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After Breaking Out Cambridge Bancorp Shares Have Less To Offer

Mar. 09, 2018 7:17 AM ETCambridge Bancorp (CATC)3 Comments
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  • Despite limited asset and loan growth, CATC continues to deliver double-digit returns on equity.
  • Asset quality is high and the bank's growing wealth management division supports a diverse income profile with above-average levels of noninterest income.
  • CATC has what long-term investors are looking for but after the quick run-up, the shares have less immediate upside potential.

Cambridge Bancorp (NASDAQ:CATC) is the parent company of Cambridge Trust Company, a profitable 127-year-old commercial bank that is based in Cambridge, Massachusetts. CATC operates 11 traditional branches in Massachusetts, along with 4 wealth management offices – 1 that’s in Boston and 3 others across the border in New Hampshire. Over the years, these two office types have slowly moved in opposite directions, with the traditional branch count consolidating to drive better efficiencies and with the wealth management team adding to support a fast-growing balance of assets under management.

These strategies in combination with a customer base cultivated over several generations have shares near their all-time high – and one could say that due to a steady advance, shares have actually been trading at new all-time highs since I first covered the name in 2014.

ChartCATC data by YCharts

A toppy market does pose a threat to the bank's current valuation, but this is a name that holds up better than most. Volatility is picking up and although the overwhelming trend has been positive a temporary reversal could be a gift to cash ready buyers looking for a better entry into this long-term name.

Loan Portfolio Safe But With Growth On Hold While Duration Is Lowered

Cambridge Bancorp has a focused portfolio, with most of the assets financing commercial and residential mortgages. At year-end, approximately 51% of CATC's real estate portfolio was comprised of commercial real estate loans, with the remainder in residential (43%) and home equity (6%). In the 2015 annual report, the bank announced that it was starting to sell long-term mortgages in the secondary market to lessen interest rate risk.

This has depressed top line portfolio growth (residential loans were around 50% of total loans in between 2009-2015), but CRE-nonowner assets and multifamily are adding, providing support, and sure to eventually yield a

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Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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