catc-10q_20190930.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 September 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 October 31, 2019, the registrant had 4,849,738 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	63
Item 5.	Other Information	63
Item 6.	Exhibits	64
Signatures		65

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

CAMBRIDGE BANCORP AND SUBSIDIARIES

UNAUDITED CONSOLIDATED BALANCE SHEETS

	September 30, 2019			December 31, 2018
	(dollars in thousands, except par value)
Assets
Cash and cash equivalents	$	68,949		$	18,473
Investment securities
Available for sale, at fair value (amortized cost $148,606 and $172,290, respectively)		148,068			168,163
Held to maturity, at amortized cost (fair value $276,241 and $281,310, respectively)		269,475			282,869
Total investment securities		417,543			451,032
Loans held for sale, at lower of cost or fair value		2,082			—
Loans
Residential mortgage		909,822			604,331
Commercial mortgage		1,016,772			757,957
Home equity		82,713			69,336
Commercial & Industrial		138,072			93,712
Consumer		32,503			34,436
Total loans		2,179,882			1,559,772
Less: allowance for loan losses		(18,035	)		(16,768	)
Net loans		2,161,847			1,543,004
Federal Home Loan Bank of Boston Stock, at cost		9,159			6,844
Bank owned life insurance		37,161			30,933
Banking premises and equipment, net		14,954			8,578
Right-of-use asset operating leases		34,553			—
Deferred income taxes, net		7,939			8,717
Accrued interest receivable		6,959			5,762
Goodwill		31,206			412
Merger related intangibles		3,429			—
Other assets		46,087			27,629
Total assets	$	2,841,868		$	2,101,384
Liabilities
Deposits
Demand	$	654,133		$	494,492
Interest bearing checking		429,755			431,702
Money market		214,721			135,585
Savings		876,392			628,212
Certificates of deposit		232,858			121,419
Total deposits		2,407,859			1,811,410
Short-term borrowings		113,935			90,000
Long-term borrowings		—			3,409
Operating lease liabilities		35,990			—
Other liabilities		40,739			29,539
Total liabilities		2,598,523			1,934,358
Shareholders’ Equity
Common stock, par value $1.00; Authorized: 10,000,000 shares; Outstanding: 4,849,988 shares and 4,107,051 shares, respectively		4,850			4,107
Additional paid-in capital		98,256			38,271
Retained earnings		142,237			131,135
Accumulated other comprehensive loss		(1,998	)		(6,487	)
Total shareholders’ equity		243,345			167,026
Total liabilities and shareholders’ equity	$	2,841,868		$	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 September 30,				Nine Months Ended September 30,
	2019		2018		2019			2018
	(dollars in thousands, except share data)
Interest and dividend income
Interest on taxable loans	$	23,280	$	14,808	$	60,919		$	42,318
Interest on tax-exempt loans		172		91		385			279
Interest on taxable investment securities		1,978		1,936		6,074			5,570
Interest on tax-exempt investment securities		563		591		1,709			1,817
Dividends on FHLB of Boston stock		124		93		281			202
Interest on overnight investments		219		83		556			484
Total interest and dividend income		26,336		17,602		69,924			50,670
Interest expense
Interest on deposits		4,609		1,275		11,489			3,290
Interest on borrowed funds		676		156		1,347			202
Total interest expense		5,285		1,431		12,836			3,492
Net interest and dividend income		21,051		16,171		57,088			47,178
Provision for Loan Losses		2,170		457		2,673			787
Net interest and dividend income after provision for loan losses		18,881		15,714		54,415			46,391
Noninterest income
Wealth management revenue		7,033		6,779		19,576			19,044
Deposit account fees		814		782		2,395			2,306
ATM/Debit card income		391		294		1,046			875
Bank owned life insurance income		165		129		454			393
Gain (loss) on disposition of investment securities		2		—		(79	)		2
Gain on loans held for sale		460		37		491			82
Loan related derivative income		1,130		636		1,571			1,220
Other income		371		272		1,014			1,029
Total noninterest income		10,366		8,929		26,468			24,951
Noninterest expense
Salaries and employee benefits		12,067		10,326		34,353			30,842
Occupancy and equipment		2,792		2,290		7,813			6,736
Data processing		1,652		1,329		4,532			3,848
Professional services		844		761		2,411			2,477
Marketing		263		595		1,175			1,369
FDIC insurance		91		151		369			437
Merger expenses		339		—		3,880			—
Other expenses		815		427		2,216			1,436
Total noninterest expense		18,863		15,879		56,749			47,145
Income before income taxes		10,384		8,764		24,134			24,197
Income tax expense		2,708		2,105		5,988			5,622
Net income	$	7,676		6,659	$	18,146		$	18,575
Share data:
Weighted average number of shares outstanding, basic		4,815,020		4,064,620		4,525,178			4,059,608
Weighted average number of shares outstanding, diluted		4,842,965		4,101,378		4,552,092			4,095,447
Basic earnings per share	$	1.58	$	1.62	$	3.98		$	4.53
Diluted earnings per share	$	1.57	$	1.61	$	3.95		$	4.49

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 September 30,						Nine Months Ended September 30,
	2019			2018			2019		2018
	(dollars in thousands)
Net income	$	7,676		$	6,659		$	18,146	$	18,575
Other comprehensive income/(loss), net of tax:
Unrealized gains/(losses) on available for sale securities
Unrealized holding gains/(losses) arising during period		141			(172	)		2,689		(1,947	)
Less: reclassification adjustment for losses/(gains) included in net income		(1	)		—			61		(2	)
Total unrealized gains/(losses) on securities		140			(172	)		2,750		(1,949	)
Derivatives
Change in interest rate contracts		472			—			1,661		—
Defined benefit retirement plans
Change in retirement liabilities		26			10			78		30
Other comprehensive income/(loss)		638			(162	)		4,489		(1,919	)
Comprehensive income	$	8,314		$	6,497		$	22,635	$	16,656

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 September 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 June 30, 2018	$	4,104	$	37,152	$	123,276		$	(8,840	)	$	155,692
Cumulative effect of accounting changes		—		—		—			—			—
Net income		—		—		6,659			—			6,659
Other comprehensive income (loss)		—		—		—			(162	)		(162	)
Share based compensation		2		637		—			—			639
Dividends declared ($0.50 per share)		—		—		(2,052	)		—			(2,052	)
Balance at September 30, 2018	$	4,106	$	37,789	$	127,883		$	(9,002	)	$	160,776

Balance at June 30, 2019	$	4,850	$	97,844	$	137,036		$	(2,636	)	$	237,094
Net income		—		—		7,676			—			7,676
Other comprehensive income (loss)		—		—		—			638			638
Share based compensation		—		412		—			—			412
Dividends declared ($0.51 per share)		—		—		(2,475	)		—			(2,475	)
Common stock issued for merger		—		—		—			—			—
Balance at September 30, 2019	$	4,850	$	98,256	$	142,237		$	(1,998	)	$	243,345

	Nine Months Ended September 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		—		—		18,575			—			18,575
Other comprehensive income (loss)		—		—		—			(1,919	)		(1,919	)
Share based compensation		24		2,126		—			—			2,150
Dividends declared ($1.46 per share)		—		—		(5,987	)		—			(5,987	)
Balance at September 30, 2018	$	4,106	$	37,789	$	127,883		$	(9,002	)	$	160,776

Balance at December 31, 2018	$	4,107	$	38,271	$	131,135		$	(6,487	)	$	167,026
Net income		—		—		18,146			—			18,146
Other comprehensive income (loss)		—		—		—			4,489			4,489
Share based compensation		20		1,291		—			—			1,311
Dividends declared ($1.53 per share)		—		—		(7,044	)		—			(7,044	)
Common stock issued for merger		723		58,694		—			—			59,417
Balance at September 30, 2019	$	4,850	$	98,256	$	142,237		$	(1,998	)	$	243,345

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

CAMBRIDGE BANCORP AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

	Nine Months Ended September 30,
	2019			2018
	(dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	18,146		$	18,575
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		2,673			787
Amortization of deferred charges and fees, net		378			676
Net (Accretion)/Amortization of merger-related intangibles		(854	)		—
Depreciation and amortization		1,403			1,454
Bank owned life insurance income		(454	)		(393	)
Loss/(gain) on disposition of investment securities		79			(2	)
Share based compensation		1,311			2,150
Change in accrued interest receivable		(69	)		(408	)
Deferred income tax (benefit)/expense		455			(156	)
Change in other assets, net		(15,500	)		(9,702	)
Change in other liabilities, net		12,739			4,365
Change in loans held for sale		(2,082	)		—
Net cash provided by operating activities		18,225			17,346
CASH FLOWS FROM INVESTING ACTIVITIES
Origination of loans		(563,239	)		(393,864	)
Proceeds from principal payments of loans		381,597			293,091
Proceeds from principal loan pool sale		36,971			—
Purchase of securities available for sale		(10,449	)		—
Proceeds from calls/maturities of securities available for sale		29,405			21,084
Proceeds from sales of securities available for sale and held to maturity		26,552			702
Proceeds from calls/maturities of securities held to maturity		48,549			25,750
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		(849	)		(2,424	)
Purchase of banking premises and equipment		(1,494	)		(980	)
Net cash acquired in business combinations		2,063			—
Net cash (used in) provided by investing activities		(86,852	)		(120,925	)
CASH FLOWS FROM FINANCING ACTIVITIES
Change in demand, interest bearing, money market and savings accounts		170,237			2,082
Change in certificates of deposit		(51,157	)		(46,249	)
Change in borrowings		7,067			66,573
Cash dividends paid on common stock		(7,044	)		(5,987	)
Net cash provided by (used in) financing activities		119,103			16,419
Net (decrease)/increase in cash and cash equivalents		50,476			(87,160	)
Cash and cash equivalents at beginning of period		18,473			103,591
Cash and cash equivalents at end of period	$	68,949		$	16,431