Restructuring Remains on Track
SAN FRANCISCO, Oct. 28 /PRNewswire-FirstCall/ -- Providian Financial
Corporation (NYSE: PVN) today announced net income for the third quarter of
2002 of $42.1 million, or $0.15 per diluted share, which includes several
items described below. These results compare to net income of $57.2 million,
or $0.20 per diluted share, for the third quarter of 2001. For the first nine
months of 2002 net income was $206.0 million, or $0.72 per diluted share,
compared to $520.1 million, or $1.77 per diluted share for the nine months
ended September 30, 2001.
"We are pleased with our results for the quarter," said Joseph Saunders,
Providian's chairman and chief executive officer. "Against the backdrop of a
challenging economic environment, our restructuring initiatives are gaining
traction. During the third quarter we experienced good results from our new
marketing initiatives, made further progress in managing our existing
portfolio and continued to reduce our operating expenses. Overall, we are
very encouraged by the progress we have achieved to date and we continue to
remain optimistic about the future of Providian Financial."
Financial Results
Total managed revenue for the third quarter of 2002, comprised of net
interest income and non-interest income, was $1.2 billion. Managed net
interest income for the third quarter of 2002 was $779.8 million and managed
net interest margin on loans in the third quarter was 16.73%. Managed
non-interest income for the third quarter of 2002 was $444.1 million.
Income tax expense in the third quarter of 2002 included a non-recurring
tax benefit of $30 million, or $0.10 per diluted share, arising from a change
in California tax law related to reserves for loan losses.
In the third quarter of 2002, the Company realized several effects to its
estimate for loan collectibility which led to a decrease in pre-tax income of
$43.5 million, comprised of the following items:
-- Asset quality trends and the widening of spreads for asset backed
securities affected the valuation of residual securitization interests
resulting in charges totaling $77.1 million to non-interest income.
-- The Company's estimate of uncollectible finance charges and fees was
increased during the quarter, resulting in a $10.9 million reduction to net
interest income and a $7.6 million reduction to non-interest income.
-- The Company continued to positively affect the composition of its
on-balance sheet portfolio, replacing loans that charge-off with higher credit
quality loans. Accordingly, the allowance for loan losses was reduced by
approximately $52.1 million.
Additional items affecting earnings in the third quarter of 2002 resulted
in a decrease to pre-tax income of $10.6 million, comprised of the following
items:
-- A $6.8 million benefit related to the transfer of the servicing of the
Providian Master Trust earlier than anticipated.
-- A gain of $10.8 million related to the sale of investment securities.
-- A $9.6 million charge for severance and benefit expense related to the
facilities closures announced in the second quarter of 2002.
-- A $18.6 million expense related to a reduction in recovery performance
from third-party charged-off loans at First Select Corp.
The Company ended the third quarter with $19.4 billion in total managed
credit card loans and 12.7 million accounts, compared to $19.6 billion in
managed credit card loans and 12.9 million accounts at the end of the second
quarter of 2002. During the third quarter of 2002, the Company originated
over 520,000 new customer accounts compared to the origination of
approximately 350,000 new customer accounts in the second quarter of 2002.
The new accounts in the third quarter of 2002 were originated at a lower cost
per account than accounts originated in the second quarter of 2002 and
reflected the Company's targeted distribution in the middle and prime market
segments of approximately 60% and 40%, respectively.
"Our third quarter financial results demonstrate the continued progress we
are making in our restructuring," said Anthony Vuoto, Providian's vice
chairman and chief financial officer. "We are tracking well with our
financial goals. In the third quarter we maintained strong capital ratios at
our banking subsidiaries, reduced our deposits by approximately $800 million
and retained over $6.3 billion in cash and investments. In addition, we
continue to make progress in our securitization activities and have secured
initial commitments for $1.0 billion of the $1.5 to $2.0 billion in new
securitizations we plan to complete during the next two quarters. We expect
to close the first issuance from this commitment, a $500 million conduit
securitization from the Gateway Master Trust, within the next week."
Consistent with the Company's expectations, the managed net credit loss
rate decreased to 16.71% for the third quarter 2002 from 17.53% for the
second quarter 2002. The managed 30+ day delinquency rate at the end of the
third quarter 2002 was 11.23%, compared to 10.16% at the end of the second
quarter 2002. Based upon current delinquency trends and seasonal portfolio
trends, the Company continues to expect the managed net credit loss dollars to
show an increase in the fourth quarter 2002. The Company expects the total
net credit loss dollars for the year 2002 will be modestly below its previous
expectation of $3.6 billion.
Non-interest expense (excluding solicitation and advertising) was
$325.8 million for third quarter 2002 and included a $9.6 million charge for
severance and benefit expense, as well as the continued servicing expense
through-out most of the quarter for the sold portfolios. The third quarter's
results compare to non-interest expense (excluding solicitation and
advertising) of $385.1 million in the second quarter of 2002, a sequential
decrease of $59.3 million or 15%.
Capital and Liquidity
The Company ended the third quarter of 2002 with total equity, including
capital securities, of $2.2 billion and an allowance for loan losses of
$1.2 billion, which together represent 44% of reported loans and 18% of
managed loans. Cash and investments ended the quarter at approximately
$6.3 billion, representing approximately 32% of managed loans.
The Company's principal banking subsidiaries remain on track with the
requirements of the Capital Plan. For the third 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 and Providian Bank are 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 September 30, 2002, Providian National Bank and Providian Bank exceeded the
10% "well capitalized" level with total risk-based capital ratios of
16.82% and 15.92%, respectively. After application of the Subprime Guidance
risk weightings, both Providian National Bank and Providian Bank exceeded the
8.00% threshold with total risk-based capital ratios of 12.31% and 9.58%,
respectively.
Operating Initiatives
The Company completed the previously announced closure of its Sacramento
operations facility in the third quarter of 2002 and remains on schedule to
close its Fairfield and Salt Lake City facilities in the fourth quarter of
2002. Additionally, during the third quarter the Company completed the
transfer of servicing for the Providian Master Trust to JPMorgan Chase and, in
late October, completed the transfer of servicing for the higher-risk
portfolios to their respective buyers.
Commensurate with the reduction in the size of the loan portfolio and
operations infrastructure, the Company ended the third quarter with 7,331 full
time employees, a sequential reduction of more than 1,000 employees.
Also during the third quarter of 2002, the Company undertook a strategic
review of its risk management and collections operations and expects to
implement a series of operational changes beginning in the fourth quarter of
2002. While these changes are not expected to materially affect the
Company's short-term financial results they are expected to improve risk
management and collections and reduce expenses over the longer term.
Additional information on these changes will be included in the Company's Form
10-Q filing with the SEC.
About Providian
San Francisco-based Providian Financial is a leading provider of credit
cards and deposit products to 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. One of
America's largest bankcard issuers, Providian has approximately $19 billion in
managed receivables and more than 12 million customer relationships.
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 2002 2001 2001
(in millions, except per Q3 Q2 Q1 Q4 Q3
share and employee data)
Earnings (Managed Basis):
Net Interest Income $779.8 $783.2 $962.4 $990.9 $996.5
Non-Interest Income 444.1 532.6 1,079.1 224.4 687.1
Total Revenue 1,223.9 1,315.8 2,041.5 1,215.3 1,683.6
Provision for Loan
Losses 751.7 677.9 1,483.1 1,272.0 977.5
Non-Interest Expense 452.2 489.3 547.1 596.6 610.1
Income From Operations
Before Taxes 20.0 148.6 11.3 (653.3) 96.0
Tax (Benefit) Expense (22.1) 58.7 4.5 (258.0) 37.9
Income From Operations $42.1 $89.9 $6.8 $(395.3) $58.1
Discontinued Operations -- 64.0 3.2 (85.9) (14.8)
Extraordinary Item-
Extinguishment of Debt -- -- -- -- 13.9
Cumulative Effect of
Accounting Change -- -- -- -- --
Net Income $42.1 $153.9 $10.0 $(481.2) $57.2
Managed Financial Data:
Quarter End:
Credit Cards $19,444 $19,630 $22,134 $32,644 $31,693
Home Loans 9 9 10 10 11
Total Loans $19,453 $19,639 $22,144 $32,654 $31,704
Securitized Loans $11,255 $12,126 $12,231 $19,684 $17,940
Total Assets $26,893 $28,014 $28,994 $37,659 $38,201
Total Capital (Includes
Capital Securities) $2,235 $2,185 $1,994 $2,012 $2,496
Total Equity $2,131 $2,081 $1,890 $1,908 $2,390
Quarter Average:
Credit Cards $19,228 $19,764 $26,994 $32,103 $30,811
Home Loans 9 9 9 13 11
Total Loans $19,237 $19,773 $27,003 $32,116 $30,822
Securitized Loans $11,932 $12,195 $15,246 $18,001 $16,457
Earning Assets $26,942 $26,438 $31,673 $36,324 $35,841
Total Assets $27,511 $28,576 $32,667 $37,627 $36,837
Total Equity $2,107 $2,008 $1,962 $2,251 $2,437
Key Statistics:
Managed:
Net Interest Margin
(Earning Assets) 11.58% 11.85% 12.15% 10.91% 11.12%
Net Interest Margin
(Loans) 16.73% 16.38% 14.45% 12.31% 12.94%
Risk-Adjusted Margin
(Loans) (A) 9.25% 9.62% 15.38% 2.40% 11.43%
Return on Assets 0.61% 2.15% 0.12% -5.12% 0.62%
Return on Equity 8.00% 30.64% 2.04% -85.52% 9.40%
Net Credit Losses $803.7 $866.7 $1,016.3 $1,020.0 $803.8
Net Credit Loss Rate 16.71% 17.53% 15.05% 12.70% 10.43%
Delinquency Rate (30+
Days) 11.23% 10.16% 10.22% 8.81% 8.71%
Equity to Managed
Assets 7.92% 7.43% 6.52% 5.07% 6.26%
On Balance Sheet:
Allowance as a Percent
of Loans 15.26% 16.34% 17.06% 16.76% 12.24%
Net Credit Loss Rate 13.38% 14.21% 14.04% 12.23% 10.47%
Delinquency Rate (30+
Days) 8.14% 7.29% 8.32% 7.58% 9.11%
Common Share Statistics:
EPS Basic:
EPS - Continuing
Operations $0.15 $0.32 $0.02 $(1.39) $0.20
EPS - Discontinued
Operations -- 0.22 0.01 (0.31) (0.05)
EPS - Extraordinary
Item -- -- -- -- 0.05
EPS - Cumulative Effect
of Accounting Change -- -- -- -- --
EPS - Basic $0.15 $0.54 $0.03 $(1.70) $0.20
EPS - Diluted: (B)
EPS - Continuing
Operations $0.15 $0.31 $0.02 $(1.39) $0.20
EPS - Discontinued
Operations -- 0.22 0.01 (0.31) (0.05)
EPS - Extraordinary
Item -- -- -- -- 0.05
EPS - Cumulative Effect
of Accounting Change -- -- -- -- --
EPS - Assuming Dilution $0.15 $0.53 $0.03 $(1.70) $0.20
Book Value Per Share
(Period End) $7.37 $7.20 $6.54 $6.70 $8.41
Total Market
Capitalization (Period
End) $1,417 $1,700 $2,181 $1,011 $5,727
Shares Outstanding
(Period End) 289.2 289.1 288.9 284.8 284.2
Weighted Average Shares
O/S - Basic 285.3 284.2 283.9 283.4 283.9
Weighted Average Shares
O/S - Diluted 294.1 294.2 288.5 283.4 295.0
Accounts 12.7 12.9 15.0 18.4 17.9
Employees (FTE) 7,331 8,393 10,153 11,897 12,209
(A) Risk-adjusted margin is total loan revenue less credit losses as a
percentage of average managed loans.
(B) EPS - Diluted - During the second and third quarters of 2002 and the
first three quarters of 2001, $2 million of interest
expense related to the 3.25% Convertible Note was added back to
income. During the first quarter 2002 and the forth quarter 2001
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) Q3 Q2
% of % of
Total Total
Loans Loans Loans Loans
Reported
Loans outstanding (A) $8,185,724 100.00% $7,495,030 100.00%
Loans delinquent
30 - 59 days $243,298 2.97% $209,450 2.79%
60 - 89 days 166,733 2.04% 139,787 1.87%
90 or more days 256,676 3.13% 197,206 2.63%
Total $666,707 8.14% $546,443 7.29%
Managed
Loans outstanding (A) $19,440,870 100.00% $19,620,861 100.00%
Loans delinquent
30 - 59 days $676,255 3.48% $645,394 3.29%
60 - 89 days 502,445 2.58% 451,711 2.30%
90 or more days 1,004,435 5.17% 896,284 4.57%
Total $2,183,135 11.23% $1,993,389 10.16%
(A) Loans outstanding include loans held for sale at par, and exclude
SFAS No. 133 market value adjustments.
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%
(A) Loans outstanding include loans held for sale at par, and exclude
SFAS No. 133 market value adjustments.
PROVIDIAN FINANCIAL CORPORATION (PVN)
DELINQUENCY SUMMARY
EXCLUDING DISCONTINUED OPERATIONS
Quarterly
2001
(dollars in thousands) Q3
Loans % of Total Loans
Reported
Loans outstanding (A) $13,731,841 100.00%
Loans delinquent
30 - 59 days $406,229 2.96%
60 - 89 days 306,442 2.23%
90 or more days 538,787 3.92%
Total $1,251,458 9.11%
Managed
Loans outstanding (A) $31,672,022 100.00%
Loans delinquent
30 - 59 days $854,718 2.70%
60 - 89 days 634,758 2.00%
90 or more days 1,268,485 4.01%
Total $2,757,961 8.71%
(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
September 30, December 31,
(dollars in thousands) 2002 2001
(unaudited)
Assets
Cash and cash
equivalents $407,579 $449,586
Federal funds sold and
securities
purchased under
resale agreements 4,141,000 1,611,000
Investment securities:
Available-for-sale 1,718,144 1,324,465
Loans held for
securitization or
sale 500,000 1,410,603
Loans receivable, less
allowance for credit
losses of $1,172,838
at September 30,
2002 and $1,932,833
at December 31,
2001 6,524,938 9,626,307
Premises and
equipment, net 137,970 183,829
Interest receivable 73,180 116,053
Due from
securitizations 2,472,182 2,926,181
Deferred taxes 759,087 1,030,340
Other assets 483,431 521,159
Assets of discontinued
operations -- 738,643
Total assets $17,217,511 $19,938,166
Liabilities
Deposits $13,110,200 $15,318,165
Short-term borrowings 91,557 117,176
Long-term borrowings 873,042 959,281
Deferred fee revenue 252,926 468,310
Accrued expenses and
other liabilities 654,690 885,780
Liabilities of
discontinued
operations -- 177,611
Total
liabilities 14,982,415 17,926,323
Capital securities 104,332 104,332
Shareholders' equity 2,130,764 1,907,511
Total
liabilities
and
shareholders'
equity $17,217,511 $19,938,166
Condensed Consolidated Statements of Income
Providian Financial Corporation and Subsidiaries
Three months ended Nine months ended
September 30, September 30,
(dollars in thousands, except
per share data) 2002 2001 2002 2001
Interest income
Loans $328,240 $586,677 $1,166,807 $1,899,448
Federal funds sold and
securities purchased
under resale agreements 13,334 19,489 26,041 35,519
Other 46,902 38,723 132,356 113,073
Total interest income 388,476 644,889 1,325,204 2,048,040
Interest Expense
Deposits 178,705 232,505 559,746 655,101
Borrowings 10,306 13,700 32,338 48,760
Total interest expense 189,011 246,205 592,084 703,861
Net interest income 199,465 398,684 733,120 1,344,179
Provision for credit losses 192,366 549,923 1,152,830 1,330,834
Net interest
income after
provision for
credit losses 7,099 (151,239) (419,710) 13,345
Non-interest income
Servicing and
securitizations 125,057 351,203 570,247 865,606
Credit product fee income 273,548 459,433 904,675 1,607,947
Other 66,503 46,761 613,355 151,099
465,108 857,397 2,088,277 2,624,652
Non-interest expense
Salaries and employee
benefits 129,341 174,131 433,219 525,652
Solicitation and
advertising 126,404 168,303 339,275 447,677
Occupancy, furniture, and
equipment 43,765 52,385 179,520 156,621
Data processing and
communication 39,621 48,119 133,615 155,583
Other 113,035 167,135 402,955 465,406
452,166 610,073 1,488,584 1,750,939
Income from
continuing
operations before
income taxes 20,041 96,085 179,983 887,058
Income tax (benefit) expense (22,084) 37,955 41,093 350,389
Income from
continuing
operations after
tax 42,125 58,130 138,890 536,669
Income (loss) from
discontinued operations - net
of related taxes -- (14,792) 67,156 (32,353)
Extraordinary item
extinguishment of debt - net
of related taxes -- 13,905 -- 13,905
Cumulative effect of change in
accounting principle - net
of related taxes -- -- -- 1,846
Net Income $42,125 $57,243 $206,046 $520,067
Earnings per common share -
basic
Income from continuing
operations $0.15 $0.20 $0.49 $1.89
Income (loss) from
discontinued operations - net
of related taxes -- (0.05) 0.23 (0.12)
Extraordinary item
extinguishment of debt - net
of related taxes -- 0.05 -- 0.05
Cumulative effect of change in
accounting principle - net of
related taxes -- -- -- 0.01
Net Income $0.15 $0.20 $0.72 $1.83
Earnings per common share -
diluted
Income from continuing
operations $0.15 $0.20 $0.49 $1.83
Income (loss) from
discontinued operations - net
of related taxes -- (0.05) 0.23 (0.12)
Extraordinary item
extinguishment of debt - net
of related taxes -- 0.05 -- 0.05
Cumulative effect of change in
accounting principle - net of
related taxes -- -- -- 0.01
Net Income $0.15 $0.20 $0.72 $1.77
Weighted average common shares
outstanding - basic (000) 285,323 283,864 284,649 284,542
Weighted average common shares
outstanding - assuming
dilution (000) 294,094 294,965 293,935 297,076
SOURCE Providian Financial Corp.
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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 Corp.
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