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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 September 30, 2003
|                                                  |  |                                                                                         
|or                                               
|                                                  |  |                                                                                         
|[  ]                                              |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
|                                                  |  |                                                                                         
|                                                  |  | For the Transition Period From           
 to                                           

Commission File Number: 000-24931

S1 CORPORATION

(Exact name of registrant as specified in its charter)


|                                                                                     |  |                                                
|------------------------------------------------------------------------------------ |  | -----------------------------------------------
|Delaware
(State or other jurisdiction of
incorporation or organization)              |  | 58-2395199
(I.R.S. Employer
Identification No.)
|                                                                                     |  |                                                
|3500 Lenox Road, Suite 200
Atlanta, Georgia
(Address of principal executive
offices) |  | 30326
(Zip Code)                               

Registrants Telephone Number, Including Area Code: (404) 923-3500

NOT APPLICABLE(Former name if changed since last report.)

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 [  ]

Indicate by check mark whether registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [x] No [  ]

Shares of common stock outstanding as of November 10, 2003: 73,021,589



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TABLE OF CONTENTS



|                                 |                                                                                               |                                                      |  |  |  |  |  | 
|-------------------------------- | --------------------------------------------------------------------------------------------- | ---------------------------------------------------- |  |  |  |  |  | 
|PART 1  FINANCIAL INFORMATION  
|                                 | Item 1. Financial Statements                                                                 
|                                 |                                                                                               | CONDENSED CONSOLIDATED BALANCE SHEETS               
|                                 |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS     
|                                 |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS     
|                                 |                                                                                               | NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|                                 | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                                 | Item 3. Quantitative and Qualitative Disclosures about Market Risk                           
|                                 | Item 4. Controls and Procedures                                                              
|PART II  OTHER INFORMATION     
|                                 | Item 1. Legal Proceedings                                                                    
|                                 | Item 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURE                       
|SECTION 302 CERTIFICATION OF CEO
|SECTION 302 CERTIFICATION OF CFO
|SECTION 906 CERTIFICATION OF CEO
|SECTION 906 CERTIFICATION OF CFO



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##### Table of Contents



S1 CORPORATION AND SUBSIDIARIES

QUARTERLY PERIOD ENDED SEPTEMBER 30, 2003

TABLE OF CONTENTS

|          |  |                                                                                                                 |  |  |    |  |    | 
|--------- |  | --------------------------------------------------------------------------------------------------------------- |  |  | -- |  | -- | 
|          |  | PART I - FINANCIAL INFORMATION                                                                                  |  |  |    | 
|Item 1    |  | Financial Statements:                                                                                           |  |  |    | 
|          |  | Condensed Consolidated Balance Sheets as of September 30, 2003 and December 31, 2002                            |  |  | 3  | 
|          |  | Condensed Consolidated Statements of
Operations for the Three and Nine Months Ended September 30, 2003 and 2002 |  |  | 4  | 
|          |  | Condensed Consolidated Statements of
Cash Flows for the Nine Months Ended September 30, 2003
and 2002           |  |  | 5  | 
|          |  | Notes to Condensed Consolidated
Financial Statements as of September 30, 2003                                   |  |  | 6  | 
|Item 2    |  | Management's Discussion and Analysis of
Financial Condition and Results of Operations                           |  |  | 15 | 
|Item 3    |  | Quantitative and Qualitative
Disclosures About Market Risk                                                      |  |  | 24 | 
|Item 4    |  | Controls and Procedures                                                                                         |  |  | 24 | 
|          |  | PART II - OTHER INFORMATION                                                                                     |  |  |    | 
|Item 1    |  | Legal Proceedings                                                                                               |  |  | 25 | 
|Item 6    |  | Exhibits and Reports on Form 8-K                                                                                |  |  | 25 | 
|Signature |  |                                                                                                                 |  |  |    |  | 26 | 

2



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##### Table of Contents












PART 1  FINANCIAL INFORMATION

|        |  |                     
|------- |  | --------------------
|Item 1. |  | Financial Statements

S1 CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)

|                                        |                                                     |              |                           |                                            |         |               |            |              |         |         |         | 
|--------------------------------------- | --------------------------------------------------- | ------------ | ------------------------- | ------------------------------------------ | ------- | ------------- | ---------- | ------------ | ------- | ------- | ------- | 
|                                        |                                                     |              |                           |                                            |         | September 30, |            | December 31,
|                                        |                                                     |              |                           |                                            |         | 2003          |            | 2002        
|                                        |                                                     |              |                           |                                            |         |               |            |             
|ASSETS                                  |                                                     |              |                           |                                            |         |               |            |             
|Current assets:                         |                                                     |              |                           |                                            |         |               |            |             
|                                        | Cash and cash equivalents                           |              | $                         | 128,119                                    |         |               | $          | 127,842      |        
|                                        | Short-term investments                              |              |                           | 20,406                                     |         |               |            | 14,843       |        
|                                        | Accounts receivable, net                            |              |                           | 40,148                                     |         |               |            | 54,815       |        
|                                        | Prepaid expenses                                    |              |                           | 7,431                                      |         |               |            | 7,601        |        
|                                        | Other current assets                                |              |                           | 3,488                                      |         |               |            | 7,232        |        
|                                        |                                                     |              |                           |                                            |         |               |            |             
|                                        |                                                     |              | Total current assets      |                                            |         | 199,592       |            |              |         | 212,333 |        
|                                        | Property and equipment, net                         |              |                           | 17,453                                     |         |               |            | 30,626       |        
|                                        | Intangible assets, net                              |              |                           | 14,013                                     |         |               |            | 17,585       |        
|                                        | Goodwill, net                                       |              |                           | 94,665                                     |         |               |            | 106,971      |        
|                                        | Other assets                                        |              |                           | 6,159                                      |         |               |            | 9,459        |        
|                                        |                                                     |              |                           |                                            |         |               |            |             
|                                        |                                                     | Total assets |                           | $                                          | 331,882 |               |            | $            | 376,974 |        
|                                        |                                                     |              |                           |                                            |         |               |            |             
|LIABILITIES AND STOCKHOLDERS EQUITY    |                                                     |              |                           |                                            |         |               |            |             
|Current liabilities:                    |                                                     |              |                           |                                            |         |               |            |             
|                                        | Accounts payable                                    |              | $                         | 2,951                                      |         |               | $          | 13,354       |        
|                                        | Accrued compensation and benefits                   |              |                           | 12,896                                     |         |               |            | 11,710       |        
|                                        | Accrued restructuring                               |              |                           | 8,015                                      |         |               |            | 2,665        |        
|                                        | Accrued other expenses                              |              |                           | 18,607                                     |         |               |            | 21,742       |        
|                                        | Deferred revenues                                   |              |                           | 39,130                                     |         |               |            | 40,305       |        
|                                        | Current portion of capital lease obligation         |              |                           | 721                                        |         |               |            | 1,693        |        
|                                        |                                                     |              |                           |                                            |         |               |            |             
|                                        |                                                     |              | Total current liabilities |                                            |         | 82,320        |            |              |         | 91,469  |        
|                                        | Capital lease obligation, excluding current portion |              |                           | 694                                        |         |               |            | 185          |        
|                                        | Accrued restructuring, excluding current portion    |              |                           | 6,579                                      |         |               |            | 4,445        |        
|                                        | Other liabilities                                   |              |                           | 1,648                                      |         |               |            | 1,114        |        
|                                        |                                                     |              |                           |                                            |         |               |            |             
|                                        |                                                     |              | Total liabilities         |                                            |         | 91,241        |            |              |         | 97,213  |        
|                                        |                                                     |              |                           |                                            |         |               |            |             
|Stockholders equity:                   |                                                     |              |                           |                                            |         |               |            |             
|                                        | Preferred stock                                     |              |                           | 10,000                                     |         |               |            | 18,328       |        
|                                        | Common stock                                        |              |                           | 729                                        |         |               |            | 713          |        
|                                        | Additional paid-in capital                          |              |                           | 1,905,782                                  |         |               |            | 1,896,111    |        
|                                        | Common stock held in treasury  at cost             |              |                           | (10,000                                    | )       |               |            | (9,250       | )      
|                                        | Accumulated deficit                                 |              |                           | (1,663,597                                 | )       |               |            | (1,623,545   | )      
|                                        | Accumulated other comprehensive loss                |              |                           | (2,273                                     | )       |               |            | (2,596       | )      
|                                        |                                                     |              |                           |                                            |         |               |            |             
|                                        |                                                     |              |                           | Total stockholders equity                 |         |               | 240,641    |              |         |         | 279,761 | 
|                                        |                                                     |              |                           |                                            |         |               |            |             
|                                        |                                                     |              |                           | Total liabilities and stockholders equity |         | $             | 331,882    |              |         | $       | 376,974 | 
|                                        |                                                     |              |                           |                                            |         |               |            |             
|Preferred shares issued and outstanding |                                                     |              | 749,064                   |                                            |         |               | 1,398,214  |             
|                                        |                                                     |              |                           |                                            |         |               |            |             
|Common shares issued and outstanding    |                                                     |              | 72,877,540                |                                            |         |               | 71,259,901 |             
|                                        |                                                     |              |                           |                                            |         |               |            |             
|Common stock held in treasury           |                                                     |              | 2,051,862                 |                                            |         |               | 1,906,300  |             
|                                        |                                                     |              |                           |                                            |         |               |            |             

See accompanying notes to unaudited condensed consolidated financial statements.

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S1 CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

|                                            |                                                                                                                                                                                                                                              |                                          |                          |                |        |                    |            |                   |        |        |            |        |         |         |            |        |         |         |         |  
|------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------- | ------------------------ | -------------- | ------ | ------------------ | ---------- | ----------------- | ------ | ------ | ---------- | ------ | ------- | ------- | ---------- | ------ | ------- | ------- | ------- | -
|                                            |                                                                                                                                                                                                                                              |                                          |                          |                |        | Three Months Ended |            | Nine Months Ended
|                                            |                                                                                                                                                                                                                                              |                                          |                          |                |        | September 30,      |            | September 30,    
|                                            |                                                                                                                                                                                                                                              |                                          |                          |                |        |                    |            |                  
|                                            |                                                                                                                                                                                                                                              |                                          |                          |                |        | 2003               |            | 2002              |        | 2003   |            | 2002  
|                                            |                                                                                                                                                                                                                                              |                                          |                          |                |        |                    |            |                   |        |        |            |       
|Revenues:                                   |                                                                                                                                                                                                                                              |                                          |                          |                |        |                    |            |                   |        |        |            |        |         |         |            |       
|                                            | Software licenses                                                                                                                                                                                                                            |                                          | $                        | 16,161         |        |                    | $          | 22,926            |        |        | $          | 45,312 |         |         | $          | 69,156 |        
|                                            | Support and maintenance                                                                                                                                                                                                                      |                                          |                          | 14,193         |        |                    |            | 14,806            |        |        |            | 44,210 |         |         |            | 44,351 |        
|                                            | Professional services                                                                                                                                                                                                                        |                                          |                          | 16,815         |        |                    |            | 24,755            |        |        |            | 63,137 |         |         |            | 74,434 |        
|                                            | Data center                                                                                                                                                                                                                                  |                                          |                          | 8,840          |        |                    |            | 9,279             |        |        |            | 35,571 |         |         |            | 30,956 |        
|                                            | Other                                                                                                                                                                                                                                        |                                          |                          | 1,452          |        |                    |            | 245               |        |        |            | 2,618  |         |         |            | 994    |        
|                                            |                                                                                                                                                                                                                                              |                                          |                          |                |        |                    |            |                   |        |        |            |        |         |         |            |       
|                                            |                                                                                                                                                                                                                                              |                                          | Total revenues           |                |        | 57,461             |            |                   |        | 72,011 |            |        |         | 190,848 |            |        |         | 219,891 |        
|                                            |                                                                                                                                                                                                                                              |                                          |                          |                |        |                    |            |                   |        |        |            |        |         |         |            |       
|Operating expenses:                         |                                                                                                                                                                                                                                              |                                          |                          |                |        |                    |            |                   |        |        |            |        |         |         |            |       
|                                            | Cost of software licenses                                                                                                                                                                                                                    |                                          |                          | 1,156          |        |                    |            | 2,492             |        |        |            | 3,014  |         |         |            | 5,250  |        
|                                            | Cost of professional services, support and maintenance                                                                                                                                                                                       |                                          |                          | 18,503         |        |                    |            | 22,096            |        |        |            | 66,091 |         |         |            | 68,329 |        
|                                            | Cost of data center                                                                                                                                                                                                                          |                                          |                          | 5,177          |        |                    |            | 5,824             |        |        |            | 18,567 |         |         |            | 17,126 |        
|                                            | Cost of other revenue                                                                                                                                                                                                                        |                                          |                          | 1,424          |        |                    |            | 381               |        |        |            | 2,438  |         |         |            | 963    |        
|                                            | Selling and marketing                                                                                                                                                                                                                        |                                          |                          | 9,334          |        |                    |            | 15,186            |        |        |            | 30,988 |         |         |            | 44,643 |        
|                                            | Product development                                                                                                                                                                                                                          |                                          |                          | 10,415         |        |                    |            | 12,751            |        |        |            | 33,789 |         |         |            | 40,528 |        
|                                            | General and administrative, including stock compensation
expense of $0 and $212 for the three months ended
September 30, 2003 and 2002, respectively and
$281 and $1,111 for the nine months ended
September 30, 2003 and 2002, respectively |                                          |                          | 7,607          |        |                    |            | 8,822             |        |        |            | 24,637 |         |         |            | 29,151 |        
|                                            | Depreciation                                                                                                                                                                                                                                 |                                          |                          | 3,545          |        |                    |            | 5,408             |        |        |            | 13,983 |         |         |            | 17,395 |        
|                                            | Merger related costs and restructuring charges                                                                                                                                                                                               |                                          |                          | 4,052          |        |                    |            | 734               |        |        |            | 20,564 |         |         |            | 2,756  |        
|                                            | Acquired in-process research and development                                                                                                                                                                                                 |                                          |                          |               |        |                    |            |                  |        |        |            |       |         |         |            | 350    |        
|                                            | Amortization of other intangible assets and goodwill
impairment                                                                                                                                                                              |                                          |                          | 768            |        |                    |            | 4,275             |        |        |            | 16,625 |         |         |            | 13,971 |        
|                                            |                                                                                                                                                                                                                                              |                                          |                          |                |        |                    |            |                   |        |        |            |        |         |         |            |       
|                                            |                                                                                                                                                                                                                                              |                                          | Total operating expenses |                |        | 61,981             |            |                   |        | 77,969 |            |        |         | 230,696 |            |        |         | 240,462 |        
|                                            |                                                                                                                                                                                                                                              |                                          |                          |                |        |                    |            |                   |        |        |            |        |         |         |            |       
|                                            |                                                                                                                                                                                                                                              |                                          |                          | Operating loss |        |                    | (4,520     | )                 |        |        | (5,958     | )      |         |         | (39,848    | )      |         |         | (20,571 | )
|Interest and other income (expense), net    |                                                                                                                                                                                                                                              |                                          | 171                      |                |        |                    | (129       | )                 |        |        | (74        | )      |         |         | 1,149      |       
|                                            |                                                                                                                                                                                                                                              |                                          |                          |                |        |                    |            |                   |        |        |            |        |         |         |            |       
|                                            |                                                                                                                                                                                                                                              | Loss before income tax (expense) benefit |                          |                | (4,349 | )                  |            |                   | (6,087 | )      |            |        | (39,922 | )       |            |        | (19,422 | )      
|Income tax (expense) benefit                |                                                                                                                                                                                                                                              |                                          | (11                      | )              |        |                    | 887        |                   |        |        | (130       | )      |         |         | 1,869      |       
|                                            |                                                                                                                                                                                                                                              |                                          |                          |                |        |                    |            |                   |        |        |            |        |         |         |            |       
|Net loss                                    |                                                                                                                                                                                                                                              | $                                        | (4,360                   | )              |        | $                  | (5,200     | )                 |        | $      | (40,052    | )      |         | $       | (17,553    | )     
|                                            |                                                                                                                                                                                                                                              |                                          |                          |                |        |                    |            |                   |        |        |            |        |         |         |            |       
|Basic and diluted net loss per common share |                                                                                                                                                                                                                                              | $                                        | (0.06                    | )              |        | $                  | (0.07      | )                 |        | $      | (0.58      | )      |         | $       | (0.26      | )     
|                                            |                                                                                                                                                                                                                                              |                                          |                          |                |        |                    |            |                   |        |        |            |        |         |         |            |       
|Weighted average common shares outstanding  |                                                                                                                                                                                                                                              |                                          | 69,876,641               |                |        |                    | 70,410,161 |                   |        |        | 69,493,376 |        |         |         | 67,121,167 |       

See accompanying notes to unaudited condensed consolidated financial statements.

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S1 CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)

|                                                             |                                                                                   |                                                                    |                                                |         |                   |        |         |         |        |         |  
|------------------------------------------------------------ | --------------------------------------------------------------------------------- | ------------------------------------------------------------------ | ---------------------------------------------- | ------- | ----------------- | ------ | ------- | ------- | ------ | ------- | -
|                                                             |                                                                                   |                                                                    |                                                |         | Nine Months Ended
|                                                             |                                                                                   |                                                                    |                                                |         | September 30,    
|                                                             |                                                                                   |                                                                    |                                                |         |                  
|                                                             |                                                                                   |                                                                    |                                                |         | 2003              |        | 2002   
|                                                             |                                                                                   |                                                                    |                                                |         |                   |        |        
|Cash flows from operating activities:                        |                                                                                   |                                                                    |                                                |         |                   |        |         |        
|                                                             | Net loss                                                                          |                                                                    | $                                              | (40,052 | )                 |        | $       | (17,553 | )     
|                                                             | Adjustments to reconcile net loss to net cash provided by operating activities:   |                                                                    |                                                |         |                   |        |         |         |       
|                                                             |                                                                                   | Depreciation, amortization and goodwill impairment charge          |                                                |         | 30,608            |        |         |         | 31,366 |        
|                                                             |                                                                                   | Loss on disposal of property and equipment                         |                                                |         | 3,931             |        |         |         |       |        
|                                                             |                                                                                   | Acquired in-process research and development                       |                                                |         |                  |        |         |         | 350    |        
|                                                             |                                                                                   | Compensation expense for stock options                             |                                                |         | 281               |        |         |         | 1,111  |        
|                                                             |                                                                                   | Provision for doubtful accounts receivable and billing adjustments |                                                |         | 4,674             |        |         |         | 6,123  |        
|                                                             |                                                                                   | Gain on the sale of investment securities available for sale       |                                                |         | (24               | )      |         |         |       |        
|                                                             |                                                                                   | Loss on impaired cost-basis equity investments                     |                                                |         | 615               |        |         |         |       |        
|                                                             |                                                                                   | Benefit for deferred income taxes                                  |                                                |         |                  |        |         |         | (2,261 | )      
|                                                             |                                                                                   | Proceeds from income tax refunds                                   |                                                |         | 710               |        |         |         |       |        
|                                                             | Changes in assets and liabilities, excluding effects of acquisitions:             |                                                                    |                                                |         |                   |        |         |         |       
|                                                             |                                                                                   | Decrease (increase) in accounts receivable                         |                                                |         | 9,678             |        |         |         | (4,398 | )      
|                                                             |                                                                                   | Decrease (increase) in prepaid expenses and other assets           |                                                |         | 4,317             |        |         |         | (2,728 | )      
|                                                             |                                                                                   | (Decrease) increase in accounts payable                            |                                                |         | (10,703           | )      |         |         | 5,009  |        
|                                                             |                                                                                   | Increase (decrease) in accrued expenses and other liabilities      |                                                |         | 5,495             |        |         |         | (8,437 | )      
|                                                             |                                                                                   | (Decrease) increase in deferred revenues                           |                                                |         | (735              | )      |         |         | 4,128  |        
|                                                             |                                                                                   |                                                                    |                                                |         |                   |        |         |        
|                                                             |                                                                                   |                                                                    | Net cash provided by operating activities      |         |                   | 8,795  |         |         |        | 12,710  |  
|                                                             |                                                                                   |                                                                    |                                                |         |                   |        |         |        
|Cash flows from investing activities:                        |                                                                                   |                                                                    |                                                |         |                   |        |         |        
|                                                             | Net cash paid in connection with acquisitions                                     |                                                                    |                                                |        |                   |        |         | (3,943  | )     
|                                                             | Maturities of short-term investment securities                                    |                                                                    |                                                | 14,853  |                   |        |         | 42,882  |       
|                                                             | Purchases of short-term investment securities                                     |                                                                    |                                                | (20,416 | )                 |        |         | (46,992 | )     
|                                                             | Proceeds from sale of investment securities available for sale                    |                                                                    |                                                | 92      |                   |        |         |        |       
|                                                             | Proceeds from sale of other assets                                                |                                                                    |                                                | 1,415   |                   |        |         |        |       
|                                                             | Proceeds from sale of cost basis equity investment                                |                                                                    |                                                | 494     |                   |        |         |        |       
|                                                             | Purchase of long-term certificate of deposit                                      |                                                                    |                                                |        |                   |        |         | (2,500  | )     
|                                                             | Purchases of property, equipment and technology                                   |                                                                    |                                                | (4,528  | )                 |        |         | (9,426  | )     
|                                                             |                                                                                   |                                                                    |                                                |         |                   |        |         |        
|                                                             |                                                                                   |                                                                    | Net cash used in investing activities          |         |                   | (8,090 | )       |         |        | (19,979 | )
|                                                             |                                                                                   |                                                                    |                                                |         |                   |        |         |        
|Cash flows from financing activities:                        |                                                                                   |                                                                    |                                                |         |                   |        |         |        
|                                                             | Proceeds from sale of common stock under employee stock purchase and
option plans |                                                                    |                                                | 1,078   |                   |        |         | 5,076   |       
|                                                             | Payments on capital lease obligations                                             |                                                                    |                                                | (1,756  | )                 |        |         | (4,484  | )     
|                                                             | Repurchase of common stock held in treasury                                       |                                                                    |                                                | (750    | )                 |        |         | (7,042  | )     
|                                                             |                                                                                   |                                                                    |                                                |         |                   |        |         |        
|                                                             |                                                                                   | Net cash used in financing activities                              |                                                |         | (1,428            | )      |         |         | (6,450 | )      
|                                                             |                                                                                   |                                                                    |                                                |         |                   |        |         |        
|Effect of exchange rate changes on cash and cash equivalents |                                                                                   |                                                                    | 1,000                                          |         |                   |        | 178     |        
|                                                             |                                                                                   |                                                                    |                                                |         |                   |        |         |        
|Net
increase
(decrease) in cash and cash equivalents         |                                                                                   |                                                                    | 277                                            |         |                   |        | (13,541 | )      
|Cash and cash equivalents at beginning of period             |                                                                                   |                                                                    | 127,842                                        |         |                   |        | 119,632 |        
|                                                             |                                                                                   |                                                                    |                                                |         |                   |        |         |        
|Cash and cash equivalents at end of period                   |                                                                                   | $                                                                  | 128,119                                        |         |                   | $      | 106,091 |        
|                                                             |                                                                                   |                                                                    |                                                |         |                   |        |         |        
|Noncash investing and financing activities:                  |                                                                                   |                                                                    |                                                |         |                   |        |         |        
|                                                             | Property and equipment acquired through leases                                    |                                                                    | $                                              | 1,293   |                   |        | $       | 250     |       
|                                                             | Conversion of preferred stock to common stock                                     |                                                                    |                                                | 8,328   |                   |        |         | 225,778 |       
|                                                             | Effects of acquisitions:                                                          |                                                                    |                                                |         |                   |        |         |         |       
|                                                             |                                                                                   |                                                                    | Issuance of common stock to acquire businesses |         |                   |       |         |         |        | 22,778  |  
|                                                             |                                                                                   |                                                                    | Liabilities assumed                            |         |                   |       |         |         |        | 9,990   |  

See accompanying notes to unaudited condensed consolidated financial statements.

5



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S1 CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

|   |  |                                     
|-- |  | ------------------------------------
|1. |  | BACKGROUND AND BASIS OF PRESENTATION

S1 Corporation is a global provider of enterprise software solutions for
more than 4,000 financial organizations including banks, credit unions,
investment firms and insurance companies. Our solutions automate transactions
and integrate the channels by which financial institutions interact with their
customers. Our objective is to be the leading global provider of integrated
enterprise solutions that enable financial institutions to improve the way they
service their customers by integrating all delivery channels, expanding the
total financial relationship and increasing profits. We sell our solutions to
small, mid-sized and large financial organizations in two geographic regions:
(i) the Americas region, and (ii) the International region, consisting of
Europe, Middle East and Africa (EMEA) and Asia-Pacific and Japan (APJ). We
refer to our core business segment as the Financial Institutions business.

Through Edify Corporation and its subsidiaries, we offer voice and speech
recognition applications and consultation services to improve customer service
and reduce costs through automation and increased operational effectiveness.
These products streamline customer inquiries and transactions and deliver a
consistent experience to the customer across all channels of communication
including voice, email, fax, Web, and wireless. Edifys products are sold
across multiple vertical markets including financial services, travel, retail
and telecommunications on a direct basis and through the use of
resellers. Our financial institutions segment is the exclusive
reseller of Edify Solutions to the financial services marketplace.

S1 is headquartered in Atlanta, Georgia, USA, with additional domestic
offices in Boston, Massachusetts; Charlotte, North Carolina; Austin, Texas; New
York, New York; West Hills, California and Santa Clara, California; and
international offices in Brussels, Dublin, Hong Kong, Lisbon, London,
Luxembourg, Madrid, Munich, Paris, Rotterdam and Singapore. S1 is incorporated
in Delaware.

We accounted for the Edify business assets and liabilities as held for
sale for the period from July 1, 2002 until March 31, 2003. In April 2003, we
determined that we would not be able to sell the Edify business by June 30,
2003 on terms that were agreeable to us. The accompanying financial statements
reflect the Edify business as a part of our continuing operations for all
periods presented. As a result, during the quarter ended March 31, 2003, we
have:



| |  |  | reclassified the assets and liabilities of the Edify business from
assets held for sale and liabilities of business held for sale as of
December 31, 2002 in our condensed consolidated balance sheet;                                                                                
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | presented the results of operations for the Edify business as a
segment of continuing operations in our consolidated statements of
operations for all periods presented, which required a retroactive
reclassification of revenues and expenses for prior periods previously
reported; and
|
| |  |  | recorded depreciation expense of $0.3 million on the fixed assets of
the Edify business and amortization expense of $1.7 million for other
intangible assets associated with the Edify business for the nine-month
period from July 1, 2002 through March 31, 2003.                       

We have prepared the accompanying unaudited condensed consolidated
financial statements pursuant to the rules and regulations of the Securities
and Exchange Commission regarding interim financial reporting. Accordingly,
they do not contain all of the information and footnotes required by generally
accepted accounting principles for complete financial statements and should be
read in conjunction with the consolidated financial statements and notes
thereto included in our Annual Report on Form 10-K for the year ended December
31, 2002. In our opinion, the accompanying unaudited condensed consolidated
financial statements reflect all adjustments considered necessary for a fair
presentation of our financial condition as of September 30, 2003, our results
of operations for the three and nine months ended September 30, 2003 and our
cash flows for the nine months ended September 30, 2003. The data in the
condensed consolidated balance sheet as of December 31, 2002 was derived from
our audited consolidated balance sheet as of December 31, 2002, as presented in
our Annual Report on Form 10-K for the year ended December 31, 2002. Certain
items in the prior financial statements have been reclassified to conform to
the current presentation. The condensed consolidated financial statements
include the accounts of S1 and its wholly owned subsidiaries after the
elimination of all significant intercompany accounts and transactions. Our
operating results for the three and nine months ended

6



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September 30, 2003 are not necessarily indicative of the operating results
that may be expected for the year ending December 31, 2003.

|   |  |                                                                     
|-- |  | --------------------------------------------------------------------
|2. |  | SIGNIFICANT ACCOUNTING POLICIES AND RECENT ACCOUNTING PRONOUNCEMENTS

Significant Accounting Policies

Our significant accounting policies are included in the Notes to
Consolidated Financial Statements in our Annual Report on Form 10-K for the
year ended December 31, 2002. Below are significant changes to our accounting
policies.

During December 2002, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 148, Accounting for
Stock-Based CompensationTransition and Disclosurean amendment of SFAS No.
123. SFAS No. 148 provides alternative methods of transition for a voluntary
change to the fair value based method of accounting for stock-based employee
compensation. This statement also amends the disclosure requirements of SFAS
No. 123 and Accounting Principles Board Opinion No. 28, Interim Financial
Reporting, to require prominent disclosures in both annual and interim
financial statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results. We
implemented SFAS No. 148 effective January 1, 2003 regarding disclosure
requirements for condensed financial statements for interim periods. At this
time, we do not anticipate making a voluntary change to the fair value based
method of accounting for stock-based employee compensation.

We account for our stock option plans in accordance with the provisions of
APB Opinion No. 25, Accounting for Stock Issued to Employees, and related
interpretations and comply with the disclosure provisions of SFAS No. 123,
Accounting for Stock-Based Compensation and SFAS No. 148. As such, we record
compensation expense on the date of grant only if the current market price of
the underlying stock exceeds the exercise price. Additionally, if a
modification is made to an existing grant, any related compensation expense is
calculated on the date both parties accept the modification and recorded on the
date the modification becomes effective. Otherwise, we do not record stock
compensation expense when we grant stock options to S1 employees.

In the three and nine months ended September 30, 2003 and 2002, we
recognized compensation expense relating to stock options granted with exercise
prices less than the market price on the date of grant and for modifications
made to the terms of existing grants. Had we determined compensation expense
based on the fair value at the grant date for our stock options and stock
purchase rights under SFAS No. 123, our net loss would have increased to the
unaudited pro forma amounts indicated below:

|                                                                                                                                            |             |   |                    |       |                   |   |         |       |      |   |          |       |   |   |          |       |  
|------------------------------------------------------------------------------------------------------------------------------------------- | ----------- | - | ------------------ | ----- | ----------------- | - | ------- | ----- | ---- | - | -------- | ----- | - | - | -------- | ----- | -
|                                                                                                                                            |             |   | Three Months Ended |       | Nine Months Ended
|                                                                                                                                            |             |   | September 30,      |       | September 30,    
|                                                                                                                                            |             |   |                    |       |                  
|                                                                                                                                            |             |   | 2003               |       | 2002              |   | 2003    |       | 2002
|                                                                                                                                            |             |   |                    |       |                   |   |         |       |     
|Net loss, as reported                                                                                                                       |             | $ | (4,360             | )     |                   | $ | (5,200  | )     |      | $ | (40,052  | )     |   | $ | (17,553  | )    
|Add: Stock-based employee compensation expense included in
reported net loss, net of related tax effects                                    |             |   |                   |       |                   |   | 212     |       |      |   | 281      |       |   |   | 1,111    |      
|Deduct: Total stock-based employee compensation expense
determined under fair value based method for all awards,
net of related tax effects |             |   | (27,723            | )     |                   |   | (31,489 | )     |      |   | (82,096  | )     |   |   | (94,679  | )    
|                                                                                                                                            |             |   |                    |       |                   |   |         |       |      |   |          |       |   |   |          |      
|Pro forma net loss                                                                                                                          |             | $ | (32,083            | )     |                   | $ | (36,477 | )     |      | $ | (121,867 | )     |   | $ | (111,121 | )    
|                                                                                                                                            |             |   |                    |       |                   |   |         |       |      |   |          |       |   |   |          |      
|Basic and diluted net loss per common share                                                                                                 |             |   |                    |       |                   |   |         |       |      |   |          |       |   |   |          |      
|                                                                                                                                            | As reported | $ | (0.06              | )     |                   | $ | (0.07   | )     |      | $ | (0.58    | )     |   | $ | (0.26    | )    
|                                                                                                                                            | Pro forma   |   |                    | (0.46 | )                 |   |         | (0.52 | )    |   |          | (1.75 | ) |   |          | (1.66 | )

The effect of applying SFAS No. 123 for providing these pro forma
disclosures is not necessarily representative of the effects on reported net
income (loss) in future periods.

7



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The fair value of our stock-based option awards to employees was
calculated using the Black-Scholes option-pricing model assuming no expected
dividends and the following weighted-average assumptions:

|                        |  |           |       |           |  |  |       |  
|----------------------- |  | --------- | ----- | --------- |  |  | ----- | -
|                        |  | 2003      |       | 2002     
|                        |  |           |       |          
|Expected volatility     |  |           | 114.4 | %         |  |  | 115.7 | %
|Risk-free interest rate |  |           | 2.9   | %         |  |  | 3.8   | %
|Expected life           |  | 4.6 years |       | 4.5 years

Recent Accounting Pronouncements

In June 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. This statement requires that a
liability for a cost that is associated with an exit or disposal activity be
recognized when the liability is incurred. It nullifies the guidance of
Emerging Issues Task Force Issue No. 94-3, Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity (including
Certain Costs Incurred in a Restructuring). Under EITF Issue No. 94-3, an
entity recognized a liability for an exit cost on the date that the entity
committed itself to an exit plan. Under SFAS No. 146, the Board acknowledges
that an entitys commitment to a plan does not, by itself, create a present
obligation to other parties that meets the definition of a liability. This
statement also establishes that fair value is the objective for the initial
measurement of the liability. The provisions of this statement became effective
for exit or disposal activities initiated after December 31, 2002. We applied
the provisions of SFAS No. 146 in accounting for our restructuring activities
during the three and nine months ended September 30, 2003. See Note 6 for a
discussion of our restructuring activities.

In November 2002, the EITF reached a consensus on Issue No. 00-21,
Revenue Arrangements with Multiple Deliverables. EITF Issue No. 00-21
provides guidance on how to account for arrangements that involve the delivery
or performance of multiple products, services and/or rights to use assets. The
provisions of EITF Issue No. 00-21 apply to revenue arrangements entered into
in fiscal periods beginning after June 15, 2003. We adopted EITF Issue No.
00-21 effective July 1, 2003 with no material impact on our consolidated
financial statements.

In November 2002, the FASB issued FASB Interpretation No. 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others which clarifies disclosure, recognition
and measurement requirements related to certain guarantees. The disclosure
requirements are effective for financial statements issued after December 15,
2002 and the recognition and measurement requirements are effective on a
prospective basis for guarantees issued or modified after December 31, 2002. We
typically grant our customers a warranty that guarantees that our product will
substantially conform to our current specifications for 90 days from the
delivery date. We also indemnify our customers from third party claims of
intellectual property infringement relating to the use of our products.
Historically, costs related to these guarantees have not been significant and
we are unable to estimate the potential impact of these guarantees on our
future results of operations.

|   |  |                                     
|-- |  | ------------------------------------
|3. |  | GOODWILL AND OTHER INTANGIBLE ASSETS

At September 30, 2003, our other intangible assets consisted of the
following:

|                                  |  |                |        |              |  |   |        |  
|--------------------------------- |  | -------------- | ------ | ------------ |  | - | ------ | -
|                                  |  | Gross          |        | Accumulated 
|                                  |  | Carrying Value |        | Amortization
|                                  |  |                |        |             
|                                  |  | (In thousands)
|Purchased and acquired technology |  | $              | 11,584 |              |  | $ | (3,281 | )
|Customer relationships            |  |                | 7,500  |              |  |   | (1,790 | )
|                                  |  |                |        |              |  |   |        |  
|Total                             |  | $              | 19,084 |              |  | $ | (5,071 | )
|                                  |  |                |        |              |  |   |        |  

8



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We recorded amortization expense of $14.0 million and $4.9 million during
the nine months ended September 30, 2002 and 2003, respectively. We estimate
aggregate amortization expense for 2003 and the next four calendar years to be
as follows (in thousands):

|                                        |  |         |       |      |  |      |       |      |  |      |       |  |  |   |       |  |  |   |       | 
|--------------------------------------- |  | ------- | ----- | ---- |  | ---- | ----- | ---- |  | ---- | ----- |  |  | - | ----- |  |  | - | ----- | 
|                                        |  | 2003(1) |       | 2004 |  | 2005 |       | 2006 |  | 2007
|                                        |  |         |       |      |  |      |       |      |  |     
|Financial institutions business segment |  | $       | 3,727 |      |  | $    | 2,770 |      |  | $    | 2,770 |  |  | $ | 2,770 |  |  | $ | 1,643 | 
|Edify business segment                  |  |         | 225   |      |  |      | 75    |      |  |      |      |  |  |   |      |  |  |   |      | 



---

|(1) |  | The estimate for 2003 for the Edify business excludes the goodwill
impairment charge of $11.7 million and the accelerated amortization on the
other intangible assets of $1.7 million.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The changes in the carrying value of our goodwill for the nine months
ended September 30, 2003 are as follows:

|                                                           |  |                |        |       |  |       |         |   |  |   |         |  
|---------------------------------------------------------- |  | -------------- | ------ | ----- |  | ----- | ------- | - |  | - | ------- | -
|                                                           |  | Financial      |        |       |  |       |         |   |  |  
|                                                           |  | Institutions   |        | Edify |  | Total
|                                                           |  |                |        |       |  |      
|                                                           |  | (In thousands)
|Balance, January 1, 2003                                   |  | $              | 89,640 |       |  | $     | 17,331  |   |  | $ | 106,971 |  
|Income tax refunds for pre-acquisition
periods             |  |                | (710   | )     |  |       |        |   |  |   | (710    | )
|Adjustment of purchase price for Point
Information Systems |  |                | 114    |       |  |       |        |   |  |   | 114     |  
|Impairment charge                                          |  |                |       |       |  |       | (11,710 | ) |  |   | (11,710 | )
|                                                           |  |                |        |       |  |       |         |   |  |   |         |  
|Balance, September 30, 2003                                |  | $              | 89,044 |       |  | $     | 5,621   |   |  | $ | 94,665  |  
|                                                           |  |                |        |       |  |       |         |   |  |   |         |  

In April 2003, we terminated our efforts to divest the Edify business. We
considered our inability to sell the Edify business on terms that were
acceptable to us a triggering event under SFAS No. 142 and 144 that required us
to perform a current assessment of the carrying value of the Edify business.
Based on our current analysis of fair value for the Edify business, including
estimates we based on discounted future cash flows, market valuations of
comparable businesses and offers from potential buyers, we concluded that the
fair value of the Edify business was less than its carrying value. Accordingly,
we allocated our estimate of fair value for the unit to the existing assets and
liabilities of the Edify business as of March 31, 2003, resulting in a goodwill
impairment charge of $11.7 million and accelerated amortization on other
intangible assets (developed technology and customer base) and purchased
software of $1.2 million and $0.5 million, respectively.

|   |  |                     
|-- |  | --------------------
|4. |  | STOCKHOLDERS EQUITY

On September 20, 2003, our series E convertible preferred stock
automatically converted into S1 common stock at a rate of one common share for
each preferred share. Accordingly, we issued 649,150 shares of S1 common stock
in exchange for 649,150 shares of series E preferred stock.

In July 2002, our board of directors approved a $10.0 million stock
repurchase program. We completed this program in January 2003. As of September
30, 2003, we hold 2,051,862 shares of our common stock in treasury at a cost of
$10.0 million.

9



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|   |  |                   
|-- |  | ------------------
|5. |  | COMPREHENSIVE LOSS

The components of comprehensive loss are as follows (in thousands):

|                                                                          |                    |   |                    |        |                   |   |        |        |      |   |         |         |   |   |         |         |  
|------------------------------------------------------------------------- | ------------------ | - | ------------------ | ------ | ----------------- | - | ------ | ------ | ---- | - | ------- | ------- | - | - | ------- | ------- | -
|                                                                          |                    |   | Three Months Ended |        | Nine Months Ended
|                                                                          |                    |   | September 30,      |        | September 30,    
|                                                                          |                    |   |                    |        |                  
|                                                                          |                    |   | 2003               |        | 2002              |   | 2003   |        | 2002
|                                                                          |                    |   |                    |        |                   |   |        |        |     
|Net loss                                                                  |                    | $ | (4,360             | )      |                   | $ | (5,200 | )      |      | $ | (40,052 | )       |   | $ | (17,553 | )      
|Foreign currency translation adjustment                                   |                    |   | (230               | )      |                   |   | 271    |        |      |   | 385     |         |   |   | (1,372  | )      
|Unrealized loss on investment securities
available for sale, net of taxes |                    |   |                   |        |                   |   | 15     |        |      |   | (86     | )       |   |   | (61     | )      
|                                                                          |                    |   |                    |        |                   |   |        |        |      |   |         |         |   |   |         |        
|                                                                          | Comprehensive loss |   | $                  | (4,590 | )                 |   | $      | (4,914 | )    |   | $       | (39,753 | ) |   | $       | (18,986 | )
|                                                                          |                    |   |                    |        |                   |   |        |        |      |   |         |         |   |   |         |        

|   |  |                                               
|-- |  | ----------------------------------------------
|6. |  | MERGER RELATED COSTS AND RESTRUCTURING CHARGES

Components of merger related and restructuring costs are as follows (in thousands):

|                      |  |                    |       |                   |  |      |     |      |  |   |        |   |  |   |       | 
|--------------------- |  | ------------------ | ----- | ----------------- |  | ---- | --- | ---- |  | - | ------ | - |  | - | ----- | 
|                      |  | Three Months Ended |       | Nine Months Ended
|                      |  | September 30,      |       | September 30,    
|                      |  |                    |       |                  
|                      |  | 2003               |       | 2002              |  | 2003 |     | 2002
|                      |  |                    |       |                   |  |      |     |     
|Restructuring charges |  | $                  | 4,052 |                   |  | $    | 734 |      |  | $ | 21,561 |   |  | $ | 734   | 
|Merger related costs  |  |                    |      |                   |  |      |    |      |  |   | (997   | ) |  |   | 2,022 | 
|                      |  |                    |       |                   |  |      |     |      |  |   |        |   |  |   |       | 
|                      |  | $                  | 4,052 |                   |  | $    | 734 |      |  | $ | 20,564 |   |  | $ | 2,756 | 
|                      |  |                    |       |                   |  |      |     |      |  |   |        |   |  |   |       | 

During the first nine months of 2003, we undertook several initiatives to
align our worldwide cost structure with our anticipated 2004 revenues. As a
result, management approved restructuring plans in the financial institution
and Edify segments to reduce the work force, relocate and consolidate certain
office facilities and sell certain corporate assets. In addition we
consolidated our EMEA data center operations based in the United Kingdom into
our global hosting center in Atlanta. In connection with these plans, we
recorded restructuring charges of $21.6 million during the nine months ended
September 30, 2003. In total, we eliminated approximately 199 positions
worldwide and closed or consolidated office facilities. In the domestic
operations of our financial institution segment, we recorded $6.6 million in
restructuring charges during the nine months ended September 30, 2003, which
were primarily comprised of charges for severance costs associated with
headcount reductions, lease payments associated with excess office space,
relocation expenses resulting from office consolidation and other corporate
charges.

In the first quarter of 2003, we began the process of reorganizing our
international operations. As of September 30, 2003, we believe this
reorganization is substantially complete. In the first nine months of 2003, we consolidated
our U.K. data center operations into our global hosting center in Atlanta,
relocated our remaining U.K operations to a smaller facility, decreased our
workforce both in our European and APJ operations and closed offices in our APJ
operations. As a result, in the nine months ended September 30, 2003, we
recorded restructuring charges of $9.4 million in our European operations and
$1.3 million in our APJ operations. These charges were comprised of
accelerated depreciation of assets, severance costs, other related costs to
relocate the data center operations, losses on the vacated office space,
relocation expenses and the write off of abandoned leasehold improvements.
Under the provisions of SFAS No. 146, we recorded the loss on vacated office
space at the present value of the expected cash flows. We will accrete
interest expense of approximately $0.9 million over the remaining term of the
lease, which is six years.

In the third quarter of 2003, we completed the process of reorganizing our
Edify business to align costs with expected revenues. As a result, we hired a
new general manager, reduced the workforce and closed and consolidated several
Edify office facilities worldwide. These actions resulted in restructuring
charges of $4.3 million for the nine months ended September 30, 2003.

10



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In the first quarter of 2003, we decreased our merger related reserve for
legal claims by $0.5 million, which was established in connection with our
acquisition of FICS Group, N.V. in November 1999. We were able to resolve this
legal matter during the first quarter of 2003 for less than previously
estimated. In the second quarter of 2003, we further reduced our merger
related accrual by $0.5 million when we determined that we had an alternate use
for excess office space that was reserved when we completed the acquisition of
Point in March 2002.

During the nine months ended September 30 2002, we incurred merger related
costs of $3.7 million in connection with the acquisition of the assets and
subsidiaries of Point Holdings, Ltd. These costs, incurred in connection with
our plan to reorganize certain of our European operations, include headcount
reduction, consolidation of S1 and acquired Point office facilities and
disposal of redundant or obsolete computer equipment. This merger related
charge was partially offset by a $1.7 million decrease in reserves for legal
claims, which was established in connection with our acquisition of FICS Group,
N.V. in November 1999. We were able to resolve this legal matter during the
first quarter of 2002 for less than previously estimated. Additionally, in the
third quarter of 2002, we recorded a charge of $0.7 million for some excess
office space in our Edify business.

The restructuring reserves as of December 31, 2002 and September 30, 2003
and their utilization for the nine months ended September 30, 2003 are
summarized as follows:

|                            |  |                 |        |             |  |       |        |       |  |   |        |   |  |   |         |  
|--------------------------- |  | --------------- | ------ | ----------- |  | ----- | ------ | ----- |  | - | ------ | - |  | - | ------- | -
|                            |  | Personnel Costs |        | Lease Costs |  | Other |        | Total
|                            |  |                 |        |             |  |       |        |      
|                            |  | (In thousands) 
|Balance, December 31, 2002  |  | $               | 78     |             |  | $     | 6,724  |       |  | $ | 308    |   |  | $ | 7,110   |  
|Restructuring charges       |  |                 | 6,461  |             |  |       | 7,492  |       |  |   | 7,608  |   |  |   | 21,561  |  
|Amounts utilized            |  |                 | (4,165 | )           |  |       | (2,841 | )     |  |   | (7,071 | ) |  |   | (14,077 | )
|                            |  |                 |        |             |  |       |        |       |  |   |        |   |  |   |         |  
|Balance, September 30, 2003 |  | $               | 2,374  |             |  | $     | 11,375 |       |  | $ | 845    |   |  | $ | 14,594  |  
|                            |  |                 |        |             |  |       |        |       |  |   |        |   |  |   |         |  

We expect to make future cash expenditures, net of anticipated sublease
income, related to these restructuring activities of approximately $14.3
million, of which we anticipate to pay approximately $7.7 million within the
next twelve months.

|   |  |              
|-- |  | -------------
|7. |  | CONTINGENCIES

Except as noted below, there is no material pending legal proceeding,
other than ordinary routine litigation incidental to the business, to which S1,
or any of its subsidiaries is a party or which their property is subject.



| |  |  | S1 Corporation and its subsidiary Davidge Data Systems, Inc. are
involved in litigation with Scottrade, Inc. and an affiliate company,
Computer Research, Inc., relating to a software development project. The
action was initially filed in March 2002 in the U.S. District Court for
the Eastern District of Missouri. The plaintiffs filed amended
complaints in November of 2002 and January of 2003. The plaintiffs have
made a claim for a refund of $0.3 million of amounts paid to S1 and
Davidge as well as damages in excess of $19.0 million flowing from the
dispute, including service bureau expenses incurred because of the
alleged failure to perform. S1 and Davidge have filed a counterclaim for
unpaid amounts under the contract. This case is scheduled to go to
trial in April 2004. We believe the plaintiffs claims are not
meritorious and intend to continue vigorously defending the suit.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | S1 Corporation is involved in litigation with Tradecard, Inc.
relating to a claim of infringement of U.S. Patent 6,151,588 filed in
the U.S. District Court for the Southern District of New York. The
action was filed in March 2003 against S1 Corporation, Bank of America
Corporation and Bank of America National Association. We believe that
the plaintiffs claims are not meritorious and intend to continue
vigorously defending the suit.                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

There can be no assurance on the ultimate outcome of these matters. An
adverse judgment or settlement could be material to our financial position and
results of operations.

11



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##### Table of Contents



|   |  |                                      
|-- |  | -------------------------------------
|8. |  | SEGMENT REPORTING AND MAJOR CUSTOMERS

We operate and manage S1 in two business segments: financial institutions,
our core business segment, and the Edify business. The financial institutions
segment develops, markets and implements integrated, transactional and
brandable enterprise applications for small, mid-sized and large financial
institutions worldwide, available as in-house or hosted solutions. The Edify
business segment provides a variety of voice and speech recognition
applications that help organizations globally increase customer retention
through automation and improved operational effectiveness.

We evaluate the performance of our operating segments based on their
contribution before interest, other income (expense) and income taxes, as
reflected in the tables presented below for the three and nine months ended
September 30, 2003 and 2002. We do not use any asset-based metrics to measure
the operating performance of our segments.

|                         |                                                |   |                                       |        |       |   |              |       |       |   |        |        |   |   |        |        | 
|------------------------ | ---------------------------------------------- | - | ------------------------------------- | ------ | ----- | - | ------------ | ----- | ----- | - | ------ | ------ | - | - | ------ | ------ | 
|                         |                                                |   | Three Months Ended September 30, 2003
|                         |                                                |   |                                      
|                         |                                                |   | Financial                             |        |       |   |              |       |       |   |        |        |   |   |       
|                         |                                                |   | Institutions                          |        | Edify |   | Eliminations |       | Total
|                         |                                                |   |                                       |        |       |   |              |       |      
|Revenues                 |                                                | $ | 50,559                                |        |       | $ | 7,959        |       |       | $ | (1,057 | )      |   | $ | 57,461 |       
|Operating expenses:      |                                                |   |                                       |        |       |   |              |       |       |   |        |        |   |   |        |       
|                         | Direct costs                                   |   |                                       | 23,594 |       |   |              | 3,723 |       |   |        | (1,057 | ) |   |        | 26,260 | 
|                         | Selling and marketing                          |   |                                       | 6,347  |       |   |              | 2,987 |       |   |        |       |   |   |        | 9,334  | 
|                         | Product development                            |   |                                       | 8,931  |       |   |              | 1,484 |       |   |        |       |   |   |        | 10,415 | 
|                         | General and administrative                     |   |                                       | 6,817  |       |   |              | 790   |       |   |        |       |   |   |        | 7,607  | 
|                         | Depreciation                                   |   |                                       | 3,309  |       |   |              | 236   |       |   |        |       |   |   |        | 3,545  | 
|                         | Merger related costs and restructuring charges |   |                                       | 2,894  |       |   |              | 1,158 |       |   |        |       |   |   |        | 4,052  | 
|                         | Amortization of other intangible assets        |   |                                       | 693    |       |   |              | 75    |       |   |        |       |   |   |        | 768    | 
|                         |                                                |   |                                       |        |       |   |              |       |       |   |        |        |   |   |        |       
|Total operating expenses |                                                |   | 52,585                                |        |       |   | 10,453       |       |       |   | (1,057 | )      |   |   | 61,981 |       
|                         |                                                |   |                                       |        |       |   |              |       |       |   |        |        |   |   |        |       
|Segment operating loss   |                                                | $ | (2,026                                | )      |       | $ | (2,494       | )     |       | $ |       |        |   | $ | (4,520 | )     
|                         |                                                |   |                                       |        |       |   |              |       |       |   |        |        |   |   |        |       

|                         |                                                |   |                                       |        |       |   |              |       |       |   |      |      |   |   |        |        | 
|------------------------ | ---------------------------------------------- | - | ------------------------------------- | ------ | ----- | - | ------------ | ----- | ----- | - | ---- | ---- | - | - | ------ | ------ | 
|                         |                                                |   | Three Months Ended September 30, 2002
|                         |                                                |   |                                      
|                         |                                                |   | Financial                             |        |       |   |              |       |       |   |      |      |   |   |       
|                         |                                                |   | Institutions                          |        | Edify |   | Eliminations |       | Total
|                         |                                                |   |                                       |        |       |   |              |       |      
|Revenues                 |                                                | $ | 58,517                                |        |       | $ | 14,227       |       |       | $ | (733 | )    |   | $ | 72,011 |       
|Operating expenses:      |                                                |   |                                       |        |       |   |              |       |       |   |      |      |   |   |        |       
|                         | Direct costs                                   |   |                                       | 25,289 |       |   |              | 6,237 |       |   |      | (733 | ) |   |        | 30,793 | 
|                         | Selling and marketing                          |   |                                       | 9,858  |       |   |              | 5,328 |       |   |      |     |   |   |        | 15,186 | 
|                         | Product development                            |   |                                       | 10,798 |       |   |              | 1,953 |       |   |      |     |   |   |        | 12,751 | 
|                         | General and administrative                     |   |                                       | 7,345  |       |   |              | 1,477 |       |   |      |     |   |   |        | 8,822  | 
|                         | Depreciation                                   |   |                                       | 5,279  |       |   |              | 129   |       |   |      |     |   |   |        | 5,408  | 
|                         | Merger related costs and restructuring charges |   |                                       |       |       |   |              | 734   |       |   |      |     |   |   |        | 734    | 
|                         | Amortization of other intangible assets        |   |                                       | 4,275  |       |   |              |      |       |   |      |     |   |   |        | 4,275  | 
|                         |                                                |   |                                       |        |       |   |              |       |       |   |      |      |   |   |        |       
|Total operating expenses |                                                |   | 62,844                                |        |       |   | 15,858       |       |       |   | (733 | )    |   |   | 77,969 |       
|                         |                                                |   |                                       |        |       |   |              |       |       |   |      |      |   |   |        |       
|Segment operating loss   |                                                | $ | (4,327                                | )      |       | $ | (1,631       | )     |       | $ |     |      |   | $ | (5,958 | )     
|                         |                                                |   |                                       |        |       |   |              |       |       |   |      |      |   |   |        |       

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|                         |                                                                 |   |                                      |        |       |   |              |        |       |   |        |        |   |   |         |        | 
|------------------------ | --------------------------------------------------------------- | - | ------------------------------------ | ------ | ----- | - | ------------ | ------ | ----- | - | ------ | ------ | - | - | ------- | ------ | 
|                         |                                                                 |   | Nine Months Ended September 30, 2003
|                         |                                                                 |   |                                     
|                         |                                                                 |   | Financial                            |        |       |   |              |        |       |   |        |        |   |   |        
|                         |                                                                 |   | Institutions                         |        | Edify |   | Eliminations |        | Total
|                         |                                                                 |   |                                      |        |       |   |              |        |      
|Revenues                 |                                                                 | $ | 171,239                              |        |       | $ | 22,047       |        |       | $ | (2,438 | )      |   | $ | 190,848 |       
|Operating expenses:      |                                                                 |   |                                      |        |       |   |              |        |       |   |        |        |   |   |         |       
|                         | Direct costs                                                    |   |                                      | 79,307 |       |   |              | 13,241 |       |   |        | (2,438 | ) |   |         | 90,110 | 
|                         | Selling and marketing                                           |   |                                      | 21,651 |       |   |              | 9,337  |       |   |        |       |   |   |         | 30,988 | 
|                         | Product development                                             |   |                                      | 29,167 |       |   |              | 4,622  |       |   |        |       |   |   |         | 33,789 | 
|                         | General and administrative                                      |   |                                      | 21,161 |       |   |              | 3,476  |       |   |        |       |   |   |         | 24,637 | 
|                         | Depreciation                                                    |   |                                      | 13,225 |       |   |              | 758    |       |   |        |       |   |   |         | 13,983 | 
|                         | Merger related costs and restructuring charges                  |   |                                      | 16,306 |       |   |              | 4,258  |       |   |        |       |   |   |         | 20,564 | 
|                         | Acquired in-process research and development                    |   |                                      |       |       |   |              |       |       |   |        |       |   |   |         |        | 
|                         | Amortization of other intangible assets and
goodwill impairment |   |                                      | 3,037  |       |   |              | 13,588 |       |   |        |       |   |   |         | 16,625 | 
|                         |                                                                 |   |                                      |        |       |   |              |        |       |   |        |        |   |   |         |       
|Total operating expenses |                                                                 |   | 183,854                              |        |       |   | 49,280       |        |       |   | (2,438 | )      |   |   | 230,696 |       
|                         |                                                                 |   |                                      |        |       |   |              |        |       |   |        |        |   |   |         |       
|Segment operating loss   |                                                                 | $ | (12,615                              | )      |       | $ | (27,233      | )      |       | $ |       |        |   | $ | (39,848 | )     
|                         |                                                                 |   |                                      |        |       |   |              |        |       |   |        |        |   |   |         |       

|                         |                                                |   |                                      |        |       |   |              |        |       |   |        |        |   |   |         |        | 
|------------------------ | ---------------------------------------------- | - | ------------------------------------ | ------ | ----- | - | ------------ | ------ | ----- | - | ------ | ------ | - | - | ------- | ------ | 
|                         |                                                |   | Nine Months Ended September 30, 2002
|                         |                                                |   |                                     
|                         |                                                |   | Financial                            |        |       |   |              |        |       |   |        |        |   |   |        
|                         |                                                |   | Institutions                         |        | Edify |   | Eliminations |        | Total
|                         |                                                |   |                                      |        |       |   |              |        |      
|Revenues                 |                                                | $ | 184,088                              |        |       | $ | 38,242       |        |       | $ | (2,439 | )      |   | $ | 219,891 |       
|Operating expenses:      |                                                |   |                                      |        |       |   |              |        |       |   |        |        |   |   |         |       
|                         | Direct costs                                   |   |                                      | 77,691 |       |   |              | 16,416 |       |   |        | (2,439 | ) |   |         | 91,668 | 
|                         | Selling and marketing                          |   |                                      | 30,327 |       |   |              | 14,316 |       |   |        |       |   |   |         | 44,643 | 
|                         | Product development                            |   |                                      | 33,901 |       |   |              | 6,627  |       |   |        |       |   |   |         | 40,528 | 
|                         | General and administrative                     |   |                                      | 24,897 |       |   |              | 4,254  |       |   |        |       |   |   |         | 29,151 | 
|                         | Depreciation                                   |   |                                      | 16,198 |       |   |              | 1,197  |       |   |        |       |   |   |         | 17,395 | 
|                         | Merger related costs and restructuring charges |   |                                      | 2,022  |       |   |              | 734    |       |   |        |       |   |   |         | 2,756  | 
|                         | Acquired in-process research and development   |   |                                      | 350    |       |   |              |       |       |   |        |       |   |   |         | 350    | 
|                         | Amortization of other intangible assets        |   |                                      | 12,454 |       |   |              | 1,517  |       |   |        |       |   |   |         | 13,971 | 
|                         |                                                |   |                                      |        |       |   |              |        |       |   |        |        |   |   |         |       
|Total operating expenses |                                                |   | 197,840                              |        |       |   | 45,061       |        |       |   | (2,439 | )      |   |   | 240,462 |       
|                         |                                                |   |                                      |        |       |   |              |        |       |   |        |        |   |   |         |       
|Segment operating loss   |                                                | $ | (13,752                              | )      |       | $ | (6,819       | )      |       | $ |       |        |   | $ | (20,571 | )     
|                         |                                                |   |                                      |        |       |   |              |        |       |   |        |        |   |   |         |       

Currently, we have two major customers in the financial institutions
segment (defined as those customers who individually contribute more than 10%
of total revenues). We derived 17% and 27% of our financial institutions
segment revenues from State Farm Mutual Automobile Insurance Company during the
three months ended September 30, 2003 and 2002, respectively. We derived 21%
and 27% of our financial institutions segment revenues from State Farm Mutual
Automobile Insurance Company during the nine months ended September 30, 2003
and 2002, respectively.

The other major customer, Zurich Insurance Company and certain of its
affiliates or subsidiaries, accounted for 16% and 17% of our revenues from the
financial institutions segment during the three months ended September 30, 2003
and 2002, respectively. Zurich accounted for 19% and 17% of our revenues from
the financial institutions segment during the nine months ended September 30,
2003 and 2002, respectively.

In March 2003, we amended the terms of our data center arrangement with
Zurich to shorten the term over which revenue will be recognized and payments
received. Revenue from the data center contract, which would have been
recognized ratably throughout 2003 and 2004, was recognized in the first six
months of 2003. Associated direct costs were accelerated over the same period.

During the six months ended June 30, 2003, we reported data center revenue
of $8.7 million for data center services provided to Zurich. There is no
remaining data center revenue to record from Zurich after the quarter ended
June 30, 2003. Total costs associated with Zurich were approximately $2.6
million, including cost of goods sold and depreciation and do not include any
allocation of management or administration expenses during the six months ended
June 30, 2003.

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The subscription license and professional services components of our
arrangement with Zurich were not affected by the data center contract
amendment. We recognized $8.2 million of subscription license revenue in the
third quarter of 2003 and will recognize $8.2 million of subscription license
revenue in the quarter ending December 31, 2003, at which time the subscription
license will terminate with no further expected revenue. There are no direct
costs associated with this subscription license.

|   |  |                          
|-- |  | -------------------------
|9. |  | NET LOSS PER COMMON SHARE

We calculate basic net loss per common share as the loss available to
common stockholders divided by the weighted average number of common shares
outstanding during the period. Diluted earnings per share is calculated to
reflect the potential dilution that would occur if stock options or other
contracts to issue common stock were exercised and resulted in additional
common stock that would share in the earnings of S1. Because of our net losses,
the issuance of additional shares of common stock through the exercise of stock
options or stock warrants or upon the conversion of preferred stock would have
an anti-dilutive effect on our net loss per share. The total number of common
shares that would have been included in our computation of diluted loss per
share if they had been dilutive is as follows (in thousands):

|                                                     |                             |  |                    |       |                   |  |        |       |      |  |        |       |  |  |        |       | 
|---------------------------------------------------- | --------------------------- |  | ------------------ | ----- | ----------------- |  | ------ | ----- | ---- |  | ------ | ----- |  |  | ------ | ----- | 
|                                                     |                             |  | Three Months Ended |       | Nine Months Ended
|                                                     |                             |  | September 30,      |       | September 30,    
|                                                     |                             |  |                    |       |                  
|                                                     |                             |  | 2003               |       | 2002              |  | 2003   |       | 2002
|                                                     |                             |  |                    |       |                   |  |        |       |     
|Weighted average common shares outstanding           |                             |  | 69,877             |       |                   |  | 70,410 |       |      |  | 69,493 |       |  |  | 67,121 |      
|Weighted average effect of common stock equivalents: |                             |  |                    |       |                   |  |        |       |      |  |        |       |  |  |        |      
|                                                     | Convertible preferred stock |  |                    | 1,635 |                   |  |        | 1,719 |      |  |        | 1,691 |  |  |        | 4,711 | 
|                                                     | Stock options               |  |                    | 624   |                   |  |        | 1,042 |      |  |        | 780   |  |  |        | 3,485 | 
|                                                     |                             |  |                    |       |                   |  |        |       |      |  |        |       |  |  |        |      
|Weighted average diluted shares outstanding          |                             |  | 72,136             |       |                   |  | 73,171 |       |      |  | 71,964 |       |  |  | 75,317 |      
|                                                     |                             |  |                    |       |                   |  |        |       |      |  |        |       |  |  |        |      

|    |  |                 
|--- |  | ----------------
|10. |  | SUBSEQUENT EVENT

In October 2003, our board of directors approved a program to repurchase
up to $15.0 million of our common stock. This program will be funded from
available cash and short-term investments.

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|        |  |                                                                                      
|------- |  | -------------------------------------------------------------------------------------
|Item 2. |  | Managements Discussion and Analysis of Financial Condition and Results of Operations

This quarterly report contains forward-looking statements and information
relating to our subsidiaries and us. The words believes, expects, may,
will, should, projects, contemplates, anticipates, forecasts,
intends or similar terminology identify forward-looking statements. These
statements are based on the beliefs of management as well as assumptions made
using information currently available to management. Because these statements
reflect the current views of management concerning future events, they involve
risks, uncertainties and assumptions. Therefore, actual results may differ
significantly from the results discussed in the forward-looking statements. You
are urged to read the risk factors described in our Annual Report on Form 10-K
for the year ended December 31, 2002, as filed with the Securities and Exchange
Commission. Except as required by law, we undertake no obligation to update
publicly any forward-looking statement for any reason, even if new information
becomes available.

The following discussion should be read in conjunction with the unaudited
condensed consolidated financial statements and notes appearing elsewhere
herein and in our Annual Report on Form 10-K for the year ended December 31,
2002.

Overview

We derive a significant portion of our revenues from licensing our
solutions and providing professional services. We generate recurring data
center revenues by charging our data center customers a monthly fixed fee or a
fee based on the number of their end users who use the solutions we provide,
subject to a minimum charge. We also generate recurring revenues by charging
our customers a periodic fee for maintenance and support of our solutions. We
operate and manage S1 in two business segments: financial institutions, which
is our core business segment and the Edify business.

Within our financial institutions business, we generate 40% of our
revenues from license and services provided to our two major customers (Zurich
Insurance Company and State Farm Mutual Automobile Insurance Company). The
remainder of the revenue is generated from the sale of license and services in
the global financial services market. We are in the final stages of a
transition from our legacy Internet-only business to an Enterprise software and
services business. During the transition, we are experiencing a loss or
decrease of revenue from legacy Internet-only customers. Zurich, which
accounted for $42 million in revenue in 2002 and will account for $43 million
in 2003, will not generate any revenue in 2004. Revenue from State Farm in
2002 of approximately $66 million is expected to be approximately $45 to $47
million in 2003 and then go to approximately $35 to $40 million in 2004. In
addition to these two customers, we had a number of other legacy Internet-only
customers that have cancelled their hosting contracts or moved to
in house implementations contributing to an
anticipated loss of data center revenue from 2003 to 2004 of approximately $5
million. We believe the majority of these data center revenue transitions were
substantially completed during the third quarter of 2003. We believe the financial
institutions segment revenue for the quarter ended September 20, 2003,
excluding Zurich, represents a stable base from which we expect to grow
revenues through the sale of single channel and Enterprise solutions to the
market place and our base of over 4,000 financial institutions.

We sell our solutions to small, mid-sized and large financial
organizations in two geographic regions: (i) the Americas region and (ii) the
International region, consisting primarily of Europe, Latin America and the Asia-Pacific
region. Our S1 Enterprise solutions target banks, credit unions and insurance
companies. We have over 4,000 financial institution customers with the
majority of them located in the United States.

Through the Edify business unit, we provide a variety of voice and speech
recognition applications that help organizations globally increase customer
retention through automation and improved operational effectiveness. During
the nine-month period from July 1, 2002 through March 31, 2003, we reported the
Edify business as held for sale. In April 2003, we terminated our efforts to
divest the Edify business. In the third quarter of 2003, we completed the
process of reorganizing our Edify business to align costs with expected
revenues. As a result, we hired a new general manager, reduced the workforce
and closed and consolidated several Edify office facilities worldwide. These
actions resulted in restructuring charges of $4.3 million for the nine months
ended September 30, 2003.

We continually review our cost structure on a worldwide basis and consider
additional ways to streamline our operations in order to align our operating
costs with our expected revenues. During the nine months ended September 30,
2003, we provided $21.6 million for restructuring costs. We expect these
actions, and future actions, to reduce our annual direct and operating expenses
by approximately $35 million.

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Revenue from Major Customers

Revenues from State Farm were 21% and 27% of our financial institution
revenues during the nine months ended September 30, 2003 and 2002,
respectively. Revenues from State Farm for the nine-month period ended
September 30, 2003 decreased $12.9 million from the same period in 2002 due to
a decrease in projects performed for them in 2003. Revenues from State Farm
accounted for 19% and 22% of our total revenues during the nine months ended
September 30, 2003 and 2002, respectively. We expect State Farm to contribute
between 18% and 20% of our financial institution segment revenue for 2004.
Over the past three years, State Farm has moved from a period of heavy
investment in its Internet solutions including migrating its insurance
application to S1 Enterprise and is now entering a stable maintenance state
with their applications.

Zurich Insurance Company and certain of its affiliates or subsidiaries,
accounted for 19% and 17% of our revenues from our financial institutions
segment and 17% and 15% of our total revenues during the nine months ended
September 30, 2003 and 2002, respectively. For the nine months ended
September 30,2003, $24.5 million of the revenue earned from Zurich is from a
subscription license, which expires on December 31, 2003. We do not expect to
earn any revenue from Zurich in 2004 and beyond, as discussed below.

In March 2003, we amended the terms of our data center arrangement with
Zurich to shorten the term over which services would be provided and payments
received associated with the provision of data center services by S1. Revenue
of $8.6 million from the data center contract, which would have been recognized
ratably throughout 2003 and 2004 under the previously amended terms of the
agreement, was recognized entirely in the first six months of 2003. Associated
direct costs of $2.6 million were accelerated over the same period.

Comparison of the Three Months Ended September 30, 2003 and 2002

Revenues.The following table sets forth selected revenue data for the
three months ended September 30, 2003 and 2002.

|                                  |                               |                                |   |                   |        |             |   |             |        |              |   |        |        |       |   |       |       |  |   |       |       |  |   |        |        | 
|--------------------------------- | ----------------------------- | ------------------------------ | - | ----------------- | ------ | ----------- | - | ----------- | ------ | ------------ | - | ------ | ------ | ----- | - | ----- | ----- |  | - | ----- | ----- |  | - | ------ | ------ | 
|                                  |                               |                                |   |                   |        |             |   | Support and |        | Professional |   |        |        |       |   |       |       |  |   |       |       | 
|                                  |                               |                                |   | Software Licenses |        | Maintenance |   | Services    |        | Data Center  |   | Other  |        | Total
|                                  |                               |                                |   |                   |        |             |   |             |        |              |   |        |        |      
|Quarter Ended September 30, 2003: |                               |                                |   |                   |        |             |   |             |        |              |   |        |        |       |   |       |       |  |   |       |       |  |   |       
|                                  | FI business, excluding Zurich |                                | $ | 5,675             |        |             | $ | 10,625      |        |              | $ | 15,792 |        |       | $ | 8,840 |       |  | $ | 1,451 |       |  | $ | 42,383 |       
|                                  | Zurich                        |                                |   | 8,176             |        |             |   |            |        |              |   |       |        |       |   |      |       |  |   |      |       |  |   | 8,176  |       
|                                  |                               |                                |   |                   |        |             |   |             |        |              |   |        |        |       |   |       |       |  |   |       |       |  |   |       
|                                  |                               | Financial Institutions Segment |   |                   | 13,851 |             |   |             | 10,625 |              |   |        | 15,792 |       |   |       | 8,840 |  |   |       | 1,451 |  |   |        | 50,559 | 
|                                  | Edify                         |                                |   | 2,781             |        |             |   | 4,085       |        |              |   | 1,092  |        |       |   |      |       |  |   | 1     |       |  |   | 7,959  |       
|                                  | Eliminations                  |                                |   | (471              | )      |             |   | (517        | )      |              |   | (69    | )      |       |   |      |       |  |   |      |       |  |   | (1,057 | )     
|                                  |                               |                                |   |                   |        |             |   |             |        |              |   |        |        |       |   |       |       |  |   |       |       |  |   |       
|                                  | Total                         |                                | $ | 16,161            |        |             | $ | 14,193      |        |              | $ | 16,815 |        |       | $ | 8,840 |       |  | $ | 1,452 |       |  | $ | 57,461 |       
|                                  |                               |                                |   |                   |        |             |   |             |        |              |   |        |        |       |   |       |       |  |   |       |       |  |   |       
|Quarter Ended September 30, 2002: |                               |                                |   |                   |        |             |   |             |        |              |   |        |        |       |   |       |       |  |   |       |       |  |   |       
|                                  | FI business, excluding Zurich |                                | $ | 7,145             |        |             | $ | 10,822      |        |              | $ | 22,663 |        |       | $ | 7,976 |       |  | $ | 245   |       |  | $ | 48,851 |       
|                                  | Zurich                        |                                |   | 8,176             |        |             |   |            |        |              |   | 187    |        |       |   | 1,303 |       |  |   |      |       |  |   | 9,666  |       
|                                  |                               |                                |   |                   |        |             |   |             |        |              |   |        |        |       |   |       |       |  |   |       |       |  |   |       
|                                  |                               | Financial Institutions Segment |   |                   | 15,321 |             |   |             | 10,822 |              |   |        | 22,850 |       |   |       | 9,279 |  |   |       | 245   |  |   |        | 58,517 | 
|                                  | Edify                         |                                |   | 7,605             |        |             |   | 4,242       |        |              |   | 2,380  |        |       |   |      |       |  |   |      |       |  |   | 14,227 |       
|                                  | Eliminations                  |                                |   |                  |        |             |   | (258        | )      |              |   | (475   | )      |       |   |      |       |  |   |      |       |  |   | (733   | )     
|                                  |                               |                                |   |                   |        |             |   |             |        |              |   |        |        |       |   |       |       |  |   |       |       |  |   |       
|                                  | Total                         |                                | $ | 22,926            |        |             | $ | 14,806      |        |              | $ | 24,755 |        |       | $ | 9,279 |       |  | $ | 245   |       |  | $ | 72,011 |       
|                                  |                               |                                |   |                   |        |             |   |             |        |              |   |        |        |       |   |       |       |  |   |       |       |  |   |       

Total revenues decreased by $14.5 million to $57.5 million for the three
months ended September 30, 2003 compared to $72.0 million for the same period
in 2002, a decrease of 20%, principally due to a $6.8 million decrease in
license revenue and a $7.9 million decrease in professional services revenue.
Our financial institutions segment earned revenues of $50.6 million for the
quarter ended September 30, 2003 compared with $58.5 million for the same
period in 2002. Revenues for our Edify business were $8.0 million for the
three months ended September 30, 2003 compared with $14.2 million for the same
period in 2002. Below is a detailed discussion of changes in revenue by
revenue type.

Software license revenues for our financial institutions segment were
$13.8 million for the three months ended September 30, 2003, a decrease of $1.5
million from the same period in 2002. License revenue earned from Zurich
comprised $8.2 million of our license revenue during the three months ended
September 30, 2003 and 2002. License revenues declined in the third quarter of
2003 primarily due to an increase in the number of contracts accounted for
under the

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percentage of completion method. As a result, license revenues for these
contracts are generally recognized over time as the related implementation and
customization services are provided, as opposed to up front when the software
is delivered in accordance with Statement of Position No. 97-2.

Software license revenues for our Edify business segment were $2.8 million
for the three months ended September 30, 2003, a decrease of $4.8 million from
the same period in 2002. We believe the following items contributed to the
decrease: (1) poor economic conditions in the primary markets served by Edify
(telecommunications, travel and retail) and (2) the impact on the business of
the reorganization activities. We expect license revenues for our Edify
business to continue to stabilize as new management takes hold and economic
conditions improve.

Support and maintenance revenues for our financial institutions segment
were $10.6 million for the three months ended September 30, 2003 as compared to
$10.8 million for the same period in 2002. This decrease represents attrition
from our legacy Internet-only customers, offset by new customer maintenance
contracts signed. We believe that the attrition of legacy customers is
substantially complete and that support and maintenance revenues for our financial
institution segment to grow from a stable base of $10.6 million per quarter.

Support and maintenance revenues for the Edify business were $4.1 million
for the three months ended September 30, 2003, a decrease from $4.2 million for
the same period in 2002. We expect support and maintenance revenues for our
Edify business to remain flat over the remainder of 2003.

Professional services revenues for our financial institutions segment were
$15.8 million for the three months ended September 30, 2003, a decrease of $7.1
million from the same period in 2002. This decrease is principally
attributable to the $5.6 million decrease in professional services revenues
associated with projects for State Farm. We believe professional services
revenues for our financial institution segment to grow from a stable base of
$15.8 million per quarter as revenues from new projects will replace revenues
lost to the completion of current projects.

The Edify business recorded $1.1 million for professional services earned
during the third quarter of 2003, compared to $2.4 million for the third
quarter of 2002. This decrease is attributable to the decrease in software
sales and related projects. We expect professional services to remain stable
as revenues from new projects should replace those lost to the completion of
current projects.

Data center revenues were $8.8 million for the three months ended
September 30, 2003, a decrease of $0.4 million from the same period in 2002.
The decrease resulted from the attrition of Zurich and other large customers,
offset by increases from the community and mid-sized financial institutions
utilizing S1 solutions in our data center. We believe that data center
revenues will increase as new customers are added and our existing customers
continue to increase their number of users.

Other revenues are primarily related to the sale of third party hardware
and software that is used in connection with our products. Other revenue
fluctuates based on the mix of products and services sold. In the third
quarter of 2003, we recorded approximately $1.3 million in revenue for
third-party hardware delivered from inventory to one financial institution
customer. The related cost of the hardware sold is included in cost of other
revenue as the hardware is delivered. There is only minimal gross margin
associated with other revenue.

During the three months ended September 30, 2003, we identified and
corrected one accounting matter in our financial institutions segment. This
matter resulted from our having included in revenue amounts previously accrued
for unbilled services. This matter resulted in us improperly recognizing an
aggregate of $1.3 million of revenue over the previous four quarters. The
impact of this matter in any one of the affected quarters was less than $0.01
per share. We corrected this matter in the current quarter by reducing
revenues by $1.3 million, which had the effect of increasing our net loss per
share by $0.02 per share during the three months ended September 30, 2003.

Direct Costs and Gross Margins.Direct costs decreased by $4.5 million to
$26.3 million for the three months ended September 30, 2003 from the same
period in 2002. Overall gross margins were 54% and 57% for the three months
ended September 30, 2003 and 2002, respectively. The overall decrease in
direct costs was due to the decreases in cost of software licenses and a
reduction in cost of services related to lower staffing levels, as well as
reduced facilities costs resulting from the consolidation of offices, offset in
part by the cost of the pass-through hardware delivered to one customer. The
decrease in

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gross margins was primarily due to reduced license revenues, which carry a
higher margin that other types of revenue. Additionally, gross margins on
professional services decreased as the amount of revenue from State Farm
decreased.

Cost of revenues excludes charges for depreciation of property and
equipment and amortization of purchased technology.

Cost of software licenses for our products sold in our financial
institution segment are generally minimal because we internally develop most of
the financial institution software components, the cost of which is reflected
in product development expense as it is incurred. We anticipate that the cost
of software licenses will increase in future periods as we license and install
more of our new S1 Enterprise products because these products include some
software components that we license from third parties. However, cost of
software licenses will continue to vary with the mix of products sold. The
overall decrease in cost of software licenses is due to the decrease total
license sales.

Costs of professional services, support and maintenance consist primarily
of personnel and related infrastructure costs. Direct costs associated with
professional services, support and maintenance were $18.5 million for the three
months ended September 30, 2003, a $3.6 million decrease from $22.1 million for
the same period in 2002. The decrease is primarily attributable to a
reduction in staffing levels, as well as reduced facilities costs resulting
from the consolidation of offices. The decrease includes the effect of
reducing our accruals for loss contracts $0.9 million in the quarter ended
September 30, 2003. Such accruals were made for estimated future costs to
complete service projects where our expected costs will exceed the contractual
revenues.

Costs of data center consist of personnel costs, facility costs and
related infrastructure costs to support our data center business. Direct data
center costs decreased $0.6 million to $5.2 million for the three months ended
September 30, 2003 from $5.8 million for same period in 2002. The decrease is
primarily the result of the closure of our U.K. data center, partially offset
by incremental costs incurred to the transfer the remaining data center
business from the U.K. to our global hosting center in Atlanta, Georgia. We
expect data center costs remain stable at approximately $5 million per quarter.

Selling and Marketing Expenses.Total selling and marketing expenses
decreased by $5.9 million to $9.3 million for the three months ended September
30, 2003 from $15.2 million for the same period in 2002. This decrease is
primarily attributable to reduced sales and marketing headcount resulting in a
decrease in compensation expense, other payroll related costs and benefits, and
travel expenses.

Product Development Expenses.Total product development expenses decreased
by $2.3 million to $10.4 million for the three months ended September 30, 2003
from $12.7 million for the same period in 2002. We achieved cost savings from
the realignment of our product development organization in 2002, including
relocating certain development activities that were being performed by domestic
contractors to lower cost offshore contractors in India and our development
center in Ireland.

General and Administrative Expenses.General and administrative expenses
decreased by $1.2 million to $7.6 million for the three months ended September
30, 2003 from $8.8 million for the same period in 2002. As a percentage of
revenues, general and administrative expenses were 13% and 12% for the three
months ended September 30, 2003 and 2002, respectively. The decrease in general
and administrative expenses was primarily attributable to a decrease in
compensation and benefits, professional services fees, recruiting fees and
facilities costs as a result of consolidating offices. During the second half
of 2002 and during the third quarter of 2003, we reduced our general and
administrative headcount and our use of external resources.

Depreciation.Depreciation decreased to $3.5 million for the three months
ended September 30, 2003 from $5.4 million for the same period in 2002, due to
reductions in capital expenditures during recent periods, as well as the
retirement of certain assets associated with the consolidation of facilities.
Going forward, we expect depreciation expense to be approximately $3.5 million
per quarter.

Merger Related Costs and Restructuring Charges.We recorded restructuring
charges of $4.1 million during the quarter ended September 30, 2003 of which
approximately $1.2 million related to the Edify business. In the quarter
ended September 30, 2002, we recorded restructuring charges of $0.7 million
related to the Edify business.

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During the first nine months of 2003, we undertook several initiatives to
align our cost structure with our anticipated 2004 revenues. In our financial
institutions segment, we recorded $2.9 million in restructuring charges during
the three months ended September 30, 2003, which were primarily comprised of
charges for severance costs and relocation expenses. In our Edify segment, we
reduced the workforce and closed and consolidated several Edify office
facilities worldwide. These actions resulted in restructuring charges of $1.2
million for the three months ended September 30, 2003.

Amortization of Other Intangible Assets and Goodwill Impairment.
Amortization of other intangible assets decreased $3.5 million to $0.8 million
for the three months ended September 30, 2003 from $4.3 million for same period
in 2002. The decrease was due to the completion of amortization periods for
certain intangibles from three acquisitions made in 1999 and 2000.
Amortization expense is expected to be approximately $0.8 million in the fourth
quarter of 2003.

Interest and Other Income (Expense), Net.Interest and other income
(expense), net was $0.2 million of income and $0.1 million of expense for the
three months ended September 30, 2003 and 2002, respectively. The increase in
income was related to a decrease in sales tax expense and an increase in
realized foreign currency gains.

Income Tax (Expense) Benefit.We recorded income tax expense of $11,000
for the three months ended September 30, 2003 compared to an income tax benefit
of $0.9 million for the same period in 2002. We incurred foreign income tax
expense in certain European countries in 2002 and 2003. The income tax benefit
in 2002 resulted from the amortization of other intangible assets acquired in
the acquisition of FICS, which was offset by the foreign income tax expense in
the third quarter of 2002. This benefit ended with the complete amortization
of the FICS other intangible assets in the fourth quarter of 2002. During the
remainder of 2003, we expect to record minimal income tax expense in certain
foreign subsidiaries.

Comparison of the Nine Months Ended September 30, 2003 and 2002

Revenues.The following table sets forth selected revenue data for the
nine months ended September 30, 2003 and 2002.

|                                      |                               |                                |   |          |        |             |   |              |        |             |   |        |        |       |   |        |        |  |   |       |       |  |   |         |         | 
|------------------------------------- | ----------------------------- | ------------------------------ | - | -------- | ------ | ----------- | - | ------------ | ------ | ----------- | - | ------ | ------ | ----- | - | ------ | ------ |  | - | ----- | ----- |  | - | ------- | ------- | 
|                                      |                               |                                |   | Software |        | Support and |   | Professional |        |             |   |        |        |       |   |        |        |  |   |      
|                                      |                               |                                |   | Licenses |        | Maintenance |   | Services     |        | Data Center |   | Other  |        | Total
|                                      |                               |                                |   |          |        |             |   |              |        |             |   |        |        |      
|Nine Months Ended September 30, 2003: |                               |                                |   |          |        |             |   |              |        |             |   |        |        |       |   |        |        |  |   |       |       |  |   |        
|                                      | FI business, excluding Zurich |                                | $ | 16,131   |        |             | $ | 33,684       |        |             | $ | 58,708 |        |       | $ | 26,937 |        |  | $ | 2,617 |       |  | $ | 138,077 |        
|                                      | Zurich                        |                                |   | 24,528   |        |             |   |             |        |             |   |       |        |       |   | 8,634  |        |  |   |      |       |  |   | 33,162  |        
|                                      |                               |                                |   |          |        |             |   |              |        |             |   |        |        |       |   |        |        |  |   |       |       |  |   |        
|                                      |                               | Financial Institutions Segment |   |          | 40,659 |             |   |              | 33,684 |             |   |        | 58,708 |       |   |        | 35,571 |  |   |       | 2,617 |  |   |         | 171,239 | 
|                                      | Edify                         |                                |   | 5,457    |        |             |   | 11,981       |        |             |   | 4,608  |        |       |   |       |        |  |   | 1     |       |  |   | 22,047  |        
|                                      | Eliminations                  |                                |   | (804     | )      |             |   | (1,455       | )      |             |   | (179   | )      |       |   |       |        |  |   |      |       |  |   | (2,438  | )      
|                                      |                               |                                |   |          |        |             |   |              |        |             |   |        |        |       |   |        |        |  |   |       |       |  |   |        
|                                      | Total                         |                                | $ | 45,312   |        |             | $ | 44,210       |        |             | $ | 63,137 |        |       | $ | 35,571 |        |  | $ | 2,618 |       |  | $ | 190,848 |        
|                                      |                               |                                |   |          |        |             |   |              |        |             |   |        |        |       |   |        |        |  |   |       |       |  |   |        
|Nine Months Ended September 30, 2002: |                               |                                |   |          |        |             |   |              |        |             |   |        |        |       |   |        |        |  |   |       |       |  |   |        
|                                      | FI business, excluding Zurich |                                | $ | 26,877   |        |             | $ | 30,442       |        |             | $ | 67,500 |        |       | $ | 26,359 |        |  | $ | 994   |       |  | $ | 152,172 |        
|                                      | Zurich                        |                                |   | 23,613   |        |             |   | 1,745        |        |             |   | 1,961  |        |       |   | 4,597  |        |  |   |      |       |  |   | 31,916  |        
|                                      |                               |                                |   |          |        |             |   |              |        |             |   |        |        |       |   |        |        |  |   |       |       |  |   |        
|                                      |                               | Financial Institutions Segment |   |          | 50,490 |             |   |              | 32,187 |             |   |        | 69,461 |       |   |        | 30,956 |  |   |       | 994   |  |   |         | 184,088 | 
|                                      | Edify                         |                                |   | 18,666   |        |             |   | 12,997       |        |             |   | 6,579  |        |       |   |       |        |  |   |      |       |  |   | 38,242  |        
|                                      | Eliminations                  |                                |   |         |        |             |   | (833         | )      |             |   | (1,606 | )      |       |   |       |        |  |   |      |       |  |   | (2,439  | )      
|                                      |                               |                                |   |          |        |             |   |              |        |             |   |        |        |       |   |        |        |  |   |       |       |  |   |        
|                                      | Total                         |                                | $ | 69,156   |        |             | $ | 44,351       |        |             | $ | 74,434 |        |       | $ | 30,956 |        |  | $ | 994   |       |  | $ | 219,891 |        
|                                      |                               |                                |   |          |        |             |   |              |        |             |   |        |        |       |   |        |        |  |   |       |       |  |   |        

Total revenues decreased by $29.1 million to $190.8 million for the nine
months ended September 30, 2003 compared to $219.9 million for the same period
in 2002, a decrease of 13%, principally due to a $23.8 million decrease in
license revenue and an $11.3 million decrease in professional services revenue.
Our financial institutions segment earned revenues of $171.2 million for the
nine months ended September 30, 2003 compared with $184.1 million for the same
period in 2002. Revenues for our Edify business were $22.0 million for the
nine months ended September 30, 2003 compared with $38.2 million for the same
period in 2002.

Software license revenues for our financial institutions segment were
$40.7 million for the nine months ended September 30, 2003, a decrease of $9.8
million from $50.5 million for the same period in 2002. License revenues
declined in the second and third quarters of 2003 primarily due to an increase
in the number of software contracts signed during the second and third quarters
of 2003 accounted for under the percentage of completion method.

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Software license revenue for our Edify business segment were $5.5 million
for the nine months ended September 30, 2003, a decrease of $13.2 million from
the same period in 2002. Additionally, we believe the following items
contributed to the decrease: (1) poor economic conditions in the primary
markets served by Edify (telecommunications, travel and retail) and (2) the
impact the business of the reorganization activities. A portion of this
decrease resulted from recording a provision of $1.3 million for billing
adjustments in the first quarter of 2003.

Support and maintenance revenues for our financial institutions segment
were $33.7 million for the nine months ended September 30, 2003 as compared to
$32.2 million for the same period in 2002. The increase is primarily
attributable to support and maintenance fees earned from customers who
purchased licenses during 2002, offset in part by a $1.7 million decrease in
Zurich support and maintenance fees.

Support and maintenance revenues for the Edify business were $12.0 million
for the nine months ended September 30, 2003, a decrease of $1.0 million from
the same period in 2002.

Professional services revenues for our financial institutions segment were
$58.7 million for the nine months ended September 30, 2003, a decrease of $10.8
million from the same period in 2002. This decrease is principally attributable
to the decrease in professional services revenues associated with projects for
State Farm.

The Edify business recorded $4.6 million for professional services earned
during the first nine months of 2003, as compared to $6.6 million for the same
period in 2002. The decrease was primarily attributable to the decrease in
software sales and related professional services projects.

Data center revenues were $35.6 million for the nine months ended
September 30, 2003, an increase of $4.6 million from the same period in 2002.
The increase resulted from the acceleration of data center revenue from Zurich,
offset by decreases from the attrition of other large customers as previously
discussed.

In the nine months ended September 30, 2003, we recorded approximately
$2.1 million in other revenue for third-party hardware delivered from inventory
to one financial institution customer.

Direct Costs and Gross Margins.Direct costs decreased by $1.6 million to
$90.1 million for the nine months ended September 30, 2003 from the same period
in 2002. Overall gross margins were 53% and 58% for the nine months ended
September 30, 2003 and 2002, respectively. The overall decrease in direct
costs was due to decreases in reductions in employee headcount and higher cost
outside contractors, reduced facilities costs resulting from the consolidation
of offices and cost of software licenses, offset in part an increase in data
center costs, as discussed below, and the cost of the pass-through hardware
delivered to one customer. The decrease in gross margins was primarily due to
the mix of revenue earned and a decrease in gross margins for professional
services. Software license revenues represented 24% and 31% of total revenues
for the nine months ended September 30, 2003 and 2002, respectively.
Historically, the gross margins on software licenses have been higher than the
gross margins on professional service, support and maintenance and data center
fees. Therefore, a significant decrease in license revenues as a percentage of
total sales negatively affects the overall gross margin percentages. Gross
margins on professional services decreased as the amount of revenue from State
Farm decreased.

Cost of revenues excludes charges for depreciation of property and
equipment and amortization of purchased technology.

The overall decrease in cost of software licenses is due to the decrease
in third party fees paid to Edify vendors as a result of the decrease in Edify
product sales.

Direct costs associated with professional services, support and
maintenance were $66.1 million for the nine months ended September 30, 2003, a
$2.2 million decrease from $68.3 million for the same period in 2002. The
decrease is primarily attributable to reductions in staffing levels, as well as
reduced facilities costs resulting from the consolidation of offices. This
decrease was offset in part by an accrual of $3.7 million during the first
quarter of 2003 for the estimated future costs to complete service projects
where our expected costs will exceed the contractual revenues. In the third
quarter of 2003, we released approximately $0.9 million of that accrual
reflecting progress towards completing such projects.

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Direct data center costs increased $1.5 million to $18.6 million for the
nine months ended September 30, 2003 from $17.1 million for same period in
2002. The increase resulted from the acceleration of data center costs in the
first and second quarters of 2003 associated with the amendment of the Zurich
contract, as well as the incremental costs incurred to the transfer the
remaining data center business from the U.K. to our global hosting center in
Atlanta, Georgia.

Selling and Marketing Expenses.Total selling and marketing expenses
decreased by $13.6 million to $31.0 million for the nine months ended September
30, 2003 from $44.6 million for the same period in 2002. This decrease is
primarily attributable to reduced sales and marketing headcount resulting in a
decrease in compensation expense, other payroll related costs and benefits and
travel expenses.

Product Development Expenses.Total product development expenses decreased
by $6.7 million to $33.8 million for the nine months ended September 30, 2003
from $40.5 million for the same period in 2002. We achieved cost savings from
the realignment of our product development organization in 2002, including
replacing outside contractors in our domestic operations with lower cost
offshore contractors.

General and Administrative Expenses.General and administrative expenses
decreased by $4.5 million to $24.6 million for the nine months ended September
30, 2003 from $29.1 million for the same period in 2002. As a percentage of
revenues, general and administrative expenses were 13% for the nine months
ended September 30, 2003 and 2002, respectively. The decrease in general and
administrative expenses was primarily attributable to a decrease in
compensation and benefits, professional services fees, recruiting fees and
facility costs as a result of consolidating offices. During the second half of
2002 and the third quarter of 2003, we reduced our general and administrative
headcount and our use of external resources.

Depreciation.Depreciation decreased to $14.0 million for the nine months
ended September 30, 2003 from $17.4 million for the same period in 2002, due to
reductions in capital expenditures during recent periods as compared with those
made in 1999 and 2000. A significant portion of those items that we purchased
in 1999 and 2000, especially those related to the build-out of our global data
centers, became fully depreciated by the end of 2002. The decrease was
partially offset by the acceleration of depreciation on certain assets in our
U.K. data center in the first half of 2003.

Merger Related Costs and Restructuring Charges.We recorded restructuring
charges of $21.6 million during the nine months ended September 30, 2003, of
which $4.3 million related to the Edify business. This charge was partially
offset by the release of a pre-merger liability of $1.0 million.

During the first nine months of 2003, we undertook several initiatives to
align our worldwide cost structure with our anticipated 2004 revenues. As a
result, management approved restructuring plans in the financial institution
and Edify segments to reduce the work force, relocate and consolidate certain
office facilities and sell certain corporate assets. In addition we
consolidated our EMEA data center operations based in the United Kingdom into
our global hosting center in Atlanta. In connection with these plans, we
recorded restructuring charges of $21.6 million during the nine months ended
September 30, 2003. In total, we eliminated approximately 199 positions
worldwide and closed or consolidated office facilities. In the domestic
operations of our financial institution segment, we recorded $6.6 million in
restructuring charges during the nine months ended September 30, 2003, which
were primarily comprised of charges for severance costs associated with
headcount reductions, lease payments associated with excess office space,
relocation expenses resulting from office consolidation and other corporate
charges.

In the first quarter of 2003, we began the process of reorganizing our
international operations. As of September 30, 2003, we believe this
reorganization is substantially complete. In the first nine months of 2003, we consolidated
our U.K. data center operations into our global hosting center in Atlanta,
relocated our remaining U.K operations to a smaller facility, decreased our
workforce both in our European and APJ operations and closed offices in our APJ
operations. As a result, in the nine months ended September 30,2003, we
recorded restructuring charges of $9.4 million in our European operations and
$1.3 million in our APJ operations. These charges were comprised of
accelerated depreciation of assets, severance costs, other related costs to
relocate the data center operations, losses on the vacated office space,
relocation expenses and the write off of abandoned leasehold improvements.
Under the provisions of SFAS No. 146, we recorded the loss on vacated office
space at the present value of the expected cash flows. We will accrete
interest expense of approximately $0.9 million over the remaining term of the
lease, which is six years.

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In the third quarter of 2003, we completed the process of reorganizing our
Edify business to align costs with expected revenues. As a result, we hired a
new general manager, replaced the entire senior management team, reduced the
workforce and closed and consolidated several Edify office facilities
worldwide. These actions resulted in restructuring charges of $4.3 million for
the nine months ended September 30, 2003.

In the first quarter of 2003, we decreased our merger related reserve for
legal claims by $0.5 million, which was established in connection with our
acquisition of FICS Group, N.V. in November 1999. We were able to resolve this
legal matter during the first quarter of 2003 for less than previously
estimated. In the second quarter of 2003, we further reduced our merger
related accrual by $0.5 million when we determined that we had an alternate use
for excess office space that was reserved when we completed the acquisition of
Point in March 2002.

During the nine months ended September 30 2002, we incurred merger related
costs of $3.7 million in connection with the acquisition of the assets and
subsidiaries of Point Holdings, Ltd. These costs, incurred in connection with
our plan to reorganize certain of our European operations, include headcount
reduction, consolidation of S1 and acquired Point office facilities and
disposal of redundant or obsolete computer equipment. This merger related
charge was partially offset by a $1.7 million decrease in reserves for legal
claims, which was established in connection with our acquisition of FICS Group,
N.V. in November 1999. We were able to resolve this legal matter during the
first quarter of 2002 for less than previously estimated. Additionally, in the
third quarter of 2002, we recorded a charge of $0.7 million for some excess
office space in our Edify business.

Amortization of Other Intangible Assets and Goodwill Impairment.
Amortization of other intangible assets and goodwill impairment increased $2.6
million to $16.6 million for the nine months ended September 30, 2003 from
$14.0 million for same period in 2002. The increase was due to an $11.7 million
goodwill impairment charge in our Edify business and the accelerated
amortization of the Edify business other intangible assets, as explained
below, and additional amortization of other intangible assets resulting from the
acquisition of Regency and Point in 2002. This was partially offset by the
completion of the amortization periods for other intangible assets from the
acquisition of Q-Up Systems in the second quarter of 2000.

In April 2003, we terminated our efforts to divest the Edify business. We
considered our inability to sell the Edify business on terms that were
acceptable to us a triggering event under SFAS No. 144 that required us to
perform a current assessment of the carrying value of the Edify business.
Based on our current analysis of fair value for the Edify business, including
estimates we based on discounted future cash flows, market valuations of
comparable businesses and offers from potential buyers, we concluded that the
fair value of the Edify business was less than its carrying value. Accordingly,
we allocated our estimate of fair value for the unit to the existing assets and
liabilities of the Edify business as of March 31, 2003, resulting in a goodwill
impairment charge of $11.7 million and accelerated amortization on other
intangible assets and purchased software of $1.2 million and $0.5 million,
respectively.

Interest and Other Income (Expense), Net.Interest and other income
(expense), net was $0.1 million of expense and $1.1 million of income for the
nine months ended September 30, 2003 and 2002, respectively. In the second
quarter of 2003, we recorded a non-cash charge of $0.6 million to write-down
our carrying value in certain cost-basis equity investments for other than
temporary impairments.

Income Tax (Expense) Benefit.We recorded income tax expense of $0.1
million during the nine months ended September 30, 2003 compared to an income
tax benefit of $1.9 million for the same period in 2002. We incurred foreign
income tax expense in certain European countries in 2002 and 2003. The income
tax benefit in 2002 resulted from the amortization of other intangible assets
acquired in the acquisition of FICS, which was offset by the foreign income tax
expense in 2002. This benefit ended with the complete amortization of the FICS
other intangible assets in 2002.

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Liquidity and Capital Resources

The following tables show information about our cash flows during the nine
months ended September 30, 2003 and 2002 and selected balance sheet data as of
September 30, 2003 and December 31, 2002:

|                                                                                             |  |                                 |        |      |  |   |         |  
|-------------------------------------------------------------------------------------------- |  | ------------------------------- | ------ | ---- |  | - | ------- | -
|                                                                                             |  | Nine Months Ended September 30,
|                                                                                             |  |                                
|                                                                                             |  | 2003                            |        | 2002
|                                                                                             |  |                                 |        |     
|                                                                                             |  | (In thousands)                 
|Net cash provided by operating activities before
changes in operating assets and liabilities |  | $                               | 743    |      |  | $ | 19,136  |  
|Change in operating assets and liabilities                                                   |  |                                 | 8,052  |      |  |   | (6,426  | )
|                                                                                             |  |                                 |        |      |  |   |         |  
|Net cash provided by operating activities                                                    |  |                                 | 8,795  |      |  |   | 12,710  |  
|Net cash used in investing activities                                                        |  |                                 | (8,090 | )    |  |   | (19,979 | )
|Net cash used in financing activities                                                        |  |                                 | (1,428 | )    |  |   | (6,450  | )
|Effect of exchange rates on cash and cash equivalents                                        |  |                                 | 1,000  |      |  |   | 178     |  
|                                                                                             |  |                                 |        |      |  |   |         |  
|Net
increase (decrease) in cash and cash equivalents                                         |  | $                               | 277    |      |  | $ | (13,541 | )
|                                                                                             |  |                                 |        |      |  |   |         |  

|                                             |  |                    |         |                   |  |   |         | 
|-------------------------------------------- |  | ------------------ | ------- | ----------------- |  | - | ------- | 
|                                             |  | As of             
|                                             |  |                   
|                                             |  | September 30, 2003 |         | December 31, 2002
|                                             |  |                    |         |                  
|                                             |  | (In thousands)    
|Cash and cash equivalents                    |  | $                  | 128,119 |                   |  | $ | 127,842 | 
|Short term investments                       |  |                    | 20,406  |                   |  |   | 14,843  | 
|Working capital                              |  |                    | 117,272 |                   |  |   | 120,864 | 
|Working capital, excluding deferred revenues |  |                    | 156,402 |                   |  |   | 161,169 | 
|Total assets                                 |  |                    | 331,882 |                   |  |   | 376,974 | 
|Total stockholders equity                   |  |                    | 240,641 |                   |  |   | 279,761 | 

Operating Activities.During the nine months ended September 30, 2003,
cash provided by operations was $8.8 million compared to $12.7 million for the
same period in 2002. The decline in net cash flows from operating activities
generally reflects the increase in our net loss and the effects of changes in
operating assets and liabilities. Changes in operating assets and liabilities,
especially trade accounts receivable, trade accounts payable and accrued
expenses, are generally the result of timing differences between the collection
of fees billed and payment of operating expenses.

Cash used in operations for the nine months ended September 30, 2003 included the effects of:



| |  |  | our net loss of $40.1 million;                                                                                                                                                                                                                         
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | non-cash charges of $30.6 million of depreciation, amortization and impairment of intangible assets;                                                                                                                                                   
|
| |  |  | provision of doubtful accounts receivable and billing adjustments of $4.7 million; and                                                                                                                                                                 
|
| |  |  | an decrease of $9.7 million in accounts receivable and a
decrease in prepaid expenses and other assets of $4.3 million and an
increase in other accrued liabilities of $5.5 million, offset in part
by a decrease in accounts payable of $10.7 million.

Cash provided by operations for the nine months ended September 30, 2002 included the effects of:



| |  |  | our net loss of $17.6 million;                                                        
| | - |  | --------------------------------------------------------------------------------------
|
| |  |  | non-cash charges of $31.4 million of depreciation and amortization;                   
|
| |  |  | provision of doubtful accounts receivable and billing adjustments of $6.1 million; and
|
| |  |  | changes in operating assets and liabilities of $6.4 million.                          

Investing Activities.Cash used in investing activities was $8.1 million
for the nine months ended September 30, 2003 compared to $20.0 million in the
same period in 2002.

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In the first nine months of 2003, we:



| |  |  | converted $5.5 million, net, from cash and cash equivalents to short-term investments;      
| | - |  | --------------------------------------------------------------------------------------------
|
| |  |  | purchased $4.5 million of property and equipment; and                                       
|
| |  |  | received proceeds of $2.0 million from the sale of certain assets and investment securities.

In the first nine months of 2002, we:



| |  |  | paid $3.9 million in cash in connection with the acquisitions of Regency and Point;   
| | - |  | --------------------------------------------------------------------------------------
|
| |  |  | converted $4.1 million, net, from cash and cash equivalents to short-term investments;
|
| |  |  | purchased a $2.5 million long-term certificate of deposit; and                        
|
| |  |  | purchased $9.4 million of property and equipment.                                     

Financing Activities.Cash used in financing activities was $1.4 million
for the nine months ended September 30, 2003 compared to $6.5 million in same
period in 2002.

In the first nine months of 2003 and 2002, we received $1.1 million and
$5.1 million from the sale of common stock under our employee stock plans,
respectively. We paid $1.8 million and $4.5 million for capital lease
obligations in the nine months ended September 30, 2003 and 2002, respectively.
In the first nine months of 2003 and 2002, we repurchased $0.8 million and
$7.0 million of our common stock, respectively.

In July 2002, our board of directors approved a $10.0 million stock
repurchase program. This program was funded from available cash. Through
January 2003, we repurchased 2.1 million shares of our common stock for $10.0
million under this program.

In October 2003, our board of directors approved a $15.0 million stock
repurchase program. This program will be funded from available cash and cash
equivalents.

We believe that our expected cash flows from operations together with our
existing cash and short term investments will be sufficient to meet our
anticipated cash needs for working capital and capital expenditures for at
least the next 12 months. If cash generated from operations is insufficient to
satisfy our liquidity requirements, we may seek to sell additional equity or
issue debt securities or establish a credit facility. The sale of additional
equity or convertible debt securities could result in additional dilution to
our stockholders. The addition of indebtedness would result in increased fixed
obligations and could result in operating covenants that would restrict our
operations. We cannot assure you that financing will be available in amounts or
on terms acceptable to us, if at all.

|        |  |                                                           
|------- |  | ----------------------------------------------------------
|Item 3. |  | Quantitative and Qualitative Disclosures about Market Risk

Quantitative and qualitative disclosures about market risk were included
in Item 7A of the Companys 2002 Annual Report on Form 10-K. There have been no
significant changes in our market risk from December 31, 2002.

|        |  |                        
|------- |  | -----------------------
|Item 4. |  | Controls and Procedures

Our management, including the Chief Executive Officer and Chief Financial
Officer, evaluated the effectiveness of the design and operation of our
disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934, as amended) (the Exchange Act) as
of the end of the period covered by this report. Based upon that evaluation,
our management, including the Chief Executive Officer and Chief Financial
Officer, concluded that, our disclosure controls and procedures are effective
in timely alerting them to any material information relating to the Company and
its subsidiaries required to be included in our Exchange Act filings.

There were no significant changes made in our internal controls over
financial reporting that occurred during our most recent fiscal quarter that
has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.

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PART II  OTHER INFORMATION

|        |  |                  
|------- |  | -----------------
|Item 1. |  | Legal Proceedings

Except as noted below, there is no material pending legal proceeding,
other than ordinary routine litigation incidental to the business, to which S1,
or any of its subsidiaries is a party or which their property is subject.



| |  |  | S1 Corporation and its subsidiary Davidge Data Systems, Inc. are
involved in litigation with Scottrade, Inc. and an affiliate company,
Computer Research, Inc., relating to a software development project. The
action was initially filed in March 2002 in the U.S. District Court for
the Eastern District of Missouri. The plaintiffs filed amended
complaints in November of 2002 and January of 2003. The plaintiffs have
made a claim for a refund of $0.3 million of amounts paid to S1 and
Davidge as well as damages in excess of $19.0 million flowing from the
dispute, including service bureau expenses incurred because of the
alleged failure to perform. S1 and Davidge have filed a counterclaim for
unpaid amounts under the contract. This case is scheduled to go to
trial in April 2004. We believe the plaintiffs claims are not
meritorious and intend to continue vigorously defending the suit.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | S1 Corporation is involved in litigation with Tradecard, Inc.
relating to a claim of infringement of U.S. Patent 6,151,588 filed in
the U.S. District Court for the Southern District of New York. The
action was filed in March 2003 against S1 Corporation, Bank of America
Corporation and Bank of America National Association. We believe that
the plaintiffs claims are not meritorious and intend to continue
vigorously defending the suit.                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

There can be no assurance on the ultimate outcome of these matters. An
adverse judgment or settlement could be material to our financial position and
results of operations.

|        |  |                                 
|------- |  | --------------------------------
|Item 6. |  | Exhibits and Reports on Form 8-K



|(a) |  | Exhibits
|--- |  | --------

|     |  |                                                                                           
|---- |  | ------------------------------------------------------------------------------------------
|31.1 |  | Certification of Chief Executive Officer                                                  
|     |  |                                                                                           
|31.2 |  | Certification of Chief Financial Officer                                                  
|     |  |                                                                                           
|32.1 |  | Certificate of Chief Executive Officer pursuant to §906 of the Sarbanes -Oxley Act of 2002
|     |  |                                                                                           
|32.2 |  | Certificate of Chief Financial Officer pursuant to §906 of the Sarbanes -Oxley Act of 2002



|(b) |  | Reports on Form 8-K.
|--- |  | --------------------



| |                                                                                                                                                                                                                         
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | S1 filed the following Current Report on Form 8-K with the
Securities and Exchange Commission (the SEC) during the quarter
ended September 30, 2003:                                                                  
|
| | Current Report on Form 8-K filed with the SEC on August 5, 2003
(date of report August 5, 2003) (regarding a press release and an
analyst conference call related to S1s second quarter of 2003
results of operations).

25



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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, as of November 14, 2003.



| | S1 CORPORATION
| | --------------



| |     |  |                                                                                                                    
| | --- |  | -------------------------------------------------------------------------------------------------------------------
| | By: |  | /s/ Matthew Hale
Matthew HaleChief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)

26