Stable Trends Drive Deals

As credit card-backed securities’ performance measures posted flat results last month, news of big name portfolio sales shook the industry and dominated headlines, according to the Fitch report, “Credit Card Movers & Shakers,” to be published later this week. In a span of eight days toward month end, the parent companies of Advanta and AT&T Universal, which maintain two of the industry’s largest portfolios, uncovered plans to shed their credit card operations. Meanwhile, Chase Manhattan Corp. signaled its commitment to the business by acquiring Bank of New York’s card portfolio. The news comes amid a period of stability in credit card performance measures, which could be driving the recent spate of portfolio transactions.

As detailed in the report, the stabilizing trends, particularly in terms of chargeoffs, indicate issuers’ tightened underwriting standards and intensified collection efforts are finally taking hold and helping to offset the ill effects of intense competition in the mid-1990s, as well as the record pace of personal bankruptcy filings over the past two years. Fitch expects the performance indexes to remain level through year end and improve slightly in early 1998.

However, as pointed out in the report, while the recent trends are a welcome change from the two-year period of asset quality deterioration that bottomed in May 1997, investors should note that chargeoffs still remain significantly above historical levels and well above even the year-ago 5.45% mark. Furthermore, bankruptcies continue to play a major part in chargeoffs and are expected to increase throughout 1998, although at a slower pace than this year.

For a copy of the report, call 800-85-FITCH or visit the Fitch web site at [‘’][1].



Colorado Financial Education

In a press conference held at Denver, Colorado’s Arvada West High School on Tuesday, Oct. 28, 1997, Colorado Lieutenant Governor Gail Schoettler announced the implementation of a new statewide initiative to educate Colorado high school students about money and personal finance.

She stressed the importance of a good academic foundation for all students, regardless of their future plans. Republic Mortgage Insurance Company (RMIC) donated the financial management textbooks to metro Denver schools in an effort to help today’s high school students become educated in economic skills and home ownership, ultimately becoming more financially savvy consumers. Schoettler said, “A good academic and economic foundation is critical for students to have before they enter the ‘real world.’ These days, not enough young people are equipped with these economic skills, which will form the basis of their future success. Through this program, which is made possible by the cooperation of both public and private organizations, we can help high school students learn these necessary skills. We hope to expand this program to eventually reach all 170,000 Colorado high school students.”

The initial program, called the “Chuck Taylor Program,” was piloted in North Carolina’s Forsyth County School System and was then introduced in Arvada West High School Life Classes. Students who participated in the program were at the news conference to answer questions about their learning experiences.

The supplemental textbook used in the program, How Chuck Taylor Got What He Wanted (and How You Can, Too!), was written by William F. Staats, Professor of Banking and Finance at Louisiana State University; and E.D. Sledge, President of CCCS in Baton Rouge, Louisiana. The book helps students relate to the financial adventures of fictional teenager, Chuck Taylor, working toward his goal of purchasing a new car. Using his story as the narrative, the book explores the basic economic realities of money management fundamentals such as establishing financial goals, understanding the free enterprise marketplace, buying and financing cars and/or homes, using credit cards, and learning the value of insurance.

Speaking on behalf of RMIC at the Denver press conference was Eric Mattocks, Risk Management and Affordable Housing Coordinator. He said, “At RMIC we have a specific goal to help promote home ownership. I am glad that RMIC can play such an important role in shaping young people’s lives and ultimately increasing the number of qualified homebuyers. The ease of obtaining credit and the challenges of maintaining good credit are mounting against today’s consumers. The ‘Life Skills’ we are providing will help these students when they approach tough credit decisions and eventually will help them when they purchase a home.”

CCCS educators and the Colorado Council on Compulsive Gambling will teach the classes. The curriculum will focus on teaching skills in budgeting, money management, credit and debt, and will also include problem gambling prevention education.

CCCS of Greater Denver, CCCS of Southern Colorado and CCCS of Northern Colorado & Southeastern Wyoming are non-profit community service agencies and offer free or low-cost services. CCCS provides budget counseling, money management education workshops and debt management workshops. As members of the National Foundation for Consumer Credit (NFCC)(R), the nation’s largest and oldest credit counseling association, these organizations adhere to strict quality standards, including counselor certification, educational programs and governance by local boards. They are also accredited by the Council on Accreditation of Services for Families and Children. NFCC is supported with contributions from banks, consumer finance companies, credit unions, and other community services and can provide services at no cost in many communities and for a reasonable fee in others.

RMIC is a national, private mortgage insurer based in Winston- Salem, North Carolina. RMIC’s private mortgage insurance coverage allows lenders to approve mortgage loans with smaller down payments, thus making home buying more affordable. RMIC offers mortgage lenders an array of innovative products including ZIP(SM) Monthlies, OASIS(SM), Contract Underwriting, Electronic Loan Submission, automated underwriting, customer training, quality control services, and affordable housing programs.

For more information on RMIC, contact Rob Showfety, Marketing Group Manager at (800) 999-RMIC (7642), write RMIC 4964 University Parkway, Winston-Salem, North Carolina 27106 or visit RMIC’s web site at .


BA Merchant Report

BA Merchant Services, Inc. (NYSE:BPI) reported earnings per share of $.21 for the third quarter of 1997, an increase of 31% over pro forma earnings per share, as adjusted, of $.16 per share for the third quarter of 1996. Pro forma results, as adjusted, assume that BA Merchant Services, Inc.’s (BAMS) initial public offerings occurred January 1, 1994 and the net proceeds from the offerings were invested in short-term investments. Net income was $10.1 million for the three months ended September 30, 1997 compared to net income on a non-pro forma basis of $6.7 million for the third quarter of 1996.

“We are pleased with our strong earnings for the third quarter,” Sharif Bayyari, President and Chief Executive Officer of BAMS said. “In addition, BAMS completed three important acquisitions and a major systems conversion during the quarter. During the third quarter we also opened sales offices in Baltimore, Washington D.C., Long Island and upstate New York. BAMS has opened eight new sales offices and increased its sales staff by approximately 45% during the first nine months of 1997. Sales volume processed during that period increased $5.0 billion or 26% over the comparable 1996 period.”

BAMS reported net income of $26.9 million for the nine months ended September 30, 1997 compared to net income on a non-pro forma basis of $20.1 million for the same period last year. Earnings per share of $.55 for the 1997 nine month period increased 15% over the $.48 pro forma earnings per share, as adjusted, reported for the first nine months of 1996. Net revenue of $116.0 million for the first nine months of 1997 increased 15% over the 1996 comparable period.

All periods reported have been restated to include the historical results of operations for the Thailand, Philippines and Taiwan merchant processing businesses acquired from certain subsidiaries of BankAmerica Corporation (BAC) during the second and third quarters of 1997. The acquisition of these entities has been accounted for as a reorganization of entities under common control.


— Net revenue of $41.2 million for the third quarter of 1997 increased 16% over the 1996 third quarter. Sales volume processed for the three months ended September 30, 1997 was $8.9 billion, an increase of 27% over the 1996 comparable period.

— On September 25, 1997, BAMS acquired a portfolio of approximately 4,200 merchant processing contracts from First Data Merchant Services Corporation, a unit of First Data Corporation. The portfolio currently produces more than $850 million in credit card sales volume on an annualized basis.

— BAC transferred its Taiwan merchant processing business to BAMS on September 30, 1997 in consideration for the issuance by BAMS of a total of 1.5 million shares of Class B Common Stock. Together with the transfer to BAMS of BAC’s Thailand and Philippines merchant processing businesses in June and July 1997, respectively, BAMS is now positioned to capitalize on BAC’s long history and customer relationships in these growth markets.

— Total operating expense for the third quarter of 1997 increased $2.4 million or 10% over the 1996 third quarter. The increase was primarily attributable to a 24% increase in salaries and employee benefits mostly due to staff growth and an 11% increase in data processing and communications expense principally due to increased authorization expense and data processing contract services related to growth in transaction volume. General and administrative expense for the third quarter of 1997 decreased $596,000 or 10% form the third quarter of 1996 as a result of lower cost of services provided by BAC affiliates during 1997 partially offset by higher merchant supplies expense related to increased sales volume processed and increased administrative expense associated with being an independent company.

Incorporated in October 1996, BAMS owns and manages the domestic and certain international merchant processing operations formerly owned by BAC subsidiaries. BAMS provides an array of payment processing and related information products and services to merchants who accept credit, charge, and debit cards as payment for goods and services. According to industry sources, BAMS is the fourth largest processor of merchant credit transactions and one of the largest processors of debit card transactions in the United States.

Presentations and discussions of the quarterly results, including responses to questions, may contain forward-looking statements, usually containing the words “estimate,” “project,” “expect” or similar expressions. These statements are subject to uncertainties, including those discussed in “Forward-Looking Statements” in BAMS’ most recent report on Form 10-K, that may cause actual results to differ materially. Investors are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date they are made.


Table 1

Quarterly & Year-to-Date Summary of Results and Statistical Data(1)

Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996

($ in 000’s, except per share data)

1. Net revenue $41,192 $35,444 $116,043 $100,677
2. Income from operations $15,077 $11,740 $ 39,989 $ 35,101
3. Net income $10,054 $ 6,742 $ 26,870 $ 20,126
4. Operating margin(2) 36.6% 33.1% 34.5% 34.9%
5. Pro forma net income,
as adjusted(3) N/A $ 7,823 N/A $ 23,451
6. Earnings per share(4) $ .21 N/A $ .55 N/A
7. Pro forma earnings
per share(4) N/A $ .14 N/A $ .41
8. Pro forma earnings
per share, as
adjusted (3,4) N/A $ .16 N/A $ .48

9. Total transactions
(amounts in 000’s) 137,338 102,198 370,571 227,169

10. Total sales volume
($ in millions) $ 8,875 $ 6,981 $ 24,103 $ 19,073

N/A Not Applicable

(1) All periods presented include the historical results of
operations for the Thailand, Philippines and Taiwan merchant
processing businesses acquired from BankAmerica Corporation (the
“Asia Acquisitions”). The acquisition of these entities has been
accounted for as a reorganization of entities under common control.

(2) Pre-tax income from operations as a percent of net revenue.

(3) Pro forma net income, as adjusted, assumes that the net proceeds
from the Initial Public Offerings in the fourth quarter of 1996 were
available from January 1, 1994 and were invested in short-term

(4) Three Months Ended Nine Months Ended
September 30, September 30,
(amounts in 000’s) 1997 1996 1997 1996
Average number Pro forma Pro forma
of shares and
common stock
outstanding 48,882 48,500 48,786 48,500

Fully diluted
average number
of shares and
common stock
outstanding 48,882 48,500 48,794 48,500


Table 2
Statement of Operations

Three Months Ended
September 30, Increase/(Decrease)
($ in 000’s) 1997 1996 Amount Percent

1. Net revenue $ 41,192 $ 35,444 $ 5,748 16%

Operating expense:
2. Data processing
and communications 8,332 7,517 815 11%
3. Salaries and
employee benefits 8,703 7,042 1,661 24%
4. General and
administrative 5,343 5,939 (596) (10%)
5. Depreciation 2,869 2,370 499 21%
6. Occupancy 762 586 176 30%
7. Amortization of
intangibles 106 250 (144) (58%)
——– ——– ——–

8. Total operating
expense 26,115 23,704 2,411 10%

9. Income from
operations 15,077 11,740 3,337 28%

10. Net interest
income (expense) 2,059 (254) 2,313 911%
——– ——— ——–

11. Income before
income taxes 17,136 11,486 5,650 49%

12. Provision for
income taxes 7,082 4,744 2,338 49%
——– ——– ——–

13. Net income $ 10,054 $ 6,742 $ 3,312 49%
======== ======== ========


Table 2.1
Statement of Operations

Nine Months Ended
September 30, Increase/(Decrease)
($ in 000’s) 1997 1996 Amount Percent

1. Net revenue $116,043 $100,677 $15,366 15%

Operating expense:
2. Data processing
and communications 24,315 21,425 2,890 13%
3. Salaries and
employee benefits 25,209 20,333 4,876 24%
4. General and
administrative 16,042 14,641 1,401 10%
5. Depreciation 7,882 6,624 1,258 19%
6. Occupancy 2,279 1,733 546 32%
7. Amortization of
intangibles 327 820 (493) (60%)
——– ——– ——–

8. Total operating
expense 76,054 65,576 10,478 16%

9. Income from
operations 39,989 35,101 4,888 14%

10. Net interest
income (expense) 5,811 (815) 6,626 813%
——– ——— ——–

11. Income before
income taxes 45,800 34,286 11,514 34%

12. Provision for
income taxes 18,930 14,160 4,770 34%
——– ——— ——–

13. Net income $ 26,870 $ 20,126 $ 6,744 34%
======== ========= ========


Table 3
Balance Sheet

September 30, December 31,
($ in 000’s) 1997 1996 (a)


Current assets:
1. Cash and cash equivalents $55,186 $138,413
2. Short-term investments 71,214 –
3. Drafts in transit 93,237 116,992
4. Accounts receivable 51,984 35,282
5. Other current assets 12,515 5,038
———- ———-
6. Total current assets 284,136 295,725
7. Property and equipment, net 23,555 18,567
8. Other assets 16,020 3,969
———- ———-
9. Total assets $323,711 $318,261
========== ==========


Current liabilities:
10. Accounts payable $2,604 $415
11. Merchants payable 8,538 16,823
12. Accrued liabilities 7,062 5,784
13. Accrued credit card
association and interchange
fees 8,692 5,060
14. Income taxes payable 4,127 3,306
15. Other current liabilities 11,324 6,596
———- ———
16. Total current liabilities 42,347 37,984

17. Other liabilities 891 269
———- ———
18. Total liabilities 43,238 38,253
———- ————-
19. BAC’s equity interest
in Asia operations – 27,883
———- ————-

Stockholders’ equity:
20. Common stock 486 464
21. Additional paid-in capital 252,398 249,622
22. Retained earnings 27,825 2,039
23. Accumulated foreign
currency translation
adjustments (236) –
———- ————-
24. Total stockholders’
equity 280,473 252,125
———- ————-
25. Total liabilities &
stockholders’ equity $323,711 $318,261
========== =============

(a) The December 31, 1996 balance sheet has been restated to
include, at historical cost, the assets and liabilities transferred
to the Company from BankAmerica Corporation in connection with the
Asia Acquisitions.


Table 4
Net Income and Earnings per Share

Three Months Ended Nine Months Ended
(amounts in 000’s, September 30, September 30,
except per share data) 1997 1996 1997 1996

1. Income from operations $15,077 $11,740 $39,989 $35,101

2. Net interest income (expense) $2,059 $(254) $5,811 $(815)

3. Pro forma net interest income(1) N/A $1,587 N/A $4,849

4. Net income $10,054 $6,742 $26,870 $20,126

5. Pro forma net income,
as adjusted(2) N/A $7,823 N/A $23,451

6. Average shares outstanding 48,882 N/A 48,786 N/A

7. Pro forma shares outstanding N/A 48,500 N/A 48,500

8. Earnings per share $.21 N/A $.55 N/A

9. Pro forma earnings per share N/A $.14 N/A $.41

10. Pro forma earnings per share,
as adjusted(2) N/A $.16 N/A $.48

N/A Not applicable

(1) Pro forma net interest income includes the interest on
short-term investments as described in Note 2 and is based on average
short-term overnight Eurodollar rates.

(2) Pro forma net income, as adjusted, assumes that proceeds from
the Initial Public Offerings in the fourth quarter of 1996 were
available from January 1, 1994 and were invested in short-term


DebitAuth Plus

In an effort to help financial institutions enhance their productivity, improve customer service and reduce the risk associated with their debit card programs, First Data is now offering Debit Auth Plus–an on-line debit card authorization system. Using AuthPlus, debit card issuers have real-time access to debit card account information and can quickly identify and change authorization parameters for cardholders. Issuers also can segment cardholder accounts based on the age and size of the account, as well as the risk history of the cardholder. This provides the Issuer greater risk control and more flexibility in dealing with a broad range of debit accounts. In addition, the system improves customer service by allowing for an on-line inquiry screen that pinpoints reasons for declines and allows the issuer to correct unwarranted declines in real time.


Performance Processing

PaySys International and Sun Microsystems released internal performance test results this morning showing that PaySys’ ‘VisionPLUS’ software running on Sun’s ‘Enterprise Server’ platform processed more than one million credit card transactions in less than five hours. The series of tests involved processing and posting a simulated card portfolio on a Sun ‘Enterprise 6000’ server. Sun and PaySys also noted that sub-second, on-line transaction processing responsiveness was recorded at a rate of 20 transactions per second. PaySys says the significance is: the potential cost savings of running the ‘Solaris’ version of ‘VisionPLUS’ versus running card processing on a mainframe or through a service bureau.


Card Capture Moves

Card Capture Services, Inc., a leading independent provider of ATMs nationally, will move into new, larger offices Friday, October 31, with plans to be open for business the following Monday, November 3. The company will lease the entire second floor of the Triangle Corporate Park Building II, located at 13190 SW 68th Parkway. The 19,000 square foot space, owned by Gerding/Edlen Development Company is located in the southwest Portland suburb of Tigard, Oregon.

The four year old, privately held company has nearly doubled its ATM portfolio over the past two years. To accommodate increases, the company has hired 15 new employees since January. As a result, the company has outgrown its current space.

Card Capture Services, Inc. was incorporated in May, 1993, in Portland, Oregon. CCS offers turnkey ATM programs providing transaction processing, machine maintenance, customer service, accounting and reporting to a growing base of merchant owned and operated Automated Teller Machines (ATMs) nationwide. By tapping non-traditional and unsaturated markets, CCS is leading the wave of independent ATM deployments nationally. The company currently has 34 employees and a nationwide network of 30 independently contracted dealers.


Not So Private

The JCPenney private label card expanded its acceptance base Saturday to Eckerd drugstores. Cardholders can now use their JCPenney cards to make purchases at the 100-year old drugstore chain which has grown to 2,800 outlets nationwide. The company will launch an extensive marketing campaign including employee ribbons welcoming the card, in-store signage, direct mail to both customer bases and website advertising. JCPenney acquired Eckerd earlier this year. In addition to Eckerd’s, the JCPenney card is now accepted for payment for the JCPenney’s insurance subsidiary, JCPenney Insurance Group.


Interpay Bill Collect

Akron, Pa-based Priority One Electronic Commerce Corp. introduced a receivables collection system Friday enabling businesses to collect credit card and EFT payments via the Internet. Using a proprietary transaction processing system called ‘SETX’, business with Internet access and a web browser can collect electronic payments for less than the cost of a postage stamp. The ‘Interpay Bill Collect’ service requires no special software. The service also features continuous online access, password protection, the ability to process manual or batched payment transactions and to mix credit card and EFT payments in the same transmission file. Bank customers earn about $36,000 in referral fees for every 100,000 monthly payments processed. The company said this morning it has signed one bank for the new service.


Metris Gets B+

Standard & Poor’s gave one of the nation’s fastest growing issuers a B+ rating for its $100 million senior note offering Friday. S&P says the rating reflects concerns over Metris’ aggressive internal growth rate, which has been running at an annual rate of 60%+ this year. S&P also noted the company has experienced a rapid, above average, increase in chargeoffs, and when factoring in the company’s growth rate, the 12-month lagged chargeoff ratio exceeds 16% for the third quarter.


Japanese Fraud Detection

Japan’s CSK and RI-based Nestor, Inc. released a real-time credit card fraud detection system for the Japanese credit card market this weekend. ‘Real-Time PRISM’ is designed to detect and report/prevent fraud at the authorization transaction process. In Japan typical card fraud involves one high amount purchase transaction. The system will process about 75 transactions per second.


Chevy Chase Makes Acquisition

Cape Cod Bank and Trust Co said Friday it expects to post a one-time gain of about $2 million in the fourth quarter from the sale of its personal credit card portfolio.

It sold the portfolio to Chevy Chase Bank FSB, a credit card issuer.

The decision to sell the portfolio was based in part on increasing credit card competition, President and Chief Executive Stephen Lawson said in a statement.

Lawson said the bank would continue to offer its credit card through a partnership arrangement with Chevy Chase and that its customers “will benefit by increased service and additional enhancements to the card.”


Datastrip Update

Datastrip Inc. and Datastrip Limited announced today a series of key business developments, commencing with the appointment of two new additions to its corporate management team.

Stephen Hunt has been named President and CEO of Datastrip Inc. In this position, Stephen is responsible for Datastrip operations throughout the U.S. Stephen joins Datastrip after a long career with Unisys Corporation, where he was responsible for product development and marketing of Unisys personal identification systems and credit card management systems.

Steve Blackmore has been appointed General Manager of Datastrip Limited, responsible for company operations throughout the United Kingdom. Steve joins Datastrip Limited after a distinguished career with Peak Technologies.

Datastrip also announced two new technology developments. Fox Technology Pty Ltd, of North Ryde, NSW, Australia, has named Datastrip its U.S. and U.K. master Distributor for the FoxID32Lite(TM), FoxID32(TM), and FoxID32Ultra(TM) Identification Card production software. Datastrip further announced its release of The Datastrip Windows 95/NT(TM) developer kit.

FoxID32 applications feature Datastrip’s advanced two-dimensional bar code technology for storing photo, text, signature, and biometric information. In the FoxID32 applications, Datastrip 2-dimensional bar code software stores over 1,200 bytes of information in a space measuring 2/3 of an inch wide, by 3 inches in length. The higher density Datastrip 2D bar code minimizes the ID card space required to store 2-Dimensional information, allowing for the printing of additional text and image information. In some cases, for instance, Datastrip 2D code requires 1/4th the space of PDF-417 two-dimensional code. Some Datastrip readers are supplied with LCD displays and decode processors that support Point of Activity (POA) Interrogation of the 2-Dimensional code. In many applications, this stand-alone capability eliminates the need for installation of additional processors and may significantly reduce system implementation costs. When remote processing power is preferred and available, Datastrip readers can be linked directly to the host via a serial RS-232 interface. Datastrip bar code is also well suited for asset management and documentation management, and access control applications.

The Datastrip Windows 95/NT developer toolkit is a set of software components (functions) enabling software developers to integrate a variety of functions related to the printing and reading of two-dimensional Datastrips into their Microsoft 95/NT-based applications. The software components are supplied in the form of a Windows Dynamic Link Library (DLL) supporting standard 32-bit calling conventions. Support is provided for Microsoft and Borland C++ compilers, as well as Visual Basic and other programming environments that support the 32-bit Window API. As a result, applications can be developed using any of a wide variety of programming environments. Whether information is text based, photographic or biometric, the Windows 95/NT toolkit provides developers will full control over Datastrip production, data compression, data redundancy and specialized features, such as inkspread compensation. The toolkit includes the Datastrip Wizard, a demonstration application which generates sample Datastrips, and “C” source code, providing programmers with numerous toolkit usage examples and insight to Datastrip generation.

Datastrip said it continues to form VAR, OEM and distributor relationships, and will host booth #1955 at SCAN TECH, November 4-6, 1997, at McCormick Place South, Chicago.

Datastrip (IOM) Limited also reported that its patent infringement suit against Symbol Technologies is now in the discovery process. On February 21, 1997, Datastrip brought an action for patent infringement under the Patent Laws of the United States in U.S. District Court for the District of Delaware (No. 97-70) against Symbol for misappropriating Datastrip’s breakthrough invention on two-dimensional bar codes. That invention was granted U.S. Patent No. 4,782,221 in 1988.

Finally, Datastrip Inc. announced that it has moved its U.S. corporate headquarters from Reston, Virginia to Exton, Pennsylvania. The new office is located at 559 West Uwchlan Avenue, Suite 130, Exton, PA 19341-3013. Management, Sales and Technical support staff can be reached by calling 800-548-2517.

Datastrip (IOM) Limited is a Isle of Man-based company engaged in the business of designing, manufacturing and selling optical scanners that read printed bar codes and transmit for use or for further processing the encoded information. Datastrip’s patented products would allow, for example, the addition of bar code labels to drivers licenses, ID cards, medical cards and the like, to provide compact information, high security and prevent forgery or alteration.