Company reports fourth quarter 2003 earnings per diluted share of $0.23
SAN FRANCISCO, Jan. 19 /PRNewswire-FirstCall/ -- Providian Financial
Corporation (NYSE: PVN) today announced net income for the fourth quarter of
2003 of $67.1 million, or $0.23 per diluted share, compared to net income of
$12.1 million, or $0.04 per diluted share in the fourth quarter of 2002. For
the full year 2003, net income totaled $196.2 million, or $0.67 per diluted
share, compared to net income for the full year 2002 of $218.2 million, or
$0.75 per diluted share, and met the Company's goal of exceeding full-year
2002 earnings exclusive of the $30 million ($0.10 per diluted share)
non-recurring tax benefit realized in 2002.
"I am pleased with the progress we made this past year and believe that we
are very well positioned for the year ahead," said Joseph Saunders,
Providian's chairman and chief executive officer. "We are seeing positive
financial trends in all areas of our business, including credit, operations
and marketing. We expect a continuation of these positive trends in 2004,
highlighted by lower net credit losses, lower operating expenses and
additional investment in our marketing initiatives. As a result, we expect to
see growth in our loan portfolio and growth in our bottom line earnings in
2004."
Financial Highlights
Total net revenues on a reported basis, comprised of reported net interest
income and reported non-interest income, totaled $502.2 million in the fourth
quarter of 2003, compared to $526.3 million in the third quarter of 2003.
Total net revenues on a managed basis, comprised of net interest income and
non-interest income from both reported and securitized loans, totaled $951.4
million in the fourth quarter of 2003, compared to $977.1 million in the third
quarter of 2003.
For the full year 2003, total net revenues were $2.15 billion on a
reported basis and $4.11 billion on a managed basis. These compare to full
year 2002 total net revenues of $3.30 billion on a reported basis and total
net revenues of $5.60 billion on a managed basis.
Net credit losses in the fourth quarter of 2003 were $147.9 million on a
reported basis and $597.1 million on a managed basis, resulting in reported
and managed net credit loss rates of 9.97% and 14.33%, respectively. The
fourth quarter net credit loss rates compare to a reported net credit loss
rate of 10.65% and a managed net credit loss rate of 14.37% in the third
quarter of 2003. On a year-over-year basis these rates compare to a reported
net credit loss rate of 14.88% and a managed net credit loss rate of 17.34% in
the fourth quarter of 2002. The Company's reported and managed 30+ day
delinquency rates at the end of the fourth quarter of 2003 were 6.64% and
9.29%, respectively, compared to 7.18% and 9.68%, respectively, at the end of
the third quarter of 2003.
Net credit losses for the full year 2003 were $837.3 million on a reported
basis and $2.80 billion on a managed basis, resulting in reported and managed
net credit loss rates of 12.79% and 15.82%, respectively. This compares to net
credit losses for the full year 2002 of $1.23 billion on a reported basis and
$3.53 billion on a managed basis, which resulted in reported and managed net
credit loss rates of 13.61% and 16.29%, respectively.
Non-interest expense for the fourth quarter of 2003 was $261.5 million,
compared to $286.6 million in the third quarter of 2003. For the full year
2003, non-interest expense was $1.20 billion, compared to full year 2002 non-
interest expense of $1.81 billion.
Loans receivable, as of December 31, 2003, were $6.28 billion on a
reported basis and $16.93 billion on a managed basis. This compares to
reported loans receivable and managed loans receivable at September 30, 2003
of $5.99 billion and $16.95 billion, respectively. The Company added
approximately 420,000 gross new accounts in the fourth quarter of 2003 and
ended the quarter with approximately 10.5 million customer accounts.
The Company ended the fourth quarter of 2003 with total equity of $2.33
billion and an allowance for credit losses of $625.9 million, which together
represent 47% of reported loans and 17% of managed loans. Cash and
investments ended the quarter at approximately $5.67 billion, representing
approximately 40% of total reported assets and approximately 24% of total
managed assets.
Management Expectations for Fiscal 2004
The Company provides the following expectations for its business
performance in fiscal 2004:
* Gross new accounts -- approximately 3 million
* Managed total loans -- mid-to-high single digit growth rate
* Managed net credit losses -- approximately $2.3 billion
* Earnings per diluted share -- in a range around $0.90
Managed Financial Information
The Company presents financial information on both a reported and managed
basis. "Reported" financial information refers to GAAP financial information
while "managed" financial information is derived by adjusting the reported
financial information to add back securitized loan balances and the related
finance charge and fee income, credit losses, and net interest costs. The
interests the Company retains in the securitized loan balances creates
financial exposure to the current and expected cash flows of the securitized
loans. Although the loans sold are not on the Company's balance sheet, their
performance affects the Company's retained interests in the securitizations as
well as its results of operations and its financial position. In addition,
the Company continues to service the securitized loans.
About Providian
San Francisco-based Providian Financial is a leading provider of credit
cards to mainstream American customers throughout the U.S. By combining
experience, analysis, technology and outstanding customer service, Providian
seeks to build long-lasting relationships with its customers by providing
products and services that meet their evolving financial needs.
Certain statements contained in this press release are forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended,
which are subject to the "safe harbor" created by those sections. Forward-
looking statements include, without limitation: expressions of "belief,"
"anticipation," or "expectations" of management; statements as to industry
trends or future results of operations of the Company and its subsidiaries;
and other statements that are not historical fact. Forward-looking statements
are based on certain assumptions by management and are subject to risks and
uncertainties that could cause actual results to differ materially from those
in the forward-looking statements. These risks and uncertainties include, but
are not limited to, competitive pressures; factors that affect liquidity,
delinquency rates, credit loss rates, and charge-off rates; general economic
conditions; consumer loan portfolio growth; changes in the cost and/or
availability of funding due to changes in the deposit, credit, or
securitization markets; changes in the way the Company is perceived in such
markets and/or conditions relating to existing or future financing
commitments; the effect of government policy and regulation, whether of
general applicability or specific to the Company, including restrictions
and/or limitations relating to the Company's minimum capital requirements,
deposit-taking abilities, reserving methodologies, dividend policies and
payments, growth, and/or underwriting criteria; year-end adjustments; changes
in accounting rules, policies, practices, and/or procedures; the success of
product development efforts; legal and regulatory proceedings, including the
impact of ongoing litigation; interest rates; one-time charges; extraordinary
items; the ability to recruit or replace key personnel; and the impact of
existing, modified, or new strategic initiatives. These and other risks and
uncertainties are described in detail in the Company's Annual Report on Form
10-K and Annual Report to Stockholders for the fiscal year ended December 31,
2002 under the headings "Cautionary Statement Regard Forward-Looking
Information" and "Risk Factors." Readers are cautioned not to place undue
reliance on any forward-looking statement, which speaks only as of the date
thereof. The Company undertakes no obligation to update any forward-looking
statements.
Additional information regarding the fourth quarter 2003 results is
provided in the form of a copy of the fourth quarter 2003 conference call
script which is available on the Company's website http://www.providian.com under
Investor Relations.
Note: Investor information is available on Providian Financial's website
at http://www.providian.com
Providian Financial Corporation
Financial & Statistical Summary
Reported Financial Measures
(unaudited)
2003 2003 2003 2003 2002
(in millions, except per
share and employee data) Q4 Q3 Q2 Q1 Q4
Reported Earnings:
Net Interest Income $83.6 $80.9 $127.8 $180.4 $186.2
Non-Interest Income 418.6 445.4 393.3 417.5 293.1
Total Net Revenue 502.2 526.3 521.1 597.9 479.3
Provision for Loan Losses 129.8 98.7 132.0 261.8 139.0
Non-Interest Expense 261.5 286.6 324.6 328.3 320.3
Income From
Operations Before
Income Taxes 110.9 141.0 64.5 7.8 20.0
Income Tax Expense 43.8 55.7 25.5 3.1 7.9
Net Income $67.1 $85.3 $39.0 $4.7 $12.1
Reported Financial Data:
Quarter:
Net Credit Losses (1) $148 $156 $237 $296 $299
Provision for Credit
Losses $130 $99 $132 $262 $139
Quarter End:
Total Loans $6,281 $5,994 $6,417 $7,147 $6,908
Total Assets $14,275 $15,334 $16,206 $16,607 $16,651
Total Equity $2,325 $2,257 $2,181 $2,134 $2,139
Quarter Average:
Total Loans $5,934 $5,866 $6,684 $7,500 $8,046
Earning Assets $12,368 $12,869 $14,048 $13,604 $14,236
Total Assets $14,816 $15,740 $16,460 $16,518 $16,757
Total Equity $2,304 $2,198 $2,161 $2,088 $2,100
Key Reported Statistics:
Net Interest Margin
(Earning Assets) (2) 2.71% 2.51% 3.64% 5.30% 5.23%
Net Interest Margin
(Loans) (3) 8.30% 8.87% 10.16% 11.50% 11.02%
Adjusted Margin (Loans)
(4) 9.55% 10.06% 9.11% 6.38% 8.44%
Non-interest Income
Margin (5) 28.22% 30.38% 23.54% 22.27% 14.57%
Return on Assets 1.81% 2.17% 0.95% 0.11% 0.29%
Return on Equity 11.65% 15.52% 7.23% 0.90% 2.31%
Allowance as a Percent of
Loans 9.96% 10.74% 12.20% 13.69% 14.67%
Net Credit Loss Rate (1) 9.97% 10.65% 14.19% 15.79% 14.88%
Delinquency Rate (30+
Days) 6.64% 7.18% 7.64% 8.76% 10.00%
Equity to Assets 16.29% 14.72% 13.46% 12.85% 12.85%
Common Share Statistics:
Earnings Per Common Share
- Basic $0.23 $0.30 $0.14 $0.02 $0.04
Earnings Per Common Share
- Assuming Dilution $0.23 $0.29 $0.13 $0.02 $0.04
Book Value Per Share
(Period End) $8.01 $7.78 $7.51 $7.36 $7.39
Total Market
Capitalization (Period
End) $3,381 $3,421 $2,689 $1,901 $1,878
Shares Outstanding
(Period End) 290.4 290.2 290.4 289.8 289.4
Weighted Average Shares
O/S - Basic 287.7 287.6 286.3 286.2 285.4
Weighted Average Shares
O/S - Diluted 292.7 291.9 289.8 290.4 289.2
Accounts 10.5 10.8 11.4 11.7 12.0
Employees (FTE) 4,502 5,012 5,692 6,083 6,261
(1) The net credit losses for the second quarter 2003 exclude the fair
value adjustments on loans held for securitization or sale.
(2) Represents the net interest income recognized on reported earning
assets, expressed as a percentage of reported average earning assets.
(3) Represents the interest income recognized on reported average loans
receivable, expressed as a percentage of reported average loans, less
interest expense on deposits and borrowings, expressed as a percentage
of average earning assets.
(4) The Company has modified its measure of loan portfolio profitability
that includes risk of loss. The revised measure includes reported
interest income on loans plus credit product fee income, less interest
expense allocated to loans, and less net credit losses, expressed as a
percentage of reported average loans.
(5) Represents reported non-interest income expressed as a percentage of
average reported loans.
Providian Financial Corporation
Financial & Statistical Summary
Managed Financial Measures
(unaudited)
2003 2003 2003 2003 2002
(dollars in millions) Q4 Q3 Q2 Q1 Q4
Managed Net Revenue:
Net Interest Income $574.2 $590.7 $649.5 $705.5 $734.6
Non-Interest Income 377.2 386.4 394.3 430.9 283.8
Total Net Revenue (1) $951 $977 $1,044 $1,136 $1,018
Managed Financial Data:
Quarter:
Net Credit Losses (2) $597 $607 $760 $835 $838
Net Change in Reported
Allowance for Credit
Losses (3) (18) (57) (105) (34) (160)
Adjusted Credit Losses $579 $550 $655 $801 $678
Quarter End:
Total Loans (4) $16,934 $16,945 $17,798 $18,470 $19,628
Securitized Loans (5) $10,653 $10,951 $11,381 $11,323 $12,720
Total Assets (6) $23,198 $23,784 $25,131 $25,532 $26,484
Total Equity $2,325 $2,257 $2,181 $2,134 $2,139
Quarter Average:
Total Loans $16,667 $16,891 $18,045 $18,952 $19,344
Securitized Loans (5) $10,733 $11,026 $11,361 $11,452 $11,294
Earning Assets $23,101 $23,894 $25,409 $25,056 $25,534
Total Assets $23,345 $24,462 $25,385 $25,494 $26,222
Total Equity $2,304 $2,198 $2,161 $2,088 $2,100
Key Managed Statistics:
Net Interest Margin
(Earning Assets) (7) 9.94% 9.89% 10.22% 11.26% 11.51%
Net Interest Margin
(Loans) (8) 14.44% 14.79% 15.09% 15.41% 15.67%
Adjusted Margin (Loans)
(9) 7.34% 7.66% 5.18% 5.40% 6.32%
Non-interest Income
Margin (10) 9.05% 9.15% 8.74% 9.09% 5.87%
Return on Assets 1.15% 1.40% 0.62% 0.07% 0.18%
Net Credit Loss Rate (2) 14.33% 14.37% 16.84% 17.61% 17.34%
Delinquency Rate (30+
Days) 9.29% 9.68% 9.72% 10.31% 11.11%
Equity to Managed Assets 10.02% 9.49% 8.68% 8.36% 8.08%
(1) Represents the interest income and non-interest income earned from
managed loans receivable and investments less interest expense,
including the interest costs payable to securitization investors.
(2) The net credit losses for the second quarter 2003 exclude the fair
value adjustments on loans held for securitization or sale.
(3) The net change in the reported allowance for credit losses excludes
the allowance transferred to loans held for securitization or sale.
(4) Represents all loans receivable from customer accounts that are
managed by the Company, including the loans receivable
reported on the Company's statements of financial condition and the
loans receivable removed or reclassified from the Company's statements
of financial condition through securitizations. Loans receivable
amounts exclude estimated uncollectible interest and fees.
(5) Effective December 2002, the Company adopted the federal banking
agencies' accrued interest receivable, or AIR, guidance, resulting in
a reclassification of a portion of accrued interest receivable from
reported loans receivable to due from securitizations for 2003 and for
the fourth quarter 2002. Securitized loans for 2003 and the fourth
quarter 2002 include the AIR reclassification.
(6) Managed assets represent total assets reported on the Company's
statements of financial condition, plus the loans receivable removed
or reclassified from loans receivable on its statements of financial
condition through securitizations, less the retained interests from
securitizations reported on its statement of financial condition.
(7) Represents the net interest income recognized on managed earning
assets, expressed as a percentage of managed average earning assets.
(8) Represents the interest income recognized on managed average loans
receivable, expressed as a percentage of managed average loans
receivable, less interest expense on deposits and borrowings,
including the interest costs payable to securitization investors,
expressed as a percentage of managed average earning assets.
(9) The Company has modified its measure of loan portfolio profitability
that includes risk of loss. The revised measure includes managed
interest income on loans plus credit product fee income, less interest
expense allocated to loans, and less net credit losses, expressed as a
percentage of managed average loans.
(10) Represents managed non-interest income expressed as a percentage of
average managed loans. Managed non-interest income excludes the
interest income reclassification related to certain retained
beneficial interests.
Providian Financial Corporation
Financial & Statistical Summary
Reported Financial Measures
2003 2002
Year End Year End
(in millions, except per share and
employee data) (unaudited)
Net Interest Income $472.7 $919.3
Non-Interest Income 1,674.9 2,381.3
Total Net Revenue 2,147.6 3,300.6
Provision for Loan Losses 622.3 1,291.7
Non-Interest Expense 1,201.0 1,808.9
Income From Operations
Before Income Taxes 324.3 200.0
Income Tax Expense 128.1 49.0
Income From Operations $196.2 $151.0
Income from Discontinued
Operations (1) -- 67.2
Net Income $196.2 $218.2
Reported Financial Data:
Year to Date:
Net Credit Losses $837 $1,226
Provision for Credit Losses $622 $1,292
Year End:
Total Loans $6,281 $6,908
Total Assets $14,275 $16,651
Total Equity $2,325 $2,139
Year to Date Average:
Total Loans $6,547 $9,012
Earning Assets $13,254 $15,358
Total Assets $15,770 $17,796
Total Equity $2,187 $2,047
Key Reported Statistics:
Net Interest Margin (Earning
Assets) 3.57% 5.98%
Net Interest Margin (Loans) 9.74% 11.51%
Adjusted Margin (Loans) (2) 8.55% 10.69%
Non-interest Income Margin (3) 25.58% 26.42%
Return on Assets 1.24% 1.23%
Return on Equity 8.97% 10.66%
Allowance as a Percent of
Loans 9.96% 14.67%
Net Credit Loss Rate 12.79% 13.61%
Delinquency Rate (30+ Days) 6.64% 10.00%
Equity to Assets 16.29% 12.85%
Common Share Statistics:
EPS Basic:
EPS - Continuing Operations $0.68 $0.53
EPS - Discontinued Operations -- 0.24
Earnings Per Common Share -
Basic $0.68 $0.77
EPS - Diluted: (4)
EPS - Continuing Operations $0.67 $0.52
EPS - Discontinued Operations -- 0.23
Earnings Per Common Share -
Assuming Dilution $0.67 $0.75
Book Value Per Share (Period
End) $8.01 $7.39
Total Market Capitalization
(Period End) $3,381 $1,878
Shares Outstanding (Period
End) 290.4 289.4
Weighted Average Shares O/S -
Basic 287.1 285.0
Weighted Average Shares O/S -
Diluted 290.7 289.0
Accounts 10.5 12.0
Employees (FTE) 4,502 6,261
(1) The Company decided to discontinue its operations in Argentina and the
United Kingdom in 2001 and completed the disposition of those
operations in the second quarter of 2002. Accordingly, the operations
of its subsidiaries and branches in those locations are reflected as
discontinued operations in its consolidated statements of income.
(2) The Company has modified its measure of loan portfolio profitability
that includes risk of loss. The revised measure includes reported
interest income on loans plus credit product fee income, less interest
expense allocated to loans, and less net credit losses, expressed as a
percentage of average reported loans.
(3) Represents reported non-interest income expressed as a percentage of
average reported loans.
(4) For the years ended 2003 and 2002, the Company's 3.25% convertible
notes were antidilutive to EPS and the corresponding adjustments to
net income and weighted average shares outstanding were excluded in
the calculation of EPS, assuming dilution.
Providian Financial Corporation
Financial & Statistical Summary
Managed Financial Measures
2003 2002
Year End Year End
(dollars in millions) (unaudited)
Managed Net Revenue:
Net Interest Income $2,519.9 $3,259.9
Non-Interest Income 1,588.9 2,339.7
Total Net Revenue (1) $4,109 $5,600
Managed Financial Data:
Net Credit Losses $2,798 $3,525
Net Change in Reported
Allowance for Credit Losses
(2) (215) 66
Adjusted Credit Losses $2,583 $3,591
Year End:
Total Loans (3) $16,934 $19,628
Securitized Loans (4) $10,653 $12,720
Total Assets (5) $23,198 $26,484
Total Equity $2,325 $2,139
Year to Date Average:
Total Loans $17,687 $21,639
Securitized Loans (4) $11,141 $12,627
Earning Assets $24,394 $27,985
Total Assets $24,557 $28,523
Total Equity $2,187 $2,047
Key Managed Statistics:
Net Interest Margin (Earning
Assets) (6) 10.33% 11.65%
Net Interest Margin (Loans) (7) 14.91% 15.46%
Adjusted Margin (Loans) (8) 6.32% 7.64%
Non-interest Income Margin (9) 8.98% 10.81%
Return on Assets 0.80% 0.76%
Net Credit Loss Rate 15.82% 16.29%
Delinquency Rate (30+ Days) 9.29% 11.11%
Equity to Managed Assets 10.02% 8.08%
(1) Represents the interest income and non-interest income earned from
managed loans receivable and investments less interest expense,
including the interest costs payable to securitization investors.
(2) The net change in the reported allowance for credit losses excludes
the allowance transferred to loans held for securitization or sale.
(3) Represents all loans receivable from customer accounts that are
managed by the Company, including the loans receivable reported on the
Company's statements of financial condition and the loans receivable
removed or reclassified from the Company's statements of financial
condition through securitizations. Loans receivable amounts exclude
estimated uncollectible uncollectible interest and fees.
(4) Effective December 2002, the Company adopted the federal banking
agencies accrued interest receivable, or AIR, guidance, resulting in a
reclassification of a portion of accrued interest receivable from
reported loans receivable to due from securitizations for 2003 and for
the fourth quarter 2002. Securitized loans for 2003 and the fourth
quarter 2002 include the AIR reclassification.
(5) Managed assets represent total assets reported on the Company's
statements of financial condition, plus the loans receivable removed
or reclassified from loans receivable on its statements of financial
condition through securitizations, less the retained interests from
securitizations reported on its statements of financial condition.
(6) Represents the net interest income recognized on managed earning
assets, expressed as a percentage of managed average earning assets.
(7) Represents the interest income recognized on managed average loans
receivable, expressed as a percentage of managed average loans
receivable, less interest expense on deposits and borrowings,
including the interest costs payable to securitization investors,
expressed as a percentage of managed average earning assets.
(8) The Company has modified its measure of loan portfolio profitability
that includes risk of loss. The revised measure includes managed
interest income on loans plus credit product fee income, less interest
expense allocated to loans, and less net credit losses, expressed as a
percentage of managed average loans.
(9) Represents managed non-interest income expressed as a percentage of
average managed loans. Managed non-interest income excludes the
interest income reclassification related to certain retained
beneficial interests.
Providian Financial Corporation
Delinquency Summary
(unaudited)
Quarterly
2003
(dollars in thousands) Q4
Loans % of Total Loans
Reported
Loans outstanding (1) (2) $6,281,403 100.00%
Loans delinquent
30 - 59 days $128,467 2.05%
60 - 89 days 94,916 1.51%
90 or more days 193,748 3.08%
Total $417,131 6.64%
Securitized
Loans outstanding (3) $10,653,351
Loans delinquent
30 - 59 days $346,630
60 - 89 days 269,107
90 or more days 540,359
Total $1,156,096
Managed
Loans outstanding (1) $16,934,754 100.00%
Loans delinquent
30 - 59 days $475,097 2.81%
60 - 89 days 364,023 2.15%
90 or more days 734,107 4.33%
Total $1,573,227 9.29%
2003 2003
(dollars in thousands) Q3 Q2 (4)
% of % of
Total Total
Loans Loans Loans Loans
Reported
Loans outstanding (1) (2) $5,994,446 100.00% $6,418,050 100.00%
Loans delinquent
30 - 59 days $138,168 2.31% $156,615 2.44%
60 - 89 days 97,361 1.62% 115,372 1.80%
90 or more days 194,822 3.25% 218,116 3.40%
Total $430,351 7.18% $490,103 7.64%
Securitized
Loans outstanding (3) $10,951,709 $11,381,475
Loans delinquent
30 - 59 days $382,647 $377,089
60 - 89 days 275,898 291,690
90 or more days 552,222 571,358
Total $1,210,767 $1,240,137
Managed
Loans outstanding (1) $16,946,155 100.00% $17,799,525 100.00%
Loans delinquent
30 - 59 days $520,815 3.07% $533,704 3.00%
60 - 89 days 373,259 2.20% 407,062 2.29%
90 or more days 747,044 4.41% 789,474 4.43%
Total $1,641,118 9.68% $1,730,240 9.72%
2003 2002
(dollars in thousands) Q1 Q4
% of % of
Total Total
Loans Loans Loans Loans
Reported
Loans outstanding (1) (2) $7,145,817 100.00% $6,899,849 100.00%
Loans delinquent
30 - 59 days $173,449 2.43% $205,605 2.98%
60 - 89 days 136,652 1.91% 147,057 2.13%
90 or more days 315,630 4.42% 336,979 4.89%
Total $625,731 8.76% $689,641 10.00%
Securitized
Loans outstanding (3) $11,323,170 $12,719,752
Loans delinquent
30 - 59 days $353,358 $460,295
60 - 89 days 283,102 335,700
90 or more days 642,045 694,129
Total $1,278,505 $1,490,124
Managed
Loans outstanding (1) $18,468,987 100.00% $19,619,601 100.00%
Loans delinquent
30 - 59 days $526,807 2.85% $665,900 3.39%
60 - 89 days 419,754 2.27% 482,757 2.46%
90 or more days 957,675 5.19% 1,031,108 5.26%
Total $1,904,236 10.31% $2,179,765 11.11%
(1) Balances exclude market value adjustment related to the fair value
of designated financial instruments during 2003 of $(0.4) million
for the fourth quarter, $(0.8) million for the third quarter, $(1.3)
million for the second quarter and $0.8 million for the first quarter.
For 2002, $7.9 million was excluded from the fourth quarter.
(2) Effective December 2002, the Company adopted the federal banking
agencies' accrued interest receivable, or AIR, guidance, resulting in
a reclassification of a portion of accrued interest receivable from
reported loans receivable to due from securitizations for 2003 and for
the fourth quarter of 2002.
(3) Excludes the senior seller's interest in the loans receivable
transferred in securitizations. The senior seller's interest is an
undivided interest in the loans transferred to the securitization
trust and is included in reported loans receivable. Effective
December 2002, the Company adopted the accrued interest receivable, or
AIR, guidance, resulting in a reclassification of a portion of accrued
interest receivable from reported loans receivable to due from
securitizations for 2003 and for the fourth quarter of 2002.
Securitized loans for 2003 and the fourth quarter of 2002 include
the AIR reclassification.
(4) Includes Providian Bank loans held for securitization or sale at
fair value. Excluding the Providian Bank loans held for
securitization or sale from the second quarter 30+ days delinquency
rates would have increased the managed rate from 9.72% to 9.90% and
the reported rate from 7.64% to 7.93%.
Providian Financial Corporation
December 2003 Reported Monthly Net Credit Loss and Delinquency Rates
Providian Financial Corporation's reported net credit loss rate for the
month ended December 31, 2003 and its 30+ day reported delinquency rate as of
December 31, 2003 are presented in the table below. Reported net credit loss
and delinquency rates exclude the impact of loans receivable removed or
reclassified from loans receivable on the Company's balance sheet through its
securitizations.
Net Credit Loss Rate (1) (3) 30+ Day Delinquency Rate (2) (3)
(Annualized) (Unaudited) (Unaudited)
9.58% 6.64%
(1) Represents the principal amounts of reported loans receivable that
have been charged off, less the total amount of recoveries on
previously charged-off loans, expressed as a percentage of the average
reported loans receivable during the period, multiplied by 12.
Recoveries include proceeds from the sale of charged-off assets to
third parties. Total average reported loans exclude a decrease of $0.6
million for market value adjustments related to the fair value of
designated financial instruments. On December 18, 2003, Providian
Gateway Master Trust Series 2003-A was issued with a total initial
invested amount of $636.9 million, which includes third party invested
amounts and Company-retained subordinated investor interests. In
accordance with the terms of the securitization, the allocation of net
credit losses to the series was calculated as if the series was
oustanding as of November 30, 2003 rather than being calculated based
on the actual average investor interests outstanding during the month.
This had the effect of reducing the December 2003 reported net credit
loss rate by an estimated 100 basis points.
(2) Represents reported loans that are 30+ days past due as of the last
day of the monthly period, divided by the total reported loans as of
the last day of the monthly period. Total reported loans exclude a
decrease of $0.4 million for market value adjustments related to the
fair value of designated financial instruments.
(3) In December 2003, the Company accelerated its recognition of charge-
offs for certain loans that are subject to payment plans under a
consumer debt management program. Previously, accounts that were
current when they were accepted into a debt management program or were
subsequently re-aged to a current status after being accepted into a
program were charged off no later than 120 days after they became
contractually past due. All other accounts in consumer debt
management programs were charged off no later than 180 days after they
became contractually passed due. The 120 days passed due charged off
recognition practice was extended to such other accounts in a consumer
debt management program that subsequently default under criteria
established by the Company. The Company estimates that this change
resulted in a 19 basis point increase in the reported net credit loss
rate and a 2 basis point reduction in the reported
30+ day delinquency rate in December 2003.
Providian Financial Corporation
Allowance for Credit Losses
Three months ended Twelve months ended
December 31, December 31,
(dollars in thousands) 2003 2002 2003 2002
Balance at beginning of
period $643,982 $1,172,838 $1,012,461 $1,932,833
Provision for credit losses 129,793 138,908 610,469 903,508
Fair value adjustment -
loans available for sale
(1) -- -- 11,875 388,230
Credit losses (192,146) (351,587) (1,039,775) (1,387,350)
Recoveries 44,257 52,302 202,462 161,183
Credit losses on loans
available for sale (1) -- -- (171,606) (985,943)
Balance at end of period $625,886 $1,012,461 $625,886 $1,012,461
(1) The fair value adjustment of $11.9 million reflects an increase in the
allowance for credit losses as a result of the mark to market of the
Providian Bank ("PB") loans receivable reclassified as loans held for
securitization or sale in the year ended December 31, 2003.
Additionally, the decrease in the allowance for credit losses of
$171.6 million represents the allowance for credit losses that was
transferred with the par value of the PB loans, as part of the
adjustment to the fair value of $667.1 million. The fair value
adjustment of $388.2 million reflects an increase in the allowance for
credit losses as a result of the higher risk loans receivable
reclassified as loans held for securitization or sale in the year
ended December 31, 2002. Additionally, the decrease in the allowance
for credit losses of $985.9 million represents the allowance for
credit losses that was transferred with the par value of the
reclassified higher risk loans, as part of the adjustment to the fair
value of $1.61 billion.
Providian Financial Corporation and Subsidiaries
Consolidated Statements of Financial Condition
Year ended December 31,
(dollars in thousands, except per
share data) 2003 2002
(unaudited)
Assets
Cash and cash equivalents $544,554 $344,277
Federal funds sold and securities
purchased under resale
agreements 3,235,189 3,601,000
Investment securities:
Available-for-sale (at market
value, amortized cost of
$1,906,967 at
December 31, 2003 and
$1,839,854 at December 31,
2002) 1,886,010 1,856,607
Loans receivable, less allowance
for credit losses of $625,886
at December 31, 2003 and
$1,012,461 at December 31, 2002 5,655,071 5,895,296
Premises and equipment, net 84,198 119,260
Interest receivable 44,850 60,841
Due from securitizations 2,377,963 3,723,382
Deferred tax 224,505 487,529
Other assets 223,007 562,738
Total assets $14,275,347 $16,650,930
Liabilities
Deposits:
Non-interest bearing $63,016 $56,724
Interest bearing 10,038,041 12,605,353
10,101,057 12,662,077
Short-term borrowings 108,828 91,529
Long-term borrowings 1,163,521 864,048
Deferred fee revenue 100,416 211,978
Accrued expenses and other
liabilities 476,076 577,894
Total liabilities 11,949,898 14,407,526
Company obligated mandatorily
redeemable capital securities -- 104,332
Shareholders' equity
Common stock, par value $0.01 per
share (authorized: 800,000,000
shares; issued: December 31, 2003 --
290,753,031
shares; December 31, 2002 --
290,880,218 shares) 2,908 2,909
Retained earnings 2,350,446 2,202,960
Cumulative other comprehensive income (12,480) 9,888
Common stock held in treasury--at
cost: (December 31, 2003--
305,871 shares; December 31, 2002--
1,498,398 shares) (15,425) (76,685)
Total shareholders' equity 2,325,449 2,139,072
Total liabilities and
shareholders' equity $14,275,347 $16,650,930
Providian Financial Corporation and Subsidiaries
Consolidated Statements of Income
Three months ended Twelve months ended
December 31, December 31,
(dollars in thousands, except
per share data) 2003 2002 2003 2002
(unaudited) (unaudited)
Interest Income
Loans $191,901 $323,451 $950,758 $1,490,258
Federal funds sold and
securities purchased
under resale agreements 10,200 11,432 44,198 37,473
Other 24,715 31,196 111,515 163,552
Total interest income 226,816 366,079 1,106,471 1,691,283
Interest Expense
Deposits 127,706 169,548 581,551 729,294
Borrowings 15,465 10,362 52,239 42,700
Total interest expense 143,171 179,910 633,790 771,994
Net interest income 83,645 186,169 472,681 919,289
Provision for credit losses 129,793 138,908 622,344 1,291,738
Net interest (loss)
income after
provision for
credit losses (46,148) 47,261 (149,663) (372,449)
Non-Interest Income
Servicing and
securitizations 234,881 47,994 849,283 618,241
Credit product fee income 166,408 247,366 759,642 1,152,041
Other 17,329 (2,290) 66,012 611,065
418,618 293,070 1,674,937 2,381,347
Non-Interest Expense
Salaries and employee
benefits 76,815 94,741 359,696 527,960
Solicitation and
advertising 36,224 65,597 193,652 404,872
Occupancy, furniture, and
equipment 30,260 43,292 121,921 222,812
Data processing and
communication 29,483 31,889 124,014 165,504
Other 88,749 84,779 401,718 487,734
261,531 320,298 1,201,001 1,808,882
Income from
continuing
operations before
income taxes 110,939 20,033 324,273 200,016
Income tax expense 43,821 7,913 128,088 49,006
Income from
continuing
operations after tax 67,118 12,120 196,185 151,010
Income from discontinued
operations - net of taxes -- -- -- 67,156
Net Income $67,118 $12,120 $196,185 $218,166
Earnings per common share -
basic
Income from continuing
operations $0.23 $0.04 $0.68 $0.53
Income from discontinued
operations - net of taxes -- -- -- 0.24
Earnings per common share -
basic $0.23 $0.04 $0.68 $0.77
Earnings per common share -
assuming dilution
Income from continuing
operations $0.23 $0.04 $0.67 $0.52
Income from discontinued
operations - net of taxes -- -- -- 0.23
Earnings per common share -
assuming dilution $0.23 $0.04 $0.67 $0.75
Weighted average common shares
outstanding - basic (000) 287,682 285,379 287,125 285,001
Weighted average common shares
outstanding - assuming
dilution (000) 292,750 289,236 290,731 289,042
Providian Financial Corporation
Providian National Bank Capital Ratios
Total Risk-Based Capital Ratios as of December 31, 2003 (1)
Providian
National Bank (2)
Call Report Basis (2) (3) 21.27%
Applying Subprime Guidance (excluding
AIR) (4) 18.54%
Applying Subprime Guidance (including
AIR) (5) 16.98%
(1) Total risk-based capital (Tier 1 + Tier 2) divided by total risk-based
assets.
(2) Providian National Bank capital ratios reflect the combination of
Providian Bank and Providian National Bank which was completed in
December 2003. Due to this consolidation, Providian Bank capital
ratios are not presented separately. The combination of the two
banking entities resulted in an 151 basis point increase in Providian
National Bank's Call Report Basis capital ratio.
(3) Total risk-based capital ratios as shown on the December 31, 2003 Call
Report and includes the effect of adopting the regulatory guidance on
the accrued interest receivable asset.
(4) Total risk-based capital ratios after applying the increased risk
weightings under the Expanded Guidance for Subprime Lending Programs
("Subprime Guidance"). Excludes the effect of adopting the regulatory
guidance on the accrued interest receivable asset.
(5) Total risk-based capital ratios after applying the increased risk
weightings under the Subprime Guidance. Includes the effect of
adopting the regulatory guidance on the accrued interest receivable
asset.
Providian Financial Corporation
Financial & Statistical Summary
Reconciliation of Reported and Managed Financial Measures
Reported Securitization Managed
2003 2003
(dollars in millions) QTR 04 Adjustment QTR 04
Earnings:
Interest Income Loans $191.9 $542.7 $734.6
Interest Income Investments
(1) 34.9 (11.2) 23.7
Interest Expense 143.2 40.9 184.1
Net Interest Income $83.6 $490.6 $574.2
Non-Interest Income (1) 418.6 (41.4) 377.2
Total Net Revenue $502.2 $449.2 $951.4
Financial Data:
Quarter:
Net Credit Losses (2) $148 $449 $597
Quarter End:
Total Loans (3) $6,281 $10,653 $16,934
Total Assets $14,275 $8,923 $23,198
Quarter Average:
Total Loans $5,934 $10,733 $16,667
Earning Assets $12,368 $10,733 $23,101
Total Assets $14,816 $8,529 $23,345
Reported Securitization Managed
2003 2003
(dollars in millions) QTR 03 Adjustment QTR 03
Earnings:
Interest Income Loans $200.8 $562.3 $763.1
Interest Income Investments 35.0 (11.4) 23.6
(1)
Interest Expense 154.9 41.1 196.0
Net Interest Income $80.9 $509.8 $590.7
Non-Interest Income (1) 445.4 (59.0) 386.4
Total Net Revenue $526.3 $450.8 $977.1
Financial Data:
Quarter:
Net Credit Losses (2) $156 $451 $607
Quarter End:
Total Loans (3) $5,994 $10,951 $16,945
Total Assets $15,334 $8,450 $23,784
Quarter Average:
Total Loans $5,866 $11,025 $16,891
Earning Assets $12,869 $11,025 $23,894
Total Assets $15,740 $8,722 $24,462
Reported Securitization Managed
2003 2003
(dollars in millions) QTR 02 Adjustment QTR 02
Earnings:
Interest Income Loans $247.7 $581.9 $829.6
Interest Income Investments 43.9 (14.7) 29.2
(1)
Interest Expense 163.8 45.5 209.3
Net Interest Income $127.8 $521.7 $649.5
Non-Interest Income (1) 393.3 1.0 394.3
Total Net Revenue $521.1 $522.7 $1,043.8
Financial Data:
Quarter:
Net Credit Losses (2) $237 $523 $760
Quarter End:
Total Loans (3) $6,417 $11,381 $17,798
Total Assets $16,206 $8,925 $25,131
Quarter Average:
Total Loans $6,684 $11,361 $18,045
Earning Assets $14,048 $11,361 $25,409
Total Assets $16,460 $8,925 $25,385
Reported Securitization Managed
2003 2003
(dollars in millions) QTR 01 Adjustment QTR 01
Earnings:
Interest Income Loans $310.3 $586.0 $896.3
Interest Income Investments 41.9 (13.0) 28.9
(1)
Interest Expense 171.8 47.9 219.7
Net Interest Income $180.4 $525.1 $705.5
Non-Interest Income (1) 417.5 13.4 430.9
Total Net Revenue $597.9 $538.5 $1,136.4
Financial Data:
Quarter:
Net Credit Losses (2) $296 $539 $835
Quarter End:
Total Loans (3) $7,147 $11,323 $18,470
Total Assets $16,607 $8,925 $25,532
Quarter Average:
Total Loans $7,500 $11,452 $18,952
Earning Assets $13,604 $11,452 $25,056
Total Assets $16,518 $8,976 $25,494
Reported Securitization Managed
2002 2002
(dollars in millions) QTR 04 Adjustment QTR 04
Earnings:
Interest Income Loans $323.4 $613.2 $936.6
Interest Income Investments 42.7 (8.6) 34.1
(1)
Interest Expense 179.9 56.2 236.1
Net Interest Income $186.2 $548.4 $734.6
Non-Interest Income (1) 293.1 (9.3) 283.8
Total Net Revenue $479.3 $539.1 $1,018.4
Financial Data:
Quarter:
Net Credit Losses (2) $299 $539 $838
Quarter End:
Total Loans (3) $6,908 $12,720 $19,628
Total Assets $16,651 $9,833 $26,484
Quarter Average:
Total Loans $8,046 $11,298 $19,344
Earning Assets $14,236 $11,298 $25,534
Total Assets $16,757 $9,465 $26,222
(1) In November 1999, the Emerging Issues Task Force (EITF) of the FASB
issued EITF 99-20, "Recognition of Interest Income and Impairment on
Purchased and Retained Beneficial Interests in Securitized Financial
Assets." This Pronouncement requires that the holders of retained
beneficial interests in securitized financial assets, such as the
Company, recognize a portion of securitization (non-interest) income
as interest income. EITF 99-20 became effective for fiscal quarters
beginning after March 15, 2001.
(2) The net credit losses for the second quarter of 2003 exclude the fair
value adjustments on loans held for securitization or sale.
(3) During the second quarter of 2003 loans outstanding include loans
held for securitization or sale recorded at fair market value.
Providian Financial Corporation
Financial & Statistical Summary
Reconciliation of Reported and Managed Financial Measures
Reported Securitization Managed
Year Ended Year Ended
(dollars in millions) 2003 Adjustment 2003
Earnings:
Interest Income Loans $950.8 $2,272.9 $3,223.7
Interest Income Investments
(1) 155.7 (50.3) 105.4
Interest Expense 633.8 175.4 809.2
Net Interest Income $472.7 $2,047.2 $2,519.9
Non-Interest Income (1) 1,674.9 (86.0) 1,588.9
Total Net Revenue $2,147.6 $1,961.2 $4,108.8
Financial Data:
Year to Date:
Net Credit Losses $837 $1,961 $2,798
Year End:
Total Loans $6,281 $10,653 $16,934
Total Assets $14,275 $8,923 $23,198
Year Average:
Total Loans $6,547 $11,140 $17,687
Earning Assets $13,254 $11,140 $24,394
Total Assets $15,770 $8,787 $24,557
Reported Securitization Managed
Year Ended Year Ended
(dollars in millions) 2002 Adjustment 2002
Earnings:
Interest Income Loans $1,490.3 $2,662.8 $4,153.1
Interest Income Investments
(1) 201.0 (50.0) 151.0
Interest Expense 772.0 272.2 1,044.2
Net Interest Income $919.3 $2,340.6 $3,259.9
Non-Interest Income (1) 2,381.3 (41.6) 2,339.7
Total Net Revenue $3,300.6 $2,299.0 $5,599.6
Financial Data:
Year to Date:
Net Credit Losses $1,226 $2,299 $3,525
Year End:
Total Loans $6,908 $12,720 $19,628
Total Assets $16,651 $9,833 $26,484
Year Average:
Total Loans $9,012 $12,627 $21,639
Earning Assets $15,358 $12,627 $27,985
Total Assets $17,796 $10,727 $28,523
(1) In November 1999, the Emerging Issues Task Force (EITF) of the FASB
issued EITF 99-20, "Recognition of Interest Income and Impairment on
Purchased and Retained Beneficial Interests in Securitized Financial
Assets." This Pronouncement requires that the holders of retained
beneficial interests in securitized financial assets, such as the
Company, recognize a portion of securitization (non-interest) income
as interest income. EITF 99-20 became effective for fiscal quarters
beginning after March 15, 2001.
Non-GAAP Managed Financial Information
Loans that have been securitized and sold to third party investors are
not considered to be our assets under GAAP and therefore are not shown
on our balance sheet. However, the interests we retain in the
securitized loan pools create financial exposure to the current and
expected cash flows of the securitized loans. Although the loans sold are
not on our balance sheet, their performance can affect some or all of our
retained interests as well as our results of operations and our financial
position. In addition, we continue to service these loans.
Because of this continued exposure and involvement, we use managed
financial information to evaluate our historical performance, assess our
current condition, and plan our future operations. We believe that
managed financial information supplements our GAAP information and is
helpful to the reader's understanding of our consolidated financial
condition and results of operations. "Reported" financial information
refers to GAAP financial information. "Managed" financial information is
derived by adjusting the reported financial information to add back
securitized loan balances and the related finance charge and fee income,
credit losses, and net interest costs.
The Company in its January 20, 2004 earnings call will be disclosing
certain projected financial measures relating to expected performance on
a managed basis, such as net credit losses, and non-interest income
margin. The Company develops such projections on a managed basis using
managed financial information and does not in the normal course derive
comparable GAAP projections. Developing such comparable GAAP projections
would be unreasonably burdensome and in the opinion of management such
comparable GAAP projections would not provide to the users of the
financial information a significant benefit in understanding the Company's
expected future performance.
SOURCE Providian Financial Corporation
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Related links:
http://www.providian.com
CONTACT:
Investors, Jack Carsky, +1-415-278-4977, or
Bill Horning, +1-415-278-4602, or Media, Alan Elias,
+1-415-278-4189, or Beth Haiken, +1-415-278-4889, all of
Providian Financial Corporation
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