Third-quarter earnings rose sharply at Total System Services Inc., despite the loss of another major client.
The Columbus, Ga., transaction processor announced Monday that net income rose 26.7% from a year earlier, to $68.8 million. Revenue rose 3.6%, to $457.6 million.
The gains came despite the defection of JPMorgan Chase & Co. in the third quarter and Bank of America Corp., which moving its consumer card processing business in-house, in the fourth quarter of last year.
“We did have a grand quarter,” Philip W. Tomlinson, TSYS’ chairman and chief executive, said on a conference call with analysts Tuesday. “Our results for the third quarter continue to show what hard work, dedication, and commitment can do.”
However, he also said that losing B of A’s business could affect his company’s fourth-quarter earnings report, because it received a $68.9 million termination fee from the Charlotte company. Including the fee, Mr. Tomlinson said, he expects to report a decline of 2% to 3% in revenue for this quarter, but excluding the fee, he expects to report a gain of 3% to 5%.
This year mergers and acquisitions by clients are helping TSYS. Last year’s purchase of MBNA Corp. prompted B of A to shift much of its processing in-house, but Royal Bank of Scotland Group PLC’s deal to buy ABN Amro Holding NV should help TSYS grow, Mr. Tomlinson said.
“We process for both of those banks, and we believe it’s a real positive for TSYS. … We believe that we can expand that relationship as time goes by,” he said.
In the third quarter TSYS also landed a contract to process for Discover Financial Services LLC of Riverwoods, Ill. That contract is “very similar to what we do with Visa and MasterCard,” Mr. Tomlinson said. “It just gives us another outlet, another window into some business that we think we can win.”
In Europe, TSYS signed a long-term agreement to process credit card transactions and manage a new customer care center for Nationwide Building Society, a U.K. mortgage lender. “Nationwide, when it’s all converted, will rank among our largest clients,” he said.
TSYS also is making good progress in other countries, Mr. Tomlinson said, especially with its joint venture with China UnionPay Data Co. Ltd. “The momentum is building — to date we have signed 34 issuers in China. We’re very excited about the long-term prospects in China.”
At the start of the conference call, Mr. Tomlinson said there was one topic he would not discuss: any plans by Synovus Financial Corp., which owns about 80% of TSYS, to spin off that stake. In July, Synovus said it was taking steps toward deciding whether to pursue a spinoff, which many analysts have long predicted.
“We’re not going to try to answer any questions about the possible spinoff of TSYS,” he said. “The process continues, and it will just continue on until a decision is announced.”
Larry Berlin, an analyst for First Analysis Securities Corp. in Chicago, said an update could come soon. “Synovus is going to make a decision, we hope, on Thursday,” when it announces its own earnings.
TSYS’ investors want the company spun off so it can use its stock to fund acquisitions, he said. “People do not necessarily want to have stock in a company that’s 80% owned by somebody else.”
The quarter was an impressive one for TSYS, Mr. Berlin said. “They’ve gone through a really hard time, and they’ve held their heads above water.”
