Cambridge Bancorp Announces Results for the Third Quarter and Declares Dividend

CAMBRIDGE, Mass., Oct. 20, 2020 /PRNewswire/ -- Cambridge Bancorp (NASDAQ: CATC) (the "Company"), the parent company of Cambridge Trust Company (the "Bank"), today announced unaudited net income of $13,429,000 for the quarter ended September 30, 2020, an increase of $5,753,000, or 74.9%, as compared to net income of $7,676,000 for the quarter ended September 30, 2019.  Diluted earnings per share were $1.93 for the third quarter of 2020, representing a 22.9% increase over diluted earnings per share of $1.57 for the third quarter of 2019.

Excluding merger expenses, operating net income was $14,319,000 for the quarter ended September 30, 2020, an increase of $6,380,000, or 80.4%, as compared to operating net income of $7,939,000 for the quarter ended September 30, 2019. Operating diluted earnings per share were $2.06 for the third quarter of 2020, representing a 26.4% increase over operating diluted earnings per share of $1.63 for the same period last year.

For the nine months ended September 30, 2020, unaudited net income was $18,944,000, representing an increase of $798,000, or 4.4%, as compared to net income of $18,146,000 for the nine months ended September 30, 2019. Diluted earnings per share were $3.09 for the nine months ended September 30, 2020, representing a 21.8% decrease over diluted earnings per share of $3.95 for the nine months ended September 30, 2019.

The results for the nine months ended September 30, 2020, include the merger accounting impact of the current and expected credit loss accounting standard ("CECL") within the provision for credit losses, merger expenses, and other non-operating items. Excluding these items, operating net income was $29,528,000 for the nine months ended September 30, 2020, an increase of $8,296,000, or 39.1%, as compared to operating net income of $21,232,000 for the nine months ended September 30, 2019. Operating diluted earnings per share were $4.83 for the nine months ended September 30, 2020, representing a 4.5% increase over operating diluted earnings per share of $4.62 for the nine months ended September 30, 2019.  Further discussion of the merger accounting impacts is detailed in the Non-GAAP Reconciliation tables at the end of this document.

Third quarter 2020 highlights:

• Asset quality remains strong with ratios of non-performing loans to total loans and non-performing assets to total assets both at 0.28%. Early stage delinquency (30-89 days delinquent) as of September 30, 2020, represents 0.40% of total loans.
• In continued support of our clients, due to COVID-19, we have deferred or adjusted payments on 3.2% of total loans outstanding at September 30, 2020, as compared to 5.2% at June 30, 2020.
• The allowance for credit loss to total loans is 1.16%, excluding loans made under the Small Business Administration's ("SBA") Paycheck Protection Program ("PPP").
• Performance ratios were strong with Operating Return On Assets ("ROA") of 1.43%, Operating Return On Tangible Common Shareholders' Equity ("ROTCE") of 17.12%, and Operating Pre-Tax Pre-Provision ("PTPP") Return on Average Assets ("ROAA") of 2.16%.
• Organic core deposit growth of $98.2 million, or 3.4%, from the quarter end June 30, 2020.
• Tangible common equity ratio of 8.60% at September 30, 2020.
• Tangible book value per share of $48.80 at September 30, 2020.
• A supplemental presentation for the quarter is available on our investor relations website: ir.cambridgetrust.com or within the hyperlink provided within this release. This presentation includes additional detail regarding the loan portfolio, liquidity position, and other financial disclosures.

"The Cambridge Trust team continues to support clients and our communities during this difficult period," noted Denis K. Sheahan, Chairman and CEO. "In addition to continued lending and loan forbearance, where needed, we are open and available to meet client needs and have continued our effort to support the community with charitable giving.  I am proud of the team's accomplishments and, in particular, successfully converting the Wellesley Bank systems at the beginning of October.  The Bank remains on a solid footing with strong capital, liquidity and asset quality."

Balance Sheet

Total assets increased $1.1 billion, or 39.6%, from $2.9 billion at December 31, 2019, inclusive of the Wellesley Bancorp Inc. ("Wellesley") merger, and were $4.0 billion as of September 30, 2020.

Total loans increased by $1.1 billion, or 47.5%, from December 31, 2019, inclusive of the Wellesley merger, and totaled $3.3 billion as of September 30, 2020. The increase in total loans was due to a combination of the merger with Wellesley and organic growth during 2020. A table accompanying this release provides detail regarding organic loan and deposit growth.

Inclusive of Wellesley:

• Residential real estate loans increased by $426.2 million from $917.6 million at December 31, 2019, to $1.3 billion at September 30, 2020.
• Commercial real estate loans increased by $303.8 million, from $1.1 billion at December 31, 2019, to $1.4 billion at September 30, 2020.
• Commercial & industrial loans increased by $294.8 million from $133.2 million at December 31, 2019, to $428.0 million at September 30, 2020.
• Loans under the SBA's PPP amounted to $189.9 million at September 30, 2020. PPP loans are included in commercial and industrial loans.

Excluding Wellesley and PPP loans, total loans grew by $29.9 million, or 1.3%, from December 31, 2019.

As a result of payoffs and paydowns of commercial mortgage loans during the quarter ended September 30, 2020, total loans outstanding were reduced by $48.6 million, or 1.5%, from June 30, 2020. The reduction in commercial mortgage loan balances is due to strong local market demand and the low interest rate environment.

Total deposits increased by $973.1 million, or 41.3%, to $3.3 billion at September 30, 2020 from $2.4 billion at December 31, 2019, primarily driven by a combination of the impact of the Wellesley merger, organic deposit growth, and funds from the PPP program.

• Core deposits, which the Company defines as all deposits other than certificates of deposit, increased by $838.8 million, or 38.5%, to $3.0 billion at September 30, 2020 from $2.2 billion at December 31, 2019, inclusive of the Wellesley merger.
• Excluding the impact of the Wellesley merger, organic growth in core deposits was $290.0 million, or 13.3%.
• Inclusive of the Wellesley merger, the cost of total deposits for the quarter ended September 30, 2020, was 0.16%, as compared to 0.68% for the quarter ended December 31, 2019, a reduction of 52 basis points driven by a reduction in interest rates during 2020. The cost of total deposits for the nine months ended September 30, 2020 was 0.28%, as compared to 0.71% for the nine months ended September 30, 2019, a reduction of 43 basis points driven by a reduction in interest rates during 2020. At September 30, 2020, the spot cost of deposits was 0.17%.

Certificates of deposit totaled $316.5 million at September 30, 2020, an increase of $134.2 million from $182.3 million at December 31, 2019, primarily due to the Wellesley merger. Total brokered certificates of deposit, which are included within certificates of deposit, were $77.8 million and $7.1 million at September 30, 2020, and December 31, 2019, respectively.

Core deposits during the third quarter increased by $98.2 million, or 3.4%, from June 30, 2020. The growth in core deposits was a function of new business development efforts combined with existing client growth.

Borrowings were relatively unchanged from $135.7 million at December 31, 2019, and totaled $135.8 million as of September 30, 2020.

Net Interest and Dividend Income

For the quarter ended September 30, 2020, net interest and dividend income before the provision for credit losses increased by $13.9 million, or 66.1%, to $35.0 million, as compared to $21.1 million for the quarter ended September 30, 2019. This change was primarily due to loan growth (both organic and as a result of the Wellesley merger), lower costs of funds and loan accretion associated with merger accounting.

The Company's net interest margin, on a fully taxable equivalent basis, inclusive of the Wellesley merger, increased 52 basis points to 3.73% for the quarter ended September 30, 2020, as compared to 3.21% for the quarter ended September 30, 2019. This increase was a function of the Company taking steps to reduce deposit costs combined with the accretion of loan fair value adjustments associated with the Wellesley merger.

In order to provide greater disclosure of the impact of loan related merger accounting and the impact of the SBA's PPP loan program, a reconciliation of the Company's net interest margin to an adjusted net interest margin is shown below. Excluding the impact of merger-related loan accretion and the impact of PPP loans, the adjusted net interest margin for the quarter ended September 30, 2020, was 3.41%, representing a five basis points decrease over the prior quarter adjusted net interest margin of 3.46% and a 20 basis points increase as compared to the net interest margin of 3.21% for the third quarter of 2019. 

Provision for Credit Losses

During the third quarter of 2020, the Company increased its allowance for credit losses by recording a $2.0 million provision for credit losses due to changes in assumptions associated with estimated losses as a result of the novel coronavirus ("COVID-19") pandemic both qualitatively and quantitatively. For the nine months ended September 30, 2020, the Company recorded a total provision for credit losses of $18.4 million, which includes $9.3 million associated with the expected impact of the COVID-19 pandemic on future loan losses and $8.6 million for the recognition of the non-operating impact of the merger related CECL accounting.

Noninterest Income

Total noninterest income increased by $567,000, or 5.5%, to $10.9 million for the quarter ended September 30, 2020, as compared to $10.4 million for the quarter ended September 30, 2019, primarily as a result of increases in wealth management revenue and increases in gains on loans sold. Noninterest income was 23.8% of total revenue for the quarter ended September 30, 2020.

• Wealth management revenue increased by $992,000, or 14.1%, to $8.0 million for the third quarter of 2020, as compared to $7.0 million for the third quarter of 2019. Wealth Management Assets under Management and Administration were $3.9 billion as of September 30, 2020, an increase of $495.6 million, or 14.4%, from December 31, 2019, primarily as a result of the Wellesley merger and appreciation in the equity markets during 2020.
• Gain on loans sold increased by $413,000, to $873,000 for the third quarter of 2020, as compared to $460,000 for the third quarter of 2019, due to increased sales of residential mortgages.

Inclusive of the Wellesley merger, total noninterest income increased by $2.3 million, or 8.5%, to $28.7 million for the nine months ended September 30, 2020, as compared to $26.5 million for the nine months ended September 30, 2019, primarily as a result of increases in wealth management revenue and an increase in gain on loans sold. Noninterest income was 25.0% of total revenue for the nine months ended September 30, 2020.

• Wealth management revenue increased by $2.1 million, or 10.8%, to $21.7 million for the nine months ended September 30, 2020, as compared to $19.6 million for the nine months ended September 30, 2019.
• Gain on loans sold increased by $694,000, to $1.2 million for the nine months ended September 30, 2020, as compared to $491,000 for the nine months ended September 30, 2019, due to increased sales of residential mortgages.

Noninterest Expense

Total noninterest expense increased by $6.6 million, or 34.9%, to $25.4 million for the quarter ended September 30, 2020, as compared to $18.9 million for the quarter ended September 30, 2019, primarily driven by increases in salaries and employee benefits expense, occupancy and equipment expense, data processing expense, and one-time merger-related expenses as described below.

• Salaries and employee benefits expense increased $3.7 million, or 30.5%, driven by increased staffing related to the merger with Wellesley in the second quarter of 2020, additions to support business initiatives, and higher employee benefit costs.
• Occupancy and equipment expense increased $884,000, or 31.7%, primarily as a result of additional banking locations and office space as a result of the mergers with Optima Bank & Trust ("Optima") and Wellesley.
• Data processing expense increased $432,000, or 26.2%, primarily as a result of the merger with Wellesley.
• Merger expenses increased $829,000 to $1.2 million from $339,000 from the same period a year ago, primarily due to one-time non-operating costs associated with the Wellesley merger.

Total noninterest expense increased by $14.2 million, or 25.0%, to $71.0 million for the nine months ended September 30, 2020, as compared to $56.7 million for the nine months ended September 30, 2019. This increase was primarily driven by increases in salaries and employee benefits expense, merger-related expenses, occupancy and equipment expense, and data processing expense as a result of our mergers with Optima in 2019 and Wellesley in 2020 as described below.

• Salaries and employee benefits expense increased $7.9 million, or 23.1%, primarily as a result of increased staffing related to the mergers with Optima and Wellesley in 2019 and 2020, respectively, additions to support business initiatives, normal merit increases and higher employee benefit costs.
• Merger expenses increased $1.9 million to $5.8 million from $3.9 million, primarily due to one-time non-operating costs associated with the Wellesley merger.
• Occupancy and equipment expense increased $1.6 million, or 20.6%, primarily as a result of additional branches and office space as a result of the mergers with Optima and Wellesley.
• Data processing expense increased $1.1 million, or 23.6%, primarily as a result of the mergers with Optima and Wellesley.

Asset Quality 

Non-performing loans totaled $9.2 million, or 0.28% of total loans outstanding as of September 30, 2020. Early stage delinquency (30-89 days delinquent) represented 0.40% of total loans outstanding as of September 30, 2020.

Net loan charge-offs remained low at $213,000, or 0.03% of total loans (annualized) for the three months ended September 30, 2020, as compared to $1.2 million, or 0.23% of total loans (annualized) for the three months ended September 30, 2019.

Net loan charge-offs were $613,000 or 0.02% of total loans for the nine months ended September 30, 2020, as compared to $1.4 million, or 0.06% of total loans for the nine months ended September 30, 2019.

The following table shows additional and historical information regarding non-performing assets, early stage delinquency (30-89 days delinquent), purchased credit deteriorated ("PCD") assets, and troubled debt restructurings:

The allowance for credit losses in total was $35.9 million, or 1.16% of total loans outstanding at September 30, 2020 excluding PPP loans, as compared to $18.2 million, or 0.82% of total loans outstanding at December 31, 2019.

Forbearance/Modifications 

The Company has instituted payment deferral programs to aid existing borrowers with payment forbearance. For commercial and consumer borrowers, the Company has endeavored to provide payment relief for borrowers who have been impacted by the COVID-19 pandemic and have requested payment assistance. Detailed information on payment deferrals is included within the supplemental earning release information that can be found within the link below or at ir.cambridgetrust.com.

Income Taxes

Inclusive of the impact of the Wellesley merger, the Company's effective tax rate was 27.2% for the quarter ended September 30, 2020, as compared to 26.1% for the quarter ended September 30, 2019. For the nine months ended September 30, 2020, the Company's effective tax rate was 25.7%, as compared to 24.8% for the nine months ended September 30, 2019.

Dividend & Capital

On October 19, 2020, the Company's Board of Directors declared a quarterly cash dividend of $0.53 per share, which is payable on November 19, 2020, to shareholders of record as of the close of business on November 5, 2020.  This represents an increase of $0.02 per share, as compared to the $0.51 per share dividend paid in same quarter of 2019.

The Company's total shareholders' equity to total assets ratio increased by 130 basis points to 9.86% as of September 30, 2020, as compared to 8.56% as of September 30, 2019. Book value per share increased by $6.56, or 13.1%, to $56.73 as of September 30, 2020, as compared to $50.17 as of September 30, 2019.

The Company's ratio of tangible common equity to tangible assets increased to 8.60% at September 30, 2020, from 7.43% at September 30, 2019, primarily as a result of the capital offering in December of 2019, increased earnings during the period, increased valuations of interest rate derivative positions, and an increase in unrealized gains in the available for sale investments portfolio. Tangible book value per share increased by $5.77, or 13.4% to $48.80 as of September 30, 2020, as compared to $43.03 as of September 30, 2019. 

Supplemental Earnings Release Information:
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 130-year-old Massachusetts chartered commercial bank with approximately $4.0 billion in assets as of September 30, 2020, 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 $3.9 billion in client assets under management and administration as of September 30, 2020. 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 www.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, the impact of any laws or regulations applicable to the Company, and measures being taken in response to the COVID-19 pandemic and the impact of the COVID-19 pandemic on the Company's business are forward-looking statements. 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 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 duration and scope of the COVID-19 pandemic and its impact on levels of consumer confidence, actions governments, businesses and individuals take in response to the COVID-19 pandemic, the impact of the COVID-19 pandemic and actions taken in response to the pandemic on global and regional economies and economic activity, the pace of recovery when the COVID-19 pandemic subsides, challenges from the integration of the Company and Optima and Wellesley resulting in the combined business not operating as effectively as expected, disruptions in the Company's ability to access the capital markets, the cost savings of the merger with Wellesley may not be fully realized or may take longer to realize than expected, operating costs, customer loss and business disruption following the Wellesley merger, including adverse effects on relationships with employees, may be greater than expected, 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, 2019, which the Company filed on March 17, 2020. 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 accounting principles generally accepted in the United States of America ("GAAP"). This information includes operating net income and operating diluted earnings per share, tangible book value per share and the tangible common equity ratio, and return on average assets, return on tangible common equity, and efficiency ratio on an operating basis.

Operating net income and operating diluted earnings per share exclude items that management believes are unrelated to its core banking business such as merger, acquisition, and capital raise 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 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), analysis of 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 tangible book value per share, the tangible common equity ratio, and return on average assets and return on tangible common equity on an operating basis because management 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 conjunction with business combination 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 nonoperating 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, including operating net income, operating diluted earnings per share, tangible book value per share, the tangible common equity ratio, and return on average assets, return on average equity, and efficiency ratio on an operating basis 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
Michael F. Carotenuto
Chief Financial Officer
617-520-5520