Heritage Financial's effective tax rate in 2000 benefited from one time income tax deferrals and as a result the Company's effective tax rate will be higher in 2001. Management believes that as long as share repurchases continue to be accretive to earnings per share and ROAE they continue to be the best use of the Company's excess capital. The Federal Reserve Bank aggressively reduced short-term interest rates a total of 150 basis points during the quarter contributing to a compression in our margin that was somewhat offset by a significant increase in our mortgage banking activity, particularly refinance activity. While I am disappointed our actual earnings were less than the same quarter last year and I anticipate a further tightening of our margin during the second quarter, I am optimistic about our future earnings growth. The lower margin resulted from increased use of higher costing funds to support the Company's loan growth, a sharply reduced prime rate and the reduction of capital through the stock repurchase program.
Asset quality remains strong.
The non-performing loans for March 2001 represent 6 credits which management believes present minimal exposure to loss. The growth was due to increased loan sale gains, the gain on sale of an investment in a partnership, and the sale of excess land. This resulted from increased activity, particularly mortgage refinances driven by lower mortgage rates. We officially kicked off our Vision 2001 initiative on March 1, 2001. Our expectations for this project are high, in that we intend to achieve efficiencies in the way we operate as well as improve and improve overall profitability.