SPS Chargeoffs/Delinquencies Top 9%

SPS Transaction Services, Inc. today reported net income of $9.8 million or 36 cents per share for the quarter ended September 30, 1997, as compared to $5.6 million or 21 cents per share for the same period last year. Third quarter net operating revenues were $82.4 million, a 3 percent increase over $79.6 million in 1996.

Net income for the nine months ended September 30 was $26.2 million, or 96 cents per share, a 13 percent increase compared to 85 cents for the same period in 1996. Net operating revenues for the first nine months have increased 3 percent to $260.6 million.

“We believe the increase in our earnings over the past two quarters is confirmation that we are on the right track,” said Robert L. Wieseneck, SPS president and chief executive officer. “We continue to focus on improving the profitability of our asset-based consumer credit card business while emphasizing profitable growth in our fee-based businesses.”

The company reported a 25 percent increase in active commercial accounts at the end of the quarter to 955,000 from 764,000 a year ago. Electronic transactions processed for the quarter were 118.5 million, an 8 percent increase year over year. TeleServices average revenue per call increased while third quarter customer contacts decreased 4 percent.

Total loans outstanding, which represent both owned and securitized credit card loans, were $1.8 billion at September 30, 1997, down from $2.0 billion at the end of the same period last year. Active consumer private label accounts, both owned and managed, decreased to 3.0 million from 3.3 million at the end of the third quarter last year.

SPS Transaction Services, Inc., a majority-owned subsidiary of Morgan Stanley, Dean Witter, Discover & Co., provides a range of technology outsourcing services including the processing of credit card transactions, private label credit card programs, commercial accounts receivable processing and call center teleservices activities.

Financial Highlights

(In Thousands, Except Per Share Data)

Three Months Ended September 30,
1997 1996 % Change

Net Operating Revenues $ 82,351 $ 79,572 3%
Net Income $ 9,839 $ 5,598 76%
Net Income per Common Share $ 0.36 $ 0.21 71%

Weighted Average Common Shares
Outstanding 27,217 27,194 —

Nine Months Ended September 30,

1997 1996 % Change
Net Operating Revenues $ 260,598 $ 251,879 3%
Net Income $ 26,214 $ 23,226 13%
Net Income per Common Share $ 0.96 $ 0.85 13%

Weighted Average Common Shares
Outstanding 27,208 27,165 —


(In thousands, except per share data)

Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
(Unaudited) (Unaudited)
Processing and service
revenues $66,507 $65,712 $209,080 $204,808
Merchant discount revenue 3,981 10,163 10,797 25,382
Total 70,488 75,875 219,877 230,190

Interest revenue 58,038 53,972 184,515 166,118
Interest expense 17,695 18,238 57,521 59,824

Net interest income 40,343 35,734 126,994 106,294
Provision for loan losses 28,480 32,037 86,273 84,605

Net credit income 11,863 3,697 40,721 21,689

NET OPERATING REVENUES 82,351 79,572 260,598 251,879

Salaries and employee
benefits 27,064 23,736 84,861 72,407
Processing and service
expenses 22,153 26,589 74,849 80,096
Other expenses 17,110 20,221 58,194 61,915

Total operating expenses 66,327 70,546 217,904 214,418

Income before income taxes 16,024 9,026 42,694 37,461
Income tax expense 6,185 3,428 16,480 14,235

NET INCOME $ 9,839 $ 5,598 $ 26,214 $ 23,226

NET INCOME PER COMMON SHARE $ 0.36 $ 0.21 $ 0.96 $ 0.85

Weighted Average Common Shares
Outstanding 27,217 27,194 27,208 27,165



(In thousands, except share data)

September 30, December 31,
1997 1996

Cash and due from banks $ 15,169 $ 15,205
Investments held to maturity – at
amortized cost 41,576 41,675
Credit card loans 1,245,080 1,637,507
Allowance for loan losses (75,236) (88,397)

Credit card loans, net 1,169,844 1,549,110
Accrued interest receivable 18,512 21,141
Accounts receivable 29,551 42,202
Due from affiliated companies 8,115 9,900
Amounts due from asset securitizations 56,915 —
Premises and equipment, net 29,431 25,294
Deferred income taxes 33,409 38,266
Prepaid expenses and other assets 14,672 17,992

TOTAL ASSETS $1,417,194 $1,760,785

Noninterest-bearing $ 4,500 $ 9,012
Interest-bearing 531,332 454,423

Total deposits 535,832 463,435
Accounts payable, accrued expenses
and other 47,016 50,019
Income taxes payable 3,383 17,756
Due to affiliated companies 557,262 982,547
Accrued recourse obligation 22,636 22,636

Total liabilities 1,166,129 1,536,393

Preferred stock, $1.00 par value, 100,000
shares authorized; none issued or
Common stock, $.01 par value, 40,000,000 and
40,000,000 shares authorized; 27,270,663 and
27,242,207 shares issued; 27,220,277 and
27,187,462 shares outstanding at September 30,
1997 and December 31, 1996, respectively 273 272
Capital in excess of par value 81,493 81,096
Retained earnings 170,559 144,345
Common stock held in treasury, at cost, $.01
par value, 50,386 and 54,745 shares at
September 30, 1997 and December 31, 1996,
respectively (1,242) (1,312)
Stock compensation plan 483 453
Employee stock benefit trust (483) (413)
Unearned stock compensation (18) (49)

Total stockholders’ equity 251,065 224,392

EQUITY $1,417,194 $1,760,785


Three Months
Three Months Ended Ended Nine Months Ended
September 30, June 30, September 30,
1997 1996 1997 1997 1996
(unaudited) (unaudited) (unaudited)
Income Statement
Data (thousands)
services $22,771 $20,698 $24,169 $71,402 $62,787
Managed Programs 21,296 21,074 22,328 67,019 66,312
HSB Programs 12,310 13,107 11,576 37,905 36,308
Servicing fees on
loans 10,130 10,833 9,191 32,754 39,401

Processing and
revenues $66,507 $65,712 $67,264 $209,080 $204,808

Balance Sheet Data
Total loans* $1,825.1 $2,013.4 $1,918.6 $1,825.1 $2,013.4
Owned loans $1,245.1 $1,433.4 $1,338.6 $1,245.1 $1,433.4

Total loans* $1,875.4 $2,003.7 $2,007.6 $2,017.8 $2,099.7
Owned loans $1,295.4 $1,423.7 $1,427.6 $1,437.8 $1,517.0

Operating Data
processed 118,548 110,136 109,064 329,494 312,103
processed** 1,946 2,023 2,117 6,613 6,762
Active consumer
private label
(end-of-period) 2,966 3,337 3,075 2,966 3,337
Active commercial
(end-of-period) 955 764 945 955 764

Asset Quality
Net charge-off
%(Total loans)* 9.4% 8.4% 8.8% 9.0% 7.3%
Net charge-off
%(Owned) 9.9% 8.9% 8.8% 9.2% 7.4%

30-89 days
%(Total loans)* 5.7% 5.3% 5.0% 5.7% 5.3%
30-89 days
%(Owned) 6.2% 5.7% 5.4% 6.2% 5.7%

90-179 days
%(Total loans)* 4.1% 3.8% 3.7% 4.1% 3.8%
90-179 days
%(Owned) 4.6% 4.1% 4.0% 4.6% 4.1%

Allowance for loan
losses (Owned)
(thousands) $ 75,236 $ 65,648 $ 79,120 $ 75,236 $ 65,648

Allowance for
loan losses
%(Owned) 6.0% 4.6% 5.9% 6.0% 4.6%

* Total loans represents both
owned and securitized credit
card loans.

**Reflects a correction to previously released 1997 contacts processed.
Contacts processed increased by 121 thousand and 216 thousand for the
first and second quarter of 1997, respectively.


SMARTALK Buys Frontier Cards

SMARTALK Teleservices signed an agreement Wednesday to purchase Frontier Corp’s prepaid phone card business for $35 million in cash. The acquisition will add 4,000 retail locations to SMARTALK’s national distribution channel of 36,000 current locations. SMARTALK has been on a buying binge this year with the acquisition of ConQuest Telecommunications. Yesterday’s deal is expected to close by year’s end.


Chase to Buy BONY Cards

Chase Manhattan agreed yesterday to purchase substantially all of Bank of New York’s credit card portfolio. BONY has been divesting its card portfolio since the first quarter of 1996 when it held $8.8 billion in receivables. At the end of third quarter BONY held $4,177,905,000 in receivables, according to CardData. Chase will absorb all BONY card accounts, except late cycle delinquent and bankruptcy accounts, and will establish an agent program with BONY. Chase indicated yesterday it will offer employment to the majority of BONY’s Delaware credit card employees. The acquisition, expected to close by year’s end, will boost Chase Manhattan’s account base to about 21.4 million accounts and approximately $31.4 billion in receivables. During the third quarter Chase acquired First Omni Bank’s $360 million ‘Bell Atlantic’ portfolio. Chase also reported Tuesday a 6% increase in net income for its card portfolio and that chargeoffs declined from 5.99% in the second quarter to 5.57% in the third.

Chase $27.4b $9.8b $28.1b 17.9m 11.7m 25.0m
BONY $ 4.2b $1.4b $ 4.2b 3.7m 1.8m 4.1m
recv-receivables; vol-volume; accts-accounts; actvs-actives;
Source: CardWeb, Inc.’s Bankcard Update/CardData


New E-Wallet

Ma-based Currency Scientific Inc. released it ‘Electronic Wallet’ yesterday which it says goes far beyond the capabilities of smart cards. CSI says its new e-wallet can perform everything from credit, debit, cash, ID, other applications at the point of sale, at ATMs or between consumers. The new CSI product combines ‘Direct Sequence Spread Spectrum’ communications with a hybrid crypto system for secure transactions. The pocket-size device includes a keypad, display and audio speaker and is completely wireless.



IBAA Bancard announced today a new affiliation with the Virginia Association of Community Banks. With this announcement, the VACB joins 32 state banking organizations that exclusively endorse IBAA Bancard’s merchant program. Forty-two Virginia banks are already participants in IBAA Bancard programs, issuing credit and debit cards at competitive rates.

“Both the VACB and IBAA Bancard provide invaluable service to community banks. I am happy to see them working together to serve the community banks of Virginia,” remarked VACB president and IBAA Bancard Director Ron Miller.

“We are very pleased with the quality service of IBAA Bancard and we recommend them as a credit card and merchant service provider to all of our member banks,” said Patricia Satterfield, the state organization’s executive director. “With Bancard, our members can add a profitable product, maintain their independance and give their customers the best service available.”

“It is a great pleasure to welcome the Virginia Association of Community Banks as the newest addition to the IBAA Bancard family of state associations,” noted IBAA Bancard Chairman Richard Mount.

IBAA Bancard was launched in 1985 by the Independent Bankers Association of America and providers community banks with the opportunity to become independent issuers of Visa and MasterCard credit and debit cards. IBAA Bancard is the only national card program dedicated exclusively to the payment system needs of the nation’s community banks.


First Omni Gets $28 million for Bell Atlantic Cards

Allied Irish Banks, p.l.c. (AIB) (NYSE: AIB; AIBPR; FMBPR) today announced that its wholly-owned US subsidiary, First Maryland Bancorp, has reported earnings of $53.5 million for the three months ended September 30th, 1997, a 58.8% increase on 1996. These results include an after-tax gain of $17.4 million from the sale of bankcard loans. Excluding this gain, earnings for the quarter were $36.1 million reflecting an underlying growth of 10% in the core business of both First Maryland and Dauphin.

During the quarter First Maryland sold $360 million of bankcard loans originated under a co-branding arrangement with Bell Atlantic to Chase Manhattan Corporation. The sale resulted in a pre-tax gain of $28.2 million including attributable allowance for credit losses and costs associated with the sale.

For the nine months period ended September 30th, 1997, First Maryland announced earnings of $123.5 million, representing a 28.2% increase over the comparable period in 1996. Excluding the gain from sale of bankcard loans, earnings for the nine months ended September 30th, 1997 were $106.0 million, an increase of 10.1%.

On July 8, 1997 AIB Group completed its merger with the former Dauphin Deposit Corporation which is now a wholly owned subsidiary of First Maryland Bancorp. The third quarter results include the impact of the acquisition of Dauphin which performed strongly and in line with our expectations.

Highlights of First Maryland’s underlying performance for the third quarter were strong growth in retail lending (+14.5%) and commercial lending (+8.5%) since December 1996; and good growth in deposit service charges (12%) and trust and advisory fees (22%) over the comparative period in 1996.

Commenting on the results, Tom Mulcahy, AIB Group Chief Executive said: “The strong third quarter earnings were attributable to continued growth in our core retail, corporate and trust businesses, while we also made significant progress in the integration of the Dauphin franchise. With the completion of the Dauphin acquisition, we are now positioned to take advantage of our leading market share in the Harrisburg/Baltimore corridor while continuing the process of integrating the Dauphin franchise.”

Asset quality remains strong with non-performing assets of $89.7 million amounting to 0.52% of total assets. Non-performing loans of $72.0 million were covered 244% by total provisions of $175.5 million.

First Maryland Bancorp is the holding company for the First National Bank of Maryland, Dauphin Deposit Bank, The York Bank and First Omni Bank. Headquartered in Baltimore, First Maryland operates 291 branches and nearly 400 ATMs from southern Pennsylvania through Maryland and the District of Columbia and into northern Virginia. First Maryland currently has assets of $17.3 billion.


Consolidated Statements of Condition

September 30 December 31 September 30
1997 1996 1996
(in thousands)
Cash and due from banks $963,763 $842,032 $826,779
Money market investments 101,233 75,260 46,896
Investment securities
available-for-sale 4,320,034 2,552,620 2,801,694
Loans held-for-sale 434,438 150,742 159,885
Loans, net of unearned income of
$175,408, $130,026 and $121,251:
Commercial 2,827,189 1,731,031 1,787,747
Commercial real estate 2,228,170 1,453,244 1,418,975
Residential mortgage 1,045,602 833,045 838,208
Retail 2,509,844 1,380,767 1,340,145
Bankcard 142,510 596,474 468,190
Leases receivable 730,501 438,060 399,495
Foreign 394,473 365,824 362,401
Total loans, net of
unearned income 9,878,289 6,798,445 6,615,161
Allowance for credit losses (175,462) (154,802) (170,529)
Loans, net 9,702,827 6,643,643 6,444,632

Premises and equipment 195,026 106,701 106,254
Due from customers on acceptances 10,987 8,725 9,878
Intangible assets 1,076,027 98,847 107,840
Other assets 459,991 312,454 338,039
Total Assets $17,264,326 $10,791,024 $10,841,897


Domestic deposits:
Noninterest bearing deposits $2,629,276 $2,248,252 $2,224,720
Interest bearing deposits 9,028,348 5,135,616 5,130,774
Interest bearing deposits in
foreign banking office 194,640 113,830 142,896
Total deposits 11,852,264 7,497,698 7,498,390
Federal funds purchased and
securities sold under
repurchase agreements 1,349,423 533,547 609,980
Other borrowed funds, short-term 805,393 821,477 647,236
Bank acceptances outstanding 10,987 8,725 9,878
Accrued taxes and other liabilities 585,150 297,525 309,501
Long-term debt 409,971 229,742 554,729
Guaranteed preferred beneficial
interests in Company’s junior
subordinated debentures 295,758 147,113 –
Total Liabilities 15,308,946 9,535,827 9,629,714

Redeemable preferred stock 7,847 7,700 9,000

Total stockholders’ equity 1,947,533 1,247,497 1,203,183
Total liabilities, redeemable
preferred stock and
stockholders’ equity $17,264,326 $10,791,024 $10,841,897

Consolidated Statements of Income

Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
(in thousands) (in thousands)

Interest and fees on loans $200,495 $130,600 $476,305 $384,869
Interest and dividends on
investment securities
Taxable 66,044 40,341 143,530 125,008
Tax-exempt 5,186 1,572 7,970 4,842
Dividends 1,388 455 2,761 1,035
Interest and fees on loans
held-for-sale 7,554 2,467 11,550 6,571
Interest on money market
investments 2,606 3,054 15,786 11,334
Total interest and
dividend income 283,273 178,489 657,902 533,659

Interest on deposits 96,626 51,736 197,807 152,706
Interest on federal funds
purchased and other
short-term borrowings 31,814 15,330 74,395 54,710
Interest on long-term debt 7,596 9,457 16,668 27,782
Interest on guaranteed preferred
beneficial interests in Company’s
junior subordinated debentures 5,327 – 14,735 –
Total interest expense 141,363 76,523 303,605 235,198

NET INTEREST INCOME 141,910 101,966 354,297 298,461
Provision for credit losses 7,434 2,000 26,634 6,000

PROVISION FOR CREDIT LOSSES 134,476 99,966 327,663 292,461

Gain on sale of bankcard loans 28,155 – 28,155 –
Service charges on
deposit accounts 26,437 20,376 69,978 58,791
Mortgage banking income 18,110 10,904 30,981 22,810
Trust fees 14,330 7,470 31,177 20,920
Servicing income 8,489 7,401 20,515 19,236
Credit Card income 7,385 2,056 12,545 8,262
Securities gains (losses), net (230) (126) 278 175
Other income 16,830 9,303 43,276 29,865
Total non interest income 119,506 57,384 236,905 160,059

Salaries and wages 74,141 47,325 168,005 134,458
Intangible assets
amortization expense 16,218 2,680 20,722 6,018
Other personnel costs 14,835 9,691 37,553 34,664
Equipment costs 11,895 8,103 28,949 24,474
Net occupancy costs 10,550 8,511 26,689 23,683
Other operating expenses 41,624 26,713 88,479 78,206
Total non interest expenses 169,263 103,023 370,397 301,503

INCOME BEFORE INCOME TAXES 84,719 54,327 194,171 151,017
Income tax expense 31,190 20,625 70,715 54,712
NET INCOME $53,529 $33,702 $123,456 $96,305


Concord EFS Up 60%

Concord EFS Inc. and subsidiaries (NASDAQ/OTC: CEFT) (the company) reported third quarter earnings per share of $0.18, up 50% from the same quarter of the prior year.

Other third quarter results include revenue of $64,716,208, up 47%, and net income of $11,422,497, up 60%.

For the nine months ended Sept. 30, 1997, the company reported earnings per share of $0.47, up 52%, revenue of $168,519,856, up 42%, and net income of $29,485,734, up 63%, when compared to the same nine month period of the prior year.

“The quarter was highlighted by the accelerated growth in the bankcard processing business. The company continues to execute its plan in rolling out new merchant locations in the supermarket, retail and oil & gas niches if the business,” said Dan Palmer, chairman and CEO. Palmer added, “The company also continues to benefit from changes in the manner in which consumers pay for goods and services from the traditional checks and cash to credit and debit card transactions.”

The digested performance is:

Quarter Quarter Nine Months Nine Months
Ended Ended Ended Ended
9/30/97 9/30/96 9/30/97 9/30/96

Revenue $ 64,716,208 $ 44,051,002 $168,519,856 $118,803,414

Operating Income 14,600,040 10,157,783 38,110,119 25,914,483

Net Income 11,422,497 7,148,529 29,485,734 18,079,339

Earnings Per
Share $ 0.18 $ 0.12 $ 0.47 $ 0.31


Citibank Oscillates

It was an up/down quarter for Citibank as its card portfolio ROA dropped to 1.82% from 3.55% a year ago. Global card net income dropped 39% compared to 3Q-96, from $241 million to $147 million. Card earnings were affected by a number of factors including a $95 million restructuring charge, a 3% decline in U.S. card accounts and a 5.58% chargeoff rate (based on average loans) for the U.S. portion. At the end of the third quarter Citibank’s YTD U.S. card volume totaled $74.9 billion. Citi’s worldwide card account base is 36 million with 24.3 million U.S. accounts. Citi continues to be active overseas as it now has 22 million cards-in-force (including Diners Club) in Latin America, Asia and Europe.



VISA and MasterCard’s Bankruptcy Issues Council took off the gloves yesterday by attacking the National Bankruptcy Review Commission’s bankruptcy reform proposals. BIC said the BRC is bitterly divided on consumer bankruptcy issues as four of nine commissioners have signed a 70-page, sharply-worded dissent. BIC said the BRC has wasted nearly $2 million of taxpayer dollars over three years and has yet to agree on a consensus framework for overhauling bankruptcy laws. BIC says the BRC has produced nothing but a mishmash of smaller measures, mostly on 5-4 votes. BIC has said it’s up to Congress to develop meaningful reform.


MasterCard Completes E-Commerce Tests

MasterCard First Company to Introduce SET Pilots in Every Region of world with Banamex’s SET implementation in Latin America

MasterCard International announced today that it has successfully completed the testing phase of its secure electronic commerce initiative and is now focusing on global commercialization to meet the demand for a reliable, safe and convenient way to buy and sell on the Internet.

The announcement was made at a meeting of MasterCard’s Electronic Commerce Advisory Group, which was attended by representatives of more than 30 MasterCard member financial institutions from around the globe.

During the meeting, Banamex, a leading Mexican bank with 50% of the international credit card acquiring business in that country, announced its plan to tap MasterCard’s global experience to create an online travel shopping mall. The new site will demonstrate ways to conduct business profitably and safely on the Internet, allowing Banamex and its merchant partners to reach out to an international customer base. Travel agents, tour companies, airlines, hotels, resorts and car rental companies will participate in the Banamex Internet site, which is expected to see its first transaction in December of this year.

MasterCard’s electronic commerce pilots today span every region of the world. MasterCard is involved in 67 electronic commerce pilots in 32 countries. These pilots involve nearly innovative 90 members that represent more than 90% of MasterCard’s volume.

“Today, electronic commerce is poised to go mainstream,” said Steve Mott. “The successful coordination of MasterCard implementations around the globe has set the stage for a global wave of electronic commerce as we move from the pilots into commercialization.”

The Banamex program will use the most recent version of the SET Secure Electronic Transaction* protocol, 1.0, creating a secure and convenient way for consumers to book travel services online.

“With more than $6 billion in international tourism receipts coming into Mexico in 1996, the potential for international travel sales is enormous,” said Marco Antonio Giardiello, of Banamex. “We believe there is an incredible opportunity to connect Mexican retailers with a global customer base reliably and safely with a secure Internet site.”

The market for electronic commerce in Latin America is expected to grow dramatically over the next several years, mirroring global estimates for electronic commerce. For example, in 1996 visitors to Cancun booked 4000 hotel rooms online — without any coordinated effort to promote online reservations. With a secure electronic commerce initiative and the marketing support surrounding the Banamex effort, that number could grow exponentially.

Global Innovation

In addition to Banamex, MasterCard supports the efforts of innovative members around the globe that are working on the leading edge of electronic commerce:

— In July 1997, the Swiss financial association Telekurs and Europay implemented an electronic commerce program using SET 1.0 software and are conducting transactions.

— In South Africa, Boland Bank has been using SET 1.0 software since July 1997.

— In Japan, Fuji Bank and UC Card are conducting the world’s largest SET-based program, involving more than 100,000 cardholders. These partners are looking even farther ahead, demonstrating the potential of PIN-based debit cards for Internet transactions because consumer demand in Japan calls for this type of payment vehicle for Internet commerce.

Combined, these initiatives have seeded the market and created a ground swell of support from members, merchants, technology vendors and consumers. MasterCard views its role as providing leadership and direction to the constantly evolving, fluid environment known as electronic commerce.

Three-phase strategy

The business case for electronic commerce rests on the need for a secure, convenient, cost-effective and reliable infrastructure which seamlessly connects buyers and sellers together in a global marketplace. “Building this business case requires three distinct yet connected phases to be successful: creating the technological capability, making electronic commerce commercially viable, and expanding the options and services available to online participants,” said Jerry McElhatton, executive vice president of MasterCard International and president of Global Technology and Operations. “We’ve been successful in helping banks and merchants understand how they can profit from the new opportunities available to them in the online world, and have placed strong emphasis on creating an open, industry standard that will facilitate global electronic commerce.”

Phase 1. The focus of MasterCard’s efforts during the first phase of its three-phase strategy was the creation – with Visa International and a wide range of industry-leading companies – of the SET Secure Electronic Transaction* protocol.

Phase 2. In the second phase of its electronic commerce plan, which MasterCard announced today at its Electronic Commerce Advisory Group meeting, MasterCard is creating a global, commercially viable network of merchants, financial institutions and cardholders. MasterCard’s role in this move toward commercialization include:

— Assisting its members in seamlessly transitioning to SET 1.0 software implementations when those systems are production-ready.

— MasterCard will conduct merchant promotions and consumer education campaigns to raise awareness of online commerce.

— MasterCard will begin linking the programs of its members to create a coordinated, cohesive program that will allow financial institutions, cardholders and merchants around the globe to conduct electronic commerce in the virtual marketplace.

Phase 3. MasterCard’s global reach and technological strengths offer the ability to build alliances that deliver electronic commerce solutions that meet market needs. In addition to promoting SET as the best available solution available today to create a global electronic commerce marketplace, in the third phase of MasterCard’s electronic commerce plan, it will:

— Create an even broader electronic commerce platform – one that uses cutting edge technologies (to make electronic commerce better faster, more cost effective).

— Introduce new payment systems and vehicles (chip, debit, electronic cash, web television, screen phones, etc.)

— Develop on solutions that tap the enormous potential of Mondex chip technology for payments over the Internet.

MasterCard International, a payments company with one of the world’s most recognized brands, is dedicated to helping more than 23,000 financial institutions around the world offer consumers a variety of payment options. MasterCard remains focused on helping shape the future of money by expanding acceptance of its global brands (MasterCardr, Maestror, Mondex(tm) and Cirrusr, the world’s largest ATM network) and maintaining reliable, secure networks facilitating global value exchange. MasterCard has 400 million credit and debit cards that are accepted at more than 14 million merchant, cash and ATM locations worldwide. In 1996, gross dollar volume generated exceeded $550 billion. MasterCard can be reached through its World Wide Web site at .


Hypercom Tests Dual Terminal in NYC

Now that the long-awaited Visa Cash/Mondex interoperability pilot program is underway on New York’s Upper West Side, one point of sale (POS) terminal manufacturer, Hypercom Inc., is also testing merchant acceptance of an integrated terminal system that accepts both smart card and credit card transactions.

The Visa Cash/Mondex test is being sponsored/conducted under the joint auspices of MasterCard, Visa, Chase Manhattan and Citibank, and involves approximately 500 merchants on the upper west side of Manhattan in an area west of Central Park from West 60th to West 96th Streets.

“This pilot is as much a test of consumer and merchant acceptance of smart card technology as it is the interoperability of the two electronic cash systems,” said Howard Mandelbaum, Director of Smart Card Technology for Hypercom Inc., the world’s largest independent provider of payment transaction technologies. “For the participating merchants who already accept credit cards, the Hypercom terminal means they are not forced to contend with two different machines taking up valuable counter space.”

The Hypercom solution consists of a T7P integrated POS terminal and printer and the S7SC-Quad SIM Smart Card PIN pad, and is the only terminal in the test able to process both smart card and credit card transactions. Because the printer is integral to the unit, it is able to generate duplicate customer/merchant receipts of each transaction. It is compatible with the latest release of the Europay, MasterCard, Visa (EMV) specification and recently passed Type Approval testing by Mondex International. The terminal incorporates a captive IC card reader that prevents the card from being removed by the consumer during the transaction to avoid an inadvertent corruption of the data in the card’s EEPROM memory.

Hypercom terminals are deployed through NOVUS® Services.

During the Visa Cash/Mondex test, Chase Manhattan and Citibank are each issuing approximately 25,000 Smart Cards which participants can use as “electronic wallets.” Value can be transferred into the cards from local Chase Manhattan or CitiBank ATM machines (which have been modified to accept smart cards for the test).

Under the Mondex system, value can then be transferred from the cardholder’s card directly to the merchant’s card through the merchant’s POS Smart Card terminal. At the end of the day, the value that has accumulated in the merchant’s card can be transferred to the merchant’s bank account.

Hypercom Inc.

Hypercom Inc. is a leading supplier of point-of-sale (POS) hardware, software and network payment automation products. For more than a decade, Hypercom has been providing solutions for delivering and processing financial transactions which enable end users to easily add evolving payment applications and expand their POS networks. Headquartered in Phoenix, AZ, Hypercom markets its products in more than 50 countries via 65 global distributors. John Marshal is St. VP of Sales and Marketing for Hypercom.


NOVUS Services, a business unit of Morgan Stanley, Dean Witter, Discover & Co., operates the Discover® Card, the NOVUS® Network and a growing number of new card brands accepted at all NOVUS Network locations.

NOVUS Network

The NOVUS Network, the third largest credit card network in the United States, consists of merchant and cash access locations that accept the Discover Card and other NOVUS Card brands.


Banc One Passes 40 Million Cards

BANC ONE CORPORATION, Columbus, Ohio (NYSE: ONE) reported earnings for the 1997 third quarter and nine months of $433.2 million ($0.73 per common share) and $830.9 million ($1.40 per common share), respectively. This compares with $412.8 million ($0.69 per common share) and $1.231 billion ($2.04 per common share) in the same year-ago periods.

Adjusting for the impact of the 1997 first quarter announced accounting adjustment by First USA related to the recognition of securitization gains, third quarter operating earnings would have been a record $480.2 million, up 16 percent, or $0.81 per common share, up 17 percent, from the year-ago quarter. On the same basis, and excluding the 1997 second quarter charges related to the acquisition of First USA and other strategic initiatives, nine month operating earnings would have been a record $1.3 billion, up 6 percent, or $2.21 per common share, up 8 percent, from the same prior-year period.

John B. McCoy, Chairman and Chief Executive Officer of BANC ONE CORPORATION, said, “This was a spectacular quarter for BANC ONE. Not only did we produce strong earnings, but the operating ratios improved in most areas. We have established great momentum and energy in loan growth, particularly in the credit card business under First USA’s management. We are also very much encouraged by the decline in credit losses. We expect continued strong performance for the remainder of 1997 and throughout 1998. We are also pleased with the announcement that was made on October 20 that First Commerce in Louisiana plans to join BANC ONE in early 1998.”

Earnings strength was fueled by continued strong managed loan growth, a wider managed net interest margin, and strong revenue growth which was partially offset by higher expenses associated primarily with business development.

Average managed loans and leases increased during the 1997 third quarter at an annualized rate of 13 percent. Managed loans include the total of on- balance sheet loans, loans sold with servicing retained excluding securitized mortgages, and loans held for sale. Average managed consumer loans, excluding credit cards, increased at an 11 percent annualized rate.

During the 1997 third quarter, average managed credit card loans increased at an annualized rate of 27 percent with a record 2.3 million new credit card accounts opened, exceeding the previous record of 2.2 million set last quarter. At September 30, 1997, managed credit cards totaled $38.9 billion, up $2.8 billion from the end of the prior quarter with Cardmembers totaling 40.4 million, up 2.6 million.

The managed net interest margin in the 1997 third quarter increased to 6.35 percent from 6.25 percent in the second quarter. This resulted from a combination of factors, but primarily was attributable to a better earning asset mix reflecting the planned sale of low-margin investment securities and generation of higher-margin consumer and credit card loans.

Noninterest income totaled $1.1 billion, up $272.4 million from the 1997 second quarter reflecting growth in a number of fee income businesses, but primarily credit card servicing income and venture capital gains.

Noninterest expense totaled $1.5 billion, up $148.4 million from the second quarter after excluding the second quarter’s one-time charges primarily reflecting higher business growth and development costs.

Net charge-offs during the 1997 third quarter totaled $289.4 million representing 1.34 percent of average loans and leases, down from $293.8 million or 1.42 percent in the second quarter. Net charge-offs on managed credit card loans declined to 5.78 percent during the 1997 third quarter from 6.22 percent in the prior quarter. Managed credit card delinquencies over 90 days declined to 2.02 percent at September 30, 1997 from 2.11 percent at June 30, 1997.

Nonperforming assets at September 30, 1997 represented 0.58 percent of period-end loans and leases, little changed from the 0.53 percent level at the end of the second quarter. The September 30, 1997 allowance for loan and lease losses, expressed as a percent of period-end loans and leases, was unchanged at 1.62 percent.

Capital levels remained strong. The September 30, 1997 total equity to assets ratio was 8.92 percent, up 39 basis points from June 30, 1997, with the tangible common equity to tangible assets ratio at 7.92 percent, up 40 basis points.

BANC ONE CORPORATION had total managed assets of $142.9 billion, total assets of $113.1 billion, and common equity of $9.9 billion at September 30, 1997. BANC ONE operates banking centers in 12 states. BANC ONE also owns several additional corporations that engage in a full range of financial services. Information about BANC ONE’s financial results and its products and services can be accessed on the Internet at: ; through InvestQuest at: ; or through Fax-on-demand at: 614-844-3860.