Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

 

FORM 10-Q/A

Amendment No. 1

 

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

 

For the quarterly period ended March 31, 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 May 13, 2010:

Common Stock, $.01 par value

 

3,082,362 Common Shares

 

 

 



Table of Contents

 

Explanatory Note

 

This Amendment No. 1 on Form 10-Q/A (“Amendment No. 1”) is being filed by Meta Financial Group, Inc. to amend the Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2010 filed with the Securities and Exchange Commission on May 11, 2010 (the “Initial Report”). The sole purpose for filing this Amendment No. 1 is to disclose developments in the legal proceedings discussed in Note 5 to the Notes to Condensed Consolidated Financial Statements in the Initial Report. No other changes have been made to the Initial Report, nor does Amendment No. 1 change previously reported financial results or other financial disclosures contained in the Initial Report. This Amendment No. 1 has not been updated to reflect events occurring after the filing of the Initial Report.

 



Table of Contents

 

META FINANCIAL GROUP, INC.

FORM 10-Q/A

 

Table of Contents

 

 

 

 

 

Page No.

 

 

 

 

 

Part I. Financial Information

 

 

 

 

 

 

 

Item 1.

 

Financial Statements (Unaudited):

 

 

 

 

 

 

 

 

 

Condensed Consolidated Statements of Financial Condition as of March 31, 2010 and September 30, 2009

 

1

 

 

 

 

 

 

 

Condensed Consolidated Statements of Operations for the Three and Six Months Ended March 31, 2010 and 2009

 

2

 

 

 

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months Ended March 31, 2010 and 2009

 

3

 

 

 

 

 

 

 

Condensed Consolidated Statements of Changes in Shareholders’ Equity for the Six Months Ended March 31, 2010 and 2009

 

4

 

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the Six Months Ended March 31, 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

 

20

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosure About Market Risk

 

34

 

 

 

 

 

Item 4T.

 

Controls and Procedures

 

36

 

 

 

 

 

Part II. Other Information

 

 

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

37

 

 

 

 

 

Item 1A.

 

Risk Factors

 

37

 

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

37

 

 

 

 

 

Item 3.

 

Defaults Upon Senior Securities

 

37

 

 

 

 

 

Item 4.

 

Reserved

 

37

 

 

 

 

 

Item 5.

 

Other Information

 

37

 

 

 

 

 

Item 6.

 

Exhibits

 

37

 

 

 

 

 

Signatures

 

38

 

i



Table of Contents

 

META FINANCIAL GROUP, INC.

AND SUBSIDIARIES

Condensed Consolidated Statements of Financial Condition (Unaudited)

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

 

 

 

March 31, 2010

 

September 30, 2009

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

16,570

 

$

6,168

 

Federal funds sold

 

 

9

 

Investment securities available for sale

 

19,351

 

17,566

 

Mortgage-backed securities available for sale

 

483,931

 

347,272

 

Loans receivable - net of allowance for loan losses of $17,521 at March 31, 2010 and $6,993 at September 30, 2009

 

382,519

 

391,609

 

Federal Home Loan Bank Stock, at cost

 

6,961

 

7,050

 

Accrued interest receivable

 

4,330

 

4,344

 

Bond insurance receivable

 

3,993

 

4,118

 

Premises, furniture, and equipment, net

 

21,251

 

21,989

 

Bank-owned life insurance

 

13,532

 

13,270

 

Foreclosed real estate and repossessed assets

 

1,247

 

2,053

 

Goodwill and intangible assets

 

2,720

 

2,215

 

MPS accounts receivable

 

7,222

 

5,381

 

Other assets

 

18,283

 

11,733

 

 

 

 

 

 

 

Total assets

 

$

981,910

 

$

834,777

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

Non-interest-bearing checking

 

$

590,684

 

$

442,158

 

Interest-bearing checking

 

20,076

 

15,602

 

Savings deposits

 

10,534

 

10,001

 

Money market deposits

 

33,252

 

39,823

 

Time certificates of deposit

 

124,830

 

146,163

 

Total deposits

 

779,376

 

653,747

 

Advances from Federal Home Loan Bank

 

98,300

 

74,800

 

Other borrowings from Federal Reserve Bank

 

 

25,000

 

Securities sold under agreements to repurchase

 

7,407

 

6,686

 

Subordinated debentures

 

10,310

 

10,310

 

Accrued interest payable

 

338

 

447

 

Contingent liability

 

4,118

 

4,268

 

Accrued expenses and other liabilities

 

20,943

 

12,174

 

Total liabilities

 

920,792

 

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, 3,072,502 and 2,634,215 shares outstanding at March 31, 2010 and September 30, 2009, respectively

 

34

 

30

 

Additional paid-in capital

 

31,942

 

23,551

 

Retained earnings - substantially restricted

 

37,251

 

31,626

 

Accumulated other comprehensive (loss)

 

(2,746

)

(1,838

)

Treasury stock, 300,497 and 323,784 common shares, at cost, at March 31, 2010 and September 30, 2009, respectively

 

(5,363

)

(6,024

)

Total shareholders’ equity

 

61,118

 

47,345

 

 

 

 

 

 

 

Total liabilities and shareholders’ equity

 

$

981,910

 

$

834,777

 

 

See Notes to Condensed Consolidated Financial Statements.

 

1



Table of Contents

 

META FINANCIAL GROUP, INC.

AND SUBSIDIARIES

Condensed Consolidated Statements of Operations (Unaudited)

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

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

March 31,

 

March 31,

 

 

 

2010

 

2009

 

2010

 

2009

 

 

 

 

 

 

 

 

 

 

 

Interest and dividend income:

 

 

 

 

 

 

 

 

 

Loans receivable, including fees

 

$

7,376

 

$

7,536

 

$

14,101

 

$

13,908

 

Mortgage-backed securities

 

2,827

 

2,797

 

4,982

 

4,805

 

Other investments

 

180

 

200

 

364

 

547

 

 

 

10,383

 

10,533

 

19,447

 

19,260

 

Interest expense:

 

 

 

 

 

 

 

 

 

Deposits

 

949

 

1,429

 

2,037

 

2,973

 

FHLB advances and other borrowings

 

433

 

860

 

1,090

 

1,882

 

 

 

1,382

 

2,289

 

3,127

 

4,855

 

 

 

 

 

 

 

 

 

 

 

Net interest income

 

9,001

 

8,244

 

16,320

 

14,405

 

 

 

 

 

 

 

 

 

 

 

Provision for loan losses

 

9,478

 

10,270

 

14,169

 

12,399

 

 

 

 

 

 

 

 

 

 

 

Net interest income after provision for loan losses

 

(477

)

(2,026

)

2,151

 

2,006

 

 

 

 

 

 

 

 

 

 

 

Non-interest income:

 

 

 

 

 

 

 

 

 

Card fees

 

37,116

 

32,988

 

56,660

 

48,086

 

Gain on sale of securities available for sale, net

 

 

9

 

1,854

 

9

 

Deposit fees

 

190

 

177

 

394

 

378

 

Bank-owned life insurance income

 

132

 

131

 

262

 

258

 

Loan fees

 

65

 

231

 

178

 

330

 

Other income

 

133

 

75

 

326

 

85

 

Total non-interest income

 

37,636

 

33,611

 

59,674

 

49,146

 

 

 

 

 

 

 

 

 

 

 

Non-interest expense:

 

 

 

 

 

 

 

 

 

Card processing expense

 

14,095

 

14,861

 

22,447

 

20,111

 

Compensation and benefits

 

8,861

 

8,342

 

17,532

 

15,781

 

Occupancy and equipment expense

 

2,159

 

2,049

 

4,234

 

3,853

 

Legal and consulting expense

 

835

 

925

 

1,826

 

2,045

 

Marketing

 

483

 

474

 

838

 

812

 

Data processing expense

 

177

 

816

 

369

 

1,272

 

Other expense

 

2,256

 

2,183

 

4,423

 

4,328

 

Total non-interest expense

 

28,866

 

29,650

 

51,669

 

48,202

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before income tax expense

 

8,293

 

1,935

 

10,156

 

2,950

 

 

 

 

 

 

 

 

 

 

 

Income tax expense

 

3,119

 

760

 

3,790

 

1,102

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

5,174

 

$

1,175

 

$

6,366

 

$

1,848

 

 

 

 

 

 

 

 

 

 

 

Earnings per common share:

 

 

 

 

 

 

 

 

 

Basic

 

$

1.76

 

$

0.45

 

$

2.29

 

$

0.71

 

Diluted

 

$

1.74

 

$

0.45

 

$

2.26

 

$

0.71

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends declared per common share:

 

$

0.13

 

$

0.13

 

$

0.26

 

$

0.26

 

 

See Notes to Condensed Consolidated Financial Statements.

 

2



Table of Contents

 

META FINANCIAL GROUP, INC.®

AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income (Unaudited)

(Dollars in Thousands)

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

March 31,

 

March 31,

 

 

 

2010

 

2009

 

2010

 

2009

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

5,174

 

$

1,175

 

$

6,366

 

$

1,848

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

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

 

1,525

 

(1,243

)

(3,301

)

(196

)

Gains realized in net income

 

 

9

 

1,854

 

9

 

 

 

1,525

 

(1,234

)

(1,447

)

(187

)

Deferred income tax effect

 

569

 

(460

)

(539

)

(70

)

Total other comprehensive income (loss)

 

956

 

(774

)

(908

)

(117

)

Total comprehensive income

 

$

6,130

 

$

401

 

$

5,458

 

$

1,731

 

 

See Notes to Condensed Consolidated Financial Statements.

 

3



Table of Contents

 

 

 

META FINANCIAL GROUP, INC.®

AND SUBSIDIARIES

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

For the Six Months Ended March 31, 2010 and 2009

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

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

Additional

 

 

 

Comprehensive

 

 

 

Total

 

 

 

Common

 

Paid-in

 

Retained

 

(Loss),

 

Treasury

 

Shareholders’

 

 

 

Stock

 

Capital

 

Earnings

 

Net of Tax

 

Stock

 

Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, September 30, 2008

 

$

30

 

$

23,058

 

$

34,442

 

$

(5,022

)

$

(6,775

)

$

45,733

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash dividends declared on common stock ($.26 per share)

 

 

 

(675

)

 

 

(675

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock compensation

 

 

290

 

 

 

 

290

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in net unrealized losses on securities available for sale

 

 

 

 

(117

)

 

(117

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income for six months ended March 31, 2009

 

 

 

1,848

 

 

 

1,848

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, March 31, 2009

 

$

30

 

$

23,348

 

$

35,615

 

$

(5,139

)

$

(6,775

)

$

47,079

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, September 30, 2009

 

$

30

 

$

23,551

 

$

31,626

 

$

(1,838

)

$

(6,024

)

$

47,345

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash dividends declared on common stock ($.26 per share)

 

 

 

(741

)

 

 

(741

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of 415,000 common shares from the sales of equity securities

 

4

 

8,571

 

 

 

 

8,575

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of 23,287 common shares from treasury stock due to issuance of restricted stock and exercise of stock options

 

 

(271

)

 

 

661

 

390

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock compensation

 

 

91

 

 

 

 

91

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in net unrealized losses on securities available for sale

 

 

 

 

(908

)

 

(908

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income for six months ended March 31, 2010

 

 

 

6,366

 

 

 

6,366

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, March 31, 2010

 

$

34

 

$

31,942

 

$

37,251

 

$

(2,746

)

$

(5,363

)

$

61,118

 

 

See Notes to Condensed Consolidated Financial Statements.

 

4



Table of Contents

 

META FINANCIAL GROUP, INC.®

AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows (Unaudited)

(Dollars in Thousands)

 

 

 

Six Months Ended March 31,

 

 

 

2010

 

2009

 

 

 

 

 

 

 

Cash flows from operating activities:

 

 

 

 

 

Net income

 

$

6,366

 

$

1,848

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

Depreciation, amortization and accretion, net

 

6,053

 

1,983

 

Provision for loan losses

 

14,169

 

12,399

 

Loss (gain) on sale of other

 

5

 

(39

)

(Gain) on sale of available for sale securities, net

 

(1,854

)

(9

)

Net change in accrued interest receivable

 

14

 

408

 

Net change in other assets

 

(9,033

)

1,254

 

Net change in accrued interest payable

 

(109

)

166

 

Net change in accrued expenses and other liabilities

 

8,619

 

5,225

 

Net cash provided by operating activities

 

24,230

 

23,235

 

 

 

 

 

 

 

Cash flow from investing activities:

 

 

 

 

 

Purchase of securities available for sale

 

(287,973

)

(156,114

)

Net change in federal funds sold

 

9

 

4,972

 

Proceeds from sales of securities available for sale

 

38,401

 

903

 

Proceeds from maturities and principal repayments of securities available for sale

 

107,379

 

23,040

 

Loans purchased

 

(392

)

(7,054

)

Net other change in loans receivable

 

(4,653

)

(408

)

Proceeds from sales of foreclosed real estate

 

807

 

 

Net change in Federal Home Loan Bank stock

 

89

 

1,305

 

Proceeds from the sale of premises and equipment

 

 

1

 

Purchase of premises and equipment

 

(1,199

)

(2,309

)

Other, net

 

539

 

70

 

Net cash used in investing activities

 

(146,993

)

(135,594

)

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

Net change in checking, savings, and money market deposits

 

146,962

 

123,305

 

Net change in time deposits

 

(21,333

)

17,365

 

Net change in advances from Federal Home Loan Bank and other borrowings

 

(1,500

)

(31,075

)

Net change in securities sold under agreements to repurchase

 

721

 

16,911

 

Cash dividends paid

 

(741

)

(675

)

Proceeds from issuance of equity securities

 

8,575

 

 

Stock compensation

 

91

 

290

 

Proceeds from exercise of stock options

 

390

 

 

Net cash provided by financing activities

 

133,165

 

126,121

 

 

 

 

 

 

 

Net change in cash and cash equivalents

 

10,402

 

13,762

 

 

 

 

 

 

 

Cash and cash equivalents at beginning of period

 

6,168

 

2,963

 

Cash and cash equivalents at end of period

 

$

16,570

 

$

16,725

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

Interest

 

$

3,235

 

$

4,689

 

Income taxes

 

64

 

2,055

 

 

 

 

 

 

 

Supplemental schedule of non-cash investing and financing activities:

 

 

 

 

 

Loans transferred to foreclosed real estate

 

$

 

$

3,775

 

 

See Notes to Condensed Consolidated Financial Statements.

 

5



Table of Contents

 

META FINANCIAL GROUP, INC. ®

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

NOTE 1.  BASIS OF PRESENTATION

 

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

 

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

 

NOTE 2.  ALLOWANCE FOR LOAN LOSSES

 

At March 31, 2010 the Company’s allowance for loan losses was $17.5 million, an increase of $10.5 million from $7.0 million at September 30, 2009.  During the six months ended March 31, 2010 the Company recorded a provision for loan losses of $14.2 million.  $11.1 million related to the Company’s Meta Payment Systems® (“MPS”) division, of which $10.5 million related to loan originations offered in collaboration with a nationally known tax preparation firm.  This level of anticipated losses is within the financial model for this program.  In addition to the Company’s loss provision, the contractual arrangement with this firm provides for substantial, but not full, reimbursement of financial losses, if any.  During the six months ended March 31, 2010, the Company recorded a retail bank provision in the amount of $3.1 million due to increases in the general reserves and in the historical loss rates for commercial real estate and multi-family loans.  Two loans with commercial borrowers were partially charged off in the amount of $4.2 million during the second quarter of fiscal 2010.  These two loans were previously reserved for and classified as doubtful.

 

During the three months ended March 31, 2010, the Company recorded a provision for loan losses in the amount of $9.5 million, consisting of $7.5 million related to the MPS tax loan portfolio and $2.0 million primarily related to increases in the general reserves and in the historical loss rates for commercial real estate and multi-family loans.  The Company’s total net charge-offs for the three and six months ended March 31, 2010 were $4.1 million and $3.6 million, respectively, due to recoveries exceeding charged-off loans by $0.5 million in the first fiscal quarter.  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 PER COMMON SHARE (“EPS”)

 

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

 

A reconciliation of the income and common stock share amounts used in the computation of basic and diluted EPS for the three and six months ended March 31, 2010 and 2009 is presented below.

 

Three Months Ended March 31,

 

2010

 

2009

 

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

 

 

 

 

 

 

 

 

 

 

 

Earnings

 

 

 

 

 

Net Income

 

$

5,174

 

$

1,175

 

 

 

 

 

 

 

Basic EPS

 

 

 

 

 

Weighted average common shares outstanding

 

2,942,383

 

2,602,655

 

Less weighted average unallocated ESOP and nonvested shares

 

(3,334

)

(5,000

)

Weighted average common shares outstanding

 

2,939,049

 

2,597,655

 

 

 

 

 

 

 

Earnings Per Common Share

 

 

 

 

 

Basic

 

$

1.76

 

$

0.45

 

 

 

 

 

 

 

Diluted EPS

 

 

 

 

 

Weighted average common shares outstanding for basic earnings per common share

 

2,939,049

 

2,597,655

 

Add dilutive effect of assumed exercises of stock options, net of tax benefits

 

33,710

 

 

Weighted average common and dilutive potential common shares outstanding

 

2,972,759

 

2,597,655

 

 

 

 

 

 

 

Earnings Per Common Share

 

 

 

 

 

Diluted

 

$

1.74

 

$

0.45

 

 

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Six Months Ended March 31,

 

2010

 

2009

 

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

 

 

 

 

 

 

 

 

 

 

 

Earnings

 

 

 

 

 

Net Income

 

$

6,366

 

$

1,848

 

 

 

 

 

 

 

Basic EPS

 

 

 

 

 

Weighted average common shares outstanding

 

2,788,866

 

2,602,655

 

Less weighted average unallocated ESOP and nonvested shares

 

(3,334

)

(5,000

)

Weighted average common shares outstanding

 

2,785,532

 

2,597,655

 

 

 

 

 

 

 

Earnings Per Common Share

 

 

 

 

 

Basic

 

$

2.29

 

$

0.71

 

 

 

 

 

 

 

Diluted EPS

 

 

 

 

 

Weighted average common shares outstanding for basic earnings per common share

 

2,785,532

 

2,597,655

 

Add dilutive effect of assumed exercises of stock options, net of tax benefits

 

36,630

 

 

Weighted average common and dilutive potential common shares outstanding

 

2,822,162

 

2,597,655

 

 

 

 

 

 

 

Earnings Per Common Share

 

 

 

 

 

Diluted

 

$

2.26

 

$

0.71

 

 

Stock options totaling 363,464 and 348,014 were not considered in computing diluted EPS for the three and six months ended March 31, 2010, respectively, because they were not dilutive.  Stock options totaling 301,468 and 511,674 were not considered in computing diluted EPS for the three and six months ended March 31, 2009, respectively, because they were not dilutive.  The calculation of the diluted EPS for the three and six months ended March 31, 2009 does not reflect the assumed exercise of 34,395 and 39,933 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 March 31, 2010 and September 30, 2009 are presented below.

 

 

 

 

 

GROSS

 

GROSS

 

 

 

 

 

AMORTIZED

 

UNREALIZED

 

UNREALIZED

 

FAIR

 

 

 

COST

 

GAINS

 

(LOSSES)

 

VALUE

 

 

 

(Dollars in Thousands)

 

March 31, 2010

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt securities

 

 

 

 

 

 

 

 

 

Trust preferred and corporate securities

 

$

25,810

 

$

 

$

(8,798

)

$

17,012

 

Obligations of states and political subdivisions

 

2,255

 

84

 

 

2,339

 

Mortgage-backed securities

 

479,596

 

5,950

 

(1,615

)

483,931

 

Total debt securities

 

$

507,661

 

$

6,034

 

$

(10,413

)

$

503,282

 

 

 

 

 

 

GROSS

 

GROSS

 

 

 

 

 

AMORTIZED

 

UNREALIZED

 

UNREALIZED

 

FAIR

 

 

 

COST

 

GAINS

 

(LOSSES)

 

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 March 31, 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)

 

March 31, 2010

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt securities

 

 

 

 

 

 

 

 

 

 

 

 

 

Trust preferred and corporate securities

 

$

 

$

 

$

17,012

 

$

(8,798

)

$

17,012

 

$

(8,798

)

Mortgage-backed securities

 

206,910

 

(1,615

)

 

 

206,910

 

(1,615

)

Total debt securities

 

$

206,910

 

$

(1,615

)

$

17,012

 

$

(8,798

)

$

223,922

 

$

(10,413

)

 

 

 

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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NOTE 5.  COMMITMENTS AND CONTINGENCIES

 

At March 31, 2010 and September 30, 2009, the Company had outstanding commitments to originate and purchase loans totaling $39.9 million and $51.8 million, respectively.  It is expected that outstanding loan commitments will be funded with existing liquid assets.  At March 31, 2010, the Company had commitments to purchase securities available for sale totaling $63.5 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.  This 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 is scheduled for sentencing in June, 2010.  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.

 

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 in themMetaBank believes that CRBT’s loss of principal was limited to approximately $200,000, and in any event intends to vigorously defend its actions.

 

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

 

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

 

NOTE 6.  STOCK OPTION PLAN

 

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

 

In accordance with ASC 718, compensation expense for share based awards is recorded over the vesting period at the fair value of the award at the time of grant.  The exercise price of options or fair value of nonvested shares

 

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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 six months ended March 31, 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

 

1,000

 

21.40

 

 

 

 

 

Exercised

 

(20,434

)

15.81

 

 

 

 

 

Forfeited or expired

 

(19,454

)

27.00

 

 

 

 

 

Options outstanding, March 31, 2010

 

539,033

 

$

23.89

 

6.64

 

$

2,231

 

 

 

 

 

 

 

 

 

 

 

Options exercisable, March 31, 2010

 

459,891

 

$

23.18

 

6.59

 

$

2,003

 

 

A summary of nonvested share activity for the six months ended March 31, 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, March 31, 2010

 

3,334

 

$

24.43

 

 

As of March 31, 2010, stock based compensation expense not yet recognized in income totaled $170,000 which is expected to be recognized over a weighted average remaining period of 0.85 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

 

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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 six months ended March 31, 2010 and 2009, respectively.

 

 

 

Traditional

 

Meta Payment

 

 

 

 

 

 

 

Banking

 

Systems®

 

All Others

 

Total

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 2010

 

 

 

 

 

 

 

 

 

Interest income

 

$

5,944

 

$

4,445

 

$

(6

)

$

10,383

 

Interest expense

 

1,132

 

136

 

114

 

1,382

 

Net interest income (loss)

 

4,812

 

4,309

 

(120

)

9,001

 

Provision for loan losses

 

2,000

 

7,478

 

 

9,478

 

Non-interest income

 

483

 

37,122

 

31

 

37,636

 

Non-interest expense

 

5,044

 

23,587

 

235

 

28,866

 

Income (loss) before tax

 

(1,749

)

10,366

 

(324

)

8,293

 

Income tax expense (benefit)

 

(673

)

3,903

 

(111

)

3,119

 

Net income (loss)

 

$

(1,076

)

$

6,463

 

$

(213

)

$

5,174

 

 

 

 

 

 

 

 

 

 

 

Inter-segment revenue (expense)

 

$

2,577

 

$

(2,577

)

$

 

$

 

Total assets

 

384,032

 

596,918

 

960

 

981,910

 

Total deposits

 

210,725

 

570,898

 

(2,247

)

779,376

 

 

 

 

Traditional

 

Meta Payment

 

 

 

 

 

 

 

Banking

 

Systems®

 

All Others

 

Total

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 2009

 

 

 

 

 

 

 

 

 

Interest income

 

$

7,126

 

$

3,378

 

$

29

 

$

10,533

 

Interest expense

 

1,864

 

271

 

154

 

2,289

 

Net interest income (loss)

 

5,262

 

3,107

 

(125

)

8,244

 

Provision for loan losses

 

4,173

 

6,097

 

 

10,270

 

Non-interest income

 

584

 

33,009

 

18

 

33,611

 

Non-interest expense

 

4,781

 

24,455

 

414

 

29,650

 

Income (loss) before tax

 

(3,108

)

5,564

 

(521

)

1,935

 

Income tax expense (benefit)

 

(1,167

)

2,092

 

(165

)

760

 

Net income (loss)

 

$

(1,941

)

$

3,472

 

$

(356

)

$

1,175

 

 

 

 

 

 

 

 

 

 

 

Inter-segment revenue (expense)

 

$

2,203

 

$

(2,203

)

$

 

$

 

Total assets

 

384,175

 

504,704

 

768

 

889,647

 

Total deposits

 

220,535

 

466,487

 

(380

)

686,642

 

 

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Traditional

 

Meta Payment

 

 

 

 

 

 

 

Banking

 

Systems®

 

All Others

 

Total

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended March 31, 2010

 

 

 

 

 

 

 

 

 

Interest income

 

$

11,608

 

$

7,825

 

$

14

 

$

19,447

 

Interest expense

 

2,668

 

216

 

243

 

3,127

 

Net interest income (loss)

 

8,940

 

7,609

 

(229

)

16,320

 

Provision for loan losses

 

3,100

 

11,069

 

 

14,169

 

Non-interest income

 

2,975

 

56,644

 

55

 

59,674

 

Non-interest expense

 

9,825

 

41,443

 

401

 

51,669

 

Income (loss) before tax

 

(1,010

)

11,741

 

(575

)

10,156

 

Income tax expense (benefit)

 

(389

)

4,377

 

(198

)

3,790

 

Net income (loss)

 

$

(621

)

$

7,364

 

$

(377

)

$

6,366

 

 

 

 

 

 

 

 

 

 

 

Inter-segment revenue (expense)

 

$

4,952

 

$

(4,952

)

$

 

$

 

Total assets

 

384,032

 

596,918

 

960

 

981,910

 

Total deposits

 

210,725

 

570,898

 

(2,247

)

779,376

 

 

 

 

Traditional

 

Meta Payment

 

 

 

 

 

 

 

Banking

 

Systems®

 

All Others

 

Total

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended March 31, 2009

 

 

 

 

 

 

 

 

 

Interest income

 

$

12,997

 

$

6,205

 

$

58

 

$

19,260

 

Interest expense

 

3,887

 

630

 

338

 

4,855

 

Net interest income (loss)

 

9,110

 

5,575

 

(280

)

14,405

 

Provision for loan losses

 

5,023

 

7,376

 

 

12,399

 

Non-interest income

 

972

 

48,133

 

41

 

49,146

 

Non-interest expense

 

9,649

 

37,866

 

687

 

48,202

 

Income (loss) before tax

 

(4,590

)

8,466

 

(926

)

2,950

 

Income tax expense (benefit)

 

(1,696

)

3,122

 

(324

)

1,102

 

Net income (loss)

 

$

(2,894

)

$

5,344

 

$

(602

)

$

1,848

 

 

 

 

 

 

 

 

 

 

 

Inter-segment revenue (expense)

 

$

4,076

 

$

(4,076

)

$

 

$

 

Total assets

 

384,175

 

504,704

 

768

 

889,647

 

Total deposits

 

220,535

 

466,487

 

(380

)

686,642

 

 

NOTE 8.  NEW ACCOUNTING PRONOUNCEMENTS

 

In June 2009, the FASB issued an accounting standard which amends current GAAP related to the accounting for transfers and servicing of financial assets and extinguishments of liabilities, including the removal of the concept of a qualifying special-purpose entity from GAAP.  This new accounting standard also clarifies that a transferor must evaluate whether it has maintained effective control of a financial asset by considering its continuing direct or indirect involvement with the transferred financial asset.  This accounting standard was subsequently codified into ASC Topic 860, “Accounting for Transfers of Financial Assets”.  This accounting standard is effective as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period and for interim and annual reporting periods thereafter.  The adoption of ASC Topic 860 is not anticipated to have a material impact on the Company’s consolidated financial statements.

 

In June 2009, the FASB issued an accounting standard which will require a qualitative rather than quantitative analysis to determine the primary beneficiary of a variable interest entity for consolidation purposes.  This accounting standard requires an enterprise to perform an analysis and ongoing reassessments to determine

 

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whether the enterprise’s variable interest or interests give it a controlling financial interest in a variable interest entity and amends certain guidance for determining whether an entity is a variable interest entity.  It also requires enhanced disclosures that will provide users of financial statements with more transparent information about an enterprise’s involvement in a variable interest entity.  This accounting standard was subsequently codified into ASC Topic 810, “Improvements for Financial Reporting by Enterprises Involved with Variable Interest Entities”.  This accounting standard is effective as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, and for all interim reporting periods after that.  The adoption of ASC Topic 810 is not anticipated to have a material impact on the Company’s consolidated financial statements.

 

In January 2010, the FASB issued an accounting standard which requires (i) fair value disclosures by each class of assets and liabilities (generally a subset within a line item as presented in the statement of financial position) rather than a major category, (ii) for items measured at fair value on a recurring basis, the amounts of significant transfers between Levels 1 and 2, and transfers into and out of Level 3, and the reasons for those transfers, including separate discussion related to the transfers into each level apart from transfers out of each level, and (iii) gross presentation of the amounts of purchases, sales, issuances and settlements in the Level 3 recurring measurement reconciliation.  Additionally, the standard clarifies that a description of the valuation technique(s) and inputs used to measure fair values is required for both recurring and nonrecurring fair value measurements.  Also, if a valuation technique has changed, entities should disclose that change and the reason for the changes.  This accounting standard was subsequently codified into ASC Topic 820, “Improving Disclosures about Fair Value Measurements”.  Disclosures other than the gross presentation changes in the Level 3 reconciliation are effective for the first reported period beginning after December 31, 2009.  The requirement to present the Level 3 activity of purchases, sales, issuances, and settlements on a gross basis will be effective for fiscal years beginning after December 15, 2010 and is not anticipated to have a material impact on the Company’s consolidated financial statements.

 

NOTE 9.  FAIR VALUE MEASUREMENTS

 

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

 

The fair value hierarchy is as follows:

 

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

 

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

 

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

 

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,

 

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such as the New York Stock Exchange, as well as U.S. Treasury and other U.S. government and agency securities that are traded by dealers or brokers in active over-the-counter markets.  The Company had no Level 1 securities at March 31, 2010.  Level 2 securities include agency mortgage-backed securities and private collateralized mortgage obligations, municipal bonds and corporate debt securities.

 

The following table summarizes the assets of the Company for which fair values are determined on a recurring basis as of March 31, 2010.

 

 

 

Fair Value at March 31, 2010

 

(Dollars in Thousands)

 

Total

 

Level 1

 

Level 2

 

Level 3

 

 

 

 

 

 

 

 

 

 

 

Securities available for sale

 

$

503,282

 

$

 

$

503,282

 

$

 

 

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

 

At March 31, 2010

 

 

 

 

 

 

 

Unrealized

 

S&P

 

Moody

 

Issuer(1)

 

Book Value

 

Fair Value

 

(Loss)

 

Credit Rating

 

Credit Rating

 

 

 

(Dollars in Thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Key Corp. Capital I

 

$

4,980

 

$

3,319

 

$

(1,661

)

BB

 

Baa3

 

Huntington Capital Trust II SE

 

4,970

 

2,764

 

(2,206

)

B

 

Ba1

 

Bank Boston Capital Trust IV (2)

 

4,961

 

3,441

 

(1,520

)

BB

 

Baa3

 

Bank America Capital III

 

4,949

 

3,438

 

(1,511

)

BB

 

Baa3

 

PNC Capital Trust

 

4,950

 

3,800

 

(1,150

)

BBB