California BanCorp : Annual Report - 2022

CONSOLIDATED FINANCIAL STATEMENTS

As of December 31, 2022 and 2021 and for the years then ended and independent auditor's report

To Our Shareholders,

Our performance in 2022 represented another year of successfully executing on our strategic plan for generating profitable growth and enhancing the value of our franchise. We continued to consistently add new clients, grow our balance sheet and revenue, and increase operating leverage. As a result, we generated a substantial increase in our profitability, with our earnings per share being 56% higher than the prior year, and we reached a significant milestone for the Company with our return on average assets exceeding 1.00% during the second half of the year. With our strong financial performance and effective balance sheet management, we also generated a 14% increase in tangible book value per share during a year in which many banks saw declines, and increased our TCE ratio by nearly 100 basis points, all through internal capital generation.

We are particularly pleased that we delivered on all of the goals that we set for 2022: we continued to grow our balance sheet while maintaining disciplined expense control, resulting in improved efficiencies; we substantially increased our fee income, which was partially driven by the investments we have made to improve our treasury management platform that has enhanced our ability to attract new commercial clients to the bank; and we effectively capitalized on our asset sensitivity to drive significant expansion in our net interest margin. The achievement of all of these goals contributed to our substantial increase in earnings and returns.

Over the past few years, we have added banking talent that fits our relationship-oriented, highly consultative approach while providing expertise in specialized areas of lending and increasing our exposure to new markets. With our diverse lending platform, we have the flexibility to focus our loan production on whichever asset classes present the most attractive risk-adjusted yields at any given point in time. Due to the strong commercial banking team we have built, we consistently saw a higher level of loan production during 2022, which resulted in 16% loan growth, even as we opportunistically executed some loan sale transactions that both enhanced our profitability and favorably adjusted our risk profile. Importantly, as our franchise has grown, we have maintained exceptional asset quality. For the full year, our net charge-offs were just 0.01% of average loans, and we ended the year with non-performing assets/total assets of just 0.06%.

Our primary focus remains on developing deposit relationships with high quality commercial clients that maintain their operating accounts with the bank. With our improved treasury management platform, we are consistently adding new operating accounts, and we have built a stable, low-cost deposit base with noninterest-bearing deposits accounting for 45% of our total deposits at year end. Due to the strong deposit base that serves as the foundation for our bank, we were able to effectively control our deposit costs despite the significant increase in interest rates during the year, which contributed to the margin expansion that led to our increased profitability. We believe the franchise we have built based on a stable, low-cost deposit base and conservatively underwritten, well diversified loan portfolio will enable us to continue to deliver strong financial performance for our share- holders, even as the operating environment remains challenging in 2023. Over the longer term, as economic conditions improve, we believe that our commercial banking team's ability to generate attractive lending opportunities and low-cost deposits will result in higher levels of revenue, more operating leverage, and profitable growth that will further enhance the value of our franchise.

Sincerely,

Chairman of the Board	Steven E. Shelton
Chief Executive Officer

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

• ANNUAL REPORT PURSUANT TO SECTION 13 OF 15(d) OR THE SECURITIES EXCHANGE

ACT OF 1934

For the fiscal year ended December 31, 2022

Commission File Number 001-39242

CALIFORNIA BANCORP

(Exact name of registrant as specified in its charter)

California				82-1751097
(State or other jurisdiction of					(I.R.S. Employer
incorporation or organization)					Identification No.)
			1300 Clay Street, Suite 500
				Oakland, California 94612
			(Address of principal executive offices)
			[phone]
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, No Par Value				CALB		NASDAQ Global Select Market
(Title of class)		(Trading Symbol)		(Name of exchange on which registered)
		405 of the Securities Act. YES ☐	NO ☒
Indicate by check mark if the registrant is a well-known seasonal issuer, as defined in Rule
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES	☐ NO ☒

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 and
post such files). YES ☒	NO ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☒
		Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation
received by any of the registrant's executive officers during the relevant recovery period pursuant to §240.10D-1(b).	☐	☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES ☐	NO

The aggregate market value of the registrant's common stock held by non-affiliates was approximately $146.6 million on June 30, 2022 based on the closing price per common share of $19.27 on that date.

Number of shares outstanding of the registrant's common stock as of March 1, 2023: 8,337,568

Documents Incorporated by Reference: Portions of the registrant's definitive proxy statement for its 2023 Annual Meeting of Shareholders are incorporated by reference in Part III of this report.

	CALIFORNIA BANCORP
	INDEX TO ANNUAL REPORT ON FORM 10-K
	FOR THE YEAR ENDED DECEMBER 31, 2022
		Page
Part I
Item 1.	Business	4
Item 1A.	Risk Factors	20
Item 1B.	Unresolved Staff Comments	36
Item 2.	Properties	36
Item 3.	Legal Proceedings	36
Item 4.	Mine Safety Disclosures	36
Part II
Item 5.	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities ....	37
Item 6.	Reserved	37
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	37
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	48
Item 8.	Financial Statements and Supplementary Data	49
Item 9.	Changes in and Disagreements with Accountants on Accounting Financial Disclosures	87
Item 9A.	Controls and Procedures	87
Item 9B.	Other Information	87
Item 9C.	Disclosure Regarding Foreign Jurisdictions that Prevent Inspections	87
Part III
Item 10.	Directors, Executive Officers and Corporate Governance	88
Item 11.	Executive Compensation	88
Item 12.	Security Ownership of Certain Beneficial Owners and Management, and Related Stockholder Matters	88
Item 13.	Certain Relationships and Related Transactions, and Director Independence	88
Item 14.	Principal Accountant Fees and Services	89
Part IV
Item 15.	Exhibits and Financial Statement Schedules	90
Item 16.	Form 10-K Summary	92
Signatures		93

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Forward Looking Statements

Certain statements contained in this Annual Report on Form 10-K are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward- looking statements include statements relating to our projected growth, anticipated future financial performance, financial condition, credit quality and management's long-term performance goals, as well as statements relating to the anticipated effects on our business, financial condition and results of operations from expected developments or events, our business, growth and strategies. These statements, which are based on certain assumptions and estimates and describe our future plans, results, strategies and expectations, can generally be identified by the use of the words and phrases "may," "will," "should," "could," "would," "goal," "plan," "potential," "estimate," "project," "believe," "intend," "anticipate," "expect," "target," "aim," "predict," "continue," "seek," "projection" and other variations of such words and phrases and similar expressions. With respect to any such forward-looking statements, the Company claims the protection provided for in the Private Securities Litigation Reform Act of 1995.

We have made the forward-looking statements in this report based on assumptions and estimates that we believe to be reasonable in light of the information available to us at this time. However, these forward-looking statements are subject to significant risks and uncertainties, and could be affected by many factors. Factors that could have a material adverse effect on our business, financial condition, results of operations and future growth prospects can be found in the "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" sections of this report and elsewhere in this report. These factors include, but are not limited to, the following:

• business and economic conditions nationally, regionally and in our target markets, particularly in the greater San Francisco Bay Area and other areas in which we operate;
• concentration of our loan portfolio in commercial and industrial loans, which loans may be dependent on the borrower's cash flows for repayment and, to some extent, the local and regional economy;
• concentration of our loan portfolio in real estate loans and changes in the prices, values and sales volumes of commercial and residential real estate;
• the concentration of our business activities within the geographic areas of Northern California;
• credit and lending risks associated with our commercial real estate, commercial and industrial, and construction and development portfolios;
• the impact of the COVID-19 epidemic on our business, employees, customers and the local, national and global economy;
• disruptions to the credit and financial markets, either nationally or globally;
• increased competition in the banking industry, nationally, regionally or locally;
• our ability to execute our business strategy to achieve profitable growth;
• the dependence of our operating model on our ability to attract and retain experienced and talented bankers in each of our markets;
• risks that our cost of funding could increase, in the event we are unable to continue to attract stable, low-cost deposits and/or reduce our cost of deposits;
• our ability to improve our operating efficiency;
• failure to keep pace with technological change or difficulties when implementing new technologies;
• our ability to attract and maintain business banking relationships with well-qualified businesses, real estate developers and investors with proven track records in our market areas;
• our ability to attract sufficient loans that meet prudent credit standards, including in our commercial and industrial and owner-occupied commercial real estate loan categories;

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