12
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X]Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the period ended September 30, 1994
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
Commission file Number 1-6701
Providian Corporation
(Exact name of Registrant as specified in its charter)
Delaware
51-0108922
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
400 West Market Street, Louisville, Kentucky 40202
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (502) 560-
2000
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
and (2) has been subject to such filing requirements for the past
90 days. Yes X No ___.
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of October 31, 1994.
Class Shares Outstandi
ng
Common Stock, $1.00 par value 98,053,520
1 of 12
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
PROVIDIAN CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
September 30, December 31,
1994 1993
(Unaudited)
(Dollars in Thousands)
Assets
Investments:
Bonds and stocks, available
for sale $10,602,043 $ -
(Amortized cost of
$11,066,371 in 1994)
Bonds and stocks, trading 88,328 -
Bonds and stocks, held for
investment - 5,323,421
(Market value of $5,767,618
in 1993)
Bonds and stocks, actively
managed - 5,711,777
(Amortized cost of $5,687,876
in 1993)
Commercial mortgage loans 2,625,924 2,558,466
Residential mortgage loans 2,397,462 1,637,452
Consumer loans 1,729,818 1,867,944
Policy loans 379,008 351,507
Other investments 624,091 564,747
Total Investments 18,446,674 18,015,314
Cash and cash equivalents 712,846 719,053
Deferred policy and loan 1,452,695 1,373,481
acquisition costs
Value of insurance in force 279,017 283,509
purchased
Goodwill 224,063 230,183
Separate account assets 1,326,818 1,446,238
Other assets 865,176 861,227
Total Assets $23,307,289 $22,929,005
Liabilities and Shareholders'
Equity
Liabilities:
Benefit reserves and other $ 9,076,358 $ 8,858,749
policy liabilities
Policyholder contract deposits 7,509,460 6,641,744
Banking deposits 1,400,999 1,491,767
Separate account liabilities 1,326,818 1,446,238
Long-term debt 684,716 589,268
Deferred federal income tax 171,712 360,425
Other liabilities 839,387 1,047,923
Total Liabilities 21,009,450 20,436,114
Commitments and Contingencies
Preferred Stock of Consolidated 100,000 -
Subsidiary
Shareholders' Equity:
Preferred stock, adjustable
rate - 100,000
cumulative, $100 face value
Common stock, $1 par 115,325 115,325
Additional paid-in capital 57,089 57,053
Net unrealized investment gain (261,830) 17,204
(loss)
Retained earnings 2,465,894 2,295,974
Common stock held in treasury
- - at cost: (172,977) (89,289)
1994-16,475,000 shares; 1993-
13,899,000
shares
Unearned restricted stock (5,662) (3,376)
Total Shareholders' Equity 2,197,839 2,492,891
Total Liabilities and $23,307,289 $22,929,005
Shareholders' Equity
See notes to condensed consolidated financial statements.
Item 1. (continued)
PROVIDIAN CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Nine Months Three Months
Period Ended September 199 1993 1994 199
30 4 3
(Amounts in Thousands Except Per
Common and Common Equivalent Share)
Revenues:
Premiums and other $ 862, $ 876,8 $282,99 $279,2
considerations 339 18 5 29
Investment income, net 1,190,1 1,099,25 409,909 359,54
of expenses 37 0 5
Consumer loan 147,279 123,039 57,067 47,799
servicing fees
Realized investment (59,979 (24,576) (7,196) (7,050
loss ) )
Other income, net 66, 76,8 19,51 27,1
068 45 3 50
Total Revenues 2,205,8 2,151,37 762,288 706,67
44 6 3
Benefits and Expenses:
Benefits and claims 653,358 636,647 219,913 199,16
6
Increase in benefit
and contract 478,930 445,281 171,600 148,34
reserves 4
Commissions, net 55,185 57,154 17,689 17,495
General,
administrative and other 379,483 383,609 126,991 124,13
expenses, net 1
Amortization of
deferred policy
and loan acquisition
costs, value 235,731 221,507 76,458 75,727
of insurance in force
purchased
and goodwill
Interest expense 62, 54,1 19,68 15,4
622 42 2 31
Total Benefits and 1,865, 1,798,3 632,33 580,2
Expenses 309 40 3 94
Income before Federal 340,535 353,036 129,955 126,37
Income Tax 9
Federal Income Tax 106, 121,9 42,40 52,6
489 07 4 16
Net Income before
Preferred Stock 234,046 231,129 87,551 73,763
Dividends of
Consolidated Subsidiary
Dividends on Preferred
Stock of 2, 1,44
Consolidated Subsidiary 228 - 3 -
Net Income 231,818 231,129 86,108 73,763
Dividends on
Nonconvertible 1, 5,0 - 1,6
Preferred Stock 163 63 88
Net Income Applicable to $ 230, $ 226,0 $ 86,10 $ 72,0
Common Stock 655 66 8 75
Net Income per Common
and $ 2 $ 2. $ .8 $ .
Common Equivalent Share .31 24 7 71
Cash Dividends per $ $ .54 $ .2 $ .18
Common Share .60 75 0 25
Weighted Average Number
of Common and
Common Equivalent 99, 101,0 98,81 101,2
Shares Outstanding 750 50 8 24
During the Period
See notes to condensed consolidated financial statements.
Item 1. (continued)
PROVIDIAN CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended September 30 1994 1993
(Dollars in Thousands)
Net Cash Flows from Operations $ 801,657 $ 779,998
Cash Flows from Investment
Activities:
Investments sold or matured 4,378,953 10,014,866
Cost of securities and mortgage (5,383,333) (10,987,984)
loans acquired
Additions to operating property (24,311) (31,595)
Net increase in consumer loans (440,530) (654,451)
Proceeds from securitization of 574,629 1,469,204
consumer loans
Purchase of consumer loans (49,289) (802,809)
Acquisition of subsidiary - (59,363)
All other investment activities (3,240) 56,143
Net Cash Flows used in Investment (940,641) (995,989)
Activities
Cash Flows from Financing
Activities:
Net increase (decrease) in short- 46,018 (62,989)
term borrowings
Policyholder contract deposits 2,263,544 2,170,422
Withdrawals of policyholder (1,870,148) (1,249,671)
contract deposits
Net decrease in banking deposits (90,768) (74,681)
Issuance of long-term debt 95,500 -
Repayment of long-term debt (52) (35,152)
Net borrowings from revolving (155,000) (23,000)
line of credit
Issuance of preferred stock 100,000 -
Redemption of preferred stock (100,000) -
Purchase of common stock for (97,071) -
treasury
Dividends (62,424) (60,412)
Proceeds from exercise of stock 3,178 6,677
options
Net Cash Flows from Financing 132,777 671,194
Activities
Net Increase (Decrease) in Cash (6,207) 455,203
and Cash Equivalents
Cash and Cash Equivalents at 719,053 717,039
Beginning of Period
Cash and Cash Equivalents at End $ 712,846 $ 1,172,242
of Period
See notes to condensed consolidated financial statements.
Item 1. (continued)
PROVIDIAN CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
A. The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with the
instructions to Form 10-Q and in conformity with generally
accepted accounting principles and reflect all adjustments
which are, in the opinion of management, necessary to a fair
presentation of the results for the interim periods
presented. All such adjustments are of a normal recurring
nature. Certain 1993 amounts have been reclassified to
conform to the current year presentation. These
reclassifications did not have a significant effect on the
Company's financial position, results of operations or cash
flows. The results of operations for the nine-month period
ended September 30, 1994 are not necessarily indicative of
the results to be expected for the full year ending December
31, 1994. These unaudited condensed consolidated financial
statements should be read in conjunction with the
consolidated financial statements and footnotes included in
the Company's annual report on Form 10-K for the year ended
December 31, 1993.
B. The Company adopted Statement of Financial Accounting
Standards (SFAS) No. 115, "Accounting for Certain
Investments in Debt and Equity Securities", as of January 1,
1994 and classified substantially all of its securities as
"available for sale" at that time. In accordance with SFAS
No. 115, prior year financial statements have not been
restated to reflect the change in accounting principle. As
a result of the adoption of SFAS No. 115, the net unrealized
investment gain (loss) component of shareholders' equity
increased by $261,400,000 (net of an adjustment to deferred
policy acquisition costs of $42,000,000 and deferred federal
income taxes of $140,800,000) to reflect the January 1,
1994, net unrealized gains on securities classified as
"available for sale" previously carried at amortized cost.
The adoption of SFAS No. 115 had no effect on net income.
C. Realized investment loss for the nine months ended September
30, 1994 includes a first quarter non-recurring charge of
$52.4 million for an impaired investment in Granite
Partners.
D. Per common and common equivalent share amounts have been
calculated using net income after dividends on
nonconvertible preferred stock, divided by the weighted
average number of common and common equivalent shares
outstanding during the three-month and nine-month periods.
Fully diluted net income per common share is not presented
as it approximates net income per common and common
equivalent share.
E. Consumer loans have been reduced by the sale, without
recourse, of unsecured receivables under asset
securitization plans during 1994 of $525.7 million. Total
unsecured consumer receivables outstanding under
securitization plans were $2.4 billion at September 30,
1994.
F. An analysis of the allowance for loan losses on consumer and
mortgage loans for the nine month periods ended September
30, 1994 and 1993 is as follows:
Consumer Mortgag
e
Nine Months Ended 1994 1993 1994 1993
September 30
(Dollars in Thousands)
Balance at beginning $ 75,0 $ 82,9 $ 51,3 $ 47,5
of period 61 74 62 10
Current period 25,667 45,037 15,412 29,129
provision
Current period
chargeoffs, net (37,0 (53,5 (15,0 (26,8
of recoveries 95) 80) 92) 13)
Balance at end of $ 63,3 $ 74,4 $ 51,6 $ 49,8
period 33 31 82 26
G. During the nine months ended September 30, 1994, the Company
issued $95.5 million of Series D medium-term notes with
maturities ranging from 10 to 21 years and interest rates
ranging from 7.78 to 8.30 percent. Subsequent to September
30, 1994, the Company issued an additional $11.0 million of
these notes with maturities ranging from 10 to 12 years and
interest rates ranging from 8.36 to 8.42 percent.
Item 1. (continued)
PROVIDIAN CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
H. On March 2, 1994, the Company redeemed, at face value, all
$100 million of its Adjustable Rate Cumulative Preferred
Stock, Series F, at $100 per share plus accrued and unpaid
dividends through the date of redemption. On May 12, 1994,
Providian LLC, a subsidiary of the Company, completed the
issuance of 4,000,000 shares of Cumulative Monthly Income
Preferred Stock (MIPS) at $25 per share to replace the
redeemed Series F Preferred Stock. The MIPS pays monthly
dividends at an annual rate of 8.875 percent. The Company
has unconditionally guaranteed all legally declared and
unpaid dividends of Providian LLC.
I. As a result of the Omnibus Budget Reconciliation Act of
1993, enacted on August 10, 1993 and retroactive to January
1, 1993, the federal statutory income tax rate increased to
35 percent from 34 percent. The effect of the change in tax
legislation increased income tax expense by $15.5 million
for the nine-month and three-month periods ended September
30, 1993.
J. In May 1993, the FASB issued SFAS No. 114, "Accounting by
Creditors for Impairment of a Loan", as amended by SFAS No.
118, "Accounting by Creditors for Impairment of a Loan -
Income Recognition and Disclosures", which establishes
accounting standards for creditors when a loan is deemed
impaired. These Statements are primarily applicable to the
commercial loan portfolio, as large groups of smaller
balance homogenous loans such as credit card, consumer
installment loans or residential mortgages are excluded.
The Company has determined that the adoption of these
Statements will not have a material effect on the Company's
financial position or results of operations. The Company
will adopt these Statements effective January 1, 1995.
Item 2. Management's Discussion and Analysis of Financial
Condition and
Results of Operations (continued)
Operations
Providian's net income for the quarter ended September 30, 1994
was $.87 per common and common equivalent share (hereinafter
called "per common share"), up 22.5 percent from last year's $.71
per common share. Net income for the nine months ended September
30, 1994 was $2.31 per common share, up 3.1 percent from last
year's $2.24 per common share. Net income for the quarter ended
and nine months ended September 30, 1993 was reduced by an income
tax charge of $15.5 million or $.15 per common share as a result
of the passage of tax legislation on August 10, 1993, made
retroactive to January 1, 1993. Included in the $.15 per share
reduction in the 1993 net income were nonrecurring tax charges of
$.14 per share for the quarter ended and $.11 per share for the
nine months ended September 30, 1993, respectively, resulting
from the one-time $.11 per share adjustment of deferred income
taxes as of August 10, 1993 (the date of enactment) and $.03 per
share for the retroactive adjustment of current taxes payable.
Excluding the nonrecurring income tax impact, net income per
common share increased 2.4 percent from the third quarter of 1993
and decreased 1.7 percent from the nine months of 1993. Year to
date net income includes pretax realized losses of $60.0 million,
comprised of realized investment and securities gains of $7.8
million offset by provisions for mortgage loan losses of $15.4
million and the nonrecurring first quarter write-off of our
impaired investment in Granite Partners of $52.4 million.
Earnings, excluding realized investment gains and losses, net of
related deferred acquisition cost amortization and tax and
dividends on the preferred stock of a consolidated subsidiary,
for the three months ended September 30, 1994 were $.95 per
common share, up 6.7 percent from 1993 after excluding the
nonrecurring income tax impact. Earnings year to date were $2.78
per common share, up 9.9 percent from 1993 after excluding the
nonrecurring income tax impact. Strong growth in Providian
Bancorp (formerly Banking Group) and Providian Direct Insurance
(formerly Direct Response Group) contributed to these results.
Revenues, as discussed hereinafter, exclude realized investment
gains and losses. Consolidated revenues for the quarter were
$769.5 million, up 7.8 percent from the $713.7 million in the
prior year quarter and for the nine months were $2,265.8 million,
up 4.1 percent from 1993, primarily the result of higher
investment income and increased consumer loan servicing fees.
Consolidated premiums in the third quarter were $283.0 million,
up 1.3 percent from 1993. Year to date premiums were down 1.7
percent to $862.3 million, primarily from lower life annuity
sales in Providian Capital Management ("PCM") as they continued
to focus on writing business only at acceptable profit margins.
Investment income was up 14.0 percent for the quarter and 8.3
percent for the nine months due primarily to growth in assets.
Consumer loan servicing fees were up 19.4 percent for the quarter
and 19.7 percent for the year due to an increase in average
securitized balances being serviced by Providian Bancorp ("PB").
Agency Group pretax earnings for the nine months were $138.2
million, down 4.4 percent from a year ago due to lower interest
spreads resulting from declining investment yields and increased
mortality reserves. These unfavorable factors were partially
offset by continued reductions in operating costs and favorable
core health claims experience. Management continues to introduce
field management and profit improvement initiatives to enhance
performance, including recent actions to reduce home office staff
by six to ten percent during the fourth quarter of 1994. Life
pretax earnings, which account for most of Agency Group's pretax
earnings, declined 2.5 percent to $135.6 million, primarily due
to unfavorable interest spreads offset partially by expense
reductions, growth in partnership earnings and premium growth in
the core business. Life profit margins, defined as pretax
earnings as a percentage of mean policyholder reserves, were 7.9
percent, below 1993's margin of 8.4 percent, due to increased
mortality reserves and narrowing interest spreads. Agency Group
premiums were $330.0 million for the nine months, down 1.0
percent from prior year, reflecting the effects of terminated
partnership business partially offset by growth in life business
in force. Life and health annualized sales were down 10.5
percent, showing improvement from the first and second quarters,
but not fully recovered from the effect of the snow storms and
other inclement weather in January and February. The combined
life and health termination rate of 14.5 percent improved
significantly from the prior year rate of 16.1 percent reflecting
continued emphasis on retention activities.
Providian Direct Insurance ("PDI") pretax earnings for the first
nine months of 1994 were $81.7 million, improved 12.2 percent
over the same period in 1993. These favorable results were due
primarily to a strong focus on profit improvement initiatives,
including premium rate increases for several life and health
products, an ongoing emphasis on persistency improvement and cost
Item 2. Management's Discussion and Analysis of Financial
Condition and
Results of Operations (continued)
management and the effects of losses experienced in 1993 on the
disposal of a small third-party administrator. Life, health and
other pretax earnings increased 11.8 percent to $74.2 million
while property and casualty pretax earnings of $7.5 million
improved 15.8 percent over last year's $6.5 million. Life profit
margins (defined as pretax earnings as a percentage of premium
income) were 20.6 percent for the nine month period, improved
from last year's margin of 20.4 percent. Health profit margins
(defined as pretax earnings as a percentage of premium income)
improved to 21.7 percent in the first nine months of 1994 from
20.5 percent in 1993. Both the life and health profit margins
improved primarily due to reduced spending resulting from cost
management efforts. The property and casualty combined ratio
(defined as the ratio of total dollars of claims and expenses
incurred for each $100 of premiums) continued to show a positive
trend at 104.6 percent compared to 105.1 percent for the first
nine months of 1993. PDI premiums were up 4.7 percent from the
first nine months of 1993 to $510.3 million. This increase
resulted primarily from a 24.1 percent increase in property and
casualty premiums to $132.8 million driven by the January 1994
acquisition of a block of business from Skandia U.S. Insurance
Company, an auto insurer specializing in the active-duty military
market. Life premiums increased 3.0 percent from last year to
$232.2 million, while health premiums declined 5.9 percent to
$140.4 million despite a slight improvement in persistency.
Total PDI annualized premium sales increased 17.6 percent to
$86.0 million through September, reflecting the positive results
during the first nine months of 1994 of certain joint marketing
arrangements and value-added product enhancements.
PBI continued its strong performance with pretax earnings of
$108.7 million for the nine months, up 26.2 percent from 1993 due
to strong interest margins and growth in total managed loans,
increased fee-based income and lower overall credit losses.
Total loans under management, including $2.4 billion of
securitized receivables were $4.2 billion, up $456.5 million from
September 1993. Secured Card product balances increased to $85.1
million compared to $35.4 million at September 30, 1993. First
Gold product balances grew to $498.9 million and Select Equity
balances grew to $411.3 million at September 30, 1994, compared
to $179.7 million and $283.3 million, respectively, at September
30, 1993. Return on mean assets was 6.8 percent compared to 5.5
percent a year ago due to stable net interest income, lower
credit losses and an increase in fee income, primarily loan
servicing fees. Loan loss reserves related to unsecured consumer
receivables, excluding securitized receivables, were 4.5 percent
compared to 5.4 percent at September 30, 1993, and 4.8 percent at
year end 1993. Net credit losses related to unsecured consumer
receivables, excluding securitized receivables, were 3.5 percent
in 1994, compared to 4.4 percent for the same nine month period
of 1993 and 4.2 percent for the full year 1993. Balances past
due 30 days or more related to unsecured consumer receivables,
excluding those securitized, were even with the year end 1993
rate at 2.2 percent, while improving slightly from the 2.3
percent rate at September 30, 1993. The following table
summarizes dollar amounts of unsecuritized problem consumer
loans, as of September 30, 1994 and December 31, 1993:
September December
30,1994 31, 1993
(Dollars in Millions)
Non-accrual loans $ 6.8 $ 8.0
Loans past due greater 45.2 45.2
than 30 days
Total problem consumer $52.0 $53.2
loans
There were no additional specifically identified loans that
represented significant potential problems.
PCM pretax earnings for the nine month period were $105.8
million, up 5.1 percent over the same period last year, due
primarily to a higher volume of spread and fee-based deposits and
higher investment income, partially offset by higher credited
rates and accelerated retail amortization due to lower interest
spreads and higher lapse assumptions. Mean spread-based
policyholder deposits, a key driver of profitability, grew by 8.5
percent during the first nine months of 1994 to $12.5 billion.
Profit margins on spread-based deposits (defined as pretax
earnings as a percentage of mean spread-based policyholder
deposits) were 110 basis points for the first nine months of
1994, down from 1993's margin of 117 basis points and second
quarter's margin of 116 basis points, due to increases in short
and intermediate term interest rates in the second and third
quarters of 1994. Such increases in short and intermediate term
interest rates will continue to compress margins during the
remainder of 1994. This decline in margins will likely become
more significant if rates continue to rise. At September 30,
1994, total spread- and fee-based policyholder deposits stood at
$13.7 billion, up from $12.7 billion at December 31, 1993,
primarily the result of favorable institutional deposit growth.
Institutional deposits grew $869.4 million from December 31,
1993, including a $1.0 billion increase in the short-indexed GIC
Item 2. Management's Discussion and Analysis of Financial
Condition and
Results of Operations (continued)
and a $184.2 million increase in the index-guaranteed Total
Return Account Contract products, offset by a $355.0 million
decrease in the long-indexed GIC as a result of management's
decision to terminate these contracts due to the high cost of
funds on the Treasury indexed GIC product relative to other
products. Retail spread-based deposits grew only $2.6 million
year to date due to withdrawals resulting from the aggressive
rate crediting strategy as the Company continues to emphasize
profitability over volume growth. Fee-based variable annuities
grew $162.7 million from December 31, 1993. In addition, the
institutional fee-based Trust GIC, which is not reflected as a
deposit on the Company's balance sheet, grew $2.8 billion from
year end 1993 to $7.3 billion as of September 30, 1994.
Cash and invested assets were $19.2 billion, up 2.2 percent from
December 31, 1993. Excluding PB, invested assets related to
insurance operations were $17.2 billion compared to $16.7 billion
at December 31, 1993. The distribution of invested assets at
September 30, 1994 has not changed significantly from December
31, 1993. Exposure to below-investment grade bonds, preferred
stocks and investments in limited partnerships with below
investment grade holdings at September 30, 1994 was 5.3 percent,
compared to 4.9 percent at December 31, 1993. Additionally,
there were no securities in the bond and preferred stock
portfolio that were delinquent as to interest or dividends.
While we experienced a significant impairment in the first
quarter of 1994 in Granite Partners, default and loss experience
in the remainder of the securities portfolio was excellent with
no defaults or other significant losses as a result of
impairments in value during 1994.
Problem commercial mortgage loans (based on the American Council
of Life Insurance definition, which includes loans past due 60
days or more, loans in the process of foreclosure, restructured
loans and real estate acquired through foreclosure) as of
September 30, 1994, amounted to 6.07 percent of outstanding
commercial loans, up from 5.12 percent at December 31, 1993,
primarily due to additional loans added to the problem loan
category. The industry average for problem commercial mortgage
loans was 19.54 percent at June 30, 1994 (the most recently
published statistics). Problem residential mortgage loans (based
on Mortgage Bankers Association (MBA) standards, which is based
on the number of loans that are past due 30 days or more, and
loans in the process of foreclosure) were 2.82 percent and 3.59
percent at September 30, 1994 and December 31, 1993,
respectively. The MBA average for problem residential mortgage
loans was 5.10 percent at June 30, 1994 (the most recently
published statistics). Loans on which the Company has
discontinued the accrual of interest and restructured loans
accruing interest as of September 30, 1994 and December 31, 1993
were as follows:
Commercial Residential
Loans Loans
September December September December
30, 31, 30, 31,
199 1
1994 3 994 1993
(Dollars in Millions)
Non-accrual $ 90.3 $ 64.3 $ 8.9 $ 12.6
loans
Restructured
loans, 4.3 5.2 - -
accruing
interest
Total $ 94.6 $ 69.5 $ 8.9 $ 12.6
As of September 30, 1994, there were approximately $35.1 million
of commercial mortgage loans with identified potential problems
which could cause these loans to be included in a problem
category in the future; we do not anticipate any material losses
to arise from these loans.
As of January 1, 1994, the Company adopted the provisions of
Statement of Financial Accounting Standards (SFAS) No. 115,
"Accounting for Certain Investments in Debt and Equity
Securities", and classified substantially all of its securities
as "available for sale". Adoption of SFAS No. 115 has introduced
additional volatility to reported shareholders' equity by
reporting debt and equity securities at fair value while other
assets and all liabilities are reported at historical cost.
Thus, the following reported financial results do not represent
the underlying economics since other assets and all liabilities
are not reported at fair value. As a result of the adoption of
SFAS No. 115, the net unrealized investment gain (loss) component
of shareholders' equity increased by $261.4 million at January 1,
1994. During the nine months of 1994, the net unrealized gain
(loss) component of shareholders' equity, net of related
adjustments to deferred policy acquisition costs and deferred
federal income taxes, decreased by $540.4 million. The decrease
resulted primarily from the increase in interest rates during the
first nine months of 1994.
Item 2. Management's Discussion and Analysis of Financial
Condition and
Results of Operations (continued)
Liquidity and Cash Flow
Net cash flows from operations were $801.7 million during the
nine months, compared to $780.0 million last year. Commercial
paper borrowings averaged $107.7 million during the nine months
at a weighted average interest rate of 3.97 percent. Commercial
paper outstandings at September 30, 1994 were $49.7 million. The
Company has committed lines of credit of $850.0 million which
would provide additional liquidity should adverse conditions
arise. PB also maintains committed lines of credit as part of
its liquidity management. At September 30, 1994 borrowings under
its $400 million revolving credit agreement amounted to $20
million. On October 14, 1994, PB entered into a new $500 million
revolving credit agreement and terminated the existing $400
million facility. In addition, the Company's bond and stock
portfolio of $10.7 billion at September 30, 1994 provides a
significant source of short-term liquidity.
The Company issued $95.5 million of its Series D medium-term
notes during the first nine months of 1994. Subsequent to
September 30, 1994, an additional $11.0 million of these notes
were issued bringing the total outstanding Series D medium-term
notes to $106.5 million.
During the nine months, the Company repurchased 3.0 million
shares of its common stock at an average price of $32.36 per
share. In September, the Company announced its plans to
repurchase approximately 2 million additional shares of its
common stock over the next several months. Subsequent to
September 30, 1994 and through November 4, 1994, the Company
repurchased 793,500 additional shares at an average price of
$30.99.
As described in Note H to the condensed consolidated financial
statements, in the first quarter of 1994 the Company redeemed all
$100 million of its Adjustable Rate Cumulative Preferred Stock,
Series F. In May 1994, Providian LLC, a subsidiary of the
Company, issued $100 million of Cumulative Monthly Income
Preferred Stock (MIPS) paying monthly dividends at an annual rate
of 8.875 percent. Providian LLC loaned the net proceeds from the
issuance of the MIPS to the Company to provide permanent funding
for the redemption of the Company's Adjustable Rate Cumulative
Preferred Stock, Series F. The Company has unconditionally
guaranteed all legally declared and unpaid dividends of Providian
LLC.
The Company is a legal entity, separate and distinct from its
subsidiaries. As a holding company with no other business
operations, its primary sources of cash to meet its obligations,
including principal and interest payments with respect to
indebtedness, are dividends and other statutorily permitted
payments from its subsidiaries.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
In the normal course of business, the Company and its
subsidiaries are parties to a number of lawsuits.
Management believes that these suits will be resolved with
no material financial impact on the Company.
Item 2. Change in Securities
Not applicable
Item 3. Defaults upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Exhibits: None
Reports: None
SIGNATURES
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 thereunto duly authorized.
Providian Corporation
(Registrant)
Date: November 11, 1994 Robert L. Walker
Senior Vice President - Finance
and Chief Financial Officer
Date: November 11, 1994 Steven T. Downey
Vice President and Controller
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF PROVIDIAN CORPORATION AND
SUBSIDIARIES AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> SEP-30-1994
<DEBT-HELD-FOR-SALE> 10,602,043<F1>
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 5,023,386<F2>
[LOANS] 1,729,818<F3>
<REAL-ESTATE> 90,813<F4>
<TOTAL-INVEST> 18,446,674
<CASH> 712,846
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 1,452,695
<TOTAL-ASSETS> 23,307,289
<POLICY-LOSSES> 9,076,358<F5>
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 7,509,460
[DEPOSITS] 1,400,999<F6>
<NOTES-PAYABLE> 684,716
<COMMON> 115,325
0
100,000<F7>
<OTHER-SE> 2,082,514<F8>
<TOTAL-LIABILITY-AND-EQUITY> 23,307,289
862,339
<INVESTMENT-INCOME> 1,190,137
<INVESTMENT-GAINS> (59,979)
<OTHER-INCOME> 213,347<F9>
<BENEFITS> 1,132,288<F10>
<UNDERWRITING-AMORTIZATION> 235,731<F11>
<UNDERWRITING-OTHER> 434,668<F12>
<INCOME-PRETAX> 340,535
<INCOME-TAX> 106,489
<INCOME-CONTINUING> 234,046
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 234,046
<EPS-PRIMARY> 2.31
<EPS-DILUTED> 0
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
<FN>
<F1>Includes Equity securities of $614,298.
<F2>Includes Commercial and Residential mortgage loans.
<F3>Consists of Consumer loans
<F4>Included in Other investments in the Condensed Consolidated Statements of
Financial Condition.
<F5>Includes Benefit reserves and other policy liabilities
<F6>Consists of Banking deposits.
<F7>Consists of Cumulative Monthly Income Preferred Stock issued by a subsidiary.
<F8>Includes Additional paid-in capital, Net unrealized investment loss, Retained
earnings, Common stock held in treasury and Unearned restriced stock.
<F9>Includes Consumer loan servicing fees of $147,279.
<F10>Includes Benefits and claims and Increase in benefit and contract reserves.
<F11>Includes Amortization of deferred policy and loan acquistion costs, value of
insurance in force purchased and goodwill.
<F12>Includes Commissions, net and General, administrative and other expenses, net.
</FN>
</TABLE>
