Cambridge Bancorp Declares Increased Dividend and Announces Full Year Operating Earnings For 2020

CAMBRIDGE, Mass., Jan. 26, 2021 /PRNewswire/ -- Cambridge Bancorp (NASDAQ: CATC) (the "Company"), the parent of Cambridge Trust Company ("Cambridge Trust"), today announced net income of $31,959,000 for the year ended December 31, 2020, representing an increase of $6,702,000, or 26.5%, as compared to net income of $25,257,000 for the year ended December 31, 2019. Diluted earnings per share were $5.03 for 2020, representing a 6.3% decrease over diluted earnings per share of $5.37 for 2019.

The results for the year ended December 31, 2020, included the merger accounting impact of the current expected credit loss accounting standard ("CECL") within the provision for credit losses, merger expenses, office closures and related one-time occupancy expenses, and other non-operating items. Operating net income excluding these items was $43,870,000 for the year ended December 31, 2020, an increase of $14,714,000, or 50.5%, as compared to operating net income of $29,156,000 for 2019. Operating diluted earnings per share were $6.90 for 2020, representing an 11.3% increase over operating diluted earnings per share of $6.20 for 2019.

For the quarter ended December 31, 2020, net income was $13,014,000, representing an increase of $5,905,000, or 83.1%, as compared to net income of $7,109,000 for the quarter ended December 31, 2019. Diluted earnings per share were $1.86 for the fourth quarter of 2020, representing an increase of 31.0% over diluted earnings per share of $1.42 for the fourth quarter of 2019.

Excluding non-operating expenses, operating net income was $14,353,000 for the quarter ended December 31, 2020, an increase of $6,431,000, or 81.2%, as compared to operating net income of $7,922,000 for the quarter ended December 31, 2019. Operating diluted earnings per share were $2.05 for the fourth quarter of 2020, representing a 29.7% increase over operating diluted earnings per share of $1.58 for the fourth quarter of 2019.

During the fourth quarter of 2020, the Company closed its South End branch location and a support office location in Boston and recorded occupancy expenses of $1.2 million related to these closures within non-operating expenses. These closures are expected to generate approximately $700,000 of pre-tax annual expense savings once completed. The Company is actively reviewing its remaining physical office footprint, anticipating and planning for a general increase in remote and hybrid work over the long term.

2020 Highlights:                                                    

• Asset quality remains strong with ratios of non-performing loans to total loans at 0.28% at December 31, 2020, and non-performing assets to total assets at 0.27% at December 31, 2020.  
• In continued support of our clients, we have deferred or adjusted payments on 0.7% of total loans outstanding at December 31, 2020, as compared to 3.2% and 5.2% of total loans outstanding at September 30, 2020 and June 30, 2020, respectively.
• The allowance for credit loss ("ACL") to total loans was 1.19% at December 31, 2020, excluding loans made under the Small Business Administration's ("SBA") Paycheck Protection Program ("PPP").
• Performance ratios for the year ended December 31, 2020 were strong with Operating Return On Assets ("ROA") of 1.25%, Operating Return On Tangible Common Shareholders' Equity ("ROTCE") of 14.38%, and Operating Pre-Tax Pre-Provision ("PTPP") Return on Average Assets ("ROAA") of 1.96%.
• Tangible common equity ratio of 8.91% at December 31, 2020.
• Tangible book value per share of $50.07 at December 31, 2020, an increase of $3.41, or 7.3%, from $46.66 at December 31, 2019.
• Client Wealth Management Assets of $4.2 billion at December 31, 2020, an increase of $715.0 million, or 20.7%, from 2019.
• Organic core deposit growth of $422.9 million, or 19.4%, from December 31, 2019.

A supplemental presentation for the quarterly and full year results is available on our investor relations website: ir.cambridgetrust.com or within the hyperlink provided within this release. This presentation includes additional details regarding the loan portfolio, liquidity position, and other financial disclosures.

"2020 was a remarkable year, and not soon forgotten.  While challenging for all, the Cambridge Trust team delivered with terrific energy and enthusiasm in supporting clients and our communities," noted Denis K. Sheahan, Chairman and CEO. "In addition, we enter 2021 even stronger than 2020 with a healthy balance sheet, solid capital and liquidity levels and plenty of opportunity ahead in wonderful markets."

Balance Sheet

Total assets increased $1.1 billion, or 38.3%, from $2.8 billion at December 31, 2019, inclusive of the Wellesley Bancorp, Inc. ("Wellesley") merger and were $3.9 billion at December 31, 2020.

Total loans increased $926.9 million, or 41.6%, from December 31, 2019, inclusive of the Wellesley merger, and totaled $3.2 billion as of December 31, 2020.

Inclusive of the impact of the Wellesley merger:

• Residential real estate loans increased by $381.3 million from $917.6 million at December 31, 2019 to $1.3 billion at December 31, 2020.
• Commercial real estate loans increased by $298.4 million, from $1.1 billion at December 31, 2019 to $1.4 billion at December 31, 2020.
• Commercial & industrial loans increased by $214.6 million from $133.2 million at December 31, 2019 to $347.9 million at December 31, 2020.
• Loans under the SBA's PPP amounted to $124.2 million at December 31, 2020. PPP loans are included in commercial & industrial loans. During the fourth quarter of 2020, we received repayments on PPP loans totaling $67.5 million. Additionally, as of December 31, 2020, the Company had 76 applications totaling $25.9 million submitted to the SBA for forgiveness.

Excluding the impact of the Wellesley merger and PPP loans, total loans decreased by $35.0 million, or 1.6%, from December 31, 2019. Total loans outstanding, excluding changes in PPP loans, decreased by $63.1 million, or 1.9%, from September 30, 2020 as a result of continued payoffs and pay-downs of residential, commercial mortgage and commercial & industrial loans during the quarter due to the low interest rate environment.

The Company's total investment securities portfolio increased by $86.2 million, or 21.6%, from $398.5 million at December 31, 2019 to $484.7 million at December 31, 2020 as the Company invested excess cash.  

Total deposits increased by $1.0 billion, or 44.3%, to $3.4 billion at December 31, 2020, from $2.4 billion at December 31, 2019, primarily driven by a combination of the impact of the Wellesley merger and organic deposit growth. A table accompanying this release provides detail regarding organic loan and deposit growth.

• Core deposits, which the Company defines as all deposits other than certificates of deposit, increased by $971.7 million, or 44.6%, to $3.1 billion from $2.2 billion at December 31, 2019.
• Excluding the impact of the Wellesley merger, organic growth in core deposits was $422.9 million, or 19.4%  from December 31, 2019.
• The cost of total deposits for the quarter ended December 31, 2020 was 0.17%. The cost of total deposits for the year ended December 31, 2020 was 0.25%, as compared to 0.70% for the year ended December 31, 2019, a reduction of 45 basis points driven by a reduction of interest rates during 2020. At December 31, 2020, the spot cost of deposits was 0.18%.

Certificates of deposit totaled $254.8 million at December 31, 2020, an increase of $72.5 million from $182.3 million at December 31, 2019, primarily due to the impact of the Wellesley merger. Total brokered certificates of deposit, which are included within certificates of deposit, were $30.8 million and $7.1 million at December 31, 2020 and December 31, 2019, respectively.

Borrowings were $33.0 million at December 31, 2020, representing a $102.7 million, or 75.7%, decrease from $135.7 million at December 31, 2019, as the Company utilized excess cash to pay down borrowings. Additionally, during the fourth quarter of 2020, the Company redeemed $10.0 million in subordinated debt, bearing a 6.0% coupon, assumed as part of the Wellesley merger. 

Net Interest and Dividend Income

For the quarter ended December 31, 2020, net interest and dividend income before provision for credit losses decreased by $881,000, or 2.5%, to $34.1 million, as compared to $35.0 million for the quarter ended September 30, 2020. This change was primarily due to lower yields on average earning assets and lower loan accretion associated with merger accounting partially offset by lower cost of funds and accelerated interest income of $1.2 million from PPP loans that have been forgiven. Accelerated interest income on PPP loans represents the amount of deferred income that was remaining on loans that were forgiven during the quarter. 

The Company's net interest margin, on a fully taxable equivalent basis decreased by 6 basis points to 3.67% for the quarter ended December 31, 2020, as compared to 3.73% for the quarter ended September 30, 2020.

For the year ended December 31, 2020, net interest and dividend income before provision for credit losses increased by $41.5 million, or 52.8%, to $120.2 million, as compared to $78.7 million for the year ended December 31, 2019. The Company's net interest margin, on a fully taxable equivalent basis, increased 43 basis points to 3.65% for the year ended December 31, 2020, as compared to 3.22% for the year ended December 31, 2019.

In order to provide greater disclosure of the impact of loan related merger accounting, the impact of the SBA's PPP loan program and excess cash, a reconciliation of the Company's net interest margin to an adjusted net interest margin is 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 December 31, 2020 was 3.27%, representing a 14 basis points decrease over the adjusted net interest margin for September 30, 2020 of 3.41%. The estimated impact of excess cash during the quarter decreased the net interest margin by approximately 4 basis points as shown below.

Excluding the impact of merger-related loan accretion and the impact of PPP loans, the adjusted net interest margin for the year ended December 31, 2020, was 3.36%, representing a 14 basis points increase over the net interest margin for the year ended December 31, 2019 of 3.22%.

Provision for Credit Losses

During the fourth quarter of 2020, the Company recorded a release of credit losses of $120,000 primarily due to net recoveries during the quarter and a reduction in overall loan balances. Partially offsetting the decrease were changes in assumptions associated with estimated losses as a result of the novel coronavirus ("COVID-19") pandemic both qualitatively and quantitatively given the extraordinarily uncertain duration and impact of COVID-19 on loan losses. For the year ended December 31, 2020, the Company recorded a total provision for credit losses of $18.3 million, which includes $9.4 million associated with the expected impact of the COVID-19 pandemic on future loan losses and $8.6 million for the recognition of the non-operating impact of merger related CECL accounting.

Noninterest Income

Total noninterest income decreased by $131,000, or 1.2% to $10.8 million for the quarter ended December 31, 2020, as compared to $10.9 million for the quarter ended September 30, 2020. Noninterest income was 24.1% of total revenue for the quarter ended December 31, 2020.

• Wealth Management revenue increased by $39,000, or 0.5%, to $8.1 million during the fourth quarter of 2020, as compared to $8.0 million during the quarter ended September 30, 2020. Wealth Management Assets under Management and Administration increased by $219.4 million, or 5.6% to $4.2 billion as of December 31, 2020, as compared to $3.9 billion as of September 30, 2020, primarily due to appreciation in the equity markets during the fourth quarter of 2020.
• Gain on loans sold decreased by $207,000 during the fourth quarter of 2020, as compared to the quarter ended September 30, 2020, due to lower sales of residential mortgages into the secondary market.

Inclusive of the Wellesley merger, total noninterest income increased by $3.1 million, or 8.6%, to $39.5 million for the year ended December 31, 2020, as compared to $36.4 million for the year ended December 31, 2019, primarily as a result of higher wealth management revenue and increases on gains on loans sold, partially offset by lower deposit and ATM related fees, lower loan related derivative income and other fee income. Noninterest income was 24.7% of total revenue for year ended December 31, 2020.

• Wealth Management revenue increased by $3.3 million, or 12.3%, for the year ended December 31, 2020, as compared to the year ended December 31, 2019, as a result of the impact of the Wellesley merger and appreciation in the equity markets during 2020.
• Gain on loans sold increased by $680,000, or 58.1%, for the year ended December 31, 2020, as compared to the year ended December 31, 2019, due to increased sales of residential mortgages given the low-rate environment and active refinance market.
• Other income decreased by $201,000, or 10.4%, for the year ended December 31, 2020 primarily as a result of lower loan prepayment income during 2020.
• ATM/Debit card income decreased by $105,000, or 7.4%, for the year ended December 31, 2020 primarily as a result of the pandemic's impact on transactions during 2020.
• Loan related derivative income decreased by $195,000, or 11.6%, for the year ended December 31, 2020, primarily due to valuation adjustments associated with changes in interest rates on existing derivative transactions.

Noninterest Expense

Total noninterest expense increased by $1.7 million, or 6.6%, to $27.1 million for the quarter ended December 31, 2020, as compared to $25.4 million for the quarter ended September 30, 2020, primarily driven by an increase in salaries and employee benefit expense, branch and office closure related expenses, merger related expenses, and higher marketing expense.  

• Non-operating expenses of $1.8 million during the quarter were primarily the result of Wellesley related merger expenses of $581,000 and branch and office closure expenses of $1.2 million associated with the two locations discussed above.
• Salaries and employee benefit expense increases of $929,000, or 5.9%, were primarily driven by increases in long-term equity compensation expenses of $439,000 as a result of an increase in performance metrics as compared to peers and increases in short-term incentive expenses of $425,000 related to performance versus forecasted expectations.
• Marketing expense increases of $235,000, or 56.0%, were primarily driven by the timing of the Company's marketing spend.

Noninterest expense increases during the quarter were partially offset by lower FDIC insurance expense of $131,000.

Total noninterest expense increased by $19.9 million, or 25.5%, to $98.1 million for the year ended December 31, 2020, as compared to $78.2 million for the year ended December 31, 2019. This increase was primarily driven by increases in salaries and employee benefits expense, merger and other non-operating expenses including branch and office closure related expenses, occupancy and equipment expense, and higher data processing expense resulting from our mergers with Optima in 2019 and Wellesley in 2020 as described below.

• Salaries and employee benefits expense increased by $11.5 million, or 24.2%, primarily as a result of increased staffing related to the mergers with Optima and Wellesley in 2019 and 2020, respectively, additions to support business initiatives, normal merit increases and higher employee benefit costs.
• Non-operating expense increased by $2.9 million primarily due to merger expenses associated with the Wellesley merger and branch and office closure expenses of $1.2 million during the fourth quarter of 2020 as previously described.
• Occupancy and equipment expense increased by $2.1 million, or 19.8%, primarily as a result of additional branches and office space as a result of the mergers with Optima and Wellesley.
• Data processing expense increased by $1.4 million, or 22.9%, primarily as a result of the mergers with Optima and Wellesley.

Asset Quality

Non-performing loans totaled $9.0 million, or 0.28% of total loans outstanding, as of December 31, 2020. Net loan recoveries were $174,000, or 0.02% of total loans (annualized), for the three months ended December 31, 2020, as compared to net charge-offs of $213,000, or 0.03% of total loans (annualized), for the three months ended September 30, 2020.  

Net loan charge-offs were $439,000, or 0.01% of total loans, for the year ended December 31, 2020, as compared to $1.6 million, or 0.07% of total loans, for the year ended December 31, 2019. Early stage delinquency (30-89 days delinquent) represented 0.72% of total loans outstanding as of December 31, 2020.

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

The allowance for credit losses in total was $36.0 million, or 1.19% of total loans outstanding, at December 31, 2020 excluding PPP loans, as compared to $18.2 million, or 0.82% of total loans outstanding, at December 31, 2019.

Forbearance/Modifications 

The Company has instituted payment deferral programs to aid existing borrowers with payment forbearance. For commercial and consumer borrowers, the Company has endeavored to provide payment relief for borrowers who have been impacted by the COVID-19 pandemic and have requested payment assistance. Detailed information on payment deferrals is included within the supplemental earning release information that can be found within the link below or at ir.cambridgetrust.com.

Income Taxes

Inclusive of the impact of the Wellesley merger, the Company's effective tax rate was 27.2% for the quarter ended December 31, 2020, as compared to 27.3% for the quarter ended December 31, 2019. For the year ended December 31, 2020, the effective tax rate was 26.3%, as compared to 25.5% for the year ended December 31, 2019.

Dividend & Capital

On January 25, 2021, the Company's Board of Directors declared a quarterly cash dividend of $0.55 per share, which is payable on February 25, 2021 to shareholders of record as of the close of business on February 11, 2021. This represents an increase of $0.02, as compared to the $0.53 dividend paid in same quarter of 2020.

The Company's total shareholders' equity to total assets ratio increased by 13 basis points to 10.17% as of December 31, 2020, as compared to 10.04% as of December 31, 2019. Book value per share increased by $4.94, or 9.3%, to $58.00 as of December 31, 2020, as compared to $53.06 as of December 31, 2019.

The Company's ratio of tangible common equity to tangible assets was 8.91% at December 31, 2020, as compared to 8.93% at December 31, 2019. Tangible book value per share increased by $3.41, or 7.3%, to $50.07 as of December 31, 2020, as compared to $46.66 as of December 31, 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 $3.9 billion in assets as of December 31, 2020, and a total of 21 Massachusetts and New Hampshire locations. Cambridge Trust Company is one of New England's leaders in private banking and wealth management with $4.2 billion in client assets under management and administration as of December 31, 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 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 Wellesley merger 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 17, 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, return on average assets, return on tangible common equity, efficiency ratio on an operating basis, operating pre-tax pre-provision income, and operating return on average assets.

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, the operating efficiency ratio (which is computed by dividing noninterest expense adjusted for non-operating expenses and total revenue adjusted for gain/(loss) on disposition of investment securities), analysis of operating pre-tax pre-provision income over average assets (which is computed by dividing income before taxes adjusted by provision for (release of) credit losses, non-operating expenses, and gain/(loss) on disposition of investment securities over average assets). 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 nonoperating and excludes when 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