Pathward Financial
Annual Report 2008

Plain-text annual report

Money on the Move 2008 ANNUAL REPORT Our conservative approach to asset management once again steered us clear of exposure to the volatile subprime residential loan markets. —TYLER HAAHR Company Structure META FINANCIAL GROUP, INC.® METABANKTM META TRUST® NORTHWEST IOWA MARKET BROOKINGS MARKET CENTRAL IOWA MARKET SIOUX EMPIRE MARKET META PAYMENT SYSTEMS® Company Profile Meta Financial Group, Inc. (MFG) is a $757.3 recognized Meta Payment Systems (MPS) division. MPS supports clients million thrift holding company for MetaBank and nationwide and manages four primary business lines that contribute to Meta Trust Company. Headquartered in Storm revenue and deposits: prepaid cards, credit cards, Automated Teller Machine Lake, Iowa, the Company converted from mutual (ATM) sponsorship and Automated Clearing House (ACH) origination. Thirteen ownership to stock ownership in 1993. Its pri- bank offices and two MPS offices (including one bank administrative office) mary businesses are deposits, loans and other support customers in Iowa, South Dakota and MPS clients across the financial services and products to meet the country. Meta Trust provides professional trust services. JAMES S. HAAHR CHAIRMAN OF THE BOARD needs of its commercial, agricultural and retail customers; and an industry-leading electronic payment systems division. MFG shares are traded on the NASDAQ Global Market® under the symbol “CASH.” MFG operates under a super-community banking philosophy that allows the Company to grow while maintaining its community bank roots, with localized decision making and customer service. Administrative functions, transparent to the customer, are centralized to enhance the banks’ opera- tional efficiencies and to improve customer service capabilities. MetaBank is a federally-chartered savings bank with four market areas: Brookings, Central Iowa, Northwest Iowa and Sioux Empire; and the nationally- Comparison of Cumulative Total Return of MFG (NASDAQ symbol: CASH), broad market and industry index 200 150 100 50 2003 2004 2005 2006 2007 2008 Meta Financial Group, Inc. NASDAQ Market Index Hemscott Group Index MetaBank is a Member FDIC and Equal Housing Lender. The Company and its subsidiaries exceed regulatory capital requirements. M U A B N E N N A T T R E B O R Y B O T O H P Financial Highlights META FINANCIAL GROUP BEGAN TRADING PUBLICLY ON SEPTEMBER 20, 1993. (Dollars in Thousands, Except Share and Per Share Data) 2008 2007 2006 2005 2004 AT SEPTEMBER 30 Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total loans, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Book value per common share. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total equity to assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . FOR THE FISCAL YEAR Total interest income and non-interest income-continuing operations . . . . . . . . . . . . . . . . . . Net interest income-continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income (loss) from continuing operations, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income (loss) from discontinued operations, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net income (loss). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Diluted earnings (loss) per share: Income (loss) from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income (loss) from discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net income (loss). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Return on average assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Return on average assets-continuing operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Return on average equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Return on average equity-continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net yield on interest-earning assets-continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . $ $ $ 757,256 427,928 545,972 46,807 18.00 6.18% 75,114 24,003 (1,834) 1,885 51 (0.70) 0.72 0.02 0.01% -0.24% 0.11% -3.98% 3.51% $ $ $ 686,080 355,612 522,978 48,098 18.57 7.01% 59,632 20,807 1,312 (141) 1,171 0.50 (0.05) 0.45 0.17% 0.19% 2.69% 3.01% 3.38% $ $ $ 740,921 368,959 538,169 45,099 17.79 6.09% 51,607 18,501 3,379 309 3,688 1.34 0.12 1.46 0.49% 0.45% 8.55% 7.83% 2.85% $ $ $ 775,839 415,568 510,258 42,959 17.16 5.54% 41,870 18,063 (652) (272) (924) (0.27) (0.11) (0.38) -0.12% -0.08% -2.04% -1.44% 2.59% $ $ $ 780,799 381,406 433,928 47,274 18.98 6.05% 36,729 16,539 3,662 325 3,987 1.44 0.13 1.57 0.51% 0.47% 8.69% 7.98% 2.44% Total Assets In millions Total Loans, Net In millions Total Deposits In millions Total Revenues In millions Total Net Income In millions 8 . 0 8 7 $ 8 . 5 7 7 $ 3 . 7 5 7 $ 9 . 0 4 7 $ 1 . 6 8 6 $ 6 . 5 1 4 $ 4 . 1 8 3 $ 0 . 9 6 3 $ 6 . 5 5 3 $ 9 . 7 2 4 $ 2 . 8 3 5 $ 0 . 3 2 5 $ 0 . 6 4 5 $ 3 . 0 1 5 $ 9 . 3 3 4 $ 6 . 9 5 $ 6 . 1 5 $ 9 . 1 4 $ 7 . 6 3 $ 1 . 5 7 $ . 0 4 $ . 7 3 $ 04 05 06 07 08 04 05 06 07 08 04 05 06 07 08 04 05 06 07 08 2 . 1 $ 06 07 1 . 0 $ 08 04 05 ) 9 . 0 ( $ 2008 ANNUAL REPORT 1 Letter to Shareholders Meta Financial Group made genuine progress in both revenue growth and long-term value creation for our owners in fiscal 2008. And, despite profitability challenges during a year of widespread turmoil in the economy, we declared J. TYLER HAAHR PRESIDENT AND CEO and paid $0.52 per share in cash dividends, demonstrating to shareholders our stability and resolve by extending to fourteen years our record of consecutive quarterly dividends. Sustaining growth and creating additional shareholder value during a time of industry-wide uncertainty will no doubt be challenging, but our management team and staff are confident we are continuing to build momentum and are well positioned to capitalize on new opportunities that are available. Our conservative approach to asset management once again steered us clear of exposure to the volatile subprime residential loan markets. While many lending institutions in our peer group were being hit hard by losses in this category, our asset quality continued to reflect our cautious lending standards. We have also nearly completed an extensive branch realignment project and as a result, we are now satisfied that our branch configuration fulfills our present needs. Meta Payment Systems (MPS), our electronic payments division, delivered resoundingly on one of our primary initiatives by increasing revenue 76% and adding 124% to non-interest income. MPS produced these impressive advances from both existing products and from exciting new offerings, such as our innovative iAdvanceSM loan solution. New product offerings during the During the past fiscal year we met significant milestones in each of the last 15 months accounted for 65% of 2008 MPS non-interest income. For three key initiatives we outlined in the prior year to promote long-term an expanded understanding of the impressive dynamics of the MPS division, growth and profitability. We: 1) Achieved additional increases in business I refer you to the nearby interview with our executive management team. volume in Meta Payment Systems, 2) Built further on our successful record in the commercial banking business, and 3) Managed infrastruc- ture and risk to support growth. These substantial inroads were made “Meta Payment Systems (MPS), our electronic payments division, delivered resoundingly on one in the midst of a period of great challenge for banks and other financial of our primary initiatives...” institutions. We were certainly not untouched by nationwide trends. These trends, Going forward, we will concentrate on appropriately adjusting to the along with resolution of a customer credit issue and settlement of litiga- nationwide fallout from the recent economic crisis and will look for opportu- tion specific to MetaBank, led to lower earnings than expected and a nities to refine and grow the profitability of banking and electronic payment reduction in our share price in the last year. We can’t control the market, systems, our two major lines of business. We believe the underpinnings of but we can and do control our business fundamentals, which remain the financial services industry will re-stabilize, and we are truly excited very strong. at this juncture that new opportunities for growth and profitability are 2 META FINANCIAL GROUP becoming available. We look forward to reporting such future progress. Here are the financial highlights from fiscal 2008: • MFG reported net income of $0.1 million or $0.02 per diluted share for fiscal 2008. This compares to net income of $1.2 million or $0.45 cents per diluted share in 2007. • Full year net income was $2.5 million absent 2006 litigation settlement and a previously disclosed provision for fraud-related loan • MPS net income $3.3 million • MPS revenue grew 76% over previous year • MetaBank operations and loss charges plus MPS earnings yielded about a breakeven year Heritage of Discipline and Experience Allow me to offer a brief but important summary of MFG’s strategic objectives as we enter the coming period of both challenge and opportunity. Meta Financial Group is grounded in a half-century heritage of fiscal and fiduciary discipline and experience. Our defining characteristic is that our customers know they can rely on their Meta providers for com- prehensive services on an everyday basis as well as in times of tumult for the local or national economy. Whether it is business banking, com- mercial lending, deposit taking or our elite electronic payments division, Low-Cost Deposit Balances In millions MPS Non-Interest Income In millions 3 1 4 $ 6 5 3 $ 9 0 3 $ 9 9 1 $ 1 4 1 $ 8 . 4 3 $ 6 . 5 1 $ 1 . 1 1 $ 04 05 06 07 08 Low-cost deposits include check- ing and money market accounts. 0 . 0 $ 04 6 . 1 $ 05 06 07 08 Funding Sources 2007 Funding Sources 2008 Checking . . . . . . . . . 44% Wholesale Checking . . . . . . . . . 52% Wholesale Certificates . . . . . . 27% Borrowings . . . . 13% Certificates . . . . . . 17% Borrowings . . . . 21% Money Markets. . 14% Savings . . . . . . . . . . . . 2% Money Markets . . . 6% Savings . . . . . . . . . . . . 1% our teams offer their customers unrivaled experience and the discipline continue to exceed the “well capitalized” standard of safety and soundness that comes with it. as defined by federal banking regulators. With few exceptions, the financial service industry was hit hard by credit Our MetaBank executives have applied this same disciplined approach quality reverses during the recent crisis. As one of the exceptions, we are to our retail bank branch operations. As previously reported, we sold four able to report that Meta had virtually no exposure to the core real estate branches that no longer fit into our long-term plans, and over the past five credit crisis as reflected by the subprime mortgage mess. The charges we years, we opened six new branches in solid locations that fit well into our did incur in 2008 were 1) to resolve litigation from 2006, and 2) reserve specific target geography and establish a platform for higher growth in our for loans to one commercial borrower that were unrelated to our mortgage retail banking operations. Our primary objective today is to reduce costs, raise portfolio. Meanwhile, our balance sheet continues to be strong, and we productivity, and bring a higher portion of our revenues to the bottom line. 2008 ANNUAL REPORT 3 We will continue to refine our banking products to better serve our • Centralized back office operations allowing our retail branches to focus customers. Examples include cutting-edge products and services made more on direct customer service possible by new capabilities in our modern and efficient processing centers. • Standardized procedures, documentation and reporting for improved effi- We have consolidated “back office” operations in our retail branches to ciency while providing necessary flexibility to adapt to changing needs free personnel to serve customers better and to provide higher levels of • Reviewed data files thoroughly and confirmed portfolio integrity control and risk management. • Positioned several newer branches to accelerate growth I am pleased to report that our overall customer base is quite solid. • Provided training to ensure our staff will deliver and execute leading- Our regional business and the commercial and agricultural customers we edge service serve are in generally stable businesses with reasonably benign business • Supported continued growth in loans and deposits without significant cycles. Our MetaBank customer service ethic is centered on keeping cost increments “Money on the Move” by serving both traditional business banking and • Initiated retail deposit and checking product updates to ensure high retail banking customers. Our vision is to provide value-added service to customer appeal and support account growth clients through the changing cycles of home and business life. For example, we help new businesses reach critical mass, grow with them and help with expanding needs as the business flourishes. MetaBank offers parallel Growth Through Innovation at Meta Payment Systems Division support on the personal side throughout the various stages of individual MFG continues to identify, support and deliver growth through innovation. and family life. “Our primary objective today is to reduce costs, raise In 2004, Meta Payment Systems was formed with financing provided by our retail bank, which was founded in 1954. Today our innovative MPS team nearly defines change. MPS is solid yet nimble enough to create a steady productivity, and bring a higher portion of our revenues stream of appealing new products and services for a widening market. As to the bottom line...” a result, some investors have begun to refer to our dynamic company as, A Heritage of Continual Improvement Our management teams completed important work in 2008 to ensure that “a 54-year-old startup.” Meta Payment Systems is recognized as one of the largest and most innovative providers of card services. In 2008, Meta issued over 30 million cards, filed 15 patents, and won several national industry awards, including our organization is structurally sound and that our business units are very “Most Innovative Product” for our iAdvance concept. MPS collaborates with competitive. Our primary thrust at MetaBank is on improving operating market-leading partners such as large retailers, malls and credit card com- efficiency, managing risk, preserving data integrity, enhancing security and panies to provide value-added services. MPS has made possible unique, protecting customer identity. Some examples of what MetaBank accom- name branded gift cards for small and mid-sized banks that would other- plished in this regard in 2008: 4 META FINANCIAL GROUP wise not be able to employ these advanced marketing tools. As a division of MetaBank, a federally chartered savings bank, MPS has the capability to Meta Payment Systems–Examples of Prepaid Cards Moving Forward I am personally proud of the Meta executive team and each of our employees. They are dedicated, quality men and women with energy, spirit and talent. With the guidance of our excellent Board of Directors, I believe this team will continue to deliver good value to our owners. It is through our Board and its steady hand that we maintain our heritage of responsible change. 2009 will be one of historic challenge for banks and other financial institutions. Grounded in our tradition of financial discipline, we believe Meta Financial Group will quickly seize the opportunities posed by these challenges and will bend every effort to create value for our owners. provide access to all the national and regional debit networks. Meta® is among the top issuers of Visa,® MasterCard® and Discover® branded prepaid cards. However, our role goes far beyond that of an issuing bank. We also work as a trusted advisor on compliance matters and as a client advocate with the processors and the associations. Indeed, our experienced manage- ment often suggests innovative approaches to our clients. Meta Payment Systems joins MetaBank in the practice of keeping “Money on the Move” by inventing and selling products and services that serve nearly all retail consumers including the “under-banked” segment, J. TYLER HAAHR those individuals who do not maintain traditional bank accounts. In this regard, MPS’ new iAdvance product provides access to small-dollar, short- term loan solutions for traditionally underserved consumers. Building Value Meta is positioned to add new value for our owners. Meta Financial Group continues to create shareholder value by combining sound traditional retail banking with an innovative and ground-breaking electronic payment systems operation. As both our traditional banking business and Meta Payment Systems continue to grow and increase profitability, we believe we will be able to more clearly demonstrate the unique value we’re building for our owners. As the equity markets stabilize, and banking and financial services firms return to favor, we believe our company will earn recognition as a promising and well-managed business. 2008 ANNUAL REPORT 5 Question and Answer (Editor’s Note: As indicated in J. Tyler Haahr’s nearby letter to shareholders, the following interview with key Meta Financial Group executives is intended to more closely acquaint investors with the scope and potential of MFG’s diverse operations. The participants are Brad Hanson, Executive Vice President, President MPS; Scott Galit, Executive Vice President MPS; Dave Leedom, Senior Vice President & CFO; and Troy Moore, Executive Vice President & COO.) Q: Brad, shareholders readily understand MetaBank as a leading regional bank, but they frequently ask for an explanation of the Working with partners allows us to apply our expertise to a wide range of products spanning numerous applications in multiple industries. As the complexities of the Meta Payment Systems division. Would you begin business evolves we are able to leverage our knowledge and experience by describing MPS in broad terms? A: Since the inception of Payment Systems division in 2004, prepaid cards have provided an excellent platform to help us establish ourselves in the electronic payments industry. A prepaid card is a form of debit card that pro- vides consumers access to a specified portion of funds in a pooled account held at the bank. Primarily, we have been focused on the delivery of so-called “open-loop” cards that can be used in a wide variety of locations and are branded with the Discover,® MasterCard® and Visa® logos. These products are largely fee-driven based on high transaction volume, and contribute to a growing flow of low-cost deposits to MetaBank. to provide a greater breadth of products and services for our clients. We have also started to develop financial solutions in other areas such as loyalty and credit. Our patent pending iAdvanceSM product, an innovative new micro- loan solution, is just one example of how we are creating better options for our customers. Q: Scott, please give us a bit more color on Brad’s comment. How wide a landscape are we talking about in the electronic payments sector? A: What’s so exciting for Meta Payment Systems is that electronic payments represents a multi-trillion dollar industry. There are well-established global But Meta Payment Systems is about more than just prepaid cards; it’s trends where we are seeing the migration of payments from cash and checks about many forms of payments and a whole new way to think about financial to electronic payments. So, we help businesses and consumers make pay- services. Our objective is to be the leading provider of an entire range of inno- ments and move money. vative payment solutions that we deliver in collaboration with market-leading We’ve managed to become an industry leader in our areas of focus. As partners. We intend to do this by delivering new, better financial products that Brad indicated, we’ve done this by partnering with industry-leading compa- improve the lives of our customers. In other words, we want to build the kinds nies to help them create and deliver innovative electronic payments products of products that can make money come alive and impact the lives of people and solutions. We’re operating in really big market spaces and by helping our everywhere by bringing them financial opportunity, convenience and choice. partners succeed, we’re confident we’ll continue to see exciting opportunities on an increasingly larger scale. 6 META FINANCIAL GROUP TROY MOORE EXECUTIVE VICE PRESIDENT & COO DAVE LEEDOM SENIOR VICE PRESIDENT & CFO BRAD HANSON EXECUTIVE VICE PRESIDENT; PRESIDENT MPS SCOTT GALIT EXECUTIVE VICE PRESIDENT MPS Q: Dave, it would appear from those descriptions that there would be some cyclicality in the earnings stream from the Meta Payment Systems Q: Troy, in light of what Dave said, do you have concerns in terms of the overall impact of cyclicality on the consolidated annual earnings operations. Is this true, and how are you meeting that challenge? picture? Are the bank’s activities counter-cyclical to Meta Payment A: While level financial results are nice, we don’t believe seasonal fluctuations present an undue challenge. For example, our travel-related business reaches a peak during the summer months, while our tax-related Systems, and how does this benefit the overall earnings picture? A: The traditional banking activities are not necessarily counter-cyclical to those in our MPS division. It is important to have more than one profit center business peaks during the late winter months. Our liquidity planning takes in a company, and our mix of traditional banking and electronic payment this into account by optimizing investment and secondary funding opportuni- systems gives us an excellent diversity in earnings opportunities. It just ties. In addition, as the Meta Payment Systems business continues to grow happens to be that revenue from Meta Payment Systems has grown so and become more diverse, we anticipate that this cyclicality will become much, and the earnings cycle in that particular division of the company is less pronounced. Q: Would it be fair to say, generally speaking, that profitability on a given new line of MPS business lags investment in that new business significant enough, that our earnings will be cyclical. Investors typically want to see steady, consistent results but we will continue to be cyclical. That will be fully acceptable as long as investors have a clear understanding of our business lines and the long-term investment opportunity Meta Financial by more than six months? Group represents. A: Yes, we are investing in research and product development well in advance of program introduction, so six months would be a typical time lag. However, for some new products that have more complexity, research and development has preceded implementation and profitability by more than a year. Q: Brad, what are the leading-edge innovations coming in the elec- tronic payment sector, and should we assume from the patents recently filed by Meta Payment Systems that the company is in the vanguard? A: Some of the patents we’ve filed are about products but others are about technology and processes that give us a competitive advantage by improving our ability to manage risk while increasing flexibility and control for our cus- tomers. This all works in concert to provide a well-rounded platform for new products and services tempered by appropriate controls and a sharp focus on compliance, and that combination is what makes us a leader in our industry. 2008 ANNUAL REPORT 7 Meta Payment Systems Travel Card Consumer purchases Visa® travel card at bank branch (cid:1) Funds are held at MetaBankTM until spent (cid:1) Consumer uses travel card at restaurants, lodging, retailers (cid:1) Visa® pays retailers and pulls funds from MetaBankTM to cover purchases Q: Brad and Scott, given the strong growth outlook, what conclusions can we draw about the Company’s ability to fund the growth of Meta Q: Scott, you previously managed prepaid electronic payments world- wide for MasterCard. What is the overall competitive environment like Payment Systems going forward? in the electronic payments arena, and what specifically will MPS need A: Brad – MPS’ rapid growth has exceeded expectations since its inception four years ago and we have consistently reinvested their earnings to fund many promising new initiatives. The priorities we set for the management team are those designed to benefit the long-term success of the company. to do to get to the top of the peer group and stay there? Are we near this position now? A: In our focal areas, like prepaid issuance and ATM acquiring, Meta Payment Systems has become the industry leader. While there is certainly When we started MPS, we made a long-term commitment to its growth and a lot of competition in the electronic payments industry overall, we have to the capital it would take to be able to take advantage of the opportunities created a special formula that has enabled us to succeed. It starts with the and expanding markets in the electronic payments industry. truly unique and talented team of experienced payments professionals at “MPS’ rapid growth has exceeded expectations since its inception four years ago.” A: Scott – That’s right. And, bear in mind Meta Payment Systems now has a several-year track record of increasing profitability and greater than MPS. We are more nimble and flexible than larger organizations and have more sophisticated capabilities than the typical smaller industry players. This sweet spot allows us to become the business partner of choice for a growing list of large companies and create a diverse portfolio of products and services. Our electronic payments business has been profitable since our first year, 50% year-over-year revenue growth. Non-interest bearing deposits flowing and we have continued to aggressively invest in what we believe is a very to MetaBank also show a similar growth trajectory. This performance provides exciting opportunity to create significant long-term value for our shareholders. both capital and funding to enable further holistic growth for Meta Financial We are focused on innovation, talent and growth and expect to enhance Group. We also intend to be opportunistic when strategic options present profitability in 2009 and beyond. themselves. 8 META FINANCIAL GROUP Meta Payment Systems Rebate Card Consumer purchases product at a store and completes rebate request form (cid:1) Rebate processor transmits rebate information and funds to MetaBank,TM where funds are held until spent (cid:1) Meta® sends MasterCard® rebate card to consumer through mail (cid:1) Consumer spends funds from card at a merchant (cid:1) MasterCard® pays merchant for the purchase and pulls funds from MetaBankTM for settlement Q: You’re saying that the more diverse your product offerings continue to be, the more sustainable the growth will be? Q: Dave and Troy, back to MetaBank itself, how does the Bank directly benefit from the revenue model of the Meta Payment Systems division? A: There’s no question that the payments industry has diversity and scale. As we continue to serve our partners, we are broadening our product capabili- A: Dave – The lifeblood of a bank is its deposits, and the bank directly benefits from business model of MPS and its ability to gather low- or no- ties and growing with them. The more diverse our offerings and capabilities cost deposits. These deposits allow us to reduce borrowings and fund highly are, the more partners we can work with and the more extensively we can competitive loans in the markets we serve. From a banking perspective it’s collaborate with individual partners. The payments industry is so large that pretty simple. We gather deposits, make a loan, charge a fee and work to we could be ten times the size we are today and still not be considered a big control operating expenses. The first part of the equation is important. We company. With the talent we have and our commitment to innovation, we’re need access to low-cost deposits, and Meta Payment Systems furnishes confident we have tremendous opportunities ahead of us. them for us. As a result, we have a base for further growth in our retail Q: What share of market does Meta Payment Systems hold now, and what would be a reasonable goal to capture over, say, three to five years? A: We’re focused less on market share than we are on value creation for our partners and shareholders. We have strong growth potential in both banking unit and are poised to accomplish that. A: Troy – Yes, and we are all determined that we will not grow just for growth’s sake; it must be profitable growth. The emphasis today is to reduce costs, raise productivity and bring more of the revenue to the bottom line. We will be introducing many new retail banking products in the next fiscal year. But, we can have the best products in the world and if we do not deliver smaller industries that are experiencing rapid growth and larger industries and execute service above customer expectation, then the product mix will where innovation can create new and compelling value propositions. Our not matter. market share in the overall electronic payments industry will still be relatively small in a few years. That said, we expect we’ll continue to be a leader in the emerging market areas we focus on and we’ll create an impact in every market we penetrate. A: Dave – Our traditional banking business has a significant competitive advantage due to the low- and no-interest deposits that MPS generates. Due to the large-portfolio dynamics of these deposits, they are not subject to the unanticipated fluctuations of a more concentrated book of deposits, so they form an ideal platform for lending and investment. 2008 ANNUAL REPORT 9 Meta Payment Systems Gift Card Consumer purchases Discover® gift card at bank (cid:1) Bank electronically transmits funds and fees to Meta® where funds remain until spent (cid:1) Consumer gives card to recipient (cid:1) Recipient spends the gift at retailer (cid:1) Discover® pays retailer and pulls funds from MetaBankTM to cover purchases Q: Dave, while we are focused on MetaBank, what level of asset risk do you see in coming quarters, given the macro-economic landscape Q: So, Dave and Troy, what would you say are the three principal reasons MetaBank, of and by itself, deserves the attention of investors? before us? A: Over the years, the Bank has avoided the temptation to concentrate its lending and investment in areas, such as the subprime mortgage sector, A: Dave – We are one of only a handful of companies that have combined the fundamentals of retail banking with the innovation and opportunities in the electronic payments industry. In unprecedented economic times, we made which have now proven to be disastrous for some of our peers. We intend to decisions that protected the company and its shareholders from exposure continue to be balanced and sensible when evaluating asset risk for both the to the core real estate crisis; we have managed the infrastructure and risk near term and beyond. Our growth outlook for the traditional bank segment to support growth now and in the future; we have been and continue to be is moderate until we see evidence of strengthening in the overall market. well capitalized. Although banking seems to be a tough industry right now, we strongly feel there are opportunities and we are well positioned to take “We are one of only a handful of companies that have advantage of them. combined the fundamentals of retail banking with the innovation and opportunities in the electronic payments industry.” A: Troy – We would make three key points: 1) Meta Financial Group provides an attractive diversification within the financial services industry; a commercial bank and an industry-leading payments business. 2) The commercial bank has a history of prudent underwriting and investment risk avoidance. 3) Our payments business has invested in building the infrastruc- ture to support its rapid growth in a segment that’s still expanding. 10 META FINANCIAL GROUP Meta Payment Systems Reloadable Card Consumer visits retail location and obtains prepaid card (cid:1) Consumer signs up with employer for direct deposit and paycheck is sent to Meta,® where funds remain until spent (cid:1) Consumer uses card to make purchases at gas stations, grocery stores and other retailers (cid:1) Visa® pays retailers and pulls funds from MetaBankTM to cover purchases Q: Brad and Scott, let’s put the same question to you: what are the three top attributes of Meta Payment Systems you would point out to Q: Dave, looking at Meta Financial Group as a whole, what do you see as key areas of improvement as we move through the coming quarters? an investor? A: Brad – As barriers to entry continue to rise, we have built a stronghold in a rapidly expanding industry. MPS has an extremely talented leadership A: Not surprisingly, credit quality will receive much focus. Our credit review function undergoes continuous analysis in concert with our lenders. We are not content to “stand pat” with “the way we’ve always done it,” even team capable of leveraging their broad knowledge and experience in the though we have experienced considerable success. Additionally, we have payments industry to bring innovative financial solutions to the marketplace. undertaken a modification of MPS’ systems to make them more modular We have a proven ability to collaborate and execute effectively with market- and better able to accommodate the scale of the business that is anticipated. leading partners to deliver innovative products and services that meet We are also building out our financial systems to ensure a level of granularity evolving market needs. that provides management with even better tools with which to evaluate A: Scott – We’ve used this formula to build a strong base of employees, partners and financial performance, and as a team we’re excited we have the opportunity to continue to do so in the future. program performance and resource deployment. Q: Finally, Dave, for the dividend-driven investor, what assurances if any, can you give that the Company’s 14-year record of continuous dividend payments will continue? A: Of course, dividend policy and prudent capital levels are the responsibility of the Board of Directors, but the Company considers dividends to be a key tangible demonstration of its commitment to shareholders. 2008 ANNUAL REPORT 11 Consolidated Statements of Financial Condition (Dollars in Thousands, Except Share and Per Share Data) SEPTEMBER 30, ASSETS Cash and due from banks Interest-bearing deposits in other financial institutions Total cash and cash equivalents Federal funds sold Investment securities available for sale Mortgage-backed securities available for sale Loans receivable—net of allowance for loan losses of $5,732 at September 30, 2008 and $4,493 at September 30, 2007 Federal Home Loan Bank stock, at cost Accrued interest receivable Bond insurance receivable Premises and equipment, net Bank-owned life insurance Assets related to discontinued operations, held for sale Goodwill MPS accounts receivable Other assets Total assets LIABILITIES AND SHAREHOLDERS’ EQUITY LIABILITIES Non-interest-bearing checking Interest-bearing checking Savings deposits Money market deposits Time certificates of deposit Total deposits Advances from Federal Home Loan Bank Securities sold under agreements to repurchase Subordinated debentures Accrued interest payable Contingent liability Liabilities related to discontinued operations, held for sale Accrued expenses and other liabilities Total liabilities 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 Additional paid-in capital Retained earnings—substantially restricted Accumulated other comprehensive (loss) Unearned Employee Stock Ownership Plan shares Treasury stock, 356,896 and 368,282 common shares, at cost, at September 30, 2008 and September 30, 2007, respectively Total shareholders’ equity Total liabilities and shareholders’ equity See Notes to Consolidated Financial Statements. 12 META FINANCIAL GROUP $ $ $ 2008 2007 $ $ $ 2,963 - 2,963 5,188 19,711 184,123 427,928 8,092 4,497 6,098 21,992 12,758 - 2,206 50,046 11,654 757,256 355,020 15,029 9,394 43,038 123,491 545,972 132,025 5,348 10,310 578 4,293 - 11,923 710,449 - 30 23,058 35,516 (5,022) - (6,755) 46,807 1,210 10,110 11,320 75,000 25,960 132,741 355,612 4,015 4,189 - 19,707 12,261 35,770 1,508 1,748 6,249 686,080 260,098 14,600 10,265 81,292 156,723 522,978 68,000 224 10,310 842 - 30,949 4,679 637,982 - 30 21,958 36,805 (3,345) (377) (6,973) 48,098 $ 757,256 $ 686,080 Consolidated Statements of Operations (Dollars in Thousands, Except Share and Per Share Data) SEPTEMBER 30, Interest and dividend income: Loans receivable, including fees Mortgage-backed securities Other investments Interest expense: Deposits FHLB advances and other borrowings Net interest income Provision for loan losses Net interest income after provision for loan losses Non-interest income: Card fees Gain on sale of branch office Deposit Fees Loan Fees Gain on sale of securities available for sale, net Gain on sale on membership equity interests, net Bank-owned life insurance income Other income Non-interest expense: Compensation and benefits Card processing expense Occupancy and equipment expense Legal and consulting expense Marketing Data processing expense Other expense Income (loss) from continuing operations before income tax expense (benefit) Income tax expense (benefit) from continuing operations Income (loss) from continuing operations Gain on sale from discontinued operations before taxes Income (loss) from discontinued operations before taxes Income tax expense (benefit) from discontinued operations Income (loss) from discontinued operations Net income Basic earnings (loss) per common share: Income (loss) from continuing operations Income (loss) from discontinued operations Net income Diluted earnings (loss) per common share: Income (loss) from continuing operations Income (loss) from discontinued operations Net income Dividends declared per common share: See Notes to Consolidated Financial Statements. 2008 25,909 8,484 3,025 37,418 7,758 5,657 13,415 24,003 2,715 21,288 34,634 - 833 777 24 543 498 387 37,696 25,731 15,630 6,619 3,386 1,250 1,248 7,956 61,820 (2,836) (1,002) (1,834) 2,309 76 500 1,885 51 (0.71) 0.73 0.02 (0.70) 0.72 0.02 0.52 $ $ $ $ $ $ $ $ $ $ $ $ $ $ 2007 25,584 5,500 6,690 37,774 11,664 5,303 16,967 20,807 3,168 17,639 15,375 3,331 885 580 496 - 436 755 21,858 18,248 6,377 4,003 2,965 797 911 3,657 36,958 2,539 1,227 1,312 (394) (253) (141) 1,171 0.52 (0.06) 0.46 0.50 (0.05) 0.45 0.52 $ $ $ $ $ $ $ 2006 27,948 6,185 3,979 38,112 12,756 6,855 19,611 18,501 311 18,190 10,821 - 852 446 - - 555 821 13,495 12,794 2,986 2,932 3,021 712 628 3,567 26,640 5,045 1,666 3,379 458 149 309 3,688 1.36 0.12 1.48 1.34 0.12 1.46 0.52 2008 ANNUAL REPORT 13 Selected Financial Condition Data (Dollars in Thousands, Except Share and Per Share Data) SEPTEMBER 30, SELECTED FINANCIAL CONDITION DATA Total assets Loans receivable, net Securities available for sale Goodwill Deposits Total borrowings Shareholders’ equity YEAR ENDED SEPTEMBER 30, SELECTED OPERATIONS DATA Total interest income Total interest expense Net interest income Provision for loan losses Net interest income after provision for loan losses Total non-interest income Total non-interest expense Income (loss) from continuing operations before income tax expense (benefit) Income tax expense (benefit) Income (loss) from continuing operations Income (loss) from discontinued operations, net of tax Net income Basic earnings (loss) per common share: Income (loss) from continuing operations Income (loss) from discontinued operations Net income Diluted earnings (loss) per common share: Income (loss) from continuing operations Income (loss) from discontinued operations Net income YEAR ENDED SEPTEMBER 30, SELECTED FINANCIAL RATIOS AND OTHER DATA PERFORMANCE RATIOS Return on average assets Return on average assets-continuing operations Return on average equity Return on average equity-continuing operations Net interest margin-continuing operations Operating expense to average assets-continuing operations QUALITY RATIOS—CONTINUING OPERATIONS Non-performing assets to total assets at end of year Allowance for loan losses to non-performing loans CAPITAL RATIOS Shareholders’ equity to total assets at end of period Average shareholders’ equity to average assets OTHER DATA Book value per common share outstanding Dividends declared per share Number of full-service offices 14 META FINANCIAL GROUP 2008 2007 2006 $ $ $ $ $ 757,256 427,928 203,834 2,206 545,972 147,683 46,807 37,418 13,415 24,003 2,715 21,288 37,696 61,820 (2,836) (1,002) (1,834) 1,885 51 (0.71) 0.73 0.02 (0.70) 0.72 0.02 0.01% -0.24% 0.11% -3.98% 3.75% 8.24% 0.99% 76% 6.18% 6.15% $ $ $ $ $ 686,080 355,612 158,701 1,508 522,978 78,534 48,098 37,774 16,967 20,807 3,168 17,639 21,858 36,958 2,539 1,227 1,312 (141) 1,171 0.52 (0.06) 0.46 0.50 (0.05) 0.45 0.17% 0.19% 2.69% 3.01% 3.38% 5.26% 0.38% 196% 7.01% 6.20% 740,921 368,959 172,444 1,508 538,169 114,789 45,099 38,112 19,611 18,501 311 18,190 13,495 26,640 5,045 1,666 3,379 309 3,688 1.36 0.12 1.48 1.34 0.12 1.46 0.49% 0.45% 8.55% 7.83% 2.85% 3.55% 0.72% 121% 6.09% 5.76% $ 18.00 0.52 13 $ 18.57 0.52 17 17.79 0.52 19 $ $ $ $ $ $ BACK: J. TYLER HAAHR AND TROY MOORE; FRONT: BRAD HANSON, DAVE LEEDOM, SCOTT GALIT Board of Directors Senior Officers James S. Haahr Chairman of the Board of Meta Financial Group and MetaBank James S. Haahr Chairman of the Board of Meta Financial Group and MetaBank E. Wayne Cooley Consultant Emeritus of the Iowa Girls’ High School Athletic Union E. Thurman Gaskill Iowa State Senator and Grain and Livestock Farming Operation Owner J. Tyler Haahr President and Chief Executive Officer of Meta Financial Group and MetaBank, and President of Meta Trust Brad C. Hanson Executive Vice President of Meta Financial Group and MetaBank and President of Meta Payment Systems Division Frederick V. Moore President of Buena Vista University Rodney G. Muilenburg Retired Dairy Specialist Manager of Purina Mills, Inc.; Retired Consultant for TransOva Genetics Dairy Division and Retired Director of Sales and Marketing for TransOva Genetics Jeanne Partlow Retired Chairman of the Board and President of Iowa Savings Bank J. Tyler Haahr President and Chief Executive Officer of Meta Financial Group and MetaBank, and President of Meta Trust Troy Moore Executive Vice President and Chief Operating Officer of Meta Financial Group and MetaBank Brad C. Hanson Executive Vice President of Meta Financial Group and MetaBank and President of Meta Payment Systems Division David W. Leedom Senior Vice President, Secretary, Treasurer and Chief Financial Officer of Meta Financial Group Scott Galit Executive Vice President of Meta Payment Systems Division Ron Butterfield Senior Vice President and Chief of Staff of Meta Payment Systems Division Michael Conlin Senior Vice President Agent Products of Meta Payment Systems Division Andrew Crowe Senior Vice President of Product Development of Meta Payment Systems Division Merid Eshete Senior Vice President and Chief Risk Officer Ben Guenther Chief Lending Officer and President of MetaBank Northwest Iowa Market John Hagy Senior Vice President and Chief Legal Officer Mike Hanna Senior Vice President of Meta Payment Systems Tim D. Harvey President of MetaBank Brookings Market Sandra K. Hegland, SPHR Senior Vice President, Director of Human Resources John Kenjar Senior Vice President, Director of Marketing Barbara Koopman Senior Vice President of Retail Bank Operations Troy Larson Senior Vice President of Information Services Eric Miller Senior Vice President of Messaging of Meta Payment Systems Division Steven G. Patterson President of MetaBank Central Iowa Market Grant Rogers Senior Vice President of Prepaid Sales/Client Service of Meta Payment Systems Division Jay Schmolke Senior Vice President of Meta Payment Systems Danny Shoop Senior Vice President of Meta Payment Systems Trent Sorbe Senior Vice President of Credit Products of Meta Payment Systems Division Kathy M. Thorson President of MetaBank Sioux Empire Market 2008 ANNUAL REPORT 15 Dividend and Stock Market Information Meta Financial Group’s common stock trades on the NASDAQ Global Market® under the symbol “CASH.” Quarterly dividends for 2008 and 2007 were $0.13. The price range of the common stock, as reported on the NASDAQ System, was as follows: FISCAL YEAR 2008 HIGH LOW FISCAL YEAR 2007 HIGH LOW FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER $ 38.83 17.34 16.00 16.85 $41.98 40.75 27.00 27.55 $24.15 27.32 31.00 37.50 $29.80 35.50 38.22 42.00 Prices disclose inter-dealer quotations without retail mark-up, mark-down or commissions, and do not necessarily represent actual transactions. Dividend payment decisions are made with consideration of a variety of factors including earnings, financial condition, market considerations and regulatory restrictions. As of September 30, 2008, Meta Financial Group had 2,601,103 shares of common stock outstanding, which were held by 212 shareholders of record, and 514,328 shares subject to outstanding options. The shareholders of record num- ber does not reflect approximately 500 persons or entities that hold their stock in nominee or “street” name. The following securities firms indicated they were acting as market makers for Meta Financial Group stock as of September 30, 2008: Fig Partners, LLC; Friedman Billings Ramsey & Co.; FTN Midwest Securities; Howe Barnes Investments, Inc.; Knight Equity Markets, L.P.; Sandler O’Neill & Partners; Schwab Capital Markets; and UBS Securities LLC. Investor Information Annual Meeting of Shareholders The Annual Meeting of Shareholders will convene at 1:00 pm on Monday, January 26, 2009. The meeting will be held in the Board Room of MetaBank, 121 East Fifth Street, Storm Lake, Iowa. Further information with regard to this meeting can be found in the proxy statement. General Counsel Mack, Hansen, Gadd, Armstrong & Brown, P.C. 316 East Sixth Street P.O. Box 278 Storm Lake, Iowa 50588 Special Counsel Katten Muchin Rosenman LLP 2900 K Street NW / Suite 200 Washington, D.C. 20007-5118 Independent Auditors KPMG, LLP 2500 Ruan Center 666 Grand Avenue Des Moines, Iowa 50309-2372 16 META FINANCIAL GROUP Shareholder Services Shareholders desiring to change the name, address, or ownership of stock; to report lost certificates; or to consolidate accounts, should contact the corporation’s transfer agent: Registrar & Transfer Company 10 Commerce Drive Cranford, New Jersey 07016 Telephone: 800.368.5948 Email: invrelations@rtco.com Web site: www.rtco.com Form 10-K Copies of the Company’s Annual Report on Form 10-K for the year ended September 30, 2008 (excluding exhibits thereto) may be obtained without charge from Investor Relations; please see below. Investor Relations Requests for Form 10-K, other queries or investor comments are welcome and should be directed to: Lisa Binder Vice President, Investor Relations & Corporate Communications Meta Financial Group 121 East Fifth Street P.O. Box 1307 Storm Lake, Iowa 50588 Telephone: 712.732.4117 Email: invrelations@metacash.com Web site: www.metacash.com SOUTH DAKOTA Brookings Sioux Falls NEBRASKA Omaha Storm Lake Urbandale Des Moines West Des Moines IOWA metabankonline.com TM MetaBank Northwest Iowa Market STORM LAKE MAIN OFFICE 121 East Fifth Street P.O. Box 1307 Storm Lake, Iowa 50588 712.732.4117 800.792.6815 712.749.7502 fax Storm Lake Plaza 1413 North Lake Avenue P.O. Box 1307 Storm Lake, Iowa 50588 712.732.6655 712.732.7924 fax MetaBank Brookings Market BROOKINGS MAIN OFFICE 600 Main Avenue P.O. Box 98 Brookings, South Dakota 57006 605.692.2314 800.842.7452 605.692.7059 fax MetaBank Central Iowa Market CENTRAL IOWA MAIN OFFICE Downtown Des Moines 418 Sixth Avenue, Suite 205 Des Moines, Iowa 50309 515.243.0630 515.447.4242 fax Highland Park 3624 Sixth Avenue Des Moines, Iowa 50313 515.288.4866 515.288.3104 fax Ingersoll 3401 Ingersoll Avenue Des Moines, Iowa 50312 515.274.9674 515.274.9675 fax Jordan Creek 270 South 68th Street West Des Moines, Iowa 50266 515.223.0440 515.223.0439 fax Urbandale 4848 86th Street Urbandale, Iowa 50322 515.309.9800 515.309.9801 fax West Des Moines 3448 Westown Parkway West Des Moines, Iowa 50266 515.226.8474 515.226.8475 fax MetaBank Sioux Empire Market SIOUX FALLS MAIN OFFICE 4900 South Western Avenue P.O. Box 520 Sioux Falls, South Dakota 57101 605.338.0059 605.338.0155 fax North Minnesota 1600 North Minnesota Avenue P.O. Box 520 Sioux Falls, South Dakota 57101 605.338.3470 605.338.3471 fax South Minnesota 2500 South Minnesota Avenue P.O. Box 520 Sioux Falls, South Dakota 57101 605.977.7500 605.977.7501 fax West 12th Street 2104 West 12th Street P.O. Box 520 Sioux Falls, South Dakota 57101 605.336.8900 605.336.8901 fax metapay.com META PAYMENT SYSTEMS AND ADMINISTRATIVE OFFICES Sioux Falls 5501 South Broadband Lane Sioux Falls, South Dakota 57108 605.361.4347 866.550.6382 605.338.0604 fax Omaha 4235 N 90th Street Omaha, Nebraska 68134 402.573.0567 402.573.3360 fax META TRUST 4900 South Western Avenue P.O. Box 520 Sioux Falls, South Dakota 57101 605.782.1780 605.782.0721 fax metacash.com METABANK BUILDING 121 East Fifth Street P.O. Box 1307 Storm Lake, Iowa 50588 MetaBank Building 121 East Fifth Street P.O. Box 1307 Storm Lake, Iowa 50588 metacash.com 

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