PVN Providian Financial

Providian Financial Corporation Reports Third Quarter 2003 Earnings Of $85.3 Million; Earnings Per Diluted Share of $0.29 New Strategic Partnership Programs Announced Net Credit Losses Continue To Decline SAN FRANCISCO, Oct. 29 /PRNewswire-FirstCall/ -- Providian Financial Corporation today announced net income for the third quarter of 2003 of $85.3 million, or $0.29 per diluted share. "We delivered a solid quarter that was consistent with our expectations," said Joseph Saunders, Providian's chairman and chief executive officer. "This quarter we also made significant strides in the extension of our marketing strategy with the announcement of several new strategic partnerships that we expect will contribute to our account and receivables growth going forward." Third Quarter Financial Highlights Total net revenues on a reported basis, comprised of reported net interest income and reported non-interest income, totaled $526.3 million in the third quarter of 2003, compared to $521.1 million in the second quarter of 2003. Total net revenues on a managed basis, comprised of net interest income and non-interest income from both reported and securitized loans, totaled $977.1 million in the third quarter of 2003, compared to $1,043.8 million in the second quarter of 2003. The reported and managed net interest margins on loans in the third quarter of 2003 were 8.87% and 14.79%, compared to 10.16% and 15.09% in the second quarter of 2003, respectively. Net credit losses in the third quarter of 2003 were better than the Company's expectations at $156.2 million on a reported basis and $607.0 million on a managed basis, resulting in reported and managed net credit loss rates of 10.65% and 14.37%, respectively. The third quarter net credit loss rates compare to a reported net credit loss rate of 14.19% and a managed net credit loss rate of 16.84% in the second quarter of 2003. The Company's reported and managed 30+ day delinquency rates at the end of the third quarter of 2003 were 7.18% and 9.68%, respectively, compared to 7.64% and 9.72%, respectively, at the end of the second quarter of 2003. Non-interest expense for the third quarter of 2003 was $286.6 million, compared to $324.6 million in the second quarter of 2003. The majority of the reduction in non-interest expense was driven by non-marketing expenditures, including lower collections costs and lower expenditures for salaries and employee benefits. Loans receivable, as of September 30, 2003, were $5.99 billion on a reported basis and $16.95 billion on a managed basis. This compares to reported loans receivable and managed loans receivable at June 30, 2003 of $6.42 billion and $17.80 billion, respectively. The reported and managed loans receivable at June 30, 2003 included approximately $667 million in loans held for sale that were sold on August 1, 2003. The Company added approximately 400,000 gross new accounts in the third quarter of 2003 and ended the quarter with approximately 10.8 million customer accounts. The Company ended the third quarter of 2003 with total equity of $2.26 billion and an allowance for credit losses of $644.0 million, which together represent 48% of reported loans and 17% of managed loans. Cash and investments ended the quarter at approximately $5.8 billion, representing approximately 97% of total reported loans and approximately 34% of total managed loans. Strategic Partnership Programs The Company recently announced several new strategic partnerships including an agreement with MBNA to cooperatively issue the eBay "Anything Points" MasterCard, an agreement with the Democratic National Committee to market DNC Visa cards and an agreement with the North American Membership Group to issue affinity credit cards for its membership clubs. Managed Financial Information The Company presents financial information on both a reported and managed basis. "Reported" financial information refers to GAAP financial information while "managed" financial information is derived by adjusting the reported financial information to add back securitized loan balances and the related finance charge and fee income, credit losses, and net interest costs. The interests the Company retains in the securitized loan balances creates financial exposure to the current and expected cash flows of the securitized loans. Although the loans sold are not on the Company's balance sheet, their performance affects the Company's retained interests in the securitizations as well as its results of operations and its financial position. In addition, the Company continues to service the securitized loans. About Providian San Francisco-based Providian Financial is a leading provider of credit cards to Middle America customers throughout the U.S. By combining experience, analysis, technology and outstanding customer service, Providian seeks to build long-lasting relationships with its customers by providing products and services that meet their evolving financial needs. Certain statements contained in this press release are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are subject to the "safe harbor" created by those sections. Forward-looking statements include, without limitation: expressions of "belief," "anticipation," or "expectations" of management; statements as to industry trends or future results of operations of the Company and its subsidiaries; and other statements that are not historical fact. Forward-looking statements are based on certain assumptions by management and are subject to risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. These risks and uncertainties include, but are not limited to, competitive pressures; factors that affect delinquency rates, credit loss rates and charge-off rates; general economic conditions; consumer loan portfolio growth; changes in the cost and/or availability of funding due to changes in the deposit, credit or securitization markets; changes in the way the Company is perceived in such markets and/or conditions relating to existing or future financing commitments; the effect of government policy and regulation, whether of general applicability or specific to the Company, including restrictions and/or limitations relating to the Company's minimum capital requirements, deposit taking abilities, reserving methodologies, dividend policies and payments, growth, and/or underwriting criteria; year-end audit adjustments; changes in accounting rules, policies, practices and/or procedures; the success of product development efforts; legal and regulatory proceedings, including the impact of ongoing litigation; interest rates; one-time charges; extraordinary items; the ability to recruit and replace key personnel; and the impact of existing, modified, or new strategic initiatives. These and other risks and uncertainties are described in detail in the Company's Annual Report on Form 10-K and Annual Report to Stockholders for the fiscal year ended December 31, 2002 under the headings "Cautionary Statement Regard Forward-Looking Information "and "Risk Factors." Readers are cautioned not to place undue reliance on any forward-looking statement, which speaks only as of the date thereof. The Company undertakes no obligation to update any forward-looking statements. NOTE: Investor information is available on Providian Financial's website at http://www.providian.com/. Providian Financial Corporation Financial & Statistical Summary Reported Financial Measures (unaudited) (dollars in millions, except per share and employee data) 2003 2003 2003 2002 2002 Q3 Q2 Q1 Q4 Q3 Reported Earnings: Net Interest Income $80.9 $127.8 $180.4 $186.2 $199.5 Non-Interest Income 445.4 393.3 417.5 293.1 465.1 Total Net Revenue 526.3 521.1 597.9 479.3 664.6 Provision for Loan Losses 98.7 132.0 261.8 139.0 192.4 Non-Interest Expense 286.6 324.6 328.3 320.3 452.2 Income From Operations Before Income Taxes 141.0 64.5 7.8 20.0 20.0 Income Tax Expense (Benefit) 55.7 25.5 3.1 7.9 (22.1) Net Income $85.3 $39.0 $4.7 $12.1 $42.1 Reported Financial Data: Quarter: Net Credit Losses (1) $156 $237 $296 $299 $244 Provision for Credit Losses $99 $132 $262 $139 $192 Quarter End: Total Loans $5,994 $6,417 $7,147 $6,908 $8,198 Total Assets $15,329 $16,206 $16,607 $16,651 $17,218 Total Equity $2,257 $2,181 $2,134 $2,139 $2,131 Quarter Average: Total Loans $5,866 $6,684 $7,500 $8,046 $7,305 Earning Assets $12,869 $14,048 $13,604 $14,236 $15,011 Total Assets $15,740 $16,460 $16,518 $16,757 $17,384 Total Equity $2,198 $2,161 $2,088 $2,100 $2,107 Key Reported Statistics: Net Interest Margin (Earning Assets) 2.51% 3.64% 5.30% 5.23% 5.32% Net Interest Margin (Loans) 8.87% 10.16% 11.50% 11.02% 12.93% Risk- Adjusted Margin (Loans) (2) 28.61% 19.51% 17.98% 10.71% 25.02% Non-interest Income Margin (3) 30.38% 23.54% 22.27% 14.57% 25.47% Return on Assets 2.17% 0.95% 0.11% 0.29% 0.97% Return on Equity 15.52% 7.23% 0.90% 2.31% 8.00% Allowance as a Percent of Loans 10.74% 12.20% 13.69% 14.67% 15.26% Net Credit Loss Rate (1)10.65% 14.19% 15.79% 14.88% 13.38% Delinquency Rate (30+ Days) 7.18% 7.64% 8.76% 10.00% 8.14% Equity to Loans 37.65% 33.99% 29.86% 30.96% 25.99% Equity to Assets 14.72% 13.46% 12.85% 12.85% 12.38% Common Share Statistics: Earnings Per Common Share - Basic $0.30 $0.14 $0.02 $0.04 $0.15 Earnings Per Common Share - Assuming Dilution (4) $0.29 $0.13 $0.02 $0.04 $0.15 Book Value Per Share (Period End) $7.78 $7.51 $7.36 $7.39 $7.37 Total Market Capitalization (Period End) $3,421 $2,689 $1,901 $1,878 $1,417 Shares Outstanding (Period End) 290.2 290.4 289.8 289.4 289.2 Weighted Average Shares O/S - Basic 287.6 286.3 286.2 285.4 285.3 Weighted Average Shares O/S - Diluted 291.9 289.8 290.4 289.2 294.1 Accounts 10.8 11.4 11.7 12.0 12.7 Employees (FTE) 5,012 5,692 6,083 6,261 7,331 (1) The net credit losses for the second quarter of 2003 exclude the fair value adjustments on loans held for securitization or sale. (2) Represents reported interest income on loans plus non-interest income, less interest expense allocated to loans, and less net credit losses, expressed as a percentage of average reported loans. (3) Represents reported non-interest income expressed as a percentage of average reported loans. Providian Financial Corporation Financial & Statistical Summary Managed Financial Measures (unaudited) (dollars in millions) 2003 2003 2003 2002 2002 Q3 Q2 Q1 Q4 Q3 Managed Net Revenue: Net Interest Income $590.7 $649.5 $705.5 $734.6 $779.8 Non-Interest Income 386.4 394.3 430.9 283.8 444.1 Total Net Revenue(1) 977.1 1,043.8 1,136.4 1,018.4 1,223.9 Managed Financial Data: Quarter: Net Credit Losses(2) $607 $760 $835 $838 $804 Net Change in Reported Allowance for Credit Losses(3) (57) (105) (34) (160) (53) Adjusted Credit Losses $550 $655 $801 $678 $751 Quarter End: Total Loans(4) $16,945 $17,798 $18,470 $19,628 $19,453 Securitized Loans(5) $10,951 $11,381 $11,323 $12,720 $11,255 Total Assets(6) $23,779 $25,131 $25,532 $26,484 $26,893 Total Equity $2,257 $2,181 $2,134 $2,139 $2,131 Quarter Average: Total Loans $16,891 $18,045 $18,952 $19,344 $19,237 Securitized Loans(5) $11,026 $11,361 $11,452 $11,294 $11,932 Earning Assets $23,894 $25,409 $25,056 $25,534 $26,942 Total Assets $24,462 $25,385 $25,494 $26,222 $27,511 Total Equity $2,198 $2,161 $2,088 $2,100 $2,107 Key Managed Statistics: Net Interest Margin (Earning Assets)(7) 9.89% 10.22% 11.26% 11.51% 11.58% Net Interest Margin (Loans)(8) 14.79% 15.09% 15.41% 15.67% 16.73% Risk-Adjusted Margin (Loans)(9) 9.57% 6.99% 6.89% 4.20% 9.25% Non-interest Income Margin(10) 9.15% 8.74% 9.09% 5.87% 9.23% Return on Assets 1.40% 0.62% 0.07% 0.18% 0.61% Net Credit Loss Rate(2) 14.37% 16.84% 17.61% 17.34% 16.71% Delinquency Rate (30+ Days) 9.68% 9.72% 10.31% 11.11% 11.23% Equity to Managed Loans 13.32% 12.25% 11.55% 10.90% 10.95% Equity to Managed Assets 9.49% 8.68% 8.36% 8.08% 7.92% (1) Represents the interest income and non-interest income earned from managed loans receivable and investments less interest expense, including the interest costs payable to securitization investors. (2) The net credit losses for the second quarter 2003 exclude the fair value adjustments on loans held for securitization or sale. (3) The net change in the reported allowance for credit losses excludes the allowance transferred to loans held for securitization or sale. (4) Represents all loans receivable from customer accounts that are managed by the Company, including the loans receivable reported on the Company's statements of financial condition and the loans receivable removed or reclassified from the Company's statements of financial condition through securitizations. Loans receivable amounts exclude estimated uncollectible finance charges and fees. (5) Effective December 2002, the Company adopted the federal banking agencies accrued interest receivable, or AIR, guidance, resulting in a reclassification of a portion of accrued interest receivable from reported loans receivable to due from securitizations for 2003 and for the fourth quarter 2002. Securitized loans for 2003 and the fourth quarter 2002 reflect the AIR reclassification. (6) Managed assets represent total assets reported on the Company's statements of financial condition, plus the loans receivable removed or reclassified from loans receivable on its statements of financial condition through securitizations, less the retained interests from securitizations reported on its statement of financial condition. (7) Represents the net interest income recognized on managed earning assets, expressed as a percentage of managed average earning assets. (8) Represents the interest income recognized on managed average loans receivable, expressed as a percentage of managed average loans receivable, less interest expense on deposits and borrowings, including the interest costs payable to securitization investors, expressed as a percentage of managed average earning assets. (9) Represents managed interest income on loans plus non-interest income, less interest expense allocated to loans, and less net credit losses, expressed as a percentage of average managed loans. (10) Represents managed non-interest income expressed as a percentage of average managed loans. Managed non-interest income excludes the interest income reclassification related to certain retained beneficial interests. Providian Financial Corporation Delinquency Summary (unaudited) Quarterly 2003 2003 (dollars in thousands) Q3 Q2 (4) % of % of Total Total Loans Loans Loans Loans Reported Loans outstanding(1)(2) $5,994,446 100.00% $6,418,050 100.00% Loans delinquent 30 - 59 days $138,168 2.31% $156,615 2.44% 60 - 89 days 97,361 1.62% 115,372 1.80% 90 or more days 194,822 3.25% 218,116 3.40% Total $430,351 7.18% $490,103 7.64% Securitized Loans outstanding (3) $10,951,709 $11,381,475 Loans delinquent 30 - 59 days $382,647 $377,089 60 - 89 days 275,898 291,690 90 or more days 552,222 571,358 Total $1,210,767 $1,240,137 Managed Loans outstanding (1) $16,946,155 100.00% $17,799,525 100.00% Loans delinquent 30 - 59 days $520,815 3.07% $533,704 3.00% 60 - 89 days 373,259 2.20% 407,062 2.29% 90 or more days 747,044 4.41% 789,474 4.43% Total $1,641,118 9.68% $1,730,240 9.72% Providian Financial Corporation Delinquency Summary (unaudited) Quarterly 2003 (dollars in thousands) Q1 % of Total Loans Loans Reported Loans outstanding (1) (2) $7,145,817 100.00% Loans delinquent 30 - 59 days $173,449 2.43% 60 - 89 days 136,652 1.91% 90 or more days 315,630 4.42% Total $625,731 8.76% Securitized Loans outstanding (3) $11,323,170 Loans delinquent 30 - 59 days $353,358 60 - 89 days 283,102 90 or more days 642,045 Total $1,278,505 Managed Loans outstanding (1) $18,468,987 100.00% Loans delinquent 30 - 59 days $526,807 2.85% 60 - 89 days 419,754 2.27% 90 or more days 957,675 5.19% Total $1,904,236 10.31% Providian Financial Corporation Delinquency Summary (unaudited) Quarterly 2002 2002 (dollars in thousands) Q4 Q3 % of % of Total Total Loans Loans Loans Loans Reported Loans outstanding (1)(2)$6,899,849 100.00% $8,185,724 100.00% Loans delinquent 30 - 59 days $205,605 2.98% $243,298 2.97% 60 - 89 days 147,057 2.13% 166,733 2.04% 90 or more days 336,979 4.89% 256,676 3.13% Total $689,641 10.00% $666,707 8.14% Securitized Loans outstanding (3) $12,719,752 $11,255,146 Loans delinquent 30 - 59 days $460,295 $432,957 60 - 89 days 335,700 335,712 90 or more days 694,129 747,759 Total $1,490,124 $1,516,428 Managed Loans outstanding (1) $19,619,601 100.00% $19,440,870 100.00% Loans delinquent 30 - 59 days $665,900 3.39% $676,255 3.48% 60 - 89 days 482,757 2.46% 502,445 2.58% 90 or more days 1,031,108 5.26% 1,004,435 5.17% Total $2,179,765 11.11% $2,183,135 11.23% (1) Balances exclude market value adjustment related to the fair value of designated financial instruments during 2003 of $(0.8) million for the third quarter, $(1.3) million for the second quarter and $0.8 million for the first quarter. For 2002, $7.9 million and $12.1 million were excluded for the fourth and third quarters, respectively. (2) Effective December 2002, the Company adopted the federal banking agencies' accrued interest receivable, or AIR, guidance, resulting in a reclassification of a portion of accrued interest receivable from reported loans receivable to due from securitizations for the first, second, and third quarters of 2003 and the fourth quarter of 2002. (3) Excludes the senior seller's interest in the loans receivable transferred in securitizations. The senior seller's interest is an undivided interest in the loans transferred to the securitization trust and is included in reported loans receivable. Effective December 2002, the Company adopted the accrued interest receivable, or AIR, guidance, resulting in a reclassification of a portion of accrued interest receivable from reported loans receivable to due from securitizations for 2003 and for the fourth quarter of 2002. Securitized loans for 2003 and the fourth quarter of 2002 reflect the AIR reclassification. (4) Includes Providian Bank loans held for securitization or sale at fair value. Excluding the Providian Bank loans held for securitization or sale from the second quarter 30+ days delinquency rates would have increased the managed rate from 9.72% to 9.90% and the reported rate from 7.64% to 7.93%. Providian Financial Corporation Allowance for Credit Losses Three months ended Nine months ended September 30, September 30, (dollars in thousands) 2003 2002 2003 2002 Balance at beginning of period $701,488 $1,224,901 $1,012,461 $1,932,833 Provision for credit losses 98,732 192,366 480,676 764,600 Fair value adjustment - loans available for sale -- -- 11,875 388,230 Credit losses (206,654) (278,437) (847,629) (1,035,763) Recoveries 50,416 34,008 158,205 108,881 Credit losses on loans available for sale -- -- (171,606) (985,943) Balance at end of period $643,982 $1,172,838 $643,982 $1,172,838 Providian Financial Corporation September 2003 Reported Monthly Net Credit Loss and Delinquency Rates Providian Financial Corporation's reported net credit loss rate for the month ended September 30, 2003 and its 30+ day reported delinquency rate as of September 30, 2003 are presented in the table below. Reported monthly net credit loss and delinquency rates exclude the impact of loans receivable removed or reclassified from loans receivable on the Company's balance sheet through its securitizations. Monthly Net Credit Loss Rate(1)(3)(4) 30+ Day Delinquency Rate(2)(3)(4) (Annualized) (Unaudited) (Unaudited) 9.55% 7.18% (1) Represents the principal amounts of reported loans receivable that have been charged off, less the total amount of recoveries on previously charged-off loans, expressed as a percentage of the average reported loans receivable during the period, multiplied by 12. Recoveries include proceeds from the sale of charged-off assets to third parties. Total average reported loans exclude a decrease of $0.9 million for market value adjustments related to the fair value of designated financial instruments. (2) Represents reported loans that are 30+ days past due as of the last day of the monthly period, divided by the total reported loans as of the last day of the monthly period. Total reported loans exclude a decrease of $0.8 million for market value adjustments related to the fair value of designated financial instruments. (3) In August 2003, in connection with the migration to the Total Systems 2 servicing platform, which increased the functionality of its data system, the Company modified its practice for recognizing the charge-off of bankruptcy accounts. Previously, the Company batch processed bankruptcy accounts and charged-off the related amounts once a month. With the change, the Company now charges off bankrupt accounts on a daily basis, generally 30 days after notification of the bankruptcy. This change continues to be within the guidelines provided by the Federal Financial Institutions Examination Council. The Company estimates the change had the effect of reducing the monthly net credit loss rate by approximately 96 basis points and increasing the 30+ day delinquency rate by approximately 6 basis points in September 2003. (4) In September, the Company modified its loan re-aging practices. Previously, an account could qualify for re-aging if the customer paid the minimum amount due in each of three consecutive monthly payment cycles. With the change instituted in September, an account may also qualify for re-aging when the customer pays the cumulative equivalent amount within a three-payment cycle period. This change is also consistent with the guidelines provided by the Federal Financial Institutions Examination Council. This change had the effect of reducing the monthly net credit loss rate by approximately 4 basis points and reducing the 30+ day delinquency rate by approximately 18 basis points in September 2003. Providian Financial Corporation and Subsidiaries Consolidated Statements of Financial Condition September 30, December 31, (dollars in thousands) 2003 2002 (unaudited) Assets Cash and cash equivalents $516,479 $344,277 Federal funds sold and securities purchased under resale agreements 3,845,824 3,601,000 Investment securities: Available-for-sale 1,463,451 1,856,607 Loans receivable, less allowance for credit losses of $643,982 at September 30, 2003 and $1,012,461 at December 31, 2002 5,349,684 5,895,296 Premises and equipment, net 95,602 119,260 Interest receivable 43,430 60,841 Due from securitizations 3,178,223 3,723,382 Deferred tax 225,012 487,529 Other assets 611,055 562,738 Total assets $15,328,760 $16,650,930 Liabilities Deposits $11,180,345 $12,662,077 Short-term borrowings 108,793 91,529 Long-term borrowings 1,153,219 864,048 Deferred fee revenue 116,574 211,978 Accrued expenses and other liabilities 513,207 577,894 Total liabilities 13,072,138 14,407,526 Capital securities -- 104,332 Shareholders' equity 2,256,622 2,139,072 Total liabilities and shareholders' equity $15,328,760 $16,650,930 Providian Financial Corporation and Subsidiaries Consolidated Statements of Income (unaudited) Three months ended Nine months ended (dollars in thousands, September 30, September 30, except per share data) 2003 2002 2003 2002 Interest Income Loans $200,777 $328,240 $758,857 $1,166,807 Federal funds sold and securities purchased under resale agreements 10,562 13,334 33,998 26,041 Other 24,445 46,902 86,800 132,356 Total interest income 235,784 388,476 879,655 1,325,204 Interest Expense Deposits 139,470 178,705 453,845 559,746 Borrowings 15,437 10,306 36,774 32,338 Total interest expense 154,907 189,011 490,619 592,084 Net interest income 80,877 199,465 389,036 733,120 Provision for credit losses 98,732 192,366 492,551 1,152,830 Net interest (loss) income after provision for credit losses (17,855) 7,099 (103,515) (419,710) Non-Interest Income Servicing and securitizations 261,086 125,057 614,402 570,247 Credit product fee income 173,427 273,548 593,234 904,675 Other 10,953 66,503 48,683 613,355 445,466 465,108 1,256,319 2,088,277 Non-Interest Expense Salaries and employee benefits 90,050 129,341 282,881 433,219 Solicitation and advertising 38,523 126,404 157,428 339,275 Occupancy, furniture, and equipment 31,571 43,765 91,661 179,520 Data processing and communication 31,064 39,621 94,531 133,615 Other 95,380 113,035 312,969 402,955 286,588 452,166 939,470 1,488,584 Income from continuing operations before income taxes 141,023 20,041 213,334 179,983 Income tax expense (benefit) 55,704 (22,084) 84,267 41,093 Income from continuing operations after tax 85,319 42,125 129,067 138,890 Income from discontinued operations - net of related taxes -- -- -- 67,156 Net Income $85,319 $42,125 $129,067 $206,046 Earnings per common share - basic Income from continuing operations $0.30 $0.15 $0.45 $0.49 Income from discontinued operations - net of related taxes -- -- -- 0.23 Earnings per common share - basic $0.30 $0.15 $0.45 $0.72 Earnings per common share - assuming dilution Income from continuing operations $0.29 $0.15 $0.45 $0.49 Income from discontinued operations - net of related taxes -- -- -- 0.23 Earnings per common share - assuming dilution $0.29 $0.15 $0.45 $0.72 Weighted average common shares outstanding - basic (000) 287,620 285,323 286,783 284,649 Weighted average common shares outstanding - assuming dilution (000) 291,871 294,094 289,969 293,935 Providian Financial Corporation Bank Subsidiaries' Capital Ratios Total Risk-Based Capital Ratios as of September 30, 2003(1) Providian Providian National Bank Bank Call Report Basis(2) 17.07% 84.87% Applying Subprime Guidance (excluding AIR)(3) 15.40% 81.41% Applying Subprime Guidance (including AIR)(4) 13.68% -- (1) Total risk-based capital (Tier 1 + Tier 2) divided by total risk-based assets. (2) Total risk-based capital ratios as shown on the September 30, 2003 Call Report and includes accrued interest receivable. (3) Total risk-based capital ratios after applying the increased risk weightings under the Expanded Guidance for Subprime Lending Programs ("Subprime Guidance"). Excludes the effect of adopting the regulatory guidance on the accrued interest receivable asset. Providian Bank is not affected by the accrued interest receivable guidance. (4) Total risk-based capital ratios after applying the increased risk weightings under the Subprime Guidance. Includes the effect of adopting the regulatory guidance on the accrued interest receivable asset. Providian Bank is not affected by the accrued interest receivable guidance. Providian Financial Corporation Financial & Statistical Summary Reconciliation of Reported and Managed Financial Measures Reported Securitiza- Managed 2003 tion 2003 (dollars in millions) QTR 03 Adjustment QTR 03 Earnings: Interest Income Loans $200.8 $562.3 $763.1 Interest Income Investments (1) 35.0 (11.4) 23.6 Interest Expense 154.9 41.1 196.0 Net Interest Income $80.9 $509.8 $590.7 Non-Interest Income (1) 445.4 (59.0) 386.4 Total Net Revenue $526.3 $450.8 $977.1 Financial Data: Quarter: Net Credit Losses (2) $156 $451 $607 -- Quarter End: Total Loans (3) $5,994 $10,951 $16,945 Total Assets $15,329 $8,450 $23,779 Quarter Average: Total Loans $5,866 $11,025 $16,891 Earning Assets $12,869 $11,025 $23,894 Total Assets $15,740 $8,722 $24,462 Providian Financial Corporation Financial & Statistical Summary Reconciliation of Reported and Managed Financial Measures Reported Securitiza- Managed 2003 tion 2003 (dollars in millions) QTR 02 Adjustment QTR 02 Earnings: Interest Income Loans $247.7 $581.9 $829.6 Interest Income Investments (1) 43.9 (14.7) 29.2 Interest Expense 163.8 45.5 209.3 Net Interest Income $127.8 $521.7 $649.5 Non-Interest Income (1) 393.3 1.0 394.3 Total Net Revenue $521.1 $522.7 $1,043.8 Financial Data: Quarter: Net Credit Losses (2) $237 $523 $760 -- Quarter End: Total Loans (3) $6,417 $11,381 $17,798 Total Assets $16,206 $8,925 $25,131 Quarter Average: Total Loans $6,684 $11,361 $18,045 Earning Assets $14,048 $11,361 $25,409 Total Assets $16,460 $8,925 $25,385 Providian Financial Corporation Financial & Statistical Summary Reconciliation of Reported and Managed Financial Measures Reported Securitiza- Managed 2003 tion 2003 (dollars in millions) QTR 01 Adjustment QTR 01 Earnings: Interest Income Loans $310.3 $586.0 $896.3 Interest Income Investments (1) 41.9 (13.0) 28.9 Interest Expense 171.8 47.9 219.7 Net Interest Income $180.4 $525.1 $705.5 Non-Interest Income (1) 417.5 13.4 430.9 Total Net Revenue $597.9 $538.5 $1,136.4 Financial Data: Quarter: Net Credit Losses (2) $296 $539 $835 -- Quarter End: Total Loans (3) $7,147 $11,323 $18,470 Total Assets $16,607 $8,925 $25,532 Quarter Average: Total Loans $7,500 $11,452 $18,952 Earning Assets $13,604 $11,452 $25,056 Total Assets $16,518 $8,976 $25,494 Providian Financial Corporation Financial & Statistical Summary Reconciliation of Reported and Managed Financial Measures Reported Securitiza- Managed 2002 tion 2002 (dollars in millions) QTR 04 Adjustment QTR 04 Earnings: Interest Income Loans $323.5 $613.2 $936.6 Interest Income Investments (1) 42.6 (8.6) 34.1 Interest Expense 179.9 56.2 236.1 Net Interest Income $186.2 $548.4 $734.6 Non-Interest Income (1) 293.1 (9.3) 283.8 Total Net Revenue $479.3 $539.1 $1,018.4 Financial Data: Quarter: Net Credit Losses (2) $299 $539 $838 Quarter End: Total Loans (3) $6,908 $12,720 $19,628 Total Assets $16,651 $9,833 $26,484 Quarter Average: Total Loans $8,046 $11,294 $19,344 Earning Assets $14,236 $11,298 $25,534 Total Assets $16,757 $9,465 $26,222 Providian Financial Corporation Financial & Statistical Summary Reconciliation of Reported and Managed Financial Measures Reported Securitiza- Managed 2002 tion 2002 (dollars in millions) QTR 03 Adjustment QTR 03 Earnings: Interest Income Loans $328.2 $656.2 $984.4 Interest Income Investments (1) 60.3 (13.2) 47.1 Interest Expense 189.0 62.7 251.7 Net Interest Income $199.5 $580.3 $779.8 Non-Interest Income (1) 465.1 (21.0) 444.1 Total Net Revenue $664.6 $559.3 $1,223.9 Financial Data: Quarter: Net Credit Losses (2) $244 $559 $804 Quarter End: Total Loans (3) $8,198 $11,255 $19,453 Total Assets $17,218 $9,675 $26,893 Quarter Average: Total Loans $7,305 $11,932 $19,237 Earning Assets $15,011 $11,932 $26,942 Total Assets $17,384 $10,127 $27,511 (1) In November 1999, the Emerging Issues Task Force (EITF) of the FASB issued EITF 99-20, "Recognition of Interest Income and Impairment on Purchased and Retained Beneficial Interests in Securitized Financial Assets." This Pronouncement requires that the holders of retained beneficial interests in securitized financial assets, such as the Company, recognize a portion of securitization (non-interest) income as interest income. EITF 99-20 became effective for fiscal quarters beginning after March 15, 2001. (2) The net credit losses for the second quarter of 2003 exclude the fair value adjustments on loans held for securitization or sale. (3) During the second quarter of 2003 loans outstanding include loans held for securitization or sale recorded at fair market value. Our new book of business comprises 18% of our total managed loans and 50% of our reported loans. Non-GAAP Managed Financial Information Loans that have been securitized and sold to third party investors are not considered to be our assets under GAAP and therefore are not shown on our balance sheet. However, the interests we retain in the securitized loan pools create financial exposure to the current and expected cash flows of the securitized loans. Although the loans sold are not on our balance sheet, their performance can affect some or all of our retained interests as well as our results of operations and our financial position. In addition, we continue to service these loans. Because of this continued exposure and involvement, we use managed financial information to evaluate our historical performance, assess our current condition, and plan our future operations. We believe that managed financial information supplements our GAAP information and is helpful to the reader's understanding of our consolidated financial condition and results of operations. "Reported" financial information refers to GAAP financial information. "Managed" financial information is derived by adjusting the reported financial information to add back securitized loan balances and the related finance charge and fee income, credit losses, and net interest costs. The Company in its October 29, 2003 earnings call will be disclosing certain projected financial measures relating to expected performance on a managed basis, such as net credit losses, net interest income margin and non-interest income margin. The Company develops such projections on a managed basis using managed financial information and does not in the normal course derive comparable GAAP projections. Developing such comparable GAAP projections would be unreasonably burdensome and in the opinion of management such comparable GAAP projections would not provide to the users of the financial information a significant benefit in understanding the Company's expected future performance. DATASOURCE: Providian Financial Corporation CONTACT: investors, Jack Carsky, +1-415-278-4977, or Bill Horning, +1-415-278-4602, or media, Alan Elias, +1-415-278-4189, or Beth Haiken, +1-415-278-4889, all of Providian Financial Corporation Web site: http://www.providian.com/

Copyright