Market Turmoil Not Disrupting Banks' Tech Spending

The recent turmoil in the financial markets has not yet altered banks' immediate technology spending plans, Jack Henry & Associates Inc.'s top executive says.

The technology vendor has not seen clients "pull back" because of market activity, though it "certainly adds to concerns" for their long-term plans, said Jack Prim, the financial technology vendor's chief executive, on Wednesday.

Market fluctuations have "been going on for long enough now that I think people are getting somewhat jaded to it," Prim said on an earnings conference call with analysts. "Unless we see significant economic indicators pointing in the wrong direction or something that looks like it's going to be much longer-term in nature, at this point … I don't think we've seen anybody change their spending plans."

Prim's comments came a day after the Monett, Mo., company, which sells core processing systems, payments software, online banking and other technology to smaller banks and credit unions, reported fiscal fourth-quarter earnings that beat analysts' estimates, sending its shares up more than 5%, to as high as $29.06 on Wednesday.

Jack Henry's revenue for the quarter ending on June 30 rose 9% from a year earlier, to $249.3 million. Higher sales from software licenses, electronic payments processing and software hosting offset its continued declines in hardware sales.

Within the company's support and services category, Jack Henry's largest revenue boost came from ATM, debit and credit card processing, bill payment, automated clearing house transaction processing and related activities. Revenue from such services increased 16%, to $16.9 million.

The company reported a 22% increase in net income, to $36.6 million, or 42 cents per diluted share, beating analysts' averaged estimate of 40 cents per share.

Recent events, such as Standard & Poor's downgrade of the U.S. government's credit rating on Aug. 5 that sparked major stock market swings last week, are not likely to delay existing investments by financial institutions, Peter Heckmann, a senior research analyst who follows financial technology vendors for Avondale Partners LLC, said in an interview on Wednesday.

However, the ongoing challenges in the banking industry are likely to keep spending on new systems at modest levels, Heckmann said.

"This is not the most favorable environment for the banking industry with ultra-low interest rates and a rapidly changing regulatory landscape," Heckmann said. "I wouldn't expect bank IT spending to accelerate" significantly.

Jack Henry, like its larger competitors Fidelity National Information Services Inc. and Fiserv Inc., has had to deal with bank combinations, especially those stemming from shut-downs by the Federal Deposit Insurance Corp., which have reduced their client bases.

About 20% of bank failures in the last three years have involved Jack Henry customers, Kevin Williams, the company's chief financial officer, said on the call.

Failures are tapering off, Prim said. "I think … that the worst of it is behind us."