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fsbc-20221024
0001275168FALSE00012751682022-10-242022-10-24

  
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549 
 
FORM 8-K
 
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of report (Date of earliest event reported): October 24, 2022
 
FIVE STAR BANCORP
(Exact Name of Registrant as Specified in Charter) 
 
  
    
California 001-40379 75-3100966
(State or Other Jurisdiction
of Incorporation)
 
(Commission
File Number)
 
(I.R.S. Employer
Identification No.)
  

3100 Zinfandel Drive, Suite 100, Rancho Cordova, California, 95670
(Address of Principal Executive Offices, and Zip Code)

(916) 626-5000
Registrant’s Telephone Number, Including Area Code

Not Applicable
(Former Name or Former Address, if Changed Since Last Report) 
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
 
 ☐Written communication pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
 ☐Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
 ☐Pre-commencement communication pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
 ☐Pre-commencement communication pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, no par value per shareFSBCThe Nasdaq Stock Market LLC






Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2). Emerging growth company ☑
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐


Item 2.02    Results of Operations and Financial Condition

On October 24, 2022, Five Star Bancorp (the “Company”) issued a press release announcing its results of operations and financial condition for the quarter ended September 30, 2022. A copy of the press release is attached to this Current Report on Form 8-K as Exhibit 99.1 and is incorporated herein by reference.

This information (including Exhibit 99.1) is being furnished under Item 2.02 hereof and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, and such information shall not be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended (the “Securities Act”), or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

Item 7.01    Regulation FD Disclosure

The Company is conducting an earnings call on October 25, 2022 at 10:00am PT/1:00pm ET to discuss its second quarter financial results. A copy of the investor presentation to be used during the earnings call is attached to this Current Report on Form 8-K as Exhibit 99.2 and is incorporated herein by reference.

This information (including Exhibit 99.2) is being furnished under Item 7.01 hereof and shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities of that section, and such information shall not be deemed incorporated by reference into any filing under the Securities Act, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

Item 9.01    Financial Statements and Exhibits
(d) Exhibits

Number
Description
99.1

99.2
104Cover Page Interactive Data File (embedded within the Inline XBRL)




SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 FIVE STAR BANCORP
  
 By:/s/ Heather Luck
  Name: Heather Luck
  Title: Senior Vice President and Chief Financial Officer
  
 Date: October 25, 2022
Document

https://cdn.kscope.io/7873b05fc69ae707b54d5460373b3eae-fivestarbancorplogoa.jpg
 
PRESS RELEASEFOR IMMEDIATE RELEASE
 
Five Star Bancorp Announces Quarterly Results
RANCHO CORDOVA, Calif. October 24, 2022 (GLOBE NEWSWIRE) – Five Star Bancorp (Nasdaq: FSBC) (the “Company” or “Five Star”), the holding company for Five Star Bank, today reported net income of $11.7 million for the three months ended September 30, 2022, as compared to $10.0 million for the three months ended June 30, 2022 and $11.0 million for the three months ended September 30, 2021.
Financial Highlights
Performance highlights and other developments for the Company for the periods noted below included the following:
•Pre-tax net income, pre-tax, pre-provision net income, net income, and earnings per share were as follows for the periods indicated:
 Three months ended
(dollars in thousands, except share and per share data)
September 30,
2022		 June 30,
2022		 September 30,
2021
Pre-tax net income$16,534 $14,033 $13,296 
Pre-tax, pre-provision net income(1)
$18,784 $16,283 $13,296 
Net income$11,704 $9,953 $11,026 
Basic earnings per common share$0.68 $0.58 $0.64 
Diluted earnings per common share$0.68 $0.58 $0.64 
Weighted average basic common shares outstanding17,140,435 17,125,715 17,095,957 
Weighted average diluted common shares outstanding17,168,447 17,149,449 17,123,182 
Shares outstanding at end of period17,245,983 17,245,983 17,223,808 
(1) See the section entitled “Non-GAAP Reconciliation (Unaudited)” for a reconciliation of this non-GAAP financial measure.

1

•Loan and deposit growth was as follows at the dates indicated:

(dollars in thousands)
September 30,
2022		 June 30,
2022		 $ Change % Change
Loans held for investment
$2,582,978  $2,380,511  $202,467  8.51 %
Non-interest-bearing deposits
1,020,625  1,006,066  14,559  1.45 %
Interest-bearing deposits
1,593,707  1,495,245  98,462  6.59 %
 
       
(dollars in thousands)September 30,
2022		 September 30,
2021		 $ Change % Change
Loans held for investment$2,582,978 $1,704,716  $878,262 51.52 %
Loans held for investment, excluding Paycheck Protection Program ("PPP") loans(1)
2,582,978 1,643,217  939,761 57.19 %
PPP loans— 61,499  (61,499)(100.00)%
Non-interest-bearing deposits1,020,625 899,252  121,373 13.50 %
Interest-bearing deposits1,593,707 1,269,142  324,565 25.57 %
(1) Loans held for investment, excluding PPP loans is a non-GAAP measure. For reconciliation to the closest GAAP measure, loans held for investment, see table above.

•At September 30, 2022, the Company reported total loans held for investment, total assets, and total deposits of $2.6 billion, $3.1 billion, and $2.6 billion, respectively, as compared to $1.9 billion, $2.6 billion, and $2.3 billion, respectively, at December 31, 2021.

•The ratio of nonperforming loans to loans held for investment, or total loans at period end, decreased from 0.03% at December 31, 2021 to 0.02% at September 30, 2022.

•On August 17, 2022, the Company completed a private placement of $75.0 million in aggregate principal amount of fixed-to-floating rate subordinated notes due September 1, 2032. The subordinated notes bear interest at a fixed annual rate of 6.00% for the first five years and will reset quarterly thereafter to the then-current three-month Secured Overnight Financing Rate plus 329.0 basis points.
•The Company’s Board of Directors declared, and the Company subsequently paid, a cash dividend of $0.15 per share during the three months ended September 30, 2022.

“Five Star Bank’s relationship-based and purpose-driven approach to banking continues to earn the trust and respect of those we serve,” said President and Chief Executive Officer, James Beckwith. “In the third quarter, we onboarded new customers as a result of our consistency in service and reputation which resulted in exceptional earnings strength and loan growth. We believe this success serves as the strongest testimony to our people, technology, operating efficiencies, conservative underwriting practices, exceptional credit quality and prudent approach to portfolio management. This quarter, we declared another dividend to shareholders which exemplifies our commitment to shareholder value. As we lean-in to 2023, we will remain focused on an organic growth strategy guided by disciplined business practices which we believe will continue to benefit our customers, employees, community and shareholders."
2


Summary Results

Three months ended September 30, 2022, as compared to three months ended June 30, 2022

The increase in the Company's net income from the three months ended June 30, 2022 to the three months ended September 30, 2022 was primarily due to an increase in net interest income of $2.9 million driven by loan growth, partially offset by a $0.5 million decline in other income due to declines in gain on sale of loans and loan-related fees. The increase in average assets was largely the result of an increase in average loans held for investment and sale funded by increases in average interest-bearing liabilities, demand accounts, and subordinated debt and other borrowings, combined with an increase in average equity related to earnings during the period.

Three months ended September 30, 2022, as compared to three months ended September 30, 2021

The increase in the Company's net income from the three months ended September 30, 2021 to the three months ended September 30, 2022 was primarily due to an increase in net interest income of $7.5 million, driven by loan growth. This increase was partially offset by an increase in the provision for loan losses of $2.3 million as a result of loan growth and an increase in the provision for income taxes of $2.6 million related to the tax rate used during each quarter as a result of the Company’s conversion to a C Corporation during the second quarter of 2021. The increase in average assets was largely the result of an increase in average loans held for investment and sale funded by an increase in average interest-bearing liabilities, demand accounts, and subordinated debt and other borrowings. The increase in average equity was primarily due to earnings growth, partially offset by an increase in accumulated other comprehensive loss period over period.
3

The following is a summary of the components of the Company’s operating results and performance ratios for the periods indicated:
  Three months ended  
(dollars in thousands, except per share data) September 30,
2022		June 30,
2022		 $ Change % Change
Selected operating data:        
Net interest income $27,424 $24,491  $2,933 11.98 %
Provision for loan losses 2,250  2,250  — — %
Non-interest income 1,532  1,997  (465)(23.28)%
Non-interest expense 10,172  10,205  (33)(0.32)%
Pre-tax net income 16,534  14,033  2,501 17.82 %
Provision for income taxes 4,830  4,080  750 18.38 %
Net income $11,704  $9,953  $1,751 17.59 %
Earnings per common share:        
Basic $0.68 $0.58  $0.10 17.24 %
Diluted $0.68 $0.58  $0.10 17.24 %
Performance and other financial ratios:        
ROAA 1.60 % 1.45 %    
ROAE 19.35 % 17.20 %    
Net interest margin 3.84 % 3.70 %    
Cost of funds 0.62 % 0.24 %    
         
  Three months ended  
(dollars in thousands, except per share data) September 30,
2022		September 30,
2021		 $ Change % Change
Selected operating data:        
Net interest income $27,424 $19,909  $7,515 37.75 %
Provision for loan losses 2,250 —  2,250 100.00 %
Non-interest income 1,532 2,028  (496)(24.46)%
Non-interest expense 10,172 8,641  1,531 17.72 %
Pre-tax net income 16,534 13,296  3,238 24.35 %
Provision for income taxes 4,830 2,270  2,560 112.78 %
Net income $11,704 $11,026  $678 6.15 %
Earnings per common share:     
Basic $0.68 $0.64  $0.04 6.25 %
Diluted $0.68 $0.64  $0.04 6.25 %
Performance and other financial ratios:     
ROAA 1.60 %1.85 %    
ROAE 19.35 %19.26 %    
Net interest margin 3.84 %3.60 %    
Cost of funds 0.62 %0.17 %    



4

Balance Sheet Summary
(dollars in thousands) September 30,
2022		 December 31,
2021		$ Change % Change
Selected financial condition data:        
Total assets $3,074,570  $2,556,761  $517,809  20.25 %
Cash and cash equivalents 317,669  425,329  (107,660) (25.31)%
Total loans held for investment 2,582,978  1,934,460  648,518  33.52 %
Total investments 117,805  153,753  (35,948) (23.38)%
Total liabilities 2,835,312  2,321,715  513,597  22.12 %
Total deposits 2,614,332  2,285,890  328,442  14.37 %
Subordinated notes, net 102,028  28,386  73,642  259.43 %
Total shareholders’ equity 239,258  235,046  4,212  1.79 %

The increase in total assets from December 31, 2021 to September 30, 2022 was primarily due to a $648.5 million increase in total loans held for investment, partially offset by a $107.7 million decrease in cash and cash equivalents and a $35.9 million decrease in investments. The $648.5 million increase in total loans held for investment between December 31, 2021 and September 30, 2022 was a result of $1.1 billion in non-PPP loan originations, partially offset by $22.1 million in PPP loan forgiveness and payoffs received, and $404.7 million in non-PPP loan payoffs and paydowns.

The increase in total liabilities from December 31, 2021 to September 30, 2022 was primarily attributable to an increase in Federal Home Loan Bank of San Francisco ("FHLB") advances of $105.0 million, an increase in subordinated notes, net, of $73.6 million, and an increase in deposits of $328.4 million, largely due to increases in time deposits over $250 thousand, money market deposits, and non-interest-bearing deposits of $139.3 million, $112.6 million, and $118.5 million, respectively.
Total shareholders’ equity increased by $4.2 million from $235.0 million at December 31, 2021 to $239.3 million at September 30, 2022. The increase in total shareholders' equity from December 31, 2021 to September 30, 2022 was primarily a result of net income recognized of $31.5 million, offset by a net decline of $15.5 million in other comprehensive income and $12.7 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  
(dollars in thousands) September 30,
2022		 June 30,
2022		 $ Change % Change
Interest and fee income $31,547  $25,961  $5,586  21.52 %
Interest expense 4,123  1,470  2,653  180.48 %
Net interest income $27,424  $24,491  $2,933  11.98 %
Net interest margin 3.84 % 3.70 %    
         
  Three months ended  
(dollars in thousands) September 30,
2022		 September 30,
2021		 $ Change % Change
Interest and fee income $31,547 $20,832  $10,715  51.44 %
Interest expense 4,123 923  3,200  346.70 %
Net interest income $27,424 $19,909  $7,515  37.75 %
Net interest margin 3.84 %3.60 %    
5

The following table shows the components of net interest income and net interest margin for the quarterly periods indicated:
Three months ended
 
 September 30, 2022 June 30, 2022 September 30, 2021
(dollars 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
 $210,179 $1,145 2.16 % $294,491 $518 0.71 %$412,953 $175 0.17 %
Investment securities
 126,733 615 1.93 % 132,975 602 1.82 %157,305 571 1.44 %
Loans held for investment and sale
 2,494,468 29,787 4.74 % 2,227,215 24,841 4.47 %1,625,995 20,086 4.90 %
Total interest-earning assets
 2,831,380 31,547 4.42 % 2,654,681 25,961 3.92 %2,196,253 20,832 3.76 %
Interest receivable and other assets, net
 78,112  98,972 168,906 
Total assets
 $2,909,492  $2,753,653 $2,365,159 
 
  
Liabilities and shareholders’ equity
  
Interest-bearing transaction accounts
 $213,883 $115 0.21 % $255,665 $66 0.10 %$149,479 $38 0.10 %
Savings accounts
 103,142 65 0.25 % 96,867 38 0.16 %76,669 19 0.10 %
Money market accounts
 1,015,698 1,780 0.69 % 981,366 679 0.28 %966,629 389 0.16 %
Time accounts
 208,678 857 1.63 % 174,991 238 0.55 %54,314 34 0.25 %
Subordinated debt and other borrowings
 72,195 1,306 7.18 % 29,618 449 6.07 %28,359 443 6.20 %
Total interest-bearing liabilities
 1,613,596 4,123 1.01 % 1,538,507 1,470 0.38 %1,275,450 923 0.29 %
Demand accounts
 1,041,265  969,053 853,017 
Interest payable and other liabilities
 14,687  13,937 9,537 
Shareholders’ equity
 239,944  232,156 227,155 
Total liabilities & shareholders’ equity
 $2,909,492  $2,753,653 $2,365,159 
 
             
Net interest spread
  3.41 % 3.54 % 3.48 %
Net interest income/margin
  $27,424 3.84 % $24,491 3.70 %$19,909 3.60 %
 

6

Factors affecting interest income and yields

Interest income increased during the three months ended September 30, 2022, as compared to three months ended June 30, 2022 due to the following:

•Rates. The average yields on interest-earning assets were 4.42% and 3.92% for the three months ended September 30, 2022 and June 30, 2022, respectively. The increase in yields period-over-period was primarily due to increases in yields earned on interest-earning deposits with banks, and increased rates earned on loans held for investment and sale originated in the current rising rate environment.

•Volume. Average interest-earning assets increased by approximately $176.7 million period-over-period, primarily driven by new loan originations during the three months ended September 30, 2022 resulted in increases in the average daily balances of loans for the three months ended September 30, 2022, contributing to the increase in interest income.

Interest income increased during the three months ended September 30, 2022, as compared to three months ended September 30, 2021 due to the following:

•Rates. The average yields on interest-earning assets were 4.42% and 3.76% for the three months ended September 30, 2022 and September 30, 2021, respectively. The increase in yields period-over-period was primarily due to increases in yields earned on interest-earning deposits with banks and investment securities. These increases were partially offset by an overall decline in loan portfolio yields from 4.90% to 4.74% for the three months ended September 30, 2022 and September 30, 2021, respectively. This decline was primarily due to yields earned on PPP loans forgiven during the three months ended September 30, 2021, which did not recur in the three months ended September 30, 2022. Yields on the commercial real estate portfolio increased by 0.12% to 4.62% from 4.50% for the three months ended September 30, 2022 and September 30, 2021, respectively, due to increased rates on commercial real estate loans originated in the current rising rate environment.

•Volume. Average interest-earning assets increased by approximately $635.1 million period-over-period, primarily driven by new loan originations, which drove increases in the average daily balances of loans for the three months ended September 30, 2022, offsetting the decline in loan portfolio yield.

Factors affecting interest expense and rates

Interest expense increased during the three months ended September 30, 2022, as compared to three months ended June 30, 2022 due to the following:

•Rates. The average cost of interest-bearing liabilities were 1.01% and 0.38% for the three months ended September 30, 2022 and June 30, 2022, respectively. The increase in cost period-over-period was primarily due to increases in the rates paid on interest-bearing deposit accounts, with the most significant increases in time and money market accounts, combined with an increase in rates paid on FHLB advances during the three months ended September 30, 2022. The rate paid on the new subordinated debt issuance remained relatively consistent with prior issuances. Additionally, the cost of funds increased from 0.24% for the quarter ended June 30, 2022, to 0.62% for the quarter ended September 30, 2022.

•Volume. Average interest-bearing liabilities increased by $75.1 million period-over-period, primarily driven by the issuance of $75.0 million in aggregate principal amount of fixed-to-floating rate subordinated notes due September 1, 2032 on August 17, 2022, combined with increases in average balances for money market and time accounts period-over-period.

7

Interest expense increased during the three months ended September 30, 2022, as compared to three months ended September 30, 2021 due to the following:

•Rates. The average costs of interest-bearing liabilities were 1.01% and 0.29% for the three months ended September 30, 2022 and September 30, 2021, respectively. The increase in cost period-over-period was primarily due to increases in the rates paid on interest-bearing deposit accounts, with the most significant increases in time and money market accounts, combined with an increase in rates paid on FHLB advances during the three months ended September 30, 2022. The rate paid on the new subordinated debt issuance remained relatively consistent with prior issuances. Additionally, the cost of funds increased from 0.17% for the quarter ended September 30, 2021 to 0.62% for the quarter ended September 30, 2022.

•Volume. Average interest-bearing liabilities increased by $338.1 million period-over-period, primarily driven by the issuance of $75.0 million in aggregate principal amount of fixed-to-floating rate subordinated notes due September 1, 2032 on August 17, 2022, combined with increases in average balances for all types of interest-bearing deposit accounts, with the most substantial increases in time, interest-bearing transaction, and money market accounts period-over-period.

Asset Quality

SBA PPP

All PPP loans had been forgiven or paid off by the borrower as of September 30, 2022.

COVID-19 Deferments

Pursuant to federal guidance, the Company implemented loan programs to allow certain consumers and businesses impacted by the COVID-19 pandemic to defer loan principal and interest payments. At September 30, 2022, there were no borrowing relationships on COVID-19 deferments. Of the loans that ended COVID-19 deferments in the quarter ended September 30, 2022, only one loan is on non-accrual status; the remaining loans have returned to their pre-COVID-19 contractual payment structures with no risk rating downgrades or modifications classified as a troubled debt restructuring ("TDR").

Allowance for Loan Losses
 
At September 30, 2022, the Company’s allowance for loan losses was $27.8 million, as compared to $23.2 million at December 31, 2021. The $4.6 million increase is due to a $5.5 million provision for loan losses recorded during the nine months ended September 30, 2022, partially offset by net charge-offs of $0.9 million during the same period. At September 30, 2022, the Company’s ratio of nonperforming loans to loans held for investment decreased from 0.03% at December 31, 2021 to 0.02%, primarily due to a decrease in the Company’s nonperforming commercial secured loans. Loans designated as substandard decreased to $0.5 million at September 30, 2022, from $10.6 million at December 31, 2021. This resulted in a net reduction of $0.2 million in reserves related to classified loans offset by an increase in the provision related to loan growth that occurred during the first nine months of 2022. There were no loans with doubtful risk grades at September 30, 2022 or December 31, 2021.

8

A summary of the allowance for loan losses by loan class is as follows:
  September 30, 2022 December 31, 2021
(dollars in thousands) Amount % of Total Amount % of Total
Collectively evaluated for impairment:        
Real estate:        
Commercial $18,309  65.76 % $12,869  55.37 %
Commercial land and development 98  0.35 % 50  0.22 %
Commercial construction 546  1.96 % 371  1.60 %
Residential construction 41  0.15 % 50  0.22 %
Residential 175  0.63 % 192  0.83 %
Farmland 664  2.39 % 645  2.78 %
Commercial:    
Secured 6,217  22.33 % 6,687  28.77 %
Unsecured 278  1.00 % 207  0.89 %
Consumer and other 536  1.93 % 889  3.82 %
Unallocated 829  2.98 % 1,111  4.78 %
  27,693 99.48 % 23,071  99.28 %
Individually evaluated for impairment:       
Commercial secured 145  0.52 % 172  0.72 %
        
Total allowance for loan losses $27,838  100.00 % $23,243  100.00 %
 
The ratio of allowance for loan losses to loans held for investment, or total loans at period end, was 1.08% at September 30, 2022, as compared to 1.20% at December 31, 2021. Excluding PPP loans, the ratios of the allowance for loan losses to loans held for investment were 1.08% and 1.22% at September 30, 2022 and December 31, 2021, respectively. The decline in the ratio of allowance for loan losses to loans held for investment period-over-period is primarily due to a decline in classified loans and improvement in the historical loss factors for the SBA portfolio during the nine months ended September 30, 2022. The ratio of the allowance for loan losses to loans held for investment, excluding PPP loans, is considered a non-GAAP financial measure. See the section entitled “Non-GAAP Reconciliation (Unaudited)” for a reconciliation of our non-GAAP measures to the most directly comparable GAAP financial measure.

Non-interest Income

Three months ended September 30, 2022, as compared to three months ended June 30, 2022

The following table presents the key components of non-interest income for the periods indicated:
  Three months ended  
(dollars in thousands) September 30,
2022		 June 30,
2022		 $ Change% Change
Service charges on deposit accounts $132 $130  $2  1.54 %
Gain on sale of loans 548 831  (283) (34.06)%
Loan-related fees 546 795  (249) (31.32)%
FHLB stock dividends 152 99  53  53.54 %
Earnings on bank-owned life insurance 102 101  1  0.99 %
Other income 52 41  11  26.83 %
Total non-interest income $1,532 $1,997 $(465) (23.28)%
 
9

Gain on sale of loans. The decrease in gain on sale of loans resulted primarily from a decline in the volume of loans sold. During the three months ended September 30, 2022, loans totaling $10.5 million were sold with an effective yield of 5.20% compared to the three months ended June 30, 2022, when loans totaling $14.0 million were sold with an effective yield of 5.93%.

Loan-related fees. The decrease in loan-related fees resulted primarily from the recognition of $0.1 million in swap referral fees during the three months ended September 30, 2022 compared to $0.4 million in swap referral fees recognized during the three months ended June 30, 2022.

Three months ended September 30, 2022, as compared to three months ended September 30, 2021
The following table presents the key components of non-interest income for the periods indicated:
  Three months ended  
(dollars in thousands) September 30,
2022		 September 30,
2021		 $ Change% Change
Service charges on deposit accounts $132 $112  $20 17.86 %
Net gain on sale of securities — 435  (435)(100.00)%
Gain on sale of loans 548 988  (440)(44.53)%
Loan-related fees 546 285  261 91.58 %
FHLB stock dividends 152 100  52 52.00 %
Earnings on bank-owned life insurance 102 68  34 50.00 %
Other income 52 40  12 30.00 %
Total non-interest income $1,532 $2,028 $(496) (24.46)%
 
Net gain on sale of securities. The decrease in net gain on sale of securities resulted primarily from the sale of approximately $24.6 million of municipal securities, mortgage-backed securities, and U.S. government treasuries during the three months ended September 30, 2021 resulting in a $0.4 million gain, which did not recur during the three months ended September 30, 2022.
Gain on sale of loans. The decrease in gain on sale of loans related primarily to an overall decline in the effective yields on loans sold due to uncertainty surrounding the timing of rising interest rates during the three months ended September 30, 2022 compared to the three months ended September 30, 2021. During the three months ended September 30, 2022, approximately $10.5 million of loans were sold with an effective yield of 5.20%, as compared to approximately $9.9 million of loans sold with an effective yield of 10.21% during the three months ended September 30, 2021.

Loan-related fees. The increase in loan-related fees was primarily a result of an increase of $0.2 million in program-related fees for credit card, merchant services, and consumer loan processing programs during the three months ended September 30, 2022 compared to the three months ended September 30, 2021.
10

Non-interest Expense

Three months ended September 30, 2022, as compared to three months ended June 30, 2022

The following table presents the key components of non-interest expense for the periods indicated:
 
 Three months ended  
(dollars in thousands)
 September 30,
2022		June 30,
2022		 $ Change% Change
Salaries and employee benefits
 $5,645 $5,553  $92 1.66 %
Occupancy and equipment
 515 513  2 0.39 %
Data processing and software
 797 739  58 7.85 %
Federal Deposit Insurance Corporation (“FDIC”) insurance
 195 245  (50)(20.41)%
Professional services
 792 568  224 39.44 %
Advertising and promotional
 512 484  28 5.79 %
Loan-related expenses
 262 389  (127)(32.65)%
Other operating expenses
 1,454 1,714  (260)(15.17)%
Total non-interest expense
 $10,172 $10,205  $(33) (0.32)%
 
Professional services. Professional services increased, primarily as a result of $0.2 million of legal expenses incurred to support corporate organizational matters during the three months ended September 30, 2022.
Loan-related expenses. Loan-related expenses decreased, primarily as a result of a net overall decrease in loan expenses incurred to support loan production during the three months ended September 30, 2022, as compared to the three months ended June 30, 2022, including decreased expenses for legal services, environmental reports, and inspections.

Other operating expenses. The decrease in other operating expenses was primarily due to a $0.3 million decrease in travel related to attendance of professional events, conferences, and other business-related travel during the three months ended September 30, 2022, as compared to the three months ended June 30, 2022.

Three months ended September 30, 2022, as compared to three months ended September 30, 2021
The following table presents the key components of non-interest expense for the periods indicated:
  Three months ended 
(dollars in thousands) September 30,
2022		 September 30,
2021		 $ Change% Change
Salaries and employee benefits $5,645 $4,980  $665 13.35 %
Occupancy and equipment 515 502  13 2.59 %
Data processing and software 797 611  186 30.44 %
FDIC insurance 195 110  85 77.27 %
Professional services 792 505  287 56.83 %
Advertising and promotional 512 366  146 39.89 %
Loan-related expenses 262 462  (200)(43.29)%
Other operating expenses 1,454 1,105  349 31.58 %
Total non-interest expense $10,172  $8,641  $1,531 17.72 %
 
Salaries and employee benefits. The increase in salaries and employee benefits was primarily a result of a $0.7 million increase in salaries, insurance, and benefits as a result of a 10.90% increase in headcount during the three months ended September 30, 2022, as compared to the three months ended September 30, 2021.
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Data processing and software. Data processing and software increased, 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) increased number of licenses required for new users on our loan origination and documentation system.
Professional services. Professional services increased, primarily as a result of $0.2 million of legal expenses incurred to support corporate organizational matters during the three months ended September 30, 2022.
Advertising and promotional. The increase in advertising and promotional was primarily related to increases in business development, marketing, and sponsorship expenses due to more in-person participation in events held during the three months ended September 30, 2022, as compared to the three months ended September 30, 2021.
Loan-related expenses. Loan-related expenses decreased, primarily as a result of a $0.2 million accrual recorded during the three months ended September 30, 2021 for an SBA matter in the normal course of business, which did not recur during the three months ended September 30, 2022.
Other operating expenses. Other operating expenses increased, primarily due to a $0.2 million increase in operating expenses, including postage, printing, and other operational expenses, incurred to support the increased customer base for the three months ended September 30, 2022 compared to the three months ended September 30, 2021. The remainder of the increase relates to increased expenses for employee travel and event attendance due to more in-person participation in events held during the three months ended September 30, 2022 compared to the three months ended September 30, 2021.

Provision for Income Taxes

Three months ended September 30, 2022, as compared to three months ended June 30, 2022
Provision for income taxes for the quarter ended September 30, 2022 increased by $0.8 million, or 18.38%, to $4.8 million, as compared to $4.1 million for the quarter ended June 30, 2022, which was primarily due to the increase in taxable income recognized during the three months ended September 30, 2022.

Three months ended September 30, 2022, as compared to three months ended September 30, 2021
Provision for income taxes increased by $2.6 million, or 112.78%, to $4.8 million for the three months ended September 30, 2022, as compared to $2.3 million for the three months ended September 30, 2021. This increase is due to an increase in taxable income, combined with an increase in the effective tax rate used for each period, from 20.77% to 29.21% during the three months ended September 30, 2021 and September 30, 2022, respectively. The lower tax rate used during the three months ended September 30, 2021 was the result of the Company's termination of its Subchapter S Corporation status as of May 5, 2021. The 20.77% tax rate was calculated using the statutory California tax rate of 3.50% and the federal and state statutory rate, net of federal benefit, of 29.56% based on the number of days the Company was each type of corporation during 2021.
Webcast Details
Five Star Bancorp will host a webcast on Tuesday, October 25, 2022, at 1:00 p.m. ET (10:00 a.m. PT), to discuss its third quarter 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. Five Star has seven branches and one loan production office 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
12

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, 2021 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.
 

13

Condensed Financial Data (Unaudited)
 
 Three months ended
(dollars in thousands, except share and per share data)
 September 30,
2022		 June 30,
2022		 September 30,
2021
Revenue and Expense Data
      
Interest and fee income
 $31,547 $25,961 $20,832 
Interest expense
 4,123 1,470 923 
Net interest income
 27,424 24,491 19,909 
Provision for loan losses
 2,250 2,250 — 
Net interest income after provision
 25,174 22,241 19,909 
Non-interest income:
 
Service charges on deposit accounts
 132 130 112 
Gain on sale of securities
 — — 435 
Gain on sale of loans
 548 831 988 
Loan-related fees
 546 795 285 
FHLB stock dividends
 152 99 100 
Earnings on bank-owned life insurance
 102 101 68 
Other income
 52 41 40 
Total non-interest income
 1,532 1,997 2,028 
Non-interest expense:
 
Salaries and employee benefits
 5,645 5,553 4,980 
Occupancy and equipment
 515 513 502 
Data processing and software
 797 739 611 
FDIC insurance
 195 245 110 
Professional services
 792 568 505 
Advertising and promotional
 512 484 366 
Loan-related expenses
 262 389 462 
Other operating expenses
 1,454 1,714 1,105 
Total non-interest expense
 10,172 10,205 8,641 
Total income before taxes
 16,534 14,033 13,296 
Provision for income taxes
 4,830 4,080 2,270 
Net income
 $11,704 $9,953 $11,026 
 
      
Share and Per Share Data
      
Earnings per common share:
      
Basic
 $0.68 $0.58 $0.64 
Diluted
 $0.68 $0.58 $0.64 
Book value per share
 $13.87 $13.52 $13.16 
Tangible book value per share(1)
 $13.87 $13.52 $13.16 
Weighted average basic common shares outstanding
 17,140,435 17,125,715 17,095,957 
Weighted average diluted common shares outstanding
 17,168,447 17,149,449 17,123,182 
Shares outstanding at end of period
 17,245,983 17,245,983 17,223,808 
 
      
Credit Quality
      
Allowance for loan losses to period end nonperforming loans
 6,483.87 %5,834.88 %3,923.67 %
Nonperforming loans to loans held for investment
 0.02 %0.02 %0.03 %
Nonperforming assets to total assets
 0.01 %0.02 %0.02 %
Nonperforming loans plus performing TDRs to loans held for investment
 0.02 %0.02 %0.03 %
COVID-19 deferments to loans held for investment
 — %— %0.72 %
 
      
14

Selected Financial Ratios
      
ROAA
 1.60 %1.45 %1.85 %
ROAE
 19.35 %17.20 %19.26 %
Net interest margin
 3.84 %3.70 %3.60 %
Loan to deposit
 99.22 %95.69 %78.86 %
 
(1) See the section entitled “Non-GAAP Reconciliation (Unaudited)” for a reconciliation of this non-GAAP financial measure.
15

(dollars in thousands)
 September 30,
2022		 June 30,
2022		 September 30,
2021
Balance Sheet Data
      
Cash and due from financial institutions
 $33,280 $66,423 $89,951 
Interest-bearing deposits in banks
 284,389 204,335 440,881 
Time deposits in banks
 10,216 10,841 17,204 
Securities - available-for-sale, at fair value
 114,041 122,426 153,821 
Securities - held-to-maturity, at amortized cost
 3,764 4,477 4,955 
Loans held for sale
 11,015 12,985 5,267 
Loans held for investment
 2,582,978 2,380,511 1,704,716 
Allowance for loan losses
 (27,838)(25,786)(21,848)
Loans held for investment, net of allowance for loan losses
 2,555,140 2,354,725 1,682,868 
FHLB stock
 10,890 10,890 6,723 
Operating leases, right-of-use asset4,227 4,472 — 
Premises and equipment, net
 1,694 1,768 1,630 
Bank-owned life insurance
 14,550 14,444 11,142 
Interest receivable and other assets
 31,364 28,285 20,051 
Total assets
 $3,074,570 $2,836,071 $2,434,493 
 
      
Non-interest-bearing deposits
 $1,020,625 $1,006,066 $899,252 
Interest-bearing deposits
 1,593,707 1,495,245 1,269,142 
Total deposits
 2,614,332 2,501,311 2,168,394 
Subordinated notes, net
 102,028 28,420 28,370 
FHLB advances105,000 60,000 — 
Operating lease liability
4,492 4,739 — 
Interest payable and other liabilities
 9,460 8,401 11,091 
Total liabilities
 2,835,312 2,602,871 2,207,855 
 
      
Common stock
 219,286 219,023 218,216 
Retained earnings
 36,042 26,924 8,442 
Accumulated other comprehensive loss, net
 (16,070)(12,747)(20)
Total shareholders’ equity
 $239,258 $233,200 $226,638 
 
      
Quarterly Average Balance Data
      
Average loans held for investment and sale
 $2,494,468 $2,227,215 $1,625,995 
Average interest-earning assets
 $2,831,380 $2,654,681 $2,196,253 
Average total assets
 $2,909,492 $2,753,653 $2,365,159 
Average deposits
 $2,582,666 $2,477,942 $2,100,108 
Average total equity
 $239,944 $232,156 $227,155 
 
      
Capital Ratio Data
      
Total shareholders’ equity to total assets
 7.78 %8.22 %9.31 %
Tangible shareholders’ equity to tangible assets(1)
 7.78 %8.22 %9.31 %
Total capital (to risk-weighted assets)
 13.96 %11.77 %15.66 %
Tier 1 capital (to risk-weighted assets)
 9.22 %9.62 %12.79 %
Common equity Tier 1 capital (to risk-weighted assets)
 9.22 %9.62 %12.79 %
Tier 1 leverage ratio
 8.65 %8.81 %9.50 %
 
(1) See the section entitled “Non-GAAP Reconciliation (Unaudited)” for a reconciliation of this non-GAAP financial measure.
16

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 net income is defined as net income plus provision for income taxes and provision for loan losses. The most directly comparable GAAP measure is pre-tax net income.
Average loans held for investment and sale, excluding PPP loans, is defined as the daily average loans held for investment and sale, excluding the daily average PPP loans, and includes both performing and nonperforming loans. The most directly comparable GAAP financial measure is average loans held for investment and sale.
Allowance for loan losses to total loans held for investment, excluding PPP loans, is defined as allowance for loan losses, divided by total loans held for investment less PPP loans. The most directly comparable GAAP financial measure is allowance for loan losses to total loans held for investment. 
The following reconciliation tables provide a more detailed analysis of these non-GAAP financial measures.
 
Pre-tax, pre-provision net income
(dollars in thousands)		 September 30,
2022		 June 30,
2022		 September 30,
2021
Net income $11,704 $9,953 $11,026 
Add: provision for income taxes4,830 4,080 2,270 
Add: provision for loan losses 2,250 2,250 — 
Pre-tax, pre-provision net income $18,784 $16,283 $13,296 
 
  Three months ended
Average loans held for investment and sale, excluding PPP loans
(dollars in thousands)		 September 30,
2022		 June 30,
2022		 September 30,
2021
Average loans held for investment and sale $2,494,468 $2,227,215 $1,625,995 
Less: average PPP loans — 427 89,436 
Average loans held for investment and sale, excluding PPP loans $2,494,468 $2,226,788 $1,536,559 

17

Allowance for loan losses to total loans held for investment, excluding PPP loans
(dollars in thousands)		 September 30,
2022		 December 31, 2021
Allowance for loan losses (numerator) $27,838 $23,243 
Total loans held for investment $2,582,978 $1,934,460 
Less: PPP loans — 22,124 
Total loans held for investment, excluding PPP loans (denominator) $2,582,978 $1,912,336 
Allowance for loan losses to total loans held for investment, excluding PPP loans 1.08 %1.22 %
 
Media Contact:
Heather Luck, CFO
Five Star Bancorp
(916) 626-5008
hluck@fivestarbank.com
Shelley Wetton, CMO
Five Star Bancorp
(916) 284-7827
swetton@fivestarbank.com

18
investorpresentationq320
Investor Presentation Third Quarter 2022

 
Safe Harbor Statement and Disclaimer Forward-Looking Statements In this presentation, “we,” “our,” “us,” “Five Star" or “the Company” refers to Five Star Bancorp, a California corporation, and our consolidated subsidiaries, including Five Star Bank, a California state- chartered bank, unless the context indicates that we refer only to the parent company, Five Star Bancorp. This presentation 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, 2021 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. Industry Information This presentation includes statistical and other industry and market data that we obtained from government reports and other third-party sources. Our internal data, estimates, and forecasts are based on information obtained from government reports, trade, and business organizations and other contacts in the markets in which we operate and our management’s understanding of industry conditions. Although we believe that this information (including the industry publications and third-party research, surveys, and studies) is accurate and reliable, we have not independently verified such information. In addition, estimates, forecasts, and assumptions are necessarily subject to a high degree of uncertainty and risk due to a variety of factors. Finally, forward-looking information obtained from these sources is subject to the same qualifications and the additional uncertainties regarding the other forward-looking statements in this presentation. Unaudited Financial Data Numbers contained in this presentation for the quarter ended September 30, 2022 and for other quarterly periods are unaudited. Additionally, all figures presented as year-to-date, except for periods that represent a full fiscal year ended December 31, represent unaudited results. As a result, subsequent information may cause a change in certain accounting estimates and other financial information, including the Company’s allowance for loan losses, fair values, and income taxes. Non-GAAP Financial Measures 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. See the appendix to this presentation for a reconciliation of these non-GAAP measures to the most directly comparable GAAP financial measures. Third Quarter 2022 Investor Presentation | 2

 
Agenda Third Quarter 2022 Investor Presentation | 3 •Company Overview •Financial Highlights •Loans and Credit Quality •Deposit and Capital Overview •Financial Results

 
Company Overview Third Quarter 2022 Investor Presentation | 4

 
Company Overview Nasdaq: Headquarters: Asset Size: Loans Held for Investment: Deposits: Bank Branches: Third Quarter 2022 Investor Presentation | 5 FSBC Rancho Cordova, California $3.1 billion $2.6 billion $2.6 billion 7 Note: Balances are as of September 30, 2022. Five Star is a community business bank that was founded to serve the commercial real estate industry. Today, the markets we serve have expanded to meet customer demand and now include manufactured housing and storage, faith-based, government, nonprofits, and more.

 
Executive Team Third Quarter 2022 Investor Presentation | 6 James Beckwith President and Chief Executive Officer Five Star since 2003 John Dalton Senior Vice President and Chief Credit Officer Five Star since 2011 Mike Lee Senior Vice President and Chief Regulatory Officer Five Star since 2005 Michael Rizzo Senior Vice President and Chief Banking Officer Five Star since 2005 Brett Wait Senior Vice President and Chief Information Officer Five Star since 2011 Lydia Ramirez Senior Vice President and Chief Operations and Chief DE&I Officer Five Star since 2017 Heather Luck Senior Vice President and Chief Financial Officer Five Star since 2018 Shelley Wetton Senior Vice President and Chief Marketing Officer Five Star since 2015

 
Financial Highlights Third Quarter 2022 Investor Presentation | 7

 
$547 $565 $604 $811 $840 $973 $1,272 $1,480 $1,954 $2,557 $2,778 $2,836 $3,075 $1,806 $2,535 $2,776 $148 $22 $2 Total Assets Excluding PPP Loans PPP Loans 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Q1 2022 Q2 2022 Q3 2022 Consistent and Organic Asset Growth Third Quarter 2022 Investor Presentation | 8 Note: Dollars are in millions. Balances are end of period. References to PPP are the Paycheck Protection Program. 1. CAGR is based upon balances as of September 30, 2022. 2. A reconciliation of this non-GAAP measure is set forth in the appendix. (2) CAGR (1) 5 years 10 years Total Assets 25.88 % 18.85 %

 
Financial Highlights Third Quarter 2022 Investor Presentation | 9 (dollars in millions) For the three months ended 9/30/2022 6/30/2022 9/30/2021 Profitability Net income $ 11.7 $ 10.0 $ 11.0 Return on average assets ("ROAA") 1.60 % 1.45 % 1.85 % Return on average equity ("ROAE") 19.35 % 17.20 % 19.26 % Earnings per share (basic and diluted) $ 0.68 $ 0.58 $ 0.64 Net Interest Margin Net interest margin 3.84 % 3.70 % 3.60 % Average loan yield 4.74 % 4.47 % 4.90 % Average loan yield, excluding PPP loans(1) 4.74 % 4.47 % 4.66 % PPP income $ — $ 0.02 $ 1.8 PPP loans forgiven, paid off, and charged off $ — $ 1.5 $ 59.4 Total cost of funds 0.62 % 0.24 % 0.17 % 9/30/2022 12/31/2021 Asset Quality Nonperforming loans to loans held for investment(2) 0.02 % 0.03 % Allowance for loan losses to loans held for investment(2) 1.08 % 1.20 % # of PPP loans outstanding — 60 Balance of PPP loans outstanding $ — $ 22.1 # of loans in a COVID-19 deferment period — 6 Balance of loans in a COVID-19 deferment period $ — $ 12.2 Note: Yields are based on average balance and annualized quarterly interest income. 1. A reconciliation of this non-GAAP measure is set forth in the appendix. 2. Loans held for investment are the equivalent of total loans outstanding at each period end.

 
Financial Highlights Third Quarter 2022 Investor Presentation | 10 Growth • Continued balance sheet growth with $202.5 million of growth in loans held for investment and $113.0 million in deposit growth since June 30, 2022. Funding • For the most recent quarter ended, non-interest-bearing deposits comprised 39.04% of total deposits, compared to 40.22% at the end of the trailing quarter and 39.46% for the year ended December 31, 2021. • Deposits comprised 92.21% of total liabilities as of September 30, 2022, as compared to 96.10% of total liabilities as of June 30, 2022 and 98.46% of total liabilities as of December 31, 2021. Capital • All capital ratios were above well-capitalized regulatory thresholds as of September 30, 2022 and December 31, 2021. • On July 22, 2022, the Company announced a cash dividend of $0.15 per share.

 
Loans and Credit Quality Third Quarter 2022 Investor Presentation | 11

 
To ta l L oa ns (M ill io ns ) $148 $183 $121 $61 $22 $2 4.93% 5.28% 5.45% 4.96% 4.95% 4.73% 4.90% 4.71% 4.53% 4.47% 4.74% Non-PPP Loans PPP Loans Average Loan Yield Average Loan Yield Excluding PPP Loans 2017 2018 2019 2020 Q1 2021 Q2 2021 Q3 2021 Q4 2021 Q1 2022 Q2 2022 Q3 2022 $0 $200 $400 $600 $800 $1,000 $1,200 $1,400 $1,600 $1,800 $2,000 $2,200 $2,400 $2,600 $2,800 Consistent Loan Growth Third Quarter 2022 Investor Presentation | 12 Note: Loan balances are end of period loans held for investment. Yields are based on average balance and annualized quarterly interest income. 1. CAGR is based upon balances as of September 30, 2022. 2. A reconciliation of this non-GAAP measure is set forth in the appendix. (2) CAGR (1) 5 years Total Loans 27.32 %

 
Loan Portfolio Composition Third Quarter 2022 Investor Presentation | 13 Commercial real estate 86.0% Commercial land and development 0.5% Commercial construction 2.9% Residential construction 0.2% Residential 0.9% Farmland 2.1% Secured 5.5% Unsecured 1.0% PPP 0.0% Consumer and other 0.9% Types of collateral securing commercial real estate ("CRE") loans Loan Balance ($000s) # of Loans % of CRE Manufactured home community $ 592,051 284 26.67 % Retail $ 264,764 79 11.92 % RV Park $ 227,507 78 10.25 % Multifamily $ 192,848 80 8.69 % Industrial $ 166,271 113 7.49 % Mini storage $ 154,143 39 6.94 % Faith-based $ 144,676 82 6.52 % Office $ 143,720 91 6.47 % All other types (1) $ 334,287 147 15.05 % Total $ 2,220,267 993 100.00 % Note: Balances are net book value as of period end, before allowance for loan losses, before deferred loan fees, and exclude loans held for sale. 1. Types of collateral in “all other types” are those that individually make up less than 5% CRE concentration.

 
$592M $265M $228M $193M $166M $154M $145M $144M $334M $1,016M $500M $391M $437M $362M $281M $386M $313M $691M Loan Balance Collateral Value Manufactured home community Retail RV Park Multifamily Industrial Mini storage Faith-based Office All other types $0M $200M $400M $600M $800M $1,000M $1,200M CRE Collateral Values Third Quarter 2022 Investor Presentation | 14 (1) Note: Balances are net book value as of period end, before allowance for loan losses, before deferred loan fees, and exclude loans held for sale. 1. Types of collateral in “all other types” are those that individually make up less than 5% CRE concentration.

 
Loan Portfolio Diversification We focus primarily on commercial lending, with an emphasis on commercial real estate. We offer a variety of loans to small and medium-sized businesses, professionals, and individuals, including commercial real estate, commercial land and construction, and farmland loans. To a lesser extent, we also offer residential real estate, construction real estate, and consumer loans. Third Quarter 2022 Investor Presentation | 15Note: Balances are net book value as of period end, before allowance for loan losses, before deferred loan fees, and exclude loans held for sale. Loans by Type Loans by Purpose Real Estate Loans by Geography CML Term CRE NOO, 38.3% CML Term Multifamily, 30.2% CML Term CRE OO, 16.9% CML Const CRE, 2.9% CML Secured, 2.9% CML Term Ag RE, 2.1% SBA 7A Secured, 1.8% Others, 4.9% CA, 63.5% TX, 5.5% AZ, 4.2% NV, 3.1% OR, 2.7% FL, 2.3% NC, 1.9% CO, 1.8% WI, 1.4% MO, 1.1% WA, 1.1% ID, 1.0% Other, 10.4%CRE Manufactured Home, 22.9% CRE Other, 10.7% CRE Retail, 10.2% CRE RV Park, 8.8% CRE Multifamily, 7.5% CRE Industrial, 6.4% CRE Mini Storage, 6.0% CRE Faith Based, 5.6% CRE Office, 5.6% Commercial Other, 4.9% Commercial Construction, 3.1% CRE Mixed Use, 3.1% CRE Agricultural, 2.0% Commercial SBA 7A, 1.8% Other, 1.4%

 
Loan Rollforward Third Quarter 2022 Investor Presentation | 16Note: Dollars are in millions. Beginning and ending balances are as of period end, before allowance for loan losses, including deferred loan fees, and excluding loans held for sale. Q4 2021 Q1 2022 Q2 2022 Q3 2022 Beginning Balance $ 1,707 $ 1,936 $ 2,081 $ 2,381 Non-PPP Originations 462 313 440 321 PPP Originations — — — — Non-PPP Payoffs and Paydowns (194) (147) (138) (119) PPP Forgiveness and Repayments (39) (21) (2) — Ending Balance $ 1,936 $ 2,081 $ 2,381 $ 2,583

 
Asset Quality Our primary objective is to maintain a high level of asset quality in our loan portfolio. In order to maintain our strong asset quality, we: – Place emphasis on our commercial portfolio, where we reevaluate risk assessments as a result of reviewing commercial property operating statements and borrower financials – Monitor payment performance, delinquencies, and tax and property insurance compliance – Design our practices to facilitate the early detection and remediation of problems within our loan portfolio – Employ the use of an outside, independent consulting firm to evaluate our underwriting and risk assessment process Third Quarter 2022 Investor Presentation | 17 Nonperforming Loan Trend Allowance for Loan Losses and Net Charge-off Trend Note: References to loans HFI are loans held for investment, which are the equivalent of total loans outstanding at each period end. References to average loans HFI are average loans held for investment during the period. $3.1M $2.1M $0.8M $0.5M $0.6M $1.3M $0.4M $0.4M 0.41% 0.22% 0.07% 0.03% 0.03% 0.06% 0.02% 0.02% Nonperforming Loans Nonperforming Loans to Loans HFI 2017 2018 2019 2020 2021 Q1 2022 Q2 2022 Q3 2022 1.25% 1.21% 1.26% 1.48% 1.20% 1.15% 1.08% 1.08% 0.03% 0.23% 0.21% 0.12% 0.04% 0.01% 0.02% 0.01% Allowance for Loan Losses to Loans HFI Net Charge-offs to Average Loans HFI 2017 2018 2019 2020 2021 Q1 2022 Q2 2022 Q3 2022

 
Allocation of Allowance for Loan Losses Third Quarter 2022 Investor Presentation | 18 (dollars in thousands) December 31, 2021 March 31, 2022 June 30, 2022 September 30, 2022 Allowance for Loan Losses Amount % of Total Amount % of Total Amount % of Total Amount % of Total Collectively evaluated for impairment Real estate: Commercial $ 12,869 55.37 % $ 13,868 58.01 % $ 16,621 64.46 % $ 18,309 65.76 % Commercial land & development 50 0.22 % 66 0.28 % 68 0.26 % 98 0.35 % Commercial construction 371 1.60 % 430 1.80 % 508 1.97 % 546 1.96 % Residential construction 50 0.22 % 40 0.17 % 51 0.20 % 41 0.15 % Residential 192 0.83 % 208 0.87 % 188 0.73 % 175 0.63 % Farmland 645 2.78 % 611 2.56 % 616 2.39 % 664 2.39 % Total real estate loans 14,177 61.02 % 15,223 63.69 % 18,052 70.01 % 19,833 71.24 % Commercial: Secured 6,687 28.77 % 6,400 26.77 % 6,132 23.78 % 6,217 22.33 % Unsecured 207 0.89 % 246 1.03 % 265 1.03 % 278 1.00 % PPP — — % — — % — — % — — % Total commercial loans 6,894 29.66 % 6,646 27.80 % 6,397 24.81 % 6,495 23.33 % Consumer and other 889 3.82 % 1,088 4.55 % 537 2.08 % 536 1.93 % Unallocated 1,111 4.78 % 308 1.29 % 648 2.51 % 829 2.98 % Individually evaluated for impairment Commercial secured 172 0.72 % 639 2.67 % 152 0.59 % 145 0.52 % Total allowance for loan losses $ 23,243 100.00 % $ 23,904 100.00 % $ 25,786 100.00 % $ 27,838 100.00 %

 
Risk Grade Migration Third Quarter 2022 Investor Presentation | 19 Classified Loans (Loans Rated Substandard or Doubtful) (dollars in thousands) 2020 2021 Q1 2022 Q2 2022 Q3 2022 Real estate: Commercial $ 35,543 $ 9,256 $ 901 $ 888 $ 110 Commercial land & development — — — — — Commercial construction — — — — — Residential construction — — — — — Residential 183 178 177 176 175 Farmland — — — — — Commercial: Secured 132 1,180 1,920 152 144 Unsecured — — — — — Paycheck Protection Program (PPP) — — — — — Consumer and other — — 12 27 27 Total $ 35,858 $ 10,614 $ 3,010 $ 1,243 $ 456 % o f L oa n Po rt fo lio O ut st an di ng , b y Ri sk G ra de 96.01% 99.00% 99.19% 99.03% 99.13% 1.61% 0.45% 0.67% 0.92% 0.85% 2.38% 0.55% 0.14% 0.05% 0.02% Pass Watch Substandard Doubtful 2020 2021 Q1 2022 Q2 2022 Q3 2022 Note: Loan portfolio outstanding is the total balance of loans outstanding at period end, before deferred loan fees, before allowance for loan losses, and excluding loans held for sale.

 
Deposit and Capital Overview Third Quarter 2022 Investor Presentation | 20

 
Diversified Funding Third Quarter 2022 Investor Presentation | 21 Total Deposits(1) = $2.6 billion 92.2% of Total Liabilities Liability Mix 1. Balance as of September 30, 2022. 2. Loan balance in loan to deposit ratio is total loans held for investment and sale at period end. Loan(2) to Deposit Ratio Non-Interest-Bearing Deposits to Total Deposits 89.7% 83.2% 90.5% 84.5% 85.1% 83.5% 95.7% 99.2% 2017 2018 2019 2020 2021 Q1 2022 Q2 2022 Q3 2022 30.5% 29.0% 29.6% 39.3% 39.5% 37.6% 40.2% 39.0% 2017 2018 2019 2020 2021 Q1 2022 Q2 2022 Q3 2022 Money Market & Savings, 39.9% Non-Interest-Bearing Demand, 36.0% Interest-Bearing Demand, 8.0% Time Deposits, 8.3% Borrowings & Subordinated Debt, 7.3% Other Liabilities, 0.5%

 
$1.2B $1.3B $1.8B $2.3B $2.5B $2.5B $2.6B $600M $708M $889M $1,001M $1,012M $1,070M $1,131M $337M $389M $701M $902M $941M $1,006M $1,021M $124M $119M $146M $279M $371M $221M $227M $100M $97M $48M $104M $179M $204M $236M Money Market & Savings Non-Interest-Bearing Demand Interest-Bearing Demand Time Deposits 2018 2019 2020 2021 Q1 2022 Q2 2022 Q3 2022 Strong Deposit Growth Third Quarter 2022 Investor Presentation | 22 Note: Balances are end of period. Cost of total deposits is based on total average balance of interest-bearing and non- interest-bearing deposits and annualized quarterly deposit interest expense. 1. CAGR is based upon balances as of September 30, 2022. Cost of Total Deposits 0.55% 0.81% 0.44% 0.11% 0.09% 0.17% 0.43% CAGR (1) 4 years Total Deposits 22.49 %

 
Capital Ratios Third Quarter 2022 Investor Presentation | 23 Tier 1 Leverage Ratio Tier 1 Capital to RWA Total Capital to RWA Common Equity Tier 1 to RWA Note: References to RWA are risk-weighted assets. 8.26% 6.81% 7.51% 6.58% 9.47% 8.65% 2017 2018 2019 2020 2021 Q3 2022 9.32% 7.48% 8.21% 8.98% 11.44% 9.22% 2017 2018 2019 2020 2021 Q3 2022 9.32% 7.48% 8.21% 8.98% 11.44% 9.22% 2017 2018 2019 2020 2021 Q3 2022 13.23% 10.79% 11.52% 12.18% 13.98% 13.96% 2017 2018 2019 2020 2021 Q3 2022

 
Financial Results Third Quarter 2022 Investor Presentation | 24

 
Earnings Track Record Third Quarter 2022 Investor Presentation | 25 $10.9M $10.6M $13.3M $14.1M $14.5M $16.3M $18.8M $10.7M $10.6M $13.3M $12.6M $13.5M $14.0M $16.5M Pre-tax, pre-provision net income Pre-tax net income Q1 2021 Q2 2021 Q3 2021 Q4 2021 Q1 2022 Q2 2022 Q3 2022 $0.0M $2.5M $5.0M $7.5M $10.0M $12.5M $15.0M $17.5M $20.0M 1. A reconciliation of this non-GAAP measure is set forth in the appendix. (1)

 
Operating Metrics Third Quarter 2022 Investor Presentation | 26 Efficiency RatioNet Interest Margin 3.99% 3.93% 3.98% 3.68% 3.64% 3.72% 2017 2018 2019 2020 2021 2022 YTD 37.94% 42.27% 38.63% 37.92% 42.46% 37.68% 2017 2018 2019 2020 2021 2022 YTD Note: All 2022 figures are through September 30, 2022. Total Income Before Taxes $22.1M $23.4M $30.4M $37.3M $47.1M $44.1M 2017 2018 2019 2020 2021 2022 YTD

 
Non-interest Income and Expense Comparison Third Quarter 2022 Investor Presentation | 27 (dollars in thousands) For the three months ended 9/30/2022 6/30/2022 9/30/2021 Non-interest Income Service charges on deposit accounts $ 132 $ 130 $ 112 Net gain on sale of securities — — 435 Gain on sale of loans 548 831 988 Loan-related fees 546 795 285 FHLB stock dividends 152 99 100 Earnings on bank-owned life insurance 102 101 68 Other income 52 41 40 Total non-interest income $ 1,532 $ 1,997 $ 2,028 Non-interest Expense Salaries and employee benefits $ 5,645 $ 5,553 $ 4,980 Occupancy and equipment 515 513 502 Data processing and software 797 739 611 Federal Deposit Insurance Corporation insurance 195 245 110 Professional services 792 568 505 Advertising and promotional 512 484 366 Loan-related expenses 262 389 462 Other operating expenses 1,454 1,714 1,105 Total non-interest expense $ 10,172 $ 10,205 $ 8,641

 
Shareholder Returns Third Quarter 2022 Investor Presentation | 28 ROAA ROAE EPS (basic and diluted) Value per Share (book and tangible book(1)) Note: All 2022 figures are through September 30, 2022. 1. A reconciliation of this non-GAAP measure is set forth in the appendix. 2.34% 1.99% 2.15% 1.95% 1.86% 1.53% 2017 2018 2019 2020 2021 2022 YTD 27.80% 29.28% 31.40% 31.16% 22.49% 17.85% 2017 2018 2019 2020 2021 2022 YTD $2.92 $3.08 $3.40 $3.57 $2.83 $1.84 2017 2018 2019 2020 2021 2022 YTD $10.93 $10.88 $11.25 $12.16 $13.65 $13.87 2017 2018 2019 2020 2021 2022 YTD

 
We strive to become the top business bank in all markets we serve through exceptional service, deep connectivity, and customer empathy. We are dedicated to serving real estate, agricultural, faith-based, and small to medium-sized enterprises. We aim to consistently deliver value that meets or exceeds the expectations of our shareholders, customers, employees, business partners, and community.

 
Appendix: Non-GAAP Reconciliation (Unaudited) The Company uses financial information in its analysis of the Company's performance that is not in conformity with 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. Average loan yield, excluding PPP loans, is defined as the daily average loan yield, excluding PPP loans, and includes both performing and nonperforming loans. The most directly comparable GAAP financial measure is average loan yield. Total assets, excluding PPP loans, is defined as total assets less PPP loans. The most directly comparable GAAP financial measure is total assets. Pre-tax, pre-provision net income is defined as net income plus provision for income taxes and provision for loan losses. The most directly comparable GAAP financial measure is pre-tax net income. 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. Third Quarter 2022 Investor Presentation | 30 (dollars in thousands) Twelve months ended Three months ended Average loan yield, excluding PPP loans 12/31/2020 3/31/2021 6/30/2021 9/30/2021 12/31/2021 3/31/2022 6/30/2022 9/30/2022 Interest and fee income on loans $ 71,405 $ 18,613 $ 18,626 $ 20,085 $ 21,569 $ 22,091 $ 24,841 $ 29,787 Less: interest and fee income on PPP loans 6,535 2,400 1,771 2,054 1,192 610 25 — Interest and fee income on loans, excluding PPP loans 64,870 16,213 16,855 18,031 20,377 21,481 24,816 29,787 Annualized interest and fee income on loans, excluding PPP loans (numerator) 64,870 65,753 67,605 71,536 80,844 87,177 99,537 118,177 Average loans held for investment and sale 1,439,380 1,526,130 1,578,438 1,625,995 1,815,627 1,977,509 2,227,215 2,494,468 Less: average PPP loans 165,414 176,384 158,568 89,436 44,101 8,886 427 — Average loans held for investment and sale, excluding PPP loans (denominator) 1,273,966 1,349,746 1,419,870 1,536,559 1,771,526 1,968,623 2,226,788 2,494,468 Average loan yield, excluding PPP loans 5.09 % 4.87 % 4.76 % 4.66 % 4.56 % 4.43 % 4.47 % 4.74 %

 
Appendix: Non-GAAP Reconciliation (Unaudited) Third Quarter 2022 Investor Presentation | 31 (dollars in millions) Total assets, excluding PPP loans 12/31/2020 12/31/2021 3/31/2022 6/30/2022 9/30/2022 Total assets $ 1,954 $ 2,557 $ 2,778 $ 2,836 $ 3,075 Less: PPP loans 148 22 2 — — Total assets, excluding PPP loans $ 1,806 $ 2,535 $ 2,776 $ 2,836 $ 3,075 (dollars in millions) Three months ended Pre-tax, pre-provision net income 3/31/2021 6/30/2021 9/30/2021 12/31/2021 3/31/2022 6/30/2022 9/30/2022 Net income $ 10,278 $ 9,828 $ 11,026 $ 11,309 $ 9,862 $ 9,953 $ 11,704 Add: provision for income taxes 382 734 2,270 1,321 3,660 4,080 4,830 Add: provision for loan losses 200 — — 1,500 950 2,250 2,250 Pre-tax, pre-provision net income $ 10,860 $ 10,562 $ 13,296 $ 14,130 $ 14,472 $ 16,283 $ 18,784