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Net Interest Income and Net Interest Margin

Net interest income for the first quarter of 2025 was $42.3 million, compared with $44.5 million in the prior quarter. The decrease in net interest income was primarily due to a $5.7 million decrease in total interest and dividend income, partially offset by a $3.4 million decrease in total interest expense in the first quarter of 2025, as compared to the prior quarter. During the first quarter of 2025, loan interest income decreased by $4.1 million, including a decrease of $421 thousand of accretion income from the net purchase accounting discounts on acquired loans, total debt securities income decreased $174 thousand, and interest and dividend income from other financial institutions decreased $1.5 million. The decrease in interest income was mainly due to decreases in average loan balances and average deposits in other financial institutions. Average total interest-earning assets decreased $160.8 million in the first quarter of 2025, the result of a $75.2 million decrease in average total loans, a $8.5 million decrease in average total debt securities, a $105.5 million decrease in average deposits in other financial institutions, partially offset by a $27.1 million increase in average Fed funds sold/resale agreements and a $1.3 million increase in average restricted stock investments and other bank stock. The decrease in interest expense for the first quarter of 2025 was primarily due to a $3.4 million decrease in interest expense on interest-bearing deposits, the result of a $151.1 million decrease in average interest-bearing deposits and a 39 basis point decrease in average interest-bearing deposit costs in the first quarter of 2025.

Net interest margin for the first quarter of 2025 was 4.65%, compared with 4.61% in the prior quarter. The increase was primarily related to a 27 basis point decrease in the cost of funds, partially offset by a 22 basis point decrease in the total interest-earning assets yield. The yield on total average interest-earning assets in the first quarter of 2025 was 6.26%, compared with 6.48% in the prior quarter. The yield on average total loans in the first quarter of 2025 was 6.61%, a decrease of 23 basis points from 6.84% in the prior quarter. Accretion income from the net purchase accounting discounts on acquired loans was $5.7 million, increasing the yield on average total loans by 62 basis points; the net amortization expense from the purchase accounting discounts on acquired subordinated debt and acquired time deposits premium increased the interest expense by $526 thousand, the combination of which increased the net interest margin by 57 basis points in the first quarter of 2025. In the prior quarter, accretion income from the net purchase accounting discounts on acquired loans was $6.1 million, increasing the yield on average total loans by 76 basis points; the net amortization expense from the purchase accounting discounts on acquired subordinated debt and acquired time deposits premium increased the interest expense by $467 thousand, the combination of which increased the net interest margin by 58 basis points.

Cost of funds for the first quarter of 2025 was 1.72%, a decrease of 27 basis points from 1.99% in the prior quarter. The decrease was primarily driven by a 39 basis point decrease in the cost of average interest-bearing deposits, partially offset by an increase of 9 basis points in the cost of total borrowings, which was driven primarily by the amortization expense of $559 thousand from the purchase accounting discounts on acquired subordinated debt which increased the cost on total borrowings by 7 basis points. Average noninterest-bearing demand deposits decreased $27.7 million to $1.26 billion and represented 37.4% of total average deposits for the first quarter of 2025, compared with $1.28 billion and 36.3%, respectively, in the prior quarter; average interest-bearing deposits decreased $151.1 million to $2.10 billion during the first quarter of 2025. The total cost of deposits in the first quarter of 2025 was 1.59%, a decrease of 28 basis points from 1.87% in the prior quarter. The cost of total interest-bearing deposits decreased primarily due to the Company’s deposit repricing strategy and the ongoing pay off of high cost brokered deposits in the first quarter of 2025.

Average total borrowings increased $607 thousand to $70.0 million in the first quarter of 2025, primarily due to the amortization related to the purchase accounting discounts on acquired subordinated debt. The average cost of total borrowings was 8.06% for the first quarter of 2025, up from 7.97% in the prior quarter.

Reversal of Credit Losses

The Company recorded a reversal of credit losses of $3.8 million in both the first quarter of 2025 and the prior quarter. Total net charge-offs were $1.5 million in the first quarter of 2025, which included $273 thousand from an acquired consumer solar loan portfolio, $1.2 million from commercial and industrial dental loans acquired from the Merger and $1.7 million from a purchase credit deteriorated (“PCD”) commercial real-estate loan, partially offset by a $1.6 million recovery from a PCD commercial and industrial loan. The reversal of credit losses in the first quarter of 2025 included a $618 thousand reversal of credit losses for unfunded loan commitments related to the decrease in unfunded loan commitments during the first quarter of 2025, coupled with lower loss rates used to estimate the allowance for credit losses on unfunded commitments. Total unfunded loan commitments decreased $33.2 million to $892.1 million at March 31, 2025, compared to $925.3 million in unfunded loan commitments at December 31, 2024.

The reversal of credit losses for loans held for investment in the first quarter of 2025 was $3.2 million, an increase of $291 thousand from a reversal of credit losses of $2.9 million in the prior quarter. The increase was driven primarily by changes in the composition of the loans held for investment portfolio, coupled with changes in qualitative factors and the reasonable and supportable forecast, primarily related to the economic outlook for California. The Company’s management continues to monitor macroeconomic variables related to changes in interest rates and the concerns of an economic downturn, and believes it has appropriately provisioned for the current environment.

Noninterest Income

The Company recorded noninterest income of $2.6 million in the first quarter of 2025, an increase of $1.6 million compared to $1.0 million in the fourth quarter of 2024. The Company reported a gain on sale of loans of $577 thousand from SBA 7A loan sales, in the first quarter of 2025, compared to a loss on sale of loans of $1.1 million related to the sale of certain Sponsor Finance loans in the prior quarter. Service charges and fees on deposit accounts of $1.2 million in the first quarter of 2025 increased $275 thousand from the prior quarter, related to the one-time waiver of analysis charges for certain deposit accounts in light of the core system conversion in the prior quarter. Bank owned life insurance income of $463 thousand in the first quarter of 2025 decreased $360 thousand from the prior quarter, primarily related to a $368 thousand death benefit income recorded in the prior quarter. No comparable death benefit income was recorded in the first quarter of 2025.

Noninterest Expense

Total noninterest expense for the first quarter of 2025 was $24.9 million, a decrease of $1.2 million from total noninterest expense of $26.1 million in the prior quarter, which was largely due to the decrease in merger related expenses.

Salaries and employee benefits decreased $210 thousand during the quarter to $15.9 million. The decrease in salaries and employee benefits was primarily related to the decrease in average headcount. There were no merger related expenses in the first quarter of 2025, compared to $643 thousand in the prior quarter. Regulatory assessments of $722 thousand increased $286 thousand due to an increase in the FDIC assessment rates. Other real estate owned expense of $68 thousand in the first quarter of 2025 decreased by $152 thousand, due primarily to lower receivership expenses and property tax. Other expenses of $2.0 million in the first quarter of 2025 decreased by $175 thousand, due primarily to lower loan related expenses, customer service related expenses, travel expenses and insurance expenses.

Efficiency ratio (non-GAAP¹) for the first quarter of 2025 was 55.6%, compared to 57.4% in the prior quarter. Excluding the merger and related expenses of zero and $643 thousand, the efficiency ratio (non-GAAP¹) for the first quarter of 2025 and fourth quarter of 2024 would have been 55.6% and 55.9%, respectively.

Income Tax

In the first quarter of 2025, the Company’s income tax expense was $6.8 million, compared with $6.5 million in the fourth quarter of 2024. The effective rate was 28.8% for the first quarter of 2025 and 27.9% for the fourth quarter of 2024. The increase in the effective tax rate for the first quarter of 2025 was primarily attributable to the impact of the non-tax deductible portion of the merger expenses and the vesting and exercise of equity awards combined with changes in the Company’s stock price over time, partially offset by the impact of the tax on the excess executive compensation.

Balance Sheet

Assets

Total assets at March 31, 2025 were $3.98 billion, a decrease of $48.6 million or 1.2% from December 31, 2024. The decrease in total assets from the prior quarter was primarily related to a decrease in loans, including loans held for sale, of $82.9 million, partially offset by an increase in cash and cash equivalents of $51.1 million as compared to the prior quarter. The decrease in assets primarily relates to the decreases in wholesale funding sources and loan sales and payoffs.

Loans

Total loans held for investment were $3.07 billion at March 31, 2025, a decrease of $70.4 million, compared to December 31, 2024. During the first quarter of 2025, there were new originations of $69.4 million, offset by net paydowns of $21.5 million, loan sales and payoffs of $115.1 million, and the partial charge-offs of loans in the amount of $3.2 million. Total loans secured by real estate decreased by $30.7 million, of which construction and land development loans decreased by $5.9 million, commercial real estate and other loans decreased by $11.8 million, 1-4 family residential loans decreased by $7.0 million and multifamily loans decreased by $6.1 million. Commercial and industrial loans decreased by $38.5 million, and consumer loans decreased by $1.2 million. The Company had $4.6 million in loans held for sale at March 31, 2025, compared to $17.2 million at December 31, 2024.

Deposits

Total deposits at March 31, 2025 were $3.34 billion, a decrease of $56.3 million from December 31, 2024. The decrease primarily consisted of $107.4 million of brokered time deposits, partially offset by a $35.7 million increase in noninterest-bearing demand deposits, $10.9 million in interest-bearing non-maturity deposits, and $4.5 million of non-brokered time deposits. Noninterest-bearing demand deposits at March 31, 2025, were $1.29 billion, or 38.7% of total deposits, compared with $1.26 billion, or 37.0% of total deposits at December 31, 2024. At March 31, 2025, total interest-bearing deposits were $2.05 billion, compared to $2.14 billion at December 31, 2024. At March 31, 2025, total brokered time deposits were $13.8 million, compared to $121.1 million at December 31, 2024. The Company offers the Insured Cash Sweep (ICS) product, Certificate of Deposit Account Registry Service (CDARS), and Reich & Tang Deposit Solutions (R&T) network, all of which provide reciprocal deposit placement services to fully qualified large customer deposits for FDIC insurance among other participating banks. At March 31, 2025, total reciprocal deposits were $763.6 million, or 22.8% of total deposits at March 31, 2025, compared to $754.4 million, or 22.2% of total deposits at December 31, 2024.

Federal Home Loan Bank (“FHLB”) and Liquidity

At March 31, 2025 and December 31, 2024, the Company had no overnight FHLB borrowings. There were no outstanding Federal Reserve Discount Window borrowings at March 31, 2025 or December 31, 2024.

At March 31, 2025, the Company had available borrowing capacity from an FHLB secured line of credit of approximately $687.8 million and available borrowing capacity from the Federal Reserve Discount Window of approximately $353.0 million. The Company also had available borrowing capacity from four unsecured credit lines from correspondent banks of approximately $90.5 million at March 31, 2025, with no outstanding borrowings. Total available borrowing capacity was $1.13 billion at March 31, 2025. Additionally, the Company had unpledged liquid securities at fair value of approximately $118.5 million and cash and cash equivalents of $439.2 million at March 31, 2025.

Asset Quality

Total non-performing assets decreased to $26.9 million, or 0.68% of total assets at March 31, 2025, compared with $30.6 million, or 0.76% of total assets at December 31, 2024. Total non-performing loans decreased to $22.8 million, or 0.74% of total loans held for investment at March 31, 2025, compared with $26.5 million, or 0.85% of total loans held for investment at December 31, 2024.

There were four loans totaling $6.8 million downgraded to nonaccrual, partially offset by one 1-4 family residential loan of $2.9 million upgraded to accrual status and one commercial real estate loan of $7.2 million sold with an additional charge-off of $1.7 million during the first quarter of 2025. Non-performing assets in the first quarter of 2025 included OREO, net of valuation allowance, of $4.1 million related to a multifamily building, the same balance as the prior quarter.

Special mention loans increased by $5.1 million during the first quarter of 2025 to $74.4 million at March 31, 2025. The increase in the special mention loans was due mostly to $18.9 million in downgrades from Pass loans and $8.6 million in net advances, partially offset by $15.9 million in downgrades to substandard loans, $2.1 million upgrades to Pass loans, and $4.5 million in payoffs. Substandard loans decreased by $5.8 million during the first quarter of 2025 to $111.8 million at March 31, 2025. The decrease in the substandard loans was due primarily to a 1-4 family residential loan and a commercial real estate nonaccrual PCD loan totaling $11.6 million that were both sold, $16.0 million in paydowns and payoffs, and $1.2 million in net charge-offs, partially offset by $7.2 million in downgrades from Pass loans, and $15.9 million in downgrades from special mention loans.

The Company had $45 thousand in consumer solar loans that were over 90 days past due and still accruing interest at March 31, 2025, compared to $150 thousand in such delinquencies at December 31, 2024.

There were $5.1 million in loan delinquencies (30-89 days past due, excluding nonaccrual loans) at March 31, 2025, compared to $12.1 million in such loan delinquencies at December 31, 2024.

The allowance for credit losses, which is comprised of the allowance for loan losses (“ALL”) and reserve for unfunded loan commitments, totaled $48.3 million at March 31, 2025, compared to $53.6 million at December 31, 2024. The decrease in the allowance for credit losses included a $3.2 million and $618 thousand reversal of provision for credit losses for the loan portfolio and reserve for unfunded loan commitments, respectively, coupled with total net charge-offs of $1.5 million for the quarter ended March 31, 2025.

The ALL was $45.8 million, or 1.49% of total loans held for investment at March 31, 2025, compared with $50.5 million, or 1.61% at December 31, 2024.

Capital

Tangible book value per common share (non-GAAP¹) at March 31, 2025, was $12.29, compared with $11.71 at December 31, 2024. In the first quarter of 2025, tangible book value was primarily impacted by net income of $16.9 million for the first quarter, stock-based compensation expense, coupled with a decrease in net of tax unrealized losses on available-for-sale debt securities. Other comprehensive losses related to unrealized losses, net of taxes, on available-for-sale debt securities decreased by $2.2 million to $4.4 million at March 31, 2025, from $6.6 million at December 31, 2024. The decrease in the net of tax unrealized losses on available-for-sale debt securities was attributable to non-credit related factors, including an increase in bond prices at the long end of the yield curve and the general interest rate environment. Tangible common equity (non-GAAP¹) as a percentage of total tangible assets (non-GAAP¹) at March 31, 2025, increased to 10.34% from 9.69% in the prior quarter, and unrealized losses, net of taxes, on available-for-sale debt securities as a percentage of tangible common equity (non-GAAP¹) at March 31, 2025 decreased to 1.1% from 1.8% in the prior quarter.

The Company’s preliminary capital ratios exceed the minimums required to be “well-capitalized” at March 31, 2025.

ABOUT CALIFORNIA BANCORP

California BanCorp (NASDAQ: BCAL) is a registered bank holding company headquartered in San Diego, California. California Bank of Commerce, N.A., a national banking association chartered under the laws of the United States (the “Bank”) and regulated by the Office of Comptroller of the Currency, is a wholly owned subsidiary of California BanCorp. Established in 2001 and headquartered in San Diego, California, the Bank offers a range of financial products and services to individuals, professionals, and small to medium-sized businesses through its 14 branch offices and four loan production offices serving Northern and Southern California. The Bank’s solutions-driven, relationship-based approach to banking provides accessibility to decision makers and enhances value through strong partnerships with its clients. Additional information is available at www.bankcbc.com.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

In addition to historical information, this release includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and other matters that are not historical facts. Examples of forward-looking statements include, among others, statements regarding expectations, plans or objectives for future operations, products or services, loan recoveries, projections, expectations regarding the adequacy of reserves for credit losses and statements about the benefits of the Merger, as well as forecasts relating to financial and operating results or other measures of economic performance. Forward-looking statements reflect management’s current view about future events and involve risks and uncertainties that may cause actual results to differ from those expressed in the forward-looking statement or historical results. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts and often include the words or phrases such as “aim,” “can,” “may,” “could,” “predict,” “should,” “will,” “would,” “believe,” “anticipate,” “estimate,” “expect,” “hope,” “intend,” “plan,” “potential,” “project,” “will likely result,” “continue,” “seek,” “shall,” “possible,” “projection,” “optimistic,” and “outlook,” and variations of these words and similar expressions.

Factors that could cause or contribute to results differing from those in or implied in the forward-looking statements include but are not limited to risks related to the Merger, including the risks that cost savings may be less than anticipated, and difficulties in retaining senior management, employees or customers, the impact of bank failures or other adverse developments at other banks on general investor sentiment regarding the stability and liquidity of banks, changes in real estate markets and valuations; the impact on financial markets from geopolitical conflicts; inflation, interest rate, market and monetary fluctuations and general economic conditions, either nationally or locally in the areas in which the Company conducts business; increases in competitive pressures among financial institutions and businesses offering similar products and services; general credit risks related to lending, including changes in the value of real estate or other collateral, the financial condition of borrowers, the effectiveness of our underwriting practices and the risk of fraud; higher than anticipated defaults in the Company’s loan portfolio; changes in management’s estimate of the adequacy of the allowance for credit losses or the factors the Company uses to determine the allowance for credit losses; changes in demand for loans and other products and services offered by the Company; the costs and outcomes of litigation; legislative or regulatory changes or changes in accounting principles, policies or guidelines and other risk factors discussed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024, filed with the Securities and Exchange Commission (“SEC”) and other documents the Company may file with the SEC from time to time.

Additional information regarding these and other risks and uncertainties to which our business and future financial performance are subject is contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024, and other documents the Company files with the SEC from time to time.

Any forward-looking statement made in this release is based only on information currently available to management and speaks only as of the date on which it is made. The Company does not undertake, and specifically disclaims any obligation, to update any forward-looking statements to reflect occurrences or unanticipated events or circumstances after the date of such statements or to conform such forward-looking statements to actual results or to changes in its opinions or expectations, except as required by law.

California BanCorp and Subsidiary
Financial Highlights (Unaudited)

(1) Non-GAAP measure. See – GAAP to Non-GAAP reconciliation.

(1) Included in “Accrued interest and other liabilities” on the consolidated balance sheet.

California BanCorp and Subsidiary
Balance Sheets (Unaudited)

California BanCorp and Subsidiary
Income Statements - Quarterly and Year-to-Date (Unaudited)

(1) Included reversal of credit losses on unfunded loan commitments of $618 thousand, $968.0 thousand and $17 thousand for the three months ended March 31, 2025, December 31, 2024, and March 31, 2024, respectively.
(2) Non-GAAP measure. See — GAAP to Non-GAAP reconciliation.

California BanCorp and Subsidiary
Average Balance Sheets and Yield Analysis
(Unaudited)

(1) Tax-exempt debt securities yields are presented on a tax equivalent basis using a 21% tax rate.
(2) Average noninterest-bearing deposits represent 37.37%, 36.27% and 34.35% of average total deposits for the three months ended March 31, 2025, December 31, 2024 and March 31, 2024, respectively.

California BanCorp and Subsidiary
GAAP to Non-GAAP Reconciliation
(Unaudited)

The following tables present a reconciliation of non-GAAP financial measures to GAAP measures for: (1) adjusted net income (loss), (2) efficiency ratio, (3) adjusted efficiency ratio, (4) pre-tax pre-provision income, (5) adjusted pre-tax pre-provision income, (6) average tangible common equity, (7) adjusted return on average assets, (8) adjusted return on average equity, (9) return on average tangible common equity, (10) adjusted return on average tangible common equity, (11) tangible common equity, (12) tangible assets, (13) tangible common equity to tangible asset ratio, and (14) tangible book value per common share. We believe the presentation of certain non-GAAP financial measures provides useful information to assess our consolidated financial condition and consolidated results of operations and to assist investors in evaluating our financial results relative to our peers. These non-GAAP financial measures complement our GAAP reporting and are presented below to provide investors and others with information that we use to manage the business each period. Because not all companies use identical calculations, the presentation of these non-GAAP financial measures may not be comparable to other similarly titled measures used by other companies. These non-GAAP measures should be taken together with the corresponding GAAP measures and should not be considered a substitute of the GAAP measures.

(1) After-tax merger and related expenses are presented using a 29.56% tax rate.