Cambridge Bancorp(CATC) - 2019 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements (Unaudited) This section presents Cambridge Bancorp's unaudited consolidated financial statements for Q1 2019, detailing balance sheets, income, and cash flows with accompanying notes Unaudited Consolidated Balance Sheets Total assets increased to $2.14 billion by March 31, 2019, driven by cash and lease assets, while deposits grew to $1.90 billion and equity rose to $172.3 million Consolidated Balance Sheet Highlights (in thousands) | Metric | March 31, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Total Assets | $2,138,548 | $2,101,384 | | Net Loans | $1,538,502 | $1,543,004 | | Total Investment Securities | $443,592 | $451,032 | | Total Liabilities | $1,966,280 | $1,934,358 | | Total Deposits | $1,902,383 | $1,811,410 | | Total Shareholders' Equity | $172,268 | $167,026 | Unaudited Consolidated Statements of Income Net income for Q1 2019 increased to $6.2 million, driven by a 7.3% rise in net interest income, with diluted EPS reaching $1.49 Statement of Income Highlights (in thousands, except per share data) | Metric | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | | :--- | :--- | :--- | | Net Interest Income | $16,261 | $15,153 | | Provision for Loan Losses | ($93) | $409 | | Noninterest Income | $7,957 | $8,178 | | Noninterest Expense | $16,373 | $15,501 | | Net Income | $6,198 | $5,805 | | Diluted Earnings Per Share | $1.49 | $1.41 | Unaudited Consolidated Statements of Comprehensive Income (Loss) Comprehensive income for Q1 2019 significantly increased to $7.4 million, primarily due to positive other comprehensive income from unrealized gains on available-for-sale securities Comprehensive Income Summary (in thousands) | Metric | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | | :--- | :--- | :--- | | Net Income | $6,198 | $5,805 | | Other Comprehensive Income/(Loss) | $1,157 | ($1,342) | | Comprehensive Income | $7,355 | $4,463 | Unaudited Consolidated Statements of Changes in Shareholders' Equity Shareholders' equity increased to $172.3 million by March 31, 2019, driven by net income and other comprehensive income, partially offset by dividends Q1 2019 Changes in Shareholders' Equity (in thousands) | Description | Amount | | :--- | :--- | | Balance at December 31, 2018 | $167,026 | | Net Income | $6,198 | | Other Comprehensive Income | $1,157 | | Dividends Declared ($0.51 per share) | ($2,098) | | Share Based Compensation & Other | ($15) | | Balance at March 31, 2019 | $172,268 | Unaudited Consolidated Statements of Cash Flows Cash and cash equivalents increased by $18.5 million in Q1 2019, primarily from investing activities and operating cash flow, partially offset by financing activities Cash Flow Summary (in thousands) | Cash Flow Activity | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $2,793 | $5,400 | | Net Cash from Investing Activities | $16,928 | ($57,690) | | Net Cash from Financing Activities | ($1,188) | $4,964 | | Net Increase/(Decrease) in Cash | $18,533 | ($47,326) | Notes to Unaudited Consolidated Financial Statements These notes detail accounting policies, the Optima Bank & Trust merger, adoption of new lease accounting standards, and provide breakdowns of financial instruments and capital adequacy - The company completed its merger with Optima Bank & Trust Company on April 17, 2019, with former Optima shareholders receiving approximately 722,746 shares of common stock and $3.5 million in cash[29] - On January 1, 2019, the Company adopted new lease guidance (ASU 2016-02), recording a right-of-use asset of $32.9 million and a corresponding net lease liability[42] Loan Portfolio Composition (in thousands) | Loan Category | March 31, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Residential Mortgage | $613,254 | $604,331 | | Commercial Mortgage | $749,835 | $757,957 | | Home Equity | $68,849 | $69,336 | | Commercial & Industrial | $90,172 | $93,712 | | Consumer | $33,044 | $34,436 | | Total Loans | $1,555,154 | $1,559,772 | - As of March 31, 2019, both Cambridge Bancorp and Cambridge Trust Company met all minimum capital requirements and were considered "well-capitalized" by regulators, with the holding company's Total capital ratio at 13.2% and Tier I capital ratio at 12.1%[123][124] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 2019 financial results, highlighting increased net income, changes in loan portfolio and deposits, net interest margin, the Optima merger, and strong asset quality Overview Cambridge Bancorp, a private bank with $2.1 billion in assets, offers wealth management, commercial, residential, and personal banking services, expanding into New Hampshire via the Optima merger - The Company's core services include Wealth Management, Commercial Banking, Residential Lending, and Personal Banking, with Assets under Management and Administration of approximately $3.1 billion as of March 31, 2019[178] - The merger with Optima Bank & Trust Company was completed on April 17, 2019, adding six banking offices and expanding comprehensive private banking and wealth management services into New Hampshire[184] Results of Operations Q1 2019 net income rose 6.8% to $6.2 million, with diluted EPS at $1.49, driven by increased net interest income despite higher noninterest expenses Q1 2019 vs Q1 2018 Performance (in millions, except per share data) | Metric | Q1 2019 | Q1 2018 | % Change | | :--- | :--- | :--- | :--- | | Net Income | $6.2M | $5.8M | +6.8% | | Diluted EPS | $1.49 | $1.41 | +5.7% | | Net Interest Income | $16.4M | $14.7M | +10.9% | | Noninterest Income | $8.0M | $8.2M | -2.7% | | Noninterest Expense | $16.4M | $15.5M | +5.6% | - The net interest margin, on a fully taxable equivalent basis, decreased by two basis points to 3.26% for Q1 2019 compared to 3.28% for Q1 2018[189] - The company released $93,000 from the allowance for loan losses in Q1 2019, compared to a provision of $409,000 in Q1 2018, due to lower volume and a change in the loan portfolio mix[193] Changes in Financial Condition Total assets grew to $2.14 billion due to lease accounting adoption, while deposits increased by $91.0 million, enabling a $90.0 million reduction in borrowings despite a slight loan decrease - Total assets increased primarily due to the adoption of lease accounting guidance (ASU 2016-02), which added a $32.9 million right-of-use lease asset[201] - Total loans decreased by $4.6 million (0.3%), mainly from reductions in commercial real estate and commercial & industrial loans, despite strong origination activity[203] - Core deposits (all deposits except CDs) increased by $43.1 million, and brokered CDs increased by $45.6 million, which were used to pay down higher-cost borrowings[205][206][207] Asset Quality Asset quality remained strong with nonperforming loans at 0.04% of gross loans and an allowance for loan losses of $16.7 million, with minimal net charge-offs Nonperforming Assets (in thousands) | Metric | March 31, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Total Nonperforming Loans | $626 | $642 | | Nonperforming Loans as % of Gross Loans | 0.04% | 0.04% | | Nonperforming Loans as % of Total Assets | 0.03% | 0.03% | Allowance for Loan Losses (in thousands) | Metric | March 31, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Allowance for Loan Losses | $16,652 | $16,768 | | Allowance as % of Loans Outstanding | 1.07% | 1.08% | Liquidity and Capital Resources The company maintains strong liquidity primarily from core deposits and robust capital resources, with shareholders' equity at $172.3 million, exceeding "well-capitalized" regulatory requirements - The company's primary source of liquidity is core deposits, supplemented by borrowings from the FHLB of Boston and wholesale certificates of deposit[280] - Total shareholders' equity increased to $172.3 million at March 31, 2019, from $167.0 million at year-end 2018, with book value per share rising to $41.78 from $40.67[283] - As of March 31, 2019, the Company and the Bank exceeded the regulatory minimum levels to be considered "well-capitalized"[284] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate risk, with simulation modeling projecting a 1.1% decrease in net interest income from a +100 basis point rate shock Net Interest Income Sensitivity to Parallel Rate Shocks | Change in Interest Rates (bps) | Percentage Change in Net Interest Income | | :--- | :--- | | +400 | (5.8)% | | +200 | (2.6)% | | +100 | (1.1)% | | -100 | (0.5)% | | -200 | (4.6)% | - The economic value of equity analysis estimates that a +200 basis point rate increase would increase EVE by 6.5%, while a -100 basis point decrease would reduce EVE by 8.5%[276] Controls and Procedures The CEO and CFO concluded that disclosure controls and procedures were effective as of March 31, 2019, with no material changes to internal controls during the quarter - The CEO and CFO concluded that the Company's disclosure controls and procedures were effective as of March 31, 2019[290] - No material changes to the Company's internal control over financial reporting occurred during the first quarter of 2019[292] PART II. OTHER INFORMATION Legal Proceedings The company is not currently involved in any pending legal proceedings, and ordinary course claims are not expected to materially affect its financial position - The Company is not currently party to any pending legal proceedings[295] Risk Factors No material changes have occurred in the company's risk factors since its 2018 Annual Report on Form 10-K - No material changes have occurred in the company's risk factors since the filing of its 2018 Form 10-K[296] Unregistered Sales of Equity Securities and Use of Proceeds In Q1 2019, the company repurchased 7,468 shares of common stock for tax liabilities on vested awards, without a formal repurchase program in place Share Repurchases in Q1 2019 | Period | Total Shares Repurchased | Average Price Paid Per Share | | :--- | :--- | :--- | | Jan 2019 | 3,628 | $75.67 | | Feb 2019 | 184 | $79.27 | | Mar 2019 | 3,656 | $82.63 | | Total | 7,468 | N/A | - The Company does not currently have a stock repurchase program or plan in place[298] Defaults Upon Senior Securities There were no defaults upon senior securities during the period - There were no defaults upon senior securities during the period[299] Mine Safety Disclosures This item is not applicable to the company - This item is not applicable to the company[300] Other Information There is no other information to report for this item - There is no other information to report for this item[301] Exhibits This section lists exhibits filed with the report, including incentive plans, Sarbanes-Oxley certifications, and XBRL data files - Exhibits filed include: * Short-Term Incentive Plan (10.20) * Long-Term Incentive Plan (10.21) * Certifications pursuant to Sarbanes-Oxley Act Sections 302 and 906 (31.1, 31.2, 32.1, 32.2) * XBRL Instance Document and related files (101 series)[303]