Like in the rest of the U.S. equities market, 1995 was a terrific year for bank technology stocks.
The publicly traded financial systems and processing-services firms tracked by American Banker saw their stock prices rise an average of 34% last year.
That hefty increase was statistically in line with the Standard & Poor's index of 500 stocks and the Dow Jones industrial average, which both rose by about one-third in 1995.
But what was even more interesting was that only 6 of the 30 listed financial systems stocks lost value over the 12-month period, while 13 outperformed the average gain. The number of advancing stocks far exceeded 1994 performance levels, when just 13 out of 28 firms experienced gains.
Wall Street analysts said the bull market in 1995 was led mainly by the technology sector, as more consumers and companies sought to leverage the latest advances in computer and telecommunications systems.
Banks and their technology vendors seem to be at the nexus of this trend, observers said. Financial institutions increasingly see technology as vital to their future competitive positioning, as well as providing the means to link up with their most profitable customers.
Payment systems and information processing firms are "the growth stocks of the next century," said Richard K. Weingarten, an analyst at Montgomery Securities in San Francisco. "They're the new Cokes and Pepsis and Gillettes of the world."
Like 1994, payment services and financial application software companies offered the best returns on investment. Leading the pack was bank software developer Jack Henry & Associates, which saw its stock appreciate a whopping 156% in 1995.
Kevin J. Dyches, an analyst with George K. Baum & Co. in Kansas City, said Jack Henry's big gain was mainly attributable to the company's June acquisition of the community banking software business of Broadway & Seymour Inc.
"Through that acquisition, Jack Henry increased their customer base by 33%," Mr. Dyches said. "At that time, their market value was about $150 million, and they bought a company that was one-third their size for $12 million." He also noted that the acquisition was profitable in the first quarter after Monett, Mo.-based Jack Henry acquired the business.
Mr. Dyches added that Jack Henry was generating internal revenue growth through sales of its Silverlake core accounting system, designed for midsize banks with between $100 million and $10 billion in assets.
The second-biggest percentage gain among financial systems firms was Concord EFS Inc., a provider of payments systems services to retailers. Then Memphis-based firm's stock rose 146% during 1995.
Two years ago, Concord's stock dipped after some weak-performing quarters, but since then "they've gained back the confidence of the market," Mr. Weingarten said. "They had the strongest internal growth of any company in the payment services group."
He added that Concord's specialty is provident credit and debit point of sale systems to supermarkets, "which is the fastest growing part of the payments processing business."
Hogan Systems Inc., another bank software firm, gave its stockholders a tidy profit for the year: its common stock rose 110%. After months of speculation, Dallas-based Hogan agreed last month to be acquired by Continuum Co., an Austin, Tex.-based developer of systems for the insurance industry, in stock swap currently valued at about $200 million.
It's also interesting to note that two of the best-performing stocks in 1994, Charlotte, N.C.-based Broadway & Seymour and San Rafael, Calif.-based Fair, Isaac & Co. lost ground in 1995.
The common stock value of Fair, Isaac, a developer of credit scoring systems, dropped 9%. for the year.
Broadway & Seymour, after peaking at $31 a share last summer, has skidded back to about $16 a share after the company announced it would take a fourth-quarter restructuring charge.
