CAMBRIDGE BANCORP (CATC)·Q2 2023 Earnings Summary

Executive Summary

• Q2 2023 results were pressured by deposit repricing and merger-related costs: diluted EPS declined to $0.91 (-42.4% QoQ) and operating diluted EPS to $1.23 (-24.1% QoQ), as net interest margin contracted 37 bps to 2.26% due to higher funding costs .
• Total revenue fell to $39.79M (-11.5% QoQ; -12.2% YoY) as net interest and dividend income dropped and noninterest income softened; efficiency ratio deteriorated to 76.3% from 63.0% in Q1 .
• Deposits declined 4.6% QoQ to $4.44B (largely wholesale runoff), while borrowings rose to $408.9M; available liquidity remained strong at ~$2.6B (~2x uninsured deposits), mitigating funding risk .
• Asset quality remained excellent with NPLs/loans at 0.18% and allowance/loans at 0.95%; capital ratios and tangible book value per share improved modestly QoQ .
• No explicit forward guidance was provided; the Board declared a $0.67 dividend, unchanged from Q1. Near-term stock narrative hinges on deposit cost trajectory and NIM compression versus strong credit and liquidity support .

What Went Well and What Went Wrong

What Went Well

• Strong liquidity and deposit defense: available sources of liquidity totaled ~$2.6B, approximately two times uninsured deposits, providing flexibility amid wholesale runoff .
• Capital and book value support: common equity to assets rose to 9.60% (from 9.51% in Q1); tangible common equity to tangible assets increased to 8.41%; tangible book value per share ticked up to $58.05 .
• C&I growth and wealth momentum: Commercial & industrial loans increased $23.7M QoQ (+6.9%) and wealth management AUM/AUA rose to $4.36B (+2.2% QoQ) on market gains; management emphasized talent acquisition to drive deposits and appointed a new Wealth Management leader (“we have hired four skilled relationship bankers... welcome Jeffrey Smith... to lead the Wealth Management division”) .

What Went Wrong

• Margin compression and earnings decline: net interest margin fell to 2.26% (from 2.63% in Q1) as higher funding costs outpaced asset yields; diluted EPS fell to $0.91 and operating EPS to $1.23 QoQ .
• Higher non-operating expense: noninterest expense rose to $30.3M (+7.1% QoQ), driven by $3.5M merger-related systems conversion costs (Northmark), while FDIC insurance increased; operating efficiency ratio worsened .
• Noninterest income softness: total noninterest income decreased $686K QoQ, with lower loan-related derivatives (loss of $7K vs +$234K in Q1) and other income, partially offset by modestly higher wealth management revenue .

Financial Results

Segment/Noninterest Income Breakdown ($USD Thousands):

Key KPIs:

Guidance Changes

Note: Interest rate risk sensitivities provided (NII simulations) but not formal guidance ranges .

Earnings Call Themes & Trends

For detailed Q&A, see the external transcript: .

Management Commentary

• “Following the industry turmoil earlier this year, we are now focused on benefiting from the disruption in the markets by acquiring new clients and talent. Specifically, we have hired four skilled relationship bankers to focus on acquiring deposits in Massachusetts and New Hampshire.” — Denis K. Sheahan, Chairman, President & CEO .
• “I am pleased to welcome Jeffrey Smith... to lead the Wealth Management division of Cambridge Trust.” — Denis K. Sheahan .
• Liquidity emphasis: “Available sources of liquidity at June 30, 2023 totaled approximately $2.6 billion… approximately two times the amount of uninsured deposits.” .
• CFO transition: Appointment of Joseph P. Sapienza as Interim CFO effective July 17, 2023 .

Q&A Highlights

• Themes addressed on the call (see transcript): deposit repricing, NIM trajectory under higher funding costs, wholesale runoff replaced by FHLB advances, and credit quality/office CRE exposure; management reiterated strong liquidity coverage and stable asset quality .
• Operational clarifications aligned with the release: margin compression primarily due to higher cost of funds, with adjusted NIM FTE at 2.21% excluding merger-related loan accretion ; non-operating merger expenses tied to systems conversion .

Estimates Context

• S&P Global consensus estimates for Q2 2023 were unavailable for CATC via our data connection (missing SPGI mapping), so we cannot provide a beat/miss assessment relative to Wall Street [SpgiEstimatesError].
• Implication: Without consensus, investors should gauge performance versus trajectory (NIM, revenues, OpEx) and peer community banks with similar deposit mix to contextualize valuation and estimate risk.

Key Takeaways for Investors

• Earnings pressure driven by deposit cost repricing: NIM contracted 37 bps QoQ to 2.26%; expect near-term sensitivity to further repricing and mix shifts; adjusted NIM (ex accretion) at 2.21% underlines core margin compression .
• Funding mix transitioning: deposits down 4.6% QoQ with wholesale runoff; borrowings increased by $167.9M (FHLB advances) as a lower-cost alternative to wholesale CDs, supporting flexibility .
• Liquidity and capital robust: ~$2.6B liquidity (~2x uninsured deposits), CETA and TCE ratios improved; tangible book value per share up QoQ—defensive balance sheet positioning during rate volatility .
• Credit quality remains a differentiator: NPLs/loans steady at 0.18%, allowance at 0.95%, and negligible charge-offs; limited near-term office CRE maturity/repricing risk per investor materials .
• Noninterest trends mixed: wealth management revenue improved modestly QoQ with AUM/AUA growth on markets, but derivative and other income normalized lower; watch flows and fee capture into H2 .
• Merger-related costs near-term headwind: $3.5M systems conversion expense inflated OpEx; operating efficiency ratio improved versus headline, but sustained cost discipline will be key to margin defense .
• Dividend maintained at $0.67; absent explicit guidance, the stock’s near-term reaction likely hinges on deposit inflows from new banker hires, cost of funds trajectory, and signs of NIM stabilization versus peers .