Sub-Prime Loss

Los Angeles-based Bank Plus Corp. predicted yesterday it will report a net loss for the second quarter of $10-$13 million due to its continued troubles with it sub-prime card portfolio. The bank’s sub-prime portfolio is primarily divided between accounts generated by American Direct Credit and MMG Direct. Delinquencies for the ADC portfolio increased to 23.7% at June 30 from 22.3% at May 31and 12.3% at March 31. Delinquencies under the MMG Direct program declined to 20.2% at June 30 from 21.0% at May 31 and 23.6% at March 31. Bank Plus Corp. is the holding company for Fidelity Federal Bank, FSB.

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Associates Closes NTS

Associates First Capital Corporation yesterday announced it has closed the sale of the Network Transaction Services unit of its SPS Payment Systems, Inc. subsidiary to Alliance Data Systems, a leading provider of electronic transaction processing services. Terms of the sale were not disclosed.

As part of the agreement, SPS and Alliance Data Systems entered into a joint marketing agreement by which Alliance Data Systems will provide electronic transaction processing support for a number of new and existing SPS clients.

Alliance Data Systems is one of the nation’s largest providers of network, private label credit, billing, customer care and database services, servicing nearly 50 million consumer accounts and processing more than one billion transactions annually. The company currently employs more than 6,500 associates at 16 locations in the United States, Canada and New Zealand.

The Network Transaction Services unit employs approximately 200 people and offers data capture, authorization, reporting and data communication services for a wide variety of payment options, including credit, debit, fleet, and private label payment cards. In 1998 it processed more than 510 million transactions from over 80,000 point-of-sale terminals in the petroleum, convenience store, general retail, and public transit marketplaces.

Riverwoods, Ill.-based SPS Payment Systems, Inc. is a leading supplier of consumer private label credit card programs to specialty retailers. The company also offers commercial accounts receivable processing and various teleservices, such as answering customer service inquiries and providing help- desk support. SPS was acquired by The Associates in 1998.

Associates First Capital Corporation, established in 1918, is a leading diversified finance company providing consumer and commercial finance, leasing, insurance and related services worldwide. The Associates has operations in the United States and 13 international markets. Headquartered in Dallas, it is one of the nation’s 100 largest companies, based on total market capitalization. For more information, visit The Associates Web site at [www.theassociates.com][1].

[1]: http://www.theassociates.com

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Bad Blood

Already facing lawsuits from consumers and shareholders over its credit card practices, San Francisco-based Providian is now facing another lawsuit from crosstown rival NextCard. NextCard announced this morning that it has filed suit against Providian Financial Corp. for copyright infringement, trademark infringement, false advertising and unfair business practices. NextCard claims that Providian deliberately copied one of NextCard’s banner advertisements in an attempt to mislead Internet users into clicking onto Providian’s Web site rather than NextCard’s Web site. NextCard says Providian did not respond appropriately to its efforts to resolve the dispute amicably. NextCard’s CEO/founder, Jeremy Lent, is a former Providian CFO/SVP. Other NextCard officers/directors who formerly worked for Providian include: Timothy Coltrell and John Hashman.

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Bizcard Pagers

VA-Based Metrocall, Inc. announced Wednesday a new nationwide promotional agreement with CA-based PageMaster Corp. to offer Metrocall alphanumeric advanced messaging devices and wireless services to MasterCard ‘BusinessCard’ holders. The promotion is targeted towards small businesses as an incentive for utilizing their ‘MasterCard BusinessCard’ once they become members. Through an agreement with PageMaster, MasterCard intends to utilize Metrocall’s wireless messaging devices sold through this promotion to communicate data and information to their business customer base. Metrocall serves more than 5.7 million subscribers in all fifty states via its ‘Nationwide Wireless Network’.

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Two For Infi-CU

Atlanta-based InfiCorp announced Wednesday that its InfiCU division has landed contracts with two major credit unions. The multi-year credit card portfolio management agreements were signed with: New Mexico Educators Federal Credit Union, a $475 million credit union located in Albuquerque serving over 62,000 members and Xerox Federal Credit Union, a $450 million credit union serving 71,000 members and headquartered in El Segundo, California. InfiCU provides credit unions with the requisite economies of skill and scale to effectively compete for member credit card loan market share. Both credit unions were introduced to InfiCU by the Bear Stearns CUFS Group, a team of professionals that specializes in developing balance sheet driven strategies and solutions for credit unions.

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Slight Turn South

Fitch IBCA reported yesterday that charge-offs and delinquency edged up slightly during the June collection period. However both benchmarks remain well below last year’s figures. The real good news is that yields and three-month spreads continue to rebound. Fitch predicts that all performance measures will remain stable for the short-term.

CREDIT CARD SECURITIZATION PERFORMANCE

Period CO GY MP DL SP
May99 5.95% 19.71% 16.36% 3.03% 6.04%
Apr99 5.91% 18.65% 15.96% 3.02% 5.64%
Mar99 5.94% 20.24% 16.87% 3.14% 5.92%
Feb99 6.05% 19.49% 15.44% 3.25% 5.69%
Jan99 6.10% 19.23% 15.82% 3.28% 5.37%
May98 6.63% 19.02% 14.88% 3.23% 4.40%

CO-chargeoffs; GY-gross yield; MP-monthly payment rate; DL- 60+ day
delinquency rate; SP-3-month excess spread
Source: Fitch IBCA

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NACHA Pilot

The National Automated Clearing House Association (NACHA) is sponsoring a pilot program in which consumers can authorize, by telephone, electronic debits to their checking or savings accounts to pay for goods and services. Twenty-five financial institutions have enrolled in the pilot program, which is scheduled to run through March 31, 2000.

“Telephone authorizations will provide consumers with an easy and convenient method to make one-time payments,” said Elliott C. McEntee, President and Chief Executive Officer of NACHA.

In the pilot program, a participating financial institution signs up corporate customers, permitting them to offer this authorization method for debit payments. For example, a participating utility company could accept a telephone-authorized debit for an overdue bill rather than requiring a consumer to pay in person to prevent a cutoff in service. The debit is made using the Automated Clearing House (ACH) Network.

Operating rules for the ACH Network currently require debit authorizations to be in writing and signed or similarly authenticated. While useful for recurring bill payments for mortgages, insurance premiums, utilities and other recurring payments, a written authorization can be cumbersome for one-time, non-recurring payments. Under the pilot program, verbal authorizations take the place of written authorizations for these non-recurring payments. The authorization is either tape-recorded or a written confirmation notice is sent to the consumer.

The same consumer rights and protections that apply to recurring debits are retained for the pilot program. A separate authorization is required for each debit transaction, the originating company is required to keep a record of the authorization for two years, and consumers have 60 days to challenge debits they believe to be unauthorized. Significantly, the pilot program specifically prohibits companies from calling consumers with whom they have no previous relationship.

McEntee said, “Financial institutions and companies have previously been hesitant to accept telephone authorizations because of concerns about fraud. Sufficient fraud-detection and prevention technologies now exist that allow these transactions to be accepted while preventing the introduction of fraud into the payments system.”

The financial institutions that enrolled in the pilot are AFBA Industrial Bank, AmSouth Bank, Bank of America, Bank of Denver, Bank One, Capital City Bank, Chase Manhattan Bank, Citibank, First National Bank in Brookings, FNB of Central Texas, First Premier Bank, First Regional Bank, First State Bank, First Union, Florida Bank, Ft. Knox National Bank, Legacy Bank of Texas, Mellon Bank, Northern Trust Company, Oakland State Bank, Pacific Mercantile Bank, PNC Bank, Riverway Bank, Sears National Bank and Wells Fargo/Norwest. Companies must be enrolled by July 29, 1999 to participate.

The ACH Network is a nationwide, inter-bank payments system that has been in use for over 25 years. It is commonly used for Direct Deposit of payroll, Social Security and other government benefits, Direct Payment of recurring consumer bills, and business-to-business payments. In 1998 there were more the 5.3 billion ACH transactions valued at more then $16.4 trillion.

About the National Automated Clearing House Association (NACHA)

NACHA represents more than 13,000 financial institutions through its 34 regional ACH associations, six councils and corporate Affiliate Membership program. A leader in the payments industry, NACHA develops operating rules for the Automated Clearing House Network and for emerging electronic payment solutions in the areas of Internet commerce, bill payment and presentment, financial electronic data interchange, cross-border transactions, electronic checks, and electronic benefits transfer. Visit NACHA on the Internet at [www.nacha.org][1].

[1]: http://www.nacha.org

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Y2K Okay

The Alliance for Telecommunications Industry Solutions announced yesterday that no Y2K-related anomalies were discovered during recently-completed internetwork interoperability testing, conducted to determine Y2K’s impact on frame relay networks, and specifically credit card transactions and financial data transfer. The internetwork interoperability testing was conducted by the ATIS-sponsored Internetwork Interoperability Test Coordination Committee in partnership with the Y2K Financial Networks Readiness Consortium. The FNRC is comprised of American Express, Bank of America, First Data, JP Morgan, MasterCard, MBNA America, Total System Services, VISA and Wells Fargo.

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CyberCash 2Q/99

CyberCash, Inc., the world leader in e-commerce technologies and services for merchants, Wednesday announced that its net loss per share for the second quarter ending June 30, 1999 will be greater than anticipated. Management says this is due principally to changes in the rapidly-evolving market for digital wallets, which has caused a delay in the recognition of revenues from its new Agile Wallet Platform(TM) and InstaBuy(TM) “one-click” shopping service. CyberCash is placing an increased emphasis on the distribution of the Agile Wallet, and has dedicated considerable resources to its aggressive promotion and distribution. The Agile Wallet serves as the platform for the InstaBuy service and provides a foundation for other value-added e-commerce services designed to help merchants grow their revenues. The company indicated its net loss per share for the second quarter would be between $(0.53) and $(0.56). Analysts’ estimates for net loss per share range between $(0.36) and $(0.42).

“As we said during our annual meeting in June, management is heavily focused on pursuing market share for our Agile Wallet,” said James J. Condon, president and chief operating officer. “The Agile Wallet technology is the platform for a growing number of services for consumers, merchants and banking partners. We will invest aggressively in the development of this technology, the distribution of wallets and the development of new services to assist merchants in growing their business. Given the company’s new initiatives, we anticipate that it will take several quarters to achieve predictability of revenues.

“Our core e-commerce business demonstrated another strong performance this quarter, bringing in more than 1,000 merchants per month to our online CashRegister service. Earlier this month we announced a definitive agreement to acquire Tellan Software. We expect that Tellan’s products will add significant value to our software business and strengthen our industry-leading technology. Given this progress, we have full confidence that CyberCash is well-positioned to capitalize in the expanding e-commerce market,” Condon said.

About CyberCash, Inc.

CyberCash is a world leader in e-commerce technologies and services, enabling commerce across the entire market spectrum from electronic retailing environments to the Internet. CyberCash provides a complete line of software products and services allowing merchants, billers, financial institutions and consumers to conduct secure transactions and other e-commerce functions using the broadest array of popular payment forms. Credit, debit, purchase cards, cash, checks, smart cards and alternative payment types (e.g., “frequent buyer” or loyalty programs) are all supported by CyberCash payment solutions. Leading brands of CyberCash include InstaBuy(TM), AgileWallet(TM), ICVERIFY(R), PCVERIFY(TM), CashRegister, NetVERIFY(TM), CyberCoin(R) and PayNow(TM).

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US Bancorp 2Q/99

U.S. Bancorp yesterday reported record operating earnings of $383.8 million, or $.53 per diluted share, for the second quarter of 1999, compared with $358.2 million, or $.48 per diluted share, in the second quarter of 1998. Operating earnings on a cash basis increased from $.52 per diluted share in the second quarter of 1998 to $.58 per diluted share, or 11.5 percent, in the second quarter of 1999. Return on average common equity and return on average assets, excluding nonrecurring items, were 24.4 percent and 2.02 percent, respectively, in the second quarter of 1999, compared with returns, excluding nonrecurring items, of 23.2 percent and 2.01 percent in the second quarter of 1998.

Including nonrecurring, merger-related charges of $9.5 million, after-tax, the Company recorded net income for the second quarter of 1999 of $374.3 million, or $.51 per diluted share, compared to $320.6 million, or $.43 per diluted share, in the second quarter of 1998.

U.S. Bancorp Chairman, President and Chief Executive Officer John F. Grundhofer said, “Our second quarter results reflect our continued focus on profitable revenue growth. Our second quarter core loan growth was strong, net interest income improved, and fee income grew more than 18 percent from the first quarter of 1999 on an annualized basis. Our profitability ratios continue to be among the best in the industry, and we are dedicated to continuing to deliver strong results. I am very pleased with the progress we have made growing our existing businesses. This week’s announcement that Lockheed Martin Corporation selected U.S. Bank as its exclusive purchasing card provider — the largest such commercial account ever awarded — is just the latest evidence of the strong financial solutions we offer.

“I am also excited by our new opportunities to strengthen and diversify our Company. With the acquisition of Western Bancorp, we will expand our banking franchise in fast-growing Southern California. The addition of Bank of Commerce will make us a national leader in SBA lending, and the acquisition of Mellon Network Services will fortify our electronic funds transfer processing business.”

Comparisons to the second quarter of 1998 are affected by the May 1, 1998, acquisition of Piper Jaffray Companies Inc. (“Piper Jaffray”). Net interest income on a taxable-equivalent basis in the second quarter of 1999 was higher by $45.4 million, or 5.8 percent, than the second quarter of 1998. Noninterest income increased by $94.8 million, or 16.9 percent, from the second quarter of 1998, primarily reflecting both the acquisition of and growth in Piper Jaffray and higher service charges on deposit accounts, offset by the loss of a portion of the U.S. Government purchasing card business. Noninterest expense, before nonrecurring items, was higher than the second quarter of 1998 by $72.7 million, or 10.9 percent, principally due to acquisitions. The banking efficiency ratio (the ratio of expenses to revenues without the impact of investment banking and brokerage activity), before nonrecurring items, for the second quarter of 1999 was 42.4 percent, compared to 45.1 percent in the second quarter of 1998.

Net charge-offs in the second quarter of 1999 were $140.3 million, slightly higher than the first quarter of 1999 net charge-offs of $139.6 million and higher than the second quarter of 1998 net charge-offs of $106.7 million. The increase in net charge-offs from the second quarter of 1998 was due to an expected increase in losses on several consumer loan portfolios purchased in 1998 and higher consumer fraud losses. Net charge-offs were .93 percent of average loans in the second quarter of 1999, compared to .96 percent in the first quarter of 1999 and .77 percent in the second quarter of last year. Nonperforming assets declined from $325.8 million at March 31, 1999, to $320.2 million at June 30, 1999. The ratio of allowance for credit losses to nonperforming loans continued to indicate strong reserve coverage of 327 percent at June 30, 1999.

On May 19, 1999, the Company announced an agreement to acquire Newport Beach-based Western Bancorp (Nasdaq: WEBC). With $2.5 billion in assets at March 31, 1999, Western Bancorp has 31 branches in southern California in Los Angeles, Orange and San Diego counties. Pending regulatory and Western Bancorp shareholder approvals, the acquisition is expected to close in the fourth quarter of 1999.

On February 18, 1999, the Company announced an agreement to acquire San Diego-based Bank of Commerce (Nasdaq: BCOM), one of the nation’s largest Small Business Association (SBA) lenders. Regulatory and shareholder approval has been received and the acquisition is expected to close on July 15, 1999.

The Company also announced the acquisition of Mellon Network Services’ electronic funds transfer (EFT) processing unit and the Investment Banking division of The John Nuveen Company (NYSE: JNC). The acquisition of Mellon Network Services’ EFT processing unit was completed June 30, 1999, while the acquisition of the Investment Banking division of The John Nuveen Company is expected to close during the third quarter.

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P-Card Award

One Valley Bank was awarded a symbolic “Certificate of Savings” by the West Virginia Governor Wednesday for saving the state $16.8 million. The savings are attributed to the ‘State Purchase Card’ program or ‘P-Card’ program. The certificate represents savings that the state government would realize by writing 350,000 less checks for the fiscal year with use of the ‘VISA Purchase Card’. The amount of the “Certificate of Savings” was computed using the lowest industry standards of $50 savings for every transaction. The ‘State VISA Purchase Card program’ was enacted by the legislature in 1996

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Garth Brooks Card

MBNA America and the Garth Brooks Touch ’em All Foundation announced yesterday the establishment of a credit card program for the Foundation. The five-year agreement includes an initial $1 million payment to the Touch ’em All Foundation with the potential for additional revenues based on the success of the program.

The Touch ’em All Foundation, established in January 1999, is a non-profit corporation which contributes financial resources to selected non-profit organizations that effectively serve and benefit children with an emphasis on health, education and inner city needs. The Foundation will enlist the participation of Major League Baseball players who will contribute a predetermined sum based upon selected categories of on-field performance. Each player will then be paired with “Celebrity Teammates” who will match the players donations. Seventy major league baseball players have already agreed to participate in the program.

“Garth is passionate about doing all he can do to help kids. The Foundation is excited that now everyone can join us as `teammates’ in this great cause,” said Bo Mitchell, co-founder and President of the Touch ’em All Foundation. “We are honored to be associated with such a fine institution as MBNA America Bank.”

“The Touch ’em All Foundation is the type of organization we are proud to work with,” said John R. Cochran, MBNA’s Chief Marketing Officer. “Customers will be very enthusiastic about the program and it will benefit some terrific causes.”

MBNA America, a subsidiary of MBNA Corporation (NYSE: KRB), is the largest independent credit card lender in the world with more than $60 billion in managed loans. MBNA is the “Official Credit Card Issuer of Major League Baseball” marketing its products to the fans of all 30 teams. MBNA also provides retail deposit, consumer loan and insurance products.

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