Pathward Financial, Inc. Annual Report 2008

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FY2008 Annual Report · Pathward Financial, Inc.

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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

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
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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
$

2
.
1
$

1
.
0
$

)
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
$

Low-cost deposits include check-
ing and money market accounts.

0
.
0
$

6
.
1
$

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