Cambridge Bancorp 10Q 2024 Q1 Quarterly report

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 March 31, 2024

☐ 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 May 3, 2024 the registrant had 7,847,656 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	29
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	50
Item 4.	Controls and Procedures	50
PART II.	OTHER INFORMATION	51
Item 1.	Legal Proceedings	51
Item 1A.	Risk Factors	51
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	51
Item 3.	Defaults Upon Senior Securities	51
Item 4.	Mine Safety Disclosures	51
Item 5.	Other Information	51
Item 6.	Exhibits	52
Signatures		53

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

CAMBRIDGE BANCORP AND SUBSIDIARIES

UNAUDITED CONSOLIDATED BALANCE SHEETS


	March 31, 2024			December 31, 2023
	(dollars in thousands, except share information)
Assets
Cash and cash equivalents	$	29,705		$	33,004
Investment securities
Available for sale, at fair value (amortized cost $159,483 and $163,376, respectively)		133,222			137,838
Held to maturity, at amortized cost (fair value $777,383 and $805,428, respectively)		940,618			959,332
Total investment securities		1,073,840			1,097,170

Loans
Residential mortgage		1,611,271			1,626,264
Commercial mortgage		1,922,278			1,931,473
Home equity		90,647			95,649
Commercial and industrial		348,549			343,711
Consumer		22,004			24,447
Total loans		3,994,749			4,021,544
Less: allowance for credit losses on loans		(39,347	)		(38,944	)
Net loans		3,955,402			3,982,600
Federal Home Loan Bank of Boston Stock, at cost		24,291			19,056
Bank owned life insurance		35,471			35,265
Banking premises and equipment, net		20,858			21,753
Right-of-use asset operating leases		21,694			23,233
Deferred income taxes, net		14,359			15,299
Accrued interest receivable		15,226			15,765
Goodwill		64,539			64,539
Merger-related intangibles, net		6,327			6,550
Other assets		112,128			103,432
Total assets	$	5,373,840		$	5,417,666
Liabilities
Deposits
Demand- Non Interest bearing	$	965,090		$	1,032,413
Interest-bearing checking		1,202,713			1,132,518
Money market		934,958			983,480
Savings		507,640			498,386
Certificates of deposit		574,981			674,381
Total deposits		4,185,382			4,321,178
Borrowings		546,405			452,155
Operating lease liabilities		23,914			25,165
Other liabilities		82,543			84,595
Total liabilities		4,838,244			4,883,093
Shareholders’ Equity
Common stock, par value $1.00; Authorized: 10,000,000 shares; Outstanding: 7,845,598 shares and 7,845,452 shares, respectively		7,846			7,845
Additional paid-in capital		294,294			293,950
Retained earnings		252,124			250,492
Accumulated other comprehensive loss		(18,668	)		(17,714	)
Total shareholders’ equity		535,596			534,573
Total liabilities and shareholders’ equity	$	5,373,840		$	5,417,666

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

CAMBRIDGE BANCORP AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF INCOME


	Three Months Ended
	March 31, 2024		March 31, 2023
	(dollars in thousands, except share data)
Interest and dividend income
Interest on taxable loans	$	50,123	$	45,333
Interest on tax-exempt loans		399		376
Interest on taxable investment securities		4,661		5,050
Interest on tax-exempt investment securities		511		585
Dividends on FHLB of Boston stock		419		72
Interest on overnight investments		100		326
Total interest and dividend income		56,213		51,742
Interest expense
Interest on deposits		23,330		15,944
Interest on borrowed funds		5,851		1,550
Total interest expense		29,181		17,494
Net interest and dividend income		27,032		34,248
Provision for credit losses		125		60
Net interest and dividend income after provision for credit losses		26,907		34,188
Noninterest income
Wealth management revenue		8,715		7,937
Deposit account fees		811		869
ATM/Debit card income		360		511
Bank owned life insurance income		203		187
Gain on loans sold, net		15		13
Loan related derivative income		18		234
Other income		484		964
Total noninterest income		10,606		10,715
Noninterest expense
Salaries and employee benefits		17,322		18,488
Occupancy and equipment		3,577		3,747
Data processing		2,824		2,641
Professional services		825		1,123
Marketing		229		426
FDIC insurance		795		379
Non-operating expenses		1,407		424
Other expenses		1,280		1,100
Total noninterest expense		28,259		28,328
Income before income taxes		9,254		16,575
Income tax expense		2,366		4,159
Net income	$	6,888	$	12,416
Share data:
Weighted average shares outstanding, basic		7,835,273		7,792,474
Weighted average shares outstanding, diluted		7,865,193		7,826,162
Basic earnings per share	$	0.88	$	1.59
Diluted earnings per share	$	0.87	$	1.58

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

CAMBRIDGE BANCORP AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


	Three Months Ended
	March 31, 2024			March 31, 2023
	(dollars in thousands)
Net income	$	6,888		$	12,416
Other comprehensive income (loss), net of tax:
Available for sale securities
Unrealized holding gains (losses)		(530	)		1,942
Interest rate swaps designated as cash flow hedges
Unrealized holding gains (losses)		(494	)		57
Less: reclassification adjustment for gains (losses) realized in net income		70			104
Total unrealized losses on interest rate swaps		(424	)		161
Other comprehensive income (loss)		(954	)		2,103
Comprehensive income	$	5,934		$	14,519

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

CAMBRIDGE BANCORP AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY


	Three Months Ended
	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, 2022	$	7,796	$	293,186		$	237,369		$	(20,799	)	$	517,552
Net income		—		—			12,416			—			12,416
Other comprehensive income (loss)		—		—			—			2,103			2,103
Share based compensation and other share-based activity		38		(936	)		—			—			(898	)
Dividends declared ($0.67 per share)		—		—			(5,224	)		—			(5,224	)
Balance at March 31, 2023	$	7,834	$	292,250		$	244,561		$	(18,696	)	$	525,949

Balance at December 31, 2023	$	7,845	$	293,950		$	250,492		$	(17,714	)	$	534,573
Net income		—		—			6,888			—			6,888
Other comprehensive income (loss)		—		—			—			(954	)		(954	)
Share based compensation and other share-based activity		1		344			—			—			345
Dividends declared ($0.67 per share)		—		—			(5,256	)		—			(5,256	)
Balance at March 31, 2024	$	7,846	$	294,294		$	252,124		$	(18,668	)	$	535,596

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

CAMBRIDGE BANCORP AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS


	Three Months Ended March 31,
	2024			2023
	(dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	6,888		$	12,416
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for (release of) credit losses		125			60
Amortization (accretion) of deferred charges and fees, net		558			667
Depreciation (accretion), and amortization, net		629			238
Bank owned life insurance income		(203	)		(187	)
Share-based compensation and other share-based activity		345			(898	)
Change in accrued interest receivable		539			(11	)
Deferred income tax expense		1,296			2,659
Change in other assets, net		(9,052	)		5,440
Change in other liabilities, net		356			(15,830	)
Net cash provided by operating activities		1,481			4,554
CASH FLOWS FROM INVESTING ACTIVITIES
Origination of loans		(124,405	)		(144,601	)
Proceeds from principal payments of loans		149,477			189,792
Proceeds from calls/maturities of securities available for sale		3,841			3,779
Proceeds from calls/maturities of securities held to maturity		18,476			20,856
(Purchase) redemption of FHLB of Boston stock		(5,235	)		(5,908	)
Purchase of banking premises and equipment		(65	)		(337	)
Net cash provided by investing activities		42,089			63,581
CASH FLOWS FROM FINANCING ACTIVITIES
Change in demand, interest-bearing, money market and savings accounts		(36,396	)		(324,099	)
Change in certificates of deposit		(99,467	)		165,450
Change in borrowings		94,250			135,785
Cash dividends paid on common stock		(5,256	)		(5,224	)
Net cash used in by financing activities		(46,869	)		(28,088	)
Net change in cash and cash equivalents		(3,299	)		40,047
Cash and cash equivalents at beginning of period		33,004			30,719
Cash and cash equivalents at end of period	$	29,705		$	70,766
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest	$	31,623		$	16,935
Income taxes		1,276			2,430

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

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 March 31, 2024 and December 31, 2023. 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, 2023, filed with the Securities and Exchange Commission (the “SEC”) on March 12, 2024.

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 May 9, 2024, 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 Yet to be Adopted

In December 2023, the FASB issued Accounting Standards Update (“ASU”) 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The amendments are to enhance the transparency and decision usefulness of income tax disclosures. The ASU requires that public business entities on an annual basis (1) disclose specific categories in the rate reconciliation, (2) provide additional information for reconciling items that meet a quantitative threshold. and also includes certain other amendments to improve the effectiveness of income tax disclosures. The amendments in this update are effective for annual periods beginning after December 15, 2024. The Company is currently assessing the impact the adoption of this guidance will have on its consolidated financial statements and disclosures.

5. Cash and cash equivalents

At March 31, 2024 and December 31, 2023, cash and cash equivalents totaled $29.7 million and $33.0 million, respectively. There were no amounts required to be maintained at the Federal Reserve Bank of Boston at March 31, 2024 and December 31, 2023. At March 31, 2024 and December 31, 2023, 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 March 31, 2024, or December 31, 2023. 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:


	March 31, 2024									December 31, 2023
	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	$	22,999	$	—	$	(2,638	)	$	20,361	$	22,998	$	—	$	(2,536	)	$	20,462
Mortgage-backed securities		136,484		1		(23,624	)		112,861		140,378		4		(23,006	)		117,376
Total available for sale securities	$	159,483	$	1	$	(26,262	)	$	133,222	$	163,376	$	4	$	(25,542	)	$	137,838

Held to maturity securities
U.S. Treasury Notes	$	3,053	$	—	$	(19	)	$	3,034	$	3,039	$	—	$	(13	)	$	3,026
Mortgage-backed securities		854,043		26		(154,698	)		699,371		871,426		17		(146,397	)		725,046
Corporate debt securities		250		—		—			250		250		—		(2	)		248
Municipal securities		83,272		5		(8,549	)		74,728		84,617		24		(7,533	)		77,108
Total held to maturity securities	$	940,618	$	31	$	(163,266	)	$	777,383	$	959,332	$	41	$	(153,945	)	$	805,428
Total	$	1,100,101	$	32	$	(189,528	)	$	910,605	$	1,122,708	$	45	$	(179,487	)	$	943,266

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 March 31, 2024 or at December 31, 2023, aggregated by investment category and length of time that individual investment securities have been in a continuous loss position:


	March 31, 2024
	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	$	—	$	—		$	20,361	$	(2,638	)	$	20,361	$	(2,638	)
Mortgage-backed securities		68,223		(4	)		109,183		(23,620	)		177,406		(23,624	)
Total available for sale securities	$	68,223	$	(4	)	$	129,544	$	(26,258	)	$	197,767	$	(26,262	)

Held to maturity securities
U.S. Treasury Notes	$	956	$	(11	)	$	2,078	$	(8	)	$	3,034	$	(19	)
Mortgage-backed securities		—		—			696,365		(154,698	)		696,365		(154,698	)
Municipal securities		20,373		(209	)		51,568		(8,340	)		71,941		(8,549	)
Total held to maturity securities	$	21,329	$	(220	)	$	750,011	$	(163,046	)	$	771,340	$	(163,266	)
Total	$	89,552	$	(224	)	$	879,555	$	(189,304	)	$	969,107	$	(189,528	)


	December 31, 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	$	—	$	—		$	20,462	$	(2,536	)	$	20,462	$	(2,536	)
Mortgage-backed securities		79		(1	)		113,478		(23,005	)		113,557		(23,006	)
Total available for sale securities	$	79	$	(1	)	$	133,940	$	(25,541	)	$	134,019	$	(25,542	)

Held to maturity securities
U.S. Treasury Notes	$	961	$	(2	)	$	2,065	$	(11	)	$	3,026	$	(13	)
Mortgage-backed securities		—		—			723,042		(146,397	)		723,042		(146,397	)
Corporate debt securities		—		—			248		(2	)		248		(2	)
Municipal securities		17,401		(79	)		44,548		(7,454	)		61,949		(7,533	)
Total held to maturity securities	$	18,362	$	(81	)	$	769,903	$	(153,864	)	$	788,265	$	(153,945	)
Total	$	18,441	$	(82	)	$	903,843	$	(179,405	)	$	922,284	$	(179,487	)

As of March 31, 2024, 441 debt securities had gross unrealized losses, with an aggregate depreciation of 17.3% from the Company’s amortized cost basis. The largest unrealized dollar loss of any single security was $2.1 million, or 24.2% of its amortized cost. The largest unrealized loss percentage of any single security was 38.7% of its amortized cost, or $901,000.

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 March 31, 2024.

The Company had no pledged securities as collateral for repurchase agreements at March 31, 2024 and at December 31, 2023.

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 $1.9 million and $2.0 million as of March 31, 2024 and December 31, 2023 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 months ended March 31, 2024 or March 31, 2023. No securities held by the Company were delinquent on contractual payments as of either March 31, 2024 or December 31, 2023, nor were any securities placed on non-accrual status during the periods ended March 31, 2024 and December 31, 2023.


	March 31, 2024
	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	$	—	$	—	$	9,999	$	9,403	$	5,000	$	4,442	$	8,000	$	6,516	$	22,999	$	20,361
Mortgage-backed securities		344		332		10,461		9,884		36,824		30,984		88,855		71,661		136,484		112,861
Total available for sale securities	$	344	$	332	$	20,460	$	19,287	$	41,824	$	35,426	$	96,855	$	78,177	$	159,483	$	133,222

Held to maturity securities
U.S. Treasury Notes	$	2,086	$	2,078	$	967	$	956	$	—	$	—	$	—	$	—	$	3,053	$	3,034
Mortgage-backed securities		—		—		22,818		21,648		49,523		42,275		781,702		635,448		854,043		699,371
Corporate debt securities		250		250		—		—		—		—		—		—		250		250
Municipal securities		2,366		2,356		24,330		23,954		19,103		18,490		37,473		29,928		83,272		74,728
Total held to maturity securities	$	4,702	$	4,684	$	48,115	$	46,558	$	68,626	$	60,765	$	819,175	$	665,376	$	940,618	$	777,383
Total	$	5,046	$	5,016	$	68,575	$	65,845	$	110,450	$	96,191	$	916,030	$	743,553	$	1,100,101	$	910,605

There were no sales of investment securities during the three ended March 31, 2024 or March 31, 2023.

The Company monitors the credit quality of certain debt securities through the use of credit ratings 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 March 31, 2024 and December 31, 2023 respectively, the Company’s debt securities portfolio did not contain any securities below investment grade, as reported by major credit rating agencies. At March 31, 2024 and December 31, 2023, 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 March 31, 2024 and December 31, 2023.


	March 31, 2024
	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	$	112,861	$	—	$	—	$	20,361	$	—	$	133,222
Total available for sale securities	$	112,861	$	—	$	—	$	20,361	$	—	$	133,222
Held to maturity securities, at amortized cost
AAA/AA/A	$	854,043	$	250	$	83,272	$	—	$	3,053	$	940,618
Total held to maturity securities	$	854,043	$	250	$	83,272	$	—	$	3,053	$	940,618


	December 31, 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	$	117,376	$	—	$	—	$	20,462	$	—	$	137,838
Total available for sale securities	$	117,376	$	—	$	—	$	20,462	$	—	$	137,838
Held to maturity securities, at amortized cost
AAA/AA/A	$	871,426	$	250	$	84,617	$	—	$	3,039	$	959,332
Total held to maturity securities	$	871,426	$	250	$	84,617	$	—	$	3,039	$	959,332

(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:


	March 31, 2024		December 31, 2023
	(dollars in thousands)
Residential mortgage
Mortgages - fixed rate	$	813,224	$	813,374
Mortgages - adjustable rate		753,387		760,632
Construction		39,098		45,863
Deferred costs, net of unearned fees		5,562		6,395
Total residential mortgages		1,611,271		1,626,264

Commercial mortgage
Mortgages - non-owner occupied		1,643,368		1,648,408
Mortgages - owner occupied		164,487		167,522
Construction		112,063		113,133
Deferred costs, net of unearned fees		2,360		2,410
Total commercial mortgages		1,922,278		1,931,473

Home equity
Home equity - lines of credit		87,712		92,730
Home equity - term loans		2,701		2,679
Deferred costs, net of unearned fees		234		240
Total home equity		90,647		95,649

Commercial and industrial
Commercial and industrial		347,392		342,475
Paycheck Protection Program loans		559		653
Unearned fees, net of deferred costs		598		583
Total commercial and industrial		348,549		343,711

Consumer
Secured		20,574		22,592
Unsecured		1,397		1,822
Deferred costs, net of unearned fees		33		33
Total consumer		22,004		24,447
Total loans	$	3,994,749	$	4,021,544

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. 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:


	March 31, 2024
	Residential Mortgage		Commercial Mortgage		Home Equity		Commercial and Industrial		Total
	(dollars in thousands)
Non-performing loans:
Non-accrual loans	$	6,183	$	9,638	$	1,291	$	89	$	17,201
Total	$	6,183	$	9,638	$	1,291	$	89	$	17,201


	December 31, 2023
	Residential Mortgage		Commercial Mortgage		Home Equity		Commercial and Industrial		Total
	(dollars in thousands)
Non-performing loans:
Non-accrual loans	$	6,412	$	9,758	$	285	$	61	$	16,516
Loans past due >90 days, but still accruing		—		—		—		51		51
Total	$	6,412	$	9,758	$	285	$	112	$	16,567

It is the Company’s policy to reverse any accrued interest when a loan is put on non-accrual status and, generally, to record any payments received from a borrower related to a loan on non-accrual status as a reduction of the amortized cost basis of the loan. The Company did not record any interest income on non-accrual loans during the three months ended March 31, 2024 and December 31, 2023. Accrued interest reversed against interest income for the three months ended March 31, 2024 and December 31, 2023 was immaterial.

There were no significant commitments to lend additional funds to borrowers whose loans were on non-accrual status at March 31, 2024 and December 31, 2023.

A financial asset is considered collateral-dependent when the debtor is experiencing financial difficulty and repayment is expected to be provided substantially through the sale or operation of the collateral. Expected credit losses for collateral-dependent loans are based on the fair value of the collateral at the reporting date, adjusted for selling costs as appropriate.

The following table presents the amortized costs basis and related reserve amount of individually analyzed collateral-dependent loans by portfolio segment.


	For the Period Ended,
	March 31, 2024				December 31, 2023
	Amortized Cost Basis		Reserve Amount		Amortized Cost Basis		Reserve Amount
	(dollars in thousands)
Commercial real estate-owner occupied	$	9,613	$	3,342	$	9,611	$	2,345
Commercial & Industrial		96		76		64		43
Total	$	9,709	$	3,418	$	9,675	$	2,388

Loan Modifications and Restructurings

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. An assessment of whether a borrower is experiencing financial difficulty is made at the time of a modification. 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 to borrowers experiencing financial difficulty, that directly affect cash flows.

At March 31, 2024, the Company had no loan modifications or restructurings to borrowers experiencing financial difficulty.

Foreclosure proceedings

As of March 31, 2024, there was one loan in process of foreclosure with a carrying value of approximately $354,000. This loan is secured by one to four family residential property. As of December 31, 2023, there were two loans in process of foreclosure with a carrying value of approximately $1.5 million. These loans are secured by one to four family residential property.

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 March 31, 2024

	2024		2023		2022		2021		2020		Prior		Revolving loans amortized cost basis		Total
	(dollars in thousands)
Residential Mortgage:
Current	$	11,804	$	91,643	$	328,117	$	503,616	$	268,481	$	401,427	$	—	$	1,605,088
Non-performing		—		—		—		231		190		5,762		—		6,183
Total	$	11,804	$	91,643	$	328,117	$	503,847	$	268,671	$	407,189	$	—	$	1,611,271
Current-period gross write-offs	$	—	$	—	$	—	$	—	$	—	$	3	$	—	$	3

Home equity:
Current	$	1,925	$	8,538	$	2,243	$	2,290	$	1,342	$	14,973	$	58,045	$	89,356
Non-performing		—		—		56		—		—		1,235		—		1,291
Total	$	1,925	$	8,538	$	2,299	$	2,290	$	1,342	$	16,208	$	58,045	$	90,647
Current-period gross write-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Consumer:
Current	$	1,437	$	6,426	$	6,220	$	1,324	$	1,896	$	4,099	$	602	$	22,004
Non-performing		—		—		—		—		—		—		—		—
Total	$	1,437	$	6,426	$	6,220	$	1,324	$	1,896	$	4,099	$	602	$	22,004
Current-period gross write-offs	$	—	$	4	$	5	$	2	$	10	$	4	$	—	$	25


	Credit Quality Indicator - by Origination Year as of March 31, 2024
	2024		2023		2022		2021		2020		Prior		Revolving loans amortized cost basis		Total
	(dollars in thousands)
Commercial Mortgage:
Credit risk profile by internally assigned grade:
1-6 (Pass)	$	9,224	$	69,823	$	468,137	$	358,601	$	225,668	$	697,709	$	—	$	1,829,162
7 (Special Mention)		—		1,815		3,521		1,332		1,028		74,582		—		82,278
8 (Substandard)		100		—		1,088		—		—		9,650		—		10,838
9 (Doubtful)		—		—		—		—		—		—		—		—
10 (Loss)		—		—		—		—		—		—		—		—
Total	$	9,324	$	71,638	$	472,746	$	359,933	$	226,696	$	781,941	$	—	$	1,922,278
Current-period gross write-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Commercial and Industrial:
Credit risk profile by internally assigned grade:
1-6 (Pass)	$	9,916	$	46,037	$	102,279	$	42,648	$	49,036	$	60,135	$	503	$	310,554
7 (Special Mention)		—		60		25,208		62		9,540		—		10		34,880
8 (Substandard)		—		—		1,321		—		233		1,561		—		3,115
9 (Doubtful)		—		—		—		—		—		—		—		—
10 (Loss)		—		—		—		—		—		—		—		—
Total	$	9,916	$	46,097	$	128,808	$	42,710	$	58,809	$	61,696	$	513	$	348,549
Current-period gross write-offs	$	—	$	—	$	—	$	—	$	—	$	8	$	—	$	8


	Credit Quality Indicator - by Origination Year as of December 31, 2023

	2023		2022		2021		2020		2019		Prior		Revolving loans amortized cost basis		Total
	(dollars in thousands)
Residential Mortgage:
Current	$	92,911	$	331,817	$	507,677	$	274,988	$	111,715	$	300,744	$	—	$	1,619,852
Non-performing		—		—		—		193		1,490		4,729		—		6,412
Total	$	92,911	$	331,817	$	507,677	$	275,181	$	113,205	$	305,473	$	—	$	1,626,264
Current-period gross write-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Home equity:
Current	$	8,085	$	2,411	$	2,241	$	1,399	$	2,587	$	14,674	$	63,967	$	95,364
Non-performing		—		58		—		—		—		227		—		285
Total	$	8,085	$	2,469	$	2,241	$	1,399	$	2,587	$	14,901	$	63,967	$	95,649
Current-period gross write-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Consumer:
Current	$	7,281	$	7,459	$	1,706	$	2,841	$	694	$	3,842	$	624	$	24,447
Non-performing		—		—		—		—		—		—		—		—
Total	$	7,281	$	7,459	$	1,706	$	2,841	$	694	$	3,842	$	624	$	24,447
Current-period gross write-offs	$	—	$	—	$	—	$	—	$	—	$	67	$	—	$	67


	Credit Quality Indicator - by Origination Year as of December 31, 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)	$	69,636	$	466,760	$	360,331	$	226,994	$	258,296	$	459,472	$	—	$	1,841,489
7 (Special Mention)		1,826		1,822		—		1,507		48,470		25,493		—		79,118
8 (Substandard)		—		1,096		—		—		—		9,770		—		10,866
9 (Doubtful)		—		—		—		—		—		—		—		—
10 (Loss)		—		—		—		—		—		—		—		—
Total	$	71,462	$	469,678	$	360,331	$	228,501	$	306,766	$	494,735	$	—	$	1,931,473
Current-period gross write-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Commercial and Industrial:
Credit risk profile by internally assigned grade:
1-6 (Pass)	$	43,388	$	107,494	$	46,678	$	50,660	$	22,325	$	40,647	$	436	$	311,628
7 (Special Mention)		60		25,057		92		3,467		2		121		10		28,809
8 (Substandard)		—		1,321		—		256		1,575		122		—		3,274
9 (Doubtful)		—		—		—		—		—		—		—		—
10 (Loss)		—		—		—		—		—		—		—		—
Total	$	43,448	$	133,872	$	46,770	$	54,383	$	23,902	$	40,890	$	446	$	343,711
Current-period gross write-offs	$	—	$	—	$	—	$	—	$	—	$	62	$	—	$	62

Loan origination dates in the tables above reflect the original date, or the date of a material modification of a previously originated loan, for both organic originations and acquired loans.

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:


	March 31, 2024
	30-59 Days		60-89 Days		90 Days or Greater		Total Past Due		Current Loans		Total
	(dollars in thousands)
Residential mortgage	$	14,089	$	1,013	$	2,176	$	17,278	$	1,593,993	$	1,611,271
Commercial mortgage		3,661		487		—		4,148		1,918,130		1,922,278
Home equity		1,534		—		966		2,500		88,147		90,647
Commercial and industrial		1,005		238		42		1,285		347,264		348,549
Consumer		33		—		—		33		21,971		22,004
Total	$	20,322	$	1,738	$	3,184	$	25,244	$	3,969,505	$	3,994,749


	December 31, 2023
	30-59 Days		60-89 Days		90 Days or Greater		Total Past Due		Current Loans		Total
	(dollars in thousands)
Residential mortgage	$	16,768	$	1,234	$	2,548	$	20,550	$	1,605,714	$	1,626,264
Commercial mortgage		1,885		—		—		1,885		1,929,588		1,931,473
Home equity		1,855		171		—		2,026		93,623		95,649
Commercial and industrial		1,477		301		58		1,836		341,875		343,711
Consumer		251		14		—		265		24,182		24,447
Total	$	22,236	$	1,720	$	2,606	$	26,562	$	3,994,982	$	4,021,544

There were no loans 90 days or more past due and still accruing at March 31, 2024 and there were two loans 90 days or more past due and still accruing totaling $51,000 at December 31, 2023.

There were no significant commitments to lend additional funds to borrowers whose loans were on non-accrual status at March 31, 2024 and December 31, 2023.

Allowance for Credit Losses

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


	Three Months Ended March 31, 2024
	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, 2023	$	8,399		$	24,452	$	580	$	4,940		$	573		$	—		$	38,944
Charge-offs		(3	)		—		—		(8	)		(25	)		—			(36	)
Recoveries		—			—		—		32			2			—			34
Provision for (release of) credit losses - loan portfolio		(152	)		568		19		67			(97	)		—			405
Allowance for credit losses -loan portfolio at March 31, 2024	$	8,244		$	25,020	$	599	$	5,031		$	453		$	—		$	39,347
Allowance for credit losses - unfunded commitments:
Balance at December 31, 2023	$	—		$	—	$	—	$	—		$	—		$	1,760		$	1,760
Provision for (release of) credit losses - unfunded commitments		—			—		—		—			—			(280	)		(280	)
Allowance for credit losses- unfunded commitments at March 31, 2024	$	—		$	—	$	—	$	—		$	—		$	1,480		$	1,480
Total allowance for credit loss	$	8,244		$	25,020	$	599	$	5,031		$	453		$	1,480		$	40,827


	Three Months Ended March 31, 2023
	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, 2022	$	13,321		$	19,086	$	573		$	4,153		$	641		$	—		$	37,774
Charge-offs		—			—		—			(11	)		(3	)		—			(14	)
Recoveries		—			—		—			10			10			—			20
Provision for (release of) credit losses - loan portfolio		(157	)		510		(45	)		—			(83	)		—			225
Allowance for credit losses - loan portfolio at March 31, 2023	$	13,164		$	19,596	$	528		$	4,152		$	565		$	—		$	38,005
Allowance for credit losses - unfunded commitments:
Balance at December 31, 2022	$	—		$	—	$	—		$	—		$	—		$	2,096		$	2,096
Provision for credit losses - unfunded commitments		—			—		—			—			—			(165	)		(165	)
Allowance for credit losses- unfunded commitments at March 31, 2023		—			—		—			—			—			1,931			1,931
Total allowance for credit loss	$	13,164		$	19,596	$	528		$	4,152		$	565		$	1,931		$	39,936

8. Income Taxes

The Company’s effective tax rate was 25.6% for the three months ended March 31, 2024. The Company’s effective tax rate was 25.1% for the three months ended March 31, 2023.

Net deferred tax assets totaled $14.4 million and $15.3 million at March 31, 2024 and December 31, 2023, respectively. The Company did not record a valuation allowance for deferred tax assets at March 31, 2024 or December 31, 2023.

The components of income tax expense were as follows:


	Three Months Ended March 31,
	2024		2023
	(dollars in thousands)
Current income tax expense
Federal	$	842	$	1,034
State		228		466
Total current income tax expense	$	1,070	$	1,500

Deferred income tax expense (benefit)
Federal	$	887	$	1,875
State		409		784
Total deferred income tax expense (benefit)		1,296		2,659
Total income tax expense	$	2,366	$	4,159

9. Pension and Retirement Plans

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


	Three Months Ended March 31,
	Pension Plan						Supplemental Retirement Plan				Retirement Healthcare Plan
	2024			2023			2024		2023		2024			2023
	(dollars in thousands)
Net periodic benefit cost (credit)
Service cost	$	—		$	—		$	66	$	68	$	4		$	4
Interest cost		466			452			101		100		6			5
Expected return on assets		(780	)		(801	)		—		—		—			—
Amortization of net actuarial (gain) loss		—			—			—		—		(5	)		(6	)
Net periodic benefit cost (credit)	$	(314	)	$	(349	)	$	167	$	168	$	5		$	3

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 months ended March 31, 2024 and 2023, nor does it expect to make any contributions to the qualified defined benefit plan during the remainder of 2024.

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.

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 March 31, 2024 and March 31, 2023 were $555,000 and $891,000, 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 March 31, 2024 and $41,000 for the three months ended March 31, 2023.

10. share based compensation

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

During the three months ended March 31, 2024, the Company granted no RSAs or 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.

Performance-Based Restricted Stock Units (“PRSUs”)

During the three months ended March 31, 2024, the Company granted no PRSUs from the 2017 Plan. PRSUs are subject to a three-year performance period and are earned based on performance factors, as determined, at the time of grant.

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 March 31,
	2024		2023
	(dollars in thousands)
Share based compensation expense	$	740	$	567
Related tax benefits	$	207	$	158

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 March 31, 2024. There were no shares issued under the 2017 Plan for the three months ended March 31, 2023.

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:


	March 31, 2024		December 31, 2023
	(dollars in thousands)
Financial instruments whose contractual amount represents credit risk:
Commitments to extend credit:
Unused portion of existing lines of credit	$	947,638	$	994,196
Origination of new loans		27,259		18,341
Standby letters of credit		32,266		34,063
Financial instruments whose notional amount exceeds the amount of credit risk:
Commitments to sell residential mortgage loans		276		795

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 2024 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 March 31,
	2024			2023
	(dollars in thousands)
Operating lease cost	$	1,755		$	1,737
Variable lease cost (cost excluded from lease payments)		8			7
Sublease income		(129	)		(128	)
Total operating lease cost	$	1,634		$	1,616
Other Information
Cash paid for amounts included in the measurement of lease liabilities - operating cash flows for operating leases	$	1,890		$	1,843
Operating Lease - operating cash flows (liability reduction)		1,699			1,653
Weighted average lease term - operating leases	4.81 Years			5.33 Years
Weighted average discount rate - operating leases		3.25	%		3.03	%

The total minimum lease payments due in future periods under these agreements in effect at March 31, 2024 were as follows:


	Future Minimum
	Lease Payments
	(dollars in thousands)
Remainder of 2024	$	5,120
2025		6,104
2026		4,867
2027		3,079
2028		2,710
Thereafter		3,971
Total minimum lease payments	$	25,851
Less: interest		(1,937	)
Total lease liability	$	23,914

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 $2.0 million for the three months ended March 31, 2024 and $1.9 million March 31, 2023.

13. Shareholders’ Equity

As of March 31, 2024 and December 31, 2023, 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 March 31, 2024
Cambridge Bancorp:
Total capital (to risk-weighted assets)	$	524,225		14.5	%	$	380,868		10.5	%	N/A		N/A
Tier 1 capital (to risk-weighted assets)		483,397		13.3	%		308,322		8.5	%	N/A		N/A
Common equity tier I capital (to risk-weighted assets)		483,397		13.3	%		253,912		7.0	%	N/A		N/A
Tier 1 capital (to average assets)		483,397		9.0	%		213,957		4.0	%	N/A		N/A
Cambridge Trust Company:
Total capital (to risk-weighted assets)	$	502,696		13.9	%	$	380,833		10.5	%	$	362,698		10.0	%
Tier 1 capital (to risk-weighted assets)		461,868		12.7	%		308,293		8.5	%		290,159		8.0	%
Common equity tier I capital (to risk-weighted assets)		461,868		12.7	%		253,889		7.0	%		235,754		6.5	%
Tier 1 capital (to average assets)		461,868		8.6	%		213,943		4.0	%		267,429		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, 2023
Cambridge Bancorp:
Total capital (to risk-weighted assets)	$	521,903		14.1	%	$	387,763		10.5	%	N/A		N/A
Tier 1 capital (to risk-weighted assets)		481,198		13.0	%		313,903		8.5	%	N/A		N/A
Common equity tier I capital (to risk-weighted assets)		481,198		13.0	%		258,508		7.0	%	N/A		N/A
Tier 1 capital (to average assets)		481,198		8.9	%		216,281		4.0	%	N/A		N/A
Cambridge Trust Company:
Total capital (to risk-weighted assets)	$	500,355		13.6	%	$	387,727		10.5	%	$	369,264		10.0	%
Tier 1 capital (to risk-weighted assets)		459,650		12.5	%		313,874		8.5	%		295,411		8.0	%
Common equity tier I capital (to risk-weighted assets)		459,650		12.5	%		258,485		7.0	%		240,022		6.5	%
Tier 1 capital (to average assets)		459,650		8.5	%		216,268		4.0	%		270,335		5.0	%

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 March 31, 2024									Three Months Ended March 31, 2023
	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)	$	(723	)	$	193		$	(530	)	$	2,608	$	(666	)	$	1,942
Interest rate swaps designated as cash flow hedges
Unrealized holding (losses) gains		(686	)		192			(494	)		78		(21	)		57
Reclassification adjustment for (losses) income recognized in net income		97			(27	)		70			144		(40	)		104
Total other comprehensive income (loss)	$	(1,312	)	$	358		$	(954	)	$	2,830	$	(727	)	$	2,103

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	March 31, 2024			March 31, 2023			Affected Line Item in the Statement where Net Income is Presented
	(dollars in thousands)
Unrealized (losses) gains on derivatives	$	(97	)	$	(144	)	Interest on taxable loans
Tax benefit (expense)		27			40		Income tax expense
Net of tax	$	(70	)	$	(104	)	Net income

15. Earnings per Share

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


	Three Months Ended March 31,
	2024			2023
	(dollars in thousands, except per share data)
Earnings per common share - basic:
Numerator:
Net income	$	6,888		$	12,416
Less dividends and undistributed earnings allocated to participating securities		(9	)		(26	)
Net income applicable to common shareholders	$	6,879		$	12,390
Denominator:
Weighted average common shares outstanding		7,835			7,792
Earnings per common share - basic	$	0.88		$	1.59
Earnings per common share - diluted:
Numerator:
Net income	$	6,888		$	12,416
Less dividends and undistributed earnings allocated to participating securities		(9	)		(26	)
Net income applicable to common shareholders	$	6,879		$	12,390
Denominator:
Weighted average common shares outstanding		7,835			7,792
Dilutive effect of common stock equivalents		30			34
Weighted average diluted common shares outstanding		7,865			7,826
Earnings per common share - diluted	$	0.87		$	1.58

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 $390,000 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.

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)
	March 31, 2024		December 31, 2023		March 31, 2024		December 31, 2023
	(dollars in thousands)
Fixed rate loans	$	496,754	$	498,825	$	3,246	$	1,175
Total	$	496,754	$	498,825	$	3,246	$	1,175

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 March 31, 2024, the amortized cost basis of the closed portfolios used in these hedging relationships was $673.3 million, the cumulative basis adjustments associated with these hedging relationships was $3.2 million, and the notional amount of the designated hedged items were $500.0 million. At March 31, 2024, the Company’s fair value hedges had a weighted average remaining maturity of 1.03 years, and a weighted average fixed rate of 4.16%. At December 31, 2023, the amortized cost basis of the closed portfolios used in these hedging relationships was $681.1 million, the cumulative basis adjustments associated with these hedging relationships was $1.2 million, and the notional amount of the designated hedged items were $500.0 million. At December 31, 2023, the Company’s fair value hedges had a weighted average remaining maturity of 1.28 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:


	March 31, 2024
	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	$	100,000	Other Assets	$	599	$	—	Other Liabilities	$	—
Interest rate contracts-fair value hedging relationships		500,000	Other Assets		3,190		—	Other Liabilities		—
Total derivatives designated as hedging instruments				$	3,789				$	—
Derivatives not designated as hedging instruments
Loan related derivative contracts
Interest rate contracts	$	475,076	Other Assets	$	46,879	$	475,076	Other Liabilities	$	46,879
Risk participation agreements-out to counterparties		53,457	Other Assets		10		—	Other Liabilities		—
Risk participation agreements-in with counterparties		—	Other Assets		—		98,395	Other Liabilities		35
Total derivatives not designated as hedging instruments				$	46,889				$	46,914


	December 31, 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	$	100,000	Other Assets	$	1,284	$	—	Other Liabilities	$	—
Interest rate contracts-fair value hedging relationships		400,000	Other Assets		1,620		100,000	Other Liabilities		485
Total derivatives designated as hedging instruments				$	2,904				$	485
Derivatives not designated as hedging instruments
Loan related derivative contracts
Interest rate contracts	$	486,310	Other Assets	$	40,338	$	486,310	Other Liabilities	$	40,338
Risk participation agreements-out to counterparties		53,847	Other Assets		18		—	Other Liabilities		—
Risk participation agreements-in with counterparties		—	Other Assets		—		98,779	Other Liabilities		62
Total derivatives not designated as hedging instruments				$	40,356				$	40,400

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 March 31, 2024
	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	$	(686	)	$	—	$	(686	)	Interest Income	$	(97	)	$	—	$	(97	)


	Three Months Ended March 31, 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 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	$	78	$	—	$	78	Interest Income	$	(144	)	$	(96	)	$	(48	)

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
		March 31, 2024		March 31, 2023
	Location of Gain or (Loss)	(dollars in thousands)
Other contracts	Loan-related derivative income	$	18	$	(22	)

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 March 31, 2024 and December 31, 2023:


								Gross Amounts Not Offset
		Gross Amounts Recognized		Gross Amounts Offset		Net Amounts Recognized		Financial Instruments		Collateral Pledged (Received)			Net Amount
		March 31, 2024
	(dollars in thousands)
Offsetting of Derivative Assets
Derivative Assets		$	50,678	$	—	$	50,678	$	228	$	(50,049	)	$	401

Offsetting of Derivative Liabilities
Derivative Liabilities		$	46,914	$	—	$	46,914	$	228	$	—		$	46,686

								Gross Amounts Not Offset
		Gross Amounts Recognized		Gross Amounts Offset		Net Amounts Recognized		Financial Instruments		Collateral Pledged (Received)			Net Amount
		December 31, 2023
	(dollars in thousands)
Offsetting of Derivative Assets
Derivative Assets		$	43,260	$	—	$	43,260	$	971	$	(41,319	)	$	970

Offsetting of Derivative Liabilities
Derivative Liabilities		$	40,885	$	—	$	40,885	$	971	$	—		$	39,914

At March 31, 2024 and December 31, 2023, 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:


	March 31, 2024				December 31, 2023
	Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value
	(dollars in thousands)
Financial assets
Cash and cash equivalents	$	29,705	$	29,705	$	33,004	$	33,004
Securities available for sale		133,222		133,222		137,838		137,838
Securities held to maturity		940,618		777,383		959,332		805,428
Loans, net		3,955,402		3,513,439		3,982,600		3,530,958
FHLB of Boston stock		24,291		24,291		19,056		19,056
Accrued interest receivable		15,226		15,226		15,765		15,765
Mortgage servicing rights		1,437		2,475		1,470		2,401
Interest rate contracts - cash flow hedge		599		599		1,284		1,284
Interest rate contracts - fair value hedge		3,190		3,190		1,620		1,620
Loan level interest rate swaps		46,879		46,879		40,338		40,338
Risk participation agreements out to counterparties		10		10		18		18

Financial liabilities
Deposits, excluding wholesale deposits		4,024,317		4,021,359		4,029,511		4,026,404
Wholesale deposits		161,065		161,037		291,667		291,748
Borrowings		546,405		545,621		452,155		451,492
Interest rate contracts - fair value hedge		—		—		485		485
Loan level interest rate swaps		46,879		46,879		40,338		40,338
Risk participation agreements in with counterparties		35		35		62		62

The Company follows Accounting Standards Codification (“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 March 31, 2024
	Level 1		Level 2		Level 3		Total
	(dollars in thousands)
Measured on a recurring basis
Securities available for sale
U.S. GSE obligations	$	—	$	20,361	$	—	$	20,361
Mortgage-backed securities		—		112,861		—		112,861
Other assets
Interest rate swaps with clients		—		46,879		—		46,879
Risk participation agreements -out to counterparties		—		10		—		10
Interest rate contracts - cash flow hedge		—		599		—		599
Interest rate contracts - fair value hedge		—		3,190		—		3,190
Other liabilities
Interest rate swaps with counterparties		—		46,879		—		46,879
Risk participation agreements-in with counterparties		—		35		—		35


	Fair Value as of December 31, 2023
	Level 1		Level 2		Level 3		Total
	(dollars in thousands)
Measured on a recurring basis
Securities available for sale
U.S. GSE obligations	$	—	$	20,462	$	—	$	20,462
Mortgage-backed securities		—		117,376		—		117,376
Corporate debt securities		—		—		—		—
Other assets
Interest rate swaps with clients		—		40,338		—		40,338
Risk participation agreements-out to counterparties		—		18		—		18
Interest rate contracts - cash flow hedge		—		1,284		—		1,284
Interest rate contracts - fair value hedge		—		1,620		—		1,620
Other liabilities
Interest rate swaps with counterparties		—		40,338		—		40,338
Risk participation agreements-in with counterparties		—		62		—		62

The following tables present the carrying value of assets held at March 31, 2024 and December 31, 2023, which were measured at fair value on a non-recurring basis:


	March 31, 2024
	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	$	—	$	—	$	9,709	$	9,709
Total	$	—	$	—	$	9,709	$	9,709


	December 31, 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	$	—	$	—	$	9,675	$	9,675
Total	$	—	$	—	$	9,675	$	9,675

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 months ended March 31, 2024 or December 31, 2023.

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.

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.

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, 2023 (the “2022 Annual Report”), filed with the Securities and Exchange Commission (the “SEC”) on March 12, 2024.

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;

•

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;

•

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;

•

changes in the Company’s accounting policies or in accounting standards which could materially affect how the Company reports financial results and condition; and

•

the impact of epidemics/pandemics and actions taken in response thereto the COVID-19 pandemic on consumer confidence and on global and regional economies and economic activity.

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 March 31, 2024, the Company had total assets of approximately $5.4 billion. Currently, the Bank operates 22 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, one in Boston, Massachusetts, three in New Hampshire in Concord, Manchester, and Portsmouth, and one in Southport, Connecticut. As of March 31, 2024, the Company had Assets under Management and Administration of approximately $4.8 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.

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 Bankshares, Inc. (“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”). On February 28, 2024, the Company’s shareholders voted to approve the merger with Eastern. The merger remains subject to regulatory approval and the completion of other customary closing conditions.

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 2023 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 March 31, 2024 and March 31, 2023

General. Net income decreased by $5.5 million, or 44.5%, to $6.9 million for the three months ended March 31, 2024, as compared to net income of $12.4 million for the three months ended March 31, 2023. The decrease was primarily due to lower net interest and dividend income before the provision for credit losses of $7.2 million, and higher non-operating expenses of $983,000, which were partially offset by lower salary and employee benefits expense of $1.2 million and lower income tax expense of $1.8 million. Diluted earnings per share were $0.87 for the three months ended March 31, 2024, as compared to a diluted earnings per share of $1.58 for the three months ended March 31, 2023.

Net Interest and Dividend Income. Net interest and dividend income before the provision for credit losses for the three months ended March 31, 2024 decreased by $7.2 million, or 21.1%, to $27.0 million, as compared to $34.2 million for the three months ended

March 31, 2023, primarily due to higher cost of funds, a decrease in average earning assets, and higher interest-bearing liability balances, partially offset by higher yields on earning assets.

•

Interest on loans increased by $4.8 million, or 10.5%, for the three months ended March 31, 2024, as compared to the three months ended March 31, 2023, primarily due to higher yields.

•

Interest on deposits increased by $7.4 million, or 46.3%, for the three months ended March 31, 2024, as compared to the three months ended March 31, 2023, primarily due to higher costs of deposits, which were partially offset by lower average balances.

•

Interest on borrowings increased by $4.3 million, or 277.5%, for the three months ended March 31, 2024, as compared to the three months ended March 31, 2023, primarily due to higher cost of borrowing combined with higher average balances.

Total average interest-earning assets decreased by $159.0 million, or 3.0%, to $5.15 billion during the three months ended March 31, 2024, from $5.31 billion for the three months ended March 31, 2023, primarily due to lower investment and loan portfolios. The Company’s net interest margin, on a fully taxable equivalent basis, decreased by 53 basis points to 2.10% for the three months ended March 31, 2024, as compared to 2.63% for the three months ended March 31, 2023, primarily due to higher cost of funds, which were partially offset by higher yields on earning assets.

Average interest-bearing liabilities increased by $135.1 million, or 3.7%, to $3.75 billion during the three months ended March 31, 2024, from $3.61 billion for the three months ended March 31, 2023, primarily due to the increase in outstanding FHLB borrowings, partially offset by lower average interest bearing deposit balances. The increase in interest-bearing liabilities was driven by an increase in other borrowed funds of $306.2 million and an increase in average checking account balances of $287.6 million, partially offset by a decrease in average savings account balances of $268.4 million, a decrease in average money market account balances of $176.0 million, and a decrease in average certificates of deposit balances of $14.2 million. The cost of total deposits increased to 2.18% for the three months ended March 31, 2024, from 1.36% for the three months ended March 31, 2023. The cost of total deposits excluding wholesale deposits was 1.97% for the three months ended March 31, 2024, as compared to 1.01% for the three months ended March 31, 2023.

Interest and Dividend Income. Total interest and dividend income increased by $4.5 million, or 8.6%, to $56.2 million for the three months ended March 31, 2024, as compared to $51.7 million for the three months ended March 31, 2023, primarily due to higher asset yields.

Interest Expense. Interest expense increased by $11.7 million, or 66.8% to $29.2 million for the three months ended March 31, 2024, as compared to $17.5 million for the three months ended March 31, 2023, primarily driven by an increase in the cost of funds, combined with higher interest-bearing liability balances.

Provision for Credit Losses. The Company recorded a provision for credit losses of $125,000 for the three months ended March 31, 2024, as compared to a provision for credit losses of $60,000 for the three months ended March 31, 2023.

The Company recorded net loan charge-offs of $2,000 for the three months ended March 31, 2024 and net loan recoveries of $6,000 for the three months ended March 31, 2023.

The allowance for credit losses for loans was $39.3 million, or 0.98% of total loans outstanding at March 31, 2024, as compared to $38.0 million, or 0.95% of total loans outstanding at March 31, 2023.

Noninterest Income. Total noninterest income decreased by $109,000, or 1.0%, to $10.6 million for the three months ended March 31, 2024, as compared to $10.7 million for the three months ended March 31, 2023, primarily as a result of lower other income, lower loan related derivative income, and lower ATM and debit card fees, partially offset by higher wealth management revenue. Noninterest income was 28.2% of total revenues for the three months ended March 31, 2024.

•

Other income decreased by $480,000, or 49.8%, to $484,000 for the three months ended March 31, 2024, as compared to $964,000 for the three months ended March 31, 2023, primarily due to success fees associated with Innovation Banking loans in addition to gains recognized on a community development fund investment recognized for the three months ended March 31, 2023, while no such fees were recognized during the three months ended March 31, 2024.

•

Loan-related derivative income decreased by $216,000, or 92.3%, to $18,000 for the three months ended March 31, 2024, as compared to $234,000 for the three months ended March 31, 2023, primarily as a result of lower loan swap volume.

•

ATM and Debit card fees decreased by $151,000, or 29.5%, to $360,000 for the three months ended March 31, 2024, as compared to $511,000 for the three months ended March 31, 2023, primarily as a result of one-time fees collected during 2023 while no such fees were collected during 2024.

•

Wealth management revenue increased by $778,000, or 9.8%, to $8.7 million for the three months ended March 31, 2024, as compared to $7.9 million for the three months ended March 31, 2023. Wealth Management Assets under Management and Administration were $4.80 billion as of March 31, 2024, an increase of $533.4 million, or 12.5%, from $4.27 billion at March 31, 2023, primarily due to positive returns in the equity markets.

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


	Three Months Ended
	March 31, 2024		March 31, 2023
	(dollars in thousands)
Wealth management revenues:
Trust and investment advisory fees	$	8,410	$	7,759
Financial planning fees and other service fees		305		178
Total wealth management revenues	$	8,715	$	7,937

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


	Three Months Ended
	March 31, 2024			March 31, 2023
	(dollars in thousands)
Wealth Management Assets under Management
Balance at the beginning of the period	$	4,326,152		$	3,875,747
Gross client asset inflows		104,296			141,996
Gross client asset outflows		(120,332	)		(135,584	)
Net market impact		191,253			123,646
Balance at the end of the period	$	4,501,369		$	4,005,805
Weighted average management fee		0.77	%		0.80	%

There were no significant changes to the wealth management average fee rates and fee structure for the three months ended March 31, 2024 and March 31, 2023.

Noninterest Expense. Total noninterest expense remained flat and totaled $28.3 million for the three months ended March 31, 2024, as compared to the three months ended March 31, 2023. There were decreases in salaries and employee benefits, professional fees, and marketing expenses, partially offset by increases in non-operating expenses and FDIC insurance expense.

•

Salaries and employee benefits decreased by $1.2 million, or 6.3%, to $17.3 million for the three months ended March 31, 2024, as compared to $18.5 million for the three months ended March 31, 2023, primarily due to lower head count, partially offset by merit increases.

•

Professional fees decreased by $298,000, or 26.5%, to $825,000 for the three months ended March 31, 2024, as compared to $1.1 million for the three months ended March 31, 2023, primarily due to lower employment agency fees combined with lower temporary staff fees.

•

Marketing expense decreased by $197,000, or 46.2%, to $229,000, primarily due to the timing of marketing spend.

•

Non-operating expenses increased by $983,000 to $1.4 million for the three months ended March 31, 2024, as compared to $424,000 for the three months ended March 31, 2023, primarily due to higher merger expenses related to the Eastern merger and office consolidation expenses associated with the recent sublease of an operations center.

•

FDIC insurance increased by $416,000, or 109.8%, to $795,000, primarily due to an increase in insurance premium.

Income Tax Expense. The Company recorded a provision for income taxes of $2.4 million for the three months ended March 31, 2024, as compared to $4.2 million for the three months ended March 31, 2023. The Company’s effective tax rate was 25.6% for the three months ended March 31, 2024, as compared to 25.1% for the three months ended March 31, 2023.

changes in Financial Condition

Total Assets. Total assets decreased by $43.8 million, or 0.8%, from $5.42 billion at December 31, 2023, to $5.37 billion at March 31, 2024.

Cash and Cash Equivalents. Cash and cash equivalents decreased by $3.3 million, or 10.0%, from $33.0 million at December 31, 2023 to $29.7 million at March 31, 2024.

Investment Securities. The Company’s total investment securities portfolio decreased by $23.3 million, or 2.1%, from $1.10 billion at December 31, 2023 to $1.07 billion at March 31, 2024, primarily due to paydowns during the period.

Loans. Total loans decreased by $26.8 million, or 0.7%, from $4.02 billion at December 31, 2023 to $3.99 billion at March 31, 2024.

•

Residential real estate loans decreased by $15.0 million, or 0.9%, from $1.63 billion at December 31, 2023 to $1.61 billion at March 31, 2024.

•

Commercial real estate loans decreased by $9.2 million, or 0.5%, from $1.93 billion at December 31, 2023 to $1.92 billion at March 31, 2024.

•

Home equity loans decreased by $5.0 million, or 5.2%, from $95.6 million at December 31, 2023 to $90.6 million at March 31, 2024.

•

Commercial and industrial loans increased by $4.8 million, or 1.4%, from $343.7 million at December 31, 2023 to $348.5 million at March 31, 2024.

•

Consumer loans decreased by $2.4 million, or 10.0%, from $24.4 million at December 31, 2023 to $22.0 million at March 31, 2024.

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 March 31, 2024, the Company’s investment in BOLI was $35.5 million, representing an increase of $206,000 from $35.3 million at December 31, 2023, primarily due to increases in the cash surrender value of the policies during 2024.

Deposits. Total deposits, inclusive of wholesale certificates of deposit, decreased by $135.8 million, or 3.1%, to $4.19 billion at March 31, 2024 from $4.32 billion at December 31, 2023. Excluding wholesale certificates of deposit, total deposits decreased by $5.2 million, or 0.1%, at March 31, 2024 from December 31, 2023.

•

Certificates of deposit totaled $575.0 million at March 31, 2024, representing a decrease of $99.4 million, or 14.7%, from $674.4 million at December 31, 2023. Total wholesale certificates of deposit, which are included within certificates of deposit, were $161.1 million and $291.7 million at March 31, 2024 and December 31, 2023, respectively.

•

The cost of total deposits for the three months ended March 31, 2024 was 2.18%, as compared to 2.19% for the three months ended December 31, 2023. The cost of total deposits excluding wholesale deposits was 1.97% for the three months ended March 31, 2024, as compared to 1.89% for the three months ended December 31, 2023. At March 31, 2024, the spot cost of non-wholesale deposits was 2.00%, as compared to 1.88% at December 31, 2023.

Borrowings. At March 31, 2024 and December 31, 2023, borrowings consisted of advances from the Federal Home Loan Bank of Boston (“FHLB of Boston”). Total borrowings increased by $94.3 million, or 20.8%, to $546.4 million at March 31, 2024, from $452.2 million at December 31, 2023.

Shareholders’ Equity. Total shareholders’ equity increased by $1.0 million, or 0.2%, to $535.6 million at March 31, 2024, from $534.6 million at December 31, 2023, primarily due to net income of $6.9 million, partially offset by dividend payments of $5.3 million.

The Company’s common equity to assets ratio increased to 9.97% at March 31, 2024, from 9.87% at December 31, 2023. The Company’s ratio of tangible common equity to tangible assets increased to 8.76% at March 31, 2024, from 8.67% at December 31, 2023.

Book value per share increased to $68.27 at March 31, 2024, from $68.14 at December 31, 2023. Tangible book value per share increased to $59.23 at March 31, 2024, from $59.08 at December 31, 2023.

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
Operating Net Income / Operating Diluted Earnings Per Share	March 31,			December 31,			March 31,
	2024			2023			2023
	(dollars in thousands, except share data)

Net Income (a GAAP measure)	$	6,888		$	8,034		$	12,416
Add: Mergers and office consolidation expenses (1)		1,407			698			424
Less: Tax effect of non-operating expenses (2)		(299	)		(8	)		(118	)
Operating Net Income (a non-GAAP measure)	$	7,996		$	8,724		$	12,722
Less: Dividends and Undistributed Earnings Allocated to Participating Securities (a non-GAAP measure)		(10	)		(13	)		(26	)
Operating Net Income Applicable to Common Shareholders (a non-GAAP measure)	$	7,986		$	8,711		$	12,696
Weighted Average Diluted Shares		7,865,193			7,853,823			7,826,162
Operating Diluted Earnings Per Share (a non-GAAP measure)	$	1.02		$	1.11		$	1.62

(1)

The Company recorded merger expenses of $673,000 associated with the Eastern merger and office consolidation expenses of $734,000 associated with the recent sublease of an operations center for the three months ended March 31, 2024. The Company recorded $424,000 of merger expenses associated with the Northmark Bank merger for the three months ended March 31, 2023.

(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:


	March 31, 2024			December 31, 2023			March 31, 2023
	(dollars in thousands, except per share data )
Tangible Common Equity:
Shareholders' equity (GAAP)	$	535,596		$	534,573		$	525,949
Less: Goodwill and acquisition related intangibles (GAAP)		(70,866	)		(71,089	)		(71,758	)
Tangible Common Equity (a non-GAAP measure)	$	464,730		$	463,484		$	454,191
Total assets (GAAP)	$	5,373,840		$	5,417,666		$	5,528,584
Less: Goodwill and acquisition related intangibles (GAAP)		(70,866	)		(71,089	)		(71,758	)
Tangible assets (a non-GAAP measure)	$	5,302,974		$	5,346,577		$	5,456,826
Tangible Common Equity Ratio (a non-GAAP measure)		8.76	%		8.67	%		8.32	%

Tangible Book Value Per Share:
Tangible Common Equity (a non-GAAP measure)	$	464,730		$	463,484		$	454,191
Common shares outstanding		7,845,598			7,845,452			7,833,997
Tangible Book Value Per Share (a non-GAAP measure)	$	59.23		$	59.08		$	57.98

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.

The fair value of securities available for sale totaled $133.2 million and included gross unrealized gains of $1,000 and gross unrealized losses of $26.3 million at March 31, 2024. At December 31, 2023, the fair value of securities available for sale totaled $137.8 million and included gross unrealized gains of $4,000 and gross unrealized losses of $25.5 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 March 31, 2024 are carried at their amortized cost of $940.6 million. At December 31, 2023, the amortized cost of securities held to maturity totaled $959.3 million.

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:


	March 31,					December 31,
	2024					2023
	Amount		Percent			Amount		Percent
	(dollars in thousands)
Available for sale securities
U.S. GSE obligations	$	20,361		15	%	$	20,462		15	%
Mortgage-backed securities		112,861		85	%		117,376		85	%
Total securities available for sale	$	133,222		100	%	$	137,838		100	%
Held to maturity securities
U.S. Treasury Notes	$	3,053		—	%	$	3,039		—	%
Mortgage-backed securities		854,043		91	%		871,426		91	%
Corporate debt securities		250		—	%		250		—	%
Municipal securities		83,272		9	%		84,617		9	%
Total securities held to maturity	$	940,618		100	%	$	959,332		100	%
Total	$	1,073,840				$	1,097,170

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.


	March 31, 2024
	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	$	—		—		$	9,999		0.5	%	$	5,000		2.3	%	$	8,000		2.6	%	$	22,999		1.6	%
Mortgage-backed securities		344		—			10,461		1.9	%		36,824		1.5	%		88,855		1.7	%		136,484		1.6	%
Total available for sale securities	$	344		0.0	%	$	20,460		1.2	%	$	41,824		1.6	%	$	96,855		1.7	%	$	159,483		1.6	%

Held to maturity securities
U.S. treasury Notes	$	2,086		4.2	%	$	967		4.1	%	$	—		0.0	%	$	—		0.0	%	$	3,053		4.1	%
Mortgage-backed securities		—		—			22,818		2.6	%		49,523		1.8	%		781,702		1.8	%		854,043		1.9	%
Corporate debt securities		250		2.0	%		—		—			—		—			—		—			250		2.0	%
Municipal securities		2,366		3.1	%		24,330		3.6	%		19,103		3.2	%		37,473		2.7	%		83,272		3.1	%
Total held to maturity securities	$	4,702		3.5	%	$	48,115		3.1	%	$	68,626		2.2	%	$	819,175		1.9	%	$	940,618		2.0	%
Total	$	5,046		3.3	%	$	68,575		2.6	%	$	110,450		2.0	%	$	916,030		1.9	%	$	1,100,101		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 March 31, 2024 or December 31, 2023. 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.

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 summary shows the composition of the loan portfolio at the dates indicated:


	March 31,					December 31,
	2024		% of Total			2023		% of Total
	(dollars in thousands)
Residential mortgage
Mortgages - fixed rate	$	813,224		20	%	$	813,374		20	%
Mortgages - adjustable rate		753,387		19	%		760,632		19	%
Construction		39,098		1	%		45,863		1	%
Deferred costs, net of unearned fees		5,562		0	%		6,395		0	%
Total residential mortgages		1,611,271		40	%		1,626,264		40	%
Commercial mortgage
Mortgages - non-owner occupied		1,643,368		41	%		1,648,408		41	%
Mortgages - owner occupied		164,487		4	%		167,522		4	%
Construction		112,063		3	%		113,133		3	%
Deferred costs, net of unearned fees		2,360		0	%		2,410		0	%
Total commercial mortgages		1,922,278		48	%		1,931,473		48	%
Home equity
Home equity - lines of credit		87,712		2	%		92,730		2	%
Home equity - term loans		2,701		0	%		2,679		0	%
Deferred costs, net of unearned fees		234		0	%		240		0	%
Total home equity		90,647		2	%		95,649		2	%
Commercial and industrial
Commercial and industrial		347,392		9	%		342,475		9	%
PPP loans		559		0	%		653		0	%
Unearned fees, net of deferred costs		598		0	%		583		0	%
Total commercial and industrial		348,549		9	%		343,711		9	%
Consumer
Secured		20,574		1	%		22,592		1	%
Unsecured		1,397		0	%		1,822		0	%
Deferred costs, net of unearned fees		33		0	%		33		0	%
Total consumer		22,004		1	%		24,447		1	%
Total loans	$	3,994,749		100	%	$	4,021,544		100	%

Residential Mortgage. Residential real estate loans held in portfolio were $1.61 billion at March 31, 2024, a decrease of $15.0 million, or 0.9%, from $1.63 billion at December 31, 2023, 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 March 31, 2024 and December 31, 2023.

The average loan balance outstanding in the residential portfolio was $526,000 and the largest individual residential mortgage loan outstanding was $5.6 million as of March 31, 2024. At March 31, 2024, 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 $766,550 in 2024 from $726,200 in 2023, 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 ended March 31, 2024 or March 31, 2023.

The Company was servicing mortgage loans sold to others without recourse of approximately $177.9 million at March 31, 2024 and $173.9 million at December 31, 2023.

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


	For the Three Months Ended March 31,
	2024		2023
	(dollars in thousands)
Originations for retention in portfolio	$	31,543	$	26,017
Originations for sale to the secondary market		795		420
Total	$	32,338	$	26,437

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


	For the Three Months Ended March 31,
	2024		2023
	(dollars in thousands)
Loans sold with servicing rights retained	$	795	$	420
Loans sold with servicing rights released		—		—
Total	$	795	$	420

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 $1.4 million and $1.5 million at March 31, 2024 and December 31, 2023, respectively.

Commercial Mortgage. CRE loans totaled $1.92 billion as of March 31, 2024, and $1.93 billion at December 31, 2023. The CRE loan portfolio represented 48% of total loans at both March 31, 2024 and December 31, 2023, respectively. The average loan balance outstanding in this portfolio was $1.8 million, and the largest individual CRE loan outstanding was $28.2 million as of March 31, 2024. At March 31, 2024, 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 $90.6 million and $95.6 million at March 31, 2024 and December 31, 2023, respectively. The home equity portfolio represented 2% of total loans at both March 31, 2024 and December 31, 2023, respectively. At March 31, 2024, the largest home equity line of credit was $2.0 million and had an outstanding balance of $2.0 million. At March 31, 2024, 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 $348.5 million and $343.7 million at March 31, 2024 and December 31, 2023, respectively. The C&I portfolio represented 9% of total loans at both March 31, 2024 and December 31, 2023. The average loan balance outstanding in this portfolio was $594,000, and the largest individual C&I loan outstanding was $20.0 million as of March 31, 2024. At March 31, 2024, 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 March 31, 2024, commercial solar loans totaled $112.9 million and the average loan balance outstanding in this portfolio was $2.1 million. The largest individual loan outstanding was $7.1 million, and this loan was performing in accordance with its original terms at March 31, 2024.

Consumer Loans. The consumer loan portfolio totaled $22.0 million at March 31, 2024 and $24.4 million at December 31, 2023. Consumer loans represented 1% of the total loan portfolio at both March 31, 2024 and December 31, 2023. The average loan

balance outstanding in this portfolio was $8,000 and the largest individual consumer loan outstanding was $2.0 million as of March 31, 2024. At March 31, 2024, 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 March 31, 2024. 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.


	March 31, 2024
	One Year or Less		One to Five Years		After Five Years through Fifteen Years		After Fifteen Years		Total
	(dollars in thousands)
Residential mortgage	$	814	$	11,112	$	96,030	$	1,503,315	$	1,611,271
Commercial mortgage		193,960		617,034		989,338		121,946		1,922,278
Home equity		1,495		4,989		37,859		46,304		90,647
Commercial and industrial		46,800		148,066		88,823		64,860		348,549
Consumer		21,270		287		447		—		22,004
Total	$	264,339	$	781,488	$	1,212,497	$	1,736,425	$	3,994,749

Loan Portfolio by Interest Rate Type. The following table summarizes the dollar amount of loans maturing over one year in the portfolio based on whether the loan has a fixed, adjustable, or floating rate of interest at March 31, 2024. Floating rate loans are tied to a market index while adjustable-rate loans are adjusted based on the contractual terms of the loan.


	March 31, 2024
	Fixed		Adjustable		Floating		Total
	(dollars in thousands)
Residential mortgage	$	815,106	$	795,351	$	—	$	1,610,457
Commercial mortgage		777,771		454,266		496,281		1,728,318
Home equity		2,491		571		86,090		89,152
Commercial and industrial		41,320		24,077		236,352		301,749
Consumer		631		—		103		734
Total	$	1,637,319	$	1,274,265	$	818,826	$	3,730,410

Non-performing Loans and modifications

The composition of nonperforming loans is as follows:


	March 31,			December 31,
	2024			2023
	(dollars in thousands)
Non-performing loans	$	17,201		$	16,516
Loans past due > 90 days, but still accruing		—			51
Total non-performing loans	$	17,201		$	16,567
Non-performing loans as a percentage of gross loans		0.43	%		0.41	%
Non-performing loans as a percentage of total assets		0.32	%		0.31	%

Total non-performing loans increased by $634,000, or 3.8%, at March 31, 2024, as compared to December 31, 2023, primarily due to an increase in home equity loans placed on non-accrual during the first quarter of 2024.

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 March 31, 2024 and December 31, 2023, or in cases where collateral may be insufficient, any

difference is individually reserved within the allowance for credit loss. The Company recognizes that such values may fluctuate with changes in the economy and the real estate market. 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. This independent review is performed annually.

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, or if payment in full of principal or interest is not expected. 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. Effective January 1, 2023, the Company adopted Accounting Standard Update 2022-02, which eliminates the recognition and measurement of a troubled debt restructuring (“TDR”). 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.

During the period ended March 31, 2024, the Company made no loan modifications or restructuring to borrowers experiencing financial difficulty.

Allowance for Credit Losses

The following table summarizes the ratios related to the Company’s allowance for credit losses and certain asset quality indicators for the periods indicated:


	At and For the Three Months Ended			At and For the Year Ended
	March 31,			December 31,
	2024			2023
	(dollars in thousands)
Period-end loans outstanding (net of unearned fees and deferred costs)	$	3,994,749		$	4,021,544
Average loans outstanding (net of unearned fees and deferred costs)	$	4,008,278		$	4,029,579
Loans on non-accrual	$	17,201		$	16,516
Allowance for credit losses at end of period	$	39,347		$	38,944
Net (charge-offs) recoveries to average loans outstanding - Total		(0.00	)%		(0.00	)%
Non-accrual loans to loans outstanding at period end		0.43	%		0.41	%
Ratio of allowance for credit losses on loans to loans on non-accrual		228.75	%		235.80	%
Ratio of allowance for credit losses to loans outstanding		0.98	%		0.97	%

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:



	March 31, 2024								December 31, 2023
	Allowance Amount		% of Allowance			% of Total Loans			Allowance Amount		% of Allowance			% of Total Loans
	(dollars in thousands)
Residential mortgages	$	8,244		21	%		40	%	$	8,399		22	%		40	%
Commercial mortgages		25,020		64			48			24,452		63			48
Home equity		599		1			2			580		1			2
Commercial and industrial		5,031		13			9			4,940		13			9
Consumer		453		1			1			573		1			1
Total Allowance	$	39,347		100	%		100	%	$	38,944		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 can also borrow from the FHLB of Boston and the Federal Reserve Bank of Boston (“FRB of Boston”). The Company can also utilize repurchase agreements and brokered 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. 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:


	March 31, 2024					December 31, 2023
	Amount		Percent			Amount		Percent
	(dollars in thousands)
Demand deposits (non-interest bearing)	$	965,090		23.1	%	$	1,032,413		23.9	%
Interest-bearing checking		1,202,713		28.7			1,132,518		26.2
Money market		934,958		22.3			983,480		22.8
Savings		507,640		12.1			498,386		11.6
Retail certificates of deposit under $250,000		226,298		5.4			212,694		4.9
Retail certificates of deposit of $250,000 or greater		187,618		4.5			170,020		3.9
Wholesale certificates of deposit		161,065		3.9			291,667		6.7
Total	$	4,185,382		100.0	%	$	4,321,178		100.0	%

At March 31, 2024, the Company had a total of $413.9 million in certificates of deposit, excluding wholesale deposits, of which $397.1 million had remaining maturities of one year or less. As of March 31, 2024 and December 31, 2023, the Company had a total of $161.1 million and $291.7 million of wholesale deposits, respectively. Wholesale deposits at March 31, 2024 and December 31, 2023 had remaining maturities of less than six months.

Borrowings. Total borrowings were $546.4 million at March 31, 2024, an increase of $94.3 million, or 20.8%, as compared to $452.2 million at December 31, 2023, as the Company migrated wholesale funding toward FHLB Boston borrowings during the quarter. The Company’s borrowings consisted of advances from the FHLB of Boston at March 31, 2024 and at December 31, 2023. 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 March 31, 2024 was approximately $390.0 million. In addition, the Company has a $10.0 million line of credit with the FHLB of Boston and a $10.0 million line of credit with a correspondent bank.

The Company had no borrowings outstanding with the FRB of Boston at March 31, 2024 and December 31, 2023. The Company’s borrowing capacity at the FRB of Boston at March 31, 2024 was approximately $1.56 billion.

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 March 31, 2024. and December 31, 2023.

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.

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
	March 31, 2024									December 31, 2023									March 31, 2023
	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	$	3,953,820		$	50,123			5.10	%	$	3,978,452		$	50,884			5.07	%	$	3,986,380		$	45,333			4.61	%
Tax-exempt		54,458			506			3.74			53,132			506			3.78			51,028			476			3.78
Securities available for sale (3)
Taxable		161,707			652			1.62			166,003			669			1.60			180,510			713			1.60
Securities held to maturity
Taxable		867,313			4,009			1.86			885,576			4,076			1.83			948,233			4,337			1.85
Tax-exempt		83,653			647			3.11			84,990			657			3.07			95,212			740			3.15
Cash and cash equivalents		32,275			100			1.25			31,768			99			1.24			50,831			326			2.60
Total interest-earning assets (4)		5,153,226			56,037			4.37	%		5,199,921			56,891			4.34	%		5,312,194			51,925			3.96	%
Non-interest-earning assets		279,422									285,093									268,670
Allowance for credit losses		(38,951	)								(38,226	)								(37,784	)
Total assets	$	5,393,697								$	5,446,788								$	5,543,080
LIABILITIES AND SHAREHOLDERS’ EQUITY
Interest-bearing deposits
Checking accounts	$	1,167,639		$	6,095			2.10	%	$	1,160,636		$	5,948			2.03	%	$	880,040		$	2,025			0.93	%
Savings accounts		502,793			1,438			1.15			540,052			1,561			1.15			771,219			1,357			0.71
Money market accounts		953,885			8,094			3.41			984,696			8,267			3.33			1,129,934			6,462			2.32
Certificates of deposit		678,436			7,703			4.57			769,384			9,041			4.66			692,644			6,100			3.57
Total interest-bearing deposits		3,302,753			23,330			2.84			3,454,768			24,817			2.85			3,473,837			15,944			1.86
Other borrowed funds		443,734			5,851			5.30			302,738			3,983			5.22			137,516			1,550			4.57
Total interest-bearing liabilities		3,746,487			29,181			3.13	%		3,757,506			28,800			3.04	%		3,611,353			17,494			1.96	%
Non-interest-bearing liabilities
Demand deposits		1,001,451									1,035,191									1,290,924
Other liabilities		111,620									128,246									120,877
Total liabilities		4,859,558									4,920,943									5,023,154
Shareholders’ equity		534,139									525,845									519,926
Total liabilities & shareholders’ equity	$	5,393,697								$	5,446,788								$	5,543,080
Net interest income on a fully taxable equivalent basis					26,856									28,091									34,431
Less taxable equivalent adjustment					(243	)								(245	)								(255	)
Net interest income				$	26,613								$	27,846								$	34,176
Net interest spread (5)								1.24	%								1.30	%								2.00	%
Net interest margin (6)								2.10	%								2.14	%								2.63	%

(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 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 2024 and 2023, 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 2024 and 2023.

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), (ii) changes attributable to changes in rate (change in average interest rate multiplied by prior year average balance), and (iii) changes attributable to the combined impact of volumes and rates have been allocated proportionately to separate volume and rate categories.


	Three Months Ended March 31, 2024
	Compared with
	Three Months Ended March 31, 2023
	Increase/(Decrease) Due to Change in
	Volume			Rate			Total
	(dollars in thousands)
Interest income
Loans
Taxable	$	(349	)	$	5,139		$	4,790
Tax-exempt		35			(5	)		30
Securities available for sale
Taxable		(70	)		9			(61	)
Securities held to maturity
Taxable		(339	)		11			(328	)
Tax-exempt		(84	)		(9	)		(93	)
Cash and cash equivalents		(93	)		(133	)		(226	)
Total interest income	$	(900	)	$	5,012		$	4,112
Interest expense
Deposits
Checking accounts	$	844		$	3,226		$	4,070
Savings accounts		(578	)		659			81
Money market accounts		(1,121	)		2,753			1,632
Certificates of deposit		(125	)		1,728			1,603
Total interest-bearing deposits		(980	)		8,366			7,386
Other borrowed funds		4,012			289			4,301
Total interest expense	$	3,032		$	8,655		$	11,687
Change in net interest income	$	(3,932	)	$	(3,643	)	$	(7,575	)

Excluding the impact of merger-related loan accretion, the adjusted net interest margin for the three months ended March 31, 2024 was 2.05%, representing a 53 basis point decrease from the adjusted net interest margin of 2.58% for the three months ended March 31, 2023.


	Three Months Ended
	March 31, 2024
	Average Balance		Interest Income/ Expenses			Rate Earned/ Paid
	(dollars in thousands)
Total interest-earning assets (GAAP)	$	5,153,226
Net interest income on a fully taxable equivalent basis (GAAP)			$	26,856
Net interest margin on a fully taxable equivalent basis (GAAP)							2.10	%
Less: Accretion of loan fair value adjustments (GAAP)				(554	)		-0.05	%
Adjusted net interest margin on a fully taxable equivalent basis (non-GAAP)	$	5,153,226	$	26,302			2.05	%

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.

The Company’s interest rate risk measurement philosophy focuses on maintaining an appropriate balance between the theoretical and the practical; especially given that the primary objective of the Company’s overall asset/liability management process is to assess the level of interest rate risk in the Company’s balance sheet.

Therefore, the Company models a set of interest rate scenarios capturing the financial effects of a range of plausible rate scenarios; the collective impact of which is designed to enable the Company to understand the nature and extent of its sensitivity to interest rate changes. Doing so necessitates an assessment of rate changes over varying time horizons and of varying/sufficient degrees such that the impact of embedded options within the balance sheet are sufficiently examined. Plausible rate scenarios are also intended to capture the notion of “rational expectations” as it relates to how the impact of rate changes “are likely” to flow through the Company’s actual earnings.

The Company has designed its interest rate risk measurement activities to include the following core elements:

•

interest rate ramps and shocks

•

parallel and non-parallel yield curve shifts

•

a set of “benchmark” rate scenarios

•

a set of alternative rate scenarios, the nature of which change based upon prevailing market conditions

The Company’s primary tools in managing Interest Rate Risk (“IRR”) are income simulation models. The income simulation models are utilized to quantify the potential impact of changing interest rates on earnings and to identify expected earnings trends given longer-term rate cycles. Standard gap reports are also utilized to provide supporting detailed information.

The Company also recognizes that a sustained environment of higher/lower interest rates will affect the underlying value of the Company’s assets, liabilities and off-balance sheet instruments since the present value of their future cash flows (and the cash flows themselves) change when interest rates change. In order to monitor the long-term structural and economic position of the balance sheet, the Asset/Liability Committee (the “ALCO” or the “Committee”) reviews the Economic Value of Equity (“EVE”) measure on a quarterly basis.

IRR considerations include but are not limited to:

•

timing differences in the maturity/repricing of the Company’s assets, liabilities, and off-sheet balance sheet contracts (mismatch risk);

•

the effect of embedded options, such as loan prepayments, interest rate caps, and deposit/withdrawals (option risk);

•

unexpected shifts of the yield curve that affect both the slope and shape of the yield curve (yield curve risk); and

•

differences in the behavior of lending and funding rates (basis risk).

The Company has established limits for both the Company’s IRR position and EVE position as described below which are designed to monitor against both gradual and rapid changes in interest rates due to known and unknown or exogenous factors.

The Company has established the following limits for IRR:

•

Projected net interest income in months one through twelve will not decline by more than 10% for any scenario tested.

•

Projected net interest income in months 13 through 24 will not decline by more than 20% for any scenario tested.

•

Projected net income over the twelve month period immediately following the testing date will not decline by more than 25% given a gradual shift (i.e., over a twelve month period) in interest rates of up to -200 to +200 basis points and assuming no balance sheet growth.

The Company has established the following limits for changes to EVE:


Interest Rate Shock
(in basis points)	Maximum Sensitivity	EVE Ratio

+400	-40%	5%
+300	-30%	5%
+200	-20%	5%
+100	-10%	5%
0	-	-
-100	-10%	5%
-200	-20%	5%
-300	-30%	5%

A violation of the Company’s Investment & Asset Liability policy will only occur when both the Maximum Sensitivity threshold and the Minimum EVE Ratio are breached at the same time.

The Company evaluates its IRR and EVE limits on a periodic basis (not less frequently than annually), including in response to increases in the federal funds rate and other economic developments, and, as a result of that evaluation, will, as appropriate, modify the applicable limit. The ALCO then approves any modifications of the IRR or EVE limits.

As part of its quarterly report to the Company’s Risk Committee, the ALCO reviews the Company’s IRR position relative to the current limits noted above. All IRR exceptions are discussed and documented by the Risk Committee in its minutes and are available for review at the Board of Directors’ (the “Board”) next subsequent meeting. If any of the current limits are exceeded for more than two consecutive quarterly periods, the ALCO will discuss with the Risk Committee its plans to bring the Company back within the applicable limits, or, if no action is recommended, the ALCO will discuss why it believes no action is appropriate. In order for the Company to continue to operate outside the limits for more than two consecutive quarterly periods, approval of the Risk Committee is required. For the period ended March 31, 2024 and December 31, 2023, the ALCO did not approve any risk profiles that do not conform to management and Board risk tolerances, including the IRR and EVE limits.

The Company believes its existing IRR and EVE limits, policies and controls are adequate at this time.

Use of interest rate derivatives. The Company utilizes derivative financial instruments with the intent of reducing economic risk, in particular interest rate risk, both in an up interest rate environment and in a down interest rate environment. The below interest rate risk simulations and EVE model outputs reflect the use of derivatives.

The Company currently uses interest rate floor derivatives as part of its interest rate risk management strategy. Interest rate floor derivatives designated as cash flow hedges involve the receipt by the Company of variable-rate amounts from the derivative counterparty if interest rates fall below the strike rate on the instrument in exchange for payment by the Company of an upfront premium. This derivative financial instrument is used to hedge the variable cash flows associated with the Company’s variable-rate assets and helps protect in a down rate environment.

Additionally, the Company uses interest rate swap derivatives to manage its exposure to changes in interest rates. 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 swap derivatives 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 by the Company of fixed-rate amounts to the derivative counterparty in exchange for the Company receiving variable-rate payments over the life of the instrument without the exchange of the underlying notional amount. These derivative instruments help protect in an up rate environment.

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 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 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 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 March 31, 2024:


	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	(8.3)	2.4
+200	(5.6)	4.6
+100	(2.6)	7.4
–100	2.8	10.9
–200	4.2	10.4

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 March 31, 2024:


	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	(2.9)	3.6
–100	(0.5)	12.1
–200	(1.2)	13.1

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 March 31, 2024, estimated that, in the event of an instantaneous 200 basis point increase in interest rates, the Bank would experience a 25.4% decrease in the economic value of equity for the next 12 months, resulting

in an economic value of equity ratio of 7.9%. This shock scenario assumes an instantaneous increase in deposit and wholesale funding rates at March 31, 2024 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 21.8% increase in the economic value of equity, resulting in an economic value of equity ratio of 11.4%. This shock scenario assumes an instantaneous decrease in deposit and wholesale funding rates at March 31, 2024 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, including the elevated inflation during the last two years, is reflected in the Company’s 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. 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 March 31, 2024, the Company had access to funds totaling $2.35 billion.

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 $535.6 million at March 31, 2024, as compared to $534.6 million at December 31, 2023. The Company’s equity increased primarily due to net income of $6.9 million, partially offset by dividend payments of $5.3 million. Based on past performance and current expectations, the Company believes that 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 March 31, 2024, 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.

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 March 31, 2024, 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 March 31, 2024 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 March 31, 2024, 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.

PART II—OTHER INFORMATION

Item 1. Legal Proceedings.

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 2023 Annual Report, which is accessible on the SEC’s website at www.sec.gov.

There have been no material changes to the risk factors previously disclosed in the 2023 Annual Report.

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 March 31, 2024:


	Total Number of Shares Repurchased (1)		Weighted Average Price Paid Per Share

Period
January 1 to January 31, 2024		873	$	66.51
February 1 to February 29, 2024		3,130	$	68.31
March 1 to March 31, 2024		1,779	$	64.48
Total		5,782

(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 Board has not authorized a share repurchase program to replace the 2023 Repurchase Program following its expiration on March 13, 2024.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

Rule 10b5-1 Trading Plans

During the quarter ended March 31, 2024, 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.”

Item 6. Exhibits.

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


Exhibit Number		Description

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 with Embedded Linkbases Document

104		The cover page for the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2024, has been formatted in Inline XBRL and contained in Exhibit 101.

* Filed herewith.

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

May 9, 2024	By:	/s/ Denis K. Sheahan
		Denis K. Sheahan
		Chairman, President & Chief Executive Officer (Principal Executive Officer)

May 9, 2024
	By:	/s/ Joseph P. Sapienza
		Joseph P. Sapienza
		Interim Chief Financial Officer, Senior Vice President (Principal Financial Officer and Principal Accounting Officer)

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Cambridge Bancorp (CATC) 10-Q2024 Q1 Quarterly report

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