UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2005
[ ] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transaction period from __________ to __________
Commission File Number: 0-22140
META FINANCIAL GROUP, INC. (Formerly FIRST MIDWEST FINANCIAL, INC.)
(Exact name of registrant as specified in its charter)
Delaware 42-1406262
-------- ----------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
121 East Fifth Street, Storm Lake, Iowa 50588
---------------------------------------------
(Address of principal executive offices)
(712) 732-4117
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) 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
--- ---
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes No X
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class: Outstanding at May 10, 2005:
Common Stock, $.01 par value 2,503,655 Common Shares
META FINANCIAL GROUP, INC.
FORM 10-Q
INDEX
Page No.
--------
Part I. Financial Information
- -----------------------------
Item 1. Financial Statements (unaudited):
Consolidated Balance Sheets
at March 31, 2005 and September 30, 2004 3
Consolidated Statements of Income for the Three Months
And Six Months Ended March 31, 2005 and 2004 4
Consolidated Statements of Comprehensive Income for the
Three Months and Six Months Ended March 31, 2005 and 2004 5
Consolidated Statement of Changes in Shareholders'
Equity for the Six Months Ended March 31, 2005 6
Consolidated Statements of Cash Flows for the
Six Months Ended March 31, 2005 and 2004 7
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosure About Market Risk 19
Item 4. Controls and Procedures 21
Part II. Other Information
- --------------------------
Item 1. Legal Proceedings 22
Item 2. Unregistered Sales of Equity Securities and
Use of Proceeds 22
Item 3. Defaults Upon Senior Securities 22
Item 4. Submission of Matters to a Vote of Security Holders 22
Item 5. Other Information 23
Item 6. Exhibits 23
Signatures 24
2
META FINANCIAL GROUP, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets (Unaudited)
ASSETS March 31, 2005 September 30, 2004
- ----------------------------------------------------------------------------------------------------------
Cash and due from banks $ 2,312,755 $ 1,591,982
Interest-bearing deposits in other financial institutions -
short-term (cost approximates market value) 5,788,479 7,344,587
------------------------------
Total cash and cash equivalents 8,101,234 8,936,569
Securities available for sale, amortized cost
of $300,966,016 at March 31, 2005 and
$324,500,510 at September 30, 2004 295,215,937 322,523,577
Loans receivable - net of allowance for loan losses of
of $5,797,007 at March 31, 2005 and $5,370,994
at September 30, 2004 446,207,896 404,051,379
Loans held for sale 206,200 270,000
Federal Home Loan Bank stock, at cost 10,392,900 11,052,700
Accrued interest receivable 3,634,508 3,849,215
Premises and equipment, net 12,032,412 11,690,437
Foreclosed real estate, net 19,528 --
Bank owned life insurance 12,073,257 11,847,420
Other assets 7,876,845 6,577,227
------------------------------
Total assets $ 795,760,717 $ 780,798,524
==============================
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Noninterest-bearing demand deposits $ 28,415,741 $ 19,537,370
Savings, NOW and money market demand deposits 170,945,592 177,287,972
Time certificates of deposit 301,781,921 264,755,535
------------------------------
Total deposits 501,143,254 461,580,877
Advances from Federal Home Loan Bank 207,750,000 226,250,000
Securities sold under agreements to repurchase 28,805,953 32,549,377
Subordinated Debentures 10,310,000 10,310,000
Advances from borrowers for taxes and insurance 246,527 216,331
Accrued interest payable 925,286 473,426
Accrued expenses and other liabilities 1,642,507 2,144,248
------------------------------
Total liabilities 750,823,527 733,524,259
------------------------------
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, 2,498,860 and 2,491,025 shares outstanding
at March 31, 2005 and September 30, 2004, respectively 29,580 29,580
Additional paid-in capital 20,640,098 20,678,644
Retained earnings - substantially restricted 36,950,651 36,758,258
Accumulated other comprehensive loss (3,609,494) (1,240,338)
Unearned Employee Stock Ownership Plan shares (696,149) (394,766)
Treasury stock, 459,139 and 466,974 common shares, at cost,
at March 31, 2005 and September 30, 2004 respectively (8,377,496) (8,557,113)
------------------------------
Total shareholders' equity 44,937,190 47,274,265
------------------------------
Total liabilities and shareholders' equity $ 795,760,717 $ 780,798,524
==============================
See Notes to Consolidated Financial Statements.
3
META FINANCIAL GROUP, INC.
AND SUBSIDIARIES
Consolidated Statements of Income (Unaudited)
Three Months Ended Six Months Ended
March 31, March 31,
2005 2004 2005 2004
----------- ----------- ----------- ------------
Interest and Dividend Income:
Loans receivable, including fees $ 7,338,529 $ 5,708,553 $14,099,364 $ 11,527,310
Securities available for sale 2,957,207 3,146,976 5,898,319 6,298,717
Dividends on Federal Home Loan Bank stock 76,872 35,112 159,616 118,321
----------- ----------- ----------- ------------
Total interest and dividend income 10,372,608 8,890,641 20,157,299 17,944,348
Interest Expense:
Deposits 2,902,732 2,339,588 5,587,904 4,753,885
FHLB advances and other borrowings 2,480,721 2,136,238 4,893,223 4,307,850
----------- ----------- ----------- ------------
Total interest expense 5,383,453 4,475,826 10,481,127 9,061,735
----------- ----------- ----------- ------------
Net interest income 4,989,155 4,414,815 9,676,172 8,882,613
Provision for loan losses 257,500 56,000 434,500 157,000
----------- ----------- ----------- ------------
Net interest income after provision for loan losses 4,731,655 4,358,815 9,241,672 8,725,613
Noninterest income:
Deposit service charges and other fees 280,704 294,895 609,738 629,469
Gain on sales of loans, net 45,566 31,380 81,308 120,100
Bank owned life insurance 126,646 157,443 253,291 317,841
Gain on sale of branch office -- 1,113,230 -- 1,113,230
Gain on sales of securities available for sale, net 1,079 -- 1,079 --
Loss on sales of foreclosed real estate, net -- (2,505) -- (492)
Other income 220,175 96,138 340,338 185,231
----------- ----------- ----------- ------------
Total noninterest income 674,170 1,690,581 1,285,754 2,365,379
Noninterest expense:
Employee compensation and benefits 2,781,661 2,162,385 5,692,050 4,425,122
Occupancy and equipment expense 1,030,493 588,828 1,762,103 1,123,679
Deposit insurance premium 16,453 15,220 36,074 31,446
Data processing expense 184,450 182,007 368,126 361,930
Other expense 850,430 515,843 1,490,897 1,082,034
----------- ----------- ----------- ------------
Total noninterest expense 4,863,487 3,464,283 9,349,250 7,024,211
----------- ----------- ----------- ------------
Income before income taxes 542,338 2,585,113 1,178,176 4,066,781
Income tax expense 142,964 909,716 336,860 1,414,442
----------- ----------- ----------- ------------
Net income $ 399,374 $ 1,675,397 $ 841,316 $ 2,652,339
=========== =========== =========== ============
Earnings per common share:
Basic $ 0.16 $ 0.67 $ 0.34 $ 1.07
=========== =========== =========== ============
Diluted $ 0.16 $ 0.66 $ 0.33 $ 1.05
=========== =========== =========== ============
Dividends declared per common share $ 0.13 $ 0.13 $ 0.26 $ 0.26
=========== =========== =========== ============
See Notes to Consolidated Financial Statements.
4
META FINANCIAL GROUP, INC.
AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income (Loss) (Unaudited)
Three Months Ended Six Months Ended
March 31, March 31,
2005 2004 2005 2004
----------- ---------- ----------- ----------
Net income $ 399,374 $1,675,397 $ 841,316 $2,652,339
Other comprehensive income (loss):
Net change in net unrealized gains and losses on
securities available for sale (2,598,479) 2,838,499 (3,773,146) 5,100,560
Deferred income tax expense (benefit) (966,896) 1,056,207 (1,403,990) 1,897,919
----------- ---------- ----------- ----------
Total other comprehensive income (loss) (1,631,583) 1,782,292 (2,369,156) 3,202,641
----------- ---------- ----------- ----------
Total comprehensive income (loss) $(1,232,209) $3,457,689 $(1,527,840) $5,854,980
=========== ========== =========== ==========
See Notes to Consolidated Financial Statements.
5
META FINANCIAL GROUP, INC.
AND SUBSIDIARIES
Consolidated Statement of Changes in Shareholders' Equity (Unaudited)
For the Six Months Ended March 31, 2005
Accumulated Unearned
Other Employee
Additional Comprehensive Stock
Common Paid-in Retained Income (Loss), Ownership
Stock Capital Earnings Net of Tax Plan Shares
- -----------------------------------------------------------------------------------------------------------------
Balance, September 30, 2004 $29,580 $ 20,678,644 $ 36,758,258 $ (1,240,338) $ (394,766)
Cash dividends declared on common
stock ($.26 per share) -- -- (648,923) -- --
Purchase of 1,000 common shares
of treasury stock -- -- -- -- --
Issuance of 8,835 common shares
from treasury stock due to exercise
of stock options -- (63,179) -- -- --
Tax benefit from exercise of
stock options -- 4,669 -- -- --
Purchase 19,100 common shares for ESOP -- -- -- -- (437,080)
6,600 common shares committed to be
released under the ESOP -- 19,964 -- -- 135,697
Change in net unrealized gains
and losses on securities available
for sale, net of effect of income
taxes of ($1,403,990) -- -- -- (2,369,156) --
Net income for six months ended
March 31, 2005 -- -- 841,316 -- --
---------------------------------------------------------------------
Balance, March 31, 2005 $29,580 $ 20,640,098 $ 36,950,651 $ (3,609,494) $ (696,149)
=====================================================================
Total
Treasury Shareholders'
Stock Equity
-----------------------------
Balance, September 30, 2004 $(8,557,113) $ 47,274,265
Cash dividends declared on common
stock ($.26 per share) -- (648,923)
Purchase of 1,000 common shares
of treasury stock (25,655) (25,655)
Issuance of 8,835 common shares
from treasury stock due to exercise
of stock options 205,272 142,093
Tax benefit from exercise of
stock options -- 4,669
Purchase 19,100 common shares for ESOP -- (437,080)
6,600 common shares committed to be
released under the ESOP -- 155,661
Change in net unrealized gains
and losses on securities available
for sale, net of effect of income
taxes of ($1,403,990) -- (2,369,156)
Net income for six months ended
March 31, 2005 -- 841,316
---------------------------
Balance, March 31, 2005 $(8,377,496) $ 44,937,190
===========================
See Notes to Consolidated Financial Statements.
6
META FINANCIAL GROUP, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows(Unaudited)
Six Months Ended March 31,
2005 2004
- -----------------------------------------------------------------------------------------------------------------
Cash Flows from operating activities:
Net income $ 841,316 $ 2,652,339
Adjustments to reconcile net income to net cash from operating activities:
Depreciation, amortization and accretion, net 1,863,437 2,373,575
Provision for loan losses 434,500 157,000
Gain on sales of foreclosed real estate, net -- 492
Gain on the sale of branch office -- (1,113,230)
Proceeds from sales of loans held for sale 4,327,480 7,808,048
Originations of loans held for sale (4,263,680) (6,931,588)
Net change in accrued interest receivable 214,707 734,289
Net change in other assets (121,465) (363,199)
Net change in accrued interest payable 451,860 15,665
Net change in accrued expenses and other liabilities (501,741) 717,563
----------------------------------
Net cash provided by operating activities 3,246,414 6,050,954
Cash flow from investing activities:
Purchase of securities available for sale (15,459,228) (15,262,500)
Proceeds from maturities and principal repayments of
securities available for sale 37,803,043 46,929,598
Net change in loans receivable (29,784,282) 1,668,517
Loans purchased (12,870,084) (25,088,646)
Proceeds from sales of foreclosed real estate 2,500 228,441
Cash transferred to buyer on sale of branch -- (14,154,359)
Purchase of shares by ESOP (437,080) --
Change in FHLB stock 659,800 1,871,900
Purchase of premises and equipment (817,752) (492,155)
----------------------------------
Net cash used in investing activities (20,903,083) (4,299,204)
Cash flows from financing activities:
Net change in noninterest-bearing demand, savings, NOW, and
money market demand deposits 2,535,991 43,127,340
Net change in other time deposits 37,026,386 20,590,465
Proceeds from advances from Federal Home Loan Bank 1,676,825,000 1,031,540,000
Repayments of advances from Federal Home Loan Bank (1,695,325,000) (1,073,767,027)
Net change in securities sold under agreements to repurchase (3,743,424) (23,873,566)
Net change in advances from borrowers for taxes and insurance 30,196 2,341
Cash dividends paid (648,923) (651,260)
Proceeds from exercise of stock options 146,763 582,555
Purchase of treasury stock (25,655) (764,865)
----------------------------------
Net cash provided by (used in) financing activities 16,821,334 (3,214,017)
----------------------------------
Net change in cash and cash equivalents (835,335) (1,462,267)
Cash and cash equivalents at beginning of period 8,936,569 9,756,815
----------------------------------
Cash and cash equivalents at end of period $ 8,101,234 $ 8,294,548
==================================
Supplemental disclosure of cash flow information
Cash paid during the period for:
Interest $ 10,029,267 $ 9,756,815
Income taxes 265,011 641,000
Supplemental schedule of non-cash investing and financing activities:
Loans transferred to foreclosed real estate $ 22,028 $ 19,829
Sale of branch
Assets disposed:
Loans $ (730,704)
Accrued interest receivable (5,518)
Premises and equipment (110,818)
Liabilitied assumed by buyer:
Non-interest bearing demand, savings, NOW 6,314,066
and money market demand accounts
Time deposits 9,788,688
Advances from borrowers for taxes and insurance 5,749
Other liabilities 6,126
Gain on sale of office property, net (1,113,230)
---------------
Cash paid $ 14,154,359
===============
7
META FINANCIAL GROUP, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting policies followed by Meta Financial Group, Inc., formerly
First Midwest Financial, Inc., ("Meta Group" or the "Company") and its
consolidated subsidiaries, MetaBank, MetaBank West Central ("MetaBank
WC"), Meta Trust Company ("Meta Trust"), First Services Financial Limited
and Brookings Service Corporation, for interim reporting are consistent
with the accounting policies followed for annual financial reporting. All
adjustments that, in the opinion of management, are necessary for a fair
presentation of the results for the periods reported have been included in
the accompanying unaudited consolidated financial statements, and all such
adjustments are of a normal recurring nature. The accompanying financial
statements do not purport to contain all the necessary financial
disclosures required by generally accepted accounting principles that
might otherwise be necessary in the circumstances and should be read in
conjunction with the Company's consolidated financial statements, and
notes thereto, for the year ended September 30, 2004.
2. EARNINGS PER SHARE
Basic earnings per share is based on net income divided by the weighted
average number of shares outstanding during the period. Diluted earnings
per share shows the dilutive effect of additional common shares issuable
under stock options.
A reconciliation of the numerators and denominators used in the basic
earnings per common share and the diluted earnings per common share
computations for the three months and six months ended March 31, 2005 and
2004 is presented below.
Three Months Ended Six Months Ended
March 31, March 31,
--------- ---------
2005 2004 2005 2004
---- ---- ---- ----
Basic Earnings Per Common Share:
Numerator:
Net Income $ 399,374 $ 1,675,397 $ 841,316 $ 2,652,339
=========== =========== =========== ===========
Denominator:
Weighted average common shares
outstanding 2,494,060 2,502,255 2,492,788 2,502,049
Less: Weighted average unallocated
ESOP shares (35,129) (17,763) (33,484) (20,025)
----------- ----------- ----------- -----------
Weighted average common shares
outstanding for basic earnings
per share 2,458,931 2,484,492 2,459,304 2,482,024
=========== =========== =========== ===========
Basic earnings per common share $ 0.16 $ 0.67 $ 0.34 $ 1.07
=========== =========== =========== ===========
8
Three Months Ended Six Months Ended
March 31, March 31,
--------- ---------
2005 2004 2005 2004
---- ---- ---- ----
Diluted Earnings Per Common Share:
Numerator:
Net Income $ 399,374 $1,675,397 $ 841,316 $2,652,339
========== ========== ========== ==========
Denominator:
Weighted average common shares
outstanding for basic earnings per
common share 2,458,931 2,484,492 2,459,304 2,482,024
Add: Dilutive effects of assumed
exercise of stock options, net
of tax benefits 57,160 51,668 59,939 53,684
---------- ---------- ---------- ----------
Weighted average common and
dilutive potential common shares
outstanding 2,516,091 2,536,160 2,519,243 2,535,708
========== ========== ========== ==========
Diluted earnings per common share $ 0.16 $ 0.66 $ 0.33 $ 1.05
========== ========== ========== ==========
3. COMMITMENTS
At March 31, 2005 and September 30, 2004, the Company had outstanding
commitments to originate and purchase loans totaling $75.4 million and
$60.2 million, respectively, excluding undisbursed portions of loans in
process. It is expected that outstanding loan commitments will be funded
with existing liquid assets.
4. INTANGIBLE ASSETS
As of March 31, 2005 and September 30, 2004 the Company had intangible
assets of $3,403,019, all of which has been determined to be goodwill.
There was no goodwill impairment loss or amortization related to goodwill
during the three-month or six-month periods ended March 31, 2005 and 2004.
5. CURRENT ACCOUNTING DEVELOPMENTS
The Financial Accounting Standards Board ("FASB") issued Statement 123
(Revised), Share-Base Payment. This Statement establishes standards for
accounting for transactions in which an entity engages its equity
instruments for goods and services. It also addresses transactions in
which an entity incurs liabilities in exchange for goods and services that
are based on the fair value of the entity's equity instruments, or that
may be settled by the issuance of those equity instruments. FAS 123(R)
covers a wide range of share-based compensation arrangements including
share options, restricted share plans, performance-based awards, share
appreciation rights and employee share purchase plans. FAS 123(R) replaces
existing requirements under FAS 123, Accounting for Stock-Based
Compensation and eliminates the ability to account for share-based
compensation transactions using APB Opinion No. 25, Accounting for Stock
Issued to Employees. For the Company, the Statement is effective for the
quarter beginning January 1, 2006. The Company is currently assessing the
impact that FAS 123(R) will have on its consolidated financial statements
at the time of adoption.
9
6. STOCK OPTION PLAN
FASB Statement No. 123, Accounting for Stock-Based Compensation,
establishes a fair value based method for financial accounting and
reporting for stock-based employee compensation plans and for transactions
in which an entity issues its equity instruments to acquire goods and
services from nonemployees. However, the standard allows compensation to
continue to be measured by using the intrinsic value based method of
accounting prescribed by APB No. 25, Accounting for Stock Issued to
Employees, but requires expanded disclosures. The Company has elected to
apply the intrinsic value based method of accounting for stock options
issued to employees. Accordingly, compensation cost for stock options is
measured as the excess, if any, of the quoted market price of the Company
stock at the date of grant over the amount an employee must pay to acquire
the stock.
Had compensation cost for the Plan been determined based on the grant date
fair values of awards (the method described in FASB Statement No. 123),
the approximate reported income and earnings per common share would have
been decreased to the pro forma amounts shown below:
Three Months Ended Six Months Ended
March 31, March 31,
--------- ---------
2005 2004 2005 2004
---- ---- ---- ----
Net income, as reported $ 399,374 $ 1,675,397 $ 841,316 $ 2,652,339
Deduct: Total stock-based employee
compensation expense determined under fair
value based method for all awards, net of
related tax effects (23,810) (5,814) (47,620) (11,528)
----------- ----------- ----------- -----------
Pro forma net income $ 375,564 $ 1,669,583 $ 793,706 $ 2,640,711
=========== =========== =========== ===========
Earnings per common share - basic:
As reported $ .16 $ .67 $ .34 $ 1.07
Pro forma $ .15 $ .67 $ .32 $ 1.07
Earnings per common share - diluted:
As reported $ .16 $ .66 $ .33 $ 1.05
Pro forma $ .15 $ .66 $ .32 $ 1.04
10
Part I. Financial Information
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
META FINANCIAL GROUP, INC.
AND SUBSIDIARIES
GENERAL
Meta Financial Group, Inc. ("Meta Financial" or the "Company") is a bank holding
company whose primary assets are MetaBank, formerly First Federal Savings Bank
of the Midwest ("First Federal"), and MetaBank West Central ("MetaBank WC"),
formerly Security State Bank ("Security"). The Company was incorporated in 1993
as First Midwest Financial, Inc., a unitary non-diversified savings and loan
holding company and, on September 20, 1993, acquired all of the capital stock of
First Federal in connection with First Federal's conversion from mutual to stock
form of ownership. On September 30, 1996, the Company became a bank holding
company in conjunction with the acquisition of Security. Pursuant to requisite
shareholder approvals, the Company and its banking subsidiaries changed their
names as of the close of business on January 28, 2005.
The following discussion focuses on the consolidated financial condition of the
Company and its subsidiaries, at March 31, 2005, compared to September 30, 2004,
and the consolidated results of operations for the three months and six months
ended March 31, 2005, compared to the same periods in 2004. This discussion
should be read in conjunction with the Company's consolidated financial
statements, and notes thereto, for the year ended September 30, 2004.
CORPORATE DEVELOPMENTS
In May of 2004, the Company announced that MetaBank was in the process of
forming of a new operating division to position the Company to take advantage of
opportunities in the growing area of prepaid debit cards and related systems and
services. The division, Meta Payment Systems, is based in Sioux Falls, South
Dakota. During the first nine months of operations, through March 31, 2005, the
division has generated a net operating loss of approximately $1.2 million,
$490,000 in fiscal 2004 and $711,000 to date in fiscal 2005. The cumulative
operating loss for the division is slightly higher than was originally
projected. However, management still anticipates Meta Payment Systems will begin
to generate net monthly profits during its second full year of operation, and
that the second year of operations will be approximately break-even. It is
anticipated the third year will result in income, net of income taxes,
sufficient for the three-year cumulative operations of the division to become
positive. The net operating loss of Meta Payment Systems for 2005 resulted in a
reduction in diluted earning per share of $.14 for the quarter and $.28 per
share for the six months ended March 31, 2005.
As indicated above, effective January 28, 2005, the Company and its
subsidiaries, having obtained the necessary approvals, changed their names from
First Midwest Financial, Inc., First Federal Savings Bank of the Midwest,
Security State Bank, and First Services Trust Company, to Meta Financial Group,
Inc., MetaBank, MetaBank West Central and Meta Trust Company, respectively. As a
result of marketing and other costs associated with the name changes, the
Company incurred expenses totaling $615,000, or $387,000, net of income taxes.
The expenses, net of income taxes, related to the name change resulted in a
reduction in diluted earnings per share of $.13 for the quarter and $.15 per
share for the six months ended March 31, 2005.
The Company is in the process of expanding its presence in both the Sioux Falls,
South Dakota and the greater Des Moines, Iowa markets. A building, which will
house a full-service banking office and the Meta Payment Systems operations, is
under construction in Sioux Falls. Occupancy is anticipated to be either late in
the third or early in the fourth calendar quarter of 2005. In addition, a small
branch office, formerly occupied by another financial institution, became
available for lease in Sioux Falls. This office,
11
which is a good strategic fit for operations in Sioux Falls, will open in
August. Final details are being completed on the previously announced new office
in West Des Moines. Construction will begin during the second calendar quarter,
with the office expected to open either late in the third or early in the fourth
calendar quarter.
FINANCIAL CONDITION
Total assets increased by $15.0 million, or 1.9%, to $795.8 million at March 31,
2005, from $780.8 million at September 30, 2004. The increase in total assets
was primarily attributable to growth in loans during the six month period. This
growth was funded primarily by growth in deposits, offset in part by a decrease
in advances from the FHLB.
The portfolio of net loans receivable increased by $42.1 million, or 10.4%, to
$446.2 million at March 31, 2005, from $404.1 million at September 30, 2004. The
increase reflects increased origination of commercial and multi-family real
estate loans on existing and newly constructed properties and by increased
origination of commercial business loans. There were also small increases in
conventional one-to-four family residential mortgage loans and in agricultural
business loans. These increases were slightly offset by a small reduction in
consumer loans, as existing consumer loans were repaid in amounts greater than
new originations during the period.
Deposit balances increased by $39.5 million, or 8.6%, to $501.1 million at March
31, 2005, from $461.6 million at September 30, 2004. The increase in deposit
balances resulted from increases in checking accounts, savings accounts and
certificates of deposit in the amounts of $13.1 million, $21.3 million and $37.0
million, respectively. These increases were partially offset by a decrease in
money market accounts of $31.9 million during the period.
The portfolio of securities available for sale decreased $27.3 million, or 8.5%,
to $295.2 million at March 31, 2005, from $322.5 million at September 30, 2004.
The decrease reflects $37.8 million of maturities and principal repayments and
by the change in market value of securities available for sale, which were
partially offset by $15.5 million of purchases.
The balance in advances from the Federal Home Loan Bank of Des Moines (FHLB)
decreased by $18.5 million, or 8.2%, to $207.8 million at March 31, 2005 from
$226.3 million at September 30, 2004. The balance in securities sold under
agreements to repurchase decreased by $3.7 million, or 11.5%, to $28.8 million
at March 31, 2005 from $32.5 million at September 30, 2004. The decrease in
advances from the FHLB and in securities sold under agreements to repurchase
reflects the replacement of borrowed funds through deposit growth during the
period.
Total shareholders' equity decreased $2.3 million, or 4.9%, to $44.9 million at
March 31, 2005 from $47.3 million at September 30, 2004. The decrease in
shareholders' equity is primarily due to a $2.4 million change, in accordance
with SFAS 115, from a $1.2 million unrealized loss to a $3.6 million unrealized
loss, net of income tax, on securities available for sale, and the payment of
dividends to shareholders of $649.000, during the period. These decreases were
partially offset by net income of $841,000.
NON-PERFORMING ASSETS AND ALLOWANCE FOR LOAN LOSSES
Generally, when a loan becomes delinquent 90 days or more or when the collection
of principal or interest becomes doubtful, the Company will place the loan on
non-accrual status and, as a result of this action, previously accrued interest
income on the loan is taken out of current income. The loan will remain on
non-accrual status until the loan has been brought current or until other
circumstances occur that provide adequate assurance of full repayment of
interest and principal.
12
At March 31, 2005, the Company had loans delinquent 30 days and over totaling
$606,000, or 0.13% of total loans compared to $1.9 million, or 0.47%, of total
loans at September 30, 2004.
At March 31, 2005, there were no commercial and multi-family real estate loans
delinquent 30 days and over. This compares to $1,350,000, or 0.33% of total
loans at September 30, 2004. Multi-family and commercial real estate loans
generally present a higher level of risk than loans secured by one-to-four
family residences. This greater risk is due to several factors, including the
concentration of principal in a limited number of loans and borrowers, the
effect of general economic conditions on income producing properties and the
increased difficulty of evaluating and monitoring these types of loans. These
loans are being closely monitored by management, however, there can be no
assurance that all loans will be fully collectible.
At March 31, 2005, agricultural operating loans delinquent 30 days and over
totaled $259,000, or 0.06% of the total loan portfolio as compared to $254,000,
or 0.06% of total loans at September 30, 2004. Agricultural lending involves a
greater degree of risk than one-to-four family residential mortgage loans
because of the typically larger loan amounts. In addition, payments on loans are
dependent on the successful operation or management of the farm property
securing the loan or for which an operating loan is utilized. The success of the
loan may also be affected by factors outside the control of the agricultural
borrower, such as the weather and grain and livestock prices. Although
management believes the Company's portfolio of agricultural real estate and
operating loans is well structured and adequately secured, there can be no
assurance that all loans will be fully collectible.
The table below sets forth the amounts and categories of non-performing assets
in the Company's loan portfolio. The Company's restructured loans (which
involved forgiving a portion of the interest or principal on the loan or making
loans at a rate materially less than market rates) are included in the table and
were performing as agreed at the date shown. Foreclosed assets include assets
acquired in settlement of loans.
March 31, 2005 September 30, 2004
-------------- ------------------
(Dollars in Thousands)
Non-accruing loans:
One-to four family $ 52 $ --
Commercial and multi-family -- 399
Agricultural real estate -- --
Consumer 59 59
Agricultural operating 222 254
Commercial business -- --
---- ----
Total non-accruing loans 333 712
Accruing loans delinquent 90 days or more -- --
---- ----
Total non-performing loans 333 712
---- ----
Restructured loans:
Consumer -- --
Agricultural operating 7 9
Commercial business -- 8
---- ----
Total restructured loans 7 17
---- ----
Foreclosed assets:
One-to four family -- --
Commercial real estate -- --
Consumer 20 --
Agricultural operating -- --
Commercial business -- --
---- ----
Total foreclosed assets 20 --
Less: Allowance for losses -- --
---- ----
Total foreclosed assets, net 20 --
---- ----
Total non-performing assets $360 $729
==== ====
Total as a percentage of total assets 0.05% 0.09%
==== ====
13
Classified Assets. Federal regulations provide for the classification of loans
and other assets as "substandard", "doubtful" or "loss", based on the level of
weakness determined to be inherent in the collection of the principal and
interest. When loans are classified as either substandard or doubtful, the
Company may establish general allowances for loan losses in an amount deemed
prudent by management. General allowances represent loss allowances which have
been established to recognize the inherent risk associated with lending
activities, but which, unlike specific allowances, have not been allocated to
particular problem loans. When assets are classified as loss, the Company is
required either to establish a specific allowance for loan losses equal to 100%
of that portion of the loan so classified, or to charge-off such amount. The
Company's determination as to the classification of its loans and the amount of
its allowances for loan losses are subject to review by its regulatory
authorities, which may require the establishment of additional general or
specific allowances for loan losses.
On the basis of management's review of its loans and other assets, at March 31,
2005, the Company had classified a total of $11.9 million of its assets as
substandard, $2,000 as doubtful and none as loss as compared to classifications
at September 30, 2004 of $12.9 million substandard, $11,000 doubtful and none as
loss.
Allowance for Loan Losses. The Company establishes its provision for loan
losses, and evaluates the adequacy of its allowance for loan losses based upon a
systematic methodology consisting of a number of factors including, among
others, historic loss experience, the overall level of classified assets and
non-performing loans, the composition of its loan portfolio and the general
economic environment within which the Bank and its borrowers operate.
Current economic conditions in the agricultural sector of the Company's market
area are stable due to generally higher commodity prices and a history of
government subsidies. Price levels for grain crops and livestock are currently
at levels that present minimal concern. The agricultural economy is accustomed
to commodity price fluctuations and is generally able to handle such
fluctuations without significant problem. Although the Company underwrites its
agricultural loans based on normal expectations for commodity prices and yields,
an extended period of low commodity prices or adverse growing conditions could
result in weakness in the agricultural loan portfolio and could create a need
for the Company to increase its allowance for loan losses through increased
charges to the provision for loan losses. (See "CRITICAL ACCOUNTING POLICIES")
At March 31, 2005, the Company has established an allowance for loan losses
totaling $5.8 million. The allowance represented approximately 1740.8% of the
total non-performing loans at March 31, 2005, while the allowance at September
30, 2004 represented approximately 754.4% of the total non-performing loans at
that date. The increase in the allowance for loan losses was due primarily to
the increase in the loan portfolio.
The following table sets forth an analysis of the activity in the Company's
allowance for loan losses for the six-month periods ended March 31, 2005 and
March 31, 2004:
2005 2004
---- ----
(In Thousands)
Balance, September 30, $ 5,371 $ 4,962
Charge-offs (12) (1)
Recoveries 4 8
Additions charged to operations 434 157
------- -------
Balance, March 31, $ 5,797 $ 5,126
======= =======
14
The allowance for loan losses reflects management's best estimate of probable
losses inherent in the portfolio based on currently available information.
Future additions to the allowance for loan losses may become necessary based
upon changing economic conditions, increased loan balances or changes in the
underlying collateral of the loan portfolio.
CRITICAL ACCOUNTING POLICIES
The Company's financial statements are prepared in accordance with accounting
principles generally accepted in the United States of America. The financial
information contained within these statements is, to a significant extent,
financial information that is based on approximate measures of the financial
effects of transactions and events that have already occurred. Based on its
consideration of accounting policies that involve the most complex and
subjective decisions and assessments, management has identified its most
critical accounting policies to be those related to the allowance for loan
losses and asset impairment judgments including the recoverability of goodwill.
The Company's allowance for loan loss methodology incorporates a variety of risk
considerations, both quantitative and qualitative in establishing an allowance
for loan loss that management believes is appropriate at each reporting date.
Quantitative factors include the Company's historical loss experience,
delinquency and charge-off trends, collateral values, changes in nonperforming
loans, and other factors. Quantitative factors also incorporate known
information about individual loans, including borrowers' sensitivity to interest
rate movements. Qualitative factors include the general economic environment in
the Company's markets, including economic conditions throughout the Midwest and
in particular, the state of certain industries. Size and complexity of
individual credits in relation to loan structure, existing loan policies and
pace of portfolio growth are other qualitative factors that are considered in
the methodology. As the Company adds new products and increases the complexity
of its loan portfolio, it will enhance its methodology accordingly. Management
may report a materially different amount for the provision for loan losses in
the statement of operations to change the allowance for loan losses if its
assessment of the above factors were different. This discussion and analysis
should be read in conjunction with the Company's financial statements and the
accompanying notes presented elsewhere herein, as well as the portion of this
Management's Discussion and Analysis section entitled "Nonperforming Assets and
Allowance for Loan Losses." Although management believes the levels of the
allowance as of both March 31, 2005 and September 30, 2004 were adequate to
absorb probable losses inherent in the loan portfolio, a decline in local
economic conditions, or other factors, could result in increasing losses.
Goodwill represents the excess of acquisition costs over the fair value of the
net assets acquired in a purchase acquisition. Goodwill is tested annually for
impairment.
RESULTS OF OPERATIONS
General. For the three months ended March 31, 2005, the Company recorded net
income of $399,000 compared to net income of $1,675,000 for the same period in
2004. For the six months ended March 31, 2005, net income was $841,000 compared
to $2,652,000 for the same period in 2004. Both periods reflect increases in net
interest income, which were offset by decreases in non-interest income, and
increases in the provision for loan losses and in non-interest expense.
Additionally, income tax expense decreased for both periods of 2005. The
decrease in non-interest income for both periods reflects primarily a gain of
$1,113,000, during the 2004 periods, on the sale of the Manson, Iowa branch
office during both 2004 periods. The increases in non-interest expense were
primarily the result of expenses related to the name changes, which totaled
$515,000 and $615,000 for the three and six month periods, respectively. The
decrease in net income was also attributable to the net start up costs of Meta
Payment Systems, which totaled $341,000 and $711,000 for the three and six month
periods, respectively.
15
Net Interest Income. Net interest income increased by $574,000, or 13.0%, to
$4,989,000 for the three months ended March 31, 2005 from $4,415,000 for the
same period in 2004. For the six months ended March 31, 2005, net interest
income increased $793,000, or 8.9%, to $9,676,000 from $8,883,000 for the same
period in 2004. The increase in net interest income for the three month period
ended March 31, 2005 included an increase in total interest income of
$1,482,000, or 16.7%, which was partially offset by an increase in total
interest expense of $908,000 or 20.1%, compared to the same period in 2004. The
increase in total interest income reflects an increase in the yield of
interest-earning assets to 5.36% from 4.82%, and an increase of $36.1 million in
the average balance of interest-earning assets during the period. The increase
in total interest expense reflects an increase in the cost on interest-bearing
liabilities to 2.85% from 2.50%, and an increase of $38.5 million in the average
balance of interest bearing-liabilities during the period. The increase in net
interest income for the six month period ended March 31, 2005 included an
increase in total interest income of $2,213,000, or 12.3%, which was partially
offset by an increase in total interest expense of $1,419,000 or 15.7%, compared
to the same period in 2004. The increase in total interest income reflects an
increase in the yield of interest-earning assets to 5.25% from 4.83%, and an
increase of $24.0 million in the average balance of interest-earning assets
during the period. The increase in total interest expense reflects an increase
in the cost on interest-bearing liabilities to 2.80% from 2.50%, and an increase
of $22.6 million in the average balance of interest bearing-liabilities during
the period.
Provision for Loan Losses. For the three months ended March 31, 2005, the
provision for loan losses was $257,000 compared to $56,000 for the same period
in 2004. For the six months ended March 31, 2005, the provision for loan losses
was $434,000 compared to $157,000 for the same period in 2004. The increases in
both the three-month and six-month periods were due primarily to loan growth.
Management believes that, based on a detail review of the loan portfolio,
historic loan losses, current economic conditions, and other factors, the
current level of provision for loan losses, and the resulting level of the
allowance for loan losses, reflects an adequate allowance against probable
losses from the loan portfolio. See "Non-Performing Assets and Allowance for
Loan Losses."
Non-interest Income. Non-interest income decreased $1,016,000, or 60.1%, to
$674,000 for the three months ended March 31, 2005 from $1,691,000 for the same
period in 2004. For the six months ended March 31, 2005, non-interest income
decreased $1,079,000, or 45.6%, to $1,286,000 from $2,365,000 for the same
period in 2004. The decrease in non-interest income for both periods reflects a
non-recurring gain in January, 2004 of $1,113,000 on the sale of a branch
office, which net of income taxes added $.27 per diluted share to both the three
and six month periods ended March 31, 2004. There was also a decrease in both
periods in deposit service charges and income from Bank Owned Life Insurance
(BOLI). These decreases were partially offset increases in both periods in other
income. The decrease in deposit service charges was primarily the result of
adjustments to fee schedules. The decrease in income from BOLI was the result of
a reduction in the in the guaranteed return rate. The increase in other income
was primarily the result of Meta Payment Systems programs and activities which
began to generate revenue during the period.
Non-interest Expense. Non-interest expense increased $1,399,000, or 40.4%, to
$4,863,000 for the three months ended March 31, 2005, from $3,464,000 for the
same period in 2004. For the six months ended March 31, 2005, non-interest
expense increased $2,325,000, or 33.1%, to $9,349,000 from $7,024,000 for the
same period in 2004. The increase in non-interest expense was the result of
increases in compensation and benefit expense, occupancy and equipment expense
and other expense during both the three and six month periods ended March 31,
2005. The increases were attributable to several factors, including the start-up
costs associated with Meta Payment Systems, which included total non-interest
expenses of $744,000 and $1,386,000 for the three and six month periods,
respectively, and the marketing and other costs related to the corporate name
changes, which totaled $515,000 and $615,000 for the three and six month
periods, respectively. Additional factors contributing to the increase in
expenses were the opening of a second branch office in Sioux Falls,
16
South Dakota, in May 2004, and additional staffing and other costs related to
initiating and proceeding with the process aimed at compliance, in fiscal 2006,
with Section 404 of the Sarbanes-Oxley Act. Normal increases in costs have also
contributed to the increase.
Income Tax Expense. Income tax expense was $143,000 for the three months ended
March 31, 2005 compared to $910,000 for the same period in 2004. For the six
months ended March 31, 2005, income tax expense was $337,000 compared to
$1,414,000 for the same period in 2004. The decrease for both periods reflects
the decrease in the level of taxable income between the comparable periods.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of funds are deposits, borrowings, principal and
interest payments on loans, investments and mortgage-backed securities, and
funds provided by other operating activities. While scheduled payments on loans,
mortgage-backed securities and short-term investments are relatively predictable
sources of funds, deposit flows and early loan repayments are greatly influenced
by general interest rates, economic conditions and competition.
The Company uses its capital resources principally to meet ongoing commitments
to fund maturing certificates of deposits and loan commitments, to maintain
liquidity, and to meet operating expenses. At March 31, 2005, the Company had
commitments to originate and purchase loans totaling $75.4 million. The Company
believes that loan repayment and other sources of funds will be adequate to meet
its foreseeable short- and long-term liquidity needs.
Regulations require the Company, MetaBank and MetaBank WC to maintain minimum
amounts and ratios of total risk-based capital and Tier 1 capital to
risk-weighted assets, and a leverage ratio consisting of Tier 1 capital to
average assets. The following table sets forth MetaBank's and MetaBank WC's
actual capital and required capital amounts and ratios at March 31, 2005 which,
at that date, exceeded the capital adequacy requirements:
Minimum Requirement
To Be Well
Minimum Requirement Capitalized Under
For Capital Adequacy Prompt Corrective
Actual Purposes Action Provisions
------ -------- -----------------
At March 31, 2005 Amount Ratio Amount Ratio Amount Ratio
- ----------------- ------ ----- ------ ----- ------ -----
(Dollars in Thousands)
Total Capital (to risk weighted assets):
MetaBank $53,576 10.5% $40,676 8.0% $50,846 10.0%
MetaBank WC 4,382 11.7 3,008 8.0 3,760 10.0
Tier 1 (Core) Capital (to risk weighted assets):
MetaBank 48,000 9.4 20,338 4.0 30,507 6.0
MetaBank WC 4,097 10.9 1,504 4.0 2,256 6.0
Tier 1 (Core) Capital (to adjusted total assets):
MetaBank 48,000 6.5 29,318 4.0 36,647 5.0
MetaBank WC 4,097 6.9 2,380 4.0 2,975 5.0
Tier 1 (Core) Capital (to average assets):
MetaBank 48,000 6.5 29,670 4.0 37,087 5.0
The Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA)
established five regulatory capital categories and authorized the banking
regulators to take prompt corrective action with respect to institutions in an
undercapitalized category. At March 31, 2005, the Company, MetaBank and MetaBank
WC exceeded minimum requirements for the well-capitalized category.
17
Forward-Looking Statements
The Company, and its wholly-owned subsidiaries, MetaBank and MetaBank WC, may
from time to time make written or oral "forward-looking statements," including
statements contained in its filings with the Securities and Exchange Commission,
in its reports to shareholders, and in other communications by the Company,
which are made in good faith by the Company pursuant to the "safe harbor"
provisions of the Private Securities Litigation Reform Act of 1995.
These forward-looking statements include statements with respect to the
Company's beliefs, expectations, estimates and intentions that are subject to
significant risks and uncertainties, and are subject to change based on various
factors, some of which are beyond the Company's control. Such statements address
the following subjects: future operating results; customer growth and retention;
loan and other product demand; earnings growth and expectations; new products
and services, such as those offered by the Meta Payment Systems Division; credit
quality and adequacy of reserves; technology; and our employees. The following
factors, among others, could cause the Company's financial performance to differ
materially from the expectations, estimates, and intentions expressed in such
forward-looking statements: the strength of the United States economy in general
and the strength of the local economies in which the Company conducts
operations; the effects of, and changes in, trade, monetary, and fiscal policies
and laws, including interest rate policies of the Federal Reserve Board;
inflation, interest rate, market, and monetary fluctuations; the timely
development of and acceptance of new products and services of the Company and
the perceived overall value of these products and services by users; the impact
of changes in financial services' laws and regulations; technological changes;
acquisitions; changes in consumer spending and saving habits; and the success of
the Company at managing the risks involved in the foregoing.
The foregoing list of factors is not exclusive. Additional discussion of factors
affecting the Company's business and prospects is contained in the Company's
periodic filings with the SEC. The Company does not undertake, and expressly
disclaims any intent or obligation, to update any forward-looking statement,
whether written or oral, that may be made from time to time by or on behalf of
the Company.
18
Part I. Financial Information
Item 3. Quantitative and Qualitative Disclosure About Market Risk
Market Risk
The Company is exposed to the impact of interest rate changes and changes in the
market value of its investments.
The Company currently focuses lending efforts toward originating and purchasing
competitively priced adjustable-rate loan products and fixed-rate loan products
with relatively short terms to maturity. This allows the Company to maintain a
portfolio of loans that will be sensitive to changes in the level of interest
rates while providing a reasonable spread to the cost of liabilities used to
fund the loans.
The Company's primary objective for its investment portfolio is to provide the
liquidity necessary to meet loan funding needs. This portfolio is used in the
ongoing management of changes to the Company's asset/liability mix, while
contributing to profitability through earnings flow. The investment policy
generally calls for funds to be invested among various categories of security
types and maturities based upon the Company's need for liquidity, desire to
achieve a proper balance between minimizing risk while maximizing yield, the
need to provide collateral for borrowings, and to fulfill the Company's
asset/liability management goals.
The Company's cost of funds responds to changes in interest rates due to the
relatively short-term nature of its deposit portfolio. Consequently, the results
of operations are generally influenced by the level of short-term interest
rates. The Company offers a range of maturities on its deposit products at
competitive rates and monitors the maturities on an ongoing basis.
The Company emphasizes and promotes its savings, money market, demand and NOW
accounts and, subject to market conditions, certificates of deposit with
maturities of three months through five years, principally from its primary
market area. The savings and NOW accounts tend to be less susceptible to rapid
changes in interest rates.
In managing its asset/liability mix, the Company, at times, depending on the
relationship between long- and short-term interest rates, market conditions and
consumer preference, may place somewhat greater emphasis on maximizing its net
interest margin than on strictly matching the interest rate sensitivity of its
assets and liabilities. Management believes that the increased net income which
may result from an acceptable mismatch in the actual maturity or repricing of
its asset and liability portfolios can provide sufficient returns to justify the
increased exposure to sudden and unexpected increases in interest rates which
may result from such a mismatch. The Company has established limits, which may
change from time to time, on the level of acceptable interest rate risk. There
can be no assurance, however, that, in the event of an adverse change in
interest rates, the Company's efforts to limit interest rate risk will be
successful.
Net Portfolio Value The Company uses a Net Portfolio Value ("NPV") approach to
the quantification of interest rate risk. This approach calculates the
difference between the present value of expected cash flows from assets and the
present value of expected cash flows from liabilities, as well as cash flows
from off-balance-sheet contracts. Management of the Company's assets and
liabilities is performed within the context of the marketplace, but also within
limits established by the Board of Directors on the amount of change in NPV that
is acceptable given certain interest rate changes.
Presented below, as of March 31, 2005 and September 30, 2004, is an analysis of
the Company's interest rate risk as measured by changes in NPV for an
instantaneous and sustained parallel shift in
19
the yield curve, in 100 basis point increments, up and down 200 basis points. As
illustrated in the table, the Company's NPV at March 31, 2005 was slightly more
sensitive to increasing interest rates than to decreasing interest rates and at
September 30, 2004 was slightly more sensitive to decreasing interest rates than
to increasing interest rates. This reflects management's efforts to maintain and
manage the Company's interest rate sensitivity in light of the events over the
past twelve months. Market interest rates began to increase as the result of
concern over the prospect of an increase in the rate of inflation. As the
Federal Open Market Committee ("FOMC") began a measured process of bringing
short-term interest rates back to a more normal level through 25 basis point
increases in the target rate for overnight money, long-term rates moderated
creating a flattening in the yield curve. Between June 2004 and May 2005, the
FOMC increased the target rate eight times for a total increase of 200 basis
points. While management does not anticipate a significant shift in market
interest rates in the near future, it does believe that there is less risk from
declining rates than from rising rates, and its management of interest rate risk
has reflected this belief. Management closely monitors the Company's interest
rate sensitivity.
At March 31, 2005 At September 30, 2004
Change in Interest Rates Board Limit ----------------- ----------------------
(Basis Points) % Change $ Change % Change $ Change % Change
--------------------- --------- --------- --------- --------- ---------
(Dollars in Thousands)
+200 bp (40)% $ (6,671) (13)% $ (5,473) (12)%
+100 bp (25) (2,629) (5) (1,580) (3)
0 bp -- -- -- -- --
-100 bp (25) (1,191) (2) (3,130) (7)
-200 bp (40) (6,416) (12) (5,631) (12)
Certain shortcomings are inherent in the method of analysis presented in the
foregoing table. For example, although certain assets and liabilities may have
similar maturities or periods to repricing, they may react in different degrees
to changes in market interest rates. Also, the interest rates on certain types
of assets and liabilities may fluctuate in advance of changes in market interest
rates, while interest rates on other types may lag behind changes in market
rates. Additionally, certain assets such as adjustable-rate mortgage-loans have
features which restrict changes in interest rates on a short-term basis and over
the life of the asset. Further, in the event of a change in interest rates,
prepayments and early withdrawal levels would likely deviate from those assumed
in calculating the tables. Finally, the ability of some borrowers to service
their debt may decrease in the event of an interest rate increase. The Company
considers all of these factors in monitoring its exposure to interest rate risk.
20
Part I. Financial Information
Item 4. Controls and Procedures
Controls and Procedures
Any control system, no matter how well designed and operated, can provide only
reasonable (not absolute) assurance that its objectives will be met.
Furthermore, no evaluation of controls can provide absolute assurance that all
control issues and instances of fraud, if any, have been detected.
Disclosure Controls and Procedures
Based on that evaluation, our Chief Executive Officer and Chief Financial
Officer concluded that as of March 31, 2005 our disclosure controls and
procedures were effective to provide reasonable assurance that (i) the
information required to be disclosed by us in this Report was recorded,
processed, summarized and reported within the time periods specified in the
SEC's rules and forms, and (ii) information required to be disclosed by us in
our reports that we file or submit under the Exchange Act is accumulated and
communicated to our management, including our principal executive and principal
financial officers, or persons performing similar functions, as appropriate to
allow timely decisions regarding required disclosure.
Internal Control Over Financial Reporting
There have not been any changes in the Company's internal control over financial
reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the
Exchange Act) during the fiscal quarter to which this report relates that have
materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting
21
META FINANCIAL GROUP, INC.
PART II - OTHER INFORMATION
FORM 10-Q
Item 1. Legal Proceedings - On June 11, 2004, the Sioux Falls School
District filed suit in the Second Judicial Circuit Court, against
First Federal Savings Bank of the Midwest, a wholly-owned subsidiary
of the Company, alleging that First Federal (now MetaBank)
improperly allowed funds, which belonged to the school district, to
be deposited into, and subsequently withdrawn from, a corporate
account established by an employee of the school district. The
school district is seeking in excess of $600,000. MetaBank has
submitted the claim to its insurance carrier, and is working with
counsel to vigorously contest the suit. There are no other material
pending legal proceedings to which the Company or its subsidiaries
is a party other than ordinary routine litigation incidental to
their respective businesses.
Item 2. Unregistered Sale of Equity Securities and Use of Proceeds -
------------------------------------------------------------
(a) None
(c) The following table provides information about purchases by the
Company or its affiliates during the quarter ended March 31, 2005 of
equity securities that are registered by the Company pursuant to
Section 12 of the Exchange Act.
---------------------------------------------------------------------------------------------------------------
Total Number of Shares Maximum Number of
Total Number Average Price Purchased as Part of Shares that May Yet
of Common Paid Per Share Publicly Announced Be Purchased Under
Period Shares Purchased Purchased Program(s) the Program(s)
---------------------------------------------------------------------------------------------------------------
1/1/05 - 1/31/05 -- -- -- --
---------------------------------------------------------------------------------------------------------------
2/1/05 - 1/28/05 600 (1) $22.80 29,100 (1) 10,900 (1)
---------------------------------------------------------------------------------------------------------------
3/1/05 - 3/31/05 -- -- -- --
---------------------------------------------------------------------------------------------------------------
Total 600 (1) $22.80 29,100 (1) 10,900 (1)
---------------------------------------------------------------------------------------------------------------
(1) The Company's Employee Stock Ownership Plan (ESOP) was
authorized in September 2004 to purchase 40,000 shares of the
Company's stock. Through December 31, 2004, it had purchased 28,500
shares. On April 18, 2005, the ESOP completed the authorized
purchase.
On April 25, 2005, the Company's Board of Directors authorized the
purchase of up to 100,000 shares of the Company's stock in a
repurchase program that runs through April 30, 2006. As of May 13,
2005, no shares had been purchased under this program.
Item 3. Defaults Upon Senior Securities - None
-------------------------------
Item 4. Submission of Matters to a Vote of Security Holders -
---------------------------------------------------
The Company held its Annual Meeting of Shareholders on January 24,
2005. At the meeting, shareholders of the Company considered and
voted upon the following matters:
1. The election of the following individuals as directors for a
three-year term:
E. Thurman Gaskill
Rodney G. Muilenburg
22
The results of the election of directors are as follows:
Votes
-----
In Favor Withheld
-------- --------
E. Thurman Gaskill 2,279,292 92,536
Rodney G. Muilenburg 2,290,184 81,644
There were no broker non-votes or abstentions on this proposal.
The following directors' terms of office continued after the
meeting:
E. Wayne Cooley
James S. Haahr
J. Tyler Haahr
G. Mark Mickelson
Jeanne Partlow
2. The proposal to amend the Certificate of Incorporation to change the
name of the Company from First Midwest Financial, Inc. to Meta
Financial Group, Inc. The results of the vote are as follows:
In Favor 2,248,274
Not in Favor 121,311
Abstain 2,243
Broker Non-votes None
Item 5. Other Information - None
-----------------
Item 6. Exhibits
--------
(a) Exhibits:
31.1 Section 302 certification of Chief Executive Officer.
31.2 Section 302 certification of Chief Financial Officer.
32.1 Section 906 certification of Chief Executive Officer.
32.2 Section 906 certification of Chief Financial Officer.
23
META FINANCIAL GROUP, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
META FINANCIAL GROUP, INC.
Date: May 13, 2005 By: /s/ James S. Haahr
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James S. Haahr, Chairman of the Board,
and Chief Executive Officer
Date: May 13, 2005 By: /s/ Ronald J. Walters
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Ronald J. Walters, Senior Vice President,
Secretary, Treasurer and Chief Financial Officer
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