META FINANCIAL GROUP INC, 10-Q filed on 2/14/2012
Quarterly Report
Document And Entity Information (USD $)
In Millions, except Share data, unless otherwise specified
3 Months Ended
Dec. 31, 2011
Feb. 13, 2012
Mar. 31, 2011
Entity Registrant Name
META FINANCIAL GROUP INC 
 
 
Entity Central Index Key
0000907471 
 
 
Current Fiscal Year End Date
--09-30 
 
 
Entity Well-known Seasoned Issuer
No 
 
 
Entity Voluntary Filers
No 
 
 
Entity Current Reporting Status
Yes 
 
 
Entity Filer Category
Smaller Reporting Company 
 
 
Entity Public Float
 
 
$ 39.2 
Entity Common Stock, Shares Outstanding
 
3,191,265 
 
Document Fiscal Year Focus
2011 
 
 
Document Fiscal Period Focus
Q1 
 
 
Document Type
10-Q 
 
 
Amendment Flag
false 
 
 
Document Period End Date
Dec. 31, 2011 
 
 
Condensed Consolidated Statements of Financial Condition (Unaudited) (USD $)
In Thousands, unless otherwise specified
Dec. 31, 2011
Sep. 30, 2011
ASSETS
 
 
Cash and cash equivalents
$ 156,882 
$ 276,893 
Investment securities available for sale
42,428 
28,330 
Mortgage-backed securities available for sale
770,378 
590,918 
Loans receivable - net of allowance for loan losses of $4,565 at December 31, 2011 and $4,926 at September 30, 2011
317,804 
314,410 
Federal Home Loan Bank Stock, at cost
10,744 
4,737 
Accrued interest receivable
4,442 
4,133 
Insurance receivable
2,264 
2,264 
Premises, furniture, and equipment, net
17,077 
17,168 
Bank-owned life insurance
14,450 
14,322 
Foreclosed real estate and repossessed assets
3,954 
2,671 
Goodwill and intangible assets
1,562 
1,315 
MPS accounts receivable
8,257 
7,677 
Other assets
8,963 
10,643 
Total assets
1,359,205 
1,275,481 
LIABILITIES
 
 
Non-interest-bearing checking
1,035,421 
945,956 
Interest-bearing checking
34,489 
31,249 
Savings deposits
11,651 
11,136 
Money market deposits
36,562 
36,717 
Time certificates of deposit
106,673 
116,562 
Total deposits
1,224,796 
1,141,620 
Advances from Federal Home Loan Bank
11,000 
11,000 
Securities sold under agreements to repurchase
7,451 
8,055 
Subordinated debentures
10,310 
10,310 
Accrued interest payable
207 
223 
Contingent liability
3,450 
3,649 
Accrued expenses and other liabilities
16,433 
20,047 
Total liabilities
1,273,647 
1,194,904 
STOCKHOLDERS' EQUITY
 
 
Preferred stock, 800,000 shares authorized, no shares issued or outstanding
0 
0 
Common stock, $.01 par value; 5,200,000 shares authorized,3,372,999 shares issued, 3,191,265 and 3,146,867 shares outstanding at December 31, 2011 and September 30, 2011, respectively
34 
34 
Additional paid-in capital
32,535 
32,471 
Retained earnings - substantially restricted
48,170 
45,494 
Accumulated other comprehensive income
7,852 
6,336 
Treasury stock, 181,734 and 226,132 common shares, at cost,at December 31, 2011 and September 30, 2011, respectively
(3,033)
(3,758)
Total stockholders' equity
85,558 
80,577 
Total liabilities and stockholders' equity
$ 1,359,205 
$ 1,275,481 
Condensed Consolidated Statements of Financial Condition (Unaudited) (Parenthetical) (USD $)
In Thousands, except Share data, unless otherwise specified
Dec. 31, 2011
Sep. 30, 2011
ASSETS
 
 
Loans receivable - net of allowance for loan losses
$ 4,565 
$ 4,926 
STOCKHOLDERS' EQUITY
 
 
Preferred stock, authorized (in shares)
800,000 
800,000 
Preferred stock, issued (in shares)
0 
0 
Preferred stock, outstanding (in shares)
0 
0 
Common stock, par value (in dollars per share)
$ 0.01 
$ 0.01 
Common stock, authorized (in shares)
5,200,000 
5,200,000 
Common stock, issued (in shares)
3,372,999 
3,372,999 
Common stock, outstanding (in shares)
3,191,265 
3,146,867 
Treasury stock, shares (in shares)
181,734 
226,132 
Condensed Consolidated Statements of Operations (Unaudited) (USD $)
In Thousands, except Per Share data, unless otherwise specified
3 Months Ended
Dec. 31, 2011
Dec. 31, 2010
Interest and dividend income:
 
 
Loans receivable, including fees
$ 4,540 
$ 5,447 
Mortgage-backed securities
4,787 
3,918 
Other investments
288 
255 
Total interest and dividend income
9,615 
9,620 
Interest expense:
 
 
Deposits
653 
889 
FHLB advances and other borrowings
324 
453 
Total interest expense
977 
1,342 
Net interest income
8,638 
8,278 
Provision for loan losses
699 
(28)
Net interest income after provision for loan losses
7,939 
8,306 
Non-interest income:
 
 
Card fees
13,913 
14,011 
Gain on sale of securities available for sale, net
1,050 
526 
Loan fees
329 
201 
Deposit fees
162 
181 
Bank-owned life insurance income
128 
133 
Other income
100 
254 
Total non-interest income
15,682 
15,306 
Non-interest expense:
 
 
Compensation and benefits
7,176 
7,796 
Card processing expense
5,322 
5,223 
Occupancy and equipment expense
2,098 
2,042 
Goodwill impairment
0 
1,566 
Legal and consulting expense
1,266 
1,411 
Data processing expense
275 
273 
Marketing
167 
261 
Other expense
2,487 
3,046 
Total non-interest expense
18,791 
21,618 
Income before income tax expense
4,830 
1,994 
Income tax expense
1,739 
1,273 
Net income
$ 3,091 
$ 721 
Earnings per common share:
 
 
Basic (in dollars per share)
$ 0.97 
$ 0.23 
Diluted (in dollars per share)
$ 0.97 
$ 0.23 
Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited) (USD $)
In Thousands, unless otherwise specified
3 Months Ended
Dec. 31, 2011
Dec. 31, 2010
Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited) [Abstract]
 
 
Net income
$ 3,091 
$ 721 
Other comprehensive income (loss):
 
 
Change in net unrealized gains (losses) on securities available for sale
3,504 
(2,218)
Gains realized in net income
(1,050)
(526)
Total available for sale adjustment
2,454 
(2,744)
Deferred income tax effect
938 
(1,048)
Total other comprehensive income (loss)
1,516 
(1,696)
Total comprehensive income (loss)
$ 4,607 
$ (975)
Condensed Consolidated Statements of Changes in Stockholders' Equity (Unaudited) (USD $)
In Thousands, unless otherwise specified
Common Stock [Member]
Additional Paid-in Capital [Member]
Retained Earnings [Member]
Accumulated Other Comprehensive Income (Loss) [Member]
Treasury Stock [Member]
Total
Balance, beginning of period at Sep. 30, 2010
$ 34 
$ 32,381 
$ 42,475 
$ 1,599 
$ (4,445)
$ 72,044 
Increase (Decrease) in Stockholders' Equity [Roll Forward]
 
 
 
 
 
 
Cash dividends declared on common stock
0 
0 
(405)
0 
0 
(405)
Issuance of common shares from treasury stock due to issuance of restricted stock
0 
13 
0 
0 
23 
36 
Stock compensation
0 
25 
0 
0 
0 
25 
Stock compensation
0 
25 
0 
0 
0 
25 
Change in net unrealized (gain) losses on securities available for sale
0 
0 
0 
(1,696)
0 
(1,696)
Net income
0 
0 
721 
0 
0 
721 
Balance, end of period at Dec. 31, 2010
34 
32,419 
42,791 
(97)
(4,422)
70,725 
Balance, beginning of period at Sep. 30, 2011
34 
32,471 
45,494 
6,336 
(3,758)
80,577 
Increase (Decrease) in Stockholders' Equity [Roll Forward]
 
 
 
 
 
 
Cash dividends declared on common stock
0 
0 
(415)
0 
0 
(415)
Issuance of common shares from treasury stock due to issuance of restricted stock
0 
51 
0 
0 
725 
776 
Stock compensation
0 
13 
0 
0 
0 
13 
Stock compensation
0 
13 
0 
0 
0 
13 
Change in net unrealized (gain) losses on securities available for sale
0 
0 
0 
1,516 
0 
1,516 
Net income
0 
0 
3,091 
0 
0 
3,091 
Balance, end of period at Dec. 31, 2011
$ 34 
$ 32,535 
$ 48,170 
$ 7,852 
$ (3,033)
$ 85,558 
Condensed Consolidated Statements of Changes in Stockholders' Equity (Unaudited) (Parenthetical) (USD $)
12 Months Ended
Dec. 31, 2011
Dec. 31, 2010
Condensed Consolidated Statements of Changes in Stockholders' Equity (Unaudited) [Abstract]
 
 
Cash dividends declared on common stock (in dollars per share)
$ 0.13 
$ 0.13 
Issuance of common shares from treasury stock due to issuance of restricted stock (in shares)
44,398 
1,050 
Condensed Consolidated Statements of Cash Flows (Unaudited) (USD $)
In Thousands, unless otherwise specified
3 Months Ended
Dec. 31, 2011
Dec. 31, 2010
Cash flows from operating activities:
 
 
Net income
$ 3,091 
$ 721 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
Depreciation, amortization and accretion, net
2,864 
2,576 
Disbursement of non-real estate consumer loans originated for sale
(304,066)
(331,151)
Proceeds from sale of non-real estate consumer loans
304,717 
329,370 
Disbursement of 1-4 family residential mortgage loans originated for sale
0 
(1,022)
Proceeds from sale of 1-4 family residential mortgage loans
373 
2,176 
Loss (gain) on sale of loans
2 
(111)
Provision for loan losses
699 
(28)
Gain on sale of other assets
(13)
0 
Gain on sale of securities available for sale, net
(1,050)
(526)
Net change in accrued interest receivable
(309)
429 
Net change in other assets
812 
216 
Net change in accrued interest payable
(16)
(137)
Net change in accrued expenses and other liabilities
(3,813)
(1,042)
Net cash provided by operating activities
3,291 
1,471 
Cash flow from investing activities:
 
 
Purchase of securities available for sale
(277,388)
(73,092)
Net change in federal funds sold
0 
(6,236)
Proceeds from sales of securities available for sale
45,595 
21,296 
Proceeds from maturities and principal repayments of securities available for sale
39,738 
35,192 
Loans purchased
(4,188)
(1,039)
Net change in loans receivable
(2,651)
25,365 
Proceeds from sales of foreclosed real estate
350 
104 
Net change in Federal Home Loan Bank stock
(6,007)
312 
Proceeds from the sale of premises and equipment
30 
0 
Purchase of premises and equipment
(789)
(395)
Other, net
(938)
1,048 
Net cash (used in) provided by investing activities
(206,248)
2,555 
Cash flows from financing activities:
 
 
Net change in checking, savings, and money market deposits
93,065 
135,857 
Net change in time deposits
(9,889)
(31,094)
Net change in securities sold under agreements to repurchase
(604)
(2,376)
Cash dividends paid
(415)
(405)
Stock compensation
13 
25 
Proceeds from exercise of stock options
776 
36 
Net cash provided by financing activities
82,946 
102,043 
Net change in cash and cash equivalents
(120,011)
106,069 
Cash and cash equivalents at beginning of period
276,893 
87,503 
Cash and cash equivalents at end of period
156,882 
193,572 
Cash paid during the period for:
 
 
Interest
993 
1,479 
Income taxes
1,442 
1,075 
Supplemental schedule of non-cash investing and financing activities:
 
 
Loans transferred to foreclosed real estate
$ 1,720 
$ 0 
BASIS OF PRESENTATION
BASIS OF PRESENTATION
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, 2011 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 20, 2011.  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, 2011, are not necessarily indicative of the results expected for the year ending September 30, 2012.
CREDIT DISCLOSURES
CREDIT DISCLOSURES
NOTE 2.  CREDIT DISCLOSURES

Loans are considered impaired if full principal or interest payments are not probable in accordance with the contractual loan terms.  Impaired loans are carried at the present value of expected future cash flows discounted at the loan's effective interest rate or at the fair value of the collateral if the loan is collateral dependent.  A portion of the allowance for loan losses is allocated to impaired loans if the value of such loans is deemed to be less than the unpaid balance.  If these allocations cause the allowance for loan losses to require an increase, such increase is reported as a component of the provision for loan losses.

The allowance consists of specific, general, and unallocated components.  The specific component relates to impaired loans that are classified either as doubtful or substandard.  For such loans, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan.  The general component covers loans not considered impaired and is based on historical loss experience adjusted for qualitative factors.  An unallocated component is maintained to cover uncertainties that could affect management's estimate of probable losses.  The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio.

Smaller-balance homogeneous loans are evaluated for impairment in total.  Such loans include residential first mortgage loans secured by one-to-four family residences, residential construction loans, and automobile, manufactured homes, home equity and second mortgage loans.  Commercial and agricultural loans and mortgage loans secured by other properties are evaluated individually for impairment.  When analysis of borrower operating results and financial condition indicates that underlying cash flows of the borrower's business are not adequate to meet its debt service requirements, the loan is evaluated for impairment.  Often this is associated with a delay or shortfall in payments of 90 days or more.  Generally, non-accrual loans are considered impaired.  Impaired loans, or portions thereof, are charged off when deemed uncollectible.
 
Loan receivables at December 31, 2011 and September 30, 2011 are as follows:

   
December 31, 2011
  
September 30, 2011
 
   
(Dollars in Thousands)
 
        
One to four family residential mortgage loans
 $37,506  $33,753 
One to four family residential mortgage loans held for sale
  -   375 
Commercial and multi-family real estate loans
  194,444   194,414 
Agricultural real estate loans
  20,070   20,320 
Consumer loans
  34,359   32,418 
Consumer loans held for sale
  1,362   1,980 
Commercial business loans
  12,640   14,955 
Agricultural business loans
  22,071   21,200 
Total Loans Receivable
  322,452   319,415 
          
Less:
        
Allowance for loan losses
  (4,565)  (4,926)
Net deferred loan origination fees
  (83)  (79)
Total Loans Receivable, Net
 $317,804  $314,410 

Activity in the allowance for loan losses for the three month period ended December 31, 2011 and 2010 are as follows:

   
Three Months Ended
 
   
December 31,
 
(Dollars in Thousands) 
 
2011
  
2010
 
        
        
Beginning balance
 $4,926  $5,234 
Provision for loan losses
  699   (28)
Charge-offs
  (1,069)  (515)
Recoveries
  9   72 
Ending balance
 $4,565  $4,763 
 
Allowance for loan losses and loans receivable at December 31, 2011 and 2010 are as follows:

   
1-4 Family Residential
  
Commercial and Multi Family Real Estate
  
Agricultural Real Estate
  
Consumer
  
Commercial Business
  
Agricultural Operating
  
Unallocated
  
Total
 
                          
Three Months Ended December 31, 2011
                        
                          
Allowance for loan losses:
                        
Beginning balance
 $165  $3,901  $-  $16  $36  $67  $741  $4,926 
Provision charged (credited) to expense
  15   775   -   3   (2)  (2)  (90)  699 
Losses charged off
  -   (1,067)  -   (2)  -   -   -   (1,069)
Recoveries
  1   -   -   4   4   -   -   9 
Ending balance
 $181  $3,609  $-  $21  $38  $65  $651  $4,565 
                                  
                                  
Ending balance: individually evaluated for impairment
 $11  $1,425  $-  $-  $3  $-  $-  $1,439 
Ending balance: collectively evaluated for impairment
 $170  $2,184  $-  $21  $35  $65  $651  $3,126 
Ending balance: loans acquired with deteriorated credit quality
 $-  $-  $-  $-  $-  $-  $-  $- 
                                  
Loans:
                                
Ending balance: individually evaluated for impairment
 $178  $14,608  $-  $-  $91  $-  $-  $14,877 
Ending balance: collectively evaluated for impairment
 $37,328  $179,836  $20,070  $34,359  $12,549  $22,071  $-  $306,213 
Ending balance: loans acquired with deteriorated credit quality
 $-  $-  $-  $-  $-  $-  $-  $- 

   
1-4 Family Residential
  
Commercial and Multi Family Real Estate
  
Agricultural Real Estate
  
Consumer
  
Commercial Business
  
Agricultural Operating
  
Unallocated
  
Total
 
                          
Three Months Ended December 31, 2010
                        
                          
Allowance for loan losses:
                        
Beginning balance
 $50  $3,053  $111  $738  $131  $125  $1,026  $5,234 
Provision charged to expense
  (3)  136   (86)  60   (21)  (23)  (91)  (28)
Losses charged off
  -   (15)  -   (500)  -   -   -   (515)
Recoveries
  -   -   -   72   -   -   -   72 
Ending balance
 $47  $3,174  $25  $370  $110  $102  $935  $4,763 
                                  
Ending balance: individually evaluated for impairment
 $47  $877  $19  $1  $17  $-  $-  $961 
Ending balance: collectively evaluated for impairment
 $-  $2,297  $6  $369  $93  $102  $935  $3,802 
Ending balance: loans acquired with deteriorated credit quality
 $-  $-  $-  $-  $-  $-  $-  $- 
                                  
Loans:
                                
Ending balance: individually evaluated for impairment
 $137  $7,888  $1,826  $5  $113  $-  $-  $9,969 
Ending balance: collectively evaluated for impairment
 $38,013  $193,123  $19,081  $42,238  $16,814  $28,107  $-  $337,376 
Ending balance: loans acquired with deteriorated credit quality
 $-  $-  $-  $-  $-  $-  $-  $- 

Federal regulations provide for the classification of loans and other assets, such as debt and equity securities considered by our regulator, the Office of the Comptroller of the Currency (the “OCC”), to be of lesser quality, as “substandard,” “doubtful” or “loss.”  An asset is considered “substandard” if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any.  “Substandard” assets include those characterized by the “distinct possibility” that the savings association will sustain “some loss” if the deficiencies are not corrected.  Assets classified as “doubtful” have all of the weaknesses inherent in those classified “substandard,” with the added characteristic that the weaknesses present make “collection or liquidation in full,” on the basis of currently existing facts, conditions, and values, “highly questionable and improbable.”  Assets classified as “loss” are those considered “uncollectible” and of such minimal value that their continuance as assets without the establishment of a specific loss reserve is not warranted.
 
General allowances represent loss allowances which have been established to recognize the inherent risk associated with lending activities, but which, unlike specific allowances, have not been allocated to particular problem assets.  When assets are classified as “loss,” MetaBank (the “Bank”) is required either to establish a specific allowance for losses equal to 100% of that portion of the asset so classified or to charge-off such amount.  The Bank's determinations as to the classification of its assets and the amount of its valuation allowances are subject to review by its regulatory authorities, who may order the establishment of additional general or specific loss allowances.
 
The asset classification at December 31, 2011 and September 30, 2011 are as follows:

December 31, 2011
                  
   
1-4 Family Residential
  
Commercial and Multi Family Real Estate
  
Agricultural Real Estate
  
Consumer
  
Commercial Business
  
Agricultural Operating
 
                    
Pass
 $37,226  $167,063  $20,070  $34,073  $11,345  $15,594 
Watch
  263   7,386   -   164   715   6,477 
Special Mention
  17   598   -   1   331   - 
Substandard
  -   19,371   -   91   249   - 
Doubtful
  -   26   -   30   -   - 
   $37,506  $194,444  $20,070  $34,359  $12,640  $22,071 

September 30, 2011
                  
   
1-4 Family Residential
  
Commercial and Multi Family Real Estate
  
Agricultural Real Estate
  
Consumer
  
Commercial Business
  
Agricultural Operating
 
                    
Pass
 $33,830  $161,109  $20,320  $31,967  $13,737  $14,500 
Watch
  281   10,446   -   318   913   6,700 
Special Mention
  17   3,006   -   38   53   - 
Substandard
  -   19,827   -   60   252   - 
Doubtful
  -   26   -   35   -   - 
   $34,128  $194,414  $20,320  $32,418  $14,955  $21,200 

One- to Four-Family Residential Mortgage Lending.  One- to four-family residential mortgage loan originations are generated by the Company's marketing efforts, its present customers, walk-in customers and referrals.  The Company offers fixed-rate and ARM loans for both permanent structures and those under construction.  The Company's one- to four-family residential mortgage originations are secured primarily by properties located in its primary market area and surrounding areas.

The Company originates one- to four-family residential mortgage loans with terms up to a maximum of 30 years and with loan-to-value ratios up to 100% of the lesser of the appraised value of the security property or the contract price.  The Company generally requires that private mortgage insurance be obtained in an amount sufficient to reduce the Company's exposure to at or below the 80% loan-to-value level, unless the loan is insured by the Federal Housing Administration, guaranteed by Veterans Affairs or guaranteed by the Rural Housing Administration.  Residential loans generally do not include prepayment penalties.
 
The Company currently offers one, three, five, seven and ten year ARM loans.  These loans have a fixed-rate for the stated period and, thereafter, such loans adjust annually.  These loans generally provide for an annual cap of up to 200 basis points and a lifetime cap of 600 basis points over the initial rate.  As a consequence of using an initial fixed-rate and caps, the interest rates on these loans may not be as rate sensitive as is the Company's cost of funds.  The Company's ARMs do not permit negative amortization of principal and are not convertible into a fixed rate loan.  The Company's delinquency experience on its ARM loans has generally been similar to its experience on fixed rate residential loans.  Current market conditions make ARM loans unattractive and very few are originated.

Due to consumer demand, the Company also offers fixed-rate mortgage loans with terms up to 30 years, most of which conform to secondary market, i.e., Fannie Mae, Ginnie Mae, and Freddie Mac standards.  Interest rates charged on these fixed-rate loans are competitively priced according to market conditions.  The Company currently sells most, but not all, of its fixed-rate loans with terms greater than 15 years.

In underwriting one- to four-family residential real estate loans, the Company evaluates both the borrower's ability to make monthly payments and the value of the property securing the loan.  Properties securing real estate loans made by the Company are appraised by independent appraisers approved by the Board of Directors.  The Company generally requires borrowers to obtain an attorney's title opinion or title insurance, and fire and property insurance (including flood insurance, if necessary) in an amount not less than the amount of the loan.  Real estate loans originated by the Company generally contain a “due on sale” clause allowing the Company to declare the unpaid principal balance due and payable upon the sale of the security property.  The Company has not engaged in sub-prime residential mortgage originations.

Commercial and Multi-Family Real Estate Lending.  The Company engages in commercial and multi-family real estate lending in its primary market area and surrounding areas and, in order to supplement its loan portfolio, has purchased whole loan and participation interests in loans from other financial institutions.  The purchased loans and loan participation interests are generally secured by properties located in the Midwest and West.

The Company's commercial and multi-family real estate loan portfolio is secured primarily by apartment buildings, office buildings, and hotels.  Commercial and multi-family real estate loans generally have terms that do not exceed 20 years, have loan-to-value ratios of up to 80% of the appraised value of the security property, and are typically secured by personal guarantees of the borrowers.  The Company has a variety of rate adjustment features and other terms in its commercial and multi-family real estate loan portfolio.  Commercial and multi-family real estate loans provide for a margin over a number of different indices.  In underwriting these loans, the Company currently analyzes the financial condition of the borrower, the borrower's credit history, and the reliability and predictability of the cash flow generated by the property securing the loan.  Appraisals on properties securing commercial real estate loans originated by the Company are performed by independent appraisers.

Commercial and multi-family real estate loans generally present a higher level of risk than loans secured by one- to four-family residences.  This greater risk is due to several factors, including the concentration of principal in a limited number of loans and borrowers, the effect of general economic conditions on income producing properties and the increased difficulty of evaluating and monitoring these types of loans.  Furthermore, the repayment of loans secured by commercial and multi-family real estate is typically dependent upon the successful operation of the related real estate project.  If the cash flow from the project is reduced (for example, if leases are not obtained or renewed, or a bankruptcy court modifies a lease term, or a major tenant is unable to fulfill its lease obligations), the borrower's ability to repay the loan may be impaired.

Agricultural Lending.  The Company originates loans to finance the purchase of farmland, livestock, farm machinery and equipment, seed, fertilizer and other farm related products.  Agricultural operating loans are originated at either an adjustable or fixed rate of interest for up to a one year term or, in the case of livestock, upon sale.  Most agricultural operating loans have terms of one year or less.  Such loans provide for payments of principal and interest at least annually or a lump sum payment upon maturity if the original term is less than one year.  Loans secured by agricultural machinery are generally originated as fixed-rate loans with terms of up to seven years.
 
Agricultural real estate loans are frequently originated with adjustable rates of interest.  Generally, such loans provide for a fixed rate of interest for the first one to five years, which then balloon or adjust annually thereafter.  In addition, such loans generally amortize over a period of ten to 20 years.  Adjustable-rate agricultural real estate loans provide for a margin over the yields on the corresponding U.S. Treasury security or prime rate.  Fixed-rate agricultural real estate loans generally have terms up to five years.  Agricultural real estate loans are generally limited to 75% of the value of the property securing the loan.

Agricultural lending affords the Company the opportunity to earn yields higher than those obtainable on one- to four-family residential lending.  Nevertheless, agricultural lending involves a greater degree of risk than one- to four-family residential mortgage loans because of the typically larger loan amount.  In addition, payments on loans are dependent on the successful operation or management of the farm property securing the loan or for which an operating loan is utilized.  The success of the loan may also be affected by many factors outside the control of the farm borrower.

Weather presents one of the greatest risks as hail, drought, floods, or other conditions can severely limit crop yields and thus impair loan repayments and the value of the underlying collateral.  This risk can be reduced by the farmer with a variety of insurance coverages which can help to ensure loan repayment.  Government support programs and the Company generally require that farmers procure crop insurance coverage.  Grain and livestock prices also present a risk as prices may decline prior to sale resulting in a failure to cover production costs.  These risks may be reduced by the farmer with the use of futures contracts or options to mitigate price risk.  The Company frequently requires borrowers to use future contracts or options to reduce price risk and help ensure loan repayment.  Another risk is the uncertainty of government programs and other regulations.  During periods of low commodity prices, the income from government programs can be a significant source of cash to make loan payments and if these programs are discontinued or significantly changed, cash flow problems or defaults could result.  Finally, many farms are dependent on a limited number of key individuals upon whose injury or death may result in an inability to successfully operate the farm.

Consumer Lending- Retail Bank.  The “Retail Bank” (generally referring to traditional banking operations in our four market areas) offers a variety of secured consumer loans, including home equity, home improvement, automobile, boat and loans secured by savings deposits.  In addition, the Retail Bank offers other secured and unsecured consumer loans.  The Retail Bank currently originates most of its consumer loans in its primary market area and surrounding areas.  The Retail Bank originates consumer loans on both a direct and indirect basis.

The largest component of the Retail Bank's consumer loan portfolio consists of home equity loans and lines of credit.  Substantially all of the Retail Bank's home equity loans and lines of credit are secured by second mortgages on principal residences.  The Retail Bank will lend amounts which, together with all prior liens, typically may be up to 100% of the appraised value of the property securing the loan.  Home equity loans and lines of credit generally have maximum terms of five years.

The Retail Bank primarily originates automobile loans on a direct basis, but also originates indirect automobile loans on a very limited basis.  Direct loans are loans made when the Retail Bank extends credit directly to the borrower, as opposed to indirect loans, which are made when the Retail Bank purchases loan contracts, often at a discount, from automobile dealers which have extended credit to their customers.  The Retail Bank's automobile loans typically are originated at fixed interest rates with terms up to 60 months for new and used vehicles.  Loans secured by automobiles are generally originated for up to 80% of the N.A.D.A. book value of the automobile securing the loan.

Consumer loan terms vary according to the type and value of collateral, length of contract and creditworthiness of the borrower.  The underwriting standards employed by the Company for consumer loans include an application, a determination of the applicant's payment history on other debts and an assessment of ability to meet existing obligations and payments on the proposed loan.  Although creditworthiness of the applicant is a primary consideration, the underwriting process also includes a comparison of the value of the security, if any, in relation to the proposed loan amount.
 
Consumer loans may entail greater credit risk than do residential mortgage loans, particularly in the case of consumer loans which are unsecured or are secured by rapidly depreciable assets, such as automobiles or recreational equipment.  In such cases, any repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment of the outstanding loan balance as a result of the greater likelihood of damage, loss or depreciation.  In addition, consumer loan collections are dependent on the borrower's continuing financial stability, and thus are more likely to be affected by adverse personal circumstances.  Furthermore, the application of various federal and state laws, including bankruptcy and insolvency laws, may limit the amount which can be recovered on such loans.

Consumer Lending- Meta Payment Systems (“MPS”).  MPS offers credit products on a nationwide basis in the following categories (1) sponsorship lending and (2) portfolio lending.  In a sponsorship lending model, MPS typically originates loans and sells (without recourse) the resulting receivables to third party investors.  In portfolio lending, the Company retains some or all receivables and relies on the borrower as the underlying source of repayment.

Consumer loan collections are dependent on the borrower's continuing financial stability, and thus are more likely to be affected by adverse personal circumstances.

The Company monitors concentrations of credit that may naturally occur and may take the form of a large volume of related loans to an individual, a specific industry, a geographic location or an occupation.

Commercial Business Lending.  The Company also originates commercial business loans.  Most of the Company's commercial business loans have been extended to finance local and regional businesses and include short-term loans to finance machinery and equipment purchases, inventory and accounts receivable.  Commercial loans also involve the extension of revolving credit for a combination of equipment acquisitions and working capital in expanding companies.

The maximum term for loans extended on machinery and equipment is based on the projected useful life of such machinery and equipment.  Generally, the maximum term on non-mortgage lines of credit is one year.  The loan-to-value ratio on such loans and lines of credit generally may not exceed 80% of the value of the collateral securing the loan.  The Company's commercial business lending policy includes credit file documentation and analysis of the borrower's character, capacity to repay the loan, the adequacy of the borrower's capital and collateral as well as an evaluation of conditions affecting the borrower.  Analysis of the borrower's past, present and future cash flows is also an important aspect of the Company's current credit analysis.

Unlike residential mortgage loans, which generally are made on the basis of the borrower's ability to make repayment from his or her employment and other income and which are secured by real property whose value tends to be more easily ascertainable, commercial business loans typically are made on the basis of the borrower's ability to make repayment from the cash flow of the borrower's business.  As a result, the availability of funds for the repayment of commercial business loans may be substantially dependent on the success of the business itself (which, in turn, is likely to be dependent upon the general economic environment).  The Company's commercial business loans are usually, but not always, secured by business assets and personal guarantees.  However, the collateral securing the loans may depreciate over time, may be difficult to appraise and may fluctuate in value based on the success of the business.  Commercial business loans have been a declining percentage of the Company's loan portfolio since 2005.
 
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.  Past due loans at December 31, 2011 and September 30, 2011 are as follows:

December 31, 2011
 
30-59 Days Past Due
  
60-89 Days Past Due
  
Greater Than 90 Days
  
Total Past Due
  
Current
  
Non-Accrual Loans
  
Total Loans Receivable
 
                       
Residential 1-4 Family
 $347  $-  $-  $347  $36,981  $178  $37,506 
Commercial Real Estate and Multi Family
  1,631   -   -   1,631   182,575   10,238   194,444 
Agricultural Real Estate
  -   -   -   -   20,070   -   20,070 
Consumer
  28   44   23   95   34,264   -   34,359 
Commercial Operating
  -   -   -   -   12,615   25   12,640 
Agricultural Operating
  -   -   -   -   22,071   -   22,071 
Total
 $2,006  $44  $23  $2,073  $308,576  $10,441  $321,090 
                              
September 30, 2011
                            
                              
Residential 1-4 Family
 $51  $30  $-  $81  $33,920  $127  $34,128 
Commercial Real Estate and Multi Family
  2,460   -   -   2,460   178,929   13,025   194,414 
Agricultural Real Estate
  -   -   -   -   20,320   -   20,320 
Consumer
  26   14   24   64   32,354   -   32,418 
Commercial Operating
  -   -   -   -   14,925   30   14,955 
Agricultural Operating
  -   -   -   -   21,200   -   21,200 
Total
 $2,537  $44  $24  $2,605  $301,648  $13,182  $317,435 
 
Impaired loans at December 31, 2011 and September 30, 2011 are as follows:

   
Recorded Balance
  
Unpaid Principal Balance
  
Specific Allowance
  
Average Investment in Impaired Loans
  
Interest Income Recognized
 
December 31, 2011
               
                 
Loans without a specific valuation allowance
               
Residential 1-4 Family
 $-  $-  $-  $-  $- 
Commercial Real Estate and Multi Family
  -   -   -   -   - 
Agricultural Real Estate
  -   -   -   -   - 
Consumer
  -   -   -   -   - 
Commercial Operating
  -   -   -   -   - 
Agricultural Operating
  -   -   -   -   - 
Total
 $-  $-  $-  $-  $- 
Loans with a specific valuation allowance
                    
Residential 1-4 Family
 $178  $232  $11  $145  $- 
Commercial Real Estate and Multi Family
  14,608   20,043   1,425   11,401   - 
Agricultural Real Estate
  -   -   -   646   - 
Consumer
  -   -   -   11   - 
Commercial Operating
  91   134   3   78   - 
Agricultural Operating
  -   -   -   -   - 
Total
 $14,877  $20,409  $1,439  $12,281  $- 

   
Recorded Balance
  
Unpaid Principal Balance
  
Specific Allowance
  
Average Investment in Impaired Loans
  
Interest Income Recognized
 
September 30, 2011
               
                 
Loans without a specific valuation allowance
               
Residential 1-4 Family
 $-  $-  $-  $-  $- 
Commercial Real Estate and Multi Family
  -   -   -   -   - 
Agricultural Real Estate
  -   -   -   -   - 
Consumer
  -   -   -   -   - 
Commercial Operating
  -   -   -   -   - 
Agricultural Operating
  -   -   -   -   - 
Total
 $-  $-  $-  $-  $- 
Loans with a specific valuation allowance
                    
Residential 1-4 Family
 $127  $172  $1  $117  $- 
Commercial Real Estate and Multi Family
  13,025   18,427   1,845   9,306   - 
Agricultural Real Estate
  -   -   -   1,176   - 
Consumer
  -   -   -   36   - 
Commercial Operating
  30   45   3   109   - 
Agricultural Operating
  -   -   -   80   - 
Total
 $13,182  $18,644  $1,849  $10,824  $- 
 
The Company's troubled debt restructurings (“TDR”) (which involved forgiving a portion of interest or principal on any loans or making loans at a rate materially less than that of market rates) are included in the table. Loans modified as TDR loans during the period ended December 31, 2011 and 2010 are as follows:

   
For the Three Months Ended December 31, 2011
  
For the Three Months Ended December 31, 2010
 
   
Number of Loans
  
Pre-Modification Outstanding Recorded Balance
  
Post-Modification Outstanding Recorded Balance
  
Number of Loans
  
Pre-Modification Outstanding Recorded Balance
  
Post-Modification Outstanding Recorded Balance
 
                    
Residential 1-4 Family
  -  $-  $-   -  $-  $- 
Commercial Real Estate and Multi Family
  -   -   -   -   -   - 
Agricultural Real Estate
  -   -   -   -   -   - 
Consumer
  -   -   -   -   -   - 
Commercial Operating
  -   -   -   -   -   - 
Agricultural Operating
  -   -   -   -   -   - 
Total
  -  $-  $-   -  $-  $- 

The following table provides information on TDR loans for which there was a payment default during the three month period ending December 31, 2011 and 2010, that had been modified during the 12-month period prior to the default:

   
With Payment Defaults During the Following Periods
 
   
For the Three Month Period Ended
  
For the Three Month Period Ended
 
   
December 31, 2011
  
December 31, 2010
 
   
Number of Loans
  
Recorded Investment
  
Number of Loans
  
Recorded Investment
 
Residential 1-4 Family
  -  $-   -  $- 
Commercial Real Estate and Multi Family
  -   -   -   - 
Agricultural Real Estate
  -   -   -   - 
Consumer
  -   -   -   - 
Commercial Operating
  -   -   -   - 
Agricultural Operating
  -   -   -   - 
Total
  -  $-   -  $- 
ALLOWANCE FOR LOAN LOSSES
ALLOWANCE FOR LOAN LOSSES
NOTE 3.  ALLOWANCE FOR LOAN LOSSES

At December 31, 2011, the Company's allowance for loan losses was $4.6 million, a decrease of $0.3 million from $4.9 million at September 30, 2011.  During the three months ended December 31, 2011, the Company recorded a provision for loan losses of $0.7 million.
 
During the three months ended December 31, 2011, the Company recorded a provision for loan losses for its Retail Bank division in the amount of $0.7 million due to increases in the general reserves and in the historical loss rates for commercial real estate and multi-family loans.  During the three months ended December 31, 2010, the Company recorded negative provision for loan losses for its MPS division in the amount of $28,000.

The Company's total net charge-offs for the three months ended December 31, 2011 were a net charge-off of $1.1 million.

The allowance for loan losses represents management's estimate of probable loan losses which have been incurred as of the date of the consolidated financial statements.  The allowance for loan losses is increased by a provision for loan losses charged to expense and decreased by charge-offs (net of recoveries). Estimating the risk of loss and the amount of loss on any loan is necessarily subjective. Management's periodic evaluation of the adequacy of the allowance is based on the Company's past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower's ability to repay, the estimated value of any underlying collateral, and current economic conditions. While management may periodically allocate portions of the allowance for specific problem loan situations, the entire allowance is available for any loan charge-offs that occur.
 
The Company establishes its provision for loan losses, and evaluates the adequacy of its allowance for loan losses based upon a systematic methodology consisting of a number of factors including, among others, historic loss experience, the overall level of classified assets, non-performing loans,  and TDR loans, the composition of its loan portfolio and the general economic environment within which the Company and its borrowers operate.

Management closely monitors economic developments both regionally and nationwide, and considers these factors when assessing the adequacy of its allowance for loan losses.
EARNINGS PER COMMON SHARE (EPS)
EARNINGS PER COMMON SHARE (EPS)
NOTE 4.  EARNINGS PER COMMON SHARE (“EPS”)

Basic EPS is computed by dividing income (loss) available to common stockholders (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.  Allocated ESOP shares are considered outstanding for earnings per common share calculations as they are committed to be issued; unallocated ESOP shares are not considered 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, 2011 and 2010 is presented below.

Three Months Ended December 31,
 
2011
  
2010
 
(Dollars in Thousands, Except Share and Per Share Data)
      
        
Earnings
      
Net Income
 $3,091  $721 
          
Basic EPS
        
Weighted average common shares outstanding
  3,177,570   3,111,898 
Less weighted average unallocated ESOP and nonvested shares
  -   (1,667)
Weighted average common shares outstanding
  3,177,570   3,110,231 
          
Earnings Per Common Share
        
Basic
 $0.97  $0.23 
          
Diluted EPS
        
Weighted average common shares outstanding for basic earnings per common share
  3,177,570   3,110,231 
Add dilutive effect of assumed exercises of stock options, net of tax benefits
  3,061   - 
Weighted average common and dilutive potential common shares outstanding
  3,180,631   3,110,231 
          
Earnings Per Common Share
        
Diluted
 $0.97  $0.23 
 
Stock options totaling 460,775 and 365,228 were not considered in computing diluted EPS for the three months ended December 31, 2011 and December 31, 2010, respectively, because they were not dilutive.
SECURITIES
SECURITIES
NOTE 5.  SECURITIES

The amortized cost, gross unrealized gains and losses and estimated fair values of available for sale securities at December 31, 2011 and September 30, 2011 are presented below.

December 31, 2011
 
Amortized Cost
  
Gross
Unrealized Gains
  
Gross
Unrealized (Losses)
  
Fair Value
 
   
(Dollars in Thousands)
 
Debt securities
            
Trust preferred and corporate securities
 $40,286  $8  $(6,700) $33,594 
Obligations of states and political subdivisions
  8,438   396   -   8,834 
Mortgage-backed securities
  751,366   19,177   (165)  770,378 
Total debt securities
 $800,090  $19,581  $(6,865) $812,806 

September 30, 2011
 
Amortized Cost
  
Gross
Unrealized Gains
  
Gross
Unrealized (Losses)
  
Fair Value
 
   
(Dollars in Thousands)
 
Debt securities
            
Trust preferred and corporate securities
 $30,582  $-  $(8,470) $22,112 
Obligations of states and political subdivisions
  5,937   281   -   6,218 
Mortgage-backed securities
  572,467   18,591   (140)  590,918 
Total debt securities
 $608,986  $18,872  $(8,610) $619,248 

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

At December 31, 2011
                 
Issuer(1)
 
Book Value
  
Fair Value
  
Unrealized
(Loss)
  
S&P
Credit Rating
  
Moody
Credit Rating
 
   
(Dollars in Thousands)
         
                   
Key Corp. Capital I
 $4,983  $3,702  $(1,281) 
BBB-
  
Baa3
 
Huntington Capital Trust II SE
  4,973   3,791   (1,182) 
BB+
  
Baa3
 
Bank Boston Capital Trust IV (2)
  4,965   3,610   (1,355) 
BB+
  
Ba1
 
Bank America Capital III
  4,954   3,612   (1,342) 
BB+
  
Ba1
 
PNC Capital Trust
  4,955   3,683   (1,272) 
BBB
  
Baa2
 
Total
 $24,830  $18,398  $(6,432)        
 

(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.
 
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, 2011 and September 30, 2011, are as follows:

   
LESS THAN 12 MONTHS
  
OVER 12 MONTHS
  
TOTAL
 
   
Fair
  
Unrealized
  
Fair
  
Unrealized
  
Fair
  
Unrealized
 
December 31, 2011
 
Value
  
(Losses)
  
Value
  
(Losses)
  
Value
  
(Losses)
 
   
(Dollars in Thousands)
 
Debt securities
                  
Trust preferred and corporate securities
 $8,563  $(269) $18,398  $(6,431) $26,961  $(6,700)
Obligations of states and political subdivisions
  -   -   -   -   -   - 
Mortgage-backed securities
  82,931   (165)  -   -   82,931   (165)
Total debt securities
 $91,494  $(434) $18,398  $(6,431) $109,892  $(6,865)

   
LESS THAN 12 MONTHS
  
OVER 12 MONTHS
  
TOTAL
 
   
Fair
  
Unrealized
  
Fair
  
Unrealized
  
Fair
  
Unrealized
 
September 30, 2011
 
Value
  
(Losses)
  
Value
  
(Losses)
  
Value
  
(Losses)
 
   
(Dollars in Thousands)
 
Debt securities
                  
Trust preferred and corporate securities
 $5,713  $(42) $16,399  $(8,428) $22,112  $(8,470)
Obligations of states and political subdivisions
  -   -   -   -   -   - 
Mortgage-backed securities
  23,886   (140)  -   -   23,886   (140)
Total debt securities
 $29,599  $(182) $16,399  $(8,428) $45,998  $(8,610)

Management has implemented a process to identify securities that could potentially have a credit impairment that is other-than-temporary. This process involves evaluating the length of time and extent to which the fair value has been less than the amortized cost basis, reviewing available information regarding the financial position of the issuer, monitoring the rating of the security and projecting cash flows. 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 individual securities, the financial condition of issuer, and whether there have been any payment deferrals or defaults to-date.  Such factors are subject to change over time.

Management also determines if it is more likely than not we will be required to sell the security before the recovery of its amortized cost basis which, in some cases, may extend to maturity. To the extent we determine that a security is deemed to be other-than-temporarily impaired, an impairment loss is recognized in earnings.

For all securities that are considered temporarily impaired, the Company does not intend to sell these securities (has not made a decision to sell) and it is not more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis, which may occur at maturity. The Company believes that it will collect all principal and interest due on all investments that have amortized cost in excess of fair value that are considered only temporarily impaired.

At December 31, 2011, the investment portfolio included securities with current unrealized losses which have existed for longer than one year.  All of these securities are considered to be acceptable credit risks.  Because the declines in fair value were due to changes in market interest rates, not in estimated cash flows, no other-than-temporary impairment was recorded at December 31, 2011.  In addition, the Company has the intent and ability to hold these investment securities for a period of time sufficient to allow for an anticipated recovery.
COMMITMENTS AND CONTINGENCIES
COMMITMENTS AND CONTINGENCIES
NOTE 6.  COMMITMENTS AND CONTINGENCIES

At December 31, 2011 and September 30, 2011, the Company had outstanding commitments to originate and purchase loans and unused lines of credit totaling $45.5 million and $48.0 million, respectively.  It is expected that outstanding loan commitments will be funded with existing liquid assets.  At December 31, 2011, the Company had no commitments to purchase or sell securities available for sale.
 
Legal Proceedings

All lawsuits against the Bank involving the sale of purported Bank certificates of deposit (“CDs”)have now been settled, pending approval of the Court.  The final lawsuit relating to this matter, Airline Pilots Assoc Federal Credit Union v. MetaBank, filed in the Iowa District court for Polk County, Case No. CL-118792, was settled in January 2012.  The underlying 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 to be filed against the Bank seeking recovery on the fraudulent CDs, which have been disclosed in subsequent filings.  The employee was prosecuted, convicted and, on June 2, 2010, 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 unknown by the Bank and its management, plaintiff in the remaining case sought to impose liability on the Bank under a number of legal theories with respect to the $99,000 fraudulent CD that was issued by the former employee.

In re Meta Financial Group, Inc., Securities Litigation; Case No. C10-4108MWB. Two former stockholders filed separate purported class action lawsuits against the Company and certain of its officers alleging violations of certain federal securities laws. The cases were filed on October 22, 2010 and November 5, 2010 in the United States District Court for the Northern District of Iowa purportedly on behalf of those who purchased the Company's stock between May 14, 2009 and October 15, 2010. On January 12, 2011, Judge Mark W. Bennett appointed The Eden Partnership lead plaintiff and on March 14, 2011 Eden Partnership filed its amended complaint. The amended complaint alleges that the named officers violated Sections 10(b) and 20(a) of the Securities Exchange Act and SEC Rule 10b-5 in connection with certain allegedly false and misleading public statements made between May 14, 2009 and October 15, 2010 by the Company and its officers. Defendants moved to dismiss the amended complaint in its entirety but on July 18, 2011, the court denied the motion and ordered that discovery proceed. The parties conducted a mediation on December 5, 2011 and reached a tentative settlement of the matter. A definitive settlement agreement has been presented to the court for its review.  Following review by the court, the settlement must be submitted to the class members for their consideration and comment, and finally approved by the court before the matter can be dismissed with prejudice. As of the filing of this Form 10-Q, provided that the amount of the tentative settlement is approved by the court, as expected, and the amount of the settlement is paid by the Company's insurance as expected by the Company, the Company does not expect to incur losses in addition to the amounts that it has previously expensed which would be material to its consolidated financial statements.

On December 9, 2011, a stockholder derivative complaint captioned Brown v. Haahr, et al., CL 123931, was filed in the Iowa District Court for Polk County against certain officers and directors of the Company. The suit alleges that named parties breached their fiduciary duties to the Company by, among other things, making statements between May, 2009 and October, 2010, which plaintiff claims were false and misleading and by allegedly failing to implement adequate internal controls and means of supervision at the Company.  The individual defendants intend to vigorously defend the suit.  An estimate of a range of reasonably possible loss cannot be made as of the filing of this Form 10-Q because of the early stage of the litigation.

In addition to the previously disclosed ATM lawsuits filed in 2011, there were two lawsuits filed in the fourth quarter of fiscal year 2011 and four additional lawsuits in the first quarter of fiscal year 2012, concerning ATMs sponsored by the Bank, each involving claims that a notification required to be placed upon an automated teller machine was absent on a specific date, in violation of Regulation E of the Electronic Fund Transfer Act:  Wallace Stilz, III. v. Meta Financial Group, Inc., Case No. 1:11-cv-04531, filed in the United States District Court for the Northern District of Illinois, Eastern Division; and Spencer Webb, Individually and on Behalf of all Others Similarly Situated v. MetaBank, Meta Payment Systems, and Does 1-10, Inclusive, Case No. 3:11-cv-02178-H-NLS, filed in the United States District Court for the Southern District of California; Tamara Vance, on behalf of herself and a class v. MetaBank, N.A. and Does 1-5, Case No. 1:11-cv-06972, filed in the United States District Court for the Northern District of Illinois, Eastern Division; Ian Collins, Individually and on Behalf of All Others Similarly Situated v. Mission Gorge Liquor, MetaBank, Meta Payment Systems, and Does 1-10, Inclusive, Case No. 3:11-cv-02345-L-POR, filed in the United States District Court for the Southern District of California; Spencer Webb, Individually and on Behalf of all Others Similarly Situated v. MetaBank, Meta Payment Systems, Swipe USA, LLC, and Does 1-10, Inclusive, Case No. 3:11-cv-02240-MMA-BLM, filed in the United States District Court for the Southern District of California; and Matthew Johns v. MAF Systems ATM, MetaBank, ATM Express Inc., Does 1-10 and XYZ Corporation, Case No. 2011-25436, filed in the Court of Common Pleas, Montgomery County, Pennsylvania.  The Company denies liability in these matters, and will contest these lawsuits with the ATM operators, which are each obligated to indemnify the Company for losses, costs and expenses in these matters.  An estimate of a range of possible loss cannot be made at this stage of the litigation because the extent of the Company's indemnification by the ATM operators is unknown.
 
On May 4, 2011, Patrick Finn and Light House Management Group, Inc. as Receivers for First United Funding, LLC and Corey N. Johnson (“Receivers”) filed a complaint, Patrick Finn and Light House Management Group, Inc. as Receiver for First United Funding, LLC and Corey N. Johnson v. MetaBank et al, Case 5:11-cv-04041, against the Bank in the United States District Court for the Northern District of Iowa requesting judgment avoiding approximately $1.5 million of transfers that allegedly resulted in a profit to the Bank arising from the Bank's participation in loans originated by First United Funding, LLC.  Similar complaints have been filed by the Receivers against other lenders who purchased participation interests in the same or similar loans originated by First United Funding, LLC.  The complaint states that First United Funding, LLC and Corey N. Johnston were involved in a criminal enterprise to defraud creditors.  Under a variety of theories, Receivers claim that loan repayments to the Bank constitute fraudulent transfers and the Bank was unjustly enriched to the detriment of these creditors.  The Bank intends to vigorously defend the case.  An estimate of a range of reasonably possible loss is approximately $0 to $0.5 million as of the filing date of this Form 10-Q.

The Bank utilizes various third parties for, among other things, its processing needs, both with respect to standard bank operations and with respect to its MPS division.  MPS was notified in April 2008 by one of the processors that the processor's computer system had been breached, which led to the unauthorized load and spending of funds from Bank-issued cards.  The Bank believes the amount in question to be approximately $2.0 million.  The processor and program manager both have agreements with the Bank to indemnify it for any losses as a result of such unauthorized activity, and the matter is reflected as such in its financial statements.  In addition, the Bank has given notice to its own insurer.  The Bank has been notified by the processor that its insurer has denied the claim filed.  The Bank made demand for payment and filed a demand for arbitration to recover the unauthorized loading and spending amounts and certain damages.  The Bank has settled its claim with the program manager, and has received an arbitration award against the processor.  That arbitration has been entered as a judgment in the State of South Dakota, which judgment has been transferred to the State of Florida for garnishment proceedings against the processor and its insurer.  The Company's estimate of a range of reasonably possible loss is approximately $0 to $0.5 million as of the filing date of this Form 10-Q.

Certain corporate clients of an unrelated company named Springbok Services, Inc. (“Springbok”) requested through counsel a mediation as a means of reaching a settlement in lieu of commencing litigation against the Bank.  The results of that mediation have not led to a settlement.  These claimants purchased the Bank prepaid reward cards from Springbok, prior to Springbok's bankruptcy.  As a result of Springbok's bankruptcy and cessation of business, some of the rewards cards which had been purchased were never activated or funded.  Counsel for the corporate clients of Springbok have indicated that they are prepared to assert claims totaling approximately $1.5 million against the Bank based on principal/agency or failure to supervise theories.  The Company denies liability with respect to these claims.  The Company's estimate of a range of reasonably possible loss is approximately $0 to $0.3 million.

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 business.
STOCK OPTION PLAN
STOCK OPTION PLAN
NOTE 7.  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 – Stock Compensation, 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.

A summary of option activity for the three months ended December 31, 2011 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, 2011
  485,352  $23.28   5.87  $463 
Granted
  -   -         
Exercised
  (500)  9.00         
Forfeited or expired
  (500)  9.00         
Options outstanding, December 31, 2011
  484,352  $23.31   5.63  $174 
                  
Options exercisable, December 31, 2011
  455,102  $23.24   5.66  $152 

The Company had no outstanding nonvested shares at December 31, 2011 or September 30, 2011.  In addition, there was no grant activity for the three months ended December 31, 2011.

At December 31, 2011, stock based compensation expense not yet recognized in income totaled $47,000 which is expected to be recognized over a weighted average remaining period of 0.88 years.
SEGMENT INFORMATION
SEGMENT INFORMATION
NOTE 8.  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, Retail Banking, a division of 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.  The second reportable segment, MPS, a division of the Bank, 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 the 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 months ended December 31, 2011 and 2010, respectively.
 
   
Retail
  
Meta Payment
       
   
Banking
  
Systems®
  
All Others
  
Total
 
              
Three Months Ended December 31, 2011
            
Interest income
 $6,481  $3,134  $-  $9,615 
Interest expense
  824   38   115   977 
Net interest income (expense)
  5,657   3,096   (115)  8,638 
Provision for loan losses
  700   (1)  -   699 
Non-interest income
  1,803   13,873   6   15,682 
Non-interest expense
  4,783   13,942   66   18,791 
Income (loss) before tax
  1,977   3,028   (175)  4,830 
Income tax expense (benefit)
  716   1,093   (70)  1,739 
Net income (loss)
 $1,261  $1,935  $(105) $3,091 
                  
Inter-segment revenue (expense)
 $2,627  $(2,627) $-  $- 
Total assets
  304,342   1,052,934   1,929   1,359,205 
Total deposits
  213,801   1,011,858   (863)  1,224,796 

   
Retail
  
Meta Payment
       
   
Banking
  
Systems®
  
All Others
  
Total
 
              
Three Months Ended December 31, 2010
            
Interest income
 $6,596  $3,018  $6  $9,620 
Interest expense
  1,173   47   122   1,342 
Net interest income (expense)
  5,423   2,971   (116)  8,278 
Provision for loan losses
  -   (28)  -   (28)
Non-interest income
  1,272   14,024   10   15,306 
Non-interest expense
  6,944   14,485   189   21,618 
Income (loss) before tax
  (249)  2,538   (295)  1,994 
Income tax expense (benefit)
  424   958   (109)  1,273 
Net income (loss)
 $(673) $1,580  $(186) $721 
                  
Inter-segment revenue (expense)
 $2,304  $(2,304) $-  $- 
Total assets
  304,167   823,787   1,701   1,129,655 
Total deposits
  213,641   790,087   (1,511)  1,002,217 
 
The following tables present gross profit data for MPS for the three months ended December 31, 2011 and 2010.

Three Months Ended December 31,
 
2011
  
2010
 
        
Interest income
 $3,134  $3,018 
Interest expense
  38   47 
Net interest income
  3,096   2,971 
          
Provision for loan losses
  (1)  (28)
Non-interest income
  13,873   14,024 
Card processing expense
  5,310   5,224 
Gross Profit
  11,660   11,799 
          
Other non-interest expense
  8,632   9,261 
          
Income from operations before tax
  3,028   2,538 
Income tax expense
  1,093   958 
Income from operations
 $1,935  $1,580 
NEW ACCOUNTING PRONOUNCEMENTS
NEW ACCOUNTING PRONOUNCEMENTS
NOTE 9.  NEW ACCOUNTING PRONOUNCEMENTS

Accounting Standards Update No. 2011-03, Transfers and Servicing (Topic 860): Reconsideration of Effective Control for Repurchase Agreements
This ASU applies to all entities that enter into agreements to transfer financial assets that both entitle and obligate the transferor to repurchase or redeem the financial assets before their maturity (repo arrangements). It focuses the transferor's assessment of effective control on its contractual rights and obligations by removing the requirement to assess its ability to exercise those rights or honor those obligations. The ASU is effective for the first interim or annual period beginning on or after December 15, 2011. It is effective prospectively for transactions or modifications of existing transactions that occur on or after the effective date. The Company will adopt this update in the second quarter of fiscal year 2012 and does not expect the adoption to have a material effect on the Company's consolidated financial condition, results of operations or cash flow.

Accounting Standards Update No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs
This ASU was issued concurrently with IFRS 13, Fair Value Measurements, to provide largely identical guidance about fair value measurement and disclosure requirements. The new standards do not extend the use of fair value but, rather, provide guidance about how fair value should be applied where it already is required or permitted under IFRS or U.S. GAAP. For U.S. GAAP, most of the changes are clarifications of existing guidance or wording changes to align with IFRS 13.

A public entity is required to apply this ASU prospectively for interim and annual periods beginning after December 15, 2011. Early adoption is not permitted.  In the period of adoption, a reporting entity will be required to disclose a change, if any, in valuation technique and related inputs that result from applying the ASU and to quantify the total effect, if practicable.  The Company will adopt this update in the second quarter of fiscal year 2012 and does not expect the adoption to have a material effect on the Company's consolidated financial condition, results of operations or cash flow.

Accounting Standards Update No. 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income
In June 2011, FASB issued ASU 2011-05 Comprehensive Income.  This ASU requires the presentation of comprehensive income in financial statements.  An entity has the option to present the total comprehensive income, the components of net income and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements.  The guidance is effective for fiscal years, and the interim periods within those years, beginning December 15, 2011 and early adoption is permitted.  The Company anticipates adopting this update in the first quarter of fiscal 2013 and does not expect the adoption to have a material effect on the Company's consolidated financial condition, results of operations or cash flow.
 
Accounting Standards Update No.  2011-08 Intangibles - Goodwill and Other (Topic 350).
The objective of this update is to simplify how entities test goodwill for impairment. This update adds a qualitative analysis to step one of the two-step process, which enables the Company to qualitatively determine if it is more likely than not that goodwill impairment exists, and if not, skip step two in determination of the amount of goodwill impairment.  The guidance is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011, but early adoption is permitted.  The Company anticipates adopting this update in the second quarter of fiscal year 2013 and does not expect the adoption to have a material effect on the Company's consolidated financial condition, results of operations or cash flow.
FAIR VALUE MEASUREMENTS
FAIR VALUE MEASUREMENTS
NOTE 10. FAIR VALUE MEASUREMENTS

ASC 820, Fair Value Measurements 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 markets that are not active markets 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.

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 or Level 3 securities at December 31, 2011 or September 30, 2011.  Level 2 securities include agency mortgage-backed securities and private collateralized mortgage obligations, municipal bonds and corporate debt securities.
 
The fair values of securities available for sale are determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1 inputs), or matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities, but rather by relying on the securities' relationship to other benchmark quoted securities (Level 2 inputs). The Company obtains, reviews and compares the valuations and methodologies from two third party providers.  These third party providers utilize several sources for valuing fixed-income securities. Sources utilized by the third party provider include pricing models that vary based by asset class and include available trade, bid, and other market information. This methodology includes broker quotes, proprietary models, descriptive terms and conditions databases, as well as extensive quality control programs.

The following table summarizes the assets of the Company for which fair values are determined on a recurring basis at December 31, 2011 and September 30, 2011.

   
Fair Value at December 31, 2011
 
(Dollars in Thousands) 
 
Total
  
Level 1
  
Level 2
  
Level 3
 
Debt securities
            
Trust preferred and corporate securities
 $33,594  $-  $33,594  $- 
Obligations of states and political subdivisions
  8,834   -   8,834   - 
Mortgage-backed securities
  770,378   -   770,378   - 
Securities available for sale
 $812,806  $-  $812,806  $- 

   
Fair Value at September 30, 2011
 
(Dollars in Thousands) 
 
Total
  
Level 1
  
Level 2
  
Level 3
 
Debt securities
            
Trust preferred and corporate securities
 $22,112  $-  $22,112  $- 
Obligations of states and political subdivisions
  6,218   -   6,218   - 
Mortgage-backed securities
  590,918   -   590,918   - 
Securities available for sale
 $619,248  $-  $619,248  $- 

The Company's management reviews the status and potential impairment of the trust preferred and corporate securities on a monthly basis.  In its review, management considers 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 issuer, and whether there have been any payment deferrals or defaults to-date.  Such factors are subject to change over time.

Foreclosed Real Estate and Repossessed Assets.  Real estate properties and repossessed assets are initially recorded at the fair value less selling costs at the date of foreclosure, establishing a new cost basis.  The carrying amount represents the lower of the new cost basis or the fair value less selling costs of foreclosed assets that were measured at fair value subsequent to their initial classification as foreclosed assets.

Loans.  The Company does not record loans at fair value on a recurring basis.  However, if a loan is considered impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan in accordance with ASC 310, Accounting for Creditors for Impairment of a Loan.
 
The following table summarizes the assets of the Company for which fair values are determined on a non-recurring basis at December 31, 2011 and September 30, 2011.

   
Fair Value at December 31, 2011
 
(Dollars in Thousands) 
 
Total
  
Level 1
  
Level 2
  
Level 3
 
              
Foreclosed Assets, net
 $3,954  $-  $-  $3,954 
Loans
  14,877   -   -   14,877 
Total
 $18,831  $-  $-  $18,831 

   
Fair Value at September 30, 2011
 
(Dollars in Thousands) 
 
Total
  
Level 1
  
Level 2
  
Level 3
 
              
Foreclosed Assets, net
 $2,671  $-  $-  $2,671 
Loans
  13,182   -   -   13,182 
Total
 $15,853  $-  $-  $15,853 

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 at December 31, 2011 and September 30, 2011, 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 Bank's capitalization and franchise value.  Neither of these components have been given consideration in the presentation of fair values below.
 
The following presents the carrying amount and estimated fair value of the financial instruments held by the Company at December 31, 2011 and September 30, 2011.  The information presented is subject to change over time based on a variety of factors.

   
December 31, 2011
  
September 30, 2011
 
   
Carrying
  
Estimated
  
Carrying
  
Estimated
 
   
Amount
  
Fair Value
  
Amount
  
Fair Value
 
   
(Dollars in Thousands)
 
              
Financial assets
            
Cash and cash equivalents
 $156,882  $156,882  $276,893  $276,893 
Securities available for sale
  812,806   812,806   619,248   619,248 
Loans receivable, net
  317,804   324,688   314,410   316,152 
FHLB stock
  10,744   10,744   4,737   4,737 
Accrued interest receivable
  4,442   4,442   4,133   4,133 
                  
Financial liabilities
                
Noninterest bearing demand deposits
  1,035,421   1,035,421   945,956   945,956 
Interest bearing demand deposits, savings, and money markets
  82,702   82,702   79,102   79,102 
Certificates of deposit
  106,673   108,722   116,562   118,288 
Total deposits
  1,224,796   1,226,845   1,141,620   1,143,346 
                  
Advances from FHLB
  11,000   14,027   11,000   14,128 
Securities sold under agreements to repurchase
  7,451   7,451   8,055   8,055 
Subordinated debentures
  10,310   10,300   10,310   10,325 
Accrued interest payable
  207   207   223   223 
                  
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, 2011 and September 30, 2011.

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

SECURITIES AVAILABLE FOR SALE
Securities available for sale are recorded at fair value on a recurring basis.  Fair values for investment securities are based on obtaining quoted prices on nationally recognized securities exchanges, or matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities, but rather by relying on the securities' relationship to other benchmark quoted securities.

LOANS RECEIVABLE, NET
The fair value of loans is estimated using a historical or replacement cost basis concept (i.e. an entrance price concept).  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 at December 31, 2011 and September 30, 2011.  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.
 
Loans held for sale are carried at the lower of cost or fair market value.  The carrying value of these loans approximate fair market value.

FEDERAL HOME LOAN BANK (THE “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, Financial Instruments, 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 at December 31, 2011 and September 30, 2011 for advances with similar terms and remaining maturities.

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, 2011 and September 30, 2011 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 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.
GOODWILL AND INTANGIBLE ASSETS
GOODWILL AND INTANGIBLE ASSETS
NOTE 11. 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, 2011 and 2010 are as follows:

   
Retail
  
Meta Payment
  
Meta Payment
    
   
Banking
  
Systems®
  
Systems®
    
   
Goodwill
  
Patents
  
Other
  
Total
 
   
(Dollars in Thousands)
 
              
Balance as of September 30, 2011
 $-  $1,315  $-  $1,315 
                  
Acquisitions during the period
  -   253   -   253 
                  
Amortizations during the period
  -   (6)  -   (6)
                  
Balance as of December 31, 2011
 $-  $1,562  $-  $1,562 

   
Retail
  
Meta Payment
  
Meta Payment
    
   
Banking
  
Systems®
  
Systems®
    
   
Goodwill
  
Patents
  
Other
  
Total
 
   
(Dollars in Thousands)
 
              
Balance as of September 30, 2010
 $1,508  $1,078  $77  $2,663 
                  
Acquisitions during the period
  -   104   -   104 
                  
Amortizations during the period
  -   -   (58)  (58)
                  
Write-offs during the period
  (1,508)  -   -   (1,508)
                  
Balance as of December 31, 2010
 $-  $1,182  $19  $1,201 

The Company has three patents which are  amortizing at December 31, 2011, and had one amortizable intangible asset recorded at December 31, 2010.

The Company tests goodwill and intangible assets for impairment at least annually or more often if conditions indicate a possible impairment.  The Company wrote-off $1.5 million of goodwill through the income statement during the three months ended December 31, 2010 due primarily to the decline in the stock price of the Company at that period.  There was no impairment to goodwill and intangible assets during the three months ended December 31, 2011.

REGULATORY MATTERS AND SETTLEMENT OF OTS ENFORCEMENT ACTIONS
REGULATORY MATTERS AND SETTLEMENT OF OTS ENFORCEMENT ACTIONS
NOTE 12.  REGULATORY MATTERS AND SETTLEMENT OF OTS ENFORCEMENT ACTIONS

As previously disclosed in our Annual Report on Form 10-K, on July 15, 2011, the Company and the Bank each stipulated and consented to a Cease and Desist Order (the “Consent Orders”) issued by the Office of Thrift Supervision (the “OTS”).  Since the issuance of the supervisory directives and the Consent Orders, the Company and the Bank have been continuing to cooperate with the OTS and the OCC (its successor) to correct those aspects of its operations that were addressed in the Consent Orders, and management of the Company and the Bank believe they have already made substantial progress. The Company and the Bank have completed many of the items in the Consent Orders and expect to complete substantially all of the required actions in the Consent Orders by their respective deadline dates.  Notwithstanding our belief as to substantial progress, we are currently undergoing an examination by our new regulator, the OCC, and we can provide no assurances as to whether the OCC will concur with our belief on what actions will be taken by the OCC if it does not so concur.
SUBSEQUENT EVENTS
SUBSEQUENT EVENTS
NOTE 13.  SUBSEQUENT EVENTS

A sale of $299 million of Ginnie Mae (GNMA) securities completed in the fiscal second quarter resulted in a gain of $11.5 million.  The resulting after-tax gain of $7.2 million will be included in 2012 fiscal second quarter earnings.  The gain is expected to incrementally increase MetaBank's Tier 1 core capital ratio by approximately 50 basis points and incrementally increase tangible book value by approximately $2.26 per share at March 31, 2012.