Restructuring Efforts Yield Successful Results
SAN FRANCISCO, July 30 /PRNewswire-FirstCall/ -- Providian Financial
Corporation (NYSE: PVN) today announced net income for the second quarter of
2002 of $153.9 million, or $0.53 per diluted share, which includes the effect
of asset dispositions and other significant items described below. These
results compare to net income of $232.4 million, or $0.79 per diluted share,
for the second quarter of 2001.
With the completion of the restructuring actions taken to date and based
on the implementation of its strategic initiatives, the Company expects to
report aggregate earnings for the full year ending December 31, 2002 of
between $180 and $200 million, or $0.61 to $0.68 per diluted share.
In a continuation of its restructuring effort to align its operations
infrastructure with its business going forward, the Company also announced the
closure of its Sacramento operations facility, effective immediately, and
plans to close facilities in Fairfield, California and Salt Lake City, Utah by
the end of this year. Approximately 300 employees will be affected by the
closing of the Sacramento facility and an additional 1,000 employees will be
affected at the Fairfield and Salt Lake City facilities. The Company
estimates that it will realize operating, salary and benefit expense savings
of approximately $10.4 million over the remainder of 2002 and $66.8 million
in 2003 as a result of these closures. The Company took a one-time charge of
approximately $37.9 million in the second quarter of 2002 to reflect the
decommissioning and associated costs for facilities closures.
"I am extremely pleased with our progress this quarter," said
Joseph Saunders, Providian's chairman and chief executive officer. "With the
completion of the structured sale of the higher risk portfolio and today's
personnel announcements, we have not only completed the asset dispositions
contemplated in our five-point strategic plan but have essentially completed
the associated restructuring of our workforce. As a result of these
transactions and our other strategic initiatives, we have significantly
enhanced our capital and liquidity position, and we have reduced our credit
risk profile. There's been a lot of hard work and some pain, but we are on
track with our commitments and I am proud of our accomplishments to date."
Commenting further on developments concerning Providian's workforce,
Saunders stated that "Our Sacramento, Fairfield and Salt Lake City employees
have made valuable and lasting contributions to this company. I deeply regret
the need to take these steps. We will work closely with the employees
affected by these changes to provide them with an appropriate transition
package as well as outplacement and other benefits."
The Company's second quarter financial results reflect actions taken by
its bank subsidiaries to reduce their credit risk profile, improve their focus
on the middle and prime market segments, and further strengthen their balance
sheets. Significant items during the second quarter are described in detail
below:
Effects of Portfolio Sales
The net effect of the sales during the second quarter resulted in an
increase to income of approximately $39.3 million, comprised of the following
items:
-- Completion of the structured sale of approximately $2.4 billion of
higher risk credit card receivables on June 25, 2002 in a transaction
developed in conjunction with two limited liability companies formed by
affiliates of Goldman, Sachs & Co., Salomon Smith Barney, CardWorks,
Inc., and CompuCredit Corporation. In addition to the pre-tax charge
of approximately $400 million recognized in the first quarter of 2002,
the Company recognized a pre-tax charge in the second quarter
of approximately $4.5 million.
-- The sale of the higher risk portfolio resulted in the removal of those
assets from the methodology, including the historical roll rate
calculation, used to estimate uncollectible loan balances. As a
result, the Company recognized a pre-tax benefit of approximately
$81.7 million comprised of a $66.6 million reduction in the allowance
for loan losses and a $15.1 million net reduction in the estimate of
uncollectible portion of finance charges and fees.
-- A pre-tax charge of $37.9 million to reflect the decommissioning and
associated costs for facilities closures. As a result of these
actions, the Company expects to realize operating, salary and benefit
expense savings over the remainder of 2002 and 2003 of approximately
$77.2 million.
Discontinued Operations
The net effect of sales of discontinued operations during the second
quarter of 2002 resulted in an increase to income of approximately
$103.6 million, comprised of the following items:
-- Completion of the sale of the U.K. credit card business to Barclaycard,
a division of Barclays PLC, on April 18, 2002. The cash proceeds from
the sale were over $600 million and resulted in a pre-tax gain of
approximately $95.6 million.
-- Completion of the sale of the Argentina operations to a local investor
group in Buenos Aires on May 13, 2002. The consummation of this
transaction resulted in a pre-tax gain of approximately $8.0 million
during the second quarter. During the fourth quarter of 2001, the
Company recognized a $133 million pre-tax charge primarily related to
the estimated losses from the devaluation of the Argentine peso and the
reclassification of its Argentine operations as discontinued.
Estimates of Loan Collectibility
In addition to the reduction to the allowance described above, the net
effect of changes to estimates of loan collectibility resulted in an increase
to income of approximately $65.3 million during the second quarter, comprised
of the following items:
-- The allowance for loan losses was reduced by approximately
$122.2 million, reflecting the 10% sequential reduction in the size of
the reported loan portfolio. At the end of the second quarter of 2002,
the allowance for loan losses was $1.2 billion, representing 16.34% of
reported loans.
-- Charges totaling approximately $56.9 million to increase the estimate
of the uncollectible portion of finance charges and fees for charge
-offs due to bankruptcy. These charges reduced net interest income and
non-interest income by $22.0 million and $34.9 million, respectively.
Capital and Liquidity
The Company ended the quarter with total equity, including capital
securities, of $2.2 billion and an allowance for loan losses of $1.2 billion,
which together represent 45% of reported loans and 17% of managed loans. Cash
and investments increased during the second quarter by over $2.2 billion and
ended the quarter at approximately $7.9 billion, representing approximately
40% of total managed credit card loans.
"Building on the momentum of the first quarter, our second quarter results
have further strengthened our liquidity and capital position," said Anthony
Vuoto, Providian's vice chairman and chief financial officer. "The Company is
in a solid financial position to manage our existing portfolio and to grow our
new business in the middle and prime market."
The Company's principal banking subsidiaries remain on track with the
requirements of the Capital Plan. For the second quarter of 2002, these
subsidiaries must maintain total risk-based capital ratios at "well
capitalized" levels as shown on their Call Reports, and Providian National
bank is required to maintain 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 June 30, 2002,
Providian National Bank and Providian Bank exceeded the 10% "well capitalized"
level with total risk-based capital ratios of 17.41% and 14.57%, respectively.
After application of the Subprime Guidance risk weightings, Providian National
Bank exceeded the 8.00% threshold with a total risk-based capital ratio of
12.32%. This ratio was 11.88% for the banks on a combined basis.
Financial Results
The Company ended the second quarter with $19.6 billion in total managed
credit card loans and 12.9 million accounts, down from $22.1 billion in
managed credit card loans and 15.0 million accounts at the end of the first
quarter 2002. The sequential reduction in the total managed credit card loans
and accounts reflect the sale of the high risk loan portfolio including $1.4
billion in net book value and 1.3 million accounts as well as other actions
taken by the Company to manage the remaining managed portfolio. During the
second quarter, the Company originated approximately 350,000 new customer
accounts with a balanced distribution in the middle and prime market segments
of approximately 65% and 35%, respectively.
Total managed revenue for the second quarter of 2002, comprised of net
interest income and non-interest income, was $1.32 billion. Managed net
interest income for the second quarter of 2002 was $783.2 million and the
managed net interest margin on loans was 16.38%. Managed non-interest income
for the second quarter was $532.6 million.
The managed net credit loss rate and the managed 30+ day delinquency rate
for the second quarter of 2002 were 17.53% and 10.16%, respectively.
Consistent with the Company's expectation, the quarter ended with a managed
net credit loss rate for the month of June 2002 of 17.22%, down from the
managed net credit loss rate for the month of March 2002 of 17.64%. For the
first two quarters of 2002 the Company reported managed net credit losses of
approximately $1.9 billion and expects that managed net credit losses for the
full year 2002 will be approximately $3.6 billion. Based upon current
delinquency trends and historical patterns, the Company expects that the
managed net credit loss dollars will decline in the third quarter and show a
modest increase in the fourth quarter.
The Company continued to build its customer franchise by investing
$104.2 million in solicitation and advertising during the second quarter. This
compares to $108.7 million spent on solicitation and advertising in the first
quarter of 2002. Other non-interest expense (excluding solicitation and
advertising) was $385.1 million for second quarter 2002 and included
approximately $37.9 million in facilities decommissioning charges and related
costs previously described. The quarter's results compare to non-interest
expense (excluding solicitation and advertising) of $438.4 million in the
first quarter of 2002, a sequential decrease of approximately $53.3 million.
The Company expects to realize further reductions in non-interest expense upon
completion of its interim servicing obligations for previously announced asset
sales and the implementation of additional steps in its infrastructure
reduction plan. Additionally, the Company is continuing to identify various
avenues for potential cost savings and plans to continue to lower its overall
cost structure over the remainder of 2002.
Strategic Review
Since the Company announced its five-point strategic plan on
October 18, 2001, it has taken the following actions:
-- Completed the structured sale, through a limited liability subsidiary
of Providian National Bank, of its higher risk portfolio in a
transaction developed in conjunction with two limited liability
companies formed by affiliates of Goldman, Sachs and Co., Salomon Smith
Barney, CardWorks, Inc., and CompuCredit Corporation
-- Completed the sale of its credit card operations in the United Kingdom
to Barclaycard, a division of Barclays PLC
-- Completed the sale of its operations in Argentina to a local investor
group in Buenos Aires
-- Completed the sale of its interests in the Providian Master Trust to JP
Morgan Chase
-- Reached an agreement with its regulators for managing capital and
growth
-- Completed over $2.8 billion of securitization transactions
-- Discontinued all new account marketing in the standard market segment,
tightened credit line increases across all segments and selectively
re-priced loans that have exhibited increased risk levels
-- Closed operations centers in Henderson, Nevada and Sacramento,
California and announced the phase out of operations centers in
Fairfield, California and Salt Lake City, Utah by the end of 2002
-- Announced total workforce reductions of approximately 47%
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; Susan Gleason as Vice Chairman,
Operations and Systems; Anthony Vuoto as Vice Chairman, Chief Financial
Officer; Richard Lewis as Chief Credit Officer; Jim Saber as Chief
Information Officer; and promoting Jim Jones to Vice Chairman, Credit
and Collections
San Francisco-based Providian Financial is a leading provider of lending
and deposit products to customers throughout the United States. The Company
has approximately $20 billion in managed receivables and 13 million customer
accounts.
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; the success of product development efforts; 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 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, 2001 under the headings "Cautionary
Statement Regard Forward-Looking Information" and "Risk Factors." Readers are
cautioned not to place under 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.
Note: Investor information is available on Providian Financial's website
at http://www.providian.com.
PROVIDIAN FINANCIAL CORPORATION (PVN)
FINANCIAL & STATISTICAL SUMMARY
EXCLUDING DISCONTINUED OPERATIONS
2002 2002 2001 2001 2001
(in millions, except per
share and employee data) Q2 Q1 Q4 Q3 Q2
Earnings (Managed Basis):
Net Interest Income $783.2 $962.4 $990.9 $996.5 $949.1
Non-Interest Income 532.6 1,079.1 224.4 687.1 783.4
Total Revenue 1,315.8 2,041.5 1,215.3 1,683.6 1,732.5
Provision for Loan
Losses 677.9 1,483.1 1,272.0 977.5 749.4
Non-Interest Expense 489.3 547.1 596.6 610.1 581.4
Income From Operations
Before Taxes 148.6 11.3 (653.3) 96.0 401.7
Tax Expense 58.7 4.5 (258.0) 37.9 158.6
Income From Operations $89.9 $6.8 $(395.3) $58.1 $243.1
Discontinued Operations 64.0 3.2 (85.9) (14.8) (10.7)
Extraordinary Item-
Extinguishment of Debt -- -- -- 13.9 --
Cumulative Effect of
Accounting Change -- -- -- -- --
Net Income $153.9 $10.0 $(481.2) $57.2 $232.4
Managed Financial Data:
Quarter End:
Credit Cards $19,630 $22,134 $32,644 $31,693 $30,040
Home Loans 9 10 10 11 11
Total Loans $19,639 $22,144 $32,654 $31,704 $30,051
Securitized Loans $12,126 $12,231 $19,684 $17,940 $15,992
Total Assets $28,014 $28,994 $37,659 $38,201 $36,061
Total Capital (Includes
Capital Securities) $2,185 $1,994 $2,012 $2,496 $2,548
Total Equity $2,081 $1,890 $1,908 $2,390 $2,437
Quarter Average:
Credit Cards $19,764 $26,994 $32,103 $30,811 $28,903
Home Loans 9 9 13 11 12
Total Loans $19,773 $27,003 $32,116 $30,822 $28,915
Securitized Loans $12,195 $15,246 $18,001 $16,457 $14,648
Earning Assets $26,438 $31,673 $36,324 $35,841 $32,338
Total Assets $28,576 $32,667 $37,627 $36,837 $34,245
Total Equity $2,008 $1,962 $2,251 $2,437 $2,319
Key Statistics:
Managed:
Net Interest Margin
(Earning Assets) 11.85% 12.15% 10.91% 11.12% 11.74%
Net Interest Margin
(Loans) 16.38% 14.45% 12.31% 12.94% 13.14%
Risk-Adjusted Margin
(Loans) (A) 9.62% 15.38% 2.40% 11.43% 13.60%
Return on Assets 2.15% 0.12% -5.12% 0.62% 2.71%
Return on Equity 30.64% 2.04% -85.52% 9.40% 40.08%
Net Credit Losses $866.7 $1,016.3 $1,020.0 $803.8 $750.6
Net Credit Loss Rate 17.53% 15.05% 12.70% 10.43% 10.38%
Delinquency Rate (30+
Days) 10.16% 10.22% 8.81% 8.71% 8.07%
Equity to Managed
Assets 7.43% 6.52% 5.07% 6.26% 6.76%
On Balance Sheet:
Allowance as a Percent
of Loans 16.34% 17.06% 16.76% 12.24% 10.72%
Net Credit Loss Rate 14.21% 14.04% 12.23% 10.47% 10.39%
Delinquency Rate (30+
Days) 7.29% 8.32% 7.58% 9.11% 8.93%
Common Share Statistics:
EPS Basic:
EPS - Continuing
Operations $0.32 $0.02 $(1.39) $0.20 $0.85
EPS - Discontinued
Operations 0.22 0.01 (0.31) (0.05) (0.03)
EPS - Extraordinary
Item -- -- -- 0.05 --
EPS - Cumulative Effect
of Accounting Change -- -- -- -- --
EPS - Basic $0.54 $0.03 $(1.70) $0.20 $0.82
EPS - Diluted: (B)
EPS - Continuing
Operations $0.31 $0.02 $(1.39) $0.20 $0.82
EPS - Discontinued
Operations 0.22 0.01 (0.31) (0.05) (0.03)
EPS - Extraordinary
Item -- -- -- 0.05 --
EPS - Cumulative Effect
of Accounting Change -- -- -- -- --
EPS - Assuming Dilution $0.53 $0.03 $(1.70) $0.20 $0.79
Book Value Per Share
(Period End) $7.20 $6.54 $6.70 $8.41 $8.53
Total Market
Capitalization (Period
End) $1,700 $2,181 $1,011 $5,727 $16,905
Shares Outstanding
(Period End) 289.1 288.9 284.8 284.2 285.6
Weighted Average Shares
O/S - Basic 284.2 283.9 283.4 283.9 284.6
Weighted Average Shares
O/S - Diluted 294.2 288.5 283.4 295.0 297.6
Accounts 12.9 15.0 18.4 17.9 17.2
Employees (FTE) 8,393 10,153 11,897 12,209 11,750
(A) Risk-adjusted margin is total loan revenue less credit losses as a
percentage of average managed loans.
(B) EPS - Diluted - During the first quarter of 2002 and the first three
quarters of 2001, $2.0 million of interest expense on the
3.25% Convertible Note 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 (PVN)
DELINQUENCY SUMMARY
EXCLUDING DISCONTINUED OPERATIONS
Quarterly
2002 2002
(dollars in thousands) Q2 Q1
% of % of
Total Total
Loans Loans Loans Loans
Reported
Loans outstanding (A) $7,495,030 100.00% $10,881,235 100.00%
Loans delinquent
30 - 59 days $209,450 2.79% $286,575 2.63%
60 - 89 days 139,787 1.87% 206,075 1.89%
90 or more days 197,206 2.63% 413,163 3.80%
Total $546,443 7.29% $905,813 8.32%
Managed
Loans outstanding (A) $19,620,861 100.00% $23,111,887 100.00%
Loans delinquent
30 - 59 days $645,394 3.29% $670,325 2.90%
60 - 89 days 451,711 2.30% 509,754 2.21%
90 or more days 896,284 4.57% 1,181,527 5.11%
Total $1,993,389 10.16% $2,361,606 10.22%
Quarterly
2001 2001
(dollars in thousands) Q4 Q3
% of % of
Total Total
Loans Loans Loans Loans
Reported
Loans outstanding (A) $12,939,877 100.00% $13,731,841 100.00%
Loans delinquent
30 - 59 days $376,145 2.91% $406,229 2.96%
60 - 89 days 249,709 1.93% 306,442 2.23%
90 or more days 354,407 2.74% 538,787 3.92%
Total $980,261 7.58% $1,251,458 9.11%
Managed
Loans outstanding (A) $32,623,551 100.00% $31,672,022 100.00%
Loans delinquent
30 - 59 days $934,113 2.87% $854,718 2.70%
60 - 89 days 666,416 2.04% 634,758 2.00%
90 or more days 1,272,335 3.90% 1,268,485 4.01%
Total $2,872,864 8.81% $2,757,961 8.71%
Quarterly
2001
(dollars in thousands) Q2
% of
Loans Total Loans
Reported
Loans outstanding (A) $14,044,324 100.00%
Loans delinquent
30 - 59 days $426,425 3.04%
60 - 89 days 312,880 2.23%
90 or more days 514,290 3.66%
Total $1,253,595 8.93%
Managed
Loans outstanding (A) $30,035,836 100.00%
Loans delinquent
30 - 59 days $799,126 2.66%
60 - 89 days 581,992 1.94%
90 or more days 1,043,373 3.47%
Total $2,424,491 8.07%
(A) Loans outstanding include loans held for sale at par, and exclude
SFAS No. 133 market value adjustments.
Condensed Consolidated Statements of Financial Condition
Providian Financial Corporation and Subsidiaries
June 30, December 31,
(dollars in thousands) 2002 2001
(unaudited)
Assets
Cash and cash equivalents $384,968 $449,586
Federal funds sold and securities
purchased under resale
agreements 5,604,000 1,611,000
Investment securities:
Available-for-sale 1,862,759 1,324,465
Loans held for securitization or
sale -- 1,410,603
Loans receivable, less allowance
for credit losses of $1,224,901
at June 30, 2002 and $1,932,833
at December 31, 2001 6,288,222 9,626,307
Premises and equipment, net 153,945 183,829
Interest receivable 93,121 116,053
Due from securitizations 2,471,330 2,926,181
Deferred taxes 483,713 1,030,340
Other assets 456,901 521,159
Assets of discontinued operations -- 738,643
Total assets $17,798,959 $19,938,166
Liabilities
Deposits $13,906,683 $15,318,165
Short-term borrowings 91,553 117,176
Long-term borrowings 870,932 959,281
Deferred fee revenue 283,249 468,310
Accrued expenses and other
liabilities 461,337 885,780
Liabilities of discontinued
operations -- 177,611
Total liabilities 15,613,754 17,926,323
Capital securities 104,332 104,332
Shareholders' equity 2,080,873 1,907,511
Total liabilities and
shareholders' equity $17,798,959 $19,938,166
Condensed Consolidated Statements of Income
Providian Financial Corporation and Subsidiaries
Three months ended Six months ended
June 30, June 30,
(dollars in thousands, except
per share data) 2002 2001 2002 2001
Interest income
Loans $350,482 $647,182 $838,567 $1,312,771
Federal funds sold and
securities purchased
under resale agreements 7,098 7,749 12,707 16,030
Other 46,813 36,231 85,454 74,350
Total interest income 404,393 691,162 936,728 1,403,151
Interest Expense
Deposits 185,738 217,831 381,041 422,596
Borrowings 10,280 15,557 22,032 35,060
Total interest expense 196,018 233,388 403,073 457,656
Net interest income 208,375 457,774 533,655 945,495
Provision for credit losses 80,385 369,316 960,464 780,911
Net interest income
after provision
for credit losses 127,990 88,458 (426,809) 164,584
Non-interest income
Servicing and
securitizations 124,830 268,617 445,190 514,403
Credit product fee income 286,200 568,348 631,127 1,148,514
Other 98,959 57,642 546,852 104,338
509,989 894,607 1,623,169 1,767,255
Non-interest expense
Salaries and employee
benefits 138,860 176,472 303,878 351,521
Solicitation and
advertising 104,189 134,742 212,871 279,374
Occupancy, furniture, and
equipment 82,523 52,399 135,755 104,236
Data processing and
communication 44,708 53,767 93,994 107,464
Other 119,054 164,001 289,920 298,271
489,334 581,381 1,036,418 1,140,866
Income from
continuing
operations before
income taxes 148,645 401,684 159,942 790,973
Income tax expense 58,715 158,679 63,177 312,434
Income from
continuing
operations after tax 89,930 243,005 96,765 478,539
Income (loss) from discontinued
operations - net of related
taxes 63,972 (10,645) 67,156 (17,561)
Cumulative effect of change in
accounting principle - net of
related taxes -- -- -- 1,846
Net Income $153,902 $232,360 $163,921 $462,824
Earnings per common share -
basic
Income from continuing
operations $0.32 $0.85 $0.34 $1.68
Income (loss) from
discontinued operations -
net of related taxes 0.22 (0.03) 0.24 (0.06)
Cumulative effect of change
in accounting principle -
net of related taxes -- -- -- 0.01
Net Income $0.54 $0.82 $0.58 $1.63
Earnings per common share -
diluted
Income from continuing
operations $0.31 $0.82 $0.34 $1.62
Income (loss) from
discontinued operations -
net of related taxes 0.22 (0.03) 0.23 (0.06)
Cumulative effect of change
in accounting principle -
net of related taxes -- -- -- 0.01
Net Income $0.53 $0.79 $0.57 $1.57
Weighted average common shares
outstanding - basic (000) 284,250 284,602 284,163 284,767
Weighted average common shares
outstanding - assuming
dilution (000) 294,172 297,601 293,847 297,993
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,
+1-415-850-3597, or Laurel Munson, +1-415-716-2297, all of
Providian Financial Corporation
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