<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
________________________________________
Date of Report
(Date of earliest event reported)
October 21, 1999
PROVIDIAN FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 1-12897 94-2933952
- ------------------------ ------------------------ -------------------
(State of incorporation) (Commission File Number) (IRS Employer
Identification No.)
201 Mission Street
San Francisco, California 94105
- ---------------------------------------- ---------------
(Address of principal executive offices) (Zip Code)
(415) 543-0404
______________________________________
(Registrant's telephone number,
including area code)
N/A
_______________________________________________________________________
(Former name or former address, if changed since last report)
<PAGE>
Item 5. Other Events.
In connection with its Medium-Term Note Program, the registrant is filing
herewith the documents listed in Item 7 below and such documents are
incorporated by reference into the registrant's Registration Statement (Form S-
3), Registration No. 333-55937.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
99.1 Registrant's Press Release dated October 21, 1999 regarding third Quarter
1999 earnings.
99.2 Registrant's Press Release dated October 25, 1999 regarding certain
management and organizational changes.
99.3 Recent Developments regarding legal proceedings.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
PROVIDIAN FINANCIAL CORPORATION
(Registrant)
Date: October 29, 1999 By: /s/ David J. Petrini
____________________________________
David J. Petrini
Executive Vice President and Chief
Financial Officer
<PAGE>
EXHIBIT INDEX
Exhibit Number Description
- -------------- -----------
99.1 Registrant's Press Release dated October 21, 1999 regarding third Quarter
1999 earnings.
99.2 Registrant's Press Release dated October 25, 1999 regarding certain
management and organizational changes.
99.3 Recent Developments regarding legal proceedings.
<PAGE>
EXHIBIT 99.1
Providian Financial Corporation Announces Record Earnings
San Francisco, CA, October 21, 1999 - Providian Financial Corporation (NYSE:
PVN) today announced third quarter net income of $151 million, an increase of
83% over the third quarter of 1998. Diluted earnings per share increased to
$1.04 per share, an 82% increase over the third quarter of 1998. Growth in new
accounts, managed loans, managed revenue and margins accounted for the strong
results, while credit loss rates improved for the third consecutive quarter.
"Our third quarter results demonstrate the adaptability of our customer focused
business model," said Shailesh Mehta, Chairman and Chief Executive Officer. "We
are committed to 100% customer satisfaction and to continuing the enhancement of
our customer satisfaction program. While our job is not done, the early
feedback is very encouraging; declining call volume and customer complaints
coupled with increased customer retention should help build a stronger customer
franchise in the future," added Mehta.
During the third quarter, Providian opened over one million net new accounts and
now serves over 11 million customers. This strong organic account growth
resulted in a corresponding rise in total managed revenue, which increased by
79% over the third quarter of 1998 to $1.12 billion. Spread based revenue
increased 56% over the third quarter of 1998 to $557.8 million, as a result of
continued loan growth and increasing margins. Managed loans grew by $2.1
billion during the quarter and now total $18.4 billion, a 56% increase over the
corresponding period in 1998. Total managed assets currently exceed $20
billion. The net interest margin was a strong 12.40% as a result of the
continued success of Providian's primary lender strategy. Non-interest revenue
increased to $560.6 million for the quarter reflecting strong account growth. A
higher proportion of the non-interest revenue is now being realized from
membership services and account activity revenues.
The Company's risk adjusted margin increased by 85 basis points over the second
quarter of 1999 to 18.99% as a result of a lower managed net credit loss rate
and strong revenue margin. The managed net credit loss rate showed improvement
for the third consecutive quarter, declining by 76 basis points from 7.16% in
the second quarter to 6.40% during the third quarter. The 30+ day managed
delinquency rate rose from 4.70% at second quarter end to 5.20% at the end of
the third quarter and reflects the seasoning of the Company's lower line asset
classes. This seasoning is expected to result in a reversal of the favorable
loan loss trend the Company has enjoyed during the first three quarters of 1999,
with the managed net credit loss rate expected to rise back to the 7% range
during the fourth quarter.
Providian continued to strengthen its balance sheet while investing for long
term growth. To support further growth in on-balance sheet loans, the loan loss
reserve was increased during the third quarter by $158 million to $833 million.
Capital and reserves totaled $2.2 billion at the end of the third quarter,
representing 18.4% of on-balance sheet assets
<PAGE>
and 10.6% of managed assets. The Company continued to generate superior returns
on equity and managed assets of 55% and 3.2%, respectively.
Consistent with its long term growth objectives and customer focused strategy,
the Company invested a record $116 million in marketing while total non-interest
expense rose to $433 million for the quarter. To meet the needs of its current
and new customers, 875 new full time employees were added both at existing and
new facilities. All newer growth initiatives, including the United Kingdom
expansion, First Select Corporation and E*Commerce continue to proceed at or
ahead of plan.
Providian's results to date and current trends allow it to raise earnings
guidance for 1999 to $3.75 per diluted share. Furthermore, based on current
business performance, the Company is cautiously optimistic that it will exceed
its long-term earnings per share growth goal of 25% in the year 2000 and
accordingly is raising its earnings per share guidance to between $4.75 and
$5.05 per diluted share for the year 2000.
San Francisco-based Providian Financial Corporation (www.providian.com) is a
leading provider of lending and deposit products to customers nationwide and
offers credit cards in the United Kingdom. Providian serves a broad,
diversified market with loan products that include credit cards, home equity
loans, secured cards and membership services. With a commitment to 100%
customer satisfaction, Providian's mission is to help its customers build or
rebuild, protect and responsibly use credit by providing a quality borrowing
experience that leads to active and lasting customer relationships. The sixth
largest bankcard issuer in the nation, Providian Financial has over $20 billion
in assets under management and over 11 million customers.
Statements contained herein as to the Company's expectations and goals are
forward looking statements under the Private Securities Litigation Reform Act of
1995. Actual results could differ materially from those projected in these
statements due to portfolio characteristics, economic conditions, competition in
the industry and other factors. As previously announced, the San Francisco
District Attorney's Office confirmed that it is investigating the Company and a
number of private lawsuits have been filed regarding the Company's sales and
collection practices. The Company continues to cooperate and have discussions
with the District Attorney's office but there can be no certainty as to the
outcome of those discussions. The Company intends to vigorously defend itself
in the lawsuits but can make no assurances as to the ultimate outcome of these
matters. 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 and quarterly reports on Form 10-Q.
For more information - Equity Investors, please contact Nancy Math at
415.278.4483, or Jack Carsky at 415.278.4977. Fixed Income Investors, please
contact Bill Horning at 415.278.4602.
Media, please contact Laurie Cole at 415.278.4844.
Note: Investor information is available on Providian Financial's web site at
(www.providian.com).
<PAGE>
Providian Financial Corporation and Subsidiaries
Condensed Consolidated Statements of Financial Condition (Unaudited)
<TABLE>
<CAPTION>
September 30 December 31
(Dollars in thousands) 1999 1998
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets:
Cash and cash equivalents $ 253,732 $ 176,348
Federal funds sold 938,164 297,869
Investment securities 378,072 433,675
Loans receivable, less allowance for credit losses of $832,783 at
September 30, 1999 and $451,245 at December 31, 1998 8,657,300 5,282,014
Premises and equipment, net 127,916 82,858
Interest receivable 79,720 51,801
Due from securitizations 593,739 454,374
Other assets 705,465 452,276
-----------------------------------
Total assets $11,734,108 $ 7,231,215
===================================
Liabilities:
Deposits $ 7,353,561 $ 4,672,298
Short-term borrowings 959,438 472,500
Long-term borrowings 1,029,360 399,757
Deferred fee revenue 504,677 334,617
Accrued expenses and other liabilities 563,516 388,856
-----------------------------------
Total liabilities 10,410,552 6,268,028
Capital securities 160,000 160,000
Total shareholders' equity 1,163,556 803,187
-----------------------------------
Total liabilities and shareholders' equity $11,734,108 $ 7,231,215
===================================
</TABLE>
<PAGE>
PROVIDIAN FINANCIAL CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Income (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
---------------------- ----------------------
(Dollars in thousands, except per share data) 1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------ ----------------------
<S> <C> <C> <C> <C>
Interest income:
Loans $ 424,597 $ 210,565 $1,062,171 $ 565,848
Investment securities 14,651 7,661 41,622 23,175
--------- --------- ---------- ---------
Total interest income 439,248 218,226 1,103,793 589,023
Interest expense:
Deposits 89,073 51,153 227,302 146,276
Borrowings 28,546 9,997 71,088 31,161
--------- --------- ---------- ---------
Total interest expense 117,619 61,150 298,390 177,437
Net interest income 321,629 157,076 805,403 411,586
Provision for credit losses 288,279 168,217 725,574 343,724
--------- --------- ---------- ---------
Net interest income (loss) after provision
for credit losses 33,350 (11,141) 79,829 67,862
Non-interest income 651,118 357,300 1,699,832 846,012
Non-interest expenses:
Salaries and employee benefits 132,579 64,965 350,350 185,610
Solicitation 115,972 53,258 317,650 141,533
Occupancy, furniture and equipment 23,745 12,963 57,926 35,317
Data processing and communication 33,593 16,005 88,207 53,839
Other 127,299 63,315 314,001 165,185
--------- --------- ---------- ---------
433,188 210,506 1,128,134 581,484
Income before income taxes 251,280 135,653 651,527 332,390
Income tax expense 100,408 53,092 260,623 130,858
--------- --------- ---------- ---------
Net Income $ 150,872 $ 82,561 $ 390,904 $ 201,532
========= ========= ========== =========
Earnings per share - basic $ 1.07 $ 0.58 $ 2.77 $ 1.42
========= ========= ========== =========
Earnings per share - assuming dilution $ 1.04 $ 0.57 $ 2.69 $ 1.39
========= ========= ========== =========
Cash dividends paid per share $ 0.05 $ 0.03 $ 0.15 $ 0.10
========= ========= ========== =========
Weighted average common shares outstanding - basic (000) 141,296 142,044 141,316 142,116
========= ========= ========== ========
Weighted average shares and assumed conversions (000) 145,070 145,500 145,553 145,189
========= ========= ========== ========
</TABLE>
<PAGE>
PROVIDIAN FINANCIAL CORPORATION (PVN)
FINANCIAL & STATISTICAL SUMMARY
<TABLE>
<CAPTION>
---------------------------------------------------------------------
1999 1999 1999 1998 1998
(in millions, except per share and employee data) Q3 Q2 Q1 Q4 Q3
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Earnings (Managed Basis) :
Net Interest Income $ 557.8 $ 496.2 $ 434.9 $ 393.3 $ 357.9
Non-Interest Income 560.6 494.7 416.2 364.2 267.1
---------------------------------------------------------------------
Total Revenue 1,118.4 990.9 851.1 757.5 625.0
Provision for Loan Losses 434.0 402.0 344.8 355.8 278.8
Non-Interest Expense 433.1 377.8 317.1 243.5 210.5
---------------------------------------------------------------------
Income Before Taxes 251.3 211.1 189.2 158.2 135.7
Tax Expense 100.4 84.6 75.7 63.3 53.1
---------------------------------------------------------------------
Net Income $ 150.9 $ 126.5 $ 113.5 $ 94.9 $ 82.6
- ------------------------------------------------------------------------------------------------------------------------------------
Managed Financial Data:
Quarter End:
Credit Cards - Unsecured Spread $ 10,771 $ 10,356 $ 9,781 $ 9,390 $ 8,820
Credit Cards - Unbanked 5,865 4,469 3,362 2,748 1,928
Home Loans 1,720 1,415 1,198 1,107 1,030
---------------------------------------------------------------------
Total Loans $ 18,356 $ 16,240 $ 14,341 $ 13,245 $ 11,778
Securitized Loans $ 8,835 $ 8,075 $ 7,484 $ 7,504 $ 6,791
Total Assets $ 20,337 $ 17,989 $ 15,882 $ 14,606 $ 12,847
Total Capital (Includes Capital Securities) $ 1,324 $ 1,173 $ 1,085 $ 963 $ 878
Total Equity $ 1,164 $ 1,013 $ 925 $ 803 $ 718
Quarter Average:
Credit Cards - Unsecured Spread $ 10,608 $ 10,182 $ 9,597 $ 9,016 $ 8,986
Credit Cards - Unbanked 5,098 3,867 3,033 2,279 1,584
Home Loans 1,556 1,279 1,155 1,075 1,015
---------------------------------------------------------------------
Total Loans $ 17,262 $ 15,328 $ 13,785 $ 12,370 $ 11,585
Securitized Loans $ 8,268 $ 7,542 $ 7,502 $ 7,072 $ 6,791
Earning Assets $ 18,362 $ 16,437 $ 14,734 $ 13,212 $ 12,108
Total Assets $ 18,881 $ 16,951 $ 15,228 $ 13,735 $ 12,547
Total Equity $ 1,099 $ 969 $ 870 $ 760 $ 722
- ------------------------------------------------------------------------------------------------------------------------------------
Key Statistics:
Managed:
Net Interest Margin (Earning Assets) 12.15% 12.08% 11.81% 11.91% 11.82%
Net Interest Margin (Loans) 12.40% 12.39% 12.26% 12.52% 12.01%
Risk Adjusted Margin (Loans) (1) 18.99% 18.14% 16.72% 16.17% 13.46%
Return on Assets 3.20% 2.98% 2.98% 2.76% 2.63%
Return on Equity 54.89% 52.19% 52.19% 49.95% 45.74%
Membership Services Revenue $ 194.2 $ 154.7 $ 117.0 $ 99.80 $ 61.1
Net Credit Losses $ 276.4 $ 274.4 $ 262.8 $ 251.3 $ 225.0
Net Credit Loss Rate 6.40% 7.16% 7.62% 8.13% 7.77%
Delinquency Rate (30+ Days) 5.20% 4.70% 4.91% 5.33% 5.26%
Equity to Managed Assets 5.72% 5.63% 5.82% 5.50% 5.59%
On Balance Sheet:
Reserves as a Percent of Loans 8.75% 8.27% 7.99% 7.86% 8.20%
Net Credit Loss Rate 5.81% 6.56% 6.36% 7.37% 9.55%
Delinquency Rate (30+ Days) 6.07% 5.46% 5.37% 5.69% 5.71%
- ------------------------------------------------------------------------------------------------------------------------------------
Common Share Statistics:
EPS - Basic $ 1.07 $ 0.89 $ 0.80 $ 0.67 $ 0.58
EPS - Assuming Dilution $ 1.04 $ 0.87 $ 0.78 $ 0.66 $ 0.57
Book Value Per Share (Period End) $ 8.20 $ 7.14 $ 6.52 $ 5.67 $ 5.06
Total Market Capitalization (Period End) $ 11,237 $ 13,221 $ 15,611 $ 10,630 $ 8,030
Shares Outstanding (Period End) 141.9 141.8 141.9 141.7 142.0
Weighted Average Shares O/S - Basic 141.3 141.5 141.2 141.1 142.0
Weighted Average Shares O/S - Diluted 145.1 145.5 145.5 144.8 145.5
Accounts 11.3 10.1 9.0 7.9 6.4
Employees (FTE) 9,154 8,279 7,135 5,937 5,026
</TABLE>
(1) Risk adjusted margin is total loan revenue less credit losses as a
percentage of average managed loans.
<PAGE>
EXHIBIT 99.2
Providian Financial Creates New Division for Diversified Growth
Businesses, Integrates Credit Card Businesses and Promotes Four Executives
San Francisco, California, October 25, 1999 - Providian Financial Corporation
(NYSE: PVN) announced today that it is creating a new division for its
diversified growth businesses, integrating its credit card businesses and
promoting four executives.
Seth Barad, who has overseen the company's fast-growing Unbanked Business for
five years, will head the new division as President, Emerging Businesses. David
R. Alvarez, who has been responsible for Providian's Unsecured Credit Card
Business since 1997, will head the company's integrated Unbanked and Unsecured
Credit Card Businesses. He was named President, Credit Cards.
"These changes reflect the company that Providian has become and the
opportunities we see ahead of us," said Providian Chairman and Chief Executive
Officer Shailesh J. Mehta. Since becoming a public company two years ago,
Providian has grown to over $20 billion in assets under management from $11
billion, and now serves over 11 million customers nationwide, a 175% increase
from 4 million just two years ago. Under the new structure, Providian will be
organized around four businesses: Credit Cards, Emerging Businesses, E-Commerce
and the U.K. Business.
"This structure," Mehta said, "positions Providian to take full advantage of the
growth opportunities presented by our Emerging Businesses and to build upon the
growth momentum in our Card Businesses. Consistent with our long-standing
growth and diversification strategy, Providian has always evolved along with our
businesses and the new opportunities we identify through them. Our ultimate
goal is to continue to create shareholder value and this realignment supports
that goal."
The new Emerging Businesses division will be comprised of Providian Home Loans,
First Select Corporation, Membership Products and new business development
initiatives. "Under Seth's leadership, our Unbanked Business has grown in only
a few years" said Mehta, "from serving hundreds of thousands of customers to
serving several million customers. During that time the business has also
become a substantial contributor to Providian's revenues and earnings,
demonstrating Seth's skill at successfully building businesses and identifying
significant business opportunities."
Unifying Providian's credit card businesses will support the company's efforts
to meet the needs of consumers across the broad credit spectrum under a single
platform, while striving towards its goal of enhanced customer
<PAGE>
satisfaction. "David has superbly managed our Unsecured Credit Card business,"
Mehta said, "and with the depth and breadth of his experience, it makes
strategic sense for Providian to combine our two largest credit card areas under
his leadership."
Providian promoted two other executives. The company named James H. Rowe
Executive Vice President, E-Commerce. Rowe has headed Providian's fast-growing
E-Commerce division since it was formed in February 1999 and also serves as
Chief Executive Officer of its subsidiary, GetSmart.com. "Jim Rowe spearheaded
the successful launch of Aria.com, Providian's Internet credit card," Mehta
said, and also noted, "By adapting core competencies Providian has developed
over fourteen years in the consumer lending business, Jim has helped build an
incredibly powerful Internet business model for Providian. We will continue to
invest heavily in E-Commerce."
Providian also named Ellen Richey to the newly-created position of Vice
Chairman. Richey will continue in her capacity as General Counsel, a position
she has held since 1995. Her responsibilities include corporate law, public
affairs, audit and compliance. "Ellen Richey has made enormous contributions to
many areas of Providian," Mehta said, "and she is a both a highly-valued and
highly-respected leader throughout Providian."
James V. Elliott, Executive Vice President, will continue as Managing Director
of Providian's U.K. Business.
San Francisco-based Providian Financial Corporation (www.providian.com) is a
leading provider of lending and deposit products to customers nationwide and
offers credit cards in the United Kingdom. Providian serves a broad,
diversified market with loan products that include credit cards, home equity
loans, secured cards and membership services.
With a commitment to 100% customer satisfaction, Providian's mission is to help
its customers build or rebuild, protect and responsibly use credit by providing
a quality borrowing experience that leads to active and lasting customer
relationships. The sixth largest bankcard issuer in the nation, Providian has
$20 billion in assets under management and over 11 million customers.
###
For more information about Providian Financial, please call Laurie Cole at 415-
278-4844. Investors please call, Nancy Math at 415-278-4483 or Jack Carsky at
415-278-4977.
<PAGE>
EXHIBIT 99.3
Legal Proceedings.
- -----------------
Beginning in May 1999, the Company was the subject of media coverage
concerning complaints made by some customers of the Company's banking
subsidiaries regarding certain sales and collections practices. Following the
initial media coverage, the San Francisco District Attorney's Office confirmed
that it had commenced an investigation into the Company's sales and collections
practices, including the marketing of certain fee-based products and the posting
of customer payments. The remedies available to the District Attorney's Office
include, but are not limited to, damages, penalties, fines and injunctive
relief.
Since May 1999, a number of lawsuits have been filed against the Company
and, in some cases, against certain of the Company's subsidiaries by current and
former customers of the Company's banking subsidiaries. A consolidated putative
class action lawsuit (In re Providian Credit Card Litigation) (the "Consolidated
Action") was filed on August 3, 1999 in California state court in San Francisco
against the Company, Providian National Bank and certain other subsidiaries, and
seeks unspecified damages, including actual and punitive damages, attorney's
fees and injunctive relief. The complaint alleges unfair and deceptive business
practices, including failure to credit payments in a timely fashion that
resulted in the imposition of fees, adding products and charging fees without
customer authorization, changing rates and terms without proper notice or
authorization, and misleading or deceptive sales practices. A few similar
actions filed in other California counties have been transferred to San
Francisco County and coordinated with the Consolidated Action.
As of October 29, 1999, four similar putative class actions were pending in
state courts and seven were pending in federal courts. One state case was
recently filed in San Francisco Superior Court, and will likely be coordinated
with the Consolidated Action. Another state case was filed in San Mateo County,
California; this case was not coordinated with the Consolidated Action, and will
proceed separately. In addition, one putative class action was filed in Cook
County, Illinois. The Company's motion to dismiss this action was granted,
although the plaintiff has until November 15, 1999 to amend the complaint.
Another action was filed in Bullock County, Alabama. The remaining putative
class actions were filed in various federal district courts, and have been
transferred by the Federal Judicial Panel on Multidistrict Litigation to the
Eastern District of Pennsylvania.
These other state and federal actions contain substantially the same
allegations as those alleged in the Consolidated Action; certain of the actions
also allege one or more of the following: that the account agreement with
customers contained unconscionable terms and fees, that statements sent to
customers failed to include Credit Protection and other add-on fees in the
calculation of the annual percentage rate disclosed in such agreements, refusal
to honor cancellation requests, improper obtaining of credit reports, breached
promises to raise credit limits, breached promises of high credit limits, and
unlawful tying of Credit Protection to credit card and other products.
<PAGE>
A putative class action (In re Providian Securities Litigation), which is a
consolidation of complaints filed in the United States District Court for the
Eastern District of New York in June 1999, alleges, in general, that the Company
and certain of its officers made false and misleading statements concerning the
Company's future prospects and financial results in violation of the federal
securities laws. The putative class, which is alleged to have acquired the
Company's stock between January 15, 1999 and May 26, 1999, seeks damages in an
unspecified amount, in addition to pre-judgment and post-judgment interest,
costs and attorneys fees. As of October 29, 1999, the consolidated complaint
had not been filed.
The Company continues to cooperate and have discussions with the San
Francisco District Attorney's Office but there can be no certainty as to the
outcome of those discussions. The lawsuits described above are at a very early
stage. No specific measure of damages has been demanded and, in most cases, a
response is not yet due. An informed assessment of the ultimate outcome or
potential liability associated with these matters is not feasible at this time.
Due to the uncertainties of litigation, there can be no assurance that the
Company will prevail on all the claims made against it. However, management
believes that the Company has substantive defenses and intends to defend the
actions vigorously.
In addition, the Company is commonly subject to various other pending and
threatened legal actions arising from the conduct of its normal business
activities. In the opinion of the Company, any liability that is likely to
arise with respect to these additional actions will not have a material adverse
effect on the consolidated financial condition or results of operations of the
Company.
