Five Star Bancorp Announces Quarterly and Annual Results

RANCHO CORDOVA, Calif., Jan. 29, 2024 (GLOBE NEWSWIRE) -- Five Star Bancorp (Nasdaq: FSBC) (the “Company” or “Five Star”), the holding company for Five Star Bank, today reported net income of $10.8 million for the three months ended December 31, 2023, as compared to $11.0 million for the three months ended September 30, 2023 and $13.3 million for the three months ended December 31, 2022. Net income for the year ended December 31, 2023 was $47.7 million, as compared to $44.8 million for the year ended December 31, 2022.

Financial Highlights

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

	Three months ended
(in thousands, except per share and share data)	December 31, 2023				September 30, 2023				December 31, 2022
Return on average assets (“ROAA”)		1.26	%			1.30	%			1.70	%
Return on average equity (“ROAE”)		15.45	%			16.09	%			21.50	%
Pre-tax income	$	15,151			$	15,795			$	18,769
Pre-tax, pre-provision income(1)	$	15,951			$	16,845			$	20,019
Net income	$	10,799			$	11,045			$	13,282
Basic earnings per common share	$	0.63			$	0.64			$	0.77
Diluted earnings per common share	$	0.63			$	0.64			$	0.77
Weighted average basic common shares outstanding		17,175,445				17,175,034				17,143,920
Weighted average diluted common shares outstanding		17,193,114				17,194,825				17,179,863
Shares outstanding at end of period		17,256,989				17,257,357				17,241,926

	Year ended
(in thousands, except per share and share data)	December 31, 2023				December 31, 2022
Return on average assets (“ROAA”)		1.44	%			1.57	%
Return on average equity (“ROAE”)		17.85	%			18.80	%
Pre-tax income	$	66,616			$	62,858
Pre-tax, pre-provision income(1)	$	70,616			$	69,558
Net income	$	47,734			$	44,801
Basic earnings per common share	$	2.78			$	2.61
Diluted earnings per common share	$	2.78			$	2.61
Weighted average basic common shares outstanding		17,166,592				17,128,282
Weighted average diluted common shares outstanding		17,187,969				17,165,610
Shares outstanding at end of period		17,256,989				17,241,926

_{⁽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:

“Five Star Bank is known for turning market disruption into opportunity and 2023 was no exception. While many faced significant headwinds in Q1 due to big bank failures, we seized the opportunity to execute on our organic growth strategy by expanding into the San Francisco Bay Area. This expansion included the onboarding of eight seasoned and highly respected business development officers and two relationship managers who contributed $73.8 million of deposit growth in 2023 from clients who wanted to work with a bank they could trust. The past year demonstrated the importance of being prepared for any market condition and we are pleased with our immediate response to serving new clients in the Bay Area while also ensuring the safety and soundness of our business.

Margin pressures remained in Q4, yet slowed compared to prior quarters. We expect positive news from the Federal Reserve in 2024 to result in an end to the rising rate environment and signal potential rate cuts. As we look to 2024, we anticipate a benefit from these rate cuts as we have a slightly liability sensitive balance sheet. In the meantime, we will continue to grow organically by focusing on deposit growth in our core geographical markets, including the Sacramento Capital Region, North State, and San Francisco Bay Area. We will also manage expenses and execute on conservative underwriting practices which are foundational to our success.

In 2023, we received a Super Premier Performer rating from Findley Reports, an IDC Superior Rating, and a Bauer Financial Superior rating (5 stars out of 5). We were also awarded the prestigious 2022 Raymond James Community Bankers Cup, and were among the 2023 Piper Sandler Sm-All Stars. In 2023, we were recognized as the 2022 S&P Global Market Intelligence #1 Best-Performing Community Bank in the nation (banks with assets between $3 billion and $10 billion). We were also listed in Independent Banker’s Top Commercial Banks in 2023 (banks with more than $1 billion in assets) and ranked #6 in the nation. We were listed among American Banker’s Top-Performing Banks in 2023 (banks with $2 billion to $10 billion in assets) and ranked #12 in the nation. In 2023, our executives and senior leaders were awarded a Sacramento Business Journal C-Suite Award, a Sacramento Bee Latino Changemakers Award, a Commercial Real Estate Women Award, and a Comstock’s Magazine Women in Leadership Award. Being recognized as community leaders ensures Five Star Bank remains top-of-mind in the markets we serve as we continue to build-out our verticals. In closing, we are well-positioned to continue to withstand an array of economic conditions as we enter 2024. I am humbled and proud of our team’s accomplishments as we look to the future.”

• The Company’s new San Francisco Bay Area team increased to 10 employees who generated deposit balances totaling $73.8 million at December 31, 2023, an increase of $44.8 million from September 30, 2023.
• Cash and cash equivalents were $321.6 million, representing 10.62% of total deposits at December 31, 2023, compared to 10.67% at September 30, 2023.
• Total deposits decreased by $5.3 million, or 0.18%, during the three months ended December 31, 2023. Non-brokered deposits decreased by $30.4 million, or 1.03%, over the same period.
• Consistent, disciplined management of expenses contributed to our efficiency ratio of 44.25% for the three months ended December 31, 2023.
• For the three months ended December 31, 2023, net interest margin was 3.19%, as compared to 3.31% for the three months ended September 30, 2023 and 3.83% for the three months ended December 31, 2022. For the year ended December 31, 2023, net interest margin was 3.42%, as compared to 3.75% for the year ended December 31, 2022. The effective Federal Funds rate remained at 5.33% as of December 31, 2023, and September 30, 2023 and increased from 4.33% as of December 31, 2022.
• Other comprehensive income was $4.2 million during the three months ended December 31, 2023. Unrealized losses, net of tax effect, on available-for-sale securities were $11.8 million as of December 31, 2023. Total held-to-maturity and available-for-sale securities represented 0.09% and 3.08% of total interest-earning assets, respectively, as of December 31, 2023.
• The Company’s common equity Tier 1 capital ratio was 9.07% as of both December 31, 2023 and September 30, 2023. The Bank continues to meet all requirements to be considered “well-capitalized” under applicable regulatory guidelines.
• Loan and deposit growth was as follows at the dates indicated:

	(in thousands)	December 31, 2023				September 30, 2023				$ Change				% Change
	Loans held for investment	$	3,081,719			$	3,009,930			$	71,789			2.39	%
	Non-interest-bearing deposits		831,101				833,434				(2,333	)		(0.28	)%
	Interest-bearing deposits		2,195,795				2,198,776				(2,981	)		(0.14	)%
	(in thousands)	December 31, 2023				December 31, 2022				$ Change				% Change
	Loans held for investment	$	3,081,719			$	2,791,326			$	290,393			10.40	%
	Non-interest-bearing deposits		831,101				971,246				(140,145	)		(14.43	)%
	Interest-bearing deposits		2,195,795				1,810,758				385,037			21.26	%

• The ratio of nonperforming loans to loans held for investment at period end increased from 0.01% at December 31, 2022 to 0.06% at December 31, 2023.
• 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 December 31, 2023. The Company’s Board of Directors declared another cash dividend of $0.20 per share on January 18, 2024, which the Company expects to pay on February 12, 2024 to shareholders of record as of February 5, 2024.

Summary Results

Three months ended December 31, 2023, as compared to three months ended September 30, 2023

The Company’s net income was $10.8 million for the three months ended December 31, 2023, compared to $11.0 million for the three months ended September 30, 2023. Net interest income decreased by $0.8 million as increases in interest expense exceeded increases in interest income. The provision for credit losses decreased by $0.3 million as expectations for credit losses improved based on positive economic trends in the three months ended December 31, 2023, compared to the three months ended September 30, 2023. Non-interest income increased by $0.6 million, primarily due to gains from distributions on investments in venture-backed funds and the recognition of swap referral and rate lock fees during the three months ended December 31, 2023 that did not occur during the three months ended September 30, 2023. Non-interest expense increased by $0.6 million, primarily due to increased salaries, employee benefits, advertising, promotional, and other operating expenses related to the Company’s expansion into the San Francisco Bay Area.

Three months ended December 31, 2023, as compared to three months ended December 31, 2022

The Company’s net income was $10.8 million for the three months ended December 31, 2023, compared to $13.3 million for the three months ended December 31, 2022. Net interest income decreased by $2.5 million as increases in interest expense exceeded increases in interest income. The provision for credit losses decreased by $0.5 million as loan originations in the three months ended December 31, 2023 were approximately half of those in the three months ended December 31, 2022. Non-interest income increased by $0.3 million, primarily due to greater gains from distributions on investments in venture-backed funds quarter-over-quarter and the recognition of swap referral and rate lock fees during three months ended December 31, 2023 that did not occur during the three months ended December 31, 2022. Non-interest expense increased by $1.9 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.

Year ended December 31, 2023, as compared to year ended December 31, 2022

The Company’s net income was $47.7 million for the year ended December 31, 2023, compared to $44.8 million for the year ended December 31, 2022. Net interest income increased by $7.8 million as increases in interest income exceeded increases in interest expense, with increases in the average balance of interest-earning assets as the leading driver. The provision for credit losses decreased by $2.7 million as loan originations in the year ended December 31, 2023 were approximately half of those for the year ended December 31, 2022. Non-interest income increased by $0.4 million, primarily due to greater gains from distributions on investments in venture-backed funds during the year ended December 31, 2023 than during the year ended December 31, 2022. Non-interest expense increased by $7.1 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)		December 31, 2023				September 30, 2023				$ Change				% Change
Selected operating data:
Net interest income		$	26,678			$	27,476			$	(798	)		(2.90	)%
Provision for credit losses			800				1,050				(250	)		(23.81	)%
Non-interest income			1,936				1,384				552			39.88	%
Non-interest expense			12,663				12,015				648			5.39	%
Pre-tax income			15,151				15,795				(644	)		(4.08	)%
Provision for income taxes			4,352				4,750				(398	)		(8.38	)%
Net income		$	10,799			$	11,045			$	(246	)		(2.23	)%
Earnings per common share:
Basic		$	0.63			$	0.64			$	(0.01	)		(1.56	)%
Diluted		$	0.63			$	0.64			$	(0.01	)		(1.56	)%
Performance and other financial ratios:
ROAA			1.26	%			1.30	%
ROAE			15.45	%			16.09	%
Net interest margin			3.19	%			3.31	%
Cost of funds			2.50	%			2.28	%
Efficiency ratio			44.25	%			41.63	%

		Three months ended
(in thousands, except per share data)		December 31, 2023				December 31, 2022				$ Change				% Change
Selected operating data:
Net interest income		$	26,678			$	29,135			$	(2,457	)		(8.43	)%
Provision for credit losses			800				1,250				(450	)		(36.00	)%
Non-interest income			1,936				1,601				335			20.92	%
Non-interest expense			12,663				10,717				1,946			18.16	%
Pre-tax income			15,151				18,769				(3,618	)		(19.28	)%
Provision for income taxes			4,352				5,487				(1,135	)		(20.69	)%
Net income		$	10,799			$	13,282			$	(2,483	)		(18.69	)%
Earnings per common share:
Basic		$	0.63			$	0.77			$	(0.14	)		(18.18	)%
Diluted		$	0.63			$	0.77			$	(0.14	)		(18.18	)%
Performance and other financial ratios:
ROAA			1.26	%			1.70	%
ROAE			15.45	%			21.50	%
Net interest margin			3.19	%			3.83	%
Cost of funds			2.50	%			1.16	%
Efficiency ratio			44.25	%			34.87	%
		Year ended
(in thousands, except per share data)		December 31, 2023				December 31, 2022				$ Change				% Change
Selected operating data:
Net interest income		$	110,880			$	103,070			$	7,810			7.58	%
Provision for credit losses			4,000				6,700				(2,700	)		(40.30	)%
Non-interest income			7,511				7,157				354			4.95	%
Non-interest expense			47,775				40,669				7,106			17.47	%
Pre-tax income			66,616				62,858				3,758			5.98	%
Provision for income taxes			18,882				18,057				825			4.57	%
Net income		$	47,734			$	44,801			$	2,933			6.55	%
Earnings per common share:
Basic		$	2.78			$	2.61			$	0.17			6.51	%
Diluted		$	2.78			$	2.61			$	0.17			6.51	%
Performance and other financial ratios:
ROAA			1.44	%			1.57	%
ROAE			17.85	%			18.80	%
Net interest margin			3.42	%			3.75	%
Cost of funds			2.10	%			0.57	%
Efficiency ratio			40.35	%			36.90	%

Balance Sheet Summary

(in thousands)		December 31, 2023				December 31, 2022				$ Change				% Change
Selected financial condition data:
Total assets		$	3,593,125			$	3,227,159			$	365,966			11.34	%
Cash and cash equivalents			321,576				259,991				61,585			23.69	%
Total loans held for investment			3,081,719				2,791,326				290,393			10.40	%
Total investments			111,160				119,744				(8,584	)		(7.17	)%
Total liabilities			3,307,351				2,974,334				333,017			11.20	%
Total deposits			3,026,896				2,782,004				244,892			8.80	%
Subordinated notes, net			73,749				73,606				143			0.19	%
Total shareholders’ equity			285,774				252,825				32,949			13.03	%

• Insured and collateralized deposits were approximately $2.0 billion, representing approximately 66.79% of total deposits as of December 31, 2023. Net uninsured and uncollateralized deposits were approximately $1.0 billion as of December 31, 2023.
• Commercial and consumer deposit accounts constituted approximately 73% of total deposits. Deposit relationships of at least $5 million represented approximately 62% of total deposits and had an average age of approximately 8.78 years as of December 31, 2023.
• Cash and cash equivalents as of December 31, 2023 were $321.6 million, representing 10.62% of total deposits at December 31, 2023, compared to 9.35% as of December 31, 2022.
• In the first quarter of 2023, the Federal Reserve created the Bank Term Funding Program to provide depository institutions with additional funding, which allows any federally insured deposit institution to pledge its investment portfolio at par as collateral value. As of December 31, 2023, the Bank had neither used nor established borrowing capacity with the Bank Term Funding Program.
• Total liquidity (consisting of cash and cash equivalents and unused and immediately available borrowing capacity as set forth below) was approximately $1.4 billion as of December 31, 2023.
  

			December 31, 2023
	(in thousands)		Line of Credit				Letters of Credit Issued				Borrowings				Available
	Federal Home Loan Bank of San Francisco (“FHLB”) advances		$	996,712			$	681,500			$	170,000			$	145,212
	Federal Reserve Discount Window			770,572				—				—				770,572
	Correspondent bank lines of credit			175,000				—				—				175,000
	Cash and cash equivalents			—				—				—				321,576
	Total		$	1,942,284			$	681,500			$	170,000			$	1,412,360

The increase in total assets from December 31, 2022 to December 31, 2023 was primarily due to a $290.4 million increase in total loans held for investment and a $61.6 million increase in cash and cash equivalents, partially offset by a $8.6 million decrease in investments. The $290.4 million increase in total loans held for investment between December 31, 2022 and December 31, 2023 was the result of $668.2 million in loan originations, partially offset by $377.8 million in loan payoffs and paydowns.

The increase in total liabilities from December 31, 2022 to December 31, 2023 was primarily attributable to an increase in deposits of $244.9 million and an increase in FHLB advances of $70.0 million. The $244.9 million increase in deposits was largely due to increases in money market, time deposits over $250 thousand, and interest-bearing demand deposits of $208.8 million, $146.5 million, and $80.2 million, respectively, partially offset by decreases in non-interest-bearing demand, savings, and other time deposits of $140.1 million, $28.1 million, and $22.5 million, respectively.

The increase in total shareholders’ equity from December 31, 2022 to December 31, 2023 was primarily a result of net income recognized of $47.7 million and an increase of $1.7 million in accumulated other comprehensive income, partially offset by $12.9 million in cash distributions paid during the period and a reduction to retained earnings of $4.5 million, net of tax effect, due to the adoption of Accounting Standards Update 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASC 326”).

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)		December 31, 2023				September 30, 2023				$ Change				% Change
Interest and fee income		$	46,180			$	45,098			$	1,082			2.40	%
Interest expense			19,502				17,622				1,880			10.67	%
Net interest income		$	26,678			$	27,476			$	(798	)		(2.90	)%
Net interest margin			3.19	%			3.31	%
		Three months ended
(in thousands)		December 31, 2023				December 31, 2022				$ Change				% Change
Interest and fee income		$	46,180			$	37,402			$	8,778			23.47	%
Interest expense			19,502				8,267				11,235			135.90	%
Net interest income		$	26,678			$	29,135			$	(2,457	)		(8.43	)%
Net interest margin			3.19	%			3.83	%
		Year ended
(in thousands)		December 31, 2023				December 31, 2022				$ Change				% Change
Interest and fee income		$	174,382			$	117,918			$	56,464			47.88	%
Interest expense			63,502				14,848				48,654			327.68	%
Net interest income		$	110,880			$	103,070			$	7,810			7.58	%
Net interest margin			3.42	%			3.75	%

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

		Three months ended
		December 31, 2023									September 30, 2023									December 31, 2022
(in thousands)		Average Balance			Interest Income/ Expense			Yield/ Rate			Average Balance			Interest Income/ Expense			Yield/ Rate			Average Balance			Interest Income/ Expense			Yield/ Rate
Assets
Interest-earning deposits with banks		$	157,775		$	2,100		5.28	%		$	198,751		$	2,584		5.16	%		$	200,395		$	1,841		3.64	%
Investment securities			106,483			651		2.43	%			112,154			653		2.31	%			117,364			643		2.17	%
Loans held for investment and sale			3,055,042			43,429		5.64	%			2,982,140			41,861		5.57	%			2,703,865			34,918		5.12	%
Total interest-earning assets			3,319,300			46,180		5.52	%			3,293,045			45,098		5.43	%			3,021,624			37,402		4.91	%
Interest receivable and other assets, net			80,360									77,757									73,664
Total assets		$	3,399,660								$	3,370,802								$	3,095,288
Liabilities and shareholders’ equity
Interest-bearing demand		$	291,967		$	1,091		1.48	%		$	296,230		$	972		1.30	%		$	223,473		$	174		0.31	%
Savings			130,915			891		2.70	%			134,920			880		2.59	%			136,753			247		0.72	%
Money market			1,347,111			10,824		3.19	%			1,328,290			9,536		2.85	%			1,060,597			3,652		1.37	%
Time			417,434			5,322		5.06	%			399,514			4,998		4.96	%			299,771			2,467		3.26	%
Subordinated debt and other borrowings			88,401			1,374		6.16	%			79,085			1,236		6.20	%			114,858			1,727		5.96	%
Total interest-bearing liabilities			2,275,828			19,502		3.40	%			2,238,039			17,622		3.12	%			1,835,452			8,267		1.79	%
Demand accounts			821,651									825,254									997,815
Interest payable and other liabilities			24,886									35,123									17,002
Shareholders’ equity			277,295									272,386									245,019
Total liabilities and shareholders’ equity		$	3,399,660								$	3,370,802								$	3,095,288
Net interest spread								2.12	%								2.31	%								3.12	%
Net interest income/margin					$	26,678		3.19	%					$	27,476		3.31	%					$	29,135		3.83	%

Net interest income during the three months ended December 31, 2023 decreased $0.8 million as compared to the three months ended September 30, 2023. In addition, net interest margin decreased 12 basis points compared to the prior quarter. The decrease in net interest income is primarily attributable to an additional $1.7 million in deposit interest expense due to increases in interest rates as compared to the prior quarter. The cost of interest-bearing deposits increased 28 basis points as compared to the prior quarter, while average balances increased 1.32%. In addition, the average balance of non-interest-bearing deposits decreased by $3.6 million quarter-over-quarter. The increase to interest expense was partially offset by an increase in total interest income of $1.1 million. Average loan yields increased 7 basis points as compared to the prior quarter, while average balances increased 2.44%.

As compared to the three months ended December 31, 2022, net interest income decreased $2.5 million and net interest margin decreased 64 basis points. The decrease in net interest income is primarily attributable to an additional $11.6 million in deposit interest expense due to increases in interest rates and average balances as compared to the same quarter of the prior year. The cost of interest-bearing deposits increased 178 basis points as compared to the same quarter of the prior year, while average balances increased 27.13%. In addition, the average balance of non-interest-bearing deposits decreased by $176.2 million as compared to the same quarter of the prior year. The increase in interest expense was partially offset by an increase in total interest income of $8.8 million, as compared to the same quarter of the prior year. Average loan yields increased 52 basis points as compared to the same quarter of the prior year, while average balances increased 12.99%.

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

		Year ended
		December 31, 2023									December 31, 2022
(in thousands)		Average Balance			Interest Income/ Expense			Yield/ Rate			Average Balance			Interest Income/ Expense			Yield/ Rate
Assets
Interest-earning deposits with banks		$	184,103		$	9,069		4.93	%		$	260,679		$	3,696		1.42	%
Investment securities			113,515			2,600		2.29	%			131,353			2,427		1.85	%
Loans held for investment and sale			2,947,603			162,713		5.52	%			2,353,148			111,795		4.75	%
Total interest-earning assets			3,245,221			174,382		5.37	%			2,745,180			117,918		4.30	%
Interest receivable and other assets, net			75,741									99,946
Total assets		$	3,320,962								$	2,845,126
Liabilities and shareholders’ equity
Interest-bearing demand		$	312,944		$	3,321		1.06	%		$	242,221		$	425		0.18	%
Savings			140,060			3,073		2.19	%			107,010			376		0.35	%
Money market			1,263,539			33,932		2.69	%			995,048			6,476		0.65	%
Time			372,557			17,535		4.71	%			203,392			3,646		1.79	%
Subordinated debt and other borrowings			93,279			5,641		6.05	%			61,533			3,925		6.38	%
Total interest-bearing liabilities			2,182,379			63,502		2.91	%			1,609,204			14,848		0.92	%
Demand accounts			844,057									982,915
Interest payable and other liabilities			27,127									14,709
Shareholders’ equity			267,399									238,298
Total liabilities and shareholders’ equity		$	3,320,962								$	2,845,126
Net interest spread								2.46	%								3.38	%
Net interest income/margin					$	110,880		3.42	%					$	103,070		3.75	%

Net interest income during the year ended December 31, 2023 increased $7.8 million as compared to the year ended December 31, 2022. Net interest margin decreased 33 basis points compared to the prior year. The increase in net interest income is primarily attributable to an additional $50.9 million in interest income on loans due to increases in interest rates and average balances as compared to the prior year. The average yield on loans increased 77 basis points as compared to the prior year, while average balances increased 25.26%. The increase to interest income was partially offset by an increase in total interest expense of $48.7 million. The increase in total interest expense is primarily attributable to an additional $46.9 million in deposit interest expense due to increases in interest rates and average balances as compared to the prior year. The cost of interest-bearing deposits increased 206 basis points as compared to the prior year, while average balances increased 34.98%. In addition, the average balance of non-interest-bearing deposits decreased by $138.9 million year-over-year.

Loans by Type

The following table provides loan balances, excluding deferred loan fees, by type as of December 31, 2023:

(in thousands)
Commercial Term Real Estate Non-Owner Occupied		$	1,161,502
Commercial Term Multifamily			1,018,372
Commercial Term Real Estate Owner Occupied			495,480
Commercial Secured			87,549
Commercial Construction Real Estate			62,863
Commercial Term Agricultural Real Estate			51,669
SBA 7A Secured			48,289
Others			158,252
Total loans, excluding deferred loan fees		$	3,083,976

Interest-bearing Deposits

The following table provides interest-bearing deposit balances by type as of December 31, 2023:

(in thousands)
Interest-bearing demand accounts		$	320,356
Money market accounts			1,282,369
Savings accounts			126,498
Time accounts			466,572
Total interest-bearing deposits		$	2,195,795

Asset Quality

Allowance for Credit Losses - Loans

Beginning January 1, 2023, the Company adopted ASC 326, which replaced the former “incurred loss” model for recognizing credit losses with an “expected loss” model referred to as the Current Expected Credit Loss (“CECL”) model. Utilizing CECL may have an impact on our allowance for credit losses going forward and result in a lack of comparability between 2022 and 2023 quarterly and annual periods. Refer to information below on the provision for credit losses recorded during the year ended December 31, 2023.

At December 31, 2023, the Company’s allowance for credit losses was $34.4 million, as compared to $28.4 million at December 31, 2022. The $6.0 million increase in the allowance is due to a $5.3 million adjustment recorded in connection with the adoption of CECL and a $4.0 million provision for credit losses recorded during the twelve months ended December 31, 2023, partially offset by net charge-offs of $3.3 million, mainly attributable to commercial and industrial loans, during the same period.

The Company’s ratio of nonperforming loans to loans held for investment increased from 0.01% at December 31, 2022 to 0.06% at December 31, 2023. The provision for credit losses recorded during the year ended December 31, 2023 was primarily related to loan growth, loan type mix, and changes in the macroeconomic environment. Loans designated as substandard increased from $0.4 million to $2.0 million between December 31, 2022 and December 31, 2023. There were no loans with doubtful risk grades at December 31, 2023 or December 31, 2022.

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

		December 31, 2023							December 31, 2022
(in thousands)		Amount				% of Total			Amount				% of Total
Real estate:
Commercial		$	29,015			84.27	%		$	19,216			67.69	%
Commercial land and development			178			0.52	%			54			0.19	%
Commercial construction			718			2.08	%			645			2.27	%
Residential construction			89			0.26	%			49			0.17	%
Residential			151			0.44	%			175			0.62	%
Farmland			399			1.16	%			644			2.27	%
			30,550			88.73	%			20,783			73.21	%
Commercial:
Secured			3,314			9.62	%			7,098			25.00	%
Unsecured			189			0.55	%			116			0.41	%
			3,503			10.17	%			7,214			25.41	%
Consumer and other			378			1.10	%			347			1.22	%
Unallocated			—			—	%			45			0.16	%
Total allowance for credit losses		$	34,431			100.00	%		$	28,389			100.00	%

The ratio of allowance for credit losses to loans held for investment was 1.12% at December 31, 2023, as compared to 1.02% at December 31, 2022.

Non-interest Income

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

		Three months ended
(in thousands)		December 31, 2023				September 30, 2023				$ Change				% Change
Service charges on deposit accounts		$	165			$	158			$	7			4.43	%
Net gain (loss) on sale of securities			(167	)			—				(167	)		—	%
Gain on sale of loans			317				396				(79	)		(19.95	)%
Loan-related fees			667				355				312			87.89	%
FHLB stock dividends			314				274				40			14.60	%
Earnings on bank-owned life insurance			155				127				28			22.05	%
Other income			485				74				411			555.41	%
Total non-interest income		$	1,936			$	1,384			$	552			39.88	%

Net gain (loss) on sale of securities. The increase in the net loss on sale of securities related to the sale of two municipal securities with a par value of approximately $0.8 million for a loss of approximately $0.2 million during the three months ended December 31, 2023, with no sales occurring during the three months ended September 30, 2023.

Gain on sale of loans. The decrease related primarily to an overall decline in the volume of loans sold during the three months ended December 31, 2023 compared to the three months ended September 30, 2023. During the three months ended December 31, 2023, approximately $5.9 million of loans were sold with an effective yield of 5.41%, 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.

Loan-related fees. The increase resulted primarily in the recognition of $0.1 million of swap referral fees and $0.2 million of rate lock fees during the three months ended December 31, 2023, which did not occur during the three months ended September 30, 2023.

Other income. The increase resulted primarily from a $0.4 million gain recorded on distributions received on investments in venture-backed funds during the three months ended December 31, 2023, which did not occur during the three months ended September 30, 2023.

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

		Three months ended
(in thousands)		December 31, 2023				December 31, 2022				$ Change				% Change
Service charges on deposit accounts		$	165			$	97			$	68			70.10	%
Net gain (loss) on sale of securities			(167	)			—				(167	)		—	%
Gain on sale of loans			317				637				(320	)		(50.24	)%
Loan-related fees			667				407				260			63.88	%
FHLB stock dividends			314				193				121			62.69	%
Earnings on bank-owned life insurance			155				119				36			30.25	%
Other income			485				148				337			227.70	%
Total non-interest income		$	1,936			$	1,601			$	335			20.92	%

Net gain (loss) on sale of securities. The increase in the net loss on sale of securities related to the sale of two municipal securities with a par value of approximately $0.8 million for a loss of approximately $0.2 million during the three months ended December 31, 2023, with no sales occurring during the three months ended December 31, 2022.

Gain on sale of loans. The decrease resulted from an overall decline in the volume of loans sold during the three months ended December 31, 2023 as compared to the three months ended December 31, 2022. During the three months ended December 31, 2023, approximately $5.9 million of loans were sold with an effective yield of 5.41%, as compared to approximately $14.5 million of loans sold with an effective yield of 4.40% during the three months ended December 31, 2022.

Loan-related fees. The increase resulted from the recognition of $0.1 million of swap referral fees and $0.2 million of rate lock fees during the three months ended December 31, 2023, which did not occur during the three months ended December 31, 2022.

FHLB stock dividends. The increase was primarily due to an increase in yield from dividends received from 7.00% to 8.25% for the three months ended December 31, 2022 and December 31, 2023, respectively, combined with an increase in the average number of shares outstanding of approximately 41,000 when comparing the the three months ended December 31, 2023 to the three months ended December 31, 2022 due to FHLB stock purchases completed in 2023.

Other income. The increase resulted primarily from a $0.4 million gain recorded on distributions received on investments in venture-backed funds during the three months ended December 31, 2023, compared to a $0.1 million gain recorded during the three months ended December 31, 2022.

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

		Year ended
(in thousands)		December 31, 2023				December 31, 2022				$ Change				% Change
Service charges on deposit accounts		$	575			$	467			$	108			23.13	%
Net gain (loss) on sale of securities			(167	)			5				(172	)		(3,440.00	)%
Gain on sale of loans			1,952				2,934				(982	)		(33.47	)%
Loan-related fees			1,719				2,207				(488	)		(22.11	)%
FHLB stock dividends			970				546				424			77.66	%
Earnings on bank-owned life insurance			510				412				98			23.79	%
Other income			1,952				586				1,366			233.11	%
Total non-interest income		$	7,511			$	7,157			$	354			4.95	%

Service charges on deposit accounts. The increase related to individually immaterial increases in fees earned for services and products to support deposit accounts including, but not limited to, service charges, wire transfer fees, check order fees, and debit card income.

Net gain (loss) on sale of securities. The increase in the net loss on sale of securities resulted from the sale of two municipal securities with a par value of approximately $0.8 million for a loss of approximately $0.2 million during the year ended December 31, 2023 compared to the sale of approximately $1.6 million of municipal securities, resulting in a gain of $5.0 thousand during the year ended December 31, 2022.

Gain on sale of loans. The decrease related primarily to an overall decline in the volume of loans sold during the year ended December 31, 2023 compared to the year ended December 31, 2022. During the year ended December 31, 2023, approximately $36.5 million of loans were sold with an effective yield of 5.35%, as compared to approximately $50.8 million of loans sold with an effective yield of 5.78% during the year ended December 31, 2022.

Loan-related fees. The decrease was primarily a result of: (i) a decrease of $0.6 million in swap referral fees and (ii) a decrease of $0.2 million in loan fee income earned on various loan types and services. These decreases were partially offset by: (i) a $0.2 million increase in rate lock fees earned and (ii) a $0.1 million increase in income earned from the credit card program recognized during the year ended December 31, 2023 compared to the year ended December 31, 2022.

FHLB stock dividends. The increase primarily relates to an increase in the number of FHLB Class B shares held for the year ended December 31, 2023 compared to the year ended December 31, 2022 combined with an overall increase in the annualized dividend rates earned year-over-year.

Other income. The increase resulted primarily from a $1.7 million gain recorded on distributions received on investments in venture-backed funds during the year ended December 31, 2023, as compared to a $0.4 million gain recognized during the year ended December 31, 2022.

Non-interest Expense

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

		Three months ended
(in thousands)		December 31, 2023				September 30, 2023				$ Change				% Change
Salaries and employee benefits		$	7,182			$	6,876			$	306			4.45	%
Occupancy and equipment			583				561				22			3.92	%
Data processing and software			1,110				1,020				90			8.82	%
Federal Deposit Insurance Corporation (“FDIC”) insurance			370				375				(5	)		(1.33	)%
Professional services			658				700				(42	)		(6.00	)%
Advertising and promotional			717				535				182			34.02	%
Loan-related expenses			268				345				(77	)		(22.32	)%
Other operating expenses			1,775				1,603				172			10.73	%
Total non-interest expense		$	12,663			$	12,015			$	648			5.39	%

Salaries and employee benefits. The increase was primarily a result of: (i) a $0.3 million increase in salaries, insurance, and benefits, which primarily related to four new employees hired in September 2023 and one new employee hired in December 2023 to support expansion into the San Francisco Bay Area and (ii) a $0.2 million decline in loan origination costs related to lower production. These increases were partially offset by a $0.2 million reduction in the 2023 bonus accrual related to 2023 financial performance which was trued-up during the three months ended December 31, 2023, as compared to the three months ended September 30, 2023.

Advertising and promotional. The increase was primarily due to the timing of events sponsored and attended during the three months ended December 31, 2023 compared to the three months ended September 30, 2023.

Other operating expenses. The increase was primarily due to increased expenses incurred for travel and fees paid for attendance of professional events, conferences, and other business-related events during the three months ended December 31, 2023, as compared to the three months ended September 30, 2023.

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

		Three months ended
(in thousands)		December 31, 2023				December 31, 2022				$ Change				% Change
Salaries and employee benefits		$	7,182			$	5,698			$	1,484			26.04	%
Occupancy and equipment			583				511				72			14.09	%
Data processing and software			1,110				839				271			32.30	%
FDIC insurance			370				245				125			51.02	%
Professional services			658				553				105			18.99	%
Advertising and promotional			717				568				149			26.23	%
Loan-related expenses			268				358				(90	)		(25.14	)%
Other operating expenses			1,775				1,945				(170	)		(8.74	)%
Total non-interest expense		$	12,663			$	10,717			$	1,946			18.16	%

Salaries and employee benefits. The increase was primarily a result of: (i) a $1.1 million increase in salaries, insurance, and benefits, of which approximately $0.7 million related to 10 new employees hired to support expansion into the San Francisco Bay Area, and (ii) a $0.8 million decrease in the allocation of loan origination costs resulting from lower loan production. These increases were partially offset by a $0.4 million decline in commissions expense due to lower production during the three months ended December 31, 2023 compared to the three months ended December 31, 2022.

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.

FDIC insurance. The increase related primarily to a final rule adopted by the FDIC to increase initial base deposit insurance assessment rates for insured depository institutions by two basis points, beginning with the first quarterly assessment period of 2023. FDIC insurance also increased for the three months ended December 31, 2023 compared to the three months ended December 31, 2022 due to a $266.4 million increase in the assessment base period-over-period.

Professional services. The increase was primarily due to increased audit, IT support, and other consulting fees for services provided for the three months ended December 31, 2023 compared to the three months ended December 31, 2022.

Advertising and promotional. The increase was primarily due to increases in business development, marketing, and sponsorship expenses incurred during the three months ended December 31, 2023 compared to the three months ended December 31, 2022 related to an increase in the number of Business Development Officers from December 31, 2022 to December 31, 2023.

Other operating expenses. The decrease was primarily due to $0.3 million of subordinated debt issuance costs recognized as an other expense upon redemption of the subordinated notes in December 2022, which did not reoccur during the three months ended December 31, 2023. This was partially offset by an increase of $0.1 million for IntraFi Network fees resulting from an overall increase in balances carried in the network.

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

		Year ended
(in thousands)		December 31, 2023				December 31, 2022				$ Change				% Change
Salaries and employee benefits		$	27,097			$	22,571			$	4,526			20.05	%
Occupancy and equipment			2,218				2,059				159			7.72	%
Data processing and software			4,015				3,091				924			29.89	%
FDIC insurance			1,557				850				707			83.18	%
Professional services			2,575				2,467				108			4.38	%
Advertising and promotional			2,403				1,908				495			25.94	%
Loan-related expenses			1,192				1,287				(95	)		(7.38	)%
Other operating expenses			6,718				6,436				282			4.38	%
Total non-interest expense		$	47,775			$	40,669			$	7,106			17.47	%

Salaries and employee benefits. The increase was the result of: (i) a $3.2 million increase in salaries, insurance, and benefits, of which approximately $1.2 million related to 10 new employees hired to support expansion into the San Francisco Bay Area and the remainder of the increase related to increased pay rates and promotions for existing employees; (ii) a $2.7 million decrease in loan origination costs due to lower production; and (iii) a $0.3 million increase in bonus expense due to an increase in the base salaries and number of employees eligible for bonuses in 2023. The increase was partially offset by a $1.8 million decline in commissions expense due to lower production during the year ended December 31, 2023, as compared to the year ended December 31, 2022.

Occupancy and equipment. The increase was the result of a $0.1 million increase in rent expense related to temporary office space to support the San Francisco Bay Area during the second half of 2023 and a new office lease to support back office staff beginning during the fourth quarter of 2023.

Data processing and software. The increase related 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.

FDIC insurance. The increase related primarily to a final rule adopted by the FDIC to increase initial base deposit insurance assessment rates for insured depository institutions by two basis points, beginning with the first quarterly assessment period of 2023. FDIC insurance also increased for the year ended December 31, 2023 compared to the year ended December 31, 2022 due to a $266.4 million increase in the assessment base period-over-period.

Professional services. The increase was due to a $0.5 million increase in audit, IT support, and other consulting fees for services provided for the year ended December 31, 2023 compared to the year ended December 31, 2022. This was partially offset by a decline of $0.3 million relating to: (i) $0.2 million of lower legal fees incurred relating to the subordinated debt offering and redemption completed in 2022, which did not reoccur in 2023 and (ii) $0.1 million of lower recruiting fees incurred for the year ended December 31, 2023 compared to the year ended December 31, 2022.

Advertising and promotional. The increase was primarily due to an increased customer base and an increase in the number of Business Development Officers as of December 31, 2023 compared to December 31, 2022.

Other operating expenses. The increase is primarily related to: (i) a $0.3 million increase in IntraFi Network fees resulting from an overall increase in balances carried in the network; (ii) a $0.1 million increase in bank charges due to increased activity; (iii) a $0.1 million increase in insurance expenses; and (iv) a $0.1 million net increase in travel, conferences, memberships, and subscription expenses incurred. These increases were partially offset by $0.3 million of subordinated debt issuance costs recognized as an other expense upon redemption of the subordinated notes in December 2022, which did not reoccur during the year ended December 31, 2023.

Provision for Income Taxes

Three months ended December 31, 2023, as compared to the three months ended September 30, 2023

Provision for income taxes for the quarter ended December 31, 2023 decreased by $0.4 million, or 8.38%, to $4.4 million, as compared to $4.8 million for the quarter ended September 30, 2023, which was primarily due to: (i) the decrease in taxable income recognized during the three months ended December 31, 2023 and (ii) a $0.2 million adjustment to the provision recorded during the three months ended September 30, 2023 to true-up the year-to-date effective tax rate, which did not reoccur during the three months ended December 31, 2023. The effective tax rate was 28.72% and 30.07% for the three months ended December 31, 2023 and September 30, 2023, respectively.

Three months ended December 31, 2023, as compared to the three months ended December 31, 2022

Provision for income taxes decreased by $1.1 million, or 20.69%, to $4.4 million for the three months ended December 31, 2023, as compared to $5.5 million for the three months ended December 31, 2022. This decrease is due to the decrease in taxable income for the three months ended December 31, 2023 compared to the three months ended December 31, 2022. The effective tax rate was 28.72% and 29.23% for the three months ended December 31, 2023 and December 31, 2022, respectively. The lower effective tax rate period-over-period related to multi-state tax return filings for the Company since its inception as a C Corporation. The returns were filed during the second quarter of 2023 and reduced the Company’s blended state tax rate.

Year ended December 31, 2023, as compared to the year ended December 31, 2022

Provision for income taxes increased by $0.8 million, or 4.57%, to $18.9 million for the year ended December 31, 2023, as compared to $18.1 million for the year ended December 31, 2022. This increase is due to an increase in taxable income, partially offset by a decline in the effective tax rate for each period, from 28.73% to 28.34% for the years ended December 31, 2022 and December 31, 2023, respectively. The lower effective tax rate period-over-period related to multi-state tax return filings for the Company since its inception as a C Corporation. The returns were filed during the second quarter of 2023 and reduced the Company’s blended state tax rate.

Webcast Details

Five Star Bancorp will host a live webcast for analysts and investors on Tuesday, January 30, 2024, at 1:00 p.m. ET (10:00 a.m. PT), to discuss its fourth quarter and annual 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 seven 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, 2022 and Quarterly Report on Form 10-Q for the quarter ended September 30, 2023, 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)		December 31, 2023				September 30, 2023				December 31, 2022
Revenue and Expense Data
Interest and fee income		$	46,180			$	45,098			$	37,402
Interest expense			19,502				17,622				8,267
Net interest income			26,678				27,476				29,135
Provision for credit losses			800				1,050				1,250
Net interest income after provision			25,878				26,426				27,885
Non-interest income:
Service charges on deposit accounts			165				158				97
Net gain (loss) on sale of securities			(167	)			—				—
Gain on sale of loans			317				396				637
Loan-related fees			667				355				407
FHLB stock dividends			314				274				193
Earnings on bank-owned life insurance			155				127				119
Other income			485				74				148
Total non-interest income			1,936				1,384				1,601
Non-interest expense:
Salaries and employee benefits			7,182				6,876				5,698
Occupancy and equipment			583				561				511
Data processing and software			1,110				1,020				839
FDIC insurance			370				375				245
Professional services			658				700				553
Advertising and promotional			717				535				568
Loan-related expenses			268				345				358
Other operating expenses			1,775				1,603				1,945
Total non-interest expense			12,663				12,015				10,717
Income before provision for income taxes			15,151				15,795				18,769
Provision for income taxes			4,352				4,750				5,487
Net income		$	10,799			$	11,045			$	13,282
Comprehensive Income
Net income		$	10,799			$	11,045			$	13,282
Net unrealized holding gain (loss) on securities available-for-sale during the period			5,744				(4,195	)			3,714
Reclassification for net (gain) loss on sale of securities included in net income			167				—				—
Less: Income tax expense (benefit) related to other comprehensive income (loss)			1,747				(1,240	)			1,098
Other comprehensive income (loss)			4,164				(2,955	)			2,616
Total comprehensive income		$	14,963			$	8,090			$	15,898
Share and Per Share Data
Earnings per common share:
Basic		$	0.63			$	0.64			$	0.77
Diluted		$	0.63			$	0.64			$	0.77
Book value per share		$	16.56			$	15.88			$	14.66
Tangible book value per share(1)		$	16.56			$	15.88			$	14.66
Weighted average basic common shares outstanding			17,175,445				17,175,034				17,143,920
Weighted average diluted common shares outstanding			17,193,114				17,194,825				17,179,863
Shares outstanding at end of period			17,256,989				17,257,357				17,241,926
Credit Quality
Allowance for credit losses to period end nonperforming loans			1,752.70	%			1,699.35	%			7,026.98	%
Nonperforming loans to loans held for investment			0.06	%			0.07	%			0.01	%
Nonperforming assets to total assets			0.05	%			0.06	%			0.01	%
Nonperforming loans plus performing loan modifications to loans held for investment			0.06	%			0.07	%			0.01	%
Selected Financial Ratios
ROAA			1.26	%			1.30	%			1.70	%
ROAE			15.45	%			16.09	%			21.50	%
Net interest margin			3.19	%			3.31	%			3.83	%
Loan to deposit			102.19	%			99.57	%			100.67	%

_{⁽¹⁾ See the section entitled “Non-GAAP Reconciliation (Unaudited)” for a reconciliation of this non-GAAP financial measure.}

		Year ended
(in thousands, except per share and share data)		December 31, 2023				December 31, 2022
Revenue and Expense Data
Interest and fee income		$	174,382			$	117,918
Interest expense			63,502				14,848
Net interest income			110,880				103,070
Provision for credit losses			4,000				6,700
Net interest income after provision			106,880				96,370
Non-interest income:
Service charges on deposit accounts			575				467
Net gain (loss) on sale of securities			(167	)			5
Gain on sale of loans			1,952				2,934
Loan-related fees			1,719				2,207
FHLB stock dividends			970				546
Earnings on bank-owned life insurance			510				412
Other income			1,952				586
Total non-interest income			7,511				7,157
Non-interest expense:
Salaries and employee benefits			27,097				22,571
Occupancy and equipment			2,218				2,059
Data processing and software			4,015				3,091
FDIC insurance			1,557				850
Professional services			2,575				2,467
Advertising and promotional			2,403				1,908
Loan-related expenses			1,192				1,287
Other operating expenses			6,718				6,436
Total non-interest expense			47,775				40,669
Income before provision for income taxes			66,616				62,858
Provision for income taxes			18,882				18,057
Net income		$	47,734			$	44,801
Comprehensive Income
Net income		$	47,734			$	44,801
Net unrealized holding gain (loss) on securities available-for-sale during the period			2,228				(18,291	)
Reclassification for net (gain) loss on sale of securities included in net income			167				(5	)
Less: Income tax expense (benefit) related to other comprehensive income (loss)			708				(5,408	)
Other comprehensive income (loss)			1,687				(12,888	)
Total comprehensive income		$	49,421			$	31,913
Share and Per Share Data
Earnings per common share:
Basic		$	2.78			$	2.61
Diluted		$	2.78			$	2.61
Book value per share		$	16.56			$	14.66
Tangible book value per share(1)		$	16.56			$	14.66
Weighted average basic common shares outstanding			17,166,592				17,128,282
Weighted average diluted common shares outstanding			17,187,969				17,165,610
Shares outstanding at end of period			17,256,989				17,241,926
Credit Quality
Allowance for credit losses to period end nonperforming loans			1,752.70	%			7,026.98	%
Nonperforming loans to loans held for investment			0.06	%			0.01	%
Nonperforming assets to total assets			0.05	%			0.01	%
Nonperforming loans plus performing loan modifications to loans held for investment			0.06	%			0.01	%
Selected Financial Ratios
ROAA			1.44	%			1.57	%
ROAE			17.85	%			18.80	%
Net interest margin			3.42	%			3.75	%
Loan to deposit			102.19	%			100.67	%

_{⁽¹⁾ See the section entitled “Non-GAAP Reconciliation (Unaudited)” for a reconciliation of this non-GAAP financial measure.}

(in thousands)		December 31, 2023				September 30, 2023				December 31, 2022
Balance Sheet Data
Cash and due from financial institutions		$	26,986			$	26,744			$	32,561
Interest-bearing deposits in banks			294,590				296,804				227,430
Time deposits in banks			5,858				6,971				9,849
Securities - available-for-sale, at fair value			108,083				104,086				115,988
Securities - held-to-maturity, at amortized cost			3,077				3,104				3,756
Loans held for sale			11,464				9,326				9,416
Loans held for investment			3,081,719				3,009,930				2,791,326
Allowance for credit losses - loans			(34,431	)			(34,028	)			(28,389	)
Loans held for investment, net of allowance for credit losses			3,047,288				2,975,902				2,762,937
FHLB stock			15,000				15,000				10,890
Operating leases, right-of-use asset			5,284				4,799				3,981
Premises and equipment, net			1,623				1,564				1,605
Bank-owned life insurance			17,180				17,023				14,669
Interest receivable and other assets			56,692				43,717				34,077
Total assets		$	3,593,125			$	3,505,040			$	3,227,159
Non-interest-bearing deposits		$	831,101			$	833,434			$	971,246
Interest-bearing deposits			2,195,795				2,198,776				1,810,758
Total deposits			3,026,896				3,032,210				2,782,004
Subordinated notes, net			73,749				73,713				73,606
FHLB advances			170,000				90,000				100,000
Operating lease liability			5,603				5,043				4,243
Interest payable and other liabilities			31,103				30,050				14,481
Total liabilities			3,307,351				3,231,016				2,974,334
Common stock			220,505				220,266				219,543
Retained earnings			77,036				69,689				46,736
Accumulated other comprehensive loss, net			(11,767	)			(15,931	)			(13,454	)
Total shareholders’ equity			285,774				274,024				252,825
Total liabilities and shareholders’ equity		$	3,593,125			$	3,505,040			$	3,227,159
Quarterly Average Balance Data
Average loans held for investment and sale		$	3,055,042			$	2,982,140			$	2,703,865
Average interest-earning assets			3,319,300				3,293,045				3,021,624
Average total assets			3,399,660				3,370,802				3,095,288
Average deposits			3,009,078				2,984,208				2,718,409
Average total equity			277,295				272,386				245,019
Capital Ratios
Total shareholders’ equity to total assets			7.95	%			7.82	%			7.83	%
Tangible shareholders’ equity to tangible assets(1)			7.95	%			7.82	%			7.83	%
Total capital (to risk-weighted assets)			12.30	%			12.37	%			12.46	%
Tier 1 capital (to risk-weighted assets)			9.07	%			9.07	%			8.99	%
Common equity Tier 1 capital (to risk-weighted assets)			9.07	%			9.07	%			8.99	%
Tier 1 leverage ratio			8.73	%			8.58	%			8.60	%

_{⁽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 tables provide a more detailed analysis of this non-GAAP financial measure:

		Three months ended
(in thousands)		December 31, 2023				September 30, 2023				December 31, 2022
Pre-tax, pre-provision income
Pre-tax income		$	15,151			$	15,795			$	18,769
Add: provision for credit losses			800				1,050				1,250
Pre-tax, pre-provision income		$	15,951			$	16,845			$	20,019

		Year ended
(in thousands)		December 31, 2023				December 31, 2022
Pre-tax, pre-provision income
Pre-tax income		$	66,616			$	62,858
Add: provision for credit losses			4,000				6,700
Pre-tax, pre-provision income		$	70,616			$	69,558

Media Contact:
Heather C. Luck, Chief Financial Officer
Five Star Bancorp
[phone]
[e-mail]

Shelley R. Wetton, Chief Marketing Officer
Five Star Bancorp
[phone]
[e-mail]