If it were independent and publicly traded, Providian Bancorp would command the attention investors lavish on the major "monoline" card issuers profiled elsewhere in these pages.
As a subsidiary of the Louisville, Ky.-based insurance company Providian Corp., the credit card lender pleases shareholders more indirectly. Known internally as Bancorp, it delivered one-quarter of consolidated revenues ($454 million out of $1.8 billion) and 36% of pretax earnings ($107 million out of $293 million) in the first half of this year.
Bancorp's numbers have been climbing consistently by 20% or more - this year of credit-quality concern being no exception.
It all stems from a reliance on sophisticated, home-grown systems and sheer brainpower to find and attract reliably profitable, interest-paying customers other banks may overlook or poorly price. Bancorp has almost three million of them, with per-account balances above industry averages and loss rates said to be well in hand. The company is also extending what it regards as its core competencies, notably into home equity lines and secured credit cards.
Managed balances are at about $8 billion. The vast majority are still on credit cards; more than half are securitized. Providian has not quite cracked the top 15 in bank card balances but can claim to be first in profitability.
The architect of Bancorp is chief executive officer Shailesh J. Mehta, who was taking target marketing and behavioral scoring to what might be termed PhD levels when most of his peers were just getting the elementary concepts down.
(Such mathematical techniques were the subject of his doctoral program at Case Western Reserve University in Cleveland, where he worked at the old Ameritrust Corp. before joining Providian, then First Deposit Corp., in 1986.)
Mr. Mehta's stock rose so high that Providian Corp. chairman Irving W. Bailey 2d brought him from Bancorp's San Francisco base to Louisville in late 1994 as president and chief operating officer.
"We have transferred a lot of ideas, practices, and some people from Bancorp" to the insurance units, Mr. Mehta, 47, said recently.
A key contribution, he said, was "the concept of focus." He said Providian was rife with "nonstrategic and ancillary initiatives" that commonly sprout in mature, slow-growing businesses desperate to boost revenues. Mr. Mehta concentrated on cost management and issued laptop computers to get customer information out to the point of transaction, as Bancorp had done.
"We also are testing Bancorp's lead-generation model for life insurance," Mr. Mehta said. "The response rates are phenomenal," but he is delaying wider implementation because of cost concerns.
"At the bank we never roll out anything until it is thoroughly tested and verified," he said.
Remaining Bancorp CEO even while he is chief operating officer of its parent, Mr. Mehta said he spends 40% of his time on Bancorp affairs. But if the San Francisco operation has not skipped a beat, it owes much to the team Mr. Mehta developed.
He has long emphasized growth and prided himself on creating jobs to manage it. Bancorp's work force is approaching 3,000 and has more than doubled in three years.
The top executives are upbeat long-termers who have thrived in a variety of tasks.
Julie A. Montanari, president, arrived as vice president of product development in 1985, when Bancorp had only 100 employees. A former senior consultant at SRI International, she has worked in all facets of unsecured lending and marketing. Besides administrative tasks, her responsibilities include the overall credit function, oversight of Providian's three bank charters, and emerging businesses.
The latter's research-and-development charter spawned secured cards, which is part of a five-year-old initiative to reach people without conventional banking relationships. Bancorp may already be the biggest, with a few hundred thousand secured cards issued - and the activity hasn't even "emerged" into stand-alone status.
Ms. Montanari said her assignments have less to do with strategic priorities than with her capabilities.
"We manage around the strengths of our people," she said. "Having emerging businesses and credit under the president may heighten their visibility, but they also happen to be two of my areas of expertise."
A. Sami Siddiqui, executive vice president, currently runs spread businesses, or unsecured lending. David R. Alvarez is senior vice president of home loans, an "emerged" unit that had racked up $715 million of home equity balances by yearend 1995. Senior vice president David B. Smith, who spent two years in Louisville and was Providian Corp.'s chief technology officer, is back in California working on new distribution channels such as telephone sales.
Individual accountability is a hallmark of the organization and its reward system, Ms. Montanari said, but so is "collaboration to get the best deal for customers" - as when it makes sense to consolidate credit card balances in a home equity line.
"We don't have the walls between parts of the organization that you might find in other companies," Ms. Montanari said. The senior team has "worked together for a long time .... We work on building bridges."
Viewing the freewheeling, opportunistic culture as closer to that of the new breed of card marketers, she added, "I could never work for a real bank."
"Real banks" don't enjoy the profitability of Bancorp, but neither do the "monolines." This is evident from call-report comparisons between Providian's lead bank, First Deposit National of Tilton, N.H., and the others' card-issuing banks. American Banker in March ranked Advanta Corp.'s Colonial National Bank in Delaware as the best of these specialists for 1995, with a 4.02% return on average assets and 47.46% return on average equity.
First Deposit came in at 5.03% and 54.74%, respectively. It is perennially at or near the top in those banking ratios. For 1995, when it reported $2.2 billion of yearend balance sheet assets, First Deposit had net income of $109.3 million, $2 million more than the earnings of $9.5 billion-asset Commerce Bancshares of Kansas City.
Mr. Mehta is confident Bancorp can keep it up. His prescriptions: "Stay in the core market but be prepared for competition and margin pressure"; seek out the 25 to 30 million unbanked people "who need access to credit and the payment system"; and push the home equity lever for "high TRB" (total revolving balances) customers.
"We are better-positioned than most," said Ms. Montanari. "Our losses are up like everybody's, but we've never been the lowest-priced provider, so our margins hold up better .... Our marketing programs and debt- consolidation offers work well in this environment.
"And for the long term we have the advantages of being flexible and fluid in the organization and a big R&D commitment to respond to new niches in the market."