Sanchez Computer Associates Inc. announced a deal last week that would put it on the growing list of core banking software providers that offer outsourcing services to banks.

The Malvern, Pa., company said it has agreed to buy Artech Financial Services Inc., which Citizens National Bank of Evans City, Pa., spun off last year. Terms were not disclosed.

Artech, a 25-employee data processor based in Pittsburgh, runs Sanchez software on behalf of five community banks in the Pennsylvania area, including Citizens.

"Sanchez has doubled the market it is going after," said Charles Wittmann, an analyst at Wheat First Union.

Outsourcing would give Sanchez a more stable source of recurring revenues, he added.

The company reported fourth-quarter revenues of $12.3 million, up 39% from the 1997 quarter. Quarterly net income was $2.4 million, up 58%. Its earnings of 19 cents per share were 2 cents higher than Wheat First had expected.

Sanchez's stock price fell last week $1.375, closing Friday at $26.50.

The company introduced its Profile/Anyware software in 1996, positioning it as flexible client/server software that could support the telephone- or Internet-based segments of larger banks. The Dutch banking and insurance conglomerate ING Groep NV, for example, uses the software to run its branchless bank in Canada, ING Direct. Other users include Citigroup, Sumitomo Bank Ltd., and Bankers Trust Co.

Sanchez's outsourcing option would let banks support the creation of Internet banking units without large up-front investments.

"We are saying, 'Let's not make it a capital hurdle; let's make it into a variable, pay-as-you-go option," said Michael A. Sanchez, chairman. Banks can use outsourcing to "get in the business now, and then deal with bringing it in-house later."

The vendor also sees an opportunity to provide outsourcing services to the growing flock of start-up banks. Through the first three quarters of 1998, there were 149 commercial bank and thrift charters issued, according to the Federal Deposit Insurance Corp. The biggest year ever for new bank charters was 1997, with 200.

"Brokerage firms, insurance firms, and other nonbanks come to us and say: 'I do not want to run a bank. I just want to market and get new customers,'" Mr. Sanchez said.

Many core processing software vendors have developed outsourcing options in the last year. Open Solutions Inc. struck a deal to make its software available through the outsourcer, Bisys Group, Little Falls, N.J.; Jack Henry & Associates bought Peerless Group Inc., a software company with a service bureau component; and Phoenix International Ltd. bought two small data centers, Servers On-line Inc. and Eris Inc.

"Outsourcing seems to be the growing trend," Mr. Wittmann said. "Demand is strong right now."

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