Pathward Financial
Annual Report 2009

Plain-text annual report

2009 ANNUAL REPORT 117384506998436465785887363511283859606847765314673836 372382098566767463554115263737448500967574652436867334 213445686960698573365353711221334856352378894009883124 533228475749308117384506998436465785887363511283859606 847765314673836372382098566767463554115263737448500967 MONEY ON THE MOVE 574652436867334213445686960698573365353711221334856352 378894009883124533228475749308117384506998436465785887 363511283859606847765314673836372382098566767463554115 263737448500967574652436867334213445686960698573365353 MONEY ON THE MOVE 711221334856352378894009883124533228475749308117384506 998436465785887363511283859606847765314673836372382098 566767463554115263737448500967574652436867334213445686 960698573365353711221334856352378894009883124533228475 749308117384506998436465785887363511283859606847765314 673836372382098566767463554115263737448500967574652436 M O N E Y O N T H E M O V E 867334213445686960698573365353711221334856352378894009 883124533228475749308117384506998436465785887363511283 859606847765314673836372382098566767463554115263737448 500967574652436867334213445686960698573365353711221334 85635237889400988312453322847574930811738450699843646 785887363511283859606847765314673836372382098566767463 MONEY ON THE MOVE 554115263737448500967574652436867334213445686960698573 365353711221334856352378894009883124533228475749308117 384506998436465785887363511283859606847765314673836372 382098566767463554115263737448500967574652436867334213 445686960698573365353711221334856352378894009883124533 228475749308117384506998436465785887363511283859606847 Company Profile Meta Financial customers, along with Meta Payment MetaBank is a federally-chartered Group, Inc. (MFG) Systems (MPS), its industry-leading savings bank with four market areas: is an $835 million electronic payment systems division. Brookings, Central Iowa, Northwest Iowa thrift holding company for MFG shares are traded on the NASDAQ and Sioux Empire. The MPS division supports Global Market® under the symbol “CASH.” clients internationally and manages four MetaBank and Meta MFG operates under a super-community primary business lines that contribute to Trust Company. banking philosophy that allows the Company revenue and deposits: prepaid cards, credit JAMES S. HAAHR CHAIRMAN OF THE BOARD Headquartered in Storm Lake, to grow while maintaining its community products, Automated Teller Machine (ATM) bank roots, with localized decision making sponsorship and Automated Clearing House Iowa, the Company converted from mutual and customer service. Administrative (ACH) origination. Twelve bank offices ownership to stock ownership in 1993. Its functions, transparent to the customer, and two MPS offices support MetaBank primary businesses are deposits, loans and are centralized to enhance the bank’s customers and MPS partners and other financial services to meet the needs operational efficiencies and to improve consumers. Meta Trust provides professional of its commercial, agricultural and retail customer service capabilities. trust services. MetaBank is a Member FDIC and Equal Housing Lender. The Company and its subsidiaries exceed regulatory capital requirements. Financial Highlights (Dollars in Thousands, Except Share and Per Share Data) 2009 2008 2007 2006 2005 AT SEPTEMBER 30 Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total loans, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Book value per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total equity to assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 834,777 391,609 653,747 47,345 17.97 5.67% $ 710,236 427,928 499,804 45,733 17.58 6.44% $ 686,080 355,612 522,978 48,098 18.57 7.01% $ 740,921 368,959 538,169 45,099 17.79 6.09% $ 775,839 415,568 510,258 42,959 17.16 5.54% 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) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 116,695 27,819 (1,463) - (1,463) 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 . . . . . . . . . . . . . . . . . . . . . . . (0.56) - (0.56) -0.20% -0.20% -3.13% -3.13% 3.50% $ $ 75,114 24,003 (1,834) 811 (1,023) (0.69) 0.31 (0.38) -0.14% -0.24% -2.27% -4.07% 3.51% $ $ 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% $ $ 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% $ $ 41,870 18,063 (652) (272) (924) (0.27) (0.11) (0.38) -0.12% -0.08% -2.04% -1.44% 2.59% Total Assets In millions Total Loans, Net In millions Total Deposits In millions Total Revenues In millions Total Net Income (Loss) In millions 8 . 4 3 8 $ 8 . 5 7 7 $ 9 . 0 4 7 $ 2 . 0 1 7 $ 1 . 6 8 6 $ 9 . 7 2 4 $ 6 . 1 9 3 $ 6 . 5 1 4 $ 0 . 9 6 3 $ 6 . 5 5 3 $ 8 . 3 5 6 $ 0 . 3 2 5 $ 2 . 8 3 5 $ 3 . 0 1 5 $ 8 . 9 9 4 $ 7 . 6 1 1 $ 1 . 5 7 $ 6 . 9 5 $ 6 . 1 5 $ 9 . 1 4 $ 09 08 07 06 05 09 08 07 06 05 09 08 07 06 05 09 08 07 06 05 7 . 3 $ . 2 1 $ 07 06 05 ) 9 . 0 ( $ 08 ) 0 . 1 ( $ 09 ) 5 . 1 ( $ 2009 SUMMARY ANNUAL REPORT 1 Letter to Shareholders TESTED LIKE ALL FINANCIAL INSTITUTIONS IN A BUSINESS charge against goodwill and related items. CLIMATE MARKED BY UNPRECEDENTED CHANGE AND ECONOMIC UPHEAVAL THROUGHOUT 2009, META FINANCIAL GROUP NEVERTHELESS MADE MEASURABLE PROGRESS IN KEY AREAS OF OUR ENTERPRISE. OUR LONG HERITAGE OF DISCIPLINED FISCAL MANAGEMENT SERVED US WELL DURING THE YEAR AS WE CAREFULLY MANAGED OUR BALANCE SHEET AND STRENGTHENED OUR BASE TO TAKE ADVANTAGE OF A SLOWLY EMERGING ECONOMIC RECOVERY. Also, charges were prudently taken as collateral held for commercial loans and other real estate owned reflected declining market values. As we look ahead, though, the outlook is moving into a cautiously optimistic mode for a number of reasons. First, while continuing investments in research and development, our operating management teams have implemented efficiencies in both the bank and payment systems businesses. That is a promise I made in last year’s letter, and I expect further progress in this area in 2010. Secondly, we expect to benefit from a strengthening J. TYLER HAAHR PRESIDENT AND CEO “Our ‘well-capitalized’ status has been preserved and, indeed, enhanced...” Despite weak industry-wide credit markets economy where we can leverage our cost and certain events specific to Meta which reductions against better business volume. contributed to a slight reduction in reported Moreover, our borrowing costs have been earnings, the core value of Meta Financial helped significantly by refinancing certain of Group’s strength and stability was recognized our high fixed rate borrowings that matured by the market in the form of a significantly with significantly lower available rates and improved 40% growth in our share price for with the added benefit of more non-interest- the fiscal year, illustrated by the chart below. bearing deposits. While we are pleased at this manifestation of Meanwhile, our fundamentals remain our improved condition and outlook, we fully sound. Our “well-capitalized” status has been realize that there is much yet to be done. We preserved and, indeed, enhanced as our risk- are mindful of something Warren Buffett has based capital ratio increased significantly said, “Price is what you pay, value is what you from less than 11% to more than 13%. As I get.” In this sense we believe CASH is evolving reported last year, our asset management to warrant higher intrinsic value. approach has been, and will continue to be, For fiscal 2009, we recorded a loss of more conservative than many other financial $1.5 million following a year-end non-cash institutions. As an outgrowth of this, we COMPARISON OF CUMULATIVE TOTAL RETURN OF MFG (NASDAQ symbol: CASH), broad market and industry index $200 $150 $100 $50 2004 2005 2006 2007 2008 2009 Meta Financial Group, Inc. NASDAQ Market Index Hemscott Group Index 2 META FINANCIAL GROUP Company Structure META FINANCIAL GROUP, INC.® METABANKTM META TRUST® NORTHWEST IOWA MARKET BROOKINGS MARKET CENTRAL IOWA MARKET SIOUX EMPIRE MARKET META PAYMENT SYSTEMS® continued during the year to avoid exposure short one- to four-year average lives. Because to the highly speculative subprime residential the majority of our deposits are non-interest- loan market. Our investments have been bearing, these investments produce attractive conservatively managed as well. By far the returns even from ultra-safe investments. largest portion of our portfolio is in government- However, in today’s historically low interest rate backed GNMA securities which are zero risk- environment, returns are naturally—and rather weighted, the same as cash. severely—truncated relative to higher returns earnings against lower risk. When the economy 09 08 07 06 05 LOW-COST DEPOSIT BALANCES In millions 6 . 7 9 4 $ 0 . 7 6 3 $ 0 . 6 5 3 $ 4 . 9 0 3 $ 2 . 9 9 1 $ Low-cost deposits include checking and money market accounts. MPS NON-INTEREST INCOME In millions 4 . 7 7 $ 8 . 4 3 $ 6 . 5 1 $ 1 . 1 1 $ 06 6 . 1 $ 05 associated with a more normal interest rate environment. We have invested in relatively short-term instruments with significant ongoing cash flow, thereby offsetting somewhat lower improves and rates rise, our low-cost deposit base will become even more valuable and lead to better earnings as our cost of deposits generated by MPS remain near zero. Thus, Meta Financial Group is well positioned to benefit in a meaningful way as business activity accelerates and interest rates normalize. That is not to say, of course, that we are passively waiting for the economy and interest rates to normalize. There are developments worth highlighting. In another of our efforts to increase efficiency and manage costs, we have decided to discontinue mailing our quarterly report to shareholders. We believe most shareholders prefer to read our releases and filings on our website or on popular financial reporting sites, but those who care 09 08 07 to receive our materials by email can contact us via our website or call Investor Relations. Our primary operating objectives are Meta Payment Systems achieved record relatively unchanged. We are continuing to earnings of $4.1 million as a result of another manage further cost reductions and productivity year of excellent revenue growth, recording an gains, both designed to bring more of our increase of more than 80% for the year even revenue to the bottom line and to create long- with a significantly lower deposit earnings credit term value for our owners. As a further example caused by the lower interest rate environment. of this, our bank management made a decision 2009 SUMMARY ANNUAL REPORT 3 Here are some key financial points from fiscal 2009 • MFG reported a net loss of $1.5 million or ($0.56) per diluted share. This compares to an adjusted loss of $1.0 million or ($0.38) per share for fiscal 2008. • Full year net income was restrained by loan loss provisions which were increased substantially to recognize additional risk due primarily to a weaker economy. • Deposits grew significantly to $653.7 million from $499.8 million. • Shareholders’ equity ended at $17.97 per share in 2009, up from an adjusted $17.58 per share in 2008. • MPS grew revenues by more than 80%, continuing its strong performance despite a lower deposit earnings credit resulting from lower interest rates. • Significant cost reduction measures were taken throughout the enterprise. • Our $0.13 cents per share quarterly dividend reached a milestone of 15 uninterrupted years. I would like to bring into focus now an important structural matter that should favorably impact our results going forward. Through Meta Payment Systems, we generate significant deposits that we have been investing in low-risk securities with relatively FUNDING SOURCES 2009 Checking . . . . . . . . . 58% Certificates . . . . . . 19% Money Markets . . . 5% Wholesale Borrowings . . . . 15% Savings . . . . . . . . . . . . 1% As noted, the business climate continues further efficiency, and we are determined to inspire caution among consumers and to amplify the trust and respect of our from many customers of both our traditional clients. It is a source of personal pride to MetaBank and Meta Payment Systems. me to have clients acknowledge that during Although we see valid reasons for optimism conversations with our competitors, the for 2010 operating results, we are taking name Meta Payment Systems is used with steps to position both our bank and respect and deference. payments division to focus on proven core We are also proud that our cutting- capabilities where we can leverage our edge products make life easier for the many efficiency and cost containment changes. millions of people who do not qualify for FUNDING SOURCES 2008 We have implemented productivity and or who choose not to use traditional banking cost control programs that are expected to facilities. We provide these users with deliver more positive bottom line results, security and convenience along with even if we face economy-related slower flexibility in the many ways now available revenue growth for a period of time. to make financial transactions in person, Meta Payment Systems At MPS, we have achieved very significant positions among the top innovators and providers of card and payment services. A list of some of the more noteworthy: • We are a leading issuer of gift cards in the U.S. and the world • We are a leading issuer of rebate cards in the U.S. and the world online, wirelessly, through vending machines and more. MPS’ iAdvanceSM credit product introduced last year is an example of our innovation in this area. Named the #1 product in the prepaid industry last year, iAdvance coupled with our reloadable debit card is essentially a checking account on a card… allowing consumers to enjoy direct deposit, to purchase goods and services using the card, and to obtain cash • We are the #1 sponsor of ATMs in the U.S. advances. This product is often used as a • We are among the top issuers of prepaid cards for Visa, MasterCard, and Discover • 1,100 banks use our turnkey gift/travel/ debit/cards and other products much more economical alternative to check cashing services or to overdraft fees levied by some banks on traditional checking accounts. The feedback on iAdvance has These advantages combine to present been outstanding. We have surveyed thousands a promising future for MFG in this dynamic industry. Our innovative management team has established a reputation as the “go-to- people” among our largest and most of customers and over 95% of them told us they would recommend iAdvance to friends and family. Our iAdvance customers tell us in very clear and powerful terms just how knowledgeable customers. No other provider important iAdvance is to their lives and offers such a complete suite of products to both banking and “non-bank” customers. just how much better it is than any other alternatives. That is something we are very Our leading position bolsters our drive toward proud of—we are positively impacting the 4 META FINANCIAL GROUP Checking . . . . . . . . . 49% Wholesale Certificates . . . . . . 19% Borrowings . . . . 22% Money Markets . . . 6% Savings . . . . . . . . . . . . 1% in 2009 to consolidate one of our branch operations to save expenses while preserving full service to our customers. MetaBank now operates 12 branches throughout the areas we serve. As a result, through added efficiencies, initiatives and attrition, the retail bank is able to operate effectively with staffing levels reduced by approximately 8% from a year ago. Our near-term challenges will more than likely include the requirement that we adapt to new federal regulations (currently being proposed) regarding fee structures for bank accounts and for various credit and debit cards. Be assured, we will always follow our analytical but common sense approach and offer services that are good values at reasonable prices. lives of our customers while building value MetaBank Looking Ahead for Meta, its partners and its shareholders. The forecast for gift card sales for the coming holiday season calls for another strong performance and the results for last season more than met expectations. According to the National Retail Foundation, 55% of consumers want to receive a gift card this season— making such cards the most requested of all presents again this year. Of course, this bodes well for the current holiday season at Meta Payment Systems, a leading issuer of “open loop” gift cards. Many consumers are attracted to open loop cards, pre-loaded with cash, as they are more flexible, and usable anywhere Visa, MasterCard or Discover are accepted; “closed loop” cards are usable at one retailer. Open loop cards remove risk for both the purchaser and recipient against the seller going out of business, which would render a closed loop card worth less or even worthless. META PAYMENT SYSTEMS EXAMPLES OF PREPAID CARDS Early in 2009, MetaBank began an extensive I want to express my personal gratitude to research and development project aimed at each of our talented and loyal employees “thinking from the outside in” to develop and to our excellent management team. They innovative new products, not only to meet have adapted well during the recession and customer demand but to actually create continued to focus on our goal of creating additional demand among current and value even under difficult conditions. We potential customers. Our findings allowed appreciate their dedication, energy and skill. us to offset costs of our new, market-leading It is particularly appropriate this year that high yield checking accounts by changing I once again express appreciation to our consumer debit card usage while cost- Board of Directors. In addition to thanking effectively offering new features to address our Chairman, as always, I want to pay growing consumer concerns regarding special tribute to Mr. E. Wayne Cooley. identity theft and account fraud. Among Mr. Cooley has advised that he plans to the new checking account features are: retire from our Board following 25 years • Free ID ProtectALLSM with all new checking of dedicated service. We all join in thanking accounts him for his consistent wisdom and guidance. (cid:1) Payment Card Protection 2010 will be a year of both opportunity (cid:1) Personal Identity Protection and challenge. As I have indicated earlier, we (cid:1) 6 months free Identity Guard® believe Meta Financial Group is positioned for (cid:1) Identity Recovery & Restoration significant progress this year. Be assured, we • Free PhotoSecureTM Debit Card will look for opportunity and efficiency in all Our research process of putting ourselves corners of our business. in our customers’ shoes helped lead to an In short, I pledge that we will work exciting new community outreach program. to demonstrate the power of our unique “Your Cause, Our Cash,” directs portions of enterprise to create and realize value for our normal charitable giving toward causes our owners. supported by our customers and potential customers. The enthusiastic reception the program has received validates its worth to us, but most importantly, to our community charities, where help is sorely needed J. TYLER HAAHR right now. 2009 SUMMARY ANNUAL REPORT 5 Question and Answer (Editor’s note: The following interview with Meta Financial Group’s executive team is intended to further acquaint investors with Meta’s current operational challenges and successes. Participants in the discussion are: Brad Hanson, corporate Executive Vice President and President, MPS; Scott Galit, Executive Vice President, MPS; Dave Leedom, corporate Senior Vice President & CFO; and Troy Moore, corporate Executive Vice President and COO, MetaBank) TROY MOORE EXECUTIVE VICE PRESIDENT & COO BRAD HANSON EXECUTIVE VICE PRESIDENT; PRESIDENT MPS DAVE LEEDOM SENIOR VICE PRESIDENT & CFO SCOTT GALIT EXECUTIVE VICE PRESIDENT MPS Q: Gentlemen, the economic climate certainly provided more than enough operating challenges in 2009, but let’s begin with 2009’s high points from Q: Troy, how did the Bank fare? A: Credit quality, coupled with a drive toward increased efficiency and expense both the Meta Payment Systems (MPS) management, was the #1 objective for us and MetaBank operating perspectives, throughout the year, and we made significant starting with MPS. Brad? progress in each category. As to banking A: MPS delivered record earnings in 2009 in spite of the tough economic environment, activity, we saw growth on the deposit side but not on loans. We do have excellent lending capacity and are ready to make and that helps set us apart from some of the loans. But tougher economic times inhibit more traditional banking firms. MPS continued both borrowers and lenders, and that’s what to focus on growth market segments we’ve been experiencing. The best way to throughout 2009, and we were able to build say it is that we are poised and ready to on our position as a leader in many of those lend, but the markets are still somewhat segments. We benefit from working with unstable due to the persistently cautious a number of industry-leading partners, environment. Meanwhile, we are incentivizing and many of those partners experienced our retail branches to sell products for us, significant growth for the year. In fact, we and we are constantly seeking new ways saw growth with our partners across virtually to increase volume without increasing every product category—payroll cards, expenses. Our progress on these issues thus reloadable cards, rewards cards, gift cards, far makes us pretty excited about 2010. credit products, and ATMs. All business lines experienced significant increases in volume. As the use of prepaid cards continues to grow in popularity and take market share from traditional cash and checks, the products that Meta and our partners offer should continue to see exciting growth in the future. 6 META FINANCIAL GROUP Q: Brad, your response suggests that MPS is at or near a dominant position in its segment of the electronic payments business. What in the way of competition or other factors stands in the way of even greater momentum? A: Frankly, we’re not too focused from day to day on whether or not we have a dominant market position. Our everyday energies are devoted to exciting growth market segments and delivering value for each of our partners and consumers. By taking an approach that is centered on the needs of each partner and each consumer, as well as on the industry overall, we’ve been able to become one of the recognized leaders in this space. So, in terms of our competitive ranking, that takes care of itself over time. Q: A follow-up for you as well, Troy; as the recession eases, what changes in deposit activity are you experiencing, and are borrowers returning to the Bank for loans? A: We have seen that consumers nationwide are saving more than they have compared to each of the last several years, and we’re pleased to see that deposits have correspondingly increased at the Bank. That is particularly good news for us; it demonstrates that, as a “well-capitalized” bank in business for 56 years, we have earned and retained the essential trust of our customers. We are deeply rooted in the communities we serve and people are confident in our staying power. As I indicated earlier, we are not “well-capitalized” threshold imposed by yet seeing an increased demand for loans. federal regulators. As to the future, we are We are well prepared for the opportunities fully confident in our capital generating that will present themselves once persistent capacity and the availability of sufficient concerns over the pace of the nation’s alternatives to fund our balance sheet economic recovery begin to be resolved. growth. Primarily, these sources are found Q: Dave, while we’re at it, did the Bank participate in the federal in earnings and in the abundant no-cost deposits generated by the MPS division. We have a reached a point in our growth government’s Troubled Asset Relief that we can lever our infrastructure to Program (TARP)? enhance our gross margin, making our operating activities even more capital- A: Due to our very solid risk-based capital ratio, improved from nearly 11% last year to accretive. At Meta, we are in the enviable position of building capital for growth rather more than 13% this year, we did not access than funding anticipated credit losses. TARP funds. Our capital raising strategy going In addition, our investment portfolio has forward is to direct our activities toward other generated significant earnings that provide sources. At the same time, we are certainly an additional layer of capital protection. well aware that the TARP program has been vital to the safety and soundness of many U.S. banking institutions and to our industry as a whole. Q: Dave and Troy, apparently over 130 banks will be closed by regulators A: Troy – I echo Dave’s comments regarding capital and would add, as far as bank closures and opportunities for us, we must consider that the overall marketplace has narrowed for the present. It is not always clear that bank closings necessarily present in 2009, many of them relatively small great opportunity, because the reasons for institutions. This is the highest level their closing usually have to do with bad of regulatory closures in 20 years. Is loans. Strong banks are not always eager Meta strong enough to withstand this to take on distressed assets from failed growing regulatory pressure, and if so, banks. We are fortunate with the timing do the closures present opportunity of MetaBank’s recent new product rollout, for MetaBank? A: Dave – MFG was already strong and stable at the outset of 2009, but we have because there are deposit customers that choose to move out of weaker banks into stronger banks. We have already picked up some additional deposits from that opportunity. further improved our “well-capitalized” In fact, in the first few months into our risk-weighted capital ratio at the Bank rollout, we have more than doubled our throughout the year. We easily exceed the checking account acquisitions over last year. 2009 SUMMARY 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: Scott, reloadable cards are among the consumer banking industry’s fastest-growing products. The fees charged for activating and using these reloadable cards have been criticized by some observers as being onerous. What is your take on this growing controversy, and does MPS receive such criticism? A: I’m not sure I would call it a growing controversy, but there is certainly an increased awareness of reloadable card products and the pricing for those products, based in large part on their popularity. In general, I think the debate is a good thing. It’s a clear indication that as an industry we are beginning to reach critical mass. At Meta, we are very conscious—and, I would add, conscientious—with respect to the fees consumers pay for our products and services. There are two pillars to our approach: (i) clear and transparent disclosure of all fees in all card categories; and (ii) making sure consumers are fully informed of the choices they have. You’ll continue to see different studies and articles showing varying points of view about whether a prepaid card is better or worse for a consumer than alternatives such as high cost entry-level bank accounts or check cashing stores. Our approach is to ensure that a consumer can easily understand the pricing and to help our partners provide more and more products to enable consumers everywhere to have more and more choices to select the cards that are best for them. Competition in the prepaid card business is fierce, and that is good for consumers, because it has driven consumer fees down considerably over the years. Frankly, we hear more complaints from consumers about hidden fees imposed on traditional financial services than we do about prepaid card programs. Q: Scott, speaking of consumers, how does MPS measure customer attitudes, and can you point to any particular data supporting overall satisfaction? A: We spend a lot of effort to understand customer attitudes and to get specific feedback on some of the key products we have launched. Our iAdvance product is a good example, and the feedback on it has been terrific. We’ve surveyed thousands of customers and over 95% of them told us they would recommend iAdvance to friends and family. We think that’s the highest praise available. We also spend one-on-one time with customers to gain a better understanding of what is happening in their lives and how our products can help them. As mentioned in Tyler Haahr’s letter to shareholders, appearing on page 2, customers of the iAdvance product in particular have been outspoken in their praise, not only in our research surveys, but in unsolicited comments we’ve received directly from them. To have helped originate a product that is a genuine “win-win” for both customers and the Bank is a real pleasure, and it’s our objective to merit such praise each day. 8 META FINANCIAL GROUP Q: Dave, Tyler Haahr points out in his Letter to Shareholders that one Q: Dave, while we are on the subject of the balance sheet, can you provide of Meta’s chief portfolio strengths any comfort that we have seen is its strategy of focusing on very the worst of the losses from the conservative investments with unfortunate string of fraudulent loans relatively short average lives. Can and defalcation committed on the Bank? you amplify on that, particularly on how the strategy has been validated during the economic recession? A: First of all, about 90% of our investment portfolio—virtually one-half of the balance A: We were intensely concentrated during fiscal 2009 on changing the risk profile of the balance sheet by the time we entered 2010 and beyond. Along with a shift to investments in assets backed by government sheet—is in government-backed securities. sponsored entities (GSEs), we also made a Another feature of our balance sheet, and conservative assessment of the fraudulent one where we have a distinct advantage over loan assets and the recession-induced other institutions, is that the majority of our problem assets in 2009. The best way to deposits come to us at zero cost from our answer the question is to say that, while the Meta Payment Systems division. This in turn economy is still difficult and has a level of affords us the opportunity of not having to uncertainty associated with it, we believe “stretch for yield” by pursuing asset profiles that we have written those affected assets with relatively higher risks. Our investment down to conservative levels. We have also purchases over the last 12 to 15 months reevaluated our policies and procedures have been almost exclusively government- from a risk assessment point of view in backed mortgage-backed securities and order to lessen the likelihood or prevent within that category most carry a zero future attempts to defraud the Bank. percent risk weighting; the same as cash. Given the renewed focus on conservative investment strategies during the past fiscal year, we have dramatically changed the risk profile of our balance sheet. At the same time, of course, the interest rate environment has suggested that we stay in relatively short-term securities, giving us the flexibility to quickly take advantage of rising rates later in the coming year. 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 2009 SUMMARY ANNUAL REPORT 9 Q: Brad, what are the timing considerations for MPS in terms of Q: And, what do you expect in that regard from the 2009 Christmas when and how you will see more buying season? opportunities for your business as we see economic recovery? A: As we head into the holiday season, we’re already seeing positive signs of an A: While segments of our business certainly have some cyclicality, many segments aren’t increase in overall gift card sales. It remains to be seen whether that will continue through very cyclical at all. We’ve been able to ride the holiday season. Hopefully, though, the out the economic downturn fairly well as gains that do occur will demonstrate both the many companies, big and small, turned to power of the growth trajectory in the prepaid products like payroll cards and rewards cards business as well as add some support for in an effort to increase efficiency and reduce the idea that the worst of the US economic costs in administering their businesses. As downturn is behind us. the economy picks up, we think CFOs will continue to favor prepaid cards for their cost efficiency, while consumers will spend more on products like gift and travel cards. So, we “We’ve been able to ride out the should see some lift across all categories of economic downturn fairly well...” cards as the economy improves. 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 10 META FINANCIAL GROUP Q: Scott, as you continue to leverage your prior experience as head of Q: Troy, what is your assessment of the three best opportunities for worldwide prepaid business for MetaBank in 2010 and beyond? MasterCard, what are the top three opportunities you see for MPS in the international arena? Also, are there A: In terms of key objectives, our full focus is on credit quality, increased efficiency and significant advances in techniques expense management along with developing or technology as we look forward? new and enhanced products. Much of what A: There are great opportunities for Meta internationally. The top 3 opportunities are: we have and will accomplish in terms of new efficiencies stems directly from our system wide automation and standardization (i) to grow with our existing partners as they programs which allow us to be proactive expand into international markets; (ii) to and maintain a solid and structured risk deploy our unique partner-centric business management profile. model and engage with other world-class partners around the world; and (iii) to introduce products and services that Q: Dave, will you conclude with an enterprise-wide summary for provide more banking and payment tools investors—current and prospective— for consumers that aren’t actively banking of the value proposition for Meta today—and those “underbanked” numbers Financial Group (NASDAQ: CASH)? are much higher outside the U.S. than within. As to the second part of the question, the flexibility of the newer systems being used in A: I’ll make it simple and to the point: Our balance sheet is in a great position to generate our markets helps us deploy new technology satisfactory returns while minimizing risk more quickly than most traditional banking exposure. The current artificially low rate technology can be deployed. But while we environment has made it difficult to improve may lead in deploying technology within interest earnings despite our no-cost deposit the banking industry, we tend to be rapid base, but as rates increase, we are excited followers rather than true technology about our earnings prospects for 2010 and innovators. For example, Web 2.0 and beyond. In addition, our delivery and product wireless tools are being deployed by MPS, development mechanisms at both MetaBank but certainly not as the first applications and Meta Payment Systems are continuously for those technologies. The security and being sharpened to maximize future returns. data-intensive nature of our applications makes it difficult to be first with truly breakthrough technology. What you will see from Meta are innovative and unique uses of technology to create truly differentiated products and value propositions. 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 2009 SUMMARY ANNUAL REPORT 11 Consolidated Statements of Financial Condition (Dollars in Thousands, Except Share and Per Share Data) SEPTEMBER 30, ASSETS 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 $6,993 at September 30, 2009 and $5,732 at September 30, 2008 Federal Home Loan Bank stock, at cost Accrued interest receivable Bond insurance receivable Premises, furniture, and equipment, net Bank-owned life insurance Foreclosed real estate and repossessed assets Goodwill and intangible assets 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 Other borrowings from Federal Reserve Bank Securities sold under agreements to repurchase Subordinated debentures Accrued interest payable Contingent liability 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, 2,634,215 and 2,601,103 shares outstanding at September 30, 2009 and September 30, 2008, respectively Additional paid-in capital Retained earnings—substantially restricted Accumulated other comprehensive (loss) Treasury stock, 323,784 and 356,896 common shares, at cost, at September 30, 2009 and September 30, 2008, respectively Total shareholders’ equity Total liabilities and shareholders’ equity See Notes to Consolidated Financial Statements. $ $ $ 2009 2008 $ $ $ 6,168 9 17,566 347,272 391,609 7,050 4,344 4,118 21,989 13,270 2,053 2,215 5,381 11,733 834,777 442,158 15,602 10,001 39,823 146,163 653,747 74,800 25,000 6,686 10,310 447 4,268 12,174 787,432 - 30 23,551 31,626 (1,838) (6,024) 47,345 2,963 5,188 19,711 184,123 427,928 8,092 4,497 6,098 21,992 12,758 - 2,206 3,878 10,802 710,236 308,852 15,029 9,394 43,038 123,491 499,804 132,025 - 5,348 10,310 578 4,293 12,145 664,503 - 30 23,058 34,442 (5,022) (6,775) 48,098 $ 834,777 $ 710,236 12 META FINANCIAL GROUP 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 securities available for sale, net Deposit fees Loan fees Gain on sale of membership equity interests, net Bank-owned life insurance income Gain on sale of branch office Gain (loss) on REO Other income Non-interest expense: Card processing expense Compensation and benefits Occupancy and equipment expense Legal and consulting expense Data processing expense Marketing 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 (loss) Basic earnings (loss) per common share: Income (loss) from continuing operations Income (loss) from discontinued operations Net income (loss) Diluted earnings (loss) per common share: Income (loss) from continuing operations Income (loss) from discontinued operations Net income (loss) Dividends declared per common share: See Notes to Consolidated Financial Statements. 2009 25,561 10,230 935 36,726 5,341 3,566 8,907 27,819 18,713 9,106 77,502 761 749 660 515 512 - (1,015) 285 79,969 33,540 32,743 7,978 3,745 2,181 1,822 9,072 91,081 (2,006) (543) (1,463) - - - - (1,463) (0.56) - (0.56) (0.56) - (0.56) 0.52 $ $ $ $ $ $ $ $ $ $ $ $ $ $ 2008 25,909 8,484 3,025 37,418 7,758 5,657 13,415 24,003 2,715 21,288 34,634 24 833 777 543 498 - - 387 37,696 15,630 25,731 6,619 3,386 1,248 1,250 7,956 61,820 (2,836) (1,002) (1,834) 2,309 76 1,574 811 (1,023) (0.71) 0.31 (0.40) (0.69) 0.31 (0.38) 0.52 $ $ $ $ $ $ $ 2007 25,584 5,500 6,690 37,774 11,664 5,303 16,967 20,807 3,168 17,639 15,375 496 885 580 - 436 3,331 20 735 21,858 6,377 18,248 4,003 2,965 911 797 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 2009 SUMMARY 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 and intangible assets 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 (loss) Basic earnings (loss) per common share: Income (loss) from continuing operations Income (loss) from discontinued operations Net income (loss) Diluted earnings (loss) per common share: Income (loss) from continuing operations Income (loss) from discontinued operations Net income (loss) 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 $ $ $ $ $ $ 2009 2008 2007 $ $ $ $ $ 834,777 391,609 364,838 2,215 653,747 116,796 47,345 36,726 8,907 27,819 18,713 9,106 79,969 91,081 (2,006) (543) (1,463) - (1,463) (0.56) - (0.56) (0.56) - (0.56) -0.20% -0.20% -3.13% -3.13% 3.50% 10.55% 1.76% 55% 5.67% 5.42% $ $ $ $ $ 710,236 427,928 203,834 2,206 499,804 147,683 45,733 37,418 13,415 24,003 2,715 21,288 37,696 61,820 (2,836) (1,002) (1,834) 811 (1,023) (0.71) 0.31 (0.40) (0.69) 0.31 (0.38) -0.14% -0.24% -2.27% -4.07% 3.51% 8.25% 1.06% 76% 6.44% 6.01% 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% $ 17.97 0.52 12 $ 17.58 0.52 13 18.57 0.52 17 14 META FINANCIAL GROUP 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 for 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 for Meta Financial Group and MetaBank, and President of Meta Trust Troy Moore Executive Vice President and Chief Operating Officer for Meta Financial Group and MetaBank Brad C. Hanson Executive Vice President for Meta Financial Group and MetaBank and President of Meta Payment Systems Division David W. Leedom Senior Vice President, Secretary, Treasurer and Chief Financial Officer for Meta Financial Group Scott Galit Executive Vice President for Meta Payment Systems Division Ron Butterfield Senior Vice President and Chief of Staff for Meta Payment Systems Division Michael Conlin Senior Vice President Agent Products for Meta Payment Systems Division Andrew Crowe Senior Vice President of Product Development for Meta Payment Systems Division John deLavis Senior Vice President of Meta Payments Systems Operations Merid Eshete Senior Vice President and Chief Risk Officer John Hagy Senior Vice President and Chief Legal Officer Sandra K. Hegland, SPHR Senior Vice President, Director 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 Steven G. Patterson Chief Lending Officer and President of MetaBank Central Iowa Market Tim Peters President of MetaBank Brookings Market Grant Rogers Senior Vice President of Prepaid for Meta Payment Systems Division Trent Sorbe Senior Vice President of Credit Products for Meta Payment Systems Division Jeanni Stahl Senior Vice President of Meta Payment Systems Risk Management Kathy M. Thorson President of MetaBank Sioux Empire Market 2009 SUMMARY ANNUAL REPORT 15 Investor Information Annual Meeting of Shareholders Independent Auditors Form 10-K The Annual Meeting of Shareholders will convene at 1:00 pm on Monday, January 25, 2010. 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 KPMG, LLP 2500 Ruan Center 666 Grand Avenue Des Moines, Iowa 50309-2372 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 Copies of the Company’s Annual Report on Form 10-K for the year ended September 30, 2009 (excluding exhibits thereto) may be obtained without charge from Investor Relations; please see below. Investor Relations Requests for Form 10-K, other inquiries 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@bankmeta.com Web site: www.bankmeta.com Dividend and Stock Market Information Meta Financial Group's common stock trades on the NASDAQ Global Market® under the symbol “CASH.” Quarterly dividends for 2009 and 2008 were $0.13. The price range of the common stock, as reported on the NASDAQ System, was as follows: FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER FISCAL YEAR 2009 HIGH LOW FISCAL YEAR 2008 HIGH LOW $ 6.75 6.58 8.50 19.27 $ 16.94 12.28 21.52 24.05 $ 38.83 17.34 16.00 16.85 $ 41.98 40.75 27.00 27.55 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. Restrictions on dividend payments are described in Note 15 of the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K. As of September 30, 2009, Meta Financial Group had 2,634,215 shares of common stock outstanding, which were held by 207 shareholders of record, and 577,921 shares subject to outstanding options. The shareholders of record number 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, 2009: Citadel Securities LLC, Citigroup Global Markets Inc., Direct Edge ECN LLC, Interactive Brokers LLC, Knight Equity Markets, L.P., Penson Financial Services Inc., UBS Securities LLC, and Wedbush Morgan Securities Inc. 16 META FINANCIAL GROUP bankmeta.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 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 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 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 SOUTH DAKOTA Brookings Sioux Falls 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 bankmeta.com METABANK BUILDING 121 East Fifth Street P.O. Box 1307 Storm Lake, Iowa 50588 Storm Lake NEBRASKA IOWA Omaha Urbandale Des Moines West Des Moines 

Continue reading text version or see original annual report in PDF format above