Cambridge Bancorp

Welcome to the Cambridge Bank Fourth 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 reconciliation to GAAP measures, may be found in our SEC filings in our earnings release. All participants will be in listen-only mode. Should you need assistance, please signal Conference Specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then while on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Mr. Dennis Sheehan, Chairman, President, and Chief Executive Officer. Please go ahead.

Thank you and good morning. Thank you all for joining our earnings conference call today. I'll be brief in my comments assuming you've seen the earnings release. I'm joined this morning by our Chief Financial Officer, Mike Carantinuto, who will provide commentary regarding estimates for 2022. For your reference, those estimates are included on page 22 of an investor presentation we posted along with the earnings release. I'm pleased to report another strong year of growth and solid financial performance at Cambridge Bancorp and Cambridge Trust Company. And with that, an increase to the common stock dividend by 5% to 64 cents per share. Core deposit growth was again a key highlight with growth achieved of 32% or a billion dollars in 2022. The majority of this growth was from existing clients deepening their relationship. It was buttressed by a more aggressive marketing and money market campaign to take advantage of the merger noise in the marketplace, and it worked. Over a third of this deposit growth was new clients to the bank, and we look forward to working with those clients to deepen their relationships over time. I recognize this strong level of growth in core deposits has built significant liquidity on the balance sheet in both cash and securities. It will take some time to deploy this level of liquidity into loans, and we're working on it. Mike is guiding to 6% to 8% growth in loans for 2022 And my hope is we can exceed that. Loans excluding PPP redemptions grew by 9 percent for the year. And in both our commercial and residential lending, we remain optimistic regarding continued growth in 22. So why are we optimistic about growth? Well, its market conditions remain conducive for it. Economic conditions continue to improve. Strong life sciences, technology, and innovation economy that all benefit the lending sectors that we emphasize, housing, multifamily, industrial, lab space, construction. And unemployment in both Massachusetts and New Hampshire dropped nicely in the fourth quarter, 3.9% in Massachusetts and under 3% in New Hampshire. 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 in both Massachusetts and New Hampshire. And finally, our team has a reputation of being stable and dependable in the marketplace with a proven ability to deliver. Returning to results for the year, asset quality remains superb with continued low levels of delinquency, non-performing assets, and no charge-offs. Wealth management assets and revenue grew by 16 and 18% respectively in 2022, and we achieved positive net flows for both the quarter and year-to-date periods. We announced during the fourth quarter the hiring of a team from a competitor institution that will cover New Hampshire, Massachusetts, and Connecticut for the bank, and we are delighted they joined Cambridge Trust. This and other sales initiatives will hopefully benefit this year and beyond. Core profitability remains solid with return on assets of 126 and return on tangible common equity at 1510 on an operating basis and growth in operating earnings per share of 13% for the year. These results are driven by consistency and strategy and solid execution. First, provide exceptional client service. This then presents opportunity to focus on our three core areas of business strategy, growth and core deposits, lend responsibly and build high quality fee revenue diversification. In summary, I'm immensely proud of my team's support for our clients, for one another and our communities throughout the last two years. A continuation of the 132 year history of caring for all who make Cambridge Trust a special place. We're having fun and look forward to executing again in 2022. So with that, I will ask Mike to make a few comments regarding the outlook for this year.

Thanks, Dennis. As mentioned earlier on page 22 of our investor presentation released earlier today, our set of 2022 financial expectations. Of note, these estimates do not include any impact of increased interest rates. Therefore, you can choose what, if any, rate scenario you believe to be the most likely However, I would note that we are asset sensitive and we would expect to benefit in a rising rate environment. For further clarity, I would note that each 25 basis point increase in short-term interest rates with no change to long-term interest rates and no increase in our funding costs would provide approximately $2.2 million in pre-tax interest income on an annualized basis or an approximate 2% increase on net interest income. For additional rate scenarios, please refer to our disclosures included within the appendix of the investor presentation and our SEC filings. We will now open the line for questions.