Electronic Data Systems Corp. announced last week that it has purchased the check processing operation of the Federal Home Loan Bank of Cincinnati.

The acquired third-party service operation clears checks and provides lockbox services to 150 community banks and thrifts through processing centers located in Cleveland, Cincinnati, and Nashville. The check-sorting centers employ about 60 people, EDS officials said. Financial terms were not disclosed.

EDS' deal with the Home Loan bank came on the same day as Fiserv Inc., one of its chief competitors in the financial systems outsourcing field, announced it had acquired the item processing business of Alltel Information Services Inc. for an undisclosed sum.

Over the past few years, most of the 12 regional Home Loan banks have sold off their correspondent processing operations in order to concentrate on their primary function of providing credit to mortgage lenders. For example, before selling out to Fiserv, Alltel had built up its item processing business mainly through the 1991 and 1992 acquisitions of the check-clearing service bureaus of the Federal Home Loan Banks of New York and San Francisco.

Outsourcing experts say huge processing volumes are necessary to succeed long term in the paper-intensive item processing business. As the two largest nonbank check processors - each clearing over 2.5 billion checks annually - EDS and Fiserv already have that critical mass.

The Cincinnati Home Loan Bank's operation processes about 60 million checks annually, EDS officials said.

"The (banking) industry is consolidating and so are the processors," said Dan Talbott, managing director of payment services at EDS. He added that EDS will look at acquiring other third-party check processors that serve community banks.

"We selected EDS because they demonstrated a commitment to providing the quality services our members require and have come to expect," said Charles L. Thiemann, president of the Federal Home Loan Bank of Cincinnati. "We have formed a business relationship with EDS to ensure that the item processing service will be successful and that the bank will continue to have available a broad range of correspondent services for our members."

Officials at the Cincinnati Home Loan Bank said they will continue to provide other third-party services to members - including investment and securities safekeeping and the disbursement of currency, checks, and money orders.

Additionally, member institutions will be able to continue to use their Home Loan bank demand deposit accounts for daily check settlements, billing, and adjustments with EDS, company officials said.

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