<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended June 30, 1997
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission file Number 1-10993
SPS TRANSACTION SERVICES, INC.
(Exact name of Registrant as specified in its charter)
Delaware 36-3798295
(State of incorporation) (I.R.S. Employer
Identification No.)
2500 Lake Cook Road, Riverwoods, IL 60015
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (847) 405-3400
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
As of July 31, 1997, the Registrant had 27,215,136 shares of common stock,
$0.01 par value, outstanding.
Page 1 of 17 pages
<PAGE>
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
SPS TRANSACTION SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
- -------------------------------------------------------------------------------
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS:
Cash and due from banks $ 25,112 $ 15,205
Investments held to maturity - at amortized cost 49,507 41,675
Credit card loans 1,338,600 1,637,507
Allowance for loan losses (79,120) (88,397)
---------- ----------
Credit card loans, net 1,259,480 1,549,110
Accrued interest receivable 20,349 21,141
Accounts receivable 32,786 42,202
Due from affiliated companies 7,495 9,900
Amounts due from asset securitizations 56,915 --
Premises and equipment, net 26,732 25,294
Deferred income taxes 33,463 38,266
Prepaid expenses and other assets 15,007 17,992
---------- ----------
TOTAL ASSETS $1,526,846 $1,760,785
========== ==========
LIABILITIES:
Deposits:
Noninterest-bearing $ 3,884 $ 9,012
Interest-bearing 490,180 454,423
---------- ----------
Total deposits 494,064 463,435
Accounts payable, accrued expenses and other 48,817 50,019
Income taxes payable 8,034 17,756
Due to affiliated companies 712,194 982,547
Accrued recourse obligation 22,636 22,636
---------- ----------
Total liabilities 1,285,745 1,536,393
---------- ----------
STOCKHOLDERS' EQUITY:
Preferred stock, $1.00 par value, 100,000
shares authorized; none issued or outstanding
Common stock, $.01 par value, 40,000,000 and
40,000,000 shares authorized; 27,262,894 and
27,242,207 shares issued; 27,212,508 and
27,187,462 shares outstanding at June 30, 1997
and December 31, 1996, respectively 273 272
Capital in excess of par value 81,381 81,096
Retained earnings 160,720 144,345
Common stock held in treasury, at cost, $.01
par value, 50,386 and 54,745 shares at June 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 (31) (49)
---------- ----------
Total stockholders' equity 241,101 224,392
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,526,846 $1,760,785
========== ==========
<FN>
See notes to unaudited consolidated financial statements.
</TABLE>
2
<PAGE>
SPS TRANSACTION SERVICES, INC.
CONSOLIDATED STATEMENTS OF INCOME
- -------------------------------------------------------------------------------
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ -------------------
1997 1996 1997 1996
------- ------- -------- --------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Processing and service revenues $67,264 $64,766 $142,573 $139,096
Merchant discount revenue 3,678 7,375 6,816 15,219
------- ------- -------- --------
70,942 72,141 149,389 154,315
Interest revenue 62,401 56,194 126,477 112,146
Interest expense 19,444 18,943 39,826 41,586
------- ------- -------- --------
Net interest income 42,957 37,251 86,651 70,560
Provision for loan losses 26,082 26,096 57,793 52,568
------- ------- -------- --------
Net credit income 16,875 11,155 28,858 17,992
------- ------- -------- --------
Net operating revenues 87,817 83,296 178,247 172,307
Salaries and employee benefits 28,274 24,471 57,797 48,671
Processing and service expenses 24,369 26,836 52,696 53,507
Other expenses 20,543 21,353 41,084 41,694
------- ------- -------- --------
Total operating expenses 73,186 72,660 151,577 143,872
------- ------- -------- --------
Income before income taxes 14,631 10,636 26,670 28,435
Income tax expense 5,647 4,043 10,295 10,807
------- ------- -------- --------
Net income $ 8,984 $ 6,593 $ 16,375 $ 17,628
======= ======= ======== ========
Net income per common share $ 0.33 $ 0.24 $ 0.60 $ 0.65
======= ======= ======== ========
Weighted average common shares
outstanding 27,209 27,183 27,203 27,150
<FN>
See notes to unaudited consolidated financial statements.
</TABLE>
<PAGE> 3
SPS TRANSACTION SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
- -------------------------------------------------------------------------------
(In Thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
----------------------
1997 1996
-------- ---------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 16,375 $ 17,628
Adjustments to reconcile net income to
net cash flows from operating activities
Depreciation and amortization 6,735 7,046
Imputed interest on notes payable -- 15
Provision for loan losses 57,793 52,568
Deferred income taxes 4,803 (231)
(Increase) decrease in operating assets:
Cash and due from banks - restricted -- 29,000
Amounts due from affiliated companies 2,405 1,215
Accrued interest receivable and accounts receivable 10,208 1,445
Amounts due from asset securitizations (56,915) --
Prepaid expenses and other assets 2,392 1,373
Increase (decrease) in operating liabilities:
Accounts payable, accrued expenses and other (963) (5,298)
Income taxes payable (9,722) (8,504)
Due to affiliated companies 5,069 6,339
Accrued recourse obligation -- (505)
-------- --------
Net cash from operating activities 38,180 102,091
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments held to maturity - purchases (105,932) (181,564)
Investments held to maturity - maturities 98,100 176,600
Net principal collected on credit card portfolios 228,904 6,503
Proceeds from sale of credit card loan -- 138,861
Purchases of premises and equipment, net (4,647) (4,432)
-------- --------
Net cash from investing activities 216,425 135,968
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in noninterest-bearing deposits (5,128) (7,368)
Net increase in interest-bearing deposits 35,757 39,595
Due to affiliated companies (275,422) (269,122)
Repayment of notes payable -- (2,110)
Proceeds from exercise of stock options 25 590
Change in treasury stock, net 70 925
-------- --------
Net cash from financing activities (244,698) (237,490)
-------- --------
Increase in cash and due from banks 9,907 569
Cash and due from banks, beginning of period 15,205 8,879
-------- --------
Cash and due from banks, end of period $ 25,112 $ 9,448
======== ========
<FN>
See notes to unaudited consolidated financial statements.
</TABLE>
4
<PAGE>
SPS TRANSACTION SERVICES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND SIX MONTH PERIODS ENDED JUNE 30, 1997 AND 1996
- -------------------------------------------------------------------------------
A. ORGANIZATION AND BASIS OF PRESENTATION
The consolidated financial statements include the accounts of SPS Transaction
Services, Inc. (the "Company") and its subsidiaries. The Company is a 73.5%
majority owned subsidiary of NOVUS Credit Services Inc., which in turn is a
wholly owned, direct subsidiary of Morgan Stanley, Dean Witter, Discover & Co.
("MSDWD").
On May 31, 1997, Morgan Stanley Group Inc. was merged with and into Dean
Witter, Discover & Co. At that time Dean Witter, Discover & Co. changed its
corporate name to Morgan Stanley, Dean Witter, Discover & Co.
The Company provides a range of technology outsourcing services including the
processing of credit and debit card transactions, consumer private label credit
card programs, commercial account processing services, and call center customer
service activities in the United States. SPS Payment Systems, Inc. ("SPS"), a
wholly owned subsidiary of the Company, is incorporated in the State of
Delaware. Hurley State Bank ("HSB"), a wholly owned subsidiary of the Company,
is chartered as a bank by the State of South Dakota and is a member of the
Federal Deposit Insurance Corporation.
The Consolidated Balance Sheet as of June 30, 1997, and the Consolidated
Statements of Income for the three and six months ended June 30, 1997 and 1996,
and the Consolidated Statements of Cash Flows for the six months ended June 30,
1997 and 1996 are unaudited; however, in the opinion of management, all
adjustments, consisting only of normal recurring accruals necessary for fair
presentation, have been reflected. All material intercompany balances and
transactions have been eliminated. Certain reclassifications have been made to
prior year amounts to conform to current presentation. The preparation of the
consolidated financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the financial statements and related disclosures. Management
believes that the estimates utilized in the preparation of the consolidated
financial statements are prudent and reasonable. Actual results could differ
from these estimates.
The consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included in the Company's
1996 Annual Report to Stockholders and Annual Report on Form 10-K. The results
of operations for the interim periods should not be considered indicative of
results to be expected for the full year.
B. RECENT ACCOUNTING PRONOUNCEMENTS
As of January 1, 1997, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities," which is effective for
transfers of financial assets made after December 31, 1996, except for certain
financial assets for which the effective date has been delayed for one year.
SFAS No. 125 provides financial reporting standards for the derecognition and
recognition of financial assets, including the distinction between transfers of
financial assets which should be recorded as sales and those which should be
recorded as secured borrowings. The adoption of the enacted provisions of SFAS
No. 125 had no material effect on the Company's financial position or results
of operations.
5
<PAGE>
The Financial Accounting Standards Board has issued SFAS No. 128, "Earnings
per Share" ("EPS"), effective for periods ending after December 15, 1997, with
restatement required for all prior periods. SFAS No. 128 maintains the current
EPS category of net income per common share with "basic" EPS, which similarly
reflects no dilution from common stock equivalents, and requires "diluted" EPS
which reflects dilution from common stock equivalents based on the average
price per share of the Company's common stock during the period. The adoption
of SFAS No. 128 would not have had, and is not expected to have, a material
effect on the Company's EPS calculation.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income" and SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information." These statements, which are
effective for fiscal years beginning after December 15, 1997, establish
standards for the reporting and display of comprehensive income and disclosure
requirements related to segments.
C. ALLOWANCE FOR LOAN LOSSES AND ACCRUED RECOURSE OBLIGATION
The changes in the allowance for loan losses were as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ------------------
(In Thousands) (In Thousands)
1997 1996 1997 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
Balance, beginning of period $84,394 $66,252 $88,397 $63,704
Additions:
Provision for loan losses 26,082 26,096 57,793 52,568
Deductions:
Charge-offs (37,406) (32,335) (78,767) (62,981)
Less: recoveries 6,050 5,291 11,697 12,013
------- ------- ------- -------
Net charge-offs (31,356) (27,044) (67,070) (50,968)
------- ------- ------- -------
Balance, end of period $79,120 $65,304 $79,120 $65,304
======= ======= ======= =======
</TABLE>
At June 30, 1997, there were $71.9 million in loans past due 30 days through
89 days, and $54.1 million in loans past due 90 days through 179 days.
Credit card loans were reduced by $580.0 million at both June 30, 1997 and
1996, due to the sale with limited recourse of such loans through
securitization transactions. The accrued recourse obligation related to
securitized loans was $22.6 million and $26.6 million at June 30, 1997 and
1996, respectively.
6
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company's net operating revenues consist of processing and service
revenues, merchant discount revenue and net credit income, which are derived as
a result of its four principal business services: Network Transaction Services,
TeleServices, Commercial Accounts Processing and Consumer Credit Card Services.
Processing and service revenues consist of four components (as described
below): Transaction processing services, Managed programs, HSB programs and
Servicing fees on securitized loans.
Transaction processing services include revenues received as a result of
TeleServices and Network Transaction Services such as call center processing,
electronic transaction processing, the sale and servicing of point-of-sale
terminals, and a System Access Agreement with NOVUS Services, Inc., an
affiliated company. Revenues from Network Transaction Services typically are
based on the number of electronic point-of-sale transactions processed rather
than the dollar transaction amount. Revenues from TeleServices typically are
based upon the number, type and length of customer contacts processed through
service activities such as technical help-desk inquiries, customer billing
inquiries, dispatch services and catalog order processing.
Managed programs includes revenues received as a result of Commercial Account
Processing and those Consumer Credit Card Services which the Company
administers, but for which it does not act as the card issuer or own the credit
card loans. Managed Program revenues are derived from fees based on the volume
of the services provided and on services provided in the administration of
credit life insurance programs.
HSB programs refers to those Consumer Credit Card Services for which the
Company issues the credit card on behalf of the client and owns the credit card
loans that are generated through the use of the card. The revenues derived from
the administration of HSB programs that are included as part of processing and
service revenues primarily consist of late fees.
Servicing fees on securitized loans are revenues derived from credit card
loans that have been sold to investors through asset securitizations. Such
revenues are the result of the fees earned for servicing the underlying credit
card accounts. Loan securitizations have the effect of converting portions of
net credit income, merchant discount revenue and credit card fees to a
component of processing and service revenues for the credit card accounts that
are securitized.
Merchant discount revenue is derived from the Company's owned Consumer Credit
Card Services, portions of which are currently deferred and amortized to
interest revenue. Generally, credit card sales are subject to a discount
charged to the merchant based upon contractual percentages. This percentage
varies by portfolio and by the type of credit plan offered.
Interest revenue represents finance charges derived from owned Consumer
Credit Card Services, investment interest and the amortization of deferred
merchant discount revenue. Net credit income is calculated by subtracting
interest expense and the provision for loan losses from interest revenue.
7
<PAGE>
Recent Events
On May 31, 1997, Morgan Stanley Group Inc. was merged with and into Dean
Witter, Discover & Co. At that time Dean Witter, Discover & Co. changed its
corporate name to Morgan Stanley, Dean Witter, Discover & Co.
On May 9, 1997, the Company announced that Thomas C. Schneider, 59, has been
elected Chairman of the Board of Directors. Mr. Schneider succeeds Philip J.
Purcell, Chairman and CEO of our majority-owner, MSDWD. Mr. Purcell will
remain on the Company's Board. Mr. Schneider has served as Chief Financial
Officer and a Director of the Company since its formation in 1992. He will
continue in his role as CFO. Prior to the MSDWD merger, he was Executive Vice
President and Chief Financial Officer of Dean Witter, Discover & Co. As a
result of the MSDWD merger, Mr. Schneider is the Chief Strategic and
Administrative Officer of MSDWD.
Robert L. Wieseneck, SPS President and Chief Executive Officer, also
announced changes in responsibilities for several of the Company's officers
designed to define business unit accountability.
Robert W. Archer, formerly Senior Vice President, Sales, was named Senior
Vice President, Sales and Operations and will assume added management
responsibility for all SPS operations centers.
Richard F. Atkinson, formerly Senior Vice President, Operations, was named
Senior Vice President, Consumer Credit Card Services and Serge Uccetta,
formerly Vice President, Card Services, was named Vice President, Commercial
Accounts Services, giving each accountability for the performance of those
respective businesses.
David J. Peterson was promoted to the new position, Senior Vice President,
Commercial Technology Services. He will add responsibility for TeleServices and
the Company's subsidiaries Med-Link Technologies, Inc. and Ruf Corporation to
his current Network Transaction Services duties.
On July 15, 1997, the Company announced receipt of notice of termination of
its System Access Agreement with NOVUS Services, Inc., an affiliate company.
The agreement will continue under current terms until July 31, 2000. For the
years ended December 31, 1995 and 1996, and for the six months ended June 30,
1997, fees received under this licensing agreement have totaled $8.0 million,
$8.0 million and $4.0 million, respectively. The Company believes that
termination of this agreement on July 31, 2000 will not have a material adverse
effect on the Company's financial position or results of operations.
8
<PAGE>
The following table presents, for the periods indicated, the percentage
relationship that certain statement of income items bear to net operating
revenues and the period-to-period percentage dollar increase or decrease in
each item.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
Period-to-period Period-to-Period
-------------------- --------------------
1997 1996 Change 1997 1996 Change
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
NET OPERATING REVENUES:
Processing and service revenues 76.6% 77.8% 3.9% 80.0% 80.7% 2.5%
Merchant discount revenue 4.2 8.8 (50.1) 3.8 8.9 (55.2)
Net credit income 19.2 13.4 51.3 16.2 10.4 60.4
----- ----- ----- -----
100.0 100.0 5.4 100.0 100.0 3.4
OPERATING EXPENSES:
Salaries and employee benefits 32.2 29.4 15.5 32.4 28.2 18.8
Processing and service expenses 27.7 32.2 (9.2) 29.6 31.1 (1.5)
Other expenses 23.4 25.6 (3.8) 23.0 24.2 (1.5)
----- ----- ----- -----
83.3 87.2 0.7 85.0 83.5 5.4
Income before income taxes 16.7 12.8 37.6 15.0 16.5 (6.2)
Income tax expense 6.5 4.9 39.7 5.8 6.3 (4.7)
----- ----- ----- -----
Net income 10.2% 7.9% 36.3% 9.2% 10.2% (7.1)%
===== ===== ===== =====
</TABLE>
Net income for the three months ended June 30, 1997 was $9.0 million, an
increase of $2.4 million, or 36.3%, over the same period a year ago. Net
income per common share for the three month period was $0.33, compared to $0.24
in the prior year's second quarter. Net income for the six months ended June
30, 1997 was $16.4 million, a decrease of $1.3 million, or 7.1%, over the same
period a year ago. Net income per common share for the six month period was
$0.60, compared to $0.65 for the same period a year ago.
Net operating revenues for the second quarter of 1997 grew to $87.8 million,
an increase of 5.4% over the same period last year. Net operating revenues for
the six months ended June 30, 1997, were $178.2 million, an increase of 3.4%
over the same period last year. The increase in net operating revenues for
both periods resulted primarily from an increase in net credit income and
processing and service revenues partially offset by a decrease in merchant
discount revenue.
Processing and service revenues increased 3.9% to $67.3 million for the three
months ended June 30, 1997, as compared to $64.8 million for the same period
last year. For the six months ended June 30, 1997, processing and service
revenues increased 2.5% to $142.6 million as compared to $139.1 million for the
same period last year. Processing and service revenues represented 76.6% and
77.8% of net operating revenues for the three months ended June 30, 1997 and
1996, respectively. For the six months ended June 30, 1997 and 1996,
processing and service revenues represented 80.0% and 80.7% of net operating
revenues, respectively.
9
<PAGE>
Processing and service revenues consisted of the following:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ -------------------
(In Thousands) (In Thousands)
1997 1996 1997 1996
------- ------- -------- --------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Transaction processing services $24,169 $20,655 $48,631 $42,089
Managed Programs 22,328 22,117 45,723 45,238
HSB Programs 11,576 11,561 25,595 23,201
Servicing fees on securitized loans 9,191 10,433 22,624 28,568
------- ------- -------- --------
$67,264 $64,766 $142,573 $139,096
======= ======= ======== ========
</TABLE>
SUPPLEMENTAL INFORMATION
Components of servicing fees on securitized loans:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ -------------------
(In Thousands) (In Thousands)
1997 1996 1997 1996
------- ------- -------- --------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Processing and service revenues $3,644 $3,400 $8,173 $7,034
Merchant discount revenue 824 906 1,945 1,972
Interest revenue 25,760 24,738 53,831 55,021
Interest expense (8,359) (8,125) (16,513) (16,604)
Provision for loan losses (12,678) (10,486) (24,812) (18,855)
------- ------- ------- -------
Servicing fees on securitized loans $9,191 $10,433 $22,624 $28,568
======= ======= ======= =======
</TABLE>
The increase in revenues from transaction processing services for both the
three and six months ended June 30, 1997, resulted primarily from the addition
of new clients, increased revenue per customer contact processed in our
TeleServices business, a higher volume of Network Transaction Services point-
of-sale transactions processed and increased revenues from the sale and
servicing of point-of-sale terminals. The number of TeleServices customer
contacts processed for the three months ended June 30, 1997, totaled 1.9
million, down 9.8% from 2.1 million in the same period in 1996. For the six
months ended June 30, 1997, the number of TeleServices customer contacts
processed totaled 4.3 million, down 8.6% from 4.7 million in the same period in
1996. The decrease in the number of customer contacts was offset by an increase
in revenues per customer contact processed due to a greater mix of technical
help desk calls to total calls processed. The shift in service minutes to
longer technical service support calls resulted in increased TeleServices
revenues even though total service minutes decreased to 9.1 million and 20.2
million for the three and six months ended June 30, 1997 from 10.8 million and
24.7 million for the same periods in 1996. For the three months ended June 30,
1997, the number of point-of-sale transactions processed totaled 109.1 million,
up 4.1% from 104.8 million in the same period in 1996. For the six months ended
June 30, 1997, the number of point-of-sale transactions processed totaled 210.9
million, up 4.4% from 202.0 million in the same period in 1996. The increase
in revenues from Managed programs for both the three and six months ended June
30, 1997, resulted primarily from an increase in the volume of Commercial
Account Processing Services provided, offset by a decrease in credit life
insurance program revenues. The increase in revenues from HSB programs for the
six months ended June 30, 1997, was due to an increase in late fee revenue
resulting primarily from changes in late fee terms initiated in 1996. The
10
<PAGE>
decrease in servicing fees on securitized loans
for the three and six months ended June 30, 1997 was due primarily to a higher
rate of credit losses on securitized loans.
Merchant discount revenue decreased 50.1% to $3.7 million for the three
months ended June 30, 1997, as compared to $7.4 million for the same period
last year. For the six months ended June 30, 1997 merchant discount revenue
decreased 55.2% to $6.8 million in 1997 compared to the same period last year.
The decrease in merchant discount revenue for the three and six months ended
June 30, 1997, resulted from decreased sales activity and from the deferral of
$1.1 million of merchant discount revenues in the second quarter of 1997 and
the deferral of $3.5 million of merchant discount revenues in the first six
months of 1997 related to interest deferred promotional payment plans. As of
June 30, 1997, $2.8 million of merchant discount revenue has been deferred
which will be amortized and recognized as interest income over the life of the
promotional payment plans. Merchant discount revenue was 4.2% and 8.8% of net
operating revenues for the three months ended June 30, 1997 and 1996,
respectively, and was 3.8% and 8.9% of net operating revenues for the six
months ended June 30, 1997 and 1996, respectively.
For the three months ended June 30, 1997, net credit income increased 51.3%
to $16.9 million from the same period a year ago as a result of higher net
interest income. For the six months ended June 30, 1997, net credit income
increased 60.4% to $28.9 million from the same period a year ago as a result of
higher net interest income partially offset by an increase in the provision for
loan losses.
The increase in interest revenue for the three and six months ended June 30,
1997, resulted primarily from the amortization of $4.2 million and $9.9 million
of deferred merchant discount revenue into interest income, respectively,
related to interest-deferred promotional payment plans and an increase in the
yield on credit card loans due in part to performance-based pricing initiatives
implemented in 1996, partially offset by higher charge-offs of interest
revenue.
The increase in interest expense for the three months ended June 30, 1997,
resulted from higher interest rates on borrowings partially offset by a
decrease in average borrowings due mainly to a decrease in credit card loans.
The decrease in interest expense for the six months ended June 30, 1997,
resulted from a decrease in average borrowings due to a decrease in credit card
loans, coupled with lower interest expense associated with interest rate
contracts.
The increase in the provision for loan losses for the six months ended June
30, 1997, is attributable to an increase in the net charge-off rate, partially
offset by a decline in the amount of credit card loans outstanding resulting
from the Company's portfolio improvement program designed to limit the
Company's exposure to higher risk accounts. In addition, post-holiday pay
downs have continued to decrease receivables, creating a provision benefit.
Net charge-offs as a percentage of average credit card loans on an owned basis
increased to 8.81% in the second quarter of 1997 from 7.28% in the second
quarter of 1996.
For the six months ended June 30, 1997 and 1996, net charge-offs as a
percentage of average credit card loans on an owned basis increased to 8.96%
from 6.79%, respectively. However, the net charge-off percentage of 9.09% for
the first quarter of 1997 decreased to 8.81% for the second quarter of 1997.
The industry-wide trend of increasing credit loss rates, which the Company
believes is related to increased consumer debt levels and bankruptcy rates,
contributed to the increase in the Company's net charge-off rate. The Company
believes that this industry-wide trend may continue and that the Company may
experience a higher net charge-off rate for the full year 1997 as compared to
1996.
11
<PAGE>
In 1996, the Company took corrective measures to reduce future charge-offs by
implementing a portfolio improvement program that analyzes credit risk and
credit behavior scores for existing accounts, taking into consideration their
current financial condition; re-scoring existing accounts and reducing credit
lines or closing accounts as appropriate; accelerating the development schedule
for new credit scoring models; and increasing collection efforts by adding
collectors, expanding call hours, and identifying high-risk accounts to
accelerate contacts. To help mitigate the impact of higher charge-offs, the
Company has also instituted changes in cardholder terms and has instituted the
implementation of certain client pricing revisions, including those for
promotional programs. The Company believes these actions, along with other
operational changes, will have an increasingly positive impact over time and
will serve to moderate the effects of a difficult credit environment.
The Company's expectations about future charge-off rates and portfolio
improvements are subject to uncertainties that could cause actual results to
differ materially from the Company's expectations, as described above. Factors
that influence the level and direction of credit card loan delinquencies and
charge-offs include changes in consumer spending and loan payment patterns,
bankruptcy trends, the seasoning of the Company's loan portfolio, interest rate
movements and their impact on consumer behavior, and the rate and magnitude of
changes in the Company's credit card loan portfolio, including the overall mix
of accounts, products and loan balances within the portfolio.
For the three months ended June 30, 1997, total operating expenses of $73.2
million represented an increase of 0.7% over the same period last year. Total
operating expenses as a percentage of net operating revenues declined to 83.3%
for the three months ended June 30, 1997, as compared to 87.2% for the same
period a year ago. For the six months ended June 30, 1997, total operating
expenses of $151.6 million represented an increase of 5.4% over the same period
last year. Total operating expenses as a percentage of net operating revenues
rose to 85.0% for the six months ended June 30, 1997, as compared to 83.5% for
the same period a year ago.
For the three months ended June 30, 1997, salaries and employee benefits
totaled $28.3 million, an increase of 15.5% from $24.5 million from the same
period a year ago. For the six months ended June 30, 1997, salaries and
employee benefits totaled $57.8 million, an increase of 18.8% from $48.7
million from the same period a year ago. The Company added approximately 452
additional full-time equivalent employees since June 30, 1996. Nearly all of
these new employees were assigned to field processing facilities to address
increased collection efforts and to provide for increased TeleServices volume.
Processing and service expenses include data processing, communications and
account processing expenses, which are influenced, in part, by changes in
transaction volume. For the three months ended June 30, 1997, such expenses
decreased to $24.4 million, or 9.2% on a period-to-period basis. For the six
months ended June 30, 1997, processing and service expenses decreased to $52.7
million, or 1.5% from the same period a year ago. The decrease in processing
and service expenses for both periods resulted from a lower volume of private
label transactions processed and a decrease in the level of TeleServices
minutes. Processing and service expenses as a percentage of net operating
revenues declined to 27.7% for the three months ended June 30, 1997, as
compared to 32.2% for the comparable prior year period. Processing and service
expenses as a percentage of net operating revenues declined to 29.6% for the
six months ended June 30, 1997, as compared to 31.1% for the comparable prior
year period.
Other expenses include expenses relating to business development, merchant
marketing, occupancy, advertising and promotion, cost of terminals sold, credit
card fraud and other miscellaneous employee and administrative expenses. For
the three months ended June 30, 1997 and 1996, other expenses totaled $20.5
million and $21.4 million, respectively. For the six months ended June 30,
1997 and 1996, other expenses totaled $41.1 million and $41.7 million,
respectively. The decrease in other expenses for both periods resulted from
12
<PAGE>
increased collection expenses, administrative expenses and occupancy expenses,
offset by decreased merchant marketing incentives expense. Other expenses were
23.4% and 25.6% of net operating revenues for the three months ended June 30,
1997 and 1996, respectively. Other expenses were 23.0% and 24.2% of net
operating revenues for the six months ended June 30, 1997 and 1996,
respectively.
The table below sets forth owned credit card loan net charge-off and loan
delinquency information with supplemental total loan information regarding the
Company's credit card loan portfolio as of and for the year-to-date periods
indicated.
<TABLE>
<CAPTION>
June 30, 1997 June 30, 1996 December 31, 1996
----------------------------------------------------------------------
Total Total Total
Owned Loans* Owned Loans* Owned Loans*
----- ----- ----- ----- ----- -----
Dollars in Thousands (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Average credit card loans $1,510,234 $2,114,453 $1,564,052 $2,148,155 $1,512,986 $2,095,026
Period-end credit card
loans $1,338,600 $1,918,600 $1,421,568 $2,001,568 $1,637,507 $2,217,507
Net charge-offs as a % of
average credit card loans 8.96% 8.86% 6.79% 6.76% 7.82% 7.66%
Accruing loans contractually
past due as to principal and
interest payments
30-89 days 5.37% 4.97% 5.24% 4.93% 4.97% 4.88%
90-179 days 4.04% 3.69% 3.75% 3.44% 4.15% 3.89%
* Total loans represents both owned and securitized credit card loans.
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
Through its liquidity policies, the Company seeks to ensure access to cost
effective funding in all business environments. This objective is accomplished
through diversification of funding sources, extension of funding terms and
staggering of liability maturities.
The Company's capital policies seek to maintain a strong balance sheet
consistent with the Company's business risks as well as regulatory
requirements. The Company's subsidiary bank, HSB, targets the maintenance of
capital levels considered for regulatory purposes to be "well-capitalized" as
defined by the FDIC Improvement Act of 1991.
The Company finances its operations from three principal sources: deposit
taking activities utilizing certificates of deposit ("CDs")in denominations of
$100,000 or more; securitizations of credit card loans; and borrowings from
MSDWD.
HSB administers a certificate of deposit program through which CDs are issued
to investors in denominations of $100,000 or more. Such CDs are issued to
investors under two programs - an institutional CD program and a retail CD
program. CDs under the institutional CD program are issued directly by HSB to
the investor and generally have a maturity of one to twelve months. CDs under
the retail CD program are issued to investors through Dean Witter Reynolds
Inc., a subsidiary of MSDWD, and generally have a maturity of two to 10 years.
As of June 30, 1997, CDs outstanding were $490.2 million, of which
institutional CDs represented $225.0 million and retail CDs represented $265.2
million.
HSB maintains a loan securitization program with Receivables Capital
Corporation ("RCC"), and at June 30, 1997, outstanding loans sold under such
program were $280.0 million. HSB also maintains a loan securitization program
with Barton Capital Corporation ("BCC"), and at June 30, 1997, outstanding
loans sold under such program were $300.0 million. At June 30, 1997, $580.0
million or 30.2% of the HSB Program loans had been sold through loan
securitizations.
13
<PAGE>
The RCC loan securitization program, which was scheduled to expire in June
1997, has been amended so that it now expires August 31, 1997. In April 1997
the then expiring BCC program agreement was amended and restated. The amended
and restated agreement with BCC includes the elimination of the MSDWD guarantee
(which provided credit support in the transaction) and its replacement with a
funded cash collateral account recorded on the balance sheet as "amounts due
from asset securitizations." Funding for this cash collateral account will
initially be provided by a special purpose corporation established as a
subsidiary of the Company. This updated BCC facility is scheduled to expire in
April 1998. The Company expects to renew or replace these facilities on or
prior to their expiration dates. If these programs are not extended on or
prior to their expiration dates, collections allocable to RCC and BCC under the
programs will be paid to RCC or to BCC, as applicable, and the interests of RCC
and of BCC in the applicable securitization pool will gradually decline to
zero. Any receivables originated after a program's expiration date would
remain on the Company's consolidated balance sheet.
The Company has an Amended and Restated Borrowing Agreement (as amended, the
"Borrowing Agreement") and a facility fee letter agreement (as amended, the
"Facility Fee Agreement"), with MSDWD, pursuant to which MSDWD has agreed to
provide financing to the Company. MSDWD and the Company have agreed to extend
the term of the Borrowing Agreement to April 11, 1998 and to reduce the maximum
amount available under the Borrowing Agreement to $1.2 billion from $1.25
billion. At July 31, 1997, the Company had $598.9 million outstanding under
the Borrowing Agreement. Under the Facility Fee Agreement, the Company has
agreed to pay certain monthly facility fees in connection with its financing
arrangements with MSDWD.
Cash flows from operating activities resulted in net proceeds of cash of
$38.2 million and $102.1 million for the six months ended June 30, 1997 and
1996, respectively.
Cash flows from investing activities for the six months ended June 30, 1997
resulted in net proceeds of cash of $216.4 million, primarily consisting of net
principal collected on credit card loans, representing the difference between
sales made using the cards and payments received from cardholders ($228.9
million), partially offset by investments in short-term U.S. Treasury bills
resulting in net uses of cash ($7.8 million). Cash flows from investing
activities for the six months ended June 30, 1996 resulted in net proceeds of
cash of $136.0 million, primarily consisting of net proceeds of cash from the
sale of a private label credit card portfolio ($138.9 million) and net
principal collected on credit card loans ($6.5 million).
Cash flows from financing activities for the six months ended June 30, 1997
resulted in net uses of cash of $244.7 million, primarily consisting of a net
decrease in borrowings due to affiliated companies ($275.4 million), partially
offset by a net increase in interest-bearing deposits resulting from the
issuance of jumbo certificates of deposit ($35.8 million). Cash flows from
financing activities for the six months ended June 30, 1996 resulted in net
uses of cash of $237.5 million, primarily consisting of a net decrease in
borrowings due to affiliated companies ($269.1 million), partially offset by a
net increase in interest-bearing deposits resulting from the issuance of jumbo
certificates of deposit ($39.6 million). At June 30, 1997 and 1996, the
Company had cash and cash equivalents of $25.1 million and $9.4 million,
respectively.
The Company currently has no material commitments requiring capital
expenditures. The Company has not paid any dividends on its Common Stock and
anticipates retaining future operating cash flows for the foreseeable future to
finance growth and business expansion rather than to pay dividends to its
stockholders. Any future determination as to the payment of dividends will
depend upon results of operations, capital requirements, financial condition of
the Company and such other factors as the Board of Directors of the Company in
its discretion shall determine. Periodically, SPS and HSB have paid dividends
to the Company. The amount of dividends that can be paid to the Company by HSB
is restricted by applicable banking regulations.
14
<PAGE>
INTEREST RATE RISK
The Company's interest rate risk policies are designed to reduce the
volatility of earnings resulting from changes in interest rates. This is
accomplished primarily through matched financing, where possible, which entails
matching the repricing schedules of credit card loans and the related
financing. Matched financing includes the funding of variable rate credit card
loans that are primarily indexed to the prime rate with floating rate financing
that is primarily indexed to commercial paper rates and the federal funds rate.
The Company generally retains basis risk between the prime rate and commercial
paper/federal funds rates on variable rate credit card loans. Fixed rate credit
card loans are generally funded with fixed rate financing (financing with an
initial term of one year or greater).
The Company also funds fixed rate credit card loans with floating rate
financing by utilizing interest rate swaps, cost of funds agreements and
interest rate caps to adjust the repricing characteristics of its financing to
fixed rate financing. Under interest rate swaps and cost of funds agreements,
the Company effectively exchanges the interest payments on its financing with
those of a counterparty. Interest rate cap agreements effectively establish a
maximum interest rate on certain of the Company's floating rate borrowings.
Interest rate swap agreements are entered into with an affiliate. Interest rate
cap agreements are entered into with institutions that are established dealers
in these instruments and that maintain certain minimum credit criteria
established by the Company. Costs of funds agreements are entered into as part
of agreements pursuant to which the Company owns the credit card loan portfolio
and provides private label credit card processing services to certain of its
credit card merchant clients.
To reduce the volatility of interest expense from changes in interest rates,
the Company had outstanding interest rate swaps and cost of funds agreements of
$459.5 million and $596.8 million at June 30, 1997 and 1996, respectively.
At June 30, 1997 and 1996, the Company had $10.0 million and $40.0 million of
interest rate cap agreements, respectively. At June 30, 1997, the current
variable rates on all interest rate cap agreements exceeded the specified cap
rates.
At June 30, 1997 and 1996, the Company's interest rate swap agreements had
maturities ranging from October 1997 to December 2000 and from December 1996 to
December 2000, respectively. At June 30, 1997, the Company's interest rate cap
agreement had a maturity of September 1997. At June 30, 1996, the Company's
interest rate cap agreements had maturities ranging from February 1997 to
September 1997.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
In the normal course of business, the Company is involved in litigation
incidental to the business. The consequences of these matters are not
presently determinable but, in the opinion of management after consultation
with counsel, the ultimate liability, if any, will not have a material adverse
effect on the consolidated results of operations or financial position of the
Company.
Item 2. Changes in Securities.- None.
Item 3. Defaults Upon Senior Securities.- None
15
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders.
The Registrant held its annual meeting of stockholders in Glencoe, Illinois
on April 29, 1997. The results of the matters submitted to a vote of
stockholders through the solicitation of proxies at the annual meeting were as
follows:
1. The following nominees for election as directors of the Company were elected
by the votes indicated below:
<TABLE>
<CAPTION>
Director Votes For Votes Withheld
- -------- ----------- --------------
<S> <C> <C>
Thomas C. Schneider 26,033,553 309,526
Frank T. Cary 26,049,146 293,933
Christine A. Edwards 26,033,795 309,284
Mitchell M. Merin 26,032,353 310,726
Charles F. Moran 26,027,145 315,934
Philip J. Purcell 26,027,841 315,238
Dennie M. Welsh 26,032,995 310,084
Robert L. Wieseneck 26,013,919 329,160
</TABLE>
2. Stockholders approved the appointment of Deloitte & Touche LLP as the
Company's independent auditors for the 1997 fiscal year by the following vote:
votes for - 26,221,311; votes against - 81,740; and abstentions - 40,028.
Item 5. Other Information.- None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
10.1 Fourth Amendment to the Amended and Restated Borrowing Agreement dated
as of April 13, 1997, between the Company and MSDWD.
10.2 Amendment to the Facility Fee Letter Agreement dated as of April 13,
1997, between the Company and MSDWD.
27.0 Financial Data Schedule
(b) Reports on Form 8-K.
A Current Report on form 8-K, dated July 31, 1997, was filed with the
Securities and Exchange Commission reporting Item 7 relating to the
Company's 1997 Second Quarter Report to Stockholders.
A Current Report on form 8-K, dated July 15, 1997, was filed with the
Securities and Exchange Commission reporting Item 7 relating to the
Company's second quarter earnings release.
A Current Report on form 8-K, dated May 8, 1997, was filed with the
Securities and Exchange Commission reporting Item 7 relating to the
Company's new Chairman and organizational changes.
A Current Report on form 8-K, dated April 15, 1997, was filed with the
Securities and Exchange Commission reporting Item 7 relating to the
Company's first quarter earnings release.
16
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SPS TRANSACTION SERVICES, INC.
------------------------------
(Registrant)
Date: August 13, 1997 By:/s/ Russell J. Bonaguidi
--------------- -----------------------------------
Russell J. Bonaguidi
Vice President and Controller (Duly
Authorized Officer and Principal
Accounting Officer)
17
<PAGE>
EDGAR
Exhibit Description of Exhibits
- ------- -----------------------
10.1 Fourth Amendment to the Amended and Restated Borrowing Agreement
dated as of April 13, 1997, between the Company and MSDWD.
10.2 Amendment to the Facility Fee Letter Agreement dated as of April 13,
1997, between the Company and MSDWD.
27.0 Financial Data Schedule
<PAGE>
EXHIBIT 10.1
FOURTH AMENDMENT
TO THE
AMENDED AND RESTATED BORROWING AGREEMENT
THIS FOURTH AMENDMENT TO THE AMENDED AND RESTATED BORROWING AGREEMENT (the
"Amendment") dated as of April 13, 1997, is between SPS TRANSACTION SERVICES,
INC. ("Borrower") and DEAN WITTER, DISCOVER & CO. ("Lender").
WHEREAS, Borrower and Lender are parties to an Amended and Restated Borrowing
Agreement, dated as of September 1, 1995, a First Amendment to the Amended and
Restated Borrowing Agreement, dated as of May 6, 1996, a Second Amendment to
the Amended and Restated Borrowing Agreement, dated as of September 30, 1996,
and a Third Amendment to the Amended and Restated Borrowing Agreement, dated
as of January 31, 1997 (collectively, the "Borrowing Agreement"), pursuant to
which Lender has made certain loans to the Borrower; and
WHEREAS, the Borrower and Lender desire to further amend the Borrowing
Agreement.
NOW THEREFORE, the Borrowing Agreement is amended as follows:
1. Each capitalized term used in this Amendment (and not otherwise defined
herein) shall have the same meaning as set forth in the Borrowing Agreement.
2. The definition of "Commitment Termination Date" as set forth in Section
1.01 of the Borrowing Agreement is hereby amended and henceforth shall read as
follows:
"Commitment Termination Date" shall mean April 11, 1998, provided
that upon the amendment, termination, expiration or supplementation
of the Credit Agreement dated as of April 14, 1997 (the "Credit
Agreement") among Lender, the banks listed therein, the Managing
Agents referred to therein, The Chase Manhattan Bank, as
Administrative Agent and Morgan Guaranty Trust Company of New York,
as Documentation Agent, Lender may, upon ten (10) days' prior
written notice to Borrower, modify the Commitment Termination Date
to be that date which is two (2) business days prior to the
expiration or termination of the Credit Agreement (as amended or
supplemented) or any revolving credit agreement entered into by
Lender to replace the Credit Agreement.
3. Section 2.01(a) of the Borrowing Agreement is hereby amended in its
entirety and henceforth shall read as follows:
(a) Revolving Loan Commitment. Subject to the terms and conditions of this
Borrowing Agreement and relying upon representations, warranties and
covenants of Borrower set forth herein, Lender shall make loans (all such
loans made pursuant to this Section 2.01(a) being referred to herein
collectively as the "Loans") to Borrower at any time and from time to time
prior to the Commitment Termination Date, in an aggregate principal amount
not exceeding at any one time outstanding $1,200,000,000 (the
"Commitment"). Prior to the Commitment Termination Date, Lender shall have
no obligation to make advances to the extent any requested advance would
cause the principal amount outstanding under the Revolving Notes to exceed
the Commitment, provided, that Lender may elect (but shall not be
obligated) from time to time to make advances in excess of the Commitment.
4. Except as provided herein, the terms and conditions of the Borrowing
Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have caused this Amendment to be duly
executed as of the date first written above.
SPS TRANSACTION SERVICES, INC. DEAN WITTER, DISCOVER & CO.
By: /S/ Thomas M. Goldstein By: /S/ Birendra Kumar
Title: Vice President - Finance Title: Treasurer
<PAGE>
EXHIBIT 10.2
April 13, 1997
SPS Transaction Services, Inc.
2500 Lake Cook Road
Riverwoods, Illinois 60015
Dear Gentlemen:
This letter shall amend the letter agreement dated as of September 1, 1995,
between Dean Witter, Discover & Co. ("Lender") and SPS Transaction Services,
Inc. ("Borrower"), as amended pursuant to the letter agreement dated as of May
3, 1996, between Lender and Borrower (collectively, the "Facility Fee
Agreement"), regarding the Facility Fee payable by Borrower to Lender in
connection with Loans made by Lender to Borrower under the Financing
Agreements. Capitalized terms used herein (and not otherwise defined herein)
shall have the same meanings as set forth in the Facility Fee Agreement.
Effective as of the date hereof, the parties agree that Schedule I to the
Facility Fee Agreement shall be amended in its entirety and henceforth shall
read as set forth in Schedule I attached hereto; provided that upon the
amendment, termination, expiration or supplementation of the Credit Agreement
dated as of April 14, 1997 among Lender, the banks listed therein, the Managing
Agents referred to therein, The Chase Manhattan Bank, as Administrative Agent
and Morgan Guaranty Trust Company of New York, as Documentation Agent, Lender
may, upon ten (10) days prior written notice to Borrower, adjust subpart (ix)
in Schedule I to reflect changes in Lender's costs related to any of Lender's
then existing revolving credit agreements; provided further that the portion of
the Facility Fee covered under subpart (ix) shall be determined in a manner
consistent with past practice. Except as provided herein, the Facility Fee
Agreement shall remain in full force and effect.
If the foregoing is acceptable, please sign the enclosed copy of this letter
agreement and return it to my attention.
Very truly yours,
DEAN WITTER, DISCOVER & CO.
By: /S/ Birendra Kumar
-------------------------------
Its: Treasurer
-------------------------------
ACCEPTED AND AGREED
SPS TRANSACTION SERVICES, INC.
By: /S/ Thomas M. Goldstein
---------------------------
Its: Vice President - Finance
--------------------------
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1997
<CASH> 25,112
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 49,507
<INVESTMENTS-MARKET> 0
<LOANS> 1,338,600
<ALLOWANCE> (79,120)
<TOTAL-ASSETS> 1,526,846
<DEPOSITS> 494,064
<SHORT-TERM> 712,194
<LIABILITIES-OTHER> 56,851
<LONG-TERM> 0
0
0
<COMMON> 273
<OTHER-SE> 240,828
<TOTAL-LIABILITIES-AND-EQUITY> 1,526,846
<INTEREST-LOAN> 124,568
<INTEREST-INVEST> 1,213
<INTEREST-OTHER> 13
<INTEREST-TOTAL> 126,477
<INTEREST-DEPOSIT> 15,015
<INTEREST-EXPENSE> 39,826
<INTEREST-INCOME-NET> 86,651
<LOAN-LOSSES> 57,793
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 151,577
<INCOME-PRETAX> 26,670
<INCOME-PRE-EXTRAORDINARY> 16,375
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,375
<EPS-PRIMARY> 0.60
<EPS-DILUTED> 0.60
<YIELD-ACTUAL> 0
<LOANS-NON> 0
<LOANS-PAST> 54,145
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 88,397
<CHARGE-OFFS> 78,767
<RECOVERIES> 11,697
<ALLOWANCE-CLOSE> 79,120
<ALLOWANCE-DOMESTIC> 79,120
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
