California Banp(CALB) - 2023 Q2 - Quarterly Report

Part I Financial Statements This section presents California Bancorp's unaudited consolidated financial statements, reflecting CECL adoption and showing slight asset decrease with significant net income growth Consolidated Statements of Financial Condition Total assets slightly decreased to $2.01 billion as of June 30, 2023, driven by lower cash and loans, while shareholders' equity increased Consolidated Balance Sheet (Unaudited) | (In thousands) | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Assets | | | | Total cash and cash equivalents | $207,667 | $232,382 | | Total investment securities | $151,129 | $155,878 | | Loans, net | $1,569,546 | $1,578,456 | | Total assets | $2,005,646 | $2,042,215 | | Liabilities & Equity | | | | Total deposits | $1,738,296 | $1,791,740 | | Total liabilities | $1,821,411 | $1,869,961 | | Total shareholders' equity | $184,235 | $172,254 | | Total liabilities and shareholders' equity | $2,005,646 | $2,042,215 | Consolidated Statements of Income Net income significantly increased by 28% for Q2 2023 and 38% for the six-month period, driven by higher net interest income Income Statement Highlights (Unaudited, in thousands, except per share data) | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Net interest income | $18,646 | $16,223 | $37,403 | $30,749 | | Provision for credit losses | $444 | $925 | $802 | $1,875 | | Net income | $5,440 | $4,244 | $10,891 | $7,917 | | Diluted EPS | $0.65 | $0.51 | $1.29 | $0.94 | Consolidated Statements of Cash Flows Operating cash flow significantly improved, while investing activities provided cash and financing activities used cash, resulting in a $24.7 million decrease in cash Cash Flow Summary (Unaudited, in thousands) | Cash Flow Activity | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $15,792 | $8,307 | | Net cash provided by (used for) investing activities | $12,931 | $(185,963) | | Net cash used for financing activities | $(53,438) | $(134,365) | | Decrease in cash and cash equivalents | $(24,715) | $(312,021) | Notes to Unaudited Consolidated Financial Statements Detailed disclosures cover accounting standards adoption, particularly CECL, and breakdowns of financial instruments, with CECL transition increasing retained earnings by $334,000 - The Company adopted the Current Expected Credit Loss (CECL) standard (ASC 326) on January 1, 2023, replacing the incurred loss methodology with an expected loss methodology[65] - The transition to CECL resulted in a decrease in the allowance for credit losses on loans of $1.8 million, an increase in the allowance for unfunded commitments of $1.4 million, and an allowance for held-to-maturity securities of $110,000, leading to a net increase in retained earnings of $334,000[41] - The Company completed an interim goodwill impairment analysis as of June 30, 2023, and determined there was no impairment[20] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial condition and results, highlighting significant net income growth driven by net interest income, alongside slight asset decrease and stable credit quality - Net income for Q2 2023 was $5.4 million, a 28% increase from Q2 2022, primarily due to a $2.4 million (15%) increase in net interest income[160][185] - Net income for the first six months of 2023 was $10.9 million, a 38% increase from the prior year period, driven by a $6.7 million (22%) increase in net interest income[223][224] - Total assets decreased slightly from $2.04 billion at year-end 2022 to $2.01 billion at June 30, 2023, attributed to seasonal deposit outflows and reduced borrowings[235] Results of Operations Operational results improved with net interest margin expanding to 3.93% in Q2 2023, while provision for credit losses decreased and non-interest income declined Q2 2023 vs Q2 2022 Performance (in thousands) | Metric | Q2 2023 | Q2 2022 | Change (%) | | :--- | :--- | :--- | :--- | | Net Interest Income | $18,646 | $16,223 | +15% | | Provision for Credit Losses | $444 | $925 | -52% | | Non-interest Income | $1,135 | $1,394 | -19% | | Non-interest Expense | $11,603 | $10,819 | +7% | | Net Income | $5,440 | $4,244 | +28% | - The net interest margin for Q2 2023 increased by 28 basis points to 3.93% compared to 3.65% in Q2 2022, driven by the rising interest rate environment[185] - For the six months ended June 30, 2023, non-interest income decreased by 43% primarily due to a $1.4 million gain on the sale of a solar loan portfolio in the prior year period[206] Financial Condition Financial condition remained stable with a slight decrease in gross loans, significant reduction in nonperforming assets, and deposits decreasing to $1.74 billion Loan Portfolio Composition (in thousands) | Loan Type | June 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Commercial and industrial | $622,270 | $634,535 | | Real estate - other | $856,344 | $848,241 | | Real estate - construction and land | $60,595 | $63,730 | | Total loans, gross | $1,583,631 | $1,593,421 | - Nonperforming loans decreased dramatically to $181,000 (0.01% of gross loans) at June 30, 2023, from $1.25 million (0.08% of gross loans) at December 31, 2022[214] - At June 30, 2023, 60% of the total deposit portfolio was insured, with uninsured deposits representing the remaining 40%[218] Liquidity and Capital Resources The company maintains strong liquidity through various sources and remains well-capitalized, with the Bank's Tier 1 risk-based capital ratio improving to 11.56% - The company maintains significant borrowing capacity, including $411.3 million available from the FHLB and $344.8 million from the FRB as of June 30, 2023[94][118] Bank Capital Ratios | Ratio | June 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Tier 1 risk-based capital | 11.56% | 10.54% | | Total capital to risk-weighted assets | 12.46% | 11.40% | | Leverage ratio | 11.42% | 10.23% | - The Bank's capital ratios exceeded the minimums to be considered 'well-capitalized' under FDIC regulations as of June 30, 2023[266] Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, California Bancorp is not required to provide the information for this item - The company is not required to provide information for this item as it qualifies as a smaller reporting company[250] Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of June 30, 2023 - Based on an evaluation as of June 30, 2023, the CEO and CFO concluded that the Company's disclosure controls and procedures were effective[251] - No changes in internal control over financial reporting occurred during the last fiscal quarter that materially affected, or are reasonably likely to materially affect, such controls[252] Part II Legal Proceedings The company is party to routine legal actions incidental to its business - The company is involved in routine legal proceedings incidental to its business, which are not expected to have a material adverse effect[253] Risk Factors This section updates the risk factors from the 2022 Form 10-K, highlighting new risks related to banking industry confidence and potential securities portfolio losses - Adverse developments in the banking industry, such as recent high-profile bank failures, have eroded customer confidence and could negatively impact the Bank's liquidity, funding costs, and stock price[268] - Due to rising interest rates, the company has unrealized losses in its securities portfolio, and a forced sale could result in significant realized losses, impairing capital and financial condition[269][255] Unregistered Sales of Equity Securities and Use of Proceeds There were no unregistered sales of equity securities during the period - None[255][270] Other Information There is no other information to report for this item - None[256] Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications by the Principal Executive Officer and Principal Financial Officer, and Inline XBRL documents - Exhibits filed include CEO and CFO certifications pursuant to Sarbanes-Oxley Sections 302 and 906, and various Inline XBRL documents[271][256]