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 March 31, 1997
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 1-6707
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Providian Corporation
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(Exact name of Registrant as specified in its charter)
Delaware 51-0108922
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(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 April 30, 1997.
Class Shares Outstanding
----------------------------- ------------------
Common Stock, $1.00 par value 94,599,880
<PAGE>
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements
PROVIDIAN CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
March 31,
1997 December 31,
(Unaudited) 1996
----------- -----------
(Amounts in millions)
Assets
Investments:
Bonds and stocks, available for sale
(Amortized cost of $11,289 and $11,111
in 1997 and 1996, respectively) $ 11,341 $ 11,407
Trading account securities 108 96
Commercial mortgage loans 2,801 2,864
Residential mortgage loans 2,562 2,718
Consumer loans, net 2,643 2,810
Consumer loans held for securitization -- 740
Policy loans 488 487
Other investments 838 843
-------- --------
Total Investments 20,781 21,965
Cash and cash equivalents 1,598 904
Deferred policy and loan acquisition costs 1,533 1,508
Value of insurance in force purchased 232 237
Goodwill 200 202
Separate account assets 3,537 3,240
Other assets 1,098 937
-------- --------
Total Assets $ 28,979 $ 28,993
======== ========
Liabilities and Shareholders' Equity
Liabilities:
Benefit reserves and other policy liabilities $ 4,206 $ 4,189
Individual annuity reserves 5,452 5,479
Group annuity deposits 7,155 7,170
Banking deposits 2,993 3,390
Separate account liabilities 3,537 3,240
Long-term debt issued by:
Corporate 668 718
Bancorp 50 50
Deferred federal income tax 337 414
Other liabilities 1,253 1,153
-------- --------
Total Liabilities 25,651 25,803
Commitments and Contingencies
Providian Bancorp-Obligated Mandatorily
Redeemable Capital Securities of Subsidiary
Trust Holding Solely Junior Subordinated
Deferrable Interest Debentures of Providian Bancorp 160 --
Company-Obligated Mandatorily Redeemable
Preferred Securities of Providian LLC 100 100
Shareholders' Equity:
Common stock, $1 par 115 115
Additional paid-in capital 46 44
Net unrealized investment gain 36 182
Retained earnings 3,200 3,109
Common stock held in treasury - at cost:
1997 - 20.7 shares;
1996 - 21.6 shares (321) (356)
Unearned restricted stock (8) (4)
-------- --------
Total Shareholders' Equity 3,068 3,090
-------- --------
Total Liabilities and Shareholders' Equity $ 28,979 $ 28,993
======== ========
See notes to condensed consolidated financial statements.
<PAGE>
Item 1. (continued)
PROVIDIAN CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended March 31 1997 1996
------ -----
(Amounts in
millions, except
per common share)
Revenues:
Premiums and other considerations $304 $299
Investment income, net of expenses 495 468
Consumer loan servicing fees 91 67
Realized investment gain 3 5
Other income, net 58 42
---- ----
Total Revenues 951 881
Benefits and Expenses:
Benefits and claims 241 236
Increase in benefit and contract reserves 216 191
Commissions, net 20 22
General, administrative and other expenses, net 218 177
Amortization of deferred policy and loan acquisition costs,
value of insurance in force purchased and goodwill 65 77
Interest expense 21 29
---- ----
Total Benefits and Expenses 781 732
---- ----
Income before Federal Income Tax 170 149
Federal Income Tax 50 45
---- ----
Net Income before Dividends on
Mandatorily Redeemable
Preferred Securities 120 104
Redeemable Capital Securities of Subsidiary Trust
Holding Solely Junior Subordinated Deferrable
Interest Debentures of Providian Bancorp 2 --
Dividends on Company-Obligated Mandatorily
Redeemable Preferred Securities of Providian LLC 1 1
---- ----
Net Income $117 $103
==== ====
Net Income per Common Share $1.24 $1.09
==== ====
Cash Dividends per Common Share $.275 $.25
==== ====
Weighted Average Number of Common Shares
Outstanding During the Period 94.2 93.9
==== ====
See notes to condensed consolidated financial statements.
<PAGE>
<TABLE>
Item 1. (continued)
PROVIDIAN CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended March 31 1997 1996
---------- ----------
(Amounts in millions)
<S> <C> <C>
Net Cash Flows provided by Operations $ 273 $ 369
Cash Flows from Investment Activities:
Investments sold or matured 2,364 2,414
Cost of securities and mortgage loans acquired (2,420) (2,057)
Additions to operating property (12) (11)
Net increase in consumer loans (151) (662)
Securitization of consumer loans 1,350 375
Purchase of securitized consumer loans (325) --
All other investment activities (55) (15)
------- -------
Net Cash Flows provided by Investment Activities 751 44
Cash Flows from Financing Activities:
Net increase (decrease) in short-term borrowings 179 (119)
Policyholder contract deposits 638 298
Withdrawals of policyholder contract deposits (852) (893)
Net increase (decrease) in banking deposits (397) 277
Issuance of long-term debt by:
Corporate -- 56
Bancorp -- 50
Repayment of long-term debt (50) (25)
Net borrowings (repayments) on revolving line of credit (5) 15
Issuance of Providian Bancorp Obligated Preferred Securities 160 --
Purchase of common stock for treasury -- (50)
Dividends (26) (23)
Proceeds from exercise of stock options 23 5
------- -------
Net Cash Flows (used in) Financing Activities (330) (409)
------- -------
Net Increase in Cash and Cash Equivalents 694 4
Cash and Cash Equivalents at Beginning of Period 904 708
------- -------
Cash and Cash Equivalents at End of Period $ 1,598 $ 712
======= =======
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
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 for a fair
presentation of the results for the interim periods presented. All such
adjustments are of a normal recurring nature. The results of operations for
the three-month period ended March 31, 1997 are not necessarily indicative
of the results to be expected for the full year ending December 31, 1997.
These unaudited condensed consolidated financial statements should be read
in conjunction with the consolidated financial statements and footnotes
included in Providian Corporation's annual report on Form 10-K for the year
ended December 31, 1996.
B. On December 28, 1996, Providian Corporation executed a Plan and Agreement
of Merger and Reorganization (the "Merger Agreement") with AEGON N.V.
("AEGON") and LT Merger Corp., a wholly owned subsidiary of AEGON ("Merger
Sub"), pursuant to which Merger Sub will merge with Providian Corporation.
In connection with this merger, Providian Corporation will spin-off
Providian Bancorp, Inc. to Providian Corporation shareholders (the
"Distribution"). For each share of Providian Corporation stock owned,
shareholders will receive one share of Providian Bancorp Inc. in the
Distribution. Pursuant to the merger agreement, among other things, (a)
Providian Corporation will be the surviving corporation in the merger and
become a wholly owned subsidiary of AEGON, and (b) each shareholder of
Providian Corporation will be entitled to a number of shares of AEGON
common stock in exchange for shares of Providian Corporation's common
stock.
The merger is subject to approval by various regulatory authorities,
approval by Providian Corporation's shareholders and certain other
conditions. The Distribution will occur only if all the conditions
necessary for the merger are satisfied. Because consummation of the merger
and Distribution is subject to the above conditions, no representations can
be made as to whether, or when, the merger and Distribution will be
completed or as to the possible impact of the merger and Distribution on
the financial condition and results of operations of Providian Corporation
should the merger and Distribution occur.
C. Per common share amounts have been calculated using net income divided by
the weighted average number of common shares outstanding during the
three-month period. Fully diluted net income per common share is not
presented as it approximates net income per common share.
D. Consumer loans have been reduced by the sale, without recourse, of
unsecured receivables under asset securitization plans during 1997 of $1.4
billion. Total unsecured consumer receivables outstanding under
securitization plans were $6.4 billion at March 31, 1997.
E. Effective January 1, 1997, Providian Corporation prospectively adopted
SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities", which provides new accounting and
reporting standards for sales, securitizations, and servicing of
receivables and other financial assets and extinguishments of liabilities.
The application of SFAS No. 125 to monthly sales of receivables originated
prior to January 1, 1997 is estimated to increase net income by
approximately $24.0 million for the year ended December 31, 1997, as a
result of recognizing gains upon the dates of transfer as opposed to
recognizing servicing income as it is received monthly. This impact is
non-recurring because for the first six to eight months of 1997, Providian
Corporation will recognize both excess servicing income generated by
balances existing as of December 31, 1996, and gains on additional monthly
sales into these existing transactions during 1997. The amount and timing
of any increase in income resulting from the application of SFAS No. 125 to
transactions originated prior to January 1, 1997 are, however, dependent on
the performance of the underlying receivables. The impact of the adoption
of SFAS No. 125 to transactions originated subsequent to January 1, 1997 is
dependent on the amount and timing of future securitizations.
F. An analysis of the allowance for loan losses on consumer and mortgage
loans for the three-month period ended March 31, 1997 and 1996 is as
follows:
Consumer Mortgage
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Three Months Ended March 31 1997 1996 1997 1996
--------------- -----------
(Dollars in millions)
Balance at beginning of period $ 115 $ 93 $43 $50
Current period provision 33 28 1 2
Current period chargeoffs,
net of recoveries (29) (23) -- --
===== ==== === ===
Balance at end of period $ 119 $ 98 $44 $52
===== ==== === ===
G. On February 4, 1997, Providian Bancorp completed a capital securities
transaction pursuant to which a subsidiary trust of Providian Bancorp
issued $160.0 million in liquidation amount of mandatorily redeemable
preferred securities (the "Capital Securities"). The subsidiary trust
invested the proceeds in 9.525% Junior Subordinated Deferrable Interest
Debentures (the "Debentures") issued by Providian Bancorp. In addition to
its obligations under the Debentures, Providian Bancorp has guaranteed
payments on the Capital Securities to the extent of funds held by the
subsidiary trust. Providian Bancorp used the proceeds from this transaction
for the retirement of $42.5 million of long-term debt and the redemption of
$63.3 million of preferred stock, both held by Providian Corporation, and
for general Providian Bancorp business purposes. Providian Corporation will
use the proceeds to redeem, in whole, on May 19, 1997, $95.0 million in
outstanding principal amount of the 8.75% Sinking Fund Debentures, due
January 15, 2017 at a total redemption price of $99.2 million plus accrued
interest.
During the three months ended March 31, 1997, $50.0 million of medium term
notes matured.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This item presents specific comments on material changes to Providian
Corporation and it's subsidiaries ("the Company") 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, 1996.
This Management's Discussion and Analysis contains certain forward-looking
statements that involve risks and uncertainties. The terms "expects," "plans,"
"believes," "intends," "will continue," "may continue" or similar expressions
are intended to identify such forward-looking statements. Such statements are
not guarantees of future performance and involve certain risks, uncertainties
and assumptions which may cause the Company's actual results or actions to
differ materially from those expressed or implied by such forward-looking
statements. Factors that could cause or contribute to such material differences
include those listed under Planned Merger and Reorganization and are beyond the
Company's ability to control or predict. Readers are cautioned not to put undue
reliance on forward-looking statements.
PLANNED MERGER AND REORGANIZATION
As discussed in management's discussion and analysis included in the Company's
annual report on Form 10-K for the year ended December 31, 1996, on December 28,
1996, Providian Corporation executed a Plan and Agreement of Merger and
Reorganization (the "Merger Agreement") with AEGON N.V. ("AEGON"), and LT Merger
Corp., a wholly owned subsidiary of AEGON ("Merger Sub"), pursuant to which
Merger Sub will merge with Providian Corporation. In connection with this
merger, Providian Corporation will spin-off Providian Bancorp, Inc. to Providian
Corporation shareholders (the "Distribution").
The merger is subject to approval by various regulatory authorities, approval by
Providian Corporation's shareholders and certain other conditions. Because
consummation of the merger and the Distribution is subject to these conditions,
no representations can be made as to whether, or when, the merger and
Distribution will be completed or as to the possible impact of the merger and
Distribution on the financial condition and results of operations of the Company
should the merger and Distribution occur.
<PAGE>
RESULTS OF OPERATIONS
The following discussion compares the results of operations for the three months
ended March 31, 1997 to the three months ended March 31, 1996.
CONSOLIDATED RESULTS
Providian's net income for the quarter ended March 31, 1997, was $1.24 per
common share, up 13.8 percent from the $1.09 per common share reported for the
same period in 1996. Net income of $116.7 million for the quarter included
pretax realized gains of $3.0 million, comprised of realized gains on
investments and securities of $4.6 million and $1.6 million in provisions for
mortgage loan losses.
Earnings, as discussed herein, exclude realized investment gains and losses and
related deferred acquisition cost amortization, net of taxes. Earnings for the
quarter ended March 31, 1997, were $118.0 million or $1.22 per common share, up
14.0 percent from the $1.07 per common share reported in the same period in
1996. The discussion under "Business Segment Results" highlights the key items
which contributed to the overall growth in earnings.
Revenues, as discussed herein, exclude realized investment gains and losses.
Revenues for the quarter ended March 31, 1997, were $948.1 million, up 8.2
percent from $876.0 million reported in the same period in 1996. The increase
was primarily a result of higher life annuity premiums at Providian Capital
Management and revenues earned on Providian Bancorp's strong growth in total
managed loans. Providian Bancorp's revenues, primarily interest income and
consumer loan servicing fees, increased $56.0 million for the quarter, or 25.0
percent, from the same period in 1996. The increase is primarily a result of the
$34.2 million gain recognized on Providian Bancorp's 1997 securitizations under
Statement of Financial Accounting Standards No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities," which was
adopted January 1, 1997. Additionally, interest income increased from growth in
receivables.
Total benefits and expenses increased $50.0 million, or 6.8 percent, for the
quarter ended March 31, 1997 from the same period in 1996. Benefits and reserves
increased $29.4 million for the quarter, or 6.9 percent, from the same period in
1996. The increase is primarily due to Providian Capital Management's higher
life annuity volume and Providian Bancorp's growth in average deposits on hand
offset by Providian Direct Insurance improved claims experience in the direct
auto line of the Property and Casualty segment. General, administrative and
other expenses were up $42.0 million for the quarter, or 23.8 percent, from the
same period in 1996. The increase primarily reflected higher servicing expenses
by Providian Bancorp due to significant on-balance sheet loan growth and
increased marketing activity. Amortization decreased $12.0 million for the
quarter, or 15.5 percent, from the same period in 1996. The decrease reflected
Providian Bancorp's accelerated amortization in connection with the
securitization of a portion of Providian Bancorp's home equity loan portfolio in
first quarter 1996 and Providian Capital Management's recognition of continued
better than expected annuity lapse experience in 1997.
BUSINESS SEGMENT RESULTS
PROVIDIAN BANCORP
Providian Bancorp continued its strong performance with pretax earnings, after
dividends on Capital Securities, of $61.7 million for the quarter, up 20.2
percent, from the same period in 1996. These results reflected strong growth in
managed unsecured receivables and fee-based revenues, reflecting increased
diversification in fee-based products and value added services to customers.
Total managed loans were $9.2 billion as of March 31, 1997, up 28.2 percent from
$7.1 billion as of March 31, 1996. Managed unsecured receivables, including $5.9
billion of securitized receivables, were $7.7 billion as of March 31, 1997, up
$1.6 billion from March 31, 1996, as a result of the continued success of the
Primary Lender program. The managed home equity loan portfolio, including $485.0
million of securitized receivables, was $938.9 million as of March 31, 1997, up
$175.6 million from March 31, 1996.
The net interest margin for managed unsecured receivables was 11.05 percent for
the quarter ended March 31, 1997, compared to 11.88 percent for the same period
in 1996. The decrease resulted from the three-month, zero percent introductory
rate feature offered to attract new customers into the Primary Lender program.
Loan loss reserves related to on-balance sheet unsecured receivables, excluding
receivables held for securitization, were 5.03 percent at March 31, 1997,
compared to 4.51 percent at December 31, 1996 and 4.19 percent at March 31,
1996. The net credit loss rate for managed unsecured receivables was 6.73
percent for the quarter, up from 5.07 percent for the same period in 1996 which
is consistent with current industry trends. Balances past-due greater than 31
days related to on-balance sheet unsecured receivables were 2.54 percent at
March 31, 1997 down from 2.56 percent at December 31, 1996 and up from 2.34
percent at March 31, 1996. Managed unsecured receivable balances past-due
greater than 31 days were 4.09 percent at March 31, 1997 compared to 4.08
percent at December 31, 1996, and 3.46 percent at March 31, 1996.
PROVIDIAN DIRECT INSURANCE
Providian Direct Insurance pretax earnings were $22.8 million for the quarter,
up 4.7 percent from the same period in 1996. Quarterly results improved due to
the Property and Casualty segment income of $11 thousand, compared to losses of
$3.4 million in the same period in 1996, a result of more favorable claims
experience in the direct auto line in 1997. These results were partially offset
by lower Life and Health earnings primarily due to the discontinuance of a joint
venture arrangement and the run-off of the Medicare supplement closed block of
business.
Premiums and fee-based revenues were $161.7 million for the quarter, down 5.9
percent from the same period in 1996. Total sales declined by 25.4 percent in
the first quarter from the same period in 1996. The premium and sales declines
were a result of the discontinuance of the joint venture arrangement and a
decline in Property and Casualty sales. However, direct Health sales increased
29.0 percent and fee-based Health sales increased 117.7 percent, reflecting
strong demand for a plan featuring discounts on prescription drugs, eyewear and
other health-related items.
PROVIDIAN AGENCY GROUP
Providian Agency Group pretax earnings were $47.6 million for the quarter ended
March 31, 1997, up 3.0 percent from the same period in 1996. The increase
reflected lower Life and Health claims on both home service and partnership
business and higher net investment spreads.
Total annualized premium gain rate, including fee-based products was essentially
even with 1996 at 2.2 percent, as low terminations in the quarter were partially
offset by lower marketing partnership sales, a result of two discontinued
partnerships. The combined Life and Health policy termination rate of 12.2
percent for the three months was down from 14.0 percent for the same period in
1996. The termination rate, including fee-based products, was 12.7 percent at
March 31, 1997, down from 14.6 percent for the same period in 1996.
PROVIDIAN CAPITAL MANAGEMENT
Providian Capital Management pretax earnings were $44.4 million for the quarter
ended March 31, 1997, up 15.0 percent from the same period in 1996. Quarterly
earnings increased primarily due to improved spread margins as a result of
positive investment results and recognition of continued better than expected
annuity lapse experience. Profit margins on spread-based deposits for the
quarter ended March 31, 1997 were 124 basis points, which improved from the 109
basis points in the same periods in 1996.
Providian Capital Management's Individual fee-based deposits continued growing
steadily with balances of $2.6 billion at March 31, 1997, an increase of 49.1
percent from the same period in 1996. Group fee-based Trust GIC customer
balances were $13.5 billion as of March 31, 1997, up 10.8 percent from the same
period in 1996. Group spread-based deposits increased 8.5 percent from March 31,
1996 due to increased sales of floating rate contracts. Individual spread-based
deposits decreased 4.2 percent from March 31, 1996 balances as sales remain
challenging due to the large amount of funds flowing into the equity market and
a very competitive pricing environment.
ANALYSIS OF FINANCIAL CONDITION
Significant variations between March 31, 1997 and December 31, 1996 balance
sheet items are discussed below.
ASSETS
Cash and invested assets were $22.4 billion at March 31, 1997, down $491.1
million, or 2.1 percent, from December 31, 1996. The decrease in invested assets
is primarily due to the securitization of consumer loans during the first
quarter of 1997 of $1.4 billion. (For additional information on the Company's
invested assets see the section titled "Asset/Liability Review").
LIABILITIES
Banking deposits decreased $397.6 million, or 11.7 percent, from year end as
Providian Bancorp's funding requirements declined as a result of the
securitization of consumer loan balances and additional funding generated by the
Capital Securities. Deferred federal income tax decreased by $76.4 million, or
18.5 percent, from year end primarily due to the $78.2 million change in
deferred taxes associated with the market value decline on the available for
sale bond and stock portfolio.
PREFERRED STOCK
Preferred stock of subsidiary increased $160.0 million due to Providian
Bancorp's issuance of capital securities (see Note G).
SHAREHOLDERS' EQUITY
The net unrealized investment gain component of shareholders' equity decreased
$145.4 million from December 31, 1996, reflecting the decrease in the fair value
of the Company's available for sale investment portfolio. The adjustments to
record the effect of the unrealized investment gain on shareholders' equity and
the related balance sheet accounts were as follows:
<PAGE>
March 31, December 31,
1997 1996 Change
----------- ------------- ---------
(Dollars in millions)
Unrealized investment gain
on available for sale securities $ 51.9 $ 296.3 $(244.4)
Adjusted by:
Increase (decrease) in deferred
policy acquisition costs 3.9 (16.9) 20.8
Increase in deferred
federal income taxes (19.5) (97.7) 78.2
----------- -------------- ---------
Net unrealized investment gain
on available for sale securities $ 36.3 $ 181.7 $(145.4)
============ ============== =========
ASSET/LIABILITY REVIEW
Excluding Providian Bancorp, invested assets related to insurance operations
were $18.5 billion, compared to $18.8 billion at December 31, 1996. The
distribution of invested assets at March 31, 1997, has not changed significantly
from December 31, 1996.
Exposure to below investment grade bonds at March 31, 1997, was 4.8 percent,
unchanged from December 31, 1996. Default and loss experience in the securities
portfolio was excellent with no significant losses as a result of impairments
this year. As of March 31, 1997, there was a minimal amount of 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 March 31, 1997, amounted to 3.9 percent of total commercial
loans, up from 2.9 percent at December 31, 1996. The industry average for
problem commercial mortgage loans was 13.4 percent at December 31, 1996 (the
most recently published statistic). Problem residential mortgage loans (based on
Mortgage Bankers Association (MBA) standards, which are based on the number of
loans that are past due 30 days or more, and loans in the process of
foreclosure) were 3.9 percent at March 31, 1997 compared to 4.0 percent at
December 31, 1996. The MBA average for problem residential mortgage loans was
5.7 percent at December 31, 1996 (the most recently published statistic). Loans
on which the Company has discontinued the accrual of interest and restructured
loans accruing interest as of March 31, 1997 and December 31, 1996 were as
follows:
<PAGE>
Commercial Loans Residential Loans
------------------------ ------------------------
March 31, December 31, March 31, December 31,
1997 1996 1997 1996
---------- ------------ ---------- ------------
(Dollars in millions)
Non-accrual loans $25.5 $27.1 $31.8 $32.2
Restructured loans,
accruing interest 18.9 19.1 - -
========== =========== ============ ============
$44.4 $46.2 $31.8 $32.2
========== =========== ============ ============
As of March 31, 1997, there were approximately $36.3 million of commercial
mortgage loans with identified potential problems which could cause these loans
to be included in a problem category in the future; however, the Company does
not anticipate any material additional losses to arise from these loans.
LIQUIDITY AND CAPITAL RESOURCES
Providian Corporation 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 will continue to be sufficient to satisfy its
foreseeable financial obligations.
Net consolidated cash flows from operations were $273.0 million during the three
months ended March 31, 1997 and $369.1 million for the same period of 1996.
These substantial levels come from a base of cash flows from insurance premiums
(particularly from the home service Providian Agency Group operations, which are
very predictable and relatively immune to disintermediation), from banking
operations and from other product sales. See the accompanying condensed
consolidated statements of cash flows for additional information regarding
liquidity and funding.
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 $49.6 million
during the three months at a weighted average interest rate of 5.42 percent.
Commercial paper outstanding at March 31, 1997 was $49.6 million.
Excluding Providian Bancorp, the Company has committed lines of credit of $750.0
million which would provide additional liquidity should adverse conditions
materialize, and serve as back-up to the commercial paper program. There were no
borrowings under these lines of credit during 1996 and no amounts outstanding
under them as of March 31, 1997. In addition, the Company's bond and stock
portfolio of $11.4 billion at March 31, 1997 provides a significant source of
short-term liquidity.
Providian Bancorp analyzes its current and future liquidity needs to support its
deposit portfolio and asset growth and has a revolving line of credit agreement
which provides liquidity for the existing deposit base, as well as satisfying
short-term funding requirements. The amount available under the credit agreement
is $1.2 billion. Outstanding borrowings under the agreement were $110.0 million
at March 31, 1997.
On February 4, 1997, Providian Bancorp completed a capital securities
transaction pursuant to which a subsidiary trust of Providian Bancorp issued
$160.0 million in liquidation amount of mandatorily redeemable preferred
securities (the "Capital Securities"). The subsidiary trust invested the
proceeds in 9.525% Junior Subordinated Deferrable Interest Debentures (the
"Debentures") issued by Providian Bancorp. In addition to its obligations under
the Debentures, Providian Bancorp has guaranteed payments on the Capital
Securities to the extent of funds held by the subsidiary trust. Providian
Bancorp used the proceeds from this transaction for the retirement of $42.5
million of long-term debt and the redemption of $63.3 million of preferred
stock, both held by Providian Corporation, and for general Providian Bancorp
business purposes. Providian Corporation will use the proceeds to redeem, in
whole, on May 19, 1997, $95.0 million in outstanding principal amount of the
8.75% Sinking Fund Debentures, due January 15, 2017 at a total redemption price
of $99.2 million plus accrued interest.
<PAGE>
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 to 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: Exhibit 27 - Financial Data Schedule
Reports: A report on form 8-K was filed on February 12, 1997, reporting
proforma historical financial information of Providian
Bancorp, Inc., giving effect to the proposed spin-off of the
Registrant's wholly owned subsidiary, Providian Bancorp, Inc.
to the shareholders of the Registrant and the issuance of
$160.0 million of capital securities by a subsidiary trust of
Providian Bancorp.
A report on Form 8-K was filed on April 22, 1997, containing
Proforma Condensed Financial Information of Providian Bancorp,
Inc. and Subsidiaries, giving effect to the proposed
Distribution and the issuance of capital securities and
Consolidated Financial Statements of Providian Bancorp, Inc.
and Subsidiaries.
<PAGE>
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: May 13, 1997 Robert L. Walker
------------------------------------------------
Senior Vice President -- Finance and Chief
Financial Officer
Date: May 13, 1997 Steven T. Downey
-------------------------------------------------
Vice President and Controller
<PAGE>
<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> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-30-1997
<DEBT-HELD-FOR-SALE> 11,341 <F1>
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 5,363 <F2>
<REAL-ESTATE> 55 <F3>
<TOTAL-INVEST> 20,781
<CASH> 1,598
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 1,534
<TOTAL-ASSETS> 28,979 <F4>
<POLICY-LOSSES> 9,657 <F5>
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 7,155
<NOTES-PAYABLE> 718
0
260 <F6>
<COMMON> 115
<OTHER-SE> 2,953 <F7>
<TOTAL-LIABILITY-AND-EQUITY> 28,979 <F8>
304
<INVESTMENT-INCOME> 495
<INVESTMENT-GAINS> 3
<OTHER-INCOME> 149 <F9>
<BENEFITS> 456 <F10>
<UNDERWRITING-AMORTIZATION> 66 <F11>
<UNDERWRITING-OTHER> 239 <F12>
<INCOME-PRETAX> 169
<INCOME-TAX> 50
<INCOME-CONTINUING> 117
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 117
<EPS-PRIMARY> 1.24
<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 $479.
<F2>Includes Commercial and Residential mortgage loans.
<F3>Included in Other investments in the Consolidated Statements of Financial
Condition.
<F4>Includes Consumer Loans of $2,643
<F5>Includes Benefit reserves and other policy liabilities and individual
annuity reserves.
<F6>Consists of Cumulative Monthly Income Preferred Stock issued by subsidiary.
and capital securties issued by a subsidiary trust of Providian Bancorp.
<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 $2,993.
<F9>Includes Consumer loan servicing fees of $91.
<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>
