loans, and all other commercial loan products were reclassified from other

consumer loans to commercial loans. For purposes of comparability, certain prior period amounts have been reclassified.

(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.


	-33-

**Table 4: Rate-Volume Variance Analysis (a) (dollars in thousands, on a fully taxable equivalent basis) (unaudited)**

For the Three Months Ended September 30,	2004 Compared to 2003
	Volume			Rate			Total
Interest-Earning Assets:
Money market instruments:
Interest-earning time deposits in other banks:
Domestic	$	269		$	10		$	279
Foreign		(3,037	)		8,292			5,255
Total interest-earning time deposits in other banks		(2,768	)		8,302			5,534
Federal funds sold		(3,509	)		2,825			(684	)
Total money market instruments		(6,277	)		11,127			4,850
Investment securities:
Domestic:
Taxable		8,145			(3,466	)		4,679
Tax-exempt		5			356			361
Total domestic investment securities		8,150			(3,110	)		5,040
Foreign		3,520			(92	)		3,428
Total investment securities		11,670			(3,202	)		8,468
Other interest-earning assets		2,926			(1,640	)		1,286
Loan receivables:
Loans held for securitization:
Domestic (b):
Credit card		(12,910	)		(15,965	)		(28,875	)
Other consumer		(335	)		98			(237	)
Commercial		(4,217	)		(195	)		(4,412	)
Total domestic loans held for securitization		(17,462	)		(16,062	)		(33,524	)
Foreign (b):
Credit card		270			4,296			4,566
Other consumer		-			-			-
Commercial		-			-			-
Total foreign loans held for securitization		270			4,296			4,566
Total loans held for securitization		(17,192	)		(11,766	)		(28,958	)
Loan portfolio:
Domestic (b):
Credit card		13,787			4,229			18,016
Other consumer		(19,637	)		(2,315	)		(21,952	)
Commercial		34,303			(230	)		34,073
Total domestic loan portfolio		28,453			1,684			30,137
Foreign (b):
Credit card		(18,144	)		(10,459	)		(28,603	)
Other consumer		23,076			(547	)		22,529
Commercial		22,950			160			23,110
Total foreign loan portfolio		27,882			(10,846	)		17,036
Total loan portfolio		56,335			(9,162	)		47,173
Total loan receivables		39,143			(20,928	)		18,215
Total interest income	$	47,462		$	(14,643	)	$	32,819


	-34-

Table 4: Rate-Volume Variance Analysis (a) - Continued (dollars in thousands, on a fully taxable equivalent basis) (unaudited)

For the Three Months Ended September 30,	2004 Compared to 2003
	Volume			Rate			Total
Interest-Bearing Liabilities:
Interest-bearing deposits:
Domestic:
Time deposits	$	(5,452	)	$	(19,818	)	$	(25,270	)
Money market deposit accounts		(2,158	)		44			(2,114	)
Interest-bearing transaction accounts		(3	)		8			5
Savings accounts		57			108			165
Total domestic interest-bearing deposits		(7,556	)		(19,658	)		(27,214	)
Foreign:
Time deposits		3			442			445
Total interest-bearing deposits		(7,553	)		(19,216	)		(26,769	)
Borrowed funds:
Short-term borrowings:
Domestic		(870	)		(33	)		(903	)
Foreign		9,577			1,012			10,589
Total short-term borrowings		8,707			979			9,686
Long-term debt and bank notes:
Domestic		2,356			12,850			15,206
Foreign		9,852			12,940			22,792
Total long-term debt and bank notes		12,208			25,790			37,998
Total borrowed funds		20,915			26,769			47,684
Total interest expense		13,362			7,553			20,915
Net interest income	$	34,100		$	(22,196	)	$	11,904

(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) The Corporation reclassified certain loan products to separately report its commercial loan products. Business cards products were reclassified from credit card loans to commercial loans, and all other commercial loan products were reclassified from other consumer loans to commercial loans. For purposes of comparability, certain prior period amounts have been reclassified.


	-35-

Table 4: Rate-Volume Variance Analysis (a) - Continued (dollars in thousands, on a fully taxable equivalent basis) (unaudited)

For the Nine Months Ended September 30,	2004 Compared to 2003
	Volume			Rate			Variance
Interest-Earning Assets:
Money market instruments:
Interest-earning time deposits in other banks:
Domestic	$	628		$	(6	)	$	622
Foreign		(1,466	)		9,089			7,623
Total interest-earning time deposits in other banks		(838	)		9,083			8,245
Federal funds sold		(6,287	)		(341	)		(6,628	)
Total money market instruments		(7,125	)		8,742			1,617
Investment securities:
Domestic:
Taxable		19,518			(23,042	)		(3,524	)
Tax-exempt		27			235			262
Total domestic investment securities		19,545			(22,807	)		(3,262	)
Foreign		8,956			(521	)		8,435
Total investment securities		28,501			(23,328	)		5,173
Other interest-earning assets		13,567			(5,724	)		7,843
Loan receivables:
Loans held for securitization:
Domestic (b):
Credit card		11,467			(35,739	)		(24,272	)
Other consumer		(579	)		213			(366	)
Commercial		(26,042	)		145			(25,897	)
Total domestic loans held for securitization		(15,154	)		(35,381	)		(50,535	)
Foreign (b):
Credit card		37,606			(893	)		36,713
Other consumer		-			-			-
Commercial		-			-			-
Total foreign loans held for securitization		37,606			(893	)		36,713
Total loans held for securitization		22,452			(36,274	)		(13,822	)
Loan portfolio:
Domestic (b):
Credit card		34,144			(3,867	)		30,277
Other consumer		(65,542	)		(14,617	)		(80,159	)
Commercial		82,403			1,374			83,777
Total domestic loan portfolio		51,005			(17,110	)		33,895
Foreign (b):
Credit card		(13,430	)		(3,350	)		(16,780	)
Other consumer		66,104			(7,793	)		58,311
Commercial		53,166			152			53,318
Total foreign loan portfolio		105,840			(10,991	)		94,849
Total loan portfolio		156,845			(28,101	)		128,744
Total loan receivables		179,297			(64,375	)		114,922
Total interest income	$	214,240		$	(84,685	)	$	129,555


	-36-

Table 4: Rate-Volume Variance Analysis (a) - Continued (dollars in thousands, on a fully taxable equivalent basis) (unaudited)

For the Nine Months Ended September 30,	2004 Compared to 2003
	Volume			Rate			Variance
Interest-Bearing Liabilities:
Interest-bearing deposits:
Domestic:
Time deposits	$	(28,224	)	$	(68,273	)	$	(96,497	)
Money market deposit accounts		(2,679	)		(16,213	)		(18,892	)
Interest-bearing transaction accounts		2			(100	)		(98	)
Savings accounts		(82	)		(1	)		(83	)
Total domestic interest-bearing deposits		(30,983	)		(84,587	)		(115,570	)
Foreign:
Time deposits		(1,819	)		(1,437	)		(3,256	)
Total interest-bearing deposits		(32,802	)		(86,024	)		(118,826	)
Borrowed funds:
Short-term borrowings:
Domestic		(2,559	)		(72	)		(2,631	)
Foreign		22,910			467			23,377
Total short-term borrowings		20,351			395			20,746
Long-term debt and bank notes:
Domestic		6,144			11,086			17,230
Foreign		61,012			10,219			71,231
Total long-term debt and bank notes		67,156			21,305			88,461
Total borrowed funds		87,507			21,700			109,207
Total interest expense		54,705			(64,324	)		(9,619	)
Net interest income	$	159,535		$	(20,361	)	$	139,174

(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) The Corporation reclassified certain loan products to separately report its commercial loan products. Business cards products were reclassified from credit card loans to commercial loans, and all other commercial loan products were reclassified from other consumer loans to commercial loans. For purposes of comparability, certain prior period amounts have been reclassified.


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Investment Securities and Money Market Instruments

The Corporation seeks to maintain its investment securities and money market instruments 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 off-balance sheet asset securitization transactions, deposits, loan payments, and long-term debt and bank note issuances. Funds received from these sources are generally invested in short-term, liquid money market instruments and investment securities available-for-sale until the funds are needed for loan growth and other liquidity needs.

Investment Securities

Investment securities consist primarily of AAA-rated securities, most of which can be used as collateral under repurchase agreements.

Interest income on investment securities, on a fully taxable equivalent basis, increased $8.5 million or 32.9% to $34.2 million and $5.2 million or 6.1% to $90.5 million for the three and nine months ended September 30, 2004, as compared to $25.7 million and $85.4 million for the same periods in 2003, respectively. The increase in interest income on investment securities for the three and nine months ended September 30, 2004 was primarily the result of an increase in average investment securities of $1.8 billion and $1.4 billion, partially offset by a 21 and 61 basis point decrease in the yields earned on average investment securities for the three and nine months ended September 30, 2004, as compared to the same periods in 2003, respectively. The increase in average investment securities is a result of the C orporation investing a larger portion of its liquid assets in higher yielding investment securities.

Money Market Instruments

Money market instruments include interest-earning time deposits in other banks and federal funds sold.

Interest income on money market instruments increased $4.9 million or 17.7% to $32.3 million and $1.6 million or 1.9% to $86.0 million for the three and nine months ended September 30, 2004, as compared to $27.5 million and $84.4 million for the same periods in 2003, respectively. The increase in interest income on money market instruments for the three months ended September 30, 2004 was primarily the result of a 68 basis point increase in the yield earned on average money market instruments, partially offset by a decrease in average money market instruments of $1.7 billion, as compared to the same period in 2003. The increase in the yield earned on average money market instruments is primarily a result of rising foreign and domestic short-term interest rates during 2004. The decrease in average money market instruments is a result of the Corporation investing a larger portion of its liquid assets in higher yielding investment securities.

Average investment securities and money market instruments as a percentage of average interest-earning assets were 25.8% and 25.6% for the three and nine months ended September 30, 2004, as compared to 27.2% and 26.5% for the same periods in 2003, respectively.

Other Interest-Earning Assets

Other interest-earning assets include the Corporation’s retained interests in securitization transactions, which are the interest-only strip receivable, cash reserve accounts, and accrued interest and fees on securitized loans. Also included in other interest-earning assets is the Corporation’s investment in Federal Reserve Bank stock. The Corporation accrues interest income related to its retained beneficial interests in its securitization transactions accounted for as sales in the Corporation’s consolidated financial statements. The Corporation includes these retained interests in accounts receivable from securitization in the consolidated statements of financial condition.

Interest income on other interest-earning assets increased $1.3 million or 1.7% to $78.3 million and $7.8 million or 3.4% to $235.3 million for the three and nine months ended September 30, 2004, as compared to $77.0 million and $227.4 million for the same periods in 2003, respectively. The increase in interest income on other interest-earning assets for the three and nine months ended September 30, 2004, was primarily the result of an increase of $159.6 million and $232.2 million in average other interest-earning assets, respectively. The increase in average other interest-earning assets was primarily attributable to the increase in the Corporation’s cash reserve accounts and interest-only strip receivable, partially offset by the decrease in the Corporation’s accrued interest and fees on securitized loans.


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Loan Receivables

Loan receivables consist of the Corporation’s loans held for securitization and the loan portfolio.

In the first quarter of 2004, the Corporation acquired $1.6 billion of commercial and other consumer loan receivables in connection with the Premium Credit Limited acquisition and $893.0 million of commercial loan receivables in connection with the Sky Financial Solutions, Inc. acquisition. See "Note K: Acquisitions" to the consolidated financial statements for further detail regarding the Premium Credit Limited ( "PCL") and Sky Financial Solutions, Inc. ("SFS") acquisitions.

Interest income generated by the Corporation’s loan receivables increased $18.2 million or 2.2% to $857.6 million and $114.9 million or 4.6% to $2.6 billion for the three and nine months ended September 30, 2004, as compared to $839.4 million and $2.5 billion for the same periods in 2003, respectively. The increase in interest income on loan receivables for the three and nine months ended September 30, 2004, was primarily the result of an increase in average loan receivables of $2.5 billion and $3.1 billion from the same periods in 2003, respectively. The increase in interest income on loan receivables for the three and nine months ended September 30, 2004 was partially offset by the decrease in yields on average loan receivables. The yield earned by the Corporation for the three and nine months ended Se ptember 30, 2004, on average loan receivables decreased 69 basis points for both periods to 11.05% and 11.20%, respectively, as compared to 11.74% and 11.89% for the same periods in 2003.

Table 5 presents the Corporation's loan receivables at period end distributed by loan type, excluding securitized loans.

Table 5: Loan Receivables Distribution (a)
(dollars in thousands) (unaudited)


	September 30, 2004		December 31, 2003
Loans held for securitization (b):
Domestic:
Credit card	$	7,639,687	$	10,273,503
Other consumer		19,902		11,653
Commercial		820		759
Total domestic loans held for securitization		7,660,409		10,285,915
Foreign:
Credit card		2,133,736		2,798,190
Other consumer		-		-
Commercial		-		-
Total foreign loans held for securitization		2,133,736		2,798,190
Total loans held for securitization		9,794,145		13,084,105
Loan portfolio:
Domestic:
Credit card		6,799,456		7,223,190
Other consumer		5,600,675		5,599,281
Commercial		2,503,974		1,293,718
Total domestic loan portfolio		14,904,105		14,116,189
Foreign:
Credit card		3,220,578		3,967,192
Other consumer		3,087,453		2,418,449
Commercial		1,134,841		38,142
Total foreign loan portfolio		7,442,872		6,423,783
Total loan portfolio		22,346,977		20,539,972
Total loan receivables	$	32,141,122	$	33,624,077


(a) The Corporation reclassified certain loan products to separately report its commercial loan products. Business cards products were reclassified from credit card loans to commercial loans, and all other commercial loan products were reclassified from other consumer loans to commercial loans. For purposes of comparability, certain prior period amounts have been reclassified.
(b) Loans held for securitization includes loans originated through certain endorsing organizations or financial institutions who have the contractual right to purchase the loans from the Corporation at fair value and the lesser of loan principal receivables eligible for securitization or sale or loan principal receivables which management intends to securitize or sell within one year.


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Domestic Credit Card Loan Receivables

Domestic credit card loan receivables decreased $3.1 billion or 17.5% to $14.4 billion at September 30, 2004, as compared to $17.5 billion at December 31, 2003. The decrease in domestic credit card loan receivables at September 30, 2004, was primarily the result of loan repayments exceeding new loan originations, partially offset by a net decrease in securitized domestic credit card loan receivables and domestic credit card acquisitions. Management believes that loan growth in 2004 has been slower than in previous years in part because the Corporation has offered less 0% promotional rate offers on U.S. credit card accounts. Also, loan growth has been slower than in previous years in part because revolving consumer credit growth in the U.S. has been slower over the past two to three years.

During the nine months ended September 30, 2004, the Corporation securitized $7.3 billion of domestic credit card loan receivables, offset by an increase of $8.6 billion in the Corporation's loan portfolio when certain securitization transactions were in their scheduled accumulation period and the trusts used principal payments on securitized loans to pay the investors rather than to purchase new loan principal receivables. The Corporation acquired $592.9 million of domestic credit card loan receivables during the nine months ended September 30, 2004.

The yield on average domestic credit card loan receivables was 11.27% and 11.34% for the three and nine months ended September 30, 2004, as compared to 11.66% and 11.74% for the same periods in 2003, respectively. The decrease of 39 basis points and 40 basis points for the three and nine months ended September 30, 2004, respectively, in the yield on average domestic credit card loan receivables reflects lower interest rates offered to attract and retain Customers and to grow loan receivables, partially offset by a decrease in the amount of 0% promotional rate offers. During the third quarter of 2004, the Corporation converted a portion of its managed domestic credit card portfolio from fixed-rate loans to variable-rate loans. This change did not have a significant affect on the yield on average domestic credit card loan receivables in the third quarter of 2004 because the change wa s effective at the end of the period.

Domestic credit card loans held for securitization decreased $2.6 billion or 25.6% to $7.6 billion at September 30, 2004, as compared to $10.3 billion at December 31, 2003. The decrease reflects the Corporation’s continued securitization activities and lower levels of domestic credit card loan principal receivables eligible for securitization at September 30, 2004.

Domestic Other Consumer Loan Receivables

Domestic other consumer loan receivables were $5.6 billion at September 30, 2004, and December 31, 2003. The yield on average domestic other consumer loan receivables was 13.69% and 13.65% for the three and nine months ended September 30, 2004, as compared to 13.80% and 13.96% for the same periods in 2003, respectively. The decrease of 11 basis points and 31 basis points in the yield on average domestic other consumer loan receivables reflects a greater mix of unsecured lending products relative to sales finance products as well as a continued lower interest rate environment impact on new account yields. The Corporation generally charges a higher interest rate for its sales finance products than its other unsecured consumer lending products. Sales finance loans are loan products offered by the Corporation through associations with retailers where the Corporation provides financing to Customers to purchase t he retailer’s goods and services.

The Corporation’s domestic other consumer loans typically 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.

Domestic Commercial Loan Receivables

Domestic commercial loan receivables increased $1.2 billion or 93.5% to $2.5 billion at September 30, 2004, as compared to $1.3 billion at December 31, 2003. The increase in domestic commercial loan receivables at September 30, 2004, was primarily the result of the SFS acquisition, which included $893.0 million of commercial loan receivables in the first quarter of 2004.

The yield on average domestic commercial loan receivables was 8.01% and 8.13% for the three and nine months ended September 30, 2004, as compared to 8.39% and 8.29% for the same periods in 2003, respectively.

Foreign Credit Card Loan Receivables

Foreign credit card loan receivables decreased $1.4 billion or 20.9% to $5.4 billion at September 30, 2004, as compared to $6.8 billion at December 31, 2003. The decrease in foreign credit card loan receivables at September 30, 2004 was primarily the result of a net increase in securitization activity, partially offset by loan originations through marketing programs at the Corporation’s two foreign bank subsidiaries, MBNA Europe and MBNA Canada. Management believes foreign loan growth in 2004 has also been slower than in previous years due to the increasing competitive environment in the U.K. and Canada.


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During the nine months ended September 30, 2004, the Corporation securitized $3.0 billion of foreign credit card loans offset by an increase of $907.0 million in the Corporation's foreign credit card loan portfolio when certain securitization transactions were in their scheduled accumulation period and the trusts used principal payments on securitized loans to pay the investors rather than to purchase new loan principal receivables. The strengthening of foreign currencies increased foreign credit card loan receivables by $64.6 million for the nine months ended September 30, 2004, as compared to $258.0 million for the same period in 2003.

The yield on average foreign credit card loan receivables was 10.75% and 11.38% for the three and nine months ended September 30, 2004, as compared to 11.11% and 11.45% for the same periods in 2003, respectively. The decrease of 36 basis points and 7 basis points for the three and nine months ended September 30, 2004, respectively, in the yield on average foreign credit card loan receivables primarily reflects lower interest rates offered to attract and retain Customers and to grow loan receivables.

Foreign credit card loans held for securitization decreased $664.5 million or 23.7% to $2.1 billion at September 30, 2004, as compared to $2.8 billion at December 31, 2003. The decrease reflects lower planned levels of foreign credit card securitizations.

Foreign Other Consumer Loan Receivables

Foreign other consumer loan receivables increased $669.0 million or 27.7% to $3.1 billion at September 30, 2004, as compared to $2.4 billion at December 31, 2003. The growth in foreign other consumer loan receivables at September 30, 2004 was primarily a result of the PCL acquisition of approximately $600 million of consumer insurance premium financing loans by MBNA Europe in the first quarter of 2004. The strengthening of foreign currencies increased foreign other consumer loan receivables by $5.6 million for the nine months ended September 30, 2004, as compared to $72.9 million for the same period in 2003.

The yield on average foreign other consumer loan receivables was 9.29% and 9.16% for the three and nine months ended September 30, 2004, as compared to 9.39% and 9.65% for the same periods in 2003, respectively.

Foreign Commercial Loan Receivables

Foreign commercial loan receivables increased to $1.1 billion at September 30, 2004, as compared to $38.1 million at December 31, 2003. The growth in foreign commercial loan receivables at September 30, 2004 was primarily a result of the PCL acquisition of approximately $1.0 billion of commercial loans by MBNA Europe in the first quarter of 2004. The strengthening of foreign currencies increased foreign commercial loan receivables by $12.0 million for the nine months ended September 30, 2004, as compared to $786,000 for the same period in 2003.

The yield on average foreign commercial loan receivables was 8.07% and 7.10% for the three and nine months ended September 30, 2004, as compared to 5.88% and 5.70% for the same periods in 2003, respectively. The increase in the yield on foreign commercial loan receivables was primarily a result of the commercial insurance premium financing loans that were acquired in connection with the PCL acquisition. The majority of the balance for the three and nine months ended September 30, 2004 is attributable to these loans.

Table 6 reconciles the Corporation’s average loan receivables to average managed loans.


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Table 6: Reconciliation of Average Loan Receivables to Average Managed Loans (a)
(dollars in thousands) (unaudited)

For the Three Months Ended September 30,	2004							2003
	Average Balance		Yield			Income		Average Balance		Yield			Income
Loan receivables:
Domestic:
Credit card	$	13,798,932		11.27	%	$	391,019	$	13,673,873		11.66	%	$	401,878
Other consumer		5,576,609		13.69			191,873		6,152,316		13.80			214,062
Commercial		2,448,625		8.01			49,311		929,519		8.39			19,650
Total domestic loan receivables		21,824,166		11.52			632,203		20,755,708		12.15			635,590
Foreign:
Credit card		4,807,145		10.75			129,848		5,495,228		11.11			153,885
Other consumer		3,089,871		9.29			72,126		2,095,940		9.39			49,597
Commercial		1,155,585		8.07			23,427		21,392		5.88			317
Total foreign loan receivables		9,052,601		9.91			225,401		7,612,560		10.62			203,799
Total loan receivables		30,876,767		11.05			857,604		28,368,268		11.74			839,389
Total securitized loans		87,626,073		11.55			2,544,309		82,626,049		11.87			2,472,018
Total managed loans	$	118,502,840		11.42		$	3,401,913	$	110,994,317		11.84		$	3,311,407

For the Nine Months Ended September 30,	2004							2003
	Average Balance		Yield			Income		Average Balance		Yield			Income
Loan receivables:
Domestic:
Credit card	$	14,041,349		11.34	%	$	1,192,189	$	13,505,672		11.74	%	$	1,186,184
Other consumer		5,532,021		13.65			565,291		6,186,631		13.96			645,816
Commercial		2,045,296		8.13			124,409		1,073,409		8.29			66,529
Total domestic loan receivables		21,618,666		11.63			1,881,889		20,765,712		12.22			1,898,529
Foreign:
Credit card		5,296,284		11.38			451,176		5,034,368		11.45			431,243
Other consumer		2,988,303		9.16			204,835		2,030,627		9.65			146,524
Commercial		1,012,230		7.10			53,814		11,630		5.70			496
Total foreign loan receivables		9,296,817		10.20			709,825		7,076,625		10.93			578,263
Total loan receivables		30,915,483		11.20			2,591,714		27,842,337		11.89			2,476,792
Total securitized loans		86,887,343		11.52			7,493,466		80,719,494		12.05			7,272,994
Total managed loans	$	117,802,826		11.44		$	10,085,180	$	108,561,831		12.01		$	9,749,786

(a) The Corporation reclassified certain loan products to separately report its commercial loan products. Business cards products were reclassified from credit card loans to commercial loans, and all other commercial loan products were reclassified from other consumer loans to commercial loans. For purposes of comparability, certain prior period amounts have been reclassified.

Premises and Equipment

In the second quarter of 2004, the Corporation successfully completed its implementation of the Strategic Systems Extension ("SSE"), which extended the use of the Corporation’s North American core Customer information systems to MBNA Europe’s business in the U.K. and Ireland. MBNA Europe was previously dependent on third-party vendors for such information systems. It is expected that the implementation of SSE will give MBNA Europe better tools for servicing Customers and allow the Corporation to leverage past and future investments in technology.

Total capital expenditures, including software, related to SSE were approximately $300 million at September 30, 2004. Software costs that were capitalized as a part of this project at September 30, 2004 and December 31, 2003, were $254.7 million and $214.0 million, respectively. The capital expenditures for this project will be fully amortized within five years. For the nine months ended September 30, 2004, total amortization expense associated with this project was $18.8 million.


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Accrued Income Receivable

Accrued income receivable decreased $53.1 million or 12.0% to $390.6 million at September 30, 2004, as compared to $443.8 million at December 31, 2003. The decrease in accrued income receivable at September 30, 2004, was primarily due to a decrease in accrued insurance receivable and accrued interest receivable on credit card loans. The decrease in accrued interest receivable on credit card loans is the result of the decrease in the yield earned on credit card receivables, as well as a decrease in credit card loan receivables.

Accounts Receivable From Securitization

Accounts receivable from securitization increased $329.8 million or 4.2% to $8.1 billion at September 30, 2004, as compared to $7.8 billion at December 31, 2003.

Table 7 presents the components of accounts receivable from securitization.

Table 7: Accounts Receivable from Securitization
(dollars in thousands) (unaudited)

	September 30, 2004		December 31, 2003
Sale of new loan principal receivables (a)	$	2,540,360	$	2,191,335
Accrued interest and fees on securitized loans		1,883,629		1,958,873
Interest-only strip receivable		1,358,278		1,338,061
Accrued servicing fees		814,239		777,623
Cash reserve accounts		710,984		607,467
Other subordinated retained interests		596,869		608,550
Other		191,905		284,568
Total accounts receivable from securitization	$	8,096,264	$	7,766,477

(a) Balance comprised of allocated principal collections and accumulated investor interest.

Other Assets

Other assets increased $370.1 million or 19.6% to $2.3 billion at September 30, 2004, as compared to $1.9 billion at December 31, 2003. The increase was primarily the result of the creation of an escrow account at the end of September 2004 for the purchase of a loan portfolio that settled in early October.

Interest-Bearing Deposits

Interest expense on domestic time deposits decreased $25.3 million or 10.8% to $207.7 million and $96.5 million or 13.4% to $626.2 million for the three and nine months ended September 30, 2004, as compared to $233.0 million and $722.7 million for the same periods in 2003. The decrease in interest expense on domestic time deposits for the three and nine months ended September 30, 2004, was primarily a result of a decrease of 37 basis points and 44 basis points in the rate paid on average domestic time deposits, combined with a decrease of $497.9 million and $879.6 million in average domestic time deposits for the three and nine months ended September 30, 2004, respectively.

The decrease in the rate paid on average domestic time deposits reflects actions by the Federal Open Market Committee ("FOMC") from 2001 through 2003 that decreased overall market interest rates and decreased the Corporation’s funding costs. The Corporation’s domestic time deposits are primarily fixed-rate deposits with maturities that range from three months to five years. Therefore, the Corporation continued to realize the benefits of the 2001 through 2003 decreases in market interest rates on domestic time deposits during the three and nine months ended September 30, 2004. Similarly, the average rates paid on domestic time deposits for the three and nine months ended September 30, 2004 were not significantly affected by the actions of the FOMC in the second and third quarter of 2004 that inc reased overall market interest rates.

The decrease in average domestic time deposits for the three and nine months ended September 30, 2004, was a result of a decrease in the average amount of brokered deposits held by the Corporation, partially offset by the Corporation’s continued emphasis on marketing domestic time deposits to members of certain endorsing organizations to fund loan and other asset growth and to diversify funding sources.

Interest expense on domestic money market deposit accounts decreased $2.1 million or 6.6% to $29.9 million and $18.9 million or 17.2% to $90.6 million for the three and nine months ended September 30, 2004, as compared to $32.0 million and $109.5 million for the same periods in 2003. The decrease in interest expense on domestic money market deposit accounts for the three and nine months ended September 30, 2004, was a result of a decrease of $518.7 million and $196.5 million in average domestic money market deposit accounts, respectively. The decrease in interest expense for the nine months ended September 30, 2004 also reflects a decrease in the rate paid on average domestic money market deposit accounts of 28 basis points. The actions by the FOMC in 2004 did not have an effect on the rate paid on average domestic money market deposit accoun ts as these accounts were previously priced at a premium over domestic short term interest rates.


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Interest expense on foreign time deposits increased $445,000 or 6.5% to $7.3 million for the three months ended September 30, 2004, as compared to $6.8 million for the same period in 2003. The increase in interest expense on foreign time deposits for the three months ended September 30, 2004, was primarily a result of an increase of 22 basis points in the rate paid on average foreign time deposits, combined with an increase of $405,000 in average foreign time deposits.

Interest expense on foreign time deposits decreased $3.3 million or 18.2% to $14.7 million for the nine months ended September 30, 2004, as compared to $17.9 million for the same period in 2003. The decrease in interest expense on foreign time deposits for the nine months ended September 30, 2004, was primarily a result of a decrease of $78.9 million in average foreign time deposits, combined with a decrease of 27 basis points in the rate paid on average foreign time deposits.

Borrowed Funds

Borrowed funds include both short-term borrowings and long-term debt and bank notes.

Short-Term Borrowings

Short-term borrowings used by the Corporation include federal funds purchased and securities sold under repurchase agreements. Federal funds purchased and securities sold under repurchase agreements are overnight borrowings that normally mature within one business day of the transaction date. Other short-term borrowings consist primarily of federal funds purchased that mature in more than one business day, short-term bank notes issued from the global bank note program established by the Bank, short-term deposit notes issued by MBNA Canada, on-balance-sheet financing structures, and other transactions with maturities greater than one business day but less than one year.

Interest expense on short-term borrowings increased $9.7 million or 94.5% to $19.9 million for the three months ended September 30, 2004, as compared to $10.2 million for the same period in 2003. The increase in interest expense on short-term borrowings for the three months ended September 30, 2004 was primarily the result of an increase of $705.4 million in average short-term borrowings, combined with an increase of 77 basis points in the rate paid on average short-term borrowings, from the same period in 2003.

Interest expense on short-term borrowings increased $20.7 million or 68.3% to $51.1 million for the nine months ended September 30, 2004, as compared to $30.4 million for the same period in 2003. The increase in interest expense on short-term borrowings for the nine months ended September 30, 2004 was primarily the result of an increase of $746.8 million in average short-term borrowings, combined with an increase of 10 basis points in the rate paid on average short-term borrowings from the same period in 2003.

Domestic Short-Term Borrowings

Interest expense on domestic short-term borrowings decreased $903,000 or 10.5% to $7.7 million and $2.6 million or 10.1% to $23.4 million for the three and nine months ended September 30, 2004, as compared to $8.6 million and $26.0 million for the same periods in 2003, respectively. The decrease in interest expense on domestic short-term borrowings for the three and nine months ended September 30, 2004 was primarily the result of a decrease of $99.6 million and $99.5 million in average domestic short-term borrowings, respectively.

The majority of domestic short-term borrowings are comprised of two on-balance-sheet financing structures related to the American Loan Financing Trust ("ALF"). These financing structures are secured by domestic other consumer loan receivables. The Corporation has an option to liquidate these financing structures on a monthly basis.

Foreign Short-Term Borrowings

Interest expense on foreign short-term borrowings increased $10.6 million to $12.3 million and $23.4 million to $27.7 million for the three and nine months ended September 30, 2004, as compared to $1.7 million and $4.4 million for the same periods in 2003, respectively. The increase in interest expense on foreign short-term borrowings for the three and nine months ended September 30, 2004 was primarily the result of an increase in average foreign short-term borrowings. The increase in average foreign short-term borrowings was primarily the result of the assumption of debt from the PCL acquisition, which increased average foreign short-term borrowings by $1.0 billion and $977.7 million for the three and n ine months ended September 30, 2004, respectively. See "Note K: Acquisitions" and "Note G: Short-Term Borrowings" to the consolidated financial statements for further detail regarding the PCL acquisition.


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Long-Term Debt and Bank Notes

Long-term debt and bank notes consist of borrowings having an original maturity of one year or more.

Interest expense on long-term debt and bank notes increased $38.0 million or 43.6% to $125.2 million and $88.5 million or 34.4% to $345.5 million for the three and nine months ended September 30, 2004, as compared to $87.2 million and $257.1 million for the same periods in 2003, respectively. The increase in interest expense on long-term debt and bank notes during the three and nine months ended September 30, 2004, from the same periods in 2003 was primarily the result of an increase in average long-term debt and bank notes of $1.1 billion and $1.7 billion, as compared to the same periods in 2003, combined with an increase in the rate paid on average long-term debt and bank notes of 100 basis points and 52 basis points, respectively.

Domestic Long-Term Debt and Bank Notes

Interest expense on domestic long-term debt and bank notes increased $15.2 million or 33.7% to $60.3 million for the three months ended September 30, 2004, as compared to $45.1 million for the same period in 2003. The increase in interest expense on domestic long-term debt and bank notes was the result of a 68 basis point increase in the rate paid on average domestic long-term debt and bank notes combined with an increase of $371.5 million in average domestic long-term debt and bank notes for the three months ended September 30, 2004. The increase in the rate paid on average domestic long-term debt and bank notes for the three months ended September 30, 2004, is primarily attributable to the assumption of debt from the SFS acquisition on March 31, 2004, that increased average domestic long-term debt and bank notes by $688.4 million for the three months ended September 30, 2004. The increase in the rate paid on average domestic long-term debt and bank notes also reflects actions by the FOMC in the second and third quarter of 2004 that increased overall market interest rates.

Interest expense on domestic long-term debt and bank notes increased $17.2 million or 12.5% to $155.6 million for the nine months ended September 30, 2004, as compared to $138.3 million for the same period in 2003. The increase in interest expense on domestic long-term debt and bank notes was primarily the result of an increase of $312.3 million in average domestic long-term debt and bank notes for the nine months ended September 30, 2004, combined with an increase of 20 basis points in the rate paid on average long-term debt and bank notes. The increase in average domestic long-term debt and bank notes is attributable to the assumption of debt from the SFS acquisition on March 31, 2004, which increased averaged domestic long-term debt and bank notes by $473.2 million for the nine months ended September 30, 2004. The increase in the rate paid on average domestic long-term debt and bank notes reflects action s by the FOMC in the second and third quarter of 2004 that impacted overall market interest rates. As the SFS acquisition occurred at the end of the first quarter, the impact to the rate paid on average domestic long-term debt and bank notes was not as great for the nine months ended September 30, 2004, as compared to the three months ended September 30, 2004.

See "Note K: Acquisitions" and "Note H: Long-Term Debt and Bank Notes" to the consolidated financial statements for further detail regarding the SFS acquisition.

Foreign Long-Term Debt and Bank Notes

Interest expense on foreign long-term debt and bank notes increased $22.8 million or 54.1% to $64.9 million and $71.2 million or 60.0% to $190.0 million for the three and nine months ended September 30, 2004, as compared to $42.1 million and $118.7 million for the same periods in 2003, respectively. The increase in interest expense on foreign long-term debt and bank notes was the result of an increase in average foreign long-term debt and bank notes of $697.4 million and $1.4 billion for three and nine months ended September 30, 2004, combined with an increase of 139 basis points and 45 basis points for the three and nine months ended September 30, 2004, in the rate paid on average foreign long-term debt and bank notes. The Corporation issued additional long-term debt and bank notes during the third and fourth quarters of 2003 to fund loan and other asset growth and to diversify funding sources. Also, the C orporation issued debt in connection with the PCL acquisition in the first quarter of 2004. See "Note K: Acquisitions" and "Note H: Long-Term Debt and Bank Notes" to the consolidated financial statements for further detail regarding the PCL acquisition.


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Noninterest-Bearing Deposits

Noninterest-bearing deposits increased $362.6 million or 15.0% to $2.8 billion at September 30, 2004, as compared to $2.4 billion at December 31, 2003. The increase is primarily related to an increase in principal collections on securitized loans due to the trusts. The Corporation is obligated to transfer principal collections on the Corporation’s primary domestic and foreign credit card securitization trusts on a regular basis. These funds are retained on behalf of the trusts with the Corporation until the funds are remitted on a regular basis. The funds are primarily invested in money market instruments until they are remitted to the trusts.

Accrued Expenses and Other Liabilities

Accrued expenses and other liabilities increased $584.1 million or 21.8% to $3.3 billion at September 30, 2004, as compared to $2.7 billion at December 31, 2003. This increase was primarily the result of an increase in the amount of payables related to MBNA Europe’s insurance premium financing product.

Total Other Operating Income

Total other operating income includes securitization income, interchange income, loan fees, insurance income, and other income. Total other operating income increased $127.1 million or 6.3% to $2.2 billion and $429.5 million or 7.6% to $6.1 billion for the three and nine months ended September 30, 2004, as compared to $2.0 billion and $5.7 billion for the same periods in 2003, respectively.

Table 8 presents the components of total other operating income.

Table 8: Components of Total Other Operating Income
(dollars in thousands) (unaudited)

	For the Three Months Ended September 30,					For the Nine Months Ended September 30,
	2004		2003			2004			2003
Securitization income:
Excess servicing fees (a)	$	1,326,533	$	1,294,489		$	3,761,229		$	3,500,997
Loan servicing fees (a)		416,872		387,745			1,242,097			1,139,397
Gain from the sale of loan principal receivables for new securitizations (b)		15,496		35,362			75,949			93,618
Net revaluation of interest-only strip receivable (b)		11,334		(11,848	)		(97,865	)		(24,857	)
Total securitization income		1,770,235		1,705,748			4,981,410			4,709,155
Interchange income		113,491		94,134			318,860			284,834
Credit card loan fees (c)		134,251		119,607			398,471			347,078
Other consumer loan fees (c)		46,941		29,220			123,959			84,079
Commercial loan fees (c)		17,992		11,097			50,919			31,706
Insurance income		51,512		57,168			149,638			166,496
Other		25,168		15,495			78,485			48,934
Total other operating income	$	2,159,590	$	2,032,469		$	6,101,742		$	5,672,282

(a) Total securitization servicing fees include excess servicing fees and loan servicing fees.
(b) The net gain (or loss) from securitization activity includes the gain from the sale of loan principal receivables and the net revaluation of the interest-only strip receivable.
(c) The Corporation reclassified certain loan products to separately report its commercial loan products. Business card products were reclassified from credit card loans to commercial loans, and all other commercial loan products were reclassified from other consumer loans to commercial loans. For purposes of comparability, certain prior period amounts have been reclassified.

Securitization Income

Securitization income includes excess servicing and loan servicing fees, the gain from the sale of loan principal receivables recognized for new securitizations, and the net revaluation of the Corporation’s interest-only strip receivable. The Corporation has the rights to all excess revenue generated from the securitized loans arising after the trusts absorb the cost of funds, loan servicing fees and credit losses ("excess servicing fees"). The Corporation continues to service the securitized loans and receives an annual contractual servicing fee of approximately 2% of the investor principal outstanding ("loan servicing fees"). The Corporation recognizes a gain from the sale of loan principal receivables for new securitizations. Securitization income is also impacted by the net revaluation of the Corpora tion’s interest-only strip receivable as a result of changes in the estimated excess spread to be earned in the future and changes in projected loan payment rates and securitization transactions that are currently in their scheduled accumulation period. The accumulation period occurs when the trusts begin accumulating principal collections to make principal payments to the investors, instead of purchasing new loan principal receivables from the Corporation.

Securitization income increased $64.5 million or 3.8% to $1.8 billion and $272.3 million or 5.8% to $5.0 billion for the three and nine months ended September 30, 2004, as compared to $1.7 billion and $4.7 billion for the same periods in 2003, respectively. The components of securitization income are discussed separately below.


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Total Securitization Servicing Fees

Total securitization servicing fees include both excess servicing fees and loan servicing fees. These items are discussed below.

Table 9 provides further detail regarding total excess servicing fees.

Table 9: Components of Total Excess Servicing Fees
(dollars in thousands) (unaudited)

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2004			2003			2004			2003
Interest income on securitized loans	$	2,467,085		$	2,396,053		$	7,261,380		$	7,048,650
Interest expense on securitized loans		(507,976	)		(401,034	)		(1,359,951	)		(1,220,797	)
Net interest income on securitized loans		1,959,109			1,995,019			5,901,429			5,827,853
Other fee income on securitized loans		818,109			776,154			2,355,500			2,112,880
Net credit losses on securitized loans		(1,033,813	)		(1,088,939	)		(3,253,603	)		(3,300,339	)
Total securitization servicing fees		1,743,405			1,682,234			5,003,326			4,640,394
Loan servicing fees		(416,872	)		(387,745	)		(1,242,097	)		(1,139,397	)
Total excess servicing fees	$	1,326,533		$	1,294,489		$	3,761,229		$	3,500,997

Excess Servicing Fees

Excess servicing fees increased $32.0 million or 2.5% to $1.3 billion for the three months ended September 30, 2004, as compared to $1.3 billion for the same period in 2003. Excess servicing fees increased $260.2 million or 7.4% to $3.8 billion for the nine months ended September 30, 2004, as compared to $3.5 billion for the same period in 2003. The increase in excess servicing fees for the three months ended September 30, 2004, was a result of a decrease in net credit losses on securitized loans combined with an increase in other fee income earned on securitized loans, partially offset by a decrease in net interest income on securitized loans. The increase in excess servicing fees for the nine months ended September 30, 2004, was a result of increases in net interest income and other fee income on securitize d loans combined with a decrease in net credit losses on securitized loans.

The net interest income earned on securitized loans decreased $35.9 million or 1.8% to $2.0 billion for the three months ended September 30, 2004, as compared to $2.0 billion for the same period in 2003. The net interest income earned on securitized loans increased $73.6 million or 1.3% to $5.9 billion for the nine months ended September 30, 2004, as compared to $5.8 billion for the same period in 2003. Securitized net interest income was affected by the growth in average securitized loans and changes in the net interest margin on securitized interest-earning assets.

Average securitized loans increased $5.0 billion or 6.1% to $87.6 billion and $6.2 billion or 7.6% to $86.9 billion for the three and nine months ended September 30, 2004, as compared to $82.6 billion and $80.7 billion for the same periods in 2003, respectively. This growth in average securitized loans is consistent with the overall growth in the Corporation’s average managed loans, which increased 6.8% and 8.5% for the three and nine months ended September 30, 2004, as compared to the same periods in 2003, respectively.

The net interest margin on securitized interest-earning assets decreased to 9.32% and 9.51% for the three and nine months ended September 30, 2004, as compared to 10.05% and 10.13% for the same periods in 2003, respectively. The securitized net interest margin represents securitized net interest income for the period expressed as a percentage of average securitized interest-earning assets. The decrease in the net interest margin on securitized interest-earning assets for the three and nine months ended September 30, 2004, was primarily a result of the decrease in the interest rate spread between securitized interest-earning assets and securitized interest-bearing liabilities. Refer to "Off-Balance Sheet Arrangements - Impact of Off-Balance Sheet Securitization Transa ctions on the Corporation’s Results" for a reconciliation of the Corporation’s net interest margin on securitized interest-earning assets to the net interest margin.


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Changes in the yield earned on average securitized loans and the interest rate paid to investors in the Corporation’s securitization transactions impact the securitized net interest margin. The yield earned on average securitized loans was 11.55% and 11.52% for the three and nine months ended September 30, 2004, as compared to 11.87% and 12.05% for the same periods in 2003, respectively. The decrease in the yield earned on average securitized loans reflects lower interest rates offered to attract and retain Customers and to grow managed loans, partially offset by a decrease in the amount of 0% promotional rate offers. The average interest rate paid to investors in the Corporation’s securitization transactions was 2.35% and 2.13% for the three and nine months ended September 30, 2004, as compared to 1.96% and 2.06% for the same periods in 2003, respectively. The interest rate paid to investors generally resets on a monthly basis. The increase in the average interest rate paid to investors reflects actions by the FOMC in the second and third quarter of 2004 that increased overall market interest rates.

Other fee income generated by securitized loans increased $42.0 million or 5.4% to $818.1 million and $242.6 million or 11.5% to $2.4 billion for the three and nine months ended September 30, 2004 as compared to $776.2 million and $2.1 billion for the same periods in 2003, primarily as a result of higher average securitized loans. The increase for the three and nine months ended September 30, 2004, as compared to the same periods in 2003, is also attributable to an increase in the average fees assessed related to the implementation of modified fee structures.

Securitized net credit losses decreased $55.1 million or 5.1% to $1.0 billion and $46.7 million or 1.4% to $3.3 billion for the three and nine months ended September 30, 2004, as compared to $1.1 billion and $3.3 billion for the same periods in 2003, respectively. Although the Corporation’s average securitized loans increased, the net charge-off rate on securitized loans decreased 55 basis points to 4.72% and 46 basis points to 4.99% for the three and nine months ended September 30, 2004, as compared to 5.27% and 5.45% for the same periods in 2003, respectively. This decrease is consistent with the overall trend in the Corporation’s managed loan portfolio net credit loss ratio.

Excess servicing fees also declined as a result of the increase in loan servicing fees described below.

Loan Servicing Fees

Loan servicing fees during the three and nine months ended September 30, 2004 increased $29.1 million or 7.5% to $416.9 million and $102.7 million or 9.0% to $1.2 billion, as compared to $387.7 million and $1.1 billion for the same periods in 2003, respectively. This increase was a result of a $5.0 billion or 6.1% and $6.2 billion or 7.6% increase in the average securitized loans for the three and nine months ended September 30, 2004, respectively, as compared to the same periods in 2003. This growth in average securitized loans reflects the overall growth in the Corporation’s average managed loans, which increased 6.8% and 8.5% for the three and nine months ended September 30, 2004, respectively, as compared to the same periods in 2003.

Net Gain (or Loss) from Securitization Activity

The net gain (or loss) from securitization activity consists of gains associated with the sale of new loan principal receivables (net of securitization transaction costs), changes in the projected excess spread used to value the interest-only strip receivable for securitized credit card, other consumer, and commercial loan principal receivables, and all other changes in the fair value of the interest-only strip receivable. The net gain from securitization activity was $26.8 million during the three months ended September 30, 2004, as compared to a net gain of $23.5 million for the same period in 2003, resulting in an increase in securitization income of $3.3 million for the three months ended September 30, 2004. The net loss from securitization activity was $21.9 million during the nine months ended September 30, 2004, as compared to a $68.8 million net gain for the same period in 2003, resulting in a decrease in securitization income of $90.7 million for the nine months ended September 30, 2004.

Certain components of the net gain (or loss) from securitization activity are discussed separately below.

Gain from the Sale of Loan Principal Receivables

The gain from the sale of loan principal receivables for new securitization transactions that the Corporation recognizes as sales in accordance with Statement No. 140 is included in securitization income in the Corporation’s consolidated statements of income.

The Corporation sold $2.7 billion and $10.2 billion of credit card loan principal receivables for the three and nine months ended September 30, 2004, respectively, as compared to $3.9 billion and $10.2 billion credit card and commercial loan principal receivables for the same periods in 2003.

Table 10 provides further detail on the gain from the sale of loan principal receivables for new securitization transactions.


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Table 10: Gain from the Sale of Loan Principal Receivables for New Securitization Transactions
(dollars in thousands) (unaudited)

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2004			2003			2004			2003
Gain	$	28,625		$	48,277		$	118,322		$	131,902
Securitization transaction costs		(13,129	)		(12,915	)		(42,373	)		(38,284	)
Net of securitization transaction costs	$	15,496		$	35,362		$	75,949		$	93,618

Credit card and commercial loan principal receivables sold	$	2,722,054		$	3,903,120		$	10,248,269		$	10,200,062

Net Revaluation of Interest-Only Strip Receivable

Three Months Ended September 30, 2004

The net revaluation of the interest-only strip receivable resulted in a $11.3 million gain for the three months ended September 30, 2004, which was primarily the result of changes in projected loan payment rates, changes in projected excess spread to be earned in the future and securitization transactions that are currently in their scheduled accumulation period.

The projected excess spread used to value the interest-only strip receivable for securitized credit card loan principal receivables was 5.07% at September 30, 2004, as compared to 5.01% at June 30, 2004. The projected excess spread used to value the interest-only strip receivable for securitized other consumer loan principal receivables was 3.51% at September 30, 2004, as compared to 3.38% at June 30, 2004. The increase in the projected excess spread used to value the interest-only strip receivable for securitized credit card loan principal receivables and securitized other consumer loan principal receivables was primarily the result of an increase in projected recoveries on charged-off securitized loan principal receivables, combined with a decrease in projected charge-off rates. The Corporation is projectin g increased recoveries on charged-off securitized loan principal receivables due to the success of increased collection efforts.

The projected loan payment rate used to value the interest-only strip receivable for securitized credit card loan principal receivables was 15.22% at September 30, 2004, as compared to 15.38% at June 30, 2004. The projected loan payment rate used to value the interest-only strip receivable for securitized other consumer loan principal receivables was 4.78% at September 30, 2004, as compared to 4.93% at June 30, 2004.

Three Months Ended September 30, 2003

The net revaluation of the interest-only strip receivable resulted in a $11.8 million loss for the three months ended September 30, 2003, which was primarily the result of changes in projected loan payment rates, changes in projected excess spread to be earned in the future and securitization transactions that were then in their scheduled accumulation period.

The projected excess spread used to value the interest-only strip receivable for securitized credit card loan principal receivables was 5.06% at September 30, 2003, as compared to 4.86% at June 30, 2003. The increase in the projected excess spread used to value the interest-only strip receivable for securitized credit card loan principal receivables was the result of an increase in projected interest yields on securitized credit card loan principal receivables combined with the inclusion of projected express payment and returned check fees in the excess spread used to value the interest-only strip receivable. This increase in the projected excess spread used to value the interest-only strip receivable for securitized credit card loan principal receivables was offset by an increase in projected loan payment ra tes and securitization transactions that were then in their scheduled accumulation period. The projected excess spread used to value the interest-only strip receivable for securitized other consumer loan principal receivables was 1.91% at September 30, 2003, as compared to 1.92% at June 30, 2003.

Nine Months Ended September 30, 2004

The net revaluation of the interest-only strip receivable resulted in a $97.9 million loss for the nine months ended September 30, 2004, which was primarily the result of changes in projected loan payment rates, changes in projected excess spread to be earned in the future and securitization transactions that are currently in their scheduled accumulation period.


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The projected excess spread used to value the interest-only strip receivable for securitized credit card loan principal receivables was 5.07% at September 30, 2004, as compared to 5.20% at December 31, 2003. The decrease in the projected excess spread used to value the interest-only strip receivable for securitized credit card loan principal receivables was the result of an increase in the projected interest rate paid to investors partially offset by an increase in projected interest yields and a decrease in the projected charge-off rates on securitized credit card loan principal receivables. The projected excess spread used to value the interest-only strip receivable for securitized other consumer loan principal receivables was 3.51% at September 30, 2004, as compared to 1.95% at December 31, 2003. The incre ase in the projected excess spread used to value the interest-only strip receivable for securitized other consumer loan principal receivables was primarily the result of lower projected charge-off rates on securitized other consumer loan principal receivables.

The projected loan payment rate used to value the interest-only strip receivable for securitized credit card loan principal receivables was 15.22% at September 30, 2004, as compared to 14.49% at December 31, 2003. The projected loan payment rate used to value the interest-only strip receivable for securitized other consumer loan principal receivables was 4.78% at September 30, 2004, as compared to 4.92% at December 31, 2003.

Nine Months Ended September 30, 2003

The net revaluation of the interest-only strip receivable resulted in a $24.9 million loss for the nine months ended September 30, 2003, which was primarily the result of changes in projected loan payment rates, changes in projected excess spread to be earned in the future and securitization transactions that were then in their scheduled accumulation period.

The projected excess spread used to value the interest-only strip receivable for securitized credit card loan principal receivables was 5.06% at September 30, 2003, as compared to 4.85% at December 31, 2002. The increase in the projected excess spread used to value the interest-only strip receivable was the result of a decrease in the projected interest rate paid to investors, combined with lower projected charge-off rates on securitized credit card loan principal receivables, and the inclusion of projected express payment and returned check fees in the excess spread used to value the interest-only strip receivable, partially offset by a decrease in projected interest yields. This increase in the projected excess spread used to value the interest-only strip receivable for securitized credit card loan principa l receivables was offset by an increase in securitization transactions that were then in their scheduled accumulation period. The projected excess spread used to value the interest-only strip receivable for securitized other consumer loan principal receivables was 1.91% at September 30, 2003, as compared to .91% at December 31, 2002. The increase in the projected excess spread used to value the interest-only strip receivable was the result of lower projected charge-off rates on securitized other consumer loan principal receivables combined with a decrease in the projected interest rate paid to investors, and the inclusion of projected express payment and returned check fees in the excess spread used to value the interest-only strip receivable.

Interchange

Interchange income is a fee paid by a merchant bank to the card-issuing bank through the interchange network as compensation for risk, grace period, and other operating costs. Such fees are set annually by MasterCard International Incorporated ("MasterCard") and Visa U.S.A. Incorporated ("Visa").

Interchange income increased $19.4 million or 20.6% to $113.5 million and $34.0 million or 11.9% to $318.9 million for the three and nine months ended September 30, 2004, as compared to $94.1 million and $284.8 million for the same periods in 2003, respectively. The increase in interchange income for the three and nine months ended September 30, 2004 was primarily the result of an increase in cardholder sales volume, partially offset by an increase in the cost of rewards programs as a result of increased retail spending. Additionally in the second and third quarter of 2003, MasterCard and Visa increased their interchange rates in the U.S. Interchange income on securitized loans is included in securitization income. See "Regulatory and Other Matters - Interchange in the U.K." for a discussion of possible reductions in U.K. interchange.

Loan Fees

Loan fees include annual, late, overlimit, returned check, cash advance, express payment, and other miscellaneous fees on credit card, other consumer, and commercial loans.

Credit Card Loan Fees

Credit card loan fees increased $14.6 million or 12.2% to $134.3 million and $51.4 million or 14.8% to $398.5 million for the three and nine months ended September 30, 2004, as compared to $119.6 million and $347.1 million for the same periods in 2003, respectively. The increase in credit card fees for the three and nine months ended September 30, 2004, was primarily the result of the growth in the Corporation’s outstanding loan receivables, an increase in the number of accounts, and a change in the timing of fee assessments. The increase in credit card fees for the nine months ended September 30, 2004 also increased as a result of an increase in the average fees assessed related to the implementation of a modified fee structure in the first quarter of 2003, which included higher late and overlimit fees. Credit card loan fees on securitized loans are included in securitization income.


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Other Consumer Loan Fees

Other consumer loan fees increased $17.7 million or 60.6% to $46.9 million and $39.9 million or 47.4% to $124.0 million for the three and nine months ended September 30, 2004, as compared to $29.2 million and $84.1 million for the same periods in 2003, respectively. The increase in other consumer loan fees for the three and nine months ended September 30, 2004 was primarily the result of an in increase in the average cash advance fees assessed related to the implementation of a modified fee structure in the first quarter of 2004, which included the removal of the maximum fee amount that could be assessed on unsecured lending products. Other consumer loan fees on securitized loans are included in securitization income.

Commercial Loan Fees

Commercial loan fees increased $6.9 million or 62.1% to $18.0 million and $19.2 million or 60.6% to $50.9 million for the three and nine months ended September 30, 2004, as compared to $11.1 million and $31.7 million for the same periods in 2003, respectively. The increase in commercial loan fees for the three and nine months ended September 30, 2004, was primarily the result of the growth in the Corporation’s outstanding business card loan receivables, an increase in the number of accounts, a change in the timing of fee assessments, and an increase in the average fees assessed related to the implementation of a modified fee structure, which included higher late and overlimit fees on the Corporation’s business card loans. Commercial loan fees on securitized loans are included in securitization incom e.

Insurance Income

The Corporation’s insurance income primarily relates to fees received for marketing credit related life and disability insurance and credit protection products to its Customers. The Corporation recognizes insurance income over the policy or contract period as earned.

Insurance income decreased $16.9 million or 10.1% to $149.6 million for the nine months ended September 30, 2004, as compared to $166.5 million for the same period in 2003. The decrease for the nine months ended September 30, 2004 was primarily the result of an increase in the percentage of MBNA Europe’s securitized loans to managed loans, while managed insurance income remained relatively stable. Insurance income on securitized loans is included in securitization income.

Other

Other income increased $9.7 million or 62.4% to $25.2 million and $29.6 million or 60.4% to $78.5 million for the three and nine months ended September 30, 2004, as compared to $15.5 million and $48.9 million for the same periods in 2003, respectively. The increase for the three and nine months ended September 30, 2004, was primarily a result of income related to derivatives. The increase for the nine months ended September 30, 2004 was also a result of the income received on a federal tax refund.

Total Other Operating Expense

Total other operating expense includes salaries and employee benefits, occupancy expense of premises, furniture and equipment expense, and other operating expense.

Total other operating expense increased $81.3 million or 6.4% to $1.3 billion and $372.1 million or 9.8% to $4.2 billion for the three and nine months ended September 30, 2004, as compared to $1.3 billion and $3.8 billion for the same periods in 2003, respectively. The growth in other operating expense reflects the Corporation’s continued investment in attracting, servicing, and retaining domestic and foreign Customers.

The Corporation added 7.2 million new accounts during the nine months ended September 30, 2004, compared to 8.0 million new accounts for the same period in 2003. The Corporation added 126 new endorsements from organizations during the nine months ended September 30, 2004, compared to 310 new endorsements for the same period in 2003.

Salaries and Employee Benefits

Salaries and employee benefits increased $29.1 million or 5.6% to $545.1 million and $111.4 million or 7.2% to $1.7 billion for the three and nine months ended September 30, 2004, as compared to $516.0 million and $1.6 billion for the same periods in 2003, respectively. This increase is primarily related to additional full-time equivalent employees and increased employee salary levels and benefit costs, offset by a decrease in the Corporation’s anticipated incentive compensation payout.


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At September 30, 2004 and 2003, the Corporation had approximately 26,900 and 25,500 full-time equivalent employees, respectively.

Included in salaries and employee benefits is the net periodic benefit cost for the Corporation’s noncontributory defined benefit pension plan ("Pension Plan") and the supplemental executive retirement plan ("SERP") of $25.8 million and $77.5 million for the three and nine months ended September 30, 2004, respectively, as compared to $24.0 million and $73.0 million for the same periods in 2003. The Corporation anticipates, based on current conditions, that net periodic benefit cost for the Pension Plan and the SERP will increase by $7.3 million in 2004 because of a lower assumed discount rate and normal operations of the plans, partially offset by a lower assumed rate of compensation increase. For the nine months ended September 30, 2004, the Corporation has contributed the maximum tax deductible contribution to the Pension Plan in 2004, which is approximately $69 million.

For 2004, the Corporation reduced the discount rate used to determine the net periodic benefit cost for both the Pension Plan and the SERP plan to 6.00% from 6.75% in 2003, to reflect the current interest rate environment.

For 2004, the Corporation reduced the expected rate of compensation increase used to determine the net periodic benefit cost for both the Pension Plan and the SERP plan to 5.00% from 5.50% in 2003 after re-evaluating the expected future rate of compensation increases. This change was made to reflect the long-term expectation of compensation rate increases.

"Note J: Employee Benefits" to the consolidated financial statements provides further detail regarding the Corporation’s employee benefits for the three and nine months ended September 30, 2004 and 2003. "Note 22: Employee Benefits" of the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2003, provides further detail regarding the Corporation’s employee benefits.

Furniture and Equipment Expense

Furniture and equipment expense increased $17.8 million or 20.3% to $105.9 million and $32.2 million or 12.3% to $294.0 million for the three and nine months ended September 30, 2004, as compared to $88.1 million and $261.7 million for the same periods in 2003. The increase is primarily related to increased software amortization costs as a result of the implementation of SSE in the second quarter of 2004.

Other Expense Component of Other Operating Expense

The other expense component of other operating expense increased $31.7 million or 5.1% to $651.0 million and $223.0 million or 12.1% to $2.1 billion for the three and nine months ended September 30, 2004, as compared to $619.3 million and $1.8 billion for the same periods in 2003, respectively. Certain components of the other expense component of other operating expense are discussed separately below.

Table 11 provides further detail regarding the Corporation’s other operating expenses.

Table 11: Other Expense Component of Other Operating Expense
(dollars in thousands) (unaudited)

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2004		2003		2004		2003
Purchased services	$	145,574	$	143,006	$	490,055	$	427,357
Advertising		96,775		99,587		307,787		307,238
Collection		28,625		21,793		78,897		55,774
Stationery and supplies		10,609		10,954		30,949		29,945
Service bureau		25,725		20,939		69,960		60,060
Postage and delivery		102,645		109,279		349,505		334,176
Telephone usage		22,803		22,784		66,585		66,208
Loan receivable fraud losses		41,267		35,057		111,754		102,056
Amortization of intangible assets		114,762		108,570		335,503		304,880
Other		62,207		47,284		223,902		154,200
Total other expense	$	650,992	$	619,253	$	2,064,897	$	1,841,894


	-52-

Purchased Services

Purchased services increased $62.7 million or 14.7% to $490.1 million for the nine months ended September 30, 2004, as compared to $427.4 million for the same period in 2003. The increase in purchased services primarily reflects payments to endorsing organizations for marketing efforts they perform on the Corporation’s behalf to activate new accounts after they have been originated.

Collection

Collection expense increased $6.8 million or 31.3% to $28.6 million and $23.1 million or 41.5% to $78.9 million for the three and nine months ended September 30, 2004, as compared to $21.8 million and $55.8 million for the same periods in 2003, respectively. The increase in collection expense is primarily related to increased collection attorney fees associated with strategic initiatives to reduce net charge-off rates.

Amortization of Intangible Assets

Amortization of intangible assets increased $6.2 million or 5.7% to $114.8 million and $30.6 million or 10.0% to $335.5 million for the three and nine months ended September 30, 2004, as compared to $108.6 million and $304.9 million for the same periods in 2003, respectively. The increases for the three and nine months ended September 30, 2004, reflect an increase in loan portfolio and business acquisition activity in recent years.

Other

Other expense increased $14.9 million or 31.6% to $62.2 million the three months ended September 30, 2004, as compared to $47.3 million for the same period in 2003. The increase in other expense for the three months ended September 30, 2004 was primarily related to an increase in the operating losses associated with community reinvestment equity interests and a decrease in the market value of company owned life insurance, as compared to an increase in the market value for the same period in 2003.

Other expense increased $69.7 million or 45.2% to $223.9 million for the nine months ended September 30, 2004, as compared to $154.2 million for the same period in 2003. The increase in other expense for the nine months ended September 30, 2004 was related to losses recorded on sales of fixed assets and the write down to fair market value of certain fixed assets that the Corporation intends to sell, an increase in the operating losses associated with community reinvestment equity interests, and the market value of company owned life insurance increasing at a slower rate than in the same period in 2003.

Income Taxes

The Corporation's income taxes increased $48.7 million to $420.9 million and $91.1 million to $1.0 billion for the three and nine months ended September 30, 2004, as compared to $372.2 million and $923.5 million for the same periods in 2003, respectively. These amounts represent an effective tax rate of 36.6% and 34.7% for the three and nine months ended September 30, 2004, respectively, as compared to 36.1% for the same periods in 2003. The increase in the effective tax rate for the three months ended September 30, 2004 was primarily driven by a decrease in earnings from the Corporation’s foreign subsidiaries, which are taxed at lower rates, as a percentage of Corporation’s consolidated earnings. The reduction for the nine months ended September 30, 2004 in the effective tax rate was primarily driven by favorable resolutions of examination issues at the federal and state levels. The favorable resolution s of examination issues at the federal and state levels reduced income tax expense recorded in the second quarter of 2004 by $32.5 million.


	-53-

Loan Quality

The Corporation’s loan quality at any time reflects, among other factors, the credit quality of the Corporation’s loans, the success of the Corporation’s collection efforts, the relative mix of credit card, other consumer, and commercial loans held by the Corporation, the seasoning of the Corporation’s loans, and general economic conditions. As new loans season, the delinquency and charge-off rates on these loans normally rise and then stabilize.

Credit card, business card, and other consumer loans are evaluated for loan quality in the same manner, as they have similar loan quality characteristics. Commercial insurance premium financing loans and professional practice financing loans were acquired as part of the PCL and SFS acquisitions in the first quarter of 2004. Certain commercial loans are evaluated on a loan by loan basis, based on size and other factors. When indicated by that loan by loan evaluation, specific reserve allocations are made to reflect identified losses. See "Note K: Acquisitions" to the consolidated financial statements for further detail regarding the PCL and SFS acquisitions.

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’s loan quality varies according to type, as well as the geographic location, of loans. Domestic other consumer loan receivables typically have a higher delinquency and charge-off rate than the Corporation’s domestic credit card and domestic commercial loan receivables. Foreign loan receivables typically have a lower delinquency and charge-off rate than the Corporation’s domestic loan receivables. The Corporation considers the levels of delinquent loans, renegotiated loans, re-aged loans, and other factors, including historical results, in determining the appropriate reserve for possible credit losses and the estimate of uncollectible accrued interest and fees. The following loan quality discussion includes credit risk, delinquencies, renegotiated loan programs, which include nonaccrual loans and reduced-rate loans, re-aged loans, net credit losses, the reserve and provision for possible credit losses, and the estimate of uncollectible accrued interest and fees. See "Critical Accounting Policies-Reserve For Possible Credit Losses" and "Revenue Recognition" to the consolidated financial statements for further discussion.

Credit Risk

Credit risk is one of the Corporation’s most significant risks. It primarily represents the risk to earnings and capital arising from the failure of Customers to repay loans according to their terms. Credit risk is particularly important for the Corporation because its primary products are unsecured consumer credit cards and other unsecured consumer loans that generally have higher credit risks, and lower loan quality, than secured consumer lending products, such as mortgage loans and automobile loans, and commercial lending products. In addition, the Corporation generates significant revenues from fees, such as late and overlimit fees, on accounts that exhibit higher credit risk.

Management attempts to manage credit risk through a variety of techniques, including prudent underwriting of applications for credit and review of credit risk for portfolios of loans that are acquired, setting and managing appropriate credit line amounts, monitoring account usage and, where appropriate, blocking use of accounts and working with Customers with past-due balances to help them manage their accounts and to collect past-due amounts. These efforts are described under "Business" in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2003.

The level of the Corporation’s credit risk is affected by the Corporation’s marketing and credit underwriting strategies. The Corporation markets its products through endorsements from associations, financial institutions, and other organizations. Through this endorsed marketing strategy and the Corporation’s underwriting of loan applications, the Corporation attempts to attract quality loan applicants and offer optimal, appropriate credit lines on accounts and periodic credit-line increases, resulting in higher usage and average account balances. When Customers experience financial difficulties, however, the higher usage and average account balances will result in higher average balances for accounts that charge off. The Corporation attempts to control this risk through blocking the use of accounts or reducing credit lines. The Corporation may also set or increase the interest rate charged o n accounts to compensate for increased credit risk. For example, as discussed under "Loan Quality - Delinquencies" below, the Corporation generally charges higher interest rates on domestic other consumer loan receivables because these receivables typically have a higher delinquency and charge-off rate than the Corporation’s domestic credit card and domestic commercial loan receivables. The Corporation also assesses certain fees, such as late and overlimit fees, to encourage Customers to pay and manage their accounts responsibly and to compensate the Corporation for the additional risk associated with delinquency and overlimit activity on the Customers’ accounts.

Credit quality and the impact of credit losses on the Corporation’s financial condition and results of operations are discussed below.


	-54-

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 and fees continue to accrue on the Corporation’s delinquent loans. Delinquency as a percentage of the Corporation's loan receivables was 3.45% at September 30, 2004, as compared to 3.84% at December 31, 2003. The Corporation's delinquency as a percentage of managed loans was 4.11% at September 30, 2004, as compared to 4.39% at December 31, 2003.

The delinquency rate on the Corporation’s foreign loans is typically lower than the delinquency rate on the Corporation’s domestic loans. The Corporation’s domestic other consumer loans typically have a higher delinquency and charge-off rate than the Corporation’s domestic credit card loans and domestic commercial loans. As a result, the Corporation generally charges higher interest rates on domestic other consumer loans.

The decrease in delinquency on domestic loans at September 30, 2004 as compared to December 31, 2003, was a result of improving asset quality trends, enhanced collection strategies, and an improved economy, while the increase in delinquency on foreign loans was primarily a result of continued seasoning of the foreign portfolio and the adjustment of collection strategies to concentrate on later stage delinquency.

Table 12 presents a reconciliation of the Corporation’s loan receivables delinquency ratio to the managed loans delinquency ratio.


	-55-

Table 12: Delinquent Loans (a) (b)
(dollars in thousands) (unaudited)
	September 30, 2004				December 31, 2003

Loan Receivables:
Loan receivables outstanding	$	32,141,122			$	33,624,077
Loan receivables delinquent:
30 to 59 days	$	371,624	1.16	%	$	429,266	1.28	%
60 to 89 days		254,509	.79			277,928	.83
90 or more days (c)		481,676	1.50			582,605	1.73
Total loan receivables delinquent	$	1,107,809	3.45	%	$	1,289,799	3.84	%
Loan receivables delinquent by geographic area:
Domestic (d):
Credit card	$	593,850	4.11	%	$	759,697	4.34	%
Other consumer		280,061	4.98			333,589	5.95
Commercial		40,938	1.63			21,333	1.65
Total domestic		914,849	4.05			1,114,619	4.57
Foreign (d):
Credit card		113,075	2.11			124,892	1.85
Other consumer		57,710	1.87			49,895	2.06
Commercial		22,175	1.95			393	1.03
Total foreign		192,960	2.01			175,180	1.90
Total loan receivables delinquent by geographic area	$	1,107,809	3.45		$	1,289,799	3.84
Securitized Loans:
Securitized loans outstanding	$	85,672,350			$	84,869,483
Securitized loans delinquent:
30 to 59 days	$	1,231,079	1.44	%	$	1,235,230	1.46	%
60 to 89 days		834,278	.97			818,356	.96
90 or more days (c)		1,673,469	1.95			1,860,265	2.19
Total securitized loans delinquent	$	3,738,826	4.36	%	$	3,913,851	4.61	%
Securitized loans delinquent by geographic area:
Domestic (d):
Credit card	$	2,998,200	4.60	%	$	3,207,710	4.82	%
Other consumer		312,784	5.52			351,655	6.20
Commercial		33,440	3.32			36,802	3.65
Total domestic		3,344,424	4.65			3,596,167	4.91
Foreign (d):
Credit card		394,402	2.86			317,684	2.74
Other consumer		-	-			-	-
Commercial		-	-			-	-
Total foreign		394,402	2.86			317,684	2.74
Total securitized loans delinquent by geographic area	$	3,738,826	4.36		$	3,913,851	4.61


	-56-


Table 12: Delinquent Loans (a) (b) - continued
(dollars in thousands) (unaudited)

	September 30, 2004				December 31, 2003
Managed Loans:
Managed loans outstanding	$	117,813,472			$	118,493,560
Managed loans delinquent:
30 to 59 days	$	1,602,703	1.36	%	$	1,664,496	1.40	%
60 to 89 days		1,088,787	.92			1,096,284	.93
90 or more days (c)		2,155,145	1.83			2,442,870	2.06
Total managed loans delinquent	$	4,846,635	4.11	%	$	5,203,650	4.39	%
Managed loans delinquent by geographic area:
Domestic (d):
Credit card	$	3,592,050	4.51	%	$	3,967,407	4.72	%
Other consumer		592,845	5.25			685,244	6.07
Commercial		74,378	2.12			58,135	2.53
Total domestic		4,259,273	4.51			4,710,786	4.82
Foreign (d):
Credit card		507,477	2.65			442,576	2.41
Other consumer		57,710	1.87			49,895	2.06
Commercial		22,175	1.95			393	1.03
Total foreign		587,362	2.52			492,864	2.37
Total managed loans delinquent by geographic area	$	4,846,635	4.11		$	5,203,650	4.39

(a) Amounts exclude nonaccrual loans, which are presented in Table 14.
(b) The Corporation considers these loans and other factors in determining an appropriate reserve for possible credit losses and the estimate of uncollectible accrued interest and fees.
(c) See Table 13 for further detail on accruing loans past due 90 days or more.
(d) The Corporation reclassified certain loan products to separately report its commercial loan products. Business card products were reclassified from credit card loans to commercial loans, and all other commercial loan products were reclassified from other consumer loans to commercial loans. For purposes of comparability, certain prior period amounts have been reclassified.


	-57-

Accruing Loans Past Due 90 Days Or More

Table 13 presents further detail on the Corporation's accruing loan receivables past due 90 days or more included in Table 12 and includes a reconciliation to the accruing managed loans past due 90 days or more.

Table 13: Accruing Loans Past Due 90 Days or More (a) (b) (c)
(dollars in thousands)(unaudited)

	September 30, 2004		December 31, 2003
Loan Receivables:
Domestic (d):
Credit card	$	263,670	$	358,786
Other consumer		134,171		163,701
Commercial		19,372		7,496
Total domestic		417,213		529,983
Foreign (d):
Credit card		37,476		41,669
Other consumer		14,059		10,838
Commercial		12,928		115
Total foreign		64,463		52,622
Total loan receivables	$	481,676	$	582,605
Securitized Loans:
Domestic (d):
Credit card	$	1,359,597	$	1,545,233
Other consumer		150,946		174,314
Commercial		18,222		18,486
Total domestic		1,528,765		1,738,033
Foreign (d):
Credit card		144,704		122,232
Other consumer		-		-
Commercial		-		-
Total foreign		144,704		122,232
Total securitized loans	$	1,673,469	$	1,860,265
Managed Loans:
Domestic (d):
Credit card	$	1,623,267	$	1,904,019
Other consumer		285,117		338,015
Commercial		37,594		25,982
Total domestic		1,945,978		2,268,016
Foreign (d):
Credit card		182,180		163,901
Other consumer		14,059		10,838
Commercial		12,928		115
Total foreign		209,167		174,854
Total managed loans	$	2,155,145	$	2,442,870

(a) Amounts exclude nonaccrual loans, which are presented in Table 14.
(b) This Table provides further detail on 90 days or more delinquent loans presented in Table 12.
(c) The Corporation considers these loans and other factors in determining an appropriate reserve for possible credit losses and the estimate of uncollectible accrued interest and fees.
(d) The Corporation reclassified certain loan products to separately report its commercial loan products. Business card products were reclassified from credit card loans to commercial loans, and all other commercial loan products were reclassified from other consumer loans to commercial loans. For purposes of comparability, certain prior period amounts have been reclassified.


	-58-

Renegotiated Loan Programs

The Corporation may modify the terms of its credit card, other consumer, and commercial loan agreements with Customers who have experienced financial difficulties by offering them renegotiated loan programs, which include either placing them on nonaccrual status or reducing their interest rate. The Corporation considers these loans and other factors in determining an appropriate reserve for possible credit losses and the estimate of uncollectible accrued interest and fees.

Nonaccrual Loans

On a case-by-case basis, management determines whether an account should be placed on nonaccrual status. When loans are classified as nonaccrual, interest is no longer billed to the Customer.

Nonaccrual loan receivables as a percentage of the Corporation’s ending loan receivables were .31% at September 30, 2004, as compared to .30% at December 31, 2003. Nonaccrual managed loans as a percentage of ending managed loans were .28% at September 30, 2004, as compared to .23% at December 31, 2003. The decrease in domestic nonaccrual managed loans was primarily the result of a reduction in the number of nonaccrual loan programs offered to domestic Customers as the Corporation relied more on reduced-rate loans as part of the domestic Customer collection strategies. The increase in foreign nonaccrual managed loans was a result of MBNA Europe placing more loans on nonaccrual status to comply with U.K. specific regulatory requirements and a decrease in the usage of reduced-rate loans as part of its colle ction strategies. Table 15 provides further information on the Corporation’s reduced-rate loans.


	-59-

Table 14 presents the Corporation's nonaccrual loan receivables and includes a reconciliation to the nonaccrual managed loans.

Table 14: Nonaccrual Loans (a) (b)
(dollars in thousands)(unaudited)
	September 30, 2004			December 31, 2003
Loan Receivables:
Domestic (c):
Credit card	$	3,411		$	11,298
Other consumer		530			1,053
Commercial		4,107			1,816
Total domestic		8,048			14,167
Foreign (c):
Credit card		85,576			80,352
Other consumer		5,042			4,903
Commercial		154			29
Total foreign		90,772			85,284
Total loan receivables	$	98,820		$	99,451
Nonaccrual loan receivables as a percentage of ending loan receivables		.31	%		.30	%

Securitized Loans:
Domestic (c):
Credit card	$	16,000		$	45,097
Other consumer		571			1,050
Commercial		2,347			2,675
Total domestic		18,918			48,822
Foreign (c):
Credit card		214,595			129,140
Other consumer		-			-
Commercial		-			-
Total foreign		214,595			129,140
Total securitized loans	$	233,513		$	177,962
Nonaccrual securitized loans as a percentage of ending securitized loans		.27	%		.21	%

Managed Loans:
Domestic (c):
Credit card	$	19,411		$	56,395
Other consumer		1,101			2,103
Commercial		6,454			4,491
Total domestic		26,966			62,989
Foreign (c):
Credit card		300,171			209,492
Other consumer		5,042			4,903
Commercial		154			29
Total foreign		305,367			214,424
Total managed loans	$	332,333		$	277,413
Nonaccrual managed loans as a percentage of ending managed loans		.28	%		.23	%

(a) Although nonaccrual loans are charged off consistent with the Corporation’s charge-off policy as described in "Loan Quality - Net Credit Losses," nonaccrual loans are not included in the delinquent loans presented in Tables 12 and 13 and reduced-rate loans which are presented in Table 15.
(b) The Corporation considers these loans and other factors in determining an appropriate reserve for possible credit losses and the estimate of uncollectible accrued interest and fees.
(c) The Corporation reclassified certain loan products to separately report its commercial loan products. Business card products were reclassified from credit card loans to commercial loans, and all other commercial loan products were reclassified from other consumer loans to commercial loans. For purposes of comparability, certain prior period amounts have been reclassified.


	-60-

Reduced-Rate Loans

On a case-by-case basis, management determines whether an account should be placed on reduced-rate status. Reduced-rate loans are loans for which the interest rate has been reduced because of the inability of the Customer to comply with the terms and conditions of the loan agreement. Income is accrued at the reduced rate as long as the Customer complies with the revised terms and conditions.

Reduced-rate loan receivables as a percentage of the Corporation’s ending loan receivables were 1.70% at September 30, 2004 and December 31, 2003. Reduced-rate managed loans as a percentage of ending managed loans were 2.22% at September 30, 2004, as compared to 2.03% at December 31, 2003. The decrease in foreign reduced-rate loans was a result of decreased usage of reduced-rate loans as MBNA Europe relied more on nonaccrual loans as part of its collection strategies.

The increase in domestic reduced-rate managed loans was a result of increased usage of reduced-rate loans as part of the domestic Customer collection strategies. The decrease in domestic reduced-rate loan receivables was primarily a result of an increase in domestic reduced-rate securitized loans.


	-61-

Table 15 presents the Corporation’s reduced-rate loan receivables and includes a reconciliation to the reduced-rate managed loans.

Table 15: Reduced-Rate Loans (a) (b)
(dollars in thousands)(unaudited)

	September 30, 2004			December 31, 2003
Loan Receivables:
Domestic (c):
Credit card	$	399,215		$	407,119
Other consumer		130,029			131,008
Commercial		3,576			3,077
Total domestic		532,820			541,204
Foreign (c):
Credit card		13,304			31,402
Other consumer		39			44
Commercial		-			-
Total foreign		13,343			31,446
Total loan receivables	$	546,163		$	572,650
Reduced-rate loan receivables as a percentage of ending loan receivables		1.70	%		1.70	%

Securitized Loans:
Domestic (c):
Credit card	$	1,866,086		$	1,622,245
Other consumer		140,128			139,476
Commercial		4,032			4,476
Total domestic		2,010,246			1,766,197
Foreign (c):
Credit card		54,160			66,009
Other consumer		-			-
Commercial		-			-
Total foreign		54,160			66,009
Total securitized loans	$	2,064,406		$	1,832,206
Reduced-rate securitized loans as a percentage of ending securitized loans		2.41	%		2.16	%

Managed Loans:
Domestic (c):
Credit card	$	2,265,301		$	2,029,364
Other consumer		270,157			270,484
Commercial		7,608			7,553
Total domestic		2,543,066			2,307,401
Foreign (c):
Credit card		67,464			97,411
Other consumer		39			44
Commercial		-			-
Total foreign		67,503			97,455
Total managed loans	$	2,610,569		$	2,404,856
Reduced-rate managed loans as a percentage of ending managed loans		2.22	%		2.03	%

(a) Reduced-rate loans presented in this Table exclude accruing loans past due 90 days or more and nonaccrual loans, which are presented in Tables 13 and 14, respectively.
(b) The Corporation considers these loans and other factors in determining an appropriate reserve for possible credit losses and the estimate of uncollectible accrued interest and fees.
(c) The Corporation reclassified certain loan products to separately report its commercial loan products. Business card products were reclassified from credit card loans to commercial loans, and all other commercial loan products were reclassified from other consumer loans to commercial loans. For purposes of comparability, certain prior period amounts have been reclassified.


	-62-

Re-aged Loans

A Customer’s account may be re-aged to remove existing delinquency. Generally, the intent of a re-age is to assist Customers who have recently overcome temporary financial difficulties, and have demonstrated both the ability and willingness to resume regular payments, but may be unable to pay the entire past due amount. To qualify for re-aging, the account must have been open for at least one year and cannot have been re-aged during the preceding 365 days. An account may not be re-aged more than two times in a five-year period. To qualify for re-aging, the Customer must also have made three regular minimum monthly payments within the last 90 days. In addition, the Corporation may re-age the account of a Customer who is experiencing long-term financial difficulties and apply modified, concessionary terms and conditions to the account. Such additional re-ages are limited to one in a five year period and must meet the qualifications for re-ages described above, except that the Customer’s three consecutive minimum monthly payments may be based on the modified terms and conditions applied to the account. All re-age strategies are approved by the Corporation’s senior management and the Corporation’s Loan Review Department.

Re-ages can have the effect of delaying charge-offs. There were $137.3 million and $459.3 million of loan receivables re-aged during the three and nine months ended September 30, 2004, compared to $158.5 million and $542.7 million for the same periods in 2003, respectively. Managed loans re-aged during the three and nine months ended September 30, 2004 were $589.0 million and $2.0 billion, as compared to $622.8 million and $2.2 billion for the same periods in 2003, respectively. Of those accounts that were re-aged during the three months ended September 30, 2003, approximately 23% returned to delinquency status and approximately 20% charged off by September 30, 2004.

The decrease in domestic re-aged amounts for the three and nine months ended September 30, 2004, as compared to the same periods in 2003, was the result of changes in re-age practices implemented by the Corporation during 2002 and 2003, which reduced the number of accounts that qualified for re-age. The increase in foreign managed re-aged amounts for the nine months ended September 30, 2004, as compared to the nine months ended September 30, 2003, was the result of the increase in foreign managed loans since September 30, 2003.


	-63-

Table 16 presents the Corporation’s loan receivables re-aged amounts and includes a reconciliation to the managed re-aged amounts.

Table 16: Re-aged Amounts (a)
(dollars in thousands)(unaudited)
	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2004		2003		2004		2003
Loan Receivables Re-aged Amounts
Domestic (b):
Credit card	$	74,959	$	77,051	$	259,682	$	280,062
Other consumer		35,017		48,236		124,704		183,558
Commercial		1,455		1,482		3,704		7,083
Total domestic		111,431		126,769		388,090		470,703
Foreign (b):
Credit card		16,046		23,756		48,942		50,975
Other consumer		9,852		8,020		22,228		20,988
Commercial		10		-		10		-
Total foreign		25,908		31,776		71,180		71,963
Total loan receivables re-aged amounts	$	137,339	$	158,545	$	459,270	$	542,666

Securitized Loan Re-aged Amounts
Domestic (b):
Credit card	$	365,548	$	371,300	$	1,247,643	$	1,340,616
Other consumer		37,960		47,115		123,474		177,812
Commercial		1,019		1,572		3,695		4,301
Total domestic		404,527		419,987		1,374,812		1,522,729
Foreign (b):
Credit card		47,183		44,313		128,286		101,720
Other consumer		-		-		-		-
Commercial		-		-		-		-
Total foreign		47,183		44,313		128,286		101,720
Total securitized loan re-aged amounts	$	451,710	$	464,300	$	1,503,098	$	1,624,449

Managed Loan Re-aged Amounts
Domestic (b):
Credit card	$	440,507	$	448,351	$	1,507,325	$	1,620,678
Other consumer		72,977		95,351		248,178		361,370
Commercial		2,474		3,054		7,399		11,384
Total domestic		515,958		546,756		1,762,902		1,993,432
Foreign (b):
Credit card		63,229		68,069		177,228		152,695
Other consumer		9,852		8,020		22,228		20,988
Commercial		10		-		10		-
Total foreign		73,091		76,089		199,466		173,683
Total managed loan re-aged amounts	$	589,049	$	622,845	$	1,962,368	$	2,167,115

(a) Re-aged loans that returned to delinquency status are included in the delinquency amounts presented in Tables 12 and 13, provided that the loans have not charged off.
(b) The Corporation reclassified certain loan products to separately report its commercial loan products. Business card products were reclassified from credit card loans to commercial loans, and all other commercial loan products were reclassified from other consumer loans to commercial loans. For purposes of comparability, certain prior period amounts have been reclassified.


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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. The respective income amounts, loan receivables, and accrued income receivable are reduced for uncollectible interest and fees. The Corporation records current period recoveries on loans previously charged off in the reserve for possible credit losses. If the Corporation sells charged-off loans, it records the proceeds received from these sales as recoveries. Fraud losses are recognized through a charge to other expense.

The Corporation works with Customers continually at each stage of delinquency. The Corporation’s policy is to charge off open-end delinquent loans by the end of the month in which the account becomes 180 days contractually past due and closed-end delinquent loans by the end of the month in which they become 120 days contractually past due. Delinquent bankrupt accounts are charged off by the end of the second calendar month following receipt of notification of filing from the applicable court, but not later than the applicable 180-day or 120-day timeframes described above. Accounts of deceased Customers are charged off when the loss is determined, but not later than the applicable 180-day or 120-day timeframes. Accounts failing to make a payment within charge-off policy timeframes are written off. Manager s may on an exception basis defer charge off of an account for another month, pending continued payment activity or other special circumstances. Senior manager approval is required on all such exceptions to the above charge-off policies.

Loan receivables net credit losses decreased $3.2 million to $330.5 million for the three months ended September 30, 2004, as compared to $333.6 million for the same period in 2003. Net credit losses as a percentage of average loan receivables were 4.28% for the three months ended September 30, 2004, as compared to 4.70% for the same period in 2003. Managed net credit losses decreased $58.3 million to $1.4 billion for the three months ended September 30, 2004, as compared to $1.4 billion for the same period in 2003. The Corporation’s managed net credit losses as a percentage of average managed loans for the three months ended September 30, 2004, were 4.61%, as compared to 5.13% for the same period in 2003.

Loan receivables net credit losses increased $4.4 million to $1.0 billion for the nine months ended September 30, 2004, as compared to $1.0 billion for the same period in 2003. Net credit losses as a percentage of average loan receivables were 4.44% for the nine months ended September 30, 2004, as compared to 4.91% for the same period in 2003. Managed net credit losses decreased $42.4 million to $4.3 billion for the nine months ended September 30, 2004, as compared to $4.3 billion for the same period in 2003. The Corporation’s managed net credit losses as a percentage of average managed loans for the nine months ended September 30, 2004 were 4.85%, as compared to 5.31% for the same period in 2003.

The net credit loss ratio is calculated by dividing annualized net credit losses, which exclude uncollectible accrued interest and fees and fraud losses, for the period by average loans, which include the estimated collectible billed interest and fees, for the corresponding period.

The net credit loss ratio on the Corporation’s domestic other consumer loans is typically higher than the net credit loss ratio on the Corporation’s domestic credit card and commercial loans, due to the higher credit risk associated with these products. The net credit loss ratio on the Corporation’s domestic credit card loans is typically higher than the net credit loss ratio on the Corporation’s foreign credit card loans.

The decreases in domestic credit card net credit loss ratios for the three and nine months ended September 30, 2004, as compared to the same periods in 2003, primarily reflect the Corporation’s improving asset quality trends, enhanced collection strategies, and an improved economy.

Table 17 presents the Corporation’s loan receivables net credit loss ratio and includes a reconciliation to the managed net credit loss ratio.


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Table 17: Net Credit Loss Ratio
(dollars in thousands) (unaudited)
	For the Three Months Ended September 30, 2004							For the Three Months Ended September 30, 2003
	Net Credit Losses		Average Loans Outstanding		Net Credit Loss Ratio			Net Credit Losses		Average Loans Outstanding		Net Credit Loss Ratio
Loan Receivables:
Domestic (a):
Credit card	$	150,729	$	13,798,932		4.37	%	$	163,231	$	13,673,873		4.77	%
Other consumer		96,643		5,576,609		6.93			115,599		6,152,316		7.52
Commercial		18,420		2,448,625		3.01			6,255		929,519		2.69
Total domestic		265,792		21,824,166		4.87			285,085		20,755,708		5.49
Foreign (a):
Credit card		34,084		4,807,145		2.84			32,504		5,495,228		2.37
Other consumer		26,577		3,089,871		3.44			16,007		2,095,940		3.05
Commercial		4,018		1,155,585		1.39			43		21,392		.80
Total foreign		64,679		9,052,601		2.86			48,554		7,612,560		2.55
Total loan receivables	$	330,471	$	30,876,767		4.28		$	333,639	$	28,368,268		4.70
Securitized Loans:
Domestic (a):
Credit card	$	802,422	$	67,292,128		4.77	%	$	863,926	$	65,892,490		5.24	%
Other consumer		105,002		5,669,159		7.41			123,717		5,681,166		8.71
Commercial		13,069		1,007,707		5.19			11,962		854,539		5.60
Total domestic		920,493		73,968,994		4.98			999,605		72,428,195		5.52
Foreign (a):
Credit card		113,320		13,657,079		3.32			89,334		10,197,854		3.50
Other consumer		-		-		-			-		-		-
Commercial		-		-		-			-		-		-
Total foreign		113,320		13,657,079		3.32			89,334		10,197,854		3.50
Total securitized loans	$	1,033,813	$	87,626,073		4.72		$	1,088,939	$	82,626,049		5.27
Managed Loans:
Domestic (a):
Credit card	$	953,151	$	81,091,060		4.70	%	$	1,027,157	$	79,566,363		5.16	%
Other consumer		201,645		11,245,768		7.17			239,316		11,833,482		8.09
Commercial		31,489		3,456,332		3.64			18,217		1,784,058		4.08
Total domestic		1,186,285		95,793,160		4.95			1,284,690		93,183,903		5.51
Foreign (a):
Credit card		147,404		18,464,224		3.19			121,838		15,693,082		3.11
Other consumer		26,577		3,089,871		3.44			16,007		2,095,940		3.05
Commercial		4,018		1,155,585		1.39			43		21,392		.80
Total foreign		177,999		22,709,680		3.14			137,888		17,810,414		3.10
Total managed loans	$	1,364,284	$	118,502,840		4.61		$	1,422,578	$	110,994,317		5.13


	-66-

Table 17: Net Credit Loss Ratio - continued
(dollars in thousands) (unaudited)
	For the Nine Months Ended September 30, 2004							For the Nine Months Ended September 30, 2003
	Net Credit Losses		Average Loans Outstanding		Net Credit Loss Ratio			Net Credit Losses		Average Loans Outstanding		Net Credit Loss Ratio
Loan Receivables:
Domestic (a):
Credit card	$	472,212	$	14,041,349		4.48	%	$	487,364	$	13,505,672		4.81	%
Other consumer		322,645		5,532,021		7.78			363,675		6,186,631		7.84
Commercial		37,936		2,045,296		2.47			26,540		1,073,409		3.30
Total domestic		832,793		21,618,666		5.14			877,579		20,765,712		5.63
Foreign (a):
Credit card		114,699		5,296,284		2.89			97,111		5,034,368		2.57
Other consumer		73,958		2,988,303		3.30			50,386		2,030,627		3.31
Commercial		8,062		1,012,230		1.06			73		11,630		.84
Total foreign		196,719		9,296,817		2.82			147,570		7,076,625		2.78
Total loan receivables	$	1,029,512	$	30,915,483		4.44		$	1,025,149	$	27,842,337		4.91
Securitized Loans:
Domestic (a):
Credit card	$	2,558,403	$	67,394,318		5.06	%	$	2,637,806	$	64,718,129		5.43	%
Other consumer		338,141		5,670,672		7.95			383,186		5,683,837		8.99
Commercial		39,713		1,007,781		5.25			23,933		622,067		5.13
Total domestic		2,936,257		74,072,771		5.29			3,044,925		71,024,033		5.72
Foreign (a):
Credit card		317,346		12,814,572		3.30			255,414		9,695,461		3.51
Other consumer		-		-		-			-		-		-
Commercial		-		-		-			-		-		-
Total foreign		317,346		12,814,572		3.30			255,414		9,695,461		3.51
Total securitized loans	$	3,253,603	$	86,887,343		4.99		$	3,300,339	$	80,719,494		5.45
Managed Loans:
Domestic (a):
Credit card	$	3,030,615	$	81,435,667		4.96	%	$	3,125,170	$	78,223,801		5.33	%
Other consumer		660,786		11,202,693		7.86			746,861		11,870,468		8.39
Commercial		77,649		3,053,077		3.39			50,473		1,695,476		3.97
Total domestic		3,769,050		95,691,437		5.25			3,922,504		91,789,745		5.70
Foreign (a):
Credit card		432,045		18,110,856		3.18			352,525		14,729,829		3.19
Other consumer		73,958		2,988,303		3.30			50,386		2,030,627		3.31
Commercial		8,062		1,012,230		1.06			73		11,630		.84
Total foreign		514,065		22,111,389		3.10			402,984		16,772,086		3.20
Total managed loans	$	4,283,115	$	117,802,826		4.85		$	4,325,488	$	108,561,831		5.31

(a) The Corporation reclassified certain loan products to separately report its commercial loan products. Business card products were reclassified from credit card loans to commercial loans, and all other commercial loan products were reclassified from other consumer loans to commercial loans. For purposes of comparability, certain prior period amounts have been reclassified.


	-67-

Reserve and Provision for Possible Credit Losses

The Corporation’s reserve for possible credit losses at September 30, 2004 decreased $74.5 million from December 31, 2003. The reserve for possible credit losses was $1.1 billion at September 30, 2004, as compared to $1.2 billion at December 31, 2003. The provision for possible credit losses decreased $60.7 million or 18.2% to $273.4 million and $168.4 million or 15.9% to $890.1 million for the three and nine months ended September 30, 2004, as compared to $334.1 million and $1.1 billion for the same periods in 2003, respectively. The decrease in the reserve for possible credit losses and the related provision for possible credit losses was a result of improving asset quality trends, enhanced collection strategies, and an improved economy. These trends include improved delinquency and charge-off ratios. The Corporation has increased the reserve for possible credit losses and the related provision for possible credit losses on its foreign loans due to an increasing trend in delinquencies and its projection of probable net credit losses, along with an increase in acquired reserves.

The Corporation recorded acquired reserves for possible credit losses for loan portfolio acquisitions of $1.4 million and $63.8 million (including $22.0 million and $21.4 million recorded in connection with the PCL and SFS acquisitions, respectively) for the three and nine months ended September 30, 2004, respectively, as compared to $2.7 million and $28.7 million for the same periods in 2003, respectively.

Table 18 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 Corporation’s reserve for possible credit losses.


	-68-

Table 18: Reserve for Possible Credit Losses
(dollars in thousands)(unaudited)

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2004			2003			2004			2003
Reserve for possible credit losses, beginning of period	$	1,196,304		$	1,175,256		$	1,216,316		$	1,111,299
Reserves acquired:
Domestic		1,241			2,046			39,727			26,677
Foreign		175			642			24,067			2,023
Total reserves acquired		1,416			2,688			63,794			28,700
Provision for possible credit losses:
Domestic		221,700			304,719			673,549			926,312
Foreign		51,687			29,345			216,556			132,232
Total provision for possible credit losses		273,387			334,064			890,105			1,058,544
Foreign currency translation		1,203			1,626			1,136			6,601
Credit losses:
Domestic (a):
Credit card		(164,189	)		(175,242	)		(511,141	)		(523,859	)
Other consumer		(104,069	)		(122,527	)		(345,431	)		(387,200	)
Commercial		(18,719	)		(6,937	)		(39,354	)		(28,426	)
Total domestic credit losses		(286,977	)		(304,706	)		(895,926	)		(939,485	)
Foreign (a):
Credit card		(39,180	)		(38,144	)		(130,601	)		(114,042	)
Other consumer		(30,293	)		(18,758	)		(84,105	)		(57,888	)
Commercial		(4,022	)		(43	)		(8,068	)		(74	)
Total foreign credit losses		(73,495	)		(56,945	)		(222,774	)		(172,004	)
Total credit losses		(360,472	)		(361,651	)		(1,118,700	)		(1,111,489	)
Recoveries:
Domestic (a):
Credit card		13,460			12,011			38,929			36,495
Other consumer		7,426			6,928			22,786			23,525
Commercial		299			682			1,418			1,886
Total domestic recoveries		21,185			19,621			63,133			61,906
Foreign (a):
Credit card		5,096			5,640			15,902			16,931
Other consumer		3,716			2,751			10,147			7,502
Commercial		4			-			6			1
Total foreign recoveries		8,816			8,391			26,055			24,434
Total recoveries		30,001			28,012			89,188			86,340
Net credit losses		(330,471	)		(333,639	)		(1,029,512	)		(1,025,149	)
Reserve for possible credit losses, end of period	$	1,141,839		$	1,179,995		$	1,141,839		$	1,179,995

(a) The Corporation reclassified certain loan products to separately report its commercial loan products. Business card products were reclassified from credit card loans to commercial loans, and all other commercial loan products were reclassified from other consumer loans to commercial loans. For purposes of comparability, certain prior period amounts have been reclassified.


	-69-

Estimate of Uncollectible Accrued Interest And Fees

The Corporation adjusts the amount of interest and fee income on loan receivables recognized in the current period for its estimate of interest and fee income that it does not expect to collect in subsequent periods through adjustments to the respective income statement amounts, loan receivables, and accrued income receivable. The estimate of uncollectible accrued interest and fees is based on a migration analysis of delinquent and current loan receivables that may 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 may progress through the various delinquency stages and ultimately charge off.

The differences between the amounts of interest and fees the Corporation was contractually entitled to and the amounts recognized as revenue were $256.8 million and $796.4 million for the three and nine months ended September 30, 2004, as compared to $298.6 million and $895.8 million for the same periods in 2003, respectively.

The difference between the amounts of interest and fees the Corporation was contractually entitled to and the amounts recognized as revenue for domestic loans decreased $50.8 million and $135.7 million for the three and nine months ended September 30, 2004, respectively, due to improved delinquencies, compared to the same periods in 2003.

The difference between the amounts of interest and fees the Corporation was contractually entitled to and the amounts recognized as revenue for foreign loans increased $8.9 million and $36.3 million for the three and nine months ended September 30, 2004, respectively, due to changes in the estimated value of the collectible amount of interest and fees on the Corporation’s foreign loans, compared to the same periods in 2003.

Table 19 presents the domestic and foreign amounts for the difference between the amounts of interest and fees the Corporation was contractually entitled to and the amounts recognized as revenue.

Table 19: Difference Between the Amounts of Interest and Fees the Corporation was Contractually Entitled to and the Amounts Recognized as Revenue (a)
(dollars in thousands)(unaudited)

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2004		2003		2004		2003
Domestic	$	225,715	$	276,474	$	699,122	$	834,826
Foreign		31,039		22,107		97,298		61,022
Total	$	256,754	$	298,581	$	796,420	$	895,848

(a) Includes the valuation of securitized loans.

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 r egulatory 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 September 30, 2004, and December 31, 2003, 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 20, have been computed in accordance with regulatory accounting practices. At September 30, 2004, no conditions or events have occurred that changed the Corporation’s classification as "adequately capitalized" and the Bank’s or MBNA Delaw are’s classification as "well-capitalized."


	-70-

Table 20: Regulatory Capital Ratios

	September 30, 2004			December 31, 2003			Minimum Requirements			Well-Capitalized Requirements
	(unaudited)
MBNA Corporation
Tier 1		20.69	%		18.47	%		4.00	%		(a	)
Total		24.30			22.18			8.00			(a	)
Leverage		21.55			20.52			4.00			(a	)

MBNA America Bank, N.A.
Tier 1		20.04			16.38			4.00			6.00	%
Total		23.81			20.13			8.00			10.00
Leverage		20.49			18.52			4.00			5.00

MBNA America (Delaware), N.A.
Tier 1		16.83			28.38			4.00			6.00
Total		18.13			29.75			8.00			10.00
Leverage		16.62			32.47			4.00			5.00

(a) Not applicable for bank holding companies.

MBNA Delaware’s Tier 1, Total, and Leverage Capital ratios decreased from December 31, 2003 primarily as a result of the SFS acquisition on March 31, 2004. "Note K: Acquisitions" to the consolidated financial statements provides further detail regarding the acquisition.

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 Corpo ration defers interest payments for consecutive periods covering 10 semiannual periods or 20 consecutive quarterly periods, depending on the series, on the Corporation’s junior subordinated deferrable interest debentures, the Corporation may not be permitted to declare or pay any cash dividends on the Corporation’s Common Stock, or pay any interest on debt securities that have equal or lower priority than the junior subordinated deferrable interest debentures. During the nine months ended September 30, 2004, the Corporation declared dividends on its preferred stock of $10.5 million and on its common stock of $459.9 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 declar e dividends will depend on its future net income and capital requirements. At September 30, 2004, the amount of undivided profits available for declaration and payment of dividends from the Bank to the Corporation was $4.5 billion. 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 September 30, 2004. Had this facility had been drawn upon at September 30, 2004, the amount of retained earnings available for declaration of dividends would have been limited to $3.4 billion. Also, banking regulators have indicated that national banks should generally pay dividends only out of current operating earnings. Payment of dividends by the Bank to the Corporation can also be further limited by federal bank regulatory agencies.


	-71-

Off-Balance Sheet Arrangements

In the normal course of business, the Corporation is a party to a number of activities that contain credit, market and operational risk that are not reflected in whole or in part in the Corporation’s consolidated financial statements. Such activities include off-balance sheet asset securitization, off-balance sheet derivative financial instruments, and other items.

Off-Balance Sheet Asset Securitization

Off-balance sheet 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. Off-balance sheet 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 or other open-end loan account represents a contractual relationship between the Corporation and the Customer. A loan receivable represents a financial asset. Unlike a mortgage loan or other closed-end loan account, the terms of a credit card account or other open-end loan 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 account is, therefore, separate and distinct from the loan receivable.

In a 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 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 beneficial 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 C orporation receives a servicing fee for servicing the loans. This servicing fee is a component of securitization income.

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 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 Corp oration’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.


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The Corporation maintains retained interests in its off-balance sheet 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 had a lien on a portion of these retained interests of $1.3 billion at September 30, 2004 and $1.2 billion at December 31, 2003. 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.

In connection with the MBNA Master Consumer Loan Trust ("CLMT") and American Loan Financing Trust ("ALF"), the investors have entered into interest rate hedge agreements (the "swaps") with swap counterparties to reduce interest rate risks associated with their investment. ALF is a on-balance-sheet financing structured transaction. See "Note 16: Short-Term Borrowings" of the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2003 for further detail regarding the ALF transaction. In order to facilitate these swap arrangements, the Corporation has agreed with the swap counterparties to either pay the fair value liability (including certain unpaid amounts, if any) of the swaps or receive the fair value asset of the swaps, but only in the event the securitization transaction terminates p rior to the swaps. At September 30, 2004, the fair value liability of the swaps was approximately $100 million for CLMT and ALF. The Corporation considers the possibility of the occurrence of the events giving rise to its obligations under the CLMT and ALF agreements to be remote.

Impact Of Off-Balance Sheet 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. Management, equity and debt analysts, rating agencies, and others evaluate the Corporation’s operations on a managed basis because the loans that are securitized are subject to underwriting standards comparable to the Corporation’s owned loans, and the Corporation services the securitized and owned loans, and the related accounts, together and in the same manner without regard to ownership of the loans. In a securitizat ion, 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 retained interests in securitization transactions.

When adjusted for the effects of securitization, certain components of the Corporation’s consolidated financial information may be reconciled to its managed data. This securitization adjustment reclassifies interest income, interchange income, loan fees, insurance income, recoveries on charged-off securitized loan principal receivables in excess of interest paid to investors, gross credit losses, and other trust expenses into securitization income.

Table 21 reconciles income statement data for the period to managed net interest income, managed provision for possible credit losses, and managed other operating income.


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Table 21: Reconciliation of Income Statement Data for the Period to Managed Net Interest Income, Managed Provision for Possible Credit Losses, and Managed Other Operating Income
(dollars in thousands)(unaudited)
	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2004			2003			2004			2003
Net Interest Income:
Net interest income	$	611,661		$	599,912		$	1,873,711		$	1,734,676
Securitization adjustments		1,959,109			1,995,019			5,901,429			5,827,853
Managed net interest income	$	2,570,770		$	2,594,931		$	7,775,140		$	7,562,529

Provision for Possible Credit Losses:
Provision for possible credit losses	$	273,387		$	334,064		$	890,105		$	1,058,544
Securitization adjustments		1,033,813			1,088,939			3,253,603			3,300,339
Managed provision for possible credit losses	$	1,307,200		$	1,423,003		$	4,143,708		$	4,358,883

Other Operating Income:
Other operating income	$	2,159,590		$	2,032,469		$	6,101,742		$	5,672,282
Securitization adjustments		(925,296	)		(906,080	)		(2,647,826	)		(2,527,514	)
Managed other operating income	$	1,234,294		$	1,126,389		$	3,453,916		$	3,144,768

Managed net interest income decreased $24.2 million or .9% to $2.6 billion and increased $212.6 million or 2.8% to $7.8 billion for the three and nine months ended September 30, 2004, as compared to $2.6 billion and $7.6 billion for the same periods in 2003, respectively.

Average Managed Interest-Earning Assets

Average managed interest-earning assets increased $7.6 billion or 6.2% to $130.7 billion for the three months ended September 30, 2004, as compared to $123.1 billion for the same period in 2003. The increase in average managed interest-earning assets was primarily the result of the increase in average managed loans. The yield earned on average managed interest-earning assets for the three months ended September 30, 2004 was 10.56% as compared to 10.84% for the same period in 2003. The decrease of 28 basis points in the yield earned on average managed interest-earning assets was primarily the result of lower rates offered to attract and retain Customers and to grow managed loans.

Average managed interest-earning assets increased $9.9 billion or 8.2% to $129.9 billion for the nine months ended September 30, 2004, as compared to $120.1 billion for the same period in 2003. The increase in average managed interest-earning assets was primarily the result of the increase in average managed loans. The yield earned on average managed interest-earning assets for the nine months ended September 30, 2004 was 10.55% as compared to 11.05% for the same period in 2003. The decrease of 50 basis points in the yield earned on average managed interest-earning assets was primarily the result of lower rates offered to attract and retain Customers and to grow managed loans.

The decrease in the yield on average managed interest-earning assets for the three and nine months ended September 30, 2004 was partially offset by a decrease in the amount of 0% promotional rate offers. Also, during the third quarter of 2004, the Corporation converted a portion of its managed loans from fixed-rate loans to variable-rate loans. This change did not have a significant affect on the yield on average managed loans in the third quarter of 2004 because the change was effective at the end of the period.

Average Managed Interest-Bearing Liabilities

Average managed interest-bearing liabilities increased $5.9 billion or 4.8% to $129.1 billion for the three months ended September 30, 2004, as compared to $123.2 billion for the same period in 2003. The increase in average managed interest-bearing liabilities was a result of the increase in average securitized loans and average borrowed funds. The increase in the rate paid on average managed interest-bearing liabilities of 29 basis points to 2.77% for the three months ended September 30, 2004, from 2.48% for the same period in 2003, primarily reflects actions by the FOMC in the second and third quarter of 2004 that increased overall market interest rates.


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Average managed interest-bearing liabilities increased $7.5 billion or 6.2% to $128.3 billion for the nine months ended September 30, 2004, as compared to $120.8 billion for the same period in 2003. The increase in average managed interest-bearing liabilities was a result of the increase in average securitized loans and average borrowed funds. The decrease in the rate paid on average managed interest-bearing liabilities of 2 basis points to 2.59% for the nine months ended September 30, 2004, from 2.61% for the same period in 2003, reflects a decrease in the rate paid in the Corporation’s on-balance sheet interest-bearing liabilities, offset by an increase in the rate paid to investors in the Corporation’s securitization transactions.

Table 22 reconciles average interest-earning assets and average interest-bearing liabilities to average managed interest-earning assets and average managed interest-bearing liabilities.

Table 22: Reconciliation of Average Interest-Earning Assets and Average Interest-Bearing Liabilities to Average Managed Interest-Earning Assets and Average Managed Interest-Bearing Liabilities
(dollars in thousands, yields and rates on a fully taxable equivalent basis) (unaudited)

For the Three Months Ended September 30,	2004							2003
	Average Balance		Yield /Rate			Income or Expense		Average Balance		Yield /Rate			Income or Expense
Assets:
Net interest-earning assets	$	47,140,961		8.46	%	$	1,002,435	$	44,388,696		8.67	%	$	969,616
Securitization adjustments		83,591,554		11.74			2,467,085		78,749,249		12.07			2,396,053
Managed interest-earning assets	$	130,732,515		10.56		$	3,469,520	$	123,137,945		10.84		$	3,365,669

Liabilities:
Net interest-bearing liabilities	$	43,044,620		3.61	%	$	390,532	$	42,268,430		3.47	%	$	369,617
Securitization adjustments		86,064,013		2.35			507,976		80,976,117		1.96			401,034
Managed interest-bearing liabilities	$	129,108,633		2.77		$	898,508	$	123,244,547		2.48		$	770,651


For the Nine Months Ended September 30,	2004							2003
	Average Balance		Yield /Rate			Income or Expense		Average Balance		Yield /Rate			Income or Expense
Assets:
Net interest-earning assets	$	47,070,101		8.52	%	$	3,003,563	$	43,138,177		8.91	%	$	2,874,008
Securitization adjustments		82,857,715		11.71			7,261,380		76,919,792		12.25			7,048,650
Managed interest-earning assets	$	129,927,816		10.55		$	10,264,943	$	120,057,969		11.05		$	9,922,658

Liabilities:
Net interest-bearing liabilities	$	42,999,323		3.51	%	$	1,129,176	$	41,737,476		3.65	%	$	1,138,795
Securitization adjustments		85,288,832		2.13			1,359,951		79,054,773		2.06			1,220,797
Managed interest-bearing liabilities	$	128,288,155		2.59		$	2,489,127	$	120,792,249		2.61		$	2,359,592


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The Corporation’s managed net interest margin, on a fully taxable equivalent basis, was 7.82% and 7.99% for the three and nine months ended September 30, 2004, as compared to 8.36% and 8.42% for the same periods in 2003, respectively. The managed net interest margin represents managed net interest income on a fully taxable equivalent basis expressed as a percentage of managed average total interest-earning assets. The 54 basis point and 43 basis point decrease in the managed net interest margin for the three and nine months ended September 30, 2004, respectively, was primarily the result of the decrease in the interest rate spread between managed average interest-earning assets and managed average interest-bearing liabilities.

Managed provision for possible credit losses decreased $115.8 million or 8.1% to $1.3 billion and $215.2 million or 4.9% to $4.1 billion for the three and nine months ended September 30, 2004, as compared to $1.4 billion and $4.4 billion for the same periods in 2003, respectively. These decreases in the managed provision for possible credit losses were based on improving asset quality trends, enhanced collection strategies, and an improved economy.

Managed other operating income increased $107.9 million or 9.6% to $1.2 billion and $309.1 million or 9.8% to $3.5 billion for the three and nine months ended September 30, 2004, as compared to $1.1 billion and $3.1 billion for the same periods in 2003, respectively. The increase in managed other operating income for the three and nine months ended September 30, 2004, was primarily the result of an increase in loan fees and interchange income. The increase in managed other operating income for the nine months ended September 30, 2004 was partially offset by the net loss from securitization activity, which includes changes in the fair value of the interest-only strip receivable and the gains from the sale of loan principal receivables.

Table 23 reconciles the net interest margin ratio to the managed net interest margin ratio.


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Table 23: Reconciliation of the Net Interest Margin Ratio to the Managed Net Interest Margin Ratio
(dollars in thousands) (unaudited)
	For the Three Months Ended September 30, 2004								For the Three Months Ended September 30, 2003
	Average Earning Assets			Net Interest Income		Net Interest Margin Ratio			Average Earning Assets			Net Interest Income		Net Interest Margin Ratio
Net Interest Margin (a):
Investment securities and money market instruments	$	12,158,532							$	12,074,322
Other interest-earning assets		4,105,662								3,946,106
Loan receivables (b)		30,876,767								28,368,268
Total	$	47,140,961		$	611,903		5.16	%	$	44,388,696		$	599,999		5.36	%
Securitization Adjustments:
Investment securities and money market instruments	$	-							$	-
Other interest-earning assets		(4,034,519	)							(3,876,800	)
Securitized loans		87,626,073								82,626,049
Total	$	83,591,554			1,959,109		9.32		$	78,749,249			1,995,019		10.05
Managed Net Interest Margin (a):
Investment securities and money market instruments	$	12,158,532							$	12,074,322
Other interest-earning assets		71,143								69,306
Managed loans		118,502,840								110,994,317
Total	$	130,732,515			2,571,012		7.82		$	123,137,945			2,595,018		8.36

	For the Nine Months Ended September 30, 2004								For the Nine Months Ended September 30, 2003
	Average Earning Assets			Net Interest Income		Net Interest Margin Ratio			Average Earning Assets			Net Interest Income		Net Interest Margin Ratio
Net Interest Margin (a):
Investment securities and money market instruments	$	12,054,265							$	11,427,683
Other interest-earning assets		4,100,353								3,868,157
Loan receivables (b)		30,915,483								27,842,337
Total	$	47,070,101		$	1,874,387		5.32	%	$	43,138,177		$	1,735,213		5.38	%
Securitization Adjustments:
Investment securities and money market instruments	$	-							$	-
Other interest-earning assets		(4,029,628	)							(3,799,702	)
Securitized loans		86,887,343								80,719,494
Total	$	82,857,715			5,901,429		9.51		$	76,919,792			5,827,853		10.13
Managed Net Interest Margin (a):
Investment securities and money market instruments	$	12,054,265							$	11,427,683
Other interest-earning assets		70,725								68,455
Managed loans		117,802,826								108,561,831
Total	$	129,927,816			7,775,816		7.99		$	120,057,969			7,563,066		8.42

(a) Net interest margin ratios are presented on a fully taxable equivalent basis. The fully taxable equivalent adjustment for the three months ended September 30, 2004, and 2003 was $242 and $87, respectively. The fully taxable equivalent adjustment for the nine months ended September 30, 2004, and 2003 was $676 and $537, respectively.
(b) Loan receivables include loans held for securitization and the loan portfolio.


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Off-Balance Sheet Securitization Transaction Activity

During the nine months ended September 30, 2004, the Corporation securitized credit card loan principal receivables totaling $10.2 billion, including the securitization of £1.5 billion (approximately $2.7 billion) by MBNA Europe and CAD$300.0 million (approximately $222.6 million) by MBNA Canada. The total amount of securitized loans was $85.7 billion or 72.7% of managed loans at September 30, 2004, compared to $84.9 billion or 71.6% at December 31, 2003.

Refer to Table 5 and Table 25 to reconcile the Corporation’s loan receivables and securitized loans to its managed loans.

Table 24 presents the percentage of the Corporation’s managed loans securitized by loan product.

Table 24: Percentage of Managed Loans Securitized by Loan Product
(unaudited)
	September 30, 2004			December 31, 2003
Securitized Loans
Domestic (a):
Credit card		81.9	%		79.2	%
Other consumer		50.2			50.3
Commercial		28.7			43.8
Total domestic securitized loans		76.1			75.0
Foreign (a):
Credit card		72.0			63.1
Other consumer		-			-
Commercial		-			-
Total foreign securitized loans		59.0			55.7
Total securitized loans		72.7			71.6

(a) The Corporation reclassified certain loan products to separately report its commercial loan products. Business card products were reclassified from credit card loans to commercial loans, and all other commercial loan products were reclassified from other consumer loans to commercial loans. For purposes of comparability, certain prior period amounts have been reclassified.


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Table 25 presents the Corporation’s securitized loans distribution and percentage of securitized loans.

Table 25: Securitized Loans Distribution
(dollars in thousands) (unaudited)

	September 30, 2004		Percent of Securitized Loans			December 31, 2003		Percent of Securitized Loans
Securitized Loans
Domestic (a):
Credit card	$	65,223,322		76.1	%	$	66,613,018		78.5	%
Other consumer		5,665,445		6.6			5,671,832		6.7
Commercial		1,007,544		1.2			1,007,804		1.2
Total domestic securitized loans		71,896,311		83.9			73,292,654		86.4
Foreign (a):
Credit card		13,776,039		16.1			11,576,829		13.6
Other consumer		-		-			-		-
Commercial		-		-			-		-
Total foreign securitized loans		13,776,039		16.1			11,576,829		13.6
Total securitized loans	$	85,672,350		100.0	%	$	84,869,483		100.0	%


(a) The Corporation reclassified certain loan products to separately report its commercial loan products. Business card products were reclassified from credit card loans to commercial loans, and all other commercial loan products were reclassified from other consumer loans to commercial loans. For purposes of comparability, certain prior period amounts have been reclassified.

During the three and nine months ended September 30, 2004, there was an increase of $4.9 billion and $9.5 billion, respectively, in the Corporation's loan receivables that occurred when certain securitizations matured as scheduled and the trusts used principal payments to pay the investors. The Corporation's loan portfolio is expected to increase an additional $500.0 million during the fourth quarter of 2004 as a result of future scheduled maturities of existing securitization transactions when the trusts use principal payments to pay the investors. This amount is based upon the estimated maturity of outstanding securitization transactions and does not anticipate future securitization activity. Should the Corporation choose not to or be unable to securitize these assets in the future, additional on-balance sheet funding, capital and loan loss reserves would be required.

The Corporation’s securitization transactions contain provisions which could require excess spread generated by the securitized loans to be accumulated in the trusts to provide additional credit enhancement to the investors. These provisions require that excess spread be retained once the yield less trust expenses falls below levels established in the transaction documents. Generally, the yield less trust expenses is measured over a three-month period and the initial trigger levels are between 6.50% and 4.50%, depending on the terms of the particular securitization transaction. At September 30, 2004 and December 31, 2003, no excess spread was held by the trusts under these provisions.


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Distribution of principal to investors may begin sooner if the average annualized yield (generally including interest income, interchange income, charged-off loan recoveries, and other fees) for three consecutive months drops below a minimum yield (generally equal to the sum of the interest rate payable to investors, contractual servicing fees, and principal credit losses during the period) or certain other events occur. If distribution of principal to investors began sooner than expected, the Corporation would likely need to raise additional capital to support loan and asset growth and meet regulatory capital requirements.

Table 26 presents the Corporation’s estimated maturities of investor principal.

Table 26: Estimated Maturities of Investor Principal
(dollars in thousands) (unaudited)

One year or less (a)	$	14,354,084
Over one year through two years		13,986,339
Over two years through three years		13,489,179
Over three years through four years		14,475,656
Over four years through five years		7,289,996
Thereafter		20,624,423
Total amortization of investor principal		84,219,677
Estimated collectible billed interest and fees included in securitized loans		1,452,673
Total securitized loans	$	85,672,350

(a) The $4.5 billion MBNA Master Note Trust Emerald Program ("Emerald Notes") and the £500.0 million UK Receivables Trust II Series 2004 - VFN Program ("Variable Funding Notes") are comprised of short-term commercial paper and are included in the one year or less category based on the possibility that maturing Emerald Notes and Variable Funding Notes cannot be re-issued. These events would cause the transactions to begin amortizing, thus creating a liquidity requirement. However, the Corporation expects the Emerald Notes and Variable Funding Notes to continue to be re-issued during the course of the program through the scheduled final maturity dates, which are scheduled to occur in 2006 and 2009, respectively.


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Table 27 presents summarized yields for each trust for the three months ended September 30, 2004. 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 27: Securitization Trust Yields in Excess of Minimum Yield Data
(dollars in thousands) (unaudited)
								For the Three Months Ended September 30, 2004
											Yield in Excess of Minimum Yield (a)
														Series Range
	Investor Principal		Number of Series in Trust		Average Annualized Yield			Average Minimum Yield			Weighted Average			High			Low
MBNA Master Credit Card Trust II	$	23,394,657		32		17.48	%		9.39	%		8.09	%		8.46	%		7.35	%
MBNA Credit Card Master Note Trust (b)		38,719,435		73		17.58			9.25			8.33			8.33			8.33
MBNA Master Consumer Loan Trust		5,560,278		3		(c	)		(c	)		(c	)		(c	)		(c	)
MBNA Triple A Master Trust		2,000,000		2		17.41			8.82			8.59			8.62			8.58
Multiple Asset Note Trust		1,000,000		2		18.89			9.50			9.39			9.41			9.38
UK Receivables Trust		2,345,741		4		19.42			12.35			7.07			7.48			5.88
UK Receivables Trust II		8,128,589		13		17.99			11.82			6.17			6.82			5.99
Gloucester Credit Card Trust		3,070,977		11		19.16			9.60			9.56			10.12			9.00

(a) The Yield in Excess of Minimum Yield represents the trust’s average annualized yield less its average minimum yield.
(b) MBNA Credit Card Master Note Trust issues a series of notes called the MBNAseries. Through the MBNAseries, MBNA Credit Card Master Note Trust issues specific classes of notes which contribute on a prorated basis to the calculation of the average yield in excess of minimum yield. This average yield in excess of minimum yield impacts the distribution of principal to investors of all classes within the MBNAseries.
(c) The MBNA Master Consumer Loan Trust yield in excess of minimum yield does not impact the distribution of principal to investors. Distribution to investors for transactions in this trust may begin earlier than the scheduled time if the credit enhancement amount falls below a predetermined contractual level. As a result, its yields are excluded from this Table.

Other Off-Balance Sheet Arrangements

MBNA Capital A, MBNA Capital B, MBNA Capital C, MBNA Capital D, and MBNA Capital E (collectively the "statutory trusts"), are variable interest entities and the Corporation is not the primary beneficiary. See "Note 17: Long-Term Debt and Bank Notes" of the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2003, for further discussion of the statutory trusts.

The Corporation utilizes certain derivative financial instruments to enhance its ability to manage interest rate risk and foreign currency exchange rate risk that exist as part of its ongoing business operations. See "Note 30: Fair Value of Financial Instruments" of the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2003.


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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.

The Corporation manages liquidity at two primary levels. The first level is the liquidity of the parent company, which is the holding company that owns the banking subsidiaries. The second level is the liquidity of the banking subsidiaries. The management of liquidity at both levels is essential because the parent company and banking subsidiaries each have different funding needs and funding sources and each are subject to certain regulatory guidelines and requirements.

The liquidity requirements of the Corporation are met by regular dividend payments from the Bank, the growth in retained earnings from regular operations, and the issuance of unsecured senior medium-term notes and senior notes. The available cash position of the Corporation is maintained at a level sufficient to meet anticipated cash needs for at least one year. The liquidity of the banking subsidiaries is managed to reflect the anticipated cash required to finance loan demand and to maintain sufficient liquid assets to cover the maturities for the next six months for all off-balance sheet securitizations, unsecured debt, and wholesale money market funding sources. The level of liquid assets, which is comprised of the investments and money market assets described further in "Investment Securities and Money Market Instruments," is managed to a size prudent for b oth anticipated loan receivable growth and overall conditions in the markets for asset-backed securitization, unsecured corporate debt, and short-term borrowed funds. The Corporation, the Bank, MBNA Europe, and MBNA Canada also have access to the credit facilities described further in "Note 27: Commitments and Contingencies" of the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2003. Finally, the deposit funding sources are also used to finance loan receivable growth and to maintain a sufficient level of liquid assets.

Table 28 provides a summary of the estimated amounts and maturities of the contractual obligations of the Corporation at September 30, 2004.

Table 28: Estimated Contractual Obligations (a) (b)
(dollars in thousands) (unaudited)
	Estimated Contractual Obligations at September 30, 2004
	Within 1 Year		1-3 Years		3-5 Years		Over 5 Years		Total
Long-term debt and bank notes (par) (c)	$	2,177,330	$	1,744,108	$	3,260,485	$	4,472,943	$	11,654,866
Minimum rental payments under noncancelable operating leases		31,364		25,863		6,782		2,136		66,145
Purchase obligations (d)		339,292		305,918		225,058		87,764		958,032
Other long-term liabilities reflected in the Corporation's consolidated statements of financial condition (e)		132,240		170,096		71,521		1,818		375,675
Total estimated contractual obligations	$	2,680,226	$	2,245,985	$	3,563,846	$	4,564,661	$	13,054,718

(a) "Note 30: Fair Value of Financial Instruments - Derivative Financial Instruments" of the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2003 provides further detail on the Corporation’s derivative financial instruments. These amounts are not included in this Table.
(b) Table 29 provides detail on the maturities of deposits. These amounts are not included in this Table.
(c) Excludes interest.
(d) Includes the royalties to endorsing organizations payable in the future subject to certain conditions, commitments for Community Reinvestment Act investments that cannot be canceled, and other purchase obligations.
(e) Includes amounts accrued for Customers reward programs and other long-term contractual obligations.

If certain terms on the above estimated contractual requirements are not met, there may be an acceleration of the payment due dates noted above. At September 30, 2004, the Corporation was not in default of any such covenants.


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Stock Repurchases

To the extent stock options are exercised or restricted shares are awarded from time to time under the Corporation’s Long Term Incentive Plans, the Board of Directors has approved the purchase, on the open market or in privately negotiated transactions, of the number of common shares issued.

During the nine months ended September 30, 2004, the Corporation issued 11.6 million common shares upon the exercise of stock options and issuance of restricted stock, and purchased 11.5 million common shares for $290.2 million. The Corporation received $109.7 million in proceeds from the exercise of stock options and other awards during the nine months ended September 30, 2004.

Funding

To facilitate liquidity management, the Corporation uses a variety of funding sources to establish a maturity pattern that it believes provides a prudent mixture of short-term and long-term funds. The Corporation obtains funds through deposits and debt issuances, and uses securitization of the Corporation’s loan principal receivables as a major funding alternative. In addition, further liquidity is provided to the Corporation through committed credit facilities.

Off-Balance Sheet Asset Securitization

At September 30, 2004, the Corporation funded 72.7% of its managed loans through securitization transactions. Refer to Table 2 for a reconciliation of loan receivables to managed loans. To maintain an appropriate funding level, the Corporation expects to securitize additional loan principal receivables during future periods. The consumer asset-backed securitization market in the United States exceeded $1.7 trillion at September 30, 2004, with approximately $472 billion of asset-backed securities issued during the first nine months of 2004. An additional $185 billion of consumer asset-backed securities were issued in European markets during the first nine months of 2004. 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 iss uer, if these markets experience difficulties, the Corporation may be unable to securitize its loan principal receivables or to do so at favorable pricing levels. Factors affecting the Corporation’s ability to securitize its loan principal receivables or to do so at favorable pricing levels include the overall credit quality of the Corporation’s loans, the stability of the market for securitization transactions, and the legal, regulatory, accounting, and tax environments impacting securitization transactions. The Corporation does not believe adverse outcomes from these events are likely to occur. If the Corporation were unable to continue to securitize its loan receivables at current levels, the Corporation would use its investment securities and money market instruments in addition to alternative funding sources to fund increases in loan receivables and meet its other liquidity needs. The resulting change in the Corporation’s current liquidity sources could potentially subject the Corporation to certain risks. These risks would include an increase in the Corporation’s cost of funds, increases in the reserve for possible credit losses and the provision for possible credit losses as more loans would remain in the Corporation’s consolidated statements of financial condition, and restrictions on loan growth if the Corporation were unable to find alternative and cost-effective funding sources. In addition, if the Corporation could not continue to remove the loan principal receivables from the Corporation’s consolidated statements of financial condition, the Corporation would likely need to raise additional capital to support loan and asset growth and meet regulatory capital requirements.

Credit Facilities

The Corporation, the Bank, MBNA Europe, and MBNA Canada have various credit facilities. These facilities may be used for general corporate purposes and were not drawn upon at September 30, 2004.

"Note 27: Commitments and Contingencies" of the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2003, provides further detail regarding the Corporation’s credit facilities.


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Borrowed Funds

Short-term borrowings used by the Corporation include federal funds purchased and securities sold under repurchase agreements. Federal funds purchased and securities sold under repurchase agreements are overnight borrowings that normally mature within one business day of the transaction date. Other short-term borrowings consist primarily of federal funds purchased that mature in more than one business day, short-term bank notes issued from the global bank note program established by the Bank, short-term deposit notes issued by MBNA Canada, on-balance-sheet financing structures, and other transactions with maturities greater than one business day but less than one year. Short-term borrowings were $1.9 billion at September 30, 2004 and $1.0 billion at December 31, 2003.

In connection with the PCL acquisition in the first quarter of 2004, the Corporation assumed a short-term on-balance-sheet financing structured transaction with an available limit of £750.0 million (approximately $1.4 billion). At September 30, 2004, this financing structured transaction had an outstanding balance of £527.0 million (approximately $952.2 million) consisting of several tranches with maturities ranging between one to three months. These tranches are renewable upon maturity. This financing structured transaction was secured by £918.1 million (approximately $1.7 billion) of assets.

Other funding programs established by the Corporation for long-term borrowings include senior medium-term notes and senior notes. Other funding programs established by the Corporation’s bank subsidiaries include the Bank’s global bank note program, MBNA Europe’s euro medium-term note program, and MBNA Canada’s medium-term deposit note program. MBNA Europe’s and MBNA Canada’s notes are unconditionally and irrevocably guaranteed in respect to all payments by the Bank.

Long-term debt and bank notes were $11.9 billion at September 30, 2004 and $12.1 billion at December 31, 2003. See Table 28 for estimated maturities of the contractual obligations related to long-term debt and bank notes at September 30, 2004.

Deposits

The Corporation utilizes deposits to fund loan and other asset growth and to diversify funding sources. The Corporation categorizes its deposits into either direct or other deposits. Direct deposits are deposits marketed to and received from individual Customers and are an important, stable, low-cost funding source that typically reacts more slowly to interest rate changes than other deposits. Other deposits include brokered deposits.

Total deposits were $32.1 billion and $31.8 billion at September 30, 2004 and December 31, 2003, respectively.

Included in the deposit maturity category of one year or less are money market deposit accounts, noninterest-bearing deposits, interest-bearing transaction accounts, and savings accounts totaling $10.1 billion. Based on past activity, the Corporation expects to retain a majority of its deposit balances as they mature.

Included in the Corporation’s direct deposits at September 30, 2004 and December 31, 2003, are noninterest-bearing deposits of $2.8 billion and $2.4 billion, representing 8.7% and 7.6% of total deposits, respectively. The Corporation also had interest-bearing direct deposits at September 30, 2004 of $24.6 billion, as compared to $22.9 billion at December 31, 2003.

Included in the Corporation’s other deposits at September 30, 2004 and December 31, 2003, are brokered deposits of $4.8 billion and $6.5 billion, representing 14.8% and 20.5% of total deposits, respectively.

If brokered deposits are not renewed at maturity, they could be replaced by funds from maturing investment securities and money market instruments or other funding sources. During the nine months ended September 30, 2004, other deposits decreased because the Corporation determined it had adequate liquidity from other sources to meet its funding needs. While the Corporation utilized other alternative funding sources during this period, it expects that brokered deposits will continue to be part of its funding activities. The Federal Deposit Insurance Corporation Improvement Act of 1991 limits the use of brokered deposits to "well-capitalized" insured depository institutions and, with a waiver from the Federal Deposit Insurance Corporation, to "adequately capitalized" institutions. At September 30, 2004, the Ban k 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 29 provides the maturities of the Corporation’s deposits at September 30, 2004.


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Table 29: Maturities of Deposits at September 30, 2004
(dollars in thousands) (unaudited)
	Maturities
	Within 1 Year		1-2 Years		2-3 Years		3-4 Years		4-5 Years		Over 5 Years		Total Deposits
Domestic:
Direct deposits	$	17,594,814	$	3,482,622	$	2,144,989	$	1,098,211	$	1,616,467	$	9,306	$	25,946,409
Other deposits (a)		2,029,464		1,308,361		1,097,485		179,873		29,271		-		4,644,454
Total domestic deposits		19,624,278		4,790,983		3,242,474		1,278,084		1,645,738		9,306		30,590,863
Foreign:
Direct deposits		1,335,824		18,028		40,988		11,988		41,871		-		1,448,699
Other deposits (a)		107,579		-		-		-		-		-		107,579
Total foreign deposits		1,443,403		18,028		40,988		11,988		41,871		-		1,556,278
Total deposits	$	21,067,681	$	4,809,011	$	3,283,462	$	1,290,072	$	1,687,609	$	9,306	$	32,147,141


(a) At September 30, 2004, all other deposits were brokered deposits.

Investment Securities and Money Market Instruments

The Corporation held $6.1 billion of investment securities and $6.8 billion of money market instruments at September 30, 2004, compared to $4.7 billion of investment securities and $4.9 billion of money market instruments at December 31, 2003. The investment securities consist primarily of AAA-rated securities, most of which can be used as collateral under repurchase agreements. Of the investment securities held at September 30, 2004, $2.1 billion are anticipated to mature within 12 months. The Corporation’s investment securities available-for-sale portfolio, which consists primarily of U.S. Treasury obligations or short-term and variable-rate securities, was $5.8 billion at September 30, 2004, and $4.4 billion at December 31, 2003. These investment securities, along with the money market instruments, provide increased liquidity and flexibility to support the Corporation’s funding requirement s. The Corporation increased investment securities and money market instruments at September 30, 2004, as compared to December 31, 2003, to provide liquidity to support loan portfolio and other acquisition activity and anticipated loan growth, and as a result of asset-backed securitization transactions completed to take advantage of favorable market conditions.


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Table 30 presents the summary of investment securities.

Table 30: Summary of Investment Securities at September 30, 2004
(dollars in thousands) (unaudited)
	Estimated Maturities
	Within 1 Year		1-5 Years		6-10 Years		Over 10 Years		Total		Amortized Cost		Market Value
Available-for-Sale
Domestic:
US Treasury and other U.S. Government agencies obligations	$	1,146,833	$	1,621,061	$	-	$	-	$	2,767,894	$	2,771,154	$	2,767,894
State and political subdivisions of the United States		106,775		-		-		-		106,775		106,775		106,775
Asset-backed and other securities		625,743		1,587,760		56,512		506		2,270,521		2,271,655		2,270,521
Total domestic investment securities available-for-sale		1,879,351		3,208,821		56,512		506		5,145,190		5,149,584		5,145,190
Foreign		266,901		364,394		-		-		631,295		631,839		631,295
Total investment securities available-for-sale	$	2,146,252	$	3,573,215	$	56,512	$	506	$	5,776,485	$	5,781,423	$	5,776,485
Held-to-Maturity
Domestic:
US Treasury and other U.S. Government agencies obligations	$	-	$	-	$	-	$	294,320	$	294,320	$	294,320	$	294,768
State and political subdivisions of the United States		-		-		649		5,780		6,429		6,429		6,592
Asset-backed and other securities		-		-		-		11,962		11,962		11,962		11,636
Total domestic investment securities held-to-maturity		-		-		649		312,062		312,711		312,711		312,996
Foreign		-		1,000		-		-		1,000		1,000		1,000
Total investment securities held-to-maturity	$	-	$	1,000	$	649	$	312,062	$	313,711	$	313,711	$	313,996

Interest Rate Sensitivity

Interest rate sensitivity refers to the change in earnings resulting from fluctuations in interest rates, variability in the yield earned on interest-earning assets and the rate paid on interest-bearing liabilities, and the differences in repricing intervals between assets and liabilities. Interest rate changes also impact the estimated value of the interest-only strip receivable and other-interest earning assets, and securitization income. The management of interest rate sensitivity attempts to mitigate the negative impacts of changing market rates, asset and liability mix, and prepayment trends on earnings. 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 abilit y 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. The Corporation uses interest rate swap agreements to change a portion of fixed-rate funding cash flows to floating-rate that match the rate sensitivity of the Corporation's assets.

The Corporation analyzes the 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. An analytical technique that the Corporation uses to measure interest rate risk is simulation analysis. This simulation analysis quantifies the changes in net income that results from changes in market interest rates that affect the yields and cash flows on interest sensitive assets, liabilities and interest rate swap agreements. The analysis also assumes that there is no impact on an annual basis in the value of the interest-only strip receivable. Also included in the analysis are various asset pricing actions which the Corporation would likely undertake to minimize the impact of adverse movements in interest rates. Based on the simulation an alysis at September 30, 2004, the Corporation could experience a decrease in projected net income during the next 12 months of approximately $33 million, if interest rates increased 100 basis points over the next 12 months evenly distributed at 25 basis points 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 $33 million in projected net income during the next 12 months.


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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. The Corporation has the contractual right to reprice fixed-rate credit card loans at any time by giving notice to the Customer. Accordingly, a key assumption in the simulation analysis is the repricing of fixed-rate credit card loans in response to an upward movement in interest rates, with a lag of approximately 45 days between interest rate movements and fixed-rate credit card loan repricings. The Corporation has repriced its fixed-rat e credit card loans on numerous occasions in the past. The ability and willingness to do so in the future will depend on the timing and extent of changes in interest rates, competitive market pricing conditions and other non interest sensitive earnings trends.

The simulation analysis also includes the impact of anticipated changes in the pricing of the Corporation’s variable-rate loan portfolio. Due to the Corporation’s strategy to convert a portion of the U.S. credit card portfolio to Prime Rate based floating pricing from fixed rate pricing, variable-rate loans made up approximately 30% of this portfolio at September 30, 2004. This increase in Prime Rate based variable priced loans has been implemented to reduce the time between changes in market interest rates and the yield on the Corporation’s loans which help to reduce the Corporation’s earnings exposure to rising interest rates.

Foreign Currency Exchange Rate Sensitivity

Foreign currency exchange rate risk refers to the potential changes in current and future earnings or capital arising from movements in foreign exchange rates and occurs as a result of cross-currency investment and funding activities. The Corporation's foreign currency exchange rate risk is limited to the Corporation's net investment in its foreign subsidiaries which is unhedged. The Corporation uses forward exchange contracts and foreign exchange swap agreements to reduce its exposure to foreign currency exchange rate risk. Management reviews the foreign currency exchange rate risk of the Corporation on a routine basis. During this review, management considers the net impact to stockholders' equity under various foreign exchange rate scenarios. At September 30, 2004, the Corporation could experience a decrea se in stockholders' equity, net of tax, of approximately $207 million, as a result of a 10% depreciation of the Corporation's unhedged capital exposure in foreign subsidiaries to the U.S. dollar position.

Regulatory and Other Matters

MasterCard and Visa Litigation and Competition

The Corporation issues credit cards on MasterCard's and Visa's networks. MasterCard and Visa are facing significant litigation and increased competition.

In 2003, MasterCard and Visa settled a suit by Wal-Mart and other merchants who claimed that MasterCard and Visa unlawfully tied acceptance of debit cards to acceptance of credit cards. Under the settlement, MasterCard and Visa were required to, among other things, allow merchants to accept MasterCard or Visa branded credit cards without accepting their debit cards (and vice versa), reduce the prices charged to merchants for off-line signature debit transactions for a period of time, and pay over ten years amounts totaling $3.05 billion into a settlement fund. MasterCard and Visa are also parties to suits by U.S. merchants who opted out of the Wal-Mart settlement.

In early October, the United States Supreme Court decided to let stand a federal court decision in a suit brought by the U.S. Department of Justice, in which MasterCard and Visa rules prohibiting banks that issue cards on MasterCard and Visa networks from issuing cards on other networks (the "Association Rules") were found to have violated federal antitrust laws (the "Antitrust Decision"). The Antitrust Decision effectively permits banks that issue cards on Visa’s or MasterCard’s networks, such as the Corporation’s banking subsidiaries, also to issue cards on competitor networks. Discover has also initiated a civil lawsuit against MasterCard and Visa claiming substantial damages stemming from the Association Rules.

MasterCard and Visa are parties to suits alleging that MasterCard's and Visa's currency conversion practices are unlawful.

The costs associated with these and other matters could cause MasterCard and Visa to invest less in their networks and marketing efforts and could adversely affect the interchange paid to their member banks, including the Corporation's banking subsidiaries


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Interchange in the U.K.

As previously disclosed in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2003 (under "International Regulation of MBNA Europe"), interchange rates in the U.K. have been challenged by regulators. Interchange income is a fee paid by a merchant bank to the card-issuing bank through the interchange network as a compensation for risk, grace period, and other operating costs. After a lengthy investigation by the Office of Fair Trading in the U.K. (the "OFT") of MasterCard interchange rates in the U.K., in February 2003 the OFT issued updated preliminary conclusions, including that the interchange fee paid by merchant acquirers to MasterCard card issuers in the U.K. is anti-competitive and that the agreement between MasterCard's U.K. members for interchange leads to an unjustifiably high fee being paid to card-issuing banks. A final statement of objection by the OFT with respect to MasterCard is expected in late 2004. The timing of a final OFT ruling after any appeals process is uncertain. In October 2004, the OFT extended its interchange investigation to VISA interchange rates in the U.K.

In 2002, in response to European Union regulatory action, VISA agreed to reduce its interchange fee on transactions within the European Union, and in line with this reduction VISA reduced its interchange fee approximately 10 basis points on transactions in the U.K. effective October 2003. MasterCard also reduced its interchange fee approximately 10 basis points on transactions in the U.K. effective October 2004.

The Corporation cannot predict if or when interchange rates in the U.K. could be reduced further, including as a result of the OFT investigation described above. Any potential impact could vary based on business strategies or other actions the Corporation will take to attempt to limit the impact.

Office of Fair Trade Investigation of Default Charges in the U.K.

As previously disclosed in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2003 (under "International Regulation of MBNA Europe"), the OFT is carrying out an industry wide investigation into alleged unfair contract terms in Customer agreements and questioning how the Corporation establishes default charges, such as late, overlimit and returned check fees, in the U.K. The OFT asserts that the Unfair Terms in Consumer Contracts Regulations 1999 render unenforceable consumer credit agreement terms relating to default charges to the extent they are disproportionately high in relation to their actual cost to the Corporation. The OFT must seek a court injunction to enforce such provisions. In July 2004, the Corporation received a letter from the OFT indicating the OFT is challengin g the amount of the Corporation's default charges in the U.K. In the event the OFT’s view prevails, the Corporation's default charges in the U.K. could be significantly reduced. In addition, should the OFT prevail in its challenge, the Corporation may also be subject to claims from Customers seeking reimbursement of default charges. The Corporation is assessing the OFT challenge and cannot state what its eventual outcome will be. Any potential impact could vary based on business strategies or other actions the Corporation takes to attempt to limit the impact.

Future changes in laws and regulations and in policies applied by banking or other regulators also could affect the Corporation’s consolidated financial condition and results of operations in future periods.

See "Regulatory Matters" in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2003 for further detail regarding regulatory matters.

Important Factors Regarding Forward-Looking Statements

From time to time the Corporation may make forward-looking oral or written statements concerning the Corporation’s future performance. Such statements are subject to risks and uncertainties that may cause the Corporation’s actual performance to differ materially from that set forth in such forward-looking statements. Words such as "believe," "expect," "anticipate," "intend" or similar expressions are intended to identify forward-looking statements. Such statements speak only as of the date on which they are made. The Corporation undertakes no obligation to update publicly or revise any such statements. Factors which could cause the Corporation’s actual financial and other results to differ materially from those projected by the Corporation in forward-looking statements include, but are not limited to, the following:


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Legal and Regulatory

The banking and consumer credit industry is subject to extensive regulation and examination. Changes in federal, state and foreign laws and regulations affecting banking, consumer credit, bankruptcy, privacy, consumer protection or other matters could materially impact the Corporation’s performance. In recent years, changes in policies and regulatory guidance issued by banking regulators, and affecting credit card and consumer lending in particular, have had a significant impact on the Corporation and are likely to continue to do so in the future. The Corporation cannot predict the impact of these changes. The impact of changes in bank regulatory guidance is particularly difficult to assess as the guidance in recent years has provided, and is likely to continue to provide, considerable discretion to bank regulators in interpreting how the guidance should be applied generally or to particular lenders. In addition, the Corporation could incur unanticipated litigation or compliance costs.

Competition

The Corporation’s business is highly competitive. Competition from other lenders could affect the Corporation’s loans outstanding, Customer retention, and the rates and fees charged on the Corporation’s loans.

Economic Conditions

The Corporation’s business is affected by general economic conditions beyond the Corporation’s control, including employment levels, consumer confidence and interest rates. A recession or slowdown in the economy of the U.S. or in other markets in which the Corporation does business may cause an increase in delinquencies and credit losses and reduce new account and loan growth and charge volume.


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Delinquencies and Credit Losses

An increase in delinquencies and credit losses could affect the Corporation’s financial performance. Delinquencies and credit losses are influenced by a number of factors, including the credit quality of the Corporation’s loans, the composition of the Corporation’s loans between credit card, other consumer loans and commercial loans, general economic conditions, the success of the Corporation’s collection efforts, the seasoning of the Corporation’s accounts and the impact of actual or proposed changes in bankruptcy laws or regulatory policies. See "Loan Quality" for a discussion of the Corporation’s delinquencies and credit losses.

Interest Rate Increases

An increase in interest rates could increase the Corporation’s cost of funds and reduce its net interest margin. The Corporation’s ability to manage the risk of interest rate increases in the U.S. and other markets is dependent on its overall product and funding mix and its ability to successfully reprice outstanding loans. See "Liquidity and Rate Sensitivity-Interest Rate Sensitivity" for a discussion of the Corporation’s efforts to manage interest rate risk.

Availability of Funding and Securitization

Changes in the amount, type, and cost of funding available to the Corporation could affect the Corporation’s performance. A major funding alternative for the Corporation is the securitization of credit card loans, other consumer loans, and commercial loans. Difficulties or delays in securitizing loans or changes in the current legal, regulatory, accounting, and tax environments governing securitizations could adversely affect the Corporation. See "Liquidity and Rate Sensitivity-Liquidity Management" for a discussion of the Corporation’s liquidity.

Customer Behavior

The acceptance and use of credit card and other consumer loan products for consumer spending has increased significantly in recent years. The Corporation’s performance could be affected by changes in such acceptance and use, and overall consumer spending, as well as different acceptance and use in international markets.

New Products and Markets

The Corporation’s performance could be affected by difficulties or delays in the development of new products or services, including products or services other than credit card loans, other consumer loans, and commercial loans and in the expansion into new international markets. These may include the failure of Customers to accept products or services when planned, losses associated with the testing of new products or services, or financial, legal or other difficulties that may arise in the course of such implementation. In addition, the Corporation could face competition with new products or services or in new markets, which may affect the success of such efforts. With the expansion to new markets, the Corporation could experience difficulties and delays related to legal and regulatory issues, local customs, competition, and other factors.

Growth

The growth of the Corporation’s existing business and the development of new products and services will be dependent upon the ability of the Corporation to continue to develop the necessary operations, systems, and technology, hire qualified people, obtain funding for significant capital investments, and selectively pursue loan portfolio and other acquisitions.


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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

The information called for by this item is provided under the caption "Liquidity and Rate Sensitivity-Interest Rate Sensitivity" and "Liquidity and Rate Sensitivity-Foreign Currency Exchange Rate Sensitivity" under "Management’s Discussion and Analysis of Financial Condition and Results of Operations."

ITEM 4. CONTROLS AND PROCEDURES

The Corporation's management (including the Chief Executive Officer and the Chief Financial Officer) conducted an evaluation of the Corporation's disclosure controls and procedures (as such term is defined in Rule 13a-15 (e) under the Securities Exchange Act of 1934 (the "Exchange Act")) as of the last day of the period covered by this report as required by Rule 13a-15(b) under the Exchange Act. Based on such evaluation, the Corporation's Chief Executive Officer and Chief Financial Officer concluded as of the last day of the period covered by this report that the Corporation's disclosure controls and procedures were effective in alerting them on a timely basis to material information required to be included in the Corporation's reports filed or submitted under the Exchange Act, particularly during the period in which this quarterly report was being prepared.

There was no change in the Corporation's internal control over financial reporting that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Corporation's internal control over financial reporting.


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PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Foreign Currency Conversion Fees Litigation

MasterCard International Incorporated ("MasterCard") and Visa U.S.A., Inc. ("Visa") apply a currency conversion rate, equal to a wholesale rate plus 1%, to credit card transactions in foreign currencies for conversion of the foreign currency into U.S. dollars. They require the Corporation’s banking subsidiaries and other member banks to disclose the 1% add-on to the wholesale rate if the bank chooses to pass it along to the credit cardholder. The Corporation’s banking subsidiaries disclose this information in their cardholder agreements. In Schwartz v. Visa and MasterCard, a class action filed in February 2000 in the California Superior Court, the plaintiffs claim that this 1% "fee" is not adequately disclosed under federal and California law. The plaintiffs are seeking unspecified monetary damages and injunctive relief. The trial court issued a decision holding that the federal disclosure requirement is not applicable but that the failure to disclose the fee on each statement that includes a fee is unfair under California law. The court held a hearing on restitution of the fees to cardholders. In March 2004, the court ordered MasterCard and Visa to return the 1% currency conversion fee to the class members on a "claims made basis," meaning that members of the class must make a valid claim in order to be entitled to the return of the fee. If all members of the class were to make valid claims, the reported aggregate amount MasterCard and Visa would have to return is approximately $800 million. Visa and MasterCard have appealed the final decision. The Corporation is not a party to the Schwartz case and should have no direct potential liability in the matter. However, the inability of MasterCard or Visa to ultimately satisfy the judgment could indirectly affect the Corporation. See "Regulatory and Other Matters- MasterCard and Visa Litigation and Competition" for further discussion.

The Corporation and the Bank are among the many card issuers who are defendants in In Re Currency Conversion Fee Antitrust Litigation, a class action, filed in the U.S. District Court for the Southern District of New York, to which the Corporation and the Bank were added as defendants in January 2002. The plaintiffs claim that the defendants conspired in violation of the antitrust laws to charge foreign currency conversion fees and failed to properly disclose the fees in solicitations and applications, in initial disclosure statements and on cardholder statements, in violation of the Truth-in-Lending Act. The plaintiffs claim that the bank defendants and MasterCard and Visa conspired to charge the 1% foreign currency conversion fee assessed by MasterCard and Visa and an additional fee assessed by some issuers . Unlike most other issuers, in the United States the Corporation’s banking subsidiaries do not charge the additional fee on consumer credit cards in addition to the fee charged by MasterCard and Visa, but do charge such an additional fee on business credit cards. The plaintiffs are seeking unspecified monetary damages and injunctive relief. In July 2003, the court granted a motion to dismiss certain Truth-in-Lending Act claims against the Corporation and other defendants, but denied a motion to dismiss the antitrust claims against the defendants. In October 2004, a class was certified by the Court. The Corporation and the Bank intend to defend this matter vigorously and believe that the claim is without merit.

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.


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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Summary of Stock Repurchases
(in thousands, except for average price paid per share) (unaudited)
	Total Number of Shares Purchased		Average Price Paid per Share
July 1, 2004 - July 31, 2004
From employees (a)		205		25.98
Open market (b)		3		26.00

August 1, 2004 - August 31, 2004
From employees (a)		272		23.17
Open market (b)		426		23.63

September 1, 2004 - September 30, 2004
From employees (a)		411		24.76
Open market (b)		380		24.79
Total		1,697		24.07

(a) The repurchases from employees represent shares canceled when surrendered for minimum withholding taxes due. Also included are restricted stock awards that were canceled.
(b) 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.


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ITEM 6. EXHIBITS

Index of Exhibits

Exhibit	Description of Exhibit

12.1	Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividend Requirements (unaudited)

31.1	Section 302 Chief Executive Officer Certification

31.2	Section 302 Chief Financial Officer Certification

32.1	Section 906 Chief Executive Officer Certification

32.2	Section 906 Chief Financial Officer Certification


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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		MBNA Corporation

Date: November 9, 2004	/s/	Kenneth A. Vecchione
		Kenneth A. Vecchione
		Chief Financial Officer


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Maryland	52-1713008
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

Wilmington, Delaware	19884-0131
(Address of principal executive offices)	(Zip Code)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the quarterly period ended September 30, 2004

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the transition period from _______ to ______.