<PAGE>
Filed Pursuant to Rule 424(b)(5)
File No. 333-55937
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus supplement and the related prospectus is +
+not complete and may be changed. An effective registration statement relating +
+to these securities has been filed with the Securities and Exchange +
+Commission. This prospectus supplement, together with the related prospectus, +
+is not an offer to sell these securities and it is not soliciting an offer to +
+buy these securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion. Dated February 2, 2000.
Prospectus Supplement to Prospectus Dated May 14, 1999.
[Providian Financial Corp Logo] $
Providian Financial Corporation
% Senior Notes due , 20
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We will pay interest on the senior notes on and of each year. The
first such payment will be made on , 2000. The senior notes will be issued
only in denominations of $1,000 and integral multiples of $1,000.
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The senior notes are not savings accounts, deposits or other obligations of
a bank. The senior notes are not guaranteed by any bank and are not insured by
the Federal Deposit Insurance Corporation or any other governmental agency.
Neither the Securities and Exchange Commission nor any other regulatory
body has approved or disapproved of these securities or passed upon the
accuracy or adequacy of this prospectus supplement or the attached prospectus.
Any representation to the contrary is a criminal offense.
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<TABLE>
<CAPTION>
Per Note Total
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<S> <C> <C>
Initial public offering price................................... % $
Underwriting discount........................................... % $
Proceeds, before expenses, to us................................ % $
</TABLE>
The initial public offering price set forth above does not include accrued
interest, if any. Interest on the senior notes will accrue from February ,
2000 and must be paid by the purchaser if the senior notes are delivered after
February , 2000.
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The underwriter expects to deliver the senior notes in book-entry form only
through the facilities of The Depository Trust Company against payment in New
York, New York on February , 2000.
Goldman, Sachs & Co.
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Prospectus Supplement dated February , 2000.
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ABOUT THIS PROSPECTUS SUPPLEMENT
This prospectus supplement sets forth certain terms of the % Senior
Notes due , 20 (which are referred to in this document as
the senior notes) and supplements the prospectus that is attached to the back of
this prospectus supplement. This prospectus supplement supersedes the
prospectus to the extent it contains information that is different from the
information in the prospectus.
It is important for you to read and consider all information contained in
this prospectus supplement, the attached prospectus and the documents identified
in "Where You Can Find More Information" in the attached prospectus before
making your investment decision.
In this prospectus supplement, the terms "Providian Financial," the
"Company," "we," "us" and "our" mean Providian Financial Corporation and, where
relevant, its wholly owned subsidiaries.
PROVIDIAN FINANCIAL CORPORATION
General
The Company, based in San Francisco, California, was incorporated in
Delaware in 1984 under the name First Deposit Corporation. The name of the
Company was changed from First Deposit Corporation to Providian Bancorp, Inc. in
1994 and to Providian Financial Corporation in 1997. The Company conducted its
operations as a wholly owned subsidiary of Providian Corporation until June 10,
1997, when all of the then outstanding shares of common stock of the Company
were spun off to the stockholders of Providian Corporation. The Company is
listed on the New York Stock Exchange and the Pacific Exchange under the symbol
PVN.
The Company, operating through its subsidiaries, is a provider of lending
and deposit products to customers nationwide and offers credit cards in the
United Kingdom. The Company serves a diversified market with loan products that
include credit cards, home equity loans, secured cards, and membership services.
The Company also offers various deposit products. With over $23 billion in
assets under management and over 12 million customers, as of December 31, 1999
the Company ranked as the sixth largest bankcard issuer in the United States.
Organizational Structure
The Company conducts its business through its wholly owned subsidiaries.
Each subsidiary performs a particular role in support of the business, depending
in part on the powers granted to it by its chartering regulator or state of
incorporation. However, the Company's various business areas are generally
operated in a consolidated manner among the different legal entities. Since the
Company is a holding company and generally does not independently engage in any
businesses, the source of funds for payment on the senior notes currently is
almost entirely limited to those funds that are available to the Company from
its subsidiaries. The Company's right to participate as a stockholder in any
distribution of assets of any subsidiary upon its liquidation or reorganization
or winding-up (and thus the ability of holders of the senior notes to benefit,
as creditors of the Company, from such distribution) is subject to the prior
claims of creditors of any such subsidiary. Providian National Bank (PNB) and
Providian Bank (PB) are subject to claims by creditors for long-term and short-
term debt obligations, including deposit liabilities, obligations for federal
funds purchased and securities sold under repurchase agreements. There
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are also various legal limitations on the extent to which PNB, PB and other
subsidiaries may pay dividends or otherwise supply funds to the Company or its
affiliates. See "--Regulatory Matters" herein.
The Company operates principally through the following wholly owned
subsidiaries:
. Providian National Bank, headquartered in Tilton, New Hampshire, is a
national banking association organized under the laws of the United
States and is a member of the Federal Deposit Insurance Corporation (the
FDIC).
. Providian Bank, headquartered in Salt Lake City, Utah, is an industrial
loan corporation organized under the laws of Utah and is a member of the
FDIC.
. Providian Bancorp Services, headquartered in San Francisco, California,
provides legal and human resources support, accounting and finance
services, data processing, loan and deposit processing, customer
service, collections, and related services for its affiliates on a cost
reimbursement basis.
Regulatory Matters
The following discussion describes the regulatory framework applicable to
the Company and its subsidiaries. This regulatory framework is intended
primarily for the protection of depositors and the federal deposit insurance
funds and not for the protection of holders of the senior notes. Certain of
these regulations restrict the ability of the Company to obtain funds from its
regulated subsidiaries and thus could impact the Company's ability to pay
principal and interest on the senior notes. To the extent that the following
information describes statutory and regulatory provisions, it is qualified in
its entirety by reference to those provisions. A change in the statutes,
regulations or regulatory policies applicable to the Company or its subsidiaries
may have a material effect on the business of the Company.
General Status
As a national bank, PNB is subject to regulation by its primary regulator,
the Office of the Comptroller of the Currency (the Comptroller). The deposits
of PNB are insured up to applicable limits by the Bank Insurance Fund (the BIF)
of the FDIC. Accordingly, PNB is subject to assessment for deposit insurance
premiums and is subject to certain regulations of the FDIC. As a member of the
Federal Reserve System, PNB is also subject to regulation by the Board of
Governors of the Federal Reserve System (the Federal Reserve Board).
The operations of PNB's international branch in London, England are subject
to regulation and supervision by the Financial Services Authority of the United
Kingdom and the Comptroller.
As an FDIC-insured Utah industrial loan corporation that is not a member of
the Federal Reserve System, PB is subject to regulation by its primary federal
regulator, the FDIC, and by the Utah Department of Financial Institutions. The
deposits of PB are insured up to applicable limits by the BIF. Accordingly, PB
is subject to assessment for deposit insurance premiums and is subject to
certain regulations of the FDIC. PB is also subject to limited regulation by
the Federal Reserve Board with respect to reserves it must maintain against its
transaction accounts and certain other deposits.
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Holding Company Status
Although the Company is the holding company of PNB and PB, it is not
required to register as a bank holding company under the Bank Holding Company
Act of 1956, as amended (the BHCA). PNB is a national banking association, but
prior to 1987 it was not a "bank" under the BHCA, because it did not both accept
demand deposits and make commercial loans. PNB is a "bank" under the BHCA, as
amended by the Competitive Equality Banking Act of 1987 (CEBA), which revised
the definition of "bank" to include generally all FDIC-insured institutions.
However, CEBA allowed companies that owned "nonbank banks" on March 5, 1987 to
retain ownership of those nonbank banks without registering as a bank holding
company, subject to certain restrictions. These restrictions included
prohibitions on new activities and on affiliate overdrafts and limitations on
PNB's ability to cross-market its products and services with products and
services of its affiliates. PB is not a "bank" as defined in the BHCA because
it qualifies for an exemption under CEBA as an industrial loan corporation
organized under the laws of Utah and was acquired by the Company on or before
August 10, 1987.
The CEBA restrictions were liberalized by the Gramm-Leach-Bliley Act of
1999 (the GLB Act). Under the GLB Act, PNB will be permitted to engage in new
activities that were not permitted under CEBA, so long as it does not both
accept demand deposits and make commercial loans. The GLB Act also eased CEBA
restrictions on PNB's ability to incur overdrafts on behalf of affiliates and
eliminated CEBA limitations on PNB's ability to cross-market its products and
services with the products and services of its affiliates. In addition, the GLB
Act increased the Company's ability to acquire the assets of additional insured
depository institutions, effectively eliminating the CEBA restriction that
prevented the Company from acquiring more than 5% of the assets of another
insured depository institution. In order to preserve its grandfather rights
under CEBA, however, the Company still can not acquire control over another
insured depository institution (excluding exempt institutions such as credit
card banks). See "--Legislative Developments" below.
The Company could be required to register as a bank holding company under
the BHCA if PNB ceases to observe the CEBA restrictions as modified by the GLB
Act or if the Company or any of its affiliates acquires control over an
additional insured depository institution (excluding exempt institutions such as
credit card banks). If the Company were required to register as a bank holding
company, it would be subject to the restrictions set forth in the BHCA, which,
among other things, would limit the Company's activities to those deemed by the
Federal Reserve Board to be closely related to banking and a proper incident
thereto. These BHCA restrictions, if they were to apply to the Company, would
not have a material adverse effect on the Company's business as currently
conducted. While CEBA has imposed regulatory burdens on the Company, it has had
no material effect on the Company's ability to execute its business plan. If
the Company were required to register as a bank holding company and it elected
to become a financial holding company under the GLB Act, it would be permitted
to engage in a more expansive list of activities than would be permitted under
the BHCA.
Investment in the Company and its Subsidiary Banks
Each of PNB and PB is an "insured depository institution" within the
meaning of the Change in Bank Control Act of 1978 (the CIBC Act). Consequently,
written approval of the applicable primary federal regulator is required before
an individual or entity may acquire "control," as such term is defined in the
CIBC Act, of the Company. A change in control of PB would also require approval
from the Utah Commissioner of Financial Institutions under the Utah Financial
Institutions Act.
For purposes of the BHCA, an individual or entity may not acquire "control"
of the Company, and a bank holding company may not directly or indirectly
acquire ownership or control of more than 5% of the voting shares of the
Company, without the prior written approval of the Federal Reserve Board.
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Because the Company's CEBA grandfather rights are nontransferable, if an
individual or entity acquired "control" of the Company or if a bank holding
company acquired ownership or control of more than 5% of the voting shares of
the Company, the Company would be required to limit its activities and its non-
banking subsidiaries' activities to those deemed by the Federal Reserve Board to
be closely related to banking and a proper incident thereto. As noted above,
however, if the Company elected to become a financial holding company under the
GLB Act, it would be permitted to engage in a more expansive list of activities.
See "--Legislative Developments" below.
Dividends and Transfers of Funds
The primary source of funds for the Company to pay dividends on stock, make
payments on debt securities (including the senior notes) and meet other
obligations is dividends from its banking subsidiaries. Federal law limits the
extent to which PNB or PB can supply funds to the Company and its affiliates
through dividends, loans or otherwise. These limitations include minimum
regulatory capital requirements, restrictions concerning the payment of
dividends, and Sections 23A and 23B of the Federal Reserve Act of 1913 governing
transactions between a financial institution and its affiliates. In addition,
PNB and PB are subject to federal regulatory oversight to assure safety and
soundness. In general, federal banking laws prohibit an insured depository
institution from making dividend distributions if those distributions are not
paid out of available earnings or would cause the institution to fail to meet
applicable capital adequacy standards. See "--Capital Requirements" below. PB
is subject to similar Utah laws governing industrial loan corporations and the
general supervision of the Utah Department of Financial Institutions.
Capital Requirements
PNB is subject to risk-based capital guidelines adopted by the Comptroller,
and PB is subject to risk-based capital guidelines adopted by the FDIC. Risk-
based capital ratios are determined by allocating assets and specified off-
balance sheet commitments to several weighted categories, with higher levels of
capital being required for the categories perceived as representing greater
risk.
Under current guidelines, institutions are required to maintain a minimum
total risk-based capital ratio (total Tier 1 and Tier 2 capital to risk-weighted
assets) of 8%, and a Tier 1 risk-based capital ratio (Tier 1 capital to risk-
weighted assets) of 4%. The Comptroller and the FDIC may, however, set higher
capital requirements when an institution's particular circumstances warrant.
These risk-based capital guidelines are subject to change by the applicable
regulators and may be increased from time to time generally or with respect to
specific types of assets. The Comptroller and the FDIC have established
guidelines prescribing a minimum "leverage ratio" (Tier 1 capital to adjusted
total assets as specified in the guidelines) of 3% for institutions that meet
certain criteria, including the requirement that they have the highest
regulatory rating, and prescribing a minimum leverage ratio of 4% for
institutions that do not meet the criteria. Institutions experiencing or
anticipating significant growth are expected to maintain capital ratios well
above the minimum. As of December 31, 1999, PNB had a total risk-based capital
ratio of 11.17%, a Tier 1 risk-based capital ratio of 9.79% and a leverage ratio
of 10.88%, and PB had a total risk-based capital ratio of 15.08%, a Tier 1 risk-
based capital ratio of 13.78% and a leverage ratio of 10.54%.
In 1995, the Comptroller and the FDIC amended the risk-based capital
standards pertaining to asset transfers in which an institution retains recourse
risk but contractually limits its exposure. Under the "low level recourse"
regulation that was adopted, the amount of risk-based capital required in
connection with those asset transfers will not exceed the institution's maximum
contractual liability. In addition, in November 1997 the federal banking
regulators proposed for comment regulations establishing new risk-based capital
requirements for recourse arrangements and direct credit substitutes. If
adopted, these
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regulations may increase the cost of credit enhancement provided by banks in
connection with the securitization of consumer loan receivables while possibly
reducing the cost of senior securities issued in those transactions. We are
unable at this time to assess the impact this proposal would have on the
Company's business.
Federal Deposit Insurance Corporation Improvement Act of 1991
The Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA)
expanded the powers of federal bank regulatory authorities to take corrective
action with respect to banks that do not meet minimum capital requirements. For
these purposes, FDICIA established five capital tiers: well capitalized,
adequately capitalized, undercapitalized, significantly undercapitalized and
critically undercapitalized. Under regulations adopted by the Comptroller and
the FDIC, an institution is generally considered to be "well capitalized" if it
has a total risk-based capital ratio of 10% or greater, a Tier 1 risk-based
capital ratio of 6% or greater, and a leverage ratio of 5% or greater;
"adequately capitalized" if it has a total risk-based capital ratio of 8% or
greater, a Tier 1 risk-based capital ratio of 4% or greater and, generally, a
leverage ratio of 4% or greater; and "undercapitalized" if it does not meet any
of the "adequately capitalized" tests. An institution is deemed to be
"significantly undercapitalized" if it has a total risk-based capital ratio
under 3% and "critically undercapitalized" if it has a ratio of tangible equity
(as defined in the regulations) to total assets that is equal to or less than
2%.
An "adequately capitalized" institution is permitted to accept brokered
deposits only if it receives a waiver from the FDIC and pays interest on
deposits at a rate that is not more than 75 basis points higher than the
prevailing rate in its market. Undercapitalized institutions cannot accept
brokered deposits, are subject to growth limitations and must submit a capital
restoration plan. "Significantly undercapitalized" institutions may be subject
to a number of additional requirements and restrictions. "Critically
undercapitalized" institutions are subject to appointment of a receiver or
conservator and, beginning 60 days after becoming "critically undercapitalized,"
may not make any payment of principal or interest on their subordinated debt
(subject to certain exceptions).
As of December 31, 1999, each of PNB and PB met the requirements to be
considered a "well capitalized" institution. Under the regulatory definition of
brokered deposits, as of December 31, 1999 PNB had brokered deposits of $4.7
billion and PB had brokered deposits of $691 million.
FDICIA also required federal banking agencies to revise their risk-based
capital standards to adequately address concentration of credit risk, interest
rate risk and risk arising from non-traditional activities. The Comptroller and
the FDIC have identified these risks and an institution's ability to manage them
as important factors in assessing overall capital adequacy, but have not
quantified them for use in formula-based capital calculations. The Comptroller
and the FDIC have further revised their risk-based capital rules to address
market risk. Financial institutions with 10% of total assets in trading
activity, or $1 billion in trading, are required to use internal risk
measurement models to calculate their capital exposure for market risk and to
hold capital in support of that exposure. The level of the Company's trading
activity is currently below these thresholds.
Deposit Insurance Assessments
Under the FDIC's risk-based insurance assessment system, each insured
institution is placed in one of nine risk categories, based on its level of
capital, supervisory evaluations, and other relevant information. The
assessment rate applicable to PNB and PB depends in part on the risk assessment
classification assigned to them by the FDIC and in part on the BIF assessment
schedule adopted by the FDIC. BIF-insured institutions such as PNB and PB are
currently assessed premiums at an annual rate between 0% to 0.27% of eligible
deposits. PNB and PB are currently assessed at the 0% rate. PNB and
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PB are also subject to assessment for payment of Financing Corporation (FICO)
bonds issued in the 1980s as part of the resolution of the problems of the
savings and loan industry. The FICO assessment rate applicable to BIF-insured
deposits is 0.0212% per annum for the first quarter of 2000 and may be adjusted
quarterly to reflect a change in assessment base for the BIF.
The Financial Institutions Reform, Recovery and Enforcement Act of 1989 Cross-
Guarantee Provisions
The Financial Institutions Reform, Recovery and Enforcement Act of 1989
imposes various liabilities on our subsidiary banks. Each of PNB and PB is
liable to the FDIC for any losses it may incur as a result of the failure or
near failure of the other. Claims of depositors of any such non-failing bank
and claims of general creditors of any such non-failing bank would be paid prior
to any claims of the FDIC.
Consumer Protection Laws
The relationship of the Company's lending subsidiaries and their customers
is extensively regulated by federal and state consumer protection laws. The
most significant laws include the Truth-in-Lending Act of 1968, Equal Credit
Opportunity Act of 1974, Fair Credit Reporting Act of 1970, Truth-in-Savings Act
of 1991, Telemarketing and Consumer Fraud and Abuse Prevention Act of 1994, and
Electronic Funds Transfer Act of 1978. These statutes, among other things,
impose disclosure requirements when a consumer credit loan is advertised, when
the account is opened and when monthly billing statements are sent. In
addition, these statutes limit the liability of credit card holders for
unauthorized use, prohibit discriminatory practices in extending credit, and
impose limitations on the types of charges that may be assessed on consumer
credit loans and on the use of consumer credit reports.
The National Bank Act of 1864 authorizes national banks to charge customers
interest at the rates allowed by the laws of the state in which the bank is
located, regardless of an inconsistent law of a state in which the bank's
customers are located. PNB relies on this ability to "export" rates to
facilitate its nationwide credit card and consumer lending business. State
institutions such as PB enjoy a similar right under the Depository Institutions
Deregulation and Monetary Control Act of 1980. In 1996, the United States
Supreme Court held that late payment fees are "interest" and therefore can be
"exported" under the National Bank Act, deferring to the Comptroller's
interpretation that interest includes late payment fees, insufficient funds
fees, overlimit fees and certain other fees and charges associated with consumer
credit loans. This decision does not directly apply to state institutions such
as PB. Although several courts have upheld the ability of state institutions to
export certain types of fees, a number of lawsuits have been filed alleging that
the laws of certain states prohibit the imposition of late fees. It is
impossible to determine whether courts will follow existing precedents, and if
not, what impact it will have on PB's ability to impose certain fees.
Legislative Developments
Various legislative proposals relevant to the Company and its subsidiaries
have been introduced in Congress in recent years. These include proposals
imposing a statutory cap on credit card interest rates and fees, substantially
revising the laws governing consumer bankruptcy, requiring additional
disclosures and prohibiting certain practices with respect to open-end credit
plans, protecting consumer privacy by limiting the use of social security
numbers and the transfer of personal information, and regulatory restructuring
proposals. In recent years state legislatures have entertained similar
proposals, as well as proposals to restrict telemarketing activities and to
expand consumer protection laws. We cannot predict the outcome of these
proposals or their impact on the Company, should they become law.
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On November 12, 1999, the GLB Act became law. The GLB Act repeals the
Glass-Steagall Act of 1933, which separated commercial and investment banking,
and eliminates the BHCA's prohibition on insurance underwriting by bank holding
companies. As a result, the GLB Act permits the affiliation of commercial
banks, securities firms and insurance companies. This change may increase the
ability of insurance companies and securities firms to acquire, or otherwise
affiliate with, commercial banks and may increase the number of competitors in
the banking industry and the level of competition for banking products,
including credit cards.
The GLB Act creates a new type of bank holding company, a "financial
holding company," that may engage in a range of activities that are financial in
nature, including insurance and securities underwriting, insurance sales,
merchant banking and additional activities that the Federal Reserve Board, in
consultation with the Secretary of the Treasury, determines to be financial in
nature, incidental to a financial activity, or complementary to a financial
activity. The GLB Act establishes the Federal Reserve Board as the primary
regulator of financial holding companies, with state insurance authorities
continuing to oversee insurance affiliates and the SEC continuing to regulate
broker-dealer affiliates.
The GLB Act also establishes new privacy requirements applicable to all
financial institutions. Financial institutions are required to establish a
privacy policy and to disclose the policy at the start of a customer
relationship and once a year thereafter. Additionally, financial institutions
must give a customer the opportunity to block the sharing of the customer's
nonpublic personal information with unaffiliated third parties, except in
certain limited circumstances. Further, financial institutions are barred from
sharing credit card numbers, account numbers or access numbers of customers with
third-party marketers. State laws that provide a greater degree of privacy
protection are not preempted by federal law.
Although the changes resulting from the GLB Act may alter the competitive
landscape faced by the Company, we do not anticipate that the applicable
provisions of the GLB Act will have a material effect on our business or
practices. To the extent that the GLB Act promotes competition or consolidation
among financial service providers active in the consumer credit market, the
Company could experience increased competition for customers, employees and
funding. However, the Company is unable to predict at this time the scope or
extent of any such impact.
Several states have passed legislation to tax the income of out of state
lenders derived from loans, including credit card loans, made to residents of
those states. This development has not materially affected the Company's
business results.
Members of Congress and government officials have from time to time
suggested the full or partial elimination of the mortgage interest deduction for
federal income tax purposes. Since the interest paid on the real estate loans
made by the Company is generally deductible under current law, the reduction or
elimination of this tax benefit could have a material adverse effect on the
demand for those products.
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
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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 those 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
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or potential liability associated with the investigations and actions described
above 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.
Recent Operating Results
On January 20, 2000, the Company announced record fourth quarter net income
of $159.4 million, or $1.10 per diluted share, an increase in net income of 68%
over $94.9 million, or $0.66 per diluted share, for the fourth quarter of 1998.
Full year 1999 net income totaled $550.3 million, an 86% increase over net
income of $296.4 million in 1998. Full year 1999 earnings per diluted share
were $3.78, an 85% increase over $2.04 per diluted share in 1998.
During the fourth quarter, the Company added 1.1 million net new accounts,
bringing total customer accounts at year-end 1999 to 12.4 million. For the full
year, the Company added 4.5 million net new accounts, a 57% gain over the 7.9
million total accounts at year-end 1998.
Total managed loans grew by $2.7 billion in the fourth quarter to $21.0
billion, while for the full year total managed loans grew by $7.8 billion, a 59%
increase over year-end 1998. Total managed revenue, comprised of a balanced mix
of managed net interest income and non-interest income, increased to $1.2
billion for the fourth quarter of 1999, a 63% increase over the fourth quarter
of 1998. For the full year, total managed revenue rose to $4.2 billion from
$2.4 billion in 1998, a 77% increase. The managed net interest margin was
12.30% in the fourth quarter of 1999 and 12.33% for the year, compared to 11.80%
for the year 1998.
The managed net credit loss rate increased to 6.78% in the fourth quarter,
compared to 6.40% in the third quarter of 1999. For the full year, the managed
net credit loss rate was 6.94%, compared to 7.58% for 1998. The 30+ day managed
delinquency rate was 5.66% at year-end 1999, compared to 5.20% at the end of the
third quarter of 1999 and 5.33% at year-end 1998. Net credit loss rates are
expected to increase in fiscal 2000 as the loan portfolio seasons. Loan loss
reserves were increased by $195.6 million in the fourth quarter to $1.03
billion, representing 8.86% of reported loans at year-end 1999 versus 8.75% at
the end of the third quarter of 1999.
Managed risk-adjusted margin (net interest income on loans plus non-
interest income less net credit losses, expressed as a percentage of average
loans) was 18.16% in the fourth quarter of 1999 and 18.05% for the year. Return
on average managed assets was 2.95% for the fourth quarter and 3.02% for the
year, while return on average equity was 51% for the fourth quarter and 52% for
the year. Internal capital generation continued during the year bringing total
capital to $1.5 billion at year-end 1999. Capital and reserves totaling $2.5
billion were 17.58% of reported assets and 10.64% of managed assets at year-end.
Consistent with the Company's investment for long term growth and its
growing customer franchise, non-interest expense was $443 million for the fourth
quarter of 1999 and $1.6 billion for the full year, compared to $825 million
during 1998. The Company continued to benefit from investment in its customer
satisfaction infrastructure, implementing new systems and processes to support
high levels of
S-11
<PAGE>
service. As a result of these investments, we experienced continuing declines in
customer complaints during the fourth quarter while adding 1.1 million net new
accounts.
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial data for the
Company as of the dates or for the periods indicated. This information should
be read in conjunction with, and is qualified in its entirety by reference to,
the detailed information and financial statements included in the documents
incorporated by reference in this prospectus supplement and the attached
prospectus.
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------------------
1999 1998 1997
(unaudited)
---------------------- -------------------- --------------------
<S> <C> <C> <C>
(Dollars in millions, except per share data.)
INCOME STATEMENT DATA
Interest income:
Loans $1,559.3 $ 807.8 $556.9
Federal funds sold and resale agreements 34.3 14.1 13.2
Other 30.7 20.7 12.4
---------------------- -------------------- --------------------
Total interest income 1,624.3 842.6 582.5
Interest expense:
Deposits 356.8 204.4 164.2
Borrowings 92.3 42.9 18.9
---------------------- -------------------- --------------------
Total interest expense 449.1 247.3 183.1
Net interest income 1,175.2 595.3 399.4
Provision for credit losses 1,099.1 545.9 149.3
---------------------- -------------------- --------------------
Net interest income after provision
for credit losses 76.1 49.4 250.1
Non-interest income 2,412.5 1,266.2 634.6
Non-interest expenses 1,571.2 825.0 573.4
---------------------- -------------------- --------------------
Income before income taxes 917.4 490.6 311.3
Income tax expense 367.1 194.2 119.8
---------------------- -------------------- --------------------
Net Income $ 550.3 $ 296.4 $191.5
====================== ==================== ====================
Basic earnings per share $ 3.89 $ 2.09 N/A
====================== ==================== ====================
Earnings per share - assuming dilution $ 3.78 $ 2.04 N/A
====================== ==================== ====================
Dividends paid per share $ 0.20 $ 0.15 $ 0.07
====================== ==================== ====================
</TABLE>
S-12
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------------------
1999 1998 1997
(unaudited)
---------------------- ---------------------- ----------------------
<S> <C> <C> <C>
(Dollars in millions, except per share data.)
BALANCE SHEET DATA
Cash and cash equivalents $ 182.9 $ 176.3 $ 112.5
Federal funds sold 1,298.0 297.9 115.0
Investment securities 581.5 433.7 172.8
Loans held for securitization or sale -- -- 450.2
Loans receivable, less allowance for credit losses 10,545.2 5,282.0 2,815.4
Premises and equipment, net 149.2 82.9 61.6
Interest receivable 108.1 51.8 30.2
Due from securitizations 614.2 454.4 522.4
Other assets 861.8 452.2 169.3
---------------------- ---------------------- ----------------------
Total assets $14,340.9 $7,231.2 $4,449.4
====================== ====================== ======================
Deposits $10,538.1 $4,672.3 $3,212.8
Short-term borrowings 126.3 472.5 232.0
Long-term borrowings 958.1 399.8 --
Deferred fees 578.6 334.6 64.7
Accrued expenses and other liabilities 647.3 388.8 184.8
---------------------- ---------------------- ----------------------
Total liabilities 12,848.4 6,268.0 3,694.3
Capital securities 160.0 160.0 160.0
Total shareholders' equity 1,332.5 803.2 595.1
---------------------- ---------------------- ----------------------
Total liabilities and shareholders' equity $14,340.9 $7,231.2 $4,449.4
====================== ====================== ======================
</TABLE>
S-13
<PAGE>
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------------------------------------
1999 1998 1997
----------------- ----------------- -----------------
<S> <C> <C> <C>
(Unaudited; dollars in millions, except per share data and as noted)
FINANCIAL & STATISTICAL SUMMARY DATA
Earnings (Managed Basis):
Net interest income $2,108.3 $1,361.9 $1,047.5
Non-interest income 2,086.9 1,011.1 459.7
----------------- ----------------- -----------------
Total revenue 4,195.2 2,373.0 1,507.2
Provision for loan losses 1,706.7 1,057.4 622.4
Non-interest expense 1,571.1 825.0 573.5
----------------- ----------------- -----------------
Income before taxes 917.4 490.6 311.3
Tax expense 367.1 194.2 119.8
----------------- ----------------- -----------------
Net income $ 550.3 $ 296.4 $ 191.5
================= ================= =================
Managed Financial Data:
Year End:
Consumer lending:
Credit cards $ 19,049 $ 12,138 $ 8,839
Home loans 1,977 1,107 1,063
----------------- ----------------- -----------------
Total consumer lending $ 21,026 $ 13,245 $ 9,902
Securitized loans $ 9,416 $ 7,504 $ 6,491
Total assets $ 23,689 $ 14,606 $ 11,241
Total capital (includes capital securities) $ 1,492 $ 963 $ 755
Total equity $ 1,332 $ 803 $ 595
Key Statistics:
Managed:
Net interest margin (earning assets) 11.92% 11.29% 10.66%
Net interest margin (loans) 12.33% 11.80% 11.23%
Return on assets 3.02% 2.30% 1.81%
Return on equity 52.37% 42.76% 36.79%
Membership services revenue $ 674.9 $ 238.5 $ 83.3
Net credit losses $1,143.9 $ 867.5 $ 591.7
Net credit loss rate 6.94% 7.58% 6.32%
Delinquency rate (30+ days) 5.66% 5.33% 4.22%
Equity to managed assets 5.62% 5.50% 5.29%
On Balance Sheet:
Reserves as a percent of loans 8.86% 7.86% 4.91%
Net credit loss rate 6.38% 7.71% 3.73%
Delinquency rate (30+ days) 6.82% 5.69% 4.17%
Ratio of Earnings to Fixed Charges:
Excluding interest on deposits 9.83 10.88 14.20
Including interest on deposits 2.99 2.93 2.66
</TABLE>
S-14
<PAGE>
USE OF PROCEEDS
The Company intends to use the net proceeds from the sale of the senior
notes for general corporate purposes, which may include possible acquisitions,
investments in securities and the reduction of debt of, and investments in, or
extensions of credit to, the Company's subsidiaries.
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company and its subsidiaries at December 31, 1999 and as adjusted as of such
date to give effect to the issuance of the senior notes. This table should be
read in conjunction with the Company's consolidated financial statements and the
notes thereto incorporated by reference in this prospectus supplement and the
attached prospectus.
<TABLE>
<CAPTION>
December 31, 1999
---------------------------------------------------------
Actual As Adjusted
---------------------------------------------------------
<S> <C> <C>
(in millions)
Interest bearing deposits $10,474.2 $10,474.2
Other borrowings 126.3 126.3
Long-term borrowings 958.1 958.1
Notes offered hereby -- *
------------------------ --------------------------
Total debt 11,558.6 *
Company obligated mandatorily redeemable capital
securities of subsidiary trust holding solely junior
subordinated deferrable interest debentures of the
Company (Capital Securities) 160.0 160.0
Common stock 1.0 1.0
Retained earnings 1,394.3 1,394.3
Cumulative other comprehensive income (2.2) (2.2)
Treasury stock (60.6) (60.6)
------------------------ --------------------------
Total shareholders' equity 1,332.5 1,332.5
------------------------ --------------------------
Total capitalization $13,051.1 $ *
======================== ==========================
</TABLE>
* Subject to completion upon issuance of senior notes.
DESCRIPTION OF SENIOR NOTES
The following description of the particular terms of the senior notes
supplements, and to the extent inconsistent therewith replaces, the description
of the general terms and provisions of debt securities described in the attached
prospectus, and we refer you to that description. Certain terms used in this
prospectus supplement have the meanings given to those terms in the attached
prospectus.
General
The senior notes of the Company offered hereby are " % Senior Notes
due , 20 ". The senior notes will be issued in an aggregate
principal amount of $ and will mature on
S-15
<PAGE>
, 20 . The senior notes will be issued in fully registered book-entry form
only. The senior notes are senior notes as described below.
The senior notes will bear interest at the annual rate of %,
payable semiannually in arrears on and
of each year, beginning , 2000, to the persons in
whose names the senior notes are registered at the close of business on the
preceding or . Interest
on the senior notes will be computed on the basis of a 360-day year or twelve
30-day months.
If the interest payment date or the maturity for the senior notes falls on
a day that is not a business day, the payment may be made on the next succeeding
business day, and no interest on such payment shall accrue for the period from
and after the scheduled payment date.
The senior notes we are offering by this prospectus supplement constitute a
series of debt securities for purposes of the senior indenture dated as of May
1, 1999 between the Company and Bank One Trust Company, National Association, as
successor trustee by merger to The First National Bank of Chicago (the trustee),
as supplemented from time to time (the senior indenture). Debt securities
issued under the senior indenture, including the senior notes, are collectively
referred to in this prospectus supplement as "notes".
The senior notes do not provide for any sinking fund and may not be
redeemed prior to maturity.
The defeasance provisions of the senior indenture described below under
"Defeasance and Discharge" will apply to the senior notes.
Settlement by purchasers of the senior notes will be made in immediately
available funds. All payments by the Company to the depositary of principal and
interest will be made in immediately available funds.
Ranking
The senior notes will be direct, unsecured obligations of the Company and
will rank on a parity with all outstanding unsecured senior indebtedness of the
Company. The senior notes will rank senior to all of the Company's existing and
future subordinated debt (including, without limitation, any securities offered
by the Company under the subordinated indenture dated as of May 1, 1999 between
the Company and Chase Manhattan Bank and Trust Company, National Association.)
Events of Default, Waivers, Etc.
An event of default with respect to the notes of any series is defined in
the senior indenture as
. default in the payment of principal of or premium, if any, on any of the
notes of that series when due,
. default in the payment of interest on any of the notes of that series
when due and continuance of such default for 30 days,
. default in the deposit of any sinking fund payment on any of the notes
of that series when due,
S-16
<PAGE>
. default in the performance, or breach, of certain other covenants or
warranties of the Company in the senior indenture with respect to notes
of that series and continuance of such default or breach for 60 days
after written notice by the trustee or the holders of not less than 25%
in aggregate principal amount of the notes of that series;
. any event of default under any mortgage, indenture or other instrument
under which any indebtedness for borrowed money in an aggregate
principal amount exceeding $5,000,000 of the Company or PNB shall become
due and payable, if such acceleration is not rescinded or annulled
within 30 days after written notice as provided in the senior indenture,
. certain events of bankruptcy, insolvency or reorganization of the
Company, or
. any other event that may be specified with respect to notes of that
series.
If an event of default (other than an event of default arising from the
bankruptcy, insolvency or reorganization of the Company) with respect to any
series of notes for which there are notes outstanding under the senior indenture
occurs and is continuing, either the trustee or the holders of not less than 25%
in aggregate principal amount of the notes of such series outstanding may
declare the principal amount (or if such notes are original issue discount
notes, such portion of the principal amount as may be specified in the terms of
that series) of all notes of that series to be immediately due and payable. If
an event of default arising from the bankruptcy, insolvency or reorganization of
the Company with respect to any series of notes for which there are notes
outstanding under the senior indenture occurs, the principal amount (or if such
notes are original issue discount notes, such portion of the principal amount as
may be specified in the terms of that series) of all notes of that series will
automatically, and without any action on the part of the trustee or any holder,
become immediately due and payable. The holders of a majority in aggregate
principal amount of the notes of any series outstanding under the senior
indenture may waive an event of default resulting in acceleration of such notes,
but only if all events of default with respect to notes of such series have been
remedied and all payments due (other than those due as a result of acceleration)
have been made.
If an event of default occurs and is continuing, the trustee may, in its
discretion, and shall, at the written request of holders of not less than a 25%
in aggregate principal amount of the notes of any series outstanding under the
senior indenture and upon reasonable indemnity against the costs, expenses and
liabilities to be incurred in compliance with such request and subject to
certain other conditions set forth in the senior indenture, proceed to protect
the rights of the holders of all the notes of such series. Prior to
acceleration of maturity of the notes of any series outstanding under the senior
indenture, the holders of a majority in aggregate principal amount of such notes
may waive any past default under the senior indenture except a default in the
payment of principal of, premium, if any, or interest on the notes of such
series.
The senior indenture provides that upon the occurrence of an event of
default arising from either (i) the default in the payment of principal of or
premium, if any, on any of the notes of that series outstanding under the senior
indenture when due or (ii) the default in the payment of interest on any of the
notes of that series outstanding under the senior indenture when due and
continuance of such default for 30 days, the Company will, upon demand of the
trustee, pay to it, for the benefit of the holder of any such note, the whole
amount then legally due and payable on such notes for principal, premium, if
any, and interest. The senior indenture further provides that if the Company
fails to pay such amount forthwith upon such demand, the trustee may, among
other things, institute a judicial proceeding for the collection thereof.
S-17
<PAGE>
The senior indenture also provides that notwithstanding any other provision
of the senior indenture, the holder of any note of any series shall have the
right to institute suit for the enforcement of any payment of principal of,
premium, if any, and interest on such notes on the respective stated maturities
as expressed in such note and that such right shall not be impaired without the
consent of such holder.
The Company is required to file annually with the trustee a written
statement of officers as to the existence or non-existence of defaults under the
senior indenture.
Senior Indenture Covenants
Limitation on Disposition of PNB
Subject to certain exceptions, so long as any of the notes are outstanding,
the Company: (a) will not, nor will it permit PNB to, sell, assign, transfer or
otherwise dispose of any shares of, securities convertible into or options,
warrants or rights to subscribe for or purchase shares of voting stock of PNB,
nor will the Company permit PNB to issue any shares of, or securities
convertible into or options, warrants or rights to subscribe for or purchase
shares of voting stock of PNB (other than sales of directors' qualifying shares)
unless the Company will own, directly or indirectly, at least 80% of the issued
and outstanding voting stock of PNB after giving effect to such transaction; or
(b) will not permit PNB to either (i) merge or consolidate with or into any
corporation (other than the Company), unless at least 80% of the surviving
corporation's issued and outstanding voting stock is, or upon consummation of
the merger or consolidation will be, owned, directly or indirectly by the
Company, or (ii) lease, sell or transfer all or substantially all of its
properties and assets to any corporation or other person (other than the
Company), unless 80% of the issued and outstanding voting stock of such
corporation or other person is owned, or will be owned, upon such lease, sale or
transfer, directly or indirectly, by the Company; provided, however, that
nothing in this covenant shall prohibit the Company or PNB from the sale or
transfer of assets pursuant to any securitization transaction.
Limitation on Creation of Certain Liens
So long as any of the notes are outstanding, the Company will not, nor will
it permit PNB to, create, assume, incur, or suffer to be created, assumed or
incurred or to exist, any pledge, encumbrance or lien, as security for
indebtedness for borrowed money, upon any shares of, or securities convertible
into or options, warrants or rights to subscribe for or purchase shares of,
voting stock of PNB, directly or indirectly, without making effective provision
whereby the applicable notes of all series shall be equally and ratably secured
with any and all such indebtedness if, treating such pledge, encumbrance or lien
as a transfer of the shares of, or securities convertible into or options,
warrants or rights to subscribe for or purchase shares of, voting stock of PNB
subject thereto to the secured party and after giving effect to the issuance of
the maximum number of shares of voting stock of PNB issuable upon the exercise
of all such convertible securities, options, warrants or rights, the Company
would not continue to own, directly or indirectly, at least 80% of the issued
and outstanding voting stock of PNB.
Modifications of the Senior Indenture
The senior indenture provides that the Company and the trustee may enter
into a supplemental indenture to amend the senior indenture without the consent
of any holder of the notes
. to evidence the succession of another person to the Company and the
assumption by any such successor of the covenants of the Company therein
and in the notes,
S-18
<PAGE>
. to add to the covenants of the Company for the benefit of the holders of
all or any series of notes (and if such covenants are to be for the
benefit of less than all series of notes, stating that such covenants
are expressly being included solely for the benefit of such series) or
to surrender any right or power herein conferred upon the Company,
. to add any additional events of default for the benefit of the holders
of all or any series of notes (and if such additional events of default
are to be for the benefit of less than all series of notes, stating that
such additional events of default are expressly being included solely
for the benefit of such series),
. to add to or change any of the provisions of the senior indenture to
such extent as shall be necessary to permit or facilitate the issuance
of notes in bearer form, registrable or not registrable as to principal,
and with or without interest coupons, or to permit or facilitate the
issuance of notes in uncertificated form,
. to add to, change or eliminate any of the provisions of the senior
indenture in respect of one or more series of notes, provided that any
such addition, change or elimination (i) shall neither (A) apply to any
note of any series created prior to the execution of such supplemental
indenture and entitled to the benefit of such provision nor (B) modify
the rights of the holder of any such note with respect to such provision
or (ii) shall become effective only when there are no such notes
outstanding,
. to secure the notes,
. to establish the form or terms of notes permitted by the senior
indenture,
. to evidence and provide for the acceptance of appointment by a successor
trustee with respect to the notes of one or more series and to add to or
change any of the provisions of the senior indenture as shall be
necessary to provide for or facilitate the administration of the trusts
by more than one trustee in accordance with the senior indenture, or
. to cure any ambiguity, defect or inconsistency, or to make any other
provisions with respect to matters arising under the senior indenture,
provided that such action will not adversely affect the interests of the
holders of notes of any series in any material respect.
The senior indenture may be modified or amended at any time with the
consent of the holders of not less than 66-2/3% in aggregate principal
amount of all series of the notes at the time outstanding under the senior
indenture and affected by such modification or amendment; provided, however,
that without the consent of the holder of each note affected, no such
modification or amendment shall
. change the stated maturity of the principal of, or any installment of
principal of or interest on, any note, or reduce the principal amount
thereof or the rate of interest thereon or any premium payable upon the
redemption thereof, or reduce the amount of the principal of an original
issue discount note or any other note which would be due and payable
upon a declaration of acceleration of the maturity thereof, or change
any place of payment where, or the coin or currency in which, any note
or any premium or interest thereon is payable, or impair the right to
institute suit for the enforcement of any such payment on or after the
stated maturity thereof (or, in the case of redemption, on or after the
redemption date),
S-19
<PAGE>
. reduce the percentage in principal amount of the outstanding notes of
any series, the consent of whose holders is required for any such
supplemental indenture or the consent of whose holders is required for
any waiver provided for in the senior indenture, or
. with the exception of certain provisions relating to the trustee, modify
any of the provisions relating to the amendment of the senior indenture
with the consent of the holders of the notes or the waiver of past
defaults, except to increase any such percentage or to provide that
certain other provisions of the senior indenture cannot be modified or
waived without the consent of the holder of each outstanding note
affected thereby.
Defeasance and Discharge
The senior indenture provides, if such provision is made applicable to the
notes of any series pursuant to the senior indenture, that the Company may elect
either (a) to defease and be discharged from any and all obligations with
respect to such notes (except with respect to certain ongoing obligations
regarding, among other thing, registering and replacing notes and holding moneys
for payments in trust) or (b) to be released from its obligations with respect
to certain covenants, upon the deposit with the trustee (or other qualifying
trustee), in trust for such purpose, of money and/or U.S. government obligations
(as defined below) which through the payment of principal and interest in
accordance with their terms will, as certified by a nationally recognized firm
of independent public accountants, provide money in an amount sufficient to pay
the principal of (and premium, if any) and interest on such notes, and any
mandatory sinking fund or analogous payments thereon, on the scheduled due dates
therefor. Such a trust may only be established if, among other things, the
Company has delivered to the trustee an opinion of counsel (as specified in the
senior indenture) to the effect that the holders of such notes will not
recognize income, gain or loss for federal income tax purposes as a result of
such defeasance or covenant defeasance and will be subject to the federal income
tax on the same amounts, in the same manner and at the same times as would have
been the case if such defeasance or covenant defeasance had not occurred. Such
opinion, in the case of defeasance under clause (a) above, must refer to and be
based upon a ruling of the internal revenue service or a change in applicable
federal income tax law occurring after the date of the senior indenture.
"U.S. government obligation" for purposes of the senior indenture means
(x) any security which is (i) a direct obligation of the United States of
America for the payment of which the full faith and credit of the United States
of America is pledged or (ii) an obligation of a person or entity controlled or
supervised by and acting as an agency or instrumentality of the United States of
America the payment of which is unconditionally guaranteed as a full faith and
credit obligation by the United States of America, which, in either case (i) or
(ii), is not callable or redeemable at the option of the issuer thereof, and (y)
any depositary receipt issued by a bank (as defined in Section 3(a)(2) of the
Securities Act of 1933, as amended) as custodian with respect to any such U.S.
government obligation which is specified in clause (x) above and held by such
bank for the account of the holder of such depositary receipt, or with respect
to any specific payment of principal of or interest on any such U.S. government
obligation which is so specified and held, provided that (except as required by
law) such custodian is not authorized to make any deduction from the amount
payable to the holder of such depositary receipt from any amount received by the
custodian in respect of the U.S. government obligation or the specific payment
of principal or interest evidenced by such depositary receipt.
S-20
<PAGE>
Corporate Existence, Consolidation, Merger and Sale of Assets
Except as described in the next paragraph, the Company will do or cause to
be done all things necessary to preserve and keep in full force and effect its
existence and the existence of PNB and its rights (charter or statutory) and
franchises and those of PNB; provided, however, that the Company will not be
required to preserve any such right or franchise if the Company determines that
the preservation thereof is no longer desirable in the conduct of its business
and that the loss thereof is not disadvantageous in any material respect to the
holders of the notes.
The Company may consolidate with or merge into any other entity or entities
or convey, transfer or lease its properties and assets substantially as an
entirety to any person without the consent of the holders of any of the notes
provided that (i) any successor or purchaser is a corporation, partnership or
trust organized under the laws of the United State of America, any state thereof
or the District of Columbia, and any such successor or purchaser expressly
assumes the Company's obligations on the notes under the senior indenture, (ii)
immediately after giving effect to the transaction no event of default under the
senior indenture, and no event which, after notice or lapse of time or both,
would become an event of default under the senior indenture, shall have happened
and be continuing, (iii) if as a result of such transaction the Company would
become subject to an encumbrance not permitted by the senior indenture, the
Company or such successor purchaser takes necessary steps to effectively secure
the notes equally and ratably with (or prior to) all indebtedness secured
thereby, and (iv) the Company has delivered to the trustee an officers'
certificate and an opinion of counsel stating compliance with these provisions.
Concerning the Trustee
In certain instances, the Company or the holders of a majority of the then
outstanding principal amount of the notes issued under the senior indenture may
remove the trustee and appoint a successor trustee. Subject to the provisions
of applicable law, the trustee may become the owner or pledgee of any of the
notes with the same rights it would have if it were not the trustee. The
trustee and any successor trustee must be a person or entity eligible to be a
trustee under the Trust Indenture Act of 1939 and must have (or, in the case of
a trustee or successor trustee included in a bank holding company system, the
related bank holding company must have) a combined capital and surplus of at
least $100,000,000. From time to time and subject to applicable law relating to
conflicts of interest, the trustee may also serve as trustee under other
indentures relating to securities issued by the Company and may engage in
commercial transactions with the Company.
Legal Ownership
"Street Name" and Other Indirect Holders
Investors who hold senior notes in accounts at banks or brokers will
generally not be recognized by us as legal holders of senior notes. This is
called holding in "street name." Instead, we would recognize only the bank or
broker, or the financial institution the bank or broker uses to hold its senior
notes. These intermediary banks, brokers and other financial institutions pass
along principal, interest and other payments on the senior notes, either because
they agree to do so in their customer agreements or because they are legally
required to. If you hold senior notes in "street name," you should check with
your own institution to find out:
. How it handles securities payments and notices.
S-21
<PAGE>
. Whether it imposes fees or charges.
. How it would handle voting if ever required.
. Whether and how you can instruct it to send you senior notes registered
in your own name so you can be a direct holder as described below.
. How it would pursue rights under the senior notes if there were a
default or other event triggering the need for holders to act to protect
their interests.
Direct Holders
Our obligations, as well as the obligations of the trustee and those of any
third parties employed by us or the trustee, run only to those persons who are
registered as holders of senior notes. As noted above, we do not have
obligations to you if you hold in "street name" or through other indirect means,
either because you choose to hold senior notes in that manner or because the
senior notes are issued in the form of "global securities" as described below.
For example, once we make payment to the registered holder, we have no further
responsibility for the payment even if that holder is legally required to pass
the payment along to you as a "street name" customer but does not do so.
Global Securities
What Is a Global Security?
A "global security" is a special type of indirectly held security, as
described above under "`--Street Name' and Other Indirect Holders." The ultimate
beneficial owners can only be indirect holders of those senior notes we issue in
the form of global securities. We do this by requiring that the global security
be registered in the name of a financial institution we select and by requiring
that the senior notes included in the global security not be transferred to the
name of any other direct holder unless the special circumstances described below
occur. The financial institution that acts as the sole direct holder of the
global security is called the "depositary." Any person wishing to own a senior
note must do so indirectly by virtue of an account with a broker, bank or other
financial institution that in turn has an account with the depositary. As
described further under "--Book-Entry System" below, the senior notes will be
issued only in the form of global securities.
Special Investor Considerations for Global Securities
As an indirect holder, an investor's rights relating to a global security
will be governed by the account rules of the investor's financial institution
and of the depositary, as well as general laws relating to securities transfers.
We do not recognize this type of investor as a holder of senior notes and
instead deal only with the depositary that holds the global security.
An investor should be aware that with respect to the senior notes:
. The investor cannot get senior notes registered in his or her own name.
. The investor cannot receive physical certificates for his or her
interest in the senior notes.
. The investor will be a "street name" holder and must look to his or her
own bank or broker for payments on the notes and protection of his or
her legal rights relating to the senior notes. See "`--Street Name' and
Other Indirect Holders" above.
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. The investor may not be able to sell interests in the senior notes to
some insurance companies and other institutions that are required by law
to own their securities in the form of physical certificates.
. The depositary's policies will govern payments, transfers, exchanges and
other matters relating to the investor's interest in the global
security. We and the trustee have no responsibility for any aspect of
the depositary's actions or for its records of ownership interests in
the global security. We and the trustee also do not supervise the
depositary in any way.
. The depositary will require that interests in a global security be
purchased or sold within its system using same-day funds for settlement.
Special Situations When Global Security will be Terminated
In a few special situations, the global security will terminate and
interests in it will be exchanged for physical certificates representing senior
notes (called certificated notes). After that exchange, the choice of whether
to hold senior notes directly or in "street name" will be up to the investor.
Investors must consult their own banks or brokers to find out how to have their
interests in senior notes transferred to their own name, so that they will be
direct holders. The rights of "street name" investors and direct holders in the
senior notes have been previously described above under "`--Street Name' and
Other Indirect Holders" and "--Direct Holders". The special situations for
termination of a global security are described under "Book-Entry System" below.
When a global security terminates, the depositary (and not us or the trustee) is
responsible for deciding the names of the institutions that will be the initial
direct holders.
General Features of the Senior Notes
The senior notes will be unsecured obligations of the Company and will be
issued only in the form of one or more global securities registered in the name
of a nominee of The Depository Trust Company, as depositary, except as specified
in "Book-Entry System" below. As used in this prospectus supplement, the term
"holder" means those who own senior notes registered in their own names and not
those who own beneficial interests in senior notes registered in "street name"
or in senior notes represented by a global note or notes issued in "book-entry"
form through the depositary. For more information on certificated and global
notes, see "--Legal Ownership" above and "--Book-Entry System" below.
The senior notes may be registered for transfer or exchanged at the
principal office of the Corporate Trust Department of Bank One Trust Company,
National Association in Chicago, Illinois. The transfer or exchange of the
senior notes will be effected as specified in "--Book-Entry System" below.
The senior indenture does not contain any provision which will restrict us
from incurring, assuming or becoming liable with respect to any indebtedness or
other obligations. In addition, the indentures do not contain any provision
which would afford holders of the senior notes other protection upon the
occurrence of a highly leveraged transaction involving the Company which may
adversely affect the creditworthiness of the senior notes.
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Book-Entry System
Upon issuance, all senior notes will be represented by one or more fully
registered global notes. Each global note will be deposited with, or on behalf
of, the depositary, The Depository Trust Company, New York, New York, and
registered in the name of the depositary's nominee. Except as described below,
global notes may be transferred, in whole and not in part, only by the
depositary to a nominee of the depositary or by a nominee of the depositary to
the depositary or another nominee of the depositary.
The depositary has advised the underwriter and us as follows: the
depositary is a limited-purpose trust company organized under the New York
Banking Law, a "banking organization" within the meaning of the New York Banking
Law, a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Securities Exchange
Act of 1934, as amended. The depositary holds securities that its participants
deposit with the depositary. The depositary also facilitates the settlement
among participants of securities transactions, such as transfers and pledges, in
deposited securities through electronic computerized book-entry changes in
participants' accounts, eliminating the need for physical movement of securities
certificates. "Direct participants" include securities brokers and dealers,
banks, trust companies, clearing corporations and certain other organizations.
The depositary is owned by a number of its direct participants and by the New
York Stock Exchange, Inc., the American Stock Exchange, Inc. and the National
Association of Securities Dealers, Inc. Access to the depositary's system is
also available to others such as securities brokers and dealers, banks and trust
companies that clear through or maintain a custodial relationship with a direct
participant, either directly or indirectly (indirect participants). The Rules
applicable to the depositary and its participants are on file with the
Securities and Exchange Commission.
Purchases of interests in the global notes under the depositary's system
must be made by or through direct participants, which will receive a credit for
such interests on the depositary's records. The ownership interest of each
actual purchaser of interests in the global notes, each called a beneficial
owner, is in turn to be recorded on the direct and indirect participants'
records. Beneficial owners will not receive written confirmation from the
depositary of their purchase, but beneficial owners are expected to receive
written confirmations providing details of the transaction, as well as periodic
statements of their holdings, from the direct or indirect participant through
which the beneficial owner entered into the transaction. Transfers of ownership
interests in the global notes are to be accomplished by entries made on the
books of participants acting on behalf of beneficial owners. Beneficial owners
will not receive certificates representing their ownership interests in the
global notes, except as described below.
To facilitate subsequent transfers, all global notes deposited by
participants with the depositary are registered in the name of the depositary's
partnership nominee, Cede & Co. The deposit of global notes with the depositary
and their registration in the name of Cede & Co. effect no change in beneficial
ownership. The depositary has no knowledge of the actual beneficial owners of
the interests in the global notes; the depositary's records reflect only the
identity of the direct participants to whose accounts interests in the global
notes are credited, which may or may not be the beneficial owners. The
participants will remain responsible for keeping account of their holdings on
behalf of their customers.
Conveyance of notices and other communications by the depositary to direct
participants, by direct participants to indirect participants, and by direct
participants and indirect participants to beneficial owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.
Neither the depositary nor Cede & Co. will consent or vote with respect to
the global notes. Under its usual procedures, the depositary mails an omnibus
proxy to the issuer as soon as possible after
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the record date. The omnibus proxy assigns Cede & Co.'s consenting or voting
rights to those direct participants to whose accounts interests in the global
notes are credited on the record date (identified in a listing attached to the
omnibus proxy).
Principal and interest payments on the global notes will be made to the
depositary. The depositary's practice is to credit direct participants'
accounts on the payment date in accordance with their respective holdings shown
on the depositary's records unless the depositary has reason to believe that it
will not receive payment on the payment date. Payments by participants to
beneficial owners will be governed by standing instructions and customary
practices, as is the case with securities held for the accounts of customers in
bearer form or registered in "street name," and will be the responsibility of
such participant and not of the depositary, the trustee or us, subject to any
statutory or regulatory requirements as may be in effect from time to time.
Payment of principal and interest to the depositary is the responsibility of us
or the trustee, disbursement of such payments to direct participants shall be
the responsibility of the depositary, and disbursement of such payments to the
beneficial owners shall be the responsibility of direct and indirect
participants.
The depositary may discontinue providing its services as securities
depository with respect to the senior notes at any time by giving reasonable
notice to the Company or the trustee. Under such circumstances, in the event
that a successor securities depository is not obtained, certificated notes are
required to be printed and delivered.
The Company may decide to discontinue use of the system of book-entry
transfers through the depositary (or a successor securities depository). In
that event certificated notes will be printed and delivered.
The senior notes represented by one or more global notes are exchangeable
for certificated notes of like tenor as such notes if:
. the depositary for such global notes notifies us that it is unwilling or
unable to continue as depositary for such global notes or if at any time
such depositary ceases to be a clearing agency registered under the
Securities Exchange Act of 1934, as amended,
. we in our discretion at any time determine not to have all of the senior
notes represented by one or more global note or notes and notify the
trustee of such determination, or
. an event of default has occurred and is continuing with respect to the
senior notes.
Any senior note that is exchangeable pursuant to the preceding sentence is
exchangeable for certificated notes issuable in authorized denominations and
registered in such names as the depositary holding such global notes shall
direct. The authorized denominations of the senior notes will be $1,000 or any
greater amount that is an integral multiple of $1,000. Subject to the
foregoing, a global note is not exchangeable, except for a global note or global
notes of the same aggregate denominations to be registered in the name of such
depositary or its nominee.
The information in this section concerning the depositary and the
depositary's book-entry system has been obtained from sources that we believe to
be reliable, but we take no responsibility for the accuracy of such information.
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Repurchase
We may at any time purchase senior notes at any price in the open market or
otherwise. Senior notes we purchase in this manner may, at our discretion, be
held, resold or surrendered to the trustee for cancellation.
UNDERWRITING
The Company and the underwriter have entered into an underwriting agreement
and a pricing agreement with respect to the senior notes. Subject to certain
conditions, the underwriter has agreed to purchase all of the senior notes:
Senior notes sold by the underwriter to the public will initially be
offered at the initial public offering price set forth on the cover of this
prospectus supplement. Any senior notes sold by the underwriter to securities
dealers may be sold at a discount from the initial public offering price of up
to % of the principal amount of the senior notes. Any such securities
dealers may resell any senior notes purchased from the underwriter to certain
other brokers or dealers at a discount from the initial public offering price of
up to % of the principal amount of senior notes. If all the senior notes are
not sold at the initial offering price, the underwriter may change the offering
price and the other selling terms.
The senior notes are a new issue of securities with no established trading
market. In addition, the Company does not intend to apply for the senior notes
to be listed on any securities exchange or to arrange for the senior notes to be
quoted on any quotation system. The Company has been advised by the underwriter
that the underwriter intends to make a market in the senior notes but is not
obligated to do so and may discontinue market making at any time without notice.
No assurance can be given as to the liquidity of the trading market for the
senior notes.
In connection with the offering, the underwriter may purchase and sell
senior notes in the open market. These transactions may include short sales,
stabilizing transactions and purchases to cover positions created by short
sales. Short sales involve the sale by the underwriter of a greater number of
senior notes than they are required to purchase in the offering. Stabilizing
transactions consist of certain bids or purchases made for the purpose of
preventing or retarding a decline in the market price of the senior notes while
the offering is in process.
These activities by the underwriter may stabilize, maintain or otherwise
affect the market price of the senior notes. As a result, the price of the
senior notes may be higher than the price that otherwise might exist in the open
market. If these activities are commenced, they may be discontinued by the
underwriter at any time. These transactions may be effected in the over-the-
counter market or otherwise.
The Company estimates that its share of the total expenses of the offer,
excluding underwriting discounts and commissions, will be approximately
$200,000.
The Company has agreed to indemnify the underwriter against certain
liabilities, including liabilities under the Securities Act of 1933.
In the ordinary course of its business, the underwriter or its affiliates
have engaged and may in the future engage in general financing and banking and
investment banking transactions with us and our affiliates.
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VALIDITY OF SENIOR NOTES
The validity of the senior notes offered hereby will be passed upon for the
Company by Orrick, Herrington & Sutcliffe LLP, San Francisco, California and for
the underwriter by Sullivan & Cromwell, New York, New York.
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No dealer, salesperson or other person is authorized to give any
information or to represent anything not contained in this prospectus
supplement or the attached prospectus. You must not rely on any unauthorized
information or representations. This prospectus supplement and the attached
prospectus is an offer to sell only the senior notes offered hereby, but only
under circumstances and in jurisdictions where it is lawful to do so. The
information contained in this prospectus supplement and the attached
prospectus is current only as of their respective dates.
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TABLE OF CONTENTS
Prospectus Supplement
<TABLE>
<CAPTION>
Page
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<S> <C>
About this Prospectus Supplement.......... S-3
Providian Financial Corporation........... S-3
Selected Consolidated Financial Data...... S-12
Use of Proceeds........................... S-15
Capitalization............................ S-15
Description of Senior Notes............... S-15
Underwriting.............................. S-26
Validity of Senior Notes.................. S-27
Prospectus
Index of Terms............................ 6
Available Information..................... 7
Incorporation of Certain Documents by
Reference................................ 7
Providian Financial Corporation........... 8
The Financing Trusts...................... 8
Use of Proceeds........................... 9
Ratio of Earnings to Fixed Charges and
Ratio of Earnings to Combined Fixed
Charges and Preferred Stock Dividend
Requirements............................. 9
General Description of Securities and Risk
Factors.................................. 10
Description of the Common Stock........... 10
Description of the Preferred Stock........ 11
Description of the Depositary Shares...... 12
Description of the Debt Securities........ 15
Description of the Warrants to Purchase
Common Stock or Preferred Stock.......... 17
Description of the Third Party Warrants... 18
Description of the Warrants to Purchase
Debt Securities.......................... 19
Description of the Stock Purchase
Contracts and Stock Purchase Units....... 20
Description of the Preferred Securities... 21
Description of the Guarantees............. 21
Description of the Other Units............ 24
Plan of Distribution...................... 24
ERISA and Tax Considerations.............. 26
Legal Matters............................. 26
Experts................................... 26
</TABLE>
$
Providian Financial
Corporation
% Senior Notes
due , 20
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[Providian Financial Corp Logo]
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Goldman, Sachs & Co.
