Item 1. (continued)
Page 5
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, 1995
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, 1995.
Class Shares Outstanding
Common Stock, $1.00 par value 95,212,020
<TABLE>
PROVIDIAN CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
FINANCIAL CONDITION
September 30 December 31
1995 1994
(Unaudited)
(Dollars in
Thousands)
<S> <C> <C>
Assets
Investments:
Bonds and stocks, available for sale
(Amortized cost of $10,603,020 and
$10,910,805 in 1995 and
1994,respectively) $10,908,545 $10,301,682
Bonds and stocks, trading 110,129 115,470
Commercial mortgage loans 2,683,302 2,649,664
Residential mortgage loans 3,073,470 2,550,194
Consumer loans 2,678,235 2,269,531
Policy loans 448,781 390,639
Other investments 659,819 418,321
Total Investments 20,562,281 18,695,501
Cash and cash equivalents 845,661 573,379
Deferred policy and loan acquisition costs 1,493,266 1,491,422
Value of insurance in force purchased 259,888 273,466
Goodwill 215,921 222,035
Separate account assets 1,919,825 1,353,476
Other assets 1,051,138 1,004,080
Total Assets $26,347,980 $23,613,359
Liabilities and Shareholders' Equity
Liabilities:
Benefit reserves and other policy
liabilities $ 9,904,007 $ 9,092,370
Policyholder contract deposits 7,222,822 7,421,604
Banking deposits 1,714,336 1,680,450
Separate account liabilities 1,919,825 1,353,476
Long-term debt 699,313 694,250
Deferred federal income tax 449,541 149,831
Other liabilities 1,579,683 999,516
Total Liabilities 23,489,527 21,391,497
Commitments and Contingencies
Preferred Stock of Consolidated
Subsidiary 100,000 100,000
Shareholders' Equity:
Common stock, $1 par 115,325 115,325
Additional paid-in capital 52,867 57,096
Net unrealized investment gain(loss) 191,344 (344,526)
Retained earnings 2,690,957 2,512,935
Common stock held in treasury - at
cost:
1995 - 19,873,000 shares;
1994 - 17,789,000 shares (287,849) (214,031)
Unearned restricted stock (4,191) (4,937)
Total Shareholders' Equity 2,758,453 2,121,862
Total Liabilities and Shareholders'
Equity $26,347,980 $23,613,359
See notes to condensed consolidated financial statements.
</TABLE>
<TABLE>
PROVIDIAN CORPORATION AND
SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS
OF INCOME (UNAUDITED)
Nine Three
Months Months
Period Ended September 30 1995 1994 1995 1994
(Amounts in Thousands Except Per Common Share)
<S> <C> <C> <C> <C>
Revenues:
Premiums and other
considerations $ 902,874 $ 862,339 $ 296,879 $ 282,995
Investment income, net of
expenses 1,394,822 1,179,778 462,826 399,550
Consumer loan servicing fees 175,700 147,279 77,377 57,067
Realized investment loss (69,555) (59,979) (19,267) (7,196)
Other income, net 111,817 76,427 43,908 29,872
Total Revenues 2,515,658 2,205,844 861,723 762,288
Benefits and Expenses:
Benefits and claims 657,360 653,358 206,150 219,913
Increase in benefit and
contract reserves 673,879 478,930 233,905 171,600
Commissions, net 60,929 55,185 20,498 17,689
General, administrative and
other expenses, net 499,149 395,483 179,392 142,991
Amortization of deferred policy
and loan acquisition costs,
value of insurance in force
purchased and goodwill 186,877 219,731 64,081 60,458
Interest expense 82,115 62,622 27,399 19,682
Total Benefits and Expenses 2,160,309 1,865,309 731,425 632,333
Income before Federal Income Tax 355,349 340,535 130,298 129,955
Federal Income Tax 108,391 106,489 40,068 42,404
Net Income before Preferred Stock
Dividends of Consolidated
Subsidiary 246,958 234,046 90,230 87,551
Dividends on Preferred Stock of
Consolidated Subsidiary 4,326 2,228 1,441 1,443
Net Income 242,632 231,818 88,789 86,108
Dividends on Nonconvertible
Preferred Stock - 1,163 - -
Net Income Applicable to Common
Stock $ 242,632 $ 230,655 $ 88,789 $ 86,108
Net Income per Common Share $ 2.52 $ 2.31 $ .93 $ .87
Cash Dividends per Common Share $ .675 $ .60 $ .225 $ .20
Weighted Average Number of Common
Shares Outstanding During the
Period 96,218 99,750 95,342 98,818
See notes to condensed consolidated financial statements.
</TABLE>
<TABLE>
PROVIDIAN CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended September 30 1995 1994
(Dollars in
Thousands)
<S> <C> <C>
Net Cash Flows provided by Operations $ 1,069,066 $ 836,904
Cash Flows from Investment Activities:
Investments sold or matured 4,204,028 4,378,953
Cost of securities and mortgage loans
acquired (4,094,658) (5,383,333)
Additions to operating property (22,697) (24,311)
Net increase in consumer loans (1,758,661) (415,526)
Securitization of consumer loans 1,549,443 574,629
Purchase of consumer loans (241,204) (49,289)
Net cash received from coinsurance
transaction 309,978 -
All other investment activities (84,236) 3,240
Net Cash Flows used in Investment Activities (138,007) (915,637)
Cash Flows from Financing Activities:
Net increase (decrease) in short-term
borrowings 333,143 (108,982)
Policyholder contract deposits 1,570,028 2,473,644
Withdrawals of policyholder contract deposits (2,452,297) (2,115,495)
Net increase (decrease) in banking deposits 33,886 (115,772)
Issuance of preferred stock - 100,000
Issuance of long-term debt 84,035 95,500
Repayment of long-term debt (79,000) (52)
Redemption of preferred stock - (100,000)
Purchase of common stock for treasury (93,506) (97,071)
Dividends (65,083) (62,424)
Proceeds from exercise of stock options 10,017 3,178
Net Cash Flows provided by (used in) Financing
Activities (658,777) 72,526
Net Increase (Decrease) in Cash and Cash
Equivalents 272,282 (6,207)
Cash and Cash Equivalents at Beginning of
Period 573,379 719,053
Cash and Cash Equivalents at End of Period $ 845,661 $ 712,846
See notes to condensed consolidated financial
statements.
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 1994 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, 1995 are not necessarily indicative of the results
to be expected for the full year ending December 31, 1995. 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, 1994.
B. Per common share amounts have been calculated using net income
after dividends on nonconvertible preferred stock, divided by the
weighted average number of common 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 share.
C. Consumer loans have been reduced by the sale, without recourse,
of unsecured receivables under asset securitization plans during
1995 of $1.6 billion. Total unsecured consumer receivables
outstanding under securitization plans were $3.4 billion at
September 30, 1995. In addition, there were $258.0 million of
consumer loans in the process of securitization at September 30,
1995.
D. An analysis of the allowance for loan losses on consumer and
mortgage loans for the nine month periods ended September 30,
1995 and 1994 is as follows:
Consumer Mortgage
Nine Months Ended September 30 1995 1994 1995 1994
(Dollars in thousands)
Balance at the beginning of
period $ 76,218 $ 75,061 52,200 51,362
Current period provision 41,718 25,667 13,038 15,412
Current period chargeoffs,
net of recoveries (45,705) (37,095) (18,275) (15,092)
Balance at end of period $ 72,231 $ 63,633 46,963 51,682
E. Effective June 30, 1995, the Company entered into a coinsurance
agreement with North American Security Life Insurance Company
(NASL). This agreement coinsures existing deposits of NASL's
fixed annuities and the fixed account portion of their variable
annuity product business. In addition, this agreement also
includes prospective coinsurance of additional annual fixed
annuity deposits from the future sales of NASL's fixed and
variable annuities. At June 30, 1995, the Company received cash
and invested assets in exchange for its coinsurance of more than
$720 million of fixed annuity deposits.
PROVIDIAN CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
F. During the nine months ended September 30, 1995, the Company
issued $84.035 million of Series D medium-term notes with
maturities ranging from five to 30 years and interest rates
ranging from 6.85 percent to 8.53 percent. Subsequent to
September 30, 1995 and through November 10, 1995, the Company
issued an additional $26.5 million of Series D medium-term notes
with maturities ranging from seven to 30 years and interest rates
ranging from 6.57 percent to 7.47 percent. The proceeds from
these debt issuances are being used to fund 1995 and 1996
maturities of long-term debt. In addition, Series A medium-term
notes totaling $79.0 million matured through September 30, 1995.
G. During the nine months ended September 30, 1995, the Company
repurchased 2,665,600 shares of its common stock at an average
price of $35.08 per share, completing the repurchase programs
previously announced. On September 26, 1995 the Company
announced plans to repurchase approximately 2.5 million
additional shares of its common stock. Subsequent to September
30, 1995 and through November 9, 1995, 875,620 shares were
repurchased at an average price of $39.65 per share.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
This item presents specific comments on material changes to the
Company's results of operations, financial condition, liquidity and
capital resources for the periods reflected in the condensed
consolidated financial statements filed with this report. This
analysis should be read in conjunction with the financial statements,
footnotes and management's discussion and analysis included in the
Company's annual report on Form 10-K for the year ended December 31,
1994 and the Company's quarterly reports on Form 10-Q for the quarters
ended March 31, 1995 and June 30, 1995.
Results of Operations
The following discussion compares the results of operations for the
nine months ended September 30, 1995 to the nine months ended
September 30, 1994. The nature and reasons for any significant
variations between the quarters ended September 30, 1995 and September
30, 1994 are the same as those discussed below for the respective nine
month periods, except where otherwise noted herein.
Consolidated Results
Providian's net income for the quarter ended September 30, 1995 was
$.93 per common share, up 6.9 percent from the $.87 per common share
reported last year. Net income for the nine months ended September
30, 1995 was $2.52 per common share, up 9.1 percent from 1994. Net
income for the nine months ended September 30, 1995 included pretax
realized losses of $69.6 million, comprised of realized losses on
investment and securities transactions of $56.6 million and $13.0
million in provisions for mortgage loan losses.
Earnings, as discussed herein, exclude realized investment losses, net
of related deferred acquisition cost amortization and tax, and
dividends on the preferred stock of a consolidated subsidiary.
Earnings for the three months ended September 30, 1995 were $1.05 per
common share, up 10.5 percent from the same period last year.
Earnings year to date were $3.01 per common share, up 8.3 percent from
the $2.78 per common share reported in 1994. The discussion included
under "Business Segment Results" highlights the key items which
contributed to the overall growth in earnings.
Revenues, as discussed herein, exclude realized investment losses.
Consolidated revenues for the nine months were $2.6 billion, up 14.1
percent from the $2.3 billion reported in the prior year, primarily
due to increases in investment income, consumer loan servicing fees
and other income. The increase in investment income of $215.0
million, or 18.2 percent, was attributable to higher interest yields
on and continued growth in invested assets. Consumer loan servicing
fees increased by $28.4 million, or 19.3 percent, over the first nine
months of 1994 due to higher securitized consumer loan balances at
Providian Bancorp. Other income increased by $35.4 million due to
growth in fee-based income as the Company continues to focus on
building its fee-based business.
Total benefits and expenses for the nine months ended September 30,
1995 were up $295.0 million, or 15.8 percent, over the same period in
the prior year. Benefit and contract reserves increased by $194.9
million, or 40.7 percent, during 1995 due to higher accruals for
credited interest on policyholder balances resulting from the effect
of the significant increase in interest rates in 1994. General,
administrative and other expenses were up by $103.7 million, or 26.2
percent, due to
growth in business volume and the reduction in the deferral of
acquisition costs at Providian Bancorp. This reduction in the
deferral of acquistion costs also accounted for the 15.0 percent
decrease from the prior year in amortization expense.
Interest expense was up $19.5 million, or 31.1 percent, primarily due
to increased levels of short-term borrowings at Providian Bancorp used
as liquid funding sources to fund the significant growth in
receivables during 1995.
Business Segment Results
Providian Agency Group
Providian Agency Group pretax earnings were $136.1 million for the
nine month period ended September 30, 1995, down 1.6 percent from the
same period in 1994. Earnings, which consist mostly of individual Life
earnings, decreased primarily due to higher mortality levels,
resulting from an increase in the number of large claims during the
first half of 1995, increased cancer claims experience and the
expected narrowing of interest spreads. Partially offsetting these
factors were Life premium growth and the continued benefit of cost
management initiatives. Third quarter pretax earnings of $45.8
million were even with the third quarter of 1994 as improved interest
spreads offset higher mortality levels.
Life premiums were up $9.8 million, or 3.8 percent, due primarily to
growth in premium in force. Total sales for the nine months were up
8.7 percent over the same period in 1994, due to the sales of First
Health Advantagesm1, a new fee-based product introduced earlier this
year. Sales of fee-based products more than offset a decline in Life
sales. The combined Life and Health policy termination rate of 14.2
percent has improved from the 14.5 percent rate for the nine month and
full year periods of 1994.
Providian Direct Insurance
Providian Direct Insurance ("PDI") pretax earnings were $86.4 million
for the nine month period ended September 30, 1995, up 5.7 percent
over the same period in 1994. The increase reflected growth in Life
premiums and fee-based product income, and a continued focus on cost
management. PDI third quarter earnings were down 3.3 percent from the
prior year's strong third quarter results due to higher than expected
claims and lower persistency associated with certain new health
products and higher claims experience on an acquired block of auto
business.
PDI Life premiums were up 4.1 percent to $241.7 million for the nine
months, primarily due to increased premiums from a credit union joint
venture arrangement and the March 1995 acquisition of a block of Life
business. Health premiums declined 3.3 percent as increased sales and
improved retention efforts were not adequate to offset lapsation of
existing business. Total sales increased $12.4 million, or 14.4
percent, from 1994 levels, driven by a significant improvement in
Health sales (including fee-based products) of $9.6 million. New
customer sales in the direct response channels, fee-based product
sales and a credit union joint venture arrangement were contributors
to this increase. Property and Casualty sales also increased from
prior year by $2.5 million due to positive results in the direct
response auto channel.
Providian Bancorp
Providian Bancorp's (PBI) outstanding earnings growth continued with
pretax earnings of $136.3 million for the nine months of 1995, up 25.3
percent from 1994. PBI's third quarter earnings were $48.0 million,
up 24.9 percent from the prior year. These results reflected
continued growth in unsecured and home equity loan products, as well
as growth in fee-based income.
Total managed loans, including $3.4 billion of securitized receivables
and $258.0 million in the process of securitization, were $6.1 billion
at September 30, 1995, up 45.2 percent over September 30, 1994
balances. The Primary Lender strategy, which offers custom-tailored
services to fulfill the individual needs of valuable customers, was a
significant reason for the $1.6 billion growth in unsecured
receivables since September 30, 1994. Unsecured receivable balances
increased $1.2 billion since December 31, 1994. Additionally, the
Select Equity loan portfolios reflected solid growth of $230.5 million
over September 30, 1994 balances.
Return on mean assets for the nine months was 6.4 percent, down
slightly from 1994's nine month return of 6.8 percent. The decrease
in margins from prior year reflected the increase in market rates on
the variable rate cost of funds and slightly lower yields on new
unsecured loans due to negotiated rates from the Primary Lender
strategy. Loan loss reserves related to unsecured consumer
receivables, excluding securitized receivables and those in the
process of securitization, were 3.9 percent at September 30, 1995 as
compared to 4.5 percent at September 30, 1994 and 4.0 percent at
December 31, 1994. Net credit losses for unsecured receivables
(before securitization) were 4.4 percent for the nine months ended
September 30, 1995, improved from 4.9 percent for the same period last
year. Balances past due greater than 30 days related to unsecured
consumer receivables, excluding those previously securitized,
increased to 2.5 percent at September 30, 1995 compared to 2.2 percent
at September 30, 1994. Including securitized unsecured consumer
receivables, balances past due greater than 30 days were 2.9 percent
at both September 30, 1995 and 1994, respectively. The following
table summarizes dollar amounts of unsecuritized problem consumer
loans as of September 30, 1995 and December 31, 1994:
September 30, December 31,
1995 1994
(Dollars inMillions)
Non-accrual loans $ 7.8 $ 7.2
Loans past due greater than 30 73.4 59.5
days
Total problem consumer loans $ 81.2 $ 66.7
There were no additional specifically identified consumer loans that
represented significant potential problems.
Providian Capital Management
Providian Capital Management ("PCM") pretax earnings were $97.1
million for the nine months ended September 30, 1995, down 8.3 percent
from the same period last year. The decrease in earnings is the
result of the significant rise in interest rates throughout 1994 which
continued to compress spread-based margins during 1995. Partially
offsetting the decrease in spread-based margins were increases in fee
income, invested asset growth and reduced amortization of retail
acquisition costs. PCM pretax earnings for the third quarter were up
6.2 percent from last year's third quarter as spread-based margins
continue to recover from 1994's rise in interest rates. Profit margins
on spread-based deposits for the nine months ended September 30, 1995
were 88 basis points, down from 110 basis points in the same period
last year. Profit margins for the third quarter of 1995 increased to
93 basis points, up from the 85 and 87 basis points reported for the
first and second quarters of 1995, respectively.
PCM continues to focus on growing the Individual and Group fee-based
and the Individual spread-based businesses. Individual fee-based
deposits grew $405.4 million during the nine months ended September
30, 1995, bringing the balance to $1.4 billion. Higher product sales
and positive market value growth contributed to the increase. The
Group fee-based Trust GIC products grew $2.5 billion from year end,
reflecting continuing demand for these innovative products.
Individual spread-based product balances were up $659.4 million from
year-end balances due to
the coinsurance agreement entered into with North American Security
Life Insurance Company (NASL), during June of this year. Group spread-
based deposits decreased
$194.6 million from December 31, 1994 due to PCM's previously
announced strategy to manage Group spread-based deposit growth to
approximately zero for 1995.
Additionally, sales of fixed rate GIC products slowed in the third
quarter of 1995 as a result of the relatively slow activity in the
traditional GIC marketplace and intense competition for funds
exemplified by competitors offering rates to GIC buyers at levels the
Company has chosen not to meet.
Analysis of Financial Condition
Significant variations between September 30, 1995 and December 31,
1994 balance sheet items are discussed below.
Assets
Cash and invested assets were $21.4 billion at September 30, 1995, up
11.1 percent from December 31, 1994. Contributing to the increase in
invested assets is the increase in market value of the Company's
available for sale portfolio resulting from the gradual decrease in
interest rates during 1995. In addition, investments in residential
mortgage loans increased 20.5 percent as the Company originated more
adjustable-rate mortgages due to their favorable investment yields in
the current market environment. Consumer loans increased 18.0 percent
due to the continued growth in unsecured receivables from the success
of the Primary Lender strategy and growth in home equity loans as a
result of the strong demand in the market. The increase in other
investments of 57.7 percent was primarily due to short-term
investments received in the coinsurance agreement with NASL in June of
this year. The significant increase in cash and cash equivalent
balances from December 31, 1994, was a result of higher cash balances
maintained at September 30, 1995, in order to fund anticipated cash
outflows in October for maturing spread-based deposits at Providian
Capital Management. (For additional information on the Company's
invested assets see the section titled "Asset/Liability Review")
Separate account assets and liabilities increased 41.8 percent due to
asset appreciation and growth in the Vanguard variable annuity product
line.
Liabilities
Benefit reserves and other policy liabilities increased $811.6
million, or 8.9 percent from December 31, 1994, due to the assumption
of more than $720.0 million of fixed annuities from the coinsurance
agreement with NASL in June of 1995. Other liabilities were up 58.0
percent from December 31, 1994, as a result of an increase of $333.1
million in short-term borrowings at Providian Bancorp used to fund
growth in consumer loans prior to being securitized. Additionally,
payables to investment brokers increased $173.7 million due to a large
volume of investment transactions occurring near quarter end.
Shareholders' Equity
The net unrealized investment gain (loss) component of shareholders'
equity increased $535.9 million from December 31, 1994. The decrease
in interest rates during 1995 and resulting increases in the fair
value of the Company's available for sale investment portfolio caused
the net unrealized investment gain (loss) component of shareholders'
equity to significantly change from the year-end 1994 balance. The
adjustments to record the effect of the unrealized investment gains
(losses) on shareholders' equity and the related balance sheet accounts
are as follows:
September December
30, 31,
1995 1994
(Dollars in Millions)
Unrealized investment gain (loss)
on available for sale securities $ 305,525 $ (609,123)
Adjusted by:
Increase (decrease) in deferred
policy acquisition costs (11,228) 79,083
Decrease (increase) in deferred
federal income taxes (102,953) 185,514
Net unrealized investment gain
(loss) on available for
sale securities $ 191,344 $ (344,526)
Asset/Liability Review
Excluding Providian Bancorp, invested assets related to insurance
operations were $18.5 billion compared to $16.8 billion at December
31, 1994. The distribution of invested assets at September 30, 1995
has not changed significantly from December 31, 1994.
Exposure to below investment grade bonds, preferred stocks and
investments in limited partnerships with below investment grade
characteristics at September 30, 1995 was 5.5 percent, unchanged from
December 31, 1994. Default and loss experience in the securities
portfolio was excellent with no defaults and no significant losses as
a result of impairments this year. As of September 30, 1995, there
were no securities in the bond or preferred stock portfolios that were
delinquent as to interest or dividends.
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, 1995,
amounted to 3.7 percent of outstanding commercial loans, down from 4.6
percent at December 31, 1994. The industry average for problem
commercial mortgage loans was 17.3 percent at June 30, 1995 (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 2.9 percent at September 30, 1995
compared to 3.0 percent at December 31, 1994. The MBA average for
problem residential mortgage loans was 4.9 percent at June 30, 1995
(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, 1995 and December 31, 1994 were
as follows:
September December September December
30, 1995 31, 1994 30, 1995 31, 1994
(Dollars in Millions)
Non-accrual loans $18.7 $68.2 $30.8 $10.7
Restructured loans,
accruing interest 14.7 4.3 - -
$33.4 $72.5 $30.8 $10.7
Non-accrual commercial loans decreased by $49.5 million from year end
1994, primarily due to $37.3 million of loans placed in foreclosure
during the first nine months of 1995. As of September 30, 1995, there were
approximately $52.4 million of commercial mortgage loans with identified potential
problems which could cause these loans to be included in a problem
category in the future; the Company does not anticipate any material
additional losses to arise from these loans.
Liquidity and Capital Resources
Providian is a legal entity, separate and distinct from its
subsidiaries and has no business operations. The 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. Management
believes that overall sources of cash and liquidity available to the
Company and its subsidiaries will continue to be sufficient to satisfy
its foreseeable financial obligations.
Net cash flows from operations were $1.1 billion during the nine
months, compared to $836.9 million last year, an increase of $232.2
million. The increase over last year primarily related to lower
federal income taxes paid during the first nine months of 1995 as
compared to 1994 and higher accruals for credited interest on
policyholder balances.
Investment commitments are planned to coincide with expected cash
flows. Normal day-to-day cash variations are met by a commercial
paper program, supplemented by committed lines of credit. Commercial
paper borrowings averaged $53.0 million during the nine months at a
weighted average interest rate of 6.01 percent. Commercial paper
outstandings at September 30, 1995 were $49.7 million.
The Company has committed lines of credit of $850.0 million which
would provide additional liquidity should adverse conditions
materialize, and as back-up to the commercial paper program. At
September 30, 1995 there were no borrowings under these lines of
credit. In addition, the Company's bond and stock portfolio of $11.0
billion at September 30, 1995 provides a significant source of short-
term liquidity.
Providian Bancorp (PBI) analyzes its current and future liquidity
needs to support its deposit portfolio and asset growth and has a $500
million credit agreement. The agreement provides liquidity for the
existing deposit base as well as satisfying short-term funding
requirements. Outstanding borrowings under the agreement were $248.0
million at September 30, 1995. On October 10, 1995, this agreement
was amended to increase the available line of credit from $500 million
to $800 million.
The Company issued $84.035 million of its Series D medium-term notes
during the first nine months of 1995. Subsequent to September 30, 1995
and through November 10, 1995, the Company issued an additional $26.5
million of Series D medium-term notes. The proceeds from these
issuances are being used to fund 1995 and 1996 maturities of long-term
debt. As of September 30, 1995, $79.0 million of Series A medium-term
notes have matured. An additional $5.0 million of Series B medium-
term notes are scheduled to mature in December 1995.
During the first nine months of 1995, the Company repurchased
2,665,600 shares of its common stock at an average price of $35.08 per
share, completing the repurchase programs previously announced. In
September, the Company announced plans to repurchase approximately 2.5
million additional shares of its common stock over the next several
months. In October, the Company began repurchasing its common stock
under this program and, through November 9, 1995, had repurchased
875,620 shares at an average price of $39.65 per share.
In September, Duff & Phelps upgraded Providian Life and Health
Insurance Company's claims paying ability rating to AA+ from AA,
representing the second upgrade for this affiliate since 1993.
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
Not applicable
Item 6. Exhibits and Reports on Form 8-K
Exhibits: Exhibit 27 - Financial Data Schedule
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 13, 1995 Robert L. Walker
Senior Vice President - Finance
and Chief Financial Officer
Date: November 13, 1995 Steven T. Downey
Vice President and Controller
_______________________________
1
</TABLE>
<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-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<DEBT-HELD-FOR-SALE> 10,908,545 <F1>
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 5,756,772 <F2>
<REAL-ESTATE> 67,303 <F3>
<TOTAL-INVEST> 20,562,281
<CASH> 845,661
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 1,493,266
<TOTAL-ASSETS> 26,347,980 <F4>
<POLICY-LOSSES> 9,904,007 <F5>
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 7,222,822
<NOTES-PAYABLE> 699,313
<COMMON> 115,325
0
100,000 <F6>
<OTHER-SE> 2,643,128 <F7>
<TOTAL-LIABILITY-AND-EQUITY> 26,347,980 <F8>
902,874
<INVESTMENT-INCOME> 1,394,822
<INVESTMENT-GAINS> (69,555)
<OTHER-INCOME> 287,517 <F9>
<BENEFITS> 1,331,239 <F10>
<UNDERWRITING-AMORTIZATION> 186,877 <F11>
<UNDERWRITING-OTHER> 560,078 <F12>
<INCOME-PRETAX> 355,349
<INCOME-TAX> 108,391
<INCOME-CONTINUING> 242,632
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 242,632
<EPS-PRIMARY> 2.52
<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 $448,728.
<F2>Includes Commercial and Residential mortgage loans.
<F3>Included in Other investments in the Consolidated Statements of
Financial Condition.
<F4>Includes Consumer Loans of $2,678,235.
<F5>Includes Benefit reserves and other policy liabilities.
<F6>Consists of Cumulative Monthly Income Preferred Stock issued
by subsidiary.
<F7>Includes Additional paid-in capital, Net unrealized investment gain,
Retained earnings, Common stock held in treasury and Unearned
restricted stock.
<F8>Includes Savings Deposits of $1,714,336.
<F9>Includes Consumer loan servicing fees of $175,700.
<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>
