Providian Financial Corporation Reports Fourth Quarter 2004 and Full Y

Providian Financial Corporation Reports Fourth Quarter 2004 and Full Year 2004 Earnings Results; Loan Growth and Profits Hit High End of Company's Expectations

    Business Editors

    SAN FRANCISCO--(BUSINESS WIRE)--Jan. 20, 2005--Providian Financial Corporation (NYSE:PVN) today announced net income for the fourth quarter of 2004 of $138.1 million, or $0.42 per diluted share, compared to net income of $67.1 million, or $0.22 per diluted share, in the fourth quarter of 2003. For the full year 2004, net income totaled $418.6 million, or $1.30 per diluted share, compared to net income of $196.2 million, or $0.66 per diluted share, for the full year 2003.
    The Company noted that the results are unaudited, and that its external accountants at Ernst & Young have not yet completed their procedures with regard to certain assumptions used in estimating the value of interest-only strips recorded in connection with the Company's securitized receivables. The Company believes that its assumptions are appropriate and are consistent with GAAP and with regulatory expectations. However, there are no assurances as to how the question may ultimately be resolved. A change in valuation assumptions in accordance with alternatives being reviewed could reduce earnings for the full year by an amount that the Company currently estimates at approximately $0.20 per diluted share, and is not expected to materially impact results in 2005.
    During the fourth quarter of 2004, the Company finalized various tax audits and reduced its assessment of various tax exposures, covering 1997 through 2002, that it expects to be more favorably resolved than previously anticipated. As a result, the Company recorded a reduction of $25 million of previously accrued income tax expense and a reversal of $16 million in interest expense related to previously established tax exposures, which together benefited net income by approximately $35 million, or approximately $0.10 per diluted share.
    "The completion of 2004 marks a significant turning point for Providian Financial and a year in which Providian has reestablished itself as a strong competitor in the marketplace. It was also a year in which Providian achieved solid growth and profitability and we see a continuation of this business momentum in 2005," said Joseph Saunders, Providian's chairman and chief executive officer. "Providian's success in 2004, as well as the first two years of the Company's turnaround in 2002 and 2003, would not have been possible without the dedication of all of our employees, each of whom I commend for their effort and wish to thank for their extraordinary work and commitment."

    Financial Highlights -- Reported Basis

    Total net revenues on a reported basis, comprised of reported net interest income and reported non-interest income, totaled $518.4 million in the fourth quarter of 2004, compared to $586.1 million in the third quarter of 2004. The net interest margin on average reported loans in the fourth quarter of 2004 was 8.23%, compared to 8.17% in the third quarter of 2004.
    For the full year 2004, total net revenues on a reported basis were $2.16 billion, compared to $2.15 billion in 2003.
    Reported net credit losses in the fourth quarter of 2004 were $118.9 million, resulting in a reported net credit loss rate of 6.86%, compared to 6.99% in the third quarter of 2004. The Company's reported 30+ day delinquency rate at the end of the fourth quarter of 2004 was 4.61%, unchanged from 4.61% at the end of the third quarter of 2004.
    For the full year 2004, reported net credit losses were $543.5 million, resulting in a reported net credit loss rate of 7.94%. This compares to reported net credit losses for the full year 2003 of $837.3 million, which resulted in a reported net credit loss rate of 12.79%.
    Reported loans receivable as of December 31, 2004 were $7.52 billion compared to $7.31 billion at September 30, 2004.

    Financial Highlights -- Managed Basis

    Total net revenues on a managed basis, comprised of net interest income and non-interest income from both reported and securitized loans, totaled $845.1 million in the fourth quarter of 2004, compared to $911.6 million in the third quarter of 2004. The net interest margin on average managed loans in the fourth quarter of 2004 was 13.36%, compared to 13.48% in the third quarter of 2004.
    For the full year 2004, total net revenues on a managed basis totaled $3.63 billion, compared to $4.11 billion for full year 2003.
    Managed net credit losses in the fourth quarter of 2004 were $445.6 million, resulting in a managed net credit loss rate of 9.98%, compared to 10.39% in the third quarter of 2004. The Company's managed 30+ day delinquency rate at the end of the fourth quarter of 2004 was 6.16% compared to 6.27% at the end of the third quarter of 2004.
    Managed net credit losses for the full year 2004 were $2.00 billion, resulting in a managed net credit loss rate of 11.65%. This compares to managed net credit losses for the full year 2003 of $2.80 billion, which resulted in a managed net credit loss rate of 15.82%.
    Managed loans receivable as of December 31, 2004 increased to $18.54 billion compared to $17.90 billion at the end of the prior quarter. On a year-over-year basis, managed loans receivable increased by $1.60 billion, representing an annual growth rate of 9.5%.

    Other Fourth Quarter Results

    The Company added approximately 470,000 gross new accounts in the fourth quarter of 2004, bringing full year gross new account additions to 2.1 million. The Company ended the year with approximately 10.3 million total accounts.
    Non-interest expense for the fourth quarter of 2004 was $264.3 million, compared to $256.9 million in the third quarter of 2004. During the fourth quarter of 2004 the Company incurred additional non-interest expenses of approximately $24 million related to accelerated technology projects and decommissioning costs related to the closure of the Company's Oakland, California and San Antonio, Texas facilities which were incurred earlier than originally anticipated. Non-interest expense, excluding solicitation and advertising, in the fourth quarter was $207.3 million and for the full year was $814.0 million.
    The Company ended the fourth quarter of 2004 with total equity of $2.78 billion and an allowance for credit losses of $599.7 million, which together represent approximately 45% of reported loans and approximately 18% of managed loans. Cash and investments ended the year at approximately $4.79 billion, representing approximately 33% of total reported assets and approximately 20% of total managed assets.

    Management Expectations for Fiscal 2005

    The Company provides the following expectations for its business performance in fiscal year 2005:

--	Managed loans receivables -- growth rate in the mid-to-high single digits
--	Managed net credit losses -- approximately $1.8 billion

    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 mainstream American 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 liquidity, 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 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 or 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, 2003 under the headings "Cautionary Statement Regarding 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.
    Additional information regarding the fourth quarter 2004 results is provided in the form of a copy of the fourth quarter 2004 earnings conference call script which is available on the Company's website at www.providian.com under Investor Relations.
    For more information -- Investors please call Jack Carsky at 415-278-4977 or Bill Horning at 415-278-4602. Media, please contact Alan Elias at 415-278-4189 or Beth Haiken at 415-278-4889.

    Note: Investor information is available on Providian Financial's website at www.providian.com

Providian Financial Corporation Financial & Statistical Summary Reported Financial Measures (unaudited)

-------------------------------------------- (in millions, except per 2004 2004 2004 2004 2003 share and employee data) Q4 Q3 Q2 Q1 Q4 ---------------------------------------------------------------------- Reported Earnings: Net Interest Income $ 138.7 $ 144.0 $ 118.7 $ 113.9 $ 83.6 Non-Interest Income 379.7 442.1 429.6 397.5 418.6 -------------------------------------------- Total Net Revenue 518.4 586.1 548.3 511.4 502.2 Provision for Loan Losses 85.1 161.4 182.0 88.9 129.8 Non-Interest Expense 264.3 256.9 259.1 266.0 261.5 -------------------------------------------- Income Before Income Taxes 169.0 167.8 107.2 156.5 110.9 Income Tax Expense 30.9 58.7 37.5 54.8 43.8 -------------------------------------------- Net Income $ 138.1 $ 109.1 $ 69.7 $ 101.7 $ 67.1 ---------------------------------------------------------------------- Reported Financial Data: Quarter: Net Credit Losses $ 119 $ 128 $ 150 $ 146 $ 148 Provision for Credit Losses $ 85 $ 161 $ 182 $ 89 $ 130 Quarter End: Total Loans $ 7,522 $ 7,307 $ 6,884 $ 6,191 $ 6,281 Total Assets $14,421 $13,915 $13,592 $13,487 $14,275 Total Equity $ 2,776 $ 2,630 $ 2,499 $ 2,438 $ 2,325 Quarter Average: Total Loans $ 6,936 $ 7,340 $ 6,611 $ 6,473 $ 5,934 Earning Assets $12,486 $11,881 $11,551 $11,826 $12,368 Total Assets $14,412 $13,684 $13,477 $13,781 $14,816 Total Equity $ 2,718 $ 2,564 $ 2,438 $ 2,352 $ 2,304 ---------------------------------------------------------------------- Key Reported Statistics: Net Interest Margin on Average Earning Assets (1) 4.44% 4.85% 4.11% 3.85% 2.71% Net Interest Margin on Average Loans (2) 8.23% 8.17% 8.42% 8.94% 8.30% Risk Adjusted Margin on Average Loans (3) 23.27% 25.27% 25.32% 24.48% 26.55% Adjusted Margin on Average Loans (4) 9.07% 8.56% 7.61% 9.14% 9.55% Non-Interest Income Margin (5) 21.90% 24.09% 26.00% 24.56% 28.22% Return on Average Assets 3.83% 3.19% 2.07% 2.95% 1.81% Return on Equity 20.32% 17.02% 11.44% 17.30% 11.65% Allowance as a Percentage of Loans 7.97% 8.67% 8.72% 9.19% 9.96% Net Credit Loss Rate (6) 6.86% 6.99% 9.10% 9.02% 9.97% 30+ Day Delinquency Rate (7) 4.61% 4.61% 4.74% 5.25% 6.64% Equity to Assets 19.25% 18.90% 18.39% 18.08% 16.29% ---------------------------------------------------------------------- Common Share Statistics: Earnings Per Common Share -- Basic $ 0.48 $ 0.38 $ 0.24 $ 0.35 $ 0.23

Earnings Per Common Share -- Assuming Dilution (8) 0.42 0.34 0.22 0.33 0.22

Book Value Per Share (Period End) $ 9.46 $ 8.98 $ 8.56 $ 8.37 $ 8.01 Total Market Capitalization (Period End) $ 4,834 $ 4,552 $ 4,282 $ 3,814 $ 3,381 Shares Outstanding (Period End) 293.5 293.0 291.9 291.2 290.4 Weighted Average Shares O/S -- Basic 289.6 289.3 288.4 288.1 287.7 Weighted Average Shares O/S -- Diluted (8) 339.7 333.6 332.6 317.6 314.9

Accounts 10.3 10.3 10.3 10.3 10.5 Employees (FTE) 3,263 3,457 3,763 3,980 4,502

(1) Represents interest income, less interest expense, expressed as a percentage of reported average earning assets.

(2) Represents interest income, less interest expense, expressed as a percentage of reported average loans receivable. Interest expense is allocated to reported average loans receivables based on the ratio of reported average loans receivable to reported average earning assets.

(3) Represents interest income, less interest expense and net credit losses, plus non-interest income, expressed as a percentage of reported average loans receivable. Interest expense is allocated to reported average loans receivable based on the ratio of reported average loans receivable to reported average earning assets.

(4) Represents interest income, less interest expense and net credit losses, plus credit product fee income on reported average loans receivable, expressed as a percentage of reported average loans receivable. Interest expense is allocated to reported average loans receivable based on the ratio of reported average loans receivable to reported average earning assets.

(5) Represents reported non-interest income expressed as a percentage of reported average loans receivable.

(6) Represents principal amounts of reported loans receivable that have been charged off, less recoveries, expressed as a percentage of reported average loans receivable during the period; fraud losses are not included.

(7) Represents reported loans receivable that are 30 days or more past due at period end, expressed as a percentage of reported loans receivable at period end.

(8) Amounts reflect the effect of adopting EITF 04-8 in the third quarter of 2004. The Company included the dilutive effect of its contingently convertible notes in its calculation of diluted earnings per common share from the time of issuance of the notes, in accordance with the if-converted methodology under SFAS No. 128. As required by EITF 04-8, the Company has also restated its diluted earnings per common share for prior periods. The adoption of EITF 04-8 had the effect of reducing the Company's diluted earnings per common share by $0.02 for Q4 2004, $0.01 for Q3 2004, $0.02 for Q2 2004, $0.02 for Q1 2004, and $0.01 for Q4 2003.

Providian Financial Corporation Financial & Statistical Summary Managed Financial Measures (unaudited)

-------------------------------------------- 2004 2004 2004 2004 2003 (dollars in millions) Q4 Q3 Q2 Q1 Q4 ---------------------------------------------------------------------- Managed Net Revenue: Net Interest Income $ 580.0 $ 574.0 $ 557.3 $ 566.0 $ 574.2 Non-Interest Income 265.1 337.6 366.1 379.0 377.2 ------------------------------------------------------------------ Total Net Revenue (1) $ 845.1 $ 911.6 $ 923.4 $ 945.0 $ 951.4 ================================================================== Managed Financial Data: Quarter: Net Credit Losses $ 445.6 $ 453.8 $ 525.4 $ 579.6 $ 597.1 Net Change in Reported Allowance for Credit Losses (2) 33.8 33.1 31.7 (57.1) (18.1) ------------------------------------------------------------------ Adjusted Credit Losses $ 479.4 $ 486.9 $ 557.1 $ 522.5 $ 579.0 ==================================================================

Quarter End: Total Loans (3) $18,536 $17,901 $17,245 $16,676 $16,934 Securitized Loans (4) $11,014 $10,594 $10,361 $10,485 $10,653 Total Assets (5) $23,714 $22,764 $22,253 $22,267 $23,198 Total Equity $ 2,776 $ 2,630 $ 2,499 $ 2,438 $ 2,325 Quarter Average: Total Loans $17,864 $17,469 $16,778 $16,705 $16,667 Securitized Loans (4) $10,928 $10,129 $10,167 $10,232 $10,733 Earning Assets $23,414 $22,010 $21,718 $22,058 $23,101 Total Assets $23,546 $22,139 $22,077 $22,429 $23,345 Total Equity $ 2,718 $ 2,564 $ 2,438 $ 2,352 $ 2,304 ---------------------------------------------------------------------- Key Managed Statistics:

Net Interest Margin on Average Earning Assets (6) 9.91% 10.43% 10.27% 10.26% 9.94% Net Interest Margin on Average Loans (7) 13.36% 13.48% 13.75% 14.12% 14.44% Risk Adjusted Margin on Average Loans (8) 9.32% 10.82% 9.95% 9.32% 9.16% Adjusted Margin on Average Loans (9) 9.44% 9.29% 7.45% 6.86% 7.34% Non-Interest Income Margin (10) 5.94% 7.73% 8.73% 9.08% 9.05% Return on Average Assets 2.35% 1.97% 1.26% 1.81% 1.15% Net Credit Loss Rate (11) 9.98% 10.39% 12.53% 13.88% 14.33% 30+ Day Delinquency Rate (12) 6.16% 6.27% 6.44% 7.36% 9.29% Equity to Managed Assets 11.71% 11.55% 11.23% 10.95% 10.02%

(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 change in the reported allowance for credit losses excludes the allowance transferred to loans held for securitization or sale.

(3) Represents all loans receivable from customer accounts that are managed by the Company, including the loans receivable reported on the Company's statement of financial condition and the loans receivable removed or reclassified from the Company's statement of financial condition through the Company's securitizations. Loans receivable amounts exclude estimated uncollectible interest and fees.

(4) 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 during 2004 and 2003. Securitized loans for 2004 and 2003 include the reclassified AIR.

(5) Managed assets represent total assets reported on the Company's statement of financial condition, plus the loans receivable removed or reclassified from loans receivable on its statement of financial condition through securitizations, less the retained interests from securitizations reported on its statement of financial condition.

(6) Represents interest income, less interest expense, expressed as a percentage of managed average earning assets.

(7) Represents interest income, less interest expense, expressed as a percentage of managed average loans receivable. Interest expense is allocated to managed average loans receivable based on the ratio of managed average loans receivable to managed average earning assets.

(8) Represents interest income, less interest expense and net credit losses, plus non-interest income, expressed as a percentage of managed average loans receivable. Interest expense is allocated to managed average loans receivable based on the ratio of managed average loans receivable to managed average earning assets.

(9) Represents interest income, less interest expense and net credit losses, plus credit product fee income on managed average loans receivable, expressed as a percentage of managed average loans receivable. Interest expense is allocated to managed average loans receivable based on the ratio of managed average loans receivable to managed average earning assets.

(10) Represents managed non-interest income expressed as a percentage of managed average loans receivable. Managed non-interest income excludes the interest income reclassification related to certain retained beneficial interests.

(11) Represents principal amounts of managed loans receivable that have been charged off, less recoveries, expressed as a percentage of managed average loans receivable during the period; fraud losses are not included.

(12) Represents managed loans receivable that are 30 days or more past due at period end, expressed as a percentage of managed loans receivable at period end.

Providian Financial Corporation Financial & Statistical Summary Reported Financial Measures

--------------------- 2004 2003 (in millions, except per share and employee Year End Year End data) (unaudited) ---------------------------------------------------------------------- Reported Earnings: Net Interest Income $ 515.4 $ 472.7 Non-Interest Income 1,648.8 1,674.9 --------------------- Total Net Revenue 2,164.2 2,147.6 Provision for Loan Losses 517.3 622.3 Non-Interest Expense 1,046.3 1,201.0 --------------------- Income Before Income Taxes 600.6 324.3 Income Tax Expense 182.0 128.1 --------------------- Net Income $ 418.6 $ 196.2 ---------------------------------------------------------------------- Reported Financial Data: Year to Date: Net Credit Losses $ 544 $ 837 Provision for Credit Losses $ 517 $ 622 Year End: Total Loans $ 7,522 $ 6,281 Total Assets $ 14,421 $ 14,275 Total Equity $ 2,776 $ 2,325 Year to Date Average: Total Loans $ 6,841 $ 6,547 Earning Assets $ 11,937 $ 13,254 Total Assets $ 13,799 $ 15,770 Total Equity $ 2,517 $ 2,187 ---------------------------------------------------------------------- Key Reported Statistics: Net Interest Margin on Average Earning Assets (1) 4.32% 3.57% Net Interest Margin on Average Loans (2) 8.43% 9.74% Risk Adjusted Margin on Average Loans ((3) 24.59% 22.53% Adjusted Margin on Average Loans (4) 8.60% 8.55% Non-Interest Income Margin (5) 24.10% 25.58% Return on Average Assets 3.03% 1.24% Return on Equity 16.63% 8.97% Allowance as a Percentage of Loans 7.97% 9.96% Net Credit Loss Rate (6) 7.94% 12.79% 30+ Day Delinquency Rate (7) 4.61% 6.64% Equity to Assets 19.25% 16.29% ---------------------------------------------------------------------- Common Share Statistics: Earnings Per Common Share -- Basic $ 1.45 $ 0.68

Earnings Per Common Share -- Assuming Dilution (8) $ 1.30 $ 0.66

Book Value Per Share (Period End) $ 9.46 $ 8.01 Total Market Capitalization (Period End) $ 4,834 $ 3,381 Shares Outstanding (Period End) 293.5 290.4 Weighted Average Shares O/S -- Basic 288.9 287.1 Weighted Average Shares O/S -- Diluted (8) 329.7 303.9

Accounts 10.3 10.5 Employees (FTE) 3,263 4,502

(1) Represents interest income, less interest expense, expressed as a percentage of reported average earning assets.

(2) Represents interest income, less interest expense, expressed as a percentage of reported average loans receivable. Interest expense is allocated to reported average loans receivable based on the ratio of reported average loans receivable to reported average earning assets.

(3) Represents interest income, less interest expense and net credit losses, plus non-interest income, expressed as a percentage of reported average loans receivable. Interest expense is allocated to reported average loans receivable based on the ratio of reported average loans receivable to reported average earning assets.

(4) Represents interest income, less interest expense and net credit losses, plus credit product fee income on reported average loans receivable, expressed as a percentage of reported average loans receivable. Interest expense is allocated to reported average loans receivable based on the ratio of reported average loans receivable to reported average earning assets.

(5) Represents reported non-interest income expressed as a percentage of reported average loans receivable.

(6) Represents principal amounts of reported loans receivable that have been charged off, less recoveries, expressed as a percentage of reported average loans receivable during the period; fraud losses are not included.

(7) Represents reported loans receivable that are 30 days or more past due at period end, expressed as a percentage of reported loans receivable at period end.

(8) Amounts reflect the effect of adopting EITF 04-8 in the third quarter of 2004. The Company included the dilutive effect of its contingently convertible notes in its calculation of diluted earnings per common share from the time of issuance of the notes, in accordance with the if-converted methodology under SFAS No. 128. As required by EITF 04-8, the Company has also restated its diluted earnings per common share for prior periods. The adoption of EITF 04-8 had the effect of reducing the Company's diluted earnings per common share by $0.04 for the year ended 2004 and $.02 for the year ended 2003.

Providian Financial Corporation Financial & Statistical Summary Managed Financial Measures

--------------------- 2004 2003 Year End Year End (dollars in millions) (unaudited) ---------------------------------------------------------------------- Managed Net Revenue: Net Interest Income $2,277.3 $2,519.9 Non-Interest Income 1,347.8 1,588.9 ------------------------------------------------------------------ Total Net Revenue (1) $3,625.1 $4,108.8 ================================================================== Managed Financial Data: Year to Date: Net Credit Losses $2,004.4 $2,798.4 Net Change in Reported Allowance for Credit Losses (2) (26.2) (215.0) ------------------------------------------------------------------ Adjusted Credit Losses $1,978.2 $2,583.4 ==================================================================

Year End: Total Loans (3) $ 18,536 $ 16,934 Securitized Loans (4) $ 11,014 $ 10,653 Total Assets (5) $ 23,714 $ 23,198 Total Equity $ 2,776 $ 2,325 Year to Date Average: Total Loans $ 17,206 $ 17,687 Securitized Loans (4) $ 10,365 $ 11,141 Earning Assets $ 22,302 $ 24,394 Total Assets $ 22,509 $ 24,557 Total Equity $ 2,517 $ 2,187 ---------------------------------------------------------------------- Key Managed Statistics:

Net Interest Margin on Average Earning Assets (6) 10.21% 10.33% Net Interest Margin on Average Loans (7) 13.67% 14.91% Risk Adjusted Margin on Average Loans (8) 9.85% 8.07% Adjusted Margin on Average Loans (9) 8.29% 6.32% Non-Interest Income Margin (10) 7.83% 8.98% Return on Average Assets 1.86% 0.80% Net Credit Loss Rate (11) 11.65% 15.82% 30+ Day Delinquency Rate (12) 6.16% 9.29% Equity to Managed Assets 11.71% 10.02%

(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 change in the reported allowance for credit losses excludes the allowance transferred to loans held for securitization or sale.

(3) Represents all loans receivable from customer accounts that are managed by the Company, including the loans receivable reported on the Company's statement of financial condition and the loans receivable removed or reclassified from the Company's statement of financial condition through the Company's securitizations. Loans receivable amounts exclude estimated uncollectible interest and fees.

(4) 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 during 2004 and 2003. Securitized loans for 2004 and 2003 include the reclassified AIR.

(5) 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 statement of financial condition through securitizations, less the retained interests from securitizations reported on its statement of financial condition.

(6) Represents interest income less interest expense, expressed as a percentage of managed average earning assets.

(7) Represents interest income, less interest expense, expressed as a percentage of managed average loans receivable. Interest expense is allocated to managed average loans receivable based on the ratio of managed average loans receivable to managed average earning assets.

(8) Represents interest income, less interest expense and net credit losses, plus non-interest income, expressed as a percentage of managed average loans receivable. Interest expense is allocated to managed average loans receivable based on the ratio of managed average loans receivable to managed average earning assets.

(9) Represents interest income, less interest expense and net credit losses, plus credit product fee income on managed average loans receivable, expressed as a percentage of managed average loans receivable. Interest expense is allocated to managed average loans receivable based on the ratio of managed average loans receivable to managed average earning assets.

(10) Represents managed non-interest income expressed as a percentage of managed average loans receivable. Managed non-interest income excludes the interest income reclassification related to certain retained beneficial interests.

(11) Represents principal amounts of managed loans receivable that have been charged off, less recoveries, expressed as a percentage of managed average loans receivable during the period; fraud losses are not included.

(12) Represents managed loans receivable that are 30 days or more past due at period end, expressed as a percentage of managed loans receivable at period end.

Providian Financial Corporation Delinquency Summary Quarterly (unaudited)

----------------------------------------- 2004 2004 Q4 Q3 ----------------------------------------- % of % of Total Total (dollars in thousands) Loans Loans Loans Loans ---------------------------------------------------------------------- Reported Loans outstanding $ 7,522,401 100.00% $ 7,306,507 100.00% Loans delinquent 30 - 59 days $ 109,014 1.45% $ 109,195 1.49% 60 - 89 days 80,152 1.06% 79,558 1.09% 90 or more days 157,776 2.10% 147,963 2.03% ----------------------------------------------------------------------

Total $ 346,942 4.61% $ 336,716 4.61% ======================================================================

Securitized Loans outstanding (1) $11,013,352 $10,594,908 Loans delinquent 30 - 59 days $ 244,041 $ 248,849 60 - 89 days 182,531 187,693 90 or more days 367,963 348,770 ----------------------------------------- ------------

Total $ 794,535 $ 785,312 ========================================= ============

Managed Loans outstanding $18,535,753 100.00% $17,901,415 100.00% Loans delinquent 30 - 59 days $ 353,055 1.90% $ 358,044 2.00% 60 - 89 days 262,683 1.42% 267,251 1.49% 90 or more days 525,739 2.84% 496,733 2.78% ---------------------------------------------------------------------- - Total $ 1,141,477 6.16% $ 1,122,028 6.27% ======================================================================

----------------------------------------- 2004 2004 Q2 Q1 ----------------------------------------- % of % of Total Total (dollars in thousands) Loans Loans Loans Loans ---------------------------------------------------------------------- Reported Loans outstanding $ 6,883,942 100.00% $ 6,191,078 100.00% Loans delinquent 30 - 59 days $ 106,713 1.55% $ 91,581 1.48% 60 - 89 days 76,073 1.11% 73,418 1.18% 90 or more days 143,225 2.08% 160,242 2.59% ----------------------------------------------------------------------

Total $ 326,011 4.74% $ 325,241 5.25% ======================================================================

Securitized Loans outstanding (1) $10,361,415 $10,485,261 Loans delinquent 30 - 59 days $ 251,973 $ 243,862 60 - 89 days 183,179 206,633 90 or more days 348,995 451,580 ----------------------------------------- ------------

Total $ 784,147 $ 902,075 ========================================= ============

Managed Loans outstanding $17,245,357 100.00% $16,676,339 100.00% Loans delinquent 30 - 59 days $ 358,686 2.08% $ 335,443 2.01% 60 - 89 days 259,252 1.50% 280,051 1.68% 90 or more days 492,220 2.86% 611,822 3.67% ----------------------------------------------------------------------

Total $ 1,110,158 6.44% $ 1,227,316 7.36% ======================================================================

-------------------- 2003 Q4 -------------------- % of Total (dollars in thousands) Loans Loans ------------------------------------------------- Reported Loans outstanding $ 6,281,403 100.00% Loans delinquent 30 - 59 days $ 128,467 2.05% 60 - 89 days 94,916 1.51% 90 or more days 193,748 3.08% -------------------------------------------------

Total $ 417,131 6.64% =================================================

Securitized Loans outstanding (1) $10,653,351 Loans delinquent 30 - 59 days $ 346,630 60 - 89 days 269,107 90 or more days 540,359 -----------------------------------------

Total $ 1,156,096 =========================================

Managed Loans outstanding $16,934,754 100.00% Loans delinquent 30 - 59 days $ 475,097 2.81% 60 - 89 days 364,023 2.15% 90 or more days 734,107 4.33% -------------------------------------------------

Total $ 1,573,227 9.29% =================================================

(1) Excludes the senior seller's interest in the loans receivable transferred in securitizations, which is included in reported loans receivable. Includes the seller's interest subordinated component, or AIR, which is reported in due from securitizations on the Company's statement of financial condition.

Providian Financial Corporation Reported and Managed Monthly Net Credit Loss and Delinquency Rates December 31, 2004

Providian Financial Corporation's reported and managed net credit loss rates for the month ended December 31, 2004 and its 30+ day reported and managed delinquency rates as of December 31, 2004 are presented in the following table. (unaudited)

Reported Managed ---------------------------

Net Credit Loss Rate (1)(2) 6.89% 9.73% 30+ Day Delinquency Rate (3) 4.61% 6.16%

(1) Represents the principal amounts of 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 loans receivable during the period, multiplied by 12. Recoveries include proceeds from the sale of charged-off assets to third parties.

(2) The December 2004 reported net credit loss rate reflects an increase during the month of approximately 17 basis points due to the continued impact of the previously disclosed modification in the third quarter of 2004 of the criteria for recognizing charge-offs for certain loans that are subject to payment plans under a consumer debt management program. This modification also continued to affect the managed net credit loss rate in December 2004, increasing it by approximately 30 basis points.

(3) Represents loans that are 30+ days past due as of the last day of the monthly period, divided by the total loans as of the last day of the monthly period.

Reported 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. Managed net credit loss and delinquency rates are derived by adjusting the reported financial information to add back securitized loan balances. A reconciliation of reported and managed net credit losses, 30+ day delinquencies and loans receivable for the month ended December 31, 2004 is provided in the following table. (unaudited)

Securitized (dollars in thousands) Reported (1) Managed ---------------------------------------------------------------------- Net Credit Losses $ 39,043 $ 107,647 $ 146,690 Average Loans Receivable Balance $6,797,193 $11,303,117 $18,100,310 Net Credit Loss Rate 6.89% 9.73%

30+ Day Delinquencies $ 346,942 $ 794,535 $ 1,141,477 End of Month Loans Receivable Balance $7,522,401 $11,013,352 $18,535,753 30+ Day Delinquency Rate 4.61% 6.16%

--------------------------------

(1) The securitized amounts provide a reconciliation between reported and managed financial disclosures in accordance with the Securities and Exchange Commission's Regulation G. The securitized amounts are not the equivalent of loan balances transferred to the Company's securitization trust because they exclude the senior seller's interest in such loans. The senior seller's interest, which is an undivided interest in the loans transferred to the securitization trust, is included in reported loans receivable. The securitized amounts include the seller's interest subordinated component, or AIR, which represents the Company's retained interest in outstanding accrued interest and fees that are allocated to security holders' interests and is reported in due from securitizations on the Company's statement of financial condition.

Providian Financial Corporation Allowance for Credit Losses

Three months ended Year ended December 31, December 31, ---------------------------------------------------------------------- (dollars in thousands) 2004 2003 2004 2003 ----------------------------------------------------------------------

Balance at beginning of period $ 633,531 $ 643,982 $ 625,886 $ 1,012,461 Provision for credit losses 85,075 129,793 517,295 610,469 Fair value adjustment -- loans held for securitization or sale (1) - - - 11,875 Credit losses (134,450) (192,146) (643,299) (1,039,775) Recoveries 15,547 44,257 99,821 202,462 Credit losses on loans held for securitization or sale (1) - - - (171,606) ---------------------------------------------------------------------- Balance at end of period $ 599,703 $ 625,886 $ 599,703 $ 625,886 ======================================================================

(1) The 2003 fair value adjustment of $11.9 million reflects an increase in the allowance for credit losses as a result of the mark to market of the Providian Bank loans receivable reclassified as loans held for securitization or sale in the year ended December 31, 2003. The decrease in the allowance for credit losses of $171.6 million in the year ended December 31, 2003 represents the allowance for credit losses that, together with the par value of the Providian Bank loans receivable, was transferred to loans held for securitization or sale as part of the adjustment of the Providian Bank loans to the fair value of $667.1 million.

Providian Financial Corporation and Subsidiaries Consolidated Statements of Financial Condition

Year ended December 31, ---------------------------------------------------------------------- (dollars in thousands, except per share data) 2004 2003 ---------------------------------------------------------------------- (unaudited) Assets Cash and cash equivalents $ 272,397 $ 544,554 Federal funds sold and securities purchased under resale agreements 440,351 3,235,189 Investment securities: Available-for-sale (at market value, amortized cost of $4,083,634 at December 31, 2004 and $1,880,107 at December 31, 2003) 4,072,695 1,859,150

Loans receivable 7,522,401 6,280,957 Less allowance for credit losses (599,703) (625,886) ------------------------- Loans receivable, net 6,922,698 5,655,071

Due from securitizations 2,372,862 2,377,963 Deferred taxes - 224,505 Premises and equipment, net 52,640 84,198 Interest receivable 57,807 44,850 Other assets 229,452 249,867 ---------------------------------------------------------------------- Total assets $14,420,902 $14,275,347 ======================================================================

Liabilities Deposits: Non-interest bearing $ 53,398 $ 63,016 Interest bearing 9,417,606 10,038,041 ---------------------------------------------------------------------- 9,471,004 10,101,057

Short-term borrowings 342,080 108,828 Long-term borrowings 1,119,278 1,163,521 Accrued expenses and other liabilities 712,589 576,492 ---------------------------------------------------------------------- Total liabilities 11,644,951 11,949,898

Shareholders' Equity Common stock, par value $0.01 per share (authorized: 800,000,000 shares; issued: December 31, 2004--293,980,878 shares; December 31, 2003--290,753,031 shares) 2,940 2,908 Retained earnings 2,801,645 2,350,446 Cumulative other comprehensive income (6,833) (12,480) Common stock held in treasury--at cost (December 31, 2004--479,464 shares; December 31, 2003--305,871 shares) (21,801) (15,425) ---------------------------------------------------------------------- Total shareholders' equity 2,775,951 2,325,449 ---------------------------------------------------------------------- Total liabilities and shareholders' equity $14,420,902 $14,275,347 ======================================================================

Providian Financial Corporation and Subsidiaries Consolidated Statements of Income

Three months ended Twelve months ended December 31, December 31, ---------------------------------------------------------------------- (dollars in thousands, except per share data) 2004 2003 2004 2003 ---------------------------------------------------------------------- (unaudited) (unaudited) Interest Income Loans $209,164 $191,901 $ 860,413 $ 950,758 Federal funds sold and securities purchased under resale agreements 6,982 10,200 17,496 44,198 Other 42,127 24,715 133,149 111,515 ---------------------------------------------------------------------- Total interest income 258,273 226,816 1,011,058 1,106,471

Interest Expense Deposits 103,239 127,706 427,822 581,551 Borrowings 16,328 15,465 67,834 52,239 ---------------------------------------------------------------------- Total interest expense 119,567 143,171 495,656 633,790 ---------------------------------------------------------------------- Net interest income 138,706 83,645 515,402 472,681

Provision for credit losses 85,075 129,793 517,295 622,344 ----------------------------------------------------------------------

Net interest income (loss) after provision for credit losses 53,631 (46,148) (1,893) (149,663)

Non-Interest Income Servicing and securitization 242,166 234,881 1,078,361 849,283 Credit product fee income 133,437 166,408 555,160 759,642 Other 4,086 17,329 15,294 66,012 ---------------------------------------------------------------------- 379,689 418,618 1,648,815 1,674,937

Non-Interest Expense Salaries and employee benefits 67,438 76,815 287,186 359,696 Solicitation and advertising 57,007 36,224 232,365 193,652 Occupancy, furniture, and equipment 35,381 30,260 107,157 121,921 Data processing and communication 28,011 29,483 109,850 124,014 Other 76,468 88,749 309,779 401,718 ---------------------------------------------------------------------- 264,305 261,531 1,046,337 1,201,001

Income before income taxes 169,015 110,939 600,585 324,273 Income tax expense 30,901 43,821 181,951 128,088 ---------------------------------------------------------------------- Net Income $138,114 $ 67,118 $ 418,634 $ 196,185 ======================================================================

---------------------------------------------------------------------- Earnings per common share -- basic $ 0.48 $ 0.23 $ 1.45 $ 0.68 ======================================================================

---------------------------------------------------------------------- Earnings per common share -- assuming dilution $ 0.42 $ 0.22 $ 1.30 $ 0.66 ======================================================================

Weighted average common shares outstanding -- basic (000) 289,641 287,682 288,905 287,125 ======================================================================

Weighted average common shares outstanding -- assuming dilution (000) 339,657 314,852 329,702 303,932 ======================================================================

Providian National Bank Total Risk-Based Capital Ratios as of December 31, 2004 (1)

Providian National Bank ------------- Call Report Basis (2) 22.81% Applying Subprime Guidance (3) 19.54%

(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 December 31, 2004 Call Report.

(3) Total risk-based capital ratios after applying the increased risk weightings under the Expanded Guidance for Subprime Lending Programs ("Subprime Guidance").

Providian Financial Corporation Financial & Statistical Summary Reconciliation of Reported and Managed Financial Measures

-------------------------------------------------------- (dollars in Reported Managed Reported Managed millions) 2004 Securization 2004 2004 Securization 2004 (unaudited) QTR 04 Adjustment QTR 04 QTR 03 Adjustment QTR 03 ---------------------------------------------------------------------- Earnings: Interest Income Loans $ 209.2 $ 528.1 $ 737.3 $ 223.7 $ 497.5 $ 721.2 Interest Income Invest- ments 49.1 (21.9) 27.2 39.7 (19.9) 19.8 Interest Expense 119.6 64.9 184.5 119.4 47.6 167.0 -------------------------------------------------------- Net Interest Income $ 138.7 $ 441.3 $ 580.0 $ 144.0 $ 430.0 $ 574.0 Non- Interest Income 379.7 (114.6) 265.1 442.1 (104.5) 337.6 -------------------------------------------------------- Total Net Revenue $ 518.4 $ 326.7 $ 845.1 $ 586.1 $ 325.5 $ 911.6 --------------------------------------------------------

------------- Financial Data: Quarter: Net Credit Losses $ 119 $ 327 $ 446 $ 128 $ 326 $ 454

Quarter End: Total Loans $ 7,522 $11,014 $18,536 $ 7,307 $10,594 $17,901 Total Assets $14,421 $ 9,293 $23,714 $13,915 $ 8,849 $22,764

Quarter Average: Total Loans $ 6,936 $10,928 $17,864 $ 7,340 $10,129 $17,469

Earning Assets $12,486 $10,928 $23,414 $11,881 $10,129 $22,010 Total Assets $14,412 $ 9,134 $23,546 $13,684 $ 8,456 $22,139

-------------------------------------------------------- (dollars in Reported Managed Reported Managed millions) 2004 Securization 2004 2004 Securization 2004 (unaudited) QTR 02 Adjustment QTR 02 QTR 01 Adjustment QTR 01 ---------------------------------------------------------------------- Earnings: Interest Income Loans $ 209.6 $ 493.7 $ 703.3 $ 217.9 $ 505.1 $ 723.0 Interest Income Invest- ments 32.1 (14.2) 17.9 29.7 (11.0) 18.7 Interest Expense 123.0 40.9 163.9 133.7 42.0 175.7 -------------------------------------------------------- Net Interest Income $ 118.7 $ 438.6 $ 557.3 $ 113.9 $ 452.1 $ 566.0 Non- Interest Income 429.6 (63.5) 366.1 397.5 (18.5) 379.0 -------------------------------------------------------- Total Net Revenue $ 548.3 $ 375.1 $ 923.4 $ 511.4 $ 433.6 $ 945.0 --------------------------------------------------------

------------- Financial Data: Quarter: Net Credit Losses $ 150 $ 375 $ 525 $ 146 $ 434 $ 580 - Quarter End: Total Loans $ 6,884 $10,361 $17,245 $ 6,191 $10,485 $16,676 Total Assets $13,592 $ 8,661 $22,253 $13,487 $ 8,780 $22,267 - Quarter Average: Total Loans $ 6,611 $10,167 $16,778 $ 6,473 $10,232 $16,705

Earning Assets $11,551 $10,167 $21,718 $11,826 $10,232 $22,058 Total Assets $13,477 $ 8,600 $22,077 $13,781 $ 8,648 $22,429

---------------------------- (dollars in Reported Managed millions) 2003 Securization 2003 (unaudited) QTR 04 Adjustment QTR 04 ------------------------------------------ Earnings: Interest Income Loans $ 191.9 $ 542.7 $ 734.6 Interest Income Invest- ments 34.9 (11.2) 23.7 Interest Expense 143.2 40.9 184.1 ---------------------------- Net Interest Income $ 83.6 $ 490.6 $ 574.2 Non- Interest Income 418.6 (41.4) 377.2 ---------------------------- Total Net Revenue $ 502.2 $ 449.2 $ 951.4 ----------------------------

------------- Financial Data: Quarter: $ 148 $ 449 $ 597 Net Credit Losses -

Quarter End: $ 6,281 $10,653 $16,934 Total Loans $14,275 $ 8,923 $23,198 Total Assets -

Quarter Average: $ 5,934 $10,733 $16,667 Total Loans

Earning Assets $12,368 $10,733 $23,101 Total Assets $14,816 $ 8,529 $23,345

Providian Financial Corporation Financial & Statistical Summary Reconciliation of Reported and Managed Financial Measures

-------------------------------------------------------- Reported Managed Reported Managed (dollars in Year Securi- Year Year Securi- Year millions) Ended zation Ended Ended zation Ended (unaudited) 2004 Adjustment 2004 2003 Adjustment 2003 ---------------------------------------------------------------------- Earnings: Interest Income Loans $ 860.4 $2,024.3 $2,884.7 $ 950.8 $2,272.9 $3,223.7 Interest Income Invest- ments 150.6 (66.9) 83.7 155.7 (50.3) 105.4 Interest Expense 495.6 195.5 691.1 633.8 175.4 809.2 -------------------------------------------------------- Net Interest Income $ 515.4 $1,761.9 $2,277.3 $ 472.7 $2,047.2 $2,519.9 Non- Interest Income 1,648.8 (301.0) 1,347.8 1,674.9 (86.0) 1,588.9 -------------------------------------------------------- Total Net Revenue $2,164.2 $1,460.9 $3,625.1 $2,147.6 $1,961.2 $4,108.8 --------------------------------------------------------

------------- Financial Data: Year to Date: Net Credit Losses $ 544 $ 1,461 $ 2,004 $ 837 $ 1,961 $ 2,798

Year End: Total Loans $ 7,522 $ 11,014 $ 18,536 $ 6,281 $ 10,653 $ 16,934 Total Assets $ 14,421 $ 9,293 $ 23,714 $ 14,275 $ 8,923 $ 23,198 Year Average: Total Loans $ 6,841 $ 10,365 $ 17,206 $ 6,547 $ 11,140 $ 17,687

Earning Assets $ 11,937 $ 10,365 $ 22,302 $ 13,254 $ 11,140 $ 24,394 Total Assets $ 13,799 $ 8,710 $ 22,509 $ 15,770 $ 8,787 $ 24,557 ----------------------------------------------------------------------

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 January 20, 2005 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.

Providian Financial Corporation and Subsidiaries Reconciliation of Non-Interest Expense

Three months ended Twelve months ended December 31, December 31, ---------------------------------------------------------------------- (dollars in thousands) (unaudited) 2004 2003 2004 2003 ----------------------------------------------------------------------

Non-Interest Expense Salaries and employee benefits $ 67,438 $ 76,815 $ 287,186 $ 359,696 Solicitation and advertising 57,007 36,224 232,365 193,652 Occupancy, furniture, and equipment 35,381 30,260 107,157 121,921 Data processing and communication 28,011 29,483 109,850 124,014 Other 76,468 88,749 309,779 401,718 ---------------------------------------------------------------------- Total non-interest expense 264,305 261,531 1,046,337 1,201,001 Less: solicitation and advertising (57,007) (36,224) (232,365) (193,652) ---------------------------------------------------------------------- Total non-interest expense, excluding solicitation and advertising $207,298 $225,307 $ 813,972 $1,007,349 ======================================================================

--30--EB/sf*

CONTACT: Providian Financial Corporation Jack Carsky, 415-278-4977 (Investors) Bill Horning, 415-278-4602 (Investors) Alan Elias, 415-278-4189 (Media) Beth Haiken, 415-278-4889 (Media)

KEYWORD: CALIFORNIA INDUSTRY KEYWORD: BANKING EARNINGS CONFERENCE CALLS SOURCE: Providian Financial Corporation

Copyright Business Wire 2005