株探米国株
英語
エドガーで原本を確認する
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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, 2023

OR

☐ 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

Securities registered pursuant to Section 12(b) of the Act:

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, a 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

 

 

Smaller 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 27, 2023 the registrant had 7,846,391 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

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

31

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

53

Item 4.

Controls and Procedures

53

PART II.

OTHER INFORMATION

54

Item 1.

Legal Proceedings

54

Item 1A.

Risk Factors

54

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

56

Item 3.

Defaults Upon Senior Securities

56

Item 4.

Mine Safety Disclosures

56

Item 5.

Other Information

56

Item 6.

Exhibits

58

Signatures

59

 

 

 

 

i


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

CAMBRIDGE BANCORP AND SUBSIDIARIES

UNAUDITED CONSOLIDATED BALANCE SHEETS

 

 

 

 

September 30, 2023

 

 

December 31, 2022

 

 

 

(dollars in thousands, except share information)

 

Assets

 

 

 

 

 

 

Cash and cash equivalents

 

$

25,353

 

 

$

30,719

 

Investment securities

 

 

 

 

 

 

Available for sale, at fair value (amortized cost $167,903 and $182,027, respectively)

 

 

136,253

 

 

 

153,416

 

Held to maturity, at amortized cost (fair value $784,636 and $885,586, respectively)

 

 

980,591

 

 

 

1,051,997

 

Total investment securities

 

 

1,116,844

 

 

 

1,205,413

 

 

 

 

 

 

 

 

Loans held for sale, at lower of cost or fair value

 

 

614

 

 

 

 

Loans

 

 

 

 

 

 

Residential mortgage

 

 

1,627,460

 

 

 

1,648,838

 

Commercial mortgage

 

 

1,922,455

 

 

 

1,914,423

 

Home equity

 

 

93,364

 

 

 

111,351

 

Commercial and industrial

 

 

355,796

 

 

 

350,650

 

Consumer

 

 

28,892

 

 

 

37,594

 

Total loans

 

 

4,027,967

 

 

 

4,062,856

 

Less: allowance for credit losses on loans

 

 

(38,194

)

 

 

(37,774

)

Net loans

 

 

3,989,773

 

 

 

4,025,082

 

Federal Home Loan Bank of Boston Stock, at cost

 

 

12,321

 

 

 

6,264

 

Bank owned life insurance

 

 

35,063

 

 

 

34,484

 

Banking premises and equipment, net

 

 

22,297

 

 

 

23,297

 

Right-of-use asset operating leases

 

 

22,095

 

 

 

25,098

 

Deferred income taxes, net

 

 

16,495

 

 

 

17,990

 

Accrued interest receivable

 

 

15,255

 

 

 

14,118

 

Goodwill

 

 

64,539

 

 

 

64,539

 

Merger-related intangibles, net

 

 

6,773

 

 

 

7,443

 

Other assets

 

 

124,608

 

 

 

105,290

 

Total assets

 

$

5,452,030

 

 

$

5,559,737

 

Liabilities

 

 

 

 

 

 

Deposits

 

 

 

 

 

 

Demand

 

$

1,036,849

 

 

$

1,366,395

 

Interest-bearing checking

 

 

1,134,270

 

 

 

908,961

 

Money market

 

 

1,005,820

 

 

 

1,162,773

 

Savings

 

 

560,597

 

 

 

790,628

 

Certificates of deposit

 

 

828,390

 

 

 

586,619

 

Total deposits

 

 

4,565,926

 

 

 

4,815,376

 

Borrowings

 

 

233,905

 

 

 

105,212

 

Operating lease liabilities

 

 

24,196

 

 

 

27,413

 

Other liabilities

 

 

101,972

 

 

 

94,184

 

Total liabilities

 

 

4,925,999

 

 

 

5,042,185

 

Shareholders’ Equity

 

 

 

 

 

 

Common stock, par value $1.00; Authorized: 10,000,000 shares; Outstanding: 7,846,041 shares, and 7,796,440 shares, respectively

 

 

7,846

 

 

 

7,796

 

Additional paid-in capital

 

 

294,025

 

 

 

293,186

 

Retained earnings

 

 

247,714

 

 

 

237,369

 

Accumulated other comprehensive loss

 

 

(23,554

)

 

 

(20,799

)

Total shareholders’ equity

 

 

526,031

 

 

 

517,552

 

Total liabilities and shareholders’ equity

 

$

5,452,030

 

 

$

5,559,737

 

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

1


 

CAMBRIDGE BANCORP AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF INCOME

 

 

 

Three Months Ended

 

 

 

Nine Months Ended

 

 

 

September 30, 2023

 

 

September 30, 2022

 

 

 

September 30, 2023

 

 

September 30, 2022

 

 

 

(dollars in thousands, except share data)

 

Interest and dividend income

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest on taxable loans

 

$

49,535

 

 

$

34,056

 

 

 

$

142,599

 

 

$

92,695

 

Interest on tax-exempt loans

 

 

398

 

 

 

367

 

 

 

 

1,156

 

 

 

1,071

 

Interest on taxable investment securities

 

 

4,837

 

 

 

5,101

 

 

 

 

14,844

 

 

 

14,501

 

Interest on tax-exempt investment securities

 

 

541

 

 

 

601

 

 

 

 

1,696

 

 

 

1,882

 

Dividends on FHLB of Boston stock

 

 

254

 

 

 

106

 

 

 

 

666

 

 

 

163

 

Interest on overnight investments

 

 

133

 

 

 

41

 

 

 

 

623

 

 

 

137

 

Total interest and dividend income

 

 

55,698

 

 

 

40,272

 

 

 

 

161,584

 

 

 

110,449

 

Interest expense

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest on deposits

 

 

24,164

 

 

 

2,846

 

 

 

 

60,148

 

 

 

6,586

 

Interest on borrowed funds

 

 

2,887

 

 

 

1,148

 

 

 

 

8,780

 

 

 

1,535

 

Total interest expense

 

 

27,051

 

 

 

3,994

 

 

 

 

68,928

 

 

 

8,121

 

Net interest and dividend income

 

 

28,647

 

 

 

36,278

 

 

 

 

92,656

 

 

 

102,328

 

Provision for credit losses

 

 

195

 

 

 

612

 

 

 

 

335

 

 

 

200

 

Net interest and dividend income after provision for credit losses

 

 

28,452

 

 

 

35,666

 

 

 

 

92,321

 

 

 

102,128

 

Noninterest income

 

 

 

 

 

 

 

 

 

 

 

 

 

Wealth management revenue

 

 

8,513

 

 

 

8,239

 

 

 

 

24,526

 

 

 

24,935

 

Deposit account fees

 

 

852

 

 

 

841

 

 

 

 

2,599

 

 

 

2,079

 

ATM/Debit card income

 

 

403

 

 

 

413

 

 

 

 

1,328

 

 

 

1,219

 

Bank owned life insurance income

 

 

197

 

 

 

144

 

 

 

 

576

 

 

 

1,674

 

Gain on loans sold, net

 

 

27

 

 

 

 

 

 

 

40

 

 

 

98

 

Loan related derivative income

 

 

58

 

 

 

213

 

 

 

 

285

 

 

 

554

 

Other income

 

 

499

 

 

 

593

 

 

 

 

1,939

 

 

 

2,387

 

Total noninterest income

 

 

10,549

 

 

 

10,443

 

 

 

 

31,293

 

 

 

32,946

 

Noninterest expense

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

17,272

 

 

 

17,341

 

 

 

 

52,744

 

 

 

51,780

 

Occupancy and equipment

 

 

3,602

 

 

 

3,511

 

 

 

 

10,920

 

 

 

10,666

 

Data processing

 

 

2,485

 

 

 

2,592

 

 

 

 

7,728

 

 

 

7,838

 

Professional services

 

 

1,089

 

 

 

749

 

 

 

 

3,075

 

 

 

2,883

 

Marketing

 

 

535

 

 

 

731

 

 

 

 

1,619

 

 

 

1,173

 

FDIC insurance

 

 

770

 

 

 

453

 

 

 

 

1,917

 

 

 

1,380

 

Non-operating expenses

 

 

2,567

 

 

 

150

 

 

 

 

6,482

 

 

 

396

 

Other expenses

 

 

1,329

 

 

 

814

 

 

 

 

3,837

 

 

 

2,397

 

Total noninterest expense

 

 

29,649

 

 

 

26,341

 

 

 

 

88,322

 

 

 

78,513

 

Income before income taxes

 

 

9,352

 

 

 

19,768

 

 

 

 

35,292

 

 

 

56,561

 

Income tax expense

 

 

2,808

 

 

 

5,152

 

 

 

 

9,217

 

 

 

14,971

 

Net income

 

$

6,544

 

 

$

14,616

 

 

 

$

26,075

 

 

$

41,590

 

Share data:

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding, basic

 

 

7,840,197

 

 

 

6,971,583

 

 

 

 

7,825,195

 

 

 

6,961,833

 

Weighted average shares outstanding, diluted

 

 

7,862,584

 

 

 

7,018,832

 

 

 

 

7,848,061

 

 

 

7,010,197

 

Basic earnings per share

 

$

0.83

 

 

$

2.09

 

 

 

$

3.33

 

 

$

5.94

 

Diluted earnings per share

 

$

0.83

 

 

$

2.07

 

 

 

$

3.32

 

 

$

5.90

 

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

 

2


 

CAMBRIDGE BANCORP AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30, 2023

 

 

September 30, 2022

 

 

September 30, 2023

 

 

September 30, 2022

 

 

 

(dollars in thousands)

 

Net income

 

$

6,544

 

 

$

14,616

 

 

$

26,075

 

 

$

41,590

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

Available for sale securities

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized holding gains (losses)

 

 

(2,504

)

 

 

(6,402

)

 

 

(2,228

)

 

 

(18,766

)

Total unrealized gains (losses) on available for sale securities

 

 

(2,504

)

 

 

(6,402

)

 

 

(2,228

)

 

 

(18,766

)

Interest rate swaps designated as cash flow hedges

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized holding gains (losses)

 

 

(387

)

 

 

(150

)

 

 

(842

)

 

 

(1,633

)

Less: reclassification adjustment for gains (losses) realized in net income

 

 

107

 

 

 

14

 

 

 

315

 

 

 

(710

)

    Total unrealized losses on interest rate swaps

 

 

(280

)

 

 

(136

)

 

 

(527

)

 

 

(2,343

)

Other comprehensive income (loss)

 

 

(2,784

)

 

 

(6,538

)

 

 

(2,755

)

 

 

(21,109

)

Comprehensive income

 

$

3,760

 

 

$

8,078

 

 

$

23,320

 

 

$

20,481

 

 

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

3


 

CAMBRIDGE BANCORP AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

 

 

 

Three Months Ended

 

 

 

Common
Stock

 

 

Additional
Paid-In
Capital

 

 

Retained
Earnings

 

 

Accumulated
Other
Comprehensive
Income
(Loss)

 

 

Total
Shareholders’
Equity

 

 

 

(dollars in thousands, except per share data)

 

Balance at June 30, 2022

 

$

7,007

 

 

$

229,918

 

 

$

220,907

 

 

$

(15,781

)

 

$

442,051

 

Net income

 

 

 

 

 

 

 

 

14,616

 

 

 

 

 

 

14,616

 

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

(6,538

)

 

 

(6,538

)

Share based compensation and other share-based activity

 

 

 

 

 

645

 

 

 

 

 

 

 

 

 

645

 

Dividends declared ($0.64 per share)

 

 

 

 

 

 

 

 

(4,484

)

 

 

 

 

 

(4,484

)

Balance at September 30, 2022

 

$

7,007

 

 

$

230,563

 

 

$

231,039

 

 

$

(22,319

)

 

$

446,290

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at June 30, 2023

 

$

7,846

 

 

$

293,500

 

 

$

246,428

 

 

$

(20,770

)

 

$

527,004

 

Net income

 

 

 

 

 

 

 

 

6,544

 

 

 

 

 

 

6,544

 

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

(2,784

)

 

 

(2,784

)

Share based compensation and other share-based activity

 

 

 

 

 

525

 

 

 

 

 

 

 

 

 

525

 

Dividends declared ($0.67 per share)

 

 

 

 

 

 

 

 

(5,258

)

 

 

 

 

 

(5,258

)

Balance at September 30, 2023

 

$

7,846

 

 

$

294,025

 

 

$

247,714

 

 

$

(23,554

)

 

$

526,031

 

 

 

 

Nine Months Ended

 

 

 

Common
Stock

 

 

Additional
Paid-In
Capital

 

 

Retained
Earnings

 

 

Accumulated
Other
Comprehensive
Income
(Loss)

 

 

Total
Shareholders’
Equity

 

 

 

(dollars in thousands, except per share data)

 

Balance at December 31, 2021

 

$

6,968

 

 

$

229,205

 

 

$

202,874

 

 

$

(1,210

)

 

$

437,837

 

Net income

 

 

 

 

 

 

 

 

41,590

 

 

 

 

 

 

41,590

 

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

(21,109

)

 

 

(21,109

)

Share based compensation and other share-based activity

 

 

39

 

 

 

1,358

 

 

 

 

 

 

 

 

 

1,397

 

Dividends declared ($1.92 per share)

 

 

 

 

 

 

 

 

(13,425

)

 

 

 

 

 

(13,425

)

Balance at September 30, 2022

 

$

7,007

 

 

$

230,563

 

 

$

231,039

 

 

$

(22,319

)

 

$

446,290

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2022

 

$

7,796

 

 

$

293,186

 

 

$

237,369

 

 

$

(20,799

)

 

$

517,552

 

Net income

 

 

 

 

 

 

 

 

26,075

 

 

 

 

 

 

26,075

 

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

(2,755

)

 

 

(2,755

)

Share based compensation and other share-based activity

 

 

50

 

 

 

839

 

 

 

 

 

 

 

 

 

889

 

Dividends declared ($2.01 per share)

 

 

 

 

 

 

 

 

(15,730

)

 

 

 

 

 

(15,730

)

Balance at September 30, 2023

 

$

7,846

 

 

$

294,025

 

 

$

247,714

 

 

$

(23,554

)

 

$

526,031

 

 

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

 

4


 

CAMBRIDGE BANCORP AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

Nine Months Ended September 30,

 

 

 

2023

 

 

2022

 

 

 

(dollars in thousands)

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

Net income

 

$

26,075

 

 

$

41,590

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

Provision for (Release of) credit losses

 

 

335

 

 

 

200

 

Amortization (accretion) of deferred charges and fees, net

 

 

1,889

 

 

 

1,782

 

Depreciation (accretion), and amortization, net

 

 

904

 

 

 

737

 

Bank owned life insurance income

 

 

(576

)

 

 

(1,674

)

Share-based compensation and other share-based activity

 

 

889

 

 

 

1,397

 

Change in accrued interest receivable

 

 

(1,137

)

 

 

(2,096

)

Deferred income tax expense

 

 

2,504

 

 

 

2,103

 

Change in loans held for sale

 

 

(614

)

 

 

1,490

 

Change in other assets, net

 

 

(20,249

)

 

 

(45,962

)

Change in other liabilities, net

 

 

14,407

 

 

 

23,786

 

Net cash provided by operating activities

 

 

24,427

 

 

 

23,353

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

 

Origination of loans

 

 

(476,891

)

 

 

(924,800

)

Proceeds from principal payments of loans

 

 

506,622

 

 

 

640,492

 

Purchase of loans

 

 

 

 

 

(23,655

)

Proceeds from calls/maturities of securities available for sale

 

 

13,939

 

 

 

24,205

 

Purchase of securities available for sale

 

 

 

 

 

(10,170

)

Proceeds from calls/maturities of securities held to maturity

 

 

70,557

 

 

 

106,624

 

Purchase of securities held to maturity

 

 

 

 

 

(205,063

)

Death benefit on bank-owned life insurance

 

 

 

 

 

4,025

 

Redemption on bank-owned life insurance

 

 

 

 

 

10,811

 

(Purchase) redemption of FHLB of Boston stock

 

 

(6,057

)

 

 

(7,867

)

Purchase of banking premises and equipment

 

 

(1,245

)

 

 

(1,464

)

Net cash provided by (used in) investing activities

 

 

106,925

 

 

 

(386,862

)

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

Change in demand, interest-bearing, money market and savings accounts

 

 

(491,221

)

 

 

(105,596

)

Change in certificates of deposit

 

 

241,540

 

 

 

55,921

 

Change in borrowings

 

 

128,693

 

 

 

277,998

 

Cash dividends paid on common stock

 

 

(15,730

)

 

 

(13,425

)

Net cash (used in) provided by financing activities

 

 

(136,718

)

 

 

214,898

 

Net change in cash and cash equivalents

 

 

(5,366

)

 

 

(148,611

)

Cash and cash equivalents at beginning of period

 

 

30,719

 

 

 

180,153

 

Cash and cash equivalents at end of period

 

$

25,353

 

 

$

31,542

 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

 

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

 

Interest

 

$

62,841

 

 

$

8,052

 

Income taxes

 

 

11,620

 

 

 

18,917

 

 

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

 

5


 

CAMBRIDGE BANCORP AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

1.BASIS OF PRESENTATION

The unaudited consolidated financial statements include the accounts of Cambridge Bancorp (the “Company”) and its wholly owned subsidiary, Cambridge Trust Company (the “Bank”), and the Bank’s wholly owned subsidiaries, Cambridge Trust Company of New Hampshire Inc., CTC Security Corporation, and CTC Security Corporation III. References to the Company herein relate to the consolidated group of companies. All significant intercompany accounts and transactions have been eliminated in preparation of the consolidated financial statements.

The Company is a state-chartered, federally registered bank holding company headquartered in Cambridge, Massachusetts and was incorporated in 1983. The Company is the sole shareholder of the Bank, a Massachusetts trust company chartered in 1890, which is a commercial bank. The Company operates as a private bank offering a full range of private banking and wealth management services to its clients. The private banking business, the Company’s only reportable operating segment, is managed as a single strategic unit.

The unaudited consolidated financial statements reflect all adjustments (consisting of normal recurring adjustments) and disclosures necessary to present fairly the Company’s financial position, as of September 30, 2023 and December 31, 2022, and the results of operations and cash flows for the interim periods presented in accordance with generally accepted accounting principles in the United States (“GAAP”). Interim results are not necessarily reflective of the results of the entire year.

 

For further information, refer to the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, filed with the Securities and Exchange Commission (the “SEC”) on March 16, 2023.

2. USE OF ESTIMATES

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements. Actual results could differ from those estimates. The allowance for credit losses is particularly subject to change.

3. SUBSEQUENT EVENTS

Management has reviewed events occurring through November 2, 2023, the date the unaudited consolidated financial statements were available to be issued and determined that no other subsequent events occurred requiring adjustment to or disclosure in these unaudited consolidated financial statements.

4. RECENTLY ISSUED ACCOUNTING GUIDANCE

 

Accounting Pronouncements Recently Adopted

 

In March 2022, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2022-02, Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures. The amendments in this ASU eliminate the accounting guidance for troubled debt restructurings (“TDRs”) by creditors in Subtopic 310-40, Receivables – Troubled Debt Restructurings by Creditors, while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. For public business entities, the amendments in this ASU require an entity to disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases. This ASU was effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption was permitted. The Company adopted the new standard on January 1, 2023 and the adoption did not have a material impact on the consolidated financial statements.

In March 2022, the FASB issued ASU 2022-01, Derivatives and Hedging (Topic 815): Fair Value Hedging - Portfolio Layer Method. The amendments in this ASU allow multiple hedged layers to be designated for a single closed portfolio of financial assets or one or more beneficial interests secured by a portfolio of financial instruments. The amendments in this ASU also clarify the accounting for and promote consistency in the reporting of hedge basis adjustments applicable to both a single hedged layer and multiple hedged layers. These amendments are effective for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. The Company adopted the new standard on January 1, 2023 and provided the additional disclosures required for the Company’s fair value hedging relationships.

6


 

5.CASH AND CASH EQUIVALENTS

At September 30, 2023 and December 31, 2022, cash and cash equivalents totaled $25.4 million and $30.7 million, respectively. There were no amounts required to be maintained at the Federal Reserve Bank of Boston at September 30, 2023 and December 31, 2022. At September 30, 2023 and December 31, 2022, the Company pledged $500,000 to the New Hampshire Banking Department relating to Cambridge Trust Company of New Hampshire, Inc.’s operations in that state. The Company did not have any cash pledged as collateral to derivative counterparties at September 30, 2023, or December 31, 2022. See Note 16 - Derivative and Hedging Activities for a discussion of the Company’s derivative and hedging activities.

6.INVESTMENT SECURITIES

Investment securities have been classified in the unaudited consolidated balance sheets according to management’s intent. The carrying amounts of securities and their approximate fair values were as follows:

 

 

 

September 30, 2023

 

 

December 31, 2022

 

 

 

Amortized
Cost

 

 

Gross
Unrealized
Gains

 

 

Gross
Unrealized
Losses

 

 

Fair
Value

 

 

Amortized
Cost

 

 

Gross
Unrealized
Gains

 

 

Gross
Unrealized
Losses

 

 

Fair
Value

 

 

 

(dollars in thousands)

 

Available for sale securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government Sponsored
   Enterprise obligations

 

$

22,998

 

 

$

 

 

$

(3,512

)

 

$

19,486

 

 

$

22,997

 

 

$

 

 

$

(3,264

)

 

$

19,733

 

Mortgage-backed securities

 

 

144,905

 

 

 

1

 

 

 

(28,139

)

 

 

116,767

 

 

 

158,034

 

 

 

3

 

 

 

(25,354

)

 

 

132,683

 

Corporate debt securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

996

 

 

 

4

 

 

 

 

 

 

1,000

 

Total available for sale securities

 

$

167,903

 

 

$

1

 

 

$

(31,651

)

 

$

136,253

 

 

$

182,027

 

 

$

7

 

 

$

(28,618

)

 

$

153,416

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Held to maturity securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury Notes

 

$

4,023

 

 

$

 

 

$

(43

)

 

$

3,980

 

 

$

3,970

 

 

$

 

 

$

(18

)

 

$

3,952

 

Mortgage-backed securities

 

 

890,160

 

 

 

2

 

 

 

(182,990

)

 

 

707,172

 

 

 

951,372

 

 

 

4

 

 

 

(157,208

)

 

 

794,168

 

Corporate debt securities

 

 

250

 

 

 

 

 

 

(4

)

 

 

246

 

 

 

250

 

 

 

 

 

 

(6

)

 

 

244

 

Municipal securities

 

 

86,158

 

 

 

 

 

 

(12,920

)

 

 

73,238

 

 

 

96,405

 

 

 

88

 

 

 

(9,271

)

 

 

87,222

 

Total held to maturity securities

 

$

980,591

 

 

$

2

 

 

$

(195,957

)

 

$

784,636

 

 

$

1,051,997

 

 

$

92

 

 

$

(166,503

)

 

$

885,586

 

Total

 

$

1,148,494

 

 

$

3

 

 

$

(227,608

)

 

$

920,889

 

 

$

1,234,024

 

 

$

99

 

 

$

(195,121

)

 

$

1,039,002

 

All of the Company’s mortgage-backed securities have been issued by, or are collateralized by securities issued by, the Government National Mortgage Association (“Ginnie Mae” or “GNMA”), the Federal National Mortgage Association (“Fannie Mae” or “FNMA”), or the Federal Home Loan Mortgage Corporation (“Freddie Mac” or “FHLMC”).

 

The following tables show the Company’s investment securities with gross unrealized losses for which an allowance for credit losses has not been recorded at September 30, 2023 or at December 31, 2022, aggregated by investment category and length of time that individual investment securities have been in a continuous loss position:

 

 

 

September 30, 2023

 

 

 

Less than 12 months

 

 

12 months or longer

 

 

Total

 

 

 

Fair
Value

 

 

Unrealized
Losses

 

 

Fair
Value

 

 

Unrealized
Losses

 

 

Fair
Value

 

 

Unrealized
Losses

 

 

 

(dollars in thousands)

 

Available for sale securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government Sponsored Enterprise
   obligations

 

$

 

 

$

 

 

$

19,486

 

 

$

(3,512

)

 

$

19,486

 

 

$

(3,512

)

Mortgage-backed securities

 

 

170

 

 

 

(5

)

 

 

116,498

 

 

 

(28,134

)

 

 

116,668

 

 

 

(28,139

)

Total available for sale securities

 

$

170

 

 

$

(5

)

 

$

135,984

 

 

$

(31,646

)

 

$

136,154

 

 

$

(31,651

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Held to maturity securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury Notes

 

$

3,980

 

 

$

(43

)

 

$

 

 

$

 

 

$

3,980

 

 

$

(43

)

Mortgage-backed securities

 

 

 

 

 

 

 

 

706,702

 

 

 

(182,990

)

 

 

706,702

 

 

 

(182,990

)

Corporate debt securities

 

 

 

 

 

 

 

 

246

 

 

 

(4

)

 

 

246

 

 

 

(4

)

Municipal securities

 

 

31,670

 

 

 

(1,420

)

 

 

41,568

 

 

 

(11,500

)

 

 

73,238

 

 

 

(12,920

)

Total held to maturity securities

 

$

35,650

 

 

$

(1,463

)

 

$

748,516

 

 

$

(194,494

)

 

$

784,166

 

 

$

(195,957

)

Total

 

$

35,820

 

 

$

(1,468

)

 

$

884,500

 

 

$

(226,140

)

 

$

920,320

 

 

$

(227,608

)

 

7


 

 

 

 

December 31, 2022

 

 

 

Less than 12 months

 

 

12 months or longer

 

 

Total

 

 

 

Fair
Value

 

 

Unrealized
Losses

 

 

Fair
Value

 

 

Unrealized
Losses

 

 

Fair
Value

 

 

Unrealized
Losses

 

 

 

(dollars in thousands)

 

Available for sale securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government Sponsored Enterprise
   obligations

 

$

10,722

 

 

$

(2,278

)

 

$

9,012

 

 

$

(986

)

 

$

19,734

 

 

$

(3,264

)

Mortgage-backed securities

 

 

41,832

 

 

 

(3,097

)

 

 

90,545

 

 

 

(22,257

)

 

 

132,377

 

 

 

(25,354

)

Total available for sale securities

 

$

52,554

 

 

$

(5,375

)

 

$

99,557

 

 

$

(23,243

)

 

$

152,111

 

 

$

(28,618

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Held to maturity securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury Notes

 

$

3,952

 

 

$

(18

)

 

$

 

 

$

 

 

$

3,952

 

 

$

(18

)

Mortgage-backed securities

 

 

230,708

 

 

 

(22,362

)

 

 

562,835

 

 

 

(134,846

)

 

 

793,543

 

 

 

(157,208

)

Corporate debt securities

 

 

243

 

 

 

(6

)

 

 

 

 

 

 

 

 

243

 

 

 

(6

)

Municipal securities

 

 

51,969

 

 

 

(4,388

)

 

 

13,714

 

 

 

(4,883

)

 

 

65,683

 

 

 

(9,271

)

Total held to maturity securities

 

$

286,872

 

 

$

(26,774

)

 

$

576,549

 

 

$

(139,729

)

 

$

863,421

 

 

$

(166,503

)

Total

 

$

339,426

 

 

$

(32,149

)

 

$

676,106

 

 

$

(162,972

)

 

$

1,015,532

 

 

$

(195,121

)

As of September 30, 2023, 464 debt securities had gross unrealized losses, with an aggregate depreciation of 19.8% from the Company’s amortized cost basis. The largest unrealized dollar loss of any single security was $2.5 million, or 28.0% of its amortized cost. The largest unrealized loss percentage of any single security was 44.1% of its amortized cost, or $1.0 million.

The Company believes that the nature and duration of unrealized losses on its debt security positions are primarily a function of interest rate movements and changes in investment spreads and does not consider full repayment of principal on the reported debt obligations to be at risk. Since nearly all of these securities are rated “investment grade” and (a) the Company does not intend to sell these securities before recovery and (b) it is more likely than not that the Company will not be required to sell these securities before recovery, the Company does not expect to suffer a credit loss as of September 30, 2023.

The Company had no pledged securities as collateral for repurchase agreements at September 30, 2023. The Company pledged U.S. Government obligations with an amortized cost of $9.1 million and a fair value of $8.0 million as collateral for repurchase agreements at December 31, 2022.

 

The amortized cost and fair value of debt securities, aggregated by the earlier of call date or contractual maturity, are shown below. Maturities of mortgage-backed securities do not take into consideration scheduled amortization or prepayments. Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

 

The accrued interest receivable on held to maturity securities totaled $2.0 million and $2.2 million as of September 30, 2023 and December 31, 2022 and is included within accrued interest receivable on the Consolidated Balance Sheets. The Company did not record any write-offs of accrued interest receivable on held to maturity securities during either the three or nine months ended September 30, 2023 or 2022. No securities held by the Company were delinquent on contractual payments as of either September 30, 2023 or December 31, 2022, nor were any securities placed on non-accrual status during the nine and twelve month periods then ended.

8


 

 

 

 

September 30, 2023

 

 

 

Within One Year

 

 

After One, But
Within Five Years

 

 

After Five, But
Within Ten Years

 

 

After Ten Years

 

 

Total

 

 

 

Amortized
Cost

 

 

Fair
Value

 

 

Amortized
Cost

 

 

Fair
Value

 

 

Amortized
Cost

 

 

Fair
Value

 

 

Amortized
Cost

 

 

Fair
Value

 

 

Amortized
Cost

 

 

Fair
Value

 

 

 

(dollars in thousands)

 

Available for sale securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government Sponsored Enterprise obligations

 

$

 

 

$

 

 

$

9,998

 

 

$

9,139

 

 

$

5,000

 

 

$

4,243

 

 

$

8,000

 

 

$

6,104

 

 

$

22,998

 

 

$

19,486

 

Mortgage-backed securities

 

 

 

 

 

 

 

 

12,119

 

 

 

11,282

 

 

 

37,607

 

 

 

30,222

 

 

 

95,179

 

 

 

75,263

 

 

 

144,905

 

 

 

116,767

 

Corporate debt securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total available for sale securities

 

$

 

 

$

 

 

$

22,117

 

 

$

20,421

 

 

$

42,607

 

 

$

34,465

 

 

$

103,179

 

 

$

81,367

 

 

$

167,903

 

 

$

136,253

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Held to maturity securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury Notes

 

$

3,064

 

 

$

3,040

 

 

$

959

 

 

$

940

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

4,023

 

 

$

3,980

 

Mortgage-backed securities

 

 

 

 

 

 

 

 

24,211

 

 

 

22,481

 

 

 

50,175

 

 

 

41,070

 

 

 

815,774

 

 

 

643,621

 

 

 

890,160

 

 

 

707,172

 

Corporate debt securities

 

 

250

 

 

 

246

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

250

 

 

 

246

 

Municipal securities

 

 

3,559

 

 

 

3,541

 

 

 

22,455

 

 

 

21,576

 

 

 

22,583

 

 

 

20,739

 

 

 

37,561

 

 

 

27,382

 

 

 

86,158

 

 

 

73,238

 

Total held to maturity securities

 

$

6,873

 

 

$

6,827

 

 

$

47,625

 

 

$

44,997

 

 

$

72,758

 

 

$

61,809

 

 

$

853,335

 

 

$

671,003

 

 

$

980,591

 

 

$

784,636

 

Total

 

$

6,873

 

 

$

6,827

 

 

$

69,742

 

 

$

65,418

 

 

$

115,365

 

 

$

96,274

 

 

$

956,514

 

 

$

752,370

 

 

$

1,148,494

 

 

$

920,889

 

There were no sales of investment securities during the three and nine months ended September 30, 2023 or September 30, 2022.

 

The Company monitors the credit quality of certain debt securities through the use of credit rating among other factors on a quarterly basis. Credit ratings are opinions about the credit quality of a security and are utilized by the Company to make informed decisions. Investment grade securities are rated BBB-/Baa3 or higher and are generally considered to be of low risk. At September 30, 2023 and December 31, 2022 respectively, the Company’s debt securities portfolio did not contain any securities below investment grade, as reported by major credit rating agencies. At September 30, 2023 and December 31, 2022, respectively, none of the Company's investment securities were delinquent or in non-accrual status.

 

The following tables summarize the credit rating of the Company’s debt securities portfolio at September 30, 2023 and December 31, 2022.

 

 

 

September 30, 2023

 

 

 

Mortgage-backed Securities (1)

 

 

Corporate Debt Securities

 

 

Municipal Securities

 

 

U.S. GSE Obligations

 

 

U.S. Treasury Notes

 

 

Total

 

 

 

(dollars in thousands)

 

Available for sale securities, at fair value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AAA/AA/A

 

$

116,767

 

 

$

 

 

$

 

 

$

19,486

 

 

$

 

 

$

136,253

 

Total available for sale securities

 

$

116,767

 

 

$

 

 

$

 

 

$

19,486

 

 

$

 

 

$

136,253

 

Held to maturity securities, at amortized cost

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AAA/AA/A

 

$

890,160

 

 

$

250

 

 

$

86,158

 

 

$

 

 

$

4,023

 

 

$

980,591

 

Total held to maturity securities

 

$

890,160

 

 

$

250

 

 

$

86,158

 

 

$

 

 

$

4,023

 

 

$

980,591

 

 

 

 

December 31, 2022

 

 

 

Mortgage-backed Securities (1)

 

 

Corporate Debt Securities

 

 

Municipal Securities

 

 

U.S. GSE Obligations

 

 

U.S. Treasury Notes

 

 

Total

 

 

 

(dollars in thousands)

 

Available for sale securities, at fair value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AAA/AA/A

 

$

132,683

 

 

$

 

 

$

 

 

$

19,733

 

 

$

 

 

$

152,416

 

BBB/BB/B

 

 

 

 

 

1,000

 

 

 

 

 

 

 

 

 

 

 

 

1,000

 

Total available for sale securities

 

$

132,683

 

 

$

1,000

 

 

$

 

 

$

19,733

 

 

$

 

 

$

153,416

 

Held to maturity securities, at amortized cost

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AAA/AA/A

 

$

951,372

 

 

$

250

 

 

$

96,405

 

 

$

 

 

$

3,970

 

 

$

1,051,997

 

Total held to maturity securities

 

$

951,372

 

 

$

250

 

 

$

96,405

 

 

$

 

 

$

3,970

 

 

$

1,051,997

 

 

9


 

 

(1)
Includes agency mortgage-backed pass-through securities and collateralized mortgage obligations issued by U.S. Government Sponsored Enterprises (“GSEs”) and U.S. government agencies, such as FNMA, FHLMC, and GNMA that are not rated by Moody’s or Standard & Poor's. Each security contains a guarantee by the issuing U.S. GSE or agency and therefore carries an implicit guarantee of the U.S. government. These have been categorized as AAA/AA/A.

7.LOANS AND THE ALLOWANCE FOR CREDIT LOSSES

Loans outstanding are detailed by category as follows:

 

 

 

September 30, 2023

 

 

December 31, 2022

 

 

 

(dollars in thousands)

 

Residential mortgage

 

 

 

 

 

 

Mortgages - fixed rate

 

$

802,631

 

 

$

902,968

 

Mortgages - adjustable rate

 

 

766,104

 

 

 

703,958

 

Construction

 

 

52,048

 

 

 

35,299

 

Deferred costs, net of unearned fees

 

 

6,677

 

 

 

6,613

 

Total residential mortgages

 

 

1,627,460

 

 

 

1,648,838

 

 

 

 

 

 

 

 

Commercial mortgage

 

 

 

 

 

 

Mortgages - non-owner occupied

 

 

1,641,197

 

 

 

1,592,732

 

Mortgages - owner occupied

 

 

168,725

 

 

 

183,591

 

Construction

 

 

110,301

 

 

 

135,782

 

Deferred costs, net of unearned fees

 

 

2,232

 

 

 

2,318

 

Total commercial mortgages

 

 

1,922,455

 

 

 

1,914,423

 

 

 

 

 

 

 

 

Home equity

 

 

 

 

 

 

Home equity - lines of credit

 

 

90,230

 

 

 

108,961

 

Home equity - term loans

 

 

2,886

 

 

 

2,098

 

Deferred costs, net of unearned fees

 

 

248

 

 

 

292

 

Total home equity

 

 

93,364

 

 

 

111,351

 

 

 

 

 

 

 

 

Commercial and industrial

 

 

 

 

 

 

Commercial and industrial

 

 

354,368

 

 

 

349,026

 

Paycheck Protection Program loans

 

 

841

 

 

 

1,384

 

Unearned fees, net of deferred costs

 

 

587

 

 

 

240

 

Total commercial and industrial

 

 

355,796

 

 

 

350,650

 

 

 

 

 

 

 

 

Consumer

 

 

 

 

 

 

Secured

 

 

27,312

 

 

 

35,679

 

Unsecured

 

 

1,565

 

 

 

1,897

 

Deferred costs, net of unearned fees

 

 

15

 

 

 

18

 

Total consumer

 

 

28,892

 

 

 

37,594

 

Total loans

 

$

4,027,967

 

 

$

4,062,856

 

 

The balance of accrued interest receivable excluded from amortized cost and the calculation of the allowance for credit losses amounted to $13.0 million and $11.6 million as of September 30, 2023 and December 31, 2022, respectively, and is included within accrued interest receivable on the Consolidated Balance Sheets.

 

Directors and officers of the Company and their associates are clients of, and have other transactions with the Company in the normal course of business. All loans and commitments included in such transactions were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons and do not involve more than normal risk of collection or present other unfavorable features.

 

Asset Quality

 

The Company’s philosophy toward managing its loan portfolios is predicated upon careful monitoring, which stresses early detection and response to delinquent and default situations. The Company seeks to make arrangements to resolve any delinquent or default situation over the shortest possible time frame.

10


 

As a general rule, loans more than 90 days past due with respect to principal or interest are classified as non-accrual loans. The Company may use discretion regarding other loans over 90 days past due if the loan is well secured and/or in process of collection.

The following tables set forth information regarding non-performing loans disaggregated by loan category:

 

 

 

September 30, 2023

 

 

 

Residential
Mortgage

 

 

Commercial
Mortgage

 

 

Home
Equity

 

 

Commercial and
Industrial

 

 

Total

 

 

 

(dollars in thousands)

 

Non-performing loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-accrual loans

 

$

6,742

 

 

$

583

 

 

$

384

 

 

$

69

 

 

$

7,778

 

Total

 

$

6,742

 

 

$

583

 

 

$

384

 

 

$

69

 

 

$

7,778

 

 

 

 

December 31, 2022

 

 

 

Residential
Mortgage

 

 

Commercial
Mortgage

 

 

Home
Equity

 

 

Commercial and
Industrial

 

 

Total

 

 

 

(dollars in thousands)

 

Non-performing loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-accrual loans

 

$

4,733

 

 

$

311

 

 

$

722

 

 

$

73

 

 

$

5,839

 

Troubled debt restructurings

 

 

622

 

 

 

 

 

 

 

 

 

81

 

 

$

703

 

Total

 

$

5,355

 

 

$

311

 

 

$

722

 

 

$

154

 

 

$

6,542

 

 

It is the Company’s policy to reverse any accrued interest when a loan is put on non-accrual status. The Company did not record any interest income on non-accrual loans during the years ended September 30, 2023 and December 31, 2022.

 

There were no significant commitments to lend additional funds to borrowers whose loans were on non-accrual status at September 30, 2023 and December 31, 2022.

 

Loan Modifications and Restructurings

 

The Company adopted ASU 2022-02, which eliminates the recognition and measurement of TDRs. Due to the removal of the TDR designation, the Company evaluates all loan restructurings according to the accounting guidance for loan modifications to determine if the restructuring results in a new loan or a continuation of the existing loan. Loan modifications to borrowers experiencing financial difficulty that result in a change in the timing or amount of contractual cash flows include situations where there is principal forgiveness, interest rate reductions, other-than-insignificant payment delays, term extensions, and combinations of the listed modifications. Therefore, the disclosures related to loan restructurings are only for modifications that directly affect cash flows.

 

The allowance for credit losses incorporates an estimate of lifetime expected credit losses and is recorded on each asset upon origination. The starting point for the estimate of the allowance for credit losses is historical loss information, which includes losses from modifications of receivables to borrowers experiencing financial difficulty. The Company uses a discounted cash flow model to determine the allowance for credit losses. An assessment of whether a borrower is experiencing financial difficulty is made at the time of a modification. Because the effect of most modifications made to borrowers experiencing financial difficulty is already included in the allowance for credit losses, a change to the allowance for credit losses is generally not recorded upon modification.

 

At September 30, 2023, the Company had no loan modifications or restructurings due to borrower financial difficulty.

 

Foreclosure proceedings

 

As of September 30, 2023, there were four loans in process of foreclosure with a carrying value of approximately $1.7 million. All of these loans are secured by one to four family residential property. As of December 31, 2022, there were no loans in process of foreclosure.

11


 

 

Loans by Credit Quality Indicator

 

With respect to residential real estate mortgages, home equity, and consumer loans, the Company utilizes the following categories as indicators of credit quality:

Performing – These loans are accruing and are considered having low to moderate risk.
Non-performing – These loans are on non-accrual, are more than 90 days past due but are still accruing, or are restructured. These loans may contain greater than average risk.

With respect to commercial real estate mortgages and commercial loans, the Company utilizes a 10-grade internal loan rating system as an indicator of credit quality. The grades are as follows:

Loans rated 1-6 (Pass) – These loans are considered “pass” rated with low to moderate risk.
Loans rated 7 (Special Mention) – These loans have potential weaknesses warranting close attention, which, if left uncorrected, may result in deterioration of the credit at some future date.
Loans rated 8 (Substandard) – These loans have well-defined weaknesses that jeopardize the orderly liquidation of the debt under the original loan terms. Loss potential exists but is not identifiable in any one client.
Loans rated 9 (Doubtful) – These loans have pronounced weaknesses that make full collection highly questionable and improbable.
Loans rated 10 (Loss) – These loans are considered uncollectible and continuance as a bankable asset is not warranted.

The following tables contain period-end balances of loans receivable disaggregated by credit quality indicator:

 

 

 

Credit Quality Indicator - by Origination Year as of September 30, 2023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2023

 

 

2022

 

 

2021

 

 

2020

 

 

2019

 

 

Prior

 

 

Revolving loans amortized cost basis

 

 

Total

 

 

 

(dollars in thousands)

 

 Residential Mortgage:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current

 

$

69,513

 

 

$

334,679

 

 

$

509,090

 

 

$

281,397

 

 

$

112,467

 

 

$

313,572

 

 

$

 

 

$

1,620,718

 

Non-performing

 

 

 

 

 

 

 

 

 

 

 

197

 

 

 

1,741

 

 

 

4,804

 

 

 

 

 

 

6,742

 

Total

 

$

69,513

 

 

$

334,679

 

 

$

509,090

 

 

$

281,594

 

 

$

114,208

 

 

$

318,376

 

 

$

 

 

$

1,627,460

 

Current-period gross write-offs

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home equity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current

 

$

4,904

 

 

$

4,335

 

 

$

2,590

 

 

$

1,554

 

 

$

3,037

 

 

$

14,635

 

 

$

61,925

 

 

$

92,980

 

Non-performing

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

384

 

 

 

 

 

 

384

 

Total

 

$

4,904

 

 

$

4,335

 

 

$

2,590

 

 

$

1,554

 

 

$

3,037

 

 

$

15,019

 

 

$

61,925

 

 

$

93,364

 

Current-period gross write-offs

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current

 

$

9,346

 

 

$

8,080

 

 

$

3,765

 

 

$

2,713

 

 

$

693

 

 

$

3,733

 

 

$

562

 

 

$

28,892

 

Non-performing

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

9,346

 

 

$

8,080

 

 

$

3,765

 

 

$

2,713

 

 

$

693

 

 

$

3,733

 

 

$

562

 

 

$

28,892

 

Current-period gross write-offs

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

61

 

 

$

 

 

$

61

 

 

12


 

 

 

 

Credit Quality Indicator - by Origination Year as of September 30, 2023

 

 

 

2023

 

 

2022

 

 

2021

 

 

2020

 

 

2019

 

 

Prior

 

 

Revolving loans amortized cost basis

 

 

Total

 

 

 

(dollars in thousands)

 

Commercial Mortgage:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Credit risk profile by internally
   assigned grade:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1-6 (Pass)

 

$

39,862

 

 

$

460,104

 

 

$

369,863

 

 

$

228,365

 

 

$

265,300

 

 

$

475,177

 

 

$

 

 

$

1,838,671

 

7 (Special Mention)

 

 

1,836

 

 

 

 

 

 

 

 

 

2,059

 

 

 

43,905

 

 

 

26,138

 

 

 

 

 

 

73,938

 

8 (Substandard)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

9,846

 

 

 

 

 

 

9,846

 

9 (Doubtful)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10 (Loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

41,698

 

 

$

460,104

 

 

$

369,863

 

 

$

230,424

 

 

$

309,205

 

 

$

511,161

 

 

$

 

 

$

1,922,455

 

      Current-period gross write-offs

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

Commercial and Industrial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Credit risk profile by internally
   assigned grade:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1-6 (Pass)

 

$

46,078

 

 

$

127,841

 

 

$

52,592

 

 

$

53,802

 

 

$

22,634

 

 

$

41,426

 

 

$

405

 

 

$

344,778

 

7 (Special Mention)

 

 

572

 

 

 

5,118

 

 

 

121

 

 

 

2,795

 

 

 

183

 

 

 

121

 

 

 

10

 

 

 

8,920

 

8 (Substandard)

 

 

 

 

 

 

 

 

 

 

 

264

 

 

 

1,701

 

 

 

133

 

 

 

 

 

 

2,098

 

9 (Doubtful)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10 (Loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

46,650

 

 

$

132,959

 

 

$

52,713

 

 

$

56,861

 

 

$

24,518

 

 

$

41,680

 

 

$

415

 

 

$

355,796

 

      Current-period gross write-offs

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

62

 

 

$

 

 

$

62

 

 

 

 

Credit Quality Indicator - by Origination Year as of December 31, 2022

 

 

 

2022

 

 

2021

 

 

2020

 

 

2019

 

 

2018

 

 

Prior

 

 

Revolving loans amortized cost basis

 

 

Total

 

 

 

(dollars in thousands)

 

 Residential Mortgage:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current

 

$

314,599

 

 

$

511,217

 

 

$

276,698

 

 

$

113,251

 

 

$

77,620

 

 

$

350,098

 

 

$

 

 

$

1,643,483

 

Non-performing

 

 

 

 

 

 

 

 

206

 

 

 

315

 

 

 

684

 

 

 

4,150

 

 

 

 

 

 

5,355

 

Total

 

$

314,599

 

 

$

511,217

 

 

$

276,904

 

 

$

113,566

 

 

$

78,304

 

 

$

354,248

 

 

$

 

 

$

1,648,838

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home equity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current

 

$

3,611

 

 

$

 

 

$

 

 

$

58

 

 

$

360

 

 

$

481

 

 

$

106,119

 

 

$

110,629

 

Non-performing

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

722

 

 

 

722

 

Total

 

$

3,611

 

 

$

 

 

$

 

 

$

58

 

 

$

360

 

 

$

481

 

 

$

106,841

 

 

$

111,351

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current

 

$

13,214

 

 

$

8,482

 

 

$

5,353

 

 

$

444

 

 

$

2,078

 

 

$

7,424

 

 

$

599

 

 

$

37,594

 

Non-performing

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

13,214

 

 

$

8,482

 

 

$

5,353

 

 

$

444

 

 

$

2,078

 

 

$

7,424

 

 

$

599

 

 

$

37,594

 

 

13


 

 

 

 

Credit Quality Indicator - by Origination Year as of December 31, 2022

 

 

 

2022

 

 

2021

 

 

2020

 

 

2019

 

 

2018

 

 

Prior

 

 

Revolving loans amortized cost basis

 

 

Total

 

 

 

(dollars in thousands)

 

Commercial Mortgage:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Credit risk profile by internally
   assigned grade:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1-6 (Pass)

 

$

411,927

 

 

$

330,593

 

 

$

222,073

 

 

$

260,588

 

 

$

125,398

 

 

$

489,564

 

 

$

 

 

$

1,840,143

 

7 (Special Mention)

 

 

 

 

 

 

 

 

4,562

 

 

 

41,578

 

 

 

21,697

 

 

 

6,132

 

 

 

 

 

 

73,969

 

8 (Substandard)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

311

 

 

 

 

 

 

311

 

9 (Doubtful)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10 (Loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

411,927

 

 

$

330,593

 

 

$

226,635

 

 

$

302,166

 

 

$

147,095

 

 

$

496,007

 

 

$

 

 

$

1,914,423

 

Commercial and Industrial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Credit risk profile by internally
   assigned grade:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1-6 (Pass)

 

$

128,301

 

 

$

67,727

 

 

$

62,025

 

 

$

28,557

 

 

$

18,794

 

 

$

36,836

 

 

$

475

 

 

$

342,715

 

7 (Special Mention)

 

 

 

 

 

4,211

 

 

 

130

 

 

 

161

 

 

 

407

 

 

 

121

 

 

 

10

 

 

 

5,040

 

8 (Substandard)

 

 

 

 

 

 

 

 

628

 

 

 

2,102

 

 

 

81

 

 

 

84

 

 

 

 

 

 

2,895

 

9 (Doubtful)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10 (Loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

128,301

 

 

$

71,938

 

 

$

62,783

 

 

$

30,820

 

 

$

19,282

 

 

$

37,041

 

 

$

485

 

 

$

350,650

 

 

Delinquencies

The past due status of a loan is determined in accordance with its contractual repayment terms. All loan types are reported past due when one scheduled payment is due and unpaid for 30 days or more. Loan delinquencies can be attributed to many factors, such as but not limited to, a continuing weakness in, or deteriorating, economic conditions in the region in which the collateral is located, the loss of a tenant or lower lease rates for commercial borrowers, or the loss of income for consumers and the resulting liquidity impacts on the borrowers.

The following tables contain period-end balances of loans receivable disaggregated by past due status:

 

 

 

September 30, 2023

 

 

 

30-59 Days

 

 

60-89 Days

 

 

90 Days or Greater

 

 

Total
Past Due

 

 

Current
Loans

 

 

Total

 

 

 

(dollars in thousands)

 

Residential mortgage

 

$

20,158

 

 

$

1,064

 

 

$

2,964

 

 

$

24,186

 

 

$

1,603,274

 

 

$

1,627,460

 

Commercial mortgage

 

 

667

 

 

 

 

 

 

 

 

 

667

 

 

 

1,921,788

 

 

 

1,922,455

 

Home equity

 

 

1,202

 

 

 

28

 

 

 

282

 

 

 

1,512

 

 

 

91,852

 

 

 

93,364

 

Commercial and industrial

 

 

21

 

 

 

363

 

 

 

9

 

 

 

393

 

 

 

355,403

 

 

 

355,796

 

Consumer

 

 

7

 

 

 

 

 

 

 

 

 

7

 

 

 

28,885

 

 

 

28,892

 

Total

 

$

22,055

 

 

$

1,455

 

 

$

3,255

 

 

$

26,765

 

 

$

4,001,202

 

 

$

4,027,967

 

 

 

 

December 31, 2022

 

 

 

30-59 Days

 

 

60-89 Days

 

 

90 Days
or Greater

 

 

Total
Past Due

 

 

Current
Loans

 

 

Total

 

 

 

(dollars in thousands)

 

Residential mortgage

 

$

11,359

 

 

$

1,454

 

 

$

1,809

 

 

$

14,622

 

 

$

1,634,216

 

 

$

1,648,838

 

Commercial mortgage

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,914,423

 

 

 

1,914,423

 

Home equity

 

 

962

 

 

 

393

 

 

 

214

 

 

 

1,569

 

 

 

109,782

 

 

 

111,351

 

Commercial and industrial

 

 

65

 

 

 

269

 

 

 

 

 

 

334

 

 

 

350,316

 

 

 

350,650

 

Consumer

 

 

81

 

 

 

 

 

 

 

 

 

81

 

 

 

37,513

 

 

 

37,594

 

Total

 

$

12,467

 

 

$

2,116

 

 

$

2,023

 

 

$

16,606

 

 

$

4,046,250

 

 

$

4,062,856

 

 

There were no loans 90 days or more past due and still accruing at September 30, 2023 or December 31, 2022.

 

There were no significant commitments to lend additional funds to borrowers whose loans were on non-accrual status at September 30, 2023 and December 31, 2022.

 

14


 

Allowance for Credit Losses

 

The following tables contain changes in the allowance for credit losses disaggregated by loan category:

 

 

 

Three Months Ended September 30, 2023

 

 

 

Residential
Mortgage

 

 

Commercial
Mortgage

 

 

Home
Equity

 

 

Commercial &
Industrial

 

 

Consumer

 

 

Unfunded Commitments

 

 

Total

 

 

 

(dollars in thousands)

 

Allowance for credit loss:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for credit losses - loan
   portfolio:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at June 30, 2023

 

$

13,597

 

 

$

19,299

 

 

$

468

 

 

$

4,252

 

 

$

457

 

 

$

 

 

$

38,073

 

Charge-offs

 

 

 

 

 

 

 

 

 

 

 

(51

)

 

 

(36

)

 

 

 

 

 

(87

)

Recoveries

 

 

 

 

 

 

 

 

 

 

 

9

 

 

 

4

 

 

 

 

 

 

13

 

Provision for (release of) credit
   losses - loan portfolio

 

 

(4,676

)

 

 

3,665

 

 

 

150

 

 

 

843

 

 

 

213

 

 

 

 

 

 

195

 

Allowance for credit losses -
   loan portfolio at September 30, 2023

 

$

8,921

 

 

$

22,964

 

 

$

618

 

 

$

5,053

 

 

$

638

 

 

$

 

 

$

38,194

 

Allowance for credit losses -
   unfunded commitments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at June 30, 2023

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

1,931

 

 

$

1,931

 

Provision for (release of) credit
   losses - unfunded commitments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for credit losses-
   unfunded commitments at September 30, 2023

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

1,931

 

 

$

1,931

 

Total allowance for credit loss

 

$

8,921

 

 

$

22,964

 

 

$

618

 

 

$

5,053

 

 

$

638

 

 

$

1,931

 

 

$

40,125

 

 

 

 

Nine Months Ended September 30, 2023

 

 

 

Residential
Mortgage

 

 

Commercial
Mortgage

 

 

Home
Equity

 

 

Commercial &
Industrial

 

 

Consumer

 

 

Unfunded Commitments

 

 

Total

 

 

 

(dollars in thousands)

 

Allowance for credit loss:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for credit losses - loan
   portfolio:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2022

 

$

13,321

 

 

$

19,086

 

 

$

573

 

 

$

4,153

 

 

$

641

 

 

$

 

 

$

37,774

 

Charge-offs

 

 

 

 

 

 

 

 

 

 

 

(62

)

 

 

(61

)

 

 

 

 

 

(123

)

Recoveries

 

 

 

 

 

 

 

 

 

 

 

28

 

 

 

15

 

 

 

 

 

 

43

 

Provision for (release of) credit
   losses - loan portfolio

 

 

(4,400

)

 

 

3,878

 

 

 

45

 

 

 

934

 

 

 

43

 

 

 

 

 

 

500

 

Allowance for credit losses -
   loan portfolio at September 30, 2023

 

$

8,921

 

 

$

22,964

 

 

$

618

 

 

$

5,053

 

 

$

638

 

 

$

 

 

$

38,194

 

Allowance for credit losses -
   unfunded commitments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2022

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

2,096

 

 

$

2,096

 

Provision for (release of) credit
   losses - unfunded commitments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(165

)

 

 

(165

)

Allowance for credit losses-
   unfunded commitments at September 30, 2023

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

1,931

 

 

$

1,931

 

Total allowance for credit loss

 

$

8,921

 

 

$

22,964

 

 

$

618

 

 

$

5,053

 

 

$

638

 

 

$

1,931

 

 

$

40,125

 

 

 

 

 

15


 

 

 

Three Months Ended September 30, 2022

 

 

 

Residential
Mortgages

 

 

Commercial
Mortgages

 

 

Home
Equity

 

 

Commercial &
Industrial

 

 

Consumer

 

 

Unfunded Commitments

 

 

Total

 

 

 

(dollars in thousands)

 

Allowance for credit loss:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for credit losses - loan
   portfolio:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at June 30, 2022

 

$

12,639

 

 

$

17,767

 

 

$

400

 

 

$

2,852

 

 

$

466

 

 

$

 

 

$

34,124

 

Charge-offs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Recoveries

 

 

 

 

 

 

 

 

 

 

 

10

 

 

 

 

 

 

 

 

 

10

 

Provision for (release of) credit
   losses - loan portfolio

 

 

604

 

 

 

(538

)

 

 

48

 

 

 

549

 

 

 

(49

)

 

 

 

 

 

614

 

Allowance for credit losses - loan portfolio at September 30, 2022

 

$

13,243

 

 

$

17,229

 

 

$

448

 

 

$

3,411

 

 

$

417

 

 

$

 

 

$

34,748

 

Allowance for credit losses -
   unfunded commitments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at June 30, 2022

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

1,371

 

 

$

1,371

 

Release of credit losses - unfunded commitments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2

)

 

 

(2

)

Allowance for credit losses-
   unfunded commitments at September 30, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,369

 

 

 

1,369

 

Total allowance for credit loss

 

$

13,243

 

 

$

17,229

 

 

$

448

 

 

$

3,411

 

 

$

417

 

 

$

1,369

 

 

$

36,117

 

 

 

 

Nine Months Ended September 30, 2022

 

 

 

Residential
Mortgages

 

 

Commercial
Mortgages

 

 

Home
Equity

 

 

Commercial &
Industrial

 

 

Consumer

 

 

Unfunded Commitments

 

 

Total

 

 

 

(dollars in thousands)

 

Allowance for credit loss:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for credit losses - loan
   portfolio:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2021

 

$

13,383

 

 

$

17,133

 

 

$

406

 

 

$

2,989

 

 

$

585

 

 

$

 

 

$

34,496

 

Charge-offs

 

 

 

 

 

 

 

 

 

 

 

(3

)

 

 

(28

)

 

 

 

 

 

(31

)

Recoveries

 

 

 

 

 

 

 

 

 

 

 

56

 

 

 

12

 

 

 

 

 

 

68

 

Provision for (release of) credit
   losses - loan portfolio

 

 

(140

)

 

 

96

 

 

 

42

 

 

 

369

 

 

 

(152

)

 

 

 

 

 

215

 

Allowance for credit losses - loan portfolio at September 30, 2022

 

$

13,243

 

 

$

17,229

 

 

$

448

 

 

$

3,411

 

 

$

417

 

 

$

 

 

$

34,748

 

Allowance for credit losses -
   unfunded commitments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2021

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

1,384

 

 

$

1,384

 

Release of credit
   losses - unfunded commitments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(15

)

 

 

(15

)

Allowance for credit losses-
   unfunded commitments at September 30, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,369

 

 

 

1,369

 

Total allowance for credit loss

 

$

13,243

 

 

$

17,229

 

 

$

448

 

 

$

3,411

 

 

$

417

 

 

$

1,369

 

 

$

36,117

 

 

8.INCOME TAXES

 

The Company’s effective tax rate was 30.0% and 26.1% for the three and nine months ended September 30, 2023, respectively. The Company’s effective tax rate was 26.1% and 26.5% for the three and nine months ended September 30, 2022, respectively.

Net deferred tax assets totaled $16.5 million and $18.0 million at September 30, 2023 and December 31, 2022, respectively. The Company did not record a valuation allowance for deferred tax assets at September 30, 2023 or December 31, 2022.

 

16


 

The components of income tax expense were as follows:

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

 

(dollars in thousands)

 

Current income tax expense

 

 

 

 

 

 

 

 

 

 

 

 

Federal

 

$

1,747

 

 

$

4,058

 

 

$

4,779

 

 

$

9,021

 

State

 

 

723

 

 

 

1,863

 

 

 

1,934

 

 

 

3,847

 

Total current income tax expense

 

$

2,470

 

 

$

5,921

 

 

$

6,713

 

 

$

12,868

 

 

 

 

 

 

 

 

 

 

 

 

 

Deferred income tax expense (benefit)

 

 

 

 

 

 

 

 

 

 

 

 

Federal

 

$

231

 

 

$

(529

)

 

$

1,768

 

 

$

1,435

 

State

 

 

107

 

 

 

(240

)

 

 

736

 

 

 

668

 

Total deferred income tax expense (benefit)

 

 

338

 

 

 

(769

)

 

 

2,504

 

 

 

2,103

 

Total income tax expense

 

$

2,808

 

 

$

5,152

 

 

$

9,217

 

 

$

14,971

 

 

9. PENSION AND RETIREMENT PLANS

 

The components of net periodic benefit cost (credit) were as follows:

 

 

 

Three Months Ended September 30,

 

 

 

Pension Plan

 

 

Supplemental
Retirement Plan

 

 

Retirement Healthcare Plan

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

 

(dollars in thousands)

 

Net periodic benefit cost (credit)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Service cost

 

$

 

 

$

 

 

$

68

 

 

$

100

 

 

$

5

 

 

$

6

 

Interest cost

 

 

451

 

 

 

328

 

 

 

100

 

 

 

65

 

 

 

7

 

 

 

4

 

Expected return on assets

 

 

(801

)

 

 

(968

)

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of net actuarial (gain) loss

 

 

 

 

 

 

 

 

 

 

 

7

 

 

 

(5

)

 

 

 

Net periodic benefit cost (credit)

 

$

(350

)

 

$

(640

)

 

$

168

 

 

$

172

 

 

$

7

 

 

$

10

 

 

 

 

Nine Months Ended September 30,

 

 

 

Pension Plan

 

 

Supplemental
Retirement Plan

 

 

Retirement Healthcare Plan

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

 

(dollars in thousands)

 

Net periodic benefit cost (credit)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Service cost

 

$

 

 

$

 

 

$

204

 

 

$

299

 

 

$

13

 

 

$

20

 

Interest cost

 

 

1,354

 

 

 

982

 

 

 

300

 

 

 

195

 

 

 

18

 

 

 

14

 

Expected return on assets

 

 

(2,403

)

 

 

(2,907

)

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of net actuarial (gain) loss

 

 

 

 

 

 

 

 

 

 

 

21

 

 

 

(16

)

 

 

 

Net periodic benefit cost (credit)

 

$

(1,049

)

 

$

(1,925

)

 

$

504

 

 

$

515

 

 

$

15

 

 

$

34

 

 

The Company froze the accrual of benefits on the qualified defined benefit pension plan in 2017. The Company did not make any contributions to the qualified defined benefit pension plan during the three and nine months ended September 30, 2023 and 2022, nor does it expect to make any contributions to the qualified defined benefit plan during the remainder of 2023.

Employee Profit-Sharing and 401(k) Plan

The Company maintains a Profit-Sharing Plan (“PSP”) that provides for deferral of federal and state income taxes on employee contributions allowed under Section 401(k) of federal law. The Company matches employee contributions up to 100% of the first 4% of each participant’s salary, eligible bonus, and eligible incentive. Employees are eligible to participate in the PSP on the first day of their initial date of service. Each year, the Company may also make a discretionary contribution to the PSP and employees are eligible to participate in the discretionary contribution portion of the PSP on the first day of their initial date of service. Additionally, employees must be employed on the last day of the calendar year or retire at the normal retirement age of 65 during the calendar year to receive the discretionary contribution.

17


 

Employee Stock Ownership Plan

The Company has an Employee Stock Ownership Plan (“ESOP”) for its eligible employees. Employees are eligible to participate upon the attainment of age 21 and the completion of 12 months of service consisting of at least 1,000 hours. Purchases of the Company’s common stock by the ESOP will be funded by employer contributions or reinvestment of cash dividends.

Total expenses related to the PSP and ESOP for the three months ended September 30, 2023 and September 30, 2022 were $653,000 and $1.1 million, respectively. Total expenses related to the PSP and ESOP for the nine months ended September 30, 2023 and September 30, 2022 were $2.2 million and $3.5 million, respectively.

Defined Contribution Supplemental Executive Retirement Plan

For executives participating in the Defined Contribution Supplemental Executive Retirement Plan (“DC SERP”), the Company will make a discretionary contribution of up to 10% of each executive’s base salary and bonus to his or her account under the Company’s DC SERP. There were no expenses related to the DC SERP for the three months ended September 30, 2023 and $68,000 for the three months ended September 30, 2022. Total expenses related to the DC SERP for the nine months ended September 30, 2023, and September 30, 2022, were $25,000 and $203,000, respectively.

 

10. SHARE BASED COMPENSATION

Time Vested Restricted Stock Awards (“RSAs”) and Time Vested Restricted Stock Units (“RSUs”)

During the three and nine months ended September 30, 2023, the Company issued the following RSAs and RSUs pursuant to the Cambridge Bancorp 2017 Equity and Cash Incentive Plan (the “2017 Plan”). RSAs vest either over a three-year or five-year period. RSUs vest over a three-year period. The fair value of RSAs and RSUs are based upon the closing price of the Company’s common stock on the date of the applicable grant. The holders of RSAs participate fully in the rewards of stock ownership of the Company, including voting and dividend rights. The holders of RSUs do not participate in the rewards of stock ownership of the Company until they are vested.

 

 

 

Three Months Ended September 30, 2023

 

 

Nine Months Ended September 30, 2023

 

Type of Award

 

Shares Granted

 

 

Weighted Average Fair Value Per Share at Grant Date

 

 

Shares Granted

 

 

Weighted Average Fair Value Per Share at Grant Date

 

RSAs

 

 

882

 

 

$

56.75

 

 

 

16,348

 

 

$

81.47

 

RSUs

 

 

9,693

 

 

$

56.75

 

 

 

28,946

 

 

$

53.94

 

 

Performance-Based Restricted Stock Units (“PRSUs”)

 

During the three and nine months ended September 30, 2023, the Company granted PRSUs from the 2017 Plan, as shown in the table below. PRSUs are subject to a three-year performance period and are earned based on performance factors, as determined, at the time of grant.

 

 

 

Three Months Ended September 30, 2023

 

 

Nine Months Ended September 30, 2023

 

Type of Award

 

Shares Granted

 

 

Weighted Average Fair Value Per Share at Grant Date

 

 

Shares Granted

 

 

Weighted Average Fair Value Per Share at Grant Date

 

PRSUs

 

 

 

 

$

 

 

 

31,744

 

 

$

59.19

 

 

The following table presents the pre-tax expense associated with all outstanding non-vested RSAs, RSUs, and PRSUs, and the related tax benefits recognized:

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

 

(dollars in thousands)

 

Share based compensation expense

 

$

589

 

 

$

697

 

 

$

1,759

 

 

$

2,288

 

Related tax benefits

 

$

164

 

 

$

195

 

 

$

491

 

 

$

639

 

 

18


 

 

Share-based activity in the statement of changes in shareholders’ equity includes RSA, RSU, and PRSU expense, as well as expense related to the Company’s share-based compensation for directors and shares repurchased by the Company for shares tendered by employees to cover income tax liability as grants vest.

 

The 2017 Plan allows Directors of the Company to receive their annual retainer fee in the form of stock in the Company. There were no shares issued under the 2017 Plan for the three months ended September 30, 2023. Total shares issued under the 2017 Plan for the nine months ended September 30, 2023 were 12,195. There were no shares issued under the 2017 Plan for the three months ended September 30, 2022. The total shares issued under the 2017 Plan for the nine months ended September 30, 2022 was 6,776.

 

11. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK

To meet the financing needs of its clients, the Company is a party to financial instruments with off-balance-sheet risk in the normal course of business. These financial instruments are primarily comprised of commitments to extend credit, commitments to sell residential real estate mortgage loans, and standby letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized in the consolidated balance sheets.

The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for loan commitments and standby letters of credit is represented by the contractual amount of those instruments assuming that the amounts are fully advanced, and that collateral or other security is of no value. The Company generally uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments.

Off-balance-sheet financial instruments with contractual amounts that present credit risk include the following:

 

 

 

September 30, 2023

 

 

December 31, 2022

 

 

 

(dollars in thousands)

 

Financial instruments whose contractual amount represents credit risk:

 

 

 

 

 

 

Commitments to extend credit:

 

 

 

 

 

 

Unused portion of existing lines of credit

 

$

1,029,129

 

 

$

1,073,567

 

Origination of new loans

 

 

19,112

 

 

 

25,411

 

Standby letters of credit

 

 

35,334

 

 

 

24,234

 

Financial instruments whose notional amount exceeds the amount of credit risk:

 

 

 

 

 

 

Commitments to sell residential mortgage loans

 

 

458

 

 

 

250

 

 

12. LEASES

 

Lease Commitments. The Company is obligated under various lease agreements covering its main office, branch offices, and other locations. These agreements are accounted for as operating leases and their terms expire between 2023 and 2032 and, in some instances, contain options to renew for periods up to 30 years.

The components of operating lease cost and other related information are as follows:

 

 

Three Months Ended September 30,

 

 

 

2023

 

 

2022

 

 

 

(dollars in thousands)

 

 Operating lease cost

 

$

1,696

 

 

$

1,742

 

 Variable lease cost (cost excluded from lease payments)

 

 

5

 

 

 

11

 

 Sublease income

 

 

(128

)

 

 

(66

)

 Total operating lease cost

 

$

1,573

 

 

$

1,687

 

Other Information

 

 

 

 

Cash paid for amounts included in the measurement of lease liabilities -
   operating cash flows for operating leases

 

$

1,845

 

 

$

1,811

 

 Operating Lease - operating cash flows (liability reduction)

 

 

1,661

 

 

 

1,599

 

 Weighted average lease term - operating leases

 

5.06 Years

 

 

5.65 Years

 

 Weighted average discount rate - operating leases

 

 

2.99

%

 

 

2.99

%

 

19


 

 

 

Nine Months Ended September 30,

 

 

 

2023

 

 

2022

 

 

 

(dollars in thousands)

 

 Operating lease cost

 

$

5,106

 

 

$

5,228

 

 Variable lease cost (cost excluded from lease payments)

 

 

19

 

 

 

30

 

 Sublease income

 

 

(384

)

 

 

(173

)

 Total operating lease cost

 

$

4,741

 

 

$

5,085

 

Other Information

 

 

 

 

Cash paid for amounts included in the measurement of lease liabilities - operating cash flows for operating leases

 

$

5,509

 

 

$

5,449

 

 Operating Lease - operating cash flows (liability reduction)

 

 

4,951

 

 

 

4,790

 

 Weighted average lease term - operating leases

 

5.06 Years

 

 

5.65 Years

 

 Weighted average discount rate - operating leases

 

 

2.99

%

 

 

2.99

%

 

The total minimum lease payments due in future periods under these agreements in effect at September 30, 2023 were as follows:

 

 

 

Future Minimum

 

September 30, 2023

 

Lease Payments

 

 

 

(dollars in thousands)

 

Remainder of 2023

 

$

2,418

 

2024

 

 

6,705

 

2025

 

 

5,719

 

2026

 

 

4,472

 

2027

 

 

2,675

 

Thereafter

 

 

6,286

 

Total minimum lease payments

 

$

28,275

 

Less: interest

 

 

(4,079

)

Total lease liability

 

$

24,196

 

 

Several of the Company’s lease agreements contain clauses calling for escalation of minimum lease payments contingent on increases in real estate taxes, gross income adjustments, percentage increases in the consumer price index, and certain ancillary maintenance costs. Total rental expense was $1.9 million and $1.8 million for the three months ended September 30, 2023 and September 30, 2022, respectively. Total rental expense was $5.6 million for the nine months ended September 30, 2023 and $5.5 million for the nine months ended September 30, 2022, respectively.

 

20


 

13.SHAREHOLDERS’ EQUITY

As of September 30, 2023 and December 31, 2022, the Company and the Bank met all applicable minimum capital requirements and were considered “well-capitalized” by both the Federal Reserve Bank (“FRB”) and the Federal Deposit Insurance Corporation (“FDIC”).

 

 

 

Actual

 

 

Minimum Capital
Required For
Capital Adequacy Plus
Capital Conservation
Buffer

 

 

Minimum To Be
Well-Capitalized
Under
Prompt Corrective
Action Provisions

 

 

 

Amount

 

 

Ratio

 

 

Amount

 

 

Ratio

 

 

Amount

 

 

Ratio

 

 

 

(dollars in thousands)

 

At September 30, 2023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cambridge Bancorp:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total capital (to risk-weighted assets)

 

$

518,398

 

 

 

14.2

%

 

$

383,672

 

 

 

10.5

%

 

N/A

 

 

N/A

 

Tier 1 capital (to risk-weighted assets)

 

 

478,273

 

 

 

13.1

%

 

 

310,591

 

 

 

8.5

%

 

N/A

 

 

N/A

 

Common equity tier I capital (to risk-weighted assets)

 

 

478,273

 

 

 

13.1

%

 

 

255,781

 

 

 

7.0

%

 

N/A

 

 

N/A

 

Tier 1 capital (to average assets)

 

 

478,273

 

 

 

8.8

%

 

 

216,714

 

 

 

4.0

%

 

N/A

 

 

N/A

 

Cambridge Trust Company:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total capital (to risk-weighted assets)

 

$

496,819

 

 

 

13.6

%

 

$

383,636

 

 

 

10.5

%

 

$

365,368

 

 

 

10.0

%

Tier 1 capital (to risk-weighted assets)

 

 

456,694

 

 

 

12.5

%

 

 

310,563

 

 

 

8.5

%

 

 

292,294

 

 

 

8.0

%

Common equity tier I capital (to risk-weighted assets)

 

 

456,694

 

 

 

12.5

%

 

 

255,757

 

 

 

7.0

%

 

 

237,489

 

 

 

6.5

%

Tier 1 capital (to average assets)

 

 

456,694

 

 

 

8.4

%

 

 

216,700

 

 

 

4.0

%

 

 

270,875

 

 

 

5.0

%

 

 

 

Actual

 

 

Minimum Capital
Required For
Capital Adequacy Plus
Capital Conservation
Buffer

 

 

Minimum To Be
Well-Capitalized
Under
Prompt Corrective
Action Provisions

 

 

 

Amount

 

 

Ratio

 

 

Amount

 

 

Ratio

 

 

Amount

 

 

Ratio

 

 

 

(dollars in thousands)

 

At December 31, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cambridge Bancorp:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total capital (to risk-weighted assets)

 

$

506,239

 

 

 

13.5

%

 

$

393,285

 

 

 

10.5

%

 

N/A

 

 

N/A

 

Tier 1 capital (to risk-weighted assets)

 

 

466,369

 

 

 

12.5

%

 

 

318,373

 

 

 

8.5

%

 

N/A

 

 

N/A

 

Common equity tier I capital (to risk-weighted assets)

 

 

466,369

 

 

 

12.5

%

 

 

262,190

 

 

 

7.0

%

 

N/A

 

 

N/A

 

Tier 1 capital (to average assets)

 

 

466,369

 

 

 

8.5

%

 

 

219,309

 

 

 

4.0

%

 

N/A

 

 

N/A

 

Cambridge Trust Company:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total capital (to risk-weighted assets)

 

$

490,175

 

 

 

13.1

%

 

$

393,246

 

 

 

10.5

%

 

$

374,520

 

 

 

10.0

%

Tier 1 capital (to risk-weighted assets)

 

 

450,305

 

 

 

12.0

%

 

 

318,342

 

 

 

8.5

%

 

 

299,616

 

 

 

8.0

%

Common equity tier I capital (to risk-weighted assets)

 

 

450,305

 

 

 

12.0

%

 

 

262,164

 

 

 

7.0

%

 

 

243,438

 

 

 

6.5

%

Tier 1 capital (to average assets)

 

 

450,305

 

 

 

8.2

%

 

 

219,296

 

 

 

4.0

%

 

 

274,120

 

 

 

5.0

%

 

21


 

14. OTHER COMPREHENSIVE INCOME (LOSS)

The following tables present the changes in accumulated other comprehensive income (loss) (“AOCI”) (“AOCL”) during the periods, by component, net of tax:

 

 

 

Three Months Ended September 30, 2023

 

 

Three Months Ended September 30, 2022

 

 

 

Before Tax
Amount

 

 

Tax (Expense)
or Benefit

 

 

Net-of-tax
Amount

 

 

Before Tax
Amount

 

 

Tax (Expense)
or Benefit

 

 

Net-of-tax
Amount

 

 

 

(dollars in thousands)

 

Available for sale securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized holding gains (losses)

 

$

(3,388

)

 

$

884

 

 

$

(2,504

)

 

$

(8,575

)

 

$

2,173

 

 

$

(6,402

)

Interest rate swaps designated as cash flow
   hedges

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized holding (losses) gains

 

 

(536

)

 

 

149

 

 

 

(387

)

 

 

(209

)

 

 

59

 

 

 

(150

)

Reclassification adjustment for (losses) income recognized in net income

 

 

148

 

 

 

(41

)

 

 

107

 

 

 

20

 

 

 

(6

)

 

 

14

 

Total other comprehensive income (loss)

 

$

(3,776

)

 

$

992

 

 

$

(2,784

)

 

$

(8,764

)

 

$

2,226

 

 

$

(6,538

)

 

 

 

Nine Months Ended September 30, 2023

 

 

Nine Months Ended September 30, 2022

 

 

 

Before Tax
Amount

 

 

Tax (Expense)
or Benefit

 

 

Net-of-tax
Amount

 

 

Before Tax
Amount

 

 

Tax (Expense) or Benefit

 

 

Net-of-tax
Amount

 

 

 

(dollars in thousands)

 

Available for sale securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized holding gains (losses)

 

$

(3,039

)

 

$

811

 

 

$

(2,228

)

 

$

(25,170

)

 

$

6,404

 

 

$

(18,766

)

Interest rate swaps designated as cash flow
   hedges

 

 

 

 

 

 

 

 

 

 

 

 

 

.

 

 

 

 

Unrealized holding (losses) gains

 

 

(1,169

)

 

 

327

 

 

 

(842

)

 

 

(2,267

)

 

 

634

 

 

 

(1,633

)

Reclassification adjustment for (losses) income recognized in net income

 

 

437

 

 

 

(122

)

 

 

315

 

 

 

(985

)

 

 

275

 

 

 

(710

)

Total other comprehensive income (loss)

 

$

(3,771

)

 

$

1,016

 

 

$

(2,755

)

 

$

(28,422

)

 

$

7,313

 

 

$

(21,109

)

 

Reclassifications out of AOCI and AOCL that have an impact on net income are presented below.

 

Three Months Ended

Details about Accumulated Other Comprehensive Income (Loss) Components

 

September 30, 2023

 

 

September 30, 2022

 

 

Affected Line Item in the
Statement where Net Income
is Presented

 

 

(dollars in thousands)

 

 

 

Unrealized (losses) gains on derivatives

 

$

(148

)

 

$

(20

)

 

Interest on taxable loans

Tax benefit (expense)

 

 

41

 

 

 

6

 

 

Income tax expense

Net of tax

 

$

(107

)

 

$

(14

)

 

Net income

 

Nine Months Ended

Details about Accumulated Other Comprehensive Loss Components

 

September 30, 2023

 

 

September 30, 2022

 

 

Affected Line Item in the
Statement where Net Income
is Presented

 

 

(dollars in thousands)

 

 

 

Unrealized (losses) gains on derivatives

 

$

(437

)

 

$

985

 

 

Interest on taxable loans

Tax benefit (expense)

 

 

122

 

 

 

(275

)

 

Income tax expense

Net of tax

 

$

(315

)

 

$

710

 

 

Net income

 

22


 

 

15. EARNINGS PER SHARE

The following represents a reconciliation between basic and diluted earnings per share:

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

 

(dollars in thousands, except per share data)

 

Earnings per common share - basic:

 

 

 

 

 

 

 

 

 

 

 

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

6,544

 

 

$

14,616

 

 

$

26,075

 

 

$

41,590

 

Less dividends and undistributed earnings allocated
   to participating securities

 

 

(5

)

 

 

(73

)

 

 

(22

)

 

 

(207

)

Net income applicable to common shareholders

 

$

6,539

 

 

$

14,543

 

 

$

26,053

 

 

$

41,383

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

 

7,840

 

 

 

6,972

 

 

 

7,825

 

 

 

6,962

 

 Earnings per common share - basic

 

$

0.83

 

 

$

2.09

 

 

$

3.33

 

 

$

5.94

 

Earnings per common share - diluted:

 

 

 

 

 

 

 

 

 

 

 

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

6,544

 

 

$

14,616

 

 

$

26,075

 

 

$

41,590

 

Less dividends and undistributed earnings allocated
   to participating securities

 

 

(5

)

 

 

(73

)

 

 

(22

)

 

 

(207

)

Net income applicable to common shareholders

 

$

6,539

 

 

$

14,543

 

 

$

26,053

 

 

$

41,383

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

 

7,840

 

 

 

6,972

 

 

 

7,825

 

 

 

6,962

 

Dilutive effect of common stock equivalents

 

 

23

 

 

 

47

 

 

 

23

 

 

 

48

 

Weighted average diluted common shares outstanding

 

 

7,863

 

 

 

7,019

 

 

 

7,848

 

 

 

7,010

 

Earnings per common share - diluted

 

$

0.83

 

 

$

2.07

 

 

$

3.32

 

 

$

5.90

 

 

16. DERIVATIVE AND HEDGING ACTIVITIES

The Company utilizes interest rate swaps and floors to mitigate exposure to interest rate risk and to facilitate the needs of its clients. The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash receipts principally related to the Company’s assets.

Cash Flow Hedges of Interest Rate Risk

The Company uses interest rate floors to manage its exposure to interest rate movements. Interest rate floors designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty if interest rates fall below the strike rate on the contract in exchange for an up-front premium.

 

For derivatives designated and that qualify as cash flow hedges of interest rate risk, the gain or loss on the derivative is recorded in AOCI and AOCL and subsequently reclassified into interest income in the same period(s) during which the hedged transaction affects earnings. Gains and losses on the derivative representing hedge components excluded from the assessment of effectiveness are recognized over the life of the hedge on a systematic and rational basis. The earnings recognition of excluded components is presented in interest income. Amounts reported in AOCI and AOCL related to derivatives will be reclassified to interest income as interest payments are received on the Company’s variable-rate assets.

 

During the next twelve months, the Company estimates that $395,000 will be reclassified out of AOCI and AOCL into earnings, as a decrease to interest income.

 

Fair Value Hedges of Interest Rate Risk

The Company is exposed to changes in the fair value of certain pools of fixed-rate assets due to changes in benchmark interest rates. The Company uses interest rate swaps to manage its exposure to changes in fair value on these instruments attributable to changes in the designated benchmark interest rate. The Company's interest rate swaps designated as fair value hedges involve the payment of fixed-rate amounts to a counterparty in exchange for the Company receiving variable-rate payments over the life of the agreements without the exchange of the underlying notional amount.

23


 

For derivatives designated and that qualify as fair value hedges, the gain or loss on the derivative as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in interest income.

The Company recorded the following amounts on the balance sheet related to cumulative basis adjustment for fair value hedges:

 

Line Item in the Statement of Financial Position in Which the Hedged Item is Included

Carrying Amount of the Hedged Assets/(Liabilities)

 

 

Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Assets/(Liabilities)

 

 

September 30, 2023

 

December 31, 2022

 

 

September 30, 2023

 

December 31, 2022

 

 

(dollars in thousands)

 

Fixed Rate Assets

$

493,618

 

$

 

 

$

6,382

 

$

 

Total

$

493,618

 

$

 

 

$

6,382

 

$

 

 

These amounts include the amortized cost basis of closed portfolios of fixed rate residential loans used to designate hedging relationships in which the hedged item is the stated amount of assets in the closed portfolio anticipated to be outstanding for the designated hedged period. At September 30, 2023, the amortized cost basis of the closed portfolios used in these hedging relationships was $689.1 million, the cumulative basis adjustments associated with these hedging relationships was $6.4 million, and the notional amount of the designated hedged items were $500.0 million. The Company had no fair value hedges at December 31, 2022. The notional amounts of these agreements do not represent amounts exchanged by the parties and, thus, are not a measure of the potential loss exposure. At September 30, 2023, the Company’s fair value hedges had a weighted average remaining maturity of 1.53 years, and a weighted average fixed rate of 4.16%.

 

Derivatives not designated as hedging instruments

Derivatives not designated as hedges result from a service the Company provides to certain clients. For the Company’s clients, these are interest rate swaps and risk participation agreements.

Interest Rate Swaps. The Company enters into interest rate swap contracts to help commercial loan borrowers manage their interest rate risk. The interest rate swap contracts with commercial loan borrowers allow them to convert floating-rate loan payments to fixed rate loan payments. When the Company enters into an interest rate swap contract with a commercial loan borrower, it simultaneously enters into a “mirror” swap contract with a third party. The third party exchanges the borrower’s fixed-rate loan payments for floating-rate loan payments. These derivatives are not designated as hedges and therefore, changes in fair value are recognized in earnings. Because these derivatives have mirror-image contractual terms, the changes in fair value substantially offset each other through earnings. Fees earned in connection with the execution of derivatives related to this program are recognized in earnings through loan-related derivative income.

The credit risk associated with swap transactions is the risk of default by the counterparty. To minimize this risk, the Company enters into interest rate agreements only with highly rated counterparties that management believes to be creditworthy. The notional amounts of these agreements do not represent amounts exchanged by the parties and, thus, are not a measure of the potential loss exposure.

 

Risk Participation Agreements. The Company enters into risk participation agreements (“RPAs”) with other banks participating in commercial loan arrangements. Participating banks guarantee the performance on borrower-related interest rate swap contracts. RPAs are derivative financial instruments and are recorded at fair value. These derivatives are not designated as hedges and, therefore, changes in fair value are recognized in earnings.

 

Under a risk participation-out agreement, a derivative asset, the Company participates out a portion of the credit risk associated with the interest rate swap position executed with the commercial borrower for a fee paid to the participating bank. Under a risk participation-in agreement, a derivative liability, the Company assumes, or participates in, a portion of the credit risk associated with the interest rate swap position with the commercial borrower for a fee received from the other bank.

 

The following tables present the notional amount, the location, and fair values of derivative instruments in the Company’s consolidated balance sheets:

 

24


 

 

 

September 30, 2023

 

 

 

Derivative Assets

 

 

Derivative Liabilities

 

 

 

Notional Amount

 

 

Balance Sheet
Location

 

Fair Value

 

 

Notional Amount

 

 

Balance Sheet
Location

 

Fair Value

 

 

 

(dollars in thousands)

 

 

(dollars in thousands)

 

Derivatives designated as hedging instruments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate contracts-cash flow hedging relationships

 

$

250,000

 

 

Other Assets

 

$

799

 

 

$

 

 

Other Liabilities

 

$

 

Interest rate contracts-fair value hedging relationships

 

 

500,000

 

 

Other Assets

 

 

6,329

 

 

 

 

 

Other Liabilities

 

 

 

Total derivatives designated as hedging instruments

 

 

 

 

 

 

$

7,128

 

 

 

 

 

 

 

$

 

Derivatives not designated as hedging instruments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loan related derivative contracts

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate contracts

 

$

492,412

 

 

Other Assets

 

$

59,287

 

 

$

492,412

 

 

Other Liabilities

 

$

59,287

 

Risk participation agreements-out to counterparties

 

 

51,681

 

 

Other Assets

 

 

6

 

 

 

 

 

Other Liabilities

 

 

 

Risk participation agreements-in with counterparties

 

 

 

 

Other Assets

 

 

 

 

 

83,832

 

 

Other Liabilities

 

 

18

 

Total derivatives not designated as hedging instruments

 

 

 

 

 

 

$

59,293

 

 

 

 

 

 

 

$

59,305

 

 

 

 

December 31, 2022

 

 

 

Derivative Assets

 

 

Derivative Liabilities

 

 

 

Notional Amount

 

 

Balance Sheet
Location

 

Fair Value

 

 

Notional Amount

 

 

Balance Sheet
Location

 

Fair Value

 

 

 

(dollars in thousands)

 

 

(dollars in thousands)

 

Derivatives designated as hedging instruments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate contracts-cash flow hedging relationships

 

$

250,000

 

 

Other Assets

 

$

1,966

 

 

$

 

 

Other Liabilities

 

$

 

Total derivatives designated as hedging instruments

 

 

 

 

 

 

$

1,966

 

 

 

 

 

 

 

$

 

Derivatives not designated as hedging instruments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loan related derivative contracts

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate contracts

 

$

499,619

 

 

Other Assets

 

$

50,784

 

 

$

499,619

 

 

Other Liabilities

 

$

50,784

 

Risk participation agreements-out to counterparties

 

 

46,604

 

 

Other Assets

 

 

23

 

 

 

 

 

Other Liabilities

 

 

 

Risk participation agreements-in with counterparties

 

 

 

 

Other Assets

 

 

 

 

 

71,046

 

 

Other Liabilities

 

 

43

 

Total derivatives not designated as hedging instruments

 

 

 

 

 

 

$

50,807

 

 

 

 

 

 

 

$

50,827

 

 

The following tables present the changes to AOCI and AOCL as a result of cash flow hedge accounting as of the periods presented:

 

 

 

Three Months Ended September 30, 2023

 

 

 

Amount of Gain
or (Loss)
Recognized in
OCI

 

 

Amount of Gain
or (Loss)
Recognized in
OCI - Included
Component

 

 

Amount of Gain
or (Loss)
Recognized in
OCI - Excluded
Component

 

 

Location of Gain
or (Loss)

 

Amount of Gain
or (Loss)
Reclassified
from AOCL into
Income

 

 

Amount of Gain or (Loss) Reclassified from AOCL into Income Included Component

 

 

Amount of Gain or (Loss) Reclassified from AOCL into Income Excluded Component

 

 

 

(dollars in thousands)

 

 

 

 

(dollars in thousands)

 

 Interest rate contracts

 

$

(536

)

 

$

 

 

$

(536

)

 

Interest Income

 

$

(148

)

 

$

 

 

$

(148

)

 

 

 

Nine Months Ended September 30, 2023

 

 

 

Amount of Gain or (Loss) Recognized in OCI

 

 

Amount of Gain or (Loss) Recognized in OCI Included Component

 

 

Amount of Gain or (Loss) Recognized in OCI Excluded Component

 

 

Location of Gain or (Loss)

 

Amount of Gain or (Loss) Reclassified from AOCL into Income

 

 

Amount of Gain or (Loss) Reclassified from AOCL into Income Included Component

 

 

Amount of Gain or (Loss) Reclassified from AOCL into Income Excluded Component

 

 

 

(dollars in thousands)

 

 

 

 

(dollars in thousands)

 

 Interest rate contracts

 

$

(1,169

)

 

$

 

 

$

(1,169

)

 

Interest Income

 

$

(437

)

 

$

(96

)

 

$

(341

)

 

25


 

 

 

 

Three Months Ended September 30, 2022

 

 

 

Amount of Gain
or (Loss)
Recognized in
OCI

 

 

Amount of Gain
or (Loss)
Recognized in
OCI Included
Component

 

 

Amount of Gain
or (Loss)
Recognized in
OCI Excluded
Component

 

 

Location of Gain
or (Loss)

 

Amount of Gain
or (Loss)
Reclassified
from AOCI into
Income

 

 

Amount of Gain
or (Loss)
Reclassified
from AOCI into
Income Included
Component

 

 

Amount of Gain
or (Loss)
Reclassified
from AOCI into
Income
Excluded
Component

 

 

 

(dollars in thousands)

 

 

 

 

(dollars in thousands)

 

 Interest rate contracts

 

$

(209

)

 

$

59

 

 

$

(150

)

 

Interest Income

 

$

(20

)

 

$

29

 

 

$

(49

)

 

 

 

Nine Months Ended September 30, 2022

 

 

 

Amount of Gain or (Loss) Recognized in OCI

 

 

Amount of Gain or (Loss) Recognized in OCI - Included Component

 

 

Amount of Gain or (Loss) Recognized in OCI - Excluded Component

 

 

Location of Gain or (Loss)

 

Amount of Gain or (Loss) Reclassified from AOCI into Income

 

 

Amount of Gain or (Loss) Reclassified from AOCI into Income Included Component

 

 

Amount of Gain or (Loss) Reclassified from AOCI into Income Excluded Component

 

 

 

(dollars in thousands)

 

 

 

 

(dollars in thousands)

 

 Interest rate contracts

 

$

(2,267

)

 

$

634

 

 

$

(1,633

)

 

Interest Income

 

$

985

 

 

$

1,129

 

 

$

(144

)

 

The following tables present the effect of the Company’s derivative financial instruments that are not designated as hedging instruments on the consolidated statements of income as of the periods presented:

 

 

 

 

 

Amount of Gain or (Loss) Recognized in Income

 

 

 

 

 

Three Months Ended

 

 

 

 

 

September 30, 2023

 

 

September 30, 2022

 

 

 

Location of Gain or (Loss)

 

(dollars in thousands)

 

Other contracts

 

Loan-related derivative income

 

$

50

 

 

$

(55

)

 

 

 

 

 

 

Amount of Gain or (Loss) Recognized in Income

 

 

 

 

 

Nine Months Ended

 

 

 

 

 

September 30, 2023

 

 

September 30, 2022

 

 

 

Location of Gain or (Loss)

 

(dollars in thousands)

 

Other contracts

 

Loan-related derivative income

 

$

19

 

 

$

(165

)

 

Credit-risk-related Contingent Features

 

By entering into derivative transactions, the Company is exposed to credit risk to the extent that counterparties to the derivative contracts do not perform as required. Should a counterparty fail to perform under the terms of a derivative contract, the Company’s credit exposure on interest rate swaps is limited to the net positive fair value and accrued interest of all swaps with each counterparty. The Company seeks to minimize counterparty credit risk through credit approvals, limits, monitoring procedures, and obtaining collateral, where appropriate. Institutional counterparties must have an investment grade credit rating and be approved by the Company’s board of directors. As such, management believes the risk of incurring credit losses on derivative contracts with institutional counterparties is remote.

The Company has agreements with its derivative counterparties that contain a provision where if the Company defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then the Company could also be declared in default on its derivative obligations. In addition, the Company also has agreements with certain of its derivative counterparties that contain a provision where if the Company fails to maintain its status as a well-capitalized institution, then the counterparty could terminate the derivative position(s) and the Company would be required to settle its obligations under the agreements.

Balance Sheet Offsetting

 

Certain financial instruments may be eligible for offset in the consolidated balance sheet and/or subject to master netting arrangements or similar agreements. The Company’s derivative transactions with institutional counterparties are generally executed under International Swaps and Derivative Association (“ISDA”) master agreements which include “right of set-off” provisions. In such cases there is generally a legally enforceable right to offset recognized amounts and there may be an intention to settle such amounts on a net basis. Generally, the Company does not offset such financial instruments for financial reporting purposes.

 

The following tables present the information about financial instruments that are eligible for offset in the consolidated balance sheets at September 30, 2023 and December 31, 2022:

 

26


 

 

 

 

 

Gross Amounts Not Offset

 

 

 

 

 

 

Gross Amounts Recognized

 

 

Gross Amounts Offset

 

 

Net Amounts Recognized

 

 

Financial Instruments

 

 

Collateral Pledged (Received)

 

 

Net Amount

 

 

 

September 30, 2023

 

 

(dollars in thousands)

 

Offsetting of Derivative Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative Assets

 

$

66,421

 

 

$

 

 

$

66,421

 

 

$

4

 

 

$

(66,407

)

 

$

10

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Offsetting of Derivative Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative Liabilities

 

$

59,305

 

 

$

 

 

$

59,305

 

 

$

4

 

 

$

 

 

$

59,301

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Amounts Not Offset

 

 

 

 

 

 

Gross Amounts Recognized

 

 

Gross Amounts Offset

 

 

Net Amounts Recognized

 

 

Financial Instruments

 

 

Collateral Pledged (Received)

 

 

Net Amount

 

 

 

December 31, 2022

 

 

(dollars in thousands)

 

Offsetting of Derivative Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative Assets

 

$

52,773

 

 

$

 

 

$

52,773

 

 

$

48

 

 

$

(52,130

)

 

$

595

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Offsetting of Derivative Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative Liabilities

 

$

50,827

 

 

$

 

 

$

50,827

 

 

$

48

 

 

$

 

 

$

50,875

 

At September 30, 2023 and December 31, 2022, respectively, there were no derivatives in a net liability position related to these agreements.

 

17. FAIR VALUE MEASUREMENTS

The following is a summary of the carrying values and estimated fair values of the Company’s significant financial instruments as of the dates indicated:

 

 

 

September 30, 2023

 

 

December 31, 2022

 

 

 

Carrying
Value

 

 

Estimated
Fair Value

 

 

Carrying
Value

 

 

Estimated
Fair Value

 

 

 

(dollars in thousands)

 

Financial assets

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

25,353

 

 

$

25,353

 

 

$

30,719

 

 

$

30,719

 

Securities available for sale

 

 

136,253

 

 

 

136,253

 

 

 

153,416

 

 

 

153,416

 

Securities held to maturity

 

 

980,591

 

 

 

784,636

 

 

 

1,051,997

 

 

 

885,586

 

Loans, net

 

 

3,989,773

 

 

 

3,574,502

 

 

 

4,025,082

 

 

 

3,783,051

 

FHLB of Boston stock

 

 

12,321

 

 

 

12,321

 

 

 

6,264

 

 

 

6,264

 

Accrued interest receivable

 

 

15,255

 

 

 

15,255

 

 

 

14,118

 

 

 

14,118

 

Mortgage servicing rights

 

 

1,511

 

 

 

2,345

 

 

 

1,665

 

 

 

2,336

 

Interest rate contracts - cash flow hedge

 

 

799

 

 

 

799

 

 

 

1,966

 

 

 

1,966

 

Loan level interest rate swaps

 

 

59,287

 

 

 

59,287

 

 

 

50,784

 

 

 

50,784

 

Risk participation agreements out to counterparties

 

 

6

 

 

 

6

 

 

 

23

 

 

 

23

 

Interest rate contracts - fair value hedge

 

 

6,329

 

 

 

6,329

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Deposits, excluding wholesale deposits

 

 

4,082,582

 

 

 

4,078,271

 

 

 

4,433,817

 

 

 

4,429,190

 

Wholesale deposits

 

 

483,344

 

 

 

483,028

 

 

 

381,559

 

 

 

381,505

 

Borrowings

 

 

233,905

 

 

 

232,431

 

 

 

105,212

 

 

 

105,202

 

Loan level interest rate swaps

 

 

59,287

 

 

 

59,287

 

 

 

50,784

 

 

 

50,784

 

Risk participation agreements in with counterparties

 

 

18

 

 

 

18

 

 

 

43

 

 

 

43

 

 

27


 

The Company follows ASC Topic 820, Fair Value Measurements and Disclosures (“ASC 820”) for financial assets and liabilities. ASC Topic 820 defines fair value, establishes a framework for measuring fair value, and expands disclosure requirements about fair value measurements. ASC Topic 820, among other things, emphasizes that fair value is a market-based measurement, not an entity-specific measurement, and states that a fair value measurement should be determined based on the assumptions the market participants would use in pricing the asset or liability. In addition, ASC Topic 820 specifies a hierarchy of valuation techniques based on whether the types of valuation information (“inputs”) are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. These two types of inputs have created the following fair value hierarchy:

Level 1 – Quoted prices for identical assets or liabilities in active markets.
Level 2 – Quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in inactive markets, and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.
Level 3 – Valuations derived from techniques in which one or more significant inputs or significant value drivers are unobservable in the markets and which reflect the Company’s market assumptions.

Under ASC Topic 820, fair values are based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When available, the Company uses quoted market prices to determine fair value. If quoted prices are not available, fair value is based upon valuation techniques, such as matrix pricing or other models that use, where possible, current market-based or independently sourced market parameters, such as interest rates. If observable market-based inputs are not available, the Company uses unobservable inputs to determine appropriate valuation adjustments using methodologies applied consistently over time.

Valuation techniques based on unobservable inputs are highly subjective and require judgments regarding significant matters, such as the amount and timing of future cash flows and the selection of discount rates that may appropriately reflect market and credit risks.

Changes in these judgments often have a material impact on the fair value estimates. In addition, since these estimates are as of a specific point in time, they are susceptible to material near-term changes. The fair values disclosed do not reflect any premium or discount that could result from offering significant holdings of financial instruments at bulk sale, nor do they reflect the possible tax ramifications or estimated transaction costs. Changes in economic conditions may also dramatically affect the estimated fair values.

The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. Securities available for sale, derivative instruments, and hedges are recorded at fair value on a recurring basis. Additionally, from time to time, the Company may be required to record at fair value other assets on a nonrecurring basis, such as loans held for sale, mortgage servicing rights, other real estate owned, and individually evaluated collateral dependent loans. The Company uses an exit price notion for its fair value disclosures.

 

The following tables summarize certain assets and liabilities reported at fair value on a recurring basis:

 

 

 

Fair Value as of September 30, 2023

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

 

 

(dollars in thousands)

 

Measured on a recurring basis

 

 

 

 

 

 

 

 

 

 

 

 

Securities available for sale

 

 

 

 

 

 

 

 

 

 

 

 

U.S. GSE obligations

 

$

 

 

$

19,486

 

 

$

 

 

$

19,486

 

Mortgage-backed securities

 

 

 

 

 

116,767

 

 

 

 

 

 

116,767

 

Other assets

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swaps with clients

 

 

 

 

 

59,287

 

 

 

 

 

 

59,287

 

Risk participation agreements -out to counterparties

 

 

 

 

 

6

 

 

 

 

 

 

6

 

Interest rate contracts - cash flow hedge

 

 

 

 

 

799

 

 

 

 

 

 

799

 

Interest rate contracts - fair value hedge

 

 

 

 

 

6,329

 

 

 

 

 

 

6,329

 

Other liabilities

 

 

 

 

 

 

 

 

 

 

 

 

     Interest rate swaps with counterparties

 

 

 

 

 

59,287

 

 

 

 

 

 

59,287

 

Risk participation agreements-in with counterparties

 

 

 

 

 

18

 

 

 

 

 

 

18

 

 

28


 

 

 

 

Fair Value as of December 31, 2022

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

 

 

(dollars in thousands)

 

Measured on a recurring basis

 

 

 

 

 

 

 

 

 

 

 

 

Securities available for sale

 

 

 

 

 

 

 

 

 

 

 

 

U.S. GSE obligations

 

$

 

 

$

19,733

 

 

$

 

 

$

19,733

 

Mortgage-backed securities

 

 

 

 

 

132,683

 

 

 

 

 

 

132,683

 

Corporate debt securities

 

 

 

 

 

1,000

 

 

 

 

 

 

1,000

 

Other assets

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swaps with clients

 

 

 

 

 

50,784

 

 

 

 

 

 

50,784

 

Risk participation agreements-out to counterparties

 

 

 

 

 

23

 

 

 

 

 

 

23

 

Interest rate contracts

 

 

 

 

 

1,966

 

 

 

 

 

 

1,966

 

Other liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swaps with counterparties

 

 

 

 

 

50,784

 

 

 

 

 

 

50,784

 

Risk participation agreements-in with counterparties

 

 

 

 

 

43

 

 

 

 

 

 

43

 

 

The following tables present the carrying value of assets held at September 30, 2023 and December 31, 2022, which were measured at fair value on a non-recurring basis:

 

 

 

September 30, 2023

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

 

 

(dollars in thousands)

 

Items recorded at fair value on a non-recurring basis

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated collateral dependent loans

 

$

 

 

$

 

 

$

9,321

 

 

$

9,321

 

Total

 

$

 

 

$

 

 

$

9,321

 

 

$

9,321

 

 

 

 

December 31, 2022

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

 

 

(dollars in thousands)

 

Items recorded at fair value on a non-recurring basis

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated collateral dependent loans

 

$

 

 

$

 

 

$

103

 

 

$

103

 

Total

 

$

 

 

$

 

 

$

103

 

 

$

103

 

 

Individually evaluated collateral dependent loans. Collateral dependent loans are carried at the lower of cost or fair value of the collateral less estimated costs to sell which approximates fair value. The Company uses the appraisal value of the collateral and applies certain adjustments depending on the nature, quality, and type of collateral securing the loan.

 

There were no transfers between levels for the three and nine months ended September 30, 2023 or September 30, 2022.

 

The following is a description of the principal valuation methodologies used by the Company to estimate the fair values of its financial instruments:

 

Investment Securities

For investment securities, fair values are primarily based upon valuations obtained from a national pricing service which uses matrix pricing with inputs that are observable in the market or can be derived from, or corroborated by, observable market data. When available, quoted prices in active markets for identical securities are utilized.

Loans Held for Sale

For loans held for sale, fair values are estimated using projected future cash flows, discounted at rates based upon either trades of similar loans or mortgage-backed securities, or at current rates at which similar loans would be made to borrowers with similar credit ratings and for similar remaining maturities.

29


 

Loans

For most categories of loans, fair values are estimated using projected future cash flows, discounted at rates based upon current rates at which similar loans would be made to borrowers with similar credit ratings, and for similar remaining maturities. Projected estimated cash flows are adjusted for prepayment assumptions, liquidity premium assumptions, and credit loss assumptions. Loans that are deemed to be impaired in accordance with ASC 310, Receivables, are valued based upon the lower of cost or fair value of the underlying collateral.

Federal Home Loan Bank of Boston (“FHLB of Boston”) Stock

The fair value of FHLB of Boston stock equals its carrying value since such stock is only redeemable at its par value.

Deposits

The fair value of non-maturity deposit accounts is the amount payable on demand at the reporting date. This amount does not take into account the value of the Bank’s long-term relationships with core depositors. The fair value of fixed-maturity certificates of deposit is estimated using a replacement cost of funds approach and is based upon rates currently offered for deposits of similar remaining maturities.

Borrowings

For long-term borrowings, fair values are estimated using future cash flows, discounted at rates based upon current costs for debt securities with similar terms and remaining maturities.

Other Financial Assets and Liabilities

Cash and cash equivalents, accrued interest receivable, and short-term borrowings have fair values which approximate their respective carrying values because these instruments are payable on demand or have short-term maturities and present relatively low credit risk and interest rate risk.

Derivative Instruments and Hedges

The valuation of these instruments is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. The Company incorporates credit valuation adjustments to appropriately reflect nonperformance risk in the fair value measurements. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Company has considered the impact of netting and any applicable credit enhancements, such as collateral postings.

Off-Balance-Sheet Financial Instruments

In the course of originating loans and extending credit, the Company will charge fees in exchange for its commitment. While these commitment fees have value, the Company has not estimated their value due to the short-term nature of the underlying commitments and their immateriality.

Values Not Determined

In accordance with ASC Topic 820, the Company has not estimated fair values for non-financial assets, such as banking premises and equipment, goodwill, the intangible value of the Company’s portfolio of loans serviced for itself, and the intangible value inherent in the Company’s deposit relationships (i.e., core deposits), among others. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company.

 

30


 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following analysis discusses the changes in financial condition and results of operation of Cambridge Bancorp (together with its bank subsidiary, unless the context otherwise requires, the “Company”) and should be read in conjunction with the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022 (the “2022 Annual Report”), filed with the Securities and Exchange Commission (the “SEC”) on March 16, 2023.

Forward-Looking Statements

This report contains 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,” “project,” “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:

national, regional, and local economic conditions may be less favorable than expected, resulting in, among other things, increased charge-offs of loans, higher provisions for credit losses and/or reduced demand for the Company’s services;
disruptions to the credit and financial markets, either nationally or globally;
the failure to complete the proposed Merger (as defined below) of the Company and the Bank with Eastern Bankshares, Inc. (“Eastern”), imposition of adverse regulatory conditions in connection with regulatory approval of the Merger, disruption to the parties’ businesses as a result of the announcement and pendency of the Merger, the inability to realize expected cost savings or to implement integration plans and other adverse consequences associated with the Merger
the impact of the COVID-19 pandemic and actions taken in response to the COVID-19 pandemic on consumer confidence and on global and regional economies and economic activity;
a prolonged resurgence in the severity of the COVID-19 pandemic due to variants and mutations of the virus;
weakness in the real estate market, including the secondary residential mortgage market, which can affect, among other things, the value of collateral securing mortgage loans, mortgage loan originations and delinquencies, and profits on sales of mortgage loans;
legislative, regulatory, or accounting changes, including changes resulting from the adoption and implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), which may adversely affect the Company's business and/or competitive position, impose additional costs on the Company or cause the Company to change its business practices;
the Dodd-Frank Act’s consumer protection regulations which could adversely affect the Company’s business, financial condition, or results of operations;
disruptions in the Company’s ability to access capital markets which may adversely affect its capital resources and liquidity;
effects of changes in amounts of deposits on the Company's funding costs and net interest margin;
changes in non-performing assets;
future provisions for credit losses;
the Company’s heavy reliance on communications and information systems to conduct its business and reliance on third parties and affiliates to provide key components of its business infrastructure, any disruptions of which could interrupt the Company’s operations or increase the costs of doing business;
the failure of the Company’s financial reporting controls and procedures to prevent or detect all errors or fraud;
the Company’s dependence on the accuracy and completeness of information about clients and counterparties;
the fiscal and monetary policies of the federal government and its agencies;
the failure to satisfy capital adequacy and liquidity guidelines applicable to the Company;
downgrades in the Company’s credit rating;
changes in interest rates which could affect interest rate spreads and net interest income;
decrease in net interest margin due to increasing cost of funds in a rising interest rate environment; costs and effects of litigation, regulatory investigations, or similar matters;

31


 

inability to realize expected cost savings or to implement integration plans and other adverse consequences associated with the Company’s merger (the “Northmark Merger”) with Northmark Bank (“Northmark”).
a failure by the Company to effectively manage the risks the Company faces, including credit, operational and cyber security risks;
increased pressures from competitors (both banks and non-banks) and/or an inability of the Company to remain competitive in the financial services industry, particularly in the markets which the Company serves, and keep pace with technological changes;
unpredictable natural or other disasters, which could adversely impact the Company’s clients or operations;
a loss of client deposits, which could increase the Company’s funding costs;
the disparate impact that can result from having loans concentrated by loan type, industry segment, borrower type or location of the borrower or collateral;
changes in the creditworthiness of clients;
increased credit losses or impairment of goodwill and other intangibles;
negative public opinion which could damage the Company’s reputation and adversely impact business and revenues;
the Company depends on the expertise of key personnel, and if these individuals leave or change their roles without effective replacements, operations may suffer;
the Company may not be able to hire or retain additional qualified personnel, including those acquired in previous acquisitions, and recruiting and compensation costs may increase as a result of turnover, both of which may increase costs and reduce profitability and may adversely impact the Company’s ability to implement the Company’s business strategies; and
changes in the Company’s accounting policies or in accounting standards which could materially affect how the Company reports financial results and condition.

Except as required by law, 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.

OVERVIEW

The Company is a Massachusetts state-chartered, federally registered bank holding company headquartered in Cambridge, Massachusetts. The Company is a Massachusetts corporation formed in 1983 and has one bank subsidiary: Cambridge Trust Company (the “Bank”), formed in 1890. As of September 30, 2023, the Company had total assets of approximately $5.5 billion. The Bank operates 22 full-service banking offices in Eastern Massachusetts and New Hampshire. As a private bank, the Company focuses on four core services that center around client needs. The Company’s core services include Wealth Management, Commercial Banking, Consumer Lending, and Personal Banking. The Bank’s clients consist primarily of consumers and small- and medium-sized businesses in the communities and surrounding areas throughout Massachusetts and New Hampshire.

The Company’s Wealth Management Group has five offices, two in Massachusetts in Boston and Wellesley, and three in New Hampshire in Concord, Manchester, and Portsmouth. As of September 30, 2023, the Company had Assets under Management and Administration of approximately $4.3 billion. The Wealth Management Group offers comprehensive investment management, as well as trust administration, estate settlement, and financial planning services. The Company’s wealth management clients value personal service and depend on the commitment and expertise of the Company’s experienced banking, investment, and fiduciary professionals.

The Wealth Management Group customizes its investment portfolios to help clients meet their long-term financial goals. Through development of an appropriate asset allocation and disciplined security and fund selection, the Bank’s in-house investment team targets long-term capital growth while seeking to minimize downside risk. The Company’s internally developed, research-driven process is managed by a skilled team of portfolio managers and analysts. The Company builds portfolios consisting of the best investment ideas, focusing on individual global equities, fixed income securities, exchange-traded funds, and mutual funds.

The Company offers a wide range of services to commercial enterprises, non-profit organizations, and individuals. The Company emphasizes service to consumers and small- and medium-sized businesses in its market area. The Company originates commercial and industrial (“C&I”) loans, commercial real estate (“CRE”) loans, construction loans, consumer loans, and residential real estate loans (including one-to-four family and home equity lines of credit), and accepts savings, money market, time, and demand deposits. In addition, the Company offers a wide range of commercial and personal banking services which include cash management, online banking, mobile banking, and global payments.

32


 

The Company’s results of operations are largely dependent on net interest income, which is the difference between the interest earned on loans and securities and interest paid on deposits and borrowings, and non-interest income largely from its wealth management services. The results of operations are affected by the level of income and fees from loans, deposits, as well as operating expenses, the provision for (release of) credit losses, the impact of federal and state income taxes, the relative levels of interest rates, and local and national economic activity.

Through the Bank, the Company focuses on wealth management, the commercial banking business, and private banking for clients, including residential lending and personal banking. Within the commercial loan portfolio, the Company has traditionally been a CRE lender. However, in recent years the Company has diversified commercial operations within the areas of C&I lending to include Renewable Energy, and Innovation Banking, which works with primarily New England-based entrepreneurs, and asset-based lending that helps companies throughout New England and New York grow by borrowing against existing assets. Through its renewable energy lending efforts, the Company provides financing for the developers and operators of commercial renewable energy projects.

 

Merger with Eastern Bankshares, Inc.

 

On September 19, 2023, the Company, the Bank, Eastern, Eastern Bank, Eastern’s subsidiary bank, and Citadel MS 2023, Inc. a direct, wholly owned subsidiary of Eastern (“Merger Sub”) entered into an Agreement and Plan of Merger (the “Merger Agreement”). Pursuant to the terms and subject to the conditions set forth in the Merger Agreement, Eastern will acquire the Company and the Bank through the merger of Merger Sub with and into the Company, with the Company as the surviving entity (the “Merger”). As soon as reasonably practicable following the Merger, the Company will merge with and into Eastern, with Eastern as the surviving entity (the “Holdco Merger”). The Merger Agreement further provides that following the Holdco Merger, at a time to be determined by Eastern, the Bank will merge with and into Eastern Bank, with Eastern Bank as the surviving entity. Upon the terms and conditions set forth in the Merger Agreement, at the effective time of the Merger (the “Effective Time”) each share of Company common stock, par value $1.00 per share, outstanding immediately prior to the Effective Time, other than certain shares held by Eastern or the Company, will be converted into the right to receive 4.956 shares of common stock (the “Exchange Ratio”), par value $0.01 per share, of Eastern (“Eastern Common Stock”). Company shareholders will receive cash in lieu of fractional shares of Eastern Common Stock (the Exchange Ratio and any cash in lieu of fractional shares collectively, the “Merger Consideration”).

CRITICAL ACCOUNTING ESTIMATES

Estimates and assumptions are necessary in the application of certain accounting policies and can be susceptible to significant change. Critical accounting estimates are defined as those that involve a significant level of estimation uncertainty and have had, or could have a material impact on the Company’s financial condition of results of operation. The Company considers the allowance for credit losses and income taxes to be its critical accounting estimates.

 

See “Management’s Discussion and Analysis—Critical Accounting Estimates” in the Company’s 2022 Annual Report, for a detailed discussion of the Company’s critical accounting estimates.

 

Recent Accounting Developments

See NOTE 4 - Recently Issued and Adopted Accounting Guidance to the Unaudited Consolidated Financial Statements for details of recently issued accounting pronouncements and their expected impact on the Company’s consolidated financial statements.

RESULTS OF OPERATIONS

Results of Operations for the three months ended September 30, 2023 and September 30, 2022

General. Net income decreased by $8.1 million, or 55.2%, to $6.5 million for the three months ended September 30, 2023, as compared to net income of $14.6 million for the three months ended September 30, 2022. The decrease was primarily due to lower net interest and dividend income before the provision for credit losses of $7.6 million, higher noninterest expense of $3.3 million, partially offset by lower income tax expense of $2.3 million. Diluted earnings per share were $0.83 for the three months ended September 30, 2023, as compared to a diluted earnings per share of $2.07 for the three months ended September 30, 2022.

 

Net Interest and Dividend Income. Net interest and dividend income before the provision for credit losses for the three months ended September 30, 2023 decreased by $7.6 million, or 21.0%, to $28.6 million, as compared to $36.3 million for the three months ended September 30, 2022, primarily due to higher costs of funds, partially offset by an increase in average earning assets and higher yields on earning assets.

 

Interest on loans increased by $15.5 million, or 45.1%, for the three months ended September 30, 2023, as compared to the three months ended September 30, 2022, primarily due to higher yields combined with higher average loan balances.

33


 

Interest on deposits increased by $21.3 million, or 749.1%, for the three months ended September 30, 2023, as compared to the three months ended September 30, 2022, primarily due to higher costs of deposits combined with higher average balances.
Interest on borrowed funds increased by $1.7 million, or 151.5%, for the three months ended September 30, 2023, as compared to the three months ended September 30, 2022, primarily due to higher cost of borrowings combined with higher average balances.

Total average interest-earning assets increased by $324.5 million, or 6.6%, to $5.22 billion during the three months ended September 30, 2023, from $4.89 billion for the three months ended September 30, 2022, primarily due to growth in the loan portfolio (both organic and as a result of the Northmark merger). The Company’s net interest margin, on a fully taxable equivalent basis, decreased by 77 basis points to 2.18% for the three months ended September 30, 2023, as compared to 2.95% for the three months ended September 30, 2022, primarily due to higher cost of deposits and higher borrowing expenses.

Interest and Dividend Income. Total interest and dividend income increased by $15.4 million, or 38.3%, to $55.7 million for the three months ended September 30, 2023, as compared to $40.3 million for the three months ended September 30, 2022, primarily due to higher asset yields combined with higher average loan portfolio balances.

Interest Expense. Interest expense increased by $23.1 million to $27.1 million for the three months ended September 30, 2023, as compared to $4.0 million for the three months ended September 30, 2022, primarily driven by a combination of higher costs of deposits, higher borrowing expenses, and higher average deposit balances.

 

Average interest-bearing liabilities increased by $616.3 million, or 19.7%, to $3.74 billion during the three months ended September 30, 2023, from $3.12 billion for the three months ended September 30, 2022, primarily due to growth in the deposits (both organic and as a result of the Northmark Bank merger). The increase in interest-bearing liabilities was driven by an increase in average certificates of deposit balances of $613.6 million (inclusive of a $424.7 million increase in average wholesale certificates of deposits), an increase in average checking account balances of $464.5 million, and an increase in other borrowed funds of $38.5 million, partially offset by a decrease in average savings account balances of $302.8 million and a decrease in average money market accounts of $197.5 million. The cost of total deposits increased to 2.09% for the three months ended September 30, 2023, from 0.26% for the three months ended September 30, 2022. The cost of total deposits excluding wholesale deposits was 1.74% for the three months ended September 30, 2023, as compared to 0.24% for the three months ended September 30, 2022.

 

Provision for (Release of) Credit Losses. The Company recorded a provision for credit losses of $195,000 for the three months ended September 30, 2023, as compared to a provision for credit losses of $612,000 for the three months ended September 30, 2022. The Company recorded net loan charge-offs of $74,000 for the three months ended September 30, 2023 and net loan recoveries of $10,000 for the three months ended September 30, 2022.

 

Noninterest Income. Total noninterest income increased by $106,000, or 1.0%, to $10.5 million for the three months ended September 30, 2023, as compared to $10.4 million for the three months ended September 30, 2022, primarily as a result of higher wealth management fees, higher bank owned life insurance (“BOLI”) income, partially offset by lower loan related derivative income. Noninterest income was 26.9% of total revenues for the three months ended September 30, 2023.

 

Wealth management revenue increased by $274,000, or 3.3%, to $8.5 million for the three months ended September 30, 2023, as compared to $8.2 million for the quarter ended September 30, 2022. Wealth Management Assets under Management and Administration were $4.27 billion as of September 30, 2023, an increase of $208,575, or 5.1%, from $4.06 billion at December 31, 2022, primarily due to positive returns in the equity markets.
BOLI income increased by $53,000, or 36.8%, to $197,000 for the three months ended September 30, 2023, as compared to $144,000 for the three months ended September 30, 2022, primarily due to increases in the cash surrender value of the policies.
Loan-related derivative income decreased by $155,000, or 72.8%, to $58,000 for the three months ended September 30, 2023, as compared to $213,000 for the quarter ended September 30, 2022, as a result of lower loan swap volume combined with fair value adjustments.

 

34


 

The categories of Wealth management revenues are shown in the following table:

 

 

 

Three Months Ended

 

 

 

September 30, 2023

 

 

September 30, 2022

 

 

 

(dollars in thousands)

 

Wealth management revenues:

 

 

 

 

 

 

Trust and investment advisory fees

 

$

7,920

 

 

$

7,716

 

Financial planning fees and other service fees

 

 

593

 

 

 

523

 

Total wealth management revenues

 

$

8,513

 

 

$

8,239

 

 

The following table presents the changes in Wealth Management Assets under Management:

 

 

 

Three Months Ended

 

 

 

September 30, 2023

 

 

September 30, 2022

 

 

 

(dollars in thousands)

 

Wealth Management Assets under Management

 

 

 

 

 

 

Balance at the beginning of the period

 

$

4,099,169

 

 

$

3,844,993

 

Gross client asset inflows

 

 

181,772

 

 

 

155,061

 

Gross client asset outflows

 

 

(173,614

)

 

 

(189,622

)

Net market impact

 

 

(96,371

)

 

 

(147,398

)

Balance at the end of the period

 

$

4,010,956

 

 

$

3,663,034

 

Weighted average management fee

 

 

0.77

%

 

 

0.78

%

 

There were no significant changes to the wealth management average fee rates and fee structure for the three months ended September 30, 2023 and September 30, 2022.

 

Noninterest Expense. Total noninterest expense increased by $3.3 million, or 12.6%, to $29.6 million for the three months ended September 30, 2023, as compared to $26.3 million for the three months ended September 30, 2022, primarily driven by increases in non-operating expenses, FDIC insurance, professional services, and other expenses.

 

Non-operating expenses increased by $2.4 million to $2.6 million for the three months ended September 30, 2023, as compared to $150,000 for the three months ended September 30, 2022, primarily due to merger related expenses associated with the Eastern merger.
Marketing expense decreased by $196,000, or 26.8%, to $535,000, primarily due to timing of marketing spend.
Other expenses increased by $515,000, or 63.3%, to $1.3 million, primarily due to a combination of changes in net retirement benefit costs recorded in other expense combined with higher amortization of core deposit intangibles and higher costs associated with our insured deposit platform.
FDIC insurance increased by $317,000, or 70.0%, to $770,000, primarily due to an increase in insurance premium.

 

Income Tax Expense. The Company recorded a provision for income taxes of $2.8 million for the three months ended September 30, 2023, as compared to $5.2 million for the three months ended September 30, 2022. The Company’s effective tax rate was 30.0% for the three months ended September 30, 2023, as compared to 26.1% for the three months ended September 30, 2022. The increase in the effective tax rate was primarily due to the impact of non-deductible merger related expenses recorded during the period.

 

Results of Operations for the nine months ended September 30, 2023 and September 30, 2022

General. Net income decreased by $15.5 million, or 37.3%, to $26.1 million for the nine months ended September 30, 2023, as compared to net income of $41.6 million for the nine months ended September 30, 2022. The decrease was primarily due to lower net interest and dividend income before the provision for credit losses of $9.7 million, lower noninterest income of $1.7 million, and higher noninterest expense of $9.8 million, partially offset by lower income tax expense of $5.8 million. Diluted earnings per share were $3.32 for the nine months ended September 30, 2023, as compared to a diluted earnings per share of $5.90 for the nine months ended September 30, 2022.

 

Net Interest and Dividend Income. Net interest and dividend income before the provision for credit losses for the nine months ended September 30, 2023 decreased by $9.7 million, or 9.5%, to $92.7 million, as compared to $102.3 million for the nine months ended September 30, 2022, primarily due to higher cost of funds, partially offset by an increase in average earning assets and higher yields on earning assets.

 

Interest on loans increased by $50.0 million, or 53.3%, for the nine months ended September 30, 2023, as compared to the nine months ended September 30, 2022, primarily due to higher yields combined with higher average loan balances.

35


 

Interest on deposits increased by $53.6 million for the nine months ended September 30, 2023, as compared to the nine months ended September 30, 2022, primarily due to higher costs of deposits combined with higher average balances.
Interest on borrowed funds increased by $7.2 million for the nine months ended September 30, 2023, as compared to the nine months ended September 30, 2022, primarily due to higher cost of borrowings combined with higher average balances.

Total average interest-earning assets increased by $442.1 million, or 9.2%, to $5.26 billion during the nine months ended September 30, 2023, from $4.82 billion for the nine months ended September 30, 2022, primarily due to growth in the loan portfolio (both organic and as a result of the Northmark Merger). The Company’s net interest margin, on a fully taxable equivalent basis, decreased by 49 basis points to 2.36% for the nine months ended September 30, 2023, as compared to 2.85% for the nine months ended September 30, 2022, primarily due to higher cost of deposits and higher borrowing expenses.

Interest and Dividend Income. Total interest and dividend income increased by $51.1 million, or 46.3%, to $161.6 million for the nine months ended September 30, 2023, as compared to $110.4 million for the nine months ended September 30, 2022, primarily due to higher asset yields combined with higher average loan portfolio balances.

Interest Expense. Interest expense increased by $60.8 million, or 748.8%, to $68.9 million for the nine months ended September 30, 2023, as compared to $8.1 million for the nine months ended September 30, 2022, primarily driven by a combination of higher costs of deposits, higher borrowing expenses, and higher average deposit balances and higher average borrowings.

 

Average interest-bearing liabilities increased by $629.1 million or 20.5% to $3.69 billion during the nine months ended September 30, 2023, from $3.06 billion for the nine months ended September 30, 2022, primarily due to growth in deposits (both organic and as a result of the Northmark Bank merger). The increase in interest-bearing liabilities was primarily driven by an increase in average certificates of deposit balances of $555.8 million (inclusive of a $426.6 million increase in average wholesale certificates of deposit), an increase in average checking account balances of $330.3 million, and an increase in average borrowings of $149.6 million, partially offset by a decrease in the average savings account balances of $243.8 million and a decrease in average money market accounts of $162.8 million. The average cost of deposits increased to 1.74% for the nine months ended September 30, 2023, from 0.20% for the nine months ended September 30, 2022. The cost of total deposits excluding wholesale deposits increased to 1.42% for the nine months ended September 30, 2023, as compared to 0.19% for the nine months ended September 30, 2022.

 

Provision for Credit Losses. The Company recorded a provision for credit losses of $335,000 for the nine months ended September 30, 2023, as compared to a provision for credit losses of $200,000, for the nine months ended September 30, 2022. The Company recorded net loan charge-offs of $80,000 for the nine months ended September 30, 2023, as compared to net loan recoveries of $37,000 for the nine months ended September 30, 2022.

 

Noninterest Income. Total noninterest income decreased by $1.7 million, or 5.0%, to $31.3 million for the nine months ended September 30, 2023, as compared to $32.9 million for the nine months ended September 30, 2022. This change was primarily the result of lower BOLI income, lower wealth management revenue, and lower other income, partially offset by higher deposit account fees. Noninterest income was 25.2% of total revenues for the nine months ended September 30, 2023.

 

BOLI income decreased by $1.1 million, or 65.6%, to $576,000 for the nine months ended September 30, 2023, from $1.7 million for the nine months ended September 30, 2022, primarily due to a gain related to a death benefit claim and a policy surrender that occurred during the nine months ended September 30, 2022, while no such benefit claims or policy surrenders occurred during the nine months ended September 30, 2023.
Wealth management revenue decreased by $409,000 or 1.6%, to $24.5 million for the nine months ended September 30, 2023, from $24.9 million for the nine months ended September 30, 2022 primarily due to the effect of lower wealth management assets during the nine months ended September 30, 2023, as compared to the comparative period in 2022. Wealth Management Assets under Management and Administration were $4.3 billion as of September 30, 2023, an increase of $208.6 million, or 5.1%, from $4.1 billion at December 31, 2022, primarily due to positive returns in the equity markets.
Other income decreased by $448,000, or 18.8%, to $1.9 million for the nine months ended September 30, 2023, from $2.4 million for the nine months ended September 30, 2022, primarily due to lower income associated with success fees of Innovation Banking loans recognized during the nine months ended September 30, 2023, as compared to the nine months ended September 30, 2022.
Deposit account fees increased by $520,000, or 25.0%, to $2.6 million for the nine months ended September 30, 2023, from $2.1 million for the nine months ended September 30, 2022, primarily due to increased fee revenue from commercial deposit sweep products as a result of higher interest rates.

36


 

The categories of Wealth management revenues are shown in the following table:

 

 

 

Nine Months Ended

 

 

 

September 30, 2023

 

 

September 30, 2022

 

 

 

(dollars in thousands)

 

Wealth management revenues:

 

 

 

 

 

 

Trust and investment advisory fees

 

$

23,575

 

 

$

24,209

 

Financial planning fees and other service fees

 

 

951

 

 

 

726

 

Total wealth management revenues

 

$

24,526

 

 

$

24,935

 

 

The following table presents the changes in Wealth Management Assets under Management:

 

 

 

Nine Months Ended

 

 

 

September 30, 2023

 

 

September 30, 2022

 

 

 

(dollars in thousands)

 

Wealth Management Assets under Management

 

 

 

 

 

 

Balance at the beginning of the period

 

$

3,875,747

 

 

$

4,656,183

 

Gross client asset inflows

 

 

434,258

 

 

 

571,787

 

Gross client asset outflows

 

 

(487,975

)

 

 

(772,460

)

Net market impact

 

 

188,926

 

 

 

(792,476

)

Balance at the end of the period

 

$

4,010,956

 

 

$

3,663,034

 

Weighted average management fee

 

 

0.78

%

 

 

0.78

%

 

There were no significant changes to the wealth management average fee rates and fee structure for the nine months ended September 30, 2023 and September 30, 2022.

 

Noninterest Expense. Total noninterest expense increased by $9.8 million, or 12.5%, to $88.3 million for the nine months ended September 30, 2023, as compared to $78.5 million for the nine months ended September 30, 2022, primarily driven by an increase in non-operating expense, salary and benefits expense, FDIC insurance expense, and marketing expenses, as compared to the nine months ended September 30, 2022.

Non-operating expense increased by $6.1 million to $6.5 million for the nine months ended September 30, 2023, from $396,000 for the nine months ended September 30, 2022, primarily due to merger expenses associated with the Eastern and Northmark mergers.
Salaries and employee benefits expense increased by $1.0 million, or 1.9%, to $52.7 million for the nine months ended September 30, 2023, from $51.8 million, for the nine months ended September 30, 2022, primarily due to higher overall staffing levels associated with the Northmark Merger, normal merit increases, and increases in employee benefit costs, partially offset by savings from a reduction in head count during the year.
Marketing expense increased by $446,000, or 38.0%, to $1.6 million for the nine months ended September 30, 2023, from $1.2 million, for the nine months ended September 30, 2022, primarily due to increased deposit campaigns during the period.

 

Income Tax Expense. The Company recorded a provision for income taxes of $9.2 million for the nine months ended September 30, 2023, as compared to $15.0 million for the nine months ended September 30, 2022. The Company’s effective tax rate was 26.1% for the nine months ended September 30, 2023, as compared to 26.5% for the nine months ended September 30, 2022.

 

CHANGES IN FINANCIAL CONDITION

 

Total Assets. Total assets decreased by $107.7 million, or 1.9%, from $5.56 billion at December 31, 2022, to $5.45 billion at September 30, 2023.

Cash and Cash Equivalents. Cash and cash equivalents decreased by $5.4 million, or 17.5%, from $30.7 million at December 31, 2022 to $25.4 million at September 30, 2023.

Investment Securities. The Company’s total investment securities portfolio decreased by $88.6 million, or 7.3%, from $1.21 billion at December 31, 2022 to $1.12 billion at September 30, 2023, primarily due to paydowns during the period.

Loans. Total loans decreased by $34.9 million, or 0.9%, from $4.06 billion at December 31, 2022 to $4.03 billion at September 30, 2023.

 

37


 

Residential real estate loans decreased by $21.4 million, or 1.3%, from $1.65 billion at December 31, 2022 to $1.63 billion at September 30, 2023.
Commercial real estate loans increased by $8.0 million, or 0.4%, from $1.91 billion at December 31, 2022 to $1.92 billion at September 30, 2023.
Home equity loans decreased by $18.0 million, or 16.2%, from $111.4 million at December 31, 2022 to $93.4 million at September 30, 2023.
Commercial and industrial loans increased by $5.1 million, or 1.5%, from $350.7 million at December 31, 2022 to $355.8 million at September 30, 2023.
Consumer loans decreased by $8.7 million, or 23.1%, from $37.6 million at December 31, 2022 to $28.9 million at September 30, 2023.

Bank-Owned Life Insurance (BOLI). The Company invests in BOLI to help offset the costs of its employee benefit plan obligations. BOLI also generally provides noninterest income that is nontaxable. At September 30, 2023, the Company’s investment in BOLI was $35.1 million, representing an increase of $579,000 from $34.5 million at December 31, 2022, primarily due to the increases in the cash surrender value of the policies during 2023.

Deposits. Total deposits, inclusive of wholesale certificates of deposit, decreased by $249.5 million, or 5.2%, to $4.57 billion at September 30, 2023 from $4.82 billion at December 31, 2022. Excluding wholesale certificates of deposit, total deposits decreased by $351.2 million, or 7.9%, at September 30, 2023 from December 31, 2022.

 

Certificates of deposit totaled $828.4 million at September 30, 2023, representing an increase of $241.8 million, or 41.2%, from $586.6 million at December 31, 2022. Total wholesale certificates of deposit, which are included within certificates of deposit, were $483.3 million and $381.6 million at September 30, 2023 and December 31, 2022, respectively.
The cost of total deposits for the nine months ended September 30, 2023 was 1.74%, as compared to 0.20% for the nine months ended September 30, 2022. The cost of total deposits excluding wholesale certificates of deposit was 1.42% for the nine months ended September 30, 2023 and 0.19% for the nine months ended September 30, 2022. At September 30, 2023, the spot cost of non-wholesale deposits was 1.82%.

Borrowings. At September 30, 2023, borrowings consisted of advances from the Federal Home Loan Bank of Boston (“FHLB of Boston”), and advances from the FHLB of Boston and reverse repurchase agreements at December 31, 2022. Total borrowings increased by $128.7 million, or 122.3%, to $233.9 million at September 30, 2023, from $105.2 million at December 31, 2022.

Shareholders’ Equity. Total shareholders’ equity increased by $8.5 million, or 1.6%, to $526.0 million at September 30, 2023, from $517.6 million at December 31, 2022, primarily due to net income of $26.1 million, partially offset by dividend payments of $15.7 million.

The Company’s common equity to assets ratio increased to 9.65% at September 30, 2023, from 9.31% at December 31, 2022. The Company’s ratio of tangible common equity to tangible assets increased to 8.45% at September 30, 2023, from 8.12% at December 31, 2022.

Book value per share increased to $67.04 at September 30, 2023, from $66.38 at December 31, 2022. Tangible book value per share increased to $57.96 at September 30, 2023, from $57.15 at December 31, 2022.

38


 

Generally Accepted Accounting Principles in the United States (“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.

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

Operating Net Income / Operating Diluted Earnings Per Share

 

September 30,

 

 

June 30,

 

 

 

September 30,

 

 

September 30,

 

 

September 30,

 

 

 

2023

 

 

2023

 

 

 

2022

 

 

2023

 

 

2022

 

 

 

(dollars in thousands, except share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income (a GAAP measure)

 

$

6,544

 

 

$

7,115

 

 

 

$

14,616

 

 

$

26,075

 

 

$

41,590

 

Less: Death benefits on bank owned life insurance ("BOLI") and policy surrender

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,157

)

Add: Mergers and contractual termination expenses (1)

 

 

2,567

 

 

 

3,491

 

 

 

 

150

 

 

 

6,482

 

 

 

396

 

Less: Tax effect of BOLI surrender

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

736

 

Less: Tax effect of non-operating expenses (2)

`

 

(56

)

 

 

(976

)

 

 

 

(38

)

 

 

(1,150

)

 

 

(101

)

Operating Net Income (a non-GAAP measure)

 

$

9,055

 

 

$

9,630

 

 

 

$

14,728

 

 

$

31,407

 

 

$

41,464

 

Less: Dividends and Undistributed Earnings
   Allocated to Participating Securities (a non-GAAP measure)

 

 

(7

)

 

 

(3

)

 

 

 

(74

)

 

 

(26

)

 

 

(206

)

Operating Net Income Applicable to Common
   Shareholders (a non-GAAP measure)

 

$

9,048

 

 

$

9,627

 

 

 

$

14,654

 

 

$

31,381

 

 

$

41,258

 

Weighted Average Diluted Shares

 

 

7,862,584

 

 

 

7,854,955

 

 

 

 

7,018,832

 

 

 

7,848,061

 

 

 

7,010,197

 

Operating Diluted Earnings Per Share
   (a non-GAAP measure)

 

$

1.15

 

 

$

1.23

 

 

 

$

2.09

 

 

$

4.00

 

 

$

5.89

 

 

(1)
The Company recorded merger expenses of $2.6 million associated with the Eastern merger for the three and nine months ended September 30, 2023, and $3.6 million of merger expenses for the nine months ended September 30, 2023, respectively, associated with the Northmark merger.
(2)
The net tax benefit associated with non-operating items is determined by assessing whether each non-operating item is included or excluded from net taxable income and applying the Company’s combined marginal tax rate to only those items included in net taxable income.

The following tables summarize the calculation of the Company’s tangible common equity ratio and tangible book value per share for the periods indicated:

 

 

 

September 30, 2023

 

 

June 30, 2023

 

 

December 31, 2022

 

 

September 30, 2022

 

 

 

(dollars in thousands)

 

Tangible Common Equity:

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders' equity (GAAP)

 

$

526,031

 

 

$

527,004

 

 

$

517,552

 

 

$

446,290

 

Less: Goodwill and acquisition related intangibles (GAAP)

 

 

(71,312

)

 

 

(71,535

)

 

 

(71,982

)

 

 

(54,258

)

Tangible Common Equity (a non-GAAP measure)

 

$

454,719

 

 

$

455,469

 

 

$

445,570

 

 

$

392,032

 

Total assets (GAAP)

 

$

5,452,030

 

 

$

5,489,622

 

 

$

5,559,737

 

 

$

5,143,359

 

Less: Goodwill and acquisition related intangibles (GAAP)

 

 

(71,312

)

 

 

(71,535

)

 

 

(71,982

)

 

 

(54,258

)

Tangible assets (a non-GAAP measure)

 

$

5,380,718

 

 

$

5,418,087

 

 

$

5,487,755

 

 

$

5,089,101

 

Tangible Common Equity Ratio (a non-GAAP
   measure)

 

 

8.45

%

 

 

8.41

%

 

 

8.12

%

 

 

7.70

%

 

 

 

 

 

 

 

 

 

 

 

 

 

Tangible Book Value Per Share:

 

 

 

 

 

 

 

 

 

 

 

 

Tangible Common Equity (a non-GAAP measure)

 

$

454,719

 

 

$

455,469

 

 

$

445,570

 

 

$

392,032

 

Common shares outstanding

 

 

7,846,041

 

 

 

7,845,868

 

 

 

7,796,440

 

 

 

7,007,113

 

Tangible Book Value Per Share (a non-GAAP measure)

 

$

57.96

 

 

$

58.05

 

 

$

57.15

 

 

$

55.95

 

INVESTMENT SECURITIES

The Company’s securities portfolio consists of securities available for sale (“AFS”) and securities held to maturity (“HTM”). The largest component of the securities portfolio is mortgage-backed securities, all of which are issued by U.S. government agencies or U.S. government-sponsored enterprises.

Securities available for sale consist of certain U.S. Government Sponsored Enterprises (“GSE”) obligations, U.S. GSE mortgage-backed securities and corporate debt securities. These securities are carried at fair value, and unrealized gains and losses, net of applicable income taxes, are recognized as a separate component of shareholders’ equity.

39


 

The fair value of securities available for sale totaled $136.3 million and included gross unrealized gains of $1,000 and gross unrealized losses of $31.7 million at September 30, 2023. At December 31, 2022, the fair value of securities available for sale totaled $153.4 million and included gross unrealized gains of $7,000 and gross unrealized losses of $28.6 million.

Securities classified as held to maturity consist of certain U.S. GSE mortgage-backed securities, corporate debt securities, and state, county, and municipal securities. Securities held to maturity as of September 30, 2023 are carried at their amortized cost of $980.6 million. At December 31, 2022, the amortized cost of securities held to maturity totaled $1.05 billion.

The following table sets forth the fair value of available for sale investment securities, the amortized costs of held to maturity investment securities, and the percentage distribution at the dates indicated:

 

 

 

September 30,

 

 

December 31,

 

 

 

2023

 

 

2022

 

 

 

Amount

 

 

Percent

 

 

Amount

 

 

Percent

 

 

 

(dollars in thousands)

 

Available for sale securities

 

 

 

 

 

 

 

 

 

 

 

 

U.S. GSE obligations

 

$

19,486

 

 

 

14

%

 

$

19,733

 

 

 

13

%

Mortgage-backed securities

 

 

116,767

 

 

 

86

%

 

 

132,683

 

 

 

86

%

Corporate debt securities

 

 

 

 

 

%

 

 

1,000

 

 

 

1

%

Total securities available for sale

 

$

136,253

 

 

 

100

%

 

$

153,416

 

 

 

100

%

Held to maturity securities

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury Notes

 

$

4,023

 

 

 

%

 

$

3,970

 

 

 

%

Mortgage-backed securities

 

 

890,160

 

 

 

91

%

 

 

951,372

 

 

 

91

%

Corporate debt securities

 

 

250

 

 

 

%

 

 

250

 

 

 

%

Municipal securities

 

 

86,158

 

 

 

9

%

 

 

96,405

 

 

 

9

%

Total securities held to maturity

 

$

980,591

 

 

 

100

%

 

$

1,051,997

 

 

 

100

%

Total

 

$

1,116,844

 

 

 

 

 

$

1,205,413

 

 

 

 

 

The following table sets forth the composition and maturities of investment securities. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

 

 

 

September 30, 2023

 

 

 

Within One Year

 

 

After One, But
Within Five Years

 

 

After Five, But
Within Ten Years

 

 

After Ten Years

 

 

Total

 

 

 

Amortized Cost

 

 

Weighted
Average
Yield (1)

 

 

Amortized Cost

 

 

Weighted
Average
Yield (1)

 

 

Amortized Cost

 

 

Weighted
Average
Yield (1)

 

 

Amortized Cost

 

 

Weighted
Average
Yield (1)

 

 

Amortized Cost

 

 

Weighted
Average
Yield (1)

 

 

 

(dollars in thousands)

 

Available for sale
   securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. GSE
   obligations

 

$

 

 

 

 

 

$

9,998

 

 

 

0.5

%

 

$

5,000

 

 

 

2.3

%

 

$

8,000

 

 

 

2.6

%

 

$

22,998

 

 

 

1.6

%

Mortgage-backed
   securities

 

 

 

 

 

 

 

 

12,119

 

 

 

1.9

%

 

 

37,607

 

 

 

1.5

%

 

 

95,179

 

 

 

1.7

%

 

 

144,905

 

 

 

1.6

%

Total available
   for sale
   securities

 

$

 

 

 

0.0

%

 

$

22,117

 

 

 

1.3

%

 

$

42,607

 

 

 

1.6

%

 

$

103,179

 

 

 

1.7

%

 

$

167,903

 

 

 

1.6

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Held to maturity
   securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. treasury Notes

 

$

3,064

 

 

 

4.2

%

 

$

959

 

 

 

4.1

%

 

$

 

 

 

0.0

%

 

$

 

 

 

0.0

%

 

$

4,023

 

 

 

4.2

%

Mortgage-backed
   securities

 

 

 

 

 

 

 

 

24,211

 

 

 

2.5

%

 

 

50,175

 

 

 

1.8

%

 

 

815,774

 

 

 

1.8

%

 

 

890,160

 

 

 

1.8

%

Corporate debt
   securities

 

 

250

 

 

 

2.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

250

 

 

 

2.0

%

Municipal
   securities

 

 

3,559

 

 

 

3.2

%

 

 

22,455

 

 

 

3.6

%

 

 

22,583

 

 

 

3.1

%

 

 

37,561

 

 

 

2.7

%

 

 

86,158

 

 

 

3.1

%

Total held to
   maturity
   securities

 

$

6,873

 

 

 

3.6

%

 

$

47,625

 

 

 

3.1

%

 

$

72,758

 

 

 

2.2

%

 

$

853,335

 

 

 

1.9

%

 

$

980,591

 

 

 

2.0

%

Total

 

$

6,873

 

 

 

3.6

%

 

$

69,742

 

 

 

2.5

%

 

$

115,365

 

 

 

2.0

%

 

$

956,514

 

 

 

1.9

%

 

$

1,148,494

 

 

 

1.9

%

(1) Weighted Average Yield is shown on a fully taxable equivalent basis using a federal tax rate of 21%.

The Company did not record an allowance for credit losses on its investment securities as of September 30, 2023 or December 31, 2022. The Company regularly reviews debt securities for expected credit loss using both qualitative and quantitative criteria, as necessary based on the composition of the portfolio at period end.

40


 

LOANS

The Company’s lending activities are conducted principally in Eastern Massachusetts and Southern New Hampshire. The Company grants single- and multi-family residential loans, C&I loans, CRE loans, construction loans, and a variety of consumer loans. Most of the loans granted by the Company are secured by real estate collateral. Repayment of the Company’s residential loans is generally dependent on the health of the employment market in the borrowers’ geographic areas and that of the general economy, with liquidation of the underlying real estate collateral being typically viewed as the primary source of repayment in the event of borrower default. The repayment of C&I loans depends primarily on the cash flow and credit worthiness of the borrower and secondarily on the underlying collateral provided by the borrower. As borrower cash flow may be difficult to predict, liquidation of the underlying collateral securing these loans is typically viewed as the primary source of repayment in the event of borrower default. However, collateral typically consists of equipment, inventory, accounts receivable, or other business assets that may fluctuate in value, so the liquidation of collateral in the event of default is often an insufficient source of repayment. For renewable energy loans, cash flow is generally dependent on energy output and is generated from the contracted sale of energy credits or wholesale energy sales as well as state mandated incentive programs. For Paycheck Protection Program (“PPP”) loans, the Small Business Administration (“SBA”) generally guarantees 100% of the PPP loans made to eligible borrowers. The entire principal amount of the borrower’s PPP loan, including any accrued interest, is eligible to be reduced by the loan forgiveness amount subject to program requirements. The Company’s CRE loans are primarily made based on the cash flow from the collateral property and secondarily on the underlying collateral provided by the borrower, with liquidation of the underlying real estate collateral typically being viewed as the primary source of repayment in the event of borrower default. The Company’s construction loans are primarily made based on the borrower’s expected ability to execute and the future completed value of the collateral property, with sale of the underlying real estate collateral typically being viewed as the primary source of repayment.

The following table sets forth the composition of the loan portfolio at the dates indicated:

 

 

 

September 30, 2023

 

 

December 31, 2022

 

 

 

2023

 

 

% of
Total

 

 

2022

 

 

% of
Total

 

 

 

(dollars in thousands)

 

Residential mortgage

 

 

 

 

 

 

 

 

 

 

 

 

Mortgages - fixed rate

 

$

802,631

 

 

 

20

%

 

$

902,968

 

 

 

22

%

Mortgages - adjustable rate

 

 

766,104

 

 

 

19

%

 

 

703,958

 

 

 

17

%

Construction

 

 

52,048

 

 

 

1

%

 

 

35,299

 

 

 

1

%

Deferred costs, net of unearned fees

 

 

6,677

 

 

 

0

%

 

 

6,613

 

 

 

0

%

Total residential mortgages

 

 

1,627,460

 

 

 

40

%

 

 

1,648,838

 

 

 

40

%

Commercial mortgage

 

 

 

 

 

 

 

 

 

 

 

 

Mortgages - non-owner occupied

 

 

1,641,197

 

 

 

41

%

 

 

1,592,732

 

 

 

39

%

Mortgages - owner occupied

 

 

168,725

 

 

 

4

%

 

 

183,591

 

 

 

5

%

Construction

 

 

110,301

 

 

 

3

%

 

 

135,782

 

 

 

3

%

Deferred costs, net of unearned fees

 

 

2,232

 

 

 

0

%

 

 

2,318

 

 

 

0

%

Total commercial mortgages

 

 

1,922,455

 

 

 

48

%

 

 

1,914,423

 

 

 

47

%

Home equity

 

 

 

 

 

 

 

 

 

 

 

 

Home equity - lines of credit

 

 

90,230

 

 

 

2

%

 

 

108,961

 

 

 

3

%

Home equity - term loans

 

 

2,886

 

 

 

0

%

 

 

2,098

 

 

 

0

%

Deferred costs, net of unearned fees

 

 

248

 

 

 

0

%

 

 

292

 

 

 

0

%

Total home equity

 

 

93,364

 

 

 

2

%

 

 

111,351

 

 

 

3

%

Commercial and industrial

 

 

 

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

 

354,368

 

 

 

9

%

 

 

349,026

 

 

 

9

%

PPP loans

 

 

841

 

 

 

0

%

 

 

1,384

 

 

 

0

%

Unearned fees, net of deferred costs

 

 

587

 

 

 

0

%

 

 

240

 

 

 

0

%

Total commercial and industrial

 

 

355,796

 

 

 

9

%

 

 

350,650

 

 

 

9

%

Consumer

 

 

 

 

 

 

 

 

 

 

 

 

Secured

 

 

27,312

 

 

 

1

%

 

 

35,679

 

 

 

1

%

Unsecured

 

 

1,565

 

 

 

0

%

 

 

1,897

 

 

 

0

%

Deferred costs, net of unearned fees

 

 

15

 

 

 

0

%

 

 

18

 

 

 

0

%

Total consumer

 

 

28,892

 

 

 

1

%

 

 

37,594

 

 

 

1

%

Total loans

 

$

4,027,967

 

 

 

100

%

 

$

4,062,856

 

 

 

100

%

 

Residential Mortgage. Residential real estate loans held in portfolio were $1.63 billion at September 30, 2023, a decrease of $21.4 million, or 1.3%, from $1.65 billion at December 31, 2022, and consisted of one-to-four family residential mortgage loans or loans for the construction thereof. The residential mortgage portfolio represented 40% of total loans at both September 30, 2023 and December 31, 2022.

41


 

The average loan balance outstanding in the residential portfolio was $523,000 and the largest individual residential mortgage loan outstanding was $4.1 million as of September 30, 2023. At September 30, 2023, this loan was performing in accordance with its original terms.

The Bank offers fixed and adjustable-rate residential mortgage and construction loans with maturities up to 30 years. One-to-four family residential mortgage loans are generally underwritten according to Federal National Mortgage Association (“Fannie Mae”) or Federal Home Loan Mortgage Corporation (“Freddie Mac”) guidelines and refer to loans that conform to such guidelines as “conforming loans.” The Bank generally originates and purchases both fixed and adjustable-rate mortgage loans in amounts up to the maximum conforming loan limits as established by the Federal Housing Finance Agency, which increased to $726,200 in 2023 from $647,200 in 2022, for one-unit properties. In addition, the Bank also offers loans above conforming lending limits typically referred to as “jumbo” loans and interest only loans. These loans are typically underwritten to jumbo conforming guidelines; however, the Bank may choose to hold a jumbo loan within its portfolio with underwriting criteria that does not exactly match conforming guidelines. The Bank may also, from time to time, purchase residential loans that are either jumbo, conforming, or meet its Community Reinvestment Act (“CRA”) requirements. Purchases have historically been made to satisfy CRA requirements for lending to low- and moderate-income borrowers within the Bank's CRA Assessment Area.

Generally, residential construction loans are based on complete value per plans and specifications, with loan proceeds used to construct the house for single family primary residence. Loans are provided for terms up to 12 months during the construction phase, with loan-to-values that generally do not exceed 80% on as complete basis. The loans then convert to permanent financing at terms up to 360 months.

The Company does not offer reverse mortgages, nor does it offer loans that provide for negative amortization of principal, such as “Option ARM” loans, where the borrower can pay less than the interest owed on the loan, resulting in an increased principal balance during the life of the loan. The Company does not offer “subprime loans” (loans that are made with low down payments to borrowers with weakened credit histories typically characterized by payment delinquencies, previous charge-offs, judgments, bankruptcies, or borrowers with questionable repayment capacity as evidenced by low credit scores or high debt-burden ratios) or Alt-A loans (defined as loans having less than full documentation).

Residential real estate loans are originated both for sale to the secondary market, as well as for retention in the Bank’s loan portfolio. The decision to sell a loan to the secondary market or retain within the portfolio is determined based on a variety of factors, including, but not limited to, the Bank’s asset/liability position, the current interest rate environment, and client preference.

 

Indemnification. In general, the Company does not sell loans with recourse, except to the extent that it arises from standard loan-sale contract provisions. These provisions cover violations of representations and warranties and, under certain circumstances, first payment default by borrowers. These indemnifications may include the repurchase of loans by the Company and are considered customary provisions in the secondary market for conforming mortgage loan sales. Repurchases and losses have been rare, and no provision is made for losses at the time of sale. There were no such repurchases for the three months and nine months ended September 30, 2023 or September 30, 2022.

The Company was servicing mortgage loans sold to others without recourse of approximately $182.6 million at September 30, 2023 and $191.9 million at December 31, 2022.

The table below presents residential real estate loan origination activity for the periods indicated:

 

 

 

For the Nine Months Ended September 30,

 

 

 

2023

 

 

2022

 

 

 

(dollars in thousands)

 

Originations for retention in portfolio

 

$

130,984

 

 

$

351,890

 

Originations for sale to the secondary market

 

 

4,780

 

 

 

4,515

 

Total

 

$

135,764

 

 

$

356,405

 

 

Loans are sold with servicing retained or released. The table below presents residential real estate loan sale activity for the periods indicated:

 

For the Nine Months Ended September 30,

 

 

2023

 

 

2022

 

 

(dollars in thousands)

 

Loans sold with servicing rights retained

$

4,136

 

 

$

5,834

 

Loans sold with servicing rights released

 

 

 

 

 

Total

$

4,136

 

 

$

5,834

 

 

42


 

 

Loans sold with the retention of servicing typically result in the capitalization of servicing rights. Loan servicing rights are included in other assets and subsequently amortized as an offset to other income over the estimated period of servicing. The net balance of capitalized servicing rights totaled $1.5 million and $1.7 million at September 30, 2023 and December 31, 2022, respectively.

Commercial Mortgage (“CRE”). CRE loans totaled $1.92 billion as of September 30, 2023, and $1.91 billion at December 31, 2022. The CRE loan portfolio represented 48% and 47% of total loans at September 30, 2023 and December 31, 2022, respectively. The average loan balance outstanding in this portfolio was $1.8 million, and the largest individual CRE loan outstanding was $28.6 million as of September 30, 2023. At September 30, 2023, this commercial mortgage was performing in accordance with its original terms.

CRE loans are secured by a variety of property types, inclusive of multi-family dwellings, retail facilities, office buildings, commercial mixed use, lodging, industrial and warehouse properties, and other specialized properties.

Generally, CRE loans are for terms of up to 10 years, with loan-to-values that generally do not exceed 75%. Amortization schedules are long-term, and thus, a balloon payment is generally due at maturity. Under most circumstances, the Bank will offer to rewrite or otherwise extend the loan at prevailing interest rates.

Generally, commercial construction loans are speculative in nature, with loan proceeds used to acquire and develop real estate property for sale or rental. Loans are typically provided for terms up to 36 months during the construction phase, with loan-to-values that generally do not exceed 75% on both an “as is” and “as complete and stabilized” basis. Construction projects are primarily for the development of residential property types, inclusive of one-to-four family and multifamily properties.

Home Equity. The home equity portfolio totaled $93.4 million and $111.4 million at September 30, 2023 and December 31, 2022, respectively. The home equity portfolio represented 2% and 3% of total loans at September 30, 2023 and December 31, 2022, respectively. At September 30, 2023, the largest home equity line of credit was $2.0 million and had an outstanding balance of $2.0 million. At September 30, 2023, this line of credit was performing in accordance with its original terms.

Home equity lines of credit are extended as both first and second mortgages on owner-occupied residential properties in the Bank’s market area. Home equity lines of credit are generally underwritten with the same criteria that the Company uses to underwrite one-to-four family residential mortgage loans.

 

Home equity lines of credit are revolving lines of credit, which generally have a term between 15 and 20 years, with draws available for the first 10 years. The 15-year lines of credit are interest only during the first 10 years and amortize on a five-year basis thereafter. The 20-year lines of credit are interest only during the first 10 years and amortize on a 10-year basis thereafter. The Company generally originates home equity lines of credit with loan-to-value ratios of up to 80% when combined with the principal balance of the existing first mortgage loan, although loan-to-value ratios may occasionally exceed 80% on a case-by-case basis. Maximum combined loan-to-values are determined based on an applicant’s loan/line amount and the estimated property value. Lines of credit above $1.0 million generally will not exceed combined loan-to-value of 75%. Rates are adjusted monthly based on changes in a designated market index. The Company also offers home equity term loans, which are extended as second mortgages on owner-occupied residential properties in its market area. Home equity term loans are fixed rate second mortgage loans, which generally have a term between five and 20 years.

Commercial and Industrial (“C&I”). The C&I portfolio totaled $355.8 million and $350.7 million at September 30, 2023 and December 31, 2022, respectively. The C&I portfolio represented 9% of total loans at both September 30, 2023 and December 31, 2022. The average loan balance outstanding in this portfolio was $401,000, and the largest individual C&I loan outstanding was $18.0 million as of September 30, 2023. At September 30, 2023, this loan was performing in accordance with its original terms.

The Company’s C&I loan clients represent various small- and middle-market established businesses involved in professional and financial services, accommodation and food services, utilities, health care, wholesale trade, manufacturing, distribution, retailing, and non-profits. Most clients are privately owned businesses with markets that range from local to national in scope. Many of the loans to this segment are secured by liens on corporate assets and the personal guarantees of the principals. The Company also makes loans to entrepreneurial and technology businesses, where regional economic strength or weakness impacts the relative risks in this loan category, in addition to renewable energy lending which is more specialized in nature. The Company has expanded its exposure within renewable energy lending but otherwise there are no significant concentrations in any one business sector, and loan risks are generally diversified among many borrowers.

At September 30, 2023, commercial solar loans totaled $118.6 million and the average loan balance outstanding in this portfolio was $1.8 million. The largest individual loan outstanding was $7.3 million and was performing in accordance with its original terms at September 30, 2023.

Consumer Loans. The consumer loan portfolio totaled $28.9 million at September 30, 2023 and $37.6 million at December 31, 2022. Consumer loans represented 1% of the total loan portfolio at both September 30, 2023 and December 31, 2022. The average loan balance outstanding in this portfolio was $10,000 and the largest individual consumer loan outstanding was $2.0 million as of September 30, 2023.

43


 

At September 30, 2023, this loan was performing in accordance with its original terms.

Consumer loans include secured and unsecured loans, lines of credit, and personal installment loans. Unsecured consumer loans generally have greater risk compared to longer-term loans secured by improved, owner-occupied real estate, particularly consumer loans that are secured by rapidly depreciable assets. The secured consumer loans and lines portfolio are generally fully secured by pledged assets, such as bank accounts or investments.

Loan Portfolio Maturities. The following table summarizes the dollar amount of loans maturing in the Company’s portfolio based on their loan type and contractual terms to maturity at September 30, 2023. The table does not include any estimate of prepayments, which can significantly shorten the average life of all loans and may cause the actual repayment experience to differ from that shown below. Demand loans, loans having no stated repayment schedule or maturity, and overdraft loans are reported as being due in one year or less.

 

 

 

September 30, 2023

 

 

 

One Year
or Less

 

 

One to
Five Years

 

 

After Five Years through Fifteen Years

 

 

After Fifteen Years

 

 

Total

 

 

 

(dollars in thousands)

 

Residential mortgage

 

$

824

 

 

$

12,502

 

 

$

90,604

 

 

$

1,523,530

 

 

$

1,627,460

 

Commercial mortgage

 

 

151,349

 

 

 

638,974

 

 

 

1,013,227

 

 

 

118,905

 

 

 

1,922,455

 

Home equity

 

 

1,823

 

 

 

10,476

 

 

 

34,382

 

 

 

46,683

 

 

 

93,364

 

Commercial and industrial

 

 

47,729

 

 

 

157,457

 

 

 

81,898

 

 

 

68,712

 

 

 

355,796

 

Consumer

 

 

28,229

 

 

 

346

 

 

 

317

 

 

 

 

 

 

28,892

 

Total

 

$

229,954

 

 

$

819,755

 

 

$

1,220,428

 

 

$

1,757,830

 

 

$

4,027,967

 

 

Loan Portfolio by Interest Rate Type. The following table summarizes the dollar amount of loans in the portfolio based on whether the loan has a fixed, adjustable, or floating rate of interest at September 30, 2023. Floating rate loans are tied to a market index while adjustable-rate loans are adjusted based on the contractual terms of the loan.

 

 

 

September 30, 2023

 

 

 

Fixed

 

 

Adjustable

 

 

Floating

 

 

Total

 

 

 

(dollars in thousands)

 

Residential mortgage

 

$

828,258

 

 

$

799,202

 

 

$

 

 

$

1,627,460

 

Commercial mortgage

 

 

880,898

 

 

 

432,731

 

 

 

608,826

 

 

 

1,922,455

 

Home equity

 

 

2,687

 

 

 

627

 

 

 

90,050

 

 

 

93,364

 

Commercial and industrial

 

 

54,603

 

 

 

22,681

 

 

 

278,512

 

 

 

355,796

 

Consumer

 

 

907

 

 

 

 

 

 

27,985

 

 

 

28,892

 

Total

 

$

1,767,353

 

 

$

1,255,241

 

 

$

1,005,373

 

 

$

4,027,967

 

 

NON-PERFORMING LOANS, MODIFICATIONS, AND TROUBLED DEBT RESTRUCTURINGS

The composition of nonperforming loans is as follows:

 

 

 

September 30,

 

 

December 31,

 

 

 

 

2023

 

 

2022

 

 

 

 

(dollars in thousands)

 

 

Non-performing loans

 

$

7,778

 

 

$

5,839

 

 

Troubled debt restructurings

 

 

 

 

 

703

 

 

Total non-performing loans

 

$

7,778

 

 

$

6,542

 

 

Non-performing loans as a percentage of gross loans

 

 

0.19

%

 

 

0.16

%

 

Non-performing loans as a percentage of total assets

 

 

0.14

%

 

 

0.12

%

 

 

Total non-performing loans increased by $1.9 million, or 33%, at September 30, 2023, as compared to December 31, 2022, primarily due to an increase in residential and commercial loans on non-accrual, partially offset by a decrease in home equity loans on non-accrual.

 

The Company continues to closely monitor the portfolio of non-performing loans for which management has concerns regarding the ability of the borrowers to perform. The majority of the loans are secured by real estate and are considered to have adequate collateral value to cover the loan balances at September 30, 2023 and December 31, 2022, although such values may fluctuate with changes in the economy and the real estate market.

44


 

In addition to the monitoring and review of loan performance internally, the Company has contracted with an independent organization to review the Company’s C&I and CRE loan portfolios.

 

Non-accrual Loans. Loans are typically placed on non-accrual status when any payment of principal and/or interest is 90 days or more past due unless the collateral is sufficient to cover both principal and interest and the loan is in the process of collection. The Company monitors closely the performance of its loan portfolio. The status of delinquent loans, as well as situations identified as potential problems, is reviewed on a regular basis by management.

 

Modifications and Restructurings. The Company adopted ASU 2022-02, which eliminates the recognition and measurement of a TDR. Due to the removal of the TDR designation, the Company evaluates all loan restructurings according to the accounting guidance for loan modifications to determine if the restructuring results in a new loan or a continuation of the existing loan. Loan modifications to borrowers experiencing financial difficulty that result in a change in the timing or amount of contractual cash flows include situations where there is principal forgiveness, interest rate reductions, other-than-insignificant payment delays, term extensions, and combinations of the listed modifications. Modification of a loan in lieu of aggressively enforcing the collection of the loan may benefit the Company by increasing the ultimate probability of collection.

 

Modified loans are classified as accruing or non-accruing based on management’s assessment of the collectability of the loan. Loans which are already on non-accrual status at the time of the modification generally remain on non-accrual status for approximately six months or longer before management considers such loans for return to accruing status. Accruing modified loans are placed into non-accrual status if and when the borrower fails to comply with the modification terms and management deems it unlikely that the borrower will return to a status of compliance in the near term.

 

At September 30, 2023, the Company had no loan modifications or restructurings due to borrower financial difficulty.

ALLOWANCE FOR CREDIT LOSSES

The following table summarizes information related to the Company’s allowance for credit losses on loans for the periods indicated:

 

 

 

At and For the Nine Months Ended

 

 

At and For the Year Ended

 

 

 

September 30,

 

 

December 31,

 

 

 

2023

 

 

2022

 

 

 

(dollars in thousands)

 

Period-end loans outstanding (net of unearned fees and deferred costs)

 

$

4,027,967

 

 

$

4,062,856

 

Loans on non-accrual

 

$

7,778

 

 

$

5,839

 

Allowance for credit losses at end of period

 

$

38,194

 

 

$

37,774

 

Ratio of allowance for credit losses on loans to loans on non-accrual

 

 

491.05

%

 

 

646.93

%

Ratio of allowance for credit losses to loans outstanding

 

 

0.95

%

 

 

0.93

%

 

The level of charge-offs depends on many factors, including the national and regional economy. Cyclical lagging factors may result in charge-offs being higher than historical levels. Although the allowance is allocated between categories, the entire allowance is available to absorb losses attributable to all loan categories. Management believes that the allowance for credit losses is adequate.

 

The following table presents the allocation of the allowance for credit losses for loans by loan category:

 

 

 

 

 

 

 

September 30, 2023

 

 

December 31, 2022

 

 

 

Allowance Amount

 

 

% of Allowance

 

 

% of Total Loans

 

 

Allowance Amount

 

 

% of Allowance

 

 

% of Total Loans

 

 

 

(dollars in thousands)

 

Residential mortgages

 

$

8,921

 

 

 

23

%

 

 

40

%

 

$

13,321

 

 

 

35

%

 

 

40

%

Commercial mortgages

 

 

22,964

 

 

 

60

 

 

 

48

 

 

 

19,086

 

 

50

 

 

47

 

Home equity

 

 

618

 

 

 

2

 

 

 

2

 

 

 

573

 

 

2

 

 

3

 

Commercial and industrial

 

 

5,053

 

 

 

13

 

 

 

9

 

 

 

4,153

 

 

11

 

 

9

 

Consumer

 

 

638

 

 

 

2

 

 

 

1

 

 

 

641

 

 

2

 

 

1

 

Total Allowance

 

$

38,194

 

 

 

100

%

 

 

100

%

 

$

37,774

 

 

 

100

%

 

 

100

%

 

SOURCES OF FUNDS

General. Deposits traditionally have been the Company's primary source of funds for its investment and lending activities. The Company also borrows from the FHLB of Boston or the Federal Reserve Bank of Boston (“FRB of Boston”) and utilizes repurchase agreements and wholesale deposits to supplement cash flow needs, to lengthen the maturities of liabilities for interest rate risk management purposes, and to manage its cost of funds.

45


 

The Company’s additional sources of funds are scheduled payments and prepayments of principal and interest on loans and investment securities, fee income, and proceeds from the sales of loans and securities.

Deposits. The Company accepts deposits primarily from clients in the communities in which its branches and offices are located, as well as from small- and medium-sized businesses and other clients throughout its lending area. The Company relies on its competitive pricing and products, convenient locations, and client service to attract and retain deposits. The Company offers a variety of deposit accounts with a range of interest rates and terms. Deposit accounts consist of relationship checking for consumers and businesses, statement savings accounts, certificates of deposit, money market accounts, interest on lawyer trust accounts, commercial and regular checking accounts, and individual retirement accounts. Deposit rates and terms are based primarily on current business strategies, market interest rates, liquidity requirements, and the Company's deposit growth goals. The Company may also access the wholesale deposit market for funding.

The following table sets forth the Company’s deposits for the periods indicated:

 

 

 

September 30, 2023

December 31, 2022

 

 

 

 

Amount

 

 

Percent

 

 

Amount

 

 

Percent

 

 

 

 

(dollars in thousands)

 

 

Demand deposits (non-interest bearing)

 

$

1,036,849

 

 

 

25.1

 

%

$

1,366,395

 

 

 

28.4

 

%

Interest-bearing checking

 

 

1,134,270

 

 

 

23.0

 

 

 

908,961

 

 

 

18.9

 

 

Money market

 

 

1,005,820

 

 

 

21.4

 

 

 

1,162,773

 

 

 

24.1

 

 

Savings

 

 

560,597

 

 

 

14.4

 

 

 

790,628

 

 

 

16.4

 

 

Retail certificates of deposit under $250,000

 

 

198,107

 

 

 

3.0

 

 

 

117,532

 

 

 

2.5

 

 

Retail certificates of deposit of $250,000 or greater

 

 

146,939

 

 

 

1.9

 

 

 

87,528

 

 

 

1.8

 

 

Wholesale certificates of deposit

 

 

483,344

 

 

 

11.2

 

 

 

381,559

 

 

 

7.9

 

 

Total

 

$

4,565,926

 

 

 

100.0

 

%

$

4,815,376

 

 

 

100.0

 

%

 

At September 30, 2023, the Company had a total of $345.0 million in certificates of deposit, excluding wholesale deposits, of which $320.8 million had remaining maturities of one year or less. As of September 30, 2023 and December 31, 2022, the Company had a total of $483.3 million and $381.6 million of wholesale deposits, respectively.

 

Borrowings. Total borrowings were $233.9 million at September 30, 2023, an increase of $128.7 million, as compared to $105.2 million at December 31, 2022. The Company’s borrowings consisted of advances from the FHLB of Boston at September 30, 2023 and the FHLB of Boston and repurchase agreements at December 31, 2022. FHLB of Boston advances are collateralized by a blanket pledge agreement on the Company’s FHLB of Boston stock and residential mortgages held in the Bank’s portfolios.

 

The Company’s remaining borrowing capacity at the FHLB of Boston at September 30, 2023 was approximately $744.5 million. In addition, the Company has a $10.0 million line of credit with the FHLB of Boston and a $10 million line of credit with a correspondent bank.

 

In March 2023, the Federal Reserve Board announced the creation of a new Bank Term Funding Program (“BTFP”). The BTFP offers loans of up to one year in length to banks, savings associations, credit unions, and other eligible depository institutions pledging U.S. Treasuries, agency debt and mortgage-backed securities, and other qualifying assets as collateral. These assets will be valued at par.

 

The Company had no borrowings outstanding with the FRB of Boston at September 30, 2023. The Company’s borrowing capacity at the FRB of Boston at September 30, 2023 was approximately $1.78 billion, inclusive of approximately $202.9 million in estimated borrowing capacity through the FRB Term Funding program if the Company were to pledge assets under the BTFP.

 

The Company periodically enters into repurchase agreements with its larger deposit and commercial clients as part of its cash management services which are typically overnight borrowings. There were no repurchase agreements with clients at September 30, 2023. Repurchase agreements with clients totaled $5.0 million at December 31, 2022

NET INTEREST MARGIN

Net interest income represents the difference between interest earned, primarily on loans and investments, and interest paid on funding sources, primarily deposits and borrowings. Interest rate spread is the difference between the average rate earned on total interest-earning assets and the average rate paid on total interest-bearing liabilities. Net interest margin is the amount of net interest income, on a fully taxable-equivalent basis, expressed as a percentage of average interest-earning assets. The average rate earned on earning assets is the amount of annualized taxable equivalent interest income expressed as a percentage of average earning assets. The average rate paid on interest-bearing liabilities is equal to annualized interest expense as a percentage of average interest-bearing liabilities.

46


 

The following table sets forth the distribution of the Company’s daily average assets, liabilities and shareholders’ equity, and average rates earned or paid on a fully taxable equivalent basis for each of the periods indicated:

 

 

 

Three Months Ended

 

 

 

September 30, 2023

 

 

June 30, 2023

 

 

September 30, 2022

 

 

 

Average
Balance

 

 

Interest
Income/
Expenses (1)

 

 

Rate
Earned/
Paid (1)

 

 

Average
Balance

 

 

Interest
Income/
Expenses (1)

 

 

Rate
Earned/
Paid (1)

 

 

Average
Balance

 

 

Interest
Income/
Expenses (1)

 

 

Rate
Earned/
Paid (1)

 

 

 

(dollars in thousands)

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-earning assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans (2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Taxable

 

$

3,967,048

 

 

$

49,535

 

 

 

4.95

%

 

$

3,978,078

 

 

$

47,731

 

 

 

4.81

%

 

$

3,537,808

 

 

$

34,056

 

 

 

3.82

%

Tax-exempt

 

 

53,012

 

 

 

503

 

 

 

3.76

 

 

 

51,359

 

 

 

484

 

 

 

3.78

 

 

 

48,235

 

 

 

464

 

 

 

3.82

 

Securities available for
   sale (3)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Taxable

 

 

170,451

 

 

 

682

 

 

 

1.59

 

 

 

175,361

 

 

 

693

 

 

 

1.59

 

 

 

191,050

 

 

 

677

 

 

 

1.41

 

Securities held to maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Taxable

 

 

907,447

 

 

 

4,155

 

 

 

1.82

 

 

 

927,768

 

 

 

4,264

 

 

 

1.84

 

 

 

994,790

 

 

 

4,424

 

 

 

1.76

 

Tax-exempt

 

 

87,961

 

 

 

685

 

 

 

3.09

 

 

 

93,420

 

 

 

721

 

 

 

3.10

 

 

 

97,618

 

 

 

760

 

 

 

3.09

 

Cash and cash equivalents

 

 

33,152

 

 

 

133

 

 

 

1.59

 

 

 

37,391

 

 

 

164

 

 

 

1.76

 

 

 

25,095

 

 

 

41

 

 

 

0.65

 

Total interest-earning
   assets (4)

 

 

5,219,071

 

 

 

55,693

 

 

 

4.23

%

 

 

5,263,377

 

 

 

54,057

 

 

 

4.12

%

 

 

4,894,596

 

 

 

40,422

 

 

 

3.28

%

Non-interest-earning
   assets

 

 

279,306

 

 

 

 

 

 

 

 

 

270,384

 

 

 

 

 

 

 

 

 

237,087

 

 

 

 

 

 

 

Allowance for credit losses

 

 

(38,044

)

 

 

 

 

 

 

 

 

(38,099

)

 

 

 

 

 

 

 

 

(34,517

)

 

 

 

 

 

 

Total assets

 

$

5,460,333

 

 

 

 

 

 

 

 

$

5,495,662

 

 

 

 

 

 

 

 

$

5,097,166

 

 

 

 

 

 

 

LIABILITIES AND
   SHAREHOLDERS’
   EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing deposits

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Checking accounts

 

$

1,166,179

 

 

$

5,694

 

 

 

1.94

%

 

$

1,150,334

 

 

$

4,985

 

 

 

1.74

%

 

$

701,729

 

 

$

141

 

 

 

0.08

%

Savings accounts

 

 

584,638

 

 

 

1,532

 

 

 

1.04

 

 

 

624,749

 

 

 

1,469

 

 

 

0.94

 

 

 

887,404

 

 

 

385

 

 

 

0.17

 

Money market accounts

 

 

986,619

 

 

 

8,088

 

 

 

3.25

 

 

 

970,828

 

 

 

7,292

 

 

 

3.01

 

 

 

1,184,081

 

 

 

2,003

 

 

 

0.67

 

Certificates of deposit

 

 

771,237

 

 

 

8,850

 

 

 

4.55

 

 

 

633,722

 

 

 

6,294

 

 

 

3.98

 

 

 

157,622

 

 

 

317

 

 

 

0.80

 

Total interest-bearing
   deposits

 

 

3,508,673

 

 

 

24,164

 

 

 

2.73

 

 

 

3,379,633

 

 

 

20,040

 

 

 

2.38

 

 

 

2,930,836

 

 

 

2,846

 

 

 

0.39

 

Other borrowed funds

 

 

229,005

 

 

 

2,887

 

 

 

5.00

 

 

 

346,755

 

 

 

4,343

 

 

 

5.02

 

 

 

190,543

 

 

 

1,148

 

 

 

2.39

 

Total interest-bearing
   liabilities

 

 

3,737,678

 

 

 

27,051

 

 

 

2.87

%

 

 

3,726,388

 

 

 

24,383

 

 

 

2.62

%

 

 

3,121,379

 

 

 

3,994

 

 

 

0.51

%

Non-interest-bearing
   liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Demand deposits

 

 

1,078,554

 

 

 

 

 

 

 

 

 

1,138,259

 

 

 

 

 

 

 

 

 

1,429,649

 

 

 

 

 

 

 

Other liabilities

 

 

117,042

 

 

 

 

 

 

 

 

 

105,249

 

 

 

 

 

 

 

 

 

100,651

 

 

 

 

 

 

 

Total liabilities

 

 

4,933,274

 

 

 

 

 

 

 

 

 

4,969,896

 

 

 

 

 

 

 

 

 

4,651,679

 

 

 

 

 

 

 

Shareholders’ equity

 

 

527,059

 

 

 

 

 

 

 

 

 

525,766

 

 

 

 

 

 

 

 

 

445,487

 

 

 

 

 

 

 

Total liabilities &
   shareholders’
   equity

 

$

5,460,333

 

 

 

 

 

 

 

 

$

5,495,662

 

 

 

 

 

 

 

 

$

5,097,166

 

 

 

 

 

 

 

Net interest income on a
   fully taxable equivalent
   basis

 

 

 

 

 

28,642

 

 

 

 

 

 

 

 

 

29,674

 

 

 

 

 

 

 

 

 

36,428

 

 

 

 

Less taxable equivalent
   adjustment

 

 

 

 

 

(249

)

 

 

 

 

 

 

 

 

(253

)

 

 

 

 

 

 

 

 

(256

)

 

 

 

Net interest income

 

 

 

 

$

28,393

 

 

 

 

 

 

 

 

$

29,421

 

 

 

 

 

 

 

 

$

36,172

 

 

 

 

Net interest spread (5)

 

 

 

 

 

 

 

 

1.36

%

 

 

 

 

 

 

 

 

1.49

%

 

 

 

 

 

 

 

 

2.77

%

Net interest margin (6)

 

 

 

 

 

 

 

 

2.18

%

 

 

 

 

 

 

 

 

2.26

%

 

 

 

 

 

 

 

 

2.95

%

 

(1)
Annualized on a fully taxable equivalent basis calculated using a federal tax rate of 21%.
(2)
Non-accrual loans are included in average amounts outstanding.
(3)
Average balances of securities available for sale calculated utilizing amortized cost.
(4)
FHLB of Boston stock balance is excluded from interest-earning assets and dividend income is excluded from interest income.
(5)
Net interest rate spread represents the difference between the weighted average yield on interest-earning assets, inclusive of PPP loans outstanding during 2023 and 2022, 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, inclusive of PPP loans outstanding during 2023 and 2022.

 

47


 

 

 

 

Nine Months Ended

 

 

 

September 30, 2023

 

 

September 30, 2022

 

 

 

Average
Balance

 

 

Interest
Income/
Expenses(1)

 

 

Rate
Earned/
Paid (1)

 

 

Average
Balance

 

 

Interest
Income/
Expenses (1)

 

 

Rate
Earned/
Paid (1)

 

 

 

(dollars in thousands)

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-earning assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans (2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Taxable

 

$

3,977,097

 

 

$

142,599

 

 

 

4.79

%

 

$

3,421,389

 

 

$

92,695

 

 

 

3.62

%

Tax-exempt

 

 

51,807

 

 

 

1,463

 

 

 

3.78

 

 

 

47,241

 

 

 

1,356

 

 

 

3.84

 

Securities available for sale (3)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Taxable

 

 

175,404

 

 

 

2,089

 

 

 

1.59

 

 

 

197,698

 

 

 

1,998

 

 

 

1.35

 

Securities held to maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Taxable

 

 

927,667

 

 

 

12,755

 

 

 

1.84

 

 

 

981,692

 

 

 

12,503

 

 

 

1.70

 

Tax-exempt

 

 

92,171

 

 

 

2,147

 

 

 

3.11

 

 

 

101,135

 

 

 

2,383

 

 

 

3.15

 

Cash and cash equivalents

 

 

40,393

 

 

 

624

 

 

 

2.07

 

 

 

73,306

 

 

 

137

 

 

 

0.25

 

Total interest-earning assets (4)

 

 

5,264,539

 

 

 

161,677

 

 

 

4.11

%

 

 

4,822,461

 

 

 

111,072

 

 

 

3.08

%

Non-interest-earning assets

 

 

272,826

 

 

 

 

 

 

 

 

 

236,034

 

 

 

 

 

 

 

Allowance for credit losses

 

 

(37,976

)

 

 

 

 

 

 

 

 

(34,554

)

 

 

 

 

 

 

Total assets

 

$

5,499,389

 

 

 

 

 

 

 

 

$

5,023,941

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’
   EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing deposits

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Checking accounts

 

$

1,066,566

 

 

$

12,705

 

 

 

1.59

%

 

$

736,257

 

 

$

234

 

 

 

0.04

%

Savings accounts

 

 

659,518

 

 

 

4,358

 

 

 

0.88

 

 

 

903,333

 

 

 

744

 

 

 

0.11

 

Money market accounts

 

 

1,028,602

 

 

 

21,841

 

 

 

2.84

 

 

 

1,191,414

 

 

 

5,104

 

 

 

0.57

 

Certificates of deposit

 

 

699,489

 

 

 

21,244

 

 

 

4.06

 

 

 

143,648

 

 

 

504

 

 

 

0.47

 

Total interest-bearing deposits

 

 

3,454,175

 

 

 

60,148

 

 

 

2.33

%

 

 

2,974,652

 

 

 

6,586

 

 

 

0.30

%

Other borrowed funds

 

 

238,093

 

 

 

8,780

 

 

 

4.93

 

 

 

88,520

 

 

 

1,535

 

 

 

2.32

 

Total interest-bearing liabilities

 

 

3,692,268

 

 

 

68,928

 

 

 

2.50

%

 

 

3,063,172

 

 

 

8,121

 

 

 

0.35

%

Non-interest-bearing liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Demand deposits

 

 

1,168,468

 

 

 

 

 

 

 

 

 

1,423,808

 

 

 

 

 

 

 

Other liabilities

 

 

114,376

 

 

 

 

 

 

 

 

 

97,350

 

 

 

 

 

 

 

Total liabilities

 

 

4,975,112

 

 

 

 

 

 

 

 

 

4,584,330

 

 

 

 

 

 

 

Shareholders’ equity

 

 

524,277

 

 

 

 

 

 

 

 

 

439,611

 

 

 

 

 

 

 

Total liabilities & shareholders’ equity

 

$

5,499,389

 

 

 

 

 

 

 

 

$

5,023,941

 

 

 

 

 

 

 

Net interest income on a fully taxable equivalent
   basis

 

 

 

 

 

92,749

 

 

 

 

 

 

 

 

 

102,951

 

 

 

 

Less taxable equivalent adjustment

 

 

 

 

 

(759

)

 

 

 

 

 

 

 

 

(786

)

 

 

 

Net interest income

 

 

 

 

$

91,990

 

 

 

 

 

 

 

 

$

102,165

 

 

 

 

Net interest spread (5)

 

 

 

 

 

 

 

 

1.61

%

 

 

 

 

 

 

 

 

2.72

%

Net interest margin (6)

 

 

 

 

 

 

 

 

2.36

%

 

 

 

 

 

 

 

 

2.85

%

 

(1)
Annualized on a fully taxable equivalent basis calculated using a federal tax rate of 21%.
(2)
Non-accrual loans are included in average amounts outstanding.
(3)
Average balances of securities available for sale calculated utilizing amortized cost.
(4)
FHLB of Boston stock balance is excluded from interest-earning assets and dividend income is excluded from interest income.
(5)
Net interest rate spread represents the difference between the weighted average yield on interest-earning assets, inclusive of PPP loans outstanding during 2023 and 2022, 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, inclusive of PPP loans outstanding during 2023 and 2022.

48


 

 

Rate/Volume Analysis

The following table describes the extent to which changes in interest rates and changes in the volume of interest-earning assets and interest-bearing liabilities have affected the Company’s interest income and interest expense during the periods indicated. Information is provided in each category with respect to: (i) changes attributable to changes in volumes (changes in average balance multiplied by prior year average rate) and (ii) changes attributable to changes in rate (change in average interest rate multiplied by prior year average balance), while (iii) changes attributable to the combined impact of volumes and rates have been allocated proportionately to separate volume and rate categories.

 

 

 

Three Months Ended September 30, 2023

 

 

Nine Months Ended September 30, 2023

 

 

 

Compared with

 

 

Compared with

 

 

 

Three Months Ended September 30, 2022

 

 

Nine Months Ended September 30, 2022

 

 

 

Increase/(Decrease)
Due to Change in

 

 

Increase/(Decrease)
Due to Change in

 

 

 

Volume

 

 

Rate

 

 

Total

 

 

Volume

 

 

Rate

 

 

Total

 

 

 

(dollars in thousands)

 

Interest income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Taxable

 

$

4,488

 

 

$

10,991

 

 

$

15,479

 

 

$

16,684

 

 

$

33,220

 

 

$

49,904

 

Tax-exempt

 

 

45

 

 

 

(6

)

 

 

39

 

 

 

129

 

 

 

(22

)

 

 

107

 

Securities available for sale

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Taxable

 

 

(77

)

 

 

82

 

 

 

5

 

 

 

(241

)

 

 

332

 

 

 

91

 

Securities held to maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Taxable

 

 

(397

)

 

 

128

 

 

 

(269

)

 

 

(710

)

 

 

962

 

 

 

252

 

Tax-exempt

 

 

(75

)

 

 

 

 

 

(75

)

 

 

(209

)

 

 

(27

)

 

 

(236

)

Cash and cash equivalents

 

 

17

 

 

 

75

 

 

 

92

 

 

 

(88

)

 

 

575

 

 

 

487

 

Total interest income

 

$

4,001

 

 

$

11,270

 

 

$

15,271

 

 

$

15,565

 

 

$

35,040

 

 

$

50,605

 

Interest expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Checking accounts

 

$

153

 

 

$

5,400

 

 

$

5,553

 

 

$

152

 

 

$

12,319

 

 

$

12,471

 

Savings accounts

 

 

(173

)

 

 

1,320

 

 

 

1,147

 

 

 

(253

)

 

 

3,867

 

 

 

3,614

 

Money market accounts

 

 

(387

)

 

 

6,472

 

 

 

6,085

 

 

 

(790

)

 

 

17,527

 

 

 

16,737

 

Certificates of deposit

 

 

3,863

 

 

 

4,670

 

 

 

8,533

 

 

 

6,963

 

 

 

13,777

 

 

 

20,740

 

Total interest-bearing deposits

 

 

3,456

 

 

 

17,862

 

 

 

21,318

 

 

 

6,072

 

 

 

47,490

 

 

 

53,562

 

Other borrowed funds

 

 

271

 

 

 

1,468

 

 

 

1,739

 

 

 

4,347

 

 

 

2,898

 

 

 

7,245

 

Total interest expense

 

$

3,727

 

 

$

19,330

 

 

$

23,057

 

 

$

10,419

 

 

$

50,388

 

 

$

60,807

 

Change in net interest income

 

$

274

 

 

$

(8,060

)

 

$

(7,786

)

 

$

5,146

 

 

$

(15,348

)

 

$

(10,202

)

 

Excluding the impact of merger-related loan accretion, the adjusted net interest margin for the three months ended September 30, 2023 was 2.13%, representing a 80 basis point decrease from the adjusted net interest margin of 2.93% for the three months ended September 30, 2022.

 

 

 

Three Months Ended

 

 

 

September 30, 2023

 

 

 

Average
Balance

 

 

Interest
Income/
Expenses

 

 

Rate
Earned/
Paid

 

 

 

(dollars in thousands)

 

Total interest-earning assets (GAAP)

 

$

5,219,071

 

 

 

 

 

 

 

Net interest income on a fully taxable equivalent basis (GAAP)

 

 

 

 

$

28,642

 

 

 

 

Net interest margin on a fully taxable equivalent basis (GAAP)

 

 

 

 

 

 

 

 

2.18

%

Less: Accretion of loan fair value adjustments (GAAP)

 

 

 

 

 

(649

)

 

 

-0.05

%

Adjusted net interest margin on a fully taxable equivalent basis (non-GAAP)

 

$

5,219,071

 

 

$

27,993

 

 

 

2.13

%

 

Excluding the impact of merger-related loan accretion, the adjusted net interest margin for the nine months ended September 30, 2023 was 2.31%, representing a 49 basis point decrease from the adjusted net interest margin of 2.80% for the nine months ended September 30, 2022.

49


 

 

 

 

Nine Months Ended

 

 

 

September 30, 2023

 

 

 

Average
Balance

 

 

Interest
Income/
Expenses

 

 

Rate
Earned/
Paid

 

 

 

(dollars in thousands)

 

Total interest-earning assets (GAAP)

 

$

5,264,539

 

 

 

 

 

 

 

Net interest income on a fully taxable equivalent basis (GAAP)

 

 

 

 

$

92,749

 

 

 

 

Net interest margin on a fully taxable equivalent basis (GAAP)

 

 

 

 

 

 

 

 

2.36

%

Less: Accretion of loan fair value adjustments (GAAP)

 

 

 

 

 

(1,961

)

 

 

-0.05

%

Adjusted net interest margin on a fully taxable equivalent basis (non-GAAP)

 

$

5,264,539

 

 

$

90,788

 

 

 

2.31

%

 

MARKET RISK AND ASSET LIABILITY MANAGEMENT

Market risk is the risk of loss from adverse changes in market prices and rates. The Company’s market risk arises primarily from interest rate risk inherent in its investment, borrowing, lending and deposit gathering activities, and within the Company’s wealth management operations. To that end, management actively monitors and manages its interest rate risk exposure.

The Company’s profitability is affected by fluctuations in interest rates. A sudden and substantial change in interest rates may adversely impact the Company’s earnings to the extent that the interest rates borne by assets and liabilities do not change at the same speed, to the same extent, or on the same basis. The Company monitors the impact of changes in interest rates on its net interest income using several tools.

The Company’s primary objective in managing interest rate risk is to minimize the adverse impact of changes in interest rates on the Company’s net interest income and capital, while structuring the Company’s asset-liability structure to obtain the maximum yield-cost spread on that structure. The Company relies primarily on its asset-liability structure to control interest rate risk.

 

Interest Rate Sensitivity. The Company actively manages its interest rate sensitivity position. The objectives of interest rate risk management are to control exposure of net interest income to risks associated with interest rate movements and to achieve sustainable growth in net interest income. Responsibility for the management of the Company’s interest rate sensitivity position falls under the authority of the Company's Board of Directors (the “Board”) which, in turn, has assigned authority for its formulation, revision and administration to the Risk Committee of the Board who reviews, approves and reports on information provided by the Investment and Asset/Liability Committee (the “ALCO”). The Company manages interest rate sensitivity by changing the mix, pricing, and re-pricing characteristics of its assets and liabilities, through the management of its investment portfolio, its offerings of loan and selected deposit terms, and through wholesale funding. Wholesale funding consists of, but is not limited to, multiple sources, including borrowings with the FHLB of Boston, the FRB of Boston, and certificates of deposit from institutional brokers.

The Company uses several tools to manage its interest rate risk including interest rate sensitivity analysis, or gap analysis, market value of portfolio equity analysis, interest rate simulations under various rate scenarios, and net interest margin reports. The results of these reports are compared to limits established by the Company’s ALCO policies and appropriate adjustments may be made if the results are outside the established limits.

The following table demonstrates the annualized result of an interest rate simulation and the estimated effect that a parallel interest rate shift, or “instantaneous shock,” in the yield curve and subjective adjustments in deposit pricing might have on the Company’s projected net interest income over the next 12 and 24 months.

As of September 30, 2023:

 

 

 

Year 1

 

Year 2

Change in Interest
Rates (in Basis Points)

 

Percentage Change
in Net Interest
Income

 

Percentage Change
in Net Interest
Income

Parallel rate shocks

 

 

 

 

+300

 

(1.1)

 

5.8

+200

 

(0.8)

 

6.8

+100

 

(0.3)

 

8.4

–100

 

0.5

 

10.0

–200

 

(0.2)

 

8.8

 

50


 

The following table demonstrates the annualized result of an interest rate simulation and the estimated effect that a gradual interest rate shift in the yield curve and subjective adjustments in deposit pricing might have on the Company’s projected net interest income over the next 12 and 24 months.

As of September 30, 2023:

 

 

 

Year 1

 

Year 2

Change in Interest
Rates (in Basis Points)

 

Percentage Change
in Net Interest
Income

 

Percentage Change
in Net Interest
Income

Gradual rate shifts

 

 

 

 

+200

 

(0.6)

 

5.6

–100

 

(1.6)

 

11.1

–200

 

(3.4)

 

11.2

 

These simulations assume that there is no growth in interest-earning assets or interest-bearing liabilities over the next 12 and 24 months. The changes to net interest income shown above are in compliance with the Company’s policy guidelines.

 

These estimates of changes in the Company’s net interest income require us to make certain assumptions including loan- and mortgage-related investment prepayment speeds, reinvestment rates, deposit cost, deposit repricing, deposit maturities and decay rates. These assumptions are inherently uncertain and, as a result, the Company cannot precisely predict the impact of changes in interest rates on net interest income. Although the analysis provides an indication of the Company's interest rate risk exposure at a particular point in time, such estimates are not intended to, and do not, provide a precise forecast of the effect of changes in market interest rates and will differ from actual results.

 

Economic Value of Equity Analysis. The Company also analyzes the sensitivity of the Bank’s financial condition to changes in interest rates through its economic value of equity model. This analysis measures the difference between estimated changes in the present value of the Bank’s assets and estimated changes in the present value of the Bank’s liabilities assuming various changes in current interest rates.

 

The Bank’s economic value of equity analysis as of September 30, 2023, estimated that, in the event of an instantaneous 200 basis point increase in interest rates, the Bank would experience a 18.9% decrease in the economic value of equity for the next 12 months, resulting in an economic value of equity ratio of 10.1%. This shock scenario assumes an instantaneous increase in deposit and wholesale funding rates at September 30, 2023 levels with no benefit assumed of asset repricing into a higher rate environment. At the same date, the analysis estimated that, in the event of an instantaneous 200 basis point decrease in interest rates, the Bank would experience a 15.4% increase in the economic value of equity, resulting in an economic value of equity ratio of 12.8%. This shock scenario assumes an instantaneous decrease in deposit and wholesale funding rates at September 30, 2023 levels, while assets are valued in a lower rate environment. The falling rate shocks for the economic value of equity analysis result in improved valuations as the cost to replace the Bank’s core deposits is reduced but is more than offset by the increased value of the bank’s assets.

 

The estimates of changes in the economic value of the Company's equity require us to make certain assumptions including loan- and mortgage-related investment prepayment speeds, reinvestment rates, deposit cost, deposit repricing, deposit maturities and decay rates. These assumptions are inherently uncertain and, as a result, the Company cannot precisely predict the impact of changes in interest rates on the economic value of its equity. Although the economic value of equity analysis provides an indication of the Company's interest rate risk exposure at a particular point in time, such estimates are not intended to, and do not, provide a precise forecast of the effect of changes in market interest rates on the economic value of the Company's equity and will differ from actual results.

 

LIQUIDITY AND CAPITAL RESOURCES

Impact of Inflation and Changing Prices. The Company’s Consolidated Financial Statements and related notes have been prepared in accordance with GAAP. GAAP generally requires the measurement of financial position and operating results in terms of historical dollars without consideration of changes in the relative purchasing power of money over time due to inflation. The impact of inflation is reflected in the increased cost of operations. Unlike industrial companies, the Company's assets and liabilities are primarily monetary in nature. As a result, generally speaking, changes in market interest rates have a greater impact on performance than the effects of inflation.

Liquidity. Liquidity is defined as the Company’s ability to generate adequate cash to meet its needs for day-to-day operations and material long- and short-term commitments. Liquidity risk is the risk of potential loss if the Company were unable to meet its funding requirements at a reasonable cost. The Company manages its liquidity based on demand and specific events and uncertainties to meet current and future financial and contractual obligations of a short-term nature.

51


 

The Company’s objective in managing liquidity is to respond to the needs of depositors and borrowers, as well as increase to earnings enhancement opportunities in a changing marketplace.

The Company’s liquidity position is managed on a daily basis as part of the daily settlement function and continuously as part of the formal asset liability management process. The Bank’s liquidity is maintained by managing its core deposits as the primary source, selling investment securities, selling loans in the secondary market, borrowing from the FHLB of Boston and FRB of Boston, entering into repurchase agreements, and purchasing wholesale certificates of deposit as its secondary sources. At September 30, 2023, the Company had access to funds totaling $2.61 billion, inclusive of approximately $202.9 million estimated availability as part of the FRB’s BTFP.

The sources of funds for dividends paid by the Company are dividends received from the Bank and liquid funds held by the Company. The Company and the Bank are regulated enterprises and their abilities to pay dividends are subject to regulatory review and restriction. Certain regulatory and statutory restrictions exist regarding dividends, loans, and advances from the Bank to the Company. Generally, the Bank has the ability to pay dividends to the Company subject to minimum regulatory capital requirements.

Quarterly, the Risk Committee reviews the Company’s liquidity needs and reports any findings (if required) to the Board.

Capital Adequacy. Total shareholders’ equity was $526.0 million at September 30, 2023, as compared to $517.6 million at December 31, 2022. The Company’s equity increased primarily due to net income of $26.1 million, partially offset by dividend payments of $15.7 million. Based on past performance and current expectations, the Company believes that cash from operations, cash, cash equivalents, investments, and other sources of liquidity will satisfy its currently anticipated working capital needs, capital expenditures, and other liquidity requirements associated with its operations through the next 12 months and the reasonably foreseeable future.

The Company and the Bank are subject to various regulatory capital requirements. As of September 30, 2023, the Company and the Bank exceeded the regulatory minimum levels to be considered “well-capitalized.” See Note 13 - Shareholders’ equity to the Unaudited Consolidated Financial Statements for additional discussion of regulatory capital requirements.

 

FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK

The Company is party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its clients. These financial instruments primarily include commitments to originate and sell loans, standby letters of credit, unused lines of credit, and unadvanced portions of construction loans. The instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheet. The contract or notional amounts of those instruments reflect the extent of involvement the Company has in these particular classes of financial instruments.

The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for loan commitments, standby letters of credit and unadvanced portions of construction loans is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments.

Off-Balance-Sheet Arrangements. The Company's significant off-balance-sheet arrangements consist of the following:

commitments to originate and sell loans,
standby and commercial letters of credit,
unused lines of credit,
unadvanced portions of construction loans,
unadvanced portions of other loans,
loan related derivatives, and
risk participation agreements.

Off-balance-sheet arrangements are more fully discussed within Note 11 – Financial Instruments with Off-Balance-Sheet Risk. to the Unaudited Consolidated Financial Statements.

52


 

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

The information required by this item is included in Item 2 of this report under “Market Risk and Asset Liability Management.”

Item 4. Controls and Procedures.

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures. As of September 30, 2023, the Company carried out an evaluation, under the supervision and with the participation of the Company's management, including its Chief Executive Officer and its interim Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) of the Securities Exchange Act of 1934). Based on this evaluation, the Company’s Chief Executive Officer and interim Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of September 30, 2023 for recording, processing, summarizing, and reporting the information the Company is required to disclose in the reports it files under the Securities Exchange Act of 1934, within the time periods specified in SEC rules and forms.

The effectiveness of a system of disclosure controls and procedures is subject to various inherent limitations, including cost limitations, judgments used in decision making, assumptions about the likelihood of future events, the soundness of the Company's systems, the possibility of human error, and the risk of fraud. Moreover, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions and the risk that the degree of compliance with policies or procedures may deteriorate over time. Due to such inherent limitations, there can be no assurance that any system of disclosure controls and procedures will be successful in preventing all errors or fraud or in making all material information known in a timely manner to the appropriate levels of management.

Changes in Internal Controls over Financial Reporting. During the quarter ended September 30, 2023, there were no changes in the Company’s internal controls over financial reporting that have materially affected or are reasonably likely to materially affect the Company’s internal controls over financial reporting.

53


 

PART II—OTHER INFORMATION

From time to time, the Company and its subsidiaries may be parties to various claims and lawsuits arising in the ordinary course of their normal business activities. Although the ultimate outcome of these suits, if any, cannot be ascertained at this time, it is the opinion of management that none of these matters, even if it resolved adversely to the Company, will have a material adverse effect on the Company’s consolidated financial position. The Company is not currently party to any material pending legal proceedings.

Item 1A. Risk Factors.

 

For a discussion of the potential risks and uncertainties, please refer to the “Risk Factors” sections in the 2022 Annual Report and the Quarterly Report on Form for the fiscal quarter ended March 31, 2023 (the “Prior Form 10-Q”), filed with the SEC on May 4, 2023, which are accessible on the SEC’s website at www.sec.gov.

Aside from the following risk factors, there have been no material changes to the risk factors previously disclosed in the 2022 Annual Report and the Prior Form 10-Q.

Risks Related to the Merger

 

The pendency of the Merger could adversely affect our business, results of operations and financial condition.

 

The pendency of the Merger could cause disruptions in and create uncertainty surrounding our business, including affecting our relationships with our existing and future customers, suppliers and employees, which could have an adverse effect on our business, results of operations and financial condition, regardless of whether the proposed Merger is completed. In particular, we could potentially lose additional important personnel as a result of the departure of employees who decide to pursue other opportunities in light of the Merger. We could also potentially lose additional customers or suppliers, and new customer or supplier contracts could be delayed or decreased. In addition, we have allocated, and will continue to allocate, significant management resources towards the completion of the transaction, which could adversely affect our business and results of operations.

 

We are subject to restrictions on the conduct of our business prior to the consummation of the Merger as provided in the Merger Agreement, including, among other things, certain restrictions on our ability to acquire other businesses, sell or transfer our assets, and amend our organizational documents. These restrictions could result in our inability to respond effectively to competitive pressures, industry developments and future opportunities, retain key employees and may otherwise harm our business, results of operations and financial condition.

 

Because the price of Eastern Common Stock will fluctuate, our shareholders cannot be certain of the market value of the Merger Consideration.

Upon completion of the Merger, each share of our common stock will be converted into the right to receive 4.956 shares of Eastern Common Stock. The dollar value of the Eastern Common Stock that our shareholders will receive upon completion of the Merger will depend upon the market value of Eastern Common Stock at the time of completion of the Merger, which may be lower or higher than the closing price of Eastern Common Stock on the last full trading day preceding the date the Merger Agreement was executed. The market values of Eastern Common Stock and our common stock have varied since we entered into the Merger Agreement and will continue to vary in the future due to changes in the business, operations or prospects of us and Eastern, market assessments of the Merger, regulatory considerations, market and economic considerations, and other factors, most of which are beyond our control.

The Merger is subject to the receipt of consents and approvals from governmental authorities that may delay the date of completion of the Merger or impose conditions that could have an adverse effect on the Company.

Before the Merger may be completed, various consents, approvals, waiver or non-objections must be obtained from state and federal governmental authorities, including the Board of Governors of the Federal Reserve System, the Massachusetts Commissioner of Banks, the Massachusetts Housing Partnership, and the New Hampshire Banking Department. Satisfying the requirements of these governmental authorities may delay the date of completion of the Merger. In addition, these governmental authorities may include conditions on the completion of the Merger, or require changes to the terms of the Merger. The parties are not obligated to complete the Merger should any regulatory approval contain any prohibition, limitation or other requirement that Eastern’s board of directors reasonably determines in good faith would, individually or in the aggregate, materially reduce the benefits of the Merger to such a degree that Eastern would not have entered into the Merger Agreement had such condition, restriction or requirement been known at the date of the Merger Agreement.

54


 

The Merger and related transactions are subject to approval by shareholders of both Eastern and the Company.

The Merger cannot be completed unless (i) the Company’s shareholders approve the adoption of the Merger Agreement by the affirmative vote of the holders of at least two-thirds of the outstanding shares of the Company’s common stock, and (ii) Eastern’s shareholders approve the issuance of Eastern common stock in connection with the Merger by the affirmative vote of a majority the votes cast by the holders of Eastern common stock on such matter. If shareholder approval is not obtained by Eastern’s or the Company’s shareholders, the Merger cannot be completed.

 

Failure to complete the Merger could negatively impact the stock price of the Company and future businesses and financial results of the Company.

If the Merger is not completed, the ongoing businesses, financial condition and results of operation of the Company may be adversely affected and market prices of the Company’s common stock may decline significantly, particularly to the extent that the current market prices reflect a market assumption that the Merger will be consummated. If the consummation of the Merger is delayed, including by the receipt of a competing acquisition proposal, the Company’s business, financial condition and results of operations may be materially adversely affected.

In addition, the Company has incurred and will incur substantial expenses in connection with the negotiation and completion of the transactions contemplated by the Merger Agreement, as well as the costs and expenses of filing, printing and mailing the joint proxy statement/prospectus and all filing and other fees paid to the SEC and other regulatory agencies in connection with the Merger. If the Merger is not completed, the Company would have to recognize these expenses without realizing the expected benefits of the Merger. Any of the foregoing, or other risks arising in connection with the failure of or delay in consummating the Merger, including the diversion of management attention from pursuing other opportunities and the constraints in the Merger Agreement on the ability to make significant changes to the Company’s ongoing business during the pendency of the Merger, could have a material adverse effect on the Company’s businesses, financial conditions and results of operations.

Additionally, the Company’s business may have been adversely impacted by the failure to pursue other beneficial opportunities due to the focus of management on the Merger, without realizing any of the anticipated benefits of completing the Merger. If the Merger Agreement is terminated and the Company’s board of directors seeks another merger or business combination, the Company’s shareholders cannot be certain that the Company will be able to find a party willing to engage in a transaction on more attractive terms than the Merger.

Eastern may be unable to successfully integrate our operations or otherwise realize the expected benefits from the Merger, which could adversely affect Eastern’s results of operations and financial condition.

The Merger involves the integration of two companies that have previously operated independently. The difficulties of combining the operations of the two companies include:

integrating personnel with diverse business backgrounds;
converting customers to new systems;
combining different corporate cultures; and
retaining key employees.

The process of integrating operations could cause an interruption of, or loss of momentum in, the activities of the business and the loss of key personnel. The integration of the two companies will require the experience and expertise of certain of our key employees who are expected to be retained by Eastern. Eastern may not be successful in retaining these employees for the time period necessary to successfully integrate our operations with those of Eastern. The diversion of management’s attention and any delay or difficulty encountered in connection with the Merger and the integration of the two companies’ operations could have an adverse effect on the business and results of operations of Eastern following the Merger.

The success of the Merger will depend, in part, on Eastern’s ability to realize the anticipated benefits and cost savings from combining the Company’s business with Eastern’s. If Eastern is unable to successfully integrate the Company, the anticipated benefits and cost savings of the Merger may not be realized fully or may take longer to realize than expected. For example, Eastern may fail to realize the anticipated increase in earnings and cost savings anticipated to be derived from the Merger. In addition, as with regard to any merger, a significant decline in asset valuations or cash flows may also cause Eastern not to realize expected benefits.

55


 

The termination fee and the restrictions on solicitation contained in the Merger Agreement may discourage other companies from trying to acquire the Company.

Until the completion of the Merger, with some exceptions, the Company is prohibited from soliciting, initiating, knowingly encouraging or participating in any discussion of or otherwise considering any inquiry or proposal that may lead to an acquisition proposal, such as a merger or other business combination transaction, with any person other than Eastern. In addition, the Company has agreed to pay a $21.0 million termination fee to Eastern in specified circumstances. These provisions could discourage other companies that may have an interest in acquiring the Company from considering or proposing such an acquisition even though those other companies might be willing to offer greater value to the Company’s shareholders than Eastern has offered in the Merger. The payment of the termination fee could also have a material adverse effect on the Company’s financial condition.

The Company’s shareholders will not be entitled to dissenters' or appraisal rights in the Merger.

Dissenters’ or appraisal rights are statutory rights that, if applicable under law, enable shareholders to dissent from an extraordinary transaction, such as a merger, and to demand that the corporation pay the fair value for their shares as determined by a court in a judicial proceeding instead of receiving the consideration offered to stockholders in connection with the extraordinary transaction. Under the Massachusetts Business Corporation Act, holders of Company common stock will not be entitled to dissenters’ or appraisal rights in the Merger with respect to their shares of Company common stock.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

The following table sets forth the information regarding the Company’s repurchases of its common stock during the three months ended September 30, 2023:

 

 

 

Total Number of
Shares Repurchased (1)

 

 

Weighted Average
Price Paid Per Share

 

 

 

 

 

 

 

 

 

 

Period

 

 

 

 

 

 

 

 July 1 to July 31, 2023

 

 

 

 

$

 

 

August 1 to August 31, 2023

 

 

160

 

 

$

56.16

 

 

September 1 to September 30, 2023

 

 

 

 

$

 

 

Total

 

 

160

 

 

 

 

 

(1)
Shares repurchased by the Company relate to shares tendered by employees to pay their income tax liability on current period RSA, RSU, or PRSU vestings.

On March 13, 2023, the Board authorized a share repurchase program (the “2023 Repurchase Program”) to acquire from time to time up to 5.0% of the total number of outstanding shares of the Company’s common stock as of December 31, 2022, with such purchases occurring prior to March 13, 2024, provided that the aggregate purchase price does not exceed $32.4 million. The timing and amount of any shares of the Company’s common stock repurchased under the 2023 Repurchase Program will be determined by the Company’s management based on its evaluation of market conditions and other factors. The 2023 Repurchase Program may be suspended or discontinued at any time. The 2023 Repurchase Program replaces the 2022 Repurchase Program which expired on March 14, 2023. The Company did not repurchase any shares under the 2023 its Repurchase Program during the three months ended September 30, 2023.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

 

Rule 10b5-1 Trading Plans

 

56


 

During the quarter ended September 30, 2023, none of the Company’s directors or executive officers adopted or terminated any contract, instruction or written plan for the purchase of Company securities that was intended to satisfy the affirmative defense conditions of Rule 1-b5-1(c) or any “non-Rule 10b5-1 trading arrangement.”

57


 

Item 6. Exhibits.

Furnish the exhibits required by Item 601 of Regulation S-K (§ 229.601 of this chapter).

Exhibit

Number

Description

 

 

 

   2.1

 

Agreement and Plan of Merger, dated as of September 19, 2023, by and among Eastern Bankshares, Inc., Eastern Bank, Citadel MS 2023, Inc., Cambridge Bancorp, and Cambridge Trust Company (incorporated by reference to Exhibit 2.1 of the Form 8-K filed with the SEC on September 19, 2023).

 

 

 

   10.1

 

Change in Control Letter Agreement, dated September 18, 2023, by and between Cambridge Bancorp and Joseph Sapienza (incorporated by reference to Exhibit 10.1 of the Form 8-K filed with the SEC on September 19, 2023).

 

 

 

  31.1*

Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

  31.2*

Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

  32.1*

Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

  32.2*

 

Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

101.INS

Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

 

 

 

101.SCH

 

Inline XBRL Taxonomy Extension Schema Document

 

 

 

101.CAL

 

Inline XBRL Taxonomy Extension Calculation Linkbase Document

 

 

 

101.DEF

 

Inline XBRL Taxonomy Extension Definition Linkbase Document

 

 

 

101.LAB

 

Inline XBRL Taxonomy Extension Label Linkbase Document

 

 

 

101.PRE

 

Inline XBRL Taxonomy Extension Presentation Linkbase Document

 

 

 

104

 

The cover page for the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2023, has been formatted in Inline XBRL and contained in Exhibit 101.

* Filed herewith.

58


 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

CAMBRIDGE BANCORP

 

 

 

November 2, 2023

By:

  /s/ Denis K. Sheahan

 

 

Denis K. Sheahan

 

 

Chairman, President & Chief Executive Officer

(Principal Executive Officer)

 

 

 

November 2, 2023

 

 

 

By:

  /s/ Joseph P. Sapienza

 

 

Joseph P. Sapienza

 

 

Interim Chief Financial Officer, Senior Vice President

(Principal Financial Officer and Principal Accounting Officer)

59


EX-31.1 2 catc-ex31_1.htm EX-31.1 EX-31.1

 

Exhibit 31.1

CERTIFICATION PURSUANT TO

RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,

AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Denis K. Sheahan, Chief Executive Officer of Cambridge Bancorp, certify that:

1.
I have reviewed this Quarterly Report on Form 10-Q, for the period ended September 30, 2023, of Cambridge Bancorp;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

 

November 2, 2023

By:

  /s/ Denis K. Sheahan

 

 

Denis K. Sheahan

 

 

Chairman, President & Chief Executive Officer

(Principal Executive Officer)

 

 


EX-31.2 3 catc-ex31_2.htm EX-31.2 EX-31.2

 

Exhibit 31.2

CERTIFICATION PURSUANT TO

RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,

AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Joseph P. Sapienza, Interim Chief Financial Officer of Cambridge Bancorp, certify that:

1.
I have reviewed this Quarterly Report on Form 10-Q, for the period ended September 30, 2023, of Cambridge Bancorp;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

 

November 2, 2023

By:

/s/ Joseph P. Sapienza

 

 

Joseph P. Sapienza

 

 

Interim Chief Financial Officer, Senior Vice President

(Principal Financial Officer and Principal Accounting Officer)

 

 


EX-32.1 4 catc-ex32_1.htm EX-32.1 EX-32.1

 

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Cambridge Bancorp (the “Company”) for the period ended September 30, 2023 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I hereby certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Form 10-Q Report fully complies with the requirements of section 13(a) or 15(d) as applicable, of the Securities Exchange Act of 1934, as amended; and

(2) The information contained in the Form 10-Q Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

November 2, 2023

By:

  /s/ Denis K. Sheahan

 

 

Denis K. Sheahan

 

 

Chairman, President & Chief Executive Officer

(Principal Executive Officer)

 


EX-32.2 5 catc-ex32_2.htm EX-32.2 EX-32.2

 

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Cambridge Bancorp (the “Company”) for the period ended September 30, 2023 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I hereby certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Form 10-Q Report fully complies with the requirements of section 13(a) or 15(d) as applicable, of the Securities Exchange Act of 1934, as amended; and

(2) The information contained in the Form 10-Q Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

November 2, 2023

By:

  /s/ Joseph P. Sapienza

 

 

Joseph P. Sapienza

 

 

Interim Chief Financial Officer, Senior Vice President

(Principal Financial Officer and Principal Accounting Officer)