Cambridge Bancorp (CATC) 25 Apr 232023 Q1 Earnings call transcript

Welcome to the Cambridge Bancorp First Quarter 2023 Earnings Conference Call. We'll 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 discussions 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 question. there [Operator [Operator Instructions] Please note, this event is being recorded.

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

outlook. everyone, Chief thank call joined Halberstadt. a Credit Chief Officer, M.J., our our Michael Officer, I'm joining you, Peter you, earnings for Thank Carotenuto; speak by will Financial and things conference today. current earnings for and set quarter our In the first since our the demonstrably. have month, to the thinking and bank on moment, To down last stage the Mike failures quieted

While we deposit in and repricing outflow experienced requests have deposit a amount net decreased deposits stabilized, of March, have significantly. modest

to are uninsured deposit Liquidity grow. Beyond and is materially is excellent. and levels, deposits asset quality capital is continues lower robust, strong

and Disruption opportunity. benefit talent strong focus are we brings disruption opportunity, looking acquisition. through ahead, will will we client and believe from we on We and

two will With that context, on today my focus matters. comments

First, integration; and the and in weekend, their This Bank. impact company. with systems Northmark industry Northmark we events recent past conversion our Bank our finalized second, our to the systems successfully conversion

Former accounts online or and the now a as process across as unified XX we pleased access now and systems are my Massachusetts Northmark one want to new build markets. New operate locations their our in to brand I efforts to as can through Hampshire. and thank clients for their in colleagues these went look smoothly,

namely level uninsured unpack portfolio the and here, have to number impact get a it. areas focus likelihood a its securities know, There's lot the of flows, evaluation, commercial placed bank estate events of industry, a our of a you real following lending let's heightened liquidity, on so and recession failures to portfolios. As recent potential deposits, in on deposit

through up items. ended of from with XX, XXXX, begin me couple common X.XX%, equity year. and at it a this year-end we to rest 'XX, March build. and to strong to Tangible of Capital expect background the X.XX% build is at Let continuous continue

plan remains we While until have quality of this Loan issues I managed, period. seeing we and to Delinquencies asset line significant are well expect turbulent place, are not sight it in be superb. a through would executed see buyback we to greater any date. not

industry you end, again Trust join about will year it. minute effectively to in commercial As and through Cambridge we to know, speak its managed expect in periods stress Credit To period. XXX and and economic our many a Halberstadt, portfolio this Pete of feel we in so has to that do why good our Officer, Chief history, very in detail loan

during Next, deposits. reasons. declined Deposits, quarter for million primary or the funds by $XXX excluding wholesale X.X% two

half in second of offerings. The we first year of yield for trend and clients the was saw the searching continuation last pricier higher deposit treasuries with in a other

As reduced million the year-end. reduction quarter, rate we size solid increases in a in Reserve or the stability following of levels deposit saw interest in $XXX since mid-February Federal X.X% of the

failures. The bank of to effect funds, or or X.X%. million leaving left larger to both net $XX deposits deposits our generally the was market The new money net the in and the securities March wealth second a treasury These of March stress the outflow reason month in to deposits due of banks, was division.

half, fact, our of to million outflows, net nearly $XX wealth $XX matter of or As million dividend. went a in the

failing lines offices, the close the of the public failed with very bank's in of factor. increases Overall, In this institutions proximity which, and are we branch the one geography, significant course, to panic offices I of outside branch stress. to another geographic am mind, outcome. saw Keep pleased in of in this

Trust our our conservatively to communities. we take is, clients done not put, We has outstanding managed team Simply We have locally. and as who significant our institution. working with deposits responsible businesses. concentrated Cambridge a and bank an counsel specialized partner XXX-year-old remind client job My lend to a do locally and them

April of of and the of wholesale reaching XX, deposits, excluding clients as a and to efforts modestly have actually grown business stabilized has in we new the insured sound As our out place. level result and safe and outlining is options

no level client and business Moving have of to higher uninsured great model uninsured deposits. deposits. a will typically To our base surprise,

Cambridge and in however, failures deposit Our clients greater with have the worked We, to recent learnings levels of high from should. insurance degree in build stress. a clients Trust, to they the bank faith and reaction

XX, I'm share to XX% year-end. total significantly XX% at from level our deposits of uninsured March at happy to has dropped

the so total was and total And liquidity X amount or times just level were deposits. XX, of $X.X March billion of insured available $X.X billion the at uninsured about deposits

real with culture make I proud would leader ask on Credit particular, of. commercial Pete credit comments Chief few a and are Pete? been now the Officer, estate has Pete been Halberstadt, portfolio. in for so Cambridge XX loan a regarding our building years we loan has the asset to quality and, observations in Trust his

Thanks, steady. assets Denis. is XXXX. total Good which year-end Non-performing largely unchanged morning, X.XX% everyone. of assets, Overall, asset are from quality remained

we are we rates, rising We performance portfolio, the notable any in and markets. significant are not consistent risk lending seeing core interest within our throughout seeing with remains tight note and not rating Despite early-stage movement housing year-end are levels consumer to yet changes impact that delinquency XXXX. supply

with with decades. side, to commercial term, the properties positive on as with presentation added own for work focus real maintain our in We potential is property portfolio the estate even types. a approach as overall slowdown multifamily diversified compared with we to other loan And shift maintain XX near a On recognize rental continue longer-term a a several given investment larger this hybrid in Slide portfolio. consistent commercial our environment. This outlook to footprint, investor concern we nationally the our on within growth the and we to the office

loan that portfolio coming assessing our have the and total portfolio We $XXX million held only total or X% loans or $XXX note just is about of non-owner office classified pandemic or investment geographically as been as million this are is setting, of throughout while is granular out urban of of more more total less office on investment including a and than X% and Boston X% located the suburban markets. occupied Getting majority in our loans dispersed office Cambridge, properties.

originated Given at value remains our excluding loan based conservative to weighted and is appreciation office since investment values typically underwriting XX%, inception. average loan the portfolio approach, the on on strong any total which

on underwriting its fundamentals. office positioned correction well we feel historically While the market we peak, may to some our expect strong we property any are market from based value declines show absorb

been area from the term other were has interest current and rates. on near in focus The the rates market at impact of loans maturing repricing

a years subject have of of criteria. rate during and percentage fit We For X% relatively low over these reset investment the borrowers only just same XX% note next maturing either is office, that to portfolio two of we the the a period.

potential While these loans stay the not term, more be should longer rate to limited. is near-term pressures would immune impact high they

with to continue and portfolio level We borrowers. contact our dissect at our loan keeping the close

ACL due first given expectations both environment. the In primary the credit reduction consisted Moving ratio the being balances prudent to unemployment the by to to reserve This decreased the slightly of brought offset qualitative items: quarter, the provision is X.XX%. the calculated loan which first increased for and factors three of the increases loss. provision in

you model quality estimated the Cambridge ending X.XX%. from continue forecast the CECL be of within strong We historically asset unemployment is expect seen the fourth and to that to quarter have rate Bancorp the for XXXX

to over will now Mike. turn it I

first GAAP everyone. morning, loan to accretion, Good for interest the were and earnings share margin, Peter. Thanks, per diluted net basis X.XX%. $X.XX per decreased XX the which of The excludes quarter. adjusted earnings were by impact $X.XX share points merger-related

to quarter deposit The basis. during basis points on on The the quarter. by beta X or had company assets operating on of XX.XX%, XX $XXX,XXX for increased was tangible XX%. basis the cost excluding an both GAAP first wholesale cumulative on return total non-wholesale equity and X.XX%, a of bringing to X.XX% of basis quarter a common the return average deposits accretion the Loan deposits, points for a

Within product than and offered demand for majority is the is from X% during quarter. checking checking of checking cash within interest-bearing and on deposits between total sheet. prior shift combined, are the less the suite currently balance interest-bearing through quarter. product accounts When demand deposits, line item interest-bearing the The this the of reduction the insured IntraFi the usage the

commercial. demand Additionally, of are are XX% non-wholesale checking deposit are and Approximately consumer XX% deposits XX% commercial accounts. or interest-bearing accounts of within

million slowed. quarter with expectations, and appreciation flows of quarter. reduction the to As assets buyer a were interest expected, of $XX in a positive rates X.X% of result during Balances of increased primarily activity amount and the slowing as by supply. combined and seller market and between continued consumer lack during activity management a or due market to due disconnect ongoing modest the activity Wealth reduced net level loan

Client administration driven services, $XX.X of assets X.X% lower expenses or total the from fourth $X.X non-interest million operating first as were in reduction of by under expense, expenses. quarter and This March the a XX, marketing management of XXXX. billion processing totaled quarter, XXXX. was Within and professional data

not roles have attrition to We that lower lending within force associated and from a both within activity staff been with consumer expenses in levels. have reduction reductions made due replaced

to increased prudent. continue to As to other it's where we we per look year-end value XXXX as quarter, from indicated XX, $XX.XX March or as of X.X% XXXX. share for of areas $XX.XX spend last reduce book Tangible

Moving From that three will to on margin the from to affects previously we happened XXXs. dependent action the provided Reserve. second is net there, in of further in guidance. expect Federal months course, interest full the the outlook. into the modest which, the quarter compression A lot past continue, decline The has year

stable. have net confidence with will interest us deposits margin reduction slowed in deposit This and regarding conversations clients slow. are Our gives that the pricing

relationships at XX. new update on in progress we'll and you and from level again opening are March We the deposits expect June

be flattish growth For provided has previously an to true. that for we had loan XXXX, growth, proven estimate of loan when

in are We have the the rates. term, But to impact year, borrower higher to we absorb seen mid-Xs. modestly short including and down trend that demand, of the originations, continue improved the however, to of the yields due since the recent expect into need beginning

on a seller spreads We funding If commented that market had picks or between either further clarity narrowing improve Reserve is beginning but to could due rate previously buyer that change. movements to than expectations desired, outlook. loans and were the and costs of that new up, Federal activity lower

X%. stable would than occurred put income, during full volatility, reduction result if markets equity the the bond lower will approximately non-interest that and market quarter success and slightly a community first Within the development year levels first between quarter that as and remain quarter. income $XXX,XXX in be of limited fees X% Again, assuming the fund second

year full still Operating expenses sense. will range growth and continue to be X% makes closely the a X% managed to of for

levels the expect quarter lower first We due impact and quarter of expenses to quarter the quarter cost the than X% between the first second X% will savings. recent full and of be seasonality

excellent. As Peter heard discuss, credit quality remains you

So present themselves. for the allowance between in credit ratio we the items unemployment expect macro-level or that to X% loss other changes year, barring and for X.XX% be

back I will now turn for it final to Denis thoughts.

Clearly, also with truly our us. clients unique period potential. and occasion clients, this and about stressful and the yet hear engaged Trust Cambridge place optimistic are the we This the Mike. and in We opportunity has it a afforded painful, opportunity, and have faith may trust in be colleagues. it’s for Disruption relationships. value has Company engage Thanks, my fortified our again additional again been clients and and shareholders they and brings to

the open for now questions. We'll call

Thank you.

now Instructions] first Piper Today's question-and-answer Fitzgibbon Sandler. question go session. comes from with will begin Mark ahead. We [Operator the Please

Hey, guys. morning. Good

morning. Good

with of your you I what sort wonder us currently? spot deposit if are share rates could

first rate of ex end deposit the market was spot wholesale. the At quarter, X.XX%

I thinking Okay. you Mike, How margin curve? your the in the range forward about Does close there. and think on X.XX% the year, the And margin quarter by you end modestly second declining the modestly? for follow the think, said the assuming get then, down from you guidance, for of you X% to are do

that's Mark. about think I Yeah, right,

about comments thinking the sheet then how growth? grow the are balance and capital growing all I heard Denis, at And balance you putting sheet Okay. year? buyback Does on this hold. your about much

some of change. -- So the we for the are energy. loan some But our hope year innovation lot a be would Mark, capabilities, that, opportunity look in sure that quarter, this when half seeing certainly demand. will out of in renewable is for demand we its There pockets we're second My it's broadly, of that don't down. banking see in

So in some half, hopefully, see second improvement. the we'll

have is a clients take and And you materially. insured the slowed repricing. for talking lot deposits, of degree faith repricing requests period, then Mark, cetera, the if will, et margin, slowed margin about confidence of in deposit there materially. to has terms was deposit we're your requests question, what panic Through of That I some the

outperform the the on -- in Fed guidance So really for my are has on the repricing. keeps ask we'll if think, But going media it's that going on be Mike's slowed as highlighted clients it's I and to moving, hope is margin. dependent, now, to But materially. of to continue

for the a did Okay. values were deck, And Page that that question in you down the reappraised XX, office suggested appraised or a office decline hypothetical a On have Pete. in value actually Is the and on XX% maybe then book you book. XX% the slide just neighborhood? reduction

we're when No. renewing We loans. based update continuously on

portfolio. entire some So a there. updated on the against there'll appraisals in be That's stress

some under the would put additional updates been an So within have XX% overall. There portfolio. XX% it

-- So appraisals, we stress reappraise but It's referencing it's not did updates stress is Mark. the and stress. that new the is book, that completed. not routinely we our the Pete There's

that Okay. be? I heard you what synergies And expected me with Northmark Can question for from cost will the last that remind completed systems us is, you this weekend. the conversion

Yeah, Mark.

XX% to cost achieved we them. guided we and So savings,

Thank you.

you. Thank

you. Thank

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

for everybody. Steve. is Good Hey. in morning, This stepping Thomas

Good morning.

Thank you.

First I this core that hit your I prepared it. just in was but missed question other increased know interest-bearing on balances you for me balances guys most it deposit checking remarks, is, sell? Why on

checking, of it of shift about you the down interest-bearing quarters. a demand was between interest-bearing X% between the and the combine modestly, was and checking There product IntraFi demand use because

Got you. Okay.

that Thomas, when into move product. product, you when interest checking -- deposit it's insured clients an

move into you So interest out checking. of demand

Understood.

Okay. Thank you for that.

question. Next

that's -- said or on right originations coming so what that are people guys recent You now the are Is in mid-Xs. committing? what's that's

during funding see That's quarter, improvement the we yields. we between first and and continue what loan saw costs to

does just the And like What look one in now pipeline last terms Great. unfunded Okay. for of me. about commitments?

commitments. or unfunded So Can you pipeline just clarify? for loans

pipeline the for Pipeline -- loans, me. excuse

Sure.

in of we we're but Reserve going term, rate we're or buyer clarity greater during that our near hopeful the movements on think comments that continues a talked improve there's prepared expectations. slower and here have activity we narrowing either outlook to So to longer-term as Federal the seller

That’s right. guys Thank so That for me. All Okay. it you, much. covers great.

you. Thank

you. Thank next Please from O'Connell go comes Chris question The ahead. with KBW.

morning. Good Hey.

the next saves? that quarter, guide inclusive down X% expense were to the On X% cost is of Northmark

was it and is, It X% to X%.

X%. to that trend to you guys of Thanks. of remainder year the Okay, kind how X% expect do for the And level? expenses after

for Chris, year. So we full the guided to X% to X%

that's our So comments. in what we prepared had

I guide And you. missed have year? was X%? Thank for it, Great. it Was down fees may for the full the

X%. to X%

X% X%. to

next it. about going Got are AUM how quarter, fees increased from And given this wealth thinking quarter? the Okay. you into management the

Yeah.

of decline, you'll -- year the pretty first go-forward the So is the they see on you'll equity talked Certainly quarter end it's linear, If being as decreased we to help in into the up right? the a and past, If remain slightly about if basis. valuations stable, Chris, going from increased bond levels. levels. see up

And noninterest-bearing cost it. for those ICS, -- into the interest-bearing Got checking the the but into what's on deposits? from ICS Okay. the average for like move

It really the the at It Chris. of depends relationship, depends relationship their entirety the client upon company. upon here

the for don't weighted checking basis have I even release, interest-bearing it's was the look at and quarter. average -- can XX So points I about the a

looks Okay. flows thinking right guys the of and Got what are it. duration now cash guess, And monthly the -- are? like I as one, or you kind maybe security

Sure.

million over and expected is months the remain duration the principal next securities the and portfolio six between cash portfolio million of years. the the $XXX approximately flows $XXX So of XX

Got it.

margin, ahead that balance mean, the kind on you going the there wholesale other amount is actions mean, guys wholesale of give to I sheet of amount any And flexibility are guys that deposits looking can or you considering of as borrowings? are the some I so of sort forward reduce

we be year period. primary the -- primary rest deposit of would now here hopefully growth. are the our And The about So deposits this ability for optimistic to we're that this Denis. is through grow the Chris,

always sheet of planned. We at we currently balance Beyond referencing opportunities time, that, but have would restructure. a assume time from nothing to form you're some I look

maybe have how as remainder to have, And Got XXXX for guys great. you as well, you XXXX? reprice loans out, much And if if like are the would be it. set the are of fixed-rate looking you that

Chris, I don't follow have that information up. here. We can

how of it. get reacts of comments where how It if of and those asset year. loose it kind upward. the guys Got the thinking rate get change mean, are term, heading thinking kind about you about around rate so, be And outlook margin remainder you of I rebound, to much and and some any funds and for the for to equal And base that starts around thinking rates rebound relief changes how might we margin overall just mean the portfolio the if longer on like could are into without XXXX? the of margin Fed as rate all how loan kind I reprice appreciate I kind any continue color the that do the as how further that's in XXXX? you guys

of the that a Fed challenging -- this there. should If answer. of question being there's lot expand. Fed and all would are margin talking -- variables variables equal, a -- but field of the gives the a you're and if say else I relief football about there's if cuts There's lot to Chris, rates, the

you short when blow can period benefit. we more a sensitive. after the rates quarter, Fed that points than if past. through in fundamentally, of lot increase of We're you asset when asset We the should of you that just in sensitivity. XXX first were -- a you we're time, But cuts, basis were sensitive we think kind liability I certainly, expect, as

So now Fed liability we the have cuts, more benefit. we some if will sensitivity

Okay. Got Appreciate had time. for it. now. That’s the I all

Thanks, Chris.

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

everybody. look after to to We next Thanks, forward release. our speaking earnings you

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

may You disconnect. now