CATC (2021 - Q3)

Welcome to the Cambridge Bancorp Third Quarter Earnings Conference Call. We’ll be making forward-looking statements during this call and actual results may differ materially. We encourage you to review the disclaimer and our earnings release dealing with forward-looking information which applies to statements made in this call. In addition, some of our discussion may include references to non-GAAP financial measures. Information about those measures including reconciliation to GAAP measures may be found in our SEC filings and in our earnings release. All participants will be in a listen-only mode. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Mr. Denis Sheahan, Chairman, President and Chief Executive Officer. Please go ahead, sir. Denis Sh

Thank you. Good morning everyone. And thank you for joining our earnings conference call today. I am joined as always by Mike Carotenuto, our Chief Financial Officer. Hopefully you had an opportunity to see our earnings announcement from just a few hours ago. It shows again that Cambridge Bancorp and Cambridge Trust Company had another strong quarter of growth and financial performance. Core deposit growth was again a key highlight with growth of 5% in the quarter or 20% annualized. We plan to remain focussed on deposit growth and are comfortable with the elevated level of balance sheet liquidity it brings in the near term. We are confident we can deploy this liquidity into loans or with the medium to long term. Loans excluding PPP redemptions grew in the quarter by 2% or 8% annualized in both commercial and residential lending, and we remain optimistic regarding continued growth in the fourth quarter. Market conditions remain conducive to achieving this growth. So why are we optimistic about growth? First, economic conditions are good in our marketplace. In Massachusetts, in particular, the life sciences and innovation economy result in a benefited -- benefiting our lending sectors that we emphasize, such as housing, especially multifamily, industrial, lab space, and construction. Recent bank consolidation should provide opportunity, as we are an alternative to the larger merged companies for both talent and clients. Demand continues to exceed supply for housing, at low interest rates are beneficial to borrower activity. And finally, our team has a reputation of being stable and dependable in the marketplace with a proven ability to deliver. Returning to the quarter, asset quality remains superb. Wealth Management revenue grew 7% in the third quarter, and we achieved positive net flows for both the quarter and year-to-date periods. Core profitability remained solid with return on average assets of 1.25% and return on tangible common equity at 14.9% on an operating basis. These results are driven by consistency in strategy and solid execution. First, provide exceptional client service. This provides opportunity to focus on our three core areas of business strategy; grow core deposits, lend responsibly and build high quality fee revenue diversification. In other areas, I'm proud of our team’s engagement in strengthening the communities where we work and live by volunteering through financial contributions and in lending commitment. A recent sign of this commitment was in our agreement to provide $110 million in lending to support affordable housing in Massachusetts, in collaboration with the Massachusetts Housing Partnership in one of the largest affordable lending commitments in their history. Our success is based upon the support of our clients and our communities, and we look to pay it back. Our team is also working diligently on the planned Wealth Management Systems conversion, which is on track to happen this quarter. This is an important and intense initiative and I greatly appreciate the effort my colleagues are putting forth on this endeavor. So with that, I will now open the call for questions.

We will now begin the question-and-answer session. [Operator Instructions] Our first question today comes from Mark Fitzgibbon with Piper Sandler.

Hey guys, good morning.

Good morning.

Morning, Mark.

I guess first question, I’m curious, are you continuing to hire lenders and relationship people or has the pace of that hiring slowed? And also, I’m curious about whether we are likely to see more branch consolidation.

So first Mark on the lenders, yes, we’re actively having conversations with talent on the lending front. As you know, with some of the bank consolidation that’s happened in our marketplace, there are those that that may not want to work for the new entity. So we’re active in having conversations there. And we would hope to be successful. And we’ll update you on that, both on the lending side, and also on the wealth management side in coming quarters. There is some opportunity there. In terms of branch consolidation, we’ve I think we’ve closed three offices in the last 18 months or so. We always look at our network to see if those offices are meeting our performance standards. And if they don’t, we see an opportunity to consolidate and become more efficient, we will continue to look at that. We have no further closures planned on the near term horizon.

Okay, great. And that, excuse me. Secondly, I’m wondering if you could share with us the size of the loan pipelines complexion, and maybe what commercial line utilization rates look like today?

Sure, Mark, I have that. So as of today, the commercial portfolio is about $18 million. And that’s pretty comparable to where it was at the end of the second quarter. So we see opportunity for continued growth there. And then in terms of line utilization, it’s in the mid-30s in the C&I side of the house.

Okay, great. And then, Mike, could you share with us your sort of thoughts on the margin as we move into the fourth quarter?

Sure, you’re going to see a little bit continued moderate pressure on the margin. If you look at what happened during the third quarter, right, about five basis points of that margin compression was primarily because of the success of our deposit gathering efforts and the reinvestment of that into the securities portfolio. So for continuing to see success in deposits, you're going to see a little bit more pressure.

Okay, great. And then lastly, on those four remaining loans in deferral, what sector are those loans in?

Sure, Mark, just give me a minute to pull that up. I think two of them are residential, and two of them are commercial, and one of them is a restaurant. So that’s what it is.

Okay, great. Thank you.

Our next question comes from Kelly Motta with KBW.

Good morning, Denis and Mike. Circling back to loan growth, I believe you gave 6% to 8% as a kind of goal for the year target, just with a really strong growth these past two quarters wondering if you had an update there in terms of kind of what to expect? Thanks.

Yes, so Kelly, it looks like you know, based upon what we’re seeing right now we’re going to be maybe low double digit, depending upon what happens here in the fourth quarter. So we're optimistic about continued growth.

Great. And, Mike, maybe on the securities purchases too. Can you just give some color on kind of what you’re buying yields, duration, that sort of thing? Assuming its short cuts, your outlook for growth, but any color would be helpful. Thanks.

Sure. So on the investment portfolio, we’re buying short and moderate duration, the effective duration, there's about four, four and a half years and the yield of the portfolio right now is about 1.7%.

Okay. And then finally on the buyback, you’ve held on that, given you’ve had some really good balance sheet growth, just wanted to see if you have any updated thoughts on potentially sort of the buyback.

Kelly, this is Denis. At this point, the buyback, the capability to execute a buyback is in place but we don't have a plan to execute at this point in time. Tangible common is in the mid-8s [ph]. And our growth has been better than we anticipated coming into the year, so we’re not planning on executing a buyback at this point. But we will evaluate it every quarter as we as we, as we always do.

Great. Thank you. I’ll step back.

Thanks, Kelly.

This concludes our question-and-answer session. I’d like to turn the call back over to Denis Sheahan for any closing remarks.

Thanks everybody for joining us. We appreciate your interest and we look forward to speaking to you following our year-end earnings announcements.

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.