10-Q

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 June 30, 2022

☐ 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, 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 July 29, 2022 the registrant had 7,006,525 shares of common stock, $1.00 par value per share, outstanding.

Table of Contents

CAMBRIDGE BANCORP AND SUBSIDIARIES


		Page
PART I.	FINANCIAL INFORMATION	1
Item 1.	Financial Statements (Unaudited)	1
	Unaudited Consolidated Balance Sheets	1
	Unaudited Consolidated Statements of Income	2
	Unaudited Consolidated Statements of Comprehensive Income	3
	Unaudited Consolidated Statements of Changes in Shareholders’ Equity	4
	Unaudited Consolidated Statements of Cash Flows	5
	Notes to Unaudited Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	31
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	54
Item 4.	Controls and Procedures	54
PART II.	OTHER INFORMATION	55
Item 1.	Legal Proceedings	55
Item 1A.	Risk Factors	55
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	57
Item 3.	Defaults Upon Senior Securities	57
Item 4.	Mine Safety Disclosures	57
Item 5.	Other Information	57
Item 6.	Exhibits	58
Signatures		59

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

CAMBRIDGE BANCORP AND SUBSIDIARIES

UNAUDITED CONSOLIDATED BALANCE SHEETS


	June 30, 2022			December 31, 2021
	(dollars in thousands, except par value)
Assets
Cash and cash equivalents	$	25,023		$	180,153
Investment securities
Available for sale, at fair value (amortized cost $194,014 and $201,270, respectively)		173,952			197,803
Held to maturity, at amortized cost (fair value $990,221 and $971,092, respectively)		1,105,858			977,061
Total investment securities		1,279,810			1,174,864
Loans held for sale, at lower of cost or fair value		—			1,490
Loans
Residential mortgage		1,482,551			1,415,079
Commercial mortgage		1,636,867			1,511,002
Home equity		91,835			87,960
Commercial and industrial		268,170			269,446
Consumer		44,069			35,619
Total loans		3,523,492			3,319,106
Less: allowance for credit losses on loans		(34,124	)		(34,496	)
Net loans		3,489,368			3,284,610
Federal Home Loan Bank of Boston Stock, at cost		10,518			4,816
Bank owned life insurance		33,621			46,970
Banking premises and equipment, net		16,682			17,326
Right-of-use asset operating leases		28,235			31,273
Deferred income taxes, net		12,202			9,985
Accrued interest receivable		10,061			9,162
Goodwill		51,912			51,912
Merger-related intangibles, net		2,436			2,617
Other assets		98,067			76,366
Total assets	$	5,057,935		$	4,891,544
Liabilities
Deposits
Demand	$	1,399,141		$	1,393,935
Interest-bearing checking		710,150			763,188
Money market		1,130,848			1,104,238
Savings		898,178			907,722
Certificates of deposit		125,740			162,069
Total deposits		4,264,057			4,331,152
Borrowings		252,867			16,510
Operating lease liabilities		30,659			33,871
Other liabilities		68,301			72,174
Total liabilities		4,615,884			4,453,707
Shareholders’ Equity
Common stock, par value $1.00; Authorized: 10,000,000 shares; Outstanding: 7,007,063 shares and 6,968,192 shares, respectively		7,007			6,968
Additional paid-in capital		229,918			229,205
Retained earnings		220,907			202,874
Accumulated other comprehensive loss		(15,781	)		(1,210	)
Total shareholders’ equity		442,051			437,837
Total liabilities and shareholders’ equity	$	5,057,935		$	4,891,544

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					Six Months Ended
	June 30, 2022		June 30, 2021			June 30, 2022			June 30, 2021
	(dollars in thousands, except share data)
Interest and dividend income
Interest on taxable loans	$	30,235	$	30,557		$	58,639		$	60,882
Interest on tax-exempt loans		354		275			704			497
Interest on taxable investment securities		4,989		2,023			9,400			3,608
Interest on tax-exempt investment securities		627		633			1,281			1,291
Dividends on FHLB of Boston stock		32		12			57			12
Interest on overnight investments		42		28			96			59
Total interest and dividend income		36,279		33,528			70,177			66,349
Interest expense
Interest on deposits		1,844		1,006			3,740			2,281
Interest on borrowed funds		254		141			387			281
Total interest expense		2,098		1,147			4,127			2,562
Net interest and dividend income		34,181		32,381			66,050			63,787
Release of credit losses		—		(901	)		(412	)		(1,107	)
Net interest and dividend income after release of credit losses		34,181		33,282			66,462			64,894
Noninterest income
Wealth management revenue		8,122		8,623			16,696			16,774
Deposit account fees		732		484			1,238			958
ATM/Debit card income		427		405			806			738
Bank owned life insurance income		1,343		209			1,530			405
Gain on loans sold, net		4		165			98			734
Loan related derivative income		45		567			341			1,238
Other income		476		453			1,794			908
Total noninterest income		11,149		10,906			22,503			21,755
Noninterest expense
Salaries and employee benefits		17,048		16,462			34,439			32,508
Occupancy and equipment		3,613		3,503			7,155			7,079
Data processing		2,601		2,179			5,246			4,213
Professional services		1,070		1,297			2,134			2,569
Marketing		218		953			442			1,416
FDIC insurance		472		261			927			597
Non-operating expenses		246		—			246			—
Other expenses		1,029		618			1,583			1,110
Total noninterest expense		26,297		25,273			52,172			49,492
Income before income taxes		19,033		18,915			36,793			37,157
Income tax expense		5,375		4,971			9,819			9,714
Net income	$	13,658	$	13,944		$	26,974		$	27,443
Share data:
Weighted average shares outstanding, basic		6,981,907		6,930,268			6,959,856			6,918,779
Weighted average shares outstanding, diluted		7,026,807		6,998,936			7,013,538			6,993,437
Basic earnings per share	$	1.95	$	2.00		$	3.86		$	3.95
Diluted earnings per share	$	1.94	$	1.98		$	3.83		$	3.91

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						Six Months Ended
	June 30, 2022			June 30, 2021			June 30, 2022			June 30, 2021
	(dollars in thousands)
Net income	$	13,658		$	13,944		$	26,974		$	27,443
Other comprehensive income (loss), net of tax:
Available for sale securities
Unrealized holding gains (losses)		(4,137	)		1,035			(12,364	)		(1,852	)
Interest rate swaps designated as cash flow hedges
Unrealized holding gains (losses)		(257	)		3			(1,483	)		(319	)
Less: reclassification adjustment for losses realized in net income		(283	)		(466	)		(724	)		(920	)
Total unrealized losses on interest rate swaps		(540	)		(463	)		(2,207	)		(1,239	)
Defined benefit retirement plans
Change in retirement liabilities		—			7			—			15
Other comprehensive income (loss)		(4,677	)		579			(14,571	)		(3,076	)
Comprehensive income	$	8,981		$	14,523		$	12,403		$	24,367

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 March 31, 2021	$	6,960	$	226,841	$	175,093		$	(1,221	)	$	407,673
Net income		—		—		13,944			—			13,944
Other comprehensive income		—		—		—			579			579
Share based compensation and other share-based activity		6		1,546		—			—			1,552
Dividends declared ($0.61 per share)		—		—		(4,247	)		—			(4,247	)
Balance at June 30, 2021	$	6,966	$	228,387	$	184,790		$	(642	)	$	419,501

Balance at March 31, 2022	$	7,001	$	228,538	$	211,730		$	(11,104	)	$	436,165
Net income		—		—		13,658			—			13,658
Other comprehensive loss		—		—		—			(4,677	)		(4,677	)
Share based compensation and other share-based activity		6		1,380		—			—			1,386
Dividends declared ($0.64 per share)		—		—		(4,481	)		—			(4,481	)
Balance at June 30, 2022	$	7,007	$	229,918	$	220,907		$	(15,781	)	$	442,051


	Six 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, 2020	$	6,927	$	226,967	$	165,404		$	2,434		$	401,732
Net income		—		—		27,443			—			27,443
Other comprehensive loss		—		—		—			(3,076	)		(3,076	)
Share based compensation and other share-based activity		39		1,420		—			—			1,459
Dividends declared ($1.16 per share)		—		—		(8,057	)		—			(8,057	)
Balance at June 30, 2021	$	6,966	$	228,387	$	184,790		$	(642	)	$	419,501

Balance at December 31, 2021	$	6,968	$	229,205	$	202,874		$	(1,210	)	$	437,837
Net income		—		—		26,974			—			26,974
Other comprehensive loss		—		—		—			(14,571	)		(14,571	)
Share based compensation and other share-based activity		39		713		—			—			752
Dividends declared ($1.28 per share)		—		—		(8,941	)		—			(8,941	)
Balance at June 30, 2022	$	7,007	$	229,918	$	220,907		$	(15,781	)	$	442,051

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

CAMBRIDGE BANCORP AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS


	Six Months Ended June 30,
	2022			2021
	(dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	26,974		$	27,443
Adjustments to reconcile net income to net cash provided by operating activities:
Release of credit losses		(412	)		(1,107	)
Amortization (accretion) of deferred charges and fees, net		1,170			(860	)
(Accretion), depreciation, and amortization, net		268			(1,846	)
Bank owned life insurance income		(1,530	)		(405	)
Share-based compensation and other share-based activity		752			1,459
Change in accrued interest receivable		(899	)		531
Deferred income tax expense		2,872			2,278
Change in loans held for sale		1,490			5,998
Change in other assets, net		(26,817	)		6,319
Change in other liabilities, net		(2,008	)		(8,634	)
Net cash provided by operating activities		1,860			31,176
CASH FLOWS FROM INVESTING ACTIVITIES
Origination of loans		(624,799	)		(771,775	)
Proceeds from principal payments of loans		445,460			649,435
Purchase of loans		(23,655	)		—
Proceeds from calls/maturities of securities available for sale		17,201			21,852
Purchase of securities available for sale		(10,170	)		—
Proceeds from calls/maturities of securities held to maturity		75,089			27,606
Purchase of securities held to maturity		(205,063	)		(273,345	)
Death benefit on bank-owned life insurance		4,068			—
Redemption on bank-owned life insurance		10,811			—
(Purchase) Redemption of FHLB of Boston stock		(5,702	)		918
Purchase of banking premises and equipment		(647	)		(725	)
Net cash used in investing activities		(317,407	)		(346,034	)
CASH FLOWS FROM FINANCING ACTIVITIES
Change in demand, interest-bearing, money market and savings accounts		(30,766	)		402,449
Change in certificates of deposit		(36,268	)		(40,837	)
Change in borrowings		236,392			(15,693	)
Cash dividends paid on common stock		(8,941	)		(8,057	)
Net cash provided by financing activities		160,417			337,862
Net change in cash and cash equivalents		(155,130	)		23,004
Cash and cash equivalents at beginning of period		180,153			75,785
Cash and cash equivalents at end of period	$	25,023		$	98,789
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest	$	4,136		$	2,680
Income taxes		15,337			4,890

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 June 30, 2022 and December 31, 2021, 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, 2021, filed with the Securities and Exchange Commission (the “SEC”) on March 14, 2022.

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 August 4, 2022, the date the unaudited consolidated financial statements were available to be issued and determined that no 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 March 2022, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2022-02, Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures. The amendments in this ASU eliminate the accounting guidance for troubled debt restructurings (“TDRs”) by creditors in Subtopic 310-40, Receivables – Troubled Debt Restructurings by Creditors, while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. For public business entities, the amendments in this ASU require an entity disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases. This ASU is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently assessing the impact that the adoption of this guidance will have on the disclosures within its consolidated financial statements.

In March 2022, the FASB issued ASU 2022-01, Derivatives and Hedging (Topic 815): Fair Value Hedging - Portfolio Layer Method. The amendments in this ASU allow multiple hedged layers to be designated for a single closed portfolio of financial assets or one or more beneficial interests secured by a portfolio of financial instruments. The amendments in this ASU also clarify the accounting for and promote consistency in the reporting of hedge basis adjustments applicable to both a single hedged layer and multiple hedged layers. These amendments are effective for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. The Company is currently assessing the impact that the adoption of this guidance will have on its consolidated financial statements.

5. Cash and cash equivalents

At June 30, 2022 and December 31, 2021, cash and cash equivalents totaled $25.0 million and $180.2 million, respectively. There were no amounts required to be maintained at the Federal Reserve Bank of Boston at June 30, 2022 and December 31, 2021. At June 30, 2022 and December 31, 2021, 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 June 30, 2022, as compared to the $13.3 million pledged at December 31, 2021. 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:


	June 30, 2022									December 31, 2021
	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	$	22,997	$	—	$	(1,922	)	$	21,075	$	22,996	$	246	$	(231	)	$	23,011
Mortgage-backed securities		169,273		14		(18,157	)		151,130		176,531		959		(4,462	)		173,028
Corporate debt securities		1,744		9		(6	)		1,747		1,743		24		(3	)		1,764
Total available for sale securities	$	194,014	$	23	$	(20,085	)	$	173,952	$	201,270	$	1,229	$	(4,696	)	$	197,803

Held to maturity securities
Mortgage-backed securities	$	1,004,629	$	21	$	(107,309	)	$	897,341	$	864,983	$	3,981	$	(13,258	)	$	855,706
Corporate debt securities		2,749		1		(5	)		2,745		6,997		26		—			7,023
Municipal securities		98,480		307		(8,652	)		90,135		105,081		3,798		(516	)		108,363
Total held to maturity securities	$	1,105,858	$	329	$	(115,966	)	$	990,221	$	977,061	$	7,805	$	(13,774	)	$	971,092
Total	$	1,299,872	$	352	$	(136,051	)	$	1,164,173	$	1,178,331	$	9,034	$	(18,470	)	$	1,168,895

All of the Company’s mortgage-backed securities have been issued by, or are collateralized by securities issued by, either 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 securities with gross unrealized losses for which an allowance for credit losses has not been recorded at June 30, 2022 or at December 31, 2021, aggregated by investment category and length of time that individual securities have been in a continuous loss position:


	June 30, 2022
	Less than 12 months					12 months or longer					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(dollars in thousands)
Available for sale securities
U.S. Government Sponsored Enterprise obligations	$	11,830	$	(1,170	)	$	9,245	$	(752	)	$	21,075	$	(1,922	)
Mortgage-backed securities		77,487		(4,768	)		73,190		(13,389	)		150,677		(18,157	)
Corporate debt securities		—		—			749		(6	)		749		(6	)
Total available for sale securities	$	89,317	$	(5,938	)	$	83,184	$	(14,147	)	$	172,501	$	(20,085	)

Held to maturity securities
Mortgage-backed securities	$	806,188	$	(91,491	)	$	88,138	$	(15,818	)	$	894,326	$	(107,309	)
Corporate debt securities		245		(5	)		—		—			245		(5	)
Municipal securities		45,807		(6,608	)		6,078		(2,044	)		51,885		(8,652	)
Total held to maturity securities	$	852,240	$	(98,104	)	$	94,216	$	(17,862	)	$	946,456	$	(115,966	)
Total	$	941,557	$	(104,042	)	$	177,400	$	(32,009	)	$	1,118,957	$	(136,051	)


	December 31, 2021
	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	$	4,881	$	(115	)	$	4,884	$	(116	)	$	9,765	$	(231	)
Mortgage-backed securities		74,724		(2,253	)		47,871		(2,209	)		122,595		(4,462	)
Corporate debt securities		760		(3	)		—		—			760		(3	)
Total available for sale securities	$	80,365	$	(2,371	)	$	52,755	$	(2,325	)	$	133,120	$	(4,696	)

Held to maturity securities
Mortgage-backed securities	$	740,966	$	(12,509	)	$	15,345	$	(749	)	$	756,311	$	(13,258	)
Municipal securities		12,607		(194	)		5,716		(322	)		18,323		(516	)
Total held to maturity securities	$	753,573	$	(12,703	)	$	21,061	$	(1,071	)	$	774,634	$	(13,774	)
Total	$	833,938	$	(15,074	)	$	73,816	$	(3,396	)	$	907,754	$	(18,470	)

As of June 30, 2022, 390 debt securities had gross unrealized losses, with an aggregate depreciation of 10.8% from the Company’s amortized cost basis. The largest unrealized dollar loss of any single security was $1.6 million, or 16.6% of its amortized cost. The largest unrealized loss percentage of any single security was 31.7% of its amortized cost, or $745,000.

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 June 30, 2022.

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


	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
At June 30, 2022	(dollars in thousands)
Available for sale securities
U.S. Government Sponsored Enterprise obligations	$	—	$	—	$	9,997	$	9,245	$	5,000	$	4,678	$	8,000	$	7,152	$	22,997	$	21,075
Mortgage-backed securities		—		—		8,833		8,506		45,909		40,953		114,531		101,671		169,273		151,130
Corporate debt securities		1,744		1,747		—		—		—		—		—		—		1,744		1,747
Total available for sale securities	$	1,744	$	1,747	$	18,830	$	17,751	$	50,909	$	45,631	$	122,531	$	108,823	$	194,014	$	173,952

Held to maturity securities
Mortgage-backed securities	$	—	$	—	$	14,582	$	14,245	$	55,917	$	52,819	$	934,130	$	830,277	$	1,004,629	$	897,341
Corporate debt securities		2,499		2,500		250		245		—		—		—		—		2,749		2,745
Municipal securities		4,143		4,166		17,656		17,787		32,309		32,025		44,372		36,157		98,480		90,135
Total held to maturity securities	$	6,642	$	6,666	$	32,488	$	32,277	$	88,226	$	84,844	$	978,502	$	866,434	$	1,105,858	$	990,221
Total	$	8,386	$	8,413	$	51,318	$	50,028	$	139,135	$	130,475	$	1,101,033	$	975,257	$	1,299,872	$	1,164,173

There were no sales of investment securities during the three and six months ended June 30, 2022 and June 30, 2021.

The Company monitors the credit quality of certain debt securities through the use of credit ratings among other factors on a quarterly basis. The following tables summarize the credit rating of the Company’s debt securities portfolio at June 30, 2022 and December 31, 2021.


	June 30, 2022
	Mortgage-backed Securities (1)		Corporate Debt Securities		Municipal Securities		U.S. GSE Obligations		Total
	(dollars in thousands)
Available for sale securities, at fair value
AAA/AA/A	$	151,130	$	750	$	—	$	21,075	$	172,955
BBB/BB/B		—		997		—		—		997
Total available for sale securities	$	151,130	$	1,747	$	—	$	21,075	$	173,952
Held to maturity securities, at amortized cost
AAA/AA/A	$	1,004,629	$	2,749	$	98,480	$	—	$	1,105,858
Total held to maturity securities	$	1,004,629	$	2,749	$	98,480	$	—	$	1,105,858


	December 31, 2021
	Mortgage-backed Securities (1)		Corporate Debt Securities		Municipal Securities		U.S. GSE Obligations		Total
	(dollars in thousands)
Available for sale securities, at fair value
AAA/AA/A	$	173,028	$	759	$	—	$	23,011	$	196,798
BBB/BB/B		—		1,005		—		—		1,005
Total available for sale securities	$	173,028	$	1,764	$	—	$	23,011	$	197,803
Held to maturity securities, at amortized cost
AAA/AA/A	$	864,983	$	6,997	$	105,081	$	—	$	977,061
Total held to maturity securities	$	864,983	$	6,997	$	105,081	$	—	$	977,061

(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:


	June 30, 2022		December 31, 2021
	(dollars in thousands)
Residential mortgage
Mortgages - fixed rate	$	781,649	$	716,456
Mortgages - adjustable rate		668,528		679,675
Construction		25,413		13,012
Deferred costs, net of unearned fees		6,961		5,936
Total residential mortgages		1,482,551		1,415,079

Commercial mortgage
Mortgages - non-owner occupied		1,403,363		1,272,135
Mortgages - owner occupied		148,480		150,632
Construction		82,739		86,246
Deferred costs, net of unearned fees		2,285		1,989
Total commercial mortgages		1,636,867		1,511,002

Home equity
Home equity - lines of credit		89,790		85,639
Home equity - term loans		1,706		2,017
Deferred costs, net of unearned fees		339		304
Total home equity		91,835		87,960

Commercial and industrial
Commercial and industrial		265,295		247,024
PPP loans		2,652		22,856
Unearned fees, net of deferred costs		223		(434	)
Total commercial and industrial		268,170		269,446

Consumer
Secured		43,181		34,308
Unsecured		874		1,303
Deferred costs, net of unearned fees		14		8
Total consumer		44,069		35,619
Total loans	$	3,523,492	$	3,319,106

The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law on March 27, 2020 and provided emergency economic relief to individuals and businesses impacted by the COVID-19 pandemic. Among other things, the CARES Act authorized the Small Business Administration (“SBA”) to temporarily guarantee loans under a new 7(a) loan program called the Paycheck Protection Program (“PPP”). As a qualified SBA lender, the Company was authorized to originate PPP loans.

PPP loans have: (a) an interest rate of 1.0%, (b) a two year or five-year loan term to maturity; and (c) principal and interest payments deferred until the SBA remits the forgiven amount to the Company or 10 months from the end of the covered period, as defined. The SBA 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 under the PPP so long as employee and compensation levels of the business are maintained and 60% of the loan proceeds are used for payroll expense, with the remaining 40% of the loan proceeds used for other qualifying expenses. The Company did not record an allowance for credit losses for PPP loans at June 30, 2022 or December 31, 2021.

Directors and officers of the Company and their associates are customers 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 nonaccrual 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:


	June 30, 2022
	Residential Mortgage		Commercial Mortgage		Home Equity		Commercial and Industrial		Total
	(dollars in thousands)
Non-performing loans:
Non-accrual loans	$	4,067	$	450	$	520	$	101	$	5,138
Troubled debt restructurings		646		—		—		95		741
Total	$	4,713	$	450	$	520	$	196	$	5,879


	December 31, 2021
	Residential Mortgage		Commercial Mortgage		Home Equity		Commercial and Industrial		Total
	(dollars in thousands)
Non-performing loans:
Non-accrual loans	$	3,777	$	517	$	223	$	111	$	4,628
Troubled debt restructurings		652		—		—		106		758
Total	$	4,429	$	517	$	223	$	217	$	5,386

Pursuant to Section 4013 of the CARES Act, financial institutions could suspend the requirements under U.S. GAAP related to TDRs for modifications made before December 31, 2020 to loans that were current as of December 31, 2019. As a result of the enactment of the Consolidated Appropriations Act, 2021, in January 2021, the suspension of TDR accounting was extended to, and expired on January 1, 2022. The requirement that a loan be not more than 30 days past due as of December 31, 2019 was still applicable. In response to the COVID-19 pandemic and its economic impact to customers, a short-term modification program that complied with the CARES Act was implemented to provide temporary payment relief to those borrowers directly impacted by COVID-19. The deferred payments along with interest accrued during the deferral period are due and payable on the maturity date. Under issued guidance, provided that these loans were current as of either year end or the date of the modification, these loans were not considered TDR loans at June 30, 2022 and will not be reported as past due during the deferral period. The Company had no loans in deferral as of June 30, 2022.

Loans by Credit Quality Indicator. The following tables contain period-end balances of loans receivable disaggregated by credit quality indicator:


	Credit Quality Indicator - by Origination Year as of June 30, 2022

	2022		2021		2020		2019		2018		Prior		Revolving loans amortized cost basis		Total
	(dollars in thousands)
Residential Mortgage:
Current	$	202,979	$	528,323	$	291,931	$	118,731	$	81,085	$	254,789	$	—	$	1,477,838
Non-performing		—		—		147		—		713		3,853		—		4,713
Total	$	202,979	$	528,323	$	292,078	$	118,731	$	81,798	$	258,642	$	—	$	1,482,551

Home equity:
Current	$	—	$	—	$	392	$	1,864	$	4,355	$	9,826	$	74,878	$	91,315
Non-performing		—		—		—		520		—		—		—		520
Total	$	—	$	—	$	392	$	2,384	$	4,355	$	9,826	$	74,878	$	91,835

Consumer:
Current	$	15,945	$	10,181	$	6,640	$	1,365	$	2,600	$	6,738	$	600	$	44,069
Non-performing		—		—		—		—		—		—		—		—
Total	$	15,945	$	10,181	$	6,640	$	1,365	$	2,600	$	6,738	$	600	$	44,069


	Credit Quality Indicator - by Origination Year as of June 30, 2022
	2022		2021		2020		2019		2018		Prior		Revolving loans amortized cost basis		Total
	(dollars in thousands)
Commercial Mortgage:
Credit risk profile by internally assigned grade:
1-6 (Pass)	$	235,399	$	314,981	$	235,504	$	284,164	$	145,208	$	350,393	$	—	$	1,565,649
7 (Special Mention)		—		—		1,081		40,582		22,220		6,847		—		70,730
8 (Substandard)		—		—		—		—		—		488		—		488
9 (Doubtful)		—		—		—		—		—		—		—		—
10 (Loss)		—		—		—		—		—		—		—		—
Total	$	235,399	$	314,981	$	236,585	$	324,746	$	167,428	$	357,728	$	—	$	1,636,867
Commercial and Industrial:
Credit risk profile by internally assigned grade:
1-6 (Pass)	$	19,941	$	74,530	$	75,736	$	36,897	$	32,042	$	22,137	$	435	$	261,718
7 (Special Mention)		—		264		266		2,145		407		176		10		3,268
8 (Substandard)		—		—		696		2,259		95		134		—		3,184
9 (Doubtful)		—		—		—		—		—		—		—		—
10 (Loss)		—		—		—		—		—		—		—		—
Total	$	19,941	$	74,794	$	76,698	$	41,301	$	32,544	$	22,447	$	445	$	268,170


	Credit Quality Indicator - by Origination Year as of December 31, 2021
	2021		2020		2019		2018		2017		Prior		Revolving loans amortized cost basis		Total
	(dollars in thousands)
Residential Mortgage:
Current	$	535,071	$	329,501	$	135,139	$	101,108	$	77,702	$	232,129	$	—	$	1,410,650
Non-performing		—		151		—		330		54		3,894		—		4,429
Total	$	535,071	$	329,652	$	135,139	$	101,438	$	77,756	$	236,023	$	—	$	1,415,079

Home equity:
Current	$	—	$	719	$	3,088	$	4,469	$	5,060	$	5,475	$	68,926	$	87,737
Non-performing		—		—		223		—		—		—		—		223
Total	$	—	$	719	$	3,311	$	4,469	$	5,060	$	5,475	$	68,926	$	87,960

Consumer:
Current	$	14,427	$	8,758	$	1,544	$	3,168	$	1,838	$	5,357	$	527	$	35,619
Non-performing		—		—		—		—		—		—		—		—
Total	$	14,427	$	8,758	$	1,544	$	3,168	$	1,838	$	5,357	$	527	$	35,619


	Credit Quality Indicator - by Origination Year as of December 31, 2021
	2021		2020		2019		2018		2017		Prior		Revolving loans amortized cost basis		Total
	(dollars in thousands)
Commercial Mortgage:
Credit risk profile by internally assigned grade:
1-6 (Pass)	$	319,633	$	248,691	$	320,189	$	158,462	$	93,016	$	298,791	$	—	$	1,438,782
7 (Special Mention)		—		1,096		40,879		22,471		2,913		4,131		—		71,490
8 (Substandard)		—		—		—		—		—		730		—		730
9 (Doubtful)		—		—		—		—		—		—		—		—
10 (Loss)		—		—		—		—		—		—		—		—
Total	$	319,633	$	249,787	$	361,068	$	180,933	$	95,929	$	303,652	$	—	$	1,511,002
Commercial and Industrial:
Credit risk profile by internally assigned grade:
1-6 (Pass)	$	83,614	$	77,073	$	38,299	$	34,360	$	19,727	$	4,622	$	353	$	258,048
7 (Special Mention)		318		350		5,523		406		161		859		10		7,627
8 (Substandard)		—		792		2,331		504		—		144		—		3,771
9 (Doubtful)		—		—		—		—		—		—		—		—
10 (Loss)		—		—		—		—		—		—		—		—
Total	$	83,932	$	78,215	$	46,153	$	35,270	$	19,888	$	5,625	$	363	$	269,446

With respect to residential 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 nonaccrual, 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 and industrial 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 customer.

•

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.

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:


	June 30, 2022
	30-59 Days		60-89 Days		90 Days or greater		Total Past Due		Current Loans		Total		Amortized Cost 90+ Days Past Due and Accruing
	(dollars in thousands)
Residential mortgage	$	5,335	$	991	$	1,316	$	7,642	$	1,474,909	$	1,482,551	$	—
Commercial mortgage		—		278		—		278		1,636,589		1,636,867		—
Home equity		228		298		—		526		91,309		91,835		—
Commercial and industrial		6		32		—		38		268,132		268,170		—
Consumer		—		—		—		—		44,069		44,069		—
Total	$	5,569	$	1,599	$	1,316	$	8,484	$	3,515,008	$	3,523,492	$	—


	December 31, 2021
	30-59 Days		60-89 Days		90 Days or Greater		Total Past Due		Current Loans		Total		Amortized Cost 90+ Days Past Due and Accruing
	(dollars in thousands)
Residential mortgage	$	8,470	$	415	$	1,488	$	10,373	$	1,404,706	$	1,415,079	$	—
Commercial mortgage		476		—		—		476		1,510,526		1,511,002		—
Home equity		314		643		—		957		87,003		87,960		—
Commercial and industrial		5		437		—		442		269,004		269,446		—
Consumer		—		—		—		—		35,619		35,619		—
Total	$	9,265	$	1,495	$	1,488	$	12,248	$	3,306,858	$	3,319,106	$	—

There were no significant commitments to lend additional funds to borrowers whose loans were on nonaccrual status at June 30, 2022 and December 31, 2021.

Allowance for Credit Losses

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


	Three Months Ended June 30, 2022
	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 March 31, 2022	$	13,193		$	17,138	$	377	$	2,897		$	505		$	—	$	34,110
Charge-offs		—					—		(3	)		(3	)		—		(6	)
Recoveries		—			—		—		10			10			—		20
Provision for (release of) credit losses - loan portfolio		(554	)		629		23		(52	)		(46	)		—		—
Allowance for credit losses - loan portfolio	$	12,639		$	17,767	$	400	$	2,852		$	466		$	—	$	34,124
Allowance for credit losses - unfunded commitments:
Balance at March 31, 2022	$	—		$	—	$	—	$	—		$	—		$	1,371	$	1,371
Release of credit losses - unfunded commitments		—			—		—		—			—			—		—
Allowance for credit losses- unfunded commitments	$	—		$	—	$	—	$	—		$	—		$	1,371	$	1,371
Total allowance for credit loss	$	12,639		$	17,767	$	400	$	2,852		$	466		$	1,371	$	35,495


	Six Months Ended June 30, 2022
	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, 2021	$	13,383		$	17,133	$	406		$	2,989		$	585		$	—		$	34,496
Charge-offs		—			—		—			(3	)		(28	)		—			(31	)
Recoveries		—			—		—			46			12			—			58
Provision for (release of) credit losses - loan portfolio		(744	)		634		(6	)		(180	)		(103	)		—			(399	)
Allowance for credit losses - loan portfolio	$	12,639		$	17,767	$	400		$	2,852		$	466		$	—		$	34,124
Allowance for credit losses - unfunded commitments:
Balance at December 31, 2021	$	—		$	—	$	—		$	—		$	—		$	1,384		$	1,384
Release of credit losses - unfunded commitments		—			—		—			—			—			(13	)		(13	)
Allowance for credit losses- unfunded commitments	$	—		$	—	$	—		$	—		$	—		$	1,371		$	1,371
Total allowance for credit loss	$	12,639		$	17,767	$	400		$	2,852		$	466		$	1,371		$	35,495


	Three Months Ended June 30, 2021
	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 March 31, 2021	$	13,144	$	18,693		$	363	$	2,978	$	468	$	—		$	35,646
Charge-offs		—		—			—		—		—		—			—
Recoveries		—		30			—		15		1		—			46
Provision for (release of) credit losses - loan portfolio		412		(1,422	)		110		216		21		—			(663	)
Allowance for credit losses - loan portfolio	$	13,556	$	17,301		$	473	$	3,209	$	490	$	—		$	35,029
Allowance for credit losses - unfunded commitments:
Balance at March 31, 2021	$	—	$	—		$	—	$	—	$	—	$	1,188		$	1,188
Release of credit losses - unfunded commitments		—		—			—		—		—		(238	)		(238	)
Allowance for credit losses- unfunded commitments		—		—			—		—		—		950			950
Total allowance for credit loss	$	13,556	$	17,301		$	473	$	3,209	$	490	$	950		$	35,979


	Six Months Ended June 30, 2021
	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, 2020	$	13,067	$	18,564		$	552		$	3,309		$	524		$	—		$	36,016
Charge-offs		—		—			—			—			(3	)		—			(3	)
Recoveries		—		30			—			34			5			—			69
Provision for (release of) credit losses - loan portfolio		489		(1,293	)		(79	)		(134	)		(36	)		—			(1,053	)
Allowance for credit losses - loan portfolio	$	13,556	$	17,301		$	473		$	3,209		$	490		$	—		$	35,029
Allowance for credit losses - unfunded commitments:
Balance at December 31, 2020	$	—	$	—		$	—		$	—		$	—		$	1,004		$	1,004
Release of credit losses - unfunded commitments		—		—			—			—			—			(54	)		(54	)
Allowance for credit losses-unfunded commitments		—		—			—			—			—			950			950
Total allowance for credit loss	$	13,556	$	17,301		$	473		$	3,209		$	490		$	950		$	35,979

8. Income Taxes

The Company’s effective tax rate was 28.2% for the three months ended June 30, 2022 and 26.7% for the six months ended June 30, 2022, as compared to 26.3% and 26.1% for the three and six months ended June 30, 2021, respectively. The increase in the effective rate was primarily due to tax expense associated with the surrender of a Bank Owned Life Insurance policy during the quarter ended June 30, 2022.

Net deferred tax assets totaled $12.2 million and $10.0 million at June 30, 2022 and December 31, 2021, respectively. The Company did not record a valuation allowance for deferred tax assets at June 30, 2022 or December 31, 2021.

The components of income tax expense were as follows:


	Three Months Ended June 30,					Six Months Ended June 30,
	2022			2021		2022		2021
	(dollars in thousands)
Current income tax expense
Federal	$	3,868		$	3,056	$	4,963	$	5,147
State	$	1,595			1,367		1,984		2,289
Total current income tax expense		5,463			4,423		6,947		7,436

Deferred income tax expense (benefit)
Federal	$	(61	)	$	370	$	1,964	$	1,552
State	$	(27	)		178		908		726
Total deferred income tax expense (benefit)		(88	)		548		2,872		2,278
Total income tax expense	$	5,375		$	4,971	$	9,819	$	9,714

9. Pension and Retirement Plans

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


	Three Months Ended June 30,
	Pension Plan						Supplemental Retirement Plan				Retirement Healthcare Plan
	2022			2021			2022		2021		2022		2021
	(dollars in thousands)
Net periodic benefit cost (credit)
Service cost	$	—		$	—		$	98	$	106	$	6	$	8
Interest cost		345			303			71		56		5		5
Expected return on assets		(1,002	)		(891	)		—		—		—		—
Amortization of net actuarial loss		—			—			—		11		—		—
Net periodic benefit cost (credit)	$	(657	)	$	(588	)	$	169	$	173	$	11	$	13


	Six Months Ended June 30,
	Pension Plan						Supplemental Retirement Plan				Retirement Healthcare Plan
	2022			2021			2022		2021		2022		2021
	(dollars in thousands)
Net periodic benefit cost (credit)
Service cost	$	—		$	—		$	199	$	212	$	14	$	17
Interest cost		655			606			130		113		10		9
Expected return on assets		(1,938	)		(1,783	)		—		—		—		—
Amortization of prior service credit		—			(1	)		—		—		—		—
Amortization of net actuarial loss		—			—			—		22		—		—
Net periodic benefit cost (credit)	$	(1,283	)	$	(1,178	)	$	329	$	347	$	24	$	26

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

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 June 30, 2022 and June 30, 2021 amounted to $1.1 million and $1.2 million, respectively. Total expenses related to the PSP and ESOP for the six months ended June 30, 2022 and June 30, 2021 amounted to $2.5 million and $2.3 million, respectively.

Defined Contribution Supplemental Executive Retirement Plan

For executives participating in the Defined Contribution Supplemental Executive Retirement Plan (“DC SERP”), the Company will make a discretionary contribution of up to 10% of each executive’s base salary and bonus to his or her account under the Company’s DC SERP. Total expenses related to the DC SERP for the three months ended June 30, 2022, and June 30, 2021, amounted to $68,000 and $50,000, respectively. Total expenses related to the DC SERP for the six months ended June 30, 2022, and June 30, 2021, amounted to $135,000 and $100,000, respectively.

10. STOCK BASED COMPENSATION

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

During the three and six months ended June 30, 2022, the Company issued the following RSAs and RSUs pursuant to the Cambridge Bancorp 2017 Equity and Cash Incentive Plan (the “2017 Plan”). RSAs time-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 vested.


Three Months Ended June 30, 2022
		Weighted-Average
Shares Granted		Fair Value at Grant Date		Type of Award
	1,169	$	78.53	RSAs


Six Months ended June 30, 2022
		Weighted-Average
Shares Granted		Fair Value at Grant Date		Type of Award
	12,934	$	87.31	RSAs
	8,796	$	88.18	RSUs

Performance-Based Restricted Stock Units (“PRSUs”)

There were no PRSUs granted during the three months ended June 30, 2022. During the six months ended June 30, 2022, the Company granted 30,895 PRSUs from the 2017 Plan, as shown in the table below. PRSUs are subject to a three-year performance period and are earned based on two factors: (i) operating return on assets and (ii) operating diluted earnings per share growth as compared to the Company’s established peer indices as defined in the Company’s 2022 Proxy Statement filed with the SEC on March 16, 2022.


Six Months ended June 30, 2022
		Weighted-Average
Shares Granted		Fair Value at Grant Date		Type of Award
	30,895	$	88.18	PRSUs

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 June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
	(dollars in thousands)
Share based compensation expense	$	943	$	1,138	$	1,591	$	2,513
Related tax benefits	$	263	$	318	$	444	$	702

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. The total shares issued under the 2017 Plan for the three months ended June 30, 2022 and June 30, 2021 were 6,617 and 5,941, respectively. The total shares issued under the 2017 Plan for the six months ended June 30, 2022 and June 30, 2021 were 6,776 and 5,941, respectively.

11. Financial Instruments with Off-Balance-Sheet Risk

To meet the financing needs of its customers, 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 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:


	June 30, 2022		December 31, 2021
	(dollars in thousands)
Financial instruments whose contractual amount represents credit risk:
Commitments to extend credit:
Unused portion of existing lines of credit	$	849,282	$	809,383
Origination of new loans		81,567		70,633
Standby letters of credit		20,230		18,880
Financial instruments whose notional amount exceeds the amount of credit risk:
Commitments to sell residential mortgage loans		250		3,920

12. LEASES

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

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


	Three Months Ended June 30,
	2022			2021
	(dollars in thousands)
Operating lease cost	$	1,743		$	1,731
Variable lease cost (cost excluded from lease payments)		1			3
Sublease income		(17	)		(17	)
Total operating lease cost	$	1,727		$	1,717
Other Information
Cash paid for amounts included in the measurement of lease liabilities - operating cash flows for operating leases	$	1,805		$	1,780
Operating Lease - operating cash flows (liability reduction)		1,586			1,527
Weighted average lease term - operating leases	5.80 Years			6.56 Years
Weighted average discount rate - operating leases		2.97	%		2.93	%


	Six Months Ended June 30,
	2022			2021
	(dollars in thousands)
Operating lease cost	$	3,486		$	3,499
Variable lease cost (cost excluded from lease payments)		2			6
Sublease income		(33	)		(33	)
Total operating lease cost	$	3,455		$	3,472
Other Information
Cash paid for amounts included in the measurement of lease liabilities - operating cash flows for operating leases	$	3,638		$	3,634
Operating Lease - operating cash flows (liability reduction)		3,191			3,125
Weighted average lease term - operating leases	5.80 Years			6.56 Years
Weighted average discount rate - operating leases		2.97	%		2.93	%

The total minimum lease payments due in future periods for lease agreements in effect at June 30, 2022 were as follows:


	Future Minimum
June 30, 2022	Lease Payments
	(dollars in thousands)
Remainder of 2022	$	7,059
2023		6,654
2024		5,386
2025		4,750
2026		2,703
Thereafter		6,896
Total minimum lease payments	$	33,448
Less: interest		(2,789	)
Total lease liability	$	30,659

Several of the Company’s lease agreements contain clauses calling for escalation of minimum lease payments contingent on increases in real estate taxes, gross income adjustments, percentage increases in the consumer price index, and certain ancillary maintenance costs. Total rental expense was $1.9 million and $1.8 million for the three months ended June 30, 2022 and June 30, 2021, respectively. Total rental expense was $3.7 million for both the six months ended June 30, 2022 and June 30, 2021.

13. Shareholders’ Equity

As of June 30, 2022 and December 31, 2021, 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 June 30, 2022
Cambridge Bancorp:
Total capital (to risk-weighted assets)	$	438,979		13.4	%	$	344,617		10.5	%	N/A		N/A
Tier 1 capital (to risk-weighted assets)		403,484		12.3	%		278,976		8.5	%	N/A		N/A
Common equity tier I capital (to risk-weighted assets)		403,484		12.3	%		229,745		7.0	%	N/A		N/A
Tier 1 capital (to average assets)		403,484		8.1	%		199,142		4.0	%	N/A		N/A
Cambridge Trust Company:
Total capital (to risk-weighted assets)	$	422,899		12.9	%	$	344,585		10.5	%	$	328,176		10.0	%
Tier 1 capital (to risk-weighted assets)		387,404		11.8	%		278,950		8.5	%		262,541		8.0	%
Common equity tier I capital (to risk-weighted assets)		387,404		11.8	%		229,723		7.0	%		213,314		6.5	%
Tier 1 capital (to average assets)		387,404		7.8	%		199,131		4.0	%		248,913		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, 2021
Cambridge Bancorp:
Total capital (to risk-weighted assets)	$	420,398		13.6	%	$	325,617		10.5	%	N/A		N/A
Tier 1 capital (to risk-weighted assets)		384,518		12.4	%		263,595		8.5	%	N/A		N/A
Common equity tier I capital (to risk-weighted assets)		384,518		12.4	%		217,078		7.0	%	N/A		N/A
Tier 1 capital (to average assets)		384,518		8.3	%		185,015		4.0	%	N/A		N/A
Cambridge Trust Company:
Total capital (to risk-weighted assets)	$	409,806		13.2	%	$	325,587		10.5	%	$	310,082		10.0	%
Tier 1 capital (to risk-weighted assets)		373,926		12.1	%		263,570		8.5	%		248,066		8.0	%
Common equity tier I capital (to risk-weighted assets)		373,926		12.1	%		217,058		7.0	%		201,554		6.5	%
Tier 1 capital (to average assets)		373,926		8.1	%		185,003		4.0	%		231,254		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 June 30, 2022								Three Months Ended June 30, 2021
	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 (losses) gains	$	(5,579	)	$	1,442	$	(4,137	)	$	1,421		$	(386	)	$	1,035
Interest rate swaps designated as cash flow hedges
Unrealized holding (losses) gains		(358	)		101		(257	)		4			(1	)		3
Reclassification adjustment for (losses) income recognized in net income		(391	)		108		(283	)		(646	)		180			(466	)
Defined benefit retirement plans
Net change in retirement liability		—			—		—			10			(3	)		7
Total other comprehensive (loss) income	$	(6,328	)	$	1,651	$	(4,677	)	$	789		$	(210	)	$	579


	Six Months Ended June 30, 2022								Six Months Ended June 30, 2021
	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 losses	$	(16,595	)	$	4,231	$	(12,364	)	$	(2,502	)	$	650		$	(1,852	)
Interest rate swaps designated as cash flow hedges
Unrealized holding losses		(2,058	)		575		(1,483	)		(443	)		124			(319	)
Reclassification adjustment for losses recognized in net income		(1,005	)		281		(724	)		(1,276	)		356			(920	)
Defined benefit retirement plans
Net change in retirement liability		—			—		—			21			(6	)		15
Total other comprehensive loss	$	(19,658	)	$	5,087	$	(14,571	)	$	(4,200	)	$	1,124		$	(3,076	)

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	June 30, 2022			June 30, 2021			Affected Line Item in the Statement where Net Income is Presented
	(dollars in thousands)
Unrealized gains on derivatives	$	391		$	646		Interest on taxable loans
Tax expense		(108	)		(180	)	Income tax expense
Net of tax	$	283		$	466		Net income


Six Months Ended
Details about Accumulated Other Comprehensive Loss Components	June 30, 2022			June 30, 2021			Affected Line Item in the Statement where Net Income is Presented
	(dollars in thousands)
Unrealized gains on derivatives	$	1,005		$	1,276		Interest on taxable loans
Tax expense		(281	)		(356	)	Income tax expense
Net of tax	$	724		$	920		Net income

15. Earnings per Share

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


	Three Months Ended June 30,						Six Months Ended June 30,
	2022			2021			2022			2021
	(dollars in thousands, except per share data)
Earnings per common share - basic:
Numerator:
Net income	$	13,658		$	13,944		$	26,974		$	27,443
Less dividends and undistributed earnings allocated to participating securities		(43	)		(67	)		(122	)		(126	)
Net income applicable to common shareholders	$	13,615		$	13,877		$	26,852		$	27,317
Denominator:
Weighted average common shares outstanding		6,982			6,930			6,960			6,919
Earnings per common share - basic	$	1.95		$	2.00		$	3.86		$	3.95
Earnings per common share - diluted:
Numerator:
Net income	$	13,658		$	13,944		$	26,974		$	27,443
Less dividends and undistributed earnings allocated to participating securities		(43	)		(67	)		(122	)		(126	)
Net income applicable to common shareholders	$	13,615		$	13,877		$	26,852		$	27,317
Denominator:
Weighted average common shares outstanding		6,982			6,930			6,960			6,919
Dilutive effect of common stock equivalents		45			69			54			74
Weighted average diluted common shares outstanding		7,027			6,999			7,014			6,993
Earnings per common share - diluted	$	1.94		$	1.98		$	3.83		$	3.91

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 customers. 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 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 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 $167,000 will be reclassified out of AOCL into earnings, as a decrease to interest income.

Non-designated Hedges

Derivatives not designated as hedges are not speculative and result from a service the Company provides to certain customers. For the Company’s customers, 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 and maintains collateral pledging agreements with its counterparties. 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:


	June 30, 2022
	Derivative Assets					Derivative Liabilities
	Notional Amount		Balance Sheet Location	Fair Value		Notional Amount		Balance Sheet Location	Fair Value
	(dollars in thousands)					(dollars in thousands)
Derivatives designated as hedging instruments
Interest rate contracts	$	150,000	Other Assets	$	244	$	—	Other Liabilities	$	—
Total derivatives designated as hedging instruments				$	244				$	—
Derivatives not designated as hedging instruments
Loan related derivative contracts
Interest rate contracts	$	518,964	Other Assets	$	33,276	$	518,964	Other Liabilities	$	33,276
Risk participation agreements-out to counterparties		47,365	Other Assets		37		—	Other Liabilities		—
Risk participation agreements-in with counterparties		—	Other Assets		—		108,650	Other Liabilities		113
Total derivatives not designated as hedging instruments				$	33,313				$	33,389


	December 31, 2021
	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	$	150,000	Other Assets	$	3,513	$	—	Other Liabilities	$	—
Total derivatives designated as hedging instruments				$	3,513				$	—
Derivatives not designated as hedging instruments
Loan related derivative contracts
Interest rate swaps with customers	$	522,581	Other Assets	$	23,431	$	—	Other Liabilities	$	—
Mirror swaps with counterparties		—	Other Assets		—		522,581	Other Liabilities		23,431
Risk participation agreements-out to counterparties		47,988	Other Assets		107		—	Other Liabilities		—
Risk participation agreements-in with counterparties		—	Other Assets		—		109,510	Other Liabilities		293
Total derivatives not designated as hedging instruments				$	23,538				$	23,724

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 June 30, 2022
	Amount of Gain or (Loss) Recognized in OCI			Amount of Gain or (Loss) Recognized in OCI - Included Component			Amount of Gain or (Loss) Recognized in OCI - Excluded Component			Location of Gain or (Loss)	Amount of Gain or (Loss) Reclassified from 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	$	(358	)	$	(101	)	$	(257	)	Interest Income	$	391	$	439	$	(48	)


	Six Months Ended June 30, 2022
	Amount of Gain or (Loss) Recognized in OCI			Amount of Gain or (Loss) Recognized in OCI Included Component			Amount of Gain or (Loss) Recognized in OCI Excluded Component			Location of Gain or (Loss)	Amount of Gain or (Loss) Reclassified from 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	$	(2,058	)	$	(2,012	)	$	(46	)	Interest Income	$	1,005	$	1,101	$	(96	)


	Three Months Ended June 30, 2021
	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	$	(642	)	$	(627	)	$	(15	)	Interest Income	$	646	$	695	$	(49	)


	Six Months Ended June 30, 2021
	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	$	(1,719	)	$	(173	)	$	(1,546	)	Interest Income	$	1,276	$	1,373	$	(97	)

The following table presents 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 on Derivatives
		Three Months Ended
		June 30, 2022			June 30, 2021
	Location of Gain or (Loss)	(dollars in thousands)
Other contracts	Loan-related derivative income	$	(33	)	$	(53	)


		Amount of Gain or (Loss) Recognized in Income on Derivatives
		Six Months Ended
		June 30, 2022			June 30, 2021
	Location of Gain or (Loss)	(dollars in thousands)
Other contracts	Loan-related derivative income	$	(110	)	$	153

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 June 30, 2022 and December 31, 2021:


								Gross Amounts Not Offset
		Gross Amounts Recognized		Gross Amounts Offset		Net Amounts Recognized		Financial Instruments		Collateral Pledged (Received)			Net Amount
		June 30, 2022
	(dollars in thousands)
Offsetting of Derivative Assets
Derivative Assets		$	33,557	$	—	$	33,557	$	965	$	(30,917	)	$	1,675

Offsetting of Derivative Liabilities
Derivative Liabilities		$	33,389	$	—	$	33,389	$	965	$	—		$	32,424

								Gross Amounts Not Offset
		Gross Amounts Recognized		Gross Amounts Offset		Net Amounts Recognized		Financial Instruments		Collateral Pledged (Received)			Net Amount
		December 31, 2021
	(dollars in thousands)
Offsetting of Derivative Assets
Derivative Assets		$	27,051	$	—	$	27,051	$	6,365	$	—		$	20,686

Offsetting of Derivative Liabilities
Derivative Liabilities		$	23,724	$	—	$	23,724	$	6,365	$	14,011		$	3,348

At June 30, 2022 there were no derivatives in a net liability position related to these agreements. At December 31, 2021, the fair value of derivatives in a net liability position, which includes accrued interest but excludes any adjustment for nonperformance risk, related to these agreements was $14.0 million. At December 31, 2021, the Company had minimum collateral posting thresholds with certain derivative counterparties and posted cash collateral of $13.3 million. If the Company had breached any of these provisions at December 31, 2021, it could have been required to settle its obligations under the agreements at their termination value of $14.0 million.

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:


	June 30, 2022				December 31, 2021
	Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value
	(dollars in thousands)
Financial assets
Cash and cash equivalents	$	25,023	$	25,023	$	180,153	$	180,153
Securities available for sale		173,952		173,952		197,803		197,803
Securities held to maturity		1,105,858		990,221		977,061		971,092
Loans, net		3,489,368		3,374,268		3,284,610		3,230,339
Loans held for sale		—		—		1,490		1,528
FHLB of Boston stock		10,518		10,518		4,816		4,816
Accrued interest receivable		10,061		10,061		9,162		9,162
Mortgage servicing rights		1,020		1,655		1,083		1,518
Interest rate contracts		244		244		3,513		3,513
Loan level interest rate swaps		33,276		33,276		23,431		23,431
Risk participation agreements out to counterparties		37		37		107		107

Financial liabilities
Deposits		4,264,057		4,261,934		4,331,152		4,330,991
Borrowings		252,867		252,691		16,510		16,523
Loan level interest rate swaps		33,276		33,276		23,431		23,431
Risk participation agreements in with counterparties		113		113		293		293

The Company follows ASC 820, Fair Value Measurements and Disclosures (“ASC 820”) for financial assets and liabilities. ASC 820 defines fair value, establishes a framework for measuring fair value, and expands disclosure requirements about fair value measurements. ASC 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 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 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 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 June 30, 2022
	Level 1		Level 2		Level 3		Total
	(dollars in thousands)
Measured on a recurring basis
Securities available for sale
U.S. GSE obligations	$	—	$	21,075	$	—	$	21,075
Mortgage-backed securities		—		151,130		—		151,130
Corporate debt securities		—		1,747		—		1,747
Other assets
Interest rate swaps with customers		—		33,276		—		33,276
Risk participation agreements-out to counterparties		—		37		—		37
Interest rate contracts		—		244		—		244
Other liabilities
Interest rate swaps with customers		—		33,276		—		18,161
Risk participation agreements-in with counterparties		—		113		—		113


	Fair Value as of December 31, 2021
	Level 1		Level 2		Level 3		Total
	(dollars in thousands)
Measured on a recurring basis
Securities available for sale
U.S. GSE obligations	$	—	$	23,011	$	—	$	23,011
Mortgage-backed securities		—		173,028		—		173,028
Corporate debt securities		—		1,764		—		1,764
Other assets
Interest rate swaps with customers		—		23,431		—		23,431
Risk participation agreements-out to counterparties		—		107		—		107
Interest rate contracts		—		3,513		—		3,513
Other liabilities
Mirror swaps with counterparties		—		23,431		—		23,431
Risk participation agreements-in with counterparties		—		293		—		293

The following tables present the carrying value of assets held at June 30, 2022 and December 31, 2021, which were measured at fair value on a non-recurring basis:


	June 30, 2022
	Level 1		Level 2		Level 3		Total
	(dollars in thousands)
Items recorded at fair value on a non-recurring basis
Assets
Individually evaluated collateral dependent loans	$	—	$	—	$	278	$	278
Total	$	—	$	—	$	278	$	278


	December 31, 2021
	Level 1		Level 2		Level 3		Total
	(dollars in thousands)
Items recorded at fair value on a non-recurring basis
Assets
Loans held for sale	$	1,490	$	—	$	—	$	1,490
Individually evaluated collateral dependent loans		—		—		130		130
Total	$	1,490	$	—	$	130	$	1,620

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.

Loans held for sale. Loans held for sale are carried at the lower of fair value or carrying value (unpaid principal and unamortized loans fees).

There were no transfers between levels for the three and six months ended June 30, 2022 or June 30, 2021.

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 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, 2021, (the “2021 Annual Report”), filed with the Securities and Exchange Commission (the "SEC") on March 14, 2022.

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,” “projects,” “may,” “will,” “should,” and other similar expressions are intended to identify these forward-looking statements. Such statements are subject to factors that could cause actual results to differ materially from anticipated results. Such factors include, but are not limited to, the following:

•

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 duration and scope of the COVID-19 pandemic and its impact on levels of consumer confidence;

•

actions that governments, businesses and individuals take in response to the COVID-19 pandemic;

•

the impact of the COVID-19 pandemic and actions taken in response to the pandemic on global and regional economies and economic activity;

•

a prolonged resurgence in the severity of the COVID-19 pandemic due to variants and mutations of the virus;

•

the pace of recovery when the COVID-19 pandemic subsides;

•

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 Act, which may adversely affect the Company’s business and/or competitive position, impose additional costs on the Company or cause it 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;

•

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;

•

costs and effects of litigation, regulatory investigations, or similar matters;

•

the failure to complete the proposed merger (the "Northmark Merger") with Northmark Bank (“Northmark”), imposition of adverse regulatory conditions in connection with regulatory approval of the Northmark Merger, disruption to the parties’ businesses as a result of the announcement and pendency of the Northmark Merger, inability to realize expected cost savings or to implement integration plans and other adverse consequences associated with the Northmark Merger;

•

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 customers or operations;

•

a loss of customer 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 customers;

•

increased credit losses or impairment of goodwill and other intangibles;

•

negative public opinion which could damage the Company’s reputation and adversely impact business and revenues;

•

the Company depends on the expertise of key personnel, and if these individuals leave or change their roles without effective replacements, operations may suffer;

•

the Company may not be able to hire or retain additional qualified personnel, including those acquired in previous acquisitions, and recruiting and compensation costs may increase as a result of turnover, both of which may increase costs and reduce profitability and may adversely impact the Company’s ability to implement the Company’s business strategies; and

•

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

Except as required by law, the Company does not undertake, and specifically disclaims any obligation, to publicly release the result of any revisions which may be made to any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements. You are cautioned not to place undue reliance on these forward-looking statements.

OVERVIEW

Cambridge Bancorp (together with its bank subsidiary, unless the context otherwise requires, 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 June 30, 2022, the Company had total assets of approximately $5.1 billion. The Bank operates 19 full-service banking offices in Eastern Massachusetts and New Hampshire. As a private bank, we focus 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 customers consist primarily of consumers and small- and medium-sized businesses in the communities and surrounding areas throughout Massachusetts and New Hampshire. The Company’s Wealth Management Group has five offices, two in Massachusetts in Boston and Wellesley, and three in New Hampshire in Concord, Manchester, and Portsmouth. As of June 30, 2022, the Company had Assets under Management and Administration of approximately $4.0 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 NORTHMARK

In the second quarter of 2022, Cambridge Bancorp and Northmark entered into a definitive agreement (the "Merger Agreement") pursuant to which Northmark will merge with and into the Bank in an all-stock transaction that is anticipated to close during the fourth quarter of 2022. The Northmark Merger is subject to regulatory approval, approval by Northmark’s shareholders, and the completion of other customary closing conditions. Under the terms of the Merger Agreement, each share of Northmark common stock will be exchanged for 0.9950 shares of the Company's common stock. This merger will expand the Company's presence in Massachusetts through the addition of Northmark’s three full-service banking offices in the attractive communities of North Andover, Andover and Winchester, Massachusetts.

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 2021 Annual Report, for a detailed discussion of the Company’s critical accounting estimates.

Recent Accounting Developments

See Note 4 - Recently Issued 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.

COVID-19

In December 2019, a novel strain of coronavirus (“COVID-19”) was reported in Wuhan, China. The World Health Organization has declared the outbreak to constitute a “Public Health Emergency of International Concern.” The COVID-19 pandemic and countermeasures taken to contain its spread have caused economic and financial disruptions globally.

The impact of the pandemic on the Company’s business, financial condition, results of operations, and its customers had not fully manifested in 2020 or 2021. The fiscal stimulus and relief programs appear to have delayed any materially adverse financial impact to the Company. Once these stimulus programs have been exhausted, loan credit metrics may worsen, and credit losses may ultimately materialize. The magnitude of future credit losses may be affected by the impact of COVID-19 on individuals and businesses in the long and short term. However, the COVID-19 situation remains dynamic, and the duration and severity of its impact on the Company's business and results of operations in future periods remains uncertain. The extent of the continued impact of COVID-19 on the operational and financial performance will depend on certain developments, including the duration and spread of the outbreak, actions taken in response to the pandemic, the speed and effectiveness of vaccine and treatment developments and their deployment, including public adoption rates of COVID-19 vaccines and booster shots, and their effectiveness against emerging variants of COVID-19, such as BA.4 and BA.5 subvariants, a potential resurgence following a decline in the outbreak, and impact on the Company's customers, employees, and vendors, all of which are uncertain and cannot be predicted.

If the COVID-19 pandemic or its adverse effects become more severe or prevalent or are prolonged in the locations where the Company conducts business, or the Company experiences more pronounced disruptions in its business or operations, or in economic activity and demand for its products and services generally, the Company's business and results of operations in future periods could be materially adversely affected.

Results of Operations

Results of Operations for the three months ended June 30, 2022 and June 30, 2021

General. Net income decreased by $286,000, or 2.1%, to $13.7 million for the quarter ended June 30, 2022, as compared to net income of $13.9 million for the quarter ended June 30, 2021. The decrease is primarily due to higher noninterest expense of $1.0 million, an increase in income tax expense of $404,000, and a decrease in the release of credit losses of $901,000, partially offset by an increase in net interest and dividend income before the release of credit losses of $1.8 million. Diluted earnings per share were $1.94 for the quarter ended June 30, 2022, as compared to a diluted earnings per share of $1.98 for the quarter ended June 30, 2021.

Net Interest and Dividend Income. Net interest and dividend income before the release of credit losses for the quarter ended June 30, 2022 increased by $1.8 million, or 5.6%, to $34.2 million, as compared to $32.4 million for the quarter ended June 30, 2021, primarily due to an increase in average earning assets partially offset by lower Paycheck Protection Program (“PPP”) fee income recognized on PPP loans forgiven by the Small Business Administration (“SBA”), lower loan accretion associated with merger accounting, and higher deposit interest expense as a result of growth from new and existing client relationships.

•

Interest on loans decreased by $243,000, or 0.8%, due to lower PPP loan related income, lower loan accretion associated with merger accounting, partially offset by higher average loan balances.

•

Interest on investment securities increased by $3.0 million, or 111.4%, primarily due to growth in the investment portfolio.

•

Interest on deposits increased by $838,000, or 83.3%, primarily due to average deposit growth.

Total average interest-earning assets increased by $792.1 million, or 19.7%, to $4.82 billion during the quarter ended June 30, 2022, from $4.03 billion for the quarter ended June 30, 2021, primarily due to growth in both the loan and investment securities portfolios. The Company’s net interest margin, on a fully taxable equivalent basis, decreased by 39 basis points to 2.86% for the quarter ended June 30, 2022, as compared to 3.25% for the quarter ended June 30, 2021, primarily due to lower PPP fee income, lower fair value accretion, and lower yields on interest-earning assets.

Interest and Dividend Income. Total interest and dividend income increased by $2.8 million, or 8.2%, to $36.3 million for the quarter ended June 30, 2022, as compared to $33.5 million for the quarter ended June 30, 2021, primarily due to growth in both the loan and investment securities portfolios, partially offset by lower PPP fee income and lower loan accretion associated with merger accounting.

Interest Expense. Interest expense increased by $951,000, or 82.9%, to $2.1 million for the quarters ended June 30, 2022, as compared to $1.1 million for the quarter ended June 30, 2021, driven by deposit growth from new and existing client relationships.

Average interest-bearing liabilities increased by $457.5 million to $3.03 billion during the quarter ended June 30, 2022, from $2.57 billion for the quarter ended June 30, 2021, primarily due to strong core deposit growth. The increase in interest-bearing liabilities was

primarily driven by an increase in average money market accounts of $496.9 million and an increase in average checking account balances of $71.6 million, partially offset by a decrease in average certificates of deposit balances of $89.7 million, and a decrease in the average savings account balances of $59.8 million. The average cost of deposits increased to 0.17% for the quarter ended June 30, 2022, from 0.11% for the quarter ended June 30, 2021.

Release of Credit Losses. The Company did not record a provision for credit losses for the quarter ended June 30, 2022, as compared to a release for credit losses of $901,000 for the quarter ended June 30, 2021, as the Company’s asset quality remains strong.

The Company recorded net loan recoveries of $14,000 and $46,000 for the quarters ended June 30, 2022, and June 30, 2021, respectively.

Noninterest Income. Total noninterest income increased by $243,000, or 2.2%, to $11.1 million for the quarter ended June 30, 2022, as compared to $10.9 million for the quarter ended June 30, 2021, primarily as a result of higher bank owned life insurance ("BOLI") income, partially offset by lower loan related derivative income and Wealth Management revenue. Noninterest income was 24.6% of total revenues for the quarter ended June 30, 2022.

•

BOLI income increased by $1.1 million, or 542.6%, to $1.3 million for the quarter ended June 30, 2022, as compared to $209,000 for the quarter ended June 30, 2021, primarily due to a net gain of $1.2 million related to a death benefit claim and policy surrender.

•

Loan-related derivative income decreased by $522,000, or 92.1%, to $45,000 for the quarter ended June 30, 2022, as compared to $567,000 for the quarter ended June 30, 2021, as a result of lower swapped loan volume combined with fair value adjustments.

•

Wealth Management revenue decreased by $501,000, or 5.8%, to $8.1 million for the quarter ended June 30, 2022, as compared to $8.6 million for the quarter ended June 30, 2021. Wealth Management Assets under Management and Administration were $4.0 billion as of June 30, 2022, a decrease of $455.0 million, or 10.2%, from $4.47 billion as of June 30, 2021, primarily due to declines in the equity and bond markets and net outflows.

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


	Three Months Ended
	June 30, 2022		June 30, 2021
	(dollars in thousands)
Wealth Management revenues:
Trust and investment advisory fees	$	8,005	$	8,445
Financial planning fees and other service fees		117		178
Total wealth management revenues	$	8,122	$	8,623

The following table presents the changes in Wealth Management assets under management:


	Three Months Ended
	June 30, 2022			June 30, 2021
	(dollars in thousands)
Wealth Management Assets under Management
Balance at the beginning of the period	$	4,464,512		$	4,083,811
Gross client asset inflows		137,629			121,194
Gross client asset outflows		(321,627	)		(133,332	)
Net market impact		(435,521	)		210,531
Balance at the end of the period	$	3,844,993		$	4,282,204
Weighted average management fee		0.78	%		0.80	%

There were no significant changes to the wealth management average fee rates and fee structure for the three months ended June 30, 2022 and June 30, 2021.

Noninterest Expense. Total noninterest expense increased by $1.0 million, or 4.1%, to $26.3 million for the quarter ended June 30, 2022, as compared to $25.3 million for the quarter ended June 30, 2021, primarily driven by increases in salaries and employee benefits expense, data processing, non-operating expenses, and FDIC insurance, partially offset by decreases in marketing expense and professional services.

•

Salaries and employee benefits expense increased by $586,000, or 3.6%, primarily due to regular merit increases, higher employee benefit costs, and recent staffing additions.

•

Data processing expense increased by $422,000, or 19.4%, primarily as a result of higher data processing fees associated with the Company's wealth management systems.

•

Non-operating expenses increased by $246,000, or 100%, due to merger-related expenses associated with the Northmark Merger.

•

FDIC insurance expense increased by $211,000 or 80.8%, primarily due to balance sheet growth.

•

Professional services decreased by $227,000, or 17.5%, primarily due to lower consulting fees, lower temporary staff and reduced recruiting expenses.

•

Marketing expense decreased by $735,000, or 77.1%, primarily driven by the timing of marketing spend.

Income Tax Expense. The Company recorded a provision for income taxes of $5.4 million for the quarter ended June 30, 2022, as compared to $5.0 million for the quarter ended June 30, 2021. The Company’s effective tax rate was 28.2% for the quarter ended June 30, 2022, as compared to 26.3% for the quarter ended June 30, 2021. The increase in the effective tax rate was primarily due to tax expense associated with the surrender of BOLI policies during the quarter ended June 30, 2022.

Results of Operations for the six months ended June 30, 2022 and June 30, 2021

General. Net income decreased by $469,000, or 1.7%, to $27.0 million for the six months ended June 30, 2022, as compared to net income of $27.4 million for the six months ended June 30, 2021, primarily due to an increase in noninterest expense of $2.7 million, partially offset by an increase in net interest and dividend income before the release of credit losses of $2.3 million. Diluted earnings per share were $3.83 for the six months ended June 30, 2022, as compared to a diluted earnings per share of $3.91 for the six months ended June 30, 2021.

Net Interest and Dividend Income. Net interest and dividend income, before the release of credit losses, for the six months ended June 30, 2022 increased by $2.3 million, or 3.5%, to $66.1 million, as compared to $63.8 million for the six months ended June 30, 2021. This increase was primarily due to an increase in average earning assets, partially offset by lower loan accretion associated with merger accounting, a decrease in PPP loan income, and higher interest expense on deposits.

•

Interest on loans decreased by $2.0 million, or 3.3%, due to lower PPP loan related income, and loan accretion associated with merger accounting, which were partially offset by loan growth.

•

Interest on investment securities increased by $5.8 million, or 118.0%, primarily due to growth in the investment portfolio.

•

Interest on deposits increased by $1.5 million, or 64.0%, primarily due to deposit growth.

Total average interest-earning assets increased by $858.2 million, or 21.8%, to $4.79 billion during the six months ended June 30, 2022, from $3.93 billion for the six months ended June 30, 2021, primarily due to growth in both the loan and investment securities portfolios. The Company’s net interest margin, on a fully taxable equivalent basis, decreased by 50 basis points to 2.80% for the six months ended June 30, 2022, as compared to 3.30% for the six months ended June 30, 2021, primarily due to an extended period of low interest rates.

Interest and Dividend Income. Total interest and dividend income increased by $3.8 million, or 5.8%, to $70.2 million for the six months ended June 30, 2022, as compared to $66.3 million for the six months ended June 30, 2021, primarily due to growth in both the loan and investment portfolios, partially offset by lower PPP fee-related income, and lower loan accretion associated with merger accounting.

Interest Expense. Interest expense increased by $1.6 million, or 61.1%, to $4.1 million during the six months ended June 30, 2022, as compared to $2.6 million during the six months ended June 30, 2021, primarily driven by deposit growth from new and existing client relationships combined with higher cost of deposits.

Average interest-bearing liabilities increased by $517.3 million, or 20.6%, to $3.03 billion during the six months ended June 30, 2022, from $2.52 billion for the six months ended June 30, 2021, primarily due to strong core deposit growth, partially offset by lower certificates of deposit. The increase in interest-bearing liabilities was primarily driven by an increase in average money market accounts of $548.7 million, and an increase in average checking account balances of $101.6 million, partially offset by a decrease in average certificate of deposit balances of $92.4 million and average savings account balances of $57.0 million. The average cost of deposits increased to 0.17% for the six months ended June 30, 2022, from 0.13% for the six months ended June 30, 2021.

Release of Credit Losses. The Company recorded a release of credit losses of $412,000 for the six months ended June 30, 2022, as compared to a release of credit losses of $1.1 million for the six months ended June 30, 2021, as the Company’s credit quality remains strong.

The Company recorded net recoveries of $27,000 for the six months ended June 30, 2022, as compared to net recoveries of $66,000 for the six months ended June 30, 2021.

Noninterest Income. Total noninterest income increased by $748,000, or 3.4%, to $22.5 million for the six months ended June 30, 2022, as compared to $21.8 million for the six months ended June 30, 2021. This increase was primarily the result of higher BOLI income and higher other income, partially offset by lower loan-related derivative income and lower gains on loans sold. Noninterest income was 25.4% of total revenue for the six months ended June 30, 2022.

•

BOLI income increased by $1.1 million, or 277.8%, to $1.5 million for the six months ended June 30, 2022, as compared to $405,000 for the six months ended June 30, 2021, primarily due to a net gain of $1.2 million related to a death benefit claim and policy surrender.

•

Other income increased by $886,000, or 97.6%, to $1.8 million for the six months ended June 30, 2022, as compared to $908,000 for the six months ended June 30, 2021, primarily due to equity warrant fee revenue associated with an Innovation Banking loan coupled with gains recognized on a community development fund investment.

•

Loan-related derivative income decreased by $897,000, or 72.5%, to $341,000 for the six months ended June 30, 2022, as compared to $1.2 million for the six months ended June 30, 2021, primarily as a result of lower customer derivative loan volume.

•

Gain on loans sold decreased by $636,000, or 86.6%, to $98,000 for the six months ended June 30, 2022, as compared to $734,000 for the six months ended June 30, 2021, due to lower refinance activity and the corresponding sale of residential mortgages.

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


	Six Months Ended
	June 30, 2022		June 30, 2021
	(dollars in thousands)
Wealth Management revenues:
Trust and investment advisory fees	$	16,493	$	16,451
Financial planning fees and other service fees		203		323
Total wealth management revenues	$	16,696	$	16,774

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


	Six Months Ended
	June 30, 2022			June 30, 2021
	(dollars in thousands)
Wealth Management Assets under Management
Balance at the beginning of the period	$	4,656,183		$	3,994,152
Gross client asset inflows		416,726			238,093
Gross client asset outflows		(582,838	)		(234,091	)
Net market impact		(645,078	)		284,050
Balance at the end of the period	$	3,844,993		$	4,282,204
Weighted average management fee		0.78	%		0.80	%

There were no significant changes to the average fee rates and fee structure for the six months ended June 30, 2022 and June 30, 2021.

Noninterest Expense. Total noninterest expense increased by $2.7 million, or 5.4%, to $52.2 million for the six months ended June 30, 2022, as compared to $49.5 million for the six months ended June 30, 2021, primarily driven by increases in salaries and employee benefits expense, data processing, and FDIC insurance, partially offset by decreases in marketing expenses and professional services.

•

Salaries and employee benefits expense increased by $1.9 million, or 5.9%, to $34.4 million, primarily due to staffing additions to support business initiatives, normal merit increases, and increases in employee benefit costs.

•

Data processing increased by $1.0 million, or 24.5%, to $5.2 million, primarily as a result of higher data processing fees associated with the Company’s wealth management systems.

•

FDIC insurance increased by $330,000, or 55.3%, to $927,000, primarily due to balance sheet growth.

•

Marketing expense decreased by $974,000, or 68.8%, to $442,000, primarily due to the timing of marketing spend.

•

Professional services decreased by $435,000, or 16.9%, to $2.1 million, primarily due to lower recruiting and temporary help expenses as well as lower consulting fees.

Income Tax Expense. The Company recorded a provision for income taxes of $9.8 million for the six months ended June 30, 2022, as compared to $9.7 million for the six months ended June 30, 2021. The effective tax rate was 26.7% for the six months ended June 30, 2022, as compared to 26.1% for the six months ended June 30, 2021.

changes in Financial Condition

Total Assets. Total assets increased by $166.4 million, or 3.4%, from $4.89 billion at December 31, 2021, to $5.06 billion at June 30, 2022.

Cash and Cash Equivalents. Cash and cash equivalents decreased by $155.1 million, or 86.1%, from $180.2 million at December 31, 2021 to $25.0 million at June 30, 2022.

Investment Securities. The Company’s total investment securities portfolio increased by $104.9 million, or 8.9%, from $1.17 billion at December 31, 2021 to $1.28 billion at June 30, 2022.

Loans. Total loans increased by $204.4 million, or 6.2%, from $3.32 billion at December 31, 2021 to $3.52 billion at June 30, 2022.

•

Residential real estate loans increased by $67.5 million, from $1.42 billion at December 31, 2021 to $1.48 billion at June 30, 2022.

•

CRE loans increased by $125.9 million, from $1.51 billion at December 31, 2021 to $1.64 billion at June 30, 2022.

•

C&I loans were $268.2 million at June 30, 2022 and $269.4 million at December 31, 2021.

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 June 30, 2022, the Company's investment in BOLI was $33.6 million, representing a decrease of $13.3 million from $47.0 million at December 31, 2021, primarily due to the surrender of a policy and a death benefit claim during the second quarter of 2022.

Deposits. Total deposits decreased by $67.1 million, or 1.5%, to $4.26 billion at June 30, 2022 from $4.33 billion at December 31, 2021.

•

Core deposits, which the Company defines as all deposits other than certificates of deposit, decreased by $30.8 million, or 0.7%, to $4.14 billion at June 30, 2022, from $4.17 billion at December 31, 2021. Core deposits decreased during the second quarter of 2022 by $201.7 million, or 4.6%, due to tax payments, seasonal liquidity fluctuation, and client recognition of investment opportunities in the marketplace.

•

Certificates of deposit totaled $125.7 million at June 30, 2022, a decrease of $36.3 million from $162.1 million at December 31, 2021. Total brokered certificates of deposit, which are included within certificates of deposit, were $1.5 million and $2.7 million at June 30, 2022 and December 31, 2021, respectively.

•

The cost of total deposits for the six months ended June 30, 2022, was 0.17%, as compared to 0.13% for the six months ended June 30, 2021, an increase of four basis points. At June 30, 2022, the spot cost of deposits was 0.17%.

Borrowings. At June 30, 2022 and December 31, 2021, borrowings consisted solely of advances from the Federal Home Loan Bank of Boston (“FHLB of Boston”). Total borrowings increased to $252.9 million at June 30, 2022, from $16.5 million at December 31, 2021, due to fluctuations in liquidity.

Shareholders’ Equity. Total shareholders’ equity increased by $4.2 million, or 1.0%, to $442.1 million at June 30, 2022, from $437.8 million at December 31, 2021. The Company’s equity increased primarily due to net income of $27.0 million, partially offset by an increase in net unrealized losses on the available for sale investment portfolio of $12.4 million and dividend payments of $8.9 million.

The Company’s ratio of tangible common equity to tangible assets decreased by 17 basis points to 7.75% at June 30, 2022, from 7.92% at December 31, 2021, primarily due to increases in unrealized losses within the Company’s available for sale investment securities portfolio combined with asset growth during the six months ended June 30, 2022. Tangible book value per share increased by $0.32, or 0.6%, to $55.33 at June 30, 2022, as compared to $55.01 at December 31, 2021.

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									Six Months Ended
Operating Net Income / Operating Diluted Earnings Per Share		June 30, 2022			March 31, 2022			June 30, 2021			June 30, 2022			June 30, 2021
		(dollars in thousands, except share data)

Net Income (a GAAP measure)		$	13,658		$	13,316		$	13,944		$	26,974		$	27,443
Less: Death benefit on bank owned life insurance ("BOLI") and policy surrender			(1,157	)		—			—			(1,157	)		—
Add: Non-operating expenses			246			—			—			246			—
Add: Tax effect of BOLI policy surrender (1)			736			—			—			736			—
Less: Tax effect of merger expenses (1)	`		(63	)		—			—			(63	)		—
Operating Net Income (a non-GAAP measure)		$	13,420		$	13,316		$	13,944		$	26,736		$	27,443
Less: Dividends and Undistributed Earnings Allocated to Participating Securities (a non-GAAP measure)			(42	)		(59	)		(67	)		(120	)		(126	)
Operating Net Income Applicable to Common Shareholders (a non-GAAP measure)		$	13,378		$	13,257		$	13,877		$	26,616		$	27,317
Weighted Average Diluted Shares			7,026,807			7,010,983			6,998,936			7,013,538			6,993,437
Operating Diluted Earnings Per Share (a non-GAAP measure)		$	1.90		$	1.89		$	1.98		$	3.79		$	3.91

(1)

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:


	June 30, 2022			March 31, 2022			December 31, 2021			June 30, 2021
	(dollars in thousands)
Tangible Common Equity:
Shareholders' equity (GAAP)	$	442,051		$	436,165		$	437,837		$	419,501
Less: Goodwill and acquisition related intangibles (GAAP)		(54,348	)		(54,438	)		(54,529	)		(54,709	)
Tangible Common Equity (a non-GAAP measure)	$	387,703		$	381,727		$	383,308		$	364,792
Total assets (GAAP)	$	5,057,935		$	5,018,379		$	4,891,544		$	4,303,287
Less: Goodwill and acquisition related intangibles (GAAP)		(54,348	)		(54,438	)		(54,529	)		(54,709	)
Tangible assets (a non-GAAP measure)	$	5,003,587		$	4,963,941		$	4,837,015		$	4,248,578
Tangible Common Equity Ratio (a non-GAAP measure)		7.75	%		7.69	%		7.92	%		8.59	%

Tangible Book Value Per Share:
Tangible Common Equity (a non-GAAP measure)	$	387,703		$	381,727		$	383,308		$	364,792
Common shares outstanding		7,007,063			7,000,995			6,968,192			6,965,557
Tangible Book Value Per Share (a non-GAAP measure)	$	55.33		$	54.52		$	55.01		$	52.37

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 $174.0 million and included gross unrealized gains of $23,000 and gross unrealized losses of $20.1 million at June 30, 2022. At December 31, 2021, the fair value of securities available for sale totaled $197.8 million and included gross unrealized gains of $1.2 million and gross unrealized losses of $4.7 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 June 30, 2022 are carried at their amortized cost of $1.11 billion. At December 31, 2021, the amortized cost of securities held to maturity totaled $977.1 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:


	June 30,					December 31,
	2022					2021
	Amount		Percent			Amount		Percent
	(dollars in thousands)
Available for sale securities
U.S. GSE obligations	$	21,075		12	%	$	23,011		12	%
Mortgage-backed securities		151,130		87	%		173,028		87	%
Corporate debt securities		1,747		1	%		1,764		1	%
Total securities available for sale	$	173,952		100	%	$	197,803		100	%
Held to maturity securities
Mortgage-backed securities	$	1,004,629		91	%	$	864,983		88	%
Corporate debt securities		2,749		—	%		6,997		1	%
Municipal securities		98,480		9	%		105,081		11	%
Total securities held to maturity	$	1,105,858		100	%	$	977,061		100	%
Total	$	1,279,810				$	1,174,864

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.


	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)
At June 30, 2022	(dollars in thousands)
Available for sale securities
U.S. GSE obligations	$	—		—		$	9,997		0.5	%	$	5,000		2.3	%	$	8,000		2.6	%	$	22,997		1.6	%
Mortgage-backed securities		—		—			8,833		2.0	%		45,909		1.5	%		114,531		1.3	%		169,273		1.4	%
Corporate debt securities		1,744		2.3	%		—		—			—		—			—		—			1,744		2.3	%
Total available for sale securities	$	1,744		2.3	%	$	18,830		1.2	%	$	50,909		1.6	%	$	122,531		1.4	%	$	194,014		1.4	%

Held to maturity securities
Mortgage-backed securities	$	—		—		$	14,582		2.3	%	$	55,917		1.9	%	$	934,130		1.7	%	$	1,004,629		1.8	%
Corporate debt securities		2,499		2.5	%		250		2.0	%		—		—			—		—			2,749		2.5	%
Municipal securities		4,143		3.8	%		17,656		3.5	%		32,309		3.3	%		44,372		2.7	%		98,480		3.1	%
Total held to maturity securities	$	6,642		3.3	%	$	32,488		2.9	%	$	88,226		2.4	%	$	978,502		1.8	%	$	1,105,858		1.9	%
Total	$	8,386		3.1	%	$	51,318		2.3	%	$	139,135		2.1	%	$	1,101,033		1.7	%	$	1,299,872		1.8	%

(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 June 30, 2022 or December 31, 2021. 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 PPP loans, the SBA generally guarantees 100% of the PPP loans made to eligible borrowers. The entire principal amount of the borrower’s PPP loan, including any accrued interest, is eligible to be reduced by the loan forgiveness amount subject to program requirements. The Company’s CRE loans are primarily made based on the cash flow from the collateral property and secondarily on the underlying collateral provided by the borrower, with liquidation of the underlying real estate collateral typically being viewed as the primary source of repayment in the event of borrower default. The Company’s construction loans are primarily made based on the borrower’s expected ability to execute and the future completed value of the collateral property, with sale of the underlying real estate collateral typically being viewed as the primary source of repayment.

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


	June 30, 2022					December 31, 2021
	Amount		% of Total			Amount			% of Total
	(dollars in thousands)
Residential mortgage
Mortgages - fixed rate	$	781,649		22	%	$	716,456			22	%
Mortgages - adjustable rate		668,528		19	%		679,675			21	%
Construction		25,413		1	%		13,012			0	%
Deferred costs, net of unearned fees		6,961		0	%		5,936			0	%
Total residential mortgages		1,482,551		42	%		1,415,079			43	%
Commercial mortgage
Mortgages - non-owner occupied		1,403,363		40	%		1,272,135			38	%
Mortgages - owner occupied		148,480		4	%		150,632			4	%
Construction		82,739		2	%		86,246			3	%
Deferred costs, net of unearned fees		2,285		0	%		1,989			0	%
Total commercial mortgages		1,636,867		46	%		1,511,002			45	%
Home equity
Home equity - lines of credit		89,790		3	%		85,639			3	%
Home equity - term loans		1,706		0	%		2,017			0	%
Deferred costs, net of unearned fees		339		0	%		304			0	%
Total home equity		91,835		3	%		87,960			3	%
Commercial and industrial
Commercial and industrial		265,295		8	%		247,024			7	%
PPP loans		2,652		0	%		22,856			1	%
Unearned fees, net of deferred costs		223		0	%		(434	)		0	%
Total commercial and industrial		268,170		8	%		269,446			8	%
Consumer
Secured		43,181		1	%		34,308			1	%
Unsecured		874		0	%		1,303			0	%
Deferred costs, net of unearned fees		14		0	%		8			0	%
Total consumer		44,069		1	%		35,619			1	%
Total loans	$	3,523,492		100	%	$	3,319,106			100	%

Residential Mortgage. Residential real estate loans held in portfolio were $1.48 billion at June 30, 2022, an increase of $67.5 million, or 4.8%, from $1.42 billion at December 31, 2021, and consisted of one-to-four family residential mortgage loans or loans for the construction thereof. The residential mortgage portfolio represented 42% and 43% of total loans at June 30, 2022 and December 31, 2021, respectively.

The average loan balance outstanding in the residential portfolio was $516,000 and the largest individual residential mortgage loan outstanding was $5.5 million as of June 30, 2022. At June 30, 2022, 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 $647,200 in 2022 from $548,250 in 2021, 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 customer 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 and six months ended June 30, 2022.

The Company was servicing mortgage loans sold to others without recourse of approximately $162.9 million at June 30, 2022 and $170.8 million at December 31, 2021.

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


	Six Months Ended June 30,
	2022		2021
	(dollars in thousands)
Originations for retention in portfolio	$	256,007	$	313,045
Originations for sale to the secondary market		4,515		20,958
Total	$	260,522	$	334,003

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


	Six Months Ended June 30,
	2022		2021
	(dollars in thousands)
Loans sold with servicing rights retained	$	5,834	$	22,352
Loans sold with servicing rights released		—		1,734
Total	$	5,834	$	24,086

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 $1.0 million and $1.1 million at June 30, 2022 and December 31, 2021, respectively.

Commercial Mortgage (CRE). CRE loans were $1.64 billion as of June 30, 2022, an increase of $125.9 million, or 8.3%, from $1.51 billion at December 31, 2021. The CRE loan portfolio represented 46% and 45% of total loans at June 30, 2022 and December 31, 2021, respectively. The average loan balance outstanding in this portfolio was $2.1 million, and the largest individual CRE loan outstanding was $29.3 million as of June 30, 2022. At June 30, 2022, 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 $91.8 million and $88.0 million at June 30, 2022 and December 31, 2021, respectively. The home equity portfolio represented 3% of total loans at June 30, 2022 and December 31, 2021. At June 30, 2022, the largest home equity line of credit was $3.5 million and had an outstanding balance of $2.8 million. At June 30, 2022, 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 $268.2 million and $269.4 million at June 30, 2022 and December 31, 2021, respectively. The C&I portfolio represented 8% of total loans at both June 30, 2022 and December 31, 2021. The average loan balance outstanding in this portfolio was $584,000, and the largest individual C&I loan outstanding was $14.0 million as of June 30, 2022. At June 30, 2022, this loan was performing in accordance with its original terms.

The Company’s C&I loan customers 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 June 30, 2022, commercial renewable energy loans totaled $107.5 million and the average loan balance outstanding in this portfolio was $2.3 million. The largest individual loan outstanding was $7.8 million, and was performing in accordance with its original terms at June 30, 2022.

Consumer Loans. The consumer loan portfolio totaled $44.1 million at June 30, 2022 and $35.6 million at December 31, 2021. Consumer loans represented 1% of the total loan portfolio at both June 30, 2022 and December 31, 2021. The average loan balance outstanding in this portfolio was $15,000 and the largest individual consumer loan outstanding was $1.9 million as of June 30, 2022. At June 30, 2022, 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 June 30, 2022. 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.


	June 30, 2022
	One Year or Less		One to Five Years		After Five Years through Fifteen Years		After Fifteen Years		Total
	(dollars in thousands)
Residential mortgage	$	4,688	$	6,603	$	129,850	$	1,341,410	$	1,482,551
Commercial mortgage		12,080		324,623		1,196,179		103,985		1,636,867
Home equity		148		5,036		65,424		21,227		91,835
Commercial and industrial		17,227		95,152		119,072		36,719		268,170
Consumer		43,979		28		62		—		44,069
Total	$	78,122	$	431,442	$	1,510,587	$	1,503,341	$	3,523,492

Loan Portfolio by Interest Rate Type. The following table summarizes the dollar amount of loans in the portfolio based on whether the loan has a fixed, adjustable, or floating rate of interest at June 30, 2022. Floating rate loans are tied to a market index while adjustable-rate loans are adjusted based on the contractual terms of the loan.


	June 30, 2022
	Fixed		Adjustable		Floating		Total
	(dollars in thousands)
Residential mortgage	$	804,328	$	678,223	$	—	$	1,482,551
Commercial mortgage		611,454		428,624		596,789		1,636,867
Home equity		1,894		—		89,941		91,835
Commercial and industrial		52,244		29,156		186,770		268,170
Consumer		261		—		43,808		44,069
Total	$	1,470,181	$	1,136,003	$	917,308	$	3,523,492

Nonperforming Loans and TROUBLED DEBT RESTRUCTURINGS (“TDRs”)

The composition of nonperforming loans is as follows:


	June 30,			December 31,
	2022			2021
	(dollars in thousands)
Non-accrual loans	$	5,138		$	4,628
Loans past due > 90 days, but still accruing		—			—
Troubled debt restructurings		741			758
Total non-performing loans	$	5,879		$	5,386
Nonperforming loans as a percentage of gross loans		0.17	%		0.16	%
Nonperforming loans as a percentage of total assets		0.12	%		0.11	%

Total non-performing loans increased by $493,000, or 9.1%, at June 30, 2022, as compared to December 31, 2021, primarily due to an increase in residential and home equity loans on non-accrual.

The Company continues to closely monitor the portfolio of non-performing loans for which management has concerns regarding the ability of the borrowers to perform. The majority of the loans are secured by real estate and are considered to have adequate collateral value to cover the loan balances at June 30, 2022 and December 31, 2021, although 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 was performed in each of the past five years.

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

Troubled Debt Restructurings. Loans are considered restructured in a troubled debt restructuring when the Company has granted concessions to a borrower due to the borrower’s financial condition that it otherwise would not have considered. These concessions may include modifications of the terms of the debt such as deferral of payments, extension of maturity, reduction of principal balance, reduction of the stated interest rate other than normal market rate adjustments, or a combination of these concessions. Debt may be bifurcated with separate terms for each tranche of the restructured debt. Restructuring a loan in lieu of aggressively enforcing the collection of the loan may benefit the Company by increasing the ultimate probability of collection.

Restructured 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 restructuring generally remain on nonaccrual status for approximately six months or longer before management considers such loans for return to accruing status. Accruing restructured loans are placed into non-accrual status if and when the borrower fails to comply with the restructured terms and management deems it unlikely that the borrower will return to a status of compliance in the near term. Troubled debt restructurings are individually evaluated for credit losses.

Pursuant to Section 4013 of the CARES Act, financial institutions could suspend the requirements under U.S. GAAP related to TDRs for modifications made before December 31, 2020 to loans that were current as of December 31, 2019. As a result of the enactment of the Consolidated Appropriations Act, 2021 in January 2021, the suspension of TDR accounting was extended to and expired on January 1, 2022. The requirement that a loan be not more than 30 days past due as of December 31, 2019 was still applicable. In response to the COVID-19 pandemic and its economic impact to customers, a short-term modification program that complied with the CARES Act was implemented to provide temporary payment relief to those borrowers directly impacted by COVID-19. The deferred payments along with interest accrued during the deferral period are due and payable on the maturity date. Under issued guidance, provided that these loans were current as of either year end or the date of the modification, these loans were not considered TDR loans at June 30, 2022 and will not be reported as past due during the deferral period. As of June 30, 2022, the Company had no loans in deferral.

Allowance for Credit Losses

The following table summarizes the changes in the Company’s allowance for credit losses on loans for the periods indicated:


	At and For the Six Months Ended			At and For the Year Ended
	June 30,			December 31,
	2022			2021
	(dollars in thousands)
Period-end loans outstanding (net of unearned fees and deferred costs)	$	3,523,492		$	3,319,106
Average loans outstanding (net of unearned fees and deferred costs)	$	3,408,952		$	3,240,876
Loans on non-accrual	$	5,138		$	4,628
Allowance for credit losses at end of period	$	34,124		$	34,496
Net (charge-offs) recoveries to average loans outstanding - Total		0.00	%		0.00	%
Non-accrual loans to loans outstanding at period end		0.15	%		0.16	%
Allowance for credit losses to total loans (ex. PPP loans)		0.97	%		1.05	%
Ratio of allowance for credit losses on loans to loans on non-accrual		664.15	%		745.38	%
Ratio of allowance for credit losses to loans outstanding		0.97	%		1.04	%

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:


	June 30, 2022								December 31, 2021
	Allowance Amount		% of Allowance			% of Total Loans			Allowance Amount		% of Allowance			% of Total Loans
	(dollars in thousands)
Residential mortgages	$	12,639		39	%		43	%	$	13,383		39	%		43	%
Commercial mortgages		17,767		50			46			17,133		49			46
Home equity		400		1			2			406		1			2
Commercial and industrial		2,852		9			8			2,989		9			8
Consumer		466		1			1			585		2			1
Total Allowance	$	34,124		100	%		100	%	$	34,496		100	%		100	%

Sources of Funds

General. Deposits traditionally have been the Company's primary source of funds for its investment and lending activities. The Company also borrows from the FHLB of Boston or the Federal Reserve Bank of Boston (“FRB of Boston”) and utilizes 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 customers in the communities in which its branches and offices are located, as well as from small- and medium-sized businesses and other customers 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 brokered deposit market for funding.

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


	June 30, 2022					December 31, 2021
	Amount		Percent			Amount		Percent
	(dollars in thousands)
Demand deposits (non-interest bearing)	$	1,399,141		32.8	%	$	1,393,935		32.1	%
Interest-bearing checking		710,150		16.7	%		763,188		17.6	%
Money market		1,130,848		26.5	%		1,104,238		25.5	%
Savings		898,178		21.1	%		907,722		21.0	%
Retail certificates of deposit under $250,000		85,155		2.0	%		99,196		2.3	%
Retail certificates of deposit of $250,000 or greater		39,128		0.9	%		60,171		1.4	%
Wholesale certificates of deposit		1,457		0.0	%		2,702		0.1	%
Total	$	4,264,057		100.0	%	$	4,331,152		100.0	%

At June 30, 2022, the Company had a total of $124.3 million in certificates of deposit, excluding brokered deposits, of which $101.4 million had remaining maturities of one year or less. As of June 30, 2022 and December 31, 2021, the Company had a total of $1.5 million and $2.7 million of brokered deposits, respectively.

Borrowings. Total borrowings were $252.9 million at June 30, 2022, an increase of $236.4 million, as compared to $16.5 million at December 31, 2021. The Company’s borrowings consisted of advances from the FHLB of Boston. 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 June 30, 2022 was approximately $444.8 million. In addition, the Company has a $10.0 million line of credit with the FHLB of Boston.

The Company had no borrowings outstanding with the FRB of Boston at June 30, 2022. The Company’s borrowing capacity at the FRB of Boston at June 30, 2022 was approximately $483.2 million.

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
	June 30, 2022									March 31, 2022									June 30, 2021
	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	$	3,409,819		$	30,235			3.56	%	$	3,314,082		$	28,404			3.48	%	$	3,195,077		$	30,557			3.84	%
Tax-exempt		46,771			448			3.84			46,702			443			3.85			33,039			348			4.22
Securities available for sale (3)
Taxable		198,985			671			1.35			203,193			650			1.30			218,230			651			1.20
Securities held to maturity
Taxable		1,012,604			4,318			1.71			937,047			3,761			1.63			343,380			1,372			1.60
Tax-exempt		101,029			794			3.15			104,837			828			3.20			102,650			801			3.13
Cash and cash equivalents		48,197			42			0.35			147,977			54			0.15			132,964			28			0.08
Total interest-earning assets (4)		4,817,405			36,508			3.04	%		4,753,838			34,140			2.91	%		4,025,340			33,757			3.36	%
Non-interest-earning assets		232,165									238,864									251,641
Allowance for credit losses		(34,368	)								(34,780	)								(36,183	)
Total assets	$	5,015,202								$	4,957,922								$	4,240,798
LIABILITIES AND SHAREHOLDERS’ EQUITY
Interest-bearing deposits
Checking accounts	$	743,030		$	50			0.03	%	$	764,706		$	44			0.02	%	$	671,424		$	51			0.03	%
Savings accounts		899,820			181			0.08			923,168			177			0.08			959,606			174			0.07
Money market accounts		1,203,020			1,531			0.51			1,187,173			1,570			0.54			706,100			467			0.27
Certificates of deposit		129,060			82			0.25			144,114			105			0.30			218,738			314			0.58
Total interest-bearing deposits		2,974,930			1,844			0.25			3,019,161			1,896			0.25			2,555,868			1,006			0.16
Other borrowed funds		56,734			254			1.80			16,369			133			3.30			18,288			141			3.09
Total interest-bearing liabilities		3,031,664			2,098			0.28	%		3,035,530			2,029			0.27	%		2,574,156			1,147			0.18	%
Non-interest-bearing liabilities
Demand deposits		1,452,911									1,388,409									1,156,854
Other liabilities		93,966									97,373									97,515
Total liabilities		4,578,541									4,521,312									3,828,525
Shareholders’ equity		436,661									436,610									412,273
Total liabilities & shareholders’ equity	$	5,015,202								$	4,957,922								$	4,240,798
Net interest income on a fully taxable equivalent basis					34,410									32,111									32,610
Less taxable equivalent adjustment					(261	)								(267	)								(241	)
Net interest income				$	34,149								$	31,844								$	32,369
Net interest spread (5)								2.76	%								2.64	%								3.18	%
Net interest margin (6)								2.86	%								2.74	%								3.25	%


	Six Months Ended
	June 30, 2022									June 30, 2021
	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	$	3,362,216		$	58,639			3.52	%	$	3,168,843		$	60,882			3.87	%
Tax-exempt		46,736			891			3.84			29,678			629			4.27
Securities available for sale (3)
Taxable		201,078			1,321			1.32			223,930			1,344			1.21
Securities held to maturity
Taxable		975,034			8,079			1.67			263,970			2,264			1.73
Tax-exempt		102,922			1,622			3.18			102,500			1,634			3.21
Cash and cash equivalents		97,811			96			0.20			138,715			59			0.09
Total interest-earning assets (4)		4,785,797			70,648			2.98	%		3,927,636			66,812			3.43	%
Non-interest-earning assets		235,499									255,441
Allowance for credit losses		(34,573	)								(36,086	)
Total assets	$	4,986,723								$	4,146,991
LIABILITIES AND SHAREHOLDERS’ EQUITY
Interest-bearing deposits
Checking accounts	$	753,808		$	94			0.03	%	$	652,196		$	134			0.04	%
Savings accounts		911,430			358			0.08			968,461			446			0.09
Money market accounts		1,195,141			3,101			0.52			646,453			1,004			0.31
Certificates of deposit		136,545			187			0.28			228,990			697			0.61
Total interest-bearing deposits		2,996,924			3,740			0.25	%		2,496,100			2,281			0.18	%
Other borrowed funds		36,663			387			2.13			20,138			281			2.81
Total interest-bearing liabilities		3,033,587			4,127			0.27	%		2,516,238			2,562			0.21	%
Non-interest-bearing liabilities
Demand deposits		1,420,839									1,121,149
Other liabilities		95,661									101,109
Total liabilities		4,550,087									3,738,496
Shareholders’ equity		436,636									408,495
Total liabilities & shareholders’ equity	$	4,986,723								$	4,146,991
Net interest income on a fully taxable equivalent basis					66,521									64,250
Less taxable equivalent adjustment					(528	)								(475	)
Net interest income				$	65,993								$	63,775
Net interest spread (5)								2.70	%								3.23	%
Net interest margin (6)								2.80	%								3.30	%

(1)

Annualized on a fully taxable equivalent basis calculated using a federal tax rate of 21%.

(2)

Non-accrual loans are included in average amounts outstanding.

(3)

Average balances of securities available for sale calculated utilizing amortized cost.

(4)

FHLB of Boston stock balance is excluded from interest-earning assets and dividend income is excluded from interest income.

(5)

Net interest rate spread represents the difference between the weighted average yield on interest-earning assets, inclusive of PPP loans outstanding during 2022 and 2021, 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 2022 and 2021.

Rate/Volume Analysis

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


	Three Months Ended June 30, 2022									Six Months Ended June 30, 2022
	Compared with									Compared with
	Three Months Ended June 30, 2021									Six Months Ended June 30, 2021
	Increase/(Decrease) Due to Change in									Increase/(Decrease) Due to Change in
	Volume			Rate			Total			Volume			Rate			Total
	(dollars in thousands)
Interest income
Loans
Taxable	$	1,982		$	(2,304	)	$	(322	)	$	3,579		$	(5,822	)	$	(2,243	)
Tax-exempt		134			(34	)		100			331			(69	)		262
Securities available for sale
Taxable		(60	)		80			20			(144	)		121			(23	)
Securities held to maturity
Taxable		2,848			98			2,946			5,894			(79	)		5,815
Tax-exempt		(13	)		6			(7	)		7			(19	)		(12	)
Cash and cash equivalents		(27	)		41			14			(22	)		59			37
Total interest income	$	4,864		$	(2,113	)	$	2,751		$	9,645		$	(5,809	)	$	3,836
Interest expense
Deposits
Checking accounts	$	5		$	(6	)	$	(1	)	$	19		$	(59	)	$	(40	)
Savings accounts		(11	)		18			7			(25	)		(63	)		(88	)
Money market accounts		460			604			1,064			1,171			926			2,097
Certificates of deposit		(98	)		(134	)		(232	)		(216	)		(294	)		(510	)
Total interest-bearing deposits		356			482			838			949			510			1,459
Other borrowed funds		193			(80	)		113			187			(81	)		106
Total interest expense	$	549		$	402		$	951		$	1,136		$	429		$	1,565
Change in net interest income	$	4,315		$	(2,515	)	$	1,800		$	8,509		$	(6,238	)	$	2,271

Excluding the impact of merger-related loan accretion and the impact of PPP loans, the adjusted net interest margin for the quarter ended June 30, 2022 was 2.81%, representing a 20 basis points decrease from the adjusted net interest margin of 3.01% for the quarter ended June 30, 2021.


	Three Months Ended
	June 30, 2022
	Average Balance			Interest Income/ Expenses			Rate Earned/ Paid
	(dollars in thousands)
Total interest-earning assets (GAAP)	$	4,817,405
Net interest income on a fully taxable equivalent basis (GAAP)				$	34,410
Net interest margin on a fully taxable equivalent basis (GAAP)								2.86	%
Less: Paycheck Protection Program loan impact		(8,951	)		(297	)		-0.01	%
Less: Accretion of loan fair value adjustments					(466	)		-0.04	%
Adjusted net interest margin on a fully taxable equivalent basis	$	4,808,454		$	33,647			2.81	%

Excluding the impact of merger-related loan accretion and the impact of PPP loans, the adjusted net interest margin for the six months ended June 30, 2022 was 2.74%, representing a 34 basis points decrease from the adjusted net interest margin of 3.08% for the six months ended June 30, 2021.


	Six Months Ended
	June 30, 2022
	Average Balance			Interest Income/ Expenses			Rate Earned/ Paid
	(dollars in thousands)
Total interest-earning assets (GAAP)	$	4,785,797
Net interest income on a fully taxable equivalent basis (GAAP)				$	66,521
Net interest margin on a fully taxable equivalent basis (GAAP)								2.80	%
Less: Paycheck Protection Program loan impact		(13,277	)		(608	)		-0.02	%
Less: Accretion of loan fair value adjustments					(1,108	)		-0.04	%
Adjusted net interest margin on a fully taxable equivalent basis	$	4,772,520		$	64,805			2.74	%

MArket Risk and Asset Liability Management

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

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

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

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

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

The following table demonstrates the annualized result of an interest rate simulation (excluding purchase accounting adjustments and PPP fee income) 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 24 months.

As of June 30, 2022:


	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	(4.3)	11.8
+200	(2.9)	9.6
+100	(1.4)	7.6
–100	(2.2)	(3.3)

The following table demonstrates the annualized result of an interest rate simulation (excluding purchase accounting adjustments and PPP fee income) 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 24 months.

As of June 30, 2022:


	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	(2.1)	7.4
–100	(0.4)	(1.4)

These simulations assume that there is no growth in interest-earning assets or interest-bearing liabilities over the next 12 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, and 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 June 30, 2022, estimated that, in the event of an instantaneous 200 basis point increase in interest rates, the Bank would experience a 3.0% decrease in the economic value of equity for the next 12 months, resulting in an economic value of equity ratio of 13.2%. At the same date, the analysis estimated that, in the event of an instantaneous 100 basis point decrease in interest rates, the Bank would experience a 7.8% decrease in the economic value of equity, resulting in an economic value of equity ratio of 11.5%. The estimates within the economic value of equity calculation are significantly impacted by management’s assumption that the value of non-maturity deposits do not fall below their stated balance as of June 30, 2022. This assumption has the impact of increasing the Bank’s economic value of equity in the falling rate scenario as lower market rates increase the value of the loan and investment portfolios while the value of the non-maturity deposit base remains static. The Company believes retaining customer relationships is the most desirable strategy over the long term.

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, and deposit maturities and decay rates. These assumptions are inherently uncertain and, as a result, the Company cannot precisely predict the impact of changes in interest rates on the economic value of its equity. Although the economic value of equity analysis provides an indication of the Company's interest rate risk exposure at a particular point in time, such estimates are not intended to, and do not, provide a precise forecast of the effect of changes in market interest rates on the economic value of the Company's equity and will differ from actual results.

LIQUIDITY AND CAPITAL RESOURCES

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

Liquidity. Liquidity is defined as the Company’s ability to generate adequate cash to meet its needs for day-to-day operations and material long- and short-term commitments. Liquidity risk is the risk of potential loss if the Company were unable to meet its funding requirements at a reasonable cost. The Company manages its liquidity based on demand and specific events and uncertainties to meet current and future financial and contractual obligations of a short-term nature. 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, and purchasing wholesale certificates of deposit as its secondary sources. At June 30, 2022, the Company had access to funds totaling $1.45 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 Company’s Board of Directors.

Capital Adequacy. Total shareholders’ equity was $442.1 million at June 30, 2022, as compared to $437.8 million at December 31, 2021. The Company’s equity increased primarily due to net income of $27.0 million, partially offset by unrealized losses on the available for sale investment portfolio of $12.4 million and dividend payments of $8.9 million. Book value per share at June 30, 2022 and December 31, 2021 amounted to $63.09 and $62.83, respectively.

The Company and the Bank are subject to various regulatory capital requirements. As of June 30, 2022, 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 customers. 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 June 30, 2022, 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 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 Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of June 30, 2022 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 June 30, 2022, 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 2021 Annual Report, which is accessible on the SEC’s website at www.sec.gov. Aside from the following risk factors, which replace the risk factor subsection in the 2021 Annual Report entitled “Risks Related to Acquisitions” in its entirety, there have been no material changes to the risk factors previously disclosed in the 2021 Annual Report.

Risks Related to Acquisitions

The risks presented by acquisitions, such as the proposed Northmark Merger, could adversely affect our financial condition and results of operations.

The business strategy of the Company may include growth through acquisition such as the proposed Northmark Merger. Any such future acquisitions will be accompanied by the risks commonly encountered in acquisitions. These risks may include, among other things:

•

our ability to realize anticipated cost savings;

•

the difficulty of integrating operations and personnel, and the loss of key employees;

•

the potential disruption of our or the acquired company’s ongoing business in such a way that could result in decreased revenues, the inability of our management to maximize our financial and strategic position;

•

the inability to maintain uniform standards, controls, procedures, and policies; and

•

the impairment of relationships with the acquired company’s employees and customers as a result of changes in ownership and management.

The Company cannot provide any assurance that we will be successful in overcoming these risks or any other problems encountered in connection with acquisitions. Our inability to overcome these risks could have an adverse effect on the achievement of our business strategy and results of operations.

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

Before the Northmark Merger may be completed, various consents, approvals, waiver or non-objections must be obtained from state and federal governmental authorities, including the FDIC, the Federal Reserve, the Massachusetts Commissioner of Banks, the Massachusetts Housing Partnership, and the Co-Operative Central Bank. Satisfying the requirements of these governmental authorities may delay the date of completion of the Northmark Merger. In addition, these governmental authorities may include conditions on the completion of the Northmark Merger, or require changes to the terms of the Northmark Merger. While the Company and Northmark do not currently expect that any such conditions or changes would result in a material adverse effect on the Company, there can be no assurance that they will not, and such conditions or changes could have the effect of delaying completion of the Northmark Merger, or imposing additional costs on or limiting the revenues of the Company following the Northmark Merger, any of which might have a material adverse effect on the Company following the Northmark Merger. The parties are not obligated to complete the Northmark Merger should any regulatory approval contain a non-standard condition, restriction or requirement that the Company’s board of directors reasonably determines in good faith would, individually or in the aggregate, materially reduce the benefits of the Northmark Merger to such a degree that the Company would not have entered into the merger agreement had such condition, restriction or requirement been known at the date of the merger agreement.

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

If the Northmark Merger is not completed, the ongoing businesses of the Company may be adversely affected, and the Company will be subject to several risks, including the following:

•

the Company will be required to pay certain costs relating to the Northmark Merger, whether or not the Northmark Merger is completed, such as legal, accounting, financial advisor and printing fees; and

•

matters relating to the Northmark Merger may require substantial commitments of time and resources by management of the Company, which could otherwise have been devoted to serving existing customers or other opportunities that may have been beneficial to the Company as an independent company.

The integration of the Company and Northmark will present significant challenges that may result in the combined business not operating as effectively as expected or in the failure to achieve some or all of the anticipated benefits of the transaction.

The benefits and synergies expected to result from the Northmark Merger will depend in part on whether the operations of Northmark can be integrated in a timely and efficient manner with those of the Company. The Company will face challenges in consolidating its functions with those of Northmark, and integrating the organizations, procedures and operations of the two businesses. The integration of the Company and Northmark will be complex and time-consuming, and the management of both companies will have to dedicate substantial time and resources to it. These efforts could divert management’s focus and resources from serving existing customers or other strategic opportunities and from day-to-day operational matters during the integration process. Failure to successfully integrate the operations of the Company and Northmark could result in the failure to achieve some of the anticipated benefits from the transaction, including cost savings and other operating efficiencies, and the Company may not be able to capitalize on the existing relationships of Northmark to the extent anticipated, or it may take longer, or be more difficult or expensive than expected to achieve these goals. This could have an adverse effect on the business, results of operations, financial condition or prospects of the Company and/or the Bank after the transaction.

Unanticipated costs relating to the Northmark Merger could reduce the Company’s future earnings per share.

The Company and the Bank believe that each has reasonably estimated the likely costs of integrating the operations of the Bank and Northmark, and the incremental costs of operating as a combined company. However, it is possible that unexpected transaction costs such as taxes, fees or professional expenses or unexpected future operating expenses such as increased personnel costs or increased taxes, as well as other types of unanticipated adverse developments, could have a material adverse effect on the results of operations and financial condition of the combined company. If unexpected costs are incurred, the Northmark Merger could have a dilutive effect on the Company’s earnings per share. In other words, if the Northmark Merger is completed, the earnings per share of the Company’s common stock could be less than anticipated or even less than if the Northmark Merger had not been completed.

Following the Northmark Merger, the Company may not continue to pay dividends at or above the rate currently paid by the Company.

Following the Northmark Merger, the Company’s shareholders may not receive dividends at the same rate that they did prior to the merger for various reasons, including the following:

•

the Company may not have enough cash to pay such dividends due to changes in its cash requirements, capital spending plans, cash flow or financial position;

•

decisions on whether, when and in what amounts to make any future dividends will remain at all times entirely at the discretion of the Company’s board of directors, which reserves the right to change the Company’s dividend practices at any time and for any reason; and

•

the amount of dividends that the Company’s subsidiaries may distribute to the Company may be subject to restrictions imposed by state law and restrictions imposed by the terms of any current or future indebtedness that these subsidiaries may incur.

The Company’s shareholders will have no contractual or other legal right to dividends that have not been declared by the Company’s board of directors.

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 June 30, 2022:


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

Period (2)
April 1 to April 30, 2022		13	$	81.25
May 1 to May 31, 2022		317	$	79.62
June 1 to June 30, 2022		—	$	—
Total		330

(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.

(2)

On March 14, 2022, the Company's Board of Directors authorized a share repurchase program (the "2022 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, 2021, with such purchases occurring prior to March 14, 2023, provided that the aggregate purchase price does not exceed $32.0 million. The timing and amount of any shares of the Company’s common stock repurchased under the 2022 Repurchase Program will be determined by the Company’s management based on its evaluation of market conditions and other factors. The 2022 Repurchase Program may be suspended or discontinued at any time. The 2022 Repurchase Program replaces the 2021 Repurchase Program which expired on March 15, 2022. The Company did not repurchase any shares under its Repurchase Program during the three and six months ended June 30, 2022.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

Item 6. Exhibits.

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


Exhibit Number		Description

2.1		Agreement and Plan of Merger, dated May 23, 2022, by and among Cambridge Bancorp, Cambridge Trust Company and Northmark Bank (incorporated by reference to Exhibit 2.1 of the Form 8-K filed with the SEC on May 23, 2022).

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

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

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

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

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

101.SCH		Inline XBRL Taxonomy Extension Schema Document

101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document

104		The cover page for the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2022, 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

August 4, 2022	By:	/s/ Denis K. Sheahan
		Denis K. Sheahan
		Chairman, President & Chief Executive Officer (Principal Executive Officer)

August 4, 2022
	By:	/s/ Michael F. Carotenuto
		Michael F. Carotenuto
		Chief Financial Officer, Executive Vice President (Principal Financial Officer and Principal Accounting Officer)

EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO

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

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

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

I have reviewed this Quarterly Report on Form 10-Q, for the period ended June 30, 2022, of Cambridge Bancorp;

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

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

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

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

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

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

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

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


August 4, 2022	By:	/s/ Denis K. Sheahan
		Denis K. Sheahan
		Chairman, President & Chief Executive Officer (Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO

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

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

I, Michael F. Carotenuto, Chief Financial Officer of Cambridge Bancorp, certify that:

I have reviewed this Quarterly Report on Form 10-Q, for the period ended June 30, 2022, of Cambridge Bancorp;

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


August 4, 2022	By:	/s/ Michael F. Carotenuto
		Michael F. Carotenuto
		Chief Financial Officer, Executive Vice President (Principal Financial Officer and Principal Accounting Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

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

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Cambridge Bancorp (the “Company”) for the period ending June 30, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I hereby certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

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

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


August 4, 2022	By:	/s/ Denis K. Sheahan
		Denis K. Sheahan
		Chairman, President & Chief Executive Officer (Principal Executive Officer)

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

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

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

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

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


August 4, 2022	By:	/s/ Michael F. Carotenuto
		Michael F. Carotenuto
		Chief Financial Officer, Executive Vice President (Principal Financial Officer and Principal Accounting Officer)

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