Exhibit 99.3
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WRITTEN AGREEMENT BETWEEN PROVIDIAN BANK AND
THE FEDERAL DEPOSIT INSURANCE CORPORATION
WHEREAS, Providian Bank, Salt Lake City, Utah ("Bank") is an insured state
nonmember bank as that term is defined in section 3(e)(2) of the Federal Deposit
Insurance Act ("FDI Act"), 12 U.S.C. ss. 1813(e)(2);
WHEREAS, the Federal Deposit Insurance Corporation ("FDIC") is authorized
to enter into this Written Agreement ("Agreement") with the Bank pursuant to
section 9 of the FDI Act, 12 U.S.C. ss. 1819(a)(Seventh);
WHEREAS, the Bank and the FDIC are of the opinion that the Agreement is
necessary to protect the interests of the Bank and its depositors; and
WHEREAS, on November 21, 2001, the Bank's board of directors ("Board") at
a duly constituted meeting adopted a resolution authorizing and directing Xxxx
Xxxxx, President, to enter into this Agreement on behalf of the Bank.
NOW, THEREFORE, the Bank and the FDIC agree as follows:
ARTICLE I
COMPLIANCE COMMITTEE
(1) Within three (3) business days after the date of this Agreement, the
Board shall create a committee which shall include at least three independent
members of the Board (directors who are not also officers or employees of the
Bank; directors, officers, or employees of Providian Financial Corporation
("PFC"), San Francisco, California; or directors, officers, or employees of any
other subsidiary of PFC) and shall be responsible for ensuring, monitoring and
coordinating the Bank's compliance and implementation of the provisions of this
Agreement (the "Compliance Committee").
(2) The Compliance Committee shall meet at least monthly.
(3) Within fifteen (15) days following the end of each month, the
Compliance Committee shall submit a written progress report to the Board setting
forth in detail:
(a) actions taken to comply with each Article of this Agreement;
and
(b) the results of those actions.
(4) Within twenty (20) days following the end of each month, the Board
shall forward a copy of the Compliance Committee's report, with any additional
comments by the Board, to the FDIC and the Commissioner for Financial
Institutions for the State of Utah ("Commissioner") .
ARTICLE II
DECLARATION OF DIVIDENDS AND REDUCTIONS IN CAPITAL
(1) Effective immediately, the Bank shall not declare or pay a dividend,
or make a capital distribution, without obtaining the prior written consent of
the FDIC and the Commissioner.
ARTICLE III
RESTRICTIONS ON GROWTH
(1) Effective immediately, the Bank shall not solicit, authorize or accept
any new accounts within the "Standard Market." This prohibition shall not apply
to pre-approved accounts already mailed out or applications in process as of the
date of execution of this Agreement.
(2) For purposes of this Article, "Standard Market" shall mean all of the
Bank's loan segments identified by the Bank as being in the "Standard Market"
and all other loans with similar credit characteristics and/or credit scores,
including but not limited to Standard Market segments identified by the Bank as
being in the Medium, Low/VeryLow, Other Aria+ Pay Pal, Aria Discontinued, New
Secured, High Risk/Starter, No Credit, and Direct TV segments.
(3) On or before December 7, 2001, the Bank shall prepare and submit to
the FDIC and the Commissioner a plan to restrict the growth of the Bank ("Growth
Restriction Plan"). The Growth Restriction Plan must be acceptable to the FDIC
and the Commissioner and shall include, at a minimum:
(a) limitations on credit line increases within the Standard
Market accounts;
(b) limitations on new accounts and credit line increases in the
remaining segments of accounts, and tightened credit standards on
all higher risk accounts in these segments;
(c) a preclusion from increasing the Bank's average total assets
for any calendar quarter (commencing with the quarter ending
December 31, 2001) more than two and one-half (2 1/2) percent over
its average total assets for the preceding calendar quarter, unless
and until the Bank's Capital Plan pursuant to Article IV has been
accepted by the FDIC and the Commissioner; and
(d) in calculating the Bank's growth under paragraph 3(c) above,
the Bank shall use Item 9 Total Assets from Schedule RC-K of the
Bank's Report of Condition.
(4) Upon completion, the Growth Restriction Plan shall be submitted to the
FDIC and the Commissioner for prior determination of no supervisory objection.
Upon receiving a written determination of no supervisory objection from the FDIC
and the Commissioner, the Bank shall implement and thereafter adhere to the
Growth Restriction Plan. The Board shall review and update the Growth
Restriction Plan on a quarterly basis, or more frequently if requested by the
FDIC and the Commissioner. Copies of the reviews and updates shall be submitted
to the FDIC and the Commissioner.
(5) The Board shall ensure that the Bank has processes, personnel, and
control systems to ensure implementation of and adherence to the Growth
Restriction Plan developed pursuant to this Article.
ARTICLE IV
CAPITAL PLAN
(1) On or before November 30, 2001, the Bank shall prepare and submit to
the FDIC and the Commissioner a three-year Capital Plan (the "Capital Plan"),
provided that a draft of the Capital Plan shall be submitted on November 26,
2001. The Capital Plan must be acceptable to the FDIC and the Commissioner and
shall include, at a minimum:
(a) establishment and maintenance of adequate capital in an amount
consistent with the capital levels prescribed by the FFIEC EXPANDED
GUIDANCE FOR SUBPRIME LENDING PROGRAMS in Financial Institution
Letter ("FIL") -09-2001;
(b) projections for growth and capital
levels based upon a detailed analysis of the Bank's assets,
liabilities, earnings, fixed assets, and off-balance sheet
activities;
(c) projections of the sources and timing of additional capital
to meet the Bank's current and future needs;
(d) the primary source(s) from which the Bank will strengthen its
capital structure to meet the Bank's needs;
(e) a contingency plan that identifies alternative sources should
the primary source(s) under subparagraph (d) above be unavailable;
(f) a dividend policy that permits the declaration of a dividend
only when the Bank is in compliance with its approved Capital Plan;
and
(g) the execution of a Capital and Liquidity Assurances Agreement
entered into by and between the Bank and PFC.
(2) The terms of the Capital and Liquidity Assurances Agreement referenced
in Paragraph (1) of this Article shall provide, among other things, that PFC
commits to support, through capital contributions in the form of cash or other
qualified assets, each of the capital levels set forth in the Capital Plan as
accepted by the FDIC and the Commissioner and the liquidity needs of the Bank.
(3) Upon completion, the Bank's Capital Plan shall be submitted to the
FDIC and the Commissioner for prior determination of no supervisory objection.
Upon receiving a written determination of no supervisory objection from the FDIC
and the Commissioner, the Bank shall implement and thereafter adhere to the
Capital Plan. The Board shall review and update the Bank's Capital Plan on a
quarterly basis, or more frequently if requested by the FDIC and the
Commissioner. Copies of the reviews and updates shall be submitted to the FDIC
and the Commissioner.
(4) The Board shall ensure that the Bank has processes, personnel, and
control systems to ensure implementation of and adherence to the Capital Plan
developed pursuant to this Article.
(5) If the FDIC and the Commissioner determine, in their sole discretion,
that the Bank has failed to submit an acceptable Capital Plan as required by
this Article, or has failed to implement or adhere to the Capital Plan, then,
within ten (10) business days of receiving written notice from the FDIC and the
Commissioner of such fact, if requested by the FDIC and the Commissioner, the
Bank shall develop and submit to the FDIC and the Commissioner for their review
and prior determination of no supervisory objection a Contingency Plan detailing
the Board's proposal to either: (i) sell or merge the Bank, or (ii) liquidate
the Bank in a manner that will result in no loss or cost to the FDIC. The Bank
agrees that it will not begin the liquidation process prior to securing the
FDIC's and the Commissioner's written determination of no supervisory objection
to the Contingency Plan. After the FDIC and the Commissioner have advised the
Bank in writing that they do not take supervisory objection to the Contingency
Plan, the Board shall immediately implement, and shall thereafter ensure
adherence to, the terms of the Contingency Plan. Failure to submit a timely,
acceptable Contingency Plan may be deemed by the FDIC, in the exercise of its
discretion, to constitute a violation of this Agreement.
ARTICLE V
ALLOWANCE FOR LOAN AND LEASE LOSSES
(1) On or before January 15, 2002, the Board shall review the adequacy of
the Bank's Allowance for Loan and Lease Losses (the "Allowance") for assets on
the books of the Bank, and shall establish and implement prior to submission of
the Report of Condition and Income ("Call Report") for December 31, 2001, a
program for the Bank's maintenance of an adequate allowance at all times
("Allowance Program"). This review and Allowance Program shall be designed to be
consistent with the comments on maintaining a proper allowance found in the
FDIC's Policy Statement on Allowance for Loan and Lease Losses Methodologies and
Documentation for Bank and Savings Institutions, FIL-63-2001, and with the
guidance prescribed by the FFIEC EXPANDED GUIDANCE FOR SUBPRIME LENDING
PROGRAMS, FIL-09-2001. The Bank's analysis shall include, but not be limited to,
the following factors:
(a) results of the Bank's internal loan review process;
(b) an estimate of inherent loss exposure on each pool of credit
accounts originated or purchased by the Bank;
(c) loan loss experience;
(d) trends of delinquent, nonaccrual and charged-off credit
accounts;
(e) concentrations of credit in the Bank; and
(f) present and prospective economic conditions.
(2) The Allowance Program required by paragraph (1) of this Article shall
provide for an allowance for subprime loans sufficient to absorb at least all
estimated credit losses on outstanding balances over the current operating
cycle, typically 12 months. Estimates of credit losses should include accrued
interest and other accrued fees (e.g., uncollected credit card fees or
uncollected late fees) that have been added to the loan balances and, as a
result, are reported as part of the Bank's loans on the balance sheet. The Bank
may include these types of estimated losses in either the Allowance or a
separate valuation allowance, which must be netted against the aggregated loan
balance for regulatory reporting purposes. The Board and management are to
ensure that the Bank's process for determining an adequate level for the
Allowance is based on a
comprehensive and adequately documented analysis of all significant factors. The
consideration factors should include historical loss experience, ratio analysis,
peer group analysis, and other quantitative analysis, as a basis for the
reasonableness of the Allowance. To the extent that the historical net
charge-off rate is used to estimate expected credit losses, it should be
adjusted for changes in trends, conditions, and other relevant factors,
including business volume, underwriting, risk selection, account management
practices, and current economic or business conditions that may alter such
experience. The Allowance must represent a prudent, conservative estimate of
losses that allows a reasonable margin for imprecision. The Bank shall clearly
document loss estimates and the Allowance methodology in writing. This
documentation should describe the analytical process used, including:
(a) the portfolio segmentation methods applied;
(b) the loss
forecasting techniques and assumptions employed;
(c) the definitions
of terms used in ratios and model computations;
(d) the relevance of the baseline loss information used;
(e) any rationale for adjustments to historical experience; and
(f) a reconciliation of forecasted loss rates to actual loss rates,
with significant variances explained.
(3) The Allowance Program shall provide for a review of the Allowance by
the Board at least once each calendar quarter. Any deficiency in the Allowance
shall be remedied in the calendar quarter it is discovered, prior to the filing
of the Call Report, by additional provisions from earnings or capital. Written
documentation shall be maintained indicating the factors considered and
conclusions reached by the Board in determining the adequacy of the Allowance.
(4) Upon completion, the Bank's Allowance Program shall be submitted to
the FDIC and the Commissioner for prior determination of no supervisory
objection. Upon receiving a written determination of no supervisory objection
from the FDIC and the Commissioner, the Bank shall implement and shall
thereafter adhere to the Allowance Program. The Board shall review and update
the Bank's Allowance Program on a quarterly basis, or more frequently if
requested by the FDIC and the Commissioner. Copies of the reviews and updates
shall be submitted to the FDIC and the Commissioner.
(5) The Board shall ensure that the Bank has processes, personnel, and
control systems to ensure implementation of and adherence to the Allowance
Program developed pursuant to this Article.
ARTICLE VI
CONCLUDING PROVISIONS
(1) The provisions of this Agreement shall be effective upon execution by
the parties hereto and its provisions shall continue in full force and effect
unless or until such provisions are amended in writing by mutual consent of the
parties to the Agreement or excepted, waived, or terminated in writing by the
FDIC.
(2) Any time limitations imposed by this Agreement shall begin to run from
the effective date of this Agreement. Such time requirements may be extended in
writing by the FDIC for good cause upon written application by the Bank.
(3) In each instance in this Agreement in which the Board is required to
ensure adherence to, and undertake to perform certain obligations of the Bank,
it is intended to mean that the Board will: (i) authorize and adopt such actions
on behalf of the Bank as may be necessary for the Bank to perform its
obligations and undertakings under the terms of this Agreement; (ii) require the
timely reporting by Bank management of such actions directed by the Board to be
taken under the terms of this Agreement; (iii) follow-up on any non-compliance
with such actions in a timely and appropriate manner; and (iv) require
corrective action be taken in a timely manner regarding any non-compliance with
such actions.
(4) Each provision of this Agreement shall be binding upon the Bank and
all of its institution-affiliated parties, in their capacities as such, and
their successors and assigns.
(5) This Agreement is a "written agreement" for the purposes of section 8
of the FDI Act, 12 U.S.C. ss. 1818, and enforceable under the provisions of that
section. The Bank waives the right to challenge the validity of the Agreement
under the FDI Act or any other provision of law. This Agreement shall not be
construed to constitute a written agreement, order, capital directive, or prompt
corrective action within the meaning of 12 C.F.R. ss.325.103(b)(1)(iv).
(6) This Agreement expressly does not form, and may not be construed to
form, a contract binding on the FDIC or the United States. Notwithstanding the
absence of mutuality of obligation, or of consideration, the FDIC may enforce
any of the commitments or obligations herein undertaken by the Bank under its
supervisory powers, including 12 U.S.C. ss.1818(i), and not as a matter of
contract law. The Bank expressly acknowledges that neither the Bank nor the FDIC
has any intention to enter into a contract.
(7) The provisions of this Agreement shall not in any manner bar, estop,
or otherwise prevent the FDIC or any other federal or state agency or department
from taking any other action affecting the Bank.
(8) All plans, programs, reports, or other such documents the Bank or
Board are required to submit to the FDIC pursuant to this Agreement should also
be simultaneously submitted to the Commissioner of Financial Institutions, Utah
Department of Financial Institutions.
(9) All communications regarding this Agreement shall be sent to:
(a) Providian Bank
Attention: Xxxx Xxxxx
0000 Xxxxx Xxxx Xxx
Xxxx Xxxx Xxxx, Xxxx 00000;
(b) Providian Bank
Attention: Xxxxx Xxxxxx
000 Xxxxxxx Xxxxxx
Xxx Xxxxxxxxx, Xxxxxxxxxx 00000;
(c) Xxxxxxx X. Xxxxx
Regional Director
Boston Regional Office
Federal Deposit Insurance Corporation
00 Xxxxxxxxx Xxxx Xxxxxx Xxxx, Xxxxx 000
Xxxxxx, Xxxxxxxxxxxxx 00000; and
(d) G. Xxxxxx Xxxxx
Commissioner of Financial Institutions
Utah Department of Financial Institutions
000 Xxxxx Xxxxx Xxxxxx, Xxxxx 000
X.X. Xxx 00
Xxxx Xxxx Xxxx, Xxxx 00000-0000
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as of
the 21st day of November, 2001.
/s/ Xxxx Xxxxx /s/ Xxxx X. Xxxx
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Xxxx Xxxxx Xxxx X. Xxxx
President Associate Director
Providian Bank Division of Supervision
Salt Lake City, Utah Federal Deposit Insurance Corporation
s:/providian/Written2 11-20-01
