Good morning ladies and gentlemen, thank you for standing by. Welcome to the Banner Corporation first quarter 2013 earnings conference call. During today's presentation all parties will be in a listen-only mode. Following the presentation the conference will be opened or questions. (Operator Instructions)
This conference is being recorded today, April 23, 2013. I would now like to turn conference over Mr. Mark Grescovich President and Chief Executive Officer. Please go ahead sir.
Thank you, Josh. And good morning everyone. I would also like to welcome you to the first quarter earnings call for Banner cooperation. Joining me on the call today is Rick Barton, our Chief Credit Officer, Lloyd Baker, our Chief Financial officer and Albert Marshall, the Secretary of Corporation, Albert, would you please read our forward looking statement safe harbor statement.
Thank you. Good morning. Our presentation today discusses Banner's business outlook and will include forward looking statements. Those statement include descriptions of management's plans, objectives or goals for future operations products or services. Forecasts of financial and other performance measures and statements about Banner's general outlook for economic in other condition.
We also may make other forward-looking statements in the question and answer period following management's discussion. These forward-looking statements are subject to a number of risks and uncertainties and actual results may differ materially from those discussed today.
Information on the risk factors that could cause actual results to differ are available from the earnings press release that was released yesterday and a recently filed Form 10-Ks for the ended December 31, 2012. Forward-looking statements are effective only as of the date they are made and Banner assumes no obligation to update information concerning its expectations.
Thank you, Al. As announced Banner Corporation had very solid first quarter performance. Reporting a net profit available the common shareholders of $11.6 million or $0.60 per share for the period ended March 31, 2013. This compared to a net profit the common shareholders of $7.2 or $0.40 per share for the first quarter of 2012.
Looking at earnings before tax, preferred stock dividends discount accretion and changes in fair value. Banner's income improved to $0.87 per share for the first quarter of 2013 compared to $0.42 in the first quarter of 2012. The first quarter performance continued our positive momentum and confirmed that through the hard work of our employees throughout the company, we continue the successful execution of our strategies and priorities to deliver sustainable profitability to Banner.
And our return to profitability for the last eight quarters further demonstrates that are strategic plan is effective and we are building shareholder value. Our operating performance showed improvement on every core key metric again this quarter when compared to the same quarter a year ago. The first quarter of 2013 marked the 14th consecutive quarters that we achieved a year-over-year increase in revenues from core operation.
Our net interest margin held strong at 4.16% in the first quarter of 2013 compared to 4.15% in the first quarter of 2012. In our cost of deposits again decreased in the most recent quarter to 31 basis points compared to 52 basis points in the same quarter of 2012. Also operating expenses for the quarter decrease 10% from the first quarter of 2012.
Our improved performance resulted in a return on average assets of 1.11% in the quarter compared to 0 88% from the first quarter of 2012. All of these improvements are reflective of the execution on our super community bank strategy. That is reducing our funding costs my remix in our deposits away from high price CDs growing new client relationships and improving our core funding position.
To that point our core deposits again increased in the most recent quarter and increased 40% compared to March 31, 2012. Also our non-interest bearing deposits increased 25% from one year ago. This is important to know that this is all our organic growth from our existing branch network.
In a moment, Lloyd Baker will discuss our operating performance in more detail. While we have been executing on our strategies to protect our net interest margin, grow client relationships, and deliver sustainable profitability, improving the risk profile of Banner and aggressively managing our troubled assets also has been a primary focus of the company. Again this quarter, we continued making excellent progress on ensuring Banner maintains a moderate risk profile.
Our non-performing assets have been reduced another 11% compared to the fourth quarter of 2012 and 52% compared to March 31, 2012. The most problematic part of the portfolio, our non-performing loans has reduced 49% from March 31, 2012.
In a few moments Rick Barton, our Chief Credit Officer will discuss the credit metrics of the company and provide some context around the loan portfolio and our success in aggressively managing our problem assets. Given our successful credit management, a reduction in non-performing loans, and our [moderate] (ph)risk profile, we did not record a provision for loan losses in the quarter.
Nonetheless, the interest coverage of the allowance for loan losses to non-performing loans increased to 231% at March 31, 2013, that's up substantially from 126% in the first quarter of 2012. The interest reserved levels are substantial and our capital position and liquidity remain extremely strong.
At the end of the quarter, our ratio of allowance for loan and lease losses to total loans was 2.38%. Our total capital to risk weighted assets ratio was just over 17%. Our tangible common equity ratio improved to 12.1%, and our loan-to-deposit ratio was approximately 92%.
In the quarter and throughout the preceding 36 months, we continued to invest in our franchise. We continued to add talented commercial, retail, and mortgage banking personnel to our company in all of our markets, and we continued to invest in further developing and integrating all our bankers into Banner’s new credit and sales culture. These efforts are yielding very positive results as evidenced by our strong customer acquisition, strong mortgage banking revenue, and cross sell ratios, and our 14th consecutive quarter of year-over-year increases in revenues from core operations. Further, we received marketplace recognition of our progress as J.D. Power and Associates ranked us number one in customer satisfaction for all banks in the Pacific Northwest for the second consecutive year. Bankrate.com again awarded Banner Bank their highest rating for safety and soundness.
Finally, the successful execution of our Banner growth plan and our persistent focus on improving the risk profile of Banner has now resulted in eight consecutive quarters of profitability.
Although, further improvement and core performance is a primary focus for Banner. Our confidence in the sustainability of our future profitability along with our commitment to prudently manage our capital has convinced us to meaningfully increase our dividend in the first quarter from $0.01 per share to $0.12 per share.
I will now turn the call over to Rich Barton to discuss the trends in our loan portfolio and our significantly improved credit metrics, Rich?
Thanks Mark. My comments this morning can be very brief as Mark has already outlined, the company's credit quality again improved in the first quarter of 2013. Well, all of our key credit metrics improved, the pace of improvement did decelerate in some measures, which was expected after the last eight quarters of strong progress. Before discussing several of our metrics, let me emphasize that the momentum underlying our credit quality improvement remains strong and positive.
Delinquent loans continued to decrease as documented in our press release, and the level of both watched and classified loans showed double-digit percentage declines during the first quarter.
Now for some specific comments; our provision for loan losses in the first quarter was zero. Net charge offs for the quarter were only $363,000, so even with no provision, the allowance to total loans decreased by only 1 basis point to 2.38% and the coverage of non-performing loans actually increased from 225% to 231%, obviously the reserve continues to be a source of significant strength for the company.
A further release of reserves through a negative provision for loan losses was not considered appropriate because of the overall growth of the loan portfolio, continuing level of the economic uncertainty and our continued believe that the upcoming change to an expected loss allowance methodology will require higher reserve levels.
Total non-performing assets declined from $50.2 million to $44.9 million a reduction of 10.6% dated as a percentage of total assets non-performing assets went from 1.18% to 1.06%. Non-performing loans decreased only $900,000 from the linked quarter.
The driver behind this low net reduction in non-performing loans was one to four family permanent loans migrating into the foreclosure process that were placed on non-accrual. This was not unexpected to us as we have commented it in previous calls, a term homeowners are still dealing with the sharp value declines that occurred in prior years.
We do not expect future problems in this portfolio to be outsized based on current delinquencies that are well below national averages. Progress on REO assets continued at a robust space. The decline was 29% as total REO went from $15.8 million to $11.2 million. First quarter 2013 REO dispositions were $6.5 million on which a net gain of the $804,000 was realized. The quarter's REO valuation adjustments were only $73,000 an amount that reflects both the accuracy of our valuation practices and growing market stability. The residential construction and land portfolio has stabilized and actually grew by $12 million during the first quarter of 2013.
Nonperforming loans in this segment were only $3.2 million a modest 1.3% of the segment. Classified loans in Banner's portfolio were down almost 11% from the linked quarter standing in a $117 million. Total delinquent loans including nonperforming loans decreased 11% falling from $45 million to $40 million as a percentage of total loans delinquencies were 1.25% versus 1.4% at year end.
And importantly loans 30 to 89 days past due a non-accrual were only $7 million or 0.22% of total loans. By way of summary, our consistent and aggressive work out strategies have in our continuing to pay dividends as measured by our current credit metrics and substantially reduced credit costs. While further improvement is still needed in our metrics day along the strength of our reserve clearly support the company's ability to grow the loan portfolio and execute our long term strategic plans.
With that I will turn the mic over to Lloyd. For his comments.
Thank you, Rich and good morning everybody. As Mark has indicated in his reported in our press release our operating results for the first quarter were very solid in position Banner Corporation well for continued good performance in the future.
In particular continuation year-over-year increases in revenues from core operations further improvement in asset quality in addition of client acquisition account growth all given evidence to the positive momentum resolving from the successful execution of our strategic initiatives and the strength to the Banner franchise.
It's important to recognize the year-over-year improvement because certain seasonal factors, which may comparison the first quarter to the immediately preceding fourth quarter difficult, can it times lead to under appreciation of value improvement. Those seasonal factors which include the effect of the natural production cycle uncertain agricultural clients, loan and deposit balances. The adverse impact of the holiday season on mortgage banking activity and quite simply the reality the first quarter has two fewer days than the fourth quarter. All combined to marginally reduce revenue generation in first quarter then compared to the fourth quarter.
However, as we have known that compared to the first quarter a year ago Banner's performance in the quarter ended March 31, 2013 was good was very good now withstanding the continued challenging economic environment.
What's our operating results for the first quarter of 2013 reflect further progress during the quarter and the cumulative impact the significant progress that has been occurring over the past three years. As we continue to execute on strategies design the strength in our franchise and build shareholder value. That progress is resulted in much improved credit quality and lower credit costs strong revenue generation, significant growth in client relationships particularly for core deposits and increasing core profitability.
In fact is noted in the release this market noted this marks to 14th consecutive quarter that we have realized the year-over-year increase in core revenues. However, as I noticed in the last quarter's call it's also important to note the clear impact both positive and negative of the very well interest rate environment that is also evident in these results. Exceptionally, low interest rates have pushed our funding costs to near zero and produced record volumes and profitability for mortgage banking activity. But exceptionally low interest rates have also meant declining asset yield and pressure on the net interest margin as well as impairment charges for mortgage servicing rise.
Further low interest rates continue to reflect the sluggish economy, which makes revenue generation particularly challenging. For the quarter ended March 31, 2013 our revenues from core operations which includes net interest income before provision for loan losses plus other non-interest operating income but excludes gain on security sales and fair value and other than temporary impairment adjustment.
Revenues from core operations were $50.9 million, the decrease from merely proceeding quarter but 1% increase compare to the first quarter year ago despite the fact that the first quarter of last year had one additional day because 2012 was a leap year. Reflecting this revenue growth as well as further reduction in credit costs our net income available to common shareholders was $11.6 million or $0.60 per diluted share in the first quarter of 2013 compared to $7.2 million or $0.40 per share in the same quarter year ago.
It's important to note that the current quarter's net income also reflects a normal provision for income taxes of $5.3 million while the results for the first quarter of 2012 did not have any provision for income taxes as resulted evaluation allowance for the full amount of our deferred tax asset was being maintain with that time.
As Rick has noted we did not record provision for loan losses for the first quarter, which was a reduction of $1 million compared to the preceding quarter in $5 million compared to the first quarter a year ago. Of course not taking a provision for loan losses which reflects the significant reduction in non-performing loan and net charge offs that we have been reporting for a number of quarters, including further progress in the current quarter had a substantial positive effect on our net interest income.
As it has been the case throughout the extended period for which we have been reporting improving revenues the year-over-year increase in core revenues is reflected improvement in our net interest margin as well as strong deposit fee revenues filled by growth in core deposits, and for the current quarter a significant increase in revenues from mortgage banking operations compared to a year earlier. However as I have noted before it is clear that the trend of year-over-year improvement in net interest margin is not sustainable in the current interest rate environment.
In fact the current quarter's margin increase compare to year ago is in large part of result of the adverse effect of 2012 being a leap year on the calculation of last year's margin. Yesterday, last year added revenue but decrease to calculated margin. Our net interest margin was 4.16 for the first quarter of 2013 somewhat surprising three basis points increase from the preceding quarter and one basis more than basis point more than the same quarter a year ago.
The year-over-year margin comparison and again reflects a meaningful reduction in our funding cost, as well as a reduction in the adverse effects of non-performing assets which we generally offset by declining yields on other assets. Compared to the fourth quarter the margin also benefitted from a sizable reduction in the average balance of lower yielding interest earning cash equivalent assets. Despite the modest improvement in the net interest margin for the first quarter of 2013 Banner Corporation's net income decreased to $41 million compared to $41.5 million in the first quarter a year ago.
As the increase in the margin was offset by a small decrease in the average balance of interest earning asset and the effect of one additional day in the first quarter of 2012.
Net interest income also decreased compared to the fourth quarter, largely because of the two fewer days in the current quarter. This short quarter effect impacts nearly all of our revenue lines, is there just fewer days to accrue interest or in payment processing fees, and closed end sell mortgaged loans.
Deposit cost decreased for another four basis points during the first quarter, and we're 21 days is points lower than a year ago, reflecting further changes to the deposit mix, as well as additional download pricing on interest earnings accounts. The decrease in deposit cost compared to the first quarter year ago marginally reflects the significant growth in non interest bearing account balances any decrease in higher cost certificates to deposits.
In addition our funding cost was significantly reduced compared to the same quarter a year ago as a result of the repayment in March of 2012, $50 million of senior notes that we had issued under the FDIC's Temporary Liquidity Guarantee program. And the repayment in the current quarter $10 million of Federal home loan bank advances, as a result of the lower deposit and borrowing costs, our average cost of funds also decreased by four basis points compared to the preceding quarter and it was 27 basis points below the first quarter of 2012.
As I noted the low interest rate environment has continued to put downward pressure on asset yield, however compared to the year ago our net interest margin further benefitted from decreased levels of non accruing loans and OREO which offsets some of this pricing pressure.
The yield on earnings assets at 4.53% was unchanged from the preceding quarter, despite lower non-hand securities yield, as a result reduction in the average balance of interest bearing cash. So it's 24 basis points lower than the first quarter of 2012, the yield on loans was 5.23% for the first quarter, which was a decrease to 8 basis points compared to preceding quarter and 26 basis points compared to the first quarter a year ago. The average margin impact from non accruing loans was just 4 basis points in the current quarter compared to 6 basis points in the preceding quarter and 13 basis points for the first quarter a year ago.
As I previously indicated pressure on assets yields will clearly be an issue going forward, included been an issue going forward as a result improvement in our net interest income would be depended on growth of earning assets in future periods, to that point quarter end loan balances increased modestly compared to the preceding quarter and compared to a year ago but our average loan balances in first quarter 2013 was somewhat lower than a year earlier, although average balances -- loan balances were increased compared to the fourth quarter of 2012.
During the quarter increases in commercial real estate and business loan balances as well as construction loan, generally offset expected seasonal reductions in agricultural loans and addition of refinance driven payoffs of residential and consumer loans.
With continued economic and (Inaudible) kept demand for both business and consumer loans model and credit line utilizations remain exceptionally low. We have seen growth in targeted loan categories and we are optimistic about the potential in our loan origination pipelines.
Compared to a year earlier, commercial real estate loans have increased 2% total commercial and agriculture business loans have increased 4% and aggregate constructions and development loans have increased 7%. Following a normal seasonal pattern non-interest bearing deposit balances declined by 2% during the first quarter to $962 million at March 31 2013 but increased by $190 million or 25% compared to a year earlier.
By contract interest-bearing transaction savings accounts increased by 2% during the quarter to $1.58 billion and we are 8% better than a year ago. As a result of the growth, in total transaction and savings account and further reductions in a high cost to specific to deposits, core deposits now represent 72% of total deposits compared to 65% at the end of the first quarter 2012 and as I've noted before the continued growth in the number of accounts and customer relationships is significantly contributed to increase deposit fee revenues, this was again evident in the current quarter, which results as total deposit fees and service charges, was 7% greater in the same quarter a year ago.
Again from the immediately proceeding quarter revenues for more with banking activity continued to be strong at $2.8 million for the first quarter of 2013, a 15% increase compared to the first quarter of 2012. And as you would expect the variable mortgage rates currently available in the market have caused the application activity to remain high, which will likely continue to positively impact our revenues going forward.
Our operating expenses for the first quarter decreased compared to both the immediately preceding quarter and the same quarter a year ago, and the same quarter a year ago largely due to lower cost associated with loan collections and real estate owned. For the substantial, quarterly reductions in the real estate owned portfolio has significantly reduced the holding cost associated with those assets.
In recent periods including the current quarter, we have also been able to realize gains relative to the net carrying value on the disposition of certain properties, which has further reduced reported operating expenses. Also similar to recent periods, our other operating expenses were well managed, as increases in compensation were generally offset by decreased advertising costs, FDIC insurance charges and other miscellaneous expense.
Finally, it's important to remember that repurchased or redeemed all of our preferred stock during the third and fourth quarter of 2012, which produced a modest gain in firstly offset the accelerated discount accretion in preferred dividend payments when determining earnings available to common shareholders in those quarter and eliminated the preferred stock dividend and go for the current quarter and future period.
Following these repurchase transactions and augmented by the current quarter's of net income with capital base of the company and the subsidiary banks remains very strong. This capital strength along with our substantial reserve position and solid earnings performance that is to the decision to meaningfully increase our common dividend in the current quarter, and should continue to allow Banner considerable flexibility with regard to capital management as we move forward.
To summarize despite a very challenging economic environment this was clearly a solid quarter for Banner and an encouraging start to 2013. With that final comment I'll turn the call back to Mark. As always I look forward to your questions.
Thank you Rich and Lloyd for your comments that concludes our prepare remarks. So Josh we will now open the call and welcome your question.
Thank you. Ladies and gentlemen we will now begin the question-and-answer session. (Operator Instructions). Our first question comes from the line of Jacque Chimera from KBW. Please go ahead.
Jacque Chimera- KBW
Hi, good morning everyone.
Good morning, Jackie.
Jacque Chimera- KBW
This is probably a question for Lloyd, and I apologize if I missed this in your prepared remarks, but was there a small classification that happened between net interest and common mortgage banking revenue in the quarter?
Yes, good morning, Jackie. And yes there was, smallest, it's right, it was about $365,000. We decided that a couple of accounts that we had historically reflected as mortgage servicing incomes, specifically some prepayment penalties and some late charges on portfolio loans where appropriately it should have been reflected as interest income, so well, we switched those in the presentation of the financials this quarter and in the historical financials as well for the prior quarters.
Jacque Chimera- KBW
Okay, so then going forward, will loan servicing fees be captured through the mortgage banking operation line?
Right, with that reclassification, we felt that that probably didn't merit of what is a a separate line item in the financial presentation.
Jacque Chimera- KBW
Okay, just a housekeeping question from me, and then also did you -- I know in the last quarter there was a nice gain on an SBA loan sale, did anything like that happen in the quarter -- the current quarter?
No, actually the current quarter was pretty quiet with respect to SBA activity, originations were continuing but we didn't have any sales.
Jacque Chimera- KBW
How do you think about your options between portfolio that and then selling it?
We generally think about selling it, I think we may have had this conversation a little bit at the last call, but the level of gain is available on those sales, the pricing is so exceptional that decision usually falls on the side of making the sale.
Jacque Chimera- KBW
Okay. That makes sense.
Yeah, Jackie, this is Mark, as long as the spread stays wide as they are, we would continue selling them into the market because it enhances the overall yield dramatically.
Jacque Chimera- KBW
Okay. Now definately understood. And then just one last one, so the roughly 31% tax rate, is that a good way to think about it going forward?
I think that -- this is Lloyd, and I think I've indicated in the past that I thought 32% to 33%, what's happening in the current economic environment is tax exempt income is proportionately growing relative to total income, and it's bringing that tax rate down a little bit. I would say, I would probably encourage you to think about 32% rather than 31%, but clearly the benefit of tax-exempt securities, tax credits, (Inaudible) income and those things has shown up a little bit more as other revenues have dropped off because of the low rate environment.
Jacque Chimera- KBW
Makes sense. Okay, great, thank you very much for taking my questions.
Thank you, Jackie.
Our next question comes from the line of Jeff Rulis with D.A. Davidson, please go ahead.
Jeff Rulis - D.A. Davidson
Thanks, good morning, guys.
Good morning, Jeff.
Jeff Rulis - D.A. Davidson
Lloyd, I -- a question on the mortgage banking, kind of outlook and then I guess I’d heed the advice on the sequential -- don't try to trend that on the mortgage banking revenue, but I guess expectations at least what you've seen so far in April for that mortgage banking line item, do you expect it to flatten out versus the sequential drop or kind of which - what have you seen so far this quarter?
The pipeline is very good, Jeff, so we're pretty optimistic looking forward for a period of time here. As I noted in my comments, just the fact there were fewer days to complete the sales means that you're going to have some drop off in the first quarter as well to originate loans but our pipelines are very solid, and we're pretty optimistic there.
Yeah, Jeff, this is Mark. Our pipeline has been pretty consistent with where they were in the previous quarter, and I think even to some benefit, we're starting to see a bit more shift into the purchase business away from the refi business, so the overall business model, if you recall was for us to make investments so that we add folks that could originate purchase business rather than just refi business, and that seems to be taking hold for us.
Jeff Rulis - D.A. Davidson
Okay. And then on the operating cost side, outside of I guess eventually if mortgage were to slow and you're able to maybe adjust the cost side of that as well, but in terms of core operating costs, is this about as low as you can go or is there some other with OREO cost now less meaningful, are there more cost cuttings to go here or is it pretty at the core?
We're pretty flat with expectations on expenses. I don't think Rick has $800,000 a quarter in OREO gains up his sleeve forever. So, that line couldn't be expected to be get better, and the compensation area will always be an area that will have some challenges related to it, but operating expenses in general, as I pointed out, have been very well managed and we think that there is opportunity for some improvement in efficiency if not the absolute level of expense.
Jeff, again this is Mark, I think if you recall a couple of years ago in 2011 when we were asked this question, we indicated that there would be an expense reduction in the 12% to 16% range from 2011 and that's where we are at. So I would expected that the level off to the extent we cannot as a company continue to grow revenue and have operating leverage along with the strong efficiency ratio like we reported this quarter than we would look for other measures.
Jeff Rulis - D.A. Davidson
Okay. And then Mark maybe one last one, you have talked about kind of the [water falling] (ph) events on the capital side and now that the DTA recovery is behind us and you have now resumed the considerable dividend, I guess what's next in your deal?
Well I think if you look at the dividend that we paid this quarter, we indicated that we thought a normalize run-rate would be between 30% and 35% payout ratio. We wanted to make sure that we had strong visibility on where our earnings are, so we took that payout ratio, we would lean into it more at 20%. So, I still think the cascading effect initially is continue to look for opportunities to reinvest in the franchise, look to make sure that we have a consistent dividend policy going forward, that is in that normalize payout ratio that I just mentioned, and then we would look for possible share repurchase or other items to utilize that capital.
Jeff Rulis - D.A. Davidson
Thank you, Jeff.
Thank you. (Operator Instructions). Our next question comes from the line of Don Worthington from Raymond James. Please go ahead.
Don Worthington - Raymond James
Good morning everyone.
Good morning John
Don Worthington - Raymond James
Just a follow on just question there on capital deployment, is the M&A something you'd be looking at terms of fill in to the footprint?
Yes. I think we've been pretty consistent in our message indicating that we've got a business model that's clearly scalable, we want this working our client acquisition indicates that we have a value proposition that the communities in which we do business value strongly. So with those dynamics and along with management debt with those dynamics I think it presents an opportunity for us to do strategic fill-in acquisitions as they become available. But I want to be clear on our commentary here that they have to be strategic and value added to the franchise. This is a not a situational where we are going to do any type of just financial transaction or anything out of footprint.
Don Worthington - Raymond James
Okay. And then in terms of the customer acquisition and cross selling do have let say statics in terms on your growth in average products for customers or number of new accounts say that were opened in the quarter?
We don't generally published that information what I can tell you though, is that our client growth rate on the non interest bearing accounted running at an annualize net growth rate of about 13%. So those are very strong numbers in terms of client acquisition. There are whole some relationships given the fact that you're seeing in deposit fee income increases as well as the balance increases. We have been pretty consistent with bank growth rate for the last 24 months. And the way the account growth works it generally takes about 18 months or a client that's been acquire to reach maturity level for balance and fee income.
So we are still feeling the benefit of our account acquisition strategies, so that's generally what we're seeing, but again I think it certainly top quartile performance in terms of client acquisition is proof of our value proposition. The second question you asked was in relation to cross sell ratio. Our current cross sell ratios on new client acquisition is running north of 3.5 products, which is again very significant for us and showing that these are truly value added relationships to the institution.
Don Worthington - Raymond James
Okay, great thank you.
Thank you. (Operator Instructions) Our next question come from the line of (Inaudible) please go ahead.
Thank you, good morning gentlemen.
Good morning, Tim.
Yeah, I want to follow on some of the comments early about the loan pipeline taking the account that you know you're optimistic about pipeline but yet, still the general economic uncertainty out there, how you discusses with your clients especially you know, recently, have they changed at all versus 6, 12, 18 months ago?
Tim, this is mark. Thank you for the question. Because I think it is a leading indicator in terms of the economic climate. I believe you're seeing some modest confidence build in the C&I business community specifically in the North West, but I would say that's driven by the strength of the enterprises and economies in the North West, meaning aerospace, the retail segment sector along with transportation coming through the ports and the success of Ag through this credit cycle, has yielded a point where the economic impact of growth is being felt and that there has not been any meaningful investment by the feeder businesses into those general industries that now they're in the position where they're re actually going to have to invest.
So there is a little bit more of confidence that I would have (Inaudible) a quarter ago. In terms of businesses warning to reinvest or expand. But I would not characterize, it is meaningful. It is just a slight uptick in what our businesses are same because they are feeling very good about their profitability and other generating income for the business. But they're not still not willing to go too far out on lane because there's not enough certainly as to what's the impact of the healthcare sale as long with tax rates and how that's going to impact their business. So it's a little bit better than it was in last quarter, but I would still say it's less than robust.
And where your lines of credit usage right now?
Sorry, didn't hear you Tim
Although the side, do you have the usage grades on your lines of credit.
It's still very low, there below 50% still.
Okay, and then what about, organizational interest in doing construction loans and the availability for those kind of opportunity in the marketplace right now?
Tim, this is Rick Barton. construction lending both for commercial properties and residential construction properties always has been court competency as their organization and continues to be, so we see opportunities that we are taking advantage of during first quarter total construction originations were right at a $135 million about a $125 million of that it was on the residential construction side.
All right, those are my questions. Thank you.
Thank you Tim.
Thank you, I will now turns the conference back over to management. Please go ahead.
Thank you, Josh. Thank you all of you for your questions. Let me just summarize by saying we are pleased with our solid first quarter performance and a continuing evidence that we're making substantial and sustainable progress on our discipline strategic plan to build shareholder value by executing on our super community bank model, by growing market share, strengthening our deposit franchise, improving our core operating performance in maintaining a moderate risk profile. I would like to thank all my colleagues for driving the solid performance for our company. Thank you for your interest in Banner and for joining our call today, we look forward to reporting our results to you again in the future. Have a good day everyone.
Ladies and gentleman this concludes the Banner Corporation first quarter 2013 earnings conference calls. If you'd like to listen to a replay of today's conference please dial 303-590-3030 or toll free 1-800-406-7325 the access code is 4610343, ACT that I could thank you for your participation. You may now disconnect.
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