Providian NB

Providian NB

O LIMITED PURPOSE Comptroller of the Currency Administrator of National Banks Washington, DC 20219 Public Disclosure November 29, 2004 COMMUNITY REINVESTMENT ACT PERFORMANCE EVALUATION Providian National Bank Charter Number: 1333 295 Main Street Tilton, NH 03276 Office of the Comptroller of the Currency Special Supervision 250 E Street SW Washington, D.C. 20219-0001 NOTE: This document is an evaluation of this institution’s record of meeting the credit needs of its entire community, including neighborhoods, consistent with safe and sound operation of the institution. This evaluation is not, nor should it be construed as, an assessment of the financial condition of this institution. The rating assigned to this institution does not represent an analysis, conclusion, or opinion of the federal financial supervisory agency concerning the safety and soundness of this financial institution. Charter Number: 1333 Institution’s CRA rating: This institution is rated “Satisfactory.” The conclusions that support this rating are: Providian National Bank (PNB) demonstrates a high level of qualified investment and service activities, particularly investments that are not routinely provided by private investors. PNB also demonstrates an adequate level of community development lending. PNB demonstrates extensive use of innovative qualified investments and occasional use of innovated community development services. In addition, PNB also extends complex reverse mortgage loans to low-to-moderate income (LMI) individuals. PNB demonstrates excellent responsiveness to credit and community development needs in its assessment area (AA). During the evaluation period, a limited number of PNB’s credit card customers received confusing and misleading messages in their monthly account statements. Although management has taken appropriate corrective action, the issue negatively impacted this rating. Scope of the Examination In evaluating PNB’s performance under the CRA, we reviewed community development (CD) activities from February 21, 2001 through November 29, 2004. We reviewed the level and nature of qualified investments, CD lending, and CD services. At the prior examination dated February 20, 2001, we rated PNB “Satisfactory.” If a bank has adequately addressed its assessment area (AA) needs, the Comptroller of the Currency (OCC) considers CD activities that the bank submits that benefit areas outside of its AA in the evaluation of its performance. PNB has adequately addressed the needs of its AA, and therefore, outside of AA qualified investments and CD services were considered in evaluating its performance. Description of Institution Providian National Bank is a Competitive Equality Banking Act (CEBA) limited purpose bank specializing in credit card lending and deposit products. The main office of PNB is located in Tilton, New Hampshire, with a single branch office located in Belmont, New Hampshire. PNB offers proprietary credit card products nationwide under the Visa and MasterCard brands and in collaboration with third-party affinity partners. PNB’s credit card loans are sourced primarily through direct mail solicitations. As of September 30, 2004, bank assets totaled $13.1 billion. 1 Charter Number: 1333 PNB employs approximately 3,460 individuals with major employment centers for PNB’s credit card activities in San Francisco and Pleasanton, California, and Arlington, Austin, El Paso and San Antonio, Texas. PNB is the result of the 1997 merger of PNB, Concord, New Hampshire, into First Deposit National Bank, Tilton, New Hampshire, with the combined bank retaining the PNB name. As an accommodation to customers who used the products and services of the predecessor institutions, PNB offers commercial and consumer loans and deposit products to local residents at PNB’s New Hampshire main office and branch. Generally, CEBA banks cannot make commercial loans nor accept any savings or time deposits less than $100 thousand. PNB, however, is allowed to provide commercial loans and to accept savings or time deposits at its New Hampshire main office and branch, as a result of the CEBA-grandfather provision. This provision allows “non-bank banks” chartered prior to March 5, 1987, to conduct these activities if they could lawfully conduct them prior to the CEBA being enacted. PNB was originally chartered in 1853 and designated as a limited purpose bank for CRA purposes on April 19, 1996. Lending activities at the main office and branch amount to less than 1% of managed assets. PNB is a wholly owned subsidiary of Providian Financial Corporation (PFC), a Delaware corporation based in San Francisco, California. As of September 30, 2004, PFC reported total assets of $13.9 billion. Effective December 31, 2003, PNB acquired substantially all of the assets and assumed the liabilities of PFC’s other wholly owned bank subsidiary, Providian Bank (PB), a Utah industrial loan corporation organized under the laws of Utah and a member of the FDIC. Immediately following the transaction, PB was merged with and into PNB. During the course of the evaluation period, PNB underwent significant changes in its financial condition, management, and business strategy. In late 2001, as a result of deterioration in its asset quality, PNB entered into a written agreement with the OCC to address various safety and soundness concerns. From year-end 2000 to year-end 2001 PNB’s earnings dropped from $665 to $189 million. PNB’s on-balance sheet Report of Condition and Income (Call Report) assets dropped from over $17 billion to just over $13 billion from year-end 2001 to the most recent quarter-end of September 30, 2004. While the financial condition of PNB has recently improved, during the majority of the evaluation period PNB experienced significant financial challenges. These challenges had the potential to impact PNB’s capacity in helping to meet the credit and CD needs of its AA. Table 1: Financial Information (000s) Most Recent Average for Year-end Year-end Year-end Quarter-end Evaluation 2001 2002 2003 9/30/04 Period Tier 1 Capital $2,245,166 $2,611,567 $3,003,755 $3,297,291 $2,789,445 Total Income $5,116,136 $3,797,749 $2,733,944 $2,671,681* $3,579,878 Net Operating Income $188,063 $200,226 $228,399 $391,381* $252,017 Total Assets $17,259,913 $14,798,877 $13,769,393 $13,145,483 $14,743,417 Pass-Through Receivables $32,152,541 $18,272,147 $16,926,377 $17,628,551 $21,244,904 Source: Consolidated Report of Condition and Income and bank reported data. *Annualized data reported. 2 Charter Number: 1333 Description of Assessment Area PNB’s main office and branch are located in non-metropolitan central New Hampshire. Since 1998, PNB’s AA has included the towns of Laconia, Gilmanton, Belmont, Sanbornton and Tilton in Belknap County, and Northfield, Franklin, Hill, Boscawen, Canterbury, Loudon and Concord in Merrimack County. The AA meets the requirements of the CRA and does not arbitrarily exclude any low- or moderate-income (LMI) geographies. The following section presents general AA demographic and economic information and a discussion of CD needs. Table 2: AA Description Number Low Moderate Middle Upper Tracts 25 0% 8% 80% 12% Families 27,490 17%* 19%* 26%* 37%* Businesses 5,308 0%** 0%** 85%** 15%** Source: Demographic Data - 2000 U.S. Census, Dun & Bradstreet Data. * Represents families by income level. ** Represents businesses by income level of census tract. Of the 25 census tracts included in PNB’s AA, three are designated upper-income (two in Concord and one in Canterbury), down from five in the 1990 census; twenty are designated middle-income; and, two have moved from middle to moderate-income (one in Concord and one in Laconia). There are no low-income CTs in PNB’s AA. The 2004 estimated NH non- metropolitan area median family income for PNB’s AA was $59,6001. The AA is located in a predominantly rural region of the state. Communities of low population per square mile, extensive open space, and traditional New England community centers surround the cities of Laconia (population of 19,4732) in Belknap County and Concord (population of 40,687) in Merrimack County. Residents of the outlying towns, and other labor market towns outside of the two county areas, generally, travel to these cities for employment. The area has a long history of manufacturing and, in recent decades, a growing retail and service sector. These sectors are geared to a population of seasonal residents and tourists drawn to both recreational activities on the lakes, ski resorts, and the New Hampshire International Speedway in Loudon. Laconia is also home to Lakes Region General Hospital. Concord, the capital of New Hampshire, offers job opportunities in state government, insurance, retail, manufacturing, and long-term and acute health care. The full state of New Hampshire is considered an overlay to PNB’s AA, due primarily to the limited CD capacity of the immediate AA and the benefit of most statewide CD programs on the broader statewide area that includes PNB’s AA. During the evaluation period, the New Hampshire economy slowed. Although the area unemployment rate is below the national average, it moved steadily upward between 2000 and 2003. The top four job categories in both counties are retail, followed by manufacturing, health 1 US Department of Housing and Urban Development 2 Unless otherwise noted, figures are from the 2000 US Census. 3 Charter Number: 1333 care and accommodations/food. Between 2001 and mid-year 2003, Belknap County lost 25% of its manufacturing jobs with modest gains in retail and health occupations. In Merrimack County, during the same time period, 15% of the manufacturing jobs were lost while the health, retail and accommodation/food sectors showed gains.3 Of particular concern is the difference in wages between job-gaining industries and job-losing industries. In New Hampshire, wages in industries gaining jobs are 35% lower than in industries losing jobs. The availability of housing in the region, including affordable housing, is low and the cost of housing, for both rental and purchase, continues to climb.

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