Cambridge Bancorp (CATC) 18 Jul 232023 Q2 Earnings call transcript

Welcome to the Cambridge Bancorp Second 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 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 Instructions]. [Operator today's questions. there be will ask to opportunity an After presentation, Instructions]. [Operator note Please is event this being recorded.

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

everybody good our call Thank you conference thank morning Marlise, for and you, today. and joining earnings

our Lombardi; Officer, Joe Hackel. Pete by Vice President and our Danielle Sapienza; Chief of our Officer, Interim joined I'm Joe Halberstadt; Chief Credit Finance, our Marketing Officer, Chief Financial Remis

to speak our addition Growth will interest for the the I From very and moment, a the recession perspective, market. market to the deposit pricing regarding have earnings second quarter continued volatility. current in while outlook. in In rates and challenging, and pricing uncertainty on Cambridge thinking equity a pressure we stabilized a levels Bancorp macro see priority and deposits due in remains still to is not At exists. pressure as elevated

However, in and we are beginning of year. second of the deposit shoots this hopeful I'm half to see green growth

levels, two Beyond approximately grow. is to Liquidity strong remains deposits, continues asset and at excellent. is of quality the robust and level times capital uninsured deposit

to with modest lending reduction activity, disconnect flat, during of housing activity a quarter expected. of the mortgage and seller slowing rates level the buyer due essentially supply. interest real between From balances combined Total in and commercial were as was estate, of perspective, result and continued a ongoing as market the in activity lack expectations consumer

and in half are in the was many. solid opportunities continue expect X% growth Innovation both spot to I year the in see renewable and of achieved energy Banking we of banking sectors. one as lending, the in industrial second segment commercial innovation will bright the the quarter, which growth the in The

time. In the not clearly or at to this offered activity, estate are in pricing it lending, market we loan attracted slow. the commercial is is but There either structures real

credit would our just In half for not we We discipline growth growth. are and expect this of aside in second to not loan waiver, known achieve lending, will summary, significant C&I year. that from the

we clients the benefiting disruption new turmoil focused are and acquiring in this Following the talent. markets the earlier by industry from year, on

have skilled acquiring on we deposits to hired Massachusetts bankers New relationship Hampshire. Specifically, four focus and in

we in last business decades Jeff, months Wealth Additionally, as Head experience hired new of digging Jennifer the Jeff of and coming Management, management replacing month. building who a wealth forward Head look Wealth new wealth I growing story to a who years. Smith, in growth Management, retired management our Pline, brings in of and

and few of middle billion excluding non-interest-bearing and A to highlights failures. at compared combined $X.XX cash funds, $X.XX clients to focal March week-over-week Of remarkably at XX. XX, wholesale bank note Interest compared insured approximately stable comparing which when since a billion our moved of billion March during in $X.XX and changes period. as the stress March million during Deposits billion balances recent were point XX, backdrop this deposits stable quarter. at via June at been interest-bearing totaled also the been checking for to $XX has have as sweep, the $X.XX

update remains book June XX. compared ended common at March provide asset Halberstadt, seeing environment. a $XX superb, to-date. share as of ratio The over at value just to in commercial well our significant join and X.XX%, X.XX% any delinquencies are to on the to Pete equity level tangible to and increased will minute an issues loan detail tangible not office the Loan we are June and managed quality portfolio in per speak

roughly available and market quarter. of to of the of $X.X billion liquidity management June XX. total level the end billion during due at uninsured the client remaining the appreciation under quarter, The deposits primarily as totaled amount of times increased assets and two was assets management $X.X Wealth administration

earnings on Moving to part and the of weight affected per XXXX $X.XX earnings and XX both of quarter, and Net deposit share XXXX. The cumulative of margin earnings impact quarter. operating of by decreased latter all higher which previous excluding assets diluted cost loan X.XX% by and were related common points the second flows negatively non-wholesale the an are XX XX%. $X.XX return quarter. X.XX% wholesale and interest share points the GAAP equity deposits negative income, the to basis basis of ratios to The share return tangible of per beta the the X.XX% for deposit operating profitability increased in Company X.XX% to accretion, excludes on deposits net merger The from diluted on of per by average basis beginning earnings. adjusted total interest bringing rates, the for quarter. were had a for

about Regarding Fed the conditions. quarter inflation uncertainty outlook, and to expectations the economic of the change given continued during the

costs higher expenses costs as client deposit quarter, elevated wholesale were of result, borrowing of during and a and both April June. request the continuation month As funding the in a rate during

low of to on We based from activity quarter cost the reduced quests, was this deposits with likely our into further to the certainly the higher. in net seen margin interest it move previous be rate the continue the and believe toward guidance, if is change year, relates activity will yield diminished rates of March continue curve and and spot consistent forward could As to end current client the X.XX%. of at Xs the April, the decline level end and the of

we the core avoid we growth, to deposits. year last expect impact are interest to year with remainder also derivatives more based guidance, prior in expecting, relationship a Recently, of growth. reasonably remains The looking And to we top outlook the higher are quarter. we've a for rates while similar flat of loan race of focused of been interest on instead the and focus Consistent the increases. rate remainder deposit on adding terms as in reduce modest are to the growth the we

We year non-interest X% remains prior of appropriate. remains operating and of of X% for a and to Within reduction closely monitor expect the the rate the year X% year, between from prior from appropriate. growth the expenses remainder a X% to income,

For between and for ratio, for rate tax still the XX% is loss allowance unemployment remain X% year. XXXX, be year macro full to credit to X.X% XX.X% The changes barring in between for items. effective the that we expect the other and level or for expected

Chief our estate Pete commercial asset loan Credit observations to make real comments a particular on I'll Pete? loan Halberstadt, now the ask and portfolio. in regarding his few Officer, quality

remains the from ended total and of Good assets, at quarter Thanks, assets Denis. unchanged steady. asset largely morning, everyone. X.XX% XX, quality XXXX March Non-performing XXXX. Overall yearend

low, seeing relative the are rating risk not movement size levels delinquency We significant stage the early portfolio. and to and changes of remain

markets. first housing performance a months, our supply see the throughout to shortage strong Through remained within has the six continue of we lending consumer and portfolio,

On the property commercial we've estate commercial multifamily loan a side, compared with real to maintained portfolio other overall, on types. diversified as focus

that growth, and remain markets, class demand. an well with strengthened the stable rental multifamily a England diverse by for remains workforce year-over-year continued dispersed with sound for is attractive throughout us, Multifamily that portfolio potential supply within yields seasoned believe slowing asset New our on fundamentals market. housing we a pressure our Even

a relates rates. activity on and are properties our sharp to both eye investment rental office it nationally, within and own As sales keeping footprint, we

recognize that office history nationally, we we conservative immune exposure. that limit our feel we trends optimistic help to be While not underwriting of will long will downside

will excluding the and typically reminder, investment appreciation dissect continue any a based value inception. office constant office need the as loan on to As at strong and at weighted on the level. loan-to-value market The such, originated our something portfolio XX%, average monitoring that loan total portfolio is remains we since

activity, as seen contact expected, within to have more surrounding borrowers market. as leasing the teams suburban with and Boston being pressure Our our lending office compared maintained close is

at our noted office to than of the As loans. total nominal past, in X% less urban exposure is

the credit provision of in loss, the for second provision two to consisted quarter, items. the primary Moving

due increases The slight factors ratio in by environment, reduction being balances This items a calculated was in kept the These expectations. qualitative overall. loan as in at the reduction X.XX%. well given the net unemployment slightly first, lower reserve provision to prudent as small offset the a increase resulting of ACL

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

turn now the Denis call will back for I the conclusion. to

Pete. Thanks,

been my has I As opportunity while end we comments, I'd the to a ahead. challenging like optimistic about are emphasize, this period,

by will from benefit new are posed Private opportunity Boston takeovers the Republic. investing and We of the First SVB acquisition talent and in

team, from Trust observation make compelled Cambridge Recently whose Finally, in the was immediate in the attention deliver. of brought and proposition of our offices clients. we our our the soundness are This personal located to The but we value not England. a solutions client to bank and New personalized them on to they and expertise of received our change brand the Cambridge previous footprint, exceptional is an commercial they institution. safety Trust needed the our

line questions. now for And, will open the we

session. from Mark, Mark Piper now our comes will Sandler. question-and-answer Fitzgibbon begin the question We And Instructions]. [Operator from please first ahead. go

share this quarter good their us, four I their on of where and if you was morning book board you those how prior could did come business and you, relationship wonder with guys. at bankers Thank Denis, brought big from, institutions?

size two contacts the smaller institutions, different from some pick book, them, their our relationship the coming of a on I disappointed terms had in organizations. up a to but but of in not And, have Banking certainly we yet and the it and our have already marketplace to in able from in nice know I've First been to of they and think And, -- team. Valley side, variety we're Innovation talent been we picking were that inability talent. don't roll and actually came capability do the their They attracted we benefit in Silicon on traditional seeing done the then they banking benefit. months more the will of up Republic, really

when CFO a on sense And for then you new have Okay. board? do you'll have the timing a

certainly a the I three process CFO. new to Yes, will is the the six recruiting underway. next expect next have would we months, over --

interview in process Our week. starts next the

any Okay. the particular got could Was bit kind to spread caused Pete XX delinquency there what with to call, a that pick since And you of day quarter? XX wonder on this across I things? or we've category us share then Pete, bucket up day if

(ph) assisted over. one isolated No, struggling flow. been across It's living facility. now, borrower office, fairly The with cash bit little another has not a Actually but it it's stages was just loan. to it [create] and early

is one isolated. loan fairly So,

know could a distress of that loans struggling Boston market? could I your talked little have if And then big I signs share know Okay. just any and spend don't maybe seeing the those you with on have about in values bit if a greater you office are in portfolio rates, us Downtown past minute have but guys you we I book. you the Boston a wondered think the there, where book with gone And, office market? also in you do vacancy in on

Boston a lot is Downtown particular, pool. very in changes to few Boston, material the that again we portfolio, to decline So, seeing with of within say in inception it's market wouldn't ones in seems within XX% a not of ratings. that XX% the since seeing. risk probably I movement updated a there's We're align the loan what limited

low just it's overall office, really loan. pretty ratio [per a have in side] We one

into going in then to forward quarter. that's the sort you the curve. know you think Denis, assuming is low sort stabilize think Fed's the margin follows the the do to get is the Okay. think question, I start XXXX? Xs of early of by you Does low? fourth Do And margin the last

for year. So, this the the rate rest will decline of reduction of

tough two I points XX had quarters think quarter. of reduction, we've So, margin a roughly terms in basis

the guiding pointing the margins X%. X.XX% we're GAAP what towards So, lower we're at

rate slow. the of decline So, will

It see and think we're funding. higher we to margin growing mean, I compression that. we That's a estate unless the Or at moment, Looking into we're successful achieve a it's that in to real loans. conceivable. is than lending at year, I less picks on can deposits, on next continue and range, could working side. X% commercial obviously but But tip yield rate particularly the up wholesale below Mark, try that yes, a challenge hard would the avoid

Thank you.

comes from question go please next Steve, Steve Our ahead. from Raymond James. Moss

morning. Good

Steve. morning, Good

up in the of loans. competitive pricing on Denis, maybe following environment and just terms

give could to what seeing as a more If price just color are loans you at? rates competitors little different

opportunities. commercial specific pricing, less it's We're up it just not perspective, the it's just loan So, to our being amortization estate. pricing, seeing structure. From equity also values into real lengthen, mean isn't put go there's

pricing that some Xs… problematic you add then in that's us. for when So to case, And Pete in

Yes, we’re seeing still it.

tough. Yes, that's

you're You know dealing that. with

kind that would growth. market, the And are more one that this time. hope time but prevails So, from of in to some happens logic to we not attracted

the the So space, that's that do C&I that? is specifically with Pete, problematic. In agree there one is better you pricing.

Yes.

some category. having in the Innovation we're success And nice Banking

having think we area. that year. up here happened, think the in We're continue some of reasons, And yielding. nicely that's for failures bank a will and obvious some business that I can we the lot category pick of that the conversations through in that that nice with client rest of

Okay. of That's mentioned continue helpful. growth just to And likely here. Banking on you the in terms -- the is side, Innovation

just portfolio? the curious Just that's dynamics there kind is the growth loan driving and you of seeing that for are where pricing

if there's opinions two space here put of it, happening, today than two in ago. less years was I the a in is in year some VC ago there categories So, Pete, jump One please. or what's and money it other you

may flow would from that comes in VC companies more the to time. a One be back funding inclined perspective. So, help to borrow hope cash

And there's then that reason gone. clearly the organization demise been Bank. marketplace some with unfortunate the in is the of second And Valley Silicon disruption is,

So, clients are other options. for looking

went institutions. Some of the to talent larger

an so, option. are And we

the the by just area right equity private equity and we're in lot now private management we've for space but by in And space, home an side. seven that And borrower side, interested for it's borrower, believe day future we we're on here a offer also by credibility the years. on been our and We've building definitely It's wealth intrigued firm firm. in growth. the banking in not to got territory day,

that? there. Pete, excited to So, And to potential further would forward the about we're looking really add growth. you anything

say that's is fair the I'd investment paying presence. I the space bigger now itself market a in No, have think to seven off representation years

out activity that more terms presence. lot predating market a in seeing just we're reaching March of in So, even borrowers

to And sheet your that adjustments? just you're balance mentioned Okay. notional how you're one value using the -- for adjust Denis, me. making That's helpful. to maybe color here, but any more question of and little derivatives last you believe I the a what adjustments

It I dollars the And Steve, appropriate $XXX we is of certainly to rate sensitivity, up. against here. continue think their It's I but notional to against all the the doesn't the protecting in degree. front that eliminate somewhere helping essentially add have protect pay in a of swaps don't to me, fixed upward that up. we'll Yes, it -- have where around that derivatives protects are but

did So, here we've been adding in quarter. those over time second more some and the

the all Appreciate Great. Okay. you Thank very much. color.

Steve. Thanks Sure. Sure.

Instructions]. [Operator

I'm question next please go Chris, from Our KBW. Chris ahead. comes from O'Donnell. sorry, O'Connell

morning. Good

Hi Chris.

to it And down or quarter. outflow shift that's the a is something like of persist off out into in back still July? to half stopping hoping do seems non-interest-bearing far is those environment. on continue side, you of or obviously mix you slowing so shift was that mix are deposit second to you they non-interest-bearing year? the I in think the It of the Did tough to that How mix out had some thinking here flows? about start going

conversation It's of definitely an But today slowing, it year a clients look, definitely Chris. a element with way is safety that ago. in wasn't a

some it's of things about. one product. you the arsenal for sorts So, elements an the of clients want that they insured talked of to clients, And of

in around as pose But certainly acting discussion them the rates stability facilitating industry for slowed for just we're their and of would has so, us. somewhat, level around the level I the of and And in safety discussion that best slowed interest. has

would shift expect mix that slow. I So, to

versus of some the on the wholesale forward more you shifted And regarding borrowing wholesale off basis of it. of of cost I CDs thinking brokered funding trade as each off those those borrowings. in kind your side far noticed quarter. and run products forward? or go about to higher going are you Okay, use strategy or a let got this How CDs as using

you differently, cost, economic brokerage you to best the between versa. comes That's of to. the two. comes out the curve And home which time the It -- federal vice me loan from bank but Joe, really down to if can ahead what get is feel market down correct really the time, decision and better

looking at Do really agree, the economic it's Joe? So, best solution. you

Yes. Denis. Absolutely,

don't And you for space originations, loan those if on new are I Got at? earlier, the it. seeing then you but Banking know mentioned Innovation where that pricing

know do you it's… Pete,

It’s fairly competitive.

Is it in the sevens?

sevens plus. Yes,

plus Sevens some in eights. the

credit. the on Depending

of Great. seeing into And of XXXX the as back you're XXXX. over far as the course what half

specifically, from Chris. you're we seeing? mean, follow-up could do Pete, you sense, know with I what a don't have you, just I but

much in actually we of we mean, maturing the two don't that to office, years. I similar have on what next posted the portfolio

small years. a maturing that's it's two subset next in So, the

with But what can we Yes. a value. the sense follow-up amortization with portfolio of you will

X% obviously coming here. get a in refinancing within sounds that the the those. you new pricing on choose refi or aren't the like credits guess CRE Just you to guys trying to some due. sense where are I looking for already you for those the that at it CRE books the the on maturing of of already But that have the put have get to range is If credits? is that that can portfolio, you guys Obviously, you

would with that? rolling achieving in and Xs the smaller in Pete, mid Xs, probably off be be the you opportunities for is do the So, you what mid-Xs. could agree

Yes.

into things guidance the on have say these Is the expenses hires still out and conversion that puts Got it. into quarter color being as and you new the I of quarter? to this you even fair And guidance the down it flatten of done here past with side quarter. expense the kind fourth some the appreciate with and range next that

excluding the charges? So, -- merger non-operating the excluding

Correct.

year second should rest the flat that to flat but modestly, And the range. the for Pretty quarter. into of pretty compared get us think, down I that

in a or run any was that or rate? And FDIC quarter there accruals like good ups true this the happening is line

be should good a run quarter Current rate.

Okay. capitalized how balance are Thanks. here be growth, quarters? the doing here management from like there and And think opportunity over future. specifically then capital as the we next well near guys any I a in mean it seems buyback too of guys do much sheet and there's you couple not is you the about will

outlook to low rest get the think clarity around next we likelihood those we I recession for And into this head sort heading I the we'll as that retain a through is buying I certainty. year. over be perhaps next prudent quarter, But of and want and yes, greater year of certainly here the thing think stock. then maybe capital absolutely until greater would welcome back

right, have All questions. I all now. that's for Great. Thanks for my taking

Chris. Thanks,

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

Thanks We quarterly you to again look report. everybody. forward our talking after next to

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

disconnect. may You now