Five Star Bancorp (Nasdaq: FSBC) (“Five Star” or the “Company”), a holding company that operates through its wholly owned banking subsidiary, Five Star Bank (the “Bank”), today reported net income of $10.9 million for the three months ended September 30, 2024, as compared to $10.8 million for the three months ended June 30, 2024 and $11.0 million for the three months ended September 30, 2023.

Third Quarter Highlights

Performance and operating highlights for the Company for the periods noted below included the following:

  Three months ended
(in thousands, except per share and share data) September 30, 2024   June 30, 2024   September 30, 2023
Return on average assets (“ROAA”)   1.18 %     1.23 %     1.30 %
Return on average equity (“ROAE”)   11.31 %     11.72 %     16.09 %
Pre-tax income $ 15,241     $ 15,152     $ 15,795  
Pre-tax, pre-provision income(1)   17,991       17,152       16,845  
Net income   10,941       10,782       11,045  
Basic earnings per common share $ 0.52     $ 0.51     $ 0.64  
Diluted earnings per common share   0.52       0.51       0.64  
Weighted average basic common shares outstanding   21,182,143       21,039,798       17,175,034  
Weighted average diluted common shares outstanding   21,232,758       21,058,085       17,194,825  
Shares outstanding at end of period   21,319,583       21,319,583       17,257,357  
                       
(1) See the section entitled “Non-GAAP Reconciliation (Unaudited)” for a reconciliation of this non-GAAP financial measure.
                       

James E. Beckwith, President and Chief Executive Officer, commented on the financial results:

“We are pleased to have opened a full-service office in San Francisco’s Financial District on September 3rd, further demonstrating our commitment to serving clients and communities in the San Francisco Bay Area. The San Francisco Bay Area now has 24 employees contributing $189.0 million in deposits since the bank’s expansion there began in June 2023. Five Star Bank’s high-tech and high-touch, relationship-based and purpose-driven banking continues to earn the trust and respect of those we serve.

We are also pleased with strong third quarter results. Total loans held for investment increased by $194.3 million, or 5.95%, and total deposits increased by $250.3 million, or 7.95%, during the third quarter. Non-wholesale loans held for investment increased by $75.2 million, or 2.42%, and wholesale loans held for investment, which we define as purchased loans, increased by $119.1 million, or 76.91%, in each case during the third quarter of 2024. Non-wholesale deposits increased by $92.9 million, or 3.21%, and wholesale deposits, which we define as brokered deposits and public time deposits, increased by $157.4 million, or 62.35%, in each case during the third quarter of 2024. Short-term borrowings remained at zero as of June 30, 2024 and September 30, 2024. We attribute this growth to the continued demand for our differentiated customer experience and the strength of our team.

Although cost of funds increased 16 basis points to 2.72%, we were able to maintain net interest margin which decreased by only two basis points to 3.37% during the third quarter of 2024. Our efficiency ratio decreased to 43.37% compared to 44.07% for the second quarter of 2024, exhibiting our ability to preserve disciplined business practices and expense management as we expand our footprint. We are also pleased that, in addition to first and second quarter cash dividends in 2024, we declared a third quarter cash dividend of $0.20 per share, exemplifying our focus on shareholder value.

In addition to numerous awards received in the first half of 2024, Five Star Bancorp was included among the Piper Sandler Sm-All Stars Class of 2024 and was also ranked number five by Bank Director Magazine’s RankingBanking study of the 2024 Best U.S. Banks with assets less than $5 billion. Bank Director Magazine’s RankingBanking study also ranked Five Star Bancorp as number 18 among the 2024 Top 25 U.S. Banks. Furthermore, a member of the Company’s leadership was recognized with a Sacramento Business Journal 40 Under 40 Award.”

Financial highlights during the quarter included the following:

  • The Company’s full-service office in San Francisco’s Financial District opened on September 3, 2024. The San Francisco Bay Area team increased from 19 to 24 employees who generated deposit balances totaling $189.0 million at September 30, 2024, an increase of $27.7 million from June 30, 2024.
  • Cash and cash equivalents were $250.9 million, representing 7.38% of total deposits at September 30, 2024, as compared to 6.04% at June 30, 2024.
  • Total deposits increased by $250.3 million, or 7.95%, during the three months ended September 30, 2024, due to increases in both non-wholesale and wholesale deposits, which the Company defines as brokered deposits and public time deposits. During the three months ended September 30, 2024, non-wholesale deposits increased by $92.9 million, or 3.21%, and wholesale deposits increased by $157.4 million.
  • The Company had no short-term borrowings at September 30, 2024 and June 30, 2024.
  • Consistent, disciplined management of expenses contributed to our efficiency ratio of 43.37% for the three months ended September 30, 2024, as compared to 44.07% for the three months ended June 30, 2024.
  • For the three months ended September 30, 2024, net interest margin was 3.37%, as compared to 3.39% for the three months ended June 30, 2024 and 3.31% for the three months ended September 30, 2023. The effective Federal Funds rate decreased to 4.83% as of September 30, 2024 from 5.33% at June 30, 2024 and September 30, 2023.
  • Other comprehensive income was $2.5 million during the three months ended September 30, 2024. Unrealized losses, net of tax effect, on available-for-sale securities were $9.7 million as of September 30, 2024. Total carrying value of held-to-maturity and available-for-sale securities represented 0.07% and 2.76% of total interest-earning assets, respectively, as of September 30, 2024.
  • The Company’s common equity Tier 1 capital ratio was 10.93% and 11.27% as of September 30, 2024 and June 30, 2024, respectively. The Bank continues to meet all requirements to be considered “well-capitalized” under applicable regulatory guidelines.
  • Loan and deposit growth in the three and twelve months ended September 30, 2024 was as follows:
(in thousands) September 30, 2024   June 30, 2024   $ Change   % Change
Loans held for investment $ 3,460,565     $ 3,266,291     $ 194,274       5.95 %
Non-interest-bearing deposits   906,939       825,733       81,206       9.83 %
Interest-bearing deposits   2,493,040       2,323,898       169,142       7.28 %
               
(in thousands) September 30, 2024   September 30, 2023   $ Change   % Change
Loans held for investment $ 3,460,565     $ 3,009,930     $ 450,635       14.97 %
Non-interest-bearing deposits   906,939       833,434       73,505       8.82 %
Interest-bearing deposits   2,493,040       2,198,776       294,264       13.38 %
                               
  • The ratio of nonperforming loans to loans held for investment at period end decreased to 0.05% at September 30, 2024 from 0.06% at June 30, 2024.
  • The Company’s Board of Directors declared, and the Company subsequently paid, a cash dividend of $0.20 per share during the three months ended September 30, 2024. The Company’s Board of Directors subsequently declared another cash dividend of $0.20 per share on October 17, 2024, which the Company expects to pay on November 12, 2024 to shareholders of record as of November 4, 2024.

Summary Results

Three months ended September 30, 2024, as compared to three months ended June 30, 2024

The Company’s net income was $10.9 million for the three months ended September 30, 2024, as compared to $10.8 million for the three months ended June 30, 2024. Net interest income increased by $1.3 million, primarily due to an increase in interest income driven by higher yields on new and repriced loans, partially offset by an increase in interest expense due to larger average deposit balances at higher rates, as compared to the three months ended June 30, 2024. The provision for credit losses increased by $0.8 million, relating to loan growth and net charge-offs of $0.8 million in the three months ended September 30, 2024, as compared to the three months ended June 30, 2024. Non-interest income decreased by $0.2 million, primarily due to a reduction in gains from loans sold during the three months ended September 30, 2024, as compared to the three months ended June 30, 2024. Non-interest expense increased by $0.3 million, primarily related to increases in: (i) salaries and employee benefits; and (ii) data processing and software, as compared to the three months ended June 30, 2024.

Three months ended September 30, 2024, as compared to three months ended September 30, 2023

The Company’s net income was $10.9 million for the three months ended September 30, 2024, as compared to $11.0 million for the three months ended September 30, 2023. Net interest income increased by $2.9 million, primarily due to an increase in interest income driven by higher yields on new and repriced loans, partially offset by an increase in interest expense due to larger average deposit balances at higher rates, as compared to the three months ended September 30, 2024. The provision for credit losses increased by $1.7 million, relating to loan growth and net charge-offs of $0.8 million in the three months ended September 30, 2024, as compared to the three months ended September 30, 2023. Non-interest income was unchanged from the three months ended September 30, 2023. Non-interest expense increased by $1.8 million, with an increase in salaries and employee benefits related to the Company’s expansion into the San Francisco Bay Area as the leading driver.

The following is a summary of the components of the Company’s operating results and performance ratios for the periods indicated:

  Three months ended        
(in thousands, except per share data) September 30, 2024   June 30, 2024   $ Change   % Change
Selected operating data:              
Net interest income $ 30,386     $ 29,092     $ 1,294       4.45 %
Provision for credit losses   2,750       2,000       750       37.50 %
Non-interest income   1,381       1,573       (192 )     (12.21 )%
Non-interest expense   13,776       13,513       263       1.95 %
Pre-tax income   15,241       15,152       89       0.59 %
Provision for income taxes   4,300       4,370       (70 )     (1.60 )%
Net income $ 10,941     $ 10,782     $ 159       1.47 %
Earnings per common share:              
Basic $ 0.52     $ 0.51     $ 0.01       1.96 %
Diluted   0.52       0.51       0.01       1.96 %
Performance and other financial ratios:              
ROAA   1.18 %     1.23 %        
ROAE   11.31 %     11.72 %        
Net interest margin   3.37 %     3.39 %        
Cost of funds   2.72 %     2.56 %        
Efficiency ratio   43.37 %     44.07 %        
               
  Three months ended        
(in thousands, except per share data) September 30, 2024   September 30, 2023   $ Change   % Change
Selected operating data:              
Net interest income $ 30,386     $ 27,476     $ 2,910       10.59 %
Provision for credit losses   2,750       1,050       1,700       161.90 %
Non-interest income   1,381       1,384       (3 )     (0.22 )%
Non-interest expense   13,776       12,015       1,761       14.66 %
Pre-tax income   15,241       15,795       (554 )     (3.51 )%
Provision for income taxes   4,300       4,750       (450 )     (9.47 )%
Net income $ 10,941     $ 11,045     $ (104 )     (0.94 )%
Earnings per common share:              
Basic $ 0.52     $ 0.64     $ (0.12 )     (18.75 )%
Diluted   0.52       0.64       (0.12 )     (18.75 )%
Performance and other financial ratios:              
ROAA   1.18 %     1.30 %        
ROAE   11.31 %     16.09 %        
Net interest margin   3.37 %     3.31 %        
Cost of funds   2.72 %     2.28 %        
Efficiency ratio   43.37 %     41.63 %        
                       

Balance Sheet Summary

(in thousands) September 30, 2024   December 31, 2023   $ Change   % Change
Selected financial condition data:              
Total assets $ 3,887,004     $ 3,593,125     $ 293,879       8.18 %
Cash and cash equivalents   250,852       321,576       (70,724 )     (21.99 )%
Total loans held for investment   3,460,565       3,081,719       378,846       12.29 %
Total investments   106,958       111,160       (4,202 )     (3.78 )%
Total liabilities   3,497,074       3,307,351       189,723       5.74 %
Total deposits   3,399,979       3,026,896       373,083       12.33 %
Subordinated notes, net   73,859       73,749       110       0.15 %
Total shareholders’ equity   389,930       285,774       104,156       36.45 %
                               
  • Insured and collateralized deposits were approximately $2.2 billion, representing 63.90% of total deposits as of September 30, 2024. Net uninsured and uncollateralized deposits were approximately $1.2 billion as of September 30, 2024.
  • Commercial and consumer deposit accounts constituted 73.14% of total deposits. Deposit relationships of at least $5 million represented 60.58% of total deposits and had an average age of approximately 8.89 years as of September 30, 2024.
  • Cash and cash equivalents as of September 30, 2024 were $250.9 million, representing 7.38% of total deposits at September 30, 2024, as compared to 6.04% as of June 30, 2024.
  • Total liquidity (consisting of cash and cash equivalents and unused and immediately available borrowing capacity as set forth below) was approximately $1.8 billion as of September 30, 2024.
  September 30, 2024
(in thousands) Line of Credit   Letters of Credit Issued   Borrowings   Available
FHLB advances $ 1,123,388     $ 567,500     $     $ 555,888  
Federal Reserve Discount Window   858,251                   858,251  
Correspondent bank lines of credit   175,000                   175,000  
Cash and cash equivalents                     250,852  
Total $ 2,156,639     $ 567,500     $     $ 1,839,991  
                               

The increase in total assets from December 31, 2023 to September 30, 2024 was primarily due to a $378.8 million increase in total loans held for investment, partially offset by a $70.7 million decrease in cash and cash equivalents. The $378.8 million increase in total loans held for investment between December 31, 2023 and September 30, 2024 was a result of $873.7 million in loan originations and advances, partially offset by $190.6 million and $304.2 million in loan payoffs and paydowns, respectively. The $378.8 million increase in total loans held for investment included $254.7 million in purchases of loans within the consumer concentration of the loan portfolio. The $70.7 million decrease in cash and cash equivalents primarily resulted from net cash outflows related to investing activities of $376.5 million, partially offset by net cash inflows related to financing and operating activities of $272.0 million and $33.8 million, respectively.

The increase in total liabilities from December 31, 2023 to September 30, 2024 was primarily due to an increase in interest-bearing deposits of $297.2 million, partially offset by a decrease in other borrowings of $170.0 million. The increase in interest-bearing deposits was largely due to increases in money market and time deposits of $264.1 million and $24.4 million, respectively.

The increase in total shareholders’ equity from December 31, 2023 to September 30, 2024 was primarily a result of $80.9 million of additional common stock outstanding and net income recognized of $32.4 million, partially offset by $12.0 million in cash distributions paid during the period.

Net Interest Income and Net Interest Margin

The following is a summary of the components of net interest income for the periods indicated:

  Three months ended        
(in thousands) September 30, 2024   June 30, 2024   $ Change   % Change
Interest and fee income $ 52,667     $ 48,998     $ 3,669       7.49 %
Interest expense   22,281       19,906       2,375       11.93 %
Net interest income $ 30,386     $ 29,092     $ 1,294       4.45 %
Net interest margin   3.37 %     3.39 %        
               
  Three months ended        
(in thousands) September 30, 2024   September 30, 2023   $ Change   % Change
Interest and fee income $ 52,667     $ 45,098     $ 7,569       16.78 %
Interest expense   22,281       17,622       4,659       26.44 %
Net interest income $ 30,386     $ 27,476     $ 2,910       10.59 %
Net interest margin   3.37 %     3.31 %        
                       

The following table shows the components of net interest income and net interest margin for the quarterly periods indicated:

  Three months ended
  September 30, 2024   June 30, 2024   September 30, 2023
(in thousands) AverageBalance   InterestIncome/Expense   Yield/ Rate   AverageBalance   Interest Income/ Expense   Yield/ Rate   Average Balance   Interest Income/ Expense   Yield/ Rate
Assets                                  
Interest-earning deposits in banks $ 126,266     $ 1,657       5.22 %   $ 148,936     $ 1,986       5.36 %   $ 198,751     $ 2,584       5.16 %
Investment securities   106,256       620       2.32 %     105,819       650       2.47 %     112,154       653       2.31 %
Loans held for investment and sale   3,354,050       50,390       5.98 %     3,197,921       46,362       5.83 %     2,982,140       41,861       5.57 %
Total interest-earning assets   3,586,572       52,667       5.84 %     3,452,676       48,998       5.71 %     3,293,045       45,098       5.43 %
Interest receivable and other assets, net   91,965               84,554               77,757          
Total assets $ 3,678,537             $ 3,537,230             $ 3,370,802          
                                   
Liabilities and shareholders’ equity                                  
Interest-bearing transaction accounts $ 302,188     $ 1,237       1.63 %   $ 291,470     $ 1,104       1.52 %   $ 296,230     $ 972       1.30 %
Savings accounts   124,851       979       3.12 %     120,080       856       2.87 %     134,920       880       2.59 %
Money market accounts   1,578,244       14,688       3.70 %     1,547,814       13,388       3.48 %     1,328,290       9,536       2.85 %
Time accounts   326,640       4,172       5.08 %     272,887       3,369       4.96 %     399,514       4,998       4.96 %
Subordinated notes and other borrowings   76,988       1,205       6.23 %     75,747       1,189       6.31 %     79,085       1,236       6.20 %
Total interest-bearing liabilities   2,408,911       22,281       3.68 %     2,307,998       19,906       3.47 %     2,238,039       17,622       3.12 %
Demand accounts   852,872               817,668               825,254          
Interest payable and other liabilities   32,062               41,429               35,123          
Shareholders’ equity   384,692               370,135               272,386          
Total liabilities & shareholders’ equity $ 3,678,537             $ 3,537,230             $ 3,370,802          
                                   
Net interest spread           2.16 %             2.24 %             2.31 %
Net interest income/margin     $ 30,386       3.37 %       $ 29,092       3.39 %       $ 27,476       3.31 %
                                                           

Net interest income during the three months ended September 30, 2024 increased $1.3 million, while net interest margin decreased two basis points compared to the three months ended June 30, 2024. Interest income increased by $3.7 million compared to the prior quarter, primarily due to higher yields on new and repriced loans. Average loan yields increased 15 basis points compared to the prior quarter and average balances increased 4.88% during the same period. The increase in interest income compared to the prior quarter was partially offset by a $2.4 million increase in interest expense, primarily due to larger average deposit balances at higher rates. Average cost of total deposits increased 16 basis points compared to the prior quarter and average balances increased 4.42% during the same period.

As compared to the three months ended September 30, 2023, net interest income increased $2.9 million and net interest margin increased six basis points. Interest income increased by $7.6 million compared to the same quarter of the prior year, primarily due to higher yields on new and repriced loans. Average loan yields increased 41 basis points compared to the same quarter of the prior year and average balances increased 12.47% during the same period. The increase in interest income was partially offset by an additional $4.7 million in interest expense compared to the same quarter of the prior year. Average cost of total deposits increased 45 basis points compared to the same quarter of the prior year and average balances increased 6.72% during the same period.

Loans by Type

The following table provides loan balances, excluding deferred loan fees, by type as of September 30, 2024:

(in thousands)  
Real estate:  
Commercial $ 2,812,600  
Commercial land and development   4,709  
Commercial construction   92,841  
Residential construction   3,452  
Residential   33,415  
Farmland   47,907  
Commercial:  
Secured   171,855  
Unsecured   25,011  
Consumer and other   270,760  
Net deferred loan fees   (1,985 )
Total loans held for investment $ 3,460,565  
       

Interest-bearing Deposits

The following table provides interest-bearing deposit balances by type as of September 30, 2024:

(in thousands)  
Interest-bearing transaction accounts $ 324,028  
Money market accounts   1,546,443  
Savings accounts   131,561  
Time accounts   491,008  
Total interest-bearing deposits $ 2,493,040  
       

Asset Quality

Allowance for Credit Losses

At September 30, 2024, the Company’s allowance for credit losses was $37.6 million, as compared to $34.4 million at December 31, 2023. The $3.2 million increase in the allowance is due to a $6.0 million provision for credit losses recorded during the nine months ended September 30, 2024, partially offset by net charge-offs of $2.8 million, mainly attributable to commercial and industrial loans, during the same period.

The Company’s ratio of nonperforming loans to loans held for investment decreased from 0.06% at December 31, 2023 to 0.05% at September 30, 2024. Loans designated as watch increased from $39.6 million to $90.9 million between December 31, 2023 and September 30, 2024. Loans designated as substandard decreased from $2.0 million to $1.9 million between December 31, 2023 and September 30, 2024. There were no loans with doubtful risk grades at September 30, 2024 or December 31, 2023.

A summary of the allowance for credit losses by loan class is as follows:

  September 30, 2024   December 31, 2023
(in thousands) Amount   % of Total   Amount   % of Total
Real estate:              
Commercial $ 26,217       69.74 %   $ 29,015       84.27 %
Commercial land and development   89       0.24 %     178       0.52 %
Commercial construction   1,756       4.67 %     718       2.08 %
Residential construction   47       0.13 %     89       0.26 %
Residential   284       0.76 %     151       0.44 %
Farmland   581       1.55 %     399       1.16 %
    28,974       77.09 %     30,550       88.73 %
Commercial:              
Secured   6,049       16.10 %     3,314       9.62 %
Unsecured   251       0.67 %     189       0.55 %
    6,300       16.77 %     3,503       10.17 %
Consumer and other   2,309       6.14 %     378       1.10 %
Total allowance for credit losses $ 37,583       100.00 %   $ 34,431       100.00 %
                               

The ratio of allowance for credit losses to loans held for investment was 1.09% at September 30, 2024, as compared to 1.12% at December 31, 2023.

Non-interest Income

The following table presents the key components of non-interest income for the periods indicated:

  Three months ended        
(in thousands) September 30, 2024   June 30, 2024   $ Change   % Change
Service charges on deposit accounts $ 165     $ 189     $ (24 )     (12.70 )%
Gain on sale of loans   306       449       (143 )     (31.85 )%
Loan-related fees   406       370       36       9.73 %
FHLB stock dividends   327       329       (2 )     (0.61 )%
Earnings on bank-owned life insurance   162       158       4       2.53 %
Other income   15       78       (63 )     (80.77 )%
Total non-interest income $ 1,381     $ 1,573     $ (192 )     (12.21 )%
                           

Gain on sale of loans. The decrease resulted from a decline in the volume of loans sold, partially offset by an increase in the effective yield of loans sold. During the three months ended September 30, 2024, approximately $4.4 million of loans were sold with an effective yield of 7.03%, as compared to approximately $6.8 million of loans sold with an effective yield of 6.60% during the three months ended June 30, 2024.

The following table presents the key components of non-interest income for the periods indicated:

  Three months ended      
(in thousands) September 30, 2024   September 30, 2023   $ Change   % Change
Service charges on deposit accounts $ 165     $ 158     $ 7       4.43 %
Gain on sale of loans   306       396       (90 )     (22.73 )%
Loan-related fees   406       355       51       14.37 %
FHLB stock dividends   327       274       53       19.34 %
Earnings on bank-owned life insurance   162       127       35       27.56 %
Other income   15       74       (59 )     (79.73 )%
Total non-interest income $ 1,381     $ 1,384     $ (3 )     (0.22 )%
                           

Gain on sale of loans. The decrease related primarily to an overall decline in the volume of loans sold, partially offset by an improvement in the effective yield of loans sold. During the three months ended September 30, 2024, approximately $4.4 million of loans were sold with an effective yield of 7.03%, as compared to approximately $7.0 million of loans sold with an effective yield of 5.63% during the three months ended September 30, 2023.

Non-interest Expense

The following table presents the key components of non-interest expense for the periods indicated:

  Three months ended        
(in thousands) September 30, 2024   June 30, 2024   $ Change   % Change
Salaries and employee benefits $ 7,969     $ 7,803     $ 166       2.13 %
Occupancy and equipment   626       646       (20 )     (3.10 )%
Data processing and software   1,327       1,235       92       7.45 %
Federal Deposit Insurance Corporation (“FDIC”) insurance   405       390       15       3.85 %
Professional services   830       767       63       8.21 %
Advertising and promotional   584       615       (31 )     (5.04 )%
Loan-related expenses   292       297       (5 )     (1.68 )%
Other operating expenses   1,743       1,760       (17 )     (0.97 )%
Total non-interest expense $ 13,776     $ 13,513     $ 263       1.95 %
                               

Salaries and employee benefits. The increase related primarily to: (i) a $0.4 million decrease in loan origination costs due to fewer loan originations, net of purchased consumer loans; and (ii) a $0.2 million increase in salaries, benefits, and bonus expense related to a 4.28% increase in headcount during the quarter. These increases were partially offset by a $0.4 million decrease in commissions expense due to fewer loan originations, net of purchased consumer loans, period-over-period.

The following table presents the key components of non-interest expense for the periods indicated:

  Three months ended        
(in thousands) September 30, 2024   September 30, 2023   $ Change   % Change
Salaries and employee benefits $ 7,969     $ 6,876     $ 1,093       15.90 %
Occupancy and equipment   626       561       65       11.59 %
Data processing and software   1,327       1,020       307       30.10 %
FDIC insurance   405       375       30       8.00 %
Professional services   830       700       130       18.57 %
Advertising and promotional   584       535       49       9.16 %
Loan-related expenses   292       345       (53 )     (15.36 )%
Other operating expenses   1,743       1,603       140       8.73 %
Total non-interest expense $ 13,776     $ 12,015     $ 1,761       14.66 %
                               

Salaries and employee benefits. The increase related primarily to: (i) a $1.0 million increase in salaries, benefits, and bonus expense, mainly for employees hired since September 2023 to support expansion into the San Francisco Bay Area; and (ii) a $0.2 million increase in commissions paid, primarily to new employees in the San Francisco Bay Area. This was partially offset by a $0.1 million increase in loan origination costs due to a higher number of loan originations, net of purchased consumer loans, period-over-period.

Data processing and software. The increase was primarily due to: (i) increased usage of our digital banking platform; (ii) higher transaction volumes related to the increased number of loan and deposit accounts; and (iii) an increased number of licenses required for new users on our loan origination and documentation system.

Professional services. The increase was primarily due to a $0.1 million increase in fees for 2024 audits and examinations.

Other operating expenses. The increase was primarily due to $0.1 million in operational losses on deposit accounts.

Provision for Income Taxes

Three months ended September 30, 2024, as compared to three months ended June 30, 2024

Provision for income taxes decreased slightly to $4.3 million for the three months ended September 30, 2024 from $4.4 million for the three months ended June 30, 2024, primarily driven by a slight decline in the effective tax rate. The effective tax rates were 28.21% and 28.84% for the three months ended September 30, 2024 and June 30, 2024, respectively.

Three months ended September 30, 2024, as compared to three months ended September 30, 2023

Provision for income taxes decreased by $0.5 million, or 9.47%, for the three months ended September 30, 2024 compared to the three months ended September 30, 2023. This decline was primarily driven by an overall decrease in pre-tax income combined with a $0.2 million adjustment to the provision during the three months ended September 30, 2023 to true-up the year-to-date effective tax rate which did not occur during the three months ended September 30, 2024. The effective tax rates for the three months ended September 30, 2024 and September 30, 2023, were 28.21% and 30.07% respectively.

Webcast Details

Five Star Bancorp will host a live webcast for analysts and investors on Tuesday, October 29, 2024 at 1:00 pm ET (10:00 am PT) to discuss its third quarter financial results. To view the live webcast, visit the “News & Events” section of the Company’s website under “Events” at https://investors.fivestarbank.com/news-events/events. The webcast will be archived on the Company’s website for a period of 90 days.

About Five Star Bancorp

Five Star is a bank holding company headquartered in Rancho Cordova, California. Five Star operates through its wholly owned banking subsidiary, Five Star Bank. The Bank has eight branches in Northern California.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements represent plans, estimates, objectives, goals, guidelines, expectations, intentions, projections, and statements of the Company’s beliefs concerning future events, business plans, objectives, expected operating results, and the assumptions upon which those statements are based. Forward-looking statements include without limitation, any statement that may predict, forecast, indicate, or imply future results, performance, or achievements, and are typically identified with words such as “may,” “could,” “should,” “will,” “would,” “believe,” “anticipate,” “estimate,” “expect,” “aim,” “intend,” “plan,” or words or phases of similar meaning. The Company cautions that the forward-looking statements are based largely on the Company’s expectations and are subject to a number of known and unknown risks and uncertainties that are subject to change based on factors which are, in many instances, beyond the Company’s control. Such forward-looking statements are based on various assumptions (some of which may be beyond the Company’s control) and are subject to risks and uncertainties, which change over time, and other factors, which could cause actual results to differ materially from those currently anticipated. New risks and uncertainties may emerge from time to time, and it is not possible for the Company to predict their occurrence or how they will affect the Company. If one or more of the factors affecting the Company’s forward-looking information and statements proves incorrect, then the Company’s actual results, performance, or achievements could differ materially from those expressed in, or implied by, forward-looking information and statements contained in this press release. Therefore, the Company cautions you not to place undue reliance on the Company’s forward-looking information and statements. Important factors that could cause actual results to differ materially from those in the forward-looking statements are set forth in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 and Quarterly Reports on Form 10-Q for the three months ended March 31, 2024 and June 30, 2024, in each case under the section entitled “Risk Factors,” and other documents filed by the Company with the Securities and Exchange Commission from time to time.

The Company disclaims any duty to revise or update the forward-looking statements, whether written or oral, to reflect actual results or changes in the factors affecting the forward-looking statements, except as specifically required by law.

Condensed Financial Data (Unaudited)

  Three months ended
(in thousands, except per share and share data) September 30, 2024   June 30, 2024   September 30, 2023
Revenue and Expense Data                
Interest and fee income $ 52,667     $ 48,998     $ 45,098  
Interest expense 22,281     19,906     17,622  
Net interest income 30,386     29,092     27,476  
Provision for credit losses 2,750     2,000     1,050  
Net interest income after provision 27,636     27,092     26,426  
Non-interest income:                
Service charges on deposit accounts 165     189     158  
Gain on sale of loans 306     449     396  
Loan-related fees 406     370     355  
FHLB stock dividends 327     329     274  
Earnings on bank-owned life insurance 162     158     127  
Other income 15     78     74  
Total non-interest income 1,381     1,573     1,384  
Non-interest expense:                
Salaries and employee benefits 7,969     7,803     6,876  
Occupancy and equipment 626     646     561  
Data processing and software 1,327     1,235     1,020  
FDIC insurance 405     390     375  
Professional services 830     767     700  
Advertising and promotional 584     615     535  
Loan-related expenses 292     297     345  
Other operating expenses 1,743     1,760     1,603  
Total non-interest expense 13,776     13,513     12,015  
Income before provision for income taxes 15,241     15,152     15,795  
Provision for income taxes 4,300     4,370     4,750  
Net income $ 10,941     $ 10,782     $ 11,045  
                 
Comprehensive Income                
Net income $ 10,941     $ 10,782     $ 11,045  
Net unrealized holding gain (loss) on securities available-for-sale during the period 3,549     295     (4,195 )
Less: Income tax expense (benefit) related to other comprehensive income (loss) 1,049     87     (1,240 )
Other comprehensive income (loss) 2,500     208     (2,955 )
Total comprehensive income $ 13,441     $ 10,990     $ 8,090  
                 
Share and Per Share Data                
Earnings per common share:                
Basic $ 0.52     $ 0.51     $ 0.64  
Diluted 0.52     0.51     0.64  
Book value per share 18.29     17.85     15.88  
Tangible book value per share(1) 18.29     17.85     15.88  
Weighted average basic common shares outstanding 21,182,143     21,039,798     17,175,034  
Weighted average diluted common shares outstanding 21,232,758     21,058,085     17,194,825  
Shares outstanding at end of period 21,319,583     21,319,583     17,257,357  
                 
Credit Quality                
Allowance for credit losses to period end nonperforming loans 2,041.44 %   1,882.30 %   1,699.35 %
Nonperforming loans to loans held for investment 0.05 %   0.06 %   0.07 %
Nonperforming assets to total assets 0.05 %   0.05 %   0.06 %
Nonperforming loans plus performing loan modifications to loans held for investment 0.05 %   0.06 %   0.07 %
                 
Selected Financial Ratios                
ROAA 1.18 %   1.23 %   1.30 %
ROAE 11.31 %   11.72 %   16.09 %
Net interest margin 3.37 %   3.39 %   3.31 %
Loan to deposit 101.87 %   103.87 %   99.57 %
                 
(1) See the section entitled “Non-GAAP Reconciliation (Unaudited)” for a reconciliation of this non-GAAP financial measure.
                 
(in thousands) September 30, 2024   June 30, 2024   September 30, 2023
Balance Sheet Data          
Cash and due from financial institutions $ 44,531     $ 28,572     $ 26,744  
Interest-bearing deposits in banks   206,321       161,787       296,804  
Time deposits in banks   4,118       4,097       6,971  
Securities - available-for-sale, at fair value   104,238       103,204       104,086  
Securities - held-to-maturity, at amortized cost   2,720       2,973       3,104  
Loans held for sale   2,910       5,322       9,326  
Loans held for investment   3,460,565       3,266,291       3,009,930  
Allowance for credit losses   (37,583 )     (35,406 )     (34,028 )
Loans held for investment, net of allowance for credit losses   3,422,982       3,230,885       2,975,902  
FHLB stock   15,000       15,000       15,000  
Operating leases, right-of-use asset   6,590       6,630       4,799  
Premises and equipment, net   1,657       1,610       1,564  
Bank-owned life insurance   19,192       19,030       17,023  
Interest receivable and other assets   56,745       55,107       43,717  
Total assets $ 3,887,004     $ 3,634,217     $ 3,505,040  
           
Non-interest-bearing deposits $ 906,939     $ 825,733     $ 833,434  
Interest-bearing deposits   2,493,040       2,323,898       2,198,776  
Total deposits   3,399,979       3,149,631       3,032,210  
Subordinated notes, net   73,859       73,822       73,713  
Other borrowings               90,000  
Operating lease liability   7,101       7,077       5,043  
Interest payable and other liabilities   16,135       23,217       30,050  
Total liabilities   3,497,074       3,253,747       3,231,016  
           
Common stock   302,251       301,968       220,266  
Retained earnings   97,411       90,734       69,689  
Accumulated other comprehensive loss, net of taxes   (9,732 )     (12,232 )     (15,931 )
Total shareholders’ equity   389,930       380,470       274,024  
Total liabilities and shareholders’ equity $ 3,887,004     $ 3,634,217     $ 3,505,040  
           
Quarterly Average Balance Data          
Average loans held for investment and sale $ 3,354,050     $ 3,197,921     $ 2,982,140  
Average interest-earning assets   3,586,572       3,452,676       3,293,045  
Average total assets   3,678,537       3,537,230       3,370,802  
Average deposits   3,184,795       3,049,919       2,984,208  
Average total equity   384,692       370,135       272,386  
           
Capital Ratios          
Total shareholders’ equity to total assets   10.03 %     10.47 %     7.82 %
Tangible shareholders’ equity to tangible assets(1)   10.03 %     10.47 %     7.82 %
Total capital (to risk-weighted assets)   13.94 %     14.38 %     12.37 %
Tier 1 capital (to risk-weighted assets)   10.93 %     11.27 %     9.07 %
Common equity Tier 1 capital (to risk-weighted assets)   10.93 %     11.27 %     9.07 %
Tier 1 leverage ratio   10.83 %     11.05 %     8.58 %
                       
(1) See the section entitled “Non-GAAP Reconciliation (Unaudited)” for a reconciliation of this non-GAAP financial measure.
                       

Non-GAAP Reconciliation (Unaudited)

The Company uses financial information in its analysis of the Company’s performance that is not in conformity with accounting principles generally accepted in the United States of America (“GAAP”). The Company believes that these non-GAAP financial measures provide useful information to management and investors that is supplementary to the Company’s financial condition, results of operations, and cash flows computed in accordance with GAAP. However, the Company acknowledges that its non-GAAP financial measures have a number of limitations. As such, investors should not view these disclosures as a substitute for results determined in accordance with GAAP. Additionally, these non-GAAP measures are not necessarily comparable to non-GAAP financial measures that other banking companies use. Other banking companies may use names similar to those the Company uses for the non-GAAP financial measures the Company discloses, but may calculate them differently. Investors should understand how the Company and other companies each calculate their non-GAAP financial measures when making comparisons.

Tangible shareholders’ equity to tangible assets is defined as total equity less goodwill and other intangible assets, divided by total assets less goodwill and other intangible assets. The most directly comparable GAAP financial measure is total shareholders’ equity to total assets. We had no goodwill or other intangible assets at the end of any period indicated. As a result, tangible shareholders’ equity to tangible assets is the same as total shareholders’ equity to total assets at the end of each of the periods indicated.

Tangible book value per share is defined as total shareholders’ equity less goodwill and other intangible assets, divided by the outstanding number of common shares at the end of the period. The most directly comparable GAAP financial measure is book value per share. We had no goodwill or other intangible assets at the end of any period indicated. As a result, tangible book value per share is the same as book value per share at the end of each of the periods indicated.

Pre-tax, pre-provision income is defined as pre-tax income plus provision for credit losses. The most directly comparable GAAP financial measure is pre-tax income.

The following reconciliation table provides a more detailed analysis of this non-GAAP financial measure:

  Three months ended
(in thousands) September 30, 2024   June 30, 2024   September 30, 2023
Pre-tax, pre-provision income          
Pre-tax income $ 15,241     $ 15,152     $ 15,795  
Add: provision for credit losses   2,750       2,000       1,050  
Pre-tax, pre-provision income $ 17,991     $ 17,152     $ 16,845  
                       

Investor Contact: Heather C. Luck, Chief Financial Officer Five Star Bancorp (916) 626-5008 hluck@fivestarbank.com

Media Contact: Shelley R. Wetton, Chief Marketing Officer Five Star Bancorp (916) 284-7827 swetton@fivestarbank.com

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