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FALLS CHURCH, Va. – Encore Financial Services, an electronic service cooperative that has served credit unions since 1982, has signed a letter of intent to merge with Ontario, California based CO-OP Network. Should Encore’s 124 member-owner credit unions approve the merger, the plucky cooperative that serves CUs in 14 states will cease to exist as an independent organization and will instead become a division of CO-OP Network, both organizations said. The details of the merger have not been finalized and include such questions as whether or not Encore will continue to have an independent board of directors, according to Tom Reed, CEO of Encore. There is a precedent for such an arrangement. When CO-OP Network merged with Service Centers Corporation in 2002, SCC retained its independent board as well as sent at least one of its members, Mark Shobe, CEO of the $1.8 billion DFCU Financial, which is seeking to convert to a mutual bank, to serve on the CO-OP board. Reed said that it could be just a few months or could take up to a year to finalize the deal and put to a vote. Neither side said they saw anything in the remaining details that could be a deal breaker. Very few industry watchers expressed surprise at the development, noting that Encore became a shareholder in CO-OP in April 2003 and the two have a long history of cooperation. “We aligned with CO-OP Network because we wanted to increase our organizational and financial strength,” says Reed. Jim Hanisch, executive vice president with the CO-OP Network, said that the cooperative history that the two organizations shared made an Encore merger attractive, along with the fact that Encore now does roughly 10 million ATM and EFT transactions per month. “The truth is that we have been talking about this at a low level for a long time,” said Hanisch. “This was just the right time, all the stars aligned and we decided to go ahead and get it done.” Hanisch coyly downplayed one of the things that will make Encore a singular part of CO-OP Network, the cooperative’s ability to process credit card transactions for its member credit unions as well as offer them merchant account services. CO-OP Network offers neither service and, while Hanisch maintained it was not a leading reason for the merger, he added that CO-OP found that ability intriguing. “Tom Reed and Encore have done a very good job innovating and offering their members a number of different card services,” Hanisch said, signaling that CO-OP might be interested in different card processing in the future. In the short term, the merger’s chief impact will be on Encore members who are not yet fully CO-OP members and can now take advantage of the new relationship. It will also further increase CO-OP’s monthly transaction levels. In the longer term, absent of innovations like CO-OP beginning to process different cards, market watchers predicted the merger wouldn’t have substantial market impact, in part because Encore and CO-OP have been cooperating for so long already. “From our perspective, we don’t think this is going to have much of an impact at all,” said Ben Psillas, CEO of the Allpoint Network, a surcharge-free ATM subsidiary of Cardtronics. “They have already been working together for a time and the number of ATMs will not sharply change so we don’t think it is going to cause too much of a ripple.” In addition to card services, Encore has been the conduit through which its member CUs have participated in shared branching as well and those relationships will continue, Reed said. [email protected]

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