Cambridge Bancorp(CATC) - 2021 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents Cambridge Bancorp's unaudited consolidated financial statements and management's detailed analysis of its financial condition and operational results Item 1. Financial Statements (Unaudited) This section provides the core unaudited consolidated financial statements for Cambridge Bancorp and its subsidiaries, including the balance sheets, income statements, comprehensive income statements, statements of changes in shareholders' equity, and cash flow statements, offering a snapshot of the company's financial health and performance for the reported periods Consolidated Financial Highlights (June 30, 2021 vs. December 31, 2020) | Metric | June 30, 2021 (in thousands) | December 31, 2020 (in thousands) | Change (Absolute) | Change (%) | | :-------------------------------- | :--------------------------- | :--------------------------- | :---------------- | :--------- | | Total Assets | $4,303,287 | $3,949,297 | $353,990 | 8.96% | | Total Liabilities | $3,883,786 | $3,547,565 | $336,221 | 9.48% | | Total Shareholders' Equity | $419,501 | $401,732 | $17,769 | 4.42% | | Total Deposits | $3,764,558 | $3,403,083 | $361,475 | 10.62% | | Total Loans (net) | $3,246,120 | $3,117,632 | $128,488 | 4.12% | Unaudited Consolidated Balance Sheets This section details the company's financial position, including assets, liabilities, and equity, at specific reporting dates Assets (June 30, 2021 vs. December 31, 2020) | Asset Category | June 30, 2021 (in thousands) | December 31, 2020 (in thousands) | Change (Absolute) | Change (%) | | :---------------------------------------------------------------- | :--------------------------- | :--------------------------- | :---------------- | :--------- | | Cash and cash equivalents | $98,789 | $75,785 | $23,004 | 30.36% | | Total investment securities | $705,048 | $484,702 | $220,346 | 45.46% | | Total loans | $3,281,149 | $3,153,648 | $127,501 | 4.04% | | Net loans | $3,246,120 | $3,117,632 | $128,488 | 4.12% | | Total assets | $4,303,287 | $3,949,297 | $353,990 | 8.96% | Liabilities & Equity (June 30, 2021 vs. December 31, 2020) | Liability/Equity Category | June 30, 2021 (in thousands) | December 31, 2020 (in thousands) | Change (Absolute) | Change (%) | | :---------------------------------------------------------------- | :--------------------------- | :--------------------------- | :---------------- | :--------- | | Total deposits | $3,764,558 | $3,403,083 | $361,475 | 10.62% | | Borrowings | $17,244 | $32,992 | $(15,748) | -47.74% | | Total liabilities | $3,883,786 | $3,547,565 | $336,221 | 9.48% | | Total shareholders' equity | $419,501 | $401,732 | $17,769 | 4.42% | Unaudited Consolidated Statements of Income (Loss) This section presents the company's revenues, expenses, and net income (loss) over specific reporting periods, highlighting operational profitability Income Statement Highlights (Three Months Ended June 30, 2021 vs. 2020) | Metric | June 30, 2021 (in thousands) | June 30, 2020 (in thousands) | Change (Absolute) | Change (%) | | :---------------------------------------------------- | :--------------------------- | :--------------------------- | :---------------- | :--------- | | Total interest and dividend income | $33,528 | $30,531 | $2,997 | 9.82% | | Total interest expense | $1,147 | $1,742 | $(595) | -34.16% | | Net interest and dividend income | $32,381 | $28,789 | $3,592 | 12.48% | | Provision for (release of) credit losses | $(901) | $14,430 | $(15,331) | -106.24% | | Total noninterest income | $10,906 | $8,972 | $1,934 | 21.56% | | Total noninterest expense | $25,273 | $25,587 | $(314) | -1.23% | | Income (loss) before income taxes | $18,915 | $(2,256) | $21,171 | -938.43% | | Net income (loss) | $13,944 | $(1,716) | $15,660 | -912.59% | | Basic earnings (loss) per share | $2.00 | $(0.29) | $2.29 | -789.66% | | Diluted earnings (loss) per share | $1.98 | $(0.29) | $2.27 | -782.76% | Income Statement Highlights (Six Months Ended June 30, 2021 vs. 2020) | Metric | June 30, 2021 (in thousands) | June 30, 2020 (in thousands) | Change (Absolute) | Change (%) | | :---------------------------------------------------- | :--------------------------- | :--------------------------- | :---------------- | :--------- | | Total interest and dividend income | $66,349 | $56,626 | $9,723 | 17.17% | | Total interest expense | $2,562 | $5,437 | $(2,875) | -52.88% | | Net interest and dividend income | $63,787 | $51,189 | $12,598 | 24.61% | | Provision for (release of) credit losses | $(1,107) | $16,430 | $(17,537) | -106.74% | | Total noninterest income | $21,755 | $17,790 | $3,965 | 22.29% | | Total noninterest expense | $49,492 | $45,512 | $3,980 | 8.74% | | Income (loss) before income taxes | $37,157 | $7,037 | $30,120 | 428.02% | | Net income (loss) | $27,443 | $5,516 | $21,927 | 397.51% | | Basic earnings (loss) per share | $3.95 | $0.97 | $2.98 | 307.22% | | Diluted earnings (loss) per share | $3.91 | $0.97 | $2.94 | 303.09% | Unaudited Consolidated Statements of Comprehensive Income (Loss) This section reports net income and other comprehensive income (loss) items, providing a complete view of changes in equity from non-owner sources Comprehensive Income (Loss) Highlights (Three Months Ended June 30, 2021 vs. 2020) | Metric | June 30, 2021 (in thousands) | June 30, 2020 (in thousands) | Change (Absolute) | Change (%) | | :---------------------------------------------------- | :--------------------------- | :--------------------------- | :---------------- | :--------- | | Net income (loss) | $13,944 | $(1,716) | $15,660 | -912.59% | | Other comprehensive income (loss) | $579 | $1,023 | $(444) | -43.40% | | Comprehensive income (loss) | $14,523 | $(693) | $15,216 | -2195.67% | Comprehensive Income (Loss) Highlights (Six Months Ended June 30, 2021 vs. 2020) | Metric | June 30, 2021 (in thousands) | June 30, 2020 (in thousands) | Change (Absolute) | Change (%) | | :---------------------------------------------------- | :--------------------------- | :--------------------------- | :---------------- | :--------- | | Net income (loss) | $27,443 | $5,516 | $21,927 | 397.51% | | Other comprehensive income (loss) | $(3,076) | $7,768 | $(10,844) | -139.60% | | Comprehensive income (loss) | $24,367 | $13,284 | $11,083 | 83.43% | Unaudited Consolidated Statements of Changes in Shareholders' Equity This section outlines the movements in shareholders' equity, including net income, other comprehensive income, share-based activities, and dividends Shareholders' Equity Changes (Three Months Ended June 30, 2021) | Metric | March 31, 2021 (in thousands) | June 30, 2021 (in thousands) | Change (Absolute) | | :---------------------------------------------------- | :---------------------------- | :--------------------------- | :---------------- | | Balance at beginning of period | $407,673 | N/A | N/A | | Net income | N/A | $13,944 | $13,944 | | Other comprehensive income | N/A | $579 | $579 | | Share based compensation and other share-based activity | N/A | $1,552 | $1,552 | | Dividends declared ($0.61 per share) | N/A | $(4,247) | $(4,247) | | Balance at end of period | N/A | $419,501 | $11,828 | Shareholders' Equity Changes (Six Months Ended June 30, 2021) | Metric | December 31, 2020 (in thousands) | June 30, 2021 (in thousands) | Change (Absolute) | | :---------------------------------------------------- | :----------------------------- | :--------------------------- | :---------------- | | Balance at beginning of period | $401,732 | N/A | N/A | | Net income | N/A | $27,443 | $27,443 | | Other comprehensive loss | N/A | $(3,076) | $(3,076) | | Share based compensation and other share-based activity | N/A | $1,459 | $1,459 | | Dividends declared ($1.16 per share) | N/A | $(8,057) | $(8,057) | | Balance at end of period | N/A | $419,501 | $17,769 | Unaudited Consolidated Statements of Cash Flows This section details the cash inflows and outflows from operating, investing, and financing activities, illustrating the company's liquidity and solvency Cash Flow Highlights (Six Months Ended June 30, 2021 vs. 2020) | Cash Flow Activity | June 30, 2021 (in thousands) | June 30, 2020 (in thousands) | Change (Absolute) | Change (%) | | :---------------------------------------------------- | :--------------------------- | :--------------------------- | :---------------- | :--------- | | Net cash provided by operating activities | $31,176 | $10,325 | $20,851 | 201.95% | | Net cash used in investing activities | $(346,034) | $(141,095) | $(204,939) | 145.25% | | Net cash provided by financing activities | $337,862 | $130,177 | $207,685 | 159.54% | | Net change in cash and cash equivalents | $23,004 | $(593) | $23,597 | -3979.26% | | Cash and cash equivalents at end of period | $98,789 | $60,742 | $38,047 | 62.64% | Notes to Unaudited Consolidated Financial Statements This section provides detailed explanations and supplementary information for the unaudited consolidated financial statements, covering accounting policies, estimates, recent accounting guidance, and specific financial instrument details, including cash, investments, loans, taxes, employee benefits, leases, equity, derivatives, and fair value measurements - The Company is a state-chartered, federally registered bank holding company, operating as a private bank offering private banking and wealth management services[22] - Interim financial statements are prepared in accordance with GAAP, with results not necessarily indicative of the full year[23] Note 1. BASIS OF PRESENTATION This note describes the company's structure, its primary business activities, and the basis for preparing the consolidated financial statements - Cambridge Bancorp (the "Company") includes its wholly-owned subsidiary, Cambridge Trust Company (the "Bank"), and the Bank's wholly-owned subsidiaries[21] - The Company is a Massachusetts state-chartered, federally registered bank holding company, incorporated in 1983[22] - The Company operates as a private bank, offering private banking and wealth management services, managed as a single strategic unit[22] Note 2. USE OF ESTIMATES This note explains the reliance on management's estimates and assumptions in financial reporting, particularly for key accounts like credit losses and fair values - Financial statements require management estimates and assumptions affecting reported asset/liability amounts and contingent disclosures[25] - Key areas subject to change include allowance for credit losses, fair values of financial instruments, and deferred tax asset valuation[25] Note 3. SUBSEQUENT EVENTS This note discloses events occurring after the balance sheet date but before financial statement issuance, which may require adjustment or disclosure - Management reviewed events through August 5, 2021, the issuance date of the financial statements, and determined that no subsequent events occurred requiring adjustment or disclosure[26] Note 4. RECENTLY ISSUED ACCOUNTING GUIDANCE This note outlines new accounting pronouncements and their potential impact on the company's financial statements, such as those related to reference rate reform - ASU 2020-04 was issued by FASB on March 12, 2020, to ease accounting burdens related to reference rate reform (e.g., LIBOR)[27] - The amendments are elective and provide optional expedients for contract modifications and hedging relationships[27] - The Company is currently assessing the impact of this guidance on its consolidated financial statements[29] Note 5. CASH AND CASH EQUIVALENTS This note provides details on the composition and changes in cash and cash equivalents, including any pledged amounts Cash and Cash Equivalents (in thousands) | Date | Amount | | :--------------- | :------- | | June 30, 2021 | $98,789 | | December 31, 2020 | $75,785 | - Cash collateral pledged to derivative counterparties decreased from $29.9 million at December 31, 2020, to $18.0 million at June 30, 2021[30] Note 6. INVESTMENT SECURITIES This note details the company's investment securities portfolio, distinguishing between available-for-sale and held-to-maturity classifications and their fair values Total Investment Securities (in thousands) | Date | Amount | | :--------------- | :------- | | June 30, 2021 | $705,048 | | December 31, 2020 | $484,702 | Investment Securities Composition (June 30, 2021 vs. December 31, 2020, in thousands) | Category | June 30, 2021 (Fair Value/Amortized Cost) | December 31, 2020 (Fair Value/Amortized Cost) | | :----------------------------------- | :------------------------------------------ | :-------------------------------------------- | | Available for sale securities | $212,266 | $237,030 | | Held to maturity securities | $492,782 (amortized cost) | $247,672 (amortized cost) | - As of June 30, 2021, 84 debt securities had gross unrealized losses, with an aggregate depreciation of 1.49% from amortized cost, primarily due to interest rate movements[34][35] - The Company does not expect credit losses as most securities are investment grade and not intended to be sold before recovery[35] Note 7. LOANS AND THE ALLOWANCE FOR CREDIT LOSSES This note provides a breakdown of the loan portfolio by category, details non-performing loans, and explains the methodology and changes in the allowance for credit losses Total Loans (in thousands) | Date | Amount | | :--------------- | :------- | | June 30, 2021 | $3,281,149 | | December 31, 2020 | $3,153,648 | Loan Composition (June 30, 2021, in thousands) | Loan Category | Amount | % of Total | | :-------------------------- | :----------- | :--------- | | Residential mortgage | $1,346,262 | 41% | | Commercial mortgage | $1,438,084 | 44% | | Home equity | $92,983 | 3% | | Commercial and industrial | $357,937 | 11% | | Consumer | $45,883 | 1% | Non-performing Loans (in thousands) | Metric | June 30, 2021 | December 31, 2020 | Change (Absolute) | Change (%) | | :---------------------------------------------------- | :------------ | :---------------- | :---------------- | :--------- | | Total nonperforming loans | $5,463 | $8,962 | $(3,499) | -39.04% | | Nonperforming loans as a percentage of total loans | 0.17% | 0.28% | -0.11% | -39.29% | - The Company recorded a $0.9 million release of credit losses for the quarter ended June 30, 2021, and a $1.1 million release for the six months ended June 30, 2021, due to improving economic assumptions[181][199] - PPP loans, net of fees, totaled $107.6 million at June 30, 2021, with approximately 88.4% of first-round and 15.8% of second-round PPP loans forgiven or in process[213] Note 8. INCOME TAXES This note details the components of income tax expense or benefit, effective tax rates, and changes in deferred tax assets and liabilities Income Tax Expense (Three Months Ended June 30, 2021 vs. 2020, in thousands) | Metric | June 30, 2021 | June 30, 2020 | Change (Absolute) | Change (%) | | :-------------------------------- | :------------ | :------------ | :---------------- | :--------- | | Total income tax expense (benefit) | $4,971 | $(540) | $5,511 | -1020.56% | | Effective tax rate | 26.3% | 23.9% | 2.4% | 10.04% | Income Tax Expense (Six Months Ended June 30, 2021 vs. 2020, in thousands) | Metric | June 30, 2021 | June 30, 2020 | Change (Absolute) | Change (%) | | :-------------------------------- | :------------ | :------------ | :---------------- | :--------- | | Total income tax expense (benefit) | $9,714 | $1,521 | $8,193 | 538.66% | | Effective tax rate | 26.1% | 21.6% | 4.5% | 20.83% | - Net deferred tax assets decreased to $10.5 million at June 30, 2021, from $11.6 million at December 31, 2020[74] - The 2020 tax benefit included $372,000 from CARES Act Net Operating Loss (NOL) carrybacks[76] Note 9. PENSION AND RETIREMENT PLANS This note describes the company's defined benefit and defined contribution plans, including related expenses and future contribution expectations - The Company froze the accrual of benefits on its qualified defined benefit pension plan in 2017 and does not expect to make contributions in 2021[77] Total Expenses for PSP and ESOP (in thousands) | Period | 2021 | 2020 | Change (Absolute) | Change (%) | | :-------------------------------- | :----- | :----- | :---------------- | :--------- | | Three months ended June 30 | $1,200 | $892 | $308 | 34.53% | | Six months ended June 30 | $2,300 | $1,900 | $400 | 21.05% | - Defined Contribution Supplemental Executive Retirement Plan (DC SERP) expenses were $50,000 for Q2 2021 (vs $52,000 in Q2 2020) and $100,000 for H1 2021 (vs $95,000 in H1 2020)[85] Note 10. STOCK BASED COMPENSATION This note details the types of stock-based awards, their vesting conditions, and the associated compensation expense recognized by the company Stock-Based Compensation Expense (in thousands) | Period | 2021 | 2020 | Change (Absolute) | Change (%) | | :-------------------------------- | :----- | :----- | :---------------- | :--------- | | Three months ended June 30 | $1,138 | $1,331 | $(193) | -14.50% | | Six months ended June 30 | $2,513 | $2,311 | $202 | 8.74% | - Time-vested Restricted Stock Awards (RSAs) and Restricted Stock Units (RSUs) vest over three or five years, while Performance-Based Restricted Stock Units (PRSUs) are subject to a three-year performance period based on operating return on assets and diluted EPS growth[86][88] Note 11. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK This note describes the company's off-balance-sheet financial instruments, such as loan commitments and letters of credit, and their associated risks Off-Balance-Sheet Financial Instruments (in thousands) | Instrument | June 30, 2021 | December 31, 2020 | Change (Absolute) | Change (%) | | :------------------------------------------------- | :------------ | :---------------- | :---------------- | :--------- | | Unused portion of existing lines of credit | $628,512 | $584,520 | $43,992 | 7.53% | | Origination of new loans | $58,661 | $94,399 | $(35,738) | -37.86% | | Standby letters of credit | $10,051 | $9,430 | $621 | 6.59% | | Commitments to sell residential mortgage loans | $852 | $17,644 | $(16,792) | -95.17% | - The Company applies the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments[92] Note 12. LEASES This note provides information on the company's lease agreements, including operating lease costs, cash payments, and future minimum lease obligations Total Operating Lease Cost (in thousands) | Period | 2021 | 2020 | Change (Absolute) | Change (%) | | :-------------------------------- | :----- | :----- | :---------------- | :--------- | | Three months ended June 30 | $1,717 | $1,583 | $134 | 8.46% | | Six months ended June 30 | $3,472 | $2,963 | $509 | 17.18% | Cash Paid for Operating Leases (in thousands) | Period | 2021 | 2020 | Change (Absolute) | Change (%) | | :-------------------------------- | :----- | :----- | :---------------- | :--------- | | Three months ended June 30 | $1,780 | $1,560 | $220 | 14.10% | | Six months ended June 30 | $3,634 | $2,924 | $710 | 24.28% | - Total minimum lease payments due in future periods for lease agreements in effect at June 30, 2021, were $39.7 million, with a total lease liability of $35.9 million[97] Note 13. SHAREHOLDERS' EQUITY This note details the components of shareholders' equity and the company's capital ratios, demonstrating compliance with regulatory requirements Cambridge Bancorp Capital Ratios (June 30, 2021) | Capital Ratio | Actual Ratio | Minimum for Adequacy | | :----------------------------------- | :----------- | :------------------- | | Total capital (to risk-weighted assets) | 13.9% | 10.5% | | Tier I capital (to risk-weighted assets) | 12.6% | 8.5% | | Common equity tier I capital (to risk-weighted assets) | 12.6% | 7.0% | | Tier I capital (to average assets) | 8.7% | 4.0% | - Both the Company and the Bank met all applicable minimum capital requirements and were considered "well-capitalized" by regulators as of June 30, 2021 and December 31, 2020[100] Note 14. OTHER COMPREHENSIVE INCOME (LOSS) This note presents items of comprehensive income or loss that are not included in net income, such as unrealized gains or losses on available-for-sale securities Total Other Comprehensive Income (Loss) (in thousands) | Period | 2021 | 2020 | Change (Absolute) | Change (%) | | :-------------------------------- | :------- | :------- | :---------------- | :--------- | | Three months ended June 30 | $579 | $1,023 | $(444) | -43.40% | | Six months ended June 30 | $(3,076) | $7,768 | $(10,844) | -139.60% | - Reclassifications out of AOCI impacting net income for the six months ended June 30, 2021, included $1.276 million from unrealized gains on derivatives[106] Note 15. EARNINGS PER SHARE This note provides the calculation of basic and diluted earnings per share, reflecting the company's profitability on a per-share basis Basic Earnings (Loss) Per Share | Period | June 30, 2021 | June 30, 2020 | Change (Absolute) | Change (%) | | :-------------------------------- | :------------ | :------------ | :---------------- | :--------- | | Three months ended June 30 | $2.00 | $(0.29) | $2.29 | -789.66% | | Six months ended June 30 | $3.95 | $0.97 | $2.98 | 307.22% | Diluted Earnings (Loss) Per Share | Period | June 30, 2021 | June 30, 2020 | Change (Absolute) | Change (%) | | :-------------------------------- | :------------ | :------------ | :---------------- | :--------- | | Three months ended June 30 | $1.98 | $(0.29) | $2.27 | -782.76% | | Six months ended June 30 | $3.91 | $0.97 | $2.94 | 303.09% | Note 16. DERIVATIVE AND HEDGING ACTIVITIES This note describes the company's use of derivative instruments, such as interest rate swaps, for risk management and customer facilitation, and their accounting treatment - The Company utilizes interest rate swaps and floors to mitigate exposure to interest rate risk and to facilitate the needs of its customers[109] Notional Amounts of Derivative Instruments (June 30, 2021 vs. December 31, 2020, in thousands) | Instrument Type | June 30, 2021 Notional Amount | December 31, 2020 Notional Amount | Change (Absolute) | Change (%) | | :---------------------------------------------------- | :------------------------------ | :-------------------------------- | :---------------- | :--------- | | Interest rate contracts (cash flow hedges) | $150,000 | $150,000 | $0 | 0.00% | | Loan level interest rate swaps with customers | $470,468 | $409,493 | $60,975 | 14.89% | | Risk participation agreements-out | $26,439 | $26,580 | $(141) | -0.53% | | Risk participation agreements-in | $104,212 | $104,956 | $(744) | -0.71% | - The Company estimates that an additional $2.5 million will be reclassified out of AOCI into earnings, as a reduction of interest income over the next twelve months[121] Note 17. FAIR VALUE MEASUREMENTS This note provides fair value measurements for financial instruments, categorized by the input levels used in their valuation hierarchy Fair Value of Significant Financial Instruments (June 30, 2021 vs. December 31, 2020, in thousands) | Financial Instrument | June 30, 2021 (Fair Value) | December 31, 2020 (Fair Value) | Change (Absolute) | Change (%) | | :------------------------------------------------- | :--------------------------- | :--------------------------- | :---------------- | :--------- | | Securities available for sale | $212,266 | $237,030 | $(24,764) | -10.45% | | Securities held to maturity | $499,885 | $260,139 | $239,746 | 92.16% | | Loans, net | $3,209,085 | $3,092,021 | $117,064 | 3.79% | | Deposits | $3,764,508 | $3,403,832 | $360,676 | 10.59% | | Interest rate contracts (assets) | $5,801 | $7,618 | $(1,817) | -23.85% | | Loan level interest rate swaps (assets) | $27,619 | $38,415 | $(10,796) | -28.10% | | Loan level interest rate swaps (liabilities) | $27,619 | $38,415 | $(10,796) | -28.10% | - Fair value hierarchy: Level 1 (quoted prices in active markets), Level 2 (observable inputs), Level 3 (unobservable inputs)[129] - There were no transfers between fair value levels for the three and six months ended June 30, 2021 or 2020[140] Note 18. MERGERS This note details significant merger and acquisition activities, including the Wellesley Bancorp merger, its financial impact, and related expenses - The Company completed its merger with Wellesley Bancorp, Inc. on June 1, 2020[151] - Total consideration paid was $88.8 million, resulting in 1,502,814 shares of the Company's common stock issued to former Wellesley shareholders[151] - The merger added $985.6 million in total assets, $917.6 million in total liabilities, and $20.7 million in goodwill[152][153] - Merger expenses were $4.4 million for Q2 2020 and $4.6 million for H1 2020[153] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on Cambridge Bancorp's financial performance and condition, highlighting significant increases in net income driven by a release of credit losses and growth in net interest and noninterest income. It also details changes in assets, liabilities, and equity, and discusses key operational areas like wealth management, lending, and funding sources, alongside market risk management and capital adequacy - Net income increased by $15.7 million (912.6%) to $13.9 million for Q2 2021, compared to a net loss of $1.7 million in Q2 2020[172] - Net income increased by $21.9 million (397.5%) to $27.4 million for H1 2021, compared to $5.5 million in H1 2020[190] - The Company's core services include Wealth Management, Commercial Banking, Consumer Lending, and Personal Banking[160] - As of June 30, 2021, the Company had total assets of approximately $4.3 billion and Assets under Management and Administration of approximately $4.5 billion[160] Forward-Looking Statements This section cautions readers that the report contains forward-looking statements subject to risks and uncertainties that could cause actual results to differ materially - The report contains forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995[156] - These statements are subject to factors that could cause actual results to differ materially, including economic conditions, market disruptions, and the COVID-19 pandemic[156] - The Company disclaims any obligation to publicly release revisions to forward-looking statements[159] OVERVIEW This section provides a general description of Cambridge Bancorp's business, its core services, geographic presence, and key financial metrics - Cambridge Bancorp is headquartered in Cambridge, Massachusetts, with 19 full-service banking offices in Eastern Massachusetts and New Hampshire[160] - Core services include Wealth Management, Commercial Banking, Consumer Lending, and Personal Banking[160] - As of June 30, 2021, total assets were approximately $4.3 billion, and Assets under Management and Administration were approximately $4.5 billion[160] - The Company has diversified commercial operations within C&I lending to include Renewable Energy, Innovation Banking, and asset-based lending[165] CRITICAL ACCOUNTING POLICIES This section identifies the accounting policies that require significant management judgment and assumptions, such as the allowance for credit losses and income taxes - Accounting policies involving significant judgments and assumptions by management are considered critical[166] - The Company considers the allowance for credit losses and income taxes to be its critical accounting policies[166] Recent Accounting Developments This section refers to Note 4 for details on recently issued accounting pronouncements and their anticipated impact on the company's financial statements - Refer to Note 4 to the Unaudited Consolidated Financial Statements for details of recently issued accounting pronouncements and their expected impact on the Company's consolidated financial statements[168] COVID-19 This section discusses the economic and financial disruptions caused by the COVID-19 pandemic and its uncertain future impact on the company's operations and credit metrics - The COVID-19 pandemic and countermeasures have caused economic and financial disruptions globally[169] - Fiscal stimulus and relief programs appear to have delayed any materially adverse financial impact to the Company[170] - The duration and severity of COVID-19's impact on business and results of operations in future periods remains uncertain, with potential for worsening credit metrics once stimulus programs are exhausted[170][171] RESULTS OF OPERATIONS This section analyzes the company's financial performance, detailing changes in net income, net interest income, and noninterest income and expense over various periods Results of Operations for the three months ended June 30, 2021 and June 30, 2020 This subsection compares the company's financial results for the second quarter of 2021 against the same period in 2020, highlighting key performance drivers Q2 2021 vs. Q2 2020 Performance (in thousands) | Metric | Q2 2021 | Q2 2020 | Change (Absolute) | Change (%) | | :-------------------------------- | :------ | :------ | :---------------- | :--------- | | Net income (loss) | $13,944 | $(1,716) | $15,660 | -912.59% | | Diluted EPS | $1.98 | $(0.29) | $2.27 | -782.76% | | Net interest and dividend income | $32,381 | $28,789 | $3,592 | 12.48% | | Provision for (release of) credit losses | $(901) | $14,430 | $(15,331) | -106.24% | | Total noninterest income | $10,906 | $8,972 | $1,934 | 21.56% | | Total noninterest expense | $25,273 | $25,587 | $(314) | -1.23% | - Net interest margin, on a fully taxable equivalent basis, decreased 52 basis points to 3.25% for the quarter ended June 30, 2021, as compared to 3.77% for the quarter ended June 30, 2020[177] - Wealth Management revenue increased by $1.6 million, or 22.6%, to $8.6 million for the quarter ended June 30, 2021, primarily due to appreciation within the equity markets and the merger with Wellesley[184] Results of Operations for the six months ended June 30, 2021 and June 30, 2020 This subsection analyzes the company's financial performance for the first half of 2021 compared to the first half of 2020, focusing on year-to-date trends H1 2021 vs. H1 2020 Performance (in thousands) | Metric | H1 2021 | H1 2020 | Change (Absolute) | Change (%) | | :-------------------------------- | :------ | :------ | :---------------- | :--------- | | Net income | $27,443 | $5,516 | $21,927 | 397.51% | | Diluted EPS | $3.91 | $0.97 | $2.94 | 303.09% | | Net interest and dividend income | $63,787 | $51,189 | $12,598 | 24.61% | | Provision for (release of) credit losses | $(1,107) | $16,430 | $(17,537) | -106.74% | | Total noninterest income | $21,755 | $17,790 | $3,965 | 22.29% | | Total noninterest expense | $49,492 | $45,512 | $3,980 | 8.74% | - Net interest margin, on a fully taxable equivalent basis, decreased 29 basis points to 3.30% for the six months ended June 30, 2021, as compared to 3.59% for the six months ended June 30, 2020[195] - Wealth management revenue increased by $3.1 million, or 22.8%, to $16.8 million for the six months ended June 30, 2021, primarily due to appreciation within the equity markets[202] CHANGES IN FINANCIAL CONDITION This section discusses significant changes in the company's balance sheet items, including assets, liabilities, and shareholders' equity, over the reporting period - Total assets increased by $354.0 million, or 9.0%, from $3.95 billion at December 31, 2020 to $4.30 billion at June 30, 2021[209] Key Balance Sheet Changes (June 30, 2021 vs. December 31, 2020, in thousands) | Metric | June 30, 2021 | December 31, 2020 | Change (Absolute) | Change (%) | | :-------------------------------- | :------------ | :---------------- | :---------------- | :--------- | | Cash and cash equivalents | $98,789 | $75,785 | $23,004 | 30.36% | | Total investment securities | $705,048 | $484,702 | $220,346 | 45.46% | | Total loans | $3,281,149 | $3,153,648 | $127,501 | 4.04% | | Total deposits | $3,764,558 | $3,403,083 | $361,475 | 10.62% | | Total borrowings | $17,244 | $33,000 | $(15,756) | -47.75% | | Total shareholders' equity | $419,501 | $401,732 | $17,769 | 4.42% | Cash and Cash Equivalents This subsection details the changes in the company's cash and cash equivalents, reflecting overall liquidity movements - Cash and cash equivalents increased by $23.0 million, or 30.4%, from $75.8 million at December 31, 2020 to $98.8 million at June 30, 2021[211] Investment Securities This subsection analyzes the changes in the company's investment securities portfolio, including the reasons for increases or decreases - The Company's total investment securities portfolio increased by $220.3 million, or 45.5%, from $484.7 million at December 31, 2020 to $705.0 million at June 30, 2021 as the Company invested excess cash[211] Loans This subsection discusses the growth and composition of the company's loan portfolio, including specific loan categories and PPP loan impacts - Total loans increased by $127.5 million, or 4.0%, from $3.15 billion at December 31, 2020 to $3.28 billion as of June 30, 2021[212] - Excluding PPP loans and their associated deferred PPP loan processing fees, total loans increased by $144.1 million, or 4.8%, from December 31, 2020[212] - Residential real estate loans increased by $47.4 million to $1.35 billion[213] - CRE loans increased by $79.1 million to $1.44 billion[213] - PPP loans, net of associated deferred PPP loan processing fees, were $107.6 million at June 30, 2021, down from $126.2 million at December 31, 2020[213] Bank-Owned Life Insurance This subsection explains the company's investment in bank-owned life insurance, its purpose, and changes in its value - The Company's investment in bank-owned life insurance was $46.6 million at June 30, 2021, representing an increase of $0.41 million from $46.2 million at December 31, 2020, due to increases in the cash surrender value of the policies[214] - Bank-owned life insurance helps offset employee benefit plan obligations and generally provides noninterest income that is nontaxable[214] Other Assets This subsection details the changes in other asset categories, such as derivative assets, and their contributing factors - Other assets decreased by $7.5 million, or 9.0%, to $75.7 million at June 30, 2021, from $83.2 million at December 31, 2020, primarily due to reductions in the fair value of loan level derivative assets[215] Deposits This subsection analyzes the growth and composition of the company's deposit base, including core deposits and certificates of deposit - Total deposits grew by $361.5 million, or 10.6%, to $3.76 billion at June 30, 2021 from $3.40 billion at December 31, 2020[216] - Core deposits increased by $402.4 million, or 12.8%, to $3.55 billion at June 30, 2021[217] - The cost of total deposits for the six months ended June 30, 2021 was 0.13%, a reduction of 23 basis points from 0.36% for the six months ended June 30, 2020[217] - Certificates of deposit totaled $213.8 million at June 30, 2021, a decrease of $41.0 million from $254.8 million at December 31, 2020, primarily due to lower brokered deposit balances[217] Borrowings This subsection discusses the changes in the company's borrowings, primarily from the Federal Home Loan Bank, and their impact on funding - Total borrowings decreased to $17.2 million at June 30, 2021, from $33.0 million at December 31, 2020, as the Company utilized excess cash to reduce wholesale funding[218] - Borrowings consisted solely of advances from the Federal Home Loan Bank of Boston ("FHLB of Boston")[218] Shareholders' Equity This subsection details the factors influencing changes in total shareholders' equity, including net income, dividends, and unrealized gains/losses - Total shareholders' equity increased $17.8 million, or 4.4%, to $419.5 million at June 30, 2021, from $401.7 million at December 31, 2020, primarily due to net income of $27.4 million, partially offset by dividend payments of $8.1 million and a decrease in unrealized gains on the available for sale investment portfolio of $2.5 million[219] - Tangible book value per share grew by $2.30, or 4.6%, to $52.37 at June 30, 2021, as compared to $50.07 at December 31, 2020[220] GAAP to Non-GAAP Reconciliations This subsection provides reconciliations of non-GAAP financial measures to their most directly comparable GAAP measures, offering additional performance insights Operating Net Income (in thousands) | Period | June 30, 2021 | June 30, 2020 | Change (Absolute) | Change (%) | | :-------------------------------- | :------------ | :------------ | :---------------- | :--------- | | Three months ended June 30 | $13,944 | $7,778 | $6,166 | 79.28% | | Six months ended June 30 | $27,443 | $15,200 | $12,243 | 80.55% | Operating Diluted Earnings Per Share | Period | June 30, 2021 | June 30, 2020 | Change (Absolute) | Change (%) | | :-------------------------------- | :------------ | :------------ | :---------------- | :--------- | | Three months ended June 30 | $1.98 | $1.31 | $0.67 | 51.15% | | Six months ended June 30 | $3.91 | $2.68 | $1.23 | 45.90% | - Tangible Common Equity Ratio (excluding PPP loans) was 8.81% at June 30, 2021, compared to 9.20% at December 31, 2020[224] INVESTMENT SECURITIES This section provides a detailed analysis of the company's investment securities portfolio, including its composition, changes, and strategic allocation - The Company's total investment securities portfolio increased by $220.3 million, or 45.5%, from $484.7 million at December 31, 2020 to $705.0 million at June 30, 2021, as excess cash was invested[211][229] - The securities portfolio consists of securities available for sale ("AFS") and securities held to maturity ("HTM"), with mortgage-backed securities being the largest component[225] - HTM securities increased to $492.8 million at June 30, 2021, from $247.7 million at December 31, 2020, while AFS securities decreased to $212.3 million from $237.0 million[227][228][229] LOANS This section offers an in-depth review of the company's loan portfolio, categorizing loans by type, maturity, and interest rate characteristics - Total loans increased by $127.5 million, or 4.0%, to $3.28 billion at June 30, 2021, primarily in Eastern Massachusetts and Southern New Hampshire[212][239] Loan Portfolio Composition (June 30, 2021) | Loan Category | Amount (in thousands) | % of Total | | :-------------------------- | :-------------------- | :--------- | | Commercial mortgage | $1,438,084 | 44% | | Residential mortgage | $1,346,262 | 41% | | Commercial and industrial | $357,937 | 11% | | Home equity | $92,983 | 3% | | Consumer | $45,883 | 1% | - Non-performing loans decreased by 39.04% to $5.46 million at June 30, 2021, from $8.96 million at December 31, 2020[268] Residential Mortgage This subsection details the residential mortgage loan portfolio, including its size, growth, and lending practices - Residential real estate loans increased by $47.4 million, or 3.6%, to $1.35 billion at June 30, 2021, representing 41% of total loans[239] - Originations for retention in portfolio for H1 2021 were $313.0 million, and for sale to the secondary market were $21.0 million[248] - The Company does not offer reverse mortgages, negative amortization loans, subprime loans, or Alt-A loans[244] Commercial Mortgage (CRE) This subsection analyzes the commercial real estate loan portfolio, including its growth, property types, and risk management - Commercial real estate (CRE) loans were $1.44 billion as of June 30, 2021, an increase of $79.1 million, or 5.8%, from $1.36 billion at December 31, 2020, representing 44% of total loans[251] - CRE loans are secured by a variety of property types, including multi-family dwellings, retail facilities, office buildings, and industrial properties[252] Home Equity This subsection describes the home equity loan portfolio, including its size, changes, and typical loan terms - The home equity portfolio totaled $93.0 million at June 30, 2021, a decrease from $106.2 million at December 31, 2020, representing 3% of total loans[255] - Home equity lines of credit are revolving, generally with terms between 15 and 20 years, and interest-only periods during the first 10 years[257] Commercial and Industrial ("C&I") This subsection details the commercial and industrial loan portfolio, including its components like PPP loans, innovation banking, and renewable energy loans - The C&I portfolio totaled $357.9 million at June 30, 2021, up from $347.9 million at December 31, 2020, representing 11% of total loans[258] - PPP loans, net of associated deferred PPP processing fees, totaled $107.6 million at June 30, 2021[258] - Components include Innovation Banking loans ($22.1 million), asset-based loans ($27.1 million), and commercial renewable energy loans ($114.2 million) as of June 30, 2021[259] Consumer Loans This subsection outlines the consumer loan portfolio, including its size, growth, and types of secured and unsecured loans - The consumer loan portfolio totaled $45.9 million at June 30, 2021, up from $41.8 million at December 31, 2020, representing 1% of the total loan portfolio[263] - Consumer loans include secured and unsecured loans, lines of credit, and personal installment loans, with secured loans generally fully secured by pledged assets[264] Loan Portfolio Maturities This subsection presents a breakdown of the loan portfolio by maturity periods, indicating the timing of principal repayments Loan Portfolio Maturities (June 30, 2021, in thousands) | Loan Type | One Year or Less | One to Five Years | Over Five Years | Total | | :-------------------------- | :--------------- | :---------------- | :-------------- | :---------- | | Residential mortgage | $4,751 | $11,163 | $1,330,348 | $1,346,262 | | Commercial mortgage | $86,004 | $367,482 | $984,598 | $1,438,084 | | Home equity | $922 | $5,104 | $86,957 | $92,983 | | Commercial and industrial | $79,521 | $139,744 | $138,672 | $357,937 | | Consumer | $45,750 | $57 | $76 | $45,883 | | Total | $216,948 | $523,550 | $2,540,651 | $3,281,149 | Loan Portfolio by Interest Rate Type This subsection categorizes the loan portfolio by fixed, adjustable, and floating interest rate types, indicating interest rate risk exposure Loan Portfolio by Interest Rate Type (June 30, 2021, in thousands) | Loan Type | Fixed | Adjustable | Floating | Total | | :-------------------------- | :---------- | :----------- | :--------- | :---------- | | Residential mortgage | $616,708 | $720,036 | $9,518 | $1,346,262 | | Commercial mortgage | $496,333 | $411,888 | $529,863 | $1,438,084 | | Home equity | $2,882 | — | $90,101 | $92,983 | | Commercial and industrial | $156,453 | $44,229 | $157,255 | $357,937 | | Consumer | $264 | $550 | $45,069 | $45,883 | | Total | $1,272,640 | $1,176,703 | $831,806 | $3,281,149 | NONPERFORMING LOANS AND TROUBLED DEBT RESTRUCTURINGS ("TDRs") This section analyzes the company's nonperforming loans and troubled debt restructurings, detailing their impact on asset quality and credit risk Nonperforming Loans (in thousands) | Metric | June 30, 2021 | December 31, 2020 | Change (Absolute) | Change (%) | | :---------------------------------------------------- | :------------ | :---------------- | :---------------- | :--------- | | Nonaccruals | $4,681 | $7,744 | $(3,063) | -39.55% | | Loans past due > 90 days, but still accruing | — | $407 | $(407) | -100.00% | | Troubled debt restructurings | $782 | $811 | $(29) | -3.58% | | Total nonperforming loans | $5,463 | $8,962 | $(3,499) | -39.04% | | Nonperforming loans as a percentage of total loans | 0.17% | 0.28% | -0.11% | -39.29% | - Loans are typically placed on nonaccrual status when any payment of principal and/or interest is 90 days or more past due unless the collateral is sufficient and the loan is in the process of collection[269] - Troubled Debt Restructurings (TDRs) involve concessions to a borrower due to their financial condition and are individually evaluated for credit losses[270][271] ALLOWANCE FOR CREDIT LOSSES This section discusses the allowance for credit losses, including its balance, changes, and management's assessment of its adequacy Allowance for Credit Losses on Loans (in thousands) | Metric | June 30, 2021 | December 31, 2020 | Change (Absolute) | Change (%) | | :---------------------------------------------------- | :------------ | :---------------- | :---------------- | :--------- | | Balance of allowance for credit losses at end of period-loans | $35,029 | $36,016 | $(987) | -2.74% | | Provision for (release of) credit losses - loans | $(1,053) | $9,351 | $(10,404) | -111.26% | | Net loan (charge-offs) recoveries | $66 | $(439) | $505 | -115.03% | | Ratio of allowance for credit losses on loans to loans outstanding | 1.07% | 1.14% | -0.07% | -6.14% | - The allowance for credit losses on loans to loans outstanding, excluding PPP loans, was 1.10% at June 30, 2021, compared to 1.19% at December 31, 2020[273] - Management believes that the allowance for credit losses is adequate[274] SOURCES OF FUNDS This section describes the company's primary funding sources, including deposits and borrowings, and their respective changes and costs - Deposits traditionally have been the Company's primary source of funds for its investment and lending activities, supplemented by borrowings from the FHLB of Boston and the Federal Reserve Bank of Boston, and brokered deposits[275] - Total deposits grew by $361.5 million, or 10.6%, to $3.76 billion at June 30, 2021[216][278] - Total borrowings decreased to $17.2 million at June 30, 2021, from $33.0 million at December 31, 2020, as the Company utilized excess cash to reduce wholesale funding[218][279] Deposits This subsection details the composition and growth of the company's deposit base, including demand, interest-bearing, money market, savings, and certificates of deposit Deposit Composition (June 30, 2021 vs. December 31, 2020, in thousands) | Deposit Type | June 30, 2021 Amount | % of Total | December 31, 2020 Amount | % of Total | | :------------------------------------------ | :------------------- | :--------- | :--------------------- | :--------- | | Demand deposits (non-interest bearing) | $1,208,951 | 32.1% | $1,006,132 | 29.7% | | Interest bearing checking | $672,794 | 17.9% | $625,650 | 18.4% | | Money market | $726,101 | 19.3% | $532,218 | 15.6% | | Savings | $942,865 | 25.0% | $984,262 | 28.9% | | Certificates of deposit (total) | $213,847 | 5.7% | $254,821 | 7.5% | | Total | $3,764,558 | 100.0% | $3,403,083 | 100.0% | - Brokered deposits decreased from $30.8 million at December 31, 2020, to $9.3 million at June 30, 2021[278] Borrowings This subsection analyzes the company's borrowings, primarily from the FHLB, and its available borrowing capacity - Total borrowings were $17.2 million at June 30, 2021, a decrease of $15.7 million, as compared to $33.0 million at December 31, 2020, consisting solely of advances from the FHLB of Boston[279] - The Bank's remaining borrowing capacity at the FHLB of Boston at June 30, 2021 was approximately $697.6 million, and at the FRB of Boston was approximately $620.6 million[280] NET INTEREST MARGIN This section analyzes the company's net interest margin, including the impact of interest rate and volume changes on net interest income Net Interest and Dividend Income (in thousands) | Period | 2021 | 2020 | Change (Absolute) | Change (%) | | :-------------------------------- | :----- | :----- | :---------------- | :--------- | | Three months ended June 30 | $32,381 | $28,789 | $3,592 | 12.48% | | Six months ended June 30 | $63,787 | $51,189 | $12,598 | 24.61% | Net Interest Margin (Fully Taxable Equivalent) | Period | 2021 | 2020 | Change (Basis Points) | | :-------------------------------- | :----- | :----- | :-------------------- | | Three months ended June 30 | 3.25% | 3.77% | -52 bps | | Six months ended June 30 | 3.30% | 3.59% | -29 bps | - The average cost of funds decreased to 0.11% for Q2 2021 (from 0.23% in Q2 2020) and to 0.13% for H1 2021 (from 0.38% in H1 2020)[180][198] Rate/Volume Analysis This subsection provides a detailed breakdown of changes in net interest income attributable to fluctuations in interest rates and asset/liability volumes Change in Net Interest Income (Three Months Ended June 30, 2021 vs. 2020, in thousands) | Factor | Change Due to Volume | Change Due to Rate | Total Change | | :-------------------------------- | :------------------- | :----------------- | :----------- | | Interest income | $6,842 | $(3,779) | $3,063 | | Interest expense | $(159) | $(436) | $(595) | | Net interest income | $7,001 | $(3,343) | $3,658 | Change in Net Interest Income (Six Months Ended June 30, 2021 vs. 2020, in thousands) | Factor | Change Due to Volume | Change Due to Rate | Total Change | | :-------------------------------- | :------------------- | :----------------- | :----------- | | Interest income | $16,616 | $(6,704) | $9,912 | | Interest expense | $(69) | $(2,806) | $(2,875) | | Net interest income | $16,685 | $(3,898) | $12,787 | - Excluding the impact of merger-related loan accretion and PPP loans, the adjusted net interest margin for Q2 2021 was 3.01% (a 45 basis points decrease YoY) and for H1 2021 was 3.08% (a 30 basis points decrease YoY)[291][294] MARKET RISK AND ASSET LIABILITY MANAGEMENT This section discusses the company's exposure to market risk, primarily interest rate risk, and its strategies for asset-liability management - Market risk arises primarily from interest rate risk inherent in the Company's investment, borrowing, lending, and deposit gathering activities[296] - The Company's primary objective in managing interest rate risk is to minimize the adverse impact of changes in interest rates on net interest income and capital, while structuring the asset-liability structure to obtain the maximum yield-cost spread[298] - The Company uses several tools to manage its interest rate risk, including interest rate sensitivity analysis (gap analysis), market value of portfolio equity analysis, interest rate simulations, and net interest margin reports[300] Interest Rate Sensitivity This subsection analyzes the potential impact of various interest rate changes on the company's net interest income, using sensitivity models Year 1 Percentage Change in Net Interest Income (Parallel Rate Shocks, June 30, 2021) | Change in Interest Rates (in Basis Points) | Year 1 Percentage Change in Net Interest Income | | :----------------------------------------- | :---------------------------------------------- | | +400 | 0.7% | | +300 | 0.0% | | +200 | (0.8)% | | +100 | (0.4)% | | –100 | (6.5)% | Year 1 Percentage Change in Net Interest Income (Gradual Rate Shifts, June 30, 2021) | Change in Interest Rates (in Basis Points) | Year 1 Percentage Change in Net Interest Income | | :----------------------------------------- | :---------------------------------------------- | | +200 | 5.2% | | –100 | (0.8)% | Economic Value of Equity Analysis This subsection assesses the impact of interest rate changes on the economic value of equity, considering the present value of assets and liabilities - As of June 30, 2021, an instantaneous 200 basis point increase in interest rates was estimated to result in a 5.7% increase in the economic value of equity, while a 100 basis point decrease was estimated to result in a 13.2% increase[306] - These estimates are significantly impacted by management's assumption that the value of non-maturity deposits do not fall below their stated balance[306] LIQUIDITY AND CAPITAL RESOURCES This section evaluates the company's ability to meet its financial obligations and maintain adequate capital levels, including sources of liquidity and regulatory compliance - The Company manages its liquidity based on demand and specific events, primarily through core deposits, supplemented by selling investment securities, selling loans, and borrowing from the FHLB of Boston and FRB of Boston[310][311] - At June 30, 2021, the Company had access to funds totaling $1.76 billion[311] - Total shareholders' equity was $419.5 million at June 30, 2021, an increase from $401.7 million at December 31, 2020, primarily due to net income of $27.4 million[314] - Both the Company and the Bank exceeded the regulatory minimum levels to be considered "well-capitalized" as of June 30, 2021[315] Impact of Inflation and Changing Prices This subsection discusses the limited impact of inflation on the company's financial statements, noting that interest rate changes are more significant - The Company's Consolidated Financial Statements are prepared in accordance with GAAP, which generally requires measurement in historical dollars without considering inflation[308] - Changes in market interest rates generally have a greater impact on the Company's performance than the effects of inflation, due to the monetary nature of its assets and liabilities[309] Liquidity This subsection defines and assesses the company's liquidity position, outlining its primary and secondary sources of funds to meet obligations - Liquidity is defined as the Company's ability to generate adequate cash to meet its day-to-day operations and material long- and short-term commitments[310] - The Bank's liquidity is maintained by managing its core deposits as the primary source, and secondary sources include selling investment securities, selling loans, and borrowing from the FHLB of Boston and FRB of Boston[311] - At June 30, 2021, the Company had access to funds totaling $1.76 billion[311] Capital Adequacy This subsection reviews the company's capital levels and ratios, confirming compliance with regulatory requirements for being well-capitalized - Total shareholders' equity was $419.5 million at June 30, 2021, an increase from $401.7 million at December 31, 2020, primarily due to net income of $27.4 million, partially offset by regular dividend payments of $8.1 million[314] - The Company and the Bank are subject to various regulatory capital requirements and exceeded the minimum levels to be considered "well-capitalized" as of June 30, 2021[315] FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK This section describes the company's off-balance-sheet financial instruments, such as loan commitments and letters of credit, and their associated credit and interest rate risks - The Company is party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers[316] - These instruments primarily include commitments to originate and sell loans, standby letters of credit, unused lines of credit, and unadvanced portions of construction loans, involving credit and interest rate risk[316][319] - The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments[317] Off-Balance-Sheet Arrangements This subsection details the various off-balance-sheet arrangements, including commitments for loans and letters of credit, and their nature - Significant off-balance-sheet arrangements consist of commitments to originate and sell loans, standby and commercial letters of credit, unused lines of credit, unadvanced portions of construction and other loans, loan related derivatives, and risk participation agreements[319] Item 3. Quantitative and Qualitative Disclosures About Market Risk This item refers to the "Market Risk and Asset Liability Management" section within Item 2 for detailed quantitative and qualitative disclosures regarding the Company's market risk exposure and management strategies - The information required by this item is included in Item 2 of this report under "Market Risk and Asset Liability Management"[321] [Item 4. Controls and Procedures](index=65&type=sec