Edgar Filing: META FINANCIAL GROUP INC

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2009

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 0-22140

META FINANCIAL GROUP, INC. ®

(Exact name of registrant as specified in its charter)

Delaware		42-1406262
(State or other jurisdiction of		(I.R.S. Employer Identification No.)
incorporation or organization)

121 East Fifth Street, Storm Lake, Iowa 50588

(Address of principal executive offices)

(712) 732-4117

(Registrant’s telephone number, including area code)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES x NO o

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). YES x NO o.

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. (Check one):

Large accelerated filer o		Accelerated filer o

Non-accelerated filer o		Smaller Reporting Company x

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o YES x NO

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class:		Outstanding at February 5, 2010:
Common Stock, $.01 par value		3,065,895 Common Shares

Table of Contents

META FINANCIAL GROUP, INC.

FORM 10-Q

Table of Contents

		Page No.

Part I. Financial Information

Item 1.	Financial Statements (Unaudited):

	Condensed Consolidated Statements of Financial Condition as of December 31, 2009 and September 30, 2009	1

	Condensed Consolidated Statements of Operations for the Three Months Ended December 31, 2009 and 2008	2

	Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended December 31, 2009 and 2008	3

	Condensed Consolidated Statements of Changes in Shareholders’ Equity for the Three Months Ended December 31, 2009 and 2008	4

	Condensed Consolidated Statements of Cash Flows for the Three Months Ended December 31, 2009 and 2008	5

	Notes to Condensed Consolidated Financial Statements	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19

Item 3.	Quantitative and Qualitative Disclosure About Market Risk	31

Item 4T.	Controls and Procedures	33

Part II. Other Information

Item 1.	Legal Proceedings	34

Item 1A.	Risk Factors	34

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	35

Item 3.	Defaults Upon Senior Securities	35

Item 4.	Submission of Matters to a Vote of Security Holders	35

Item 5.	Other Information	35

Item 6.	Exhibits	35

Signatures		36

Table of Contents

META FINANCIAL GROUP, INC.

AND SUBSIDIARIES

Condensed Consolidated Statements of Financial Condition (Unaudited)

(Dollars in Thousands, Except Share and Per Share Data)

	December 31, 2009			September 30, 2009

ASSETS
Cash and cash equivalents	$	82,907		$	6,168
Federal funds sold	—			9
Investment securities available for sale	18,607			17,566
Mortgage-backed securities available for sale	320,769			347,272
Loans receivable - net of allowance for loan losses of $12,182 at December 31, 2009 and $6,993 at September 30, 2009	419,911			391,609
Federal Home Loan Bank Stock, at cost	4,602			7,050
Accrued interest receivable	4,025			4,344
Bond insurance receivable	4,118			4,118
Premises, furniture, and equipment, net	21,722			21,989
Bank-owned life insurance	13,400			13,270
Foreclosed real estate and repossessed assets	1,285			2,053
Goodwill and intangible assets	2,499			2,215
MPS accounts receivable	6,024			5,381
Other assets	16,276			11,733

Total assets	$	916,145		$	834,777

LIABILITIES AND SHAREHOLDERS’ EQUITY

LIABILITIES
Non-interest-bearing checking	$	612,448		$	442,158
Interest-bearing checking	18,668			15,602
Savings deposits	10,152			10,001
Money market deposits	34,613			39,823
Time certificates of deposit	134,624			146,163
Total deposits	810,505			653,747
Advances from Federal Home Loan Bank	23,300			74,800
Other borrowings from Federal Reserve Bank	—			25,000
Securities sold under agreements to repurchase	10,412			6,686
Subordinated debentures	10,310			10,310
Accrued interest payable	386			447
Contingent liability	4,218			4,268
Accrued expenses and other liabilities	10,459			12,174
Total liabilities	869,590			787,432

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, 2,643,727 and 2,634,215 shares outstanding at December 31, 2009 and September 30, 2009, respectively	30			30
Additional paid-in capital	23,552			23,551
Retained earnings - substantially restricted	32,475			31,626
Accumulated other comprehensive (loss)	(3,702		)	(1,838		)
Treasury stock, 314,272 and 323,784 common shares, at cost, at December 31, 2009 and September 30, 2009, respectively	(5,800		)	(6,024		)
Total shareholders’ equity	46,555			47,345

Total liabilities and shareholders’ equity	$	916,145		$	834,777

See Notes to Condensed Consolidated Financial Statements.

Table of Contents

META FINANCIAL GROUP, INC.

AND SUBSIDIARIES

Condensed Consolidated Statements of Operations (Unaudited)

(Dollars in Thousands, Except Share and Per Share Data)

	Three Months Ended
	December 31,
	2009		2008

Interest and dividend income:
Loans receivable, including fees	$	6,725	$	6,372
Mortgage-backed securities	2,155		2,008
Other investments	184		347
	9,064		8,727
Interest expense:
Deposits	1,088		1,544
FHLB advances and other borrowings	657		1,022
	1,745		2,566

Net interest income	7,319		6,161

Provision for loan losses	4,691		2,129

Net interest income after provision for loan losses	2,628		4,032

Non-interest income:
Card fees	19,544		15,098
Gain on sale of securities available for sale, net	1,854		—
Deposit fees	204		201
Bank-owned life insurance income	130		127
Loan fees	113		99
Other income	193		10
Total non-interest income	22,038		15,535

Non-interest expense:
Compensation and benefits	8,671		7,439
Card processing expense	8,352		5,250
Occupancy and equipment expense	2,075		1,804
Legal and consulting expense	991		1,120
Marketing	355		338
Data processing expense	192		456
Other expense	2,167		2,145
Total non-interest expense	22,803		18,552

Income before income tax expense	1,863		1,015

Income tax expense	671		342

Net income	$	1,192	$	673

Earnings per common share:
Basic	$	0.45	$	0.26
Diluted	$	0.45	$	0.26

Dividends declared per common share:	$	0.13	$	0.13

See Notes to Condensed Consolidated Financial Statements.

Table of Contents

META FINANCIAL GROUP, INC.®

AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)

(Dollars in Thousands)

	Three Months Ended
	December 31,
	2009			2008

Net income	$	1,192		$	673

Other comprehensive income (loss):
Change in net unrealized gains (losses) on securities available for sale	(4,827		)	1,047
Gains realized in net income	1,854			—
	(2,973		)	1,047
Deferred income tax effect	(1,109		)	391
Total other comprehensive income (loss)	(1,864		)	656
Total comprehensive income (loss)	$	(672	)	$	1,329

See Notes to Condensed Consolidated Financial Statements.

Table of Contents

META FINANCIAL GROUP, INC.®

AND SUBSIDIARIES

Condensed Consolidated Statements of Changes in Shareholders’ Equity (Unaudited)

For the Three Months Ended December 31, 2009 and 2008

(Dollars in Thousands, Except Share and Per Share Data)

									Accumulated			Unearned
									Other			Employee
			Additional						Comprehensive			Stock					Total
	Common		Paid-in			Retained			(Loss),			Ownership		Treasury			Shareholders’
	Stock		Capital			Earnings			Net of Tax			Plan Shares		Stock			Equity

Balance, September 30, 2008	$	30	$	23,058		$	34,442		$	(5,022	)	$	—	$	(6,775	)	$	45,733

Cash dividends declared on common stock ($.13 per share)	—		—			(336		)	—			—		—			(336		)

Stock compensation	—		190			—			—			—		—			190

Change in net unrealized losses on securities available for sale	—		—			—			656			—		—			656

Net income for three months ended December 31, 2008	—		—			673			—			—		—			673

Balance, December 31, 2008	$	30	$	23,248		$	34,779		$	(4,366	)	$	—	$	(6,775	)	$	46,916


Balance, September 30, 2009	$	30	$	23,551		$	31,626		$	(1,838	)	$	—	$	(6,024	)	$	47,345

Cash dividends declared on common stock ($.13 per share)	—		—			(343		)	—			—		—			(343		)

Issuance of 9,512 common shares from treasury stock due to issuance of restricted stock	—		(128		)	—			—			—		224			96

Stock compensation	—		129			—			—			—		—			129

Change in net unrealized losses on securities available for sale	—		—			—			(1,864		)	—		—			(1,864		)

Net income for three months ended December 31, 2009	—		—			1,192			—			—		—			1,192

Balance, December 31, 2009	$	30	$	23,552		$	32,475		$	(3,702	)	$	—	$	(5,800	)	$	46,555

See Notes to Condensed Consolidated Financial Statements.

Table of Contents

META FINANCIAL GROUP, INC.®

AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows (Unaudited)

(Dollars in Thousands)

	Three Months Ended December 31,
	2009			2008

Cash flows from operating activities:
Net income	$	1,192		$	673
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation, amortization and accretion, net	3,135			890
Provision for loan losses	4,691			2,129
Loss on sale of other	22			18
(Gain) on sale of available for sale securities, net	(1,854		)	—
Net change in accrued interest receivable	319			712
Net change in other assets	(5,600		)	38,707
Net change in accrued interest payable	(61		)	122
Net change in accrued expenses and other liabilities	(1,765		)	(1,609		)
Net cash provided by operating activities	79			41,642

Cash flow from investing activities:
Purchase of securities available for sale	(73,374		)	(15,132		)
Net change in federal funds sold	9			4,961
Proceeds from sales of securities available for sale	38,401			—
Proceeds from maturities and principal repayments of securities available for sale	57,138			8,012
Loans purchased	(392		)	(7,043		)
Net change in loans receivable	(32,584		)	(11,051		)
Proceeds from sales of foreclosed real estate	769			—
Net change in Federal Home Loan Bank stock	2,448			4,322
Proceeds from the sale of premises and equipment	—			1
Purchase of premises and equipment	(730		)	(1,122		)
Other, net	1,109			(391		)
Net cash used in investing activities	(7,206		)	(17,443		)

Cash flows from financing activities:
Net change in checking, savings, and money market deposits	168,297			129,478
Net change in time deposits	(11,539		)	36,140
Net change in advances from Federal Home Loan Bank	(76,500		)	(80,025		)
Net change in securities sold under agreements to repurchase	3,726			16,580
Cash dividends paid	(343		)	(336		)
Stock compensation	1			190
Proceeds from exercise of stock options	224			—
Net cash provided by financing activities	83,866			102,027

Net change in cash and cash equivalents	76,739			126,226

Cash and cash equivalents at beginning of period	6,168			2,963
Cash and cash equivalents at end of period	$	82,907		$	129,189

Supplemental disclosure of cash flow information
Cash paid during the period for:
Interest	$	1,805		$	2,444
Income taxes	—			40

Supplemental schedule of non-cash investing and financing activities:
Loans transferred to foreclosed real estate	$	—		$	565

See Notes to Condensed Consolidated Financial Statements.

Table of Contents

META FINANCIAL GROUP, INC. ®

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 1. BASIS OF PRESENTATION

The interim unaudited condensed consolidated financial statements contained herein should be read in conjunction with the audited consolidated financial statements and accompanying notes to the consolidated financial statements for the fiscal year ended September 30, 2009 included in Meta Financial Group, Inc.’s (“Meta Financial” or the “Company”) Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on December 10, 2009. Accordingly, footnote disclosures, which would substantially duplicate the disclosure contained in the audited consolidated financial statements, have been omitted.

The financial information of the Company included herein has been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial reporting and has been prepared pursuant to the rules and regulations for reporting on Form 10-Q and Rule 10-01 of Regulation S-X. Such information reflects all adjustments (consisting of normal recurring adjustments), that are, in the opinion of management, necessary for a fair presentation of the financial position and results of operations for the periods presented. The results of the interim period ended December 31, 2009, are not necessarily indicative of the results expected for the year ending September 30, 2010.

NOTE 2. ALLOWANCE FOR LOAN LOSSES

At December 31, 2009 the Company’s allowance for loan losses was $12.2 million, an increase of $5.2 million from $7.0 million at September 30, 2009. During the three months ended December 31, 2009 the Company recorded a provision for loan losses of $4.7 million of which $3.6 million related to the Company’s Meta Payment Systems® (“MPS”) division, primarily from a pre-tax season line of credit offered under an agreement with a nationally known tax preparation firm, beginning in November 2009. This level of anticipated losses is well within the financial model for this program. In addition to the Company’s loss provision, the contractual arrangement with this firm provides for substantial, but not full, reimbursement of credit losses. Further discussion of this change in the allowance is included in “Financial Condition - Non-performing Assets and Allowance for Loan Loss” in Management’s Discussion and Analysis.

Table of Contents

NOTE 3. EARNINGS PER COMMON SHARE (“EPS”)

Basic EPS is computed by dividing income (loss) available to common shareholders (the numerator) by the weighted average number of common shares outstanding (the denominator) during the period. Shares issued during the period and shares reacquired during the period are weighted for the portion of the period that they were outstanding. Diluted EPS shows the dilutive effect of additional common shares issuable pursuant to stock option agreements.

A reconciliation of the income and common stock share amounts used in the computation of basic and diluted EPS for the three months ended December 31, 2009 and 2008 is presented below.

Three Months Ended December 31, (Dollars in Thousands, Except Share and Per Share Data)	2009			2008

Earnings
Net Income	$	1,192		$	673

Basic EPS
Weighted average common shares outstanding	2,637,091			2,602,655
Less weighted average unallocated ESOP and nonvested shares	(3,334		)	(5,000		)
Weighted average common shares outstanding	2,633,757			2,597,655

Earnings Per Common Share
Basic	$	0.45		$	0.26

Diluted EPS
Weighted average common shares outstanding for basic earnings per common share	2,633,757			2,597,655
Add dilutive effect of assumed exercises of stock options, net of tax benefits	40,447			—
Weighted average common and dilutive potential common shares outstanding	2,674,204			2,597,655

Earnings Per Common Share
Diluted	$	0.45		$	0.26

Stock options totaling 313,727 and 424,340 were not considered in computing diluted EPS for the three months ended December 31, 2009 and December 31, 2008, respectively, because they were not dilutive. The calculation of the diluted EPS for the three months ended December 31, 2008 does not reflect the assumed exercise of 40,014 stock options because the effect would have been anti-dilutive for the period.

Table of Contents

NOTE 4. SECURITIES

The amortized cost, gross unrealized gains and losses and estimated fair values of available for sale securities as of December 31, 2009 and September 30, 2009 are presented below.

			GROSS		GROSS
	AMORTIZED		UNREALIZED		UNREALIZED			FAIR
December 31, 2009	COST		GAINS		(LOSSES)			VALUE
	(Dollars in Thousands)
Debt securities
Trust preferred and corporate securities	$	25,808	$	—	$	(9,549	)	$	16,259
Obligations of states and political subdivisions	2,256		92		—			2,348
Mortgage-backed securities	317,216		3,917		(364		)	320,769
Total debt securities	$	345,280	$	4,009	$	(9,913	)	$	339,376

			GROSS		GROSS
	AMORTIZED		UNREALIZED		UNREALIZED			FAIR
September 30, 2009	COST		GAINS		(LOSSES)			VALUE
	(Dollars in Thousands)
Debt securities
Trust preferred and corporate securities	$	25,805	$	—	$	(10,604	)	$	15,201
Obligations of states and political subdivisions	2,258		107		—			2,365
Mortgage-backed securities	339,706		7,662		(96		)	347,272
Total debt securities	$	367,769	$	7,769	$	10,700		$	364,838

Gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in continuous unrealized loss position at December 31, 2009 and September 30, 2009 are as follows:

	LESS THAN 12 MONTHS					OVER 12 MONTHS					TOTAL
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
December 31, 2009	Value		(Losses)			Value		(Losses)			Value		(Losses)
	(Dollars in Thousands)
Debt securities
Trust preferred and corporate securities	$	—	$	—		$	16,484	$	(9,549	)	$	16,484	$	(9,549	)
Mortgage-backed securities	76,288		(364		)	—		—			76,288		(364		)
Total debt securities	$	76,288	$	(364	)	$	16,484	$	(9,549	)	$	92,772	$	(9,913	)

	LESS THAN 12 MONTHS					OVER 12 MONTHS					TOTAL
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
September 30, 2009	Value		(Losses)			Value		(Losses)			Value		(Losses)
	(Dollars in Thousands)
Debt securities
Trust preferred and corporate securities	$	—	$	—		$	15,201	$	(10,604	)	$	15,201	$	(10,604	)
Mortgage-backed securities	17,780		(37		)	10,782		(59		)	28,562		(96		)
Total debt securities	$	17,780	$	(37	)	$	28,348	$	(10,663	)	$	46,128	$	(10,700	)

Table of Contents

NOTE 5. COMMITMENTS AND CONTINGENCIES

At December 31, 2009 and September 30, 2009, the Company had outstanding commitments to originate and purchase loans totaling $37.1 million and $51.8 million, respectively. It is expected that outstanding loan commitments will be funded with existing liquid assets. At December 31, 2009, the Company had no commitments to purchase or sell securities available for sale.

Legal Proceedings

Lawsuits against MetaBank involving the sale of purported MetaBank certificates of deposit continue to be addressed. Specifically, these cases involve the sale of fraudulent certificates of deposit using MetaBank’s name and standard form of certificate of deposit. Such certificate of deposits were apparently sold by a former MetaBank employee to various financial institutions through an independent broker. Since its filing of Form 10-K for the year ended September 30, 2009, the matter of Methodist Hospitals of Dallas v. MetaBank and Meta Financial Group, Inc., filed in the 95th Judicial District Court of Dallas County, TX, Cause No. 08-06994, has been settled for a payment (see below) and the Company anticipates the suit will be dismissed shortly. In all, nine cases have been filed, and of those nine, two have been dismissed, and three have been settled for payments that the Company deemed reasonable under the circumstances, including the costs of litigation. The Company is vigorously defending the four remaining actions. Two of the cases are class action cases although to date no class has been certified. The remaining two cases share similar fact patterns as each Plaintiff seeks recovery of $99,000 and other specified damages, in connection with a fraudulent CD.

Cedar Rapids Bank & Trust Company v MetaBank, Case No. LACV007196. On November 3, 2009, Cedar Rapids Bank & Trust Company (“CRBT”) filed a Petition against MetaBank in the Iowa District Court in and for Linn County claiming an unspecified amount of money damages against MetaBank arising from CRBT’s participation in loans originated by MetaBank to companies owned or controlled by Dan Nelson. The complaint states that the Nelson companies eventually filed for bankruptcy and the loans, including CRBT’s portion, were not fully repaid. Under a variety of theories, CRBT claims that MetaBank had material negative information about Dan Nelson, his companies and the loans that it did not share with CRBT prior to CRBT taking a participation interest in them. MetaBank believes that CRBT’s loss of principal was limited to approximately $200,000, and in any event intends to vigorously defend its actions.

In addition, since the filing of the Company’s Form 10-K for the year ended September 30, 2009, the matter of Parallel Communications, Inc et al v. MetaBank et al., filed in the United States District Court for the Southern District of South Dakota, Docket Number 09-4031, has been settled and the suit will be dismissed shortly.

Other than the matters set forth above, there are no other new material pending legal proceedings or updates to which the Company or its subsidiaries is a party other than ordinary routine litigation to their respective businesses.

NOTE 6. STOCK OPTION PLAN

The Company maintains the 2002 Omnibus Incentive Plan, which, among other things, provides for the awarding of stock options and nonvested (restricted) shares to certain officers and directors of the Company. Awards are granted by the Stock Option Committee of the Board of Directors based on the performance of the award recipients or other relevant factors.

In accordance with ASC 718, compensation expense for share based awards is recorded over the vesting period at the fair value of the award at the time of grant. The exercise price of options or fair value of nonvested shares granted under the Company’s incentive plans is equal to the fair market value of the underlying stock at the grant

Table of Contents

date. The Company assumes no projected forfeitures on its stock based compensation, since actual historical forfeiture rates on its stock based incentive awards has been negligible.

A summary of option activity for the three months ended December 31, 2009 is presented below:

					Weighted
			Weighted		Average
	Number		Average		Remaining	Aggregate
	of		Exercise		Contractual	Intrinsic
	Shares		Price		Term (Yrs)	Value
	(Dollars in Thousands, Except Share and Per Share Data)

Options outstanding, September 30, 2009	577,921		$	23.74	7.12	$	1,836
Granted	—		—
Exercised	(5,912	)	16.00
Forfeited or expired	(7,687	)	29.25
Options outstanding, December 31, 2009	564,322		$	23.74	6.88	$	1,165

Options exercisable, December 31, 2009	481,930		$	23.02	6.84	$	1,037

A summary of nonvested share activity for the three months ended December 31, 2009 is presented below:

	Number of		Weighted Average
	Shares		Fair Value at Grant
	(Dollars in Thousands, Except Share and Per Share Data)

Nonvested shares outstanding, September 30, 2009	3,334		$	24.43
Granted	3,600		23.01
Vested	(3,600	)	23.01
Forfeited or expired	—		—
Nonvested shares outstanding, December 31, 2009	3,334		$	24.43

As of December 31, 2009, stock based compensation expense not yet recognized in income totaled $205,000 which is expected to be recognized over a weighted average remaining period of 0.89 years.

NOTE 7. SEGMENT INFORMATION

An operating segment is generally defined as a component of a business for which discrete financial information is available and whose results are reviewed by the chief operating decision-maker. Operating segments are aggregated into reportable segments if certain criteria are met. The Company has determined that it has two reportable segments. The first reportable segment, Traditional Banking, consists of its banking subsidiary, MetaBank (the “Bank”). The Bank operates as a traditional community bank providing deposit, loan and other related products to individuals and small businesses, primarily in the communities where their offices are located. MPS, the second reportable segment, provides a number of products and services to financial institutions and other businesses. These products and services include issuance of prepaid debit cards, sponsorship of ATMs into the debit networks, credit programs, ACH origination services, gift card programs, rebate programs, travel programs and tax related programs. Other programs are in the process of development. The remaining grouping under the caption “All Others” consists of the operations of Meta Financial Group, Inc. and Meta Trust Company® and inter-segment eliminations. Transactions between affiliates, the resulting revenues of which are shown in the intersegment revenue category, are conducted at market prices, meaning prices that would be paid if

Table of Contents

the companies were not affiliates. The following tables present segment data for the Company for the three months ended December 31, 2009 and 2008, respectively.

	Traditional		Meta Payment
	Banking		Systems®			All Others			Total

Three Months Ended December 31, 2009
Interest income	$	5,664	$	3,380		$	20		$	9,064
Interest expense	1,536		80			129			1,745
Net interest income (loss)	4,128		3,300			(109		)	7,319
Provision for loan losses	1,100		3,591			—			4,691
Non-interest income	2,492		19,522			24			22,038
Non-interest expense	4,781		17,856			166			22,803
Income (loss) before tax	739		1,375			(251		)	1,863
Income tax expense (benefit)	284		474			(87		)	671
Net income (loss)	$	455	$	901		$	(164	)	$	1,192

Inter-segment revenue (expense)	$	2,375	$	(2,375	)	$	—		$	—
Total assets	305,879		609,170			1,096			916,145
Total deposits	219,537		592,012			(1,044		)	810,505

	Traditional			Meta Payment
	Banking			Systems®			All Others			Total

Three Months Ended December 31, 2008
Interest income	$	5,576		$	2,827		$	324		$	8,727
Interest expense	2,023			359			184			2,566
Net interest income (loss)	3,553			2,468			140			6,161
Provision for loan losses	850			1,279			—			2,129
Non-interest income	683			15,124			(272		)	15,535
Non-interest expense	4,868			13,411			273			18,552
Income (loss) before tax	(1,482		)	2,902			(405		)	1,015
Income tax expense (benefit)	(529		)	1,030			(159		)	342
Net income (loss)	$	(953	)	$	1,872		$	(246	)	$	673

Inter-segment revenue (expense)	$	1,873		$	(1,873	)	$	—		$	—
Total assets	360,378			496,576			1,319			858,273
Total deposits	245,263			467,070			(743		)	711,590

NOTE 8. NEW ACCOUNTING PRONOUNCEMENTS

On June 12, 2009, the FASB issued ASC 810, Accounting for Transfers of Financial Assets. This updated guidance removed the concept of a qualifying special-purpose entity and removed the exception from applying consolidation guidance to these entities. ASC 810 also clarified the requirements for isolation and limitations on portions of financial assets that are eligible for sale accounting. ASC 810 is effective for financial statements issued after November 15, 2009. The adoption of ASC 810 did not have a significant effect on the Company’s consolidated financial statements.

On June 12 2009, the FASB issued ASC 810-10, Amendments to FASB Interpretation No. 46(R), Consolidation of Variable Interest Entities. ASC 810-10 updated guidance requires an analysis to determine whether a variable interest gives the entity a controlling financial interest in a variable interest entity. It also requires an ongoing reassessment and eliminates the quantitative approach previously required for determining whether an entity is the

Table of Contents

primary beneficiary. ASC 810-10 is effective for financial statements issued after November 15, 2009. The adoption of ASC 810 did not have a significant effect on the Company’s consolidated financial statements.

NOTE 9. FAIR VALUE MEASUREMENTS

Effective October 1, 2008, the Company adopted the provisions of ASC 820, Fair Value Measurements. ASC820 defines fair value, establishes a framework for measuring the fair value of assets and liabilities using a hierarchy system and expands disclosures about fair value measurement. It clarifies that fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the market in which the reporting entity transacts.

The fair value hierarchy is as follows:

Level 1 Inputs — Valuation is based upon quoted prices for identical instruments traded in active markets that the Company has the ability to access at measurement date.

Level 2 Inputs — Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in active markets that are not active and model-based valuation techniques for which significant assumptions are observable in the market.

Level 3 Inputs — Valuation is generated from model-based techniques that use significant assumptions not observable in the market and are used only to the extent that observable inputs are not available. These unobservable assumptions reflect the Company’s own estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include use of option pricing models, discounted cash flow models and similar techniques.

A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below. These valuation methodologies were applied to all of the Company’s financial assets and liabilities carried at fair value effective October 1, 2008.

Securities Available for Sale. Securities available for sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are measured using an independent pricing service. Level 1 securities include those traded on an active exchange, such as the New York Stock Exchange, as well as U.S. Treasury and other U.S. government and agency securities that are traded by dealers or brokers in active over-the-counter markets. The Company had no Level 1 securities at December 31, 2009. Level 2 securities include agency mortgage-backed securities and private collateralized mortgage obligations, municipal bonds and corporate debt securities.

The following table summarizes the assets of the Company for which fair values are determined on a recurring basis as of December 31, 2009.

	Fair Value at December 31, 2009
(Dollars in Thousands)	Total		Level 1		Level 2		Level 3

Securities available for sale	$	339,376	$	—	$	339,376	$	—

Table of Contents

Included in securities available for sale are trust preferred securities as follows:

At December 31, 2009

					Unrealized			S&P	Moody
Issuer(1)	Book Value		Fair Value		Gain (Loss)			Credit Rating	Credit Rating
	(Dollars in Thousands)

Key Corp. Capital I	$	4,980	$	3,485	$	(1,495	)	BB	Baa2
Huntington Capital Trust II SE	4,969		2,061		(2,908		)	B	Baa3
Bank Boston Capital Trust IV (2)	4,961		3,353		(1,608		)	BB	Baa3
Bank America Capital III	4,948		3,475		(1,473		)	BB	Baa3
PNC Capital Trust	4,949		3,110		(1,839		)	BBB	Baa1
Cascade Capital Trust I 144A (3)	500		275		(225		)
CNB Invt Tr II Exchangeable Pfd Ser B (3)	500		500		—
Total	$	25,807	$	16,259	$	(9,548	)

(1) Trust preferred securities are single-issuance. There are no known deferrals, defaults or excess subordination.

(2) Bank Boston was acquired by Bank of America.

(3) Securities not rated.

The Company’s management reviews the status and potential impairment of the trust preferred securities on a monthly basis. In its review, management discusses duration of unrealized losses and reviews credit rating changes. Other factors, but not necessarily all, considered are: that the risk of loss is minimized and easier to determine due to the single-issuer, rather than pooled, nature of the securities, the condition of the banks listed, and whether there have been any payment deferrals or defaults to-date. Such factors are subject to change over time.

Federal Home Loan Bank (“FHLB”) Stock. FHLB stock is recorded at cost which is assumed to represent fair value since the Company is generally able to redeem this stock at par value.

Foreclosed Real Estate and Repossessed Assets. Real estate properties and repossessed assets are initially recorded at the lower of cost or fair value less selling costs at the date of foreclosure, establishing a new cost basis.

Loans. The Company does not record loans at fair value on a recurring basis. However, if a loan is considered impaired, an allowance for loan losses is established. Once a loan is identified as individually impaired, management measures impairment in accordance with ASC 310, Accounting for Creditors for Impairment of a Loan. When the fair value of the collateral is based on an observable market price or current appraised value, the Company records the impaired loan as non-recurring level 2.

Table of Contents

The following table summarizes the assets of the Company for which fair values are determined on a non-recurring basis as of December 31, 2009.

	Fair Value at December 31, 2009
(Dollars in Thousands)	Total		Level 1		Level 2		Level 3

FHLB Stock	$	4,602	$	—	$	4,602	$	—
Foreclosed Assets, net	1,285		—		1,285		—
Loans	14,548		—		14,548		—
Total	$	20,435	$	—	$	20,435	$	—

The following table discloses the Company’s estimated fair value amounts of its financial instruments. It is management’s belief that the fair values presented below are reasonable based on the valuation techniques and data available to the Company as of December 31, 2009 and September 30, 2009, as more fully described below. The operations of the Company are managed from a going concern basis and not a liquidation basis. As a result, the ultimate value realized for the financial instruments presented could be substantially different when actually recognized over time through the normal course of operations. Additionally, a substantial portion of the Company’s inherent value is the Banks’ capitalization and franchise value. Neither of these components have been given consideration in the presentation of fair values below.

Table of Contents

The following presents the carrying amount and estimated fair value of the financial instruments held by the Company at December 31, 2009 and September 30, 2009. The information presented is subject to change over time based on a variety of factors.

	December 31, 2009				September 30, 2009
	Carrying		Estimated		Carrying		Estimated
	Amount		Fair Value		Amount		Fair Value
	(Dollars in Thousands)

Financial assets
Cash and cash equivalents	$	82,907	$	82,907	$	6,168	$	6,168
Federal funds sold	—		—		9		9
Securities available for sale	339,376		339,376		364,838		364,838
Loans receivable, net	419,911		424,354		391,609		396,640
FHLB stock	4,602		4,602		7,050		7,050
Accrued interest receivable	4,025		4,025		4,344		4,344

Financial liabilities
Noninterest bearing demand deposits	612,448		612,448		442,158		442,158
Interest bearing demand deposits, savings, and money markets	63,433		63,433		65,426		65,426
Certificates of deposit	134,624		136,803		146,163		148,673
Total deposits	810,505		812,684		653,747		656,257

Advances from FHLB	23,300		26,098		74,800		76,034
FRB TAF Borrowings	—		—		25,000		25,000
Securities sold under agreements to repurchase	10,412		10,412		6,686		6,686
Subordinated debentures	10,310		10,012		10,310		10,656
Accrued interest payable	386		386		447		447

Off-balance-sheet instruments, loan commitments	—		—		—		—

The following sets forth the methods and assumptions used in determining the fair value estimates for the Company’s financial instruments at December 31, 2009 and September 30, 2009.

CASH AND CASH EQUIVALENTS

The carrying amount of cash and short-term investments is assumed to approximate the fair value.

FEDERAL FUNDS SOLD

The carrying amount of federal funds sold is assumed to approximate the fair value.

SECURITIES AVAILABLE FOR SALE

To the extent available, quoted market prices or dealer quotes were used to determine the fair value of securities available for sale. For those securities which are thinly traded, or for which market data was not available, management estimated fair value using other available data. The amount of securities for which quoted market prices were not available is not material to the portfolio as a whole.

LOANS RECEIVABLE, NET

The fair value of loans was estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for similar remaining maturities. When using the discounting method to determine fair value, loans were gathered by homogeneous groups with similar terms and conditions and discounted at a target rate at which similar loans would be made to borrowers as of December

Table of Contents

31, 2009 and September 30, 2009. In addition, when computing the estimated fair value for all loans, allowances for loan losses have been subtracted from the calculated fair value for consideration of credit quality.

FHLB STOCK

The fair value of such stock is assumed to approximate book value since the Company is generally able to redeem this stock at par value.

ACCRUED INTEREST RECEIVABLE

The carrying amount of accrued interest receivable is assumed to approximate the fair value.

DEPOSITS

The carrying values of non-interest bearing checking deposits, interest bearing checking deposits, savings, and money markets is assumed to approximate fair value, since such deposits are immediately withdrawable without penalty. The fair value of time certificates of deposit was estimated by discounting expected future cash flows by the current rates offered on certificates of deposit with similar remaining maturities.

In accordance with ASC 825, no value has been assigned to the Company’s long-term relationships with its deposit customers (core value of deposits intangible) since such intangible is not a financial instrument as defined under ASC 825.

ADVANCES FROM FHLB

The fair value of such advances was estimated by discounting the expected future cash flows using current interest rates as of December 31, 2009 and September 30, 2009 for advances with similar terms and remaining maturities.

FEDERAL RESERVE BANK (“FRB”) TERM AUCTION FACILITY (“TAF”) BORROWINGS

The carrying amount of FRB TAF borrowings is assumed to approximate the fair value due to short-term maturities of 30 days or less.

SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE AND SUBORDINATED DEBENTURES

The fair value of these instruments was estimated by discounting the expected future cash flows using derived interest rates approximating market as of December 31, 2009 and September 30, 2009 over the contractual maturity of such borrowings.

ACCRUED INTEREST PAYABLE

The carrying amount of accrued interest payable is assumed to approximate the fair value.

LOAN COMMITMENTS

The commitments to originate and purchase loans have terms that are consistent with current market terms. Accordingly, the Company estimates that the fair values of these commitments are not significant.

LIMITATIONS

It must be noted that fair value estimates are made at a specific point in time, based on relevant market information about the financial instrument. Additionally, fair value estimates are based on existing on- and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business, customer relationships and the value of assets and liabilities that are not considered financial instruments. These estimates do not reflect any premium or discount that could result from offering the Company’s entire holdings of a particular financial instrument for sale at one time. Furthermore, since no market exists for certain of the Company’s financial instruments, fair value estimates may be based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and

Table of Contents

therefore cannot be determined with a high level of precision. Changes in assumptions as well as tax considerations could significantly affect the estimates. Accordingly, based on the limitations described above, the aggregate fair value estimates are not intended to represent the underlying value of the Company, on either a going concern or a liquidation basis.

NOTE 10. GOODWILL AND INTANGIBLE ASSETS

The changes in the carrying amount of the Company’s goodwill and intangible assets for the three months ended December 31, 2009 and 2008 are as follows:

	Traditional		Meta Payment		Meta Payment
	Banking		Systems®		Systems®
	Goodwill		Goodwill		Patents		Total
	(Dollars in Thousands)

Balance as of September 30, 2009	$	1,508	$	—	$	707	$	2,215

Acquisitions during the period	—		—		284		284

Balance as of December 31, 2009	$	1,508	$	—	$	991	$	2,499

	Traditional		Meta Payment		Meta Payment
	Banking		Systems®		Systems®
	Goodwill		Goodwill		Patents		Total
	(Dollars in Thousands)

Balance as of September 30, 2008	$	1,508	$	425	$	273	$	2,206

Acquisitions during the period	—		—		119		119

Balance as of December 31, 2008	$	1,508	$	425	$	392	$	2,325

The Company tests goodwill and intangible assets for impairment at least annually or more often if conditions indicate a possible impairment. There was no impairment to goodwill during the three months ended December 31, 2009 and 2008.

Table of Contents

NOTE 11. SUBSEQUENT EVENTS

Common Stock Issuance — Cash America International, Inc.

As disclosed in the Company’s Current Report on Form 8-K filing on January 26, 2010, the Company sold 265,000 shares of the Company’s common stock, par value $0.01 per share (the “Common Stock”), to Cash America International, Inc., a Texas corporation (“Cash America”). The sale closed on January 26, 2010, and at the conclusion of the sale Cash America held approximately 9.1% (8.6% after the sale to NetSpend Holdings, Inc. on January 29, 2010, referred to below) of the issued and outstanding Common Stock of the Company. No board seats or management rights were provided to Cash America in connection with its investment in the Company. Cash America paid $21.33 per share of Common Stock, for an aggregate purchase price of $5.7 million. The Company paid no fees or commissions in connection with the issuance of the Common Stock to Cash America. The bulk of these proceeds will be used to support growth in MPS.

The sale of the Common Stock was undertaken by the Company without registration in reliance upon Section 4(2) of the Securities Act of 1933, as amended (the “1933 Act”), and Rule 506 of Regulation D as promulgated by the United States Securities and Exchange Commission under the 1933 Act. Cash America is an “accredited investor” within the meaning of Regulation D.

Common Stock Issuance — NetSpend Holdings, Inc.

As disclosed in the Company’s Current Report on Form 8-K filing on February 2, 2010, the Company sold 150,000 shares of the Company’s common stock, par value $0.01 per share (the “Common Stock”), to NetSpend Holdings, Inc., a Delaware corporation (“NetSpend”). The sale closed on January 29, 2010, and at the conclusion of the sale NetSpend held approximately 4.9% of the issued and outstanding Common Stock of the Company. No board seats or management rights were provided to NetSpend in connection with its investment in the Company. NetSpend paid $21.40 per share of Common Stock, for an aggregate purchase price of $3.2 million. The Company paid no fees or commissions in connection with the issuance of the Common Stock to NetSpend. The bulk of these proceeds will be used to support growth in MPS.

The sale of the Common Stock was undertaken by the registrant without registration in reliance upon Section 4(2) of the Securities Act of 1933, as amended (the “1933 Act”), and Rule 506 of Regulation D as promulgated by the United States Securities and Exchange Commission under the 1933 Act. NetSpend is an “accredited investor” within the meaning of Regulation D.

Table of Contents

Part I. Financial Information

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

META FINANCIAL GROUP, INC®.

AND SUBSIDIARIES

FORWARD LOOKING STATEMENTS

Meta Financial Group, Inc.®, (“Meta Financial” or “the Company”) and its wholly-owned subsidiaries, MetaBank™ (the “Bank”), and Meta Trust Company® (“Meta Trust” or the “Trust Company”), may from time to time make written or oral “forward-looking statements,” including statements contained in its filings with the Securities and Exchange Commission (“SEC”), in its reports to shareholders, and in other communications by the Company, which are made in good faith by the Company pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995.

These forward-looking statements include statements with respect to the Company’s beliefs, expectations, estimates, and intentions that are subject to significant risks and uncertainties, and are subject to change based on various factors, some of which are beyond the Company’s control. Such statements address, among others, the following subjects: future operating results; customer retention; loan and other product demand; important components of the Company’s balance sheet and income statements; growth and expansion; new products and services, such as those offered by the Bank or Meta Payment Systems® (“MPS”), a division of the Bank; credit quality and adequacy of reserves; technology; and our employees. The following factors, among others, could cause the Company’s financial performance to differ materially from the expectations, estimates, and intentions expressed in such forward-looking statements: the strength of the United States economy in general and the strength of the local economies in which the Company conducts operations; the effects of, and changes in, trade, monetary, and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System (the “FRB” or the “Board”), as well as efforts of the United States Treasury in conjunction with bank regulatory agencies to stimulate the economy and protect the financial system; inflation, interest rate, market, and monetary fluctuations; the timely development of and acceptance of new products and services offered by the Company as well as risks (including litigation) attendant thereto and the perceived overall value of these products and services by users; the risks of dealing with or utilizing third-party vendors; the significant portion of the Company’s revenues that are derived from income tax-related programs, the impact of changes in financial services’ laws and regulations; technological changes, including but not limited to the protection of electronic files or databases; acquisitions; litigation risk in general, including but not limited to those risks involving the MPS division; the growth of the Company’s business as well as expenses related thereto; changes in consumer spending and saving habits; and the success of the Company at managing and collecting assets of borrowers in default.

The foregoing list of factors is not exclusive. Additional discussions of factors affecting the Company’s business and prospects are contained in the Company’s periodic filings with the SEC. The Company expressly disclaims any intent or obligation to update any forward-looking statement, whether written or oral, that may be made from time to time by or on behalf of the Company or its subsidiaries.

GENERAL

The Company, a registered unitary savings and loan holding company, is a Delaware corporation, the principal assets of which are all the issued and outstanding shares of the Bank, a federal savings bank. The Company also owns all the issued and outstanding shares of Meta Trust. Unless the context otherwise requires, references herein to the Company include Meta Financial and the Bank, and all subsidiaries of Meta Financial, direct or indirect, on a consolidated basis.

Table of Contents

The following discussion focuses on the consolidated financial condition of the Company and its subsidiaries, at December 31, 2009, compared to September 30, 2009, and the consolidated results of operations for the three months ended December 31, 2009 and 2008. This discussion should be read in conjunction with the Company’s consolidated financial statements, and notes thereto, for the year ended September 30, 2009.

CORPORATE DEVELOPMENTS AND OVERVIEW

As disclosed in Note 11 to the Notes to Condensed Consolidated Financial Statements, the Company recently completed two common stock private placements that raised $8.9 million of capital. In addition, in January 2010, a reorganization of the MPS division was completed that resulted in a reduction of 47 staff positions, or about 10% of all employees of the Company. These combined actions were taken to position the Company to pursue its core business-to-business servicing strategy, which has several existing and near-term significant growth opportunities. At the same time several product development initiatives, that do not fall into this category, have been discontinued. Uncertainty surrounding an adequate return on this investment led management to conclude that the reduction-in-force was necessary. No material revenue sources are being reduced by these decisions. Further, the Company anticipates that severance and related costs as a result of the staff reduction will approximately equate to related savings to the Company for the quarter ending March 31, 2010, and that thereafter the staff reduction will prove accretive to earnings. The Company also has an important relationship with a nationally known tax preparation firm. See Part II, Item 1A, “Risk Factors” for an amended and restated risk factor relating to this relationship.

The Company recorded net income of $1.2 million for the 2010 fiscal first quarter which was primarily due to increased MPS fee revenue of $4.4 million and a $1.9 million gain on sale of securities available for sale offset by an increased provision for loan losses in the amount of $2.6 million and an increase to non-interest expense in the amount of $4.3 million.

MPS continued to demonstrate significant growth on a year-over-year basis. Fiscal first quarter 2010 MPS-related fee income grew by $4.4 million, or 29%. The division’s tax and credit business lines were major contributors to the increase in revenue in the fiscal first quarter with income tax-related revenue accounting for about half of the increase.

The traditional bank segment is continuing to build its customer base in the growing metropolitan areas of Sioux Falls, South Dakota and Des Moines, Iowa. The Bank focuses primarily on establishing lending and deposit relationships with commercial businesses and commercial real estate developers in these communities. The Bank currently operates 12 retail banking branches: in Brookings (1) and Sioux Falls (3), South Dakota, in Des Moines (6) and Storm Lake (2), Iowa and a non-retail service branch in Memphis, Tennessee. The traditional bank rolled out new checking products early in the quarter. Retail bank checking balances grew from $36.3 million to $40.4 million during the quarter.

The Company’s stock trades on the NASDAQ Global Market under the symbol “CASH.”

FINANCIAL CONDITION

As of December 31, 2009, the Company’s assets grew by $81.3 million, or 9.7%, to $916.1 million compared to $834.8 million at September 30, 2009. The increase in assets was reflected primarily in increases in the Company’s cash and cash equivalents and to a lesser extent in the Company’s net loans receivable, offset in part by decreases in mortgage-backed securities available for sale.

Total cash and cash equivalents and federal funds sold were $82.9 million at December 31, 2009, an increase of $76.7 million from $6.2 million at September 30, 2009. The increase primarily was the result of the Company’s additional liquidity due to an increase in deposits, primarily due to deposits generated by MPS. In general, the

Table of Contents

Company maintains its cash investments in interest-bearing overnight deposits with the FHLB and FRB. Federal funds sold deposits may be maintained at the FHLB or various commercial banks, including, but not limited to the following: CitiBank, JP Morgan Chase, M&I Bank, BNP Paribas, and Bank of America. At December 31, 2009, the Company had no federal funds sold.

The total of mortgage-backed securities and investment securities available for sale decreased $25.5 million, or 7.0%, to $339.4 million at December 31, 2009, as investment maturities, sales, and principal paydowns exceeded related purchases. The Company’s portfolio of securities available for sale consists primarily of mortgage-backed securities, which have relatively short expected lives. Approximately 16% of the mortgage-backed securities have balloons which further limit maturity extension risk. During the three month period ended December 31, 2009, the Company purchased $73.4 million of mortgage-backed securities with average lives of five years or less and stated finals of 30 years or less.

The Company’s portfolio of net loans receivable increased $28.3 million, or 7.2%, to $419.9 million at December 31, 2009. This increase primarily relates to an increase of $48.7 million in MPS consumer loans partially offset by an increase in the allowance for loan losses of $5.2 million and decreases in commercial operating and real estate loans of $5.2 million and $4.2 million, respectively.

FHLB stock, at cost, decreased $2.4 million primarily due to FHLB repurchasing excess activity stock.

Foreclosed real estate and repossessed assets decreased to $1.3 million as compared to $2.1 million at September 30, 2009 due to the Company’s write-down and sale of foreclosed real estate and repossessed assets. See “Financial Condition - Non-performing Assets and Allowance for Loan Losses” below for further discussion.

Other assets increased by $4.6 million, or 39.3%, to $16.3 million at December 31, 2009. This increase primarily relates to a one-time prepayment of $3.9 million in the Company’s prepaid FDIC Assessment.

Total deposits increased $156.8 million, or 24.0%, to $810.5 million at December 31, 2009. The Company continues to grow its low- and no-cost deposit portfolio. Total MPS deposits were up $169.9 million, or 40.3%, at December 31, 2009, as compared to September 30, 2009. This increase results from growth in prepaid card programs and seasonal activity. Offsetting the above increases was a $11.5 million decrease in certificates of deposits primarily related to a decrease in public funds.

Total borrowings decreased $72.8 million, or 62.3%, from $116.8 million at September 30, 2009 to $44.0 million at December 31, 2009 and is primarily due to the growth of deposits.

At December 31, 2009, the Company’s shareholders’ equity totaled $46.6 million, down $0.7 million from $47.3 million at September 30, 2009. The decrease was related to an unfavorable change in the accumulated other comprehensive loss on the Company’s available for sale portfolio and the payment of dividends on the Company’s common stock offset by 2010 fiscal first quarter net income (see “Results of Operations” below). At December 31, 2009, the Bank continues to exceed all regulatory requirements for classification as well-capitalized institution. See Note 11 to the Notes to Condensed Consolidated Financial Statements and “Liquidity and Capital Resources” for further information.

Non-performing Assets and Allowance for Loan Losses

Generally, when a loan becomes delinquent 90 days or more or when the collection of principal or interest becomes doubtful, the Company will place the loan on a non-accrual status and, as a result of this action, previously accrued interest income on the loan is taken out of current income. The loan will remain on non-accrual status until the loan has been brought current or until other circumstances occur that provide adequate assurance of full repayment of interest and principal.

Table of Contents

The Company believes that the level of allowance for loan losses at December 31, 2009 adequately reflects potential risks related to these loans; however, there can be no assurance that all loans will be fully collectible or that the present level of the allowance will be adequate in the future. See “Allowance for Loan Losses.”

The table below sets forth the amounts and categories of non-performing assets in the Company’s portfolio. Foreclosed assets include assets acquired in settlement of loans.

	Non-Performing Assets As Of
	December 31, 2009		September 30, 2009
	(Dollars in Thousands)

Non-Accruing Loans:
1-4 Family	$	296	$	266
Commercial & Multi Family	12,755		11,512
Agricultural Real Estate	—		—
Consumer	9		—
Agricultural Operating	—		—
Commercial Business	807		871
Total	13,867		12,649

Accruing Loans Delinquent 90 Days or More	—		—
Total	—		—

Restructured Loans:
Agricultural Operating	—		—
Total	—		—

Foreclosed Assets:
1-4 Family	—