Charlie Penicook and Zuowei Xu November 19, 2013

Agenda  Introduction  Macroeconomic Outlook  Industry Overview  Company Overview  Financial Analysis  Valuation  Recommendation

The Jack Henry Associates  Founded by Jack Henry and Jerry Hall in 1976  A provider of information systems and services for more than 11,900 financial institutions and corporate entities  Listed in the NASDAQ on October 29, 1985  Industry: Business Software & Services Source: Jack Henry Company Website

Current Holding Information  November 11, 1999: Purchased 200 shares at $36.00/share ($7,200 total investment)  2:1 Split twice in 2000 and 2001, which took the holding to 800 shares at $9 per share  January 15, 2007: Sold 400 shares at $22.53 for a realized gain of $5,412  November 18, 2013 Price: $56.71  Unrealized Gain: % ($19,084)  Total Position Value: $22, 684 (5.08% of total portfolio) Source: Yahoo Finance

Macroeconomic Outlook  The Federal Reserve Bank can control the financial institutions by controlling the supply of money, raising/lowering the reserve requirement and through open market operations.  The incoming Chair, Janet Yellen, announced that the Fed would continue the current Quantitative Easing policy. Federal Reserve Bank Banking Industry& Credit Union Business Software& Service

Macroeconomic Outlook Source: JKHY 2013 Shareholder Meeting

Business Software & Service Source: Hfs Research, 2013 market sizing data The IT and business services outsourcing market is at 170 billion in And the banking process outsourcing services made up about 85 billion.

Business Software & Service ServiceOnline MobilityImpact

Industry Forces Analysis Rivalry: High Buyers: Low Substitutes: Medium Suppliers: Low New Entrants: Low

Industry Forces Analysis  Bargaining Power of Suppliers: LOW  The company’ s technology and service is its advantage, and the market for suppliers of hardware is competitive.  Bargaining Power of Buyers: LOW  Clients are reluctant to change for high switching cost  Threat of New Entrants: LOW  Dodd- Frank makes it more difficult for new entrants  Economies of scale

Industry Forces Analysis  Threat of Substitutes: LOW  Brand advantage, high switching cost  Rivalry among Competitors: HIGH  Mature market and consolidation

Company Overview  A Provider of core information processing solutions for more than 11,300 financial institutions and corporate entities  Supports 1300 community banks around the country, about 1/5 of the banks in United States  Supports 760 credit unions, about 1/10 of the credit unions in United States. Source: Jack Henry Company Website

Company Overview Source: JKHY 2013 Shareholder Meeting Small BanksCredit Unions Specialized Products and service for other financial institutions

Company Overview Wide Moat  High switching cost for core processing service  Focus on small banks and credit unions  Long-term contract with clients to ensure the future revenue growth  Debt-free, ready to make acquisitions Source: JKHY 2013 Shareholder Meeting

Company Overview

Business Risk Analysis Economic conditions Cyclical fluctuations in banking New Technology Government Regulations Security Problems Source:10-K, JKHY Co., FY 2013

SWOT Analysis StrengthsWeaknesses -Recurring revenue -Strong free cash flow for repurchase and acquisitions. -Relatively small size compared to rivals OpportunitiesThreats -More banks tend to outsource their data and processing system -Growth through acquisition -Banking Failure increases -Hard to find proven acquisition target -Negative Macroeconomic outlook

Strategy  Concentrate on information systems and services for small banks and credit unions  Develop the latest processing platform and advancing technologies  Maintain the high levels of customer satisfaction  Strategy change:  A mobile strategy for online payments

Management Outlook  Positive  2012 Performance Reaches All-Time High  Strong sales performances by all brands  Continued strong profit margins  Exceptionally high associate satisfaction ratings  Exceptionally high customer satisfaction ratings  Concerns  The improved economic situation made bank move the processing system in-house Source: JKHY Consolidated Shareholder Meeting

Recent News  JKHY Reports 2014 Q1 Earnings: November 5, 2013  9% increase in revenue, 11% increase in gross profits, 17% increase in net income over the first quarter of fiscal 2013  American Airlines Federal Credit Union completes successful conversion to Symitar Core system: November 13  $5.6 billion in assets and operates as the 13rd largest credit union in the United States  Jack Henry& Associates announces iPad Compatible Banking: November 14  The app supports traditional in-branch and online transactions Source: Yahoo Finance

Recent Financial Information Source: JKHY Shareholder Meeting

Recent Financial Information Source: JKHY 2013 Shareholder Meeting

Recent Financial Information The company keeps rising dividend rate for Source: JKHY 2013 Shareholder Meeting

Recent Financial Information The company would pay $0.80 dividend per share at current dividend rate. Source: JKHY 2013 Shareholder Meeting

Recent Financial Information Source: JKHY 2013 Shareholder Meeting The company would continue to repurchase their shares because the they believe the stock value is undervalued

Current Stock Information Source: Capital IQ, Yahoo Finance MetricValue Current Stock Price $56.82 Trailing P/E Forward P/E Dividend Yield 1.40% Market Cap ($ millions) $4.86 B

Financial Analysis NOTE: The years above refer to the fiscal years ending on June 30

Financial Analysis NOTE: The years above refer to the fiscal years ending on June 30

Financial Analysis NOTE: The years above refer to the fiscal years ending on June 30

Stock Performance Source: Yahoo Finance  Roughly in line with peers  High industry growth

Comparable Company Analysis Source:

Discount Rate Source: Yahoo Finance  Regression  6-year (pre-Dodd Frank) beta of.89  High ROE  Low debt weight  Paid-down debt  No business risk premium  For demonstrational purposes

DCF Analysis  Discount:  10.65%  Terminal Growth:  3.5%  Current Price:  $56.71

Decision Drivers  Strengths:  Stable revenue growth  Long-term contracts  Increasing Dividend  Paid down debt  New Product offerings  Concerns:  Overvalued: Over 100% price growth LTM  Net Income growth of 13%

Recommendation  Valuation Summary:  DCF: $  Comps: $41.48  Recommendation:  Sell 200 market price of $56.71 to realize gain of $9,542  Hold Remaining 200 shares.

Questions?