National Processing Inc. reported its second-quarter profit fell 78% in part because of problems installing an image processing system and a one- time charge for a lost contract.

The Louisville, Ky., company earned $1.57 million in the quarter after a $1.56 million writeoff related to the lost processing contract, which was unrelated to the image technology problem.

In 1997's second quarter, National Processing earned $7.16 million. National Processing's stock fell from $10.50 a share July 2 to $9.5625 Friday.

The delays in installing the image-based processing system affected the remittance product area, said Thomas A. Richlovsky, senior vice president of National City Corp., Cleveland, which owns 88% of National Processing.

When run at full speed, the image-based system has an unacceptably high error rate, requiring manual intervention, Mr. Richlovsky said. This has forced the company to maintain both the older paper-based system and the new technology, meaning "we're saddled with redundant costs," he said.

The delay also means National Processing cannot bring on new customers as it had expected to do, Mr. Richlovsky said.

The upgraded system, originally expected to be in use this year, is now projected for early 1999.

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