Cambridge Bancorp
Q2 2021 Earnings Call Transcript

Published: 20 Jul 2021

[Operator:]

Welcome to the Cambridge Bancorp Second Quarter Earnings Conference Call. All participants will be in a listen-only mode. Please note this event is being recorded. I would now like to turn the conference over to Mr. Denis Sheahan, Chairman, President and Chief Executive Officer. Please go ahead, sir.

[Denis Sheahan:]

Thank you, Betsy and welcome everybody to the Cambridge Bancorp second quarter earnings conference call. Before proceeding, let me mention that this call may contain forward looking statements with respect to the financial condition, results of operations and business of Cambridge Bancorp. Actual results maybe different. Factors that may cause actual results to differ include those identified in our Annual Report on Form 10-K and our earnings press release. Cambridge Bancorp cautions you against unduly relying upon any forward-looking statements and disclaims any intent to update publicly any forward-looking statements whether in response to new information, future events or otherwise.

[Operator:]

We will now begin the question-and-answer session. The first question comes from Mark Fitzgibbon with Piper Sandler. Please go ahead.

[Alex Twerdahl:]

Hey, good morning. It’s actually Alex Twerdahl filling in for Mark. How are you guys this morning?

[Denis Sheahan:]

Hi, Alex. How are you?

[Alex Twerdahl:]

Well, thanks. I just wanted to start off into sort of hoping that maybe you could elaborate a little bit more on your comments that the pipelines were good. And obviously, you have had a lot of optimism in your market. Would you expect that to translate for into loan growth continuing into the back half of the year?

[Denis Sheahan:]

Yes. I mean, certainly we are very – our pipelines, we think of our pipelines, it’s what we expect to close in the next 90 days. So, while it is lower than it was at the end of the last quarter, it’s because of the really good closings obviously that we had during the quarter, but we are – we feel pretty good about continued loan growth into the third quarter. Now, obviously, where the 10-year has gone, we all have to think about will that create further prepayment. But as far as we can see sitting here today, we feel good about continued growth certainly into the third quarter.

[Alex Twerdahl:]

Great. And then one thing I noticed is that residential mortgage actually grew in the second quarter, have you guys switched your strategy about putting residential mortgages on the books versus selling off that paper?

[Denis Sheahan:]

No, it’s primarily driven by reduced payoff activity during the quarter.

[Alex Twerdahl:]

Great. And then just as that loan growth and some of the other dynamics, PPP, purchases and accretion etcetera translate to the NIM, maybe you could help – just help understand how you guys are thinking about the NIM and NII into the back half of the year?

[Denis Sheahan:]

Yes. So I’d expect a few basis point reduction in the core net interest margin for the next couple of quarters just given the earning asset pressure that’s out there externally.

[Alex Twerdahl:]

Okay. And then how should we be thinking about purchase accounting accretion for the next couple of quarters?

[Denis Sheahan:]

It’s dependent upon payoff activity, but I would expect it to decline from here hopefully.

[Alex Twerdahl:]

Okay. And then are you guys seeing anything in your market, there has been a whole slew of recent merger announcements up in the greater Boston area. I am just wondering if you are seeing some disruption from those mergers and whether that’s creating opportunity for either poaching talent or additional client acquisition?

[Denis Sheahan:]

We are seeing some modest improvement in client acquisition. Alex, if you think about it, those organizations haven’t gone through their conversion process yet. Clients haven’t been hit with notification of conversions. And at this stage for those organizations, banks are doing a lot of thinking about convergence, but their customers are not. So, most of the opportunity will come later. There certainly will be some opportunity for talent acquisition, because we have recognized there are – there is going to be some significant job losses associated with those mergers. And they are larger organizations, and not everybody is going to fit in those larger organizations culturally. So, we certainly are having conversations. We are hopeful that some talent will free up and we will look to execute on that.

[Alex Twerdahl:]

Great. And then just a final question for me, as you guys think about M&A for you guys. It’s been I think, a year since Wellesley closed and how are you – are you ready to do additional M&A? Are there opportunities out there? And sort of how you think about that? And what – what’s sort of the wish list today?

[Denis Sheahan:]

So, I would say no, you know our markets well. There is limited opportunity in our marketplace for M&A. And I would add to that, when you think about culturally, the kind of organizations that we would be attracted to, there is even fewer opportunities. So, that said, our team is ready. I am very confident in this team’s ability to integrate mergers. We integrated two mergers in 2 years, one of them in the middle of a pandemic. So, we have a high degree of competency here. We are ready. We are willing to have conversation if somebody wants to have the conversation. But there is – the honest answer is, it’s very limited opportunity.

[Alex Twerdahl:]

Great. Thanks for taking my questions.

[Denis Sheahan:]

Sure. You’re welcome.

[Operator:]

The next question comes from William Wallace with Raymond James. Please go ahead.

[William Wallace:]

Alright, thanks. Maybe just a couple of quick follow-up questions on the loan growth of NIM, I believe in the annual guidance slide, the target for loan growth was 6% to 8%, this quarter was extraordinarily strong, ex-PPP, is it – should we assume that that you might come in above that target or do you feel like, we are going to kind of bounce back in the back half from what we just saw?

[Mike Carotenuto:]

So, like you said, Wally, we had 6% to 8%, we are comfortable with that range. We had 5% roughly year-to-date. So, we are hopeful we could get ahead of it, but to be determined.

[William Wallace:]

Okay. So, with what you see in the pipelines today, I mean, it seems like there is still a lot of uncertainty, that doesn’t give you confidence that you could exceed that number. You are comfortable, but not confident is that it might…?

[Mike Carotenuto:]

As Denis said before, we are seeing good growth prospects for at least for the third quarter. It’s hard to see out beyond that Wally.

[William Wallace:]

Okay. And then on the net interest margin commentary, Mike you mentioned, I think you said a couple of basis points of core compression for quarter from here. Does that consider any kind of run-off of liquidity or use of liquidity in the bond portfolio or anything like that?

[Mike Carotenuto:]

So, we have put a lot of the excess cash to work during the second quarter here. We are going to continue to stay invested. So, assumes that we are going to keep cash levels around current. So, did that give you a little bit color?

[William Wallace:]

Yes. Do you – would you have now what the net interest margin was on a core basis in June?

[Mike Carotenuto:]

During the month of June, well, I don’t think we are going to be putting out there, but for the quarter was 3.01.

[William Wallace:]

Yes. Okay. And then on expenses, I know you had the wealth systems investment, were at just over $25 million in the second quarter. What do you think we trend in the back half of the year from the second quarter?

[William Wallace:]

I think the second quarter is a good run rate for the remainder of this year, given that wealth management systems conversion that’s expected to come online during the fourth quarter and continue to spend in marketing to capitalize on opportunities that we see externally.

[William Wallace:]

Okay. That’s very helpful. I will step back. Thank you.

[Denis Sheahan:]

Thank you.

[Operator:]

The next question comes from Kelly Motta with KBW. Please go ahead.

[Kelly Motta:]

Hi. Thank you so much for the question. Just wanted to do a quick follow-up on the last question on expenses, you have mentioned in the past that marketing is and just now that marketing is something that you are trying to do increase brand awareness, did come in higher this quarter. Is this kind of a level where you expect to your marketing spends to be for the next couple quarters or just any color on how to kind of think about that initiative and that line? Thanks.

[Denis Sheahan:]

Yes. Kelly, this quarter represents right around a good run-rate for the next couple quarters for us as it relates to marketing.

[Kelly Motta:]

Right. And just to follow-up on the core expenses, core NIM. Sorry, I missed whether or not your commentary on core NIM is includes the excess cash or not and with yields trending as they are, does that change at all on your thoughts on reinvesting versus holding cash hoping for some improvement there? Thanks.

[Denis Sheahan:]

Yes. So Kelly, it does. We utilized a lot of that excess cash during the second quarter, we plan to stay invested. So, cash levels are going to be around where they ended the second quarter.

[Kelly Motta:]

Great. And then on the deposit side, they still grew a little bit after what was really, really strong growth last quarter. Is there any sort of transitory amount of deposits that are still expected to sort of flow out or did that all occur mostly during the second quarter?

[Denis Sheahan:]

So, that’s a good question. We did see, as expected, some of the transitory deposits for tax payments and other during the second quarter, but offsetting that was growth between new and existing clients. So, there is still some PPP related deposits, which may leave later this year, depending upon if people invest in their businesses. But we are optimistic that we are going to retain the vast majority of what we have seen thus far.

[Kelly Motta:]

Great. And do you expect that growth in deposits will outstrip kind of what’s left to runoff for the back half of the year? Just any sort of help on that would help with the size of the balance sheet? Thanks.

[Denis Sheahan:]

Sure. Yes, that would be our desire. One of our focuses is core deposit growth. But it’s a little bit of an unknown at this point, Kelly.

[Kelly Motta:]

Great. Thank you.

[Mike Carotenuto:]

Our plan is Kelly for Denis is to continue to focus on core deposit growth is one of our key strategies. So, we will look to continue to grow deposits here. But to Mike’s point, there is a lot going on in every banks deposit base today with excess liquidity and businesses, we stay very close to our clients to get a sense for what they will use in the near-term or over the medium-term, but we are still going to be focused on continued growth in core deposits.

[Kelly Motta:]

Right. Thank you. I’ll step back.

[Operator:]

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

[Denis Sheahan:]

Thank you, Betsy. Thank you everybody for joining us today. We look forward to speaking with you after our third quarter earnings announcement. Thank you.

[Operator:]

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.