Cambridge Bancorp (CATC) 18 Oct 222022 Q3 Earnings call transcript

Welcome to the Cambridge Bancorp 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 reconciliation to GAAP measures may be found in our SEC filings and in our earnings release. in be will participants listen-only mode. All After to ask Instructions] today’s presentation, opportunity an be will questions. there [Operator [Operator Instructions] Please note this event is being recorded. like I Mr. now to conference the would over turn to Chief Denis President Executive Officer. Sheahan, and Chairman, Please go ahead, sir.

earnings Mike and with remainder from joined Marlins, Northmark of for by Thank like joining I'm morning would Thank will welcome conference Financial new provide from you, to was our today. recently on Officer, good call about Chief the merger who you this close. everyone. for The year. To Xst begin, our Carotenuto I completed Bank. our colleagues update our closing announcement joined merger representing who October X.X an to months

Northmark them another look each markets. and working with Over these we brand pleased as to to I report solid to past these months from I’ve forward of few the am also new gotten in quarter. Cambridge build I Trust team know the

net excellent; X% quarter growth loan quarter deposit wealth’s expected, As result third growth. challenging revenue loan period The highlights commercial growth as the against residential of growth and were the continued; expanded, during continued for and key a both quality with remains all balanced volatility. the market in and lending interest asset margin linked

during interest asset points margin performance quarter. and for reflective search certainly basis The market flows decreased funds and X.X% the assets net are to expanded consumer X.XX% commercial from investment for nor X% Asset of total quality core due point. assets credit not using sensitive our base. result as position combined third either by in remains quarter purchase, by XX at superb, points just by deposits our real deposit of Wealth basis business quarter Core declined are XX clients and concerns non-performing the net negative adjusted the of to opportunities during assets and competition a market management with seeing yield. this estate second we

controlled profitability While the loss good return core both of return and common XX.XX% with and and increased equity of and expenses expense loan assets for funding an cost basis. remained operating X.XX% during tangible on average provision remained quarter, non-interest on on

local makes increases forces. market near-term a potential considerable high challenges. are What sizable prior growth outlook, we Hampshire an despite ones Federal The our attempt period this to obviously attractive to Greater both and of as markets of cycle entering distinguishes Reserve economic change, in opportunity provide and again the once Southern Moving is uncertainty. the speed still especially and rate combat remain inflationary near long-term New Boston however versus and

and is assure industry ball that but accurate our in the crystal slow. mortgage the This significant volumes others, already residential occurring pretty than is throughout Our it is any evident in will growth more decline company. no at

a healthy margin poised deposit client typically our good the the interest earning book net of loans margin. meet over for repricing The deposit to our is assets to by increase lag loan news other exceeds increasing the competitively near term, are rates. base is While rates higher demands which and

new Given economy, innovation growth, as our and the to continue slower market scenario healthcare local will of education. home such the dynamic generate loans potentially to industries look to we is as

is and investment the expected management this attract high a spending maintain be We continue quarter. of to wealth Bank and will merger and will to recent right accretive We percentage given our in And consolidation lastly, evaluate slow of we our fourth superb to quality here to immediately professionals pace deposits asset earnings where look Northmark look in marketplace. needed. core

on The opportunities for ground hit environment. be to advance this available prepared running intend looming we us the all, is be So to in to of all capitalize proactive to real goal that in are the remainder positive. whenever the this the make themselves Mike – quarter present outlook few year. will of of including turns for inevitably a remaining the of and now now as details Mike? comments economy they

Thanks, morning, Denis. everyone. Good

First margin. I interest position will rate strategy discuss and our

we two positioned over year for mentioned, particularly rising a As rates period. remain Denis

We model to include scenario deposit balance rate sensitive the based with latest in sheet asset at the on are static was XX% last in a as beta total during a rising which cycle, line the XXXX reminder XXXX.

X.XX% contributed These of on our net expansion of our reprices the This combined of was unchanged NIM year has XXXX fourth this curve. funding full of loan What guidance of expected costs third just portfolio during yield X%. lagging basis XX items quarter changed over Additionally, the is the expect margin adjusted of the outlook point a quarter. interest deposit and be have and prior end of to year. remainder we short to X.XX% remains on for the with points the for adjusted this at XX% to the

competition, we flat now year the the the levels. to hikes deposits rate magnitude Given Reserve pace to and expect market recent of and end Federal QX

provide households households. of have While to are updated past years. We few on and while the in exceed the our client adding done also secondly process our we in we look will guidance budget retaining the in and XXXX focused will creating new quarter first guidance, of the this we remain high retention deposits cost as valued first we

thus already remainder to continue. borrowings flows, far environment core capacity and the Our to banking expectations, used deposit to that job Northmark’s borrowing beta liquidity this be has incredible deposit securities our that look outstanding anticipate Despite the and loan growth of an wholesale flexibility growth the impact excess We for fund positive been this we position, and/or cash year in any which manage cash lending and cash have anticipated, amortization portfolio previously fourth given expected office the to reduce would quarter. have for of than funding. flows we investments teams reduce done and used and lower in

the down the million quarter, last end, pipelines. quarter residential commercial on will we particularly I had anticipated. and pipelines million lending $XX move $XX Now approximately At residential from respectively, lending as were to and our

double-digits, range loan growth year for XX%. now of XXXX Our the is full around low

is pricing matter to loan in on Right focus. level same yields now funding are to, level this want alluded that We of cost. increasing Denis to equity now appropriate return it’s not the and but demand as a in loan the risk at new However, pricing environment. at both reflect ensure loan not as

with non-interest income, line. management preparation Moving our associated quarter, seasonal approximately included revenue tax within $XXX,XXX revenue to wealth during non-interest income the in fees the

QX are unchanged to non-interest policy guidance marketing from Non-interest in growth that income prior as marketing income year BOLI I approximately in death associated the elevated the $X.X full our which remains X% was a spend Additionally, surrender and Within non-recurring. XXXX. X% quarter reminder, million minus would claim minus from fourth remain included of with campaign. note new as we to expense, the a we active in anticipate for

despite can of be and capital, expect during the see share of common common quarter’s release, continued while the me Northmark. equity book this inclusive excuse impact value – within increases X% year to approximately ratio rates, the per as market Moving the we TCE to quarter, you declined tangible during quarter tangible end grew by in – tangible slightly

continue effective we of to to excuse the continue rate me, operating the previously We XX% tax lower guide lower to XX% – guide to provided. end

from As quarter’s are There prior offsetting quarter. estimates and operating BOLI income no policy impact the to received. surrender rate a the reminder, other tax changes the last of removes

in in Northmark a and the we deposits value process Finally, brings a finalization expansion our fair include a in logical markets team, Northmark’s we are and the for approximately healthy market value clients, the to table engaged prior wonderful the an expect million of XX-Q. $XXX as finalizing sheet $XXX impacts to within with and of million accounting fair balance mark-to-market. disclosure loans

dilution numbers and expect updated risen to under earn an results three the and initial to will rates crossover years. estimates, than appear of from well book the preliminary contained. be have below X% tangible method less back we Based change have the While be upon estimates, value

line We Session Question-And-Answer for open the will questions. now

question Instructions] from is first coming Please Mark. from Sandler. Mark [Operator Fitzgibbon go ahead, Our Piper

I could question. your of expense you thanks just just clarify, the and morning, my on for outlook. Good missed taking first kind Mike, comments

Mark. Sure,

what a are remain as So we quarter said anticipate elevated I marketing in campaign. that we the marketing fourth is for new active spend to

you. Got

And we expect should of kind of expect if remind wondered timing synergies you secondly, synergies? I those could Northmark us when of then be the When you the all Okay, out? guys to great. will extract all

then Yes, and so, Mark, in they’ll is just be left our systems XX% April. until here QX conversion

the the the conversion. So we XXX% systems you’ll have get time to by

– being just incorporated contemplated and referenced restructuring you X%, adjusted that in kind combined that over you guys margin margin of that being that you for any Northmark a that’s was In that? great. Okay,

That’s correct.

ball give for is little help be Okay, us can would great. guidance great. think I quarters? next the of crystal you provision know but couple you fuzzy that And the everybody’s can about a there any

is what asset Yeah, with it. be up, provision Mark, upon and if from The two as things. – well continue well. is particularly so some happens very provision quality growth speaking, depends you’d with it rising, expense What kind loan expect So say perform unemployment loan standpoint. we would to And of then generally very generally that, if growth we right? I of an economic unemployment, alongside rises is level though to factors, our continue

depending the We’ll overall ratio, future at points range it just that about from climb we probably with higher XX loss are expectations. upon what allowance unemployment happens today. So, for credit into basis may and an in

I or around estate things from then, in Okay. of and I quality market so guess, credit a so look from this commercial you, you And is are away because at you the guys that a and low. shying of areas good your guys, you. asset little of real sort perspective has delinquency question as C&I cautious is either sort not any been a are for there you Thank or historically But on? curious am really concern

Sure. Mark, Denis. it’s

occupancy. that I there clearly, and think, the unknown think industry concern. what’s in market it but not relative the answer back is will it’s pre-pandemic will take to fully throughout be I though we office office certainly think to to is share the - going levels. broadly sort there growing big would years the I of to There market. is If happen answer greater a Occupancy

estate data, we are levels. not You the from at real transportation look to large back look can firms, data pre-pandemic at

So, that’s concern. clearly an area of

highlight would exposure I one the there, that most. the We have limited that is but

you you in on tricky are Okay. if little But And I do thoughts to wonder bigger know then the Denis, could share now. do I sort M&A right of environment? think lastly, a transactions a your that the some Cambridge might out more quarters? sense consolidation, banks and small credit seek that coming like get likely that’s to partner do that you environment the concerns about more prompt

Mark. too that, I say to early think it’s

taking is we temporary this degree Fed a then consequence or sort all living and rates – of institutions. lot term ultimately value collectively tangible that dilution with the I and uncertainty it longer is and a financial know think not the are book impacts where We about of of there. on out individually to of there the

You add that problem that, could credit on top of spur some consolidation. a

a I in have too team. in it’s mergers do think though very lot early I a I done a to I three of confidence ability that three and good confidence know years in of little my to team’s say. execute. We’ve have over lot my

at we and two because That reason closed here. of is today quality a X.X there isn’t this merger look You the months. of it this, the happening firms happened in is

So, to ability I our in do confidence it. have

challenge more a that value rate I Mike good we too but consolidation. drive say to Northmark, we the that feel – it’s mark-to-markets, of think this that’s about the early environment, think obvious fair are with realistically. accounting. will hurdle particular this That’s referenced this where the I in cycle

Thank you.

Sure.

from O'Connell coming go Chris, KBW. Please, [Operator Instructions] is Our Chris ahead. question from next

Morning.

Good morning.

the flows obviously flows the deposit what bit were Wanting as terms some CDUs some what from on in I you year at. of customers end And on they far a into of of just of little here, the to from are going fairly hearing but environment These pricing out materially. start forward? customers wondering hearing more were with was your what coming deposits up this what are the then, quarter. the was a your you commentary growth as tepid and

basis during on the the Chris, CDs deposit wholesale was you brokered XX of When the out, the side house, deposits back that excluding did Yes, we cost quarter. of spot points. used some

a Denis in certainly that increase think where internal right to wealth to And during are balance had moved of that’s total in sheet clients be levels might deposits purchase I purchase now. as kind moved and into or sweep. expect has our So into treasuries that to funds there. of then of deposits into quarter, strategies CDs. businesses, competitor We current talked some has outlook CDs some or be terms seeing But and we QX flat money we you real the off also mentioned, some estate used about

the Got it. ahead. And brokered go for CD,

just – our conversations if there, it’s And add the what team Mike to you to when bombarded have a yield to a for understandable night and find to rates, in and are is news Fed every searching about understandable to the with degree said conditioned it’s that. clients our for clients solution well increasing are

these happens So, are in conversations ready and that. we normal that industry our for are

for And come duration? was the those What on did brokered what rates it. and the CDs, Got at? what

duration. short It’s

and their months X. three was X.XX and under rate So and blended between

are side the what on yields the seeing loan today, on And from coming your you are at? Got origination what in it. pipeline

Yes.

production Xs in new looking residential Xs It’s to year arms. residential today, are XX fixed. the today, Xs of as for mid we Xs to for mid So,

pricing, we for mid variable there. commercial today pricing are Xs. looking fixed rates are For the in generally more But

Got it.

that given in the momentum quarters mean, a maybe aggressive in that, to it little couple I half your of above it pickups say an for still fair the is the trajectory least? guys XXXX, So, margin first if betas upward the past for first where of at runs even less but have the been

the fair, with right I some conceptually, move. conceptually, what how where guidance But happens you depends going the to the moves out they upon I Chris. to going put – quarter. we are it – are think put XXXX it’s we but also Yeah, Fed are mean, quickly – first in

is there a moving of lot there a of lot So – that. to is pieces

– just there? levels post just were Northmark movement paying and Got it. with sheet the And some end and quarter what cash movement funding could you outline borrowings you or mentioned down balance of wholesale

to was wholesale of Yeah, used so, Northmark worth in QX. about million down pay That cash in $XX had some early securities.

remaining And fourth the in I elevated hear you on the marketing quarter. expense

last the that for all? quarter X% mentioned I organic changed that the to think you around at X% have year. Does expenses might outlook

to got also I yes. you about but include Well, right, Northmark, think that’s

Alright. Okay. now. all for about Thanks. had I to That’s ask

Okay.

to remarks. question And over would ahead. the conference this to back concludes answer Denis I turn Q&A closing for go like and End our Please Sheahan session. of any

Thanks everybody forward call. next speaking you quarter. for to the to joining Look after our

attending today’s conference. for Thank you

now disconnect. may You