Banner Corp (BANR) 2013 Q1 法說會逐字稿

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 open for questions. (Operator Instructions). This conference is being recorded today, April 23, 2013.

I would now like to turn the conference over to Mr. Mark Grescovich, President and CEO. Please go ahead, sir.

Thank you, Josh, and good morning, everyone. I would also like to welcome you to see first-quarter earnings call for Banner Corporation. Joining me on the call is Rick Barton, our Chief Credit Officer; Lloyd Baker, our Chief Financial Officer; and Albert Marshall, the Secretary of the Corporation.

Albert, would you please read our forward-looking Safe Harbor statement?

Good morning. Our presentation today discusses Banner's business outlook and will include forward-looking statements. Those statements include descriptions of management's plans, objectives or goals for future operations, products or services; forecast of financial or other performance measures; and statements about Banner's general outlook for economic and other conditions.

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 our recently filed Form 10-K for the year 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 to common shareholders of $11.6 million or $0.60 per share for the period ended March 31, 2013. This compared to a net profit to common shareholders of $7.2 million 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 our 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 quarter that we achieved a year-over-year increase in revenues from core operations.

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 and 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 decreased 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% for 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 by [relinquishing] our deposits away from high priced 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 14% compared to March 31, 2012. Also our non-interest-bearing deposits increased 25% from one year ago.

It is important to note that this is all 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 nonperforming assets have been reduced another 11% compared to the fourth quarter of 2012 and 52% compared to March 31 of 2012.

The most problematic part of the portfolio, our nonperforming 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, our reduction in nonperforming loans, and our moderate risk profile, we did not record a provision for loan losses in the quarter. Nonetheless, Banner's coverage of the allowance for loan losses to nonperforming loans increased to 231% at March 31, 2013. That is up substantially from 126% in the first quarter of 2012.

Banner's reserve 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 & Associates ranked as number one in customer satisfaction for all banks in the Pacific Northwest for the second consecutive year. And 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 in 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.

I will now turn the call over to Rick Barton to discuss the trends in our loan portfolio and our significantly improved credit metrics. Rick?

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. While 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 continue to decrease as documented in our press release and a level of both watch 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 nonperforming 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, a continuing level of economic uncertainty, and our continued belief that the upcoming change to an expected loss allowance methodology will require higher reserve levels.

Total nonperforming assets declined from $50.2 million to $44.9 million, a reduction of 10.6%. Stated as a percentage of total assets, nonperforming assets went from 1.18% to 1.06%.

Nonperforming loans decreased only $900,000 from the linked quarter. The driver behind this loan net reduction in nonperforming 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 in previous calls that some 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 pace. 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 $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 at $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 and on accrual were only $7 million or 0.22% of total loans.

By way of summary, our consistent and aggressive workout strategies have and are 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, they along with 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, Rick, and good morning everybody. As Mark has indicated and as reported in our press release, our operating results for the first quarter were very solid and position Banner Corporation well for continued good performance in the future.

In particular, continuation of year-over-year increases in revenues from core operations, further improvement in asset quality, and additional client acquisition account growth, all give evidence to the positive momentum resulting from the successful execution of our strategic initiatives and the strength of the Banner franchise.

It is important to recognize the year-over-year improvement because certain seasonal factors which make comparison to the first quarter to the immediately preceding fourth quarter difficult can at times lead to an under appreciation of that improvement. Those seasonal factors which include the effect of the natural production cycle on certain agricultural clients, loan and deposit balances, the adverse impact of the holiday season on mortgage banking activity, and quite simply the reality that the first quarter has two fewer days than the fourth quarter, all combine to marginally reduce revenue generation in the first quarter when compared to be fourth quarter.

However as we have noted compared to the first quarter a year ago, Banner's performance in quarter ended March 31, 2013 was good, was very good notwithstanding the continued challenging economic environment. Of course 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 designed to strengthen our franchise and build shareholder value.

That progress has resulted in much improved credit quality and lower credit costs, strong revenue generation, significant growth in client relationships, particularly for core deposits, an increase in core profitability. In fact as noted in the release and as Mark noted, this marks the 14th consecutive quarter that we have realized a year-over-year increase in core revenues.

However as I noted in last quarter's call, it is also important to note the clear impact both positive and negative of the very low 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 from mortgage banking activity. But exceptionally low interest rates have also meant declining asset yields and pressure on the net interest margin as well as impairment charges for mortgage servicing rights.

Further, low interest rates continue to reflect a 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 securities sales and fair value and other than temporary impairment adjustments, revenues from core operations were $50.9 million, a decrease from the immediately preceding quarter but a 1% increase compared to the first quarter a 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 a year ago.

It is important to note 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 tax as a result of the valuation allowance for the full amount of our deferred tax asset was being maintained at 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 and $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 nonperforming loans, the net charge-offs that we have been recording for a number of quarters including further progress in the current quarter, had a substantial positive effect on our net interest income.

As 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 reflective improvement in our net interest margin as well as strong deposit fee revenues fueled by growth in core deposits and for the current quarter, a significant increase in revenues for 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 the net interest margin is not sustainable in the current interest rate environment. In fact the current quarter's margin increase compared to a year ago is in large part a result of the adverse effect of 2012 being a Leap Year on the calculation of last year's margin. The extra day last year added revenue but decreased the calculated margin.

Our net interest margin was 4.16% for the first quarter of 2013, somewhat surprising 3 basis point increase from the preceding quarter and 1 basis point more than the same quarter a year ago. The year-over-year margin comparison again reflects a meaningful reduction in our funding costs, as well as a reduction in the adverse effects of nonperforming assets which were generally offset by declining yields on other assets.

Compared to the fourth quarter, the margin also benefited from a sizable reduction in the average balance of low-yielding interest-earning cash equivalent assets. Despite the modest improvement in net interest margin, for the first quarter of 2013 Banner Corporation's net interest 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 assets 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 as there are just fewer days to accrue interest, earn payment processing fees, and close and sell mortgage loans.

Deposit costs decreased by another four basis points during the first quarter and were 21 basis points lower than a year ago, reflecting further changes to the deposit mix as well as additional downward pricing on interest-bearing accounts. The decrease in deposit costs compared to the first quarter a year ago largely reflects the significant growth in noninterest-bearing account balances and a decrease in higher cost certificates of deposit.

In addition, our funding costs were significantly reduced compared to the same quarter a year ago, as a result of the repayment in March of 2012 of $50 million of senior notes that we had issued under the FDIC's temporary liquidity guarantee program and the repayment in the current quarter of $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 4 basis points compared to the preceding quarter, and 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 yields. However, compared to a year ago our net interest margin further benefited from decreased levels of non-accruing loans and REO, which offset some of this pricing pressure.

The yield on earning assets at 4.52% was unchanged from the preceding quarter, despite lower loan and securities yield as a result of the reduction in the average balance of interest-bearing cash, but was 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 of 8 basis points compared to the preceding quarter and 26 basis points compared to the first quarter of a year ago. The adverse 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 asset yields will clearly be an issue going forward. As a result, improvement in our interest income will be dependent 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 average loan balances in the first quarter of 2013 were 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 loans generally offset expected seasonal reductions in agricultural loans and additional refinanced driven payoffs of residential and consumer loans.

While continued economic uncertainty has kept demand for both business and consumer loans modest 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 agricultural business loans have increased 4%, and the aggregate construction 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 contrast, interest-bearing transaction and savings accounts increased by 2% during the quarter to $1.58 billion and were 8% greater than a year ago.

As a result of the growth in total transaction and savings accounts and further reductions in the high cost certificates of deposit, core deposits now represent 72% of total deposits compared to 65% at the end of the first quarter of 2012. And as I have noted before, the continued growth in the number of accounts and customer relationships has significantly contributed to increased deposit revenues. This was again evident in the current quarter's results as total deposit fees and service charges were 7% greater than for the same quarter a year ago.

While down from the immediately preceding quarter, revenues from mortgage 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 very low mortgage rates currently available in the market have caused 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 largely due to lower costs associated with loan collections and real estate owned. While the substantial quarterly reductions in the real estate owned portfolio have significantly reduced the holding costs associated with those assets, in recent periods including the current quarter, we have also been able to realize gains relative to the 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 is important to remember that we repurchased or redeemed all of our preferred stock during the third and fourth quarters of 2012 which produced a modest gain and partially offset the accelerated discount accretion in preferred dividend payments when determining earnings available to common shareholders in those quarters and eliminated the preferred stock dividend accrual for the current quarter and future periods.

Following these repurchase transactions and augmented by the current quarter's net income, the 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 led us 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.

So 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 will turn the call back to Mark. As always I look forward to your questions.

Thank you, Rick and Lloyd for your comments. That concludes our prepared remarks. Josh, we will now open the call and welcome your questions.

(Operator Instructions). Jacque Chimera.

Good morning, everyone. This is probably a question for Lloyd and I apologize if I missed this in your prepared remarks but was there a small reclassification that happened between net interest income and mortgage banking revenue in the quarter?

Yes, good morning, Jacque and yes, there was. Small is right, it was about $365,000. We decided that a couple of accounts that we had historically reflected as mortgage servicing income specifically some prepayment penalties and some late charges on portfolio loans more appropriately should have been reflected as interest income. So we switched those in the presentation of the financials this quarter and in the historical financials as well for the prior quarters.

Okay so then going forward will loan servicing fees be captured through the mortgage banking operation line?

Right, right. With every classification we felt that that probably didn't merit a separate line item in the financial presentation.

Okay. Just a housekeeping question for me. And then also I know in the last quarter there was a nice gain on an SBA loan sale. Did anything like that happen in 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.

How do you think about your options between portfolio-ing that and then selling it?

We generally think about selling it. I think we may have had this question conversation a little bit at the last call. But the level of gain that is available on those sales, the pricing is so exceptional that the decision usually falls on the side of making the sale.

Okay, that makes sense.

Jackie, this is Mark. As long as the spreads stay as wide as they are, we would continue selling them into the market because it enhances the overall yield dramatically.

Definitely understood. And then just one last one -- so the roughly 31% tax rate, is that a good way to think about it going forward?

Yes, I think -- this is Lloyd -- I think I have indicated in the past that I thought 32% to 33%. What is happening in the current economic environment is tax exempt income is proportionately growing relative to total income and it is bringing that tax rate down a little bit. 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.

Makes sense. Thank you very much for taking my questions.

Thank you, Jacque.

Jeff Rulis, D.A. Davidson.

Thanks, good morning, guys. Lloyd, a question on the mortgage banking outlook and I guess I would heed the advice on the sequential -- I'm trying to trend that on the mortgage banking revenue. But I guess expectations at least what you have 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 what have you seen so far this quarter?

The pipeline is very good, Jeff. So we are pretty optimistic looking forward for a period of time here. As I noted in my comments just the fact that there are fewer days to complete the sales means that you are going to have some drop off in the first quarter as well as to originate loans but our pipelines are very solid and we are pretty optimistic there.

Jeff, this is mark. Our pipelines have been pretty consistent with where they were in the previous quarter and I think even to some benefit, we are starting to see a bit more shift into the purchase business away from the refinance business. So the overall business model if you recall was for us to make investments so that we had folks that could originate purchase business rather than just refinance business and that seems to be taking hold for us.

And then on the operating cost side, outside of I guess eventually if mortgage were too slow and you are 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? Is there some other with OREO costs now less meaningful, are there are more cost-cutting to go here or is it pretty at the core?

We are pretty flat in expectations on expenses. I don't think Rick has $800,000 a quarter in REO gains up his sleeve forever. So that line couldn't be expected to 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 is where we are at. I would expect it to level off to the extent we cannot as a company continue to grow revenue and have operating leverage along with a strong efficiency ratio like we reported this quarter then we would look for other measures.

Okay. Mark, maybe one last one. You have talked about kind of water falling events on the capital side and now that the DTA recovery is behind us and you have now resumed a considerable dividend, I guess what is next in your view?

Well, I think if you look at the dividend that we paid this quarter, we indicated that we thought a normalized run rate would be between 30% and 35% payout ratio. We wanted to make sure that we had strong visibility on where earnings are so we took that payout ratio. We would lean into it. We are 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 normalized payout ratio that I just mentioned. And then we would look for possible share repurchase or other items to utilize that capital.

Okay, thanks.

Thank you, Jeff.

(Operator Instructions). Don Worthington, Raymond James.

Good morning, everyone. Just to follow on Jeff's question there on capital deployment, is M&A something you would be looking at in terms of a fill-in to the footprint?

Yes, I think we have been pretty consistent in our message indicating that we have got a business model that is clearly scalable. We have one that is 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 depth -- 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 not a situation where we are going to do any type of just financial transaction or anything out of footprint.

Okay. Then in terms of the customer acquisition and the cross-selling, do you have any statistics in terms of growth in average products per customer or a number of new accounts that were opened in the quarter?

We don't generally publish that information. What I can tell you though is that our client growth rate on the non-interest bearing account is running at an annualized net growth rate of about 13%.

So those are very strong numbers in terms of client acquisition. There are wholesome relationships given the fact that you are seeing deposit fee income increases as well as the balance increase. We have been pretty consistent with that growth rate for the last 24 months and the way the account growth works is it generally takes about 18 months for a client that has been acquired to reach a maturity level for balance and fee income.

So we are still feeling the benefit of our early account acquisition strategies so that is generally what we are seeing which again is I think it is certainly top quartile performance in terms of client acquisition and it is proof of our value proposition.

The second question you asked was in relation to cross-sell ratios. 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.

Okay, great. Thank you.

Tim Coffey, FIG Partners.

Good morning, gentlemen. I want to follow on of some of the commentary about the loan pipeline. Taking into account that you are optimistic about the pipeline but yet there is still some general economic uncertainty out there. Have your discussions with your clients especially recently, have they changed at all versus say six, 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 are seeing some modest confidence build in the C&I business community specifically in the Northwest. But I would say that that is driven by the strength of the enterprises and the economies in the Northwest meaning aerospace, the retail sector along with transportation coming through the ports and the success of agriculture through this credit cycle has yielded to 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 are in a position where they are actually going to have to invest.

So there is a little bit more confidence than I would have said a quarter ago in terms of businesses wanting to reinvest or expand but I would not characterize it as meaningful. It is just a slight uptick in what our businesses are saying because they are feeling very, very good about their profitability and how they are generating income for their business but there are still not willing to go too far out on a limb because there is not enough certainty as to what is the impacts of the healthcare bill along with tax rates and how that is going to impact their business.

So it is a little bit better than it was last quarter but I would still say it is less than robust.

And what are your lines of credit usage at right now?

Sorry, I didn't hear you, Tim.

The usage rates on your lines of credit?

Still very low.

They are below 50% still.

And then what about your organizational interest in doing construction loans and the availability for those kind of opportunities (inaudible) in the market place right now?

Tim, this is Rick Barton. Construction lending both for commercial properties and residential construction properties always has been a core competency of the organization and continues to be so. We see opportunities that we are taking advantage of. During the first quarter, total construction originations were right at $135 million; about $125 million of that was on the residential construction side.

Those are my questions. Thank you.

Thank you, Tim.

I will now turn the conference back over to management. Please go ahead.

Thank you, Josh. Thank you all for your questions. Let me just summarize by saying we are pleased with our solid first-quarter performance and the continuing evidence that we are making substantial and sustainable progress on our disciplined strategic plan to build shareholder value by executing on our super Community Bank model, by a growing market share, strengthening our deposit franchise, improving our core operating performance and maintaining a moderate risk profile. I would like to thank all of my colleagues who are driving this solid performance for our Company.

Thank you for your interest in Banner and for joining or call today. We look forward to reporting our results to you again in the future. Have a good day, everyone.

Ladies and gentlemen, this concludes the Banner Corporation first-quarter 2013 earnings conference call. If you would 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 461-0343. ACT would like to thank you for your participation. You may now disconnect.