SAN FRANCISCO, May 6 /PRNewswire-FirstCall/ -- Providian Financial
Corporation (NYSE: PVN) today announced net income for the first quarter of
2002 of $10.0 million or earnings per share of $0.03. The quarter's results
include an after-tax gain of approximately $242 million from the sale of the
Providian Master Trust, an after-tax loss of approximately $240 million on the
higher-risk portfolio sale and approximately $17 million in restructuring
related charges taken during the quarter. Details of the asset sales and
associated events are outlined below. Net income from continuing operations
(excluding discontinued international operations) for the first quarter was
$6.8 million or $0.02 per share. The results for the quarter compare to
reported net income of $230.5 million, or $0.78 per share, for the first
quarter of 2001. All earnings per share figures are reported on a diluted
basis.
"I am pleased with the continued progress we are making to restructure the
Company," said Joseph Saunders, Providian's president and chief executive
officer. "In late October we outlined our five-point strategic plan and to
date we have accomplished many of the initiatives set forth in the plan. We
certainly have more work to do, but I am confident we are on the right course.
The entire management team is very encouraged by the Company's accomplishments
thus far and the opportunities we see before us."
During the first quarter, the Company originated approximately 460,000 new
customer accounts the majority of which were in the middle market. Marketing
programs initiated during the latter part of the quarter reflected the
Company's transition to a balanced strategy across the broad middle to prime
spectrum.
The Company's first quarter financial results reflect actions taken by its
bank subsidiaries to reduce their credit risk profile, improve the focus on
the middle and prime sectors and further strengthen the balance sheet. The
actions taken during the quarter include:
-- Completion of the sale of the Providian Master Trust to a subsidiary of
JPMorgan Chase on February 5, 2002. This transaction resulted in cash
proceeds of approximately $2.8 billion and a first quarter after-tax
gain of approximately $242 million. During the fourth quarter of 2001,
loan loss reserves related to these assets were reduced by
approximately $60 million after-tax as a result of designating these
assets as held for sale.
-- The announcement on April 15, 2002 by the Company that it had reached
agreements with two limited liability companies formed by affiliates of
Goldman, Sachs & Co., Salomon Smith Barney, CardWorks, Inc. and
CompuCredit Corporation to initiate a structured sale of approximately
$2.6 billion in higher risk assets. Accordingly, at the end of the
first quarter 2002, the Company designated these loans as held for sale
or securitization and reduced their net book value, net of the
associated allowance, to reflect the anticipated sales price. This
resulted in an after-tax loss of approximately $240 million recognized
during the first quarter 2002.
-- Continuation of workforce reduction during the quarter resulting in the
elimination of approximately 800 jobs and an associated charge in the
first quarter of approximately $17 million. Since announcing its five-
point strategic plan in October 2001, the Company has reduced the total
workforce by approximately 24%.
Additional announcements made during the first quarter 2002 include:
-- On February 20, 2002, the Company announced that it had entered into an
agreement to sell its United Kingdom credit card operations to
Barclaycard, a division of Barclays Bank PLC. This sale was closed on
April 18, 2002 and generated additional liquidity of over $600 million.
The after-tax gain of approximately $60 million from the sale will be
reflected in the Company's second quarter 2002 results.
-- On March 7, 2002, the Company announced an agreement to sell its
Argentine operations to a local investor group in Argentina. After
charges recognized in the fourth quarter of 2001, the Company expects
to record a modest gain on the sale. The sale is contingent upon local
regulatory approval and is expected to close in the second quarter of
2002.
Capital and Liquidity
The Company ended the quarter with total capital of $2.0 billion and
allowances for loan losses of $1.4 billion, which on a combined basis
represent 41% of reported loans and 17% of managed receivables. Cash and
investments totaled over $5.6 billion at the end of the first quarter,
representing over 25% of total managed receivables.
"As a new member of the management team at Providian I am very encouraged
by the financial position of the Company," said Anthony Vuoto, Providian's
vice chairman and chief financial officer. "The Company is in a very solid
position with regard to its capital, reserves and liquidity. Additionally,
our liquidity will be further bolstered upon the expected completion of the
higher-risk asset sale in the second quarter. I believe that the Company has
established a solid financial foundation upon which to build the new
Providian."
The Company's principal banking subsidiaries remain on track with the
requirements of the Capital Plan. For the first quarter of 2002, our banking
subsidiaries are required to achieve total risk-based capital ratios at "well
capitalized" levels as shown on their Call Reports, and Providian National
Bank is required to achieve a total risk-based capital ratio of at least 8%
after applying increased risk weightings consistent with the Expanded Guidance
for Subprime Lending Programs ("Subprime Guidance"). As of March 31, 2002,
Providian National Bank and Providian Bank exceeded the 10% "well capitalized"
level with total risk-based capital ratios of 12.75% and 13.52%, respectively.
After application of the Subprime Guidance risk weightings, Providian National
Bank exceeded the 8% threshold with a total risk-based capital ratio of 9.46%.
Financial Results
The Company ended the first quarter with $22.1 billion in total managed
credit card loans and 15 million accounts. The sale of the Providian Master
Trust on February 5, 2002 reduced the Company's managed portfolio by
approximately $8 billion of credit card loans and 3.3 million accounts.
Total managed revenue for the first quarter 2002 was $2.04 billion and
included the gain from the sale of the Providian Master Trust during the
quarter. The managed net interest margin on loans was 14.45% for the first
quarter 2002 and benefited from the sale of the lower margin loans in the
Providian Master Trust.
The managed net credit loss rate and the 30+ day delinquency rate were
consistent with the Company's expectations and ended the first quarter 2002 at
15.05% and 10.22%, respectively. The sequential increase in the managed net
credit loss rate and the 30+ day delinquency rate were attributable to the
continued seasoning of the loan portfolio and were impacted by the sale of the
lower loss rate receivables in the Providian Master Trust. The Company's
total loan loss reserve ended the quarter at $1.41 billion, representing
17.06% of reported loans.
The Company continued to build its customer franchise by investing $108.7
million in solicitation and advertising during the first quarter. This
compares to $144.6 million spent on solicitation and advertising in the
comparable period of the prior year. Other non-interest expense (excluding
solicitation and advertising) was $438.4 million for first quarter 2002 and
included approximately $17 million in restructuring charges. Additionally,
the Company incurred expenses associated with the interim servicing of the
Providian Master Trust receivables that are subsequently reimbursed by
JPMorgan Chase and recognized by the Company as non-interest income. The
quarter's results compares to non-interest expense (excluding solicitation and
advertising) of $414.9 million in the first quarter of 2001. The Company
expects to realize significant reductions in non-interest expense upon
completion of its interim servicing obligations for asset sales completed or
announced during the quarter. Additionally, the Company is continuing to
identify various avenues for cost savings and plans to significantly lower its
overall cost structure over the course of 2002.
Strategic Review
Since the Company announced its five-point strategic plan on October 18,
2001, it has taken the following actions:
-- Hired Joseph Saunders as the Company's President and Chief Executive
Officer
-- Strengthened its executive management team by hiring Warren Wilcox as
Vice Chairman, Planning and Marketing and Susan Gleason as Vice
Chairman, Operations and Systems, Anthony Vuoto as Vice Chairman, Chief
Financial Officer and promoting Jim Jones to Vice Chairman, Credit and
Collections
-- Discontinued all marketing to the standard market segment, tightened
credit line increases across all segments and selectively re-priced
loans that have exhibited increased risk levels
-- Closed the Henderson, Nevada operations facility, resulting in annual
operating expense savings of approximately $18 million
-- Completed over $2.8 billion of securitization transactions
-- Reached an agreement with its regulators for managing capital and
growth
-- Completed the sale of the Providian Master Trust to JP Morgan Chase
-- Announced the sale of its operations in Argentina (which has been
designated as a discontinued operation)
-- Completed the sale of its credit card operations in the United Kingdom
to Barclaycard, a division of Barclays Bank PLC
-- Announced it has reached agreements to initiate a structured sale of
approximately $2.6 billion of higher-risk assets
-- Announced total workforce reductions of approximately 24%
San Francisco-based Providian Financial is a leading provider of lending
and deposit products to customers throughout the United States. The Company
has more than $22 billion in managed receivables and more than 15 million
customers.
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,
and are subject to the "safe harbor" created by those sections. Forward-
looking statements include expressions of "belief," "anticipation," or
"expectations" of management, statements as to industry trends or future
results of operations of the Company, 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 delinquency rates, credit loss
rates, liquidity 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 in which the Company is perceived in such markets, and/or conditions
relating to existing or future financing commitments; the effects of
government policy and regulation, whether of general applicability or specific
to the company, including restrictions and/or limitations on the company's
minimum capital requirements, deposit taking abilities, reserve methodologies,
dividend policies and payments, growth, and/or underwriting criteria; year-end
audit adjustments; changes in accounting rules, policies, practices and/or
procedures; product development; legal and regulatory proceedings, including
the impact of ongoing litigation; interest rates; acquisitions; one-time
charges; extraordinary items; the ability to attract and retain key personnel;
the impact of existing, modified or new strategic initiatives; and
international factors. These and other risks and uncertainties are described
in detail in the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 2001 under the heading "Cautionary Statements." 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.
The financial information included in this press release is unaudited.
Audited financials information, together with management's discussion and
analysis of financial condition and results of operations, will be set forth
in the Company's Annual Report on Form 10-K for the year ended December 31,
2001.
Note: Investor information is available on Providian Financial's web site
at http://www.providian.com.
PROVIDIAN FINANCIAL CORPORATION (PVN)
FINANCIAL & STATISTICAL SUMMARY
EXCLUDING DISCONTINUED OPERATIONS
(in millions, except per share
and employee data) 2002 2001 2001 2001 2001
Q1 Q4 Q3 Q2 Q1
Earnings (Managed Basis):
Net Interest Income $962.4 $990.9 $996.5 $949.1 $881.5
Non-Interest Income 1,079.1 224.4 687.1 783.4 782.1
Total Revenue 2,041.5 1,215.3 1,683.6 1,732.5 1,663.6
Provision for Loan
Losses 1,483.1 1,272.0 977.5 749.4 714.8
Non-Interest Expense 547.1 596.6 610.1 581.4 559.5
Income From Operations
Before Taxes 11.3 (653.3) 96.0 401.7 389.3
Tax Expense 4.5 (258.0) 37.9 158.6 153.7
Income From Operations $6.8 $(395.3) $58.1 $243.1 $235.6
Discontinued Operations 3.2 (85.9) (14.8) (10.7) (6.9)
Extraordinary Item-
Extinguishment of Debt -- -- 13.9 -- --
Cumulative Effect of
Accounting Change -- -- -- -- 1.8
Net Income $10.0 $(481.2) $57.2 $232.4 $230.5
Managed Financial Data:
Quarter End:
Credit Cards $22,134 $32,644 $31,693 $30,040 $28,106
Home Loans 10 10 11 11 12
Total Loans $22,144 $32,654 $31,704 $30,051 $28,118
Securitized Loans $12,231 $19,684 $17,940 $15,992 $13,905
Total Assets $28,994 $37,659 $38,201 $36,061 $33,219
Total Capital
(Includes Capital
Securities) $1,994 $2,012 $2,496 $2,548 $2,318
Total Equity $1,890 $1,908 $2,390 $2,437 $2,207
Quarter Average:
Credit Cards $26,994 $32,103 $30,811 $28,903 $27,415
Home Loans 9 13 11 12 14
Total Loans $27,003 $32,116 $30,822 $28,915 $27,429
Securitized Loans $15,246 $18,001 $16,457 $14,648 $13,425
Earning Assets $31,673 $36,324 $35,841 $32,338 $30,383
Total Assets $32,667 $37,627 $36,837 $34,245 $31,507
Total Equity $1,962 $2,251 $2,437 $2,319 $2,118
Key Statistics:
Managed:
Net Interest Margin
(Earning Assets) 12.15% 10.91% 11.12% 11.74% 11.60%
Net Interest Margin
(Loans) 14.45% 12.31% 12.94% 13.14% 12.78%
Risk-Adjusted Margin
(Loans)(A) 15.38% 2.40% 11.43% 13.60% 14.82%
Return on Assets 0.12% -5.12% 0.62% 2.71% 2.93%
Return on Equity 2.04% -85.52% 9.40% 40.08% 43.52%
Net Credit Losses $1,016.3 $1,020.0 $803.8 $750.6 $642.4
Net Credit Loss Rate 15.05% 12.70% 10.43% 10.38% 9.37%
Delinquency Rate
(30+ Days) 10.22% 8.81% 8.71% 8.07% 7.65%
Equity to Managed
Assets 6.52% 5.07% 6.26% 6.76% 6.64%
On Balance Sheet:
Allowance as a Percent
of Loans 17.06% 16.76% 12.24% 10.72% 10.61%
Net Credit Loss Rate 14.04% 12.23% 10.47% 10.39% 9.69%
Delinquency Rate
(30+ Days) 8.32% 7.58% 9.11% 8.93% 8.92%
Common Share Statistics:
EPS Basic:
EPS - Continuing
Operations $0.02 $(1.39) $0.20 $0.85 $0.83
EPS - Discontinued
Operations 0.01 (0.31) (0.05) (0.03) (0.03)
EPS - Extraordinary Item -- -- 0.05 -- --
EPS - Cumulative Effect
of Accounting Change -- -- -- -- 0.01
EPS - Basic $0.03 $(1.70) $0.20 $0.82 $0.81
EPS - Diluted: (B)
EPS - Continuing
Operations $0.02 $(1.39) $0.20 $0.82 $0.80
EPS - Discontinued
Operations 0.01 (0.31) (0.05) (0.03) (0.03)
EPS - Extraordinary Item -- -- 0.05 -- --
EPS - Cumulative Effect
of Accounting Change -- -- -- -- 0.01
EPS - Assuming Dilution $0.03 $(1.70) $0.20 $0.79 $0.78
Book Value Per Share
(Period End) $6.54 $6.70 $8.41 $8.53 $7.74
Total Market
Capitalization
(Period End) $2,181 $1,011 $5,727 $16,905 $13,990
Shares Outstanding
(Period End) 288.9 284.8 284.2 285.6 285.2
Weighted Average Shares
O/S - Basic 283.9 283.4 283.9 284.6 284.8
Weighted Average Shares
O/S - Diluted 288.5 283.4 295.0 297.6 298.0
Accounts 15.0 18.4 17.9 17.2 16.7
Employees (FTE) 10,153 11,897 12,209 11,750 11,774
(A) Risk-adjusted margin is total loan revenue less credit losses as a
percentage of average managed loans.
(B) EPS - Diluted - During the first three quarters of 2001, $2.0 million
of interest expense on the 3.25% Convertible Notes was added back to
income. During the forth quarter 2001 and the first quarter of 2002
there was no interest expense add-back because the effect would have
been antidilutive.
PROVIDIAN FINANCIAL CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Financial Condition
March 31, December 31,
(dollars in thousands) 2002 2001
(unaudited)
Assets
Cash and cash equivalents $388,008 $449,586
Federal funds sold and securities purchased
under resale agreements 3,535,500 1,611,000
Investment securities:
Available-for-sale 1,709,030 1,324,465
Loans held for securitization or sale 1,606,467 1,410,603
Loans receivable, less allowance for credit
losses of $1,413,734 at March 31, 2002 and
$1,932,833 at December 31, 2001 6,893,027 9,626,307
Premises and equipment, net 168,454 183,829
Interest receivable 105,819 116,053
Due from securitizations 2,277,453 2,926,181
Deferred taxes 1,043,515 1,030,340
Other assets 419,282 521,159
Assets of discontinued operations 582,161 738,643
Total assets $18,728,716 $19,938,166
Liabilities
Deposits $14,425,273 $15,318,165
Short-term borrowings 91,550 117,176
Long-term borrowings 865,446 959,281
Deferred fee revenue 394,966 468,310
Accrued expenses and other liabilities 936,476 885,780
Liabilities of discontinued operations 20,551 177,611
Total liabilities 16,734,262 17,926,323
Capital securities 104,332 104,332
Shareholders' equity 1,890,122 1,907,511
Total liabilities and shareholders' equity $18,728,716 $19,938,166
PROVIDIAN FINANCIAL CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Income
Three months ended
(dollars in thousands, except per share data) March 31,
(unaudited) 2002 2001
Interest income
Loans $488,085 $665,589
Federal funds sold and securities purchased under
resale agreements 5,609 8,281
Other 38,641 38,119
Total interest income 532,335 711,989
Interest expense
Deposits 195,303 204,765
Borrowings 11,752 19,503
Total interest expense 207,055 224,268
Net interest income 325,280 487,721
Provision for credit losses 880,079 411,595
Net interest income after provision for
credit losses (554,799) 76,126
Non-interest income
Servicing and securitizations 320,360 245,786
Credit product fee income 344,927 580,165
Other 447,893 46,698
Total non-interest income 1,113,180 872,649
Non-interest expense
Salaries and employee benefits 165,018 175,049
Solicitation and advertising 108,682 144,632
Occupancy, furniture, and equipment 53,232 51,837
Data processing and communication 49,286 53,697
Other 170,866 134,270
Total non-interest expense 547,084 559,485
Income from continuing operations before income
taxes 11,297 389,290
Income tax expense 4,462 153,756
Income from continuing operations after tax 6,835 235,534
Income (loss) from discontinued operations
- net of related taxes 3,184 (6,916)
Cumulative effect of change in accounting principle
- net of related taxes -- 1,846
Net Income $10,019 $230,464
Earnings per common share - basic
Income from continuing operations $0.02 $0.83
Income (loss) from discontinued operations
- net of related taxes 0.01 (0.03)
Cumulative effect of change in accounting principle
- net of related taxes -- 0.01
Net Income $0.03 $0.81
Earnings per common share - diluted
Income from continuing operations $0.02 $0.80
Income (loss) from discontinued operations
- net of related taxes 0.01 (0.03)
Cumulative effect of change in accounting principle
- net of related taxes -- 0.01
Net Income $0.03 $0.78
Cash dividends paid per common share $-- $0.03
Weighted average common shares outstanding
- basic 283,893 284,794
Weighted average common shares outstanding
- assuming dilution 288,540 298,042
PROVIDIAN FINANCIAL CORPORATION (PVN)
DELINQUENCY SUMMARY
EXCLUDING DISCONTINUED OPERATIONS
Quarterly
2002 2001
(dollars in thousands) Q1 Q4
% of % of
Total Total
Loans Loans Loans Loans
Reported
Loans outstanding (A) $10,881,235 100.00% $12,939,877 100.00%
Loans delinquent
30 - 59 days $286,575 2.63% $376,145 2.91%
60 - 89 days 206,075 1.89% 249,709 1.93%
90 or more days 413,163 3.80% 354,407 2.74%
Total $905,813 8.32% $980,261 7.58%
Managed
Loans outstanding (A) $23,111,887 100.00% $32,623,551 100.00%
Loans delinquent
30 - 59 days $670,325 2.90% $934,113 2.87%
60 - 89 days 509,754 2.21% 666,416 2.04%
90 or more days 1,181,527 5.11% 1,272,335 3.90%
Total $2,361,606 10.22% $2,872,864 8.81%
2001 2001
Q3 Q2
% of % of
Total Total
Loans Loans Loans Loans
Reported
Loans outstanding (A) $13,731,841 100.00% $14,044,324 100.00%
Loans delinquent
30 - 59 days $406,229 2.96% $426,425 3.04%
60 - 89 days 306,442 2.23% 312,880 2.23%
90 or more days 538,787 3.92% 514,290 3.66%
Total $1,251,458 9.11% $1,253,595 8.93%
Managed
Loans outstanding (A) $31,672,022 100.00% $30,035,836 100.00%
Loans delinquent
30 - 59 days $854,718 2.70% $799,126 2.66%
60 - 89 days 634,758 2.00% 581,992 1.94%
90 or more days 1,268,485 4.01% 1,043,373 3.47%
Total $2,757,961 8.71% $2,424,491 8.07%
2001
Q1
% of
Total
Loans Loans
Reported
Loans outstanding (A) $14,206,559 100.00%
Loans delinquent
30 - 59 days $368,503 2.59%
60 - 89 days 289,726 2.04%
90 or more days 609,430 4.29%
Total $1,267,659 8.92%
Managed
Loans outstanding (A) $28,111,704 100.00%
Loans delinquent
30 - 59 days $636,617 2.26%
60 - 89 days 483,764 1.72%
90 or more days 1,030,658 3.67%
Total $2,151,039 7.65%
Monthly
March February January
2002 2002 2002
Managed
Loans delinquent as a percentage of
loans outstanding 10.22% 10.48% 10.38%
Net credit losses as a percentage of
average loans outstanding 17.64% 15.95% 15.19%
(A) Loans outstanding include loans held for sale at par, and exclude SFAS
No. 133 market value adjustments.
Loan Loss Reserve Roll Forward
The activity in the allowance for credit losses for the three months ended
March 31, 2002 and 2001 is as follows:
Three months ended March 31,
(dollars in thousands) 2002 2001
Balance at beginning of period $1,932,833 $1,436,004
Provision for credit losses 491,849 411,595
Fair value adjustment - loans available for sale 388,230 --
Credit losses (451,029) (371,154)
Recoveries 37,794 31,927
Transfer of loans to available for sale (985,943) --
Balance at end of period $1,413,734 $1,508,372
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 Laurel Munson, +1-415-278-4770, all of
Providian Financial Corporation
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