Document
 
 
 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549
FORM 10-Q

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

For the quarterly period ended June 30, 2018

☐  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

http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=12397526&doc=13
META FINANCIAL GROUP, INC.®
(Exact name of registrant as specified in its charter)
Delaware
42-1406262
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)

5501 South Broadband Lane, Sioux Falls, South Dakota 57108
(Address of principal executive offices and Zip Code)

(605) 782-1767
(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 ☒  NO☐

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 ☒  NO ☐

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company See the definitions of "large accelerated filer." "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act (Check one):

Large accelerated filer☒
Accelerated filer☐
Non-accelerated filer☐
Smaller Reporting Company☐
Emerging growth company☐
 
 
 




If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class:
Outstanding at August 7, 2018:
Common Stock, $.01 par value
13,059,722 shares
Nonvoting Common Stock, $.01 par value
0 Nonvoting shares
 
 
 
 
 



META FINANCIAL GROUP, INC.
FORM 10-Q

Table of Contents
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
 
 
Item 1.
 
 
 
Item 1A.  
 
 
 
Item 6.
 
 

i


Table of Contents

PART I - FINANCIAL INFORMATION
Item 1.    Financial Statements.
META FINANCIAL GROUP, INC.
AND SUBSIDIARIES
Condensed Consolidated Statements of Financial Condition
(Dollars in Thousands, Except Share Data)
 
(Unaudited)
 
 
ASSETS
June 30, 2018
 
September 30, 2017
Cash and cash equivalents
$
71,276

 
$
1,267,586

Investment securities available for sale
1,351,538

 
1,106,977

Mortgage-backed securities available for sale
575,999

 
586,454

Investment securities held to maturity
216,160

 
449,840

Mortgage-backed securities held to maturity
8,218

 
113,689

Loans receivable
1,597,294

 
1,325,371

Allowance for loan losses
(21,950
)
 
(7,534
)
Federal Home Loan Bank Stock, at cost
7,446

 
61,123

Accrued interest receivable
17,825

 
19,380

Premises, furniture, and equipment, net
20,374

 
19,320

Bank-owned life insurance
86,655

 
84,702

Foreclosed real estate and repossessed assets
29,922

 
292

Goodwill
98,723

 
98,723

Intangible assets
46,098

 
52,178

Prepaid assets
23,211

 
28,392

Deferred taxes
23,025

 
9,101

Other assets
17,345

 
12,738

 


 
 
Total assets
$
4,169,159

 
$
5,228,332

 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 

 
 
 
 
 
 
LIABILITIES
 

 
 
Non-interest-bearing checking
$
2,637,987

 
$
2,454,057

Interest-bearing checking
103,065

 
67,294

Savings deposits
57,356

 
53,505

Money market deposits
45,115

 
48,758

Time certificates of deposit
57,151

 
123,637

Wholesale deposits
620,959

 
476,173

Total deposits
3,521,633

 
3,223,424

Short-term debt
27,290

 
1,404,534

Long-term debt
85,580

 
85,533

Accrued interest payable
3,705

 
2,280

Accrued expenses and other liabilities
87,038

 
78,065

Total liabilities
3,725,246

 
4,793,836

 
 
 
 
STOCKHOLDERS’ EQUITY
 

 
 

Preferred stock, 3,000,000 shares authorized, no shares issued or outstanding at June 30, 2018 and September 30, 2017, respectively

 

Common stock, $.01 par value; 90,000,000 and 15,000,000 shares authorized, 9,721,526 and 9,626,431 shares issued, 9,700,535 and 9,622,595 shares outstanding at June 30, 2018 and September 30, 2017, respectively
97

 
96

Common stock, Nonvoting, $.01 par value; 3,000,000 shares authorized, no shares issued or outstanding at June 30, 2018 and September 30, 2017, respectively

 

Additional paid-in capital
267,804

 
258,336

Retained earnings
206,284

 
167,164

Accumulated other comprehensive (loss) income
(28,601
)
 
9,166

Treasury stock, at cost, 20,991 and 3,836 common shares at June 30, 2018 and September 30, 2017, respectively
(1,671
)
 
(266
)
Total stockholders’ equity
443,913

 
434,496

 
 
 
 
Total liabilities and stockholders’ equity
$
4,169,159

 
$
5,228,332

See Notes to Condensed Consolidated Financial Statements.

2

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 June 30,
 
Nine Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
Interest and dividend income:
 
 
 
 
 
 
 
Loans receivable, including fees
$
19,056

 
$
14,089

 
$
53,344

 
$
37,540

Mortgage-backed securities
3,950

 
4,544

 
11,755

 
12,345

Other investments
11,098

 
10,228

 
33,234

 
29,269

 
34,104

 
28,861

 
98,333

 
79,154

Interest expense:
 

 
 

 
 

 
 

Deposits
2,264

 
1,039

 
7,106

 
4,161

FHLB advances and other borrowings
3,429

 
2,879

 
9,215

 
6,251

 
5,693

 
3,918

 
16,321

 
10,412

 
 
 
 
 
 
 
 
Net interest income
28,411

 
24,943

 
82,012

 
68,742

 
 
 
 
 
 
 
 
Provision for loan losses
5,315

 
1,240

 
24,726

 
10,732

 
 
 
 
 
 
 
 
Net interest income after provision for loan losses
23,096

 
23,703

 
57,286

 
58,010

 
 
 
 
 
 
 
 
Non-interest income:
 

 
 

 
 

 
 

Refund transfer product fees
7,358

 
5,785

 
41,353

 
38,448

Tax advance product fees
(46
)
 
(108
)
 
35,739

 
31,460

Card fees
22,807

 
23,052

 
74,910

 
68,013

Loan fees
1,111

 
982

 
3,445

 
3,034

Bank-owned life insurance
633

 
656

 
1,952

 
1,548

Deposit fees
1,134

 
190

 
2,964

 
508

(Loss) gain on sale of securities available-for-sale, net (Includes ($22) and $47 reclassified from accumulated other comprehensive income (loss) for net gains (losses) on available for sale securities for the three months ended June 30, 2018 and 2017, respectively and ($1,198) and ($1,331) for the nine months ended June 30, 2018 and 2017, respectively)
(22
)
 
47

 
(1,198
)
 
(1,331
)
Gain (loss) on foreclosed real estate

 

 
(19
)
 
7

Other income
250

 
216

 
766

 
652

Total non-interest income
33,225

 
30,820

 
159,912

 
142,339

 
 
 
 
 
 
 
 
Non-interest expense:
 

 
 

 
 

 
 

Compensation and benefits
24,439

 
22,193

 
78,951

 
66,809

Refund transfer product expense
1,694

 
1,623

 
11,665

 
11,852

Tax advance product expense
(19
)
 
72

 
1,736

 
3,239

Card processing
7,068

 
5,755

 
20,798

 
18,377

Occupancy and equipment
4,720

 
4,034

 
14,087

 
12,202

Legal and consulting
2,781

 
1,375

 
8,436

 
5,603

Marketing
416

 
381

 
1,637

 
1,461

Data processing
301

 
344

 
958

 
1,099

Intangible amortization expense
1,664

 
1,887

 
6,077

 
10,494

Other expense
5,988

 
4,555

 
17,247

 
14,782

Total non-interest expense
49,053

 
42,219

 
161,592

 
145,918

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income before income tax expense
7,268

 
12,304

 
55,606

 
54,431

 
 
 
 
 
 
 
 
Income tax expense (Includes ($6) and $18 reclassified from accumulated other comprehensive income (loss) for the three months ended June 30, 2018 and 2017, respectively and ($335) and ($499) for the nine months ended June 30, 2018 and 2017, respectively)
476

 
2,517

 
12,708

 
11,258

 
 
 
 
 
 
 
 
Net income
$
6,792

 
$
9,787

 
$
42,898

 
$
43,173

 
 
 
 
 
 
 
 
Earnings per common share
 

 
 

 
 

 
 

Basic
$
0.70

 
$
1.05

 
$
4.43

 
$
4.69

Diluted
$
0.70

 
$
1.04

 
$
4.41

 
$
4.66

See Notes to Condensed Consolidated Financial Statements.


3

Table of Contents

META FINANCIAL GROUP, INC.
AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income (Unaudited)
(Dollars in Thousands)
 
Three Months Ended
June 30,
 
Nine Months Ended
June 30,
 
2018
 
2017
 
2018
 
2017
Net income
$
6,792

 
$
9,787

 
$
42,898

 
$
43,173

 
 
 
 
 
 
 
 
Other comprehensive (loss) income:
 

 
 

 
 

 
 

Change in net unrealized (loss) gain on securities
(9,905
)
 
11,902

 
(53,377
)
 
(25,398
)
Losses (gains) realized in net income
22

 
(47
)
 
1,198

 
1,331

 
(9,883
)
 
11,855

 
(52,179
)
 
(24,067
)
LESS: Deferred income tax effect
(2,447
)
 
4,472

 
(14,412
)
 
(8,544
)
Total other comprehensive (loss) income
(7,436
)
 
7,383

 
(37,767
)
 
(15,523
)
Total comprehensive (loss) income
$
(644
)
 
$
17,170

 
$
5,131

 
$
27,650

See Notes to Condensed Consolidated Financial Statements.


4

Table of Contents

META FINANCIAL GROUP, INC.
AND SUBSIDIARIES
Condensed Consolidated Statements of Changes in Stockholders' Equity (Unaudited)
For the Nine Months Ended June 30, 2018 and 2017
(Dollars in Thousands, Except Share and Per Share Data)
 
 
 
Common
Stock
 
 
Additional
Paid-in
Capital
 
 
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss)
 
 
 
Treasury
Stock
 
 
Total
Stockholders’
Equity
Balance, September 30, 2016
$
85

 
$
184,780

 
$
127,190

 
$
22,920

 
$

 
$
334,975

 
 
 
 
 
 
 
 
 
 
 
 
Adoption of Accounting Standards Update 2016-09

 
104

 
(104
)
 

 

 

 
 
 
 
 
 
 
 
 
 
 
 
Cash dividends declared on common stock ($0.39 per share)

 

 
(3,625
)
 

 

 
(3,625
)
 
 
 
 
 
 
 
 
 
 
 
 
Issuance of common shares due to exercise of stock options

 
529

 

 

 

 
529

 
 
 
 
 
 
 
 
 
 
 
 
Issuance of common shares due to restricted stock
4

 

 

 

 

 
4

 
 
 
 
 
 
 
 
 
 
 
 
Issuance of common shares due to ESOP

 
1,174

 

 

 

 
1,174

 
 
 
 
 
 
 
 
 
 
 
 
Issuance of common shares due to acquisition
5

 
37,291

 

 

 

 
37,296

 
 
 
 
 
 
 
 
 
 
 
 
Contingent consideration equity earnout due to acquisition

 
24,142

 

 

 

 
24,142

 
 
 
 
 
 
 
 
 
 
 
 
Shares repurchased for tax withholdings on stock compensation

 
(337
)
 

 

 

 
(337
)
 
 
 
 
 
 
 
 
 
 
 
 
Stock compensation

 
8,405

 

 

 

 
8,405

 
 
 
 
 
 
 
 
 
 
 
 
Net change in unrealized losses on securities, net of income taxes

 

 

 
(15,523
)
 

 
(15,523
)
 
 
 
 
 
 
 
 
 
 
 
 
Net income

 

 
43,173

 

 

 
43,173

 
 
 
 
 
 
 
 
 
 
 
 
Balance, June 30, 2017
$
94

 
$
256,088

 
$
166,634

 
$
7,397

 
$

 
$
430,213

 
 
 
 
 
 
 
 
 
 
 
 
Balance, September 30, 2017
$
96

 
$
258,336

 
$
167,164

 
$
9,166

 
$
(266
)
 
$
434,496

 
 
 
 
 
 
 
 
 
 
 
 
Cash dividends declared on common stock ($0.39 per share)

 

 
(3,778
)
 

 

 
(3,778
)
 
 
 
 
 
 
 
 
 
 
 
 
Issuance of common shares due to exercise of stock options

 
147

 

 

 

 
147

 
 
 
 
 
 
 
 
 
 
 
 
Issuance of common shares due to restricted stock
1

 

 

 

 

 
1

 
 
 
 
 
 
 
 
 
 
 
 
Issuance of common shares due to ESOP

 
1,606

 

 

 

 
1,606

 
 
 
 
 
 
 
 
 
 
 
 
Shares repurchased for tax withholdings on stock compensation

 
(726
)
 

 

 
(1,405
)
 
(2,131
)
 
 
 
 
 
 
 
 
 
 
 
 
Stock compensation

 
8,441

 

 

 

 
8,441

 
 
 
 
 
 
 
 
 
 
 
 
Net change in unrealized losses on securities, net of income taxes

 

 

 
(37,767
)
 

 
(37,767
)
 
 
 
 
 
 
 
 
 
 
 
 
Net income

 

 
42,898

 

 

 
42,898

 
 
 
 
 
 
 
 
 
 
 
 
Balance, June 30, 2018
$
97

 
$
267,804

 
$
206,284

 
$
(28,601
)
 
$
(1,671
)
 
$
443,913

See Notes to Condensed Consolidated Financial Statements.

5

Table of Contents


META FINANCIAL GROUP, INC.
AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
 
Nine Months Ended June 30,
(Dollars in Thousands)
2018
 
2017
Cash flows from operating activities:
 
 
 
Net income
$
42,898

 
$
43,173

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

 
 

Depreciation, amortization and accretion, net
27,995

 
35,002

Stock-based compensation expense
8,441

 
8,405

Provision for loan losses
24,726

 
10,732

(Recovery) provision for deferred taxes
488

 
(2,914
)
Gain on other assets
(1
)
 
(21
)
Loss (gain) on sale of foreclosed real estate
19

 
(7
)
Loss on sale of securities available for sale, net
1,198

 
1,331

Net change in accrued interest receivable
1,555

 
(4,632
)
Fair value adjustment of foreclosed real estate
29

 

Originations of loans held for sale

 
(685,934
)
Proceeds from sales of loans held for sale

 
685,934

Change in bank-owned life insurance value
(1,952
)
 
(1,549
)
Net change in other assets
577

 
(24,179
)
Net change in accrued interest payable
1,425

 
1,588

Excess contingent consideration paid

 
(248
)
Net change in accrued expenses and other liabilities
4,879

 
16,080

Net cash provided by operating activities
112,277

 
82,761

 
 
 
 
Cash flows from investing activities:
 

 
 

Purchase of securities available-for-sale
(418,699
)
 
(782,169
)
Proceeds from sales of securities available-for-sale
312,863

 
317,099

Proceeds from maturities and principal repayments of securities available for sale
115,878

 
86,516

Purchase of securities held to maturity

 
(932
)
Proceeds from maturities and principal repayments of securities held to maturity
29,752

 
34,242

Purchase of bank owned life insurance

 
(25,000
)
Loans purchased
(95,169
)
 
(136,172
)
Loans sold
19,961

 
2,141

Net change in loans receivable
(238,679
)
 
(168,537
)
Proceeds from sales of foreclosed real estate or other assets
244

 
97

Net cash paid for acquisitions

 
(29,425
)
Federal Home Loan Bank stock purchases
(713,444
)
 
(468,291
)
Federal Home Loan Bank stock redemptions
767,120

 
499,480

Proceeds from the sale of premises and equipment

 
57

Purchase of premises and equipment
(5,176
)
 
(5,699
)
Net cash used in investing activities
(225,349
)
 
(676,593
)
 
 
 
 
Cash flows from financing activities:
 

 
 

Net change in checking, savings, and money market deposits
219,909

 
320,512

Net change in time deposits
(66,486
)
 
(42,232
)
Net change in wholesale deposits
144,786

 
444,857

Net change in FHLB and other borrowings
(415,000
)
 
(100,000
)
Net change in federal funds
(963,000
)
 
(717,000
)
Net change in securities sold under agreements to repurchase
754

 
(938
)
Principal payments on capital lease obligations
(46
)
 
(59
)
Cash dividends paid
(3,778
)
 
(3,625
)
Purchase of shares by ESOP
1,606

 
1,174

Issuance of restricted stock
1

 
4

Proceeds from exercise of stock options and issuance of common stock
147

 
529

Shares repurchased for tax withholdings on stock compensation
(2,131
)
 
(337
)
Contingent consideration - cash paid

 
(17,253
)
Net cash used in financing activities
(1,083,238
)
 
(114,368
)
 
 
 
 
Net change in cash and cash equivalents
(1,196,310
)
 
(708,200
)
 
 
 
 
Cash and cash equivalents at beginning of period
1,267,586

 
773,830

Cash and cash equivalents at end of period
$
71,276

 
$
65,630

 
 
 
 


6

Table of Contents



META FINANCIAL GROUP, INC.
AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Con't.)
 
Nine Months Ended June 30,
 
2018
 
2017
Supplemental disclosure of cash flow information
 

 
 

Cash paid during the period for:
 

 
 

Interest
$
17,746

 
$
8,824

Income taxes
8,211

 
19,947

Franchise taxes
199

 
156

Other taxes
129

 
289

 
 
 
 
Supplemental schedule of non-cash investing activities:
 

 
 

Loans transferred to foreclosed real estate and repossessed assets
$
(29,922
)
 
$
(378
)
Securities transferred from held to maturity to available for sale
(306,000
)
 

Contingent consideration - equity

 
(24,142
)
Stock issued for acquisition

 
(37,296
)
Purchase of available-for-sale securities accrued, not paid
(4,117
)
 

See Notes to Condensed Consolidated Financial Statements.

7

Table of Contents


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, 2017 included in Meta Financial Group, Inc.’s (“Meta” or the “Company”) Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on November 29, 2017.  Accordingly, footnote disclosures which would substantially duplicate the disclosures 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 three and nine month periods ended June 30, 2018 are not necessarily indicative of the results expected for the fiscal year ending September 30, 2018.


NOTE 2.     CREDIT DISCLOSURES

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 appropriateness 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.

Loans are generally 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.

The allowance consists of specific, general and unallocated components.  The specific component relates to impaired loans.  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.

Homogeneous loan populations are collectively evaluated for impairment. These loan populations may include commercial insurance premium finance loans, residential first mortgage loans secured by one-to-four family residences, residential construction loans, home equity and second mortgage loans, and tax product loans.  Commercial and agricultural loans as well as mortgage loans secured by other properties are monitored regularly by the Bank given the larger balances. When analysis of the borrower's operating results and financial condition indicates that underlying cash flows of the borrower’s business is not adequate to meet its debt service requirements, the individual loan or loan relationship is evaluated for impairment.

Loans, or portions thereof, are charged off when collection of principal becomes doubtful. Generally, this is associated with a delay or shortfall in payments of 210 days or more for commercial insurance premium finance, 180 days or more for the purchased student loan portfolios, 120 days or more for consumer credit products, and 90 days or more for community banking loans. Action is taken to charge off ERO loans if such loans have not been collected by the end of June and taxpayer advance loans if such loans have not been collected by the end of the calendar year. Non-accrual loans and troubled debt restructurings are generally considered impaired.


8

Table of Contents

Loans receivable at June 30, 2018 and September 30, 2017 were as follows:
 
June 30, 2018
 
September 30, 2017
 
(Dollars in Thousands)
1-4 Family Real Estate
$
214,754

 
$
196,706

Commercial and Multi-Family Real Estate
716,495

 
585,510

Agricultural Real Estate
35,475

 
61,800

Consumer
258,158

 
163,004

Commercial Operating
46,069

 
35,759

Agricultural Operating
24,621

 
33,594

Commercial Insurance Premium Finance
303,603

 
250,459

Total Loans Receivable
1,599,175

 
1,326,832

 
 
 
 
Allowance for Loan Losses
(21,950
)
 
(7,534
)
Net Deferred Loan Origination Fees
(1,881
)
 
(1,461
)
Total Loans Receivable, Net
$
1,575,344

 
$
1,317,837



9

Table of Contents

Activity in the allowance for loan losses and balances of loans receivable by portfolio segment for the three and nine months ended June 30, 2018 and 2017 was as follows:

 
1-4 Family
Real Estate
 
Commercial and
Multi-Family
Real Estate
 
Agricultural
Real Estate
 
Consumer
 
Commercial
Operating
 
Agricultural
Operating
 
CML Insurance
Premium
Finance
 
Unallocated
 
Total
 
(Dollars in Thousands)
Three Months Ended June 30, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Allowance for loan losses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
$
883

 
$
3,904

 
$
146

 
$
18,074

 
$
1,716

 
$
619

 
$
746

 
$
990

 
$
27,078

Provision (recovery) for loan losses
(231
)
 
711

 
51

 
4,476

 
(26
)
 
(102
)
 
304

 
132

 
5,315

Charge offs

 

 

 
(9,000
)
 
(1,507
)
 

 
(243
)
 

 
(10,750
)
Recoveries

 

 

 

 
1

 
207

 
99

 

 
307

Ending balance
$
652

 
$
4,615

 
$
197

 
$
13,550

 
$
184

 
$
724

 
$
906

 
$
1,122

 
$
21,950

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended June 30, 2018
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Allowance for loan losses:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Beginning balance
$
803

 
$
2,670

 
$
1,390

 
$
6

 
$
158

 
$
1,184

 
$
796

 
$
527

 
$
7,534

Provision (recovery) for loan
losses
(123
)
 
1,945

 
(1,193
)
 
22,174

 
1,480

 
(721
)
 
569

 
595

 
24,726

Charge offs
(31
)
 

 

 
(9,000
)
 
(1,507
)
 

 
(711
)
 

 
(11,249
)
Recoveries
3

 

 

 
370

 
53

 
261

 
252

 

 
939

Ending balance
$
652

 
$
4,615

 
$
197

 
$
13,550

 
$
184

 
$
724

 
$
906

 
$
1,122

 
$
21,950

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ending balance: individually evaluated for impairment
25

 

 

 

 

 

 

 

 
25

Ending balance: collectively evaluated for impairment
627

 
4,615

 
197

 
13,550

 
184

 
724

 
906

 
1,122

 
21,925

Total
$
652

 
$
4,615

 
$
197

 
$
13,550

 
$
184

 
$
724

 
$
906

 
$
1,122

 
$
21,950

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Ending balance: individually
evaluated for impairment
229

 
409

 

 
47

 

 
2,135

 

 

 
2,820

Ending balance: collectively
evaluated for impairment
214,525

 
716,086

 
35,475

 
258,111

 
46,069

 
22,486

 
303,603

 

 
1,596,355

Total
$
214,754

 
$
716,495

 
$
35,475

 
$
258,158

 
$
46,069

 
$
24,621

 
$
303,603

 
$

 
$
1,599,175


10

Table of Contents

 
1-4 Family
Real Estate
 
Commercial and
Multi-Family
Real Estate
 
Agricultural
Real Estate
 
Consumer
 
Commercial
Operating
 
Agricultural
Operating
 
CML Insurance
Premium
Finance
 
Unallocated
 
Total
 
(Dollars in Thousands)
Three Months Ended June 30, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Allowance for loan losses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
$
296

 
$
1,742

 
$
1,524

 
$
7,706

 
$
767

 
$
1,349

 
$
597

 
$
621

 
$
14,602

Provision (recovery) for loan losses
510

 
386

 
(80
)
 
142

 
249

 
(44
)
 
187

 
(110
)
 
1,240

Charge offs

 

 

 
(1
)
 
(799
)
 

 
(94
)
 

 
(894
)
Recoveries

 

 

 

 
5

 

 
15

 

 
20

Ending balance
$
806

 
$
2,128

 
$
1,444

 
$
7,847

 
$
222

 
$
1,305

 
$
705

 
$
511

 
$
14,968

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended June 30, 2017
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Allowance for loan losses:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Beginning balance
$
654

 
$
2,198

 
$
142

 
$
51

 
$
117

 
$
1,332

 
$
588

 
$
553

 
$
5,635

Provision (recovery) for loan
losses
152

 
(70
)
 
1,302

 
7,773

 
1,244

 
(39
)
 
412

 
(42
)
 
10,732

Charge offs

 

 

 
(1
)
 
(1,149
)
 

 
(352
)
 

 
(1,502
)
Recoveries

 

 

 
24

 
10

 
12

 
57

 

 
103

Ending balance
$
806

 
$
2,128

 
$
1,444

 
$
7,847

 
$
222

 
$
1,305

 
$
705

 
$
511

 
$
14,968

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ending balance: individually
evaluated for impairment

 

 

 

 

 

 

 

 

Ending balance: collectively
evaluated for impairment
806

 
2,128

 
1,444

 
7,847

 
222

 
1,305

 
705

 
511

 
14,968

Total
$
806

 
$
2,128

 
$
1,444

 
$
7,847

 
$
222

 
$
1,305

 
$
705

 
$
511

 
$
14,968

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Ending balance: individually
evaluated for impairment
133

 
1,301

 

 

 

 

 

 

 
1,434

Ending balance: collectively
evaluated for impairment
190,598

 
492,558

 
62,521

 
172,151

 
39,076

 
35,471

 
231,587

 

 
1,223,962

Total
$
190,731

 
$
493,859

 
$
62,521

 
$
172,151

 
$
39,076

 
$
35,471

 
$
231,587

 
$

 
$
1,225,396



11

Table of Contents

Federal regulations promulgated by the Office of the Comptroller of the Currency (the "OCC"), which is the primary federal regulator of the Company's wholly-owned subsidiary, MetaBank (the "Bank"), provide for the classification of loans and other assets such as debt and equity securities. The loan classification and risk rating definitions for the Company and the Bank are generally as follows:

Pass- A pass asset is of sufficient quality in terms of repayment, collateral and management to preclude a special mention or an adverse rating.

Watch- A watch asset is generally credit performing well under current terms and conditions but with identifiable weakness meriting additional scrutiny and corrective measures.  Watch is not a regulatory classification but can be used to designate assets that are exhibiting one or more weaknesses that deserve management’s attention.  These assets are of better quality than special mention assets.

Special Mention- Special mention assets are credits with potential weaknesses deserving management’s close attention and if left uncorrected, may result in deterioration of the repayment prospects for the asset.  Special mention assets are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification.  Special mention is a temporary status with aggressive credit management required to garner adequate progress and move to watch or higher.

Substandard- A substandard asset is inadequately protected by the net worth and/or repayment ability or by a weak collateral position.  Assets so classified have well-defined weaknesses creating a distinct possibility that the Bank will sustain some loss if the weaknesses are not corrected.  Loss potential does not have to exist for an asset to be classified as substandard.

Doubtful- A doubtful asset has weaknesses similar to those classified substandard, with the degree of weakness causing the likely loss of some principal in any reasonable collection effort.  Due to pending factors the asset’s classification as loss is not yet appropriate.

Loss- A loss asset is considered uncollectible and of such little value that the asset’s continuance on the Company's balance sheet is no longer warranted.  This classification does not necessarily mean an asset has no recovery or salvage value leaving room for future collection efforts.

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,” the Company 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 Company's determinations as to the classification of its assets and the amount of its valuation allowances are subject to review by its regulatory authorities, which may order the establishment of additional general or specific loss allowances.
 
The Company recognizes that concentrations of credit may naturally occur and may take the form of a large volume of related loans to an individual, a specific industry, or a geographic location.  Credit concentration is a direct, indirect, or contingent obligation that has a common bond where the aggregate exposure equals or exceeds a certain percentage of the Company’s Tier 1 Capital plus the Allowance for Loan Losses.
 

12

Table of Contents

The asset classification of loans at June 30, 2018 and September 30, 2017 were as follows:
June 30, 2018
1-4 Family
Real Estate
 
Commercial and
Multi-Family
Real Estate
 
Agricultural
Real Estate
 
Consumer
 
Commercial
Operating
 
Agricultural
Operating
 
CML Insurance
Premium
Finance
 
Total
 
(Dollars in Thousands)
Pass
$
214,176

 
$
705,347

 
$
27,456

 
$
258,090

 
$
46,069

 
$
15,210

 
$
302,022

 
$
1,568,370

Watch
123

 
10,953

 

 
68

 

 
2,487

 
1,581

 
15,212

Special Mention
241

 
195

 
4,222

 

 

 
535

 

 
5,193

Substandard
214

 

 
3,797

 

 

 
6,389

 

 
10,400

Doubtful

 

 

 

 

 

 

 

 
$
214,754

 
$
716,495

 
$
35,475

 
$
258,158

 
$
46,069

 
$
24,621

 
$
303,603

 
$
1,599,175

September 30, 2017
1-4 Family
Real Estate
 
Commercial and
Multi-Family
Real Estate
 
Agricultural
Real Estate
 
Consumer
 
Commercial
Operating
 
Agricultural
Operating
 
CML Insurance
Premium
Finance
 
Total
 
(Dollars in Thousands)
Pass
$
195,838

 
$
574,730

 
$
27,376

 
$
163,004

 
$
35,759

 
$
18,394

 
$
250,459

 
$
1,265,560

Watch
525

 
10,200

 
2,006

 

 

 
4,541

 

 
17,272

Special Mention
247

 
201

 
2,939

 

 

 

 

 
3,387

Substandard
96

 
379

 
29,479

 

 

 
10,659

 

 
40,613

Doubtful