Cambridge Bancorp Announces Third Quarter 2022 Earnings and Declares Quarterly Dividend

CAMBRIDGE, Mass., Oct. 18, 2022 /PRNewswire/ -- Cambridge Bancorp (NASDAQ: CATC) (the "Company"), the parent company of Cambridge Trust Company (the "Bank"), today announced unaudited net income of $14.6 million for the quarter ended September 30, 2022. Net income for the third quarter represented an increase of $1.0 million, or 7.0%, as compared to net income of $13.7 million for the quarter ended June 30, 2022. Diluted earnings per share were $2.07 for the quarter ended September 30, 2022, representing a 6.7% increase as compared to diluted earnings per share of $1.94 for the quarter ended June 30, 2022.

For the nine months ended September 30, 2022, unaudited net income was $41.6 million, representing an increase of $828,000, or 2.0%, as compared to net income of $40.8 million for the nine months ended September 30, 2021. Diluted earnings per share were $5.90 for the nine months ended September 30, 2022, representing a 1.7% increase as compared to diluted earnings per share of $5.80 for the nine months ended September 30, 2021.

The results for the quarter ended September 30, 2022, include non-operating items as detailed in the GAAP to Non-GAAP Reconciliations later in this release. Operating net income was $14.7 million for the quarter ended September 30, 2022, as compared to $13.4 million for the quarter ended June 30, 2022. Operating diluted earnings per share were $2.09 for the quarter ended September 30, 2022, representing a 10.0% increase as compared to operating diluted earnings per share of $1.90 for the quarter ended June 30, 2022.

Operating net income was $41.5 million for the nine months ended September 30, 2022, an increase of $134,000, or 0.3%, as compared to operating net income of $41.3 million for the nine months ended September 30, 2021. Operating diluted earnings per share were $5.89 for both the nine months ended September 30, 2022 and  the nine months ended September 30, 2021.

Third Quarter 2022 Highlights:

• Total loans increased by $105.1 million, or 3.0%, to $3.63 billion at September 30, 2022 from $3.52 billion   at  June 30, 2022.
• Financial performance ratios for the quarter ended September 30, 2022, were strong with Operating Return on Average Assets ("ROA") of 1.15% and Operating Return on Tangible Common Shareholders' Equity ("ROTCE") of 14.94%.
• The Adjusted Net Interest Margin increased by 12 basis points to 2.93% in the third quarter of 2022 from 2.81% at  June 30, 2022.
• Asset quality at September 30, 2022, remained excellent with ratios of non-performing loans to total loans and non-performing assets to total assets at 0.18% and 0.12%, respectively.
• Tangible book value per share at September 30, 2022 increased to $55.95 from $55.33 at June 30, 2022.
• The tangible common equity to tangible assets ratio was 7.70% at September 30, 2022.

"I welcome my new colleagues from the merger with Northmark Bank that closed on October 1, 2022. We are excited about the opportunity as a combined company moving forward. This quarter's results overall were solid, showing continued strength in asset quality, loan growth, a growing Return on Average Assets ratio, and the expansion of the Net Interest Margin," noted Denis K. Sheahan, Chairman, President and CEO.

Balance Sheet

Total assets increased by $251.8 million, or 5.1%, from $4.89 billion at December 31, 2021 to $5.14 billion at September 30, 2022.

Total loans increased by $309.5 million, or 9.3%, from $3.32 billion at December 31, 2021 to $3.63 billion at September 30, 2022.

• Residential real estate loans increased by $101.0 million, from $1.42 billion at December 31, 2021 to $1.52 billion at September 30, 2022.
• Commercial real estate loans increased by $170.1 million, from $1.51 billion at December 31, 2021 to $1.68 billion at September 30, 2022.
• Commercial and industrial loans increased by $26.4 million, from $269.4 million at December 31, 2021 to $295.9 million at September 30, 2022.

The Company's total investment securities portfolio increased by $57.3 million, or 4.9%, from $1.17 billion at December 31, 2021 to $1.23 billion at September 30, 2022.

Total deposits decreased by $49.7 million, or 1.1%, to $4.28 billion at September 30, 2022 as compared to $4.33 billion at December 31, 2021.

• Core deposits, which the Company defines as all deposits other than certificates of deposit, decreased by $105.6 million, or 2.5%, to $4.06 billion at September 30, 2022 from $4.17 billion at December 31, 2021. Core deposits decreased during the third quarter of 2022 by $74.8 million, or 1.8%, as clients used funds for investment opportunities combined with fluctuations in liquidity.
• Certificates of deposit totaled $217.9 million at September 30, 2022, an increase of $55.9 million from $162.1 million at December 31, 2021.
• Total brokered certificates of deposit, which are included within certificates of deposit, were $100.7 million and $2.7 million at September 30, 2022 and December 31, 2021, respectively.
• The cost of total deposits was 0.26% for the quarter ended September 30, 2022 and 0.17% for the quarter ended June 30, 2022. The cost of total deposits excluding wholesale deposits was 0.24% for the quarter ended September 30, 2022 and 0.17% for the quarter ended June 30, 2022. At September 30, 2022, the spot cost of deposits was 0.34% (0.28% excluding wholesale deposits).

Borrowings totaled $294.5 million at September 30, 2022, representing a $277.9 million increase from $16.5 million at December 31, 2021, due to fluctuations in liquidity. 

Net Interest and Dividend Income

Net interest and dividend income, before the provision for credit losses, increased by $2.1 million, or 6.1%, to $36.3 million for the quarter ended September 30, 2022 from $34.2 million for the quarter ended June 30, 2022. This was primarily due to an increase in average earning assets and higher yields on earning assets.

The Company's net interest margin on a fully taxable equivalent basis increased by nine basis points to 2.95% for the quarter ended September 30, 2022, as compared to 2.86% for the quarter ended June 30, 2022.

For the nine months ended September 30, 2022, net interest and dividend income before the provision for credit losses increased by $6.1 million, or 6.4%, to $102.3 million as compared to $96.2 million for the nine months ended September 30, 2021. This increase was primarily due to an increase in average earning assets and higher asset yields, partially offset by lower loan accretion associated with merger accounting, a decrease in Paycheck Protection Program ("PPP") loan income, and higher interest expense on deposits and borrowings.

The Company's net interest margin on a fully taxable equivalent basis decreased by 38 basis points to 2.85% for the nine months ended September 30, 2022, as compared to 3.23% for the nine months ended September 30, 2021, due to an extended period of low interest rates.

In order to provide greater disclosure of the impact of loan related merger accounting and the impact of the Small Business Administration's PPP loan program, 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 and the impact of PPP loans, the adjusted net interest margin, on a fully taxable equivalent basis, for the quarter ended September 30, 2022, was 2.93%, representing a 12 basis point increase from the adjusted net interest margin, on a fully taxable equivalent basis, of 2.81% for the quarter ended June 30, 2022.

Excluding the impact of merger related loan accretion and the impact of PPP loans, the adjusted net interest margin, on a fully taxable equivalent basis, for the nine months ended September 30, 2022, was 2.80%, representing a 22 basis point decrease from the adjusted net interest margin, on a fully taxable equivalent basis, of 3.02% for the nine months ended September 30, 2021.

Provision for (Release of) Credit Losses

During the quarter ended September 30, 2022, the Company recorded a provision for credit losses of $612,000,  primarily driven by loan growth.

For the nine months ended September 30, 2022, the Company recorded a provision for credit losses of $200,000, as compared to a $1.0 million release of credit losses for the nine months ended September 30, 2021.

Noninterest Income

Total noninterest income decreased by $706,000, or 6.3%, to $10.4 million for the quarter ended September 30, 2022, as compared to $11.1 million for the quarter ended June 30, 2022. This change was primarily the result of  lower Bank owned life insurance ("BOLI") income, partially offset by higher loan related derivative income and higher wealth management revenue. Noninterest income was 22.4% of total revenue for the quarter ended September 30, 2022.

• BOLI income decreased $1.2 million, or 89.3%, from June 30, 2022, primarily due to a gain related to a death benefit claim and a policy surrender that occurred during the quarter ended June 30, 2022, while no such benefit claims or policy surrenders occurred during the quarter ended September 30, 2022.
• Loan related derivative income increased by $168,000, or 373.3%, to $213,000 for the quarter ended September 30, 2022, as compared to $45,000 for the quarter ended June 30, 2022, as a result of increased floating rate loan volume combined with fair value adjustments.
• Wealth management revenue increased by $117,000, or 1.4%, to $8.2 million for the third quarter of 2022, as compared to $8.1 million for the second quarter of 2022, primarily due to the seasonal impact of $460,000 in tax preparation fees recognized for the quarter. Wealth Management Assets under Management and Administration were $3.8 billion at September 30, 2022, a decrease of $179.3 million, or 4.5%, from June 30, 2022, primarily due to decline in the equity and bond markets.

Total noninterest income remained relatively unchanged and totaled $32.9 million for both the nine months ended September 30, 2022 and 2021. This was primarily the result of higher BOLI income, higher other income, and higher deposit account fees, partially offset by lower loan related derivative income, lower wealth management revenue, and lower gains on loans sold. Noninterest income was 24.4% of total revenue for the nine months ended September 30, 2022.

• BOLI income increased by $1.1 million, or 177.2%, to $1.7 million for the nine months ended September 30, 2022, as compared to $604,000 for the nine months ended September 30, 2021, primarily due to a gain of $1.2 million related to a death benefit claim and policy surrender.
• Other income increased by $1.1 million, or 86.0%, to $2.4 million for the nine months ended September 30, 2022, as compared to $1.3 million for the nine months ended September 30, 2021, primarily due to equity warrant revenue and success fees associated with Innovation Banking loans, in addition to gains recognized on a community development fund investment.
• Deposit account fees increased by $659,000, or 46.4%, to $2.1 million for the nine months ended September 30, 2022, as compared to $1.4 million for the nine months ended September 30, 2021, primarily due to fee revenue from commercial deposit sweep products resulting from higher interest rates.  
• Loan related derivative income decreased by $1.1 million, or 66.0%, to $554,000 for the nine months ended September 30, 2022, as compared to $1.6 million for the nine months ended September 30, 2021, primarily as a result of lower floating rate loan volume.
• Wealth management revenue decreased by $1.1 million, or 4.1%, to $24.9 million for the nine months ended September 30, 2022, as compared to $26.0 million for the nine months ended September 30, 2021, primarily due to decline in the equity and bond markets.
• Gain on loans sold decreased by $681,000, or 87.4%, to $98,000 for the nine months ended September 30, 2022, as compared to $779,000 for the nine months ended September 30, 2021, due to lower refinance activity and the corresponding lower sale of residential mortgages.

Noninterest Expense

Total noninterest expense remained flat and totaled $26.3 million for both the quarters ended September 30, 2022 and June 30, 2022. During the quarter ended September 30, 2022, there was an increase in marketing expense and salary and benefits expense, partially offset by a decrease in professional services, as compared to the quarter ended June 30, 2022.

• Marketing expense increased $513,000, or 235.3%, to $731,000 for the quarter ended September 30, 2022, from $218,000 for the quarter ended June 30, 2022, primarily due to the timing of marketing spend.
• Salary and employee benefits expense increased by $293,000, or 1.7%, to $17.3 million for the quarter ended September 30, 2022, from $17.0 million for the quarter ended June 30, 2022, primarily due to staffing additions to support business initiatives and lower staff vacancy.
• Professional fees decreased $321,000, or 30.0%, to $749,000 for the quarter ended September 30, 2022, from $1.1 million for the quarter ended June 30, 2022, primarily due to lower consulting fees.

Total noninterest expense increased by $3.5 million, or 4.7%, to $78.5 million for the nine months ended September 30, 2022, as compared to $75.0 million for the nine months ended September 30, 2021, primarily driven by increases in salaries and employee benefits expense, data processing, and FDIC insurance, partially offset by decreases in professional services and marketing expense.

• Salaries and employee benefits expense increased by $2.9 million, or 5.9%, to $51.8 million, primarily due to staffing additions to support business initiatives, normal merit increases, and increases in employee benefit costs.
• Data processing increased by $1.6 million, or 25.1%, to $7.8 million, primarily as a result of higher data processing fees associated with the Company's wealth management systems.
• FDIC insurance increased by $478,000, or 53.0%, to $1.4 million, primarily due to balance sheet growth.
• Professional services decreased by $1.2 million, or 28.6%, to $2.9 million, primarily due to lower recruiting and temporary help expenses as well as lower consulting fees.
• Marketing expense decreased by $851,000, or 42.0%, to $1.2 million, due to timing of marketing spend.

Asset Quality 

Non-performing loans totaled $6.4 million, or 0.18% of total loans outstanding at September 30, 2022. The allowance for credit losses was $34.7 million, or 0.96% of total loans outstanding excluding PPP loans at September 30, 2022, as compared to $34.1 million, or 0.97% of total loans outstanding excluding PPP loans at June 30, 2022.

The Company recorded net loan recoveries of $10,000, or 0.00% of total loans (annualized), for the quarter ended September 30, 2022, as compared to net loan recoveries of $14,000, or 0.00% of total loans (annualized), for the quarter ended June 30, 2022.

Net loan recoveries were $37,000, or 0.00% of total loans, for the nine months ended September 30, 2022, as compared to net loan recoveries of $142,000, or 0.00% of total loans, for the nine months ended September 30, 2021.

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

Income Taxes

The Company's effective tax rate was 26.1% for the quarter ended September 30, 2022, representing a decrease of 7.4%, as compared to 28.2% for the quarter ended June 30, 2022, primarily due to the tax effects of a BOLI policy surrender and death benefit claim during the second quarter of 2022. For the nine months ended September 30, 2022, the Company's effective tax rate was 26.5%, as compared to 26.0% for the nine months ended September 30, 2021.

Dividend and Capital

On October 17, 2022, the Company's Board of Directors declared a quarterly cash dividend of $0.64 per share, which is payable on November 17, 2022, to shareholders of record as of the close of business on November 3, 2022. The Company did not repurchase any shares under its previously announced share repurchase program during the three and nine months ended September 30, 2022.

The Company's ratio of tangible common equity to tangible assets decreased to 7.70% at September 30, 2022 from 7.75% at June 30, 2022.

Tangible book value per share increased by $0.62, or 1.1%, to $55.95 at September 30, 2022, as compared to $55.33 at June 30, 2022, as a result of increased earnings during the three months ended September 30, 2022, partially offset by reductions in the valuations of available for sale securities during the quarter.

Merger Update

On October 1, 2022, the Company completed its merger with Northmark Bank ("Northmark") which added three banking offices in Massachusetts. The Company paid total consideration of $62.8 million, which consisted of 788,137 shares of Cambridge Bancorp common stock issued to Northmark shareholders. The transaction included the assumption of $316.5 million in total loans and the acquisition of $373.0 million in deposits, excluding fair value adjustments.

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, October 18, 2022, 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/10170236/f4009533f0.

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 our investor relations website at https://ir.cambridgetrust.com/news-market-information/event-calendar/default.aspx.

About Cambridge Bancorp

Cambridge Bancorp, the parent company of Cambridge Trust Company, is based in Cambridge, Massachusetts. Cambridge Trust Company is a 132-year-old Massachusetts chartered commercial bank with approximately $5.1 billion in assets at September 30, 2022, 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 $3.8 billion in client assets under management and administration at September 30, 2022. 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, 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 businesses of Cambridge 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 duration and scope of the COVID-19 pandemic and its impact on levels of consumer confidence; actions that 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; a prolonged resurgence in the severity of the COVID-19 pandemic due to variants and mutations of the virus; the pace of recovery when the COVID-19 pandemic subsides; disruptions in the Company's ability to access the capital markets; 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, 2021, which the Company filed on March 14, 2022. 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, 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 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 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
Michael F. Carotenuto
Chief Financial Officer
617-520-5520