Providian Financial Corporation Reports Second Quarter 2005 Earnings Results; Earnings up Strongly over Prior Year; Company Posts Solid Loan Growth; Credit Quality Continues to Improve

Business Wire, July 21, 2005

SAN FRANCISCO -- Providian Financial Corporation (NYSE:PVN) today announced net income for the second quarter of 2005 of $225.3 million, or $0.67 per diluted share, compared to net income of $49.9 million, or $0.16 per diluted share, in the second quarter of 2004. The results were positively affected by the resolution of two outstanding tax audits that resulted in a benefit to net income of $0.18 per diluted share. "We are quite pleased with the results of the second quarter," said Joseph Saunders, Providian's chairman and chief executive officer. "The results continue the tremendous progress with which we began this year and put us on a nice trajectory as we prepare for our merger with Washington Mutual."

Financial Highlights -- Reported Basis

Net revenues on a reported basis, comprised of reported net interest income and reported non-interest income, totaled $610.3 million in the second quarter of 2005, compared to $516.7 million in the second quarter of 2004. The net interest margin on average reported loans in the second quarter of 2005 was 8.44% and the non-interest margin on average reported loans was 23.31%. The Company's risk adjusted margin on average reported loans expanded to 25.80% from 23.57% in the second quarter of 2004.

Reported net credit losses in the second quarter of 2005 were $113.9 million, resulting in a reported net credit loss rate of 5.95%, compared to 9.10% in the second quarter of 2004. The Company's reported 30 day delinquency rate at the end of the second quarter of 2005 was 3.23%, down 151 basis points from 4.74% at the end of the second quarter of 2004.

Reported loans receivable at the end of the second quarter of 2005 were $6.87 billion compared to $6.88 billion at the end of the second quarter of 2004.

Financial Highlights -- Managed Basis

Net revenues on a managed basis, comprised of net interest income and non-interest income from both reported and securitized loans, totaled $873.6 million in the second quarter of 2005, compared to $891.7 million in the second quarter of 2004. The net interest margin on average managed loans in the second quarter of 2005 was 12.71% and the non-interest margin on average managed loans was 6.72%. The risk-adjusted margin on average managed loans increased to 11.12% in the second quarter from 9.18% in the second quarter of 2004.

Managed net credit losses in the second quarter of 2005 were $377.2 million, resulting in a managed net credit loss rate of 8.31%, compared to 12.53% in the second quarter of 2004 and 8.43% in the first quarter of this year. The Company's managed 30 day delinquency rate at the end of the second quarter of 2005 was 4.84% compared to 6.44% at the end of the second quarter of 2004.

Managed loans receivable at the end of the second quarter of 2005 were $18.6 billion, an increase of $477 million over the first quarter of 2005.

Other Second Quarter Results

The Company added approximately 550,000 gross new accounts in the second quarter of 2005, a net increase of 100,000 accounts for the period.

Non-interest expense for the second quarter of 2005 was $224.2 million, compared to $259.1 million in the second quarter of 2004. Non-interest expense, excluding solicitation and advertising, in the second quarter was $159.9 million.

The Company ended the second quarter of 2005 with total equity of $3.08 billion and an allowance for credit losses of $421.5 million, which together represent approximately 51% of reported loans and approximately 19% of managed loans. Cash and investments ended the quarter at approximately $4.9 billion, representing approximately 35% of total reported assets and approximately 20% of total managed assets.

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 create 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 the "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, or assumptions or in the interpretation or application of such rules, policies, or assumptions; changes to or the restatement of prior period financial statements or results as the result of accounting errors or other circumstances; 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, 2004 under the headings "Cautionary Statement Regarding Forward-Looking Information" and "Risk Factors." Other risks and uncertainties include matters related to the proposed merger with Washington Mutual, Inc. (including, among others, risks related to stockholder and regulatory approvals, integration issues, and the realization of expected growth opportunities and cost savings from the merger). 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.