Cambridge Bancorp Announces Second Quarter 2018 Earnings and Declares Increased Dividend

Cambridge Bancorp (NASDAQ: CATC) (the “Company”), the parent of Cambridge Trust Company, today announced unaudited net income of $6,111,000 for the quarter ended June 30, 2018, representing an increase of $1,597,000, or 35.4%, compared to net income of $4,514,000 for the quarter ended June 30, 2017. Diluted earnings per share were $1.48 for the second quarter of 2018, representing a 34.5% increase over diluted earnings per share of $1.10 for the same quarter of 2017.

For the six months ended June 30, 2018, unaudited net income was $11,916,000, representing an increase of $3,074,000, or 34.8%, compared to net income of $8,842,000 for the six months ended June 30, 2017. Diluted earnings per share were $2.89 for the first six months of 2018, representing a 33.8% increase over diluted earnings per share of $2.16 for the same six months of 2017.

Second quarter 2018 highlights as compared to the second quarter of 2017:

• Wealth Management Assets under Management and Administration now at $3.1 billion, an increase of 9.8%
• Revenue of $23.7 million, an increase of 9.8%
• Loan growth of $72.7 million, or 5.5%
• Deposit growth of $172.3 million, or 10.7%

“We are pleased to report the Company delivered strong earnings during the second quarter of 2018,” noted Denis K. Sheahan, Chairman and CEO. “Cambridge Bancorp posted strong profitability metrics for the quarter with annualized return on average assets of 1.25% and annualized return on average shareholders’ equity of 16.09%. In the midst of the competitive greater Boston market, loan growth continued, and the Bank’s focus on core deposits, growth in noninterest income businesses, and expense control led to an increase in income before income taxes of 17.4% for the quarter ended June 30, 2018 versus the same period a year ago.”

Balance Sheet

Total assets increased $21.3 million, or 1.1%, from December 31, 2017 and were $2.0 billion as of June 30, 2018.

Total loans increased $50.3 million, or 3.7%, from December 31, 2017 and stood at $1.4 billion as of June 30, 2018. The growth in total loans was due to net loan growth in the commercial real estate, commercial & industrial, and residential mortgage loan portfolios. Commercial real estate loans increased $29.0 million, from $633.6 million at December 31, 2017 to $662.6 million at June 30, 2018. Commercial & industrial loans increased $14.9 million, from $65.3 million at December 31, 2017 to $80.2 million at June 30, 2018. Residential mortgage loans increased $11.1 million, from $538.9 million at December 31, 2017 to $550.0 million at June 30, 2018.

The Company’s total investment securities portfolio increased by $33.5 million, or 7.7%, from $437.2 million at December 31, 2017 to $470.7 million at June 30, 2018 as the Company invested excess cash during the year.

Core deposits, which the Company defines as all deposits other than certificates of deposit, increased by $35.5 million, or 2.2%, from December 31, 2017. The cost of total deposits for the quarter ended June 30, 2018 was 0.24%, as compared to 0.17% for the quarter ended June 30, 2017. The cost of total deposits for the six months ended June 30, 2018 was 0.23%, as compared to 0.17% for the six months ended June 30, 2017. Total deposits at June 30, 2018 were $1.8 billion.

Net Interest and Dividend Income

For the quarter ended June 30, 2018, net interest and dividend income after provision for loan losses increased by $1.7 million, or 12.1%, to $15.9 million, as compared to $14.2 million for the quarter ended June 30, 2017. Interest on loans increased by $1.5 million, or 12.1%, which was driven by a combination of the impact of rising rates on our loan portfolio and net loan growth. The Company’s net interest margin, on a fully taxable equivalent (“FTE”) basis, increased 12 basis points to 3.37% for the quarter ended June 30, 2018, as compared to 3.25% for the quarter ended June 30, 2017.

For the six months ended June 30, 2018, net interest and dividend income after provision for loan losses, increased by $2.5 million, or 9.0%, to $30.7 million, as compared to $28.1 million for the six months ended June 30, 2017. Interest on loans increased by $2.5 million, or 9.9%, which was driven by a combination of the impact of rising rates on our loan portfolio and net loan growth. The Company’s net interest margin, on a fully taxable equivalent basis, increased seven basis points to 3.32% for the six months ended June 30, 2018, as compared to 3.25% for the six months ended June 30, 2017.

Noninterest Income

Total noninterest income increased by $499,000, or 6.8%, to $7.8 million for the quarter ended June 30, 2018, as compared to $7.3 million for the quarter ended June 30, 2017, primarily as a result of higher Wealth Management revenue. Noninterest income was 33.1% of total revenue for the quarter ended June 30, 2018. Wealth Management revenue increased by $555,000, or 9.9%, for the second quarter of 2018, as compared to the second quarter of 2017, primarily due to market appreciation. Wealth Management Assets under Management and Administration increased by $50.2 million from December 31, 2017 to $3.1 billion as of June 30, 2018.

Noninterest income increases were partially offset by lower loan related derivative income and lower gains on loans held for sale of $63,000 and $32,000, respectively, for the quarter ended June 30, 2018, as compared to the quarter ended June 30, 2017.

Total noninterest income increased by $1.4 million, or 9.2%, to $16.0 million for the six months ended June 30, 2018, as compared to $14.7 million for the six months ended June 30, 2017, primarily as a result of higher Wealth Management revenue and higher loan related derivative income associated with the Company’s interest rate risk strategy. Noninterest income was 34.1% of total revenue for the six months ended June 30, 2018. Wealth Management revenue increased by $1.3 million, or 12.1%, for the six months ended June 30, 2018, primarily due to market appreciation. Loan related derivative income increased $221,000 for the six months ended June 30, 2018 as compared to the six months ended June 30, 2017, due to the volume of derivative transactions executed in 2018.

Noninterest income increases were partially offset by lower gains on loans held for sale of $240,000 for the six months ended June 30, 2018 as compared to the six months ended June 30, 2017.

Noninterest Expense

Total noninterest expense increased by $1.0 million, or 7.0%, to $15.8 million for the quarter ended June 30, 2018, as compared to $14.7 million for the quarter ended June 30, 2017, primarily driven by higher salaries and employee benefits expense. The increase in salaries and employee benefits of $1.6 million was driven by the combination of increased staffing to support business initiatives, higher employee benefit costs including performance based equity compensation, and the current year adoption of accounting guidance (“ASU 2017-07”) for net periodic pension costs and net periodic postretirement benefit costs. The 2018 adoption of ASU 2017-07 required that non-service related pension expense and income items no longer be included in salaries and employee benefits in the Company’s income statement. The non-service related pension expense and income items are instead included in other expenses. Previously reported salaries and employee benefits and other expenses have been restated to reflect the retrospective adoption. The amount added to salaries and employee benefits and deducted from other expenses from the adoption of ASU 2017-07 during the quarter ended June 30, 2018 was approximately $225,000. The retrospective application for the quarter ended June 30, 2017 was a decrease in salaries and employee benefits and an increase in other expenses of approximately $62,000.

Noninterest expense increases were partially offset by lower other expenses of $177,000 resulting from the adoption of ASU 2017-07 as discussed above, lower marketing expense of $137,000, lower data processing costs of $107,000, and lower occupancy and equipment expense of $106,000 for the quarter ended June 30, 2018, as compared to June 30, 2017.

Total noninterest expense increased by $1.6 million, or 5.4%, to $31.3 million for the six months ended June 30, 2018, as compared to $29.7 million for the six months ended June 30, 2017, primarily driven by higher salaries and employee benefits expense. The increase in salaries and employee benefits of $2.5 million was driven by the combination of increased staffing to support business initiatives, higher employee benefit costs including performance based equity compensation, and the adoption of ASU 2017-07. The amount added to salaries and employee benefits and deducted from other expenses from the adoption of ASU 2017-07 for the six months ended June 30, 2018 was approximately $449,000. The retrospective application for the six months ended June 30, 2017 was a decrease in salaries and employee benefits and an increase in other expenses of approximately $119,000.

Noninterest expense increases were partially offset by lower other expenses of $595,000 resulting from the adoption of ASU 2017-07 as discussed above, lower data processing costs of $200,000, and lower occupancy and equipment expense of $132,000 for the six months ended June 30, 2018, as compared to the six months ended June 30, 2017.

Asset Quality

Loan quality remained sound with non-performing loans totaling $1.2 million, or 0.08% of total loans outstanding as of June 30, 2018. The allowance for loan losses was $15.6 million, or 1.12% of total loans outstanding at June 30, 2018, compared to $15.3 million, or 1.13% of total loans outstanding at year end 2017.

Income Taxes

In accordance with the Tax Cuts and Jobs Act of 2017, the Company’s federal statutory corporate tax rate decreased from 35% to 21% effective January 1, 2018. The effective tax rate was 23.7% for the quarter ended June 30, 2018, as compared to 33.8% for the quarter ended June 30, 2017. For the six months ended June 30, 2018, the effective tax rate was 22.8%, as compared to 32.7% for the six months ended June 30, 2017. Additionally, the Company recognized tax benefit from the accounting for share-based payments in the amount of $57,000 for the quarter ended June 30, 2018 and $205,000 for the six months ended June 30, 2018.

Dividend

On July 16, 2018, the Company’s Board of Directors declared a quarterly cash dividend of $0.50 per share, which is payable on August 16, 2018 to shareholders of record as of the close of business on August 2, 2018. This represents an increase of $0.02 as compared to the $0.48 dividend paid in the prior quarter.

About Cambridge Bancorp

Cambridge Bancorp, the parent company of Cambridge Trust Company, is based in Cambridge, Massachusetts. Cambridge Trust Company is a 128-year-old Massachusetts chartered commercial bank with $2.0 billion in assets and 10 Massachusetts locations in Cambridge, Boston, Belmont, Concord, Lexington, and Weston. Cambridge Trust Company is one of New England’s leaders in wealth management with $3.1 billion in client assets under management and administration. The Wealth Management group maintains offices in Boston, 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, and the impact of any laws or regulations applicable to the Company, 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: economic conditions being less favorable than expected, disruptions to the credit and financial markets, 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, disruptions in the Company’s ability to access the capital markets and other factors that are described in the Company’s filings with the Securities and Exchange Commission, including our Annual Report on Form 10-K for the year end December 31, 2017, which the Company filed on March 21, 2018. 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.

(1) Annualized on a fully taxable equivalent basis calculated using a federal tax rate of 21% in 2018 and 35% in 2017.
(2) Nonaccrual loans are included in average amounts outstanding.
(3) Average balances of securities available for sale calculated utilizing amortized cost.
(4) Federal Home Loan Bank stock balance and dividend income is excluded from interest-earning assets.
(5) Interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average cost of interest-bearing liabilities.
(6) Net interest margin represents net interest income on a fully tax equivalent basis as a percentage of average interest-earning assets.

(1) Annualized on a fully taxable equivalent basis calculated using a federal tax rate of 21% in 2018 and 35% in 2017.
(2) Nonaccrual loans are included in average amounts outstanding.
(3) Average balances of securities available for sale calculated utilizing amortized cost.
(4) Federal Home Loan Bank stock balance and dividend income is excluded from interest-earning assets.
(5) Interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average cost of interest-bearing liabilities.
(6) Net interest margin represents net interest income on a fully tax equivalent basis as a percentage of average interest-earning assets.

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Cambridge Bancorp
Michael F. Carotenuto, 617-520-5520
Chief Financial Officer