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ARLINGTON, Va. – At a time when Concord has signed a letter of intent to purchase Florida-based Credit Union 24 for roughly $30 million, Wall Street analysts have raised questions about the ability of Concord’s STAR subsidiary to keep some of its major financial institutions as EFT clients. “In our view, Concord is an execution story for 2003. If management can execute on reducing costs, renewing the STAR banks, and cross-selling products and services, the stock should trade up to the mid-teens by earning an in-line multiple with the peer group,” wrote Jeff Baker, a financial analyst with US Bancorp Piper Jaffray in the firm’s February 19 Daily Market Report. Previously, Baker had moved the firm’s estimate of Concord stock price from $17 a share to $14 in part based on uncertainty over whether some banks will renew the use of Star. “We expect the stock will be choppy for the next several quarters. The recently realigned management team will have to deliver several quarters of solid results to rebuild investor confidence to drive a higher multiple given the back-ended nature of 2003,” Baker added. “Risks to our price target include: 1) a slowdown in consumer spending, 2) margin pressure from the mix-shift of business to larger customers, and 3) financial institution renewals in the STAR network,” he wrote. In mid-January, Concord signed a letter of intent to purchase CU24, a move which some of CU24′s credit union stockholders have found controversial. Since then, executives from CU24 and Concord’s STAR subsidiary have held shareholder meetings around the country to try to help institutions seeking to better understand the proposed sale. Two thirds of CU24′s shareholders have to approve for the sale to be completed. Further, credit unions which represent an as of yet undetermined percentage of the credit union 24 member’s transactions must also agree to sign with Concord in order for the deal to remain unchanged, CU24 has confirmed. Inclement weather prevented STAR and Concord executives from participating in an interview about the firm’s deal with CU24 and how the purchase might impact its overall strategy with the STAR subsidiary before press time. STAR saw its transactions jump 30% in 2002, which helped to increase the revenue for Concord’s Network Services by 25% over the previous year the firm said in its fourth quarter earnings report. Overall, Concord saw revenues increase by 28% in 2002 over 2001, the firm added. Concord executives did participate in a February 18 telephone press call about its fourth quarter results and the firm’s prospects moving forward. But Bond Isaacson, the firm’s new co-CEO, refused to characterize the firm’s negotiations with large financial institution customers of STAR other than to say they are going “very well.” “We are in a very, very competitive environment,” Isaacson told the assembled reporters and analysts, explaining that he did not want to share any competitive information since he, in turn, would not have the opportunity to sit in on a similar call conducted by VISA, one of the firm’s competitors. The firm’s executives acknowledged that concern over “price compression,” which is their term for having to offer a financial institutions discounted fees to keep its business, was part of the firm’s reason for lowering its expectations for stock price performance. The question of financial firms renewing with STAR has risen in importance after some analysts have been wondering where Concord’s future earnings growth will come from as it pays increasingly higher costs to banks to ensure STAR renews its bank contracts. David Sharf, an analyst with San Francisco-based JMP Securities Inc. said he believed Concord miscalculated the value of the STAR network when the firm purchased the subsidiary for at least $850 million two years ago. Profit margins also have steeply declined, despite double-digit increases in PIN-based transaction volumes, because Concord is in a bidding war for major retailers’ processing business, Sharf noted. [email protected]

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