catc-10q_20190630.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2019

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________________ to __________________

Commission File Number: 001-38184

CAMBRIDGE BANCORP

(Exact Name of Registrant as Specified in its Charter)

Massachusetts	04-2777442
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

1336 Massachusetts Avenue Cambridge, MA	02138
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (617) 876-5500

Common Stock	CATC	NASDAQ
(Title of each class)	(Trading symbol)	(Name of each exchange on which registered)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☐ No ☒

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	Small reporting company	☐
		Emerging growth Company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of July 31, 2019, the registrant had 4,851,047 shares of common stock, $1.00 par value per share, outstanding.

Table of Contents

CAMBRIDGE BANCORP AND SUBSIDIARIES

		Page
PART I.	FINANCIAL INFORMATION	1
Item 1.	Financial Statements (Unaudited)	1
	Unaudited Consolidated Balance Sheets	1
	Unaudited Consolidated Statements of Income	2
	Unaudited Consolidated Statements of Comprehensive Income (Loss)	3
	Unaudited Consolidated Statements of Changes in Shareholders’ Equity	4
	Unaudited Consolidated Statements of Cash Flows	5
	Notes to Unaudited Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	38
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	61
Item 4.	Controls and Procedures	61
PART II.	OTHER INFORMATION	62
Item 1.	Legal Proceedings	62
Item 1A.	Risk Factors	62
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	62
Item 3.	Defaults Upon Senior Securities	62
Item 4.	Mine Safety Disclosures	62
Item 5.	Other Information	62
Item 6.	Exhibits	63
Signatures		64

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

CAMBRIDGE BANCORP AND SUBSIDIARIES

UNAUDITED CONSOLIDATED BALANCE SHEETS

	June 30, 2019			December 31, 2018
	(dollars in thousands, except par value)
Assets
Cash and cash equivalents	$	38,557		$	18,473
Investment securities
Available for sale, at fair value (amortized cost $153,765 and $172,290, respectively)		153,053			168,163
Held to maturity, at amortized cost (fair value $291,993 and $281,310, respectively)		286,350			282,869
Total investment securities		439,403			451,032
Loans held for sale, at lower of cost or fair value		384			—
Loans
Residential mortgage		938,559			604,331
Commercial mortgage		905,442			757,957
Home equity		85,814			69,336
Commercial & Industrial		134,307			93,712
Consumer		32,428			34,436
Total loans		2,096,550			1,559,772
Less: allowance for loan losses		(17,099	)		(16,768	)
Net loans		2,079,451			1,543,004
Federal Home Loan Bank of Boston Stock, at cost		8,245			6,844
Bank owned life insurance		36,996			30,933
Banking premises and equipment, net		14,863			8,578
Deferred income taxes, net		7,267			8,717
Accrued interest receivable		7,485			5,762
Goodwill		31,206			412
Merger related intangibles		3,519			—
Other assets		73,932			27,629
Total assets	$	2,741,308		$	2,101,384
Liabilities
Deposits
Demand	$	587,030		$	494,492
Interest bearing checking		422,426			431,702
Money market		200,935			135,585
Savings		853,356			628,212
Certificates of deposit		265,918			121,419
Total deposits		2,329,665			1,811,410
Short-term borrowings		103,000			90,000
Long-term borrowings		3,323			3,409
Other liabilities		68,226			29,539
Total liabilities		2,504,214			1,934,358
Shareholders’ Equity
Common stock, par value $1.00; Authorized 10,000,000 shares; Outstanding: 4,850,230 shares and 4,107,051 shares, respectively		4,850			4,107
Additional paid-in capital		97,844			38,271
Retained earnings		137,036			131,135
Accumulated other comprehensive loss		(2,636	)		(6,487	)
Total shareholders’ equity		237,094			167,026
Total liabilities and shareholders’ equity	$	2,741,308		$	2,101,384

The accompanying notes are an integral part of these unaudited consolidated financial statements.

CAMBRIDGE BANCORP AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF INCOME

	Three Months Ended June 30,					Six Months Ended June 30,
	2019		2018			2019			2018
	(dollars in thousands, except share data)
Interest and dividend income
Interest on taxable loans	$	21,355	$	14,132		$	37,639		$	27,510
Interest on tax-exempt loans		124		92			213			188
Interest on taxable investment securities		2,116		1,920			4,096			3,634
Interest on tax-exempt investment securities		575		604			1,146			1,226
Dividends on FHLB of Boston stock		81		58			157			109
Interest on overnight investments		219		130			337			401
Total interest and dividend income		24,470		16,936			43,588			33,068
Interest expense
Interest on deposits		4,379		1,053			6,880			2,015
Interest on borrowed funds		315		29			671			46
Total interest expense		4,694		1,082			7,551			2,061
Net interest and dividend income		19,776		15,854			36,037			31,007
Provision for (Release of) Loan Losses		596		(79	)		503			330
Net interest and dividend income after provision for loan losses		19,180		15,933			35,534			30,677
Noninterest income
Wealth management revenue		6,419		6,139			12,543			12,265
Deposit account fees		843		774			1,581			1,524
ATM/Debit card income		379		310			655			581
Bank owned life insurance income		162		136			289			264
Gain (loss) on disposition of investment securities		6		2			(81	)		2
Gain on loans held for sale		15		18			31			45
Loan related derivative income		5		112			441			584
Other income		316		353			643			757
Total noninterest income		8,145		7,844			16,102			16,022
Noninterest expense
Salaries and employee benefits		11,459		10,443			22,286			20,516
Occupancy and equipment		2,691		2,219			5,021			4,446
Data processing		1,534		1,289			2,880			2,519
Professional services		760		829			1,567			1,716
Marketing		508		336			912			774
FDIC insurance		278		135			278			286
Merger expenses		3,450		—			3,541			—
Other expenses		833		514			1,401			1,009
Total noninterest expense		21,513		15,765			37,886			31,266
Income before income taxes		5,812		8,012			13,750			15,433
Income tax expense		1,540		1,901			3,280			3,517
Net income	$	4,272		6,111		$	10,470		$	11,916
Share data:
Weighted average number of shares outstanding, basic		4,682,109		4,059,927			4,379,141			4,057,156
Weighted average number of shares outstanding, diluted		4,715,724		4,094,489			4,412,239			4,087,790
Basic earnings per share	$	0.91	$	1.49		$	2.37		$	2.91
Diluted earnings per share	$	0.90	$	1.48		$	2.35		$	2.89

The accompanying notes are an integral part of these unaudited consolidated financial statements.

CAMBRIDGE BANCORP AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019		2018
	(dollars in thousands)
Net income	$	4,272		$	6,111		$	10,470	$	11,916
Other comprehensive income/(loss), net of tax:
Unrealized gains/(losses) on available for sale securities
Unrealized holding gains/(losses) arising during period		1,453			(423	)		2,548		(1,775	)
Less: reclassification adjustment for losses/(gains) included in net income		(4	)		(2	)		62		(2	)
Total unrealized gains/(losses) on securities		1,449			(425	)		2,610		(1,777	)
Derivatives
Change in interest rate contracts		1,219			—			1,189		—
Defined benefit retirement plans
Change in retirement liabilities		26			10			52		20
Other comprehensive income/(loss)		2,694			(415	)		3,851		(1,757	)
Comprehensive income	$	6,966		$	5,696		$	14,321	$	10,159

The accompanying notes are an integral part of these unaudited consolidated financial statements.

CAMBRIDGE BANCORP AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

	Three Months Ended June 30,
	Common Stock		Additional Paid-In Capital		Retained Earnings			Accumulated Other Comprehensive (Loss ) / Income			Total Shareholders’ Equity
	(dollars in thousands, except per share data)
Balance at March 31, 2018	$	4,101	$	36,065	$	119,196		$	(8,489	)	$	150,873
Cumulative effect of accounting changes		—		—		(64	)		64			—
Net income		—		—		6,111			—			6,111
Other comprehensive income (loss)		—		—		—			(415	)		(415	)
Share based compensation		3		1,087		—			—			1,090
Dividends declared ($0.48 per share)		—		—		(1,967	)		—			(1,967	)
Balance at June 30, 2018	$	4,104	$	37,152	$	123,276		$	(8,840	)	$	155,692

Balance at March 31, 2019	$	4,124	$	38,239	$	135,235		$	(5,330	)	$	172,268
Net income		—		—		4,272			—			4,272
Other comprehensive income (loss)		—		—		—			2,694			2,694
Share based compensation		3		911		—			—			914
Dividends declared ($0.51 per share)		—		—		(2,471	)		—			(2,471	)
Common stock issued for merger		723		58,694		—			—			59,417
Balance at June 30, 2019	$	4,850	$	97,844	$	137,036		$	(2,636	)	$	237,094

	Six Months Ended June 30,
	Common Stock		Additional Paid-In Capital		Retained Earnings			Accumulated Other Comprehensive (Loss ) / Income			Total Shareholders’ Equity
	(dollars in thousands, except per share data)
Balance at December 31, 2017	$	4,082	$	35,663	$	114,093		$	(5,881	)	$	147,957
Cumulative effect of accounting changes		—		—		1,202			(1,202	)		—
Net income		—		—		11,916			—			11,916
Other comprehensive income (loss)		—		—		—			(1,757	)		(1,757	)
Share based compensation		22		1,489		—			—			1,511
Dividends declared ($0.96 per share)		—		—		(3,935	)		—			(3,935	)
Balance at June 30, 2018	$	4,104	$	37,152	$	123,276		$	(8,840	)	$	155,692

Balance at December 31, 2018	$	4,107	$	38,271	$	131,135		$	(6,487	)	$	167,026
Net income		—		—		10,470			—			10,470
Other comprehensive income (loss)		—		—		—			3,851			3,851
Share based compensation		20		879		—			—			899
Dividends declared ($1.02 per share)		—		—		(4,569	)		—			(4,569	)
Common stock issued for merger		723		58,694		—			—			59,417
Balance at June 30, 2019	$	4,850	$	97,844	$	137,036		$	(2,636	)	$	237,094

The accompanying notes are an integral part of these unaudited consolidated financial statements.

CAMBRIDGE BANCORP AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

	Six Months Ended June 30,
	2019			2018
	(dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	10,470		$	11,916
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		503			330
Amortization of deferred charges and fees, net		255			459
Net (Accretion)/Amortization of merger-related intangibles		(247	)		—
Depreciation and amortization		881			919
Bank owned life insurance income		(289	)		(264	)
Loss/(gain) on disposition of investment securities		81			(2	)
Share based compensation		899			1,511
Change in accrued interest receivable		(595	)		(151	)
Deferred income tax (benefit)/expense		885			350
Change in other assets, net		(5,860	)		(6,247	)
Change in other liabilities, net		774			1,302
Change in loans held for sale		(384	)		(566	)
Net cash provided by operating activities		7,373			9,557
CASH FLOWS FROM INVESTING ACTIVITIES
Origination of loans		(273,385	)		(245,108	)
Proceeds from principal payments of loans		212,719			194,855
Proceeds from calls/maturities of securities available for sale		13,876			10,770
Proceeds from sales of securities available for sale		26,150			702
Proceeds from calls/maturities of securities held to maturity		32,216			17,200
Purchase of securities held to maturity		(35,958	)		(64,960	)
Proceeds from settlement of bank owned life insurance policies		—			676
Redemption (purchase) of FHLB of Boston stock		65			(271	)
Purchase of banking premises and equipment		(880	)		(726	)
Net cash acquired in business combinations		2,063			—
Net cash (used in) provided by investing activities		(23,134	)		(86,862	)
CASH FLOWS FROM FINANCING ACTIVITIES
Change in demand, interest bearing, money market and savings accounts		59,049			35,461
Change in certificates of deposit		(18,090	)		(22,608	)
Change in short-term borrowings		(459	)		—
Repayment of long-term borrowings		(86	)		(85	)
Cash dividends paid on common stock		(4,569	)		(3,935	)
Net cash provided by (used in) financing activities		35,845			8,833
Net (decrease)/increase in cash and cash equivalents		20,084			(68,472	)
Cash and cash equivalents at beginning of period		18,473			103,591
Cash and cash equivalents at end of period	$	38,557		$	35,119
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest	$	7,719