Cambridge Bancorp Announces Results for 2023 and Declares Quarterly Dividend

CAMBRIDGE, Mass., Jan. 30, 2024 /PRNewswire/ -- Cambridge Bancorp (NASDAQ: CATC) (the "Company"), the parent company of Cambridge Trust Company, today announced unaudited net income of $34.1 million for the year ended December 31, 2023, a decrease of $18.8 million, or 35.5%, as compared to net income of $52.9 million for the year ended December 31, 2022. Diluted earnings per share were $4.34 for the year ended December 31, 2023, representing a 40.5% decrease as compared to $7.30 for the year ended December 31, 2022.

Operating net income, which excludes non-operating items, namely merger related charges, as detailed in the accounting principles generally accepted in the United States of America ("GAAP") to non-GAAP reconciliations tables within this release, was $40.2 million for the twelve months ended December 31, 2023, a decrease of $16.4 million, or 29.0%, as compared to operating net income of $56.5 million for the twelve months ended December 31, 2022. Operating diluted earnings per share were $5.12 for the twelve months ended December 31, 2023, representing a decrease of $2.68, or 34.4%, as compared to operating diluted earnings per share of $7.80 for the twelve months ended December 31, 2022.

For the three months ended December 31, 2023, unaudited net income was $8.0 million, an increase of $1.5 million, or 22.8%, as compared to net income of $6.5 million for the three months ended September 30, 2023. Diluted earnings per share were $1.02 for the three months ended December 31, 2023, representing a 22.9% increase as compared to $0.83 for the three months ended September 30, 2023.

Operating net income was $8.7 million for the three months ended December 31, 2023, a decrease of $357,000, or 3.9%, as compared to $9.1 million for the three months ended September 30, 2023. Operating diluted earnings per share were $1.11 for the three months ended December 31, 2023, representing a decrease of $0.04, or 3.5%, as compared to operating diluted earnings per share of $1.15 for the three months ended September 30, 2023.

Merger with Eastern Bankshares, Inc.

On September 19, 2023, the Company and Eastern Bankshares, Inc. ("Eastern") announced that they have entered into an Agreement and Plan of Merger (the "Merger Agreement") pursuant to which the Company will merge with and into Eastern in an all-stock transaction (the "Eastern merger"). The Eastern merger is subject to regulatory approval, approval by the Company's and Eastern's shareholders, and the completion of other customary closing conditions. Under the terms of the Merger Agreement, each share of the Company's common stock will be exchanged for 4.956 shares of Eastern common stock and Cambridge Bancorp Chief Executive Officer, Denis K. Sheahan, will assume the role of Chief Executive Officer of Eastern.

"We navigated through 2023 with strong liquidity and robust capital levels, despite a challenging environment in terms of interest rates and the impact to deposit and loan growth. The timeline for the planned merger with Eastern Bank is progressing as anticipated.  Our clients will learn more about the robust capability of Eastern Bank as the timeline for the merger closing and system conversion approaches," noted Denis K. Sheahan, Chairman, President and CEO.

Fourth Quarter 2023 Highlights:

• Financial performance ratios for the three months ended December 31, 2023 were as follows:
  • Return on Average Assets ("ROA") of 0.59% and Operating ROA of 0.64%.
  • Return on Average Equity of 6.06% and Operating Return on Tangible Common Shareholders' Equity (ROTCE) of 7.61%.
• Asset quality ratios at December 31, 2023: non-performing loans to total loans and non-performing assets to total assets at 0.41% and 0.31%, respectively.
• The common equity to assets ratio increased to 9.87% at December 31, 2023 from 9.65% at September 30, 2023. The tangible common equity to tangible assets ratio increased to 8.67% at December 31, 2023 from 8.45% at September 30, 2023.
• Available sources of liquidity at December 31, 2023 totaled approximately $2.6 billion. This is approximately two times the amount of uninsured deposits at December 31, 2023.

Balance Sheet
Total assets decreased by $34.4 million, or 0.6%, from $5.45 billion at September 30, 2023 to $5.42 billion at December 31, 2023.

Total loans were flat for the quarter and stood at $4.02 billion at both September 30, 2023 and December 31, 2023.

• Residential real estate loans remained relatively flat and totaled $1.63 billion at both September 30, 2023 and December 31, 2023.
• Commercial real estate loans increased by $9.0 million, from $1.92 billion at September 30, 2023 to $1.93 billion at December 31, 2023.
• Home equity loans increased by $2.3 million, from $93.4 million at September 30, 2023 to $95.6 million at December 31, 2023.
• Commercial and industrial loans decreased by $12.1 million, or 3.4%, from $355.8 million at September 30, 2023 to $343.7 million at December 31, 2023, primarily due to pay-downs during the period.
• Consumer loans decreased by $4.4 million, or 15.4%, from $28.9 million at September 30, 2023 to $24.4 million at December 31, 2023.

The Company's total investment securities portfolio decreased by $19.7 million, or 1.8%, from $1.12 billion at September 30, 2023 to $1.10 billion at December 31, 2023, primarily due to pay-downs of $23.0 million during the period, partially offset by a decrease in unrealized losses.

Total deposits, excluding wholesale deposits, decreased by $53.1 million or 1.3%, from $4.08 billion at September 30, 2023 and totaled $4.03 billion at December 31, 2023, as the deposit market remains competitive. Total deposits, inclusive of wholesale deposits, decreased by $244.7 million, or 5.4%, to $4.32 billion at December 31, 2023, as compared to $4.57 billion at September 30, 2023, primarily due to lower wholesale deposit balances. During the period, the Company utilized lower cost Federal Home Loan Bank of Boston ("FHLB Boston") funding to replace higher priced wholesale certificates of deposit.

• Certificates of deposit totaled $674.4 million at December 31, 2023, representing a decrease of $154.0 million, or 18.6%, from $828.4 million at September 30, 2023, primarily driven by lower wholesale deposit balances.  Total wholesale certificates of deposit, which are included within certificates of deposit, were $291.7 million and $483.3 million at December 31, 2023 and September 30, 2023, respectively. The Company migrated wholesale funding toward FHLB Boston borrowings during the quarter.
• The cost of total deposits was 2.19% for the three months ended December 31, 2023, as compared to 2.09% for the three months ended September 30, 2023. The cost of total deposits excluding wholesale deposits was 1.89% for the three months ended December 31, 2023, as compared to 1.74% for the three months ended September 30, 2023. At December 31, 2023, the spot cost of non-wholesale deposits was 1.88%, as compared to 1.82% at September 30, 2023.

Borrowings totaled $452.2 million at December 31, 2023, representing a $218.3 million increase from $233.9 million at September 30, 2023, as the Company migrated wholesale funding toward FHLB Boston borrowings during the quarter.

Net Interest and Dividend Income

Net interest and dividend income, before the provision for credit losses, decreased by $497,000, or 1.7%, to $28.2 million for the three months ended December 31, 2023, from $28.6 million for the three months ended September 30, 2023. This was primarily due to higher cost of funds, partially offset by higher yields on earning assets.

The Company's net interest margin on a fully taxable equivalent basis decreased by four basis points to 2.14% for the three months ended December 31, 2023, as compared to 2.18% for the three months ended September 30, 2023.

Net interest and dividend income, before the provision for credit losses, decreased by $22.4 million, or 15.6%, to $120.8 million for the twelve months ended December 31, 2023, from $143.2 million for the twelve months ended December 31, 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 62 basis points to 2.30% for the twelve months ended December 31, 2023, as compared to 2.92% for the twelve months ended December 31, 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 December 31, 2023, was 2.10%, representing a three basis point decrease from the adjusted net interest margin, on a fully taxable equivalent basis, of 2.13% for the three months ended September 30, 2023.

Excluding the impact of merger related loan accretion, the adjusted net interest margin, on a fully taxable equivalent basis, for the twelve months ended December 31, 2023, was 2.25%, representing a 62 basis point decrease from the adjusted net interest margin, on a fully taxable equivalent basis, of 2.87% for the twelve months ended December 31, 2022.

Provision for Credit Losses

During the three months ended December 31, 2023, the Company recorded a provision for credit losses of $569,000, as compared to a provision for credit losses of $195,000 for the three months ended September 30, 2023.

For the twelve months ended December 31, 2023, the Company recorded a provision for credit losses of $904,000, as compared to a $3.9 million provision for credit losses for the twelve months ended December 31, 2022, which included $2.2 million for the recognition of the non-operating impact of merger related Current Expected Credit Loss (CECL) accounting.

Noninterest Income

Total noninterest income decreased by $112,000, or 1.1%, to $10.4 million for the three months ended December 31, 2023, as compared to $10.5 million for the three months ended September 30, 2023. This change was primarily the result of lower deposit account fees partially offset by higher loan related derivative income. Noninterest income was 27.0% of total revenue for the three months ended December 31, 2023.

• Deposit account fees decreased by $106,000, or 12.4%, to $746,000 for the three months ended December 31, 2023, as compared to $852,000 for the three months ended September 30, 2023, primarily due to lower fee revenue from commercial deposit sweep products.
• Loan related derivative income increased by $56,000, or 96.6% to $114,000 for the three months ended December 31, 2023, as compared to $58,000 for the three months ended September 30, 2023, primarily as a result of higher volume of loan related derivative transactions.

Total noninterest income decreased by $1.3 million, or 3.0%, to $41.7 million for the twelve months ended December 31, 2023, as compared to $43.0 million for the twelve months ended December 31, 2022. This change was primarily the result of lower bank owned life insurance ("BOLI") income, lower other income, and lower loan related derivative income, partially offset by higher deposit account fees. Noninterest income was 25.7% of total revenue for the twelve months ended December 31, 2023.

• BOLI income decreased by $1.0 million, or 57.0%, to $778,000 for the twelve months ended December 31, 2023, as compared to $1.8 million for the twelve months ended December 31, 2022, primarily due to a gain related to a death benefit claim and a policy surrender that occurred during the twelve months ended December 31, 2022, while no such benefit claims or policy surrenders occurred during the twelve months ended December 31, 2023.
• Other income decreased by $448,000, or 15.6%, to $2.4 million for the twelve months ended December 31, 2023, as compared to $2.9 million for the twelve months ended December 31, 2022, primarily due to lower income associated with success fees of Innovation Banking loans recognized during the twelve months ended December 31, 2023 as compared to the twelve months ended December 31, 2022.
• Loan related derivative income decreased by $226,000, or 36.2%, to $399,000 for the twelve months ended December 31, 2023, as compared to $625,000 for the twelve months ended December 31, 2022, primarily as a result of lower volume of loan related derivative transactions.
• Deposit account fees increased by $432,000, or 14.8%, to $3.3 million for the twelve months ended December 31, 2023, as compared to $2.9 million for the twelve months ended December 31, 2022, primarily due to increased fee revenue from commercial deposit sweep products as a result of higher interest rates.

Noninterest Expense

Total noninterest expense decreased by $2.7 million, or 9.3%, to $26.9 million for the three months ended December 31, 2023, as compared to $29.6 million for the three months ended September 30, 2023. During the three months ended December 31, 2023, there was a decrease in non-operating expenses, lower professional fees, and lower marketing expense as compared to the three months ended September 30, 2023.

• Non-operating expense decreased by $1.9 million, or 72.8%, to $698,000 for the three months ended December 31, 2023, from $2.6 million for the three months ended September 30, 2023, primarily due to the timing of merger expenses related to the Eastern merger.
• Professional fees decreased by $489,000, or 44.9%, to $600,000 for the three months ended December 31, 2023, from $1.1 million for the three months ended September 30, 2023, primarily due to a combination of lower consulting fees, lower legal fees, and lower employment agency fees.
• Marketing expense decreased by $381,000, or 71.2%, to $154,000 for the three months ended December 31, 2023, from $535,000 for the three months ended September 30, 2023, primarily due to the timing of the Company's marketing spend.

Total noninterest expense increased by $4.8 million, or 4.4%, to $115.2 million for the twelve months ended December 31, 2023, as compared to $110.4 million for the twelve months ended December 31, 2022, primarily driven by an increase in non-operating expenses and FDIC insurance expense, partially offset by lower professional fees, lower marketing expense, and lower salary and benefits expense, as compared to the twelve months ended December 31, 2022.

• Non-operating expense increased by $4.1 million, or 134.7%, to $7.2 million for the twelve months ended December 31, 2023, from $3.1 million for the twelve months ended December 31, 2022, primarily due to merger expenses associated with the Eastern merger and Northmark Bank merger ("Northmark merger").
• Professional fees decreased by $1.1 million, or 22.3%, to $3.7 million for the twelve months ended December 31, 2023, from $4.7 million for the twelve months ended December 31, 2022, primarily due to consulting fees associated with vendor contract negotiations expensed during 2022, while no such expenses occurred during the twelve months ended December 31, 2023.
• Marketing expense decreased by $528,000, or 22.9%, to $1.8 million for the twelve months ended December 31, 2023, from $2.3 million for the twelve months ended December 31, 2022, primarily due to reduced marketing campaigns and promotions during the period.
• Salary and employee benefits expense decreased by $303,000, or 0.4%, to $69.8 million for the twelve months ended December 31, 2023, from $70.1 million for the twelve months ended December 31, 2022, due to lower performance-based compensation and savings from a reduction in head count during the year, partially offset by higher overall staffing levels associated with the Northmark merger and normal merit increases.

Asset Quality 

Non-performing loans totaled $16.6 million, or 0.41% of total loans outstanding at December 31, 2023, as compared to $7.8 million, or 0.19% of total loans outstanding at September 30, 2023, primarily due to an owner occupied commercial mortgage loan placed on non-accrual during the quarter. The allowance for credit losses was $38.9 million, or 0.97% of total loans outstanding at December 31, 2023, as compared to $38.2 million, or 0.95% of total loans outstanding at September 30, 2023.

The Company recorded net loan recoveries of $10,000, or 0.00% of total loans (annualized), for the three months ended December 31, 2023, as compared to net loan charge-offs of $74,000, or 0.00% of total loans (annualized), for the three months ended September 30, 2023.

The Company recorded net loan charge-offs of $70,000, or 0.00% of total loans, for the twelve months ended December 31, 2023, as compared to net loan recoveries of $53,000, or 0.00% of total loans, for the twelve months ended December 31, 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 27.7% for the three months ended December 31, 2023, representing a decrease of 7.7%, as compared to an effective tax rate of 30.0% for the three months ended September 30, 2023, primarily due to the impact of non-deductible merger related expenses recorded during the period. The Company's effective tax rate was 26.5% for both the twelve months ended December 31, 2023 and the twelve months ended December 31, 2022.

Dividend and Capital

On January 29, 2024, the Company's Board of Directors declared a quarterly cash dividend of $0.67 per share, which is payable on February 22, 2024, to shareholders of record as of the close of business on February 8, 2024. The Company did not repurchase any shares under its previously announced share repurchase program during the three and twelve months ended December 31, 2023.

The Company's common equity to assets ratio increased to 9.87% at December 31, 2023, from 9.65% at September 30, 2023. The ratio of tangible common equity to tangible assets increased to 8.67% at December 31, 2023 from 8.45% at September 30, 2023.

Book value per share at December 31, 2023 increased to $68.14 from $67.04 at September 30, 2023. Tangible book value per share at December 31, 2023 increased to $59.08 from $57.96 at September 30, 2023.

Supplemental Earnings Release Information:
For additional details on the Company's loan portfolio, Click here to download.

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 $5.42 billion in assets at December 31, 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 $4.6 billion in client assets under management and administration at December 31, 2023. The Wealth Management group maintains offices in Boston, 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 failure to complete the proposed merger of the Company and Cambridge Trust Company with Eastern, imposition of adverse regulatory conditions in connection with regulatory approval of the Eastern merger, disruption to the parties' businesses as a result of the announcement and pendency of the Eastern merger, the inability to realize expected cost savings or to implement integration plans and other adverse consequences associated with the Eastern merger; 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 Northmark merger may not be fully realized or may take longer to realize than expected; operating costs, customer loss and business disruption following the Northmark 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