Cambridge Bancorp(CATC) - 2024 Q1 - Quarterly Results

Financial Highlights and Corporate Developments The company reported a sequential decline in Q1 2024 profitability, marked by strong wealth management growth and stable asset quality, while advancing its merger with Eastern Bankshares First Quarter 2024 Financial Highlights Cambridge Bancorp reported a sequential decline in Q1 2024 GAAP net income to $6.9 million and diluted EPS to $0.87, alongside strong wealth management growth, stable asset quality, and robust liquidity Q1 2024 vs Q4 2023 Profitability (GAAP) | Metric | Q1 2024 | Q4 2023 | Change | | :--- | :--- | :--- | :--- | | Net Income | $6.9 million | $8.0 million | -14.3% | | Diluted EPS | $0.87 | $1.02 | -14.7% | Q1 2024 vs Q4 2023 Profitability (Operating, Non-GAAP) | Metric | Q1 2024 | Q4 2023 | Change | | :--- | :--- | :--- | :--- | | Operating Net Income | $8.0 million | $8.7 million | -8.3% | | Operating Diluted EPS | $1.02 | $1.11 | -8.1% | Q1 2024 Key Performance Ratios | Ratio | Value | | :--- | :--- | | Return on Average Assets (ROA) | 0.51% | | Operating ROA | 0.60% | | Return on Average Equity | 5.19% | | Operating ROTCE | 6.94% | - Wealth Management Assets Under Management and Administration grew by 12.5% year-over-year to $4.80 billion, with associated revenue increasing 9.8% to $8.7 million[4] - Asset quality remained stable, with non-performing loans to total loans at 0.43% and non-performing assets to total assets at 0.32% as of March 31, 2024[4] - The company maintained a strong liquidity position with available sources of approximately $2.35 billion, which is about two times the amount of its uninsured deposits[5] Merger with Eastern Bankshares, Inc. The company is proceeding with its all-stock merger with Eastern Bankshares, Inc., approved by shareholders and now pending regulatory approval - An Agreement and Plan of Merger was entered into with Eastern Bankshares, Inc. on September 19, 2023, for an all-stock transaction[3] - Under the terms, each share of Cambridge Bancorp (CATC) common stock will be exchanged for 4.956 shares of Eastern common stock[3] - Shareholders of both companies approved the merger on February 28, 2024; the merger remains subject to regulatory approval[3] Financial Performance Analysis This section analyzes the company's Q1 2024 financial performance, detailing balance sheet shifts, net interest income, expense trends, asset quality, and capital position Balance Sheet Analysis Total assets slightly decreased to $5.37 billion in Q1 2024, driven by a contraction in the loan portfolio and a strategic reduction in higher-cost wholesale deposits - Total assets decreased by $43.8 million, or 0.8%, to $5.37 billion at March 31, 2024[22] Loan Portfolio Changes (Q1 2024 vs Q4 2023) | Loan Category | Change | | :--- | :--- | | Total Loans | -$26.8M (-0.7%) | | Residential Real Estate | -$15.0M | | Commercial Real Estate | -$9.2M | | Commercial & Industrial | +$4.8M (+1.4%) | - Total deposits decreased by $135.8 million (3.1%) to $4.19 billion, mainly from a $130.6 million reduction in wholesale certificates of deposit[23][24] - The company increased borrowings by $94.3 million, shifting funding toward lower-cost FHLB Boston borrowings to replace higher-priced wholesale deposits[12][23] - The cost of total deposits was stable at 2.18% for Q1 2024, compared to 2.19% for Q4 2023[24] Net Interest and Dividend Income Net interest income decreased by 4.0% to $27.0 million in Q1 2024 due to higher funding costs, resulting in a 4 basis point compression of the net interest margin to 2.10% - Net interest and dividend income decreased by $1.1 million, or 4.0%, to $27.0 million for Q1 2024 compared to Q4 2023, primarily due to higher cost of funds[13] Net Interest Margin (FTE) | Metric | Q1 2024 | Q4 2023 | Change | | :--- | :--- | :--- | :--- | | Net Interest Margin (GAAP) | 2.10% | 2.14% | -4 bps | | Adjusted Net Interest Margin (Non-GAAP) | 2.05% | 2.10% | -5 bps | Provision for Credit Losses The provision for credit losses significantly decreased to $125 thousand in Q1 2024, primarily due to lower average loan balances and a low unemployment rate - The provision for credit losses was $125 thousand for Q1 2024, a decrease from $569 thousand in Q4 2023[26] - The decrease in provision was mainly due to lower average loan balances and a low unemployment rate[26] Noninterest Income Total noninterest income increased by 1.6% to $10.6 million in Q1 2024, primarily driven by growth in wealth management revenue, partially offset by a significant drop in loan-related derivative income - Total noninterest income rose by $169 thousand (1.6%) to $10.6 million in Q1 2024, constituting 28.2% of total revenue[27] - Wealth management revenue increased by $237 thousand (2.8%) to $8.7 million, as Assets under Management and Administration grew by $205.6 million (4.5%) to $4.80 billion[28] - Loan related derivative income decreased by $96 thousand (84.2%) to $18 thousand due to lower transaction volume[28] Noninterest Expense Total noninterest expense rose by 5.0% to $28.3 million in Q1 2024, primarily due to $1.4 million in non-operating expenses for merger and office consolidation costs - Total noninterest expense increased by $1.4 million (5.0%) to $28.3 million in Q1 2024[30] - Non-operating expenses increased by $709 thousand, comprising $673 thousand in merger expenses and $734 thousand in office consolidation costs[31] - Salaries and employee benefits expense increased by $260 thousand (1.5%) due to seasonal factors and merit increases, but decreased 6.3% compared to Q1 2023 due to lower headcount[31] Asset Quality Asset quality remained broadly stable in Q1 2024, with non-performing loans slightly increasing to $17.2 million and negligible net charge-offs of $2 thousand Asset Quality Indicators | Metric | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Non-performing loans | $17.2 million | $16.6 million | | Non-performing loans / Total loans | 0.43% | 0.41% | | Allowance for credit losses (ACL) | $39.3 million | $38.9 million | | ACL / Total loans | 0.98% | 0.97% | - Net loan charge-offs were minimal at $2 thousand for Q1 2024, representing 0.00% of total loans (annualized)[44] Delinquency Rate | Metric | March 31, 2024 | December 31, 2023 | March 31, 2023 | | :--- | :--- | :--- | :--- | | Delinquent loans 30-89 days past due/total loans | 0.55% | 0.60% | 0.39% | Dividend and Capital The Board declared a $0.67 per share quarterly cash dividend, with no share repurchases, while capital ratios improved, including tangible common equity to tangible assets increasing to 8.76% - A quarterly cash dividend of $0.67 per share was declared, payable on May 23, 2024[33] - No shares were repurchased in Q1 2024, and the 2023 share repurchase program expired on March 13, 2024, without a new program being authorized[33] Capital Ratios and Book Value | Metric | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Common equity to assets | 9.97% | 9.87% | | Tangible common equity to tangible assets | 8.76% | 8.67% | | Book value per share | $68.27 | $68.14 | | Tangible book value per share | $59.23 | $59.08 | Financial Statements and Reconciliations This section presents detailed unaudited financial statements, including balance sheets, income statements, margin analysis, and reconciliations of GAAP to non-GAAP measures Quarterly Unaudited Results (Summary Table) This section provides a consolidated summary of the company's unaudited quarterly financial results, comparing key income statement items and per-share data across recent quarters Quarterly Unaudited Results Summary | (dollars in thousands, except per share data) | Three Months Ended March 31, 2024 | Three Months Ended Dec 31, 2023 | Three Months Ended March 31, 2023 | | :--- | :--- | :--- | :--- | | Net Interest and Dividend Income | $27,032 | $28,150 | $34,248 | | Provision for Credit Losses | $125 | $569 | $60 | | Noninterest Income | $10,606 | $10,437 | $10,715 | | Noninterest Expense | $28,259 | $26,901 | $28,328 | | Net Income | $6,888 | $8,034 | $12,416 | | Diluted Earnings Per Share | $0.87 | $1.02 | $1.58 | | Operating Diluted EPS* | $1.02 | $1.11 | $1.62 | Unaudited Consolidated Balance Sheets This section presents the company's unaudited consolidated balance sheets, detailing the composition of assets, liabilities, and shareholders' equity, with total assets at $5.37 billion Consolidated Balance Sheet Summary (in thousands) | | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total Assets | $5,373,840 | $5,417,666 | | Net Loans | $3,955,402 | $3,982,600 | | Total Investment Securities | $1,073,840 | $1,097,170 | | Total Liabilities | $4,838,244 | $4,883,093 | | Total Deposits | $4,185,382 | $4,321,178 | | Borrowings | $546,405 | $452,155 | | Total Shareholders' Equity | $535,596 | $534,573 | Unaudited Consolidated Statements of Income This section provides detailed unaudited consolidated statements of income, breaking down interest and noninterest income and expenses for recent three-month periods Consolidated Statements of Income (in thousands) | | Three Months Ended March 31, 2024 | Three Months Ended Dec 31, 2023 | | :--- | :--- | :--- | | Total interest and dividend income | $56,213 | $56,950 | | Total interest expense | $29,181 | $28,800 | | Net interest and dividend income | $27,032 | $28,150 | | Provision for credit losses | $125 | $569 | | Total noninterest income | $10,606 | $10,437 | | Total noninterest expense | $28,259 | $26,901 | | Net income | $6,888 | $8,034 | Margin & Yield Analysis This section provides a detailed analysis of the company's net interest margin and yields on a fully taxable equivalent basis, showing a net interest margin of 2.10% for Q1 2024 Margin & Yield Analysis (Q1 2024 vs Q4 2023) | Metric | Q1 2024 | Q4 2023 | | :--- | :--- | :--- | | Yield on Interest-earning assets | 4.37% | 4.34% | | Cost of Interest-bearing liabilities | 3.13% | 3.04% | | Net interest spread | 1.24% | 1.30% | | Net interest margin (FTE) | 2.10% | 2.14% | GAAP to Non-GAAP Reconciliations This section provides reconciliations of GAAP to non-GAAP financial measures, including adjustments for merger and office consolidation expenses, to present core business performance - Management uses non-GAAP measures such as operating net income, tangible book value, and operating efficiency ratio to evaluate core business performance, excluding items like merger and office consolidation expenses[38][39] Operating Net Income Reconciliation (Q1 2024, in thousands) | | Amount | | :--- | :--- | | Net Income (GAAP) | $6,888 | | Add: Mergers and office consolidation expenses | $1,407 | | Less: Tax effect of non-operating expenses | ($299) | | Operating Net Income (Non-GAAP) | $7,996 | Tangible Common Equity and Book Value (March 31, 2024, in thousands) | | Amount | | :--- | :--- | | Shareholders' equity (GAAP) | $535,596 | | Less: Goodwill and acquisition related intangibles | ($70,866) | | Tangible Common Equity (Non-GAAP) | $464,730 | | Tangible Book Value Per Share (Non-GAAP) | $59.23 | Supplementary Information This section provides background on Cambridge Bancorp and includes important disclosures regarding forward-looking statements and associated risks About Cambridge Bancorp Cambridge Bancorp is the parent of Cambridge Trust Company, a Massachusetts-chartered commercial bank with $5.37 billion in assets and $4.8 billion in client assets under management as of March 31, 2024 - Cambridge Bancorp is the parent of Cambridge Trust Company, a bank with $5.37 billion in assets and 22 locations as of March 31, 2024[49] - The company is a leader in New England private banking and wealth management, with $4.8 billion in client assets under management and administration[49] Forward-looking Statements This section contains a standard safe harbor statement, cautioning that forward-looking statements are subject to substantial risks and uncertainties, including those related to the pending Eastern merger and economic conditions - The report contains forward-looking statements subject to risks and uncertainties as defined by the Private Securities Litigation Reform Act of 1995[51] - Key risk factors include the failure to complete the Eastern merger, interest rate changes, economic uncertainty, and regulatory changes[51]