Beacon Financial Corp. (BBT) Q1 2017 Earnings Report, Transcript and Summary

Good morning, everyone and welcome to the Berkshire Hills Bancorp Q1 Earnings Release Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today's presentation there will be an opportunity to ask questions. [Operator Instructions] Please also note that today's event is being recorded. At this time, I would like to turn the conference call over to Ms. Allison O'Rourke. Ma'am, please go ahead.

Thank you. Good morning and thank you for joining this discussion of first quarter results. Our news release is available on the Investor Relations sections of our website berkshirebank.com and will be furnished to the SEC. Our discussion will include forward-looking statements and actual results could differ materially from those statements. For detail on related factors, please see our earnings release and most recent SEC reports on Forms 10-K and 10-Q. In addition, certain non-GAAP financial measures will be discussed on this conference call. References to non-GAAP measures are only provided to assist you in understanding Berkshire's results and performance trends, and should not be relied upon as financial measures of actual results or future projections. A comparison and reconciliation to GAAP measures is included in our news release. With that, I'll turn the call over to CEO, Mike Daly. Mike?

Thank you, Ally. Good morning, everyone. Thanks for joining us this morning for our first quarter call. I'll provide an overview of the quarter then I'll turn it over to Jamie Moses, our CFO, he'll walk you through some of the specifics in our financials, we'll discuss our outlook and our guidance, and then I'll wrap it up. So it was a strong start to the year. We executed on our planned initiatives. We delivered $0.55 in core EPS and we completed the conversion and integration of First Choice. We benefited from double-digit commercial loan growth and expanded net interest margin and good revenue contributions from our newly acquired operations. So let me start with loan growth. As I said, we had another solid double-digit commercial loan growth quarter with a 15% annualized growth coming primarily from C&I into our New York and Connecticut markets. Importantly, line utilization was up 2% this quarter as well, that equates to a 14% annualized increase in outstanding. And I think this sort of activity bodes well for the state of the economy in our markets and the general optimism that continues to spread through the region. Total loan growth come in at6% annualized for the quarter and we anticipate this to be a little lower next quarter as we continue to balance our overall asset growth objectives. We also remain committed to our secondary market strategies across several product lines and evaluating market opportunities as we see them. And we did recruit two strong commercial bankers for our Mid-Atlantic market this quarter. Marion Lewis from Flushing Bank is our new Commercial Regional Leader and Ken Kaestner from PNC is our new ABL Regional Leader. And both come with extensive experience in the region and they've managed sizable books of business in their previous rolls. On the deposit side, we had 2% annualized growth in the first quarter. Demand deposits and balances were primarily impacted by seasonal outflows tied to commercial operating accounts. This is consistent with prior years, so we expect to see those balances come back over the course of the year. And in the second quarter, we anticipate low-to-mid single-digit total deposit growth and this should match overall loan growth and include higher DDA balances. Of note, we've been successful in retaining more deposit accounts from First Choice than we anticipated and we're seeing early results from right sizing some of the products offered in our Mid-Atlantic region along with driving better penetration in transaction accounts. As we announced on our last call, we opened our first branch in downtown Boston this quarter. We are happy with the reception we've gotten, positive reaction to our virtual teller technology and our early successes with new account gather. We've talked a little about over 1.5 billion asset base we've quietly built up in the Boston area, but I also think it's important to highlight that we have a little over $200 million in deposits from that market as well. And we continue to think there's a real opportunity in this market for a disciplined regional player and we anticipate continue to add resources as warranted. We completed the previously announced consolidation of three branches during the quarter. We also identified an additional branch to lending offices and a few more leaseholds for consolidation in the back half of this year. The bank savings associated with the new structuring will be about $1.6 million a year. Let me turn to fee income, we posted significant growth here as we absorbed first full quarter of First Choice. Our fee income total core revenue ratio is now back over 30% providing good diversity of revenue streams. We continue to see positive results out of our SBA teams and steady production from wealth management and insurance. As you know, mortgage banking revenue is highly seasonal and we expect the first quarter will continue to be the slowest. The new team met our expectations for the quarter and is optimistic about the opportunities over the remainder of the year. They delivered nearly $400 million in originations during the quarter and importantly almost 70% of those were purchased loans. As a reminder, we've taken a conservative stance on forecasting the mortgage fee revenue and while material from an origination standpoint this line still only represents a few cents a quarter to the bottom line. In total, we expect 15% to 20% higher fee revenue in the second quarter as mortgage banking and SBA activity picks up. Although, some of this revenue is expected to be offset by corresponding expenses, it certainly will have a positive impact on earnings. Now with that, I'm going to turn it over to Jamie who'll give you some additional financial detail and then I'll wrap it up. Jamie?

Thanks Mike, and good morning, everyone. This was a good quarter and a strong start to the year. We continue to be focused on disciplined growth, improving profitability, tight expense management and driving shareholder returns. Core EPS was $0.55 for the first quarter and GAAP EPS came in at $0.44 mostly reflecting the impact of non-core merger charges associated with the First Choice acquisition. Average earning assets grew 10%, including the full quarter impact of First Choice. Our net interest margin was 3.33% for the quarter and 3.15% excluding purchased loan accretion. The increase in margin this quarter was primarily due to the positive effect of the recent rate hikes coupled with impacts from the First Choice acquisition. For the second quarter, we expect the stable margin excluding purchased loan accretion with the benefits of the March rate hike mostly offset by balance sheet management as we continue to extend funding durations and manage our assets to help maintain our asset sensitive profile. Purchased loan accretion for the first quarter came in at $3.7 million was about half of that due to recoveries. We expect total purchase loan accretion to come back down below $3 million in the second quarter. The provision was $5.1 million in the first quarter, exceeding net charge-offs and in line with loan growth. We expect it to be generally in that range for the second quarter. Moving on to expenses; the increase in core non-interest expense in the first quarter was primarily tied to the full quarter impact of the First Choice acquisition. The efficiency ratio ticked up to 61.9% as expected, again due to the impact of the acquisition, but would have otherwise remain below 60% organically. We are about 70% of the way there on achieving our targeted cost saves from the First Choice acquisition and expect to fully recognize the rest by mid-summer. Overall, higher costs are expected in the second quarter, associated with increased SBA in mortgage originations. I think it's worth mentioning that the way we account for the mortgage revenue and expenses is slightly different than the way First Choice was doing it. This has the effect of lowering their mortgage banking origination fees by about 25% with an equivalent reduction to operating expenses and you can see that in our reported first quarter numbers. Our core tax rate for the first quarter was 31% including the benefit of some small tax credit investments. Our GAAP tax rate was 30%. We were unaffected by the IRS guidance on share-based transactions due to our early adoption of those rules in 2016. We reiterate our guidance of 25% to 30% for the 2017 full-year core tax rate. For the second quarter, we're forecasting a rate in the 25% to 27% range, including tax credit investments, which will have a corresponding charge of approximately $2.5 million. Looking at the big picture, we expect to deliver second quarter core EPS in the $0.50 to $0.60 range, then moving through that level modestly in Q3 with full-year core EPS growth of 5% to 7%. Our GAAP earnings for the second quarter should be within a few cents of our core earnings. We had a number of non-core activities in Q1 that merit discussion. We booked $5.9 million in pre-tax deal charges related to the conversion and integration of First Choice, bringing the total to $19 million. We do expect an additional $2 million in merger related charges in the second quarter inside of our original forecast. As discussed on our last call, we locked in $12.6 million of equity gains during the quarter. We also terminated $300 million in cash flow hedges at a cost of $6.6 million. We were able to do this while maintaining our asset sensitive profile through balance sheet management. Lastly as Mike mentioned, we took a hard look at our real estate and found the opportunity to streamline some of our locations. The charge for this restructuring was $5.7 million during the quarter and we anticipate that action to pay back in about three years. Aside from the remaining First Choice acquisition charges all of the other non-core activity with a net neutral to our earnings. At quarter end, tangible equity with 7.6% of tangible assets, tangible book value grew to $18.97 per share and book value grew to $30.77 per share. Our core return on assets was 85 basis points and GAAP ROA was 68 basis points. Core return on tangible equity remained above 12% and of course GAAP ROA reflected the impact of our non-core activity. Overall, we're pleased with our performance this quarter and our prospects for delivering solid results this year. Our financial condition is good and we expect to continue to make progress towards our profitability goals. With that, I'll turn it back over to Mike.

Thank you, Jamie. So our core EPS guidance translates into 6% to 9% EPS growth next quarter with strong improvement to our profitability metrics as well. As Jamie said that means closing in on $0.60 a quarter and moving the ROA closer to our stated goal. The local region continues to show signs of optimism and we're looking to capitalize on that opportunity while maintaining our credit disciplines. Our immediate goals are ensuring we get the most out of our newly acquired operations, managing our balance sheet, continuing to develop our revenue channels and driving positive operating leverage to achieve our profitability goals. Credit remains strong across to our franchise. So we're in a good place with the people and infrastructure in place to deliver on our promise to shareholders. We expect to see strong results over the next couple of quarters and that momentum should take this company to another level benefiting all of our constituents. With that, I'm going to open it up to any questions.

Ladies and gentlemen, at this time we'll begin the question-and-answer session. [Operator Instructions] Our first question today comes from Mark Fitzgibbon from Sandler O'Neill. Please go ahead with your question.

Good morning, guys.

Hi Mark, how are you?

Good, thanks. Mike I wondered if you guys could update us on where you stand in terms of preparation plans for crossing $10 billion?

Sure. We're probably is far ahead of the game as we've been. As you know Mark, we started actually several years ago and getting prepared. So I would say that at this point, we're 90% plus prepared and when and if we cross of course we've - I think estimated maybe an additional $0.5 million to $1 million a year in DFAST costs.

Okay. And then secondly with those swaps coming off the balance sheet, what is the rate sensitivity position of the balance sheet look like Jamie?

Hey, Mark. Yes, we still are asset sensitive and we will continue to be that way. We will continue to maybe extend durations on the funding side of things and do other sorts of balance sheet management to maintain that profile. We're committed to being asset sensitive.

Okay. And then with the new branch that you just opened in Boston and it sounds like you're going to make a bigger push there, have you determined how many branches you might open in the metro Boston area and over what period of time?

Hey, Mark. Sean here. Our philosophy is lead with the commercial teams, lead with our private banking and our My Banker programs. As Mike mentioned in his script, we've got over $200 million in deposits in the Boston area already. So there's no real need to be pushing Genova or more branches. As we grow that number and those clients need servicing and we think there will be economies of scale and additional gains from that [will place] branches.

Okay. And then lastly at a high level, I wondered if you could just generally comment on M&A, are you sensing that conversations out there are picking up and there are more opportunities or fewer?

I think that the conversation is picking up Mark. I think that activity is good. I'm certainly spending my fair amount of time discussing potential partnerships with a number of different potential partners. It will comes down to the same thing as it always has with us and we need to find partners that understand fixed exchange ratios and that don't necessarily are fixated on one-day premiums and then have an interest in enjoying the upside for both such shareholders. I think those opportunities are as good today as they've ever been. But on the other hand, we're prepared to have conversations and walk if those numbers don't work. There's no urgency for us at this point and we're going to be disciplined about how we look at any additional partnerships.

And then lastly on the mortgage banking side, it sounded like you were pretty upbeat about the volumes in the second quarter, could you share with us the size of the mortgage pipeline?

Sure, Mark. From FCLS, the legacy mortgage piece is about $352 million and Berkshire bank's legacy pipeline is about $120 million.

Great. Thank you.

Thank you, Mark.

Our next question comes from David Bishop from FIG Partners. Please go ahead with your question.

Hey, good morning guys.

Hi, Dave.

Hey, Mike. You noted obviously that the strong C&I growth 30% plus annualized, just curious and it sounds like with more New York, Connecticut, anything in particular this quarter that sort of rebound it from a business demand or optimism perspective to drive that? Just curious what you're seeing in terms of just overall business conditions within those markets and maybe holistically overall?

Sure. Sean you can emphasize what I say, but one of the things that I thought was very encouraging was the line utilization and when we look at the line utilization these are some of our better companies that are actually putting additional capital into their business and growing. And I feel like that was a good sign regionally and I know you have made a push to have some of our lenders that has historically taken their commercial real estate road and really transform them into better C&I lenders. We've hired some good C&I lenders and that has been a strategic push for us.

Sure. We've restructured our lenders to be specifically focused on C&I or real estate based on their skill set. So I think that focus helped and I think we've talked about for a long time, the benefit of multiple regions allows us to cast a wider net, continue to keep our discipline from a credit and pricing perspective, but lean on a specific region where needed and so no industry specific movement, but good diversity of region and then a restructure from an organizational perspective.

Got it, and then within of the First Choice legacy deposits portfolio, anything - any opportunities that we've been able to may be reprice that it all? I'm curious and interesting on the pricing side within that market?

Yes, shown here again, yes, we're very pleased and what we've seen by our ability to bring in multiple products and really focus on relationship has improved our penetration of demand deposit, which has brought down our overall cost of funds from the deal. So we're pleased in where that is trending and I think we can continue to trend that the right way.

Got it, and then one final question, I know there's been a lot in the press about auto lending as of late, just curious what you're seeing in terms of the auto book in terms of credit trends on a quarter-to-quarter basis?

We've seen it flat and I think that's another byproduct multiple regions. We will not compromise our credit discipline. Our average FICO is still remaining in the 730 range. So we've seen flat credit trends and I think that's a byproduct, because I am aware of what is going on nationally, we don't do any sub-prime, which is a little bit different than what you may see nationally and our ability to pull from multiple regions allows us to maintain those credit disciplines.

Great, thank you.

Our next question comes from Collyn Gilbert from KBW. Please go ahead with your question.

Thanks. Good morning, everyone.

Hey, Collyn. How are you doing?

Good, thanks. So maybe just start off Sean, if I could go back to your comments on just the commercial loan activity and the optimism you're seeing there? Can you guys talk a little bit about what the plan is maybe for the Mid-Atlantic region? Mike you had mentioned obviously hiring those two lenders, but kind of how much do you see that book growing and just kind of talk a little bit more about that initiative?

Sure, Mike talked mainly about our ABL hire. We've got a fantastic team out of Boston with all the infrastructure and systems able to manage a more national type product. So our ability to go into new regions i.e. the Mid-Atlantic get the best of breed people, put them in place and put them within our processes is what we're looking to do. That individual specifically had managed a book of business in a team that was over $500 million. So there's incredible opportunity over time where appropriate. And our other commercial leader will manage our more core relationship oriented business, which tends to be C&I. We like the prospects of the fee income and the cash management fees that come with that. It's more oriented to deposits and positive liquidity. So we see that individual growing that book at the same pace we grow our other regions, which we look for double-digit core relationship oriented C&I growth.

Okay. And just will they work out of when you talk about Mid-Atlantic, are you guys going to be using kind of First Choice location is kind of a hub to develop that part of the business?

Yes.

Okay. Okay, and then just shifting gears to the mortgage banking and just the fee changes, I know you guys sort of touched on it. But can you just explain again, Jamie what happens in terms of the discrepancy between the way First Choice was reconciling fees and expenses and how you guys are and what the impact is going to be again?

Yes, so we have - I guess I'll call it a better way of tracking the fees and expenses over time and so we're able to net those things together. So that the corresponding decreases in expenses is 25% along with the decrease in the fees of about 25%. So if you're thinking about it in terms of your model when you're going back to First Choice's Q4 and last year you can think of it in that way. And so there were right where we thought we would be even though - even accounting for this change.

Okay. Okay, that's helpful and just to clarify you said on a linked quarter basis, do you expect fees to go up, total fees to go up 20% to 25%?

Yes, we had 15% to 20% in revenues.

Okay. Okay, and then I know you optimism on the mortgage side, but is there other - I guess loan fees were down, I'm assuming kind of just transaction swaps derivative income type of component there or just maybe walk through some of the other trajectories on why fees are going to grow so much in the second quarter?

Yes. So I think the main driver of those growing pieces are SBA pipeline, it looks really strong and we should grow that pretty well here in Q2. We think it will be probably like a positive $1 million second quarter.

Okay. What were the SBA fees in the first quarter?

$1.4 million.

Okay. That's helpful. And then just also to Jamie on the security side, so obviously you guys sold securities this quarter, but then did you rebuild the portfolio I take it? So just maybe talk a little bit about what your strategy is on the security side? I know you said you're extending duration on funding, but how are you managing the securities book?

Yes. We're trying to manage that in the overall context of the balance sheet management right. So we think that we're at a good size right now on the securities portfolio. Cash flow is coming off at about 250, the reinvestment rates about 250. And so we think we're going to be relatively stable here in the 330 range - 330, 335 ranges on the securities portfolio, wouldn't expect too much deviation from the size that we're at right now.

Okay. That's helpful. And then just, sorry I'm going - keep going, but I think this last one. On the borrowing side, you had said you're extending, can you just talk a little bit more specifically about what you're doing there?

Yes. So I guess that's all tied into our guidance for NIM in Q2 to being stable. We expect to have a few basis points or two accretions to the margin because of the rate hike, but again, when rates rise it gets a little more difficult to stay asset sensitive and so we anticipate engaging in some longer-term borrowings in order to maintain that profile. So that's why the guide to flat NIM, even though a rate hike.

Okay. And I said that was going to be my last one, but one more charges. Okay, so you indicated maybe $2 million more of charges coming in the second quarter, is that it anything else that we can expect on that line throughout the remainder of the year?

I think that's it as of right now, we're always looking to streamline operations and things like that, but there's nothing imminent in that line and in particular on the merger side of things it's $2 million and will be done.

Okay. All right. I'll leave it there. Thanks guys.

Thank you.

Our next question comes from Laurie Hunsicker from Compass Point. Please go ahead with your question.

Yes. Thanks, good morning.

Good morning, Laurie.

Just to follow-up on merger charges. So the $2 million and would put you up at $21 million for First Choice [reverse] that you had $23 million protected. So you're done at $21 million, so you are ahead of the curve?

Yes.

Okay. And then the restructuring charges, these are related to your branch closures and your termination of leases?

Yes, so it's mostly termination of leases, it's one branch and then there are four other loan offices that we are - that we've feel are gotten out of leases on.

Okay. And does that $5.7 million line in the first quarter does that then go essentially to zero in the second quarter and beyond or how are you thinking about that?

Again, I mean we will always look to restructure things when we can, but there's nothing imminent, so for now I see it as going to zero in Q2.

Okay. That's great. And so in December that was 1.1, was the 1.1 related to the branches that you closed in the quarter as well?

Yes.

Okay. So when we think about that you're basically you paid around numbers almost $7 million, but you're saving $1.6 million going forward?

That's just for this quarter, so it's a little bit more when you include all the restructuring that we did in Q4 as well.

Laurie, just to add it first - the three branches that we talked about in the last call is $1 million of savings going forward as the run rate. These five things that we talked about on this call is an additional $1.6 million.

It's another $1.6 million. Okay, great. All right, so back over to C&I, can you share with us within C&I, what the asset base funding component was and then also just give us an update on Firestone in terms of what you are outstanding for, what your new production was, what your non-performers were and what your charge-offs were?

Laurie, this is Richard. I could start with the Firestone piece.

Yes, thanks Richard.

How are you doing? We started the quarter about 206. We had originations of about 34, pay downs of about 18 and we ended the quarter at about $2.22, which is about an 8% growth quarter-over-quarter. Our forecast for 2Q is going to be flat. So we anticipate that $2.22 give or take that we're going to end up in 2Q. From an NPL perspective, we're about 80 bps for the quarter, up from about 50 bps, so about $1.7 million at the end of the first quarter versus $1 million in the fourth quarter and charge-offs remained around 31 bps quarter-over-quarter. The segment that drove the NPL was the fitness segment. It was one franchise or that we had a cap on and we no longer do business or will not finance that franchise or any more.

Okay and just unclear, in December, I had you're non-performers that 900. They were $1 million or they were 900.

They were 952 to be exact.

Okay, is there anything else so with that when finished credit, but you're still doing fitness generally?

Yes, of the $2.22 about 70 is fitness. All of the other fitness franchise ores have provided and performed spectacularly just this one and that right now we have about $3.5 million with that franchise ore, all of which except for the part that's non-accrual is performing to terms.

Okay. And then in terms of your 2Q leaving it flat, I mean is that by design or are you back stepping away from this a little bit or…?

No that's the seasonality that first quarter is normally very good and then second quarter kind of flattens a little bit. So it's not by design. They're still doing the business is that they are doing.

Okay, that's great. And then do you have what you're asset-based leading income grown it was?

Sure $352 million for ABL, the growth from the quarter perspective was about $23 million, which was a combination of line and just good normal business.

Okay, great. And then just going back over here to margin? When in the quarter did you actually terminate your fixed rate swaps?

February.

In February, okay. And then by the way I love the accretion detail. But as we look obviously this is just your first full quarter with First Choice 18 basis points of accretion, that accretion income will start to run off. I appreciate the guide that you gave us on $3 million for 2Q. But as we look forward to 2018, obviously the accretion will start to come way down assuming it on doing another acquisition. What would your accretion number be looking like for full-year 2018? And I realize there's moving components, but just as we're thinking about reported margin?

Yes, I don't have a 2018 guide for accretion extra recoveries at the moment. So I can maybe get back to you on that Laurie.

Okay. And then I guess last question here, I'm just jumping back over to M&A. And Mike this is for you. As you're thinking about M&A and as you said your conversations have picked up, what is your lowest that you would go, what's the lowest yield that you would entertain in terms of assets at this point? I guess what's the highest that you would entertain in terms of the bank that you would be willing to acquire? How are you thinking about that?

I probably have not put a collar around the size of an institution, when we get calls or we call on somebody and we develop a relationship, it's based on the financial parameters. So in fact if there's $1.5 billion of $2 billion bank and we believe that there is a likeminded atmosphere with respect to a fixed exchange ratio that provides us the kind of accretion that we need in order to absorb some of the Durban loss and DFAST cost and we talk about it. If it's $6 billion and it still works then so be it. So I haven't really put a collar around a size of an institution. I think generally speaking, it would be reasonable to assume that somewhere between $1 billion and $1.5 billion in a $3 billion to $4 billion institution is most likely. But again it's really hard to I think put any kind of limit and what the size of the institution and it's more of a direct combination of what the financials look like subsequent to partner deal.

Okay. That's helpful. And then just one last thing, I wanted to go back to mortgage banking. Jamie you had mentioned that you're able to obviously break it at what clearly, what were the corresponding expenses with the $12.7 million in mortgage banking fees?

We're not going to give that kind of guidance on it Laurie, I mean generally speaking you can see based on Q4 to Q1 you'd be able to - I guess work that in your model, we're just not giving that guidance right now.

Okay. Great. Thanks.

Thanks Laurie.

Our next question comes from Matthew Breese from Piper Jaffray. Please go ahead with your question.

Good morning, everybody.

Hey, Matt. How are you doing?

I just wanted to talk about the swap termination. When those were put on, can you just remind us of what the original intent of putting the swaps on? I mean my understanding from a lot of folks were that it was to provide some protection rates were to go up, and with that kind of being the outlook just wanted to get a sense for why now is the right time to get out of those?

Yes. I mean it's a great question Matt. And you're right that was the reason for putting the swaps on it a few years ago or year and a half ago whenever it was. But today, our profile changed with - we've done a branch deal, we've done the FCLS and FCB acquisition along with some of the things that we've done in terms of managing our balance sheet with season mortgage sales and things like that that allow us to remain asset sensitive without these 300 million of swaps on the books. And so they were on it at 239 fixed rate that we were paying, and so it feels like it was just a little excessive to keep paying for that when we don't really need it anymore.

Okay. And then in terms of going forward, you guys have mentioned some continued balance sheet management. How much longer until you - where you want to be and what's the right borrowings to asset ratio if that's the intend to increase that?

Yes, I mean I think we are where we want to be Matt, the ongoing balance sheet management relates to maintaining the position that we're in. And so as rates rise, it becomes a higher bar to remain asset sensitive and so that's where we're continuing to want to be and we expect to be there. And so if rates do rise a little bit, we may have to engage in some longer term borrowings in order to mitigate the effects of that rate rise.

Okay. And then can you talk a little bit about the new blended loan yield you saw this quarter versus what's existing? What's the gap between those two figures?

So you're talking about the - like roll-on, roll-off Matt?

Exactly.

Yes, okay. So we're getting closer and closer here, just on a broad-based look at a commercial is coming on in the mid-fours and also rolling off in the mid-fours as well. So we are really close to the point where the NIM is sort of going to be unaffected by roll-on, roll-off and maybe even start to accrete as we move forward. So that's where we're at, at the moment and that goes right in line with our sort of guidance of kind of a flat NIM here in Q2.

Okay. And then Mike you mentioned towards - working towards your longer term profitability goals and making progress this year's towards reaching them. Could you just remind us of ultimately what you're looking to accomplish and then roughly speaking over what timeframe you want to do that?

We've always kind of [indiscernible] in order to really be considered a higher performing institution, we needed to be operating at a 1% ROA or better and that has been one of the primary objectives of this Company. I think we take large steps towards that this year maybe exponentially faster than we have in the last couple years. Our double-digit ROE, obviously harder to obtain because we've got some intangibles, but those are really the metrics, we operated at an efficiency ratio under 60% that was a long time goal that will tick up a little this year based on some of the inefficiencies of the mortgage operation. And so we'd like to see that back down under 60%. And I'm not sure whether that's a year or year and a half or 14 months, but it's within sight. We're operating at a 12% return on tangible equity right now. And I think the longer we do that, the easier it will be to see a double-digit ROE as well.

Got it. Thanks for that. And then my last one is you talked quite a bit about M&A in the metrics and I just wanted to get a sense I mean given your geography, which is spans Western Massachusetts a little bit in upstate New York, Boston and now into Mid-Atlantic, if you had to kind of rank those geographies in terms of where you want to be more, how would it go?

Well I probably wouldn't rank them just based on strategy, I mean one of the benefits of this Company is that we are regional and so we get benefits, the strengths in almost every one of these regions that we're in. And so if we're looking at the way we've done the last eight deals at the financial metrics of a deal and how that can be helpful to us. We really could do those in any one of those four or five areas and provide the same kind of lift for the Company. Again, it's the benefit of having a regional footprint and so I wouldn't rank them necessarily by geography as much as I would, the deal that makes the most sense for us from a financial standpoint.

Got it. I'm sorry just one more for me. You noted that potentially inefficiency of the mortgage could impact the efficiency of the whole Company for the year. I think in last call you had indicated you could maybe break below 6% in the back half of 2017, is that still on target?

Well, we'd like to get close to that by the end of the year.

Okay. That's all I had. Thank you.

You bet.

Our next question comes from David Bishop from FIG Partners. Please go ahead with your question.

Yes. Mike, I just had a quick follow-up. There's been a lot of headlines in terms of the shift online retailing that - several high profile closures like Payless, Bebe Stores and such. Have you guys done any sort of dive in terms of exposure for some of these retailers that that might be emerging and maybe any sort of commercial real estate exposures to your projects that have those as tenants, just curious how you are positioning there?

The answer is yes. And Mr. Marotta, you can give a little color on that.

Yes. David, how are you doing? This is Richard. Yes, our total book that from a commercial perspective that is tied to retail is about $450 million, $460 million, very, very diverse. We play with a lot of regional credit and credit tenants, none of which drive more than 5% or 6% of the overall square footage from a dollar perspective. So we're very, very diversified. We don't really have any - I'll call it department store retail. So the ones we're in a - more staples at grocery stores, pharmacies and those kind of things. So we have seen no hiccup. We're watching it, we have a whole limits in place and all of that. So we've seen none of that or have been affected by any of it.

Got it. And I don't know if you have it off at your finger tip, do you know what your CRE concentration ratio was at the end of the quarter compared to last quarter?

You can get it unchanged.

Yes. It's basically unchanged in about 270%.

270%. Great, thank you.

And ladies and gentlemen, at this time we've reached the end of today's question-and-answer session. I'd like to turn the conference call back over to Mike Daly for any closing remarks.

Great. Well, we want to appreciate. Thank everybody, appreciate to joining us. Look forward to speaking with you again in July. At that time, we'll discuss our second quarter results.

Ladies and gentlemen that concludes today's conference call. We do thank you for attending. You may now disconnect your lines.