September 30, 2005 Form 10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

	For the quarterly period ended September 30, 2005

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

	For the transition period from _______ to ______

Commission file number 1-10683

MBNA Corporation

(Exact name of registrant as specified in its charter)

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)

(800) 362-6255

(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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes

Common Stock, $.01 Par Value - 1,255,083,579 Shares Outstanding as of September 30, 2005

MBNA CORPORATION

TABLE OF CONTENTS

			Page
PART I.	FINANCIAL INFORMATION

	Item 1.	Financial Statements (unaudited)

		Consolidated Statements of Financial Condition - September 30, 2005 and December 31, 2004	1
			1

		Consolidated Statements of Income - For the Three and Nine Months Ended September 30, 2005 and 2004	2
			2

		Consolidated Statements of Changes in Stockholders' Equity - For the Nine Months Ended September 30, 2005 and 2004	3
			3

		Consolidated Statements of Cash Flows - For the Nine Months Ended September 30, 2005 and 2004	5
			5

		Notes to the Consolidated Financial Statements	6

	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of
		Operations (unaudited)	21

	Item 3.	Quantitative and Qualitative Disclosure About Market Risk	97

	Item 4.	Controls and Procedures	97

PART II.	OTHER INFORMATION

	Item 1.	Legal Proceedings	98

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	100

	Item 4.	Submission of Matters to a Vote of Security Holders	101

	Item 6.	Exhibits	102

	Signature		103

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

	September 30, 2005			December 31, 2004
	(unaudited)
ASSETS
Cash and due from banks	$	903,095		$	949,706
Interest-earning time deposits in other banks		2,232,871			2,767,831
Federal funds sold		1,030,000			1,605,000
Investment securities:
Available-for-sale (amortized cost of $6,383,080 and $6,083,252 at September 30, 2005 and December 31, 2004, respectively)		6,318,638			6,062,520
Held-to-maturity (market value of $285,098 and $300,072 at September 30, 2005 and December 31, 2004, respectively)		290,349			299,074
Loan receivables:
Credit card		20,649,014			20,691,060
Other consumer		10,860,639			9,105,025
Commercial		4,011,388			3,962,765
Total loan receivables		35,521,041			33,758,850
Reserve for possible credit losses		(971,802	)		(1,136,558	)
Net loan receivables		34,549,239			32,622,292
Premises and equipment, net		2,559,176			2,787,755
Accrued income receivable		389,777			397,063
Accounts receivable from securitization		8,372,300			8,443,849
Intangible assets and goodwill, net		3,625,559			3,572,667
Prepaid expenses and deferred charges		345,901			438,804
Other assets		2,010,347			1,767,579
Total assets	$	62,627,252		$	61,714,140

LIABILITIES
Deposits:
Time deposits	$	20,158,637		$	21,789,358
Money market deposit accounts		6,328,003			6,582,997
Noninterest-bearing deposits		2,749,114			2,740,063
Interest-bearing transaction accounts		9,609			49,781
Savings accounts		15,615			77,305
Total deposits		29,260,978			31,239,504
Short-term borrowings		2,223,520			2,104,414
Long-term debt and bank notes		13,911,913			11,422,900
Accrued interest payable		310,430			286,313
Accrued expenses and other liabilities		3,688,147			3,337,757
Total liabilities		49,394,988			48,390,888

STOCKHOLDERS' EQUITY
Preferred stock ($.01 par value, 20,000,000 shares authorized, 8,573,882 shares issued and outstanding at September 30, 2005 and December 31, 2004)		86			86
Common stock ($.01 par value, 1,500,000,000 shares authorized, 1,255,083,579 shares at September 30, 2005, and 1,277,671,875 shares at December 31, 2004, issued and outstanding)		12,551			12,777
Additional paid-in capital		1,400,769			2,026,175
Retained earnings		11,461,523			10,620,838
Accumulated other comprehensive income		357,335			663,376
Total stockholders' equity		13,232,264			13,323,252
Total liabilities and stockholders' equity	$	62,627,252		$	61,714,140

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

CONSOLIDATED STATEMENTS OF INCOME

(dollars in thousands, except per share amounts)(unaudited)

	For the Three Months					For the Nine Months
	Ended September 30,					Ended September 30,
	2005			2004		2005		2004
Interest Income
Loan receivables	$	1,009,043		$	857,604	$	2,795,980	$	2,591,714
Investment securities:
Taxable		56,560			33,592		158,809		88,820
Tax-exempt		650			380		1,938		1,048
Time deposits in other banks		34,881			25,168		117,682		67,257
Federal funds sold		2,854			7,158		12,651		18,780
Other interest income		82,668			78,291		253,356		235,268
Total interest income		1,186,656			1,002,193		3,340,416		3,002,887

Interest Expense
Deposits		263,989			245,358		765,671		732,517
Short-term borrowings		27,025			19,933		72,000		51,123
Long-term debt and bank notes		166,542			125,241		453,618		345,536
Total interest expense		457,556			390,532		1,291,289		1,129,176
Net Interest Income		729,100			611,661		2,049,127		1,873,711
Provision for possible credit losses		262,357			273,387		722,326		890,105
Net interest income after provision for possible credit losses		466,743			338,274		1,326,801		983,606

Other Operating Income
Securitization income		1,515,842			1,770,235		4,454,163		4,981,410
Interchange		123,865			113,491		341,206		318,860
Credit card loan fees		160,539			134,251		395,817		398,471
Other consumer loan fees		55,713			46,941		157,894		123,959
Commercial loan fees		22,841			17,992		63,982		50,919
Insurance		69,763			51,512		185,766		149,638
Other		54,482			25,168		117,945		78,485
Total other operating income		2,003,045			2,159,590		5,716,773		6,101,742

Other Operating Expense
Salaries and employee benefits		513,073			545,143		1,581,198		1,666,054
Occupancy expense of premises		42,520			46,630		128,106		137,546
Furniture and equipment expense		119,595			105,913		347,842		293,965
Restructuring (benefit) charge		(17,914	)		-		764,084		-
Other		685,543			650,992		2,061,299		2,064,897
Total other operating expense		1,342,817			1,348,678		4,882,529		4,162,462
Income Before Income Taxes		1,126,971			1,149,186		2,161,045		2,922,886
Applicable income taxes		409,075			420,877		779,273		1,014,534
Net Income	$	717,896		$	728,309	$	1,381,772	$	1,908,352

Earnings Per Common Share	$	.57		$	.57	$	1.08	$	1.49
Earnings Per Common Share—Assuming Dilution		.56			.56		1.07		1.46
Dividends Per Common Share		.14			.12		.42		.36

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

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, 2004		8,574		1,277,672		$	86	$	12,777
Comprehensive income:
Net income		-		-			-		-
Other comprehensive income, net of tax		-		-			-		-
Comprehensive income
Cash dividends:
Common - $.42 per share		-		-			-		-
Preferred		-		-			-		-
Exercise of stock options and other awards		-		20,188			-		202
Stock-based compensation tax benefit		-		-			-		-
Amortization of deferred compensation expense		-		-			-		-
Acquisition and retirement of common stock		-		(42,776	)		-		(428	)
Balance, September 30, 2005		8,574		1,255,084		$	86	$	12,551

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

MBNA CORPORATION

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, 2004	$	2,026,175		$	10,620,838		$	663,376		$	13,323,252
Comprehensive income:
Net income		-			1,381,772			-			1,381,772
Other comprehensive income, net of tax		-			-			(306,041	)		(306,041	)
Comprehensive income											1,075,731
Cash dividends:
Common - $.42 per share		-			(530,539	)		-			(530,539	)
Preferred		-			(10,548	)		-			(10,548	)
Exercise of stock options and other awards		261,785			-			-			261,987
Stock-based compensation tax benefit		54,301			-			-			54,301
Amortization of deferred compensation expense		61,205			-			-			61,205
Acquisition and retirement of common stock		(1,002,697	)		-			-			(1,003,125	)
Balance, September 30, 2005	$	1,400,769		$	11,461,523		$	357,335		$	13,232,264

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

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

-4-

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

	For the Nine Months Ended September 30,
	2005			2004
Operating Activities
Net income	$	1,381,772		$	1,908,352
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for possible credit losses		722,326			890,105
Depreciation, amortization, and accretion		740,368			708,410
Benefit for deferred income taxes		(193,553	)		(5,700	)
Decrease in accrued income receivable		8,614			59,656
Decrease (increase) in accounts receivable from securitization		32,141			(326,294	)
Increase in accrued interest payable		32,342			1,814
Restructuring-related items, excluding benefit plan obligations		198,369			-
Decrease in other operating activities		705,483			36,000
Net cash provided by operating activities		3,627,862			3,272,343
Investing Activities
Net decrease (increase) in money market instruments		991,153			(1,855,433	)
Proceeds from maturities of investment securities available-for-sale		1,593,030			1,090,560
Purchases of investment securities available-for-sale		(1,918,439	)		(2,525,978	)
Proceeds from maturities of investment securities held-to-maturity		54,437			62,068
Purchases of investment securities held-to-maturity		(45,631	)		(22,224	)
Proceeds from securitization of loans		7,937,588			10,220,306
Acquisitions of businesses, net of cash		(424,811	)		(355,688	)
Loan portfolio acquisitions		(1,494,686	)		(1,377,008	)
Increase in loans due to principal payments to investors in the Corporation's securitization transactions		(7,862,956	)		(9,513,113	)
Net loan (originations) repayments		(2,267,854	)		3,040,381
Net purchases of premises and equipment		(305,811	)		(367,329	)
Net cash used in investing activities		(3,743,980	)		(1,603,458	)
Financing Activities
Net decrease in money market deposit accounts, noninterest-bearing deposits, interest-bearing transaction accounts, and savings accounts		(319,026	)		(220,363	)
Net (decrease) increase in time deposits		(1,504,499	)		534,014
Net increase (decrease) in short-term borrowings		157,735			(307,980	)
Proceeds from issuance of long-term debt and bank notes		4,650,727			505,406
Maturity of long-term debt and bank notes		(1,640,712	)		(1,414,489	)
Proceeds from exercise of stock options and other awards		261,987			109,713
Acquisition and retirement of common stock		(1,003,125	)		(290,236	)
Dividends paid		(518,276	)		(444,915	)
Net cash provided by (used in) financing activities		84,811			(1,528,850	)
Effect of exchange rate changes on cash and due from banks		(15,304	)		(5,218	)
(Decrease) Increase in Cash and Due from Banks		(46,611	)		134,817
Cash and due from banks at beginning of period		949,706			660,022
Cash and due from banks at end of period	$	903,095		$	794,839

Supplemental Disclosure
Interest expense paid	$	1,868,756		$	1,116,311
Income taxes paid	$	912,965		$	819,829

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

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The accompanying unaudited consolidated financial statements of MBNA Corporation (the “Corporation”) have been prepared in accordance with United States (“U.S.”) generally accepted accounting principles (“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, 2004, should be read in conjunction with these consolidated financial statements. Operating results for the nine months ended September 30, 2005, are not necessarily indicative of the results that may be expected for the year ending December 31, 2005.

The Corporation utilizes certain derivative financial instruments to enhance its ability to manage interest rate risk and foreign currency exchange rate risk that exist as part of its ongoing business operations. Derivative financial instruments are entered into for periods that match the related underlying exposures and do not constitute positions independent of these exposures. The Corporation does not enter into derivative financial instruments for trading purposes, nor is it a party to any leveraged derivative financial instruments. The Corporation can designate derivative financial instruments as either fair value hedges, cash flow hedges, or hedges of net investments. The Corporation can also enter into derivative financial instruments that are not designated as accounting hedges.

During the nine months ended September 30, 2005, the Corporation entered into certain financial instruments designated as cash flow hedges to mitigate the exchange rate risk associated with issuing fixed-rate and variable-rate Euro and Dollar-denominated debt. For these instruments, the effective portion of the change in the fair value of the derivative is recorded in other comprehensive income in the consolidated statements of changes in stockholders’ equity and recognized in the consolidated statements of income in the same period during which the hedged transaction impacts earnings. The ineffective portion of the change in the fair value of the derivative is immediately recognized in earnings.

In April 2005, the Securities and Exchange Commission approved a rule delaying the effective date of Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment” (“Statement No. 123(R)”) for public companies. Statement No. 123(R) was to be effective for public companies for the first interim or annual reporting period beginning after June 15, 2005, however, it is now effective for public companies for the first annual, rather than interim, reporting period beginning after June 15, 2005. The rule does not change the accounting required by Statement No. 123(R). In accordance with the rule, on January 1, 2006, the Corporation will begin to expense the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. The financial statement impact for the year ended December 31, 2006 is expected to reduce both earnings per common share and earnings per common share - assuming dilution by approximately $.02 per share. Should the planned merger with and into Bank of America Corporation (“Bank of America”) occur on or prior to January 1, 2006 (the effective date of FAS 123(R) for the Corporation), all options will vest immediately preceding the change of control, and there would be no financial statement impact for the year ended December 31, 2006 to earnings per common share or earnings per common share - assuming dilution. See “Note N: Mergers and Acquisitions” for more information on the proposed merger of the Corporation with and into Bank of America.

The Corporation has two stock-based employee compensation plans (which are more fully described in “Note 25: Stock-Based Employee Compensation” contained in the Annual Report on Form 10-K for the year ended December 31, 2004). The Corporation measures compensation cost for employee stock options and similar instruments using the intrinsic-value-based method of accounting prescribed by Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB Opinion No. 25”), as interpreted by FASB Interpretation No. 44, “Accounting for Certain Transactions Involving Stock Compensation” (“Interpretation No. 44”). 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. All options are granted with an exercise price that is not less than the fair market value of the Corporation’s common stock on the date the option is granted. For grants of restricted shares of common stock, the market value of restricted shares at the date of grant is amortized into salaries and employee benefits 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.

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. The derived fair value estimates 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						For the Nine Months
	Ended September 30,						Ended September 30,
	2005			2004			2005			2004
Net Income
As reported	$	717,896		$	728,309		$	1,381,772		$	1,908,352
Add: Stock-based employee compensation expense included in reported net income, net of related tax effects		9,151			17,384			39,134			46,109
Deduct: Total stock-based employee compensation expense determined under fair value method for all awards, net of related tax effects		(17,728	)		(30,851	)		(68,802	)		(87,863	)
Pro forma	$	709,319		$	714,842		$	1,352,104		$	1,866,598

Earnings Per Common Share
As reported	$	.57		$	.57		$	1.08		$	1.49
Pro forma		.56			.56			1.06			1.45
Earnings Per Common Share-Assuming Dilution
As reported		.56			.56			1.07			1.46
Pro forma		.55			.55			1.05			1.43

During the nine months ended September 30, 2005, the Corporation granted options for 40,000 shares to the Corporation’s non-employee directors. No other option grants were made during the nine months ended September 30, 2005.

For the nine months ended September 30, 2005, the Corporation issued 3.2 million shares of restricted common stock 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 $78.9 million when issued. Unamortized compensation expense related to all of the Corporation's outstanding restricted stock awards was $192.1 million and $167.3 million at September 30, 2005 and December 31, 2004, respectively. Substantially all restricted common stock awards of the Corporation will vest immediately preceding a change of control. See “Note N: Mergers and Acquisitions” for further detail on the proposed merger of the Corporation with and into Bank of America.

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 and nine months ended September 30, 2005, the Corporation issued 3.1 million and 20.2 million common shares upon the exercise of stock options and issuance of restricted stock, and purchased 5.9 million and 20.2 million common shares for $147.0 million and $502.5 million, respectively. The Corporation received $44.1 million and $262.0 million in proceeds from the exercise of stock options for the three and nine months ended September 30, 2005, respectively.

Note E: Loan Receivables

Included in the Corporation’s loan receivables at September 30, 2005 and December 31, 2004 were loans held for securitization of $8.9 billion and $8.2 billion, respectively.

Note F: 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 20, 2005	March 31, 2005	April 15, 2005	7.50	%	$ .46875	5.50	%	$ .34380
April 21, 2005	June 30, 2005	July 15, 2005	7.50		.46875	5.50		.34380
July 18, 2005	September 30, 2005	October 17, 2005	7.50		.46875	5.50		.34380

On October 4, 2005, the Corporation announced its intention to redeem all of its outstanding Series A and Series B Preferred Stock. The Corporation’s Series A Preferred Stock was redeemed at a price of $25.09896 per share, which includes the face amount of $25 per share plus $.09896 of accrued and unpaid dividends. The Corporation’s Series B Preferred Stock was redeemed at a price of $25.0726 per share, which includes the face amount of $25 per share plus $.0726 of accrued and unpaid dividends. The Corporation’s preferred stock was redeemed on November 3, 2005, reducing the Corporation’s stockholders’ equity by $214.3 million.

Note G: 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 20, 2005	March 15, 2005	April 1, 2005	$ .14
April 21, 2005	June 15, 2005	July 1, 2005	.14
July 18, 2005	September 15, 2005	October 1, 2005	.14
October 19, 2005	December 2, 2005	December 23, 2005	.14

Under the Merger Agreement with Bank of America, the Corporation agreed to limit the payment of quarterly dividends by the Corporation to $.14 or less per share of common stock.

The Corporation repurchased 22.6 million shares of common stock for $500.7 million during the nine months ended September 30, 2005, in connection with the share repurchase program that was approved by the Corporation’s Board of Directors in January 2005. The share repurchase program authorized the repurchase of up to $2 billion of common stock over two years. Under the Corporation’s Merger Agreement with Bank of America, the Corporation agreed to not repurchase shares of common stock without the prior written consent of Bank of America. As a result, the Corporation suspended any share repurchases in connection with this program after June 30, 2005.

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				For the Nine Months
	Ended September 30,				Ended September 30,
	2005		2004		2005		2004
Earnings Per Common Share
Net income	$	717,896	$	728,309	$	1,381,772	$	1,908,352
Less: preferred stock dividend requirements		3,516		3,516		10,548		10,548
Net income applicable to common stock	$	714,380	$	724,793	$	1,371,224	$	1,897,804

Weighted average common shares outstanding (000)		1,259,027		1,277,665		1,265,255		1,277,781

Earnings per common share	$	.57	$	.57	$	1.08	$	1.49

Earnings Per Common Share - Assuming Dilution
Net income	$	717,896	$	728,309	$	1,381,772	$	1,908,352
Less: preferred stock dividend requirements		3,516		3,516		10,548		10,548
Net income applicable to common stock	$	714,380	$	724,793	$	1,371,224	$	1,897,804

Weighted average common shares outstanding (000)		1,259,027		1,277,665		1,265,255		1,277,781
Net effect of dilutive stock options (000)		11,765		16,442		11,656		19,618
Weighted average common shares outstanding and common stock equivalents (000)		1,270,792		1,294,107		1,276,911		1,297,399

Earnings per common share - assuming dilution	$	.56	$	.56	$	1.07	$	1.46

There were 45,000 stock options (expiration dates ranging from 2014 to 2015) and 85,000 stock options (expiration dates ranging from 2011 to 2015) with an average option exercise price of $27.71 and $26.30 per share, outstanding for the three and nine months ended September 30, 2005, respectively, that were not included in the computation of earnings per common share-assuming dilution because the stock options’ exercise prices were greater than the average market price of the common shares, for the three and nine months ended September 30, 2005.

There were 50,000 stock options (expiration dates ranging from 2011 through 2014) 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.

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, 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 subordinated 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 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 Operations.

Securitization Key Assumptions and Sensitivities (a): (dollars in thousands)

	September 30, 2005									June 30, 2005
	(unaudited)									(unaudited)

	Credit Card			Other Consumer			Commercial			Credit Card			Other Consumer			Commercial
Interest-only strip receivable	$	694,513		$	161,380		$	4,683		$	789,995		$	182,637		$	4,241
Weighted average life (in years)		.30			.90			.17			.29			.89			.17

Loan payment rate
(weighted average rate)		16.01	%		4.85	%		33.15	%		17.12	%		4.91	%		32.90	%
Impact on fair value of 20% adverse change	$	97,430		$	24,273		$	472		$	110,085		$	27,596		$	436
Impact on fair value of 40% adverse change		165,145			41,874			931			188,726			47,462			846

Gross credit losses (b)
(weighted average rate)		4.71	%		7.36	%		4.51	%		4.90	%		7.14	%		4.82	%
Impact on fair value of 20% adverse change	$	208,708		$	63,647		$	2,233		$	199,613		$	61,253		$	1,743
Impact on fair value of 40% adverse change		416,183			127,294			4,466			398,629			122,507			3,487

Excess spread (c)
(weighted average rate)		3.13	%		3.73	%		1.89	%		3.88	%		4.26	%		2.35	%
Impact on fair value of 20% adverse change	$	138,903		$	32,276		$	937		$	157,999		$	36,527		$	848
Impact on fair value of 40% adverse change		277,805			64,552			1,873			315,998			73,055			1,696

Discount rate
(weighted average rate)		11.00	%		11.00	%		11.00	%		10.50	%		10.50	%		10.50	%
Impact on fair value of 20% adverse change	$	3,462		$	2,125		$	14		$	3,578		$	2,276		$	12
Impact on fair value of 40% adverse change		6,895			4,205			28			7,128			4,507			25

(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.

Securitization Key Assumptions and Sensitivities (a): (dollars in thousands)

	September 30, 2004									June 30, 2004
	(unaudited)									(unaudited)

	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.

Securitization Key Assumptions and Sensitivities (a): (dollars in thousands)

	September 30, 2005									December 31, 2004
	(unaudited)

	Credit Card			Other Consumer			Commercial			Credit Card			Other Consumer			Commercial
Interest-only strip receivable	$	694,513		$	161,380		$	4,683		$	1,133,320		$	155,863		$	3,582
Weighted average life (in years)		.30			.90			.17			.31			.90			.17

Loan payment rate
(weighted average rate)		16.01	%		4.85	%		33.15	%		15.66	%		4.84	%		32.43	%
Impact on fair value of 20% adverse change	$	97,430		$	24,273		$	472		$	159,061		$	23,551		$	383
Impact on fair value of 40% adverse change		165,145			41,874			931			273,059			40,624			720

Gross credit losses (b)
(weighted average rate)		4.71	%		7.36	%		4.51	%		4.88	%		8.25	%		5.13	%
Impact on fair value of 20% adverse change	$	208,708		$	63,647		$	2,233		$	227,384		$	71,908		$	1,732
Impact on fair value of 40% adverse change		416,183			127,294			4,466			454,767			143,817			3,463

Excess spread (c)
(weighted average rate)		3.13	%		3.73	%		1.89	%		4.85	%		3.58	%		2.12	%
Impact on fair value of 20% adverse change	$	138,903		$	32,276		$	937		$	226,664		$	31,173		$	716
Impact on fair value of 40% adverse change		277,805			64,552			1,873			453,328			62,345			1,433

Discount rate
(weighted average rate)		11.00	%		11.00	%		11.00	%		10.00	%		10.00	%		10.00	%
Impact on fair value of 20% adverse change	$	3,462		$	2,125		$	14		$	5,264		$	1,877		$	10
Impact on fair value of 40% adverse change		6,895			4,205			28			10,487			3,719			20

(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.

Securitization Key Assumptions and Sensitivities (a): (dollars in thousands)

	September 30, 2004									December 31, 2003
	(unaudited)

	Credit Card			Other Consumer			Commercial			Credit Card			Other Consumer			Commercial
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.

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, 2005, the Corporation issued long-term debt and bank notes consisting of the following:

Summary of Long-Term Debt and Bank Notes
(dollars in thousands) (unaudited)	Par Value

Fixed-Rate Senior Medium-Term Note, with an interest rate of 5.00%, payable semi-annually, maturing in 2010	$	250,000

Floating-Rate Senior Medium-Term Note, priced at 43 basis points over the three-month London Interbank Offered Rate, payable quarterly, maturing in 2008		500,000

Fixed-Rate Euro Medium-Term Note, with an interest rate of 3.00%, payable annually, maturing in 2008 (€500.0 million)		662,850

Fixed-Rate Euro Medium-Term Note, with an interest rate of 4.47%, payable semi-annually, maturing in 2010		35,000

Fixed-Rate Euro Medium-Term Note, with an interest rate of 4.50%, payable annually, maturing in 2008 (£350.0 million)		618,037

Floating-Rate Euro Medium-Term Note, priced at 14 basis points over the three-month Euro Interbank Offered Rate, payable quarterly, maturing in 2007 (€750.0 million)		914,855

Floating-Rate Global Medium-Term Note, priced at 10 basis points over the three-month London Interbank Offered Rate, payable quarterly, maturing in 2007		900,000

Fixed-Rate Medium-Term Deposit Note, with an interest rate of 4.00%, payable semi-annually, maturing in 2010 (CAD$ 300.0 million)		243,912

Floating-Rate Medium-Term Deposit Note, priced at 9 basis points over the ninety-day bankers acceptance rate, payable quarterly, maturing in 2007 (CAD$200.0 million)		170,540

Fixed-Rate Asset-Backed Notes, with a weighted average interest rate of 4.34%, payable monthly, maturing in varying amounts from 2006 to 2012		370,430

During the nine months ended September 30, 2005, $100.0 million of Senior Notes, $656.0 million of Bank Notes, $72.7 million of Medium-Term Deposit Notes, $656.9 million of Euro Medium-Term Notes, and $24.2 million in Loan Notes matured and the Corporation paid down $130.8 million of asset-backed notes assumed in connection with the acquisition of MBNA Practice Solutions, Inc., formerly Sky Financial Solutions, Inc.

Interest Rate and Foreign Exchange Swap Agreements

The Corporation primarily uses interest rate swap agreements and foreign exchange swap agreements to change a portion of fixed-rate long-term debt and bank notes to floating-rate long-term debt and bank notes to more closely match the rate sensitivity of the Corporation’s assets. The Corporation also uses foreign exchange swap agreements to mitigate its foreign currency exchange risk on a portion of long-term debt and bank notes issued by MBNA Europe Bank Limited (“MBNA Europe”). “Note 32: Fair Value of Financial Instruments - Derivative Financial Instruments” of the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2004, provides further detail regarding the Corporation’s derivative activities.

During the nine months ended September 30, 2005, MBNA Europe entered into certain financial instruments designated as cash flow hedges, with total notional values of $2.5 billion, related to the issuance of fixed-rate and variable-rate Euro and Global Medium-Term Notes. Refer to “Note B: Derivative Financial Instruments and Hedging Activities” for further information regarding the Corporation’s derivative policy related to cash flow hedges.

The components of comprehensive income are as follows:

Comprehensive Income
(dollars in thousands) (unaudited)

	For the Three Months					For the Nine Months
	Ended September 30,					Ended September 30,
	2005			2004		2005			2004

Net income	$	717,896		$	728,309	$	1,381,772		$	1,908,352
Other comprehensive income:
Foreign currency translation		(24,128	)		19,812		(273,776	)		24,520
Net unrealized (losses) gains on investment securities available-for-sale, net of tax		(29,283	)		8,801		(28,191	)		(10,308	)
Cash flow hedge adjustment, net of tax		(3,709	)		-		(4,074	)		-
Other comprehensive income		(57,120	)		28,613		(306,041	)		14,212
Comprehensive income	$	660,776		$	756,922	$	1,075,731		$	1,922,564

The components of accumulated other comprehensive income are as follows:

Components of Accumulated Other Comprehensive Income
(dollars in thousands)

	September 30, 2005			December 31, 2004
	(unaudited)

Foreign currency translation	$	406,860		$	680,636
Net unrealized losses on investment securities available-for-sale, net of tax		(41,752	)		(13,561	)
Minimum benefit plan liability adjustment, net of tax		(3,699	)		(3,699	)
Cash flow hedge adjustment, net of tax		(4,074	)		-
Accumulated other comprehensive income	$	357,335		$	663,376

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.

Pension Plan and Supplemental Executive Retirement Plan

The Corporation has a noncontributory defined benefit pension plan (“Pension Plan”) and a supplemental executive retirement plan (“SERP”). “Note 24: Employee Benefits” of the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2004, provides further detail regarding these plans. The components of net periodic benefit cost for the Pension Plan and SERP are presented in the following table.

Components of Net Periodic Benefit Cost
(dollars in thousands) (unaudited)

	Pension Plan						SERP						Total

	For the Three Months						For the Three Months						For the Three Months
	Ended September 30,						Ended September 30,						Ended September 30,
	2005			2004			2005			2004			2005			2004

Service cost-benefits earned during the period	$	13,304		$	15,056		$	3,175		$	3,758		$	16,479		$	18,814
Interest cost on projected benefit obligation		10,533			8,628			4,898			3,500			15,431			12,128
Expected return on plan assets		(11,668	)		(9,426	)		-			-			(11,668	)		(9,426	)
Net amortization and deferral:
Prior service cost		234			272			723			800			957			1,072
Actuarial loss		1,310			2,961			-			200			1,310			3,161
Transition obligation		-			-			86			100			86			100
Net amortization and deferral		1,544			3,233			809			1,100			2,353			4,333
Net periodic benefit cost		13,713			17,491			8,882			8,358			22,595			25,849
Restructuring charges:
Special termination benefit charge		(2,062	)		-			3,506			-			1,444			-
Curtailment charge		148			-			558			-			706			-
Total net periodic benefit cost	$	11,799		$	17,491		$	12,946		$	8,358		$	24,745		$	25,849

Assumptions Used to Determine Net Periodic Benefit Cost

Discount rate		6.00	%		6.00	%		6.00	%		6.00	%
Rate of compensation increase		5.00			5.00			5.00			5.00
Expected return on plan assets		8.75			9.00


Components of Net Periodic Benefit Cost
(dollars in thousands) (unaudited)

	Pension Plan						SERP						Total

	For the Nine Months						For the Nine Months						For the Nine Months
	Ended September 30,						Ended September 30,						Ended September 30,
		2005			2004			2005			2004			2005			2004

Service cost-benefits earned during the period	$	43,855		$	45,168		$	10,276		$	11,273		$	54,131		$	56,441
Interest cost on projected benefit obligation		30,989			25,884			12,916			10,500			43,905			36,384
Expected return on plan assets		(34,320	)		(28,277	)		-			-			(34,320	)		(28,277	)
Net amortization and deferral:
Prior service cost		763			814			2,318			2,400			3,081			3,214
Actuarial loss		5,503			8,884			150			600			5,653			9,484
Transition obligation		-			-			284			300			284			300
Net amortization and deferral		6,266			9,698			2,752			3,300			9,018			12,998
Net periodic benefit cost		46,790			52,473			25,944			25,073			72,734			77,546
Restructuring charges:
Special termination benefit charge		76,849			-			72,886			-			149,735			-
Curtailment charge		1,576			-			12,559			-			14,135			-
Total net periodic benefit cost	$	125,215		$	52,473		$	111,389		$	25,073		$	236,604		$	77,546

Assumptions Used to Determine Net Periodic Benefit Cost

Discount rate		6.14	%		6.00	%		6.14	%		6.00	%
Rate of compensation increase		5.00			5.00			5.00			5.00
Expected return on plan assets		8.75			9.00

During the nine months ended September 30, 2005, the Corporation incurred special termination benefit and curtailment charges of $149.7 million and $14.1 million, respectively. These charges relate to Pension Plan and SERP participants that terminated their employment with the Corporation in connection with the restructuring plan implemented during the first quarter of 2005. The assumptions used to determine the restructuring charges were a discount rate of 6.00%, rate of compensation increase of 5.00%, and an expected rate of return on plan assets of 8.75%. The change in the discount rate reflects the current interest rate environment. The Corporation used a measurement date of February 28, 2005 for the restructuring charge. These amounts are included in the restructuring charge on the Corporation’s consolidated statements of income.

See “Note M: Restructuring Charge” for further information on the restructuring charge.

During the nine months ended September 30, 2005, the Corporation incurred special termination benefit charges of $5.5 million, unrelated to the restructuring charge, for a SERP participant retiring earlier than expected. This amount is excluded from the components of net periodic benefit cost table.

For the nine months ended September 30, 2005, the Corporation contributed the maximum tax-deductible contribution of $78.5 million to the Pension Plan. In 2004, the Corporation contributed $69.0 million to the Pension Plan.

Postretirement and Postemployment Benefits

The Corporation and its subsidiaries provide certain healthcare and life insurance benefits for certain people upon early retirement through normal retirement age. “Note 24: Employee Benefits” of the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2004, provides further detail regarding this plan. This plan was opened to certain individuals who would not have otherwise been eligible in connection with the restructuring plan announced during the first quarter of 2005. The Corporation also provides certain other postretirement and postemployment benefits to certain individuals upon leaving the Corporation. These amounts have been accrued and are included in accrued expenses and other liabilities in the Corporation’s statements of financial condition.

In the first quarter of 2005, in order to achieve staffing levels that meet expected future business needs and make the Corporation more efficient, the Corporation announced and implemented a restructuring plan. This plan primarily consisted of staff reductions related to voluntary early retirement and voluntary severance programs, contract terminations, and the disposition of fixed assets relating to facility closings.

In connection with its restructuring plan, during the three months ended September 30, 2005, the Corporation recognized a reduction in the restructuring charge in other operating expense of $17.9 million pre-tax ($7.6 million net of tax), due to favorable experience with respect to the post employment healthcare elections made by terminated employees. The Corporation recorded a restructuring charge in other operating expense of $764.1 million pre-tax ($489.4 million net of tax) in connection with its restructuring plan during the nine months ended September 30, 2005.

Approximately 85% of the restructuring charge will result in future cash expenditures. With the exception of the Corporation’s benefit plan obligations, the majority of the cash expenditures will occur in 2005 and 2006.

The components of the restructuring charge for the nine months ended September 30, 2005 are as follows:

Restructuring Charge
(dollars in thousands) (unaudited)

	Restructuring Charge		Cash Payments		Other Adjustments		Liability Balance at September 30, 2005
Early retirement and severance costs	$	475,839	$	112,318	$	297,700	$	65,821
Contract termination costs		171,088		169,559		1,529		-
Facility costs		113,611		775		108,920		3,916
Other costs		3,546		3,546		-		-
Total	$	764,084	$	286,198	$	408,149	$	69,737

Early retirement and severance costs represent costs incurred through the voluntary early retirement and voluntary severance programs. The contract termination costs were primarily related to a marketing agreement with a third party vendor that marketed the Corporation’s products to endorsing organizations. Management determined this contract was no longer consistent with the Corporation’s long-term objectives. Facility costs include asset disposal, lease termination, and other impairment costs. Other costs include professional fees incurred in connection with the restructuring plan. Other adjustments primarily represent adjustments for noncash charges, the majority of which represent the write down of impaired facilities, and charges that are accounted for as part of the Corporation’s benefit plan obligations as disclosed in “Note L: Employee Benefits”. Included in these other adjustments were $78.4 million related to the Pension Plan, $85.4 million related to the SERP, and $115.6 million related to postretirement and postemployment benefits. These amounts will be included in the actuarial valuation of these obligations in future periods. Accruals for the restructuring charge are primarily included in accrued expenses and other liabilities in the consolidated statements of financial condition at September 30, 2005. The accruals primarily consist of severance costs.

Merger Announcement

On June 30, 2005, the Corporation announced the Merger Agreement with Bank of America. The Merger Agreement provides for the merger of the Corporation with and into Bank of America. The Merger Agreement has been approved by the Boards of Directors of both companies and the Corporation’s stockholders. If the merger is completed, each share of the Corporation’s common stock will be converted into 0.5009 of a share of Bank of America common stock and $4.125 in cash. The completion of the merger is currently anticipated to occur in early January 2006, and is subject to receipt of all requisite governmental approvals (including the approval of the Board of Governors of the Federal Reserve System), and certain other customary conditions. Under the Merger Agreement, the Corporation agreed to limit the payment of quarterly dividends by the Corporation to $.14 or less per share of common stock. On October 4, 2005, the Corporation announced its intention to redeem all of its outstanding Series A and Series B Preferred Stock. The Corporation’s Series A Preferred Stock was redeemed at a price of $25.09896 per share, which includes the face amount of $25 per share plus $.09896 of accrued and unpaid dividends. The Corporation’s Series B Preferred Stock was redeemed at a price of $25.0726 per share, which includes the face amount of $25 per share plus $.0726 of accrued and unpaid dividends. The Corporation’s preferred stock was redeemed on November 3, 2005.

To induce Bank of America to enter into the Merger Agreement, the Corporation granted Bank of America an option to purchase up to 249,764,005 shares of the Corporation’s common stock at a price per share of $21.30; however, in no case may Bank of America acquire more than 19.9% of the outstanding shares of the Corporation’s common stock under this stock option agreement. Bank of America cannot exercise the option unless the merger is not completed and specified triggering events occur. These events generally relate to business combinations or acquisition transactions involving the Corporation and a third party. The Corporation is not aware of any event that has occurred as of the date of this document that would allow Bank of America to exercise the option. The option will expire upon completion of the merger.

The option could have the effect of discouraging a company from trying to acquire the Corporation prior to completion of the merger or termination of the Merger Agreement. Upon the occurrence of certain triggering events, the Corporation may be required to repurchase the option and any shares of the Corporation’s common stock purchased under the option at a predetermined price, or Bank of America may choose to surrender the option to the Corporation for a cash payment of $1.0559 billion. In no event will the total profit received by Bank of America with respect to this option exceed $1.4078 billion.

Nexstar Financial Corporation

On May 2, 2005, the Corporation purchased Nexstar Financial Corporation ("Nexstar"). 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 approximately $150 million. The purchase price allocation is preliminary pending receipt of valuations of certain assets and liabilities assumed. The Corporation has engaged an outside vendor to assist with these valuations. The results of operations of Nexstar have been included in the Corporation’s consolidated financial statements since the acquisition date. The acquisition of Nexstar was not significant to the Corporation's results of operations for the three or nine months ended September 30, 2005.

Nexstar is a mortgage services company that provides lending services in several different product lines that are new for the Corporation. Its services include underwriting and fulfillment activities, as well as mortgage origination functions and services.

Marlin House Holdings Limited

On August 1, 2005, MBNA Europe acquired Marlin House Holdings Limited (“Marlin House”). Marlin House, through its principal subsidiary Loans.co.uk Limited ("Loans.co.uk"), arranges loans secured by residential property, which are funded through third-party lenders. Typical Customers use the loans to consolidate their existing debt or acquire financing for new purchases, such as cars or home improvements.

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 approximately $200 million. The purchase price allocation is preliminary pending receipt of valuations of certain assets and liabilities assumed. The Corporation has engaged an outside vendor to assist with these valuations. The results of operations of Marlin House have been included in the Corporation’s consolidated financial statements since the acquisition date. The acquisition of Marlin House was not significant to the Corporation's results of operations for the three or nine months ended September 30, 2005.

ITEM 2.

MBNA CORPORATION

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

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

	Introduction and Overview	22

	Critical Accounting Policies	24

	Restructuring Charge	28

	Earnings Summary	28

	Net Interest Income	33

	Investment Securities and Money Market Instruments	42

	Other Interest-Earning Assets	42

	Loan Receivables	43

	Accounts Receivable from Securitization	45

	Prepaid Expenses and Deferred Charges	46

	Other Assets	46

	Interest-Bearing Deposits	46

	Borrowed Funds	47

	Accumulated Other Comprehensive Income	48

	Total Other Operating Income	48

	Total Other Operating Expense	55

	Income Taxes	57

	Loan Quality	58

	Capital Adequacy	75

	Dividend Limitations	76

	Off-Balance Sheet Arrangements	77

	Liquidity and Rate Sensitivity	87

	Regulatory and Other Matters	93

	Important Factors Regarding Forward-Looking Statements	95

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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. ("MBNA America"), a national bank and the Corporation's principal subsidiary. 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 its credit card and other loan products. Through MBNA America, the Corporation is the largest independent credit card lender in the world and is the leading issuer of credit cards through endorsed marketing. In addition to its credit card lending, the Corporation also makes other consumer loans, which include installment and revolving unsecured loan products, mortgage loans, aircraft loans, and other specialty lending products to consumers, and commercial loans, which include business card products and other specialty lending products to small businesses. The Corporation also offers insurance and deposit products.

The Corporation makes loans in the United Kingdom ("U.K."), Ireland, and Spain through MBNA America's wholly owned foreign bank subsidiary, MBNA Europe Bank Limited ("MBNA Europe"), and in Canada through MBNA America’s wholly owned foreign bank subsidiary, MBNA Canada Bank ("MBNA Canada"). The Corporation makes its commercial loans and a portion of its other consumer loans in the United States ("U.S.") through another wholly owned subsidiary of the Corporation, MBNA America (Delaware), N.A. ("MBNA Delaware"), a national bank.

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 by portfolio and other business acquisitions. The Corporation generates income through finance charges assessed on outstanding loan receivables, securitization income, interchange income, credit card, other consumer, and commercial 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, growing, and servicing its loan receivables, investment securities, and other assets, which include interest paid on deposits, short-term borrowings and long-term debt and bank notes, credit losses, business development and operating expenses, royalties to endorsing organizations, and income taxes.

The Corporation obtains funds to make loans to its Customers primarily through the process of asset securitization, raising deposits, and the issuance of short-term and long-term debt. Asset securitization removes loan principal receivables from the 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 U.S. generally accepted accounting principles ("GAAP").

The Corporation allocates resources on a managed basis, and financial data provided to management reflects the Corporation's results on a managed basis. Managed data assumes the Corporation's securitized loan principal receivables have not been sold and presents the earnings on securitized loan principal receivables in the same fashion as the Corporation's owned loans. Management, equity and debt analysts, rating agencies, and others evaluate the Corporation's operations on a managed basis because the loans that are securitized are subject to underwriting standards comparable to the Corporation's owned loans, and the Corporation services the securitized and owned loans, and the related accounts, together and in the same manner without regard to ownership of the loans. In a securitization, the loan principal receivables are sold to the trust, but the account relationships are not sold. The Corporation continues to own and service the accounts that generate the securitized loan principal receivables. The credit performance of the entire managed loan portfolio is important to understand the quality of originations and the related credit risks inherent in the owned portfolio and retained interests in securitization transactions. Off-balance sheet asset securitization has a significant effect on the Corporation's consolidated financial statements. The impact is discussed under "Off-Balance Sheet Arrangements—Impact of Off-Balance Sheet Asset 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 2005, as compared to the third quarter of 2004, included loan growth, a lower managed net interest margin, lower total other operating income, improved asset quality trends, the continued impact of the restructuring charge announced during the first quarter of 2005, 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 the quarter:

• Loan receivables increased by $3.4 billion to $35.5 billion and managed loans increased by $4.7 billion to $122.5 billion, as compared to September 30, 2004. The increase in loan receivables and managed loans was primarily achieved through organic growth from the Corporation’s business development efforts. 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 Asset Securitization Transactions on the Corporation's Results" for a discussion of the income earned on managed loans.

• The net interest margin increased 70 basis points to 5.86% and the managed net interest margin declined 45 basis points to 7.37% for the three months ended September 30, 2005, as compared to the same period in 2004. 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 Asset Securitization Transactions on the Corporation's Results" for a discussion of the managed net interest margin.

• Total other operating income decreased by $156.5 million to $2.0 billion for the three months ended September 30, 2005, as compared to the same period in 2004, as a result of the quarterly revaluation of the Corporation’s interest-only strip receivable, which resulted in a loss of $129.4 million, primarily as a result of decreases in projected excess spread to be earned in the future, partially offset by decreases in projected loan payment rates. See "Total Other Operating Income" for a discussion of total other operating income.

• Based on improving asset quality trends, the provision for possible credit losses in the third quarter of 2005 was $11.0 million lower than in the third quarter of 2004. Net credit losses on loan receivables declined 98 basis points to 3.30% and net credit losses on managed loans declined 32 basis points to 4.29% for the third quarter of 2005, as compared to the same period in 2004. See "Loan Quality—Net Credit Losses" for a discussion of net credit losses.

• In connection with its restructuring plan, during the three months ended September 30, 2005, the Corporation recognized a reduction in the restructuring charge in other operating expense of $17.9 million pre-tax ($7.6 million net of tax), due to favorable experience with respect to the post employment healthcare elections made by terminated employees.

These items, as well as other factors, are discussed in further detail throughout "Management's Discussion and Analysis of Financial Condition and Results of Operations."

Other Matters:

• In accordance with regulatory guidance, the Corporation has increased the required minimum monthly payment amounts for new U.S. credit card loan accounts during the third quarter of 2005 and will increase the required minimum monthly payment amounts for existing U.S. credit card loan accounts in the fourth quarter of 2005. Previously, credit card Customers were generally required to make a minimum monthly payment equal to the lesser of the sum of finance charges and fees assessed that month plus $15, or 2.25% of the outstanding balance on the account. After the change, credit card Customers are generally required to make a minimum monthly payment equal to interest and late fees assessed that month plus 1% of the remaining balance on the account. Increasing the minimum monthly payment amounts will likely reduce the Corporation's credit card loan receivables, the interest income on those receivables, and the Corporation's interest-only strip receivable. It will also likely increase the Corporation’s credit card delinquencies, net credit losses, and the provision for possible credit losses. The impact in future periods will depend on the actual payment patterns of Customers after the change, whether or not the Customers who pay down more quickly the account balance reuse the available credit, and economic and other factors that are difficult to predict or quantify. Other credit card issuers are making similar changes. As a result, certain of the Corporation’s credit card Customers could be adversely impacted by having to make increased payments on multiple credit card accounts.

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• During the third quarter of 2005, the Central Gulf Coast of the U.S. was struck by Hurricane Katrina, adversely affecting a portion of the Corporation’s Customers. The Corporation assisted Customers through various ways, including payment holidays, late fee waivers, increased credit lines, and access to emergency cash. In addition, some Customer’s accounts were placed on nonaccrual status as a result of Hurricane Katrina, which resulted in an increase in domestic nonaccrual loans. The Corporation is not able to quantify the full impact of Hurricane Katrina, however it is expected to have an adverse effect on the Corporation’s delinquency and credit losses in future periods.

• In April 2005, the Bankruptcy Abuse Prevention and Consumer Protection Act was enacted (the “Act”). The Act, which restricts the ability of individuals to clear their debts through bankruptcy, went into effect on October 17, 2005. Under the Act, more obligors filing for bankruptcy will be required to file under a Chapter 13 bankruptcy, in which individuals are placed on a repayment plan of up to five years, instead of having their debts cleared without a repayment plan in a Chapter 7 bankruptcy proceeding. Debts not addressed by the repayment plan do not have to be paid. The new law also contains provisions such as income qualification tests, more stringent restrictions on current bankruptcy exemptions, and mandatory credit counseling.

In the period leading up to the October 17, 2005 effective date of the Act, there was a significant increase in the number of bankruptcy filings as obligors accelerated filings of Chapter 7 bankruptcy proceedings to avoid the adverse provisions of the Act. This accelerated rate of filings will significantly increase the Corporation's net credit losses for the month of December because bankrupt accounts are charged off by the end of the second calendar month following receipt of notification of the filing from the applicable court. See "Net Credit Losses" for a discussion of the charge-off of bankrupt accounts. However, the number of bankruptcy filings and resulting credit losses could be significantly offset in the periods following the effective date of the Act as a result of the earlier acceleration in filings and restrictions in the Act. The Corporation’s future net credit losses are by their nature uncertain and changes in economic conditions, regulatory policies, seasonality, and other factors may also impact losses.

• In November 2005, the Corporation and Wachovia Corporation announced that they would terminate an agreement under which the Corporation issues Wachovia-branded credit cards, effective October 2006. The Corporation will retain and service the existing Wachovia-branded credit card loans, will re-issue replacement MBNA-branded credit cards, and will market other credit card products and services to select Customers. The decision to terminate the agreement follows the announced merger between the Corporation and Bank of America. Under the terms of the agreement with Wachovia, the Corporation is required to pay Wachovia a $100 million termination fee upon consummation of the merger.

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

Management believes the current assumptions and other considerations used to estimate amounts reflected in the Corporation’s consolidated financial statements are appropriate. However, if actual experience differs from the assumptions and other considerations used in estimating amounts reflected in the Corporation’s 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 special-purpose entities as defined by Statement No. 140 that are specifically exempted from the requirements of FASB Interpretation No. 46 (revised December 2003), “Consolidation of Variable Interest Entities, an interpretation of ARB No. 51” (“Interpretation No. 46(R)”).

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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 of interest income, certain fees, recoveries on charged-off securitized loans, gross credit losses on securitized loans, contractual servicing fees, and the interest paid to investors in a securitization transaction (“excess spread”). These projections are used to estimate the excess spread to be earned by the Corporation over the estimated life of the securitized loan principal receivables. The other assumptions and estimates used by the Corporation in estimating the fair value of the interest-only strip receivable include projected loan payment rates, which are used to determine the estimated life of the securitized loan principal receivables, and an appropriate discount rate.

The assumptions and estimates used to estimate the fair value of the interest-only strip receivable at September 30, 2005, 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 from other lenders or other loan products, such as home equity loans. 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 and compares the results to actual trust performance and other factors for the prior period that approximates the average life of the securitized loan receivables. Based on this review and the Corporation’s current assumptions and estimates for future periods, the Corporation adjusts as appropriate, the assumptions and estimates used in determining the fair value of the interest-only strip receivable. If the assumptions change, or actual results differ from projected results, the interest-only strip receivable and securitization income would be affected. If management had made different assumptions for the periods covered by this report that raised or lowered the excess spread or projected loan payment rates, the Corporation’s financial condition and results of operations could have differed materially. For example, a 20% change in the excess spread assumption for all securitized loan principal receivables could have resulted in a change of approximately $172 million in the value of the total interest-only strip receivable at September 30, 2005, and a related change in securitization income.

“Note I: 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 and prepares a bankruptcy filing forecast. A migration analysis is a technique used to estimate the likelihood that a loan receivable may progress through the various delinquency stages and ultimately charge off. The bankruptcy filing forecast is based upon an analysis of historical filings, industry trends, and estimates of future filings. On a quarterly basis, the Corporation reviews and adjusts, as appropriate, these estimates. The Corporation’s projection of probable net credit losses considers the impact of economic conditions on the borrowers’ ability to repay, past collection experience, the risk characteristics and composition of the portfolio, and other factors. The Corporation then reserves for the projected probable net credit losses based on its projection of these amounts. Certain commercial loans are evaluated for impairment 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 inherent losses. The Corporation establishes appropriate levels of the reserve for possible credit losses for its loan products, including credit card, other consumer, and commercial loans based on their risk characteristics. A provision is charged against earnings to maintain the reserve for possible credit losses at an appropriate level. The Corporation records acquired reserves for current period loan acquisitions.

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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 $100 million in the reserve for possible credit losses and a related change in the provision for possible credit losses at September 30, 2005.

“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”), which are carried at net book value. The Corporation records PCCRs as part of the acquisition of credit card and business card loans and the corresponding Customer relationships. PCCRs are amortized over the period the assets are expected to contribute to the cash flows of the Corporation, which reflect the expected pattern of benefit. PCCRs are amortized using an accelerated method based upon the projected cash flows the Corporation will receive from the Customer relationships during the estimated useful lives of the PCCRs.

The Corporation’s PCCRs are subject to impairment tests in accordance with Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“Statement No. 144”). The Corporation reviews the carrying value of its PCCRs for impairment on a quarterly basis, or sooner, whenever events or changes in circumstances indicate that their carrying amount may not be fully recoverable, by comparing their carrying value to the sum of the undiscounted expected future cash flows from the loans and corresponding credit card and business 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 their estimated fair value based on the discounted future cash flows expected from the PCCRs. The Corporation performs a quarterly 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 and business 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 and business card relationships exceeds the $2.9 billion net book value of the Corporation’s PCCRs at September 30, 2005 by approximately $3.3 billion. If the active account attrition rates for all acquired portfolios in the twelve month period following September 30, 2005, 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 $2.5 billion, and no material impairment would result on any individual PCCR.

In addition to PCCRs, the Corporation has other purchased relationships, goodwill, and a benefit plan intangible asset. The other purchased relationships relate primarily to the Corporation’s broker relationships acquired in the first quarter of 2004 as a result of the Premium Credit Limited (“PCL”) acquisition and the strategic partnerships acquired in the third quarter of 2005 as a result of the acquisition of Marlin House Holdings Limited (“Marlin House”). Other purchased relationships are carried at net book value and are amortized over the period the assets are expected to contribute to the cash flows of the Corporation. The Corporation’s other purchased relationships are subject to impairment tests in accordance with Statement No. 144. 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”.

There were no impairment write-downs of intangible assets during the nine months ended September 30, 2005.

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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 assumptions about the determination of the accrued unbilled portion of interest income and the valuation of accrued interest on securitized loans, the Corporation’s financial condition and results of operations could have differed materially. For example, a 10% change in management’s projection of the estimated yield on its loan receivables and the valuation of the accrued interest receivable on securitized loans could have resulted in a change totaling approximately $67 million in interest income and other operating income at September 30, 2005.

The Corporation recognizes fees (except annual fees) on loan receivables in earnings as the fees are assessed according to agreements with the Corporation’s Customers. Credit card, other consumer, and commercial 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 credit card and business card loans and their 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 Customers exceeding their credit limit and are billed to the Customers and included in loan receivables at the end of the billing cycle for their accounts.

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 ultimately charge off, as well as a bankruptcy filing forecast. The bankruptcy filing forecast is based upon an analysis of historical filings, industry trends, and estimates of future filings. 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, as well as a bankruptcy filing forecast. On a quarterly basis, the Corporation reviews and adjusts, as appropriate, these estimates.

If management had made different assumptions about uncollectible interest and fees on its loan receivables and its securitized loans, the Corporation’s financial condition and results of operations could have differed materially. For example, a 10% change in management’s estimate of uncollectible interest and fees could have resulted in a change totaling approximately $30 million in interest income and other operating income at September 30, 2005.

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Restructuring Charge

Net income for the three months ended September 30, 2005 included a reduction in the restructuring charge in other operating expense of $17.9 million pre-tax ($7.6 million net of tax), due to favorable experience with respect to the post employment healthcare elections made by terminated employees. Net income for the nine months ended September 30, 2005 included a restructuring charge of $764.1 million pre-tax ($489.4 million net of tax) or $.38 per common share - assuming dilution. In this report, various items are presented excluding the restructuring charge. Management believes this presentation is useful to investors because the restructuring charge had a material impact on the results of operations for the nine months ended September 30, 2005, but not for the nine months ended September 30, 2004. As a result, the business factors and trends affecting the Corporation’s results for these periods, in certain cases, are better analyzed without the impact of the restructuring charge.

Earnings Summary

Net income for the three months ended September 30, 2005 decreased to $717.9 million or $.56 per common share as compared to $728.3 million or $.56 per common share for the same period in 2004. Net income for the nine months ended September 30, 2005 decreased to $1.4 billion or $1.07 per common share as compared to $1.9 billion or $1.46 per common share for the same period in 2004. Net income for the nine months ended September 30, 2005 included the restructuring charge of $764.1 million pre-tax ($489.4 million net of tax) or $.38 per common share. Excluding the restructuring charge, net income for the nine months ended September 30, 2005 would have been $1.9 billion or $1.46 per common share. All earnings per common share amounts are presented assuming dilution.

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Table 1 reconciles the Corporation’s earnings per common share to earnings per common share excluding the restructuring charge.

Table 1: Reconciliation of Earnings Per Common Share to Earnings Per Common Share Excluding the Restructuring Charge
(dollars in thousands, except per share amounts) (unaudited)
	For the Three Months			For the Nine Months
	Ended September 30, 2005			Ended September 30, 2005

Earnings Per Common Share

Income before income taxes	$	1,126,971		$	2,161,045
Applicable income taxes		409,075			779,273
Net income		717,896			1,381,772
Less: preferred stock dividend requirements		3,516			10,548
Net income applicable to common stock	$	714,380		$	1,371,224
Weighted average common shares outstanding (000)		1,259,027			1,265,255
Earnings per common share	$	.57		$	1.08

Earnings Per Common Share—Assuming Dilution

Income before income taxes	$	1,126,971		$	2,161,045
Applicable income taxes		409,075			779,273
Net income		717,896			1,381,772
Less: preferred stock dividend requirements		3,516			10,548
Net income applicable to common stock	$	714,380		$	1,371,224
Weighted average common shares outstanding and common stock equivalents (000)		1,270,792			1,276,911
Earnings per common share—assuming dilution	$	.56		$	1.07

Restructuring Charge Impact

Pre-tax restructuring charge	$	(17,914	)	$	764,084
Applicable income taxes		(10,332	)		274,651
Restructuring charge, net of tax	$	(7,582	)	$	489,433

Earnings Per Common Share Excluding the Restructuring Charge

Earnings Per Common Share

Income before income taxes	$	1,109,057		$	2,925,129
Applicable income taxes		398,743			1,053,924
Net income		710,314			1,871,205
Less: preferred stock dividend requirements		3,516			10,548
Net income applicable to common stock	$	706,798		$	1,860,657
Weighted average common shares outstanding (000)		1,259,027			1,265,255
Earnings per common share	$	.56		$	1.47

Earnings Per Common Share—Assuming Dilution

Income before income taxes	$	1,109,057		$	2,925,129
Applicable income taxes		398,743			1,053,924
Net income		710,314			1,871,205
Less: preferred stock dividend requirements		3,516			10,548
Net income applicable to common stock	$	706,798		$	1,860,657
Weighted average common shares outstanding and common stock equivalents (000)		1,270,792			1,276,911
Earnings per common share—assuming dilution	$	.56		$	1.46

-29-

Earnings for the three and nine months ended September 30, 2005 were relatively unchanged, compared to the same period in 2004, excluding the restructuring charge, primarily as a result of an increase in net interest income and a decrease in the provision for possible credit losses, offset by a decrease in other operating income. Earnings for the nine months ended September 30, 2005 also benefited from a decrease in other operating expense, excluding the restructuring charge, and were adversely impacted by an increase in the effective income tax rate.

Table 2 summarizes the Corporation’s consolidated statements of income, which has been derived from the consolidated financial statements, for the three and nine months ended September 30, 2005 and 2004.

Table 2: Summarized Consolidated Statements of Income

(dollars in thousands, except per share amounts) (unaudited)

	For the Three Months				For the Nine Months
	Ended September 30,				Ended September 30,
	2005		2004		2005		2004

Total interest income	$	1,186,656	$	1,002,193	$	3,340,416	$	3,002,887
Total interest expense		457,556		390,532		1,291,289		1,129,176
Net interest income		729,100		611,661		2,049,127		1,873,711
Provision for possible credit losses		262,357		273,387		722,326		890,105
Net interest income after provision for possible credit losses		466,743		338,274		1,326,801		983,606

Total other operating income		2,003,045		2,159,590		5,716,773		6,101,742
Total other operating expense		1,342,817		1,348,678		4,882,529		4,162,462
Income before income taxes		1,126,971		1,149,186		2,161,045		2,922,886
Applicable income taxes		409,075		420,877		779,273		1,014,534
Net income	$	717,896	$	728,309	$	1,381,772	$	1,908,352

Earnings per common share	$	.57	$	.57	$	1.08	$	1.49
Earnings per common share—assuming dilution		.56		.56		1.07		1.46
Dividends per common share		.14		.12		.42		.36

Ending loan receivables increased $3.4 billion or 10.5% at September 30, 2005, as compared to September 30, 2004. Total managed loans increased $4.7 billion or 4.0% at September 30, 2005, as compared to September 30, 2004. Average loan receivables increased $4.1 billion or 13.2% and $1.7 billion or 5.5% for the three and nine months ended September 30, 2005, as compared to the same periods in 2004, respectively. Total average managed loans increased $1.7 billion or 1.4% and $488.0 million for the three and nine months ended September 30, 2005, as compared to the same periods in 2004, respectively.

-30-

Table 3 reconciles the Corporation’s loan receivables to its managed loans and average loan receivables to its average managed loans.

Table 3: Reconciliation of Loan Receivables to Managed Loans

(dollars in thousands) (unaudited)


	September 30,
	2005		2004
At Period End:
Loan receivables	$	35,521,041	$	32,141,122
Securitized loans		87,004,128		85,672,350
Total managed loans	$	122,525,169	$	117,813,472


	For the Three Months				For the Nine Months
	Ended September 30,				Ended September 30,
		2005		2004		2005		2004

Average for the Period:
Loan receivables	$	34,956,330	$	30,876,767	$	32,601,651	$	30,915,483
Securitized loans		85,197,339		87,626,073		85,689,213		86,887,343
Total managed loans	$	120,153,669	$	118,502,840	$	118,290,864	$	117,802,826

Interest income increased $184.5 million or 18.4% and $337.5 million or 11.2% for the three and nine months ended September 30, 2005, as compared to the same periods in 2004, respectively. Interest expense increased $67.0 million or 17.2% and $162.1 million or 14.4% for the three and nine months ended September 30, 2005, as compared to the same periods in 2004, respectively. These increases in interest income and interest expense reflect increases in overall market rates. The increase in average loan receivables contributed to the growth in interest income.

The provision for possible credit losses decreased $11.0 million or 4.0% and $167.8 million or 18.8% for the three and nine months ended September 30, 2005, as compared to the same periods in 2004, respectively. The decrease in the provision for possible credit losses was 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, 2005 was 3.30% and 3.59%, respectively. The net credit loss ratio on managed loans for the three and nine months ended September 30, 2005 was 4.29% and 4.46%, respectively. Delinquency on loan receivables and managed loans at September 30, 2005 was 2.78% and 3.99%, respectively. See “Loan Quality—Net Credit Losses” for further detail regarding net credit losses. Refer to Table 19 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, 2005. See “Loan Quality—Delinquencies” for further detail regarding delinquencies. Refer to Table 14 for a reconciliation of the loan receivables delinquency ratio to the managed delinquency ratio at September 30, 2005.

Other operating income decreased $156.5 million or 7.2% and $385.0 million or 6.3% for the three and nine months ended September 30, 2005, as compared to the same periods in 2004, respectively. This decrease was primarily the result of the net loss from securitization activity of $129.4 million and $441.5 million resulting from the net revaluation of the interest-only strip receivable for the three and nine months ended September 30, 2005, as compared to a net gain of $26.8 million and a net loss of $21.9 million for the same periods in 2004, respectively.

Other operating expense increased $720.1 million or 17.3% for the nine months ended September 30, 2005, as compared to the same period in 2004. Excluding the restructuring charge of $764.1 million, other operating expense for the nine months ended September 30, 2005 would have decreased $44.0 million or 1.1%, as compared to the same period in 2004.

The Corporation’s applicable income taxes decreased $235.3 million or 23.2% for the nine months ended September 30, 2005, as compared to the same period in 2004. This decrease was caused primarily by lower pre-tax earnings. This amount represents an effective tax rate of 36.1% for the nine months ended September 30, 2005, as compared to 34.7% for the same period in 2004.

-31-

Table 4 reconciles the Corporation’s other operating expense to other operating expense excluding the restructuring charge.

Table 4: Reconciliation of Other Operating Expense to Other Operating Expense Excluding the Restructuring Charge
(dollars in thousands) (unaudited)

	For the Three Months			For the Nine Months
	Ended September 30, 2005			Ended September 30, 2005


Other operating expense	$	1,342,817		$	4,882,529
Impact of the restructuring charge		(17,914	)		764,084
Other operating expense excluding the restructuring charge	$	1,360,731		$	4,118,445

The Corporation’s return on average total assets for the three and nine months ended September 30, 2005, was 4.52% and 2.98%, as compared to 4.73% and 4.20% for the same periods in 2004, respectively. Excluding the restructuring charge, the Corporation’s return on average total assets for the three and nine months ended September 30, 2005 would have been 4.46% and 4.03%, respectively. The Corporation’s return on average stockholders’ equity was 21.85% and 14.03% for the three and nine months ended September 30, 2005, as compared to 23.42% and 21.15% for the same periods in 2004, respectively. Excluding the restructuring charge, the Corporation’s return on average stockholders’ equity for the three and nine months ended September 30, 2005 would have been 20.85% and 18.52%, respectively.

Table 5 reconciles the Corporation’s return on average total assets and average stockholders’ equity to the return on average total assets and average stockholders’ equity excluding the restructuring charge.

Table 5: Reconciliation of the Return on Average Total Assets and Average Stockholders’ Equity to the Return on Average Total Assets and Average Stockholders’ Equity Excluding the Restructuring Charge
(dollars in thousands) (unaudited)

For the Three Months Ended September 30, 2005	Average Balance		Ratio			Net Income
Return on Average Total Assets
Return on average total assets	$	62,991,755		4.52	%	$	717,896
Impact of the restructuring charge		190,345					(7,582	)
Return on average total assets excluding the restructuring charge	$	63,182,100		4.46		$	710,314

Return on Average Stockholders’ Equity
Return on average stockholders’ equity	$	13,037,967		21.85		$	717,896
Impact of the restructuring charge		480,253					(7,582	)
Return on average stockholders’ equity excluding the restructuring charge	$	13,518,220		20.85		$	710,314


For the Nine Months Ended September 30, 2005
Return on Average Total Assets
Return on average total assets	$	61,920,586		2.98		$	1,381,772
Impact of the restructuring charge		126,975					489,433
Return on average total assets excluding the restructuring charge	$	62,047,561		4.03		$	1,871,205

Return on Average Stockholders’ Equity
Return on average stockholders’ equity	$	13,163,351		14.03		$	1,381,772
Impact of the restructuring charge		342,624					489,433
Return on average stockholders’ equity excluding the restructuring charge	$	13,505,975		18.52		$	1,871,205

-32-

Net Interest Income

Net interest income represents interest income on total interest-earning assets, on a fully taxable equivalent basis, where appropriate, less interest expense on total interest-bearing liabilities. Fully taxable equivalent basis represents the income on total interest-earning assets that is either tax-exempt or taxed at a reduced rate, adjusted to give effect to the prevailing incremental federal income tax rate, and adjusted for nondeductible carrying costs and state income taxes, where applicable. Yield calculations, where appropriate, include these adjustments.

Net interest income, on a fully taxable equivalent basis, increased $117.6 million or 19.2% and $175.9 million or 9.4% for the three and nine months ended September 30, 2005, from the same periods in 2004, respectively.

Average Interest-Earning Assets

Average interest-earning assets increased $2.3 billion or 4.8% for the three months ended September 30, 2005, from the same period in 2004. The increase in average interest-earning assets was primarily the result of an increase in average loan receivables of $4.1 billion and average investment securities of $1.1 billion, partially offset by a decrease in average money market instruments of $2.5 billion. The yield on average interest-earning assets increased 107 basis points for the three months ended September 30, 2005, from the same period in 2004. The increase in the yield earned on average interest-earning assets was primarily the result of the increase in the yield earned on average investment securities and money market instruments and average loan receivables.

Average interest-earning assets increased $1.4 billion or 3.0% for the nine months ended September 30, 2005, from the same period in 2004. The increase in average interest-earning assets was primarily the result of an increase in average loan receivables of $1.7 billion and an increase in average investment securities of $1.6 billion, partially offset by a decrease in average money market instruments of $1.7 billion. The yield on average interest-earning assets increased 70 basis points for the nine months ended September 30, 2005, from the same period in 2004. The increase in the yield earned on average interest-earning assets was primarily the result of the increase in the yield earned on average investment securities and money market instruments and average loan receivables.

Average Interest-Bearing Liabilities

Average interest-bearing liabilities increased $293.7 million for the three months ended September 30, 2005, from the same period in 2004. The increase in average interest-bearing liabilities was a result of an increase of $2.0 billion in average borrowed funds, partially offset by a decrease of $1.7 billion in average interest-bearing deposits. The increase in the rate paid on average interest-bearing liabilities of 58 basis points for the three months ended September 30, 2005, from the same period in 2004, was primarily the result of the increase in the rate paid on average borrowed funds and average interest-bearing deposits.

Average interest-bearing liabilities decreased $391.0 million for the nine months ended September 30, 2005, from the same period in 2004. The decrease in average interest-bearing liabilities was a result of a decrease of $1.2 billion in average interest-bearing deposits partially offset by an increase of $763.8 million in average borrowed funds. The increase in the rate paid on average interest-bearing liabilities of 54 basis points for the nine months ended September 30, 2005, from the same period in 2004, was primarily the result of the increase in the rate paid on average borrowed funds and average interest-bearing deposits.

Net Interest Margin

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 Corporation’s net interest margin, on a fully taxable equivalent basis, increased 70 basis points and 34 basis points for the three and nine months ended September 30, 2005, from the same periods in 2004, respectively, primarily as a result of the Corporation’s net interest income growing at a faster rate than its average interest-earning assets.

See “Off-Balance Sheet Arrangements—Impact of Off-Balance Sheet Asset 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 6 and 7 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, 2005 and 2004.

-33-

Table 6: 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,	2005								2004
	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	$	164,884			2.46	%	$	1,022	$	113,015			1.10	%	$	313
Foreign		3,382,132			3.97			33,859		4,297,544			2.30			24,855
Total interest-earning time deposits in other banks		3,547,016			3.90			34,881		4,410,559			2.27			25,168
Federal funds sold		319,739			3.54			2,854		1,923,701			1.48			7,158
Total money market instruments		3,866,755			3.87			37,735		6,334,260			2.03			32,326
Investment securities (a):
Domestic:
Taxable		6,386,331			3.27			52,654		5,094,719			2.15			27,476
Tax-exempt (b)		104,147			3.96			1,039		111,419			2.22			622
Total domestic investment securities		6,490,478			3.28			53,693		5,206,138			2.15			28,098
Foreign		405,289			3.82			3,906		618,134			3.94			6,116
Total investment securities		6,895,767			3.31			57,599		5,824,272			2.34			34,214
Other interest-earning assets (a)		3,683,613			8.90			82,668		4,105,662			7.59			78,291
Loan receivables:
Domestic:
Credit card		12,093,586			11.79			359,363		13,798,932			11.27			391,019
Other consumer		7,387,232			12.96			241,316		5,576,609			13.69			191,873
Commercial		3,016,651			8.72			66,340		2,448,625			8.01			49,311
Total domestic loan receivables		22,497,469			11.76			667,019		21,824,166			11.52			632,203
Foreign:
Credit card		8,127,745			12.01			245,967		4,807,145			10.75			129,848
Other consumer		3,179,740			8.85			70,946		3,089,871			9.29			72,126
Commercial		1,151,376			8.65			25,111		1,155,585			8.07			23,427
Total foreign loan receivables		12,458,861			10.89			342,024		9,052,601			9.91			225,401
Total loan receivables		34,956,330			11.45			1,009,043		30,876,767			11.05			857,604
Total interest-earning assets		49,402,465			9.53			1,187,045		47,140,961			8.46			1,002,435
Cash and due from banks		946,804								902,041
Premises and equipment, net		2,584,437								2,711,046
Other assets		11,051,116								11,705,993
Reserve for possible credit losses		(993,067	)							(1,196,568	)
Total assets	$	62,991,755							$	61,263,473

Table 6: 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,

2005

2004

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

19,877,659

3.93

197,104

20,914,482

3.95

207,695

Money market deposit accounts

6,307,390

3.24

51,491

7,485,003

1.59

29,905

Interest-bearing transaction accounts

9,958

2.51

47,175

.90

107

Savings accounts

38,504

3.43

333

108,487

1.45

396

Total domestic interest-bearing deposits

26,233,511

3.77

248,991

28,555,147

3.32

238,103

Foreign:

Time deposits

1,445,128

4.12

14,998

846,721

3.41

7,255

Total interest-bearing deposits

27,678,639

3.78

263,989

29,401,868

3.32

245,358

Borrowed funds:

Short-term borrowings:

Domestic

1,233,725

3.90

12,137

900,387

3.38

7,660

Foreign

1,361,097

4.34

14,888

1,001,614

4.87

12,273

Total short-term borrowings

2,594,822

4.13

27,025

1,902,001

4.17

19,933

Long-term debt and bank notes (c):

Domestic

8,397,087

4.76

100,659

7,726,372

3.11

60,326

Foreign

4,667,770

5.60

65,883

4,014,379

6.43

64,915

Total long-term debt and bank notes

13,064,857

5.06

166,542

11,740,751

4.24

125,241

Total borrowed funds

15,659,679

4.90

193,567

13,642,752

4.23

145,174

Total interest-bearing liabilities

43,338,318

4.19

457,556

43,044,620

3.61

390,532

Noninterest-bearing deposits

2,912,293

2,773,844

Other liabilities

3,703,177

3,073,802

Total liabilities

49,953,788

48,892,266

Stockholders' equity

13,037,967

12,371,207

Total liabilities and stockholders' equity

62,991,755

61,263,473

Net interest income

729,489

611,903

Net interest margin

5.86

5.16

Interest rate spread

5.34

4.85

(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, 2005 and 2004 was $389 and $242, respectively.

(c) Includes the impact of interest rate swap agreements and foreign exchange swap agreements primarily used to change a portion of fixed-rate funding sources to floating-rate

funding sources.

Table 6: 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,	2005								2004
	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	$	151,303			2.16	%	$	2,444	$	106,436			.83	%	$	665
Foreign		4,306,049			3.58			115,238		4,429,285			2.01			66,592
Total interest-earning time deposits in other banks		4,457,352			3.53			117,682		4,535,721			1.98			67,257
Federal funds sold		601,857			2.81			12,651		2,184,769			1.15			18,780
Total money market instruments		5,059,209			3.44			130,333		6,720,490			1.71			86,037
Investment securities (a):
Domestic:
Taxable		6,355,111			3.05			144,968		4,695,774			2.08			73,005
Tax-exempt (b)		108,402			3.82			3,094		111,142			2.07			1,724
Total domestic investment securities		6,463,513			3.06			148,062		4,806,916			2.08			74,729
Foreign		479,121			3.86			13,841		526,859			4.01			15,815
Total investment securities		6,942,634			3.12			161,903		5,333,775			2.27			90,544
Other interest-earning assets (a)		3,859,693			8.78			253,356		4,100,353			7.66			235,268
Loan receivables:
Domestic:
Credit card		11,115,436			12.05			1,001,639		14,041,349			11.34			1,192,189
Other consumer		6,816,205			13.12			668,987		5,532,021			13.65			565,291
Commercial		2,950,110			8.71			192,237		2,045,296			8.13			124,409
Total domestic loan receivables		20,881,751			11.93			1,862,863		21,618,666			11.63			1,881,889
Foreign:
Credit card		7,373,246			11.62			640,607		5,296,284			11.38			451,176
Other consumer		3,195,950			8.97			214,340		2,988,303			9.16			204,835
Commercial		1,150,704			9.08			78,170		1,012,230			7.10			53,814
Total foreign loan receivables		11,719,900			10.64			933,117		9,296,817			10.20			709,825
Total loan receivables		32,601,651			11.47			2,795,980		30,915,483			11.20			2,591,714
Total interest-earning assets		48,463,187			9.22			3,341,572		47,070,101			8.52			3,003,563
Cash and due from banks		943,148								924,295
Premises and equipment, net		2,658,574								2,703,882
Other assets		10,921,914								11,230,590
Reserve for possible credit losses		(1,066,237	)							(1,226,719	)
Total assets	$	61,920,586							$	60,702,149

Table 6: 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,

2005

2004

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

20,312,144

3.89

591,497

20,854,376

4.01

626,159

Money market deposit accounts

6,372,564

2.75

131,018

7,625,188

1.59

90,638

Interest-bearing transaction accounts

32,761

1.82

447

50,694

.87

332

Savings accounts

59,043

2.76

1,220

78,106

1.22

713

Total domestic interest-bearing deposits

26,776,512

3.62

724,182

28,608,364

3.35

717,842

Foreign:

Time deposits

1,335,260

4.15

41,489

658,246

2.98

14,675

Total interest-bearing deposits

28,111,772

3.64

765,671

29,266,610

3.34

732,517

Borrowed funds:

Short-term borrowings:

Domestic

1,054,090

3.78

29,772

900,517

3.47

23,374

Foreign

1,200,503

4.70

42,228

1,023,371

3.62

27,749

Total short-term borrowings

2,254,593

4.27

72,000

1,923,888

3.55

51,123

Long-term debt and bank notes (c):

Domestic

8,023,871

4.41

264,779

7,592,852

2.74

155,559

Foreign

4,218,094

5.99

188,839

4,215,973

6.02

189,977

Total long-term debt and bank notes

12,241,965

4.95

453,618

11,808,825

3.91

345,536

Total borrowed funds

14,496,558

4.85

525,618

13,732,713

3.86

396,659

Total interest-bearing liabilities

42,608,330

4.05

1,291,289

42,999,323

3.51

1,129,176

Noninterest-bearing deposits

2,804,380

2,636,674

Other liabilities

3,344,525

3,010,831

Total liabilities

48,757,235

48,646,828

Stockholders' equity

13,163,351

12,055,321

Total liabilities and stockholders' equity

61,920,586

60,702,149

Net interest income

2,050,283

1,874,387

Net interest margin

5.66

5.32

Interest rate spread

5.17

5.01

(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, 2005 and 2004 was $1,156 and $676, respectively.

(c) Includes the impact of interest rate swap agreements and foreign exchange swap agreements primarily used to change a portion of fixed-rate funding sources to floating-rate

funding sources.

Table 7: Rate-Volume Variance Analysis (a)
(dollars in thousands, on a fully taxable equivalent basis) (unaudited)

For the Three Months Ended September 30,	2005 Compared to 2004
	Volume			Rate			Variance
Interest-Earning Assets
Money market instruments:
Interest-earning time deposits in other banks:
Domestic	$	192		$	517		$	709
Foreign		(6,155	)		15,159			9,004
Total interest-earning time deposits in other banks		(5,963	)		15,676			9,713
Federal funds sold		(9,083	)		4,779			(4,304	)
Total money market instruments		(15,046	)		20,455			5,409
Investment securities:
Domestic:
Taxable		8,188			16,991			25,179
Tax-exempt		(43	)		459			416
Total domestic investment securities		8,145			17,450			25,595
Foreign		(2,040	)		(170	)		(2,210	)
Total investment securities		6,105			17,280			23,385
Other interest-earning assets		(8,497	)		12,874			4,377
Loan receivables:
Domestic:
Credit card		(49,257	)		17,601			(31,656	)
Other consumer		60,043			(10,600	)		49,443
Commercial		12,297			4,732			17,029
Total domestic loan receivables		23,083			11,733			34,816
Foreign:
Credit card		99,223			16,896			116,119
Other consumer		2,138			(3,318	)		(1,180	)
Commercial		(83	)		1,767			1,684
Total foreign loan receivables		101,278			15,345			116,623
Total loan receivables		124,361			27,078			151,439
Total interest income	$	106,923		$	77,687		$	184,610

Table 7: Rate-Volume Variance Analysis (a)-Continued
(dollars in thousands, on a fully taxable equivalent basis) (unaudited)

For the Three Months Ended September 30,	2005 Compared to 2004
	Volume			Rate			Variance
Interest-Bearing Liabilities
Interest-bearing deposits:
Domestic:
Time deposits	$	(9,758	)	$	(833	)	$	(10,591	)
Money market deposit accounts		(5,339	)		26,925			21,586
Interest-bearing transaction accounts		(131	)		87			(44	)
Savings accounts		(367	)		304			(63	)
Total domestic interest-bearing deposits		(15,595	)		26,483			10,888
Foreign:
Time deposits		5,979			1,764			7,743
Total interest-bearing deposits		(9,616	)		28,247			18,631
Borrowed funds:
Short-term borrowings:
Domestic		3,164			1,313			4,477
Foreign		4,069			(1,454	)		2,615
Total short-term borrowings		7,233			(141	)		7,092
Long-term debt and bank notes:
Domestic		5,653			34,680			40,333
Foreign		9,917			(8,949	)		968
Total long-term debt and bank notes		15,570			25,731			41,301
Total borrowed funds		22,803			25,590			48,393
Total interest expense		13,187			53,837			67,024
Net interest income	$	93,736		$	23,850		$	117,586

(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.

Table 7: Rate-Volume Variance Analysis (a)-Continued
(dollars in thousands, on a fully taxable equivalent basis) (unaudited)

For the Nine Months Ended September 30,	2005 Compared to 2004
	Volume			Rate			Variance
Interest-Earning Assets
Money market instruments:
Interest-earning time deposits in other banks:
Domestic	$	373		$	1,406		$	1,779
Foreign		(1,905	)		50,551			48,646
Total interest-earning time deposits in other banks		(1,532	)		51,957			50,425
Federal funds sold		(20,176	)		14,047			(6,129	)
Total money market instruments		(21,708	)		66,004			44,296
Investment securities:
Domestic:
Taxable		30,954			41,010			71,964
Tax-exempt		(44	)		1,413			1,369
Total domestic investment securities		30,910			42,423			73,333
Foreign		(1,405	)		(569	)		(1,974	)
Total investment securities		29,505			41,854			71,359
Other interest-earning assets		(14,444	)		32,532			18,088
Loan receivables:
Domestic:
Credit card		(261,002	)		70,452			(190,550	)
Other consumer		126,332			(22,636	)		103,696
Commercial		58,311			9,517			67,828
Total domestic loan receivables		(76,359	)		57,333			(19,026	)
Foreign:
Credit card		179,880			9,551			189,431
Other consumer		13,851			(4,346	)		9,505
Commercial		8,019			16,337			24,356
Total foreign loan receivables		201,750			21,542			223,292
Total loan receivables		125,391			78,875			204,266
Total interest income	$	118,744		$	219,265		$	338,009

Table 7: Rate-Volume Variance Analysis (a)-Continued
(dollars in thousands, on a fully taxable equivalent basis) (unaudited)

For the Nine Months Ended September 30,	2005 Compared to 2004
	Volume			Rate			Variance
Interest-Bearing Liabilities
Interest-bearing deposits:
Domestic:
Time deposits	$	(16,321	)	$	(18,341	)	$	(34,662	)
Money market deposit accounts		(16,899	)		57,279			40,380
Interest-bearing transaction accounts		(149	)		264			115
Savings accounts		(210	)		717			507
Total domestic interest-bearing deposits		(33,579	)		39,919			6,340
Foreign:
Time deposits		19,378			7,436			26,814
Total interest-bearing deposits		(14,201	)		47,355			33,154
Borrowed funds:
Short-term borrowings:
Domestic		4,203			2,195			6,398
Foreign		5,318			9,161			14,479
Total short-term borrowings		9,521			11,356			20,877
Long-term debt and bank notes:
Domestic		9,276			99,944			109,220
Foreign		81			(1,219	)		(1,138	)
Total long-term debt and bank notes		9,357			98,725			108,082
Total borrowed funds		18,878			110,081			128,959
Total interest expense		4,677			157,436			162,113
Net interest income	$	114,067		$	61,829		$	175,896

(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.

The Corporation seeks to maintain its portfolio of investment securities and money market instruments at a level appropriate for the Corporation's liquidity needs. The Corporation's average investment securities and money market instruments are affected by the timing of receipt of funds from asset securitization transactions, deposits, loan payments, and unsecured long-term debt and bank note issuances. Funds received from these sources are normally invested in short-term, liquid money market instruments and investment securities available-for-sale until the funds are needed for loan growth and other liquidity needs.

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 $23.4 million or 68.3% and $71.4 million or 78.8% for the three and nine months ended September 30, 2005, from the same periods in 2004, respectively. The increase in interest income on investment securities for the three and nine months ended September 30, 2005, was primarily the result of an increase of 97 basis points and 85 basis points in the yield earned on average investment securities combined with an increase in average investment securities of $1.1 billion and $1.6 billion for the three and nine months ended September 30, 2005, from the same periods in 2004, respectively. The increase in the yield earned on average investment securities was primarily attributable to a rising domestic interest rate environment. The increase in average investment securities for the three and nine months ended September 30, 2005 was a result of the Corporation 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 $5.4 million or 16.7% and $44.3 million or 51.5% for the three and nine months ended September 30, 2005, from the same periods in 2004, respectively. The increase in interest income on money market instruments was the result of a 184 basis point and 173 basis point increase in the yield earned on average money market instruments for the three and nine months ended September 30, 2005, from the same periods in 2004, respectively, which is attributable to a higher short-term interest rate environment. The increase in the yield earned on average money market instruments was partially offset by a decrease of $1.6 billion in average federal funds sold for both the three and nine months ended September 30, 2005, from the same periods in 2004, respectively. The decrease in average federal funds sold was 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 21.8% and 24.8% for the three and nine months ended September 30, 2005, as compared to 25.8% and 25.6% for the same periods in 2004, respectively. During the three months ended September 30, 2005, the Corporation began to reduce its liquid assets due to the favorable market conditions experienced in both the regular corporate bond and structured asset-backed securitization market.

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. 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. Also included in other interest-earning assets is Federal Reserve Bank stock.

Interest income on other interest-earning assets increased $4.4 million or 5.6% and $18.1 million or 7.7% for the three and nine months ended September 30, 2005, as compared to the same periods in 2004, respectively. The increase in interest income on other interest-earning assets for the three and nine months ended September 30, 2005, was primarily the result of a 131 basis point and 112 basis point increase in the yield earned on average other interest-earning assets for the three and nine months ended September 30, 2005, as compared to the same periods in 2004, respectively. The increase in the yield earned on average other interest-earning assets was partially offset by a decrease of $422.0 million and $240.7 million in average other interest-earning assets for the three and nine months ended September 30, 2005, as compared to the same periods in 2004, respectively. The increase in the yield earned on average other interest-earning assets was primarily the result of the increase in the discount rates used in the valuation of the Corporation’s retained beneficial interests in its securitization transactions. The decrease in average other interest-earning assets was primarily attributable to the decrease in the average balances of the Corporation’s interest-only strip receivable and accrued interest and fees on securitized loans.

Interest income generated by the Corporation's loan receivables increased $151.4 million or 17.7% and $204.3 million or 7.9% for the three and nine months ended September 30, 2005, from the same periods in 2004, respectively. The increase in interest income on loan receivables for the three and nine months ended September 30, 2005, was primarily the result of an increase in average loan receivables of $4.1 billion and $1.7 billion combined with an increase of 40 basis points and 27 basis points in the yield earned on average loan receivables for the three and nine months ended September 30, 2005, from the same periods in 2004, respectively.

Table 8 presents the Corporation's loan receivables at period end distributed by loan type.

Table 8: Loan Receivables Distribution
(dollars in thousands) (unaudited)

	September 30, 2005		December 31, 2004
Loan Receivables
Domestic:
Credit card	$	12,845,625	$	13,918,369
Other consumer		7,668,103		5,838,907
Commercial		2,848,451		2,736,574
Total domestic loan receivables		23,362,179		22,493,850
Foreign:
Credit card		7,803,389		6,772,691
Other consumer		3,192,536		3,266,118
Commercial		1,162,937		1,226,191
Total foreign loan receivables		12,158,862		11,265,000
Total loan receivables	$	35,521,041	$	33,758,850

Domestic credit card loan receivables decreased $1.1 billion or 7.7% at September 30, 2005, from December 31, 2004. The decrease in domestic credit card loan receivables was primarily the result of higher payment volumes from domestic credit card Customers, partially offset by a net decrease in securitized domestic credit card loan principal receivables and an increase in domestic credit card acquisitions.

In accordance with regulatory guidance, the Corporation has increased the required minimum monthly payment amounts for new U.S. credit card loan accounts during the third quarter of 2005 and will increase the required minimum monthly payment amounts for existing U.S. credit card loan accounts in the fourth quarter of 2005. Previously, credit card Customers were generally required to make a minimum monthly payment equal to the lesser of the sum of finance charges and fees assessed that month plus $15, or 2.25% of the outstanding balance on the account. After the change, credit card Customers are generally required to make a minimum monthly payment equal to interest and late fees assessed that month plus 1% of the remaining balance on the account. Increasing the minimum monthly payment amounts will likely reduce the Corporation's credit card loan receivables, the interest income on those receivables, and the Corporation's interest-only strip receivable. It will also likely increase the Corporation’s credit card delinquencies, net credit losses, and the provision for possible credit losses. The impact in future periods will depend on the actual payment patterns of Customers after the change, whether or not the Customers who pay down more quickly the account balance reuse the available credit, and economic and other factors that are difficult to predict or quantify. Other credit card issuers are making similar changes. As a result, certain of the Corporation’s credit card Customers could be adversely impacted by having to make increased payments on multiple credit card accounts.

During the nine months ended September 30, 2005, the Corporation securitized $6.6 billion of domestic credit card loan receivables, offset by an increase of $7.1 billion in the Corporation’s domestic credit card loan receivables 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 $272.5 million of domestic credit card loan receivables during the nine months ended September 30, 2005.

The yield on average domestic credit card loan receivables increased 52 basis points and 71 basis points for the three and nine months ended September 30, 2005, from the same periods in 2004, respectively. The increase reflects higher rates offered to Customers primarily as a result of the rising interest rate environment. During the third quarter of 2004, the Corporation converted a portion of its managed domestic credit card loans from fixed-rate loans to variable-rate loans. These variable-rate loans are generally indexed to the U.S. Prime Rate, with the rate subject to change monthly.

Domestic Other Consumer Loan Receivables

Domestic other consumer loan receivables increased $1.8 billion or 31.3% at September 30, 2005, from December 31, 2004. The increase in domestic other consumer loan receivables was primarily a result of growth in the Corporation’s unsecured domestic other consumer loan receivables, combined with home equity line of credit ("HELOC") portfolio acquisitions of $892.2 million for the nine months ended September 30, 2005.

On May 2, 2005, the Corporation purchased Nexstar, a mortgage services company that gives the Corporation a platform to bring its affinity partner franchise to the home equity market.

The yield on average domestic other consumer loan receivables decreased 73 basis points and 53 basis points for the three and nine months ended September 30, 2005, from the same periods in 2004, respectively. This decrease is the result of average HELOC loan receivables comprising a greater percentage of average total domestic other consumer loan receivables during the three and nine months ended September 30, 2005 as compared to the prior periods in 2004. The Corporation’s HELOC loan receivables yield a lower rate than the Corporation’s unsecured domestic other consumer loan receivables.

The Corporation's domestic other unsecured 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 unsecured consumer loans than on its domestic credit card loans.

Domestic Commercial Loan Receivables

Domestic commercial loan receivables increased $111.9 million or 4.1% at September 30, 2005, from December 31, 2004. The increase in domestic commercial loan receivables was primarily a result of growth in the Corporation’s business card, professional practice financing, and small business loan receivables, partially offset by the Corporation securitizing $521.7 million of domestic commercial loan receivables during the nine months ended September 30, 2005.

The yield on average domestic commercial loan receivables increased 71 basis points and 58 basis points for the three and nine months ended September 30, 2005, from the same periods in 2004, respectively.

Foreign Credit Card Loan Receivables

Foreign credit card loan receivables increased $1.0 billion or 15.2% at September 30, 2005, from December 31, 2004. The increase in foreign credit card loan receivables was primarily the result of originations through marketing programs combined with foreign credit card acquisitions, partially offset by a net increase in securitized foreign credit card loan principal receivables. The increase in foreign credit card loan receivables was also offset by the weakening of foreign currencies against the U.S. dollar.

During the nine months ended September 30, 2005, the Corporation acquired $210.9 million in foreign credit card loan receivables. Also during the nine months ended September 30, 2005, the Corporation securitized $881.8 million of foreign credit card loan receivables, offset by an increase of $805.6 million in the Corporation’s foreign credit card loan receivables 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 increase in foreign credit card loan receivables was also offset by the weakening of foreign currencies against the U.S. dollar, which decreased foreign credit card loan receivables by $592.1 million for the nine months ended September 30, 2005.

The yield on average foreign credit card loan receivables increased 126 basis points and 24 basis points for the three and nine months ended September 30, 2005, from the same periods in 2004, respectively. The increase in the yield earned on average foreign credit card loan receivables reflects higher interest rates offered to Customers.

Foreign Other Consumer Loan Receivables

Foreign other consumer loan receivables decreased $73.6 million or 2.3% at September 30, 2005, from December 31, 2004. The decrease in foreign other consumer loan receivables was primarily a result of the weakening of foreign currencies against the U.S. dollar, which decreased foreign other consumer loan receivables by $262.2 million for the nine months ended September 30, 2005.

The yield on average foreign other consumer loan receivables decreased 44 basis points and 19 basis points for the three and nine months ended September 30, 2005, from the same periods in 2004, respectively.

Foreign Commercial Loan Receivables

Foreign commercial loan receivables decreased $63.3 million or 5.2% at September 30, 2005, from December 31, 2004. The decrease in foreign commercial loan receivables was primarily a result of the weakening of foreign currencies against the U.S. dollar. The weakening of foreign currencies decreased foreign commercial loan receivables by $105.6 million for the nine months ended September 30, 2005.

The yield on average foreign commercial loan receivables increased 58 basis points and 198 basis points for the three and nine months ended September 30, 2005, from the same periods in 2004, respectively. The increase in the yield earned on foreign commercial loan receivables for the nine months ended September 30, 2005, was primarily the result of the PCL acquisition that occurred in first quarter of 2004. At September 30, 2004, PCL had not been fully integrated into the Corporation’s operations and results thereof, which reduced the yield for the nine months ended September 30, 2004.

Accounts receivable from securitization decreased $71.5 million or .8% at September 30, 2005, from December 31, 2004.

Table 9 presents the components of accounts receivable from securitization.

Table 9: Accounts Receivable from Securitization
(dollars in thousands) (unaudited)

	September 30, 2005		December 31, 2004
Sale of new loan principal receivables (a)	$	3,112,946	$	2,767,607
Accrued interest and fees on securitized loans		1,858,135		1,945,331
Interest-only strip receivable		860,576		1,292,765
Accrued servicing fees		831,749		900,012
Cash reserve accounts		684,833		720,702
Other subordinated retained interests		577,369		593,037
Other		446,692		224,395
Total accounts receivable from securitization	$	8,372,300	$	8,443,849

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

Prepaid Expenses and Deferred Charges

Prepaid expenses and deferred charges decreased $92.9 million or 21.2% at September 30, 2005, from December 31, 2004. The decrease in prepaid expenses and deferred charges was primarily the result of a decrease to prepaid employee benefit plan costs due to the restructuring plan, implemented in the first quarter of 2005, combined with a decrease in royalties advanced to endorsing organizations, and a decrease in the amount of credit card deferred loan origination costs.

“Note M: Restructuring Charge” to the consolidated financial statements provides further detail on the restructuring plan.

Other Assets

Other assets increased $242.8 million or 13.7% at September 30, 2005, from December 31, 2004. The increase in other assets was primarily related to an increase in the Corporation’s net deferred tax assets, combined with an increase to the cash surrender value of the corporate owned life insurance policies, partially offset by a decrease in the fair market value of interest rate swap agreements accounted for as fair value hedges under Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities.”

Interest-Bearing Deposits

Total interest expense on deposits increased $18.6 million or 7.6% and $33.2 million or 4.5% for the three and nine months ended September 30, 2005, from the same periods in 2004, respectively. The increase in interest expense on deposits was the result of an increase of 46 basis points and 30 basis points in the rate paid on average interest-bearing deposits, partially offset by a decrease of $1.7 billion and $1.2 billion in average interest-bearing deposits for the three and nine months ended September 30, 2005, respectively, as compared to the same periods in 2004.

Interest expense on domestic time deposits decreased $10.6 million or 5.1% and $34.7 million or 5.5% for the three and nine months ended September 30, 2005, from the same periods in 2004, respectively. The decrease in interest expense on domestic time deposits was the result of a decrease of $1.0 billion and $542.2 million in average domestic time deposits, combined with a decrease of 2 basis points and 12 basis points in the rate paid on average domestic time deposits for the three and nine months ended September 30, 2005, respectively, as compared to the same periods in 2004.

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 2005. Similarly, the average rates paid on domestic time deposits for 2004 and 2005 were not significantly affected by the actions of the FOMC during 2004 and 2005 that increased overall market interest rates.

Interest expense on domestic money market deposits increased $21.6 million or 72.2% and $40.4 million or 44.6% for the three and nine months ended September 30, 2005, from the same periods in 2004, respectively. The increase in interest expense on domestic money market deposits was a result of an increase of 165 basis points and 116 basis points in the rate paid on average domestic money market deposits, partially offset by a decrease of $1.2 billion and $1.3 billion in average domestic money market deposits for the three and nine months ended September 30, 2005, respectively. The increase in the rate paid on average domestic money market instruments reflects actions by the FOMC during 2004 and 2005 that increased overall market interest rates.

Interest expense on foreign time deposits increased $7.7 million and $26.8 million for the three and nine months ended September 30, 2005, from the same periods in 2004, respectively. The increase in interest expense on foreign time deposits was primarily the result of an increase of $598.4 million and $677.0 million in average foreign time deposits, combined with an increase of 71 basis points and 117 basis points in the rate paid on average foreign time deposits for the three and nine months ended September 30, 2005, respectively. The increase in average foreign time deposits was primarily due to the marketing of retail deposits in the U.K., which began in the second quarter of 2004.

-46-

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 MBNA America, short-term deposit notes issued by MBNA Canada, on-balance sheet financing structures, and other transactions with original maturities greater than one business day but less than one year.

Interest expense on short-term borrowings increased $7.1 million or 35.6% for the three months ended September 30, 2005, from the same period in 2004. The increase in interest expense on short-term borrowings, was primarily the result of an increase of $692.8 million in average short-term borrowings for the three months ended September 30, 2005, as compared to the same period in 2004.

Interest expense on short-term borrowings increased $20.9 million or 40.8% for the nine months ended September 30, 2005, from the same period in 2004. The increase in interest expense on short-term borrowings, was primarily the result of an increase of 72 basis points in the rate paid on average short-term borrowings, combined with an increase of $330.7 million in average short-term borrowings for the nine months ended September 30, 2005, as compared to the same period in 2004.

Domestic Short-Term Borrowings

Interest expense on domestic short-term borrowings increased $4.5 million or 58.4% and $6.4 million or 27.4% for the three and nine months ended September 30, 2005, from the same periods in 2004, respectively. The increase in interest expense on domestic short-term borrowings was primarily the result of an increase of $333.3 million and $153.6 million in average domestic short-term borrowings, combined with an increase of 52 basis points and 31 basis points in the rate paid on average domestic short-term borrowings for the three and nine months ended September 30, 2005, respectively, as compared to the same periods in 2004. The increase in domestic short-term borrowings is a result of the Corporation using federal funds purchased to fund a portion of its operations.

Foreign Short-Term Borrowings

Interest expense on foreign short-term borrowings increased $2.6 million or 21.3 % for the three months ended September 30, 2005, from the same period in 2004. The increase in interest expense on foreign short-term borrowings was primarily the result of an increase of $359.5 million in average foreign short-term borrowings, partially offset by a decrease of 53 basis points in the rate paid on average foreign short-term borrowings for the three months ended September 30, 2005, as compared to the same period in 2004.

Interest expense on foreign short-term borrowings increased $14.5 million or 52.2% for the nine months ended September 30, 2005, from the same period in 2004. The increase in interest expense on foreign short-term borrowings was primarily the result of an increase of 108 basis points in the rate paid on average foreign short-term borrowings, combined with an increase of $177.1 million in average foreign short-term borrowings for the nine months ended September 30, 2005, as compared to the same period in 2004. The increase in the rate paid on average foreign short-term borrowings was primarily the result of a higher short-term interest rate environment. In addition, at September 30, 2004, PCL had not been fully integrated into the Corporation’s operations and results thereof, which reduced the rate on average short-term borrowings for the nine months ended September 30, 2004.

Long-Term Debt and Bank Notes

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

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Interest expense on long-term debt and bank notes increased $41.3 million or 33.0% and $108.1 million or 31.3% for the three and nine months ended September 30, 2005, from the same periods in 2004, respectively. The increase in interest expense on long-term debt and bank notes was primarily the result of an increase of 82 basis points and 104 basis points in the rate paid on average long-term debt and bank notes, combined with an increase of $1.3 billion and $433.1 million in average long-term debt and bank notes for the three and nine months ended September 30, 2005, respectively, as compared to the same periods in 2004.

Domestic Long-Term Debt and Bank Notes

Interest expense on domestic long-term debt and bank notes increased $40.3 million or 66.9% and $109.2 million or 70.2% for the three and nine months ended September 30, 2005, from the same periods in 2004, respectively. The increase in interest expense on domestic long-term debt and bank notes was primarily a result of an increase of 165 basis points and 167 basis points in the rate paid on average domestic long-term debt and bank notes, for the three and nine months ended September 30, 2005 from the same periods in 2004, respectively. The increase in the rate paid on domestic long-term debt and bank notes was due to actions by the FOMC in 2004 and 2005 that increased overall market interest rates.

Foreign Long-Term Debt and Bank Notes

Interest expense on foreign long-term debt and bank notes increased $1.0 million for the three months ended September 30, 2005, from the same period in 2004. The increase in interest expense on foreign long-term debt and bank notes was primarily the result of an increase of $653.4 million in average foreign long-term debt and bank notes, partially offset by a decrease of 83 basis points in the rate paid on average foreign long-term debt and bank notes for the three months ended September 30, 2005, from the same period in 2004.

Interest expense on foreign long-term debt and bank notes decreased $1.1 million for the nine months ended September 30, 2005, from the same period in 2004. The decrease in interest expense on foreign long-term debt and bank notes was primarily the result of a decrease of 3 basis points in the rate paid on average foreign long-term debt and bank notes for the nine months ended September 30, 2005, from the same period in 2004.

Accumulated Other Comprehensive Income

Accumulated other comprehensive income decreased $306.0 million or 46.1% at September 30, 2005, from December 31, 2004. The decrease was primarily attributable to a decrease in foreign currency translation resulting from the strengthening of the U.S. dollar against foreign currencies. See “Note K: Comprehensive Income” to the consolidated financial statements for further details.

Total Other Operating Income

Total other operating income includes securitization income, interchange income, loan fees, insurance income, and other income. Total other operating income decreased $156.5 million or 7.2% and $385.0 million or 6.3% for the three and nine months ended September 30, 2005, from the same periods in 2004, respectively.

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Table 10 presents the components of total other operating income.

Table 10: Components of Total Other Operating Income

(dollars in thousands) (unaudited)

	For the Three Months					For the Nine Months
	Ended September 30,					Ended September 30,
	2005			2004		2005			2004
Securitization income:
Excess servicing fees (a)	$	1,233,595		$	1,326,533	$	3,663,057		$	3,761,229
Loan servicing fees (a)		411,638			416,872		1,232,648			1,242,097
Gain from the sale of loan principal receivables for new securitizations (b)		12,700			15,496		22,341			75,949
Net revaluation of interest-only strip receivable (b)		(142,091	)		11,334		(463,883	)		(97,865	)
Total securitization income		1,515,842			1,770,235		4,454,163			4,981,410
Interchange income		123,865			113,491		341,206			318,860
Credit card loan fees		160,539			134,251		395,817			398,471
Other consumer loan fees		55,713			46,941		157,894			123,959
Commercial loan fees		22,841			17,992		63,982			50,919
Insurance income		69,763			51,512		185,766			149,638
Other		54,482			25,168		117,945			78,485
Total other operating income	$	2,003,045		$	2,159,590	$	5,716,773		$	6,101,742

(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.

Certain components and changes in total other operating income are discussed as follows:

Securitization Income

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

Securitization income decreased $254.4 million or 14.4% and $527.2 million or 10.6% for the three and nine months ended September 30, 2005, from the same periods in 2004, respectively. The components of securitization income are discussed separately below.

Total Securitization Servicing Fees

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

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Table 11 provides further detail regarding total excess servicing fees.

Table 11: Components of Total Excess Servicing Fees
(dollars in thousands) (unaudited)

	For the Three Months						For the Nine Months
	Ended September 30,						Ended September 30,
	2005			2004			2005			2004

Interest income on securitized loans	$	2,519,564		$	2,467,085		$	7,622,592		$	7,261,380
Interest expense on securitized loans		(816,002	)		(507,976	)		(2,227,731	)		(1,359,951	)
Net interest income on securitized loans		1,703,562			1,959,109			5,394,861			5,901,429
Other fee income on securitized loans		943,169			818,109			2,576,610			2,355,500
Net credit losses on securitized loans		(1,001,498	)		(1,033,813	)		(3,075,766	)		(3,253,603	)
Total securitization servicing fees		1,645,233			1,743,405			4,895,705			5,003,326
Loan servicing fees		(411,638	)		(416,872	)		(1,232,648	)		(1,242,097	)
Total excess servicing fees	$	1,233,595		$	1,326,533		$	3,663,057		$	3,761,229

Excess Servicing Fees

Excess servicing fees decreased $92.9 million and $98.2 million for the three and nine months ended September 30, 2005, from the same periods in 2004, respectively. The decrease for the three and nine months ended September 30, 2005 was primarily the result of an increase in interest expense on securitized loans, partially offset by an increase in interest and other fee income on securitized loans, combined with a decrease in net credit losses on securitized loans.

The net interest income earned on securitized loans decreased by $255.5 million or 13.0% and $506.6 million or 8.6% for the three and nine months ended September 30, 2005, from the same periods in 2004, respectively. Securitized net interest income was affected by the net interest margin on securitized interest-earning assets. The net interest margin on securitized interest-earning assets decreased to 8.28% and 8.81% for the three and nine months ended September 30, 2005, as compared to 9.32% and 9.51% for the same periods in 2004, respectively. The securitized net interest margin represents net interest income on securitized loans 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, 2005 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 Asset Securitization Transactions on the Corporation’s Results” for the calculation of the Corporation’s net interest margin on securitized interest-earning assets and the net interest margin.

Changes in the yield earned on average securitized loans and the interest rate paid to investors in the Corporation's securitization transactions impact the securitized net interest margin. The yield earned on average securitized loans was 12.11% and 12.28% for the three and nine months ended September 30, 2005, as compared to 11.55% and 11.52% for the same periods in 2004, respectively. The increase in the yield earned on average securitized loans reflects higher interest rates offered to Customers. The average interest rate paid to investors in the Corporation’s average securitization transactions was 3.87% and 3.54% for the three and nine months ended September 30, 2005, as compared to 2.35% and 2.13% for the same periods in 2004, respectively. The interest rate paid to investors generally resets on a monthly basis. The increase in the average interest rate paid to investors for the three and nine months ended September 30, 2005, from the same periods in 2004, reflects actions by the FOMC in 2004 and 2005 that increased overall market interest rates. Refer to “Off-Balance Sheet Arrangements—Impact of Off-Balance Sheet Asset Securitization Transactions on the Corporation’s Results” for the calculation of the yield on average securitized loans and the yield on average loan receivables. Refer to “Loan Receivables” for a discussion of the yield on average loan receivables. The interest rate paid on the Corporation’s average net interest-bearing liabilities is discussed under “Interest-Bearing Deposits” and “Borrowed Funds.” Refer to “Off-Balance Sheet Arrangements—Impact of Off-Balance Sheet Asset Securitization Transactions on the Corporation’s Results” for the calculation of the average interest rate paid to investors in the Corporation’s securitization transactions and the average interest rate of net-interest bearing liabilities.

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Other fee income generated by securitized loans increased $125.1 million or 15.3% and $221.1 million or 9.4% for the three and nine months ended September 30, 2005, from the same periods in 2004, respectively, primarily as a result of an increase in interchange due to higher sales volume.

Securitized net credit losses decreased $32.3 million or 3.1% and $177.8 million or 5.5% for the three and nine months ended September 30, 2005, from the same periods in 2004, respectively. The charge-off rate on securitized loans decreased by 2 basis points and 20 basis points to 4.70% and 4.79% for the three and nine months ended September 30, 2005, as compared to 4.72% and 4.99% for the same periods in 2004, respectively. This decrease is consistent with the overall trend in the Corporation's managed loan portfolio net credit loss ratio.

Loan Servicing Fees

Loan servicing fees decreased $5.2 million or 1.3% and $9.4 million or .8% for the three and nine months ended September 30, 2005, from the same periods in 2004, respectively. The decrease was a result of a $2.4 billion or 2.8% and $1.2 billion or 1.4% decrease in average securitized loans for the three and nine months ended September 30, 2005, respectively.

Net Gain (or Loss) from Securitization Activity

The net gain (or loss) from securitization activity consists of gains associated with the sale of new loan principal receivables (net of securitization transaction costs), changes in the projected excess spread used to value the interest-only strip receivable for securitized credit card, other consumer, and commercial loan principal receivables, and all other changes in the fair value of the interest-only strip receivable. The net loss from securitization activity was $129.4 million and $441.5 million for the three and nine months ended September 30, 2005, as compared to a net gain of $26.8 million and a net loss of $21.9 million for the same periods in 2004, respectively, resulting in a decrease in securitization income of $156.2 million and $419.6 million for the three and nine months ended September 30, 2005, respectively.

Certain components of the net gain (or loss) from securitization activity are discussed separately as follows:

Gain from the Sale of Loan Principal Receivables

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

The gain from the sale of loan principal receivables for new securitization transactions was $12.7 million (net of securitization transaction costs of $14.1 million) on the sale of $5.5 billion of credit card and commercial loan principal receivables and $22.3 million (net of securitization transaction costs of $23.9 million) on the sale of $8.0 billion of credit card and commercial loan principal receivables for the three and nine months ended September 30, 2005. The gain from the sale of loan principal receivables for new securitization transactions was $15.5 million (net of securitization transaction costs of $13.1 million) on the sale of $2.7 billion of credit card loan principal receivables and $75.9 million (net of securitization transaction costs of $42.4 million) on the sale of $10.2 billion of credit card loan principal receivables for the three and nine months ended September 30, 2004, respectively.

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Table 12 provides further detail on the gain from the sale of loan principal receivables for new securitization transactions.

Table 12: Gain from the Sale of Loan Principal Receivables for New Securitization Transactions
(dollars in thousands) (unaudited)

	For the Three Months						For the Nine Months
	Ended September 30,						Ended September 30,
	2005			2004			2005			2004

Gain	$	26,816		$	28,625		$	46,247		$	118,322
Securitization Transaction Costs		(14,116	)		(13,129	)		(23,906	)		(42,373	)
Net of Securitization Transaction Costs	$	12,700		$	15,496		$	22,341		$	75,949


Credit card and commercial loan principal receivables sold	$	5,466,596		$	2,722,054		$	7,953,553		$	10,248,269

Net Revaluation of the Interest-Only Strip Receivable

Three Months Ended September 30, 2005

The net revaluation of the interest-only strip receivable resulted in a $142.1 million loss for the three months ended September 30, 2005, which was primarily the result of decreases in projected excess spread to be earned in the future, partially offset by decreases in projected loan payment rates.

The projected excess spread used to value the interest-only strip receivable for securitized credit card loan principal receivables was 3.13% at September 30, 2005, as compared to 3.88% at June 30, 2005. The decrease in the projected excess spread used to value the interest-only strip receivable for securitized credit card loan principal receivables was primarily the result of a decrease in projected interest yields on securitized credit card loan principal receivables resulting from the Corporation’s pricing decisions to attract and retain Customers and to grow managed loans, combined with an increase in the projected interest rate paid to investors, partially offset by lower 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 3.73% at September 30, 2005, as compared to 4.26% at June 30, 2005. The decrease 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 a decrease in projected interest yields on securitized other consumer loan principal receivables, an increase in the projected interest rate paid to investors and higher 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 16.01% at September 30, 2005, as compared to 17.12% at June 30, 2005. The projected loan payment rate used to value the interest-only strip receivable for securitized other consumer loan principal receivables was 4.85% at September 30, 2005, as compared to 4.91% at June 30, 2005.

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 were 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 was projecting increased recoveries on charged-off securitized loan principal receivables due to the success of increased collection efforts.

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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.

Nine Months Ended September 30, 2005

The net revaluation of the interest-only strip receivable resulted in a $463.9 million loss for the nine months ended September 30, 2005, which was primarily the result of decreases in projected excess spread to be earned in the future, increases in projected loan repayment rates and the impact of 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 3.13% at September 30, 2005, as compared to 4.85% at December 31, 2004. The decrease in the projected excess spread used to value the interest-only strip receivable for securitized credit card loan principal receivables was primarily the result of a decrease in projected interest yields on securitized credit card loan principal receivables resulting from the Corporation’s pricing decisions to attract and retain Customers and to grow managed loans, combined with an increase in the projected interest rate paid to investors. The projected excess spread used to value the interest-only strip receivable for securitized other consumer loan principal receivables was 3.73% at September 30, 2005, as compared to 3.58% at December 31, 2004. The increase 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 partially offset by an increase in the projected interest rate paid to investors.

The projected loan payment rate used to value the interest-only strip receivable for securitized credit card loan principal receivables was 16.01% at September 30, 2005, as compared to 15.66% at December 31, 2004. The projected loan payment rate used to value the interest-only strip receivable for securitized other consumer loan principal receivables was 4.85% at September 30, 2005, as compared to 4.84% at December 31, 2004.

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 were 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 5.20% 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 increase 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.

“Note I: Off-Balance Sheet Asset Securitization” to the consolidated financial statements provides further detail regarding the sensitivity to changes in the key assumptions and estimates used in determining the estimated value of the interest-only strip receivable.

Loan Fees

Credit card, other consumer, and commercial loan fees include annual, late, overlimit, returned check, cash advance, express payment, and other miscellaneous fees.

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Credit Card Loan Fees

Credit card loan fees increased $26.3 million or 19.6% for the three months ended September 30, 2005, from the same period in 2004. The increase in credit card fees for the three months ended September 30, 2005, was primarily the result of an increase in cash advance fees due to the increased use of promotional rate offers, partially offset by a decrease in overlimit fees. The decrease in overlimit fees is primarily due to the elimination of overlimit fees for accounts that have been overlimit for consecutive periods. By eliminating overlimit fees and holding the minimum payment constant, more of the Customer’s payment was applied to reduce principal, thus accelerating the rate at which outstanding balances on these overlimit accounts are reduced below the credit limit. Credit card loan fees on securitized loans are included in securitization income.

Other Consumer Loan Fees

Other consumer loan fees increased $8.8 million or 18.7% and $33.9 million or 27.4% for the three and nine months ended September 30, 2005, from the same periods in 2004, respectively. The increase in other consumer loan fees for the three and nine months ended September 30, 2005, from the same periods in 2004, was primarily the result of an increase in cash volume on domestic unsecured lending products. Also, for the nine months ended September 30, 2005, the increase in other consumer loan fees was the result of an 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 $4.8 million or 27.0% and $13.1 million or 25.7% for the three and nine months ended September 30, 2005, from the same periods in 2004, respectively. The increase in commercial loan fees was primarily the result of the growth in the Corporation's average managed business card loans and an increase in the number of accounts.

Insurance

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

Insurance income increased $18.3 million or 35.4% and $36.1 million or 24.1% for the three and nine months ended September 30, 2005, from the same periods in 2004, respectively. The increase was primarily the result of an increase in the number of accounts using credit related insurance products in the U.K. and an increased commission percentage in the U.K. Insurance income on securitized loans is included in securitization income.

Other

Other income increased $29.3 million or 116.5% and $39.5 million or 50.3% for the three and nine months ended September 30, 2005, from the same periods in 2004, respectively. The increase was the result of an increase in fees related to Nexstar activity, brokerage fees related to Loans.co.uk activity, and income related to derivatives.

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Total Other Operating Expense

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

Total other operating expense decreased $5.9 million for the three months ended September 30, 2005 and increased $720.1 million or 17.3% for the nine months ended September 30, 2005, from the same periods in 2004. The growth in total other operating expense for the nine months ended September 30, 2005 primarily reflects the restructuring charge of $764.1 million in connection with the Corporation’s restructuring plan implemented in the first quarter of 2005. Total other operating expense, excluding the restructuring charge, decreased $44.0 million or 1.1% for the nine months ended September 30, 2005, as compared to the same period in 2004. See Table 4 for a reconciliation of other operating expense to other operating expense excluding the restructuring charge.

Certain components of other operating expense are discussed below.

Salaries and Employee Benefits

Salaries and employee benefits decreased $32.1 million or 5.9% and $84.9 million or 5.1% for the three and nine months ended September 30, 2005, from the same periods in 2004, respectively. The decrease in salaries and employee benefits was primarily related to a decrease in staffing levels mainly due to the restructuring plan implemented in the first quarter of 2005.

The Corporation had approximately 24,700 and 26,900 full-time equivalent employees, at September 30, 2005, and 2004, 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 $22.6 million and $72.7 million for the three and nine months ended September 30, 2005, as compared to $25.8 million and $77.5 million for the same periods in 2004, respectively. Also included in salaries and employee benefits for the nine months ended September 30, 2005, was a $5.5 million special termination benefit charge unrelated to the restructuring charge, for a SERP participant retiring earlier than expected. For the nine months ended September 30, 2005, the Corporation contributed the maximum tax-deductible contribution of $78.5 million to the Pension Plan. In 2004, the Corporation contributed $69.0 million to the Pension Plan.

The Corporation increased the discount rate used to determine the net periodic benefit cost for both the Pension Plan and the SERP from 6.00% in 2004 to 6.14% for the nine months ended September 30, 2005. The increase in the discount rate used to determine the net periodic benefit cost was a result of a refinement in the methodology used to calculate the discount rate and a change to the measurement date as a result of the restructuring charge.

The Corporation decreased the expected return on plan assets assumption for the Pension Plan from 9.00% in 2004 to 8.75% in 2005. The expected return on plan assets assumption was determined based on the Pension Plan’s asset allocation, a review of historic market performance, historical plan performance, and a forecast of expected future asset returns.

The Corporation did not change the expected rate of compensation increase for both the Pension Plan and the SERP in 2005. The expected rate of compensation increase was determined based on the long-term expectation of compensation rate increases.

“Note L: 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, 2005 and 2004. “Note 24: Employee Benefits” of the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2004, provides further detail regarding the Corporation’s employee benefits.

Furniture and Equipment Expense

Furniture and equipment expense increased $13.7 million or 12.9% and $53.9 million or 18.3% for the three and nine months ended September 30, 2005, from the same periods in 2004, respectively. The increase in furniture and equipment expense was primarily related to increased software amortization costs from the implementation of internally-developed software projects, including the Strategic Systems Extension project that was placed into service in the second quarter of 2004.

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Restructuring Charge

For the nine months ended September 30, 2005, $475.8 million of the charge related to the voluntary early retirement and voluntary severance programs, $171.1 million of the charge related to contract terminations, and $113.6 million of the charge related to the disposition of fixed assets. The contract termination costs were primarily related to a marketing agreement with a third party vendor that marketed the Corporation’s products to endorsing organizations. Management determined this contract was no longer consistent with the Corporation’s long-term objectives.

Other Expense Component of Other Operating Expense

The other expense component of other operating expense increased $34.6 million or 5.3% and decreased $3.6 million for the three and nine months ended September 30, 2005, as compared to the same periods in 2004, respectively. Certain components of the other expense component of other operating expense are discussed separately below.

Table 13 provides further detail regarding the other expense components of the Corporation’s other operating expense.

Table 13: Other Expense Component of Other Operating Expense

(dollars in thousands) (unaudited)

	For the Three Months				For the Nine Months
	Ended September 30,				Ended September 30,
	2005		2004		2005		2004

Purchased services	$	162,450	$	145,574	$	524,733	$	490,055
Advertising		105,455		96,775		317,102		307,787
Collection		33,666		28,625		94,328		78,897
Stationery and supplies		10,558		10,609		29,124		30,949
Service bureau		22,613		25,725		66,357		69,960
Postage and delivery		131,318		102,645		352,661		349,505
Telephone usage		19,618		22,803		59,201		66,585
Loan receivable fraud losses		37,991		41,267		107,658		111,754
Amortization of intangible assets		116,654		114,762		347,514		335,503
Other		45,220		62,207		162,621		223,902
Total other expense	$	685,543	$	650,992	$	2,061,299	$	2,064,897

Purchased Services

Purchased services increased $16.9 million or 11.6% and $34.7 million or 7.1% for the three and nine months ended September 30, 2005, from the same periods in 2004, respectively. The increase in purchased services for the three and nine months ended September 30, 2005, primarily reflects increased telesales outsourcing, partially offset by the termination of a contract, in connection with the Corporation’s restructuring charge, with a third party vendor that marketed the Corporation’s products to endorsing organizations. The increase in purchased services for the nine months ended September 30, 2005 also reflects brand campaign and merger related expenses, partially offset by a reduction in payments to endorsing organizations for marketing efforts they perform on the Corporation’s behalf to activate new accounts after they have been originated.

See “Note M: Restructuring Charge” for further information on the restructuring charge.

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Collection

Collection expense increased $5.0 million or 17.6% and $15.4 million or 19.6% for the three and nine months ended September 30, 2005, from the same periods in 2004, respectively. The increase in collection expense was primarily related to increased collection attorney and agency fees associated with strategic initiatives to reduce net charge-off rates.

Postage and Delivery

Postage and delivery expense increased $28.7 million or 27.9% for the three months ended September 30, 2005, from the same period in 2004. The increase in postage and delivery expense for the three months ended September 30, 2005 was primarily related to increased mailing activity.

Other

Other expense decreased $17.0 million or 27.3% and $61.3 million or 27.4% for the three and nine months ended September 30, 2005, from the same periods in 2004, respectively. The decrease in other expense for the three months ended September 30, 2005 was primarily related to increases in the market value of company owned life insurance for the three months ended September 30, 2005, as compared to decreases for the same period in 2004, combined with a decrease in losses associated with community reinvestment equity interests. The decrease in other expense for the nine months ended September 30, 2005 was primarily related to a decrease in charitable donations and a decrease in disposal costs, unrelated to the restructuring.

Income Taxes

The Corporation is subject to the income tax laws of the U.S., as well as the states and municipalities and foreign jurisdictions in which it operates. These tax laws are complex. In establishing a provision and the related reserve for income tax expense, the Corporation must make judgments and interpretations about the application of these tax laws. The Corporation must also make estimates about when in the future certain items will affect taxable income in the various tax jurisdictions. The Corporation reviews its tax reserves quarterly and, as new information becomes available, balances are adjusted as appropriate.

Income tax expense decreased $11.8 million or 2.8% and $235.3 million or 23.2% for the three and nine months ended September 30, 2005, from the same periods in 2004, respectively. These amounts represent an effective tax rate of 36.3% and 36.1% for the three and nine months ended September 30, 2005, respectively, and 36.6% and 34.7% for the same periods in 2004. The decrease in income tax expense for the three and nine months ended September 30, 2005, from the same periods in 2004, respectively, was due primarily to a decrease in pre-tax earnings. The effective tax rate for the nine months ended September 30, 2004 was lower primarily because of discrete items recognized in the second quarter of 2004.

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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, other consumer, and business card loans are evaluated in the same manner, as they have similar loan quality characteristics. 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 inherent losses.

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 higher delinquency and charge-off rates than the Corporation's domestic credit card and domestic commercial loan receivables. Foreign loan receivables typically have lower delinquency and charge-off rates 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 other restructured loans, re-aged loans, net credit losses, the reserve and provision for possible credit losses, and the estimate of uncollectible accrued interest and fees. See "Critical Accounting Policies—Reserve For Possible Credit Losses" and "Revenue Recognition" for further discussion.

Credit Risk

Credit risk is one of the Corporation’s most significant risks. It primarily represents the risk to earnings and capital arising from the failure of Customers to repay loans according to their terms. Credit risk is particularly important for the Corporation because its primary products are unsecured consumer credit cards and other unsecured consumer loans that generally have higher credit risks, 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 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, review of credit risk of acquired loan portfolios, setting and managing appropriate credit line amounts, monitoring account usage and, where appropriate, blocking use of accounts. The Corporation works 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, 2004.

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 higher average account balances. When Customers experience financial difficulties, however, the higher usage and higher average account balances will result in higher losses 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 on accounts to compensate for increased credit risk. For example, as discussed under “Loan Quality—Delinquencies” below, the Corporation generally charges higher interest rates on domestic other consumer loan receivables, because these receivables typically have higher charge-off rates 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.

Lending to Customers on certain commercial loans is based upon a review of the financial strength of the Customer, assessment of the Customer’s management ability, sector industry trends, the type of exposure, the transaction structure, and total relationship exposure. Commercial loans are individually approved either by an officer with appropriate authority delegated to them based upon their experience in the product and loan structure over which they have responsibility or by a loan committee. The level of approval required is determined by the internal risk rating for the Customer and the total relationship exposure. In most cases, at least two credit officers are approving the loan. The commercial portfolio is managed on both a pool basis and an individual basis. For loans greater than a specified threshold, an internal risk rating is assigned and adjusted on an ongoing basis to reflect changes in the Customer’s financial condition, cash flow, or ongoing financial stability. For loans less than the specified threshold, commercial loans are managed based upon scoring models and performance.

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

Delinquencies

The entire balance of an account is contractually delinquent if the minimum payment is not received by the specified date on the Customer's billing statement. Interest and fees continue to accrue on the Corporation's delinquent loans. Delinquency is reported on accruing loans that are 30 days or more past due. Delinquency as a percentage of the Corporation's loan receivables was 2.78% at September 30, 2005, as compared to 3.29% at December 31, 2004. The Corporation's delinquency as a percentage of managed loans was 3.99% at September 30, 2005, as compared to 4.13% at December 31, 2004.

The decrease in the delinquency rate at September 30, 2005 as compared to December 31, 2004, was a result of loan growth in credit card and other consumer loans, improving asset quality trends, enhanced collection strategies in credit card loans, and a seasonal decrease in delinquency amounts.

Table 14 presents a reconciliation of the Corporation’s loan receivables delinquency ratio to the managed loans delinquency ratio.

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Table 14: Delinquent Loans (a) (b)
(dollars in thousands) (unaudited)

	September 30, 2005				December 31, 2004
Loan Receivables
Loan receivables outstanding	$	35,521,041			$	33,758,850
Loan receivables delinquent:
30 to 59 days	$	368,149	1.04	%	$	385,339	1.14	%
60 to 89 days		211,575	.60			245,700	.73
90 or more days (c)		408,924	1.14			480,402	1.42
Total loan receivables delinquent	$	988,648	2.78	%	$	1,111,441	3.29	%
Loan receivables delinquent by geographic area:
Domestic:
Credit card	$	452,432	3.52	%	$	582,038	4.18	%
Other consumer		273,517	3.57			273,906	4.69
Commercial		42,103	1.48			44,315	1.62
Total domestic		768,052	3.29			900,259	4.00
Foreign:
Credit card		165,204	2.12			139,533	2.06
Other consumer		38,773	1.21			45,396	1.39
Commercial		16,619	1.43			26,253	2.14
Total foreign		220,596	1.81			211,182	1.87
Total loan receivables delinquent by geographic area	$	988,648	2.78		$	1,111,441	3.29
Securitized Loans
Securitized loans outstanding	$	87,004,128			$	87,859,325
Securitized loans delinquent:
30 to 59 days	$	1,352,925	1.56	%	$	1,305,076	1.49	%
60 to 89 days		797,856	.92			858,114	.97
90 or more days (c)		1,753,971	2.01			1,750,466	1.99
Total securitized loans delinquent	$	3,904,752	4.49	%	$	3,913,656	4.45	%
Securitized loans delinquent by geographic area:
Domestic:
Credit card	$	3,063,406	4.67	%	$	3,105,216	4.69	%
Other consumer		295,696	5.22			315,531	5.57
Commercial		38,445	2.51			37,195	3.69
Total domestic		3,397,547	4.66			3,457,942	4.74
Foreign:
Credit card		507,205	3.58			455,714	3.05
Other consumer		-	-			-	-
Commercial		-	-			-	-
Total foreign		507,205	3.58			455,714	3.05
Total securitized loans delinquent by geographic area	$	3,904,752	4.49		$	3,913,656	4.45

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Table 14: Delinquent Loans (a) (b)-Continued
(dollars in thousands) (unaudited)

	September 30, 2005				December 31, 2004
Managed Loans
Managed loans outstanding	$	122,525,169			$	121,618,175
Managed loans delinquent:
30 to 59 days	$	1,721,074	1.40	%	$	1,690,415	1.39	%
60 to 89 days		1,009,431	.82			1,103,814	.91
90 or more days (c)		2,162,895	1.77			2,230,868	1.83
Total managed loans delinquent	$	4,893,400	3.99	%	$	5,025,097	4.13	%
Managed loans delinquent by geographic area:
Domestic:
Credit card	$	3,515,838	4.48	%	$	3,687,254	4.60	%
Other consumer		569,213	4.27			589,437	5.12
Commercial		80,548	1.84			81,510	2.18
Total domestic		4,165,599	4.33			4,358,201	4.57
Foreign:
Credit card		672,409	3.06			595,247	2.74
Other consumer		38,773	1.21			45,396	1.39
Commercial		16,619	1.43			26,253	2.14
Total foreign		727,801	2.77			666,896	2.54
Total managed loans delinquent by geographic area	$	4,893,400	3.99		$	5,025,097	4.13

(a) Amounts exclude nonaccrual loans presented in Table 16.
(b) The Corporation considers these loans and other factors in determining an appropriate reserve for possible credit losses and the estimate of uncollectible accrued interest and fees.
(c) See Table 15 for further detail on accruing loans past due 90 days or more.

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Accruing Loans Past Due 90 days Or More

Table 15 presents further detail on the Corporation's accruing loan receivables past due 90 days or more and includes a reconciliation to the accruing managed loans past due 90 days or more.

Table 15: Accruing Loans Past Due 90 Days or More (a) (b) (c)
(dollars in thousands)(unaudited)

	September 30, 2005		December 31, 2004
Loan Receivables
Domestic:
Credit card	$	202,607	$	261,415
Other consumer		125,510		135,389
Commercial		18,507		19,334
Total domestic		346,624		416,138
Foreign:
Credit card		49,551		44,404
Other consumer		7,013		9,270
Commercial		5,736		10,590
Total foreign		62,300		64,264
Total loan receivables	$	408,924	$	480,402
Securitized Loans
Domestic:
Credit card	$	1,408,563	$	1,407,333
Other consumer		140,099		157,181
Commercial		19,479		19,680
Total domestic		1,568,141		1,584,194
Foreign:
Credit card		185,830		166,272
Other consumer		-		-
Commercial		-		-
Total foreign		185,830		166,272
Total securitized loans	$	1,753,971	$	1,750,466
Managed Loans
Domestic:
Credit card	$	1,611,170	$	1,668,748
Other consumer		265,609		292,570
Commercial		37,986		39,014
Total domestic		1,914,765		2,000,332
Foreign:
Credit card		235,381		210,676
Other consumer		7,013		9,270
Commercial		5,736		10,590
Total foreign		248,130		230,536
Total managed loans	$	2,162,895	$	2,230,868

(a) Amounts exclude nonaccrual loans presented in Table 16.
(b) This Table provides further detail on 90 days or more delinquent loans presented in Table 14.
(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.

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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 placing them on nonaccrual status, reducing their interest rate, or providing any other concession in terms. Loans that have been placed on nonaccrual status are identified as nonaccrual loans. Loans that have been placed on reduced interest rate status or that have been provided with any other concession in terms are identified as other restructured loans. The Corporation considers these loans and other factors in determining an appropriate reserve for possible credit losses and the estimate of uncollectible accrued interest and fees.

Nonaccrual Loans

For credit card, other consumer, and business card 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. In future periods, when a payment is received, it is recorded as a reduction of the interest and fee amount that was billed to the Customer prior to placing the account on nonaccrual status. Once the original interest and fee amount or subsequent fees have been paid, payments are recorded as a reduction of principal. On a case-by-case basis, management determines whether an account should be removed from nonaccrual status and resume accruing interest.

For certain commercial loans, on a case-by-case basis, management determines whether an account should be placed on nonaccrual status. Generally, the Corporation places certain commercial loans on nonaccrual status at 90 days delinquent. Accrued interest is reversed from income and all payments subsequently received are recorded as a reduction of principal. On a case-by-case basis, management determines whether an account should be removed from nonaccrual status and resume accruing interest.

Nonaccrual loan receivables as a percentage of the Corporation’s ending loan receivables were .72% at September 30, 2005, as compared to .53% at December 31, 2004. Nonaccrual managed loans as a percentage of ending managed loans were .51% at September 30, 2005, as compared to .35% at December 31, 2004. The increase in domestic nonaccrual loans was primarily the result of an increase in the number of credit card accounts placed on nonaccrual status as a result of Hurricane Katrina, an increase in bankrupt and deceased business card accounts, and an increase in the number of practice acquisition accounts placed on nonaccrual status.

During the third quarter of 2005, the Central Gulf Coast of the U.S. was struck by Hurricane Katrina, adversely affecting a portion of the Corporation’s Customers. The Corporation assisted Customers through various ways, including payment holidays, late fee waivers, increased credit lines, and access to emergency cash. In addition, some Customer’s accounts were placed on nonaccrual status as a result of Hurricane Katrina, which resulted in an increase in domestic nonaccrual loans. The Corporation is not able to quantify the full impact of Hurricane Katrina, however it is expected to have an adverse effect on the Corporation’s delinquency and credit losses in future periods.

The increase in foreign nonaccrual loans was a result of an increase in bankrupt and deceased accounts, and an increase in the number of accounts placed in debt management programs.

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Table 16 presents the Corporation's nonaccrual loan receivables and includes a reconciliation to the nonaccrual managed loans.

Table 16: Nonaccrual Loans (a) (b)
(dollars in thousands)(unaudited)

	September 30, 2005			December 31, 2004
Loan Receivables
Domestic:
Credit card	$	15,170		$	3,508
Other consumer		7,995			475
Commercial		12,111			5,181
Total domestic		35,276			9,164
Foreign:
Credit card		140,978			108,054
Other consumer		77,567			60,071
Commercial		888			254
Total foreign		219,433			168,379
Total loan receivables	$	254,709		$	177,543
Nonaccrual loan receivables as a percentage of ending loan receivables		.72	%		.53	%

Securitized Loans
Domestic:
Credit card	$	78,737		$	13,100
Other consumer		7,064			461
Commercial		5,224			2,301
Total domestic		91,025			15,862
Foreign:
Credit card		281,353			235,005
Other consumer		-			-
Commercial		-			-
Total foreign		281,353			235,005
Total securitized loans	$	372,378		$	250,867
Nonaccrual securitized loans as a percentage of ending securitized loans		.43	%		.29	%

Managed Loans
Domestic:
Credit card	$	93,907		$	16,608
Other consumer		15,059			936
Commercial		17,335			7,482
Total domestic		126,301			25,026
Foreign:
Credit card		422,331			343,059
Other consumer		77,567			60,071
Commercial		888			254
Total foreign		500,786			403,384
Total managed loans	$	627,087		$	428,410
Nonaccrual managed loans as a percentage of ending managed loans		.51	%		.35	%

(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 14 and 15 and the other restructured loans presented in Table 17.
(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.

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Other Restructured Loans

On a case-by-case basis, management determines whether an account should be identified as an other restructured loan. Other restructured loans are loans for which the interest rate was reduced or loans that have received any other type of concession in terms because of the inability of the Customer to comply with the original terms and conditions. Income is accrued at the reduced rate as long as the Customer complies with the revised terms and conditions.

Other restructured loan receivables as a percentage of the Corporation’s ending loan receivables were 1.71% at September 30, 2005 and 2.02% at December 31, 2004. Other restructured managed loans as a percentage of ending managed loans were 2.23% at September 30, 2005, as compared to 2.68% at December 31, 2004. The decrease in other restructured loans was primarily a result of an improvement in overall asset quality trends.

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Table 17 presents the Corporation’s other restructured loan receivables and includes a reconciliation to the other restructured managed loans.

Table 17: Other Restructured Loans (a) (b)
(dollars in thousands)(unaudited)

	September 30, 2005			December 31, 2004
Loan Receivables
Domestic:
Credit card	$	366,931		$	457,216
Other consumer		192,106			195,728
Commercial		24,490			10,177
Total domestic		583,527			663,121
Foreign:
Credit card		19,334			13,234
Other consumer		5,300			5,560
Commercial		-			-
Total foreign		24,634			18,794
Total loan receivables	$	608,161		$	681,915
Other restructured loan receivables as a percentage of ending loan receivables		1.71	%		2.02	%

Securitized Loans
Domestic:
Credit card	$	1,900,704		$	2,317,629
Other consumer		169,777			208,315
Commercial		5,240			4,156
Total domestic		2,075,721			2,530,100
Foreign:
Credit card		47,502			50,638
Other consumer		-			-
Commercial		-			-
Total foreign		47,502			50,638
Total securitized loans	$	2,123,223		$	2,580,738
Other restructured securitized loans as a percentage of ending securitized loans		2.44	%		2.94	%

Managed Loans
Domestic:
Credit card	$	2,267,635		$	2,774,845
Other consumer		361,883			404,043
Commercial		29,730			14,333
Total domestic		2,659,248			3,193,221
Foreign:
Credit card		66,836			63,872
Other consumer		5,300			5,560
Commercial		-			-
Total foreign		72,136			69,432
Total managed loans	$	2,731,384		$	3,262,653
Other restructured managed loans as a percentage of ending managed loans		2.23	%		2.68	%

(a) Other restructured loans presented in this Table exclude accruing loans past due 90 days or more and nonaccrual loans presented in Tables 15 and 16, 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.

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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. Generally, to qualify for re-aging, the Customer must also have made at least 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 $121.1 million and $379.5 million of loan receivables re-aged during the three and nine months ended September 30, 2005, compared to $137.3 million and $459.3 million for the same periods in 2004, respectively. Managed loans re-aged during the three and nine months ended September 30, 2005 were $419.3 million and $1.5 billion, as compared to $589.0 million and $2.0 billion for the same periods in 2004, respectively. Of those accounts that were re-aged during the three months ended September 30, 2004, approximately 24.1% returned to delinquency status and approximately 17.7% charged off by September 30, 2005.

The decrease in the domestic loan re-aged amounts was the result of an improvement in overall asset quality trends, as well as a change in the criteria that need to be met to qualify for a reage. The increase in the foreign loan re-aged amounts was the result of an increase in the number of accounts placed in debt management programs and changes in account management practices for identifying and processing re-aged loans.

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Table 18 presents the Corporation’s loan receivables re-aged amounts and includes a reconciliation to the managed loans re-aged amounts.

Table 18: Re-aged Amounts (a) (b)

(dollars in thousands) (unaudited)

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2005		2004		2005		2004

Loan Receivables Re-aged Amounts
Domestic:
Credit card	$	35,876	$	74,959	$	137,082	$	259,682
Other consumer		27,363		35,017		91,893		124,704
Commercial		1,046		1,455		3,827		3,704
Total domestic		64,285		111,431		232,802		388,090
Foreign:
Credit card		44,826		16,046		107,851		48,942
Other consumer		11,822		9,852		38,486		22,228
Commercial		165		10		322		10
Total foreign		56,813		25,908		146,659		71,180
Total loan receivables re-aged amounts	$	121,098	$	137,339	$	379,461	$	459,270

Securitized Loan Re-aged Amounts
Domestic:
Credit card	$	195,507	$	365,548	$	844,914	$	1,247,643
Other consumer		25,162		37,960		91,915		123,474
Commercial		631		1,019		2,333		3,695
Total domestic		221,300		404,527		939,162		1,374,812
Foreign:
Credit card		76,919		47,183		202,859		128,286
Other consumer		-		-		-		-
Commercial		-		-		-		-
Total foreign		76,919		47,183		202,859		128,286
Total securitized loan re-aged amounts	$	298,219	$	451,710	$	1,142,021	$	1,503,098

Managed Loan Re-aged Amounts
Domestic:
Credit card	$	231,383	$	440,507	$	981,996	$	1,507,325
Other consumer		52,525		72,977		183,808		248,178
Commercial		1,677		2,474		6,160		7,399
Total domestic		285,585		515,958		1,171,964		1,762,902
Foreign:
Credit card		121,745		63,229		310,710		177,228
Other consumer		11,822		9,852		38,486		22,228
Commercial		165		10		322		10
Total foreign		133,732		73,091		349,518		199,466
Total managed loan re-aged amounts	$	419,317	$	589,049	$	1,521,482	$	1,962,368

(a) Re-aged loans that returned to delinquency status are included in the delinquency amounts presented in Tables 14 and 15, provided that the loans have not charged off.
(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.

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Net Credit Losses

The Corporation's net credit losses include the principal amount of losses charged off less current period recoveries and exclude uncollectible accrued interest and fees and fraud losses. Uncollectible accrued interest and fees are recognized by the Corporation through a 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 operating 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. Managers may on an exception basis defer charge off of an account for another month, pending continued payment activity or other special circumstances. Senior manager approval is required on all such exceptions to the above charge-off policies.

For certain commercial loans, the Corporation works with Customers continually at each stage of delinquency. Generally, the Corporation's policy is to charge off commercial loans by the end of the month in which the account becomes 180 days contractually past due. Also, loans are charged off when management deems the loan uncollectible, but generally not later than the applicable 180-day timeframe. Bankrupt and deceased loans are charged off when the loss is determined, but generally not later than the applicable 180-day timeframe described above. If the account is "well-secured" and "in the process of collection," the account may be held from charge off for up to 300 days. Accounts failing to make a payment within the charge-off policy timeframe are written off.

Loan receivables net credit losses decreased $42.2 million or 12.8% for the three months ended September 30, 2005, from the same period in 2004. Net credit losses as a percentage of average loan receivables were 3.30% for the three months ended September 30, 2005, as compared to 4.28% for the same period in 2004. Managed net credit losses decreased $74.5 million or 5.5% for the three months ended September 30, 2005, from the same period in 2004. The Corporation’s managed net credit losses as a percentage of average managed loans were 4.29% for the three months ended September 30, 2005, as compared to 4.61% for the same period in 2004.

Loan receivables net credit losses decreased $151.4 million or 14.7% for the nine months ended September 30, 2005, from the same period in 2004. Net credit losses as a percentage of average loan receivables were 3.59% for the nine months ended September 30, 2005, as compared to 4.44% for the same period in 2004. Managed net credit losses decreased $329.3 million or 7.7% for the nine months ended September 30, 2005, from the same period in 2004. The Corporation’s managed net credit losses as a percentage of average managed loans were 4.46% for the nine months ended September 30, 2005, as compared to 4.85% for the same period in 2004.

The overall decreases in the net credit loss ratios for the three and nine months ended September 30, 2005, as compared to the same periods in 2004, primarily reflect the Corporation's improving asset quality trends.

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 domestic 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 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.

In April 2005, the Bankruptcy Abuse Prevention and Consumer Protection Act was enacted (the “Act”). The Act, which restricts the ability of individuals to clear their debts through bankruptcy, went into effect on October 17, 2005. Under the Act, more obligors filing for bankruptcy will be required to file under a Chapter 13 bankruptcy, in which individuals are placed on a repayment plan of up to five years, instead of having their debts cleared without a repayment plan in a Chapter 7 bankruptcy proceeding. Debts not addressed by the repayment plan do not have to be paid. The new law also contains provisions such as income qualification tests, more stringent restrictions on current bankruptcy exemptions, and mandatory credit counseling.

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In the period leading up to the October 17, 2005 effective date of the Act, there was a significant increase in the number of bankruptcy filings as obligors accelerated filings of Chapter 7 bankruptcy proceedings to avoid the adverse provisions of the Act. This accelerated rate of filings will significantly increase the Corporation’s net credit losses for the month of December because bankrupt accounts are charged off by the end of the second calendar month following receipt of notification of the filing from the applicable court. However, the number of bankruptcy filings and resulting credit losses could be significantly offset in the periods following the effective date of the Act as a result of the earlier acceleration in filings and restrictions in the Act. The Corporation’s future net credit losses are by their nature uncertain and changes in economic conditions, regulatory policies, seasonality, and other factors may also impact losses

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Table 19 presents the Corporation’s loan receivables net credit loss ratio and includes a reconciliation to the managed net credit loss ratio.

Table 19: Net Credit Loss Ratio
(dollars in thousands) (unaudited)
	For the Three Months Ended September 30, 2005							For the Three Months Ended September 30, 2004

	Net Credit Losses		Average Loans Outstanding		Net Credit Loss Ratio			Net Credit Losses		Average Loans Outstanding		Net Credit Loss Ratio
Loan Receivables
Domestic:
Credit card	$	110,731	$	12,093,586		3.66	%	$	150,729	$	13,798,932		4.37	%
Other consumer		88,829		7,387,232		4.81			96,643		5,576,609		6.93
Commercial		14,611		3,016,651		1.94			18,420		2,448,625		3.01
Total domestic		214,171		22,497,469		3.81			265,792		21,824,166		4.87
Foreign:
Credit card		44,446		8,127,745		2.19			34,084		4,807,145		2.84
Other consumer		25,319		3,179,740		3.19			26,577		3,089,871		3.44
Commercial		4,319		1,151,376		1.50			4,018		1,155,585		1.39
Total foreign		74,084		12,458,861		2.38			64,679		9,052,601		2.86
Total loan receivables	$	288,255	$	34,956,330		3.30		$	330,471	$	30,876,767		4.28

Securitized Loans
Domestic:
Credit card	$	752,363	$	64,770,752		4.65	%	$	802,422	$	67,292,128		4.77	%
Other consumer		102,320		5,669,790		7.22			105,002		5,669,159		7.41
Commercial		13,351		1,238,196		4.31			13,069		1,007,707		5.19
Total domestic		868,034		71,678,738		4.84			920,493		73,968,994		4.98
Foreign:
Credit card		133,464		13,518,601		3.95			113,320		13,657,079		3.32
Other consumer		-		-		-			-		-		-
Commercial		-		-		-			-		-		-
Total foreign		133,464		13,518,601		3.95			113,320		13,657,079		3.32
Total securitized loans	$	1,001,498	$	85,197,339		4.70		$	1,033,813	$	87,626,073		4.72

Managed Loans
Domestic:
Credit card	$	863,094	$	76,864,338		4.49	%	$	953,151	$	81,091,060		4.70	%
Other consumer		191,149		13,057,022		5.86			201,645		11,245,768		7.17
Commercial		27,962		4,254,847		2.63			31,489		3,456,332		3.64
Total domestic		1,082,205		94,176,207		4.60			1,186,285		95,793,160		4.95
Foreign:
Credit card		177,910		21,646,346		3.29			147,404		18,464,224		3.19
Other consumer		25,319		3,179,740		3.19			26,577		3,089,871		3.44
Commercial		4,319		1,151,376		1.50			4,018		1,155,585		1.39
Total foreign		207,548		25,977,462		3.20			177,999		22,709,680		3.14
Total managed loans	$	1,289,753	$	120,153,669		4.29		$	1,364,284	$	118,502,840		4.61

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Table 19: Net Credit Loss Ratio - Continued
(dollars in thousands) (unaudited)
	For the Nine Months Ended September 30, 2005							For the Nine Months Ended September 30, 2004

	Net Credit Losses		Average Loans Outstanding		Net Credit Loss Ratio			Net Credit Losses		Average Loans Outstanding		Net Credit Loss Ratio
Loan Receivables
Domestic:
Credit card	$	347,806	$	11,115,436		4.17	%	$	472,212	$	14,041,349		4.48	%
Other consumer		270,597		6,816,205		5.29			322,645		5,532,021		7.78
Commercial		49,592		2,950,110		2.24			37,936		2,045,296		2.47
Total domestic		667,995		20,881,751		4.27			832,793		21,618,666		5.14
Foreign:
Credit card		120,434		7,373,246		2.18			114,699		5,296,284		2.89
Other consumer		73,490		3,195,950		3.07			73,958		2,988,303		3.30
Commercial		16,157		1,150,704		1.87			8,062		1,012,230		1.06
Total foreign		210,081		11,719,900		2.39			196,719		9,296,817		2.82
Total loan receivables	$	878,076	$	32,601,651		3.59		$	1,029,512	$	30,915,483		4.44

Securitized Loans
Domestic:
Credit card	$	2,335,491	$	64,946,381		4.79	%	$	2,558,403	$	67,394,318		5.06	%
Other consumer		314,937		5,669,471		7.41			338,141		5,670,672		7.95
Commercial		39,664		1,100,338		4.81			39,713		1,007,781		5.25
Total domestic		2,690,092		71,716,190		5.00			2,936,257		74,072,771		5.29
Foreign:
Credit card		385,674		13,973,023		3.68			317,346		12,814,572		3.30
Other consumer		-		-		-			-		-		-
Commercial		-		-		-			-		-		-
Total foreign		385,674		13,973,023		3.68			317,346		12,814,572		3.30
Total securitized loans	$	3,075,766	$	85,689,213		4.79		$	3,253,603	$	86,887,343		4.99

Managed Loans
Domestic:
Credit card	$	2,683,297	$	76,061,817		4.70	%	$	3,030,615	$	81,435,667		4.96	%
Other consumer		585,534		12,485,676		6.25			660,786		11,202,693		7.86
Commercial		89,256		4,050,448		2.94			77,649		3,053,077		3.39
Total domestic		3,358,087		92,597,941		4.84			3,769,050		95,691,437		5.25
Foreign:
Credit card		506,108		21,346,269		3.16			432,045		18,110,856		3.18
Other consumer		73,490		3,195,950		3.07			73,958		2,988,303		3.30
Commercial		16,157		1,150,704		1.87			8,062		1,012,230		1.06
Total foreign		595,755		25,692,923		3.09			514,065		22,111,389		3.10
Total managed loans	$	3,953,842	$	118,290,864		4.46		$	4,283,115	$	117,802,826		4.85

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Reserve and Provision for Possible Credit Losses

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

The reserve for possible credit losses is a general allowance applicable to the Corporation’s loan receivables and does not include an allocation for credit risk related to securitized loans. Net credit losses on securitized loans are absorbed directly by the related trusts under their respective contractual agreements and do not affect the reserve for possible credit losses.

The Corporation’s reserve for possible credit losses decreased $164.8 million or 14.5% at September 30, 2005, as compared to December 31, 2004. The provision for possible credit losses decreased $11.0 million or 4.0% and $167.8 million or 18.8% for the three and nine months ended September 30, 2005, from the same periods in 2004, respectively. The reserve for possible credit losses and the related provision for possible credit losses decreased as a result of improving asset quality trends, enhanced collection strategies, and an improved economy. These trends include improved delinquency and charge-off ratios. These items were partially offset by an additional provision for higher forecasted credit losses related to increased bankruptcy filings in the period leading up to the effective date of the new bankruptcy law, the projected effect of the revised minimum payment amounts required on certain accounts, as well as the Corporation’s projected impact of Hurricane Katrina on future net credit losses. See “Regulatory and Other Matters - Bankruptcy Reform Law” for a discussion on bankruptcy legislation. See “Loan Receivables - Domestic Credit Card Loan Receivables” for a discussion on the revised minimum payment amounts required on certain accounts.

Table 20 presents an analysis of the Corporation's reserve for possible credit losses.

The Corporation’s projections of probable net credit losses are inherently uncertain, and as a result, the Corporation cannot predict with certainty the amount of such losses. Changes in economic conditions, the risk characteristics and composition of the Corporation’s loan receivables, bankruptcy laws or regulatory policies, and other factors could impact the Corporation’s actual and projected net credit losses and the related reserve for possible credit losses.

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Table 20: Reserve for Possible Credit Losses
(dollars in thousands) (unaudited)
	For the Three Months						For the Nine Months
	Ended September 30,						Ended September 30,
	2005			2004			2005			2004

Reserve for possible credit losses, beginning of period	$	998,362		$	1,196,304		$	1,136,558		$	1,216,316
Reserves acquired:
Domestic		580			1,241			2,967			39,727
Foreign		87			175			6,149			24,067
Total reserves acquired		667			1,416			9,116			63,794
Provision for possible credit losses:
Domestic		214,763			221,700			510,402			673,549
Foreign		47,594			51,687			211,924			216,556
Total provision for possible credit losses		262,357			273,387			722,326			890,105
Foreign currency translation		(1,329	)		1,203			(18,122	)		1,136
Credit losses:
Domestic:
Credit card		(122,955	)		(164,189	)		(380,478	)		(511,141	)
Other consumer		(98,143	)		(104,069	)		(296,291	)		(345,431	)
Commercial		(18,105	)		(18,719	)		(56,176	)		(39,354	)
Total domestic credit losses		(239,203	)		(286,977	)		(732,945	)		(895,926	)
Foreign:
Credit card		(54,854	)		(39,180	)		(147,617	)		(130,601	)
Other consumer		(28,930	)		(30,293	)		(84,674	)		(84,105	)
Commercial		(5,239	)		(4,022	)		(19,498	)		(8,068	)
Total foreign credit losses		(89,023	)		(73,495	)		(251,789	)		(222,774	)
Total credit losses		(328,226	)		(360,472	)		(984,734	)		(1,118,700	)
Recoveries:
Domestic:
Credit card		12,224			13,460			32,672			38,929
Other consumer		9,314			7,426			25,694			22,786
Commercial		3,494			299			6,584			1,418
Total domestic recoveries		25,032			21,185			64,950			63,133
Foreign:
Credit card		10,408			5,096			27,183			15,902
Other consumer		3,611			3,716			11,184			10,147
Commercial		920			4			3,341			6
Total foreign recoveries		14,939			8,816			41,708			26,055
Total recoveries		39,971			30,001			106,658			89,188
Net credit losses		(288,255	)		(330,471	)		(878,076	)		(1,029,512	)
Reserve for possible credit losses, end of period	$	971,802		$	1,141,839		$	971,802		$	1,141,839

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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 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, as well as a bankruptcy filing forecast. The bankruptcy filing forecast is based upon an analysis of historical filings, industry trends, and estimates of future filings. 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, as well as a bankruptcy filing forecast.

The difference between the amount of interest and fees the Corporation was contractually entitled to and the amount recognized as revenue for domestic loans decreased $28.7 million and $102.9 million for the three and nine months ended September 30, 2005, due to lower delinquency levels, compared to the same periods in 2004, respectively.

The difference between the amount of interest and fees the Corporation was contractually entitled to and the amount recognized as revenue for foreign loans increased $9.4 million and $7.8 million for the three and nine months ended September 30, 2005, 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 2004, respectively.

Table 21 presents the domestic and foreign amounts for the difference between the amount of interest and fees the Corporation was contractually entitled to and the amount recognized as revenue.

Table 21: Difference Between the Amount of Interest and Fees the Corporation was Contractually Entitled to

and the Amount Recognized as Revenue (a)

(dollars in thousands) (unaudited)

	For the Three Months				For the Nine Months
	Ended September 30,				Ended September 30,
	2005		2004		2005		2004

Domestic	$	196,992	$	225,715	$	596,235	$	699,122
Foreign		40,438		31,039		105,064		97,298
Total	$	237,430	$	256,754	$	701,299	$	796,420

(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. MBNA America 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 (Tier I Capital divided by average assets) 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, MBNA America's, and MBNA Delaware's consolidated financial statements. Under the capital adequacy guidelines and the regulatory framework for prompt corrective action, the Corporation, MBNA America, and MBNA Delaware must meet specific capital guidelines that involve quantitative measures of their assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices.

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The Corporation's, MBNA America's, and MBNA Delaware's capital amounts and classifications are also subject to qualitative judgments by the federal bank regulators about components, risk weightings, and other factors. At September 30, 2005, and December 31, 2004, the Corporation's, MBNA America's, and MBNA Delaware's capital exceeded all minimum regulatory requirements to which they are subject, and MBNA America and MBNA Delaware were “well-capitalized” as defined under the federal bank regulatory guidelines. The risk-based capital ratios, shown in Table 22, have been computed in accordance with regulatory accounting practices. At September 30, 2005, no conditions or events had occurred that changed the Corporation’s classification as “adequately capitalized” and MBNA America’s or MBNA Delaware’s classification as “well-capitalized.” At September 30, 2005, the Corporation’s Tier 1, Total, and Leverage ratios decreased 40 basis points, 42 basis points, and 33 basis points, respectively, due to the exclusion of the Corporation’s Series A and Series B Preferred Stock from Tier 1 capital, due to its planned redemption.

Table 22: Regulatory Capital Ratios

	September 30, 2005			December 31, 2004			Minimum Requirements			Well-Capitalized Requirements
	(unaudited)
MBNA Corporation
Tier 1		20.67	%		21.82	%		4.00	%		(a	)
Total		23.86			25.39			8.00			(a	)
Leverage		21.50			22.80			4.00			(a	)

MBNA America Bank, N.A.
Tier 1		22.80			21.51			4.00			6.00	%
Total		26.29			25.26			8.00			10.00
Leverage		22.35			21.87			4.00			5.00

MBNA America (Delaware), N.A.
Tier 1		16.46			15.79			4.00			6.00
Total		17.66			17.09			8.00			10.00
Leverage		15.30			16.12			4.00			5.00

(a) Not applicable for bank holding companies.

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 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 junior subordinated deferrable interest debentures. If the Corporation defers interest for consecutive periods covering 10 semiannual periods or 20 consecutive quarterly periods, depending on the series, on the Corporation’s junior subordinated deferrable interest debentures, the Corporation may not be permitted to declare or pay any cash dividends on the Corporation’s capital stock or interest on the debt securities that have equal or less priority than the junior subordinated deferrable interest debentures. During the nine months ended September 30, 2005, the Corporation declared dividends on its preferred stock of $10.5 million and on its common stock of $530.5 million.

Under the Merger Agreement, the Corporation agreed to limit the payment of quarterly dividends by the Corporation to $.14 or less per share of common stock. See “Note N: Mergers and Acquisitions” for further detail on the proposed merger of the Corporation with and into Bank of America.

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The Corporation is a legal entity separate and distinct from its banking and other subsidiaries. The primary source of funds for payment of dividends by the Corporation is dividends received from MBNA America. The amount of dividends that a national bank may declare in any year is subject to certain regulatory restrictions. Generally, dividends declared in a given year by a national bank are limited to its net profit, as defined by regulatory agencies, for that year, combined with its retained net income for the preceding two years, less any required transfer to surplus or to a fund for the retirement of any preferred stock. In addition, a national bank may not pay any dividends in an amount greater than its undivided profits. Also, a national bank may not declare dividends if such declaration would leave the bank inadequately capitalized. Therefore, the ability of MBNA America to declare dividends will depend on its future net income and capital requirements. At September 30, 2005, the amount of undivided profits available for declaration and payment of dividends from MBNA America to the Corporation was $4.5 billion. MBNA America’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, 2005. Had this facility been drawn upon at September 30, 2005, the amount of retained earnings available for declaration of dividends would have been limited to $4.0 billion. Also, banking regulators have indicated that national banks should generally pay dividends only out of current operating earnings. Payment of dividends by MBNA America to the Corporation, however, can be further limited by federal bank regulatory agencies.

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 the 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 Corporation receives a servicing fee for servicing the loans. This servicing fee is a component of securitization income.

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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 12 months to 120 months, the trust makes no principal payments to the investors in the securitization. Instead, during the revolving period, the trust uses principal payments received from Customers, which pay off the loan principal receivables that were sold to the trust, to purchase for the trust from the Corporation new loan principal receivables generated by these accounts, in accordance with the terms of the transaction, so that the principal dollar amount of the investors' undivided interest remains unchanged. Once the revolving period ends, the amortization period begins and the trust distributes principal payments to the investors according to the terms of the transaction. When the trust uses principal payments to pay the investors, the Corporation's on-balance sheet loan receivables increase by the amount of any new loans on the Customer accounts because the trust is no longer purchasing new loan receivables from the Corporation.

The Corporation retains servicing responsibilities for the loans in the trusts and maintained $4.0 billion and $4.6 billion of other retained subordinated interests in the securitized assets at September 30, 2005 and December 31, 2004, respectively. These retained subordinated interests include an interest-only strip receivable, cash reserve accounts, accrued interest and fees on securitized loans, and other subordinated interests and are included in accounts receivable from securitization in the consolidated statements of financial condition. If cash flows allocated to investors in the trusts are insufficient to absorb expenses of the trust, then the retained interests of the Corporation would be used to absorb such deficiencies and may not be realized by the Corporation. The investors and providers of credit enhancement have no other recourse to the Corporation. The Corporation has no obligation to provide further funding support to either the investors or the trusts if the securitized loans are not paid when due. The Corporation does not receive collateral from any party to the securitization transactions and does not have any risk of counterparty nonperformance. The Corporation’s retained interests are subordinate to the investors’ interests. The value of the retained interests is subject to credit, payment, and interest rate risks on the transferred financial assets.

In connection with the MBNA Master Consumer Loan Trust ("MCLT") 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 an on-balance sheet financing structured 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 prior to the swaps. At September 30, 2005, the fair value asset of the swaps was $11.0 million for MCLT and ALF. The Corporation considers the possibility of the occurrence of the events giving rise to its obligations under the MCLT and ALF agreements to be remote.

Impact Of Off-Balance Sheet Asset Securitization Transactions On The Corporation’s Results

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.

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Table 23 reconciles income statement data for the period to managed net interest income, managed provision for possible credit losses, and managed other operating income.

Table 23: 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						For the Nine Months
	Ended September 30,						Ended September 30,
	2005			2004			2005			2004

Net Interest Income:
Net interest income	$	729,100		$	611,661		$	2,049,127		$	1,873,711
Securitization adjustments		1,703,562			1,959,109			5,394,861			5,901,429
Managed net interest income	$	2,432,662		$	2,570,770		$	7,443,988		$	7,775,140

Provision for Possible Credit Losses:
Provision for possible credit losses	$	262,357		$	273,387		$	722,326		$	890,105
Securitization adjustments		1,001,498			1,033,813			3,075,766			3,253,603
Managed provision for possible credit losses	$	1,263,855		$	1,307,200		$	3,798,092		$	4,143,708

Other Operating Income:
Other operating income	$	2,003,045		$	2,159,590		$	5,716,773		$	6,101,742
Securitization adjustments		(702,064	)		(925,296	)		(2,319,095	)		(2,647,826	)
Managed other operating income	$	1,300,981		$	1,234,294		$	3,397,678		$	3,453,916

Managed net interest income decreased $138.1 million or 5.4% and $331.2 million or 4.3% for the three and nine months ended September 30, 2005, from the same periods in 2004, respectively. The decrease in managed net interest income is primarily attributable to the rate paid on average managed interest-bearing liabilities increasing at a faster rate than the yield earned on average managed interest-earning assets.

The managed provision for possible credit losses decreased $43.3 million or 3.3% and $345.6 million or 8.3% for the three and nine months ended September 30, 2005, from the same periods in 2004, respectively. The decrease in the managed provision for possible credit losses was based on improving asset quality trends, enhanced collection strategies, and an improved economy.

Managed other operating income increased $66.7 million or 5.4% for the three months ended September 30, 2005 and decreased $56.2 million or 1.6% for the nine months ended September 30, 2005, from the same periods in 2004. The increase in managed other operating income for the three months ended September 30, 2005 was primarily the result of an increase in interchange income, cash advance fees, and insurance income, partially offset by a net loss from securitization activity and a decrease in overlimit fees. The decrease in managed other operating income for the nine months ended September 30, 2005 was primarily the result of a net loss from securitization activity and a decrease in overlimit fees, partially offset by an increase in interchange income, cash advance fees, and insurance income. See "Total Other Operating Income - Securitization Income" for a discussion of the net loss from securitization activity for the three and nine months ended September 30, 2005.

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Average Managed Interest-Earning Assets

Average managed interest-earning assets increased $263.7 million and $440.5 million for the three and nine months ended September 30, 2005, from the same periods in 2004, respectively. The increase in average managed interest-earning assets was primarily the result of an increase in average managed loans and average investment securities partially offset by a decrease in average money market instruments. The increase in average investment securities and the decrease in average money market instruments for the three and nine months ended September 30, 2005 from the same periods in 2004, was due to the Corporation investing a larger portion of its liquid assets in higher yielding investment securities. The yield earned on average managed interest-earning assets increased 67 basis points and 69 basis points for the three and nine months ended September 30, 2005 from the same periods in 2004, respectively. The increase was primarily the result of an increase of 50 basis points and 62 basis points in the yield earned on average managed loans for the three and nine months ended September 30, 2005 from the same periods in 2004, respectively.

Table 24 reconciles the Corporation’s average loan receivables to average managed loans.

Table 24: Reconciliation of Average Loan Receivables to Average Managed Loans
(dollars in thousands) (unaudited)

For the Three Months Ended September 30,	2005							2004
	Average Balance		Yield			Income		Average Balance		Yield			Income
Loan receivables	$	34,956,330		11.45	%	$	1,009,043	$	30,876,767		11.05	%	$	857,604
Securitized loans		85,197,339		12.11			2,601,031		87,626,073		11.55			2,544,309
Managed loans	$	120,153,669		11.92		$	3,610,074	$	118,502,840		11.42		$	3,401,913


For the Nine Months Ended September 30,	2005							2004
	Average Balance		Yield			Income		Average Balance		Yield			Income
Loan receivables	$	32,601,651		11.47	%	$	2,795,980	$	30,915,483		11.20	%	$	2,591,714
Securitized loans		85,689,213		12.28			7,872,549		86,887,343		11.52			7,493,466
Managed loans	$	118,290,864		12.06		$	10,668,529	$	117,802,826		11.44		$	10,085,180

Average Managed Interest-Bearing Liabilities

Average managed interest-bearing liabilities decreased $2.0 billion or 1.6% and $1.5 billion or 1.2% for the three and nine months ended September 30, 2005, from the same periods in 2004, respectively. The decrease in average managed interest-bearing liabilities was a result of the decrease in average interest-bearing deposits and average securitized loans, partially offset by an increase in average borrowed funds. The increase in the rate paid on average managed interest-bearing liabilities of 121 basis points and 112 basis points for the three and nine months ended September 30, 2005, from the same periods in 2004, respectively, reflects an increase in the rate paid to investors in the Corporation's securitization transactions combined with an increase in the rate paid on the Corporation’s average interest-bearing deposits and average borrowed funds.

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Table 25 reconciles average interest-earning assets and average interest-bearing liabilities to average managed interest-earning assets and average managed interest-bearing liabilities.

Table 25: 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,	2005							2004
	Average Balance		Yield/ Rate			Income or Expense		Average Balance		Yield/ Rate			Income or Expense
Assets:

Net interest-earning assets (a)	$	49,402,465		9.53	%	$	1,187,045	$	47,140,961		8.46	%	$	1,002,435
Securitization adjustments		81,593,773		12.25			2,519,564		83,591,554		11.74			2,467,085
Managed interest-earning assets (a)	$	130,996,238		11.23		$	3,706,609	$	130,732,515		10.56		$	3,469,520

Liabilities:

Net interest-bearing liabilities	$	43,338,318		4.19		$	457,556	$	43,044,620		3.61		$	390,532
Securitization adjustments		83,726,387		3.87			816,002		86,064,013		2.35			507,976
Managed interest-bearing liabilities	$	127,064,705		3.98		$	1,273,558	$	129,108,633		2.77		$	898,508



For the Nine Months Ended September 30,	2005							2004
	Average Balance		Yield/ Rate			Income or Expense		Average Balance		Yield/ Rate			Income or Expense
Assets:

Net interest-earning assets (a)	$	48,463,187		9.22	%	$	3,341,572	$	47,070,101		8.52	%	$	3,003,563
Securitization adjustments		81,905,089		12.44			7,622,592		82,857,715		11.71			7,261,380
Managed interest-earning assets (a)	$	130,368,276		11.24		$	10,964,164	$	129,927,816		10.55		$	10,264,943

Liabilities:

Net interest-bearing liabilities	$	42,608,330		4.05		$	1,291,289	$	42,999,323		3.51		$	1,129,176
Securitization adjustments		84,180,661		3.54			2,227,731		85,288,832		2.13			1,359,951
Managed interest-bearing liabilities	$	126,788,991		3.71		$	3,519,020	$	128,288,155		2.59		$	2,489,127

(a) The fully taxable equivalent adjustment for the three months ended September 30, 2005 and 2004, was $389 and $242, respectively. The fully taxable equivalent adjustment for the nine months ended September 30, 2005 and 2004, was $1,156 and $676, respectively.

The Corporation’s managed net interest margin represents managed net interest income on a fully taxable equivalent basis expressed as a percentage of average managed total interest-earning assets. The managed net interest margin decreased 45 basis points and 35 basis points for the three and nine months ended September 30, 2005, from the same periods in 2004, respectively. The decrease was primarily the result of a decrease in the interest rate spread between average managed interest-earning assets and average managed interest-bearing liabilities.

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Table 26 reconciles the net interest margin ratio to the managed net interest margin ratio.

Table 26: Reconciliation of the Net Interest Margin Ratio to the Managed Net Interest Margin Ratio
(dollars in thousands) (unaudited)
	For the Three Months								For the Three Months
	Ended September 30, 2005								Ended September 30, 2004
	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	$	10,762,522							$	12,158,532
Other interest-earning assets		3,683,613								4,105,662
Loan receivables		34,956,330								30,876,767
Total	$	49,402,465		$	729,489		5.86	%	$	47,140,961		$	611,903		5.16	%
Securitization Adjustments:
Investment securities and money market instruments	$	-							$	-
Other interest-earning assets		(3,603,566	)							(4,034,519	)
Securitized loans		85,197,339								87,626,073
Total	$	81,593,773			1,703,562		8.28		$	83,591,554			1,959,109		9.32
Managed Net Interest Margin (a):
Investment securities and money market instruments	$	10,762,522							$	12,158,532
Other interest-earning assets		80,047								71,143
Managed loans		120,153,669								118,502,840
Total	$	130,996,238			2,433,051		7.37		$	130,732,515			2,571,012		7.82

	For the Nine Months								For the Nine Months
	Ended September 30, 2005								Ended September 30, 2004
	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	$	12,001,843							$	12,054,265
Other interest-earning assets		3,859,693								4,100,353
Loan receivables		32,601,651								30,915,483
Total	$	48,463,187		$	2,050,283		5.66	%	$	47,070,101		$	1,874,387		5.32	%
Securitization Adjustments:
Investment securities and money market instruments	$	-							$	-
Other interest-earning assets		(3,784,124	)							(4,029,628	)
Securitized loans		85,689,213								86,887,343
Total	$	81,905,089			5,394,861		8.81		$	82,857,715			5,901,429		9.51
Managed Net Interest Margin (a):
Investment securities and money market instruments	$	12,001,843							$	12,054,265
Other interest-earning assets		75,569								70,725
Managed loans		118,290,864								117,802,826
Total	$	130,368,276			7,445,144		7.64		$	129,927,816			7,775,816		7.99

(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, 2005 and 2004 was $389 and $242, respectively. The fully taxable equivalent adjustment for the nine months ended September 30, 2005 and 2004 was $1,156 and $676, respectively.

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Off-Balance Sheet Asset Securitization Transaction Activity

Refer to Table 8 and Table 28 to reconcile the Corporation’s loan receivables and securitized loans to its managed loans.

Table 27 provides the percentage of managed loans securitized by loan product.

Table 27: Percentage of Managed Loans Securitized by Loan Product
(unaudited)

	September 30, 2005			December 31, 2004
Securitized Loans
Domestic:
Credit card		83.6	%		82.6	%
Other consumer		42.5			49.2
Commercial		35.0			26.9
Total domestic securitized loans		75.7			76.4
Foreign:
Credit card		64.5			68.8
Other consumer		-			-
Commercial		-			-
Total foreign securitized loans		53.8			57.0
Total securitized loans		71.0			72.2

During the three and nine months ended September 30, 2005, there was an increase of $3.5 billion and $7.9 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 $17.8 billion during the next twelve months 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.

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Table 28 presents the Corporation’s securitized loans distribution.

Table 28: Securitized Loans Distribution
(dollars in thousands) (unaudited)

	September 30, 2005				December 31, 2004


Securitized Loans
Domestic:
Credit card	$	65,652,447	75.4	%	$	66,225,646	75.4	%
Other consumer		5,667,595	6.5			5,664,384	6.5
Commercial		1,531,643	1.8			1,007,324	1.1
Total domestic securitized loans		72,851,685	83.7			72,897,354	83.0
Foreign:
Credit card		14,152,443	16.3			14,961,971	17.0
Other consumer		-	-			-	-
Commercial		-	-			-	-
Total foreign securitized loans		14,152,443	16.3			14,961,971	17.0
Total securitized loans	$	87,004,128	100.0	%	$	87,859,325	100.0	%

The Corporation's securitization transactions contain provisions which could require that the excess spread generated by the securitized loans be accumulated in the trusts to provide additional credit enhancement to the investors. These provisions require that excess spread be retained once the 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, 2005 and December 31, 2004, no excess spread was retained by the trusts under these provisions.

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.

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Table 29 presents the Corporation’s estimated maturities of investor principal at September 30, 2005.

Table 29: Estimated Maturities of Investor Principal at September 30, 2005
(dollars in thousands) (unaudited)

One year or less (a)	$	17,782,635
Over one year through two years		14,936,777
Over two years through three years		16,015,253
Over three years through four years		11,723,140
Over four years through five years		8,227,648
Thereafter		16,916,144
Total amortization of investor principal		85,601,597
Estimated collectible billed interest and fees included in securitized loans		1,402,531
Total securitized loans	$	87,004,128

(a) The $5.2 billion MBNA Master Note Trust Emerald Program (“Emerald Notes”) is comprised of short-term commercial paper and is included in the one year or less category based on the possibility that maturing Emerald 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 to continue to be reissued during the course of the program through the scheduled final maturity dates.

Table 30 presents summarized yields for each trust for the three months ended September 30, 2005. 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.

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Table 30: Securitization Trust Yields in Excess of Minimum Yield Data
(dollars in thousands) (unaudited)

					For the Three Months Ended September 30, 2005
											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	$	16,937,257		24		19.32	%		11.31	%		8.01	%		8.21	%		7.48	%
MBNA Credit Card Master Note Trust (b)		45,692,415		83		19.40			11.09			8.31			8.31			8.31
MBNA Master Consumer Loan Trust		5,560,278		3		(c	)		(c	)		(c	)		(c	)		(c	)
MBNA Triple A Master Trust		2,000,000		2		19.36			11.40			7.96			7.99			7.95
Multiple Asset Note Trust		1,521,739		1		19.64			11.01			8.63			8.63			8.63
UK Receivables Trust		1,851,095		3		21.21			13.18			8.03			8.46			6.91
UK Receivables Trust II		9,267,538		15		19.80			12.87			6.93			7.22			6.77
Gloucester Credit Card Trust		2,771,275		9		19.82			10.03			9.79			10.28			9.30

(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 of which the Corporation is not the primary beneficiary. See “Note 19: Long-Term Debt and Bank Notes” of the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2004, 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 32: Fair Value of Financial Instruments” of the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2004, for further detail regarding the Corporation’s derivative financial instruments. See “Note B: Derivative Financial Instruments and Hedging Activities” to the consolidated financial statements for an update on the Corporation’s derivative financial instruments.

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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 MBNA America, 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 both anticipated loan receivable growth and overall conditions in the markets for asset-backed securitization, unsecured corporate debt, and short-term borrowed funds. The Corporation, MBNA America, MBNA Europe, and MBNA Canada also have access to the credit facilities described further in “Note 29: Commitments and Contingencies” of the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2004. Finally, the deposit funding sources are also used to finance loan receivable growth and to maintain a sufficient level of liquid assets.

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Table 31 provides a summary of the estimated amounts and maturities of the contractual obligations of the Corporation at September 30, 2005.

Table 31: Estimated Contractual Obligations (a) (b)
(dollars in thousands) (unaudited)

	At September 30, 2005
	Within 1 Year		1-3 Years		3-5 Years		Over 5 Years		Total
Long-term debt and bank notes (par) (c)	$	827,779	$	6,886,993	$	1,845,116	$	4,316,039	$	13,875,927
Minimum rental payments under noncancelable operating leases		19,327		19,851		4,714		1,710		45,602
Purchase obligations (d)		283,350		328,837		145,454		39,702		797,343
Restructuring charge, excluding benefit plan obligations (e)		69,737		-		-		-		69,737
Other long-term liabilities reflected in the Corporation's consolidated statements of financial condition (f)		177,474		187,497		190,526		159,400		714,897
Total estimated contractual obligations	$	1,377,667	$	7,423,178	$	2,185,810	$	4,516,851	$	15,503,506

(a) “Note 32: Fair Value of Financial Instruments - Derivative Financial Instruments” of the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2004 provides further detail on the Corporation’s derivative financial instruments. These amounts are not included in this Table.
(b) Table 32 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) “Note M: Restructuring Charge” to the consolidated financial statements provides further detail regarding the restructuring charge.
(f) Includes amounts accrued for Customer 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. As of September 30, 2005, the Corporation was not in default of any such covenants. The Corporation estimates that it will have $1.4 billion in contractual obligation requirements due within the next year.

Stock Repurchases

During the three and nine months ended September 30, 2005, the Corporation issued 3.1 million and 20.2 million common shares upon the exercise of stock options and issuance of restricted stock, and purchased 5.9 million and 20.2 million common shares for $147.0 million and $502.5 million, respectively. The Corporation received $44.1 million and $262.0 million in proceeds from the exercise of stock options for the three and nine months ended September 30, 2005, respectively.

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.

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Off-Balance Sheet Asset Securitization

At September 30, 2005, the Corporation funded 71.0% of its managed loans through securitization transactions. 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 $1.9 trillion at September 30, 2005, with approximately $571 billion of asset-backed securities issued during the first nine months of 2005. An additional $222 billion of consumer asset-backed securities were issued in European markets during the first nine months of 2005. The Corporation is a leading issuer in these markets, which have remained stable through adverse conditions. Despite the size and relative stability of these markets and the Corporation's position as a leading issuer, if these markets experience difficulties, the Corporation may be unable to securitize its loan principal receivables or to do so at favorable pricing levels. Factors affecting the Corporation's ability to securitize its loan principal receivables or to do so at favorable pricing levels include the overall credit quality of the Corporation's loans, the stability of the market for securitization transactions, and the legal, regulatory, accounting, and tax environments impacting securitization transactions. The Corporation does not believe adverse outcomes from these events are likely to occur. If the Corporation were unable to continue to securitize its loan principal 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, MBNA America, MBNA Europe, and MBNA Canada have various credit facilities. These facilities may be used for general corporate purposes. With the exception of MBNA Europe’s short-term on-balance sheet financing structure, these facilities were not drawn upon at September 30, 2005. It is the intention of the Corporation to eliminate these facilities on, or immediately prior to, the merger with Bank of America.

“Note 29: Commitments and Contingencies” of the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2004, provides further detail regarding the Corporation’s credit facilities.

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 MBNA America, short-term deposit notes issued by MBNA Canada, on-balance-sheet structured financings, and other transactions with maturities greater than one business day but less than one year. Short-term borrowings were $2.2 billion at September 30, 2005 and $2.1 billion at December 31, 2004.

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 MBNA America’s global bank note program, MBNA Europe’s euro medium-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 MBNA America.

Long-term debt and bank notes were $13.9 billion at September 30, 2005 and $11.4 billion at December 31, 2004. See Table 31 for estimated maturities of the contractual obligations related to long-term debt and bank notes at September 30, 2005.

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 react more slowly to interest rate changes than other deposits. Other deposits include brokered deposits.

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Total deposits were $29.3 billion at September 30, 2005 and $31.2 billion at December 31, 2004.

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 $9.1 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, 2005 and December 31, 2004, were noninterest-bearing deposits of $2.7 billion, representing 9.4% and 8.8% of total deposits, respectively. Included in the domestic direct deposits at September 30, 2005 and December 31, 2004 were noninterest-bearing deposits of $2.4 billion. Included in the foreign direct deposits at September 30, 2005 and December 31, 2004 were noninterest-bearing deposits of $333.6 million and $306.3 million, respectively. The Corporation also had interest-bearing direct deposits at September 30, 2005 of $23.8 billion, as compared to $24.4 billion at December 31, 2004.

Included in the Corporation’s other deposits at September 30, 2005 and December 31, 2004, were brokered deposits of $2.7 billion and $4.1 billion, representing 9.3% and 13.0% 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, 2005, 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, 2005, MBNA America 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 believes it could replace maturing brokered deposits with new brokered deposits or with the Corporation’s direct deposits.

Table 32 provides the maturities of the Corporation’s deposits at September 30, 2005.

Table 32: Maturities of Deposits at September 30, 2005
(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	$	17,463,158	$	3,732,746	$	1,533,380	$	1,703,707	$	846,183	$	9,867	$	25,289,041
Other deposits (a)		1,379,591		1,094,793		178,763		29,206		-		-		2,682,353
Total domestic deposits		18,842,749		4,827,539		1,712,143		1,732,913		846,183		9,867		27,971,394
Foreign:
Direct deposits		943,866		81,285		64,478		72,946		83,831		-		1,246,406
Other deposits (a)		43,178		-		-		-		-		-		43,178
Total foreign deposits		987,044		81,285		64,478		72,946		83,831		-		1,289,584
Total deposits	$	19,829,793	$	4,908,824	$	1,776,621	$	1,805,859	$	930,014	$	9,867	$	29,260,978

(a) At September 30, 2005, all other deposits were brokered deposits.

Investment Securities and Money Market Instruments

The Corporation held a liquid asset portfolio comprised of $6.6 billion of investment securities and $3.3 billion of money market instruments at September 30, 2005, as compared to $6.4 billion of investment securities and $4.4 billion of money market instruments at December 31, 2004.

The size and distribution of the liquid asset portfolio is determined by management's expectations regarding loan growth as well as market and economic conditions. These securities and money market instruments provide increased liquidity and flexibility to support the Corporation's funding requirements. The Corporation’s liquid asset portfolio decreased at September 30, 2005, as compared to December 31, 2004, as the Corporation began to reduce its liquid assets due to the favorable market conditions experienced in both the regular corporate bond and structured asset-backed securitization market.

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This portfolio is held primarily for liquidity purposes, and as a result, no trading positions are assumed, and the majority of investment securities are classified as available-for-sale. The Corporation's investment securities available-for-sale portfolio, which consists primarily of U.S. Treasury and other U.S. government agencies obligations and asset-backed and other securities, was $6.3 billion at September 30, 2005 and $6.1 billion at December 31, 2004.

Management's current guidelines for the liquid asset portfolio include a weighted average maturity not to exceed two years, an investment securities portion weighted average life not to exceed three years, and a maturity of fixed rate U.S. Treasury and other U.S. government agencies obligations not to exceed five years. Of the investment securities held at September 30, 2005, $2.0 billion are anticipated to mature within 12 months and the weighted average maturities were all within management’s current guidelines.

The investment securities consist primarily of AAA-rated securities, most of which could be used as collateral under repurchase agreements. Domestic asset-backed and other securities consist primarily of credit card, student loan, dealer floor plan and home equity issuers with over 95% rated AAA.

Table 33 presents the summary of investment securities.

Table 33: Summary of Investment Securities at September 30, 2005
(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:
U.S. Treasury and other U.S. Government agencies obligations	$	967,968	$	2,516,996	$	-	$	-	$	3,484,964	$	3,535,587	$	3,484,964
State and political subdivisions of the United States		96,760		-		-		-		96,760		96,760		96,760
Asset-backed and other securities		562,082		1,616,645		152,935		17		2,331,679		2,345,587		2,331,679
Total domestic investment securities available-for-sale		1,626,810		4,133,641		152,935		17		5,913,403		5,977,934		5,913,403
Foreign		341,288		63,947		-		-		405,235		405,146		405,235
Total investment securities available-for-sale	$	1,968,098	$	4,197,588	$	152,935	$	17	$	6,318,638	$	6,383,080	$	6,318,638
Held-to-Maturity
Domestic:
U.S. Treasury and other U.S. Government agencies obligations	$	-	$	-	$	-	$	263,235	$	263,235	$	263,235	$	258,888
State and political subdivisions of the United States		-		-		649		5,288		5,937		5,937		6,067
Asset-backed and other securities		-		-		-		20,177		20,177		20,177		19,143
Total domestic investment securities held-to-maturity		-		-		649		288,700		289,349		289,349		284,098
Foreign		-		1,000		-		-		1,000		1,000		1,000
Total investment securities held-to-maturity	$	-	$	1,000	$	649	$	288,700	$	290,349	$	290,349	$	285,098

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 ability of the Corporation to change the yield/rate.

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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 to better match the rate sensitivity of the Corporation's assets. For this reason, the Corporation analyzes its level of interest rate risk on a managed basis to quantify and capture the full impact of interest rate risk on the Corporation's earnings.

An analytical technique that the Corporation uses to measure interest rate risk is simulation analysis. Assumptions in the Corporation's simulation analysis include cash flows and maturities of interest rate sensitive instruments, changes in market conditions, loan volumes and pricing, the impact of anticipated changes in the pricing of the Corporation’s variable-rate loans, consumer preferences, and management's capital plans. At September 30, 2005, variable-rate loans made up approximately 42% of total managed loans. These variable-rate loans are generally indexed to the U.S. Prime Rate, with the rate subject to change monthly. The analysis also assumes that there is no impact on an annual basis in the value of the interest-only strip receivable. Also included in the analysis are various actions which the Corporation would likely undertake to minimize the impact of adverse movements in interest rates. Based on the simulation analysis at September 30, 2005, the Corporation could experience a decrease in projected net income during the next 12 months of approximately $37 million, if interest rates at the time the simulation analysis was performed increased 100 basis points over the next 12 months evenly distributed on the first day of each of the next four quarters. For each incremental 100 basis points introduced into the simulation analysis, the Corporation could experience an additional decrease of approximately $37 million in projected net income during the next 12 months.

These assumptions are inherently uncertain and, as a result, the analysis cannot precisely predict the impact of higher interest rates on net income. Actual results could 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-rate credit card loans 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, the Corporation’s competitive market pricing conditions, and Customers’ responses to changes in 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 mitigate 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, 2005, the Corporation could experience a decrease in stockholders' equity, net of tax, of approximately $236 million, as a result of a 10% depreciation of the Corporation's unhedged capital exposure in foreign subsidiaries to the U.S. dollar position.

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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 October 2004, 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 and American Express have also initiated separate civil lawsuits against MasterCard and Visa claiming substantial damages stemming from the Association Rules.

In 2005, certain retail merchants filed a purported class action lawsuit in the United States District Court for the District of Connecticut, alleging that MasterCard and Visa and their member banks, including MBNA America Bank, N.A., conspired to charge retailers excessive interchange and other fees in violation of federal antitrust laws. In addition, as discussed below in “Interchange in the U.K.” and “OFT Investigation of Default Charges in the U.K.” interchange and other charges are being challenged in the U.K. and Europe.

MasterCard and Visa are also 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.

Interchange in the U.K.

The European Commission and the Office of Fair Trading in the U.K. (the "OFT") have challenged interchange rates in the European Union and the U.K. 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. MasterCard and Visa each set the interchange rates it charges.

In 2002, the European Commission and Visa reached an agreement on Visa's cross-border interchange rates within the European Union. As a result, in 2002 Visa reduced its interchange rates on transactions within the European Union and, effective October 2003, reduced its interchange rates approximately 10 basis points on transactions in the U.K. Effective October 2004, MasterCard also reduced its interchange rates approximately 10 basis points on transactions in the U.K.

The OFT has conducted a lengthy investigation of MasterCard interchange rates in the U.K. In September 2005 the OFT issued its final decision, finding that the setting of the default interchange fees in the U.K. represents a restriction of competition leading to an unjustifiably high interchange rate. If the OFT's conclusions are implemented, MasterCard interchange rates in the U.K. would be significantly reduced. MasterCard Members Forum, of which MBNA Europe is a member, is expected to appeal the OFT’s decision. The appeal process could postpone the final resolution of the OFT's decision, and its effects, to 2006 or early 2007.

In October 2004, the OFT extended its interchange investigation to Visa domestic interchange rates in the U.K. In October 2005, the OFT issued a statement of objections against VISA and its members.

The Corporation cannot predict the amount and timing of any reductions in interchange rates in the U.K. as a result of the OFT investigations described above. However, as indicated above, reductions to interchange rates in the U.K. could be substantial.

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OFT Investigation of Default Charges in the U.K.

Since 2003, the OFT has been conducting 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 (the “Regulations”) render unenforceable consumer credit agreement terms relating to default charges to the extent they are disproportionately high in relation to the actual cost to the creditor of the default. The OFT notified the Corporation in July 2005 that it has concluded on a preliminary basis that the Corporation’s default charges are excessive and need to be significantly reduced in order to be fair under the Regulations. The Corporation must either make a firm commitment to change its default charges practices or otherwise address the concerns raised by the OFT. The Corporation is in the process of finalizing a response to the OFT. The OFT must seek a court injunction to enforce its findings. The Corporation cannot state what the eventual outcome of the OFT’s investigation will be. 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.

Payment Protection Insurance

The OFT has received a super-complaint from Citizen’s Advice, a designated consumer body in the U.K., asserting that payment protection insurance is being inappropriately marketed, priced and administered. MBNA Europe offers payment protection insurance to its Customers in the U.K. The OFT has said that it will investigate the complaint and announce before the end of 2005 what action, if any, it proposes to take.

Basel Committee

In June 2004, the Basel Committee on Banking Supervision (the "Committee") issued a revised framework document, "The New Basel Capital Accord," which proposes significant revisions to the current Basel Capital Accord. The proposed new accord would establish a three-part framework for capital adequacy that would include: (1) minimum regulatory capital requirements; (2) supervisory review of an institution's capital adequacy and internal capital assessment process; and (3) improved market discipline through increased disclosures regarding capital adequacy.

In August 2003, an Advance Notice of Proposed Rulemaking was published by the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation and the Office of Thrift Supervision (collectively "the Agencies"). The Advance Notice of Proposed Rulemaking was titled "Risk-Based Capital Guidelines; Implementation of New Basel Capital Accord; Internal Ratings-Based Systems for Corporate Credit and Operational Risk Advanced Measurement Approaches for Regulatory Capital; Proposed Rule and Notice" ("Proposed Regulatory Guidance"). The Proposed Regulatory Guidance set forth for industry comment the Agencies' views on a proposed framework for implementing the New Basel Capital Accord in the United States. In particular, the Proposed Regulatory Guidance describes significant elements of the Advanced Internal Ratings-Based approach for credit risk and the Advanced Measurement Approaches for operational risk. The Agencies have determined that the advanced risk and capital measurement methodologies of the new accord will be applied on a mandatory basis for large, internationally active banking organizations. Institutions subject to the mandatory application of the advanced approaches would be those institutions with total banking assets of $250 billion or more or those institutions, such as the Corporation, with total on-balance sheet foreign exposure of $10 billion or more.

Both prior and subsequent to publication of the Proposed Regulatory Guidance, U.S. regulatory agencies have issued guidance on a number of topics regarding implementation of the new accord for U.S. financial institutions. The Agencies were expected to issue a Notice of Proposed Rulemaking ("NPR") sometime in the summer of 2005 with final rules to be issued in the first half of 2006. On September 30, 2005, the Agencies announced that the NPR would not be issued until the first quarter of 2006, and that it would introduce prudential safeguards to address concerns identified in the analysis of the Quantitative Impact Study conducted at the end of 2004. They also announced a one-year delay in the parallel run period, to January 2008, and a three-year phase in period from 2009 through 2011 for implementation.

Adoption of the proposed new rules are expected to increase required regulatory capital for some U.S. banking organizations, such as the Corporation and the Corporation's banking subsidiaries, due in part to a new capital charge for operational risk and to the final treatment of certain credit risk exposures, including the treatment of credit card loans and asset securitizations. Although the Corporation cannot predict any further changes to be proposed by the regulatory agencies, the Corporation believes that its current level of capital will be sufficient to meet the increase in required regulatory capital.

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Bankruptcy Reform Law

In the period leading up to the October 17, 2005 effective date of the Act, there was a significant increase in the number of bankruptcy filings as obligors accelerated filings of Chapter 7 bankruptcy proceedings to avoid the adverse provisions of the Act. This accelerated rate of filings will significantly increase the Corporation’s net credit losses for the month of December because bankrupt accounts are charged off by the end of the second calendar month following receipt of notification of the filing from the applicable court. See "Net Credit Losses" for a discussion of the charge-off of bankrupt accounts. However, the number of bankruptcy filings and resulting credit losses could be significantly offset in the periods following the effective date of the Act as a result of the earlier acceleration in filings and restrictions in the Act. The Corporation’s future net credit losses are by their nature uncertain and changes in economic conditions, regulatory policies, seasonality, and other factors may also impact losses.

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:

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.

Reputation Risk

The Corporation has reputation risk arising from negative public opinion. The Corporation’s reputation impacts its business, including its ability to attract and retain Customers and to offer new and existing products. The Corporation’s reputation is highly dependent upon perceptions by Customers and regulators of the Corporation’s business practices and other activities.

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 credit card and other consumer loans, the composition of the Corporation’s loans between credit card and other consumer 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 and other consumer 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. Customer spending and repayment levels and Customer use of the Corporation’s lending products over competing lending products, such as mortgage and home equity products, impact the Corporation’s loans outstanding.

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 and other consumer 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 and retain 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

Securities Lawsuits

In May and June 2005, shareholder lawsuits were filed in federal courts against the Corporation and certain of its officers. These lawsuits are purported class actions seeking unspecified damages, interest and costs, including reasonable attorneys’ fees, stemming from alleged violations of the Securities Exchange Act of 1934, as amended. On April 21, 2005, the Corporation announced in its first quarter earnings release that management believed the Corporation’s 2005 earnings would be “significantly below” its previously-stated growth objective. The Corporation’s stock price dropped following publication of that earnings release. The lawsuits allege that the Corporation and certain of its officers violated federal securities laws through material misstatements and omissions regarding the Corporation’s business, which the plaintiffs allege had the effect of inflating the Corporation’s stock price. In October 2005, the shareholder lawsuits were consolidated in the United States District Court for the District of Delaware.

In May, June, and July 2005, shareholder derivative lawsuits were filed in federal and state courts on behalf of the Corporation alleging that certain officers and directors of the Corporation breached their fiduciary duties to the Corporation and violated federal securities laws. These derivative lawsuits arise out of the facts described above. One of these derivative lawsuits also alleges that the directors of the Corporation violated their fiduciary duties in approving the merger of the Corporation and Bank of America Corporation and seeks to enjoin the merger. In September and October 2005, the derivative lawsuits were consolidated in the United States District Court for the District of Delaware. The Corporation’s Board of Directors appointed a special committee of independent directors to review and respond to the derivative complaints.

In June 2005, a purported class action lawsuit, Sally Cannon v. MBNA Corp., was filed in the United States District Court for the District of Delaware against the Corporation, the Pension and 401(k) Plan Committee of the Corporation and certain directors and officers of the Corporation. The lawsuit alleges that the defendants violated certain provisions of the Employee Retirement Income Security Act of 1974 as a result of breaches of fiduciary duties owed to the 401(k) plan participants and beneficiaries. Specifically, the alleged breaches of fiduciary duties related to, but are not limited to, (i) offering the Corporation common stock as an investment option, (ii) purchasing the Corporation stock for the 401(k) plan, (iii) holding the Corporation stock in the 401(k) plan, (iv) failing to monitor the 401(k) plan’s investment in the Corporation stock and (v) failing to communicate information concerning the Corporation’s financial performance to 401(k) plan participants and beneficiaries.

The Corporation denies the claims made in the class action, shareholder derivative and ERISA lawsuits and intends to defend these matters vigorously.

Foreign Currency Conversion Fees Litigation

The Corporation and MBNA America are among the many card issuers who are defendants in In Re Currency Conversion Fee Antitrust Litigation, a class action lawsuit, filed in the U.S. District Court for the Southern District of New York, that relates to foreign currency conversion fees charged to customers. MasterCard and Visa applied 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 required the Corporation’s banking subsidiaries and other member banks to disclose the 1% add-on to the wholesale rate if the bank chose to pass it along to the credit cardholder. The Corporation’s banking subsidiaries disclosed this information in their cardholder agreements. In January 2002, the Corporation and MBNA America were added as defendants in the matter. 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 also 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 did not charge the additional fee on consumer credit cards in addition to the fee charged by MasterCard and Visa, but did 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 MBNA America intend to defend this matter vigorously and believe that the claim is without merit.

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Arbitration Litigation

In August 2005, a purported class action lawsuit, Robert Ross v. MBNA America Bank, N.A. et al., was filed in the United States District Court for the Southern District of New York, alleging that several of the nation’s largest credit card issuers illegally conspired to compel their customers to submit disputes to an arbitrator rather than a court. The Corporation and its banking subsidiaries are among the defendants named in the lawsuit. The plaintiffs seek injunctive relief, attorney fees and costs. The Corporation denies the claims made in the lawsuit and intends to defend the matter vigorously.

Interchange Litigation

In June, August and September 2005, certain retail merchants filed numerous purported class action lawsuits in federal courts, alleging that MasterCard and Visa and their member banks, including MBNA America, conspired to charge retailers excessive interchange in violation of federal antitrust laws. In October 2005, certain of the lawsuits were consolidated in In Re: Payment Card Fee and Merchant Discount Antitrust Litigation, in the U.S. District Court for the Eastern District of New York. The plaintiffs seek injunctive relief, attorney fees and costs. The Corporation has not yet responded to the complaints in any of these actions, but intends to defend against the lawsuits vigorously.

The Corporation, MBNA America 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
(amounts and dollars in thousands, except for average price paid per share) (unaudited)

Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (a)		Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (a)
July 1, 2005 - July 31, 2005
From employees (b)		35	$	25.87
Open market (c)		-		-		-	$	1,500,000

August 1, 2005 - August 31, 2005
From employees (b)		398		25.04
Open market (c)		-		-		-		1,500,000

September 1, 2005 - September 30, 2005
From employees (b)		212		25.04
Open market (c)		5,244		24.97		-		1,500,000

Total		5,889		24.98		-

(a) On January 20, 2005, the Corporation announced the approval of a share repurchase program and authorized the repurchase of up to $2 billion of common stock over two years (ending December 31, 2006). Under the Corporation’s Merger Agreement with Bank of America, the Corporation agreed to not repurchase shares of common stock without the prior written consent of Bank of America. As a result, the Corporation suspended any share repurchases in connection with this program after June 30, 2005.
(b) The repurchases from employees represent shares canceled when surrendered for minimum withholding taxes due. Also included are restricted stock awards that were canceled.
(c) 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

MBNA Corporation (the “Corporation”) held a special stockholders’ meeting on November 3, 2005.

At the meeting, the stockholders approved the proposed merger of the Corporation with and into Bank of America. There were 944,307,240 affirmative votes, 3,389,981 negative votes, and 6,297,605 abstentions.

The Corporation had 1,259,681,391 shares entitled to vote.

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ITEM 6. EXHIBITS

Index of Exhibits

Exhibit	Description of Exhibit

12	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, 2005	/s/	Kenneth A. Vecchione
		Kenneth A. Vecchione
		Chief Financial Officer

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