EX: 99.1

 

 

FOR IMMEDIATE RELEASE

 

Cambridge Bancorp Announces Operating Results for Q2 and Declares Dividend

Net loss driven by new merger related accounting. Asset Quality remains strong

 

 

CAMBRIDGE, MA. (July 28, 2020) - Cambridge Bancorp (NASDAQ: CATC) (the “Company”), the parent company of Cambridge Trust Company (the “Bank”), today announced an unaudited net loss of $1,716,000 for the quarter ended June 30, 2020, a decrease of $5,988,000, or 140.2%, compared to net income of $4,272,000 for the quarter ended June 30, 2019. The diluted loss per share was $0.29 for the second quarter of 2020, representing a 132.2% decrease over diluted earnings per share of $0.90 for the second quarter of 2019.

 

The results for the second quarter include the merger with Wellesley Bancorp Inc. (“Wellesley”) and the corresponding impact to the provision for credit losses, merger expenses, and other non-operating items. Excluding these items, operating net income was $7,788,000 for the quarter ended June 30, 2020, an increase of $833,000, or 12.0%, compared to operating net income of $6,955,000 for the quarter ended June 30, 2019. Operating diluted earnings per share were $1.32 for the second quarter of 2020, representing a 10.2% decrease over operating diluted earnings per share of $1.47 for the same quarter last year. Further discussion of the merger accounting impact of the current and expected credit loss accounting standard (“CECL”) is detailed below and in the Non-GAAP Reconciliation tables at the end of this document.

 

For the six months ended June 30, 2020, unaudited net income was $5,516,000, representing a decrease of $4,954,000, or 47.3%, compared to net income of $10,470,000 for the six months ended June 30, 2019. Diluted earnings per share were $0.97 for the six months ended June 30, 2020, representing a 58.7% decrease over diluted earnings per share of $2.35 for the same six months ended June 30, 2019.

 

The results for the six months ended June 30, 2020 also include the merger accounting impact of the CECL accounting standard within the provision for credit losses, merger expenses, and other non-operating items. Excluding these items, operating net income was $15,210,000 for the six months ended June 30, 2020, an increase of $1,923,000, or 14.5%, compared to operating net income of $13,287,000 for the six months ended June 30, 2019. Operating diluted earnings per share were $2.68 for the six months ended June 30, 2020, representing a 10.4% decrease over operating diluted earnings per share of $2.99 for the six months ended June 30, 2019.

 

Second quarter 2020 highlights:

 

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“Throughout this period of uncertainty, we were able to deliver for our clients not only in terms of support through the PPP program, but also for our communities in terms of outreach. I want to specifically thank my colleagues for all of their hard work and welcome our new colleagues from our merger with Wellesley,” noted Denis K. Sheahan, Chairman and CEO. “Although the quarter’s results include the one-time impact of the merger on our allowance for credit losses as required by CECL and a continued increase in provisioning levels associated with the COVID-19 pandemic, we delivered solid operating results with continued strength in asset quality.”

 

Merger with Wellesley

 

On June 1, 2020, the Company completed its merger with Wellesley which added 6 banking offices in Massachusetts. The Company paid total consideration of $88.8 million, which consisted of 1,502,814 shares of Cambridge Bancorp common stock issued to Wellesley shareholders. The transaction included the acquisition of $870.0 million in loans and the assumption of $760.9 million in deposits, each at fair value.  

 

The following table provides the purchase price allocation of net assets acquired for this transaction:

 

 

The Company recorded a gross loan fair value mark of $14.9 million or 1.7% of acquired loans on June 1, 2020. For further details on the loans and deposits acquired, see “Organic Loan and Deposit Growth” table provided near the end of the financial schedules accompanying this release.

 

Balance Sheet

 

Total assets increased $1.2 billion, or 40.9% from December 31, 2019, inclusive of the Wellesley merger, and were $4.0 billion as of June 30, 2020.

 

Total loans increased by $1.1 billion, or 49.7%, from December 31, 2019, inclusive of the Wellesley merger, and stood at $3.3 billion as of June 30, 2020. The increase in total loans was due to a combination of the merger with Wellesley and organic growth during 2020. A table is included accompanying this release to provide detail of organic loan and deposit growth.

 

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Inclusive of Wellesley:

 

Excluding Wellesley and PPP loans, total loans grew by $79.1 million, or 3.6%, from December 31, 2019.

 

The Company recorded goodwill of $20.7 million during the second quarter of 2020, due to the merger with Wellesley. Total goodwill as of June 30, 2020 was $51.9 million.

 

Other assets increased $51.5 million, or 121.8%, to $93.8 million, from $42.3 million at December 31, 2019, primarily due to valuation adjustments associated with loan level interest rate derivatives ($39.8M) due to both changes in interest rates and additional loan level derivatives acquired in connection with the Wellesley merger.

 

Total deposits grew by $917.0 million, or 38.9%, to $3.3 billion at June 30, 2020, primarily driven by a combination of the impact of the Wellesley merger, organic deposit growth and funds from the PPP program.

 

 

Certificates of deposit totaled $358.6 million at June 30, 2020, an increase of $176.3 million from $182.3 million at December 31, 2019, primarily due to the Wellesley merger. Total brokered certificates of deposit, which are included within certificates of deposit, were $87.4 million and $7.1 million at June 30, 2020 and December 31, 2019, respectively.

 

Borrowings were $237.9 million as of June 30, 2020, representing a $102.2 million, or 75.3% increase from $135.7 million at December 31, 2019, primarily due to the Wellesley merger.

 

Net Interest and Dividend Income

 

For the quarter ended June 30, 2020, net interest and dividend income before the provision for credit losses increased by $9.0 million, or 45.6%, to $28.8 million, as compared to $19.8 million for the quarter ended June 30, 2019, primarily due to loan growth (both organic and as a result of the Wellesley merger), lower costs of funds, higher levels of interest earning assets, and loan accretion associated with merger accounting.

 

The Company’s net interest margin, on a fully taxable equivalent basis, inclusive of the Wellesley merger, increased 38 basis points to 3.77% for the quarter ended June 30, 2020, as compared to 3.39% for the quarter ended March 31, 2020. This increase was a function of the Company taking steps to reduce deposit costs combined with the accretion of loan fair value adjustments associated with the Wellesley merger.

 

In order to provide greater disclosure of the impact of loan merger accounting and the impact of the SBA’s PPP loan program, we have provided a reconciliation of the net interest margin to an adjusted net interest margin

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shown below. Excluding the impact of merger related loan accretion and the impact of PPP loans, the adjusted net interest margin for the quarter ended June 30, 2020 was 3.46%, representing a seven basis points increase over the prior quarter net interest margin of 3.39% and a 23 basis points increase when compared to 3.23% for the second quarter of 2019.  

 

 

Provision for Credit Losses

 

The provision for credit losses during the quarter ended June 30, 2020 includes the impact of the merger on the Company’s allowance for credit losses under CECL accounting standard. CECL requires the removal of Wellesley’s prior allowance for loan loss through the balance sheet as goodwill and re-establishment of a new allowance for credit loss through the income statement within the provision for credit loss. Total provision expense for the three months ended June 30, 2020 was $14.4 million of which the impact of the CECL merger accounting on June 1, 2020 was $8.6 million, inclusive of unfunded commitments, and is considered by the Company to be a non-operating expense.

 

During the second quarter of 2020, the Company increased its reserve for credit loss levels by recording $5.7 million in additional provision for credit losses due to anticipated losses associated with the pandemic, as well as changes in loan balances. For the six months ended June 30, 2020, the Company has recorded a total of $6.4 million of provision for credit losses associated with the expected impact of the pandemic on future loan losses, and during the six months ended June 30, 2020, the Company recorded total provision for credit losses of $16.4 million. Additional detail on our CECL methodology can be found within the CECL section of this release.

 

Noninterest Income

 

Inclusive of the Wellesley merger, total noninterest income increased by $827,000, or 10.2%, to $9.0 million for the quarter ended June 30, 2020, as compared to $8.1 million for the quarter ended June 30, 2019, primarily as a result of increases in wealth management revenue, loan related derivative income, and higher gains on loans sold. Noninterest income was 23.8% of total revenue for the quarter ended June 30, 2020.

 

 

Inclusive of the Wellesley merger, total noninterest income increased by $1.7 million, or 10.5%, to $17.8 million for the six months ended June 30, 2020, as compared to $16.1 million for the six months ended June 30, 2019,

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primarily as a result of increases in wealth management revenue, loan related derivative income, and higher gains on loans sold. Noninterest income was 25.8% of total revenue for the six months ended June 30, 2020.

 

 

Noninterest Expense

 

Total noninterest expense increased by $4.1 million, or 18.9%, to $25.6 million for the quarter ended June 30, 2020, as compared to $21.5 million for the quarter ended June 30, 2019, primarily driven by merger related expenses, increases in salaries and employee benefits expense, occupancy and equipment expense, and data processing expense.

 

 

During the second quarter, the Company reduced the value of its other real estate loan (“REO”) holdings through other expense by $486,000 primarily as a result of revaluation due to the pandemic.

 

Total noninterest expense increased by $7.6 million, or 20.1%, to $45.5 million for the six months ended June 30, 2020, as compared to $37.9 million for the six months ended June 30, 2019, primarily driven by merger related expenses, increases in salaries and employee benefits expense, occupancy and equipment expense, and data processing expense as a result of our mergers with Optima in 2019 and Wellesley in 2020.

 

 

Asset Quality

 

Non-performing loans totaled $10.3 million, or 0.31% of total loans outstanding as of June 30, 2020. Early stage delinquency (30-89 days delinquent) represented 0.22% of total loans outstanding as of June 30, 2020.

 

Net loan charge-offs remained low at $135,000, or 0.02% of total loans (annualized) for the three months ended June 30, 2020, as compared to $148,000, or 0.03% of total loans (annualized) for the for the three months ended

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June 30, 2019. Net loan charge-offs were $400,000, or 0.02% of total loans (annualized) for the six months ended June 30, 2020, as compared to $172,000, or 0.02% of total loans (annualized) for the six months ended June 30, 2019.

 

The following table shows additional and historical information regarding non-performing assets, early stage delinquency (30-89 days delinquent) purchased credit deteriorated assets (“PCD”), and troubled debt restructurings:

 

CECL

 

The Company adopted Accounting Standard Update (“ASU”) 2016-13 - Measurement of Credit Losses on Financial Instruments, in the first quarter of 2020. ASU 2016-13 or CECL requires earlier recognition of credit losses using a lifetime credit loss measurement approach for financial assets carried at amortized cost and requires consideration of a broader range of reasonable and supportable information to determine credit loss estimates including economic factors. The Company’s CECL methodology has two main components; a quantitative loss estimate and a qualitative loss estimate. Loan level probability of default, loss given default, and discounted cash-flows are the primary basis for the quantitative loss estimation. The qualitative loss estimate is used to make adjustments that may not be represented within the quantitative analysis and includes adjustments for concentration risk, collateral risk, current payment performance and other internal/external factors. Unemployment is the primary economic factor used within the quantitative methodology and the forward-looking estimates of unemployment reflect management’s assessment of unemployment as derived from multiple sources.  Additionally, as previously discussed, the second quarter’s Allowance for Credit Loss (“ACL”) includes the impact of the merger with Wellesley which required the Company to de-recognize prior allowance for loan loss from the acquired entity and record an allowance for credit loss through the income statement for the acquired loan portfolio based on current CECL assumptions. This one-time recognition of the ACL is considered to be non-operating in nature as described above within the provision for credit loss section of this release.

 

For the three months ended June 30, 2020, the Company increased the allowance for credit losses by $13.9 million primarily due to the merger with Wellesley and the forecasted impact of the COVID-19 pandemic on the economic factors utilized within the CECL methodology. For the six months ended June 30, 2020, the Company increased the allowance for credit losses by $15.8 million primarily due to the merger with Wellesley and the forecasted impact of the COVID-19 pandemic on the economic factors utilized within the CECL methodology. These increases were based on the information available to the Company at each quarter end.

 

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The allowance for credit losses in total was $34.0 million, or 1.08% of total loans outstanding at June 30, 2020 excluding PPP loans, as compared to $18.2 million, or 0.82% of total loans outstanding at year end 2019.

 

COVID-19 Update

 

During the first and second quarters of 2020, the Company announced a range of initiatives to help clients, communities, and employees navigate the many financial challenges caused by the novel corona virus (“COVID-19”) pandemic.  As a result of the COVID-19 crisis, the Company has taken the following steps to provide support to any client experiencing a hardship during this uncertain time.

 

For Banking Clients:

 

For Consumer Loan Clients:

 

For Business and Commercial Banking Clients:

 

For Wealth Management Clients:

The Company’s wealth management team is closely monitoring the economy and financial markets and continues to actively manage clients’ portfolios through the current volatility.  We have urged clients to reach out to their Relationship Manager directly with any questions or concerns.

 

For Communities:

In addition to the 270 plus organizations the Company supports through its annual charitable giving, the Company donated an additional $250,000 to organizations that are providing relief to those impacted by COVID-19 and has committed to donating $100,000 to organizations committed to eradicating racism and inequities in our black communities. 

 

For Employees:

The Company is taking precautions to protect the health and safety of its staff, while continuing to provide uninterrupted service to clients. Efforts include:

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Forbearance/Modifications. The Company has instituted payment deferral programs to aid existing borrowers with payment forbearance. For commercial and consumer borrowers, we have endeavored to provide payment relief for borrowers who have been impacted by the COVID-19 virus and have requested payment assistance. We expect to continue to accrue interest on these loans during the payment deferral period. Detailed information on client deferrals is included within the financial section of this document.

 

Income Taxes

 

Inclusive of the impact of the Wellesley merger, the Company’s effective tax rate was a credit of 23.9% for the quarter ended June 30, 2020, as compared to 26.5% for the quarter ended June 30, 2019. For the six months ended June 30, 2020, the effective tax rate was 21.6%, as compared to 23.9% for the six months ended June 30, 2019.

 

Dividend & Capital

 

On July 27, 2020, the Company’s Board of Directors declared a quarterly cash dividend of $0.53 per share, which is payable on August 27, 2020, to shareholders of record as of the close of business on August 13, 2020.  This represents an increase of $0.02 per share, as compared to the $0.51 per share dividend paid in same quarter of 2019.

 

Inclusive of the merger, the Company’s total shareholders’ equity to total assets ratio increased by 87 basis points to 9.52% as of June 30, 2020, as compared to 8.65% as of June 30, 2019. Book value per share grew by $6.41, or 13.1%, to $55.29 as of June 30, 2020, as compared to $48.88 as of June 30, 2019.

 

The Company’s ratio of tangible common equity to tangible assets increased to 8.27%, at June 30, 2020, from 7.48% at June 30, 2019, primarily as a result of the capital offering in December of 2019, increased earnings during the period, increased valuations of interest rate derivative positions, and an increase in unrealized gains in the available for sale investments portfolio. Tangible book value per share grew by $5.62, or 13.5% to $47.34 as of June 30, 2020, as compared to $41.72 as of June 30, 2019.  

 

Supplemental Earnings Release Information:

Click Here to Download

 

About Cambridge Bancorp

 

Cambridge Bancorp, the parent company of Cambridge Trust Company, is based in Cambridge, Massachusetts. Cambridge Trust Company is a 130-year-old Massachusetts chartered commercial bank with approximately $4.0 billion in assets as of June 30, 2020, and a total of 22 Massachusetts and New Hampshire locations. Cambridge Trust Company is one of New England’s leaders in private banking and wealth management with $3.7 billion in client assets under management and administration as of June 30, 2020. The Wealth Management group maintains offices in Boston and Wellesley, Massachusetts and Concord, Manchester, and Portsmouth, New Hampshire.

 

The accompanying unaudited condensed interim and annual consolidated financial information should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K, which is posted in the investor relations section of the Company’s website at www.cambridgetrust.com.

 

Forward-looking Statements

 

Certain statements herein may constitute “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995. Such forward-looking statements about the Company and its industry involve substantial risks and uncertainties. Statements other than statements of current or historical fact, including statements regarding the Company’s future financial condition, results of operations, business plans, liquidity, cash flows, projected costs, the impact of any laws or regulations applicable to the Company, and measures being

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taken in response to the COVID-19 pandemic and the impact of the COVID-19 pandemic on the Company’s business are forward-looking statements. Words such as “anticipates,” “believes,” “estimates,” “expects,” “forecasts,” “intends,” “plans,” “projects,” “may,” “will,” “should,” and other similar expressions are intended to identify these forward-looking statements. Such statements are subject to factors that could cause actual results to differ materially from anticipated results. Such factors include, but are not limited to, the following: the current global economic uncertainty and economic conditions being less favorable than expected, disruptions to the credit and financial markets, changes in the Company’s accounting policies or in accounting standards, weakness in the real estate market, legislative, regulatory or accounting changes that adversely affect the Company’s business and/or competitive position, the Dodd-Frank Act’s consumer protection regulations, the duration and scope of the COVID-19 pandemic and its impact on levels of consumer confidence, actions governments, businesses and individuals take in response to the COVID-19 pandemic, the impact of the COVID-19 pandemic and actions taken in response to the pandemic on global and regional economies and economic activity, the pace of recovery when the COVID-19 pandemic subsides, challenges from the integration of the Company and Optima and Wellesley resulting in the combined business not operating as effectively as expected, disruptions in the Company’s ability to access the capital markets, the cost savings of the merger with Wellesley may not be fully realized or may take longer to realize than expected, operating costs, customer loss and business disruption following the Wellesley merger, including adverse effects on relationships with employees, may be greater than expected, and other factors that are described in the Company’s filings with the Securities and Exchange Commission, including the Annual Report on Form 10-K for the year end December 31, 2019, which the Company filed on March 16, 2020. The Company does not undertake, and specifically disclaims any obligation, to publicly release the result of any revisions which may be made to any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements. You are cautioned not to place undue reliance on these forward-looking statements.

 

Non-GAAP Measures

 

This press release contains financial information determined by methods other than in accordance with accounting principles generally accepted in the United States of America (“GAAP”). This information includes operating net income and operating diluted earnings per share, tangible book value per share and the tangible common equity ratio, and return on average assets, return on tangible common equity, and efficiency ratio on an operating basis.

Operating net income and operating diluted earnings per share exclude items that management believes are unrelated to its core banking business such as merger, acquisition, and capital raise expenses, gain (loss) on disposition of investment securities, and other items. The Company’s management uses operating net income and operating diluted earnings per share to measure the strength of the Company’s core banking business and to identify trends that may to some extent be obscured by such excluded gains or losses.

Management also supplements its evaluation of financial performance with analysis of tangible book value per share (which is computed by dividing shareholders’ equity less goodwill and acquisition related intangible assets, or “tangible common equity,” by common shares outstanding), the tangible common equity ratio (which is computed by dividing tangible common equity by tangible assets, defined as total assets less goodwill and acquisition related intangibles), analysis of return on average assets and return on tangible common equity on an operating basis and the operating efficiency ratio (which is computed by dividing noninterest expense adjusted for nonoperating expenses and total revenue adjusted for gain/loss on disposition of investment securities). The Company has included information on tangible book value per share, the tangible common equity ratio, and return on average assets and return on tangible common equity on an operating basis because management believes that investors may find it useful to have access to the same analytical tool used by management. As a result of merger and acquisition activity, the Company has recognized goodwill and other intangible assets in conjunction with business combination accounting principles. Excluding the impact of goodwill and other intangibles in measuring asset and capital values for the ratios provided, along with other bank standard capital ratios, provides a framework to compare the capital adequacy of the Company to other companies in the financial services industry.

These non-GAAP measures should not be viewed as a substitute for operating results and other financial measures determined in accordance with GAAP. An item which management deems to be non-core and excludes when

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computing these non-GAAP measures can be of substantial importance to the Company’s results for any particular quarter or year. The Company’s non-GAAP performance measures, including operating net income, operating diluted earnings per share, tangible book value per share, the tangible common equity ratio, and return on average assets, return on average equity, and efficiency ratio on an operating basis are not necessarily comparable to non-GAAP performance measures which may be presented by other companies.

Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are presented under “GAAP to Non-GAAP Reconciliations.”

 

CONTACT:

Cambridge Bancorp

Michael F. Carotenuto

Chief Financial Officer

617-520-5520

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CAMBRIDGE BANCORP AND SUBSIDIARIES

QUARTERLY UNAUDITED RESULTS

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CAMBRIDGE BANCORP AND SUBSIDIARIES

UNAUDITED CONSOLIDATED BALANCE SHEETS

 

 

 

 

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CAMBRIDGE BANCORP AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF INCOME

 

 

 

 

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CAMBRIDGE BANCORP AND SUBSIDIARIES

MARGIN & YIELD ANALYSIS

 

 

 

 

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CAMBRIDGE BANCORP AND SUBSIDIARIES

MARGIN & YIELD ANALYSIS

 

 

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Organic Loan and Deposit Growth (dollars in thousands)

 

 

*PPP loans are included within Commercial and Industrial

 

GAAP to Non-GAAP Reconciliations (dollars in thousands except per share data)

 

Statement on Non-GAAP Measures: The Company believes the presentation of the following non-GAAP financial measures provides useful supplemental information that is essential to an investor’s proper understanding of the results of operations and financial condition of the Company. Management uses non-GAAP financial measures in its analysis of the Company’s performance. These non-GAAP measures should not be viewed as substitutes for the financial measures determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies.

 

 

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COVID-19 Additional Disclosures

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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