SAN FRANCISCO, Oct. 18 /PRNewswire/ --
Providian Financial Corporation (NYSE: PVN) today reported results for its
quarter ended September 30, 2001. The Company also outlined details of its
action plan to improve the Company's risk profile and long-term earnings. It
also announced, separately, the resignation of Shailesh J. Mehta as Chairman.
Third Quarter Financial Results
For the third quarter 2001, the Company reported net income of $57.2
million or $0.20 per diluted share including a gain of $23 million, or $0.05
per share, realized from the early extinguishment of debt. This compares to
net income of $200.7 million, or $0.68 per diluted share, for the third
quarter 2000.
These results reflect actions the Company has taken to strengthen the
balance sheet including: 1) an incremental provision for loan losses of $186
million, and 2) a charge of $85 million to recognize the uncollectible portion
of accrued finance charges, and to increase the estimate of uncollectible fees
on accounts that are 90+ days delinquent. The results also reflect lower than
expected fee and finance charge revenue and higher than expected net credit
losses in September 2001.
The Company added more than 800,000 net new accounts bringing total
accounts to 18.5 million, a 23% increase over the end of the third quarter of
2000. Managed loans increased by $1.8 billion during the quarter bringing
total managed credit card loans to $32.2 billion, a 31% increase over the
third quarter of 2000.
Managed revenue totaled $1.7 billion, a 24% increase over the third
quarter of 2000. Managed net interest income was $1.0 billion and managed
non-interest income was $702.2 million, an increase of 33% and 13% over the
third quarter of 2000, respectively. The managed net interest margin on loans
was 12.94% in the third quarter, compared to 12.90% in the third quarter 2000,
and would have been 13.75% in the third quarter 2001 had the adjustment to
recognize the uncollectible portion of accrued finance charges been excluded.
The managed net credit loss rate for the third quarter was 10.33%, versus
10.29% in the second quarter of 2001. The 30+ day delinquency rate increased
to 8.66% from 8.04% in the second quarter, and would have been 8.90% excluding
the adjustment to recognize the uncollectible portion of accrued finance
charges and fees. The ratio of loan loss reserves to balance sheet loans
increased to 12.00% at September 30, 2001, from 10.55% at June 30, 2001 after
the $186 million incremental provision.
Risk-adjusted return was 11.88%, return on managed assets was 0.62%, and
return on equity was 9.40% for the quarter.
Fourth Quarter 2001 Earnings Outlook
Fourth quarter earnings per diluted share are currently expected to be in
the range of $0.10 to $0.15, resulting in full year 2001 earnings in the range
of $1.87 to $1.92 per diluted share, assuming continuation of trends in
September including higher than expected credit losses and incremental loan
loss provision, as well as lower-than-planned loan growth. Based on current
credit trends and loan growth projections, the managed net credit loss rate is
estimated to be slightly above 12.0% and would lead to an incremental loan
loss provision of at least $100 million for the fourth quarter.
Credit Outlook
Based on current projections, the Company expects 2002 net credit loss
dollars to increase significantly above 2001 levels. The Company cited two
primary reasons for the increase in net credit losses. The first reason is
deteriorating performance of certain loans originated prior to 2001 within the
Company's higher-risk standard segment and under certain line management
programs. The second is continued weakness in the U.S. economy, which is
projected to result in higher contractual and bankruptcy losses for the year,
as well as generally softer loan demand.
Strategic Action Plan
In light of this outlook, the Company has implemented a five-step action
plan to mitigate the sources of under-performance, to focus the business
around markets posting strong risk-adjusted returns, and to manage for solid
capital, reserves, and liquidity.
1. Reduce lending to the standard segment:
The Company is suspending lending to the highest risk segments of
the standard market. This will moderate loan balance growth and
reduce fee revenue. The Company will also selectively re-price
loans that exhibit increased risk levels. This could enhance risk-
adjusted returns on up to $5 billion in loans.
2. Accelerate line management cutbacks:
The Company has reduced line of credit increase programs in higher
loss segments by tightening eligibility criteria. This will further
moderate loan growth in 2002.
3. Focus marketing dollars toward our best risk/return segment:
The Company will focus marketing dollars toward its middle market
segment, where it continues to post strong returns. The Company
estimates that this target market comprises approximately 60 million
individuals in the U.S. The Company also intends to reduce
marketing in the lowest return segments of the platinum market,
where competition has driven down returns.
4. Initiate expense reduction review:
In this slower growth environment, the Company will initiate a
review of operations to identify opportunities to increase
efficiency and reduce costs.
5. Maintain strong balance sheet and liquidity:
The Company's funding, liquidity, and capital positions remain
strong. The ratio of loan loss reserves to balance sheet loans was
increased to 12.00% at September 30, 2001, from 10.55% at June 30,
2001. Capital and loan loss reserves totaled $4.2 billion, which
represents 19.7% of reported assets and 11.0% of managed assets at
September 30, 2001.
The Company's funding and liquidity position currently includes more than
$5 billion in cash and short-term investments and diversified sources of
retail and wholesale deposits, as well as broad access to the securitization
markets.
2002 Impact
The combined effect of these action steps is expected to be slower loan
growth in 2002 and an accelerated shift in the loan mix toward the higher
return middle market segment.
The Company expects to remain profitable in 2002.
About Providian Financial
Winner of the 2001 Rochester Institute of Technology/USA Today Quality Cup
for excellence in customer service, San Francisco-based Providian Financial is
a leading provider of lending and deposit products to customers throughout the
U.S., and offers credit cards and deposit products in the UK and in Argentina.
The Company has more than $38 billion in assets under management and over 18
million customer accounts.
Statements contained herein as to the Company's expectations and goals are
forward-looking statements under the Private Securities Litigation Reform Act
of 1995. Such forward-looking statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from those
projected. Among the significant risks and uncertainties are: competitive
pressures arising from aggressive competition from other consumer lenders;
factors that affect the delinquency rate on the Company's consumer loans and
the rate at which the Company's consumer loans are charged off; the Company's
ability to grow its consumer loan portfolio; changes in the cost and
availability of funding due to changes in the deposit, credit or
securitization markets, or the way in which the Company is perceived in such
markets; the effects of government policy and regulation, including
restrictions and/or limitations arising from banking laws, regulations and
examinations; legal proceedings; one-time charges; extraordinary items; and
the ability to attract and retain key personnel. Readers are cautioned not to
place undue reliance on foreword-looking statements, which speak only as of
the date hereof. The Company undertakes no obligation to update any forward-
looking statements. More information on risk factors affecting the Company is
available in the Company's filings with the Securities and Exchange
Commission, including its annual report on Form 10-K, quarterly reports on
Form 10-Q, and current reports on Form 8-K.
PROVIDIAN FINANCIAL CORPORATION (PVN)
FINANCIAL & STATISTICAL SUMMARY
(in millions, except per 2001 2001 2001 2000 2000
share and employee data) Q3 Q2 Q1 Q4 Q3
Earnings (Managed Basis): Adjusted (A)
Net Interest Income $1,013.0 $962.2 $889.3 $835.1 $761.3
Non-Interest Income 702.2 802.4 794.7 825.5 620.2
Total Revenue 1,715.2 1,764.6 1,684.0 1,660.6 1,381.5
Provision for Loan
Losses 995.5 758.9 722.7 663.5 497.3
Non-Interest Expense 648.1 621.6 583.4 603.8 549.7
Income From Operations
Before Taxes 71.6 384.1 377.9 393.3 334.5
Tax Expense 28.3 151.7 149.2 157.3 133.8
Income From Operations $43.3 $232.4 $228.7 $236.0 $200.7
Extraordinary Item-
Extinguishment of Debt 13.9 -- -- -- --
Cumulative Effect of
Accounting Change -- -- 1.8 -- --
Net Income $57.2 $232.4 $230.5 $236.0 $200.7
Managed Financial Data:
Quarter End:
Credit Cards $32,243 $30,456 $28,393 $27,109 $24,130
Home Loans 11 11 12 14 419
Total Loans $32,254 $30,467 $28,405 $27,123 $24,549
Securitized Loans $17,940 $15,992 $13,905 $13,353 $10,284
Total Assets $38,201 $36,061 $33,219 $30,863 $28,717
Total Capital (Includes
Capital Securities) $2,496 $2,548 $2,318 $2,143 $1,972
Total Equity $2,390 $2,437 $2,207 $2,032 $1,812
Quarter Average:
Credit Cards $31,298 $29,293 $27,673 $25,166 $22,959
Home Loans 11 12 14 22 436
Total Loans $31,309 $29,305 $27,687 $25,188 $23,395
Securitized Loans $16,457 $14,648 $13,425 $11,662 $9,992
Earning Assets $36,335 $32,748 $30,653 $28,868 $26,800
Total Assets $36,837 $34,245 $31,507 $29,556 $27,480
Total Equity $2,437 $2,319 $2,118 $1,923 $1,690
Key Statistics:
Managed:
Net Interest Margin
(Earning Assets) 11.15% 11.75% 11.60% 11.57% 11.36%
Net Interest Margin
(Loans) 12.94% 13.13% 12.77% 13.13% 12.90%
Risk-Adjusted Margin
(Loans) (B) 11.88% 13.79% 14.91% 17.76% 15.89%
Return on Assets 0.62% 2.71% 2.93% 3.19% 2.92%
Return on Equity 9.40% 40.08% 43.52% 49.08% 47.49%
Net Credit Losses $808.7 $754.2 $646.3 $533.9 $445.1
Net Credit Loss Rate 10.33% 10.29% 9.34% 8.48% 7.61%
Delinquency Rate
(30+ Days) 8.66% 8.04% 7.64% 7.52% 6.71%
Equity to Managed Assets 6.26% 6.76% 6.64% 6.58% 6.31%
On Balance Sheet:
Allowance as a Percent
of Loans 12.00% 10.55% 10.51% 10.50% 10.12%
Net Credit Loss Rate 10.26% 10.21% 9.62% 9.42% 8.36%
Delinquency Rate
(30+ Days) 9.00% 8.83% 8.88% 8.97% 8.07%
Common Share Statistics:
EPS Before Extraordinary
Item and Acctg Change:
EPS - Basic $0.15 $0.82 $0.80 $0.83 $0.71
EPS - Assuming Dilution (C) $0.15 $0.79 $0.77 $0.80 $0.68
EPS After Extraordinary
Item and Acctg Change:
EPS - Basic $0.20 $0.82 $0.81 $0.83 $0.71
EPS - Assuming Dilution (C) $0.20 $0.79 $0.78 $0.80 $0.68
Book Value Per Share
(Period End) $8.41 $8.53 $7.74 $7.11 $6.34
Total Market
Capitalization (Period
End) $5,727 $16,905 $13,990 $16,440 $18,150
Shares Outstanding
(Period End) 284.2 285.6 285.2 285.9 285.8
Weighted Average Shares
O/S - Basic 283.9 284.6 284.8 284.7 284.4
Weighted Average Shares
O/S - Diluted 295.0 297.6 298.0 297.7 295.4
Accounts 18.5 17.7 17.1 16.3 15.0
Employees (FTE) 13,084 12,631 12,434 12,449 11,625
(A) Represents 2000 financial and statistical earnings information
adjusted to exclude the one-time settlement charges and the gain on
the sale of home equity loans. Asset, liability, and equity balances
have not been adjusted.
(B) Risk-adjusted margin is total loan revenue less credit losses as a
percentage of average managed loans.
(C) EPS -- Assuming Dilution reflects a $2.0 million net of tax add-back
to net income representing interest expense on a 3.25% Convertible
Note in accordance with FAS 128.
PROVIDIAN FINANCIAL CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(dollars in thousands, except per share data) (unaudited)
Three Months Ended Nine Months Ended
September September
2001 2000 2001 2000
Interest Income:
Loans $607,267 $633,589 $1,944,244 $1,804,460
Federal funds sold and
securities purchased
under resale agreements 19,538 16,782 35,641 68,130
Other 38,939 40,954 113,653 100,213
Total interest income 665,744 691,325 2,093,538 1,972,803
Interest Expense:
Deposits 235,084 211,312 659,787 598,624
Borrowings 15,445 13,459 52,135 47,676
Total interest expense 250,529 224,771 711,922 646,300
Net interest income 415,215 466,554 1,381,616 1,326,503
Provision for credit losses 567,960 332,241 1,366,288 1,067,044
Net interest income
after provision for
credit losses (152,745) 134,313 15,328 259,459
Non-Interest Income 872,477 749,894 2,671,344 2,301,238
Non-Interest Expense:
Salaries and employee
benefits 186,025 179,056 556,855 527,371
Solicitation and
advertising 179,021 138,821 483,378 369,963
Occupancy, furniture, and
equipment 57,276 44,149 168,858 119,364
Data processing and
communication 51,378 46,940 163,156 132,248
Other 174,398 140,782 480,844 682,164
648,098 549,748 1,853,091 1,831,110
Income from
operations before
income taxes 71,634 334,459 833,581 729,587
Income tax expense 28,296 133,793 329,265 291,831
Income from operations 43,338 200,666 504,316 437,756
Extraordinary item
extinguishment of debt 13,905 -- 13,905 --
Cumulative effect of change
in accounting principle -- -- 1,846 --
Net Income $57,243 $200,666 $520,067 $437,756
Earnings per common share -
basic $0.20 $0.71 $1.83 $1.54
Earnings per common share -
assuming dilution $0.20 $0.68 $1.77 $1.50
Cash dividends paid per common
share $0.0300 $0.0250 $0.0900 $0.0750
Weighted average common shares
outstanding - basic (000) 283,864 284,372 284,542 283,886
Weighted average common shares
outstanding - assuming
dilution (000) 294,865 295,428 297,076 292,272
PROVIDIAN FINANCIAL CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Financial Condition
(dollars in thousands) (unaudited)
September 30 December 31
2001 2000
Assets
Cash and cash equivalents $1,060,144 $446,705
Federal funds sold and securities
purchased under resale agreements 2,652,100 307,206
Investment securities:
Available-for-sale 1,674,152 1,885,474
Held-to-maturity -- 686,214
Loans receivable, less allowance
for credit losses of $1,713,734
at September 30, 2001 and
$1,445,638 at December 31, 2000 12,599,991 12,324,519
Premises and equipment, net 197,418 193,327
Interest receivable 158,206 158,633
Due from securitizations 1,764,592 971,939
Deferred taxes 659,272 679,782
Other assets 648,589 401,514
Total assets $21,414,464 $18,055,313
Liabilities
Deposits $15,917,807 $13,113,416
Short-term borrowings 120,964 18,744
Long-term borrowings 1,128,993 1,024,163
Deferred fee revenue 501,115 661,646
Accrued expenses and other liabilities 1,249,410 1,094,104
Total liabilities 18,918,289 15,912,073
Capital securities 106,427 111,057
Shareholders' equity 2,389,748 2,032,183
Total liabilities and
shareholders' equity $21,414,464 $18,055,313
PROVIDIAN FINANCIAL CORPORATION (PVN)
DELINQUENCY AND CREDIT SUMMARY
Quarterly
2001 2001
(dollars in thousands) Q3 Q2
% of Total % of Total
Loans Loans Loans Loans
Reported
Loans outstanding (A) $14,281,727 100.00% $14,460,329 100.00%
Loans delinquent
30 - 59 days $417,182 2.92% $434,364 3.00%
60 - 89 days 313,864 2.20% 318,290 2.20%
90 or more days 553,846 3.88% 524,532 3.63%
Total $1,284,892 9.00% (B) $1,277,186 8.83%
Managed
Loans outstanding (A) $32,221,908 100.00% $30,451,841 100.00%
Loans delinquent
30 - 59 days $865,671 2.69% $807,065 2.65%
60 - 89 days 642,180 1.99% 587,402 1.93%
90 or more days 1,283,544 3.98% 1,053,615 3.46%
Total $2,791,395 8.66% (B) $2,448,082 8.04%
2001 2000
(dollars in thousands) Q1 Q4
% of Total % of Total
Loans Loans Loans Loans
Reported
Loans outstanding (A) $14,493,969 100.00% $13,770,157 100.00%
Loans delinquent
30 - 59 days $373,850 2.58% $414,735 3.01%
60 - 89 days 293,558 2.02% 301,757 2.19%
90 or more days 619,825 4.28% 518,338 3.77%
Total $1,287,233 8.88% $1,234,830 8.97%
Managed
Loans outstanding (A) $28,399,114 100.00% $27,122,815 100.00%
Loans delinquent
30 - 59 days $641,964 2.26% $682,011 2.51%
60 - 89 days 487,596 1.72% 484,706 1.79%
90 or more days 1,041,053 3.66% 874,116 3.22%
Total $2,170,613 7.64% $2,040,833 7.52%
Monthly
September August July
2001 2001 2001
Managed
Loans 30+ days delinquent
as a percentage of loans
outstanding 8.66% (B) 8.64% 8.47%
Net credit losses as a
percentage of average
loans outstanding 10.77% 10.21% 10.00%
(A) 2001 loans outstanding exclude SFAS No. 133 market value adjustments
(B) Delinquency rates for the 3Q 2001 excluding the $85 million charge to
recognize the estimated uncollectible portion of accrued finance
charges and the increase of estimated uncollectible fees are 9.54% and
8.90% for reported and managed loans, respectively.
SOURCE Providian Financial Corporation
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Related links:
http://www.providian.com
CONTACT:
investors, Nancy Murphy, Investor Relations,
+1-415-278-4483, or Jack Carsky, +1-415-278-4977, or Bill
Horning, +1-415-278-4602, or media, Alan Elias, +1-415-278-4189
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