Cambridge Bancorp(US:CATC)2024-05-09 11:00PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Unaudited financial statements show a slight asset decrease to $5.37 billion and a 44.5% net income decline to $6.9 million in Q1 2024 - The unaudited consolidated financial statements include all normal recurring adjustments necessary for a fair presentation of the company's financial position and results of operations in accordance with GAAP. Interim results are not necessarily indicative of full-year results14 Unaudited Consolidated Balance Sheets Total assets slightly decreased to $5.37 billion by March 31, 2024, driven by lower deposits and investment securities, offset by increased borrowings Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2024 | December 31, 2023 | Change (%) | | :--- | :--- | :--- | :--- | | Total Assets | $5,373,840 | $5,417,666 | (0.8%) | | Net Loans | $3,955,402 | $3,982,600 | (0.7%) | | Total Investment Securities | $1,073,840 | $1,097,170 | (2.1%) | | Total Liabilities | $4,838,244 | $4,883,093 | (0.9%) | | Total Deposits | $4,185,382 | $4,321,178 | (3.1%) | | Borrowings | $546,405 | $452,155 | 20.8% | | Total Shareholders' Equity | $535,596 | $534,573 | 0.2% | Unaudited Consolidated Statements of Income Net income for Q1 2024 significantly decreased by 44.5% to $6.9 million, primarily due to a 21.1% decline in net interest income Consolidated Income Statement (Three Months Ended March 31, in thousands) | Metric | 2024 | 2023 | Change (%) | | :--- | :--- | :--- | :--- | | Total Interest & Dividend Income | $56,213 | $51,742 | 8.6% | | Total Interest Expense | $29,181 | $17,494 | 66.8% | | Net Interest Income | $27,032 | $34,248 | (21.1%) | | Provision for Credit Losses | $125 | $60 | 108.3% | | Total Noninterest Income | $10,606 | $10,715 | (1.0%) | | Total Noninterest Expense | $28,259 | $28,328 | (0.2%) | | Net Income | $6,888 | $12,416 | (44.5%) | | Diluted EPS | $0.87 | $1.58 | (44.9%) | Unaudited Consolidated Statements of Comprehensive Income Comprehensive income for Q1 2024 was $5.9 million, significantly lower than prior year, impacted by net income and other comprehensive loss Consolidated Comprehensive Income (Three Months Ended March 31, in thousands) | Metric | 2024 | 2023 | | :--- | :--- | :--- | | Net Income | $6,888 | $12,416 | | Other Comprehensive Income (Loss) | $(954) | $2,103 | | Comprehensive Income | $5,934 | $14,519 | Unaudited Consolidated Statements of Changes in Shareholders' Equity Shareholders' equity increased slightly to $535.6 million by March 31, 2024, primarily from net income, partially offset by dividends and other comprehensive loss Changes in Shareholders' Equity (Q1 2024, in thousands) | Item | Amount | | :--- | :--- | | Balance at December 31, 2023 | $534,573 | | Net Income | $6,888 | | Other Comprehensive Loss | $(954) | | Dividends Declared ($0.67/share) | $(5,256) | | Share Based Compensation & Other | $345 | | Balance at March 31, 2024 | $535,596 | Unaudited Consolidated Statements of Cash Flows Cash and cash equivalents decreased by $3.3 million in Q1 2024, with operating and investing inflows offset by financing outflows Consolidated Cash Flows (Three Months Ended March 31, in thousands) | Activity | 2024 | 2023 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $1,481 | $4,554 | | Net Cash from Investing Activities | $42,089 | $63,581 | | Net Cash from Financing Activities | $(46,869) | $(28,088) | | Net Change in Cash | $(3,299) | $40,047 | | Cash at Beginning of Period | $33,004 | $30,719 | | Cash at End of Period | $29,705 | $70,766 | Notes to Unaudited Consolidated Financial Statements Notes detail accounting policies, investment and loan portfolios, credit loss allowance, derivatives, fair value, and regulatory capital adequacy - The Company operates as a private bank with a single reportable operating segment, focusing on private banking and wealth management services53 - As of March 31, 2024, the Company and its bank subsidiary met all minimum capital requirements and were considered 'well-capitalized' by the FRB and FDIC91114 - The company utilizes interest rate swaps and floors to mitigate interest rate risk. As of March 31, 2024, derivative assets totaled $50.7 million and derivative liabilities totaled $46.9 million117157 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the 44.5% net income decrease to higher funding costs, compressing net interest margin to 2.10% - On September 19, 2023, the Company entered into a merger agreement with Eastern Bankshares, Inc. The merger was approved by the Company's shareholders on February 28, 2024, and remains subject to regulatory approval and other customary closing conditions197 - Net income for Q1 2024 decreased by $5.5 million (44.5%) to $6.9 million compared to Q1 2023, primarily due to lower net interest income and higher non-operating expenses related to the merger211 - Net interest margin, on a fully taxable equivalent basis, decreased by 53 basis points to 2.10% for Q1 2024, compared to 2.63% for Q1 2023, mainly due to higher cost of funds214 Results of Operations Q1 2024 operating results show a 21.1% decline in net interest income to $27.0 million, despite stable noninterest income and expense Key Operating Metrics (Q1 2024 vs Q1 2023) | Metric | Q1 2024 | Q1 2023 | Change | | :--- | :--- | :--- | :--- | | Net Interest Income | $27.0M | $34.2M | -21.1% | | Provision for Credit Losses | $125k | $60k | +108.3% | | Wealth Management Revenue | $8.7M | $7.9M | +9.8% | | Total Noninterest Income | $10.6M | $10.7M | -1.0% | | Total Noninterest Expense | $28.3M | $28.3M | 0.0% | | Net Income | $6.9M | $12.4M | -44.5% | - Interest expense on deposits increased by 46.3% and on borrowings by 277.5% year-over-year, reflecting the higher interest rate environment213 - Non-operating expenses increased by $983,000, primarily due to merger expenses with Eastern and office consolidation costs221 Changes in Financial Condition Total assets decreased by $43.8 million to $5.37 billion, driven by declines in loans and deposits, partially offset by increased borrowings Balance Sheet Changes (Dec 31, 2023 to Mar 31, 2024) | Account | Change ($M) | Change (%) | | :--- | :--- | :--- | | Total Assets | $(43.8) | (0.8%) | | Total Loans | $(26.8) | (0.7%) | | Investment Securities | $(23.3) | (2.1%) | | Total Deposits | $(135.8) | (3.1%) | | Borrowings | $94.3 | 20.8% | | Shareholders' Equity | $1.0 | 0.2% | - Tangible book value per share increased to $59.23 at March 31, 2024, from $59.08 at December 31, 2023225248 Loan Portfolio The $4.0 billion loan portfolio is primarily commercial mortgage (48%) and residential mortgage (40%), with non-performing loans at 0.43% Loan Portfolio Composition (March 31, 2024) | Loan Category | Amount ($B) | % of Total | | :--- | :--- | :--- | | Commercial Mortgage | $1.92 | 48% | | Residential Mortgage | $1.61 | 40% | | Commercial & Industrial | $0.35 | 9% | | Home Equity | $0.09 | 2% | | Consumer | $0.02 | 1% | | Total Loans | $3.99 | 100% | - Total non-performing loans were $17.2 million (0.43% of gross loans) at March 31, 2024, up from $16.6 million (0.41% of gross loans) at December 31, 2023296266 - The allowance for credit losses for loans stood at $39.3 million, or 0.98% of total loans outstanding, at March 31, 2024237302 Liquidity and Capital Resources The Company maintains strong liquidity with $2.35 billion in available funds and remains 'well-capitalized' under all regulatory requirements - At March 31, 2024, the Company had access to total funds of $2.35 billion, including borrowing capacity from the FHLB of Boston and the FRB of Boston327333305 - The Company and the Bank are subject to various regulatory capital requirements and exceeded the minimum levels to be considered 'well-capitalized' as of March 31, 202437491 - Shareholders' equity increased to $535.6 million at March 31, 2024, from $534.6 million at December 31, 2023, mainly due to net income of $6.9 million, partially offset by $5.3 million in dividend payments328 Item 3. Quantitative and Qualitative Disclosures About Market Risk Primary market risk is interest rate risk, with a +200 bps shock projected to decrease NII by 5.6% and EVE by 25.4% Net Interest Income Sensitivity (Instantaneous Parallel Shock, as of March 31, 2024) | Rate Shock (bps) | % Change in NII (Next 12 Months) | | :--- | :--- | | +300 | (8.3)% | | +200 | (5.6)% | | +100 | (2.6)% | | -100 | 2.8% | | -200 | 4.2% | - The Bank's economic value of equity (EVE) analysis estimated that a +200 basis point rate shock would decrease EVE by 25.4%, while a -200 basis point shock would increase EVE by 21.8%352371 - The Company utilizes derivative financial instruments, including interest rate floors and swaps, to manage its exposure to interest rate fluctuations in both rising and falling rate environments347321348 Item 4. Controls and Procedures Management concluded disclosure controls and procedures were effective as of March 31, 2024, with no material changes to internal controls - Based on an evaluation as of March 31, 2024, the Chief Executive Officer and interim Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective359 - There were no changes in the Company's internal controls over financial reporting during the quarter ended March 31, 2024, that have materially affected, or are reasonably likely to materially affect, these controls360 PART II. OTHER INFORMATION Item 1. Legal Proceedings The Company is not currently a party to any material pending legal proceedings in the ordinary course of business - The Company is not currently party to any material pending legal proceedings380 Item 1A. Risk Factors No material changes to the risk factors previously disclosed in the 2023 Annual Report on Form 10-K - There have been no material changes to the risk factors previously disclosed in the 2023 Annual Report362381 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The Company repurchased 5,782 shares in Q1 2024 for tax liabilities, with the 2023 repurchase program now expired Share Repurchases (Q1 2024) | Period | Total Shares Repurchased | Weighted Avg. Price Paid | | :--- | :--- | :--- | | January 2024 | 873 | $66.51 | | February 2024 | 3,130 | $68.31 | | March 2024 | 1,779 | $64.48 | | Total | 5,782 | N/A | - The share repurchase program authorized in March 2023 expired on March 13, 2024, and the Board has not authorized a new program382 Item 5. Other Information No directors or executive officers adopted or terminated any Rule 10b5-1 trading plans during Q1 2024 - No directors or executive officers adopted or terminated any Rule 10b5-1 trading plans during the first quarter of 2024365 Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including SOX certifications and Inline XBRL documents - Exhibits filed include CEO and CFO certifications (31.1, 31.2, 32.1, 32.2) and Inline XBRL data files (101.INS, 101.SCH, 104)387