Cambridge Bancorp Announces Second Quarter 2023 Results and Declares Dividend

CAMBRIDGE, Mass., July 18, 2023 /PRNewswire/ -- Cambridge Bancorp (NASDAQ: CATC) (the "Company"), the parent company of Cambridge Trust Company (the "Bank"), today announced unaudited net income of $7.1 million for the three months ended June 30, 2023, a decrease of $5.3 million, or 42.7%, as compared to net income of $12.4 million for the three months ended March 31, 2023. Diluted earnings per share were $0.91 for the three months ended June 30, 2023, representing a decrease of $0.67, or 42.4%, as compared to diluted earnings per share of $1.58 for the three months ended March 31, 2023.

The results for the three months ended June 30, 2023 include non-operating items, namely merger related charges and as detailed in the accounting principles generally accepted in the United States of America ("GAAP") to non-GAAP reconciliations within this release. Excluding these items, operating net income was $9.6 million for the three months ended June 30, 2023, a decrease of $3.1 million, or 24.3%, as compared to operating net income of $12.7 million for the three months ended March 31, 2023. Operating diluted earnings per share were $1.23 for the three months ended June 30, 2023, representing a decrease of $0.39, or 24.1%, as compared to operating diluted earnings per share of $1.62 for the three months ended March 31, 2023.

For the six months ended June 30, 2023, unaudited net income was $19.5 million, representing a decrease of $7.4 million, or 27.6%, as compared to net income of $27.0 million for the six months ended June 30, 2022. Diluted earnings per share were $2.49 for the six months ended June 30, 2023, representing a 35.0% decrease as compared to diluted earnings per share of $3.83 for the six months ended June 30, 2022.

Operating net income was $22.4 million for the six months ended June 30, 2023, a decrease of $4.4 million, or 16.4%, as compared to operating net income of $26.7 million for the six months ended June 30, 2022. Operating diluted earnings per share were $2.85 for the six months ended June 30, 2023, representing a 24.8% decrease as compared to operating diluted earnings per share of $3.79 for the six months ended June 30, 2022.

"Following the industry turmoil earlier this year, we are now focused on benefiting from the disruption in the markets by acquiring new clients and talent. Specifically, we have hired four skilled relationship bankers to focus on acquiring deposits in Massachusetts and New Hampshire," noted Denis K. Sheahan, Chairman, President and CEO. "In addition, I am pleased to welcome Jeffrey Smith, who is experienced in growing and developing wealth management businesses, to lead the Wealth Management division of Cambridge Trust."

Second Quarter 2023 Highlights:

• Financial performance ratios for the three months ended June 30, 2023 were as follows:
  • Return on Average Assets ("ROA") of 0.52% and Operating ROA of 0.70%.
  • Return on Average Equity of 5.43% and Operating Return on Tangible Common Shareholders' Equity ("ROTCE") of 8.51%.
• Deposits, excluding wholesale funds, totaled $4.09 billion at June 30, 2023 as compared to $4.13 billion at March 31, 2023.
• Asset quality at June 30, 2023 remained excellent with ratios of non-performing loans to total loans and non-performing assets to total assets at 0.18% and 0.13%, respectively.
• The common equity to assets ratio increased to 9.60% at June 30, 2023 from 9.51% at March 31, 2023. The tangible common equity to tangible assets ratio increased to 8.41% at June 30, 2023 from 8.32% at March 31, 2023.
• Book value per share at June 30, 2023 increased to $67.17 from $67.14 at March 31, 2023. Tangible book value per share at June 30, 2023 increased to $58.05 from $57.98 at March 31, 2023.
• Available sources of liquidity at June 30, 2023 totaled approximately $2.6 billion. This is approximately two times the amount of uninsured deposits at June 30, 2023.

Balance Sheet

Total assets decreased by $39.0 million, or 0.7%, from $5.53 billion at March 31, 2023 to $5.49 billion at June 30, 2023.

Total loans increased by $7.1 million, or 0.2%, from $4.02 billion at March 31, 2023 to $4.03 billion at June 30, 2023.

• Residential real estate loans decreased by $14.6 million, from $1.63 billion at March 31, 2023 to $1.62 billion at June 30, 2023.
• Commercial real estate loans increased by $10.1 million, from $1.91 billion at March 31, 2023 to $1.92 billion at June 30, 2023.
• Home equity loans decreased by $5.7 million, from $101.7 million at March 31, 2023 to $96.0 million at June 30, 2023.
• Commercial and industrial loans increased by $23.7 million, or 6.9%, from $343.7 million at March 31, 2023 to $367.4 million at June 30, 2023, primarily due to growth in Innovation Banking loans.

The Company's total investment securities portfolio decreased by $31.3 million, or 2.6%, from $1.18 billion at March 31, 2023 to $1.15 billion at June 30, 2023.

Total deposits, inclusive of wholesale deposits, decreased by $214.2 million, or 4.6%, to $4.44 billion at June 30, 2023, as compared to $4.66 billion at March 31, 2023, primarily due to lower wholesale deposits. At June 30, 2023, excluding wholesale deposits, total deposits decreased by $47.3 million, or 1.1%, from March 31, 2023.

• Total demand and interest-bearing checking on a combined basis decreased by approximately $7.1 million, or less than 1%. The remaining decrease in deposits, excluding wholesale deposits, was the result of lower savings account balances.
• Certificates of deposit totaled $637.3 million at June 30, 2023, representing a decrease of $114.8 million, or 15.3%, from $752.1 million at March 31, 2023, due to lower wholesale certificates of deposit. Total wholesale certificates of deposit, which are included within certificates of deposit, were $356.3 million and $523.2 million at June 30, 2023 and March 31, 2023, respectively.
• The cost of total deposits was 1.78% for the three months ended June 30, 2023, as compared to 1.36% for the three months ended March 31, 2023. The cost of total deposits excluding wholesale deposits was 1.52% for the three months ended June 30, 2023, as compared to 1.01% for the three months ended March 31, 2023. At June 30, 2023, the spot cost of non-wholesale deposits was 1.66%, as compared to 1.28% at March 31, 2023.

Borrowings totaled $408.9 million at June 30, 2023, representing a $167.9 million increase from $241.0 million at March 31, 2023, as the Company utilized Federal Home Loan Bank of Boston advances instead of wholesale certificates of deposit during the quarter.

Net Interest and Dividend Income

Net interest and dividend income, before the provision for credit losses, decreased by $4.5 million, or 13.1%, to $29.8 million for the three months ended June 30, 2023, from $34.2 million for the three months ended March 31, 2023. This was primarily due to higher cost of funds, partially offset by an increase in average earning assets and higher yields on earning assets.

The Company's net interest margin on a fully taxable equivalent basis decreased by 37 basis points to 2.26% for the three months ended June 30, 2023, as compared to 2.63% for the three months ended March 31, 2023, as a result of higher funding costs.

Net interest and dividend income, before the provision for credit losses, decreased by $2.0 million, or 3.1%, to $64.0 million for the six months ended June 30, 2023, from $66.1 million for the six months ended June 30, 2022. This was primarily due to higher cost of funds, partially offset by an increase in average earning assets and higher yields on earning assets.

The Company's net interest margin on a fully taxable equivalent basis decreased by 36 basis points to 2.44% for the six months ended June 30, 2023, as compared to 2.80% for the six months ended June 30, 2022.

In order to provide greater disclosure of the impact of loan related merger accounting, a reconciliation of the Company's net interest margin, on a fully taxable equivalent basis, to an adjusted net interest margin, on a fully taxable equivalent basis, is shown below. Excluding the impact of merger related loan accretion, the adjusted net interest margin, on a fully taxable equivalent basis, for the three months ended June 30, 2023, was 2.21%, representing a 37 basis point decrease from the adjusted net interest margin, on a fully taxable equivalent basis, of 2.58% for the three months ended March 31, 2023.

Excluding the impact of merger related loan accretion, the adjusted net interest margin, on a fully taxable equivalent basis, for the six months ended June 30, 2023, was 2.39%, representing a 35 basis point decrease from the adjusted net interest margin, on a fully taxable equivalent basis, of 2.74% for the six months ended June 30, 2022.

Provision for (Release of) Credit Losses

During the three months ended June 30, 2023, the Company recorded a provision for credit losses of $80,000, as compared to a provision for credit losses of $60,000 for the three months ended March 31, 2023.

For the six months ended June 30, 2023, the Company recorded a provision for credit losses of $140,000, as compared to a $412,000 release of credit losses for the six months ended June 30, 2022.

Noninterest Income

Total noninterest income decreased by $686,000, or 6.4%, to $10.0 million for the three months ended June 30, 2023, as compared to $10.7 million for the three months ended March 31, 2023. This change was primarily the result of lower other income and lower loan related derivative income, partially offset by higher wealth management revenue. Noninterest income was 25.2% of total revenue for the three months ended June 30, 2023.

• Other income decreased by $488,000, or 50.6%, to $476,000 for the three months ended June 30, 2023, as compared to $964,000 for the three months ended March 31, 2023, primarily due to income associated with success fees of Innovation Banking loans and gains recognized during the quarter ended March 31, 2023 on a community development fund investment, while no such income was recognized during the quarter ended June 30, 2023.
• Loan related derivative income decreased by $241,000, to a loss of $7,000 for the three months ended June 30, 2023, as compared to $234,000 for the three months ended March 31, 2023, primarily as a result of lower volume of loan related derivative transactions.
• Wealth management revenue increased by $139,000, or 1.8%, to $8.1 million for the three months ended June 30, 2023, as compared to $7.9 million for the three months ended March 31, 2023. Wealth Management Assets under Management and Administration were $4.4 billion at June 30, 2023, an increase of $92.0 million, or 2.2%, from $4.27 billion at March 31, 2023, primarily due to positive returns in both the bond and equity markets.

Total noninterest income decreased by $1.8 million, or 7.8%, to $20.7 million for the six months ended June 30, 2023, as compared to $22.5 million for the six months ended June 30, 2022. This change was primarily the result of lower bank owned life insurance ("BOLI") income, lower wealth management revenue, and lower other income, partially offset by higher deposit account fees. Noninterest income was 24.5% of total revenue for the six months ended June 30, 2023.

• BOLI income decreased by $1.2 million, or 75.2%, to $379,000 for the six months ended June 30, 2023, as compared to $1.5 million for the six months ended June 30, 2022, primarily due to a gain related to a death benefit claim and a policy surrender that occurred during the six months ended June 30, 2022, while no such benefit claims or policy surrenders occurred during the six months ended June 30, 2023.
• Wealth management revenue decreased by $683,000, or 4.1%, to $16.0 million for the six months ended June 30, 2023, as compared to $16.7 million for the six months ended June 30, 2022, primarily due to the effect of lower wealth management assets in the first half of 2023 as compared to the comparative period in 2022. Wealth Management Assets under Management and Administration were $4.4 billion at June 30, 2023, an increase of $299.5 million, or 7.4%, from $4.1 billion at December 31, 2022, primarily due to positive returns in both the bond and equity markets.
• Other income decreased by $354,000, or 19.7%, to $1.4 million for the six months ended June 30, 2023, as compared to $1.8 million for the six months ended June 30, 2022, primarily due to lower income associated with success fees of Innovation Banking loans recognized during the six months ended June 30, 2023 as compared to the six months ended June 30, 2022.
• Deposit account fees increased by $509,000, or 41.1%, to $1.7 million for the six months ended June 30, 2023, as compared to $1.2 million for the six months ended June 30, 2022, primarily due to increased fee revenue from commercial deposit sweep products as a result of higher interest rates.

Noninterest Expense

Total noninterest expense increased by $2.0 million, or 7.1%, to $30.3 million for the three months ended June 30, 2023, as compared to $28.3 million for the three months ended March 31, 2023. During the three months ended June 30, 2023, there was an increase in non-operating expenses and FDIC insurance, partially offset by a decrease in salary and benefits expense and professional fees, as compared to the three months ended March 31, 2023.

• Non-operating expense increased by $3.1 million, to $3.5 million for the three months ended June 30, 2023, from $424,000 for the three months ended March 31, 2023, primarily due to Northmark Bank ("Northmark") merger related expenses associated with the systems conversion that occurred during the second quarter of 2023.
• Salary and employee benefits expense decreased by $1.5 million, or 8.1%, to $17.0 million for the three months ended June 30, 2023, from $18.5 million for the three months ended March 31, 2023, primarily due to lower variable based compensation and lower staffing levels combined with the seasonality of employee benefits expenses.
• Professional fees decreased by $260,000, or 23.2%, to $863,000 for the three months ended June 30, 2023, from $1.1 million for the three months ended March 31, 2023, primarily due to lower legal fees and employment agency fees.

Total noninterest expense increased by $6.5 million, or 12.5%, to $58.7 million for the six months ended June 30, 2023, as compared to $52.2 million for the six months ended June 30, 2022, primarily driven by an increase in non-operating expenses, salary and benefits expense, and marketing expenses as compared to the six months ended June 30, 2022.

• Non-operating expense increased by $3.7 million to $3.9 million for the six months ended June 30, 2023, from $246,000 for the six months ended June 30, 2022, primarily due to merger related expenses associated with the Northmark systems conversion.
• Salary and employee benefits expense increased by $1.0 million, or 3.0%, to $35.5 million for the six months ended June 30, 2023, from $34.4 million for the six months ended June 30, 2022, primarily due to higher overall staffing levels associated with the Northmark merger, normal merit increases, and increases in employee benefit costs.
• Marketing expense increased by $642,000, or 145.2%, to $1.1 million for the six months ended June 30, 2023, from $442,000 for the six months ended June 30, 2022, primarily due to the timing of marketing spend.

Asset Quality

Non-performing loans totaled $7.2 million, or 0.18% of total loans outstanding at June 30, 2023, consistent with the level seen as of March 31, 2023. The allowance for credit losses was $38.1 million, or 0.95% of total loans outstanding at June 30, 2023, as compared to $38.0 million, or 0.95% of total loans outstanding at March 31, 2023.

The Company recorded net loan charge-offs of $12,000, or 0.00% of total loans (annualized), for the three months ended June 30, 2023, as compared to net loan recoveries of $6,000, or 0.00% of total loans (annualized), for the three months ended March 31, 2023.

The Company recorded net loan charge-offs of $6,000, or 0.00% of total loans (annualized), for the six months ended June 30, 2023, as compared to net loan recoveries of $27,000, or 0.00% of total loans (annualized), for the six months ended June 30, 2022.

The following table shows additional and historical information regarding non-performing assets and early-stage delinquency (30-89 days delinquent):

Income Taxes

The Company's effective tax rate was 24.0% for the three months ended June 30, 2023, as compared to 25.1% for the three months ended March 31, 2023. For the six months ended June 30, 2023, the Company's effective tax rate was 24.7%, as compared to 26.7% for the six months ended June 30, 2022.

Dividend and Capital

On July 17, 2023, the Company's Board of Directors declared a quarterly cash dividend of $0.67 per share, which is payable on August 17, 2023, to shareholders of record as of the close of business on August 3, 2023. The Company did not repurchase any shares under its previously announced share repurchase program during the three and six months ended June 30, 2023.

The Company's common equity to assets ratio increased to 9.60% at June 30, 2023, from 9.51% at March 31, 2023. The ratio of tangible common equity to tangible assets increased to 8.41% at June 30, 2023 from 8.32% at March 31, 2023.

Book value per share at June 30, 2023 increased to $67.17 from $67.14 at March 31, 2023. Tangible book value per share at June 30, 2023 increased to $58.05 from $57.98 at March 31, 2023.

Investor Conference Call and Investor Presentation

An investor presentation is available on the investor relations section of the Company's website: http://ir.cambridgetrust.com or within the hyperlink provided below. This presentation includes additional details regarding the Company's loan portfolio, liquidity position, and other financial disclosures. Click here to download.

The Company will also conduct a conference call/webcast at 11:00 a.m. Eastern Time on Tuesday, July 18, 2023, to discuss the results for the quarter. Participants are encouraged to pre-register for the conference call using the following link: https://dpregister.com/sreg/10178703/f95c2786ad.

Callers who pre-register will be given dial-in instructions and a unique PIN to gain immediate access to the call. Participants may pre-register at any time prior to the call and will immediately receive simple instructions via email. Additionally, participants may reach the registration link and access the webcast by logging in through the investor section of the Company's website at http://ir.cambridgetrust.com.

Those parties who do not have Internet access or are otherwise unable to pre-register for this event may still participate at the above time by dialing 1-866-777-2509 and asking the operator to join the Cambridge Bancorp (CATC) earnings call. Participants are requested to dial-in a few minutes before the scheduled start of the call. The webcast will be archived for three months on the Company's investor relations website at https://event.choruscall.com/mediaframe/webcast.html?webcastid=xSN1RhIq.

About Cambridge Bancorp

Cambridge Bancorp, the parent company of Cambridge Trust Company, is based in Cambridge, Massachusetts. Cambridge Trust Company is a 133-year-old Massachusetts chartered commercial bank with approximately $5.49 billion in assets at June 30, 2023, and a total of 22 Massachusetts and New Hampshire locations. Cambridge Trust Company is one of New England's leaders in private banking and wealth management with $4.4 billion in client assets under management and administration at June 30, 2023. The Wealth Management group maintains offices in Boston and Wellesley, Massachusetts and Concord, Manchester, and Portsmouth, New Hampshire.

The accompanying unaudited condensed interim and annual consolidated financial information should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K, which is posted in the investor relations section of the Company's website at http://ir.cambridgetrust.com.

Forward-looking Statements

Certain statements herein may constitute "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. Such forward-looking statements about the Company and its industry involve substantial risks and uncertainties. Statements other than statements of current or historical fact, including statements regarding the Company's future financial condition, results of operations, business plans, liquidity, cash flows, projected costs, and the impact of any laws or regulations applicable to the Company. Words such as "anticipates," "believes," "estimates," "expects," "forecasts," "intends," "plans," "projects," "may," "will," "should," and other similar expressions are intended to identify these forward-looking statements. Such statements are subject to factors that could cause actual results to differ materially from anticipated results. Such factors include, but are not limited to, the following: the businesses of Cambridge Bancorp and Northmark may not be combined successfully, or such combination may take longer to accomplish than expected; the cost savings from the merger may not be fully realized or may take longer to realize than expected; operating costs, customer loss and business disruption following the merger, including adverse effects on relationships with employees, may be greater than expected; changes to interest rates; the ability to control costs and expenses; the current global economic uncertainty and economic conditions being less favorable than expected; disruptions to the credit and financial markets; changes in the Company's accounting policies or in accounting standards; weakness in the real estate market; legislative, regulatory, or accounting changes that adversely affect the Company's business and/or competitive position; the Dodd-Frank Act's consumer protection regulations; the impact of the COVID-19 pandemic and actions taken in response to the pandemic on consumer confidence and global and regional economies and economic activity; a prolonged resurgence in the severity of the COVID-19 pandemic due to variants and mutations of the virus; disruptions in the Company's ability to access the capital markets; effects of changes in amounts of deposits on the Company's funding costs and net interest margin; changes in non-performing assets; future provisions for credit losses; and other factors that are described in the Company's filings with the Securities and Exchange Commission, including the Annual Report on Form 10-K for the year end December 31, 2022, which the Company filed on March 16, 2023. The Company does not undertake, and specifically disclaims any obligation, to publicly release the result of any revisions which may be made to any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements. You are cautioned not to place undue reliance on these forward-looking statements.

Non-GAAP Measures

This press release contains financial information determined by methods other than in accordance with GAAP. This information includes operating net income and operating diluted earnings per share, tangible book value per share and the tangible common equity ratio, operating return on average assets, operating return on tangible common equity, and operating efficiency ratio.

Operating net income and operating diluted earnings per share exclude items that management believes are unrelated to its core banking business such as merger and acquisition expenses, gain (loss) on disposition of investment securities, and other items. The Company's management uses operating net income and operating diluted earnings per share to measure the strength of the Company's core banking business and to identify trends that may to some extent be obscured by such excluded gains or losses.

Management also supplements its evaluation of financial performance with an analysis of tangible book value per share (which is computed by dividing shareholders' equity less goodwill and acquisition related intangible assets, or "tangible common equity," by common shares outstanding), the tangible common equity ratio (which is computed by dividing tangible common equity by tangible assets, defined as total assets less goodwill and acquisition related intangibles), return on average assets and return on tangible common equity on an operating basis, and the operating efficiency ratio (which is computed by dividing noninterest expense adjusted for non-operating expenses and total revenue adjusted for gain/(loss) on disposition of investment securities). The Company has included information on these non-GAAP financial measures because the Company believes that investors may find it useful to have access to the same analytical tool used by management. As a result of merger and acquisition activity, the Company has recognized goodwill and other intangible assets in accordance with generally accepted accounting principles. Excluding the impact of goodwill and other intangibles in measuring asset and capital values for the ratios provided, along with other bank standard capital ratios, provides a framework to compare the capital adequacy of the Company to other companies in the financial services industry.

These non-GAAP measures should not be viewed as a substitute for operating results and other financial measures determined in accordance with GAAP. An item which management deems to be non-operating and excludes when computing these non-GAAP measures can be of substantial importance to the Company's results for any particular quarter or year. The Company's non-GAAP performance measures are not necessarily comparable to non-GAAP performance measures which may be presented by other companies.

Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are presented under "GAAP to Non-GAAP Reconciliations."

CONTACT:
Cambridge Bancorp
Joseph P. Sapienza
Interim Chief Financial Officer
617-520-5520