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)
February 3, 2000
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
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(Registrant's telephone number,
including area code)
N/A
-----------------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE>
Item 5. Other Events.
Attached as Exhibit 12.1 are the registrant's earnings to fixed charges and
earnings to combined fixed charges and preferred stock dividend requirements
ratios and the related computations. Attached as Exhibit 99.1 are the financial
statements and other financial information previously released by the registrant
on January 20, 2000. An updated Recent Developments regarding legal proceedings
disclosure is attached as Exhibit 99.2. This Form 8-K and the Exhibits hereto
are incorporated by reference into the registrant's Registration Statement on
Form S-3 (File No. 333-55937).
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
12.1 Computation of Earnings to Fixed Charges and Ratio of Earnings to Combined
Fixed Charges and Preferred Stock Dividend Requirements.
99.1 Financial Statements and other Financial Information released on January
20, 2000.
99.2 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)
Dated: February 3, 2000 By: /s/ David J. Petrini
------------------------------------
David J. Petrini
Executive Vice President and Chief
Financial Officer
<PAGE>
EXHIBIT INDEX
Exhibit Number Description
- -------------- -----------
12.1 Computation of Earnings to Fixed Charges and Ratio of Earnings to Combined
Fixed Charges and Preferred Stock Dividend Requirements.
99.1 Financial Statements and other Financial Information released on January
20, 2000.
99.2 Recent Developments regarding legal proceedings.
<TABLE>
<CAPTION>
PROVIDIAN FINANCIAL CORPORATION
Select Financial Data
Year Ended December 31
------------------------------------------------------------
(dollars in thousands) 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
EARNINGS TO FIXED CHARGES:
Excluding interest on deposits 9.83 10.88 14.20 5.93 4.90
Including interest on deposits 2.99 2.93 2.66 2.34 2.34
EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK
DIVIDEND REQUIREMENTS:
Excluding interest on deposits 9.83 10.88 13.28 5.19 4.32
Including interest on deposits 2.99 2.93 2.63 2.25 2.24
a. Ratio of Earnings to Fixed Charges
INCLUDING INTEREST ON DEPOSITS:
EARNINGS:
Income before income taxes $ 917,425 $ 490,563 $ 311,300 $ 257,251 $ 214,863
Fixed charges 460,588 254,006 187,843 192,536 160,183
----------- --------- --------- --------- ---------
Earnings, for computation purposes $ 1,378,013 $ 744,569 $ 499,143 $ 449,787 $ 375,046
=========== ========= ========= ========= =========
FIXED CHARGES:
Interest on borrowings $ 92,334 $ 42,931 $ 18,858 $ 49,208 $ 52,732
Interest on deposits 356,736 204,335 164,252 140,361 105,151
Portion of rents representative
of the interest factor 11,518 6,740 4,733 2,967 2,300
----------- --------- --------- --------- ---------
Fixed charges, including interest
on deposits,for computation purposes $ 460,588 $ 254,006 $ 187,843 $ 192,536 $ 160,183
=========== ========= ========= ========= =========
Ratio of earnings to fixed charges,
including interest on deposits 2.99 2.93 2.66 2.34 2.34
EXCLUDING INTEREST ON DEPOSITS:
EARNINGS:
Income before income taxes $ 917,425 $ 490,563 $ 311,300 $ 257,251 $ 214,863
Fixed charges 103,852 49,671 23,591 52,175 55,032
----------- --------- --------- --------- ---------
Earnings, for computation purposes $ 1,021,277 $ 540,234 $ 334,891 $ 309,426 $ 269,895
=========== ========= ========= ========= =========
FIXED CHARGES:
Interest on borrowings $ 92,334 $ 42,931 $ 18,858 $ 49,208 $ 52,732
Portion of rents representative
of the interest factor 11,518 6,740 4,733 2,967 2,300
----------- --------- --------- --------- ---------
Fixed charges, excluding interest
on deposits, for computation purposes $ 103,852 $ 49,671 $ 23,591 $ 52,175 $ 55,032
=========== ========= ========= ========= =========
Ratio of earnings to fixed charges,
excluding interest on deposits 9.83 10.88 14.20 5.93 4.90
b. Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividend Requirements
INCLUDING INTEREST ON DEPOSITS:
EARNINGS:
Income before income taxes $ 917,425 $ 490,563 $ 311,300 $ 257,251 $ 214,863
Fixed charges 460,588 254,006 187,843 192,536 160,183
----------- --------- --------- --------- ---------
Earnings, for computation purposes $ 1,378,013 $ 744,569 $ 499,143 $ 449,787 $ 375,046
=========== ========= ========= ========= =========
FIXED CHARGES AND PREFERRED STOCK:
DIVIDEND REQUIREMENTS
Interest on borrowings $ 92,334 $ 42,931 $ 18,858 $ 49,208 $ 52,732
Interest on deposits 356,736 204,335 164,252 140,361 105,151
Portion of rents representative
of the interest factor 11,518 6,740 4,733 2,967 2,300
----------- --------- --------- --------- ---------
Fixed charges, including interest on
deposits, for computation purposes $ 460,588 $ 254,006 $ 187,843 $ 192,536 $ 160,183
Preferred stock dividend requirements - - 1,636 7,397 7,397
----------- --------- --------- --------- ---------
Fixed charges and preferred stock dividend
requirements including interest
on deposits, for computation purposes $ 460,588 $ 254,006 $ 189,479 $ 199,932 $ 167,580
=========== ========= ========= ========= =========
Ratio of earnings to fixed charges and
preferred stock dividend requirements,
including interest on deposits 2.99 2.93 2.63 2.25 2.24
EXCLUDING INTEREST ON DEPOSITS:
EARNINGS:
Income before income taxes $ 917,425 $ 490,563 $ 311,300 $ 257,251 $ 214,863
Fixed charges 103,852 49,671 23,591 52,175 55,032
----------- --------- --------- --------- ---------
Earnings, for computation purposes $ 1,021,277 $ 540,234 $ 334,891 $ 309,426 $ 269,895
=========== ========= ========= ========= =========
FIXED CHARGES AND PREFERRED STOCK:
DIVIDEND REQUIREMENTS
Interest on borrowings $ 92,334 $ 42,931 $ 18,858 $ 49,208 $ 52,732
Portion of rents representative
of the interest factor 11,518 6,740 4,733 2,967 2,300
----------- --------- --------- --------- ---------
Fixed charges, excluding interest
on deposits, for computation purposes $ 103,852 $ 49,671 $ 23,591 $ 52,175 $ 55,032
Preferred stock dividend requirements - - 1,636 7,397 7,397
----------- --------- --------- --------- ---------
Fixed charges and preferred stock dividend
requirements, excluding interest on
deposits, for computation purposes $ 103,852 $ 49,671 $ 25,227 $ 59,571 $ 62,429
=========== ========= ========= ========= =========
Ratio of earnings to fixed charges and
preferred stock dividend requirements,
excluding interest on deposits 9.83 10.88 13.28 5.19 4.32
</TABLE>
PROVIDIAN FINANCIAL CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Financial Condition
(dollars in thousands) (unaudited)
<TABLE>
<CAPTION>
December 31
1999 1998
-------------------------------
<S> <C> <C>
Assets
Cash and cash equivalents $ 182,915 $ 176,348
Federal funds sold and resale agreements 1,298,000 297,869
Investment securities:
Available-for-sale 455,238 114,858
Held-to-maturity 126,258 318,817
Loans receivable, less allowance for credit losses of $1,028,377
at December 31, 1999 and $451,245 at December 31, 1998 10,545,173 5,282,014
Premises and equipment, net 149,194 82,858
Interest receivable 108,087 51,801
Due from securitizations 614,217 454,374
Deferred taxes 571,040 306,234
Other assets 290,755 146,042
-------------------------------
Total Assets $ 14,340,877 $ 7,231,215
===============================
Liabilities and Shareholders' Equity
Deposits $ 10,538,123 $ 4,672,298
Short-term borrowings 126,289 472,500
Long-term borrowings 958,056 399,757
Deferred fees 578,607 334,617
Accrued expenses and other liabilities 647,326 388,856
-------------------------------
Total Liabilities 12,848,401 6,268,028
Capital securities 160,000 160,000
Shareholders' equity 1,332,476 803,187
-------------------------------
Total Liabilities and Shareholders' Equity $ 14,340,877 $ 7,231,215
===============================
</TABLE>
<PAGE>
PROVIDIAN FINANCIAL CORPORATION AND SUBSIDIARIES Condensed Consolidated
Statements of Income (dollars in thousands, except per share date) (unaudited)
<TABLE>
<CAPTION>
Three Months Ended Year Ended
December 31 December 31
1999 1998 1999 1998
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income:
Loans $ 497,114 $ 241,977 $ 1,559,285 $ 807,825
Federal funds sold and resale agreements 14,604 5,633 34,334 14,072
Other 8,765 5,946 30,657 20,682
--------------------------------------------------------------
Total interest income 520,483 253,556 1,624,276 842,579
Interest expense:
Deposits 129,434 58,059 356,736 204,335
Borrowings 21,246 11,770 92,334 42,931
--------------------------------------------------------------
Total interest expense 150,680 69,829 449,070 247,266
--------------------------------------------------------------
Net interest income 369,803 183,727 1,175,206 595,313
Provision for credit losses 373,557 202,205 1,099,131 545,929
--------------------------------------------------------------
Net interest income after provision
for credit losses (3,754) (18,478) 76,075 49,384
Non-interest income 712,644 420,167 2,412,476 1,266,179
Non-interest expense:
Salaries and employee benefits 143,739 79,801 494,089 265,411
Solicitation 110,967 54,995 428,617 196,528
Occupancy, FF&E 26,231 14,591 84,157 49,908
Data processing & communications 37,012 20,764 125,219 74,603
Other 125,043 73,365 439,044 238,550
--------------------------------------------------------------
442,992 243,516 1,571,126 825,000
--------------------------------------------------------------
Income before income taxes 265,898 158,173 917,425 490,563
Income tax expense 106,530 63,259 367,153 194,117
--------------------------------------------------------------
Net Income $ 159,368 $ 94,914 $ 550,272 $ 296,446
==============================================================
Earnings per share - basic $ 1.13 $ 0.67 $ 3.89 $ 2.09
Earnings per share - assuming dilution $ 1.10 $ 0.66 $ 3.78 $ 2.04
==============================================================
Cash dividends paid per share $ 0.05 $ 0.05 $ 0.20 $ 0.15
==============================================================
Weighted average common shares
outstanding - basic (000) 141,451 141,116 141,371 141,872
==============================================================
Weighted average common shares
and assumed conversions (000) 145,164 144,811 145,547 145,184
==============================================================
</TABLE>
<PAGE>
PROVIDIAN FINANCIAL CORPORATION (PVN)
FINANCIAL & STATISTICAL SUMMARY
<TABLE>
<CAPTION>
---------------------------------------------------------------
1999 1999 1999 1999 1998
(in millions, except per share and employee data) Q4 Q3 Q2 Q1 Q4
---------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Earnings (Managed Basis) :
Net Interest Income $ 619.4 $ 557.8 $ 496.2 $ 434.9 $ 393.3
Non-Interest Income 615.4 560.6 494.7 416.2 364.2
---------------------------------------------------------------
Total Revenue 1,234.8 1,118.4 990.9 851.1 757.5
Provision for Loan Losses 525.9 434.0 402.0 344.8 355.8
Non-Interest Expense 443.0 433.1 377.8 317.1 243.5
---------------------------------------------------------------
Income Before Taxes 265.9 251.3 211.1 189.2 158.2
Tax Expense 106.5 100.4 84.6 75.7 63.3
---------------------------------------------------------------
Net Income $ 159.4 $ 150.9 $ 126.5 $ 113.5 $ 94.9
- -----------------------------------------------------------------------------------------------------------------------
Managed Financial Data:
Quarter End:
Credit Cards $ 19,049 $ 16,636 $ 14,825 $ 13,143 $ 12,138
Home Loans 1,977 1,720 1,415 1,198 1,107
---------------------------------------------------------------
Total Loans $ 21,026 $ 18,356 $ 16,240 $ 14,341 $ 13,245
Securitized Loans $ 9,416 $ 8,835 $ 8,075 $ 7,484 $ 7,504
Total Assets $ 23,689 $ 20,337 $ 17,989 $ 15,882 $ 14,606
Total Capital (Includes Capital Securities) $ 1,492 $ 1,324 $ 1,173 $ 1,085 $ 963
Total Equity $ 1,332 $ 1,164 $ 1,013 $ 925 $ 803
Quarter Average:
Credit Cards $ 17,608 $ 15,706 $ 14,049 $ 12,630 $ 11,295
Home Loans 1,868 1,556 1,279 1,155 1,075
---------------------------------------------------------------
Total Loans $ 19,476 $ 17,262 $ 15,328 $ 13,785 $ 12,370
Securitized Loans $ 8,998 $ 8,268 $ 7,542 $ 7,502 $ 7,072
Earning Assets $ 21,081 $ 18,362 $ 16,437 $ 14,734 $ 13,212
Total Assets $ 21,583 $ 18,881 $ 16,951 $ 15,228 $ 13,735
Total Equity $ 1,251 $ 1,099 $ 969 $ 870 $ 760
- -----------------------------------------------------------------------------------------------------------------------
Key Statistics:
Managed:
Net Interest Margin (Earning Assets) 11.75% 12.15% 12.08% 11.81% 11.91%
Net Interest Margin (Loans) 12.30% 12.40% 12.39% 12.26% 12.52%
Risk Adjusted Margin (Loans) (1) 18.16% 18.99% 18.14% 16.72% 16.17%
Return on Assets 2.95% 3.20% 2.98% 2.98% 2.76%
Return on Equity 50.96% 54.89% 52.19% 52.19% 49.95%
Membership Services Revenue $ 209.0 $ 194.2 $ 154.7 $ 117.0 $ 99.80
Net Credit Losses $ 330.3 $ 276.4 $ 274.4 $ 262.8 $ 251.3
Net Credit Loss Rate 6.78% 6.40% 7.16% 7.62% 8.13%
Delinquency Rate (30+ Days) 5.66% 5.20% 4.70% 4.91% 5.33%
Equity to Managed Assets 5.62% 5.72% 5.63% 5.82% 5.50%
On Balance Sheet:
Reserves as a Percent of Loans 8.86% 8.75% 8.27% 7.99% 7.86%
Net Credit Loss Rate 6.79% 5.81% 6.56% 6.36% 7.37%
Delinquency Rate (30+ Days) 6.82% 6.07% 5.46% 5.37% 5.69%
- -----------------------------------------------------------------------------------------------------------------------
Common Share Statistics:
EPS - Basic $ 1.13 $ 1.07 $ 0.89 $ 0.80 $ 0.67
EPS - Assuming Dilution $ 1.10 $ 1.04 $ 0.87 $ 0.78 $ 0.66
Book Value Per Share (Period End) $ 9.38 $ 8.20 $ 7.14 $ 6.52 $ 5.67
Total Market Capitalization (Period End) $ 12,937 $ 11,237 $ 13,221 $ 15,611 $ 10,630
Shares Outstanding (Period End) 142.1 141.9 141.8 141.9 141.7
Weighted Average Shares O/S - Basic 141.5 141.3 141.5 141.2 141.1
Weighted Average Shares O/S - Diluted 145.2 145.1 145.5 145.5 144.8
Accounts 12.4 11.3 10.1 9.0 7.9
Employees (FTE) 10,790 9,154 8,279 7,135 5,937
(1) Risk adjusted margin is total loan revenue less credit losses as a
percentage of average managed loans.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PROVIDIAN FINANCIAL CORPORATION (PVN)
FINANCIAL & STATISTICAL SUMMARY
-------------------------
1999 1998
(in millions, except per share and employee data) Year End Year End
-------------------------
--------------------------------------------------------------------------------
<S> <C> <C>
Earnings (Managed Basis) :
Net Interest Income $ 2,108.3 $ 1,361.9
Non-Interest Income 2,086.9 1,011.1
-------------------------
Total Revenue 4,195.2 2,373.0
Provision for Loan Losses 1,706.7 1,057.4
Non-Interest Expense 1,571.1 825.0
-------------------------
Income Before Taxes 917.4 490.6
Tax Expense 367.1 194.2
-------------------------
Net Income $ 550.3 $ 296.4
--------------------------------------------------------------------------------
Managed Financial Data:
Year End:
Credit Cards $ 19,049 $ 12,138
Home Loans 1,977 1,107
-------------------------
Total Loans $ 21,026 $ 13,245
Securitized Loans $ 9,416 $ 7,504
Total Assets $ 23,689 $ 14,606
Total Capital (Includes Capital Securities) $ 1,492 $ 963
Total Equity $ 1,332 $ 803
Year Average:
Credit Cards $ 15,016 $ 10,392
Home Loans 1,466 1,052
-------------------------
Total Loans $ 16,482 $ 11,444
Securitized Loans $ 8,082 $ 6,822
Earning Assets $ 17,683 $ 12,060
Total Assets $ 18,198 $ 12,885
Total Equity $ 1,051 $ 693
--------------------------------------------------------------------------------
Key Statistics:
Managed:
Net Interest Margin (Earning Assets) 11.92% 11.29%
Net Interest Margin (Loans) 12.33% 11.80%
Risk Adjusted Margin (Loans) (1) 18.05% 13.06%
Return on Assets 3.02% 2.30%
Return on Equity 52.37% 42.76%
Membership Services Revenue $ 674.9 $ 238.5
Net Credit Losses $ 1,143.9 $ 867.5
Net Credit Loss Rate 6.94% 7.58%
Delinquency Rate (30+ Days) 5.66% 5.33%
Equity to Managed Assets 5.62% 5.50%
On Balance Sheet:
Reserves as a Percent of Loans 8.86% 7.86%
Net Credit Loss Rate 6.38% 7.71%
Delinquency Rate (30+ Days) 6.82% 5.69%
--------------------------------------------------------------------------------
Common Share Statistics:
EPS - Basic $ 3.89 $ 2.09
EPS - Assuming Dilution $ 3.78 $ 2.04
Book Value Per Share (Period End) $ 9.38 $ 5.67
Total Market Capitalization (Period End) $ 12,937 $ 10,630
Shares Outstanding (Period End) 142.1 141.7
Weighted Average Shares O/S - Basic 141.4 141.9
Weighted Average Shares O/S - Diluted 145.5 145.2
Accounts 12.4 7.9
Employees (FTE) 10,790 5,937
(1) Risk adjusted margin is total loan revenue less credit losses as
a percentage of average managed loans.
</TABLE>
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 began an
investigation into the Company's sales and collections practices, including the
marketing of certain fee-based products and the posting of customer payments. In
November 1999 the Company received an inquiry from the Connecticut Attorney
General's Office seeking information in connection with a civil investigation
into the Company's credit card issuance and billing practices. The remedies
available to the San Francisco District Attorney's Office and the Connecticut
Attorney General's Office include, but are not limited to, damages, penalties,
fines and/or injunctive relief. 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 Company also has met
with and intends to cooperate with the Connecticut Attorney General's Office.
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 in August 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 February 1, 2000, six similar putative class actions were pending
in state courts and eight were pending in federal courts. Three state cases were
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 motions to dismiss this action have been granted
twice, although the plaintiff has been given leave to amend both times. The
Company's third motion to dismiss is pending. Another action was filed in
Bullock County, Alabama. The remaining putative class actions were filed in
various federal courts, and have been transferred by the Federal Judicial Panel
on Multidistrict Litigation to the Eastern District of Pennsylvania (the
"Multidistrict Action"). A consolidated complaint in the Multidistrict Action is
due to be filed by February 4, 2000.
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 or improper 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 these statements,
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.
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 February 1, 2000, the consolidated
complaint had not been filed. A petition has been filed to transfer and
consolidate this action with the Multidistrict Action pending in the Eastern
District of Pennsylvania. The Federal Judicial Panel on Multidistrict Litigation
held a hearing on this petition on January 28, 2000 and has taken the matter
under submission.
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.
