Cambridge Bancorp (CATC) 24 Jan 232022 Q4 Earnings call transcript

Welcome to the Cambridge Bancorp 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 and in our earnings release. in be will participants listen-only mode. All Please Instructions] note this recorded. being is event [Operator

like conference Please turn Denis would to I now the President Chief sir. Sheahan, and over Executive ahead, Officer. go Chairman, Mr. to

you, fourth today. joined Carotenuto, quarter outlook call who and thank earnings Officer, a provide XXXX. Chief I'm everyone joining an by for Thank our and review conference will Financial our Michael you of for the

with Presentation the included are released on XX we estimates posted XXXX Investor along reference, your morning. For earnings of this Page an

I'm report growth and during to grew remains another pleased expanded Cambridge solid nicely Bancorp. was excellent, year Loan the very quality margin year. at net interest robust, asset the capital

of challenging for rates. against of interest and market balanced All result deposit volatility period this and wealth a growth a revenue as

excluding Core into growth markets balances, linked excluding X.X% attractive quarter loan the and lending and investments. market fixed increased XX.X%. funds other merger quarter decreased clients yields commercial a opportunistic X.X% Organic the continued within competition, of for income fourth deposits, residential the growth balances year both in as during result with of by using merger and year-over-year growth,

decreased market the Client totaled to a return on X.XX% volatility a on under and company both due management year-end, year. the The administration primarily on average of delivered of operating and XX.XX%, $X return basis. management equity during and year-end tangible an as ratio X.X% rose Wealth assets billion assets 'XX. assets common to common tangible equity as of of

system in banking on and this of the new with the approximately million highlight second assets. Northmark in integration completion for quarter was Bank, markets merger are our we track And three Another $XXX of year. adding

for stock increase first $X.XX to the a a dividend quarter increase X% per common announced also $X.XX XXXX. of per We share, to quarterly the share

portfolio of points to and XX those the assets. Importantly, insight into nonperforming I'd are we of segment opportunity an remains investors. questions a provide portfolio questions That's it's that basis other asset superb gets with office understandable take just assets get post-pandemic. from and thought lending why bank's institutions loan total quality I the get

in Our origination to In the seem the the loan office of with XX%. average there. of the us market million. total particular, loan X% our X% at origination to of and loan value The $XXX cities XX%. urban portfolio exposure portfolio lending average was The Boston focus office questions city represents portfolio, lending represents loan-to-value a total for weighted areas at of on or

with the X% all and weighted pass There represents average City a the office value origination rated. loan are loans at portfolio delinquencies loan Cambridge The are of portfolio to total lending XX%. of no in of

make few XXXX. outlook I comments, a Michael regarding Before bring in make comment for I our general a to will

environment we slower may bring are this of we based year expect the While well we recession prepared are for year sheet we and for reserve prepared we loan underwriting, and growth loans are of with. And believe a very balance in levels both whatever conservative adequate. are emphasis our on Capital a deposits, presented and worst.

In continue communities I throughout addition one feasible. the of to support my and be be focus proud to of areas, cost clients team opportunities will our and controlling funds were another operating to evaluating our expenses XXXX. Overall, reduce on immensely these of of

outlook few comments Michael? regarding I and will fourth XXXX. now ask Michael for the the to quarter, make a

of $X.XX X fourth increased merger accretion, To quarter morning, $X.XX items and for loan quarter, highlight the Thanks, for share the everyone. year. related points within operating Denis. which Good The adjusted the excludes to full interest by the per earnings net basis few diluted margin, were a impact X.XX%.

increased fourth deposits, The was the quarter cost a result basis basis. points a by for points client GAAP as or during basis X increased on requests XX basis excluding for for approximately of pre-tax XXX,XXX Northmark X of accretion the rates. fourth of or associated associated loss Provision reserve build. XX credit quarter and the the with points first of the wholesale CECL million Loan to being merger with quarter deposits, reserve in build the $X.X million consisted two the items, remainder proactive $X.X nonrecurring pre-tax Day primary

the with management for revenue non-interest the seasonal revenue XXX,XXX associated tax Within quarter due income preparation quarter, third in wealth decreased approximately to fees. from

third service the services with run various professional XXXX provider were technology associated primarily other consulting noninterest in expenses. for beyond, of important and rate our contract result provided core and costs expenses renegotiation managing an increases and to Our reviews. the This material a contract factor data a as quarter, increased in the expenses quarter; from a of to of non-interest benefit

I that at rate assumes balance will outlook these environment we Investor reaches of for an rates X% of Presentation attention page assumption for interest the morning. to hold in now quarter my with XXXX, included expectations the for again earnings the the is the and the X% this released first turn of 'XX The which on Fed along XXXX filed year.

currently during and continued be With a X% Core and be X%. retaining XXXX. deposit to expected short-term expected loan rates, an growth loan lower is continues than X% growth expectation growth given slowing XXXX. prior Growing us X% of activity, between we And for to economic is expectation increased of assuming priority for deposits the to be are years. of to

will approximate $XXX use pressures new to client challenge understand rates reduce competitive fixed CD look position end, current the growth million the will -- that of this we end given at be cash this will that existed challenging income to net XXXX, securities. investment and To wholesale borrowing and However, XXXX. be on and flow the a during we

would expectations. expected XXXX. create reduced situation if are to remain flow cash To securities the possible, $XXX assets $XXX extent be fairly achieved and this based consistent million upon will current year-end million where Investment to total between a

for within is margin XXXX. to expected the X% adjusted year The X.XX% of to be full

category income. The this revenue. of non-interest is Moving wealth management component largest to

Our lower assets BOLI the starting reduction is X% key income management. of of non-interest a assumption of and two items; X% income point from and within between derived lower under

has non-interest an expect expenses a million of off in increase level X XXXX. is between allowance for for operating X% XXX Within base This point The XXXX. operating loss of in basis remain expenses and we of of XXX X% strong to range X.XX%. asset credit forecasts current expense, quarter points, the throughout from that unemployment an fourth assume historically continued XXXX. seen of ending XX expects Cambridge and rate unemployment you've in we Bancorp the consistent which quality

equity continue to the X% we to the build profile, capital; now our given earnings tangible XXXX various for open approaching would MJ throughout and importantly, will Finally, company's the common questions. included given line we within expect ranges the ratio guidance

Today's comes go Piper from Instructions] [Operator ahead. Thank question Mark with you. Sandler. Fitzgibbon first Please

Hey, guys. morning. Good

Good morning, Mark.

evidence see Get that slowdown. of us slide earnings in there What of seeing the with in you kind evidence rather, borrowers? you a out the said you're release

Well, sort business I side for given the in that of our least rates, space, the uncertainty this activity area. obviously, in really with at Mark, think, us. in down into But obvious slow in the least that increase there's one among it's the commercial is clients, talking clients. at We, broad extends residential also

estate end is This, campaign the I I Fed best investors, is think transaction Mark raising of a I can we'd change. you to course, terms will describe -- interest like way on the as there's when some volume, its all commercial for in transactions it There's slowdown today. rates. clarity for may think there real of in

to interest their today's cap environment. rate There's not buyers are rates higher the then to a reflect to work adjusting environment. large due bid exit ask a rate challenge spread, deals sellers And make

that's it'll there's segment going be we slower. but think So business doesn't to slower think of not any be be a we transactions, that our will mean

construction, huge high, a in labor Construction costs emphasis market. isn't is think tough, which huge, I us. our finding skilled still for are

in and would I've I on think the characterize preserve there I is to I modest the a -- downturn. in on economy, it such as fundamental innovation optimistic, commented our important, in a downturn. characterize layoffs, to those in are cash the modest still still strength But there it is, and companies economy expanding. some extend would view in state, larger sort long experiencing companies past, are innovation of as evident the So which runway. But would the a particular to Massachusetts, an areas the certainly There of economy of an is the be

So well. as it's community. the reasonably business across section I think the widespread And consumer then

I As in mentioned my first comment,

that's of And Mike a related Okay, questions. then couple modeling helpful.

X% loan excludes guidance so accretion. your First, XXX of to margin

kind X X to if points, of an be roughly. that fair? were it's additional to we add of sort back, Is So basis that

about right, Yes. that's Yes, Mark.

margins the throughout And do you okay. a margin, modeling of it? you reported How the trajectory year? are the the feel On for have

Yes, so

then higher and half first the flows new time because half, asset in lower see in to for going yields. have you're we'll second think come greater to I the on at to recover cash just

guidance then And $XX.X-ish is I sort sort of first expenses great. you million reasonable quarter, the rate run Okay, do in a your heard of think? about

dividing year, you you're by think just if it the So take full four. I

that's a reasonable. on like, about that's first bit I think the quarter I just average, taxes of right. higher because But mean, the right, little has always expenses payroll and

was then, curious, question. And a more guess I sort I Okay. of strategic

business? senior or number changes had on any curious, retire incremental recently. strategy that of does focus fair executives any of in lines You've signal a I'm particular

Credit really and succession we're we're succession I role Commercial no, our with we step had the planning in and Banking so commercial in Officer terrific prepared No, planning and that the very there. mean, teams the Chief with the that's retirements banking pleased plan for into place succession up two role, of the division Chief Officer happened,

are a process We management. for wealth head initiating search of new a

be feel half us an do anything of than people first so. for it doesn't year. signal fill to this the retire And our often. every about so But here So will we that position other to in optimistic ability important,

you. Thank

with Please comes Moss question Raymond from next go Steve ahead. The James.

you is are Hey, Steve's where yields Reid, guys. us Thomas RA. on today? insight some Can offer loan new This

Yes, I you there. can give little bit a

on in arms or seven and XX house residential side sixes, the today. the an around for five So the we're year, one of eighth

fives, the rate, side the house commercial fixed in high the On sixes. for low it's

also give us about Okay, can you're on feeling how and great. pricing an sort deposit you update going I'm XXXX? wondering, beta into of,

Sure.

This cycle, beta, excluding is wholesale was look around about So far, of we higher. to expect cumulative beta thus bit deposits, be our XX%. cost cycle, When X%. a our last at it the through little our the you cycle

assuming a we're beta. cycle the XX% about So through

Okay, that's helpful.

me. that's Thanks, Okay, it for guys.

comes Our next question from Chris KBW. Please go with [Operator O'Connell ahead. Instructions]

Morning. Good

Chris. Morning, Good

be to wanted fairly you in on think the consistent to far well. this prior that first over growth as just growth question think deposit as Yes, Do it's XXXX past you net follow-up XXXX? do you organic Do quarter for up slows? Or good throughout as and ramps quarter, betas, looking like, yes see, beta the the then going

I Yes, QX you've increase to mean, behavior in you if it's what's deposit costs an predict since look Chris, environment. But of difficult when and tell to it's this hard consumer happened, business certainly in year. last at seen

We to expect of that terms it, it's guidance continue talked of deposit tell. beta, increase consistent but in the difficult timing to costs about with that I

And on. just careful be also Mike to there,

I in you can think QX, mentioned correct? Chris growth

Chris. Yes,

when decline the slight a So deposits the impact you you fourth had the of exclude when merger, at deposits, during look in just core quarter. we actually

Okay, got it.

Okay.

of quarter. when So actually the you exclude impact in fourth just during had at core the decline deposits a look slight when merger, you we deposits, the

Okay, got it.

the for Okay. that think there you big in one securities XXXX. for as come off, of run chunks XXX the million I schedule over Or or the the And Is as mentioned far the fairly at year? consistent point is any the material course other? then,

No, it's fairly consistent.

of market fourth the inflows how wealth the as for then gross AUM, was far as impact? And kind much the quarter, versus Okay. the management

-- So quarter $XX loss net fourth client was about million. we had Market during during the million. the $XXX quarter, of impact flows net client fourth

have guys as the you Okay, you client specific of targets Wealth are great. to Management net ex activity for kind do any market XXXX? flows And targeting or organic on growth, segment or

put haven’t Chris. we typically We do, out that there, but we

future? of is signs loan kind derivative the bit Or obviously, a it kind low you of a of for in kind quarter, for environment really any And foreseeable a near-term? debt of the improving remain this that it. got point do of income, a the see little Okay,

So we're extent do to with we're clients, very successful. the something in pushing we're to derivatives our interested on that continuing that

go in But increase income. be that throughout mean, something moved upon fixed rate clients intelligent we now change the that I that's dependent may up client they an course may see of for always and right It's year. down looking in preference. as been are You'll the derivative

Okay, got it.

also earlier comments of Should would year derivative think 'XX the per sort of that in robust terms of a Chris, marketplace. change, not happening in revenue be assuming, the loan We're will my change. growth I that what's

I for my questions. taking appreciate the Thanks Great. time.

Thank you. Sure.

comes question with The Please Polaris. next Horn from go ahead. Bernard

quick Good questions. Two morning.

The first on is loan.

kind is And that softer. need have pretty like you are It's or can, there about good to Your if be if on you loan merger. to -- XX%, you organic to wondering growth repayments the had any I'm is excluding curious of that the scheduled would therefore last -- higher X%. it expectation X% was that Northmark your economy to able growth loan have just the think any loan expectations offset on I'm it is you portfolio year, need growth. just just going I

agree? you I Mike, think the it's latter. would

Yes.

And softness, environment hearing we waiting I Bernie, It's just projects of that generally of building We're up. being what the mothballed. the new the sort the on are cash. end see to where think borrowers latter, sidelines

the Just commercial But welcomed happening. understand why is uncertainty is of the a we lot not people is this uncertainty borrowers. -- by

on Makes that's payoff, did have had And on pay And That would higher, then Sure. then fine. offs? the the sense. you to anything in not your had have been material XXXX?

increase On for a that the Because deposits? wholesale you've your yield? to year? like just like the tick in, things in is came deposit Is you Or have people that and up it it looking year looks are something upcoming the got way? prior side, look

for loan clients it's who really Bank we some is basically. and searching Federal those an No, accounting the for Home deposit had outflows it's for robust Bernie are yield. Loan This to alternative -- growth

So wholesale not them Home of It's Loan we It's than CDs. Federal same brokered it's funds. other the put or -- category with either in Bank $XXX that. basically million about

quarter. was Yes, Thanks. okay. follow Great. That’s How Good That's on question. I it had. all my FHLB that does the borrowings? compare -- to

Bernie. Thanks,

Thanks, Bernie.

Denis over closing to This to concludes our like the session. would for Sheahan back turn I question-and-answer any remarks. conference

speaking Thank next again you, call. participation. for everybody, to our your you forward conference We to release at look earnings

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

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