BCAL 10-K & 10-Q changes, risk factors and insider trading

•We may be adversely affected by the lack of soundness of other financial institutionsinstitutions.

•We face riskrisks related to severe weather, natural disasters, acts of terrorism and global conflicts.

•We operate in a highly regulated environment and the laws and regulations regarding capital requirements, anti-money laundering, information security and many other aspects of our business. Our failure to so comply could adversely affect us and our future growth.

•OurThe development and use of artificial intelligence may result in reputational harm or liability, or could adversely affect our business.

•As an emerging growth company and a smaller reporting company, we may take advantage of reduced regulatory and reporting requirements under the federal securities laws, which may make our common stock less attractive to investors.

The recent failures of some depository institutions have raised concerns among depositors that their deposits may be at risk. While we believe the Bank is operated in a safe and sound manner, a market-wide loss of depositor confidence caused by the failures or the perceived unsoundness of other depository institutions could lead to deposit outflows at the Bank, potentially at levels that could require that we borrow funds or sell securities or other assets to address liquidity concerns, any of which could adversely affect our consolidated operating results, business prospects and capital.

We face risks related to severe weather, natural disasters, global climate change, acts of terrorism and global conflicts.

Pandemics,Severe weather, natural disasters, global climate change, acts of terrorism, global conflicts including the Russia-Ukraine War, the Israel-Hamas War,conflicts, or other similar events have in the past, and may in the future have, a negative impact on our business and operations. Our business and most of the collateral securing our loans are concentrated in California, which is prone to earthquakes, fires, mudslides, drought, flooding and other natural disasters, including the January 2025 Los Angeles county wildfires. These events impact us negatively to the extent that they result in reduced capital markets activity, lower asset price levels, destruction of residential and commercial properties, or disruptions in general economic activity in the United States or abroad, or in financial market settlement functions. Disruptions to our clients could result in increased risk of delinquencies, defaults, foreclosures and losses on our loans.

The primary component of our business involves making loans to our clients. The business of lending is inherently risky, including risks that the principal or interest on any loan will not be repaid in a timely manner or at all or that the value of any collateral supporting the loan will be insufficient to cover losses in the event of a default. Our risk management practices, such as managing the concentration of our loans within specific industries, loan types and geographic areas, and our credit approval practices may not adequately reduce credit risk. Further, our credit administration personnel, policies and procedures may not adequately adapt to changes in economic or any other conditions affecting clients and the quality of the loan portfolio. A failure to effectively measure and manage the credit risk, including non-performing assets, associated with our loan portfolio could lead to unexpected losses and have an adverse effect on our business, consolidated financial condition and consolidated results of operations.

As of December 31, 2024,2025, our CRE loans for purposes of this guidance represented 459.0%469.3% of our total risk-based capital. As of December 31, 2024,2025, total loans secured by CRE under construction and land development represented 45.5%28.0% of our total risk-based capital. As a result, the OCC, which is the Bank’s federal banking regulator,OCC could view the Bank as having a high concentration of CRE loans under this guidance.

For all of these reasons and uncertainties,Our construction and land development loans mayinvolve represent greateradditional risks thanthat othercould typesresult ofin loans.higher losses.

Furthermore, loans generally are not readily convertible to cash. From time to time, if our ability to raise funds through deposits, borrowings, the sale of investment securities and other sources are not sufficient to meet our liquidity needs, we may be required to rely on alternative funding sources of liquidity to meet growth in loans, deposit withdrawal demands or otherwise fund operations. Such alternative funding sources include FHLB advances, Federal Reserve borrowings, brokered deposits, unsecured federal funds lines of credit from correspondent banks and/or accessing the equity or debt capital markets. The availability of these alternative funding sources is subject to broad economic conditions, to regulation and to investor assessment of our financial strength and, as such, the cost of funds may fluctuate significantly and/or the availability of such funds may be restricted, thus impacting our net interest income, our immediate liquidity and/or our access to additional liquidity. Additionally, if we fail to remain “ well-capitalized” our ability to utilize brokered deposits may be restricted. We have somewhat similar risks to the extent high balance core deposits (defined as noninterest-bearing demand, interest-bearing NOW, money market and savings account customer relationships, excluding brokered deposits) exceed the amount of deposit insurance coverage available.

We anticipate we will continue to rely primarily on deposits, loan repayments, and cash flows from our investment securities to provide liquidity. Additionally, when necessary, the alternative funding sources of borrowed funds described above will be used to augment our primary funding sources. An inability to maintain or raise funds (including the inability to access alternative funding sources) in amounts necessary to meet our liquidity needs would have a substantial negative effect, individually or collectively, on our liquidity. Our access to funding sources in amounts adequate to finance our activities, or on terms attractive to us, could be impaired by factors that affect us specifically or the financial services industry in general. For example, factors that could detrimentally impact our access to liquidity sources include our consolidated financial results, a decrease in the level of our business activity due to a market downturn or adverse regulatory action against us, a reduction in our credit rating, any damage to our reputation, counterparty availability, changes in the activities of our business partners, changes affecting our loan portfolio or other assets, or any other event that could cause a decrease in depositor or investor confidence in our creditworthiness and business. Those factors may lead to depositors withdrawing their deposits or creditors limiting our borrowings. OurA accessportion of our deposits may exceed FDIC insurance limits, and uninsured depositors may be more likely to liquiditywithdraw their funds during periods of actual or perceived financial stress affecting us or the banking industry generally. Rapid and unexpected deposit outflows, including those driven by negative publicity, social media, or a loss of depositor confidence, could alsorequire be impaired by factors that are not specificus to us,seek suchmore as general business conditions, interest rate fluctuations, severe volatilityexpensive or disruptionless ofreadily theavailable financialalternative markets,funding banksources, closureswhich orcould negative viewsmaterially and expectations about the prospects for the financial services industry as a whole, or legal, regulatory, accounting, and tax environments governing our funding transactions. In addition, our ability to raise funds is strongly affected by the general state of the U.S. and world economies and financial markets as well as the policies and capabilities of the U.S. government and its agencies, and may remain or become increasingly difficult due to economic and other factors beyond our control. Any such event or failure to manage our liquidity effectively couldadversely affect our competitiveliquidity, position,net increaseinterest our borrowing costsmargin, and the interest rates we pay on deposits, limit our access to the capital markets and have a material adverse effect on our consolidatedoverall financial condition and consolidated results of operations.condition.

The Company is a separate and distinct legal entity from the Bank. As a holding company with no significant assets other than the Bank, the Company depends on dividends from the Bank to fund operating expenses, service debtdebt, pay dividends, repurchase shares, and pay taxes. WhileThe Bank paid $60.0 million in dividends to the Company hasduring not historically paid dividends or repurchased shares, its ability to do so would depend in large part upon the receipt of dividends or other capital distributions from the Bank.2025. The ability of the Bank to pay dividends or make other capital distributions is subject to the restrictions of the National Bank Act.Act In addition, it is possible, depending uponand the financial condition of the Bank and other factors, that the OCC could assert that payment of dividends or other payments is an unsafe or unsound practice. The amountrequirement that the Bank may pay in dividends is further restricted due to the fact that the Bank must maintainmaintains a certain minimum amount of capital to be considered a “well capitalized” institution as well as a separate capital conservation buffer. See “Supervision and Regulation - Capital Adequacy.” Details regarding the Bank’s actual capital amounts and ratios and the amount of required capital are included in Note 1617 — Regulatory Matters of the Notes to Consolidated Financial Statements included in Item 8 of this annual report. In addition, it is possible, depending upon the financial condition of the Bank and other factors, that the OCC could assert that payment of dividends or other payments is an unsafe or unsound practice.

As part of our growth strategy, we intend to pursue prudent and commercially attractive acquisitions that will position us to capitalize on market opportunities. Over the last three years, we have grown rapidly through both organic growth and acquisitions.

Competition in the banking and financial services industry is intense. We compete with commercial banks, credit unions, mortgage banking firms, finance companies, non-bank lenders including “fintech” lenders,lending and payment companies, securities brokerage firms, insurance companies, money market funds and other mutual funds, as well as regional and national financial institutions that operate offices in our market areas and elsewhere. Many of these competitors have substantially greater name recognition, resources and lending limits than we do and may offer certain services or prices for services that we do not or cannot provide. Our profitability depends upon our continued ability to successfully compete in our markets.

We are subject to capital adequacy guidelines and other regulatory requirements specifying minimum amounts and types of capital which we must maintain. OurIf failurewe fail to meet the minimum capital guidelines and other regulatory requirements as applicable regulatoryto us, then we may be restricted in the types of activities that we may conduct, and we may be prohibited from taking certain capital actions. Failure to meet minimum capital requirements could result in onecertain ormandatory moreand ofpossible ouradditional discretionary actions by regulators placingthat, limitationsif orundertaken, conditionscould have a material adverse effect on our activities,financial includingcondition and results of operations. The application of more stringent capital requirements could, among other things, adversely affect our growthresults initiatives,of oroperations restrictingand growth, require the commencementraising of newadditional activities,capital, and could affect client and investor confidence, our costs of funds and FDIC insurance costs,restrict our ability to pay dividends,dividends ouror abilityrepurchase shares and result in regulatory actions if we were to make acquisitions, and our business, consolidated financial condition and consolidated results of operations. These limitations establish a maximum percentage of eligible retained income that could be utilizedunable forto thesecomply actions.with such requirements. See “Supervision and Regulation - Capital Requirements.” Details regarding the Bank’s actual capital amounts and ratios and the amount of required capital are included in Note 1617 — Regulatory Matters of the Notes to Consolidated Financial Statements included in Item 8 in this annual report.

The financial services industry is undergoing rapid technological changes, with frequent introductions of new technology-driven products and services, including the use of artificial intelligence and machine learning to interact with customers and review to review and analyze data. The effective use of technology increases efficiency and enables financial institutions to better serve customers and reduce costs. Our future success will depend, in part, upon our ability to address the needs of our customers by using technology to provide products and services that will satisfy customer demands for convenience, as well as to create additional efficiencies in our operations. Many of our competitors have substantially greater resources to invest in technological improvements than we have. As a result, competitors may be able to offer additional or superior products compared to those that we will be able to provide, which would put us at a competitive disadvantage. We may not be able to implement new technology-driven products and services effectively or be successful in marketing these products and services to our customers. Failure to keep pace successfully with technological change affecting the financial services industry could harm our ability to compete effectively and could have an adverse effect on our business, growth and consolidated results of operations.

We have made a number of estimates and assumptions relating to the reporting of assets and liabilities, the disclosure of contingent assets and liabilities at the date of our consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period, to prepare these consolidated financial statements in conformity with GAAP. Actual results could differ from these estimates. Material estimates subject to change in the near term include, among other items, the ACL, particularly in light of our adoption of the CECL standard in 2023ACL; the fair value of assets and liabilities acquired in business combinations and related purchase price allocation, the valuation of acquired loans, the valuation of goodwill and separately identifiable intangible assets associated with mergers and acquisitions, loan sales and servicing of financial assets and deferred tax assets and liabilities. These estimates may be adjusted as more current information becomes available, and any adjustment may be significant.

California BanCorp, formerly known as Southern California Bancorp,BanCorp is a California corporation incorporated on October 2, 2019, and headquartered in Del Mar, California. On May 15, 2020, we completed a reorganization whereby California Bank of Commerce, N.A., formerly known as Bank of Southern California, N.A.,N.A. became the wholly owned subsidiary of the Company. California Bank of Commerce, N.A. has a wholly-owned subsidiary, BCAL OREO1, LLC, which was incorporated on February 14, 2024. BCAL OREO1, LLC is used for holding other real estate owned and other assets acquired by foreclosure. We are regulated as a bank holding company by the Board of Governors of the Federal Reserve System (“Federal Reserve”). The Bank operates under a national charter and is regulated by the Office of Comptroller of the Currency (“OCC”).

We are a relationship-focused community bank and we offer a range of financial products and services to individuals, professionals, and small-small to medium-sized businesses through our 14 branch offices and 11 commercial banking offices serving the state of California. We keep a steady focus on our solution-driven, relationship-based approach to banking, providing clients accessibility to decision makers and enhancing the value of our services through strong client partnerships. Our lending products consist primarily of construction and land development loans, real estate loans, C&I loans and consumer loans, and we are a Preferred SBA Lender. Our deposit products consist primarily of demand deposit, money market, and certificates of deposit. In addition, we are a participant in the Certificate of Deposit Account Registry Service (“CDARS”), and IntraFi Network Insured Cash Sweep (“ICS”), and Reich & Tang Deposit Solutions (“R&T”) networks. We receive an equal dollar amount of deposits (“reciprocal deposits”) from other participating banks in exchange for the deposits we place into the networks to fully qualify large customer deposits for FDIC insurance. We also provide treasury management services including online banking, cash vault, sweep accounts and lock box services.

Merger with the former California BanCorp (“CALB”)

On July 31, 2024, wethe Company completed its all-stock merger with CALB on the terms set forth in the Agreement and Plan of Merger and Reorganization, dated January 30, 2024, by and between usthe Company and CALB. At July 31, 2024, CALB had total loans of $1.43 billion, total assets of $1.91 billion, and total deposits of $1.64 billion. Immediately following the merger of CALB with and into the Company, California Bank of Commerce, a California state-chartered bank and wholly-owned subsidiary of CALB, merged with and into the Bank. Effective with these mergers, the corporate names of Southern California Bancorp and Bank of Southern California, N.A. were changed to California BanCorp and California Bank of Commerce, N.A., respectively. The merger expandsexpanded the Company’s footprint into Northern California and providesprovided an opportunity for building scale and increasing market share through complementary business models with a strong deposit base. The combined company retained all banking offices of both banks, adding CALB’s one full-service bank branch and its four loan production offices in Northern California to the Bank’s 13 full-service bank branches located throughout the Southern California region for a total of 14 Bankbank branches.

We have a strong consolidated balance sheet with diversified deposit and loan portfolios, with very little sector or individual customer concentration, other than our CRE concentration. Our relationship-based business banking model is founded on strong, ongoing relationships with our commercial clients, which represent a broad variety of industries. We have no meaningful exposure to cryptocurrency or venture capital business models, our accumulated other comprehensive loss on our available-for-sale debt securities is manageable, and our capital position is strong. In 2025 we made significant progress in derisking our consolidated balance sheets, reducing our exposure in the Sponsor Finance portfolio, eliminating our reliance on brokered deposits and improving overall credit quality. The reduction in credit risk in our total loan portfolio is reflected in the reversal of provision for loan losses, from the fourth quarter of 2024 through the second quarter of 2025 and the fourth quarter of 2025. Additionally, our non-performing assets to total assets ratio of 0.40% at December 31, 2025, declined from 0.76% at December 31, 2024, along with a decrease in substandard loans since year-end 2024.

We have a highly skilled and experienced lending production team and credit administration team. Given our concentration in commercial real estate secured loans, we mitigate that risk through comprehensive underwriting policies, semi-annual loan level reviews, close monitoring of self-established industry and geographical and collateral type limits, periodic stress testing and continuous portfolio risk management reporting. Per the regulatory definition of commercial real estate, at December 31, 2024,2025, our concentration of such loans represented 459%469% of our total risk-based capital. In addition, at December 31, 2024,2025, total loans secured by commercial real estate under construction and land development represented 46%28% of our total risk-based capital. The non-performing loans for these segments per the regulatory definition of commercial real estate loans at December 31, 20242025 were $18.6$13.9 million and there were $2.5$1.7 million in net charge-offs during the year ended December 31, 2024.2025. At December 31, 2024,2025, our only OREO, carried at $4.1 million,there was fromno a multifamily nonaccrual loan we foreclosed in 2024.OREO.

We continue to monitor macroeconomic variables related to increasingchanges in interest rates, inflation, and concerns regarding an economic downturndownturn, and its potential effects on our business, customers, employees, communities and markets. The following challenges could have an impact on our business, consolidated financial condition or near- or longer-term consolidated results of operations:

•Credit quality deterioration of our loan portfolio resulting in additional provision for credit losses and charge-offsimpairment charges;

•Margin pressure in response to potentialchanges furtherin rateinterest cuts by the Federal Reserverates;

The ACL on loans held for investment represents the portion of the loans’ amortized cost basis that we do not expect to collect due to anticipated credit losses over the loans’ contractual life. Amortized cost does not include accrued interest, which management elected to exclude from the estimate of expected credit losses. Provision(Reversal of) provision for credit losses for loans held for investment is included in the (reversal of) provision for credit losses in the consolidated statements of income. Loan charge-offs are recognized when management believes the collectability of the principal balance outstanding is unlikely. Subsequent recoveries, if any, are credited to the ACL. Credit losses are not estimated for accrued interest receivable, as interest that is deemed uncollectible is written off through interest income.

The Company’s loan portfolio consists of the following loan segments, based on regulatory call codes and related risk ratings:

•Real estate:

Consumer loans consist of loans to individuals for personal and household purposes, including secured and unsecured installment loans and revolving lines of credit. Also included in our consumer loan portfolio arewere consumer solar panel loans that were acquired as part of the merger with CALB. At December 31, 2025, the consumer solar panel loans were transferred to loans held for sale at fair value. They consist of residential solar panel loans to consumers with an average individual term ranging from 10 to 20 years and are primarily collateralized by the related equipment. TheThese remainingloans averagewere termoriginated rangesand fromserviced 6by tounaffiliated 23third years.parties. Consumer loans are underwritten based on the borrower’s income, current debt level, past credit history, and the availability and value of collateral. Consumer rates are both fixed and variable, with negotiable terms. The Company’s installment loans typically amortize over periods up to 5 years. Although the Company typically requires monthly payments of interest and a portion of the principal on its loan products, the Company will offer consumer loans with a single maturity date when a specific source of repayment is available. Consumer loans are generally considered to have greater risk than first or second mortgages on real estate because they may be unsecured, or, if they are secured, the value of the collateral may be difficult to assess and more likely to decrease in value than real estate.

Our ACL model incorporates assumptions for prepayment/curtailment rates, probability of default (“PD”), and loss given default (“LGD”) to project each loan’s cash flow throughout its entire life cycle. An initial reserve amount is determined based on the difference between the amortized cost basis of each loan and the present value of all future cash flows. The initial reserve amount is then aggregated at the loan segment level to derive the segment level quantitative loss rates. For prepayment and curtailment rate,rates, the Company utilized Abrigo’s benchmark since the adoption on January 1, 2023 through the second quarter of 2023 and switched to the Company’s own historical prepayment and curtailment experience beginning in the third quarter of 2023. Quarterly PD is forecasted using a regression model that incorporates certain economic variables as inputs. The LGD is derived from PD using the Frye-Jacobs index provided by our third-party model provider. Reasonable and supportable forecasts are used to predict current and future economic conditions. Management elected to use a four quarter reasonable and supportable forecast period followed by an eight quarter straight-line reversion period. After twelve quarters of forecast plus reversion period, the PD is assumed to remain unchanged for the remaining life of the loan.

Allowance for Credit Losses — Off-Balance Sheet Credit Exposures The Company also maintains a separate allowance for off-balance sheet commitments. Beginning January 1, 2023, management estimates anticipated losses using expected loss factors consistent with those used for the ACL methodology for loans described above, and utilization assumptions based on historical experience. Provision for credit losses for off-balance sheet commitments is included in provision for (reversal of) credit losses in the consolidated statements of operations and added to the allowance for off-balance sheet commitments, which is included in accrued interest payable and other liabilities in theour consolidated balance sheets. Management evaluates the loss exposure for off-balance sheet commitments to extend credit following the same principles used for the ACL, with consideration of experienced utilization rates on client credit lines and the inherently lower risk of unfunded loan commitments relative to disbursed commitments. Provision for credit losses for off-balance sheet commitments is included in (reversal of) provision for credit losses in the consolidated statements of income and added to the allowance for off-balance sheet commitments.

(4)Average tangible common equity is computed by subtracting average goodwill and average intangible assets (“net average intangible assets”) from average shareholders’ equity.

(1)After-tax Day 1 provision for non-PCD loans and unfunded loan commitments and after-tax merger and related expenses are presented using a 29.56% tax rate.

The comparability of our financial information is affected by the merger with CALB. We completed this Merger on July31,July 31, 2024. This merger has been accounted for using the acquisition method of accounting and, accordingly, CALB’s operating results have been included in the consolidated financial statements for periods beginning after July 31, 2024. Refer to Note 2 - Business Combinations of the Notes to Consolidated Financial Statements included in Item 8. Financial Statements and Supplemental Data of this filing for more information regarding business combinations and related activity.

Net income for the year ended December 31, 20242025 was $5.4$63.1 million, or $0.22$1.93 per diluted share, compared to net income of $25.9$5.4 million, or $1.39$0.22 per diluted share in the prior year. The $20.5$57.6 million decreaseincrease in net income from the prior year was primarily due to a $20.8 million increase in the provision for credit losses, and a $38.0 million increase in noninterest expense, partially offset by a $28.8$46.1 million increase in net interest income andfrom higher average interest-earning assets resulting from the Merger, a $8.1$30.5 million decrease in the provision for credit losses as the comparable 2024 period included a $21.3 million provision for credit losses on loans and unfunded commitments related to the Merger, and a $6.3 million increase in noninterest income, partially offset by a $3.3 million increase in noninterest expense, and a $22.1 million increase in income taxes. Pre-tax, pre-provision income for the year ended December 31, 2025 was $79.1 million, an increase of $49.2 million compared to pre-tax, pre-provision income of $30.0 million for the year ended December 31, 2024. Excluding one-time CECL-related provision for credit losses on acquired non-PCD loans and unfunded loan commitments, and merger related expenses, the Company would have reported net income (non-GAAP) of $32.4 million, or $1.32 per diluted share, for the year ended December 31, 2024. Pre-tax, pre-provision income for the year ended December 31, 2024 was $30.0 million, a decrease of $7.8 million, or 20.7% compared to pre-tax, pre-provision income of $37.8 million for the yearcomparable ended2024 December 31, 2023.period.

Net interest income is our primary source of revenue, which is the difference between interest income on loans, debt securities and other investments (collectively, “interest-earning assets”) and interest expense on deposits and borrowings (collectively, “interest-bearing liabilities”). Net interest margin represents net interest income expressed as a percentage of interest-earning assets. Net interest income is affected by changes in volume, mix, and rates of interest-earning assets and interest-bearing liabilities, as well as days in a period. We closely monitor both total net interest income and the net interest margin and seek to maximize net interest income without exposing us to an excessive level of interest rate risk through our asset and liability management policies. The following table presents interest income, average interest-earning assets, interest expense, average interest-bearing liabilities, and their corresponding yields and costs for the years indicated:

(1)Total loans are net of deferred loan origination fees/costs and discounts/premiums, and include average balances of loans held for sale and nonperformingnon-performing loans. Interest income includesincluded accretion of net deferred loan fees and net discounts on acquired loans of $21.3 million, $12.3 million and $2.0 million for the years ended December 31, 20242025 and 2023,2024, respectively.

Net interest income for the year ended December 31, 20242025 was $123.0$169.1 million, compared to $94.1$123.0 million for the year ended December 31, 2023.2024. The increase was primarily due to a $56.3$46.2 million increase in total interest income, partially offset by a $27.4$74 millionthousand increase in total interest expense. The increase in interest income and interest expense primarily relates to increases in total average interest-earning assets and total average interest-bearing liabilities from the Merger during the third quarter of 2024, coupledpartially withoffset anby increase inlower yields on interest-earningsinterest earning assets and anlower increaseinterest inbearing costliabilities of funds.costs. During the year ended December 31, 2024,2025, total loan interest income increased $46.0$36.0 million, of which $10.4$19.1 million was related to accretion income from the net purchase accounting discounts on acquired loans, total debt securities income increased $1.9$2.0 million, and interest and dividend income from other financial institutions and other interest-earning assets increased $8.4$8.3 million. The increase in interest income was primarily driven by the higher average total interest-earning assets and the mix of interest-earning assets added by the Merger and the impact of the accretion and amortization of fair value marks. AverageThe increase in interest income was primarily due to higher average balances, due in part to the Merger, partially offset by a 17 basis point decrease in yield on the total average interest-earning assets for the year ended December 31, 2025 compared to the same 2024 period. Total average interest-earning assets increased $699.9$840.4 million, resulting from a $524.7$570.8 million increase in average total loans, ana $18.0$42.2 million increase in total average debt securities, a $125.1$223.9 million increase in average deposits in other financial institutions, and a $25.9$9.6 million increase in restricted stock investments and other bank stock, partially offset by a $5.9 million decrease in average Fed funds sold/resale agreements.

During the year ended December 31, 2024,2025, total interest expense increased by $27.4$74 thousand to $56.9 million as compared to $56.8the million,same period in 2024, comprised primarily of a $25.9$575 millionthousand increase in interest expenseon borrowings from higher average borrowing balances from the Merger, partially offset by a $501 thousand decrease in interest on average interest-bearing deposits anddriven aby $1.5the million increasedecrease in interest expense on average total borrowings due to increases related to interest-bearing deposits and subordinated debt acquired from the Merger, coupled with the repricingcost of interest-bearing deposits inbetween periods, partially offset by the higherincrease interestin rateaverage environmentinterest-bearing anddeposits peer bank deposit competition overfrom the first three quarters of 2024.Merger.

Net interest margin for the year ended December 31, 20242025 was 4.28%,4.55%, compared with 4.33%4.28% for the year ended December 31, 2023.2024. The decreaseincrease was primarily related to a 6646 basis point increasedecrease in the cost of funds, partially offset by a 5717 basis point increasedecrease in the total interest-earning assets yield resulting from higherlower market interest rates and a change in our interest-earning asset mix. The yield on total interest-earningearning assets during the year ended December 31, 20242025 was 6.26%,6.09%, compared with 5.69%6.26% for the year ended December 31, 2023.2024. The yield on average total loans during the year ended December 31, 20242025 was 6.55%,6.50%, a 615 basis point increasedecrease from 5.94%6.55% for the year ended December 31, 2023.2024. The Federal Reserve’s reductions to the federal funds target rate by 100 basis points in the second half of 2024 and 75 basis points in the second half of 2025 resulted in lower interest income earned on deposits in other financial institutions, fed fund sold/resale agreements, and loans; however, the decline was in part offset by the accretion income from the net purchase accounting discounts on acquired loans and by the downward repricing of interest-bearing deposits consistent with market rates, resulting in lower interest expense on interest-bearing deposits. The cost on total interest-bearing liabilities during the year ended December 31, 20242025 was 3.18%,2.57%, a 7461 basis point increasedecrease from 2.44%3.18% for the same 2024 period. Accretion income from the net purchase accounting discounts on acquired loans was $19.1 million and the net amortization expense from the purchase accounting discounts on acquired subordinated debt and time deposit premium impact on interest expense was $2.0 million, the combination of which increased the net interest margin by 46 basis points for the year ended 2023.December 31, 2025. Accretion income from the net purchase accounting discounts on acquired loans increased the yield on average total loans by 63 basis points for the year ended December 31, 2025. Accretion income from the net purchase accounting discounts on acquired loans was $10.4 million and the net amortization expense from the purchase accounting discounts on acquired subordinated debt and time deposit premium impact on interest expense was $750 thousand, the combination of which increased the net interest margin by 34 basis points for the year ended December 31, 2024. Accretion income from the net purchase accounting discounts on acquired loans increased the yield on average total loans by 43 basis points for the year ended December 31, 2024.

Total cost of funds for the year ended December 31, 20242025 was 2.12%,1.66%, ana increasedecrease of 6646 basis points from 1.46%2.12% for the year ended December 31, 2023.2024. The increasedecrease was primarily driven by a 7564 basis point increasedecrease in the cost of average interest-bearing deposits,deposits and a decrease in average total borrowings, coupled with an increase in average interest-bearingnoninterest-bearing deposits.deposits, partially offset by an increase in average cost of total borrowings. Average noninterest-bearing demand deposits increased $91.7$319.2 million to $893.6$1.21 millionbillion and represented 34.1%35.9% of total average deposits for the year ended December 31, 2024,2025, compared with $801.9$893.6 million and 40.8%,34.1%, respectively, for the yearsame ended2024 2023period; average interest-bearing deposits increased $564.9$434.4 million to $1.73$2.16 billion during the year ended December 31, 2024.2025. The total cost of deposits for the year ended December 31, 20242025 was 2.01%,1.55%, updown 6446 basis points from 1.37%2.01% for the yearsame ended2024 2023.period.

California BanCorp is a California corporation incorporated on October 2, 2019, and headquartered in Del Mar, California. On May 15, 2020, we completed a reorganization whereby California Bank of Commerce, N.A. became the wholly owned subsidiary of the Company. California Bank of Commerce, N.A. has a wholly owned subsidiary, BCAL OREO1, LLC, which was incorporatedformed on February 14, 2024. BCAL OREO1, LLC is used for holding other real estate owned and other assets acquired by foreclosure. We are regulated as a bank holding company by the Board of Governors of the Federal Reserve System (“Federal Reserve”). The Bank operates under a national charter and is regulated by the Office of Comptroller of the Currency (“OCC”).

Moody’s anticipates GDP growth in California to grow to 2.3%1.88% in 2026 and to have a slight decrease to 1.5%1.64% in 2027. The state has shiftedmoved back up to the position of the world’s fifth-largestfourth-largest economy, following a decline from its previous fourth-placefifth-place ranking. California’s economy is cooling off, with slower payroll growth and downward revisions widening the gap with national trends. Challenges in the tech sector are expected to persist amid ongoing uncertainty. Ongoing trade‑related uncertainty and heightened geopolitical tensions have contributed to a more cautious business and investment environment. We have observed that some clients are delaying or reassessing the timing of certain projects amid continued economic uncertainty.

We have a strong consolidated balance sheet with diversified deposit and loan portfolios, with very little sector or individual customer concentration, other than our CRE concentration. Our relationship-based business banking model is founded on strong, ongoing relationships with our commercial clients, which represent a broad variety of industries. We have no meaningful exposure to cryptocurrency or venture capital business models, our accumulated other comprehensive loss on our available-for-sale debt securities is manageable, and our capital position is strong. In 2025 and in the first quarter of 2026, we made significant progress in derisking our consolidated balance sheets, reducing our exposure in the Sponsor Finance portfolio, eliminating our reliance on brokered deposits and improving overall credit quality.

Per the regulatory definition of commercial real estate, at MarchJune 31,30, 2026, our concentration of such loans represented 450%449% of our total risk-based capital. In addition, at MarchJune 31,30, 2026, total loans secured by commercial real estate under construction and land development represented 27%25% of our total risk-based capital. The non-performing loans for these segments per the regulatory definition of commercial real estate loans at MarchJune 31,30, 2026 were $28.7$5.1 million and there were $5$122 thousand net recoveriescharge-offs during the threesix months ended MarchJune 31,30, 2026. At MarchJune 31,30, 2026, there was $8.6 million of OREO.

Given the nature of our commercial banking business, approximately 50% of our total deposits exceeded the FDIC deposit insurance limits at MarchJune 31,30, 2026.

We strategically manage an investment portfolio focused on high-quality, resilient securities. At MarchJune 31,30, 2026, the amortized cost of our held-to-maturity debt securities was $52.8 million, or approximately 1.3% of total assets. The fair value of our available-for-sale debt securities was $298.6$308.8 million, or approximately 7.4%7.7% of total assets. The 10-Year Treasury Bond was approximately 4.3%4.4% at MarchJune 31,30, 2026, compared to 4.2% at December 31, 2025. The increase in the 10-Year Treasury Bond in 2026, resulted in higher net unrealized losses on our debt securities at MarchJune 31,30, 2026. At MarchJune 31,30, 2026, our accumulated other comprehensive loss, net of taxes, increased to $3.8$5.3 million, compared to $1.6 million at December 31, 2025. If we realized all of our unrealized losses on both held-to-maturity and available-for-sale debt securities, our losses, net of taxes would be $6.9$7.9 million at MarchJune 31,30, 2026. The results of our stress testing on our debt security portfolio at MarchJune 31,30, 2026, illustrated that our losses, net of taxes on both held-to-maturity and available-for-sale debt securities would increase to $49.3$51.1 million in a 300 basis point rate increase shock scenario. If we realized all of these unrealized losses, the Bank would continue to exceed all regulatory capital requirements necessary to be considered well capitalized.

Net income for the firstsecond quarter of 2026 was $14.3 million, or $0.44 per diluted share, compared with $13.8 million, or $0.42 per diluted share, compared with $16.4 million, or $0.50 per diluted share in the fourthfirst quarter of 2025.2026. Pre-tax, pre-provision income (non-GAAP) for the firstsecond quarter was $18.7$20.6 million, an increase of $717$1.9 thousandmillion from the prior quarter. The $2.6$509 millionthousand decreaseincrease in net income and $0.08$0.02 decreaseincrease in diluted earnings per share were largely driven by a $4.0$1.3 million decrease in reversal of provision for credit losses, an $821 thousand decreaseincrease in net interest income and $858 thousand decrease in thelower noninterest income,expense of $1.2 million, partially offset by a lower$1.1 million increase in provision for credit losses and a $586 thousand decrease in noninterest expense of $2.4 million.income.

Net income for the three months ended MarchJune 31,30, 2026 was $13.8$14.3 million, or $0.42$0.44 per diluted share, compared with $16.9$14.1 million, or $0.52$0.43 per diluted share for the same 2025 period. Pre-tax, pre-provision income (non-GAAP) for the firstsecond quarter of 2026 was $18.7$20.6 million, aan decreaseincrease of $1.2$1.1 million from the same 2025 period. The $3.1$201 millionthousand decreaseincrease in net income and $0.10$0.01 decreaseincrease in diluted earnings per share were primarily driven by a $3.4$1.9 million decrease in the reversal of provision for credit losses, a $171 thousand decreaseincrease in the net interest income and $429$487 thousand decrease in noninterest expense, and a lower weighted-average diluted share count from the share repurchase program, partially offset by a $1.3 million increase in the provision for credit losses and a $1.3 million decrease in the noninterest income, coupled with a $592 thousand increase in noninterest expense.income.

(1)Total loans are net of deferred loan origination fees/costs and discounts/premiums, and include average balances of loans held for sale and nonperforming loans. Interest income includes accretion of net deferred loan fees and net discounts on acquired loans of $3.9 million, $4.4$3.9 million and $6.1$5.6 million for the three months ended June 30, 2026, March 31, 2026, December 31, 2025, and MarchJune 31,30, 2025, respectively.

(3)Average noninterest-bearing deposits represent 34.95%,36.70%, 35.39%34.95% and 37.37%36.21% of average total deposits for the three months ended June 30, 2026, March 31, 2026, December 31, 2025, and MarchJune 31,30, 2025, respectively.

Net interest income forDuring the first quarter of 2026 was $42.1 million, compared with $42.9 million in the prior quarter. The decrease in net interest income was primarily due to a $2.4 million decrease in total interest and dividend income, partially offset by a $1.6 million decrease in total interest expense in the firstsecond quarter of 2026, as compared with the prior quarter. The decrease in nettotal interest income was also impactedincreased by two$1.1 fewermillion. daysThe increase was primarily driven by a $2.3 million increase in the current quarter than the prior quarter. During the first quarter of 2026, loan interest incomeincome, decreasedwhich byincluded $1.8an million, including a decreaseincrease of $575$98 thousand in accretion from the net purchase accounting discounts on acquired loans and a$600 reversalthousand in cash interest collections from the payoff of two nonaccrual loans’loans, net of $56 thousand in reversals of interest income ofon $479loans thousand,placed on nonaccrual, coupled with an increase of $749 thousand in total debt securities income. These increases were partially offset by a decrease of $1.4$1.7 million in interest income from deposits in other financial institutions,institutions partiallyand offseta by an increasedecrease of $375 thousand in total debt securities income and an increase of $367$225 thousand in dividend income from restricted stock investments and other bank stock. The decreaseincrease in interest income was mainly due to a ten25 basis point decreaseincrease in the yield on average total interest-earning assetsassets, including increases in average total loans of $23.6 million, and aaverage decreasetotal debt securities of $49.4 million, offset by decreases in average deposits in other financial institutions of $88.9 million, partially offset by increases in average total loans of $32.3 million, average total debt securities of $35.3$195.9 million and average Fed funds sold/resale agreements of $8.0$4.1 million. The decrease in interest expense for the firstsecond quarter of 2026 was primarily due to a $1.6$119 millionthousand decrease in interest expense on average total interest-bearing deposits, the result of alower 23average total interest-bearing deposits of $132.4 million, partially offset by an 8 basis point decreaseincrease in the cost of average total interest-bearing deposits, coupled with a $7.4 million decrease in average total interest-bearing deposits.

Net interest margin for the firstsecond quarter of 2026 was 4.47%,4.71%, compared with 4.44%4.47% in the prior quarter. The increaseexpansion of the net interest margin by 24 basis points was primarily relateddriven toby thehigher 14loan yields, a 6 basis point decreaseincrease from the resolution of certain nonaccrual loans, and continued benefit from purchase accounting accretion. Total interest-earning assets yield increased by 25 basis points, partially offset by a 2 basis point increase in the cost of funds outpacing the ten basis point decrease in the total interest-earning assets yield.funds. The yield on total average interest-earning assets in the firstsecond quarter of 2026 was 5.72%,5.97%, compared with 5.82%5.72% in the prior quarter. The yield on average total loans in the firstsecond quarter of 2026 was 6.14%,6.34%, aan decreaseincrease of 1720 basis points from 6.31%6.14% in the prior quarter. The yield on average total loans in the firstsecond quarter of 2026 included the impact of the reversalcash interest collection from the payoff of two nonaccrual loan interest, net of reversals of interest income on loans placed on nonaccrual noted above, which decreasedincreased the overall loan yield by six7 basis points. There was noa significant$479 thousand reversal of interest income in the prior quarter.quarter which negatively impacted the net interest margin by 6 basis points. Accretion income from the net purchase accounting discounts on acquired loans was $3.3 million, increasing the yield on average total loans by 44 basis points; the net amortization expense from the purchase accounting discounts on acquired subordinated debt and acquired time deposits premium increased interest expense by $389 thousand, the combination of which increased the net interest margin by 32 basis points in the second quarter of 2026. In the prior quarter, accretion income from the net purchase accounting discounts on acquired loans was $3.2 million, increasing the yield on average total loans by 44 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 $388 thousand, the combination of which increased the net interest margin by 30 basis points in the first quarter of 2026. In the prior quarter, accretion income from the net purchase accounting discounts on acquired loans was $3.8 million, increasing the yield on average total loans by 51 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 $389 thousand, the combination of which increased the net interest margin by 36 basis points.

Cost of funds for the firstsecond quarter of 2026 was 1.36%,1.38%, aan decreaseincrease of 142 basis points from 1.50%1.36% in the prior quarter. The decreaseincrease was primarily driven by 23an 8 basis point decreaseincrease in the cost of average total interest-bearing deposits. The amortization expense of $389 thousand from the purchase accounting discounts on acquired subordinated debt and acquired time deposits premium contributed five basis points to the cost of funds. Average noninterest-bearing demand deposits decreasedincreased $27.4$18.6 million to $1.21$1.22 billion and represented 34.9%36.7% of total average deposits for the firstsecond quarter of 2026, compared with $1.23$1.21 billion and 35.4%,34.9%, respectively, in the prior quarter; average interest-bearing deposits decreased $7.4$132.4 million to $2.24$2.11 billion during the firstsecond quarter of 2026. The total cost of deposits in the firstsecond quarter of 2026 was 1.29%,1.31%, compared with 1.43%1.29% in the prior quarter. The cost of total interest-bearing deposits decreasedincreased 238 basis points, driven primarily by the Company’s ongoing deposit pricing and mix strategychanges in the firstCompany’s deposit mix and overall competition for deposits driving market deposit rates upward in the second quarter of 2026.

Average total borrowings increased $674$51 thousand to $34.4 million in the firstsecond quarter of 2026, primarily due to a $304$384 thousand increase in average subordinated debt due to accretion of discounts, partially offset by a $333 thousand decrease in average Federal Home Loan Bank (“FHLB”) advances andfrom $370an thousandovernight increase in average subordinated debt due to accretion of discounts.advance. The average cost of total borrowings was 8.25%8.10% for the firstsecond quarter of 2026, updown from 8.19%8.25% in the prior quarter.

Net interest margin for the three months ended MarchJune 31,30, 2026 was 4.47%,4.71%, compared with 4.65%4.61% for the same 2025 period. The 18expansion of the net interest margin by 10 basis point was primarily driven by a 35 basis point decrease was primarily related toin the 54cost of funds, partially offset by the 24 basis pointpoints decrease in the total average interest-earning assets yield resulting from lower accretion income from the net purchase accounting discounts on acquired loans, lower market interest rates and a change in our average interest-earning asset mix, offset by a 36 basis point decrease in the cost of funds.mix. The Federal Reserve’s reductions to the federal funds target rate by 75 basis points in the second half of 2025 resulted in lower interest income earned on deposits in other financial institutions, Fed fund sold/resale agreements, and loans, coupled with the decline in the accretion income from the net purchase accounting discounts on acquired loans, partially offset by the downward repricing of interest-bearing deposits consistent with market rates, resulting in lower interest expense on interest-bearing deposits and the redemptions of subordinated debtsdebt in June 2025 and September 2025, resulting in lower interest expense on total borrowings for the three months ended MarchJune 31,30, 2026.2026 compared to the same 2025 period.

Average interest-earning assets increased $135.1 million, resulting primarily from a $110.2 million increase in average deposits in other financial institutions, a $116.7 million increase in total average debt securities, and a $4.4 million increase in average Fed funds sold/resale agreements, partially offset by a $96.3 million decrease in average total loans. The yield on total average earning assets during the three months ended MarchJune 31,30, 2026 was 5.72%,5.97%, compared with 6.26%6.21% for the same 2025 period. The yield on average loans decreased 4724 basis points to 6.14%6.34% from 6.61%6.58% year over year. The yield on total debt securities increased to 4.13%4.36% from 4.01%3.93% for the same 2025 period. Accretion income from the net purchase accounting discounts on acquired loans was $3.2$3.3 million, increasing the yield on average total loans by 44 basis pointpoints; the net amortization expense from the purchase accounting discounts on acquired subordinated debt and acquired time deposits premium increased the interest expense by $388$389 thousand, the combination of which increased the net interest margin by 3032 basis points in the firstsecond quarter of 2026. For the three months ended MarchJune 31,30, 2025, accretion income from the net purchase accounting discounts on acquired loans was $5.7$5.2 million and the amortization expense impact on interest expense was $526$554 thousand, the combination of which increased the net interest margin by 5751 basis points.

During the three months ended MarchJune 31,30, 2026, total interest expense decreased by $2.9$2.8 million to $11.7$11.6 million, comprised primarily of a $2.2$2.1 million decrease in interest expense on interest-bearing deposits primarily due to a decrease in the cost of interest-bearing deposits resulting from our deposit repricing strategy and the ongoing reduction of high cost brokered deposits, partially offset by the increase in average interest-bearing deposits between periods.

Total cost of funds for the three months ended MarchJune 31,30, 2026 was 1.36%,1.38%, a decrease of 3635 basis points from 1.72%1.73% for the same 2025 period. The decrease was primarily driven by a 5543 basis point decrease in the average cost of interest-bearing deposits,deposits partially offset byand a decrease in average noninterest-bearing deposits and by an increase of 1943 basis points in the cost of total borrowings.borrowings, coupled with an increase in average noninterest-bearing deposits. Average noninterest-bearing demand deposits decreasedincreased $50.4$44.2 million to $1.21$1.22 billion and represented 34.95%36.7% of total average deposits for the three months ended MarchJune 31,30, 2026, compared with $1.26$1.18 billion and 37.37%,36.2%, respectively, for the same 2025 period; average interest-bearing deposits increased $139.1$33.1 million to $2.24$2.11 billion during the three months ended MarchJune 31,30, 2026. The total cost of deposits for the three months ended MarchJune 31,30, 2026 was 1.29%,1.31%, down 3028 basis points from 1.59% for the same 2025 period.

Average total borrowings decreased $35.7$32.7 million to $34.4 million for the three months ended MarchJune 31,30, 2026 resulting from a decrease of $36.0$32.7 million in average subordinated debt from the redemption of the $18 million of subordinated debtsdebt in June 2025 and $20 million of subordinated notesdebt in September 2025, partially offset by a $333 thousand increase in average FHLB advances.2025. The average cost of total borrowings was 8.25%8.10% for the three months ended MarchJune 31,30, 2026, a 1943 basis point increasedecrease from 8.06%8.53% for the same 2025 period. The increasedecrease was primarily attributable to amortizationthe redemption of purchasehigher accounting discounts associated with the acquiredyielding subordinated debt.

Reversal of Provision for Credit Losses

The Company recorded a provision for credit losses of $714 thousand for the second quarter of 2026, compared with a reversal of provision for credit losses of $381 thousand for the first quarter of 2026, compared with $4.4 million in the prior quarter. The reversal of provision for credit losses in the firstsecond quarter of 2026 was relatedcomprised toof thea ALL.$1.1 Theremillion wasprovision nofor credit losses on loans held for investment, partially offset by a $336 thousand reversal of provision for credit losses for unfunded loan commitments during the firstsecond quarter of 2026. Total unfunded loan commitments increased modestlydecreased by $38.7$28.2 million to $925.1$896.9 million at MarchJune 31,30, 2026, compared to $886.4$925.1 million in unfunded loan commitments at DecemberMarch 31, 2025.2026.

The provision for credit losses for loans held for investment in the firstsecond quarter of 2026 was a$1.1 reversalmillion, an increase of $381 thousand, a decrease of $3.8$1.4 million from a reversal of provision for credit losses of $4.2$381 millionthousand in the prior quarter. The decreaseincrease wasreflected drivenupdates primarily by the changes into the reasonable and supportable forecast, primarily related to the economic outlookforecasts for California, coupled with a decrease incontinued loan balances,growth, changes in the portfolio mix,composition, and changeshigher insubstandard theaccruing qualitativeloan factors,balances, partially offset by anrefinements increase into the criticizedqualitative loanfactors lossand rates,scenario which are updated annually in the model, despite a decline in criticized loan balances.weighting. The Company’s management continues to monitor macroeconomic variables including changes in interest rates, uncertainty in the current economic environment, and elevated geopolitical risks related to ongoing conflicts in the Middle East. Management believes it has appropriately provisioned for the current environment.

We recorded a reversal of provision for credit losses of $381$714 thousand for the three months ended MarchJune 31,30, 2026, compared to $3.8a millionreversal of credit losses of $634 thousand for the same 2025 period. The reversal of provision for credit losses forin the threesecond monthsquarter ended March 31,of 2025 included a $3.2 million reversal of provision for credit losses on loans held for investment and a $618$29 thousand reversal of provision for credit losses for unfunded loan commitments,commitments primarily duerelated to the decreaseincrease in unfunded loan commitments during the firstsecond quarter of 2025, coupledpartially withoffset lowerby lossa ratesdecrease andin average funding rates used to estimate the allowance for credit losses on unfunded commitments, despite total unfunded loan commitments increasing modestly by $33.1 million to $925.1 million at March 31, 2026, compared to $892.1 million in unfunded loan commitments at March 31, 2025.commitments.

The reversal of provision for credit losses for the loans held for investments for the three months ended MarchJune 31,30, 2025 was driven primarily by the decrease in the balance of loans held for investment, changes in the composition of the loans held for investment portfolio, coupled with changes in qualitative factorsfactors, partially offset by net charge-offs and changes in the reasonable and supportable forecast, primarily related to the economic outlook for California.