Edgar Filing: META FINANCIAL GROUP INC

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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 June 30, 2010

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 o 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 August 6, 2010:
Common Stock, $.01 par value		3,085,672 Common Shares

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META FINANCIAL GROUP, INC.

FORM 10-Q

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		Page No.
Part I. Financial Information

Item 1.	Financial Statements (Unaudited):

	Condensed Consolidated Statements of Financial Condition as of June 30, 2010 and September 30, 2009	1

	Condensed Consolidated Statements of Operations for the Three and Nine Months Ended June 30, 2010 and 2009	2

	Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended June 30, 2010 and 2009	3

	Condensed Consolidated Statements of Changes in Shareholders’ Equity for the Nine Months Ended June 30, 2010 and 2009	4

	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended June 30, 2010 and 2009	5

	Notes to Condensed Consolidated Financial Statements	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21

Item 3.	Quantitative and Qualitative Disclosure About Market Risk	36

Item 4T.	Controls and Procedures	38

Part II. Other Information

Item 1.	Legal Proceedings	39

Item 1A.	Risk Factors	39

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	39

Item 3.	Defaults Upon Senior Securities	39

Item 4.	Reserved	39

Item 5.	Other Information	39

Item 6.	Exhibits	39

Signatures		40

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META FINANCIAL GROUP, INC.

AND SUBSIDIARIES

Condensed Consolidated Statements of Financial Condition (Unaudited)

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

	June 30, 2010			September 30, 2009

ASSETS
Cash and cash equivalents	$	17,424		$	6,168
Federal funds sold	—			9
Investment securities available for sale	19,434			17,566
Mortgage-backed securities available for sale	477,770			347,272
Loans receivable - net of allowance for loan losses of $5,140 at June 30, 2010 and $6,993 at September 30, 2009	373,627			391,609
Federal Home Loan Bank Stock, at cost	8,086			7,050
Accrued interest receivable	4,609			4,344
Bond insurance receivable	3,920			4,118
Premises, furniture, and equipment, net	20,882			21,989
Bank-owned life insurance	13,664			13,270
Foreclosed real estate and repossessed assets	1,071			2,053
Goodwill and intangible assets	2,749			2,215
MPS accounts receivable	8,093			5,381
Other assets	9,972			11,733

Total assets	$	961,301		$	834,777

LIABILITIES AND SHAREHOLDERS’ EQUITY

LIABILITIES
Non-interest-bearing checking	$	529,459		$	442,158
Interest-bearing checking	25,179			15,602
Savings deposits	10,772			10,001
Money market deposits	34,443			39,823
Time certificates of deposit	141,652			146,163
Total deposits	741,505			653,747
Advances from Federal Home Loan Bank	109,000			74,800
Other borrowings from Federal Reserve Bank	—			25,000
Securities sold under agreements to repurchase	8,302			6,686
Subordinated debentures	10,310			10,310
Accrued interest payable	318			447
Contingent liability	4,045			4,268
Accrued expenses and other liabilities	18,024			12,174
Total liabilities	891,504			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, 3,372,999 shares issued, 3,082,612 and 2,634,215 shares outstanding at June 30, 2010 and September 30, 2009, respectively	34			30
Additional paid-in capital	31,773			23,551
Retained earnings - substantially restricted	40,388			31,626
Accumulated other comprehensive income (loss)	2,732			(1,838		)
Treasury stock, 290,387 and 323,784 common shares, at cost, at June 30, 2010 and September 30, 2009, respectively	(5,130		)	(6,024		)
Total shareholders’ equity	69,797			47,345

Total liabilities and shareholders’ equity	$	961,301		$	834,777

See Notes to Condensed Consolidated Financial Statements.

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META FINANCIAL GROUP, INC.

AND SUBSIDIARIES

Condensed Consolidated Statements of Operations (Unaudited)

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

	Three Months Ended						Nine Months Ended
	June 30,						June 30,
	2010			2009			2010			2009

Interest and dividend income:
Loans receivable, including fees	$	5,523		$	5,625		$	19,624		$	19,533
Mortgage-backed securities	4,393			2,652			9,375			7,457
Other investments	198			188			562			735
	10,114			8,465			29,561			27,725
Interest expense:
Deposits	939			1,211			2,976			4,184
FHLB advances and other borrowings	517			910			1,607			2,792
	1,456			2,121			4,583			6,976

Net interest income	8,658			6,344			24,978			20,749

Provision for loan losses	609			6,277			14,778			18,676

Net interest income after provision for loan losses	8,049			67			10,200			2,073

Non-interest income:
Card fees	18,206			15,677			74,866			63,763
Gain on sale of securities available for sale, net	239			204			2,093			213
Deposit fees	191			189			585			567
Bank-owned life insurance income	132			124			394			382
Loan fees	68			212			246			542
Loss on sale of REO	(105		)	(208		)	(105		)	(208		)
Gain on sale of membership equity interests, net	—			515			—			515
Other income	62			162			388			247
Total non-interest income	18,793			16,875			78,467			66,021

Non-interest expense:
Card processing expense	8,060			7,307			29,897			28,166
Compensation and benefits	7,500			8,218			25,032			23,999
Occupancy and equipment expense	1,995			1,996			6,229			5,849
Data processing expense	756			293			1,306			817
Legal and consulting expense	521			690			2,405			2,735
Marketing	384			349			1,593			1,161
Other expense	1,943			2,102			6,366			6,430
Total non-interest expense	21,159			20,955			72,828			69,157

Income (loss) before income tax expense (benefit)	5,683			(4,013		)	15,839			(1,063		)

Income tax expense (benefit)	2,145			(1,431		)	5,935			(329		)

Net income (loss)	$	3,538		$	(2,582	)	$	9,904		$	(734	)

Earnings (loss) per common share:
Basic	$	1.15		$	(0.99	)	$	3.44		$	(0.28	)
Diluted	$	1.11		$	(0.99	)	$	3.37		$	(0.28	)

Dividends declared per common share:	$	0.13		$	0.13		$	0.39		$	0.39

See Notes to Condensed Consolidated Financial Statements.

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META FINANCIAL GROUP, INC.®

AND SUBSIDIARIES

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

(Dollars in Thousands)

	Three Months Ended					Nine Months Ended
	June 30,					June 30,
	2010		2009			2010		2009

Net income (loss)	$	3,538	$	(2,582	)	$	9,904	$	(734	)

Other comprehensive income (loss):
Change in net unrealized gains (losses) on securities available for sale	8,498		(435		)	5,196		(631		)
Gains realized in net income	239		204			2,093		213
	8,737		(231		)	7,289		(418		)
Deferred income tax effect	3,259		(86		)	2,719		(156		)
Total other comprehensive income (loss)	5,478		(145		)	4,570		(262		)
Total comprehensive income (loss)	$	9,016	$	(2,727	)	$	14,474	$	(996	)

See Notes to Condensed Consolidated Financial Statements.

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META FINANCIAL GROUP, INC.®

AND SUBSIDIARIES

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

For the Nine Months Ended June 30, 2010 and 2009

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

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

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

Cash dividends declared on common stock ($.39 per share)	—		—			(1,014		)	—			—			(1,014		)

Issuance of 5,200 common shares from treasury stock due to issuance of restricted stock	—		(101		)	—			—			101			—

Stock compensation	—		385			—			—			—			385

Change in net unrealized losses on securities available for sale	—		—			—			(262		)	—			(262		)

Net loss for nine months ended June 30, 2009	—		—			(734		)	—			—			(734		)

Balance, June 30, 2009	$	30	$	23,342		$	32,694		$	(5,284	)	$	(6,674	)	$	44,108

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

Cash dividends declared on common stock ($.39 per share)	—		—			(1,142		)	—			—			(1,142		)

Issuance of 415,000 common shares from the sales of equity securities	4		8,563			—			—			—			8,567

Issuance of 23,287 common shares from treasury stock due to issuance of restricted stock and exercise of stock options	—		(272		)	—			—			894			622

Stock compensation	—		(69		)	—			—			—			(69		)

Change in net unrealized losses on securities available for sale	—		—			—			4,570			—			4,570

Net income for nine months ended June 30, 2010	—		—			9,904			—			—			9,904

Balance, June 30, 2010	$	34	$	31,773		$	40,388		$	2,732		$	(5,130	)	$	69,797

See Notes to Condensed Consolidated Financial Statements.

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META FINANCIAL GROUP, INC.®

AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows (Unaudited)

(Dollars in Thousands)

	Nine Months Ended June 30,
	2010			2009

Cash flows from operating activities:
Net income (loss)	$	9,904		$	(734	)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and accretion, net	8,716			3,875
Provision for loan losses	14,778			18,676
Loss on sale of other	106			143
(Gain) on sale of available for sale securities, net	(2,093		)	(213		)
(Gain) on sale of membership equity interests, net	—			(515		)
Net change in accrued interest receivable	(265		)	1,032
Net change in other assets	(1,681		)	2,904
Net change in accrued interest payable	(129		)	29
Net change in accrued expenses and other liabilities	5,627			406
Net cash provided by operating activities	34,963			25,603

Cash flow from investing activities:
Purchase of securities available for sale	(378,557		)	(156,114		)
Net change in federal funds sold	9			(4,844		)
Proceeds from sales of securities available for sale	93,359			10,848
Proceeds from maturities and principal repayments of securities available for sale	156,327			60,727
Loans purchased	(1,287		)	(52,070		)
Net other change in loans receivable	4,678			56,263
Proceeds from sales of foreclosed real estate	733			—
Net change in Federal Home Loan Bank stock	(1,036		)	1,305
Proceeds from the sale of premises and equipment	—			2
Purchase of premises and equipment	(1,766		)	(3,076		)
Other, net	(2,719		)	(52		)
Net cash (used in) investing activities	(130,259		)	(87,011		)

Cash flows from financing activities:
Net change in checking, savings, and money market deposits	92,269			99,129
Net change in time deposits	(4,511		)	17,439
Net change in advances from Federal Home Loan Bank and other borrowings	9,200			(55,275		)
Net change in securities sold under agreements to repurchase	1,616			3,008
Cash dividends paid	(1,142		)	(1,014		)
Proceeds from issuance of equity securities	8,567			—
Stock compensation	(69		)	385
Proceeds from exercise of stock options	622			—
Net cash provided by financing activities	106,552			63,672

Net change in cash and cash equivalents	11,256			2,264

Cash and cash equivalents at beginning of period	6,168			2,963
Cash and cash equivalents at end of period	$	17,424		$	5,227

Supplemental disclosure of cash flow information
Cash paid during the period for:
Interest	$	4,711		$	6,947
Income taxes	1,664			2,607

Supplemental schedule of non-cash investing and financing activities:
Loans transferred to foreclosed real estate	$	244		$	3,775

See Notes to Condensed Consolidated Financial Statements.

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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 June 30, 2010, are not necessarily indicative of the results expected for the year ending September 30, 2010.

Certain reclassifications have been made to prior periods’ consolidated financial statements to present them on a basis comparable within the current period’s consolidated financial statements.

NOTE 2. ALLOWANCE FOR LOAN LOSSES

At June 30, 2010 the Company’s allowance for loan losses was $5.1 million, a decrease of $1.9 million from $7.0 million at September 30, 2009. During the nine months ended June 30, 2010 the Company recorded a provision for loan losses of $14.8 million. $11.0 million related to the Company’s Meta Payment Systems® (“MPS”) division, of which $10.0 million related to loan originations offered in collaboration with a nationally known tax preparation firm. This level of losses is consistent with expectations 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 financial losses, if any. During the nine months ended June 30, 2010, the Company recorded a retail bank provision in the amount of $3.8 million due to increases in the general reserves and in the historical loss rates for commercial real estate and multi-family loans. Three loans with commercial borrowers were partially charged off in the amount of $5.7 million during the second and third quarters of fiscal 2010 and a fourth loan with a commercial borrower was fully charged-off in the amount of $0.4 million. These three loans were previously reserved for and classified as doubtful.

During the three months ended June 30, 2010, the Company recorded a provision for loan losses in the amount of $0.6 million, consisting of a $0.7 million provision primarily related to increases in the general reserves and in the historical loss rates for commercial real estate and multi-family loans partially offset by a negative provision of $0.1 million related to the MPS loan portfolio. The current quarter decrease in the MPS provision for loan losses relates to the MPS tax-related loans and resulted from actual loss rates trending slightly better than anticipated.

The Company’s total net charge-offs for the three and nine months ended June 30, 2010 were $13.0 million and $16.6 million, respectively. The net charge-offs related to the MPS tax loan portfolio were $10.8 million and $10.0 million, respectively. 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.

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NOTE 3. EARNINGS (LOSS) 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 (loss) and common stock share amounts used in the computation of basic and diluted EPS for the three and nine months ended June 30, 2010 and 2009 is presented below.

Three Months Ended June 30,	2010			2009
(Dollars in Thousands, Except Share and Per Share Data)

Earnings (Loss)
Net Income (Loss)	$	3,538		$	(2,582	)

Basic EPS
Weighted average common shares outstanding	3,080,242			2,602,655
Less weighted average unallocated ESOP and nonvested shares	(3,334		)	(5,000		)
Weighted average common shares outstanding	3,076,908			2,597,655

Earnings (Loss) Per Common Share
Basic	$	1.15		$	(0.99	)

Diluted EPS
Weighted average common shares outstanding for basic earnings per common share	3,076,908			2,597,655
Add dilutive effect of assumed exercises of stock options, net of tax benefits	101,740			—
Weighted average common and dilutive potential common shares outstanding	3,178,648			2,597,655

Earnings (Loss) Per Common Share
Diluted	$	1.11		$	(0.99	)

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Nine Months Ended June 30,	2010			2009
(Dollars in Thousands, Except Share and Per Share Data)

Earnings (Loss)
Net Income (Loss)	$	9,904		$	(734	)

Basic EPS
Weighted average common shares outstanding	2,885,665			2,602,655
Less weighted average unallocated ESOP and nonvested shares	(3,334		)	(5,000		)
Weighted average common shares outstanding	2,882,331			2,597,655

Earnings (Loss) Per Common Share
Basic	$	3.44		$	(0.28	)

Diluted EPS
Weighted average common shares outstanding for basic earnings per common share	2,882,331			2,597,655
Add dilutive effect of assumed exercises of stock options, net of tax benefits	58,315			—
Weighted average common and dilutive potential common shares outstanding	2,940,646			2,597,655

Earnings (Loss) Per Common Share
Diluted	$	3.37		$	(0.28	)

Stock options totaling 75,433 and 174,827 were not considered in computing diluted EPS for the three and nine months ended June 30, 2010, respectively, because they were not dilutive. Stock options totaling 473,955 and 511,274 were not considered in computing diluted EPS for the three and nine months ended June 30, 2009, respectively, because they were not dilutive. The calculation of the diluted EPS for the three and nine months ended June 30, 2009 does not reflect the assumed exercise of 10,200 and 28,567 stock options, respectively, because the effect would have been anti-dilutive for the period.

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NOTE 4. SECURITIES

The amortized cost, gross unrealized gains and losses and estimated fair values of available for sale securities as of June 30, 2010 and September 30, 2009 are presented below.

	AMORTIZED COST		GROSS UNREALIZED GAINS		GROSS UNREALIZED (LOSSES)			FAIR VALUE
	(Dollars in Thousands)
June 30, 2010

Debt securities
Trust preferred and corporate securities	$	25,813	$	25	$	(8,764	)	$	17,074
Obligations of states and political subdivisions	2,253		107		—			2,360
Mortgage-backed securities	464,780		12,990		—			477,770
Total debt securities	$	492,846	$	13,122	$	(8,764	)	$	497,204

	AMORTIZED COST		GROSS UNREALIZED GAINS		GROSS UNREALIZED (LOSSES)			FAIR VALUE
	(Dollars in Thousands)
September 30, 2009

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 June 30, 2010 and September 30, 2009 are as follows:

	LESS THAN 12 MONTHS				OVER 12 MONTHS					TOTAL
	Fair		Unrealized		Fair		Unrealized			Fair		Unrealized
	Value		(Losses)		Value		(Losses)			Value		(Losses)
	(Dollars in Thousands)
June 30, 2010

Debt securities
Trust preferred and corporate securities	$	—	$	—	$	16,549	$	(8,764	)	$	16,549	$	(8,764	)
Mortgage-backed securities	—		—		—		—			—		—
Total debt securities	$	—	$	—	$	16,549	$	(8,764	)	$	16,549	$	(8,764	)

	LESS THAN 12 MONTHS					OVER 12 MONTHS					TOTAL
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		(Losses)			Value		(Losses)			Value		(Losses)
	(Dollars in Thousands)
September 30, 2009

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	)

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The amortized cost and fair value of debt securities by contractual maturity are shown below. Certain securities have call features which allow the issuer to call the security prior to maturity. Expected maturities may differ from contractual maturities in mortgage-backed securities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Therefore, mortgage-backed securities are not included in the maturity categories in the following maturity summary.

	AMORTIZED		FAIR
	COST		VALUE
	(Dollars in Thousands)
June 30, 2010

Due in one year or less	$	100	$	102
Due after one year through five years	1,720		1,801
Due after five years through ten years	433		457
Due after ten years	25,813		17,074
	28,066		19,434
Mortgage-backed securities	464,780		477,770
Total debt securities	$	492,846	$	497,204

NOTE 5. COMMITMENTS AND CONTINGENCIES

At June 30, 2010 and September 30, 2009, the Company had outstanding commitments to originate and purchase loans totaling $37.3 million and $51.8 million, respectively. It is expected that outstanding loan commitments will be funded with existing liquid assets. At June 30, 2010, the Company had commitments to purchase securities available for sale totaling $0.4 million. There were no commitments to sell securities available for sale.

Legal Proceedings

Lawsuits against MetaBank involving the sale of purported MetaBank certificates of deposit continue to be addressed. 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 matter dismissed with prejudice. In all, nine cases have been filed to date, 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. Of the four remaining cases, two are class action cases. On May 5, 2010, in one of these two cases, Guardian Angel Credit Union v. MetaBank et al., Case No. 08-cv-261-PB (USDC, District of NH), the court granted the plaintiff’s motion to certify the class. The other two cases, not styled as class actions, are cases in which each plaintiff seeks recovery of $99,000 and other specified damages, in connection with a fraudulent CD. Additionally, a lawsuit relating to this matter has been filed by Airline Pilots Assoc Federal Credit Union in the Iowa District court for Polk County, Case number CL-118792. This overall matter was first disclosed in the Company’s quarterly report for the period ended December 31, 2007, which stated that an employee of the Bank had sold fraudulent CDs for her own benefit. The unauthorized and illegal actions of the employee have since prompted a number of demands and lawsuits seeking recovery on the bogus CDs to be filed against the Bank, which have been disclosed in subsequent filings. The employee was prosecuted, convicted and, on June 2, 2010, was sentenced to more than seven years in federal prison and ordered to pay more than $4 million in restitution. Notwithstanding the nature of her crimes, which were secreted from the Bank and its management, plaintiffs in the four remaining cases seek to impose liability on the Bank under a number of legal theories with respect to the remaining $3.8 million of bogus CDs that were issued by the former employee. The Bank and its insurer, which has assumed defense of the action and which is advancing defense costs subject to a reservation of rights, continue to vigorously contest liability in the remaining actions.

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Cedar Rapids Bank & Trust Company v MetaBank, Case No. LACV007196. In a separate matter, 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. MetaBank believes that CRBT’s loss of principal was limited to approximately $200,000, and in any event intends to vigorously defend the case.

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 litigation routine 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 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. Forfeitures for the nine months ended June 30, 2010 are primarily the result of the Company’s second quarter reduction in staff and are not indicative of future forfeitures.

A summary of option activity for the nine months ended June 30, 2010 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	2,500		23.65
Exercised	(30,544	)	17.71
Forfeited or expired	(100,537	)	32.30
Options outstanding, June 30, 2010	449,340		$	22.20	6.20	$	3,952

Options exercisable, June 30, 2010	409,815		$	22.16	6.19	$	3,630

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A summary of nonvested share activity for the nine months ended June 30, 2010 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, June 30, 2010	3,334		$	24.43

As of June 30, 2010, stock based compensation expense not yet recognized in income totaled $97,000 which is expected to be recognized over a weighted average remaining period of 0.79 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, along with the second reportable segment, MPS, comprise the entirety 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 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. 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 the companies were not affiliates. The following tables present segment data for the Company for the three and nine months ended June 30, 2010 and 2009, respectively.

	Traditional		Meta Payment
	Banking		Systems®			All Others			Total

Three Months Ended June 30, 2010
Interest income	$	7,261	$	2,837		$	16		$	10,114
Interest expense	1,251		91			114			1,456
Net interest income (loss)	6,010		2,746			(98		)	8,658
Provision for loan losses	675		(66		)	—			609
Non-interest income	550		18,215			28			18,793
Non-interest expense	4,720		16,244			195			21,159
Income (loss) before tax	1,165		4,783			(265		)	5,683
Income tax expense (benefit)	450		1,821			(126		)	2,145
Net income (loss)	$	715	$	2,962		$	(139	)	$	3,538

Inter-segment revenue (expense)	$	2,093	$	(2,093	)	$	—		$	—
Total assets	417,035		542,169			2,097			961,301
Total deposits	231,974		510,875			(1,344		)	741,505

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	Traditional			Meta Payment
	Banking			Systems®			All Others			Total

Three Months Ended June 30, 2009
Interest income	$	6,776		$	1,661		$	28		$	8,465
Interest expense	1,828			148			145			2,121
Net interest income (loss)	4,948			1,513			(117		)	6,344
Provision for loan losses	5,504			773			—			6,277
Non-interest income	1,141			15,700			34			16,875
Non-interest expense	4,358			16,319			278			20,955
Income (loss) before tax	(3,773		)	121			(361		)	(4,013		)
Income tax expense (benefit)	(1,350		)	34			(115		)	(1,431		)
Net income (loss)	$	(2,423	)	$	87		$	(246	)	$	(2,582	)

Inter-segment revenue (expense)	$	2,177		$	(2,177	)	$	—		$	—
Total assets	352,931			465,124			1,460			819,515
Total deposits	220,670			442,187			(317		)	662,540

	Traditional		Meta Payment
	Banking		Systems®			All Others			Total

Nine Months Ended June 30, 2010
Interest income	$	18,869	$	10,662		$	30		$	29,561
Interest expense	3,919		307			357			4,583
Net interest income (loss)	14,950		10,355			(327		)	24,978
Provision for loan losses	3,775		11,003			—			14,778
Non-interest income	3,525		74,859			83			78,467
Non-interest expense	14,545		57,687			596			72,828
Income (loss) before tax	155		16,524			(840		)	15,839
Income tax expense (benefit)	61		6,198			(324		)	5,935
Net income (loss)	$	94	$	10,326		$	(516	)	$	9,904

Inter-segment revenue (expense)	$	7,045	$	(7,045	)	$	—		$	—
Total assets	417,035		542,169			2,097			961,301
Total deposits	231,974		510,875			(1,344		)	741,505

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	Traditional			Meta Payment
	Banking			Systems®		All Others			Total

Nine Months Ended June 30, 2009
Interest income	$	19,773		$	7,866	$	86		$	27,725
Interest expense	5,715			778		483			6,976
Net interest income (loss)	14,058			7,088		(397		)	20,749
Provision for loan losses	10,527			8,149		—			18,676
Non-interest income	2,113			63,833		75			66,021
Non-interest expense	14,007			54,185		965			69,157
Income (loss) before tax	(8,363		)	8,587		(1,287		)	(1,063		)
Income tax expense (benefit)	(3,046		)	3,156		(439		)	(329		)
Net income (loss)	$	(5,317	)	$	5,431	$	(848	)	$	(734	)