UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(Amendment No. 1)
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 2008
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-22140.
META FINANCIAL GROUP, INC.
(Name of Registrant as specified in its charter)
Delaware |
| 42-1406262 |
(State or other jurisdiction of |
| (I.R.S. Employer |
incorporation or organization) |
| Identification No.) |
|
|
|
121 East Fifth Street, Storm Lake, Iowa |
| 50588 |
(Address of principal executive offices) |
| (Zip Code) |
Registrant’s telephone number: (712) 732-4117
Securities Registered Pursuant to Section 12(b) of the Act:
None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, par value $0.01 per share
(Title of Class)
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES o NO x
Indicate by check mark if the Registrant is not required to be file reports pursuant Section 13 and Section 15(d) of the Act. YES o NO x
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES x NO o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12-b2 of the Exchange Act. (Check one):
Large accelerated filer o Accelerated filer o Non-accelerated filer o Smaller Reporting Company x
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o YES x NO
As of December 9, 2008, there were outstanding 2,601,103 shares of the Registrant’s Common Stock.
As of March 31, 2008, the aggregate market value of the voting stock held by non-affiliates of the Registrant, computed by reference to the average of the closing bid and asked prices of such stock on the NASDAQ System as of such date, was $34.6 million.
DOCUMENTS INCORPORATED BY REFERENCE
PART III of Form 10-K — Portions of the Proxy Statement for the Annual Meeting of Shareholders to be held January 26, 2009.
EXPLANATORY NOTE
This Amendment No. 1 (this “Amendment”) to the Registrant's Annual Report on Form 10-K for the fiscal year ended September 30, 2008 (the “Form 10-K”) is being filed for the sole purpose of filing the Independent Registered Public Accounting Firm’s Report on the Financial Statements – Predecessor Firm for the fiscal year ended September 30, 2007 and related consent that was omitted from the Form 10-K, as originally filed with the SEC. Items 8 and 15 of the Form 10-K are, however, set forth in their entirety as required by SEC rules.
Please note that the financial statements and other information contained in Items 8 and 15 in the Form 10-K/A do not reflect any other changes to such financial statements and other information as set forth in the Form 10-K as originally filed with the SEC. Please note also that the information contained in this 10-K/A has not been updated to reflect events or developments occurring after December 12, 2008, the date the Form 10-K was originally filed with the SEC and, accordingly, such information continues to speak as of such earlier date. You are urged to read the Quarterly Report on Form 10-Q and Current Reports on Form 8-K filed by the Company since the original filing date of the Form 10-K.
2
Item 8. Consolidated Financial Statements and Supplementary Data
Independent Registered Public Accounting Firm’s Report on the Financial Statements – Successor Firm | 4 |
Independent Registered Public Accounting Firm’s Report on the Financial Statements – Predecessor Firm | 5 |
|
|
Consolidated Financial Statements |
|
6 | |
7 | |
8 | |
9 | |
10 | |
12 |
3
KPMG LLP
2500 Ruan Center
666 Grand Avenue
Des Moines, IA 50309
Independent Auditors’ Report
Audit Committee
Meta Financial Group, Inc.:
We have audited the accompanying consolidated statement of financial condition of Meta Financial Group, Inc. and subsidiaries as of September 30, 2008, and the related consolidated statements of operations, comprehensive income (loss), changes in shareholders’ equity, and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the 2008 consolidated financial statements referred to above present fairly, in all material respects, the financial position of Meta Financial Group, Inc. and subsidiaries as of September 30, 2008, and the results of its operations and its cash flows for the year then ended in conformity with U.S. generally accepted accounting principles.
December 12, 2008
KPMG LLP, a U.S. limited liability partnership, is the U.S.
member firm of KPMG International, a Swiss cooperative.
4
Report of Independent Registered Public Accounting Firm on the Consolidated Financial Statements
To the Board of Directors
Meta Financial Group, Inc. and Subsidiaries
Storm Lake, Iowa
We have audited the consolidated statements of financial condition of Meta Financial Group, Inc. and subsidiaries as of September 30, 2007, and the related consolidated statements of operations, comprehensive income (loss), changes in shareholders’ equity and cash flows for each of the two years in the period ended September 30, 2007. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Meta Financial Group, Inc. and subsidiaries as of September 30, 2007, and the results of their operations and their cash flows for each of the two years in the period ended September 30, 2007, in conformity with U.S. generally accepted accounting principles.
Des Moines, Iowa
January 7, 2008
McGladrey & Pullen, LLP is a member firm of RSM International –
an affiliation of separate and independent legal entities.
5
META FINANCIAL GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in Thousands, Except Share and Per Share Data)
ASSETS |
| September 30, 2008 |
| September 30, 2007 |
| ||
|
|
|
|
|
| ||
Cash and due from banks |
| $ | 2,963 |
| $ | 1,210 |
|
Interest-bearing deposits in other financial institutions |
| — |
| 10,110 |
| ||
Total cash and cash equivalents |
| 2,963 |
| 11,320 |
| ||
Federal funds sold |
| 5,188 |
| 75,000 |
| ||
Investment securities available for sale |
| 19,711 |
| 25,960 |
| ||
Mortgage-backed securities available for sale |
| 184,123 |
| 132,741 |
| ||
Loans receivable - net of allowance for loan losses of $5,732 at September 30, 2008 and $4,493 at September 30, 2007 |
| 427,928 |
| 355,612 |
| ||
Federal Home Loan Bank stock, at cost |
| 8,092 |
| 4,015 |
| ||
Accrued interest receivable |
| 4,497 |
| 4,189 |
| ||
Bond insurance receivable |
| 6,098 |
| — |
| ||
Premises, furniture, and equipment, net |
| 21,992 |
| 19,707 |
| ||
Bank-owned life insurance |
| 12,758 |
| 12,261 |
| ||
Assets related to discontinued operations, held for sale |
| — |
| 35,770 |
| ||
Goodwill |
| 2,206 |
| 1,508 |
| ||
MPS accounts receivable |
| 50,046 |
| 1,748 |
| ||
Other assets |
| 11,654 |
| 6,249 |
| ||
|
|
|
|
|
| ||
Total assets |
| $ | 757,256 |
| $ | 686,080 |
|
|
|
|
|
|
| ||
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
|
| ||
|
|
|
|
|
| ||
LIABILITIES |
|
|
|
|
| ||
Non-interest-bearing checking |
| $ | 355,020 |
| $ | 260,098 |
|
Interest-bearing checking |
| 15,029 |
| 14,600 |
| ||
Savings deposits |
| 9,394 |
| 10,265 |
| ||
Money market deposits |
| 43,038 |
| 81,292 |
| ||
Time certificates of deposit |
| 123,491 |
| 156,723 |
| ||
Total deposits |
| 545,972 |
| 522,978 |
| ||
Advances from Federal Home Loan Bank |
| 132,025 |
| 68,000 |
| ||
Securities sold under agreements to repurchase |
| 5,348 |
| 224 |
| ||
Subordinated debentures |
| 10,310 |
| 10,310 |
| ||
Accrued interest payable |
| 578 |
| 842 |
| ||
Contingent liability |
| 4,293 |
| — |
| ||
Liabilities related to discontinued operations, held for sale |
| — |
| 30,949 |
| ||
Accrued expenses and other liabilities |
| 11,923 |
| 4,679 |
| ||
Total liabilities |
| 710,449 |
| 637,982 |
| ||
|
|
|
|
|
| ||
COMMITMENTS AND CONTINGENCIES |
|
|
|
|
| ||
|
|
|
|
|
| ||
SHAREHOLDERS’ EQUITY |
|
|
|
|
| ||
Preferred stock, 800,000 shares authorized, no shares issued or outstanding |
| — |
| — |
| ||
Common stock, $.01 par value; 5,200,000 shares authorized, 2,957,999 shares issued, 2,601,103 and 2,589,717 shares outstanding at September 30, 2008 and September 30, 2007, respectively |
| 30 |
| 30 |
| ||
Additional paid-in capital |
| 23,058 |
| 21,958 |
| ||
Retained earnings - substantially restricted |
| 35,516 |
| 36,805 |
| ||
Accumulated other comprehensive (loss) |
| (5,022 | ) | (3,345 | ) | ||
Unearned Employee Stock Ownership Plan shares |
| — |
| (377 | ) | ||
Treasury stock, 356,896 and 368,282 common shares, at cost, at September 30, 2008 and September 30, 2007, respectively |
| (6,775 | ) | (6,973 | ) | ||
Total shareholders’ equity |
| 46,807 |
| 48,098 |
| ||
|
|
|
|
|
| ||
Total liabilities and shareholders’ equity |
| $ | 757,256 |
| $ | 686,080 |
|
See Notes to Consolidated Financial Statements.
6
META FINANCIAL GROUP, INC
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands, Except Share and Per Share Data)
|
| For the Years Ended September 30, |
| |||||||
|
| 2008 |
| 2007 |
| 2006 |
| |||
|
|
|
|
|
|
|
| |||
Interest and dividend income: |
|
|
|
|
|
|
| |||
Loans receivable, including fees |
| $ | 25,909 |
| $ | 25,584 |
| $ | 27,948 |
|
Mortgage-backed securities |
| 8,484 |
| 5,500 |
| 6,185 |
| |||
Other investments |
| 3,025 |
| 6,690 |
| 3,979 |
| |||
|
| 37,418 |
| 37,774 |
| 38,112 |
| |||
Interest expense: |
|
|
|
|
|
|
| |||
Deposits |
| 7,758 |
| 11,664 |
| 12,756 |
| |||
FHLB advances and other borrowings |
| 5,657 |
| 5,303 |
| 6,855 |
| |||
|
| 13,415 |
| 16,967 |
| 19,611 |
| |||
Net interest income |
| 24,003 |
| 20,807 |
| 18,501 |
| |||
Provision for loan losses |
| 2,715 |
| 3,168 |
| 311 |
| |||
Net interest income after provision for loan losses |
| 21,288 |
| 17,639 |
| 18,190 |
| |||
Non-interest income: |
|
|
|
|
|
|
| |||
Card fees |
| 34,634 |
| 15,375 |
| 10,821 |
| |||
Gain on sale of branch office |
| — |
| 3,331 |
| — |
| |||
Deposit fees |
| 833 |
| 885 |
| 852 |
| |||
Loan fees |
| 777 |
| 580 |
| 446 |
| |||
Gain on sale of securities available for sale, net |
| 24 |
| 496 |
| — |
| |||
Gain on sale of membership equity interests, net |
| 543 |
| — |
| — |
| |||
Bank-owned life insurance income |
| 498 |
| 436 |
| 555 |
| |||
Other income |
| 387 |
| 755 |
| 821 |
| |||
|
| 37,696 |
| 21,858 |
| 13,495 |
| |||
Non-interest expense: |
|
|
|
|
|
|
| |||
Compensation and benefits |
| 25,731 |
| 18,248 |
| 12,794 |
| |||
Card processing expense |
| 15,630 |
| 6,377 |
| 2,986 |
| |||
Occupancy and equipment expense |
| 6,619 |
| 4,003 |
| 2,932 |
| |||
Legal and consulting expense |
| 3,386 |
| 2,965 |
| 3,021 |
| |||
Marketing |
| 1,250 |
| 797 |
| 712 |
| |||
Data processing expense |
| 1,248 |
| 911 |
| 628 |
| |||
Other expense |
| 7,956 |
| 3,657 |
| 3,567 |
| |||
|
| 61,820 |
| 36,958 |
| 26,640 |
| |||
Income (loss) from continuing operations before income tax expense (benefit) |
| (2,836 | ) | 2,539 |
| 5,045 |
| |||
Income tax expense (benefit) from continuing operations |
| (1,002 | ) | 1,227 |
| 1,666 |
| |||
|
|
|
|
|
|
|
| |||
Income (loss) from continuing operations |
| (1,834 | ) | 1,312 |
| 3,379 |
| |||
Gain on sale from discontinued operations before taxes |
| 2,309 |
| — |
| — |
| |||
Income (loss) from discontinued operations before taxes |
| 76 |
| (394 | ) | 458 |
| |||
Income tax expense (benefit) from discontinued operations |
| 500 |
| (253 | ) | 149 |
| |||
Income (loss) from discontinued operations |
| 1,885 |
| (141 | ) | 309 |
| |||
|
|
|
|
|
|
|
| |||
Net income |
| $ | 51 |
| $ | 1,171 |
| $ | 3,688 |
|
|
|
|
|
|
|
|
| |||
Basic earnings (loss) per common share: |
|
|
|
|
|
|
| |||
Income (loss) from continuing operations |
| $ | (0.71 | ) | $ | 0.52 |
| $ | 1.36 |
|
Income (loss) from discontinued operations |
| 0.73 |
| (0.06 | ) | 0.12 |
| |||
Net income |
| $ | 0.02 |
| $ | 0.46 |
| $ | 1.48 |
|
|
|
|
|
|
|
|
| |||
Diluted earnings (loss) per common share: |
|
|
|
|
|
|
| |||
Income (loss) from continuing operations |
| $ | (0.70 | ) | $ | 0.50 |
| $ | 1.34 |
|
Income (loss) from discontinued operations |
| 0.72 |
| (0.05 | ) | 0.12 |
| |||
Net income |
| $ | 0.02 |
| $ | 0.45 |
| $ | 1.46 |
|
|
|
|
|
|
|
|
| |||
Dividends declared per common share: |
| $ | 0.52 |
| $ | 0.52 |
| $ | 0.52 |
|
See Notes to Consolidated Financial Statements.
7
META FINANCIAL GROUP, INC.
AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income (Loss)
(Dollars in Thousands)
|
| Year Ended |
| |||||||
|
| 2008 |
| 2007 |
| 2006 |
| |||
|
|
|
|
|
|
|
| |||
Net income |
| $ | 51 |
| $ | 1,171 |
| $ | 3,688 |
|
|
|
|
|
|
|
|
| |||
Other comprehensive income (loss): |
|
|
|
|
|
|
| |||
Change in net unrealized gains (losses) on securities available for sale |
| (2,698 | ) | 1,422 |
| (2,186 | ) | |||
Gains realized in net income |
| 24 |
| 496 |
| — |
| |||
|
| (2,674 | ) | 1,918 |
| (2,186 | ) | |||
Deferred income tax effect |
| (997 | ) | 715 |
| (819 | ) | |||
Total other comprehensive income (loss) |
| (1,677 | ) | 1,203 |
| (1,367 | ) | |||
Total comprehensive income (loss) |
| $ | (1,626 | ) | $ | 2,374 |
| $ | 2,321 |
|
See Notes to Condensed Consolidated Financial Statements.
8
META FINANCIAL GROUP, INC.
AND SUBSIDIARIES
Consolidated Statements of Changes in Shareholders’ Equity
For the Years Ended September 30, 2006, 2007, and 2008
(Dollars in Thousands, Except Share and Per Share Data)
|
| Common |
| Additional |
| Retained |
| Accumulated |
| Unearned |
| Treasury |
| Total |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Balance, September 30, 2005 |
| $ | 30 |
| $ | 20,647 |
| $ | 34,557 |
| $ | (3,181 | ) | $ | (825 | ) | $ | (8,269 | ) | $ | 42,959 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Cash dividends declared on common stock ($.52 per share) |
| — |
| — |
| (1,292 | ) | — |
| — |
| — |
| (1,292 | ) | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Issuance of 18,712 common shares from treasury stock due to exercise of stock options |
| — |
| (156 | ) | — |
| — |
| — |
| 429 |
| 273 |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Issuance of 3,667 common shares from treasury stock due to issuance of nonvested shares |
| — |
| (44 | ) | — |
| — |
| — |
| 44 |
| — |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Stock compensation |
| — |
| 481 |
| — |
| — |
| — |
| — |
| 481 |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
14,500 common shares committed to be released under the ESOP |
| — |
| 41 |
| — |
| — |
| 316 |
| — |
| 357 |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Change in net unrealized losses on securities available for sale, net |
| — |
| — |
| — |
| (1,367 | ) | — |
| — |
| (1,367 | ) | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Net income for year ended September 30, 2006 |
| — |
| — |
| 3,688 |
| — |
| — |
| — |
| 3,688 |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Balance, September 30, 2006 |
| $ | 30 |
| $ | 20,969 |
| $ | 36,953 |
| $ | (4,548 | ) | $ | (509 | ) | $ | (7,796 | ) | $ | 45,099 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Balance, September 30, 2006 |
| $ | 30 |
| $ | 20,969 |
| $ | 36,953 |
| $ | (4,548 | ) | $ | (509 | ) | $ | (7,796 | ) | $ | 45,099 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Cash dividends declared on common stock ($.52 per share) |
| — |
| — |
| (1,319 | ) | — |
| — |
| — |
| (1,319 | ) | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Issuance of 55,350 common shares from treasury stock due to exercise of stock options |
| — |
| (130 | ) | — |
| — |
| — |
| 823 |
| 693 |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Stock compensation |
| — |
| 1,117 |
| — |
| — |
| — |
| — |
| 1,117 |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
5,750 common shares committed to be released under the ESOP |
| — |
| 2 |
| — |
| — |
| 132 |
| — |
| 134 |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Change in net unrealized losses on securities available for sale, net |
| — |
| — |
| — |
| 1,203 |
| — |
| — |
| 1,203 |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Net income for year ended September 30, 2007 |
| — |
| — |
| 1,171 |
| — |
| — |
| — |
| 1,171 |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Balance, September 30, 2007 |
| $ | 30 |
| $ | 21,958 |
| $ | 36,805 |
| $ | (3,345 | ) | $ | (377 | ) | $ | (6,973 | ) | $ | 48,098 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Balance, September 30, 2007 |
| $ | 30 |
| $ | 21,958 |
| $ | 36,805 |
| $ | (3,345 | ) | $ | (377 | ) | $ | (6,973 | ) | $ | 48,098 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Cash dividends declared on common stock ($.52 per share) |
| — |
| — |
| (1,340 | ) | — |
| — |
| — |
| (1,340 | ) | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Issuance of 11,386 common shares from treasury stock due to exercise of stock options |
| — |
| 1 |
| — |
| — |
| — |
| 198 |
| 199 |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Stock compensation |
| — |
| 901 |
| — |
| — |
| — |
| — |
| 901 |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
16,562 common shares committed to be released under the ESOP |
| — |
| 198 |
| — |
| — |
| 377 |
| — |
| 575 |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Change in net unrealized losses on securities available for sale, net |
| — |
| — |
| — |
| (1,677 | ) | — |
| — |
| (1,677 | ) | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Net income for year ended September 30, 2008 |
| — |
| — |
| 51 |
| — |
| — |
| — |
| 51 |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Balance, September 30, 2008 |
| $ | 30 |
| $ | 23,058 |
| $ | 35,516 |
| $ | (5,022 | ) | $ | — |
| $ | (6,775 | ) | $ | 46,807 |
|
See Notes to Consolidated Financial Statements.
9
META FINANCIAL GROUP, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Dollars in Thousands)
| For the Years Ended September 30, |
| ||||||||
|
| 2008 |
| 2007 |
| 2006 |
| |||
|
|
|
|
|
|
|
| |||
Cash flows from operating activities: |
|
|
|
|
|
|
| |||
Net income |
| $ | 51 |
| $ | 1,171 |
| $ | 3,688 |
|
Adjustments to reconcile net income to net cash (used in) provided by operating activities: |
|
|
|
|
|
|
| |||
Effect of contribution to employee stock ownership plan |
| 575 |
| 134 |
| 357 |
| |||
Depreciation, amortization and accretion, net |
| 3,204 |
| 2,580 |
| 3,025 |
| |||
Provision for loan losses |
| 2,715 |
| 3,168 |
| 311 |
| |||
(Gain) on sale of branches |
| — |
| (3,331 | ) | — |
| |||
(Gain) on sale of investments available for sale, net |
| (24 | ) | (496 | ) | — |
| |||
(Gain) on sale of membership equity interests, net |
| (543 | ) | — |
| — |
| |||
(Gain) on sale of other |
| (81 | ) | (71 | ) | (64 | ) | |||
Net change in accrued interest receivable |
| (308 | ) | (127 | ) | (176 | ) | |||
Net change in other assets |
| (25,001 | ) | (2,410 | ) | (2,264 | ) | |||
Net change in accrued interest payable |
| (264 | ) | (53 | ) | 31 |
| |||
Net change in accrued expenses and other liabilities |
| (19,412 | ) | 649 |
| 3,295 |
| |||
Net cash (used in) provided by operating activities-continuing operations |
| (39,088 | ) | 1,214 |
| 8,203 |
| |||
Net cash provided by operating activities-discontinued operations |
| 6,029 |
| 453 |
| 1,111 |
| |||
Net cash (used in) provided by operating activities |
| (33,059 | ) | 1,667 |
| 9,314 |
| |||
|
|
|
|
|
|
|
| |||
Cash flow from investing activities: |
|
|
|
|
|
|
| |||
Purchase of securities available for sale |
| (102,790 | ) | (13,216 | ) | (109 | ) | |||
Net change in federal funds sold |
| 69,812 |
| (75,000 | ) | — |
| |||
Proceeds from sales of securities available for sale |
| 16,990 |
| 1,098 |
| — |
| |||
Net change in securities purchased under agreement to resell |
| — |
| 5,891 |
| 31,622 |
| |||
Proceeds from maturities and principal repayments of securities available for sale |
| 37,355 |
| 27,089 |
| 38,263 |
| |||
Loans purchased |
| (55,290 | ) | (44,912 | ) | (58,929 | ) | |||
Net change in loans receivable |
| (19,961 | ) | 52,830 |
| 107,707 |
| |||
Proceeds from sales of foreclosed real estate |
| 596 |
| 318 |
| 4,281 |
| |||
Cash transferred to buyer on sale of branch |
| — |
| (33,665 | ) | — |
| |||
Net change in FHLB stock |
| (4,077 | ) | 1,038 |
| 2,419 |
| |||
Proceeds from the sale of premises and equipment |
| 105 |
| 18 |
| — |
| |||
Purchase of premises and equipment |
| (5,195 | ) | (4,758 | ) | (3,762 | ) | |||
Other, net |
| 1,283 |
| — |
| — |
| |||
Net cash (used in) provided by investing activities-continuing operations |
| (61,172 | ) | (83,269 | ) | 121,492 |
| |||
Net cash provided by investing activities-discontinued operations |
| 17,598 |
| 11,664 |
| 5,921 |
| |||
Net cash (used in) provided by investing activities |
| (43,574 | ) | (71,605 | ) | 127,413 |
| |||
|
|
|
|
|
|
|
| |||
Cash flows from financing activities: |
|
|
|
|
|
|
| |||
Net change in checking, savings, and money market deposits |
| 56,226 |
| 37,562 |
| 77,642 |
| |||
Net change in time deposits |
| (33,232 | ) | (15,882 | ) | (49,731 | ) | |||
Net change in advances from Federal Home Loan Bank |
| 64,025 |
| (21,300 | ) | (57,250 | ) | |||
Net change in securities sold under agreements to repurchase |
| 5,124 |
| (14,955 | ) | (5,328 | ) | |||
Cash dividends paid |
| (1,340 | ) | (1,319 | ) | (1,291 | ) | |||
Stock compensation |
| 901 |
| 1,117 |
| 481 |
| |||
Proceeds from exercise of stock options |
| 199 |
| 540 |
| 187 |
| |||
Net cash provided by (used in) financing activities-continuing operations |
| 91,903 |
| (14,237 | ) | (35,290 | ) | |||
Net cash (used in) financing activities-discontinued operations |
| (33,210 | ) | (4,275 | ) | (6,454 | ) | |||
Net cash provided by (used in) financing activities |
| 58,693 |
| (18,512 | ) | (41,744 | ) | |||
|
|
|
|
|
|
|
| |||
Net change in cash and cash equivalents |
| (17,940 | ) | (88,450 | ) | 94,983 |
| |||
|
|
|
|
|
|
|
| |||
Cash and cash equivalents at beginning of period |
| 20,903 |
| 109,353 |
| 14,370 |
| |||
Cash and cash equivalents at end of period |
| $ | 2,963 |
| $ | 20,903 |
| $ | 109,353 |
|
10
META FINANCIAL GROUP, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Con’t.)
(Dollars in Thousands)
|
| For the Years Ended September 30, |
| |||||||
|
| 2008 |
| 2007 |
| 2006 |
| |||
|
|
|
|
|
|
|
| |||
Supplemental disclosure of cash flow information |
|
|
|
|
|
|
| |||
Cash paid during the period for: |
|
|
|
|
|
|
| |||
Interest |
| $ | 14,277 |
| $ | 18,319 |
| $ | 20,912 |
|
Income taxes |
| 470 |
| 570 |
| 1,689 |
| |||
|
|
|
|
|
|
|
| |||
Supplemental schedule of non-cash investing and financing activities: |
|
|
|
|
|
|
| |||
Loans transferred to foreclosed real estate |
| $ | 278 |
| $ | 318 |
| $ | 50 |
|
Cash received on sale of commercial bank |
| 8,224 |
| — |
| — |
| |||
|
|
|
|
|
|
|
| |||
Sale of Branches: |
|
|
|
|
|
|
| |||
Assets disposed of: |
|
|
|
|
|
|
| |||
Loans |
| $ | — |
| $ | (2,223 | ) | $ | — |
|
Accrued interest receivable |
| — |
| (14 | ) | — |
| |||
Premises and equipment |
| — |
| (130 | ) | — |
| |||
Liabilities assumed by buyer: |
|
|
|
|
|
|
| |||
Non-interest bearing demand, NOW, savings and money market deposits |
| — |
| 11,141 |
| — |
| |||
Time deposits |
| — |
| 28,030 |
| — |
| |||
Other liabilities |
| — |
| 192 |
| — |
| |||
(Gain) on sale of branches, net |
| — |
| (3,331 | ) | — |
| |||
Cash paid upon sale of branches |
| $ | — |
| $ | 33,665 |
| $ | — |
|
See Notes to Condensed Consolidated Financial Statements.
11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Meta Financial Group, Inc. (the “Company”), a unitary savings and loan holding company located in Storm Lake, Iowa, and its wholly owned subsidiaries which include MetaBank (the “Bank”), a federally chartered savings bank whose primary federal regulator is the Office of Thrift Supervision, First Services Financial Limited and Brookings Service Corporation, which offer noninsured investment products, and Meta Trust Company®, which offers various trust services. The Company also owns 100% of First Midwest Financial Capital Trust I (the “Trust”), which was formed in July 2001 for the purpose of issuing trust preferred securities. The Trust is not included in the consolidated financial statements of the Company. All significant intercompany balances and transactions have been eliminated. The results of discontinued operations have been reported separately in the consolidated financial statements and the previously reported financial statements have been reclassified.
NATURE OF BUSINESS AND INDUSTRY SEGMENT INFORMATION
The primary source of income for the Company is interest from the purchase or origination of consumer, commercial, agricultural, commercial real estate, and residential real estate loans. Additionally, a significant source of income for the Company relates to payment processing services for prepaid debit cards, ATM sponsorship, and other money transfer systems and services. The Company accepts deposits from customers in the normal course of business primarily in northwest and central Iowa and eastern South Dakota and on a national basis for the MPS division. The Company operates in the banking industry, which accounts for the majority of its revenues and assets. The Company uses the “management approach” for reporting information about segments in annual and interim financial statements. The management approach is based on the way the chief operating decision-maker organizes segments within a company for making operating decisions and assessing performance. Reportable segments are based on products and services, geography, legal structure, management structure and any other manner in which management disaggregates a company. Based on the management approach model, the Company has determined that its business is comprised of two reporting segments.
Assets held in trust or fiduciary capacity are not assets of the Company and, accordingly, are not included in the accompanying consolidated financial statements.
USE OF ESTIMATES IN PREPARING FINANCIAL STATEMENTS
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Certain significant estimates include the allowance for loan losses, the valuation of goodwill and the fair values of securities and other financial instruments. These estimates are reviewed by management regularly; however, they are particularly susceptible to significant changes in the future.
CASH AND CASH EQUIVALENTS AND FEDERAL FUNDS SOLD
For purposes of reporting cash flows, cash and cash equivalents is defined to include the Company’s cash on hand and due from financial institutions and short-term interest-bearing deposits in other financial institutions. The Company reports cash flows net for customer loan transactions, securities purchased under agreement to resell, deposit transactions, securities sold under agreements to repurchase, and Federal Home Loan Bank of Des Moines (“FHLB”) advances with terms less than 90 days. The Bank is required to maintain reserve balances in cash or on deposit with the Federal Reserve Bank, based
12
on a percentage of deposits. The total of those reserve balances was $1.1 million and $0 at September 30, 2008 and 2007, respectively. The Company at times maintains balances in excess of insured limits at various financial institutions including the FHLB, the Federal Reserve Bank, and other private institutions. At September 30, 2008 the Company had no interest bearing deposits held at the FHLB. At September 30, 2008 the Company had $5.2 million of federal funds sold at several private institutions. The Company does not believe these carry a significant risk of loss, but cannot provide assurances that no losses could occur if these institutions were to become insolvent.
SECURITIES PURCHASED UNDER AGREEMENT TO RESELL
Securities purchased under agreement to resell generally mature or reprice within one week and are carried at cost.
SECURITIES
The Company classifies all securities as available for sale. Available for sale securities are those the Company may decide to sell if needed for liquidity, asset-liability management or other reasons. Available for sale securities are reported at fair value, with net unrealized gains and losses reported as other comprehensive income or loss as a separate component of shareholders’ equity, net of tax.
Gains and losses on the sale of securities are determined using the specific identification method based on amortized cost and are reflected in results of operations at the time of sale. Interest and dividend income, adjusted by amortization of purchase premium or discount over the estimated life of the security using the level yield method, is included in income as earned.
Declines in the fair value of individual securities below their amortized cost that are deemed to be other-than-temporary are reflected in earnings as realized losses. In estimating other-than-temporary impairment losses, management considers, (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.
LOANS RECEIVABLE
Loans receivable that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off are reported at their outstanding principal balances reduced by the allowance for loan losses and any deferred fees or costs on originated loans.
Interest income on loans is accrued over the term of the loans based upon the amount of principal outstanding except when serious doubt exists as to the collectibility of a loan, in which case the accrual of interest is discontinued. Interest income is subsequently recognized only to the extent that cash payments are received until, in management’s judgment, the borrower has the ability to make contractual interest and principal payments, in which case the loan is returned to accrual status.
Loan fees and certain direct loan origination costs are deferred, and the net fee or cost is recognized as an adjustment to interest income using the interest method.
MORTGAGE SERVICING AND TRANSFERS OF FINANCIAL ASSETS
MetaBank regularly sells residential mortgage loans to others on a non-recourse basis. Sold loans are not included in the consolidated financial statements. MetaBank generally retains the right to service the sold loans for a fee. At September 30, 2008 and 2007, MetaBank was servicing loans for others with aggregate unpaid principal balances of $28.7 million and $29.6 million, respectively.
13
ALLOWANCE FOR LOAN LOSSES
Because some loans may not be repaid in full, an allowance for loan losses is recorded. The allowance for loan losses is increased by a provision for loan losses charged to expense and decreased by charge-offs (net of recoveries). Estimating the risk of loss and the amount of loss on any loan is necessarily subjective. Management’s periodic evaluation of the adequacy of the allowance is based on the Company’s past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, and current economic conditions. While management may periodically allocate portions of the allowance for specific problem loan situations, the entire allowance is available for any loan charge-offs that occur.
Loans are considered impaired if full principal or interest payments are not anticipated in accordance with the contractual loan terms. Impaired loans are carried at the present value of expected future cash flows discounted at the loan’s effective interest rate or at the fair value of the collateral if the loan is collateral dependent. A portion of the allowance for loan losses is allocated to impaired loans if the value of such loans is deemed to be less than the unpaid balance. If these allocations cause the allowance for loan losses to require an increase, such increase is reported as a component of the provision for loan losses.
The allowance consists of specific, general, and unallocated components. The specific component relates to loans that are classified either as doubtful, substandard, or special mention. For such loans that are also classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component covers loans not considered impaired and is based on historical loss experience adjusted for qualitative factors. An unallocated component is maintained to cover uncertainties that could affect management’s estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio.
Smaller-balance homogeneous loans are evaluated for impairment in total. Such loans include residential first mortgage loans secured by one-to-four family residences, residential construction loans, and automobile, manufactured homes, home equity and second mortgage loans. Commercial and agricultural loans and mortgage loans secured by other properties are evaluated individually for impairment. When analysis of borrower operating results and financial condition indicates that underlying cash flows of the borrower’s business are not adequate to meet its debt service requirements, the loan is evaluated for impairment. Often this is associated with a delay or shortfall in payments of 90 days or more. Non-Accrual loans are often also considered impaired. Impaired loans, or portions thereof, are charged off when deemed uncollectible.
FORECLOSED REAL ESTATE AND REPOSSESSED ASSETS
Real estate properties and repossessed assets acquired through, or in lieu of, loan foreclosure are initially recorded at the lower of cost or fair value less selling costs at the date of foreclosure, establishing a new cost basis. Any reduction to fair value from the carrying value of the related loan at the time of acquisition is accounted for as a loan loss and charged against the allowance for loan losses. Valuations are periodically performed by management and valuation allowances are increased through a charge to income for reductions in fair value or increases in estimated selling costs.
INCOME TAXES
The Company records income tax expense based on the amount of taxes due on its tax return plus deferred taxes computed based on the expected future tax consequences of temporary differences between the carrying amounts and tax bases of assets and liabilities, using enacted tax rates. Deferred tax assets
14
are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.
MetaBank adopted Financial Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN 48), as of October 1, 2007. The Company recognizes a tax position as a benefit only if it is more likely than not that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized upon examination. For tax positions not meeting the more likely than not test, no tax benefit is recorded. The Company recognizes interest and/or penalties related to income tax matters in income tax expense.
PREMISES, FURNITURE, AND EQUIPMENT
Land is carried at cost. Buildings, furniture, fixtures, leasehold improvements and equipment are carried at cost, less accumulated depreciation and amortization computed principally by using the straight-line method over the estimated useful lives of the assets, which range from 15 to 39 years for buildings, 5 to 20 years for leasehold improvements and 3 to 7 years for furniture, fixtures and equipment. These assets are reviewed for impairment when events indicate the carrying amount may not be recoverable.
TRANSFERS OF FINANCIAL ASSETS
Transfers of financial assets are accounted for as sales when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.
BANK-OWNED LIFE INSURANCE
Bank-owned life insurance represents the cash surrender value of investments in life insurance contracts. Earnings on the contracts are based on the earnings on the cash surrender value, less mortality costs.
EMPLOYEE STOCK OWNERSHIP PLAN
The Company accounts for its employee stock ownership plan (ESOP) in accordance with AICPA Statement of Position (SOP) 93-6. Under SOP 93-6, the cost of shares issued to the ESOP, but not yet allocated to participants, are presented in the consolidated balance sheets as a reduction of shareholders’ equity. Compensation expense is recorded based on the market price of the shares as they are committed to be released for allocation to participant accounts. The difference between the market price and the cost of shares committed to be released is recorded as an adjustment to additional paid-in capital. Dividends on allocated ESOP shares are recorded as a reduction of retained earnings. Dividends on unallocated shares are used to reduce the accrued interest and principal amount of the ESOP’s loan payable to the Company.
FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Company, in the normal course of business, makes commitments to make loans which are not reflected in the consolidated financial statements.
GOODWILL
Goodwill is not amortized but is subject to an impairment test at least annually or more often if conditions indicate a possible impairment.
15
ASSETS AND LIABILITIES RELATED TO DISCONTINUED OPERATIONS
Assets and liabilities related to discontinued operations are carried at the lower of cost or estimated market value in the aggregate.
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
The Company enters into sales of securities under agreements to repurchase with primary dealers only, which provide for the repurchase of the same security. Securities sold under agreements to repurchase identical securities are collateralized by assets which are held in safekeeping in the name of the Bank or by the dealers who arranged the transaction. Securities sold under agreements to repurchase are treated as financings, and the obligations to repurchase such securities are reflected as a liability. The securities underlying the agreements remain in the asset accounts of the Company.
REVENUE RECOGNITION
Interest revenue from loans and investments is recognized on the accrual basis of accounting as the interest is earned according to the terms of the particular loan or investment. Income from service and other customer charges is recognized as earned. Card fee revenue within the MPS division is recognized as services are performed and service charges are earned in accordance with the terms of the various programs.
EARNINGS PER COMMON SHARE (EPS)
Basic EPS is based on the net income divided by the weighted average number of common shares outstanding during the period. Allocated ESOP shares are considered outstanding for earnings per common share calculations, as they are committed to be released; unallocated ESOP shares are not considered outstanding. Diluted EPS shows the dilutive effect of additional potential common shares issuable under stock option plans. EPS, both basic and diluted, have been computed on a continuing and discontinued operations basis.
COMPREHENSIVE INCOME
Comprehensive income consists of net income and other comprehensive income. Other comprehensive income includes the net change in net unrealized gains and losses on securities available for sale, net of reclassification adjustments and tax effects, and is recognized as a separate component of shareholders’ equity.
STOCK COMPENSATION
Effective October 1, 2005, the Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 123(R), Share-Based Payment, using a modified prospective application. Prior to that date, the Company accounted for stock option awards under APB Opinion No. 25, Accounting for Stock Issued to Employees. In accordance with SFAS No. 123(R), compensation expense for share based awards is recorded over the vesting period at the fair value of the award at the time of grant. The recording of such compensation expense began on October 1, 2005 for shares not yet vested as of that date and for all new grants subsequent to that date. Prior years’ results have not been restated. The exercise price of options or fair value of nonvested shares granted under the Company’s incentive plans is equal to the fair market value of the underlying stock at the grant date. The Company assumes no projected forfeitures on its stock based compensation, since actual historical forfeiture rates on its stock based incentive awards has been negligible.
RECLASSIFICATIONS
Certain reclassifications have been made to prior periods’ consolidated financial statements to present them on a basis comparable within the current period’s consolidated financial statements.
16
NEW ACCOUNTING PRONOUNCEMENTS
In June 2006 the FASB issued FASB Interpretation No. 48, (“FIN No. 48”), Accounting for Uncertainty in Income Taxes, an Interpretation of Statement No. 109, Accounting for Income Taxes. FIN No. 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN No. 48 was effective for the Company on October 1, 2007. As a result of the adoption and implementation of FIN No. 48, the Company determined that no liability for unrecognized tax benefits existed at October 1, 2007. There have been no changes to this amount during fiscal 2008.
At its September 2006 meeting, the Emerging Issues Task Force (“EITF”) reached a final consensus on Issue No. 06-04, Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements. The consensus stipulates that an agreement by an employer to share a portion of the proceeds of a life insurance policy with an employee during the postretirement period is a postretirement benefit arrangement required to be accounted for under Statement No. 106 (“SFAS No. 106”) or Accounting Principles Board (“APB”) Opinion No. 12, Omnibus Opinion - 1967. The consensus concludes that the purchase of a split-dollar life insurance policy does not constitute a settlement under SFAS No. 106 and, therefore, a liability for the postretirement obligation must be recognized under SFAS No. 106 if the benefit is offered under an arrangement that constitutes a plan or under APB No. 12 if it is not part of a plan. Issue No. 06-04 is effective for the Company beginning October 1, 2008 and will not have an impact on the Company’s financial position, results of operation or cash flows.
In September 2006, the FASB issued Statement No. 157, (“SFAS No. 157”), Fair Value Measurements. SFAS No. 157 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. It clarifies that fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the market in which the reporting entity transacts. SFAS No. 157 does not require any new fair value measurements, but rather, it provides enhanced guidance to other pronouncements that require or permit assets or liabilities to be measured at fair value. SFAS No. 157 is effective for the Company beginning October 1, 2008 and adoption of SFAS No. 157 will not have a material impact on the Company’s financial position, results of operation or cash flows.
In February 2007, the FASB issued FASB Statement No. 159, The Fair Value Option for Financial Assets and Financial Liabilities – Including an Amendment of FASB Statement No. 115 (“SFAS No. 159”). SFAS No. 159 permits companies to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. The objective of SFAS No. 159 is to provide opportunities to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply hedge accounting principles. SFAS No. 159 also establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities. SFAS No. 159 is effective for the Company beginning October 1, 2008 and adoption of SFAS No. 159 will not have a material impact on the Company’s financial position, results of operation or cash flows.
At its March 2007 meeting, the EITF reached a final consensus on Issue No. 06-10, Accounting for Collateral Assignment Split-Dollar Life Insurance Arrangements. A consensus was reached that an employer should recognize a liability for the postretirement benefit related to a collateral assignment split-dollar life insurance arrangement in accordance with either FASB Statement No. 106 or APB Opinion No. 12, as appropriate, if the employer has agreed to maintain a life insurance policy during the employee’s retirement or provide the employee with a death benefit based on the substantive agreement with the employee. A consensus also was reached that an employer should recognize and measure an
17
asset based on the nature and substance of the collateral assignment split-dollar life insurance arrangement. The consensuses are effective for the Company beginning October 1, 2008, including interim periods within those fiscal years, with early application permitted. Issue No. 06-10 will not have an impact on the Company’s financial position, results of operation or cash flows.
In December 2007, the FASB issued FASB Statement No. 141R, Business Combinations (“SFAS No. 141R”). SFAS No. 141R improves reporting by creating greater consistency in the accounting and financial reporting of business combinations, resulting in more complete, comparable, and relevant information for investors and other users of financial statements. SFAS No. 141R is effective July 1, 2009. The Company is currently evaluating the impact that the Statement will have on its consolidated financial statements.
In December 2007, the FASB issued FASB Statement No. 160, Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No. 51 (“SFAS No. 160”) which is effective for the Company beginning July 1, 2009. SFAS 160 improves the relevance, comparability, and transparency of financial information provided to investors by requiring all entities to report noncontrolling (minority) interest in subsidiaries in the same way—as equity in the consolidated financial statements. The Company does not currently have any noncontrolling interest in the consolidated financial statements.
In March 2008, the FASB issued FASB Statement No. 161, Disclosures about Derivative Instruments and Hedging Activities (“SFAS No. 161”). SFAS No. 161 is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position, financial performance, and cash flows. The Company will adopt SFAS 161 effective January 1, 2009. Management has reviewed SFAS No. 161 and does not expect the adoption of this statement to have a material impact on the Company’s consolidated financial condition, results of operations or cash flow.
In May 2008, the FASB issued FASB Statement No. 162, The Hierarchy of Generally Accepted Accounting Principles (“SFAS No. 162”). SFAS No. 162 makes the hierarchy explicitly and directly applicable to preparers of financial statements, a step that recognizes preparers’ responsibilities for selecting the accounting principles for their financial statements. SFAS No. 162 provides for slight modifications to the current hierarchy in place by adding FASB Staff Positions, Statement No. 133 Implementation Issues and EITF D-Topics to it. The Company will adopt SFAS No. 162 effective November 15, 2008.
NOTE 2. DISCONTINUED BANK OPERATIONS
Sale of MetaBank West Central
On November 29, 2007, the Company entered into an agreement to sell MetaBank WC. MetaBank WC has three branch offices in Stuart, Casey, and Menlo, Iowa. MetaBank WC is a state chartered commercial bank whose primary federal regulator is the Federal Reserve Bank of Chicago. On March 28, 2008 the Company consummated the sale of MetaBank WC to Anita Bancorporation (Iowa). The transaction involved the sale of the stock of MetaBank WC for approximately $8.2 million and generated a pre-tax gain on sale of $2.3 million. The activity related to Meta Bank WC is accounted for as discontinued operations.
Activities related to discontinued bank operations have been recorded separately with current and prior period amounts reclassified as assets and liabilities related to discontinued operations on the consolidated statements of financial condition and as discontinued operations on the consolidated
18
statements of operations and consolidated statement of cash flows. The notes to the consolidated financial statements have also been adjusted to eliminate the effect of discontinued bank operations.
Presented below are condensed financial statements for MetaBank WC.
CONDENSED STATEMENTS OF FINANCIAL CONDITION - DISCONTINUED OPERATIONS
September 30, |
| 2008 |
| 2007 |
| ||
|
| (Dollars in Thousands) |
| ||||
ASSETS |
|
|
|
|
| ||
Cash and cash equivalents |
| $ | — |
| $ | 9,583 |
|
Investments and mortgage-backed securities, available for sale |
| — |
| 11,658 |
| ||
Loans receivable, net |
| — |
| 9,599 |
| ||
Other assets |
| — |
| 4,930 |
| ||
Total assets related to discontinued operations |
| $ | — |
| $ | 35,770 |
|
|
|
|
|
|
| ||
LIABILITIES |
|
|
|
|
| ||
|
|
|
|
|
| ||
LIABILITIES |
|
|
|
|
| ||
Deposits |
| $ | — |
| $ | 24,610 |
|
Other borrowings |
| — |
| 6,300 |
| ||
Other liabilities |
| — |
| 39 |
| ||
Total liabilities related to discontinued operations |
| $ | — |
| $ | 30,949 |
|
CONDENSED STATEMENTS OF OPERATIONS FOR DISCONTINUED OPERATIONS
|
| March 28, 2008 |
| September 30, 2007 |
| September 30, 2006 |
| |||
|
| (Dollars in Thousands) |
| |||||||
|
|
|
|
|
|
|
| |||
Interest income |
| $ | 776 |
| $ | 2,221 |
| $ | 2,466 |
|
Interest expense |
| 515 |
| 1,305 |
| 1,331 |
| |||
Net interest income |
| 261 |
| 916 |
| 1,135 |
| |||
Provision for loan losses |
| (57 | ) | 627 |
| (76 | ) | |||
Net interest income after provision for loan losses |
| 318 |
| 289 |
| 1,211 |
| |||
Noninterest income |
| 2,441 |
| 216 |
| 233 |
| |||
Noninterest expense |
| 374 |
| 899 |
| 986 |
| |||
Net income (loss) before income tax expense |
| 2,385 |
| (394 | ) | 458 |
| |||
Income tax expense (benefit) |
| 500 |
| (253 | ) | 149 |
| |||
Net income (loss) from discontinued operations |
| $ | 1,885 |
| $ | (141 | ) | $ | 309 |
|
19
NOTE 3. EARNINGS PER COMMON SHARE (EPS)
A reconciliation of the income (loss) and common stock share amounts used in the computation of basic and diluted EPS for the fiscal years ended September 30, 2008, 2007 and 2006 is presented below.
|
| 2008 |
| 2007 |
| 2006 |
| |||
|
| (Dollars in Thousands, Except Share and Per Share Data) |
| |||||||
|
|
|
|
|
|
|
| |||
Earnings (Loss) |
|
|
|
|
|
|
| |||
Income (loss) from continuing operations |
| $ | (1,834 | ) | $ | 1,312 |
| $ | 3,379 |
|
Discontinued operations, net of tax |
| 1,885 |
| (141 | ) | 309 |
| |||
|
|
|
|
|
|
|
| |||
Net income |
| $ | 51 |
| $ | 1,171 |
| $ | 3,688 |
|
|
|
|
|
|
|
|
| |||
Basic EPS |
|
|
|
|
|
|
| |||
Weighted average common shares outstanding |
| 2,595,587 |
| 2,550,193 |
| 2,511,754 |
| |||
Less weighted average unallocated ESOP and nonvested shares |
| (19,827 | ) | (25,213 | ) | (27,949 | ) | |||
Weighted average common shares outstanding |
| 2,575,760 |
| 2,524,980 |
| 2,483,805 |
| |||
|
|
|
|
|
|
|
| |||
Earnings (Loss) Per Common Share |
|
|
|
|
|
|
| |||
Income (loss) from continuing operations |
| $ | (0.71 | ) | $ | 0.52 |
| $ | 1.36 |
|
Discontinued operations, net of tax |
| 0.73 |
| (0.06 | ) | 0.12 |
| |||
|
|
|
|
|
|
|
| |||
Net income |
| $ | 0.02 |
| $ | 0.46 |
| $ | 1.48 |
|
|
|
|
|
|
|
|
| |||
Diluted EPS |
|
|
|
|
|
|
| |||
Weighted average common shares outstanding for basic earnings per common share |
| 2,575,760 |
| 2,524,980 |
| 2,483,805 |
| |||
Add dilutive effect of assumed exercises of stock options, net of tax benefits |
| 57,204 |
| 92,916 |
| 38,052 |
| |||
Weighted average common and dilutive potential common shares outstanding |
| 2,632,964 |
| 2,617,896 |
| 2,521,857 |
| |||
|
|
|
|
|
|
|
| |||
Earnings (Loss) Per Common Share |
|
|
|
|
|
|
| |||
Income (loss) from continuing operations |
| $ | (0.70 | ) | $ | 0.50 |
| $ | 1.34 |
|
Discontinued operations, net of tax |
| 0.72 |
| (0.05 | ) | 0.12 |
| |||
|
|
|
|
|
|
|
| |||
Net income |
| $ | 0.02 |
| $ | 0.45 |
| $ | 1.46 |
|
Stock options totaling 127,907, 26,682, and 99,355 were not considered in computing diluted earnings per common share for the years ended September 30, 2008, 2007, and 2006, respectively, because they were not dilutive.
20
NOTE 4. SECURITIES
Year end securities available for sale were as follows:
|
|
|
| GROSS |
| GROSS |
|
|
| ||||
|
| AMORTIZED |
| UNREALIZED |
| UNREALIZED |
| FAIR |
| ||||
2008 |
| COST |
| GAINS |
| (LOSSES) |
| VALUE |
| ||||
|
| (Dollars in Thousands) |
| ||||||||||
Debt securities |
|
|
|
|
|
|
|
|
| ||||
Trust preferred and corporate securities |
| $ | 25,795 |
| $ | 25 |
| $ | (7,646 | ) | $ | 18,174 |
|
Obligations of states and political subdivisions |
| 1,534 |
| 17 |
| (14 | ) | 1,537 |
| ||||
Mortgage-backed securities |
| 184,515 |
| 478 |
| (870 | ) | 184,123 |
| ||||
Total debt securities |
| $ | 211,844 |
| $ | 520 |
| $ | (8,530 | ) | $ | 203,834 |
|
|
|
|
| GROSS |
| GROSS |
|
|
| ||||
|
| AMORTIZED |
| UNREALIZED |
| UNREALIZED |
| FAIR |
| ||||
2007 |
| COST |
| GAINS |
| (LOSSES) |
| VALUE |
| ||||
|
| (Dollars in Thousands) |
| ||||||||||
Debt securities |
|
|
|
|
|
|
|
|
| ||||
Trust preferred and corporate securities |
| $ | 26,784 |
| $ | 172 |
| $ | (2,546 | ) | $ | 24,410 |
|
Obligations of states and political subdivisions |
| 1,534 |
| 17 |
| (1 | ) | 1,550 |
| ||||
Mortgage-backed securities |
| 135,432 |
| 76 |
| (2,767 | ) | 132,741 |
| ||||
Total debt securities |
| $ | 163,750 |
| $ | 265 |
| $ | (5,314 | ) | $ | 158,701 |
|
Gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in continuous unrealized loss position at September 30, 2008 and 2007 are as follows:
|
| LESS THAN 12 MONTHS |
| OVER 12 MONTHS |
| TOTAL |
| ||||||||||||
|
| Fair |
| Unrealized |
| Fair |
| Unrealized |
| Fair |
| Unrealized |
| ||||||
2008 |
| Value |
| (Losses) |
| Value |
| (Losses) |
| Value |
| (Losses) |
| ||||||
|
| (Dollars in Thousands) |
| ||||||||||||||||
Debt securities |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Trust preferred and corporate securities |
| $ | 425 |
| $ | (75 | ) | $ | 17,224 |
| $ | (7,571 | ) | $ | 17,649 |
| $ | (7,646 | ) |
Obligations of states and political subdivisions |
| 419 |
| (14 | ) | — |
| — |
| 419 |
| (14 | ) | ||||||
Mortgage-backed securities |
| 115,225 |
| (870 | ) | 26 |
| — |
| 115,251 |
| (870 | ) | ||||||
Total debt securities |
| $ | 116,069 |
| $ | (959 | ) | $ | 17,250 |
| $ | (7,571 | ) | $ | 133,319 |
| $ | (8,530 | ) |
|
| LESS THAN 12 MONTHS |
| OVER 12 MONTHS |
| TOTAL |
| ||||||||||||
|
| Fair |
| Unrealized |
| Fair |
| Unrealized |
| Fair |
| Unrealized |
| ||||||
2007 |
| Value |
| (Losses) |
| Value |
| (Losses) |
| Value |
| (Losses) |
| ||||||
|
| (Dollars in Thousands) |
| ||||||||||||||||
Debt securities |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Trust preferred and corporate securities |
| $ | — |
| $ | — |
| $ | 22,238 |
| $ | (2,546 | ) | $ | 22,238 |
| $ | (2,546 | ) |
Obligations of states and political subdivisions |
| 432 |
| (1 | ) | — |
| — |
| 432 |
| (1 | ) | ||||||
Mortgage-backed securities |
| 4,082 |
| (33 | ) | 121,102 |
| (2,734 | ) | 125,184 |
| (2,767 | ) | ||||||
Total debt securities |
| $ | 4,514 |
| $ | (34 | ) | $ | 143,340 |
| $ | (5,280 | ) | $ | 147,854 |
| $ | (5,314 | ) |
As of September 30, 2008, the investment portfolio included 6 securities with current unrealized losses which have existed for longer than one year. All of these securities are considered to be acceptable credit risks. Because the declines in fair value were due to changes in market interest rates, not in estimated cash flows, no other-than-temporary impairment was recorded at September 30, 2008. In addition, the Company has the intent and ability to hold these investment securities for a period of time sufficient to allow for an anticipated recovery.
The amortized cost and fair value of debt securities by contractual maturity are shown below. Certain securities have call features which allow the issuer to call the security prior to maturity. Expected maturities may differ from contractual maturities in mortgage-backed securities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Therefore,
21
mortgage-backed securities are not included in the maturity categories in the following maturity summary.
|
| AMORTIZED |
| FAIR |
| ||
September 30, 2008 |
| COST |
| VALUE |
| ||
|
| (Dollars in Thousands) |
| ||||
|
|
|
|
|
| ||
Due in one year or less |
| $ | — |
| $ | — |
|
Due after one year through five years |
| 644 |
| 658 |
| ||
Due after five years through ten years |
| 890 |
| 879 |
| ||
Due after ten years |
| 25,795 |
| 18,174 |
| ||
|
| 27,329 |
| 19,711 |
| ||
Mortgage-backed securities |
| 184,515 |
| 184,123 |
| ||
Total debt securities |
| $ | 211,844 |
| $ | 203,834 |
|
Activities related to the sale of securities available for sale are summarized below.
|
| 2008 |
| 2007 |
| 2006 |
| |||
|
| (Dollars in Thousands) |
| |||||||
|
|
|
|
|
|
|
| |||
Proceeds from sales |
| $ | 16,990 |
| $ | 1,098 |
| $ | — |
|
Gross gains on sales |
| 24 |
| 496 |
| — |
| |||
NOTE 5. LOANS RECEIVABLE, NET
Year end loans receivable were as follows:
September 30, |
| 2008 |
| 2007 |
| ||
|
| (Dollars in Thousands) |
| ||||
|
|
|
|
|
| ||
One to four family residential mortgage loans |
| $ | 56,362 |
| $ | 45,407 |
|
Commercial and multi-family real estate loans |
| 222,651 |
| 169,877 |
| ||
Agricultural real estate loans |
| 30,046 |
| 16,582 |
| ||
Consumer loans |
| 49,329 |
| 36,763 |
| ||
Commercial business loans |
| 44,972 |
| 58,705 |
| ||
Agricultural business loans |
| 31,153 |
| 33,143 |
| ||
Total Loans Receivable |
| 434,513 |
| 360,477 |
| ||
|
|
|
|
|
| ||
Less: |
|
|
|
|
| ||
Allowance for loan losses |
| (5,732 | ) | (4,493 | ) | ||
Undisbursed portion of loans in process |
| (693 | ) | (254 | ) | ||
Net deferred loan origination fees |
| (160 | ) | (118 | ) | ||
Total Loans Receivable, Net |
| $ | 427,928 |
| $ | 355,612 |
|
22
Annual activity in the allowance for loan losses was as follows:
Year ended September 30, |
| 2008 |
| 2007 |
| 2006 |
| |||
|
| (Dollars in Thousands) |
| |||||||
|
|
|
|
|
|
|
| |||
Beginning balance |
| $ | 4,493 |
| $ | 6,391 |
| $ | 6,793 |
|
Provision for loan losses |
| 2,715 |
| 3,168 |
| 311 |
| |||
Recoveries |
| 73 |
| 549 |
| 329 |
| |||
Charge offs |
| (1,549 | ) | (5,615 | ) | (1,042 | ) | |||
Ending balance |
| $ | 5,732 |
| $ | 4,493 |
| $ | 6,391 |
|
Virtually all of the Company’s originated loans are to Iowa- and South Dakota-based individuals and organizations. The Company’s purchased loans totaled $38.6 million at September 30, 2008, which were secured by properties located, as a percentage of total loans, as follows: 4% in Iowa, 2% in Washington, 1% each in Colorado, Florida, and Oregon, and the remaining 1% in eleven other states.
The Company originates and purchases commercial real estate loans. These loans are considered by management to be of somewhat greater risk of uncollectibility due to the dependency on income production. The Company’s commercial real estate loans include $16.3 million of loans secured by hotel properties and $44.2 million of multi-family properties at September 30, 2008. The Company’s commercial real estate loans include $19.4 million of loans secured by hotel properties and $21.8 million of multi-family properties at September 30, 2007. The remainder of the commercial real estate portfolio is diversified by industry. The Company’s policy for requiring collateral and guarantees varies with the creditworthiness of each borrower.
Impaired loans, which include non-accrual loans, were as follows:
Year ended September 30, |
| 2008 |
| 2007 |
| ||
|
| (Dollars in Thousands) |
| ||||
|
|
|
|
|
| ||
Year-end impaired loans with no allowance for loan losses allocated |
| $ | — |
| $ | — |
|
Year-end impaired loans with allowance for loan losses allocated |
| 15,908 |
| 2,270 |
| ||
Amount of the allowance allocated to impaired loans |
| 3,540 |
| 1,478 |
| ||
Average of impaired loans during the year |
| 6,512 |
| 4,536 |
| ||
Interest income and cash interest collected on impaired loans was not material during the years ended September 30, 2008 and 2007.
Non-Accruing loans were $2.8 million and $2.1 million at September 30, 2008 and 2007, respectively. Accruing loans delinquent 90 days or more were $4.6 million at September 30, 2008. There were no accruing loans delinquent 90 days or more at September 30, 2007.
23
NOTE 6. LOAN SERVICING
Loans serviced for others are not reported as assets. The unpaid principal balances of these loans at year end were as follows:
|
| 2008 |
| 2007 |
| ||
|
| (Dollars in Thousands) |
| ||||
|
|
|
|
|
| ||
Mortgage loan portfolios serviced for FNMA |
| $ | 18,669 |
| $ | 20,422 |
|
Other |
| 10,029 |
| 9,192 |
| ||
|
| $ | 28,698 |
| $ | 29,614 |
|
NOTE 7. PREMISES, FURNITURE, AND EQUIPMENT, NET
Year end premises and equipment were as follows:
September 30, |
| 2008 |
| 2007 |
| ||
|
| (Dollars in Thousands) |
| ||||
|
|
|
|
|
| ||
Land |
| $ | 2,689 |
| $ | 2,751 |
|
Buildings |
| 14,174 |
| 14,384 |
| ||
Furniture, fixtures, and equipment |
| 16,025 |
| 10,928 |
| ||
|
| 32,888 |
| 28,063 |
| ||
Less accumulated depreciation |
| (10,896 | ) | (8,356 | ) | ||
|
| $ | 21,992 |
| $ | 19,707 |
|
Depreciation expense of premises, furniture, and equipment included in occupancy and equipment expense was approximately $2.8 million, $1.8 million, and $1.2 million for the years ended September 30, 2008, 2007, and 2006, respectively.
NOTE 8. TIME CERTIFICATES OF DEPOSITS
Time certificates of deposits in denominations of $100,000 or more were approximately $26.7 million and $35.7 million at September 30, 2008, and 2007, respectively.
At September 30, 2008, the scheduled maturities of time certificates of deposits were as follows for the years ending:
September 30, |
|
|
| |
(Dollars in Thousands) |
|
|
| |
|
|
|
| |
2009 |
| $ | 81,484 |
|
2010 |
| 26,323 |
| |
2011 |
| 8,164 |
| |
2012 |
| 4,028 |
| |
2013 |
| 3,492 |
| |
Total Certificates |
| $ | 123,491 |
|
24
NOTE 9. ADVANCES FROM THE FEDERAL HOME LOAN BANK
At September 30, 2008, the Company’s advances from the FHLB had fixed rates ranging from 2.19% to 7.02% with a weighted average rate of 3.67%. The scheduled maturities of FHLB advances were as follows for the years ending:
September 30, |
|
|
| |
(Dollars in Thousands) |
|
|
| |
|
|
|
| |
2009 |
| $ | 71,000 |
|
2010 |
| 19,000 |
| |
2011 |
| 11,000 |
| |
2012 |
| — |
| |
2013 |
| 2,500 |
| |
Thereafter |
| 8,500 |
| |
Total FHLB Advances |
| $ | 112,000 |
|
The Company had one advance in the amount of $8.7 million, with a weighted average fixed rate of 6.19%, carrying a quarterly call provision, whereby the FHLB can elect to accelerate the maturity of this borrowing. This advance is shown in the above table at its stated maturity date, which is 2009. The Company also had $20.0 million in overnight federal funds purchased from the FHLB at a rate of 1.66%.
As of September 30, 2007, the Company’s advances from the FHLB totaled $68.0 million and carried a weighted average rate of 5.43%.
The Bank has executed blanket pledge agreements whereby the Bank assigns, transfers, and pledges to the FHLB and grants to the FHLB a security interest in all mortgage collateral and securities collateral. The Bank has the right to use, commingle, and dispose of the collateral it has assigned to the FHLB. Under the agreement, the Bank must maintain “eligible collateral” that has a “lending value” at least equal to the “required collateral amount,” all as defined by the agreement.
At year end 2008, and 2007, the Bank pledged securities with fair values of approximately $82.1 million and $46.6 million, respectively, against specific FHLB advances. In addition, qualifying mortgage loans of approximately $43.3 million, and $31.8 million were pledged as collateral at September 30, 2008 and 2007, respectively.
NOTE 10. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Securities sold under agreements to repurchase totaled approximately $5.3 million and $224,000 at September 30, 2008 and 2007, respectively.
An analysis of securities sold under agreements to repurchase follows:
September 30, |
| 2008 |
| 2007 |
| ||
|
| (Dollars in Thousands) |
| ||||
|
|
|
|
|
| ||
Highest month-end balance |
| $ | 51,439 |
| $ | 15,470 |
|
Average balance |
| 9,794 |
| 6,462 |
| ||
Weighted average interest rate for the year |
| 3.00 | % | 3.37 | % | ||
Weighted average interest rate at yearend |
| 1.23 | % | 5.16 | % | ||
25
The Company pledged securities with fair values of approximately $18.6 million at September 30, 2008, as collateral for securities sold under agreements to repurchase. There were no securities pledged as collateral for securities sold under agreements to repurchase at September 30, 2007.
NOTE 11. SUBORDINATED DEBENTURES AND TRUST PREFERRED SECURITIES
Subordinated debentures are due to First Midwest Financial Capital Trust I, a 100%-owned nonconsolidated subsidiary of the Company. The debentures were issued in 2001 in conjunction with the Trust’s issuance of 10,000 shares of Trust Preferred Securities. The debentures bear the same interest rate and terms as the trust preferred securities. The debentures are included on the balance sheet as liabilities.
The Company issued all of the 10,000 authorized shares of trust preferred securities of First Midwest Financial Capital Trust I holding solely subordinated debt securities. Distributions are paid semi-annually. Cumulative cash distributions are calculated at a variable rate of LIBOR (as defined) plus 3.75% (7.73% at September 30, 2008 and 9.06% at September 30, 2007), not to exceed 12.5%. The Company may, at one or more times, defer interest payments on the capital securities for up to 10 consecutive semi-annual periods, but not beyond July 25, 2031. At the end of any deferral period, all accumulated and unpaid distributions are required to be paid. The capital securities are required to be redeemed on July 25, 2031; however, the Company has the option to shorten the maturity date to a date not earlier than July 25, 2007. The redemption price is $1,000 per capital security plus any accrued and unpaid distributions to the date of redemption plus, if redeemed prior to July 25, 2011, a redemption premium as defined in the Indenture agreement.
Holders of the capital securities have no voting rights, are unsecured and rank junior in priority of payment to all of the Company’s indebtedness and senior to the Company’s common stock.
Although the securities issued by the trusts are not included as a component of shareholders’ equity, the securities are treated as capital for regulatory purposes, subject to certain limitations.
NOTE 12. EMPLOYEE STOCK OWNERSHIP AND PROFIT SHARING PLANS
The Company maintains an Employee Stock Ownership Plan (ESOP) for eligible employees who have 1,000 hours of employment with the Bank, have worked one year at the Bank and who have attained age 21. The ESOP has borrowed money from the Company to purchase shares of the Company’s common stock. Shares purchased by the ESOP are held in suspense for allocation among participants as the loan is repaid. ESOP expense of $375,000, $134,000 and $357,000 was recorded for the years ended September 30, 2008, 2007 and 2006, respectively. Contributions of $376,000, $132,000 and $316,000 were made to the ESOP during the years ended September 30, 2008, 2007 and 2006, respectively. During the year ended September 30, 2008 the ESOP made its final principal payment to the Company.
Contributions to the ESOP and shares released from suspense in an amount proportional to the repayment of the ESOP loan are allocated among ESOP participants on the basis of compensation in the year of allocation. Benefits generally become 100% vested after seven years of credited service. Prior to the completion of seven years of credited service, a participant who terminates employment for reasons other than death or disability receives a reduced benefit based on the ESOP’s vesting schedule. Forfeitures are reallocated among remaining participating employees in the same proportion as contributions. Benefits are payable in the form of stock upon termination of employment. The Company’s contributions to the ESOP are not fixed, so benefits payable under the ESOP cannot be estimated.
26
For the years ended September 30, 2008, 2007 and 2006, 16,562 shares, 5,750 shares and 14,500 shares with a fair value of $17.00, $39.85 and $24.60 per share, respectively, were released. Also for the years ended September 30, 2008, 2007 and 2006, allocated shares and total ESOP shares reflect 47,336 shares, 26,440 shares, and 11,332 shares, respectively, withdrawn from the ESOP by participants who are no longer with the Company or by participants diversifying their holdings and 1,265 shares, 3,521 shares, and 5,358 shares, respectively, purchased for dividend reinvestment.
Year-end ESOP shares are as follows:
September 30, |
| 2008 |
| 2007 |
| 2006 |
| |||
|
| (Dollars in Thousands) |
| |||||||
|
|
|
|
|
|
|
| |||
Allocated shares |
| 191,774 |
| 221,283 |
| 238,454 |
| |||
Unearned shares |
| — |
| 16,562 |
| 22,312 |
| |||
Total ESOP shares |
| 191,774 |
| 237,845 |
| 260,766 |
| |||
|
|
|
|
|
|
|
| |||
Fair value of unearned shares |
| $ | — |
| $ | 660 |
| $ | 549 |
|
The Company also has a profit sharing plan covering substantially all full-time employees. Contribution expense to the profit sharing plan, included in compensation and benefits, for the years ended September 30, 2008, 2007, and 2006 was $358,000, $311,000, and $322,000, respectively.
NOTE 13. SHARE BASED COMPENSATION PLANS
The Company maintains the 2002 Omnibus Incentive Plan which, among other things, provides for the awarding of stock options and nonvested (restricted) shares to certain officers and directors of the Company. Awards are granted by the Stock Option Committee of the Board of Directors based on the performance of the award recipients or other relevant factors.
The following table shows the effect to income, net of tax benefits, of share-based expense recorded in the years ended September 30, 2008, 2007 and 2006.
Year Ended September 30, |
| 2008 |
| 2007 |
| 2006 |
| |||
|
| (Dollars in Thousands) |
| |||||||
Total employee stock-based compensation expense recognized in income, net of tax effects of $191, $191 and $163, respectively |
| $ | 908 |
| $ | 926 |
| $ | 318 |
|
As of September 30, 2008, stock based compensation expense not yet recognized in income totaled $417,000 which is expected to be recognized over a weighted average remaining period of 1.04 years.
27
At grant date, the fair value of options awarded to recipients is estimated using a Black-Scholes valuation model. The exercise price of stock options equals the fair market value of the underlying stock at the date of grant. The following table shows the key valuation assumptions used for options granted during the years ended September 30, 2008, 2007, and 2006, and other information. Options are issued for 10 year periods with 100% vesting generally occurring either at grant date or over a four year period.
Year Ended September 30, |
| 2008 |
| 2007 |
| 2006 | |||
|
| (Dollars in Thousands, Except Share and Per Share Data) | |||||||
|
|
|
|
|
|
| |||
Risk-free interest rate |
| 3.37% - 4.36% |
| 4.46% - 5.14% |
| 4.40% - 5.09% | |||
|
|
|
|
|
|
| |||
Expected annual standard deviation |
|
|
|
|
|
| |||
Range |
| 19.36% - 33.46% |
| 19.52% - 19.72% |
| 19.46% - 20.60% | |||
Weighted average |
| 32.80% |
| 19.62% |
| 19.93% | |||
Expected life (years) |
| 7 |
| 7 |
| 7 | |||
|
|
|
|
|
|
| |||
Expected dividend yield |
|
|
|
|
|
| |||
Range |
| 1.34% - 3.25% |
| 1.25% - 1.77% |
| 2.13% - 2.55% | |||
Weighted average |
| 3.18% |
| 1.40% |
| 2.32% | |||
Weighted average fair value of options granted during period |
| $ | 4.55 |
| $ | 10.29 |
| $ | 5.51 |
Intrinsic value of options exercised during period |
| $ | 98 |
| $ | 1,486 |
| $ | 218 |
Although authorized under the Company’s 2002 Omnibus Incentive Plan, the Company had not, prior to fiscal year 2006, awarded nonvested (restricted) shares to employees or directors. The Company did award nonvested shares during the fiscal years ended 2008 and 2007. Shares vest immediately up to a period of four years. The following table shows the weighted average fair value of nonvested shares awarded and the total fair value of nonvested shares which vested during the fiscal years ended 2008 and 2007. The fair value is determined based on the fair market value of the Company’s stock on the grant date.
Year Ended September 30, |
| 2008 |
| 2007 |
| 2006 |
| |||
|
| (Dollars in Thousands, Except Share and Per Share Data) |
| |||||||
|
|
|
|
|
|
|
| |||
Weighted average fair value of nonvested shares granted during period |
| $ | 38.59 |
| $ | 39.84 |
| $ | 24.43 |
|
Total fair value of nonvested shares vested during period |
| $ | 41 |
| $ | 162 |
| $ | 90 |
|
In addition to the Company’s active 2002 Omnibus Incentive Plan, the Company also maintains the 1995 Stock Option and Incentive Plan. No new options were, or could have been, awarded under the 1995 plan during the year ended September 30, 2008; however, previously awarded but unexercised options were outstanding under this plan during the year.
28
The following tables shows the activity of options and nonvested shares granted, exercised, or forfeited under all of the Company’s option and incentive plans during the years ended September 30, 2008 and 2007.
|
|
|
|
|
| Weighted |
|
|
| ||
|
|
|
| Weighted |
| Average |
|
|
| ||
|
| Number |
| Average |
| Remaining |
| Aggregate |
| ||
|
| of |
| Exercise |
| Contractual |
| Intrinsic |
| ||
|
| Shares |
| Price |
| Term (Yrs) |
| Value |
| ||
|
| (Dollars in Thousands, Except Share and Per Share Data) |
| ||||||||
|
|
|
|
|
|
|
|
|
| ||
Options outstanding, September 30, 2007 |
| 424,269 |
| $ | 25.81 |
| 7.71 |
| $ | 5,971 |
|
Granted |
| 121,492 |
| 16.69 |
|
|
|
|
| ||
Exercised |
| (14,983 | ) | 20.74 |
|
|
|
|
| ||
Forfeited or expired |
| (16,450 | ) | 27.40 |
|
|
|
|
| ||
Options outstanding, September 30, 2008 |
| 514,328 |
| $ | 23.85 |
| 7.53 |
| $ | 329 |
|
|
|
|
|
|
|
|
|
|
| ||
Options exercisable end of year |
| 397,970 |
| $ | 22.21 |
| 7.47 |
| $ | 315 |
|
|
|
|
|
|
| Weighted |
|
|
| ||
|
|
|
| Weighted |
| Average |
|
|
| ||
|
| Number |
| Average |
| Remaining |
| Aggregate |
| ||
|
| of |
| Exercise |
| Contractual |
| Intrinsic |
| ||
|
| Shares |
| Price |
| Term (Yrs) |
| Value |
| ||
|
| (Dollars in Thousands, Except Share and Per Share Data) |
| ||||||||
|
|
|
|
|
|
|
|
|
| ||
Options outstanding, September 30, 2006 |
| 386,425 |
| $ | 19.79 |
| 6.65 |
| $ | 1,793 |
|
Granted |
| 128,168 |
| 37.62 |
|
|
|
|
| ||
Exercised |
| (88,824 | ) | 16.73 |
|
|
|
|
| ||
Forfeited or expired |
| (1,500 | ) | 23.26 |
|
|
|
|
| ||
Options outstanding, September 30, 2007 |
| 424,269 |
| $ | 25.81 |
| 7.71 |
| $ | 5,971 |
|
|
|
|
|
|
|
|
|
|
| ||
Options exercisable end of year |
| 266,819 |
| $ | 24.07 |
| 7.14 |
| $ | 4,207 |
|
29
|
| Number of |
| Weighted Average |
| |
|
| Shares |
| Fair Value At Grant |
| |
|
| (Dollars in Thousands, Except Share and Per Share Data) |
| |||
|
|
|
|
|
| |
Nonvested shares outstanding, September 30, 2007 |
| 6,666 |
| $ | 24.43 |
|
Granted |
| 10,000 |
| 38.59 |
| |
Vested |
| (1,666 | ) | 24.43 |
| |
Forfeited or expired |
| (2,500 | ) | 38.59 |
| |
Nonvested shares outstanding, September 30, 2008 |
| 12,500 |
| $ | 32.93 |
|
|
| Number of |
| Weighted Average |
| |
|
| Shares |
| Fair Value At Grant |
| |
|
| (Dollars in Thousands, Except Share and Per Share Data) |
| |||
|
|
|
|
|
| |
Nonvested shares outstanding, September 30, 2006 |
| 8,333 |
| $ | 24.43 |
|
Granted |
| 2,400 |
| 39.84 |
| |
Vested |
| (4,067 | ) | 33.52 |
| |
Forfeited or expired |
| — |
| — |
| |
Nonvested shares outstanding, September 30, 2007 |
| 6,666 |
| $ | 24.43 |
|
NOTE 14. INCOME TAXES
The Company and its subsidiaries file a consolidated federal income tax return on a fiscal year basis.
The provision for income taxes from continuing operations consists of:
Years ended September 30, |
| 2008 |
| 2007 |
| 2006 |
| |||
|
| (Dollars in Thousands) |
| |||||||
Federal: |
|
|
|
|
|
|
| |||
Current |
| $ | (329 | ) | $ | 405 |
| $ | 1,347 |
|
Deferred |
| (588 | ) | 644 |
| 20 |
| |||
|
| (917 | ) | 1,049 |
| 1,367 |
| |||
|
|
|
|
|
|
|
| |||
State: |
|
|
|
|
|
|
| |||
Current |
| (53 | ) | 78 |
| 293 |
| |||
Deferred |
| (32 | ) | 100 |
| 6 |
| |||
|
| (85 | ) | 178 |
| 299 |
| |||
|
|
|
|
|
|
|
| |||
Income tax expense (benefit) |
| $ | (1,002 | ) | $ | 1,227 |
| $ | 1,666 |
|
30
Total income tax expense (benefit) differs from the statutory federal income tax rate as follows:
Years ended September 30, |
| 2008 |
| 2007 |
| 2006 |
| |||
|
| (Dollars in Thousands) |
| |||||||
|
|
|
|
|
|
|
| |||
Income tax expense (benefit) at 35% federal tax rate |
| $ | (993 | ) | $ | 889 |
| $ | 1,766 |
|
Increase (decrease) resulting from: |
|
|
|
|
|
|
| |||
State income taxes net of federal benefit |
| (55 | ) | 89 |
| 163 |
| |||
Nontaxable buildup in cash surrender value |
| (174 | ) | (153 | ) | (194 | ) | |||
Incentive stock option expense |
| 203 |
| 191 |
| 61 |
| |||
Tax exempt income |
| (21 | ) | (5 | ) | (97 | ) | |||
Nondeductible expenses |
| 69 |
| 125 |
| 25 |
| |||
Other, net |
| (31 | ) | 91 |
| (58 | ) | |||
Total income tax expense (benefit) |
| $ | (1,002 | ) | $ | 1,227 |
| $ | 1,666 |
|
Year-end deferred tax assets and liabilities included in other assets consist of:
September 30, |
| 2008 |
| 2007 |
| ||
|
| (Dollars in Thousands) |
| ||||
Deferred tax assets: |
|
|
|
|
| ||
Bad debts |
| $ | 2,134 |
| $ | 1,688 |
|
Stock based compensation |
| 390 |
| 253 |
| ||
Net unrealized losses on securities available for sale |
| 2,988 |
| 1,883 |
| ||
Other, net |
| 340 |
| 101 |
| ||
|
| 5,852 |
| 3,925 |
| ||
|
|
|
|
|
| ||
Deferred tax liabilities: |
|
|
|
|
| ||
FHLB stock dividend |
| (444 | ) | (452 | ) | ||
Premises and equipment |
| (789 | ) | (588 | ) | ||
Deferred loan fees |
| (128 | ) | (118 | ) | ||
|
| (1,361 | ) | (1,158 | ) | ||
|
|
|
|
|
| ||
Net deferred tax assets |
| $ | 4,491 |
| $ | 2,767 |
|
Federal income tax laws provided savings banks with additional bad debt deductions through September 30, 1987 totaling $6.7 million for the Bank. Accounting standards do not require a deferred tax liability to be recorded on this amount, which liability otherwise would total approximately $2.3 million at September 30, 2008, and 2007. If the Bank were to be liquidated or otherwise cease to be a bank, or if tax laws were to change, the $2.3 million would be recorded as expense.
The Company adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN 48), on October 1, 2007. FIN 48 addresses the determination of how tax benefits claimed or expected to be claimed on a tax return should be recorded in the consolidated financial statements. Under FIN 48, the Company recognizes the tax benefits from an uncertain tax position only when it is more likely than not, based on the technical merits of the position, that the tax position will be sustained upon examination, including the resolution of any related appeals or litigation. The tax benefits recognized in the consolidated financial statements from such a position are measured as the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate resolution.
31
In addition, the Company is required to establish contingency reserves for material, known tax exposures. The Company’s tax reserves reflect management’s judgment as to the resolution of the issues involved if subject to judicial review. While the Company believes that its reserves are adequate to cover reasonably expected tax risks, there can be no assurance that, in all instances, an issue raised by a tax authority will be resolved at a financial cost that does not exceed its related reserve. With respect to these reserves, the Company’s income tax expense would include (i) any changes in tax reserves arising from material changes during the period in the facts and circumstances surrounding a tax issue, and (ii) any difference from the Company’s tax position as recorded in the financial statements and the final resolution of a tax issue during the period
Income tax returns for fiscal years 2005 thru 2007, with few exceptions, remain open to examination by federal and state taxing authorities. As a result of the implementation of FIN 48, the Company determined that no additional liability for unrecognized tax benefits and associated accrued interest and penalties existed at October 1, 2007. There have been no changes to this amount during fiscal 2008.
NOTE 15. CAPITAL REQUIREMENTS AND RESTRICTIONS ON RETAINED EARNINGS
MetaBank is the Company’s primary subsidiary. MetaBank is subject to various regulatory capital requirements. Failure to meet minimum capital requirements can initiate certain mandatory or discretionary actions by regulators that, if undertaken, could have a direct material effect on the financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, MetaBank must meet specific quantitative capital guidelines using their assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The requirements are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy require MetaBank to maintain minimum amounts and ratios (set forth in the table below) of total risk-based capital and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined), and a leverage ratio consisting of Tier I capital (as defined) to average assets (as defined). As of September 30, 2008, MetaBank met all capital adequacy requirements.
32
MetaBank and MetaBank West Central’s actual and required capital amounts and ratios are presented in the following table.
|
| Actual |
| Minimum Requirement For |
| Minimum Requirement To Be |
| |||||||||
(Dollars in Thousands) |
| Amount |
| Ratio |
| Amount |
| Ratio |
| Amount |
| Ratio |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
September 30, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
MetaBank |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Tangible capital (to tangible assets) |
| $ | 56,175 |
| 7.35 | % | $ | 11,469 |
| 1.50 | % | n/a |
| n/a |
| |
Tier 1 (core) capital (to adjusted total assets) |
| 56,175 |
| 7.35 |
| 30,583 |
| 4.00 |
| $ | 38,229 |
| 5.00 | % | ||
Tier 1 (core) capital (to risk-weighted assets) |
| 56,175 |
| 9.88 |
| 22,746 |
| 4.00 |
| 34,119 |
| 6.00 |
| |||
Total risk based capital (to risk weighted assets) |
| 61,907 |
| 10.89 |
| 45,492 |
| 8.00 |
| 56,865 |
| 10.00 |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
September 30, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
MetaBank |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Tangible capital (to tangible assets) |
| $ | 49,475 |
| 7.59 | % | $ | 9,773 |
| 1.50 | % | n/a |
| n/a |
| |
Tier 1 (core) capital (to adjusted total assets) |
| 49,475 |
| 7.59 |
| 26,062 |
| 4.00 |
| $ | 32,577 |
| 5.00 | % | ||
Tier 1 (core) capital (to risk-weighted assets) |
| 49,475 |
| 11.32 |
| 17,465 |
| 4.00 |
| 26,198 |
| 6.00 |
| |||
Total risk based capital (to risk weighted assets) |
| 52,770 |
| 12.08 |
| 34,931 |
| 8.00 |
| 43,663 |
| 10.00 |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
MetaBank West Central |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Tier 1 capital (to average assets) |
| 3,930 |
| 10.22 |
| 1,539 |
| 4.00 |
| 1,923 |
| 5.00 |
| |||
Tier 1 risk based capital (to risk weighted assets) |
| 3,930 |
| 19.16 |
| 820 |
| 4.00 |
| 1,230 |
| 6.00 |
| |||
Total risk based capital (to risk weighted assets) |
| 4,077 |
| 19.88 |
| 1,641 |
| 8.00 |
| 2,051 |
| 10.00 |
|
Regulations limit the amount of dividends and other capital distributions that may be paid by a financial institution without prior approval of its primary regulator. The regulatory restriction is based on a three-tiered system with the greatest flexibility being afforded to well-capitalized (Tier 1) institutions. MetaBank is currently a Tier 1 institution. Accordingly, MetaBank can make, without prior regulatory approval, distributions during a calendar year up to 100% of their retained net income for the calendar year-to-date plus retained net income for the previous two calendar years (less any dividends previously paid) as long as they remain well-capitalized, as defined in prompt corrective action regulations, following the proposed distribution. Accordingly, at September 30, 2008, approximately $535,000 of MetaBank’s retained earnings were potentially available for distribution to the Company.
NOTE 16. COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Bank makes various commitments to extend credit which are not reflected in the accompanying consolidated financial statements.
At September 30, 2008 and 2007, unfunded loan commitments approximated $57.4 million and $50.3 million respectively, excluding undisbursed portions of loans in process. Unfunded loan commitments at September 30, 2008 and 2007 were principally for variable rate loans. Commitments, which are disbursed subject to certain limitations, extend over various periods of time. Generally, unused commitments are canceled upon expiration of the commitment term as outlined in each individual contract.
The exposure to credit loss in the event of nonperformance by other parties to financial instruments for commitments to extend credit is represented by the contractual amount of those instruments. The same credit policies and collateral requirements are used in making commitments and conditional obligations as are used for on-balance-sheet instruments.
33
Since certain commitments to make loans and to fund lines of credit and loans in process expire without being used, the amount does not necessarily represent future cash commitments. In addition, commitments used to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract.
Securities with fair values of approximately $7.9 million and $24.1 million at September 30, 2008 and 2007, respectively, were pledged as collateral for public funds on deposit. Securities with fair values of approximately $6.5 million and $1.9 million at September 30, 2008 and 2007, respectively, were pledged as collateral for individual, trust and estate deposits.
Under employment agreements with certain executive officers, certain events leading to separation from the Company could result in cash payments totaling approximately $3.4 million as of September 30, 2008.
Legal Proceedings
MetaBank (“the Bank”) was named in several lawsuits relating to certain borrowers of the Bank, known as the Dan Nelson companies. All of these lawsuits have now been resolved.
The case of Chris Dengler, et al, v. Nelson Automotive Group, Inc., et al was recently resolved when the South Dakota Supreme Court dismissed the plaintiffs’ appeal of the lower court’s dismissal of the Bank. In the Circuit Court of South Dakota, County of Minnehaha, (Civ. No. 06-1106) a lawsuit was filed by a number of plaintiffs who had purchased vehicles from the Dan Nelson companies. This suit named the Bank and J. Tyler Haahr, together with a number of other defendants. The Bank, in conjunction with a group of participating banks, had provided a series of loans and lines of credit to Dan Nelson Auto Group (“DNAG”) and South Dakota Acceptance Corporation (“SDAC”). Plaintiffs allege that the defendants, including the Bank, “participated in the fraudulent scheme” by virtue of providing these lines of credit and loans despite being aware of the predatory consumer practices of the Nelson companies, and that MetaBank profited by receiving undisclosed “special benefits” for providing these loans. DNAG, SDAC and Dan Nelson have since filed for bankruptcy. Plaintiffs also allege that MetaBank did not vigorously pursue claims against Dan Nelson and fellow DNAG executive Chris Tapken in their respective personal bankruptcies in order to allow these individuals to emerge with control over assets of their former companies. After the Bank filed a Motion to Dismiss, the claims against J. Tyler Haahr personally and MetaBank were dismissed with prejudice on January 4, 2008. Plaintiffs appealed as to the dismissal of MetaBank only, to the South Dakota Supreme Court. The South Dakota Supreme Court dismissed the plaintiff’s appeal.
First Midwest Bank-Deerfield Branches, et al, v. MetaBank. U.S. District Court for the District of South Dakota, Southern Division (4:06-cv-4114). During the three months ended June 30, 2006 or shortly thereafter three banks filed lawsuits against MetaBank. An additional bank, North American Banking Company, joined these three bank plaintiffs in one consolidated federal lawsuit. These four Plaintiffs were participating lenders with MetaBank on a series of loans made to the Dan Nelson companies, including DNAG and SDAC. Plaintiffs alleged that they suffered damages as a result of MetaBank’s placement and administration of the loans that were the subject of the loan participation agreements. The complaints alleged breach of contract, negligence, gross negligence, negligent misrepresentation, fraud in the inducement, unjust enrichment and breach of fiduciary duty. All of these four cases have now been resolved through mediations which took place in July and August, 2008. Settlement agreements have been executed, and the cases have been dismissed. The Company’s insurance carrier has agreed to cover virtually all of the settlement amounts in three cases and paid for counsel to defend all four actions through discovery.
34
Home Federal Bank v. J. Tyler Haahr, Daniel A. Nelson and MetaBank (Civ. No. 06-2230). On June 26, 2006, Home Federal Bank filed suit against MetaBank and two individuals, J. Tyler Haahr and Daniel A. Nelson, in South Dakota’s Second Judicial Circuit Court, Minnehaha County. The complaint alleged that Home Federal, a participating lender with MetaBank on a series of loans made to DNAG and SDAC, suffered damages exceeding $3.8 million as a result of failure to make disclosures regarding an investigation of Dan Nelson, DNAG and SDAC by the Iowa Attorney General at the time Home Federal agreed to an extension of the loan participation agreements. After discovery was complete and a trial date scheduled, this case was successfully mediated and settled in Sioux Falls on October 2, 2008. A settlement agreement was signed on that date, and the case has now been dismissed. As a result of the Home Federal settlement, on a pro rated basis net of previously established reserves and insurance proceeds already collected, the net effect on the Registrant is a charge of $1.0 million. As a result of all these Dan Nelson settlements, the Company recorded a final charge of approximately $2.1 million ($1.3 million after taxes), including legal expenses and after insurance claims and reserves are accounted for.
In an unrelated suit, First Federal Bank Littlefield Texas ssb, formerly known as, First Federal Savings and Loan Association, Littlefield, Texas v. MetaBank, formerly known as First Federal Savings Bank of the Midwest, filed in the 154th Judicial District Court of Lamb County (Cause No. 17435); The Frost National Bank v. MetaBank and Meta Financial Group, Inc., filed in the United States District Court for the Northern District of Texas (Cause No. 3:08-CV-625-M). On April 3, 2008, First Federal Bank filed suit against MetaBank in Texas State Court in Lubbock seeking recovery of a purported MetaBank certificate of deposit (CD) that it claims it purchased. On April 11, 2008, Frost National Bank filed suit against MetaBank in the United States District Court for the District of Texas seeking a similar recovery. On June 25, 2008, an action was filed in the 95th Judicial District Court for Dallas County, Texas entitled Methodist Hospitals of Dallas v MetaBank and Meta Financial Group seeking recovery of a purported MetaBank CD purchased in May, 2001. Additionally, on July 14, 2008, a class action complaint was filed in the United States District Court for the District of New Hampshire entitled Guardian Angel Credit Union v MetaBank (Cause No. 08-CV-261-PB) and was filed on behalf of Guardian Angel Credit Union and all other CD purchasers similarly situated, to recover funds in connection with purported MetaBank CDs. Further, on November 18, 2008, Coreplus Federal Credit Union (Cause No. 3.08 cv 1763 AVC) filed a civil action in the Superior Court for New London County in the state of Connecticut seeking recovery of funds connected to a purported MetaBank CD. Earlier, MetaBank had been contacted by another institution, but could find no record of the CD it had allegedly purchased, and commenced an investigation. As a result of that investigation, it now appears that a former MetaBank employee had been selling fraudulent CDs, using MetaBank’s name and standard form of CD, to various financial institutions through an independent broker and instructing purchasers to wire the purchase money into one of a number of false accounts she had created at MetaBank. The Bank continues to receive a number of demands from purchasers of these fraudulent CDs in addition to the lawsuits listed above. All evidence currently available indicates that the former employee ran this fraud for her own benefit and regularly took money from the MetaBank accounts to which the purchase monies had been wired. As a result of the interruption of this fraud, there are some $4.2 million of bogus CDs still outstanding to various financial institutions. As the former employee was apparently using the funds of new victims to pay off the previous victims of her scheme, it does not appear at this time that she stole any Bank money as part of this fraud. MetaBank therefore does not appear at this time to have suffered any direct loss as a result of the fraud, but it may suffer a loss to the extent it is exposed to liability for claims such as these. There are unresolved questions as whether, under what theory and to what degree the Bank might be liable for the former employee’s actions. At this time, MetaBank’s insurer has agreed to provide a defense to the two litigations in Texas under a reservation of rights.
Other than the matters set forth above, there are no other material pending legal proceedings to which the Company or its subsidiaries is a party other than ordinary routine litigation to their respective businesses.
35
NOTE 17. LEASE COMMITMENTS
The Company has leased property under various noncancelable operating lease agreements which expire at various times through 2024, and require annual rentals ranging from $6,000 to $821,000 plus the payment of the property taxes, normal maintenance, and insurance on certain property.
The following table shows the total minimum rental commitment at September 30, 2008, under the leases.
September 30, |
|
|
| |
(Dollars in Thousands) |
|
|
| |
|
|
|
| |
2009 |
| $ | 1,642 |
|
2010 |
| 1,574 |
| |
2011 |
| 1,494 |
| |
2012 |
| 1,497 |
| |
2013 |
| 1,238 |
| |
Thereafter |
| 4,593 |
| |
Total Leases Commitments |
| $ | 12,038 |
|
NOTE 18. SEGMENT REPORTING
An operating segment is generally defined as a component of a business for which discrete financial information is available and whose results are reviewed by the chief operating decision-maker. Operating segments are aggregated into reportable segments if certain criteria are met. The Company has determined that it has two reportable segments. The first reportable segment, Traditional Banking, is part of its banking subsidiary, MetaBank. MetaBank operates as a traditional community bank providing deposit, loan and other related products to individuals and small businesses, primarily in the communities where their offices are located. The second reportable segment, Meta Payment Systems® (“MPS”), is a division of MetaBank. MPS provides a number of products and services, to financial institutions and other businesses. These products and services include issuance of prepaid debit cards, sponsorship of ATMs into the debit networks, credit programs, ACH origination services, gift card programs, rebate programs, travel programs, and tax related programs. Other programs are in the process of development. The remaining grouping under the caption “All Others” consists of the operations of Meta Financial Group, Inc. and Meta Trust Company® and inter-segment eliminations. MetaBank WC is accounted for as discontinued bank operations. It was previously reported as part of the traditional banking segment, and has been separately classified to show the effect of continuing operations.
Fiscal year 2006 results for net interest income and non-interest expenses have been restated to be consistent with the fiscal year 2007 adoption of new deposit valuation and expense allocation methodologies between the Traditional Banking Segment, the Holding Company, and MPS. The primary result of this change in allocation was to increase the earnings credit paid by the bank for deposits originated within the MPS division and also to allocate a higher portion of expenses to MPS based on growth in departments which provide administration support to MPS.
Transactions between affiliates, the resulting revenues of which are shown in the intersegment revenue category, are conducted at market prices, meaning prices that would be paid if the companies were not affiliates.
36
|
| Traditional Banking |
| Meta Payment Systems® |
| All Others |
| Total |
| ||||
|
| (Dollars in Thousands) |
| ||||||||||
Year Ended September 30, 2008 |
|
|
|
|
|
|
|
|
| ||||
Net interest income (loss) |
| $ | 13,177 |
| $ | 11,529 |
| $ | (703 | ) | $ | 24,003 |
|
Provision for loan losses |
| 2,715 |
| — |
| — |
| 2,715 |
| ||||
Non-interest income |
| 2,723 |
| 34,821 |
| 152 |
| 37,696 |
| ||||
Non-interest expense |
| 19,975 |
| 41,387 |
| 458 |
| 61,820 |
| ||||
Income (loss) from continuing operations before tax |
| (6,790 | ) | 4,963 |
| (1,009 | ) | (2,836 | ) | ||||
Income tax expense (benefit) |
| (2,557 | ) | 1,707 |
| (152 | ) | (1,002 | ) | ||||
Income (loss) from continuing operations |
| $ | (4,233 | ) | $ | 3,256 |
| $ | (857 | ) | $ | (1,834 | ) |
|
|
|
|
|
|
|
|
|
| ||||
Inter-segment revenue (expense) |
| $ | 6,124 |
| $ | (6,124 | ) | $ | — |
| $ | — |
|
Total assets |
| 405,044 |
| 349,312 |
| 2,900 |
| 757,256 |
| ||||
Total deposits |
| 216,224 |
| 330,977 |
| (1,229 | ) | 545,972 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Discontinued Operations-Traditional Banking |
|
|
|
|
|
|
|
|
| ||||
Net interest income |
| $ | 261 |
|
|
|
|
|
|
| |||
Provision for loan losses |
| (57 | ) |
|
|
|
|
|
| ||||
Non-interest income |
| 2,441 |
|
|
|
|
|
|
| ||||
Non-interest expense |
| 374 |
|
|
|
|
|
|
| ||||
Income from discontinued operations before tax |
| 2,385 |
|
|
|
|
|
|
| ||||
Income tax (expense) |
| 500 |
|
|
|
|
|
|
| ||||
Income from discontinued operations |
| $ | 1,885 |
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
|
|
| ||||
Inter-segment revenue |
| $ | 175 |
|
|
|
|
|
|
| |||
Total assets |
| — |
|
|
|
|
|
|
| ||||
Total deposits |
| — |
|
|
|
|
|
|
|
|
| Traditional Banking |
| Meta Payment Systems® |
| All Others |
| Total |
| ||||
|
| (Dollars in Thousands) |
| ||||||||||
Year Ended September 30, 2007 |
|
|
|
|
|
|
|
|
| ||||
Net interest income (loss) |
| $ | 10,967 |
| $ | 10,748 |
| $ | (908 | ) | $ | 20,807 |
|
Provision for loan losses |
| 3,168 |
| — |
| — |
| 3,168 |
| ||||
Non-interest income |
| 5,956 |
| 15,576 |
| 326 |
| 21,858 |
| ||||
Non-interest expense |
| 15,476 |
| 21,128 |
| 354 |
| 36,958 |
| ||||
Income (loss) from continuing operations before tax |
| (1,721 | ) | 5,196 |
| (936 | ) | 2,539 |
| ||||
Income tax expense (benefit) |
| (512 | ) | 1,862 |
| (123 | ) | 1,227 |
| ||||
Income (loss) from continuing operations |
| $ | (1,209 | ) | $ | 3,334 |
| $ | (813 | ) | $ | 1,312 |
|
|
|
|
|
|
|
|
|
|
| ||||
Inter-segment revenue (expense) |
| $ | 6,119 |
| $ | (6,119 | ) | $ | — |
| $ | — |
|
Total assets |
| 391,416 |
| 254,643 |
| 4,251 |
| 650,310 |
| ||||
Total deposits |
| 280,076 |
| 242,902 |
| — |
| 522,978 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Discontinued Operations-Traditional Banking |
|
|
|
|
|
|
|
|
| ||||
Net interest income |
| $ | 916 |
|
|
|
|
|
|
| |||
Provision for loan losses |
| 627 |
|
|
|
|
|
|
| ||||
Non-interest income |
| 216 |
|
|
|
|
|
|
| ||||
Non-interest expense |
| 899 |
|
|
|
|
|
|
| ||||
(Loss) from discontinued operations before tax |
| (394 | ) |
|
|
|
|
|
| ||||
Income tax (benefit) |
| (253 | ) |
|
|
|
|
|
| ||||
(Loss) from discontinued operations |
| $ | (141 | ) |
|
|
|
|
|
| |||
|
|
|
|
|
|
|
|
|
| ||||
Inter-segment revenue (expense) |
| $ | — |
|
|
|
|
|
|
| |||
Total assets |
| 35,770 |
|
|
|
|
|
|
| ||||
Total deposits |
| 24,610 |
|
|
|
|
|
|
|
37
|
| Traditional Banking |
| Meta Payment Systems® |
| All Others |
| Total |
| ||||
|
| (Dollars in Thousands) |
| ||||||||||
Year Ended September 30, 2006 |
|
|
|
|
|
|
|
|
| ||||
Net interest income (loss) |
| $ | 13,082 |
| $ | 5,673 |
| $ | (254 | ) | $ | 18,501 |
|
Provision for loan losses |
| 311 |
| — |
| — |
| 311 |
| ||||
Non-interest income |
| 2,326 |
| 11,066 |
| 103 |
| 13,495 |
| ||||
Non-interest expense |
| 15,068 |
| 11,234 |
| 338 |
| 26,640 |
| ||||
Income (loss) from continuing operations before tax |
| 29 |
| 5,505 |
| (489 | ) | 5,045 |
| ||||
Income tax expense (benefit) |
| (175 | ) | 1,958 |
| (117 | ) | 1,666 |
| ||||
Income (loss) from continuing operations |
| $ | 204 |
| $ | 3,547 |
| $ | (372 | ) | $ | 3,379 |
|
|
|
|
|
|
|
|
|
|
| ||||
Inter-segment revenue (expense) |
| $ | 3,406 |
| $ | (3,406 | ) | $ | — |
| $ | — |
|
Total assets |
| 530,649 |
| 166,883 |
| 3,091 |
| 700,623 |
| ||||
Total deposits |
| 375,377 |
| 162,792 |
| — |
| 538,169 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Discontinued Operations-Traditional Banking |
|
|
|
|
|
|
|
|
| ||||
Net interest income |
| $ | 1,135 |
|
|
|
|
|
|
| |||
Provision for loan losses |
| (76 | ) |
|
|
|
|
|
| ||||
Non-interest income |
| 233 |
|
|
|
|
|
|
| ||||
Non-interest expense |
| 986 |
|
|
|
|
|
|
| ||||
Income from discontinued operations before tax |
| 458 |
|
|
|
|
|
|
| ||||
Income tax expense |
| 149 |
|
|
|
|
|
|
| ||||
Income from discontinued operations |
| $ | 309 |
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
|
|
| ||||
Inter-segment revenue (expense) |
| $ | — |
|
|
|
|
|
|
| |||
Total assets |
| 40,298 |
|
|
|
|
|
|
| ||||
Total deposits |
| 27,220 |
|
|
|
|
|
|
|
38
NOTE 19. PARENT COMPANY FINANCIAL STATEMENTS
Presented below are condensed financial statements for the parent company, Meta Financial Group, Inc.
CONDENSED STATEMENTS OF FINANCIAL CONDITION
September 30, |
| 2008 |
| 2007 |
| ||
|
| (Dollars in Thousands) |
| ||||
ASSETS |
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 2,096 |
| $ | 2,211 |
|
Securities available for sale |
| 950 |
| 1,173 |
| ||
Investment in subsidiaries |
| 53,625 |
| 53,623 |
| ||
Loan receivable from ESOP |
| — |
| 376 |
| ||
Other assets |
| 1,079 |
| 2,224 |
| ||
Total assets |
| $ | 57,750 |
| $ | 59,607 |
|
|
|
|
|
|
| ||
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
|
| ||
|
|
|
|
|
| ||
LIABILITIES |
|
|
|
|
| ||
Loan payable to subsidiaries |
| $ | 500 |
| $ | 710 |
|
Subordinated debentures |
| 10,310 |
| 10,310 |
| ||
Other liabilities |
| 133 |
| 489 |
| ||
Total liabilities |
| $ | 10,943 |
| $ | 11,509 |
|
|
|
|
|
|
| ||
SHAREHOLDERS’ EQUITY |
|
|
|
|
| ||
Common stock |
| 30 |
| 30 |
| ||
Additional paid-in capital |
| 23,058 |
| 21,958 |
| ||
Retained earnings |
| 35,516 |
| 36,805 |
| ||
Accumulated other comprehensive (loss) |
| (5,022 | ) | (3,345 | ) | ||
Unearned Employee Stock Ownership Plan shares |
| — |
| (377 | ) | ||
Treasury stock, at cost |
| (6,775 | ) | (6,973 | ) | ||
Total shareholders’ equity |
| $ | 46,807 |
| $ | 48,098 |
|
Total liabilities and shareholders’ equity |
| $ | 57,750 |
| $ | 59,607 |
|
39
CONDENSED STATEMENTS OF OPERATIONS
Years ended September 30, |
| 2008 |
| 2007 |
| 2006 |
| |||
|
| (Dollars in Thousands) |
| |||||||
|
|
|
|
|
|
|
| |||
Dividend income from subsidiaries |
| $ | — |
| $ | 1,250 |
| $ | 3,700 |
|
Gain on sale of securities available for sale |
| — |
| 225 |
| — |
| |||
Gain on sale of commercial bank subsidiary |
| 2,309 |
| — |
| — |
| |||
Other income |
| 156 |
| 125 |
| 191 |
| |||
Total income |
| 2,465 |
| 1,600 |
| 3,891 |
| |||
|
|
|
|
|
|
|
| |||
Interest expense |
| 841 |
| 1,033 |
| 936 |
| |||
Other expense |
| 276 |
| 146 |
| 1,956 |
| |||
Total expense |
| 1,117 |
| 1,179 |
| 2,892 |
| |||
|
|
|
|
|
|
|
| |||
Income (loss) before income taxes and equity in undistributed net income of subsidiaries |
| 1,348 |
| 421 |
| 998 |
| |||
|
|
|
|
|
|
|
| |||
Income tax (benefit) |
| 341 |
| (87 | ) | (835 | ) | |||
|
|
|
|
|
|
|
| |||
Income before equity in undistributed net income (loss) of subsidiaries |
| 1,007 |
| 508 |
| 1,833 |
| |||
|
|
|
|
|
|
|
| |||
Equity in undistributed net income (loss) of subsidiaries |
| (956 | ) | 663 |
| 1,855 |
| |||
|
|
|
|
|
|
|
| |||
Net income |
| $ | 51 |
| $ | 1,171 |
| $ | 3,688 |
|
CONDENSED STATEMENTS OF CASH FLOWS
For the Years Ended September 30, |
| 2008 |
| 2007 |
| 2006 |
| |||
|
| (Dollars in Thousands) |
| |||||||
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
|
|
| |||
Net income |
| $ | 51 |
| $ | 1,171 |
| $ | 3,688 |
|
Adjustments to reconcile net income to net cash provided by operating activites |
|
|
|
|
|
|
| |||
Equity in undistributed net (income) loss of subsidiaries |
| 956 |
| (663 | ) | (1,855 | ) | |||
(Gain) on sale of securities available for sale |
| — |
| (225 | ) | — |
| |||
Change in other assets |
| 1,145 |
| (1,605 | ) | 574 |
| |||
Change in other liabilities |
| (693 | ) | 1,764 |
| 244 |
| |||
Other, net |
| 575 |
| — |
| — |
| |||
Net cash provided by operating activities |
| 2,034 |
| 442 |
| 2,652 |
| |||
|
|
|
|
|
|
|
| |||
CASH FLOWS FROM INVESTING ACTIVITES |
|
|
|
|
|
|
| |||
Investment in subsidiary |
| (2,298 | ) | (100 | ) | (75 | ) | |||
Maturity of securities available for sale |
| — |
| — |
| 500 |
| |||
Proceeds from the sale of securities available for sale |
| — |
| 727 |
| — |
| |||
Repayments on loan receivable from ESOP |
| 376 |
| 133 |
| 316 |
| |||
Other, net |
| 223 |
| — |
| — |
| |||
Net cash (used in) provided by investing activites |
| (1,699 | ) | 760 |
| 741 |
| |||
|
|
|
|
|
|
|
| |||
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
|
|
| |||
Net change in loan payable to subsidiaries |
| (210 | ) | — |
| (490 | ) | |||
Cash dividends paid |
| (1,340 | ) | (1,319 | ) | (1,292 | ) | |||
Proceeds from exercise of stock options |
| 199 |
| 479 |
| 187 |
| |||
Other, net |
| 901 |
| — |
| — |
| |||
Net cash (used in) financing activities |
| (450 | ) | (840 | ) | (1,595 | ) | |||
|
|
|
|
|
|
|
| |||
Net change in cash and cash equivalents |
| $ | (115 | ) | $ | 362 |
| $ | 1,798 |
|
|
|
|
|
|
|
|
| |||
CASH AND CASH EQUIVALENTS |
|
|
|
|
|
|
| |||
Beginning of year |
| $ | 2,211 |
| $ | 1,849 |
| $ | 51 |
|
End of year |
| 2,096 |
| 2,211 |
| 1,849 |
|
40
The extent to which the Company may pay cash dividends to shareholders will depend on the cash currently available at the Company, as well as the ability of the Bank to pay dividends to the Company.
NOTE 20. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
|
| QUARTER ENDED |
| ||||||||||
|
| December 31 |
| March 31 |
| June 30 |
| September 30 |
| ||||
|
| (Dollars in Thousands) |
| ||||||||||
Fiscal Year 2008 |
|
|
|
|
|
|
|
|
| ||||
Interest income |
| $ | 8,899 |
| $ | 9,895 |
| $ | 9,171 |
| $ | 9,453 |
|
Interest expense |
| 3,625 |
| 3,679 |
| 3,180 |
| 2,931 |
| ||||
Net interest income |
| 5,274 |
| 6,216 |
| 5,991 |
| 6,522 |
| ||||
Provision for loan losses |
| (130 | ) | 200 |
| 125 |
| 2,520 |
| ||||
Net income (loss) from continuing operations |
| (790 | ) | 1,203 |
| (410 | ) | (1,837 | ) | ||||
Income (loss) from discontinued operations |
| 50 |
| 1,835 |
| 0 |
| 0 |
| ||||
Net income (loss) |
| (740 | ) | 3,038 |
| (410 | ) | (1,837 | ) | ||||
Earnings (loss) per common and common equivalent share - basic |
|
|
|
|
|
|
|
|
| ||||
Income (loss) from continuing operations |
| $ | (0.31 | ) | $ | 0.47 |
| $ | (0.16 | ) | $ | (0.71 | ) |
Income (loss) from discontinued operations |
| 0.02 |
| 0.71 |
| — |
| — |
| ||||
Net income (loss) |
| (0.29 | ) | 1.18 |
| (0.16 | ) | (0.71 | ) | ||||
Earnings (loss) per common and common equivalent share - diluted |
|
|
|
|
|
|
|
|
| ||||
Income (loss) from continuing operations |
| (0.31 | ) | 0.46 |
| (0.16 | ) | (0.71 | ) | ||||
Income (loss) from discontinued operations |
| 0.02 |
| 0.70 |
| — |
| — |
| ||||
Net income (loss) |
| (0.29 | ) | 1.16 |
| (0.16 | ) | (0.71 | ) | ||||
Dividend declared per share |
| 0.13 |
| 0.13 |
| 0.13 |
| 0.13 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Fiscal Year 2007 |
|
|
|
|
|
|
|
|
| ||||
Interest income |
| $ | 9,783 |
| $ | 9,720 |
| $ | 8,933 |
| $ | 9,338 |
|
Interest expense |
| 4,792 |
| 4,277 |
| 4,058 |
| 3,840 |
| ||||
Net interest income |
| 4,991 |
| 5,443 |
| 4,875 |
| 5,498 |
| ||||
Provision for loan losses |
| 4,063 |
| (225 | ) | (500 | ) | (170 | ) | ||||
Net income (loss) from continuing operations |
| (2,296 | ) | 620 |
| 2,234 |
| 754 |
| ||||
Income (loss) from discontinued operations |
| (408 | ) | 115 |
| 330 |
| (178 | ) | ||||
Net income (loss) |
| (2,704 | ) | 735 |
| 2,564 |
| 576 |
| ||||
Earnings (loss) per common and common equivalent share - basic |
|
|
|
|
|
|
|
|
| ||||
Income (loss) from continuing operations |
| $ | (0.92 | ) | $ | 0.25 |
| $ | 0.88 |
| $ | 0.29 |
|
Income (loss) from discontinued operations |
| (0.16 | ) | 0.04 |
| 0.13 |
| (0.07 | ) | ||||
Net income (loss) |
| (1.08 | ) | 0.29 |
| 1.01 |
| 0.22 |
| ||||
Earnings (loss) per common and common equivalent share - diluted |
|
|
|
|
|
|
|
|
| ||||
Income (loss) from continuing operations |
| (0.92 | ) | 0.24 |
| 0.84 |
| 0.28 |
| ||||
Income (loss) from discontinued operations |
| (0.16 | ) | 0.04 |
| 0.12 |
| (0.07 | ) | ||||
Net income (loss) |
| (1.08 | ) | 0.28 |
| 0.96 |
| 0.21 |
| ||||
Dividend declared per share |
| 0.13 |
| 0.13 |
| 0.13 |
| 0.13 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Fiscal Year 2006 |
|
|
|
|
|
|
|
|
| ||||
Interest income |
| $ | 9,550 |
| $ | 9,569 |
| $ | 9,439 |
| $ | 9,554 |
|
Interest expense |
| 5,116 |
| 4,873 |
| 4,858 |
| 4,764 |
| ||||
Net interest income |
| 4,434 |
| 4,696 |
| 4,581 |
| 4,790 |
| ||||
Provision for loan losses |
| 58 |
| (345 | ) | 28 |
| 570 |
| ||||
Net income from continuing operations |
| 401 |
| 193 |
| 2,135 |
| 650 |
| ||||
Income (loss) from discontinued operations |
| 114 |
| 68 |
| 348 |
| (221 | ) | ||||
Net income |
| 515 |
| 261 |
| 2,483 |
| 429 |
| ||||
Earnings (loss) per common and common equivalent share - basic |
|
|
|
|
|
|
|
|
| ||||
Income from continuing operations |
| $ | 0.16 |
| $ | 0.08 |
| $ | 0.86 |
| $ | 0.26 |
|
Income (loss) from discontinued operations |
| 0.05 |
| 0.03 |
| 0.14 |
| (0.09 | ) | ||||
Net income |
| 0.21 |
| 0.10 |
| 1.00 |
| 0.17 |
| ||||
Earnings (loss) per common and common equivalent share - diluted |
|
|
|
|
|
|
|
|
| ||||
Income from continuing operations |
| 0.16 |
| 0.07 |
| 0.84 |
| 0.26 |
| ||||
Income (loss) from discontinued operations |
| 0.05 |
| 0.03 |
| 0.14 |
| (0.09 | ) | ||||
Net income |
| 0.21 |
| 0.10 |
| 0.98 |
| 0.17 |
| ||||
Dividend declared per share |
| 0.13 |
| 0.13 |
| 0.13 |
| 0.13 |
|
41
NOTE 21. FAIR VALUES OF FINANCIAL INSTRUMENTS
The following table discloses the Company’s estimated fair value amounts of its financial instruments. It is management’s belief that the fair values presented below are reasonable based on the valuation techniques and data available to the Company as of September 30, 2008 and 2007, as more fully described below. The operations of the Company are managed from a going concern basis and not a liquidation basis. As a result, the ultimate value realized for the financial instruments presented could be substantially different when actually recognized over time through the normal course of operations. Additionally, a substantial portion of the Company’s inherent value is the Banks’ capitalization and franchise value. Neither of these components have been given consideration in the presentation of fair values below.
The following presents the carrying amount and estimated fair value of the financial instruments held by the Company at September 30, 2008 and 2007. The information presented is subject to change over time based on a variety of factors.
|
| 2008 |
| 2007 |
| ||||||||
September 30, |
| Carrying Amount |
| Estimated Fair Value |
| Carrying Amount |
| Estimated Fair Value |
| ||||
|
| (Dollars in Thousands) |
| ||||||||||
|
|
|
|
|
|
|
|
|
| ||||
Financial assets |
|
|
|
|
|
|
|
|
| ||||
Cash and cash equivalents |
| $ | 2,963 |
| $ | 2,963 |
| $ | 11,320 |
| $ | 11,320 |
|
Federal funds sold |
| 5,188 |
| 5,188 |
| 75,000 |
| 75,000 |
| ||||
Securities available for sale |
| 203,834 |
| 203,834 |
| 158,701 |
| 158,701 |
| ||||
Loans receivable, net |
| 427,928 |
| 426,527 |
| 355,612 |
| 354,489 |
| ||||
FHLB stock |
| 8,092 |
| 8,092 |
| 4,015 |
| 4,015 |
| ||||
Accrued interest receivable |
| 4,497 |
| 4,497 |
| 4,189 |
| 4,189 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Financial liabilities |
|
|
|
|
|
|
|
|
| ||||
Noninterest bearing demand deposits |
| 355,020 |
| 355,020 |
| 260,098 |
| 260,098 |
| ||||
Interest bearing demand deposits, savings, and money markets |
| 67,461 |
| 67,461 |
| 106,157 |
| 106,157 |
| ||||
Certificates of deposit |
| 123,491 |
| 124,808 |
| 156,723 |
| 156,980 |
| ||||
Total deposits |
| 545,972 |
| 547,289 |
| 522,978 |
| 523,235 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Advances from FHLB |
| 132,025 |
| 134,558 |
| 68,000 |
| 69,873 |
| ||||
Securities sold under agreements to repurchase |
| 5,348 |
| 5,348 |
| 224 |
| 224 |
| ||||
Subordinated debentures |
| 10,310 |
| 17,834 |
| 10,310 |
| 12,574 |
| ||||
Accrued interest payable |
| 578 |
| 578 |
| 842 |
| 842 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Off-balance-sheet instruments, loan commitments |
| — |
| — |
| — |
| — |
| ||||
The following sets forth the methods and assumptions used in determining the fair value estimates for the Company’s financial instruments at September 30, 2008 and 2007.
CASH AND CASH EQUIVALENTS
The carrying amount of cash and short-term investments is assumed to approximate the fair value.
SECURITIES PURCHASED UNDER AGREEMENT TO RESELL
The carrying amount of securities purchased under agreement to resell is assumed to approximate the fair value.
42
SECURITIES AVAILABLE FOR SALE
To the extent available, quoted market prices or dealer quotes were used to determine the fair value of securities available for sale. For those securities which are thinly traded, or for which market data was not available, management estimated fair value using other available data. The amount of securities for which quoted market prices were not available is not material to the portfolio as a whole.
LOANS RECEIVABLE, NET
The fair value of loans was estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for similar remaining maturities. When using the discounting method to determine fair value, loans were gathered by homogeneous groups with similar terms and conditions and discounted at a target rate at which similar loans would be made to borrowers as of September 30, 2008 and 2007. In addition, when computing the estimated fair value for all loans, allowances for loan losses have been subtracted from the calculated fair value for consideration of credit quality.
FHLB STOCK
The fair value of such stock is assumed to approximate book value since the Company is generally able to redeem this stock at par value.
ACCRUED INTEREST RECEIVABLE
The carrying amount of accrued interest receivable is assumed to approximate the fair value.
DEPOSITS
The carrying values of non-interest bearing checking deposits, interest bearing checking deposits, savings, and money markets is assumed to approximate fair value, since such deposits are immediately withdrawable without penalty. The fair value of time certificates of deposit was estimated by discounting expected future cash flows by the current rates offered on certificates of deposit with similar remaining maturities.
In accordance with SFAS No. 107, no value has been assigned to the Company’s long-term relationships with its deposit customers (core value of deposits intangible) since such intangible is not a financial instrument as defined under SFAS No. 107.
ADVANCES FROM FHLB
The fair value of such advances was estimated by discounting the expected future cash flows using current interest rates as of September 30, 2008 and 2007 for advances with similar terms and remaining maturities.
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE AND SUBORDINATED DEBENTURES
The fair value of these instruments was estimated by discounting the expected future cash flows using derived interest rates approximating market as of September 30, 2008 and 2007 over the contractual maturity of such borrowings.
ACCRUED INTEREST PAYABLE
The carrying amount of accrued interest payable is assumed to approximate the fair value.
LOAN COMMITMENTS
The commitments to originate and purchase loans have terms that are consistent with current market terms. Accordingly, the Company estimates that the fair values of these commitments are not significant.
43
LIMITATIONS
It must be noted that fair value estimates are made at a specific point in time, based on relevant market information about the financial instrument. Additionally, fair value estimates are based on existing on- and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business, customer relationships and the value of assets and liabilities that are not considered financial instruments. These estimates do not reflect any premium or discount that could result from offering the Company’s entire holdings of a particular financial instrument for sale at one time. Furthermore, since no market exists for certain of the Company’s financial instruments, fair value estimates may be based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with a high level of precision. Changes in assumptions as well as tax considerations could significantly affect the estimates. Accordingly, based on the limitations described above, the aggregate fair value estimates are not intended to represent the underlying value of the Company, on either a going concern or a liquidation basis.
44
PART IV
Item 15. Exhibits and Financial Statement Schedules
The following is a list of documents filed as part of this report:
(a) Financial Statements:
The following financial statements are included under Part II, Item 8 of this Annual Report on Form 10-K:
1. �� Report of Independent Registered Public Accounting Firm – Successor Firm.
2. Report of Independent Registered Public Accounting Firm – Predecessor Firm.
3. Consolidated Statements of Financial Condition as of September 30, 2008 and 2007.
4. Consolidated Statements of Operations for the Years Ended September 30, 2008, 2007, and 2006.
5. Consolidated Statements of Comprehensive Income (Loss) for the Years ended September 30, 2008, 2007, and 2006.
6. Consolidated Statements of Changes in Shareholders’ Equity for the Years Ended September 30, 2008, 2007, and 2006.
7. Consolidated Statements of Cash Flows for the Years Ended September 30, 2008, 2007, and 2006.
8. Notes to Consolidated Financial Statements.
(b) Exhibits:
See Index of Exhibits.
(c) Financial Statement Schedules:
All financial statement schedules have been omitted as the information is not required under the related instructions or is inapplicable.
45
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Amendment to be signed on its behalf by the undersigned, thereunto duly authorized.
| META FINANCIAL GROUP, INC. | |
|
| |
Date: March 10, 2009 | By: | /s/ J. Tyler Haahr |
|
| Chief Executive Officer |
46
INDEX TO EXHIBITS
Exhibit |
| Description |
|
|
|
3(i) |
| Registrant’s Articles of Incorporation as currently in effect, filed on June 17, 1993 as an exhibit to the Registrant’s registration statement on Form S-1 (Commission File No. 33-64654), is incorporated herein by reference. |
|
|
|
3(ii) |
| Registrant’s Bylaws, as amended and restated, was filed as Exhibit 3(ii) to the Registrant’s Report on Form 10-K for the fiscal year ended September 30, 2008 on December 12, 2008 (Commission File No. 0-22140). |
|
|
|
4 |
| Registrant’s Specimen Stock Certificate, filed on June 17, 1993 as an exhibit to the Registrant’s registration statement on Form S-1 (Commission File No. 33-64654), is incorporated herein by reference. |
|
|
|
10.1 |
| Registrant’s 1995 Stock Option and Incentive Plan, filed as Exhibit 10.1 to Registrant’s Report on Form 10-KSB for the fiscal year ended September 30, 1996 (Commission File No. 0-22140), is incorporated herein by reference. |
|
|
|
10.2 |
| Registrant’s 1993 Stock Option and Incentive Plan, filed on June 17, 1993 as an exhibit to the Registrant’s registration statement on Form S-1 (Commission File No. 33-64654), is incorporated herein by reference. |
|
|
|
10.3 |
| Registrant’s Recognition and Retention Plan, filed on June 17, 1993 as an exhibit to the Registrant’s registration statement on Form S-1 (Commission File No. 33-64654), is incorporated herein by reference. |
|
|
|
10.4 |
| Employment agreement between MetaBank and J. Tyler Haahr, filed as an exhibit to Registrant’s Report on Form 10-K for the fiscal year ended September 30, 1997 (Commission File No. 0-22140), is incorporated herein by reference. First amendment to such agreement was filed with the Form 10-K on December 12, 2008. |
|
|
|
10.5 |
| Registrant’s Supplemental Employees’ Investment Plan, filed as an exhibit to Registrant’s Report on Form 10-KSB for the fiscal year ended September 30, 1994 (Commission File No. 0-22140), is incorporated herein by reference. First amendment to such agreement was filed with the Form 10-K on December 12, 2008. |
|
|
|
10.6 |
| Employment agreement between MetaBank and James S. Haahr, filed on June 17, 1993 as an exhibit to the Registrant’s registration statement on Form S-1 (Commission File No. 33-64654), is incorporated herein by reference. First amendment to such agreement was filed with the Form 10-K on December 12, 2008. |
|
|
|
10.7 |
| Registrant’s Executive Officer Compensation Program, filed as Exhibit 10.6 to Registrant’s Report on Form 10-K for the fiscal year ended September 30, 1998 (Commission File No. 0-22140), is incorporated herein by reference. |
|
|
|
10.8 |
| Registrant’s Executive Officer Incentive Stock Option Plan for Mergers and Acquisitions, filed as Exhibit 10.7 to Registrant’s Report on Form 10-K for the fiscal year ended September 30, 1998 (Commission File No. 0-22140), is incorporated herein by reference. |
1
10.9 |
| Registrant’s 2002 Omnibus Incentive Plan, filed as Exhibit 10.9 to Registrant’s Report on Form 10-K for the fiscal year ended September 30, 2003 (Commission File No. 0-22140), is incorporated herein by reference. |
|
|
|
10.10 |
| Employment agreement between MetaBank and Bradley C. Hanson, filed as an exhibit to Registrant’s Report on Form 10-K for the fiscal year ended September 30, 2005 (Commission File No. 0-22140), is incorporated herein by reference. First amendment to such agreement was filed with the Form 10-K on December 12, 2008. |
|
|
|
10.11 |
| Employment agreement between MetaBank and Troy Moore III, filed as an exhibit to Registrant’s Report on Form 10-K for the fiscal year ended September 30, 2005 (Commission File No. 0-22140), is incorporated herein by reference. First amendment to such agreement was filed with the Form 10-K on December 12, 2008. |
|
|
|
10.12 |
| The First Amendment to Registrant’s 2002 Omnibus Incentive Plan, adopted by the Registrant on August 28, 2006, and filed on December 19, 2006 as Exhibit A to Registrant’s Schedule 14A (DEF 14A) Proxy Statement (Commission File No. 0-22140), is incorporated by reference. |
|
|
|
10.13 |
| Settlement Agreement by and between First Indiana Bank, N.A. and MetaBank dated March 13, 2006, filed as Exhibit 10.12 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2006 (Commission File No. 0-22140), is incorporated herein by reference. |
|
|
|
10.14 |
| The Second Amendment to Registrant’s 2002 Omnibus Incentive Plan, adopted by the Registrant on November 30, 2007, and filed on January 3, 2008 as Exhibit A to Registrant’s Schedule 14A (DEF 14A) Proxy Statement (Commission File No. 0-22140), is incorporated by reference. |
|
|
|
10.15 |
| Agreement for Purchase of Selected Assets and Assumption of Certain Liabilities of the Laurens Office of MetaBank by and between MetaBank and Iowa Trust and Savings Bank dated January 31, 2007, filed as Exhibit 10.13 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended September 30, 2007 (Commission File No. 0-22140). |
|
|
|
10.16 |
| Agreement for Purchase of Selected Assets and Assumption of Certain Liabilities of the Sac City, Odebolt and Lake View Offices of MetaBank by and between MetaBank and Iowa State Bank dated January 31, 2007, filed as Exhibit 10.14 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended September 30, 2007 (Commission File No. 0-22140). |
|
|
|
10.17 |
| Stock Purchase Agreement by and among Anita Bancorporation, Meta Financial Group, Inc. and MetaBank West Central dated November 27, 2007, filed as Exhibit 10.15 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended September 30, 2007 (Commission File No. 0-22140). |
|
|
|
10.18 |
| Employment agreement between MetaBank and David W. Leedom, dated October 27, 2008 (filed with the Form 10-K on December 12, 2008). |
|
|
|
10.19 |
| Amended and Restated Contract for Deferred Compensation between MetaBank and James S. Haahr, dated September 27, 2005 and the first amendment thereto were filed with the Form 10-K on December 12, 2008. |
|
|
|
11 |
| Statement re: computation of per share earnings (See Note 3 of “Notes to Consolidated Financial Statements,” which is included in Part II, Item 8 “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K). |
|
|
|
21 |
| Subsidiaries of the Registrant was filed with the Form 10-K on December 12, 2008. |
|
|
|
23.1 |
| Consent of KPMG, LLP is filed herewith. |
|
|
|
23.2 |
| Consent of McGladrey & Pullen, LLP is filed herewith. |
2
31.1 |
| Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 is filed herewith. |
|
|
|
31.2 |
| Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 is filed herewith. |
|
|
|
32.1 |
| Certification of the CEO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 is furnished herewith. |
|
|
|
32.2 |
| Certification of the CFO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 is furnished herewith. |
3