Ladies and gentlemen, thank you for standing by and welcome to the Meta Financial Group fiscal year 2020 first quarter investor conference call. During the presentation, all participants will be in a listen-only mode. Following the prepared remarks, we will conduct a question-and-answer session. As a reminder, this conference call is being recorded. I would now like to turn the conference call over to Brittany Elsasser, Director of Investor Relations. Please go ahead.
Thank you. Welcome to Meta's conference call and webcast to discuss our financial results for the first fiscal quarter ending December 31st, 2019, released earlier this afternoon. Additional information, including the earnings release and investor presentation, may be found on our website at metafinancialgroup.com. President and CEO, Brad Hanson, and Executive Vice President and CFO, Glen Herrick, will be sharing some prepared remarks today before we open up the call for questions. Today's call may contain forward-looking statements, including statements related to Meta and its operating subsidiaries, which may generally be identified as describing the company's future plans, objectives, or goals. We caution you not to place undue reliance on these forward-looking statements, which are subject to risks and uncertainties that could cause actual results or outcomes to differ materially from those currently anticipated or that we otherwise discuss today.
These forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. For further information about the factors that could affect Meta's future results, please see the company's most recent annual and quarterly reports filed on Forms 10-K and 10-Q and its other filings with the Securities and Exchange Commission. Forward-looking statements speak only as of the date on which they are made. Meta expressly disclaims any intent or obligation to update any forward-looking statements on behalf of the company or its subsidiaries, whether as a result of new information, changed circumstances, future events, or for any other reason. At this time, I would like to turn the call over to President and CEO, Brad Hanson.
Thank you, Brittany. I'd like to welcome everyone to our fiscal 2020 first quarter earnings call. We are pleased to report fiscal 2020 first quarter results, including earnings of $21.1 million, or $0.56 per diluted share, representing growth of 44% over the prior year's first quarter EPS. These results are reflective of our key strategic initiatives, increasing the percentage of balance sheet funding from core deposits, optimizing the interest earning asset mix of the balance sheet, and improving our operating efficiencies. Executing on these initiatives is having a positive impact on the earnings power of the company and driving shareholder value. In November, we announced that MetaBank entered into an agreement with Central Bank for the sale of our community bank division.
This transaction is of strategic value to both companies and will enable us to focus our attention on our national payments and lending platforms, streamlining operations, and serving key markets often overlooked by traditional banks. The transaction with Central Bank is expected to close in the second fiscal quarter of 2020. As always, credit quality remains a top priority for our company, and we remain disciplined in our underwriting decisions, which Glen will discuss further in his prepared remarks. During the quarter, we disposed of the assets related to the previously disclosed agricultural relationship that were formerly held in other real estate owned. Resolution of this matter resulted in marked improvement of our non-performing asset ratios over previous quarters. In November, the board also authorized a new share repurchase program for up to 7.5 million shares of Meta's common stock.
During the quarter, we bought back roughly 319,000 shares, completing the first program announced in June of 2019, and another 580,000 shares utilizing the new program. As previously stated, we intend to use the expected pre-tax gain on the pending sale of the community bank division of approximately $18.5 million for share repurchases as well as other corporate purposes. We will continue to consider repurchase activity within the context of a balanced capital management approach designed to support the company's growth prospects and maximize shareholder value. Now let me turn the call over to Glen Herrick, our CFO, to provide more detail on our fiscal 2020 first quarter financial results.
Thank you, Brad, and good afternoon, everyone. For the first quarter of fiscal 2020, we reported GAAP net income of $21.1 million, or $0.56 per diluted share, compared to $15.4 million, or $0.39 per diluted share, for the same quarter of the prior year. Earnings per share growth of 44% over the prior year's first quarter primarily reflected higher net interest income as a result of efforts to optimize our balance sheet. During the first quarter of fiscal 2020, we originated $17.9 million in solar leases with related tax investment credits, further improving after-tax income. Though the timing and impact of future investment tax credits are expected to vary from period to period. We continue to expect the tax rate for fiscal year 2020 to settle in the low teens.
Total gross loans and leases were $3.58 billion at December 31st, 2019, a decrease of 2% on a linked-quarter basis, which was mostly a function of the transfer of $252 million of community banking loans to held for sale during the quarter in connection with the pending sale of the community bank division to Central Bank. Compared to December 31st, 2018, total gross loans and leases increased 8%. Our Commercial Finance loan portfolio totaled $1.99 billion at December 31, 2019, an increase of 4% on a linked-quarter basis and a 23% increase year-over-year, driven by growth in the term lending, asset-based lending, and government-guaranteed loan portfolios. Turning to the liability side of the balance sheet, average payments deposits were $2.78 billion for the quarter, rising nearly 12% versus the average for the same quarter in the prior fiscal year and represented 60% of total average deposits.
As a result of our continued balance sheet optimization efforts, we generated $64.7 million of net interest income in the fiscal 2020 first quarter, up 7% compared to the first quarter of fiscal 2019. Our net interest margin expanded by 34 basis points year-over-year to 4.94% for the fiscal 2020 first quarter. Loan yields were 7.32% for the quarter, compared to 7.51% for the previous quarter and 7.69% for the first quarter of the prior fiscal year, reflecting the impact of a lower rate environment. Purchase accounting accretion added 8 basis points to loan yields in the first fiscal 2020 quarter versus 20 basis points in the prior quarter and 31 basis points in the first fiscal 2019 quarter. Non-performing assets at December 31, 2019, represented 48 basis points of total assets, compared to 91 basis points of total assets at September 30, 2019.
As Brad mentioned, during the quarter, we disposed of assets related to a previously disclosed community bank agricultural relationship that were held in other real estate owned, which represented 46 basis points of non-performing assets as of September 30, 2019. The company recognized a pre-tax net loss of $4.1 million related to the sale of the foreclosed property during the quarter. While the levels of non-performing assets and charge-offs often exhibit some degree of volatility, the company continuously monitors its various loan and lease portfolios for trends of deterioration. As of December 31, 2019, management remained comfortable with the trends and the risk characteristics of our loan portfolios. Non-interest income was $37.5 million for the fiscal first quarter, a decrease of less than 1% from the same quarter of fiscal 2019, due primarily by the previously mentioned loss on sale of foreclosed real estate.
Excluding the loss on sale, non-interest income benefited from higher rental income, gain on sale of loans and leases, other income, and tax product fee income. Non-interest expense increased by 2% to $75.8 million for the fiscal first quarter, compared to the same quarter of fiscal 2019. Looking ahead, we remain committed to allocating capital and resources to businesses with the most attractive growth and profitability profiles while improving our overall efficiency ratio. Finally, let me discuss our earnings per share outlook. We are reiterating our fiscal 2020 GAAP earnings per share guidance range of $3.58- $3.78. We're also reiterating our fiscal 2020 EPS guidance range of $3.30- $3.50, excluding the expected gain on branch sale and the incurred loss of foreclosed property previously discussed. With that, I'll turn the conversation back to Brad for closing comments.
Thank you, Glen. To recap, we are pleased with our results for the first quarter of fiscal year 2020. The progress we've made thus far towards our three key strategic initiatives and the opportunities ahead in 2020. That completes our prepared remarks. I'll ask Glen to join me for Q&A. Operator, please open up the line for any questions.
As a reminder, to ask a question, you will need to press star one on your telephone. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. Our first question comes from the line of Steve Moss from B. Riley FBR. Your line is now open.
Good afternoon.
Good afternoon, Steve.
I guess start off on just the overall loan trends here. Just curious as to what you're seeing for the loan pipeline and your expectations for Commercial Finance here going forward?
Hi, Steve. It's Glen. We're seeing a lot of opportunity and quite frankly, a fair amount of customer confidence, especially with a lot of the small market businesses that we serve today.
When we think about loan growth for 2020, still thinking like a mid-teens type of number, perhaps.
Yes.
In loan growth?
Yes.
Okay. In terms of just loan yields here, obviously a lot less purchase accounting accretion, I think that I was looking for. Just kind of wondering, one is where are loan yields headed here, given the lower rate environment? I'm assuming a little bit lower to go, also does purchase accounting accretion come back a little bit as we head into the next couple of quarters?
No. Given the nature of the portfolio, that purchase accounting really goes away after this quarter. It dropped 8 basis points on the linked quarter basis. Our NIM was down 1 basis point. We would expect, excluding the tax loans, that our NIM would move north from here. It will cross over 5% in 2020.
Okay. Then where are you guys seeing loan yields for the Commercial Finance portfolio these days?
There's a lot of different portfolios, but that ±9% is kind of a good weighted average rate today.
Okay, that's helpful. Then in terms of just non-interest-bearing deposit growth, looks like pretty good increase on the average year-over-year. Is it still consistent to expect more or less high single digits, low double digits for non-interest-bearing deposit growth going forward here?
I think that's a fair assumption.
Okay, good. I guess one more thing on expenses here. Any color around expenses? I think this is going to be a little bit of a messy quarter, perhaps with the bank, not exactly sure, but maybe if you could give a color around expenses ex tax for maybe?
Sure.
The second and third quarter?
Yeah. Right. We had a few divestiture-related expenses this quarter. We'll have some next quarter, and obviously a fair amount of increase in expenses related to the tax business that's variable. If you look at our absolute expenses of roughly $76 million, non-interest expense of $76 million for this quarter, I would hope that would be a pretty good base for us, outside of tax expense.
Okay.
Our tax season.
Right. I guess with the sale of the bank, could we back off a little bit? Perhaps to like the low to mid-70s?
Well.
come the June quarter?
Yeah. There'll be some mix shifting there. We'll still have a $900 million portfolio that we'll be paying servicing fees on. You could see some geography shifting in the expense line from comp to servicing fees or processing, as well as we've talked about, we expect to continue to grow our other loan portfolios, especially Commercial Finance, and staffing or variable cost to go with that.
Okay. That's helpful. Thank you very much.
You bet.
Thank you. Our next question comes from the line of Michael Perito from KBW. Your line is now open.
Hey, good afternoon, everybody.
Good afternoon.
Hey, Mike.
Glen, I was wondering if you could maybe just spend a minute to kind of walk us through how you're kind of thinking about what a kind of like an operating or core earnings number for the fiscal first quarter was. Obviously, there was a few moving pieces, and it looked like in fees and expenses and the provision with regard to the divestiture, and I was trying to piece it all together, but I thought maybe it would just be easier to see how you guys are thinking about it, given those moving parts I just mentioned.
Sure. I look at it as the non-core related to the really all around the community bank divestiture. We look at the disposal of that OREO that had been hanging out there. The expenses that we highlighted, the $900,000 of expenses in the first quarter, as well as then offset by the provision recapture, the positive provision recapture when we moved that portfolio to held for sale.
Does that get you to like, roughly $0.59 or $0.60 type of EPS figure for the fiscal first quarter as you guys adjust for all those tax affected?
Yes. I think that's a good adjustment.
Okay. Thanks for confirming that. Brad, on the repurchases, you mentioned utilizing the gain in the next quarter here to put towards repurchases and other general corporate purposes, just curious if maybe you could just comment more broadly about what the board's appetite is here for repurchases. Clearly, the authorization you guys put out is a large figure. I imagine that the reason for that is you intend to use quite a bit of it. I was just curious if you could maybe comment more specifically just about what the appetite is that we should expect going forward.
Well, just remember that the authorization is pretty long in term. It has several years remaining on it. We're going to be opportunistic with it. We think, at these prices, that it's a good investment for us based on the capital we're bringing in here. We monitor various factors and other opportunities that may arise along the way that may affect how much we repurchase over the course of the authorization itself.
Okay. Helpful. Just one last one I wanted to ask, just on the deposit growth in the quarter. Over these next couple quarters, I know there's quite a bit of seasonality in your deposit portfolio between the holidays and then tax season. I was just curious if you could maybe give us an update of kind of the core growth that you're seeing underneath kind of some of the seasonal inflows and outflows, both in the current quarter, but also kind of as you look out. I know you mentioned that the non-interest bearing overall expectations for the year of Steve's question previously, but is that kind of taken into account some of the seasonal factors as well?
That's why we specifically called the 12% out year-over-year quarter to account for the seasonality. We really look at that as the core deposit growth. It's continuing to ratchet up as we had hoped. As Brad has mentioned before, some of these can be a little lumpy, some of the payments relationships. We look at 12% core deposit growth year-over-year and would hope that that trend would continue.
All right. I'm sorry, I'm going to sneak one more in quickly. Just on the $2.5 million of charge-offs. I think it mentioned in the press release it was mostly Commercial Finance related. Can you just give us a little bit more color about what the drivers were there? Thanks for taking my questions, guys.
Just a couple relationships that went to charge-off. From a absolute dollar standpoint, you certainly could expect our charge-offs in Commercial Finance to grow on a dollar basis just because of the growth in that portfolio. We're happy with the credit metrics and believe that, looking forward, that they're going to stay within the range that we expect and model.
Helpful. Appreciate it, guys. Thanks.
Thanks, Mike.
Thank you. As a reminder, to ask a question, you will need to press star one on your telephone. To withdraw your question, press the pound key. Our next question comes from the line of Frank Schiraldi from Piper Sandler. Your line is now open.
Hey, guys. Good afternoon.
Hey, Frank.
I just wanted to ask Glen on the card fee line item, the $21.5 million. I know in the past you've had some programs winding down that has boosted that number. Is this a pretty good run rate here for the fourth fiscal quarter?
Yes. This is very clean, Frank.
Okay. You mentioned the 12% growth in payments related deposits. I'm assuming it's still reasonable to think about year-over-year growth in card fees and maybe assume a little bit lower rate of growth than what you're getting on the deposits. Is it reasonable from here just to think about maybe a mid-single digit rate of growth in that card fee income line year-over-year?
Yes.
Okay.
Yep. As we've said before, every program's a little different economics, but collectively, we would expect core deposit growth in the payments division to grow at a faster rate than the fee income side of it.
Right. Okay. Just on the tax rate. In my model, at least, the rate came in a lot lower than I had expected. Just curious, were you surprised? Was this a lot lower than your budgeted number as well? Is there something seasonal with the solar tax credits that the December quarter was always going to be much lower than the rest of the year?
Well, I'd say related to our budget, we were happy with the production in this quarter. There are some step downs in the investment tax credits. A couple folks, certainly developers, pushed to get deals done prior to year-end to maximize the tax credit.
Okay. When you talked about the low teens, I think, tax rate, was that from here for the next few quarters, or what was that for?
Full year. Yep. Full fiscal year. Full 12 months fiscal year.
Okay. Great. I guess it seemed to me like a pretty good run rate versus what a lot of people were expecting in this quarter, in the first fiscal quarter. Just curious, it seems like credit's a bit better than even you guys anticipated. Is there some place else, in terms of the geography of the income statement where you guys are behind schedule? Just kind of curious why. Obviously, you guys reiterated your number for the full year versus what I thought was a pretty good, strong run rate for the first quarter.
Yeah, I think that kind of stands on the statement there, Frank. We're certainly happy with the quarter. We're happy with the progress against our strategic initiatives, and we're comfortable reiterating that guidance.
Okay. It doesn't sound like there's something that you guys are behind schedule on. It was just a strong start to the year, and you're reiterating guidance. Is that fair?
That's correct.
Okay. All right. Great. That's all I have. Thank you.
Thank you.
Thank you. At this time, I am showing no further questions. I would like to turn the call back over to CEO, Brad Hanson, for closing remarks.
Thank you. I'd like to close by thanking everybody for participating in Meta's quarterly investor call. We truly appreciate your support and thank you for taking time to listen in today. Have a great evening.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.