Wayne Patenaude, just three months into his new role as chief executive of Cambridge Savings Bank, is eager to strike a balance between the mutual thrift's past and its future.
Cambridge, under Patenaude's predecessor, moved away from its mutual roots, investing more resources into commercial lending and de-emphasizing residential mortgages. Since 2007, mortgages have fallen from two-thirds of total loans to about 40%.
In recent years, competition for commercial loans has intensified and demand for housing is on the upswing around Boston.
So Patenaude is looking at ways to reestablish Cambridge's clout in the mortgage business as he aims to double the $2.5 billion-asset thrift's origination volume over the next four years.
At the same time, Cambridge will continue to fight for commercial loans in a crowded marketplace. In a wide-ranging interview, Patenaude discussed his strategy and how he plans to execute in a highly competitive market. This is an edited excerpt.
You have been CEO for about three months. How has the transition gone so far?
PATENAUDE: It's been very exciting. We've grown commercial lending and closed out our previous strategic plan. We have a very strong balance sheet, with our [Tier 1 leverage ratio] near 10%, and strong credit quality compared to our peers.
How were you able to increase commercial lending?
We hired good, experienced lenders. Our commercial lenders have an average of 20-plus years of experience. We didn't retrain our residential lenders. The strength of the balance sheet is also important, as is good, solid, consistent underwriting. In 2007 and 2008, we were faced with a perception that we didn't do commercial loans.
As we began to hire experienced lenders who were in this market, that perception quickly went away. We have notoriety now in commercial and industrial lending that folks will give us the first call. And we have the ability to react quickly.
Many banks are focusing on C&I loans. How would describe the competition?
There are three [components to every] loan transaction: structure, credit quality and price. It can be difficult to get all three. We will concentrate on structure and credit quality and we'll be flexible in terms of price.
In terms of underwriting and credit, we have strict standards. We've traditionally been very conservative in the way we look at risk. We'll go up to 75% on the loan-to-value ratio on commercial real estate. Occasionally we require personal guarantees, though not all the time. We look for solid commercial real estate tenants, people who have been rated by the credit rating agencies. We try to look for tenants who can carry leases to the term of the loan.
What's your plan for mortgage lending?
We hired a sales manager to hire originators to expand our original market. We put a loan production office in the South Shore market, about 10 miles south of Boston. We have also invested in a new loan origination and servicing system.
Over the next four years, we think we can double our mortgage originations. We are forming relationships with real estate brokers, making sure they understand who we are.
The market is about to convert from a refinance market, which we've been in for the better part of three years, to a purchase market. We certainly want to take advantage of any refinance activity, but we also want to go after that purchase business.
The purchase market has gotten very hot. We've seen multiple bids on homes and bids where [buyers] are waiving contingencies. It's been a number of years since we've seen that. We never did option-adjusting ARMs. We've done plain vanilla loans, simply going after 30-year, fixed-rate mortgages and mortgages that are entirely amortizing.
What are Cambridge's biggest challenges this year?
It's the interest rate environment, really. We're now in the third or fourth year of declining rates. When you get that long into the cycle, and interest rates continue to move lower and lower, you can only reprice your deposits so low. But your assets continue to reprice. So the margin continues to get narrow. We've been able to offset that with volume over the last couple of years.
What is your outlook for making acquisitions?
The way it stands right now, our strategic plan calls for organic growth, with about a 6% annual increase in assets over the next four years. If an [acquisition] opportunity should arise, we would look at it, but our focus is on organic growth.
What are your other priorities for 2013?
There are a lot of nonprofits in the Boston region. We see an opportunity to provide lending to them and to provide them with corporate cash management services. They also have a need for investment services for their endowments. We intend to strengthen our resources there, along with online banking for business customers, ACH wire-transfer activity and remote deposit capture.
Has Cambridge considered converting to a stock-owned institution?
We're not interested in converting this institution. We haven't had very many of those conversations.
We look at mutuality as a strength. It gives us the opportunity to invest long term without the pressure we might get from an investor group. It also helps with our recruiting. We tell people we've been around for 175 years and that we want to be around for 175 more.