Cambridge Bancorp (CATC) 2021 Q3 法說會逐字稿

Welcome to the Cambridge Bancorp's third-quarter earnings conference call. We will be making forward-looking statements during this call, and actual results may differ materially. We encourage you to review the disclaimer in 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 reconciliations to GAAP measures, may be found in our SEC filings and in our earnings release. (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.

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 focused 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 over 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 -- 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 as 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 remains solid with return on average assets of 1.25% and return on tangible common equity of 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 commitments.

A recent sign of this commitment was in our agreement to provide a $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.

(Operator Instructions) Mark Fitzgibbon, Piper Sandler.

Hey, guys, good morning.

Good morning.

Good 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're likely to see more branch consolidation.

So first, Mark, on the lenders, we are actively having conversations with talent on the lending front. As you know with some of the bank consolidation that has happened in our marketplace, there are those that may not want to work for the new entity. So we are active in having conversations there. And we would hope to be successful and will 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, I think we have 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. Secondly, I wonder if you could share with us, you know, 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 $80 million, and that is 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 thoughts on the margin as we move into the fourth quarter?

Sure. You're going to see a little bit of 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 if we're continuing to see success on deposits, you are 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.

Kelly Motta, KBW.

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

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

Great. Mike, maybe on the security purchases, too. Can you just give some color on what you're buying, yields, duration, that sort of thing, assuming it's short because of your outlook for growth. But any color would be helpful. Thanks.

Sure. So on the investment portfolio, we are buying short and moderate duration. The effective duration there is about 4, 4.5 years, and the yield to 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 had any updated thoughts on potential use 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-eights, 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 re-evaluate it every quarter as we always do.

Great. Thank you, I will 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 with you following our year-end earnings announcement.

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